PUBLIC VERSION. MULTILAYERED WOOD FLOORING FROM CHINA Investigation Nos. 701-TA-4 76 and 731-T A-1179 (First Review)

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1 PUBLIC VERSION MULTILAYERED WOOD FLOORING FROM CHINA Investigation Nos. 701-TA-4 76 and 731-T A-1179 (First Review) Lumber Liquidators Services, LLC ("Lumber Liquidators") submits this pre-hearing brief in the above referenced proceeding. Lumber Liquidators is a U.S. importer of subject multilayered wood flooring ("ML WF") from China and submits that ML WF imports from China do not now injure, nor do they threaten to injury the U.S. industry for the reasons stated below, and that revocation of the antidumping ("AD") and countervailing duty ("CVD") orders on ML WF from China would not be likely to lead to a continuation or recurrence of such injury. I. THE CONDITIONS OF COMPETITION DEMONSTRATE THE NON INJURIOUS NATURE OF THE ACCUSED IMPORTS. A. Importers Diversified Their Flooring Products In Response To Factors Other Than Subject Imports - i.e., Changing Consumer Tastes and Quality of Alternative Options A key condition of competition is that U.S importers that sell subject ML WF responded to changes in the market for reasons other than any alleged dumping or unfair subsidization of imports from China. As indicated in its questionnaire responses to the International Trade Commission ("ITC" or "Commission") in this proceeding, Lumber Liquidators specifically has sought to expand and diversify its sourcing from suppliers in Europe and South America. The Assortment Strategy document provided as an attachment to its Importers Questionnaire response, demonstrates that Lumber Liquidators' goal has been to [

2 ] 1 These are the products which are leading the market more so than ML WF. The technology behind products like vinyl/evp and laminate has improved significantly since the issuance of the orders, making them more economical for the consumer and virtually indistinguishable from ML WF. Changing consumer needs have also led to other emerging categories such as engineered vinyl plank and wood look tile that do not contain wood based components. As indicated in Lumber Liquidators' Importers Questionnaire response, over the last three years the industry has also witnessed increased growth in bamboo multilayered flooring (which is exempt from AD/CVD Orders). This product offers a new format which is increasing in popularity. Moreover, during the past year the industry has seen increased growth in the multilayered vinyl flooring. Both of these new products are replacing and taking share from ML WF and Lumber Liquidators expects this trend to continue in the near future (1-5 years). In addition, advances in manufacturing processes within the ceramic and porcelain tile industry have also provided attractive alternatives to multilayered flooring with more popular wood look textures provided in wood plank format at a comparable price. This trend too is expected to continue. Also, an increasing number of producers are now making wood flooring with just one layer of ply of wood veneer in combination with a core. The Department of Commerce has confirmed in multiple scope rulings that these two ply products are excluded from the AD/CVD orders. This product has been referred to as a "hybrid" product and closely resembles solid wood flooring. (The scope of the AD/CVD orders covers an assembly of two or more layers of plies of wood veneer(s) in combination with a core). This provides the consumer with another flooring alternative to MLWF. Furthermore, as the consumer has become informed in the 1 See Lumber Liquidators' Importers Questionnaire, at AttachmentE. 2

3 flooring categories, unique or exotic species specific to certain regions that are not available in the United States have become more desirable. The Commission's data gathered in this proceeding also confirms that imports of subject MLWF have declined considerably since 2010, with the importers' share dropping from 40.8% to 28.6% in the span of the last six years. 2 Due to advancing market conditions, the AD/CVD orders have been overcome by industry trends and have not led to additional domestic investment in the flooring market. B. Health of the U.S. ML WF Industry Is Improving The questionnaire data that is on the record shows a domestic industry characterized by improving profitability since Production has nearly doubled and capacity utilization has increased from 59.4 percent to 67.4 percent. 3 Wages paid have also nearly doubled. 4 Industry reports are consistent with the Commission's findings. The latest flooring market study published by U.S. FLOOReport indicates that [ ] These are favorable indicators for Petitioners who, as explained below, are heavily focused on the home builder market and demonstrate that the domestic flooring industry's condition has steadily improved since the housing crisis of See Multilayered Woof Flooring From China, Prehearing Report (Public Version), Inv. Nos. 701-TA-476 and 731-TA (Review), (Sep. 22, 2017), (hereinafter "Prehearing Report") at U.S. FLOOReport-2018, at I-41 (included as Attachment A in Lumber Liquidators' Importers Questionnaire) (hereinafter "U.S. FLOOReport"). 3

4 C. Importers Such as Lumber Liquidators Serve an Important Niche of the Market Which Petitioners Do Not Supply It is important to note that since the AD/CVD orders were issued, Lumber Liquidators and home centers have continued to service a specific segment of the domestic flooring market which has traditionally not been supplied by the petitioning industry. There are two distinct market segments for ML WF in the United States: wood flooring used in new home construction, i.e., the builder market, and flooring used in existing homes, i.e., the remodeling and replacement market which focuses largely on the do-it-yourself ("DIY") consumers. This is explained in the flooring market study published by U.S. FLOOReport: [ Domestic producers of ML WF dominate the builder market, while the remodeling market includes stores like Lumber Liquidators and mass merchandisers/home centers which source 6 U.S. FLOOReport-2018, at V-15. 4

5 imported ML WF. As discussed below, this different market focus greatly attenuates the competition between U.S. flooring and imported products. In addition, different demand trends in the two segments have important ramifications on the performance of domestic producers. The record does not indicate any imminent change in these patterns. There are several key distinctions between the builder and remodeling segments of the wood flooring industry. The builder segment is concentrated primarily on new home and nonresidential construction. Builders typically work around 8-10 month order schedules. When a builder orders finish materials, such as hardwood flooring, carpeting and tile for a new house or building, it is usually done off of a specific product specification from the client or architect, and often it needs to be single sourced - from one distributor, or directly from the manufacturer that can meet the builder's multiple flooring needs, including tile, carpet and MLWF. Major builders look to large flooring manufacturers which contract on a national level to provide all their flooring needs. Builders also look to domestic producers' ability to provide just-in-time inventory. In cases such as Coated Free Sheet_and Citric Acid, the Commission has found no injury by reason of imports in part due to the fact that there is attenuated competition because imports and domestic products compete largely in different segments of the market. 7 In the current case, imports are sold almost exclusively into the remodeling market, while domestic products clearly dominate the builder market. In addition, within the remodeling market, in which sales are made to and by retailers, an increasing percentage of sales are made by home center stores such as Home Depot and Lowe's. 7 See, e.g., Coated Free Sheet Paper from China, Indonesia, and Korea, Inv. Nos. 701-TA and 731-TA (Final), USITC Pub at 12-13, December 2007, where the Commission found limited competition because impotis and domestic products are sold largely in different forms and did not compete significantly in the Western region of the United States. 5

6 Despite the rapid growth of sales through the home centers and large chains such as Lumber Liquidators, some domestic producers as part of their distribution strategies, have explicitly rejected selling through these leading retail channels. Thus, there is little direct competition between domestic and imported ML WF in the home centers and mass merchandise stores, and imports are not causing injury to domestic producers. The reality of the industry is that Petitioners are heavily dependent on the builder segment of the market, in which they face almost no competition from imports. They also have been intentionally or logistically unable to embrace the segment which has gained the greatest market share, namely remodeling sales to mass merchandisers and home centers. Indeed, imports are largely confined to the remodeling segment of the U.S. market, a segment which continues to grow. Accordingly, there is little or no competitive overlap between U.S. producers and foreign suppliers of ML WF, particularly in the builder segment. Injury, if any, was caused by a dramatic slowing in demand for home and commercial construction associated with the 2008 financial crisis and the worst economic recession which the United States has experienced in decades. In contrast to the domestic industry, whose performance is largely tied to new residential construction, retailers like Lumber Liquidators and the home centers have significantly less exposure to this market segment because their core market is the remodeling and replacement market. The Commission must consider that Petitioners are the dominant suppliers of ML WF to the U.S. home builder market, and the Commission's analysis, therefore, should focus on the effect of the housing construction's recovery on Petitioners' sales of ML WF during the period of review. 6

7 D. Consistently Low AD and CVD Margins Support Revocation of the Orders Section 751(c) of the Tariff Act Tariff Act of 1930 (19 U.S.C. 1675(c) ("Act") requires the Department of Commerce and the Commission to conduct a review no later than five years after the issuance of an antidumping or countervailing duty order or the suspension of an investigation to determine whether revocation of the order or termination of the suspended investigation "would be likely to lead to continuation or recurrence of dumping or a countervailable subsidy (as the case may be) and of material injury." Section 752(a)(6) of the Act states further that in making its determination, "the Commission may consider the magnitude of the margin of dumping or the magnitude of the net countervailable subsidy. If a countervailable subsidy is involved, the Commission shall consider information regarding the nature of the countervailable subsidy and whether the subsidy is a subsidy described in Article 3 or 6.1 of the Subsidies Agreement." The history and record of the ML WF case demonstrate virtually no evidence of dumping or unfair subsidization. Indeed, the case is unusual in that the original investigation resulted in all three mandatory respondents being excluded from the AD order by virtue of zero margins following multiple court remands. The validity of the AD order is currently in dispute and litigation at the Court of International Trade. It is important to place this determination in context here since this sunset review itself is predicated on a false premise that ML WF was ever dumped into the United States. In antidumping duty investigations, the Department of Commerce is instructed by statute to disregard any weighted average dumping margin that is zero or de minimis. 19 U.S.C. 1673d(a)(4). A de minimis margin is one that is less than two percent ad valorem or the equivalent specific rate for subject merchandise. 19 U.S.C. 1673b(b)(3). Thus, exporters with de minimis dumping margins must be excluded from an antidumping duty order. 19 U.S.C. 7

8 1673d(a)( 4); 19 C.F.R (e)(l) (explaining that a producer with a de minimis dumping margin will be excluded from an affirmative final determination.) See also SAA at 844 ("Exporters or producers with de minimis margins will be excluded from any affirmative determination."). In non-market economy cases, such as China, the AD rates of non-investigated exporters (referred to as "separate rate companies") are based on the average of the investigated companies, i.e. the mandatory respondents. Since all three mandatory respondents received zero AD margins and were excluded from the investigation, all of the separate rate respondents are also entitled to an exclusion from the AD order. In fact, had Commerce correctly calculated the AD rates and found no evidence of dumping in the investigation, there would have been no basis for the order and there would not have been subsequent administrative reviews or this sunset review. The fact that the original mandatory respondents in the investigations received de minimis rates demonstrates that rates were de minimis even before an antidumping order was imposed. The record is devoid of any evidence, let alone substantial evidence, of dumping during the original investigation. An AD order predicated on an investigation in which no company has been found to have dumped is not supported by substantial evidence. It is instructive to note the specific AD and CVD margins calculated in the original investigation and four annual administrative reviews as they demonstrate a record cooperation by Chinese exporters and one devoid of dumping or unfair subsidization in this case: Proceeding AD Rates CVD Rates Investigation Layo-0% Layo-0% Samling-0% Yuhua/A-Timber- 0% Fine Yuhua/ A-Timber - 0% Furniture % Separate Rate - on appeal. All Others % China-wide % Non-Cooperative Companies 26.73% 8

9 First Review Fine Furniture % Armstrong % Armstrong - 0% Shanghai Lizhong % Najing Minglin - 0% Fine Furniture % Separate Rate % All Others % Dalian Dajen - 0% Shanghai Lizhong; Linyi Y ouyou - Second Review Senmao % 0.99% Separate Rate % All Others % Fine Furniture % Dalian % Third Review Dalian-0% Lizhong- 0.92% Separate Rate % All Others % Dalian Pengong - 0% Dalian Penghong % Fourth Review Jiangsu Senmao - 0% Fine Furniture % Separate Rate - 0% All Others % The exceptionally low AD and CVD margins calculated by the Department of Commerce during the history of this case show no pattern of increased dumping or unfair subsidization, and would not be likely to lead to material injury to the domestic industry within a reasonably foreseeable future. II. CONCLUSION For the foregoing reasons, Lumber Liquidators respectfully submits that the Commission must revoke the AD and CVD orders on ML WF from China. Sincerely, CLARK HILL, PLC By: Mark Ludwikowski Kevin Williams Lara Austrins Counsel for Lumber Liquidators Services, LLC 9