Court Opinion

ID: 9398345
Source: CourtListenerOpinion
Date Created: 2023-05-30 22:01:46.077163+00
Date Added: 2024-06-11T17:19:32.929794
License: Public Domain

Slip Op. 23-

                UNITED STATES COURT OF INTERNATIONAL TRADE

 LIST INDUSTRIES, INC.,

                  Plaintiff,

        v.

 UNITED STATES,

                  Defendant,
                                             Before: Mark A. Barnett, Chief Judge
       and                                   Court No. 21-00521

 WEC MANUFACTURING, LLC,
 HANGZHOU XLINE MACHINERY &
 EQUIPMENT CO., LTD., ZHEJIANG
 XINGYI METAL PRODUCTS CO., LTD.,
 XINGYI METALWORKING
 TECHNOLOGY (ZHEJIANG) CO., LTD.,

             Defendant-Intervenors.

                                OPINION AND ORDER

[U.S. Department of Commerce’s final determination in the antidumping duty
investigation of certain metal lockers and parts thereof from the People’s Republic of
China is sustained, in part, and remanded, in part.]

                                                                   Dated: May 30, 2023

Elizabeth C. Johnson, Kelley Drye & Warren, LLP, of Washington, DC, argued for
plaintiff List Industries, Inc. With her on the brief were Kathleen W. Cannon and R. Alan
Luberda.

Ioana Cristei, Trial Attorney, Commercial Litigation Branch, Civil Division, U.S.
Department of Justice, of Washington, DC, argued for defendant United States. With
her on the brief were Brian M. Boynton, Principal Deputy Assistant Attorney General,
Patricia M. McCarthy, Director, and Tara K. Hogan, Assistant Director. Of counsel on
the brief was Jesus N. Saenz, Office of Chief Counsel for Trade Enforcement and
Compliance, U.S. Department of Commerce, of Washington, DC.
Court No. 21-00521                                                                     Page 2

Camelia C. Mazard and Andre P. Barlow, Doyle, Barlow & Mazard, PLLC, of
Washington, DC, for defendant-intervenor WEC Manufacturing, LLC.

Lizbeth R. Levinson, Brittney R. Powell, and Ronald M. Wisla, Fox Rothschild LLP, of
Washington, DC, for defendant-intervenor Hangzhou Xline Machinery & Equipment Co.,
Ltd.

Eugene Degnan and Nicholas Duffey, Morris, Manning & Martin, LLP, of Washington,
DC, argued for defendant-intervenors Zhejiang Xingyi Metal Products Co., Ltd. and
Xingyi Metalworking Technology (Zhejiang) Co., Ltd. With them on the brief were Brady
W. Mills, Donald B. Cameron, Edward J. Thomas, III, Jordan L. Fleischer, Julie C.
Mendoza, Mary S. Hodgins, and R. Will Planert.

      Barnett, Chief Judge: This action concerns the final affirmative determination in

the antidumping duty investigation by the U.S. Department of Commerce (“Commerce”

or “the agency”) regarding certain metal lockers and parts thereof from the People’s

Republic of China (“China”). See Certain Metal Lockers and Parts Thereof From China,

86 Fed. Reg. 35,737 (Dep’t Commerce July 7, 2021) (final affirmative determination of

sales at less than fair value) (“Final Determination”), ECF No. 28-4, and accompanying

Issues and Decision Mem., A-570-133 (June 28, 2021) (“I&D Mem.”), ECF No. 28-5. 1

      Plaintiff List Industries, Inc. (“Plaintiff” or “List”) challenges several aspects of the

Final Determination as unsupported by substantial evidence and not in accordance with

law, namely, Commerce’s selection of Turkey as the primary surrogate country,

Commerce’s selection of certain surrogate values, and Commerce’s selection and

1 The administrative record is divided into a Public Administrative Record (“PR”), ECF
No. 28-2, and a Confidential Administrative Record (“CR”), ECF No. 28-3. Parties
submitted joint appendices containing record documents cited in their briefs. See Public
J.A., ECF No. 41; Confid. J.A. (“CJA”), ECF No. 40. The court references the
confidential version of the relevant record documents, if applicable, throughout this
opinion unless otherwise specified.
Court No. 21-00521                                                                   Page 3

calculation of financial ratios. Pl.’s Br. in Supp. of Rule 56.2 Mot. for J. on the Agency

R. (“Pl.’s Mem.”), ECF No. 32-1; Pl.’s Reply Br. in Supp. of Mot. for J. on the Agency R.

(“Pl.’s Reply”), ECF No. 39. Defendant United States (“Defendant” or “the

Government”) and Defendant-Intervenors 2 support Commerce’s determination. Def.’s

Mem. in Opp’n to Pl.’s Mot. for J. on the Agency R. (“Def.’s Resp.”), ECF No. 36; Def.-

Int. Zhejiang Xingyi Metal Prods. Co., Ltd.’s Br. in Resp. to Pl.’s Mot. for J. on the

Agency R. (“Zhejiang’s Resp.”), ECF No. 37; Def.-Int. Hangzhou Xline Mach. & Equip.

Co., Ltd.’s Opp’n to Pl.’s 56.2 Mot. for J. on the Agency R. (“Hangzhou’s Resp.”), ECF

No. 38. 3

       For the following reasons, Commerce’s Final Determination will be remanded for

reconsideration or further explanation of the treatment of certain income categories in

the calculation of the sales, general, and administrative expenses (“SG&A”) and profit

ratios. Commerce’s Final Determination will be sustained in all other respects.

                                       BACKGROUND

       On July 29, 2020, Commerce initiated an investigation into certain metal lockers

and parts thereof (“metal lockers”) from China alleged to have been sold in the United

States at less than fair value. Certain Metal Lockers and Parts Thereof From the

People’s Republic of China, 85 Fed. Reg. 47,343 (Dep’t Commerce Aug. 5, 2020)

2 Defendant-Intervenors consist of WEC Manufacturing, LLC, Hangzhou Xline
Machinery & Equipment Co., Ltd. (“Hangzhou”), Zhejiang Xingyi Metal Products Co.,
Ltd. (“Zhejiang”), and Xingyi Metalworking Technology (Zhejiang) Co., Ltd.
3 Hangzhou adopted by reference the Government’s arguments and made no additional

arguments. Hangzhou’s Resp. at 2.
Court No. 21-00521                                                               Page 4

(initiation of less-than-fair-value investigation), PR 23, CJA Tab 2. Commerce invited

interested parties to submit comments on surrogate country selection and to propose

surrogate value data. Request for Econ. Dev., Surrogate Country and Surrogate Value

Cmts. and Info. (Sept. 16, 2020), PR 142, CJA Tab 4.

      List submitted comments supporting the selection of financial statements of a

Mexican company, Grupo Carso S.A.B. de CV (“Grupo Carso”), to value financial ratios

or, alternatively, the statements of a company in Montenegro. Pet’rs’ Cmts. on

Surrogate Country Selection and Submission of Surrogate Values (Nov. 17, 2020)

(“Pet’rs’ Cmts.”), PR 227–30, CJA Tab 10. Zhejiang, a respondent in the investigation,

proposed the use of the financial statements from the Turkish company Ayes Celikhasir

VE CT (“Ayes”). Rebuttal Surrogate Value and Surrogate Country Cmts. (Dec. 11,

2020), PR 262, CJA Tab 11; Submission of Surrogate Fin. Ratios (Dec. 18, 2020)

(“Zhejiang’s Fin. Ratios Submission”), PR 269, CJA Tab 12.

      On February 11, 2021, Commerce issued its preliminary determination. Certain

Metal Lockers and Parts Thereof From the People’s Republic of China, 86 Fed. Reg.

9,051 (Dep’t Commerce Feb. 11, 2021) (preliminary affirmative determination of sales at

less than fair value; postponement of final determination and extension of provisional

measures) (“Preliminary Determination”), PR 301, CJA Tab 18, and accompanying

Decision Mem. for the Prelim. Determination (Feb. 4, 2021) (“Prelim. Mem.”), PR 285,

CJA Tab 16. For the Preliminary Determination, Commerce determined that the only

complete, audited financial statements on the record were those of Grupo Carso and

Ayes. Prelim. Mem. at 13. Commerce preliminarily determined that Grupo Carso was
Court No. 21-00521                                                                   Page 5

not a producer of comparable merchandise, and that Ayes was such a producer. Id.

Consequently, Commerce selected the financial statements of Ayes for the purpose of

determining the surrogate financial ratios. Id.

       When calculating the SG&A ratios using Ayes’ financial statements, Commerce

preliminarily excluded certain income categories listed as “other real operating income”

because Ayes’ “financial statements neither describe nor discuss how this income is

associated with the general operations of the company.” Prelim. Surrogate Value Mem.

(Feb. 4, 2021) (“Prelim. SV Mem.”) at 6, PR 295–96, CJA Tab 17. Commerce also

excluded “interest income from investing activities” when determining the SG&A and

profit ratios. Id.

       For the Final Determination, Commerce continued to find that Ayes produced

comparable merchandise and that Grupo Carso did not. I&D Mem. at 11–12.

Commerce thus found that Ayes’ financial statements constituted the best available

information to determine surrogate financial ratios. Id. at 12. Commerce also revised

its financial ratio calculations for the Final Determination by reclassifying several other

income categories and “rental income” as offsets to the SG&A ratios. Id. at 15.

Commerce explained that it “excluded ‘interest income’ from the financial ratios . . . and

[did] not offset SG&A or adjust[] profit for this line item.” Id. at 16. Commerce further

explained that it selected Turkey as the primary surrogate country because of the

completeness and contemporaneity of the surrogate value data available from that

country, including the financial ratios. Id. at 12.
Court No. 21-00521                                                                     Page 6

          In this action, List challenges Commerce’s (1) determination that Ayes produced

comparable merchandise whereas Grupo Carso did not; (2) selection and adjustment of

Ayes’ financial statements to determine surrogate financial ratios; and (3) selection of

Turkey as the primary surrogate country. See generally Pl.’s Mem. The court heard

oral argument on November 3, 2022. See Docket Entry, ECF No. 45. 4

                                JURISDICTION AND STANDARD OF REVIEW

          The court has jurisdiction pursuant to section 516A(a)(2)(B)(i) of the Tariff Act of

1930, as amended, 19 U.S.C. § 1516a(a)(2)(B)(i) (2018), 5 and 28 U.S.C. § 1581(c).

The court will uphold an agency determination that is supported by substantial evidence

and otherwise in accordance with law. 19 U.S.C. § 1516a(b)(1)(B)(i).

                                           DISCUSSION

     I.      Commerce’s Surrogate Country and Surrogate Value Selection Process

          An antidumping margin is “the amount by which the normal value exceeds the

export price (or the constructed export price) for the merchandise.” 19 U.S.C. § 1673.

When an antidumping duty proceeding involves a nonmarket economy country,

Commerce determines normal value by valuing the factors of production 6 used to

produce the subject merchandise in a surrogate market economy country as well as

4 Additional background information is provided with the discussion of each issue.
5 Citations to the Tariff Act of 1930, as amended, are to Title 19 of the U.S. Code, and
references to the U.S. Code are to the 2018 edition unless otherwise specified.
6 The factors of production include but are not limited to: “(A) hours of labor required, (B)

quantities of raw materials employed, (C) amounts of energy and other utilities
consumed, and (D) representative capital cost, including depreciation.” 19 U.S.C.
§ 1677b(c)(3).
Court No. 21-00521                                                                Page 7

amounts for “general expenses and profit plus the cost of containers, coverings, and

other expenses.” Id. § 1677b(c)(1).

      In selecting these “surrogate values,” Commerce must, “to the extent possible,”

use data from a market economy country that is at “a level of economic development

comparable to that of the nonmarket economy country” and is a “significant producer[ ]

of comparable merchandise.” Id. § 1677b(c)(4). To select a surrogate country,

Commerce has adopted a four-step approach:

      (1) the Office of Policy (“OP”) assembles a list of potential surrogate
      countries that are at a comparable level of economic development to the
      [non-market economy] country; (2) Commerce identifies countries from the
      list with producers of comparable merchandise; (3) Commerce determines
      whether any of the countries which produce comparable merchandise are
      significant producers of that comparable merchandise; and (4) if more
      than one country satisfies steps (1)-(3), Commerce will select the country
      with the best factors data.

Jiaxing Brother Fastener Co. v. United States (“Jiaxing II”), 822 F.3d 1289, 1293 (Fed.

Cir. 2016) (alteration in original); see also Import Admin., U.S. Dep’t of Commerce,

Non–Market Economy Surrogate Country Selection Process, Policy Bulletin 04.1

(2004), http://enforcement.trade.gov/policy/bull04-1.html (last visited May 30, 2023).

      Commerce generally values all factors of production in a single surrogate

country, referred to as the “primary surrogate country.” See 19 C.F.R. § 351.408(c)(2)

(excepting labor). With respect to “manufacturing overhead, general expenses, and

profit, [Commerce] normally will use non-proprietary information gathered from

producers of identical or comparable merchandise in the surrogate country.” Id.

§ 351.408(c)(4).
Court No. 21-00521                                                                  Page 8

     II.   Commerce’s Determination that Ayes Produces Comparable
           Merchandise and that Grupo Carso Does Not

             A. Legal Framework

       Commerce determines if a company in the surrogate country produces

comparable merchandise by “apply[ing] a three-part test that examines ‘physical

characteristics, end uses, and production processes.’” Shanghai Foreign Trade Enters.

Co. v. United States, 28 CIT 480, 490, 318 F. Supp. 2d 1339, 1348 (2004) (citation

omitted). For purposes of this determination, “the burden of creating an adequate

record lies with the interested parties, not with Commerce.” Qingdao Sea-Line Trading

Co. v. United States, 766 F.3d 1378, 1386 (Fed. Cir. 2014).

             B. Parties’ Contentions

       Plaintiff contends that Commerce departed from its established practice of

applying a three-part test that examines “physical characteristics, end uses, and

production processes” to determine the comparability of the merchandise. Pl.’s Mem. at

16. Additionally, Plaintiff contends that Commerce failed to support with substantial

evidence its findings that Ayes produces comparable merchandise, and that Grupo

Carso does not. Id. at 18; see also Pl.’s Reply at 5.

       The Government responds that Commerce applied the three-part test and

explained its reasoning, contending that the record supports Commerce’s finding that

Ayes’ merchandise is comparable to the subject metal lockers. Def.’s Resp. at 14–15.

The Government further argues that the record does not support a finding that Grupo
Court No. 21-00521                                                                 Page 9

Carso’s merchandise is comparable to the subject metal lockers. Id. at 12. Zhejiang

advances similar arguments. See Zhejiang’s Resp. at 4–5.

              C. Analysis

       On the basis of the record before it, Commerce reasonably determined that

Grupo Carso was not a producer of comparable merchandise, and that Ayes was such

a producer.

       Commerce acknowledged that Grupo Carso produces “metallic structures for

bridges, building, and mining branches, heat exchangers, pressure vessels, distillation

towers, air coolers, surface capacitors, high pressure feed water heaters, and large

containers.” I&D Mem. at 12. However, Commerce explained that “although [List]

claim[s] that Grupo Carso produces comparable products including metal containers,

we note that Grupo Carso’s list of products identifies ‘large containers,’ not metal

containers.” Id. at 12 n.61 (citing Pet’rs’ SV Cmts., Ex. Mex.-9; Pet’rs’ Case Br. at 4

(May 12, 2021), CR 296, PR 341, CJA Tab 19).

       With respect to the end uses of Grupo Carso’s merchandise, Commerce noted

that “Grupo Carso is a diversified conglomerate with commercial, industrial,

infrastructure, construction, and energy sectors that do not produce comparable

merchandise.” Id. at 12 & n.56 (citing Pet’rs’ SV Cmts., Ex. Mex.-9). On the basis of

the limited information before it, Commerce reasoned that “many of these products

represent high-value structural components for the public or private sector, and/or

machinery that includes ‘cutting-edge technology.’” Id. at 12 n.61 (citing Pet’rs’ SV

Cmts., Ex. Mex.-9).
Court No. 21-00521                                                               Page 10

       Finally, with respect to production processes, Commerce concluded that “the

record lacks sufficient information to demonstrate . . . that Grupo Carso uses a similar

production process to that of the metal lockers under investigation.” Id. at 12–13.

Commerce again noted that “there is an unspecific indication that Grupo Carso has

engaged in the ‘manufacture of large containers’ but the record lacks any evidence

regarding the physical characteristics, end uses or the production process for such

containers.” Id. at 13.

       Commerce also evaluated the record evidence and explained the basis for its

finding that Ayes was a producer of comparable merchandise. Commerce cited

technical specifications, pictures of products, and product dimensions, reflecting the

physical characteristics of the merchandise produced by Ayes. See id. at 12 & n.57

(citing Prelim. Mem. at 13; Zhejiang’s Fin. Ratios Submission). Commerce also

explained that “Ayes . . . produces mesh fences, steel mesh, ribbed iron, and certain

machines (drawing machine, cutting machines, butt welding machines, wire mesh

bending machines, etc.).” Id. at 12.

       Commerce reviewed and referenced marketing materials reflecting the end uses

and production processes of the merchandise produced by Ayes. See id. at 12 & n.57

(citing Prelim. Mem. at 13; Zhejiang’s Fin. Ratios Submission); see also Prelim. Mem. at

13 & n.102 (citing Zhejiang’s Fin. Ratios Submission). Among other things, the

marketing materials indicated that “Ayes produces metal panel fences, steel mesh

products, and cold-drawn bars and coil in a manner similar to the production of metal

lockers.” Zhejiang’s Fin. Ratios Submission at 2. Among the materials considered by
Court No. 21-00521                                                                 Page 11

Commerce were a discussion of Ayes’ production process for wire mesh and a chart

comparing the production processes between Ayes’ merchandise and the subject metal

lockers. See id., Exs. 4–5.

       Plaintiff contends that Commerce “failed to provide any analysis or explanation

for its determination that Ayes, but not Grupo Carso, produces merchandise

comparable to the subject lockers.” Pl.’s Mem. at 17–18. The court acknowledges that

the total quantum of Commerce’s explanation of how its three-part test applies to both

Grupo Carso and Ayes is limited. In this case, however, that limited analysis is a

function of the limited information placed on the record by the parties. While Plaintiff

objects that Commerce failed to apply its three-part test to Grupo Carso, Plaintiff does

not identify any record information regarding Grupo Carso of which Commerce did not

take account. Commerce’s limited analysis of Grupo Carso is a result of the limited

information placed before the agency by Plaintiff.

       In these non-market economy antidumping cases, Commerce is tasked with

identifying the “best available information” with which to value the respondent’s factors

of production. That best available information standard, however, is applied with

respect to the record developed before the agency; i.e., the information made available

for Commerce’s determination. See Qingdao, 766 F.3d at 1386. Commerce cannot be

faulted for failing to consider information with which it was not provided. In fact,

Commerce recognized the limitations of the record by stating that

       the petitioners simply reiterate their previous arguments . . . but provide no
       elaboration on how these products or their production processes are
       comparable to metal lockers. The record lacks sufficient information to
Court No. 21-00521                                                                 Page 12

       demonstrate that Grupo Carso produces anything with similar physical
       characteristics or end uses comparable to metal lockers, or that Grupo
       Carso uses a similar production process to that of the metal lockers under
       investigation.

I&D Mem. at 12–13.

       While Commerce’s analysis of the three-part test with respect to Ayes is also,

admittedly, limited, that again is a function of the limited information contained on the

record. Nevertheless, Commerce evaluated the limited information before it to

reasonably determine that Ayes produced comparable merchandise. Among other

things, Ayes produces mesh fences and steel mesh. See id. at 12. While wire mesh

lockers are excluded from the scope of the order, that exclusion requires that at least

three sides, including the door, be made from wire mesh and that the locker exceed

certain physical dimensions. See Final Determination, 86 Fed. Reg. at 35,740.

Otherwise, the scope expressly provides that “subject metal lockers typically are made

of flat-rolled metal, metal mesh, and/or expanded meta.” Id. Commerce’s reliance on

Ayes’ production of mesh fences and steel mesh as support for its finding that Ayes

produces comparable merchandise is reasonably discernible from this limited record.

See Wheatland Tube Co. v. United States, 161 F.3d 1365, 1369–70 (Fed. Cir. 1998)

(“Where the path of an agency’s reasoning is reasonably discernible, this Court may

nonetheless sustain the agency’s action.”).

       For these reasons, Commerce’s determination that Ayes produces merchandise

comparable to the subject metal lockers, and that Grupo Carso does not, is supported

by substantial evidence.
Court No. 21-00521                                                                Page 13

    III.   Commerce’s Selection of Ayes’ Financial Statements to Determine
           Financial Ratios

              A. Parties’ Contentions

       Plaintiff contends that Commerce’s determination that Ayes had suitable financial

statements from which to calculate surrogate financial ratios was not supported by

substantial evidence or in accordance with law. Pl.’s Mem. at 21; see also Pl.’s Reply at

7. Plaintiff contends that if Commerce acted in accordance with its past practice of

calculating financial ratios, Commerce would have found that Ayes was not profitable

and, therefore, unsuitable for determining the surrogate financial ratios. Pl.’s Mem. at

21; see also Pl.’s Reply at 7–8. The Government responds that Commerce applied its

practice of treating “other income” as related to the general operations of the company

and correctly found that Ayes was profitable. Def.’s Resp. at 16; see also Zhejiang’s

Resp. at 5–6 (arguing that Commerce adhered to its practice).

              B. Analysis

       Commerce calculated respondents’ SG&A and profit using financial ratios

derived from Ayes’ financial statements. See I&D Mem. at 14–16. Commerce

calculated the SG&A ratio by taking Ayes’ SG&A as a percentage of its raw materials,

direct labor, energy, manufacturing overhead, and traded/finished goods. Changes to

the Surrogate Fin. Ratios for the Final Determination (June 28, 2021) (“Fin. Ratios

Mem.”), Attach. 3, PR 357–58, CJA Tab 22. Commerce calculated the profit ratio by

taking Ayes’ profit as a percentage of its raw materials, direct labor, energy,

manufacturing overhead, traded/finished goods, SG&A, and interest. Id.
Court No. 21-00521                                                                 Page 14

       At issue is whether Commerce properly accounted for certain income categories

when calculating the financial ratios for Ayes. Plaintiff asserts that if the income

categories it challenges are properly excluded from these calculations, Commerce

would have found that Ayes was not profitable and, therefore, selected the financial

statements of another company (e.g., Grupo Carso) to calculate the financial ratios.

See Pl.’s Mem. at 21. For purposes of this discussion, the court divides the income

categories into three groups as discussed below.

              1. Commerce Properly Accounted for Certain Other Real Operating
                 Income Categories

       For the Preliminary Determination, Commerce “excluded other real operating

income” categories from its SG&A ratio calculation. Prelim. SV Mem. at 6. Specifically,

Commerce excluded deferred finance income, incentive income, shipping revenues,

provisions no longer required, price difference, and other income and profits from the

SG&A ratio calculation. Id., Attach. 3. In its comments to Commerce on the Preliminary

Determination, Plaintiff argued that while Commerce properly excluded these income

categories from SG&A, the agency failed to adjust the profit calculation accordingly.

See Pet’rs’ Case Br. at 11–12. For the Final Determination, Commerce revised its

SG&A calculation and included these “other real operating income” categories in the

calculation of SG&A. I&D Mem. at 15. Before the court, Plaintiff contends that

Commerce failed to adequately explain the change in treatment of these “other real

operating income” categories between the Preliminary Determination and Final

Determination and that the explanation Commerce provided was conclusory and
Court No. 21-00521                                                                 Page 15

unsupported by the record. Pl.’s Mem. at 24; see also Pl.’s Reply at 9–10. Plaintiff

maintains that these income categories should have been excluded from both the

SG&A and profit ratio calculations, as it maintained before Commerce. Pl.’s Mem. at

24–26; Pl.’s Reply at 10–12.

       Commerce provided an explanation, supported by substantial evidence, for its

change between the Preliminary Determination and Final Determination with respect to

some, but not all, of the income categories at issue. For the Final Determination,

Commerce revised its final surrogate financial ratios calculations to include all six of the

“other real operating income” categories identified above and explained that it came “to

understand that the term, ‘real operating income,’ in audited financial statements means

that the relevant expense categories apply to the general operations of the company.”

Fin. Ratios Mem. at 2, n.6. Moreover, Commerce described its practice of seeking

“consistency in the treatment of both the revenue and expense side of line items on

Ayes’ financial statements.” I&D Mem. at 15.

       While Commerce’s description of its practice as seeking consistency in the

treatment of revenues and expenses explains some of the changes it made, it fails to

justify all of these changes. Furthermore, the examples that Commerce provides of its

consistency introduces another issue.

       First, in describing its practice of consistent treatment, Commerce provided two

examples drawn from the “other real operating income” categories. In one case,

Commerce stated that it includes both exchange gains and losses in the calculation of

financial income and expenses. Commerce similarly said that it “excluded both the
Court No. 21-00521                                                                 Page 16

shipping expenses and shipping revenues in the Preliminary Determination” and

“continue[d] to exclude both the expenses and revenues associated with shipping

merchandise for sale.” Id. While Commerce accurately described its treatment of

exchange gains and losses, the supporting documents for Commerce’s Final

Determination indicate that shipping expenses were excluded, but shipping revenues

were included in SG&A. See Fin. Ratios Mem., Attach. 3. Because Commerce’s actual

treatment of shipping revenue appears to be at odds with its stated treatment of that

revenue, the court must remand this issue for reconsideration or further explanation.

      Commerce’s revised treatment of four other income categories is addressed by

its explanation of providing consistent treatment. For each of these four income

categories (deferred finance income, provisions no longer required, price difference,

and other income and profit), Ayes’ financial statements included an analog expense

category that Commerce had already included in the SG&A ratio calculation (deferred

finance expense, provision for doubtful receivables, price difference, and other

expenses and losses). See id. Commerce’s expressed interest in “consistency in the

treatment of both the revenue and expense side of line items on Ayes’ financial

statements” is adequate to explain Commerce’s treatment of these income categories

for the Final Determination.

      There is one remaining category of “other real operating income” that Commerce

excluded from the SG&A ratio calculation for the Preliminary Determination but included

for the Final Determination: incentive income. While Commerce listed incentive income

along with other income categories with corresponding expense categories, the court is
Court No. 21-00521                                                                     Page 17

unable to discern the corresponding expense category or any other explanation for

Commerce’s change for the Final Determination. To that end, the court must remand

this issue for reconsideration or further explanation.

           The court further notes that, contrary to Plaintiff’s argument, the inclusion of

certain “other real operating income” categories as offsets to SG&A does not contradict

Commerce’s general practice. 7 As Commerce explained, its normal practice calls for

the agency to treat the revenue and expense sides of line items consistently. I&D Mem.

at 15. 8

           Plaintiff relies on selected determinations in which Commerce excluded certain

“other real operating income” categories from offsetting SG&A. See Pl.’s Mem. at 24–

25. In those determinations, Commerce made fact-specific determinations that are not

inconsistent with or otherwise detract from its general practice. 9 Instead, these

7 “In calculating the [general and administrative] expense ratio, Commerce normally
includes certain expenses and revenues that relate to the general operations of the
company as a whole and to the accounting period, as opposed to including only those
expenses that directly relate to the production of the merchandise.” Issues & Decision
Mem. for Forged Steel Fittings from the Republic of Korea, A-580-904 (Oct. 13, 2020) at
18, https://access.trade.gov/Resources/frn/summary/korea-south/2020-23110-1.pdf
(last visited May 30, 2023)).
8 In providing this explanation, Commerce cited to Issues & Decision Mem. for Certain

Tool Chests and Cabinets from China, A-570-056 (Apr. 2, 2018) at 44, https://access.
trade.gov/Resources/frn/summary/prc/2018-07315-1.pdf (last visited May 30, 2023);
and Issues & Decision Mem. for Boltless Steel Shelving Units Prepackaged for Sale
from China, A-570-018 (Aug. 14, 2015) at 33–34, https://access.trade.gov/Resources/
frn/summary/prc/2015-20794-1.pdf (last visited May 30, 2023). See I&D Mem. at 15 &
n.74.
9 For example, Commerce has disallowed an offset for an income category when the

record indicated the income related to a prior period. See Issues & Decision Mem. for
Methionine from Japan, A-588-879 (Jul. 19, 2021) at 9–10, https://access.trade.gov/
Court No. 21-00521                                                              Page 18

exclusions represent exceptions to Commerce’s practice of treating other income as an

offset to SG&A such as when the record demonstrates that it relates to a prior period or

to non-subject merchandise. See I&D Mem. at 15 (explaining the exceptions to

Commerce’s practice). Absent a demonstration by Plaintiff of such similarities, the cited

determinations do not support a general exclusion of these income categories from the

SG&A ratio. See id.

             2. Commerce’s Inclusion of Rental Income Must Be Remanded for
                Reconsideration or Further Explanation

      Ayes’ financial statements include an income category of “rental income” under

the heading “Income from Investing Activities.” Zhejiang’s Fin. Ratios Submission, Ex.

2. For the Preliminary Determination, Commerce excluded rental income from the

SG&A ratio calculation. Prelim. SV Mem., Attach. 3. However, for the Final

Determination, Commerce included “rental income” as an offset to SG&A. I&D Mem. at

15. Plaintiff contends that Commerce failed to explain the change in treatment of “rental

Resources/frn/summary/japan/2021-15755-1.pdf (last visited May 30, 2023); Issues &
Decision Mem. for PET Resin from India, A-533-861 (Mar. 4, 2016) at 13,
https://access.trade.gov/Resources/frn/summary/india/2016-05710-1.pdf (last visited
May 30, 2023). Commerce also has disallowed specific income categories when the
record indicates the income is unrelated to the company’s general operations. For
example, Commerce excluded an income category that was directly related to non-
subject merchandise sales. See Issues & Decision Mem. for Prestressed Concrete
Steel Rail Tie Wire from Mexico, A-201-843 (Apr. 28, 2014) at 10–11, https://access.
trade.gov/Resources/frn/summary/mexico/2014-10241-1.pdf (last visited May 30, 2023);
Issues & Decision Mem. for Certain Aluminum Foil from Turkey, A-489-844 (Sept. 16,
2021) at 52, https://access.trade.gov/Resources/frn/summary/turkey/2021-20534-1.pdf
(last visited May 30, 2023).
Court No. 21-00521                                                              Page 19

income” between the Preliminary Determination and Final Determination. Pl.’s Mem. at

28; see also Pl.’s Reply at 14.

       Commerce has not explained its treatment of rental income in the Final

Determination. While Commerce included a reference to “rental income” within its

explanation of how it treated “other real operating income” categories, rental income

was not such a category and, instead, was listed as “income from investing activities.”

See Fin. Ratios Mem., Attach. 3. Commerce’s explanation of providing consistent

treatment between income and expense lines does not explain Commerce’s treatment

of rental income for the Final Determination—both because such an explanation does

not apply to income from investing activities and because there is no obvious

corresponding expense. 10 See id.

       In the absence of any explanation for Commerce’s treatment of rental income,

this issue is remanded for Commerce to reconsider or further explain its treatment of

this income category in the SG&A and profit ratio calculations.

              3. Commerce’s Treatment of Interest Income in Calculating Ayes’
                 Profit Must Be Remanded for Reconsideration or Explanation

       Ayes’ financial statements also include an income category of “interest income”

under the heading “Income from Investing Activities.” Zhejiang’s Fin. Ratios

Submission, Ex. 2. The parties agree that Commerce excluded “interest income” as an

10While it is possible that the “depreciation expenses” reported in the “expenses from
investment activities” are the corresponding expense, the fact that Commerce treats
those expenses as factory overhead suggests otherwise. See Fin. Ratios Mem.,
Attach. 3.
Court No. 21-00521                                                               Page 20

offset to SG&A expenses in the financial ratio calculations. See Pl.’s Mem. at 22–23;

Def.’s Resp. at 18. Plaintiff, however, maintains that Commerce failed to remove

“interest income” from Ayes’ profit. Pl.’s Mem. at 26; see also Pl.’s Reply 13–14. The

Government responds that Commerce excluded this “interest income” both as an offset

to Ayes’ SG&A and from Ayes’ profit. Def.’s Resp. at 20–21. To that end, it appears

that the parties disagree on what Commerce did with respect to interest income in

calculating Ayes’ profit.

       On November 10, 2022, the court issued a letter seeking to confirm its

understanding of Commerce’s treatment of interest income for the Final Determination

and inviting comment from the parties. Letter Order at 1, ECF No. 47. 11 Rather than

providing clarity with respect to Commerce’s treatment of interest income, the parties’

responses confirmed their disagreement over the basic facts of what Commerce did. 12

11 The court noted that Commerce placed the “interest income” line item in the
“Excluded” column in the Ayes Financial Ratio Analysis. Letter Order at 1 & n.1 (citing
Fin. Ratios Mem., Attach. 3). Thus, the court asked the parties to address whether this
indicated that Commerce did not include the “interest income” amount either as an
offset to SG&A or in the total profit. Id. at 2.
12 In response to the court’s Letter, Plaintiff argues that Commerce erred because it did

not subtract the “investment income” line item from profit. Pl.’s Resp. to the Ct.’s Nov.
10, 2022 Order at 2, ECF No. 48 (citing Fin. Ratios Mem. at 2). The Government
contends that to subtract the “interest income” from the profit would be to offset profit
with interest income, and it contends that the confusion is caused by the use of the
terms “offset” and “exclude.” Def.’s Resp. to Pl.’s Submission to the Ct.’s Nov. 10, 2022
Order at 2–3, ECF No. 49 (citing Fin. Ratios Mem., Attach. 3). It may be that, whether
Commerce has succeeded in “excluding” the interest income from Ayes’ profit
calculation depends on whether that income was included in the starting profit figure
from which Commerce was working. If the starting profit included interest income,
Commerce did not explain how “excluding” that income from profit did not require
subtracting that figure from profit (regardless of whether that operation is referred to as
Court No. 21-00521                                                                   Page 21

       The role of the court is to review Commerce’s determinations and determine

whether they are in accordance with law and supported by substantial evidence. The

court is unable to perform this review function when it is unable to identify what

determination Commerce made. Accordingly, this issue is remanded to Commerce for

reconsideration or further explanation of its treatment of “interest income” in the

calculation of financial ratios. Commerce must be precise in its selection of terminology

and, to the extent that it continues to maintain that it is excluding interest income from

profit without making a deduction or offset, demonstrate that its profit calculation does

not include the interest income.

              4. Plaintiff's Arguments that Ayes is Unprofitable Fail

       Plaintiff contends that Ayes’ profitability results from the other income categories,

challenged above, and that when Commerce properly adjusts for those income

categories, Ayes will be unprofitable and, therefore, inappropriate as a basis for the

surrogate profit ratio. Pl.’s Reply at 8–9. Plaintiff argues that Commerce disregards

financial statements that are only profitable due to “other income.” Id. at 9.

       As discussed above, Plaintiff’s challenges to Commerce’s treatment of four of the

eight income categories fails. While Commerce must reconsider or further explain its

treatment of the remaining four income categories, even if Commerce decides that all

“subtracting” or “offsetting”). While Plaintiff and Defendant disagree over whether
Commerce properly excluded the interest income from the profit, Zhejiang took a third
position, arguing that Commerce properly included the “interest income” in the profit
calculation. Def.-Int.’s Zhejiang Xingyi Metal Prods. Co., Ltd.’s Resp. to the Ct.’s Post
Arg. Qus. at 2, ECF No. 50.
Court No. 21-00521                                                                Page 22

four categories must be deducted from Ayes’ profit, the record indicates that Ayes will

remain profitable. 13 Consequently, Plaintiff’s challenge to the use of Ayes’ financial

statements due to a lack of profit fails because the premise on which it is made has not

been established.

     IV.   Commerce’s Selection of Turkey as the Primary Surrogate Country

              A. Legal Framework

       As discussed above, Commerce generally values all factors of production in a

single surrogate country, referred to as the “primary surrogate country.” See 19 C.F.R.

§ 351.408(c)(2) (excepting labor); Jiaxing II, 822 F.3d at 1294 & n.3. The court has

acknowledged this practice as a way “to minimize distortion.” Tri Union Frozen Prods.,

Inc. v. United States, 41 CIT __, __, 227 F. Supp. 3d 1387, 1400 (2017); see also

Carbon Activated Tianjin Co. v. United States, 45 CIT __, __, 547 F. Supp. 3d 1310,

1318 (2021) (discussing Commerce’s preference to value all factors of production in a

single surrogate country). The court also discussed above Commerce’s four-step

approach to selecting the primary surrogate country and that it is selected based on the

reliability and completeness of the data in the similarly-situated surrogate country.

Commerce will “only resort to a secondary surrogate country if data from the primary

surrogate country are unavailable or unreliable.” Jiaxing Brother Fastener Co. v. United

13 The court is remanding Commerce’s treatment of incentive income (Turkish Lira
(“TL”) 303,749), shipping revenues (TL 484,335), rental income (TL 11,750) and interest
income (TL 117,988). Even if Plaintiff’s arguments are successful on remand with
respect to all four categories, the total adjustment would be TL 917,822, which is less
than Ayes’ profit, as already adjusted by Commerce, in the amount of TL 1,939,209.
See Fin. Ratios Mem., Attach. 3.
Court No. 21-00521                                                               Page 23

States, 38 CIT 1404, 1412, 11 F. Supp. 3d 1326, 1332–33 (2014) (citations omitted),

aff’d, Jiaxing II, 822 F.3d 1289.

              B. Parties’ Contentions

       Plaintiff contends that Commerce’s selection of Turkey over Mexico as the

primary surrogate country was not supported by substantial evidence or in accordance

with law. Pl.’s Mem. at 29; see also Pl.’s Reply at 15. Plaintiff contends that Commerce

failed to compare the relative data quality between Mexico and Turkey because the

agency determined that Grupo Carso was not a producer of comparable merchandise.

Pl.’s Mem. at 30–31; see also Pl.’s Reply at 15. Additionally, Plaintiff contends that the

Mexican data were superior because Turkey’s surrogate values were not

contemporaneous, Ayes’ financial statements were less detailed than Grupo Carso’s,

and Ayes was not profitable. Pl.’s Mem. at 34–36; see also Pl.’s Reply at 15. The

Government contends that Commerce found that the Turkish data included “a

complete[], audited financial statement for a company that produced comparable

merchandise, unlike the Mexican surrogate data.” Def.’s Resp. at 23. The Government

further contends that Commerce addressed Plaintiff’s arguments against selecting

Turkey as the surrogate country, explaining that the Turkish values were

contemporaneous, and Ayes’ financial statements showed a profit and contained

sufficient detail. Id. at 23–24.

              C. Analysis

       Plaintiff’s argument that Commerce erred in selecting Turkey as the surrogate

country is based on several factual assertions, two of which the court has already
Court No. 21-00521                                                                   Page 24

rejected: Commerce reasonably found that Ayes produces comparable merchandise

whereas Grupo Carso does not; and while Commerce must revisit its treatment of

certain income categories when calculating the financial ratios, the value of those

categories is not significant enough to result in finding Ayes to be unprofitable in any

case. Having rejected those claims, as Commerce did below, the court considers

whether Plaintiff’s remaining arguments are a sufficient basis to question Commerce’s

selection of Turkey.

       Plaintiff’s contention that Commerce did not examine the relative data quality

between the Mexican and Turkish data is not supported by the record. To the contrary,

Commerce acknowledged that “the Mexican data for certain [factors of production] may

be more contemporaneous than that of corresponding Turkish data,” and explained that

“the record is incomplete with respect to [surrogate values] from Mexico, but is complete

with respect to [surrogate values] from Turkey.” I&D Mem. at 13. Commerce further

explained that it was able to adjust certain non-contemporaneous surrogate values to

reflect the period of investigation, allowing it to value all factors of production, including

the financial ratios, in its selected surrogate country. See id.

       Plaintiff also argues that Grupo Carso’s financial statements should have been

used because they are more detailed than Ayes’ financial statements. Pl.’s Mem. at 35.

Commerce’s practice is to select financial statements that are “sufficiently detailed to

calculate financial ratios, and are from the primary surrogate country.” Issues &

Decision Mem. for Certain Quartz Surface Products from China, A-570-084 (May 14,

2019) at 81–82, https://access.trade.gov/Resources/frn/summary/prc/2019-10800-1.pdf
Court No. 21-00521                                                                   Page 25

(last visited May 30, 2023). Regardless of the detail in Grupo Carso’s financial

statements, Plaintiff has not identified any inadequacy with the level of detail in Ayes’

financial statements.

       Commerce also found that Mexico’s surrogate data was incomplete because

Plaintiff misclassified certain inputs under the Harmonized Tariff Schedule (“HTS”). I&D

Mem. at 13. Plaintiff disputes this assertion, pointing to Commerce’s statement that the

agency’s determination on data quality was “based on an analysis of complete, factual

information on the record, and did not result from a deficient or incomplete SV

submission.” Pl.’s Mem. at 31 (citing I&D Mem. at 13–14). Regardless, Commerce also

noted that the missing or misclassified HTS numbers “further support[ed]” its selection

of Turkey as the surrogate country. I&D Mem. at 13. Thus, Commerce treated the

misclassification as a contributor to its selection of Turkey over Mexico, but not

determinative of that selection. Even if it were treated as a neutral factor, it would not

serve to counter the lack of an appropriate financial statement from a producer of

comparable merchandise in Mexico and Commerce’s preference to value all factors in

the primary surrogate country.

       For these reasons, Commerce’s selection of Turkey as the primary surrogate

country is supported by substantial evidence and in accordance with the law.

                                 CONCLUSION AND ORDER

       In accordance with the foregoing, it is hereby

       ORDERED that Commerce’s Final Determination is remanded to Commerce so

that it may reconsider, or further explain, its treatment of Ayes’ “incentive income,”
Court No. 21-00521                                                             Page 26

“shipping revenues,” “rental income,” and “interest income” when calculating the

surrogate financial ratios; it is further

        ORDERED that Commerce shall file its remand redetermination on or before

August 24, 2023; it is further

        ORDERED that subsequent proceedings shall be governed by USCIT Rule

56.2(h); it is further

        ORDERED that any comments or responsive comments must not exceed 3,000

words; and it is further

       ORDERED that Commerce’s Final Determination in all other respects is

sustained.

                                               /s/   Mark A. Barnett
                                               Mark A. Barnett, Chief Judge

Dated: May 30, 2023
      New York, New York