CIT Says Commerce Properly Collapsed 3 AD Respondents Into 1 Entity, Assigned 0% Dumping Rate

The Court of International Trade in a June 15 opinion upheld the Commerce Department's final determination in the 2019 antidumping duty investigation on wood mouldings and millwork products from Brazil. Judge Jennifer Choe-Groves ruled that Commerce properly combined the three mandatory respondents -- Araupel, Braslumber Industria de Molduras and BrasPine Madeiras -- into a single entity and correctly didn't apply the major input rule to certain log purchases. Commerce was also right to revise Araupel's general and administrative expenses to account for fair value adjustments associated with the annual revaluation of standing trees in the company's unharvested forests, the court said. The result is a zero percent dumping margin for the collapsed entity.

The case was filed by the Coalition of American Millwork Producers, which contested Commerce's decision to collapse Araupel, Braslumber and BrasPine. Commerce has three preconditions for collapsing entities: the companies must be affiliated, they must have production facilities for similar or identical products that won't require retooling and there must be the potential for price or production manipulation. Under this third precondition, Commerce can consider the level of common ownership, the extent to which managers or board members of one company sit on the board of an affiliate and whether operations are intertwined.

The coalition took issue with Commerce's analysis of the third factor, arguing that only shared commonality between the three is "the ancestry of the lineal descendants of a certain ancestor among individuals in 'decision making' positions at each company." Commerce said that its common practice is to consider the ownership interest and that the controlling family in this case owns the majority of Braslumber's and BrasPine's equity and has indirect majority control of Araupel through its ownership of certain holding companies. Also, members of this family hold senior management positions and board spots at Araupel and Braslumber/BrasPine, it said.

Choe-Groves held that substantial evidence backs Commerce's position. "Commerce determined that evidence showed that Braslumber and BrasPine had an almost identical ownership structure, an overlapping management structure, an intertwined production process, and that the lineal descendants of a common ancestor (the 'family') held majority control of both Braslumber and BrasPine," the opinion said. Further, the companies had similar mills that made almost the exact same product. The judge also held that it was reasonable for Commerce to say that there was a significant potential for price or production manipulation given the family's indirect majority control of all three companies.

The coalition also took issue with Commerce's decision to find that Araupel was not affiliated with an unnamed input supplier for the purpose of the major input rule -- the practice that deals with the cost of inputs when sold between affiliates. During the investigation, it came out that Araupel entered into a joint venture with the unnamed company's parent firm and that Araupel bought the input -- standing logs -- on land owned by two other unnamed firms, which were jointly owned by Araupel and the standing log suppliers' parent company. The coalition argued that this relationship created an "obvious" potential to impact pricing and production decisions.

The court sided with Commerce, which argued that this characterization of Araupel and the unnamed companies is inaccurate. The agency said that Araupel did not have any ownership interest in the input company or its parent and that it had only a minority interest in the land-owning firms.

"Araupel did not exercise any control over the operations, production, or pricing decisions of Company A or Company B during the joint venture," the judge said. "Araupel does not share any board members or company directors/employees with Company A or Company B. ... Because substantial evidence on the record supports Commerce’s determination that Araupel was not affiliated with Company A, the Court sustains Commerce’s determination not to apply the major input rule."

The judge also addressed Commerce's decision to reverse Araupel's reported general and administrative expenses. The respondent said that the value of its forests is carried at fair value less estimated selling costs at the time of harvest, applying an adjustment to self-grown and harvested wood. The adjustment, though, is not applied to the cost of production. Araupel said that it didn't believe it was appropriate to include the adjustment in its G&A expenses and that its self-grown logs should be valued at historical cost. The coalition challenged this, arguing that Commerce should not have changed the reported G&A expenses to include the adjustment.

"In this case, Commerce’s G&A expense calculation was reasonable because the adjustment was included in Araupel’s audited financial statements that were found to be compliant with Brazilian [Generally Accepted Accounting Principles], and record evidence did not demonstrate that the financial statements were distortive or did not reasonably reflect the cost of producing and selling the merchandise," the judge said.

Lastly, the judge addressed the coalition's challenge to Commerce's calculation of imputed credit expenses and inventory carrying costs. During AD cases, Commerce can make a "circumstance of sale" adjustment to normal value to address differences in credit terms between home market and U.S. sales, the court said. To do this, the agency relies on the interest rate for the respondent's short-term borrowings in U.S. dollars. Without such borrowings, Commerce uses the Federal Reserve's weighted-average data for commercial and industrial loans maturing between one month and one year from the time the loan is made.

The coalition argued that the rate used by Araupel was "inappropriate" and that the respondent should have used a 5.73% interest rate from the Federal Reserve's Small Business Lending Survey. The issue then boiled down to whether Araupel is a small business and whether this rate would be applicable.

"Because Araupel’s annual revenue exceeded $5 million, Araupel is ineligible to be considered a small business under the relevant definition, and the Court concludes that Commerce’s decisions not to use the Small Business Lending Survey interest rate and to use the 2.16 percent interest rate from the Federal Reserve Bank of New York were reasonable and in accordance with the law," the judge said.

(Coalition of American Millwork Producers v. United States, Slip Op. 22-68, CIT #21-00047, dated 06/16/22, Judge Jennifer Choe-Groves. Attorneys: Timothy Brightbill of Wiley Rein for plaintiff; Ioana Cristei for defendant U.S. government; Craig Lewis for defendant-intervenor Araupel S.A.)