Opinion ID: 766090
Heading Depth: 2
Heading Rank: 3

Heading: Koyo Seiko's Appeal

Text: 33 Under the statutory scheme, due allowance shall be made by Commerce in its determination of FMV for differences in circumstances of sale between sales in the United States and sales in the home market of the exporter. 19 U.S.C. § 1677b(a)(4)(B) (1988). Koyo Seiko claimed a circumstances of sale adjustment to account for its warranty expenses in its home market. Koyo Seiko reported to Commerce a home market warranty expense factor that was calculated by dividing the total warranty expenses incurred on antifriction bearing products during the period of review by the sales value of antifriction bearing products during that period. This warranty factor was not calculated or reported for each model or customer, nor were warranty claims identified for particular transactions. Consequently, the reported warranty factor related, in part, to non-scope merchandise such as tapered roller bearings. 34 Koyo Seiko's proposed home market warranty factor was nonetheless accepted by Commerce. Commerce explained: 35 Although Koyo calculated a warranty expense factor based on the ratio of total warranty claims to total bearing sales, there is no evidence on the record that the calculated warranty expense factor would vary by class or kind of bearing or by customer. Therefore, as in [the Final Results of the third administrative review], where Koyo used the same allocation methodology, we find that Koyo reasonably allocated direct warranty expenses, and we have accepted them for the final results. 36 Final Results, 60 Fed. Reg. at 10,910. 37 Torrington appealed to the Court of International Trade, which ruled that Commerce improperly included Koyo's warranty expenses relating to non-scope merchandise in adjusting FMV. NSK I, 969 F. Supp. at 46. The court reasoned that Commerce was prohibited from using a methodology for the calculation of adjustments to FMV that included warranty expenses on non-scope merchandise. See id. Consequently, the court remanded to Commerce to review the record to determine whether it is possible to remove those portions of Koyo's warranty expenses which relate to non-scope merchandise from the adjustments to FMV or to deny the adjustments if such removal cannot be made. Id. 38 On remand, Commerce determined that it was not possible to separate Koyo Seiko's warranty expense information relating to within-scope merchandise from that relating to non-scope merchandise. As a result, Commerce excluded all of Koyo's reported home market warranty expenses from the pool of permitted adjustments to FMV. The Court of International Trade affirmed this aspect of the Remand Results in NSK II. 39 On appeal to this court, Koyo Seiko argues that Commerce's acceptance of the proposed warranty factor was made pursuant to a reasonable interpretation of section 1677b and thus should have been upheld by the Court of International Trade. We agree. We have previously stated that this provision does not expressly limit the exercise of the Secretary's authority to determine adjustments, nor does it include precise standards or guidelines to govern the exercise of that authority. Smith-Corona, 713 F.2d at 1575, 1 Fed. Cir. (T) at 137. Indeed, the statute does not define the term 'circumstances of sale' nor does it prescribe any method for determining allowances. Congress has deferred to the Secretary's expertise in this matter. Id. Thus, because [t]he statute provides no specific guidelines for the treatment of warranty expenses, Zenith, 988 F.2d at 1583, 11 Fed. Cir. (T) at 67, Commerce's interpretation of the statute with respect to circumstances of sale adjustments for warranty expenses cannot be disturbed if reasonable, see id., 988 F.2d at 1584, 11 Fed. Cir. (T) at 68 (citing Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843-44 (1984)); see also Torrington, 156 F.3d at 1363-64 (explaining that substantial deference is accorded to Commerce's interpretation of 19 C.F.R. § 353.56 in which Commerce promulgated criteria for the allowance of circumstances of sale adjustments to FMV). 40 Commerce's interpretation of the governing statute and regulation to permit an adjustment for home market warranty expenses based on a factor derived, in part, from out-of-scope merchandise was reasonable. Torrington and the government point to precedent from the Court of International Trade holding that the Court cannot allow [Commerce] to use a methodology which allows the inclusion of . . . warranty expenses on out-of-scope merchandise. Federal Mogul Co. v. United States, 862 F. Supp. 384, 407 (Ct. Int'l Trade 1994); see also Torrington Co. v. United States, 818 F. Supp. 1563, 1578 (Ct. Int'l Trade 1993) (stating that merchandise which is outside the scope of an antidumping order cannot be used in the calculation of antidumping duties). However, aside from the fact that such precedent is not binding on this court, its import simply is not pertinent to the methodology employed by Commerce in the Final Results. Commerce did not grant a circumstances of sale adjustment for the home market warranty expenses of out-of-scope merchandise. Rather, Commerce relied upon both within-scope and out-of-scope merchandise warranty data to calculate an expense factor which it then applied only to the within-scope merchandise. Thus, no adjustment was granted for expenses relating to out-of-scope merchandise. 41 That the factor was calculated using both within-scope and out-of-scope merchandise was entirely reasonable. As a general matter, warranty data, by its very nature, can be difficult to tie to precise transactions. Indeed, when examining a recent sales period, there is plainly no way of predicting precisely how many customers will exercise their warranty rights in the future. Moreover, internal corporate accounts recording warranty expenses might be presumed unlikely to be categorized according to the ex post facto scope classifications of Commerce's antidumping duty orders. For these reasons, Commerce has been content, as a matter of policy, to use warranty costs incurred during the period of investigation or historical warranty data incurred over a longer period as best information for warranty costs associated with sales made during the period of investigation . . . . Study of Antidumping Adjustments Methodology and Recommendations for Statutory Change 39 (Dep't Commerce 1985). More recently, the Court of International Trade recognized the reasonableness of calculating a warranty factor using both within-scope and out-of-scope merchandise in Koenig & Bauer-Albert v. United States, 15 F.Supp.2d 834 (Ct. Int'l Trade June 23, 1998). In Koenig, the court rejected the respondent's argument that Commerce improperly applied a United States sales warranty factor based upon both United States sales and out-of-scope Canadian sales. The court reasoned that it was within Commerce's discretion to rely upon warranty data relating in part to out-of-scope merchandise, when that data could not be segregated, in order to calculate a factor to apply to within-scope merchandise that would be as accurate as possible. See id. at 46. 42 We agree with Koenig's analysis and hold that it is within Commerce's discretion to calculate a warranty expenses factor for purposes of determining a circumstances of sale adjustment, using data for that factor that relates in part to out-of-scope merchandise, provided that Commerce is satisfied that (i) the out-of-scope merchandise data cannot be segregated from the data relating to within-scope merchandise or that such segregation would be distortive; (ii) there is no evidence that the warranty expenses incurred on within-scope and out-of-scope merchandise are likely to differ; and (iii) the reliance on data relating to out-of-scope merchandise comports with the basic purpose of the statute - determining current margins as accurately as possible, Rhone Poulenc, Inc. v. United States, 899 F.2d 1185, 1191, 8 Fed. Cir. (T) 61, 67 (Fed. Cir. 1990). See generally 19 C.F.R. §§ 353.56(a), 353.54 (1993) (requiring Commerce to limit allowances to those circumstances which bear a direct relationship to the sales compared and setting forth that the claimant must establish the claim to the satisfaction of the Secretary). 43 Commerce's partial reliance here on data relating to out-of-scope merchandise comported with these requirements. Commerce expressly found in the Remand Results that the data that it used to calculate the warranty expenses factor could not be segregated into data relating only to within-scope or out-of-scope merchandise. In the Final Results, Commerce expressed itself satisfied that there is no evidence on the record that the calculated warranty expense factor would vary by class or kind of bearing or by customer. Id., 60 Fed. Reg. at 10,910. Finally, Commerce's very acceptance of Koyo Seiko's proposed warranty expenses factor in its Final Results evidences Commerce's determination that the goal of an accurate dumping margin calculation was furthered by its use. Consequently, we reverse the Court of International Trade with respect to its disallowance of Koyo Seiko's warranty expenses factor permitted by Commerce in the Final Results.