False advertising is distinct from violation of antidumping rules; FTC/AGs needed

Dalian Meisen Woodworking Co v. United States, 2021 WL 5371406, No. 20-00109 (Ct. Int’l Trade Nov. 18, 2021)

I can’t improve upon the court’s excellent summary and won’t try, instead joining in the call for FTC/AGs etc. to take note:

Commerce’s investigation revealed that a Chinese producer markets and sells its wooden cabinets in the United States as maple even though they are made of birch, a less costly grade of wood. To borrow a metaphor that could have been written for this case, the producer’s advertising in the United States is a “complete fraud from bark to core.”

Less than amused, the Department [imposed] the steepest possible antidumping duties because a producer has not been forthcoming in an investigation. Here, however, the producer did exactly what it was supposed to do: truthfully respond to Commerce’s questions and otherwise fully cooperate. That the producer defrauded consumers is of no moment for antidumping purposes, as the Department lacks jurisdiction to police false advertising violations.

The court accordingly remands so that Commerce can rethink this one. In the meantime, the Federal Trade Commission, state Attorneys General, and the plaintiffs’ class action bar may wish to take a close look at the producer’s swindling of its U.S. customers.

The Tariff Act of 1930, as amended, targets the sale of imported merchandise in the United States at “less than its fair value.” Where applicable, antidumping duties are “in an amount equal to the amount by which the normal value exceeds the export price (or the constructed export price) for the merchandise.” “Normal value” is generally “the price a producer charges in its home market.” Normal control prices are assigned based on physical characteristics of products.

The American Kitchen Cabinet Alliance petitioned Commerce, alleging that Chinese producers were dumping wooden cabinets and vanities in the U.S. market to the detriment of domestic industry. The three largest Chinese producers/exporters of wooden cabinets and vanities were mandatory respondents, including plaintiff Dalian Meisen, and had to provide its US sales database with prices. It did so, coding its sales as “birch.”  But most, if not all, of its promotional, advertising, and sales materials characterized its products as manufactured with maple, a higher-grade and more expensive wood than birch.

Commerce concluded that, through false advertising, the company created the “potential of masking dumped sales” by obscuring “the degree to which Meisen may be selling at [less-than-fair value].”

Commerce also found that Meisen’s failure to affirmatively flag its false advertising for the Department’s attention reflected a failure to cooperate, justifying an adverse inference under the antidumping rules.

Unfortunately for Commerce, that reasoning didn’t work, because Meisen lied to its customers but not to Commerce, with which it cooperated by disclosing both the truth and the existence of the false advertising. Meisen’s alleged concealment was its attempt to justify the false advertising as reflecting the “look” of the cabinets and not their material. “[T]he Department lacks any authority to investigate why antidumping respondents engage in false advertising, just as it lacks the authority to ask respondents why they violate environmental or antitrust laws, or why their executives are disreputable people.”

It’s not that the Commerce couldn’t make sense of Meisen’s information because of the discrepancy between what the company told the Department and what it told its customers. To the contrary, after reviewing the company’s post-preliminary questionnaire responses, the Department fully understood the implications of the discrepancy, and was (understandably) appalled.

But when a respondent fully and truthfully complies with Commerce’s information requests on subjects that the Department is allowed to investigate under the Tariff Act—and here no party seriously disputes that Meisen truthfully complied and that its responses were not materially misleading—as a matter of law a respondent does not “significantly impede[ ] a proceeding under this subtitle.”

Although the false advertising might have allowed Meisen to charge a higher price, “a respondent’s otherwise illegal manipulation of the U.S. sales price of its products is statutorily irrelevant for antidumping purposes.”