Trade Court Sends Back Model Match Hierarchy in AD Suit on Korean Superabsorbent Polymers

In the investigation, Commerce asked for information regarding SAP's general physical characteristics to define the control numbers which would identify identical or similar goods for comparison when calculating AD rates. The petitioner, the Ad Hoc Coalition of American SAP Producers, and LG Chem gave separate characteristic hierarchies, though both recognized that the main characteristic was the ability of SAP products to hold liquid, dubbed "centrifugal retention capacity," or "CRC."

CRC is measured in grams of saline solution retained per gram of SAP (g/g). The coalition argued for three g/g ranges, while LG Chem vied for five. The exporter also requested two additional product characteristics for model match purposes: absorbency under pressure, which includes absorbency under load and permeability. LG Chem proposed model match codes for absorbency under pressure and absorbency under load and also for permeability, which both included seven groups. The exporter said permeability and CRC are generally inversely related.

Initially, Commerce rejected LG's proposal and only used CRC as the key SAP characteristic, dividing it into the three ranges suggested by the coalition -- less than 30 g/g, 30-36 g/g and over 36 g/g. Following verification, the agency switched to LG Chem's proposed model match methodology, which split the goods into four increments of 4 g/g, and recalculated the exporter's AD margin using its alternative sales and cost files based on its volunteered CRC, permeability and absorbency under pressure characteristics. The result dropped LG Chem's rate from 28.74% to 17.64%.

The coalition filed suit against the switch, claiming, among other things, that Commerce departed from its established model match hierarchy that was set early in the proceeding. Aquilino said it's settled that Commerce "has the authority to reconsider any decision on any aspect of an investigation made earlier in a proceeding prior to reaching a final determination." The judge said he "declines to hold as a matter of law that [Commerce] was required to adhere to the model match hierarchy that it constructed during the early stage of the proceeding."

Nevertheless, Aquilino found that the new hierarchy was not supported by substantial evidence. The court took aim at Commerce's analysis of the record, which he said "appears flawed," since it based the "commercial significance of absorbency under pressure, permeability, and 4 g/g CRC increments on a relatively small set of unverified and mostly undated marketing materials." These materials alone don't "represent substantial evidence," he said, adding that there's "nothing particularly evident in terms of commercial significance about any one of the other physical characteristics that would make it stand out from the rest."

While Commerce said absorbency under pressure and permeability "drive commercially significant price differences," the agency gave "no data or analysis" showing that this is the case. Mere reference to absorbency under pressure and permeability in "briefing and marketing materials is scant support on which to base a finding of commercial significance," the opinion said.

Aquilino sided with the coalition as it claimed that viewing the second set of CONNUMs "collectively" masks the "commercial significance of each of the product characteristic codes" picked by Commerce, which is the "very question" it's attempting to answer in considering whether to include absorbency under pressure and permeability in addition to CRC.

The U.S. said that absorbency under pressure, permeability and CRC in narrow ranges creates distinct CONNUMs in both utility and value, though the other two product characteristics fail to meet the description of commercial significance, the court said. Absorbency under pressure and permeability show no correlation when analyzed with SAP value, and the coalition's evidence shows that the two characteristics have an inverse relationship with CRC, meaning they have no utility that isn't already captured by CRC, the opinion said.

As for Commerce's decision to use the 4 g/g CRC increments, the court noted that Commerce's decision seemingly relies on a single 8-year-old graph that discusses relative CRC level of legacy products no longer sold in the U.S., along with an underselling analysis presented to the ITC. Aquilino said nothing in the graph links a narrower CRC level to the price or cost of SAP and that the underselling analysis is tethered to an ITC proceeding and not a Commerce one.

In all, the court said "the agency apparently relied for the most part on a few pieces of anecdotal information as the sole factors weighing in favor of finding commercial significance among LG Chem’s preferred product characteristics." The judge found this to "hardly" be a "robust" basis for replacing its model match hiearchy.

The coalition also critiqued Commerce's failure to verify LG Chem's alternative sales and cost files based on its second set of CONNUMs. The U.S. contended that it verified LG Chem's cost accounting data, on which the alternative databases and proposed product characteristics were based. The court said this wasn't the same as verification of the product characteristics or new CONNUMs, adding that Commerce didn't appear to have verified, "even on a spot-check basis," the new product characteristics or CONNUMs used to get LG Chem's AD rate.

Lastly, the coalition said LG Chem's proposed model match hierarchy would allow the company to put the same SAP product into multiple categories based on the exporter's chosen testing protocol, creating a large risk of manipulation. Aquilino found that Commerce didn't "fully address this issue," remanding for further discussion.

The U.S. said the home market sales database suggested LG Chem defines its SAP grades using both absorbency under pressure and permeability and that customers buy SAP with expectations related to those characteristics. As a result, it's "commercially significant to downstream customers" whether LG Chem achieves different absorbency under pressure and permeability levels via relevant testing. The court said that this argument doesn't address the coalition's "core concern at all, which is the ability of respondents to [intentionally] manipulate the applicable CONNUM by using different tests for a given physical characteristic."

(The Ad Hoc Coalition of American SAP Producers v. United States, Slip Op. 24-26, CIT # 23-00010, dated 03/01/24; Judge: Thomas Aquilino; Attorneys: Stephen Orava of King & Spalding for plaintiff Ad Hoc Coalition of American SAP Producers; Kyle Beckrich for defendant U.S. government; J. David Park of Arnold & Porter for intervenor-defendant LG Chem)