Commerce Sticks With Find That Merger Wasn't 'Extraordinary' but Reduces Dumping Margin for Brazilian Paper Maker
The Commerce Department released its remand results in a case challenging the third administrative review of the antidumping duty order on certain uncoated paper from Brazil. On remand, Commerce adjusted its cost of production calculations for AD respondent Suzano and further explained its decision as required by the court. Commerce reduced the weighted-average dumping margin from 32.31% to 8.63% in its remand results (Suzano S.A. v. U.S., CIT # 21-00069).
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In its April 20 remand order, CIT directed Commerce to further explain or reconsider its decision not to modify the cost of production calculations for Suzano to exclude certain derivative expenses from the financial expense ratio (see 2304200057).
On remand, Commerce explained that it determined that Suzano's derivative losses were related to the operations of the company and costs of production and were part of a routine expansion of the company’s operations.
Commerce further noted that Suzano’s audited financial statements were compliant with the standard accounting practices of Brazil, and those showed that the derivative losses were classified as financial expenses rather than extraordinary expenses under those practices, Commerce said. Commerce said that it "is allowed to prefer substance over form, and need not blindly accept a financial statement’s treatment of costs."
In response to the court’s directive that Commerce support its earlier conclusion by “such relevant evidence as a reasonable mind might accept as adequate,” it revised Suzano’s financial expense rate to also include Fibria’s financial expenses and cost of sales. The assets and liabilities that generated the financial expenses were Suzano’s hedging rather than the specific financing instruments used for the Fibria acquisition, Commerce said. Suzano used derivatives in its normal operations exclusively for hedging purposes and they are not unique to the debt related to the Fibria acquisition, Commerce said.
Commerce also argued that Suzano’s "practice of acquiring companies to expand its business operations" did not constitute an extraordinary event. To be classified as extraordinary, it must possess a high degree of abnormality and be unrelated, or only incidentally related, to the typical activities of the enterprise.
Suzano had previously argued that the Fibria acquisition was “a unique, once-in-a-corporate lifetime event." While Suzano may not have previously merged with another company, Commerce concluded that an acquisition to expand operations isn't a unique event. Commerce pointed to previous acquisitions as evidence that expanding normal operations through acquisitions wasn't unique or abnormal to Suzano.