[00:00:11] Speaker ?: No. [00:00:14] Speaker ?: No. [00:00:16] Speaker ?: No. [00:00:22] Speaker 01: No. [00:00:48] Speaker 03: Okay, our next case this morning is number 16-26-37, Guangdong, Dongyang Kitchenware versus United States. [00:00:56] Speaker 03: Ms. [00:00:57] Speaker 03: Salzman. [00:00:58] Speaker 00: Thank you. [00:00:59] Speaker 00: May it please the court. [00:01:00] Speaker 00: This appeal involves the surrogate values relied upon by the Department of Commerce to determine the fair value of stainless steel sinks from China. [00:01:09] Speaker 00: Specifically, appellate contest that the department double counted labor [00:01:13] Speaker 00: and its application of its surrogate labor methodology. [00:01:16] Speaker 03: I don't understand why people refer to this as double counting. [00:01:20] Speaker 03: I had a really hard time understanding the briefs on this issue, which I think are not the clearest briefs I've ever read. [00:01:28] Speaker 03: I spent quite a bit of time trying to understand it. [00:01:30] Speaker 03: As I understand the theory, it's because you're arguing that because the NSO labor rate was too high as a result of including [00:01:43] Speaker 03: hours in there that the SGNA hours should be deleted from the SGNA ratio, right? [00:01:53] Speaker 03: That's basically the argument. [00:01:54] Speaker 03: I don't understand why that's called double counting, but that's another question. [00:01:58] Speaker 00: Well, it derives from the department's own methodology. [00:02:01] Speaker 00: Even before they relied on NSO or ILO 6A, which the department said is the same coverage, [00:02:07] Speaker 00: They relied on ILO 5B. [00:02:09] Speaker 03: Well, why don't you just attack the labor rate and say the labor rate's too high. [00:02:13] Speaker 03: It ought to be reduced instead of making an adjustment, which seems to me quite an odd adjustment to simply exclude SG&A hours from the financial ratio. [00:02:25] Speaker 00: That was the department's decision. [00:02:26] Speaker 00: We won't. [00:02:28] Speaker 03: Not now. [00:02:29] Speaker 00: We're saying that they can't have it both ways to apply a rate that's including [00:02:35] Speaker 00: SG&A in higher costs, but not adjust in the methodology. [00:02:39] Speaker 03: Yeah, but why isn't the solution to that to challenge the labor rate rather than to exclude hours from SG&A? [00:02:46] Speaker 03: I mean, why is that an appropriate adjustment to take account of the labor rate, which is too high? [00:02:51] Speaker 03: I don't get it. [00:02:53] Speaker 00: Well, as I said, we didn't appeal the labor rate originally because that is what the department did in the final decision. [00:03:00] Speaker 00: They did apply this NSL labor rate, and they excluded SG&A costs from the ratios. [00:03:06] Speaker 00: So we had no issue with that. [00:03:07] Speaker 00: That's what the methodology seemed to say that went through notice and comment. [00:03:11] Speaker 00: That was the decision that the department determined was the best way to handle what they were concerned about at the time, which was that they were undervaluing labor. [00:03:19] Speaker 00: So instead, they decided to use a labor rate that was much more encompassing, but they realized that to follow their normal policy, [00:03:26] Speaker 00: of excluding anything in the financial ratios that's already in the labor rate that they would then have to exclude more. [00:03:33] Speaker 00: And I think the part that we kept showing was the department said in their labor methodology that the department would, if the cost of labor is overstated, they would adjust the ratios. [00:03:46] Speaker 00: And then in the next sentence, they elaborate on what that meant and said specifically, when the surrogate financial statement [00:03:52] Speaker 00: includes disaggregated overhead selling general administrative expenses that are already included in the labor rate, then we're going to remove them. [00:04:00] Speaker 03: But it's not as though you've got double county of hours. [00:04:04] Speaker 03: It's just that your argument is the labor rate is too high, because it includes in the average SG&A hours, which are higher than production line labor. [00:04:14] Speaker 03: Yes. [00:04:16] Speaker 00: Right? [00:04:16] Speaker 00: The department itself said that. [00:04:17] Speaker 03: So why don't you just attach the labor rate? [00:04:19] Speaker 03: Say the labor rate ought to be lower. [00:04:21] Speaker 03: Why is the appropriate adjustment to exclude SG&A hours from the financial ratio? [00:04:29] Speaker 03: That doesn't make a lot of sense to me. [00:04:31] Speaker 00: If we were asking that the department follows the methodology, it said. [00:04:35] Speaker 00: It went through notice and comment and decided it wanted to use on a new labor rate. [00:04:39] Speaker 00: And we weren't attacking that. [00:04:41] Speaker 00: We wanted them to follow the methodology that they said they were going to do. [00:04:46] Speaker 00: If the department now decides that it doesn't make sense. [00:04:50] Speaker 00: That they were going to use a different? [00:04:52] Speaker 03: In the labor methodology. [00:04:53] Speaker 03: Yeah. [00:04:54] Speaker 03: But labor methodology resulted in a much higher hourly rate, did it not, than they ultimately used under the NSO data? [00:05:03] Speaker 00: No. [00:05:03] Speaker 00: The court got that wrong at the lower court. [00:05:08] Speaker 00: Our motion for reconsideration was about that before the court, that the ILO 6A labor rate [00:05:14] Speaker 00: that the judge was looking at was an invalidated labor rate. [00:05:17] Speaker 00: The ILO removed it from the web page and said that was incorrect. [00:05:20] Speaker 03: Is that the 141 bot rate? [00:05:22] Speaker 00: The highest labor rate on the record. [00:05:24] Speaker 03: When you're referring to that, you're talking about the 141 bot rate? [00:05:29] Speaker 00: Yes. [00:05:30] Speaker 00: Let me see. [00:05:31] Speaker 00: The highest labor rate on the record is the NSO labor rate that they relied on, ultimately. [00:05:41] Speaker 00: There we go. [00:05:42] Speaker 00: Page 867 of the appendix. [00:05:44] Speaker 00: 63 BOT per hour is what the department relied on. [00:05:50] Speaker 00: And the 140 and 120 that were higher were the ones the court did not understand that those were invalidated and removed from the web page. [00:05:58] Speaker 00: So the rate that was relied on. [00:06:00] Speaker 03: I'm sorry. [00:06:00] Speaker 03: I'm getting a little confused. [00:06:01] Speaker 03: I understand the 63 BOT figure, which is what they ultimately used. [00:06:07] Speaker 01: Yes. [00:06:07] Speaker 03: But I thought under the 6A data, [00:06:11] Speaker 03: which they didn't use in this proceeding that the labor rate was 141. [00:06:16] Speaker 03: Am I wrong about that? [00:06:17] Speaker 00: No, but that labor rate was incorrect labor rate. [00:06:21] Speaker 00: ILO removed it from their web page and said that was wrong and so the court should not have... What is the labor rate for 6A then? [00:06:27] Speaker 00: We don't know because they removed that from the record. [00:06:30] Speaker 03: Okay, so we don't really know. [00:06:31] Speaker 00: We don't know what 6A would have been. [00:06:33] Speaker 00: We know what 5B was and we also know as we cited in our brief [00:06:37] Speaker 00: that there is a large variety of labor rates from the people packing and doing day labor up to the managerial staff, that there's a large range of costs within that. [00:06:48] Speaker 00: And so all of that's being included in this cost. [00:06:52] Speaker 00: And so it's artificially high because of that, and the department didn't properly adjust according to their own methodology. [00:06:59] Speaker 00: We were asking that they follow what they said they would do, which comes in line with what they've done all along, which is to- We just don't know what to correct. [00:07:07] Speaker 03: labor rate is under 6A. [00:07:11] Speaker 00: So... That was not a decision that needed to be known. [00:07:15] Speaker 03: Well, what you're arguing is it was arbitrary for them to make an adjustment when they used the 6A data, but not to make the same adjustment when they used the NSO data, correct? [00:07:26] Speaker 00: No. [00:07:26] Speaker 03: No? [00:07:27] Speaker 00: The 6A was not... The department decided to use NSO and said it was covered the same thing. [00:07:34] Speaker 00: And we don't know what the 6A would have been because it was incorrect on our record. [00:07:38] Speaker 03: Then you're not arguing that their approach here was a departure from the labor methodology document without explanation? [00:07:48] Speaker 00: No, we are saying that they're departing from the labor methodology. [00:07:52] Speaker 00: But the issue was never between 6A and NSO. [00:07:54] Speaker 00: It's saying this was all new. [00:07:56] Speaker 00: The whole source was new. [00:07:57] Speaker 03: No, but the labor methodology used 6A, right? [00:07:59] Speaker 00: Right. [00:07:59] Speaker 03: But the department also... And here they used NSO. [00:08:02] Speaker 00: Yes, but they didn't make a distinction. [00:08:03] Speaker 00: The department agreed that NSO and ILO 6A have the exact same coverage. [00:08:08] Speaker 00: So that was never the issue. [00:08:09] Speaker 00: It was never that now that we're using NSO. [00:08:11] Speaker 03: But they chose the NSO data as preferable to the 6A data. [00:08:14] Speaker 00: Because it was more contemporaneous. [00:08:16] Speaker 03: And more specific. [00:08:18] Speaker 00: No. [00:08:19] Speaker 00: They said it was more contemporaneous. [00:08:20] Speaker 03: But they said both. [00:08:22] Speaker 00: Well, we don't know what the ILO 6A was, and that was not a part of their decision. [00:08:27] Speaker 03: I'm not sure that's right, but go ahead. [00:08:31] Speaker 00: OK. [00:08:31] Speaker 00: We'd like to discuss the steel values, if we can continue to address labor. [00:08:40] Speaker 00: The department determined that the Thai import values for steel were the best available information, despite the fact that it was an uncommercial small quantity. [00:08:50] Speaker 00: It was aberrantly high on the record. [00:08:52] Speaker 00: And the import value was going into a country where 93% of the imports were dumped. [00:08:58] Speaker 00: And the domestic market for steel coil was also subsidized. [00:09:02] Speaker 00: And there were also additional allegations by the USTO that customs values were being manipulated going into this country. [00:09:10] Speaker 00: So all of these issues together were undermining the fact that the Thai steel value was the best available information, as opposed to the alternatives of Indonesia and the Philippines. [00:09:20] Speaker 00: So looking first at quantity. [00:09:22] Speaker 00: In seeking to accurately determine cost to commercial respondents, the courts have upheld that import statistics can only be the basis for a surrogate value if they're commercially significant. [00:09:34] Speaker 00: The value that the department relied on was based on 374,000 kilograms. [00:09:40] Speaker 00: In contrast, Donghuang purchased 2 million kilograms during that same period. [00:09:46] Speaker 00: The other mandatory respondent also had a similar amount, and those were only two producers of sinks. [00:09:51] Speaker 00: going into this country. [00:09:53] Speaker 00: And it became more obvious when you looked at the data in more detail. [00:09:56] Speaker 00: And I would direct the court to page seven of our reply brief, where we included a chart detailing exactly what was contained within these import statistics. [00:10:07] Speaker 00: So there were four HTS, 11-digit HTS, and these include the monthly totals by country going into this. [00:10:15] Speaker 00: And the vast majority of these quantities are less than a container. [00:10:19] Speaker 00: which is another form of what would be considered commercial. [00:10:22] Speaker 00: So you would say that when you have imports of a few thousand or a few hundred per country, only totaling 374,000 in total, in contrast to these great commercial producers and how much they're using and purchasing, this can't be considered a commercial quantity. [00:10:40] Speaker 00: And this chart also undermines the government's argument that [00:10:47] Speaker 00: The specificity of these tie import values is what is making them so important. [00:10:53] Speaker 00: As you'll note, and we've highlighted in red, 78% of the quantity of these surrogate values came under one of these HGS. [00:11:01] Speaker 00: So there I see I'm already moving into my rebuttal time. [00:11:07] Speaker 00: With all the questions, I just want to point out with that the department considered the fact that these aren't specific enough. [00:11:15] Speaker 00: They're overly specific at this point, because we're only using one HGS. [00:11:19] Speaker 00: And that this court also considered this small quantity is tied with this high aberrancy. [00:11:25] Speaker 00: On page 28 of our brief, we compared the average unit value with all of the other countries, also showing this is the highest unit value on the record. [00:11:37] Speaker 00: And then in light of all of that, this was also an import based into a market overwhelmed by dumped imports. [00:11:44] Speaker 00: and a highly subsidized domestic market. [00:11:46] Speaker 00: 93% of the imports were dumped. [00:11:50] Speaker 00: So this value is 7% of the imports. [00:11:53] Speaker 00: It's necessarily going to be tainted and impacted by the market it's going into and all of the other imports that are dumped. [00:12:02] Speaker 00: This value can't be shielded when there's only 7% left from being impacted by this market. [00:12:09] Speaker 00: And that's also akin to the department's analysis that they make in countervailing cases. [00:12:13] Speaker 00: that when a large part of the industry is impacted by subsidization or government control, that the whole market is going to be impacted by those prices. [00:12:23] Speaker 00: And then lastly, we would ask this court to look at. [00:12:26] Speaker 04: Were these other excluded imports, did they all point in the same direction? [00:12:34] Speaker 04: Or would some of them have tended to suggest a higher [00:12:42] Speaker 04: price and some of them a lower price for the ones that weren't themselves tainted. [00:12:46] Speaker 04: I thought that they kind of pulled in opposite directions. [00:12:49] Speaker 00: Well, the price went from 360 to 380. [00:12:52] Speaker 00: We would say that it's harder to determine when it's a dumped price because Thailand is putting a tariff on top of that price when it's coming in. [00:13:02] Speaker 00: And whether it's impacting it up or down, it's the fact that it's impacting it. [00:13:08] Speaker 00: The department, when they make this analysis in countervailing cases, doesn't determine [00:13:11] Speaker 00: Is this making the benchmark price higher or lower? [00:13:14] Speaker 00: They only look at whether this is impacting the price. [00:13:17] Speaker 00: It's not making it a market economy price. [00:13:19] Speaker 00: It's making it a subsidized price or a government controlled price. [00:13:23] Speaker 00: So it's unreliable. [00:13:24] Speaker 00: And we're asking them to consider this as well in a unique case where 93% of the imports are being dumped, that the other seven are going to be impacted by that and not a reliable surrogate. [00:13:38] Speaker 00: And that this is also corroborated by the issues that the USTR raised, that the import values are also being manipulated. [00:13:46] Speaker 00: Given the time, I will remain those things for rebuttal if the court doesn't have other questions. [00:13:52] Speaker 03: Thank you. [00:13:53] Speaker 00: Thank you. [00:13:55] Speaker 03: Mr. Schroeder? [00:14:07] Speaker 02: May I please the court? [00:14:11] Speaker 02: The two issues are the stainless steel coil and the labor rates. [00:14:19] Speaker 02: Commerce in both cases selects the most specific information on the record to compute values. [00:14:27] Speaker 02: With respect to the stainless steel coil, commerce, [00:14:33] Speaker 02: reasonably selected the most product-specific information available from any of the countries over a basket category. [00:14:44] Speaker 02: And obviously, when you're trying to value something, you want to get as close to that product as possible. [00:14:51] Speaker 02: This is what Commerce did. [00:14:56] Speaker 02: And essentially, Don Young is attempting to second guess Commerce's reasonable judgment call [00:15:04] Speaker 03: But I don't understand why commerce in the first place is proposed to make the adjustment that it did. [00:15:09] Speaker 03: It makes no sense to me. [00:15:10] Speaker 03: It's not eliminating double counting. [00:15:12] Speaker 03: It's not as though the labor hours are counted twice. [00:15:15] Speaker 03: It's that by including the SG&A labor rates in the total computation of labor rates, it overstates the labor rate. [00:15:26] Speaker 03: So why wouldn't you just adjust the labor rate instead of taking SG&A hours out of the financial ratio? [00:15:33] Speaker 03: Yes. [00:15:34] Speaker 02: Well, Your Honor, I believe you've defined correctly the issue. [00:15:39] Speaker 02: And just to point out that Dongyoon is the company that proposed using the NSO rates that they ultimately use. [00:15:49] Speaker 02: Commerce erroneously, as pointed out by Chief Judge Sansu the first time around, thought that there was double counting because the rates included both production [00:16:04] Speaker 02: were manufacturing and non-manufacturing labor. [00:16:07] Speaker 02: The problem is the hours themselves, and I believe you may have pointed that out, there were no non- They're not double counted. [00:16:14] Speaker 03: The hours aren't double counted. [00:16:15] Speaker 03: It's just the argument is that the labor rate is too high because it includes SG&A labor rates, which are higher than production line labor rates, right? [00:16:24] Speaker 02: Well, that's what they could have argued. [00:16:27] Speaker 02: In their reply, they've said, toward the end of their reply, they're not asking [00:16:34] Speaker 02: that an adjustment be made. [00:16:36] Speaker 02: What they want is to eliminate what they call double counting. [00:16:40] Speaker 02: However, the problem is, whatever the rate is, if you have zero hours of non-production labor, then you multiply the rate by, there's nothing to multiply it as far as non-production or SG&A labor goes. [00:16:53] Speaker 02: So you can't assume there's double counting there. [00:16:57] Speaker 02: And what Judge Stansu pointed out is... There's nothing wrong [00:17:01] Speaker 02: With the financial ratio calculation, according to them. [00:17:04] Speaker 02: I don't believe there's any dispute as to the financial ratio calculation. [00:17:09] Speaker 02: They're just saying that the labor rate is too high. [00:17:13] Speaker 02: What they're arguing is that the financial ratios double count what is already in the factor of production on the other side. [00:17:25] Speaker 02: But we disagree. [00:17:27] Speaker 02: And commerce, the first time around, [00:17:31] Speaker 02: thought that was eliminated double counting, Judge Stansky pointed out some flaws. [00:17:38] Speaker 02: And Commerce reasonably took another look at it on remand. [00:17:45] Speaker 03: Part of the problem is that Commerce is itself responsible for this aberrant approach, because that's what you proposed in labor methodology when you were using the 6A data, right? [00:17:59] Speaker 02: Commerce, though, doesn't have to be bound to follow the exact methodology in a 6A data, because what it found was that we have more specific information, and we're not tied to having to use 6A. [00:18:14] Speaker 02: Commerce said we can use this better information, because it's under a duty to use the best information available on the record. [00:18:22] Speaker 02: So it departed from its methodology, explained why it was doing so, [00:18:28] Speaker 02: And that's all that's required of commerce. [00:18:30] Speaker 02: Its methodology was reasonable. [00:18:32] Speaker 02: And there wasn't sufficient evidence in the administrative record for commerce to conclude that there was double counting, let alone the extent of it. [00:18:42] Speaker 03: And it's not double counting. [00:18:46] Speaker 03: It's making one adjustment to take care of an error that exists somewhere else. [00:18:51] Speaker 03: It's making an adjustment to data which no one is challenging. [00:18:54] Speaker 03: as being inaccurate, as a way of dealing with an inaccuracy in some other piece of data. [00:18:59] Speaker 03: I don't understand that approach, but there it is. [00:19:03] Speaker 02: Well, just to conclude, the appellant wishes to throw out the entire SG&A calculation in the financial ratio. [00:19:17] Speaker 02: But again, there's not substantial evidence of record that would justify them doing that. [00:19:23] Speaker 02: And they haven't asked that. [00:19:24] Speaker 02: There being an adjustment, that's not the relief that they state in their reply brief. [00:19:30] Speaker 02: So we ask on both issues that the court sustain, affirm the decision of Chief Judge Stansu. [00:19:42] Speaker 02: OK. [00:19:42] Speaker 02: Thank you. [00:19:43] Speaker 03: Thank you. [00:19:46] Speaker 03: Mr. Kellogg? [00:19:49] Speaker 03: I have nothing to add to counsel for the government's argument. [00:19:52] Speaker 03: OK. [00:19:53] Speaker 03: Thank you. [00:19:54] Speaker 03: Ms. [00:19:56] Speaker 02: Salzman. [00:20:07] Speaker 00: Thank you. [00:20:09] Speaker 00: As this court in discussing the labor methodology has discussed, that there may be issues with the logic behind what the department has suggested they do. [00:20:18] Speaker 00: They decided to change their labor methodology to change the labor source. [00:20:22] Speaker 00: And the department said, [00:20:24] Speaker 00: that they would follow what they've been doing with 5B, which was to remove anything covered by 5B from the financial ratios. [00:20:30] Speaker 00: And they said that they would be doing the same thing using this different labor rate. [00:20:34] Speaker 00: And whether that makes sense or not to accommodate and adjust for labor, that's what the department said they were going to do. [00:20:43] Speaker 00: And that went through notice and comment. [00:20:44] Speaker 00: And people commented on it. [00:20:46] Speaker 00: And we're asking that the department follow what they said they were going to do. [00:20:49] Speaker 00: Because right now, we have an overstated labor rate [00:20:54] Speaker 00: And if that's not going to be removed from the financial statements the way that they always did with 5B, when those itemized costs were the same as 5B. [00:21:02] Speaker 00: 6A, no. [00:21:03] Speaker 03: Why don't you just challenge the labor rate? [00:21:05] Speaker 03: I mean, there is data that would enable you to do that. [00:21:08] Speaker 03: Why don't you just challenge the labor rate and say it's too high? [00:21:11] Speaker 00: We can do that in the future. [00:21:12] Speaker 00: But we were OK with this when the department was adjusting the ratios, and then they changed their mind about it. [00:21:17] Speaker 00: And when something went through notice and comment, that seems to be a very difficult thing to challenge. [00:21:21] Speaker 00: So instead of challenging the labor rate, [00:21:23] Speaker 00: We wanted the department to follow that labor rate, that labor methodology. [00:21:26] Speaker 00: I mean, forgive me. [00:21:28] Speaker 00: And that's what we asked the department to do. [00:21:30] Speaker 00: And so yes, if we want to challenge their selection of 6A, that's something to do and notice and comment in a new labor methodology, not in this court case. [00:21:38] Speaker 00: Because 6A and NSO are the same, according to the department. [00:21:42] Speaker 00: That was not the issue here. [00:21:43] Speaker 00: It was the labor methodology. [00:21:44] Speaker 00: And again, I just want to conclude that, especially looking at the stainless steel coil, [00:21:50] Speaker 00: which was the main part of our margin. [00:21:52] Speaker 00: That's what drove this margin. [00:21:54] Speaker 00: That you're looking at a smallest quantity on the record with the highest value on the record into a market that was the domestic producer was fully subsidized. [00:22:04] Speaker 00: Well, the domestic market was subsidized. [00:22:08] Speaker 00: And the imports were 93% dumped. [00:22:10] Speaker 00: And there were allegations by customs [00:22:14] Speaker 00: that customs was manipulating the values. [00:22:16] Speaker 00: Again, direct you to those USTR reports. [00:22:19] Speaker 04: I don't remember you. [00:22:20] Speaker 04: I presumably said in your brief, what is the alternative that you think is clearly better? [00:22:30] Speaker 00: Indonesia or the Philippines were the two values that we argued. [00:22:34] Speaker 00: One almost 3 million kilograms imported and the other exceeding 9 million. [00:22:39] Speaker 04: And is that of a basket product or the? [00:22:41] Speaker 00: It was the larger HTS. [00:22:44] Speaker 00: So it does not include the specificity. [00:22:46] Speaker 04: At the six digit level. [00:22:47] Speaker 00: It was the six digit level. [00:22:48] Speaker 00: It didn't include the specificity on the service. [00:22:50] Speaker 04: So basically, as I understand it, Commerce said we will give greater weight to specificity than anything else. [00:22:58] Speaker 04: Correct. [00:22:58] Speaker 04: And that's what you're saying. [00:22:59] Speaker 04: They can't do that. [00:23:00] Speaker 00: Right. [00:23:00] Speaker 00: We're saying this isn't a case where [00:23:03] Speaker 00: similarly situated import values and one is more specific. [00:23:06] Speaker 00: The Thai value should be considered unreliable because it doesn't fulfill, it's too small of a quantity, it's too high and aberrant of an import value, and you have serious issues of it being subsidized or somehow tainted by this market that is highly subsidized and full of dumped steel. [00:23:24] Speaker 00: And further, the USTR allegations that there's issues with the actual recorded values of the imports themselves. [00:23:32] Speaker 00: But that can't be the best available information. [00:23:34] Speaker 00: Specificity can't overcome an unreliable import value. [00:23:39] Speaker 00: And you have alternatives on the record. [00:23:42] Speaker 00: OK. [00:23:42] Speaker 03: Thank you. [00:23:43] Speaker 03: Thank you, Ms. [00:23:44] Speaker 03: Hogan. [00:23:44] Speaker 03: Thank you, all counsel. [00:23:45] Speaker 03: The case is submitted.