Association of American School Paper Suppliers v. United States , 32 Ct. Int'l Trade 1196 ( 2008 )

Slip Op. 08-122
UNITED STATES COURT OF INTERNATIONAL TRADE
______________________________
:
ASSOCIATION OF AMERICAN :
SCHOOL PAPER SUPPLIERS, :
:
Plaintiff, :
:
v. : Before: Richard K. Eaton, Judge
:
UNITED STATES, : Consol. Court No. 06-00395
:
Defendant, : Public Version
:
and :
:
KEJRIWAL PAPER LIMITED, :
:
Deft.-Int. :
______________________________:
:
KEJRIWAL PAPER LIMITED, :
:
Plaintiff, :
:
v. :
:
UNITED STATES, :
:
Defendant, :
:
and :
:
ASSOCIATION OF AMERICAN :
SCHOOL PAPER SUPPLIERS, :
:
Deft.-Int. :
______________________________:
OPINION AND ORDER
[United States Department of Commerce’s final results of
administrative review on certain lined paper products from India
are sustained in part and remanded.]
Dated: November 17, 2008
Consol. Court No. 06-00395 Page 2
Wiley Rein LLP (Alan H. Price, Timothy C. Brightbill and
Maureen E. Thorson), for plaintiff/defendant-intervenor
Association of American School Paper Suppliers.
Gregory G. Katsas, Assistant Attorney General; Jeanne E.
Davidson, Director, Patricia M. McCarthy, Assistant Director,
Commercial Litigation Branch, Civil Division, United States
Department of Justice (John J. Tudor); Office of Chief Counsel
for Import Administration, United States Department of Commerce
(Natasha Camille Robinson), of counsel, for defendant United
States.
deKieffer & Horgan (J. Kevin Horgan and Gregory S. Menegaz),
for plaintiff/defendant-intervenor Kejriwal Paper Limited.
Eaton, Judge: This consolidated action1 is before the court
on the motions of plaintiff/defendant-intervenor Association of
American School Paper Suppliers (the “Association”) and
plaintiff/defendant-intervenor Kejriwal Paper Limited
(“Kejriwal”) for judgment upon the agency record pursuant to
USCIT Rule 56.2, and defendant the United States’ opposition
thereto. See Association’s Mot. J. Agency R. (“Ass’n Br.”);
Brief. Supp. Mot. J. Agency R. Kejriwal (“Kejriwal’s Br.”);
Def.’s Opp. Pls.’ and Deft.-Ints.’ Mots. J. Agency R. (“Def.’s
Br.”).
By their motions, the Association and Kejriwal each
challenge certain aspects of the United States Department of
Commerce’s (“Commerce” or the “Department”) final results in its
1
This action includes court numbers 06-00395 and 06-00399.
See Ass’n of Am. School Paper Suppliers v. United States, Consol.
Ct. No. 06-00395 (Feb. 26, 2007) (order granting consent motion
to consolidate cases).
Consol. Court No. 06-00395 Page 3
administrative review of certain lined paper products (“CLPP”)
from India, covering the period of review (“POR”) July 1, 2004,
through June 30, 2005. See CLPP from India, 71 Fed. Reg. 45,012(Dep’t of Commerce Aug. 8, 2006) (notice of final determination
of sales at less than fair value) (the “Final Results”). The
Final Results expressly adopted the Issues and Decisions
Memorandum for the Final Determination in the Antidumping
Investigation of CLPP from India (Dep’t of Commerce July 31,
2006) (the “I&D Memo”). Jurisdiction is had pursuant to 28
U.S.C. § 1581(c) (2000) and 19 U.S.C. § 1516a(a)(2)(B)(i).
For the reasons set forth below, Commerce’s Final Results
are sustained in part and remanded.
BACKGROUND
In September 2005, the Association, an “ad hoc trade
organization” acting on behalf of the domestic paper industry,2
filed a petition with Commerce and the International Trade
Commission (“ITC”) seeking the imposition of antidumping and
countervailing duties on imports of CLPP3 from India. See Ass’n
2
The Association consists of MeadWestvaco Corporation,
Norcom, Inc., and Top Flight, Inc. Ass’n Br. 2.
3
CLPP refers to, and thus the scope of Commerce’s
investigation included, “[paper] products . . . [such] as single-
and multi-subject notebooks, composition books, wireless
notebooks, looseleaf or glued filler paper, graph paper, and
laboratory notebooks . . . .” CLPP From India, 71 Fed. Reg.
(continued...)
Consol. Court No. 06-00395 Page 4
Br. 2. In response, Commerce initiated an antidumping
investigation in early October 2005. CLPP From India, Indonesia,
and the People’s Republic of China, 70 Fed. Reg. 58,374 (Dep’t of
Commerce Oct. 6, 2005) (notice of initiation of antidumping duty
investigations).
Commerce published its preliminary determination in April
2006. See CLPP From India, 71 Fed. Reg. 19,706 (Dep’t of
Commerce Apr. 17, 2006) (notice of preliminary determination of
sales at less than fair value) (the “Preliminary Determination”).
The Preliminary Determination found that two of the three
respondents in the investigation, Navneet Publications (India)
Ltd. (“Navneet”) and Aero Exports (“Aero”), provided incomplete
information in their cost of production questionnaire responses
and that the information in their responses could neither be
verified nor reasonably relied upon to calculate dumping margins.
See id. at 19,709. As a result, the Department concluded that
Navneet and Aero “impeded [Commerce’s] investigation” and “failed
to cooperate to the best of their ability.” Id. at 19,709-10.
Based upon these findings, Commerce assigned Navneet and Aero
each an adverse facts available4 (“AFA”) dumping rate of 110.43
3
(...continued)
19,706, 19,707 (Dep’t of Commerce Apr. 17, 2006) (notice of
preliminary determination of sales at less than fair value)
(footnotes omitted).
4
Pursuant to 19 U.S.C. § 1677e(a), if:
(continued...)
Consol. Court No. 06-00395 Page 5
percent. See id. This rate was the highest transaction-specific
margin found in the proceeding, i.e., a rate from a single
Kejriwal transaction. Id.
Shortly after it issued the Preliminary Determination,
Commerce conducted an on-site verification of Kejriwal. See
4
(...continued)
(1) necessary information is not available on
the record, or
(2) an interested party or any other person——
(A) withholds information that has
been requested by the administering
authority or the Commission under
this subtitle,
(B) fails to provide such
information by the deadlines for
submission of the information or in
the form and manner requested
. . . ,
(C) significantly impedes a
proceeding under this subtitle, or
(D) provides such information but
the information cannot be verified
. . . . ,
the administering authority and the Commission shall,
subject to section 1677m(d) of this title, use the
facts otherwise available in reaching the applicable
determination under this subtitle.
If Commerce determines that the above criteria are met, and
makes the separate subjective determination that the respondent
has “failed to cooperate by not acting to the best of its ability
to comply with a request for information,” then, under 19 U.S.C.
§ 1677e(b), the agency “may use an inference that is adverse to
the interests of that party in selecting from among the facts
otherwise available.” 19 U.S.C. § 1677e(b).
Consol. Court No. 06-00395 Page 6
Final Results, 71 Fed. Reg. at 45,012. Commerce’s verification
analyzed the company’s business and determined that its primary
business was not producing and exporting the subject CLPP, but
rather trading newsprint. See Def.’s Br. 4; I&D Memo, Comm. 2 at
6. Commerce’s verification report “explained that Kejriwal finds
suppliers and purchasers of newsprint in the domestic market, and
negotiates purchase and sale prices with the manufacturers and
purchasers of newsprint.” Def.’s Br. 4-5 (citing Memorandum to
File from Laurens van Houten re: Verification of the Cost
Response of Kejriwal Paper Limited in the Antidumping
Investigation of Lined Paper from India at 4-5 (Dep’t of Commerce
June 13, 2006) (the “Verification Report”)).
The Department concluded that Kejriwal incurred “significant
expenses” in financing and conducting the aforementioned
transactions, but that, as a strategic business decision, it did
not take title to or possession of the newsprint involved in
these transactions in order “to take advantage of a 16 percent
tax exemption offered by the Government of India if newsprint ‘is
supplied directly from the manufacturer to the end consumers.’”
Def.’s Br. 5 (quoting Verification Report at 8).
Commerce issued its Final Results in August 2006. Final
Results, 71 Fed. Reg. at 45,012. These Final Results deviated
from the Preliminary Determination in one significant respect.
Commerce determined that the AFA rate assigned to Navneet and
Consol. Court No. 06-00395 Page 7
Aero, which was based upon Kejriwal’s highest transaction-
specific dumping margin, “was aberrational because it stemmed
from a single sale of a quantity that was significantly less than
the size of the average sales quantity.” Def.’s Br. 5-6 (citing
I&D Memo, Comm. 15). As a result, in the Final Results, Commerce
assigned Navneet and Aero the rate of 23.12 percent, the second
highest margin calculated for Kejriwal during the proceeding.
See Final Results, 71 Fed. Reg. at 45,103. This rate was a
significant decrease from the preliminary rate of 110.43 percent.
In doing so, the Department reasoned that, unlike the higher
rate, the 23.17 percent rate was both “not aberrational and
sufficiently higher than Kejriwal’s calculated rate to induce
respondents to cooperate fully with Commerce’s requests.” Def.’s
Br. 6 (citation omitted).
In addition to assigning this AFA rate, the Department made
other determinations in the Final Results. With regard to
Kejriwal, Commerce granted it both a scrap offset and an excise
tax rebate offset, and also “revised the calculations from the
Preliminary Determination to take into account its findings at
verification and comments received from the parties.” See Def.’s
Br. 5. Commerce thus included the cost of newsprint turnover in
the calculations of Kejriwal’s financial expense ratio. Def.’s
Br. 6. In addition, the Department allocated a proportionate
share of general and administrative (“G&A”) expenses to
Consol. Court No. 06-00395 Page 8
Kejriwal’s newsprint business. The Final Results provided
Kejriwal a final weighted-average dumping margin of 3.91 percent.
See Final Results, 71 Fed. Reg. 45,014.
STANDARD OF REVIEW
The court reviews the Final Results under the substantial
evidence and in accordance with law standard set forth in 19
U.S.C. § 1516a(b)(1)(B)(i) (“The court shall hold unlawful
any determination, finding, or conclusion found . . . to be
unsupported by substantial evidence on the record, or otherwise
not in accordance with law . . . .”). “Substantial evidence is
such relevant evidence as a reasonable mind might accept as
adequate to support a conclusion.” Huaiyin Foreign Trade Corp.
(30) v. United States, 322 F.3d 1369, 1374 (Fed. Cir. 2003)
(quotation omitted).
Further, the court must “review verification procedures
employed by Commerce in an investigation for abuse of discretion
rather than against previously-set standards.” Micron Tech.,
Inc. v. United States, 117 F.3d 1386, 1396 (Fed. Cir. 1997) (“By
requiring that Commerce report, on a case-by-case basis, the
methods and procedures used to verify submitted information,
Congress has implicitly delegated to Commerce the latitude to
derive verification procedures ad hoc.”) (citations and footnotes
omitted).
Consol. Court No. 06-00395 Page 9
DISCUSSION
I. Commerce’s Selection of an AFA Rate for Navneet and Aero
The Association takes issue with Commerce’s reduction of the
AFA rate assigned to Navneet and Aero from the rate found in the
Preliminary Determination (110.43 percent), to that in the Final
Results (23.17 percent). It maintains that Commerce’s 23.17
percent AFA rate is unlawful because it “is not relevant to the
uncooperative respondents [Navneet and Aero], does not reflect
the likely rate for [them] had they cooperated . . . , and is not
sufficiently high so as to discourage [their] noncompliance in
future proceedings.” Ass’n Br. 5.
In support of its arguments, the Association claims that
Commerce improperly relied on Kejriwal’s data in calculating the
AFA rate without explaining the relevance of this data to Navneet
and Aero. Furthermore, the Association insists that there is no
record evidence demonstrating that the AFA rate assigned to
Navneet and Aero reflects a rate that would have been calculated
for them had they cooperated (including “a built-in increase as a
deterrent to noncompliance”). Ass’n Br. 11. To support its
position, the Association analyzed the data actually submitted by
Navneet and Aero (but rejected by Commerce), and urges that even
“a cursory analysis of the data . . . suggests that an [AFA] rate
based on what their margins would have [been] in the event of
their cooperation, would differ substantially from the rate
Consol. Court No. 06-00395 Page 10
selected by the Department.”5 Ass’n Br. 11.
In its papers, Commerce maintains that its selection of the
23.17 percent rate was lawful and supported by substantial
evidence. Def.’s Br. 19. Commerce argues that the higher 110.43
percent rate was aberrational and thus it properly selected a
different, albeit lower, rate that was “based on corroborated,
verified, and reliable record information.” Def.’s Br. 10.
Further, Commerce insists that the rate selected was “indicative
of the respondents’ customary selling practices and . . .
rationally related to the transactions to which the adverse facts
available are being applied.” Def.’s Br. 15 (quotation omitted).
As to the Association’s analysis of the data submitted by
Navneet and Aero, Commerce argues that it is inherently flawed
because it relies upon data rejected by the Department as
incomplete and unverifiable. For Commerce, information that was
found unreliable for calculating an actual rate cannot be
considered “substantial evidence” for purposes of questioning the
assigned rate. See Def.’s Br. 16. Finally, Commerce asserts
that it acted within its discretion in selecting the AFA rate and
5
For example, analyzing Navneet’s data and assuming the
validity of the information reported, the Association claims to
have calculated a margin slightly higher than the 23.17 percent
rate assigned. The Association insists that this proposed rate,
which it describes as “extremely conservative,” does not include
any built-in increase to deter future noncompliance. Ass’n Br.
11-12. Accordingly, for the Association, the 23.17 percent rate
assigned was not high enough to encourage future cooperation in
antidumping investigations. Ass’n Br. 12.
Consol. Court No. 06-00395 Page 11
determining that it was sufficiently high to deter noncompliance
in the future.
Here, no party is challenging Commerce’s decision to use an
AFA rate.6 Rather, the Association faults Commerce’s manner of
selecting the rate. “Commerce has broad, but not unrestricted,
discretion in determining what would be an accurate and
reasonable dumping margin where a respondent has been found
uncooperative.” Reiner Brach GmbH & Co. KG v. United States, 26
CIT 549, 565, 206 F. Supp. 2d 1323, 1339 (2002) (“Reiner”). When
applying an adverse inference, Commerce may rely on information
from the petition, the final determination, previous reviews or
determinations, and any other information placed on the record.
See F.lli De Cecco Di Filippo Fara S. Martino S.p.A. v. United
6
The Preliminary Determination explains why the
application of AFA was warranted:
Throughout [the investigative] process, there
has been a consistent pattern of
non-responsiveness and confusing, incomplete,
and inconsistent information provided by Aero
and Navneet. As a result of numerous,
serious deficiencies, we are unable to
adequately determine whether the cost
information contained in [their] responses
reasonably and accurately reflects the costs
incurred by these companies to produce the
subject merchandise. Without this
information, we cannot accurately calculate
LTFV [less than fair value] margins for these
companies.
Preliminary Determination, 71 Fed. Reg. at 19,709-10.
Consol. Court No. 06-00395 Page 12
States, 216 F.3d 1027, 1029-32 (Fed. Cir. 2000) (“De Cecco”) (“In
the case of uncooperative respondents, the discretion granted by
the statute . . . allow[s] Commerce to select among an
enumeration of secondary sources as a basis for its adverse
factual inferences.”) (citing 19 U.S.C. § 1677e).
An AFA rate must “be a reasonably accurate estimate of the .
. . actual rate, albeit with some built-in increase as a
deterrent to non-compliance.” Ta Chen Stainless Steel Pipe, Inc.
v. United States, 298 F.3d 1330, 1340 (Fed. Cir. 2004) (citing De
Cecco, 216 F.3d at 1032). Therefore, “[a]n AFA rate must be both
reliable and bear a rational relationship to the respondent.”
See Shandong Huarong Gen. Group Corp. v. United States, 31 CIT
__, __, Slip Op. 07-4 at 9 (Jan. 9, 2007) (not reported in the
Federal Supplement) (citations omitted).
Because this case concerns an investigation, rather than an
administrative review, under 19 U.S.C. § 1677e(b)(3), Commerce
could not rely on the results of a previous review of Aero and
Navneet’s behavior, as is common in AFA determinations. See,
e.g., Shandong Huarong Mach. Co. v. United States, 31 CIT __, __,
Slip Op. 07-169 at 10-11 (Nov. 20, 2007) (not reported in the
Federal Supplement). Furthermore, Commerce determined that the
margins included in the petition “greatly exceeded the ranges of
rates calculated during the investigation” and, therefore, lacked
probative value. See Def.’s Br. 14 (citations omitted). Thus,
Consol. Court No. 06-00395 Page 13
Commerce turned to record data from the investigation obtained
from Kejriwal.
The court finds Commerce’s 23.17 percent rate was
reasonable. In assigning this rate, Commerce was exercising its
discretion as permitted by the statute, and was attempting to
“balance the statutory objectives of finding an accurate dumping
margin and inducing compliance, rather than creat[e] an overly
punitive result.” Timken Co. v. United States, 354 F.3d 1334,
1335 (Fed. Cir. 2004) (citing De Cecco, 216 F.3d at 1032). As
Commerce correctly points out, relying upon Navneet and Aero’s
rejected data would ignore the deficiencies in their responses
that render them unreliable and thus not a source of substantial
evidence. Any rate employing Navneet and Aero’s rejected
data——both as the basis of calculating an actual rate or for
purposes of comparison——would therefore be invalid. See Shanghai
Taoen Int’l Trading Co. v. United States, 29 CIT 189, 199, 360 F.
Supp. 2d 1339, 1349 (2005) (finding that a preliminary margin
relying upon data that was rejected and lacked credibility “has
no validity”).
For Commerce, the rate it selected, although not calculated
using Navneet and Aero’s data, “is indicative of the respondents’
customary selling practices and is rationally related to the
transactions to which the [AFA] rates are being applied” because
it was calculated in the POR for a company in the same business.
Consol. Court No. 06-00395 Page 14
See I&D Memo, Comm. 15 at 38. That is, Commerce selected a rate
it perceived to be “within the mainstream of Kejriwal’s
transactions (i.e., transactions that reflect sales of products
that are representative of the broader range of models used to
determine [normal value]).” I&D Memo, Comm. 15 at 38. Further,
having concluded that the 110.43 percent rate was aberrational
because it was “from a single sale with a sales quantity that is
less than two percent of the average sales quantity,” Commerce
determined that “the second highest margin is not aberrational
because its quantity . . . is within one standard deviation of
the mean [quantity of merchandise in Kejriwal’s reported
transactions] . . . [and] it was a sale of notebooks.” See
Memorandum from Christopher Hargett to File re: Final
Determination in the Antidumping Investigation of CLPP from
India: Selection of Total AFA Rate” at 2 (Dep’t of Commerce July
31, 2006).
Thus, here, though Commerce was not relying on Navneet and
Aero’s data, it did seek to ensure that its determination related
to the companies to the greatest extent possible under the
circumstances. That is, it (1) relied on verified data from
another producer and exporter of CLPP in India during the same
time period, (2) used a transaction that was of an adequate
quantity of subject merchandise, and (3) confirmed that the
quantity was appropriate with standard deviation analysis.
Consol. Court No. 06-00395 Page 15
This Court’s decision in Shanghai Taoen International
Trading Co. v. United States, 29 CIT 189, 360 F. Supp. 2d 1339(2005) (“Shanghai Taoen”), is instructive. In Shanghai Taoen,
plaintiff challenged Commerce’s final results of an
administrative review of an antidumping duty order on crawfish
tail meat from the People’s Republic of China (“PRC”). Among
other things, the plaintiff challenged the AFA rate assigned to
it by Commerce. Commerce had assigned plaintiff a rate
calculated for a different respondent from a prior administrative
review.
In upholding Commerce’s AFA rate, the Shanghai Taoen Court
observed that: (1) “Commerce had no probative alternatives” to
the assigned margin; (2) this was the plaintiff’s first
administrative review on exports of subject merchandise so that
there was no prior antidumping margin for Commerce to select;
and, as referenced above, (3) proposed rates calculated with
deficient data “[have] no validity after Commerce’s credibility
conclusion” (which led it to apply AFA in the first place).
Shanghai Taoen, 29 CIT at 199, 360 F. Supp. 2d at 1348. Thus,
the Court found that Commerce’s selected AFA rate was “rationally
related” to the plaintiff “because (1) the rate reflects recent
commercial activity by a crawfish tail meat exporter from the
PRC, and (2) [the plaintiff’s] failure to accurately respond to
Commerce’s producer questions has resulted in an egregious lack
Consol. Court No. 06-00395 Page 16
of evidence on the record to suggest an alternative rate.” Id.
at 199, 360 F. Supp. 2d at 1348.
The logic of Shanghai Taoen is equally applicable here.
Although Shanghai Taoen involved an administrative review and
this case involves an investigation, the theory of the case is
useful because Shanghai Taoen involved the first administrative
review in which the plaintiff participated. Thus, in both cases,
no prior rates for the plaintiffs were available and Commerce
could not rely on the plaintiffs’ own deficient data to determine
a rate. Therefore, here, it was reasonable for Commerce to look
to Kejriwal’s data because: (1) it “reflects recent commercial
activity” by an exporter of subject merchandise from India, and
(2) it was Aero and Navneet’s reporting deficiencies that
resulted in the lack of evidence on the record for Commerce to
select an alternative rate. See id. at 199, 360 F. Supp. 2d at
1348. Accordingly, Commerce selected, based upon the verified
information available to it in the record, a rate that was
reliable and relevant to Navneet and Aero. The court finds that
Commerce acted reasonably. See NSK, Ltd. v. United States, 28
CIT 1535, 1562, 346 F. Supp. 2d 1312, 1336 (2004) (stating that
“Commerce has leeway in calculating the applicable AFA rate” for
an uncooperative respondent).
As to whether the rate was high enough to encourage future
compliance, Commerce reasoned that the AFA rate “selected [23.17
Consol. Court No. 06-00395 Page 17
percent rate] is sufficiently higher than the calculated [3.91
percent] rate of the cooperative respondent [Kejriwal] in this
investigation to induce respondents [Navneet and Aero] to
cooperate fully with the Department’s requests for accurate,
complete and timely data.” I&D Memo, Comm. 15 at 38. Given the
record before it, it cannot be said that Commerce was
unreasonable in finding that the 23.17 percent AFA rate, which is
nearly 600 percent greater than Kejriwal’s rate, would encourage
Navneet and Aero to comply fully in future reviews and
investigations. See De Cecco, 216 F.3d at 1032 (“Particularly in
the case of an uncooperative respondent, Commerce is in the best
position, based on its expert knowledge of the market and the
individual respondent, to select adverse facts that will create
the proper deterrent to non-cooperation with its investigations
and assure a reasonable margin.”); Ta Chen Stainless Steel Pipe,
Inc., 298 F.3d at 1340 (“While Commerce may have chosen the [AFA]
rate with an eye toward deterrence, Commerce acts within its
discretion so long as the rate chosen has a relationship to the
actual sales information available.”).
Accordingly, the court sustains as lawful and supported by
substantial evidence Commerce’s selection of an AFA rate for
Navneet and Aero.
Consol. Court No. 06-00395 Page 18
II. Commerce’s Grant of a Scrap Offset to Kejriwal
Commerce generally will only grant an offset to normal
value,7 for sales of scrap generated during the production of the
subject merchandise, if the respondent can demonstrate that the
scrap is either resold or has commercial value and re-enters the
respondent’s production process. See Shandong Huarong Mach. Co.
v. United States, 29 CIT 484, 487, Slip Op. 05-54 at 6 (2005)
(not reported in the Federal Supplement). The Association argues
that Kejriwal claimed a scrap offset to the cost of manufacturing
CLPP, but that the company “neither reintroduced into the
production process nor sold [the scrap] during the period of
investigation [(‘POI’)].” Ass’n Br. 20. Therefore, the
Association complains that Commerce erred in granting the offset.
The Association’s primary objection to Commerce’s decision
to grant the offset to Kejriwal is that, even if the scrap had a
value, the “value was not realized during the [POI].” Ass’n Br.
21. Thus, the Association maintains that Commerce’s decision “to
7
Normal value or home market value is defined as
the price at which the foreign like product
is first sold (or, in the absence of a sale,
offered for sale) for consumption in the
exporting country, in the usual commercial
quantities and in the ordinary course of
trade and, to the extent practicable, at the
same level of trade as the export price or
constructed export price . . . .
19 U.S.C. § 1677b(a)(1)(B)(i).
Consol. Court No. 06-00395 Page 19
offset period costs with revenue generated afterwards . . .
distort[s] the actual costs that Kejriwal faced during the
relevant time period.” Ass’n Br. 24. Accordingly, it claims
that Kejriwal did not meet its burden of demonstrating that an
offset was warranted. See Ass’n Br. 24-25.
Commerce, for its part, maintains that it properly granted
Kejriwal a scrap offset because the scrap was “directly related
to subject merchandise produced during the [POI],” and was
recorded in Kejriwal’s books during the POI in accordance with
the accrual method of accounting. Def.’s Br. 20. Commerce
points to the “reasoned explanation” contained in its Issues and
Decisions Memorandum to counter the Association’s assertion that
its decision to grant the offset was inadequately explained.
Def.’s Br. 20 (citing I&D Memo, Comm. 4). By way of explanation,
Commerce states that, although Kejriwal neither sold nor
reintroduced the scrap during the POI, it did account for the
scrap’s estimated value on its books and that this treatment is
consistent with Commerce’s past practice. See Def.’s Br. 20-21
(citation omitted) (reasoning that because “the scrap offset was
based upon the costs of merchandise created during the [POI] . .
. . and was recorded in Kejriwal’s books on an accrual basis for
the [POI] . . . the question of when the actual scrap sale
occurred [is] irrelevant)”.
Kejriwal notes that, because it first began producing
Consol. Court No. 06-00395 Page 20
subject merchandise during the POI (i.e., was a start-up
operation), it sold much of the scrap generated during the POI in
the several months after the POI ended, rather than during it.
See Kejriwal Resp. Pl.’s Mot. 9-10 (citing Verification Report at
15-17). Thus, “although Kejriwal’s sales of scrap were outside
of the POI, the revenue from sales was verifiable, and Commerce
appropriately used the verified sales of scrap generated during
the POI to value the required scrap offset.” See Kejriwal Resp.
Pl.’s Mot. 10 (citations omitted). In other words, Commerce
examined Kejriwal’s financial records and concluded that,
although Kejriwal did not sell the scrap during the POI, it
estimated the value of the scrap based upon average market
prices, recorded that amount in its stock statement and balance
sheets, and was able to trace this estimated value to Kejriwal’s
own invoices for sales after the POI.
Kejriwal argues, therefore, that Commerce complied with the
statutory requirements of 19 U.S.C. § 1677(b)(f)(1)(A) in its
calculations. For Kejriwal, Commerce: (1) “calculate[d] [costs]
based on the records of the exporter or producer of the
merchandise, if such records are kept in accordance with the
generally accepted accounting principles [“GAAP”] of the
exporting country . . . and reasonably reflect the costs
associated with the production and sale of the merchandise,” and
(2) “consider[ed] all available evidence on the proper allocation
Consol. Court No. 06-00395 Page 21
of costs, including that which is made available by the exporter
or producer on a timely basis, if such allocations have been
historically used by the exporter or producer . . . .” 19 U.S.C.
§ 1677(b)(f)(1)(A). Accordingly, Kejriwal insists that, using
the accrual method of accounting, in accordance with Indian GAAP,
it recorded the estimated value of scrap generated “as a
manufacturing cost” and that Commerce correctly considered this
fact when it reviewed its books. See Kejriwal Resp. Pl.’s Mot.
11 (citing Verification Report at 23).
The Association’s claim presents both a legal and factual
question: (1) whether Commerce’s methodology in granting Kejriwal
a scrap offset was in accordance with law, and (2) whether
Commerce supported its decision to grant Kejriwal the offset with
substantial evidence. As to the Association’s legal claim, this
Court, in Ames True Temper v. United States, 31 CIT __, __, Slip
Op. 07-133 at 10 (Aug. 31, 2007) (not reported in the Federal
Supplement) (“Ames”), recently observed “the antidumping statute
is silent as to how Commerce is to determine whether a respondent
is entitled to a scrap offset to normal value and, if so
entitled, how to calculate the amount of the offset.” As such,
the court’s role is to assess if Commerce’s determination is
“based on a reasonable permissible construction of the statute.”
Id. at __, Slip Op. 07-133 at 11-12 (citing Chevron U.S.A., Inc.
v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843 (1984));
Consol. Court No. 06-00395 Page 22
see also Guangdong Chem. Imp. & Exp. Corp. v. United States, 30
CIT __, __, 460 F. Supp. 2d 1365, 1373 (2006) (“19 U.S.C.
§ 1677b(c) does not mention the treatment of byproducts,
nonetheless, Commerce sometimes grants a respondent a credit for
a by-product . . . generated in the manufacturing process [that
is] either reintroduced into production or sold for revenue.”)
(quotations and citation omitted).
The court finds that Commerce acted in accordance with law
in granting Kejriwal a scrap offset. The agency based its
decision on its review of “the normal books and records of
[Kejriwal] in accordance with Indian generally accepted
accounting principles,” kept on an accrual basis. I&D Memo,
Comm. 4 at 11. In addition, although Kejriwal’s sales of scrap
were outside of the POI, Commerce was able to verify the revenue
from those sales and compare it to the amount recorded on
Kejriwal’s books during the POI. As a result, the Department
confirmed the accuracy of Kejriwal’s estimated values by tracing
Kejriwal’s actual average sales value to its invoices. I&D Memo,
Comm. 4 at 11. Thus, the amount of the offset was supported by
substantial evidence. See Thai Pineapple Pub. Co. v. United
States, 187 F.3d 1362, 1366 (Fed. Cir. 1999) (“As a general rule,
an agency may either accept financial records kept according to
generally accepted accounting principles in the country of
exportation, or reject the records if accepting them would
Consol. Court No. 06-00395 Page 23
distort the company’s true costs.”) (citation omitted).
Accordingly, the court cannot credit the Association’s
argument that Commerce did not offer an adequate explanation for
its decision. “Commerce is [obligated] to adequately explain how
its chosen methodology achieves the required result [of
determining antidumping margins as accurately as possible].”
Shandong Huarong Mach. Co., 29 CIT at 489, Slip Op. 05-54 at 10
(citations omitted). It has done so here.
It is clear that, because its CLPP business was a start-up
operation, Kejriwal would not in the ordinary course of business
sell its scrap during the POI. It is equally clear that its
process generates valuable scrap and that Commerce was able to
determine the scrap’s value. Thus, in granting Kejriwal the
scrap offset, Commerce acted reasonably by trying to present a
true picture of Kejriwal’s business under the circumstances. See
Ames, 31 CIT at __, Slip Op. 07-133 at 14 (sustaining a scrap
offset because “Commerce properly based its decision to grant
Huarong the steel scrap offset on the company’s financial books
and records, applied a reasonable methodology, [and] supported
its conclusion with substantial evidence . . . .”).
Therefore, the court finds Commerce’s conclusions to be in
accordance with law and supported by substantial evidence and
sustains Commerce’s scrap offset.
Consol. Court No. 06-00395 Page 24
III. Commerce’s Grant of an Excise Tax Rebate Offset to Kejriwal
The Association additionally argues that Commerce’s decision
to grant Kejriwal an excise tax rebate offset was improper. See
Ass’n Br. 25-26. Kejriwal paid an excise tax8 on the purchase of
raw materials in India and then received a rebate on the tax paid
when the finished products were exported. Ass’n Br. 25-26
(citation omitted). Given that Kejriwal’s lined paper business
was a start-up operation, the rebates “in most cases, . . .
occurred after the [POI].” Ass’n Br. 26 (citing Verification
Report at 7). According to the Association, under these
circumstances, the grant of an offset was improper because “the
8
Kejriwal explains:
India’s excise tax is an indirect internal
tax levied on goods manufactured in India and
intended to be paid by the ultimate consumer.
A manufacturer such as Kejriwal pays the
excise tax on its inputs (currently 16% for
most products), and passes the tax on to its
own domestic customers by including the tax
on its invoices. The tax is not passed on to
customers in a foreign country. Thus it is
an “internal” tax. When the final product is
exported, India grants credits and rebates to
Indian exporters. The Indian government also
allows exporters to purchase inputs under
bond, whereby the exporter pays no initial
excise tax on its inputs. As with an
application for an excise tax rebate, the
exporter must provide proof of export for all
merchandise produced from inputs purchased
under bond. In all cases, the exporter pays
no excise tax.
See Kejriwal Resp. Pl.’s Mot. 15-16 (footnote and citations
omitted).
Consol. Court No. 06-00395 Page 25
tax paid impacted . . .[Kejriwal’s] costs of manufacture, but . .
. the rebates had no effect at all on period costs.” Ass’n Br.
26.
The Association, therefore, maintains that Kejriwal did not
meet its burden of demonstrating that an offset was proper
because Kejriwal necessarily could not show that the rebates
reduced its costs during the POI. Thus, it argues that
Commerce’s grant of a rebate here is “illogical” and asks the
court to remand the matter to Commerce for reconsideration. See
Ass’n Br. 26.
Commerce insists that the grant of an excise tax rebate
offset to Kejriwal was warranted because the rebate was directly
related to Kejriwal’s production of CLPP during the POI. See
Def.’s Br. 19-20. That is, “[a]s with the value of scrap
revenue, Commerce found that Kejriwal accrued or credited the tax
rebate in the current period in its normal books and records.”
Def.’s Br. 21. Commerce argues that the Association’s “focus
upon the fact that the rebate was not received during the current
[POI] ignores record facts,” i.e., that Kejriwal’s lined paper
business was a start-up operation, it utilized the accrual method
of accounting, and it accounted for the value of the tax rebate
on its books. Def.’s Br. 22. Therefore, even though the revenue
was not received during the POI, Commerce contends that the
offset was justified and asks the court to sustain its
Consol. Court No. 06-00395 Page 26
determination. See Def.’s Br. 22-23.
For its part, Kejriwal asserts that “Commerce’s recognition
of an excise tax offset was correct in every respect, in
accordance with India’s GAAP and India’s tax law and in
accordance with U.S. antidumping law.” See Kejriwal Resp. Pl.’s
Mot. 15-16 (citing 19 U.S.C. § 1677b(e)(3), which states that
“the cost of materials shall be determined without regard to any
internal tax in the exporting country imposed on such materials
or their disposition which are remitted or refunded upon
exportation of the subject merchandise produced from such
materials”). Thus, Kejriwal asserts that Commerce verified its
accounting of excise taxes paid and that, in fact, they were
later rebated, and that the Department’s decision to grant the
offset conforms with its past practice. See Kejriwal Resp. Pl.’s
Mot. 17-18 (citing Stainless Steel Bar From India, 65 Fed. Reg.
48,965 (Dep’t of Commerce Aug. 10, 2000) (final results); Certain
Stainless Steel Wire from India, 65 Fed. Reg. 31,302 (Dep’t of
Commerce May 17, 2000)(final results).
As with the scrap offset, Commerce relied on a review of
Kejriwal’s books to justify the grant of an excise tax rebate
offset. Specifically, the Department observed that: (1) Kejriwal
paid excise taxes, (2) Kejriwal received a refund for these paid
taxes, albeit after the POI, and therefore (3) “[i]n the end, no
taxes were paid” upon CLPP during the POI. Def.’s Br. 21
Consol. Court No. 06-00395 Page 27
(quoting I&D Memo, Comm. 7 at 15). Commerce further observed
that Kejriwal accounted for the tax rebate in its books for the
time period covered by the POI in accordance with the accrual
method of accounting. See Def.’s Br. 20-21.
The court sustains Commerce grant of an excise tax offset to
Kejriwal. Commerce acted properly under 19 U.S.C.
§ 1677b(f)(1)(A) (requiring Commerce to calculate costs based on
the records of the exporter if kept in accordance with GAAP of
the exporting country and to “consider all available evidence”),
and in accordance with the case law. See Elkem Metals Co. v.
United States, 468 F.3d 795, 802 (Fed. Cir. 2006) (“[I]t is
entirely appropriate for Commerce to make an individual
determination as to whether and to what extent [a value-added
tax] is, given the circumstances of a particular country and
company, a cost.”); FAG U.K. LTD. v. United States, 20 CIT 1277,
1290, 945 F. Supp. 260, 271 (1996) (“[T]his Court has
consistently upheld Commerce’s reliance on a firm’s expenses as
recorded in the firm’s financial statements, as long as those
statements were prepared in accordance with the home country’s
GAAP and do not significantly distort the firm’s actual costs.”).
It is apparent that Commerce’s grant of an excise tax rebate
offset to Kejriwal was proper as Commerce based its decision on
Kejriwal’s financial records, circumstance as a start-up
operation, and “economic realities.” See Elkem Metals Co., 468
Consol. Court No. 06-00395 Page 28
F.3d at 802.
IV. Commerce’s Calculation of Kejriwal’s Financial Expense Ratio
The court next considers the Association’s claim that
Commerce’s calculation of Kejriwal’s financial expense ratio was
flawed and unlawful. In antidumping investigations, Commerce
must determine whether merchandise is sold, or is likely to be
sold, at less than fair value by making “a fair comparison . . .
between the export price, or constructed export price and normal
value.”9 19 U.S.C. § 1677b(a). During Commerce’s investigation,
it determined that “Kejriwal . . . did not sell subject
merchandise in the ordinary course of trade in its home market
during the POI.” See Preliminary Determination, 71 Fed. Reg. at
19,707. Therefore, Commerce concluded that it “must use
constructed value . . . in its calculation of normal value . . .
.” See id. No party objects to this conclusion.
The financial expense ratio is a component of Commerce’s
9
The “export price” is “the price at which the subject
merchandise is first sold . . . by the producer or exporter of
the subject merchandise outside of the United States to an
unaffiliated purchaser in the United States or to an unaffiliated
purchaser for exportation to the United States,” as adjusted. 19
U.S.C. § 1677a(a).
“Constructed export price” is “the price at which the
subject merchandise is first sold . . . in the United States . .
. by or for the account of the producer or exporter of
such merchandise or by a seller affiliated with the producer or
exporter, to a purchaser not affiliated with the producer or
exporter,” as adjusted. 19 U.S.C. § 1677a(b).
Consol. Court No. 06-00395 Page 29
constructed value calculation. Under 19 U.S.C. § 1677b(e)(1)(B),
when calculating constructed value, Commerce is directed to add
an “‘an amount for general expenses and profit equal to that
usually reflected in sales of merchandise of the same general
class or kind as the merchandise under consideration . . .’ to
the cost of materials and of fabrication or other processing.”10
10
“Congress has not clarified what ‘general expenses’ are
or how they are calculated . . . . [however,] [p]ursuant to the
discretion granted to it by Congress[,] . . . Commerce devised a
methodology for calculating general expenses. Commerce includes
in general expenses both (1) selling, general and administrative
expenses, and (2) financial expenses.” Gulf States Tube Div. of
Quanex Corp. v. United States, 21 CIT 1013, 1033, 981 F. Supp.
630, 648 (1997) (citation omitted).
Commerce asks that a company calculate its financial expense
ratio, or interest expense ratio, as follows:
. . . If your company is a member of a
consolidated group of companies, calculate
your financial expense based on the
consolidated audited fiscal year financial
statements of the highest consolidation level
available. In calculating your company’s net
interest ratio, use the full-year net
interest expense and [cost of goods sold]
reported in the consolidated audited fiscal
year financial statements for the period that
most closely corresponds to the [period of
investigation].
In calculating net interest expense for [cost
of production] and CV, include interest
expense relating to both long- and short-term
borrowings made by your company. Reduce the
amount of interest expense incurred by any
interest income earned by your company on
short-term investments of its working
capital. Demonstrate how the interest
income, interest expense, and [cost of goods
(continued...)
Consol. Court No. 06-00395 Page 30
See Gulf States Tube Div. of Quanex Corp. v. United States, 21
CIT 1013, 1033, 981 F. Supp. 630, 648 (1997) (citation omitted).
The Association maintains that Commerce improperly “included
newsprint turnover in Kejriwal’s costs of goods sold and in the
financial expense ratio calculations.” Ass’n Br. 13. It argues
that the calculation was contrary to Commerce’s established
practices and inadequately explained. Ass’n Br. 13. According
to the Association, “[t]he Department’s decision to include
newsprint turnover value in the denominator of the financial
expense ratio calculations was inconsistent with the treatment of
the same item in the [general and administrative] expense ratio
calculations,” where the Department did not include newsprint
turnover value in the denominator. Ass’n Br. 14-15. It argues
that Commerce has consistently considered an item to be “part of
the costs of goods sold for purposes of calculating the financial
expense ratio where the item is recorded as part of the costs of
goods sold in a respondent’s audited financial statements.”
10
(...continued)
sold] used in the ratio reconcile to your
company’s audited fiscal year financial
statements. To compute the per-unit amount
of net interest expense, multiply the net
interest expense ratio by the per-unit [total
cost of manufacture] for each of the [control
numbers].
See Standard Section D - Cost of Production and Constructed Value
Questionnaire at D-14, available at
http://ia.ita.doc.gov/questionnaires/q-inv-sec-d-092106.pdf.
Consol. Court No. 06-00395 Page 31
Ass’n Br. 16 (citations omitted).
The Association notes that the cost of newsprint is not
included as part of Kejriwal’s cost of goods sold on its
financial statements because it is a trader rather than a
manufacturer of newsprint. Thus, according to the Association,
Commerce’s calculation contradicts its “consistent past
practice.” Ass’n Br. 15-17 (citing Certain Pasta from Italy, 64
Fed. Reg. 6,615 (Dep’t of Commerce Feb. 10, 1999) (notice of
final results); Silicomanganese from India, 67 Fed. Reg 15,531
(Dep’t of Commerce Apr. 2, 2002) (notice of final determination);
Certain Frozen and Canned Warmwater Shrimp from Thailand, 69 Fed.
Reg. 47,100 (Dep’t of Commerce Aug. 4, 2004) (notice)).
For its part, Commerce concedes that it departed from its
past practice when it included the cost of newsprint traded in
Kejriwal’s cost of goods sold, but argues that doing so was
necessary because of the unique nature of Kejriwal’s business
model. Def.’s Br. 23 (citing I&D Memo, Comm. 2). That is,
“[w]hile it is [Commerce’s] normal practice to use the [cost of
goods sold] from the income statements as [its] denominator, . .
. [the] unusual facts in this case [thwarted] the purpose of the
allocation ratio because of the structure of the newsprint
transactions.” See I&D Memo, Comm. 2 at 6. In other words,
Commerce determined that, even though Kejriwal incurred great
expense as a trader of newsprint, because it never took title to
Consol. Court No. 06-00395 Page 32
the paper, using Commerce’s normal calculation these significant
expenses would not have been included in its cost of goods sold,
and therefore a deviation was justified. See I&D Memo, Comm. 2
at 6.
Thus, Commerce argues that, when necessary, “it is free to
change its methodology as long as it fully explains its reasoning
for doing so.” Def.’s Br. 24-25 (explaining that Commerce
determined that following its standard practice in this matter
would have led to a “distorted calculation”) (citations omitted).
Commerce additionally argues that it was justified in including
newsprint turnover value in the denominator of Kejriwal’s
financial expense ratio but not in its G&A expense ratio. Def.’s
Br. 29. Again, Commerce noted, it did so because this case
presented “unusual facts,” i.e., the significant proportion of
Kejriwal’s financial expenses incurred by its trading rather than
its sales business. See I&D Memo, Comm. 2 at 6.
Kejriwal asserts that Commerce’s calculation of its
financial expense ratio was reasonable, supported by substantial
evidence, and in accordance with law. See Kejriwal Resp. Pl.’s
Mot. 3. It maintains that the Association seeks to have Commerce
calculate a ratio that “ignores the intensity of Kejriwal’s
financial investment and commitment to its newsprint business.”
Kejriwal Resp. Pl.’s Mot. 3. Put another way, Kejriwal argues
that Commerce was correct in determining that Kejriwal’s
Consol. Court No. 06-00395 Page 33
financial expense ratio would have been distorted if Commerce had
not included the cost of newsprint traded in the denominator.
Kejriwal further notes that its audited financial statements
include “numerous references” to its newsprint turnover and that
“[d]uring verification, Commerce ascertained that approximately
69% of Kejriwal’s financial expenses were attributable solely to
the company’s newsprint business, compared to about 22%
attributable to the production of subject merchandise.” Kejriwal
Resp. Pl.’s Mot. 3-4 (citing Verification Report at 36).
It is well-settled that “[a]n agency is obligated to follow
precedent, and if it chooses to change, it must explain why.”
M.M. & P. Mar. Advancement, Training, Educ. & Safety Program
(MATES) v. Dep’t of Commerce, 729 F.2d 748, 755 (Fed. Cir. 1984);
Greater Boston Television Corp. v. FCC, 444 F.2d 841, 852 (D.C.
Cir. 1970) (“[A]n agency changing its course must supply a
reasoned analysis indicating that prior policies and standards
are being deliberately changed, not casually ignored, and if an
agency glosses over or swerves from prior precedents without
discussion it may cross the line from the tolerably terse to the
intolerably mute.”) (footnotes omitted).
Here, Commerce was explicit in stating that it was not
following its “normal practice.” I&D Memo, Comm. 2 at 6. This
being the case, the court must examine the adequacy of the
Department’s justification for this deviation. By way of
Consol. Court No. 06-00395 Page 34
explanation, Commerce states that it typically uses the cost of
goods sold from a respondent’s income statements as the
denominator of the financial expense ratio. I&D Memo, Comm. 2 at
6. Commerce decided here, however, that because of Kejriwal’s
significant newsprint business, it was “appropriate to include
the value of the newsprint traded as part of the denominator of
the financial expense ratio in order to allocate the expenses to
all of Kejriwal’s business activities.” I&D Memo, Comm. 2 at 6.
Commerce arrived at this decision after considering arguments
advanced by both Kejriwal and the Association at the agency level
and verifying Kejriwal’s financial expenses.
Having reviewed Commerce’s findings and reasoning, the court
concludes that Commerce adequately explained itself and supplied
the “reasoned analysis” necessary to depart from its normal
practice. Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm
Mut. Auto. Ins. Co., 463 U.S. 29, 42 (1983). Commerce agreed
with Kejriwal that it would be unreasonable to include only cost
of goods sold in the denominator in calculating the financial
expense ratio because the financing costs associated with
Kejriwal’s newsprint business far exceeded the cost of goods sold
(i.e., its CLPP business) reflected in Kejriwal’s financial
statements. That is, because the newsprint line of business
incurred significant financial expenses, it was not reasonable to
allocate all financial expenses to the CLPP line of business.
Consol. Court No. 06-00395 Page 35
I&D Memo, Comm. 2 at 5 (“[A]llocating all financial expenses to
lined paper would overstate the cost of production of lined
paper.”). Thus, Commerce concluded that in order to achieve a
true picture of the company’s business, an amount must be
included for the financial expenses incurred to trade paper,
i.e., the amount of interest it paid in financing its newsprint
transactions.
Given this analysis, the court cannot credit the
Association’s assertions that Commerce did not adequately explain
its decision or provide adequate reasons for deviating from past
precedent. The court’s review of the Department’s findings
reveals that the agency considered the unique facts that
Kejriwal’s business model presented and made its decision after
verifying Kejriwal’s financial expenses.11 Further, having
11
Commerce’s Verification Report explains:
Company records indicated that interest on
letters of credit and bill discounting
expenses were based to a large extent on the
transactions associated with its newsprint
operations. Company officials stated that
Kejriwal opens letters of credit with the
paper manufacturers as the beneficiary. The
paper manufacturer then produces and supplies
newsprint to the purchaser of newsprint
(i.e., the newsprint published). . . . [W]e
noted that the newsprint manufacturer will
issue an invoice to the newspaper publisher
and the newspaper publisher will pay
Kejriwal. According to company officials,
Kejriwal is obligated to pay the invoice
amount to the bank within the stipulated date
(continued...)
Consol. Court No. 06-00395 Page 36
acknowledged that it was treating this matter differently than it
typically treats financial expense ratio calculations, Commerce
provided “adequate guidance to parties affected by its actions”
and “present[ed] the reviewing court with a discernable basis to
judge” the deviation from its normal practice. Comm. for Fair
Beam Imps. v. United States, 27 CIT 932, 944, Slip Op. 03-73 at
19-20 (2003) (not reported in the Federal Supplement) (citations
omitted).
The court finds that Commerce’s determination is reasonable,
in accordance with law, and supported by substantial evidence.
Accordingly, Commerce’s calculation of Kejriwal’s financial
expense ratio is sustained.
V. Kejriwal’s General and Administrative Expense Ratio
The court next turns to Commerce’s calculation of Kejriwal’s
general and administrative (“G&A”) expense ratio,12 which is
11
(...continued)
irrespective of whether Kejriwal receives the
payment from the publisher, and in the
process incurs interest expenses . . . .
Bank charges on the letters of credit and
miscellaneous bank charges are incurred for
establishing the letters of credit,
negotiating the bill of credit, and various
expenses charged by the bank.
Verification Report at 36 (citations omitted).
12
Under 19 U.S.C. § 1677b(e)(2)(A), Commerce is directed,
in calculating constructed value, to include “the actual amounts
(continued...)
Consol. Court No. 06-00395 Page 37
challenged by both the Association and Kejriwal. The G&A expense
ratio is the component of constructed value in which Commerce
accounts for certain of a company’s overhead expenses. These are
expenses incurred during the period of investigation “which
relate indirectly to the general operations of the company rather
than directly to the production process.” See Standard Section D
- Cost of Production and Constructed Value Questionnaire at D-18
12
(...continued)
incurred and realized by the specific exporter or producer being
examined in the investigation or review for selling, general, and
administrative expenses, and for profits, in connection with the
production and sale of a foreign like product . . . .”
Furthermore, the statute directs that
[c]osts shall normally be calculated based on
the records of the exporter or producer of
the merchandise, if such records are kept in
accordance with the generally accepted
accounting principles of the exporting
country (or the producing country, where
appropriate) and reasonably reflect the costs
associated with the production and sale of
the merchandise. The administering authority
shall consider all available evidence on the
proper allocation of costs, including that
which is made available by the exporter or
producer on a timely basis, if such
allocations have been historically used by
the exporter or producer, in particular for
establishing appropriate amortization and
depreciation periods, and allowances for
capital expenditures and other development
costs.
19 U.S.C. § 1677b(f)(1)(A). As Kejriwal’s motion points out,
however, the antidumping statute “provides . . . no further
guidance or methodology for calculating general and
administrative expenses.” Kejriwal’s Br. 14 (citation omitted).
Consol. Court No. 06-00395 Page 38
(“Standard Questionnaire”), available at
http://ia.ita.doc.gov/questionnaires/q-inv-sec-d-092106.pdf.
They “include amounts incurred for general [research and
development] activities, executive salaries and bonuses, and
operations relating to [a] company’s corporate headquarters.”
Standard Questionnaire at D-18.
For the Association, Commerce’s calculation was unlawful
because the Department relied on information not provided by
Kejriwal until verification. For Kejriwal, Commerce’s
calculation was contrary to law and unsupported by substantial
evidence, primarily because it did not include the cost of
newsprint traded in the denominator of the G&A expense ratio as
it had done in computing Kejriwal’s financial expense ratio.
1. Commerce’s Verification of Kejriwal’s Reporting
The Association argues that Commerce improperly “calculated
Kejriwal’s . . . [G&A] expense ratio based on information that
Kejriwal did not provide the Department until verification.”
Ass’n Br. 13. By doing so, the Association maintains, Commerce
violated its own regulations, which state that the purpose of
verification is “to verify the accuracy and completeness of
[previously] submitted factual information,” i.e., not to accept
new information. Ass’n Br. 13.
In making its argument, the Association claims that Kejriwal
Consol. Court No. 06-00395 Page 39
submitted “an entirely new analysis of its G&A expenses” at
verification, and that Commerce improperly accepted the new data
as having been “prepared at its request.” Ass’n Br. 17-18
(citing I&D Memo, Comm. 3 at 9). The Association acknowledges
that Commerce requested “a detailed analysis” of G&A expenses,
but claims that, rather than provide such an analysis, Kejriwal
provided new factual information. It insists that Commerce’s
acceptance of this new information runs counter to the purpose of
verification, which is to confirm the accuracy of previously
obtained information rather than to gather new information. See
Ass’n Br. 19 (citing 19 C.F.R. § 351.307(d)). The Association
asserts, therefore, that Commerce should have rejected Kejriwal’s
submission as untimely.
Commerce maintains that Kejriwal’s submission was not
untimely because the Department “asked Kejriwal to prepare, to
clarify and corroborate the data submitted in [its] questionnaire
responses.” Def.’s Br. 36. Commerce characterizes Kejriwal’s
submission as a “detailed analysis of information already
submitted,” rather than new information. Def.’s Br. 36. The
Department thus asserts that it acted within its discretion in
accepting Kejriwal’s analysis and also states that, in limited
circumstances,13 respondents may provide new factual information
13
The Department explains: “Commerce accepts information
at verification when ‘1) the need for that information was not
(continued...)
Consol. Court No. 06-00395 Page 40
at verification.
Commerce notes that it sent Kejriwal an agenda before the
verification, asking for a more detailed analysis of certain G&A
expenses. See Def.’s Br. 37-38; see also Letter Dated May 5,
2006 with Attachments from Program Manager to deKieffer & Horgan
at 10 (the “Verification Agenda”). The Department adds:
To the extent that Commerce requested and
Kejriwal provided further details regarding
particular cost items, accounts, or
transactions, the information that was
obtained [was] to “corroborate, support, or
clarify information already on the record” of
the proceeding, in accordance with Commerce
practice.
Def.’s Br. 38-39 (quoting Structural Steel Beams From Luxembourg,
67 Fed. Reg. 35,488, Comm. 1 (Dep’t of Commerce May 20, 2002)
(notice)). As a result, Commerce argues that the procedures it
employed respecting Kejriwal’s verification were in accordance
with law.
While faulting Commerce’s calculation of its G&A expense
ratio in other respects, Kejriwal asserts that it timely
submitted all information requested by the Department. See
13
(...continued)
evident previously, 2) the information makes minor corrections to
information already on the record, or 3) the information
corroborates, supports, or clarifies information already on the
record.’” Def.’s Br. 37-38 (quoting CITIC Trading Co. v. United
States, 27 CIT 356, 373, Slip Op. 03-23 at 27-28 (2003) (not
reported in the Federal Supplement) (quotations and citations
omitted).
Consol. Court No. 06-00395 Page 41
Kejriwal Resp. Pl.’s Mot. 6-7. It argues that its G&A analysis
submission was fully in accordance with Commerce’s requests. In
other words, Kejriwal insists that its submission was responsive
rather than excessive. See Kejriwal Resp. Pl.’s Mot. 7.
Generally, when asked by an interested party, Commerce
“shall,” to the extent practicable, verify information presented
to it during an antidumping review. See 19 U.S.C. § 1677m(i)(3);
19 C.F.R. § 351.307(a). As noted above, however, the Department
enjoys some discretion in selecting its verification methodology.
See Micron Tech., Inc., 117 F.3d at 1396.
With this in mind, the court finds that Commerce correctly
accepted Kejriwal’s G&A analysis submission provided to the
Department at the time of verification. It is within Commerce’s
discretion to accept such information, particularly when Commerce
reasonably believes the information clarifies and corroborates
previously submitted information. See Reiner, 26 CIT at 560, 206
F. Supp. 2d at 1334 (explaining that Commerce has discretion to
accept new information presented during verification that
clarifies or corroborates information on the record, but may also
reject as untimely “substantial revisions” presented during
verification) (citations omitted).
Here, Commerce’s Verification Agenda expressly required
Kejriwal to prepare, in advance of verification: (1) a review of
its newsprint business explaining “how the expenses related to
Consol. Court No. 06-00395 Page 42
the Newsprint business is recorded in Kejriwal’s financial
accounting system;” (2) “[o]btain a schedule that identifies all
major categories of selling, general and administrative
expenses;” and (3) “[t]race the total of selling, general and
administrative expenses to the [company’s] financial statements .
. . .” See Verification Agenda at 4, 10-11. These requests
expanded upon requests previously made in Commerce’s Standard
Questionnaire. See Standard Questionnaire at D-14, 1 (asking for
a G&A breakdown and requesting the respondent to “[d]emonstrate
how the G&A expenses and the [cost of goods sold] used in the
ratio reconcile to your company’s audited fiscal year financial
statements”). In addition, Commerce’s regulations specifically
permit respondents to provide the Department with new factual
information at or soon after verification: “factual information
requested by the verifying officials from a person normally will
be due no later than seven days after the date on which the
verification of that person is completed.” See 19 C.F.R.
§ 351.301(b)(1).
Therefore, it was entirely in accordance with law for
Commerce to seek clarification as to these topics at the time of
verification and for Kejriwal to provide additional responsive
information, particularly concerning the extent of its newsprint
business. “Commerce has often accepted new information when . .
. the information corroborates, supports, or clarifies
Consol. Court No. 06-00395 Page 43
information already on the record.” CITIC Trading Co., 27 CIT at
373, Slip Op. 03-23 at 27-28 (quotations and citations omitted).
Here, as evidenced by Commerce’s Verification Report, the
Department “used the analyses provided by Kejriwal and reconciled
them with the information already submitted” and “ensure[d] that
cost data already submitted was categorized correctly.”
See Def.’s Br. 39; Verification Report at 31-34. Accordingly, it
cannot be said that Commerce abused its discretion. See Am.
Alloys, Inc. v. United States, 30 F.3d 1469, 1475 (Fed. Cir.
1994) (“[T]he statute gives Commerce wide latitude in its
verification procedures.”).
2. Commerce’s Calculation of Kejriwal’s General and
Administrative Expense Ratio
For its part, Kejriwal challenges Commerce’s calculation of
its G&A expense ratio because the Department did not include the
cost of newsprint traded in the ratio’s denominator. Kejriwal
argues that, by not including the cost of newsprint traded in the
denominator, Commerce failed to adhere to its own precedent and
long-standing practice of calculating a company’s G&A expense
ratio for the operations of a company as a whole.
As an initial matter, Kejriwal points to Commerce’s
Antidumping Manual to establish Commerce’s standard calculation
of the G&A expense ratio. The Antidumping Manual states, in
pertinent part, that Commerce prefers to calculate the G&A
Consol. Court No. 06-00395 Page 44
expense ratio “by dividing the fiscal year G&A expenses by the
fiscal cost of goods sold (adjusted for categories of expense not
included in [cost of manufacture], such as packing) . . . .” See
Antidumping Manual Ch. 8 at 58 (Dep’t of Commerce Jan. 22, 1998).
Commerce then applies the percentage to the cost of manufacture
of the product. See id. But see Kejriwal’s Br. 15, n.16
(acknowledging that Commerce’s Antidumping Manual states that it
“is for the internal guidance of import administration personnel
only and cannot be cited to establish Commerce practice”).
Kejriwal then points to this Court’s decision in Floral Trade
Council v. United States, 23 CIT 20, 44, 41 F. Supp. 2d 319, 341
(1999), among others, to note that this Court has repeatedly
upheld this method of determining the G&A expense ratio. See
Kejriwal’s Br. 16-17.
According to Kejriwal, after verification, “Commerce
realized that it could not calculate an accurate [constructed
value] for Kejriwal on a company division basis,” and therefore
modified its methodology by “identif[ying] certain direct
expenses,” removing them from the numerator, “and add[ing] them
to the denominator as the cost of newsprint revenue.” Kejriwal
Br. 18. For Kejriwal, Commerce’s methodology did not fully
account for the significance of its newsprint business. It
asserts that “[h]ad Commerce properly calculated the company’s
G&A expense ratio and thus arrived at an accurate [constructed
Consol. Court No. 06-00395 Page 45
value], Kejriwal’s corresponding dumping margin would have been
de minimus and the company would not be subject to the
antidumping duty order against [CLPP] from India.” Kejriwal’s
Br. 19.
To bolster its point, Kejriwal notes that Commerce “verified
in great detail” that the bulk of its G&A expenses were
attributable to its newsprint business, but Commerce still
allocated 91 percent of its G&A expenses to subject CLPP and only
9 percent to non-subject merchandise. See Kejriwal Br. 19-20.
Kejriwal further argues that Commerce’s reason for not including
newsprint traded in the denominator (i.e., that “the cost of the
raw materials supplied by the customer should not be included in
the [cost of goods sold] because there was no recognized expense
and there is no matching revenue item for those physical raw
materials”) is flawed. See Kejriwal’s Br. 21 (quoting I&D Memo,
Comm. 3 at 9).
Kejriwal points out that Commerce included the cost of
newsprint traded in the denominator in its calculation of
Kejriwal’s financial expense ratio because of the unique nature
of its business model. See Kejriwal’s Br. 24-26. It believes
that this unique nature makes it necessary to allocate company-
wide G&A expenses to the company-wide cost of goods sold in both
its G&A and financial expense ratios. Therefore, it asserts
that, to “properly account for Kejriwal’s business in nonsubject
Consol. Court No. 06-00395 Page 46
merchandise, Commerce should have included the cost of newsprint
traded in the denominator of its G&A expense ratio. There are no
reasonable arguments to justify excluding this cost from
Commerce’s calculation.” Kejriwal’s Br. 24.
For its part, the Association argues that “Kejriwal proposes
that the Department impute a cost for newsprint that the company
never purchased, never received into inventory, never took title
to, never paid for, and never resold.” See Ass’n Resp. Br. 10.
Therefore, it insists: “[T]he Departments’s refusal to include
the cost of newsprint in the G&A expense ratio was reasonable and
was supported by the evidence of record . . . .” See Ass’n Resp.
Br. 10.
Commerce argues that it justifiably distinguished its
treatment of the costs of newsprint traded in calculating
Kejriwal’s financial expense and G&A expense ratio because
Commerce found that the financial expense for
the traded newsprint was necessary due to
“unusual facts in this case where the purpose
of the allocation ratio is thwarted because
of the structure of the newsprint
transactions. Thus, it is appropriate to
allocate the financing expenses of the
company as a whole to both the cost of goods
manufactured directly by Kejriwal and the
cost of the goods traded.” For G&A expenses,
on the other hand, Commerce found that the
“cost of the raw materials supplied by the
customer should not be included in the [cost
of goods sold] because there was no
recognized expense and there is no matching
revenue item for those physical raw
materials.” Thus, Commerce did not
Consol. Court No. 06-00395 Page 47
“include[] the cost of newsprint in the [cost
of goods sold] but instead reclassified
certain newsprint operation direct expenses
from G&A expense to cost of newsprint revenue
and included those expenses in the
denominator of the G&A expense ratio
calculation.” This division is reasonable
given the “unique” facts and division between
financial expense, which applied to all of
the newsprint, and G&A, which did not involve
the raw materials for the newsprint.
Def.’s Br. 29 (quoting I&D Memo, Comms. 2-3) (internal citations
omitted). Thus, the Department maintains that it made the
necessary adjustments to give a fair picture of Kejriwal’s
business. As a result, Commerce asks the court to sustain its
decision because, it insists, the decision was justified, fully
explained, and within its discretion. See Def.’s Br. 28-29.
Commerce must calculate as accurate a constructed value as
possible, including therein its calculation of general and
administrative expenses. See Thai I-Mei Frozen Foods Co. v.
United States, 32 CIT __, __, 572 F. Supp. 2d 1353, 1359 (2008)
(“Commerce must be guided by the objectives of achieving an
accurate margin and a fair comparison between export price and
normal value.”). Commerce is further required to calculate costs
based on a respondent’s reasonably reflective records and
“consider all available evidence on the proper allocation of
costs . . . .” See 19 U.S.C. § 1677b(f)(1)(A). The statute
provides no further guidance and therefore Commerce is afforded
certain discretion in calculating G&A expenses.
Consol. Court No. 06-00395 Page 48
Having reviewed the record, the court finds that Commerce’s
explanation of its construction of the G&A expense ratio is
inadequate. Therefore, it must be remanded for reconsideration.
Here, Commerce verified that the majority of Kejriwal’s G&A
expenses are associated with its newsprint operations, but
allocated the majority of such expenses to its CLPP business. As
Kejriwal explains, and the record confirms, Kejriwal had
approximately 60 suppliers and customers of newsprint and fewer
than five CLPP customers. Further, six and one-half out of
Kejriwal’s seven offices were dedicated to newsprint trading, as
were most of its employees. See Kejriwal Br. 19-20 (citing
Verification Report at 8-11, Ex. 4 at 2. This being the case,
the Department has failed to explain how it is reasonable to
include overhead expenses associated with Kejriwal’s newsprint
business in the numerator and not include some appropriate
corresponding value in the denominator. In addition, the court’s
comparison of Kejriwal’s profit and loss account for the year
ending March 31, 2004, before the POR and before Kejriwal started
its CLPP operation, with that for the year ending March 31, 2005,
further reveals that the large majority of Kejriwal’s G&A
expenses were associated with newsprint trading, i.e., non-
subject merchandise.14 Nevertheless, Commerce’s calculation does
14
Kejriwal’s profit and loss account for the year ending
March 31, 2004, before the POR and before Kejriwal started its
(continued...)
Consol. Court No. 06-00395 Page 49
not seem to account for this in allocating G&A expenses to
subject merchandise, and therefore does not give a fair picture
of the company’s business.
Given these findings, the court cannot conclude that
Commerce’s analysis was reasonable. Accordingly, this matter is
remanded to Commerce for it to reconsider Kejriwal’s G&A expense
ratio calculation in a manner comporting with this opinion. On
remand, the agency is directed to account for Kejriwal’s cost of
newsprint traded (or some fair equivalent value) in the
denominator of the ratio of its G&A expense ratio calculation,
and recalculate Kejriwal’s G&A expenses allocated to Kejriwal’s
subject merchandise. Alternatively, Commerce is directed to
explain in detail how its treatment of Kejriwal’s G&A expense
ratio fairly allocates G&A expenses between subject and non-
subject merchandise. Commerce shall make specific reference to
the record evidence demonstrating that, as reported in footnote
14, the majority of Kejriwal’s G&A expenses are associated with
its newsprint operations. This includes, but is not limited to,
the number of Kejriwal’s offices, employees, suppliers, and
customers dedicated to its newsprint business, as compared to its
14
(...continued)
CLPP operation, reported approximately [[ ]] as
G&A expenses. For the year ending March 31, 2005, covering most
of the POR and including the start-up CLPP business, Kejriwal
reported approximately [[ ]] as G&A expenses.
See Verification Report, Ex. 1 at 14.
Consol. Court No. 06-00395 Page 50
CLPP operation. The Department shall further explain how its G&A
expense ratio calculation is consistent with its treatment of
Kejriwal’s financial expense ratio and with the overarching
purpose of calculating as accurate a dumping margin as possible.
CONCLUSION
For the reasons stated, Commerce’s final results of
administrative review are sustained in part and remanded. Remand
results are due on or before January 16, 2009. Comments to the
remand results are due on or before February 16, 2009. Replies
to such comments are due on or before March 2, 2009.
/s/ Richard K. Eaton
Richard K. Eaton
Dated: November 17, 2008
New York, New York