Mannesmann-Sumerbank Boru Endustrisi T.A.S. v. United States

Slip Op. 99-141

UNITED STATES COURT OF INTERNATIONAL TRADE

BEFORE: RICHARD W. GOLDBERG, JUDGE

MANNESMANN-SUMERBANK BORU
ENDUSTRISI T.A.S., BORUSAN
BIRLESIK BORU FABRIKALARI A.S.,
AND BORUSAN ITHALAT IHRACAT VE
DAGITIM A.S.,

Plaintiffs,

v.

UNITED STATES OF AMERICA, Court No. 98-05-02185

Defendant,

and

ALLIED TUBE & CONDUIT CORP. AND
WHEATLAND TUBE COMPANY,

Defendant-Intervenors.

[Court sustains in part and remands in part.]

Dated: December 23, 1999

Dickstein Shapiro Morin & Oshinsky LLP, (Arthur J. Lafave
III and Douglas N. Jacobson) for plaintiffs.

David W. Ogden, Acting Assistant Attorney General; David M.
Cohen, Director, Commercial Litigation Branch, Civil Division,
United States Department of Justice; Lucius B. Lau, Attorney,
Commercial Litigation Branch, Civil Division, United States
Department of Justice; Office of the Chief Counsel for Import
Administration, United States Department of Commerce (Linda A.
Andros), of counsel, for defendant.
Court No. 98-05-02185 Page 2

OPINION

GOLDBERG, Judge: In this action, the Court reviews two aspects of
the Department of Commerce’s ("Commerce") Certain Welded Carbon

Steel Pipe and Tube and Welded Carbon Steel Line Pipe from

Turkey; Final Results and Partial Recission of Countervailing

Duty Administrative Reviews, 63 Fed. Reg. 18,885 (April 16, 1998)

("Final Results"). Specifically, Mannesmann-Sumerbank Boru

Endustrisi T.A.S., Borusan Birlesik Boru Fabrikalari A.S., and

Borusan Ithalat Ve Dagitim A.S. ("plaintiffs") complain that

Commerce (1) countervailed benefits under the Freight Rebate

Program on the date of receipt instead of on the date of export;

and (2) in calculating plaintiffs’ ad valorem subsidy rate,

erroneously excluded foreign exchange gains from the denominator

of the equation.

The Court exercises jurisdiction to review this motion for

judgment on the agency record pursuant to 28 U.S.C. § 1581(c)

(1994). The Court sustains in part and remands in part.
Court No. 98-05-02185 Page 3

I.
BACKGROUND
On March 7, 1986, Commerce published a countervailing duty

order on certain welded carbon steel pipes and tubes and certain

welded carbon steel line pipe from Turkey. Countervailing Duty

Order; Certain Welded Carbon Steel Pipe and Tube Products from
Turkey, 51 Fed. Reg. 7984 (Mar. 7, 1986). At the request of both

domestic and Turkish producers and exporters, Commerce initiated

a review of the order on April 24, 1997.1 Initiation of

Antidumping and Countervailing Administrative Reviews, 62 Fed.

Reg. 19,988 (Apr. 24, 1997) (Certain Welded Carbon Steel Pipe and

Tube). The review covered the period January 1, 1996 through

December 31, 1996.

Commerce published its preliminary results of the review on

December 9, 1997. Certain Welded Carbon Steel Pipes and Tubes

and Welded Carbon Steel Line Pipe from Turkey; Preliminary

Results and Partial Recission of Countervailing Duty

Administrative Reviews, 62 Fed. Reg. 64,808 (Dec. 9, 1997)

1
Commerce initiated this review after December 31, 1994,
and thus the applicable statutory provisions are those that
existed on January 1, 1995, the effective date of the amendments
made by the Uruguay Round Agreements Act, Pub. L. No. 103-465,
108 Stat. 4809 (1994). See Torrington Co. v. United States, 68
F.3d 1347, 1352 (Fed. Cir. 1995).
Court No. 98-05-02185 Page 4

("Preliminary Results"). It published the Final Results on April

16, 1998. The facts relevant to the issues before the Court are

summarized below.

A. The Freight Rebate Program
In October, 1993, the Government of the Republic of Turkey

("the Government") instituted the Freight Rebate Program

("Program") to promote exports of iron and steel products from

Turkey. Under the Program, exporters were eligible to receive

the Turkish lira ("TL") equivalent of $30 or $50 per ton of

merchandise exported; thirty percent (30%) was payable in cash,

and the remainder in 1 and 2-year treasury bonds. An exporter

was eligible to apply to the Government’s Central Bank for

Program benefits whenever it completed an export transaction and

payment was received from the customer. The Government did not

specify what exchange rate would be used to calculate the TL

equivalent of the U.S. dollar ("USD").

In December, 1994, the Government discontinued the Freight

Rebate Program and announced that no benefits would be paid on

shipments made after December 31, 1994. Several months later, in

February, 1995, the Government declared that claims for benefits

under the Program would be paid using the exchange rate
Court No. 98-05-02185 Page 5

prevailing on December 31, 1994. Subsequently, during the period

of review, plaintiffs received cash payments2 for export

transactions completed in October, 1993 through December 31,

1994. See Preliminary Results, 62 Fed. Reg. at 64,811.

In the Preliminary Results, Commerce determined that

benefits paid under the Freight Rebate Program were

countervailable export subsidies. See id. Commerce also

determined that exporters did not know the exact value of their

benefits under the Program at the time they exported their

merchandise. See id. Accordingly, citing its usual practice,

Commerce countervailed benefits under the Program on the date the

exporters received payment from the Government. See id. The

practical effect of doing so is that Commerce countervailed cash

payments associated with export transactions completed in

October, 1993 through December, 1994 as part of an administrative

review covering the period January 1 through December 31, 1996.

See id.
In this appeal, plaintiffs contest Commerce’s decision to

2
Plaintiffs also received bonds and interest payments on
bonds during the period of review. Commerce determined, however,
that “the benefits from the bonds are bestowed on the date of
maturity.” Preliminary Results, 62 Fed. Reg. at 64,811.
Court No. 98-05-02185 Page 6

countervail Program benefits on the date plaintiffs received

payment instead of on the date of export.

B. "Kur Farki" Accounts
To calculate plaintiffs’ ad valorem subsidy rate, Commerce

divided the amount of benefit received (numerator) by the total

value of exports to the United States (denominator). See

Preliminary Results, 62 Fed. Reg. at 64,811. In calculating the

denominator, Commerce excluded the amount listed in plaintiffs’

"kur farki," or "exchange difference," accounts. Pls.’ Br. in

Supp. of Their Mot. for J. on the Agency R. Pursuant to Rule 56.2

(“Pls.’ Br.”), at 27. Commerce’s reasoning was that plaintiffs’

"kur farki" accounts do not represent actual sales revenue but

rather foreign exchange differences, i.e. "income derived from

fluctuations of the relative value of the dollar versus the TL,"

and thus should not be included in the total value of exports to

the United States. Final Results, 63 Fed. Reg. at 18,890.
Plaintiffs contest Commerce’s treatment of the "kur farki"

accounts. They explain

that the kur farki account reflects the
difference between the estimated TL amount
recorded on the invoice date, when the sale is
booked, and the TL amount actually received
Court No. 98-05-02185 Page 7

upon receipt of payment from the customer.3
Depending on the date that the payment is
received, the exchange difference can increase
or decrease the invoice value. Therefore, the
total amount in the kur farki account and the
sales revenues account represents total actual
income received from export sales
transactions.

Id. Plaintiffs complain that by excluding the amount in the "kur

farki" accounts from the value of export sales, Commerce

erroneously shrunk the denominator of the subsidy rate equation

and in turn, artificially inflated the subsidy margin. See id.
at 18,889.

II.
STANDARD OF REVIEW
Commerce’s determination will be sustained if it is

supported by substantial evidence on the record and is otherwise

in accordance with law. See 19 U.S.C. § 1516a(b)(1)(B) (1994).

3
As the Court understands plaintiffs’ explanation, every
transaction involves three steps (“three-step accounting
method”). First, an exporter submits a Customs Export
Declaration (GCB) to the Turkish Customs Service. Second, about
two weeks later, the exporter issues an invoice. At the same
time, the exporter books the sale in TL using the “book rate,”
the exchange rate in effect on the date of the GCB. Third, the
exporter receives payment on the invoice in U.S. dollars and
converts the USD to TL; the exporter records the difference
between the TL amount booked on the invoice date and the amount
of local currency actually received as payment in the “kur farki”
account. See Pls.’ Br., at 11-12.
Court No. 98-05-02185 Page 8

III.
DISCUSSION

A. Commerce’s Determination to Countervail Benefits Under the
Freight Rebate Program on the Date of Receipt Instead of on
the Date of Export is Sustained.
No statute or regulation governs the date on which Commerce

must countervail benefits. Commerce describes its normal

practice as a "cash flow" approach; that is, it countervails a

benefit when that benefit affects the recipient’s cash flow. See

Live Swine from Canada; Final Results of Countervailing Duty

Administrative Reviews, 61 Fed. Reg. 52,408, 52,419 (Oct. 7,

1996) ("The Department’s practice is to countervail a benefit

only when it affects the respondent’s cash flow."); Ferrochrome

from South Africa; Final Results of Countervailing Duty

Administrative Review, 56 Fed. Reg. 33,254, 33,255 (July 19,

1991) ("The Department’s standard practice is to recognize a

benefit at the time it affects the cash flow of the recipient

company."); see also Countervailing Duties: Notice of Proposed
Rulemaking and Request for Public Comments ("Proposed Rule"), 54

Fed. Reg. 23,366, 23,375 (proposed May 31, 1989) (intended to be,

but never codified at 19 C.F.R. pt. 355) (explaining "the

Department’s general cash flow approach with regard to the timing

of receipt of benefits").
Court No. 98-05-02185 Page 9

According to Commerce, the cash flow effect usually occurs

at the time of receipt.4 See, e.g., Final Affirmative

Countervailing Duty Determination: Certain Pasta ("Pasta") from

Turkey ("Pasta From Turkey"), 61 Fed. Reg. 30,366, 30,367 (June

14, 1996) (deeming cash grants to have been bestowed at time of

receipt); Final Affirmative Countervailing Duty Determination and

Countervailing Duty Order; Lamb Meat from New Zealand, 50 Fed.

Reg. 37,708, 37,714 (Sept. 17, 1985) (countervailing price

support payments in year of receipt); see also Proposed Rule, 54

Fed. Reg. at 23,384 (proposing that "[t]he cash flow and economic

effect of a benefit normally occurs . . . as a result of [a

firm’s] receipt of the benefit"). There is an exception to this

rule, however. As stated by Commerce, "where [a benefit] is

provided as a percentage of the value of the exported merchandise

on a shipment-by-shipment basis, and the exact amount of the

countervailable subsidy is known at the time of export," Commerce

will "countervail an export subsidy on the date of export on an
‘earned basis’ rather than on the date the benefit is received."

4
In 1998, Commerce promulgated 19 C.F.R. §351.524
(1999). Although it post-dates this review, it is noteworthy in
that it states that "[t]he Secretary will allocate (expense) a
recurring benefit to the year in which the benefit is received."
Id.
Court No. 98-05-02185 Page 10

Final Results, 63 Fed. Reg. at 18,888 (describing Commerce’s

"long-standing practice"); see also Certain Iron-Metal Castings

From India: Final Results of Countervailing Duty Administrative

Review ("Iron-Metal Castings From India"), 60 Fed. Reg. 44,843,

44,844 (Aug. 29, 1995) (stating rule); Final Affirmative

Countervailing Duty Determination and Countervailing Duty Order:

Carbon Steel Butt-Weld Pipe Fittings From Thailand ("Pipe

Fittings From Thailand"), 55 Fed. Reg. 1695, 1699 (Jan. 18, 1990)

(discussing rule); "Proposed Rule", 54 Fed. Reg. at 23,384

(proposing that "in the case of an export benefit provided as a

percentage of the value of the exported merchandise . . . [the

cash flow effect will be deemed to occur] on the date of

export").

Plaintiffs dispute neither the existence nor the validity of

Commerce’s practice as described above. Rather, plaintiffs

assert that in countervailing Program benefits on the date of

receipt instead of on the date of export, Commerce failed to
conform to this established practice; and plaintiffs argue,

Commerce cannot do so without explanation. See Pls.’ Br., at 14-

15 (citing Cinsa, S.A. de C.V. v. United States, 21 CIT __, __,

966 F. Supp. 1230, 1238 (1997) ("It is a well settled rule that
Court No. 98-05-02185 Page 11

an agency cannot arbitrarily change its methodology without

explanation.")). The issue before the Court, then, is whether

Commerce’s Final Results are consistent with its established

practice. The Court finds that Commerce’s determination is

consistent, and thus that the Final Results are supported by

substantial evidence and in accordance with law.

Pursuant to its established practice, Commerce will

countervail a benefit on the date of export only when an exporter

satisfies three criteria: (1) the benefit is provided as a

percentage of the value of the exported merchandise, or as in

this case, based on export tonnage, see Preliminary Results, 62

Fed. Reg. at 64,811; (2) the benefit is provided on a shipment-

by-shipment basis; and (3) the exact value of the benefit is

known at the time of export. See Final Results, 63 Fed. Reg. at

18,888. In this case, Commerce found that plaintiffs failed to

satisfy the third criteria; that is, plaintiffs did not know the

exact amount of their benefit at the time of export. See id.
The parameters of Commerce’s third criteria -- that an

exporter know the exact amount of the benefit at the time of

export (hereinafter "knowledge requirement") -- are not well-

defined. Specifically, Commerce has never explicitly indicated
Court No. 98-05-02185 Page 12

whether, to satisfy the requirement, an exporter must know the

value of a benefit in its home currency, U.S. dollars, or either

one. Indeed, many determinations in which Commerce has

countervailed an export subsidy on the date of export (based on a

finding that an exporter knew the exact value of the benefit on

the date of export) do not discuss this issue. See, e.g., Iron-

Metal Castings From India, 60 Fed. Reg. at 44,844 (exact amount

of benefit known at the time of export because calculated as a

percentage of FOB price and "paid upon export"); Pipe Fittings

from Thailand, 55 Fed. Reg. at 1699 (exact amount of benefit

known at time of export because tax certificates based on fixed

percentage of FOB value of each export shipment and not dependent

on company’s ultimate tax liability).

In prior determinations, Commerce has deemed the knowledge

requirement met when exporters knew the value of their benefit in

their home currency at the time of export. For example, in Final

Affirmative Countervailing Duty Determination; Cabron [sic] Steel
Plate From Brazil ("Brazil I"), 48 Fed. Reg. 2568 (Jan. 20,

1983), one of the determinations on which plaintiffs rely,

Commerce countervailed export credit premiums on the date of

export. The amount of credits for which an exporter was eligible
Court No. 98-05-02185 Page 13

was based on a percentage of the value of exports (in dollars),

as converted into cruzerios using the exchange rate prevailing on

the date of shipment. Based on this, Commerce determined that

exporters knew the exact value of their benefit, in cruzerios, at

the time of shipment. See id. at 2578; accord Final Affirmative

Countervailing Duty Determination; Prestressed Concrete Steel

Wire Strand From Brazil, 48 Fed. Reg. 4516, 4521 (Feb. 1, 1983)

("Brazil II") (same); see also Final Negative Countervailing Duty

Determination; Paint Filters and Strainers From Brazil, 52 Fed.

Reg. 19,184, 19,186 (May 21, 1987) (noting that Commerce has

"consistently calculated the benefit under this [IPI export

credit premium] program based on the date the premium was earned,

not on the date it was received").

In comparison, Commerce deemed the knowledge requirement met

for a different program examined during this review, the Export

Performance Credit Program ("EPCP"), because exporters knew the

value of those benefits in U.S. dollars at the time of export.
Under the EPCP, "[e]xporters . . . receive[d] a percentage of the

U.S. dollar value of their exports in TLs based on the foreign

exchange rate prevailing at the time of payment." Final Results,

63 Fed. Reg. at 18,888. Commerce explained that "although at the
Court No. 98-05-02185 Page 14

time of receipt the exporters received more TLs than they would

have been paid upon exportation, because the benefit was tied to

the U.S. dollar, the value of the TL amount remained the same in

U.S. dollar terms." Id. Thus, because exporters knew the value

of the benefit under the EPCP at the time of export in U.S.

dollars, Commerce countervailed EPCP benefits on the date of

export. See id.

The Court need not decide at this time whether, in order to

satisfy Commerce’s knowledge requirement in a manner consistent

with past practice, exporters must know the value of a benefit in

their home currency, U.S. dollars, or either one. In this case,

plaintiffs did not know the value of their benefit at the time of

export in either Turkish lira or U.S. dollars. Plaintiffs did

not know, at the time of export, the amount of TL they would

receive because Program benefits were stated in USD, not TL.

Likewise, plaintiffs did not know, at the time of export, the

value of their benefits in USD. Although Program benefits were
stated in USD, the Turkish Government did not specify the

exchange rate that would be used to convert USD to TL, and thus

plaintiffs could not be sure they would receive the full TL

equivalent of $30 or $50.
Court No. 98-05-02185 Page 15

Plaintiffs’ arguments to the contrary are unavailing.

Significantly, the language plaintiffs use to argue their case

belies their claim that they knew the exact value of their

benefit at the time of export. First, plaintiffs argue they

satisfy Commerce’s knowledge criteria because they "had every

reason to believe that the full value of the benefit [under the

Program] would be either $30 or $50 per ton." Pls.’ Br., at 18.

They further explain they "did not know . . . that the Government

of Turkey would later renege on its commitment to pay the full

dollar value of the benefit promised under the program." Id.

What plaintiffs believed or assumed the value of their

benefits would be, however, is not the same as the proposition

that plaintiffs knew the exact value of the benefit at the time

of export, especially considering Turkey’s high rate of inflation

at the time. As previously emphasized, "the GRT made no initial

commitment to use the exchange rate prevailing on the date

payment was made." Def.’s Mem. In Opp’n to Pls.’ Mot. for J. Upon
the Agency R. Pursuant to Rule 56.2 ("Def.’s Br."), at 19

(emphasis added). Without this critical information, exporters

assumed, but did not know, that the government would choose an

exchange rate that guaranteed them the full dollar value of their
Court No. 98-05-02185 Page 16

benefit.

Plaintiffs further argue they knew the exact value of the

benefit at the time of export because it "was fixed for a period

of time in U.S. dollars before being converted into local

currency" and was therefore "protected against inflation until

December 31, 1994." Pls.’ Br., at 19-20. This argument, too,

misses the mark. Benefits under the Freight Rebate Program were

merely stated in U.S. dollars; they were not tied or fixed to the

U.S. dollar per se.

An example of a Government program tied to the U.S. dollar

is the aforementioned Export Performance Credit Program. Under

the EPCP, exporters knew they would receive the full TL

equivalent of a given dollar amount because benefits were to be

paid using the exchange rate prevailing at the time of payment.5

5
Notably, plaintiffs do not contest Commerce’s assertion
in the Final Results that the Government of Turkey specified that
benefits under the Export Performance Credit Program would be
paid using the exchange rate prevailing at the time of payment.
Rather, plaintiffs assert that, despite the fact that the
Government did not make the same commitment with respect to the
Freight Rebate Program, there is no record evidence that they
believed the Government would pay differently under the programs.
See Pls.’ Br., at 22 ("At the time of export, the exporters had
every reason to believe that the exchange rate used to convert
benefits into local currency would, under both programs, ensure
that the full dollar value of the benefit was preserved. There
is no evidence on the administrative record that exporters
Court No. 98-05-02185 Page 17

In contrast, under the Freight Rebate Program, exporters did not

know for certain the exchange rate the government would use to

convert the rebate payments, as stated in U.S. dollars, to TLs.

Consequently, it was impossible for exporters to know the exact

value of their benefit at the time of export. Thus, it was

consistent for Commerce to countervail benefits under the EPCP on

the date of export, but to countervail benefits under the Program

on the date of receipt. See, e.g., Certain Welded Carbon Steel

Pipes and Tubes and Welded Carbon Steel Line Pipe From Turkey;

Final Results of Countervailing Duty Administrative Reviews, 62

Fed. Reg. 43,984, 43,990 (Aug. 18, 1997) (finding exporters did

not know the amount of benefit at the time of export because

exchange rate not specified and high rate of inflation;

countervailing benefit at the time of receipt); Pasta from

Turkey, 61 Fed. Reg. at 30,367 (countervailing benefits under the

Pasta Export Grants program on the date cash was received

because, as explained in Preliminary Affirmative Countervailing
Duty Determination: Certain Pasta ("Pasta") from Turkey, 60 Fed.

Reg. 53,747, 53,749 (Oct. 17, 1995), "the amount the exporter

believed or had any forewarning that such would not be the case
[with the Freight Rebate Program].").
Court No. 98-05-02185 Page 18

will actually receive in TL is not certain until the time of

receipt because it is subject to fluctuations in the exchange

rate").

Finally, plaintiffs’ reliance on countervailing duty

investigations and orders involving Brazil (between 1983 and

1987) and Mexico (during the 1980s) is misplaced. Plaintiffs

claim those determinations show that Commerce has countervailed

benefits on the date of export even when the benefit was

denominated in local currency, the economy was characterized by

high inflation,6 and there was a long delay between the time of

export and the receipt of the benefit. See Pls.’ Br., at 15-16.

Those cases are not relevant, however, to the question presented

by this case; that is, whether, consistent with Commerce’s prior

6
In discussing inflation, plaintiffs reference the
International Financial Statistics Yearbook. Pls.’ Br., at 16
n.38 & Attach. B. Defendant, by way of motion dated November 6,
1998, asks the Court to strike this data pursuant to CIT Rule
81(m), as well as Memorandum of 3/6/96 from Kristin H. Mowry to
Susan H. Kuhbach (Pls.’ Attach. C) and Financial Accounting
Standards Board, Original Pronouncements, (John Wiley & Sons,
Inc. 1996) (Pls.’ Attach. F), because the documents are not part
of the administrative record. It is unnecessary for the Court to
rule on defendant’s motion to strike; even if plaintiffs’
submissions were part of the administrative record, they would
not alter the Court’s decision in this case. Cf. AK Steel Corp.
v. United States, 21 CIT __, __, 988 F. Supp. 594, 608 (1997)
(refusing to rule on motion to strike because the Court would
still rule in favor of Commerce on all issues).
Court No. 98-05-02185 Page 19

practice, an exporter can "know" the exact value of a benefit

when no exchange rate has been specified and the rate of

inflation is high.

For example, a majority of the Brazilian determinations

cited by plaintiffs address a much different issue, that of

whether a delay between the date of export and the date of

receipt during which inflation may have eroded the real value of

the benefit qualifies an exporter for a deduction for "any loss

in the value of the countervailable subsidy resulting from its

deferred receipt, if the deferral is mandated by Government

order." 19 U.S.C. §1677(6)(B) (1994). In response to that

question, Commerce found that any delay in an exporter’s receipt

of the benefit was "frequently the result of a company’s

application for it," not a government mandate. Brazil I, 48 Fed.

Reg. at 2578. Notably, the amount of the benefit in those cases

was calculated using the exchange rate prevailing on the date of

shipment. Thus, Commerce determined that the amount of the
benefit was solidified on the date of shipment, "even if the

application is made months later and the exchange rate has

changed substantially." Id.; accord Final Affirmative

Countervailing Duty Determination; Cast-Iron Pipe Fittings from
Court No. 98-05-02185 Page 20

Brazil, 50 Fed. Reg. 8755, 8759 (Mar. 5, 1985); Final Affirmative

Countervailing Duty Determination; Oil Country Tubular Goods From

Brazil, 49 Fed. Reg. 46,570, 46,575 (Nov. 27, 1984); Certain

Carbon Steel Products From Brazil; Final Affirmative

Countervailing Duty Determinations, 49 Fed. Reg. 17,988, 17,996

(Apr. 26, 1984); Final Affirmative Countervailing Duty

Determinations; Certain Stainless Steel Products From Brazil, 48

Fed. Reg. 21,610, 21,612 (May 13, 1983); Brazil II, 48 Fed. Reg.

at 4521.

In conclusion, Commerce’s determination to countervail

benefits under the Freight Rebate Program on the date of receipt

instead of on the date of export was consistent with its long-

standing practice. The Court sustains that portion of the Final

Results as supported by substantial evidence and in accordance

with law.

B. Commerce’s Determination to Exclude Plaintiffs’ "Kur Farki"
Accounts From the Denominator of the Subsidy Equation is
Remanded.
19 U.S.C. § 1671 mandates that the countervailing duty rate

imposed on merchandise imported into the United States be "equal

to the amount of the net countervailable subsidy." 19 U.S.C. §
Court No. 98-05-02185 Page 21

1671(a) (1994). The statute does not provide, however, a

methodology for calculating "net countervailable subsidy," or

more particularly, the denominator of the subsidy equation.

Therefore, in the absence of statutory direction, "Commerce’s

methods will be upheld if they reflect a reasonable means of

assessing the benefits and if there is support in the record as a

whole for its determination." SSAB Svenskt Staal AB v. United

States, 15 CIT 202, 206, 764 F. Supp. 650, 655 (1991) (internal

quotation marks omitted).

In this case, Commerce calculated plaintiffs’ "ad valorem

subsidy rate by dividing the benefit [numerator] by the firm’s

total exports to the United States [denominator], adjusted for

foreign exchange differences." Preliminary Results, 62 Fed. Reg.

at 64,811. "[W]here the foreign exchange difference was a

positive amount," Commerce deducted it from the denominator.

Final Results, 63 Fed. Reg. at 18,890.

Plaintiffs assert that Commerce erred in deducting the
foreign exchange gain in plaintiffs’ "kur farki" accounts from

the denominator of the subsidy equation for two reasons: (1)

because the foreign exchange gains in plaintiffs’ "kur farki"

accounts are actual sales revenue; and (2) because Commerce acted
Court No. 98-05-02185 Page 22

contrary to prior practice. The Court will address each argument

in turn.

First, plaintiffs argue that the amount in the "kur farki"

accounts is actual sales revenue and therefore by definition,

must be included in the total value of exports to the United

States. According to plaintiffs, the amount Commerce chose to

use in the denominator -- invoice amount -- is purely arbitrary,

and does not reflect the actual value of total sales. Plaintiffs

explain that

the difference between what is booked on the
date of invoice and what is booked on the date
of receipt of payment is merely a reflection
of the fact that, under an accrual-based
accounting system, sales are first booked in
the company’s accounts on or about the date of
invoice, prior to the time of payment. Since
the sales must be booked in Turkish lira, they
must be converted into Turkish lira. However,
the exchange rate that is used in Turkey is
entirely artificial; it is picked according to
an accounting convention. The actual revenues
from the sale in local currency cannot be
established until payment is made and the
funds are actually exchanged into local
currency.

Pls.’ Reply Br. in Supp. of Their Mot. for J. on the Agency R.

Pursuant to Rule 56.2 ("Pls.’ Reply Br."), at 10.

In support of their claim that the "kur farki" accounts

qualify as actual sales revenue, plaintiffs point to Turkish
Court No. 98-05-02185 Page 23

accounting principles. They claim that their three-step method

of booking sales is required under Turkey’s generally accepted

accounting principles (GAAP) and that under Turkey’s standardized

accounting plan, gross sales include "exchange rate differences

related to export sales within the relevant period." Pls.’ Br.,

at 27 n.55.

Commerce, on the other hand, argues that plaintiffs’ "kur

farki" accounts are not actual sales revenue. It emphasizes that

plaintiffs negotiated their export sales price in USD, not TL.

See, Public Doc. App. to Accompany the Non-Confidential Version

of Pls.’ Br. in Supp. of Their Mot. for J. on the Agency R.

Pursuant to Rule 56.2 ("Pls.’ App."), Ex. 8 (stating that prices

were negotiated in U.S. dollars); Def.’s Br., at 30. Further,

Commerce notes, plaintiffs were paid in USD, not TL. See Final

Results, 63 Fed. Reg. at 18,890; Def.’s Br., at 32. Thus,

Commerce reasons, because there was no change in the negotiated

price paid by plaintiffs’ customers, the difference between the
amount of TL invoiced and the amount of TL received is due to

currency fluctuation, not to an increase in sales revenue. See

Final Results, 63 Fed. Reg. at 18,890; Def.’s Br., at 32.

Moreover, Commerce argues, "[s]uch foreign exchange
Court No. 98-05-02185 Page 24

difference becomes particularly significant in Turkey’s highly

inflationary economy." Final Results, 63 Fed. Reg. at 18,890.

In sum, in Commerce’s view, that plaintiffs received more TL in

payment that the amount originally booked is evidence of the

devaluation of the TL relative to the USD in connection with high

inflation, and is not the result of an increase in sales revenue.

See Final Results, 63 Fed. Reg. at 18,890; Def.’s Br., at 31.

Commerce’s analysis is insufficient, however. As an initial

matter, the Court recognizes the intuitive force of plaintiffs’

arguments. From the U.S. customer’s point of view, the USD amount

paid is the value of any sale. From the exporter’s perspective,

however, the ultimate value of any sale is the total amount of TL

received.

More importantly, Commerce fails to explain why plaintiffs’

record-keeping and accounting methods do "not detract from" its

finding that plaintiffs’ "kur farki" accounts are not actual

sales revenue. Final Results, 63 Fed. Reg. at 18,890. In this
case, Commerce asked plaintiffs to report the "actual value" of

sales as recorded in plaintiffs’ accounting records. See Pls.’

App., Ex. 5. As Commerce has previously noted, an exporter’s own

records may be the most accurate representation of its finances.
Court No. 98-05-02185 Page 25

See, e.g., Final Affirmative Countervailing Duty Determination:

Certain Steel Products From Austria, 58 Fed. Reg. 37,217, 37,237

(July 9, 1993) (finding "that it is more appropriate to use

respondents’ sales value as recorded in their financial statement

and accounts in the denominator when calculating the ad valorem

subsidy rate" when doing so "would provide a more accurate

representation of respondents’ selling practices."). And in

other types of investigations, Commerce requires respondents to

report data consistent with their home country GAAP. See

Asociacion Colombiana de Exportadores de Flores v. United States,

22 CIT __, __, 40 F. Supp.2d 466, 473 n.11 (1999) (noting that in

antidumping cases Commerce normally "requires respondents to

report preproduction expenses consistent with their home country

generally accepted accounting principles (‘GAAP’), which

typically are reflected in respondents [sic] ordinary books and

records"); Cultivos Miramonte S.A. v. United States, 21 CIT __,

__, 980 F. Supp. 1268, 1276 (1997) (same); see also Thai
Pineapple Pub. Co. v. United States, 20 CIT 1312, 1318, 946 F.

Supp. 11, 18 (1996) (explaining that Commerce’s rationale for

adhering to "an individual firm’s recording of costs in

accordance with the GAAP of its home country" in the antidumping
Court No. 98-05-02185 Page 26

context is that "normal accounting practices should, in most

circumstances, provide an objective standard by which to measure

costs").

Yet, in this case, Commerce rejected Turkish accounting

methods and, at the same time, plaintiffs’ financial records kept

in accordance with those conventions. See Final Results, 63 Fed.

Reg. at 18,890. Commerce’s rationale for doing so is that a

"lack of clearly defined commercial accounting principles and the

predominance of tax law mean that Turkish law should be treated

with extreme caution, and international accounting standards are

preferred." Id. (citing Price Waterhouse, Doing Business in

Turkey, Chapter 11 (1992)).

It is true that Commerce is not required to accept Turkish

GAAP or Turkey’s standardized accounting plan. See Ad Hoc Comm.

of Florida Producers of Gray Portland Cement, 22 CIT __, __, 25

F. Supp.2d 352, 363 (1998) (noting that in the antidumping

context, "Commerce is not required to follow GAAP in all
cases."); Aimcor, Alabama Silicon, Inc. v. United States, 18 CIT

1117, 1122, 871 F. Supp. 447, 452 (1994) ("Plaintiffs can provide

no authority requiring Commerce to consistently apply GAAP in all

aspects of countervailing duty investigations."). If Commerce
Court No. 98-05-02185 Page 27

rejects those conventions, however, it must provide an adequate

explanation for why relying on them would be distortive. See

Floral Trade Council v. United States, Slip Op. No. 99-10, 41 F.

Supp.2d 319, 336-37 (CIT Jan. 27, 1999) (stating that in the

antidumping context Commerce must use home country GAAP unless it

explains how respondent’s records do not adequately reflect the

costs of production and sale).

In this case, Commerce failed to adequately explain its

rejection of Turkish GAAP and plaintiffs’ accounting methods.

Significantly, Commerce relies on a single source: Doing Business

in Turkey. At the time Commerce initiated its review, this

source was already five years old. Moreover, the passage on

which Commerce relies speaks to audit reports. See Pls.’ Br., at

Ex. E. Commerce points to nothing in its source that calls into

question the reliability of Turkish GAAP’s three-step accounting

method or the standardized accounting plan’s inclusion of

exchange rate differences in gross sales.
Finally, although Commerce states that "international

accounting standards are preferred" to Turkish accounting

standards, it provides no evidence that international standards

dictate that foreign exchange gains be excluded from total sales
Court No. 98-05-02185 Page 28

figures or counsel against the three-step accounting method.

Moreover, Doing Business in Turkey, on which Commerce relies,

notes that "[v]oluntary audits are requested usually by

multinational companies." Pls.’ Br., at Ex. E. And plaintiffs

claim that "the accounts at both Borusan and Mannesmann are

audited in accordance with IAS [International Accounting

Standards]." Pls.’ Reply Br., at 12.

The Court now turns to plaintiffs’ second argument.

Plaintiffs claim that "Commerce normally adds exchange gains and

losses on receivables to the total book value of sales in

determining the total sales denominator used to compute the ad

valorem value of the benefit." Pls.’ Br., at 29. In support of

their claim, plaintiffs rely on Pasta From Turkey, 61 Fed. Reg.

30,366. Plaintiffs also cite a number of other cases wherein

"Commerce included foreign exchange gains and losses on export

sales in the sales denominator" even though that fact is "not

specifically reflected in the Federal Register."7 Pls.’ Br., at
29 n.62.

On this issue Commerce’s determination is again

7
The Court has reviewed these determinations, and found
no discussion of the issue at hand.
Court No. 98-05-02185 Page 29

insufficient. Commerce fails to explain in the Final Results or

the government’s brief why its methodology for calculating the

denominator of the subsidy equation in this case differs from

prior determinations.

The Court has found at least two determinations in which

Commerce has included foreign exchange gains and losses in the

denominator. For example, to calculate the countervailable

subsidy for the Pasta Export Grants in Pasta From Turkey,

Commerce included respondent’s "Other Income" account in the

total sales denominator. See Pasta From Turkey, 61 Fed. Reg. at

30,372. Petitioners in that case complained that the "Other

Income" account contained subsidies which were not properly part

of the denominator. See id. In response to that complaint,

however, Commerce stated that "only the amount of foreign

exchange gains from Maktas’ [sic] ‘Other Sales’ is included in

the Maktas denominators used to calculate the benefit of the used

subsidy programs." Id. Thus, as the Court reads Pasta From
Turkey, Commerce included foreign exchange gains associated with

certain sales in the denominator of the subsidy equation.

Commerce included foreign exchange gains in the denominator

in at least one other determination as well. In Final
Court No. 98-05-02185 Page 30

Affirmative Countervailing Duty Determination; Brass Sheet and

Strip From Brazil ("Brass Sheet"), petitioners complained that

respondents inflated the denominator of the subsidy equation by

including inflation as revenue. See 51 Fed. Reg. 40,837, 40,841

(Nov. 10, 1986). Commerce disagreed, however, and clarified that

respondents’ sales figures included, not an adjustment for

inflation, but an adjustment for foreign exchange gains. It

explained that

[r]espondents’ export sales are adjusted for
an exchange gain resulting from the lag in
fixing the dollar-cruzeiro exchange rate
between the date of export and the date of
receipt of funds. Continued devaluation of
the Brazilian cruzeiro against the dollar
increases the number of cruzeiros per dollar
between the date of export and the date the
exchange contract is concluded. This is
standard accounting practice for foreign
exchange transactions.

Id. This passage explicitly demonstrates that Commerce accepted

the inclusion of foreign exchange gains in the denominator of the

subsidy equation. And, notably, Commerce described the practice
of adjusting sales figures to include foreign exchange gains as

"standard" accounting procedure. See id.

Moreover, in Brass Sheet, Commerce accepted an adjustment to

the export sales denominator for foreign exchange gains due to
Court No. 98-05-02185 Page 31

the "continued devaluation of the Brazilian cruzeiro against the

dollar." Brass Sheet, 51 Fed. Reg. at 40,841. As the government

itself notes in its brief in this case, "extreme inflation . . .

is characterized by a devaluation of the currency." Def.’s Br.,

at 31 (citing North Star Steel Ohio, A Division of North Star

Steel Co. v. United States, 17 CIT 459, 467, 824 F. Supp. 1074,

1081 n.7 (1993)). Thus, in Brass Sheet, Commerce accepted the

inclusion of exchange gains in the denominator precisely because

of inflation. Yet, a "significant" factor in Commerce’s decision

to exclude the "kur farki" accounts from the denominator of the

subsidy equation in the determination before the Court was

"Turkey’s highly inflationary economy." Final Results, 63 Fed.

Reg. at 18,890. This is inconsistent.

Together, Pasta From Turkey and Brass Sheet suggest that

Commerce has, on at least two occasions in the past, included

foreign exchange gains in the total sales denominator of the

subsidy equation. "Commerce can reach different determinations

in separate administrative reviews but it must employ the same

methodology or give reasons for changing its practice." Cinsa,

21 CIT at ___, 966 F. Supp. at 1238. Commerce is not excused

from this "well settled rule" of administrative law, id., simply
Court No. 98-05-02185 Page 32

because it also excluded foreign exchange gains from the

denominator in one previous administrative review of this order.8

Thus, on remand, Commerce must include plaintiffs’ foreign

exchange gains in the denominator of the subsidy margin or

provide an adequate explanation of how this case differs from

prior determinations. If Commerce takes the latter course of

action, it must also explain why Turkish GAAP and plaintiffs’

accounting methods are unreliable or distortive.

Depending on Commerce’s remand results, it may also need to

consider whether the denominator and numerator of its subsidy

equation "match." In order for Commerce to calculate an accurate

subsidy margin, the numerator and denominator must both take into

account factors affecting value such as, in this case, inflation

and foreign exchange movements. Cf. Certain Iron-Metal Castings

From India; Final Results of Countervailing Duty Administrative

Review, 62 Fed. Reg. 32,297, 32,302 (June 13, 1997) (explaining

that "it is imperative that both the numerator (the benefit) and
denominator (the universe of sales to which the benefit applies)

8
Certain Welded Carbon Steel Pipes and Tubes and Welded
Carbon Steel Line Pipe From Turkey; Final Results of
Countervailing Duty Administrative Reviews,63 Fed. Reg. 43,984
(Aug. 18, 1997).
Court No. 98-05-02185 Page 33

used in our calculation of a subsidy reflect the same universe of

goods. Otherwise the rate calculated will either over- or

understate the subsidy attributable to the subject

merchandise."). Commerce claims in the present action that if it

were to include the "kur farki" accounts in the denominator, it

"would be equivalent to indexing export sales for inflation and

thus, would inflate the denominator while the program benefits

(the numerator) would remain unindexed."9 Def.’s Br., at 31;

Preliminary Results, 62 Fed. Reg. at 64,809. At the same time,

plaintiffs argue that if Commerce "insists on reducing the total

export value by the foreign exchange difference, then it must

compute and deduct from the numerator (the countervailable

benefit) the foreign exchange difference included in the

benefit." Final Results, 63 Fed. Reg. at 18,890.

9
The Court does not necessarily accept the veracity of
this statement, especially considering Brass Sheet, in which
Commerce made clear that including foreign exchange gains in the
export sales denominator is different from indexing that number
for inflation. See Brass Sheet, 51 Fed. Reg. at 40,841.
Court No. 98-05-02185 Page 34

IV.
CONCLUSION
For the foregoing reasons, the Court sustains in part and

remands in part. A separate Order will be entered accordingly.

_________________________________
Richard W. Goldberg
JUDGE

Dated: December 23, 1999
New York, New York.