FAG Italia, S.p.A. v. United States

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
Consol. Court No. 97-02-00260-S Page 18

“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