3. Decision Not To Deduct Certain Indirect Selling Expenses from CEP

The third issue that the Panel must address is whether the Department’s decision not to deduct from CEP the indirect selling expenses that Cinsa incurred in Mexico on sales it made to CIC was reasonable and otherwise in accordance with law. For the reasons that follow, the Panel affirms the Department’s determination.

1. Factual Background

CHP argues that Commerce erred when it failed to deduct from CEP sales made by Cinsa and ENASA certain indirect selling expenses and inventory carrying costs incurred in Mexico on U.S. sales. CHP Brief, at 51. CHP claims that Commerce’s failure to deduct from CEP indirect selling expenses incurred in Mexico in support of sales of subject merchandise to the United States is directly contrary to both the plain language of the statute and the Congressional intent as set forth in the legislative history. Id. at 51-52. Both indicate that all indirect selling expenses "that may be reasonably attributed to" U.S. sales must be deducted from the CEP without limitation. Id. at 56.

In its Reply Brief, at 19, CHP argues further that Commerce’s determination not to deduct indirect selling expenses incurred in Mexico from CEP is contrary to the plain language of the antidumping statute. CHP canvasses the law to support its contention that the statutory term "any" modifying the CEP-deductible selling expenses should be broadly interpreted as "all" or "every," thus permitting indirect selling expenses to be deducted from CEP and requiring the dumping margin to be recalculated. Id. at 20-32.

Commerce argues that it properly calculated the CEP when it did not deduct indirect selling expenses that Cinsa incurred in Mexico on sales to its U.S. affiliate CIC. Commerce Response Brief, at 43. The Post-URAA statute does not contemplate deduction of indirect 17 selling expenses incurred in connection with the exporter’s sale to an affiliated customer in the  United States, and Commerce’s regulations codify the Department’s interpretation of the statute.

Id. at 45, 52.

Cinsa argues that Commerce correctly calculated CEP when it did not deduct indirect selling expenses and inventory carrying costs incurred in Mexico from CEP. Cinsa Response Brief, at 30. Cinsa reasons that Commerce’s final results are consistent with precedent, determinations and the preamble to Commerce’s final regulations. Id. at 31. CHP has not come forward with any evidence to support its allegations that Commerce’s interpretation of its obligations under the CEP statute is an unreasonable interpretation of the law. Id. at 32.

2. Analysis

Section 772(d) of the Act, 19 U.S.C. � 1677a(d), addresses adjustments to the constructed export price. According to section 772(d):

[T]he price used to establish constructed export price shall . . . be reduced by –

(1) the amount of any of the following expenses generally incurred by or for the account of the producer or exporter, or the affiliated seller in the United States, in selling the subject merchandise . . .

(A) commissions for selling the subject merchandise in the United States;

(B) expenses that result from, and bear a direct relationship to, the sale, such as credit expenses, guarantees and warranties;

(C) any selling expenses that the seller pays on behalf of the purchaser; and

(D) any selling expenses not deducted under subparagraph (A), (B), or (C) . . . .

At issue is whether Section 772(d)(1)(D) requires the Department to deduct not only those indirect selling expenses which the affiliated reseller incurs in selling the merchandise to the first unaffiliated party in the United States, but also any indirect selling expenses which the producer/exporter incurs in selling to the affiliated reseller. CHP claims that the statute requires the Department to make such deductions, and the Department rejects CHP’s interpretation. The task for the Panel is to determine whether the Department’s position is based on a permissible reading of the statute.

At the outset, the Panel rejects CHP’s contention that the plain language of Section 772(d) requires the Department to deduct the expenses. While it is true that the statute instructs the Department to deduct "any" of the enumerated expenses which are incurred "in selling the subject merchandise," the statute does not explicitly state, one way or the other, whether the sale being referred to is the sale from the producer/exporter to the affiliated reseller, the sale from the affiliated reseller to the unaffiliated purchaser in the United States, or both. Thus, because the statutory language is not clear, the Department’s interpretation is entitled to deference if it is based on a permissible reading of the statute.

As the Department notes, according to the SAA:

under new section 772(d), constructed export price will be calculated by reducing the price of the first sale to an unaffiliated customer in the United States by the amount of the following expenses (and profit) associated with economic activities in the United States: . . . (4) any ‘indirect selling expenses’ (defined as selling expenses not deducted under any of the first three categories of deductions) . . . .

SAA at 823 (emphasis added). In the view of the Department, the underscored language refers to the expenses incurred in the sale to the unaffiliated purchaser, not the sale to the affiliated reseller. In the opinion of the Panel, the Department’s interpretation is a reasonable one.

The Department’s interpretation is consistent with the purpose of the CEP provision. As the SAA explains in discussing the CEP profit deduction, the 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. In the EP context, if a producer incurs indirect selling expenses in selling to an unaffiliated importer in the United States, the expenses are not deducted from the export price. See 19 U.S.C. � 1677a(c)(2). Therefore, in the opinion of the Panel, CHP’s argument that the Department should deduct such expenses from CEP would result in a CEP which would not "correspond[] to an export price between non-affiliated parties." Moreover, as the Department notes in its brief, adopting CHP’s interpretation would upset the statutory balance between EP and NV by deducting expenses from CEP that are not deducted from the normal value. See Department Brief at 51.

In reaching this conclusion, the Panel rejects CHP’s contention that the legislative history supports the opposite result. As noted above, the SAA supports the Department’s construction of the statute. Under 19 U.S.C. � 3512(d), the SAA "shall be regarded as an authoritative expression by the United States concerning the interpretation and application of . . . this Act in any judicial proceeding in which a question arises concerning such interpretation or application." Moreover, the Senate Report language cited by CHP, viewed in context, states only that, "[a]s under current law, Commerce will make additional adjustments for constructed export price." S.Rep. 412, 103d Cong., 2d Sess. 64 (1994). It does not address the issue at hand. In addition, CHP ignores additional language in the Senate Report which instructs Commerce to deduct expenses and profit "associated with selling the merchandise in the United States . . . ." S. Rep. 412, 103d Cong., 2d Sess. 64 (1994) (emphasis added). To the extent that the House Report 20 suggests an alternative interpretation (which is debatable), the House Report must cede to the SAA.

Finally, the Panel rejects CHP’s reliance on Mitsubishi. See CHP Reply Brief at 28, citing Mitsubishi Heavy Indus., Ltd. v. United States, 32 Cust. B. & Dec., No. 31, at 58 (1998)⁸. The Department agrees in its brief that the country in which the expenses are incurred is not determinative of whether they may be deducted from CEP. The issue, rather, is whether they are "associated with economic activities in the United States." See Department Brief at 51 n.35. The excerpt from Mitsubishi which CHP cites is fully consistent with the Department’s position.

For all of the foregoing reasons, the Panel concludes that the Department’s decision not to deduct from CEP the indirect selling expenses that Cinsa incurred in Mexico was supported by substantial evidence and is otherwise in accordance with law.

4. Decision Not To Include Certain Indirect Selling Expenses in Total U.S. Expenses for CEP Profit Calculation Not To Include Certain Indirect Selling Expenses in Total U.S. Expenses for CEP Profit Calculation

   The fourth issue that the Panel must address is whether the Department’s decision not to include certain indirect selling expenses in the pool of U.S. expenses for the CEP profit calculation was reasonable and otherwise in accordance with law. For the reasons that follow, the Panel affirms the Department’s determination.

1. Factual Background

CHP asserts that Commerce erroneously failed to deduct foreign indirect selling expenses and foreign inventory carrying costs incurred in Mexico on sales to the United States in calculating CEP for Cinsa and ENASA. CHP Brief, at 57. CHP claims that Commerce also erred when it failed to include those expenses in "total United States expenses" when calculating CEP profit. Id. CHP alleges that Commerce’s failure to include indirect selling expenses and inventory carrying costs incurred in Mexico on U.S. sales in "total U.S. selling expenses" for purposes of calculating CEP profit was not in accordance with law. CHP Reply Brief, at 32. CHP requests that the Panel remand the issue to Commerce to recalculate the dumping margins for Cinsa and ENASA after including indirect selling expenses and inventory carrying costs incurred in Mexico in "total U.S. expenses." Id. at 33.

Commerce contends that in calculating CEP profit, it properly did not include the Mexican indirect selling expenses that Cinsa incurred on sales to its affiliate in "total United States expenses." Commerce Response Brief, at 54. Commerce properly focused on the amount of profit associated with the CEP sales made by CIC to its unaffiliated U.S. customers. Id. CEP adjustments are designed to construct the arm’s length equivalent of a sale from the exporter to the U.S. affiliate by backing out expenses and profit associated with the downstream sale by the affiliate to the first unaffiliated customer. Id. Thus, there is no reason to include in this calculation expenses associated with the upstream sale by Cinsa. Id.

Cinsa argues in its Response Brief that in calculating CEP profit, Commerce correctly excluded indirect selling expenses and inventory carrying costs incurred in Mexico on sales to the United States. Cinsa Response Brief, at 33. Furthermore, Cinsa asserts that such calculation is in accordance with Commerce’s practice. Id.

2. Analysis

Section 772(d)(3) of the Act, 19 U.S.C. � 1677a(d)(3), requires the Department to reduce the CEP "starting price" by an amount for "the profit allocated to the expenses described in paragraphs (1) and (2)" of subsection (d). The SAA further instructs the Department, "in determining the constructed export price, to identify and deduct from the starting price in the 22 U.S. market an amount for profit allocable to selling, distribution and further manufacturing activities in the United States. The profit to be deducted from the starting price... is that proportion of the total profit equal to the proportion which the U.S. manufacturing and selling expenses constitute of the total manufacturing and selling expenses." SAA at 824.

CHP argues that the Department erred by refusing to include the indirect selling expenses that Cinsa incurred in Mexico on its sales to CIC in the pool of "total United States expenses" used for the CEP profit calculation. See CHP Brief at 57-58. As is evident from both CHP’s and the Department’s briefs, the resolution of this issue turns on whether 19 U.S.C. � 1677a(d)(1) required the Department to deduct the expenses from CEP. In the preceding section of this opinion, the Panel affirmed the Department’s refusal to make these deductions. Therefore, the Panel also affirms the Department’s decision not to include the expenses in calculating the CEP profit deduction.

5. Use of Global Ratio in Calculating Yamaka Expenses

The fifth issue that the Panel must address is whether to grant the Department’s request for a remand to utilize the indirect selling expense ratio submitted by Yamaka China ("Yamaka") in determining Yamaka’s indirect selling expenses. For the reasons that follow, the Panel remands the issue to the Department to determine whether its action was in fact a ministerial error and, if so, to correct the error.

1. Factual Background

CHP argues that Commerce failed to deduct the correct amount of indirect expenses in its calculation of CEP for ENASA and used the incorrect ratio to calculate U.S. indirect selling expenses for ENASA’s CEP sales because it used the indirect selling expense ratio submitted for 23 Global, instead of Yamaka. CHP Brief, at 58. Accordingly, Commerce’s calculation of indirect selling expenses for CEP sales is unsupported by substantial evidence in the agency record and is otherwise not in accordance with law. Id.

Cinsa argues that Commerce correctly calculated indirect selling expenses deducted from CEP. Cinsa Response Brief, at 34. Cinsa indicates that CHP’s alleged ministerial errors were beyond the scope of the statute provision for correction for "clerical errors in that Commerce’s calculation methodology was consistent with its intended results." Id. The calculation proposed by CHP, Cinsa claims, results in a gross over-statement of indirect selling expenses and should not be used by Commerce. Id. at 35.

Commerce concedes that it inadvertently utilized an indirect selling expense ratio corresponding to another U.S. affiliate, Global Imports, Inc., in calculating Yamaka’s indirect selling expense ratio. Commerce Response Brief, at 56. Commerce requests a remand to correct the inadvertent substitution of data in the calculation of Yamaka’s indirect selling expenses. Id. In light of its concession, CHP supports Commerce’s request for a remand to correct the inadvertent substitution of Global’s data in the calculation of Yamaka’s indirect selling expenses. CHP Reply Brief, at 33.

2. Analysis

Section 353.28 of the Department’s regulations, 19 C.F.R. � 353.28, addresses the correction of ministerial errors. Pursuant to section 353.28(c), if the Department receives a timely ministerial error allegation, it "will analyze any comments received and, if appropriate, correct any ministerial errors by amending the final antidumping determination or final results of administrative review...".

During the administrative review, GHC filed a timely request for correction of ministerial errors. See CHP Brief at 59 n.7; Cinsa Response Brief at 34. Cinsa then filed a letter responding to GHC’s request which argued that GHC’s allegation was without merit. See Cinsa Response Brief at 34, citing Prop. Doc. #39. The Department never responded to GHC’s letter. CHP Brief at 59 n.7. Moreover, it never responded to Cinsa’s letter.

Before this Panel, counsel for the Department has asserted that the Department did in fact make a ministerial error and has requested a remand to implement the change urged by CHP. Department Brief at 56. As noted above, however, the Department itself failed to address the issue during the proceeding. Therefore, the Panel remands the issue to the Department to (1) determine, after addressing both GHC’s ministerial error letter and Cinsa’s submission opposing GHC’s letter, whether it did in fact make a ministerial error; (2) if it did, to correct the error; and (3) in making any correction, to consider comments from the parties on the proper calculation ⁹, specifically address those comments in its remand determination, and explain the basis for the correction in detail.

6. Use of Weight-Based Freight Expense Allocation Methodology

The sixth issue that the Panel must address is whether the Department’s decision to accept Cinsa and ENASA’s allocation methodology for freight expenses was reasonable and otherwise in accordance with law. For the reasons that follow, the Panel affirms the Department’s determination.

1. Factual Background

CHP asserts that Commerce erred in granting Cinsa/ENASA’s claim for a freight expense adjustment to normal value. CHP Brief, at 36. CHP argues that Commerce erroneously allowed both companies to make deductions from normal value for freight expenses incurred on home market sales of subject merchandise. Id. The record demonstrates that Cinsa and ENASA failed to establish that their methodology for allocating freight expenses was not distortive of the actual, transaction-specific freight expense for sales of the subject merchandise. Id. at 37. Additionally, the companies failed to demonstrate that their weight-based freight expense allocation methodology accounted for the distance shipped. Id. at 38. Finally, Cinsa/ENASA failed to demonstrate that the inclusion of out-of-scope merchandise in the home market inland freight calculation is non-distortive. Id. at 39. CHP argues that Commerce should have denied Cinsa/ENASA’s claim for a home market inland freight adjustment. Id. at 40. CHP concludes, therefore, that Commerce’s determination to accept Cinsa’s and ENASA’s home market freight expenses is unsupported by substantial evidence in the agency record and is otherwise not in accordance with law. CHP Brief, at 40; CHP Reply Brief, at 36.

Commerce contends that its determination to accept Cinsa and ENASA’s weight-based allocation of home market freight expense was reasonable, supported by substantial evidence on the record, and is otherwise in accordance with law. Commerce Response Brief, at 56. Commerce explains that the allocation of freight costs on home market sales between Cinsa and ENASA merchandise was reasonable and non-distortive. Id. at 58. Furthermore, Commerce argues that Cinsa’s allocation of freight costs on home market sales between subject and non-subject merchandise was reasonable and non-distortive. Id. at 60. Finally, Commerce contends that the submitted freight cost allocations reasonably reflected the actual shipping distances. Id. at 65.

Cinsa argues that Commerce properly deducted reported freight costs in the calculation of normal value. Cinsa Response Brief, at 21. Commerce has expressly acknowledged that claimed adjustments to normal value including adjustments for movement expenses may be based on reasonable allocation methodologies if the submission of transaction-specific data is not feasible. Id. Commerce’s established practice accepts freight expenses calculated based on average freight costs. Id. at 22. Moreover, the inclusion of non-subject merchandise in the freight allocation methodology was not distortive because the freight rate applied to all products was constant. Id. at 24. Commerce therefore claims that its determination was not contrary to law.

2. Analysis

The essence of CHP’s challenge on this issue is that Cinsa and ENASA failed to demonstrate that their freight expense allocation methodology was non-distortive. Cinsa used a weight-based allocation methodology to apportion the freight cost. This type of allocation has been long accepted by the United States courts. Brother Industries, Ltd. v. United States, 540 F.Supp. 1341, 1363 (CIT 1982); Daido v. United States, 893 F.Supp. 43, 47 (CIT 1995). Where a company pays freight or packing charges quarterly or monthly, such charges must be allocated to individual sales. See id. Where a charge is spread across sales of more than one unit, it must be allocated to individual sales or a per-unit price that will not reflect the charges. Id.

When a transaction-specific calculation is not possible, a reasonable allocation is permitted. Such an allocation may be "representative" of the costs incurred. See Certain Circular Welded Carbon Steel Pipes and Tubes from Thailand: Final Results of Antidumping 27 Duty Administrative Review, 61 Fed. Reg. 1328, 1333 (January 19, 1996); Antifriction Bearing: Final Results of Antidumping Duty Administrative Reviews, 63 Fed. Reg. 33320, 33340 (June 18, 1998). The allocation does not have to correlate to specific merchandise, as CHP suggests, just as long as the allocation represents the costs incurred. Moreover, the preamble to the new regulations states that "the Department will normally accept an allocation method that calculates expenses or price adjustments on the same basis as expenses were incurred or the price adjustments were granted". 62 Fed Reg. at 27347 (May 19, 1997). Further, Commerce’s regulations expressly provide that Commerce shall not reject an allocation methodology solely because it includes expenses incurred with respect to merchandise not subject to an antidumping duty order. See Section 351.401(g)(4).

Here, the trucking firm charged the same rate for delivery to various destinations of all items on the truck because it operated in a specific area, and differences in freight rates within the "Monterrey Region" are limited because the differences in the distance shipped were minor. See Department Brief at 67. Thus, even if Cinsa’s melamine customers within the Monterrey region are indeed located further from the warehouse than its cookware customers, the cost of freight would remain necessarily the same. Accordingly, the weight-based allocation was not distortive since distance was not measured in determining the cost of the shipping.

In Daido v. United States, 893 F.Supp. 43, 47 n.3 (CIT 1995), the Court affirmed Commerce’s decision to divide the total inland freight expenses incurred during the fiscal year by total weight shipped. Since such weight-based allocations have been well recognized by Commerce and by the U.S. courts, as a means of determining the cost of shipping when no specific transactions can be measured, the weight-based allocation is acceptable and may be 28 used. Thus, the Panel affirms Commerce’s decision to apply the weight-based allocation method in determining the freight cost.

Continuation:  G.Treatment of Freight Expense on Returned Items