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