PEER BEARING COMPANY, Plaintiff and Defendant-Intervenor, v.
                 UNITED STATES, Defendant, THE TIMKEN COMPANY,
           Defendant-Intervenor and Plaintiff, L & S BEARING COMPANY,
           LUOYANG BEARING FACTORY, SHANGHAI GENERAL BEARING COMPANY,
                          LTD., Defendant-Intervenors.

                       Consolidated Court No. 97-01-00023

                   UNITED STATES COURT OF INTERNATIONAL TRADE

          12 F. Supp. 2d 445; 1998 Ct. Intl. Trade LEXIS 66; SLIP OP.
                                     98-70


                              May 27, 1998, Dated

DISPOSITION:   [*1]   Peer's motion granted. Timken's motion granted in part and
denied in part. Case remanded.

CORE TERMS: surrogate, freight, selling, partial, margin, indirect,
calculation, methodology, inland, merchandise, roller, cooperation, producer,
offset, dye, redetermination, antidumping, import, foreign market, marine
insurance, recalculate, second-tier, overhead, assigned, exporter, dumping,
tapered, sulfur, ocean, substantial evidence

SYLLABUS: Plaintiffs, Peer Bearing Company ("Peer") and The Timken Company
("Timken") move pursuant to Rule 56.2 of the Rules of this Court for judgment on
the agency record challenging certain aspects of the Department of Commerce,
International Trade Administration's ("Commerce") final determination, entitled
Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, From the
People's Republic of China; Final Results of Antidumping Duty Administrative
Reviews ("Final Results"), 61 Fed. Reg. 65,527 (Dec. 13, 1996). Peer challenges
Commerce's selection of partial best information available ("BIA") for certain
sales. Timken challenges the following actions by Commerce: (1) the use of
surrogate sources other than India for labor and material costs when calculating
foreign market value ("FMV"); (2) the failure to adjust Indian overhead,
selling, general and administrative expenses, and profit rates to account for
differences in material and labor values of other surrogate sources used in
determining FMV; (3) the determination that certain expenses were indirect
selling expenses to be deducted  [*2]   from FMV as an exporter's sales price
offset; and (4) the adjustment of United States price ("USP") for inland
freight, ocean freight and marine insurance.

Held: Peer's motion for judgment on the agency record is granted. Timken's
motion for judgment on the agency record is granted in part and denied in part.
The Court remands to Commerce to: (1) assign the amended BIA margin to Peer or,
in the alternative, to explain why the corrected rate should not be applied; (2)
recalculate indirect selling expenses; (3) recalculate the marine insurance rate
pursuant to a value-based methodology; and (4) correct the inland freight
calculation.

COUNSEL: John M. Gurley and Peter L. Sultan, Arent Fox Kintner Plotkin & Kahn,
for Peer Bearing Company.

Terence P. Stewart, James R. Cannon, Jr. and Charles A. St. Charles, Stewart
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and Stewart, for The Timken Company.

Frank W. Hunger, Assistant Attorney General; David M. Cohen, Director,
Commercial Litigation Branch, U.S. Department of Justice, Velta A. Melnbrencis,
Assistant Director; of counsel: Rina Goldenberg, Office of the Chief Counsel for
Import Administration, U.S. Department of Commerce, for defendant.

Mark A. Cohen, Cohen  [*3]   Darnell & Cohen, for L & S Bearing Company.

Lawrence R. Walders and Andrea Fekkes Dynes, Graham & James LLP, for Luoyang
Bearing Factory.

James K. Kearney and Priya Alagiri, Reed Smith Shaw & McClay, for Shanghai
General Bearing Company, Ltd.

JUDGES: BEFORE: SENIOR JUDGE NICHOLAS TSOUCALAS.

OPINIONBY: NICHOLAS TSOUCALAS

OPINION: OPINION

   TSOUCALAS, Senior Judge: Plaintiffs Peer Bearing Company ("Peer") and the
Timken Company ("Timken") have filed separate motions for judgment on the agency
record pursuant to Rule 56.2 of this Court contesting various aspects of the
final results of administrative reviews issued by Commerce regarding tapered
roller bearings ("TRBs") imported from the People's Republic of China ("PRC").

   Background

   This case deals with shipments of TRBs and parts thereof, finished and
unfinished, from the People's Republic of China (PRC). On August 25, 1995, the
Department of Commerce, International Trade Administration ("Commerce"),
published the preliminary results of its administrative reviews of the
antidumping duty order on TRBs from the PRC. See Tapered Roller Bearings and
Parts Thereof, Finished and Unfinished, From the People's Republic of China;
[*4]    Preliminary Results of Antidumping Duty Administrative Reviews
("Preliminary Results"), 60 Fed. Reg. 44,302.

   The administrative determination under review is Tapered Roller Bearings and
Parts Thereof, Finished and Unfinished, From the People's Republic of China;
Final Results of Antidumping Duty Administrative Reviews ("Final Results"), 61
Fed. Reg. 65,527 (Dec. 13, 1996). The determination covers three periods of
review ("PORs"): June 1, 1990 through May 31, 1991 (the fourth POR); June 1,
1991 through May 31, 1992 (the fifth POR); and June 1, 1992 through May 31, 1993
(the sixth POR). n1 The Court granted L & S Bearing Company's Motion to
Intervene on March 17, 1997, after which L & S Bearing Company has not filed any
additional papers. Oral argument was held at the Court on February 20, 1998.

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   n1 The reviews were initiated prior to January 1, 1995. Consequently, the
applicable law is the antidumping statute as it existed prior to the amendments
made by the Uruguay Round Agreements Act, Pub. L. No. 103-465, 108 Stat. 4809
(1994). See Torrington Co. v. United States, 68 F.3d 1347, 1352 (Fed. Cir.
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1995).

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[*5]

   Discussion

   This Court has jurisdiction in this case pursuant to 19 U.S.C. @ 1516a(a)(2)
and 28 U.S.C. @ 1581(c) (1994).

   The Court must uphold Commerce's final determination unless it is
"unsupported by substantial evidence on the record, or otherwise not in
accordance with law." 19 U.S.C. @ 1516a(b)(1)(B) (1994). Substantial evidence is
"more than a mere scintilla. It means such relevant evidence as a reasonable
mind might accept as adequate to support a conclusion." Universal Camera Corp.
v. NLRB, 340 U.S. 474, 477, 95 L. Ed. 456, 71 S. Ct. 456 (1951) (quoting
Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229, 83 L. Ed. 126, 59 S. Ct. 206
(1938)). "It is not within the Court's domain either to weigh the adequate
quality or quantity of the evidence for sufficiency or to reject a finding on
grounds of a differing interpretation of the record." Timken Co. v. United
States, 12 C.I.T. 955, 962, 699 F. Supp. 300, 306 (1988), aff'd, 894 F.2d 385
(Fed. Cir. 1990).

   A. Peer Bearing's Issues

1. Selection of Partial BIA

   Peer challenges only one issue pertaining to the Final Results. Specifically,
Peer contests Commerce's choice of the best information available  [*6]
("BIA") in its calculation of foreign market value ("FMV") for certain
transactions in the fifth and sixth reviews.

   Peer's related Hong Kong affiliate, Chin Jun Industrial Ltd., n2 purchased
TRBs from seven PRC suppliers and sold them to Peer, which then resold them to
companies in the United States. Commerce requested that the seven PRC suppliers
provide factors of production ("FOP") information for Commerce to use in
calculating FMV. Five of the seven PRC suppliers did not provide the requested
information. Final Results, 61 Fed. Reg. at 65,538, 65,542-43. Consequently,
Commerce used BIA to determine the dumping margin for those U.S. sales of TRBs
by the five non-responding PRC suppliers for the fifth and sixth review periods.
Id. Commerce selected as BIA the 8.83% dumping margin that Commerce had assigned
to Peer during the fourth POR. n3 Peer does not dispute that Commerce was
required by statute to use BIA in making its determination. Rather, Peer
challenges Commerce's selection of what constitutes partial BIA for the fifth
and sixth reviews, arguing that the 8.83% rate Commerce used is punitive and
improper. In addition, Peer asserts that, in light of its cooperation  [*7]
with Commerce and its inability to obtain the information Commerce requested
from the non-responsive PRC suppliers, Commerce should have used a "neutral"
methodology to determine the BIA rate, such as a weighted average of previous
antidumping margins found for Peer, or actual dumping margins Commerce
determined using the FOP information Peer was able to provide. Peer's Mem. Supp.
Mot. J. Agency R. at 4-10.

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-

   n2 To clarify the record, this Court notes that in the Final Results Commerce
refers to both Peer and Chin Jun Industrial Ltd. as "Chin Jun." 61 Fed. Reg. at
65,527-46. Because Peer is filing this action, however, this Court will refer to
Peer and its affiliate collectively as "Peer."

   n3 Peer challenges the final results with respect to the fifth and sixth
reviews but is not pursuing its appeal of the final results for the fourth
review period. See Peer's Mem. Supp. Mot. J. Agency R. at 2.

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   Commerce responds that the 8.83% BIA rate was not punitive. Commerce asserts
that the rate, which was the highest  [*8]   rate applicable to Peer in a
previous review, was the most probative evidence of the current dumping margin.
If it were not the most probative information, Commerce argues, Peer would have
submitted information showing the margin to be less. Commerce's Partial Opp'n to
Mots. J. Agency R. at 3.

   Timken agrees with Commerce that the 8.83% BIA rate was not punitive and
interprets Commerce's choice of BIA as the application of a "second-tier BIA
rate" under Commerce's two-tier BIA methodology. Timken argues that this
second-tier BIA rate is appropriate, even when factoring in Peer's cooperation.
Timken's Opp'n to Mot. J. Agency R. at 2-5.

   The statute expressly requires Commerce to use BIA when faced with a party
that is unwilling or unable to participate in the administrative review
proceedings.  19 U.S.C. @ 1677e(c) (1988). However, because Congress did not
define what constitutes BIA, Commerce's construction of the statute must be
accorded considerable deference. See, e.g., Chevron U.S.A., Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837, 843-44, 81 L. Ed. 2d 694, 104 S.
Ct. 2778 (1984). Commerce's selection of BIA is based on its interpretation of
the governing  [*9]   statutory authority and regulatory provisions. The Court,
therefore, must consider the scope of the statutory authority conferred upon
Commerce regarding the use of BIA, Commerce's implementation of that authority
through its regulations and Commerce's execution of its regulations through its
articulated BIA policy.  Allied-Signal Aerospace Co. v. United States, 996 F.2d
1185, 1189 (Fed. Cir. 1993).

   BIA "is not necessarily the most accurate information; rather, it is
information that has become usable due to a respondent's failure to provide
accurate information." Usinor Sacilor v. United States, 18 C.I.T. 1155, 1161,
872 F. Supp. 1000, 1006 (1994); Asociacion Colombiana de Exportadores de Flores
v. United States, 13 C.I.T. 13, 28, 704 F. Supp. 1114, 1126 (1989), aff'd, 901
F.2d 1089 (Fed. Cir. 1990), cert. denied, Floramerica, S.A. v. United States,
498 U.S. 848, 112 L. Ed. 2d 103, 111 S. Ct. 136 (1990). The application of BIA
may be "total" or "partial." Commerce applies total BIA when a party has failed
to submit information in a timely manner, or when part of the submitted data is
sufficiently flawed, rendering the entire response unreliable and unusable. See
Ad   [*10]    Hoc Comm. of AZ-NM-TX-FL Producers of Gray Portland Cement v.
United States, 18 C.I.T. 906, 915 n.21, 865 F. Supp. 857, 865 n.21 (1994),
aff'd, 68 F.3d 487 (Fed. Cir. 1995); National Steel Corp. v. United States, 18
C.I.T. 1126, 1131, 870 F. Supp. 1130, 1135 (1994). When Commerce resorts to
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total BIA, Commerce implements a "two-tier BIA methodology," which factors in a
party's cooperation in the BIA determination. n4 Commerce uses partial BIA when
only part of the submitted information is deficient, but is still reliable in
most other respects. See Ad Hoc Comm., 18 C.I.T. at 915 n.21, 865 F. Supp. at
865 n.21. The adversity of the information used as partial BIA depends on the
level of sufficiency of the information provided.  National Steel, 18 C.I.T. at
1131, 870 F. Supp. at 1135.

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   n4 Despite Timken's argument that Commerce appropriately used second-tier
BIA, Commerce's two-tier methodology is not invoked here. Only when applying
total BIA does Commerce's two-tier methodology become relevant. This two-tier
method of applying BIA distinguishes between parties that actively impede an
investigation (assigned first-tier BIA) and parties who substantially cooperate
with Commerce, but who nonetheless fail to provide the requested information
(assigned second-tier BIA). See Allied-Signal, 996 F.2d at 1190. When Commerce
uses first-tier BIA, Commerce employs the highest of the rates found for any
firm for the same class or kind of merchandise in the same country of origin in
the less than fair value ("LTFV") investigation, or the highest rate found in
the current review for the same class or kind of merchandise in the same country
of origin. When second-tier BIA is employed, Commerce assigns to a party the
higher of its own prior LTFV rate or the highest rate calculated in the current
administrative review.  Id. at 1188.

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[*11]

   Although Commerce expressly recognized Peer's cooperation in the Final
Results, Commerce does not usually consider a party's level of cooperation when
applying partial BIA. See, e.g., AK Steel Corp. v. United States, 21 C.I.T.    ,
   , 988 F. Supp. 594, 607 n.10 (1997) (according to Commerce's usual practice,
a party's cooperation is not a factor Commerce considers in applying partial
BIA); see also National Steel, 18 C.I.T. at 1131, 870 F. Supp. at 1135 (Commerce
does not consider the respondent's level of cooperation when applying partial
BIA and may apply the highest non-abberant margin despite respondent's
cooperation). Therefore, the quality and completeness of the data, and not
Peer's cooperation, are the determining factors in establishing the
appropriateness of the partial BIA rate.  National Steel, 18 C.I.T. at 1132, 870
F. Supp. at 1136.

   Despite Commerce's statements in the Final Results unusually linking Peer's
cooperation with Commerce's use of partial BIA, the Court will "uphold a
decision of less than ideal clarity if the agency's path may reasonably be
discerned." Bowman Transp., Inc. v. Arkansas-Best Freight Sys., Inc., 419 U.S.
281, 286,   [*12]   42 L. Ed. 2d 447, 95 S. Ct. 438 (1974). In this case,
Commerce's partial BIA rate was based on a rate that had been the highest rate
assigned to Peer in a preceding review, specifically, the fourth POR. In turn,
the rate used in the fourth review was based on the rate applied to another
Chinese producer in the third review. See Final Results, 61 Fed. Reg. at 65,545
n.1. n5 Commerce, therefore, reasonably chose the unchallenged rate of the
fourth review as a partial BIA rate in the fifth and sixth reviews. Commerce's
selection of the highest margin applicable to Peer (in the same review or in any
review) as partial BIA for the U.S. sales for which Peer did not submit any
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             12 F. Supp. 2d 445; 1998 Ct. Intl. Trade LEXIS 66, *;
                                 SLIP OP. 98-70

information was reasonable and was in accordance with law.

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   n5 The 8.83% BIA rate was an uncooperative rate in the fourth review. Final
Results, 61 Fed. Reg. at 65,545 n.1 ("[Chin Jun] did not respond to the
questionnaire or did not respond to the supplemental questionnaire [in the
fourth review]; therefore, as uncooperative BIA, [Commerce] assigned the highest
rate calculated in the investigation or in this or any other review of sales of
subject merchandise from the PRC."). However, the rate Commerce selected for
certain U.S. sales is still partial BIA in the context of the fifth and sixth
reviews because it was applied only for those sales for which no information was
provided.  Id. at 65,542.

   The very nature of BIA and the ability to borrow rates from other reviews
demonstrate that an uncooperative BIA rate in one review could be the
cooperative second-tier rate in a subsequent review and a partial BIA rate in
yet another review. In this case, for example, the rate used as partial BIA in
the fifth and sixth reviews also could have been, for those same reviews, either
a first-tier rate (the highest rate applied to any company) or a second-tier
rate (the highest rate assigned to Peer).

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[*13]

   The Court rejects Peer's argument that the partial BIA rate is punitive.
Commerce would have had to reject low margin information in favor of
demonstrably less probative high margin information for Commerce's use of BIA to
be punitive. See Rhone Poulenc, Inc. v. United States, 899 F.2d 1185, 1190 (Fed.
Cir. 1990). In this case, Commerce did not reject low margin information because
Peer, by its own admission, had no information to submit. For the same reason,
Peer's reliance on Usinor to support its claim that Commerce used an improper
BIA methodology, is unfounded. In Usinor, the court found that Commerce erred in
rejecting a company's verifiable sales data to use instead the highest
non-aberrant margin, solely because the company failed to meet the preconditions
for limited reporting.  18 C.I.T. at 1161-62, 872 F. Supp. at 1006. In contrast,
Peer was unable to obtain any verifiable sales data from those PRC suppliers to
which partial BIA was applied.

   Peer's reliance on Holmes Prods. Corp. v. United States, 16 C.I.T. 628, 795
F. Supp. 1205 (1992), and Flores, 13 C.I.T. 13, 704 F. Supp. 1114, to support
its argument that Commerce should have applied a weighted-average margin
[*14]   is misplaced. In Holmes, the court held that Commerce erred in rejecting
a company's data for certain calculations while using the company's data for
other computations.  16 C.I.T. at 631, 795 F. Supp. at 1207. Similarly, Flores
stands for the principle that data estimates may be used where there is only a
minimal failure in verified information.  13 C.I.T. at 16, 704 F. Supp. at
1117-18. Finally, in Shieldalloy Metallurgical Corp. v. United States, also
cited by plaintiff, the court held that:

Commerce could not resort to adverse best information available because
[plaintiff] complied with all information requests. (The statute clearly
requires noncompliance with an information request before resort to the best
information rule is justified, whether due to refusal or mere inability.) In
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                                 SLIP OP. 98-70

the Remand Determination Commerce identifies evidence showing that [plaintiff]
responded to all requests for information, and that all of [plaintiff's]
responses were verified.

21 C.I.T.    ,    , 975 F. Supp. 361, 363 (1997) (emphasis in original)
(citations omitted). In contrast, Peer simply did not submit any information
regarding certain U.S. sales. Commerce  [*15]   therefore had the authority to
resort to the highest rate assigned to Peer in a previous review as partial BIA
for those sales.

2. Amended BIA Rate

   As an argument of last resort, Peer contests that the 8.83% rate is incorrect
because the rate was reduced by this Court to 7.07% in a previous opinion.
Peer's Reply Mem. Supp. Mot. J. Agency R. at 14.

   As a preliminary matter, the Court notes that although Peer has challenged
Commerce's use of partial BIA in a timely fashion, the Court has not found any
express challenges on the record referring to the amended rate. The Court is
concerned that Peer raised the argument regarding the amended rate for the first
time in its Reply Brief to this Court. Rule 81(1) of the Rules of this Court
provides that a "reply brief shall be confined to rebutting matters contained in
the brief of the respondent[s]," in this case, Timken and Commerce.
"Nevertheless, the Court may exercise its discretion to prevent knowingly
affirming a determination with errors." Torrington Co. v. United States, 1997
Ct. Intl. Trade LEXIS 128, *7, 21 C.I.T.    ,     (Sept. 19, 1997); see also
Toyota Motor Sales, U.S.A., Inc. v. United States, 20 C.I.T.    ,   [*16]
   , 930 F. Supp. 636, 639 (1996). Because the amendment of the rate is
intimately related to Peer's timely challenge of the partial BIA rate, and
because Commerce itself has already demonstrated its knowledge of the amendment
in one of its redeterminations, the Court will exercise its discretion to
consider this argument although it was not properly exhausted. See, e.g., Mitsui
& Co. v. United States, 18 C.I.T. 185, 194 (1994) (quoting Hormel v. Helvering,
312 U.S. 552, 557, 85 L. Ed. 1037, 61 S. Ct. 719 (1941)) (there may be
exceptional circumstances which will prompt a reviewing or appellate court to
review arguments not raised in administrative proceedings where injustice may
result by applying strictly the general rule of exhaustion). The Court finds
that the present situation is an exceptional case that warrants judicial review.

   The antidumping duty rate of 8.83% was changed by this Court in UCF America
Inc. v. United States, 18 C.I.T. 1074, 870 F. Supp. 1120 (1994). n6 Commerce
cannot use a rate that has been invalidated for BIA purposes.  D & L Supply Co.
v. United States, 113 F.3d 1220, 1223-24 (Fed. Cir. 1997); Pulton Chain Co. v.
United States, 1997 Ct. Intl. Trade LEXIS 165, *6, 21 C.I.T.    ,    ,  [*17]
(Dec. 2, 1997). It is irrational for Commerce to use a margin that has been
invalidated because it ignores the interest in selecting a rate that has some
relationship to commercial practices in the particular industry. D & L at 1224.
The Court therefore finds that the use of the 8.83% rate is unreasonable and not
supported by substantial evidence. Thus, in light of UCF, and in accordance with
the Amended Redetermination of the third POR n7 from which the rate was taken,
Amended Redetermination, 61 Fed. Reg. 29,345, this Court remands for Commerce to
implement the amended BIA rate as required by D & L. Should Commerce determine
that the 8.83% rate is appropriate despite the amendment in UCF and the
corrected redetermination, the Court orders Commerce to distinguish the fifth
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and sixth PORs and explain why the amended rate should not be applied.

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   n6 The Court cannot in this case ignore its own decision changing an
obviously incorrect rate because the plaintiffs flouted proper procedure or
because Commerce overlooked amendments to the record and its investigations.
Although the Court is directed by statute to apply the exhaustion doctrine
"where appropriate," 28 U.S.C. @ 2637(d) (1994), the exhaustion requirement is
not jurisdictional in nature, and can be bent under exceptional circumstances.
Mitsui, 18 C.I.T. at 186.

   The amended rate of the third POR, on which Commerce based the dumping margin
of the fourth, fifth and sixth PORs, is part of the record. The Court deems it
significant that this Court's decision changing the rate and, more importantly,
Commerce's amended redetermination applying the amended rate, were available to
Commerce before the Final Results were published. See UCF, 18 C.I.T. 1074, 870
F. Supp. 1120; Final Results, 61 Fed. Reg. at 65,527; Final Court Decision and
Amended Final Results: 1989-90 Administrative Review of Tapered Roller Bearings
and Parts Thereof from the People's Republic of China ("Amended
Redetermination"), 61 Fed. Reg. 29,345 (June 10, 1996). The Court is unable to
comprehend how Commerce could ignore the change of BIA in the third review after
Commerce itself implemented the rate in a redetermination pursuant to Court
remand.

   Commerce's oversight is a significant factor in this Court's deviation from
the exhaustion doctrine. The exhaustion doctrine protects the administrative
process by prohibiting courts from considering issues not presented to the
administrative agency. See Unemployment Compensation Comm'n of Alaska v. Aragon,
11 Alaska 236, 329 U.S. 143, 155, 91 L. Ed. 136, 67 S. Ct. 245 (1946) (holding
that a reviewing court usurps the agency's function when it sets aside an
administrative determination upon a ground not presented to the agency,
depriving the agency of an opportunity to consider and rule on the matter).
However, in this case, Commerce's preceding Amended Redetermination using the
amended rate demonstrates that Commerce had the opportunity to consider the
issue and that Commerce itself knowingly changed the antidumping margin in the
POR from which it took the rate in question. Commerce had agreed that in the
third POR it had made an error in calculating the dumping margin and asked for a
remand.  UCF, 18 C.I.T. 1074, 870 F. Supp. 1120.

   The Court further notes that a remand in this case is consistent with the
purpose of the BIA statute which is to facilitate the determination of dumping
margins as accurately as possible. See D & L, 113 F.3d at 1223.  [*18]

   n7 The amended rate of the third review not only influences the fifth and
sixth reviews, but also would inherently change the fourth review. This issue,
however, is not presently before the Court. See Peer's Reply Mem. Supp. Mot. J.
Agency R. at 2 ("Peer elected to accept BIA in the 1990-1991 [fourth] review
because it had only one very small U.S. sale of TRBs in that review period,
which did not warrant the effort and expense of verification for that review.")
(emphasis in original); see also Peer's Mem. Supp. Mot. J. Agency R. at 2 (Peer
no longer pursues its appeal of the final results in the fourth review). Due to
Peer's deliberate failure to appeal the BIA rate implemented in the fourth POR,
Peer is barred from raising this issue in the future.
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   B. Timken's Issues

1. Commerce's Use of Indonesian Import Statistics and International Labor
Organization Data as Surrogate Values for Certain FOPs to Determine FMV

   Commerce determined that TRBs from the PRC were being sold in the United
States for LTFV and that these LTFV sales threatened the domestic industry with
material  [*19]   injury. Because Commerce found that PRC is a nonmarket economy
("NME") country, Commerce calculated the FMV of the TRBs using CV and FOPs based
on values from surrogate countries.

   In the preliminary results, Commerce used values from Indian financial
reports to determine three FOPs in calculating FMV: (1) overhead; (2) selling,
general and administrative expenses ("SG&A"); and (3) profit. Preliminary
Results, 60 Fed. Reg. at 44,305. For direct labor, Commerce used surrogate
values derived from the International Labor Office's ("ILO") statistics and for
material costs, Commerce used values from Indian import statistics. Id. Commerce
included Indian material and labor expenses in the denominator of the
calculation of percentages for factory overhead, SG&A and profit. Id.

   In the Final Results, Commerce compared the Indian import data to U.S. import
data and determined that the Indian data it used to value certain TRB components
in the Preliminary Results was not reliable.  61 Fed. Reg. at 65,532. Commerce,
therefore, chose to use India as a surrogate for steel used to produce rollers
and cages and Indonesia as a secondary surrogate for cups and cones. n8 Final
Results,  [*20]   61 Fed. Reg. at 65,529-32. Commerce further determined that
these surrogates comprised BIA for valuing raw material costs in its FOP
calculations. Id.

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   n8 A TRB consists of a cone (inner race), cage (roller retainer), and roller
in one assembled unit, and the cup (outer race), which is the outer ring on
which the rollers turn. See, e.g., Tapered Roller Bearings and Certain
Components Thereof From Japan; Clarification of Scope of Antidumping Finding, 46
Fed. Reg. 40,550, 40,551 (Aug. 10, 1981).

- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

   Timken's arguments challenging Commerce's use of surrogate values are
multi-faceted. First, Timken argues that Commerce erred in determining that the
Indian statistics were unreliable. Timken asserts that Commerce should have
instead based the values of FOPs on Indian statistics as Commerce did in its
preliminary determination. In the alternative, Timken argues that Commerce
should have adjusted the Indian producer's overhead rate to correspond to the
Indonesian and ILO FOPs Commerce used in the Final Results. Timken  [*21]
suggests that, at the very least, Commerce should have deducted the amount of
duties paid by the Indian producer on imported materials from the total overhead
and SG&A calculations as an adjustment. Timken's Mem. Supp. Mot. J. Agency R. at
4-5, 13-29.
                                                                      PAGE   11
             12 F. Supp. 2d 445; 1998 Ct. Intl. Trade LEXIS 66, *;
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   Defendant-intervenor Luoyang Bearing Factory ("Luoyang"), supports Commerce's
position, arguing that Commerce has discretion to use data from a secondary
surrogate country or other appropriate economy in antidumping proceedings
involving a NME. In addition, Luoyang asserts that Commerce's use of U.S. import
data for purposes of comparison was appropriate and reasonable. Luoyang's Opp'n
to Mot. J. Agency R. at 11-14. Regarding adjustment, Luoyang argues that
Commerce does not typically adjust its FOP calculations in the manner suggested
by Timken. Luoyang's Opp'n to Mot. J. Agency R. at 22-28.

   Peer agrees with Commerce's position that the Indian steel values were
aberrational, necessitating the use of secondary surrogates. Peer also claims
that no adjustment of Indian values was necessary because FMV in NME cases is
often based on the application of ratios derived from one source to values
derived from another. Last, Peer argues that  [*22]   Commerce correctly
declined to adjust Indian overhead, SG&A and profit ratios for duties paid by
the Indian producer on raw material imports because there was no evidence that
such duties, if any, were included in the raw material costs. Peer's Opp'n to
Mot. J. Agency R. at 7-18.

   Shanghai General Bearing Company, Ltd. ("Shanghai") asserts that Commerce's
use of Indonesian material factors and ILO rates with unadjusted Indian values
was reasonable and was supported by substantial evidence on the record.
Shanghai's Opp'n to Mot. J. Agency R. at 11-16.

   There is no question that the PRC is a NME. When the merchandise under
investigation is exported from a NME, 19 U.S.C. @ 1677b(c) (1988) applies. The
applicable provision states that when dealing with exports from NME countries,
"the valuation of the factors of production shall be based on the best available
information regarding the values of such factors in a market economy country or
countries considered to be appropriate by the administering authority." Id.
According to section 1677b(c)(3), the FOPs to be utilized in valuing merchandise
from a NME include, but are not limited, to: "(A) hours of labor required, (B)
quantities  [*23]   of raw materials employed, (C) amounts of energy and other
utilities consumed, and (D) representative capital cost, including
depreciation." Section 1677b(c)(4) further provides that Commerce "shall
utilize, to the extent possible, the prices or costs of factors of production in
one or more market economy countries that are (A) at a level of economic
development comparable to that of the nonmarket economy country, and (B)
significant producers of comparable merchandise." The Court finds that
Commerce's use of unadjusted Indian values, integrated with Indonesian import
values for bearing quality steel used to manufacture TRB cups and cones and ILO
rates for direct labor values, is supported by substantial evidence and is in
accordance with law.

   Although Commerce expresses a strong preference for obtaining all factor
values from a single surrogate source, both case law and Commerce's
determinations are filled with instances in which Commerce used a blend of
sources and surrogates to determine FMV.  Tianjin Mach. Import & Export Corp. v.
United States, 16 C.I.T. 931, 940, 806 F. Supp. 1008, 1018 (1992) ("Commerce's
ability to construct foreign market value from weighted alternatives  [*24]
advantageously serves the antidumping statutes purpose of 'determining current
margins as accurately as possible.'"); Notice of Final Determination of Sales at
Less Than Fair Value: Certain Partial-Extension Steel Drawer Slides with Rollers
From the People's Republic of China, 60 Fed. Reg. 54,472, 54,474 (Oct. 24,
                                                                      PAGE   12
             12 F. Supp. 2d 445; 1998 Ct. Intl. Trade LEXIS 66, *;
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1995) ("Although India is the preferred surrogate country, we have resorted to
Indonesia for a certain surrogate value where an Indian value was determined to
be inappropriate."); Notice of Final Determination of Sales at Less Than Fair
Value: Certain Cased Pencils From the People's Republic of China, 59 Fed. Reg.
55,625, 55,629 (Nov. 8, 1994) (Commerce chose India as a primary surrogate
market and relied mostly on Indian data, except for certain inputs). Nothing in
the statute mandates that Commerce derive FMV from surrogate-based values
according to a certain methodology. Section 1677b(c)(1) simply provides that
"valuation of the factors of production shall be based on the best available
information" regarding values in surrogate countries. Additionally, Commerce is
to utilize the prices or costs in the surrogate country only to "the extent
possible". See Tianjin, 16 C.I.T. at 940,   [*25]   806 F. Supp. at 1018.
Commerce's authority to select appropriate surrogate values to determine FMV
based on FOP includes the authority to do so without adjustment. The statute
does not require Commerce to follow any single approach in evaluating FOP data.
It was, therefore, within Commerce's authority to use India as a primary
surrogate in conjunction with Indonesian values and ILO data as BIA for other
values.

   The Court rejects Timken's argument that Commerce erred in using the U.S.
data as a benchmark to test the reliability of the Indian data. The Court has
found in previous cases that comparison of surrogate data to U.S. data to
determine reliability is within "Commerce's statutory authority and consistent
with past practice." See Writing Instrument Mfrs. Ass'n v. United States, 21
C.I.T.    ,    , 984 F. Supp. 629, 639 (1997) (upholding use of U.S. benchmark
as a point of comparison for two possible surrogate values); see also Olympia
Indus., Inc. v. United States, 1997 Ct. Intl. Trade LEXIS 43, *10, 21 C.I.T.
   ,     (Apr. 10, 1997) (upholding Commerce's use of data from other market
economies to test the reliability of surrogate country data). Commerce,
[*26]   therefore, acted within its statutory authority by utilizing data from
other market economies to aid its FOP valuation. See 19 U.S.C. @
1677b(c)(1)&(4). Timken's challenge of Commerce's decision to use Indonesian
values for certain factors involves the correctness of Commerce's result, not
Commerce's methodology, and so, is outside the Court's standard of review.
Writing Instrument, 21 C.I.T. at    , 984 F. Supp. at 639. The Court therefore
concludes that Commerce's use of U.S. import data as a benchmark was reasonable.

   The Court also rejects Timken's argument that Commerce's use of secondary
surrogate values in the Final Results was without notice and, therefore, not in
accordance with law. Commerce is allowed flexibility to change its position from
the preliminary determination to the Final Results, as along as Commerce
explains the basis for the change and the explanation is supported by
substantial evidence. See Asociacion Colombiana de Exportadores de Flores v.
United States, 6 F. Supp. 2d 865, 1998 Ct. Intl. Trade LEXIS 27, *42, 22 C.I.T.
   ,     (Mar. 25, 1998). Preliminary results, by their very nature, are
preliminary and subject to change. See, e.g., Tehnoimportexport v.   [*27]
United States, 15 C.I.T. 250, 254-255, 766 F. Supp. 1169, 1174-75 (1991)
(affirming final determination where Commerce chose one country as surrogate in
the preliminary results and then used another surrogate for the final
determination). Commerce has no obligation to inform the parties that a
different surrogate will be used in the final determination than in the
preliminary. See id. 15 C.I.T. at 255, 766 F. Supp. at 1175.
                                                                      PAGE   13
             12 F. Supp. 2d 445; 1998 Ct. Intl. Trade LEXIS 66, *;
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   In the absence of a statutory mandate to the contrary, Commerce's actions
must be upheld as long as they are reasonable. The Court concludes that Commerce
acted reasonably in applying surrogate values without adjustment in an attempt
to capture the FMV of the PRC TRBs under review. In addition, Commerce acted
reasonably by not deducting duties paid by the Indian producer on imported
materials from the total overhead and SG&A calculations because Commerce had no
evidence that such duties were paid.

2. Adjustment of FMV by ESP Offset

   In the Final Results, Commerce deduced that the "other expenses" category in
the Indian financial report, minus certain itemized debentures, were indirect
selling expenses. Based on this conclusion, Commerce deducted the amount
[*28]   it determined to be indirect selling expenses from FMV.  61 Fed. Reg. at
65,535.

   Timken recognizes that Commerce has the authority to deduct indirect selling
expenses from FMV under 19 C.F.R. @ 353.56(b)(2), but argues that Commerce's
method of calculation was flawed and did not accurately determine such expenses.
Timken asks for a remand so that Commerce could either eliminate the deduction
from FMV or re-estimate what portion constitutes indirect selling expenses.
Timken's Mem. Supp. Mot. J. Agency R. at 31-37.

   Commerce responds it logically concluded that, after the subtraction of
debentures, the other expenses category contained only indirect selling expenses
for which an adjustment to FMV was appropriate. Commerce's Partial Opp'n to Mot.
J. Agency R. at 41- 45.

   Peer agrees that Commerce reasonably assumed that the "other expenses" of the
Indian producer were selling expenses that should be deducted from constructed
value. Peer's Mem. Supp. Mot. J. Agency R. at 18-21.

   Luoyang and Shanghai generally support Commerce's position and argue that
Commerce's conclusion that other expenses minus debentures constitute indirect
selling expenses was reasonable. Luoyang's Opp'n to Mot.   [*29]   J. Agency R.
at 28-32; Shanghai's Opp'n to Mot. J. Agency R. at 22-25.

   Exporter's sales price ("ESP") is "the price at which merchandise is sold or
agreed to be sold in the United States." 19 U.S.C. @ 1677a(c) (1988). Section
1677a(e)(2) provides that ESP shall be reduced by "expenses generally incurred
by or for the account of the exporter in the United States in selling identical
or substantially identical merchandise." Commerce's regulation, 19 C.F.R. @
353.56 (1994), permits a deduction from FMV, called an ESP offset, up to the
amount of indirect selling expenses incurred in the United States. The ESP
offset was

created by Commerce, and approved by the courts, as a means to effect a fair
comparison between foreign market value and United States price. Because the
foreign market value allowance under @ 1677b(a)(4)(B) for circumstances
connected to the sale includes only direct selling expenses, while the statutory
adjustment to exporter's sales price under @ 1677a(e)(2) encompasses both direct
and indirect selling expenses, Commerce was concerned that it would be unfair to
compare foreign market value to United States price based on exporter's sales
price. The ESP offset  [*30]   thus provides that when . . . United States
                                                                      PAGE   14
             12 F. Supp. 2d 445; 1998 Ct. Intl. Trade LEXIS 66, *;
                                 SLIP OP. 98-70

price is calculated using exporter's sales price, Commerce may reduce the
foreign market value by the amount of indirect selling expenses incurred in
making foreign sales.

Torrington Co. v. United States, 82 F.3d 1039, 1049 (Fed. Cir. 1996) (citations,
quotations and footnotes omitted).

   The Final Results indicate that Commerce adjusted the FMV of the surrogate
pursuant to an ESP offset rationale.  61 Fed. Reg. at 65,535. The Indian
producer's annual report from which Commerce borrowed figures did not itemize
the expenses in the other expenses category. Id. The issue remaining is whether
Commerce correctly applied 19 C.F.R. @ 353.56 in adjusting the FMV of India's
TRBs or, more specifically, whether Commerce correctly determined that the
deductions made from the other expenses provided Commerce with an accurate
number constituting indirect selling expenses to be deducted from FMV.

   The Court holds that Commerce's determination that the other expenses
category minus debentures constituted indirect selling expenses was not
reasonable or supported by substantial evidence on the record. The other
expenses category was the only  [*31]   item in a list of "expenses for
manufacture, administration and selling" in the Indian producer's report that
did not expressly cover manufacturing or administrative expenses. However, it
does not necessarily follow that the remaining other expenses referred to
selling expenses or, more specifically, to indirect selling expenses which may
support an ESP offset adjustment. Consequently, the Court remands this issue to
Commerce to employ a more accurate methodology for determining indirect selling
expenses.

3. Commerce's Adjustments to USP for Inland Freight, Ocean Freight and Marine
Insurance

   a. Inland Freight

   Timken argues that Commerce erred in its calculation of inland freight costs
by assuming that rail rates were quoted per kilometer when in fact the rates
were quoted per ton. Timken's Mem. Supp. Mot. J. Agency R. at 38. Commerce
agrees with Timken that an error has occurred and requests a remand to
recalculate inland freight on a "per kilometer" basis. Commerce's Partial Opp'n
to Mot. J. Agency R. at 45.

   Shanghai disputes that the inland freight calculation includes a clerical
error, and alleges that Commerce intended to calculate inland freight based on
kilometers.   [*32]   Shanghai further objects to a remand, claiming that
Timken's argument regarding inland freight is time-barred because Timken did not
raise the argument in the administrative proceedings. Shanghai's Opp'n to Mot.
J. Agency. R. at 26-27. Luoyang echoes Shanghai's arguments that Timken's claim
regarding inland freight rates is barred for lack of exhaustion. Luoyang's Opp'n
to Mot. J. Agency R. at 33-34. Peer also argues that no clerical error occurred.
n9

- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -

   n9 Peer's position that no clerical error occurred is based on a
misunderstanding of Timken's argument. Peer incorrectly asserts the following:
                                                                      PAGE   15
             12 F. Supp. 2d 445; 1998 Ct. Intl. Trade LEXIS 66, *;
                                 SLIP OP. 98-70

"Apparently, Timken believes that Commerce applied freight rates that were
provided on a per ton basis, on a per kilogram basis." Peer's Opp'n to Mot. J.
Agency R. at 21 (emphasis added). This is not Timken's argument.

- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

   Although this argument was not raised below, the Court gives great weight to
the fact that Commerce admits it made an error and requests a remand. See, e.g.,
E.I. DuPont de Nemours & Co. v. United States,  [*33]   4 F. Supp. 2d 1248, 1998
Ct. Intl. Trade LEXIS 24, *29, 22 C.I.T.    ,     (Mar. 26, 1998) (the Court
deemed it significant that Commerce admitted an error and granted party's
request for a remand despite party's failure to timely raise an issue below).
The Court therefore grants Commerce's request to correct its clerical error in
the inland freight calculation.

   b. Ocean Freight

   In the Final Results, Commerce determined that the distance between India,
the primary surrogate, and the United States is much greater than the distance
between the PRC and the United States. The only other Asian country that
approximates the distance between the PRC and the United States is Japan.
Commerce therefore determined the Japan-United States ocean freight rate was the
"best available information" upon which to value ocean freight. Final Results,
61 Fed. Reg. at 65,536.

   Timken argues that Japan is not an appropriate surrogate for shipping rates.
Timken asserts that Commerce should adjust the Japanese rates by increasing them
30% to account for the difference between Japanese costs and the higher Indian
costs. To support its argument, Timken refers to information published by the
International Monetary Fund comparing  [*34]   the value of merchandise on board
the ship at the home country port (FOB) to the value of the merchandise with
insurance and freight added (CIF). According to Timken, the CIF/FOB information
shows that Indian freight costs are higher than Japanese costs. Timken's Mem.
Supp. J. Agency R. at 38-41.

   Peer, Shanghai and Luoyang generally agree with Commerce and argue that
Commerce's use of Japanese rates as BIA was reasonable because the rates are
market-economy rates and are a reasonable approximation of the distance from
China to the United States. Peer's Opp'n to Mot. J. Agency R. at 22; Shanghai's
Opp'n to Mot. J. Agency R. at 27-29; Luoyang's Opp'n to Mot. J. Agency R. at
34-36.

   The Court affirms Commerce's choice of Japanese freight rates as a surrogate
to PRC rates. Commerce reasonably determined that freight rates were greatly
influenced by geographic proximity and, therefore, chose the surrogate which
most closely approximated the distance between the PRC and the United States.
Timken's suggested adjustment, on the other hand, is not supported by any
evidence. The theoretical freight rates on which Timken relies have no
relationship to the freight rates of TRBs in particular,   [*35]   but are
instead based on generic rates of unspecified commodities. In addition, Timken's
conclusion that Indian freight rates are higher than Japanese rates is based on
the flawed assumption, evident in Timken's own argument, that Indian
merchandise, compared with the value of Indian merchandise with freight and
insurance added, reveal higher Indian freight costs. Thus, by Timken's own
                                                                      PAGE   16
             12 F. Supp. 2d 445; 1998 Ct. Intl. Trade LEXIS 66, *;
                                 SLIP OP. 98-70

admission, there is at least one other factor, insurance rates, which may be
responsible for higher Indian rates in certain situations.

   c. Marine Insurance

   To estimate ocean insurance for the PRC's TRBs, Commerce applied an insurance
rate based on weight applicable to sulfur dyes from India, the only publicly
available insurance rate data. Final Results, 61 Fed. Reg at 65,537.

   Timken argues that Commerce unreasonably understated the insurance rate
because the value of one ton of sulfur dye is much less than the value of one
ton of TRBs. Timken asserts that payment for the loss or damage of one ton of
sulfur dye would not have any relationship to the value of one ton of bearings.
Timken's Mem. Supp. Mot. J. Agency R. at 41-43.

   Peer asserts that the Final Results should be affirmed because  [*36]
Commerce did not have publicly available information in the record which would
allow it to calculate surrogate values for ocean insurance more accurately than
it already did. Peer's Opp'n to Mot. J. Agency R. at 22-23.

   Luoyang argues that Commerce properly determined that the sulphur dyes marine
insurance rate represented the best available information on the record.
Luoyang's Opp'n to Mot. J. Agency R. at 36-38. Shanghai also supports Commerce's
use of sulphur dye insurance rates. Shanghai's Opp'n to Mot. J. Agency R. at
30-32.

   Commerce's selection of the sulfur dye rate resulted in a surrogate insurance
premium for bearings that was based on weight. To justify its weight-based
insurance methodology, Commerce argues that Timken failed to provide evidence of
any other insurance premiums that are available in Asia based upon value. This,
however, is not a sufficient reason to ignore the essence of insurance and the
costs of insurance premiums paid by the insured. Insurance by definition is
based upon pecuniary valuation, not on the weight of the product to be insured.
See, e.g., J. Kenneth Goodacre, Marine Insurance Claims 81-83 (2d ed. 1981)
(discussing the importance of  [*37]   valuation and identification of subject
matter in marine insurance policies to indemnify the insured); William R. Vance,
Handbook on the Law of Insurance 156 (3d ed. 1951) (insurance provides
indemnification for possible loss of a legal interest susceptible to pecuniary
valuation). Further, Commerce does not dispute that its own source of public
insurance rates regarding the weight of sulfur dyes was itself based on value of
sulfur dyes per ton.

   Both the value of TRBs and the risks involved in transporting them are
considerably different from the value and risks involved in shipping sulfur
dyes. This Court, therefore, remands for Commerce to determine marine insurance
in a manner reasonably related to the value and risks of transporting TRBs.

   Conclusion

   The Court remands to Commerce to assign the amended BIA margin to Peer or, in
the alternative, to explain why the corrected rate should not be applied; to
recalculate indirect selling expenses for the ESP offset; to recalculate marine
insurance pursuant to a value-based methodology; and to correct the inland
freight calculation. Commerce is affirmed in all other respects.
                                                                      PAGE   17
             12 F. Supp. 2d 445; 1998 Ct. Intl. Trade LEXIS 66, *;
                                 SLIP OP. 98-70

   NICHOLAS TSOUCALAS

   SENIOR JUDGE

Dated:   [*38]   May 27th, 1998

   New York, New York

   ORDER

   This case having been duly submitted for decision and the Court, after due
deliberation, having rendered a decision herein; now, in accordance with said
decision, it is hereby

   ORDERED that the case is remanded to the Department of Commerce,
International Trade Administration, to assign the amended BIA margin to Peer
Bearing Company or, in the alternative, to explain why the amended rate should
not be applied; and it is further

   ORDERED that Commerce is to recalculate indirect selling expenses to be
deducted from foreign market value for an exporter's sales price offset; and it
is further

   ORDERED that Commerce is to correct the inland freight calculation; and it is
further

   ORDERED that Commerce is to recalculate marine insurance according to a
methodology based on the value of tapered roller bearings; and it is further

   ORDERED that Commerce is affirmed in all other respects; and it is further

   ORDERED that the remand results are due within ninety (90) days of the date
this opinion is entered. Any comments or responses are due within thirty (30)
days thereafter. Any rebuttal comments are due  [*39]   within fifteen (15) days
after the date responses or comments are due.

   NICHOLAS TSOUCALAS

   SENIOR JUDGE

Dated: May 27th, 1998

   New York, New York