December 21, 1998
Hon. Raymond F. Burghardt
Clerk of the Court
United States Court of
International Trade
One Federal Plaza
New York, New York 10007
Re: Mitsubishi Heavy Industries, Ltd. v. United States, Court No. 96-10-02292
Dear Mr. Burghardt:
Pursuant to the Court's order of June 23, 1998, and subsequent extensions granted thereto, I am transmitting the Department of Commerce's remand determination in the above-captioned case. This case concerns the challenges to the Final Determination of Sales at Less Than Fair Value: LNPP, and Components Thereof, Whether Assembled or Unassembled, from Japan, 61 Fed. Reg. 38,139 (July 23, 1996), as amended by Antidumping Duty Order and Amendment to Final Determination of Sales at Less Than Fair Value: LNPP, and Components Thereof, Whether Assembled or Unassembled, from Japan, 61 Fed. Reg. 46,621 (Sept. 4, 1996). Supplemental documents collected or prepared during the conduct of this remand determination will be filed under separate cover.
Should any questions arise regarding this submission, please contact me at (202) 482-0082.
Respectfully submitted,
Robert J. Heilferty
Senior Attorney
Office of the Chief Counsel
for Import Administration
Enclosure
cc:
Randi Rimerman Serota , Esq.
DEPARTMENT OF JUSTICE
Commercial Litigation Branch
1100 L Street, N.W.
Washington, D.C. 20530
Anthony J. LaRocca, Esq.
STEPTOE & JOHNSON LLP
1330 Connecticut Ave., N.W.
Washington, D.C. 20036-1795
Yoshihiro Saito, Esq.
PERKINS COIE LLP
607 Fourteenth Street, N.W.
Washington, D.C. 20005-2011
Charles O Verrill, Jr., Esq.
WILEY, REIN & FIELDING
1776 K Street, N.W.
Washington, D.C. 20006
This remand determination, submitted in accordance with the Court's June 23, 1998, opinion, involves challenges to the antidumping duty determination of the International Trade Administration ("ITA"), U.S. Department of Commerce, in Large Newspaper Printing Presses and Components Thereof, Whether Assembled or Unassembled, ("LNPP") from Japan.(1) In Slip Op. 98-82, ITA was ordered to reconsider its final determination with respect to the following five issues: 1) the allocation of indirect selling expenses; 2) the basis for deducting imputed credit expenses incurred upon U.S. sales from normal value ("NV"); 3) the determination regarding the affiliation of certain major input suppliers; 4) the determination that the "Trading Company" and Mitsubishi Heavy Industries ("MHI") were not affiliated parties; and 5) the application of the statutory definitions relied upon when classifying LNPP sold in the home market as "foreign like product."
A draft Remand Determination was provided to the parties on November 10, 1998. On November 24, 1998, respondents MHI, Tokyo Kikai Seisakusho, Ltd. (TKS), and petitioner Goss Graphic Systems, Inc. (Goss) submitted comments on the draft determination (hereinafter "MHI Comments," "TKS Comments," and Petitioner's Comments," respectively).
I. Allocation of Indirect Selling Expenses
In accordance with its request for remand on this issue, ITA has revised its deduction from CEP for certain indirect selling expenses, removing those expenses incurred by MHI which we determine not to be related to U.S. economic activity. ITA has also recalculated TKS's margin to eliminate any reduction from CEP for indirect selling expenses incurred in Japan.
A. Background
The procedural background for this issue appears in the Government's July 7, 1997, Brief at 9-10. To summarize, ITA had explained its rationale and methodology for deducting indirect selling expenses incurred in Japan in support of U.S. sales by noting that the nature of MHI's reported expenses were such that ITA was unable, at verification, to quantify that portion of total indirect selling expenses that was associated with U.S. sales. 61 Fed. Reg. 38,173-74. At the same time, ITA rejected Petitioner's argument that ITA should deduct all reported indirect selling expenses from CEP because respondents had not specifically identified which portions of its indirect selling expenses incurred in Japan were related to U.S. economic activity. Id. To accomplish the deduction, ITA derived a methodology to allocate a portion of the indirect selling expenses incurred in Japan to the economic activities occurring in the United States, in accordance with 19 U.S.C. § 1677a(d)(1). Id.(2) For each U.S. sale, the amount allocated to that sale was the result of applying to total indirect selling expenses the ratio of all other CEP expenses (except for movement expenses) deducted pursuant to section 772 to the contract price net of the reported indirect selling expenses incurred in Japan. See ITA's May 4, 1998, Response to the Court's April 21, 1998, Order Regarding Treatment of Indirect Selling Expenses.
B. Analysis
Upon further review, Commerce believes that the methodology it employed overstated the indirect selling expenses that should have been deducted from CEP by applying the above ratio to an overly broad category of indirect selling expenses. For example, an examination of MHI's December 13, 1995, Section C Response, C.R. 105, at Exhibit 24, reveals that the indirect selling expenses incurred in Japan included various office and planning expenses. These expenses are not the type of expenses that ordinarily would be associated with U.S. economic activity. The agency requested a remand so that it could reevaluate the record and propose a methodology that would more closely identify the indirect selling expenses associated with U.S. economic activity.
Having now conducted this reevaluation, ITA has concluded that the ratio should be applied to a smaller pool of indirect selling expenses incurred in Japan than was used in the Final Determination. Specifically, ITA has removed the following types of expenses from the indirect selling expense pool: salaries and related expenses, office expenses, planning expenses, consumable stationary expenses, book and printing expenses, insurance, employee education, and department, section, and other charges. In the absence of record evidence to the contrary, it would be unduly punitive to presume that such expenses were incurred on the sale to the unaffiliated customer in the United States. This reduction in the indirect selling expense pool is reflected in Memorandum to the File: MHI Recalculations Conducted Pursuant to Remand Redetermination in MHI v. United States, Court 96-10-02292 (December 9, 1998).
In our view, this revised allocation is consistent with the agency's intent "to distinguish between selling expenses incurred on the sale to the unaffiliated customer, which may be deducted under 772(d)(1) {of the Act}, and those associated with the sale to the affiliated customer in the United States, which may not be deducted." Antidumping Duties; Countervailing Duties: Final Rule, 62 Fed. Reg. 27296, 27351 (preamble to 19 C.F.R. 351.402). Our determination is also consistent with current administrative practice. See, e.g., Porcelain-on-Steel Cookware from Mexico: Final Results of Antidumping Duty Administrative Review, 23 Fed. Reg. 38373, 38381 (July 16, 1998).
C. Indirect Selling Expenses Incurred by TKS
In Slip Op. 98-82 at 24-25, the Court indicated that ITA "must also respond to TKS's argument that Commerce overstated its indirect selling expenses in the same way it overstated MHI's."
TKS did not challenge ITA's treatment of indirect selling expenses before the Court. Nevertheless, in light of the Court's instructions and after a thorough review of the administrative record on this issue, we have determined that CEP should not be reduced by the amount of indirect selling expenses incurred in Japan. This determination is based on the specific conclusion by ITA's verification team that "[i]n our examination of the company records for reported indirect selling expenses, we found no indication of expenses based on U.S. economic activity." TKS Verification Report, C.R. 191, at 16. As a result, we have recalculated TKS's margin to eliminate any reduction from CEP for indirect selling expenses incurred in Japan. See Memorandum to File TKS Recalculations Conducted Pursuant to the Remand Redetermination in MHI v. United States, Court No. 96-10-02292 (December 9, 1998).
In this case, therefore, the administrative record supports a conclusion that no reduction to CEP for such expenses is appropriate. In future administrative reviews of this order, ITA will seek to conduct a more precise assessment of the degree to which indirect selling expenses incurred in the home market may be associated with economic activity in the United States.
II. Treatment of Imputed Credit
In response to the Court's instructions, Slip Op. at 37, we provide the following explanation of our basis for deducting calculated imputed credit expenses from NV.
A. Background
In its Final Determination, ITA imputed credit expenses with respect to U.S. sales of LNPP and reflected these expenses in its calculation of CEP. Final Accounting Memo, C.R. 206 at 2. In addition to deducting these imputed credit expenses from CEP, ITA deducted from NV imputed credit expenses for home market sales. Id. at Appendices A, P.
B. Analysis
ITA adjusted both the CEP and constructed value (CV)-based NV of LNPP for imputed credit so that CEP reflected the U.S. sales price adjusted for the imputed credit expenses incurred on U.S. sales and NV was adjusted to reflect the credit expenses imputed to home market sales. ITA made this adjustment pursuant to section 773(a)(8), which provides for appropriate adjustments to CV. This methodology, implemented pursuant to the Uruguay Round Agreements Act ("URAA"), is reflected in ITA's current practice. As ITA explained in Engineered Process Gas Turbo-Compressor Systems From Japan, 62 Fed. Reg. at 24407 (May 5, 1997) ("EPGTs"):
[t]he intent of making a circumstances of sale adjustment for imputed credit expenses incurred in the U.S. and comparison markets is to adjust for differences in the payment terms extended to customers in the two different markets.
See also Certain Hot-Rolled Lead and Bismuth Carbon Steel Products from the United Kingdom, 62 Fed. Reg. 18,744, 18,746 (April 17, 1997)(Comment 5). Moreover, an adjustment for imputed credit is not precluded in situations where NV is based upon CV. ITA stated in Antifriction Bearings From France ("AFBs"):
[a]fter calculating CV in accordance with the statute, we have, in essence, a NV. Consistent with section 773(a)(8) of the Tariff Act, adjustments to NV are appropriate when CV is the basis for NV. [ITA] uses imputed credit expenses to measure the effect of specific respondent selling practices in the United States and the comparison market.
62 Fed. Reg. 2081, 2119-2120 (Jan. 15, 1997).
According to Petitioner, ITA's deduction of imputed credit expense from a CV-based NV was contrary to the statute and ITA's practice. Goss April 21, 1997, Brief at 2-3. In its view, this deduction was redundant because the CEP was already on a "net-imputed-credit basis" and, thus, at the same level of comparison as NV. Id. at 3 and 5. As we explain below, this claim has no merit because the antidumping law, as amended by the URAA, plainly requires that ITA exclude imputed credit expenses from NV, and ITA's administrative practice has conformed to the URAA requirements. Moreover, Petitioner's interpretation is unreasonable because it would result in a one-sided adjustment for imputed credit expenses associated with sales to the United States while ignoring the same adjustment for NV.
First, section 773(e)(2)(a) of the Act requires that ITA include in CV the actual amount of selling, general and administrative ("SG&A") expenses (including net interest expense) incurred by the exporter or producer. 19 U.S.C. § 1677b(e)(2)(A). Because imputed credit, by its nature, is not an actual expense but rather an opportunity cost, it cannot be included in the CV calculation. 61 Fed. Reg. at 38148. See also Pasta from Italy, 61 Fed. Reg. 30,326, 30,361 (1996) (Comment 14). By using the respondent's actual sales revenue and costs to compute CV profit, the CV reflects a NV unadjusted for imputed credit. For this reason, as explained in AFBs, using an actual amount of profit realized by a company cannot preclude adjustments to NV -- such as for imputed credit -- even if NV is based on CV. 62 Fed. Reg. at 2119-20. The Statement of Administrative Action (SAA), H.R. Doc. No. 103-316, vol. 1 (1994), confirms that the "[n]ew section 773(a)(8) ensures continuation of the ability to make appropriate adjustments to constructed value when amended section 773(e) serves as the basis for NV." SAA at 831. This interpretation is consistent with ITA's current practice, as explained in AFBs and EPGTs. Thus, Petitioner's argument is contrary to the statute and ITA's current practice.
Second, Petitioner's insistence that a CV-based NV may not be adjusted under any circumstances is unreasonable. It would be senseless to adjust the U.S. price of LNPP for certain credit expenses incurred by MHI in the U.S. market, while refusing to make the same adjustment to NV. In this case, ignoring MHI's imputed credit expenses in the foreign market would result in a failure to adjust for the difference between MHI's opportunity cost in connection with extending credit to U.S. customers, versus the opportunity cost of credit to home market customers. Consequently, we determine that deducting imputed credit expenses from CV-based NV is appropriate.
III. Affiliation of Certain Major Input Suppliers
In the Final Determination, ITA treated certain suppliers of major inputs of MHI as affiliated but failed to clearly indicate the basis for affiliation. In accordance with the Court's order, we provide the following information regarding our treatment of certain major input
suppliers.
A. Background
The antidumping statute provides special rules for cases in which producers acquire "major inputs" from affiliated suppliers. 19 U.S.C. § 1677b(f)(3). In applying this provision, ITA normally requires respondents to report the "major" inputs which may be subject to this rule.
The LNPP case required that ITA give definition to the term "major" because MHI acquired thousands of inputs to produce the LNPP but no single input represented a large share of the total LNPP cost or the cost of each of the major components included in the scope of the investigation. Therefore, in section A of the IA's antidumping questionnaire, MHI was requested by ITA to identify those suppliers who provided inputs which accounted for more than two percent of the total cost of manufacture of each of the major LNPP components. (Section A Questionnaire at A-8). Although MHI had previously reported that it acquired inputs (parts and services) from many companies (MHI August 24, 1995, submission, C.R. 8, at 3) relatively few suppliers fell within the parameters set by ITA's section A reporting requirement. (MHI Sect. D. Response, C.R. 105, at ex. 7, 8).
Once the suppliers of these "major" inputs were identified in MHI's Section A Response, ITA requested that MHI indicate which suppliers were affiliated through equity ownership.(3) For those suppliers of major inputs which were not affiliated through equity ownership, we asked MHI to answer several questions about the suppliers, including the percentage of each supplier's total annual sales that were made to MHI for each of the previous five years. (Section A Questionnaire at A-8). We requested this data in order to establish the permanency of the relationship and the degree of possible reliance between the supplier and MHI. We selected a sample of suppliers affiliated through equity ownership and those which furnished more than 50 percent of their total annual sales to MHI over the previous five year period for determining whether the transactions with MHI were at arm's length prices and above the supplier's actual cost of production. (Section D Questionnaire at D-2).
B. Analysis
1. Legal Framework and Administrative Precedent
Section 771(33) (G) of the Act states that any person who controls any other person and such other person are to be considered to be affiliated. Under this section, control exists when any person is "legally or operationally in a position to exercise restraint or direction over another person". Four examples(4) are provided in the SAA which describe circumstances in which a company may exercise such restraint or direction over another company. One of these four examples highlights the possibility of control through a close supplier relationship in which the supplier or buyer becomes reliant upon the other. SAA at 838. Although this new definition of control is interpreted as expanding ITA's previous practice pertaining to affiliation (formerly "related parties"), ITA did not further define the control concept in its Notice of Proposed Rulemaking and Request for Public Comments (Antidumping Duties: Countervailing Duties), 61 Fed. Reg. 7310 (1996)("Proposed Rules). ITA noted in the Proposed Rules that the term "control," as used in the statute, embodies new and novel concepts and that the complexity of the relationships potentially covered by this term could not be envisioned. Therefore, ITA decided to apply this provision on a case-by-case basis. By this approach, ITA could consider the various factors of each case in order to gain experience with the types of business relationships that might lead to affiliation through control. In the Preamble of the Proposed Rules, however, ITA stated that it intended to analyze these relationships in light of business and economic realities in order to determine whether the relationships were significant and not easily replaced. Id. at 7310.
Because LNPP was one of the first proceedings under the URAA, ITA could only look to the SAA and the Proposed Rules for guidance. There were no prior cases to rely upon for analysis of control through a close supplier relationship. Following the available guidance and assessing the characteristics of the product, production process and other relevant factors of the case, as noted above, IA established threshold criteria for this case for obtaining information.
2. Treatment of MHI's Major Input Suppliers for LNPP
With this background, we can now examine the treatment of major input suppliers in this case. In order to address circumstances in which there are a large number of major input suppliers, it is necessary for ITA to specify reporting requirements early in the case to collect data and, if necessary, subsequently test transactions with those parties we determine to be affiliated. In this case, ITA determined that a reasonable reporting parameter for this purpose would be to consider any supplier that depended upon MHI for 50 percent or more of its sales during each year during a five year period to be potentially subject to the restraint or direction of MHI. We considered the standard of 50 percent or greater reliance for each year over a five year period appropriate in this case because: 1) the period of investigation (and therefore the cost reporting period) for MHI was a five-year period; 2) LNPP generally take multiple years to produce; and 3) this degree of reliance over an extended period of time is high for custom-made merchandise. Under the unique facts of this case, we consider this level of reliance sufficient to presume that such a supplier is affiliated with MHI on the basis of control, within the meaning of section 771(33)(G) through a close supplier relationship. No evidence to the contrary was provided.
In reviewing the details on each of the suppliers ITA deemed to be affiliated with MHI, we have determined that we erred in the Final Determination in treating one of the suppliers as an affiliated party through a close supplier relationship. The party does not meet the affiliation criteria discussed above and we find there is no other factual basis to conclude that this supplier was legally or operationally in a position to exercise restraint or direction over MHI, or vice versa. See Memorandum Regarding Recalculations Conducted Pursuant to the Remand Redetermination in MHI v. United States, Court No. 96-10-02292 (December 9, 1998) for details on the calculation of the correction of the affiliated party purchase adjustment and the resulting change in the margin calculation.
We note, however, that even if we were to eliminate the entire affiliated party purchase adjustment with respect to MHI (i.e., not just the impact from excluding the one supplier we have determined to be unaffiliated), it would not cause any of MHI's home market sales to shift from unprofitable to profitable. In addition, because the decrease in the cost of manufacturing resulting from eliminating the affiliated party purchase adjustment in its entirety would be offset by a corresponding increase in the home market profit included in NV, the resulting NV would change by less than one tenth of one percent. See Memorandum Regarding Recalculations Conducted Pursuant to the Remand Redetermination in MHI v. United States, Court No. 96-10-02292 (December 9, 1998) for analysis of the impact of eliminating the affiliated party purchase adjustment in its entirety.
IV. Affiliation Between MHI and the Trading Company
In response to the Court's instructions, Slip Op. at 60-61, we provide the following reevaluation as to whether MHI and the Trading Company are affiliated.
A. Background
In its June 23, 1998, decision, the Court ruled that ITA's conclusion that MHI and the Trading Company were not affiliated was not consistent with the statute. Slip Op. at 60. Specifically, the Court noted that the statutory definition of affiliated parties at section 771(33)(F) of the Act does not require that MHI and the Trading Company exercise control over each other. Id. Instead, the statute requires only that "two or more persons" control a third person. Id.
B. Analysis
On remand, ITA acknowledges the Court's findings and has reevaluated its determination as to whether MHI and the Trading Company are affiliated. Given the nature of MHI's and the Trading Company's ownership interest in a third person, MLP U.S.A., Inc. ("MLP"), we conclude that MHI and the Trading Company are affiliated pursuant to section 771(33)(F) of the Act.
This change prompted us to review our antidumping analysis to determine whether the affiliation decision affected any other determinations we had made. The only possible consequence for our Final Determination was our decision to grant an adjustment to CEP for the commission MHI paid to the Trading Company. In deciding whether to continue to make an adjustment based on the commission, we considered whether, in light of the joint venture relationship, it was appropriate to rely on a commission between these two parties. If the nature of the relationships between the joint venture partners is such that any commission or mark-up received by the affiliated trading company agent may not be at arm's length, it should be disregarded, like an intra-company transfer. In such cases, ITA would deduct from CEP the actual selling expenses incurred by the trading company pursuant to §772(d)(1)(C) and (D).(5) In contrast, where the joint venture partners are otherwise independent of each other, the deduction may appropriately be based on the commission paid pursuant to §772(d)(1)(A).(6) Thus, while the common control of MLP may result in MHI and the Trading Company satisfying the affiliation definition of section 771(33)(F), that finding does not dictate the methodology for calculation of the CEP deductions.(7)
In this case, there is no evidence on the record demonstrating that MHI and the Trading Company have any corporate relationships outside the joint venture and the agency relationship with respect to the Piedmont sale that would suggest that these parties do not operate at arm's length. For example, as discussed in the Final Determination, there is no control relationship between MHI and the Trading Company. The degree of joint financing and common ownership that exists between MHI and the Trading Company as a result of the joint venture does not provide a sufficient basis to assume direct or indirect control between the parties in light of business and economic reality that would call into question the amount of the commission paid to the Trading Company.(8) Moreover, there is no evidence to indicate that MHI's relationship with the Trading Company was significant and irreplaceable such that one party could exercise control over the other in the negotiation of the commission given that MHI dealt with another trading company during the POI .(9) Furthermore, we have reviewed the nature and terms of the commission paid by MHI and the details of the Trading Company's contribution to the transaction, and find no evidence that the commission was anything but a transaction negotiated by two parties acting in their own interests. See Final Determination, 61 Fed. Reg. at 38,157 (MHI-Specific Comment 2). Consequently, we find that it is appropriate for ITA to deduct the amount of this commission from CEP pursuant to section 772(d)(1)(A).
V. Foreign Like Product
In response to the Court's instructions, Slip Op. at 51, we provide the following explanation regarding the statutory definition relied upon when classifying LNPP sold in the home market as "foreign like product."
A. Background
In making fair value comparisons, ITA identifies the "foreign like product" by comparing the physical characteristics of subject merchandise with the physical characteristics of merchandise sold in the foreign market. See, e.g., Final Determination of Sales at Less Than Fair Value: Stainless Steel Wire Rod from Spain, 63 Fed. Reg. 40,391, 40,399 (July 29, 1998). The foreign like product definition in section 771(16)(A)-(C) allows ITA to distinguish between merchandise sold in the home market which is identical, similar or reasonably comparable for purposes of model matching. So as not to unreasonably distort comparisons involving non-identical merchandise, ITA does not compare subject merchandise sold in the United States to merchandise sold in the foreign market where the variable cost of manufacturing of the latter merchandise differs from the variable cost of manufacturing of subject merchandise sold to the United States by more than 20 percent of the total cost of manufacturing of the subject merchandise sold to the United States. See id.; IA Policy Bulletin 92.2.
In its September 27, 1995, Section A Response at A-7, TKS noted that the "subject merchandise" includes LNPP systems, additions, and components. TKS reported that it sold LNPP additions in the home market. Id. at A-8. TKS asserted that its home market was viable based on an analysis of sales of the subject merchandise. Id. TKS also insisted that "constructed value is the only appropriate basis of comparison." Id. at A-6.
In response to TKS's subsequent claim that home market sales of the foreign like product did not exist, ITA provided the following explanation in its Final Determination:
TKS is incorrect to suppose that because we did not find home market sales which provided practicable price-to-price matches, no foreign like product existed. The foreign like product as defined by section 771(16) of the Act, (i.e., sales of LNPP in Japan) did exist, as revealed by our examination of LNPP equipment sold in the home market for purposes of the Department's home market viability test (pursuant to section 773(a)(1)(C) of the Act) as stated in our November 9, 1995, decision memorandum regarding the determination of the appropriate basis for NV. However, the degree of unique customization for customers made the difference-in-merchandise adjustment for product price matching potentially so complex that the use of CV provided a more reliable and administrable methodology for establishing NV. As stated in our November 9, 1995, decision memorandum, the Department declined comparison of products within the same class of products which have such prominent physical dissimilarities as to make comparisons and calculations of adjustments for such physical differences impracticable, pursuant to the "particular market situation" provision, section 773(a)(1)(C)(iii) of the Act.
Japan Final, 61 Fed. Reg. at 38,146. As a result, ITA determined that "the correct statutory provision for CV profit calculations in this instance is section 773(e)(2)(A) and, accordingly, [ITA's] final margin calculations were formulated under its guidelines." Id.
B. Analysis
As noted above, TKS's claim that there were no sales of foreign like product in the home market runs counter to its questionnaire response. See Sept. 27, 1995 Sect. A Response, N.P.R. Doc. 15. In its response, TKS plainly treated its home market sales of LNPP additions as sales of a "foreign like product." Id. at A-7, A-8.
Moreover, as ITA has previously explained, TKS's claim that no "foreign like product" existed in the home market is not supported by ITA's Normal Value Memorandum, C.R. 73 at 1. In fact, ITA's NV decision memorandum identified the issue in the second sentence as "the usability of the foreign like product in determining normal value." Id. Also, the memorandum describes how ITA conducted a "viability" test upon the home market sales of the foreign like product, pursuant to section 773(a)(1)(C) of the Act, Id. at 2, and ITA explicitly stated that "the particular market situation is inextricably linked to the nature, production and sale of the foreign like product." Id. at 3 (emphasis added). There is simply no basis for TKS's assertion that its home market LNPP sales were not considered the foreign like product.(10)
Finally, the LNPP produced in the home market satisfied the "foreign like product" definition found in section 771(16)(C) because these LNPP were
Merchandise --
(i) produced in the same country and by the same person and of the same general class or kind as the merchandise which is the subject of the investigation,
(ii) like that merchandise in the purpose for which used, and
(iii) which the administering authority determines may reasonably be compared with that merchandise.
19 U.S.C. § 1677(16)(C). First, the LNPP produced and sold in Japan by TKS were: 1) produced in the same country as the merchandise subject to the investigation (Japan); 2) produced by the same person (TKS); and 3) are of the same general class or kind as the merchandise subject to the investigation (LNPP). Second, the LNPP sold in the home market were like the subject merchandise (LNPP) sold in the United States in the purpose for which they were used; i.e., both LNPP were used to produce newspapers. Finally, as described above, home market LNPP may reasonably be compared to the subject merchandise (LNPP). The fact that it was not practicable to compare specific models of LNPP is not the same as saying that home market LNPP may not reasonably be compared with the subject merchandise (LNPP).
In sum, LNPP sold by TKS in the home market satisfied the definition of foreign like product. As a consequence, TKS's assertion that ITA should have calculated CV profit using section 773(e)(2)(B) -- reserved for instances in which actual cost data for the foreign like product is not available -- should be rejected.
Interested Party Comments
MHI continues to believe that ITA should make no deduction for indirect selling expenses incurred in Japan. Further, MHI argues that ITA failed in its reevaluation of the methodology used to determine whether an inappropriately large amount of indirect selling expenses was deducted from the starting price to calculate CEP. According to MHI, this is so because 1) the allocation formula employed "is not rationally related to the legal standard from which it is supposedly derived, and 2) the pool of expenses to which the allocation method is applied "still contains expenses which are not 'normally associated with U.S. economic activity.'" MHI Comments at 2.
TKS takes issue with ITA's conclusion in the draft remand determination that there is no record evidence of a breakdown of TKS's indirect selling expenses that would allow ITA to conduct the same type of analysis that was conducted for MHI. TKS cites to questionnaire response submissions and a verification document to this effect.
Petitioner argues that ITA's original final determination correctly allocated indirect selling expenses incurred by MHI, and that remand was improper because no error had been demonstrated in that allocation. Petitioner Comments at 6-7.
ITA Position: With respect to MHI, we disagree that no deduction should be made for indirect selling expense incurred in Japan. To calculate CEP, ITA deducts indirect selling expenses incurred in the home market in support of U.S. sales where such expenses are related to U.S. economic activity. Therefore, the fact that expenses may have been booked in Japan does not resolve the issue. See, e.g., 19 C.F.R. §351.402(b). With respect to MHI, the record demonstrates that there were indirect selling expenses incurred in Japan that were associated with U.S. economic activity. MHI Verification Report, C.R. 189, at 20-21. Given the manner in which MHI reported its indirect selling expenses, ITA was required to establish a reasonable allocation to reflect those expenses related to U.S. economic activity. We believe that this allocation, as revised pursuant to this Court's remand, satisfies the applicable legal standard.
While ITA's verification report reflected its finding that certain indirect selling expenses were associated with U.S. economic activity, we agreed to eliminate from the pool of indirect selling expenses those expenses which are not the type of expenses that would normally be associated with U.S. economic activity, for the reasons discussed above in the Final Determination. We agree with MHI's comment that the "other charges" listed in its December 8, 1995 submission should be removed from the indirect selling expenses pool because such expenses are not typically associated with economic activity and there is no record evidence to the contrary.
With respect to TKS, we have concluded -- based on the findings of ITA's verification team -- that the indirect selling expenses incurred in Japan during the period of investigation were not associated with U.S. economic activity. See discussion in section I.C. As a result, we have not deducted such expenses from CEP.
With respect to Petitioner's comment, we disagree that we were in error to request a remand on this issue. As described above, the lack of precision in the way in which the respondents reported their indirect selling expenses did not justify the original allocation methodology applied to both MHI and TKS. As noted above, however, ITA will seek to conduct a more precise assessment of the degree to which indirect selling expenses incurred in the home market would be associated with economic activity in the United States in future administrative reviews under this order.
MHI requests that ITA clarify its final remand results to make explicit that the standard used in the investigation for affiliation of major input suppliers was 50 percent of annual sales in each of five consecutive years. MHI Comments at 4.
ITA Position: As explained above in section III, ITA confirms that the standard used in the investigation for affiliation of major input suppliers was 50 percent of annual sales in each of five consecutive years.
MHI agrees with ITA that the commission paid by MHI to the Trading Company involved in the Piedmont sale was an arm's length transaction. MHI disagrees, however, with the conclusion that MHI and the Trading Company are affiliated pursuant to section 771(33)(F) of the Act. Specifically, MHI argues that "while {it} controls MLP, there is no evidence in the record that the Trading Company, as a minority shareholder, also controlled MLP." MHI Comments at 6. According to MHI, Congress did not intend an interpretation that if two or more persons together own a third, then all of the owners should be deemed to be affiliated. For instance, while all shareholders of Coca-Cola jointly control that company, Congress could not reasonably have intended for ITA to find all shareholders to be affiliated.
According to Petitioner, ITA correctly determined in the draft remand determination that MHI and the Trading Company were affiliated. However, petitioner faults ITA's focus on the nature and degree of the affiliation of the two companies in analyzing how to treat the commission in the Piedmont sale. In Petitioner's view, ITA has confused the practice of "collapsing" affiliated parties in order to calculate a single dumping margin with the methodology used in making adjustments to sales prices. While the "collapsing" practice requires more than simple affiliation, the methodology for determining the proper treatment of commissions between affiliated parties focuses on whether the transaction is at arm's length. According to Petitioner, precedent directs ITA to treat commissions paid to affiliated parties as adjustments to sales prices if the commissions are arm's length and tie directly to sales. Petitioner asserts that in this case the evidence demonstrates that the relevant commission was not at arm's length.
ITA's Position: We disagree with MHI that "while {it} controls MLP, there is no evidence in the record that the Trading Company, as a minority shareholder, also controlled MLP." The record evidence on the degree to which the Trading Company owned shares in MLP supports a conclusion that it also was "legally or operationally in a position to exercise restraint or direction" over MLP, as set forth in section 771(33). Through its regulations, ITA has taken steps to prevent the unwarranted expansion of this definition, as suggested in MHI's "Coca-Cola" hypothetical. See 19 C.F.R. § 351.102(b) (in defining "affiliated parties," the Secretary "will not find that control exists on the basis of these factors unless the relationship has the potential to impact decisions concerning the production, pricing, or cost of the subject merchandise or foreign like product"). For these reasons, we believe that MHI and the Trading Company are affiliated pursuant to section 771(33)(F) of the Act.
As explained above in section IV, however, while the common control of MLP may result in MHI and the Trading Company satisfying the affiliation definition of section 771(33)(F), that finding does not dictate the methodology for calculation of the CEP deductions.
As reflected in the SAA, the expanded "affiliated persons" definition was intended permit a more sophisticated analysis beyond equity-based relationships. SAA at 838. But the conduct of a more sophisticated analysis does not dictate that the same presumptions that would be made pursuant to a finding of affiliation based on equity ownership would apply, for example, to a relationship between the owners of a joint venture.(11) In its redetermination, ITA reasonably concluded from the record evidence that the nature of the affiliation between MHI and the Trading Company did not dictate that the agency conduct an arm's length test of the commission paid for the Piedmont transaction.(12)
4. Foreign Like Product
TKS argues that the ITA's Remand Determination is flawed because it failed to explain how TKS's home market LNPPs "may reasonably be compared" with the LNPPs that TKS sold to the United States, pursuant to section 771(16)(C)(iii) of the Act.(13) TKS's Nov. 24, 1998, Comments on Draft Remand Determination at 6-13. According to TKS, ITA is wrong to suggest that statements made during the administrative proceeding can be interpreted as admissions by TKS that its home market LNPPs satisfied the foreign like product definition. Id. at 9-10. Further, TKS argues that even if it had referred to its home market sales as "the foreign like product" in its questionnaire response -- which it asserts it did not -- ITA had an independent obligation to determine whether or not the foreign market merchandise satisfies the foreign like product definition regardless of an interested party's allegation on the issue. Id. at 10-11. Finally, TKS continues to object to ITA's characterization of its Normal Value Memorandum, including the relevance of its determination that home market LNPP satisfied the foreign like product definition for purposes of the home market "viability" determination. Id. at 11-13.
ITA's Position: As explained above in section V, ITA believes it has responded appropriately to the Court's request that it explain which foreign like product definition was applied in this case. We disagree with TKS's continued objection to that explanation.
First, while we agree that the agency has an independent obligation to determine whether or not the foreign market merchandise satisfies the foreign like product definition, we disagree that a party's representations regarding that merchandise are irrelevant to that determination. We continue to believe statements made by TKS in the underlying proceeding indicated that it treated its home market LNPPs as the "foreign like product," at least until the issue of CV profit arose. For example, TKS's stated in its September 27, 1998, Questionnaire Response, C.R. 15, at A-8, that "the required analysis {on the comparability of LNPP sales} involves the comparison of the sales of the subject merchandise in the United States and Japan. Given that this statement was made for the purpose of guiding the agency's application of the home market viability provision in section 773(a)(B) of the Act - which requires that the comparison be made to sales of the foreign like product in the home market - it is not unreasonable to view TKS's statement as a representation that its home market sales of LNPPs were the foreign like product.
Further, as explained in section V above, it is clear from the record of the underlying proceeding that ITA did fulfill its obligation in determining that TKS's home market LNPPs satisfied the foreign like product definition. As explained above, the Normal Value Memorandum demonstrates as much, as did the Preliminary Concurrence Memorandum and the Final Determination. See Normal Value Memorandum, C.R. 73 at 1-3; Preliminary Concurrence Memo, C.R. 152, at 10; Final Determination, 61 Fed. Reg. At 38,146. The sole purpose of the Court's remand instruction was for the agency to explain the specific subsection of the "foreign like product" definition that was being invoked, and the agency has endeavored to provide this explanation in its redetermination.
Finally, little more can be said with respect to TKS's continued objections to ITA's characterization of its Normal Value Memorandum, including the relevance of its determination that home market LNPP satisfied the foreign like product definition for purposes of the home market "viability" determination. Having based its entire assertion before the agency on this issue on the alleged inconsistencies between the findings of the Normal Value Memorandum and ITA's treatment of home market LNPP as the "foreign like product," TKS cannot seriously argue that ITA's discussion of this memorandum is "unresponsive and irrelevant" to the Court's remand order. TKS's Comment at 11. Nor does TKS's reference to a vague statement in the SAA trump the statutory requirement that the viability test be conducted comparing U.S. sales of subject merchandise to the "foreign like product."
Conclusion
For the reasons stated above, we have revised our determination of sales at less than fair value with respect to LNPP from Japan. The revised antidumping duty margin for MHI is 59.67.
The revised antidumping duty margin for TKS is 51.97. The revised "All Others" rate is 55.05 percent.
______________________________
Robert S. LaRussa
Assistant Secretary for
Import Administration
__________________
Date
1. 61 Fed. Reg. 38,139 (1996), as amended by Large Newspaper Printing Presses and
Components Thereof, Whether Assembled or Unassembled, from Japan, 61 Fed. Reg. 46,621 (1996).
Details of the methodology are provided in the Final Accounting Memo, C.R. 206, at
App. V.
Any producer/supplier relationship in which there exist direct or indirect ownership of
5 percent would be considered to be affiliated through equity ownership Section 771(33)(E) and,
therefore, the close supplier relationship referred to in Section 771(33)(G) would not need to be
considered.
4. The four indices listed in the Statement of Administration Action are: a) corporate and
Family Groupings, b) franchise/joint venture, c) debt and d) close supplier relationship.
8. The Preamble to the Department's proposed regulations states that the Department will
analyze factors of control in light of business and economic reality to determine if there is, in fact,
evidence of control within the meaning of the statute. See Proposed Rules, 61 Fed. Reg. at 7310.
9. See Proposed Rule, 61 FR at 7310.
10. Other decision documents confirm this fact. See, e.g., Prelim. Concur. Memo, C.R. 152,
at 10 ("[T]he foreign like product consists of all LNPPs, additions, and components sold by the
respondents in their respective home markets during the POI").
11. To this end, Petitioner's citations to pre-URAA cases is inapposite.
12. Moreover, comparison with the only other commission paid by MHI would not have been
reasonable given the different services performed by that trading company.
13. TKS agrees that its home market LNPPs meet the criteria in section 771(16)(C)(i)-(ii).