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US Magnesium LLC v. United States

United States Court of Appeals, Federal Circuit

October 6, 2016

US MAGNESIUM LLC, Plaintiff-Appellant

         Appeal from the United States Court of International Trade in No. 12-cv-00006, Senior Judge Richard K. Eaton.

          Jeffrey Mark Telep, King & Spalding LLP, Washington, DC, argued for plaintiff-appellant. Also represented by Stephen A. Jones.

          Eric LAUFGRABEN, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellee United States. Also represented by BENJAMIN C. MlZER, JEANNE Davidson, Patricia M. McCarthy; Lydia Caprice Pardini, Office of the Chief Counsel for Trade Enforcement and Compliance, United States Department of Commerce, Washington, DC.

          David Andrew Riggle, Riggle & Craven, Chicago, IL, argued for defendant-appellee Tianjin Magnesium International Co., Ltd. Also represented by DAVID J. CRAVEN, Saichang Xu.

          Before Prost, Chief Judge, NEWMAN and Bryson, Circuit Judges.


          Bryson, Circuit Judge.

         U.S. Magnesium LLC appeals from a judgment of the United States Court of International Trade ("the Trade Court") in this antidumping duty case. The Trade Court sustained the Department of Commerce's final determination in an administrative review of the antidumping duty order on pure magnesium from the People's Republic of China for the period of review May 1, 2009, to April 30, 2010. We affirm.



         The United States imposes duties on foreign goods sold in the U.S. at less than fair value. 19 U.S.C. § 1673. To determine whether goods are being sold for less than fair value, Commerce compares the export price, i.e., the price of the goods sold in the U.S., to the "normal value" of the goods, which is ordinarily the price at which such goods are sold in the exporting country. Id. § 1677b. When merchandise is exported from a nonmarket economy country, the normal value is constructed from "the value of the factors of production utilized in producing the merchandise and to which shall be added an amount for general expenses and profit plus the cost of containers, coverings, and other expenses." Id. § 1677b(c)(1)(B). Costs are generally "calculated based on the records of the exporter or producer of the merchandise, if such records are kept in accordance with the generally accepted accounting principles of the exporting country (or the producing country, where appropriate) and reasonably reflect the costs associated with the production and sale of the merchandise." Id. § 1677b(f)(1)(A).


         This case concerns the importation of magnesium metal from the People's Republic of China. The imported magnesium is produced using a manufacturing process known as the Pidgeon process. That process begins by crushing dolomite, a mineral containing magnesium, into granules. The dolomite granules are then calcinated by roasting them to remove carbon. The calcinated dolomite is then mixed with ferrosilicon and fluorite, and the mixture is pressed into individual briquettes. The briquettes are then loaded into stainless steel reaction vessels known as retorts. The retorts are placed under vacuum and heated, resulting in the separation and vaporization of the magnesium. The magnesium vapor condenses into crowns of solid magnesium metal. The crowns of magnesium metal are then removed from the retorts, melted down, purified, and cast into ingots for sale.

         The retorts used in the Pidgeon process must be replaced over time in a commercial operation, as the intense heat and the chemical reactions gradually degrade the interior of the retorts. After approximately 60 days of use in multiple cycles of the manufacturing process, the retorts become unsuitable for the production of magnesium. The retorts are then recycled, and the recycled steel is used to produce new retorts.[1] This appeal focuses on how to classify the costs of the retorts in constructing the normal value of the exported product.


         In 1995, the Commerce Department entered an antidumping order on magnesium metal from the People's Republic of China. Pure Magnesium from the People's Republic of China, 60 Fed. Reg. 25, 691 (Dep't of Commerce May 12, 1995). On May 3, 2010, Commerce provided notice of an opportunity for the parties to seek review of the antidumping order. Tianjin Magnesium International ("TMI"), a foreign exporter of magnesium produced in China, and U.S. Magnesium ("USM"), a domestic producer of magnesium, requested that Commerce review TMI's sales. From June 30, 2010, to May 30, 2011, Commerce solicited comments and information from the parties, including TMI's business records, surrogate value and country selection, and freight rates.

         On June 8, 2011, Commerce released its preliminary results for the 2009-2010 review. Pure Magnesium from the People's Republic of China: Preliminary Results of the 2009-2010 Antidumping Duty Administrative Review, 76 Fed. Reg. 33, 194 (Dep't of Commerce June 8, 2011). As part of its nonmarket economy review, Commerce constructed a normal value for magnesium by creating surrogate values for the raw materials used in the manufacturing process. It considered ferrosilicon, fluorite powder, dolomite, flux, and coal to be direct materials, and it included them directly in the calculation of normal value. However, it did not include a surrogate value for steel retorts, because it did not regard the retorts as direct materials. Instead, it treated the retorts as indirect materials and accounted for the cost of the retorts as manufacturing overhead.

         In a memorandum accompanying the preliminary results, Commerce explained why it classified retorts as indirect inputs and accounted for them as a component of overhead rather than as direct materials.[2] Pure Magnesium from the People's Republic of China, 76 Fed. Reg. 76, 945, 76 ITADOC 76, 945, Issues & Decision Memorandum, at Comment 4 (Dep't of Commerce December 9, 2011). First, Commerce explained that "retorts are not physically incorporated into the final product." While noting that retorts are necessary to the production process, Commerce stated that "they are more similar to a kiln or furnace, " the costs of which Commerce generally treats as manufacturing overhead. Commerce also found that retorts are reusable and "are not replaced so regularly as to represent a direct factor rather than overhead." Finally, Commerce found that it was "unclear how retorts are typically treated in the industry."

         Following the preliminary results, USM continued to argue that retorts should be classified as direct materials rather than as overhead. In the final results, however, Commerce stood by its classification, explaining that the retorts are best classified as overhead "because they are not physically incorporated into the final product and are replaced too infrequently to be a direct material." Commerce concluded that "retorts are not an input added into the production process; rather, they are manufacturing equipment, like an oven or crucible, all of which are necessary components of the production line to produce pure magnesium." Consequently, Commerce declined to treat retorts as a direct material.


         After the closing of the administrative record in the review, USM sought to submit new evidence contradicting one of the answers TMI provided to Commerce. USM contended that the new evidence was indicative of fraud on TMI's part. Commerce rejected USM's submission as untimely. The Trade Court, however, remanded the case to Commerce for consideration of the new evidence.

         On remand, Commerce found that USM's newly submitted evidence did not constitute prima facie evidence of fraud. Commerce also found that the new evidence did not call into question its finding that retorts are properly treated as factory overhead.

         The Trade Court affirmed Commerce's remand results. U.S. Magnesium LLC v. United States, 72 F.Supp.3d 1341 (Ct. Int'l Trade 2015). After reviewing the financial records of TMI's supplier, the court sustained Commerce's conclusion that the supplier did not treat retorts as a direct material. The court also upheld Commerce's finding that the evidence was inconclusive as to whether the industry as a whole treated retorts as a direct material input. And the court held that Commerce was "right in its claim that treating the retorts as an indirect material is consistent with its past practice of characterizing materials as overhead when 'they are not physically incorporated into the final product and are replaced too infrequently to be a direct material.'"

         USM appealed to this court from the Trade Court's judgment.


         Commerce's determinations in an antidumping duty case must be upheld 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). Substantial evidence means "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Consol. Edison Co. v. NLRB, 305 U.S. 197, 229 (1938).

         In conducting substantial evidence review of Commerce's determinations, we apply the same standard of review that the Trade Court used in reviewing the administrative record. Downhole Pipe & Equip., L.P. v. United States,776 F.3d 1369, 1373 (Fed. Cir. 2015). As we have explained, however, we "will not ignore the informed opinion of the Court of International Trade." Diamond Sawblades Mfrs. Coalition v. United States,612 F.3d 1348, 1356 (Fed. Cir. 2010) ...

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