Silver Reed America, Inc. v. United States, Court No. 80-6-00934.

Citation7 CIT 23,581 F. Supp. 1290
Decision Date01 February 1984
Docket NumberCourt No. 80-6-00934.
PartiesSILVER REED AMERICA, INC. and Silver Seiko, Ltd., Plaintiffs, v. The UNITED STATES, Defendant, Consumer Products Division, SCM Corporation, Intervenor.
CourtU.S. Court of International Trade

Wald, Harkrader & Ross, Washington, D.C. (Noel Hemmendinger, Christopher Dunn and William J. Clinton, Washington, D.C., of counsel), for plaintiffs.

Richard K. Willard, Acting Asst. Atty. Gen., David M. Cohen, Director, Commercial Litigation Branch, Washington, D.C., and Velta A. Melnbrencis, New York City, for defendant.

Stewart & Stewart, Eugene L. Stewart, Terence P. Stewart and James R. Cannon, Jr., Washington, D.C., Edwin Silverstone, Vice President and Gen. Counsel, Consumer Products Div., SCM Corp., Michael M. Maloney, Group Counsel, Smith Corona Group, SCM Corp., New York City, of counsel for defendant-intervenor.

BERNARD NEWMAN, Senior Judge:

This action represents a sequela to Brother Industries, Ltd. v. United States, 3 C.I.T. 125, 540 F.Supp. 1341 (1982), aff'd sub nom. Smith Corona Group, Consumer Products Division, SCM Corporation v. United States, 713 F.2d 1568 (Fed.Cir. 1983), and presents additional issues of novel impression concerning the determination of foreign market value having far-reaching implications for the administration of this nation's antidumping law, 19 U.S.C. § 1673, et seq.1

Presently before the Court are plaintiffs' motion pursuant to Rule 56.1 of the rules of the Court of International Trade for review of the administrative determination upon the agency record, and cross-motions by the Government and intervenor seeking affirmance of the contested final antidumping duty determination and order.

Extensive oral argument was held on December 6, 1983.

Background

On March 21, 1980 the United States Department of Commerce, International Trade Administration ("Commerce" or "ITA"), published its final affirmative determination of sales at less than fair value ("LTFV") with respect to portable electric typewriters ("PETs") from Japan (45 Fed. Reg. 18416), and subsequently on May 9, 1980 Commerce published its antidumping duty order (45 Fed.Reg. 30618). Plaintiffs Silver Seiko, Ltd., a Japanese manufacturer and exporter of PETs, and Silver Reed America, Inc., its wholly-owned importer (hereinafter "Silver" when jointly referred to) instituted this action on June 6, 1980 under section 516A(a)(2) of the Tariff Act of 1930, as amended, 19 U.S.C. § 1516a(a)(2), to contest the above final determination and order. Consumer Products Division, SCM Corporation is the sole remaining domestic producer of PETs and has intervened in support of ITA's determination and order.

Specifically, Silver claims:

(1) In calculating foreign market value, ITA erred by limiting the deduction of home market selling expenses to the amount of selling expenses incurred in the United States pursuant to the exporter's sales price ("ESP") offset cap. Silver contends that the offset cap is invalid.2

(2) ITA erred in refusing to grant an adjustment to foreign market value to account for the difference in levels of trade in the two markets. Silver argues that it sold only to wholesalers in the United States and only to retailers in the Japanese home market.

(3) ITA erred in calculating foreign market value on the basis of home market sales since sales of PETs in Japan formed an inadequate basis of comparison with sales of PETs sold in the United States.

(4) ITA erred in refusing to deduct from home market prices the cost of delivering typewriters from the factory to a central warehouse.

Silver requests that the antidumping duty order be dissolved and that the Court direct ITA to issue a negative determination, or alternatively, to remand the case to ITA for a new determination.

ESP Offset Cap

In arriving at its final LTFV determination, ITA compared foreign market value, as defined in 19 U.S.C. § 1677b, with the ESP, as defined in 19 U.S.C. § 1677a(c). Acting in accordance with 19 CFR § 353.15(c),3 ITA limited the deduction of "indirect" home market selling expenses in its calculation of foreign market value to the per-unit amount of selling expenses incurred in sales to the United States. The foregoing limitation, referred to herein as the "ESP offset cap", means that in calculating foreign market value, home market selling expenses are "offset" only to the extent of the deduction for United States selling expenses.

Plaintiffs contend that ITA should have made an adjustment in calculating foreign market value for all general selling expenses incurred in the home market, since the ESP offset cap in section 353.15(c) is invalid. Specifically, Silver contends: (1) the ESP offset cap violates 19 U.S.C. § 1677b(a)(4) in that the cap prevents adjustment for differences in circumstances of sale even though such adjustment is required by the statute; (2) the cap frustrates the intent of the antidumping law insofar as it prevents a comparison of prices in two markets on comparable terms; and (3) the offset cap lacks any rational basis "in that it is a compromise with an arbitrary limitation adopted in purchase price transactions" (Brief, at 7).

Defendant and intervenor insist that the ESP offset cap constitutes a valid exercise of administrative discretion. However, intervenor further posits that the ESP offset itself is contrary to the antidumping law and the "direct relationship" rule generally applicable to circumstances of sale adjustments under 19 CFR § 353.15(a) (as unsuccessfully argued by intervenor in Smith Corona, supra), and consequently the cap "serves the underlying statutory purpose by limiting the `anomalous' effect on the statutory scheme which the ESP offset causes" (Brief, at 8).

I conclude that the ESP offset cap is invalid, as claimed by plaintiffs.

As noted above, in calculating the United States price for the PETs sold by Silver Seiko, Ltd. through Silver Reed America, Inc., ITA utilized the ESP provisions in 19 U.S.C. § 1677a(c), (d) and (e). Those provisions require that Silver's resale price to its customers in the United States be used as the starting point for determining United States price and a deduction of, inter alia, "expenses generally incurred by or for the account of the exporter in the United States in selling identical or substantially identical merchandise." 19 U.S.C. § 1677a(e)(2). Under the latter provision ITA deducted all general, administrative, overhead and other selling expenses incurred in the United States that were allocable to PETs. In making its calculation of foreign market value, ITA followed 19 CFR § 353.15(c) and deducted from the home market price the same kinds of general, administrative, overhead and other selling expenses. However, ITA did not deduct from the home market price all general selling expenses comparable to the United States expenses. Rather, as previously noted, pursuant to the ESP offset cap in 19 CFR § 353.15(c), ITA limited the deduction of home market selling expenses to the per-unit amount of selling expenses incurred in United States sales by Silver Reed America.

In support of the validity of the offset cap, defendant and intervenor rely upon the rationale of Smith Corona, supra, stressing ITA's broad discretion in the administration of the antidumping law. But Judge Smith, writing for the CAFC in Smith Corona, and discussing the very provisions now before the Court, admonished (713 F.2d at 1571):

While the antidumping law does not expressly limit the exercise of that broad discretion with precise standards or guidelines, some general standards are apparent and these must be followed. The Secretary of Commerce cannot, under the mantle of discretion, violate these standards or interpret them out of existence. Emphasis added.

In Smith Corona, the CAFC set forth a comprehensive overview of the relevant price comparisons involved in the determination of LTFV sales under the antidumping law, and here I need only emphasize that Court's observation that both foreign market value and United States price "are subject to adjustment in an attempt to reconstruct the price at a specific `common' point in the chain of commerce, so that value can be fairly compared on an equivalent basis." 713 F.2d at 1571-72 (emphasis added).

In Smith Corona, appellant challenged the validity of the regulations under which several of the contested adjustments were made, and the CAFC prefaced its discussion concerning the regulations by the following pertinent comment (713 F.2d at 1575):

With respect to the validity of the challenged regulations, the relevant inquiries are whether the regulations are a proper exercise of the Secretary's authority and are reasonable footnote omitted. In determining the reasonableness of the regulations, we are guided by the normal aids of statutory construction: statutory language; legislative history; and legislative purpose.

Turning its attention to the ESP offset regulation, the Appellate Court found that this special adjustment "is supported by the Government as a means to redress a perceived unfairness in the computation of foreign market value under the statute". 713 F.2d at 1572. On that aspect, the Court observed that section 1677a(e)(2) provides for certain adjustments to ESP that increase the dumping margin, while the offset prescribed by 19 CFR § 353.15(c) allows adjustments to foreign market value that reduce the margin. The Court then went on to state (713 F.2d at 1577-78):

The statute provides for the adjustment of United States price for certain specified "direct costs" footnote omitted. Section 1677a(e), however, provides for the adjustment of only exporter's sales price for certain "indirect costs" — selling expenses footnote omitted. Commerce perceived that the United States price based on exporter's sales price was distorted by the adjustment for indirect costs and, accordingly, promulgated 19 C.F.R. § 353.15(c) to afford a similar adjustment
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