DOJ, CAFC Clash on Cost Allocations in Chinese Solar Panels Case

In oral argument Sept. 3 before the U.S. Court of Appeals for the Federal Circuit -- which the case's primary exporter attempted to avoid (see 2408020019 and 2408120039) -- judges clashed with the government over the Commerce Department's decision to assign unallocated costs to overhead, rather than another cost category (Risen Energy Co. v. U.S., Fed. Cir. # 23-1550).

The case, which the Court of International Trade ruled on at the end of 2022 (see 2301050026), involves a dispute about whether, in a review of an antidumping duty order on solar cells from China, the Commerce Department selected the right Malaysian Harmonized Tariff Schedule subheadings in choosing surrogate data for several solar cell inputs. Plaintiffs led by Risen Energy also dispute the department’s handling of financial ratios. The parties also discussed Commerce’s treatment of financial ratios -- after making its cost calculations, the department was left with a small amount of unallocated costs without a clear guideline as to how those costs should have been categorized. Risen claimed they should be categorized under materials, energy and labor, while Commerce ultimately determined to put them into overhead.

One rule, note 2.12, holds that manufacturing overhead is already included in inventory. In allocating the leftover costs to overhead, Risen attorney Alexandra Salzman of deKieffer & Horgan said, Commerce was adding more overhead to the mandatory respondent.

“It seems to me that Commerce is putting it in overhead because that increases the dumping margin,” CAFC Judge Timothy Dyk said.

The judges and DOJ attorney Ashley Akers clashed over whether the government had addressed the issue. Akers said the court, not the plaintiffs, raised the argument regarding note 2.12.

“They made that explicit argument a couple of minutes ago,” Dyk said. “You weren’t listening?”

Akers said -- and Salzman disputed -- that the exporter hadn’t raised it in its briefing. Rather, the plaintiffs were arguing only that Commerce had departed from past practice when calculating the review’s financial ratios, but that “every financial statement is different.”

“They’ve also argued that, under Commerce’s view, overhead ends up being too high and depreciation too low,” Judge Leonard Stark said. “What’s your response to that?”

Akers said Commerce had provided a reasonable explanation for placing the unallocated costs into overhead. The judges disagreed, saying that they couldn’t find it.

The classification questions for two inputs, meanwhile, turn on the same question, Salzman said: whether the inputs, backsheets and ethylene vinyl acetate sheets, are “films” or “sheets.” In previous reviews, the department classified them as films when looking to the Malaysian data, but it switched to sheets in the review in dispute.

There are no industry standards to look to in order to make that determination, Salzman said. The appellate court pointed out that, more generally, ASTM provides two standards that could define film and sheet based on thickness, but “these should not be considered industry standards” because they “would not clearly define between sheet and film for the solar industry.”

“If [the Commerce Department] could have sided with you and your evidence, but equally, could have sided the way it did, we have to affirm, don’t we?” Stark asked.

She argued that a reasonable mind couldn't determine that the two standards defined the inputs as sheet.

Akers ran out of time before she could answer questions on the issue.