2011-11121. Initiation of Anticircumvention Inquiry on Antidumping Duty Order on Ferrovanadium and Nitrided Vanadium From the Russian Federation

AGENCY:

Import Administration, International Trade Administration, Department of Commerce.

SUMMARY:

In response to a request from AMG Vanadium, Inc. (AMG Vanadium), the Department of Commerce (the Department) is initiating an anticircumvention inquiry to determine whether imports of vanadium pentoxide from the Russian Federation (Russia) that is converted into ferrovanadium in the United States are circumventing the antidumping duty order on ferrovanadium and nitrided vanadium (ferrovanadium) from Russia. See Notice of Antidumping Order: Ferrovanadium and Nitrided Vanadium From the Russian Federation, 60 FR 35550 (July 10, 1995).

DATES:

Effective Date: May 6, 2011.

FOR FURTHER INFORMATION CONTACT:

David Goldberger or Rebecca Trainor, AD/CVD Operations, Office 2, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230; telephone: [phone] or [phone], respectively.

SUPPLEMENTARY INFORMATION:

Background

On February 25, 2011, AMG Vanadium submitted a request that the Department initiate an anticircumvention inquiry (AMG Request), pursuant to section 781(a) of the Tariff Act of 1930, as amended (the Act), and 19 CFR 351.225(c) and (g), to determine whether imports of vanadium pentoxide from Russia that is processed into ferrovanadium in the United States are circumventing the antidumping duty order on ferrovanadium from Russia. Specifically, AMG Vanadium alleges that the Evraz Group ^[1] is importing vanadium pentoxide, an intermediate product used in the production of ferrovanadium, from its Russian affiliate OAO Vanady-Tula. The imported vanadium pentoxide is then toll-converted into ferrovanadium in the United States by an unaffiliated processor (which never takes title), prior to sale in the United States. AMG Vanadium alleges that this trade pattern is circumventing the antidumping duty order within the meaning of section 781(a) of the Act.

AMG Vanadium further claims that: (1) The ferrovanadium sold in the United States is of the same class or kind of merchandise as the ferrovanadium that is subject to the order; (2) the ferrovanadium is completed or assembled in the United States from parts or components produced in Russia; (3) the process of converting vanadium pentoxide to ferrovanadium in the United States is minor or insignificant; and (4) the value of the Russian vanadium pentoxide constitutes a significant portion of the value of the finished ferrovanadium sold in the United States. Accordingly, AMG Vanadium requests that the Department include within the scope of the ferrovanadium order vanadium pentoxide manufactured in Russia, regardless of form, that is produced, exported, or imported by the Evraz Group or any of its affiliates.

In response to the Department's March 9, 2011, request, on March 16, 2011, AMG Vanadium provided additional information pertinent to its anticircumvention inquiry request (March 16 Submission).

On March 25, 2011, the Evraz Group filed comments opposing AMG Vanadium's circumvention allegation on the grounds that the Department is legally precluded from including vanadium pentoxide in the scope of the order. The Evraz Group included in its submission calculations performed using a cost-based methodology, as an alternative to the value-based methodology used by AMG Vanadium, arguing that AMG Vandium's approach leads to misleading results. Between April 1 and 22, 2011, AMG Vanadium and the Evraz Group submitted additional comments with respect to whether the Department should initiate this anticircumvention inquiry. The Department met with representatives of AMG Vanadium and the Evraz Group on March 3, and April 5, 2011, respectively, to discuss the request.

Scope of the Order

The products covered by the antidumping duty order are ferrovanadium and nitrided vanadium, regardless of grade, chemistry, form or size, unless expressly excluded from the scope of this order. Ferrovanadium includes alloys containing ferrovanadium as the predominant element by weight (i.e., more weight than any other element, except iron in some instances) and at least 4 percent by weight of iron. Nitrided vanadium includes compounds containing vanadium as the predominant element, by weight, and at least 5 percent, by weight, of nitrogen. Excluded from the scope of the order are vanadium additives other than ferrovanadium and nitrided vanadium, such as vanadium-aluminum master alloys, vanadium chemicals, vanadium waste and scrap, vanadium-bearing raw materials, such as slag, boiler residues, fly ash, and vanadium oxides.

The products subject to this order are currently classifiable under subheadings 2850.00.20, 7202.92.00, 7202.99.50.40, 8112.40.30.00, and 8112.40.60.00 of the Harmonized Tariff Schedule of the United States (HTSUS). Although the HTSUS subheadings are provided for convenience and customs purposes, our written description of the scope is dispositive.

Scope of the Anticircumvention Inquiry

The product subject to this anticircumvention inquiry is vanadium pentoxide (V₂ O₅) from Russia, which is usually in a granular form and may contain other substances, including silica (SiO₂), manganese, and sulfur, and which is converted into ferrovanadium in the United States. Such merchandise is classifiable under subheading 2825.30.0010 of the HTSUS.

As noted above, interested parties have filed comments concerning the initiation of this anticircumvention inquiry. Although vanadium pentoxide is excluded from the scope of the order, AMG Vanadium argues that the Department's regulations and legal precedent allow for the Department to consider expressly-excluded merchandise in an anticircumvention proceeding. AMG Vanadium cites Steel Wire Rope from Mexico; Affirmative Final Determination of Circumvention of Antidumping Duty Order, 60 FR 10831 (February 28, 1995) and several cases decided by the Court of Appeals for the Federal Circuit (the Court),^[2] in support of its contention that anticircumvention determinations are distinguished from conventional scope determinations, in that the criteria the Department considers in making an anticircumvention determination do not include whether the imported merchandise was initially excluded from the scope of the order.

The Evraz Group argues that including vanadium pentoxide within the scope of the antidumping duty order would be inconsistent with the International Trade Commission's (ITC) injury investigation, and the legal precedent in Wheatland Tube Co. v. United States, 161 F.3d 1365, 1370 (Fed. Cir. 1998) (Wheatland Tube). Specifically, the Evraz Group argues that the ITC expressly excluded vanadium pentoxide from the scope of the injury investigation at the request of the domestic industry. In Wheatland Tube, the Evraz Group asserts, the Court ruled that the domestic industry cannot seek to broaden the scope after having made representations to the ITC that the product at issue was not a like product for purposes of the injury determination; and that although the Department may interpret and clarify the scope of the antidumping duty orders, it may not change or interpret them contrary to their terms.

The Department addressed this issue in the Initiation of Anticircumvention Inquiry on Antidumping and Countervailing Duty Orders on Hot-Rolled Lead and Bismuth Carbon Steel Products from the United Kingdom and Germany, 62 FR 34213 (June 25, 1997) (Lead and Bismuth). In that case, the Department concluded that the theory that parts expressly excluded from the scope of an antidumping order cannot be subject to an anticircumvention inquiry is contrary to, and would undermine, the core principles of the anticircumvention statute. Citing the legislative history, we observed that Congress intended to allow anticircumvention inquiries into parts or components that meet the criteria of section 781(a), as “{t}he underlying rationale of the anticircumvention statute is that, where the criteria of section 781(a) are met, the parts and components subject to the finding of circumvention are, in all meaningful respects, being imported as the subject merchandise, not as parts or components per se. The processing in the United States is of such a minor or insignificant nature as to be irrelevant.” ^[3] Thus, “{t}he application of the U.S. finishing or assembly provision will not require new injury findings as to each part or component. The anticircumvention provision is intended to cover efforts to circumvent an order by importing disassembled or unfinished merchandise for assembly in the United States. Hence, the ITC would generally advise as to whether the parts or components taken as a whole fall within the injury determination.” ^[4]

This is consistent with the Federal Circuit's opinions reviewing the Department's anticircumvention inquiries. Although Wheatland Tube and Nippon Steel dealt with the minor alteration provision (section 781(c) of the Act), rather than the provision for merchandise completed in the United States (section 781(a) of the Act) at issue here, the Court's analysis is instructive. In Wheatland Tube, the Court held that “the line and dual-certified pipe accused of circumventing the Standard Pipe Orders is the same pipe that the orders expressly exclude.” Wheatland Tube, 161 F. 3d at 1369. In contrast, in Nippon Steel, the Court held that “Commerce was performing a function Congress has given to it—to determine whether an antidumping duty order has been circumvented by making minor alterations in the form of the product otherwise subject to that order.” Nippon Steel, 219 F. 3d at 1354. The Court's analysis allowed that a circumvention inquiry is proper where, but for an act meant to circumvent the order, the product would be covered (contrast the carbon steel in Nippon Steel with the line pipe in Wheatland Tube). Here, the covered product is ferrovanadium and the alleged act meant to circumvent the order on ferrovanadium from Russia is further processing in the United States. For these reasons, we determine that the Evraz Group's arguments do not provide a legal basis for rejecting AMG Vanadium's application for an anticircumvention inquiry pursuant to section 781(a) of the Act.

Initiation of Anticircumvention Proceeding

Applicable Statute

Section 781(a) of the Act provides that the Department may find circumvention of an antidumping duty order when merchandise of the same class or kind subject to the order is completed or assembled in the United States. In conducting anticircumvention inquiries under section 781(a)(1) of the Act, the Department relies upon the following criteria: (A) Merchandise sold in the United States is of the same class or kind as any other merchandise that is the subject of an antidumping duty order produced in a foreign country that is subject to an antidumping duty order; (B) such merchandise sold in the United States is completed or assembled in the United States from parts or components produced in the foreign country with respect to which the antidumping duty order applies; (C) the process of assembly or completion in the United States is minor or insignificant; and (D) the value of the parts or components referred to in (B) is a significant portion of the total value of the merchandise. As discussed below, AMG Vanadium presented evidence with respect to these criteria.

A. Merchandise of the Same Class or Kind

AMG Vanadium states that the merchandise sold in the United States is ferrovanadium. As this merchandise is covered by the scope of the antidumping duty order, the merchandise is of the same class or kind as the merchandise subject to the antidumping duty order.

B. Completion of Merchandise in the United States

AMG Vanadium alleges that vanadium pentoxide produced in Russia is imported into the United States and further processed into ferrovanadium. According to AMG Vanadium, the Russian vanadium pentoxide is converted into ferrovanadium by Bear Metallurgical Company (Bear), a toll processor unaffiliated with the Evraz Group. AMG Vanadium believes that Evraz Group member, East Metals NA, retains title to the merchandise during the toll conversion. See AMG Request at pages 5-7, and March 16 Response at pages 6-10.

C. Minor or Insignificant Process

AMG Vanadium asserts that the process of converting vanadium pentoxide into ferrovanadium is a limited and minor process as compared to the production process for vanadium pentoxide. See AMG Request at pages 7-10, and Exhibits 13-15 for a detailed discussion of the two production processes.

AMG Vanadium argues that an analysis of the relevant statutory factors of section 781(a)(2) of the Act supports its conclusion that the processing in the United States is “minor or insignificant.” These factors include: (1) The level of investment in the United States; (2) the level of research and development in the United States; (3) the nature of the production process in the United States; (4) the extent of production facilities in the United States; and (5) whether the value of the processing performed in the United States represents a small proportion of the value of the merchandise sold in the United States.

AMG Vanadium argues that the processing in the United States is “minor and insignificant” as the term is defined in section 781(a)(2) of the Act when compared to the complex and capital-intensive process involved in producing vanadium pentoxide. AMG Vanadium's analysis of the statutory factors to determine whether the process is minor or insignificant in accordance with section 782(a)(2) of the Act follows below.

(1) Level of Investment

AMG Vanadium asserts that the processing of vanadium pentoxide into ferrovanadium, as discussed in the AMG Request,^[5] is neither complex nor capital-intensive and does not require extensive production facilities. Accordingly, AMG Vanadium contends that the level of investment for ferrovanadium conversion from vanadium pentoxide is low relative to the level of investment associated with vanadium pentoxide production.

(2) Level of Research and Development

AMG Vanadium states that the process for converting vanadium pentoxide into ferrovanadium as performed by the toll-processor Bear is unchanged since the initiation of the underlying antidumping duty investigation in 1994. Accordingly, AMG Vanadium believes the level of research and development in the United States for converting vanadium pentoxide into ferrovanadium is low.

(3) Nature of the Production Process in the United States

The production processes for both vanadium pentoxide and ferrovanadium are detailed in the AMG Request, as referenced above. AMG Vanadium maintains that the process of converting vanadium pentoxide into ferrovanadium is limited and minor as compared to the process of manufacturing vanadium pentoxide.

(4) Extent of Production Facilities in the United States

AMG Vanadium asserts that, consistent with its description of the production process, the conversion of vanadium pentoxide requires minimal capital equipment. At Exhibit 16 of the AMG Request, AMG Vanadium provided overhead photos comparing the extensive size of the Evraz Group's vanadium pentoxide production facility with the considerably smaller “footprint” of Bear's toll-processing facility in order to support its contention that the facilities necessary for processing vanadium pentoxide into ferrovanadium are significantly smaller than those necessary for vanadium pentoxide production.

(5) Value of Processing in the United States Compared to Value of the Merchandise Sold in the United States

To support its contention that the value of the processing performed in the United States is a small portion of the total value of the merchandise sold in the United States, AMG Vanadium calculated the difference between the value of ferrovanadium sold in the United States, and the value of the vanadium pentoxide consumed to produce the ferrovanadium. For this calculation, AMG Vanadium based the value of ferrovanadium on the monthly average of the U.S. market prices for ferrovanadium with 80 percent vanadium content, as published in the metals industry publication Ryan's Notes. Similarly, AMG Vanadium based the value of vanadium pentoxide on the monthly average of the U.S. market prices for vanadium pentoxide published in Ryan's Notes, and then calculated the total value of vanadium pentoxide required to produce one unit of ferrovanadium with 80 percent vanadium content. In its calculations, AMG Vanadium added an amount to the vanadium pentoxide price to represent the estimated cost of freight from the U.S. port to the processing facility. AMG Vanadium calculated a ratio of the differences between the two sets of prices to average ferrovanadium prices, and found that the average annual value for processing vanadium pentoxide into ferrovanadium ranged from 6.5 to approximately 7 percent of the value of finished ferrovanadium during 2009, and approximately 15 to 15.8 percent in 2010. See AMG Request at pages 12-14 and Exhibits 17 and 18, and March 16 Response at pages 13-18 and Exhibit 10.

D. Value of Merchandise Produced in the Foreign Country Is a Significant Portion of the Value of the Merchandise Sold in the United States

As stated above, AMG Vanadium contends that the value of the processing performed in the United States represents a minor portion of the value of the completed merchandise. Therefore, that analysis necessarily implies that the value of the Russian-origin vanadium pentoxide consumed to produce ferrovanadium is a significant portion of the total value of the merchandise sold in the United States. AMG Vanadium estimates the value of the Russian vanadium pentoxide consumed to produce ferrovanadium to be 84 percent or greater of the value of the ferrovanadium sold in the United States (i.e., the difference between the total value of the ferrovanadium sold in the United States and the value of the U.S. conversion described above). See AMG Request at page 14.

E. Factors To Consider in Determining Whether Action Is Necessary

Section 781(a)(3) of the Act identifies additional factors that the Department shall consider in the Department's decision to include parts or components in an antidumping duty order as part of an anticircumvention investigation. These factors are discussed below.

Pattern of Trade, Including Sourcing Patterns

AMG Vanadium explains in the AMG Request that, following the imposition of the antidumping duty order in 1995, imports of ferrovanadium from Russia ceased in total by 1997. Since 2005, however, imports of vanadium pentoxide from Russia have increased from 27 MT in 2005, to 450 MT in 2006, to 2,680 MT in 2010. At the same time, AMG Vanadium states that the average unit value of the vanadium pentoxide imports, according to U.S. import statistics, has decreased by half. AMG Vanadium concludes that this information demonstrates that the pattern of trade has shifted from imports of ferrovanadium from Russia to an increasing flow of vanadium pentoxide from Russia that is converted into ferrovanadium in the United States.

Affiliation

Under section 781(a)(3)(B) of the Act, the Department shall take into account whether the manufacturer or exporter of the parts or components is affiliated with the person who assembles or completes the merchandise sold in the United States from the parts or components produced in the foreign country when making a decision in an anticircumvention case. As described above and in the AMG Request, AMG Vanadium states that the Evraz Group, through its affiliates, produces vanadium pentoxide in Russia, ships and imports it into the United States, has it converted into ferrovanadium by an unaffiliated company while maintaining title to the product, and sells the completed ferrovanadium to customers in the United States. Accordingly, AMG Vanadium maintains that the manufacturer, exporter, and U.S. importer of the Russian vanadium pentoxide, as well as the party overseeing the conversion process and ultimate sale of the ferrovanadium, are all under the common ownership and control of a single entity, the Evraz Group.

Subsequent Import Volume

Under section 781(a)(3)(C) of the Act, the Department shall take into account whether imports into the United States of the parts or components produced in the foreign country have increased after the initiation of the investigation, which resulted in the issuance of the order, when making a decision in an anticircumvention case. As described above, AMG Vanadium reports that imports of vanadium pentoxide from Russia have risen from zero from 1995 to 2004, to approximately 2,680 MT in 2010.

Analysis

Based on our analysis of the AMG Request and the March 16 Response, the Department determines that a formal anticircumvention inquiry is warranted. In accordance with 19 CFR 351.225(e), if the Department finds that the issue of whether a product is included within the scope of an order cannot be determined based solely upon the request and the descriptions of the merchandise, the Department will notify by mail all parties on the Department's scope service list of the initiation of a scope inquiry, including an anticircumvention inquiry. In addition, in accordance with 19 CFR 351.225(f)(1), a notice of the initiation of an anticircumvention inquiry issued under 19 CFR 351.225(e) will include a description of the product that is the subject of the anticircumvention inquiry—in this case, vanadium pentoxide from Russia that is converted into ferrovanadium in the United States—and an explanation of the reasons for the Department's decision to initiate an anticircumvention inquiry, as provided below.

With regard to whether the merchandise sold in the United States is of the same class or kind as the merchandise covered by the antidumping duty order, AMG Vanadium presented information indicating that the merchandise sold in the United States, ferrovanadium, is of the same class or kind as ferrovanadium from Russia, which is subject to the antidumping duty order.

With regard to completion of merchandise in the United States, AMG Vanadium has also presented information to support its contention that ferrovanadium sold in the United States is produced from vanadium pentoxide imported into the United States from Russia which is further processed in the United States.

With regard to whether the conversion of ferrovanadium in the United States from vanadium pentoxide imported from Russia is a “minor or insignificant process,” AMG Vanadium addressed the relevant statutory factors used to determine whether the processing of vanadium pentoxide is minor or insignificant with the best information available to it at the time of its anticircumvention inquiry request. AMG Vanadium relied on publicly-available information for this purpose. As AMG noted in the March 16 Response at pages 10-12, it does not have access to the Evraz Group's cost or price data regarding vanadium pentoxide and ferrovanadium prices, and therefore relied on the Ryan's Notes price comparisons to demonstrate that, quantitatively, the value of the vanadium pentoxide conversion in the United States is minor or insignificant.

Based on our analysis of the information in AMG Vanadium's submissions, we find that AMG Vanadium provided sufficient evidence for each of the criteria enumerated in the statute to initiate an anticircumvention inquiry. As AMG Vanadium acknowledged, the price information derived from Ryan's Notes is based on price observations for domestic and imported products and, thus, is not limited to the Russian-sourced vanadium pentoxide or U.S.-converted ferrovanadium at issue. However, AMG Vanadium explained that the Ryan's Notes prices are widely used in price negotiations in the industry and fairly represent the value of ferrovanadium and vanadium pentoxide in the United States, regardless of source, and are the best information available to AMG Vanadium regarding the value of the imported input and the finished product. See March 16 Response at pages 10-15.

AMG Vanadium also acknowledged certain inconsistent fluctuations in the pricing spread between vanadium pentoxide and ferrovanadium according to the Ryan's Notes prices listed for certain months in Exhibit 18 of the AMG Request. AMG Vanadium asserted that these short-term fluctuations do not adversely affect the reliability of using the difference between the published Ryan's Notes market prices for ferrovanadium and vanadium pentoxide over a longer period of time to determine the value of the U.S. processing. We note that the inconsistent price fluctuations occurred in 2009, when vanadium pentoxide imports from Russia were much lower than during 2010 (see Exhibit 2 of the ACI Request). According to AMG Request Exhibit 18 and March 16 Response Exhibit 10, the price spread between vanadium pentoxide and ferrovanadium was more stable during 2010, and provides reasonable support for AMG Vanadium's contention that the value of processing vanadium pentoxide into ferrovanadium may be considered minor or insignificant for purposes of initiating this anticircumvention inquiry. At the same time, we acknowledge the Evraz Group's comments regarding the use of this pricing information and an alternative, cost-based comparison methodology for determining whether the value of processing vanadium pentoxide into ferrovanadium in the United States is minor or insignificant. We will consider this issue further during our anticircumvention inquiry.

With respect to the value of the merchandise produced in Russia, AMG Vanadium relied on the information and arguments in the “minor or insignificant process” portion of its anticircumvention request to indicate that the value of the Russian vanadium pentoxide is significant relative to the total value of finished ferrovanadium sold in the United States. We find that this information adequately meets the requirements of this factor, as discussed above.

Finally, AMG Vanadium argued that the Department should also consider the pattern of trade, affiliation, and subsequent import volume as factors in determining whether to initiate the anticircumvention inquiry. The import volume data submitted by AMG Vanadium indicates that vanadium pentoxide imports from Russia have increased significantly in recent years, while imports of ferrovanadium from Russia ceased within a few years after imposition of the antidumping duty order. In addition, AMG Vanadium provided information suggesting that the Evraz Group, through its various affiliates, is managing the importation of vanadium pentoxide from Russia, the processing of this vanadium pentoxide into ferrovanadium in the United States, and the sale of the ferrovanadium in the United States, which together reflect an intention to shift to the United States completion of merchandise subject to the order on ferrovanadium from Russia.

Accordingly, we are initiating an anticircumvention inquiry concerning the antidumping duty order on ferrovanadium from Russia, pursuant to section 781(a) of the Act. In accordance with 19 CFR 351.225(l)(2), if the Department issues a preliminary affirmative determination, we will then instruct U.S. Customs and Border Protection to suspend liquidation and require a cash deposit of estimated duties, at the applicable rate, for each unliquidated entry of the merchandise at issue, entered or withdrawn from warehouse for consumption on or after the date of initiation of the inquiry.

The Department is focusing its analysis of the significance of the ferrovanadium production process in the United States based on the entries of vanadium pentoxide produced in Russia by OAO Vanady-Tula that are imported by or consigned to any company in the Evraz Group, as discussed in the AMG Request and about which sufficient information to initiate an anticircumvention inquiry has been provided. If the Department receives a request from an interested party regarding potential circumvention by other companies involved in processing Russian vanadium pentoxide into ferrovanadium in the United States within sufficient time, we will consider conducting the inquiries concurrently.

The Department will, following consultation with interested parties, establish a schedule for questionnaires and comments on the issues. The Department intends to issue its final determination within 300 days of the date of publication of this initiation consistent with section 781(f) of the Act.

This notice is published in accordance with 19 CFR 351.225(f).

Dated: May 2, 2011.

Ronald K. Lorentzen,

Deputy Assistant Secretary for Import Administration.

Footnotes

1.  The Evraz Group includes OAO Vanady-Tula, East Metals S.A., and East Metals N.A.

2.  See, e.g., Nippon Steel Corp. v. United States, 219 F.3d 1348 (Fed. Cir. 2000) (Nippon Steel); and Target Corp. v. United States, 609 F.3d 1352 (July 23, 2010).

3.  See, H.R. Conf. Rep. No. 576, 100th Cong., 2d Sess. 603 (1988) and Lead and Bismuth, 62 FR 34213, 34215.

4.  Id.

5.  See AMG Request at 7-11.