CIT Says Commerce Properly Included Steel Branch Outlets in Pipe Fittings AD Order

In October 2020, CIT issued an opinion striking down a then-2-year-old scope finding that Vandewater's steel branch outlets used in fire protection systems are subject to the antidumping duties on carbon steel butt-weld pipe fittings from China (see 2010190031). The court found that Commerce failed to adequately explain itself, relying mostly on a previous scope ruling that doesn't fully address the issue. Upon reconsideration, Commerce continued to find that Vandewater's steel branch outlets fall within the scope of the AD order. The agency held that the physical characteristics of the steel branch outlets are similar to the characteristics of the butt-weld pipe fittings (see 2107260042).

Gordon, in the court's second opinion, then looked at Commerce's determinations as to all five of the (k)(2) factors: the product's physical characteristics, the ultimate purchasers' expectations, the ultimate use of the good, trade channels in which the product is sold, and the manner in which the product is advertised and displayed. Looking at all five, Gordon found that Commerce reasonably made its findings for each, ultimately including the outlets in the AD order on the pipe fittings.

The judge first turned to the question of each good's physical characteristics, backing Commerce's ruling that steel branch outlets have physical characteristics that are similar to the pipe fittings. Since "they are formed or forged, made of carbon steel, have a diameter of less than 14 inches, and are designed to have at least one end with a beveled edge for permanent attachment to a pipe or fitting," the physical characteristics are similar.

When reviewing this criteria, Gordon looked at six different elements of the products' physical characteristics: end-to-end connection, forged steel fittings, product comparisons, the Walter Sperko report, industry standards and Harmonized Tariff Schedule subheading. Looking to end-to-end connection, the plaintiffs argued that Commerce ignored evidence that a pipe fittings is meant to be an end-to-end connection and that the agency used the wrong definition of "butt-weld." Commerce, though, said that the contoured edge that connects Vandewater's outlets to the midsection of the header or run pipe is not a physical characteristic that distinguishes outlet from pipe fittings subject to the order such as saddles. Gordon said he could not agree with the plaintiffs, given the record.

Next considering forged steel fittings, the plaintiffs argued that Commerce's finding that a pipe fitting need not have an end-to-end connection is unreasonable in light of a prior determination that butt-weld fittings can only have butt-welded end connections. Gordon said the plaintiffs' argument falls short since the scope exclusion guidelines Commerce found in the prior investigation do not neatly correspond to the scope of products covered under the China pipe fittings order.

Gordon said that much of the disagreement over physical characteristics runs from Commerce's comparison of the subject outlets to other goods described in the record that appear to be covered as pipe fittings by the order, including caps, lap joint stub ends and saddles. Vandewater argued that saddles are not a type of pipe fittings, focusing on the function of saddles from other pipe fittings. Gordon said that in making this claim, the plaintiff "fails to engage with evidence on the record plainly supporting Commerce's finding that saddles are a type of" pipe fitting.

During the investigation, Vandewater submitted a report from Walter Sperko, president of Sperko Engineering Services and expert witness, showing that the outlets are not subject pipe fittings. Gordon said that the plaintiffs do not address other evidence on the record and that they gave no explanation as to why or how the Federal Rules of Evidence apply to the agency's administrative decisions in deciding what weight to give to each piece of evidence.

The next factor, industry standards, presented a "close question," for the court since what the plaintiffs offered -- the argument that outlets meet a different industry standard than the governing standard for butt-weld pipe fittings -- stood as a reasonable claim. The issue was that the plaintiffs must show that their preferred outcome was the "one and only reasonable" conclusion the agency could reach considering the whole record. "This Plaintiffs did not do," Gordon said. The judge lastly addressed the fact that outlets and pipe fittings have different HTS subheadings. Commerce said it considered the relevance of this fact but ultimately found that the distinction was "insufficient" in light of the whole record. Gordon found this reasonable.

Gordon then made light work of the remaining four factors, again falling on the side of the government. As for the expectations of the ultimate purchasers, the judge found Commerce's position that the buyer for each good had a similar expectation: that they are designed to be used in fire protection sprinkler systems. This conclusion fed into Gordon's ruling on Commerce's decision over the ultimate use of each product. The plaintiffs argued that their outlets may have specific uses within automatic fire sprinkler systems, though Gordon said this does not undermine Commerce's position that the ultimate use of the pipe fittings and the outlets are similar given that they're used in automatic fire sprinkler systems.

The judge held that Commerce's position was reasonable over the similarity of the channels of trade of the two goods and that the manner in which the goods are advertised is similar. On the latter point, the plaintiffs argued that Commerce's analysis ignored the critical significance of industry standards in advertising the products. The judge again found that this argument ignored contrary evidence.

Given Commerce's new analysis, a dispute arose over whether Commerce needed to revise its instructions to CBP over the suspension of liquidation and cash deposits. Smith-Cooper International kept the issue alive, arguing that the issue is not moot since some of its entries had both subject merchandise and non-subject merchandise and that these entries may "inappropriately" be subject to more duties. SCI raised the arguments for the first time in response to Vandewater's consent motion to amend the statutory injunction. As such, Gordon said the arguments were not properly before the court, dismissing them.

(Vandewater International v. United States, Slip Op. 22-104, CIT #18-00199, dated 09/08/22, Judge Leo Gordon. Attorneys: Richard Ferrin of Faegre Drinker for plaintiff Vandewater; Lucius Lau of White & Case for plaintiff-intervenor SIGMA Corporation; Gregory McCue of Steptoe & Johnson for plaintiff-intervenor SCI; Joshua Kurland for defendant U.S. government; Matthew McConkey of Mayer Brown for defendant-intervenor Island Industries)