                        Slip Op. 99-136

       UNITED STATES COURT OF INTERNATIONAL TRADE




NEC CORPORATION and
HNSX SUPERCOMPUTERS, INC.,

     and
                                          BEFORE: Pogue, Judge
FUJITSU LIMITED and
FUJITSU AMERICA, INC.                     Court No. 97-11-01967

               Plaintiffs,

     v.

DEPARTMENT OF COMMERCE and
U.S. INTERNATIONAL TRADE
COMMISSION

               Defendants,



CRAY RESEARCH, INC.,

               Defendant-Intervenor.

                                          [ I T C      R e m a n d

                                          D e t e r m i n a t i o n

Affirmed]

                                       Decided: December 17, 1999

Paul, Weiss, Rifkind, Wharton, & Garrison (Robert E. Montgomery,
Jr., Terence J. Fortune, David J. Weiler) for Plaintiffs NEC
Corporation and HNSX Supercomputers, Inc.

Akin, Gump, Strauss, Hauer & Feld, L.L.P. (Warren E. Connelly,
Steven G. Johnston) for Plaintiffs Fujitsu Limited and Fujitsu
America, Inc.
Court No. 97-11-01967                                     Page 2


Lyn M. Schlitt, General Counsel; James A. Toupin, Deputy General
Counsel; Cynthia P. Johnson, Attorney, Office of General Counsel,
U.S. International Trade Commission, Counsel for Defendants
Department of Commerce and U.S. International Trade Commission.

Wilmer, Cutler & Pickering (John D. Greenwald, Deirdre Maloney) for
Defendant-Intervenor Cray Research, Inc.

                                 OPINION



     Pogue, Judge:      On December 15, 1998, the Court remanded this

matter to the International Trade Commission ("Commission").       NEC

Corp. v. DOC, 22 CIT __, 36 F. Supp. 2d 380 (1998) ("NEC I").       In

particular, the Court ordered the Commission to reconsider its

threat determination in order to further explain how the subject

less-than-fair-value ("LTFV") imports themselves make a material

contribution to the threatened material injury.     NEC I, 22 CIT at

__, 36 F. Supp. 2d at 394.


                               Background



      On July 29, 1996, Cray Research, Inc. ("Cray"), filed a

petition with the Department of Commerce ("Commerce") alleging that

vector supercomputers from Japan are being, or are likely to be

sold in the United States at LTFV, and that such imports are

materially injuring, or threatening material injury to an industry

in the United States.      See Vector Supercomputers from Japan, 61

Fed. Reg. 43,527 (Dep’t Commerce 1996) (initiation antidumping duty

investig.).
Court No. 97-11-01967                                        Page 3


     Commerce     published    a   preliminary   determination,    Vector

Supercomputers from Japan, 62 Fed. Reg. 16,544 (Dep’t Commerce

1997)(prelim. determination), and a final determination, Vector

Supercomputers from Japan, 62 Fed. Reg. 45,623 (Dep’t Commerce

1997)(final     determination),    concluding    that   Japanese   vector

supercomputers were being sold at LTFV in the United States.

     On October 9, 1997, the Commission promulgated its final

injury determination, concluding that the domestic industry is

threatened with material injury by reason of LTFV imports of

Japanese vector supercomputers.      Vector Supercomputers from Japan,

Inv. No. 731-TA-750 (Final) (List No. 1, Doc. 223) (October 9,

1997); reprinted in 62 Fed. Reg. 53,801 (Int’l Trade Commission

1997) ("Final Determination").1      The Commission, however, found no

present material injury.       Id. at 36.

     Commerce published an antidumping order covering the subject

merchandise on October 24, 1997. Vector Supercomputers from Japan,

62 Fed. Reg. 55,392 (Dep’t Commerce 1997) (notice antidumping duty
order).    The margin found for Fujitsu was 173.08%.         The margin

found for NEC was 454%.       Id. at 55,393.


     1
      List 1 consists of documents within the public portion of
the record made before the Commission. List 2 consists of the
documents within the confidential portion of the same record.
List 3 consists of the documents within the privileged portion of
the same record.
     Reference is also made to Vector Supercomputers from Japan,
Inv. No. 731-TA-750 (Final) (Remand). Remand Record List 1R
consists of the documents within the public portion of the record
made before the Commission. Remand Record List 2R consists of
the documents within the confidential portion of the same record.
Remand Record List 3R consists of the documents within the
privileged portion of the same record.
Court No. 97-11-01967                                              Page 4


     The Commission’s Final Determination was appealed to this

Court by Fujitsu Limited and Fujitsu America, Inc. (collectively

"Fujitsu"),    and    NEC   Corporation    and    HNSX   Supercomputers     Inc.

(collectively "NEC"). Ruling on the consolidated action of Fujitsu

and NEC (collectively "Plaintiffs"), this Court sustained in part

and remanded in part. The Court sustained the Commission’s finding

that vector supercomputers are a separate like product, see NEC I,

22 CIT at __, 36 F. Supp. 2d at 390, but remanded for further

explanation or reconsideration the Commission’s finding that the

domestic industry is threatened with material injury by reason of

LTFV imports of vector supercomputers from Japan.               See id. at __,

36 F. Supp. 2d at 394.

      The   Commission      issued   a   remand   determination     in   Vector

Supercomputers from Japan, Inv. No. 731-TA-750 (Final)(Remand)

(Remand     List     No.    2R,   Doc.    181)(March      16,    1999)("Remand

Determination").        The Court now reviews the Commission’s Remand

Determination.2




     2
      Three Commissioners, Chairman Bragg, Vice Chairman Miller,
and Commissioner Koplan, found affirmatively on remand. Chairman
Bragg submitted separate views. Commissioner Askey found
negatively on remand.
Court No. 97-11-01967                                                 Page 5


                              Standard of Review



      The court will uphold a determination by the Commission unless

it is not supported by substantial evidence in the administrative

record or is otherwise not in accordance with the law.                See Section

516a(b)(1)(B)(i) of the Tariff Act of 1930, as amended, 19 U.S.C.

§ 1516a(b)(1)(B)(i) (1994).


                                    Discussion



1.    On remand, did the Commission reconsider its threat of
      material injury finding in a way consistent with the
      requirement that the LTFV imports themselves must have made a
      material contribution to the threatened material injury?


      The Court of Appeals for the Federal Circuit has articulated

the following legal standard regarding present material injury

determinations: "An affirmative injury determination requires both

(1) present material injury and (2) a finding that the material

injury is ’by reason of’ the subject imports." Gerald Metals, Inc.

v. United States, 21 CIT __, __, 132 F.3d 716, 719 (Fed. Cir. 1997)

("Gerald Metals I").     This Court has held that "the ’by reason of’

standard also applies to threat determinations."                 Gerald Metals,

Inc. v. United States, 22 CIT __, __, 27 F. Supp. 2d 1351, 1365

n.17 (1998) ("Gerald Metals II").            In NEC I, this Court explained

that to make a threat determination, "the statute requires adequate

evidence to show that the [threat of] harm will occur by reason of

the   LTFV   imports,   not    by   reason    of   a   minimal   or    tangential
Court No. 97-11-01967                                                  Page 6


contribution to material harm caused by the LTFV goods."                    22 CIT at

__, 36 F. Supp. 2d at 391; see also 19 U.S.C. 1677(7)(A) (1994)

("The      term   ’material    injury’        means       harm   which       is   not

inconsequential,        immaterial     or     unimportant.");          19     U.S.C.

1677(7)(F)(ii) ("[A] [threat] determination may not be made on the

basis of mere conjecture or supposition.").                In sum, the standard

requires "’a causalnot merely temporalconnection between the LTFV
goods and the [threat of] material injury.’"                Id. (quoting Gerald

Metals, 132 F.3d at 720)(brackets in original).

       In its Remand Determination, the Commission appears to have

understood the applicable legal standard: "the Commission may not

analyze subject imports in a vacuum.             Instead, we fully consider

other significant economic factors in determining that subject

imports themselves contribute in a more than de minimis way to

material injury or threat."          Remand Determination at 5.          The Court

had    criticized   the   Commission     in    NEC    I    for   its   failure    to

"undertake any analysis to distinguish between the contribution to

material harm caused by LTFV goods and these economic factors

unrelated to the subject imports."          22 CIT at __, 36 F. Supp. 2d at

392.       In its Remand Determination, the Commission attempts to

explain more fully than it did in its Final Determination how,

after considering the effects of "other factors," the Commission is

able to conclude that the subject imports themselves pose a threat

of material injury.3


       3
      Three "other factors" have been identified by the parties:
the decline in recent years in government spending on vector
Court No. 97-11-01967                                                   Page 7


      In its Final Determination, the Commission found a threat of

material injury.         See Final Determination at 38.                However, the

Commission found no present material injury on the ground that the

"other factors," and not the subject imports from Japan, had caused

whatever    present      material    injury     the    domestic    industry      had

suffered.      See      Final    Determination    at    36.       In    its   Remand

Determination, the Commission again found a threat of material

injury, and explained its determination by demonstrating that the

"other factors" will decline in significance in the future.                      See

Remand Determination at 9-11.             Thus, although the "other factors"

will continue to affect the condition of the domestic industry,

they will not have such an overwhelming effect as to prevent a

finding of threat of material injury.            See Remand Determination at

13.

      Separately,       the     Commission     conducted      a   "vulnerability

analysis," and determined that the "other factors" had weakened the

financial condition of the domestic industry, thus rendering it
vulnerable to injury by reason of subject imports. See Remand

Determination    at     11-12.      The    Commission    then     considered     the

statutory factorsincluding the "other factors"in the context of

a vulnerable domestic industry, and determined that subject imports

themselves make a material contribution to the threat of material

injury.    See Remand Determination at 12.



supercomputers; the rise in the number of vector applications
that may be performed by non-vector supercomputers; and the
financial restructuring Cray undertook in the mid-1990's.
Court No. 97-11-01967                                      Page 8


     Plaintiff NEC contends that this approach fails to meet the

"by reason of" standard.      NEC rejects the "vulnerability analysis"

used by the Commission on the basis that it "effectively cumulates

the impact of imports with non-import factors, when the statute

requires just the opposite: that the Commission distinguish between

imports and non-import factors." Cmts. of NEC on the Commission’s

Remand Determination ("NEC Remand Cmts.") at 5-6.

     The    Court       disagrees.    In   a   threat   determination,

"vulnerability analysis" is appropriate and relevant to consider as

"among other relevant economic factors."4      U.S.C. § 1677(7)(F)(i)

(1994).    Underlying vulnerability analysis is the principle that


     4
      See, e.g., Calabrian Corp. v. United States Int’l Trade
Comm’n, 16 CIT 342, 353, 794 F. Supp. 377, 387 (1992)("The
present relative health of an industry is an important indicator
as to the imminence of material injury."); Bando Chem. Indus. v.
United States, 17 CIT 798, 803-04 (1993), aff’d 26 F.3d 139 (Fed.
Cir. 1994)(approving use of "vulnerability analysis" in threat
determination); Goss Graphics Sys., Inc. v. United States, 22 CIT
__, __, 33 F. Supp. 2d 1082, 1101 (1998), appeals docketed, Nos.
99-1150, 99-1151, 99-1152 (Fed. Cir. 1999)("ITC’s consideration
of the current state of the domestic industry was appropriate and
relevant to this proceeding."). The Statement of Administrative
Action to the Uruguay Round Agreements Act describes
vulnerability analysis in mandatory terms: "In threat
determinations, the Commission must carefully assess current
trends and competitive conditions in the marketplace to determine
the probable future impact of imports on the domestic industry
and whether the industry is vulnerable to future harm."
Statement of Administrative Action, H.R. Doc. No. 103-316 (1994),
reprinted in 6 Uruguay Round Agreements Act, Legislative History,
at 885 ("SAA").
     The SAA represents "an authoritative expression by the
Administration concerning its views regarding the interpretation
and application of the Uruguay Round agreements . . . ." SAA at
656. "[I]t is the expectation of the Congress that future
Administrations will observe and apply the interpretations and
commitments set out in this Statement." Id. (quoted in Delverde,
SrL v. United States, 21 CIT __, __, 989 F. Supp. 218, 229-30
n.18 (1997)).
Court No. 97-11-01967                                            Page 9


the foreign industry must "take the domestic industry as [it] finds

it."       Hosiden Corp. v. Advanced Display Mfrs. of Am., 85 F.3d 1561,

1569 (Fed. Cir. 1996) (quoting Iwatsu Elec. Co. v. United States,

15 CIT 44, 57, 758 F. Supp. 1506, 1518 (1991)). In Goss Graphics,

the Court endorsed the use of "vulnerability analysis," so long as

"the Commission did not substitute its finding of vulnerability for

consideration of the statutory criteria."5            Goss Graphics, 22 CIT

at __, 33 F. Supp. 2d at 1101.          Accordingly, an affirmative threat

determination based solely on a finding of vulnerability coupled

with the presence of statutory factors would be the kind of

temporal connection disapproved of in Gerald Metals.             Yet the "by

reason of" standard is met if the Commission can articulate a

causal connection between the threat of injury to the domestic

industry       and   the    subject   imports   themselves,   while   avoiding

attributing the threat from non-import factors to threat from

subject imports.           See Goss Graphics, 22 CIT at __, 33 F. Supp. 2d

at   1103      (affirming     the   Commission’s   conclusion   that,   "[t]he
vulnerability of the industry in combination with the adverse

trends of increased subject imports and the small number of pending

sales created the threat of material injury.").


       5
      See also Calabrian Corp., 16 CIT at 354, 794 F. Supp. at
388 (recognizing that vulnerability analysis "only establishes
the background against which the Commission considers the likely
effect of future imports, based on consideration of the factors
set forth in the statute"); Suramerica De Aleaciones Laminadas,
C.A. v. United States, 44 F.3d 978, 983 (Fed. Cir. 1994)(holding
that the Commission must examine all "factors that tend ’to make
the existence of a [threat of material injury] more probable or
less probable[.]’")(citing Fed. R. Evid. 401, 19 C.F.R. §
210.42(b) (1994))(brackets in original).
Court No. 97-11-01967                                                Page 10


       Here, the Commission acted properly.           Its analysis indicates

that       the    Commission    appreciated     the    distinction         between

"cumulating" and "distinguishing."            The Commission considered how

"other factors" had made the domestic industry vulnerable, not just

to the general impact of market forces, but to the specific impact

of the subject imports. Further, the Commission considered to what

degree "other factors" contributed to the threat of material injury

separate from, not in addition to, the contribution of the subject

imports.         The Commission concluded that (1) "other factors" are

not the overwhelming cause of the threat of material injury; (2)

"other      factors"   had,    however,   rendered    the   domestic    industry

vulnerable to the threat of subject imports; and (3) subject

imports themselves pose a material threat to this                    vulnerable

domestic industry, notwithstanding the ongoing contribution of

"other factors."        Thus, the Commission effectively distinguished

the    impact     of   non-import   factors   from    the   impact    of    import

factors.6
       Plaintiff Fujitsu opposes the Commission’s analysis by arguing


       6
      "Weighing," in the sense of determining whether the impact
of any one factor is more or less significant than the impact of
any other, is not required. The requirement is one of non-
attribution, as explained in Taiwan Semiconductor Indus. Ass’n v.
United States, 23 CIT __, 59 F. Supp. 2d 1324, 1331 (1999):
"Where other sources of injury are known, the Commission must
conduct some examination to ensure that it does not attribute the
harmful effects from the other factors to the subject imports."
Fujitsu accurately stated in its Remand Cmts. that, "one form of
’weighing’ is absolutely required, and that is the weighing by
which the Commission must determine whether imports ’themselves’
threaten to cause material injury or whether they threaten to
have only a de minimis or tangential effect." Fujitsu’s Cmts. on
the ITC’s Remand Determination ("Fujitsu Remand Cmts.") at 5-6.
Court No. 97-11-01967                                                     Page 11


that, "as a matter of law, the Commission could not make an

affirmative threat finding on remand without first considering the

impact which the relevant ’conditions of competition,’ which the

Commission refers to as ’vulnerability factors,’ would have on

Japanese imports."         Fujitsu Remand Cmts. at 2.                Buy American

restrictions, the prevalence of sole source procurements favoring

the domestic industry, the decline in government                       funding for

projects for which Japanese imports compete, and the increased

substitution of non-vector for vector systems "make it extremely

unlikely, if not impossible, for Japanese producers to increase

their U.S. sales volumes or market share . . . ."                 Fujitsu Remand

Cmts. at 27.

       The   Court   disagrees       with   Fujitsu   that     the    Commission’s

analysis necessarily failed to meet the required legal standard.

The Commission considered the evidence referenced by Fujitsu, but

reached the opposite conclusion as to their effects on Japanese

importers.      See discussion infra, Part 2.                  Fujitsu drew its
conclusion from the same evidence, while pointing to other evidence

on the record favorable to foreign producers.                  Nonetheless, "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. Federal

Maritime Com., 383 U.S. 607, 620 (1966); see also Goss Graphics, 22

CIT at __, 33 F. Supp. 2d at 1104 ("Although Plaintiffs are correct

that    some   of    the   record     evidence   could     lead      to     different

conclusions,     the    ITC    has    the   discretion    to    make       reasonable
Court No. 97-11-01967                                          Page 12


interpretations of the evidence and to determine               the overall

significance of any particular factor in its analysis.").

      The Commission’s approach demonstrates that the Commission

understood and applied the Court’s instruction on remand to "ma[k]e

the requisite determination that the LTFV imports themselves made

a material contribution to the threatened material injury." NEC I,

22 CIT at __, 36 F. Supp. 2d at 394.           Therefore, if the various

aspects of the Commission’s analysis are supported by substantial

evidence, and the Remand Determination is otherwise in accordance

with the law, the Commission will have complied with the Court’s

Remand Order.


2.    Is the Commission’s determination that the domestic industry
      is threatened with material injury supported by substantial
      evidence and otherwise in accordance with law?


      The   statute     governing   threat   determinations   requires   the

Commission to consider, "among other relevant economic factors,"

nine enumerated factors.       Four factors are relevant to this case:7


            (II) any existing unused production capacity or
            imminent,   substantial  increase   in  production
            capacity in the exporting country indicating the
            likelihood of substantially increased imports of
            the subject merchandise into the United States,
            taking into account the availability of other
            export markets to absorb any additional exports,
            (III) a significant rate of increase of the volume
            or market penetration of imports of the subject


     7
      Inventories and product shifting (factors V and VI) are not
relevant to this investigation. Remand Determination at 8.
Also, neither a countervailable subsidy (factor I) nor a raw
agricultural product (factor VII) is involved.
Court No. 97-11-01967                                   Page 13


           merchandise    indicating    the   likelihood    of
           substantially increased imports,
           (IV) whether imports of the subject merchandise are
           entering at prices that are likely to have a
           significant depressing or suppressing effect on
           domestic prices, and are likely to increase demand
           for further imports,
           ....
           (VIII) the actual and potential negative effects on
           the existing development and production efforts of
           the domestic industry, including efforts to develop
           a derivative or more advanced version of the
           domestic like product[.]

19 U.S.C. § 1677(7)(F)(i)(1994).

     Below, the Court reviews Commission’s analysis regarding each

of the relevant factors, including "other factors," to determine

whether substantial evidence supports its findings, and whether

that analysis was conducted in a manner consistent with the legal

standard articulated above and otherwise in accordance with law.8




     8
      Plaintiffs are correct in pointing out that, in the "price
effects" analysis contained in the Remand Determination, the
Commission "mistakes the Court’s use of an example showing how
the Commission omitted the required analytically distinct
determination of material cause for a complete statement of the
errors which it made." Fujitsu Remand Cmts. at 4. In NEC I, the
Court found the Commission’s analysis of one of the statutory
factorsthe price effects of future importsto be lacking in a
way that exemplified the legal error committed in the Final
Determination: "[T]he Court is nothing [sic] that neither the
Commission’s finding overall, nor its analysis of the individual
statutory threat factors, indicate that it applied the analysis
mandated by the Federal Circuit." 22 CIT at __, 36 F. Supp. 2d
at 393 n.9 (emphasis added). On remand, the Commission was
required to analyze all relevant statutory factors in a manner
consistent with the legal standard set out above. The Commission
consequently appears to have misinterpreted the Remand Order by
analyzing separately the price effects factor. See Remand
Determination at 1.   Nonetheless, the mistake need not be fatal,
if the Commission successfully addressed all relevant statutory
factors in other sections of the Remand Determination.
Court No. 97-11-01967                                  Page 14


     a.    Volume and Capacity



     The Commission found that subject import volumes and market

share increased significantly during 1996 and interim 1997, citing

the number of imported systems viewed absolutely and relative to

the number of domestic systems shipped, and the value and computing

power of those systems.9   The Commission also considered evidence

of the cancellation or postponement of several sales to Japanese

producers due to the pendency of its investigation.   Based on this

evidence, the Commission concluded that subject imports will likely

continue to enter the U.S. market at an increased volume.        See

Remand Determination at 7; Final Determination at 40-41.

     The Commission also explained how this increase in volume

threatens material injury to the domestic industry. First, because

of the small size of the vector supercomputer market in terms of

numbers of systems sold, and the high purchase price of each

system, the Commission concluded that the loss of even one sale has



     9
      Remand Determination at 6-7; Vector Supercomputers from
Japan, Inv. No. 731-TA-750 (Final)(List 2, Doc. 35)(Sept. 16,
1997)("Final Staff Report") at IV-5 (Table IV-2), IV-6 (Table IV-
3). Plaintiffs contend that the Commission should not have
included "internally transferred machines" in its computation of
the number of systems imported. See NEC Remand Cmts. at 26-27;
Fujitsu Remand Cmts. at 8-10. The Commission, however,
considered this evidence and decided not to credit respondents’
assertion that these machines were restricted to internal use
(see Final Determination at 41 n.133); furthermore, the
Commission has "discretion to make reasonable interpretations of
the evidence and to determine the overall significance of any
particular factor in its analysis." Goss Graphics, 22 CIT at __,
33 F. Supp. 2d at 1104; accord Maine Potato Council v. United
States, 9 CIT 293, 300, 613 F. Supp. 1237, 1244 (1985).
Court No. 97-11-01967                                             Page 15


a significant impact on the producer.          See Remand Determination at

12 (citing Final Staff Report at I-22, VI-2 (Table VI)).              Second,

Japanese producers have succeeded recently in making inroads into

the high end of the market, where profit margins are the greatest.10

Remand Determination at 7; Final Determination at 43 (citing Final

Staff Report at V-6 through V-7 (Table V-1), VI-3). The Commission

concluded that an increase in subject imports, aimed in part at the

high end of the market, combined with aggressive pricing, see

discussion infra Part 2.b, threatens the domestic industry with

material injury.        See Remand Determination at 12.

     The Commission also found that Japanese producers’ capacity

increased during the period of investigation, and that capacity

will increase in the future.        See Remand Determination at 8; Final

Determination at 38 (citing Final Staff Report at VII-7 (Table VII-

1), VII-8 (Table VII-2)). The Commission pointed to evidence that,

in the supercomputer industry, capacity levels are set by the

decision to produce a certain number of products, rather than
material or other production constraints. See Remand Determination

at 8; Final Determination at 38-39 (citing Final Staff Report at

VII-4).     Therefore,      the   Commission   found   that   a   decision   by

Japanese producers to substantially increase imports into the

United States is feasible in terms of capacity.                    See Remand



     10
      The most important of these transactions was the proposed
sale of an NEC vector supercomputer to the University Corporation
for Atmospheric Research ("UCAR"). This high-value contract was
canceled, however, due to the Commission’s investigation. See
Remand Determination at 18-19.
Court No. 97-11-01967                                   Page 16


Determination at 8; Final Determination at 39.     In addition, the

Commission cited trend evidence indicating that, as a percentage of

total systems shipped, exports to both the Japanese market and

other export markets will decline, while imports to the United

States will increase in the future.11   See Remand Determination at

8; Final Determination at 39 (citing Final Staff Report at VII-7

(Table VII-1)). Considering all the evidence, we conclude that the

Commission’s findings are supported by substantial evidence and

otherwise in accordance with the law.

     Plaintiff Fujitsu argues that the Commission has failed to

prove, in an "analytically distinct step," that increased import

volumes   would "by themselves" threaten material injury.         See

Fujitsu Remand Cmts. at 6.     The Court does not agree that the

Commission is required to take such a step with respect to each

individual statutory factor.   The key to the "by reason of" test is



     11
      Plaintiff Fujitsu argues that there is insubstantial
evidence to support the conclusion that increased imports to the
United States will continue in the future. The cancellation of
the UCAR transaction has apparently made government buyers wary
of purchasing from Japanese producers. Fujitsu Remand Cmts. at
16-17. The Commission, however, found more persuasive evidence
of four potential sales of NEC vector supercomputers, three to
commercial buyers and one to a government entity, and four
potential sales of HNSX products, all to commercial buyers.
Though some of these sales were canceled due to the pendency of
the antidumping investigation, this evidence demonstrates that,
even if the domestic industry had a monopoly over government
sales, a significant commercial market exists for Japanese
exports. See Final Determination at 41-42 & n.134; Final Staff
Report at V-7 (Table V-1), V-10 (Table V-2), V-16 (Table V-5), V-
19 (Table V-6); Vector Supercomputers from Japan, Inv. No. 731-
TA-750 (Final)(List 2, Doc. 21)(Aug. 21, 1997) ("Cray Pre-Hearing
Brief") at Annexes E, F. The Court finds that Plaintiffs have
failed to show that the Commission’s evidence is insubstantial.
Court No. 97-11-01967                                               Page 17


a showing that "these factors as a whole indicate that the LTFV

imports made a material contribution to the threat of the material

injury."      Goss Graphics, 22 CIT at __, 33 F. Supp. 2d at 1090

(emphasis added).          The Commission, in analyzing import factors

separately, need only meet the individual factor requirements of

§ 1677(7)(F)(i)(I-IX); here, for example, that unused capacity and

volume      increases     "indicat[e]    the   likelihood   of    substantially

increased imports."         In the course of its analysis, the Commission

must also meet the "as a whole" requirement of § 1677(7)(F)(ii);

that    is,   it   must    demonstrate    that   the   domestic    industry   is

threatened with material injury by reason of subject imports

themselves, considering the statutory factors as a whole. That the

Commission weaves these various elements of the analysis into the

fabric of its threat determination does not mean that it has failed

to meet the "by reason of" standard.12




       12
      NEC I emphasized that there is no "’magic words
analysis.’" 36 F. Supp. 2d at 393 n.9. The Commission need not
lay out its analysis in some prescribed way, so long as the legal
standard is met: "’A court may "uphold [an agency’s] decision of
less than ideal clarity if the agency’s path may be reasonably
discerned."’" Id. (citations omitted) (brackets in original).
Court No. 97-11-01967                                                   Page 18


        b.      Price Effects



        The     Court   ordered      the    Commission    "to   explain   how     bids

involving imports would affect future prices when prices has [sic]

not been previously determinative."                NEC I, 22 CIT at __, 36 F.

Supp. 2d at 394.           In its Remand Determination, the Commission

responded that price is and has always been an important factor,13

but that "adverse price effects were not significant during the

[present material injury] investigation, rather than nonexistent."

Remand        Determination     at    16.       With     respect   to   the   threat

determination, however, the Commission found that "subject imports

are likely to suppress or depress prices to a significant degree in

the imminent future."         Remand Determination at 17.

     Plaintiffs contest the causal relationship between domestic

price        declines and imported products.14              NEC argues that the



        13
      The Commission pointed to anecdotal evidence on the record
of purchasers’ desire to obtain the highest price/performance
ratio, and the role price plays in the bidding procedure, to
substantiate its finding that "price is a critical factor in all
purchasing decisions." Remand Determination at 14-16 & nn.52-54,
56-57 (citing several confidential Questionnaire responses).
Fujitsu produced detailed analysis to show that purchases of
Japanese products were made for reasons other than price. See
Fujitsu Remand Cmts. at 11-14. The record indicates, however,
that only one of these purchasers did not consider price at all.
In all the other purchases, price appears to have been an
important consideration. See Final Staff Report at V-28 through
V-32.
        14
      In Taiwan Supercomputers, this Court held that, in order
to prove the causal relationship between the underselling of
imports and domestic price declines, price declines that may be
attributed to other factors must be accounted for. See 23 CIT at
__, 59 F. Supp. 2d at 1333.
Court No. 97-11-01967                                                 Page 19


Commission minimized the price effects of non-import factors, in

particular the advance of technology.            See NEC Remand Cmts. at 19-

20. Fujitsu argues that the Commission failed to take into account

the price effects of non-vector systems, claiming that competition

from    aggressively     priced   non-vector     systems   is   to     blame    for

declines in prices of domestic vector systems.             See Fujitsu Remand

Cmts. at 21-27.

       The Court disagrees.        First, the Commission did take into

account the price effects of non-vector systems at the low to

middle end of the market; the Commission found that competition

from non-vectors does not significantly affect the high end of the

vector market.     See Remand Determination at 17 (citing Final Staff

Report at I-22).        Plaintiff Fujitsu challenges this finding, but

fails to distinguish between evidence that some non-vector systems

are sold at very high prices and evidence that the overlap of

markets     for   non-vector      and   vector     systems,     and     therefore

competition between the two systems, occurs primarily at the low to
middle end of the market.15


       15
      Record evidence indicates that, while non-vector systems
did bid for high-value sales for which vector systems also
competed, the non-vector bids were largely unsuccessful. See
Final Staff Report at V-8 through V-11 (Table V-2), V-17 through
V-19 (Table V-6); see also Def.’s Response to Cmts. on
Commission’s Remand Determination at 30-31. The high-value sales
actually won by non-vector systems appear to have included bids
only from other non-vector producers, or were sole-sourced. See,
e.g., Vector Supercomputers from Japan, Inv. No. 731-TA-750
(Final)(List 2, Doc. 144)(Sept. 5, 1997)(Questionnaire -
Purchaser Filed by University A) at 16-18; Vector Supercomputers
from Japan, Inv. No. 731-TA-750 (Final)(List 2, Doc. 164)(Sept.
19, 1997)(Questionnaire - Producer Filed by Company A)("Company A
Responses") at 2, 5-6. In light of the Commission’s earlier
Court No. 97-11-01967                                                 Page 20


     Second, while NEC is correct that the Commission did not

explicitly address the tendency of improved technology to put

downward pressure on prices, the Commission did so implicitly by

addressing the unnatural downward pressure on prices caused by

aggressive pricing of products on technical parity with their

competitor.      The Commission found that aggressively priced subject

imports16 had been of a lower quality than the domestic product

during    most     of   the   period   of   investigation.17          See   Remand

Determination at 17.          The UCAR sale demonstrated that while the

"quality gap" had closed, aggressive pricing continued. See Remand

Determination at 18-20 & n.65 ("We believe that a comparison of the

initial and final bid data reported by NEC provides a rough

indication    of    the   magnitude    of   the   change   in   the    price    per

GFLOPS.")(quoting Vector Supercomputers from Japan, Inv. No. 731-



finding that vector and non-vector systems are not "like
products" (Final Determination at 21), the Commission has
presented substantial evidence of separate markets for high-value
vector and non-vector systems.
     16
      The record indicates aggressive pricing of imported
products in three out of five bids for which domestic and foreign
producers competed. See Final Staff Report at V-27. The
domestic producer was forced to lower its prices in at least two
of these three instances. See Final Staff Report at V-32;
Company A Responses at 25.
     17
      NEC and Fujitsu challenge the Commission’s finding that
Japanese supercomputers became competitive with domestic
supercomputers only at the end of the period of investigation.
See NEC Remand Cmts. at 16; Fujitsu Remand Cmts. at 20-21. While
some record evidence might indicate that performance parity was
reached at an earlier point in time, the Court is persuaded that
the Commission provided substantial evidence in support of its
conclusion. See Remand Determination at 18 & nn.63-64 (citing
several confidential Questionnaire responses and Staff Notes).
Court No. 97-11-01967                                              Page 21


TA-750 (Final)(List 2, Doc. 169)(Sept. 19, 1997)(Questionnaire -

Importer Filed by Company B) at 16; citing Final Staff Report at V-

11 (Table V-2)). The Commission concluded from this evidence that

price   has    become      a    significant    distinguishing   characteristic

between systems of equal quality.             See Remand Determination at 20

& n.71.

     Furthermore, the Commission pointed to evidence on the record

that key terms of supercomputer contracts, including price and

performance values, are often disclosed post-sale to other buyers,

both commercial and government, leading to an expectation among

buyers of a similar low price for the same performance level in

future bids. See Remand Determination at 16 & nn.59-60.                      This

"lighthouse effect" will have the consequence, as the terms of the

UCAR sale become known, of creating an expectation among buyers

that similarly performing imports will be offered at that same low

price in the future, resulting in further aggressive bidding.                 See

Remand Determination at 20.              The Commission concluded that the
prospect      of   lower       prices   for   similarly   performing   products

reinforces the imminence of increased imports, see discussion supra

Part 2.a, while "the aggressive pricing of the significant volume

of subject imports is likely to suppress domestic prices to a

significant degree."           Id. at 21.

     On remand, the Commission addressed the deficiencies of its

previous analysis of price effects.                It found on the basis of

substantial evidence that market conditions have caused price to

become a significant factor, and that post-sale communication of
Court No. 97-11-01967                                               Page 22


bid information will reinforce aggressive pricing trends.                     The

Court thus upholds the Commission’s conclusion that aggressively

priced imports are likely to depress or suppress domestic prices,

and increase demand for subject imports.




     c.     Research and Development



     The Commission found that research and development efforts by

the domestic industry are threatened by aggressive pricing and

increased    import     volumes    of    Japanese    products.      See    Remand

Determination    at     12-13.     The   nature     of   the   industry   demands

capital-intensive, continuous technical innovation leading toward

the next generation product. See Remand Determination at 12-13

(citing Cray Pre-Hearing Br. at 28-30); Final Determination at 46.

The Commission concluded that aggressive pricing and increased

import volumes will make it difficult to pursue next generation
products, since the number of and rate of return on successful bids

will decline. See Remand Determination at 13.

     Plaintiff NEC argues that the Commission cannot both claim (1)

that the domestic industry is in a better position to compete since

a major 1995 restructuring program, and (2) that its research and

development efforts are threatened by subject imports.                    See NEC

Remand Cmts. at 28-29.            Yet the first claim of the Commission

plainly does not apply to domestic industries competing with LTFV

imports. It is not incompatible to find that the domestic industry
Court No. 97-11-01967                                             Page 23


is in a better position to compete with fairly-traded imports, and

that research and development efforts will be negatively affected

by a significant increase of aggressively priced imports.                    The

Commission’s conclusion regarding research and development follows

from its findings on volume, capacity, pricing, and the nature of

research and development in the supercomputer industry.               The Court

holds that the Commission has cited substantial evidence of a

causal connection between subject imports and a potential negative

effect on research and development.


     d.     Other Relevant Economic Factors



     As mentioned above, the Commission considered the contribution

of "other factors" in its injury determination, and found no

present material injury.         On remand, the Commission reconsidered

the effects of these "other factors" with regard to the threat

determination.       In its first step, the Commission concluded that
each of the "other factors," while still contributing to some

degree to the threatened injury, will decrease in significance in

the future.     Thus, the contribution of the "other factors" is no

longer so great that the contribution of subject imports must

necessarily be minimal.          In its second step, the Commission re-

evaluated the threat of material harm to the domestic industry. It

concluded     that    "other    factors"     make   the   domestic    industry

vulnerable    to     the   effects   of   subject   imports,   such   that   the

contribution of the subject imports to the threat of material
Court No. 97-11-01967                                             Page 24


injury is more than de minimis.


              i.     Government Spending



           The Commission     found that government spending will not

decline significantly in the future.            See Remand Determination 9-

10.   The Court holds, over NEC’s objection to the contrary, see NEC

Remand Cmts. at 9-10, that the record evidence supports this

finding.         The government market for vector systems is still of

substantial volume and value, suggesting that the government has

not exited entirely from the supercomputer market. See Final Staff

Report at II-1, II-3.             Further, a drastic drop in government

spending occurred between 1994 and 1995; thereafter, government

spending increased, though not reaching 1994 levels.               See Final

Staff Report at II-3.             While the overall decline in government

spending during the period of investigation was severe enough to

prevent      a     finding   of    material   injury,   the   Commission    had
substantial evidence upon which to conclude that the future effect

of this "other factor" will not be the same as the present effect.18


              ii.    Substitution of Non-Vector for Vector Systems



      The Commission found that non-vector systems are not likely to



      19
      This forward-looking approach "is not the same perspective
and may not lead to conclusions reached about material injury to
the domestic industry now." Bando, 17 CIT at 804.
Court No. 97-11-01967                                    Page 25


cause significantly greater deterioration of the vector market;

thus, demand for vector systems will stabilize, and the domestic

industry will be less threatened by non-vector systems in the

future. See Remand Determination at 10-11.     NEC again objects that

there is insufficient evidence to support this finding.      See NEC

Remand Cmts. at 10-13.   Again the Court disagrees.   The market for

vector supercomputers did indeed become smaller during the period

of investigation, and is not projected to regain its former size.

See Final Staff Report at II-1 through II-3.    There is, however, a

"core" group of vector applications, see Final Staff Report at II-

10 & n.17, for which substitution of a non-vector system is

currently technologically and economically impractical.    See Final

Staff Report at II-17.   Further, the Commission found, on the basis

of record evidence, that the value of vector supercomputers sold in

the U.S. increased and then plateaued at the end of the period of

investigation, indicating that the deterioration of the vector

market may have diminished somewhat.    See Remand Determination at
10 (citing Final Staff Report at C-3).     Finally, the Commission

cited anecdotal evidence suggesting that projected demand for

vector systems is stable.   See Remand Determination at 10 (citing

Final Staff Report at II-7).      The Commission cited sufficient

evidence in support of its conclusion that the effects of the

substitution of non-vector for vector systems would decline in the

future.


           iii. Restructuring Program
Court No. 97-11-01967                                            Page 26




     Cray, the dominant domestic producer, underwent a massive

restructuring program during the period of investigation, "partly

in   response    to     the   reduction    and   change    in    demand    for

supercomputers."        Remand Determination at 11.       Based on evidence

that these restructuring costs had been absorbed by the end of the

period of investigation, however, see Final Staff Report at VI-4,

the Commission found that the restructuring program poses no future

threat to the domestic industry. See Remand Determination at 11.


           iv.   Vulnerability Analysis



     The Commission concluded that the "other factors," while

continuing to contribute directly to the threat of material injury,

also contribute indirectly insofar as they "render the industry

vulnerable to material injury by reason of subject imports."               See

Remand Determination at 11.          Because of the declining government
market, the Commission found that the domestic industry will have

to compete directly with subject imports in the commercial market

for an increased proportion of its sales.         See id. at 10; see also

supra,    note    11.         Further,    competition     from    non-vector

supercomputers has eroded the low to middle end of the market for

vector systems.         See Final Staff Report at I-22 through I-23.

Competition between domestic and imported vector supercomputers

consequently occurs primarily at the high end of the price range

for vector systems.        See id.    The Commission found that, because
Court No. 97-11-01967                                         Page 27


each high end sale "has a significant impact on the vendor’s

revenues,"    this   "other   factor"   renders   the   domestic   industry

vulnerable to injury from an increased volume of aggressively

priced subject imports.        Remand Determination at 12.         Finally,

following its restructuring program, "[w]hile Cray has positioned

itself to better compete in the marketplace, it has little room to

counter the aggressive pricing likely to be presented by the

subject imports." See id. at 12.

     As noted above, the Court does not disfavor "vulnerability

analysis" per se, provided the Commission conducts an "analysis to

distinguish between the contribution to material harm caused by

LTFV goods and these economic factors unrelated to the subject

imports."    NEC I, 22 CIT at __, 36 F. Supp. 2d at 392.       On remand,

the Commission has provided substantial evidence of the causal

connection between the subject imports themselves and the threat of

material injury to the domestic industry.          While it is critical

that the Commission consider the contribution of "other factors" to
the threatened injury, as it did here, the Commission should not

evaluate the contribution of imports as if the domestic industry

existed in a vacuum.
                               Conclusion

     The   Commission’s    affirmative    determination   of   threat    of

material   injury   is   supported   by   substantial   evidence   on   the

administrative record and otherwise supported by law. Accordingly,

the Commission’s Remand Determination is affirmed.




                                                Donald C. Pogue
                                                     Judge

Dated:     December 17, 1999
           New York, New York
                                           ERRATUM



         Slip Op. 99-136, issued December 17, 1999

         NEC Corporation v. U.S.


         This is a consolidated case. Please change the court number to Consol. Ct. No. 97-11-
01967.



December 20, 1999
