                                        Slip Op. 18 - 49

                   UNITED STATES COURT OF INTERNATIONAL TRADE



WHEATLAND TUBE COMPANY,

                         Plaintiff,
                                                    Before: Leo M. Gordon, Judge
              v.
                                                    Court No. 17-00021
UNITED STATES,

                         Defendant.


                                      OPINION and ORDER

[Final Determination remanded.]

                                                                     Dated: April 24, 2018

     Roger B. Schagrin and Christopher T. Cloutier, Schagrin Associates of
Washington, DC for Plaintiff Wheatland Tube Company.

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

      Julie C. Mendoza, Donald B. Cameron, R. Will Planert, Brady W. Mills, Mary S.
Hodgins, Eugene Degnan, and Sarah S. Sprinkle, Morris, Manning & Martin LLP of
Washington, DC for Defendant-Intervenors Universal Tube and Plastic Industries, Ltd.,
Universal Tube and Plastic Industries, LLC, KHK Scaffolding & Framework, LLC, Prime
Metal Corporation USA, and UTP Pipe USA Corporation.


       Gordon, Judge: Plaintiff, Wheatland Tube Company (“Wheatland”), a U.S.

producer of circular welded carbon - quality steel pipe (“CWP”), challenges the treatment

of the cost of caps by the U.S. Department of Commerce (“Commerce”) in its investigation

of CWP from the United Arab Emirates (“UAE”). Circular Welded Carbon - Quality Steel
Court No. 17-00021                                                                 Page 2


Pipe from the United Arab Emirates, 81 Fed. Re g. 75,030 (Dep’t of Commerce Oct. 28,

2016) (final LTFV determ.) (“Final Determination”); Issues and Decision Memorandum for

Circular Welded Carbon - Quality Steel Pipe from the United Arab Emirates, A-520-807

(Dep’t        of      Commerce        Oct.       21,       2016)       available        at

http://enforcement.trade.gov/frn/summary/uae/2016-26107-1.pdf (last visited on August

24, 2017) (“Decision Memorandum”).

         Commerce discovered during verification that respondent, Universal Tube and

Plastic Industries, LLC – Jebel Ali Branch, Universal Tube and Pipe Industries, Ltd., and

KHK Scaffolding and Framework LLC (collectively, “Universal”), had impermissibly

double counted the cost of caps as both a packing expense and part of its cost of

manufacturing. Decision Memorandum at 30. In its questionnaire responses Universal

reported the costs of the caps as packing expenses. See Universal Tube’s Section B-D

Quest. Resp., PD 106 at B-40 at barcode 3441400-01 (Feb. 11, 2016). At verification,

however, Universal altered its approach and explained that “caps are not used as packing

material” and “expenses related to purchases of caps are not recorded in [an] account”

that reflects purchases of packing materials. See Verification of Sales Response of

Universal Tube & Plastic Indus., Ltd. (Sales Verification Report) (Aug, 16, 2016),

P.R. 261, at 17. According to Universal, “they record these expenses as part of the cost

of manufacturing” in a different account. Id. Commerce bought this explanation, noting in

the verification report that “removing the cost of caps . . . from UTP’s packing expense

calculation is appropriate.” Id.
Court No. 17-00021                                                                Page 3


      Universal omitted from its explanation that Commerce had treated its caps as

a packing expense in a prior proceeding, Circular Welded Carbon - Quality Steel Pipe

from the United Arab Emirates, 77 Fed. Reg. 64,475 (Dep’t of Commerce Oct. 22, 2012)

(final LTFV determ.) and accompanying Issues and Decision Memorandum at Comment

6,   available   at   https://enforcement.trade.gov/frn/summary/uae/2012-25972-1.pdf

(last visited on this date). Wheatland subsequently corrected that omission, alerting

Commerce to the prior treatment, as well as its treatment of caps as a packing expense

in other proceedings involving the same product, Circular Welded Carbon - Quality Steel

Pipe from the Socialist Republic of Vietnam: Final Determination of Sales at Less Than

Fair Value , 81 Fed. Reg. 75,042 (Dep’t of Commerce Oct. 28, 2016) (final LTFV determ.)

and accompanying Issues and Decision Memorandum at Comment 3, available at

https://enforcement.trade.gov/frn/summary/vietnam/2016-26112-1.pdf        (last    visited

on this date). Decision Memorandum at 29.

      By that point, however, Commerce had already instructed Universal to remove

the cost of caps from packing expenses, treating them as a cost of Universal’s

manufacturing. Responding to Wheatland’s case brief, Commerce sidestepped its prior

treatment of the cost of caps, offering an apologia that “[b]ecause [the double counting

error] was not discovered until verification, the record does not contain sufficient

information to determine whether caps should be treated as packing or a direct material.”

Id. at 30. Succumbing to situational inertia, Commerce accounted for the caps as a direct

material in the cost of manufacturing, but hedged its decision, noting that it would
Court No. 17-00021                                                              Page 4


“consider the appropriate treatment of caps in a subsequent administrative review, if one

is requested.” Id.

         Before the court Wheatland argues that Commerce’s treatment of the cost of caps

was unreasonable given Commerce’s prior treatment of that cost. See Wheatland Br.

at 6; Wheatland Reply Br. at 1-4. The court agrees. Neither Commerce nor Universal

dispute that Commerce has treated the cost of caps as an expense in those other

proceedings. See Def’s. Resp. Br. at 6-10, Universal Resp. Br. at 5-7. Rather than

address the prior inconsistent treatment, both Defendant and Universal argue that

Commerce’s handling of the cost of caps is justified under a general statutory directive

that Commerce “normally” calculate the cost of production consistent with,a respondent’s

accounting records. Def’s. Br. at 6; Universal’s Br. at 3, 5 (citing 19 U.S.C.

§ 1677b(f)(1)(A)). That post hoc reasoning, however, is nowhere found in Commerce’s

determination. Decision Memorandum at 30. Commerce did not adopt that rationale,

sensibly the court believes, because as Wheatland notes, the statute also directs

Commerce to make adjustments to normal value for “coverings” used for packing,

19 U.S.C. § 1677b(a)(6), and to make corresponding adjustments to export price,

19 U.S.C. § 1677a(c)(1)(A). Wheatland Reply Br. at 1. Commerce implicitly appears

to have understood that the cost of caps may need to be addressed differently than

Universal’s treatment of those expenses in its internal accounting, and left open

the possibility that it might do so in subsequent proceedings. Decision Memorandum

at 30.
Court No. 17-00021                                                              Page 5


       Commerce ultimately concluded that “the record does not contain sufficient

information to determine whether caps should be treated as packing or a direct material.”

Id. This raises the question of whether Universal may have failed to carry its burden

of establishing the basis for a claimed adjustment that differs from Commerce’s prior

treatment for that cost, e.g., demonstrating that the caps have some particular end use

other than mere protection of the pipe threads during transportation and storage. Without

that evidentiary proffer, the court is wondering how Commerce could reasonably depart

from its prior treatment of the caps as a packing expense. Defendant and Universal’s

detailed explanation of Universal’s accounting system strikes the court as unresponsive

to the posture of the litigation and that prior administrative law. Commerce’s failure

to address its prior inconsistent treatment of this cost is unreasonable and requires a

remand.

       Accordingly, it is hereby

       ORDERED that the Final Determination is remanded to Commerce to reconsider

its treatment of Universal’s cost of caps; it is further

       ORDERED that Commerce shall file its remand results on or before June 22, 2018;

and it is further
Court No. 17-00021                                                            Page 6


      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 the

Commission files its remand results with the court.



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


Dated: April 24, 2018
       New York, New York
