                          Slip Op. 12-86

           UNITED STATES COURT OF INTERNATIONAL TRADE




THAI PLASTIC BAGS INDUSTRIES CO.,
LTD., POLYETHYLENE RETAIL CARRIER
BAG COMMITTEE, HILEX POLY CO.,
LLC, and SUPERBAG CORPORATION,           Before: Donald C. Pogue,
                                                 Chief Judge
                 Plaintiffs,
                                         Consol.1 Court No. 11-00086
           v.

UNITED STATES,                                 Public Version

                 Defendant.




                               OPINION


[Plaintiffs’ motion for judgment on the agency record GRANTED in
part and DENIED in part].


                                                 Dated: June 18, 2012


           Irene H. Chen, Cen Law Group LLC, of Rockville, MD, and
Mark B. Lehnardt, Lehnardt & Lehnardt LLC, of Liberty, MO, for
Plaintiff.

          Joseph W. Dorn, Stephen A. Jones, and Daniel L.
Schneiderman, King & Spalding, of Washington, DC, for
Consolidated Plaintiffs.

          Vincent D. Phillips, Trial Attorney, Commercial
Litigation Branch, Civil Division, U.S. Department of Justice, of


     1
       This action is consolidated with Court Nos. 11-00086 and
11-00090.
Consol. Court No. 11-00086                                  Page 2

Washington, DC, for Defendant. With him on brief were Stuart F.
Delery, Acting Assistant Attorney General, Jeanne E. Davidson,
Director, and Patricia M. McCarthy, Assistant Director. Of
counsel on the brief was Scott D. McBride, Senior Attorney,
Office of the Chief Counsel for Import Administration, U.S.
Department of Commerce, of Washington, DC.


          Pogue, Chief Judge: In this action, Plaintiff Thai

Plastic Bags Industries Co., Ltd. (“TPBI”), a producer of

polyethylene retail carrier bags (“PRCBs”) from Thailand, the

subject merchandise, and Plaintiffs Polyethylene Retail Carrier

Bag Committee, Hilex Poly Co., LLC, and Superbag Corporation

(collectively “PRCBC”), producers of a domestic like product,

each challenge determinations made by the United States

Department of Commerce (“Commerce” or “the Department”) in the

fifth administrative review of the antidumping (“AD”) order on

PRCBs.2

          Specifically, Plaintiffs challenge: 1) Commerce’s

adjustments to TPBI’s reported cost allocation methodology; 2)

Commerce’s use of zeroing; 3) Commerce’s cost adjustment, under

the transactions disregarded rule, for linear low density resin

(“LLD”) obtained by TPBI; and 4) Commerce’s determination that


     2
       See Polyethylene Retail Carrier Bags From Thailand, 76
Fed. Reg. 12,700 (Dep't Commerce Mar. 8, 2011) (final results of
antidumping duty administrative review) ("Final Results"), and
accompanying Issues & Decision Memorandum, A-549-821, ARP 08-09
(Mar. 1, 2011) Admin. R. Pub. Doc. 136, available at
http://ia.ita.doc.gov/frn/summary/THAILAND/2011-5267-1.pdf (last
visited June 15, 2012) (“I & D Mem.”) (adopted in Final Results,
76 Fed. Reg. at 12,701). The period of review (“POR”) was August
1, 2008 through July 31, 2009.
Consol. Court No. 11-00086                                      Page 3

TPBI’s 2009 inventory valuation losses were attributable to

finished goods inventory and were therefore excluded from the

calculation of TPBI’s general and administrative expenses for

producing its goods.

             The court has jurisdiction pursuant to 28 U.S.C.

§ 1581(c).

             For the reasons discussed below, issues two and three

are remanded to Commerce for reconsideration and further

explanation; Commerce’s determinations on issues one and four are

affirmed.



                          STANDARD OF REVIEW

             Under its familiar standard of review, the court will

sustain Commerce’s determinations if they are “supported by

substantial evidence on the record,” and “otherwise . . . in

accordance with law.” See Section 516A(b)(1)(B)(I) of the Tariff

Act of 1930, 19 U.S.C. § 1516a(b)(1)(B)(I) (2006).3    Substantial

evidence is “such relevant evidence as a reasonable mind might

accept as adequate to support a conclusion,” Consol. Edison Co.

of N.Y. v. NLRB, 305 U.S. 197, 229 (1938), “taking into account

the entire record, including whatever fairly detracts from the

substantiality of the evidence.” Atl. Sugar, Ltd. v. United



     3
       Further citations to the Tariff Act of 1930 are to Title
19 of the United States Code, 2006.
Consol. Court No. 11-00086                                    Page 4

States, 744 F.2d 1556, 1562 (Fed. Cir. 1984); see also Universal

Camera Corp. v. NLRB, 340 U.S. 474, 488 (1951).   Thus, the

substantial evidence standard of review “can be translated

roughly to mean ‘is [the determination] unreasonable?’” Nippon

Steel Corp. v. United States, 458 F.3d 1345, 1351 (Fed. Cir.

2006) (quoting SSIH Equip. SA v. U.S. ITC, 718 F.2d 365, 381

(Fed. Cir. 1983)).



                         DISCUSSION

I.        TPBI Issue 1: Reallocation of TPBI’s Reported Costs

          Commerce, during an administrative review, determines

whether subject merchandise has been sold at less than fair

value, or “dumped,” in the United States.   To do so, the

Department endeavors to make a fair comparison between the export

price or constructed export price of a foreign producer’s sales

and its “normal” or home market sale value. See 19 U.S.C.

§ 1677b(a); 19 U.S.C. § 1677(35)(A).4   This determination

requires that Commerce compare products sold in the United States

to matching “like” products sold in the home market. See 19

U.S.C. § 1677b(a)(1)(B). See also 19 U.S.C. § 1677(16); Uruguay

Round Agreements Act, Statement of Administrative Action, H.R.

Doc. No. 103-316, vol. 1, at 820 (1994) (“SAA”), reprinted in


     4
       “Normal value” is “the price at which the foreign like
product is first sold . . . for consumption in the exporting
country . . . .” 19 U.S.C. § 1677b(a)(1)(B)(I).
Consol. Court No. 11-00086                                    Page 5

1994 U.S.C.C.A.N. 4040, 4161 (“[T]he preferred method for

identifying and measuring dumping is to compare home market sales

of the foreign like product to export sales to the United

States.”)    In its comparison, Commerce may, under certain

conditions, disregard sales below the producer’s cost of

production (“COP”).5 19 U.S.C. § 1677b(b).

            To the extent that not all products have an identical

match, Commerce, in accordance with the statute, may calculate a

constructed value (“CV”) of the merchandise.    Commerce uses the

same method to calculate “costs” for both COP and CV. Compare 19

U.S.C. § 1677b(b)(3), with 19 U.S.C. § 1677b(e). See also 19



     5
         3) Calculation of cost of production

     For purposes of this part, the cost of production shall
     be an amount equal to the sum of—

            (A) the cost of materials and of fabrication or
            other processing of any kind employed in producing
            the foreign like product, during a period which
            would ordinarily permit the production of that
            foreign like product in the ordinary course of
            business;

            (B) an amount for selling, general, and
            administrative [“SG&A”] expenses based on actual
            data pertaining to production and sales of the
            foreign like product by the exporter in question;
            and

            (C) the cost of all containers and coverings of
            whatever nature, and all other expenses incidental
            to placing the foreign like product in condition
            packed ready for shipment.

19 U.S.C. § 1677b(b)(3).
Consol. Court No. 11-00086                                    Page 6

U.S.C. § 1677b(f).   To make its CV and COP determinations,

Commerce must consider all available evidence regarding proper

cost allocation, 19 U.S.C. § 1677b(f)(1)(A), including costs as

reported by the foreign producer.   Such costs will, normally, be

calculated based on the producer’s records, if the records are

kept in accordance with the generally accepted accounting

principles (“GAAP”) of the exporting country and if such records

reasonably reflect the costs associated with the production and

sale of the merchandise. 19 U.S.C. § 1677b(f)(1)(A); I & D Mem.

Cmt. 1 at 9.

          In addition, in calculating the normal value, Commerce

may make reasonable allowances for differences in physical

characteristics of the merchandise (its “DIFMER” adjustment).6

          As Commerce must calculate the COP and CV with as much

accuracy as possible, if the company’s reported cost allocation

methodology shifts costs away from the subject merchandise or the

foreign like product, Commerce has the authority to adjust costs

to ensure that they are not artificially reduced. Thai Plastic


     6
       Reasonable allowance. In deciding what is a
     reasonable allowance for differences in physical
     characteristics, the Secretary will consider only
     differences in variable costs associated with the
     physical differences. Where appropriate, the Secretary
     may also consider differences in the market value. The
     Secretary will not consider differences in cost of
     production when compared merchandise has identical
     physical characteristics.

19 C.F.R. § 351.411(b).
Consol. Court No. 11-00086                                   Page 7

Bags Indus. Co. v. United States, 34 CIT __, 752 F. Supp. 2d

1316, 1324 (2010)(“Thai Plastic Bags I”); See SAA at 834-35, 1994

U.S.C.C.A.N. at 4171-72; 19 C.F.R. 351.407(c).7

     Specifically, in the fifth administrative review of this

order, just as in the fourth administrative review, Commerce

concluded that TPBI’s reported cost allocation “resulted in

product-specific cost differences which were unrelated to

differences in physical characteristics.” Thai Plastic Bags I, 34

CIT __, 752 F. Supp. 2d at 1329; Resp. Br. of PRCBC in Opp’n to

TPBI’s Mot. for J. on Agency R. at 7, ECF No. 74 (“PRCBC’s Resp.

Br.”).   These differences were the result of TPBI’s adjustment of

its reported “conversion costs.”   TPBI alleges that these

adjustments were to reflect the additional time needed to process

different products. Pl.’s Rule 56.2 Mem. of Law in Supp. Of Mot.

for J. on Agency R., ECF No. 50-1, at 15 (“TPBI’s Br.).   But

Commerce determined that TPBI’s submitted evidence showed that

TPBI’s reported cost allocation methodology did not reasonably

reflect the actual costs for producing the merchandise, Def.’s

Resp. in Opp. to Pls.’ Rule 56.2 Mot. for J. upon the Agency R.,


     7
       Allocation of costs. In determining the appropriate
     method for allocating costs among products, the
     Secretary may take into account production quantities,
     relative sales values, and other quantitative and
     qualitative factors associated with the manufacture and
     sale of the subject merchandise and the foreign like
     product.

19 C.F.R. § 351.407(c).
Consol. Court No. 11-00086                                   Page 8

ECF No. 67, at 14 (“Def.’s Br.”), and that TPBI’s reporting

methodology unreasonably distorted the cost of manufacture

(“COM”).8 Polyethylene Retail Carrier Bags From Thailand, 75 Fed.

Reg. 53,953, 53,955 (Dep't Commerce Sept. 2, 2010) (preliminary

results of antidumping duty administrative review) (“Prelim.

Results”).

             In particular, Commerce found that TPBI’s reporting

methodology was inconsistent with its normal cost-accounting

practice and the reported cost differences were unrelated to

physical differences. Id.     Commerce found that TPBI did not

actually use its reported cost allocation methodologies in its

normal books and records, but rather created a methodology

outside of its normal business practices to report labor and

overhead costs to Commerce. Def.’s Br. at 14-15; I & D Mem.

Cmt. 1 at 10.    Accordingly, Commerce reallocated TPBI’s reported

conversion costs.9

             TPBI argued that its cost allocation method reflected

cost differences attributable to physical characteristics; but


     8
       Cost of Manufacturing (“COM”) includes the direct
materials, direct labor, variable manufacturing overhead, and
fixed manufacturing overhead costs incurred in the production of
the merchandise. See Antidumping Manual, Chapter 9 at 5 (“AD
Manual”), available at http://ia.ita.doc.gov/admanual/index.html
(last visited June 15, 2012).
     9
       In doing so, Commerce calculated the sum of direct labor,
variable overhead, and fixed overhead, and applied a weighted
average of these amounts. See Final Results, 76 Fed. Reg. at
12,701; I & D Mem. Cmt. 1 at 12.
Consol. Court No. 11-00086                                     Page 9

Commerce found that TPBI’s method resulted in “great variability”

in costs for similar items having nothing to do with physical

characteristics. Def.’s Br. at 15; Prelim. Results 75 Fed. Reg.

at 53,955.    Specifically, Commerce looked at nine pairs of

CONNUMs10 that were very similar physically and found that under

TPBI’s allocations, these items had very different costs. I & D

Mem. Cmt. 1 at 8.

             Even though TPBI explained that many variables other

than physical characteristics affected costs, Commerce found that

most of the CONNUM pairs were produced in the same facility and

had very slight physical differences, yet there were extreme

differences in production times reported. I & D Mem. Cmt. 1 at 8;

Def.’s Br. at 16.    Commerce then determined that the record

showed that TPBI’s cost allocation methods did not reasonably

reflect actual costs because such cost disparities were not

explained by physical differences in the specific products.

Def.’s Br. at 16.    Commerce thus relied on actual data reported

by TPBI and weight-averaged the costs across all production

lines. Def.’s Br. at 17; I & D Mem. Cmt. 1 at 12.

             TPBI now challenges Commerce’s decision to replace

TPBI’s reported costs with Commerce’s average cost calculation.

TPBI’s Br. at 13.    TPBI states that Commerce should have accepted



     10
       A CONNUM is a control number variable Commerce uses in
matching transactions. I & D Mem. at 2.
Consol. Court No. 11-00086                                    Page 10

TPBI’s reported costs as in accordance with GAAP principles, that

Commerce incorrectly relied on the DIFMER standard in

reallocating TPBI’s costs and that Commerce should have used

TPBI’s cost information in its calculations. See id. at 14.

However, as explained below, Commerce reasonably decided A) not

to use TPBI’s cost methodology; B) to utilize the DIFMER

standard; and C) to reject TPBI’s alternate cost methodologies.

          A.   Costs

          TPBI first argues that Commerce’s decision to replace

TPBI’s reported costs with averaged costs is not supported by

substantial evidence. TPBI’s Br. at 13.   But in its normal

accounting system, TPBI calculates a single monthly per-kilogram

average conversion cost for all products based on the costs and

quantities from the previous three months. See TPBI’s Section D

Resp., A-549-821, ARP 08-09 (Dec. 16, 2009), Admin. R. Con. Doc.

7 [Pub. Doc. 40] at D-14.    Contrary to this normal practice, in

reporting its costs for this administrative review, TPBI used a

different reporting methodology. See id. at D-15.    TPBI allocated

conversion costs to individual models based on production hours.

Id. at D-26 to D-28.   Commerce rejected TPBI’s allocation as

distortive because it shifted costs away from the subject

merchandise. Def.’s Br. at 16. See I & D. Mem. Cmt. 1 at 9.

          Disputing Commerce’s conclusion, TPBI maintains that

its cost allocation is a reasonable reflection of production and
Consol. Court No. 11-00086                                   Page 11

sale costs of the subject merchandise. TPBI’s Br. at 15.   TPBI

claims that although its costs were based on actual costs, that

other variables besides physical characteristics affected the

costs. Def.’s Br. Ex. G at S5D-20 to S5D-22; Def.’s Br. at 15;

TPBI’s Br. at 7; TPBI Case Br., A-549-821, ARP 08-09 (Dec. 10,

2010), Admin. R. Con. Doc. 42 [Pub. Doc. 128] at 13.   TPBI states

that Commerce should have reviewed those cost driving factors

(such as material inputs, order sizes, complexity of bags)

instead of relying on a sampling of nine CONNUM pairs to conclude

that there are factors other than physical characteristics that

drove cost differences. See TPBI’s Br. at 18.

          But it was not unreasonable for Commerce to conclude

that TPBI’s methodology produces “great variability” in the costs

of similar items having nothing to do with the physical aspects

of the specific product. Def.’s Br. at 15; Prelim. Results, 75

Fed. Reg. at 53,955.   Specifically, in considering the nine pairs

of CONNUMs that were very similar physically, Commerce found that

under TPBI’s reported cost allocations these items had very

different costs. I & D Mem. Cmt. 1 at 8; Def.’s Br. at 15.

          Commerce correctly notes that most of the CONNUM pairs

were made at the same facility and that the evidence illustrated

that slight physical differences could not account for actual

cost differences because the disparities could not be explained

by these physical differences in the products. Def.’s Br. at 16;
Consol. Court No. 11-00086                                  Page 12

I & D Mem. Cmt. 1 at 8.   Moreover, TPBI was unable to provide

Commerce with its actual labor and overhead costs because its

financial accounting system does not maintain such costs at a

CONNUM specific level. Def.’s Br. at 5, 14.

          As TPBI’s reporting methodology deviated from its

normal accounting practice, Commerce adjusted the reported costs

to ensure that they were not artificially reduced and distortive

of true costs. I & D Mem. Cmt. 1 at 9;Def.’s Br. at 16. See also

SAA at 835; Thai Pineapple Pub. Co. v. United States,   187 F.3d

1362, 1366 (Fed. Cir. 1999);   Hynix Semiconductor, Inc. v. United

States, 424 F.3d 1363, 1369 (Fed. Cir. 2005) (quoting Am. Silicon

Techs. v. United States, 261 F.3d 1371, 1377 (Fed. Cir. 2001)).

Plaintiff’s reported per-unit costs shifted costs away from the

subject merchandise, and thus Commerce reasonably recalculated

Plaintiff’s costs by averaging them in order to prevent large

discrepancies in costs between merchandise that was physically

similar. Def.’s Br. at 17; I & D Mem. Cmt. 1 at 12.

          B.   DIFMER

          In calculating normal value, Commerce utilizes a DIFMER

standard – i.e., a “difference in physical characteristics” or

“difference-in-merchandise” adjustment –   in its review of what

constitutes a reasonable allowance for differences in the

physical characteristics of products sold in the U.S. and in

foreign markets. See 19 C.F.R. § 351.411(b).   Commerce also has a
Consol. Court No. 11-00086                                   Page 13

practice of comparing cost allocations using physical

characteristics of the product in its determination of whether a

company’s cost allocation strategy reasonably reflects actual

costs. Def.’s Br. at 18.

          In the Final Results Commerce stated that it considered

physical differences in its cost analysis because these

differences ultimately affect price. Def.’s Br. at 20.    Commerce

argues that it analyzes subject merchandise costs by using

physical characteristics because this is a dependable way to

compare the different products, and that cost comparisons

utilizing physical characteristics are “key” to Commerce’s

analysis. Def.’s Br. at 18; Prelim. Cost Mem. For TPBI, A-549-

821, ARP 08-09 (Aug. 26, 2010), Admin. R. Con. Doc. 36 [Pub. Doc.

105] at 2 (“Prelim. Cost Mem.”); Def.’s Br. Ex. I at 2.

          TPBI challenges Commerce’s reliance on its physical

differences, or DIFMER, analysis. TPBI’s Br. at 23-24.    TPBI

argues that the DIFMER standard is not appropriate here, as it

was intended for use in the context of price adjustments to

normal value when there are variable cost differences between

non-identical foreign like products and the subject merchandise.

TPBI’s Br. at 24.

          TPBI argues that Commerce misapplied the DIFMER

standard both in improperly weight-averaging conversion cost

differences across all products and by calculating the DIFMER
Consol. Court No. 11-00086                                 Page 14

adjustment to normal value based solely on cost differences in

materials (because the DIFMER standard is not to be used for cost

differences unrelated to physical differences). TPBI’s Br. at 26-

27.

          However TPBI did not offer any meaningful evidence to

explain why physical differences in the CONNUM pairs resulted in

such large differences in conversion costs.   As cost allocation

based on physical characteristics is a primary factor in

Commerce’s analysis, Commerce may adjust a company’s allocation

method to more reasonably reflect costs. I & D Mem. Cmt. 1 at 10;

Def.’s Br. at 19; See also 19 U.S.C.§ 1677b(b)(1)-(b)(2)(c).

          PRCBC adds that it would be distortive to use different

costs for the COP, CV and DIFMER contexts; PRCBC’s Resp. Br.

at 15-17. See also I & D Mem. Cmt. 1 at 10 n.3; NTN Bearing Corp.

of America v. United States, 368 F.3d 1369, 1374 (Fed. Cir.

2004).

          To the contrary, as Thai Plastic Bags I explained:

          In its determination, Commerce decided to revise
          TPBG's cost allocations (regarding direct labor,
          variable overhead and fixed overhead costs) to
          eliminate a “distortion” based on factors not
          attributable to physical characteristics. 74
          Fed.Reg. 39, 931 . . . . Commerce reallocated
          TPBG's costs for the sales-below-cost test, the
          constructed-value calculations and the difference-
          in-merchandise adjustment. Id. The governments'
          [sic] legal determination to apply its adjustment
          for all three purposes was reasonable because the
          calculation of costs “reasonably reflect[ed]” the
          associated costs of production and sales. See 19
          U.S.C. § 1677b (f)(1)(A). As the SAA explains,
Consol. Court No. 11-00086                                   Page 15

          Commerce must use a methodology that reasonably
          captures all of the costs incurred in manufacturing
          and selling the product at issue. SAA at 835.
          Further, “if Commerce determines that costs,
          including financing costs, have been shifted away
          from the production of the subject merchandise, or
          the foreign like product, it will adjust costs
          appropriately, to ensure they are not artificially
          reduced”. Id. See NTN Bearing Corp. of America v.
          U.S.,    368    F.3d    1369,    1374    (Fed.Cir.,
          2004)(“Commerce noted that it ‘does not rely on a
          respondent's   reported   costs   solely  for   the
          calculation of COP and CV,’ Final Results, 63
          Fed.Reg. at 2574, and concluded that it would be
          distortive to adjust those costs only for those
          calculations, but not for others in which they were
          used. Id. (‘[I]f we determine a component of a
          respondent's COP and CV is distortive for one
          aspect of our analysis, it is reasonable to make
          the same determination with respect to those other
          aspects of our margin calculations where we relied
          on the identical cost data.’). We concur with
          Commerce's analysis and hold that it did not err in
          interpreting these provisions to permit it to
          employ affiliated supplier cost data to calculate
          cost deviations to limit the definition of similar
          merchandise, the difmer adjustment, and inventory
          carrying costs.”).

Thai Plastic Bags I, 34 CIT __, 752 F. Supp. 2d at 1328 n.28.


          TPBI also asserts that Commerce’s determination was

arbitrary because Commerce failed to cite a benchmark and did not

address all of the factors that might influence cost differences

between similar products. TPBI’s Br. at 18-20.   In addition, TPBI

contends that Commerce’s regulations did not require that cost

differences   unrelated   to   physical   characteristics   must   be

reallocated or that the DIFMER standard be applied. Id. at 27-28.

          However, Commerce correctly notes that it may, but is not
Consol. Court No. 11-00086                                               Page 16

under an obligation to cite benchmarks or address all potential

cost factors, and Plaintiff did not provide the record evidence

necessary     to   do    so.   Def.’s   Br.   at   20-21;    See    19    C.F.R.

§ 351.407(c).11 Commerce differentiates TPBI’s cited authority from

the present matter, stating that Commerce is not required to

conduct a factor by factor analysis in this case, as there is only

one product at issue. Def.’s Br. at 22-24. Commerce also relies on

its past decisions in support of its practice. I & D Mem. Cmt. 1

at 11-12.12

            Despite TPBI’s argument that each of the cited cases is

distinguishable, Commerce analyzed TPBI’s costs in line with the

agency    practice      of   considering   whether   costs    are    allocated

according to physical characteristics of the product as a primary

factor. Def.’s Br. at 17.        Recognizing that the DIFMER adjustment


     11
       Commerce notes that in Certain Preserved Mushrooms from
India, 63 Fed. Reg. 72, 246 (Dep’t Commerce Dec. 31, 1998)
(notice of final determination of sales at less than fair value),
Commerce rejected the reported methodology because it may
consider other factors in analyzing the costs of production, but
that it is not obligated to do so. Def.’s Br. at 22-23.
     12
       Commerce states that the common thread in the three cited
cases is Commerce’s consistent actions in reallocating costs to
address distortions on the record. See Stainless Steel Bar from
the United Kingdom, 72 Fed. Reg. 43,598 (Dep’t Commerce Aug. 6,
2007) (final results of antidumping duty administrative review);
Hot-Rolled Flat-Rolled Carbon-Quality Steel Products from Japan,
64 Fed. Reg. 24,329 (Dep’t Commerce May 6, 1999) (notice of final
determination of sales at less than fair value); Small Diameter
Circular Seamless Carbon and Alloy Steel, Standard, Line and
Pressure Pipe from Brazil, 60 Fed. Reg. 31,960 (Dep’t Commerce
June 19, 1995) (notice of final determination of sales at less
than fair value).
Consol. Court No. 11-00086                                            Page 17

is a price adjustment, Commerce still found that using physical

characteristics was necessary for its analysis as the physical

differences influence the price of products. I & D Mem. Cmt. 1

at 10 n.2; Def.’s Br. at 19-20. See also 19 C.F.R. 351.411(a)-(b).

Commerce notes that its regulations do not prohibit Commerce from

adjusting reported costs to ensure that there would not be a DIFMER

adjustment for conversion cost differences. I & D Mem. Cmt. 1

at 13; PRCBC’s Resp. Br. at 14.

             Commerce also counters TPBI’s argument that Commerce’s

costs reallocation was inappropriate because there was no evidence

of under-reporting. See TPBI’s Br. at 22.          Commerce notes that it

is not required to wait for under-reporting before determining that

those costs did not reasonably reflect actual costs. Def.’s Br. at

24.    Commerce found a distortion in that the reported conversion

costs were understated for some models and overstated for others;

resulting in the need to adjust the costs. I & D Mem. Cmt. 1 at 13;

Def.’s Br. at 25.

             Thus,    Commerce’s     cost     analysis    in   this    fifth

administrative review is consistent with Commerce’s determination

in    the   fourth   review,   in   which   Commerce   reasonably   adjusted

reported costs to reasonably reflect actual costs. Thai Plastic

Bags I, 34 CIT at __, 752 F. Supp. 2d at 1328 n.28; Def.’s Br. at

26.
Consol. Court No. 11-00086                                         Page 18

              C.     Alternate Cost Methodology

              In responding to Commerce’s request for cost data, TPBI

submitted two alternate sets of costs for its margin calculation,

both of which Commerce rejected, finding that they distorted TPBI’s

actual conversion costs. TPBI Pl.’s Br. at 15-16; Def.’s Br. at 29.

While Commerce may consider alternative methods, Commerce should

only choose such a method if it minimizes distortions. Def.’s Br.

at 29-30; See also U.S. Steel Group v. United States, 24 CIT 757

(2000); 19 C.F.R. § 351.407(c).

              TPBI argues that Commerce should have used one of TPBI’s

two proposed cost allocation methodologies, as they were both

reasonable alternatives. TPBI’s Br. at 15-16.          TPBI also claims –

without proof – that by using weight-averaging for all of its labor

and   fixed    and    variable   overhead   costs,   Commerce   added   more

distortions, not fewer. TPBI’s Br. at 31.

              TPBI further argues that Commerce should have accorded it

a chance to correct any deficiency in its cost allocations and that

Commerce should not have applied “facts otherwise available.”

TPBI’s Br. at 32-33. See also 19 U.S.C. § 1677m(d)-(e)13; 19 U.S.C.


      13
        (e) Use of certain information
      In reaching a determination under section 1671b, 1671d,
      1673b, 1673d, 1675, or 1675b of this title the
      administering authority and the Commission shall not
      decline to consider information that is submitted by an
      interested party and is necessary to the determination
      but does not meet all the applicable requirements
      established by the administering authority or the
                                                     (continued...)
Consol. Court No. 11-00086                                        Page 19

§ 1677e(a).   TPBI also asserts that its cost information can be

used without undue difficulty because Commerce’s analysis is flawed

and TPBI’s information is more reasonable. TPBI’s Br. at 32.

          Commerce’s    conclusion,   however   —   “that   it   was   more

important to use a cost allocation methodology that diminished the

possibility of extreme undervaluation or overvaluation, even if

that meant that a DIFMER adjustment could not be made[,]” Def.’s

Br. at 31; I & D Mem. Cmt. 1 at 12 – was not unreasonable.

Commerce correctly states that after finding TPBI’s methodologies

to be distortive, Commerce was under no obligation to utilize them.

Def.’s Br. at 29; I & D Mem. Cmt. 1 at 13 - 14.             In addition,

Commerce reasonably found that there was an undue difficulty as



     13
      (...continued)
     Commission, if—

     (1) the information is submitted by the deadline
     established for its submission,

     (2) the information can be verified,

     (3) the information is not so incomplete that it cannot
     serve as a reliable basis for reaching the applicable
     determination,

     (4) the interested party has demonstrated that it acted
     to the best of its ability in providing the information
     and meeting the requirements established by the
     administering authority or the Commission with respect
     to the information, and

     (5) the information can be used without undue
     difficulties.

19 U.S.C. § 1677m(e).
Consol. Court No. 11-00086                                      Page 20

well as a distortion in Plaintiff’s cost allocations. I & D Mem.

at 14.

           Moreover, despite TPBI’s contention that it was not

notified, TPBI’s Br. at 33, Commerce did notify Plaintiff when it

rejected its method in the fourth review and issued supplemental

questionnaires. Def.’s Br. at 6-7, 32; Id. Ex. E at SID-2.

           Based on the record here, Commerce reasonably found

Plaintiff’s methodologies to be distortive.       Commerce’s

determination on this issue is therefore affirmed.

II.        TPBI Issue 2: Zeroing

           Where imported goods are being sold in the United States

at less than fair value and to the detriment of domestic industry,

the statute directs Commerce to impose an antidumping duty on those

imported goods “equal to the amount by which the normal value

exceeds the export price (or the constructed export price) for the

merchandise.” 19 U.S.C. § 1673.14

           Here   Commerce   applied   its   “zeroing”   methodology   in

arriving at Plaintiff’s weighted-average dumping margins.15       In the


      14
       “Dumping margin” is defined as “the amount by which the
normal value exceeds the export price or constructed export
price.” 19 U.S.C. § 1677(35)(A). Weighted average dumping margin
is defined as “the percentage determined by dividing the
aggregate dumping margins determined for a specific exporter or
producer by the aggregate export prices and constructed export
prices of such exporter or producer.” 19 U.S.C. § 1677(35)(B).
      15
       Zeroing refers to the method used by Commerce to
aggregate positive margins (margins for sales of merchandise sold
                                                   (continued...)
Consol. Court No. 11-00086                                 Page 21

administrative review, TPBI argued that zeroing in this context was

incorrect, because the World Trade Organization (“WTO”) has ruled

against this practice. TPBI Case Br. at 59.

          Before the court, TPBI contends, based on current law,

that “Commerce failed to explain why its inconsistent statutory

interpretation [i.e., differing in administrative reviews from

the interpretation applied in investigations] with regard to

zeroing is reasonable., TPBI Pl.’s Br. at 36, and that the court

should remand because Commerce must either explain its

inconsistent interpretation of 19 U.S.C. § 1677(35) or adopt a

consistent interpretation for both investigations and reviews.

TPBI Pl.’s Br. 36-37.

          Commerce argues that denying offsets and applying zeroing

serves the policy rationale of combating masked dumping. I & D Mem.

Cmt. 4 at 22.   In addition, Commerce contends that Plaintiff has

failed to exhaust its administrative remedies because Plaintiff did


     15
       (...continued)
at dumped prices)and give a value of zero for negative margins
(margins for sales of merchandise sold at non-dumped prices).
Dongbu Steel Co. v. United States, 635 F.3d 1363, 1366 (Fed. Cir.
2010).

          When calculating weighted average dumping margins,
Commerce may employ either of two methodologies: zeroing or
offsetting. Timken Co. v. United States, 354 F.3d 1334, 1341–45
(Fed. Cir. 2004) (holding that 19 U.S.C. § 1677(35) is ambiguous
and that zeroing is a reasonable interpretation); U.S. Steel
Corp. v. United States, 621 F.3d 1351, 1360–63 (Fed. Cir. 2010)
(holding that 19 U.S.C. § 1677(35) is ambiguous and that
offsetting is also a reasonable interpretation).
Consol. Court No. 11-00086                                  Page 22

not rely in its briefing on Commerce’s differing interpretations of

19 U.S.C. § 1677(35) in the context of administrative reviews as

opposed to investigations, or regarding average to transaction and

average to average comparison methods, respectively. Def.’s Br.

at 34.

          Despite arguing that Plaintiff has not exhausted its

administrative remedies here, that the Federal Circuit has already

rejected TPBI’s argument regarding WTO related activities, and that

exhausting remedies would not have been futile, in the alternative,

Commerce requests a remand. Def.’s Br. at 34, 37.16   The court will

grant this request.17   Here, the briefing in the administrative

review occurred before the parties had sufficient time to consider

the Federal Circuit’s decision in Dongbu.   Commerce will now have

the opportunity to fully explain its reasoning regarding the


     16
       See Grobest & I-Mei Indus. (Vietnam) Co., Ltd. v. United
States, 36 CIT __, 815 F. Supp. 2d 1342, 1348-50. (2012).
     17
       Two recent decisions from the Court of Appeals for the
Federal Circuit guide this court’s decision of this issue: Dongbu
Steel Co. v. United States, 635 F.3d 1363 (Fed. Cir. 2011) and
JTEKT Corp. v. United States, 642 F.3d 1378 (Fed. Cir. 2011),
which addressed Commerce’s inconsistent interpretations of 19
U.S.C. § 1677(35). Dongbu held that “[i]n the absence of
sufficient reasons for interpreting the same statutory provision
inconsistently, Commerce’s action is arbitrary.” 635 F.3d
at 1372–73.
          Subsequently, JTEKT concluded that “[w]hile Commerce
did point to differences between investigations and
administrative reviews, it failed to address the relevant
question — why is it a reasonable interpretation of the statute
to zero in administrative reviews, but not in investigations?”
642 F.3d at 1384.
Consol. Court No. 11-00086                                            Page 23

zeroing issue.18 See also Union Steel v. United States, 35 CIT __,

804 F. Supp. 2d 1356, 1367-68 (2011) (“The court concludes, upon

reconsidering its decision in Union II, that it is appropriate to

set aside its affirmance of the use of zeroing and to direct

Commerce to provide the explanation contemplated by the Court of

Appeals in Dongbu and JTEKT Corp.”).

III.             PRCBC Issue 3: Transactions-Disregarded Rule

                 During the POR, TPBI purchased three types of resin19 from

suppliers (both affiliated and unaffiliated). TPBI’s Supp. Section

D Resp., A-549-821, ARP 08-09 (Mar. 22, 2010), Admin. R. Con. Doc.

14 [Pub. Doc. 55] at Ex. S1D-3 (“Supp. Resp. 1").                      In its

Preliminary Results, Commerce determined that TPBI purchased resin

from    an       affiliated   supplier.   Prelim.   Results,   75   Fed.   Reg.

at 53,955; Def.’s Br. at 42. Commerce then applied the major input

rule20 and adjusted the COM to reflect the market value of the


       18
       As the decision in Dongbu was not available prior to the
Final Results in this administrative review, the court does not
credit Commerce’s exhaustion argument. See JTEKT, 642 F.3d
at 1384 (“[Appellant] did not have the benefit of the Dongbu
opinion before filing its briefs and thus could not have argued
that the case requires us to vacate, but it nonetheless preserved
the issue on appeal by arguing that Commerce’s continuing
practice of zeroing in administrative reviews, but not in
investigations, is unreasonable.”).
       19
            [[                                                        ]]
       20
            The AD Statute defines the major input rule as follows:

       If, in the case of a transaction between affiliated
       persons involving the production by one of such persons
                                                     (continued...)
Consol. Court No. 11-00086                                      Page 24

resin. Id.   Commerce then compared only the transfer prices and

purchases of LLD resin from the affiliated Supplier. See I & D Mem.

Cmt. 2 at 18–19; Def.’s Br. at 42.

          More   specifically,   in   adjusting   the   COM,   Commerce

compared the transfer price of LLD resin with the arm’s-length

transaction price of LLD resin. See Prelim. Cost Mem. at 4.

Commerce thus compared purchases separately for a specific resin

type. Id.; Br. of PRCBC in Support of Mot. for J. on Agency R.

at 11-12, ECF No. 49 (“PRCBC’s Br.”).

          However, in the Final Results, Commerce changed its

methodology and used the transactions-disregarded rule,21 comparing


     20
      (...continued)
     of a major input to the merchandise, the administering
     authority has reasonable grounds to believe or suspect
     that an amount represented as the value of such input
     is less than the cost of production of such input, then
     the administering authority may determine the value of
     the major input on the basis of the information
     available regarding such cost of production, if such
     cost is greater than the amount that would be
     determined for such input under paragraph (2).

19 U.S.C. § 1677b(f)(3).
     21
       A transaction directly or indirectly between
     affiliated persons may be disregarded if, in the case
     of any element of value required to be considered, the
     amount representing that element does not fairly
     reflect the amount usually reflected in sales of
     merchandise under consideration in the market under
     consideration. If a transaction is disregarded under
     the preceding sentence and no other transactions are
     available for consideration, the determination of the
     amount shall be based on the information available as
     to what the amount would have been if the transaction
                                                   (continued...)
Consol. Court No. 11-00086                                             Page 25

average transfer and market prices across all types of resin; even

though    the    parties   did   not   argue   for   revising   the   level   of

specificity at which to apply the transactions disregarded rule.

PRCBC’s Br. at 11-12; I & D Mem. at 19.22

            TPBI, as a respondent, argued that Commerce should not

have applied the major input rule because the affiliated supplier

was not a resin manufacturer. See TPBI’s Case Br. at 50-51, 59.

            PRCBC argues that the court should remand this issue,

stating that Commerce changed its analysis for the Final Results

without providing an avenue for comments by the interested parties

or a chance for Commerce to consider those comments. PRCBC’s Br.

at 11-15.       Commerce now agrees. Def.’s Br. at 41.

            As an agency may request a remand to reconsider its

position, SKF USA, Inc. v. United States, 254 F.3d 1022, 1028 (Fed.

Cir. 2001), the court will remand this issue so that Commerce can




(...continued)
     had occurred between persons who are not affiliated.

19 U.S.C. § 1677b(f)(2).
     22
       For the Final Results, Commerce revised its preliminary
results and changed the analysis for TPBI’s affiliated resin
input purchases to “include all purchases of resin that TPBI made
during the POR.” Final Cost Mem., A-549-821, ARP 08-09 (Mar. 1,
2011), Admin. R Con. Doc. 47 [Pub. Doc. 137] at 1-2, Pub. Doc. 47
(March 1, 2011). PRCBC notes that because Commerce ultimately
decided to apply only the transactions disregarded rule, which
does not depend upon whether a raw material is a “major output,”
that TPBI’s argument regarding whether resin was a major input is
moot. PRCBC’s Br. at 12 n.5; see also I & D Mem. at 18-19.
Consol. Court No. 11-00086                                  Page 26

give the parties the proper opportunity to comment.23

IV.        PRCBC Issue 4 : Inventory-Valuation Losses

           Under the statute, the calculation of COP includes an

amount for general and administrative (“G&A”) expenses.24

Commerce’s practice is to include inventory valuation losses in

G&A expenses except for those losses relating to finished good’s

inventories. Def.’s Br. at 38; Stainless Steel Wire Rod from the

Republic of Korea, 69 Fed. Reg. 19,153, 19,161 (Dep’t Commerce

Apr. 12, 2004) (final results of antidumping duty administrative

review) and accompanying Issues and Decision Memorandum, A-580-

829, ARP 01-02 (Apr. 5, 2004) Cmt. 7; PRCBC’s Br. at 15.

           Here, Commerce did not include inventory-valuation losses

in TPBI’s G&A expenses. See Pet’rs’ Case Br., A-549-821, ARP 08-09


      23
       The court notes that Commerce must require a cost
adjustment for materials purchased from an affiliated supplier at
below market price, see 19 U.S.C. § 1677b(f)(2), but this
regulation is silent on what price data Commerce should use in
applying the transactions-disregarded rule.
          While no regulation directly addresses this issue,
Commerce’s adjustment in the Final Results appears contrary to
its past practice. In Certain Pasta from Italy, Commerce limited
its cost adjustment analysis to a comparison of the weighted-
average transfer price for semolina from affiliated suppliers to
the arms-length price for this input. 69 Fed. Reg. 6,255, 6,257
(Dep’t Commerce Feb. 10, 2004) (notice of final results of the
sixth administrative review of the antidumping order) and
accompanying Issues and Decision Memorandum, A-475-818, ARP 01-02
(Feb. 3, 2004) Cmt. 32. In applying the transactions-disregarded
rule, Commerce did not include all purchases from the affiliated
supplier but only took into account the input at issue. Id.
      24
       G&A expenses are expenses incurred in running a business,
as distinguished from expenses incurred in manufacturing or
selling. Black’s Law Dictionary 618 (8th ed. 2004).
Consol. Court No. 11-00086                                              Page 27

(Dec. 10, 2010), Admin. R. Con. Doc. 41 [Pub. Doc. 126] at 4.

PRCBC        contends   that   Commerce’s   finding   that   TPBI’s   inventory

valuation losses were attributable to finished goods inventory, and

thus excluded from G&A expenses, was unreasonable. PRCBC’s Br. at

16.    PRCBC argues that instead these losses should have been part

of the cost of production. PRCBC’s Br. at 18.

                However, because Commerce may exercise its authority to

draw reasonable inferences from the record, Daewoo Elecs. Co. v.

Int’l Union of Electronic Elec., Technical, Salaried and Mach.

Workers, AFL-CIO, 6 F.3d 1511, 1520 (Fed. Cir. 1993); Grobest, 36

CIT at __, 815 F. Supp. 2d at 1356 (2012), Commerce’s determination

that Plaintiff’s inventory-valuation losses should be excluded from

the cost calculations was supported by the record.

                In its determination, Commerce concluded that TPBI’s 2009

inventory losses should be excluded because the evidence suggested

that these reported losses were related to finished goods. Def.’s

Br. at 38; I & D Mem. Cmt. 6 at 26.             PRCBC claims that Commerce

relied upon evidence that cannot support its determination. PRCBC’s

Br. at 16-17.25         Specifically, PRCBC argues that, as no amount for

inventory valuation losses was explicitly listed in the statement

of    administrative       expenses,   Commerce’s     determination    was   not



        25
       TPBI had changed its inventory losses accounting between
2008-2009 and submitted comparative 2009 schedules showing that
the 2008 inventory valuation losses related to finished goods.
Def.’s Br. at 38-39.
Consol. Court No. 11-00086                                               Page 28

reasonable. PRCBC’s Br. at 18-19.

               However,   in   the   Final   Results,     Commerce     reasonably

articulated its basis for excluding TPBI’s inventory-valuation

losses from the G&A expenses. See I & D Mem. Cmt. 6 at 26.

Commerce explained that TPBI provided documentary support to show

that its 2008 inventory-losses related to finished goods.26 Id.

TPBI    also    reconciled     the   2009   data   with   the   2008   data.   See

Submission of 2009 Financial Statements, A-549-821, ARP 08-09 (July

7, 2010) Admin. R. Con. Doc. 25 [Pub. Doc. 84], Ex. Supp-1 at 17,

25. Thus, while PRCBC is correct that there was no express listing

for finished goods in the 2009 data, this does not topple the

totality of Commerce’s reasoning, including the record evidence

that the 2008 inventory valuation losses were related to finished

goods.

               Commerce cites to record evidence to bolster its claim

that TPBI’s reported inventory valuation losses were related to

finished goods.      In particular, in its responses to Commerce, TPBI

stated that during the POR it had raw materials, work-in-progress

and finished goods in inventory and that raw materials and work-in-

progress were valued at actual cost, whereas finished goods were

valued at actual cost or net realizable value at year’s end,

depending on which was lower. Def.’s Br. Ex. B at D-11; Def.’s


       26
       In its response to Supplemental D Questionnaire, TPBI
stated that there were write-downs for finished goods but not raw
materials or WIPs. See Supp. Resp. 1 at 10.
Consol. Court No. 11-00086                                          Page 29

Ex. F at S4D-2 to S4D-3; Def.’s Br. at 39-40.

               TPBI provided documentation showing that an inventory

valuation loss from 200827 was attributable to finished goods. Supp.

Resp. 1 at Ex. S1D-10; PRCBC’s Br. at 16.           This same loss appears

in the comparative schedule in the 2009 financial statements.

TPBI’s Supp. Section D Resp., A-549-821, ARP 08-09 (July 26, 2010),

Admin. R. Con. Doc. 27 [Pub. Doc. 90] Ex. S4D2-1, at 17 (“Supp.

Resp. 2"); PRCBC’s Br. at 16.            PRCBC argues that this is not

evidence that TPBI’s 2009 inventory valuation losses28 are also

related to finished goods, as they may also be attributable to raw

materials and works-in-progress. PRCBC’s Br. at 16-17; Supp. Resp.

2 Ex. S4D2-1 at 11 n.3.

               PRCBC also states that even though the 2008 to 2009

change in inventory valuation losses was identified,29 and that this

same amount appears in the cost reconciliation,30 that this does not

provide    enough    information    to   conclude   whether   the   loss   is

attributable to finished goods, WIP or RM. PRCBC’s Br. at 17; Supp.

Resp. 2 Ex. S4D2-1 at 17; TPBI’s Supp. Section D Resp., A-549-821,

ARP 08-09 (Aug. 18, 2010), Admin. R. Con. Doc. 32 [Pub. Doc. 99]



     27
          [[             ]] baht.
     28
          [[             ]] baht.
     29
          [[        ]] baht.
     30
          Under the item [[
                     ]].
Consol. Court No. 11-00086                                           Page 30

Ex. S5D1 worksheet D at 2.        PRCBC claims that it is Commerce’s

obligation to deny the adjustment instead of assuming that the 2009

losses should be excluded from normal value. PRCBC’s Br. at 18; 19

C.F.R. § 351.401(b)(1).31

            Commerce   counters   that    in   analyzing     the   inventory

valuation    loss   for   2009,   it     looked   to   the   statement   of

administrative expenses, which showed TPBI’s report of a loss from

a cost higher than net realizable value for finished goods as a

2008 administrative expense, but that no amount for 2009 was

reported. Def.’s Br. at 40; Def’s Br. Ex. F; I & D Mem. at 26.

            In addition, in responding to a questionnaire on the

issue, TPBI explained that there was a “roll-up into COGS (costs of

goods sold) of all the relevant cost elements[.]” Def.’s Br. Ex. F

at S4D-5.32 TPBI also later submitted a cost reconciliation. Def.’s

Br. Ex. G at S5D-1.

     As Commerce may make reasonable inferences based on the

record, “[t]he specific determination [the court] make[s] is

‘whether the evidence and reasonable inferences from the record



     31
       PRCBC notes that TPBI did not address and Commerce
ignored the fact that the line item entitled [[
                                    ]] shows a [[      ]] value
for 2009. Supp. Resp. 2 at Ex. S4D2-1 (CR 17); PRCBC’s Br. at 18.
The court notes that this line is [[                 ]].
     32
       While the 2008 chart reported no amount for “loss from
cost higher than net realizable value,” Def.’s Br. Ex. F, the
2009 chart reported an amount under the same heading. Def.’s Br.
Ex. G. at SD5-6; Def.’s Br. at 41.
Consol. Court No. 11-00086                                  Page 31

support the [Commerce’s] finding.’. The question is whether the

record adequately supports the decision of the [Department], not

whether some other inference could reasonably have been drawn.”

Daewoo Elecs., 6 F.3d at 1520 (citation omitted) (quoting

Matsushita Elec. Indus. Co. v. United States, 750 F.2d 927, 933

(Fed. Cir. 1984)).

          Even if PRCBC posits evidence that may detract from

Commerce’s determination, PRCBC’s Br. at 18, just because there

are alternative inferences that could be drawn does not mean that

Commerce was unreasonable. Goldlink Indus. Co. v. United States,

30 CIT 616, 619, 431 F. Supp. 2d 1323, 1327 (2006) (“The Court's

role in the case at bar is not to evaluate whether the

information Commerce used was the best available, but rather

whether a reasonable mind could conclude that Commerce chose the

best available information.”)

          Based on the foregoing record evidence, including

TPBI’s past treatment of such losses and its responses to

Commerce, it is reasonable for Commerce, to infer that the 2009

inventory-valuation losses related to finished goods.    Commerce’s

decision to exclude inventory-valuation losses is therefore

supported by substantial evidence and will be affirmed.
Consol. Court No. 11-00086                                 Page 32

                         CONCLUSION

          For the reasons discussed above, the court grants

Plaintiffs’ motions regarding issues two and three.   The Final

Results are otherwise affirmed in all respects.

          Commerce shall have until August 17, 2012 to complete

and file its remand redetermination.   Both Plaintiffs shall have

until August 31, 2012 to file comments.   Defendant shall have

until September 14, 2012 to file any reply.   Plaintiffs, also by

September 14, 2012, may each reply to the other’s comments.

          It is SO ORDERED.

                                            /s/ Donald C. Pogue
                                       Donald C. Pogue, Chief Judge

Dated: June 18, 2012
       New York, N.Y.
