Slip Op. 12-59
UNITED STATES COURT OF INTERNATIONAL TRADE
FISCHER S.A. COMERCIO, INDUSTRIA AND AGRICULTURA AND CITROSUCO NORTH AMERICA, INC., Plaintiffs, Before: Richard W. Goldberg, Senior Judge v. Court No. 10-00281
PUBLIC VERSION UNITED STATES, Defendant,
and
FLORIDA CITRUS MUTUAL, DUDA PRODUCTS, INC., CITRUS WORLD, INC., and SOUTHERN GARDENS CITRUS PROCESSING CORPORATION (d/b/a SOUTHERN GARDENS),
Defendant-Intervenors.
OPINION
[Plaintiffs’ Motion for Judgment on the Agency Record under USCIT Rule 56.2 is granted in part and denied in part.]
Dated: April 30, 2012
Robert G. Kalik and Chelsea Savoy Severson, Kalik Lewin, of Washington, D.C., for plaintiffs. Of counsel on the brief was John Joseph Galvin, Galvin & Mlawski, of New York, NY.
Patryk J. Drescher, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of Washington, D.C., for defendant. With him on the brief were Tony West, Assistant Attorney General, Jeanne E. Davidson, Director, and Franklin E. White, Assistant Director. Of counsel on the brief was Whitney Rolig, International Trade Administration, U.S. Department of Commerce, of Washington, D.C.
Matthew Thomas McGrath and Stephen William Brophy, Barnes, Richardson & Colburn, of Washington, D.C., for defendant-intervenors Florida Citrus Mutual Company and Citrus World, Inc. Court No. 10-00281 Page 2
Goldberg, Senior Judge: Plaintiffs Fischer S.A. Comercio, Industria and Agricultura
(“Fischer”) and Citrosuco North America, Inc. (collectively “Plaintiffs” or “Fischer”) brought an
action to contest the final results of the U.S. Department of Commerce’s (“Commerce”)
antidumping duty determination. Plaintiffs challenge Commerce’s decisions to include and
exclude certain costs and expenses in the final results of the third administrative review of the
antidumping duty order on Certain Orange Juice from Brazil. See Certain Orange Juice from
Brazil, 75 Fed. Reg. 50,999 (Dep’t Commerce Aug. 18, 2010) (the “Final Results”).
For the reasons discussed below, Plaintiffs’ motion is granted in part and denied in part.
The Court remands the Final Results to Commerce for reconsideration of its decision to include
currency translation when calculating Fischer’s constructed value and its decision to apply its
zeroing methodology when calculating Fischer’s dumping margin. The Court affirms
Commerce’s decisions with respect to the remaining issues.
BACKGROUND
Fischer is a Brazilian company that produces orange juice concentrate that it exports to
the United States. In 2005, Commerce published the preliminary determination of sales at less
than fair value (LTFV) and notice of suspension of liquidation of all entries of subject
merchandise entered on or subsequent to that date. See Certain Orange Juice from Brazil, 70
Fed. Reg. 49,557 (Dep’t Commerce Aug. 24, 2005) (preliminary determination). In 2006,
Commerce published an antidumping duty order on certain orange juice from Brazil. Certain
Orange Juice from Brazil, 71 Fed. Reg. 12,183 (Dep’t Commerce Mar. 9, 2006) (antidumping
duty order). Court No. 10-00281 Page 3
In 2009, Commerce initiated the third administrative review of the antidumping duty
order on Certain Orange Juice from Brazil. Initiation of Antidumping and Countervailing Duty
Administrative Reviews and Request for Revocation in Part, 74 Fed. Reg. 19,042 (Dep’t
Commerce Apr. 27, 2009) (initiation). Pursuant to this review, Fischer provided the information
requested in Commerce’s questionnaires. Fischer reported that it used the U.S. dollar as its
“functional currency,” but that Brazilian law required it to present its financial statements in
reais, the Brazilian currency. Fischer submitted that its accounting practices follow the Brazilian
Generally Accepted Accounting Principles (GAAP). Fischer also noted that its income and
expenses are reported on an accrual basis, rather than a cash basis.1 Finally, Fischer explained
that although it is part of a larger corporate group, that group does not produce consolidated
financial statements. Consequently, Fischer’s unconsolidated financial statements are the highest
level of financial reporting available.
In 2010, Commerce published the preliminary results of the antidumping administrative
review. Certain Orange Juice from Brazil, 75 Fed. Reg. 18,794 (Dep’t Commerce Apr. 13,
2010) (“preliminary results”). In the preliminary results, Commerce determined that Plaintiffs’
dumping margin was 5.26 percent. On August 18, 2010, Commerce published its Final Results,
adopting the 5.26 percent dumping margin that it calculated in the preliminary determination.
Certain Orange Juice from Brazil, 75 Fed. Reg. 50,999 (Dep’t Commerce Aug. 18, 2010) (the
“Final Results”).
1 Accrual accounting records expenses as they are incurred. In contrast, cash accounting records expenses when the funds are actually paid. Court No. 10-00281 Page 4
JURISDICTION AND STANDARD OF REVIEW
This Court has jurisdiction pursuant to section 201 of the Customs Court Act of 1980, 28
U.S.C. § 1581(c) (2006).
This Court must “uphold Commerce’s determination unless it is ‘unsupported by
substantial evidence on the record, or otherwise not in accordance with law.’” Micron Tech., Inc.
v. United States, 117 F.3d 1386, 1393 (Fed. Cir. 1997) (quoting 19 U.S.C. § 1516a(b)(1)(B)(i)
(1994)). When reviewing agency determinations, findings, or conclusions for substantial
evidence, this Court determines whether the agency action is reasonable in light of the entire
record. See Nippon Steel Corp. v. United States, 458 F.3d 1345, 1350–51 (Fed. Cir. 2006).
DISCUSSION
Under the current antidumping law, Commerce must impose antidumping duties “on
imported merchandise that is being sold, or is likely to be sold, in the United States at less than
fair value to the detriment of a domestic industry.” Micron Tech., Inc. v. United States, 243 F.3d
1301, 1303 (Fed. Cir. 2001) (citing 19 U.S.C. § 1673). The “dumping margin,” which is the
amount of the duty to be imposed, “is the amount by which the price charged for the subject
merchandise in the home market (the ‘normal value’) exceeds the price charged in the United
States (the ‘U.S. price’).” Id. (citing 19 U.S.C. §§ 1673, 1677(25)(A)). Where, as here, the
foreign producer sells directly to an affiliated purchaser in the United States, Commerce must
calculate a constructed export price (CEP) to use as the U.S. price for purposes of comparison.
19 U.S.C. § 1677a(b). Because Fischer imports through its U.S. affiliate Citrosuco, Commerce
calculated a CEP for all sales at issue in this appeal. Court No. 10-00281 Page 5
Fischer produces only for export to the United States and does not sell goods in its home
market. Thus, there is no “normal value” of goods in the home market or in any third country for
Commerce to compare with the U.S. price. In this situation, Commerce calculates a “constructed
value” of goods in the home market to compare with the U.S. price. 19 U.S.C. § 1677b(a)(4). A
calculation of constructed value requires that Commerce determine “the actual amounts incurred
and realized by the specific exporter . . . for selling, general, and administrative expenses in
connection with the production and sale of the foreign like product.” Id. § 1677b(e)(2)(A).
Commerce also must calculate the costs “normally . . . based on the records of the exporter” if
those records “reasonably reflect the costs associated with the production and sale of the
merchandise.” Id. § 1677b(f)(1)(A). Commerce must “consider all available evidence on the
proper allocation of costs.” Id. The statute does not provide specific guidance on the calculation
of financial expenses. Therefore, Commerce has broad discretion to devise a method for
calculating “general expenses.” Am. Silicon Techs. v. United States, 334 F.3d 1033, 1037 (Fed.
Cir. 2003).
Fischer raises five issues on appeal: (1) whether Commerce improperly accounted for
unrealized exchange rate variations in calculating Fischer’s constructed value; (2) whether
Commerce improperly included intercompany interest expenses from Fischer’s financial expense
calculation; (3) whether Commerce improperly excluded intercompany income in calculating
Fischer’s constructed value; (4) whether Commerce improperly included estimated expenses in
calculating Fischer’s general and administrative expenses; and (5) whether Commerce
improperly applied “zeroing” in calculating Fischer’s weighted average dumping margin. Court No. 10-00281 Page 6
I. Commerce improperly accounted for unrealized exchange rate variations in calculating Fischer’s constructed value
Fischer argues that Commerce improperly included unrealized currency translation in
Fischer’s constructed value. According to Fischer, these currency translations were provided in
Fischer’s financial statements only to comply with Brazilian law, and were never actually
incurred or realized. Brazilian law mandates that Fischer include in its financial statement a
presentation of what the difference in value of certain accounts would be if the amounts recorded
in those specific accounts were translated from U.S. dollars to Brazilian reais. Fischer contends
that the inclusion of this currency translation was unlawful because it was not an actual cost that
was “incurred and realized,” as 19 U.S.C. §1677b(e)(2)(A) requires.2
The Government asserts that Commerce may include both interest expenses and foreign
exchange gains and losses in its financial expense ratio. Nucor Corp. v. United States, 33 CIT
___, 612 F. Supp. 2d 1264, 1297 (2009) (holding that the company’s net foreign exchange gain
was “part of the company’s overall net financing expense” and could reasonably be included in
cost of production calculations).
However, Nucor is inapposite. In Nucor, the company’s intentional “cash management
decisions” caused its foreign exchange gains and losses. 612 F. Supp. 2d at 1296. Those gains
and losses were “not inherent in [Nucor’s] manufacturing and sales operations,” but came about
because Nucor strategically chose to conduct business in several currencies. Id. at 1296.
Nucor’s strategic cash management decisions included whether to borrow in a foreign or
2 If this currency translation had not been included as a production cost, Fischer’s dumping margin would be de minimus and disregarded under 19 C.F.R. § 351.106. Court No. 10-00281 Page 7
domestic currency, whether to require immediate payment, and whether to enter into foreign
currency contracts. Id. at 1297. In each of these strategic decisions, Nucor was “in control of
whether or not to expose itself to the risk of gain or loss from fluctuating exchange rates.” Id.
Therefore, the court held that Commerce correctly included the foreign exchange gains and
losses in its cost of production calculations. Id.
Here, in contrast, Fischer has chosen not “to expose itself to” the risks of currency
fluctuations. Id. at 1297. Fischer adopted the U.S. dollar as its functional currency and conducts
all of its business in U.S. dollars. However, in order to follow Brazilian financial reporting law,
Fischer translates its accounts from U.S. dollars into Brazilian reais to report what the difference
would have been, if it had conducted business in reais. In contrast to Nucor, Fischer does not
“control whether or not to expose itself to the risk of gains or losses in such rates”3 because
Fischer conducts all of its business in the U.S. dollar. Id.
Therefore, the variations caused by currency translation to reais for reporting purposes
are not “the actual amounts incurred and realized.” 19 U.S.C. § 1677b(e)(2)(A). As a result,
Commerce’s inclusion of unrealized currency translation in Fischer’s constructed value
calculation violates the express language of Section 773(e)(2)(A) of the Tariff Act of 1930, 19
U.S.C. § 1677b(e)(2)(A). Because the inclusion of unrealized expenses is not in accordance with
law, the Court remands this issue to Commerce to recalculate Fischer’s constructed value in
accordance with this Opinion and Order.
3 To the contrary, by adopting U.S. dollar as its functional currency, Fischer appears to have tried to eliminate its exposure to such currency fluctuations. Court No. 10-00281 Page 8
II. Commerce properly included intercompany interest expenses in Fischer’s financial expense calculation
Fischer borrowed a sum of money from its U.S. affiliate, Citrosuco. Fischer argues that
Commerce should have excluded the interest expenses that Fischer incurred from this loan when
Commerce calculated Fischer’s cost of production. Commerce’s standard policy is to use a
company’s highest level of consolidated financial statements to calculate a foreign company’s
constructed value. When companies produce a consolidated financial statement, Commerce
normally excludes intercompany borrowings in order to construct a true and accurate
representation of a company’s interest expenses. Without citing any authority, Fischer argues
that, although it does not produce a consolidated financial statement, Commerce should follow
the underlying principle that intercompany transactions be removed because Fischer and
Citrosuco are affiliated.
However, Commerce determines what constitutes a “company” for purposes of
calculating dumping margins. Queen’s Flowers de Colom. v. United States, 21 CIT 968, 971,
981 F. Supp. 617, 622 (1997). Commerce’s discretion to group or define companies arises out of
the “basic purposes of the statute—determining current margins as accurately as possible.” Id. at
972, 981 F. Supp. at 622. “Where consolidated audited financial statements do not exist and are
not easily prepared,” it is appropriate for Commerce “to base the interest expense calculation on
the audited financial statements of [only] the respondent.” Mid Continent Nail Corp. v. United
States, Slip Op. 10-47, 2010 Ct. Int’l Trade LEXIS 48, *27 (CIT May 4, 2010). In Mid
Continent, Commerce’s decision to use only the respondent’s financial statements, when the Court No. 10-00281 Page 9
group of affiliated companies did not produce a consolidated financial statement, was upheld
“because it was based on the financial statements of [the individual company], which produced
the merchandise.” Id. at *29.
Although affiliated with Citrosuco, Fischer produces an individual financial statement.
Commerce followed its standard policy of using the company’s highest level of consolidated
financial statements. Commerce based its calculations on Fischer’s financial statements because
there was no higher level of consolidation within the group of affiliated companies. Further,
Commerce’s decision that the loan was an “arm’s length” transaction is supported by substantial
evidence because of the interest payment involved.4 Therefore, Commerce’s decision to use
only Fisher’s financial statements is reasonable and supported by substantial evidence and the
Court upholds Commerce’s decision.
III. Commerce properly excluded intercompany income in calculating Fischer’s constructed value
Fischer argues that if Commerce includes intercompany interest expenses in Fischer’s
constructed value (discussed earlier in Issue II), then Commerce must also include the income
earned on intercompany transactions. Fischer is referring to “income” resulting from the
forgiveness of loan interest. However, the forgiven interest made the associated loan a non-
arm’s length transaction because that loan no longer bore a market-based interest rate.
4 To determine whether a transaction—in this case a loan from one company to another— is “arm’s length,” Commerce may evaluate whether interest is charged in association with the loan. If interest is charged, then the parties are likely dealing with each other at “arm’s length.” However, if interest is not charged, then the parties are likely closely affiliated, and this would not be considered an “arm’s length” transaction. Court No. 10-00281 Page 10
Commerce properly determined that forgiven interest should be disregarded pursuant to
the “arm’s length” test of 19 U.S.C. § 1677b(f)(2). This statute states that:
A transaction directly or indirectly between affiliated persons may be disregarded if, in the case of any element of value required to be considered, the amount representing that element does not fairly reflect the amount usually reflected in sales of merchandise under consideration in the market under consideration. If a transaction is disregarded under the preceding sentence and no other transactions are available for consideration, the determination of the amount shall be based on the information available as to what the amount would have been if the transaction had occurred between persons who are not affiliated.
Id. Thus, Commerce properly declined to include the forgiven interest as income because
forgiven interest is not associated with an arm’s length transaction.
The Court upholds Commerce’s decision to disregard the forgiven interest from Fischer’s
constructed value calculation because it is supported by substantial evidence.
IV. Commerce properly included estimated expenses in calculating Fischer’s general and administrative expenses
Fischer argues that it had only estimated, but had not yet paid, the costs of planting new
citrus trees and other expenses. Thus, Fischer claims that Commerce improperly included these
expenses because they were not yet realized. Commerce must use “actual amounts incurred and
realized by the specific exporter or producer” when calculating a company’s constructed value.
19 U.S.C. § 1677b(e)(2)(A). Commerce must base its calculation upon a producer’s records if
those records are kept in accordance with the GAAP of the exporting country and do not distort
the company’s true cost. Id. § 1677b(f)(1)(A).
The Government asserts that Commerce complied with the statutory requirements.
Commerce based its calculations on Fischer’s records, and those records were kept in accordance Court No. 10-00281 Page 11
with Brazilian GAAP and did not distort Fischer’s costs. Dec. Mem. at 33. Fischer reports its
expenses upon an accrual—rather than cash—basis. Under accrual accounting, an estimate of an
expense should be accrued and therefore reported in the income statement if the expense is
probable and an estimate of the amount can be determined. A taxpayer may choose either the
accrual or cash method of accounting. However, once the taxpayer has chosen its method of
accounting, it cannot easily switch between the two systems because of the discrepancies for any
given year. See Anderson v. U.S. Sec’y of Agric., 30 CIT 1742, 1750–51, 462 F. Supp. 2d 1333,
1340 (2006).
Fischer reported that it followed the accrual accounting method, and this method is in
accordance with Brazilian GAAP. This method requires that estimated costs and income be
reported when the payment or income is probable and the amount can be determined. Although
the expenses were an estimate and had not been paid, the cost was probable and determinable.
Commerce properly included the cost in its calculations because Fischer had reported the
estimated cost following its chosen accounting method.
Because this decision is supported by substantial evidence the Court upholds
Commerce’s decision.
V. Commerce must change or explain its inconsistent policy with respect to zeroing
In the administrative review, Commerce followed its “zeroing” methodology when
calculating Fischer’s weighted-average dumping margin. The Court of Appeals for the Federal
Circuit (“Federal Circuit”) recently reconsidered the reasonableness of Commerce’s policy of
zeroing in administrative reviews. In Dongbu Steel Co. v. United States, the court questioned Court No. 10-00281 Page 12
Commerce’s inconsistent practice of zeroing in administrative reviews, but not zeroing in
investigations. 635 F.3d 1363, 1373 (Fed. Cir. 2011). The court held that it was arbitrary for
Commerce to interpret the antidumping statute to prohibit zeroing in original investigations
while interpreting it to permit zeroing in administrative reviews. Id.; see also 19 U.S.C. §
1677(35) (charging Commerce with calculating the “dumping margin” in both investigations and
administrative reviews). The court reasoned that “[a]lthough 19 U.S.C. § 1677(35) is ambiguous
with respect to zeroing and Commerce plays an important role in resolving this gap in the statute,
Commerce’s discretion is not absolute.” 635 F.3d at 1373. Thus, the court remanded the case
for Commerce to either satisfactorily “explain its reasoning” for the inconsistent interpretation or
to “choose a single consistent interpretation of the statutory language” in both phases of the
proceeding. Id.
In a subsequent case also addressing the zeroing issue, the Federal Circuit specifically
noted that “[w]hile Commerce did point to differences between investigations and administrative
reviews, it failed to address the relevant questions—why is it a reasonable interpretation of the
statute to zero in administrative reviews, but not in investigations?” JTEKT Corp. v. United
States, 642 F.3d 1378, 1384 (Fed. Cir. 2011).
Thus, the Court remands Commerce’s determination and directs Commerce to reconsider
this issue in accordance with the decisions of the Federal Circuit. See also Union Steel v. United
States, 35 CIT ___, 804 F. Supp. 2d 1356, 1367 (2011) (concluding that, despite earlier cases
approving of the use of zeroing, it is now appropriate to “direct Commerce to provide the
explanation contemplated by the Court of Appeals in Dongbu and JTEKT Corp”). Court No. 10-00281 Page 13
CONCLUSION AND ORDER
For the foregoing reasons, the Plaintiffs’ Motion for Judgment on the Agency Record is
granted in part and denied in part. The Court AFFIRMS Commerce’s decisions on issues II, III,
and IV. The Court REMANDS Commerce’s decisions on issues I and V. The Court
REMANDS the Final Results to Commerce for reconsideration of its decision to include
currency translation when calculating Fischer’s constructed value and its decision to apply its
zeroing methodology when calculating Fischer’s dumping margin, and such proceedings shall be
consistent with the opinions of this Court and the Federal Circuit.
Upon consideration of all papers and proceedings herein, it is hereby
ORDERED that the final determination of the United States Department of Commerce, published as Certain Orange Juice from Brazil, 75 Fed. Reg. 50,999 (Dep’t Commerce Aug. 18, 2010) (the “Final Results”), be, and hereby is, AFFIRMED IN PART and REMANDED IN PART to Commerce for redetermination as provided in this Opinion and Order; it is further
ORDERED that Plaintiffs’ Rule 56.2 Motion for Judgment on the Agency Record be, and hereby is, GRANTED IN PART and DENIED IN PART as provided in this Opinion and Order; it is further
ORDERED that Commerce, on remand, shall reconsider its decision to apply its zeroing methodology and change that decision or, alternatively, provide an explanation for its inconsistent construction of 19 U.S.C. § 1677(35) with respect to antidumping duty investigations and administrative reviews; it is further
ORDERED that Commerce, on remand, shall reconsider its decision to include Fischer’s exchange rate translation in its constructed value calculations; it is further
ORDERED that Commerce shall redetermine Plaintiffs’ weighted-average dumping margins, as appropriate, complying with this Opinion and Order; and it is further
ORDERED that Commerce shall have ninety days from the date of this Opinion and Order in which to file its redetermination upon remand (“Second Remand Redetermination”), which shall comply with all directives in this Opinion and Order; that the Plaintiffs shall have Court No. 10-00281 Page 14
thirty days from the filing of the Second Remand Redetermination in which to file comments thereon; and that Commerce shall have thirty days from the filing of Plaintiffs’ comments to file comments.
/s/ Richard W. Goldberg Richard W. Goldberg Senior Judge
Dated: April 30, 2012 New York, New York