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Mid Continent Nail Corp. v. United States

United States Court of Appeals, Federal Circuit

January 27, 2017

MID CONTINENT NAIL CORPORATION, Plaintiff-Appellant
v.
UNITED STATES, DUBAI WIRE FZE, ITOCHU BUILDING PRODUCTS CO., INC., Defendants PRECISION FASTENERS, LLC, Defendant-Appellee

         Appeal from the United States Court of International Trade in Nos. 1:12-cv-00133-GWC, 1:12-cv-00153-GWC, 1:12-cv-00162-GWC, Judge Gregory W. Carman.

          David Albert Yocis, Picard Kentz & Rowe LLP, Washington, DC, argued for plaintiff-appellant. Also represented by Andrew William Kentz, Roop Bhatti, Meixuan Li, Douglas Knox Bemis, Jr.

          Michael Paul House, Perkins Coie, LLP, Washington, DC, argued for defendant-appellee. Also represented by David John Townsend, David Stewart Christy, Jr.

          Before Newman, Lourie, and Dyk, Circuit Judges.

          Dyk, Circuit Judge.

         In 2012, the Department of Commerce issued a final determination in an antidumping investigation of certain steel nails from the United Arab Emirates ("UAE") finding that Precision Fasteners, LLC had engaged in targeted dumping and imposed a duty. In calculating Precision's dumping margin, Commerce declined to apply a regulation limiting the use of the average-to-transaction methodology to non-targeted sales because the agency asserted that the regulation had been withdrawn in 2008. See 19 C.F.R. § 351.414(f)(2) (2008).

         The Court of International Trade ("Trade Court") held that Commerce had violated the Administrative Procedure Act ("APA") by withdrawing the regulation without providing notice and opportunity for comment. On remand, Commerce redetermined Precision's duty by applying the withdrawn regulation and found that no duty was owing. The Trade Court affirmed. We hold that Commerce violated the requirements of the APA in withdrawing the regulation, leaving the regulation in force; that its violation of the APA was not harmless; and that the agency did not err in applying the regulation on remand. We therefore affirm the final judgment of the Trade Court.

         Background

         I

         In 2011, appellant Mid Continent Nail Corp. filed a petition with Commerce alleging that "imports of certain steel nails from the UAE . . . [were being] sold in the United States at less than fair value, . . . and that such imports [were] materially injuring, or threatening material injury to, an industry in the United States." Certain Steel Nails From the United Arab Emirates: Initiation of Antidumping Duty Investigation, 76 Fed. Reg. 23, 559, 23, 560 (Apr. 27, 2011). Commerce initiated an antidumping investigation during which it determined that appellee Precision was among the mandatory respondents, i.e., an importer whose dumping rate would be individually determined in the course of the investigation.[1] See Certain Steel Nails From the United Arab Emirates: Preliminary Determination, 76 Fed. Reg. 68, 129 (Nov. 3, 2011). In 2012, Commerce issued an antidumping duty order imposing a 2.51 percent duty on Precision. See Certain Steel Nails From the United Arab Emirates: Final Determination, 77 Fed. Reg. 17, 029, 17, 031-32 (Mar. 23, 2012); Certain Steel Nails from the United Arab Emirates: Amended Final Determination, 77 Fed. Reg. 27, 421, 27, 422 (May 10, 2012).

         Commerce found that Precision had engaged in "targeted dumping" because Precision's sales reflected a "pattern of export prices . . . that differ[ed] significantly among certain customers, regions, and time periods." 77 Fed. Reg. at 17, 031; see also 19 U.S.C. § 1677f-1(d)(1)(B)(i); U.S. Steel Corp. v. United States, 621 F.3d 1351, 1359 (Fed. Cir. 2010). And, central to this appeal, the agency proceeded to calculate Precision's dumping margin by applying the average-to-transaction methodology to all U.S. sales reported by Precision, irrespective of whether the agency had deemed a sale to be targeted or not. See 77 Fed. Reg. at 17, 031.

         The average-to-transaction methodology is one of the three methods that Commerce may use in an investigation to calculate dumping margins in accordance with the Tariff Act of 1930, as amended by the Uruguay Round Agreements Act (URAA), Pub. L. No. 103-465, 108 Stat. 4809 (1994). The statute provides that, in general, Commerce "shall determine whether . . . subject merchandise is being sold in the United States at less than fair value" by either: (1) "comparing the weighted average of the normal values to the weighted average of the export prices (and constructed export prices) for comparable merchandise"; or (2) "comparing the normal values of individual transactions to the export prices (or constructed export prices) of individual transactions for comparable merchandise." 19 U.S.C. § 1677f-1(d)(1)(A)(i)-(ii). These two methods are respectively known as the "average-to-average" and "transaction-to-transaction" methodologies.

         The statute permits Commerce to use a third meth-od-the average-to-transaction methodology-if certain conditions are met. The average-to-transaction methodology "compar[es] the weighted average of the normal values to the export prices (or constructed export prices) of individual transactions for comparable merchandise." Id. § 1677f-1(d)(1)(B). To calculate dumping margins using the average-transaction methodology, however, Commerce must find "a pattern of export prices (or constructed export prices) for comparable merchandise that differ significantly among purchasers, regions, or periods of time, " (i.e., targeted dumping) and explain "why such differences cannot be taken into account using" the first two methods. Id. § 1677f-1(d)(1)(B)(i)-(ii). In other words, Commerce must first conclude that a respondent is engaged in targeted dumping and explain why the other two statutory methodologies fail to sufficiently account for it. See U.S. Steel, 621 F.3d at 1358-59.

          In calculating dumping margins using the average-to-transaction methodology, Commerce has "historically" used a practice known as "zeroing" in which "negative dumping margins (i.e., margins of sales of merchandise sold at nondumped prices) are given a value of zero and only positive dumping margins (i.e., margins for sales of merchandise sold at dumped prices) are aggregated." Union Steel v. United States, 713 F.3d 1101, 1104 (Fed. Cir. 2013). As a result, "dumping margins for sales below normal value are not offset by 'negative dumping margins' for those sales made above normal value." Corus Staal BV v. United States, 502 F.3d 1370, 1372 (Fed. Cir. 2007). This lack of offsetting leads to higher dumping margins when the average-to-transaction methodology is used, which has made calculation of margins using this methodology "controversial." See Union Steel, 713 F.3d at 1104.

         II

         Shortly after the enactment of the URAA, Commerce promulgated a regulation through notice-and-comment rulemaking restricting the agency's use of the average-to-transaction methodology. This regulation-known as the "Limiting Regulation"-provided that even in cases meeting the statutory criteria for applying the average-to-transaction methodology, the agency would "normally . . . limit [its] application . . . to those sales that constitute targeted dumping, " as opposed to applying the average-to-transaction methodology to all of a respondent's sales. See 19 C.F.R. § 351.414(f)(2) (2008); see also Antidumping Duties; Countervailing Duties, Final Rule, 62 Fed. Reg. 27, 296, 27, 375 (May 19, 1997).

         In 2008, however, Commerce withdrew the Limiting Regulation, along with several other regulations governing the agency's handling of targeted dumping allegations. See Withdrawal of the Regulatory Provisions Governing Targeted Dumping in Antidumping Duty Investigations, Interim Final Rule, 73 Fed. Reg. 74, 930, 74, 931 (Dec. 10, 2008) [hereinafter Withdrawal Notice]. The agency stated that it had originally promulgated the regulations "without the benefit of any experience on the issue of targeted dumping, " and that the regulations "may have established thresholds or other criteria that . . . prevented the use of [the average-to-transaction] methodology to unmask dumping, contrary to the [c]ongressional intent." Id. Commerce noted that withdrawal would allow the agency to gain "additional experience" with targeted dumping through "case-by-case adjudication." Id.

         Commerce acknowledged in Withdrawal Notice that repeal of the targeted dumping regulations was subject to "the requirement to provide prior notice and opportunity for public comment, pursuant to . . . 5 U.S.C. § 553(b)(B), " but expressly "waive[d] the requirement" by invoking the APA's "good cause" exception to notice-and-comment rulemaking. 73 Fed. Reg. at 74, 931.

         In finding good cause, Commerce explained that no-tice-and-comment rulemaking was "impracticable and contrary to the public interest" because the rescinded regulations were "applicable to ongoing antidumping investigations" and that "immediate revocation [was] necessary to ensure the proper and efficient operation of the antidumping law[s]." Id. At no point in Withdrawal Notice did Commerce refer to any prior notices proposing to withdraw the Limiting Regulation, or otherwise suggest that the agency had provided adequate notice and opportunity for comment under the APA.

         In calculating Precision's dumping margin three years later in this proceeding, Commerce applied the average-to-transaction methodology, having found both "a pattern of export prices . . . that differ[ed] significantly among customers, regions, or by time-period, " and that applying the "average-to-average methodology mask[ed] differences in the patterns of prices between the targeted and non-targeted groups." 77 Fed. Reg. at 17, 031. In this appeal, no party has challenged Commerce's determination that the statutory criteria for applying the average-to-transaction methodology were met. What the parties dispute is the agency's decision to apply the average-to-transaction methodology not just to "those sales that constitute[d] targeted dumping, " as the Limiting Regulation had previously provided, but "to all U.S. sales reported by . . . Precision." See id. (emphasis added).

         III

         Precision challenged Commerce's final determination in the Trade Court. See Mid Continent Nail Corp. v. United States (Mid Continent I), 999 F.Supp.2d 1307, 1309-10 (Ct. Int'l Trade 2014). In relevant part, Precision argued that Commerce was required to apply the Limiting Regulation to calculate Precision's dumping margin because the agency's repeal of the regulation in "Withdrawal Notice was ineffective and contrary to law, " as it had "occurred outside the basic procedural framework required by Congress under the [APA]." Id. at 1319-20. According to Precision, had the agency applied the Limiting Regulation, application of the average-to-transaction methodology to all of Precision's domestic sales would not have been "justif[ied]" because the agency had "only found evidence of targeting for less than one percent" of Precision's U.S. sales, the exact scenario that had concerned Commerce when it adopted the Limiting Regulation in the first place. Id. at 1319.[2]

         The Trade Court agreed that Commerce's withdrawal of the Limiting Regulation violated the APA. After concluding that withdrawal of the regulation was subject to notice-and-comment rulemaking, the court rejected the argument that the agency had provided adequate notice and opportunity for comment through two earlier Federal Register notices because those notices had not proposed to repeal the regulation. See id. at 1322. The court also rejected Commerce's invocation of good cause and found that the agency's procedural default was not excusable as harmless error. See id. Accordingly, the Trade Court remanded Commerce's final determination and instructed the agency to "redetermine [Precision's] dumping mar-gin[] by applying the Limiting Regulation." Id. at 1323.

         IV

         On remand, Commerce applied the Limiting Regulation as ordered by the Trade Court. As the regulation provided that Commerce would "normally" not apply the average-to-transaction methodology to all sales, see 19 C.F.R. § 351.414(f)(2) (2008), the agency concluded that application of the average-to-transaction methodology to all of Precision's sales was unwarranted because "the record does not contain evidence to suggest that this normal limitation should not be applied." J.A. 89. As a consequence of limiting the average-to-transaction methodology to only targeted sales, Commerce found that Precision's dumping margin was "de minimis, " and therefore imposed a duty of 0.00 percent. Id.

         Mid Continent appealed Commerce's remand rede-termination to the Trade Court, arguing that the agency had misapplied the Limiting Regulation. See Mid Continent Nail Corp. v. United States (Mid Continent II), 113 F.Supp.3d 1318, 1326 (Ct. Int'l Trade 2015). The court rejected Mid Continent's argument and affirmed Commerce's remand redetermination. See id. at 1327-28, 1331. Mid Continent then filed this appeal, which Commerce has not joined. We have jurisdiction under 28 U.S.C. § 1295(a)(5).

         V

         During the pendency of the Trade Court proceedings, and in light of the court's ruling that Withdrawal Notice was ineffective to repeal the Limiting Regulation, [3] Commerce in 2013 initiated a new proceeding to accomplish the repeal. The agency published a Notice of Proposed Rulemaking ("NPRM") in which it sought comments on a proposal "not to apply . . . the previously withdrawn regulatory provisions governing targeted dumping." Non-Application of Previously Withdrawn Regulatory Provisions Governing Targeted Dumping in Antidumping Duty Investigations, Proposed Rule, 78 Fed. Reg. 60, 240, 60, 240 (Oct. 1, 2013). In 2014, Commerce issued a final rule making withdrawal of the regulations effective May 22, 2014. See 79 Fed. Reg. 22, 371 (Apr. 22, 2014). No party to this appeal has challenged the 2014 withdrawal, or contended that it should be applied retroactively. Accordingly, this case solely addresses whether the withdrawn regulations were in effect during the period between December 10, 2008, and May 22, 2014.

         Discussion

         We review the Trade Court's decision to uphold Commerce's remand redetermination de novo. See U.S. Steel, 621 F.3d at 1357. We will affirm the agency unless its decision "is unsupported by substantial evidence on the record, or otherwise not in accordance with law." 19 U.S.C. § 1516a(b)(1)(B)(i). "Commerce's decision will [also] be set aside if it is arbitrary and capricious." Changzhou Wujin Fine Chem. Factory Co. v. United States, 701 F.3d 1367, 1374 (Fed. Cir. 2012).

         We do not defer to an agency's interpretation of the APA's statutory requirements, although the statute itself presumes that review of agency action under the arbi-trary-and-capricious standard is "highly deferential." Nat'l Org. of Veterans' Advocates, Inc. v. Sec'y of Veterans Affairs, 260 F.3d 1365, 1372 (Fed Cir. 2001); see also Collins v. Nat'l Transp. Safety Bd., 351 F.3d 1246, 1253 (D.C. Cir. 2003) ("For generic statutes like the APA, . . . the broadly sprawling applicability undermines any basis for deference, and courts must therefore review interpretative questions de novo."); Mobil Oil Corp. v. Dep't of Energy, 728 F.2d 1477, 1486-87 (Temp. ...


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