Gerald Metals, Inc. v. United States

Citations: 132 F.3d 716; 1997 WL 784484Docket: No. 97-1077

Court: Court of Appeals for the Federal Circuit; December 22, 1997; Federal Appellate Court

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The International Trade Commission (ITC) concluded that imports of pure magnesium from Russia, Ukraine, and China were sold at less than fair value (LTFV), resulting in material injury to the domestic magnesium industry. Gerald Metals, an importer, contested the ITC's injury finding regarding Ukrainian imports in the United States Court of International Trade, which upheld the ITC's conclusion based on substantial evidence. However, the reviewing court found that this evidence did not adequately support the previous court's analysis, leading to a vacate-and-remand order for further proceedings.

Primary magnesium is categorized by the U.S. Department of Commerce into pure and alloy types, with pure magnesium defined as products containing at least 99.8% or 50% to 99.8% of primary magnesium. Pure magnesium serves critical roles in various industries, including aluminum and pharmaceuticals. From early 1992 to mid-1994, U.S. demand for pure magnesium was steady, with producers maintaining continuous production to mitigate costs associated with production equipment. 

Prior to the current investigation, the ITC had already determined that unfairly traded pure magnesium from Canada had harmed the domestic industry, leading to a decline in Canadian imports. Subsequently, imports from Russia, Ukraine, and China increased, partly due to the liquidation of Soviet stockpiles. On March 31, 1994, a petition against these imports was filed by the Magnesium Corporation of America and labor unions under the Tariff Act of 1930, later joined by Dow Chemical Company. The Department of Commerce later confirmed that these imports were sold at LTFV, culminating in the ITC's final determinations published on May 17, 1995.

The Commission unanimously determined that there was no material injury to the domestic industry from low-priced imports of alloy magnesium from China and Russia. However, three commissioners found material injury from low-priced imports of pure magnesium from Russia, Ukraine, and China, while three dissented, leading to a plurality decision that constituted the Commission's determination under 19 U.S.C. 1677(11). Gerald Metals appealed this finding regarding imports from Ukraine, with the Magnesium Corporation of America and labor unions participating as defendants-appellees. The record highlighted that a significant portion of Russian imports were fairly traded and undersold domestic products similarly to low-priced imports. Moreover, all pure magnesium from Russia came from two producers, with varying dumping margins assigned by Commerce. Gerald Metals contended that the availability of fairly-traded Russian imports meant that the low-priced imports did not cause industry injury, attributing it instead to market forces. The Court of International Trade upheld the Commission’s findings, leading to Gerald Metals' appeal. The court is reviewing the Commission's determinations to ensure they are supported by substantial evidence and in accordance with the law, giving due respect to the Court of International Trade’s detailed review of the record.

The Commission evaluates whether low-priced, unfairly traded (LTFV) imports materially injure a domestic industry under Title 19. Material injury is defined as harm that is significant, not trivial. The assessment involves examining (1) the volume of the LTFV imports, (2) their effect on domestic prices, and (3) the impact on domestic producers, focusing solely on U.S. production operations. The Commission can consider additional economic factors but must demonstrate a causal relationship between the imports and the material injury rather than merely a temporal correlation. An affirmative injury determination requires current material injury linked directly to the subject imports. The court reviews the Commission's findings for substantial evidence, meaning evidence that a reasonable mind would find adequate to support a conclusion, and considers contradictory evidence as well. The appeal centers on whether the Commission properly accounted for undisputed facts regarding fairly-traded Russian imports in its analysis of harm from cumulated LTFV imports. The record reflected comparisons of domestic products to the subject imports but lacked evidence differentiating fairly traded and LTFV Russian imports, with only two producers responsible for all Russian imports.

Pricing and treatment of Russian pure magnesium varied significantly based on the trading company involved, with dumping margins ranging from zero percent to 100.25%. This variation determined whether the magnesium was classified as fairly-traded or as being sold at less than fair value (LTFV). Despite these classifications, Russian imports—regardless of their trading status—were found to be perfect substitutes for each other and competed equally with Ukrainian magnesium products. The Commission noted consensus among investigation participants that LTFV imports from Russia and Ukraine competed directly. While some evidence suggested quality differences, many purchasers indicated they did not differentiate between Russian and Ukrainian magnesium in the Commonwealth of Independent States. 

Additionally, LTFV Chinese imports were identified as competitors to both Russian and Ukrainian magnesium, with purchasers asserting that the quality of Chinese magnesium was comparable for similar uses. This competitive landscape highlighted a lack of causal connection between LTFV Ukrainian imports and any material harm to the domestic industry. The Court of International Trade recognized this issue but dismissed the evidence without sufficient support. It found no evidence that fairly-traded Russian imports would have significantly replaced subject imports, arguing that consumers choose trading partners based on non-price factors. However, a more thorough analysis of the data revealed that, while LTFV imports initially held a greater market share, by the end of the investigation period, fairly-traded Russian imports surpassed LTFV imports. Overall, Russian pure magnesium sales, encompassing both trading classifications, tripled the combined sales of LTFV imports from Ukraine and China. The Court appeared to overlook the fact that all Russian magnesium came from two producers and that pricing was determined by importers, not producers, indicating that Russian producers sold to both fairly- and unfairly trading importers in similar proportions.

Evidence indicates that domestic purchasers were not deterred from low-priced, unfairly traded (LTFV) imports compared to fairly-traded imports due to non-price factors, challenging the Court of International Trade’s earlier conclusions. This is highlighted by the situation where the same importer, Gerald Metals, sold both fairly-traded Russian and LTFV Ukrainian products to domestic buyers. The court failed to adequately address the potential for fairly-traded goods to substitute for LTFV goods. The domestic industry's injury claim was framed around their inability to raise prices without losing sales volume, rather than solely on lost sales. Following the suspension of LTFV imports from Canada in 1991-92, the domestic industry anticipated higher prices for its magnesium products. However, the influx of both LTFV and fairly-traded imports, partly due to Soviet stockpiles, disrupted this expectation. The increased availability of magnesium from the former Soviet Union significantly influenced the injury and causation findings. Accurate causation analysis requires comprehensive economic evidence, as mandated by the anti-dumping statute, which states that all relevant economic factors must be considered within the context of the industry’s business cycle and competition. Generally, a sudden increase in global supply leads to price reductions. While the statute protects domestic producers from injury due to LTFV imports, it does not allow for artificially inflated prices when imports, including fairly-traded ones, undercut domestic pricing. The Court of International Trade incorrectly applied the legal standard for determining the contribution of LTFV goods to material harm, suggesting that any contribution suffices for causation. In contrast, the statute necessitates that the injury must occur "by reason of" the LTFV imports, implying that minimal or tangential contributions from unrelated causes do not exempt LTFV goods from countervailing duties. This misapplication extends to the Commission's reliance on broad language from a Senate report, which stated that the Commission need not weigh the impact of LTFV imports against other contributing factors.

In Citrosuco Paulista, S.A v. United States, the court referenced a two-step inquiry used by Commerce to assess material injury in domestic industries. This process involves first evaluating the state of the relevant domestic industry and, if it is materially injured, examining whether imports contributed significantly to that injury. However, the United States Steel case clarified that the court did not adopt a relaxed standard from the Senate report for establishing causation, emphasizing the need for substantial evidence to demonstrate that injury occurred "by reason of" the imports, rather than through minimal contributions. 

In this case, the court determined that the evidence did not sufficiently demonstrate that low-priced imports of pure magnesium from Ukraine were the cause of harm to the domestic magnesium industry. It criticized the Court of International Trade for not adequately considering the impact of fairly-traded Russian imports when affirming the Commission’s findings of material injury. 

Two key issues remain unresolved: the closure of Dow’s magnesium production plant and the nature of the imposed duties. While the Court of International Trade found substantial evidence linking LTFV imports to Dow's plant closure, it relied on credibility determinations regarding Dow's witnesses without sufficient economic data. The presence of Russian imports and market conditions suggested that the plant closure was driven by broader market forces rather than solely by LTFV imports. Dow's own testimony indicated that global market conditions contributed to the decision to shut down production. The dissenting views from two commissioners further questioned the support for Dow's claims.

Mr. Frank Pettiti, a Dow global business manager, testified that Russian, Ukrainian, and Chinese magnesium were sold in U.S. and global markets at extremely low prices, suggesting that these prices were influenced by producers accepting hard currency. The evidence indicates that factors other than less-than-fair-value (LTFV) goods were responsible for lowering domestic price expectations. A thorough evaluation of the impact of fairly-traded imports on the domestic market is crucial to determine whether dumping duties serve a remedial purpose or are punitive. The importation of LTFV Ukrainian pure magnesium by Gerald Metals alone does not justify the imposition of duties. Instead, there must be substantial evidence demonstrating material harm to the domestic industry due to LTFV imports from Russia, Ukraine, and China. Consequently, the court vacates the Court of International Trade’s decision affirming the Commission's injury determination and remands for further proceedings. Each party will bear its own costs. The relevant antidumping laws have been amended by the Uruguay Round Agreement Act, but this investigation is governed by the pre-existing statute since it was initiated before the amendments took effect.