Slip Op. 09-90
UNITED STATES COURT OF INTERNATIONAL TRADE
SOLVAY SOLEXIS S.p.A. and
SOLVAY SOLEXIS, INC.,
Before: Richard W. Goldberg,
Plaintiffs, Senior Judge
v. Court No. 07-00037
UNITED STATES,
Defendant,
and
E.I. DuPONT de NEMOURS & CO.,
Defendant-
Intervenor.
OPINION
[Commerce’s final antidumping duty administrative review
determination is sustained.]
Dated: August 27, 2009
Fulbright & Jaworski, LLP (J. Scott Maberry) for Plaintiffs
Solvay Solexis S.p.A. and Solvay Solexis, Inc.
Tony West, Assistant Attorney General; Jeanne E. Davidson,
Director, Reginald T. Blades, Jr., Assistant Director,
Commercial Litigation Branch, Civil Division, U.S. Department of
Justice (Stephen C. Tosini); Office of the Chief Counsel for
Import Administration, U.S. Department of Commerce (Jonathan
Zielinksi), Of Counsel, for Defendant United States.
Wilmer, Cutler, Pickering, Hale & Dorr, LLP (Ronald I. Meltzer,
Jennifer A. Lewis, John D. Greenwald, Patrick McLain, and Raman
Santra) for Defendant-Intervenor E.I. DuPont de Nemours & Co.
Court No. 07-00037 Page 2
GOLDBERG, Senior Judge: In this action, plaintiffs Solvay
Solexis S.p.A. and Solvay Solexis, Inc. (collectively “Solvay
Solexis”) challenge the decision of the International Trade
Administration of the United States Department of Commerce
(“Commerce”) in the Notice of Final Results of Antidumping Duty
Administrative Review: Granular Polytetrafluoroethylene Resin
From Italy, 72 Fed. Reg. 1980 (Dep’t Commerce Jan. 17, 2007).
This action closely tracks the issues previously decided by this
Court in Solvay Solexis S.p.A. and Solvay Solexis, Inc. v.
United States, 33 CIT __, Slip Op. 09-54 (June 11, 2009). As in
the prior case, Solvay Solexis disputes Commerce’s reliance on
certain financial statements in calculating the company’s
general and administrative expenses. It also challenges
Commerce’s methodology in allocating expenses for those
calculations.
In responding to Commerce’s questionnaires for the 17th
Administrative Review, Solvay Solexis provided information from
two separate financial statements in response to various
questions—unaudited financial statements prepared in accordance
with Italian GAAP (“statutory financial statements”) and audited
statements prepared in accordance with International Financial
Reporting Standards (“IFRS”). The statutory financial
Court No. 07-00037 Page 3
statements included a line item for depreciated goodwill,1 while
the IFRS-compliant statements did not. In its questionnaire
responses concerning the company’s general and administrative
(“G&A”) expense ratio, Solvay Solexis based its calculations on
the latter statements, which did not include the goodwill. In
making its own determination, Commerce adjusted Solvay Solexis’
reported G&A expense ratio to reflect the amount of goodwill
depreciation recorded in the company’s unaudited financial
statements prepared in accordance with Italian GAAP, instead of
the audited statements prepared under IFRS. The cost of
production was then calculated based on the adjusted amount.
This adjustment resulted in an increased dumping margin for
Solvay Solexis.
Solvay Solexis argues that Commerce’s G&A expense ratio
revision is not supported by substantial evidence because
including goodwill depreciation in a purchased company’s G&A
calculation is not representative of the actual cost of
production and the use of unaudited financial statements is
contrary to Commerce precedent. In response, Commerce and the
Defendant-Intervenor maintain that Commerce was merely following
1
Goodwill is created when a company purchases assets at a price that is
higher than the assets’ preexisting book value; it is the difference between
the amount paid and the preexisting book value. Stephen R. Moehrle, Say good-
bye to pooling and goodwill amortization, Journal of Accountancy, Sept. 30,
2001, at 32. Goodwill is carried on a company’s balance sheet as an
intangible asset that can lose value over time. Accounting systems differ,
however, in the way the loss in the value of goodwill is recognized. Under
Italian GAAP, goodwill is amortized on a 20-year straight line basis.
Court No. 07-00037 Page 4
the statutorily preferred methodology in making its G&A expense
calculations. In addition, they claim that Solvay Solexis has
not proven that the data in the statutory financial statements
is distortive.
Solvay Solexis also contends that Commerce improperly based
its G&A expense ratio calculations on a division of the company
rather than on the performance of the company as a whole. For
the reasons that follow, the court affirms Commerce’s findings.
I. JURISDICTION AND STANDARD OF REVIEW
The Court has jurisdiction pursuant to 28 U.S.C. § 1581(c)
(2006).
A court shall hold unlawful Commerce’s final determination
in an antidumping administrative review if it is “unsupported by
substantial evidence on the record, or otherwise not in
accordance with the law.” Tariff Act of 1930, § 516A, 19 U.S.C.
§ 1516a(b)(1)(B)(i) (2006). Substantial evidence is “such
relevant evidence as a reasonable mind might accept as adequate
to support a conclusion.” Nippon Steel Corp. v. United States,
337 F.3d 1373, 1379 (Fed. Cir. 2003) (quoting Consol. Edison Co.
v. NLRB, 305 U.S. 197, 229 (1938)). “[T]he possibility of
drawing two inconsistent conclusions from the evidence does not
prevent an administrative agency’s finding from being supported
by substantial evidence.” Consolo v. Fed. Mar. Comm’n, 383 U.S.
607, 620 (1966) (citing NLRB v. Nevada Consol. Copper Corp., 316
Court No. 07-00037 Page 5
U.S. 105, 106 (1942)). The Court need only find evidence “which
could reasonably lead” to the conclusion drawn by Commerce, thus
making it a “rational decision.” Matsushita Elec. Indus. Co. v.
United States, 750 F.2d 927, 933 (Fed. Cir. 1984). Commerce’s
determination may be deemed unlawful “where Commerce has failed
to carry out its duties properly, relied on inadequate facts or
reasoning, or failed to provide an adequate basis for its
conclusions.” Rhone Poulenc, Inc. v. United States, 20 CIT 573,
575, 927 F. Supp. 451, 454 (1996).
II. DISCUSSION
When Commerce determines whether subject merchandise is
being, or is likely to be, sold at less than fair value, the
agency makes a fair comparison between the export price, or
constructed export price, and normal value. Tariff Act of 1930 §
773, 19 U.S.C. § 1677b(a) (2006). Sales made in the home
country for less than the cost of production, however, may be
disregarded in the determination of normal value. 19 U.S.C. §
1677b(b)(1). The cost of production is normally calculated
“based on the records of the exporter or producer of the
merchandise, if such records are kept in accordance with the
generally accepted accounting principles of the exporting
country...and reasonably reflect the costs associated with the
production and sale of the merchandise.” 19 U.S.C. §
1677b(f)(1)(A). In determining the cost of production, the cost
Court No. 07-00037 Page 6
of materials and fabrication, general and administrative
expenses, and the cost of packaging are included. 19 U.S.C. §
1677b(b)(3). At issue in this case are Commerce’s calculation
basis and methodology for Solvay Solexis’ general and
administrative expenses.
A. Commerce permissibly utilized the Italian GAAP-compliant
financial statements in its G&A calculations
Solvay Solexis challenges Commerce’s use of its unaudited
statutory financial statements in calculating its G&A expenses.
Solvay Solexis maintains that Commerce has a longstanding
tradition of preferring audited financial statements and that it
specifically requested audited financial statements in the
questionnaire. In addition, Solvay Solexis argues that the
inclusion of goodwill in its statutory financial statements does
not accurately reflect its actual production costs and that the
goodwill was only included in those statements because of its
treatment under Italian tax law. It states that the goodwill in
question relates to the 2002 purchase of Ausimont, an Italian
company, by Solvay Solexis’ parent company, Solvay S.A.
According to the Plaintiffs, Ausimont eventually became Solvay
Solexis. The parent company accounted for the goodwill in its
financial statements at the time of the purchase. However,
Solvay Solexis claims that it was able to take advantage of the
depreciated goodwill under Italian tax law in its own 2004
Court No. 07-00037 Page 7
statutory financial statements. It argues that no expense was
actually incurred due to the inclusion of the goodwill in its
statutory financial statements.
While there is a preference toward audited statements,
Commerce’s ultimate purpose is to acquire the most complete and
accurate financial picture of the company. In fact, unaudited
statements are accepted by Commerce when they are prepared in
the normal course of business, and not created specifically for
a dumping proceeding. Certain Steel Concrete Reinforcing Bars
From Turkey: Final Results and Partial Rescission of Antidumping
Duty Administrative Review, 67 Fed. Reg. 66,110 (Dep’t of
Commerce Oct. 30, 2002), and accompanying Issues and Decisions
Memorandum at Comment 4. In this case, Solvay Solexis’
statutory financial statements were prepared for Italian tax
purposes, and thus Commerce could be reasonably assured that no
data manipulation occurred. See id.
Statutorily, Commerce is instructed to calculate cost of
production “based upon the records of the exporter or producer
of the merchandise, if such records are kept in accordance with
the generally accepted accounting principles of the exporting
country...and reasonably reflect the costs associated with the
production and sale of merchandise.” 19 U.S.C. § 1677b(f)(1)(A).
Solvay Solexis’ statutory financial statements were in
compliance with Italian GAAP. Thus, they are a permissible
Court No. 07-00037 Page 8
source for cost of production calculations should they
reasonably reflect the production costs.
Solvay Solexis insists that the IFRS-compliant financial
statements are the normal books and records of the company,
implying that the statutory financial statements are somehow
abnormal. While Solvay Solexis reiterates that the inclusion of
goodwill does not reflect the actual costs of production, it
provides little evidence to prove this point. Even if the
goodwill stemmed from the 2002 transaction by Solvay S.A. as
Solvay Solexis claims,2 including the depreciated goodwill for
2004 tax purposes is an expense to Solvay Solexis, which can be
legitimately attributed to its G&A expenses. Commerce has
previously found that “amortization of goodwill...reflects the
2
Contrary to the Defendant and Defendant-Intervenor’s claim, Solvay Solexis
is not prevented from arguing that the goodwill properly belongs to Solvay
S.A. Merely because the argument, in this specific form, was not raised in
the agency proceedings below, does not automatically render it unavailable to
the Plaintiff now. Generally, it is only when the issue is not fully raised
below is it found not to have been “exhausted” for the purposes of review in
this court. See Carpenter Tech. v. United States, 30 CIT 1595, 1597-98, 464
F. Supp. 2d 1347, 1349 (2006) (finding that an issue was exhausted because it
was not included in the case brief before the agency); Ta Chen Stainless
Steel Pipe, Ltd. v. United States, 28 CIT 627, 645, 342 F. Supp. 2d 1191,
1206-07 (2004) (the Court stated that all arguments must be raised below to
properly exhaust the claim, but found lack of exhaustion based on failure to
raise the entire issue below). At the administrative review stage, Solvay
Solexis claimed that the unaudited statutory financial statements did not
represent the most accurate costs submitted for G&A expense purposes. The
argument now raised is that the statutory financial statements do not
accurately represent Solvay Solexis’ costs because the goodwill is properly
attributed to Solvay S.A. This argument is an extension of this same issue.
Commerce had a chance to review this issue; thus, it was properly exhausted.
It should be noted that this is unlike Rhone Poulenc v. United States, 899
F.2d 1185, 1191 (Fed. Cir. 1990), where the Court found that the argument was
intentionally ignored for “tactical reasons.” Here, there are no allegations
of such tactics and the argument raised is an extension of previously made
arguments.
Court No. 07-00037 Page 9
current year’s portion of the decrease in value of the acquired
assets.” Notice of Final Determination of Sales at Less Than
Fair Value: Certain Softwood Lumber Products from Canada, 67
Fed. Reg. 15,539 (Dep’t Commerce Apr. 2, 2002), and accompanying
Issues and Decisions Memorandum at Comment 16; see Notice of
Final Determination of Sales at Less Than Fair Value: Certain
Cold-Rolled Carbon Steel Flat Products from Brazil, 67 Fed. Reg.
62,134 (Dep’t Commerce Oct. 3, 2002), and accompanying Issues
and Decisions Memorandum at Comment 23. It is not necessarily
“irrelevant tax data,” as alleged by Solvay Solexis.
Solvay Solexis simply states that the goodwill stemmed from
a prior transaction, but attempts to brush away its inclusion in
the statutory financial statements as solely a tax benefit.
This does not, with nothing more, show that the statutory
financial statements are not reflective of actual costs of
production. Thus, because Commerce permissibly based its
calculations on the statutory financial statements and because
Solvay Solexis failed to show that those statements were
distortive, Commerce’s decision to include the goodwill in the
G&A expense calculation is justified with substantial evidence.
B. Commerce Properly Calculated the G&A Expense Ratio
Solvay Solexis also disputes Commerce’s method for
calculating the G&A expense ratio. It argues that Commerce did
not calculate the G&A expenses as they relate to the company as
Court No. 07-00037 Page 10
a whole, and instead allocated the G&A expenses on a divisional
basis. Solvay Solexis claims that Commerce should have used the
audited consolidated financial statements, which include Solvay
S.A. and affiliated entities, to calculate the G&A expense
ratio, rather than the unconsolidated statutory financial
statements, which only included Solvay Solexis.
There is no specific statutorily prescribed method for
calculating G&A expenses. See 19 U.S.C. § 1677b(b). While it is
Commerce’s practice to calculate them based on the company as a
whole, this refers to the producing company. See Silicomanganese
from India: Notice of Final Determination of Sales Less Than
Fair Value and Final Negative Critical Circumstances
Determination, 67 Fed. Reg. 15,531(Dep’t Commerce Apr 2. 2002),
and accompanying Issues and Decision Memorandum at Comment 24
(emphasis added). Commerce typically calculates expenses based
on the company’s unconsolidated financial statements, and not on
a parent company’s consolidated financial statement. Notice of
Final Determination of Sales at Less Than Fair Value: Certain
Softwood Lumber Products from Canada, 67 Fed. Reg. 15,539 (Dep’t
Commerce Apr. 2, 2002), and accompanying Issues and Decisions
Memorandum at Comment 19. “As a company's consolidated financial
statements often include companies with entirely different
corporate structures and in entirely different industries from
that of the respondent, we consider it preferable to remain at a
Court No. 07-00037 Page 11
company-wide level that more closely represents the company and
industry under investigation.” Id. The G&A expense calculation
is thus derived from the company generating the product under
investigation. Notice of Final Determination of Sales at Less
Than Fair Value: Structural Steel Beams from South Africa, 67
Fed. Reg. 35,485 (Dep’t Commerce May 20, 2002), and accompanying
Issues and Decision Memorandum at Comment 6.
Here, the producing company in question is Solvay Solexis,
not Solvay S.A. Thus, it is entirely appropriate for Commerce
to rely on Solvay Solexis’ unconsolidated financial statements
to calculate its G&A expenses. It would be improper to look at
Solvay S.A.’s consolidated financial statements as they likely
include many other expenses attributable to other entities.
Solvay Solexis provided no evidence that any G&A expenses from
its parent company should be taken into account. Commerce
followed its general practice and the G&A expense ratio was
calculated based upon the company as a whole, Solvay Solexis.
Including the goodwill depreciation that was stated on Solvay
Solexis’ own unconsolidated financial statement did not shift
the G&A expense calculation to a divisional, rather than a
company-wide, basis.
III. CONCLUSION
Commerce reasonably included the amortized goodwill stated
in Solvay Solexis’ statutory financial statements in its cost of
Court No. 07-00037 Page 12
production calculation, and properly calculated the G&A expense
ratio.
For the foregoing reasons, the court sustains Commerce’s
final determination.
__/s/ Richard W. Goldberg____
Richard W. Goldberg
Senior Judge
Date: August 27, 2009
New York, New York