Zenith Electronics Corp. v. US, No. 87-01-00039

• Decision Date: 28 January 1993
• Docket Number: No. 87-01-00039,87-01-00122.
• Citation: 17 CIT 51,812 F. Supp. 228
• Parties: ZENITH ELECTRONICS CORPORATION, Plaintiff, v. The UNITED STATES, et al., Defendants.
• Court: U.S. Court of International Trade

812 F. Supp. 228

17 CIT 51

ZENITH ELECTRONICS CORPORATION, Plaintiff, v. The UNITED STATES, et al., Defendants.

Nos. 87-01-00039, 87-01-00122.

United States Court of International Trade.

January 28, 1993.

Willkie Farr & Gallagher, William J. Clinton, James P. Durling, Lee M. Zeichner, and David E. Bond, Washington, DC, for defendant-intervenors AOC Intern., et al.

Frederick L. Ikenson, P.C. (Frederick L. Ikenson and J. Eric Nissley, Washington, DC, of Counsel), for plaintiff Zenith Electronics Corp.

Stuart M. Gerson, Asst. Atty. Gen., David M. Cohen, Director, Commercial Litigation Branch, Civil Div., United States Dept. of Justice, Michael S. Kane, Washington, DC, attorney (Jeffery B. Denning, Attorney Advisor, Office of the Chief Counsel for Import Admin., Dept. of Commerce, of counsel), for defendant.

MEMORANDUM OPINION AND ORDER

WATSON, Senior Judge:

This is the latest court decision in a series of actions involving color television receivers ("CTV's") from Taiwan. In it the court reviews a remand determination by Commerce filed on January 31, 1992. That remand determination contained the results of remands ordered by the court in A.O.C. International v. United States, 13 CIT 716, 721 F.Supp. 314 (1989) and Zenith Electronic Corp. v. United States, 15 CIT ___, 770 F.Supp. 648 (1991). Both of the remand orders were the result of judicial review of the final results of the first administrative review of the antidumping duty order on CTV's from Taiwan for the period from October, 1983 through March, 1985. Color Television Receivers, Except for Video Monitors, from Taiwan; Final Results of Antidumping Duty Administrative Review, 51 Fed.Reg. 46895 (December 29, 1986).

The court issued an order remanding the case to Commerce, inter alia, to determine what portion of a forgiven Taiwan commodity tax was passed through to home market purchasers and included in the home market price. Zenith Electronics Corp. v. United States, 770 F.Supp. 648, 651 (C.I.T.1991). This was done so that a lawful determination could be made as to what extent the price in the home market of Taiwan might have been higher due to the "excusable" fact that it contained a tax which was not levied on the exported merchandise. See Daewoo Electronics Co., Ltd. v. United States, 15 CIT ___, 760 F.Supp. 200 (1991). See also, American Alloys, Inc. et al. v. United States, 17 CIT ___, 810 F.Supp. 1294 (1993).

Commerce sent questionnaires concerning tax pass-through to the four respondents in this review who had home market sales of CTV's, namely AOC, Proton, Sampo, and Tatung. For the sake of convenience they are referred to herein as the Taiwwan interests. The two respondents who did not have home market sales were Shin-Shirasuna Electric Corp. ("Shirasuna," now known as Technol-Ace Corp.) and RCA Taiwan Ltd. ("RCA"). The responses to the questionnaire gave information concerning the Taiwan domestic market for the period 1981 through 1990. See generally, Respondents' Questionnaire Response, (Public Document No. 42); (The references to the record use the numbering system employed by Commerce in the index filed with the court on March 12, 1992). Respondents also submitted a report prepared by their economic consultant, National Economic Research Associates (NERA), which suggested a methodology for quantifying the portion of the Taiwan Commodity Tax passed through to consumers. (Pub. Doc. 43; Pro Doc. 17, Exhibit 1; "NERA Report.") Zenith submitted the comments of its own economic consultant, Professor Michael D. Bradley, (Pub.Doc. 61, Pro Doc. 19).

Commerce made two basic factual determinations. It concluded that the Taiwan companies all had constant costs, meaning that they could produce additional output for the same cost per unit as prior output. That determination is not in dispute. Commerce also concluded that the Taiwan color television industry was highly competitive, to such a degree that no individual company was capable of departing from the market price or capable of earning excess profits. Commerce then applied accepted economic reasoning to reach the ultimate conclusion that, in a market such as that found to exist in Taiwan, a tax would be fully passed through to the consumer and would not be absorbed to any extent by a producer. Commerce's conclusion about the nature of the economic forces governing the behavior of the entire industry obviated the need for specific econometric measurement of pass-through.

The degree of competitiveness of the Taiwan color television industry and its pricing behavior is the subject of intense dispute between the parties to this action. Commerce stresses that its conclusion was based on (1) the large number of producers in the market, (2) the low market share of each producer, (3) the frequency with which producers entered the market, (4) the degree of concentration in the industry as measured by the Herfindal-Hirschman Index ("HHI"), and (5) the low return on assets and equity of the television industry compared to the average returns for the Taiwan electronics industry.

In its final results on the remand, Commerce concluded that the tax pass-through rate was 100%. Thereafter, the Taiwan interests filed a motion for entry of final judgment affirming the results of the remand. The government filed a response indicating that it had no objection to the entry of final judgment. Zenith then filed its opposition to the motion for final judgment, together with a cross-motion for a second remand.

On the question of tax pass-through the court was looking for substantial evidence that economic conditions in the industry were such that individual firms would have no discretion whatsoever in their pricing decisions. If that were the case, they would be compelled by ineluctable economic forces to fully pass on any taxes to the consumer. The court has not found substantial evidence in the record to support that conclusion. What the court has found is evidence regarding the structure and behavior of the industry which is insufficient to allow a reasonable person to conclude that the firms in the industry had no pricing discretion.

There is evidence that approximately 22 firms were involved in the Taiwan color television industry from 1981 to 1990 and the largest market share achieved by any one of them was less than 17%. There is also evidence that seven different firms had at least 10% of the Taiwan domestic market in at least one of those years and the firm with the largest market share was not the same throughout the period. See Technical Appendix I at 7-8, Technical Appendix II at 6-7; NERA Study at 24-26, 30-31.

The court is of the opinion that this evidence is far too abstract to support a conclusion that the firms in the industry had no power over their pricing decisions. At best, this evidence can suggest that the industry might be more competitive than one which is highly concentrated, but it is far from substantial evidence that competition was so powerful a force or so perfect in the economic sense that an individual firm in the industry had no price setting power. This sort of industry structure could just as easily be associated with a level of competition which allows firms to engage in price setting to a meaningful degree.

The same thing is true of the ITA reliance on the degree of concentration in the industry as measured by the Herfindal-Hirschman Index ("HHI"). This index is a tool used by the Department of Justice to measure the level of concentration in an industry when it is applying its merger guidelines. For the period involved in this case, the HHI figures for the Taiwan television industry were approximately one thousand, a number which Commerce considered to be additional evidence that the industry was not concentrated and was competitive. The court finds the use of this index to be of no evidentiary value whatsoever. A value of one thousand is at the border of regions that the Department of Justice characterized as unconcentrated (below one thousand) and moderately concentrated (one thousand to one thousand eight hundred). Pub.Doc. No. 50, Exhibit I at S. 5. In fact, the court finds it noteworthy that the index measurement for the Taiwan television industry is not even close to the index measurement for industries which are more reasonably characterized as having highly competitive markets with relatively undifferentiated products, such as residential lighting fixtures with an index of 236, pumps and plumbing equipment with an index of 192, or speed changers, drives and gears with an index of 280. U.S. Department of Commerce, 1987 Census of Manufacturers: Concentration Ratios in Manufacturing (Feb. 1992, Table 4). In short, the HHI statistic is, in the court's view, totally lacking in evidentiary weight.

The government argues that Commerce did not use the HHI in the abstract but assessed it in the context of an additional factor; the ease of entry and exit to and from the Taiwan television industry. However, the court sees no special synergistic effect arising from the combination of the statistics on ease of entry into the market and the HHI. Of course it is true that low entry barriers in an industry may produce high levels of competition, but the conclusion that this must be the case in the Taiwan television industry is nothing less than supposition.

Commerce has also relied on calculations of profit rates for the four Taiwanese producers, finding these to be negative or zero for AOC and Proton and three to four percent for Sampo and Tatung. However, close examination of these figures by the court shows that they are not really a calculation of profits on color television sets. The figures were derived from the returns on assets or returns on equity for entire companies. It is clear that a company's return on assets or return on equity can differ dramatically from its profit ratio on its sales of televisions. In the opinion of the court, such evidence is insufficient...