Trade Court Sends Back Inclusion of Some Income Types in Surrogate Financial Ratio Calculation
The Commerce Department didn't adequately explain its decision to include four types of income categories when calculating the financial ratios for surrogate company Ayes Celikhasir in the antidumping duty investigation on metal lockers from China, the Court of International Trade ruled in a May 30 opinion. Petitioner and plaintiff List Industries said that if these income categories were excluded from the ratio calculation, Ayes would have been revealed not to be a profitable company, barring it from being used as a surrogate.
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While remanding four types, Judge Mark Barnett did uphold Commerce's inclusion of four other types of income. In the opinion, the court also sustained Commerce's finding that Ayes made comparable merchandise and potential Mexican surrogate Grupo Carso, which List had said should be the surrogate, didn't. In a related determination, Barnett upheld the selection of Turkey as a primary surrogate country.
In the investigation's preliminary determination, Commerce excluded six income categories listed as "other real operating income" when calculating Ayers' sales, general and administrative expenses and profit ratios, since the statements did not describe how the income was linked with the general operations of the company. For the final determination, however, Commerce included these income categories, along with two others.
In all, the agency included six types of income listed as "other real operating income" categories. Namely, Commerce included "deferred finance income, incentive income, shipping revenues, provisions no longer required, price difference, and other income and profits from the SG&A ratio calculation." Commerce also included income categories of "rental income" and "interest income" under the financial statement's heading "Income from Investing Activities."
List challenged the inclusion of all eight types of income, which Barnett addressed in three categories, the first of which were the six listed under "other real operating income." Of these types, the judge sent back the inclusion of shipping revenue and incentive income. The agency said it came to understand that the term "real operating income" in the financial statements means that the related expense category applies to the general operations of the firm, adding that it seeks consistency in its treatment of both the revenue and expense side of line items.
The judge ruled that this defense did not hold up for the treatment of shipping revenue since the actual and stated treatment of that revenue are at odds. A review of the final determination shows that shipping expenses were excluded but revenues were included in the ratio calculation. Barnett further remanded the inclusion of incentive income after being "unable to discern the corresponding expense category or any other explanation for Commerce’s change." Barnett upheld the four other types of income since Ayes' statements "had an analog expense category that Commerce had already included in the SG&A ratio calculation."
Barnett also remanded the inclusion of rental income. While Commerce referenced "rental income" under its explanation of how it treated "other real operating income" categories, rental income was not listed under this basket and instead was marked as "income from investing activities." The explanation of "providing consistent treatment between income and expense lines does not explain Commerce’s treatment of rental income for the Final Determination -- both because such an explanation does not apply to income from investing activities and because there is no obvious corresponding expense," the opinion said.
The court lastly remanded the treatment of interest income. While Commerce said it excluded this income as an offset, List claimed that the agency failed to actually remove it from the company's profit. After asking both sides to clarify who was correct during litigation, Barnett said it was not clear which side was correct. As a result, the judge sent the matter back to Commerce for further explanation.
List also challenged Commerce's selection of Ayes over Grupo Carso as a surrogate company, claiming that the agency failed to apply its three-part test to find the comparability of the merchandise for both companies. Acknowledging that Commerce did not adequately apply this test to either company, Barnett said that the reason for this was a sparse record. There was no information on the record the agency neglected to address, the opinion said. The judge ultimately upheld Commerce's finding as reasonable since the agency explained that Grupo Carso's comparable products lists "large containers" and not "metal containers."
Barnett added that List's challenges against Turkey as the primary surrogate country fail for many of the same reasons that its challenges against Ayes' financial statements fail. In addition, List claimed that Commerce did not examine the relative data quality between the Mexican and Turkish data. Barnett said that the contrary was true, since the agency acknowledged that the Mexican data for certain factors of production may have been more contemporaneous, but that while the record is incomplete on Mexican surrogate, it's complete for Turkish surrogate values.
(List Industries Inc. v. United States, Slip Op. 23-83, CIT # 21-00521, dated 05/30/23; Judge: Mark Barnett; Attorneys: Elizabeth Johnson of Kelley Drye for plaintiff List; Ioana Cristei for defendant U.S. government; Camelia Mazard of Doyle Barlow for defendant-intervenor WEC Manufacturing; Lizbeth Levinson of Fox Rothschild for defendant-intervenor Hangzhou Xline Machinery & Equipment Co.; and Eugene Degnan of Morris Manning for defendant-intervenors Zhejiang Xingyi Metal Products Co. and Xingyi Metalworking Technolong (Zhejiang) Co.)