Steel Wire Garment Hangers From the People's Republic of China: Initiation of Anti-Circumvention Inquiry

AGENCY:

Import Administration, International Trade Administration, Commerce.

SUMMARY:

In response to requests from the M&B Metal Products Co., Inc. (“Petitioner”), the Department of Commerce (“Department”) is initiating an anti-circumvention inquiry to determine whether certain imports of steel wire garment hangers from the Socialist Republic of Vietnam (“Vietnam”) are circumventing the antidumping duty order on steel wire garment hangers (“hangers”) from the People's Republic of China (“PRC”). See Notice of Antidumping Duty Order: Steel Wire Garment Hangers from the People's Republic of China, 73 FR 58111 (October 6, 2008) (“Hangers Order”).

DATES:

Effective Date: July 22, 2010.

FOR FURTHER INFORMATION CONTACT:

Irene Gorelik, AD/CVD Operations, Office 9, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230; telephone: (202) 482-6905.

SUPPLEMENTARY INFORMATION:

Background

On May 5, 2010, pursuant to section 781(b) of the Tariff Act of 1930, as amended (“Act”), and 19 CFR 351.225(h), Petitioner submitted requests for the Department to initiate and conduct an anti-circumvention inquiry of two Vietnamese companies to determine whether hangers composed of low-grade steel wire, which are allegedly products of the PRC exported from Vietnam, are circumventing the Hangers Order.

In its two requests, Petitioner alleges that PRC manufacturers of subject merchandise have been circumventing the Hangers Order by using two Vietnamese companies to export their hangers. Specifically, in its requests, Petitioner claims that Angang Clothes Rack Manufacture Co., Ltd. (“Angang”) is circumventing the Hangers Order with the help of its alleged affiliate, PRC-based Shaoxing Gangyuan Metal Manufactured Co., Ltd. (“Gangyuan”) and that Quyky Yanglei International Co., Ltd. (“Quyky”) is circumventing the Hangers Order with the help of its alleged affiliates, PRC-based Shanghai Ruishan Metal Products Co., Ltd. and Zhejiang Taizhou Hongda Metal Products Co., Ltd. (collectively, “Ruishan-Taizhou”). Petitioner further alleges that Gangyuan and Ruishan-Taizhou are supplying pre-formed hangers to Angang and Quyky, respectively, for completion or assembly into merchandise of the same class or kind as the merchandise covered by the Hangers Order and that this constitutes circumvention.

On May 20, 2010, the Department sent a supplemental questionnaire to Petitioner regarding the requests to initiate the anti-circumvention inquiry. On May 25, 2010, Petitioner provided a response to the Department's supplemental questionnaire. On May 25, 2010, Department met with the foreign market researcher (“FMR”) to discuss certain information contained in the anti-circumvention inquiry requests. See “Memorandum to the File through Catherine Bertrand, Program Manager, Office 9, from Irene Gorelik, Senior Analyst, Office 9; Meeting with Foreign Market Researcher,” dated June 1, 2010. Neither Quyky nor Angang submitted comments regarding Petitioner's circumvention allegations. Neither Gangyuan nor Ruishan-Taizhou submitted comments regarding Petitioner's allegations that they are involved in the circumvention of the Hangers Order.

On June 14, 2010, the Department extended the deadline to initiate an anti-circumvention inquiry by 30 days, pursuant to 19 CFR 351.302(b).

Scope of the Order

The merchandise that is subject to the order is steel wire garment hangers, fabricated from carbon steel wire, whether or not galvanized or painted, whether or not coated with latex or epoxy or similar gripping materials, and/or whether or not fashioned with paper covers or capes (with or without printing) and/or nonslip features such as saddles or tubes. These products may also be referred to by a commercial designation, such as shirt, suit, strut, caped, or latex (industrial) hangers. Specifically excluded from the scope of the order are wooden, plastic, and other garment hangers that are not made of steel wire. Also excluded from the scope of the order are chrome-plated steel wire garment hangers with a diameter of 3.4 mm or greater. The products subject to the order are currently classified under U.S. Harmonized Tariff Schedule (“HTSUS”) subheadings 7326.20.0020 and 7323.99.9060.

Although the HTSUS subheadings are provided for convenience and customs purposes, the written description of the merchandise is dispositive.

Initiation of Anti-Circumvention Proceeding

Section 781(b)(1) 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 a foreign country other than the country to which the order applies. In conducting anti-circumvention inquiries, under section 781(b)(1) of the Act, the Department will also evaluate whether: (1) The process of assembly or completion in the other foreign country is minor or insignificant; (2) the value of the merchandise produced in the foreign country to which the antidumping duty order applies is a significant portion of the total value of the merchandise exported to the United States; and (3) action is appropriate to prevent evasion of such an order or finding. As discussed below, Petitioner presented evidence with respect to these criteria.

A. Merchandise of the Same Class or Kind

Petitioner states that the Hangers Order covers hangers produced from steel wire, which are often referred to as shirt, suit, strut, and/or caped hangers, imported under HTSUS 7326.20.0020, and are commonly used in the dry cleaning industry. Petitioner argues that since the merchandise being imported into the United States from Vietnam, under HTSUS 7326.20.0020, is physically identical to subject merchandise from the PRC entering the United States, pursuant to section 781(b)(1)(A)(i) of the Act, these hangers are of the same class or kind as those subject to the Hangers Order. Petitioner provided Zepol ImportIQ reports for Angang and Quyky exports showing bills of lading for merchandise identical to that which is subject to the Hangers Order . See Petitioner's Anti-Circumvention Inquiry Request for Quyky, dated May 5, 2010, at 7 and Exhibits 2, 3, and 9 (“Quyky Request”); see also Petitioner's Anti-Circumvention Inquiry Request for Angang, dated May 5, 2010, at 7 and Exhibits 2 and 6 (“Angang Request”).

B. Completion of Merchandise in a Foreign Country

Petitioner states that the hangers subject to its anti-circumvention inquiry requests are made from semi-finished steel wire hangers produced in the PRC, then exported to and completed in Vietnam for re-export to the United States. Petitioner argues that the semi-finished hangers are imported by Vietnamese companies for end-stage processing, which consists of unskilled laborers manually affixing paper capes and paper tubes with glue to the semi-finished, PRC-produced hangers. Petitioner contends that the completed merchandise is then exported to the United States as Vietnamese-origin. Petitioner also notes that the paper capes and tubes are also likely to be PRC-origin and imported into Vietnam for the end-stage processing. Therefore, Petitioner concludes that, pursuant to section 781(b)(1)(B)(ii) of the Act, Quyky's and Angang's hangers are merchandise completed in another foreign country (Vietnam) from merchandise that is produced in a country (the PRC) already subject to an antidumping duty order which includes hangers produced from steel wire in its scope. See Quyky Request, at 7; see also Petitioner's Angang Request for, at 8.

C. Minor or Insignificant Process

Petitioner argues that for the purposes of section 781(b)(1)(C) of the Act, the process of manually affixing paper capes and tubes with glue to semi-finished hangers in Vietnam is “minor or insignificant” as defined by the Act. According to Petitioner, the addition of capes and tubes to formed shirt or strut hangers is an operation that completes the merchandise. However, Petitioner argues that the most fundamental aspect of the production process—the forming/shaping of drawn steel wire into a hanger—occurs in the PRC with heavy and complex machinery. Citing to the factor of production consumption ratios reported by Gangyuan, one of the individually investigated PRC exporters in the underlying less-than-fair-value (“LTFV”) investigation, Petitioner contends that the steel input used in producing the hangers themselves is “by far the most significant in terms of consumption * * * ” and that, “ * * * there can be no question that the production process utilized to form the hangers accounts for the vast majority of the total value of the final product.” See Quyky Request at 10; see also Angang Request, at Exhibit 5.

Petitioner further states that only manual, unskilled labor is required to affix paper capes, tubes and struts to already formed hangers, without the need for equipment or machinery. Petitioner cites to the International Trade Commission's (“ITC”) final report, where the ITC stated that “operations such as the addition of capes and struts and painting the wire are executed by machine in the United States while they may be performed manually in China.” See Steel Wire Garment Hangers from China, Investigation No. 731-TA-1123 (Final), USITC Pub. 4034 (September 2008), at I-9 (“ITC Report”). Based on information obtained by Petitioner, paper capes, tubes, and struts are manually affixed to formed hangers in Vietnam. See Quyky Request at 10 and Exhibit 5; see also Angang Request at 11 and Exhibit 3. Petitioner argues that data and statements from the LTFV and ITC investigations support its statements that Vietnamese operations involving the attachment of paper capes, tubes, and struts with glue are “minor or insignificant” processes.

Petitioner argues that an analysis of the relevant statutory factors of section 781(b)(2) of the Act further supports its conclusion that the Vietnamese processing is “minor or insignificant.” These factors include: (1) Level of investment in the foreign country; (2) level of research and development in the foreign country; (3) nature of the production process in the foreign country; (4) extent of production facilities in the foreign country; and (5) whether the value of the processing in the foreign country represents a small proportion of the value of the merchandise imported into the United States. Petitioner's analysis of these factors, including citations as appropriate, is as follows.

(1) Level of Investment

Petitioner claims that information procured from Angang (and alleged PRC affiliate, Gangyuan) indicates that little investment has been or is being made in Vietnam. Further, Petitioner also claims that information procured from Quyky (and alleged PRC affiliates, Ruishan-Taizhou) indicates that little investment has been, or is being, made in Vietnam. Petitioner argues that the business model described by Angang and Quyky indicates that they only serve as hanger completion operations, are export platforms for hangers, and are not integrated production operations. Petitioner further contends that the extent of any investment in Vietnam would be the materials required to complete the hangers before exportation to the United States, such as table and chairs for the workers, glue to affix the paper capes, tubes, and struts, and packing materials. Petitioner cites to the FMR's report for detailed descriptions of the low level of investment at Angang and Quyky. Because the FMR's report is business proprietary information, its specific content cannot be discussed here. See Quyky Request at Exhibit 5; see also Angang Request at Exhibit 3.

(2) Level of Research and Development

Petitioner states that, similar to the level of investment, because Angang's and Quyky's operations involve manual labor and required little or no machinery or equipment, no research and development are required to set up and operate a company to assemble or complete hangers in Vietnam from Chinese components. See Quyky Request at 10 and Exhibit 5; see also Angang Request at 11 and Exhibit 3.

(3) Nature of the Production Process

Petitioner argues that the nature of the production process for hangers completed or assembled by Quyky and Angang is based on unskilled manual labor with little machinery or equipment required. Petitioner states that paper capes, tubes, and struts are manually attached with glue to pre-formed hangers that had been imported from partner producers in the PRC. Petitioner notes that once the paper capes and tubes have been affixed to the pre-formed hangers, the completed hangers are packaged into cartons for export to the United States. See Quyky Request at 10 and Exhibit 5; see also Angang Request at 11 and Exhibit 3. Petitioner adds that the most significant operation in the manufacture of hangers is not the addition of paper capes and tubes but rather the steel wire rod drawing process and hanger forming process. See, e.g., Angang Request at footnote 23.

(4) Extent of Production in Vietnam

As stated above, Petitioner contends that the extent of production in Vietnam is the simple addition of paper capes and tubes to pre-formed, PRC-produced hangers that were imported by Quyky and Angang. Petitioner states that this process requires nothing more than tables and chairs for the unskilled laborers, glue, and packing materials for exportation.

(5) Value of Vietnam Processing Compared to Hangers Imported Into the United States

Petitioner argues that the Vietnamese assembly of pre-formed hangers adds little value to the final product exported to the United States. Petitioner argues that the value of the final product is, most significantly, the steel input. Petitioner cites to Gangyuan's responses in the underlying investigation, where it stated that “wire rod is the most significant input in the production of wire hangers.” See Angang's Request at 10-11 and footnote 23. Petitioner further cites to Gangyuan's material input consumption figures for the production of subject merchandise, noting that the steel input used to produce subject merchandise was, by far, the most significant input in the production process. Id., at 12. Petitioner further argues that even the paper inputs, such as capes, tubes, and struts used by Angang and Quyky in Vietnam are also supplied by the PRC, thus, the value of the manufacture of the pre-formed hangers and the paper attachments originate in the PRC. As stated above, Petitioner argues that the completion activities in Vietnam add very little to the hangers that are exported to the United States because the steel hanger was drawn from wire rod and formed in the PRC.

D. Value of Merchandise Produced in PRC

Petitioner argues that the evidence, as noted supra, in its anti-circumvention requests clearly supports its position that the value of the pre-formed hangers produced in the PRC, and then sent to Angang and Quyky, represents a significant portion of the total value of the merchandise exported to the United States, as measured by the consumption figures reported by Gangyuan in the underlying investigation and included with Petitioner's anti-circumvention inquiry requests.

E. Factors To Consider in Determining Whether Action Is Necessary

Petitioner argues that the additional factors contained in section 781(b)(3) of the Act must also be considered in the Department's decision whether to issue a finding of circumvention regarding Vietnamese importation of semi-finished hangers.

Pattern of Trade

Petitioner states that section 781(b)(3) of the Act directs the Department to take into account patterns of trade when making a decision whether to include merchandise assembled or completed in Vietnam within the scope of the Hangers Order. Petitioner argues that in July 2007, when Petitioner filed its antidumping petition, Vietnam was not a source of any exports of hangers to the United States. Petitioner bases these claims on an analysis of publicly available information from the ITC's Dataweb of U.S. import data. See Quyky Request at 13 and Exhibit 9; see also Angang Request at 14 and Exhibit 6. Petitioner claims that, upon the publication of the preliminary determination in the underlying investigation, Vietnamese exports of hangers to the United States increased dramatically. See Quyky Request at Exhibit 10; see also Angang Request at Exhibit 7. Based on shipment data obtained from Zepol ImportIQ, a database of manifest data similar to PIERS, Petitioner contends that two months after the Hangers Order was issued (October 2008), Angang began to export hangers to the United States. See Angang Request at 14 and Exhibit 2. Further, based on Zepol ImportIQ, Petitioner contends that, in September 2008, one month before the Hangers Order was issued, Quyky began to ship hangers to the United States from Vietnam. See Quyky Request at Exhibit 2 and 3. Petitioner notes that, based on information provided by the FMR, Quyky has been shipping 25 containers per month to the United States from Vietnam, whereas, the Zepol ImportIQ data has only accounted for up to nine containers shipped monthly, suggesting that the Zepol ImportIQ data has been understated. Id. at 13. Petitioner argues that these patterns of trade are consistent with an assembly operation in Vietnam established by PRC producers who are no longer able to supply hangers directly to the United States due to the antidumping duty order in place.

Affiliation

Petitioner states that section 781(b)(3) of the Act directs the Department to take into account whether the manufacturer or exporter of the merchandise is affiliated with the person who uses the merchandise to assemble or complete in the foreign country the merchandise that is subsequently imported into the United States when making decisions on anti-circumvention rulings. With respect to Quyky, Petitioner argues that Quyky has acknowledged that it has a “partner” factory in the PRC, namely Ruishan. Petitioner also notes that, based on publicly available information Ruishan is affiliated with another PRC producer of hangers, Taizhou. See Quyky Request at 14 and Exhibit 1. Petitioner contends that, based on proprietary information, Quyky has admitted that it imports its hanger components from the PRC, and, through minor assembly operations in Vietnam, Quyky and Ruishan-Taizhou are actively circumventing the Hangers Order. According to Petitioner, the acknowledgement of affiliation and the timing of the exports from Vietnam to the United States support a conclusion that Quyky's assembly of PRC-produced hanger components in Vietnam is circumventing the antidumping duty order.

With respect to Angang, Petitioner argues that Angang admits it receives all of its hanger component parts from the PRC and that Angang and Gangyuan are affiliated. See Angang Request at 9 and 15. Petitioner argues that the combined affiliation with Gangyuan, who as a PRC exporter is subject to the Hangers Order, and the timing of Angang's initial shipments to the United States suggests a clear intention to shift completion of merchandise subject to the Hangers Order from the PRC to Vietnam.

Subsequent Import Volume

Petitioner states that section 781(b)(3) of the Act directs the Department to take into account whether imports into the foreign country of the merchandise have increased after the initiation of the investigation which resulted in the issuance of such an order or finding when making a decision on anti-circumvention rulings. Petitioner claims it cannot access data concerning trade flows of hangers or hanger components between the PRC and Vietnam because the HTSUS classification for subject merchandise or the components of hangers are contained within larger basket categories that cannot track the trade of the subject merchandise, or components of the subject merchandise, to the degree achieved for imports into the United States. However, Petitioner notes that, while import data of the hangers HTSUS classification between the PRC and Vietnam does not exist, U.S. import data does show that Vietnam was not a source of hangers to the United States until six months after the petition for investigation was filed. See Angang Request at 16 and Exhibit 6. Petitioner also argues that Angang's initial shipments starting in late 2008 support the conclusion that Vietnam had not, until recently, been a source of hanger shipments to the United States. Id. at 2.

Analysis

Based on our analysis of Petitioner's anti-circumvention inquiry requests and our May 25, 2010, meeting with the FMR, the Department determines that Petitioner has satisfied the criteria under section 781(b)(2) of the Act to warrant an initiation of a formal anti-circumvention inquiry. 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 application 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 anti-circumvention inquiry. In addition, in accordance with 19 CFR 351.225(f)(1)(ii), a notice of the initiation of an anti-circumvention inquiry issued under paragraph (e) of this section will include a description of the product that is the subject of the anti-circumvention inquiry—hangers manufactured from steel that contain the characteristics as provided in the scope of the Hangers Order, and an explanation of the reasons for the Department's decision to initiate an anti-circumvention inquiry, as provided below.

With regard to whether the merchandise from Vietnam is of the same class or kind as the merchandise produced in the PRC, Petitioner has presented information to the Department indicating that, pursuant to sections 781(b)(1)(A), the merchandise being exported from Vietnam by Angang and Quyky may be of the same class or kind as hangers produced in the PRC and which are subject to the Hangers Order. Consequently, the Department finds that Petitioner provided sufficient information in its requests regarding the class or kind of merchandise to warrant initiation of an anti-circumvention inquiry.

With regard to completion or assembly of merchandise in a foreign country, pursuant to section 781(b)(1)(B), Petitioner has also presented information to the Department indicating that the hangers exported from Vietnam to the United States are being processed by Angang and Quyky in Vietnam from pre-formed hangers and paper components allegedly provided by these companies' suppliers in the PRC. We find that the information presented by Petitioner regarding this criterion supports its requests to initiate an anti-circumvention inquiry.

The Department believes that Petitioner sufficiently addressed the factors described by section 781(b)(2) of the Act regarding whether the processing of pre-formed hangers in Vietnam is minor or insignificant. Specifically, in support of its argument, Petitioner relied on information from the LTFV investigation, the ITC report, and information in the FMR's report. Thus, we find that the information presented by Petitioner supports its requests to initiate an anti-circumvention inquiry. In particular, we find that Petitioner's submissions suggest that: (1) Little investment has been made by either Angang or Quyky company in their respective production of hangers in Vietnam; (2) Angang's and Quyky's Chinese affiliates have fully integrated production facilities in the PRC and, therefore, that research and development presumably takes place in the PRC rather than Vietnam; (3) the gluing of capes to shirt hangers or attaching tubes to strut hangers in Vietnam does not alter the fundamental characteristics of the hanger, nor whether it is subject to the scope of the Hangers Order; (4) Angang's and Quyky's facilities have a lower investment level by those companies than that required by the typical capital-intensive nature of the wire-drawing and hanger-forming processes; and (5) assembling paper components to pre-formed hangers adds little value to the merchandise imported to the United States. Our analysis will focus on Angang's and Quyky's assembly operations in Vietnam and, in the context of this proceeding, we will closely examine the manner in which these companies' processing materials are obtained, whether those materials are considered subject to the scope of the Hangers Order, and the extent of processing in Vietnam, as well as the manner in which production and sales relationships are conducted with the alleged PRC affiliates.

With respect to the value of the merchandise produced in the PRC, pursuant to section 781(b)(1)(D) of the Act, Petitioner relied on its information and arguments in the “minor or insignificant process” portion of its anti-circumvention requests to indicate that the value of the steel wire may be significant relative to the total value of a finished hanger with paper accoutrements exported to the United States. We find that the information adequately meets the requirements of this factor, as discussed above, for the purposes of initiating an anti-circumvention inquiry.

Finally, Petitioner argues that, pursuant to section 781(b)(3) of the Act, the Department should also consider the pattern of trade, affiliation, and subsequent import volumes as factors in determining whether to initiate the anti-circumvention inquiry. The U.S. import data submitted by Petitioner suggests that imports of steel wire garment hangers from Vietnam have been rising significantly since the issuance of the Hangers Order in 2008, whereas in years prior to 2008, there were no such imports from Vietnam into the United States.

Accordingly, based on Petitioner's submissions, we have determined that we have a sufficient basis to initiate a formal anti-circumvention inquiry concerning the Hangers Order, pursuant to section 781(b) 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 on the merchandise.

These anti-circumvention inquiries cover Angang and Quyky only. If, within sufficient time, the Department receives a formal request from an interested party regarding potential circumvention of the Hangers Order by other Vietnamese companies, we will consider conducting additional 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. This notice is published in accordance with section 777(i)(1) of the Act.