AD Intervenor Defends Commerce's Surrogate Financial Ratio Calculation Method at CIT

The Court of International Trade should reject exporter The Ancientree Cabinet Co.'s argument that the Commerce Department's calculation of financial ratios in an antidumping duty investigation is inconsistent with the agency's practice, defendant-intervenor American Kitchen Cabinet Alliance said in a Dec. 21 brief. In the reply to Ancientree's comments on Commerce's remand results, the AKCA also said Ancientree's argument against the accuracy of Commerce's financial ratio calculation is meritless because using more line items doesn't always result in more accuracy (The Ancientree Cabinet Co., Ltd. v. U.S., 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 CIT upheld in the first decision (see 2107130032) -- and used the financial statements from the Romania-based company Sigstrat.

During the investigation, AKCA submitted a methodology to calculate surrogate financial ratios that started with the cost of goods sold (COGS) from surrogate company Sigstrat's financial statements. Ancientree 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 using Commerce's methodology in a previous AD review on wood flooring from China.

Breaking with its methodology in the wood flooring review, Commerce opted for the methodology that starts with the COGS because 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." Commerce never explained this to Ancientree, the company said. The court remanded the case to Commerce.

Commerce in its remand results used the COGS methodology (see 2110130053). The agency said there is no "normal way to calculate the ratios." Ancientree argued that this practice is inconsistent with the agency's practice (see 2111180072).

AKCA argued that Commerce's practice is to calculate financial ratios using financial statements that list costs by function rather than by the type of transaction. "Thus, when one of the goals of calculating financial ratios is to calculate a separate surrogate value for manufacturing, it is not always as accurate to rely on line items that are specific to labor," the brief said. "For similar reasons, because the denominator of Commerce’s financial ratios involves a company’s total cost of manufacturing, the agency prefers using financial statements that include a line item for the cost of goods sold (“COGS”), which can then easily be used to calculate the cost of manufacturing for the surrogate company."

Ancientree also argued that Commerce's calculation is not as accurate as possible because the ratio calculation uses fewer line items from the statement, "allowing for less separation of various different type of costs and a less specific and accurate ratio calculation.” Again, AKCA opposed this rationale: "There is no need to cobble together a cost of manufacturing from multiple line items for 'labor' or 'materials' when there is a single line item in the notes that includes the complete relevant costs to this calculation. The use of multiple line items makes for a more complicated calculation that can create an illusion of more precision, but it actually a less precise way of calculating the cost of manufacturing used as the denominator for financial ratios."