FAG Italia, S.p.A. v. United States , 24 Ct. Int'l Trade 1311 ( 2000 )

Slip Op. 00-154
UNITED STATES COURT OF INTERNATIONAL TRADE
BEFORE: SENIOR JUDGE NICHOLAS TSOUCALAS
________________________________________
:
FAG ITALIA, S.p.A., FAG BEARINGS CORP., :
SKF USA Inc. and SKF INDUSTRIE S.p.A., :
:
Plaintiffs and :
Defendant-Intervenors, :
:
v. : Consol. Court No.
: 97-02-00260-S
UNITED STATES, :
:
Defendant, :
:
and :
:
THE TORRINGTON COMPANY, :
:
Defendant-Intervenor :
and Plaintiff. :
________________________________________:
Plaintiffs and defendant-intervenors, FAG Italia, S.p.A., FAG
Bearings Corp. (collectively “FAG”), SKF USA Inc. and SKF Industrie
S.p.A. (collectively “SKF”) move pursuant to USCIT R. 56.2 for
judgment upon the agency record challenging various aspects of the
United States Department of Commerce, International Trade
Administration’s (“Commerce”) final determination, entitled
Antifriction Bearings (Other Than Tapered Roller Bearings) and
Parts Thereof From France, Germany, Italy, Japan, Singapore, and
the United Kingdom; Final Results of Antidumping Duty
Administrative Reviews (“Final Results”), 62 Fed. Reg. 2081 (Jan.
15, 1997), as amended, Antifriction Bearings (Other Than Tapered
Roller Bearings) and Parts Thereof From France, Germany, Italy,
Japan, and Singapore; Amended Final Results of Antidumping Duty
Administrative Reviews, 62 Fed. Reg. 14,391 (Mar. 26, 1997).
Defendant-intervenor and plaintiff, The Torrington Company
(“Torrington”) also moves pursuant to USCIT R. 56.2 for judgment
upon the agency record challenging certain aspects of Commerce’s
Final Results.
Specifically, FAG argues that Commerce erred in: (1)
calculating constructed value (“CV”) profit; (2) failing to match
United States sales to similar home market sales prior to resorting
Consol. Court No. 97-02-00260-S Page 2
to CV when all home market sales of identical merchandise have been
disregarded; (3) including FAG’s zero-value United States
transactions in its margin calculations; (4) excluding amounts for
imputed credit and inventory carrying expenses in its calculation
of total expenses for the constructed export price (“CEP”) profit
ratio; and (5) making an unlawful circumstances of sale (“COS”)
adjustment to its normal value (“NV”) for certain advertising
expenses.
SKF contends that Commerce erred in: (1) calculating CV
profit; (2) calculating the CV home market credit expense rate
based on home market gross unit price while applying that rate to
the per unit cost of production; (3) including SKF’s zero-value
United States transactions in its margin calculations; and (4)
failing to match United States sales to similar home market sales
prior to resorting to CV when all home market sales of identical
merchandise have been disregarded.
Torrington contends that Commerce erred in committing various
computer programming errors that resulted in its failure to convert
some of SKF’s adjustments from foreign currency to United States
dollars.
Held: FAG’s USCIT R. 56.2 motion is denied in part and granted
in part. SKF’s USCIT R. 56.2 motion is denied in part and granted
in part. Torrington’s USCIT R. 56.2 motion is granted. The case
is remanded to Commerce to: (1) first attempt to match FAG and
SKF’s United States sales to similar home market sales before
resorting to CV; (2) exclude any transactions that were not
supported by consideration from FAG and SKF’s United States sales
databases and to adjust the dumping margins accordingly; (3)
include all expenses included in “total United States expenses” in
the calculation of “total expenses” for FAG’s CEP profit ratio; (4)
remove the COS adjustment for certain advertising expenses from
FAG’s NV; (5) reconsider its decision to calculate SKF’s home
market credit expense rate based upon price and then apply that
rate to cost; (6) examine the programming language for converting
certain adjustments that SKF Italy reported on export prices for
sales made through the foreign trade zone and through Sweden from
foreign currency into United States dollars and to make appropriate
corrections.
[FAG’s motion is denied in part and granted in part. SKF’s motion
is denied in part and granted in part. Torrington’s motion is
granted. Case remanded.]
Dated: November 21, 2000
Consol. Court No. 97-02-00260-S Page 3
Grunfeld, Desiderio, Lebowitz & Silverman LLP (Max F.
Schutzman, Andrew B. Schroth and Mark E. Pardo) for FAG.
Steptoe & Johnson LLP (Herbert C. Shelley and Alice A. Kipel)
for SKF.
David W. Ogden, Assistant Attorney General; David M. Cohen,
Director, Commercial Litigation Branch, Civil Division, United
States Department of Justice (Velta A. Melnbrencis, Assistant
Director); of counsel: Mark A. Barnett, Rina Goldenberg and David
R. Mason, Office of the Chief Counsel for Import Administration,
United States Department of Commerce, for defendant.
Stewart and Stewart (Terence P. Stewart, Wesley K. Caine,
Geert De Prest and Lane S. Hurewitz) for Torrington.
OPINION
TSOUCALAS, Senior Judge: Plaintiffs and defendant-
intervenors, FAG Italia, S.p.A., FAG Bearings Corp. (collectively
“FAG”), SKF USA Inc. and SKF Industrie S.p.A. (collectively “SKF”)
move pursuant to USCIT R. 56.2 for judgment upon the agency record
challenging various aspects of the United States Department of
Commerce, International Trade Administration’s (“Commerce”) final
determination, entitled Antifriction Bearings (Other Than Tapered
Roller Bearings) and Parts Thereof From France, Germany, Italy,
Japan, Singapore, and the United Kingdom; Final Results of
Antidumping Duty Administrative Reviews (“Final Results”), 62 Fed.
Reg. 2081 (Jan. 15, 1997), as amended, Antifriction Bearings (Other
Than Tapered Roller Bearings) and Parts Thereof From France,
Germany, Italy, Japan, and Singapore; Amended Final Results of
Antidumping Duty Administrative Reviews (“Amended Final Results”),
Consol. Court No. 97-02-00260-S Page 4
62 Fed. Reg. 14,391 (Mar. 26, 1997). Defendant-intervenor and
plaintiff, The Torrington Company (“Torrington”) also moves
pursuant to USCIT R. 56.2 for judgment upon the agency record
challenging certain aspects of Commerce’s Final Results.
Specifically, FAG argues that Commerce erred in: (1)
calculating constructed value (“CV”) profit; (2) failing to match
United States sales to similar home market sales prior to resorting
to CV when all home market sales of identical merchandise have been
disregarded; (3) including FAG’s zero-value United States
transactions in its margin calculations; (4) excluding amounts for
imputed credit and inventory carrying expenses in its calculation
of total expenses for the constructed export price (“CEP”) profit
ratio; and (5) making an unlawful circumstances of sale (“COS”)
adjustment to its normal value (“NV”) for certain advertising
expenses.
SKF contends that Commerce erred in: (1) calculating CV
profit; (2) calculating the CV home market credit expense rate
based on home market gross unit price while applying that rate to
the per unit cost of production; (3) including SKF’s zero-value
United States transactions in its margin calculations; and (4)
failing to match United States sales to similar home market sales
prior to resorting to CV when all home market sales of identical
merchandise have been disregarded.
Consol. Court No. 97-02-00260-S Page 5
Torrington contends that Commerce erred in committing various
computer programming errors that resulted in its failure to convert
some of SKF’s adjustments from foreign currency to United States
dollars.
BACKGROUND
This case concerns the sixth review of the antidumping duty
order on antifriction bearings (other than tapered roller bearings)
and parts thereof (“AFBs”) imported to the United States from
France during the review period of May 1, 1994 through April 30,
1995. On July 8, 1996, Commerce published the preliminary results
of the subject review. See Antifriction Bearings (Other Than
Tapered Roller Bearings) and Parts Thereof From France, Germany,
Italy, Japan, Romania, Singapore, Thailand and the United Kingdom;
Preliminary Results of Antidumping Duty Administrative Reviews,
Termination of Administrative Reviews, and Partial Termination of
Administrative Reviews (“Preliminary Results”), 61 Fed. Reg.
35,713. Commerce issued the Final Results on January 15, 1997, see
62 Fed. Reg. 2081, and the Amended Final Results on March 26, 1997,
see 62 Fed. Reg. 14,391.
Since the administrative review at issue was initiated after
December 31, 1994, the applicable law is the antidumping statute as
amended by the Uruguay Round Agreements Act (“URAA”), Pub. L. No.
Consol. Court No. 97-02-00260-S Page 6
103-465, 108 Stat. 4809 (1994) (effective January 1, 1995). See
Torrington Co. v. United States, 68 F.3d 1347, 1352 (Fed. Cir.
1995) (citing URAA § 291(a)(2), (b) (noting effective date of URAA
amendments)).
JURISDICTION
The Court has jurisdiction over this matter pursuant to 19
U.S.C. § 1516a(a) (1994) and 28 U.S.C. § 1581(c) (1994).
STANDARD OF REVIEW
The Court will uphold Commerce’s final determination in an
antidumping administrative review unless it is “unsupported by
substantial evidence on the record, or otherwise not in accordance
with law.” 19 U.S.C. § 1516a(b)(1)(B)(i) (1994); see NTN Bearing
Corp. of America v. United States, 24 CIT ___, ___, 104 F. Supp. 2d
110, 115-16 (2000) (detailing Court’s standard of review in
antidumping proceedings).
DISCUSSION
I. Commerce’s CV Profit Calculation
A. Background
For this POR, Commerce used CV as the basis for NV “when there
were no usable sales of the foreign like product in the comparison
market.” Preliminary Results, 61 Fed. Reg. at 35,718. Commerce
Consol. Court No. 97-02-00260-S Page 7
calculated the profit component of CV using the statutorily
preferred methodology of 19 U.S.C. § 1677b(e)(2)(A) (1994). See
Final Results, 62 Fed. Reg. at 2113. Specifically, in calculating
CV, the statutorily preferred method is to calculate an amount for
profit based on “the actual amounts incurred and realized by the
specific exporter or producer being examined in the investigation
or review . . . in connection with the production and sale of a
foreign like product [made] in the ordinary course of trade, for
consumption in the foreign country.” 19 U.S.C. § 1677b(e)(2)(A).
In applying the preferred methodology for calculating CV
profit, Commerce determined that “the use of aggregate data that
encompasses all foreign like products under consideration for NV
represents a reasonable interpretation of [§ 1677b(e)(2)(A)] and
results in a practical measure of profit that [Commerce] can apply
consistently in each case.” Final Results, 62 Fed. Reg at 2113.
Also, in calculating CV profit under § 1677b(e)(2)(A), Commerce
excluded below-cost sales from the calculation which it disregarded
in the determination of NV pursuant to § 1677b(b)(1) (1994). See
id. at 2114.
B. Contentions of the Parties
FAG and SKF contend that Commerce’s use of aggregate data
encompassing all foreign like products under consideration for NV
Consol. Court No. 97-02-00260-S Page 8
in calculating CV profit is contrary to § 1677b(e)(2)(A). See
FAG’s Br. Supp. Mot. J. Agency R. (“FAG’s Br.”) at 5-11; SKF’s Br.
Supp. Mot. J. Agency R. (“SKF’s Br.”) at 9-24. Instead, FAG and
SKF claim that Commerce should have relied on alternative
methodologies such as the one described by § 1677b(e)(2)(B)(i),
which provides a CV profit calculation that is similar to the one
Commerce used, but does not limit the calculation to sales made in
the ordinary course of trade, that is, below-cost sales are not
excluded from the calculation. See FAG’s Br. at 10-11; SKF’s Br.
at 24-25. SKF also asserts that if Commerce’s exclusion of below-
cost sales from the numerator of the CV profit calculation is
lawful, Commerce should nonetheless include such sales in the
denominator of the calculation to temper bias which is inherent in
the agency’s dumping margin calculations. See SKF’s Br. at 25-28.
Commerce responds that it properly calculated CV profit
pursuant to § 1677b(e)(2)(A), based on aggregate profit data of all
foreign like products under consideration for NV. See Def.’s Mem.
in Partial Opp’n to Pls.’ Mots. J. Agency R. (“Def.’s Mem.”) at 9-
25. Consequently, Commerce maintains that since it properly
calculated CV profit under subparagraph (A) rather than (B) of §
1677b(e)(2), it correctly excluded below-cost sales from the CV
profit calculation. See id. at 11-13. Torrington generally agrees
with Commerce’s contentions. See Torrington’s Resp. to Pls.’ Mots.
Consol. Court No. 97-02-00260-S Page 9
J. Agency R. (“Torrington’s Resp.”) at 7-15.
C. Analysis
In RHP Bearings Ltd. v. United States, 23 CIT ___, 83 F. Supp.
2d 1322 (1999), this Court upheld Commerce’s CV profit methodology
of using aggregate data of all foreign like products under
consideration for NV as being consistent with the antidumping
statute. See id. at ___, 83 F. Supp. 2d at 1336. Since Commerce’s
CV profit methodology and FAG and SKF’s arguments at issue in this
case are practically identical to those presented in RHP Bearings,
the Court adheres to its reasoning in RHP Bearings. The Court,
therefore, finds that Commerce’s CV profit methodology is in
accordance with law.
Moreover, since (1) § 1677b(e)(2)(A) requires Commerce to use
the actual amount for profit in connection with the production and
sale of a foreign like product in the ordinary course of trade, and
(2) 19 U.S.C. § 1677(15) (1994) provides that below-cost sales
disregarded under § 1677b(b)(1) are considered to be outside the
ordinary course of trade, the Court finds that Commerce properly
excluded below-cost sales from the CV profit calculation.
II. Commerce’s Matching United States Sales to Similar Home Market
Sales Prior to Resorting to CV
FAG and SKF maintain that Commerce erred in resorting to CV
Consol. Court No. 97-02-00260-S Page 10
without first attempting to match United States sales, that is,
export price (“EP”) or CEP sales, to similar home market sales in
instances where home market sales of identical merchandise have
been disregarded because they were out of the ordinary course of
trade. See FAG’s Br. at 12; SKF’s Br. at 36-37. FAG and SKF
maintain that a remand is necessary to bring Commerce’s practice in
line with the United States Court of Appeals for the Federal
Circuit’s (“CAFC”) decision in Cemex, S.A. v. United States, 133
F.3d 897, 904 (Fed. Cir. 1998). Commerce agrees with FAG and SKF.
See Def.’s Mem. at 26.
The Court agrees with FAG, SKF and Commerce. In Cemex, the
CAFC reversed Commerce’s practice of matching a United States sale
to CV when the identical or most similar home market model failed
the cost test. See 133 F.3d at 904. The CAFC stated that “[t]he
plain language of the statute requires Commerce to base foreign
market value [(now NV)] on nonidentical but similar merchandise
[(foreign like product under the amendments to the URAA)] . . .
rather than [CV] when sales of identical merchandise have been
found to be outside the ordinary course of trade.” Id. In light
of Cemex, this matter is remanded so that Commerce can first
attempt to match United States sales to similar home market sales
before resorting to CV.
Consol. Court No. 97-02-00260-S Page 11
III. Zero-Value United States Transactions
FAG and SKF argue that in light of NSK Ltd. v. United States,
115 F.3d 965, 975 (Fed. Cir. 1997), the Court should remand the
matter to Commerce to exclude their zero-value transactions from
their margin calculations. See FAG’s Br. at 12-13; SKF’s Br. at
34-36. FAG and SKF maintain that United States transactions at
zero value, such as prototypes and samples, do not constitute true
sales and, therefore, should be excluded from the margin
calculations pursuant to NSK. See id. The identical issue was
decided by this Court in SKF USA Inc. v. United States, 23 CIT ___,
Slip Op. 99-56, 1999 WL 486537 (June 29, 1999).
Torrington concedes that a remand may be necessary in light of
NSK, but argues that further factual inquiry by Commerce is
necessary to determine whether the zero-price transactions were
truly without consideration. See Torrington’s Resp. at 17-20.
Torrington argues that only if the transactions are truly without
consideration can they fall within NSK’s exclusion. See id.Commerce concedes that the case should be remanded to it to
exclude the sample transactions for which FAG and SKF received no
consideration from their United States sales databases. See Def.’s
Mem. at 26-27.
Commerce is required to impose antidumping duties upon
Consol. Court No. 97-02-00260-S Page 12
merchandise that “is being, or is likely to be, sold in the United
States at less than its fair value.” 19 U.S.C. § 1673(1) (1994).
A zero-priced transaction does not qualify as a “sale” and,
therefore, by definition cannot be included in Commerce’s NV
calculation. See NSK, 115 F.3d at 975 (holding “that the term
‘sold’ . . . requires both a transfer of ownership to an unrelated
party and consideration.”). Thus, the distribution of AFBs for no
consideration falls outside the purview of 19 U.S.C. § 1673.
Consequently, the Court remands to Commerce to exclude any
transactions that were not supported by consideration from SKF’s
United States sales database and to adjust the dumping margins
accordingly.
IV. Commerce’s Treatment of FAG’s Imputed Credit and Inventory
Carrying Costs in the Calculation of CEP Profit
A. Background
In calculating CEP, Commerce must reduce the starting price
used to establish CEP by “the profit allocated to the expenses
described in paragraphs (1) and (2)” of § 1677a(d) (1994). 19
U.S.C. § 1677a(d)(3) (1994). Under 19 U.S.C. § 1677a(f), the
“profit” that will be deducted from this starting price will be
“determined by multiplying the total actual profit by [a]
percentage” calculated “by dividing the total United States
expenses by the total expenses.” Id. at § 1677a(f)(1), (2)(A).
Consol. Court No. 97-02-00260-S Page 13
Section 1677a(f)(2)(B) defines “total United States expenses” as
the total expenses deducted under § 1677a(d)(1) and (2), that is,
commissions, direct and indirect selling expenses, assumptions and
the cost of any further manufacture or assembly in the United
States.
Section 1677a(f)(2)(C) establishes a tripartite hierarchy of
methods for calculating “total expenses.” First, “total expenses”
will be “[t]he expenses incurred with respect to the subject
merchandise sold in the United States and the foreign like product
sold in the exporting country” if Commerce requested such expenses
for the purpose of determining NV and CEP. Id. §
1677a(f)(2)(C)(i). If category (i) does not apply, then “total
expenses” will be “[t]he expenses incurred with respect to the
narrowest category of merchandise sold in the United States and the
exporting country which includes the subject merchandise.” Id. §
1677a(f)(2)(C)(ii). If neither category (i) or (ii) applies, then
“total expenses” will be “[t]he expenses incurred with respect to
the narrowest category of merchandise sold in all countries which
includes the subject merchandise.” Id. § 1677a(f)(2)(C)(iii).
“Total actual profit” is based on whichever category of merchandise
is used to calculate “total expenses” under § 1677a(f)(2)(C). See
id. § 1677a(f)(2)(D).
FAG reported United States sales that Commerce treated as CEP
Consol. Court No. 97-02-00260-S Page 14
sales pursuant to 19 U.S.C. § 1677a(b), and Commerce deducted an
amount for profit allocated to the expenses enumerated by 19 U.S.C.
§ 1677a(d)(1) and (2). See 19 U.S.C. § 1677a(d)(3). In the profit
calculation, Commerce excluded imputed expenses and carrying costs
from the “total actual profit” calculation, defined in §
1677a(f)(2)(D), and from the “total expenses” calculation, defined
in § 1677a(f)(2)(C), but included them in the “total United States
expenses” calculation, defined in § 1677a(f)(2)(B). FAG objected
to the omission of imputed expenses and carrying costs from “total
expenses,” and Commerce responded by stating the following:
Sections [1677a(f)(1) and 1677a(f)(2)(D)] of the Tariff
Act state that the per-unit profit amount shall be an
amount determined by multiplying the total actual profit
by the applicable percentage (ratio of total U.S.
expenses to total expenses) and that the total actual
profit means the total profit earned by the foreign
producer, exporter, and affiliated parties. In
accordance with the statute, we base the calculation of
the total actual profit used in calculating the per-unit
profit amount for CEP sales on actual revenues and
expenses recognized by the company. In calculating the
per-unit cost of the U.S. sales, we have included net
interest expense. Therefore, we do not need to include
imputed interest expenses in the “total actual profit”
calculation since we have already accounted for actual
interest in computing this amount under section
[1677a(f)(1)].
When we allocated a portion of the actual profit to
each CEP sale, we have included imputed credit and
inventory carrying costs as part of the total U.S.
expense allocation factor. This methodology is
consistent with section [1677a(f)(1)] of the statute
which defines “total United States expense” as the total
expenses described under section [1677a(d)(1) and (2)].
Such expenses include both imputed credit and inventory
carrying costs.
Consol. Court No. 97-02-00260-S Page 15
Final Results, 62 Fed. Reg. at 2126-67.
B. Contentions of the parties
FAG complains that in calculating “total United States
expenses” pursuant to 19 U.S.C. § 1677a(f)(2)(B), Commerce included
amounts for imputed credit and inventory carrying expenses, but
failed to include these amounts in its calculation of “total
expenses,” as defined by 19 U.S.C. § 1677a(f)(2)(C). See FAG’s Br.
at 13-15. FAG argues that the plain language of the statute
demonstrates that “total United States expenses” is a subset of
“total expenses” and, therefore, any expense constituting “‘total
United States expenses’ ([that is], expenses incurred in selling
the subject merchandise in the United States)” must also be
included in “‘total expenses’ ([that is], all expenses incurred in
selling the subject merchandise in the United States and the
foreign like product in the home market).” Id. at 14-15. FAG
argues that Commerce should not be permitted to ignore the plain
language of the statute. See id.
Commerce maintains that the statute does not address the use
of imputed expenses in the calculation of “total expenses” or
“total actual profit.” See Def.’s Mem. at 30. Commerce considers
imputed selling expenses, including imputed credit and inventory
carrying costs, to be selling expenses encompassed by § 1677a
Consol. Court No. 97-02-00260-S Page 16
(d)(1) and (2) and, as such, includes them in the calculation of
“total United States expenses.” See id. at 32. Commerce, however,
did not include the imputed expenses in “total actual profit”
because “‘normal accounting principles permit the deduction of only
actual booked expenses, not imputed expenses, in calculating
profit.’” Id. at 34 (citation omitted). Additionally, Commerce
did not include imputed expenses in “total actual profit” and
“total expenses” because “the imputed expenses were properly
accounted for through the inclusion of actual interest expenses in
‘total actual profit’ and ‘total expenses.’” Id. at 33.
Commerce also maintains that it did not include imputed
expenses in “total expenses” since Commerce is required to
calculate “total actual profit” on the same basis as “total
expenses” pursuant to 19 U.S.C. § 1677a(f)(2)(D). See id. at 34.
Commerce argues that the provision for “total expenses” merely
encompasses all expenses “‘which are incurred by or on behalf of
the foreign producer and foreign exporter with respect to the
production and sale of such merchandise,’” and if Congress had
intended “that Commerce utilize the same types of expenses for both
‘total United States expenses’ and ‘total expenses,’ it would have
made that intent clear.” Id. at 32-33 (quoting 19 U.S.C. §
1677a(f)(2)(C)). Torrington generally agrees with Commerce. See
Torrington’s Resp. at 20-23.
Consol. Court No. 97-02-00260-S Page 17
C. Analysis
In SNR Roulements v. United States, 24 CIT ___, ___, Slip Op.
00-131, 2000 WL 1562867, at *___ (October 13, 2000), this Court
determined that “Commerce improperly excluded imputed inventory and
carrying costs from ‘total expenses’ when it had included these
expenses in ‘total United States expenses’” because such action was
contrary to the plain meaning of 19 U.S.C. § 1677a. This Court
remanded the issue to Commerce, directing it to “include all
expenses included in ‘total United States expenses’ in the
calculation of ‘total expenses.’” Id.
Since Commerce’s methodology and FAG’s arguments in this case
are practically identical to those presented in SNR Roulements, the
Court adheres to its reasoning in SNR Roulements. The Court,
therefore, finds that Commerce’s methodology was not in accordance
with law. The Court remands this issue to Commerce to include all
expenses included in “total United States expenses” in the
calculation of “total expenses.”
V. Commerce’s Circumstances of Sale Adjustment for Certain
Advertising Expenses
A. Background
In response to section C of Commerce’s questionnaire, FAG
stated that all United States advertising expenses were not
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“specifically” related to the subject merchandise and, therefore,
were properly classified as indirect selling expenses. FAG’s Resp.
Sec. C Questionnaire (Sept. 27, 1995) (Case No. A-475-801) at 43-
44. FAG also stated that indirect selling expenses incurred in the
country of manufacture included “printing costs associated with the
publication of catalogs and technical data material in English,”
and reported these expenses as an element of its indirect selling
expense calculation. Id. at 51.
During the administrative review, Torrington argued that the
publication expenses reported in the indirect selling expense
calculation should have been deducted from CEP. See Final Results,
62 Fed. Reg. at 2125. In the Final Results, Commerce stated the
following with respect to Torrington’s argument:
Based on the record, we determined that the expenses in
question are not deductible from CEP under [19 U.S.C. §
1677a(d)] . . . . However, the record suggests that . .
. [the] printing costs associated with the publication of
the catalogs and technical materials in English, is a
direct advertising cost that FAG OH assumed on behalf of
FAG Italy’s U.S. affiliate for sales to its unaffiliated
customers in the United States. The [Statement of
Administrative Action] at 828, requires that [Commerce]
make a [circumstances of sale] adjustment (rather than a
CEP adjustment) for “assumptions of expenses incurred in
the foreign country on sales to the affiliated importer.”
Id. To account for the costs associated with publishing catalogs
and technical manuals, Commerce made an upward adjustment to FAG’s
NV as a COS adjustment under 19 U.S.C. § 1677b(a)(6)(C)(iii). See
id.
Consol. Court No. 97-02-00260-S Page 19
B. Contentions of the Parties
FAG maintains that the issue “is not whether a COS adjustmenct
can properly be made for an indirect expense” since “[t]here is a
wealth of precedent to the effect that COS adjustments are only
used to offset direct selling expenses.” FAG’s Br. at 17. FAG
identifies the crux of the issue as “whether the expenses related
to the catalogs and technical manuals are direct or indirect.” Id.
FAG states that direct advertising is defined as “advertising
directed at the customer’s customer, and indirect advertising has
likewise always been defined as advertising directed at the initial
customer.” Id. Because the catalogs and technical materials were
directed at FAG’s customers, FAG reported the expenses associated
with them as indirect.
FAG maintains that nothing on the record supports Commerce’s
assertion in the Final Results that the advertising expenses are
direct. To the contrary, FAG points to Commerce’s treatment of the
same publication expenses as indirect with respect to FAG’s home
market sales as evidence that similar expenses for its United
States sales are indirect as well. See FAG’s Br. at 18 (citing
FAG’s Resp. Sec. B Questionnaire (Sept. 27, 1995) (Case No. A-475-
801) at 35-37). Accordingly, FAG asks the Court to remand this
issue to Commerce to “clarify and elaborate on what facts on the
Consol. Court No. 97-02-00260-S Page 20
record ‘suggest’ that FAG’s expenses related to publishing catalogs
and technical manuals are direct rather than indirect expenses,”
and if Commerce is unable to point to facts supporting its
determination, the Court should instruct Commerce to remove the
upward COS adjustment to FAG’s NV. FAG’s Br. at 19. FAG is
opposed to any effort by Commerce to make an adjustment to CEP,
arguing that the only issue before the Court is whether the COS
adjustment to NV was proper. See FAG’s Reply Supp. Mot. J. Agency
R. (“FAG’s Reply”) at 14.
Commerce reviewed the record and the Final Results and
concluded that “it did err in its treatment of these advertising
expenses in the” Final Results. Def.’s Mem. at 37. Specifically,
“Commerce agrees that the record does not support its decision to
treat these advertising expenses as direct expenses” and believes
that it should have treated them as “indirect expenses since the
record indicates that the materials were published for FAG’s
customer, not the customer’s customer.” Id. (citing FAG United
States Sales Verification Report (Apr. 18, 1996) (Case No. A-475-
801) at 9). Commerce also believes that “because these expenses
were associated with economic activity in the United States,” they
should have been deducted from CEP pursuant to 19 U.S.C. §
1677a(d)(1). Id.
Commerce also concedes that it erred in assuming, as facts
Consol. Court No. 97-02-00260-S Page 21
available, that all of the indirect selling expenses reported by
FAG were advertising expenses because of FAG’s deficiencies in
reporting. See Def.’s Mem. at 37. Commerce recognizes, however,
that FAG did not provide proper information because it was
reporting the advertising expense in accordance with Commerce’s
questionnaire instructions. See id. Commerce requests a remand to
obtain information to segregate the advertising expenses from other
expenses reported in the indirect selling expense field that are
not associated with United States economic activities. See id. at
38.
C. Analysis
Section 1677a(d)(1) of Title 19 of the United States Code
provides that expenses incurred in selling subject merchandise in
the United States shall be deducted from CEP. Deductions for these
expenses include both direct and indirect expenses “associated with
economic activities occurring in the United States.” Statement of
Administrative Action, H.R. Doc. 103-316, at 823 (1994), reprinted
in 1994 U.S.C.C.A.N. 4040. Here, although the expenses associated
with the publication of catalogs and technical materials in English
were treated as having been borne by FAG’s affiliates in Germany,
they were actually related to advertising by FAG USA to its
unaffiliated customers. See Def.’s Mem. at 36-37; FAG’s Br. at 17;
FAG United States Sales Verification Report (Apr. 18, 1996) (Case
Consol. Court No. 97-02-00260-S Page 22
No. A-475-801) at 9 (“FAG focuses its advertising on distributors
by publishing product catalogues.”); FAG’s Resp. Sec. C
Questionnaire (Sept. 27, 1995) (Case No. A-475-801) at 51 (“costs
incurred . . . in Germany to support the sale of these bearings to
customers in the United States . . . [include] printing costs
associated with the publication of catalogs and technical data
material in English.”). Thus, if the publication expenses are
associated with economic activity in the United States, Commerce
may deduct them from CEP pursuant to 19 U.S.C. § 1677a(d)(1).
Commerce chose not to make any adjustment to CEP for the
publication expenses, stating in the Final Results that “based on
the record, . . . the expenses in question are not deductible from
CEP.” 62 Fed. Reg. at 2125. Based on Commerce’s assertion, FAG
argues that it is “completely improper for [Commerce] to request a
remand now to deduct these expenses from CEP when the record shows
that such a deduction is entirely contrary to Commerce’s
administrative determination.” FAG’s Reply at 14. Additionally,
Torrington argues that Commerce’s COS adjustment was supported by
substantial evidence because the expenses at issue qualified as
“‘assumptions of expenses incurred in the foreign country on sales
to the affiliated importer’” within the meaning of 19 U.S.C. §
1677b(a)(6)(C)(iii), a position contrary to its position during the
administrative review. Torrington’s Resp. at 25; Final Results, 62
Consol. Court No. 97-02-00260-S Page 23
Fed. Reg. at 2125 (“Torrington contends that [Commerce] should make
a deduction to CEP . . . .”).
The Court disagrees with Torrington’s argument that Commerce’s
decision to make a COS adjustment is supported by substantial
evidence. Commerce’s decision to make a COS adjustment was
premised on its conclusion that the expenses were direct expenses,
a conclusion that is not supported by the evidence on the record
and that Commerce now repudiates. See Final Results, 62 Fed. Reg.
at 2125 (“printing costs associated with the publication of
catalogs and technical material in English[] is a direct
advertising cost.”). None of the parties point to any evidence
that demonstrates that the publication expenses are direct; to the
contrary, FAG points to evidence that tends to show the expenses
are indirect. See FAG United States Sales Verification Report
(Apr. 18, 1996) (Case No. A-475-801) at 9 (“FAG focuses its
advertising on distributors by publishing product catalogues.”).
Furthermore, the Court agrees with FAG’s contention that
Commerce is not permitted to make an adjustment to CEP. Commerce
considered and rejected the possibility of making a CEP adjustment
and cannot now reopen the record in order to make such a finding
upon finding that its COS adjustment is not supported by record
evidence. Accordingly, the Court remands this issue to Commerce to
remove the COS adjustment for the advertising expenses from FAG’s
Consol. Court No. 97-02-00260-S Page 24
NV.
VI. CV Home Market Credit Expense Rate
SKF contends that Commerce erred in “calculating a CV home
market credit expense rate based on price, but applying that rate
to cost.” See SKF’s Br. at 29. Specifically, SKF contends that
Commerce “computed a credit expense rate based on the ratio of home
market credit expense to home market gross unit price” when
“calculating an average home market credit expense to be deducted
from CV.” Id. Commerce applied the home market credit expense
rate to the COP, rather than price, of each model to derive a per
unit amount for home market credit expense. See id. Commerce then
deducted the per unit expense amount in the CV calculation. See
id. SKF maintains that applying a home market credit expense rate
based upon price to cost is contrary to the “fundamental principle
inherent in all antidumping rate and factor calculations, that the
calculation of the rate and its application must be consistent.”
SKF’s Reply Supp. Mot. J. Agency R. at 20.
Commerce agrees that it erred “by calculating a home market
credit expense rate based upon price but applying that rate to
cost,” and asks the Court to remand the matter for recalculation of
SKF’s home market credit cost. Def.’s Mem. at 38. Torrington,
however, maintains that Commerce’s methodology is reasonable and
Consol. Court No. 97-02-00260-S Page 25
should be affirmed. See Torrington’s Resp. at 34-36.
In light of the foregoing, the Court remands this issue to
Commerce to reconsider its decision to calculate the home market
credit expense rate based upon price and then apply that rate to
cost.
VII. Commerce’s Computer Programming Errors
Torrington alleges that Commerce made “various clerical or
methodological errors in connection with certain sales reported by
SKF Italy.” Torrington’s Mem. Supp. Mot. J. Agency R.
(“Torrington’s Mem.”) at 2. Specifically, Torrington alleges that
Commerce made errors in the computer “programming language for
converting certain adjustments that SKF-Italy reported for export
prices for sales made through a foreign trade zone and through
Sweden from foreign currency into U.S. dollars.” Torrington’s
Reply to Resps. of Def. & SKF (“Torrington’s Reply”) at 1-2.
Commerce “reviewed the programming language and agrees that it
unintentionally did not convert the adjustments from foreign
currency into U.S. dollars” and requests a remand to “examine the
programming language and make appropriate corrections.” Def.’s
Mem. at 38-39.
SKF maintains that Commerce “is best situated to determine
Consol. Court No. 97-02-00260-S Page 26
whether its computer program indeed embodies the clerical errors
alleged by Torrington and whether a remand for correction of such
alleged errors is necessary or appropriate.” SKF’s Resp. to
Torrington’s Mem. at 3. If a remand is necessary, SKF suggests
alternative programming language, which Torrington has agreed is
accurate. See id. at 3; Torrington’s Reply at 2-3.
In light of the foregoing, the Court remands this issue to
Commerce to examine the programming language for converting certain
adjustments that SKF Italy reported on export prices for sales made
through the foreign trade zone and through Sweden from foreign
currency into United States dollars and to make appropriate
corrections.
CONCLUSION
The Court remands this case to Commerce to: (1) first attempt
to match FAG and SKF’s United States sales to similar home market
sales before resorting to CV; (2) exclude any transactions that
were not supported by consideration from FAG and SKF’s United
States sales databases and to adjust the dumping margins
accordingly; (3) include all expenses included in “total United
States expenses” in the calculation of “total expenses” for FAG’s
CEP profit ratio; (4) remove the COS adjustment for certain
advertising expenses from FAG’s NV; (5) reconsider its decision to
calculate SKF’s home market credit rate expense based upon price
and then apply that rate to cost; (6) to examine the programming
language for converting certain adjustments that SKF Italy reported
on export prices for sales made through the foreign trade zone and
through Sweden from foreign currency into United States dollars and
to make appropriate corrections.
______________________________
NICHOLAS TSOUCALAS
SENIOR JUDGE
Dated: November 21, 2000
New York, New York