Wooden Cabinet Exporter Fights Commerce's Surrogate Financial Ratio Calculation Method at CIT

The Commerce Department's surrogate financial ratio calculation in an antidumping duty case, while better explained, is not the most accurate calculation and thus does not comply with the law or the Court of International Trade's order, plaintiff Ancientree Cabinet Co. argued in a Nov. 12 brief at CIT. Further, the particular methodology Commerce used also doesn't jibe with the agency's past methodology and reasoning in other AD reviews, the brief said (The Ancientree Cabinet Co., Ltd. v. United States, CIT # 20-00114).

The case stems from an antidumping duty investigation on wooden cabinets and vanities from China in which Ancientree was tapped to serve as a mandatory respondent. Commerce picked Romania as the surrogate country for determining normal value -- a move that was upheld by the court in the first decision (see 2107130032) -- and used the financial statements from the Romania-based company Sigstrat.

During the investigation, the antidumping petitioner, the American Kitchen Cabinet Alliance, submitted a methodology to calculate surrogate financial ratios that started with the cost of goods sold (COGS) from the surrogate company Sigstrat's financial statements. Ancientree, on the other hand, submitted two methodologies for calculating the ratios, one using Sigstrat's data starting with line items from the company's income statements, and the other that was just Commerce's methodology in the prior year's less than fair value investigation.

Breaking with the prior year's methodology, Commerce said that it prefers the methodology that starts with the COGS since it "identifies Sigstrat’s costs by function (i.e., COGS, SG&A [selling, general and administrative expenses], etc.), not type of transaction, and allows Commerce to properly classify the costs as either manufacturing costs, operating costs (i.e., SG&A costs), or financial expenses." However, Commerce never explained this to Ancientree, the company said.

This resulted in the court remanding the case to Commerce on that issue only: that Commerce did not adequately explain its calculation of Sigstrat's financial ratios in light of its past practices. Commerce in its remand results stuck with this methodology, arguing that it is not necessarily the case that it starts with the profit and loss statement in its ratio calculation (see 2110130053). The agency said there is no "normal way to calculate the ratios."

What Ancientree argues in its comments on these remand results is that Commerce "glosses over" the fact that the profit and loss notes are the notes to the financial statement that explain the balance sheet, profit and loss, statement of change inequity and state of treasury flow. "The Department claims a financial statement does not 'read like a novel, such that information on the last page is only meaningful after reading the previous pages,'" the brief said. "However, it is indeed not meaningful to read the notes to the profit and loss statement (“P&L”) without first starting with the P&L.

"The P&L statement, otherwise also known in shorthand as the 'income' statement, is the sum of ... how the revenues and expenditures resulted in the net profit. The subsequent notes provide further details or breakdowns of those costs. It is illogical to start with the notes and then [take] some line items from the P&L statement rather than starting with the P&L statement and disaggregate costs (such as COGS) from the notes, which is what the company itself did. Thus, the Department’s calculation method in this remand is contrary to the flow of the statement."