                                      Slip Op. 14-137
                   UNITED STATES COURT OF INTERNATIONAL TRADE

WHEATLAND TUBE COMPANY,

                         Plaintiff,

              and
                                                           Before: Leo M. Gordon, Judge
UNITED STATES STEEL CORPORATION,
                                                           Consol. Court No. 12-00298
ALLIED TUBE AND CONDUIT, AND TMK
IPSCO TUBULARS,

                         Plaintiff-Intervenors,

              v.

UNITED STATES,

                         Defendant.


                                  OPINION AND ORDER

[Section 129 final determination remanded.]

                                                               Dated: November 26, 2014

      Gilbert B. Kaplan and P. Lee Smith, King & Spalding LLP of Washington, DC for Plaintiff
Wheatland Tube Company.

       Robert E. Lighthizer, Jeffrey D. Gerrish, Stephen J. Narkin and Nathaniel B. Bolin,
Skadden Arps Slate Meagher & Flom LLP of Washington, DC for Plaintiff United States
Steel Corporation.

       Roger B. Schagrin, and John W. Bohn, Schagrin Associates of Washington, DC
for Plaintiff-Intervenors Allied Tube and Conduit and TMK IPSCO Tubulars.

       Douglas G. Edelschick, Trial Attorney, Commercial Litigation Branch, Civil
Division, U.S. Department of Justice, of Washington, DC, for Defendant United States.
With him on the brief were Stuart F. Delery, Assistant Attorney General, Jeanne E.
Davidson, Director, Franklin E. White, Jr., Assistant Director. Of counsel on the brief was
Daniel J. Calhoun, Attorney, Office of Chief Counsel for Trade Enforcement and
Compliance, U.S. Department of Commerce, of Washington, DC.
Consol. Court No. 12-00298                                                      Page 2


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

(“Commerce”) final determination in a proceeding conducted under Section 129 of the

Uruguay Round Agreements Act (“Section 129”) and covering the simultaneously-

imposed antidumping and countervailing duty orders on circular welded carbon quality

steel pipe (“CWP”) from the People’s Republic of China. See New Pneumatic Off-the-

Road Tires; Circular Welded Carbon Quality Steel Pipe; Laminated Woven Sacks; and

Light-Walled Rectangular Pipe and Tube from the People’s Republic of China, 77 Fed.

Reg.   52,683   (Dep’t   Commerce    Aug.   30,   2012)   (Sec.   129   Implementation)

(“Implementation Notice”); Section 129 Proceeding Pursuant to the WTO Appellate

Body's Findings in WTO DS379 Regarding the Antidumping and Countervailing Duty

Investigations of Circular Welded Carbon Quality Steel Pipe from the People's Republic

of China (July 31, 2012) (“Final Determination”). Commerce initiated the Section 129

proceeding at the request of the U.S. Trade Representative partly in response to the

World Trade Organization’s (“WTO”) Dispute Settlement Body ruling that four sets of

simultaneously-imposed antidumping and countervailing duty orders on Chinese imports,

including the orders on CWP, may have resulted in overlapping remedies.

Implementation Notice, 77 Fed. Reg. at 52,683-84; see Appellate Body Report, United

States – Definitive Anti-Dumping and Countervailing Duties on Certain Products from

China, ¶ 611, WT/DS379/AB/R (Mar. 11, 2011) (“WTO AB Report”).

       Before the court are the motions for judgment on the agency record of Plaintiff

Wheatland Tube Company (“Wheatland”), Consolidated Plaintiff-Intervenor United States
Consol. Court No. 12-00298                                                           Page 3


Steel Corporation (“U.S. Steel”), and Consolidated Plaintiff-Intervenors Allied Tube and

Conduit (“Allied”) and TMK IPSCO (collectively, “the Domestic Interested Parties”). The

Domestic Interested Parties challenge Commerce’s decision to adjust the antidumping

duty on U.S. CWP imports from China to account for overlapping remedies with the

countervailing duty order. Mem. in Support of Mot. of Consol. Pl.-Intervenor U.S. Steel

Corp. for J. on the Agency R. under R. 56.2 1-2, ECF No. 39 (“US Steel Br.”); see Mem.

in Support of Mot. of Pl. Wheatland Tube Co. for J. on the Agency R. 1-2, ECF No. 41

(joining in and supplementing U.S. Steel’s arguments) (“Wheatland Br.”); R. 56.2 Br. of

Pl.-Intervenors Allied Tube & Conduit & TMK IPSCO Tubulars in Support of their Mot. for

J. on the Agency R. 1-2, ECF No. 43 (same) (“Allied & TMK Br.”); see also Reply Br. in

Support of Pl.’s & Pl.-Intervenors’ Mots. for J. on the Agency R. under R. 56.2 at 1-9,

ECF No. 58 (“Joint Reply”).

       The court has jurisdiction pursuant to Section 516A(a)(2)(B)(vii) of the Tariff Act of

1930, as amended, 19 U.S.C. § 1516a(a)(2)(B)(vii) (2012),1 and 28 U.S.C. § 1581(c)

(2012). For the reasons set forth below, the court remands this action to Commerce for

further consideration.

                                      I. Background

       Section 129 of the Uruguay Round Agreements Act (“URAA”) sets forth

procedures for managing adverse rulings and recommendations of the WTO’s Dispute



1
 Further citations to the Tariff Act of 1930, as amended, are to the relevant provisions of
Title 19 of the U.S. Code, 2012 edition.
Consol. Court No. 12-00298                                                         Page 4


Settlement Body. Under Section 129, the U.S. Trade Representative must consult with

Congress and Commerce to decide whether to implement the rulings and

recommendations that arise from an adverse finding in a Dispute Settlement Panel or

Appellate Body report.    If the United States decides to implement the rulings and

recommendations, the U.S. Trade Representative will request that Commerce make a

determination “not inconsistent with” the Panel or Appellate Body report. See 19 U.S.C.

§ 3538(b).

       “A Section 129 determination amends, rescinds, or modifies the application of an

agency regulation or practice in a specific antidumping, countervailing duty, or safeguards

proceeding.” U.S. Steel Corp. v. United States, 33 CIT 593, 596, 627 F. Supp. 2d 1374,

1377 (2009). It also “stands apart from the agency determination it would alter or amend.”

Advanced Tech. & Materials Co. v. United States, 37 CIT ___, ___, Slip Op. 13-42 at 4

(Mar. 28, 2013) (citing Statement of Administrative Action accompanying the Uruguay

Rounds Agreements Act, H.R. Doc. No. 103-316, Vol. 1 at 1025, 1027 (1994), reprinted

in 1994 U.S.C.C.A.N. 4040, 4312-14), aff’d 541 Fed. App’x 1002 (Fed. Cir. 2013). Section

129 proceedings are similar to other trade proceedings in that Commerce must “provide

interested parties with an opportunity to submit written comments and, in appropriate

cases, may hold a hearing, with respect to the determination.” 19 U.S.C. § 3538(d).

There are a few noteworthy differences. Commerce must consult with Congress and the

U.S. Trade Representative before implementing a final determination. Id. § 3538(b)(3).

Furthermore, the United States, through Commerce, must implement an adverse ruling
Consol. Court No. 12-00298                                                      Page 5


within a “reasonable period of time” under WTO rules. See Agreement Under Article

21.3(b) of the DSU, United States – Definitive Anti-Dumping and Countervailing Duties

on Certain Products from China, ¶ 1, WT/DS379/11 (July 8, 2011).

                            A. Section 129 Implementation

        Historically, Commerce did not apply countervailing duties to imports from non-

market economy countries. See generally Georgetown Steel Corp. v. United States, 801

F.2d 1308, 1313-16 (Fed. Cir. 1986) (explaining that government payments in Soviet-

style non-market economies are not countervailable because they are not “bount[ies]” or

“grant[s]” under the statute). This changed in 2007 when Commerce announced that it

would apply countervailing duties to subject merchandise from China. See Countervailing

Duty Investigation of Coated Free Sheet Paper from the People’s Republic of China—

Whether the Analytical Elements of the Georgetown Steel Opinion Are Applicable to

China’s Present-Day Economy, 4-5 (Dep’t of Commerce Mar. 29, 2007), available at

http://enforcement.trade.gov/download/prc-cfsp/CFS%20China.Georgetown%20applica

bility.pdf.   Commerce explained that recent changes in China made it “possible to

determine whether the Government [of China] has bestowed a benefit upon a Chinese

producer (i.e., the subsidy can be identified and measured) and whether any such benefit

is specific.” Id. at 10. Commerce, however, still classified China as a non-market

economy in trade proceedings.

        On July 22, 2008, Commerce published antidumping and countervailing duty

orders on CWP from China. See Circular Welded Carbon Quality Steel Pipe from the
Consol. Court No. 12-00298                                                        Page 6


People's Republic of China, 73 Fed. Reg. 42,547 (Dep't of Commerce July 22, 2008)

(antidumping duty order); Circular Welded Carbon Quality Steel Pipe from the People's

Republic of China, 73 Fed. Reg. 42,545 (Dep't of Commerce July 22, 2008) (amended

final countervailing duty determination and order).     Commerce refused to consider

whether the simultaneous imposition of antidumping and countervailing duty orders may

have resulted in overlapping, or double counting, of remedies. See Issues and Decision

Memorandum for the Final Determination of Sales at Less than Fair Value of Circular

Welded Carbon Quality Steel Pipe from the People’s Republic of China, A-570-910, at

21-22      (Dep’t    of      Commerce,       June      5,     2008),     available      at

http://enforcement.trade.gov/frn/summary/prc/E8-12608-1.pdf (last visited this date).

Commerce reasoned that there was no “demonstration . . . that the AD [antidumping] duty

that would be imposed would constitute a double remedy for practices already addressed

by the CVD [countervailing duty] investigation.” Id. at 22. Commerce also explained that

it lacked the authority to account for double remedies because “Congress provided no AD

adjustment for CVDs imposed to offset subsidies that are not export subsidies.” Id.; see

Issues and Decision Memorandum for the Final Determination in the Countervailing Duty

Investigation of Circular Welded Carbon Quality Steel Pipe from the People’s Republic of

China, C-570-911, at 101 (Dep’t of Commerce, May 29, 2008), available at

http://enforcement.trade.gov/frn/summary/prc/E8-12606-1.pdf (last visited this date).

        China promptly challenged the CWP and three other sets of simultaneously

imposed antidumping and countervailing duty orders before the WTO’s Dispute
Consol. Court No. 12-00298                                                           Page 7


Settlement Body. The WTO Appellate Body ultimately found that the United States had

acted inconsistently with its international obligations in several respects, including the

potential imposition of overlapping remedies:

      When investigating authorities calculate a dumping margin in an anti-
      dumping investigation involving a product from an NME [non-market
      economy], they compare the export price to a normal value that is calculated
      based on surrogate costs or prices from a third country. Because prices
      and costs in the NME are considered unreliable, prices, or, more commonly,
      costs of production, in a market economy are used as the basis for
      calculating normal value. In the dumping margin calculation, investigating
      authorities compare the product's constructed normal value (not reflecting
      the amount of any subsidy received by the producer) with the product's
      actual export price (which, when subsidies have been received by the
      producer, is presumably lower than it would otherwise have been). The
      resulting dumping margin is thus based on an asymmetric comparison and
      is generally higher than would otherwise be the case.

      ....

      . . . [Commerce] made no attempt to establish whether or to what degree it
      would offset the same subsidies twice by imposing anti-dumping duties
      calculated under its NME methodology, concurrently with countervailing
      duties. . . . [Commerce] dismissed China’s claim of double remedies on the
      ground that inter alia it had no statutory authority to make adjustments in
      the context of countervailing duty investigations. Therefore, [Commerce]
      did not initiate any examination of whether double remedies would arise in
      the four investigations at issue and refused outright to afford any
      consideration to the issue or to the submissions pertaining to the issue that
      were presented to it.

      ....

      . . . Consequently, we find that, in the circumstances of the four sets of anti-
      dumping and countervailing duty investigations at issue, by virtue of
      [Commerce’s] imposition of anti-dumping duties calculated on the basis of
      an NME methodology, concurrently with the imposition of countervailing
      duties on the same products, without having assessed whether double
      remedies arose from such concurrent duties, the United States acted
      inconsistently with its obligations under Article 19.3 of the SCM agreements.
Consol. Court No. 12-00298                                                       Page 8



WTO AB Report ¶¶ 542, 604, 606 (emphasis in original) (footnotes omitted); see id. ¶ 611.

The WTO Appellate Body noted that while “double remedies would likely result from the

concurrent application of antidumping duties calculated on the basis of an NME

methodology and countervailing duties,” double remedies would not “necessarily result in

every instance of such concurrent application of duties.” Id. ¶ 599 (footnotes omitted,

emphasis in original).

         The U.S. Trade Representative then announced the United States’ intention to

comply with the WTO’s rulings and recommendations, and requested that Commerce

make a determination “not inconsistent with” the WTO AB Report. See Implementation

Notice, 77 Fed. Reg. at 52,684 (citing 19 U.S.C. § 3538(b)(2)); Communication from

China and the United States concerning Article 21.3(c) of the DSU, United States –

Definitive Anti-Dumping and Countervailing Duties on Certain Products from China,

WT/DS/379/10 (May 13, 2011).           Commerce initiated the underlying Section 129

proceeding on August 16, 2011. Section 129 Determination of the Countervailing Duty

Investigation of Circular Welded Carbon Quality Steel Pipe from the People's Republic of

China: “Double Remedies” Analysis Pursuant to the WTO Appellate Body Findings WTO

DS379, 6 (May 31, 2012), PD 1202 (“Preliminary Determination”).

         Although the U.S. Trade Representative and the Government of China originally

agreed that the reasonable period of time for Commerce to implement the WTO AB




2
    “PD” refers to a document contained in the public administrative record.
Consol. Court No. 12-00298                                                      Page 9


Report would expire on February 25, 2012, several intervening events delayed resolution

of the double remedies issue. Id. at 4. On December 19, 2011, the U.S. Court of Appeals

for the Federal Circuit (“Federal Circuit”) invalidated Commerce’s imposition of

countervailing duties in the non-market economy context. GPX Int’l Tire Corp. v. United

States, 666 F.3d 732, 737-45 (Fed. Cir. 2011), vacated as abrogated by statute by

678 F.3d 1308 (2012), after remand, 37 CIT ___, 942 F. Supp. 2d 1343 (2013). In

response Congress enacted legislation authorizing Commerce to impose countervailing

duties in the nonmarket economy context, but directed Commerce to estimate and apply

an offset to antidumping duties in the event of double counting. GPX, 678 F.3d at 1311;

see Application of Countervailing Duty Provisions to Nonmarket Economy Countries, Pub.

L. No. 112-99, 126 Stat. 265, 19 U.S.C. §§ 1671, 1677f-1 (2012).

      Commerce continued the underlying Section 129 proceeding on March 28, 2012,

when it sent questionnaires to the Government of China. Preliminary Determination at 6-

7. Commerce ultimately issued the Final Determination on July 31, 2012, and after

consulting with Congress and the U.S. Trade Representative, published the

Implementation Notice on August 30, 2012. Commerce calculated and applied a double

counting offset of 63.07% of the value of those countervailable subsidies that affected

CWP producers’ variable costs. This action followed.

                   B. Commerce’s Double Remedy Determination

      Given the numerous adverse WTO rulings and recommendations, and their

potential impact on four sets of outstanding antidumping and countervailing duty orders,
Consol. Court No. 12-00298                                                        Page 10


Commerce issued multiple preliminary and final determinations during the Section 129

proceeding. Implementation Notice, 77 Fed. Reg. at 52,683-84 (listing preliminary and

final determinations). This action involves only the concurrent orders on CWP from

China. Pl.’s Compl. ¶ 2, ECF No. 10.

       As noted above, during the proceeding Commerce issued questionnaires to the

Government of China that requested information on whether the CWP antidumping and

countervailing duty orders double counted trade remedies. Commerce issued similar

questionnaires for the three other sets of simultaneously imposed antidumping and

countervailing duty orders. The Government of China provided similar responses to each

double remedy questionnaire, but provided little information specific to the CWP industry.

Preliminary Determination at 7-8.

       For its analytical framework, Commerce considered 19 U.S.C. § 1677f-1(f)(1) as

“a matter of initial impression.” Id. at 7. Under section 1677f-1(f)(1):

       If the administering authority determines, with respect to a class or kind of
       merchandise from a nonmarket economy country for which an antidumping
       duty is determined using normal value pursuant to section 1677b(c) of this
       title, that –

              (A) pursuant to section 1671(a)(1) of this title, a countervailable
              subsidy (other than an export subsidy referred to in section
              1677a(c)(1)(C) of this title) has been provided with respect to the
              class or kind of merchandise,

              (B) such countervailable subsidy has been demonstrated to have
              reduced the average price of imports of the class or kind of
              merchandise during the relevant period, and

              (C) the administering authority can reasonably estimate the extent to
              which the countervailable subsidy referred to in subparagraph (B), in
Consol. Court No. 12-00298                                                       Page 11


             combination with the use of normal value determined pursuant to
             section 1677b(c) of this title, has increased the weighted average
             dumping margin for the class or kind of merchandise,

      the administering authority shall, except as provided in paragraph (2),
      reduce the antidumping duty by the amount of the increase in the weighted
      average dumping margin estimated by the administering authority under
      subparagraph (C).

19 U.S.C. § 1677f-1(f)(1).

      Commerce preliminarily concluded that the CWP countervailable subsidies

reduced the price of CWP imports by approximately 63.07%:

      Because of the high degree of similarity in industry conditions across a
      highly disparate group of manufactured products in these section 129
      proceedings, the Department will take the information provided by the
      [Government of China, or “GOC,”] as representative of those in China's
      manufacturing sector, as a whole, during the POI [period of investigation].
      In light of the compressed schedule of these section 129 proceedings after
      passage of [19 U.S.C. § 1677f-1(f)(1)], there was insufficient time for the
      Department to make further inquiries of the GOC to seek additional support
      for and/or explanation of certain GOC statements. For example, although
      the GOC described a long-run pricing principle, there is no description on
      the record regarding short-run pricing dynamics, nor documentation about
      how specific production cost accounting categories are impacted by
      subsidies and which of these cost impacts, if any, factor into pricing in the
      short-run.

      Therefore, in order to further understand short-run pricing dynamics, the
      Department considered Credit Lyonnais Securities Asia (CLSA)-Markit’s
      monthly China PMI report on Manufacturing (the Report). The Report notes
      that during the POI, manufacturers in China changed output prices in
      response to increases in input costs over the previous month, and that only
      part of the cost increases were passed on to customers in the form of higher
      selling prices. Moreover, the types of input cost increases that purchasing
      managers reported during the POI were related to changes in variable
      costs, such as direct labor, raw materials, and other inventoried production
      inputs.
Consol. Court No. 12-00298                                                       Page 12


      Given the variable cost-(short-run) price link noted in the Report, the
      Department considered evidence from the record of the original AD and
      CVD investigations and found that for the CWP industry, purchases of hot-
      rolled steel were booked in the direct raw materials inventory at the cost of
      acquisition. Since direct raw materials constitute a variable cost of
      production, the record in this proceeding—which includes the Report and
      evidence from the original investigations—indicates a subsidy-(variable)
      cost-price link in the case of input price subsidies. The Department,
      however, has found no other evidence on the record of the investigations
      with respect to other subsidies and the cost categories that they may
      impact. Therefore, for the purposes of this 129 proceeding, estimation of
      the extent that domestic subsidies to producers in China resulted in lower
      export prices, i.e. the extent of subsidy pass-through, will be limited to
      subsidies that are likely to have impacted variable cost, and the extent of
      cost pass-through will be used as a proxy for the extent of subsidy pass-
      through.

      In order to estimate the extent to which changes in such variable costs were
      reflected in prices during the POI, as described in the Report, the
      Department calculated the average ratio of (a) rolling, monthly, year-on-
      year changes in production input costs to (b) rolling, monthly year-on-year
      changes in ex-factory prices, for the POI, using data for the manufacturing
      sector in China available through Bloomberg’s electronic terminal. As a
      proxy for the change in input production costs, the Department used
      changes in an aggregate production input price index. And as proxy for
      changes in ex-factory prices, the Department used changes in an aggregate
      producer price index for the manufacturing sector in China. . . .

      We recognize that the extent of input price inflation pass-through is an
      inexact proxy for the extent of subsidy pass-through, not only because input
      price inflation and subsidies push cost in opposite directions, but because
      the impact of input price inflation may be more uniform and systematic in
      nature. As indicated above, the Department’s administration of the new
      statutory provision may evolve with the benefit of time and experience. The
      Department therefore intends in future inquiries, where appropriate and
      where time permits, to reassess this analytical approach, if merited.

      ...

      The above-described approach leads us to conclude that approximately
      63.07 percent of the value of the subsidies that have impacted variable
      costs, as identified above, were “passed through” to export prices for the
Consol. Court No. 12-00298                                                        Page 13


       CWP industry during the POI. Based upon this finding, we are able to
       identify the portion of each CVD rate determined in the proceeding
       estimated to have increased cash deposit rates in the companion AD
       proceeding.

Preliminary Determination at 8-10 (emphasis in original) (footnotes omitted).

       Commerce essentially used generalized Chinese domestic price data to conclude

that certain countervailable subsidies reduced the average price of U.S. CWP imports.

Relying on similarities in industry conditions affecting each of the four kinds of products

under review, Commerce first decided to treat China’s entire manufacturing sector as a

proxy for the CWP industry. Commerce then found that variable input cost increases

across Chinese manufacturing, which included “labor, raw materials, and other

inventoried production inputs,” correlated with proportionally smaller domestic output

price increases. Commerce also found that CWP producers booked inputs at the price

of acquisition, whether they were affected by the relevant subsidies or not. Given these

identified relationships, Commerce inferred that certain subsidies reducing Chinese CWP

producers’ input costs would correspondingly reduce Chinese domestic CWP prices (in

the same way increased input prices caused ex-factory price increases across Chinese

manufacturing). See Preliminary Determination at 9-10. Commerce thus treated Chinese

domestic price behavior as a proxy for U.S. CWP import price behavior, effectively

presuming that changes in Chinese domestic prices correspond with identical changes in

CWP import prices. See id. Notably, Commerce did not supplement the record with or

analyze any actual U.S. CWP import price data in reaching its preliminary conclusions.
Consol. Court No. 12-00298                                                           Page 14


          U.S. Steel, Wheatland, Allied, and TMK IPSCO, along with other domestic

interested parties to the Section 129 proceeding, objected to several aspects of

Commerce’s determination. Among other things, they argued that the statute placed the

burden on the Government of China to “demonstrate” the subsidy’s effect on the average

price of imports of the class or kind of merchandise, and that the Government of China

failed to do that here. In response, Commerce agreed that under normal circumstances,

“the burden is on a respondent to demonstrate its entitlement to a particular adjustment,”

but explained that “[t]he unique nature of these particular section 129 proceedings . . .

placed certain limitations on [Commerce’s] ability to solicit and receive information from

parties     with   respect   to   any   alleged   overlap   of   AD   and   CVD    remedies.”

Final Determination at 14. “Despite those constraints,” according to Commerce, “the

[Government of China] and respondent parties did provide information necessary to

[Commerce’s] determinations to make adjustments under [19 U.S.C. § 1677f-1(f)] as part

of these proceedings.” Id. Nevertheless, Commerce conceded that it did “supplement

the record with publicly available information . . . to aid in its economic analysis.” Id.

          The Domestic Interested Parties also challenged Commerce’s double remedy

methodology. Among the factual submissions supporting their comments, the Domestic

Interested Parties included U.S. import price data and explanation and argumentation

about the economics of subsidy pass-through. Final Determination at 11-15, 17-24, 27-

31; see also Wheatland Tube Company New Factual Information Relating to the

Department’s Preliminary Double Remedy Analysis, Exs. 1, 10-11 (Dep’t of Commerce
Consol. Court No. 12-00298                                                       Page 15


June 11, 2012), PD 129 (“Wheatland Factual Submission”). In the Final Determination

Commerce acknowledged that Chinese “export prices/U.S. import prices of subject

merchandise may be the more appropriate price measure,” but nevertheless declined to

analyze those measures, instead continuing to rely on Chinese domestic price data to

determine the offset to the CWP antidumping duty:

      The Department agrees with Allied Tube/TMK IPSCO that PRC export
      prices/U.S. import prices of subject merchandise may be the more
      appropriate price measure. That said, the Department has not switched to
      PRC export/U.S. import data for purposes of the [ratio change test, or
      “RCT”] in these proceedings for the following reason. The RCT should, to
      the extent possible, (1) match price and cost to the subject merchandise
      and (2) pair cost and price series from the same universe, or group, at the
      firm, industry or sector level. Only in this manner can the Department
      ensure that the cost series and price series are actually associated with one
      another. To accomplish this, the Department relied on manufacturing sector
      data from the same source, with similar coverage: manufacturing sector
      variable costs and manufacturing sector prices. Switching to PRC
      export/U.S. import data as suggested by Allied Tube/TMK IPSCO would
      nullify this matching and, in fact, reduce the validity of the measurement
      given the possibly opposite trends in domestic and export prices identified
      by Allied Tube/TMK IPSCO. In order to ensure a true “apples-to-apples”
      cost and price comparison, the Department elected to match the price and
      cost series rather than rely upon a sub-group or subset of the overall
      manufacturing sector for prices when the cost series is measured using the
      entire group. Furthermore, data constraints precluded the Department from
      disaggregating U.S. import data to ensure a one-to-one mapping.

Final Determination at 14-15, 25 (footnotes omitted).

      Before the court, Domestic Interested Parties raise several arguments: (1) that the

statute places a clear and unambiguous burden on the Government of China to establish

the requisites of the double remedy offset, which the Government of China failed to meet;

(2) that Commerce’s methodology in applying a double remedy offset violates the clear
Consol. Court No. 12-00298                                                     Page 16


and unambiguous statutory requirements of 19 U.S.C. § 1677f-1(f); (3) that in any event,

Commerce’s finding that the record “demonstrates” that the CVD order on CWP reduced

the average U.S. import prices of CWP is unsupported by substantial evidence

(unreasonable); and (4) that Commerce’s estimation of the double remedy offset is

unreasonable. See U.S. Steel Br. at 4-6; Wheatland Br. at 1-2; Allied & TMK Br. at 1-2.

                                II. Standard of Review

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

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

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

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

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

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

evidence has been described as “such relevant evidence as a reasonable mind might

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
Consol. Court No. 12-00298                                                        Page 17


and Practice § 9.24[1] (3d ed. 2014). 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.” Edward D. Re,

Bernard J. Babb, and Susan M. Koplin, 8 West's Fed. Forms, National Courts § 13342

(2d ed. 2014).    In reviewing Commerce’s finding, conclusion, or determination for

substantial evidence (reasonableness), it is axiomatic that the court must first understand

Commerce’s explanation underlying the agency action. See Motor Vehicle Mfrs. Ass’n v.

State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (“State Farm”).

       Additionally, 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 and countervailing duty statutes. 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.”). The court first considers

whether Congressional intent on the issue is clear. Dupont, 407 F.3d at 1215. “The

plainness or ambiguity of statutory language is determined by reference to the language

itself, the specific context in which that language is used, and the broader context of the

statute as a whole.”     Robinson v. Shell Oil Co., 519 U.S. 337, 341 (1997); see

Nat’l Ass’n of Home Builders v. Defenders of Wildlife, 551 U.S. 644, 666 (2007) (“[T]he

meaning—or ambiguity—of certain words or phrases may only become evident when

placed in context.” (quoting FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120,
Consol. Court No. 12-00298                                                       Page 18


132-33 (2000))); see, e.g., Dorbest v. United States, 604 F.3d 1363, 1371-75 (Fed. Cir.

2010); AK Steel Corp. v. United States, 226 F.3d 1361, 1366-74 (Fed. Cir. 2000);

Delverde v. United States, 202 F.3d 1360, 1363-70 (Fed. Cir. 2000). When a “court

determines Congress has not directly addressed the precise question at issue, . . . the

question for the court is whether the agency’s answer is based on a permissible

construction of the statute.” Chevron, 467 U.S. at 843. Under Chevron’s second prong,

the court must defer to Commerce’s reasonable construction of the statute. See, e.g.,

United States v. Eurodif S.A., 555 U.S. 305, 887-90 (2009); Union Steel v. United States,

713 F.3d 1101, 1106-10 (Fed. Cir. 2013).

                                     III. Discussion

       The court begins by addressing two threshold legal issues raised by Domestic

Interested Parties that implicate the Chevron framework: (1) whether the statute places a

burden on a respondent, such as the Government of China, to demonstrate that double

remedies have occurred; and (2) whether Commerce’s use of indirect evidence to first

find, and then offset, double remedies in the CWP orders was consistent with the statute’s

requirement that the record demonstrate that a countervailable subsidy has “reduced the

average price of imports of the class or kind of merchandise.” 19 U.S.C. § 1677f-

1(f)(1)(B).

                              A. Burden to Demonstrate

       Domestic Interested Parties advance a lengthy Chevron step one argument that

the statute places a burden on an interested party, such as the government of China, to
Consol. Court No. 12-00298                                                          Page 19


“demonstrate” the requisite condition for a double counting offset (the countervailable

subsidy’s effect on the average price of imports). Wheatland Br. at 3-10; U.S. Steel Br.

at 25-26; see Allied & TMK Br. at 1-2. The court though is not persuaded that the statute’s

vague present perfect passive clause—“has been demonstrated”—establishes Domestic

Interested Parties’ hoped for clear statutory burden. The present perfect tense in the

passive voice describes something that has happened in the past, but may leave unclear,

as in this case, the identity of the actor, i.e., by whom the thing was done. Paul J. Hopper,

A Short Course in Grammar 190-94 (1999); Henry Weihoffen, Legal Writing Style 111 (2d

ed. 1980). It also places emphasis on the object of the verb—here, the existence of the

condition for a double counting offset—rather than the subject. See Hopper, supra, at

192-94. Congress could have mandated that a party claiming an offset “shall” or “must”

demonstrate that the countervailable subsidy reduces the average price of imports of the

class or kind of merchandise, but Congress instead chose the following conditional

construct: “If [Commerce] determines . . . that . . . [a] countervailable subsidy has been

demonstrated to have reduced the average price of imports of the class or kind of

merchandise during the relevant period[,] . . . [Commerce] shall . . . reduce the

antidumping duty by the amount of the increase in the weighted average dumping margin

estimated by [Commerce] under subparagraph (C).”             19 U.S.C. § 1677f-1(f)(1)(B)

(emphasis added). That formulation—with the actor unknown—is vague enough to allow

Commerce some discretion to allocate evidentiary burdens for establishing the statutory

criteria for a double remedy offset.
Consol. Court No. 12-00298                                                        Page 20


       In the proceeding below Domestic Interested Parties also cited Commerce’s

AD/CVD regulation, 19 C.F.R. § 351.401(b)(1), which generally imposes on an interested

party “in possession of the relevant information . . . the burden of establishing . . . the

amount and nature of a particular adjustment.”         Id.   Domestic Interested Parties

contended that respondents (which include the government of China) failed to carry their

burden to establish the requisite reduction in CWP import prices caused by the

countervailed subsidies. Final Determination at 13-14. Commerce acknowledged the

argument and the regulation, but explained that the “unique nature of these particular

section 129 proceedings” made it difficult to solicit and receive information from the

interested parties. Id. at 14. Commerce further explained:

       [U]ncertainty accompanying the GPX litigation at the Federal Circuit as well
       as questions regarding the Department’s authority under domestic law to
       come into compliance with the [WTO]’s findings and recommendations
       compressed an already short time frame available to the Department to
       complete this proceeding. Because section 777A(f) of the Act was enacted
       only in March 2012, the Department had little time or flexibility to develop
       and hone its practice in applying the new law for the first time in these
       proceedings. To the extent that such constraints may have limited the
       Department’s ability to make follow-up requests for information from the
       GOC or other interested parties, the Department was nevertheless able to
       supplement the record with publicly available information such as the CLSA
       Report and HSBC Report to aid in its economic analysis

Id. (footnotes omitted).
Consol. Court No. 12-00298                                                           Page 21


       Before the court, Domestic Interested Parties again cite the regulation, and repeat

their argument that the Government of China failed to meet their evidentiary burden.3 The

court does not agree. Commerce reasonably explained the unique circumstances of its

Section 129 proceeding that made solicitation and receipt of information from interested

parties suboptimal, causing Commerce to supplement the record on its own.

       During the proceeding Commerce issued questionnaires to the Government of

China and the Government of China supplied answers and information about its

manufacturing sector generally but did not supply information specific to the CWP

industry. Commerce supplemented the administrative record on its own with the entire

administrative records from the underlying CWP investigations as well as other

information from publicly available economic sources. Commerce then analyzed that

collective information and shaped it into a “determination.” Contrary to the arguments of

the Domestic Interested Parties, the statute’s plain language simply does not isolate

Commerce’s double counting analysis to information or arguments supplied from any

particular source or party. Additionally, Commerce is generally empowered to augment

the administrative record on its own, see generally 19 C.F.R. § 351.301(c)(4), and it did




3
  Domestic Interested Parties do not raise or challenge Commerce’s interpretation of its
regulation, which is “of controlling weight unless it is plainly erroneous or inconsistent with
the regulation.” Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414 (1945);
Gonzales v. Oregon, 546 U.S. 243 (2006); Christensen v. Harris County, 529 U.S. 576,
588 (2000); Auer v. Robbins, 519 U.S. 452, 461 (1997); American Signature, Inc. v.
United States, 598 F.3d 816, 827 (Fed. Cir. 2010). Domestic Interested Parties have not
argued that Commerce’s interpretation of 19 C.F.R. § 351.401(b)(1) is plainly erroneous
or inconsistent with the regulation.
Consol. Court No. 12-00298                                                         Page 22


so here. The court, therefore, does not agree with the Domestic Interested Parties that

Commerce improperly looked beyond the Government of China’s arguments and

submissions to determine whether double counting “has been demonstrated” on an

administrative record that Commerce helped develop.

                        B. “Has Been Demonstrated” Indirectly

       Domestic Interested Parties also argue that the “clear and unambiguous

requirements of” 19 U.S.C. § 1677f-1(f)(1)(B) compelled Commerce to use only CWP firm

or industry-level data in the agency’s analytical framework.         U.S. Steel Br. 4-20;

Wheatland Br. at 4-10; Allied & TMK Br. at 3-6. Specifically, Domestic Interested Parties

fault Commerce for using manufacturing sector-wide data showing a correlation between

Chinese domestic input price increases and Chinese domestic ex-factory price increases

to conclude that certain countervailable subsidies reduced the average price of U.S. CWP

imports.

       Although the court understands Domestic Interested Parties’ Chevron step one

argument that the statute, in effect, requires direct evidence of a reduction of the average

price of CWP imports, the court does not agree that the statute speaks with such clarity

or precision. Congress did not specifically require the existence of direct evidence that

the CVD order reduced the average price of imports of the merchandise, but instead, as

explained above, used a somewhat vague present perfect passive conditional construct:

if Commerce determines “such countervailable subsidy has been demonstrated to have

reduced the average price of imports of the class or kind of merchandise.” 19 U.S.C.
Consol. Court No. 12-00298                                                            Page 23


§ 1677f-1(f)(1)(B). In practice, the simplest and likely best way to “demonstrate” the

requisite reduction in import prices is through direct import price data at the firm or industry

level (the class or kind of merchandise). But this is not the same as saying that the statute

mandates the use of direct import price data. In the court’s view the statute does not

prohibit Commerce from attempting to “demonstrate[]” that the countervailed subsidies

caused a reduction in average U.S. CWP import prices through indirect evidence of

broad-based manufacturing data in China.           With that said, however, choosing that

circuitous route may be difficult to justify as reasonable (supported by substantial

evidence).

       And that is really the central issue in this case. Does substantial evidence support

Commerce’s finding that the administrative record “demonstrate[s]” that the subsidies

countervailed by the CWP order reduced the average price of CWP imports? More

specifically, was it reasonable for Commerce to ultimately “presume” the requisite

statutory criterion was satisfied when the Domestic Interested Parties’ argument and

evidence appears to show the contrary? It is to this question that the court now turns.

                      C. Reasonableness of Commerce’s Finding

       Commerce found that the administrative record “demonstrated” a reduction in

average import prices without any analysis, and a clearly stated avoidance, of direct

import price data. Domestic Interested Parties take dead aim at Commerce’s finding,

arguing that “Commerce’s analysis demonstrates, at most, that changes in the cost of

inputs used in the production of all goods manufactured in China resulted in changes in
Consol. Court No. 12-00298                                                          Page 24


the overall average of the prices of all goods sold in China.” U.S. Steel Br. at 5. According

to Domestic Interested Parties, Commerce’s analysis of the record does not explain

whether: (1) the subsidies affected prices for the class or kind of merchandise, CWP; (2)

the subsidies affected the price of imports of any kind, let alone the price of U.S. CWP

imports; and (3) the subsidies’ effect was a price reduction. See U.S. Steel Br. at 4-6;

Wheatland Br. at 1-2; Allied & TMK Br. at 1-2.

       As Domestic Interested Parties argue, Commerce’s focus on broad Chinese

domestic manufacturing data encompassing millions of products does not directly

implicate the statute’s specific requirement that a “subsidy . . . reduced the average price

of imports of the class or kind of merchandise.” 19 U.S.C. § 1677f-1(f)(1)(B); see Joint

Reply at 2; U.S. Steel Br. at 21-22; Allied & TMK Br. at 4-8. Commerce made a series of

inferences when concluding that the indirect evidence “demonstrated” a reduction in

import prices, among them a presumption that any reduction in Chinese domestic prices

resulting from a countervailable subsidy would be accompanied by a “corresponding

reduction” in “export prices . . . to some degree.” Final Determination at 16.

       Instead of confronting Domestic Interested Parties’ challenge head on, Commerce

and its counsel offer apologia about a lack of time and industry level data. See, e.g., id.

at 22 (reiterating its preliminary position that “there was insufficient time for the

Department to make further inquiries of the GOC or conduct a de novo investigation of

individual firms, including with respect to industry- or firm-specific price and cost data,

which may have provided a basis to further refine the pass-through estimate”);
Consol. Court No. 12-00298                                                        Page 25


Def.’s Combined Resp. to Pl.’s and Pl.-Intervenors’ Mots. for J. on the Agency R. 6, 10-

11, 14-15, 17. In fairness, Commerce found itself in difficult circumstances. Commerce

had to harmonize four sets of antidumping and countervailing duty determinations with

numerous adverse WTO rulings that communicated an expectation of a “likely” double

counting remedy for respondents. Commerce had a short timeframe prior to

implementation.    Finally, Commerce was operating under a brand new statutory

framework that limited Commerce’s discretion to apply a double remedy offset. Alongside

the important motivation to bring the U.S. into compliance with the WTO rulings,

Commerce also had to heed the Congressional command to “demonstrate” that the

countervailable subsidies reduced the average price of U.S. CWP imports.

       Commerce chose to make this demonstration indirectly through a presumption that

U.S. import prices and Chinese domestic output prices respond similarly to changes in

Chinese domestic input prices. Had the Domestic Interested Parties remained silent

during the proceeding, the court may have been able to accept as reasonable

Commerce’s decision to use increases in broad price indexes in place of more specific

CWP figures because of the discernable (though tenuous) path Commerce provided to

justify its approach.   Unfortunately for Commerce, the Domestic Interested Parties

litigated the issue vigorously, and the Final Determination gives insufficient attention to

the arguments and evidence challenging Commerce’s presumption.

       Domestic Interested Parties argued below that prices in the Chinese domestic

market and the U.S. import market respond differently to changes in input prices.
Consol. Court No. 12-00298                                                         Page 26


Final Determination at 13, 15, 21-24. Domestic Interested Parties supported this claim

with evidence detailing aggregate U.S. import price data for all imports from China, which

according to Allied and TMK IPSCO, show that “Chinese input prices are not correlated

at all with changes in the prices of U.S. imports sourced from China,” unlike the Chinese

output prices Commerce relied upon. Allied & TMK Br. at 6 (emphasis added). Allied

and TMK IPSCO illustrated before Commerce that U.S. import prices and Chinese input

prices appear to have moved in opposite directions over much of the relevant time period.

Id. at 6-7. Domestic Interested Parties further supported their claim with an affidavit from

an economist explaining that Chinese producers are less likely to pass on price decreases

than increases to U.S. customers, particularly decreases that competing US producers

would not experience, such as Chinese countervailable subsidies. Wheatland Factual

Submission, Ex. 1 at 4-8. Finally, Domestic Interested Parties placed CWP import price

data on the record.     Wheatland Factual Submission, Ex. 11.          Although Domestic

Interested Parties did not provide a detailed analysis of CWP import price data

themselves, they maintain that Commerce acted unreasonably in failing to address and

analyze this data directly. See U.S. Steel Br. at 20-25; Wheatland Br. at 4-10; Allied &

TMK Br. at 3-10.

       Recall from the discussion above that Commerce chose to use generalized

Chinese domestic price data to conclude that certain subsidies reduced the average price

of U.S. CWP imports. Commerce relied on submissions from the Government of China

showing similarities in industry conditions affecting CWP and the other products under
Consol. Court No. 12-00298                                                     Page 27


review to conclude that China’s entire manufacturing sector could serve as a proxy for

the CWP industry. Commerce then found that variable input cost increases across all

Chinese manufacturing correlated with proportionally smaller domestic output price

increases.   Commerce inferred from that relationship that countervailable subsidies

reducing Chinese CWP producers’ input costs would, presumably, reduce Chinese

domestic CWP prices to the same extent. Commerce explains that this presumption is

similar to its historical practice in market economy cases where Commerce “generally

refrain[s] from speculating about the effect of a subsidy” and does not make any

adjustments for potential double remedies. Final Determination at 15-16. In that setting

when calculating dumping margins on the same merchandise, Commerce treats

countervailable domestic subsidies as if they had an identical effect on domestic output

prices (normal value) and export prices. See id.; 19 U.S.C. § 1677(5)(C). Commerce

notes that this familiar and administrable means of accounting for the price effects of

subsidies is consistent with the WTO’s conclusion that double remedies were “likely” in

part because Commerce’s non-market economy framework captures all reductions in

export price caused by countervailable subsidies, but not similar reductions in domestic

output prices. See WTO AB Report ¶ 542.

      This is all well and good, but the court does not believe that Commerce has

sufficiently addressed why its “presumption” outweighs record evidence appearing to

show that domestic output prices and export prices are not correlated, see, e.g.,

Wheatland Factual Submission, Exs. 1, 10-11; TMK IPSCO Submission of Evidence re
Consol. Court No. 12-00298                                                       Page 28


“Double Remedies” Att. 1 (Dep’t of Commerce June 11, 2012); see Allied & TMK Br. at 6

(summarizing data). Commerce has left too much unexplained. Commerce does not

analyze or comment upon Domestic Interested Parties’ economist’s opinion. Commerce

also does not analyze U.S. import data specific to CWP. Rather, Commerce avoids

Domestic Interested Parties’ U.S. import price data by explaining that it believes the

Chinese domestic ex-factory price data is a superior data source for estimating subsidy

pass-through:

      Only [by using Chinese domestic input and output price indexes] in this
      manner can the Department ensure that the cost series and price series are
      actually associated with one another. To accomplish this, the Department
      relied on manufacturing sector data from the same source, with similar
      coverage: manufacturing sector variable costs and manufacturing sector
      prices. Switching to PRC export/U.S. import data as suggested by Allied
      Tube/TMK IPSCO would nullify this matching and, in fact, reduce the validity
      of the measurement given the possibly opposite trends in domestic and
      export prices identified by Allied Tube/TMK IPSCO. In order to ensure a
      true “apples-to-apples” cost and price comparison, the Department elected
      to match the price and cost series rather than rely upon a sub-group or
      subset of the overall manufacturing sector for prices when the cost series is
      measured using the entire group. Furthermore, data constraints precluded
      the Department from disaggregating U.S. import data to ensure a one-to-
      one mapping.

Final Determination at 25. Commerce acknowledges that Domestic Interested Parties’

record data may demonstrate “possibly opposite trends in domestic and export prices”

over the relevant period. Id. (emphasis added). Yet, when Commerce chose to use

Chinese output prices as a proxy for U.S. import prices to “demonstrate” the requisite

reduction, Commerce presumes that the countervailable subsidies caused corresponding

reductions in Chinese output prices and U.S. import prices “to some degree.” Id. at 16.
Consol. Court No. 12-00298                                                         Page 29


The court is missing something. The court does not understand how Commerce may

reasonably presume that Chinese domestic prices behave similarly to U.S. import prices

when record data also appears to exhibit “possibly opposite trends.”

       Perhaps the answer lies in how one may reasonably interpret the differing data

sets on the record. Although Commerce achieves a match between the price and cost

series at the broader manufacturing level, Commerce does not really explain in detail why

this particular association disqualifies consideration of the more specific industry/product

CWP pricing data on the record.       The implication is that there may be no way to

demonstrate the behavior of the CWP pricing data in response to the countervailable

subsidies. The court, however, wonders whether Commerce’s decision to focus on

manufacturing level data and “presume” that broad-based Chinese domestic ex-factory

prices covering millions of products can reasonably serve as a proxy for the average price

of U.S. CWP imports when the statute requires a “demonstration” of a reduction in prices

at the industry/product level, and more specific CWP pricing data appears available on

the record. The court must therefore remand the Final Determination to Commerce for

further explanation. See State Farm 463 U.S. at 43 (agency must articulate “a rational

connection between the facts found and the choice made”); see also Diamond Sawblades

Mfrs. Coal. v. United States, 612 F.3d 1348, 1355-56, 1363 (Fed. Cir. 2010) (noting
Consol. Court No. 12-00298                                                       Page 30


distinction between remanding for further explanation pursuant to State Farm and

remanding because decision is unsupported by substantial evidence).4

                                      IV. Conclusion

       Accordingly, it is hereby

       ORDERED that Commerce’s assessment of double remedies is remanded for

further consideration in accordance with this Opinion; it is further

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

February 25, 2015; it is further

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

with page 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: November 26, 2014
       New York, New York




4
 The court does not yet reach Domestic Interested Parties’ challenge to Commerce’s
estimation of the double remedy offset as unreasonable. See U.S. Steel Br. at 4-6;
Wheatland Br. at 1-2; Allied & TMK Br. at 1-2.
