Consumer Products Div., SCM Corp. v. Silver Reed America, Inc.

• Decision Date: 28 January 1985
• Docket Number: No. 84-1118,84-1118
• Citation: 753 F.2d 1033
• Parties: , 3 Fed. Cir. (T) 83 CONSUMER PRODUCTS DIVISION, SCM CORPORATION, Appellant, The United States, Party-In-Interest, v. SILVER REED AMERICA, INC. and Silver Seiko, Ltd., Appellees. Appeal
• Court: U.S. Court of Appeals — Federal Circuit

Page 1033

753 F.2d 1033

6 ITRD 1737, 3 Fed. Cir. (T) 83

CONSUMER PRODUCTS DIVISION, SCM CORPORATION, Appellant The United States, Party-In-Interest, v. SILVER REED AMERICA, INC. and Silver Seiko, Ltd., Appellees.

Appeal No. 84-1118.

United States Court of Appeals Federal Circuit.

Jan. 28, 1985.

Terence P. Stewart, Stewart & Stewart, Washington, D.C., argued for appellant. With him on the brief were Eugene L. Stewart, James R. Cannon, Jr., and Mary E. Tuck, Washington, D.C.

Ronald M. Wisla, Stewart & Stewart, Washington, D.C., was on the brief for appellant.

Edwin Silverstone, New York City, of counsel.

Robert E. Walton, New Canaan, Conn., of counsel.

Velta A. Melnbrencis, Dept. of Justice, New York City, argued for the U.S., party-in-interest. With her on the brief were Richard K. Willard, Acting Asst. Atty. Gen., and David M. Cohen, Director, Washington, D.C.

Christopher Dunn and Noel Hemmendinger, Wald, Harkrader & Ross, Washington, D.C., argued for appellees. With them on the brief was William J. Clinton, Washington, D.C.

Before RICH, DAVIS and NIES, Circuit Judges.

NIES, Circuit Judge.

This appeal arises from the February 1, 1984 decision of the U.S. Court of International Trade ¹ and concerns administration of the antidumping law, 19 U.S.C. Sec. 1673 et seq. Upon holding invalid a portion of the regulations implementing the statute, namely, the "ESP offset cap" contained in 19 C.F.R. Sec. 353.15(c), the court certified the question for immediate appeal. Our jurisdiction is found at 28 U.S.C. Sec. 1292(d)(1). We conclude that the regulation is valid.

I.

Under the antidumping provisions of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979, 19 U.S.C. Sec. 1673 et seq., if foreign merchandise is sold or is likely to be sold in the United States at less than its fair value, subjecting a U.S. industry to material injury or a threat of material injury, an antidumping duty shall be imposed on such merchandise. The amount of the duty is to equal "the amount by which the foreign market value exceeds the United States price for the merchandise" (i.e., "the dumping margin"). The statute provides for several alternative bases from which to calculate the foreign market value and the U.S. price. To these base figures, certain cost adjustments are made to derive values that can reasonably be compared in order to determine whether dumping has occurred and the amount of the duty to be imposed, if any.

The present case concerns an antidumping order, published May 9, 1980, ² against portable electric typewriters (PET's) from Japan. Silver Seiko and its U.S. subsidiary, Silver Reed America, (collectively "Silver Seiko") are subject to the order. In determining the foreign market value of Silver Seiko's goods, the price at which such goods were sold in Japan was used in accordance with 19 U.S.C. Sec. 1677b(a)(1)(B). From this figure, Silver Seiko has been allowed to deduct all direct expenses of sale, e.g., expenses which vary with the quantity sold, such as commissions. The dispute concerns other deductions from that price. In particular, Silver Seiko successfully challenged a limitation which is established by regulation, 19 C.F.R. Sec. 353.15(c), on the amount which may be deducted from its market price in Japan for indirect costs of sales in Japan, e.g., overhead. Any increase in deductions from the foreign market value, of course, reduces the dumping margin.

The U.S. price to which the foreign market value has been compared in this case is based on the "exporter's sale price" (ESP), that is, the price at which Silver Seiko's U.S. subsidiary, Silver Reed, sells in the United States (19 U.S.C. Sec. 1677a(c)). From ESP, pursuant to 19 U.S.C. Sec. 1677a(e)(2), all expenses of PET sales in the U.S., both direct and indirect, have been deducted to arrive at the U.S. price used for comparison purposes. Obviously, deductions from ESP increase the dumping margin.

The regulation in issue, 19 C.F.R. Sec. 353.15(c), limits the amount of indirect costs which may be deducted on the foreign side of the equation to the amount deducted from the U.S. price, when such price is based on ESP. This limitation is denominated as the "ESP offset cap." The sole question presented for review is whether this cap, set by the regulation, is valid.

The regulation in question, 19 C.F.R. Sec. 353.15, which was promulgated in 1976, provides:

Sec. 353.15. Differences in circumstances of sale.

(a) In general. In comparing the United States price with the sales, or other criteria applicable, on which a determination of foreign market value is to be based, reasonable allowances will be made for bona fide differences in the circumstances of the sales compared to the extent that it is established to the satisfaction of the Secretary that the amount of any price differential is wholly or partly due to such differences. Differences in circumstances of sale for which such allowances will be made are limited, in general, to those circumstances which bear a direct relationship to the sales which are under consideration.

(b) Examples. Examples of differences in circumstances of sale for which reasonable allowances generally will be made are those involving differences in credit terms, guarantees, warranties technical assistance, servicing, and assumption by a seller of a purchaser's advertising or other selling costs. Reasonable allowances also generally will be made for differences in commissions. Allowances generally will not be made for differences in advertising and other selling costs of a seller, unless such costs are attributable to a later sale of the merchandise by a purchaser.

(c) Special rule. Notwithstanding the criteria for adjustments for differences in circumstances of sale set forth in paragraphs (a) and (b) of this section, reasonable allowances for other selling expenses generally will be made in cases where a reasonable allowance is made for commissions in one of the markets under consideration and no commission is paid in the other market under consideration, the amount of such allowance being limited to the actual other selling expenses incurred in the one market, or the total amount of the commission allowed in such other market, whichever is less. In making comparisons using exporter's sales price, reasonable allowance will be made for all actual selling expenses incurred in the home market up to the amount of the selling expenses incurred in the United States market. [Emphasis added.]

(d) Determination of allowances. In determining the amount of the reasonable allowances for any differences in circumstances of sale, the Secretary will be guided primarily by the cost of such differences to the seller, but, where appropriate, he may also consider the effect of such differences upon the market value of the merchandise.

The last sentence of (c) above is the basis for the deduction of actual indirect selling expenses incurred in the home market (the ESP offset) and sets the limitation for deduction of such expenses (the ESP offset cap).

II.

This case is a sequel to Brother Industries, Ltd. v. United States, 3 Ct.Int'l Trade 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) cert. denied, --- U.S. ----, 104 S.Ct. 1274, 79 L.Ed.2d 679 (1984).

In the prior appeal, involving the same May 9, 1980 order, appellant SCM was the challenger rather than the defender of 19 C.F.R. Sec. 353.15(c). SCM urged that the regulation was an invalid exercise of the Secretary of Commerce's authority in favor of foreign interests, arguing that under the statute no deduction at all was to be allowed from the foreign market price for indirect selling costs in the foreign market. This court, however, held that the promulgation of Sec. 353.15(c) was a "proper and reasonable exercise of the Secretary's authority to administer the statute fairly." Smith-Corona, 713 F.2d at 1579.

In reaching that conclusion, the court's analysis began with the statute, 19 U.S.C. Sec. 1677a, which provides two different bases for the comparison U.S. price, dependent upon the relationship between the exporter and importer: (1) purchase price (i.e., price paid to foreign exporter by unrelated U.S. importer) and (2) "exporter's sales price" (ESP) (i.e., price paid by U.S. customer to U.S. importer where U.S. importer is related to foreign exporter). The court interpreted the statute as requiring that adjustments due to differences in circumstances of sale bear a direct relationship to the sales under consideration ³ except when ESP is the basis for the U.S. price, in which case the statute specifies an additional deduction for all other selling expenses, that is, indirect expenses as well.

Perceiving that use of a U.S. price based on ESP, with its additional deductions, thereby skewed the calculations in favor of a higher dumping margin, the administering authority promulgated 19 C.F.R. Sec. 353.15(c) to afford an equivalent adjustment to foreign market value. This court held that the deduction, although not specifically authorized by the statute, was valid since it was an attempt to achieve one of the goals of the statute, a fair comparison between foreign and domestic market prices or values.

The issue now before us is whether the regulation goes far enough. Silver Seiko argued below that "fairness" dictates that foreign indirect costs be limited only to the same types of costs allowed to be taken against the U.S. price, rather than to a dollar amount. The Court of International Trade agreed and held the regulation to be an "arbitrary" exercise of the discretion of the administering authority.

III.

Silver Seiko's position is that: the ESP offset cap prevents proper adjustment for "differences in circumstances of sale" as required by 19 U.S.C. Sec. 1677b(a)(4)(B); frustrates the fundamental goal of the antidumping law by preventing a...