P ASTA ZARASpA , Plaintiff,

v. UNITED STAT ES , Def endant, and AMERICAN ITALIAN P ASTA COMP ANY, DA KOTA G ROWERS P ASTA COMP ANY, and NEW WORLD P ASTA COMP ANY , Def endant- Interve nors.

Slip Op. 10-36 UNITED STAT ES COURT OF INTERNATIONAL TRADE

Before: Tim othy C. Stanceu, Judge Court No. 09- 00001

OP INION AND ORDER [Affirming in pa

rt and re mandingin part the fina l results of the ele venth administrative re view of an antidumpingduty

order on cer tain pasta fr om I taly ] Dated: Apr il 7, 2010 L aw Of fice s of David L . Simon ( David L. Simon ) for

plaintiff. Tony W est , Assistant Attorney

Gene ral, JeanneE. Davidson , Direc tor, Reginald T. Blades, Jr. , Assistant Director , Commercial L itigation B ranc h, Civil Division, United St ates Depa rtment of Just ice ( Carrie A. Dunsmore and Jane C. De mpsey ); Daniel J. Calhoun and Myk haylo Gryzlov , Offic e of Chief Counsel for Import Administration, United St ates De partment of Commerce , of counse l, for def endant. Kelley Dry e &W

arren LLP

( David C. Smith, Jr. and Paul C. Rosenthal) for defe ndantintervenor s.Court No. 09- 00001 P age 2

Stanceu, Judge : Plainti ff Pasta Z ara SpA (“Z ara

SpA” or “ Z ara ”), a

n I talian produc er a

nd exporter of pa sta products, c ontests the final dete rmination (“F inal Results”) that the International Trade Administration, United States Depar tment of Commerce (“Commerc e” or the “De partment” ), issued to conc lude the ele venth administrative re view of a n antidumping duty order on cer tain pasta fr om Italy

(the “ subject merc handise” ). Certain Pasta From Italy: Notice of Final Results of t he Elev enth Admin. Rev iew &Partial Rescission of Review , 73 Fe d. Reg . 75,400, 75,400 (De c. 11, 2008) ( “Final Results ”). Z ara SpA advanc es three claims. I t claims, first, that Commerce err ed in dee ming Z ara SpA’s sales of subjec t mercha ndise to be constructe d export price (“ CEP”) sales rather than e x port price (“EP”) sales. Compl. ¶¶ 10-13. Second, plaintiff c ontests Comm erc e’s c lassifying c erta in acc ounting e x penses incur red by Z ara ’s U.S. aff

iliate as direc t expenses rather than indirec t expenses. Id. ¶¶ 14- 18. Finally , Z ara challeng es Commerce ’s findingthat Z ara ’s sales in its home marke t of I taly occur red at a sing le level of tra de (“ L OT”) , when, a ccor ding to Z ara , the re cord e vidence establishes that some of these sale s occur

red at a sec ond, more re mote level of tra de. Id. ¶¶ 19- 23. Z ara claims that Commerce e rre d in failingto exclude these sales f rom the ca lculation of normal va lue. Id. Ba sed on an e x amination of the re cord e vidence supporting Commerc e’s f indings, the c ourt aff irms Comm erc e’s de cision to classify Z ara ’s U.S. sales as CEP sales. B eca use the F inal Results do not address the objec tion underlying pla intiff’s sec ond claim and be cause defe ndant ag ree s that a re mand is appropr iate on this claim, the cour t’s order direc ts Comm erc e to

rec onsider its decision to treat the acc ounting e x penses a s indirect expenses. On plaintiff’ s third claim, the cour

t, concludingthat Commerce did not g ive ade quate c onsideration to the re levantCourt No. 09- 00001 P age 3

rec ord evide nce, or ders Commerc e to re consider its dete rmination that Z ara ’s home mar ket sales

occur red at a sing le level of

trade

. I. B A C K G R O U N D Commerce initiated the e leventh re view of a n antidumping duty

order on cer tain pasta from Italy on August 24, 2007. Initiation of Antidumping & Countervailing Duty Admin. Rev iews &Reque

st for Revocation in Part , 72 Fe d. Reg . 48,613, 48,614 (Aug . 24, 2007). Commerce published pr eliminary results of the e leventh re view on August 6, 2008, in which it deter mined for Z ara

SpA a pre liminary

weig hted-avera g e dumpingmarg in of 10.34%. Certain Pasta from Italy: Notice of Prelim. Re sults of El eve nth Antidumping Duty Admin. Rev iew , 73 Fe d. Reg . 45,716, 45,720 (Aug . 6, 2008) (“ Prelim. Results ”). I

n the Fina l Results, C ommerce assig ned Z ara

a mar g in of 9.71%. Final Results , 73 Fe d. Reg . at 75,401. The F inal Results incorpora te by ref ere nce a memorandum (“ Dec ision Memorandum”) c ontaining a discussion of the Depa rtment’s finding s and conc lusions. Id. ; Issues &Dec isions for the Final Results of the Eleve nth Admin. Revie w of the Antidumping Duty Order on Certain Pasta from Italy ( 2006- 2007) (De c. 4, 2008) ( “

Dec ision Mem. ”). Plaintiff broug ht this action on J anuar y 5, 2009. Summons ; Compl . Be fore the cour t is plaintiff’s motion for judg ment upon the ag ency rec ord. Mot. of Pl. Pasta Z ara SpA for J. upon the Ag ency

R. pursuant to Rule 56.2 (“Pl. Mot.”); Principal B r. of Pl. Pasta Z ara SpA for J. upon the Ag ency

R. pursuant to Rule 56.2 (“Pl. Br .”). D efe ndant opposes Z ara ’s motion with respect to the first and third cla ims in t he complaint but ac knowledg es that a c ourt rema nd is appropriate on the sec ond claim, agree ing “ that Commerce did not ade quately consider Z ara ’s contention” that cer tain “ac countingexpenses should be trea ted as indirec t selling e x penses, be cause theyCourt No. 09- 00001 P age 4

wer e not re lated to spec ific sales but we re inc urre d reg ardle ss of the number of sales made in any g iven time period.” Def

.’s Resp. to Pl.’s Mot. for J . upon the Ag ency R. 18 (“De f. Resp.”)

. Def endant- intervenor s oppose Z ara ’s motion with respect to all thre e of pla intiff’s claims. De f.- Interve nors’ B r. in Resp. to Pasta Z ara ’s Mot. for J. on the Age ncy R. (“De f.-Interve nors Resp.”)

. II. D I S C U S S I O N The c ourt exercises jurisdiction ac cordingto 28 U.S.C. § 1581(c) (2006) . In rulingon Z ara ’s motion for judg ment upon the ag ency rec ord, the c ourt must hold unlawful any deter mination, finding, or c onclusion found to be unsupported by substantial evidence on the

rec ord or other

wise not in acc ordanc e with law. 19 U.S.C. § 1516a(b) (1)( B) (i) (2006)

. “Substantial evidenc e is more than a mere scintilla. I t means such r eleva nt evidence as a

rea sonable mind might a cce pt as ade quate to support a c onclusion.” Consol. Edison Co. v. NLRB , 305 U.S. 197, 229 (1938). A. The Court Must Sustain Com merc e’s De termination that Z ara ’s Sales of Subject

Merc handise Were Constructed Export P rice Sales Z ara SpA contests as unsupported by substantial rec ord evide nce Commerc e’s deter mination that its sales of subjec t mercha ndise wer e construc ted export price sa les as def ined by 19 U.S.C. § 1677a(b) ra

ther than e x port price sales as de fined by § 1677a(a ). Compl. ¶¶ 10- 13; 19 U.S.C. § 1677a(a)- (b) ( 2006). B ased on the administrative re cord, the court must sustain Comm erc e’s de termination. Acc ordingto the statutory definition, export price is the price at which the subje ct merc handise is first sold (or a g ree d to be sold) before the dateof importati on by the produc er or

exporter of the subjec t merc handise outside of the United States to an unaf filiated purc haser

in the United States or to an unaf

filiated purc haser

for e x portation to the United States.Court No. 09- 00001 P age 5

19 U.S.C. § 1677a(a) (empha sis added). Aconstructe d export price sale , in contrast, may occur either be fore or af

ter the date of importation. Id. § 1677a(b) . A construc ted export price sa le is a sale that is made in the United States by or for the ac count of the pr oducer or exporter, or by

a seller a ffiliated with the pr oducer or exporter, to a pur chase r unaf filiated with the produc er or exporter. Id. I t is undisput ed that a U .S. affiliate of Z ara , Pasta Z ara -USA Inc. (“ Z ara -USA”) , Compl. ¶ 15, per formed a

role re lated to the sale of the subjec t mercha ndise in the United States that included invoicingthe U.S. unaff iliated customer f

or the mer chandise . Pl. Br. 6-8. The parties dispute the signif

icanc e of that role and of

the invoices. See id. 8-18; Def . Resp. 8-12; Def

.- Interve nors Resp. 4-21. Partly as a r esult of that dispute, they disag ree on the issue of whe ther the sales of

Z ara ’s subject mer chandise qualified a s export price sales. Plaintiff argues that the c ourse of dealingbetwee n Z ara

SpA, Z ara -USA, and the single unaff iliated U.S. purcha ser de monstrates that ar m’s-length sales, or a g ree ments to sell, between Z ara SpA and the unaf

filiated purc haser

occur red outside of

the United States prior to the da te of importation. Pl . Br . 6-9. In plaintiff’s view, “ the mutual assent to the pric e and qua ntity terms clea rly occur s betwee n Z ara

SpA and the ar

m’s-leng th customer longbefor e the g oods are shipped from Italy .” Id. at 9. Plaintiff contends that a binding a g ree ment to sell the subject

merc handise is forme d “whe n the customer issues its purc hase or der a nd Z ara [S pA] relies on the purcha se orde r to beg in production.” Id. at 3. Althoug h admitting that Z ara SpA did not provide the unaf filiated customer

a wr itten acknowle dg ment of its acc eptanc e of the purcha se orde r, plaintiff ar gues that “[t] he mutual assent is evide nt in Za ra’ s production ag ainst the customer’ s purcha se orde r, which spe cifies both pric e and qua ntity ” and that “Italy

is theref ore the ‘locationCourt No. 09- 00001 P age 6

of the sale ’ and Z ara

SpA is therefor e the se ller; no subsequent a ctions can c hang e these fac ts.” Id. at 9. Plaintiff cites the United N ations Convention on Cont rac ts for the International Sale of Goods, arts. 14, 18, opened for signature Apr. 11, 1980, S. Tre aty Doc. 98- 9, at 25 (1983), 19 I .L .M. 671, 674-75 (“ CI SG” or the “ UN Convention”), f or the proposition that this production ag ainst the purcha se orde rs cr eate d binding a gree ments to sell. Id. at 9, 17. It relies on Corus Staal BV v. United States , 502 F.3d 1370, 1376 ( Fe d. Cir. 2007), and AK Steel v. United States , 226 F.3d 1361, 1374 ( Fe d. Cir. 2000), to support its argument that these sale s, as agree d upon in I taly , are EP sales ac cordingto the statute. Id. at 8-9, 17. Plaintiff also cites se vera l antidumping deter minations from administrative revie ws of other subject merc handise, id. at 9-12, to support its contention that, an ag ree ment to sell alrea dy havingbeen e stablished, no meaning ful ac tiviti es

occur red in the United States. In revie wingthe Depa

rtment’s fa ctual dete rminations acc ordingto the substantial evidenc e standa

rd, the c ourt examines the evidenc e on the r ecor d considere d as a whole. See 19 U.S.C. § 1516a(b)(1) (B )(i); Nippon Steel Corp. v. United States , 458 F.3d 1345, 1352 ( Fe d. Cir. 2006) (holdingthat the cour t may aff irm a dete rmination as supported by substantial rec ord evidenc e eve n if some evidenc e detr acts fr om the Depa rtment’s conc lusion). The re cord a s a whole conta ins some evidence to support plaintiff’s “c ourse of dealing ” ar gument. For

example, Z ara SpA provided in its questionnaire re sponse documentation for an e x ample of one of its sales, includingan invoice that plaintiff descr ibes as “the export invoi ce, show ing the customer as Z ara -USA and the destination as the unaf filiated customer .” Pasta Zara SpA Questionnaire Resp. 14 (De c. 12, 2007) ( Confidential Appendix of Pl . Pasta Z ara SpA to Principal Br. of

Pl. Pasta Z ara

SpA for J. upon t he Ag ency R., Ex . 3) (“ Questionnaire Resp. ”). The questionnaireCourt No. 09- 00001 P age 7

response ref

ers to a se cond invoice a s “the invoice of Z ara -USA to the unre lated customer .” Id. In its response to Commerce ’s supplemental que stionnaire, Z ara explained that “[t] he role of Z ara -USA is minimal, . . . [ a]ll customer relations ar e handle d direc tly by Z ara in I taly ,” and “ US sales do not phy sically

pass throug h the possession of Z ara -USA.” Letter from Law Offices of David L. Simon to Sec’

y of Commerc e 45 (Apr. 8, 2008) (Admin. R. Doc. No. 77) (at pa g e 39 of the re sponse) (“ Supplemental Re sp. Letter ”). The diff iculty with plaintiff’s ar gument is the substantial recor d evidenc e supporting Commerce’ s findings. Commerc e conc luded, on the basis of those f indings, that the sa les of the subject merc handise to the una ffiliated pur chase r we re ma de not by Z ara SpA but inst ead w ere made by Z ara -USA, af

ter importation. Dec ision Mem. 15-16. Commerce found that invoices issued to the unaff

iliated U.S. purcha ser we re Z ara -USA’s invoice s and that “Z ara stated in its questionnaire r esponse that Z ara sells to Za

ra U SA, and Z ara

USA sells to an unaff

iliated U.S. customer, who pa

y s Z ara USA.” Id. at 16. Z ara

SpA’s response to Comm erc e’s suppleme ntal questionnaire stated as follows: Z ara -USA is the US importer of r ecor d, and so it rec eives a n invoice fr om the customs broker, which it then pay s. In addition, Z ara -USA issues the invoices f or the US sales to the ar

m’s-leng th customers. . . . Z ara -USA also re ceive s the pay ment from US ar

m’s-leng th customers, which it then de posits in i ts bank acc ount in the United States. Supplemental Re

sp. Letter 45 (at pa g e 39 of the response ). B ased on r ecor d evidenc e, Commerce found as f acts that “ Z ara

USA serve s as importer of rec ord and it transf

ers title to the first unaff iliated purcha ser in the United States.” Dec ision Mem. 16. Refer ringto Z ara -USA’s activities and a

company that perf orms them, Z ara

SpA stated in the supplemental questionnaire response that “[t] he ac counting/consultant company that perf orms these ser

vices is paid fr om theCourt No. 09- 00001 P age 8

reve nue of Z ara -USA.” Supplemental Re sp. Letter 46 (at pa g e 40 of the response ). I n response to a question from Commerc e about why pay ment is made to Z ara -USA and howpay ment is forwa rded to Italy , Z ara

stated that In terms of the doc ument flow, Z ara SpA sells to Za

ra- USA, and Z ara USA sells to America

n customer. The Americ an customer than [ sic ] pay s Z ara USA. This pay

ments [ sic ] i s in the bank ac count of Z ara -USA, and it is not sent back to Italy

. Money g oes fr om Z ara -USA to Z ara SpA when Z ara -USA pay s for the pasta invoice d to it from Z ara SpA. Supplemental Re

sp. Letter 48 (at pa g e 42 of the response ). In the Dec ision Memorandum, Commerce c ites this questionnaire re sponse as re cord e vidence to support its finding that “by Z ara ’s own admission, Z ara USA makes the f

irst sale to an una ffiliated c ustomer in the United States.” Dec ision Mem. 16. Commerce a lso found that “[t] he invoice issued to the f irst unaff iliated customer identifie s Z ara USA as the seller

of subject mer chandise , and the ter ms of sale a re not fina liz ed prior to the issuanc e of the invoice.” Id. (citing Mem . from Case Analysts, Office II I, to The File 6 (Oc t. 10, 2008) (Admin. R. Doc. No. 131) (“ Verification Report”) ( “We asked howthe diffe renc e in the amounts billed from Z ara to Z ara USA and fr om Z ara

USA to the unaff iliated U.S. customer is ref lected in Z ara

USA’s g ener al ledg er a

nd Mr. Atkin said that it is enter ed in Z ara

USA’s g ross profit.”) ). Upon consider ing the rec ord as a whole, the c ourt finds substantial rec ord evide nce to support the essential f

indings of f

act upon whic h Commerce c oncluded that the sa les of the subject merc handise to the una ffiliated U.S. purc haser wer e made by

Z ara -USA in the United States, after

the merc handise wa s imported. Acc ording ly , the cour t must affirm Commerce ’sCourt No. 09- 00001 P age 9

deter mination that the sales of the subjec t mercha ndise wer e construc ted export price sa les

acc ordingto the require ments of the statute. See19 U.S.C. § 1677a(a) -(b)

. Plaintiff argues that the plac ement of the purcha se orde rs and Z ara SpA’s “ac cepta

nce- infac t,” Pl. Br. 9, by

beg inning pr oduction in response to the pur chase order s cre ated a binding ag ree ment under the UN Convention, i.e. , the CI SG, to which the United States is a par ty

. Id. at 9, 17 (c iting CI SG, arts. 14, 18, S. Treaty Doc. 98- 9, at 25, 19 I .L .M. at 674-75). The CI SG

rec og nizes that if, by virtue of the of

fer or as a result of pra ctices which the par ties have established betwe en themselve s or of usag e, the of fer ee ma y indicate a ssent by perf ormingan ac t, such as one r elatingto the dispatch of the g oods or pay ment of the price , without notice to the offe ror, the a cce ptance is effe ctive at the moment the ac t is performe d, provided the a ct is perf ormed within the per iod of time laid down in the pre cedingpara g raph. CI SG, art. 18.3, S. Treaty Doc. 98- 9, at 25, 19 I .L .M. at 675. The pr ece ding pa ragraph state s that “[a]n acce ptance is not effe ctive if the indication of assent does not re ach the offe ror within the time he has fixed or, if no time is fix ed, within a re asonable time . . . .” Id. , art. 18.2, S. Tre aty Doc. 98- 9, at 25, 19 I .L .M. at 675. The c ourt does not agree that the CI SG require d Commerce to conclude, on the rec ord bef ore it, that bindingag ree ments to sell the subject merc handise

nece ssarily

wer e for med when Z ara

SpA beg an produc tion of mercha ndise in response to the purcha se orde rs. Commerce was not re quired to view the course of dea ling be tween Z ara SpA, Z ara -USA, and the single unaff iliated U.S. purcha ser, on whic h plaintiff re lies for its claim, in isolation and without also consideringthe evidenc e re vealingthe entire circ umstances in which the three parties, in pra ctice, a rra ng ed the tra

nsactions. Those c ircumstance s include the prac tices involving invoicing . Z ara SpA admits that itdid not provide the unaf filiated customer

aCourt No. 09- 00001 P age 10

written ac knowledg ment of its acc eptanc e of the purcha se, seePl. Br. 7-9, a nd it does not identify specific rec ord evide nce f rom which Commerc e wa s require d to conclude, c ontrary to other evidenc e on the r ecor d, that the par ties unequivoca lly

intended produc tion ag ainst the purcha se order s to constitute acce ptance of the off ers made by

those purcha se orde rs. In summary , plaintiff’s ar gument would require the cour t to ignore the sig nificanc e of the substantial rec ord evidenc e supportingCommerce’ s fac tual finding s. Those finding s were more than a dequate to support the conc lusion that the sales of the subjec t mercha ndise wer e made by

Z ara -USA, af

ter importation. The CI SG did not require Commerc e to ignore this substantial evidenc e or make finding s contrar

y to it. The holding s in AK Steel , 226 F.3d 1361, a nd Corus Staal , 502 F.3d 1370, lend no support to plaintiff’s ar gument that the sales in question must be re cog nized as EP sales. Neither of these c ases e stablishes a rule r equiringCommerce, on the particula r re cord be fore it, to find that an agree ment, or agree ments, to sell the subject merc handise to the una ffiliated U.S. customer c ame into exist ence outside of the United States a nd prior to importation. B. Commerc e Voluntee rs to Reconsider Its Classification of Z ara -USA’s Ac countingEx penses as Dire ct, Rather tha

n Indirec t, Sales Ex penses f or Purposes of Calc ulating CEP Def endant a g ree s with plaintiff that a re mand is appropr iate to allow Commerce to

rec onsider its decision to classify Z ara -USA’s a ccountingexpenses as direc t, rather than indirec t, sales expenses for

purposes of de terminingCEP. Def. Resp. 18; Pl. Br. 18-19. D efe ndantintervenor s contend that Commerc e ac ted lawf ully in treatingthe ac countingexpenses as direc t sales expenses and that Comm erc e g ave a dequate consideration to thi s issue duringthe re view,Court No. 09- 00001 P age 11

havingdiscussed Z ara ’s ar guments in a preliminary analy sis memorandum. Def .-Interve nors Resp. 30-34. The c ourt finds no discussion in the Final Results or the De cision Memorandum demonstratingthat Commerce’ s final deter mination gave ade quate c onsideration to Z ara SpA’s position on t he ac countingexpenses in question. Final Results , 73 Fe d. Reg . at 75,402; Dec ision Mem

. 12 (addr essing , at Comment 6, only petitioner’s c ontention that Comm erc e made a prog rammingerr or and unde rstated Z ara ’s U.S. direc t selling e x penses) . The pre liminary memorandum c ited by

defe ndant-interve nors, althoug h included in the re cord, is not incorpor ated by ref ere nce into the f

inal deter mination that is before the court for revie w. See Final Results , 73 Fe d. Reg . 75,400; Mem . from Case Analyst, AD/CVD Operations, Office 3, to The File (Jul y 30, 2008) (Admin. R. Doc. N o. 110). Consequently , the dec ision to classify the ac counting expenses as direc t selling e x penses is pre sented to the c ourt absent a ny rea soning. B eca

use the United States ac knowledg es that Commerce did not fully consider the question, which is discussed in neither the Final Results nor the incor porate d Dec ision Memorandum, the cour t order s Commerce, on r emand, to re consider its dete rmination to classify the ac countingexpenses as direc t expenses and make c hang es as ne cessa ry . C. Comm erc e Must Reconsider I ts Determination that Z ara SpA’s Home Mar

ket Sales Oc curr ed at a Sing le L evel of

Trade Plaintiff claims that Commerce e rre d in consideringZ ara SpA’s sales in the home mar ket to have be en made at a sing le level of trade (“L OT”) . Pl. Br. 19. Commerce , Z ara SpA argues, should have de termined norma l value ac cordingto the sales Z ara SpA made in Italy

to a g roup of larg er c ustomers it describe s as including“wholesa lers, lar g e distribution org anizations,Court No. 09- 00001 P age 12

discounters, a

nd hy perma rkets.” Id. (quoting Supplemental Re sp. Letter 9-20 & Ex . 7 (at pag es 3-14 & Ex . 7 of the re sponse)). Z ara SpA further

descr ibes these home ma rket c ustomers as “multi-location customer s with their own war ehouses, distribution capa biliti es, and strong informatics to handle elec tronic transa ctions.” Id. Z ara SpA disti nguishes these c ustomers from

a sec ond g roup desc ribed a s “traditional loca l” customers, c onsisting of “ dettag lio (small momand-pop c onvenienc e stores of under 150 squa

re me ters), hote ls and resta urants, communities ( e.g. , monasteries) and assoc iations ( e.g. , sports clubs).” Id. (empha sis omit ted). B uy ers in this second group, ac cordingto Z ara SpA’s questionnaire r esponses, ty pically buy pasta in smaller quantities than full pallet-loads a nd truckloads, a

nd they purcha se fr om inventory rathe r than contra ctingfor pa sta produce d to order. Id. at 20. “The se customer s are all within a very small radius of distanc e fr om the Z ara fac tory ,” id. at 19, and “ have sing le locations, ver y limit ed storag e ca pacity , no distribution capability , and ver y limit ed informatics.” Id. at 20. Plaintiff argues that Commerce ’s combining , in a sing le L OT, the sale s to these two g roups of home marke t customers wa s not supported by substantial rec ord evide nce. Id. Commerce by

regulation has provided that “ [t ]he Secreta ry will determine that sale s are made at differ ent levels of tr ade if they are made at differ ent marke ting stag es (or their equivalent) .” 19 C.F.R. § 351.412(c )(2) (2009). Qua lifying this g ener al principle, the reg ulation adds that “[s]ubs tantial differ ence s in selling ac tiviti es ar e a ne cessa ry , but not sufficient, condition for dete rmining that there is a dif fer ence in the stag e of ma rketing .” Id. The re gulation does not define what is meant by the “e quivalent” of

“diffe rent mar

ketingstag es,” but the prea mble Commerce published when promulg atingthe re gulation (“Prea mble”) she ds light on the intended mea

ning. T he Prea

mble explains t hat “Sec tion 351.412(c)( 2) states that a n L OT is aCourt No. 09- 00001 P age 13

marke ting stag e ‘or

the equivale nt’ (which me ans that merc handise doe s not nece ssarily have to chang e hands twic e in orde r to rea ch the more remote L OT).” Antidumping Duties; Countervailing Duties , 62 Fe d. Reg . 27,296, 27,371 (May 19, 1997) (“

Preamble ”). B ased on the clar ification in the Prea

mble, the sales to the se cond g roup of c ustomers plaintiff identifies would appea r not to constitute a diffe rent mar ketingstag e per sebeca

use these c ustomers purcha sed direc tly from the pr oducer , with no intermediate distributor. The question, then, is whether Commerce la

wfully deter mined that these sale s were not made at the “ equivalent” of a “ differ ent marke ting stag e” w ithin the meaningof 19 C.F.R. § 351.412(c )(2)

. The Prea mble to the Depa

rtment’s re gulations speaks direc tly to the question of what must be shown to establish a diffe rent leve l of trade based on the equivalent of a diffe rent marke ting stag e: I t is sufficient

that, at the more remote le vel (i.e., more remote f rom the fa ctory

), the seller takes on a r ole compar able to that of a rese ller if the mer chandise had chang ed hands twic e. F or example, a produc er that normally sells to dist ributors (that, in turn, re sell to industrial consumers) c ould make some sale s directly , takingover the functions normally perf ormed by the distributors. Such sales would be at the sa

me L OT as the sa les throug h the distributors. Each more remote le vel must be cha

rac terized by

an additional layer of

selling a ctivities, amounting in the a g g reg ate to a substantially differ ent sellingfunction. Substantial differe nces in the a mount of selling e x penses a ssociated with two g roups of sale s also may

indicate that the two groups ar e at diff ere nt levels of trade

. Id. (empha sis added). The Preamble a dds that “[a]l though the ty pe of c ustomer will be an important indicator in identifying dif fer ence s in levels of trade , the exist ence of diffe rent c lasses of customer s is not sufficient to establish a diffe renc e in the leve ls of trade .” Id. Ba sed on the c onstruction of § 351.412(c )(2) set forth in the Prea mble, to which construction the c ourt g ives consider able de fer ence , the cour t concludes that Z ara

SpA couldCourt No. 09- 00001 P age 14

satisfy in either of two w ay s the requir ement in § 351.412(c )(2) to demonstrate the e quivalent of a diffe rent mar

ketingstag e. F irst, Z ara

SpA could show that in makingsales to its traditional local customer s it took over the func tion normally perf ormed by a re seller, by

demonstratingthat it perfor med “a n additional lay er of

selling a ctivities, amounting in the a g g reg ate to a substantially

differ ent sellingfunction.” Id. As the re gulation states, “[s] ubstantial differ ence s in selling a ctivities are a

nece ssary , but not sufficient, condition for de terminingthat there is a differ ence in the stag e of ma rketing .” 19 C.F.R. § 351.412(c )(2) . Acc ordingto the Preamble, the substantial differ ence s in selling activities must amount in t he ag g reg ate to a substantially differ ent selling function at the more remote le vel; hence , demonstratingadequately a diffe rent selling f unction, as opposed to demonstrating mer ely a diffe renc e in sellingactivities, would be “suff icient.” Preamble , 62 Fe d. Reg . at 27,371. As the Prea mble also connotes through the use of the wor d “also,” Z ara

SpA could demonstrate a more re mote L OT through “[s] ubstantial differ ence s in the amount of sellingexpenses associate d with two gr oups of sales.” Id. Demonstrating“[s] ubstantial differ ence s in the amount of sellingexpenses” may be suff icient to establish a more remote L OT, the Prea mble languag e sug g ests, but also might not be. In summary , § 351.412(c) (2), a s clarif ied by the Preamble, require s that the selling activities associated with the claimed L OT not only be “substantially

differ ent” but also be “cha rac terized by

an additional layer of

selling a ctivities, amounting in the a g g reg ate to a substantially

differ ent sellingfunction” in whic h the produc er takes on the role of a r eseller , such as a distributor. Id. A re spondent’s cla im of a sepa rate L OT may

be aide d by

demonstrating “[s] ubstantial differ ence s in the amount of sellingexpenses associate d with two gr oups of sales,”Court No. 09- 00001 P age 15

but acc ordingto the Preamble’ s clarif ying la nguag e (in pa

rticular, the use of the w ord “a lso”), such a de monstration is not essential to a responde nt’s establishing a more re mote L OT. Id. Z ara SpA argues that in selling to its traditional local c ustomers it perfor med the sepa

rate functions of a

distributor as well as those of a produc er. Pl. Br . 25. Plaintiff points t o questionnaire r esponses infor ming Commerc e that Z ara SpA perfor

ms selling ac tiviti es associate d with the traditional local c ustomers that it does not perfor m for its other customer s. Id. at 24-27. The se sellingactivities include, inter alia , manual orde r takingthroug h persona l visits t o the customer’ s location, rec eivingand proc essingpay ments by cash or chec k (including dealingwith bounced c hecks) rathe r than e lectronic funds transf er, a nd pay ing tr uck drive rs a handlingfee for takingand re mitti ngthe pay ments. Id. at 27. Z ara

SpA expl ains that virtually all of the sale s made to its “multi-location” customer s, id. at 19, ar e deliver ed by common car

rier, wher eas this occ urs for only a third of the shipments to its traditional local customers, “ with 22% picked up dire ctly

from the f

actor y by the customer, a

nd 45% ca

rried in the f

actor y ’s own, small delivery vans. Id. at 27-28. Z ara SpA maintains that, beca use the tra ditional local customers do not have the stora g e ca

pacity to hold larg e amounts of inventor y , Z ara SpA must devote

war ehouse spa ce a

t its ol der pla

nt to breakingdown pallets consistingof a sing le ty pe of pr oduct and for ming ne w pallets, usingshrink wra p to form pallets with the spec ific produc t mix neede d to fill small orders of tra ditional local customers, a s would a distributor. Id. at 25-26. Z ara SpA also points out that selli ngto the traditional local c ustomers requir es “a cadr e of a g ents to take order s and re ceive pay

ments from the tra ditional local customers.” Reply Br . of Pl. Pasta Z ara SpA for J. upon t he Ag ency R. pursuant to Rule 56.2, at 10. I t adds that smaller, sing le-loca tion customers that a

re similar to its traditional local customer s, but that are not ne ar its orig inal plant,Court No. 09- 00001 P age 16

must buy from distributors rathe r than dire ctly from Z ara

SpA beca

use the c ompany

did not extend its prog ram of ma rketingto these smaller c ustomers when it opene d its second plant, which is locate d 200 km from the orig inal plant. Pl. Br. 28. As it had in the Preliminary Results, Com merc e found in the F inal Results that Za ra SpA “does not have diffe rent mar ketingstag es or their

equivalent that would support a findingof differ ent L OTs in the home mar ket.” Dec ision Mem. 20. Specifica lly , Commerce f ound that the data in cha

rts Z ara SpA submit ted (the “ selling a ctivity char t” and the “ selling f

unctions char

t”) did not show substantial differe nces in the two c laimed L OTs. Id. at 20-21. “ An ana ly sis of the selling a ctivities . . . shows that [ Z ara SpA] perf

orms simil ar se lling ac tiviti es for differ ent customer c ateg ories, althoug h some of the a ctivities were at diffe rent leve ls of intensity .” Id. at 20. “More over, some se lling ac tiviti es within the claimed L OTH 1 [ i.e. , activities perf ormed in selling to the lar g er, multi-location customer s] are at a highe r leve l of intensity

while other selling a ctivities are a

t a lower level of intensity

than the same selling a ctivities in the claimed L OTH 2 [ i.e. , activities perf ormed in conne ction with the sales to the tra ditional local customers].” Id. The a naly sis applied in the Dec ision Memorandum to rejec t Z ara SpA’s claim of a

more remote L OT is not the analy sis that the Preamble discusses when explaining the me aningof § 351.412(c) (2). B ased on the selling a ctivities and selling f unctions char

ts, the Dec ision Memorandum c oncludes that Z ara SpA perfor

med similar selling a ctivities for the two c laimed L OTs (a lthough c oncedingthat some of the a ctivities were “at diff ere nt levels of intensity ”). Id. But a n overla p in selling a ctivities does not rule out a findingof diffe rent L OTs. The Stateme nt of Administrative Ac tion accompa nying the Uruguay

Round Ag ree ments Act (“ SAA”) state s thatCourt No. 09- 00001 P age 17

“Commerce need not f

ind that the two levels involve no common sellingactivities to determine that there are two levels of tra de.” The Uruguay Round Agre eme nts Act, Statement of Administrati ve A ction , H.R. Doc. No. 103- 316 (Vol. 1), at 829 (1994), reprinted in 1994 U.S.C.C.A.N. 4040, 4168 (“ SAA ”). H ere , Z ara SpA identified individual selling ac tiviti es that

are not perfor

med for the larg er, multi-location customer s, including se lling ac tiviti es per formed by a ca dre of

ag ents who visit personally , and ser vice the a ccounts of, the traditional local customers. The Preamble dr aws a distinction between mer e diffe renc es in selling a ctivities and differ ence s in selling ac tiviti es that establish a se parate selling function , stating a s follows: In other wor ds, the statute indicates that two sales with substantial differ ence s in selling a ctivities neverthe less may be at the sa

me level of

trade , and the SAA a dds that two sales with some common sellingactivities neve rtheless may be at differ ent levels of tr ade. T aken tog ether , the two points establish that an ana ly sis of sellingactivities alone is insuffic ient to establish the L OT. Rather , the Depa rtment must analy

ze selling func tions to determine if leve ls of trade identified by

a par ty are meaning ful. In situations where some dif fer ence s in selling a ctivities are a ssociated with diffe rent sale s, whether that differ ence amounts to a diffe renc e in the leve ls of trade will have to be e valuated in the context of the seller’s whole sche me of mar keting

. Preamble , 62 Fe d. Reg . at 27,371. The D ecision Memora ndum appea

rs to base its re

jection of Z ara SpA’s claim of a

separ ate L OT comprise d of the home ma rket sale s to the traditional local customers princ ipally

on a findingthat Z ara

SpA “per forms similar selling a ctivities for diffe rent customer c ateg ories.” Dec ision Mem. 20. Commerce r elied on re cord e vidence in the selling activities and sellingfunctions cha rts, concludingthat such re cord e vidence did not establish differ ence s in selling ac tiviti es that Commerce found suffic ient. Id. Absent fr om the Dec ision Memorandum is a discussion of why the sepa rate selling function that Z ara SpA claimed, base d

on rec ord evide nce of

selling a ctivities require d solely to perfor m the sales to the tra ditional localCourt No. 09- 00001 P age 18

customers, doe s not suffice to e stablish a “mea ningf ul” L OT ac cordingto an ana ly sis of the ty pe Commerce c ontemplated whe n draf ting the disc ussion of § 351.412(c) (2) in the Pre amble. See Preamble , 62 Fe d. Reg . at 27,371. The De cision Memorandum a lso rejec ts Za ra SpA’s a

rgument that it mustbrea k down and re packa g e pallets for

individual small customers, stating that “ the costs for br eakingdown pallets for shipment of individual ca rtons of merc handise should be a ccounte d for in Z ara ’s repor ted pac king la

bor expenses.” Dec ision Mem. 21. I t rejec ts Za ra’ s argument perta ining to a differ ence in adver

tising expenses bec ause suc h expenses are direc t expenses deducted f rom normal value that, acc ordingto Comm erc e, ca nnot establish differ ent L OTs. Id. Simi larly , it reje cts Z ara ’s ar gument based on diff ere nces in fr eig ht costs beca use fr eig ht costs are not a selling f unction and ar e deduc ted from the home marke t price. Id. The De cision Memorandum adds that “[t] he SAA states that the D epar tment will ensure that expenses pre viously deducte d from [normal value] are not deducted a second time through a L OT adjustment.” Id. The re asons Commerce g ave in the D ecision Memora ndum for re

jectingZ ara

SpA’s arguments involving pallets, adve rtising, a nd fre ight c osts do not suffice to support the deter mination that no separate L OT existed in the home market for the sales. The issue of the treatment of pac king, a dvertising , and fr eig ht expenses is not t he same issue as whe ther Z ara SpA perf ormed the se lling func tion of a re seller, suc h as a wholesaler or distributor, with respec t to the traditional loca l customers. Instead, Commerc e nee ded to addr ess the pre cise issue pre sented by Z ara SpA’s claim of sepa

rate L OTs and ther eby

decide whether

it was appropr iate to compar e the U.S. sales, all of which wer e made to a sing le larg e customer , with a set of home ma rket data that included the sa les to the traditional local c ustomers. Moreove r, in mentioning the need toCourt No. 09- 00001 P age 19

ensure that expenses are not deducted twic e through a L OT adjustment, Commerce confuse d the issue befor e it with a “double c ounting” issue posed by a L OT adjustment–an issue that is not prese nted in this case. B eca use Commerce failed in these respe cts to conduct the ty pe of a naly sis require d to resolve the L OT issue bef ore it, the c ourt must remand this issue to Comm erc e for

rec onsideration and r edete rmination as nec essar y . Refer ringto the claimed diff

ere nces in sellingactivities to the two g roups of c ustomers Z ara SpA identified, defe ndant ar gues that “Commerc e ca ref ully analy zed these cla imed differ ence s and found that ba sed on Z ara ’s submitted information, Z ara eng ag ed in the same five selling a ctivities, albeit at diffe rent intensities, for a ll of the customer c ateg ories in L OT-1 a nd L OT-2.” Def

. Resp. 16. This argument fails bec ause the Dec ision Memorandum does not addre ss specifica lly

the sellingactivities requir ed for servicingthe traditional loca l customers and does not confr ont directly the issue of whe ther these activities constituted a substantially differ ent selling f unction. See Dec ision Mem. 20-21. I f these a ctivities did constitut e a substantially differ ent sellingfunction, an imprope r and ina ccur ate dumpingmarg in could result from compar ing the U.S. sales, all of whic h wer e made to a sing le larg e customer , with a group of home marke t sales that included the sa les made to the tra ditional local customers. See19 U.S.C. § 1677b(a) (1)( B) (i) (2006)

. Def endant- intervenor s oppose plaintiff’s L OT ar gument on a diffe rent ground, ar guing that Z ara SpA is not entit led to any relief on its L OT cla im because “it did not request, or demonstrate e ntitlement to, a L OT adjustment for its alleg edly

more re mote L OT 2 sales in I taly .” De f.-I

nterve nors Resp. 22. Def endant- Interve nors’ a

rgument relies on the SAA a nd appea rs to be base d on a statutory construction under

which Commerce lacks a uthority toCourt No. 09- 00001 P age 20

deter mine normal value acc ordingto a set of sa les in the home marke t that do not include the sales made at a L OT more r emote than the U .S. sales. Id. at 25 (“ The SAA doe s not contemplate the wholesa le exc lusion of such sa les from [normal value], but only that an adjustment

to [ normal value] ‘may ’ be a

ppropriate .”). Def endant- intervenor s’ statutory construction ar gument finds no support in the statutory languag e or the SAA. The statute, in 19 U.S.C. § 1677b(a) (1)( B) (i), provide s that normal value is to be determined a ccor ding to the pr ice at which the for eig n like product is sold or offe red f or sale in the home ma

rket in the usual c ommercia l quantities and in the ordinar y course of trade “and, to the e x tent prac ticable, at the same leve l of trade as the e x port price or construc ted export price .” 19 U.S.C. § 1677b(a) (1)( B) (i). The plain meaningof the statute is that Commerce is to base nor mal value on home ma

rket sale s that are made in the usua l commerc ial quantities and in the ordinar

y course of trade , and, to the extent prac ticable, is to base nor mal value on sa les that

are made at the same leve l of trade as the CEP sales. Where some home marke t sales occ ur at the same L OT as the U .S. sales, and some oc cur at a more r emote L OT, Commerce , under defe ndant-interve nors’ c onstruction, is powerless to exclude the sa les at the more remote L OT and instead ma

y addre ss the problem posed by the lack of

compar ability

only throug h a L OT adjustment or CEP offset. This construc tion not only is at odds with plain meaningbut, by forc ing Commerc e to make a L OT adjustment or CEP offset that other wise mig ht not be neede d, could waste Commerce’ s resourc es and pr oduce a less acc urate result. The c ourt conc ludes that the languag e and intende d purpose of § 1677b(a) (1)( B) (i) do not support def endant- intervenor s’ restric tive interpre tation of the De partment’s discr etion under that provision.Court No. 09- 00001 P age 21

Rather than pr ovide support, the SAA re futes def endant- intervenor s’ construc tion of § 1677b(a) (1)( B) (i). The SAA explains t hat, as re quired by § 1677b(a) (1)( B) , Commerce to the extent practica

ble is to establish normal value ba sed on home mar ket (or third c ountry

) sales at the same le vel of tra de as the constructe d export price or the startingprice for e x port price

. SAA at 829, reprinted in 1994 U.S.C.C.A.N. at 4167. “I f Commerce is able to compar e sale s at the same leve l of trade , it will notmake a ny level of tra de adjustment or c onstructed e x port price offse t in lieu of a leve l of trade adjustment.” Id. As the SAA fur ther e x plains, an adjustment to normal value for L OT may be appr opriate “ when sa les in the U.S. and for eign marke ts cannot be compar ed at the sa

me level of

trade .” Id. Read in its proper c ontext , the SAA informs that the deter mination under § 1677b(a )(1) (B )(i) of which home mar

ket sales a

re at the level of tra de of the construc ted export price ( or export price) sales and the deter mination of a leve l-of-tra de adjustment or construc ted export price of fset ar e diffe rent de terminations. See19 U.S.C. § 1677b(a) (7) ( providingfor L OT adjustments or CEP offsets); SAA at 829-30, reprinted in 1994 U.S.C.C.A.N. at 4167-68. In summary , the statute and the SAA confirm that Commerc e, to the extent practica

ble, is to establish normal value ba sed on home mar ket sales that a

re ma de at the same leve l of trade as the U.S. sales. Where that is not practica ble, Commerce is authorized to perf orm a leve l-of-tra de adjustment or c onstructed e x port price offse t where appropriate under § 1677b(a) (7). III. C O N C L U S I O N For the re asons discussed in the for eg oing, the court will rema nd the Fina l Results t o Commerce f

or re consideration of the Depa rtment’s dete rmination to treat Z ara -USA’s a ccounting expenses as direc t, rather

than indirec t, sales expenses for pur poses of c alculatingconstructe dCourt No. 09- 00001 P age 22

export price and its re

jection of Z ara

SpA’s position t hat normal va lue should have be en base d on a leve l of trade define d to exclude the home marke t sales to the traditional loca l customers. The court will aff

irm Commerce’ s determination that Z ara ’s sales a re c onstructed e x port price sales. ORDER Upon re view of Certain Pasta From Italy: Notice of Final Results of the Eleventh Administrati ve R evie w & Partial Rescission of Review , 73 Fe d. Reg . 75,400 (De c. 11, 2008) ( the “F inal Results”), plaintiff’s motion for judg ment upon the ag ency rec ord, the re sponses of defe ndant and de fenda

nt-intervenor s, and all pape rs and pr ocee dings he rein, a nd upon due deliberation, it i s here by ORDERED that the Fina l Results be, and here by are , aff irmed in part a

nd rema nded in part; it is further ORDERED that Commerce sha ll reconsider its decision to treat the a ccounting expenses of Pasta Z ara -USA Inc. as indire ct sales e x penses f or purpose s of ca lculatingconstructe d export price in acc ordanc e with the princ iples stated in this Opinion and Order ; it is further ORDERED that Commerce’ s decision to base nor mal value on a ll home market sale s, including the sales made by Pasta Z ara

SpA to the traditional local customer s be, and he reby is, set aside a s contrar

y to law; it is further ORDERED that Commerce sha ll reconsider its decision to base normal va lue on all home marke t sales, includingthe sales made by Pasta Z ara

SpA to the traditional local customers, a

nd shall conduct a

n analy sis of whether

Pasta Z ara

SpA perfor

med a se parate selling function in makingthe sales to the tra ditional local customers, in ac corda nce w ith the principles stated in this Opinion and Order ; it is further ORDERED that the Fina l Results be, and here by are , aff irmed with respe ct to Commerce’ s determination that the sa les by Pasta Z ara

SpA of subject mer chandise are constructe d export price sale s; it i s further ORDERED that Commerce sha ll submi t its redeter mination upon remand within ninety (90) da y s of the date of this Opinion and Orde r; and it is furtherCourt No. 09- 00001 P age 23

ORDERED that plaintiff and de fenda nt-intervenor s shall have thirty (30) da y s from the submissi on of Commerce ’s re mand re deter mination in which to file with the court comments on the re mand re deter

mination.

/s/ Timot hy C. St ance u Timothy C. St ance u J udg e Dated: Apr il 7, 2010 New Y ork, Ne w York