Koenig & Bauer-Albert AG v. United States

Slip Op. 00-25

UNITED STATES COURT OF INTERNATIONAL TRADE

KOENIG & BAUER-ALBERT AG, ET AL.,

Plaintiffs,

v.

UNITED STATES, BEFORE: Pogue, Judge

Defendant, Consol. Court No. 96-10-
02298
and
(Germany)
GOSS GRAPHICS, INC.,

Defendant-Intervenor.

[Final results of Commerce’s redetermination pursuant to second
court remand sustained.]

Decided: March 8, 2000

Shearman & Sterling (Thomas B. Wilner, Jeffrey M. Winton, Michael
J. Chapman, and Meredith Kolsky Lewis) for Plaintiffs MAN Roland
Druckmaschinen AG and MAN Roland Inc.; Kirkland & Ellis (Kenneth
G. Weigel, Carol A. Rafferty, Nancy Kao, and Laura Fraedrich) for
Plaintiffs Koenig & Bauer-Albert AG and KBA-Motter Corp.

David W. Ogden, Acting Assistant Attorney General; David M.
Cohen, Director, James H. Holl, III, Attorney, Commercial
Litigation Branch, Civil Division, United States Department of
Justice; and Boguslawa B. Thoemmes, Attorney, Office of the Chief
Counsel for Import Administration, United States Department of
Commerce, Of Counsel, for Defendant.
Court No. 96-10-02298 Page 2

Wiley, Rein & Fielding (Charles Owen Verrill, Jr., Alan H. Price,
Willis S. Martyn III, and Leslie Johnson Pujo) for Defendant-
Intervenor.

OPINION

Pogue, Judge: On June 23, 1998, this Court remanded certain

aspects of the Department of Commerce’s ("Commerce" or "the

Department") determination in Large Newspaper Printing Presses and

Components Thereof, Whether Assembled or Unassembled, From Germany,

61 Fed. Reg. 38,166 (Dep’t Commerce 1996)(final determ.)("Germany

Final"). See Koenig & Bauer-Albert AG v. United States, 22 CIT __,

15 F. Supp. 2d 834 (1998) ("KBA I"). On September 17, 1998,

Commerce issued its Final Results of Redetermination Pursuant to

Remand (Redetermination List, Pub. Doc. 8, Conf. Doc. 4)(Sept. 17,

1998)("Redetermination").1 On remand, Commerce did not adequately

address the Court’s concerns regarding the issues of "collapsing"

and cost-averaging; thus the Court remanded these issues for a

second time. See Koenig & Bauer-Albert AG v. United States, 23

1
The administrative record in this case consists of three
lists of documents. Reference will be made to the "Final List"
when citing to the record in Germany Final, to the
"Redetermination List" when citing to the record in the
Redetermination, and to the "Second Redetermination List" when
citing to the record in the Final Results of Redetermination
Pursuant to Second Court Remand. Cites to the administrative
record specify whether reference is made to a public document or
to a business proprietary document.
Court No. 96-10-02298 Page 3

CIT __,__, 44 F. Supp. 2d 280, 287 (1999) ("KBA II"). On August

10, 1999, Commerce issued its Final Results of Redetermination

Pursuant to Second Court Remand (Second Redetermination List, Pub.

Doc. 5)(Aug. 10, 1999)("Second Redetermination"). The Court now

reviews Commerce’s Second Redetermination.

Standard of Review

The Court will uphold a Commerce determination 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)(i)(1994).

Background

MAN Roland Druckmaschinen AG and MAN Roland Inc. ("MAN

Roland"), respondents in the underlying administrative proceeding

before Commerce, produce large newspaper printing presses ("LNPPs")

at a facility in the western German city of Augsburg; MAN Roland’s

wholly-owned subsidiary, MAN Plamag, produces LNPPs at a facility

in the eastern German city of Plauen. The Plauen facility incurs

lower labor and overhead costs than the Augsburg facility. See MAN

Roland Supp. Questionnaire Secs. C,D,E (Final List, Conf. Doc.

39)(Dec. 13, 1995)("MAN Roland Responses") at Sec. D, p. 54.
Court No. 96-10-02298 Page 4

MAN Roland alleged throughout Commerce’s investigation that it

and MAN Plamag met the criteria for "collapsing," and that

therefore, in calculating the cost of production ("COP")2 and

constructed value ("CV")3 of its LNPPs, Commerce should have

2
In determining normal value ("NV") for purposes of
calculating the antidumping margin, sales made at less than COP
may be disregarded. See 19 U.S.C. § 1677b(b)(1)(1994). COP is
the sum of three components: cost of manufacturing ("COM");
selling, general, and administrative ("SG&A") expenses, and
profits; and packing costs. See 19 U.S.C. § 1677b(b)(3).
3
Constructed value ("CV") is used when it is not possible to
calculate NV based on the price of a foreign like product sold in
the comparison market. See 19 U.S.C. § 1677b(a)(4). CV is the
sum of COM, SG&A expenses and profits, and packing costs. See 19
U.S.C. § 1677b(e).
For CV purposes, COM is "the cost of materials and of
fabrication or other processing of any kind employed in producing
the [imported] merchandise, during a period which would
ordinarily permit the production of the merchandise in the
ordinary course of business." 19 U.S.C. § 1677b(e)(1). COM
includes such costs as cost of materials, labor and overhead.
See Steel Wire Rod From Venezuela, 63 Fed. Reg. 8,948, 8,952
(Dep’t Commerce 1998)(suspension antidumping investig.)
("Venezuelan SWR").
SG&A expenses and profits are "the actual amounts incurred
and realized by the specific exporter or producer being examined
in the investigation or review for [SG&A] expenses and profits,
in connection with the production and sale of a foreign like
product, in the ordinary course of trade, for consumption in the
foreign country." 19 U.S.C. § 1677b(e)(2)(A). 19 U.S.C. §
1677b(e)(2)(B) provides methods for calculating SG&A expenses and
profits where the "actual amounts" are not available.
Packing costs include "the cost of all containers and
coverings of whatever nature, and all other expenses incidental
to placing the subject merchandise in condition packed ready for
shipment to the United States." 19 U.S.C. § 1677b(e)(3).
Court No. 96-10-02298 Page 5

averaged the labor and overhead costs of both factories. See

Germany Final at 38,187-88.

I. Collapsing MAN Roland and MAN Plamag

a. Background

Collapsing is a practice whereby Commerce determines that

affiliated companies should be regarded as one entity, and

therefore calculates a single, weighted-average dumping margin to

be assessed to the collapsed entity as a whole. See AK Steel Corp.

v. United States, 22 CIT __, __, 34 F. Supp. 2d 756, 764 (1998),

aff’d in part, rev’d in part, No. 99-1296 (Fed. Cir. Feb. 23,

2000); Asociacion Colombiana de Exportadores v. United States, 22

CIT __,__ 6 F. Supp. 2d 865, 893 (1998)("Asociacion Colombiana").

Commerce initially disagreed with MAN Roland’s argument that

MAN Roland and MAN Plamag should be collapsed. See Germany Final

at 38,188. Apparently because it decided not to collapse the two

companies, Commerce determined that "[it] should not average costs

for [MAN Roland] and MAD [sic] Plamag." Id. In KBA I, the Court

found Commerce’s explanation insufficient and directed Commerce to

reconsider on remand its decision not to average costs. See 22 CIT

at __, 15 F. Supp. 2d at 849-50.

"[T]he only context in which the discussion of whether to
Court No. 96-10-02298 Page 6

average the production costs of affiliated parties . . . occur[s]

is in the context of collapsing." KBA II, 23 CIT at __, 44 F.

Supp. 2d at 287. Yet in its Redetermination, Commerce failed

entirely to address the collapsing issue, while explaining at

length its decision not to average the costs of MAN Roland and MAN

Plamag. See Redetermination at 2-9. Upon review, the Court

remanded the collapsing and cost-averaging issues for a second

time, and ordered Commerce to "apply its collapsing practice as it

then existed [i.e., at the time of Germany Final] and was later

codified at 19 C.F.R. § 351.401(f)."4 KBA II, 23 CIT at __, 44 F.

4
19 C.F.R. §351.401(f) provides:

(f) Treatment of affiliated producers in antidumping
proceedingsC
(1) In general. In an antidumping proceeding
under this part, the Secretary will treat two or more
affiliated producers as a single entity where those
producers have production facilities for similar or
identical products that would not require substantial
retooling of either facility in order to restructure
manufacturing priorities and the Secretary concludes
that there is a significant potential for the
manipulation of price or production.
(2)Significant potential for manipulation. In
identifying a significant potential for the
manipulation of price or production, the factors the
Secretary may consider include:
(i) The common level of ownership;
(ii) The extent to which managerial employees
or board members of one firm sit on the board of
directors on an affiliated firm; and
(iii) Whether operations are intertwined,
Court No. 96-10-02298 Page 7

Supp. 2d at 287.

In its Second Redetermination, Commerce applied its collapsing

regulation and decided to collapse MAN Roland and MAN Plamag for

purposes of calculating COP and CV. See Second Redetermination at

1. As a result, if affirmed by the Court, the revised final

dumping margin of 39.53% will be applied to subject merchandise

entered by either MAN Roland or MAN Plamag. See id. at 1-2.

b. Discussion

The antidumping statute does not directly address collapsing.

Thus, in determining whether Commerce’s collapsing practice is in

accordance with the law, "the question for the court is whether the

agency’s answer is based on a permissible construction of the

statute." Chevron U.S.A., Inc. v. Natural Resources Defense

such as through the sharing of sales information,
involvement in production and pricing decisions, the
sharing of facilities or employees, or significant
transactions between the affiliated producers.

19 C.F.R. § 351.401(f)(1999).
Note that although Germany Final was issued before the
regulation was promulgated, the regulation was proposed on
February 27, 1996, "and had been relied upon by Commerce as
instructive and consistent with Commerce’s practice and policy
before its effective date. Therefore, Commerce was aware of the
proposed regulation when it addressed MAN Roland’s request to
collapse on July 23, 1996." KBA I, 22 CIT at __, 44 F. Supp. 2d
at 286 (citations omitted).
Court No. 96-10-02298 Page 8

Council, Inc., 467 U.S. 837, 843 (1984) ("Chevron"). In other

words, the Court must determine whether Commerce’s collapsing

practice is a reasonable interpretation of the statute.

Commerce has interpreted the statute as giving it discretion

to collapse and has developed a collapsing practice. See, e.g.,

Certain Pasta From Italy, 61 Fed. Reg. 30,326, 30,351 (Dep’t

Commerce 1996)(final determ.); Certain Hot-Rolled Carbon Steel Flat

Products From Canada, 58 Fed. Reg. 37,099, 37,107 (Dep’t Commerce

1993)(final determ.); Certain Granite Products From Spain, 53 Fed.

Reg. 24,335, 24,337 (Dep’t Commerce 1988)(final determ.).5 To

conform with the Uruguay Round Agreements Act ("URAA"), Commerce

promulgated 19 CFR § 351.401(f). See supra note 4.

Commerce’s collapsing practice has been approved by the court

as a reasonable interpretation of the antidumping statute. See

5
"In determining whether to collapse related or affiliated
companies, the Department must decide whether the affiliated
companies are sufficiently intertwined as to permit the
possibility of price manipulation. In making this decision, the
Department considers factors such as: (1) The level of common
ownership; (2) interlocking boards of directors; (3) the
existence of production facilities for similar or identical
products that would not require retooling either plant’s
facilities to implement a decision to restructure either
company’s manufacturing priorities; and (4) whether the
operations of the companies are intertwined as evidenced by
coordination in pricing decisions, shared employees or
transactions between the companies." Certain Pasta from Italy,
61 Fed. Reg. at 30,351.
Court No. 96-10-02298 Page 9

Asociacion Colombiana 22 CIT __,__ 6 F. Supp. 2d 865, 893; Queen’s

Flowers de Colom. v. United States, 21 CIT 968, 971-72, 981 F.

Supp. 617, 622-23 (1997)("Queen’s Flowers"). AK Steel confirmed

that Commerce’s collapsing practice continues following the passage

of the URAA. See 22 CIT at __, 34 F. Supp. 2d at 765, aff’d, No.

99-1296 (Fed. Cir. Feb. 23, 2000) at 22. Commerce’s collapsing

practice is a permissible construction of the statute, and is thus

in accordance with the law.

Commerce’s decision to collapse MAN Roland and MAN Plamag is

also supported by substantial evidence. Commerce indicated that it

collapsed MAN Roland and MAN Plamag because the two companies

"satisfy all three criteria enumerated [in 19 C.F.R. § 351.401(f)]

based on the totality of the facts relevant during the [period of

investigation ("POI")]." Second Redetermination at 5. Commerce

found that MAN Roland and MAN Plamag are affiliated companies, see

Second Redetermination at 5 (citing MAN Roland Sec. A Questionnaire

(Final List, Conf. Doc. 15)(Sept. 27, 1995) at 30); that MAN Roland

and MAN Plamag have "production facilities for similar or identical

products that would not require substantial retooling of either

facility in order to restructure manufacturing priorities," see

Second Redetermination at 5 & n.4 (citing MAN Roland Case Brief

(Final List, Conf. Doc. 97)(June 3, 1996) at 75); and that the two
Court No. 96-10-02298 Page 10

companies exhibit a "significant potential for the manipulation of

price or production," see Second Redetermination at 5-6 (citing MAN

Roland Responses at App. D-6-A, D-6-B; MAN Roland Supp.

Questionnaire Secs. A,D,E (Final List, Conf. Doc. 50)(Jan. 31,

1996)("MAN Roland Supp. Questionnaire Resp.") at 56-58).

The decision to collapse is not contested by MAN Roland. See

Comments on Draft Remand Determination (Second Redetermination

List, Pub. Doc. 4)(June 30, 1999)("MAN Second Redetermination

Comments").

II. Averaging MAN Roland and MAN Plamag’s Production Costs

a. Background

The central dispute in this case is which costs of MAN Roland

and MAN Plamag Commerce should average in determining the COM

component of CV for the collapsed company. In the Second

Redetermination, Commerce determined that it should not average the

labor and overhead costs of MAN Roland and MAN Plamag, as requested

by MAN Roland, because "the Department’s normal practice is to

compute costs on a control-number-(CONNUM-) specific basis."6

6
Control numbers, or "CONNUMs" are used by Commerce to
designate "merchandise that is deemed ’identical’ based on the
Department’s model matching criteria." Redetermination at 3.
Commerce occasionally uses internal model numbers instead of
Court No. 96-10-02298 Page 11

Second Redetermination at 6. All parties agree that each LNPP

falling within the scope of the Germany Final investigation was a

unique product. Id. at 7. Accordingly, each LNPP had been

assigned a unique CONNUM. Id. Therefore, according to Commerce,

"there was no need to weight-average production costs between the

two factories" of the collapsed companies, because there was no

matching CONNUM--that is, no identical LNPPs--produced at both

factories.7 Id.

CONNUMs to identify identical merchandise. For example, in
Certain Hot-Rolled Carbon Steel Flat Products From Korea, 58 Fed.
Reg. 37,176, 37,186 (Dep’t Commerce 1993) (final determ.),
Commerce used the more specific company-provided model numbers
because, under the special circumstances of that case, "[i]t
would be distortive" to rely on the CONNUMs. Id. However, as
Commerce itself notes, CONNUMs are used as the basis for product
identification in most cases. See infra note 13, Antidumping
Manual at 29.

7
Commerce described how it used CONNUMs in this case to
calculate the COM:

"[I]n accordance with our normal practice, we next
determined the CONNUM-specific, weighted-average cost of
manufacturing ("COM") for all subject merchandise
produced by [MAN Roland] and MAN Plamag. Specifically,
we first determined the CONNUM-specific, weighted-average
COM for each factory individually. If the same CONNUM
was produced at more than one factory, we would weight-
average each factory’s actual COM for that CONNUM using
each factory’s respective production quantity."

Second Redetermination at 7.
Court No. 96-10-02298 Page 12

Commenting on Commerce’s draft Second Redetermination, MAN

Roland conceded that the two facilities did not produce "identical"

LNPPs having the same CONNUM, but rejected Commerce’s position that

its "normal" or "established" practice is to average production

costs only for identical merchandise. See MAN Second

Redetermination Comments at 2. MAN Roland has alleged from the

start of this litigation that Commerce’s "established practice" is,

rather, to average costs "where a respondent has the ability to

produce the subject merchandise at two plants . . . ." MAN

Roland’s Mem. Supp. Mot. J. Agency R. at 33 (emphasis added).

In KBA I, this Court could not verify Commerce’s assertion

that averaging costs only for identical merchandise is its "normal

practice" in the context of affiliated parties. See 22 CIT at __,

15 F. Supp. 2d at 849 n.7. As a procedural matter, the Court found

Commerce’s explanation of its cost-averaging practice to be based

on a post hoc rationalization, and therefore did not consider it on

the merits. See id. The Court commented that if Commerce were to

rely upon the "identical merchandise requirement" in its remand

determination, it would have to explain how its stated cost-

averaging practice was consistent with two earlier Commerce

determinations that appeared to contradict its position: Certain

Fresh Cut Flowers From Colombia, 55 Fed. Reg. 20,491, 20,497 (Dep’t
Court No. 96-10-02298 Page 13

Commerce 1990)(final results admin. review)("Fresh Flowers"); and

Silicon Metal From Brazil, 59 Fed. Reg. 42,806, 42,808 (Dep’t

Commerce 1994)(final results admin. review)("Silicon Metal"). See

id.

In KBA II, the Court determined that Commerce had failed on

remand to provide sufficient evidence of an identical merchandise

requirement in the context of affiliated parties. See KBA II at

__, 44 F. Supp. 2d at 282-87. First, Commerce did not explain to

the Court’s satisfaction how the "identical merchandise"

requirement was consistent with Fresh Flowers and Silicon Metal.

See id. at __, 44 F. Supp. 2d at 282-83.8 Second, the Court

8
In Fresh Flowers, Commerce averaged the costs of two
facilities of a collapsed company in computing a combined CV,
finding that, "[a]lthough the flowers [were] somewhat different,
[it] consider[ed] spider chrysanthemums and standard
chrysanthemums to be the same type and therefore calculated one
CV for both." Fresh Flowers at 20,497. The Court responded that
"somewhat different" and "same type" appeared not to be the same
as "identical". KBA II, 23 CIT at __, 44 F. Supp. 2d at 283.
Meanwhile, in Silicon Metal, Commerce averaged the costs
incurred by several different furnaces because "other furnaces
used to produce non-subject merchandise can be used to produce
silicon metal." 59 Fed. Reg. at 42,808 (emphasis added).
Commerce clarified on remand that all the furnaces in question
had in fact produced the subject merchandise. See id. at __, 44
F. Supp. 2d at 283. Nonetheless, the Court understood that
Commerce had cost-averaged "to prevent the respondent from being
able to avoid dumping liability through the manipulation of
production." Id. Thus, "Silicon Metal did not require that the
multiple facilities actually produce identical merchandise;
rather, the decision was based on the ability to produce the
Court No. 96-10-02298 Page 14

found that three other determinations cited by Commerce in its

Redetermination "failed to demonstrate that its identical

merchandise requirement is its established practice in the context

of affiliated parties."9 KBA II, 23 CIT at __, 44 F. Supp. 2d at

283.

Finally, the Court found that Commerce had not explained how

its identical merchandise requirement was consistent with its

collapsing practice. See id. at __, 44 F. Supp. 2d at 283-87. The

Court noted that the language of 19 C.F.R. § 351.401(f) and

Commerce’s collapsing practice prior to promulgation of that

regulation indicated that Commerce would collapse where producers

"have production facilities for similar or identical products that

subject merchandise at more than one facility." Id.
9
See Redetermination at 3 (citing Open-End Spun Rayon
Singles Yarn From Austria, 62 Fed. Reg. 43,701, 43,703 (Dep’t
Commerce 1997)(final determ.)("Austrian Yarn"); Canned Pineapple
Fruit From Thailand, 62 Fed. Reg. 42,487, 42,491 (Dep’t Commerce
1997)(prelim. results admin. review)("Thai Pineapple");
Antifriction Bearings (Other Than Tapered Roller Bearings) and
Parts Thereof From France, et. al, 61 Fed. Reg. 66,472, 66,497
(Dep’t Commerce 1996)(final results admin. review)("Antifriction
Bearings")).
The Court found that these determinations did not support
Commerce’s claim of an "established practice" because they were
decided after the date of Germany Final. See id. "Moreover,
none of Commerce’s cites specifically addresse[d] the question at
issue here: whether Commerce only averages production costs
incurred by affiliated parties at multiple facilities where the
facilities produce identical merchandise during the period of
review." Id. at __, 44 F. Supp. 2d at 283-84 & n.3.
Court No. 96-10-02298 Page 15

afford the company the ability to manipulate its manufacturing

priorities." Id. at __, 44 F. Supp. 2d at 285 (emphasis added).

The Court asked Commerce on remand to address its concern that

"Commerce’s application of the identical merchandise requirement is

inconsistent with 19 C.F.R. § 351.401 and contrary to Commerce’s

collapsing practice." Id. at __, 44 F. Supp. 2d at 287.

b. Discussion

Cost-averaging for affiliated entities is not explicitly

addressed in the antidumping statute. Thus, as with collapsing,

"the question for the court is whether the agency’s answer is based

on a permissible construction of the statute." Chevron, 467 U.S.

at 843. In other words, the Court must determine whether

Commerce’s identical merchandise requirement for collapsed entities

is a reasonable interpretation of the statute.

While, as noted, "the only context in which the discussion of

whether to average the production costs of affiliated parties . .

. occur[s] is in the context of collapsing," KBA II, 23 CIT at __,

44 F. Supp. 2d at 287, this Court has recognized that "Commerce’s

collapsing analysis and its constructed value calculation are

separate." Queen’s Flowers, 21 CIT at 975, 981 F. Supp. at 624.

In the Second Redetermination, Commerce explained how its
Court No. 96-10-02298 Page 16

collapsing practice differs from its cost-averaging practice with

reference to the identical merchandise requirement:

The Department’s collapsing test relies, in part, upon
the ability of two (or more) affiliated producers to
produce identical or similar merchandise. However, the
Department’s requirement for weight-averaging production
costs in calculating COP and CV is actual production of
identical (i.e., same CONNUM) products at both (or
multiple) production facilities.

Id. at 9.

This difference reflects Commerce’s contention that each

practice addresses a different issue in relation to the dumping

margin. As described by Commerce, "collapsing, as it relates to

computing COP, is a specific rule dealing with whether the

Department should include facilities owned by an affiliate in its

weighted-average, CONNUM-specific COP computation."10 Id. at 10.

The cost-averaging issue, on the other hand, "deals with the

general rule for computing a single, CONNUM-specific, weighted-

average COP." Id.

Further, Commerce explained that different policy goals

underlie collapsing and cost-averaging. Commerce collapses

10
As Commerce notes, "the Department’s long-standing
practice is to calculate a separate dumping margin for each
manufacturer or exporter investigated." Second Redetermination
at 4 (citing Certain Hot-Rolled Carbon Steel Flat Products From
Japan, 58 Fed. Reg. 37,154, 37,159 (Dep’t Commerce 1993)(final
determ.).
Court No. 96-10-02298 Page 17

facilities to prevent the possibility of manipulation of the

antidumping law through shifting production to a less expensive,

affiliated facility. See Second Redetermination at 4. As Commerce

explained in a subsequent review of the Fresh Flowers determination

discussed above:

[O]ur concerns over shifting production refer to a longer
period of time; thus, if Company A receives a lower
margin than Company B, we are concerned that Company A
would increase production of new flowers to take
advantage of a lower margin while Company B would, over
time, reduce production due to its higher margin.
Alternatively, more of the production of Company A could
be shifted to the U.S. market.

Certain Fresh Cut Flowers From Colombia, 61 Fed. Reg. 42,833, 42,854

(Dep’t Commerce 1996)(final results admin. reviews).

To prevent such manipulation, Commerce applies a single dumping

margin to "the entire producer or reseller, not merely a part of

it;" that is, to the collapsed entities. Second Redetermination at

4. Thus, in the example above, if collapsed, Company A and Company

B would be assigned the same dumping margin, and consequently would

not be able to take advantage of Company A’s lower dumping margin.

In sum, in order to satisfy the criteria of the collapsing

regulation, "there is no requirement that the companies produce the

identical products (i.e., the same CONNUMs), only that they produce

(or have the ability to produce) similar products." Id. at 9-10.
Court No. 96-10-02298 Page 18

By contrast, when calculating the dumping margin, regardless

of whether that margin is applied to the entities of a collapsed

company or to a single company comprised of one or more facilities,

Commerce focuses on the actual costs of production. See Second

Redetermination at 10. As such, only the costs of facilities that

in fact produce identical merchandise are included in the weighted

average. According to Commerce, including the theoretical costs of

MAN Plamag merely because it had the ability to produce the subject

merchandise "fails to account for the reality of the production

process."11 Id.

Commerce’s explanation of the differences between its

collapsing and cost-averaging practices demonstrates that its

identical merchandise requirement is not unreasonable. Commerce

collapses where facilities actually produce or have the ability to

11
Commerce explains,

Given that each factory’s results are affected by the
merchandise actually produced, it would be unreasonable
to adjust the actual cost of producing CONNUMs at one
plant for the labor and overhead rates incurred at
another plant to produce other merchandise. It ignores
the reality that had the MAN Plamag factory attempted to
produce the LNPPs sold to the United States during the
POI, it may have operated less efficiently and/or
required more-highly paid workers that are more
technically qualified.

Second Redetermination at 10-11.
Court No. 96-10-02298 Page 19

produce identical or similar merchandise to prevent manipulation of

the antidumping laws. On the other hand, Commerce cost-averages

only where facilities actually produce identical merchandise in

order to arrive at the actual, rather than theoretical, costs of

production.12 Implicit in Commerce’s explanation of its cost-

averaging practice is a general policy favoring accuracy in

calculating dumping margins, which the Federal Circuit has

recognized as "the basic purpose of the statute." Rhone Poulenc,

Inc. v. United States, 8 Fed. Cir. (T) 61, 67, 899 F.2d 1185, 1191

(1990).

Accordingly, Commerce’s explanation on remand addresses the

Court’s concern, expressed in KBA II, that Commerce’s "identical

merchandise" requirement for cost-averaging was inconsistent with

its collapsing regulation and contrary to its collapsing practice.

See KBA II, 23 CIT at __, 44 F. Supp. 2d at 282-84, 286-87.

Collapsing effectively prevents manipulation by applying a single

dumping margin to collapsed facilities, while the identical

merchandise requirement promotes accuracy in the calculation of the

dumping margin to be applied. In this case, because each LNPP was

12
See Venezuelan SWR, 63 Fed. Reg. at 8,952 ("The cost
information reported to the Department that will form the basis
of the NV calculations . . . must be . . . [r]eflective of the
actual cost of producing the product.")
Court No. 96-10-02298 Page 20

determined to be unique, including weight-averaged labor and

overhead costs for merely similar or merely theoretical LNPPs would

diminish the accuracy of Commerce’s margin calculation.13

Moreover, Commerce’s explanation resolves the question of

whether the identical merchandise requirement was Commerce’s

established practice at the time Germany Final was issued.

"Commerce has the flexibility to change its position providing that

13
See, e.g., Antidumping Manual, Ch. 7 at 29 (Rev.
1/98)(citation omitted):

[T]he boundaries of the averaging groups are extremely
important. . . . The items within the averaging groups
should share as many common characteristics as feasible.
For example, we nearly always calculate model-specific
weighted-average prices. . . . Calculation of these
’narrower’ weighted-average prices yields more accurate
results than broad averages which mix sales with
different characteristics which affect prices.

In a slightly different context, Commerce notes that it will
compare NV to export price or constructed export price on a
transaction-to-transaction basis for "made to order" goods,
because "[t]he difference between these custom-made products
render [sic] average prices meaningless"; that is, where the
"averaging group" consists only of one product, averaging does
not contribute to the accuracy of the comparison. Antidumping
Manual, Ch. 6 at 7 (Rev. 1/98). In this case, Commerce "based NV
on CV because we determined that the particular market situation,
which requires that the subject merchandise be built to each
customer’s specifications, does not permit proper price-to-price
comparisons." Germany Final, 61 Fed. Reg. at 38,171.
Note that while the Antidumping Manual is not a binding
legal document, it does give insight into the internal operating
procedures of Commerce.
Court No. 96-10-02298 Page 21

it explains the basis for its change and providing that the

explanation is in accordance with law and supported by substantial

evidence." KBA II, 23 CIT at __, 44 F. Supp. 2d at 287 (quoting

Cultivos Miramonte S.A. v. United States, 21 CIT 1059, 1064, 980 F.

Supp. 1268, 1274 (1997)(footnotes omitted); see also AK Steel, No.

99-1296 (Fed. Cir. Feb. 23, 2000) at n.10 ("That Commerce changed

its interpretation, however, need not change the court’s

analysis.")(citing Chevron, 467 U.S. at 863 ("An initial agency

interpretation is not instantly carved in stone.")). As observed

in KBA II, the determinations Commerce cited in its Redetermination

in support of its identical merchandise requirement did not clearly

indicate the existence of an established practice. 23 CIT at __,

44 F. Supp. 2d at 283-84. In the Second Redetermination, Commerce

provided no further evidence of an established practice, but did

adequately explain its cost-averaging practice. Thus, whether this

explanation constitutes a "change" of practice, or simply

illuminates a practice that had previously been applied, but not

well documented, the Court finds that Commerce’s cost-averaging

practice as explained in the Second Redetermination is a reasonable

interpretation of the statute, and is thus in accordance with the

law. Accordingly, the Court finds that Commerce correctly

determined not to average the overhead and labor costs of MAN Roland
Court No. 96-10-02298 Page 22

and MAN Plamag.

III. Valuation of Transferred Inputs

Though refusing to average the labor and overhead costs of MAN

Roland and MAN Plamag, Commerce determined that it was required to

revalue inputs transferred between the two companies at the cost of

producing the input rather than the transfer price used in Germany

Final.14 See Second Redetermination at 6,7. Commerce explained:

14
The "transfer price" is used to determine the price of
inputs between affiliated parties, in accordance with 19 U.S.C. §
1677b(f)(2)-(3)(1994):

(2) Transactions disregarded

A transaction directly or indirectly between affiliated
persons 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 of merchandise under
consideration in the market under consideration. If a
transaction is disregarded under the preceding sentence
and no other transactions are available for
consideration, the determination of the amount shall be
based on the information available as to what the
amount would have been if the transaction had occurred
between persons who are not affiliated.

(3) Major input rule

If, in the case of a transaction between affiliated
persons involving the production by one of such persons
of a major input to the merchandise, the administering
authority has reasonable grounds to believe or suspect
that an amount represented as the value of such input
is less than the cost of production of such input, then
Court No. 96-10-02298 Page 23

"Treating these affiliated companies as a single entity necessitates

that inputs transferred between them also be valued based on the

group as a whole." Id. at 6; see also AK Steel, 22 CIT at __, 34

F. Supp. 2d at 764-66, aff’d, No. 99-1296 (Fed. Cir. Feb. 23, 2000)

at 22-25. The recalculation of CV on this basis resulted in a

reduction of the final dumping margin from 39.60% to 39.53%. See

Second Redetermination at 1-2; IA Staff to File: Adjustment

Calculations for Second Remand - MRD (Second Redetermination List,

Pub. Doc. 1, Conf. Doc. 1)(June 10, 1999).

In AK Steel, the court approved Commerce’s method of valuing

costs of transfers between collapsed companies based on COP.15 See

the administering authority may determine the value of
the major input on the basis of the information
available regarding such cost of production, if such
cost is greater than the amount that would be
determined for such input under paragraph (2).
15
In AK Steel, the companies were collapsed for both sales
and cost purposes; in other words, they were treated as both "a
single exporter [and] a single producer for purposes of the
antidumping inquiry." See AK Steel, 22 CIT at __, 34 F. Supp. 2d
at 764.
AK Steel explicitly distinguished Commerce’s decision in
Germany Final to apply the fair value and major input provisions
on the ground that "there the companies manufactured different
equipment models and were collapsed for cost purposes for
selected items only, but not for all purposes, as in this case."
AK Steel, 22 CIT at __, 34 F. Supp. 2d at 765-66 (citations
omitted).
It should be noted first that only MAN Roland exported the
subject merchandise. See Second Redetermination at 6 n.5 (citing
MAN Roland’s Supp. Questionnaire Resp. at 56). Thus, there was
Court No. 96-10-02298 Page 24

22 CIT at __, 34 F. Supp. 2d at 764-66. The court held that

Commerce’s decision to value costs of transfers between collapsed

companies based on COP was in accordance with the law: "Once

collapsed, the POSCO Group was treated as a single entity, not a set

of affiliated persons. Commerce reasonably determined that it should

act consistently with its collapsing determination and not apply

inconsistent solitary provisions, thereby arbitrarily increasing

respondents’ liability." AK Steel, 22 CIT at __, 34 F. Supp. 2d at

766. A recent Federal Circuit decision affirms the court’s ruling,

noting that "once Commerce has decided to treat the companies as one

’person’ for purposes of the anti-dumping analysis, it is not

statutorily required to apply the [fair value] and [major input]

provisions." AK Steel, No.99-1296 (Fed. Cir. Feb. 23, 2000) at 24.

In this case, Commerce acted consistently with the practice

approved in AK Steel by this court and affirmed by the Federal

no reason for Commerce to collapse for sales purposes in order to
treat MAN Roland and MAN Plamag as a single exporter.
Moreover, AK Steel was decided before the Court’s decision
in KBA I. KBA I remanded Commerce’s decision not to cost-average
after Commerce found that MAN Plamag was only an "affiliated
party to [MAN Roland]." Germany Final at 38,188; see 22 CIT at
__, 15 F. Supp. 2d at 849. In hindsight, there was no need to
distinguish Commerce’s decision to disregard the fair value and
major input rules in AK Steel, and its decision to apply the fair
value and major input rules in Germany Final. Commerce
considered MAN Roland and MAN Plamag to be affiliated, rather
than collapsed, companies at the time of Germany Final, and thus
applied the fair value and major input rules.
Court No. 96-10-02298 Page 25

Circuit. Commerce collapsed MAN Roland and MAN Plamag according to

its collapsing regulation. Once collapsed, it treated the two

companies as a single producer rather than affiliated parties, and

thus properly disregarded the "fair value" and "major input"

provisions. Further, MAN Roland has raised no objection to the

calculation of the revised dumping margin, and the Court can find

none on independent review. Therefore, the Court concludes that

Commerce’s valuation of the cost of transfers between MAN Roland and

MAN Plamag based on COP is supported by substantial evidence, and

otherwise in accordance with the law.

Conclusion

Commerce’s revision of its determination of sales at less than

fair value with respect to LNPPs from Germany is supported by

substantial evidence on the administrative record and is otherwise

in accordance with the law. Accordingly, Commerce’s Final Results

of Redetermination Pursuant to Second Court Remand are affirmed.

Donald C. Pogue
Judge

Dated: March 8, 2000
New York, New York