SKF USA Inc. v. United States

Slip Op. 00-105

UNITED STATES COURT OF INTERNATIONAL TRADE

BEFORE: SENIOR JUDGE NICHOLAS TSOUCALAS
____________________________________
:
SKF USA INC., SKF FRANCE S.A. :
and SARMA, :
:
Plaintiffs, :
:
v. : Court No. 99-08-00475
:
UNITED STATES, :
:
Defendant, :
:
THE TORRINGTON COMPANY, :
:
Defendant-Intervenor. :
____________________________________:

Plaintiffs, SKF USA Inc., SKF France S.A. and Sarma
(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, Romania,
Sweden, and the United Kingdom; Final Results of Antidumping
Duty Administrative Reviews, 64 Fed. Reg. 35,590 (July 1, 1999).
Specifically, SKF contends that Commerce unlawfully: (1)
conducted a duty absorption inquiry under 19 U.S.C. § 1675(a)(4)
(1994) for the subject reviews of the applicable antidumping
duty orders; (2) determined that it applied a reasonable duty
absorption methodology and that duty absorption had occurred;
(3) excluded below-cost sales from the profit calculation for
constructed value under 19 U.S.C. § 1677b(e)(2) (1994); and (4)
valued SKF’s major inputs under 19 U.S.C. §§ 1677b(f)(2)-(3),
1677e(a), 1677m(d) (1994).

Held: SKF’s USCIT R. 56.2 motion is denied in part and
granted in part. The case is remanded to Commerce to annul all
findings and conclusions made pursuant to the duty absorption
inquiry conducted for the subject reviews.
Court No. 99-08-00475 Page 2

[SKF’s motion is denied in part and granted in part. Case
remanded.]

Dated: August 23, 2000

Steptoe & Johnson LLP (Herbert C. Shelley and Alice A.
Kipel) for plaintiffs.

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: Patrick V. Gallagher 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 defendant-intervenor.

OPINION

TSOUCALAS, Senior Judge: Plaintiffs, SKF USA Inc., SKF

France S.A. and Sarma (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, Romania, Sweden, and the United Kingdom; Final

Results of Antidumping Duty Administrative Reviews (“Final

Results”), 64 Fed. Reg. 35,590 (July 1, 1999).
Court No. 99-08-00475 Page 3

BACKGROUND

This case concerns the ninth administrative review of the

outstanding 1989 antidumping duty orders on antifriction

bearings (other than tapered roller bearings) and parts thereof

(“AFBs”) imported from France for the period of review (“POR”)

covering May 1, 1997 through April 30, 1998. See Final Results,

64 Fed. Reg. at 35,590; Antidumping Duty Orders: Ball Bearings,

Cylindrical Roller Bearings, Spherical Plain Bearings, and Parts

Thereof From France, 54 Fed. Reg. 20,902 (May 15, 1989). In

accordance with 19 C.F.R. § 351.213 (1998), Commerce initiated

the administrative reviews of these orders on June 29, 1998, see

Initiation of Antidumping and Countervailing Duty Administrative

Reviews and Request for Revocation in Part, 63 Fed. Reg. 35,188,

and published the preliminary results of the subject reviews on

February 23, 1999, see Antifriction Bearings (Other Than Tapered

Roller Bearings) and Parts Thereof From France, Germany, Italy,

Japan, Romania, Singapore, Sweden, and the United Kingdom;

Preliminary Results of Antidumping Duty Administrative Reviews

and Partial Rescission of Administrative Reviews (“Preliminary

Results”), 64 Fed. Reg. 8790. Commerce published the Final

Results on July 1, 1999. See 64 Fed. Reg. at 35,590.
Court No. 99-08-00475 Page 4

Since the administrative reviews at issue were initiated

after December 31, 1994, the applicable law in this case is the

antidumping statute as amended by the Uruguay Round Agreements

Act (“URAA”), Pub. L. No. 103-465, 108 Stat. 4809 (1994)

(effective Jan. 1, 1995).

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

In reviewing a challenge to Commerce’s final determination

in an antidumping administrative review, the Court will uphold

Commerce’s determination 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 for antidumping proceedings).
Court No. 99-08-00475 Page 5

DISCUSSION

I. Duty Absorption Inquiry

A. Background

Title 19, United States Code, § 1675(a)(4) (1994) provides

that during an administrative review initiated two or four years

after the “publication” of an antidumping duty order, Commerce,

if requested by a domestic interested party, “shall determine

whether antidumping duties have been absorbed by a foreign

producer or exporter subject to the order if the subject

merchandise is sold in the United States through an importer who

is affiliated with such foreign producer or exporter.” Section

1675(a)(4) further provides that Commerce shall notify the

International Trade Commission (“ITC”) of its findings regarding

such duty absorption for the ITC to consider in conducting a

five-year (“sunset”) review under 19 U.S.C. § 1675(c), and the

ITC will take such findings into account in determining whether

material injury is likely to continue or recur if an order were

revoked under § 1675(c). See 19 U.S.C. § 1675a(a)(1)(D) (1994).

On May 29, 1998 and July 29, 1998, Torrington requested that

Commerce conduct a duty absorption inquiry pursuant to §

1675(a)(4) with respect to various respondents, including SKF,

to ascertain whether antidumping duties had been absorbed during
Court No. 99-08-00475 Page 6

the ninth POR. See Final Results, 64 Fed. Reg. at 35,600.

In the Final Results, Commerce determined that duty

absorption had in fact occurred for the ninth review. See id.

at 35,591, 35,600-02. In asserting authority to conduct a duty

absorption inquiry under § 1675(a)(4), Commerce first explained

that for “transition orders” as defined in § 1675(c)(6)(C) (that

is, antidumping duty orders, inter alia, deemed issued on

January 1, 1995), regulation 19 C.F.R. § 351.213(j) provides

that Commerce will make a duty absorption inquiry, if requested,

for any antidumping administrative review initiated in 1996 or

1998. Commerce concluded that (1) because the antidumping duty

orders on the AFBs in this case have been in effect since 1989,

the orders are transition orders pursuant to § 1675(c)(6)(C),

and (2) since this review was initiated in 1998 and a request

was made, it had the authority to make a duty absorption inquiry

for the ninth POR. See id.

B. Contentions of the Parties

SKF contends that Commerce lacked authority under §

1675(a)(4) to conduct a duty absorption inquiry for the ninth

POR of the outstanding 1989 antidumping duty orders. See SKF’s

Br. Supp. Mot. J. Agency R. at 2, 16-23 (“SKF’s Br.”); SKF’s
Court No. 99-08-00475 Page 7

Reply Br. at 2-30. In the alternative, SKF asserts that even if

Commerce possessed the authority to conduct such an inquiry,

Commerce’s methodology for determining duty absorption was

contrary to law and, accordingly, the case should be remanded to

Commerce to reconsider its methodology. See SKF’s Br. at 3, 23-

44; SKF’s Reply Br. at 30-42.

Commerce argues that it: (1) properly construed subsections

(a)(4) and (c) of § 1675 as authorizing it to make a duty

absorption inquiry for antidumping duty orders that were issued

and published prior to January 1, 1995; and (2) devised and

applied a reasonable methodology for determining duty

absorption. See Def.’s Mem. in Opp’n to Pls.’ Mot. J. Agency R.

at 2, 5-28 (“Def’s Br.”). Also, Commerce asserts that no

statutory provision or legislative history specifically provides

that Commerce is “precluded” from conducting a duty absorption

inquiry with respect to merchandise covered by a transition

order. See id. at 2, 16.

The Torrington Company (“Torrington”) generally agrees with

Commerce’s contentions. See Torrington’s Resp. to Pls.’ Mot. J.

Agency R. at 2-4, 8-43 (“Torrington’s Resp.”). In addition,

Torrington asserts that Commerce has the “inherent” authority,
Court No. 99-08-00475 Page 8

aside from § 1675(a)(4), to conduct a duty absorption inquiry in

any administrative review. See id. at 3, 32-40.

C. Analysis

In SKF USA Inc. v. United States, 24 CIT __, 94 F. Supp. 2d

1351 (2000), this Court determined that Commerce lacked

statutory authority under § 1675(a)(4) to conduct a duty

absorption inquiry for antidumping duty orders issued prior to

the January 1, 1995 effective date of the URAA. See id. at __,

94 F. Supp. 2d at 1357-59. The Court noted that Congress

expressly prescribed in the URAA that § 1675(a)(4) “must be

applied prospectively on or after January 1, 1995 for 19 U.S.C.

§ 1675 reviews.” Id. at 1359 (citing URAA’s § 291).

Because Commerce’s duty absorption inquiry, its methodology

and the parties’ arguments at issue in this case are practically

identical to those presented in SKF USA, the Court adheres to

its reasoning in SKF USA. Moreover, contrary to Torrington’s

assertion, the Court finds that Commerce does not have the

“inherent” authority to conduct a duty absorption inquiry in any

administrative review. Rather, the statutory scheme, as noted,

clearly provides that the inquiry must occur in the second or

fourth administrative review after the publication of the
Court No. 99-08-00475 Page 9

antidumping duty order, not in any other review, and upon the

request of a domestic interested party. Accordingly, the Court

finds that Commerce did not have statutory or inherent authority

to undertake a duty absorption investigation for the outstanding

1989 antidumping duty orders in dispute here.

II. Profit Calculation for Constructed Value

A. Background

For this POR, Commerce used constructed value (“CV”) as the

basis for normal value (“NV”) “when there were no usable sales

of the foreign like product in the comparison market.”

Preliminary Results, 64 Fed. Reg. at 8795. Commerce calculated

the profit component of CV using the statutorily preferred

methodology of 19 U.S.C. § 1677b(e)(2)(A) (1994). See Final

Results, 64 Fed. Reg. at 35,611. 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).
Court No. 99-08-00475 Page 10

In applying the preferred methodology for calculating CV

profit, Commerce determined that “an aggregate calculation that

encompasses all foreign like products under consideration for

normal value represents a reasonable interpretation of [§

1677b(e)(2)(A)]” and “the use of [such] aggregate data results

in a reasonable and practical measure of profit that [Commerce]

can apply consistently where there are sales of the foreign like

product in the ordinary course of trade.” Id. 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 19 U.S.C. § 1677b(b)(1)

(1994). See id. at 35,612.

B. Contentions of the Parties

SKF contends that Commerce’s use of aggregate data

encompassing all foreign like products under consideration for

NV in calculating CV profit is contrary to § 1677b(e)(2)(A).

See SKF’s Br. at 44-67. Instead, SKF claims that Commerce

should have relied on the alternative methodology of §

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
Court No. 99-08-00475 Page 11

is, below-cost sales are not excluded from the calculation. See

id. at 3, 44-63. 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

id. at 4, 63-67.

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 Br. at 2-3, 28-51. 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. Torrington

agrees with Commerce’s methodology for calculating CV profit.

See Torrington’s Resp. at 4-5, 44-50.

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
Court No. 99-08-00475 Page 12

antidumping statute. See id. at ___, 83 F. Supp. 2d at 1336.

Since Commerce’s CV profit methodology 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.

III. Valuation of Major Inputs from Affiliated Persons

A. Statutory Background

In general, the NV of the subject merchandise is, in

pertinent part, “the price at which the foreign like product is

first sold . . . for consumption in the exporting country.” 19

U.S.C. § 1677b(a)(1)(B)(i) (1994). However, whenever Commerce

has “reasonable grounds to believe or suspect” that sales of the
Court No. 99-08-00475 Page 13

foreign like product under consideration for the determination

of NV have been made at prices which represent less than the

cost of production (“COP”) of that product, Commerce shall

determine whether, in fact, such sales were made at less than

the COP. See § 1677b(b)(1). A “reasonable ground” exists if

Commerce disregarded below-cost sales of a particular exporter

or producer from the determination of NV in the most recently

completed administrative review. See § 1677b(b)(2)(A)(ii). If

Commerce determines that there are sales below the COP and

certain conditions are present under § 1677b(b)(1)(A)-(B), it

may disregard such below-cost sales in the determination of NV.

See id.

Additionally, the special rules for the calculation of COP

or CV contained in 19 U.S.C. § 1677b(f)(2)-(3) (1994), provide

that, in a transaction between affiliated persons as defined in

19 U.S.C. § 1677(33) (1994), Commerce may disregard either the

transaction or the value of a major input.

Section 1677b(f)(2) provides that Commerce may disregard an

affiliated-party transaction when “the amount representing [the

transaction or transfer price] does not fairly reflect the

amount usually reflected in sales of merchandise under
Court No. 99-08-00475 Page 14

consideration in the market under consideration [that is, an

arms-length or market price].” If such “a transaction is

disregarded . . . and no other transactions are available for

consideration,” Commerce shall value the cost of an affiliated-

party input “based on the information available as to what the

amount would have been if the transaction had occurred between

persons who are not affiliated [that is, based on an arms-length

or market value].” 19 U.S.C. § 1677b(f)(2) (“fair-value”

provision).

Section 1677b(f)(3)’s “major input rule” directs that if (1)

a transaction between affiliated companies involves the

production by one of such companies of a “major input” to the

merchandise produced by the other, and (2) Commerce has

“reasonable grounds to believe or suspect” that the amount

reported as the value of such input is below the COP, then

Commerce may calculate the value of the major input on the basis

of the data available regarding such COP, if such COP exceeds

the market value of the input, as determined under §

1677b(f)(2). For purposes of § 1677b(f)(3), regulation 19

C.F.R. § 351.407(b) (1998) provides that Commerce will value a

major input supplied by an affiliated party based on the highest

of (1) the actual transfer price for the input, (2) the market
Court No. 99-08-00475 Page 15

value of the input, or (3) the COP of the input.

B. Factual Background

Because Commerce disregarded sales that failed the below-

cost sales test pursuant to § 1677b(b)(1) in the prior review

with respect to SKF’s AFBs from France, Commerce determined

pursuant to § 1677b(b)(2)(A)(ii) that it had “reasonable grounds

to believe or suspect” that sales of SKF’s foreign like product

under consideration for the determination of NV in this ninth

review might have been made at prices below the COP. See

Preliminary Results, 64 Fed. Reg. at 8794. Consequently,

pursuant to § 1677b(b)(1), Commerce initiated COP investigations

of SKF’s sales in the home market and, thereby, requested

information relating to the COP and CV. See id.

In its questionnaire for this POR, Commerce requested, inter

alia, that SKF provide certain data regarding the valuation of

major inputs received from affiliated suppliers and used to

produce the merchandise under review during the cost calculation

period. See SKF’s Br. App., Ex. 6, Commerce’s Request for

Information at D-3 and D-4. In particular, Commerce instructed
Court No. 99-08-00475 Page 16

SKF as follows:

List the major inputs received from affiliated parties
and used to produce the merchandise under review
during the cost calculation period. . . . For each
major input identified, provide the following
information:

a. the total volume and value of the input purchased
from all sources by your company during the cost
calculation period, and the total volume and
value purchased from each affiliated party during
the same period;

b. the per-unit transfer price charged for the input
by the affiliated party (if the affiliated party
sells the identical input to other, unaffiliated
purchasers, provide documentation showing the
price paid for the input by the unaffiliated
purchaser; if your company purchases the
identical input from unaffiliated suppliers,
provide documentation showing the unaffiliated
party’s sales price for the input); and

c. If you are responding to this section of the
questionnaire in connection with an investigation
of sales below cost, provide the per-unit cost of
production incurred by the affiliated party in
producing the major input.

. . . .

With respect to I.D., when valuing the cost of major
inputs purchased from affiliates, use the highest
of[:] a) the transfer price from the affiliate[;] b)
the affiliate’s cost of production of the input; or c)
the market price of the input (the weighted-average
price other unaffiliated suppliers charged for the
identical input). . . . In addition, in order to
facilitate verification, please report, for each model
which includes affiliated-party inputs, the
affiliate’s cost of production, transfer price, and
market price of all affiliated-party inputs used in
the manufacture of the product on your computer tape.
Court No. 99-08-00475 Page 17

Id. at D-3, D-4, V-12.

In its response to Commerce’s questionnaire, SKF reported

that it valued major inputs purchased from affiliated suppliers

based on the higher of the actual component (that is, input)

costs or transfer prices, but it did not take into consideration

the market prices for some components which it purchased from

both affiliated and unaffiliated suppliers. See SKF’s Br. App.,

Ex. 7, SKF’s Sect. D Response to Commerce’s Questionnaire at D-

14 (Aug. 28, 1998) (noting that “SKF sources requirements from

unaffiliated suppliers for only a small group of components [and

that] SKF rarely buys the same components from both affiliated

and unaffiliated suppliers”). With respect to market prices,

SKF explained that “whether [components are] sourced from within

the [SKF] Group or from an unaffiliated supplier, all SKF

components are custom-made items, each conforming to SKF’s

proprietary designs and specifications in order to insure

compatibility in assembly and quality.” Id. As a consequence

of its unique product specifications, SKF stated that “referent

market prices” do not exist for components purchased by SKF from

its affiliated companies. SKF thereby used the higher of cost

or transfer price in computing COP and CV. See id. at D-17.
Court No. 99-08-00475 Page 18

Given that SKF stated in its response that it purchased

major inputs from its affiliated suppliers as well as in rare

cases from unaffiliated suppliers, Commerce issued a

supplemental questionnaire on October 26, 1998 requesting that

SKF provide further information to better evaluate the market

values of SKF’s major inputs. See SKF’s Br. App., Ex. 8,

Commerce’s Supplemental Questionnaire at 9. Specifically,

Commerce asked SKF the following:

At Appendix D-4, you provide ratios of cost to
transfer prices for major inputs purchased by SKF
France from affiliated parties. However, in your
supplemental response, we request that you provide a
chart listing, for each major input, the per-unit
transfer price charged by the affiliated party and the
per-unit cost of production incurred by the affiliated
party. Furthermore, on page D-16, you state that
there were rare cases in which SKF France purchased
identical or similar products from an unaffiliated
supplier. For these inputs, include in your chart the
unaffiliated party’s sales price and provide
documentation to support these prices.

Id.

On November 16, 1998, SKF responded by submitting: (1) two

charts listing the total cost, total sales and the transfer

price index (that is, the ratio of total cost divided by total

sales) for each type of major input, but without any model or

part designations; and (2) a chart showing the average unit
Court No. 99-08-00475 Page 19

price for major input purchased from unaffiliated suppliers and

identified by model number. See SKF’s Br. App., Ex. 9, SKF’s

Response to Commerce’s Supplemental Questionnaire at D-13 and D-

14. With respect to the unaffiliated-party chart, SKF only

provided documentation for one particular model input. See id.

at D-14. SKF explained that it included documentation for only

one input because “[d]ocumentation for each of the listed

designations would be voluminous and require significant

expenditure of resources just prior to verification. . . .

Should [Commerce] request similar documentation for additional

designations at verification, SKF would gather and provide the

relevant information at that time.” Id. at 51.

Subsequently, on February 16, 1999, Commerce verified SKF’s

COP and transfer price responses regarding the inputs, but did

not verify the market value of the materials. See SKF’s Br.

App., Ex. 10, Commerce’s Verification Report at 11. A week

later, Commerce issued the Preliminary Results and stated that

it would use “partial facts available” under 19 U.S.C. § 1677e

(1994) “in cases in which [it was] unable to use some portion of

a response in calculating the dumping margin,” but made no

specific reference to SKF’s partial response regarding the

market value of its major inputs. 64 Fed. Reg. at 8793 (Feb.
Court No. 99-08-00475 Page 20

23, 1999).

For the Final Results, Commerce found that the market-price

data SKF provided for components purchased from unaffiliated

parties was not in a comparable form in which it reported the

COP and transfer price data, “that is, the COP and transfer

price values were reported as ratios (which represented the

difference between COP and transfer price for each component)

and the market values were not.” SKF’s Br. App., Ex. 11,

Commerce’s Final Analysis Mem. at 2 (June 16, 1999); see Final

Results, 64 Fed. Reg. at 35,600 (July 1, 1999). Consequently,

Commerce noted that it could not determine whether the market

price was higher than the reported COP or transfer price for

each major input. See id. Commerce stated that since SKF

failed “to provide the requested information in the form and

manner requested,” it used partial facts available under §

1677e(a)(2)(B) to fill in the gaps and ensure that the market

prices were taken into consideration. Id. In particular,

Commerce applied partial facts available (that is, market price

information SKF provided in response to Commerce’s

questionnaires) to make an adjustment to: (1) SKF’s reported

total cost of manufacturing for each transaction in the COP and

CV databases; and (2) the variable cost of manufacturing in the
Court No. 99-08-00475 Page 21

home market and United States sales databases. See id.; SKF’s

Br. App., Ex. 11, Commerce’s Final Analysis Mem. at 2.

C. Contentions of the Parties

SKF contends that Commerce erred in concluding in the Final

Results it was “required” to use market prices for valuing

certain inputs the French SKF companies purchased from

affiliated parties. See SKF’s Br. at 69 (citing 64 Fed. Reg. at

35,599). Quoting AK Steel Corp. v. United States, 203 F.3d

1330, 1343 (Fed. Cir. 2000) (holding that “the plain language of

the statute . . . provides that Commerce ‘may’ determine the

values in a manner other than the use of the transfer price”)

and regulation 19 C.F.R. § 351.407(b) (stating that “the

Secretary normally will determine the value of a major input

purchased from an affiliated person based on the higher of

[transfer price, market price or COP]”), SKF notes that the

fair-value and major-input provisions (that is, 19 U.S.C. §

1677b(f)(2)-(3)) are “permissive” and, therefore, do not

“mandate” that Commerce use the highest of transfer price,

market price or COP in valuing SKF’s reported affiliated-party

inputs. See id. at 67-69.

SKF also asserts that Commerce’s “reliance on non-
Court No. 99-08-00475 Page 22

affiliated-party prices was contrary to substantial record

evidence.” Id. at 4. SKF notes that because the overlap

between identical inputs which were purchased from affiliated

and unaffiliated suppliers was minimal, and since all of SKF’s

components are custom-made and conform to its proprietary

designs and specifications, “there is no readily observable

market for the unique inputs by [SKF].” Id. at 72. SKF argues

that since there were no valid referent market prices for the

major inputs at issue, its valuation of these inputs based on

the higher of COP or transfer price was in accordance with §

1677b(f)(2)-(3). See id. at 67.

Additionally, SKF contends that Commerce’s rejection of

SKF’s reporting of the higher of COP or transfer price of inputs

purchased from affiliated and unaffiliated suppliers, in the

absence of readily observable market prices, was contrary to

Commerce’s practice in prior AFB reviews. See id. at 67, 85.

SKF maintains that since Commerce failed to provide “a reasoned

explanation for [its] departure from prior practice,” Commerce’s

resort to partial facts available was unwarranted. Id. at 88.

SKF further argues that Commerce unlawfully used partial

facts available in its cost calculations for the French SKF
Court No. 99-08-00475 Page 23

Group companies because the statutory criteria Commerce relied

on for such use were not present. See id. at 5, 67, 74. In

particular, SKF notes that Commerce resorted to partial facts

available because SKF failed to provide requested information in

the form and manner requested as required by § 1677e(a)(2)(B),

that is, Commerce asserted in its final analysis memorandum that

SKF did not provide “‘the market price data in the form which we

requested (on a chart and in a comparable form as its transfer

price and COP data).’” Id. at 74 (quoting SKF’s Br. App., Ex.

11, Commerce’s Final Analysis Mem. at 2). SKF argues that,

contrary to Commerce’s assertion in the final analysis

memorandum, nothing in the supplemental questionnaire

specifically instructed or “identified that the reporting of

unaffiliated-party purchases was to be provided in a manner to

permit Commerce to draw a comparison with affiliated-party

purchases.” SKF’s Reply Br. at 66. SKF notes that “[t]he sole

format specified in the response was that the [unaffiliated-

party sales price] data be in chart form” and, in fact, SKF did

“provide such ‘prices’ in chart form.” Id. at 65. With respect

to Commerce’s request for per-unit transfer price and COP data,

SKF notes that in its supplemental response it explained that it

does not use such per-unit data from affiliated parties; rather,
Court No. 99-08-00475 Page 24

it reported that it applies a transfer price index in its cost

calculations, to ensure that the higher of cost or transfer

price is reflected in its actual cost of manufacturing figures

reported to Commerce. See id.; SKF’s Br. at 82-83, Br. App.,

Ex. 9 at 49. Also, SKF notes this reporting methodology of

transfer price indices had been utilized by SKF and accepted

and/or verified by Commerce in prior reviews. See SKF’s Reply

Br. at 65 n.53. SKF, therefore, maintains that it fully and

reasonably answered Commerce’s questions as asked and Commerce

thus erred in resorting to partial facts available. See id. at

64-69.

Furthermore, SKF contends that, contrary to the requirements

of 19 U.S.C. § 1677m(d) (1994), Commerce did not provide notice

to SKF that its market price data had deficiencies and, “to the

extent practicable,” allow SKF to remedy such deficiencies. Id.

at 79 (quoting § 1677m(d)). Given the seventh month period

between (1) SKF’s responses to Commerce’s supplemental

questionnaire (that is, November 16, 1998) and (2) Commerce’s

adverse findings in the Final Results regarding SKF’s major

inputs (that is, July 1, 1999), SKF argues that there was ample

time for Commerce to issue a second supplemental questionnaire,

inform SKF of its alleged deficiencies and give it an
Court No. 99-08-00475 Page 25

opportunity to remedy them. See id. at 79. SKF asserts that

since Commerce failed to direct another request for information,

the agency improperly resorted to facts otherwise available

under § 1677m(d). See id. Alternatively, SKF argues that even

if Commerce’s use of partial facts available was justified, it

erred in its methodology for determining market prices for

affiliated-party inputs. See SKF’s Br. at 88-89.

SKF, therefore, requests that the Court remand the matter

and instruct Commerce to recalculate costs for SKF based on data

submitted by SKF and without resort to partial facts available

or, alternatively, if Commerce’s use of partial facts available

is warranted, to correct the methodology it used for calculating

market prices for affiliated party-inputs. See id. at 94-95;

SKF’s Reply Br. at 82-83.

Commerce argues, inter alia, that it reasonably interpreted

§ 1677b(f)(2) and (f)(3) as requiring it to value a major input

purchased from an affiliated person at the highest of the COP,

transfer price or market price. See Def.’s Br. at 3, 51-61.

Consequently, Commerce asserts that it “properly requested SKF

to submit such information for its major inputs.” Id. at 62.

Commerce also maintains that even if the fair-value and
Court No. 99-08-00475 Page 26

major input provisions are permissive, it is within its

discretion to apply the provisions. See id. at 62. Commerce

contends “that since, by SKF’s own admission, some inputs were

manufactured by affiliated and unaffiliated suppliers, Commerce

properly exercised its discretion in applying the statutory

provisions in question.” Id. at 63. Commerce also notes that

the fact it may not have applied the provisions in prior AFB

reviews, does not make Commerce’s decision to apply them in this

review unreasonable. See id. at 62. Moreover, Commerce notes

that no change of practice from its prior reviews occurred

during this review because Commerce simply followed its

regulations. See id.

Commerce also argues that irrespective of SKF’s assertion

that there was no readily observable market for the unique

inputs purchased by SKF, § 1677b(f)(2) authorizes Commerce to

value a transaction between affiliated persons based on the

amount that unaffiliated persons charged. See id. at 63.

Commerce thereby maintains that “[t]he application of the

statute does not depend upon the existence of any ‘readily

observable market.’” Id.

Commerce further notes that, contrary to SKF’s assertion,
Court No. 99-08-00475 Page 27

its request for information in the supplemental questionnaire

contemplated that SKF would provide the market-price data

relating to major inputs it purchased from unaffiliated

suppliers on a chart and in a form readily comparable to SKF’s

COP and transfer price data. See id. at 64-66. Commerce,

therefore, argues that since SKF failed to submit such

information in the form requested in the supplemental

questionnaire, Commerce properly resorted to facts otherwise

available under §§ 1677e(a) and 1677m(d) in valuing SKF’s major

inputs. See id. at 65-67. Moreover, Commerce maintains that

its methodology for calculating the value of these inputs was

reasonable. See id. at 67-69.

Torrington agrees with Commerce, noting that Commerce’s

instructions set forth in the supplemental questionnaire are

entirely consistent with its finding in the Final Results that

SKF did not provide the market-price data of the major inputs in

the form in which Commerce requested. See Torrington’s Resp. at

58. Torrington also notes that the questionnaire did not

instruct or allow SKF to provide comparison data as a percentage

ratio of COP only and, thus, there is no merit to SKF’s

contention that Commerce’s questionnaire did not request SKF’s

cost data in the form in which Commerce now claims it was
Court No. 99-08-00475 Page 28

requested. See id. at 57-58. Moreover, contrary to SKF’s

assertion that the market-price data provided was in a usable

form, Torrington asserts the data clearly did not permit

Commerce to make an appropriate comparison to the relevant COP

and transfer price of each major input. See id.

Torrington also asserts that Commerce’s use of facts

available was not inconsistent with § 1677m(d) because Commerce

provided notice to SKF in the supplemental questionnaire that

its initial response to Commerce’s questionnaire was deficient

and requested specific additional information. See id. at 59.

Torrington asserts that § 1677m(d) “does not impose on Commerce

a further requirement to provide additional notice, i.e., a

second supplemental questionnaire, as SKF contends.” Id.

Moreover, Torrington argues that SKF’s reliance on

Commerce’s acceptance of SKF’s reporting methodology for major

inputs in prior reviews is misplaced because “each . . .

administrative review is an independent and distinct

proceeding.” Id. Torrington maintains that the fact that the

same aspects of SKF’s reporting methodology of major inputs were

not pursued in other AFB reviews cannot excuse SKF from

responding to Commerce’s inquiries in this review. See id. at
Court No. 99-08-00475 Page 29

60. Similarly, Torrington contends that Commerce’s methodology

for valuing the major inputs “was reasonable in light of SKF’s

extensive reporting failures.” Id.

D. Analysis

The Court disagrees with SKF that Commerce erred in valuing

each major input based on the highest of the input’s transfer

price, market price or COP. In Mannesmannrohren-Werke AG v.

United States, 23 CIT __, __, 77 F. Supp. 2d 1302, 1310-12

(1999), the Court clearly articulated that the plain language of

§ 1677b(f)(2) and (f)(3), as well as the legislative history of

§ 1677b(f)(3), supports Commerce’s use of the highest of

transfer price, market price or COP in valuing a major input

supplied by an affiliated party.

Further, although the Court agrees with SKF that use of the

word “may” in the fair-value and major-input provisions

indicates that the provisions and regulation 19 C.F.R. §

351.407(b) are “permissive” and, thus, do not mandate the use of

highest of transfer price, market price or COP in valuing

affiliated-party inputs, see § 1677b(f)(2)-(3) (both provisions

using word “may” instead of “shall”), the Court notes that

“[t]he word ‘may,’ when used in a statute, usually implies some
Court No. 99-08-00475 Page 30

degree of discretion.” United States v. Rodgers, 461 U.S. 677,

706 (1983) (footnote omitted). Certainly, “[t]his common-sense

principle of statutory construction . . . can be defeated by

indications of legislative intent to the contrary or by obvious

inferences from the structure and purpose of the statute.” Id.

(citations omitted). Here, the Court finds no such contrary

indications or inferences with respect to § 1677b(f)(2)-(3) and,

therefore, concludes that Commerce properly determined that it

had discretionary authority to use the highest of transfer

price, market price or COP in valuing SKF’s reported major

inputs. Indeed, in AK Steel, the appellate court opined that

the antidumping “statute leaves possible application of the

fair-value and major-input provisions to the discretion [of] the

agency.” Moreover, the fact that Commerce may not have applied

the provisions in prior AFB reviews, does not make Commerce’s

exercise of discretion to apply them in this review

unreasonable. 203 F.3d at 1343.

Also, the Court finds that Commerce properly resorted to

“facts otherwise available” in valuing SKF’s major inputs. The

antidumping statute mandates, inter alia, that Commerce use

“facts otherwise available” if an interested party fails to

provide the requested information in the form and manner
Court No. 99-08-00475 Page 31

requested, subject to 19 U.S.C. § 1677m(c)(1), (d), (e). See 19

U.S.C. § 1677e(a)(2). Here, upon review of the record, the

Court finds that Commerce did in fact request that SKF provide

market price information on major inputs it purchased from

unaffiliated suppliers on a chart and in a form comparable to

its COP and transfer price data. As noted earlier, Commerce’s

initial questionnaire specifically requested that SKF provide

(1) the per-unit transfer price, market price and COP data for

each major input identified and (2) the use of the highest of

the transfer price, COP or market price when valuing the cost of

major inputs purchased from affiliates. See SKF’s Br. App., Ex.

6, Commerce’s Request for Information at D-3, D-4, V-12.

Commerce’s supplemental questionnaire also requested, as noted

earlier, that SKF provide a chart listing, for each major input,

(1) the per-unit COP incurred by the affiliated party, (2) the

per-unit transfer price charged by the affiliated party, and (3)

for rare cases in which SKF purchase identical or similar

products form an unaffiliated supplier, the unaffiliated

party’s sales price. See SKF’s Br. App., Ex. 8, Commerce’s

Supplemental Questionnaire at 9. Although Commerce’s framing of

its questions regarding major inputs in the supplemental

questionnaire are less than a model of clarity, Commerce’s
Court No. 99-08-00475 Page 32

questions in both questionnaires when read together indicate

that Commerce was asking SKF to provide market-price information

for major inputs purchased from its unaffiliated suppliers on a

chart in a comparable form in which it reported the COP and

transfer price information. The Court, therefore, finds that

Commerce correctly determined under § 1677e(a)(2)(B) that SKF

failed to provide the requested information in the form and

manner requested.

To the extent that SKF argues that Commerce had an

obligation under § 1677m(d) to provide a second supplemental

questionnaire to inform SKF of its deficient response and give

it an opportunity to remedy it, SKF’s argument must also fail.

Section 1677m(d) provides that if Commerce finds that a response

to a request for information does not comply with the request,

Commerce shall promptly inform the person submitting the

response of the deficiency and permit that person an opportunity

to remedy or explain the deficiency. If the remedial response

or explanation provided by the party is found to be

unsatisfactory or untimely, Commerce may, subject to § 1677m(e),

disregard “all or part of the original and subsequent responses”

in favor of facts otherwise available. Id. § 1677m(d). In this

case, Commerce provided SKF with notice and an opportunity in
Court No. 99-08-00475 Page 33

the supplemental questionnaire to clarify its market-price

information relating to its major inputs purchased from its

unaffiliated suppliers. Thus, to the extent that Commerce was

statutorily obligated to provide SKF an opportunity to remedy or

explain the alleged deficiencies, the Court finds that Commerce

fulfilled its obligation under § 1677m(d) as well as § 1677m(e).

In other words, as Torrington correctly asserts, § 1677m(d) does

not impose on Commerce a requirement that it must provide an

additional notice and opportunity to remedy a deficiency, that

is, issue a second supplemental questionnaire.

The Court has considered SKF’s other contentions and finds

them to be entirely without merit. Also, the Court finds that

Commerce’s methodology for valuing the major inputs was

reasonable in light of SKF’s shortcomings in its responses to

Commerce’s requests for information. Accordingly, the Court

finds that Commerce properly resorted to partial facts available

in calculating the value of SKF’s major inputs.
Court No. 99-08-00475 Page 34

CONCLUSION

For the foregoing reasons, the case is remanded to Commerce

to annul all findings and conclusions made pursuant to the duty

absorption inquiries conducted for the subject reviews.

Commerce’s final determination is affirmed in all other

respects.

____________________________
NICHOLAS TSOUCALAS
SENIOR JUDGE

Dated: August 23, 2000
New York, New York