NTN Bearing Corp. v. United States

Slip Op. 99-71

UNITED STATES COURT OF INTERNATIONAL TRADE

BEFORE: SENIOR JUDGE NICHOLAS TSOUCALAS
______________________________________________________
:
NTN BEARING CORP. OF AMERICA, NTN :
CORPORATION, AMERICAN NTN BEARING MFG. :
CORP., NTN DRIVESHAFT, INC. and :
NTN-BOWER CORPORATION, :
:
Plaintiffs and :
Defendant-Intervenors, :
:
v. : Consolidated Court
: No. 97-01-00092
UNITED STATES, :
:
Defendant, :
:
KOYO SEIKO CO., LTD. and KOYO CORPORATION :
of U.S.A.; NSK LTD. and NSK CORPORATION, :
:
Defendant-Intervenors, :
:
THE TORRINGTON COMPANY, :
:
Defendant-Intervenor and :
Plaintiff. :
:

Plaintiffs, The Torrington Company ("Torrington") and NTN
Bearing Corp. of America, NTN Corporation, American NTN Bearing
Mfg. Corp., NTN Driveshaft, Inc. and NTN-Bower Corporation
(collectively "NTN") have filed separate motions for judgment on
the agency record pursuant to Rule 56.2 of the rules of this Court
contesting various aspects of the Department of Commerce,
International Trade Administration's ("Commerce") final results of
the fifth administrative review, 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, 61 Fed. Reg. 66,472
(Dec. 17, 1996).

Torrington challenges (1) Commerce's acceptance of a foreign
importer's deduction of imputed interest expenses on antidumping
duty cash deposits from total indirect selling expenses; and (2)
Commerce's determination to grant certain allocated discounts and
Consol. Court No. 97-01-00092 Page 2

post-sale price adjustments to importers’ home market price
calculations.

NTN challenges the following actions by Commerce: the
inclusion of (1) home market sales of sample merchandise and (2)
sales allegedly not in the ordinary course of trade in its foreign
market value ("FMV") calculation; (3) the determination not to make
a circumstance of sale adjustment based on the difference in prices
at different levels of trade; (4) the determination to allocate
selling expenses over total sales without regard to level of trade
in calculating both United States and home market price; (5) the
determination to exclude related party sales in calculating FMV;
and (6) the reallocation of U.S. selling expenses based upon the
sale price to the first unrelated purchaser.

Held: Torrington’s motion is denied. NTN’s motion is granted
in part and denied in part. Case is remanded for Commerce to: (1)
review the record to determine whether it is possible to isolate
and remove the portions of Koyo’s warranty expenses which relate to
non-scope merchandise from the adjustments to FMV or, in the
alternative, to deny the adjustment if such an apportionment cannot
be made; and (2) exclude any sample transactions unsupported by
consideration. Commerce is affirmed in all other respects.

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

Dated: July 29, 1999

Barnes, Richardson & Colburn (Donald J. Unger, Kazumune V.
Kano and Christine H.T. Yang) for NTN Bearing Corp. of America,
NTN Corporation, American NTN Bearing Mfg. Corp., NTN Driveshaft,
Inc, and NTN-Bower Corporation.

David W. Ogden, Acting Assistant Attorney General; David M.
Cohen, Director, Commercial Litigation Branch, Civil Division, U.S.
Department of Justice (Velta A. Melnbrencis, Assistant Director);
Of counsel: Mark A. Barnett, Myles S. Getlan and Sanjay J. Mullick,
Attorney-Advisors, Office of Chief Counsel for Import
Administration, U.S. Department of Commerce, for defendant.

Powell, Goldstein, Frazer & Murphy LLP, (Peter O. Suchman,
Neil R. Ellis and Elizabeth C. Hafner) for Koyo Seiko Co., Ltd. and
Koyo Corporation of U.S.A.
Consol. Court No. 97-01-00092 Page 3

Lipstein, Jaffe & Lawson, LLP (Robert A. Lipstein, Matthew P.
Jaffe and Grace W. Lawson) for NSK Ltd. and NSK Corporation.

Stewart and Stewart (Terence P. Stewart, Wesley K. Caine,
Geert De Prest and Lane S. Hurewitz) for The Torrington Company.

OPINION

TSOUCALAS, Senior Judge: Plaintiffs, The Torrington Company
("Torrington"), NTN Bearing Corp. of America, NTN Corporation,

American NTN Bearing Mfg. Corp., NTN Driveshaft, Inc. and NTN-Bower

Corporation (collectively "NTN"), have filed separate motions for

judgment on the agency record pursuant to Rule 56.2 of the rules of

this Court contesting various aspects of the final results of the

fifth administrative review (from May 1, 1993, through April 30,

1994).

Background

This case concerns antifriction bearings ("AFBs") and parts

thereof from Japan. Commerce published the antidumping duty order
covering AFBs from Japan on May 15, 1989. See Antidumping Duty

Orders: Ball Bearings, Cylindrical Roller Bearings, and Spherical

Plain Bearings, and Parts Thereof From Japan, 54 Fed. Reg. 20,904.

On December 7, 1995, Commerce published the preliminary results of

the fifth review under the Order entitled, Antifriction Bearings

(Other Than Tapered Roller Bearings) and Parts Thereof From France,

Germany, Japan, Singapore, Sweden, Thailand, and the United
Consol. Court No. 97-01-00092 Page 4

Kingdom; Preliminary Results of Antidumping Duty Administrative
Reviews, Partial Termination of Administrative Reviews, and Notice

of Intent to Revoke Order, 60 Fed. Reg. 62,817. On December 17,

1996, Commerce published its final results of the subject review.

See 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, as amended,

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, 62 Fed. Reg. 149 (Jan. 2, 1997), 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).1

1
Because the reviews in this case were initiated prior to
January 1, 1995, 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. 97-01-00092 Page 5

Discussion
The Court has jurisdiction in this case pursuant to 19 U.S.C.

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

The Court must uphold Commerce’s final 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) (1994).

Substantial evidence is "more than a mere scintilla. It means such

relevant evidence as a reasonable mind might accept as adequate to

support a conclusion." Universal Camera Corp. v. NLRB, 340 U.S.

474, 477 (1951) (quoting Consolidated Edison Co. v. NLRB, 305 U.S.

197, 229 (1938)). "It is not within the Court’s domain either to

weigh the adequate quality or quantity of the evidence for

sufficiency or to reject a finding on grounds of a differing

interpretation of the record." Timken Co. v. United States, 12 CIT

955, 962, 699 F. Supp. 300, 306 (1988), aff’d, 894 F.2d 385 (Fed.

Cir. 1990).

A. Torrington's Issues

1. Abandoned Claims

As a preliminary matter, the Court notes that in addition to

the claims raised below, Torrington also challenged (1) Commerce's

failure to apply the reimbursement regulation in instances where

transfer prices were less than cost plus profit and actual dumping
Consol. Court No. 97-01-00092 Page 6

margins were found, and (2) Commerce's inclusion of below-cost

sales in calculating constructed value. See Torrington's Mem.
Supp. J. Agency R. at 42-56. However, Torrington has abandoned

these two claims in light of Torrington Co. v. United States, 127

F.3d 1077 (Fed. Cir. 1997). See Letter from Torrington (Stewart &

Stewart) to the Clerk of the Court (Nov. 6, 1997).

As a consequence of Torrington's abandonment of these counts,

and pursuant to the Court of Appeals decision in Torrington, 127

F.3d 1077, the Court affirms Commerce's calculation of profit for

constructed value and its determination to refrain from applying

the reimbursement regulation in this case.

2. Deduction of Imputed Interest Expenses on Antidumping Duty
Cash Deposits From Indirect Selling Expenses

In the Final Results, Commerce permitted Koyo Seiko Co., Ltd.

and Koyo Corporation of U.S.A. (collectively "Koyo") to deduct

imputed interest expenses on antidumping duty deposits from Koyo's
United States indirect selling expenses. Final Results, 61 Fed.

Reg. at 66,488-89.

Torrington argues that Commerce's deduction encourages

companies to dump by providing a larger offset as the antidumping

duty deposit becomes greater. Further, Torrington claims that

Commerce's determination contradicts its most recent practice in
Consol. Court No. 97-01-00092 Page 7

the seventh review. Torrington requests that the Court remand this

issue to Commerce with instructions to deny such claims or, in the
alternative, to explain its departure from its prior practice.

Torrington's Mem. Supp. J. Agency R. at 15-22.

Commerce maintains that neither the statute nor the

legislative history prohibits this adjustment to indirect selling

expenses. Commerce further asserts that by deducting imputed

interest on antidumping duty deposits, it followed its practice of

the third and fourth reviews, which were sustained by this Court in

NSK Ltd. v. United States, 21 CIT ___, 969 F. Supp. 34 (1997), and
Federal-Mogul Corp. v. United States, 20 CIT 234, 918 F. Supp. 386

(1996). Although Commerce acknowledges a recent change in its

position regarding imputed interest in the seventh review, it

argues that the new position has no retroactive application.

Commerce's Partial Opp'n to Mots. J. Agency R. at 40-45.

Koyo argues that Federal-Mogul Corp. v. United States, 20 CIT
1438, 1440-41, 950 F. Supp. 1179, 1182-83 (1996), supports

Commerce's treatment of its imputed interest expenses. Koyo Opp'n

to Torrington's Mot. J. Agency R. at 6. Koyo further asserts that

Commerce's subsequent practices do not affect the results of the

subject review. Id. at 8.

This Court has consistently upheld the adjustment to indirect

selling expenses when Commerce has granted it, and has remanded to
Consol. Court No. 97-01-00092 Page 8

Commerce to allow the adjustment when Commerce denied it in the

final results. See Timken Co. v. United States, 21 CIT ___, ___,
989 F. Supp. 234, 250 (1997) (remanding for Commerce to grant

adjustment); NSK, 21 CIT at ___, 969 F. Supp. at 55 (same);

Federal-Mogul, 20 CIT at 1440-41, 950 F. Supp. at 1182-83

(upholding Commerce's decision to grant adjustment).

In accordance with this Court's well-established position, see

Timken Co. v. United States, 22 CIT ___, ___, 16 F. Supp. 2d 1102,

1104 (1998), the Court holds that Commerce's determination to grant

an adjustment to indirect selling expenses for imputed interest

payments incurred in financing antidumping duty cash deposits is

supported by substantial evidence and is in accordance with law.

3. Allocated Discounts, Post-Sale Price Adjustments and Billing
Adjustments in FMV Calculations

In the fifth review, Commerce generally made direct

adjustments to foreign market value ("FMV") for discounts, rebates
and price adjustments if they were either reported on a transaction

specific basis or were granted as a fixed percentage of sales price

on each transaction (such as a fixed percentage rebate program or

an early-payment discount granted on the total price of a pool of

sales). Final Results, 61 Fed. Reg. 66,498.
Consol. Court No. 97-01-00092 Page 9

a. NTN's Billing Adjustments
As one of the adjustments, Commerce granted NTN's reported

billing adjustments to home market sales prices. Commerce found

that the great majority of NTN's adjustments were transaction

specific and determined that the instances of non-transaction

specific reporting were so few as to not render the billing

adjustments distortive. Commerce therefore treated all of NTN's

reported home market billing adjustments as direct adjustments to

FMV in the Final Results. 61 Fed. Reg. 66,501.

Torrington argues that Commerce erred by treating NTN's home

market billing adjustments as direct expenses with which to adjust

FMV. Torrington asserts that home market billing adjustments can

be used as a direct adjustment only if reported on a transaction

specific basis, not on groups of sales (i.e., in a non-transaction

specific manner) as NTN reported its billing adjustments.

Torrington's Reply Supp. J. Agency R. at 7-9. According to

Torrington, Commerce's decision to accept discounts as direct
deductions to FMV conflicts with Torrington Co. v. United States,

82 F.3d 1039 (Fed. Cir. 1996). Torrington asks for a remand so

that Commerce may adjust FMV only for billing adjustments reported

on a transaction specific basis and deny the adjustment where

reported otherwise. Id. at 10.
Consol. Court No. 97-01-00092 Page 10

NTN asserts that Torrington's arguments regarding NTN's non-

transaction specific home market billing adjustments are meritless
because the majority of its adjustments were transaction specific.

NTN asserts that the instances of non-transaction specific

reporting did not have any impact on the calculation of FMV and

consequently, did not affect NTN's dumping margin. NTN’s Mem.

Opp’n Torrington’s Mot. J. Agency R. at 5-8.

Sections 1677a and 1677b require Commerce to determine the

price actually charged to a customer both in the home market (FMV)

and in the United States (USP) 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. The issue here is whether

Commerce may accept NTN's billing adjustments as direct adjustments

to FMV where most, but not all, of the adjustments were granted on

a transaction specific basis.

For Commerce to allow an adjustment to FMV for discounts and

price adjustments under sections 1677a and 1677b, Commerce must

first determine what type of adjustment is being sought (direct or

indirect) and then determine whether the adjustment sought is

calculated and recorded in the manner required for its type. A

direct expense applied as an adjustment to FMV is inherently an

expense which either varies with the quantity sold, Zenith Elecs.
Consol. Court No. 97-01-00092 Page 11

Corp. v. United States, 77 F.3d 426, 431 (Fed. Cir. 1996), or is
"related to a particular sale." Torrington, 68 F.3d at 1353. The

billing adjustment NTN seeks is an expense, which by its nature, is

direct. The direct adjustment sought by NTN must, therefore, be

reported in a manner appropriate for direct adjustments before

Commerce may grant the adjustment to FMV.

To ensure that the exporter’s claimed adjustments reflect

actual disounts and rebates paid only on the subject merchandise,

Commerce generally requires that these adjustments be reported on

a transaction specific basis or be based on a fixed and constant

percentage of sales price on all transactions reported. Final

Results, 61 Fed. Reg. at 66,498. However, this Court has held that

"[t]he relevant issue regarding direct adjustments is ultimately

not whether they were reported on a transaction specific basis, but

whether a respondent can demonstrate that its adjustments were not

made over non-subject merchandise." NSK, 21 CIT at __, 969 F.

Supp. at 47 (citing Federal-Mogul, 20 CIT at 1443, 950 F. Supp. at
1184-85).

The crux of the issue, therefore, is whether Commerce’s

determination that NTN’s billing adjustments reported on a non-

transaction specific basis were made solely over in-scope

merchandise was reasonable. If Commerce reasonably determined that
Consol. Court No. 97-01-00092 Page 12

the adjustment pertained only to subject merchandise, then the

Court must uphold Commerce’s determination.

Although NTN bases its argument that the adjustment should be

upheld because there were only a few instances of non-transaction

specific reporting, the record reveals that the Court should uphold

the adjustment on other grounds. After careful review of the

confidential record, the Court concludes that for the few instances

of non-transaction specific reporting, NTN was able to tie the

adjustment directly to in-scope merchandise, specifically, to

product code and model number. Commerce’s granting of the

adjustment was therefore reasonable and in accordance with law.

b. NSK's Home Market Early Payment Discounts
NSK grants rebates, in the form of early payment discounts, to

its distributors if the distributors resell the bearings to certain

customers approved in advance by NSK. Commerce allowed the early

payment discounts as a direct adjustment to FMV because the
discounts were granted as a fixed percentage of all purchases by a

given customer. Final Results, 61 Fed. Reg. at 66,500-01.

Torrington claims that NSK's reporting method of dividing

early payment discounts granted to a customer by the customer's

total payments to obtain a customer-specific early payment discount

factor for the period of review is distortive. Torrington argues
Consol. Court No. 97-01-00092 Page 13

that actual early payment discounts are granted on a month-by-month

basis, not as NSK reported them. Finally, Torrington asserts that
under Torrington, 82 F.3d at 1050-51, Commerce cannot treat

expenses directly related to particular sales as indirect selling

expenses to be deducted from FMV as part of an exporter's sales

price offset. Torrington's Reply Supp. Mot. J. Agency R. at 14-15.

NSK argues that its early payment discounts are a fixed

percentage of total discounts and, therefore, they qualify as a

direct adjustment to price. NSK acknowledges that Commerce prefers

that discounts be reported on an invoice-specific basis, but

asserts that such reporting was not possible in this case, because

NSK does not issue invoices for each shipment in the home market.

However, NSK argues that there is ample evidence on the record

revealing how the early payment discount is earned, recorded and

reported which conclusively demonstrates that the early payment

discount applied equally to scope and non-scope merchandise and is

a fixed percentage across all sales. NSK's Opp'n to Torrington's

Mot. J. Agency R. at 4-8.

The Court agrees with Commerce and NSK. Torrington

erroneously emphasizes form over substance. By arguing that

Commerce should solely consider the method of recording and

allocation of the expenses instead of the calculation of expenses,

Torrington ignores well-established law. Although Commerce
Consol. Court No. 97-01-00092 Page 14

generally requires transaction specific reporting before granting

adjustments to FMV for early payment discounts, Commerce will also
allow an adjustment if the adjustment is based on a fixed and

constant percentage of sales price on all transactions reported.

As discussed above, these two methods, approved by Commerce and the

Courts, ensure that the adjustment is granted for in-scope

merchandise only. Commerce’s decision to allow the adjustment

where NSK demonstrated that the early payment discount was granted

across all sales is in conformity with Commerce’s approved

practice. Accordingly, because Commerce’s method accurately

determined that the adjustment was attributable to early payment

discounts on the subject merchandise, Commerce is affirmed.

c. Koyo's Home Market Warranty Expenses
In the Final Results, Commerce accepted Koyo's home market

warranty expenses as direct expenses. 61 Fed. Reg at 66,485.

Commerce asserts that, upon review of the record, it cannot
determine the extent to which Koyo granted its reported warranty

expenses on subject merchandise. Commerce, therefore, asks for a

remand with respect to Koyo’s warranty expenses. Commerce’s

Partial Opp’n Mots. J. Agency R. at 56-57.

Torrington contends that in accepting Koyo's home market

warranty expenses as direct selling expenses, Commerce improperly
Consol. Court No. 97-01-00092 Page 15

allowed Koyo to allocate expenses which should have been reported

on a transaction specific basis. Torrington's Mem. Supp. J. Agency
R. at 40-47.

Although Koyo recognizes that this Court has already decided

this issue against Koyo in NSK, 21 CIT __, 969 F. Supp. 34, Koyo

asks that the Court reconsider its decision in NSK and affirm

Commerce's acceptance of Koyo's warranty expenses in the Final

Results. Koyo's Opp'n to Torrington's Mot. J. Agency R. at 5-6.

Koyo also argues that even though its warranty expenses were

allocated over a pool of products that may not all have been within

the scope of the AFB antidumping order, virtually all products were

within the scope of one of the three outstanding orders against

Koyo’s products. Id. at 6 (incorporating by reference Koyo’s

Response to Torrington’s Mot. J. Agency R. at 15-16, filed in NSK,

21 CIT ___, 969 F. Supp. 34 (dated Apr. 19, 1996)).

The Court declines to revisit its opinion in NSK, 21 CIT ___,
969 F. Supp. 34. Pursuant to that decision, the Court grants

Commerce’s request for a remand so that Commerce may review the

record to determine whether it is possible to isolate and remove

the portions of Koyo’s warranty expenses which relate to non-scope

merchandise from the adjustments to FMV or to deny the adjustment

if such a distinction and apportionment cannot be made.
Consol. Court No. 97-01-00092 Page 16

B. NTN's Issues
1. Inclusion of NTN's Home Market Sales of Sample Merchandise in
Calculating FMV

In the Final Results, Commerce determined that certain NTN

sample sales in the home market were not outside the ordinary

course of trade. Commerce, therefore, included these sales in the

calculation of FMV. 61 Fed. Reg. at 66,513-14.

a. Inclusion of Low-volume Sales in Calculating FMV

In the Final Results, Commerce determined that:

NTN's standard of "low volume of sales" is inadequate as
a definition of sales not in the ordinary course of
trade. NTN has presented no other supporting information
that identifies a low-volume sale as outside the ordinary
course of trade. [Commerce] has determined that
"infrequent sales of small quantities of certain models
is insufficient evidence to establish that sales were
made outside the ordinary course of trade."

Final Results, 61 Fed. Reg. at 66,514. Commerce asserts that its

inclusion of certain transactions labeled by NTN as "samples"

should be sustained.

NTN argues that all its sales labeled as "sample sales" should

have been excluded from the FMV calculation. NTN asserts that

samples sales were designated as such for valid business reasons

and that, inherently, these reasons remove the sample sales from

the ordinary course of trade. NTN's Mem. Supp. Mot. J. Agency R.

at 8-12. Specifically, NTN argues that Commerce should have
Consol. Court No. 97-01-00092 Page 17

excluded sales with an "extremely sporadic sales history" from its

FMV calculations because such sales are outside the ordinary course
of trade.

Commerce responds that NTN's argument is based on a confusion

of certain trade law realities. Commerce argues that NTN is using

the phrase "usual commercial quantities" and "ordinary course of

trade" interchangeably, even though they are distinct concepts,

separately defined under different statutes. For example, Commerce

explains, although both concepts pertain to the calculation of FMV,

a company may be denied a claim to exclude sales outside the

ordinary course of trade, but still receive an adjustment for sales

that are not in the usual commercial quantities. In addition,

Commerce argues that NTN never claimed during the administrative

proceedings, as required, that its sales were not in the "usual

commercial quantities." Further, Commerce points out that NTN does

not claim that any correlation exists between the price and

quantity of the sales at issue, which Commerce requires before

determining a specific price with which to calculate FMV.

Commerce's Partial Opp'n Mots. J. Agency R. at 18-19.

Torrington agrees with Commerce and asserts that a low volume

of sales, by itself, does not establish that the sale is outside

the ordinary course of trade. Further, Torrington argues that NTN

did not meet its burden of proving that its sample sales are
Consol. Court No. 97-01-00092 Page 18

outside the ordinary course of trade, and that, therefore, Commerce

properly included NTN sample sales in calculating FMV.
Torrington's Opp'n to Mot. J. Agency R. at 11-15. In addition,

Torrington argues that the Court has already rejected NTN's

argument. Torrington's Opp'n to Mot. J. Agency R. at 16-17.

The Court agrees with Commerce and Torrington. The statute

defines FMV as the price "at which such or similar merchandise is

sold . . . in the usual commercial quantities and in the ordinary

course of trade for home consumption." 19 U.S.C. § 1677b(a)(1)(A).

"The term ‘ordinary course of trade’ means the conditions and

practices which, for a reasonable time prior to the exportation of

the merchandise which is the subject of an investigation, have been

normal in the trade under consideration with respect to merchandise

of the same class or kind." 19 U.S. C. § 1677(15). In determining

whether a sale is outside the ordinary course of trade, Commerce

must consider "all the circumstances particular to the sales in

question." Cemex, S.A. v. United States, 133 F.3d 897, 900 (1988)
(quoting Murata Mfg. Co. v. United States, 17 CIT 259, 264, 820 F.

Supp. 603, 607 (1993)); see also Thai Pineapple Public Co. v.

United States, 20 CIT 1312, 1314, 946 F. Supp. 11, 15 (1996). "An

analysis of these factors should be guided by the purpose of the

ordinary course of trade provision which is to prevent dumping

margins from being based on sales which are not representative of

the home market." Cemex, 133 F.3d at 900 (internal quotations
Consol. Court No. 97-01-00092 Page 19

omitted). The factors Commerce may consider in its analysis

include: home market demand, volume of home market sales, sales
quantity, sales price, profitability, customers, terms of sale and

frequency of sales. See, e.g., Thai Pineapple, 20 CIT at 1315, 946

F. Supp. at 16; see also Cemex, S.A. v. United States, 19 CIT 587,

589-593 (1995). "In sum, ordinary course of trade is determined on

a case-by-case basis by examining all of the relevant facts and

circumstances." Cemex, 19 CIT at 593.

Plaintiff has the burden of proving whether the sales used in

Commerce’s calculations are outside the ordinary course of trade.

See, e.g., Nacho-Fujikoshi Corp. v. United States, 16 CIT 606, 608,

798 F. Supp. 716, 718 (1992) (citing Koyo Seiko Co. v. United

States, 16 CIT 539, 543, 796 F. Supp. 1526, 1530 (1992)).

NTN argues that because it designated certain sales under the

variable "sample" in its accounting that those transactions were

outside the ordinary course of trade and, therefore, should be
excluded from NTN’s home market database prior to calculating

weighted average prices for FMV. NTN’s Mot. J. Agency R. at 9.

However, a party’s mere designation of certain transactions as

"sample sales" is not sufficient to meet plaintiff’s burden of

proof.

In NTN Bearing Corp. v. United States, 19 CIT 1221, 1227-29,

905 F. Supp. 1083, 1089-91 (1995), the Court held that sales that
Consol. Court No. 97-01-00092 Page 20
are infrequent are not necessarily outside the "ordinary course of

trade." The Court found that "[w]ithout a complete explanation of

the facts which establish the extraordinary circumstances rendering

particular sales outside the ordinary course of trade, Commerce

cannot exclude those sales from FMV." NTN, 19 CIT at 1229, 905 F.

Supp. at 1091.

In this case, Commerce requested from NTN detailed information

regarding sales that NTN claimed were outside the ordinary course

of trade. In response, NTN merely described the methodology it

used to identify low-volume sales. As discussed in NTN, 19 CIT at
1227-29, 905 F. Supp. at 1089-91, this alone is not sufficient to

support the exclusion of these low-volume sales from NTN’s FMV

calculations. In its final determination, Commerce reasonably

determined that NTN failed to meet its burden of proving that the

sales used in Commerce’s calculations are outside the ordinary

course of trade. The Court therefore upholds Commerce’s

determination to include non-zero priced low-volume sample sales in
NTN’s home market database when calculating the FMV of NTN’s AFBs.

b. Zero-Priced Transactions

The transactions which NTN identified during the review as

sample sales included some transactions which occurred for a price

of zero. A zero-priced transaction does not qualify as a "sale"

and, therefore, by definition cannot be included in Commerce’s FMV
Consol. Court No. 97-01-00092 Page 21
calculation. See NSK Ltd. v. United States, 115 F.3d 965, 975

(1997) (holding that the term "sold" requires both a transfer of

ownership to an unrelated party and consideration).

Consequently, in light of NSK, the Court remands to Commerce

to exclude any sample transactions unsupported by consideration

from NTN’s FMV calculations.

2. Circumstance of Sales Adjustment Based on Differences in Prices
at Different Trade Levels

NTN reported sales at different levels of trade in the home

market. Final Results, 61 Fed. Reg. at 66,508. During the review,

NTN requested that Commerce make a price-based level of trade

("LOT") adjustment when U.S. sales were matched to home market

sales across different levels of trade. Commerce denied a LOT

adjustment based upon differences in prices, stating the following:

[R]espondents must quantify any price differentials that
are directly attributable to differences in levels of
trade. During the course of this administrative review,
NTN made no attempt to quantify the degree to which
differences in prices were attributable wholly or partly
to differences in levels of trade.

Final Results, 61 Fed. Reg. at 66,508 (internal quotations

omitted).

NTN argues that it provided evidence which supported a LOT

adjustment and asks that the Court remand so that Commerce could

state its reasons for its refusal to make an adjustment and specify
Consol. Court No. 97-01-00092 Page 22
what proof Commerce needs to quantify a LOT adjustment for NTN.

NTN's Mem. Supp. Mot. J. Agency R. at 13-16. NTN acknowledges that

this Court has rejected its argument regarding a LOT adjustment in

previous cases but asks the Court to reconsider the issue. Id. at

16. Torrington agrees with Commerce’s determination that NTN did

not submit information sufficient to support a LOT adjustment.

A careful review of the record indicates that NTN submitted

some evidence of varying costs and expenses across different LOTs.

Nonetheless, the Court upholds Commerce’s determination to deny an

LOT adjustment, because NTN failed to show how LOTs account for the

differences in price which NTN reported. Although NTN argues that

"these distinctions in cost readily relate to the differences in

price," see NTN’s Mem. Supp. J. Agency R. at 14, NTN did not
demonstrate how the differences in cost and in price were

attributed to LOT. A mere declaration that the differences exist

is insufficient to grant a LOT adjustment.

"This Court has consistently upheld a denial of a level of

trade adjustment where a respondent has failed to demonstrate that

differences in price were directly attributable to differences in

level of trade." Timken Co. v. United States, 21 CIT ___, Slip Op.

97-87 at 10 (July 3, 1997) (citing Koyo Seiko Co. v. United States,

20 CIT 772, 777, 932 F. Supp. 1488, 1493 (1996), NTN Bearing Corp.,

19 CIT at 1232-33, 905 F. Supp. at 1094-95, NTN Bearing Corp. of
Consol. Court No. 97-01-00092 Page 23
Am. v. United States, 17 CIT 1149, 1154, 835 F. Supp. 646, 650

(1993)). In addition, the Court has upheld the denial of price-

based LOT adjustments where the party "merely indicated variances

in prices and selling expenses at the different levels of trade,

without illustrating the factors to which they were attributable."

NSK, 21 CIT at ___, 969 F. Supp. at 53. Therefore, the Court finds

that Commerce’s denial of a price-based LOT adjustment in this case

is supported by substantial evidence and is in accordance with law.

3. Reallocation of NTN's Selling Expenses Without Level of Trade
Adjustment Based on Indirect Selling Expenses

In the Final Results Commerce determined that the methods NTN

used for allocating its indirect selling expenses did not bear any

relationship to the manner in which NTN incurred the expenses,

leading to distorted allocations. Commerce further determined that

NTN's allocations according to LOT were misplaced and that NTN

could not conclusively demonstrate that its indirect selling
expenses vary across LOTs. Because Commerce found that NTN did not

provide sufficient evidence demonstrating that selling expenses are

attributable to trade levels, Commerce recalculated NTN's expenses

to represent selling expenses for all home market sales in the

Final Results. 61 Fed. Reg. at 66,489. Torrington supports

Commerce and argues that NTN has not distinguished the current
Consol. Court No. 97-01-00092 Page 24
review from previous reviews in which the Court affirmed Commerce's

reallocation method.

NTN argues that it submitted evidence that unequivocally

established that NTN incurred different selling expenses at

different trade levels. NTN's Mem. Supp. J. Agency R. at 17.

Accordingly, NTN argues that Commerce should have accepted its

allocation of U.S. and home market indirect selling expenses.

Although NTN recognizes that the Court decided against it when

considering a similar issue concerning the level of trade

adjustment, NTN argues that the facts of this case are materially

different from those of the previous review. Id. at 18.

A careful review of the record2 indicates that NTN’s method of

allocating U.S. indirect expenses did not substantiate its claim

that its selling expenses are attributable to different LOTs. In

fact, in some instances, NTN even failed to demonstrate that its

indirect selling expenses varied at all across LOTs. The Court
therefore affirms Commerce in this respect.

2
This includes the confidential record describing in depth
NTN’s method for allocating expenses.
Consol. Court No. 97-01-00092 Page 25
4. Exclusion of NTN's Home Market Sales to Related Parties in
Calculating FMV

Commerce excluded NTN's home market sales to related parties

in calculating FMV. Final Results, 61 Fed. Reg. at 66,511.

Commerce asserts that it properly exercised its discretion and

excluded NTN's related party sales in calculating FMV when

Commerce's test disclosed that, on average, NTN's prices to related

parties were lower that its prices to unrelated parties.

Commerce's Partial Opp'n Mots. J. Agency R. at 30-37.

NTN argues that Commerce's method of determining whether NTN's

related party sales were at arm's length was improper. According

to NTN, Commerce should not have discarded NTN's related party

sales without first examining other factors in addition to price,

such as, the terms and the quantities of each related party sale,

because those factors influence price. NTN believes that the

consideration of additional factors is necessary to determine

whether related party sales are "comparable" to sales to unrelated

party's under Commerce's regulation 19 C.F.R. § 353.45. NTN's Mem.

Supp. J. Agency R. at 18-19. NTN further objects to Commerce's use

of a weighted average approach to determine whether related party

prices are comparable to unrelated party prices. According to NTN,

Commerce's weighted average methodology is unreasonable because it

does not accurately reflect the price levels to unrelated and

related parties for part number in the same class or kind.
Consol. Court No. 97-01-00092 Page 26
Although NTN recognizes that this Court has affirmed Commerce's

decision to exclude related party sales in NSK, 21 CIT ___, 969 F.

Supp. 34, and NTN, 19 CIT 1221, 905 F. Supp. 1083, NTN asks that

the Court remand for Commerce to revise its test for determining

whether related party sales were made at prices comparable to

unrelated party sales. NTN's Mem. Supp. J. Agency R. at 18-21.

Torrington supports Commerce exclusion of NTN's related party

sales from the calculation of FMV. In addition, Torrington asserts

that Commerce has the authority to exclude related party sales,

unless Commerce is satisfied with the price. Torrington also

asserts that NTN has not demonstrated that Commerce's determination

was unreasonable.

According to 19 U.S.C. § 1677b(3):

If such or similar merchandise is sold or, in the
absence of sales, offered for sale through a sales agency
or other organization related to the seller . . . , the
prices at which such or similar merchandise is sold . .
. may be used in determining the foreign market value.

Because the statute is silent as to when Commerce should use

related-party sales in calculating FMV, Commerce has broad

discretion to make that determination. See, Chevron U.S.A. Inc. v.
National Resources Defense Council, 467 U.S. 837, 842-43 (1984).

Commerce’s relevant regulation, 19 C.F.R. § 353.45, provides

that:
Consol. Court No. 97-01-00092 Page 27
If a producer or reseller sold such or similar
merchandise to a person related as described in [19
U.S.C. § 1677(13)], [Commerce] ordinarily will calculate
foreign market value based on that sale only if satisfied
that the price is comparable to the price at which the
producer or reseller sold such or similar merchandise to
a person not related to the seller.

Accordingly, there is a strong presumption that Commerce will not

use a related-party price in the calculation of FMV "unless the

manufacturer demonstrates to Commerce’s satisfaction that the

prices are at arm’s length." SSAB Svenskt Stal AB v. United
States, 21 CIT ___, ___, 976 F. Supp. 1027, 1030 (1997).

NTN concedes that, in general, prices to related parties were

lower than prices to unrelated parties. Further, NTN failed to

show why Commerce’s reliance on price is unreasonable. See NTN, 19

CIT at 1242, 905 F. Supp. at 1100 (rejecting the assertion that

Commerce should consider factors other than price in determining

whether to disregard related-party sales). The Court, therefore,

affirms Commerce’s determination to disregard related party sales.

5. Reallocation of United States Selling Expenses Based on Resale
Price to the First Unrelated Party

NTN reported to Commerce the selling expenses it incurred in

the United States, which were allocated on the basis of transfer

prices from the manufacturer to its related U.S. subsidiary.

Commerce reallocated the expenses based on the resale prices to the

first unrelated purchasers because it determined that the resale
Consol. Court No. 97-01-00092 Page 28
prices provided a more reliable measure of value. Final Results,

61 Fed. Reg. at 66,515.

NTN argues that Commerce does not provide any explanation for

its decision to reallocate NTN's U.S. selling expenses. According

to NTN, Commerce's conclusion that prices to unrelated parties are

more accurate than the transfer price is incorrect. NTN

acknowledges that this Court sustained Commerce's methodology in

NSK, 21 CIT ___, 969 F. Supp. 34, but requests that the Court
remand so that Commerce could recalculate NTN's margin based on

NTN's data as reported. NTN's Mem. Supp. J. Agency R. at 21-22.

Torrington agrees with Commerce and asserts that this Court has

already rejected NTN's argument.

The Court declines to revisit its rationale articulated in

NSK, which held that Commerce’s reallocation of selling expenses

based on the sales price to the first unrelated purchaser is

reasonable. Accordingly, the Court affirms Commerce’s method of
calculating NTN’s margin using resale prices and not transfer

prices.

Conclusion

The case is remanded for Commerce to: (1) review the record to

determine whether it is possible to isolate and remove the portions

of Koyo’s warranty expenses which relate to non-scope merchandise
Consol. Court No. 97-01-00092 Page 29
from the adjustments to FMV or, in the alternative, to deny the

adjustment if such an apportionment cannot be made; and (2) exclude

any sample transactions unsupported by consideration from the

calculation for NTN’s FMV. Commerce is affirmed in all other

respects.

_________________________
NICHOLAS TSOUCALAS
SENIOR JUDGE

Dated: July 29, 1999
New York, New York