CIT Upholds Surrogate Overhead Ratio Calculation in AD Review on Solar Cells

To calculate surrogate overhead ratios, Commerce ordinarily divides manufacturing overhead by the "sum of costs for materials, labor, and energy," Kelly said. The agency gets each part of the formula from line items in a surrogate company's financial statements. While the agency can't "go behind" the statements, Commerce's practice is to use a statement's accompanying notes to "aid in its calculation of accurate financial ratios."

In the review, the agency used a 2018 financial statement from Malaysian manufacturer Hanwha Q Cells Malaysia and divided overhead costs by the costs for materials, labor and energy.

The Federal Circuit remanded Commerce's determinations on two grounds. First, the court questioned the agency's "identification of energy costs." Commerce had assumed the cost of "inventories" in Hanwha's financial statements included the costs of materials, labor and energy, and the CAFC said "inventories" could also include "manufacturing overhead." The court also rejected Commerce's finding that the difference between the total cost of sales and the inventories costs was manufacturing overhead as "speculative" (see 2412090028).

On remand, the agency stuck with its positions, but offered additional explanation for its conclusions. The agency said "that in its experience, where financial statements lack specific line items for energy, energy costs are typically captured within manufacturing overhead," the court explained. Hanwha's statements don't have a specific line item for energy, and the financial notes "indicate that inventories costs include a 'proportion of manufacturing overheads.'" The agency added that Hanwha's inventories costs include direct materials and labor costs as well as a part of manufacturing overhead costs.

Commerce reasoned that "the inventories costs includes some energy costs." Kelly found this explanation to be supported by substantial evidence. The agency properly deduced that inventories costs includes energy costs. While Commerce conceded that "some overhead, other than energy, may be included in the inventories costs," the agency explained that it can't strip out non-energy costs without "going behind" the statements. Thus, the decision to use the inventories costs "is consistent with the Court’s remand order, supported by substantial evidence, and in accordance with law," Kelly said.

The Federal Circuit also remanded Commerce's allocation of the "residual difference between cost of sales and the inventories costs" found in Hanwha's "unidentified costs" to the overhead ratio numerator for being only based on speculation. On remand, the agency noted that only part of manufacturing overhead is accounted for in the inventories costs, explaining that this means that "additional manufacturing overhead expenses are included elsewhere on Hanwha's financial statement."

Hanwha's statements include line items for "(1) selling and administrative expenses, (2) other expenses, (3) finance costs, and (4) Income tax expense," the court noted. Thus, Commerce reasoned that none of these items would include overhead expenses, additionally finding that the residual "difference between cost of sales and inventories costs" necessarily includes "otherwise unaccounted-for manufacturing overhead costs." The agency then explained that the unidentified expenses are "product costs, not period costs," since Hanwha is a manufacturer.

Respondent Risen Energy argued that these inferences were unreasonable, since specific overhead line items and the cost of sales show "there are no other meaningful overhead expenses despite the difference between cost of sales and inventories costs." Risen also argues that "the difference between cost of sales and the identified overhead line items should be allocated to materials, labor and energy, notwithstanding that the financial notes provide an explicit amount for direct materials, labor and a portion of manufacturing overhead."

Kelly held that Commerce reasonably explained that the "inventories costs will not necessarily reflect actual costs of manufacturing overhead." The agency said "the unit cost of all manufacturing overhead that was included in the cost of inventory was not based on actual production quantities, but rather, was based on production quantities at normal operating capacity." While Risen said this would lead to an outlier ratio when compared with past reviews, Commerce said the past reviews involved different companies.

And while Risen offered an alternative methodology "that considers only identified overhead items," Kelly noted that this doesn't allocate the "residual portion of cost of sales" and "unnecessarily constructs the materials, labor and energy denominator when the financial notes provide an explicit amount" that the agency interprets "to include materials, labor and a proportion of manufacturing overhead."

(Risen Energy v. United States, Slip Op. 26-1, CIT Consol. # 20-03743, dated 01/08/26; Judge: Claire Kelly; Attorneys: Gregory Menegaz of The Inter-Global Trade Law Group for plaintiff Risen Energy; Jonathan Freed of Trade Pacific for consolidated plaintiffs led by Trina Solar Co.; Jeffrey Grimson of Mowry & Grimson for consolidated plaintiffs led by JA Solar Technology Yangzhou Co.; William Perrry of Harris Bricken for consolidated plaintiffs Wuxi Tianran Photovoltaic Co. and Shenzhen Sungold Solar Co.; Jonathan Stoel of Hogan Lovells for plaintiff-intervenors led by Shanghai BYD and Canadian Solar; Richard Weiner of Sidley Austin for plaintiff-intervenors led by Yingli Energy (China); Tate Walker for defendant U.S. government; John Magnus of Tradewins for consolidated defendant-intervenor SunPower Manufacturing Oregon)