Solvay Solexis S.P.A. v. United States

Slip Op. 09-54

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. 07-00481

UNITED STATES,

Defendant,

and

E.I. DuPONT de NEMOURS & CO.,

Defendant-
Intervenor.

OPINION

[Commerce’s final antidumping duty administrative review
determination is sustained.]

Dated: June 11, 2009

Miller & Chevalier Chartered (John R. Magnus, Daniel P. Wendt,
and David T. Hardin, Jr.) 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 and David S. Silverbrand); 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. 07-00481 Page 2

GOLDBERG, Senior Judge: In this action, plaintiffs Solvay

Solexis S.p.A. and Solvay Solexis, Inc. (collectively “Solvay

Solexis”), the sole Italian producer of granular

polytetrafluoroethylene (“PTFE”) subject to this administrative

review, challenge the decision of the International Trade

Administration of the United States Department of Commerce

(“Commerce”) in the Final Results of Antidumping Duty

Administrative Review: Granular Polytetrafluoroethylene Resin

From Italy, 72 Fed. Reg. 65,939 (Dep’t Commerce Nov. 26, 2007)

(“Final Results”). Solvay Solexis disputes Commerce’s reliance

on certain financial statements in calculating the cost of

production of PTFE. In responding to Commerce’s questionnaires

for the 18th Administrative Review, Solvay Solexis based its

cost of manufacturing calculations on unaudited financial

statements prepared in accordance with Italian GAAP (“statutory

financial statements”). These particular financial statements

included a line item for goodwill.1 However, for the company’s

general and administrative (“G&A”) expense ratio, Solvay Solexis

submitted management profit and loss statements that were

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. 07-00481 Page 3

prepared in accordance with International Financial Reporting

Standards (“IFRS”).2 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 distortive of the actual cost of production and

contrary to Commerce precedent. It maintains that the reported

goodwill is not attributable to the company, but was created by

a purchase made by Solvay SA, its parent company. Solvay

Solexis also claims that it was denied due process in this

administrative review. Commerce and the Defendant-Intervenor

respond that Solvay Solexis has not proven that the data in the

statutory financial statements is distortive and further, that
2
In responding to Commerce’s questionnaires for this review period, Solvay
Solexis explained: “Solexis SpA does not have audited unconsolidated
financial statements since it is not a listed company but a subsidiary of
Solvay SA. Its unaudited financial statements submitted herein as Exhibit
SQD-5 are prepared according to Italian GAAP (for tax purposes), and the
figures sent to Solvay SA for consolidation into audited financial statements
are prepared in accordance with IFRS.” Letter from M. Rosch to the Secretary
of Commerce, June 1, 2007, Supplemental Section D Response at SQD-4 (PR Doc.
26).
Court No. 07-00481 Page 4

the record indicates that Solvay Solexis correctly recorded the

goodwill on its own financial statement prepared in accordance

with Italian GAAP and, in fact, incurred the related expenses.

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

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.
Court No. 07-00481 Page 5

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

of materials and fabrication, general and administrative

expenses, and the cost of packaging are included. 19 U.S.C. §

1677b(b)(3).
Court No. 07-00481 Page 6

A. Commerce properly included goodwill depreciation in
calculating Solvay Solexis’ cost of production

In 2002, prior to the administrative review period in

question,3 Solvay SA acquired another company, Ausimont. Prior

to the acquisition, Ausimont was owned by Agora, an unaffiliated

company. To effectuate the purchase, a subsidiary of Solvay SA,

Solvay Fluorati S.p.A. (“Fluorati”), acquired 100 percent of

Agora’s stock. Later that year, Ausimont merged into Agora, and

then the two combined companies merged with Fluorati. The

resulting entity was renamed Solvay Solexis.

Solvay Solexis argues that including the goodwill amount

indicated in its statutory financial statements in the cost of

production calculation does not reasonably reflect the actual

costs of production. It claims this inclusion is distortive

because the goodwill is not attributable to Solvay Solexis, but

rather to Solvay SA, the parent company. Solvay Solexis states

that the goodwill recognized in its statutory financial

statements stems from the Ausimont/Agora merger and the

subsequent Agora/Fluorati merger. It attributes this

acquisition to the parent company Solvay SA. In its Final

Results, Commerce found that the goodwill was attributable to

Solvay Solexis because it was included in its unaudited

statutory financial statement. Commerce now argues that Solvay

3
The period of review at issue is August 1, 2005 through July 31, 2006.
Court No. 07-00481 Page 7

Solexis, as the resulting entity of the mergers, correctly

recognized the goodwill as originating on its own books and

records. Commerce also states that because Solvay SA never

directly acquired any of these companies, Solvay SA could not

have recognized the goodwill asset at issue.

This Court “has consistently upheld Commerce's reliance on

a firm's expenses as recorded in the firm's financial

statements, as long as those statements were prepared in

accordance with the home country's GAAP and does not

significantly distort the firm's actual costs,” with the burden

of proving distortion falling on the company. Cinsa, S.A. de

C.V. v. United States, 21 CIT 341, 345, 966 F. Supp. 1230, 1235

(1997) (citing FAG U.K. Ltd. v. United States, 20 CIT 1277,

1290, 945 F. Supp. 260, 271 (1996)). There is no question here

that the financial statements Commerce chose to rely upon were

prepared in accordance with Italian GAAP; the issue remains

whether the use of those statements were distortive of Solvay

Solexis’ actual costs of production.

In its attempt to show that the use of goodwill in the cost

of production calculations was distortive, Solvay Solexis points

to its responses to Commerce’s questionnaires. In its

responses, Solvay Solexis produced documentation that it

purports proves the origins of the goodwill and presumably

indicates that it is not attributable to Solvay Solexis.
Court No. 07-00481 Page 8

Included in this evidence presented to Commerce were excerpts

from Solvay SA’s 2002 annual report discussing the creation of

Solvay Solexis and a table stating that the amount of goodwill

listed in the statutory financial statement was derived from the

amount of goodwill generated by Solvay SA’s acquisition of

Ausimont.

Based on the record evidence, Commerce determined that

Solvay Solexis must have acquired the goodwill through some

other transaction because it was not traceable to Solvay SA.

This is not an unreasonable conclusion. An explanation of a

transaction in 2002 does not necessarily explain why the

goodwill appears on Solvay Solexis’ statutory financial

statements in 2005 and 2006. In addition, simply because the

amount of amortized goodwill in the statutory financial

statement is equivalent to the amount that presumably was

produced from the 2002 transaction does not conclusively show

the origin of the goodwill. Solvay Solexis failed to explain

why the amortization of goodwill appeared only in its own

financial statements and the consolidated statements of Solvay

SA, which would necessarily include the assets of all of Solvay

SA’s subsidiaries, including Solvay Solexis. Solvay Solexis

neither responded to nor addressed these arguments, i.e., by

proffering Solvay SA’s unconsolidated financial statements to

rebut the record evidence.
Court No. 07-00481 Page 9

Commerce has previously determined that including goodwill

depreciation in the costs of a reporting company is appropriate.

Decision Memorandum, A-122-838 (Apr. 2, 2002), Admin. R. Pub.

Doc. G205, available at

http://ia.ita.doc.gov/frn/summary/canada/02-7848-1.txt. Solvay

Solexis did not explain exactly why the amortized goodwill would

not be an accurate cost of production, e.g., why it is

distortive. If it was represented as a cost in its financial

statements, it is related to the company’s general and

administrative costs. Solvay Solexis acknowledged that the

purchaser of a company, who has paid for the goodwill and owns

the declining asset, may suffer a cost from the amortized

goodwill. The same may be true for any company that represents

goodwill as a loss on its statutory financial statements.

In an attempt to explain the existence of goodwill in its

statutory financial statements, Solvay Solexis maintains that it

included the goodwill solely for a tax benefit permitted by

Italian GAAP. Solvay Solexis cites two Commerce decisions where

Commerce excluded certain recorded depreciation expenses because

they were solely related to tax purposes. Final Determination of

Sales at Less than Fair Value: Antidumping Duty Investigation of

Stainless Steel Angle from Japan, 60 Fed. Reg. 16,608 (Dep’t

Commerce Mar. 31, 1995); Fresh and Chilled Atlantic Salmon from

Norway: Final Results of Antidumping Duty Administrative Review,
Court No. 07-00481 Page 10

58 Fed. Reg. 37,912 (Dep’t Commerce July 14, 1993). However,

Solvay Solexis’ case is unlike either of those cited. In both

cases, Commerce had a basis to conclude that Japan and Norway

permitted their companies to accelerate depreciation in certain

situations for tax reasons, which was not representative of

actual costs of production. Stainless Steel Angle from Japan, 60

Fed. Reg. at 16,617; Fresh and Chilled Atlantic Salmon from

Norway, 58 Fed. Reg. at 37,915. Here, there was no basis for

Commerce to conclude that Italian GAAP specifically allows a

subsidiary company to record goodwill depreciation on its own

financial statements when, in actuality, the goodwill relates to

a transaction attributable solely to another company. Notably,

neither Stainless Steel Angle from Japan nor Fresh and Chilled

Atlantic Salmon from Norway dealt with information stemming from

GAAP complaint financial statements, such as in the case at bar.

In this case, given the statutory preference for home country

GAAP compliant financial statements, it is reasonable for

Commerce to prefer the subsequent information presented in those

statements. There is insufficient evidence that taking goodwill

into account is distortive of actual costs as in the above

cases. Considering this lack of proof, even if Solvay Solexis

had voluntarily used the goodwill for a tax benefit, a company

cannot reap the benefits of an expense for tax purposes, but use
Court No. 07-00481 Page 11

the amount differently for antidumping duty purposes. Laclede

Steel Co. v. United States, 18 CIT 965, 976 (1994).

In sum, because Solvay Solexis could not sufficiently prove

that relying on its statutory financial statements would be

distortive, Commerce did not deviate from its normal practice,

and this decision is supported by substantial evidence.

Commerce could have found differently. However, as dictated by

the standard of review, simply because there are two possible

inconsistent conclusions does not inherently prohibit either

conclusion from being supported by substantial evidence.

Consolo, 383 U.S. at 620.

B. Solvay Solexis was not denied due process

Solvay Solexis claims that Commerce denied it due process

by (1) failing to inform Solvay Solexis of any deficiency in the

record; (2) failing to consider submitted factual information;

and (3) by announcing a “last-minute” presumption that any

goodwill appearing on Solvay Solexis’ financial statements must

relate to Solvay Solexis’ own acquisitions of companies and not

to the parent company, Solvay SA.

In making its argument, Solvay Solexis relies on the Tariff

Act of 1930 § 782, 19 U.S.C. § 1677m(d) (2006), which provides

that Commerce has an obligation to notify the respondent if a

“response to a request for information...does not comply with

the request” and to provide the respondent “with an opportunity
Court No. 07-00481 Page 12

to remedy or explain the deficiency.” This provision, however,

only applies when a response to a request is deemed

noncompliant, or is deficient. Ta Chen Stainless Steel Pipe,

Inc. v. United States, 298 F.3d 1330, 1338 (Fed. Cir. 2002).

Since Commerce did not find any of Solvay Solexis’ submitted

data to be deficient or unsatisfactory, Solvay Solexis’ reliance

on this provision is misplaced. The submitted financial

statements complied with the statutory terms and Commerce did

not reject any of the factual information contained therein.

What Commerce rejected, however, was Solvay Solexis’ argument

that the submitted data proved that the goodwill in question

arose from Solvay SA’s purchase of Ausimont. Quite simply,

Commerce came to a contrary conclusion based on competent

evidence, and Commerce is not required to grant Solvay Solexis

continuous opportunities to prove its case until it succeeds.

Moreover, even if Commerce had deemed the evidence to be

deficient, it cannot be said that Solvay Solexis was denied due

process when the evidence that Solvay Solexis proffers now to

explain the origin of the goodwill is identical to what Solvay

Solexis supplied Commerce in its responses to Commerce’s

questionnaires. That Solvay Solexis made the same arguments

regarding the same evidence before Commerce demonstrates that it

had an opportunity to, and did, explain what it perceives to be

a deficiency.
Court No. 07-00481 Page 13

Solvay Solexis also argues that Commerce violated 19 U.S.C.

§ 1677m(e) by failing to consider factual information it

submitted. Solvay Solexis, however, has not alleged with any

specificity how Commerce has failed to take into account

submitted evidence. After Solvay Solexis attempted to show why

the statutory financial statements should not be used, Commerce

determined that the record evidence demonstrated that Solvay

Solexis recorded the goodwill in its financial statement in

accordance with Italian GAAP and that the provided documentation

did not show that the goodwill belongs to Solvay SA. Since

Commerce did consider all of the provided information, this

argument is without merit.

Finally, as to whether Commerce unlawfully “sprung a trap”

in the final determination, this Court has held that Commerce

carries the burden of providing notice to respondents if it

decides to apply a new factual presumption that is contrary to,

or a significant departure from, its previous or traditional

methodology. Transcom, Inc. v United States, 182 F.3d 876, 881

(Fed. Cir. 1999); Sigma Corp. v. United States, 17 CIT 1288,

1303, 841 F. Supp. 1255, 1267 (1993). In Sigma Corp., the Court

found it improper for Commerce to shift from company-specific to

country-specific margins in the final results when Commerce had

already granted respondents company-specific margins in a prior

determination as well as in the preliminary results. 17 CIT at
Court No. 07-00481 Page 14

1303, 841 F. Supp. at 1267. The Court stated that if “Commerce

felt that it should issue country-wide rates after publishing

its preliminary results, then Commerce should have issued an

amended preliminary determination or provided respondents with

supplemental questionnaires requesting additional

proof...Instead, Commerce simply changed its position without

giving notice to the respondents.” Id. Similarly, in British

Steel PLC v. United States, 19 CIT 176, 255-56, 879 F. Supp.

1254, 1316-17 (1995), the Court found that Commerce was

obligated to provide notice to the respondents of its adoption

of the “tying presumption” since this presumption constituted a

departure from its traditional practice.

Both Sigma Corp. and British Steel fail to support Solvay

Solexis’ due process argument. The two cases are inapposite

because both involved a basic change in Commerce practice

without notice to the respondent or an opportunity to comment.

Here, Commerce did not modify its standard procedure or policy.

The statutory preference for Commerce is, and has been, to rely

on the financial statements prepared in accordance with the

respondent’s home country GAAP. Solvay Solexis’ statutory

financial statements showed that it incurred a cost for

amortization of goodwill and thus, Commerce treated the

recognized goodwill as a period cost. Furthermore, in the

previous year’s 17th administrative review, Commerce had
Court No. 07-00481 Page 15

included the goodwill cost as part of Solvay Solexis’ G&A

calculation. Commerce thereby gave notice to Solvay Solexis

that unless it provided Commerce with a reason to change its

normal value calculation methodology, the same method would be

applied in the following administrative review. Finally, as

stated before, Solvay Solexis was not deprived of an opportunity

to be heard. In sum, Solvay Solexis’ due process arguments

fail.

C. Solvay Solexis may not seek an advisory opinion stating
that it may challenge Commerce’s treatment of non-dumped
sales

Solvay Solexis requests that this court issue an advisory

opinion preserving Solvay Solexis’ ability to contest the

zeroing of negative comparisons in the event that such issues

arise should the court choose to remand the case. A court may

not render an advisory opinion when there is no case or

controversy. See U.S. Const. art. III, § 2; Georgetown Steel

Corp. v. United States, 16 CIT 1084, 1087, 810 F. Supp. 318, 321

(1992). The duty of the court is “to decide actual

controversies by a judgment which can be carried into effect,

and not to give opinion upon moot questions or abstract

propositions, or to declare principles or rules of law which

cannot affect the matter in issue in the case before it.”

Georgetown Steel Corp., 16 CIT at 1084, 810 F. Supp. at 321

(citing Mills v. Green, 159 U.S. 651, 653 (1895)). This court
Court No. 07-00481 Page 16

agrees with Commerce that there is no reason to opine as to

whether Solvay Solexis has preserved a hypothetical challenge to

a determination that has not been and may never be made. The

practice of zeroing has not occurred in this case. Solvay

Solexis will be free to pursue the issue when and if it arises.

III. CONCLUSION

Commerce reasonably included the amortized goodwill stated

in Solvay Solexis’ statutory financial statements in its cost of

production calculation, and Solvay Solexis was not denied due

process in this administrative review.

For the foregoing reasons, the court sustains Commerce’s

final determination.

_/s/ Richard W. Goldberg_____
Richard W. Goldberg
Senior Judge

Date: June 11, 2009
New York, New York