CIT Says In-Transit Goods Properly Excluded From Constructed Export Price

In the original investigation, the agency applied a quarterly ratio sales methodology to determine the quantity of Zinus Indonesia's U.S. sales for calculating CEP, since the respondent couldn't identify the country of origin of its goods after import. The trade court initially remanded the issue for Commerce to explain its inclusion of mattresses in transit from Indonesia. After the agency continued to include these mattresses, Choe-Groves remanded the issue for a second time (see 2402200057).

On its second remand, Commerce issued a supplemental questionnaire asking for data on the quantity and value of the mattresses in the inventory of Zinus' U.S. affiliate Zinus U.S. at the beginning and end of the period of investigation, along with Zinus Korea's indirect selling expenses. The agency excluded in-transit mattresses from its calculation, adjusting its quarterly ratio calculation to include only the specific model numbers made and sold by Zinus Indonesia during the investigation period.

Commerce said only a certain quantity of in-transit mattress models didn't enter Zinus U.S.'s inventory until after the investigation period ended. The agency ultimately adopted a quarterly ratio calculation based on both the purchase data from Zinus U.S. and existing inventory data for Indonesian model numbers in common with other countries.

The agency said on remand that using quarterly ratios with only the Indonesian mattress models bought during the POI and applying those ratios to the total sales reported in both U.S. sales databases "yields an impossible result," where the total sales quantity "significantly" exceeds the quantity of purchased Indonesian mattresses. The court first sustained Commerce's methodology, holding that the agency's explanation "provides a reasonable justification" for Commerce changing its methodology and not limiting the "quarterly ratio calculation to only purchase data."

The petitioners, led by Brooklyn Bedding, ultimately challenged the exclusion of in-transit mattresses from the CEP calculation on the grounds that the quantity of sales exceeded the quantity of mattresses available in inventory for seven model numbers of mattresses. In response, Zinus Indonesia said the "identified anomalies constitute only 0.16 percent of the hundreds of thousands of mattresses sold from Zinus U.S.’s inventory" during the POI and that none of the anomalous models were among those in transit at the end of the POI.

Choe-Groves said the exclusion of the in-transit mattresses was "reasonable" in light of the "relatively minor scale of the discrepancies and the fact that the anomalies were balanced out when mattress sales were considered in the aggregate."

The second issue facing the court concerned the treatment of Zinus Korea's selling expenses. In its prior decision, the court said Commerce didn't support its finding that Zinus Korea's involvement in Zinus Indonesia's U.S. sales was "limited." In its second remand, the agency gathered additional information on "Zinus Korea’s sales-related activities, invoicing system, and all indirect selling expenses incurred by Zinus Korea associated with Zinus Indonesia’s U.S. sales.”

Based on this information, Commerce said Zinus Korea wasn't involved in the "basic selling functions that were performed by Zinus Indonesia and Zinus U.S., such as providing training services, technical support, inventory management, and logistical services."

Brooklyn Bedding made three claims against this finding, the first of which is that Commerce improperly excluded "certain categories of expenses incurred by Zinus Korea on behalf of Zinus Indonesia and deviated from prior practice." To this, Choe-Groves said the petitioners failed to identify "any record evidence that contradicts the validity of this data or suggests that particular expenses were improperly excluded based on a determination that they were related to production rather than sales."

With regard to Zinus Indonesia's invoicing, Commerce said a "small number of Zinus Korea employees were involved in receiving invoices from Zinus Indonesia" and merely were forwarding the invoices to U.S. buyers. With regard to other services performed by Zinus Korea, Commerce said Zinus Korea's U.S. customers requested defective allowances "once per year," further noting that a "small number of Zinus Korea employees were involved in certain sales promotion programs to customers in the United States." But only one of those programs was "in operation" during the POI.

The court agreed with Commerce that this level of involvement was minor.

Zinus Korea also provided a breakdown of its total selling expenses, which showed that a portion of the expenses was allocated to Zinus Indonesia based on its "total unconsolidated revenue relative to the combined total unconsolidated sales revenue of all of Zinus Korea’s subsidiaries." This value was used to calculate Zinus Indonesia's indirect selling expense ratio and a per unit value, the court said. Choe-Groves held that the only argument against this value from Brooklyn Bedding is "speculative." The petitioner claimed that the worksheet provided by the respondent included in its excluded expenses two cost centers with titles suggesting a "role in global business operations."

Brooklyn Bedding's second claim is that Commerce's allocation methodology is "nonsensical," since it divided an expense that didn't include intercompany transactions by a total revenue that did include these transactions. Choe-Groves said since "intercompany transactions were included in both the numerator and denominator of the allocation ration, the approach is not distortive to the constructed export price calculation."

Brooklyn Bedding also said Commerce improperly treated Zinus Korea's indirect selling expenses as in-country selling expenses incurred by Zinus Indonesia. This claim was also defeated after the court held that this treatment was entirely in line with Commerce's past practice and was reasonable.

Brooklyn Bedding said the practice was "unreasonable," since Zinus Korea didn't have sales of subject merchandise to the home market or third-country market during the POI, making any expenses necessarily related to U.S. sales. The court said Zinus Korea's indirect selling expenses "were incurred during the sale of the subject mattresses." As a result, "excluding them from Commerce’s constructed export price calculation would have distorted the comparison between U.S. price and the foreign market value of the goods."

(PT. Zinus Global Indonesia v. United States, Slip Op. 25-15, CIT Consol. # 21-00277, dated 02/18/25, Judge: Jennifer Choe-Groves; Attorneys: J. David Park of Arnold & Porter for plaintiff PT. Zinus Global Indonesia; Yohai Baisburd of Cassidy Levy for consolidated plaintiffs and defendant-intervenors led by Brooklyn Bedding; L. Misha Preheim for defendant U.S. government)