Timken Co. v. United States

Slip Op. 02-106

United States Court of International Trade

THE TIMKEN COMPANY,

Plaintiff,

v.

UNITED STATES,

Defendant,
Before: Pogue, Judge
and
Consol. Court No. 01-00127
KOYO SEIKO, CO., LTD. and KOYO
CORPORATION OF U.S.A.;
NTN BEARING CORPORATION OF AMERICA,
AMERICAN NTN BEARING MANUFACTURING
CORPORATION, NTN BOWER CORPORATION
and NTN CORPORATION; NSK LTD., and
NSK CORP.

Defendant-Intervenors.

[ITA determination affirmed.]

Decided: September 5, 2002

Stewart and Stewart (Terence P. Stewart, William A. Fennell) for
Plaintiffs.

Robert D. McCallum, Jr., Assistant Attorney General; David M.
Cohen, Director; Lucius B. Lau, Assistant Director; Claudia Burke,
Attorney, Commercial Litigation Branch, Civil Division, U.S.
Department of Justice, for Defendant; John F. Koeppen, Attorney,
Office of the Chief Counsel for Import Administration, U.S.
Department of Commerce, of counsel.

Sidley Austin Brown & Wood LLP, (Neil R. Ellis) for Defendant-
Intervenor Koyo Seiko, Co., Ltd. and Koyo Corporation of U.S.A.

Barnes, Richardson & Colburn, (Donald J. Unger, Kazumune V. Kano,
Consol. Court No. 01-00127 Page 2

David G. Forgue, Beata Kolosa) for Defendant-Intervenor NTN Bearing
Corporation of America, American NTN Bearing Manufacturing
Corporation, NTN Bower Corporation and NTN Corporation.

Lipstein, Jaffe & Lawson L.L.P., (Robert A. Lipstein, Matthew P.
Jaffe, Grace W. Lawson, Joseph A. Konizeski) for Defendant-
Intervenor NSK Ltd. and NSK Corporation.

OPINION

Pogue, Judge: This consolidated action is before the Court on

cross-motions for judgment on the agency record, pursuant to USCIT

Rule 56.2. The parties challenge aspects of the Department of

Commerce’s ("Commerce" or "the Department") final results regarding

sales at less than fair value ("LTFV") of Tapered Roller Bearings

("TRBs") from Japan covering the period of October 1, 1998 through

September 30, 1999. See Tapered Roller Bearings and Parts Thereof,

Finished and Unfinished, From Japan, and Tapered Roller Bearings,

Four Inches or Less in Outside Diameter, and Components Thereof,

from Japan, 66 Fed. Reg. 15,078 (Dep't Commerce Mar. 15, 2001)

("Final Results") and the accompanying Issues and Decision

Memorandum, P.R. Doc. No. 141 (Mar. 7, 2001) ("Decision Mem.").

The parties include several foreign and domestic producers of TRBs.

The Court has jurisdiction over this matter pursuant to 19 U.S.C.

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

Foreign TRB producers Koyo Seiko Ltd. and Koyo Corp. of

America (collectively "Koyo") claim (1) Commerce violated its

international obligations by applying the "arm’s-length" test to
Consol. Court No. 01-00127 Page 3

exclude certain home market sales to affiliated customers; (2)

Commerce violated its international obligations by "zeroing" the

margins on negative-margin transactions when calculating Koyo’s

weighted average dumping margins; and (3) Commerce erred in its

treatment of imputed expenses in the calculation of profit for

Koyo’s CEP sales.1

Domestic producer The Timken Company ("Timken") argues that

(1) Commerce improperly calculated Koyo’s constructed export price

("CEP") by applying adverse facts to Koyo’s entered value, rather

than Koyo’s sales value; and (2) for purposes of a level of trade

("LOT") adjustment to NTN’s normal values, Commerce erred in its

decision to weight percentage differences in sales prices observed

at different levels of trade by the sum of the quantities of sales

at both levels of trade, rather than the lesser of the sales

quantities of the two LOTs being compared.2

1
Koyo initially also argued that Commerce erred by using
"adverse facts available" for calculating margins on subject
merchandise further processed in the United States. See Koyo's
Am. Compl. at 4-5. Koyo reasoned that because it met the
criteria described in 19 U.S.C. 1677a(e), Commerce was no longer
authorized to request Section E data. See Koyo’s Mem. Supp. Mot.
J. Agency R. at 16-17 (“Koyo’s Motion”); see also note 6, infra.
As a result, Koyo believed its noncompliance was justified, and
thus, application of adverse facts available would be improper.
Koyo’s Mot. at 13-14. Prior to oral argument, Koyo abandoned
this claim. See Letter from Sidley, Austin, Brown & Wood to
United States Court of International Trade at 1 (July 31, 2002).
2
Timken also alleged in its complaint that "[t]he ITA made
other clerical errors in calculating the final results that
implicate business proprietary information or the calculation
methodology used to reach the final results of the administrative
Consol. Court No. 01-00127 Page 4

In response to Timken's second claim, NTN argues that Timken’s

LOT adjustment claim presents no case or controversy, and therefore

cannot be considered by this Court. See U.S. Const. Art. 3, § 2

(prohibiting issuance of advisory opinions).

Standard of review

The Court will uphold a final determination by Commerce in an

antidumping investigation 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).

Discussion

I. Commerce's Application of Adverse Facts Available to
Determine Koyo's Dumping Margin

A. Background

An antidumping duty is imposed upon imported merchandise if

that merchandise is sold or likely to be sold in the United States

at less than fair value, and an industry in the United States is

review." Timken's Compl. ¶ 6(d). Timken’s subsequent Rule 56.2
Motion, however, is limited to its disagreement with treatment of
Koyo’s further manufactured merchandise and NTN’s LOT adjustment.
In it's brief, Timken abandoned its other claims. NSK Ltd. and
NSK Corp. asks that any action by Timken effecting NSK’s rights
in this matter be dismissed. Because "any claim which is not
pressed is deemed abandoned,” De Laval Separator Co. v. United
States, 1 CIT 144, 146, 511 F. Supp. 810, 812 (1981), we dismiss
Timken’s action as to NSK.
Consol. Court No. 01-00127 Page 5

materially injured or is threatened with material injury. See 19

U.S.C. § 1673. To determine whether merchandise is being sold at

less than fair value, Commerce compares the price of the imported

merchandise in the United States to the normal value ("NV")3 for

the same or similar merchandise in the home market. See 19 U.S.C.

§ 1677b. The United States price is calculated using either the

export price ("EP") or constructed export price ("CEP"). See 19

U.S.C. § 1677a(a), (b). Commerce uses a CEP if, “before or after

the time of importation, the first sale to an unaffiliated person

is made by (or for the account of) the producer or exporter or by

a seller in the United States who is affiliated with the producer

or exporter." Uruguay Round Agreements Act, Statement of

Administrative Action, H.R. Doc. No. 103-826 (1994), reprinted in

1994 U.S.C.C.A.A.N. 4040, at 822 ("SAA").4 Various adjustments may

be made to CEP, including reduction by "the cost of any further

manufacture or assembly" in the U.S. See 19 U.S.C. § 1677a(d)(2).

Here, Commerce chose to use CEP.5 As there was value added to

3
NV is "the price at which the foreign like product is
first sold . . . for consumption in the exporting country, in the
usual commercial quantities and in the ordinary course of trade."
19 U.S.C. § 1677b(a)(1)(B)(I).
4
The SAA is "an authoritative expression by the United
States concerning the interpretation and application of the
Uruguay Round Agreements and this Act in any judicial proceeding
in which a question arises concerning such interpretation or
application." 19 U.S.C. § 3512(d).
5
Commerce's decision to use CEP is unchallenged by any of
the parties.
Consol. Court No. 01-00127 Page 6

the subject merchandise in the United States after importation,

Commerce required a Section E response from Koyo.6 Koyo, however,

chose not to file Section E of the questionnaire. See Letter from

Koyo Seiko Co. to the Department of Commerce, P.R. Doc. No. 59 at

6 (May 2, 2000) ("Koyo's Refusal Letter"). As a result of Koyo's

deliberate noncompliance, Commerce calculated Koyo's CEP using

adverse facts available. Commerce chose as adverse facts available

the rate of 41.04 percent. Decision Mem. at 8. This was the cash

deposit rate established in the 1993-94 administrative review, see

Tapered Roller Bearings and Parts Thereof, Finished and Unfinished

From Japan, and Tapered Roller Bearings, Four Inches or Less in

Outside Diameter, and Components Thereof, from Japan, 63 Fed. Reg.

20,585, 20,611 (Dep’t Commerce 1998), and the highest rate ever

calculated for Koyo in any segment of the A-588-604 case. Decision

Mem. at 8. Commerce applied this rate to the entered value of

Koyo's further-manufactured merchandise in order to calculate

Koyo's CEP.

While Commerce's decision to use adverse facts is undisputed,

Timken believes that Commerce's application of adverse facts to

Koyo's entered value did not create a fully adverse inference.

Timken's Mem. Supp. Mot. J. Agency R. at 12 ("Timken's Mem.").

Timken points out that Commerce used the same methodology here as

6
Section E contains a request for sales and cost
information for Koyo’s further-manufactured sales. See Commerce’s
Request for Information at Section E, P.R. Doc. No. 14 at E-2.
Consol. Court No. 01-00127 Page 7

in previous administrative reviews in which Koyo also refused to

supply further-manufactured information. See id. at 8-12; see also

Tapered Roller Bearings and Parts Thereof, Finished and Unfinished,

from Japan, and Tapered Roller Bearings, Four Inches or Less in

Outside Diameter, and Components Thereof, from Japan, 65 Fed. Reg.

11,767 (Dep’t Commerce March 6, 2000) (1997-98 review period); 63

Fed. Reg. 2,558 (Dep’t Commerce Jan. 15, 1998) (1995-96 review

period). Timken argues that Koyo’s earlier noncompliance with this

methodology suggests that Commerce should alter the methodology in

order to obtain Koyo's compliance. Timken's Mem. at 12. Timken

suggests that Commerce should apply the percentage rate to Koyo's

U.S. sales values, which would result in a higher dumping margin.

Id. at 10. In essence, Timken argues that Commerce should have

applied "a more adverse 'facts available'" to calculate Koyo's

dumping margin. Id. at 12-13.

Commerce rejected Timken's approach, explaining that the

application of the 41.04 rate to Koyo's sales value would be unduly

punitive. Decision Mem. at 8. Commerce also points out that

"Timken has failed to offer arguments or provide record evidence

demonstrating that the rate selected is not reasonably adverse."

Id.

B. Analysis

Commerce's application of the adverse facts available rate to

the entered value rather than the sales value is consistent with
Consol. Court No. 01-00127 Page 8

Commerce's regulation for determining assessment rates, which

states that Commerce "normally will calculate the assessment rate

by dividing the dumping margin found on the subject merchandise

examined by the entered value of such merchandise for normal

customs duty purposes." 19 CFR § 351.212(b)(1) (emphasis added).

Additionally, this Court has previously decided that CEP can be

calculated by applying adverse facts available to a party's entered

value when there is further manufacturing.7 See NTN Bearing Corp.

of Am. v. United States, 26 CIT , , 186 F. Supp. 2d 1257, 1315

(2002) (sustaining Commerce's application of adverse facts

available rate to Koyo's entered value to determine the CEP of

Koyo's further manufactured merchandise).8 We find no reason to

change our position on this matter.

Even though the issue and parties are identical, Timken argues

that this Court's ruling in NTN Bearing II does not

preclude application of adverse facts available to Koyo's sales

value. Timken's Reply Br. Supp. Mot. J. Agency R. at 15. Timken

7
The Court’s previous decision to uphold the application of
adverse facts available to the entered value of subject
merchandise was in response to motions from the same parties as
in this case.
8
We refer frequently to several cases entitled NTN Bearing
Corp. v. United States. Only two of these cases are discussed
extensively. References to these two cases will be abbreviated
in chronological order. See NTN Bearing Corp. of Am. v. United
States, 25 CIT __, __, 155 F. Supp. 2d 715 (2001), appeal
docketed, Nos. 02-1180, 02-1181 (Fed. Cir. Feb. 5, 2002) (“NTN
Bearing I”); NTN Bearing Corp. of Am. v. United States, 26 CIT
, , 186 F. Supp. 2d 1257 (2002) (“NTN Bearing II”).
Consol. Court No. 01-00127 Page 9

suggests that the difference is in Commerce's knowledge: before

NTN Bearing II, Commerce could not have known Koyo would repeatedly

decline to comply with Commerce's requests for Section E data,

whereas after NTN Bearing II, Commerce should have known that

Koyo's noncompliance would continue. Id. at 16. In other words,

Timken argues, Commerce should alter its methodology (i.e. apply

the percentage rate to sales values instead of entered values) in

order to effectively induce Koyo’s compliance. Id.

This argument is flawed for several reasons. First, Commerce

has increased Koyo's rate since NTN Bearing II, from 36.21 percent,

see Tapered Roller Bearings, 63 Fed. Reg. at 2,562, to the rate of

41.04 percent used here. Timken's argument that Commerce's

methodology does not attempt to induce Koyo's compliance fails to

recognize the higher dumping margin imposed by this higher rate.

Second, although it is true that Commerce applied the same

rate of 41.04 percent in this review as it did in a previous

administrative review for Koyo that took place after NTN Bearing

II, see Issue and Decision Mem., Tapered Roller Bearings, 65 Fed.

Reg. 11,767 at Comment 1, Commerce is "not required by the statute

to select a method that is 'the most' or 'more' reasonably

adverse." See NTN Bearing II, 26 CIT at __, 186 F. Supp. 2d at

1315 (agreeing with Commerce that it need not apply the most or

more adverse facts) (internal citations and quotations omitted).

Rather, Commerce should adhere to the overriding goal of the anti-
Consol. Court No. 01-00127 Page 10

dumping law, which is not to create a punitive result, i.e.,

"unreasonably high rates with no relationship to the respondent's

actual dumping margin," F.lii De Cecco di Filippo Fara S. Martino

S.p.A. v. United States, 216 F.3d 1027, 1032 (Fed. Cir. 2000) (“De

Cecco”), but rather to create a result that determines "current

margins as accurately as possible." Rhone Poulenc, Inc. v. United

States, 899 F.2d 1185, 1191 (Fed. Cir. 1990); NTN Bearing Corp. v.

United States, 74 F.3d 1204, 1208 (Fed. Cir. 1995).

In using the 41.04 percent rate and applying that rate to

Koyo's entered value, Commerce is appropriately balancing this goal

of accuracy against the risk of creating a punitive margin.

Commerce specifically declined to apply adverse facts to Koyo's

sales value because it believed that such an application "would be

unduly punitive, given that a substantial amount of value was added

to the imported components in the United States." Decision Mem. at

8. Commerce reasonably denied Timken's suggestion to apply adverse

facts to a value that has been substantially increased after

importation because such an application could result in an

unreasonably high dumping margin. Commerce's decision therefore

adheres to the purpose of and restrictions on adverse facts

available. See De Cecco, 216 F.3d at 1032; Reiner Brach GmbH & Co.

KG v. United States, 26 CIT __, 206 F. Supp. 2d 1323 (2002).

Timken questions Commerce's ability to determine that Timken's

suggested approach would be punitive, because Koyo failed to supply
Consol. Court No. 01-00127 Page 11

any information upon which Commerce could make a fact-based

estimate. Timken's Mem. at 14. However, Commerce has "extensive

experience with and knowledge of Koyo's further-manufactured sales

and the calculation of the value added in the United States with

respect to these sales." Decision Mem. at 6. Additionally, Koyo

submitted data to Commerce, which Commerce verified, demonstrating

that the value added in the United States substantially exceeds the

value of the imported merchandise. See Letter from Koyo Seiko Co.

to the Department of Commerce, P.R. Doc. No. 37 (Feb. 11, 2000),

amended by Letter from Koyo Seiko Co. to the Department of

Commerce, P.R. Doc. No. 59 at 2 (Oct. 2, 2000); Letter from Koyo

Seiko Co. to the Department of Commerce, P.R. Doc. No. 55 at 2

(October 24, 2000). Therefore, even without Koyo's Section E

response, Commerce still had enough information to make a

reasonable assessment of the impact of applying adverse facts.

Commerce is "in the best position, based on its expert knowledge of

the market and the individual respondent, to select adverse facts

that will create the proper deterrent to non-cooperation with its

investigations and assure a reasonable margin." De Cecco, 216 F.3d

at 1032.

Finally, because Commerce determined that "a substantial

amount of value was added to the imported components in the United

States," Timken's suggested methodology -- that Commerce apply its

adverse facts to Koyo's sales value -- would effectively apply a
Consol. Court No. 01-00127 Page 12

dumping margin to value added after the merchandise was imported

into the United States. Decision Mem. at 8. Such a result is

contrary to the purpose of the anti-dumping investigation, which is

to "determine whether dumping duties should be imposed on subject

merchandise when it is imported into the United States." Pesquera

Mares Australes Ltda. v. United States, 266 F.3d 1372, 1374 (Fed.

Cir. 2001) (emphasis added).

In sum, Timken offers no evidence demonstrating that the rate

selected is not reasonably adverse, nor any well-founded claim that

Commerce's chosen methodology is not in accordance with law. For

these reasons, this Court upholds Commerce's application of adverse

facts available to Koyo's entered value as supported by substantial

evidence and in accordance with law.

II. Level of Trade (“LOT”) Adjustment for NTN

Because normal value is based on exporting country (“EC”)

sales at the same LOT as the EP or CEP,9 19 U.S.C. § 1677b(a)(7)

directs Commerce to adjust normal value to account for any price

differential between sales at different LOTs. In order to

determine the amount of the adjustment, “Commerce for each NTN

model sold at both LOTs in the [home market] calculated the

difference between the weighted-average prices at the two LOTs as

9
Sales are made at different levels of trade “if they are
made at different marketing stages (or their equivalent).”
Antidumping Manual, Chap. 8 at 53; 19 C.F.R. § 351.412(c)(2).
Consol. Court No. 01-00127 Page 13

a percentage of the weighted-average price at the comparison LOT.”

Def.’s Mem. Opp’n Pls’ Mot. J. Agency R. at 26 (“Def.’s Mem.”); 19

C.F.R. § 351.412(e).10 The LOT adjustment was then calculated by

applying the weighted-average percentage price difference to the

normal value determined at the comparison LOT. Def.’s Mem. at 26;

see generally Mem. from Deborah Scott, Case Analyst, Analysis

Memorandum For Preliminary Results of the 1998-99 Review - NTN

Corporation, P.R. 117 (Oct. 31, 2000).11

Here, Commerce adjusted NTN’s EP sales for price differentials

accounted for by different levels of trade. Timken argues that

10
Commerce’s implementing regulation for LOT adjustments
provides:

(e) Amount of adjustment. The Secretary normally will
calculate the amount of a level of trade adjustment by:

(1) Calculating the weighted-averages of the
prices of sales at the two levels of trade
identified in paragraph (d), after making any
other adjustments to those prices appropriate
under section 773(a)(6) of the Act and this
subpart;
(2) Calculating the average of the percentage
differences between those weighted-average
prices; and
(3) Applying the percentage difference to normal
value, where it is at a different level of
trade from the export price or constructed
export price (whichever is applicable), after
making any other adjustments to normal value
appropriate under Section 773(a)(6) of the Act
and this subpart.

19 C.F.R. § 351.412(e).
11
This practice has been applied consistently by Commerce.
Consol. Court No. 01-00127 Page 14

Commerce’s computer program used the sum of the sales of models at

both levels of trade to weight prices, and that this practice

produces erroneous results and provides respondents with an

opportunity to “game the system with isolated single sales.”

Timken’s Mem. at 22.12 Rather, according to Timken, Commerce should

weight the price based on the actual number of instances where

there are actual price differences. Id. at 21-23. Timken poses

several hypothetical sets of facts that it claims demonstrate that

Commerce’s methodology produces distorted results. See, e.g., id.

at 22-23.

Timken’s hypothetical examples, however, do not prove that

Commerce’s methodology for calculating the LOT adjustment produces

distortive and therefore unreasonable results in this instance.

Aside from providing the hypothetical examples, Timken does not

offer any evidence that Commerce’s weighted averages for NTN in

this review were distorted. Nor does Timken accuse NTN of

attempting to “game the system;” rather, Timken argues that it is

12
NTN Bearing claims that Timken presents “no case or
controversy” and is asking for an “advisory opinion.” NTN’s
Resp. to Timken’s Mem. Supp. Mot. J. Agency R. at 4. “In order
to satisfy the case or controversy requirement ‘a litigant must
have suffered some actual injury that can be redressed by a
favorable judicial decision.’” Verson v. United States,22 CIT
151, 153, 5 F. Supp. 2d 963, 966 (1998) (quoting Iron Arrow Honor
Soc. v. Heckler, 464 U.S. 67, 70 (1983)). While Timken does not
cite to specific record evidence regarding NTN, Timken does argue
that Commerce’s LOT adjustment produces erroneous results
whenever it is used, including Commerce’s application of the test
to NTN’s LOT adjustment. Therefore, a case or controversy does
exist.
Consol. Court No. 01-00127 Page 15

possible that some unspecified party could take advantage of the

system.

Moreover, in promulgating its implementing regulation, 19

C.F.R. § 351.412(e), Commerce considered proposals similar to

Timken’s, that it “should base the amount of any adjustment on the

pattern of consistent price differences, rather than on a weighted

average.” Antidumping Duties; Countervailing Duties; Final Rule,

62 Fed. Reg. 27,296, 27,372 (May 19, 1997) (discussion of section

351.412(e)). Commerce, however, made a policy decision based on

the SAA guidelines and rejected this approach. The SAA provides

that “[a]ny adjustment under Section 773(a)(7)(A) [19 U.S.C.

1677b(a)(7)(A)] will be calculated as the percentage by which the

weighted-average prices at each of the two levels of trade differ

in the market used to establish normal value.” SAA at 830.

Because Commerce’s policy choice is reasonable, until a party

presents actual evidence that the application of Commerce’s

methodology is distortive and unreasonable, this Court will respect

the agency’s legitimate policy decision. Suramerica de Aleaciones

Laminadas, C.A. v. United States, 966 F. 2d 660, 665 (Fed. Cir.

1992).

III. Commerce’s Application of the 99.5 Percent Arm’s Length Test

As noted above, “normal value” is defined as “the price at

which the foreign like product is first sold . . . for consumption
Consol. Court No. 01-00127 Page 16

in the exporting country, in the usual commercial quantities and in

the ordinary course of trade.” 19 U.S.C. § 1677b(a)(1)(B)(i). The

Department’s regulations direct it to use sales data to calculate

normal value if the Department is “satisfied that the price is

comparable to the price at which the exporter or producer sold the

foreign like product to a person who is not affiliated with the

seller,” 19 C.F.R. § 351.403(c), thereby only including data from

sales made at arm’s length, i.e., in the ordinary course of trade.

Commerce has consistently applied 19 C.F.R. § 351.403(c)

through a “99.5 percent arm’s-length test.” Under this test, the

Department compares, on a model-specific basis, the weighted

average prices of home market sales of subject merchandise to

affiliated customers with the weighted average prices of home

market sales of the same model to unaffiliated customers. All home

market sales to affiliated customers the weighted average prices of

which are less than 99.5 percent of the weighted average prices of

sales to unaffiliated customers are excluded from the calculation

of normal value. Sales to affiliated customers at prices that are

higher than 99.5 percent of the weighted average price of sales to

unaffiliated customers are automatically included, unless the party

can prove that those sales are aberrationally high.

In the Final Determination, the Department excluded sales by

Koyo to affiliates that failed the Department’s “arm’s-length”

test. All sales at prices above 99.5 percent of the weighted
Consol. Court No. 01-00127 Page 17

average price to unaffiliated customers, however, were included in

the calculation of Koyo’s dumping margin. Koyo claims that

Commerce’s application of the arm’s-length test violates Article

2.1 of the Agreement on Implementation of Art. VI of the General

Agreement on Tariffs and Trade (“Anti-Dumping Agreement”), as

interpreted in recent WTO dispute resolution proceedings, United

States - Anti-Dumping Measures on Certain Hot-Rolled Steel Products

from Japan, WT/DS184/R (Feb. 28, 2001) (“Hot Rolled Steel Panel

Report”) and WT/DS184/AB/R (July 24, 2001) (“Hot Rolled Steel

Appellate Body Report”). See Koyo’s Mot. at 5-6.

Commerce claims that its arm’s length test should be upheld

because this Court has previously sustained the test and because

Koyo is precluded from seeking a remedy in this Court based on the

Anti-Dumping Agreement, pursuant to 19 U.S.C. § 3512(c) and § 3538.

Timken also argues that Koyo failed to exhaust its administrative

remedies by never raising this issue during the proceeding before

the Department.13

A. Exhaustion

As a preliminary matter, the Court addresses Timken’s claim

that Koyo failed to exhaust its administrative remedies. “The

exhaustion doctrine requires a party to present its claims to the

13
Although the Department argues that Koyo failed to exhaust
its administrative remedies for several other claims in Koyo’s
complaint, there is no mention of this argument by the government
with regards to the “arm’s-length” test.
Consol. Court No. 01-00127 Page 18

relevant administrative agency for the agency’s consideration

before raising these claims to the Court.” Timken Co. v. United

States, 26 CIT __, __, 201 F. Supp. 2d 1316, 1340 (2002). There

is, however, “no absolute requirement of exhaustion in the Court of

International Trade in non-classification cases.” Consol. Bearings

Co. v. United States, 25 CIT __, __, 166 F. Supp. 2d 580, 586

(2001). Rather, Congress vested the Court with discretion,

pursuant to 28 U.S.C. § 2637(d), to determine the circumstances

under which it is appropriate to require the exhaustion of

administrative remedies.

A party “may be excused from its failure to raise the issue

before Commerce [where] Commerce in fact considered the issue.”

FAG Kugelfischer Georg Schafer AG v. United States, 25 CIT __, __,

131 F. Supp. 2d 104, 114 (2001). The same aspects of the arm’s-

length test at issue here were raised by NTN in the administrative

proceeding below. The danger of the Court deciding the issue

before the Department has the opportunity to examine it at the

administrative level is not present because the Department did

indeed consider and reject an identical claim. Id.; see also

Decision Mem. at 26-27. Therefore, even though Koyo may have

failed to raise the issue in the administrative proceeding, it does

not appear reasonable to require further exhaustion in this case.

Moreover, “the Court has exercised its discretion to obviate

exhaustion where: (1) requiring it would be futile;” (2) “a
Consol. Court No. 01-00127 Page 19

subsequent court decision has interpreted existing law after the

administrative determination at issue was published, and the new

decision might materially affect the agency’s actions;” (3) “the

question is one of law and does not require further factual

development and, therefore, the court does not invade the province

of the agency” by considering the question; or (4) plaintiffs “had

no reason to suspect that the agency would refuse to adhere to

‘clearly applicable precedent.’” FAG Kugelfischer Georg Schafer AG

v. United States, 25 CIT at __, 131 F. Supp. 2d at 114.

Here, neither the WTO Panel Report nor the Appellate Body

Report were issued until after Koyo filed its brief with the

Department.14 To require a party to anticipate the outcome of WTO

decisions would be an unreasonable application of the exhaustion

requirement. Although WTO Panel Reports and Appellate Body Reports

are not binding on this Court, they may help inform the Court’s

decisions, and therefore it is appropriate to review Koyo’s

challenge to the Department’s application of its arm’s length

policy in this matter.

B. 19 U.S.C. § 3512(c)

The Department does not address Koyo’s argument that the

“arm’s-length” test violates 19 U.S.C. § 1677b’s “fair comparison”

14
Koyo filed its case brief with the Department on December
7, 2000. The WTO Panel report, however, was not issued until
February 28, 2001 and the Appellate Body report was issued on
July 24, 2001.
Consol. Court No. 01-00127 Page 20

requirement and therefore contradicts obligations pursuant to the

Antidumping Agreement. Rather, Commerce focuses on 19 U.S.C. §

3512(c), arguing that the statute prohibits private parties from

challenging government action on the basis that it violates a WTO

agreement. Koyo, however, is not bringing this action under any

WTO agreement; rather, Koyo is arguing that the Department’s

application and interpretation of U.S. law violates its

international obligations pursuant to a WTO agreement.

Koyo is certainly “free to argue that Congress would never

have intended to violate an agreement it generally intended to

implement, without expressly saying so.” Gov’t of Uzbekistan v.

United States, slip op. 01-114 at 11 (CIT Aug. 30, 2001). As in

Uzbekistan, the Department’s reliance on section 3512(c) is an

“erroneous technical bar.” Id. Therefore, Koyo’s claim is

appropriately before us.

C. WTO Panel Reports

The interaction between international obligations and domestic

law is interesting and complex. While an unambiguous statute will

prevail over a conflicting international obligation, Federal Mogul

Corp. v. United States, 63 F.3d 1572, 1581 (1995), an ambiguous

statute should be interpreted so as to avoid conflict with

international obligations. See Murray v. Schooner Charming Betsy,

6 U.S. 64 (1804) (“[A]n act of Congress ought never to be construed

to violate the law of nations, if any other possible construction
Consol. Court No. 01-00127 Page 21

remains . . . .”). In the case of statutory interpretations by

agencies, however, judicial review must take place within the

confines of either Chevron or Skidmore deference. See United

States v. Mead Corp., 533 U.S. 218 (2001) (discussing Chevron

U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837 (1983) and

Skidmore v. Swift & Co., 323 U.S. 134 (1944)); but cf. DeBartolo

Corp. v. Fla. Gulf Coast Bldg. & Const. Trades Council, 485 U.S.

568, 574-75 (1988) (holding that Chevron may yield to the Charming

Betsy doctrine).

This Court does not automatically assume that the WTO Panel and

Appellate Body decisions are correct interpretations of United

States obligations pursuant to the GATT. Rather, they are non-

binding decisions, Hyundai Elec. Co., Ltd. v. United States, 23 CIT

302, 311, 53 F. Supp. 2d 1334, 1343 (1999), the reasoning of which

may help inform this Court’s decision.15 23 CIT at 312, 53 F. Supp.

2d at 1343.

Here, the WTO Appellate Body found that Commerce’s 99.5

percent arm’s-length test “does not rest on a permissible

interpretation of the term ‘sales in the ordinary course of

trade,’” found in Article 2.1 of the Anti-Dumping Agreement. Hot

15
The ministerial body of the WTO is the only body that can
interpret an Appellate Body report. See SAA at 662.
Furthermore, the response to “an adverse WTO panel report is the
province of the executive branch and, more particularly, the
Office of the U.S. Trade Representative.” Hyundai Elecs. Co.,
Ltd., 23 CIT at 312, 53 F. Supp. 2d at 1343; 19 U.S.C. § 3538.
Consol. Court No. 01-00127 Page 22

Rolled Steel Appellate Body Report ¶ 158 (quoting Hot Rolled Steel

Panel Report ¶ 7.112). Article 2.1 of the Anti-Dumping Agreement

provides:

For the purposes of this Agreement, a product is to be
considered as being dumped, i.e. introduced into the
commerce of another country at less than its normal
value, if the export price of the product exported from
one country to another is less than the comparable price,
in the ordinary course of trade, for the like product
when destined for consumption in the exporting country.

However, neither the WTO Panel nor the Appellate Body found that 19

U.S.C. § 1677b or 19 C.F.R. § 351.40316 violated the Anti-Dumping

Agreement. Rather, the two panels determined that the Department’s

policy of applying the 99.5 percent arm’s-length test resulted in

an inflated normal value and lacked “even-handedness.” Hot Rolled

Steel Appellate Body Report ¶ 154. According to the panels,

because all high-priced sales are included, unless the exporter

demonstrates through a difficult process that a given sales price

is aberrationally high, sales that are not in the ordinary course

of trade are often included in the antidumping calculation.

Furthermore, the Appellate Body noted that the Department “does not

have any standard, nor even guidelines, for determining the

threshold of aberrationally high” sales. Id. at ¶ 151. Moreover,

16
As noted above, the Department’s regulations provide that
it “may calculate normal value based on that sale [to an
affiliated party] only if satisfied that the price is comparable
to the price at which the exporter or producer sold the foreign
like product to a person who is not affiliated with the seller.”
19 C.F.R. § 351.403(c).
Consol. Court No. 01-00127 Page 23

it was “not clear to [the Appellate Body] that exporters would have

known of the rule applied to high-priced sales." Id. at ¶ 155.

The result, according to the WTO decisions, disadvantages

exporters.17

The WTO decisions found, and this Court agrees, that the

statute and the Department’s regulation are consistent with the

Anti-Dumping Agreement. As a result, no direct conflict exists

17
The Appellate Body recommended that “the United States
bring its measures found in this Report, and in the Panel Report
as modified by this Report, to be inconsistent with the Anti-
Dumping Agreement and the WTO Agreement, into conformity with its
obligations under those Agreements.” Hot Rolled Steel Appellate
Body Report ¶ 241. The United States stated its intention to
implement the recommendations and rulings of the Dispute
Settlement Body in the Hot-Rolled Steel rulings. “After the DSB
adopted its recommendations and rulings on August 23, the United
States stated its intention to implement them in a manner
consistent with its WTO obligations and engaged in discussions
with Japan pursuant to Article 21.3(b) in an effort to reach
agreement on the reasonable period of time for U.S.
implementation.” Submission of the United States, Arbitration on
the “Reasonable Period of Time,” United States – Anti-Dumping
Measures on Certain Hot-rolled Steel Products from Japan, ¶ 1
(Jan. 4, 2002). During oral argument for the arbitration
proceeding determining the proper amount of time for
implementation of the Appellate Body decision, the United States
represented “that modification of the ‘99.5 percent’ or ‘arm’s
length’ test applied in practice by its administrative officials
has already been commenced.” Arbitration, United States – Anti-
Dumping Measures on Certain Hot-rolled Steel Products from Japan,
WT/DS184/13 (Feb. 19, 2002) ¶ 33. (holding that the period of
time for implementation “which covers both legislative and
administrative phases . . . will accordingly expire on 23
November 2002). Furthermore, on August 15, 2002, the Commerce
Department, in the Federal Register, published a request for
comments on a proposed change in its arm’s length policy. As a
result, this Court is in the unfortunate position of reviewing a
policy that Commerce has already decided to modify. Nothing in
this opinion should be construed as limiting the Department’s
obligations in this regard.
Consol. Court No. 01-00127 Page 24

between provisions of U.S. law and international obligations.

Therefore, we focus solely on the Department’s policy interpreting

its statute and regulations. However, the ambiguity of the

statutes and regulations as to the definition of “ordinary course

of trade,” precludes a Chevron step-one analysis.18 Accordingly,

the court must determine if the Department’s interpretation is

reasonable, as informed by Chevron step-two and Charming Betsy.

This Court has previously upheld Commerce’s arm’s-length test

as a reasonable method for establishing a fair basis of comparison

between affiliated and unaffiliated party sales. See, e.g., Usinor

Sacilor v. United States, 18 CIT 1155, 1158-59, 872 F. Supp. 1000,

1004 (1994); Micron Tech. Inc. v. United States, 19 CIT 829, 846-

47, 893 F. Supp. 21, 37-38 (1995). Although several parties have

argued that the test fails to discover whether the investigated

party actually manipulated prices charged to a related party, this

Court held that it would continue to “uphold Commerce’s arm’s

length test unless the test was shown to be unreasonable because it

distorted price comparability.” SSAB Svenskt Stal Ab v. United

18
As discussed supra page 21, determination of whether the
agency’s statutory interpretation is in accordance with law
follows the two-step analysis formulated in Chevron, 467 U.S. at
837. If the statute is clear, “that is the end of the matter;
for the court, as well as the agency, must give effect to the
unambiguously expressed intent of Congress.” Id. at 842-43. If
the statute is ambiguous and is expressed in a format that
carries the “force of law,” Christensen v. Harris County, 529
U.S. 576 (2000),the agency’s interpretation of the statute is
entitled to deference as long as it is reasonable. Chevron, 467
U.S. at 843-44.
Consol. Court No. 01-00127 Page 25

States, 21 CIT 1007, 1010, 976 F. Supp. 1027, 1030 (1997). The

Court has also explicitly rejected the notion that the arm’s length

test is flawed because it does not take into account certain

qualitative factors other than price. NSK Ltd. v. United States,

21 CIT 617, 628-29, 969 F. Supp. 34, 48 (1997). These cases,

however, do not appear to consider whether it is reasonable to

apply a test that automatically excludes prices below 99.5 percent

while automatically including prices above 99.5 percent.

Investigating authorities, pursuant to their obligations under

the Anti-Dumping Agreement, need to verify whether sales are made

in the ordinary course of trade. The authorities cannot presume

that all affiliate sales are outside the ordinary course of trade;

in some circumstances, this may not be the case. As the WTO panels

note, however, “in the ordinary course of trade” is not a phrase

defined by the Antidumping Agreement. Therefore, investigating

authorities have the discretion to choose different methods of

testing whether a sale is made within the ordinary course of trade.

Here, Commerce determined that the 99.5 percent arm’s length

test appropriately excludes sales made outside the ordinary course

of trade. The Department excludes sales for which the price ratio

is less than 99.5 percent because “on average, that customer was

paying less than unrelated customers for the same merchandise.”

Usinor Sacilor, 18 CIT at 1157, 872 F. Supp. at 1003 (1994)

(internal citations and quotations omitted). The Appellate Body
Consol. Court No. 01-00127 Page 26

agreed that “a pattern of prices to affiliated customers, different

from the pattern of prices to unaffiliated customers, could

indicate that sales were not in the ordinary course of trade.” Hot

Rolled Steel Appellate Body Report ¶ 135. We agree with the

Department that it is reasonable to presume that affiliate sales

with a pattern of below average prices are not in the ordinary

course of trade. The Appellate Body, however, expressed concern

over the fact that the 99.5 percent arm’s length policy only

determines whether sales to affiliates are, on average, at lower

prices than sales to unaffiliated parties, not whether prices might

be on average higher to affiliates. Accordingly, what this Court

must next consider is whether higher priced sales should be

automatically included.

Although higher priced sales are presumed to be included in

the calculation of normal value, they may be excluded upon a

showing that they are aberrationally high. The Appellate Body was

concerned that “[t]he rule applied to high-priced sales . . . was

not contained in any guidelines, or other document conveyed to the

interested parties. It is, therefore, not clear to us [the

Appellate Body] that exporters would have known of the rule applied

to high-priced sales.” Id. at ¶ 155. Here, however, Koyo concedes

that it had notice that Commerce excluded sales demonstrated to be

“aberrational.” Oral Arg. Trans. at 9-11 (Aug. 2, 2002). In fact,

in this same administrative review, NTN tried to demonstrate that
Consol. Court No. 01-00127 Page 27

some of its high profit sales were outside the ordinary course of

trade. See Timken’s Oral Arg. Ex. 3.

Commerce argues that the investigated parties should have the

burden of establishing that high priced sales between affiliated

parties are not in the ordinary course of trade. According to

Commerce, once a party establishes that the high priced sales are

aberrational, the sales are excluded from the calculation of normal

value. Commerce applies this asymmetric test because it assumes

that investigated parties will supply advantageous information,

such as why a high priced sale between affiliated parties is not in

the ordinary course of trade, but will be reluctant to supply

information that is disadvantageous, such as why low priced sales

between affiliated parties are not in the ordinary course of trade.

Furthermore, according to Commerce, “[t]he purpose of an arm’s

length test is to eliminate prices that are distorted. We test

sales between two affiliated parties to determine if prices may

have been manipulated to lower normal value.” Antidumping Duties;

Countervailing Duties; Final Rule, 62 Fed. Reg. 27,296, 27,356 (May

19, 1997).

It may be that Commerce’s application of the 99.5 percent

arm’s length test could, in another case, lack even-handedness and

disadvantage exporters so as to be inconsistent with international

obligations under the Anti-Dumping Agreement. In this case,

however, we do not find, nor does Koyo argue, that the application
Consol. Court No. 01-00127 Page 28

of the 99.5 percent arm’s length test results in the inclusion of

sales outside the ordinary course of trade in the calculation of

Koyo’s normal value. Accordingly, because in this case

investigated parties control the data at issue, we uphold

Commerce’s application of its statutes and regulations as a

reasonable interpretation of “ordinary course of trade.”

IV. Commerce’s Practice of Zeroing Negative Margins

Koyo also argues that the Department erred by refusing “to

give full mathematical effect to the negative margins . . . in

calculating Koyo’s (and other respondents’) weighted average

margins, by setting the negative margins on those transactions at

zero.” Koyo’s Mot. at 34. Koyo points to a recent Appellate Body

decision, European Communities – Antidumping Duties on Imports of

Cotton-Type Bed Linen from India, WT/DS141/AB/R (Mar. 1, 2001)

(“EC-Bed Linen Appellate Body Report”), in arguing that this

practice is inconsistent with the Anti-Dumping Agreement. Id.

As with the “arm’s-length” test, the Department argues that

Koyo is barred from seeking a remedy in this Court pursuant to 19

U.S.C. § 3512(c). The Department also claims that WTO cases are

not binding on this Court and, more importantly, that to date, the

WTO cases have not decided the issue with respect to the zeroing

practice of the U.S. Finally, Timken claims that the zeroing

practice actually ensures a more accurate antidumping margin.
Consol. Court No. 01-00127 Page 29

As discussed above, 19 U.S.C. § 3512(c) does not bar Koyo’s

claim. This action is commenced under U.S. law, and a party may

reasonably assume that the agency will interpret U.S. law so as to

avoid a conflict with international obligations.

EC Bed-Linen involved the European Community’s practice of

zeroing “when establishing ‘the existence of margins of dumping.’”

EC Bed-Linen Appellate Body Report ¶¶ 45(a), 47. The Appellate

Body found EC’s “zeroing” practice to be inconsistent with Article

2.4.2 of the EC Anti-Dumping Agreement.19 Koyo argues that the EC’s

practice is similar to the one used by the Department.

As Koyo concedes, the Department’s zeroing practice has

previously been affirmed by this Court, which found it to be a

19
Article 2.4.2 of the Anti-Dumping Agreement provides:

Subject to the provisions governing fair
comparison in paragraph 4, the existence of
margins of dumping during the investigation
phase shall normally be established on the
basis of a comparison of a weighted average
normal value with a weighted average of prices
of all comparable export transactions or by a
comparison of normal value and export prices
on a transaction-to-transaction basis. A
normal value established on a weighted average
basis may be compared to prices of individual
export transactions if the authorities find a
pattern of export prices which differ
significantly among different purchasers,
regions or time periods, and if an explanation
is provided as to why such differences cannot
be taken into account appropriately by the use
of a weighted average-to-weighted average or
transaction-to-transaction comparison.
Consol. Court No. 01-00127 Page 30

reasonable interpretation of 19 U.S.C. § 1673. Serampore Indus.

Pvt. Ltd. v. Dep’t of Commerce, 11 CIT 866, 874, 675 F. Supp. 1354,

1360-61 (1987); Bowe Passat Reinigungs-und Waschereitechnik GmbH v.

United States, 20 CIT 558, 572, 926 F. Supp. 1138, 1150 (1996).

The Court, however, has also stated that it would only continue to

uphold the Department’s practice of zeroing “until it becomes clear

that such a practice is impermissible.” Bowe Passat, 20 CIT at

572, 926 F. Supp. at 1150.

The EC Bed Linen report does not invalidate Commerce’s zeroing

practice. The Appellate Body decision involved a dispute between

India and the European Communities, and did not comment on U.S.

practices. To date, no comparable WTO case has been decided

concerning U.S. zeroing practices. Moreover, although the EC’s

zeroing practice appears similar to the United States’ practice,

this Court cannot determine from the Appellate Body report whether

they are the same. As noted above, according to the SAA, only the

ministerial body of the WTO can interpret an Appellate Body report.

See SAA at 662 (discussing procedures for making decisions). It is

therefore not the province of this Court to determine the extent of

the similarities between EC and U.S. zeroing practices based on the

Appellate Body decision.

Furthermore, the EC-Bed Linen decision involved a comparison,

made during an antidumping investigation, of weighted averages for

export prices and normal value, while the instant case involves a
Consol. Court No. 01-00127 Page 31

comparison, made during an administrative review, of weighted-

average normal values to transaction-specific export prices.

Decision Mem. at 33. The Appellate Body was limited to

interpreting Article 2.4.2. An administrative review, such as the

one at issue here, however, is governed by Article 9.3.1 of the

Anti-Dumping Agreement.20 Although the two proceedings are related,

involving the calculation of anti-dumping margins, differences

exist between them and each investigation is informed by a

different article of the Anti-Dumping Agreement. Here, the

statutes require Commerce to calculate a “dumping margin for each

such entry.” 19 U.S.C. § 1675(a)(2)(A)(ii). “Dumping margin” is

defined by 19 U.S.C. § 1677(35)(A) as “the amount by which the

normal value exceeds the export price or constructed export price

of the subject merchandise.” As the statute requires the

20
Article 9.3.1, provides:

When the amount of the anti-dumping duty is
assessed on a retrospective basis, the
determination of the final liability for
payment of the anti-dumping duties shall take
place as soon as possible, normally within 12
months, and in no case more than 18 months,
after the date on which a request for a final
assessment of the amount of the anti-dumping
duty has been made. Any refund shall be made
promptly and normally in not more than 90 days
following the determination of final liability
made pursuant to this subparagraph. In any
case, where a refund is not made within 90
days, the authorities shall provide an
explanation if so requested.

Anti-Dumping Agreement, art. 9.3.1.
Consol. Court No. 01-00127 Page 32

calculation to be on an entry-by entry approach, and as previous

cases determined, Commerce’s practice is a reasonable

interpretation of 19 U.S.C. § 1675(a)(2)(A), and continues to be a

reasonable interpretation of the statute despite the WTO Panel

report. Therefore, EC-Bed Linen does not inform the Court on the

issue of an administrative review of an existing order.

Therefore, the Appellate Body’s decision in EC-Bed Linen does

not compel a change to this Court’s holding in Bowe Passat, 20 CIT

at 572, 926 F. Supp. at 1150, that the Department’s zeroing

practice is upheld “until it becomes clear that such practice is

impermissible.”

V. Commerce’s Treatment of Imputed Expenses in the Calculation of
Koyo’s Constructed Export Price

Koyo argues that the Department’s treatment of imputed

expenses in the calculation of constructed export price (“CEP”)

sales is not in accordance with law. The Department contends that

the Court should not consider Koyo’s challenge because Koyo failed

to exhaust its administrative remedies and, even if this Court does

consider Koyo’s challenge, the Department properly excluded imputed

credit and inventory carrying costs in its calculation of CEP.

A. Exhaustion

As previously discussed, supra page 18, there is “no absolute

requirement of exhaustion,” except in classification cases.

Consol. Bearings Co. v. United States, 25 CIT at __, 166 F. Supp.
Consol. Court No. 01-00127 Page 33

2d at 586. The court has the discretion to excuse the failure to

exhaust administrative remedies “where appropriate,” including when

it would be futile to follow the administrative remedy. 28 U.S.C.

§ 2637(d). Exhaustion is futile when the agency (1) consistently

applies the challenged policy or methodology; (2) issues rules,

regulations or bulletins promulgating such policy or methodology;

and (3) rejects similar challenges. See Koyo Seiko Co. v. United

States, 26 CIT __, __, 186 F. Supp. 2d 1332, 1339 (quoting Von

Hoffburg v. Alexander, 615 F.2d 633, 638 (5th Cir. 1980)).

According to Koyo, “the well-established ‘futility’ exception to

the exhaustion requirement” applies here. Koyo’s Reply Br. Supp.

Mot. J. Agency R. at 27; see also Asociacion Colombiana de

Exportadores v. United States, 916 F.2d 1571, 1575 (Fed. Cir. 1990)

(explaining that “following the administrative remedy would be

futile because of certainty of an adverse decision”) (internal

citations and quotations omitted).

The Department’s practice for calculating CEP profit is well-

established. In 1997, the Department issued a policy bulletin

explaining its methodology for the calculation of profit for CEP

transactions. See Import Administration Policy Bulletin 97-1:

Calculation of Profit for Constructed Export Price Transactions at

Step 2. The bulletin made clear that the Department’s policy is to

include imputed costs such as inventory carrying costs and credit

costs in “total U.S. selling expenses” but not in “total expenses.”
Consol. Court No. 01-00127 Page 34

Id. Furthermore, the Department has consistently excluded imputed

expenses from “total expenses” while including them in “total U.S.

selling expenses” in other antidumping proceedings. See, e.g.,

Antifriction Bearings (Other than Tapered Roller Bearings) and

Parts Thereof from France, et al., 64 Fed. Reg. 35,590, 35,623

(July 1, 1999) (final determ.); Antifriction Bearings (Other than

Tapered Roller Bearings) and Parts Thereof from France, et al., 62

Fed. Reg. 54,043, 54,072 (Oct. 17, 1997) (final admin. rev.).

Accordingly, as Commerce’s position has been both issued formally,

as a policy bulletin, and consistently applied, we conclude that

the policy is so well-established that it would have been futile

for Koyo to raise the issue in the administrative proceeding below.

See NTN Bearing Corp. I, 155 F. Supp. 2d at 743. As a result, the

Court finds that Koyo was excused from exhausting its

administrative remedies in this case.

B. Accordance with Law

Title 19 U.S.C. § 1677a(f) defines “total United States

expenses” and “total expenses.” “Total United States expenses”

refers to “the total expenses described in subsection

(d)(1)[commissions for selling the subject merchandise in the U.S.,

expenses resulting from and bearing a direct relationship to the

sale, any selling expenses that the seller pays on behalf of the

purchaser and any other selling expenses] and (2)[cost of further

manufacture or assembly] of this Section.” “Total expenses,” on
Consol. Court No. 01-00127 Page 35

the other hand, includes, in relevant part:

all expenses in the first of the following categories
which applies and which are incurred by or on behalf of
the foreign producer and foreign exporter of the subject
merchandise and by or on behalf of the United States
seller affiliated with the producer or exporter with
respect to the production and sale of such merchandise:
(i) The expenses incurred with respect to the
subject merchandise sold in the United States
and the foreign like product sold in the
exporting country if such expenses were
requested by the administering authority for
the purpose of establishing normal value and
constructed export price.
(ii) The expenses incurred with respect to the
narrowest category of merchandise sold in the
United States and the exporting country which
includes the subject merchandise.
(iii) The expenses incurred with respect to the
narrowest category of merchandise sold in all
countries which includes the subject
merchandise.

19 U.S.C. § 1677a(f)(C). In interpreting these two provisions,

Commerce includes imputed credit and inventory costs in U.S. total

expenses as an expense having a direct relation to the sale.

Commerce, however, does not impute credit and inventory expenses in

total expenses where total expenses include actual credit and

inventory costs.

In NTN Bearing I this Court addressed the Department’s

practice of excluding imputed expenses from “total expenses” but

including them in “total U.S. expenses.” The NTN Bearing I court

found that the Department’s practice ignored the plain language of

the statute and that the Department must include imputed credit and

inventory carrying costs in total expenses when they are included
Consol. Court No. 01-00127 Page 36

in total U.S. expenses. NTN Bearing I, 155 F. Supp. 2d at 743. The

Department, however, contends that NTN Bearing I is not dispositive

of the issue because it conflicts with the appellate decision in

U.S. Steel Group v. United States, 225 F.3d 1284 (Fed. Cir. 2000).

In U.S. Steel Group, the Court of Appeals for the Federal

Circuit found that symmetry between “total expenses” and “total

U.S. expenses” was not necessary, in which case movement expenses

could be included in one but not the other. Furthermore, the court

found that total U.S. expenses were not a subset of total expenses.

The Department now argues that U.S. Steel Group stands for the

proposition that symmetry need not exist in the ratio for CEP

transactions used here.

Unlike the court in NTN Bearing II, we do not believe that the

statute clearly addresses the use of imputed expenses in the

calculation of total expenses or total actual profit. Furthermore,

we believe, as held in U.S. Steel Group, that Congress defined

total United States expenses and total expenses differently. We

agree with the Department that although the court in U.S. Steel

Group focused on “movement expenses,” the reasoning of that case is

applicable here.

The Federal Circuit in U.S. Steel Group looked at the relevant

statutory provisions, 19 U.S.C. § 1677a, as a whole. The court

held that “[t]he statute itself defines ‘total U.S. expenses’

distinctly, both structurally and substantively, from ‘total
Consol. Court No. 01-00127 Page 37

expenses.’” 225 F.3d at 1289. Although the court focused on

movement expenses, it still found that total expenses and total

U.S. expenses were defined “very differently.” Here, although the

definitions of both total U.S. expenses and total expenses direct

Commerce to include a figure for selling expenses, it is not clear

from the statute that these figures need to be precisely the same.

Furthermore, even if U.S. Steel does not apply to selling

expenses, Commerce’s methodology is a reasonable interpretation of

the statute. In this situation, Commerce included a category of

expenses, inventory and credit costs, when calculating both total

U.S. expenses in the numerator and total expenses in the

denominator of the ratio. As this Court explained in Thai

Pineapple, imputed selling expenses when included in calculating

total U.S. expenses also need to be included in the calculation for

total expenses “unless they are already represented in total

expenses in some other fashion.” Thai Pineapple Canning Indus.

Corp., Ltd. v. United States, 23 CIT 286, 296 (1999), aff’d in

part, rev’d in part, 273 F.3d 1077 (Fed. Cir. 2001) (“Thai

Pineapple I”)21 (emphasis added) (citing U.S. Steel, 15 F. Supp. 2d

at 898).22 Here, Koyo provided Commerce with both “imputed” numbers

21
Although Commerce cites to Thai Pineapple I as adverse to
its position we are of a contrary mind.
22
Thai Pineapple I was remanded to Commerce in order for the
agency to “demonstrate . . . that the total expense denominator
of the ratio to be applied to total actual profit to obtain the
CEP profit adjustment contains all interest expenses (including
Consol. Court No. 01-00127 Page 38

representing inventory and credit costs on a per-model basis for

U.S. sales and “actual” numbers for total credit and inventory

costs.23 Commerce excluded imputed credit and inventory carrying

costs from total expenses and total actual profit because these

expenses were already accounted for; total expenses merely uses

actual figures while U.S. expenses uses imputed. Therefore, the

category of expenses at issue – inventory and carrying costs – are

included in both total expenses and total U.S. expenses. This is

consistent with U.S. Steel and the Thai Pineapple cases. See,

e.g., Thai Pineapple I, 23 CIT at 289 (holding that “imputed

expenses should be omitted from actual profit if they duplicate

expenses already accounted for”).

This practice is further supported by Commerce’s preference

for the use of actual cost information rather than imputed cost

information when possible. See, e.g., Antidumping Manual, Chap. 8

at 23-25 (“Our preference is to use actual credit cost information

if it is available. If actual expenses are not available, we

those relating to U.S. sales) as required by 19 U.S.C. §
1677a(f)(2)(C).” Thai Pineapple Canning Indus. Corp. Ltd. v.
United States, slip op. 00-17 at 17-18 (CIT Feb. 10, 2000) (“Thai
Pineapple II”).
23
Commerce requests respondents to report total interest
expenses covering inventory carrying costs and credit extension
expenses for cost of production purposes. “For price adjustment
purposes, however, Commerce requires repondents to impute
interest expenses separately for U.S. sales, even though
companies may not account for such expenses separately.” Thai
Pineapple II at 18.
Consol. Court No. 01-00127 Page 39

impute the cost of credit . . . .”).24 Rather than using a proxy,

actual figures for the interest expenses of inventory and credit

costs were included in the calculation of total expenses and total

actual profit. While the imputed numbers used in total U.S.

expenses may not be exactly the same as those used in total

expenses, one is a reasonable surrogate for the another. See,

e.g., Thai Pineapple II, slip op. 00-17 at 19 (“Theoretically, the

total expenses denominator would reflect the interest expenses

captured in the U.S. sales expenses numerator . . . as well as

‘home’ market interest expenses, because the total expenses

denominator is derived from a net unit figure based on all company

interest expenses without regard to sales destination.”).

Moreover, “[c]ompanies may not keep track of the costs of

maintaining inventory or extending credit to their customers on a

per-model basis. Nonetheless, they are real costs that a company

incurs. The Department asks respondents to provide measures of

these costs, to ‘impute’ them for purpose of determining normal

value and U.S. price.” Timken’s Resp. to Koyo’s Mot. J. Agency R.

at 39. Therefore, even if total U.S. expenses are a subset of

total expenses for selling cost purposes, inventory and credit

24
It should be noted that while the Antidumping Manual “is
not a binding legal document, it does give insight into the
internal operating procedures of Commerce.” Koenig & Bauer-
Albert AG v. United States, 24 CIT __, __, 90 F. Supp. 2d 1284,
1292 n.13 (2000), aff’d in part, vacated in part, remanded by 259
F.3d 1341 (Fed. Cir. 2001).
Consol. Court No. 01-00127 Page 40

costs are accounted for in both parts of the ratio.

Accordingly, this Court, consistent with the federal circuit’s

analysis in U.S. Steel Group, upholds the Department’s practice of

excluding imputed expense in “total expenses” when actual expenses

are used as that practice was applied here.

Conclusion

The Department’s final results are, therefore, affirmed as

being supported by substantial evidence and otherwise in accordance

with law.

Donald C. Pogue
Judge

Dated: September 5, 2002
New York, New York