                                     Slip Op. 18-148

               UNITED STATES COURT OF INTERNATIONAL TRADE


 TOSÇELIK PROFIL VE SAC
 ENDÜSTRISI A.ù., AND TOSYALI DIS
 TICARET A.ù., ÇAYIROVA BORU
 SANAYI VE TICARET A.ù., AND YÜCEL
 BORU ITHALAT-IHRACAT VE
 PAZARLAMA A.ù.,

                     Plaintiffs,                    Before: Leo M. Gordon, Judge

                                                    Consol. Court No. 15-00339
                      v.

 UNITED STATES,

                     Defendant.


                                   OPINION AND ORDER

[Remand Results remanded.]

                                                                Dated: October 24, 2018

        David L. Simon, Law Offices of David L. Simon of Washington, DC, argued for
Plaintiffs Tosçelik Profil ve Sac Endüstrisi A.ù., Tosyali Dis Ticaret A.ù., Çayirova Boru
Sanayi ve Ticaret A.ù., and Yücel Boru Ithalat-Ihracat ve Pazarlama A.ù.

       Elizabeth A. Speck, Senior Trial Counsel, Commercial Litigation Branch,
U.S. Department of Justice of Washington, DC, for Defendant United States, argued for
Defendant. With her on the brief were Chad A. Readler, Acting Assistant Attorney
General, Jeanne E. Davidson, Director, Claudia Burke, Assistant Director. Of counsel
was Saad Y. Chalchal, Attorney, U.S. Department of Commerce, Office of Chief Counsel
for Trade Enforcement and Compliance of Washington, DC.

      Gordon, Judge: This action involves the U.S. Department of Commerce

(“Commerce”) antidumping duty investigation covering welded line pipe from the Republic

of Korea and the Republic of Turkey. See Welded Line Pipe from the Republic of Turkey,

80 Fed. Reg. 61,362 (Dep’t of Commerce Oct. 13, 2015) (final determination of sales at
Consol. Court No. 15-00339                                                          Page 2


less than fair value) (“Final Determination”); see also Issues and Decision Memorandum

for Welded Line Pipe from the Republic of Turkey, A-489-822 (Dep’t of Commerce

Oct. 13, 2015), available at http://enforcement.trade.gov/frn/summary/turkey/2015-

25990-01.pdf (last visited this date) (“Decision Memorandum”).

       Before the court are the Final Results of Redetermination (“Remand Results”),

ECF No. 67-1, filed by Commerce pursuant to Toscelik Profil ve Sac Endustrisi, A.S. v.

United States, 41 CIT ___, 256 F. Supp. 3d 1260 (2017), and the comments of Plaintiffs

Çayirova Boru Sanayi ve Ticaret A.ù. and Yücel Boru Ithalat-Ihracat ve Pazarlama A.ù.

(collectively, “Çayirova”), as well as Tosçelik Profil ve Sac Endüstrisi A.ù. and Tosyali Dis

Ticaret A.ù. (collectively, “Tosçelik”). See Pls.’ Comments on Final Result of

Redetermination Pursuant to Remand, ECF No. 74 (“Pls.’ Cmts.”); see also Def.'s Reply

to Comments on the Remand Redetermination, ECF No. 77 (“Def.’s Resp.”). For the

reasons that follow, the court remands this matter to Commerce to recalculate Plaintiffs’

duty drawback adjustment.

                                  I. Standard of Review

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

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

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

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

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

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

evidence has been described as “such relevant evidence as a reasonable mind might
Consol. Court No. 15-00339                                                      Page 3


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

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

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

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

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

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

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

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

Practice § 9.24[1] (3d ed. 2018). Therefore, when addressing a substantial evidence issue

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

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

Forms, National Courts § 3.6 (5th ed. 2018). Familiarity with the prior judicial and

administrative decisions in this action is presumed.

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

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

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

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

unambiguous statutory language to the contrary or unreasonable resolution of language

that is ambiguous.”).

                             II. Duty Drawback Framework

      Duty drawback is a term of art in international trade that typically refers to a

program (in a given country) pursuant to which import duties on merchandise may be
Consol. Court No. 15-00339                                                      Page 4


recouped by the subsequent exportation of that merchandise. The antidumping statute

specifically addresses duty drawback programs by directing Commerce to increase

export price by “the amount of any import duties imposed by the country of exportation

which have been rebated, or which have not been collected, by reason of the exportation

of the subject merchandise to the United States.” 19 U.S.C. § 1677a(c)(1)(B). Commerce

applies a two-pronged test for duty drawback adjustments:

             (1) the import duty paid and the rebate payment are directly
             linked to, and dependent upon, one another (or the exemption
             from import duties is linked to exportation); and (2) there are
             sufficient imports of the imported raw material to account for
             the drawback received upon the exports of the manufactured
             product.

Antidumping Methodologies: Market Economy Inputs, Expected Non-Market Economy

Wages, Duty Drawback, 71 Fed. Reg. 61,716, 61,723 (Dep’t of Commerce Oct. 19, 2006)

(“Duty Drawback Methodology”); see also Far East Machinery Co. v. United States,

12 CIT 972, 699 F. Supp. 309 (1988).

      Turkey has a duty drawback program known as the Inward Processing Regime

(“IPR”). See Decision Memorandum at 7; Remand Results at 6. Under the IPR, Turkish

companies apply for import duty exemptions through certificates (“DIIBs”). DIIBs detail

(1) the quantity of raw materials that a company intends to import under the Turkish IPR

without payment of import duties and (2) the quantity of actual exports. See Decision

Memorandum at 4; Remand Results at 1.

      The IPR satisfies Commerce’s two-pronged duty drawback test. See Decision

Memorandum at 7 (citing Steel Concrete Reinforcing Bar from Turkey, 79 Fed. Reg.
Consol. Court No. 15-00339                                                           Page 5


54,965 (Dep’t of Commerce Sept. 15, 2014) (final negative determ.) and Certain Oil

Country Tubular Goods from the Republic of Turkey, 79 Fed. Reg. 41,971 (Dep’t of

Commerce July 18, 2014) (final determ.)). In this action Commerce imposed additional

criteria for Plaintiffs’ duty drawback adjustment: (1) the claimed DIIBs must have been

“closed” during the period of investigation (the “POI limitation”); and (2) the import

certificates must have reflected exports to the United States of welded line pipe. See

Remand Results at 3.

       At issue in this action is the first of those criteria, the POI limitation. The parties

agree that a DIIB must have been closed,1 but disagree about when that closure must

have occurred. Commerce, as noted, requires closure during the POI. Plaintiffs argue that

Commerce should include DIIBs closed prior to verification. Çayirova submitted two DIIBs

to Commerce for use in its drawback adjustment, DIIBs #1650 and #6794. Commerce

determined that neither DIIB could be used for Çayirova’s drawback adjustment because

DIIB #1650 had no U.S. sales in the POI and DIIB #6794 did not close until after the POI.

See Pls.’ Cmts. at 6; Remand Results at 4. Çayirova only challenges Commerce’s refusal

to use DIIB #6794 due to the POI limitation. Tosçelik submitted six DIIBs to Commerce

for use in its drawback adjustment, DIIBs #2756, #2794, #2795, #3171, #5139, and

#5560. Pls.’ Cmts. at 23. Commerce determined that only DIIBs #2756 and #2795 were




1
  In the investigation Commerce considered a DIIB “closed” after it expired, at which point
the DIIB holder could no longer apply any additional imports or exports to the DIIB. See
Remand Results at 2 n.4. Subsequent to the investigation, and not relevant here,
“Commerce’s practice has since evolved, and it now defines a DIIB as closed on the date
the DIIB holder applies for closure of the DIIB with the Turkish Government.” Id. at 3 n.10.
Consol. Court No. 15-00339                                                          Page 6


suitable for use in the drawback adjustment, finding that DIIBs #3171, #5139, and #5560

did not contain exports of subject merchandise to the United States and that DIIB #2794

did not close until after the POI. See id.; Remand Results at 4. Tosçelik only challenges

Commerce’s refusal to use DIIB #2794 due to the POI limitation. Critically, Commerce

collected and verified information on all of the DIIBs submitted by Plaintiffs (regardless of

whether the DIIBs closed within the POI or not) for the amount of Plaintiffs’ uncollected

import duties. See Remand Results at 3.

       Commerce, for its part, has struggled to identify a reasoned basis for its POI

limitation. In the Final Determination Commerce merely concluded that the POI limitation

applied. Final Determination at 11. When Plaintiffs challenged that determination here,

Commerce requested a voluntary remand to provide an explanation for the new criterion.

See Def.’s Resp. in Opp’n to Pls.’ Mot. for J. Upon the Agency R., ECF No. 43 at 14–17.

On remand, Commerce tried to explain the POI limitation, but faltered. Commerce thought

the POI limitation might thwart potential manipulation of “information reflected on the

DIIBs prior to their closure.” See Remand Results at 13. Commerce abandoned this

“manipulation” rationale, however, because there was no evidence that respondents had

manipulated the drawback information. Id. Consequently, in the final Remand Results,

Commerce settled upon yet another new rationale for the POI limitation. Id. at 5.

       Commerce’s newest rationale for the POI limitation is that it reasonably allows

Commerce to evaluate respondents’ “actual duty liability extinguished… during the POI.”

Id. at 8. Commerce also contends that the POI limitation helps to make computing

respondents’ duty drawback “more administrable for Commerce.” Id. According to
Consol. Court No. 15-00339                                                          Page 7


Commerce: “1) it affords Commerce sufficient time to analyze the data and notify

respondents of any deficiencies; 2) it avoids the potential for the double counting of claims

in multiple segments; and 3) it provides predictability and transparency in the

administration of duty drawback claims.” Id. at 13.

                                      III. Discussion

       In the Remand Results Commerce noted that “neither the duty drawback statute

nor the legislative history provides guidance on the methodology to be used in

determining the amount of these uncollected duties,” and, “in the absence of such

guidance, Commerce may develop reasonable methodologies to fill gaps in the statute.”

Remand Results at 7. Here, Commerce was apparently hoping to frame its POI limitation

as a Chevron step two issue. Although Congress certainly was not thinking about the

Turkish IPR when drafting the duty drawback adjustment provision, Congress did speak

clearly when it required Commerce to increase export price by the amount of a

respondent’s duty drawback. See 19 U.S.C. § 1677a(c)(1)(B). Against that statutory

requirement, Commerce and the interested parties did an excellent job in the investigation

and remand proceeding working through the complexities of the Turkish IPR. Commerce

and Plaintiffs are basically in agreement on most of the challenging issues to account for

Plaintiffs’ duty drawback adjustment: When does a DIIB close? How does the DIIB

information get reflected in Plaintiffs’ margin calculation? The only remaining question is

the reasonableness of Commerce’s POI limitation that excluded some of the verified

closed DIIBs. That question is ultimately not a legal issue resolved under the second

prong of Chevron, but a substantial evidence issue in which the court evaluates the
Consol. Court No. 15-00339                                                        Page 8


reasonableness of Commerce’s POI limitation given the administrative record.

As explained above, Commerce’s POI limitation has always been a result in search of a

rationale, and in the Remand Results, Commerce failed to identify a reasonable

explanation supported by the record.

       Commerce tried to justify the POI limitation by equating a respondent’s import duty

liability with a standard “cost or expense” that goes into a respondent’s overall Cost of

Production (“COP”) for producing subject merchandise:

              Given that the transactions at issues [sic] here relate to duties
              on imported raw materials, and that raw materials are among
              costs included in COP, we find that limiting the duty drawback
              of those duties to amounts earned during the POI to be
              particularly appropriate.

Remand Results at 10–11. Commerce concluded that because respondents’ import duty

liabilities during the POI are similar to costs, Commerce’s “general practice of examining

costs and expenses during the POI” justifies the adoption of the POI limitation in this

matter. Id. at 12.

       Plaintiffs persuasively counter that Commerce’s explanation is unreasonable given

the operation of the Turkish drawback program, and Commerce’s own treatment of

various other margin adjustments. Plaintiffs explain that the respondents’ imports of raw

materials consumed in the POI “may, or may not, have been imported under one of the

DIIBs used – or opened, or closed – in the POI,” and that there “is literally no linkage

between DIIB usage and cost accounting, particularly since the duties foregone do not

show up in the respondent’s accounting system at all.” Pls.’ Cmts. at 11. Plaintiffs also

explain that Commerce’s claimed “‘general practice’ has so many exceptions that it is
Consol. Court No. 15-00339                                                             Page 9


more a starting point than an actual practice.” Id. at 8. For instance, “[f]or annual rebates,

Commerce relies on rebate ratios of the most recently completed rebate period, even if

that is entirely or partially in the year before the reporting period.” Id. Plaintiffs note that

Commerce’s claim that its analysis of COP data is limited to the POI is also not quite

accurate. “In the cost of production, Commerce uses ratios for general and administrative

expenses and interest expense from whatever full fiscal year closed in the period of

review.” Id. Through these examples (and Plaintiffs’ overall persuasive command of the

antidumping calculation), Plaintiffs demonstrate that Commerce’s treatment of costs and

expenses tends to depend on the nature of the expense, rather than a consistent,

imagined adherence to calculating all costs solely that occur and are accounted for in the

POI. And here, Plaintiffs’ duty drawback is “not recorded in a company’s books.” Pls.’

Cmts. at 12.

       Understanding that its primary justification was inadequate alone, Commerce

provided a “secondary” rationale for the POI limitation, contending that it helped to make

computing respondents’ duty drawback “more administrable for Commerce.” Remand

Results at 8. According to Commerce: “1) it affords Commerce sufficient time to analyze

the data and notify respondents of any deficiencies; 2) it avoids the potential for the double

counting of claims in multiple segments; and 3) it provides predictability and transparency

in the administration of duty drawback claims.” Id. at 13.

       Regarding the need for time to confirm the accuracy of data, Commerce reasoned

that it would be “impracticable for Commerce to rely on information concerning DIIBs

closed after the POI” because “Commerce must review numerous spreadsheets,
Consol. Court No. 15-00339                                                        Page 10


duplicate and confirm calculations set forth by the respondents and confirm calculations

set forth by respondents and analyze them for errors, and conduct a new analysis to

determine whether the revised data meet Commerce’s two-prong test.” Id. at 17. Although

Commerce poses an interesting hypothetical of impracticability, there was no

impracticability here because Commerce verified the usage and closure of the DIIBs on

the record, including those that closed after the POI, and all of which included exports to

the United States made during the POI. See Pls.’ Cmts. at 6, 13, 23. Commerce’s stated

concerns about the timeliness of drawback data submissions do not apply to this

administrative record. This action simply does not involve untimely information or a failure

to honor statutory and regulatory time limits. See id. at 16. And Commerce’s verification

of all the closed DIIBs belies its arguments that it would be impracticable to do so.

Commerce did it.

       Commerce’s next reason about possible double-counting lacks merit. Commerce

felt that without the POI limitation Commerce would need a DIIB tracking system

“to prevent counting the same DIIB in multiple segments of a particular proceeding.”

Remand Results at 18. Commerce’s double-counting rationale fails because a DIIB

simply cannot be double-counted from one segment to the next. Pls.’ Cmts. at 15. The

duty drawback ratio is not exhausted by its having been reported in a given segment of a

proceeding. Id. at 13. Two exports that are in different administrative review periods that

occur on the same DIIB are entitled to the same adjustment. Id.

       And although Commerce hopes that, “the acceptance of DIIBs closed as of

particular date . . . lends additional transparency and predictability to the administration
Consol. Court No. 15-00339                                                         Page 11


of the antidumping law,” Remand Results at 18, Plaintiffs persuasively counter that there

is no “element of predictability or transparency served by denying a drawback adjustment

that has been verified and the accuracy of which is not in question.” Pls.’ Cmts. at 15.

The court agrees with Plaintiffs. Commerce’s imposition of the POI limitation in this matter

unreasonably undercuts its stated goals of accuracy, transparency, and predictability by

ignoring verified record information. The one reasonable thing to do here is calculate

Plaintiffs’ duty drawback adjustments consistent with that verified information.

                                     IV. Conclusion

       In accordance with the foregoing, it is hereby

       ORDERED that Commerce shall calculate the drawback ratio using the verified

information on the record, incorporating DIIB #6794 for the calculation of Çayirova’s

drawback adjustment, and DIIB #2794 for the calculation of Tosçelik’s drawback

adjustment; and it is further

       ORDERED that Commerce shall file its remand results on or before December 7,

2018; and it is further

       ORDERED that, if applicable, the parties shall file a proposed scheduling order

with page/word limits for comments on the remand results no later than seven days after

Commerce files its remand results with the court.



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

Dated: October 24, 2018
       New York, New York
