CIT Upholds Commerce's Method to Set Quantity of Merch, Surrogate Data, Profit Cap in AD Case

The Commerce Department legally used a quarterly ratios methodology to set the quantity of subject mattresses sold by respondent Zinus Indonesia in an antidumping duty investigation, the Court of International Trade ruled on March 20. Ruling on seven specific challenges raised by Zinus Indonesia and AD petitioner Brooklyn Bedding, Judge Jennifer Choe-Groves also upheld Commerce's decision to use surrogate financial information from Indian mattress maker Emirates Sleep Systems, calculation and application of a profit cap and adjustment to Zinus U.S.'s reported sales deductions.

The court, however, remanded a handful of issues in the case, sending back the agency's inclusion of mattresses in-transit from Indonesia at the end of the investigation period, as well as adjustments to Zinus Korea's selling expenses to account for actual selling expenses and Commerce's application of the Transactions Disregarded Rule.

One of the issues covered by Choe-Groves was Commerce's quantity of mattresses methodology. Zinus U.S., Zinus Indonesia's affiliated U.S. buyer, bought mattresses made in Indonesia and three other countries, but it did not track the goods' country of origin after commingling them in warehouses. Zinus Indonesia, the sole mandatory respondent in the AD investigation on mattresses from Indonesia, asked for a first-in-first-out methodology, while Brooklyn Bedding vied for a quarterly ratios methodology, claiming that Zinus Indonesia's model would distort the total constructed export price (CEP) inventory sales.

Commerce agreed with Brooklyn Bedding, saying the quarterly ratios were better since they (1) applied quarterly ratios grounded in purchase data to the full universe of Zinus U.S.'s sales, (2) are neutral over which sales to report as subject merchandise sales, and (3) are less susceptible to manipulation. Choe-Groves also upheld this methodology, saying it takes quantities reported in Zinus Indonesia's questionnaire response and adjusts them to reflect the total number of mattresses also shipped to Zinus Korea during the investigation period.

But Choe-Groves took issue with the fact that the methodology included mattresses that had not yet arrived in the U.S. in the Zinus Indonesia CEP calculation. Choe-Groves said that the inclusion of these goods "might be permissible" under 19 U.S.C. Section 1677a(b), which says that CEP is the price at which the merchandise is first sold in the U.S. "before or after the date of importation," but Commerce did not justify their inclusion. "Commerce failed to provide sufficient explanation or citations to record evidence to support its inclusion of in-transit pre-importation goods sold in this case," the judge said, remanding the issue.

Choe-Groves then turned to Commerce's constructed value (CV) calculations for Zinus Indonesia. To calculate CV, the agency considered eight different companies, eventually landing on Emirates. The respondent challenged the selection, arguing that Emirates' data was not specific to the subject mattresses, Zinus Indonesia, foreign market or investigation period. But the judge found Emirates' business operations were "sufficiently similar" to the respondent's. And because the surrogate's financial statement overlapped with the first three months of the review period, the court found the data to be "contemporaneous."

Zinus Indonesia also challenged Commerce's rejection of financial statements from two Indonesian mattress makers, Graha Seribusatu Jaya and Ecos Jaya Indonesia. The agency rejected Graha's 2018 statement as not being contemporaneous and its 2019 statement for not being audited, while rejecting Ecos' 2019 statement for containing a qualified opinion by the auditor over the estimated future liabilities pertaining to post-employment benefit obligations and since it had a deviation from Indonesia's accounting principles. Choe-Groves said "Commerce was within its discretion to favor an audited opinion over an unaudited opinion" and "to favor an unqualified auditor's opinion over a qualified auditor's opinion."

The judge said that prioritizing Indonesian manufacturers, as Zinus Indonesia suggested, would "effectively nullify" the phrase "any other reasonable method" guiding Commerce's selection of CV.

The agency also found that it could not calculate a profit cap since the record did not have any information for making the calculation, determining the profit cap as facts available with Emirates' profit information. While Zinus Indonesia characterized the move as Commerce sidestepping its legal obligations, Choe-Groves agreed with the agency. The respondent then demanded that Commerce use Ecos' statement to set the profit cap, but the judge held that Zinus Indonesia has not given enough support to find that the 10.78% profit rate taken from Ecos' data is more representative of the Indonesian market than the 18.36% rate taken from Emirates' data.

In the investigation, Brooklyn Bedding said Zinus Indonesia tried to mask dumping by shifting sales deductions to non-subject merchandise sold via its affiliate, Best Price Mattress. As a result, Commerce adjusted Zinus Indonesia's U.S. sales, combining "the sales deductions, net of discounts, and returns of Zinus U.S. and Best Price Mattress, and dividing the sum by the combined gross sales" of Zinus U.S. and the affiliate, applying the resulting ratios to the gross unit price of all CEP sales.

In making the adjustment, Choe-Groves ruled that Commerce did not illegally apply facts otherwise available, as argued by Zinus Indonesia, since "no factual information was absent from the record." The judge added that the agency legally included Best Price in the deduction since Zinus U.S. and Best Price "shared a common parent and were involved in similar or identical sales of mattresses."

Brooklyn Bedding also claimed that Commerce failed to consider evidence of the selling expenses of affiliate Zinus Korea, jockeying for an adjustment to Zinus Indonesia's U.S. price. The judge remanded the issue on the grounds that the agency did not properly support its refusal to not adjust for Zinus Korea's selling expenses nor consider potentially contrary evidence. Commerce also failed to address Brooklyn Bedding's claim on how South Korea's accounting standards apply to Zinus Korea's selling expenses.

In the proceeding, Commerce used its Transactions Disregarded Rule to adjust prices between affiliates given that Zinus Indonesia got inputs from Chinese affiliates. The agency said that Global Trade Atlas import data was the most reliable, looking to data from Indonesia. Brooklyn Bedding claimed that only looking to the market under investigation when testing an affiliated supplier's price against a market price was illegal. Choe-Groves agreed, sending the issue back to Commerce for it to explain or reconsider "whether Commerce’s selection of Indonesia constituted a reasonable method to confirm that the affiliated prices reflect arm’s length transactions."

The judge wrapped up the decision by discussing Brooklyn Bedding's challenge to Commerce's alleged failure to require Zinus Indonesia to submit a sales reconciliation of its U.S. sales and audited financial statement. Since the issue was not raised administratively, both the government and the court considered it waived. But Choe-Groves still said, aside from the exhaustion angle, the court "is not convinced that Commerce deviated from its established practice in not requiring Zinus Indonesia to provide a financial reconciliation.”

(PT. Zinus Global Indonesia v. United States , Slip Op. 23-39, CIT Consol. #21-00277, dated 03/20/23, Judge Jennifer Choe-Groves. Attorneys: J. David Park of Arnold & Porter for plaintiff Zinus Indonesia; Yohai Baisburd of Cassidy Levy for defendant-intervenors led by Brooklyn Bedding; L. Misha Preheim for defendant U.S. government)