CIT Upholds Commerce's Financial Ratio Calculations in Wooden Cabinet AD Investigation

The Court of International Trade rejected exporter Ancientree Cabinet's arguments that the Commerce Department violated the law with its financial ratio calculations in an antidumping duty investigation. Judge Gary Katzmann ruled March 21 that Commerce adequately explained its ratio calculation methodology on remand and that, contrary to Ancientree's arguments, the agency didn't violate any normal or established practice.

"With the issuance of this opinion, the Court has now rejected each and every legal challenge that was asserted by Ancientree," said Luke Meisner, counsel for defendant-intervenor American Kitchen Cabinet Alliance. "As a result, the opinion goes a long way in ensuring that the domestic industry will continue to receive needed relief from unfairly traded imports of wooden cabinets and vanities from China."

The case stems from a sale at less than fair value investigation into wooden cabinets and vanities from China. Ancientree was the mandatory respondent. Commerce picked Romania as the surrogate country for determining normal value -- a move the court upheld in the first decision (see 2107130032) -- and used the financial statements from the Romania-based company Sigstrat. It was Commerce's financial ratio calculations, though, that prompted a remand order from CIT.

During the investigation, the antidumping duty 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 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 the prior year's less than fair value investigation.

Breaking with the prior year's methodology, Commerce explained on remand that it prefers the methodology that starts with the COGS because it "identifies Sigstrat’s costs by function (i.e., COGS, SG&A, 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" (see 2110130053). However, this explanation was originally not available to Ancientree, leading to the litigation.

In the March 21 opinion, Katzmann upheld Commerce's remand results. "The court concludes that Commerce adequately explained its methodology on remand, and accordingly upholds Commerce’s calculated financial ratios," the opinion said.

During litigation, Commerce said it got the most precise ratios by starting off with COGS and not the income statement line items, as Ancientree would have the agency do. Katzmann found evidence to be substantial to support this position. "To require Commerce to rely instead on the line-item costs which make up COGS would at best entail needless summation, and at worst (where, as here, those line item costs fail to delineate between manufacturing, administrative, and selling expenses) require substantial additional labor to disaggregate costs into their component functions, if accurate disaggregation is possible at all," the opinion said. Ancientree's methodology conflates accuracy with the use of many line items, Katzmann said.

As for Ancientree's argument that Commerce's COGS-first methodology violated a standard practice, the judge said there's no evidence of any such established practice. In fact, two other antidumping proceedings showed Commerce basing its surrogate financial ratio analysis on adjusted COGS, just as occurred in the present matter, Katzmann said.

The judge lastly addressed Ancientree's argument that Commerce's COGS adjustments amounted to "mere speculation." In response, Commerce said general accounting principles back its conclusions that production overheads included all non-basic manufacturing costs and that outside expenses aren't encompassed in production overhead. Commerce acknowledges using a degree of speculation in the adjustments "because Commerce is not empowered to go behind the information provided by surrogate manufacturers, but notes that the same is true of any potential analysis of Sigstrat’s financial data -- including Ancientree’s." Katzmann upheld the position.

(The Ancientree Cabinet Co. v. U.S. , Slip Op. 22-24, CIT #20-00114, dated 03/21/22, Judge Gary Katzmann. Attorneys: Gregory Menegaz of deKieffer & Horgan for plaintiff Ancientree; Mark Ludwikowski of Clark Hill for plaintiff-intervenor Cabinets To Go; Iona Cristei for defendant U.S. government; Luke Meisner of Schagrin Associates for defendant-intervenor American Kitchen Cabinet Alliance)