Pipe Maker Contests Inclusion of Affiliate's Further Processed Pipe in AD Order

The companies said they simply "do not make the same products." In finding that they do, Commerce relied entirely on its remand decision in a case on the 2020-21 review of the same order, "unlawfully elevat[ing]" the remand decision over the Court of International Trade's instructions in that separate case, the brief said. Making matters worse, the agency didn't add the (k)(1) sources it relied on in the separate case to the record of this review "or address evidence or arguments contrary to its scope determination, which are on the record of this review," the companies said.

In the 2022-23 review, Maquilacero and Tecnicas argued that Tecnicas' downstream automotive products "undergo further manufacturing through several additional operations, including saw-cutting, laser cutting-to-length, drilling, perforation, and/or bending," removing them from the scope of the order (see 2508130071).

In the case on the 2020-21 review, also brought by Maquilacero, the trade court remanded Commerce's findings, though the agency continued to include Tecnicas' downstream products within the scope of the order on remand. Commerce said the scope's plain language was ambiguous with respect to Tecnicas' specific products, since it includes no language concerning downstream goods. The agency then cited six (k)(1) sources to support its point. The trade court affirmed Commerce's ruling, and the case is on appeal before the U.S. Court of Appeals for the Federal Circuit.

Relying entirely on this remand in the 2022-23 review, Commerce said Tecnicas' further processed goods were in-scope. Maquilacero and Tecnicas said they put "overwhelming" evidence on the record establishing that the goods are not in-scope. For instance, the companies established that Tecnicas transforms the in-scope goods into a different product by "further processing" the products and customizing them for specific customers.

CBP has ruled that the type of processing Tecnicas performs "substantially transforms" the pipe into a "different class or kind of product" not classifiable under Harmonized Tariff Schedule subheadings 7306.61.5100 and 7306.61.7060, which are the headings set out in the AD order. On the other hand, subject pipe is a "commodity product," made and sold "pursuant to general steel industry standards." There's no customization in the subject pipe production process, since it's sold "based on standard sizes, length and weight," the brief said.

Commerce "refused to engage with these arguments," and said the issue is resolved by the remand results in the 2020-21 review. Maquilacero argued that the agency ignored the court's order in the case on the 2020-21 review, since the court noted that the case is "ongoing" and "not final and conclusive and remains subject to appeal." Yet, the agency "clung to the Remand as if it were authoritative precedent," the companies said.

Maquilacero and Tecnicas argued that Commerce's scope finding in the present review is "legally deficient," since the agency elevated the remand decision over the court's ruling in the separate case, failed to issue a decision that "engages with the evidence and arguments on the record of this review" and failed to place any of the (k)(1) sources it cited" on the record of this review.

In the case on the 2020-21 review, CIT said the scope ruling is unlawful unless Commerce (1) addresses whether Tecnicas' further-processed goods fall within the industry the ITC investigated in the original investigation; (2) determines the extent of Tecnicas' processing and whether each good was processed beyond the scope; and (3) addresses whether Tecnicas' products are "realistically interchangeable" with in-scope goods.

The companies claimed that Commerce bucked all three of these rulings. First, the agency "strained the ITC’s analysis to (incorrectly) give the impression that the ITC investigated the automotive industry in the original investigation." Second, the piece of the remand quoted by Commerce doesn't "meaningfully address the impact of" Tecnicas' further processing, since it "does not address the evidence in this review" and instead "vaguely discusses Commerce’s interpretation of the (k)(1) sources." Lastly, the agency only vaguely and generally addresses interchangeability, the brief said.

Relatedly, Maquilacero and Tecnicas argued that Commerce failed to adequately support its decision to collapse the two companies. The agency failed to address evidence showing that the two firms don't make similar goods or that one can't manipulate the pricing or production of the other.

Commerce can't collapse two entities under its regulation, 19 C.F.R. 351.401(f), unless they have "production facilities for similar or identical products that would not require substantial retooling of either facility in order to restructure manufacturing priorities.” Reviewing courts often look to the "cost of retooling based on the companies’ financial positions," yet "Commerce failed to conduct any analysis of these factors," the brief said.

In addition, the "degree of affiliation between" the companies "does not suggest the potential for significant manipulation of price or production," the brief said. Maquilacero and Tecnicas don't have "overlapping operations that suggest that one company influences the pricing or production of the other," evidenced by the fact that the firms "forecast sales differently," the brief said.

In their case, the two companies also challenged Commerce's use of quarterly averages to calculate the cost of manufacturing, decision to disregard the companies' normal books and records in favor of a "smoothing adjustment" to calculate the cost of production, and use of the Cohen's d test to detect "masked" dumping. On the use of the d test, the U.S. conceded that a remand was in order in light of CAFC's decisions in Stupp v. U.S. and Marmen v. U.S. largely invalidating the agency's use of this test, though all parties in the case urged the trade court to issue one decision addressing all the issues for efficiency's sake.