                             Slip Op. 11-146

           UNITED STATES COURT OF INTERNATIONAL TRADE

______________________________
                              :
SINCE HARDWARE (GUANGZHOU)    :
CO., LTD.,                    :
                              :
               Plaintiff,     :
                              :
      v.                      : Court No. 09-00123
                              :
                              :
UNITED STATES,                :
                              :
               Defendant,     :
                              :
      and                     :
                              :
HOME PRODUCTS INTERNATIONAL, :
LTD.,                         :
                              :
               Def.-Int.      :
______________________________:

                        OPINION AND ORDER

[Plaintiff’s motion for judgment on the agency record sustained,
in part, and the case is remanded.]

                                            Dated: November 29, 2011


     Dorsey & Whitney LLP (William E. Perry), for plaintiff.

     Tony West, Assistant Attorney General; Jeanne E. Davidson,
Director, Patricia M. McCarthy, Assistant Director, Commercial
Litigation Branch, Civil Division, United States Department of
Justice (David S. Silverbrand and Carrie A. Dunsmore); Office of
Chief Counsel for Import Administration, United States
Department of Commerce (Thomas M. Beline), of counsel, for
defendant.

     Blank Rome LLP (Frederick L. Ikenson, Peggy A. Clarke, and
Larry Hampel), for defendant-intervenor.
Court No. 09-00123                                            Page 2


     Eaton, Judge:    Before the court is the Department of

Commerce’s (the “Department” or “Commerce”) Final Results of

Redetermination Pursuant to Remand, dated February 17, 2011

(“Remand Results”).   The matter was remanded by the court

following plaintiff Since Hardware (Guandozhou) Co., Ltd.’s

(“Since Hardware” or “plaintiff”) motion for judgment on the

agency record pursuant to USCIT R. 56.2, Since Hardware

(Guangzhou) Co. v. United States, 34 CIT __, __, Slip Op. 10-108

at 22 (Sept. 27, 2010) (not reported in the Federal Supplement)

(“Since Hardware I”), which challenged Commerce’s final results

of the Third Administrative Review of the antidumping order on

ironing boards from the People’s Republic of China (the “PRC”)

for the period of review (“POR”) August 1, 2006 through July 31,

2007, Floor Standing Metal-Top Ironing Tables and Certain Parts

Thereof from the PRC, 74 Fed. Reg. 11,086 (Dep’t of Commerce

Mar. 16, 2009) (final results) and the accompanying Issues and

Decision Memorandum (“Issues & Dec. Mem.”) (collectively, the

“Final Results”).

     In the Final Results, the Department found that Since

Hardware’s questionnaire responses concerning its factors of

production were so unreliable that the application of adverse

facts available (“AFA”) under 19 U.S.C. § 1677e(b)(2006) was

warranted, not only for determining the company’s dumping

margin, but also in determining whether it operated free from
Court No. 09-00123                                          Page 3


the control of the PRC government.1   Based on this determination,

the Department concluded that Since Hardware was not entitled to

a company-specific rate and, therefore, it was assigned the PRC-

wide rate of 157.68%.2

     In its motion for judgment on the agency record, plaintiff

challenged, inter alia, the Department’s findings with respect

to its separate-rate status.   On this issue, the court held that

     1
          The court sustained Commerce’s determination to apply
AFA with regard to Since Hardware’s factors of production
because “it is clear that the Department acted reasonably in
determining that it could not rely on the material the company
placed on the record relating to the country of origin and
valuation of the factors of production.” Since Hardware I, 34
CIT at __, Slip Op. 10-108 at 20.

     2
          Whether Since Hardware is entitled to have a company-
specific rate assigned to it is an issue because the company
operates in the PRC, which is a non-market economy country. A
non-market economy country includes “any foreign country that
[Commerce] determines does not operate on market principles of
cost or pricing structures, so that sales of merchandise in such
country do not reflect the fair value of the merchandise.” 19
U.S.C. § 1677(18)(A); Shandong Huarong Gen. Group Corp. v.
United States, 28 CIT 1624, 1625 n.1 (2004) (not reported in the
Federal Supplement). The PRC has been determined to be a non-
market economy country and has been treated as such in all past
antidumping investigations. Zhejiang Native Produce & Animal
By-Products Imp. & Exp. Corp. v. United States, 27 CIT 1827,
1834 n.14 (2003) (not reported in the Federal Supplement)
(citations omitted).

     When an exporter operates in a non-market economy country,
Commerce presumes it to be part of a country-wide entity
controlled by that country’s government. If that exporter can
establish that it is free from government control, however, it
is entitled to have its own “separate rate” based on its own
factors of production and sales data, or if AFA is applicable,
by an acceptable method.
Court No. 09-00123                                             Page 4


Commerce’s decision to deny Since Hardware separate-rate status

was unsupported by substantial evidence and contrary to law

because

     [a]n examination of the record . . . reveals that none
     of the unreliable information submitted by the company
     is relevant to the question of government control. . .
     . [T]he evidence that the company was not controlled
     by the government (e.g., documentation substantiating
     its claims that it is a wholly foreign-owned
     enterprise registered in the PRC . . . and evidence
     regarding de facto control over its export activities)
     is far removed from questions relating to the origin
     of the factors of production and their cost.

See Since Hardware I, 34 CIT at __, Slip. Op. 10-108 at 15.

Accordingly, on remand, the Department was instructed to

“reexamine the record to again determine if Since Hardware has

produced evidence sufficient to qualify for application of a

separate rate” in the assignment of its antidumping duty rate.

Id. at 22.

     On remand, Commerce again declined to evaluate the merits

of plaintiff’s evidence that it was not subject to government

control.   Rather, the Department determined that Since Hardware

failed to meet its burden of proving its independence from

government control.   Commerce reached this determination by

concluding that the company’s responses to Commerce’s separate-

rate questionnaires could only be verified by reviewing Since

Hardware’s accounting records, which had previously been

determined to be unreliable.   Remand Results at 2.   In other
Court No. 09-00123                                             Page 5


words, Commerce found that plaintiff’s separate-rate

questionnaire responses were unverifiable and, therefore, could

not be considered as evidence.   Based on this finding, Commerce

determined that plaintiff had failed to establish that it was

entitled to a separate rate, and retained its determination to

assign the company the PRC-wide rate of 157.68%.

     Plaintiff filed its comments challenging the Remand Results

on March 31, 2011.    See generally Pl.’s Objs. to Rem. Res.

(“Pl.’s Cmnts.”).    The court has jurisdiction pursuant to 28

U.S.C. § 1581(c) and 19 U.S.C. § 1516a(a)(2)(B)(i).    For the

reasons stated below, the matter is remanded to Commerce with

instructions.



                         STANDARD OF REVIEW

     The standard of review is set forth in 19 U.S.C.

§ 1516a(b)(1)(B)(i), which provides, in relevant part, that the

court “shall hold unlawful any determination, finding, or

conclusion found . . . to be unsupported by substantial evidence

on the record, or otherwise not in accordance with law.”

Accordingly, “Commerce’s determinations of fact must be

sustained unless unsupported by substantial evidence in the

record and its legal conclusions must be sustained unless not in

accordance with law.”    Norsk Hydro Canada, Inc. v. United

States, 472 F.3d 1347, 1357 (Fed. Cir. 2006).
Court No. 09-00123                                             Page 6


                            DISCUSSION

I.   Remand Results

      In the Remand Results, Commerce noted that Since Hardware

bears the burden of establishing its entitlement to a separate

rate by demonstrating both de jure and de facto independence

from the Chinese government.   See Sigma Corp. v. United States,

117 F.3d 1401, 1405 (Fed. Cir. 1997).    In determining whether de

jure independence is established, Commerce looks for:    “(1) [a]n

absence of restrictive stipulations associated with an

individual exporter’s business and export license; (2) any

legislative enactments decentralizing control of companies; or

(3) any other formal measures by the government decentralizing

control of companies.”   Fujian Mach. & Equip. Imp. & Exp. Corp.

v. United States, 25 CIT 1150, 1172, 178 F. Supp. 2d 1305, 1329

(2001) (citations omitted); Remand Results at 4.

      The Department considers four factors in determining de

facto independence:

      (1) [w]hether the export prices are set by, or are
      subject to the approval of, a governmental authority;
      (2) whether the respondent has authority to negotiate
      and sign contracts and other agreements; (3) whether
      the respondent has autonomy from the government in
      making decisions regarding the selection of
      management; and (4) whether the respondent retains the
      proceeds of its export sales and makes independent
      decisions regarding disposition of profits or
      financing of losses.
Court No. 09-00123                                           Page 7


Coal. for the Pres. of Am. Brake Drum & Rotor Aftermarket Mfrs.

v. United States, 28 CIT 447, 457; 318 F. Supp. 2d 1305, 1313

(2004) (citations omitted); Remand Results at 4.

     On remand, Commerce determined that Since Hardware

established de jure independence3 because it “provided a copy of

its business license issued by the Guangzhou Municipal

Industrial and Commercial Administration, and relied upon the

Foreign Trade Law which establishes a decentralization of

government control over business operations.”   Remand Results at

5.

     The Department further determined, however, that the

company failed to establish its de facto independence from the

PRC government because its separate-rate claim necessarily

relied on the same accounting records that the Department found

to be undependable in the Final Results.   According to Commerce:

     3
          In its Draft Results of Redetermination, the
Department determined that Since Hardware had not established de
jure independence because it did not disclose a “change” in its
ownership structure, and this non-disclosure precluded the
Department from further inquiring into the nature of the
company’s ownership. Commerce, therefore, “conclude[d] that
this contradiction in Since Hardware’s responses, by itself,
renders Since Hardware’s separate rate portion of its
questionnaire response unreliable for granting Since Hardware a
separate rate.” Draft Results of Redetermination at 7.
Following receipt of Since Hardware’s comments to the Draft
Results, however, the Department acknowledged that, as a result
of an oversight, it had failed to see that Since Hardware’s
responses to the Department’s questionnaires concerning the
company’s ownership structure were consistent and, therefore,
they supported a conclusion that it had established de jure
independence. Remand Results at 2.
Court No. 09-00123                                            Page 8


     [t]he respondent’s books and records, including
     accounting documentation, especially in those cases in
     which the respondent cites to its books and records to
     support its claimed independence, are tied to the
     determination regarding separate rate eligibility.
     The Department previously found, and the court
     affirmed, that Since Hardware’s submitted accounting
     ledgers included unreliable data related to market
     economy purchases.

Remand Results at 4.   Thus, the Department takes the position

that it was required to reject the company’s answers to the

separate rate questionnaires because they were unverifiable

since they were based on the discredited records.

     Specifically, the Department states that it “examined the

relevance of the books and records [found unreliable in the

Final Results] to the separate rate issue with respect to the

statements made by Since Hardware that supports a de facto

determination.   In examining this question, we find a critical

nexus between certain statements made by Since Hardware and the

company’s books and records.”   Remand Results at 6.   Commerce

found the “critical nexus” to be that plaintiff’s questionnaire

responses concerning the first and fourth factors in the de

facto independence analysis ((1) the setting of export prices

and (4) the retention of proceeds and disposition of profits or

financing of losses) could only be verified by examining the
Court No. 09-00123                                          Page 9


company’s accounting records, which had already been determined

to be unreliable.4   Remand Results at 6.

     In reaching this conclusion, the Department relied solely

on the verification procedures used in connection with Since

Hardware’s separate rate application during the First

Administrative Review.5   After placing its verification report

from the First Administrative Review on the record, the

Department found that the verification procedures used in that

review required it to examine Since Hardware’s accounting

records to verify the company’s claim that it set its own sales

prices and independently determined how to dispose of its

profits or finance its losses.   See Remand Results at 14 (“As

detailed . . . in the Department’s verification report [from the

First Administrative Review], the Department verifiers conduct



     4
          The Department determined that Since Hardware’s
responses regarding the second and third de facto independence
factors (authority to negotiate and sign contracts; and autonomy
from government in selection of management) supported a
conclusion of independence.
     5
          The First Administrative Review covered the POR
February 3, 2004 through July 31, 2005. Plaintiff argues that
the Department is required to evaluate each segment of the
proceedings separately and, thus, it was improper to use
evidence from prior segments to support its conclusion in this
review. Commerce, however, merely relied on its prior
verification report as the source of its verification
procedures, rather than evidence of Since Hardware’s lack of
independence from the PRC government. Accordingly, the
Department’s mere reference to that verification report is not
unlawful.
Court No. 09-00123                                           Page 10


financial traces through each aspect of the respondent’s

accounting system.”).

     With regard to the “setting of export price” factor, in

this Third Administrative Review, Since Hardware answered the

Department’s questionnaires, in part, by stating that it “based

prices for its . . . U.S. sales . . . on the production costs,

taking into consideration overhead and administrative expenses,

profit and other expenses incurred during the ordinary course of

business.”   Since Hardware’s Section A Questionnaire Responses,

dated Oct. 25, 2007 (C.R. Doc. 2) (P.R. Doc. 15) (“Section A

Questionnaire Response”) at 6.   Stated differently, Since

Hardware maintained that, at least in part, it set export prices

based on its production costs and profit objectives.

     Commerce found that “[b]ecause Since Hardware’s Section A

questionnaire response implicates its production costs and

profit in making export pricing decisions, the Department

examines certain accounting records during a verification of a

respondent.”   Remand Results at 7.   The Department went on to

find that “[t]he separate rate response given . . . cites to

specific accounting ledgers and implicates the production costs

ledger in the accounting records.     Under accounting principles,

and as evidenced by Department verification, these ledger

accounts must tie into the general ledger, which in turn ties

into the financial records.”   Remand Results at 8.
Court No. 09-00123                                           Page 11


      As has been noted, in the Final Results the Department

found that these ledgers were unreliable because Since Hardware

had misrepresented the source and cost of several of its

manufacturing inputs.    In Since Hardware I, the court sustained

the determination that the company’s accounting records were

unreliable.     See Since Hardware I, 34 CIT at __, Slip Op. 10-108

at 20.   Thus, Commerce determined that the company’s

questionnaire responses concerning how it set its export prices

could not support a finding of de facto independence because

“[w]ithout reliable accounting ledgers, the Department cannot

verify this prong of the separate rates [sic] test.”    Remand

Results at 8.

      With regard to the fourth factor, concerning the company’s

retention and use of sales proceeds, Since Hardware responded,

in part, to the Department’s questionnaire by stating that it

“deposit[s] export earnings into [its] respective bank

accounts,” and “[t]he board of directors determines the

disposition of profits.”    Section A Questionnaire Response at 8-

9.   When asked whether it is required to exchange its foreign

currency for domestic currency, the company responded that it

was not, but rather it “use[s] foreign currency earned on the

sale of subject merchandise to fund its operational expenses.”

Section A Questionnaire Response at 9-10.    In other words, as

part of its response to the Department’s questionnaires, Since
Court No. 09-00123                                           Page 12


Hardware claimed that it retained the profits it earned on

export sales, which it either deposited in bank accounts or used

to fund its operations.

      As with the submissions regarding the first factor, the

Department found that it “is unable to rely upon the statements

concerning export proceeds in Since Hardware’s separate rate

application because such statements are unverifiable on the

ground that they rest on Since Hardware’s accounting

documentation.”   Remand Results at 10.

      As a result, the Department ultimately concluded that:

      Since Hardware’s responses related to its export sales
      process and its disposition of export proceeds
      directly implicates its accounting system. As
      demonstrated through reference to Since Hardware’s
      verification from the first administrative review, the
      Department verifies certain accounting ledgers and
      traces a sample sale through to the general ledger.
      Each sub-ledger is tied to the general ledger, and
      Since Hardware cannot demonstrate that the unreliable
      accounting documents are separate from its general
      operating ledgers. Therefore, the Department cannot
      conclude through verifiable evidence that Since
      Hardware sets prices or retains revenue as it
      explained in its Section A questionnaire response.

Remand Results at 11.


II.   Analysis

      Plaintiff argues that Commerce’s determination that it

failed to meet its burden of establishing its de facto

independence was unsupported by substantial evidence and

unlawful.   Since Hardware asserts that the Department has not
Court No. 09-00123                                             Page 13


demonstrated that the integrity of its accounting system

necessarily impacted the determination of how it set its prices

or disposed of its sales proceeds.    In other words, plaintiff

insists that reference to its unreliable accounting records was

not required for a determination of whether the company is

subject to government control because there is other sufficient

and verifiable material on the record from which this

determination could have been made.   According to plaintiff,

that material includes evidence of “contractual authority and

independent decision-making, which could be shown by reference

to communications between a company and the government.”       Pl.’s

Cmnts. 10.

     The court finds merit in plaintiff’s argument.     As a

result, as explained below, the Department’s determination is

remanded for two related reasons.    First, by failing to consider

all of the record evidence relating to the company’s separate-

rate application, Commerce did not adhere to the court’s remand

instructions.   Second, Commerce’s determination that Since

Hardware’s de facto independence questionnaire responses were

unverifiable was neither supported by substantial evidence nor

in accordance with law.
Court No. 09-00123                                            Page 14


  A. By Not Considering Since Hardware’s Evidence of Its De
     Facto Independence, Commerce Failed to Comply with the
     Court’s Remand Order

     In the Remand Order, the Department was instructed to

consider the evidence on the record concerning Since Hardware’s

independence from the PRC government.     See Since Hardware I, 34

CIT at __, Slip Op. 10-108 at 22-23 (“[O]n remand Commerce shall

reexamine the record to determine again if Since Hardware has

produced evidence sufficient to qualify for application of a

separate rate.”).    Although Since Hardware made reference to its

costs of production in responding to Commerce’s questionnaires

concerning how it set its export prices, its answers did not end

there.   Much of plaintiff’s claim was based on its

representation that its export prices were determined through

negotiations with its customers.    In support of its assertion,

the company submitted direct evidence of these negotiations.

     For example, Since Hardware provided email correspondence

with its customers detailing the negotiations that took place.

See Since Hardware’s Supplemental Questionnaire Responses dated

May 20, 2008 (“Supplemental Questionnaire Response”) (C.R. Doc.

11) (P.R. Doc. 41) at Exs. 7, 14; Section A Questionnaire

Response at Ex. 7.    In addition, the company provided purchase

orders, invoices, and packing slips, showing the terms of sale,

including price.     See Supplemental Questionnaire Responses at

Ex. 11; Section A Questionnaire Response at Ex. 7.    These
Court No. 09-00123                                            Page 15


materials tend to support Since Hardware’s claim that its prices

were the product of customer negotiation, rather than government

oversight or involvement.

     Although this evidence was on the record, the Department

failed to consider it.   Rather, Commerce found that Since

Hardware’s separate-rate questionnaire responses could only be

verified by looking at the company’s unreliable accounting

records.   The additional materials submitted by plaintiff,

however, appear to demonstrate that, independent of its

accounting records, there is evidence that it set its export

prices without government oversight or direction.

     In responding to the Department’s questionnaires concerning

the disposition of its sales proceeds, Since Hardware claimed

that they were deposited in the company’s bank accounts and used

to fund operations, as directed by the company’s management.

See, e.g., Section A Questionnaire Response at 8-9.      During the

review, at the Department’s request, Since Hardware provided

evidence showing its U.S. sales, including a “sales

reconciliation,” which ostensibly demonstrated that the company

identified all of its U.S. sales.   See Since Hardware’s Section

C Questionnaire Response and Sales Reconciliation, Nov. 13, 2007

(“Section C Questionnaire Response”).   In response to

supplemental questionnaires, the company also provided revised

sales information, including updates concerning the receipt of
Court No. 09-00123                                             Page 16


payments from customers who ordered and received merchandise

during the POR, but remitted payment thereafter.     See

Supplemental Questionnaire Response at 11, Ex. 16.       Absent from

the record was any evidence that plaintiff disposed of its sales

proceeds at the direction of the PRC government.

        It is worth noting that the Department did not request any

specific evidence from Since Hardware to support its claims

regarding its independent disposition of proceeds in its

supplemental questionnaires.    Rather, Commerce’s follow-up

questionnaires focused exclusively on the accuracy of the

company’s sales data, suggesting that the Department was

concerned with ensuring that all of the company’s U.S. sales

were accounted for, and not with who directed how the sales

proceeds were disposed of.     See, e.g., Supplemental

Questionnaire, A-570-888 (Dep’t of Commerce Apr. 18, 2008) at 6,

8-11.    Thus, despite the opportunity to do so, Commerce did not

further explore the company’s claim that it disposed of its

sales proceeds at the sole direction of its management.

        Because, on remand, the Department limited its analysis to

a finding that the unreliability of plaintiff’s accounting

records prevented verification, it did not examine or discuss

any of the record evidence that might have indicated that the

company retained its sales proceeds and made independent

decisions regarding the disposition of its profits or the
Court No. 09-00123                                              Page 17


financing of its losses.    On remand, however, Commerce was

instructed to “reexamine the record to again determine if Since

Hardware has produced evidence sufficient to qualify for

application of a separate rate.”        Since Hardware I, 34 CIT at

__, Slip Op. 10-108 at 22.    Furthermore, the court instructed

that “Commerce may not assume that the portion of the record

relating to independence from government control has been

impacted by Since Hardware’s questionnaire responses to

unrelated matters.”     Id. at 22-23.    Commerce, in the Remand

Results, failed to follow these instructions by continuing to

assume that Since Hardware’s unreliable cost of production

accounting records prevented any evaluation of whether the

company was entitled to a separate rate.

     “The failure of an agency to candidly comply with the

instructions in a remand order not only shows a disregard for

the issuing court’s authority, but it is also an act that is

contrary to law.”     NSK Corp. v. United States, 33 CIT __, __,

637 F. Supp. 2d 1311, 1318 (2009) (citing Smith Corona Corp. v.

United States, 915 F.2d 683, 688 (Fed. Cir. 1990)).       For this

reason alone, the Remand Results must be remanded.
Court No. 09-00123                                           Page 18


  B. Commerce’s Determination That Plaintiff’s Separate-Rate
     Questionnaire Responses Could Not Be Verified Was
     Unsupported by Substantial Evidence and Contrary to Law

     In addition to being inconsistent with the court’s remand

instructions, Commerce’s determination that plaintiff’s

separate-rate evidence could not be verified was not supported

by substantial evidence, and was contrary to the Department’s

own regulations.



       1. Legal Framework for Verification

     The respondent bears the burden of producing evidence of

its de facto independence, and Commerce may refuse to consider

any information submitted by a respondent that cannot be

verified.   See 19 U.S.C. §§ 1677e(a)(2)(D), 1677m(e); see also

Shandong Huarong Mach. Co. v. United States, 30 CIT 1269, 1295,

435 F. Supp. 2d 1261, 1284 (2006).   Conversely, where a

respondent timely provides verifiable evidence in response to

Commerce’s request, the Department is required, by statute, to

consider such evidence.   19 U.S.C. § 1677m(e).

     Verification is the process by which Commerce confirms the

truth and accuracy of information and materials in a

respondent’s questionnaires.   See Bomont Indus. v. United

States, 14 CIT 208, 209, 733 F. Supp. 1507, 1508 (1990)

(“Verification is like an audit, the purpose of which is to test

information provided by a party for accuracy and
Court No. 09-00123                                               Page 19


completeness.”).   Commerce is required, by statute, to verify a

respondent’s submissions in certain circumstances.      See 19

U.S.C. § 1677m(i).    Where not statutorily required, the

Department, by regulation, has the discretion to conduct

verification.   See 19 C.F.R. § 351.307(b)(2) (2011).    Here,

Commerce was not required to verify Since Hardware’s

questionnaire responses dealing with its claim for an individual

rate; rather, the Department chose to exercise its discretion to

conduct this verification.

     Pursuant to 19 C.F.R. § 351.307(c), whenever Commerce

conducts verification it is required to prepare a verification

report, which must contain “the methods, procedures, and results

of a verification.”   In addition, Commerce’s chosen method and

ultimate findings during verification must be supported by

substantial evidence.    Micron Tech. Inc. v. United States, 117

F.3d 1386, 1396 (Fed. Cir. 1997).

     Although unverifiable information may be disregarded by

Commerce, generally the Department must make an effort to verify

information before it can reasonably be deemed unverifiable.

See China Kingdom Imp. & Exp. Co. v. United States, 31 CIT 1329,

1340 n.7, 507 F. Supp. 2d 1337, 1349 n.7 (2007).
Court No. 09-00123                                           Page 20


       2. Commerce’s Determination That Since Hardware’s
       Separate-Rate Responses Could Not Be Verified Was
       Unsupported by Substantial Evidence and Otherwise
       Contrary to Law

     As noted, in conducting verification, Commerce found that

Since Hardware’s responses with respect to two de facto

independence criteria – export price setting and proceeds

disposition - could not be verified without reference to the

company’s unreliable accounting records.   For the reasons stated

below, the court finds that Commerce’s determinations were

unsupported by substantial evidence and unlawful.



             a. Setting of Export Prices

     With regard to how Since Hardware set its export prices,

the Department found that the company claimed that it set its

export prices based on its production costs and desired profit

margins.   Commerce, therefore, found that the company’s

separate-rate questionnaire responses could only be verified by

examining its accounting records, which Commerce determined, and

the court found, to be unreliable.   As has been seen, however,

Since Hardware’s claim that it set its export prices based upon

production costs and desired profit margins was only part of its

argument that its prices were not set by government actors.

Plaintiff’s entire response to the Department’s inquiry as to
Court No. 09-00123                                            Page 21


“how your company sets the prices of the merchandise it exports

to the United States” was as follows:

     Since Hardware directly handled the negotiations with
     the U.S. customers for the sales of subject
     merchandise. Since Hardware based prices for its
     direct U.S. sales and the U.S. sales through Best
     Unity6 on the production costs, taking into
     consideration overhead and administrative expenses,
     profit and other expenses incurred during the ordinary
     course of business. . . . These prices are not
     subject to review by or guidance from any governmental
     organization.

Section A Questionnaire Response at 6-7.   The Department’s

question, and plaintiff’s answer, were intended to determine how

Since Hardware set its prices, i.e., were the prices subject to

government approval.   Commerce’s inquiry was not intended to

determine whether the company kept accurate records of its

production costs, or, for that matter, of its sales.

     While the company’s accounting of its production costs may

be inadequate to verify its costs of production, plaintiff’s

other questionnaire responses indicate that Since Hardware’s

prices were set through direct and independent negotiations with

its U.S. customers.    For example, the company explained that

“Since Hardware . . . negotiated directly with [its] customers

through fax, e-mail, telephone and personal meetings.”   Section

A Questionnaire Response at 7; see also Section A Questionnaire

6
   As Since Hardware explained, and the parties do not dispute,
Best Unity was Since Hardware’s Hong Kong affiliate, through
which it dealt with customers that did not want to deal with
suppliers within the PRC.
Court No. 09-00123                                           Page 22


Response at 13 (“All U.S. sales were made on a transaction-by-

transaction basis based upon the purchase orders issued by the

U.S. customer.”); Section C Questionnaire Response at 26.

Indeed, the Department relied on this very type of evidence to

verify Since Hardware’s independent price setting in the

verification report from the First Administrative Review.     See

Verification of the Sales and Factors Responses of Since

Hardware in the First Administrative Review of Floor-Standing

Metal-Top Ironing Tables from the PRC, A-570-888 (Dep’t of

Commerce Jan. 22, 2007) (C.R. Doc. 1) (P.R. Doc. 1) at 7 (“The

team inquired of [upper level manager] as to how Since

negotiates and sets prices, and reviewed an example of price

negotiation for a sample sale.”).   As noted supra, plaintiff has

provided documentation tending to demonstrate that its prices

were, in fact, set through its direct negotiation with

customers.

     Commerce did not explain why these materials could not be

used to verify Since Hardware’s claim that it set its own export

prices independently.   Indeed, Commerce’s determination that

plaintiff’s claim that it sets its own export prices could not

be verified without reference to its unreliable accounting

records does not appear to be in accord with the other record

evidence.
Court No. 09-00123                                         Page 23


     In addition, Commerce does not explain why it insisted on

using the verification procedures from the First Administrative

Review rather than developing procedures to verify the evidence

produced in this review.   It appears that Commerce’s purpose in

relying on the earlier procedure was to allow the Department to

continue to assume that the unreliability of Since Hardware’s

accounting records prevented the company from achieving

separate-rate status.   As the court held in Since Hardware I,

however, Commerce has not explained how a finding resting on the

accounting records alone is supported by substantial evidence.

See Since Hardware I, 34 CIT at __, Slip Op. 10-108 at 15-16

(“An examination of the record, however, reveals that none of

the unreliable information submitted by the company is relevant

to the question of government control. . . . Put another way,

the evidence that the company was not controlled by the

government . . . is far removed from questions relating to the

origin of the factors of production and their cost.”).

     In light of the foregoing, Commerce’s determination that

Since Hardware’s questionnaire responses concerning how it set

its export prices were unverifiable is not supported by

substantial evidence.   Further, the Department failed to produce

a verification report, apparently believing that its obligation

to do so was excused by its determination that Since Hardware’s

accounting records were unverifiable.   As noted, Commerce is
Court No. 09-00123                                           Page 24


required by its own regulation to produce such a report.     See 19

C.F.R. § 351.307(c).7   “It is a familiar rule of administrative

law that an agency must abide by its own regulations.”     See Fort

Stewart Sch. v. Fed. Labor Relations Auth., 495 U.S. 641, 654

(1990).

     Here, rather than producing a verification report, Commerce

relied on the procedures found in a verification report from a

prior administrative review to excuse itself from following its

own regulation.   Specifically, Commerce relied on its

verification report from the First Administrative Review to

establish that Since Hardware’s claim that it set its export

prices independently could only be verified by reviewing the

company’s accounting records.   Section 351.307(c), however,

requires the Department to provide a verification report setting

forth its verification methodology, its efforts at verification,

and the results thereof, for this review.   In other words, the

Department’s own regulation instructs it to establish procedures

to verify the evidence produced in each individual review.

     It is no doubt true that Commerce may design its own

verification procedures.   “By requiring that Commerce report, on


7
     19 C.F.R. § 351.307(c) is entitled “Verification Report,”
and provides that “[t]he Secretary will report the methods,
procedures, and results of a verification under this section
prior to making a final determination in an investigation or
issuing final results in a review.”
Court No. 09-00123                                            Page 25


a case-by-case basis, the methods and procedures used to verify

submitted information, Congress has implicitly delegated to

Commerce the latitude to derive verification procedures ad hoc."

Micron Tech, 117 F.3d at 1397.   Commerce may not, however, adopt

the verification procedures from a prior review, and then find

that the evidence in a latter review is unverifiable merely

because it is different from that produced in the prior review.

That is, Commerce’s verification procedures must be reasonable

under the circumstances presented.   Id. at 1396-97; see also

China Kingdom, 31 CIT at 1340 n.7, 507 F. Supp. 2d at 1349 n.7

(“A deliberate refusal to subject certain factual information to

a verification procedure is not the equivalent of a valid

finding that . . . such information ‘cannot be verified.’”).



            b. Disposition of Proceeds

     Similarly, Commerce’s determination that it could not

verify Since Hardware’s claims regarding its disposition of

proceeds cannot be sustained on this record.   Commerce hoped to

establish, by its questionnaires, whether the company kept the

proceeds from its sales, and made independent decisions on how

to use them in operating its business.   In response to the

Department’s questionnaire concerning the disposition of its

sales proceeds, plaintiff claimed that “[t]here are no

restrictions on the use of Since Hardware’s or Best Unity’s
Court No. 09-00123                                            Page 26


export revenues.   Since Hardware and Best Unity deposit export

earnings into their respective bank accounts.   Their general

managers have authorized the accounting department to control

and to have access to their respective accounts.”    Section A

Questionnaire Response at 8.    In addition, Since Hardware

claimed that the “board of directors determines the disposition

of profits” and the company and its affiliates “may use freely

all foreign currency earnings on the sale of subject merchandise

to the United States . . . .   There are no restrictions on the

use of retained foreign currency.   Neither of these two

companies is required to sell the foreign currency to the

government . . . [and] foreign currency earned on the sale of

subject merchandise [is used] to fund its operational expenses.”

Section A Questionnaire Response at 9-10.

     The Department found that it was “unable to rely upon the

statements concerning export proceeds in Since Hardware’s

separate rate application because such statements are

unverifiable on the ground that they rest on Since Hardware’s

accounting documentation.”   Remand Results at 10.   As with its

determination with respect to the setting of export prices, this

determination was based solely on the Department’s purported

inability to apply the verification procedures undertaken in the

First Administrative Review to the accounting records produced

in this review.    See Remand Results at 6, 14-15.
Court No. 09-00123                                             Page 27


     The Department maintains that the verification report from

the First Administrative Review shows that it verified the

questionnaire responses concerning disposition of proceeds by

“examin[ing] the individual notification of the payments and

transfers to ensure Since Hardware reconciled the ‘monies

received with the moneys owed’ and ‘k[ept] track of which

customers have paid.’”   Remand Results at 9.   In addition,

during the First Review, the Department “examined the production

sub-ledgers, and the overhead sub-ledgers, and determined

whether Since Hardware accurately documented the amount of money

received from export sales.”   Remand Results at 10.

     As with the determination dealing with the setting of

export prices, the methodology the Department chose to employ in

the First Administrative review cannot, by itself, support the

Remand Results.   In the First Review, there was no determination

that Since Hardware’s accounting records were unreliable.

Accordingly, the Department had no occasion to determine whether

there were alternative means for verifying the company’s

questionnaire responses concerning its disposition of proceeds.

In other words, the verification report from the First

Administrative Review does not support Commerce’s conclusion

that reviewing Since Hardware’s accounting records is the

exclusive means of verifying that it does not dispose of its

proceeds at the direction of the PRC government.
Court No. 09-00123                                         Page 28


     Moreover, as with its determination with respect to how the

company set its prices, the Department has neither conducted any

verification proceedings in this review, nor explained why it

cannot use other responses and documents to verify that Since

Hardware disposed of its sales proceeds free from government

control.   In fact, the Department made no effort to verify Since

Hardware’s questionnaire responses through other means, such as

interviewing management, reviewing internal memoranda and board

of directors’ meetings, or requesting bank records.   As with the

question of how plaintiff set its export prices, how it disposes

of its sales proceeds is a question of government involvement,

not accurate accounting.   Accordingly, the Department’s focus

during verification should have been whether Since Hardware’s

claims regarding the absence of PRC government direction over

the company’s disposition of proceeds can be verified by

reliable and available questionnaire responses and other

documentation.

     Without undertaking verification proceedings and preparing

a report outlining its verification process in this review,

including a reasoned explanation for why it could not verify

plaintiff’s questionnaire responses pertaining to its

disposition of sales proceeds, Commerce’s determination that

these responses were unverifiable is not supported by
Court No. 09-00123                                            Page 29


substantial evidence and contrary to law.     See China Kingdom, 31

CIT at 1340 n.7, 507 F. Supp. 2d at 1350 n.7.



                       CONCLUSION AND ORDER

     For the reasons stated, it is hereby

     ORDERED that, upon remand, Commerce issue a redetermination

that complies in all respects with this Opinion and Order, is

based on determinations that are supported by substantial record

evidence, and is in all respects in accordance with law; it is

further

     ORDERED that Commerce, in preparing the Remand

Redetermination, shall reexamine its conclusion with respect to

whether plaintiff established its de facto independence and is,

therefore, entitled to a separate rate, by considering all of

the questionnaire responses and documents on the record bearing

on this question; it is further

     ORDERED that, if the Department continues to find that

verification of plaintiff’s separate-rate questionnaire

responses is necessary, it conduct verification and prepare a

report explaining its verification methods, procedures, and

findings, in accordance with 19 C.F.R. § 351.307(c).    The

Department may not rely solely on the procedures found in the

verification report from the First Administrative Review on

remand.   To the extent that the Department continues to find
Court No. 09-00123                                           Page 30


that plaintiff’s separate-rate questionnaire responses are

unverifiable, its reasoning and the evidence supporting this

finding should be set forth in its verification report;   it is

further

     ORDERED that, in the event the Department finds that Since

Hardware is entitled to a separate rate, it determine that rate;

it is further

     ORDERED that the Department may reopen the record to

solicit any information it determines to be necessary to make

its determination;   it is further

     ORDERED that the remand result shall be due on May 29,

2012; comments to the remand results shall be due thirty (30)

days following filing of the remand results; and replies to such

comments shall be due fifteen (15) days following filing of the

comments.



                                        _/s/ Richard K. Eaton
                                             Richard K. Eaton
Dated:      November 29, 2011
            New York, New York
