[Federal Register Volume 63, Number 221 (Tuesday, November 17, 1998)]
[Notices]
[Pages 63860-63876]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-30740]
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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
