                          Slip Op. 12-63

           UNITED STATES COURT OF INTERNATIONAL TRADE

Before: Nicholas Tsoucalas, Senior Judge
___________________________________
TIANJIN MAGNESIUM INTERNATIONAL     :
CO., LTD.,                          :
                                    :
           Plaintiff,               :
                                    :
     v.                             : Consol. Court No.: 11-00006
                                    :
UNITED STATES,                      :
                                    :
           Defendant,               :
                                    :
           and                      :
                                    :
US MAGNESIUM, LLC,                  :
                                    :
           Defendant-Intervenors.   :
                                    :


                         MEMORANDUM ORDER

Held: Plaintiff’s Motion for Judgment on the Agency Record is
denied. Defendant-Intervenor’s Motion for Judgment on the Agency
Record is granted in part and denied in part.     This matter is
remanded for proceedings consistent with this opinion.

                                           Dated: May 16, 2012

     Riggle & Craven, (David A. Riggle) for Tianjin Magnesium
International Co., Ltd., Plaintiff.

     Tony West, Assistant Attorney General; Jeanne E. Davidson,
Director, Claudia Burke, Assistant Director, Commercial Litigation
Branch, Civil Division, United States Department of Justice, (Renee
Gerber); Thomas M. Beline, Office of Chief Counsel for Import
Administration, United States Department of Commerce, Of Counsel,
for the United States, Defendant.

     King & Spalding, LLP, (Stephen A. Jones and Jeffrey B.
Denning) for US Magnesium, LLC, Defendant-Intervenor.
Court No. 11-00006                                                   Page 2


       TSOUCALAS, Senior Judge:      This matter comes before the Court

upon cross Motions for Judgment on the Agency Record filed by

Plaintiff, Tianjin Magnesium International Co., Ltd. (“Tianjin”)

and Defendant-Intervenor US Magnesium, LLC (“US Magnesium”).          Both

parties challenge aspects of the final results of an administrative

review of an antidumping order on pure magnesium from the People’s

Republic     of   China   (“PRC”)   undertaken   by   the   United   States

Department of Commerce (“Commerce”).         For the reasons set forth

below, the Court concludes that Commerce’s decision not to apply

total adverse facts available to Tianjin was not supported by

substantial evidence in the record and was not in accord with the

law.       The Court remands this matter for further proceedings

consistent with this opinion.

                                BACKGROUND

       Under review in this case is the final determination from

Commerce’s administrative review for the period of May 1, 2008

through April 30, 2009.        See Pure Magnesium from the People’s

Republic of China: Final Results of the 2008-2009 Antidumping Duty

Administrative Review of the Antidumping Order, 75 Fed. Reg. 80,791

(Dec. 23, 2010) (“2008-2009 Final Results”).1           In the 2008-2009


       1
       An amended final order was issued by Commerce on February
11, 2011 to correct certain ministerial errors immaterial to the
issues considered herein. See Amended Final Results of the 2008-
2009 Antidumping Duty Administrative Review: Pure Magnesium from
the People’s Republic of China, 76 Fed. Reg. 7813 (Feb. 11,
2011).
Court No. 11-00006                                            Page 3

Final Results, Commerce imposed on Tianjin a rate of 0.73%, and

imposed a PRC-wide rate of 111.73%, which was also the adverse

facts available rate imposed on two magnesium exporters that failed

to respond to Commerce’s questionnaire.   Id. at 80,793-94.

     Consistent with the arguments it makes now before this Court,

US Magnesium argued during the administrative proceedings that

total adverse facts available should have been applied to Tianjin.

The Court notes at the outset that the material facts regarding

Tianjin’s conduct are not disputed by the parties.     In September

2009, during the 2008-2009 administrative review, Tianjin submitted

to Commerce voucher books and other accounting records evidencing

sales of waste magnesium byproduct, which sales would have entitled

Tianjin to an offset of its calculated normal value.   However, the

sales set forth in that documentation, some of which were purported

to have taken place during the 2008-2009 period of review (“POR”),

never occurred.   See Issues and Decision Memorandum for the Final

Results of the 2008-2009 Administrative Review at 4 (Dec. 15,

2010), Public Rec. 132 (“I&D Memorandum”).2

     The revelation that the sales evidenced in these voucher books

never took place did not occur during verification in the 2008-2009

review currently before the Court.   Rather, the fact that Tianjin



     2
      Hereinafter all documents in the public record will be
designated “PR” and all documents in the confidential record
designated “CR.”
Court No. 11-00006                                                     Page 4

had submitted fabricated voucher books came to light in July 2009

during verification in the 2007-2008 review.           Commerce described

this discovery as follows:

      [W]hile examining accounting documentation of this three-
      party scheme in one of Producers’ voucher books,
      [Commerce] found that the relevant vouchers had been
      pasted into the books onto the stubs of vouchers that had
      been cut out. Producers gave contradictory explanations
      of their accounting process in an attempt to explain why
      the vouchers had been pasted into the voucher books in
      this fashion. When [Commerce] attempted to verify the
      authenticity of the receipts, Producers locked [Commerce]
      out of the accounting offices and threw requested voucher
      books out of the window of the accounting office in an
      attempt to keep them from [Commerce]. [Commerce]
      subsequently gained access to the accounting office and
      found evidence that Producers were creating documents
      while [Commerce was] locked outside. Producers admitted
      that they were altering the voucher books by secretly
      pasting new vouchers in them with the receipts attached.

2007-2008 Final Results, Appendix, Comment 1 at 6-7.3                   These

events, along with the fact that they occurred in the presence of

Tianjin’s counsel, were further detailed in the verification report

in   the   administrative   review      for   the   2007-2008   POR.     See

Verification   of   the   Sales   and    Factors    Responses   of   Tianjin

Magnesium International, Ltd. in the 2007-2008 Administrative

Review of the Antidumping Duty Order on Pure Magnesium from the


      3
      In this quote, “Producers” refers to the producers of pure
magnesium who supplied Tianjin, and the “three party scheme”
refers to the purported waste magnesium sale arrangement between
Tianjin, these same suppliers, and certain creditors of the
suppliers. See Pure Magnesium from the People’s Republic of
China: Final Results of Antidumping Duty Administrative Review,
74 Fed. Reg. 66,089 (Dec. 14, 2009) (“2007-2008 Final Results”),
Appendix, Comment 1 at 1, 6.
Court No. 11-00006                                                  Page 5

People’s Republic of China at 41 (Nov. 4, 2009), PR 40, CR 5, Ex.

1.

     In the 2007-2008 Final Results, Commerce stated that “[g]iven

the alteration of documents, the denial of access to source

documentation, the misleading answers related to factory records,

and the general obfuscation on the part of Producers, [Commerce

cannot consider any of the production data verified in [the]

review.”     2007-2008 Final Results, Appendix, Comment 1 at 8.

Commerce    ultimately   applied   total   adverse   facts   available   to

Tinajin, and that decision was upheld on appeal by this court. See

Tianjin Magnesium Int’l Co. Ltd. v. United States, 35 CIT __, Slip

Op. 11-100 (Aug. 10, 2011).      In upholding Commerce’s decision, the

court determined that the record evidence as described above

adequately supported Commerce’s determination that Tianjin “failed

to cooperate to the best of its ability because it continued to

purport the accuracy of certain favorable valuations, despite the

existence    of   discoverable     falsifications    in   its   producers’

supporting documentation.”       Id., Slip Op. at 5.

     The Court is presented herein with different circumstances

than were presented in the 2007-2008 review.         While the verifiers

were not subjected to the same degree of obfuscation that occurred

in the July 2009 verification, they did determine that, in support

of its claim for a byproduct offset, Tianjin submitted some of the
Court No. 11-00006                                                 Page 6

same voucher books that had been discredited during the 2007-2008

review.

     We examined the . . . voucher book for May 2008 and saw
     that the receipts and invoices accompanying the voucher
     were pasted together, and a slip of some kind had been
     torn out.    We asked why this was so, and the . . .
     accounting manager stated that there may have been some
     kind of error in the record keeping that had to be
     addressed by changing the source documents. We pointed
     out that this book, in fact, was one of the voucher books
     [Commerce] had previously determined to be unreliable
     because it was one of the books in which [Commerce] found
     [a Producer] cutting out vouchers and pasting in new ones
     with documentation for by-product transactions, during
     the previous POR’s verification.

Verification of the Sales and Factors of Production (“FOP”) of

Tianjin Magnesium Industries (“TMI”) at 34-35 (June 7, 2010), PR

83, CR 24.    Not only had Tianjin submitted the fabricated voucher

books in support of its claimed offset, but it submitted them two

months after the failed verification in the 2007-2008 review.        See

I&D Memorandum at 4.

     Commerce declined to apply adverse facts available in this

review despite the fact that Tianjin engaged in some of the same

conduct that led Commerce to apply adverse facts available in the

2007-2008 review, and despite the fact that it engaged in that

conduct two months after the failed July 2009 verification.

Commerce     acknowledged   that   Tianjin   submitted   voucher   books

previously determined to be “unreliable,” id. at 5, but stated

that, with the exception of those materials, Tianjin “provided

complete answers to [Commerce’s] questions . . . [giving it] the
Court No. 11-00006                                           Page 7

necessary information on the record to construct an accurate and

reliable margin for [Tianjin].”    Id.   Commerce continued that to

calculate an accurate dumping margin for Tianjin, it considered

Tianjin’s factors of production, and concluded that Tianjin’s

factors of production “have not been compromised due to the

presentation of the by-product voucher book in question.”    Id. at

6.   Finally, Commerce disagreed with US Magnesium’s position that

denying application of adverse facts available would put Tianjin in

no worse of a position than if it had cooperated to the best of its

ability.    Commerce again stated that, “with the exception of

establishing its eligibility for a by-product offset, [Tianjin]

answered [Commerce’s] questionnaires and participated fully in

verification.”   Id. at 7.

      Following issuance of the 2008-2009 Final Results, review was

timely sought in this court.

                 JURISDICTION and STANDARD OF REVIEW

      The Court has jurisdiction over this matter pursuant to 28

U.S.C. § 1581(c) and Section 516A(a)(2)(B)(iii) of the Tariff Act

of 1930, as amended, 19 U.S.C. § 1516a(a)(2)(B)(iii) (2006).4

Additionally, the Court will uphold Commerce’s determinations in

administrative reviews unless they are “unsupported by substantial



      4
      All further citations to the Tariff Act of 1930 are to the
relevant provisions of Title 19 of the United States Code, 2006
edition.
Court No. 11-00006                                                 Page 8

evidence on the record, or otherwise not in accordance with law.”

19 U.S.C. § 1516a(b)(1)(B)(i).

                                 ANALYSIS

     19 U.S.C. § 1677e, which provides for the application of

adverse facts available, states that

     [i]f the administering authority . . . finds that an
     interested party has failed to cooperate by not acting to
     the best of its ability to comply with a request for
     information from the administering authority . . . , the
     administering authority . . . , in reaching the
     applicable determination under this subtitle, may use an
     inference that is adverse to the interests of that party
     in selecting from among the facts otherwise available.

19 U.S.C. § 1677e(b).     It is well-established that Commerce enjoys

broad discretion when considering whether to apply adverse facts

available in antidumping proceedings.        See PAM, S.p.A    v. United

States, 582 F.3d 1336, 1340 (Fed. Cir. 2009).       This court has made

clear that this discretion does not saddle Commerce with the burden

of showing that an importer cooperated to the best of its ability

every time it determines that adverse facts available should not be

applied.    AK Steel Corp. v. United States, 28 CIT 1408, 1417, 346

F. Supp. 2d 1348, 1355 (2004).

     In    exercising   this   discretion,   however,   Commerce   is   not

without guidance from the courts on what it means for a party to

“cooperate by . . . acting to the best of its ability.”

     While the [best of its ability] standard does not require
     perfection and recognizes that mistakes sometimes occur,
     it does not condone inattentiveness, carelessness, or
     inadequate record keeping. It assumes that importers are
Court No. 11-00006                                                      Page 9

     familiar with the rules and regulations that apply to the
     import activities undertaken and requires that importers,
     to avoid a risk of an adverse inference determination in
     responding to Commerce's inquiries: (a) take reasonable
     steps to keep and maintain full and complete records
     documenting the information that a reasonable importer
     should anticipate being called upon to produce; (b) have
     familiarity with all of the records it maintains in its
     possession, custody, or control; and (c) conduct prompt,
     careful, and comprehensive investigations of all relevant
     records that refer or relate to the imports in question
     to the full extent of the importers' ability to do so.

Nippon Steel Corp. v. United States, 337 F.3d 1373, 1382 (Fed. Cir.

2003) (emphasis added). In this case, Tianjin affirmatively sought

the byproduct offset for waste magnesium, and when Commerce sought

further information to substantiate the claimed offset, Tianjin

submitted    fabricated      voucher   books.      I&D    Memorandum    at   4.

Submitting voucher books that contained vouchers and receipts

describing sales that never occurred could itself possibly have

violated    the   standard    set   forth   in   Nippon   Steel.       However,

submitting these voucher books two months after their falsity had

been established in a failed verification seems well beyond the

“inattentiveness, carelessness, or inadequate record keeping” that

can render a party in breach of § 1677e(b).                See id. at 1383

(noting that “intentional conduct . . . such as . . . inaccurate

reporting . . . surely evinces a failure to cooperate . . . .”);

see also Shanghai Taoen Int’l Trading Co., Ltd. v. United States,

29 CIT 189, 195, 360 F. Supp. 2d 1339, 1345 (2005) (concluding that
Court No. 11-00006                                                      Page 10

the   adverse    inferences      standard   is    met   “where   a   respondent

purposefully withholds, and provides misleading, information.”).

      It is axiomatic that the Court may not substitute its judgment

for that of Commerce. Texas Crushed Stone Co. v. United States, 35

F.3d 1535, 1540 (Fed. Cir. 1994).                Additionally, as set forth

above, the obfuscation in the 2008-2009 review did not, in certain

respects, rise to the level of that which occurred in the 2007-2008

review.      However, in the 2008-2009 Final Results and accompanying

I&D Memorandum, Commerce never addresses the conduct by Tianjin

that is squarely violative of the obligations outlined in the cases

above.         Commerce       simply   removed    Tianjin’s      conduct     from

consideration by stating, no less than three times, that Tianjin

cooperated     fully    and    truthfully   “with   the    exception”   of    the

information submitted to support its byproduct offset claim.                  See

I&D Memorandum at 5, 6, and 7.

      Had the offset been applied to the normal value calculation,

Tianjin could have benefitted from a lower margin.               Especially in

light of the materiality of this information to Tianjin’s margin,

Commerce was required to set forth its reasons for discounting out

of    hand    conduct     that     went   well    beyond    “inattentiveness,

carelessness, or inadequate record keeping.”              If such reasons were

provided, Commerce would also need to reconcile them with the cases

set forth above affirming that where a party provides inaccurate or

misleading information, it has not cooperated to the best of its
Court No. 11-00006                                                      Page 11

ability.      Finally, Commerce never addressed why documents it

described    in   the   2007-2008   Final     Results   as   “altered”     were

downgraded to simply “unreliable” in this review.            I&D Memorandum

at 5.    This change in language is consistent with the different

outcomes of the two reviews, but the reason for the shift in

language should have been explained by Commerce.

       In addition to the infirmities already discussed, the Court is

troubled by the possibility that the 2008-2009 Final Results would

give Tianjin, and other respondents, an incentive to submit false

information to Commerce in an attempt to lower their margins

without the fear of negative consequences. Commerce dismisses this

line    of   reasoning,   stating     that    such   arguments   rely     on   a

“[presumption]     that   [Tianjin]    did    not    cooperate   during    this

review.”      I&D Memorandum at 7.           It continues by stating, in

essence, that other than the established fabrications Tianjin

submitted in an attempt to lower its margin, it fully cooperated in

the review. Id. A conclusion like this leaves respondents without

any downside to submitting false information in an attempt to lower

their margins.    If Commerce does not detect the false documents, a

lower margin is obtained.      If Commerce does detect the falsehood,

such conduct is simply removed from consideration while Commerce

focuses on all the ways in which the respondents did cooperate.

Such an approach ignores that fact that a important “purpose of

section 1677e(b) is to provide respondents with an incentive to
Court No. 11-00006                                                 Page 12

cooperate . . . .”     F.lli De Cecco Di Filippo Fara S. Martino S.p.A

v. United States, 216 F.3d 1027, 1032 (Fed. Cir. 2000).

                                 CONCLUSION

     In light of the above, the Court concludes that the 2008-2009

Final Results were not supported by substantial evidence, and were

not in accord with the law.      Without a legitimate basis that can be

discerned   in   the   record,   Commerce     declined   to   consider    the

submission of misleading and inaccurate documentation by Tianjin

two months after that documentation had been part of a failed

verification.     Commerce    also   did    not   address   precedent    that

establishes the submission of such documentation as a failure to

cooperate. The Court does not reach the other issues raised in the

instant Motions at this time because they could become moot in

light of subsequent proceedings in this case, and the Court remands

this matter for proceedings consistent with this opinion.



                                              /S/ NICHOLAS TSOUCALAS
                                                   Nicholas Tsoucalas
                                                      Senior Judge



Dated: May 16, 2012
       New York, New York
