Torrington Co. v. United States

Slip Op. 01-56

UNITED STATES COURT OF INTERNATIONAL TRADE

BEFORE: SENIOR JUDGE NICHOLAS TSOUCALAS

_______________________________________

:

THE TORRINGTON COMPANY, :

:

Plaintiff and :

Defendant-Intervenor, :

: Consol.

v. : Court No. 99-08-00462

:

UNITED STATES, :

:

Defendant :

:

and :

:

KOYO SEIKO CO., LTD and :

KOYO CORPORATION OF U.S.A.; :

:

NTN CORPORATION, NTN BEARING :

CORPORATION OF AMERICA, AMERICAN :

NTN BEARING MANUFACTURING :

CORPORATION, NTN DRIVESHAFT, INC., :

NTN-BOWER CORPORATION and NTN-BCA :

CORPORATION, :

:

Defendant-Intervenors :

and Plaintiffs. :

_______________________________________ :

Plaintiffs, The Torrington Company (“Torrington”), Koyo Seiko

Co., Ltd. and Koyo Corporation of U.S.A. (collectively “Koyo”), NTN

Corporation, NTN Bearing Corporation of America, American NTN

Bearing Manufacturing Corporation, NTN Driveshaft, Inc., NTN-Bower

Corporation and NTN-BCA Corporation (collectively “NTN”), move

pursuant to USCIT R. 56.2 for judgment upon the agency record in

this consolidated action challenging various aspects of the United

States Department of Commerce, International Trade Administration’s

(“Commerce”) final determination, entitled Final Results of

Antidumping Duty Administrative Reviews of Antifriction Bearings

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

Germany, Italy, Japan, Romania, Sweden, and the United Kingdom

(“Final Results”), 64 Fed. Reg. 35,590 (July 1, 1999).

Specifically, plaintiffs Koyo and NTN contend that Commerce

unlawfully conducted a duty absorption inquiry under 19 U.S.C. §

Consol. Court No. 99-08-00462 Page 2

1675(a)(4) (1994) for the ninth administrative review of the

applicable antidumping duty order.

Plaintiff NTN alleges that Commerce erred in its treatment of

the following: (1) NTN’s home market sales with high profit levels

and home market sample sales in Commerce’s calculation of normal

value; (2) inputs that NTN obtained from affiliated parties in

Commerce’s calculation of cost of production and constructed value;

(3) downstream sales for which NTN did not report the total

downstream sales value of merchandise sold by affiliated parties;

(4) normal value in Commerce’s decision to base it on constructed

value after both below-cost identical and similar merchandise was

disregarded; (5) NTN’s claim for level of trade adjustment; (6)

NTN’s United States and home market indirect selling expenses in

Commerce’s recalculation of these selling expenses without regard

to levels of trade; (7) NTN’s constructed export price profits in

Commerce’s calculation of constructed export price after including

NTN’s profits from export price sales; (8) NTN’s constructed export

price profits in Commerce’s calculation of constructed export price

without regard to levels of trade; (9) NTN’s home market packing

expenses; (10) NTN’s directors’ retirement benefits in Commerce’s

calculation of NTN’s general and administrative expenses; (11)

NTN’s normal value in Commerce’s refusal to adjust NTN’s normal

value by home market commissions to affiliated parties that were

not designated with the specificity necessary to presume arm’s

length transactions.

Plaintiff Torrington contends that Commerce erred in accepting

Koyo’s home market “adjustment number two” as a direct adjustment

to price.

Held: Koyo and NTN’s USCIT R. 56.2 motions are denied in

part and granted in part; Torrington’s USCIT R. 56.2 motion is

denied. The case is remanded to Commerce to: (1) annul all

findings and conclusions made pursuant to the duty absorption

inquiry conducted for this review; (2) clarify what action it took

with respect to inputs that NTN obtained from affiliated parties,

to articulate the reasoning for these action, and to open the

record for additional information, if found necessary; and (3)

articulate what methodology it used in conducting the arm’s length

test and to apply the test in accordance with 19 C.F.R. § 351.403

(c) (1998).

[Koyo and NTN’s USCIT R. 56.2 motions are denied in part and

granted in part; Torrington’s USCIT R. 56.2 motion is denied. Case

remanded.]

Consol. Court No. 99-08-00462 Page 3

Dated: May 10, 2001

Stewart and Stewart (Terence P. Stewart, Wesley K. Caine,

Geert De Prest and Lane S. Hurewitz) for Torrington.

Stuart E. Schiffer, Acting Assistant Attorney General; David

M. Cohen, Director, Commercial Litigation Branch, Civil Division,

United States Department of Justice (Velta A. Melnbrencis,

Assistant Director); of counsel: William G. Isasi, Joon W. Lee,

Peter G. Kirchgraber, John F. Koeppen, David R. Mason and Arthur D.

Sidney, Office of the Chief Counsel for Import Administration,

United States Department of Commerce, for the United States.

Powell, Goldstein, Frazer & Murphy LLP (Neil R. Ellis,

Elizabeth C. Hafner and Lisa A. Crosby) for Koyo.

Barnes, Richardson & Colburn (Donald J. Unger, Kazumune V.

Kano, Carolyn D. Amadon and Shannon N. Rickard) for NTN.

OPINION

TSOUCALAS, Senior Judge: Plaintiffs, The Torrington

Company (“Torrington”), Koyo Seiko Co., Ltd. and Koyo Corporation

of U.S.A. (collectively “Koyo”), NTN Corporation, NTN Bearing

Corporation of America, American NTN Bearing Manufacturing

Corporation, NTN Driveshaft, Inc., NTN-Bower Corporation and NTN-

BCA Corporation (collectively “NTN”), move pursuant to USCIT R.

56.2 for judgment upon the agency record in this consolidated

action challenging various aspects of the United States Department

of Commerce, International Trade Administration’s (“Commerce”)

final determination, entitled Final Results of Antidumping Duty

Administrative Reviews of Antifriction Bearings (Other Than Tapered

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

Consol. Court No. 99-08-00462 Page 4

Japan, Romania, Sweden, and the United Kingdom (“Final Results”),

64 Fed. Reg. 35,590 (July 1, 1999).

Specifically, plaintiffs Koyo and NTN contend that Commerce

unlawfully conducted a duty absorption inquiry under 19 U.S.C. §

1675(a)(4) (1994) for the ninth administrative review of the

applicable antidumping duty order.

Plaintiff NTN alleges that Commerce erred in its treatment of

the following: (1) NTN’s home market sales with high profit levels

and home market sample sales in Commerce’s calculation of normal

value; (2) inputs that NTN obtained from affiliated parties in

Commerce’s calculation of cost of production and constructed value;

(3) downstream sales for which NTN did not report the total

downstream sales value of merchandise sold by affiliated parties;

(4) normal value in Commerce’s decision to base it on constructed

value after both below-cost identical and similar merchandise was

disregarded; (5) NTN’s claim for level of trade adjustment; (6)

NTN’s United States and home market indirect selling expenses in

Commerce’s recalculation of these selling expenses without regard

to levels of trade; (7) NTN’s constructed export price profits in

Commerce’s calculation of constructed export price after including

NTN’s profits from export price sales; (8) NTN’s constructed export

price profits in Commerce’s calculation of constructed export price

without regard to levels of trade; (9) NTN’s home market packing

Consol. Court No. 99-08-00462 Page 5

expenses; (10) NTN’s directors’ retirement benefits in Commerce’s

calculation of NTN’s general and administrative expenses; (11)

NTN’s normal value in Commerce’s refusal to adjust NTN’s normal

value by home market commissions to affiliated parties that were

not designated with the specificity necessary to presume arm’s

length transactions.

Plaintiff Torrington contends that Commerce erred in accepting

Koyo’s home market “adjustment number two” as direct adjustment to

price.

BACKGROUND

This case concerns the ninth administrative review of the

outstanding 1989 antidumping duty order on antifriction bearings

(other than tapered roller bearings) and parts thereof (“AFBs”)

imported from Japan for the period of review (“POR”) covering May

1, 1997 through April 30, 1998. See Final Results, 64 Fed. Reg. at

35,599, 35,617. In accordance with 19 C.F.R. § 351.213 (1998),

Commerce initiated the administrative review of this order on June

29, 1998, see Initiation of Antidumping and Countervailing Duty

Administrative Reviews and Request for Revocation in Part, 63 Fed.

Reg. 35,188, and published the preliminary results of the subject

review on February 23, 1999. See Preliminary Results of

Antidumping Duty Administrative Reviews and Partial Rescission of

Administrative Reviews of Antifriction Bearings (Other Than Tapered

Consol. Court No. 99-08-00462 Page 6

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

Japan, Romania, Singapore, Sweden, and the United Kingdom

(“Preliminary Results”), 64 Fed. Reg. 8790, 8791. Commerce

published the Final Results on July 1, 1999. See 64 Fed. Reg. at

35,590.

Since the administrative review at issue was initiated after

December 31, 1994, the applicable law in this case is the

antidumping statute as amended by the Uruguay Round Agreements Act

(“URAA”), Pub. L. No. 103-465, 108 Stat. 4809 (1994) (effective

Jan. 1, 1995).

JURISDICTION

The Court has jurisdiction over this matter pursuant to 19

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

STANDARD OF REVIEW

In reviewing a challenge to Commerce’s final determination in

an antidumping administrative review, the Court will uphold

Commerce’s determination unless it is “unsupported by substantial

evidence on the record, or otherwise not in accordance with law .

. . .” 19 U.S.C. § 1516a(b)(1)(B)(i); see NTN Bearing Corp. of

America v. United States (“NTN Bearing”), 24 CIT ___, ___, 104 F.

Supp. 2d 110, 115-16 (2000) (detailing Court’s standard of review

for antidumping proceedings).

Consol. Court No. 99-08-00462 Page 7

DISCUSSION

I. Duty Absorption Inquiry

A. Background

Title 19 of the United States Code, § 1675(a)(4) provides that

during an administrative review initiated two or four years after

the “publication” of an antidumping duty order, Commerce, if

requested by a domestic interested party, “shall determine whether

antidumping duties have been absorbed by a foreign producer or

exporter subject to the order if the subject merchandise is sold in

the United States through an importer who is affiliated with such

foreign producer or exporter.” Section 1675(a)(4) further provides

that Commerce shall notify the International Trade Commission

(“ITC”) of its findings regarding such duty absorption for the ITC

to consider in conducting a five-year (“sunset”) review under 19

U.S.C. § 1675(c), and the ITC will take such findings into account

in determining whether material injury is likely to continue or

recur if an order were revoked under § 1675(c). See 19 U.S.C. §

1675a(a)(1)(D).

On May 29, 1998, and July 29, 1998, Torrington requested that

Commerce conduct a duty absorption inquiry pursuant to § 1675(a)(4)

with respect to various respondents, including Koyo and NTN, to

ascertain whether antidumping duties had been absorbed during the

ninth period of review (“POR”). See Final Results, 64 Fed. Reg. at

35,600, 35,617.

Consol. Court No. 99-08-00462 Page 8

In the Final Results, Commerce determined that duty absorption

had in fact occurred for the ninth review. See id. at 35,591,

35,600-02. In asserting its authority to conduct a duty absorption

inquiry under § 1675(a)(4), Commerce first explained that for

“transition orders” as defined in § 1675(c)(6)(C) (that is,

antidumping duty orders, inter alia, deemed issued on January 1,

1995), regulation 19 C.F.R. § 351.213(j) provides that Commerce

would make a duty absorption inquiry, if requested, for any

antidumping administrative review initiated in 1996 or 1998. See

id. at 35,600. Commerce concluded that (1) because the antidumping

duty order on the AFBs in this case has been in effect since 1989,

the order is a transition order pursuant to § 1675(c)(6)(C), and

(2) since this review was initiated in 1998 and a request was made,

it had the authority to make a duty absorption inquiry for the

ninth POR. See id. at 35,600-02.

B. Contentions of the Parties

Koyo and NTN contend that Commerce lacked authority under §

1675(a)(4) to conduct a duty absorption inquiry for the ninth POR

of the outstanding 1989 antidumping duty order. See Koyo’s Mem. P.

& A. Supp. Mot. J. Agency R. (“Koyo’s Mem.”) at 5-7; Koyo’s Reply

Br. Supp. Mot. J. Agency R. (“Koyo’s Reply”) at 2-19; NTN’s Mem. J.

Agency R. (“NTN’s Mem.”) at 2, 6, 12-13; NTN’s Reply at 6-7. In

the alternative, Koyo asserts that even if Commerce possessed the

Consol. Court No. 99-08-00462 Page 9

authority to conduct such an inquiry, Commerce’s methodology for

determining duty absorption was contrary to the law and,

accordingly, the case should be remanded to Commerce to reconsider

its methodology. See Koyo’s Mem. at 7-9; Koyo’s Reply at 19-21.

Commerce argues that it: (1) properly construed subsections

(a)(4) and (c) of § 1675 as authorizing it to make a duty

absorption inquiry for antidumping duty orders that were issued and

published prior to January 1, 1995; and (2) devised and applied a

reasonable methodology for determining duty absorption. See Def.’s

Mem. Partial Opp’n Pls.’ Mot. J. Agency R. (“Def.’s Mem.”) at 13-

23. Also, Commerce asserts that no statutory provision or

legislative history specifically provides that Commerce is

precluded from conducting a duty absorption inquiry with respect to

merchandise covered by a transition order. See id. at 2, 19.

Torrington generally agrees with Commerce’s contentions. See

Torrington’s Resp. Pls.’ Mot. J. Agency R. (“Torrington’s Resp.”)

at 2-4, 17-37, 46-48. In addition, Torrington asserts that

Commerce has inherent authority, aside from § 1675(a)(4), to

conduct a duty absorption inquiry in any administrative review.

See id. at 3, 38-45.

C. Analysis

In SKF USA Inc. v. United States (“SKF I”), 24 CIT ___, 116 F.

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Supp. 2d 1257 (2000), SKF USA Inc. v. United States (“SKF II”),

2000 Ct. Intl Trade LEXIS 109 (CIT Aug. 23, 2000), SKF USA Inc. v.

United States (“SKF III”), 24 CIT ___, 94 F. Supp. 2d 1351 (2000),

this Court determined that Commerce lacked statutory authority

under § 1675(a)(4) to conduct a duty absorption inquiry for

antidumping duty orders issued prior to the January 1, 1995, the

effective date of the URAA. See SKF I, 24 CIT at ___, 116 F. Supp.

2d at 1260; SKF II, 2000 Ct. Intl Trade LEXIS 109 at *8-9, SKF III,

24 CIT at ___, 94 F. Supp. 2d at 1357-59. The Court noted that

Congress expressly prescribed in the URAA that § 1675(a)(4) “must

be applied prospectively on or after January 1, 1995 for 19 U.S.C.

§ 1675 reviews.” Id. (citing URAA’s § 291).

Because Commerce’s duty absorption inquiry, its methodology

and the parties’ arguments at issue in this case are practically

identical to those presented in SKF I, SKF II and SKF III, the

Court adheres to its reasoning as it is stated in these cases.

Moreover, contrary to Torrington’s assertion, the Court finds that

Commerce does not have inherent authority to conduct a duty

absorption inquiry in any administrative review. See id. Rather,

the statutory scheme, as noted, clearly provides that the inquiry

must occur in the second or fourth administrative review after the

publication of the antidumping duty order, not in any other review,

and upon the request of a domestic interested party. See 19 U.S.C.

§ 1675(a)(4). Accordingly, the Court finds that Commerce does not

Consol. Court No. 99-08-00462 Page 11

have statutory or inherent authority to undertake a duty absorption

investigation for the outstanding 1989 antidumping duty orders in

dispute.

II. Commerce’s Inclusion of NTN’s Home Market Alleged Sample Sales

and Sales with High Profit Levels in the Normal Value and

Constructed Value Calculation

A. Background

Commerce is required to base its normal value (“NV”)

calculation upon “the price at which the foreign like product is

first sold . . . in the ordinary course of trade . . . .” 19

U.S.C. § 1677b(a)(1)(B)(i) (1994). Analogously, constructed value

must be calculated using “amounts incurred . . . for 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). NTN contended during

the review that Commerce, in calculating NV and CV, should have

excluded sales with high profit levels because they were outside of

the ordinary course of trade. See Final Results, 64 Fed. Reg. at

35,620. Commerce rejected NTN’s contention, explaining as follows:

[Under Commerce’s current practice, Commerce] may

consider sales or transactions to be outside the ordinary

course of trade if [Commerce] determines, based on an

evaluation of all of the circumstances particular to the

sales in question, that such sales or transactions have

characteristics that are extraordinary for the market in

question. Examples of sales that [Commerce] might

consider as being outside the ordinary course of trade

are sales or transactions involving off-quality

merchandise or merchandise produced according to unusual

Consol. Court No. 99-08-00462 Page 12

product specifications, merchandise sold at aberrational

prices or with abnormally high profits, merchandise sold

pursuant to unusual terms of sale, or merchandise sold to

an affiliated party at a non-arm's-length price. [] NTN

provided no evidence, other than the allegedly high

profits of some sales, to suggest that any of these

sales, whether "high profit" or sample sales, are outside

the ordinary course of trade. The simple fact of high

profits, standing alone, is not sufficient for us to

determine that a sale is outside the ordinary course of

trade . . . . "[T]he presence of profits higher than

those of numerous other sales does not necessarily place

the sales outside the ordinary course of trade. In order

to determine that a sale is outside the ordinary course

of trade due to abnormally high profits, there must be

unique and unusual characteristics related to the sale in

question which make it unrepresentative of the home

market." [Final Results of Antidumping Duty

Administrative Reviews on Antifriction Bearings (Other

Than Tapered Roller Bearings) and Parts Thereof From

France, Germany, Italy, Japan, Romania, Singapore,

Sweden, and the United Kingdom, 63 FR 33320 (June 18,

1998).] Thus, it would only be appropriate to exclude

these sales from our normal-value calculation if there

were circumstances surrounding these sales which would

lead us to conclude that they were, in fact, made outside

the ordinary course of trade.

See id. at 35,620-21 (emphasis in the original).

B. Contentions of the Parties

NTN argues that Commerce’s failure to exclude NTN’s sales with

unusually high profit levels from the NV and CV calculations,

despite what NTN considers to be sufficient evidence on record

indicating that these sales were outside of the ordinary course of

trade, was inconsistent with 19 U.S.C. § 1677b(a)(1)(B), the SAA

and the regulation 19 C.F.R. § 351.102(b) (1998), all of which are

read by NTN as clearly instructing Commerce to make such exclusion.

Consol. Court No. 99-08-00462 Page 13

See NTN’s Mem. at 2-3, 7, 15-19. NTN also argues that Commerce

erred in including its home market sample sales in the calculation

of NV because facts on the record support that the sales were made

outside of the ordinary course of trade. See id. at 13-15. NTN,

therefore, requests that its sales with high profit levels and

samples sales be disregarded in the calculation of NV. See id. at

3, 15, 19.

Commerce alleges that it properly exercised its discretion in

rejecting NTN’s argument that Commerce must disregard sales with

high profit levels as sales not in the ordinary course of trade

because NTN failed to adequately show that profits earned were

aberrational or abnormal or otherwise outside of the ordinary

course of trade. See Final Results, 64 Fed. Reg. at 35,620-21.

Torrington claims that Commerce properly rejected NTN’s

request to exclude high profit levels sales from the NV and CV

calculation and sample sales from the NV calculation because of the

following: (1) a higher profit on a particular sale does not

establish per se that a sale is outside the ordinary course of

trade; and (2) NTN failed to provide sufficient evidence that the

contested sales were not in the ordinary course of trade. See

Torrington’s Resp. at 56-59.

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C. Analysis

The term “ordinary course of trade” is defined as:

the conditions and practices which, for a reasonable

period of time prior to the exportation of the subject

merchandise, have been normal in the trade under

consideration with respect to merchandise of the same

class or kind. [Commerce] shall consider the following

transactions, among others, to be outside the ordinary

course of trade:

(A) Sales disregarded under section 1677b(b)(1) of

this title.

(B) Transactions disregarded under section

1677b(f)(2) of this title.

19 U.S.C. § 1677(15) (1994) (emphasis supplied).

Section 1677b(b)(1) deals with sales below cost of production.

Section 1677b(f)(2) deals with sales to affiliated parties.

Therefore, Commerce must consider below cost sales and sales

between related parties as sales outside the ordinary course of

trade. Although § 1677b(b)(1)’s sales below cost of production and

§ 1677b(f)(2)’s affiliated party transactions are specifically

designated as outside the ordinary course of trade, the “among

others” language of § 1677(15) clearly indicates that other types

of sales could be excluded as being outside the ordinary course of

trade.1 Commerce “may consider sales or transactions to be outside

1

Statement of Administrative Action (“SAA”), accompanying

the URAA provides that aside from §§ 1677b(b)(1) and (f)(2)

transactions:

Commerce may consider other types of sales or

transactions to be outside the ordinary course of trade

Consol. Court No. 99-08-00462 Page 15

the ordinary course of trade if [Commerce] determines, based on an

evaluation of all of the circumstances particular to the sales in

question, that such sales or transactions have characteristics that

are extraordinary for the market in question.” 19 C.F.R. §

351.102(b) (emphasis supplied). Examples of what could be

considered outside the ordinary course of trade include: (1) off-

quality merchandise; (2) merchandise produced according to unusual

product specifications; (3) merchandise sold at aberrational prices

or with abnormally high profits; (4) merchandise sold pursuant to

unusual terms of sale; or (5) merchandise sold to an affiliated

party not at an arm’s length transaction. See 19 C.F.R. §

351.102(b).

when such sales or transactions have characteristics

that are not ordinary as compared to sales or

transactions generally made in the same market. Examples

of such sales or transactions include merchandise

produced according to unusual product specifications,

merchandise sold at aberrational prices, or merchandise

sold pursuant to unusual terms of sale. As under

existing law, amended section 771(15) does not establish

an exhaustive list, but the Administration intends that

Commerce will interpret section 771(15) in a manner which

will avoid basing normal value on sales which are

extraordinary for the market in question, particularly

when the use of such sales would lead to irrational or

unrepresentative results.

H.R. DOC. 103-316, at 834 (1994), reprinted in 1994 U.S.C.C.A.N.

4163 (emphasis supplied).

The SAA also provides that “[o]ther examples of sales that

Commerce could consider to be outside the ordinary course of trade

include sales of off-quality merchandise, sales to related parties

at non-arm’s length prices, and sales with abnormally high

profits.” Id. at 839-40.

Consol. Court No. 99-08-00462 Page 16

Determining whether a sale or transaction is outside the

ordinary course of trade is a question of fact. In making this

determination, Commerce considers not just “one factor taken in

isolation but rather . . . all the circumstances particular to the

sales in question.” Murata Mfg. Co., Ltd. v. United States, 17 CIT

259, 264, 820 F. Supp. 603, 607 (1993) (citation omitted).

Commerce’s methodology for making this determination is codified in

section 351.102(b) of Commerce’s regulations. See 19 C.F.R. §

351.102(b); see also Final Results, 64 Fed. Reg. at 35,620.

Thus, Commerce has the discretion to interpret § 1677(15) and

to determine which sales are outside the ordinary course of trade,

such as sales involving aberrational prices and abnormally high

profit levels. See Mitsubishi Heavy Indus., Ltd. v. United States

(“Mitsubishi”), 22 CIT ___, ___, 15 F. Supp. 2d 807, 830 (1998)

(“Congress granted Commerce discretion to decide under what

circumstances highly profitable sales would be considered to be

outside of the ordinary course of trade.”); cf. Koenig & Bauer-

Albert AG v. United States, 22 CIT ___, ___ n.8, 15 F. Supp. 2d

834, 850 n.8 (1998) (noting that although Commerce has the

discretion to decide under what circumstances highly profitable

sales are outside of the ordinary course of trade, “Commerce may

not impose this requirement arbitrarily, . . . nor may Commerce

impose impossible burdens of proof on claimants” and citing NEC

Home Elecs. v. United States, 54 F.3d 736, 745 (Fed. Cir. 1995)

Consol. Court No. 99-08-00462 Page 17

(holding that “burden imposed to prove a level of trade adjustment

was unreasonable because claimant could, under no practical

circumstances, meet the burden”)).

Section 351.102(b) of Title 19 of the Code of Federal

Regulations effectively interprets the term “outside the ordinary

course of trade.” Cf. 19 U.S.C. § 1677(15). In resolving

questions of statutory interpretation, the Chevron test requires

this Court first to determine whether the statute is clear on its

face. See Chevron U.S.A. Inc. v. National Resources Defense

Council (“Chevron”), 467 U.S. 837, 842-43 (1984). If the language

of the statute is clear, then this Court must defer to

Congressional intent. See id. If the statute is unclear, however,

then the question for the Court is whether the agency’s answer is

based on a permissible construction of the statute. See id. at

843; see also Corning Glass Works v. United States, 799 F.2d 1559,

1565 (Fed. Cir. 1986) (finding that the agency’s definitions must

be “reasonable in light of the language, policies and legislative

history of the statute”). Here, the statutory provision defining

what is considered outside the ordinary course of trade is unclear.

While the statute specifically defines “ordinary course of trade,”

it provides little assistance in determining what is outside the

scope of that definition. The statute merely identifies a non-

exhaustive list of situations in which sales or transactions are to

be considered outside the “ordinary course of trade.” This Court

Consol. Court No. 99-08-00462 Page 18

finds the statute to be ambiguous as to what constitutes a sale

outside the ordinary course of trade. What Congress intended to

exclude from the “ordinary course of trade” is also not immediately

clear from the statute’s legislative history. In the Statement

of Administrative Action (“SAA”), accompanying the URAA, Congress

stated that in addition to the specific types of transactions to be

considered outside the ordinary course of trade, “Commerce may

consider other types of sales or transactions to be outside the

ordinary course of trade when such sales or transactions have

characteristics that are not ordinary as compared to sales or

transactions generally made in the same market.” H.R. DOC. 103-

826, at 834 (1994), reprinted in 1994 U.S.C.C.A.N. 4163 . Congress

also stated that because the statute does not provide an exhaustive

list of situations which qualify as being outside the ordinary

course of trade, “the Administration intends that Commerce will

interpret 19 U.S.C. § 1677(15) in a manner which will avoid basing

normal value on sales which are extraordinary for the market in

question.” Id. This Court finds the legislative history is also

ambiguous as to what constitutes a sale outside the ordinary course

of trade.

Because neither the statutory language nor the legislative

history explicitly establishes what is considered to be outside the

“ordinary course of trade,” the Court assesses the agency’s

interpretation of the provision as codified by the regulation to

Consol. Court No. 99-08-00462 Page 19

determine whether the agency’s interpretation is reasonable and in

accordance with the legislative purpose. See Chevron, 467 U.S. at

843. “In determining whether Commerce’s interpretation is

reasonable, the Court considers, among other factors, the express

terms of the provisions at issue, the objectives of those

provisions and the objective of the antidumping scheme as a whole.”

Mitsubishi, 22 CIT at ___, 15 F. Supp. 2d at 813. The purpose of

the ordinary course of trade provision is “to prevent dumping

margins from being based on sales which are not representative” of

the home market. Monsanto Co. v. United States, 12 CIT 937, 940,

698 F. Supp. 275, 278 (1988). Commerce’s methodology for deciding

when sales are outside the “ordinary course of trade” has been to

examine the totality of the circumstances surrounding the sale or

transaction in question to determine whether the sale or

transaction is extraordinary. Commerce’s regulation specifically

states, “sales or transactions [may be considered] outside the

ordinary course of trade if . . . based on an evaluation of all of

the circumstances particular to the sales in question, [] such

sales or transactions have characteristics that are extraordinary

for the market in question.” 19 C.F.R. § 351.102(b). Commerce’s

methodology allows it, on a case-by-case basis, to examine all

conditions and practices which may be considered ordinary in the

trade under consideration and to determine which sales or

transactions are, therefore, outside the ordinary course of trade.

Consol. Court No. 99-08-00462 Page 20

Because such a methodology gives Commerce wide discretion in

deciding under what circumstances sales or transactions are outside

the ordinary course of trade and circumstances differ in each case,

this Court finds that, in light of the statute’s legislative

purpose, Commerce’s interpretation of the statute and exercise of

its discretion by requiring additional evidence demonstrating that

sales with high profit levels were outside of the ordinary course

of trade before excluding such sales from the NV and CV

calculations was reasonable.

NTN was or should have been aware of such a requirement. See

NTN Bearing, 24 CIT ___, 104 F. Supp. 2d 110 (holding that

Commerce’s request to NTN for additional evidence demonstrating

that sales were outside of the ordinary course of trade was not an

unreasonable exercise of Commerce’s discretion). NTN, however,

failed to meet this requirement. NTN provided Commerce with no

additional evidence arguing that Commerce should have excluded

sales with abnormally high profits because of the following: (a)

the mere fact of abnormally high profits puts these sales per se

outside the ordinary course of trade;2 and (b) the sales with

2

In addition, Commerce stated:

Furthermore, NTN provided no evidence which demonstrated

that the profit amounts experienced on its claimed

outside-the-ordinary-course-of-trade sales are

particularly, much less abnormally high. NTN has

selected an arbitrary profit margin which it defined as

“high,” but [] provide[d] no evidence or analysis which

Consol. Court No. 99-08-00462 Page 21

abnormally high profits represented a small percentage of total

sales quantity. See Final Results, 64 Fed. Reg. at 35,620-21;

NTN’s Mem. at 17-18. The presence of profits higher than those of

other sales is, however, merely an element which does not

necessarily place the sales outside the ordinary course of trade

under Commerce’s requirement for additional evidence. Similarly,

a relatively small percentage of the sales with abnormally high

profits in comparison to the total sales quantity is an element

which does not necessarily place the sales outside the ordinary

course of trade under Commerce’s requirement for additional

evidence.3 The presence of either or both of these element does

not strip Commerce of the right to exercise discretion and conclude

that a relatively insubstantial number of sales with higher profits

lacked the characteristics necessary to place these sales outside

the ordinary course of trade. See 19 C.F.R. § 351.102(b).

Consequently, because Commerce’s interpretation and

application of the statute was reasonable and the record reflects

[would] suggest[] that the profit margin [NTN] chose

[was] in any way unusual.

Final Results, 64 Fed. Reg. at 35,621.

3

While a minuscule percentage, such as a fraction of

percent, might be such an overwhelming piece of additional evidence

demonstrating that sales were outside of the ordinary course of

trade that it would qualify Commerce’s determination to the

contrary as an abuse of discretion, the record presented by NTN

does not provide the Court with sufficient grounds for such a

conclusion. See NTN’s Mem. at 17.

Consol. Court No. 99-08-00462 Page 22

that NTN did not provide sufficient additional evidence that

supports NTN’s claim that the disputed sales were extraordinary for

the market in question, Commerce was justified in its decision to

include NTN’s sales with unusually high profit levels into the NV

and CV calculations. Similarly, the Court finds that Commerce

rightfully included NTN’s home market sample sales into the NV

calculation because NTN failed to provide sufficient additional

evidence that those sales fell outside the ordinary course of

trade.4

III. Treatment of Inputs Obtained from Affiliated parties in

Calculating Cost of Production and Constructed Value

A. Statutory Background

Normal value of the subject merchandise is defined, in

pertinent part, as “the price at which the foreign like product is

first sold . . . for consumption in the exporting country . . . .”

19 U.S.C. § 1677b(a)(1)(B)(i). However, whenever Commerce has

“reasonable grounds to believe or suspect” that sales of the

foreign like product under consideration for the determination of

4

NTN points out that its sample sales were: (a) made for

customer evaluation and not for consumption purposes; and (b)

marked with letters “SS” in NTN’s accounting and record keeping

systems. NTN’s Mem. at 14-15. The Court is unconvinced. NTN

provided Commerce with no record showing that NTN’s customers were

precluded from consuming NTN’s samples and the peculiarity of NTN’s

designation of such sales in its accounting and record keeping

systems does not strip Commerce of the right to exercise its

discretion and conclude that these sales lacked the characteristics

necessary to place them outside the ordinary course of trade.

Consol. Court No. 99-08-00462 Page 23

NV have been made at prices which represent less than the cost of

production (“COP”) of that product, Commerce shall determine

whether, in fact, such sales were made at less than the COP. See

19 U.S.C. § 1677b(b)(1). A “reasonable ground” exists if Commerce

disregarded below-cost sales of a particular exporter or producer

from the determination of NV in the most recently completed

administrative review. See § 1677b(b)(2)(A)(ii). If Commerce

determines that there are sales below the COP and certain

conditions are present under § 1677b(b)(1)(A)-(B), it may disregard

such below-cost sales in the determination of NV. See 19 U.S.C. §

1677b(b)(1).

Additionally, the special rules for the calculation of COP or

CV contained in 19 U.S.C. § 1677b(f)(2)-(3) provide that, in a

transaction between affiliated parties, as defined in 19 U.S.C. §

1677(33), Commerce may disregard either the transaction or the

value of a major input.

Section 1677b(f)(2) provides that Commerce may disregard an

affiliated party transaction when “the amount representing [the

transaction or transfer price] does not fairly reflect the amount

usually reflected in sales of merchandise under consideration in

the market under consideration [that is, an arms-length or market

price].” 19 U.S.C. § 1677b(f)(2) (“fair-value” provision). If

such “a transaction is disregarded . . . and no other transactions

Consol. Court No. 99-08-00462 Page 24

are available for consideration,” Commerce shall value the cost of

an affiliated-party input “based on the information available as to

what the amount would have been if the transaction had occurred

between persons who are not affiliated [that is, based on arm’s-

length or market value].” Id.

One of the elements of value to be considered in the

calculation of COP, which is referred to in section 1677b(f)(2), is

the cost of manufacturing and fabrication (“COM”). See 19 U.S.C.

§ 1677b(b)(3)(A).

Section 1677b(f)(3)’s “major input rule” states that Commerce

may calculate the value of the major input on the basis of the data

available regarding COP, if such COP exceeds the market value of

the input calculated under § 1677b(f)(2). See 19 U.S.C. §

1677b(f)(3). Commerce, however, may rely on the data available

only if: (1) a transaction between affiliated parties involves the

production by one of such parties of a “major input” to the

merchandise produced by the other, and, in addition, (2) Commerce

has “reasonable grounds to believe or suspect” that the amount

reported as the value of such input is below the COP. 19 U.S.C. §

1677b(f)(3). For purposes of § 1677b(f)(3), regulation 19 C.F.R.

§ 351.407(b) (1998) provides that Commerce will value a major input

supplied by an affiliated party based on the highest of (1) the

actual transfer price for the input; (2) the market value of the

Consol. Court No. 99-08-00462 Page 25

input; or (3) the COP of the input.

Thus, paragraphs (2) and (3) of 19 U.S.C. § 1677b(f) authorize

Commerce, in calculating COP and CV, to do the following: (1)

disregard a transaction between affiliated parties if, in the case

of any element of value that is 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; and (2) determine the value of the

major input on the basis of the information available regarding COP

if Commerce has reasonable grounds to believe or suspect that an

amount represented as the value of the input is less than its COP.

See Timken Co. v. United States, 21 CIT 1313, 1327-28, 989 F. Supp.

234, 246 (1997) (holding that Commerce may disregard transfer price

for inputs purchased from related suppliers pursuant to 19 U.S.C.

§ 1677b(e)(2), the predecessor to 19 U.S.C. § 1677b(f)(2), if the

transfer price or any element of value does not reflect its normal

value and citing NSK Ltd. v. United States, 19 CIT 1319, 1323-26,

910 F. Supp. 663, 668-70 (1995), aff’d, 119 F.3d 16 (Fed. Cir.

1997)).5

5

In NSK Ltd., 19 CIT at 1323-26, 910 F. Supp. at 668-70, this

Court also upheld Commerce’s authority to request cost data

concerning parts purchased from related suppliers without a

specific and objective basis for suspecting that the transfer

prices were below-cost because section 1677b(e)(2) grants Commerce

authority to request information concerning “any element of value

required to be considered” and section 1677b(e)(3) does not limit

Commerce’s authority to request COP data pursuant to section

Consol. Court No. 99-08-00462 Page 26

In determining whether transaction prices between affiliated

parties fairly reflect the market prices, Commerce’s practice has

been to compare the transaction prices with market prices charged

by unrelated parties. Commenting upon the current regulation, 19

C.F.R. § 351.407, which implemented 19 U.S.C. § 1677b(f)(2),

Commerce stated that it

believes that the appropriate standard for determining

whether input prices are at arm’s length is its normal

practice of comparing actual affiliated party prices with

prices to or from unaffiliated parties. This practice is

the most reasonable and objective basis for testing the

arm’s length nature of input sales between affiliated

parties, and is consistent with [19 U.S.C. §

1677b(f)(2)].

Final Rule on Antidumping Duties, Countervailing Duties (“Final

Rule”), 62 Fed. Reg. 27,296, 27362 (May 19, 1997).

Pursuant to the major input rule contained in 19 U.S.C. §

1677b(f)(3), in calculating COP or CV, Commerce values a major

input purchased from an affiliated supplier using the highest of

the transfer price between the affiliated parties, the market price

between unaffiliated parties, and the affiliated supplier’s COP for

the major input. See 19 C.F.R. § 351.407(b), see also Final

Results of Antidumping Administrative Reviews on Antifriction

Bearings (Other Than Tapered Roller Bearings) and Parts Thereof

from France, Germany, Italy, Japan, Singapore, and the United

Kingdom, 62 Fed. Reg. 2081, 2115 (Jan. 15, 1997); Notice of Final

1677b(e)(2).

Consol. Court No. 99-08-00462 Page 27

Determination of Sales at Less Than Fair Value: Certain Steel

Concrete Reinforcing Bars From Turkey, 62 Fed. Reg. 9737, 9746

(Mar. 4, 1997). Commerce interprets 19 U.S.C. § 1677b(f)(3) as

permitting it to analyze COP data for major inputs purchased by a

producer from its affiliated suppliers when it initiates a COP

investigation pursuant to 19 U.S.C. § 1677b(b)(1) without a

separate below-COP allegation with respect to inputs. See, e.g.,

Final Results of Antidumping Duty Administrative Review on

Silicomanganese From Brazil, 62 Fed. Reg. 37,869, 37,871-72 (July

15, 1997). According to Commerce, the affiliation between the

respondent and its suppliers “creates the potential for companies

to act in a manner other than at arm’s length” and gives Commerce

reason to analyze the transfer prices for major inputs. Id. at

37,871; see also Mannesmannrohren-Werke AG v. United States, 23 CIT

___, ___, 77 F. Supp. 2d 1302, 1312 (1999) (holding that 19 U.S.C.

§§ 1677b(f)(2) and (3), as well as the legislative history of

the major input rule, support Commerce’s decision to use the

highest of transfer price, cost of production, or market value to

value the major inputs that the producer purchased from the

affiliated supplier).

B. Factual Background

Commerce disregarded sales that failed its cost test under 19

U.S.C. § 1677b(b) during the eighth review of AFBs with respect to

Consol. Court No. 99-08-00462 Page 28

NTN Japan. For this reason, Commerce concluded that it had

reasonable grounds to believe or suspect that sales of the foreign

like product under consideration for the determination of normal

value in the ninth review of AFBs may have been made at prices

below the COP. See 19 U.S.C. § 1677b(b)(2)(A)(ii). Pursuant to

19 U.S.C. § 1677b(b), Commerce initiated COP investigation of sales

by NTN in the home market. See Preliminary Results, 64 Fed. Reg.

at 8794 (Feb. 23, 1999).

In order to obtain the necessary COP and CV information,

Commerce requested NTN to list all inputs used to produce the

merchandise under review, to identify those inputs that NTN

received from affiliated parties, and for each input received from

an affiliated party, provide the name of the party. See Def.’s

Mem. At 49-52. In response, NTN referred Commerce to a number of

NTN’s exhibits. See id.

Commerce also requested NTN to list the major inputs received

from affiliated parties and used to produce the merchandise under

review. See id. In response, NTN referred to a few of the same

exhibits and stated that the transfer prices shown therein were

standard costs. See id. Commerce also requested that NTN provide

the per-unit cost of production incurred by the affiliated party in

producing the major input and to specify the basis used by NTN to

value each major input for purposes of computing the submitted COP

Consol. Court No. 99-08-00462 Page 29

and CV amounts. See id. at 50-51. In response, NTN referred to

the same and different exhibits and explained that NTN’s standard

cost, as adjusted by the variances, was used in computing COP and

CV. See id. at 51-52.

In its supplemental questionnaire, Commerce referred to NTN’s

statement that the transfer prices shown on some of these exhibits

were standard costs and asked whether the transfer prices are based

on unadjusted standard costs or on standard costs adjusted for

variances. See id. NTN responded that the transfer prices were

standard cost, submitted two revised exhibits “which show[ed] the

actual cost as reported in the response for each component” and

stated that this actual cost was the standard cost previously

reported multiplied by NTN’s variance ratios also reported in NTN’s

original response. See id.

Additionally, referring to NTN’s prior statement that NTN’s

standard cost as adjusted by variances was used in computing COP

and CV, Commerce inquired whether these variances included the

variances experienced by the suppliers of affiliated party inputs

for which NTN report standard costs. NTN replied that the response

was prepared using NTN’s standard cost for the component from an

affiliated or unaffiliated supplier; that this standard cost, in

turn, was based upon the price from the supplier, and that NTN’s

standard cost was then adjusted to actual cost using the variance

Consol. Court No. 99-08-00462 Page 30

ratios appearing on a certain exhibit. See id.

Consequently, for major inputs that NTN had obtained from

affiliated suppliers, Commerce adjusted the reported costs (based

upon transfer prices) using the highest of (1) the transfer price,

(2) the market price, or (3) the affiliate’s cost of producing the

input. See Final Results, 64 Fed. Reg. at 35,612. For minor

inputs, Commerce used the higher of (1) the transfer price or (2)

the market price (except for instances where there was no market

price, in which case Commerce used the affiliate’s cost of

producing the input as a surrogate for market price). See id.

The adjustment was the difference between the highest of (1)

transfer price; (2) the market price; or (3) the affiliate’s cost

of producing the input and the transfer price. See id. Commerce

added the adjustment to the total cost of manufacturing.

Additionally, Commerce recalculated general and administrative

expenses to be based on the revised COM. In instances where

transfer price was higher than either the market price or the

affiliate’s cost of producing the input, the adjustment was zero.

See id.

C. Contentions of the Parties

NTN argues the following: (1) Commerce should have used NTN’s

reported actual cost for affiliated party inputs, that is, the

Consol. Court No. 99-08-00462 Page 31

transfer price multiplied by the variance; (2) neither section

1677b(f)(2), nor sections 1677b(f)(3) of Title 19 of the United

States Code, which provide for disregarding certain affiliated

transactions, does apply; and (3) Commerce’s calculation of the

adjustment does not take into consideration NTN’s cost accounting

methodology pursuant to which NTN’s actual cost is based on cost of

manufacture at standard cost multiplied by variances. See NTN’s

Mem. at 19-21.

Commerce rejected NTN’s contentions, stating that

[p]ursuant to[19 U.S.C. § 1677b(f)(3)], in the case of a

transaction between affiliated [parties] involving the

production of a major input, [Commerce] may consider

whether the amount represented as the value of the major

input is less than its COP. In addition, section 351.407

of [Commerce’s] regulations states that, for purposes of

[19 U.S.C. § 1677b(f)(3)], the value of a major input

purchased from an affiliated party will be based on the

higher of (1) the price paid by the exporter or producer

to the affiliated [party] for the major input, (2) the

amount usually reflected in sales of the major input in

the market under consideration, or (3) the cost to the

affiliated [party] of producing the major input.

[Commerce has] relied upon this methodology in past AFB

reviews as well as in other cases. See[,] e.g., AFBs 6,

62 [Fed. Reg.] at 2117, AFBs 7, 62 [Fed. Reg.] at

54[,]065, AFBs 8, 63 [Fed. Reg.] at 33[,]337, and Final

Determination of Sales at Less Than Fair Value: Stainless

Steel Round Wire from Taiwan, 64 [Fed. Reg.] 17[,]336

(April 9, 1999) . . . .

In this case, [Commerce] asked NTN in [Commerce’s]

COP questionnaire to provide a list of the major inputs

it received from affiliated parties which it used to

produce the subject merchandise. NTN responded to the

question by directing [Commerce] to several exhibits.

These exhibits list inputs which NTN considered to be

major inputs and identify the respective transfer prices

and supplier’s cost information for the inputs.

Consol. Court No. 99-08-00462 Page 32

[Commerce] examined this information and determined that

in some instances the company’s reported transfer prices

were less than its respective costs. As there were no

other market prices available in most instances,

[Commerce] restated NTN’s COP and CV in the instances

where the affiliated supplier’s cost of producing the

inputs was higher than the transfer price. Therefore,

since [Commerce] reasonably relied upon the information

provided by NTN regarding the cost of major inputs it

used in manufacturing the subject merchandise, [Commerce]

applied [19 U.S.C. § 1677b(f)(3)] correctly for purposes

of determining COP and CV for [Commerce’s] analysis.

NTN argues that [Commerce] must have reasonable

grounds to believe that inputs are being sold at less

than COP before it may use COP information. [Commerce]

considers the initiation of a cost investigation

concerning home-market sales a specific and objective

reason to believe or suspect that the transfer price from

a related party for any element of value may be below the

related supplier’s COP . . . .

. . . .

Finally, [Commerce] disagrees with NTN that

[Commerce’s] methodology is distortive. NTN’s cost-

reporting methodology does not account for the fact that

the affiliate’s cost is higher than the transfer price.

NTN calculated its variances by comparing its standard

costs to its actual costs, which are, for all inputs it

purchased from all suppliers, based on the transfer

prices from each supplier. As a result, the affiliate’s

costs do not enter into the calculation of NTN’s

variances and NTN’s reported “actual” costs are based on

transfer prices. Therefore, because the reported costs

are based on transfer prices, it was appropriate to

adjust the reported costs for the difference between the

affiliate’s cost and the transfer price when the

affiliate’s cost is higher than the transfer price.

Therefore, [Commerce] conclude[s] that there is no reason

to alter [Commerce’s] methodology.

Final Results, 64 Fed. Reg. at 35,612-13.

Torrington similarly believes that Commerce properly restated

NTN’s COP and CV in the instances where the affiliated supplier’s

Consol. Court No. 99-08-00462 Page 33

COP for inputs used to manufacture the merchandise under review was

higher than the transfer price. See Torrington’s Resp. at 59-63.

D. Analysis

Citing to 19 U.S.C. § 1677b(f)(2), NTN argues that there is no

record evidence that the affiliated party inputs did not “fairly

reflect the amount usually reflected in the sales of merchandise

under consideration” and that the statute makes no reference to

cost. NTN’s Mem. at 20. Commerce, however, explained in the Final

Results, 64 Fed. Reg. at 35,612, that Commerce followed 19 U.S.C.

§ 1677b(f)(3), which permits Commerce to determine the value of a

major input on the basis of the information available regarding

cost of production.

Alternatively, NTN alleges that 19 U.S.C. § 1677b(f)(3) does

not support Commerce’s methodology because the use of that section

is only permitted for “major inputs” and, in the current review,

Commerce failed to discriminate between major and minor inputs and

applied the major input rule to any input from an affiliated party

as well as to “processes which are clearly different from major

inputs.” NTN’s Mem. at 20-21. In making its determinations,

Commerce relied upon the exhibits that listed those inputs that NTN

itself considered to be major inputs. See Def.’s Mem. at 49-52,

55-57. NTN did not point to any “minor” input for which Commerce

used COP rather than transfer value. See id. NTN similarly failed

Consol. Court No. 99-08-00462 Page 34

to explain why the major input rule should not cover processes

applied to inputs or demonstrate that Commerce’s application of the

major input rule to the parts that NTN purchased from affiliated

parties is in any way unreasonable. See generally, NTN’s Mem. at

19-21.

Commerce concedes that the determinations made in the Final

Results do not explain Commerce’s test for distinguishing major

inputs from minor inputs, nor does it explain the methodology

Commerce used to determine the value for minor inputs in this case.

See Def.’s Mem. at 56-57.

With regard to NTN’s claim that Commerce applied the major

input rule to processes which are clearly different from major

inputs, Commerce explained that Commerce believes as follows:

[19 U.S.C. § 1677b(f)(3)] directs [Commerce] to examine

the costs incurred for transactions between affiliated

[parties]. These transactions may involve either the

purchase of materials, subcontracted labor, or other

services. Thus, [Commerce] applied the major-input rule

properly to the production processes performed by [NTN’s]

affiliates. This decision is consistent with our

practice in prior reviews.

Final Results, 64 Fed. Reg. at 35,612 (citation omitted).

NTN offers this Court no basis to substantiate its assertion

that it is unreasonable for Commerce to apply the major input rule

to affiliated party transactions involving production processes.

For the foregoing reasons, the Court sustains Commerce’s

Consol. Court No. 99-08-00462 Page 35

application of the major input rule to production processes as

reasonable. See Chevron, 467 U.S. 837. The issue is remanded to

Commerce to clarify what action it took with respect to inputs that

NTN obtained from affiliated parties, to articulate the reasoning

for this action, and to open the record for additional information,

if found necessary. Accord Indus. Quimica del Nalon, S.A. v.

United States, 16 CIT 84, 85 (1992).

IV. Downstream Sales for Which the Total Downstream Value Of

Merchandise Sold by Affiliated Parties Was Not Reported

A. Background

Commerce’s regulation 19 C.F.R. § 351.403 (c) (1998) provided

the following:

[i]f an exporter or producer sold the foreign like

product to an affiliated party, [Commerce] may calculate

normal value based on that sale 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. (Emphasis

supplied.)

Additionally, Commerce’s regulation 19 C.F.R. § 351.403(d)

(1998) states the following:

[i]f an exporter or producer sold the foreign like

product through an affiliated party, [Commerce] may

calculate normal value based on the sale by such

affiliated party. However, [Commerce] normally will not

calculate normal value based on the sale by an affiliated

party if sales of the foreign like product by an exporter

or producer to affiliated parties account for less than

five percent of the total value (or quantity) of the

exporter’s or producer’s sales of the foreign like

product in the market in question or if sales to the

Consol. Court No. 99-08-00462 Page 36

affiliated party are comparable, as defined in [19 C.F.R.

§ 351.403(c)].

Therefore, pursuant to these regulations, Commerce could not

utilize the home market affiliated party sale unless the exporter

or producer, or reseller demonstrated that the transaction was made

at arm’s length. To make the requisite showing, the respondent had

to present evidence establishing to Commerce’s satisfaction that

related party prices were comparable to unrelated party prices.

See 19 C.F.R. § 351.403 (c); see also NEC Home Elecs. Ltd., 54 F.3d

at 739 (recognizing Commerce’s practice in the context of pre-URAA

statute and regulations).

Commerce’s established practice has been to determine price

comparability by examining whether, on average, related party

prices were equal to or greater than unrelated party prices. See,

e.g., Final Results of Antidumping Duty Administrative Review on

Gray Portland Cement and Clinker from Japan, 58 Fed. Reg. 48,826,

48,829 (Sept. 20, 1993).

B. Contentions of the Parties

NTN argues that, in refusing to use affiliated party sales in

its calculation of normal value, Commerce erroneously applied the

arm’s length test and used adverse facts available. See NTN’s Mem.

at 3-4, 8, 21-26. Specifically, NTN argues that, in determining

whether the prices were comparable, Commerce should not have relied

Consol. Court No. 99-08-00462 Page 37

solely on the determination whether or not the prices of the sales

to affiliated parties were higher or lower than that of unrelated

parties but should have examined other factors as well. See id. at

24.

Citing to NEC Home Elecs, Ltd. v. United States (“NEC”), 22

CIT ___, 3 F. Supp. 2d 1451 (1998), NTN alleges that the price in

affiliated party transactions need be merely comparable, that is

not only greater or the same, but also lower. See NTN’s Mem. at

25-26.

Torrington supports Commerce’s exclusion of NTN's related

party sales from the calculation of NV. See Torrington’s Resp. at

64-68. In addition, Torrington asserts that Commerce has the

authority to exclude related party sales, unless Commerce is

satisfied with the price. See id. Torrington also asserts that

NTN has not demonstrated that Commerce's determination was

unreasonable. See id.

C. Analysis

While it is correct that “Commerce cannot penalize [a party]

for a lack of unrelated party sales data when there is statutory

authority to consider [the party’s] related sales data,” this

proposition merely means that where there are no sales to

unaffiliated parties during the administrative review and it is

Consol. Court No. 99-08-00462 Page 38

impossible to make a comparison of prices of unaffiliated party

sales with those of affiliated party sales, “the only price

information . . . is that of its sales to the related [parties].”

NEC, 22 CIT at ___, 3 F. Supp. 2d at 1455. In the given case, no

such situation exists because NTN made sales to both affiliated and

unaffiliated parties during the administrative review and Commerce

determined that the prices were not comparable after comparing

prices involved in the transactions with affiliated and

unaffiliated parties.

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

lower than prices to unrelated parties. See NTN’s Mem. at 25.

Further, NTN failed to show why Commerce’s test on price is

unreasonable. See id. The Court, therefore, affirms Commerce’s

test. See Chevron, 467 U.S. at 842-43, NTN Bearing Corp. of

America v. United States (“NTN Bearing II”), 23 CIT ___, ___, 83 F.

Supp. 2d 1281, 1291-92 (1999).

The statutory standard for implementing adverse inference is

if “an interested party has failed to cooperate by not acting to

the best of its ability to comply with a request for information

from [Commerce].” 19 U.S.C. § 1677e(b) (1994), see also 19 C.F.R.

§ 351.308(a) (1998). In the given case, Commerce used adverse

facts available on the basis of the following reasoning:

With regard to sales by home-market affiliates,

[Commerce] requested that NTN report total value of sales

Consol. Court No. 99-08-00462 Page 39

by affiliates on a class-or-kind basis. [Commerce] also

requested that, if NTN could not “obtain this information

for all affiliated resellers, [NTN should] provide [the

information] for at least those companies in which NTN

owns a majority interest.” See supplemental

questionnaire dated Sep. 24, 1998, at 1. [Commerce]

asked this question to determine whether sales to

affiliates would be a reasonable substitute for sales by

affiliates in [Commerce’s] calculation of normal value.

Because NTN did not provide this information, [Commerce

was] not able to make this determination. Therefore, the

use of facts available is warranted.

Contrary to NTN's assertion, [Commerce] did not

indicate in [Commerce’s] supplemental questionnaire that

NTN should only report this "where possible." Instead,

[Commerce] indicated that, if NTN could not obtain this

information from affiliates in which it does not own a

majority interest, NTN should at least obtain this

information from affiliates in which it does own a

majority interest. Furthermore, NTN's explanation for why

it could not obtain this information from those companies

in which it owns a majority interest is not convincing .

. . .

As a result of [Commerce’s] analysis, [Commerce]

determine[s] that NTN did not act to the best of its

ability in responding to [Commerce’s] requests for

information concerning sales by affiliated resellers.

Therefore, the use of the adverse facts available with

regard to NTN's sales by affiliated resellers in which

NTN owns a majority interest is appropriate. The use of

facts available affects the calculation of normal value.

Therefore, where [Commerce] compared U.S. sales to

weighted-average normal values which are wholly or partly

comprised of sales to affiliated resellers in which NTN

owns a majority interest, [Commerce] applied facts

available. Because it is appropriate to use the facts

available to the extent [Commerce] use[s] these sales to

calculate normal value, [Commerce has] adjusted the

calculated net prices of these sales by increasing them

by the class-or-kind-specific adverse facts-available

rate applicable to NTN. In this manner, [Commerce]

ensure[s] that the facts available are being used only

when the sales are used to calculate normal value and, in

instances where such sales are weight-averaged with sales

to unaffiliated companies, the facts available are

"diluted" accordingly.

Consol. Court No. 99-08-00462 Page 40

Final Results, 64 Fed. Reg. at 35,596.

The Court finds that Commerce’s application of 19 U.S.C. §

1677e(b) and 19 C.F.R. § 351.308(a) was reasonable and, therefore,

upholds Commerce’s use of adverse facts available. See Chevron,

467 U.S. at 842-43, Southern Cal. Edison Co. v. United States, 226

F.3d 1349, 1356 (Fed. Cir. 2000) (relying on Martin v. Occupational

Safety and Health Review Comm’n, 499 U.S. 144, 150 (1991)).

Commerce, however, concedes that it erred in conducting the arm’s

length test by wrongly increasing affiliated party sales prices “by

the class-or-kind-specific adverse facts available rate applicable

to NTN” prior to conducting the arm’s length test. Final Results,

64 Fed. Reg. at 35,596. Accordingly, the Court remands the issue

to Commerce to apply the test in accordance with 19 C.F.R. §

351.403 (c).

V. Basing Normal Value Upon Constructed Value After Disregarding

Below-Cost Identical and Similar Merchandise

A. Background

Normal value means “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” at a time reasonably corresponding to the time of

the sale used to determine the export price (“EP”) or constructed

export price (“CEP”) under 19 U.S.C. § 1677a(a) (1994). 19 U.S.C.

Consol. Court No. 99-08-00462 Page 41

§ 1677b(a)(1)(B)(i).

The term “foreign like product” is defined as:

merchandise in the first of the following categories in

respect of which a determination . . . can be

satisfactorily made:

(A) The subject merchandise and other merchandise which

is identical in physical characteristics with, and

was produced in the same country by the same person

as, that merchandise.

(B) Merchandise -

(i) produced in the same country and by the

same person as the subject merchandise,

(ii) like that merchandise in component

material or materials and in the purposes

for which used, and

(iii)approximately equal in commercial value

to that merchandise.

(C) Merchandise -

(i) produced in the same country and by the

same person and of the same general class

or kind as the [subject merchandise],

(ii) like that merchandise in the purposes for

which used, and

(iii)which the administering authority

determines may reasonably be compared

with that merchandise.

19 U.S.C. § 1677(16).

“Ordinary course of trade” means “the conditions and practices

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

subject merchandise, have been normal in the trade under

Consol. Court No. 99-08-00462 Page 42

consideration with respect to merchandise of the same class or

kind.” 19 U.S.C. § 1677(15). Commerce shall consider sales and

transactions, among others, to be outside the ordinary course of

trade if: (1) the sales are disregarded under 19 U.S.C.

1677b(b)(1), or (2) transactions are disregarded under section

1677b(f)(2). See 19 U.S.C. § 1677(15).

Section 1677b(b)(1) of Title 19 authorizes Commerce to

disregard below-cost sales because they are not in the ordinary

course of trade. Under the pre-URAA law, the plain language of the

statute 19 U.S.C. § 1677(16) (1988) requires Commerce to base

foreign market value (currently referred as normal value under the

post-URAA law) on nonidentical but similar merchandise, rather than

upon constructed value, when sales of identical merchandise have

been found to be outside the ordinary course of trade. See CEMEX,

S.A. v. United States (“CEMEX”), 133 F.3d 897, 904 (Fed. Cir.

1998). Commerce followed Cemex during the review in issue.

B. Contentions of the Parties

NTN argues that Commerce unlawfully failed to use CV after

disregarding below-cost sales from the calculation of normal value.

See NTN’s Mem. at 4, 8, 26-28. NTN concentrates upon 19 U.S.C. §

1677b(b)(1)(B), which provides that “[i]f no sales made in the

ordinary course of trade remain, the NV shall be based on the

constructed value of the merchandise.” NTN’s Mem. at 27-28. NTN

Consol. Court No. 99-08-00462 Page 43

then argues that, once Commerce has identified the foreign like

product (identical merchandise in the case of NTN), Commerce cannot

“redefine the foreign like product rather than using the statutory

requirement of CV” because such “methodology violates that

fundamental rule of statutory construction that where a statute is

clear and unambiguous on its face it must be followed.” NTN’s Mem.

at 28 (citing to Chevron, 457 U.S. 837).

Commerce asserts that it properly did not resort to

constructed value when sales of identical merchandise were

disregarded as below-cost sales. See Def.’s Mem. at 61-66.

Commerce’s position is shared by Torrington. Torrington contends

that Commerce properly calculated NV based on sales of identical or

similar merchandise before resorting to CV in instances where

below-cost sales were disregarded. See Torrington’s Resp. at 68-

69.

C. Analysis

In rejecting NTN’s arguments that CEMEX did not apply,

Commerce stated the following:

The [Court of Appeals for Federal Circuit] stated in

CEMEX that “[t]he language of the statue requires

Commerce to base foreign market value on nonidentical but

similar merchandise . . . rather than CV when sales of

identical merchandise have been found to be outside the

ordinary course of trade.” CEMEX, 133 F.3d at 904. NTN

is correct that there was no cost test in CEMEX and CEMEX

was under the pre-URAA statute; however, under the URAA,

below-cost sales which are disregarded pursuant to . . .

Consol. Court No. 99-08-00462 Page 44

[19 U.S.C. § 1677b(b)(1)] are now defined to be outside

the ordinary course of trade and, therefore, not included

in the normal value. Therefore, consistent with CEMEX,

when making comparisons in accordance with section . . .

[19 U.S.C. § 1677(16), Commerce] considered all products

sold in the home market that were comparable to

merchandise within the scope of each order and which were

sold in the ordinary course of trade for purposes of

determining appropriate product comparisons to U.S.

sales. Where there were no sales of identical

merchandise in the home market made in the ordinary

course of trade to compare to U.S. sales, [Commerce]

compared U.S. sales to sales of the most similar foreign

like product made in the ordinary course of trade. Only

where there were no sales of foreign like product in the

ordinary course of trade did we resort to CV.

Final Results, 64 Fed. Reg. at 35,614-15.

The statutory scheme supports Commerce’s determination. The

pertinent part of 19 U.S.C. § 1677b(a)(1)(B)(i) requires Commerce

to base NV upon the price at which the foreign like product (which

is defined in 19 U.S.C. § 1677(16) as identical or like

merchandise) is sold for consumption in the exporting country in

the ordinary course of trade. The pertinent part of 19 U.S.C. §

1677(15) requires Commerce to consider below-cost sales that

Commerce has disregarded pursuant to 19 U.S.C. § 1677b(b)(1) to be

outside the ordinary course of trade. In a fashion similar to that

of the court in the CEMEX decision, Commerce has interpreted the

statutory scheme as requiring it to consider sales of similar

foreign like product if it has disregarded sales of identical

foreign like product as below-cost sales and to use CV for

determining NV only if Commerce also disregards sales of the

Consol. Court No. 99-08-00462 Page 45

similar like product because they are below-cost. See Final

Results, 64 Fed. Reg. at 35,614-15.

NTN ignores the fact that 19 U.S.C. § 1677b(b)(1) does not

define the terms “ordinary course of trade” or “foreign like

product.” The definitions are provided by 19 U.S.C. § 1677(15)

and (16). As Commerce explained in the Final Results, 64 Fed. Reg.

at 35,614-15, Commerce considered and strived to harmonize all

pertinent statutory provisions, including Sections

1677b(a)(1)(B)(i), 1677(15), 1677(16), and 1677b(b)(1) of Title 19.

The changes made to the antidumping law by the URAA did not

render the CEMEX decision inapplicable. The pre-URAA antidumping

law provided that normal value was to be determined upon the basis

of the price at which “such or similar merchandise” (currently

referred to as “foreign like product”) was sold in the exporting

country in the usual commercial quantities and in the ordinary

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

(1988). The term “such or similar merchandise” was defined as

merchandise in the first of the following three categories in

respect of which a determination could be satisfactorily made. See

19 U.S.C. § 1677(16) (1988). The first category covered “such” or

identical merchandise while the second and third categories covered

“similar” or like merchandise. See 19 U.S.C. § 1677(16)(A), (B),

and (C) (1988). The term “ordinary course of trade” was defined as

Consol. Court No. 99-08-00462 Page 46

“the conditions and practices which, for a reasonable time prior to

the exportation of the merchandise which is the subject of an

investigation, have been normal in the trade under consideration

with respect to merchandise of the same class or kind.” See 19

U.S.C. § 1677(15) (1988). The only difference was that, under pre-

URAA law, below-cost sales were not excluded from the “ordinary

course of trade.” See Torrington Co. v. United States, 127 F.3d

1077, 1081 (Fed. Cir. 1997).

Thus, under post-URAA law pursuant to 19 U.S.C. §§ 1677b(a)(l)

and 1677(16), Commerce must first look to identical merchandise in

matching the United States model to the comparable home market

model. If a determination cannot be satisfactorily made using

identical merchandise, Commerce must look to like merchandise —

initially under the second category and, if that is not available,

under the third category. Accord CEMEX, 133 F.3d 897.

NTN failed to show why Commerce’s interpretation of the

aforesaid post-URAA provisions is unreasonable. The mere fact that

under post-URAA law Commerce reached a decision analogous to that

reached by CAFC under pre-URAA law in CEMEX does not render

Commerce’s determinations irrational. See Chevron, 467 U.S. at

842-43. For these reasons, the Court upholds Commerce’s decision to

resort to CV only if below-cost sales for both identical and

similar foreign like product have been disregarded.

Consol. Court No. 99-08-00462 Page 47

VI. NTN’s Claim for a Level of Trade Adjustment

A. Statutory Background

The URAA amended the antidumping law to provide for specific

level of trade provisions. Instead of “foreign market value” (see

19 U.S.C. § 1677b (1988)), the statute now provides for normal

value (“NV”), which is defined as “the price at which the foreign

like product is first sold (or, in the absence of a sale, offered

for sale) for consumption in the exporting country, in the usual

commercial quantities and in the ordinary course of trade and, to

the extent practicable, at the same level of trade as the export

price or constructed export price . . . .” 19 U.S.C. §

1677b(a)(1)(B)(i) (1994). The statute also provides for a “level

of trade” adjustment to NV if the following conditions are met:

The price described in paragraph (1)(B) shall also be

increased or decreased to make due allowance for any

difference . . . between the export price or constructed

export price and the price described in paragraph (1)(B)

. . . that is shown to be wholly or partly due to a

difference in level of trade between the export price or

constructed export price and normal value, if the

difference in level of trade -

(i) involves the performance of dif-

ferent selling activities; and

(ii) is demonstrated to affect price

comparability, based on a pattern of

consistent price differences between

sales at different levels of trade

in the country in which normal value

is determined.

19 U.S.C. § 1677b(a)(7)(A) (1994).

Consol. Court No. 99-08-00462 Page 48

Additionally, the statute provides for a “constructed export

price offset” (“CEP offset”) as follows:

When normal value is established at a level of trade

which constitutes a more advanced stage of distribution

than the level of trade of the constructed export price,

but the data available do[es] not provide for an

appropriate basis to determine under subparagraph (A)(ii)

a level of trade adjustment, normal value shall be

reduced by the amount of indirect selling expenses

incurred in the country in which normal value is

determined on sales of the foreign like product but not

more than the amount of such expenses for which a

deduction is made under [19 U.S.C. § 1677a(d)(1)(D)].

19 U.S.C. § 1677b(a)(7)(B) (1994).

Therefore, the first step in the level of trade methodology is

to determine CEP. CEP is defined as “the price at which the

subject merchandise is first sold (or agreed to be sold) in the

United States . . . by or for the account of the producer or

exporter of such merchandise or by a seller affiliated with the

producer or exporter, to a purchaser not affiliated with the

producer or exporter, as adjusted under subsections (c) and (d) of

this section.” 19 U.S.C. § 1677a(b). Subsection (c) covers

various expenses that are to be deducted from both EP and CEP,

while subsection (d) covers various expenses incurred between

importation and resale, and profit allocated to the expenses, that

are to be deducted from CEP only. See 19 U.S.C. § 1677a(c) and

(d).

Consol. Court No. 99-08-00462 Page 49

In determining the CEP level of trade, Commerce begins with

the starting price to the first unaffiliated purchaser and then

deducts from it the expenses incurred between importation and

resale, that is, the expenses provided for in subsection (d) of

section 1677a. Specifically, subsection (d) of section 1677a

provides that:

the price used to establish constructed export price

shall also be reduced by--

(1) the amount of any of the following expenses generally

incurred by or for the account of the producer or

exporter, or the affiliated seller in the United

States, in selling the subject merchandise (or subject

merchandise to which value has been added) -–

(A) commissions for selling the subject

merchandise in the United States;

(B) expenses that result from, and bear a

direct relationship to, the sale, such as

credit expenses, guarantees and

warranties;

(C) any selling expenses that the seller pays

on behalf of the purchaser; and

(D) any selling expenses not deducted under

subparagraph (A), (B), or (C) . . . .

19 U.S.C. § 1677a(d).

Commerce follows the above-described mode because the CEP

calculation is intended to reflect as closely as possible a price

corresponding to an export price between non-affiliated exporters

and importers which, pursuant to 19 U.S.C. § 1677a(a), is an

Consol. Court No. 99-08-00462 Page 50

unadjusted sales price or the starting price. See H.R. Doc. 103-

316 at 823.6

The deduction from the CEP starting price of the expenses

associated with economic activities in the United States, that is,

subsection (d) deductions, results in the construction of a

hypothetical transaction price that would likely have been charged

to the first purchaser in the United States had that purchaser been

6

H.R. Doc. 103-316 at 823 states that

constructed export price will be calculated by reducing

the price of the first sale to an unaffiliated customer

in the United States by the amount of the following

expenses (and profit) associated with economic activities

occurring in the United States: (1) any commissions paid

in selling the subject merchandise; (2) any expenses

which result from, and bear a direct relationship to,

selling activities in the United States; (3) any selling

expenses which the seller pays on behalf of the purchaser

. . . ; (4) any “indirect selling expenses” (defined as

selling expenses not deducted under any of the first

three categories of deductions); (5) any expenses

resulting from a manufacturing process or assembly

performed on the merchandise after its importation into

the United States . . . ; and (6) an allowance . . . for

profit allocable to the selling, distribution, and

further manufacturing expenses incurred in the United

States. The deduction of profit is a new adjustment in

U.S. law, consistent with the language of the Agreement,

which reflects that constructed export price is now

calculated to be, as closely as possible, a price

corresponding to an export price between non-affiliated

exporters and importers.

The items listed in (1) through (6) are the same expenses and

profit that are deductible from the starting price or the price to

the first unaffiliated purchaser in the United States pursuant to

19 U.S.C. § 1677a(d).

Consol. Court No. 99-08-00462 Page 51

unaffiliated to the exporter. See 19 C.F.R. § 351.412 (c) (1) (ii)

(1998).

The second step is the determination of whether there are

sales in the home market at the same level of trade as the adjusted

CEP sales. The statute does not indicate how to find matching

levels of trade. See generally 19 U.S.C. § 1677b(a). However, the

SAA indicates that, for Commerce to find that two levels of trade

are different, one requisite factor is “a difference between the

actual functions performed by the sellers at the different levels

of trade in the two markets . . . .” H.R. Doc. 103-316 at 829.

In determining whether such a difference exists, Commerce reviews

the selling functions remaining in the CEP transaction data after

the deduction of subsection (d) expenses and examines the data on

the NV side for evidence of similar selling functions.

Under 19 U.S.C. § 1677b(a)(1)(B)(ii), Commerce must, to the

extent practicable, use the same level of trade in the two markets.

If it is not possible to find sales in the home market at the same

level of trade as the adjusted CEP sales, the next step is to

consider whether a level of trade adjustment is appropriate. In

determining whether to make the adjustment, Commerce must make

certain that the different levels of trade involve different

selling functions and that the different levels of trade in the NV

Consol. Court No. 99-08-00462 Page 52

market are associated with a consistent pattern of price

differences. According to 19 U.S.C. § 1677b(a)(7)(A),

The price described in paragraph (1)(B) shall also be

increased or decreased . . . if the difference in level

of trade

(i) involves the performance of different selling

activities; and [, in addition,]

(ii) is demonstrated to affect price comparability,

based on a pattern of consistent price

differences between sales at different levels

of trade in the country in which normal value

is determined.

If the levels of trade in the home market do not evidence a

consistent pattern of price differences, no adjustment for levels

of trade is permitted. When the level of trade adjustment is

applicable and quantifiable, Commerce must make an adjustment for

the entire price effect of the difference in levels of trade. See

19 U.S.C. § 1677b(a)(7)(A) (providing that “the amount of the

adjustment shall be based on the price differences between the two

levels of trade in the country in which normal value is

determined”). If, in reviewing price information in the home

market, Commerce is not able to quantify price differences between

the CEP level of trade and the level of trade of the comparison

sales, and if NV is established at a more advanced stage of

distribution than the CEP level of trade, then Commerce must make

a CEP offset pursuant to 19 U.S.C. § 1677b(a)(7)(B) .

Consol. Court No. 99-08-00462 Page 53

B. Factual Background

During the review in issue, Commerce, in accordance with its

post-URAA practice, determined the level of trade of CEP sales by

using the CEP price, that is, the price charged to the first

unaffiliated purchaser in the United States adjusted for expenses

associated with economic activities in the United States. See

Final Results, 64 Fed. Reg. at 35,608. Based upon the selling

functions reported by the respondents, Commerce found that no

respondent had a home market level of trade equivalent to the CEP

level of trade. See id. Because the CEP level of trade was

different from the levels of trade in the home market, there was no

appropriate basis for Commerce to determine a level of trade

adjustment. See id. However, because the home market was at a

more advanced stage of distribution than the CEP level of trade,

Commerce made a CEP offset pursuant to 19 U.S.C. § 1677b(a) (7)

(B). See id. (citing to H.R. Doc. 103-316 at 823).

C. Contentions of the Parties

NTN argues that the methodology used by Commerce in conducting

its level of trade analysis was contrary to law because Commerce

unlawfully removed expenses and profit from the CEP sales prior to

identifying level of trade. See NTN’s Mem. at 9, 28-33. Citing

Borden v. United States, 22 CIT ___, 4 F. Supp. 2d 1221 (1998),

reversed Borden v. United States, 2001 U.S. App. LEXIS 4170 (March

Consol. Court No. 99-08-00462 Page 54

12, 2001); compare Micron Tech., Inc. v. United States 2001 U.S.

App. LEXIS 4170(March 7, 2001) and Micron Tech., Inc. v. United

States, 23 CIT ___, 40 F. Supp. 2d 481 (1999), NTN argues that

Commerce erred by determining the CEP level of trade after

deducting expenses and profit pursuant to 19 U.S.C. § 1677a(d).

See NTN’s Mem. at 28-33.

Commerce asserts that it acted reasonably and in accordance

with the statutory mandate in denying NTN’s claim for a level of

trade (“LOT”) adjustment. See Def.’s Mem. at 67-75.

Torrington agrees with Commerce and maintains that Commerce’s

LOT methodology was reasonable as applied to the particular

circumstances of NTN. See Torrington’s Resp. at 70-74.

D. Analysis

Commerce’s level of trade methodology reflects Commerce’s

interpretation of the statutory level of trade provisions and the

SAA. See Final Results, 64 Fed. Reg. at 35,608. Pursuant to this

methodology, Commerce determined the CEP level of trade for NTN’s

CEP transactions by using the starting price to the first

unaffiliated purchaser in the United States, adjusted for the

expenses and profit provided in subsection (d) of 19 U.S.C. §

1677a. Commerce explained its action, stating that

[t]he statutory definition of “constructed export price”

contained [in 19 U.S.C. § 1677a(d)] indicates clearly

Consol. Court No. 99-08-00462 Page 55

that [Commerce] . . . base[s] CEP on the [United States]

resale price adjusted for [United States] selling

expenses and profit. As such, the CEP reflects a price

exclusive of all selling expenses and profit associated

with economic activities occurring in the United States.

[. . . ] These adjustments are necessary in order to

arrive at, as the term CEP makes clear, a “constructed”

export price. The adjustments [Commerce] makes to the

starting price, specifically those made pursuant to [19

U.S.C. § 1677a] (“Additional Adjustments for Constructed

Export Price”), normally change the level of trade.

Accordingly, [Commerce] must determine the level of trade

of CEP sales exclusive of the expenses (and concomitant

selling functions) that [Commerce] deduct[s] pursuant to

this sub-section.

Final Results, 64 Fed. Reg. at 35608-09 (citing also to H.R. Doc.

103-316 at 823), accord Micron Tech. Inc., 2001 U.S. App. LEXIS

3573.

The statute requires a comparison between the NV and the

export price or constructed export price when making allowances for

differences in levels of trade. See 19 U.S.C. § 1677b(a)(7)(A);

accord Micron Tech., Inc., 2001 U.S. App. LEXIS 3573. Section

1677a(b) of Title 19 defines CEP to mean the price to the

unaffiliated purchaser as adjusted. Consequently, Commerce must

determine NV at the level of trade of the adjusted price to the

first unaffiliated purchaser in the United States. While it is

correct that Commerce should make the adjustments provided in 19

U.S.C. §§ 1677a(c) and 1677a(d) to the CEP starting price, see

generally, NTN Bearing, 104 F. Supp. 2d 110, in the given case

Commerce has already made the adjustments provided in subsection

(d) of section 1677a to the CEP starting price. Commerce, thus,

Consol. Court No. 99-08-00462 Page 56

is not required to adjust the CEP starting price as provided in

subsection (c) of section 1677a.

Section 1677b(a)(1)(B)(i) requires that Commerce base its

level of trade of EP sales upon EP. The SAA, H.R. DOC. 103-316 at

829, clarifies that the starting price for the export price should

be utilized for the level of trade analysis. See also H.R. Rep.

103-826 at 85-86 (1994), and S. Rep. No. 103-412 at 71 (1994). The

difference between the starting price for the export price and the

export price is that 19 U.S.C. § 1677a(a) defines export price as

the price to the first unaffiliated purchaser, as adjusted pursuant

to subsection (c), whereas the starting price for the export price

still includes the expenses specified in 19 U.S.C. § 1677a(c).

Commerce is able to determine the level of trade for both CEP and

EP upon an equivalent basis after Commerce makes the determination

of the level of trade for: (1) CEP upon the basis of the CEP

starting price from which subsection (d) expenses (and not

subsection (c) expenses) have been deducted; and (2) EP based

upon the EP starting price. In the process, the subsection (c)

expenses are not ignored because they are deducted from both CEP

and EP after the level of trade has been determined for both CEP

and EP. Moreover, the movement expenses, taxes and duties that

Commerce deducts pursuant to subsection (c) do not typically

correspond to selling activities. Accord Micron Tech., Inc. v.

United States 2001 U.S. App. LEXIS 3573, at *28-48. These expenses

Consol. Court No. 99-08-00462 Page 57

are unlikely to affect the LOT analysis, and Commerce reasonably,

and in accordance with the statute, does not deduct them from

either EP or CEP starting prices prior to determining the level of

trade. See Final Rule, 62 Fed. Reg. at 27,370-71; Notice of Final

Results of Antidumping Duty Administrative Review and Determination

Not To Revoke Order In Part on Dynamic Random Access Memory

Semiconductors of One Megabit or Above From the Republic of Korea,

62 Fed. Reg. 39,809, 39,820 (July 24, 1997); Notice of Preliminary

Results and Partial Recission of Antidumping Duty Administrative

Review on Roller Chain, Other Than Bicycle, From Japan, 62 Fed.

Reg. 25,165, 25,168 (May 8, 1997).

Therefore, the Court affirms Commerce’s denial of level-of-

trade adjustments to NTN as a reasonable interpretation of the

applicable statutory mandates.

VII. Commerce’s Allocation of NTN’s Home Market and United

States Indirect Selling Expenses Without Regard to Level

of Trade

A. Background

In its preliminary calculations, Commerce had determined NTN’s

United States indirect selling expenses without regard to LOTs.

See Final Results, 64 Fed. Reg. at 35,607. NTN argued that

Commerce should have recalculated NTN’s United States selling

expenses to reflect its reported indirect selling expense

allocations based on LOTs. See id. Torrington, in turn, contended

Consol. Court No. 99-08-00462 Page 58

that Commerce should reject NTN’s indirect selling expense

allocations based on LOT because they bear no relationship to the

way in which NTN incurs the expenses. See id.; see also

Torrington’s Resp. at 74-77.

Commerce responded that in prior reviews it determined that

NTN’s methodology for allocating its indirect selling expenses

based on LOTs did not bear any relationship to the manner in which

NTN incurred these United States selling expenses and its

methodology led to distorted allocations. See Final Results, 64

Fed. Reg. at 35,607. Commerce noted that the court upheld its

methodology in NTN Bearing Corp. of America v. United States (“NTN

Bearing III”), 19 CIT 1221, 1233-34, 905 F. Supp. 1083, 1094-95

(1995). See Def.’s Mem. at 79. Commerce determined that “NTN has

not changed the methodology [Commerce] rejected in these prior

reviews nor has it presented any evidence that its selling expenses

are incurred in the manner in which it allocated the expenses.”

Final Results, 64 Fed. Reg. at 35,607. Because Commerce found

during this POR that NTN did not provide sufficient evidence

demonstrating that its selling expenses are attributable to levels

of trade, the agency recalculated NTN’s United States indirect

selling expenses to represent such selling expenses for all United

States sales. Id.

Consol. Court No. 99-08-00462 Page 59

Commerce rejected NTN’s contention that Commerce should use

NTN’s indirect selling expenses as reported by levels of trade

instead of allocating them on an aggregate basis, stating:

[Commerce] rejected NTN’s allocation methodology because

the method that NTN used to calculate its indirect

selling expenses does not bear any relationship to the

manner in which NTN incurs the expenses in question,

thereby leading to distorted allocations. [Commerce has]

addressed this issue in prior reviews.

Id.

B. Contentions of the Parties

NTN argues that, in the Final Results, Commerce erroneously

recalculated NTN’s U.S. and home market indirect selling expenses

without regard to LOTs. See NTN’s Mem. at 4-5 and 33-36.

Commerce contends that NTN’s methodology for allocating its

indirect selling expenses based on LOTs did not bear any

relationship to the manner in which NTN incurred these United

States selling expenses and its methodology led to distorted

allocations. See Def.’s Mem. at 78-80. Therefore, Commerce

concludes that Commerce properly recalculated NTN’s United States

and home market expenses without regard to levels of trade. See

id.

Torrington supports Commerce’s position and asserts that

Commerce’s determination to reallocate NTN’s United States and home

Consol. Court No. 99-08-00462 Page 60

market indirect selling expenses was reasonable. See Torrington’s

Resp. at 74-76.

C. Analysis

As Commerce had explained in the Final Results of Antidumping

Duty Administrative Reviews, Partial Termination of Administrative

Reviews, and Revocation in Part of Antidumping Duty Orders on

Antifriction Bearings (Other Than Tapered Roller Bearings) and

Parts Thereof From France, 60 Fed. Reg. 10900, 10940 (Feb. 28,

1995), indirect selling expenses are fixed period costs that

typically relate to all sales and do not vary according to sales

value or the number of employees who allegedly sell each type of

merchandise. Yet, NTN has continued to allocate its indirect

selling expenses on the basis of the number of employees in certain

regions, without demonstrating sufficiently that it incurred any

specific types of expenses particular to a level of trade that were

so unique in the nature of these expenses rather than in quantity.

See, e.g., NTN’s Mem. at 33-34.

This Court has previously upheld Commerce’s recalculation of

NTN’s indirect selling expenses without regard to levels of trade.

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

___, 131 F. Supp. 2d 104, 121 (2001); NTN Bearing, 24 CIT at ___,

104 F. Supp. 2d at 122; NTN Bearing II, 23 CIT at ___, 83 F. Supp.

2d at 1290-91; NTN Bearing III, 19 CIT at 1232-34, 905 F. Supp. at

Consol. Court No. 99-08-00462 Page 61

1094-95 (stating that NTN’s allocation methodology does not

reasonably quantify the expenses incurred at each level of trade);

NSK Ltd. v. United States, 21 CIT 617, 637-38, 969 F. Supp. 34, 55

(1997), aff’d, NSK. Ltd. v. Koyo Seiko Co., Ltd., 190 F.3d 1321,

1330 (Fed. Cir. 1999). NTN’s methodology continues to be based

upon unproven presumptions. See Final Results, 64 Fed. Reg. at

35,607. For these reasons, the Court sustains Commerce’s

recalculation of NTN’s United States and home market indirect

selling expenses without regard to levels of trade.

VIII. Inclusion of Profits From EP Sales in Calculation of CEP

Profit

A. Background

Under 19 U.S.C. § 1677a(d)(3), Commerce must, in order to

calculate CEP, deduct “the profit allocated to the expenses

described in” 19 U.S.C. § 1677a(d)(l) and (2) from the price

charged to the first unaffiliated purchaser in the United States.

“Profit” is defined as “an amount determined by multiplying the

total actual profit by the applicable percentage,” 19 U.S.C. §

1677a(f)(1), and “actual profit” is defined as the “total profit

earned . . . with respect to the sale of the same merchandise for

which total expenses are determined . . . .” 19 U.S.C. §

1677a(f)(2)(D). The term “total expenses” means “all expenses in

the first of [three] categories which applies and which are

incurred by or on behalf of the foreign producer and foreign

Consol. Court No. 99-08-00462 Page 62

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 . . . .” 19

U.S.C. § 1677a(f)(2)(C). The first category covers “expenses

incurred with respect to the subject merchandise sold in the United

States and the foreign like product sold in the exporting country.

. . .” 19 U.S.C. 1677a(f)(2)(C)(i). “Subject merchandise,” in

turn, is defined as “the class or kind of merchandise that is

within the scope of . . . a review . . . .” 19 U.S.C. § 1677(25)

(1994).

In the Preliminary Results, Commerce included profit on EP

sales in the calculation of CEP profit. See generally, 64 Fed.

Reg. at 8790.

B. Contentions of the Parties

NTN contends that the statute clearly states that the

adjustment of profit to the CEP is to be based on expenses incurred

in the United States as a percentage of total expenses and that

there is no provision in the statute for the inclusion of EP

expenses or profit in this calculation. See NTN’s Mem. at 37-38.

NTN deduces, therefore, that Commerce erred by including EP sales

in the calculation of CEP profit. Id. at 38.

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Specifically, NTN relies on the definition of the term “total

expenses.” See 19 U.S.C. § 1677a(f)(2)(C). NTN concludes that the

specific reference to CEP within the definition precludes Commerce

from the inclusion of profits from EP sales in calculation of CEP

profit. See NTN’s Mem. at 37-38.

Commerce contends that the inclusion of profits on EP sales in

the calculation of CEP profit was in accordance with the law

because it was a reasonable interpretation of the statutory

mandates of sections 1677(a)(d)(1) and (2), 1677a(d)(3),

1677a(f)(1) and (2)(C) and(D) of Title 19.

Commerce points out that:

[i]t is [Commerce’s] practice to include EP sales in the

calculation of CEP profit. See, e.g., AFBs 8, 63 [Fed.

Reg.] at 33[,]345[;] TRBs, 63 [Fed. Reg.] at 2570[;] and

Certain Fresh Cut Flowers From Colombia; Final Results

and Partial Rescission of Antidumping Duty Administrative

Review, 62 [Fed. Reg.] 53[,]295 (October 14, 1997). In

addition, [Commerce’s] analysis in these reviews is

consistent with [the goals articulated in] Policy

Bulletin 97.1 of September 4, 1997.

Def.’s Mem. at 80.

Commerce further articulates the following argument:

The basis for total actual profit is the same as the

basis for total expenses . . . . [See 19 U.S.C. §

1677b(f)(2)(C).] The first alternative under [19 U.S.C.

§ 1677b(f)(2)(C)] states that, for purposes of

determining profit, the term “total expenses” refers to

all expenses incurred with respect to the subject

merchandise sold in the United States (as well as the

foreign like product sold in the exporting country).

Thus, where the respondent makes both EP and CEP sales to

Consol. Court No. 99-08-00462 Page 64

the United States, sales of the subject merchandise would

encompass all such transactions. Therefore, because NTN

had EP sales, [Commerce has to] include[] these sales in

the calculation of CEP profit.

Final Results, 64 Fed. Reg. at 35,622.

Torrington agrees with Commerce and contends that Commerce

reasonably calculated CEP profit on the basis of all United States

sales, including export price sales, and without regard to LOT.

See Torrington’s Resp. at 77-79.

C. Analysis

Based upon the above-defined statutory scheme, Commerce

concluded that where a respondent made both EP and CEP sales,

“sales of the subject merchandise” encompassed all such

transactions and, therefore, Commerce could reasonably interpret

the statutory scheme as providing that the calculation of total

actual profit is to include all revenues and expenses resulting

from the respondent’s EP sales as well as from its CEP and home

market sales. See Def.’s Mem. at 82.

The calculation of total actual profit under [19 U.S.C.

§ 1677a(f)(2)(D)] includes all revenues and expenses

resulting from the respondent’s export price . . . sales

as well as from its constructed export price and home

market sales . . . . The basis for total actual profit

is the same as the basis for total expenses under [19

U.S.C. § 1677a(f)(2)(C)]. The first alternative under

this section . . . states that, for purposes of

determining profit, the term “total expenses” refers to

all expenses incurred with respect to the subject

merchandise sold in the United States (as well as home

market expenses). Thus, where the respondent makes both

Consol. Court No. 99-08-00462 Page 65

EP and CEP [sales], sales of the subject merchandise

would encompass all such transactions.

Id. at 82-83 (quoting 1997 Policy Bulletin (Sep. 4), Pub. Def. Ex.

1.)

The SAA further clarifies the point and states the following:

The total expenses are all expenses incurred by or on

behalf of the foreign producer and exporter and the

affiliated seller in the United States with respect to

the production and sale of the first of the following

alternatives which applies: (1) the subject merchandise

sold in the United States and the foreign like product

sold in the exporting country (if Commerce requested this

information in order to determine the normal value and

the constructed export price) . . . .

H.R. DOC. 103-316 at 824.

Based upon its interpretation of the statutory language and

upon the SAA’s reference to constructed export price, NTN claims

that there are only two categories of expenses that Commerce can

use in calculating CEP profit: those used to calculate NV and

those used to calculate CEP. See NTN’s Mem. at 37-38. NTN,

however, ignores two issues.

To start, the first category of total expenses is not limited

to expenses incurred with respect to CEP sales made in the United

States and the foreign like product sold in the exporting country.

It also covers expenses incurred with respect to EP sales because

it refers to “expenses incurred with respect to the subject

merchandise sold in the United States;” the term “subject

Consol. Court No. 99-08-00462 Page 66

merchandise” is defined in 19 U.S.C. § 1677(25) as the class or

kind of merchandise that is within the scope of a review; and the

class or kind of merchandise in this review includes both CEP and

EP sales.

Second, as the SAA explains, the total expenses are all

expenses incurred with respect to the production and sale of the

first of the three alternatives. In referring to the first

category of expenses, the SAA specifically refers to “the subject

merchandise sold in the United States,” which, by definition, means

the class or kind of merchandise which is within the scope of a

review and, in this review, includes both CEP and EP sales. H.R.

DOC. 103-316 at 824-85.

For these reasons the Court is not convinced by NTN’s argument

that Commerce’s interpretation of the statutory scheme is

unreasonable and sustains Commerce’s inclusion of profits on EP

sales in the calculation of CEP profit. See Chevron, 467 U.S. 837.

IX. Commerce’s Calculation of NTN’s CEP Profit Without Regard to

Levels of Trade

A. Background

Calculating CEP, Commerce must deduct from the price at which

the merchandise is sold to the first unaffiliated purchaser in the

United States “the profit allocated to the expenses described in

paragraphs (1) and (2)” of section 1677a(d). 19 U.S.C. §

Consol. Court No. 99-08-00462 Page 67

1677a(d)(3). “Profit” is defined as “an amount determined by

multiplying the total actual profit by the applicable percentage,”

19 U.S.C. § 1677a(f)(1), while “actual profit” is defined as the

“total profit earned . . . with respect to the sale of the same

merchandise for which total expenses are determined under such

subparagraph.” 19 U.S.C. § 1677a(f)(2)(D). The term “total

expenses” means:

[A]ll 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)(2)(C) .

In the Preliminary Results, Commerce interpreted these

provisions and calculated NTN’s CEP profit without regard to levels

of trade. See 64 Fed. Reg. 8790.

Consol. Court No. 99-08-00462 Page 68

B. Contentions of the Parties

NTN alleges that Commerce’s calculation of CEP profit without

regard to levels of trade was in violation of law. See NTN’s Mem.

at 5, 10, and 38-39. Specifically, NTN contended the following:

(1) prices differed significantly between levels of trade; (2) to

account fully for price differences between levels of trade,

Commerce must consider profit levels; and (3) the statutory

language expresses a preference for the CEP profit calculation to

be performed as specifically as possible. See NTN’s Mem. at 39.

Commerce contends that the calculation of NTN’s CEP profit was

made in accordance with the applicable statutory mandates. See

Def.’s Mem. at 84-89. Commerce stated the following:

It is not [Commerce’s] practice to calculate CEP profit

for different levels of trade. See, e.g., AFBs 7, 62

[Fed. Reg.] at 54[,]072, and 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; Final

Results of Administrative Reviews, 63 [Fed. Reg.] 2570,

2583 (January 15, 1998) . . . .

[Commerce] believe[s] that NTN’s reliance on the

term “narrowest” as used in . . . [19 U.S.C. §§

1677a(f)(2)(C) (ii) and (iii)] is misplaced. While the

statute uses the term “narrowest” in describing the

second and third alternative methods, methods in which

CEP profit is calculated based on financial reports, for

NTN we used the first alternative method since the

company provided the necessary data (i.e., U.S. and home-

market sales information as well as CV and COP data for

the subject merchandise and the foreign like product,

respectively). This is consistent with the instructions

set forth in . . . [19 U.S.C. § 1677a(f) (C)] and the SAA

at 824-825. Moreover, regardless of the basis for the

CEP-profit calculation, neither the statute nor the SAA

Consol. Court No. 99-08-00462 Page 69

requires us to calculate CEP-profit on a basis more

specific than subject merchandise and foreign like

product. See Toyota Motor Sales, USA v. United States,

[22 CIT ___, 15 F. Supp. 872 (1998)] . . . .

Final Results, 64 Fed. Reg. at 35,621-22.

C. Analysis

The Court agrees with Commerce’s contention that NTN’s reading

of section 1677a(f) of Title 19 is too broad. The statute does not

expressly refer to levels of trade, see 19 U.S.C. § 1677a(f), but

rather refers to the “narrowest category of merchandise . . . which

includes the subject merchandise” in 19 U.S.C. § 1677a(f)(2)(C)(ii)

and (iii). However, the term “subject merchandise” is defined

in 19 U.S.C. § 1677(25) as “the class or kind of merchandise that

is within the scope of an investigation, a review, a suspension

agreement, an order under this subtitle or section 1303 of this

title, or a finding under the Antidumping Act, 1921.” Thus, it was

reasonable for Commerce to interpret the statutory language as: (1)

envisioning that, in general, the “narrowest category” would be the

class or kind of merchandise that is within the scope of an

investigation or a review, while (2) not contemplating that

Commerce would be required to consider a much narrower sub-category

of merchandise, such as one based upon a level of trade. See

Def.’s Mem. at 87 (citing to H.R. Doc. 103-316 at 825).

Consol. Court No. 99-08-00462 Page 70

Commerce relied upon 19 U.S.C. § 1677a(f)(2)(C)(i) and

clarified the underlying policy of its interpretation by stating

that the subdivision of the CEP profit calculation “should be the

exception rather than the rule because [of additional] complexity

[and] susceptib[ility] to manipulation . . . .” See Final Rule, 62

Fed. Reg. at 27,354.

NTN contends that Commerce should calculate CEP profit to

account for level of trade differences because “[t]here is no

reason [for Commerce] to use a less specific, less accurate mode of

calculation.” NTN’s Mem. at 39. However, a CEP profit calculation

based upon a broader profit line than the subject merchandise will

not necessarily produce a less accurate or distorted result. The

SAA offers the following observation:

No distortion in the profit allocable to U.S. sales is

created if total profit is determined on the basis of a

broader product-line than the subject merchandise,

because the total expenses are also determined on the

basis of the same expanded product line. Thus, the

larger profit pool is multiplied by a commensurately

smaller percentage.

H.R. DOC. 103-316 at 825.

The issue was already addressed in NTN Bearing, 24 CIT at ___,

104 F. Supp. 2d at 132-35 (concluding that because section 1677a(f)

does not make any reference to level of trade, Commerce acted

reasonably by interpreting section 1677a(f) as allowing Commerce

Consol. Court No. 99-08-00462 Page 71

not to apply a narrower subcategory of merchandise, such as one

based upon LOT).

Subsections (ii) and (iii) of the § 1677a(f)(C)’s “total

expense” definition both refer to “expenses incurred with

respect to the narrowest category of merchandise . . .

which includes the subject merchandise.” The term

“subject merchandise” is defined as “the class or kind of

merchandise that is within the scope of an investigation,

a review, a suspension agreement, an order under this

subtitle or section 1303 of this title, or a finding

under the Antidumping Act, 1921.” 19 U.S.C. § 1677(25)

(1994). The statute, therefore, clearly contemplates

that, in general, the “narrowest category” will include

the class or kind of merchandise that is within the scope

of an investigation or review.

. . . .

The Court, moreover agrees with Commerce’s

conclusion that “a subdivision of the CEP-profit

calculation would be more susceptible to manipulation,”

a result that Congress specifically warned Commerce to

prevent. Final Results, 62 Fed. Reg. at 54,073 (citing

62 Fed. Reg. at 2125 (Jan. 15, 1997) (citing, in turn,

S. Rep. 103-412, 103d Cong., 2d Sess. at 66-67 (1994))[].

Finally, even if the Court were to assume that a narrower

basis for calculating CEP profit would be justified under

some circumstances, the Court agrees with Commerce that

NTN failed to provide adequate factual support of how the

CEP profit calculation was distorted by Commerce’s

standard methodology.

Id. at 135.

Because NTN has failed to demonstrate that Commerce’s standard

methodology for calculating CEP profit was distortive, the Court

sustains Commerce’s calculation of CEP profit for NTN without

regard to levels of trade. See Chevron, 467 U.S. 837.

Consol. Court No. 99-08-00462 Page 72

X. Commerce’s Treatment Of NTN’s Home Market Packing Expenses

During the prior reviews, Commerce re-allocated NTN’s packing

expenses. See Def.’s Mem. at 89. During the review in issue,

however, Commerce examined and denied NTN’s packing expenses. Id.

Commerce found NTN’s allocation of home market packing expenses

distortive because NTN’s allocation allegedly did not take into

account the differences in packing to different customers. Id. at

89-90. Additionally, Commerce disallowed the claimed adjustment

for home market packing expenses because NTN allegedly did not

revise its methodology when Commerce requested such a revision.

Id. Issuing its final determination, Commerce stated that Commerce

applied partial adverse facts available, and yet Commerce also

stated that Commerce denied the adjustment. See Final Results, 64

Fed. Reg. at 35,596. NTN contends that Commerce’s treatment of

NTN’s home market packing expenses, specifically: (1) Commerce’s

denial of packing expenses; and (2) Commerce’s application of facts

available and adverse inference to NTN’s home market packing

expense, was not in accordance with the law. See NTN’s Mem. at 39-

41. Because Commerce’s explanation of the action which it took is

not clear, the Court remands the issue to Commerce for explanation

of its final decision concerning NTN’s packing expenses.

Consol. Court No. 99-08-00462 Page 73

XI. Inclusion of Directors’ Retirement Benefits in NTN’s General

and Administrative Expenses

A. Background

In calculating cost of production and constructed value,

Commerce is required to include selling, general and administrative

expenses. See 19 U.S.C. §§ 1677b(b)(3). While the statute does

not define what constitutes general and administrative (“G&A”)

expenses, G&A expenses are generally understood to mean “expenses

which relate to the activities of the company as a whole rather

than to the production process.” See U.S. Steel Group a Unit of

USX Corp. v. United States, 22 CIT ___, ___, 998 F. Supp. 1151,

1154 (1998) (quoting Rautaruukki Oy v. United States, 19 CIT 438,

444 (1995)).

Commerce believes that benefits paid to company officers and

directors could be fairly characterized as expenses that belong to

the company as a whole rather than to the production process. See

Def.’s Mem. at 91. Therefore, Commerce developed a practice of

treating benefits to officers and directors as G&A expenses. See,

e.g., Final Results of Antidumping Duty Administrative Review of

Certain Corrosion-Resistant Carbon Steel Flat Products From Japan,

65 Fed. Reg. 8935, 8940-41 (Feb. 23, 2000) (explaining that special

retirement payment and past service portion of pension cost would

be included in G&A expense rate even despite classification under

Japanese GAAP as extraordinary expenses); Notice of Preliminary

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Determinations of Sales at Less Than Fair Value on Certain Cold-

Rolled Flat-Rolled Carbon-Quality Steel Products from Turkey, 65

Fed. Reg. 1127, 1134 (Jan. 7, 2000) (stating that G&A expense rate

is adjusted to include bonuses for management personnel); Notice of

Final Determination of Sales at Less Than Fair Value on Stainless

Steel Sheet and Strip in Coils From Japan, 64 Fed. Reg. 30,574,

30,591 (June 8, 1999) (finding that one-time severance payments to

transferred employees should be included in G&A expense rate

pursuant to Commerce’s normal practice, despite claim that they

were extraordinary expense under Japanese GAAP); Final Results of

Antidumping Duty Administrative Reviews of Antifriction Bearings

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

Germany, Italy, Japan, Romania, Singapore, Sweden, and the United

Kingdom, 63 Fed. Reg. 33,320, 33,338 (June 18, 1998) (stating that

bonus distribution relates to the administrative activities of the

company as a whole and that Commerce’s normal practice is to

include the amount in the calculation of COP and CV); Final

Determination of Sales at Less Than Fair Value on Titanium Sponge

From Japan, 49 Fed. Reg. 38,687, 38,690 (Oct. 1, 1984) (finding

that retirement benefits for officers are considered a necessary

expense of the corporation). Commerce’s practice is to exclude

expenses from the calculation of G&A rate only when the expenses

are both: (1) unusual; and (2) infrequent in nature. See, e.g.,

Notice of Final Determination of Sales at Less Than Fair Value on

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Certain Polyester Staple Fiber From the Republic of Korea, 65 Fed.

Reg. 16,880, 16,882 (March 30, 2000) (relying on Unpublished Mem.,

65 FR 16,880 LEXIS (March 30, 2000)(finding that severance payments

should be included in G&A expenses because“[Commerce] only allows

for the exclusion of extraordinary expenses when those expenses are

both unusual and infrequent in nature”)).

B. Contentions of the Parties

NTN argues that Commerce erroneously included directors’

retirement benefits in its calculation of NTN’s general and

administrative expenses. See NTN’s Mem. at 42. Commerce believes

that it acted in accordance with the statutory mandate and the

evidence on record and, therefore, properly included directors’

retirement benefits in the calculation of NTN’s general and

administrative expenses. See Def.’s Mem. at 90-94.

Torrington agrees with Commerce and asserts that Commerce

acted reasonably in recalculating NTN’s G&A expenses by including

the aforesaid amounts. See Torrington’s Resp. at 84-85.

C. Analysis

During the review in issue, NTN did not include retirement

benefits for directors in its G&A expense calculation alleging that

the retirement benefits for directors was an extraordinary expense.

See Final Results at 35,596. At that point, NTN provided Commerce

Consol. Court No. 99-08-00462 Page 76

with no evidence to support its claim that the retirement benefits

should be excluded from G&A because they constituted an

extraordinary expense. See id. Consequently, Commerce included

the expenses for the retirement benefits in the calculation of G&A

and explained its decision as follows:

[I]t is incumbent upon the respondent to demonstrate that

it is entitled to a favorable expense adjustment. NTN

did not explain how retirement benefits are an

“extraordinary expense” and provided no other

justification for exclusion of these expenses.

Therefore, [Commerce has] recalculated NTN’s G&A expenses

to include these benefits.

Id.

NTN argues before this Court that, because the benefits were

a one-time payment made to certain retiring directors and are not

payments which NTN makes with any regularity, they are

“extraordinary” in nature and cannot be considered expenses accrued

for the general operation of NTN’s business and should not be

included as a G&A expense. However, the administrative record does

not support NTN’s argument because NTN did not submit any evidence

establishing the extraordinary nature of the benefits. See id.

Therefore, NTN’s argument and any evidence in support of it cannot

be considered by this Court. See, e.g., Calabrian Corp. v. U.S.

Int’l Trade Comm’n, 15 CIT 287 (1991).

Alternatively, NTN asserts that retirement payments are akin

to dividend payments and, as such, should not be included in G&A.

Consol. Court No. 99-08-00462 Page 77

See NTN’s Mem. at 42. Commerce, however, does analogize retirement

payments to dividend payments and treats them as dividend payments

only if retirement payments are derived from retained earnings.

See Final Results of Antidumping Duty Review of Tapered Roller

Bearings, Finished and Unfinished, and Parts Thereof From Japan, 57

Fed. Reg. 4951, 4957 (Feb. 11, 1992) and 56 Fed. Reg. 41,508,

41,516 (Aug. 21, 1991). In this case, NTN failed to provide

Commerce with sufficient evidence allowing Commerce to analogize

retirement payments to treat them as dividend payments.

Based on the foregoing, the Court sustains Commerce’s decision

to include the expenses for the benefits in the calculation of the

G&A ratio as reasonable in accordance with the law.

XII. Commerce’s Refusal to Adjust NTN’s Normal Values by Home

Market Commissions to Affiliated Parties that Appeared to

Be Made Not at Arm’s Length

A. Background

There is no specific provision allowing for the deduction of

home market commissions from normal value. Congress has provided

for adjustment of normal value for differences in the circumstances

of sale:

The price described in paragraph (1)(B) shall be . . .

increased or decreased by the amount of any difference

(or lack thereof) between the export price or constructed

export price and the price described in [another]

paragraph . . . (other than a difference for which

allowance is otherwise provided under this section) that

is established to the satisfaction of the administering

Consol. Court No. 99-08-00462 Page 78

authority to be wholly or partly due to . . . other

differences in the circumstances of sale.

19 U.S.C. § 1677b(a)(6)(C) (1994).

During the review in issue, Commerce compared the weighted-

average commission rate paid to affiliated parties with the

weighted-average commission rate paid to unaffiliated parties.

Final Results, 64 Fed. Reg. at 35,606. Commerce “found that the

weighted-average commission rate for certain classes or kinds of

AFBs paid to affiliated parties was higher than the weighted-

average commission rate paid to unaffiliated parties.” Def.’s Mem.

at 95. Commerce determined that the commissions paid to affiliated

parties were not made at arm’s length and, therefore, did not

deduct the commissions paid to affiliated commissionaires from the

normal value calculated for the relevant merchandise. Final

Results, 64 Fed. Reg. at 35,606.

During the review in issue, Commerce requested NTN to do the

following:

[r]eport the unit cost of commissions paid to affiliated

and unaffiliated selling agents. If more than one

commission was paid, report each commission [separately].

Describe the terms under which commissions were paid and

how commissions rates were determined. Explain whether

the amount of the commission varies depending on the

party to whom it is paid and whether that party is

affiliated with you. Include samples of each type of

commission agreement used. For payments to affiliated

selling agents, indicate whether the commissions were

paid at arm’s length by reference to commission payments

to unaffiliated selling agents in the comparison market

Consol. Court No. 99-08-00462 Page 79

and other markets. Submit evidence demonstrating the

arm’s length nature of the commissions.

Def.’s Mem. at 99.

NTN’s responded only by stating that “[c]ommission rates

varied depending on the party to whom the commissions were paid,”

id., failing to provide Commerce with specific evidence explaining

why home market commissions varied and whether the commissions paid

to affiliated parties were at arm’s length. Commerce, therefore,

concluded that:

[t]here is no evidence on the record supporting NTN’s

claim that commission rates vary significantly between

selling agents according to the services provided by each

agent. As NTN notes, its response indicates that it

negotiates commission rates with each selling agent.

However, NTN has not provided any explanation as to how

or why commission rates might vary or any information

regarding the differences in services rendered by

different selling agents. In the absence of such

information, it is reasonable to presume that commissions

paid to affiliates which are higher than those paid to

unaffiliated parties are not at arm’s length.

Furthermore, NTN’s assertion that “commissions paid

to related parties are often much higher than those paid

to unrelated parties[”] does not demonstrate that our

methodology is unreasonable. Rather, it indicates that

the commissions paid to those related parties are more

favorable than those paid to unrelated parties and,

therefore, are not at arm’s length.

Final Results, 64 Fed. Reg. at 35,606.

B. Contentions of the Parties

NTN alleges that Commerce’s failure to adjust normal value for

certain classes or kinds of bearings for commissions paid for

Consol. Court No. 99-08-00462 Page 80

delivery on behalf of NTN to affiliated commissioners was in

violation of the law. See NTN’s Mem. at 42-44. NTN argues that

Commerce’s methodology for determining the arm’s length nature of

the commissions paid to affiliated parties (which compares the

weighted-average commission rate paid to affiliated parties to the

weighted-average rate paid to unaffiliated parties) is “problematic

. . . because it fails to account for actual services rendered in

exchange for the commission.” Id. at 43.

Commerce asserts that it acted properly in refusing to adjust

NTN’s normal value by home market commissions to affiliated parties

that Commerce assumes to be made not at arm’s length. See Def.’s

Mem. at 95-101. Commerce’s position is supported by Torrington

asserting that Commerce’s actions were reasonable under the

circumstances. See Torrington’s Resp. at 85-87.

C. Analysis

“Commerce is given considerable deference in its decision to

grant a circumstances-of-sale adjustment.” See Outokumpu Copper

Rolled Products AB v. United States, 850 F. Supp. 16, 22 (CIT 1994)

(citing Smith-Corona Group, Consumer Products Div., SCM Corp. v.

United States, 713 F.2d 1568, 1575 (Fed. Cir. 1983), cert. denied,

465 U.S. 1022 (1984)). “As long as Commerce’s ‘decision is

reasonable, then Commerce has acted within its authority even if

another alternative is more reasonable.’” Id. (quoting Koyo Seiko

Consol. Court No. 99-08-00462 Page 81

Co. v. United States, 16 CIT 366, 372, 796 F. Supp. 517, 523

(1992), rev’d and remanded on other grounds, 36 F.3d 1565 (Fed.

Cir. 1994)).

The SAA additionally clarifies that “[C]ommerce’s . . .

practice with respect to this adjustment [is] to remain unchanged.”

H.R. Doc. 103-316 at 828.

Under pre-URAA law, Commerce’s practice with respect to

commissions paid to affiliated parties was to allow adjustments for

the commissions only when they were found to be at arm’s length or

were directly related to the sales under review. See LMI-LA

Metalli Industriale, S.p.A. v. United States, 912 F.2d 455, 458

(Fed. Cir. 1990). Commerce presumed that the commission

arrangement was not bona fide in the case of a parent-subsidiary

relationship and placed on the foreign company the burden of coming

forward with evidence supporting a bona fide arrangement. See id.

at 459. Commerce developed a two-prong test pursuant to which it

determined the following: (1) if the commissions were directly

related to specific sales; and, in addition, (2) whether the

commissions are at arm’s length. See Outokumpu Copper Rolled

Products AB v. United States, 17 CIT 848, 859, 829 F. Supp. 1371,

1381 (1993), and 850 F. Supp. at 21.

Currently, under 19 C.F.R. § 351.410(b), Commerce makes the

“circumstances of sale” adjustments pursuant to 19 U.S.C. §

Consol. Court No. 99-08-00462 Page 82

1677b(a)(6)(C)(iii) only for direct selling expenses and assumed

expenses. Direct selling expenses include commissions “that result

from, and bear a direct relationship to, the particular sale in

question.” 19 C.F.R. § 351.410(c). Under 19 C.F.R. §

351.401(b)(i) (1998), the interested party that is in possession of

the relevant information has the burden of establishing to the

satisfaction of Commerce the amount and nature of a particular

adjustment in order to obtain adjustments to normal value.

Pursuant to its practice, Commerce has denied adjustments for

commissions where it was not provided with sufficient evidence that

commissions paid to affiliated commissionaires were made at arm’s

length. See, e.g., Final Results of Antidumping Duty Administrative

Reviews and Revocation in Part of an Antidumping Finding on 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, 61 Fed. Reg. 57,629,

57,638 (Nov. 7, 1996); Final Results of Antidumping Duty

Administrative Reviews on Antifriction Bearings (Other Than Tapered

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

Japan, Singapore, and the United Kingdom, 62 Fed. Reg. 2081, 2098-

99 (Jan. 15, 1997); Final Results of Antidumping Duty

Administrative Review of Industrial Phosphoric Acid From Belgium,

64 Fed. Reg. 49,771, 49,772 (Sept. 14, 1999). In the instant case,

Consol. Court No. 99-08-00462 Page 83

Commerce followed the same practice.7 See Final Results, 64 Fed.

Reg. at 35,606.

Because the evidence in the administrative record offer only

an insignificant distinction and NTN failed to point out the

specific evidence that Commerce could have considered to be

sufficient to change Commerce’s assessment methodology, Commerce

could reasonably conclude that “NTN’s . . . commission rates [did

not] vary significantly between selling agents according to the

services provided by each agent.” Final Results, 64 Fed. Reg. at

35,606; cf. Zenith Elecs Corp. v. United States, 17 CIT 51, 57, 812

F. Supp. 228, 233 (1993) (pointing out that “[t]he more specific

evidence [is present] in the record[,] . . . [the more] Commerce's

rejection of that more specific evidence is . . . unreasonable”).

Commerce’s determination is, therefore, affirmed.

7

NTN refines the point by stating the following: (1)

“commissions are not paid ‘for delivery only.’ Rather, each

selling agent performs various selling functions depending upon the

agent’s negotiated agreement with NTN;” and (2) “[c]ommission rates

vary significantly between agents according to the services

provided by each agent. Certain agents, for example, may provide

extensive services, including tasks such as inventory and technical

support. Others, by contrast, may only serve as communication

facilitators.” NTN’s Mem. at 43. NTN concludes that Commerce

should have reviewed commission rates on an individual basis rather

than on a weighted-average basis in order to determine this

particular point. See id. However, NTN failed to present Commerce

with evidence demonstrating that commission rates varied so

significantly between selling agents according to the services

provided by each agent, that there was a reason for Commerce to

depart from its usual reasonable methodology which compares the

weighted-average commission rate paid to affiliated parties to the

weighted-average rate paid to unaffiliated parties.

Consol. Court No. 99-08-00462 Page 84

XIII. Commerce’s Treatment of Koyo’s Home Market Billing

Adjustments as Direct Price Adjustments to Price

A. Background

In the underlying review, Koyo reported two types of

adjustments to its home market prices: billing adjustment one and

billing adjustment two. See Koyo’s Mem. Resp. to Torrington’s Mot.

J. Agency R. (“Koyo’s Mem. Resp.”) at 4-5. The adjustments to

price reported as billing adjustment one were all transaction-

specific price adjustments. See id. As such, these billings

adjustments met Commerce's most stringent transaction-specific

reporting requirements.

The price adjustments reported by Koyo in billing adjustment

two comprised adjustments granted in two ways: (1) “lump-sum”

adjustments, in which Koyo and its customers negotiated a single

lump-sum adjustment amount that were recorded in Koyo's computer as

a single adjustment without reference to specific models or sales;

and (2) adjustments granted on a model-specific basis that were,

because of the large number of individual models and transactions

to which they applied, recorded in Koyo's computer database as a

single adjustment to the customer's outstanding balance.8 Because

both of these types of adjustments were recorded on only a

8

During the normal course of business, Koyo's salespersons

entered a notation in the computer records to indicate that an

adjustment was applied to a customer's order without indicating the

specific products to which the adjustments applied. See Koyo’s

Mem. Resp. at 5-8.

Consol. Court No. 99-08-00462 Page 85

customer-specific basis, Koyo reported them in billing adjustment

two on a customer-specific basis as well. See id. at 5-8.

In other words, the only difference between billing adjustment

one and billing adjustment two, both of which involved customer-

specific allocations, was that billing adjustment one was free from

out-of-scope merchandise, while billing adjustment two relied on an

allocation to remove the effect of any out-of-scope merchandise.

In the Final Results, Commerce accepted claims discounts,

rebates and post-sale price adjustments (“PSPAs”) as direct

adjustments to price if Commerce found that the respondent, in

reporting these adjustments, acted to the best of its ability and

that its reporting methodology was not unreasonably distortive.

See 64 Fed. Reg. at 35,603. Commerce explained that, although it

prefers that respondents report the price adjustments on a

transaction-specific basis, it recognizes that this is not always

feasible, especially in the cases involving an extremely large

number of transactions involved in AFB reviews. See id. Commerce

stated that “[i]t [was] inappropriate to reject allocations that

are not unreasonably distortive [in favor of facts otherwise

available] where a fully cooperating respondent [was] unable to

report the information in a more specific manner.” Id. (emphasis

supplied). Commerce, therefore, accepted price adjustments when

transaction-specific reporting was not feasible, provided Commerce

Consol. Court No. 99-08-00462 Page 86

was satisfied that the allocation method used [did] not cause

inaccuracies or distortions. See id.; accord 19 C.F.R. §

351.401(g) (1988).

Commerce verified Koyo's reporting methodology, see Def.’s

Mem. at 121, n.32, and obtained from Koyo documentation

demonstrating that the denominator over which the total adjustments

were allocated included all sales to the customer during the period

and that the merchandise over which the adjustment was allocated

was sufficiently similar so as to not cause the allocation to be

unreasonably distortive. See Final Results, 64 Fed. Reg. at

35,603. Commerce concluded that:

Koyo provided us with a detailed listing of all non-

transaction-specific billing adjustments used to develop the

[b]illing [a]djustment [two] factor. . . . Each of these are

individual entries in the sales sub-ledger account which give

the total amount of the discount but do not state the

applicable products or quantities. Instead, this listing

simply shows the [specific] notation . . . . The total amount

of these adjustments matched the total amount of discounts

used in the numerator to develop the customer-specific factor.

Koyo’s Mem. Resp., Exb. 3.

In addition, Commerce “reviewed backup documentation for one

of [Koyo’s] . . . entries that made up the total adjustment amount”

and “[t]o further verify that all products used to develop the

discount amount were bearing-related, [Commerce] selected several

items from [the customer's] confirmation of receipt and Koyo

provided backup documentation demonstrating that these products

Consol. Court No. 99-08-00462 Page 87

were bearings or bearing-related products.” Id. After determining

that the correct adjustment percentage was applied by Koyo to the

affected customer's sales, Commerce concluded that Koyo removed all

non-bearing purchases, leaving a sales figure which included only

bearing-related products. See id. Commerce assumed that there was

no indication that Koyo's methodology would result in distortive

allocations. See Final Results, 64 Fed. Reg. at 35,603.

B. Contentions of the Parties

Torrington contends that Commerce’s acceptance of Koyo’s

reported home market billing adjustments as direct price

adjustments was unlawful and not supported by substantial evidence

because such adjustments must always be reported on a sales-

specific basis. See generally, Torrington’s Reply to Resp. of the

United States and Koyo (“Torrington’s Reply”). Torrington

recognizes that this Court approved the new methodology used by

Commerce. Id. at 2, 7, (citing to NTN Bearing, 24 CIT ___, 104 F.

Supp. 2d 110; Torrington Co. v. United States (“Torrington CIT”),

24 CIT ___, 100 F. Supp. 2d 1102 (2000); and Timken Co. v. United

States (“Timken”), 22 CIT ___, 16 F. Supp. 2d 1102 (1998)).

Nevertheless, Torrington argues that Koyo’s reported methodology of

allocating adjustments contravenes the rationale in or a broader

reading of Torrington Co. v. United States (“Torrington CAFC”) 82

F.3d 1039 (Fed. Cir. 1996). See id. at 4-5. Torrington asserts

Consol. Court No. 99-08-00462 Page 88

the Torrington CAFC is not limited to narrow discussion of direct

and indirect selling expenses but bears on the issue of direct

price adjustments. See id. Torrington claims that Commerce

unlawfully redefined what the CAFC considered “direct” by adopting

a new methodology and creating an artificial distinction not

anticipated by the CAFC. See id. Torrington further asserts that

although Torrington CAFC pre-dated the URAA amendments, the new

statute retains the distinction between “direct” and “indirect”

expenses. See id. at 4. Torrington, therefore, argues that since

Commerce’s new methodology must conform with precedent, this Court

should review Koyo’s home market PSPAs by applying the rationale of

Torrington CAFC as interpreted by Torrington. See id. at 4-5.

Alternatively, Torrington maintains that even if Commerce’s

new methodology is legally valid, Koyo did not carry its burden of

proof in establishing entitlement to any advantageous adjustment

under this methodology. See id. at 7-9. Specifically, Torrington

claims that Koyo failed to demonstrate that its reported home

market billing adjustment allocations were not distortive and that

it acted to the best of its ability in reporting the claimed

adjustment amounts. See id. at 8-9. Relying on SKF USA Inc. v.

INA Walzlager Schaeffler KG (“SKF CAFC”), 180 F.3d 1370 (Fed. Cir.

1999), Torrington further asserts that aside from what was or was

not possible to do, Koyo did not provide substantial evidence on

Consol. Court No. 99-08-00462 Page 89

record to demonstrate that it was infeasible or inconvenient to

provide more specific reporting. See id. at 8-9.

Torrington, therefore, requests that this Court reverse

Commerce’s determination with respect to each subject adjustment

and remand the case to Commerce with instructions to disallow

Koyo’s downward home market billing adjustments, but allow all

upward home market billing adjustments. See id. at 10-11.

Commerce responds that Torrington erred in relying on

Torrington CAFC because Torrington CAFC does not stand for the

proposition that direct price adjustments may only be accepted when

they are reported on a transaction-specific basis. See Def.’s Mem.

at 102-106. Commerce maintains that the court in Torrington CAFC

“merely overturned a prior Commerce[‘s] practice . . . of treating

certain allocated price adjustments as indirect expenses,” id. at

103 (citing Torrington CAFC, 82 F.3d at 1047-51), and did not

address the propriety of the allocations methods that respondents

used in reporting the price adjustments in question. See id. at

103-04. Commerce points out that it does not read Torrington CAFC

as addressing the propriety of allocation methodologies; rather,

Commerce only viewed Torrington CAFC as holding that “Commerce

could not treat indirect selling expenses as ‘improperly’ allocated

price adjustments . . . .” See id. at 104-05. Commerce notes that

pursuant to its new methodology, it does not consider price

Consol. Court No. 99-08-00462 Page 90

adjustments to be any type of selling expense, either direct or

indirect and, therefore, the holding of Torrington CAFC is

irrelevant to the issue at hand. See id. at 106.

Commerce also argues that its treatment of Koyo’s reported

home market billing adjustments as direct adjustments was supported

by substantial record evidence and otherwise in accordance with law

as clarified in Timken, that is, Commerce: (1) “used its acquired

knowledge of the respondents’ computer system and databases to

conclude that Koyo could not provide the information in the

preferred form;” (2) “scrutinized [Koyo’s] data before concluding

that the data were reliable”; and (3) found that the adjustments on

scope and non-scope merchandise did not result in unreasonable

distortions. Id. at 118-21.

Commerce points out that “[i]t would defeat the purpose of

permitting allocations if Commerce also required [Koyo] to provide

transaction specific adjustments so as to prove that the allocation

is non-distortive.” Id. at 121. Commerce maintains that, in

reviewing reported allocations, it looks not only to what is

theoretically possible, but what is reasonable in light of the

number of transactions involved and the possibility of unreasonable

distortions. See id. at 121-22. Commerce argues that since Koyo’s

allocation did not raise a serious danger of distortion or

Consol. Court No. 99-08-00462 Page 91

deliberate manipulation, it acted reasonably in accepting Koyo’s

billing adjustments. See id. at 120-26.

Koyo supports Commerce’s position, asserting that Commerce’s

acceptance of home market billing adjustment two was in accordance

with the law and supported by substantial evidence. See Koyo’s

Mem. at 15-29. Koyo notes that pre-URAA judicial precedent does

not prohibit Commerce from reevaluating its treatment of PSPAs.

See id. at 10-14. Koyo contends that “Torrington’s argument that

pre-URAA judicial precedent prohibits [Commerce] treatment of PSPAs

as price adjustments rather than expenses in the underlying review

is no longer relevant.” Id. at 11. Koyo also maintains that

Commerce’s change to a more liberalized reporting methodology is

consistent with the URAA. See id. at 15-18. Koyo asserts that

Commerce’s decision to allow Koyo to treat its PSPAs as adjustments

to price and allocate them is permissible under 19 U.S.C. §

1677m(e)’s more liberalized reporting instructions, which direct

Commerce not to reject data submissions once Commerce concludes

that certain criteria are satisfied. See id. at 16-17. Koyo

further asserts that Commerce’s treatment of allocated billing

adjustments is also “consistent with the new antidumping

regulation, 19 C.F.R. § 351.401(g)(1) (1997), which permits

[Commerce] to ‘consider allocated expenses and price adjustments

when transaction-specific reporting is not feasible.’” Id. at 17-

18 (quoting 19 C.F.R. § 351.401(g)(1)).

Consol. Court No. 99-08-00462 Page 92

Moreover, contrary to Torrington’s assertion that even under

Commerce’s new reporting methodology Koyo’s PSPAs should be denied,

Koyo argues that it acted to the best of its ability in reporting

billing adjustments one and two and that the reporting

methodologies Koyo employed were non-distortive. See id. at 19-26.

Koyo asserts that because the scope and non-scope products were

similar in terms of value, physical characteristics, and the manner

in which it is sold, there is no reason to believe the adjustment

resulted in unreasonable distortions. See id. at 20.

C. Analysis

“Commerce's decision to accept Koyo's reported home market

billing adjustments . . . was supported by substantial evidence and

was fully in accordance with the post-URAA statutory language,” as

well as with the SAA that accompanied the enactment of the URAA

because: (1) Commerce verified Koyo's billing adjustments to

determine that they were reliable and could not be reported more

specifically; and (2) Commerce properly accepted Koyo's allocation

methodology, “even though it included adjustments on in-scope and

out-of-scope merchandise, as [Commerce] carefully reviewed the

differences between such merchandise and ensured that the

allocations were not unreasonably distortive.” NTN Bearing, 24 CIT

at ___, 104 F. Supp. 2d at 156-57; accord, Timken, 16 F. Supp. 2d

at 1107-08.

Consol. Court No. 99-08-00462 Page 93

After the enactment of the URAA, Commerce entirely reevaluated

its treatment of billing adjustments, and since that time it treats

them as adjustments to price and not as selling expenses. As

Commerce explained in its notice promulgating the post-URAA version

of its antidumping regulations, the term “price adjustment” is

intended to describe a category of changes to a price, such as

discounts, rebates and post-sale price adjustments, that affect the

net outlay of funds by the purchaser. Final Rule, 62 Fed. Reg. at

27,300.

In light of Commerce's clear authority to reevaluate its

treatment of PSPAs, the pre-URAA judicial precedents are no longer

relevant. Indeed, Commerce's treatment of Koyo's billing

adjustments as adjustments to price instead of selling expenses is

the issue left unanswered by pre-URAA cases on which Torrington

relies, specifically, Torrington CAFC, 82 F.3d 1039; Koyo Seiko

Co., Ltd. v. United States (“Koyo”), 36 F.3d 1565 (Fed. Cir. 1994);

and Consumer Prods Div.,

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