Skf USA Inc. v. United States

Slip Op. 99-127

UNITED STATES COURT OF INTERNATIONAL TRADE

BEFORE: SENIOR JUDGE NICHOLAS TSOUCALAS
________________________________________
:
SKF USA INC. and SKF GmbH; FAG :
KUGELFISCHER GEORG SCHAFER AG :
and FAG BEARINGS CORPORATION, :
:
Plaintiffs and Defendant- :
Intervenors, :
: Consol. Court No.
v. : 97-01-00054-S
:
UNITED STATES, :
:
Defendant, :
:
and :
:
THE TORRINGTON COMPANY, :
:
Defendant-Intervenor and :
Plaintiff, :
:
and :
:
NTN BEARING CORPORATION OF AMERICA and :
NTN KUGELLAGERFABRIK (DEUTSCHLAND) :
GmbH; SNR ROULEMENTS, :
:
Defendant-Intervenors. :
________________________________________:

Plaintiffs and defendant-intervenors, SKF USA Inc. and SKF
GmbH (collectively “SKF”) and FAG Kugelfischer Georg Schafer AG and
FAG Bearings Corporation (collectively “FAG”), move pursuant to
Rule 56.2 of the Rules of this Court for judgment on the agency
record challenging the 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,
Sweden, and the United Kingdom; Final Results of Antidumping Duty
Administrative Reviews and Partial Termination of Administrative
Reviews (“Final Results”), 61 Fed. Reg. 66,472 (Dec. 17, 1996), as
amended, Antifriction Bearings (Other Than Tapered Roller Bearings)
and Parts Thereof From Germany, Italy, Japan, and the United
Consol. Court No. 97-01-00054-S Page 2

Kingdom: Amended Final Results of Antidumping Duty Administrative
Reviews, 62 Fed. Reg. 3,003 (Jan. 21, 1997). Defendant-intervenor
and plaintiff, The Torrington Company (“Torrington”) also moves
pursuant to Rule 56.2 of the Rules of this Court for judgment on
the agency record challenging Commerce’s Final Results.

SKF claims that Commerce erred in: (1) disregarding SKF’s
negative home market billing adjustment number two values in
calculating foreign market value (“FMV”); and (2) including SKF’s
zero-value United States transactions in its margin calculations.

FAG claims that Commerce erred in: (1) disregarding
transactions that had not failed its profit comparison test when
calculating constructed value (“CV”) for cylindrical roller
bearings; (2) including general and administrative (“G&A”) expenses
unrelated to FAG’s further manufacturing activities in its
calculation of increased value for further manufacturing; and (3)
including losses related to the sale of FAG’s Korean joint venture
facility in its calculation of FAG’s G&A ratio.

Torrington claims that Commerce erred in: (1) accepting FAG’s
reported research and development costs because they were not
reported on a product-specific or product-line basis; and (2)
treating SKF’s home market billing adjustment number two values as
indirect selling expenses in calculating FMV.

Held: SKF’s motion is granted in part and denied in part.
FAG’s motion is denied. Torrington’s motion is denied. The case
is remanded to Commerce to: (1) exclude any transactions that were
not supported by consideration from SKF’s United States sales
database and to adjust the dumping margins accordingly; (2) apply
the profit-variance test to each customer who failed the arm’s-
length test before calculating the profit element of CV for FAG;
and (3) remove rebates paid on sales of out-of-scope merchandise
from any adjustments made to SKF’s FMV or, if no viable method can
be developed, to deny such an adjustment in the calculation of FMV.

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

Dated: December 2, 1999

Steptoe & Johnson LLP (Herbert C. Shelley and Alice A. Kipel)
for plaintiffs and defendant-intervenors, SKF USA Inc. and SKF
GmbH.

Grunfeld, Desiderio, Lebowitz & Silverman LLP (Max F.
Consol. Court No. 97-01-00054-S Page 3

Schutzman, Andrew B. Schroth and Mark E. Pardo) for plaintiffs and
defendant-intervenors, FAG Kugelfischer Georg Schafer AG and FAG
Bearings Corporation.

David W. Ogden, Acting 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, Stacy J.
Ettinger, David R. Mason and Dean A. Pinkert, Attorney-Advisors,
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 and
plaintiff, The Torrington Company.

Barnes, Richardson & Colburn (Donald J. Unger and Kazumune V.
Kano) for defendant-intervenors, NTN Bearing Corporation of America
and NTN Kugellagerfabrik (Deutschland) GmbH.

Grunfeld, Desiderio, Lebowitz & Silverman (Bruce M. Mitchell
and Philip S. Gallas) for defendant-intervenor, SNR Roulements.

OPINION

TSOUCALAS, Senior Judge: Plaintiffs and defendant-

intervenors, SKF USA Inc. and SKF GmbH (collectively “SKF”) and FAG

Kugelfischer Georg Schafer AG and FAG Bearings Corporation

(collectively “FAG”), move pursuant to Rule 56.2 of the Rules of

this Court for judgment on the agency record challenging the

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, Sweden, and the United Kingdom;

Final Results of Antidumping Duty Administrative Reviews and

Partial Termination of Administrative Reviews (“Final Results”), 61
Consol. Court No. 97-01-00054-S Page 4

Fed. Reg. 66,472 (Dec. 17, 1996), as amended, Antifriction Bearings

(Other Than Tapered Roller Bearings) and Parts Thereof From

Germany, Italy, Japan, and the United Kingdom: Amended Final

Results of Antidumping Duty Administrative Reviews, 62 Fed. Reg.

3,003 (Jan. 21, 1997). Defendant-intervenor and plaintiff, The

Torrington Company (“Torrington”) also moves pursuant to Rule 56.2

of the Rules of this Court for judgment on the agency record

challenging Commerce’s Final Results.

SKF claims that Commerce erred in: (1) disregarding SKF’s

negative home market billing adjustment number two values in

calculating foreign market value (“FMV”); and (2) including SKF’s

zero-value United States transactions in its margin calculations.

FAG claims that Commerce erred in: (1) disregarding

transactions that had not failed its profit comparison test when

calculating constructed value (“CV”) for cylindrical roller

bearings (“CRBs”); (2) including general and administrative (“G&A”)

expenses unrelated to FAG’s further manufacturing activities in its

calculation of increased value for further manufacturing; and (3)

including losses related to the sale of FAG’s Korean joint venture

facility in its calculation of FAG’s G&A ratio.

Torrington claims that Commerce erred in: (1) accepting FAG’s

reported research and development (“R&D”) costs because they were
Consol. Court No. 97-01-00054-S Page 5

not reported on a product-specific or product-line basis; and (2)

treating SKF’s home market billing adjustment number two values as

indirect selling expenses (“ISE”) in calculating FMV.

NTN Bearing Corporation of America and NTN Kugellagerfabrik

(Deutschland) GmbH did not file a response brief to Torrington’s

Rule 56.2 motion for judgment on the agency record. SNR Roulements

did not file any papers.

BACKGROUND

This case concerns the fifth administrative review of the

antidumping duty order on antifriction bearings (other than tapered

roller bearings) and parts thereof (“AFBs”)imported to the United

States during the review period of May 1, 1993 through April 30,

1994.1 Commerce published the preliminary results of the subject

review on December 7, 1995. See Antifriction Bearings (Other Than

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

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

Preliminary Results of Antidumping Duty Administrative Reviews,

Partial Termination of Administrative Reviews, and Notice of Intent

1
Since the administrative reviews at issue were initiated
before January 1, 1995, here, June 22, 1994 and July 15, 1994, the
applicable law is the antidumping statute as it existed prior to
the amendments made by the Uruguay Round Agreements Act, Pub. L.
No. 103-465, 108 Stat. 4809 (1994). See Torrington Co. v. United
States, 68 F.3d 1347, 1352 (Fed. Cir. 1995).
Consol. Court No. 97-01-00054-S Page 6

to Revoke Order (“Preliminary Results”), 60 Fed. Reg. 62,817.

Commerce published the Final Results on December 17, 1996. See 61

Fed. Reg. at 66,472.

STANDARD OF REVIEW

The Court will uphold Commerce's final determination in an

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) (1994).

DISCUSSION

I. Jurisdiction

The Court has jurisdiction over this matter pursuant to 19

U.S.C. § 1516a(a)(2) and 28 U.S.C. § 1581(c) (1994).

II. SKF’s Claims

A. SKF’s Home Market Billing Adjustment Number Two Values

Title 19, United States Code, §§ 1677a and 1677b require

Commerce to determine the price actually charged to a customer both

in the home market, that is, FMV, and in the United States for the

merchandise at issue. See 19 U.S.C. §§ 1677a, 1677b (1988). The

actual price charged to a customer necessarily includes adjustments

for discounts or rebates paid by the company to the customer. SKF

reported billing adjustment two in the German home market which was
Consol. Court No. 97-01-00054-S Page 7

used for debits and credits related to multiple invoices, invoice

lines or products. Credits to customers were reported as negative

values and decreased FMV. Debits to customers were reported as

positive values and increased FMV.

In the Final Results, Commerce differentiated between SKF’s

positive and negative billing adjustment values by making upward

adjustments to the home market price for customer numbers that were

positive and disregarding the reported values for negative numbers.

See 61 Fed. Reg. at 66,498.

SFK complains that Commerce’s treatment of billing adjustment

two had two adverse effects. First, SKF contends that Commerce’s

disparate treatment of negative and positive values distorted the

calculation of FMV so that it does not fairly represent the price

actually paid by German customers. See SKF’s Br. Supp. Mot. J.

Agency R. at 8. Specifically, SKF argues that by rejecting the

negative values, Commerce did not properly take into account the

credits granted to customers and, therefore, did not decrease FMV

to the extent it should have. See id. at 8-9. SKF claims that the

price distortion results in a skewed comparison between home and

United States prices. See id. at 17.

Second, SKF asserts that Commerce included all positive values

as direct adjustments in the margin calculations without
Consol. Court No. 97-01-00054-S Page 8

determining whether they include out-of-scope merchandise. See id.

at 30. SKF contends that Commerce had deviated from its principle

of rejecting values derived from allocations by accepting the

positive values. See SKF’s Br. Supp. Mot. J. Agency R. at 14. SKF

contends that denying both the positive and negative billing

adjustments would have been “more consistent with the Department’s

general position that billing adjustments derived from allocations

should not be allowed.” Id. at 20.

Commerce’s position in the Final Results, however, is that by

retaining positive price adjustments and rejecting negative ones,

it provides to respondents a disincentive “to report positive

billing adjustments on an allocated (e.g., customer-specific) basis

in order to minimize their effect on the margin calculations.” 61

Fed. Reg. at 66,498.

In response to Commerce’s incentive rationale, SKF asserts

that because it “does not know in advance for which customer

numbers it will report increases [or decreases] to FMV, . . . SKF

could not manipulate individual values in order to achieve a

beneficial result.” SKF’s Br. Supp. Mot. J. Agency R. at 18-19.

Furthermore, SKF claims that the billing adjustment “is granted in

a manner such that transaction-specific reporting is not feasible.”

Id. at 5. The method used by SKF consists of totaling the credits

and debits issued to a customer, dividing that total by the total
Consol. Court No. 97-01-00054-S Page 9

sales to the customer number and applying the resulting factor to

each reported sale to that customer number. See id.

SKF stipulates that it made no attempt to exclude out-of-scope

merchandise from the positive or negative values because such

action was not feasible. See id. at 31 n.25. Consequently, SKF

demands that if Commerce determines that billing adjustment two

contains out-of-scope merchandise, it must reject all values,

whether positive or negative. See SKF’s Br. Supp. Mot. J. Agency

R. at 30-31. Alternatively, SKF asks the Court to require Commerce

to accept both positive and negative values as direct adjustments

to FMV. See id. at 31.

Commerce argues that because SKF did not tie the adjustments

to specific transactions nor grant them as a fixed percentage

across sales, the negative adjustments were properly denied. See

Def.’s Partial Opp’n to Pls.’ Mots. J. Agency R. at 2-3. Commerce

also argues that the acceptance of the positive values was proper

because they increased FMV “to SKF’s detriment consistent with the

principle that a party should not benefit from its non-compliance

with Commerce’s request for information.” Id. at 3.

In essence, SKF’s main argument is that, because Commerce

chose to accept SKF’s positive adjustments, it must accordingly

accept the negative adjustments. In the alternative, SKF argues
Consol. Court No. 97-01-00054-S Page 10

that Commerce should have rejected the positive adjustments since

it rejected the negative adjustments. The Court finds that these

propositions, however, are not reflected in the law. There is no

requirement that Commerce treat modifications that increase

respondent’s dumping margin and adjustments that decrease the

margin in the same manner. Rather, the law supports the opposite

conclusion. See SSAB Svenskt Stal AB v. United States, 21 CIT __,

__, 976 F. Supp. 1027, 1032 (1997) (upholding Commerce’s selection

of highest packing costs reported by respondent for United States

sales with no accompanying deduction of packing expenses for FMV);

see also INA Walzlager Schaeffler KG v. United States, 21 CIT __,

__, 957 F. Supp. 251, 265-68 (1997) (remanding to Commerce to deny

negative billing adjustments with no corresponding instructions

regarding positive adjustments), opinion after remand, Slip Op. No.

97-141, 1997 WL 614300 (CIT Sept. 29, 1997), aff’d sub nom, SKF USA

Inc. v. INA Walzlager Schaeffler KG, 180 F.3d 1370 (Fed. Cir.

1999). This is particularly true when Commerce is given data that

is not responsive to its request for information, or when the

respondent submits information in an improper form.

In INA, for example, Commerce treated certain home market

expenses, including negative billing adjustments reported by a

respondent on a customer-specific basis, as indirect billing

expenses. Commerce treated positive billing adjustments as direct
Consol. Court No. 97-01-00054-S Page 11

expenses to be deducted from FMV. See id. at 265. This Court held

that negative home market adjustments could not be treated as

indirect expenses because, by their very nature, the adjustments

constituted direct expenses. See id. at 267. The Court,

therefore, remanded to Commerce to deny any adjustment to FMV for

the respondent’s negative billing adjustment because the adjustment

was improperly recorded. See id. at 268.

INA held that both positive and negative adjustments have the

same nature, that is, both types are direct adjustments to FMV and

must be reported in a particular manner. Id. at 267. Although INA

did not expressly address the issue of disparate treatment of

positive and negative billing adjustments, the Court’s order in INA

remanding to Commerce to deny adjustments to FMV for respondent’s

negative billing adjustments only clearly indicates the Court’s

position that the law does not require either a blanket denial or

a uniform acceptance of positive and negative billing adjustments

to FMV.

Having decided that positive and negative adjustments need not

be treated in the same manner, the Court addresses Commerce’s

denial of the negative billing adjustments first. The Court

recognizes that it is well-established that Commerce’s decision to

deny a direct adjustment to FMV is reasonable and proper if the

adjustment sought is not reported on either a transaction-specific
Consol. Court No. 97-01-00054-S Page 12

basis or as a fixed and constant percentage of the sales price of

all transactions for which it was reported. See SKF USA Inc. v.

United States, 19 CIT 625, 633, 888 F. Supp. 152, 159 (1995); SKF

USA Inc. v. United States, 19 CIT 79, 86, 875 F. Supp. 847, 853

(1995); SKF USA Inc. v. United States, 19 CIT 54, 65, 874 F. Supp.

1395, 1405 (1995). “The party seeking a direct price adjustment

bears the burden of proving entitlement to such an adjustment.”

SKF USA Inc. v. United States, 180 F.3d 1370, 1377 (1999) (citing

Fujitsu General Ltd. v. United States, 88 F.3d 1034, 1040 (Fed.

Cir. 1996)).

Because SKF’s improper reporting made it impossible for

Commerce to determine if the claimed adjustment pertained to the

subject merchandise, Commerce determined that SKF had not met its

burden. The Court finds, therefore, that Commerce properly

declined to make the negative adjustments because of SKF’s failure

to tie the expenses to specific transactions or products. See

Torrington Co. v. United States, 82 F.3d 1039, 1050-51 (Fed. Cir.

1996) (“Torrington I”).

The Court, however, finds that Commerce properly accepted the

positive billing adjustment. SKF itself indicated that there were

positive billing adjustments which increased the dumping margins.

Commerce exercised its discretion to grant the adjustment as

reported. Prohibiting Commerce from granting the positive
Consol. Court No. 97-01-00054-S Page 13

adjustment in this case, especially when the adjustment was

reported by respondent, would limit Commerce’s ability to obtain

the information it requires in the appropriate form. As Commerce

stated in the Final Results, if Commerce disregarded positive

billing adjustments, “respondents would have no incentive to report

these adjustments on a transaction-specific basis, as requested.”

61 Fed. Reg. at 66,498.

The Court, therefore, finds Commerce’s application of the

billing adjustments to be a proper exercise of its authority to

grant or deny adjustments. Because Commerce’s decision to grant

the positive adjustment and to deny the negative adjustment was in

accordance with law, Commerce’s determination is affirmed.

B. SKF’s Zero-Value United States Transactions

SKF argues 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 SKF’s zero-value transactions from the

margin calculations. See SKF’s Br. Supp. Mot. J. Agency R. at 32.

SKF’s rationale is 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. at 32-33. The identical issue was decided by this

Court in SKF USA Inc. v. United States, 23 CIT __, Slip Op. 99-56,
Consol. Court No. 97-01-00054-S Page 14

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 or if they were matched to sales above

fair value in an effort to allow the customer to purchase

merchandise below fair value. See Torrington’s Opp’n to SKF and

FAG’s Mots. J. Agency R. at 12-13. 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 Commerce

to exclude the sample transactions for which SKF received no

consideration from SKF’s United States sales database. See Def.’s

Partial Opp’n to Pls.’ Mots. J. Agency R. at 28.

Commerce is required to impose antidumping duties upon

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) (1988).

A zero-priced transaction does not qualify as a “sale” and,

therefore, by definition cannot be included in Commerce’s FMV

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
Consol. Court No. 97-01-00054-S Page 15

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.

III. FAG’s Claims

A. The CV Profit Calculation

In making its CV calculation, Commerce is required to include

an amount for profit. See 19 U.S.C. § 1677b(e)(1)(B). The amount

for profit must be “equal to that usually reflected in sales of

merchandise of the same general class or kind as the merchandise

under consideration which are made by producers in the country of

exportation, in the usual commercial quantities and in the ordinary

course of trade.” Id.

Congress has also provided that certain transactions may be

disregarded in the calculation of CV. See 19 U.S.C. § 1677b(e)(2).

Specifically, the statute provides:

a transaction directly or indirectly between [related
parties] may be disregarded if, in the case of any
element of value required to be considered, the amount
representing that element does not fairly reflect the
amount usually reflected in sales in the market under
consideration of merchandise under consideration. If a
transaction is disregarded under the preceding sentence
and there are no other transactions available for
consideration, then the determination of the amount
required to be considered shall be based on the best
Consol. Court No. 97-01-00054-S Page 16

evidence available as to what the amount would have been
if the transaction had occurred between [unrelated
parties].

Id.

Commerce conducts the arm’s-length test on a class-or-kind

basis and compares sales prices to related parties with sales

prices to unrelated parties in the same market. See Final Results,

61 Fed. Reg. at 66,493. Commerce does not automatically reject

related-party sales that fail the arm’s-length test. See id. Such

sales, however, may be disregarded if the amount of an element of

value that must be considered “ ‘does not fairly reflect the amount

usually reflected in sales in the market under consideration.’ ”

Id. (quoting 19 U.S.C. § 1677b(e)(2)). Commerce employed the

following method to examine that possibility:

[W]e compared profit on sales to related parties that
failed the arm’s-length test to profit on sales to
unrelated parties. If the profit on sales to related
parties varied significantly from the profit on sales to
unrelated parties, we disregarded related-party sales for
the purposes of calculating profit for CV. We first
calculated profit on sales to unrelated parties on a
class-or-kind basis. If the profit on these sales was
less than the statutory minimum[,] . . . we used the . .
. minimum in the calculation of CV. If the profit on
these sales was equal to or greater than the . . .
minimum, we calculated profit on the sales to related
parties that failed the arm’s-length test and compared it
to the profit on sales to unrelated parties as described
above. If the profits on such sales to related parties
varied significantly from the profits on sales to
unrelated parties, we excluded those related-party sales
for the purpose of calculating profit on CV.

Final Results, 61 Fed. Reg. at 66,493.
Consol. Court No. 97-01-00054-S Page 17

FAG argues that 19 U.S.C. § 1677b(e)(2) requires “Commerce to

review sales for use in constructed value calculations on a

transaction-by-transaction basis, and Commerce is only authorized

to disregard those particular transactions that do not fairly

reflect the usual profit amount or other value element under

consideration.” FAG’s Br. Supp. Mot. J. Agency R. at 7-8. FAG

complains that instead of merely disregarding transactions that

failed the arm’s-length test, Commerce discarded FAG’s entire class

or kind profit calculation and recalculated CV profit for CRB

sales. See id. at 5. FAG claims that Commerce had the ability to

isolate transactions that did not reflect normal profit levels and

should have exercised that ability to disregard only those

transactions and use the remaining sales instead of recalculating

profit. See id. at 9-10. FAG argues that Commerce’s resort to

best evidence available was unlawful. See id. at 9.

Torrington maintains that Commerce was correct in resorting to

FAG’s home-market sample to calculate a profit for use in the CV

calculations. See Torrington’s Opp’n to SKF and FAG’s Mots. J.

Agency R. at 16. Torrington contends that Commerce properly

refused to use FAG’s class or kind data because it possibly

contained transactions that failed the arm’s-length test. See id.

Torrington maintains that Commerce had reasonable grounds “to base

its CV profit calculation on FAG’s home-market sales database minus
Consol. Court No. 97-01-00054-S Page 18

sales failing the arm’s-length test.” Id. at 17.

In its brief, Commerce supports its method of calculating

profit, but requests a remand for another reason. See Def.’s

Partial Opp’n to Pls.’ Mots. J. Agency R. at 31-32. Specifically,

Commerce contends that:

[t]he fact that Commerce performed the arm’s-length test
on a customer-specific basis during the fifth review . .
. necessitates a remand so that the basis of the profit-
variance test can be consistent with the basis of the
arm’s-length test. Commerce’s profit-variance test in
this review grouped together all of the customers which
failed the arm’s-length test rather than applying the
profit-variance test to each individual customer which
failed the arm’s-length test. If Commerce were permitted
to do the latter upon remand, then, where the sales to a
related customer “fail” the arm’s-length test, the profit
on all of the sales to that related customer will be
compared to the profit on unrelated party sales.

Id. at 31.

The issue confronting the Court is whether Commerce may

properly disregard FAG’s class or kind data and recalculate profit

on the basis of arm’s-length sales to related parties and sales to

unrelated parties. There is nothing in the statute that prevents

Commerce from relying on arm’s-length sales to related parties and

sales to unrelated parties when Commerce finds that reported

transactions do not fairly reflect the value of the transactions

being considered. See 19 U.S.C. § 1677b(e)(2). Additionally,

there is nothing in the legislative history of § 1677b(e)(2) which

prohibits Commerce from resorting to such sales as the best
Consol. Court No. 97-01-00054-S Page 19

evidence available. Because Congress is silent on the particular

issue facing the Court, the Court’s next task is to examine

Commerce’s actions to determine whether they reflect a reasonable

interpretation of § 1677b(e)(2). See Koyo Seiko Co. v. United

States, 36 F.3d 1565, 1573 (Fed. Cir. 1994) (citing Chevron U.S.A.

Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837

(1984)).

This Court’s decision in INA Walzlager Schaeffler KG v. United

States, 21 CIT __, 957 F. Supp. 251 (1997), opinion after remand,

Slip Op. No. 97-141, 1997 WL 614300 (CIT Sept. 29, 1997), aff’d sub

nom, SKF USA Inc. v. INA Walzlager Schaeffler KG, 180 F.3d 1370

(Fed. Cir. 1999), is instructive. In that case, INA opposed

Commerce’s use of such or similar merchandise in its calculation of

profit. See INA, 21 CIT at __, 957 F. Supp. at 257. INA argued

that “home market sales of such or similar merchandise are not

representative of home market sales of the entire class or kind of

merchandise,” as required by 19 U.S.C. § 1677b(e). Id. Commerce

replied that it could not use the class or kind data because the

variance in profit amounts “tainted the profit calculated by INA

for the class or kind of merchandise.” Id. at 258. This Court

agreed, and approved of Commerce’s resort to such or similar sales

as the best evidence available. See id. at 259. In doing so, this

Court rejected INA’s argument that the best evidence available was
Consol. Court No. 97-01-00054-S Page 20

INA’s submitted general class or kind profit information since it

would be illogical to “have Commerce use the very information that

[it] rejected as unrepresentative of the sales under consideration

as best evidence available.” INA, 21 CIT at __, 957 F. Supp. at

259.

Similarly, the Court rejects FAG’s argument that Commerce is

not permitted to resort to arm’s-length sales to related parties

and sales to unrelated parties. Commerce was unable to use FAG’s

reported profit because FAG’s data contained sales to related

parties “at below arm’s-length prices and because the profit in the

aggregate on these sales was significantly lower than the profit on

other sales.” Def.’s Partial Opp’n to Pls.’ Mots. J. Agency R. at

29. Additionally, Commerce could not calculate profit on a class

or kind basis (i.e., on all of FAG’s sales during the period of

review) because Commerce only had data on record for the reported

sales. See id. at 33. Thus, Commerce “recalculated profit on the

basis of the other sales (both arm’s-length sales to related

parties and sales to unrelated parties).” Id. at 29.

As in INA, it would be illogical for this Court to require

Commerce to use FAG’s class or kind data as the best evidence

available since Commerce found that the data contained sales to

related parties that failed the arm’s-length test and whose profit

varied from the profit on other sales. FAG’s suggestion that
Consol. Court No. 97-01-00054-S Page 21

Commerce extract the transactions that do not reflect normal profit

levels from the class or kind data is not viable since Commerce

only has data on record for the reported sales. Thus, the Court

finds that Commerce’s resort to arm’s-length sales to related

parties and sales to unrelated parties as the best evidence

available is in accordance with the law.

Although the Court finds that Commerce’s method of calculating

profit is proper, the Court grants Commerce’s request for a remand.

Commerce is directed to apply the profit-variance test to each

customer who failed the arm’s-length test in order to ensure that

the profit-variance test is consistent with the arm’s-length test.

B. G&A Expenses in the Calculation of
Increased Value for Manufacturing

Title 19, United States Code, § 1677a(e)(3) provides that the

exporter’s sale price shall be reduced by the amount of:

any increased value, including additional material and
labor, resulting from a process of manufacture or
assembly performed on the imported merchandise after the
importation of the merchandise and before its sale to a
person who is not the exporter of the merchandise.

Commerce’s regulations provide that additional adjustments to the

exporter’s sales price may consist of reductions for:

[a]ny increased value resulting from a process of
production or assembly performed on the merchandise after
importation and before sale to a person who is not the
exporter of the merchandise, which value the Secretary
generally will determine from the cost of material,
Consol. Court No. 97-01-00054-S Page 22

fabrication, and other expenses incurred in such
production or assembly.

19 C.F.R. § 353.41(e)(3) (1989).2

FAG “included the portion of group administrative expenses

related to production” in its calculation of increased value for

further manufactured products, but “did not include that portion of

home market incurred group G&A related to sales.” FAG’s Br. Supp.

Mot. J. Agency R. at 10. FAG maintains that the group market G&A

related to sales, which consisted of group-level headquarters

expenses and broadly-based R&D, was incurred in the home market

and, therefore, did not relate to the further manufacturing in the

United States. See id. at 11. FAG asserts that “only those G&A

expenses directly related to the further manufacturing activity in

the United States should be included in the calculation of

‘increased value’ under section 1677a(e)(3).” Id. at 12.

Torrington argues that a general expense cannot be attributed

to a particular sale but may benefit the entire company, including

the further manufacturing operation in the United States. See

Torrington’s Opp’n to SKF and FAG’s Mots. J. Agency R. at 23.

Torrington contends, therefore, that Commerce’s decision to

2
The Court must use the regulations in effect during the
period of review. Citations to the Code of Federal Regulations,
therefore, are to the regulations in effect during 1993-94. See
Corrections, 54 Fed. Reg. 13,977 (Apr. 6, 1989).
Consol. Court No. 97-01-00054-S Page 23

allocate a portion of FAG’s headquarter expenses to the United

States operations was reasonable since the expenses were allocable

to operations in the United States. See id.

Commerce included the sales-related G&A in the further

manufacturing calculation, finding that:

group-level headquarters expenses and broadly based R&D
benefit all group members, including U.S. subsidiaries
engaged in adding value. While FAG Germany reported such
expenses for the cost of the parts imported, it did not
include such expenses in the cost of further processing
in the United States. In addition, we consider these
expenses to affect the processing cost in the United
States as well as support sales. Therefore, we have
recalculated the G&A expenses for further processing in
the United States to include group-level headquarters
expenses and broadly based R&D expenses.

Final Results, 61 Fed. Reg. at 66,506. Commerce maintains that it

is proper to include expenses not directly related to production or

assembly, such as salaries of non-sales personnel, that “are by

their very nature not directly incurred in production or assembly

activities.” Def.’s Partial Opp’n to Pls.’ Mots. J. Agency R. at

34. Commerce argues that including such expenses is proper because

they indirectly benefit the production operations. See id.

The issue confronting the Court is whether Commerce may

properly include group-level headquarters expenses and broadly-

based R&D in the calculation of increased value for further

manufacturing. Neither the antidumping statute nor Commerce’s own

regulations prohibit the reduction of exporter’s sales price by any
Consol. Court No. 97-01-00054-S Page 24

increased value attributable to group-level headquarters expenses

and broadly-based R&D. See 19 U.S.C. § 1677a; 19 CFR § 353.41.

Additionally, there is nothing in the legislative history of §

1677a which prohibits such action. Because Congress is silent on

the particular issue facing the Court, the Court’s next task is to

examine Commerce’s actions to determine whether they reflect a

reasonable interpretation of § 1677a(e)(3). See Koyo Seiko, 36

F.3d at 1573 (citing Chevron U.S.A. Inc. v. Natural Resources

Defense Council, Inc., 467 U.S. 837 (1984)).

The Court finds that including group-level headquarters

expenses and broadly-based R&D in the calculation of increased

value for further manufacturing is a reasonable construction of §

1677a(e)(3) and that Commerce’s decision was in accordance with

law. Commerce included the group-level headquarters expenses and

broadly-based R&D because it determined that they imputed a benefit

to United States subsidiaries for both the processing cost and

support sales. See Final Results, 61 Fed. Reg. at 66,506. Thus,

the increase in value from the expenses was directly linked to the

“process of manufacture and assembly” as contemplated by the

applicable statute. 19 U.S.C. § 1677a(e)(3). Accordingly,

Commerce’s determination is affirmed.

C. The Losses Related to the Sale of
FAG’s Korean Joint Venture Facility
Consol. Court No. 97-01-00054-S Page 25

FAG argues that the loss from the sale of a joint-venture

facility in Korea should not have been included in G&A because the

facility was not involved with the production of the merchandise at

issue. See FAG’s Br. Supp. Mot. J. Agency R. at 13. In response,

Torrington argues that the loss was properly included because the

company’s activities as a whole, including those of a parent

company or other division, should be accounted for in G&A. See

Torrington’s Opp’n to SKF and FAG’s Brs. Supp. Mots. J. Agency R.

at 26.

Title 19, United States Code, § 1677b(e)(1)(B) requires

Commerce to calculate G&A expenses for CV using an amount “equal to

that usually reflected in sales of merchandise of the same general

class or kind as the merchandise under consideration which are made

by producers in the country of exportation.” The statute does not

define G&A nor specify how it should be allocated. See id. When

Congress remains silent on a specific issue, the Court will defer

to Commerce’s interpretation of a statutory provision, as long as

it is based on a permissible construction of the statute. See

Chevron, 467 U.S. at 843-44.

In the Final Results, Commerce had determined that the loss

from the sale of the Korean facility was to be included in FAG’s
Consol. Court No. 97-01-00054-S Page 26

G&A expenses.3 Commerce included the loss because it “relates to

the overall operation of the company [and,] [t]herefore, it is most

appropriately characterized as a G&A expense.” 61 Fed. Reg. at

66,497. Commerce allocated the loss “on the basis of all costs

incurred by the company during the [period of review], including

non-subject merchandise.” Id.

The issue is whether Commerce properly included the loss from

the sale of the Korean facility in FAG’s G&A even though the

facility was not involved in the production of the subject

merchandise. The Court finds that U.S. Steel Group v. United

States, 22 CIT __, 998 F. Supp. 1151 (1998), is instructive. The

issue in U.S. Steel was whether Commerce properly included an

offset for “miscellaneous income” in calculating G&A for cost of

production where the “miscellaneous income” was related to the

general operations of the company. U.S. Steel, 22 CIT at __, 998

F. Supp. at 1153. The Court found that G&A expenses “ ‘relate to

the activities of the company as a whole rather than to production

3
In its brief, however, Commerce changed its position and
agreed with FAG that the “loss should not be included in FAG’s G&A
ratio because the operations of the joint venture were unrelated to
the production of the subject merchandise.” Def.’s Partial Opp’n
to Pls.’ Mots. J. Agency R. at 35-36. The Court, however, cannot
rely on the post-hoc position advanced by Commerce in its brief as
the basis to uphold or overturn its administrative actions because
“an agency’s discretionary order [must] be upheld, if at all, on
the same basis articulated in the order by the agency itself.”
Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 169
(1962).
Consol. Court No. 97-01-00054-S Page 27

process.’ ” Id. at __, 998 F. Supp. at 1154 (quoting Rautaruukki Oy

v. United States, Slip Op. No. 95-56, 1995 WL 170399 (CIT Mar. 31,

1995)). The Court upheld “Commerce’s decision that offsets to G&A

expenses should also be related to the company’s general

operations.” Id. In upholding Commerce’s determination, the Court

agreed with Commerce that “limiting offsets to G&A expenses to

income from activities related to ‘production of the subject

merchandise’ would be inconsistent with the accounting allocation

concept of G&A expenses.” Id. at __, 998 F. Supp. at 1153-54.

Similarly, the Court finds that FAG’s request to exclude the

loss from the sale of the Korean facility from the calculation of

G&A in this case would be inconsistent with the accounting

allocation concept of G&A expenses. G&A expenses are those which

relate to the overall operation of the company; by their very

nature, therefore, they are not directly traceable to any one

specific product or group of merchandise. Contrary to FAG’s

contentions, there is no requirement that the Korean facility have

been involved with the production of the subject merchandise in

order for the expense from its loss to be included in G&A expenses.

All that Commerce needed to find was that the loss could be

properly characterized as a G&A expense in order to allocate part

of the expense to the subject merchandise, and this is exactly what

Commerce did. See Final Results, 61 Fed. Reg. at 66,497.
Consol. Court No. 97-01-00054-S Page 28

Accordingly, the Court finds that Commerce’s decision to include

the loss because it relates to the overall operation of the company

results from a reasonable construction of § 1677b(e)(1)(B).

Commerce’s determination is affirmed.

IV. Torrington’s Claims

A. FAG’s Reported R&D Costs

Torrington argues that FAG failed to comply with Commerce’s

questionnaire in calculating R&D costs by means of a broadly based

factor rather than on a product-specific or product-line basis.

See Torrington’s Br. Supp. Mot. J. Agency R. at 4. Specifically,

Torrington claims that “FAG reported product-line R&D based on

expenses for all roller bearing products[,] . . . fail[ing] to

distinguish among specific products or product lines, as the

questionnaire requested,” or even among the different types of

bearings. Id. at 7. Torrington contends that “aggregate

allocation of product-specific R&D expenses is allowable only where

the record contains evidence that R&D expenses relating to one

product line equally benefitted other product lines,” and that is

not the situation here. Id. at 7-8.

FAG disputes Torrington’s contentions, arguing that Torrington

took Commerce’s instruction that the respondent should “report

‘specific product or product line’ R&D for all products under
Consol. Court No. 97-01-00054-S Page 29

review” out of context. FAG’s Resp. to Torrington’s Br. Supp. Mot.

J. Agency R. at 3-4 (internal quotations omitted). FAG contends

that the questionnaire actually instructs the respondent to

calculate R&D with a broadly based factor by requiring that “

‘[g]eneral R&D for the company which is not related to a specific

product or product line should be allocated to all products of the

company and included in general expenses.’ ” Id. at 4. FAG

maintains that it cannot isolate R&D expenses to any specific group

of goods. See id. at 6.

The Court finds that Commerce’s acceptance of FAG’s allocation

was in accordance with law. Commerce found upon verification that

“allocating FAG Germany’s R&D expenses on a product-specific basis

would not be feasible because a large portion of R&D projects are

on-going and benefit more than one product or category of

products.” Final Results, 61 Fed. Reg. at 66,491. Commerce found

that FAG’s allocation method was appropriate because “to the extent

possible, R&D expenses have been assigned directly to particular

manufacturing and distribution cost-center areas.”4 Id. Thus,

4
In its brief, however, the government changed its position
and agreed that a remand is appropriate for Commerce to “examine
R&D figures used for FAG’s COP and CV to ascertain whether FAG’s
allocation meets Commerce’s criteria for establishing R&D costs for
subject merchandise.” Def.’s Partial Opp’n to Pls.’ Mots. J.
Agency R. at 36. The Court, however, cannot rely on the post-hoc
position advanced by Commerce in its brief as the basis to uphold
or overturn its administrative actions because “an agency’s
discretionary order [must] be upheld, if at all, on the same basis
Consol. Court No. 97-01-00054-S Page 30

Commerce made the most appropriate allocation of FAG’s R&D expenses

under the circumstances. The Court does not find that such action

was unreasonable, nor will it require a more specific allocation

where Commerce has determined that none is possible. Accordingly,

Commerce’s determination is affirmed.

B. SKF’s Home Market Rebate Number Two Values

SKF made rebate payments to certain of its “dealer/distributor

customers to compensate them for competitive conditions in the

German market.” Final Results, 61 Fed. Reg. at 66,502. By

granting them support rebate payments if they did not meet the

minimum profit level, SKF insured that its dealers/distributors

would reap an overall minimum profit level. See SKF’s Resp. to

Torrington’s Br. Supp. Mot. J. Agency R. at 17. Because the

rebates were based on sales by SKF’s customers rather than to SKF’s

customers, SKF states that “payment can only be allocated over the

entire sales base to the dealer/distributor.” Final Results, 61

Fed. Reg. at 66,502. SKF asks the Court to remand to Commerce with

instructions to allow rebate two as a direct deduction from price

instead of as an ISE. See SKF’s Resp. to Torrington’s Br. Supp.

Mot. J. Agency R. at 21.

articulated in the order by the agency itself.” Burlington Truck
Lines, Inc. v. United States, 371 U.S. 156, 169 (1962).
Consol. Court No. 97-01-00054-S Page 31

Commerce determined that the rebate expense was not directly

related to sales by SKF to its customers and, therefore, was

treated as an ISE adjustment pursuant to Zenith Elecs. Corp. v.

United States, 77 F.3d 426 (Fed. Cir. 1996). See Final Results, 61

Fed. Reg. at 66,502. Commerce explained that the rebate was a

“promotional expense that does not relate to any particular sale by

SKF Germany and does not vary with the quantity of merchandise that

SKF Germany sells.” Id.

Torrington argues that Commerce improperly treated SKF’s home

market rebate number two values as ISEs in calculating FMV and it

should have denied the claimed adjustment to FMV. See Torrington’s

Br. Supp. Mot. J. Agency R. at 12. Torrington cites Torrington I,

82 F.3d at 1050-51, for the proposition “that Commerce may deduct

direct expenses from FMV when they are properly reported on a

transaction-specific basis, but that, if not so reported, Commerce

may not treat such expenses as if they were indirect selling

expenses.” Torrington’s Br. Supp. Mot. J. Agency R. at 13.

The issue centers around the proper categorization of rebate

two as either a direct or indirect expense. A direct expense

applied as an adjustment to FMV is inherently an expense which

either varies with the quantity sold, Zenith, 77 F.3d at 431, or is

“related to a particular sale,” Torrington Co. v. United States,

68 F.3d 1347, 1353 (Fed. Cir. 1995) (“Torrington II”). An indirect
Consol. Court No. 97-01-00054-S Page 32

expense is one that does not vary with the quantity sold, Zenith,

77 F.3d at 431, or is “not related to a particular sale,”

Torrington II, 68 F.3d at 1353.

SKF concedes that rebate two is “not ‘direct’ in a

transaction-specific sense” since it does not directly relate to

particular sales by SKF nor does it vary with the quantity of

merchandise sold by SKF. SKF’s Resp. to Torrington’s Br. Supp.

Mot. J. Agency R. at 18. Because “rebate 2 is structured to be

paid in relation to SKF’s customers’ resales, it is impossible to

establish a direct correlation between a single SKF sale and the

later resales by that SKF customer (which resales may include a

bearing sold by SKF in the initial transaction).” Id. at 6.

Nevertheless, SKF argues that rebate two should be treated as a

direct expense because it is “ ‘direct’ in a customer-specific

sense.” Id. at 18.

SKF misses the mark. SKF itself conceded that the rebate

expense cannot properly be classified as a direct expense, since it

does not directly relate to particular sales by SKF nor does it

vary with the quantity of merchandise sold by SKF. Commerce’s

decision to treat SKF’s rebate two as an indirect expense is in

accordance with law since the record shows that rebate two does not

vary with the quantity sold, Zenith, 77 F.3d at 431, nor is it

“related to a particular sale,” Torrington II, 68 F.3d at 1353.
Consol. Court No. 97-01-00054-S Page 33

The Court finds that the fact that the rebate varies with the

quantity of merchandise sold by SKF’s dealers/distributors is

irrelevant. SKF’s references to the way the rebate is structured

to be paid and its allocation method do not alter the indirect

character of the rebate because the direct or indirect character of

an expense has nothing to do with the particular allocation method

chosen by the respondent to report the expense. See Torrington I,

82 F.3d at 1051.

Although Commerce correctly treated the rebate as an indirect

expense, it made no determination that the rebate was granted for

in-scope merchandise only. Payment was “allocated over the entire

sales base to the dealer/distributor.” Final Results, 61 Fed. Reg.

at 66,502. The Court, therefore, remands the matter to Commerce to

use a method which removes rebates paid on sales of out-of-scope

merchandise from any adjustments made to FMV or, if no viable

method can be developed, to deny such an adjustment in its

calculation of FMV. See Torrington Co. v. United States, 19 CIT

403, 421, 881 F. Supp. 622, 640 (1995).
Consol. Court No. 97-01-00054-S Page 34

CONCLUSION

The case is remanded to Commerce to: (1) exclude any

transactions that were not supported by consideration from SKF’s

United States sales database and to adjust the dumping margins

accordingly; (2) apply the profit-variance test to each customer

who failed the arm’s-length test before calculating the profit

element of CV for FAG; and (3) remove rebates paid on sales of out-

of-scope merchandise from any adjustments made to SKF’s FMV or, if

no viable method can be developed, to deny such an adjustment in

the calculation of FMV. Commerce is affirmed in all other

respects.

____________________________
NICHOLAS TSOUCALAS
SENIOR JUDGE

Dated: December 2, 1999
New York, New York
 ERRATUM

Slip Op. 99-127

SKF USA Inc. v. UNITES STATES

Consol. Court No. 97-01-00054-S

The last paragraph on page 2 of the ORDER should be changed to
read as follows:

ORDERED that the remand results are due within ninety (90)
days of the date that this opinion is entered. Any comments or
responses by the parties to the remand results are due within
fifteen (15) days thereafter. Any rebuttal comments are due within
fifteen (15) days of the date the responses are due.

December 6. 1999