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 Antidumping Duty Administrative Reviews

DEPARTMENT OF COMMERCE

International Trade Administration

[A-588-054; A-588-604]

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 Antidumping Duty Administrative Reviews

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of Final Results of Administrative Reviews

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SUMMARY: On July 10, 1998, the Department of Commerce (the Department)

published the preliminary results of the 1996-97 administrative reviews

of the antidumping duty order on tapered roller bearings (TRBs) and

parts thereof, finished and unfinished, from Japan (A-588-604), and the

antidumping finding on TRBs, four inches or less in outside diameter,

and components thereof, from Japan (A-588-054) (see Tapered Roller

Bearings and Parts Thereof, Finished and Unfinished, from Japan, and

Tapered Roller Bearings, Four Inches or Less in Outside Diameter, and

Components Thereof, from Japan; Preliminary Results of Antidumping Duty

Administrative Reviews, 63 FR 37344 (July 10, 1998) (TRB Prelim)). The

review of the A-588-054 finding covers one manufacturer/exporter of the

subject merchandise to the United States during the period October 1,

1996, through September 30, 1997. The review of the A-588-604 order

covers one manufacturer/exporter and the period October 1, 1996,

through September 30, 1997. We gave interested parties an opportunity

to comment on our preliminary results. Based upon our analysis of the

comments received we have changed the results from those presented in

our preliminary results of review.

EFFECTIVE DATE: November 17, 1998.

FOR FURTHER INFORMATION CONTACT: Charles Ranado or Stephanie Arthur,

Office of AD/CVD Enforcement III, Office 8, Import Administration,

International Trade Administration, U.S. Department of Commerce, 14th

Street and Constitution Avenue, NW, Washington, DC 20230, telephone:

(202) 482-3518 or 6312, respectively.

SUPPLEMENTARY INFORMATION:

Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are in

reference to the provisions effective January 1, 1995, the effective

date of the amendments made to the Tariff Act of 1930, as amended (the

Act) by the Uruguay Round Agreements Act (URAA). In addition, unless

otherwise indicated, all citations to the Department's regulations

refer to 19 CFR part 351 (April 1, 1998).

Background

On August 18, 1976, the Treasury Department published in the

Federal Register (41 FR 34974) the antidumping finding on TRBs from

Japan, and on October 6, 1987, the Department published the antidumping

duty order on TRBs from Japan (52 FR 37352). On

[[Page 63861]]

October 2, 1997 (62 FR 51628), the Department published the notice of

``Opportunity to Request Administrative Review'' for both TRB cases.

Two respondents, Koyo Seiko Co., Ltd. (Koyo) and NTN Corporation (NTN),

requested administrative reviews.1 We initiated the A-588-

054 and A-588-604 administrative reviews for the period October 1,

1996, through September 30, 1997, on November 26, 1997 (62 FR 63069).

On July 10, 1998, we published in the Federal Register the preliminary

results of the 1996-97 administrative reviews of the antidumping duty

order and finding on TRBs from Japan (see TRB Prelim at 37348). The

Department has now completed these reviews in accordance with section

751 of the Act, as amended.

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\1\While two additional respondents (NSK Ltd. and Fuji Heavy

Industries) requested reviews in both the A-588-054 and A-588-604

cases, both later withdrew their requests in a timely manner (see

TRB Prelim at 37344).

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Scope of the Review

Imports covered by the A-588-054 finding are sales or entries of

TRBs, four inches or less in outside diameter when assembled, including

inner race or cone assemblies and outer races or cups, sold either as a

unit or separately. This merchandise is classified under Harmonized

Tariff Schedule (HTS) item numbers 8482.20.00 and 8482.99.30. Imports

covered by the A-588-604 order include TRBs and parts thereof, finished

and unfinished, which are flange, take-up cartridge, and hanger units

incorporating TRBs, and tapered roller housings (except pillow blocks)

incorporating tapered rollers, with or without spindles, whether or not

for automotive use. Products subject to the A-588-054 finding are not

included within the scope of this order, except for those manufactured

by NTN Corporation (NTN). This merchandise is currently classifiable

under HTS item numbers 8482.99.30, 8483.20.40, 8482.20.20, 8483.20.80,

8482.91.00, 8484.30.80, 8483.90.20, 8483.90.30, and 8483.90.60. These

HTS item numbers and those for the A-588-054 finding are provided for

convenience and Customs purposes. The written description remains

dispositive.

The A-588-054 review covers TRB sales by one TRB manufacturer/

exporter, Koyo Seiko Ltd. (Koyo). The review of the A-588-604 case

covers TRB sales by one manufacturer/exporter, NTN Corporation (NTN).

The period of review (POR) for both cases is October 1, 1996 through

September 30, 1997.

Analysis of Comments Received

We received case briefs from NTN and the petitioner, The Timken Co.

(Timken), on August 10, 1998. We received rebuttal briefs from the same

two parties, as well as from Koyo, on August 17, 1998. All comments in

the case and rebuttal briefs we received are addressed below in the

following order:

1. Adjustments to Normal Value

2. Adjustments to United States Price

3. Cost of Production and Constructed Value

4. Miscellaneous Comments Related to Level of Trade, the Arm's-

Length Test, Sample Sales, and Model Matching

5. Clerical Errors

1. Adjustments to Normal Value

Comment 1: Timken argues that as in 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 Antidumping Duty Administrative

Reviews, 63 FR 2558 (January 15, 1998) (95/96 TRB Final), there is once

again a discrepancy between the total home market billing adjustments

reported in NTN's computer sales tape and the total figures reported in

its supplemental questionnaire response. Thus, Timken contends that

NTN's sales tape is inconsistent with its questionnaire response and,

given these inconsistences, the Department should adjust the sales tape

to conform to the questionnaire response.

NTN claims that there is no merit to Timken's claim because there

is no discrepancy between NTN's sales data and its reported figures.

NTN argues that the alleged discrepancy is solely the result of

Timken's manipulation of NTN's data and that there is no evidence to

show that its sales data and its questionnaire response are

inconsistent. Furthermore, NTN notes that in its May 19, 1998

supplemental response it has supplied information requested by the

Department reconciling the billing adjustment totals reported on its

computer tape and in its volume and value worksheet. Since there is no

reason to doubt the accuracy of these data, NTN contends, the

Department should accept NTN's home market billing adjustments as

reported.

Department's Position: We agree with the petitioner. In the 95/96

TRB Final Timken argued that because there were certain inconsistencies

between NTN's computer tape home market billing adjustment total and

the billing adjustment figure reported in NTN's volume and value

worksheet, the Department should modify accordingly the reported

adjustments to be consistent with those appearing on the volume and

value reconciliation worksheets (see 95/96 TRB Final at 2563). For the

current review, as Timken has indicated, these same inconsistencies

exist between NTN's reported data and its volume and value

reconciliation worksheets (provided as Exhibits A-2a through A-2c of

NTN's May 19, 1998 supplemental questionnaire response). NTN attempts

to explain such inconsistencies in its supplemental response at page 4

and at Exhibit A-2c, using a hypothetical example which purportedly

demonstrates why it claims the totals reported on the sales tape and

the totals reported on the volume and value worksheet are not

necessarily equal. However, NTN's attempt to reconcile these totals

does not sufficiently explain the significant discrepancies between

them. Therefore, for these final results, we have adjusted NTN's

reported home market billing adjustment total to be consistent with

that on its volume and value worksheet. For a detailed description of

our methodology, please refer to the proprietary version of the

Department's Final Analysis Memorandum for NTN, dated November 9, 1998.

Comment 2: Timken claims that Koyo's indirect selling expenses

(ISEs) have been allocated improperly. Timken maintains that Koyo

reported selling expenses that could not be identified to a particular

market or general and administrative expenses (G&A) on the basis of

``various factors, such as number of employees working in the offices

responsible for sales to the different markets, etc.'' See Timken case

brief at 11, quoting Koyo section D questionnaire response dated

February 11, 1998 at 22. Timken asserts that despite the Department's

additional request for a detailed explanation of this allocation, Koyo

instead submitted exhibit D-22 to its supplemental response which does

not explain Koyo's allocation of its expenses between home market and

export sales. In fact, Timken believes that exhibit D-22 demonstrates

that Koyo allocated home market and export ISEs in a radically

different fashion, and that this exhibit indicates that export selling

expenses have not been properly allocated to export sales. Timken

claims that despite repeated requests, Koyo has failed to provide

information justifying its expense allocation. For these reasons Timken

maintains that the Department should substitute an allocation of these

[[Page 63862]]

expenses between home market, U.S., and third-country exports that is

supported by the record, such as allocation on the basis of cost of

goods sold (COGS) or sales value.

Koyo responds that Timken fails to identify any flaws in its

allocation methodology; rather, Timken simply asserts that there must

be something wrong because Koyo's methodology results in the allocation

of different proportional amounts of individual ISEs to home market and

export sales. Koyo believes that the information Timken has provided

demonstrating that, as a percentage of COGS, the ratio of the amounts

of certain expenses allocated to export sales and home market sales

varies among expenses, should be rejected based on the fact that Koyo's

methodology is well established and has been used in numerous

antifriction bearings (AFBs) and TRB reviews.

Koyo also claims that even if petitioner's proposal would lead to

more accurate results, ``it is unconscionable for petitioner to wait

this many years before coming forward with a proposed revision to a

well-established and repeatedly accepted methodology.'' Koyo rebuttal

brief at 5. Koyo argues that at some point in time the interest in

predictability in the methodologies used to calculate margins outweighs

the quixotic desire to achieve more precise results. Id. Koyo asserts

that this can be seen in Shikoku Chemicals Corp. v. United States 795

F. Supp. 417, 421 (1992), in which the Court of International Trade

(CIT) stated: ``[a]t some point, Commerce must be bound by its prior

action so that parties have a chance to purge themselves of antidumping

liabilities.'' Id.

Furthermore, Koyo asserts that its selling expense allocation

methodology has been subject to numerous verifications by the

Department in both the AFBs and TRBs reviews in which the Department

has never found any distortions with its methodology nor any reason to

reallocate its ISEs. Koyo cites to a recent CIT decision (Timken Co. v.

United States, Slip Op. 98-92 (July 2, 1998) (Timken 98-92)), in which

the CIT noted that ``the Department may rely on the knowledge of a

respondent's records and database obtained from past reviews in

determining the reasonableness of its reporting methodologies in a

current review.'' Koyo rebuttal brief at 6. Koyo claims that the

Department's 1995-96 verification report, which Koyo attaches as an

exhibit to its rebuttal brief, clearly lays out the details of its

methodology. Koyo asserts that, as can be seen from exhibit 3 of this

report, different expenses are allocated to export and home market

sales on a different basis, which Koyo believes is ``more relevant to

the particular expenses involved, and thus provides a far more

reasonable basis for allocation than simply allocating everything on

the basis of COGS or sales value, as suggested by Timken.'' Id. Koyo

believes that it is not surprising, given the detail of its allocation

bases, that its methodology would lead to different ratios for the

different expense types allocated to export and home market sales.

Thus, Koyo claims that its methodology is sufficiently accurate to

account for differences in the manner in which the different categories

of ISEs were incurred. In addition, Koyo notes that the ratios Timken

generated as a percentage of COGS are understandably different, given

that in selling for export, Koyo ``deals almost exclusively with a

single entity in each country. . . while in selling in the home market

Koyo must deal with a broad range of customers.'' Id. at 7. As a

result, the ISEs allocated to one market would understandably differ

from those allocated to another.

Finally, Koyo argues that Timken's assertion that ``apparently * *

* Koyo has limited the expenses attributed to export sales to those

attributable to its export sales department'' is wrong. Koyo rebuttal

brief at 7, quoting Timken case brief. Koyo believes that Timken

reaches this conclusion based on the fact that the heading ``export

department'' appears at the top of the chart listed in exhibit D-22 of

its supplemental response. However, Koyo claims that this heading

describes the offices to which the expenses were allocated (i.e., to

third-country sales and U.S. sales, all of which are within the

``export department''), not the offices from which the expenses were

obtained. Id. at 8. Further, Koyo asserts that as can be seen from

verification Exhibit 3 of its 1995-96 home market verification report,

the expenses were obtained from all of Koyo's offices, ``including its

branch offices throughout Japan, its head office in Osaka, and the

departments within some of its plants that have sales

responsibilities.'' Id.

Department's Position: We disagree with petitioner. Timken claims

that the Department must reject Koyo's ISEs because it has not

allocated these expenses properly and has failed to provide a detailed

explanation of these expenses, despite the Department's additional

request for information. In our supplemental questionnaire we requested

that Koyo provide further clarification concerning its ISEs. Koyo not

only submitted the referenced exhibit D-22, but also provided the

Department with further explanation of both its U.S. and home market

ISEs (see Koyo's 1996-97 supplemental questionnaire, May 15, 1998,

pages 19 and 27 and exhibits B-14 (consolidated HM sales worksheet), C-

11 (export selling expenses incurred in Japan), C-24 (Reconciliation of

Marine Insurance and export sales value), C-25 (1996/1997 SG&A

allocation worksheet), and D-22 (fiscal year SG&A allocation

worksheet). The additional information provided by Koyo demonstrates

that it made a reasonable attempt to answer our questions and supply

the Department with the appropriate material regarding its ISE

allocation methodology.

Timken also believes that Koyo's exhibit D-22 proves that its ISEs

are allocated in a disproportionate manner between home market and

export sales. As mentioned in past TRBs reviews (see 95/96 TRB Final at

2569), we believe that Koyo's allocation methodology does not produce

distortive results. As Koyo stated, in our 1995-96 verification report

we specifically reviewed Koyo's ISE allocation and noted that we found

no discrepancies with its allocation methodology. In fact, we

specifically stated that:

Because its allocation methodologies have been repeatedly

verified in past TRBs reviews, and because Koyo's methodology has

not changed for this review, this report does not describe them in

detail. Nevertheless, we did review these allocations in detail at

this verification and found no discrepancies.

See Koyo Seiko 95-96 Home Market Verification report dated June 20,

1997 at 10.

While we have not verified Koyo's allocation in this review,

because its allocation methodology for its ISEs is identical in this

review to that used in the 1995-96 review, we have no reason to believe

that Koyo's allocation methodology produces distortive results.

Further, we agree with Koyo that its allocation methodology provides a

more accurate allocation than Timken's proposed methodology of

allocating ISEs by COGS or sales value. For instance, based on exhibit

3 of Koyo's 1995-96 home market verification report, it is clear that

Koyo's ISE allocation varies by market (home market and U.S.). This

allocation methodology is very detailed and yields more accurate

results than Timken's proposed methodology. We have reviewed this

allocation in past AFBs and TRBs reviews and, as stated previously,

have verified this expense in detail without discrepancy.

[[Page 63863]]

In addition, petitioner's claim that Koyo's exhibit D-22 indicates

that export selling expenses have not properly been allocated to export

sales seems to be based on a misunderstanding of the exhibit. The

heading on exhibit D-22 reads ``export department.'' It appears as

though Timken misinterprets this to mean that Koyo has limited the

expenses attributed to export sales to those attributable to its export

sales department. However, exhibit 3 of Koyo's 1995-96 verification

report, which Koyo has attached to its rebuttal brief in this review to

explain its methodology to address Timken's related concern, clearly

indicates that Koyo's expenses were obtained from all of Koyo's

offices, not just the export department. Specifically, page two of this

exhibit, titled ``Key to Koyo's SG&A Allocation Methodology'', details

this allocation and gives further explanation of the nature of the

expenses incurred. Based on a review of Koyo's ISEs we believe that

this heading simply describes the office to which the expenses were

allocated (i.e., to third-country sales and U.S. sales which are within

the ``export department''), not the entirety of Koyo's export selling

expenses. Also, as stated above, we have verified documentation

regarding this issue in past TRBs reviews without discrepancy.

Therefore, because Koyo's ISEs have been thoroughly examined in

numerous TRB reviews and verifications without discrepancy, and because

the record in this review indicates that Koyo's allocation produces

reasonably accurate results, for these final results we have accepted

Koyo's reported ISEs.

Comment 3: Timken argues that the Department should not make an

adjustment to normal value (NV) for Koyo's home market billing

adjustments because they are distortive, have not been reported to the

best of Koyo's ability, and are not accurate.

Timken claims that in the 95/96 TRB Final at 2566 the Department

stated that:

[W]e have granted claims for PSPAs [post-sale price adjustments]

as direct adjustments to NV if we determined that a respondent, in

reporting these adjustments, acted to the best of its ability in

providing information and meeting the requirements we have

established with respect to these adjustments, and that its

reporting methodology was not unreasonably distortive.

First, Timken notes that Koyo reported customer-specific lump-sum

adjustments because Koyo's records do not permit transaction-specific

adjustments. Timken asserts that the resulting lump-sum billing factors

produce distortive results because Koyo has calculated these factors on

the basis of customer codes used for sales to a single customer rather

than those for specific ``ship-to'' or ``bill-to'' codes. While it may

be asserted that these adjustments should be aggregated because they

were all granted to the same customer, Timken believes this is not

clear from the record evidence because Koyo's response does not contain

a full listing of all the customer codes that it aggregated.

Regardless, Timken claims that ``these lump-sum adjustments were

granted for specific, identified sets of sales which, in some

instances, did not include any in-scope merchandise, and [that] these

lump-sum adjustments attributable to one set of sales have distorted

the amounts attributed to other sales of similar merchandise reported

by Koyo.'' Timken case brief at 16. Therefore, Timken avers, Koyo's

adjustments must be rejected.

Second, Timken asserts that even if the Department determined that

Koyo's calculations were not distortive, the calculations should still

be rejected because Koyo did not act to the best of its ability in

reporting its adjustments. Specifically, Timken claims that Koyo is

able to report its data more accurately because, based on exhibit B-12

(Billing Adjustment for Selected Home Market Customers) of its

supplemental response, ``it appears as though Koyo could have not only

excluded sales to customers who made no purchases of similar

merchandise, but also could have calculated individual ratios for each

individual customer code.'' Timken case brief at 17. To further support

this claim, Timken adds that, after comparing exhibit B-1 (Home Market

Customer Codes) of Koyo's section B response to exhibit B-12, it is

clear that Koyo is able to distinguish between customers who purchased

TRBs which were under four inches in outside diameter from those who

did not because all of the customers that appear in exhibit B-12 who

did not purchase under-four-inch TRBs are excluded from the Exhibit B-1

customer list. Therefore, Timken argues that Koyo did not act to the

best of its ability in reporting home market lump-sum billing

adjustments. Id.

Third, Timken claims that the exact same ratio has been used to

calculate lump-sum PSPAs, reported as BILADJH2, for each customer

regardless of when the sale took place. Timken claims that exhibit B-12

of Koyo's supplemental response shows that these ratios have been

calculated based on POR data. These POR-specific ratios, Timken

asserts, were applied to sales transactions occurring outside the POR,

i.e., during the ``window'' months included in Koyo's home market sales

data. Timken alleges that applying these ratios to sales outside of the

review period produces inaccurate results. For the reasons stated

above, Timken believes the Department should reject all of Koyo's

negative home market lump-sum billing adjustments.

In response to Timken's arguments, Koyo first clarifies that

Timken's argument applies only to its lump-sum billing adjustments,

reported as BILADJH2. Koyo argues that Timken's challenge to its

longstanding practice of aggregating lump-sum billing adjustments for

customers to which Koyo has assigned multiple customer codes to

calculate a customer-specific BILADJH2 must be rejected because it is

``based on the false premise that lump-sum adjustments recorded for a

particular customer code applied to sales only to that customer code.''

Koyo rebuttal brief at 8-9. Moreover, Koyo points out that the CIT has

already upheld the Department's post-URAA acceptance of its PSPAs as

``supported by substantial evidence and fully in accordance with law.''

Id., quoting Timken 98-92 at 16.

Koyo explains that, as the Department is aware, it negotiates with

its customers lump-sum billing adjustments covering both scope and non-

scope merchandise (see Koyo's 1996-97 TRB Section B Questionnaire

Response at 12-14 (February 10, 1998), and Koyo's TRB Supplemental

Questionnaire Response at 15 (May 15, 1998)), and that a single

customer may have multiple customer codes reflecting shipment to

different locations. After Koyo has negotiated a lump-sum adjustment

with a customer, Koyo continues, the salesman must then enter that

adjustment into Koyo's books. For customers with multiple customer

codes, Koyo claims the salesman has the discretion to choose the

customer code under which to enter the adjustment. However, Koyo claims

that this adjustment may have applied to sales shipped to various other

destinations (i.e., customer codes), in addition to that to which the

salesman assigns the adjustment. Thus, Koyo asserts that ``the fact

that a particular lump-sum adjustment is entered under a particular

customer code does not mean that the adjustment applied only to

shipments to that customer.'' Koyo rebuttal brief at 9. Accordingly,

Koyo claims that its ``well-established methodology properly aggregates

all lump-sum adjustment amounts and all sales amounts from multiple

customer codes for a single customer to ensure consistency between

[[Page 63864]]

the numerator and denominator of the adjustment factor calculation.''

Id. at 9-10. Koyo argues that the CIT upheld the fact that it reports

its lump-sum billing adjustment in a non-distortive manner and to the

best of its ability.

Koyo also argues that Timken's claim fails as a legal matter for it

has always calculated its lump-sum billing adjustments for each

customer, not each customer code, and that the Department has

nevertheless accepted its lump-sum billing adjustments. Koyo asserts

that it is inappropriate for Timken to now propose that the Department

change this policy because, according to Shikoku Chemicals, 795 F.Supp.

at 421, ``[p]rinciples of fairness prevent [the Department] from

changing its methodology at this late stage.'' Koyo rebuttal brief at

11, quoting Shikoku Chemicals. Further, Koyo claims that the

Department's acceptance of its allocated billing adjustment is

consistent with what Koyo maintains was one of the goals of the URAA,

which was to liberalize certain reporting requirements imposed on

respondents in antidumping reviews. Koyo states that following this

Congressional mandate, the Department has adopted a more lenient policy

of accepting allocations, as evidenced in its new regulations (e.g., 19

CFR 351.401(g)(1)) and its decisions, such as that to accept Koyo's

allocated lump-sum adjustments. According to Koyo, the CIT specifically

approved the Department's new policy of ``substitut[ing] a rigid rule

with a more reasonable method . . . especially in light of the more

lenient statutory instructions of section 782(e) of the Act.'' Id.,

quoting Timken 98-92 at 16.

Koyo also asserts that it has calculated all of its home market

expenses on the basis of POR data, and then applied those factors to

sales within the extended POR, including the window months (i.e., the

three months prior to and two months after the POR itself), and has

done so in every TRBs and AFBs review. Further, Koyo argues that ``the

Department has consistently accepted this methodology, and, indeed,

Timken has never before challenged it.'' Id. at 12.

Finally, Koyo asserts that if the Department were to accept any of

Timken's suggested fundamental changes to its reporting methodology, it

could not do so in this review because the CIT has repeatedly held that

the Department may not apply retroactively changes in policy. Id.,

citing Badger-Powhatan v. United States, 633 F Supp. 1364 (CIT 1986).

This is particularly so, Koyo continues, when a party has relied on

past practice to its own detriment. Id., citing IPSCO, Inc. v. United

States, 687 F. Supp. 614 (CIT 1988). Also, Koyo argues that the courts

have repeatedly prohibited the Department from penalizing parties for

failing to provide information never requested (see e.g., Olympic

Adhesives Inc. v. United States, 899 F 2d. 1656, 1572-75 (Fed. Cir.

1990)). Therefore, Koyo maintains that if the Department were to impose

such a significant reporting change, it could only do so in the next

review.

Department's Position: We agree with Koyo. As Timken points out, in

95/96 TRB Final we granted Koyo's claims for its lump-sum billing

adjustments as direct adjustments to NV because we determined that

Koyo, in reporting these adjustments, acted to the best of its ability

in providing information and met the requirements with respect to these

adjustments, and that its reporting methodology was not unreasonably

distortive (see section 782(e) of the Act). We did not treat Koyo's

lump-sum billing adjustment as a direct or indirect selling expense,

but as a direct adjustment to identify the correct starting price.

Koyo's record in the 1995-96 review and the instant review are

identical with respect to its lump-sum billing adjustment. Based on

this information, we believe that for the current review Koyo acted to

the best of its ability in providing information regarding its PSPAs,

and that its methodology is not unreasonably distortive.

Also, our decision to accept Koyo's methodology was recently upheld

by the CIT in Timken 98-92 at 16, in which the CIT ruled that

``Commerce's decision to accept the PSPAs at issue [including Koyo's

BILADJH2] is supported by substantial evidence and is fully in

accordance with the post-URAA statutory language and the direction of

the SAA [Statement of Administrative Action].'' Koyo's allocation

methodology in the current review is identical to that used in both the

1994-95 and 1995-96 reviews. Accordingly, as in past reviews, we have

accepted Koyo's lump-sum billing adjustment in this review because it

was not feasible for Koyo to report this adjustment on a more specific

basis, and a review of its allocation methodology demonstrates that it

does not cause unreasonable inaccuracies or distortions (see 95/96 TRB

Final at 2566 and Antifriction Bearings (Other Than Tapered Roller

Bearings) and Parts Thereof from France, et al.; Final Results of

Antidumping Duty Administrative Reviews, 63 FR 33320, 33328 (June 18,

1998) (96/97 AFB Final)).

In applying this standard we have not rejected an allocation method

solely because the allocation includes adjustments granted on non-scope

merchandise. However, such allocations are not acceptable where we have

reason to believe that respondents did not grant such adjustments in

proportionate amounts with respect to sales of out-of-scope and in-

scope merchandise. We have made this determination by examining the

extent to which the out-of-scope merchandise included in the allocation

pool is different from the in-scope merchandise in terms of value and

physical characteristics, and the manner in which it is sold.

Significant differences in such terms may increase the likelihood that

respondents did not grant price adjustments in proportionate amounts

with respect to sales of subject and non-subject merchandise. While we

scrutinize any such differences carefully between in-scope and out-of-

scope sales in terms of their potential for distorting reported per-

unit adjustments on the sales involved in our analysis, it would be

unreasonable to require that respondents provide sale-specific

adjustment data on non-scope merchandise in order to prove that there

is no possibility for distortion. Such a requirement would defeat the

purpose of permitting the use of reasonable allocations by a respondent

that has cooperated to the best of its ability.

With respect to Timken's assertion that Koyo records its lump-sum

billing adjustment in a distortive manner, we disagree. As explained by

Koyo, its lump-sum billing adjustment is incurred at one customer

``ship-to'' location but may be recorded under numerous customer codes.

More importantly, however, is the fact that regardless of which ``ship-

to'' location Koyo records its lump-sum billing adjustment, Koyo

records this billing adjustment on a customer-specific basis. Given the

large number of sales involved, it is reasonable for Koyo to record

this adjustment on a customer, not ``ship-to'', basis (see Antifriction

Bearings (Other Than Tapered Roller Bearings) and Parts Thereof from

France, et al.; Final Results of Antidumping Duty Administrative

Reviews and Partial Termination of Administrative Reviews, 62 FR 54043,

54050-1 (October 17, 1997) (95/96 AFB Final)). While our preference is

for transaction-specific reporting, we recognize that this is not

always possible, and therefore it is inappropriate to reject

allocations that are not unreasonably distortive where a fully

cooperating respondent is unable to report the information in a more

specific manner (see section 782(e) of the Act). We have verified this

[[Page 63865]]

allocation on numerous occasions in past TRBs and AFBs reviews and have

determined that Koyo's allocation produces reasonably accurate results.

In addition, in past AFBs and TRBs reviews we have allowed Koyo to

calculate a billing adjustment factor on a POR (12-month) basis and

apply this factor to the additional window period (the three months

prior to and two months after the POR). Timken alleges that this method

is distortive but offers no evidence to support its claim. We have

reviewed this method in numerous TRBs and AFBs reviews and determined

that Koyo's methodology does not produce distortive results (see, e.g.,

95/96 TRB Final and 96/97 AFB Final).

Based on our examination of the record in these reviews, we are

satisfied that Koyo's records do not allow it to report this billing

adjustment on a transaction-specific basis. Further, we believe that

Koyo acted to the best of its ability in calculating the reported

adjustment on as narrow a basis as its records allowed. Furthermore, we

have verified Koyo's allocation methodology in past reviews and have

determined that it does not produce distortive results, and there is no

information on the record of this review to reasonably lead us to

conclude otherwise in this case. Therefore, for these final results we

have made a direct adjustment to NV for Koyo's lump-sum billing

adjustments.

2. Adjustments to United States Price

Comment 4: NTN argues that the Department's decision to ignore

adjustments to its U.S. ISEs for expenses incurred when financing cash

deposits for antidumping duties is contrary to both the Department's

position in past reviews and judicial precedent, and that it

inappropriately denies an adjustment for expenses incurred solely as a

result of the existence of an antidumping order.

NTN asserts that the CIT has previously held that these imputed

interest expenses do not constitute selling expenses, and cites PQ

Corp. v. United States, 11 CIT 53, 67 (1987) (PQ Corp), in which the

CIT stated, ``if deposits of estimated antidumping duties entered into

the calculation of present dumping margins, then those deposits would

work to open up a margin where none otherwise exists.'' NTN case brief

at 3, quoting PQ Corp. NTN claims that the rationale in PQ Corp applies

similarly to the payment of interest on cash deposits, and asserts that

if the Department were to allow interest expenses from prior reviews to

affect the calculation of margins for present reviews, it would cause

an unending cycle which would prevent the Department from ever revoking

an antidumping order. Id. at 4.

NTN maintains that the CIT, in Timken v. United States, Slip Op.

97-87 (July 3, 1997) (Timken), upheld NTN's adjustments to U.S. ISEs

for interest incurred when financing cash deposits, and notes that the

Department itself argued in support of such an adjustment. NTN argues

that, as set forth in Timken, interest expenses attributable to cash

deposit financing do not result from selling merchandise in the United

States.

NTN also references the CIT's decision in Federal Mogul Corp. v.

United States, Slip Op. 96-193 (December 12, 1996), claiming that the

CIT explicitly rejected the petitioner's argument that interest

expenses constituted selling expenses because they were incurred as a

result of NTN's ``decision'' to sell the subject merchandise at less

than fair value. Additionally, argues NTN, the Court rejected the

petitioner's argument that allowing such an adjustment was duplicative

of interest paid on the refund of excess cash deposits. NTN states that

the CIT noted that section 737(b) and section 778 of the Act compensate

NTN for dumping duties paid by NTN but which the Department later

determines that NTN does not owe. Conversely, NTN holds, the adjustment

for interest expenses on cash deposits is an actual expense for which

the statute does not compensate NTN. Therefore, the Department should

not ignore adjustments to NTN's U.S. ISEs for expenses incurred when

financing cash deposits. Id. at 4 and 5.

Timken responds by quoting at some length 95/96 TRB Final at 2571,

in which the Department rejected NTN's claim for a downward adjustment

to U.S. ISEs for interest incurred when financing cash deposits,

because the Department found that financial expenses allegedly

associated with cash deposits are not a direct, inevitable consequence

of an antidumping order. Therefore, Timken concludes that the

Department should continue to reject NTN's claim for an adjustment to

U.S. ISEs for interest incurred on cash deposits.

Department's Position: We disagree with NTN that we should allow an

adjustment to NTN's U.S. ISEs for expenses which NTN claims are related

to financing of cash deposits. Antidumping duties, cash deposits of

antidumping duties, and other expenses such as legal fees associated

with participation in an antidumping case are not expenses that we

should deduct from U.S. price. To do so would involve a circular logic

that could result in an unending spiral of deductions for an amount

that is intended to represent the actual offset for the dumping (see,

e.g., 95/96 TRB Final at 2571, Certain Cut-to-Length Carbon Steel Plate

from Germany; Final Results of Antidumping Duty Administrative Review,

62 FR 18390, 18395 (April 15, 1997), and Antifriction Bearings (Other

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

Final Results of Antidumping Duty Administrative Reviews, 57 FR 28360,

28413-4 (June 24, 1992) (90/91 AFB Final)). Underlying our logic in all

of these instances is an attempt to distinguish between business

expenses that arise from economic activities in the United States and

business expenses that are direct, inevitable consequences of an

antidumping duty order.

Financial expenses allegedly associated with cash deposits are not

a direct, inevitable consequence of an antidumping duty order. As we

stated previously in the 95/96 TRB Final at 2571: ``* * * money is

fungible. If an importer acquires a loan to cover one operating cost,

that may simply mean that it will not be necessary to borrow money to

cover a different operating cost.'' (See also 96/97 AFB Final). There

is nothing inevitable about a company having to finance cash deposits

and there is no way for the Department to trace the motivation or use

of such funds even if it were.

Even if a respondent has a loan amount that equals its cash

deposits or can demonstrate a ``paper trail'' connecting the loan

amount to cash deposits, we do not consider the loan amount to be

related to the cash deposits and will not remove it from the ISEs.

Moreover, the result should not be different where an actual expense

can not be associated in any way with the cash deposits. We reject

imputation of an adjustment because there is no real opportunity cost

associated with cash deposits when the paying of such deposits is a

precondition for doing business in the United States. As a result, we

have not accepted NTN's reduction in ISEs based on actual borrowings to

finance cash deposits nor will we accept such a reduction based on

imputed borrowings. We consider all financial expenses the affiliated

importer incurred with respect to sales of subject merchandise in the

United States to be ISEs under section 772(d)(1)(D) of the Act.

Over time, the Department has reexamined its policy with respect to

this difficult issue. Although in past reviews we have removed expenses

for financing cash deposits, we have

[[Page 63866]]

reexamined this issue and our current policy is to deny the adjustment.

The Department has concluded that our new policy is reasonable and best

reflects commercial reality with respect to affiliated-importer

situations (see 96/97 AFB Final at 33348; see also 95/96 TRB Final at

2571).\2\ In accordance with our current policy, for these final

results we have continued to deny NTN's adjustment to U.S. ISEs for

interest incurred when financing cash deposits.

---------------------------------------------------------------------------

\2\ Although the CIT recently upheld our determination to grant

the same type of offset for purposes of the 94-95 TRB review (see

Timken 98-92), it has not precluded the Department from adopting its

current policy of denying the type of adjustment at issue. It bears

noting that in Timken 98-92, it was emphasized to the court that the

applicable Commerce policy at the time of the 94-95 TRB review was

to allow the adjustment and that the new policy to deny the

adjustment should not be retroactively applied to the 94-95 review.

See Id. at 6-7. In the instant review, however, the current and

reasonable policy is to deny the adjustment and retroactive

application of policy changes is not, therefore, at issue.

---------------------------------------------------------------------------

Comment 5: NTN argues that the Department should have calculated

constructed export price (CEP) profit on a level-of-trade (LOT)-

specific basis. NTN claims that the Department noted that prices

differed significantly based on the LOT at which merchandise was sold.

NTN claims that selling expenses also differed by LOT and this had an

effect on prices but that this difference does not account entirely for

the different price levels. NTN further emphasizes that Section 772

(f)(2)(C) of the Act expresses a preference for the profit calculations

to be performed as specifically as possible and on as narrow a basis as

possible. Finally, NTN asserts that because the Department calculated

constructed value (CV) profit on a LOT-specific basis and matched U.S.

and home market sales by LOT, the calculation of CEP profit should also

take LOT into account.

Timken argues that the Department rejected the identical argument

by NTN in its final results of the sixth review of the AFBs case,

stating that ``neither the statute nor the SAA require us to calculate

CEP profit on a basis more specific than the subject merchandise as a

whole. * * * [T]he statute and SAA, by referring to ``the'' profit,

``total actual profit'', and ``total expenses'' imply that we should

prefer calculating a single profit figure'' (see Antifriction Bearings

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

al.; Final Results of Antidumping Duty Administrative Reviews, 62 FR

2081, 2125 (January 15, 1997) (94/95 AFB Final)). For these same

reasons, Timken contends that the Department should again reject NTN's

assertion that CEP profit should be calculated on a LOT-specific basis.

Department's Position: We agree with Timken. Neither the statute

nor the SAA requires us to calculate CEP profit on a basis more

specific than the subject merchandise as a whole. See 94/95 AFB Final

at 2125; see also 95/96 TRB Final at 2570. Respondent's suggestion

would not only add a layer of complexity to an already complicated

exercise with no increase in accuracy, but a portion of the CEP profit

calculation would be more susceptible to manipulation. As we stated in

94/95 AFB Final at 2125: ``We need not undertake such a calculation

(see Daewoo Electronics v. International Union, 6 F. 3d 1511, 1518-19

(CAFC 1993)). Finally, subdivision the CEP profit calculation would be

more susceptible to manipulation. Congress has specifically warned us

to be wary of such manipulation of the profit allocation (see S. Rep.

103-412, 103d Congress, 2d Sess at 66-67).'' Therefore, consistent with

our recent treatment of this issue in the above-cited cases, for these

final results we have not changed our CEP profit calculation.

Comment 6: NTN asserts that the Department should exclude export

price (EP) sales from the calculation of the CEP profit adjustment and

argues that Section 772(f) of the Act clearly states that the CEP

profit adjustment is to be based on the expenses incurred in the United

States as a percentage of total expenses. NTN contends that Section

772(d) of the Act contains no provision for the inclusion of EP

expenses and that the canon of statutory construction, expressio unius

est exclusio alterius, indicates that the absence of such a provision

precludes its inclusion. See NTN case brief at 13. NTN further asserts

that the SAA similarly states that ``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 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 constructed export price).'' Id., quoting SAA at 154.

Similarly, NTN contends that sales revenue for EP sales also should be

excluded from the calculation of CEP profit. NTN states that the

definition of ``total actual profit'' for CEP in Section 772(f) of the

Act clearly mandates that total profit be calculated using only CEP

transactions. Therefore, NTN claims that the Department has calculated

CEP profit in a manner contrary to that specified by the plain language

of the statute.

Timken responds that the Department should continue to include EP

sales in the calculation of CEP profit, as it did for the 95/96 TRB

Final. Timken asserts that this methodology corresponds with the

Department's September 4, 1997 Policy Bulletin, which states that

section 772(f)(2)(D) of the Act explicitly states that the calculation

of total actual profit must include all revenues and expenses resulting

from the respondent's EP, CEP, and home market sales. See Policy

Bulletin 97.1, September 4, 1997.

Department's Position: We disagree with NTN. Policy Bulletin 97.1

regarding the calculation of CEP profit indicates that section

772(f)(2)(D) of the Act clearly states 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. The basis for total actual profit is the same as the basis for

total expenses under section 772(f)(2)(C) of the Act. 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 in the home market). Thus, where the respondent makes both EP

and CEP sales to the United States, sales of the subject merchandise

would necessarily encompass all such transactions. Therefore, as in the

95/96 TRB Final, because NTN had EP sales, we have included these sales

in the calculation of CEP profit. See also Policy Bulletin 97.1, op

cit.

Comment 7: Timken argues that because NTN has reported sale and

payment dates for its CEP sales, the Department should calculate

transaction-specific credit costs as it did in 95/96 TRB Final, rather

than accept NTN's customer-specific averages as reported in the current

review. Timken asserts that NTN's customer-specific reporting

methodology is distortive because it has the effect of understating its

credit costs.

Citing 94/95 AFB Final at 2101, NTN responds that Timken has

provided no record basis for its assertion, and that the Department and

CIT have both previously upheld its current methodology in past

reviews.

Department's Position: We agree with petitioner. The data on the

record for this review permit the calculation of transaction-specific

credit costs. It bears noting that it was not necessary to make changes

to our final margin program because we already recalculated NTN's

[[Page 63867]]

reported U.S. credit expense for our preliminary results, as we did in

95/96 TRB Final. See NTN Preliminary Margin Program, at lines 728-735.

Comment 8: Timken believes that NTN has improperly adjusted the

ISEs of its U.S. subsidiary, NTN Bearing Company of America (NBCA).

NTN's adjustment for a particular expense 3, Timken asserts,

is inconsistent with its basic allocation approach and has the effect

of diluting the expense ratio. Timken argues that the Department should

accordingly deny this particular claimed adjustment to NTN's U.S. ISEs.

Further, Timken claims that even if the adjustment in question is

reasonable, the amount does not make sense because the ``adjusted''

amount represents a disproportional amount of the expense at issue, and

the allocation results in an understatement of NBCA's ISEs.

---------------------------------------------------------------------------

\3\ The ``particular expense'' at issue involves discussion of

proprietary information. A complete discussion of the expense is

included in the proprietary version of our Final Analysis Memorandum

for NTN, dated November 9, 1998.

---------------------------------------------------------------------------

NTN responds that neither of Timken's arguments is a valid basis

for denying its adjustment to U.S. ISEs. NTN asserts that the

adjustment in question to U.S. ISEs does not have the distortive

effects on the calculation imagined by Timken. NTN claims that it is

clear from both its February 17, 1998 questionnaire response and its

May 19, 1998 supplemental response that the expense in question was

allocated correctly. Also, NTN maintains that Timken misunderstands the

nature of the expense. Finally, NTN claims that due to the nature of

the expense, the difference in amounts associated with this particular

expense is reasonable.

Department's Position: We disagree with petitioner. Because certain

of NTN's U.S. expenses were incurred solely for non-scope merchandise,

in order to ensure an accurate allocation of its U.S. expenses, NTN

first removed all such expenses from the pool of U.S. ISEs. See exhibit

C7, worksheet 3 of NTN's February 17, 1998 questionnaire response. The

remaining U.S. ISEs which were incurred for either scope or non-scope

merchandise, but which could not be specifically tied to either scope

or non-scope products, were then allocated to scope and non-scope

merchandise. In previous TRBs (and AFBs) administrative reviews, we

examined and verified NTN's adjustment allocation methodology and found

it to be reasonable. See, e.g., Final Results of Antidumping Duty

Administrative Reviews; Tapered Roller Bearings, Finished and

Unfinished, and Parts Thereof, from Japan and Tapered Roller Bearings,

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

Japan, 58 FR 64720, 64726 (December 9, 1993) (90/92 TRB Final), 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

Antidumping Duty Administrative Reviews and Termination in Part, 63 FR

20585, 20595 (April 27, 1998) (93/94 TRB Final). Because NTN's approach

for adjusting its U.S. ISEs remains unchanged for the current review,

and there is no information on the record of this review which should

call into question our practice of accepting NTN's approach, we have

made no modifications for these final results.

Comment 9: Timken argues that the Department failed to adjust U.S.

prices for reported export selling expenses even though both

respondents reported information on these expenses. In addition, Timken

claims that the Uruguay Round Agreements Act (URAA) (Pub. L. 103-465,

Title II, Sec. 224, December 8, 1994) made no substantive changes in

the statutory requirement that CEP be adjusted for ISEs. See Timken

case brief at 1.

Citing section 772a(e)(2) of the Act (prior to the URAA amendment),

Timken claims that since the Antidumping Act of 1921, Congress has

specified that the U.S. prices of affiliated importers are to be

adjusted for ``expenses generally incurred by or for the account of the

exporter in the United States in selling identical or substantially

identical merchandise'' and that the Department has implemented this

provision in its regulation providing for price reduction for

``[e]xpenses generally incurred by or for the account of the exporter

in selling the merchandise, or attributable under generally accepted

accounting principles to the merchandise.'' Id. at 1 and 2, quoting 19

CFR 353.41(e)(2). In practice, Timken believes that these provisions

direct the Department to adjust U.S. prices for expenses incurred in

the home market that were attributable to export sales as well as ISEs

incurred in the United States. Further, citing Sen. Rep. No. 412, 103d

Cong., 2d Sess. 65 (1994), Timken claims that this was changed by the

URAA to ``any selling expenses not deducted under subparagraph (A),

(B), or (C) [of section 772a(d)(1) of the Act]'' in which Congress

specified it intended ``that this category will, as under current

practice, encompass those expenses that do not result from, or cannot

be tied directly to, specific sales, but that may reasonably be

attributed to such sales.'' Id. at 2.

Finally, Timken asserts that under section 772a(e) of the pre-URAA

Act, expenses are only referred to as those ``incurred by or for the

account of the exporter in the United States'', while under section

772a(d) of the new law this has been expanded to include adjustment for

expenses ``incurred by or for the account of the producer or exporter,

or the affiliated seller in the United States'' (emphasis supplied).

Id. at 3, quoting the pre-URAA and post-URAA language of section

772a(d). Therefore, Timken believes that Congress has codified the

Department's practice by expanding the adjustment to include expenses

incurred by producers or exporters.

Both NTN and Koyo argue that the Department's treatment of export

selling expenses in this review is consistent with its past practice in

all post-URAA TRBs reviews (i.e., 95/96 TRB Final at 2575). At page 2

of its rebuttal brief, Koyo cites Timken 98-92 at 11, in which the CIT

upheld the Department's reliance on the language in the SAA that U.S.

ISEs are those associated with economic activities occurring in the

United States. Both respondents claim that the Department has acted in

conformity both with the law and with its now-established policy of not

deducting export selling expenses from U.S. price.

Further, Koyo claims that the only new argument offered by Timken

is its reliance on the URAA's added word producer to section 772a(d) of

the Act, expanding the reference to include expenses ``incurred by or

for the account of the producer or exporter * * *''. See Koyo rebuttal

brief at 2 and 3. Koyo alleges that this new argument fails for two

reasons. First, Koyo states the Department has already defined the

``expenses'' at issue in section 772a(d) of the Act, as those

``associated with economic activity in the United States.'' Koyo also

argues that the CIT has upheld this definition in Timken 98-92, and

Koyo asserts that a limitation on the scope of the relevant expenses

``must be satisfied before it is necessary for the Department to

consider the identity of the party--the producer or the exporter--that

incurred the expenses.'' See Koyo rebuttal brief at 3. If the expenses

at issue do not meet the geographic test, Koyo avers, the identity of

the party incurring them is irrelevant. Second, Koyo clarifies that in

the current case, they are both the producer and exporter.

``Consequently, the addition by the URAA of the word ``producer'' does

not expand the

[[Page 63868]]

coverage of the provision any further than it did prior to the URAA in

these circumstances.'' Id.

Department's Position: We agree with respondents. As we stated in

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

Antidumping Duty Administrative Reviews and Termination in Part, 62 FR

11825, 11834, (March 13, 1997), 95/96 TRB Final at 2575, and 94/95 AFB

Final at 2124, we will deduct from CEP only those expenses associated

with economic activities in the United States which occurred with

respect to sales to the unaffiliated U.S. customer. We found no

information on the record for this review period to indicate that the

export selling expenses for the respondents that were incurred in their

respective home markets were associated with activities occurring in

the United States.

Also, it is clear from the SAA that under the new statute we should

deduct from CEP only those expenses associated with economic activities

in the United States. The SAA also indicates 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.'' SAA at 823.

Further, in Timken 98-92, the CIT ruled that ``Commerce's decision

to limit U.S. ISEs to those expenses incurred in the United States is

supported by substantial evidence and fully in accordance with law.''

Timken 98-92 at 11. We note that the record in this case on this issue

is identical to that in Timken 98-92. Koyo and NTN have clearly

demonstrated that their export selling expenses were not associated

with economic activity in the United States. Therefore, no additional

adjustment to Koyo's or NTN's U.S. prices would be appropriate.

3. Cost of Production (COP) and Constructed Value (CV)

Comment 10: NTN claims that the Department's decision to use the

higher of transfer price or actual cost for affiliated-party inputs in

calculating COP and CV is distortive, and that this methodology has no

basis in the antidumping law. NTN maintains that section 773(f)(2) of

the Act addresses the circumstances under which the Department should

disregard some transactions. NTN contends that such circumstances would

be those where a transaction between related parties does not reflect

``the amount usually reflected in sales of merchandise under

consideration in the market under consideration.'' NTN case brief at

20, quoting section 773(f)(2) of the Act. NTN declares that there is no

evidence that its reported affiliated-party input data do not reflect

the amount usually reflected in sales of this merchandise in the market

under consideration. NTN also argues that no statutory language

mandates the use of the higher of transfer price or actual cost for

affiliated-party inputs in calculating COP and CV and, thus, it is

unreasonable and contrary to law to follow this methodology. Therefore,

NTN concludes that instead of using the higher of transfer price or

actual cost, the Department should use NTN's affiliated-party input

data as reported.

The petitioner contends that the Department's use of the higher of

transfer price or actual cost to value affiliated-party inputs is in

accordance with section 773(f)(3) of the Act, which provides that when

major inputs are transferred at prices below-cost, the Department may

calculate the value of the major input using cost of production. Timken

states that NTN has asserted that no evidence exists to show that NTN's

reported affiliated-party data do not reflect the amount usually

reflected in sales of this merchandise in the market under

consideration. However, Timken argues that by making this assertion,

NTN ignores the commercial reality that below-cost sales are generally

not at market prices, and below-cost home market sales are by statute

``out of the ordinary course of trade.'' Timken rebuttal brief at 12.

Timken argues that since NTN reported below-cost transfer prices, the

Department correctly substituted cost of production for related-party

inputs instead of using NTN's affiliated-party input data as reported.

Department's Position: We disagree with NTN's contention that it is

not appropriate for the Department to rely on section 773(f) (2) and

(3) of the Act in this instance. We note that section 351.407 (a) and

(b) of the Department's regulations sets forth certain rules that are

common to the calculation of CV and COP. This section states that for

the purpose of section 773(f)(3) of the Act the Department will

determine the value of a major input purchased from an affiliated

person based on the higher of: (1) the price paid by the exporter or

producer to the affiliated person 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 person of producing

the major input. Furthermore, we have relied on this methodology in

Final Results of Antidumping Duty Administrative Review; Certain

Corrosion-Resistant Carbon Steel Flat Products and Certain Cut-to-

Length Carbon Steel Plate From Canada, 62 FR 18448, 18464 (April 15,

1997), 94/95 AFB Final at 2115, and 95/96 TRB Final at 2573. In each of

these determinations the Department concluded that in the case of a

transaction between affiliated persons involving a major input, we will

use the highest of the transfer price between the affiliated party, the

market price between unaffiliated persons involving the major input, or

the affiliated supplier's cost of producing this input.

Accordingly, for the final results we have continued to rely on the

higher of transfer price or actual cost for NTN's affiliated-party

inputs when calculating COP and CV.

4. Miscellaneous Comments Related to Level of Trade, Arm's-Length Test,

Sample Sales, and Model Matching

Level of Trade

As set forth in section 773(a)(1)(B) of the Act, to the extent

practicable we have determined NV based on sales in the comparison

market at the same LOT as the EP and CEP transactions. When we were

unable to find comparison sales at the same LOT as the EP or CEP sales,

we compared the U.S. sales to sales at a different LOT in the

comparison market. We determined the LOT of EP sales on the basis of

the starting prices of sales to the United States. We based the LOT of

CEP sales on the price in the United States after making the CEP

deductions under section 772(d) of the Act but before making the

deductions under section 772(c) of the Act. Where home market prices

served as the basis of NV, we determined the NV LOT based on starting

prices in the NV market. Where NV was based on CV, we determined the NV

LOT based on the LOT of the sales from which we derived SG&A and profit

for CV. In order to determine the LOT of U.S. sales and comparison

sales, we reviewed and compared distribution systems, including selling

functions, classes of customer, and the extent and level of selling

expenses for each claimed LOT. Customer categories such as distributor,

original equipment manufacturer (OEM), or wholesaler are commonly used

by respondents to describe LOTs but are insufficient to establish a

LOT. Different LOTs necessarily involve differences in selling

functions, but differences in selling functions, even substantial ones,

are not alone sufficient to establish a difference in the LOTs.

Different LOTs

[[Page 63869]]

are characterized by purchasers at different stages in the chain of

distribution and sellers performing qualitatively or quantitatively

different functions in selling to them. See 94/95 AFB Final at 2105.

In accordance with section 773(a)(7)(A) of the Act, where we

established that the comparison sales were made at a different LOT than

the sales to the United States, we made a LOT adjustment if we were

able to determine that the differences in LOTs affected price

comparability. We determined the effect on price comparability by

examining sales at different LOTs in the comparison market. Any price

effect must be manifested in a pattern of consistent price differences

between foreign market sales used for comparison and foreign market

sales at the LOT of the export transaction. To quantify the price

differences, we calculated the difference in the average of the net

prices of the same models sold at different LOTs. We used the average

difference in net prices to adjust NV when NV was based on a LOT

different from that of the export sale and the price differential was

due to differences in LOT. If there was a pattern of no price

differences, the differences in LOTs did not have a price effect and,

therefore, no adjustment was necessary.

Section 773(a)(7)(B) of the Act provides for an adjustment to NV

when NV is based on a LOT different from that of the CEP if the NV

level is more remote from the factory than the CEP and if we are unable

to determine whether the difference in LOTs between the CEP and NV

affects the comparability of their prices (see, e.g., 96/97 AFB Final

at 33330). This latter situation can occur when there is no home market

LOT equivalent to the U.S. LOT or where there is an equivalent home

market level but the data are insufficient to support a conclusion on

price effect. This adjustment, the CEP offset, is identified in section

773(a)(7)(B) of the Act and is the lower of the following:

The ISEs on the home market sale, or

The ISEs deducted from the starting price used to

calculate CEP.

The CEP offset is not automatically granted each time we use CEP

(see, e.g., Notice of Final Determination of Sales at Less Than Fair

Value; Certain Cut-to-Length Carbon Steel Plate from South Africa, 62

FR 61731, 61732-3 (November 19, 1997)). The CEP offset is made only

when the LOT of the home market sale is more advanced than the LOT of

the CEP sale and there is not an appropriate basis for determining

whether there is an effect on price comparability.

We determined that for Koyo there were two home market LOTs and one

U.S. LOT (i.e., the CEP LOT). Because neither of the home market LOTs

was equivalent to the CEP LOT and because NV represented a price more

remote from the factory than the CEP, we made a CEP offset adjustment

to NV in our CEP comparisons for Koyo.

For NTN we found that there were three home market LOTs and two

(one EP and one CEP) LOTs in the United States. Because there were no

home market LOTs equivalent to NTN's CEP LOT, and because NV for NTN

represented a price more remote from the factory than the CEP, we made

a CEP offset adjustment to NV in our CEP comparisons. We also

determined that NTN's EP LOT was equivalent to one of its LOTs in the

home market. Because we determined that there was a pattern of

consistent price differences due to differences in LOTs, we made a LOT

adjustment to NV for NTN in our EP comparisons where the U.S. EP sale

matched to a home market sale at a different LOT.

Comment 11: Timken states that the Department matched NTN's EP

sales to one of the home market LOTs because it was determined that

selling activities of each are virtually the same. In addition, Timken

states, because the Department found a pattern of consistent price

differences between NTN's different home market LOTs, the Department

made a LOT adjustment when comparing EP sales with home market sales at

a different LOT. However, Timken claims that there are additional

selling activities associated with NTN's EP sales, which the Department

did not consider in its LOT analysis. Timken argues that these

additional selling activities are sufficient to place these EP sales at

a different LOT than any of NTN's three home market LOTs and that as a

result, there is no basis for the Department to quantify any LOT

adjustment. Therefore, Timken contends that the Department should not

make a LOT adjustment to NTN's EP sales.

NTN responds that the Department should continue to grant a LOT

adjustment to NV when an EP sale matched to a home market sale at a

different LOT. NTN maintains that Timken's allegation of differences in

selling activities between EP sales and a home market LOT is invalid

because the stated ``additional selling activities'' are not really

selling activities. NTN argues that in keeping with 95/96 AFB Final at

54060 (``NTN Japan provided adequate factual information to support its

claim with regard to differences and similarities of its HM levels of

trade and EP level of trade''), the Department should not deny NTN's

LOT adjustment. In addition, NTN cites Mitsubishi Heavy Indus. v.

United States, Slip Op. 98-82 (June 23, 1998) (Mitsubishi Heavy

Indus.), in which the CIT examined the types of activities which are

selling activities and those which would not qualify as selling

activities. Because of the comparison that can be drawn between

Mitsubishi Heavy Indus. and the present review, NTN asserts that the

Department should not deny NTN a LOT adjustment to NV when an EP sale

matched to a home market sale at a different LOT.

Department's Position: We disagree with Timken. As stated in 96/97

AFB Final at 33331, differences in selling functions, even substantial

ones, are not alone sufficient to establish a difference in LOTs. While

there are a few individual selling functions that vary, we determine

that these functions, by themselves, do not offset the many

similarities of the selling functions performed by the respondent at

the EP and home market LOTs . Although we have determined that there is

a qualitatively minimal difference in selling functions between one of

the home market LOTs and the EP LOT, the two LOTs are similar enough to

be considered the same LOT, such that that home market LOT can be used

in determining whether there is a pattern of consistent price

differences between that LOT and the LOT at which certain EP sales are

made.

Comment 12: NTN contends that the Department should have relied on

its LOT-based U.S. and home market selling expense data as reported,

instead of reallocating these selling expenses without regard to LOT.

NTN states that in the Department's Analysis Memo for Preliminary

Results of the 1996-97 Review--NTN Corporation, dated July 2, 1998

(Prelim Analysis Memo), the Department indicated that it did not

utilize NTN's LOT distinctions for most U.S. and certain home market

selling expenses, and instead recalculated these expenses without

regard to LOT. NTN claims that the Department disallowed NTN's

allocations of certain home market expenses due to the complexity of

NTN's original LOT-specific methodology. NTN asserts, however, that its

methodology does not distort the dumping margin, whereas the

Department's reallocation does. Further, NTN insists that the alleged

complexity of its methodology is an insufficient reason to justify

reallocating NTN's home market selling expenses. In the past, NTN

maintains, the Department

[[Page 63870]]

has found NTN's ``complex methodology'' to be reasonable; no evidence

has been presented showing that NTN's methodology is now unreasonable.

NTN argues that in past reviews the Department accepted its

methodology for reporting selling expenses. For instance, NTN asserts,

in Tapered Roller Bearings and Parts Thereof from Japan, etc.; Final

Results of Antidumping Duty Administrative Reviews and Revocation in

Part of an Antidumping Finding, 61 FR at 57629, 57636 (November 7,

1996) (92/93 TRB Final) the Department determined that NTN's LOT-based

reporting was not acceptable based ``solely on our discovery of a

discrepancy in NTN's reported total U.S. sales value for scope

merchandise during the POR.'' NTN case brief at 6, quoting 92/93 TRB

Final. NTN holds that it is clear from the language of the

determination that the only reason the Department rejected NTN's

reported expenses was an alleged discrepancy in reported numbers.

Therefore, NTN contends, its reporting methodology meets the

Department's criteria and accounts for the consistent price differences

between LOTs better than the reallocation of selling expenses does.

In addition, NTN states that the Department determined that

different LOTs existed in the U.S. and Japanese markets for its sales

(see TRB Prelim at 37347-8), and that the decision to allocate certain

U.S. and home market expenses without regard to LOT voids the LOT

determination made in the preliminary results, insofar as the effect

that different LOTs have on price is lessened by this reallocation.

Furthermore, NTN argues that the Department's mandate is to administer

the antidumping laws as accurately as possible (see Bowe-Passat v.

United States, 17 CIT 335, 340 (1993)). Because the Department's

reallocation of these expenses without regard to LOT eliminates the

effect of LOT on price, NTN asserts, the Department's decision to

reallocate these expenses is a direct violation of this mandate.

Therefore, NTN concludes, the Department should rely on NTN's LOT-

specific expense data to calculate U.S. and home market selling

expenses.

Timken argues that the record supports the Department's

reallocation of NTN's indirect selling expense data without regard to

LOTs. Timken states that the Department rejected NTN's allocation of

U.S. selling expenses because there was no evidence to demonstrate that

these expenses varied according to LOT. With regard to NTN's home

market selling expenses, Timken claims that the Department correctly

rejected NTN's data because of its ``complexity'', and that this is

reasonable. Timken contends that the record fails to show that NTN's

home market expenses were incurred differently based on LOT, and does

not contain evidence that NTN's methodology reasonably allocates those

expenses.

Timken states that although the 92/93 TRB Final upheld NTN's

position, the results from that review period are currently on remand

for the issue at hand. Timken notes that in remanding those results,

the CIT cited a third review of TRBs in which it did not support the

proposition that NTN's expenses varied by LOT (see Timken v. United

States, 989 F. Supp. 234, 249 (1997)).

Timken refers to the 95/96 TRB Final, in which the Department

reallocated NTN's home market and U.S. selling expense data without

regard to LOT, rather than relying on NTN's data as reported. In that

review Timken states that the record did not contain ``quantitative and

narrative evidence'' demonstrating that sales at different LOTs

incurred different amounts of expenses. Timken rebuttal brief at 4.

Likewise, Timken argues that in the past four AFBs administrative

reviews the Department also rejected NTN's allocation of U.S. and home

market selling expense data by LOT. Therefore, Timken concludes that

the Department should continue to reallocate NTN's home market and U.S.

selling expense data without regard to LOT.

Department's Position: We agree with Timken. We have determined

that, for a majority of the expenses in question, NTN's LOT-specific

selling expense allocation methodology bears no relationship to the

manner in which NTN actually incurred these selling expenses. In Timken

Co. v. United States, 930 F. Supp. 621 (CIT 1996) (Timken 1), the CIT

ordered the Department to accept NTN's LOT-specific allocations and

per-unit LOT expense adjustment amounts only if NTN's expenses

demonstrably varied according to LOT. See Id. at 628. By ordering us to

ascertain whether these expenses actually varied according to LOT, the

CIT, in essence, indicated that NTN's use of its LOT-specific per-unit

expense adjustments did not necessarily mean that NTN incurred the

expenses differently due to differences in LOTs. Rather, additional

evidence must also exist which demonstrates that NTN actually sold

differently to each LOT by performing different activities/functions or

by performing the same activities/functions to a different degree when

selling to each LOT. In accordance with this order, in our remand

results pursuant to Timken 1 we did not allow NTN's allocation of its

expenses by LOT due to the lack of quantitative and narrative evidence

on the record demonstrating that the expenses in question demonstrably

varied according to LOT; in the instant review we applied the same

standards articulated by the CIT in Timken 1. In other words, as in our

95/96 TRB Final, we have examined the record and determined that in

most instances no evidence exists demonstrating that NTN's home market

and U.S. expenses allocated by LOT actually varied according to LOT.

However, for certain of NTN's U.S. packing material and packing

labor expenses, NTN's response indicates that NTN incurred these

expenses only when selling to one specific U.S. LOT. In addition, NTN's

narrative explanation clearly indicates that certain of NTN's packing

expenses individually differed by LOT. Because these expenses were

unique to a single LOT, NTN (1) allocated each total expense amount

solely to this LOT, (2) calculated a single allocation ratio for this

LOT, and (3) applied this ratio only to U.S. sales at this LOT. NTN's

response clearly indicates that these expenses demonstrably varied

according to LOT (see NTN questionnaire response, February 17, 1998, at

exhibit C-7). Therefore, for our preliminary results we applied our

recalculated ratios for certain of NTN's U.S. packing and U.S. labor

expenses only for sales to the one LOT for which these expenses were

incurred.

In addition, after further review of the record, we have also

determined that NTN's home market packing labor and packing material

expenses demonstrably varied according to LOT. Section A and exhibit B-

4 of NTN's response clearly demonstrate that different methods of

packing are required depending upon LOT. As indicated above, NTN has

allocated all of its home market expenses by LOT, but has not provided

record evidence (except for home market packing) demonstrating that

they were incurred differently by LOT. Therefore, for these final

results we have accepted only NTN's allocation of home market packing

expenses according to LOT.

Lastly, we note NTN's comment that the Department disallowed NTN's

allocations of certain home market expenses solely due to the allegedly

complex nature of NTN's LOT-specific methodology. It is not the

Department's current practice to reject such allocations on the basis

of complexity; however, we inadvertently indicated in

[[Page 63871]]

our Prelim Analysis Memo at 7 that it is Department policy to do so. As

stated above, we denied NTN's allocations because the record lacked

quantitative and narrative evidence that the expenses in question

varied demonstrably according to LOT (see Prelim Analysis Memo at 2),

and not because the allocations themselves were too complex.

Comment 13: NTN contends that the Department should have made a LOT

adjustment for CEP sales based on selling price differences by using

the transaction to the first unaffiliated U.S. customer. With regards

to its EP sales, NTN asserts that the Department matched home market

sales at the same LOT, and, where no such match was possible, the

Department made a LOT adjustment in accordance with the URAA. However,

NTN states that the Department found no equivalent home market LOT for

NTN's CEP sales because ``there were significant differences between

the selling activities associated with the CEP sales and those

associated with the home market sales at each of the home market

LOTs.'' NTN case brief at 8, quoting Prelim Analysis Memo at 7. NTN

claims that this method of determining LOTs is a violation of the URAA,

and thus suggests that the Department use the transaction to the first

unaffiliated U.S. customer to determine the LOT adjustment.

NTN cites Borden Inc. v. United States, 4 F. Supp. 2d 1221 (CIT

1998) (Borden), in which the CIT mandated that the Department first

determine what selling activities are performed at demonstrably

different LOTs, then analyze patterns of NV sales at the different

LOTs. In keeping with Borden, NTN argues that the Department should

make LOT adjustments for CEP sales based on selling price differences.

NTN asserts that such an approach is not only consistent with the

Department's model-match methodology, but evidence on the record

demonstrates that NTN's performance of different selling activities at

each LOT affected price comparability. Also, NTN claims that the

Department's current methodology eliminates the possibility that CEP

transactions can be granted a price-based LOT adjustment. NTN argues

that it is unreasonable for the Department to refuse to make a price-

based adjustment when there are significant differences in prices among

home market LOTs, and U.S. sales are subsequently matched to home

market sales at different LOTs.

Timken states that under section 773(a)(7)(A) of the Act, the

statutory provision for LOT adjustments specifies that ``[t]he price

[used to determine normal value] shall also be increased or decreased

to make due allowance for any difference (or lack thereof) between the

export price or constructed export price and the [normal value] price *

* *''. Timken rebuttal brief at 5, quoting section 773(a)(7)(A) of the

Act. Timken contends, therefore, that for CEP sales NTN failed to

demonstrate that LOT differences between CEP and NV sales result in

price differences between the two.

Timken cites the SAA, which states that the Department ``will

require evidence from the foreign producers that functions by the

sellers at the same level of trade in the U.S. and foreign markets are

similar, and that different selling activities are actually performed

at the allegedly different levels of trade.'' See SAA at 159.

Petitioner asserts that NTN has not identified any home market LOTs

that possess the same selling functions as those which support CEP

sales. Therefore, Timken claims, there is no common ground on which to

compare CEP and NV sales, and thus the Department should not grant NTN

a price-based LOT adjustment to NV for comparisons to CEP sales.

Department's Position: We disagree with NTN. As stated in our 95/96

TRB Final at 2578, our methodology does not preclude LOT adjustments to

NV for CEP sales. Rather, we do not make a LOT adjustment where the

facts of the case do not support such an adjustment. Based upon our

examination of the information on the record, for this review we found

that the respondent did not have a home market LOT equivalent to its

CEP LOT. As a result, because we lacked the information necessary to

determine whether there is a pattern of consistent price differences

between the relevant LOTs, we did not make a LOT adjustment for NTN

when we matched a CEP sale to a sale of the foreign like product at a

different LOT.

Furthermore, section 772(d) of the Act indicates clearly that we

are to base CEP on the U.S. resale price, as adjusted for U.S. 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. See SAA at 823. As the term CEP makes

clear, these adjustments are necessary in order to arrive at a

``constructed'' export price. The adjustments we make to the starting

price, specifically those made pursuant to Section 772(d) of the Act

(``Additional Adjustments to Constructed Export Price''), normally

change the LOT. Accordingly, we must determine the LOT of CEP sales

exclusive of the expenses (and associated selling functions) that we

deduct pursuant to this section (see, e.g., Certain Cold-Rolled Carbon

Steel Flat Products from the Netherlands; Final Results of Antidumping

Duty Administrative Review, 62 FR 18476, 18480 (April 15, 1997)). As

stated earlier, because none of NTN's home market LOTs were equivalent

to the LOT of its CEP sales, we were unable to make a LOT adjustment

for such sales.

Arm's-Length Test

Comment 14: NTN asserts that the Department's 99.5 percent arm's-

length test is not a reasonable basis for determining whether

affiliated-party sales were at prices comparable to those to

unaffiliated parties. NTN argues that in applying the arm's-length test

the Department only considers the average percent difference in pricing

between affiliated-and unaffiliated-party sales and ignores other

factors which greatly influence price such as the terms and quantities

of each affiliated-party sale. NTN further contends that the

Department's 99.5 percent threshold is not really a ``test'', since it

fails to provide an objective standard to determine whether affiliated-

party sales are at arm's length. Instead, NTN claims, the test weighs

sales against an average which does not reflect the full range of

prices paid in the transactions examined. Therefore, NTN asserts, the

use of the 99.5 percent figure as a baseline to decide if sales are at

arm's length does not address the fact that some arm's-length sales

fall outside this narrow range. NTN proposes that a figure such as 95

percent be used to reflect more adequately the range of arm's-length

prices in these transactions.

Timken claims that in accordance with section 773(a)(1)(B) of the

Act, the Department properly excluded those home market sales to

affiliated parties which were not at arm's length. Timken argues that

NTN, by proposing that other factors be used to determine whether home

market sales to affiliates are at arm's length, recognizes that it is

wholly within the Department's discretion to devise a methodology to

select such sales. Additionally, Timken asserts that NTN has provided

no evidence supporting its claim that the Department's 99.5 percent

test was contrary to law or produced inaccurate results.

Timken also points out that one of the factors suggested by NTN for

inclusion in the arm's-length test, terms of sale, was reportedly the

same for all of NTN's home market sales, while NTN did not report terms

of payment because so many different terms existed. Thus, Timken

concludes, even if the

[[Page 63872]]

Department agreed with NTN, NTN's suggestion could not be adopted.

Department's Position: We disagree with NTN. Our 99.5 percent

arm's-length test is a reasonable method for establishing a fair basis

of comparison between affiliated- and unaffiliated-party sales. NTN

asserts that additional factors, such as quantity and payment terms,

should be taken into consideration when comparing affiliated- and

unaffiliated-party sales, but fails to establish that the Department

must abandon its existing test. NTN also argues that our use of the

99.5 percent threshold is distortive but provides no quantitative

evidence demonstrating that a lowering of the threshold would yield

more accurate results. Furthermore, the CIT has upheld the validity of

our arm's-length test on numerous occasions. For example, in Usinor

Sacilor v. United States, 872 F. Supp 1000, 1004 (CIT 1994), the CIT

clearly indicated that it would not overturn the agency's arm's-length

test unless it was shown to be unreasonable and stated that ``[g]iven

the lack of evidence showing any distortion of price comparability, the

court finds application of Commerce's arm's-length test reasonable.''

Likewise, in Micron Technology Inc. v. United States, 893 F. Supp. 21,

38 (CIT 1995), because the CIT found that the plaintiff failed to

``demonstrate that Commerce's customer-based arm's-length is

unreasonable'' and failed to ``point to record evidence which tends to

undermine Commerce's conclusion,'' the CIT sustained the 99.5 percent

arm's-length test, given a lack of evidence showing a distortion of

price comparability. Further, in NTN Bearing Corp. of America, American

NTN Bearing Manufacturing Corp. and NTN Corp. v. United States, 905 F.

Supp. 1083 (CIT 1995), NTN argued, as here, that there were numerous

factors influencing the price of a related-party transaction and the

Department cannot make a meaningful price comparison without examining

them. The CIT disagreed with NTN and stated that the Department has

broad discretion in devising an appropriate methodology to determine

whether particular related-party prices are, in fact, comparable to

unrelated-party prices. Id. at 1099.

NTN has not provided any information on the record to support its

assertion that our arm's-length test is distortive or unreasonable.

Therefore, because NTN has failed to demonstrate that the 99.5 percent

threshold produces distortive results or that the Department's

methodology is unreasonable, in accordance with the CIT decisions cited

above and the 95/96 TRB Final, we have not altered our 99.5 percent

arm's-length test for these final results.

Sample Sales

On June 10, 1997, the Court of Appeals for the Federal Circuit

(CAFC) held that the term ``sale'' entails both a transfer of ownership

to an unrelated party and consideration. NSK Ltd. v. United States, 115

F.3d 965, 975 (Fed. Cir. 1997) (NSK). The CAFC determined that samples

which NSK had given to potential customers at no charge and with no

other obligation on the recipient's part lacked consideration.

Moreover, the CAFC found that, since free samples did not constitute

``sales,'' they should not have been included in calculating U.S.

price.

In light of the CAFC's opinion, we have revised our policy with

respect to samples. The Department will now exclude from its dumping

calculations sample transactions for which a respondent has established

that there is either no transfer of ownership or no consideration.

This new policy does not mean that the Department automatically

will exclude from its analysis any transaction to which a respondent

applies the label ``sample.'' In fact, for these reviews we determined

that there were instances where it is appropriate not to exclude such

alleged samples from our dumping analysis. It is well-established that

the burden of proof rests with the party making a claim and in

possession of the needed information (see, e.g., NTN Bearing

Corporation of America v. United States, 997 F.2d 1453, 1458-59 (CAFC

1993), (citing Zenith Electronics Corp. v. United States, 988 F.2d

1573, 1583 (CAFC 1993), and Tianjin Machinery Import & Export Corp. v.

United States, 806 F. Supp. 1008, 1015 (CIT 1992)).

With respect to HM sales and our calculation of NV, in addition to

excluding sample transactions which do not meet the definition of

``sales,'' the statute authorizes the Department to exclude sales

designated as samples from our analysis, pursuant to section 773(a)(1)

of the Act, when a respondent has provided evidence demonstrating that

the sales were not made in the ordinary course of trade, as defined in

section 771(15) of the Act.

Comment 15: NTN asserts that its home market sample sales should be

excluded from the Department's margin calculations. NTN states that

this is in accordance with section 773(a)(1)(B) of the Act and NSK Ltd.

v. United States, 969 F. Supp. 34, 43 and 52 (CIT 1997) (NSK1), in

which the CIT mandated that sample sales not be included in the home

market database.

NTN also asserts that its U.S. sample sales should be excluded from

the Department's analysis in accordance with the CAFC's decision in

NSK, arguing that in that case the CAFC ordered that zero-priced sample

sales should be excluded when calculating margins.

Timken responds that in order for the Department to exclude

``samples'' from a respondent's home market and U.S. databases, the

respondent must provide ample evidence to support any claim for

exclusion of those transactions, and also must bear the burden of

establishing that home market sales are not in the ordinary course of

trade. Timken cites Nachi-Fujikoshi Corp v. United States, 798 F. Supp.

716, 718 (CIT 1992) (Nachi), in which the CIT ruled that the plaintiff

could not rely on a verification report where it failed to prove that

alleged sample sales were outside the ordinary course of trade. In

addition, Timken finds no evidence on the record which would support

the exclusion of alleged sample sales. Timken argues that NTN has not

demonstrated adequately that its home market sample sales are outside

the ordinary course of trade and that such sales, therefore, do not

warrant exclusion from the home market database.

Timken asserts that the CAFC in NSK did not establish a per se

exclusion for so-called sample sales. Rather, Timken claims, the CAFC

held that sales which lacked consideration did not constitute sales for

purposes of the antidumping law. Timken notes that the Department's

preliminary margin program already excludes zero-priced sales, i.e.,

those lacking consideration, and claims that the NSK decision does not

support the exclusion of sales NTN alleges are samples.

Department's Position: We disagree with NTN. We examined the record

to determine whether NTN's U.S. samples lacked consideration and were

unable to find any information whatsoever in either NTN's narrative or

sales database regarding sample transactions. As noted above, the party

in possession of the information has the burden of producing that

information, particularly when seeking a favorable adjustment or

exclusion. Because NTN did not provide any information in its response

or elsewhere that would have aided us in determining whether NTN

received anything of value from its U.S. customers for the transactions

in question, we cannot conclude that NTN received no consideration for

these alleged samples. While NTN's database does include sales which

are zero-

[[Page 63873]]

priced, we are unable to determine from the record if these

transactions represent the sales which NTN apparently argues should be

excluded from the U.S. database in accordance with the NSK decision.

Furthermore, the mere fact that a sale has a reported unit price of

zero does not establish that a transaction lacked exchange of

consideration. The CAFC's NSK decision that certain transactions should

be excluded hinged on two factors: (1) that the transaction at issue

was zero-priced and (2) that the transaction lacked an exchange of

consideration. As is evident in our September 15, 1997 redetermination

pursuant to the CIT's NSK1 decision, NSK in that case established that

its zero-priced transactions were free samples or promotional expenses,

and not sales. By contrast, in this review NTN has not provided any

detailed information on the record demonstrating that its alleged zero-

priced transactions were in fact samples and lacked an exchange of

consideration. See 96/97 TRB Final at 33343.

We have also evaluated whether NTN's alleged home market sample

sales qualify for exclusion from the home market database in light of

the CAFC's NSK decision. As noted above, we exclude sample transactions

from dumping calculations only if a respondent has demonstrated either

that there is no transfer of ownership or no consideration. Because

evidence on the record clearly indicates that NTN received

consideration for all home market sales it claims are samples, none of

its home market sample sales meet either criteria for exclusion

established by NSK. See NTN questionnaire response at B-15.

Therefore, because NTN's alleged U.S. and home market sample sales

do not qualify for exclusion under NSK, we have included these sales in

our U.S. and home market databases for these final results.

Comment 16: NTN argues that sample sales and sales with abnormally

high profits are outside the ordinary course of trade, and hence should

not be included in the calculation of NV. NTN asserts that under

section 773(a)(l)(B)(i) of the Act normal value must be based on home

market sales made in the ``ordinary course of trade'', which is defined

in section 771(15) of the Act as ``the conditions and practices which,

for a reasonable 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.'' NTN argues that the

Department's regulations indicate examples of sales outside the

ordinary course of trade, including merchandise sold with abnormally

high profits, and merchandise sold pursuant to unusual terms (e.g.,

samples). NTN cites Monsanto Co. v. United States, 12 CIT 937, 940

(1988), which held that the ordinary course of trade provision

``prevents dumping margins from being based on sales which are not

representative'' of those in the home market. NTN case brief at 22. In

other words, NTN holds, the comparison between NV and U.S. sales is

done on an ``apples to apples'' basis when NV is based solely on

representative sales. Id.

NTN asserts that the Department should find its sales with

abnormally high profits to be outside the ordinary course of trade and

therefore exclude these sales from the calculation of NV. NTN proposes

that sales with profits exceeding a certain level be considered to be

outside the ordinary course of trade. NTN claims that if the Department

compares home market sales with abnormally high profits to U.S. sales,

an ``apples to apples'' comparison would not result. NTN also cites the

CAFC's decision in CEMEX. S.A. v. United States, 133 F. 3d 897 (Fed.

Cir. 1998) (CEMEX), in which the CAFC upheld the Department's finding

that sales of certain types of cement were outside the ordinary course

of trade due to significant differences in profit levels.

Similarly, NTN contends that because sample sales and sales with

abnormally high profits are outside the ordinary course of trade, they

should not be included in the calculation of CV profit. NTN asserts

that under section 773(e)(2)(A) of the Act, CV must be calculated, in

part, 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. . . .'' Because NTN's

sample sales and sales with abnormally high profits are outside the

ordinary course of trade, NTN claims, including sample sales or sales

with abnormally high profits in the calculation of CV profit violates

the statutory language and the Department's regulations. NTN maintains

that the Department should accept NTN's reported figures to avoid the

distortion that would occur from including sales outside the ordinary

course of trade in the calculation of CV profit. NTN contends that just

as sales outside the ordinary course of trade must not be included in

the calculation of NV, neither should they be included in the

calculation of CV profit.

Timken contends that the Department has appropriately retained

NTN's alleged high-profit and sample sales in the database used to

compute NV and CV profit. In keeping with Nachi (798 F. Supp. at 718),

Timken argues that it is the respondent's burden to prove that sales

are outside the ordinary course of trade. However, Timken claims that

there is nothing in the record to show that any of NTN's alleged sample

and high-profit sales are outside the ordinary course of trade, and

thus the Department has properly included these sales in the

calculation of both normal value and CV profit. Timken asserts that

NTN's interpretation of CEMEX is incorrect, because while the CAFC did

find that some sales were outside the ordinary course of trade due to

significant differences in profit levels along with other factors,

these profits were lower than average.

Department's Position: We agree with Timken. With regard to sample

sales that NTN claims are outside the ordinary course of trade, our

practice is to exclude home market sales transactions from our

calculations when an interested party demonstrates that such sales were

made outside the ordinary course of trade. Accordingly, we have

examined the record with respect to NTN's alleged home market sample

sales to determine if these sales qualify for such an exclusion. In its

original questionnaire response NTN only states that ``samples are

provided to customers for the purpose of allowing the customer to

determine whether a particular product is suited to the customer's

needs'' and that ``the purpose . . . would not be the same as those

purchased in the normal course of trade.'' See NTN questionnaire

response at B-14 and B-15. Furthermore, NTN did not provide additional

information in its supplemental response clearly demonstrating that its

alleged sample sales were outside the ordinary course of trade. See

NTN's supplemental response dated May 19, 1998. However, the mere fact

that a respondent identified sales as samples does not necessarily

render such sales outside the ordinary course of trade (see 94/95 AFB

Final at 2124 and 95/96 TRB Final at 2582). For these reasons, we

disagree with NTN that its home market sample sales should be excluded

from our margin calculations.

Similarly, with regard to NTN's abnormally high-profit sales, the

presence of profits higher than those of 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 sales in

[[Page 63874]]

question which make them unrepresentative of the home market. See CEMEX

at 900. Furthermore, in the CEMEX case low profit was only one of five

factors which, considered together, demonstrated that the home market

sales in question were outside the ordinary course of trade. However,

in the instant case NTN has provided no information other than the

numerical profit amounts to support its contention that these home

market sales had abnormally high profits. There is no evidence in this

review that these profits were abnormal. The mere existence of high

profits by itself is not evidence that these same profits were

abnormally high, and is not sufficient to find sales to be outside the

ordinary course of trade. For this reason, we disagree with NTN that

its sales with alleged abnormally high profits should not be included

in the calculation of NV and CV profit.

Model Matching

Comment 17: NTN argues that the Department should consider both the

sum-of-the-deviations method and differences in cost when ranking non-

identical home market TRBs for model-matching purposes, rather than the

sum-of-the-deviations method exclusively. NTN contends that the

exclusive use of the sum-of-the-deviations method to select model

matches is distortive and fails to rank properly merchandise most

similar to that sold in the United States. To illustrate its argument,

NTN points to a hypothetical situation involving two potential home

market matches for a U.S. TRB model: model A, which has a sum-of the-

deviations total of 20 percent and a difference-in-merchandise

(difmer), or cost deviation, total of 19.5 percent, and model B, which

has a sum-of-the-deviations total of 20.1 percent but a cost deviation

total of one percent. Using the Department's current matching

methodology, NTN asserts, the U.S. model would be paired improperly

with model A in the home market despite that fact that the difmer value

for model B when compared to the U.S. TRB model is significantly lower.

Timken asserts that the Department's current model-matching

methodology conforms to the statutory requirements for selecting

identical and similar merchandise. Relying on Koyo Seiko Co. v. United

States, 66 F.3d 1204, 1209 (Fed. Cir. 1995), Timken argues that the

Department has been afforded broad discretion in implementing the

requirement to select similar matches and contends that NTN has failed

to demonstrate that the Department's model-matching methodology is in

error.

Department's Position: We disagree with NTN. The Act provides

general guidance in selecting the products sold in the foreign market

to be compared to U.S. sales. Section 773(a)(1) states that the

preferred basis for NV is the price at which the foreign like product

is first sold for consumption in an exporting or third-country market.

Foreign like product, in turn, is defined at section 771(16) of the Act

as:

merchandise in the first of the following categories in respect of

which a determination for the purposes of subtitle B of this title

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

merchandise which is the subject of the investigation,

(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.

Pursuant to Section 771(16), the Department must first search for

home market merchandise which is identical in physical characteristics

to that sold in the United States. When products sold to the United

States do not have identical matches in the foreign market, the statute

directs us to use similar merchandise which meets the requirements set

forth under 771(16)(B).

For purposes of the current and previous TRBs administrative

reviews, when determining appropriate product comparisons for U.S.

sales we first attempt to match U.S. TRB models to identical models

sold in the home market. If an identical model is unavailable, we apply

our ``sum-of-the-deviations'' methodology to determine those models

most similar to the U.S. models, using five physical criteria of TRBs:

inside diameter, outside diameter, width, load rating, and Y2 factor.

Because each of these criteria is quantitatively measured, we derive

the overall sum-of-the-deviations for all five characteristics and use

this absolute value to rank models. See, e.g., Prelim Analysis Memo at

8 and 93/94 TRB Final at 20589. In order to satisfy the statutory

requirement set forth in section 771(16)(B)(iii) of the Act that

similar merchandise be ``approximately equal in commercial value'',

prior to assigning sum-of-the-deviations values for ranking purposes we

eliminate as possible matches those models for which the variable cost

of manufacturing (VCOM) differences exceed 20 percent of the total cost

of manufacturing (TCOM) of the U.S. model.

NTN, however, argues that the exclusive use of the sum-of-the-

deviations method to rank non-identical TRB models is distortive and

suggests that the Department alter its model-matching methodology to

incorporate cost variances (calculated as the absolute value of the

difference between the U.S. and home market VCOM divided by the U.S.

TCOM) between U.S. and home market models as an additional ranking

factor. In other words, NTN suggests using the cost variances not only

to determine commercial comparability for purposes of section

771(16)(B) of the Act, but also to select most similar home market TRB

models.

The statute does not require the Department to follow NTN's

suggested methodology. Furthermore, the CIT has explicitly recognized

the Department's broad discretion to determine what constitutes similar

merchandise for the purpose of determining NV. For example, in Timken

Co. v. United States, 630 F. Supp. 1327, 1338 (CIT 1986), the CIT

emphasized that it is the purview of the Department and not of

interested parties to determine what methodology should be used. In NTN

Bearing Corp. of America, American NTN Bearing Mfg. Corp, and NTN Corp.

v. United States, 18 C.I.T. 555 (Slip Op. 94-96 at 10), the CIT held

that the Department was not required to adopt a particular matching

methodology advanced by NTN, noting again the latitude accorded the

Department in the selection of a methodology to implement section

771(16) of the Act.

Section 771(16) directs us to select home market comparison

merchandise which is, preferably, physically identical to merchandise

sold in the United States. If identical comparison merchandise is

unavailable, we may then select merchandise which is physically

similar, after adjusting for any differences in the physical

characteristics of the comparison merchandise (the so-called difmer

adjustment). The statute is silent, however, as to the precise manner

in which similar merchandise is to be identified. As indicated above,

our TRBs product-comparison methodology conforms with the express

language of section 771(16) of the Act; if the preferred (i.e.,

identical) match is unavailable, our margin program then searches for

commercially comparable merchandise which is physically the most

similar to the U.S. merchandise as determined using the aforementioned

five physical criteria of TRBs. While NTN suggests that cost deviation

values

[[Page 63875]]

be added as a matching criterion, we note that the selection of similar

merchandise is based on a product's physical characteristics and not

differences in cost. Furthermore, our matching methodology satisfies

NTN's apparent concerns that dissimilar merchandise may be compared

because it precludes the pairing of models whose cost deviation exceeds

20 percent and provides for a difmer adjustment to NV if non-identical

TRB models are matched. See Final Margin Program for NTN, November 9,

1998, at lines 1088-1090.

NTN's argument fails to demonstrate that our model-match

methodology is distortive, unreasonable, or is otherwise not in

accordance with the statute. Moreover, the courts have upheld our use

of this methodology. Therefore, for these final results we have not

adopted NTN's suggestion for modifying our model-match methodology.

Comment 18: NTN argues that our preliminary results computer

program incorrectly matches sales first by time of sale, then by LOT.

Specifically, NTN contends that in any given month within the

``contemporaneity'' window 4, if the Department is unable to

find a home market sale at the same LOT to compare to a U.S. sale in

that particular month, the program incorrectly searches for a

comparison home market sale at a different LOT in the same month. NTN

asserts that the program should instead search for a home market

comparison sale at the same LOT as the U.S. sale but in a different

month within the contemporaneity window.

---------------------------------------------------------------------------

\4\ Defined as the month of the sale, plus the three months

prior to and two months after that sale.

---------------------------------------------------------------------------

Petitioner responds that the sales match portion of the preliminary

results program operates correctly in that it first exhausts all

possible matches at the same LOT before looking for a match at a

different LOT.

Department's Position: We agree with Timken. Our sales match

programming contains a series of instructions which is designed to

first search for a match at the same LOT before looking for a match at

a different level. For each of the ten passes in our multi-level array

sales match, with each ``pass'' representing the next-most-similar

merchandise, the variable ``CAT'' is set to the LOT of the U.S. sale to

be matched. Our program uses this index variable to search for

corresponding same-LOT NVs (which have been organized according to LOT)

within the contemporaneity window. If, after searching each of the six

window months, a same-LOT match is not found, the program will begin

searching for a match at a different LOT by setting the ``CAT''

variable to a different LOT than that of the U.S. sale, and only then

begin searching at that different LOT in each of the window months.

While the ``IF'' statement at lines 1388-1389 of the computer

program to which NTN refers appears to elevate time period over LOT in

our matching hierarchy, the program is instead assigning a ``flag''

variable depending on which iteration of the loop is in progress (i.e.,

the first loop searches for same-level matches, the second searches for

matches at the next closest LOT, and so on). As Timken notes, our

program correctly operates by exhausting all possible same-LOT matches

within the contemporaneity window before searching for a different LOT

match; therefore, we have made no changes for these final results.

Clerical Errors

While reviewing our final results program for NTN, we discovered

that our program contained the following additional clerical errors:

(1) when calculating CEP profit, we inadvertently divided expenses for

EP sales by the exchange rate even though the expense values were

already reported in yen; (2) we failed to deduct NTN's U.S. discounts

from gross unit price; and (3) we did not include a particular category

of affiliated customers for purposes of NTN's LOT test. Therefore,

although no party to this proceeding commented on these issues, to

ensure the calculation of an accurate margin, we have nevertheless

corrected the errors for these final results.

Comment 19: Timken states that in order to obtain the higher of

transfer price and actual cost to calculate COP and CV for NTN's

affiliated-party inputs, the Department created a variable called

ADDON, which subtracts transfer price from actual cost. When the result

is positive (that is, actual cost is greater than transfer price),

ADDON is added to the total cost of manufacturing, interest expense,

and G&A to compute a cost variable called RCOP. However, before this

calculation is done, ADDON is multiplied by a variable called RELPTY,

which is the percentage of inputs for a given part number that have

been supplied by affiliated suppliers. Since ADDON is an actual amount,

there is no reason to multiply it by RELPTY, because this calculation

incorrectly reduces the actual cost difference. Therefore, Timken

contends that the Department should modify the program so that it does

not reduce the ADDON value by RELPTY.

Department's Position: We agree with Timken and have corrected our

computer program for these final results such that the difference

between actual cost and transfer price (ADDON) is not multiplied by the

percentage of inputs for a given part number that have been supplied by

NTN's affiliated suppliers.

Final Results of Reviews

Based on our review of the comments, for these final results we

have made changes in our preliminary margin calculation program for

NTN. We determine that the following percentage weighted-average

margins exist for the period October 1, 1996 through September 30,

1997:

------------------------------------------------------------------------

Margin

Manufacturer/exporter (percent)

------------------------------------------------------------------------

For the A-588-054 case:

Koyo Seiko................................................ 7.62

For the A-588-604 case:

NTN....................................................... 19.78

------------------------------------------------------------------------

The Department shall determine, and the U.S. Customs Service shall

assess, antidumping duties on all appropriate entries. In accordance

with 19 CFR 351.212(b)(1), we will calculate importer-specific ad

valorem assessment rates for the merchandise based on the ratio of the

total amount of antidumping duties calculated for the examined sales

made during the POR to the total customs value of the sales used to

calculate those duties. This rate will be assessed uniformly on all

entries each importer made during the POR. The Department will issue

appropriate appraisement instructions directly to the Customs Service.

Furthermore, the following deposit requirements will be effective

for all shipments of TRBs from Japan entered, or withdrawn from

warehouse, for consumption on or after the publication date of these

final results of administrative reviews, as provided by section

751(a)(1) of the Act:

(1) The cash deposit rates for the reviewed companies will be those

rates established in these final results of reviews;

(2) For previously reviewed or investigated companies not listed

above, the cash deposit rate will continue to be the company-specific

rate published for the most recent period;

(3) If the exporter is not a firm covered in these reviews, a prior

review, or the less-than-fair-value investigations, but the

manufacturer is, the cash deposit rate will be the rate established for

the most recent period for the manufacturer of the merchandise; and

(4) If neither the exporter nor the manufacturer is a firm covered

in these or any previous reviews conducted by

[[Page 63876]]

the Department, the cash deposit rate will be 18.07 percent for the A-

588-054 case, and 36.52 percent for the A-588-604 case (see 90/92 TRB

Final).

The cash deposit rate has been determined on the basis of the

selling price to the first unaffiliated U.S. customer. For appraisement

purposes, where information is available, the Department will use the

entered value of the merchandise to determine the assessment rate.

This notice serves as a final reminder to importers of their

responsibility under 19 CFR 351.402(f) to file a certificate regarding

the reimbursement of antidumping duties prior to liquidation of the

relevant entries during this review period. Failure to comply with this

requirement could result in the Secretary's presumption that

reimbursement of antidumping duties occurred and the subsequent

assessment of double antidumping duties.

This notice also serves as a reminder to parties subject to

administrative protective orders (APO) of their responsibility

concerning the disposition of proprietary information disclosed under

APO in accordance with 19 CFR 351.306. Timely written notification of

the return or destruction of APO materials, or conversion to judicial

protective order, is hereby requested. Failure to comply with the

regulations and terms of an APO is a sanctionable violation.

This administrative review and notice are in accordance with

sections 751(a)(1) and 777(i)(1) of the Act and 19 CFR 351.213.

Dated: November 9, 1998.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 98-30740 Filed 11-16-98; 8:45 am]

BILLING CODE 3510-DS-P