IN THE MATTER OF:

Porcelain-on-steel cookware from Mexico
(Continued)

2. Profit-Sharing

Mexican law directs Cinsa to distribute ten percent of its taxable income to its employees at the close of any fiscal year during which the Company has earned a profit through its operations. Cinsa recorded profits during the two fiscal periods subject to the Department’s review. Cinsa did not include profit-sharing payments as part of its reported labor costs for COP or CV. In the fifth administrative review, however, Commerce adjusted Cinsa’s COP and CV to include mandatory profit-sharing payments to its employees. 60 Fed. Reg. at 2378.

Cinsa argues that such payments should not be included as labor costs in COP or CV because they are profit-based distributions unrelated to the manufacture of the products at issue. The Department defends its methodology as a reasonable exercise of agency discretion, maintaining that the payments made to employees are analogous to wages or other compensation to labor.

The antidumping statute offers no explicit guidance about whether profit-sharing expenses should be added to COP or CV. See 19 U.S.C.A. § 1677b(b)(3) (1994 & Supp. 1996); 19 U.S.C.A. § 1677b(e) (1994 & Supp. 1996). Moreover, the Department’s regulations, although specifically excluding "profit" from COP, do not address the treatment of mandatory profit-sharing payments. See 19 C.F.R. § 353.51© (including in COP "the cost of materials, fabrication, and general expenses, but excluding profit, incurred in producing such or similar merchandise"). Given the absence of legislative or regulatory guidance, the Panel agrees with the Department that its choice of methodology regarding profit-sharing payments is entitled to substantial deference. See Koyo Seiko Co. v. United States, 36 F.3d 1565, 1570 (Fed. Cir. 1994). The assignment of profit-sharing expenses to COP and CV calculations is consistent with the Department’s administrative practice. See Oil Country Tubular Goods from Austria, 60 Fed. Reg. 33,551, 33,557 (1995). See also Certain Corrosion Resistant Carbon Steel Flat Products and Certain Cut-to-Length Carbon Steel Plate from Mexico, 58 Fed. Reg. 37,192, 37,193 (1993); Certain Hot-Rolled Carbon Steel Flat Products, Certain Cold-Rolled Carbon Steel Flat Products, Certain Corrosion Resistant Carbon Steel Flat Products, and Certain Cut-to-Length Steel Plate from Canada, 58 Fed. Reg. 37,099, 37,113 (1993); Certain Hot-Rolled Lead and Bismuth Carbon Steel Products from Germany, 57 Fed. Reg. 44,551, 44,553 (1992). However, no court has addressed the reasonableness of the Department’s methodology. In determining COP and CV, Commerce does not include, as a general principle, "income or expenses that are unrelated to the product’s manufacture." Television Receivers, Monochrome and Color, from Japan, 56 Fed. Reg. 56,189, 56,192 (1991). Thus, the issue is whether mandatory profit-sharing payments are expenses related to the production of Cinsa’s products.

The parties dispute the critical attributes of a company’s cost of production. Commerce argues that the appropriate focus of inquiry is the recipient of corporate payments. Because, in the case of Cinsa, employees receive these payments, they are properly categorized as a cost of labor and, thus, an appropriate component of COP and CV. Cinsa, by contrast, asks this Panel to consider only the process for determining the amount of profit-sharing due to employees. Cinsa argues that, like income taxes and dividend payments, profit-sharing is an income-based expense derived solely from the amount of profit a company enjoys in a given fiscal year and is independent of the costs of production or labor.

In fact, profit-sharing payments are hybrid transfers of value, bearing certain similarities to wages and transfers such as interest expenses on one hand and to income taxes and dividend payments on the other. Wages and interest payments constitute part of COP and CV. Income taxes and dividend distributions do not. See Oil Country Tubular Goods from Austria, 60 Fed. Reg. at 33,557; High Information Content Flat Panel Displays and Display Glass Therefor from Japan, 56 Fed. Reg. 32,376, 32,392 (1991); Timken Co. v. United States, 852 F. Supp. 1040, 1049 (Ct. Int’l Trade 1994). The Panel must determine which type of payment exhibits the closest resemblance to the profit-sharing payments at issue. Cinsa argues that profit-sharing payments are not a labor cost because they are not tied to hours worked or units produced and are, thus, unrelated to production of the subject merchandise. But, as the Department has observed, other forms of employee compensation included in COP and CV, such as group health insurance, payroll taxes, and company-paid life insurance, are tied neither to hours worked nor to the amount produced.

Cinsa also argues that profit-sharing payments are more like dividends than wages. Given the risk that employees assume in any profit-sharing plan, this is not an unreasonable argument. Given imperfect information, workers who accept reduced wages in exchange for profit-sharing payments risk discovering at year-end that the return on their "investment" of labor will not meet their expectations.

Profit-sharing payments are distinct from dividends in several key respects, however. First, as suggested, profit-sharing payments represent a legal obligation of the firm, contingent only upon whether the firm posts a profit for the fiscal year. Second, and most important, the right to participate in profit-sharing conveys no ownership rights in the company. Profit-sharing is a payment to a productive factor in the production process, not a payment of profit to the owners of the firm. ³ Moreover, accounting principles distinguish between profit-sharing payments and dividends. Like income taxes, profit-sharing payments appear as an expense featured on the income statement. By contrast, dividends affect only the equity side of the balance sheet and do not originate on the income statement. Oil Country Tubular Goods from Austria, 60 Fed. Reg. at 33,557. On the balance sheet, profit is the value remaining after reductions to income, including profit-sharing and income taxes. Dividends are true distributions of profits paid to the owners of the company, and "profit" is explicitly excluded from COP calculations under 19 C.F.R. § 353.51©. Thus, the Department’s disparate treatment of profit-sharing and dividends accords with fundamental accounting principles.

The argument on which Cinsa places greatest reliance is that profit-sharing payments are analogous to income taxes and, therefore, like income taxes, should be excluded from COP and CV. In explaining why income taxes are not included in COP or CV, the Department has consistently cited the fact that income taxes are based on the level of income that a corporation realizes. E.g., High Information Content Flat Panel Displays and Display Glass Therefor from Japan, 56 Fed. Reg. at 32,392 ("Department does not consider income taxes based on the aggregate profit/loss of the corporation to be a cost of producing the product."); Color Picture Tubes from Japan, 55 Fed. Reg. 37,915, 37,925 (1990); Television Receivers, Monochrome and Color, from Japan, 54 Fed. Reg. 13,917, 13,928 (1989). Cinsa notes correctly, however, that this does not distinguish income taxes from profit-sharing because both constitute mandatory payments that are tied to a firm’s fiscal results. ⁴ Profit-sharing payments are unlike income taxes in two critically important ways, however. First, profit-sharing payments are paid to labor. Thus, unlike income taxes paid to the government, profit-sharing payments flow directly to a factor of production. Second, because workers receive these payments, the firm may use the expected, risk-discounted value of future profit-sharing payments to maintain its worker compensation at the market-clearing level, thus avoiding any increase in its cost of capital.

It is reasonable to assume that, rather than seeing its cost of capital and, ultimately, its marginal costs rise, a rational firm will attempt to keep its employee compensation levels at the market-clearing level, and will attempt to pass the cost of profit-sharing on to those workers who benefit from it—rather than to shareholders.

The firm and its workers will negotiate wage contracts in light of the firm’s legal obligation to make profit-sharing payments. The firm’s projected profits for the coming period, as well as the chance that such profits will be greater or less than actual profits, should play a role in determining the fixed wage.

In short, despite similarity in the methods for calculating profit-sharing payments and income taxes, these two obligations differ fundamentally. Profit-sharing is paid to labor, a factor of production. Income taxes are paid to the government, which is not a factor in the production process. Although both income taxes and profit-sharing payments are mandatory and based upon the firm’s year-end results, their basic purpose and effect are sufficiently dissimilar to make the Department’s disparate treatment of them in its COP and CV methodology a reasonable administrative action.

There is one difficulty with the preceding analysis that must be acknowledged. Firms and workers should consider only the expected value of profit-sharing payments, discounted for risk, in determining fixed wages. Commerce, however, bases its COP calculations on actual profit-sharing payments.

In any given year, a firm’s actual profit-sharing payments almost certainly will differ from the expected amount that was considered in setting fixed wages and prices. Nevertheless, because Cinsa has not challenged Commerce’s action on this basis, and because the Department’s use of actual profit-sharing payments does not strike us as prima facie unreasonable, the Panel upholds Commerce’s methodology. Cinsa also argues that Commerce counted profit-sharing payments twice by including them in the CV calculations. This argument adds nothing to Cinsa’s other contentions. The Panel has determined that profit-sharing payments are not part of the firm’s profit, as that term is understood according to general accounting principles. The "profit" included in CV represents the amount that remains after reductions to income, such as those taken for profit-sharing and income taxes. Thus, the Department’s decision to include profit-sharing payments and an amount for profit in CV did not result in double counting. ⁵ The Panel finds that Commerce made a reasonable determination to characterize profit-sharing as a cost of labor and to include it in COP and CV in the fifth administrative review.

3. Cap Upon Interest Income Offset at the Amount of Interest Expense

During the period of review Commerce, according to established policy, calculated Cinsa’s financial expenses for addition to COP and CV by referring to the financial expenses of Cinsa’s parent company, Grupo Industrial Saltillo, S.A. de C.V. ("GIS"). GIS’s short-term interest income exceeded its interest expense, resulting in net financial income for the company. However, in its COP and CV calculations, Commerce entered a zero amount for interest expense, thus disregarding the excess interest income. The Department’s reasons for imposing a cap upon the use of interest income follow:

"It is the Department’s normal practice to allow short-term interest income to offset financing costs only up to the amount of such financing costs. The Department reduces interest expense by the amount of short-term income to the extent finance costs are included in COP. Using total short-term interest income in excess of interest expense to reduce production cost, as suggested by Cinsa, would permit companies with large short-term investment activity to sell their products below the COP." 60 Fed. Reg. at 2379, Pub. Doc. 69 (citations omitted). Cinsa alleges that the Department’s decision to ignore all excess short-term interest income was arbitrary and not supported by substantial evidence. Cinsa argues that it is inconsistent to treat short-term interest income that exceeds interest expense differently from that which does not.

Short- term interest income has been considered by Commerce and the Court of International Trade to finance production and therefore to be a variable in the COP/CV calculations. Cinsa argues that this is true whether the interest income exceeds interest expense or not. The income still remains a component of financial expense.

The Department’s position is that the purpose of COP and CV is to calculate cost. One element of cost is interest expense. Once short-term interest income has reduced interest expense to zero, it would be unreasonable to use excess interest income to offset other unrelated actual expenses. To do so might mean that certain companies with large short-term investment capabilities could sell at less than COP because their actual costs would be reduced by interest. The Court of International Trade considered the Department’s interest-income offset policy in general and stated that:

"[T]his Court finds that neither 19 U.S.C. § 1677b(e) [constructed value] or 19 C.F.R. § 353.51© [cost of production] precludes the ITA from making necessary adjustments for various sources of income and expenses in its calculations of constructed value and COP. The starting point for [Commerce] in its calculations of constructed value and COP is to determine as accurately as possible the true cost to the respondent of manufacturing the subject merchandise. This requires that offsets be made for such sources of income as the sale of scrap left over from the production process and various types of short-term interest income which is used in the firms’ manufacturing operations." Timken Co. v. United States, 852 F. Supp. 1040, 1048-49 (Ct. Int’l Trade 1994).

The court thus affirmed the offset of certain income, ruling that nothing in the relevant statute and regulation precluded such action. The court also approved the Department’s central focus on calculating the actual cost of manufacturing. The court did not address and has not addressed in other cases, the issue of how the income should ⁶ be offset and whether a certain type of income can be used to offset any cost of production in addition to the one to which it is most logically related.

The Panel concludes from its review of the statute, regulations and court precedent that nothing in the relevant law invalidates the Department’s interest-capping policy. The Panel next turns to the Department’s administrative decisions to determine if the policy is arbitrary, inconsistent with past practice, or unreasonable.

All parties agree that Commerce has followed the income capping policy for some time. Most determinations merely state the policy without explanation. However, in ⁷ addition to the reasoning given in the decision under review, Commerce has discussed its reasons in several other decisions.

In Steel Wire Rope From Korea, 58 Fed. Reg. 11,029, 11,038 (1993), Commerce explained the policy as follows:

"Short-term interest income related to production is an offset to interest expense, not to COP and, therefore, can only be used to reduce total interest expense to not less than zero." In Portable Electric Typewriters from Japan, 56 Fed. Reg. 736 58,031, 58,040 (1991) (Comment 8), Commerce explained that "[W]e allowed the offset of interest income against interest expense only to the extent of interest expense. Interest income which exceeds interest expense represents Brother’s involvement in investment activities which are not required for daily manufacturing operations. The interest income is not related to production, and, therefore, may not be an offset against other production costs."

Finally, in the fourth administrative review of Cinsa’s cooking ware, Commerce stated that "The Department does not reduce production cost by the excess because income derived from long-term investments is unrelated to the production of the subject merchandise . . . . Using total short-term interest income to reduce production cost, as suggested by CINSA, would permit companies with large short-term investment activity to sell their products below the cost of production and also avoid the full imposition of antidumping duties." Porcelain-On-Steel Cooking Ware From Mexico, 58 Fed. Reg. 43,327, 43,332 (1993) (citation omitted).

The Panel finds that the Department’s policy as articulated in the final results is not inconsistent with prior administrative decisions and that it is not unreasonable or arbitrary in its application. Commerce has used different language to explain its policy in the various administrative determinations, but its consistent position is that excess interest income is related to investment activities, not to production costs. To apply that excess to production costs would distort a company’s actual costs.

Short-term interest income is relevant to determining whether a company has interest expenses. Since money is fungible, it would not be accurate to charge a company with interest expense if, in fact, it also enjoyed short-term interest income during the same period. That income, however, does not itself become a cost or lessen the burden of other costs. Regardless of how much excess interest income there is, labor will still cost a certain amount, so will materials and factory overhead.

Moreover, although a company may have short-term investments related to the daily operations of the company, it is not clear that the full amount of the return on that investment is needed for the production of the subject merchandise. In contrast, interest expense is surely a cost necessary for the daily business operation of the company.

Otherwise, a firm would not have incurred it. If the extra interest income is allocated to costs, then a company could arbitrarily subsidize a product by realizing financial activities not necessarily related to the production of the subject merchandise and the COP/CV calculations would be distortive. Thus, the Panel does not find it unreasonable or arbitrary for Commerce to limit the interest offset.

4. Addition of the Full Amount of IVA Collected on Home Market Sales to COP

As Cinsa reported to Commerce, all of its home market sales included in the invoice price an amount for Mexico’s value added tax, the "Impuestos Valor Agregado" ("IVA"). In addition, Cinsa reported to Commerce the actual amount of IVA that it paid on inputs used in the production of subject merchandise. No IVA is charged on labor, fixed overhead costs, or other items of COP such as selling, general and administrative costs and financial expenses. The amount of IVA paid on inputs is less than the amount charged in the sales price.

When Commerce tested Cinsa’s home market prices against the COP, it included the same amount of IVA in COP as was in the home market price, rather than the amount of IVA actually paid on inputs. Commerce explained its action as follows:

" Value added taxes are paid on inputs and, therefore, are costs incurred in production. Upon the sale of the product, value added taxes are reimbursed to CINSA by the ultimate consumer. Any amount of tax which is in excess of the amount reimbursed is payable to the Mexican government. The Department’s calculations must reflect the economic reality that CINSA does not receive a benefit from collecting and paying IVA. Therefore, because COP is compared to home market price which includes the entire IVA paid, to be neutral, our calculations of COP must take into account the entire IVA paid (a portion of which is paid on the inputs, and the remainder of which is due to the government)." 60 Fed. Reg. at 2380.

Cinsa originally argued that the COP statute expressly requires the construction of "all costs" of production. 19 U.S.C. 1677b(b) (1994 and Supp. 1996). Commerce arguably overstated Cinsa’s IVA costs, and thus its COP, by including the larger amount of IVA charged on home market sales in the COP calculation. Cinsa argued that Commerce must follow the express language of the statute and cannot alter the statutory scheme to achieve "tax neutrality." In Cinsa’s reply and subsequently at oral argument, the company referred to a recent opinion by the Court of Appeals for the Federal Circuit approving Commerce’s approach to tax neutrality in making adjustments for value added taxes under another statutory provision. Federal Mogul Corp. v. United States, 63 F.3d 1572 (Fed. Cir. 1995). Cinsa suggested that the Panel could remand the issue to Commerce to adopt a tax-neutral treatment of the IVA. According to Cinsa, the method adopted by Commerce in the final results is not tax-neutral. Two tax-neutral approaches would be to add the absolute amount of IVA paid by Cinsa on production inputs to both the COP and the home market sales price or to strip the IVA out of both sides of the equation.

In Federal Mogul Corp. v. United States, supra, the Court of Appeals considered the Department’s numerous attempts to adjust purchase price pursuant to 19 U.S.C. § 1677a(d) by value added taxes which are included in the exporter’s home market sales price. Various methods to make tax-neutral adjustments had been tried and found by the reviewing court not to satisfy statutory language. Ultimately, Commerce simply added the tax amount included in the home market sales price to purchase price. The Court of International Trade still found this method statutorily deficient.

The Court of Appeals reversed, concluding:

"Commerce’s long-standing policy of attempting tax-neutrality in its administration of [the statutory provision] is not precluded by the language of § 1677a, nor do we find the particular proposed methodology to be an unreasonable way to pursue that policy in light of the statutory language." 63 F.3d at 1580. ⁸

Similarly this Panel finds that nothing in the relevant statute prevents Commerce from treating the IVA in a tax-neutral manner. All parties, moreover, apparently agree that a tax-neutral method is acceptable. The Panel agrees with Commerce’s explanation of the effect of the IVA. The firm collects IVA from each sale that the firm makes and this amount is given back to the government. The firm, however, subtracts from its IVA payment to the government, the amount of IVA the firm paid on its inputs. Because of this subtraction, it is as if Cinsa did not incur those IVA expenses on inputs. If the home market price includes the full IVA received from the firms, then to be neutral, it is reasonable for Commerce to add the full amount of IVA due on sales to the COP. Since the IVA revenue will be transferred completely to the government, it is like an expense that the firm has to incur.

At oral argument, Commerce submitted that there was no difference in Cinsa’s margin of dumping if Commerce substituted either one of the tax-neutral methods proposed by Cinsa for the method actually used by Commerce in the final results. Counsel for Cinsa argued that there was a difference; it would be tax-neutral to add the IVA imposed on inputs to COP and to home market price, but it was not tax-neutral to add the full-price-based amount of IVA to both sides.

The Panel is not persuaded that there is a difference in results among any of the three methods suggested. Each one appears to achieve tax-neutrality without changing Cinsa’s dumping margin. The Panel, therefore, affirms the tax-neutral result without discussion of whether one method is preferable to another.

5. Pricing Differences Attributable to Product Color

Cinsa asserts that Commerce incorrectly calculated the margin by not accounting for differences in the color and, therefore, the price of certain products. According to Cinsa, Commerce used the five digit product code, rather than the seven digit product code, and thereby failed to account for differences in product color. The five digit code identifies the product. The additional two digits identify the product color. Cinsa further contends that the administrative record contains information from which Commerce could have identified product color differences.

In its initial questionnaire response, and consistent with its position in the fourth administrative review, Cinsa informed Commerce that it should rely upon the five digit product code instead of the seven digit product code. Cinsa explained then that color differences did not significantly alter product cost. Thus, Cinsa reported to Commerce that "[o]nce the number of enamel coatings is taken into account, fair value comparisons may be made without regard to color."

Later, on December 31, 1992, Cinsa wrote to Commerce seeking to change this position. Cinsa asked Commerce to compare "type, size, number of enamel coatings and the color of the article in its model matching criteria," explaining that "upon further review of the cost and pricing information contained in the questionnaire response, Cinsa has determined that the price and cost differences between articles of the same size and number of enamel coatings, but of different colors, are greater than de minimus." (Emphasis in original.) Cinsa requested that Commerce account for color differences, or, "to the extent that contemporaneous identical matches of same-colored merchandise cannot be made," that Commerce "make similar merchandise comparisons using an article of the same type, size and number of enamel coatings but of a different color, with an adjustment made to account for the cost differences as reported in the COP tape."

The comparisons Commerce used in its preliminary results did not account or adjust for product color differences. Cinsa filed a lengthy administrative case brief in response to the preliminary results, raising many issues, and presented lengthy oral argument to Commerce. Nowhere did Cinsa raise with Commerce the alleged error in failing to account for product color differences. Cinsa did not raise the issue until its appeal to this panel.

At oral argument, Cinsa’s counsel explained that Cinsa did not realize that Commerce had not accounted for color differences. Cinsa argued that Commerce stated in its preliminary decision that Commerce had compared identical products, and therefore Cinsa assumed that this meant that Commerce had accounted for product color differences:

"And the question of whether or not the DOC made identical model matches, we didn’t focus on because, according to their memorandum, they did do that. We had no reason not to believe they did what they told us in the disclosure of what they were doing. That’s the practical answer to what happened between why it wasn’t raised at the preliminary stage."

Cinsa also admits that information in the record reflects that the five digit code was used, rather than the seven digit code. But, according to Cinsa, "it took us time to go through" the information and to simulate the computer program to discover the discrepancy. The crux of the problem apparently was that Cinsa was not focused on the issue at the time. Instead, Cinsa concentrated on determining the reasons for the disparity between the anti-dumping margins arising from earlier administrative reviews and the anti-dumping margin arising here. It appears that Cinsa simply did not notice the problem until the current appeal.

Cinsa asserts that, given this record, Commerce should be faulted for using the five digit code, rather than the seven digit code, in its final results. The Panel disagrees. Cinsa was timely in informing Commerce that product color differences should be taken into account. But when Cinsa failed to raise the Department’s failure to do so in response to the preliminary results, Cinsa waived its right to assert that such failure was error. Commerce cannot be held in error for using the five digit code in its final results when Cinsa did not raise the issue in response to the preliminary results. See, e.g., Koyo Seiko Co. v. United States, 768 F. Supp. 832 (Ct. Int’l Trade 1991), aff’d, 972 F.2d 1355 (Fed. Cir. 1992) (party failed to exhaust its administrative remedies when it raised issue by letter early in proceedings but failed to raise issue again in administrative proceedings); Timken Co. v. United States, 795 F. Supp. 438, 443 (Ct. Int’l Trade 1992) (party is required "to specifically contest at the administrative level those choices with which it did not agree"). Cinsa’s contentions that this alleged error is a "purely legal" one, or alternatively that it could not have sooner identified the alleged error, are both unconvincing. While Commerce is statutorily directed to compare identical products, how it does so in any particular case is a factual matter. The use of the five digit product code instead of the seven digit product code is not a matter of interpreting a statute or deciding upon a legal standard. It is, rather, purely factual. Cinsa had all of the information it needed to raise this alleged error when it presented its problems with the Department’s preliminary results.

Cinsa had an obligation to raise with Commerce all substantive issues known at the time which Cinsa asserts contributed to an allegedly unfair price comparison. This is especially true when, as here, Cinsa’s position on the particular assertion is directly contrary to the position submitted to Commerce in prior reviews and in Cinsa’s initial questionnaire response. Because Cinsa waived this issue during the course of the administrative proceeding, this Panel will not consider whether Commerce should have used the seven digit product code instead of the five digit product code in establishing its model matching criteria. ⁹

6. Error Associated with Product Number 10158

In its administrative case brief in response to the preliminary results, Cinsa pointed out to Commerce that Cinsa had reported standard costs for certain items in a way that inappropriately skewed the figures for that item. Cinsa requested that Commerce account for its error when issuing the final results. Commerce declined. The Panel finds that Commerce erred in not accounting for the error, and direct Commerce on remand to recalculate in accordance with this opinion.

Commerce had required Cinsa to report costs on a per-unit basis. In general, Cinsa reported its costs on a per-box basis. But in those instances where Cinsa sold its products in boxes containing multiple units, as opposed to single units, Cinsa’s standard cost accounting reported each box as a single unit. According to Cinsa, "in order to conform to the DOC’s request to report only single unit costs, in cases where more than one item was packed in a box, Cinsa divided the total cost of the items sold in multiple packaged units by the number of items in the package." Prior to the preliminary determination, Cinsa discovered that it had not made that division for certain items and informed Commerce by letter of its error. Commerce corrected its data in accordance with the method that Cinsa suggested. In reviewing the preliminary results, Cinsa discovered another such error and raised it in its administrative case brief. Commerce, however, declined to alter its findings to account for this error. Commerce and General Housewares assert that there was not enough evidence in the administrative record from which Commerce could recalculate the claim and that Cinsa’s request therefore came too late. Commerce and General Housewares do not contend that Cinsa’s position is flawed, but rather that Cinsa presented it too late.

The administrative record contained information indicating that Item # 10158 (1 quart sauce pan package with multiple units) differed from Item # 10166 (1 quart sauce pan package with single unit) because the reported weight was different by .092 kilograms (.348 kg vs. .440 kgs). Commerce contends that it cannot know the cost differential associated with the different items without knowing the packaging costs associated with the single unit item versus the multiple unit item. Thus, according to Commerce, the error had to be corrected within the time for submission of new factual information.

Cinsa, on the other hand, contends that no new factual information was required to fix the error. According to Cinsa, Commerce could correct the COP/CV data error by dividing the reported costs for these items by two—just as it did with the other errors brought to its attention before the preliminary results. Thus, Cinsa asserts that its failure to discover its mistake before the deadline for submission of factual information has no impact on Commerce’s ability to correct for the error.

The Court of Appeals for the Federal Circuit recently addressed a similar situation in NTN Bearing Corp. v. United States 74 F.3d 1204 (Fed. Cir. 1995). In that case, the Federal Circuit made clear that Commerce may account for untimely factual information about inadvertent clerical errors, when to do so does not require starting anew or delaying the final determination. 74 F.3d at 1208. The case also raises the possibility that Commerce abuses its discretion when it fails to allow a respondent to present untimely, new factual information that would correct an error, even when such an error is not obvious from the record that existed before the preliminary determination.

The Panel believes that the NTN Bearing case is controlling here and that it sets the minimum standards for the untimely submission of factual information necessary to correct a clerical error. On remand, Commerce should consider whether Cinsa’s suggestion of simply dividing by two the costs of producing Item # 10158 is sufficient (as it apparently was with the other multiple unit products brought to Commerce’s attention) or whether Commerce needs Cinsa to present data relating to packaging costs. In either event, Commerce should account for the cost differential associated with the difference between a single-unit and a multi-unit package for 1 quart sauce pans. The Panel remands this issue to the Department for further proceedings consistent with this opinion.

Continue on to Section IV: Conclusion

³ In countervailing-duty cases, Commerce has adopted a methodology for classifying hybrid instruments as debt or equity, and this methodology was recently upheld by the Court of International Trade. Geneva Steel v. United States, No. 93-09-00566-CVD, 1996 WL 19112, at *3 (Ct. Int’l Trade Jan. 3, 1996). Recognizing that many payments could share characteristics of both debt and equity, Commerce set forth a four-tiered hierarchy of considerations. These factors are: 1) expiration/maturity date/repayment obligation, (2) guaranteed interest or dividends, (3) ownership rights, and (4) seniority. Id.

⁴ Income taxes and mandatory profit-sharing payments are also alike in that both reduce a firm’s return on equity, thus increasing the firm’s costs of capital and, in time, the firm’s marginal cost. Prices of corporate goods may rise as a result, and output may also be affected. See Douglas R. Fletcher, The International Argument for Corporate Tax Integration, 11 Am. J. Tax Policy 155, 160 & n.19 (1994); D.A. Auld and F.C. Miller, Principles of Public Finance 111 (2d ed. 1975); Augh Gravelle & Ray Reese, Microeconomics 244-45 (2d ed. 1992). The net effect on price and quantity will depend on the elasticities of supply and demand. Fletcher at 10 & n.19.

⁵ In its brief, Cinsa argues that profit-sharing should not be included in CV because it is not a cost "incurred prior to exportation" as required by 19 U.S.C.A. § 1677b(e)(1). (1994 & Supp. 1996). In light of the fact that the current version of that statute does not contain this language, as well as the fact that Cinsa did not raise this argument in the administrative review, we decline to consider this issue.

⁶ In Floral Trade Council v. United States, 775 F. Supp. 1492, 1504 (Ct. Int’l Trade 1991), the court acknowledged the Department’s policy of allowing "interest income if that income is earned from short-term investments related to current operations of the company." It did not discuss the reasoning behind the policy other than to recognize that interest income cannot be considered unless it is related to production of the merchandise in question.

⁷ E.g., Small Diameter Circular Seamless Carbon And Alloy Steel, Standard, Line and Pressure Pipe From Italy, 60 Fed. Reg. 31,981, 31,991 (1995);Frozen Concentrated Orange Juice From Brazil, 55 Fed. Reg. 26,721 (1990); Brass Sheet and Strip From Canada, 55 Fed. Reg. 31,414, 31,416 (1990); Sweaters Wholly or in Chief Weight of Man-Made Fiber From Taiwan, 55 Fed. Reg. 34,585, 34,599 (1990)("We do not offset other elements of G&A expenses with interest income for purposes of calculating CV."); Titanium Sponge from Japan, 52 Fed. Reg. 4797, 4799 (1987) (Comment 17).

⁸ As amended by the Uruguay Round Agreements Act, the statute now excludes taxes from normal value. 19 U.S.C. § 1677b(a)(6)(B) (1994 & Supp. 1996). The amendment was not in effect for the review before this Panel.

⁹ On March 26, 1996, Cinsa informed the Panel that the Department had recently reached preliminary determinations in the sixth and eighth administrative reviews of the antidumping duty order on Porcelain-on-Steel Cooking Ware from Mexico. Copies of those results were submitted to the Panel with a request that we take notice of the fact that the Department considered product color in making model matches in both reviews. Decisions in these subsequent reviews do not, however, negate Cinsa’s waiver of this issue with respect to the present review under consideration.