7. Treatment of Freight Expense on Returned Items

The seventh issue that the Panel must address is whether the Department’s treatment of freight expenses on returned items 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 its calculation of U.S. inland freight for CEP sales made by ENASA by failing to include both "outbound" freight expenses and "return" freight expenses in the U.S. inland freight adjustment for ENASA. CHP Brief, at 60. The "return" freight expense, CHP asserts, should have been allocated across the total sales made under the contract. Id. at 62. However, CHP argues that in the margin calculation for ENASA, Commerce failed to deduct the full amount of return freight expenses from ENASA’s CEP in its final results. Id. As a result, CHP reasons that Commerce’s final results understate the amount of "outbound" freight expense incurred with respect to ENASA’s U.S. sales. Id. at 60. Finally, CHP indicates the proper methodology to properly calculate all U.S. inland freight expenses associated with the sale and the sale and return of subject merchandise. Id. at 63. CHP maintains that because Commerce’s calculation was arithmetically faulty and improperly included the weight of returned merchandise in the allocation base, the calculation understated the per-unit freight expense to be allocated to the sale for which margins were calculated. CHP Reply Brief, at 44-45. Therefore, Commerce’s calculation of U.S. freight expenses for Yamaka is not in accordance with law. Id. at 42.

Commerce takes the position that its treatment of freight expenses on returned items was reasonable, supported by substantial evidence on the record, and otherwise in accordance with law. Commerce Response Brief, at 68. Commerce specifically alleges that it reasonably considered sales of ultimately repurchased items as bona fide sales for which it calculated antidumping margins. Id. at 70. In addition, Commerce argues that it properly allocated "outbound" freight costs over all sales made pursuant to the promotion contract. Id. at 73. Finally, Commerce asserts that it properly allocated "return" freight costs over all sales made pursuant to the promotion contract. Id. at 75.

Cinsa argues that Commerce’s calculation of the freight expenses associated with Yamaka sales is supported by substantial evidence. Cinsa Response Brief, at 35. Specifically, Cinsa argues that Commerce’s final determination that the expenses associated with products returned to Yamaka should be treated as selling expenses and allocated to the cost of the return freight across total sales to Yamaka pursuant to the sales contract was a reasonable determination and should be upheld by the Panel. Id. at 37.

2. Analysis

CHP’s first challenge is to the methodology that the Department used in allocating the "outbound" freight expenses that Yamaka incurred in shipping the subject merchandise to its customers. According to CHP, the Department should have reallocated the expenses over the weight of the merchandise that was "actually sold" or, in other words, the merchandise that was not returned. See CHP Brief at 60. The Panel agrees with the Department that CHP’s approach would lead to an overstatement of the outbound freight expenses and that the Department’s methodology was reasonable.

As the Department notes in its brief, see Department Brief at 70-71, the statute instructs Commerce to establish an antidumping margin for "each entry" of merchandise subject to an administrative review. 19 U.S.C. � 1675(a)(2)(A). In the case at bar, the Department determined that all of the sales under the Yamaka promotional contract – whether ultimately returned or not – were properly included within the administrative review. As a result, it calculated antidumping margins for all such sales. CHP did not object to the Department’s action during the administrative review.

Yamaka incurred outbound shipment expenses for all of the sales, and the Department therefore allocated the total shipment expenses over all of the sales. Nothing in CHP’s arguments convinces the Panel that the Department’s approach was unreasonable or not in accordance with law. In particular, CHP’s argument that Commerce should have deducted the repurchased merchandise from its dumping analysis comes too late. See CHP Reply Brief at 43- 44.

Similarly, the Panel affirms the Department’s methodology for allocating Yamaka’s "return" freight costs. As the Department notes, 19 U.S.C. � 1677a(c)(2)(A) applies, by its plain terms, to expenses incurred in bringing the subject merchandise "from the original place of shipment . . . to the place of delivery in the United States." It does not apply to "return" freight costs. Therefore, the Department treated the expenses as direct selling expenses (because they were incurred as a direct consequence of the promotional contract), and deducted them from U.S. price under 19 U.S.C. � 1677a(d)(1)(B). Moreover, because Yamaka’s agreement to repurchase unsold merchandise was a condition of sale for all of the items sold under the contract, the Department allocated the return freight expenses over all sales.

HP’s argument that the Department is "denying" that the merchandise was returned and that expenses incurred in the returns should be deducted from the U.S. price is flatly contradicted by the fact that the Department did, in fact, deduct the expenses from U.S. price. See CHP Reply Brief at 43; 62 Fed. Reg. at 42501-02. For the Department to allocate the expenses only over merchandise that was not repurchased, see CHP Reply Brief at 44-45, would simply overstate the antidumping margin. The Department’s methodology was reasonable and otherwise in accordance with law.

8. Treatment of Enamel Frit Cost

The eighth issue that the Panel must address is whether the Department’s calculation of the cost of enamel frit used in the manufacture of subject merchandise was reasonable and otherwise in accordance with law. For the reasons that follow, the Panel affirms the Department’s determination.

1. Factual Background

CHP contends that Commerce erred in its calculation of Cinsa’s cost of enamel frit used in the manufacture of the subject merchandise. CHP Brief, at 41. Cinsa obtained 100 percent of its enamel frit from an affiliated supplier, ESVIMEX, S.A. de C.V. Id. Cinsa claims that the reported transfer prices paid for the enamel frit were a valid basis for determining its cost and Commerce should have adjusted Cinsa’s costs upward to account for the difference between the alleged cost savings and the average market prices paid by ESVIMEX’s unaffiliated customers. Id. According to CHP, Commerce erred in accepting non-price evidence of the arm’s-length nature of ESVIMEX’s sales of enamel frit and failed to base Cinsa’s cost of frit on frit’s market 32 value. Id. at 44. In the alternative, CHP argues that Commerce failed to adjust Cinsa’s cost to reflect the entire difference between Cinsa’s transfer prices and market value. Id. at 48.

CHP argues that Commerce’s final results increased the relevant costs by only a fraction of the entire difference between the reported costs and market value, thereby failing to adjust the costs in the manner originally intended by Commerce. CHP Reply Brief, at 49. Commerce’s determination to adjust and not reject Cinsa’s and ENASA’s reported frit costs was contrary to the statute and inconsistent with its long-standing practice. Id. at 45. Commerce’s decision to adjust Cinsa’s reported cost of frit rather than base such costs on the record, as evidence of market prices for identical frit, was contrary to law. Id. In the alternative, if Commerce’s etermination to adjust Cinsa’s reported costs was in accordance with law, CHP argues that a remand is necessary to recalculate the adjustment to Cinsa’s reported cost of materials. CHP Reply Brief, at 51.

Cinsa argues that Commerce’s adjustment to Cinsa’s and ENASA’s reported enamel frit costs was not supported by substantial evidence in the administrative record. Cinsa Brief, at 5. Specifically, Cinsa argues that Commerce’s analysis of whether ESVIMEX’s prices to Cinsa and ENASA were at arm’s-length improperly focused on the apparent price differential between sales to affiliated and unaffiliated customers. Id. at 10. Cinsa claims that Commerce failed to take into account prompt payment and volume discounts in determining whether ESVIMEX’s prices to Cinsa and ENASA were made at arm’s-length. Id. at 14. Cinsa notes, however, that Commerce was correct in its determination to accept any evidence that ESVIMEX’s transfer prices reflected market value. Cinsa Response Brief, at 27.

Cinsa and ENASA submit that it was appropriate for Commerce to conform its decision in the ninth administrative review to the finding of the court in the fourth administrative review 33 and that Commerce’s final results are fully consistent with the statute. Id. at 28. Additionally, Cinsa argues that Commerce’s methodology is correct and that CHP’s proposed methodology would be incorrect. Id. at 29. Finally, Cinsa argues that the Panel is not entitled to reject an agency determination merely because it would have arrived at a different determination had it been reviewing the record for the first time, and as a result, Commerce’s determination should stand. Id. at 29-30.

In its Reply Brief, at 3, Cinsa argues that Commerce’s adjustment of Cinsa’s and ENASA’s reported raw material costs for purposes of calculating cost of production and constructed value was not supported by substantial evidence because it failed to take into account various provisions of the joint venture contract which established that affiliated pricing was made at arm’s length. Id. Commerce’s failure to take the prompt payment discount into account in its pricing analysis was not supported by substantial evidence in the agency record, Cinsa claims. Id. In the alternative, Cinsa argues that if the Panel affirms the methodology of Commerce’s arm’s-length analysis, the administrative record supports Cinsa’s and ENASA’s assertion that any price differential not directly attributable to verified cost savings is attributable to a volume discount. Id. at 12. Therefore, Commerce should not be permitted to correct alleged ministerial errors not raised by parties. Id. at 14.

Commerce asserts that its determination to take into account quantified and verified market-based savings, but not a claimed volume discount on enamel frit obtained from an affiliated supplier was reasonable, supported by substantial evidence on the record and otherwise in accordance with law. Commerce Response Brief, at 77. According to Commerce, it reasonably adjusted the frit portion of total materials costs to reflect quantified and verified market-based savings on frit purchased from ESVIMEX. Id. at 80. Commerce asserts that it 34 reasonably considered evidence other than ESVIMEX’s prices to unaffiliated customers in determining to what extent ESVIMEX’s transfer prices to affiliated customers reflected the market value. Id. Commerce claims its determination to adjust frit costs to reflect verified market-based savings was supported by substantial evidence on the administrative record. Id. at 84.

In addition, Commerce asserts that it properly declined to treat transfer prices from ESVIMEX as "market prices" when Cinsa and ENASA failed to support their claims that the full difference between the transfer prices and ESVIMEX’s prices to unaffiliated parties was market-driven. Commerce Response Brief, at 85. Commerce also claims it properly determined that ESVIMEX’s joint venture arrangements did not ensure that transfer prices were arm’s length prices. Id. at 86. Commerce claims it reasonably did not presume the general use of prompt payment discounts and volume discounts in making its frit adjustments to material costs. Id. at 88-91. However, Commerce acknowledges that due to a clerical error, the full difference between the reported frit value and the equivalent of a market-based price to ESVIMEX’s affiliates was not included in the frit expense adjustments to material costs. Id. at 93.

2. Analysis

The first issue that the Panel must address is CHP’s contention that the Department’s decision to accept non-price evidence of the arm’s-length nature of the frit sales was erroneous. See CHP Brief at 44. Under Section 773(f)(2) of the Act, 19 U.S.C. � 1677b(f)(2):

A transaction directly or indirectly between affiliated persons may be disregarded if, in the case of any element of value required to be considered, the amount representing that element does not fairly reflect the amount usually reflected in sales of merchandise under consideration in the market under consideration. If a transaction is disregarded under the preceding sentence, and no other transactions are available for consideration, the determination of the amount shall be based on the information available as to what 35 the amount would have been if the transaction had occurred between persons who are not affiliated.

As is clear from the foregoing citation, the statute does not instruct the Department on how to determine the market value of inputs purchased from affiliates. Moreover, the CIT has specifically addressed this issue in the context of an earlier POS Cookware administrative review and concluded that third-party sales information is not the only means of determining whether transfer prices are at arm’s length. See Cinsa, S.A. de C.V. v. United States, 966 F. Supp. 1230, 1237 (Apr. 4, 1997). Therefore, the Panel rejects CHP’s argument that it was unlawful for Commerce to rely upon non-price evidence in ascertaining the market value of the inputs in question.

Second, the Panel concludes that the Department’s decision to adjust the frit costs to reflect the market-based savings associated with ESVIMEX’s sales to its affiliates is supported by substantial evidence on the record. The Department explained in the Final Results that it examined respondent’s claimed costs during verification and concluded that it would be appropriate to accept all of the cost savings that were supported by documentation. See Final Results, 62 Fed. Reg. at 42506. While CHP alleges that the Department should not have relied on non-price evidence, it has not contested the accuracy of the evidence itself. Given that Commerce verified the accuracy of the information, the Panel affirms the Department’s decision to perform the adjustment.

Finally, the Panel rejects the Department’s request for a remand to correct an alleged "ministerial error" in the Final Results. Although 19 U.S.C. � 1675(h) authorizes the Department to correct ministerial errors in its final determinations, no party – including the Department – noted this alleged error within the time limits provided in the Department’s 36 regulations. See 19 C.F.R. � 353.28. Accordingly, the Department’s determination is final and cannot be disturbed.

9. Treatment of Saltillo Pre-Sale Warehouse Expenses

The final issue that the Panel must address is whether the Department’s refusal to deduct from normal value pre-sale warehouse expenses incurred at the Saltillo facility was reasonable and otherwise in accordance with law. For the reasons that follow, the Panel affirms the Department’s determination.

1. Factual Background

Cinsa argues that, contrary to law, Commerce failed to deduct pre-sale warehouse

expenses incurred at its Saltillo plant from normal value. Cinsa Brief, at 18. Specifically, Cinsa alleges that Commerce’s decision to classify Cinsa’s and ENASA’s reported pre-sale warehouse expenses incurred at the warehouse located adjacent to Cinsa’s production facility in Saltillo as direct selling expenses rather than movement expenses was contrary to law. Id. at 21. Cinsa argues that all warehousing expenses attributable to the Saltillo warehouse, whether incurred at a warehouse adjacent to the plant or at a warehouse remote from the place of production, must be included in the statutory deduction for movement expenses. Id. at 25. Therefore, Commerce’s failure to deduct pre-sale warehousing expenses incurred at the Saltillo plant from normal value is contrary to law. Cinsa Reply Brief, at 16. Congress intended a contrary treatment to such expenses, and the Panel should not defer to Commerce’s unreasonable, unjustifiable, and internally inconsistent interpretation. Id. at 16, 22.

Commerce contends that its determination to treat pre-sale warehouse expenses at the Saltillo facility as indirect selling expenses and not deduct such expenses from normal value was reasonable, supported by substantial evidence on the administrative record, and otherwise in accordance with law. Commerce Response Brief, at 95. Commerce contends that these expenses were not associated with the movement process. Id. Furthermore, Commerce contends that the statute, its legislative history, and implementing regulations support Commerce’s decision not to classify the Saltillo plant warehouse expenses as movement expenses. Id. at 97. Commerce contends that the distinction it created between factory and remote warehousing is not artificial. Id. at 99. Finally, Commerce argues that its practice of treating pre-sale factory warehousing as an indirect expense leads to a fair comparison between U.S. price and normal value. Id.

2. Analysis

According to 19 U.S.C. � 1677b(a)(6)(B)(ii), the Department is required to reduce the normal value by:

the amount, if any, included in the price . . . attributable to any additional costs, charges, and expenses incident to bringing the foreign like product from the original place of shipment to the place of delivery to the purchaser . . . .

According to Cinsa, the statute requires the Department to deduct from normal value "any"movement expenses which Cinsa incurs on its home market sales. Cinsa Brief at 21. Cinsa further argues that it is clear from the SAA that warehousing expenses are properly categorized as movement expenses. Id. at 22. Therefore, according to Cinsa, the intent of Congress is clear, and a remand is necessary for the Department to deduct Cinsa’s presale warehousing expenses from normal value. The Department disputes Cinsa’s contentions at length.¹⁰

Notwithstanding the length and amount of detail contained in the parties’ arguments, the critical question in this issue is a simple one: Is the Department’s interpretation of the phrase "original place of shipment" as referring to the plant gate a permissible one? The Panel concludes that it is. As the Department notes in its brief, the purpose of the adjustments to export price and normal value is to permit an ex-factory comparison. See SAA at 827 (explaining that deducting movement charges from export price and normal value "reflects Article 2.4 of the Antidumping Agreement, which requires that prices normally be compared at the ex-factory level"). For this reason, the Department deducts from the normal value, and the export price, all movement charges – including warehousing expenses – which a party incurs once the merchandise is shipped from the factory. In the view of the Panel, the purpose of the statute is achieved whether the Department treats the "original place of shipment" as the end of the production line, the plant gate, or some other intermediate point, provided that the deductions are symmetrical. Nothing in Cinsa’s argument has convinced the Panel that Commerce’s approach fails to accord with the statute.

Therefore, the Panel affirms the Department’s decision to treat the Saltillo warehousingexpenses as indirect selling expenses, rather than movement expenses, and not to deduct them from normal value.

V. CONCLUSION AND PANEL ORDER.

For the reason stated above, the Panel hereby takes the following actions:

1. ffirms the decision of the Department of Commerce in all respects, except that, it remands to the Department the use of the global ratio in calculating Yamaka’s indirect selling expense to determine whether its calculation was in fact a clerical 39 error and, if so, to correct the error and explain the basis for the correction in detail, specifically addressing comments on the proper calculation; and
2. That the Department will return a determination on remand no later than June 4, 1999.

Date of Issuance: April 30, 1999

Signed:

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