Commerce Defends Decision Not to Exclude Derivative Losses From AD Financial Expense Ratio
The Commerce Department stuck by its decision not to modify antidumping duty respondent Suzano's cost of production to exclude certain derivative expenses from the financial expense ratio in Nov. 14 remand results submitted to the Court of International Trade. The combination of Suzano's audited financial statements and quarterly earnings (QE) releases together show that the derivative losses are not extraordinary but instead represent financing expenses related to Suzano's normal operations and thus should not be excluded from the ratio, Commerce said (Suzano S.A. v. United States, CIT #21-00069).
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The case concerns the administrative review of the AD order on uncoated paper from Brazil. During the review period, Suzano announced plans to acquire Fibria Celulose. The respondent calculated its combined financial expense ratio based on consolidated 2018 financial statements for both it and Fibria. In 2020, Commerce told Suzano to recalculate its financial expense ratio based on the audited 2018 consolidated financial statements of Suzano alone. Suzano submitted two revised calculations of its financial expense ratio and requested that Commerce adopt the second calculation, which included its derivative losses.
In the end, Commerce relied on Suzano’s first revised expense ratio, noting that it was obligated to “rely on the findings of Suzano’s auditors and not exclude a portion of Suzano’s financial expenses from [its] calculations.” Commerce similarly declined to exclude the derivative losses, or to include Fibria’s cost of sales. Suzano argued that Commerce’s failure to exclude certain of its derivative losses from its calculation of the financial expense ratio was unsupported by evidence (see 2109290054).
The trade court sent the issue back to Commerce, finding that the agency's determination that the derivative expenses from the Fibria acquisition were not investment-related and not extraordinary was not backed by substantial evidence (see 2208160031).
On remand, Commerce further explained its decision not to exclude the derivative losses. The agency first explained its treatment of the derivative losses as non-investment related. Commerce said that Suzano's QE releases and "other record evidence" shows that acquiring Fibria "was not an investment for profit-sharing purposes but, rather, an expansion of Suzano's pulp operations." By merging with the company, Suzano took on a lot of foreign denominated debt. It then "used the derivative instruments to hedge its company-wide exposure" to foreign debt risk. "Commerce has previously found that derivative instruments used for cash management purposes are typically included in the financial expense rate computation," the remand results said.
The agency then explained its treatment of Suzano's derivative losses as financing expenses related to normal operations. Responding to the court's question of what evidence works as a sufficient basis to find that an expense is not extraordinary, Commerce argued that the repsondent's audited financial statements and QE releases together back the finding that the losses are not extraordinary but instead related to the company's normal operations. Suzano said that its acquisition of Fibria was "unusual" and would not occur again, making the derivative losses also unusual.
"We disagree," the brief said. "Although the acquisition of Fibria will not occur again (because the company was merged into Suzano), we find the acquisition of Fibria for expanding Suzano’s normal operations is not unusual. Fibria’s pulp operations are directly related to Suzano’s normal and typical operations. In addition, the hedging activities conducted by Suzano related to the financing of the acquisition are normal activities conducted by Suzano to hedge its foreign denominated assets and liabilities."