US, Mid Continent Steel Back Use of Simple Average in Differential Pricing Analysis in CAFC AD Case
The Commerce Department's use of a simple average to calculate a pooled standard deviation as part of the differential pricing analysis in an antidumping duty case was reasonable and permitted under the statute, the U.S. and Mid Continent Steel & Wire said in reply briefs to the U.S. Court of Appeals for the Federal Circuit. Responding to the opening brief filed by the appellants, led by PT Enterprise, both the government and Mid Continent argued that the "academic literature" backed the use of simple averages and that PT's proposed method of weighing the averages cut against the science (Mid Continent Steel & Wire, Inc. v. United States, Fed. Cir. #21-1747).
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In antidumping duty investigations, such as the one into steel nails from Taiwan, Commerce may identify goods that are dumped into the U.S. market through "targeted" or "masked" dumping. Since Commerce typically conducts its dumping investigations by comparing the average home market price of the good in question to its U.S. price, certain exporters may work around this by dumping the goods in certain areas and selling them at a higher price in another or at another time. To combat this, Commerce may compare the weighted average of sales in the home country to individual sales prices.
Before conducting this analysis though, Commerce must first gather data on the export sales and detect the masked dumping using a differential pricing analysis. The agency breaks down the U.S. sales data into sets based on comparable product groups. Once in the product group, Commerce then breaks that data into various subsets, including the region the U.S. sales took place, the purchasers involved in the sales and even the time periods in which the sales took place. Commerce will then pick one subset as the "test group" while aggregating the remaining subset into the "comparison group." The agency then employs the Cohen's d test to find if the test group is significantly different from the comparison group. If it is, Commerce applies a "ratio test" to see if the ratio of significantly different transactions warrants using the weighted average to individual transaction comparison.
Such was the case in the Taiwanese nails case where Commerce used the Cohen's d test and employed a simple average to find the pooled standard deviation. However, the Federal Circuit previously remanded this decision to CIT in October 2019, saying that the agency needed to provide further support for this finding. Its further explanation found a sympathetic ear in the trade court, which sustained the remand redetermination on Jan. 8. PT then brought the case back to the Federal Circuit, where it argues that not only should a weighted average to calculate the pooled variance be used, but that it should be weighted by sales quantities.
Mid Continent attacked this contention in its reply brief, stating that it's "reasonable" to use the simple average instead of a weighted average to find pooled standard deviation since Commerce's goal is to measure an "abstract effect," such as PT's pricing behavior. "As such, a simple average will ensure equal weight is given to its pricing behavior in both groups, and will not skew the outcome by weighting one group more than the other group," the plaintiff said. "Cohen has also recognized that a simple average is appropriate when the goal is to measure an abstract effect of membership in a particular group, not the frequency with which that effect occurs in the entire population."
The U.S. backed this line of reasoning in its own brief, adding that the statute supports a defense of a simple average. "Because of the statutory context of Commerce’s differential pricing analysis, the individual pricing behaviors as exhibited in the test and comparison groups in the Cohen’s d test are equally valid and representative of PT’s corporate goals, and, therefore, the pricing behaviors individually merit equal weighting when establishing the benchmark for determining whether the difference in the mean prices of the two groups is significant," the brief said. Both briefs also argued against PT's proposed method of weighting the averages by units sold, finding that this contention has "no support whatsoever."
A separate and recent Federal Circuit opinion, Stupp Corporation et al. v. U.S. et al., also touched on the use of the Cohen's d test and surfaced in the reply briefs (see 2107150032). In the decision, the court issued a more broad challenge to the test, questioning its overall statistical validity based on certain assumptions the test requires. Mid Continent addressed this case, arguing that these assumptions, such as normal distribution of the data, may not even need to be met in some cases. "Cohen himself recognized that a simple average may be used in certain circumstances even when certain assumptions are not met, because the goal may be different from the typical goal," the brief said.