Commerce Sticks by Treatment of Income Types in Relation to SG&A Expense Ratio

The Commerce Department offered greater explanations of its treatment of four types of income related to the selling, general and administrative (SG&A) expense ratio for surrogate company Ayes in the antidumping duty investigation on metal lockers from China. Submitting its remand results to the Court of International Trade Aug. 23, the agency stuck by its treatment of shipping revenue, incentive income, interest income and rental income in setting the SG&A ratio (List Industries v. U.S., CIT # 21-00521).

However, Commerce slightly raised the dumping rate for exporter Zhejiang Xingyi Metal Products Co. to 21.38% from 21.25% after excluding the interest income from the profit calculation.

The agency included shipping revenues in SG&A in the investigation, though that position was sent back by the trade court in June since it seemed at odds with Commerce's stated practice of seeking consistency in the treatment of both the revenue and the expense side of line items in Ayes' statements (see 2305310031). At CIT, Commerce said it agrees with the court that its treatment of shipping revenue "is at odds with our stated practice."

However, the agency clarified that it would be "inappropriate to include shipping revenue in the determination of SG&A using Ayes' financial statements, because such treatment would be inconsistent with the treatment of the corresponding shipping expenses, which we have excluded from the SG&A expense ratio."

Commerce next addressed its inclusion of incentive income in the SG&A calculation after it initially excluded the income, which the trade court remanded, saying it was "unable to discern the corresponding expense category or any other reason" for the agency's change. The agency noted Ayes lists the incentive income as "Other Income From Operating Activities." While Commerce excludes export incentive program income, Ayes' statements confirm it received no government incentives during the investigation period.

As such, the issue isn't whether the surrogate failed to record a corresponding expense for incentive income but whether the agency appropriately classified the line items in Ayes' statements for AD calculations, the remand results said. Commerce claimed that it did and that its move comports with its past practice since various other line items either in the "Other Real Operating Expenses" or the "Other Real Income Category" also don't have an entry in the corresponding category. At the end of the day, Commerce claims it acted reasonably and consistently.

Turning to the agency's inclusion of rental income in the SG&A ratio, Commerce addressed the court's point that the agency didn't explain its treatment of the income category. Commerce said it was included because it represents a general and administrative expense for Ayes, and the agency's practice is to allow G&A expense rate offsets for rental income but to exclude them if they relate to a separate line of business. This small amount of rental income Ayes reported is "not indicative of a separate line of business," the remand results said. As a result, the rental income was classified as an offset.

Commerce finally addressed its exclusion of interest income from the SG&A and profit calculation. The court remanded the point because it wasn't clear whether the agency actually excluded the income from the profit calculation. Commerce clarified that it meant to exclude this income from net profit, and did so on remand, slightly raising the respondent's dumping rate.