Fisher S.A. Comercio v. United States

Slip Op. 12-59

UNITED STATES COURT OF INTERNATIONAL TRADE

FISCHER S.A. COMERCIO, INDUSTRIA
AND AGRICULTURA AND CITROSUCO
NORTH AMERICA, INC.,
Plaintiffs, Before: Richard W. Goldberg,
Senior Judge
v. Court No. 10-00281 

PUBLIC VERSION
UNITED STATES,
Defendant,

and

FLORIDA CITRUS MUTUAL, DUDA
PRODUCTS, INC., CITRUS WORLD, INC.,
and SOUTHERN GARDENS CITRUS
PROCESSING CORPORATION (d/b/a
SOUTHERN GARDENS),

Defendant-Intervenors.  

OPINION

[Plaintiffs’ Motion for Judgment on the Agency Record under USCIT Rule 56.2 is granted in
part and denied in part.]

Dated: April 30, 2012

Robert G. Kalik and Chelsea Savoy Severson, Kalik Lewin, of Washington, D.C., for plaintiffs.
Of counsel on the brief was John Joseph Galvin, Galvin & Mlawski, of New York, NY.

Patryk J. Drescher, Commercial Litigation Branch, Civil Division, U.S. Department of Justice,
of Washington, D.C., for defendant. With him on the brief were Tony West, Assistant Attorney
General, Jeanne E. Davidson, Director, and Franklin E. White, Assistant Director. Of counsel
on the brief was Whitney Rolig, International Trade Administration, U.S. Department of
Commerce, of Washington, D.C.

Matthew Thomas McGrath and Stephen William Brophy, Barnes, Richardson & Colburn, of
Washington, D.C., for defendant-intervenors Florida Citrus Mutual Company and Citrus World,
Inc.
Court No. 10-00281 Page 2

Goldberg, Senior Judge: Plaintiffs Fischer S.A. Comercio, Industria and Agricultura

(“Fischer”) and Citrosuco North America, Inc. (collectively “Plaintiffs” or “Fischer”) brought an

action to contest the final results of the U.S. Department of Commerce’s (“Commerce”)

antidumping duty determination. Plaintiffs challenge Commerce’s decisions to include and

exclude certain costs and expenses in the final results of the third administrative review of the

antidumping duty order on Certain Orange Juice from Brazil. See Certain Orange Juice from

Brazil, 75 Fed. Reg. 50,999 (Dep’t Commerce Aug. 18, 2010) (the “Final Results”).

For the reasons discussed below, Plaintiffs’ motion is granted in part and denied in part.

The Court remands the Final Results to Commerce for reconsideration of its decision to include

currency translation when calculating Fischer’s constructed value and its decision to apply its

zeroing methodology when calculating Fischer’s dumping margin. The Court affirms

Commerce’s decisions with respect to the remaining issues.

BACKGROUND

Fischer is a Brazilian company that produces orange juice concentrate that it exports to

the United States. In 2005, Commerce published the preliminary determination of sales at less

than fair value (LTFV) and notice of suspension of liquidation of all entries of subject

merchandise entered on or subsequent to that date. See Certain Orange Juice from Brazil, 70

Fed. Reg. 49,557 (Dep’t Commerce Aug. 24, 2005) (preliminary determination). In 2006,

Commerce published an antidumping duty order on certain orange juice from Brazil. Certain

Orange Juice from Brazil, 71 Fed. Reg. 12,183 (Dep’t Commerce Mar. 9, 2006) (antidumping

duty order).
Court No. 10-00281 Page 3

In 2009, Commerce initiated the third administrative review of the antidumping duty

order on Certain Orange Juice from Brazil. Initiation of Antidumping and Countervailing Duty

Administrative Reviews and Request for Revocation in Part, 74 Fed. Reg. 19,042 (Dep’t

Commerce Apr. 27, 2009) (initiation). Pursuant to this review, Fischer provided the information

requested in Commerce’s questionnaires. Fischer reported that it used the U.S. dollar as its

“functional currency,” but that Brazilian law required it to present its financial statements in

reais, the Brazilian currency. Fischer submitted that its accounting practices follow the Brazilian

Generally Accepted Accounting Principles (GAAP). Fischer also noted that its income and

expenses are reported on an accrual basis, rather than a cash basis.1 Finally, Fischer explained

that although it is part of a larger corporate group, that group does not produce consolidated

financial statements. Consequently, Fischer’s unconsolidated financial statements are the highest

level of financial reporting available.

In 2010, Commerce published the preliminary results of the antidumping administrative

review. Certain Orange Juice from Brazil, 75 Fed. Reg. 18,794 (Dep’t Commerce Apr. 13,

2010) (“preliminary results”). In the preliminary results, Commerce determined that Plaintiffs’

dumping margin was 5.26 percent. On August 18, 2010, Commerce published its Final Results,

adopting the 5.26 percent dumping margin that it calculated in the preliminary determination.

Certain Orange Juice from Brazil, 75 Fed. Reg. 50,999 (Dep’t Commerce Aug. 18, 2010) (the

“Final Results”).

1
Accrual accounting records expenses as they are incurred. In contrast, cash accounting records expenses when
the funds are actually paid.
Court No. 10-00281 Page 4

JURISDICTION AND STANDARD OF REVIEW

This Court has jurisdiction pursuant to section 201 of the Customs Court Act of 1980, 28

U.S.C. § 1581(c) (2006).

This Court must “uphold Commerce’s determination unless it is ‘unsupported by

substantial evidence on the record, or otherwise not in accordance with law.’” Micron Tech., Inc.

v. United States, 117 F.3d 1386, 1393 (Fed. Cir. 1997) (quoting 19 U.S.C. § 1516a(b)(1)(B)(i)

(1994)). When reviewing agency determinations, findings, or conclusions for substantial

evidence, this Court determines whether the agency action is reasonable in light of the entire

record. See Nippon Steel Corp. v. United States, 458 F.3d 1345, 1350–51 (Fed. Cir. 2006).

DISCUSSION

Under the current antidumping law, Commerce must impose antidumping duties “on

imported merchandise that is being sold, or is likely to be sold, in the United States at less than

fair value to the detriment of a domestic industry.” Micron Tech., Inc. v. United States, 243 F.3d

1301, 1303 (Fed. Cir. 2001) (citing 19 U.S.C. § 1673). The “dumping margin,” which is the

amount of the duty to be imposed, “is the amount by which the price charged for the subject

merchandise in the home market (the ‘normal value’) exceeds the price charged in the United

States (the ‘U.S. price’).” Id. (citing 19 U.S.C. §§ 1673, 1677(25)(A)). Where, as here, the

foreign producer sells directly to an affiliated purchaser in the United States, Commerce must

calculate a constructed export price (CEP) to use as the U.S. price for purposes of comparison.

19 U.S.C. § 1677a(b). Because Fischer imports through its U.S. affiliate Citrosuco, Commerce

calculated a CEP for all sales at issue in this appeal.
Court No. 10-00281 Page 5

Fischer produces only for export to the United States and does not sell goods in its home

market. Thus, there is no “normal value” of goods in the home market or in any third country for

Commerce to compare with the U.S. price. In this situation, Commerce calculates a “constructed

value” of goods in the home market to compare with the U.S. price. 19 U.S.C. § 1677b(a)(4). A

calculation of constructed value requires that Commerce determine “the actual amounts incurred

and realized by the specific exporter . . . for selling, general, and administrative expenses in

connection with the production and sale of the foreign like product.” Id. § 1677b(e)(2)(A).

Commerce also must calculate the costs “normally . . . based on the records of the exporter” if

those records “reasonably reflect the costs associated with the production and sale of the

merchandise.” Id. § 1677b(f)(1)(A). Commerce must “consider all available evidence on the

proper allocation of costs.” Id. The statute does not provide specific guidance on the calculation

of financial expenses. Therefore, Commerce has broad discretion to devise a method for

calculating “general expenses.” Am. Silicon Techs. v. United States, 334 F.3d 1033, 1037 (Fed.

Cir. 2003).

Fischer raises five issues on appeal: (1) whether Commerce improperly accounted for

unrealized exchange rate variations in calculating Fischer’s constructed value; (2) whether

Commerce improperly included intercompany interest expenses from Fischer’s financial expense

calculation; (3) whether Commerce improperly excluded intercompany income in calculating

Fischer’s constructed value; (4) whether Commerce improperly included estimated expenses in

calculating Fischer’s general and administrative expenses; and (5) whether Commerce

improperly applied “zeroing” in calculating Fischer’s weighted average dumping margin.
Court No. 10-00281 Page 6

I. Commerce improperly accounted for unrealized exchange rate variations in
calculating Fischer’s constructed value

Fischer argues that Commerce improperly included unrealized currency translation in

Fischer’s constructed value. According to Fischer, these currency translations were provided in

Fischer’s financial statements only to comply with Brazilian law, and were never actually

incurred or realized. Brazilian law mandates that Fischer include in its financial statement a

presentation of what the difference in value of certain accounts would be if the amounts recorded

in those specific accounts were translated from U.S. dollars to Brazilian reais. Fischer contends

that the inclusion of this currency translation was unlawful because it was not an actual cost that

was “incurred and realized,” as 19 U.S.C. §1677b(e)(2)(A) requires.2

The Government asserts that Commerce may include both interest expenses and foreign

exchange gains and losses in its financial expense ratio. Nucor Corp. v. United States, 33 CIT

___, 612 F. Supp. 2d 1264, 1297 (2009) (holding that the company’s net foreign exchange gain

was “part of the company’s overall net financing expense” and could reasonably be included in

cost of production calculations).

However, Nucor is inapposite. In Nucor, the company’s intentional “cash management

decisions” caused its foreign exchange gains and losses. 612 F. Supp. 2d at 1296. Those gains

and losses were “not inherent in [Nucor’s] manufacturing and sales operations,” but came about

because Nucor strategically chose to conduct business in several currencies. Id. at 1296.

Nucor’s strategic cash management decisions included whether to borrow in a foreign or

2
If this currency translation had not been included as a production cost, Fischer’s dumping margin would be de
minimus and disregarded under 19 C.F.R. § 351.106.
Court No. 10-00281 Page 7

domestic currency, whether to require immediate payment, and whether to enter into foreign

currency contracts. Id. at 1297. In each of these strategic decisions, Nucor was “in control of

whether or not to expose itself to the risk of gain or loss from fluctuating exchange rates.” Id.

Therefore, the court held that Commerce correctly included the foreign exchange gains and

losses in its cost of production calculations. Id.

Here, in contrast, Fischer has chosen not “to expose itself to” the risks of currency

fluctuations. Id. at 1297. Fischer adopted the U.S. dollar as its functional currency and conducts

all of its business in U.S. dollars. However, in order to follow Brazilian financial reporting law,

Fischer translates its accounts from U.S. dollars into Brazilian reais to report what the difference

would have been, if it had conducted business in reais. In contrast to Nucor, Fischer does not

“control whether or not to expose itself to the risk of gains or losses in such rates”3 because

Fischer conducts all of its business in the U.S. dollar. Id.

Therefore, the variations caused by currency translation to reais for reporting purposes

are not “the actual amounts incurred and realized.” 19 U.S.C. § 1677b(e)(2)(A). As a result,

Commerce’s inclusion of unrealized currency translation in Fischer’s constructed value

calculation violates the express language of Section 773(e)(2)(A) of the Tariff Act of 1930, 19

U.S.C. § 1677b(e)(2)(A). Because the inclusion of unrealized expenses is not in accordance with

law, the Court remands this issue to Commerce to recalculate Fischer’s constructed value in

accordance with this Opinion and Order.

3
To the contrary, by adopting U.S. dollar as its functional currency, Fischer appears to have tried to eliminate
its exposure to such currency fluctuations.
Court No. 10-00281 Page 8

II. Commerce properly included intercompany interest expenses in Fischer’s
financial expense calculation

Fischer borrowed a sum of money from its U.S. affiliate, Citrosuco. Fischer argues that

Commerce should have excluded the interest expenses that Fischer incurred from this loan when

Commerce calculated Fischer’s cost of production. Commerce’s standard policy is to use a

company’s highest level of consolidated financial statements to calculate a foreign company’s

constructed value. When companies produce a consolidated financial statement, Commerce

normally excludes intercompany borrowings in order to construct a true and accurate

representation of a company’s interest expenses. Without citing any authority, Fischer argues

that, although it does not produce a consolidated financial statement, Commerce should follow

the underlying principle that intercompany transactions be removed because Fischer and

Citrosuco are affiliated.

However, Commerce determines what constitutes a “company” for purposes of

calculating dumping margins. Queen’s Flowers de Colom. v. United States, 21 CIT 968, 971,

981 F. Supp. 617, 622 (1997). Commerce’s discretion to group or define companies arises out of

the “basic purposes of the statute—determining current margins as accurately as possible.” Id. at

972, 981 F. Supp. at 622. “Where consolidated audited financial statements do not exist and are

not easily prepared,” it is appropriate for Commerce “to base the interest expense calculation on

the audited financial statements of [only] the respondent.” Mid Continent Nail Corp. v. United

States, Slip Op. 10-47, 2010 Ct. Int’l Trade LEXIS 48, *27 (CIT May 4, 2010). In Mid

Continent, Commerce’s decision to use only the respondent’s financial statements, when the
Court No. 10-00281 Page 9

group of affiliated companies did not produce a consolidated financial statement, was upheld

“because it was based on the financial statements of [the individual company], which produced

the merchandise.” Id. at *29.

Although affiliated with Citrosuco, Fischer produces an individual financial statement.

Commerce followed its standard policy of using the company’s highest level of consolidated

financial statements. Commerce based its calculations on Fischer’s financial statements because

there was no higher level of consolidation within the group of affiliated companies. Further,

Commerce’s decision that the loan was an “arm’s length” transaction is supported by substantial

evidence because of the interest payment involved.4 Therefore, Commerce’s decision to use

only Fisher’s financial statements is reasonable and supported by substantial evidence and the

Court upholds Commerce’s decision.

III. Commerce properly excluded intercompany income in calculating Fischer’s
constructed value

Fischer argues that if Commerce includes intercompany interest expenses in Fischer’s

constructed value (discussed earlier in Issue II), then Commerce must also include the income

earned on intercompany transactions. Fischer is referring to “income” resulting from the

forgiveness of loan interest. However, the forgiven interest made the associated loan a non-

arm’s length transaction because that loan no longer bore a market-based interest rate.

4
To determine whether a transaction—in this case a loan from one company to another— is “arm’s length,”
Commerce may evaluate whether interest is charged in association with the loan. If interest is charged, then the
parties are likely dealing with each other at “arm’s length.” However, if interest is not charged, then the parties are
likely closely affiliated, and this would not be considered an “arm’s length” transaction.
Court No. 10-00281 Page 10

Commerce properly determined that forgiven interest should be disregarded pursuant to

the “arm’s length” test of 19 U.S.C. § 1677b(f)(2). This statute states that:

A transaction directly or indirectly between affiliated persons may be disregarded
if, in the case of any element of value required to be considered, the amount
representing that element does not fairly reflect the amount usually reflected in
sales of merchandise under consideration in the market under consideration. If a
transaction is disregarded under the preceding sentence and no other transactions
are available for consideration, the determination of the amount shall be based on
the information available as to what the amount would have been if the
transaction had occurred between persons who are not affiliated.

Id. Thus, Commerce properly declined to include the forgiven interest as income because

forgiven interest is not associated with an arm’s length transaction.

The Court upholds Commerce’s decision to disregard the forgiven interest from Fischer’s

constructed value calculation because it is supported by substantial evidence.

IV. Commerce properly included estimated expenses in calculating Fischer’s general
and administrative expenses

Fischer argues that it had only estimated, but had not yet paid, the costs of planting new

citrus trees and other expenses. Thus, Fischer claims that Commerce improperly included these

expenses because they were not yet realized. Commerce must use “actual amounts incurred and

realized by the specific exporter or producer” when calculating a company’s constructed value.

19 U.S.C. § 1677b(e)(2)(A). Commerce must base its calculation upon a producer’s records if

those records are kept in accordance with the GAAP of the exporting country and do not distort

the company’s true cost. Id. § 1677b(f)(1)(A).

The Government asserts that Commerce complied with the statutory requirements.

Commerce based its calculations on Fischer’s records, and those records were kept in accordance
Court No. 10-00281 Page 11

with Brazilian GAAP and did not distort Fischer’s costs. Dec. Mem. at 33. Fischer reports its

expenses upon an accrual—rather than cash—basis. Under accrual accounting, an estimate of an

expense should be accrued and therefore reported in the income statement if the expense is

probable and an estimate of the amount can be determined. A taxpayer may choose either the

accrual or cash method of accounting. However, once the taxpayer has chosen its method of

accounting, it cannot easily switch between the two systems because of the discrepancies for any

given year. See Anderson v. U.S. Sec’y of Agric., 30 CIT 1742, 1750–51, 462 F. Supp. 2d 1333,

1340 (2006).

Fischer reported that it followed the accrual accounting method, and this method is in

accordance with Brazilian GAAP. This method requires that estimated costs and income be

reported when the payment or income is probable and the amount can be determined. Although

the expenses were an estimate and had not been paid, the cost was probable and determinable.

Commerce properly included the cost in its calculations because Fischer had reported the

estimated cost following its chosen accounting method.

Because this decision is supported by substantial evidence the Court upholds

Commerce’s decision.

V. Commerce must change or explain its inconsistent policy with respect to zeroing

In the administrative review, Commerce followed its “zeroing” methodology when

calculating Fischer’s weighted-average dumping margin. The Court of Appeals for the Federal

Circuit (“Federal Circuit”) recently reconsidered the reasonableness of Commerce’s policy of

zeroing in administrative reviews. In Dongbu Steel Co. v. United States, the court questioned
Court No. 10-00281 Page 12

Commerce’s inconsistent practice of zeroing in administrative reviews, but not zeroing in

investigations. 635 F.3d 1363, 1373 (Fed. Cir. 2011). The court held that it was arbitrary for

Commerce to interpret the antidumping statute to prohibit zeroing in original investigations

while interpreting it to permit zeroing in administrative reviews. Id.; see also 19 U.S.C. §

1677(35) (charging Commerce with calculating the “dumping margin” in both investigations and

administrative reviews). The court reasoned that “[a]lthough 19 U.S.C. § 1677(35) is ambiguous

with respect to zeroing and Commerce plays an important role in resolving this gap in the statute,

Commerce’s discretion is not absolute.” 635 F.3d at 1373. Thus, the court remanded the case

for Commerce to either satisfactorily “explain its reasoning” for the inconsistent interpretation or

to “choose a single consistent interpretation of the statutory language” in both phases of the

proceeding. Id.

In a subsequent case also addressing the zeroing issue, the Federal Circuit specifically

noted that “[w]hile Commerce did point to differences between investigations and administrative

reviews, it failed to address the relevant questions—why is it a reasonable interpretation of the

statute to zero in administrative reviews, but not in investigations?” JTEKT Corp. v. United

States, 642 F.3d 1378, 1384 (Fed. Cir. 2011).

Thus, the Court remands Commerce’s determination and directs Commerce to reconsider

this issue in accordance with the decisions of the Federal Circuit. See also Union Steel v. United

States, 35 CIT ___, 804 F. Supp. 2d 1356, 1367 (2011) (concluding that, despite earlier cases

approving of the use of zeroing, it is now appropriate to “direct Commerce to provide the

explanation contemplated by the Court of Appeals in Dongbu and JTEKT Corp”).
Court No. 10-00281 Page 13

CONCLUSION AND ORDER

For the foregoing reasons, the Plaintiffs’ Motion for Judgment on the Agency Record is

granted in part and denied in part. The Court AFFIRMS Commerce’s decisions on issues II, III,

and IV. The Court REMANDS Commerce’s decisions on issues I and V. The Court

REMANDS the Final Results to Commerce for reconsideration of its decision to include

currency translation when calculating Fischer’s constructed value and its decision to apply its

zeroing methodology when calculating Fischer’s dumping margin, and such proceedings shall be

consistent with the opinions of this Court and the Federal Circuit.

Upon consideration of all papers and proceedings herein, it is hereby

ORDERED that the final determination of the United States Department of Commerce,
published as Certain Orange Juice from Brazil, 75 Fed. Reg. 50,999 (Dep’t Commerce Aug. 18,
2010) (the “Final Results”), be, and hereby is, AFFIRMED IN PART and REMANDED IN
PART to Commerce for redetermination as provided in this Opinion and Order; it is further

ORDERED that Plaintiffs’ Rule 56.2 Motion for Judgment on the Agency Record be,
and hereby is, GRANTED IN PART and DENIED IN PART as provided in this Opinion and
Order; it is further

ORDERED that Commerce, on remand, shall reconsider its decision to apply its zeroing
methodology and change that decision or, alternatively, provide an explanation for its
inconsistent construction of 19 U.S.C. § 1677(35) with respect to antidumping duty
investigations and administrative reviews; it is further

ORDERED that Commerce, on remand, shall reconsider its decision to include Fischer’s
exchange rate translation in its constructed value calculations; it is further

ORDERED that Commerce shall redetermine Plaintiffs’ weighted-average dumping
margins, as appropriate, complying with this Opinion and Order; and it is further

ORDERED that Commerce shall have ninety days from the date of this Opinion and
Order in which to file its redetermination upon remand (“Second Remand Redetermination”),
which shall comply with all directives in this Opinion and Order; that the Plaintiffs shall have
Court No. 10-00281 Page 14

thirty days from the filing of the Second Remand Redetermination in which to file comments
thereon; and that Commerce shall have thirty days from the filing of Plaintiffs’ comments to file
comments.

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

Dated: April 30, 2012
New York, New York