Sharp Corp. v. U.S.

• Decision Date: 11 August 1995
• Docket Number: No. 94-1412,94-1412
• Citation: 63 F.3d 1092
• Parties: SHARP CORPORATION and Sharp Electronics Corporation, Plaintiffs-Appellants, v. The UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1092

63 F.3d 1092

17 ITRD 1609

SHARP CORPORATION and Sharp Electronics Corporation Plaintiffs-Appellants, v. The UNITED STATES, Defendant-Appellee.

No. 94-1412.

United States Court of Appeals, Federal Circuit Aug. 11, 1995.

Christopher P. Johnson, Donovan Leisure Newton & Irvine, New York City, argued for plaintiffs-appellants. Peter J. Gartland, Christopher K. Tahbaz and Fusae Nara, Donovan Leisure Newton & Irvine, New York City, were on the brief for plaintiffs-appellants.

Velta A. Melnbrencis, Asst. Director, Commercial Litigation Branch, Dept. of Justice, Washington, DC, argued for defendant-appellee. With her on the brief were Frank W. Hunger, Asst. Atty. Gen. and David M. Cohen, Director. Also on the brief were Stephen J. Powell, Chief Counsel for Import Admin., Berniece A. Browne, Sr. Counsel and Duane W. Layton, Sr. Atty. and Intern. Dispute Counsel, Office of the Chief Counsel for Import Admin., U.S. Dept. of Commerce. Of counsel was Terrence J. McCartin.

Before NEWMAN, MAYER, and BRYSON, Circuit Judges.

PAULINE NEWMAN, Circuit Judge.

Sharp Corporation and Sharp Electronics Corporation (collectively "Sharp") appeal the judgment of the United States Court of International Trade, Sharp Corp. v. United States, 852 F.Supp. 1072 (Ct. Int'l Trade 1994), affirming an antidumping administrative review by the Commerce Department's International Trade Administration ("Commerce"). Television Receivers, Monochrome and Color, From Japan, 56 Fed.Reg. 37,078 (Dep't Comm.1991) (final admin. review) (hereinafter "Final Results ").

A

Television receivers from Japan are subject to an antidumping duty order. Television Receiving Sets, Monochrome and Color, From Japan, 5 Cust. B. & Dec. 151 (1971). The issue is the correctness of Commerce's classification of certain transportation expenses that affect the calculation of the antidumping margin.

Sharp Corporation manufactures television receivers in Japan, for sale in Japan and in other countries. Sales in the United States are made by Sharp Electronics Corporation, a wholly owned subsidiary. Sharp Corporation incurs movement expenses including inland freight to port of shipment in Japan; ocean, marine, or air freight to the United States port; and port to warehouse freight in the United States. Sharp Electronics Corporation then sells and ships the television receivers to unrelated customers in the United States.

For sales in Japan, Sharp Corporation distributes its television receivers through four distributors to whom it is related. When shipping merchandise to these distributors Sharp incurs inland freight expenses that are not directly linked to any particular sales. Sharp's Japanese distributors sell the sets and ship them directly to unrelated customers in Japan.

These transactions are viewed against the backdrop of the United States' antidumping laws. Tariff Act of 1930, Secs. 731-739, 19 U.S.C. Secs. 1673-1673h (1988 & Supp. V 1993) (amended 1994). ¹ The antidumping laws prohibit the sale of foreign products in the United States at a price lower than the products' fair value in the home country. Under 19 U.S.C. Sec. 1673 Commerce decides whether dumping has occurred. If so, and if other requirements not here in issue are met, Sec. 1673 authorizes Commerce to impose an antidumping duty equal to the dumping margin, which is the amount by which the foreign market value ("FMV") exceeds the United States price ("USP"). See generally Koyo Seiko Co. v. United States, 36 F.3d 1565, 1567 (Fed.Cir.1994); Ad Hoc Comm. of AZ-NM-TX-FL Producers of Gray Portland Cement v. United States, 13 F.3d 398, 399-400 (Fed.Cir.), cert. denied, --- U.S. ----, 115 S.Ct. 67, 130 L.Ed.2d 23 (1994); Zenith Elecs. Corp v. United States, 988 F.2d 1573, 1576 (Fed.Cir.1993); Smith-Corona Group v. United States, 713 F.2d 1568, 1571, 1 Fed.Cir. (T) 130, 132 (Fed.Cir.1983), cert. denied, 465 U.S. 1022, 104 S.Ct. 1274, 79 L.Ed.2d 679 (1984); 19 C.F.R. Sec. 353.2(f)(1) (1994) (defining dumping margin).

The statute defines USP, the subtrahend which is subtracted from FMV to get the dumping margin, as either the United States purchase price (PP) or the exporter's sales price (ESP), whichever is appropriate. Tariff Act of 1930, Sec. 772(a), 19 U.S.C. Sec. 1677a(a) (1988) (amended 1994); 19 C.F.R. Sec. 353.41(a) (1994). Commerce chooses a basis appropriate to ensure that its calculations depend on arm's length transactions. See Koyo Seiko, 36 F.3d at 1567; Smith-Corona, 713 F.2d at 1572, 1 Fed.Cir. (T) at 132. Commerce uses the ESP if the foreign manufacturer imports through a related company in the United States. Commerce then applies Sec. 1677a(c) to calculate ESP from the price at which the United States company sells to unrelated purchasers. 19 C.F.R. Sec. 353.41(c); see Timken Co. v. United States, 37 F.3d 1470, 1477-78 (Fed.Cir.1994). Certain adjustments are authorized. For example, Sec. 1677a(d)(2)(A) directs Commerce to reduce USP by the costs (including import duties) of bringing the merchandise to the place of delivery in the United States. 19 C.F.R. Sec. 353.41(d)(2)(ii). Commerce calls these costs "movement expenses." And under Sec. 1677a(e)(2) Commerce subtracts selling expenses, both direct and indirect, from ESP. See Koyo Seiko, 36 F.3d at 1573; 19 C.F.R. Sec. 353.41(e)(2).

Commerce explained how it calculated Sharp's dumping margin. Television Receivers, Monochrome and Color, From Japan, 56 Fed.Reg. 26,061, 26,062 (Dep't Commerce 1991) (prelim. admin. review) (hereinafter "Preliminary Results "). The calculations included three types of adjustments to USP. ² First, Commerce deducted "Japanese inland freight and insurance and Japanese brokerage and handling as related to U.S. exports," as described in Sec. 1677a(d)(2)(A). Second, Commerce adjusted ESP figures for "ocean freight, marine insurance, U.S. inland freight, U.S. brokerage and handling charges, U.S. customs duties, discounts, rebates, commissions to unrelated parties, credit and warranty expenses, advertising and sales promotion expenses, export selling expenses incurred in Japan, and U.S. subsidiaries' selling expenses," as authorized by Sec. 1677a(e). Third, Commerce added "the Japanese commodity tax that was not collected by reason of the exportation of the merchandise," as set forth in Sec. 1677a(d)(1)(C). Preliminary Results at 26,062; see Zenith, 988 F.2d at 1580.

FMV, the minuend in the dumping margin equation, is based on home market sales, third country sales, or constructed value. Tariff Act of 1930, Sec. 773, 19 U.S.C. Sec. 1677b (1988) (amended 1994); 19 C.F.R. Secs. 353.43-.59 (1994). When comparing FMV to USP, Sec. 1677b(a)(4) authorizes three types of reasonable allowances, if they are proven to the satisfaction of Commerce. See Smith-Corona, 713 F.2d at 1573, 1 Fed.Cir. (T) at 134; 19 C.F.R. Sec. 353.54. First, under Sec. 1677b(a)(4)(A) Commerce considers differences between quantities sold in the foreign and domestic markets. 19 C.F.R. Sec. 353.55. Second, under Sec. 1677b(a)(4)(B) Commerce considers differences in the circumstances of sales, generally limiting allowances to "circumstances which bear a direct relationship to the sales compared." 19 C.F.R. Sec. 353.56(a); Gray Portland Cement, 13 F.3d at 401-403 (holding that home market freight expenses are not deductible in PP comparisons when they are indirect); see Zenith, 988 F.2d at 1581. Third, under Sec. 1677b(a)(4)(B) Commerce considers differences in physical characteristics of the products. 19 C.F.R. Secs. 353.57 (1994); see Smith-Corona, 713 F.2d at 1582, 1 Fed.Cir. (T) at 142-43.

In calculating Sharp's FMV, Commerce deducted from FMV "inland freight, brokerage and handling expenses, discounts, rebates, royalties, credit, advertising and sales promotion expenses, warranty expenses, and differences in commodity taxes, packing, and physical characteristics of the merchandise," each of which Commerce found to fall within provisions of Sec. 1677b(a)(4). Preliminary Results at 26,062. In comparisons based on ESP, Commerce also deducted "indirect selling expenses from FMV not exceeding the amount of U.S. indirect selling expenses." Preliminary Results at 26,062; see 19 C.F.R. Sec. 353.56(b)(2). This last deduction, called the "ESP offset ", is not provided for in the statute.

The ESP offset was created by Commerce, and approved by the courts, as a means to effect a fair comparison between FMV and USP. Smith-Corona, 713 F.2d at 1578, 1 Fed.Cir. (T) at 139-40. Because the FMV allowance under Sec. 1677b(a)(4)(B) for circumstances connected to the sale includes only direct selling expenses, while the statutory adjustment to ESP under Sec. 1677a(e)(2) encompasses both direct and indirect selling expenses, Commerce was concerned that it would be unfair to compare FMV to USP based on ESP. Consumer Prods. Div., SCM Corp. v. Silver Reed America, Inc., 753 F.2d 1033, 1036-37, 3 Fed.Cir. (T) 83, 87 (1985). To remedy this perceived disparity Commerce created the ESP offset, a special allowance applicable only when USP is based on ESP. Smith-Corona, 713 F.2d at 1577-78, 1 Fed.Cir. (T) at 139-41; 19 C.F.R. Sec. 353.56(b)(2).

Applying the ESP offset, Commerce reduces the FMV by the amount of indirect selling expense incurred in making foreign sales. That allowance, however, may not exceed the ESP offset cap, which is set at the amount of indirect selling expense incurred on sales in the United States. The Federal Circuit has described the ESP offset as a "proper and reasonable exercise" of Commerce's "authority to administer the statute fairly." Smith-Corona, 713 F.2d at 1577-79, 1 Fed.Cir. (T) at 139-41. Similarly, the ESP offset cap has been held not to conflict with the statute and to have a rational basis. Silver Reed, 753 F.2d at 1040, 3 Fed.Cir. (T) at 91.

When an antidumping duty order is in place, upon request Commerce may conduct an administrative review to compare USP with FMV based on financial information for the year being...