Opinion ID: 212201
Heading Depth: 2
Heading Rank: 2

Heading: Repacking Expenses

Text: Section 1677a(c)(2)(A) allows the constructed export price to be reduced by movement expenses. It provides that “[t]he price used to establish export price and constructed export price shall be . . . reduced by”: the amount, if any, included in such price, attributable to any additional costs, charges, or expenses, and United States import duties, which are incident to bringing the subject merchandise from the original place of 04-1223 4 shipment in the exporting country to the place of delivery in the United States . . . . 19 U.S.C. § 1677a(c)(2)(A) (2000). A separate provision provides for different treatment of direct selling expenses, which are also used in calculating the constructed export price: “For purposes of this section, the price used to establish constructed export price shall also be reduced by . . . expenses that result from, and bear a direct relationship to, the sale, such as credit expenses, guarantees and warranties . . . .” Id. § 1677a(d)(1)(B). NSK submitted to Commerce a list of expenses, which included its U.S. repacking expenses. Commerce reduced the U.S. price of the merchandise for all expenses that NSK listed except its repacking expenses. Commerce denied NSK an allowance for the repacking expenses under § 1677a(c)(2)(A), instead treating NSK’s repacking expenses as direct selling expenses under § 1677a(d)(1)(B). Final Results, 63 Fed. Reg. at 33,339. Commerce reasoned that: We do not view repacking expenses as movement expenses. The repacking of subject merchandise in the United States bears no relationship to moving the merchandise from one point to another. The fact that repacking is not necessary to move merchandise is borne out by the fact that the merchandise was moved from the exporting country to the United States prior to repacking. Rather, we view repacking expenses as direct selling expenses respondents incur on behalf of certain sales which we deduct pursuant to section 772(d)(1)(B) of the statute [19 U.S.C. § 1677a(d)(1)(B)] . . . . Id. The Court of International Trade affirmed. NSK, 217 F. Supp. 2d at 1305-06. The Court of International Trade reasoned that NSK’s repacking expenses were properly classified as selling expenses because § 1677a(d)(1)(B) did not provide an exhaustive list and was not limited simply to credit expenses, guarantees, and 04-1223 5 warranties. Id. at 1305. The Court of International Trade concluded that it was reasonable to classify the repacking expenses as selling expenses because the repacking was performed on individual products to facilitate their sale to unaffiliated U.S. customers. Id. Moreover, the Court of International Trade found that NSK’s repacking expenses were not incidental to bringing the subject merchandise from the original place of shipment to the place of delivery in the United States, and that Commerce thus acted reasonably in refusing to classify the repacking expenses as movement expenses under § 1677a(c)(2)(A). Id.
NSK argues that Commerce erred in classifying its U.S. repacking expenses as selling expenses rather than movement expenses. First, NSK points out that Commerce permitted the constructed export price to be reduced by several other types of similar expenses that it concluded were movement expenses under § 1677a(c)(2)(A). These included: Japanese inland freight (from plant to warehouse, and from warehouse to exit port), international freight, U.S. inland freight (from entry port to warehouse, and from warehouse to U.S. unaffiliated customers) (“U.S. shipping”), Japanese warehousing, marine insurance, U.S. brokerage, U.S. customs duties, and U.S. pre-sale warehousing. NSK argues that if these categories of expenses were deemed movement expenses under § 1677a(c)(2)(A), then U.S. repacking expenses, which are indistinguishable from other pre-sale warehousing, handling, and insurance expenses, should also be categorized as movement expenses. NSK next argues that Commerce’s rationale for treating repacking expenses as transportation expenses cannot withstand scrutiny. NSK contends that whether 04-1223 6 repacking was required to bring merchandise from Japan to NSK’s U.S. warehouse is irrelevant. NSK also argues that the repacking expenses were movement expenses because they were necessary to bring the merchandise to the place of delivery in the United States, e.g., each customer’s place of business. NSK points out that repacking was necessary to make the requested quantities of bearings deliverable to U.S. customers. Finally, NSK argues that Commerce’s contention that repacking was needed to sell the merchandise to an unaffiliated U.S. customer is inconsistent with its allowance of U.S. inland freight costs as movement expenses, which under Commerce’s reasoning also would be “directly related” to specific sales. Commerce responds that the Court of International Trade properly affirmed its decision that NSK’s U.S. repacking expenses were selling expenses. Commerce relies on the following questionnaire response provided by NSK as evidence that its repacking expenses were selling expenses: “Merchandise normally is shipped from the U.S. warehouse in its original containers. In some instances, different pallets were used for shipment to U.S. customers and some repackaging may have occurred to accommodate smaller distributor orders.” Joint Appx. at 205 (Response of NSK Ltd. and NSK Corp. to Section C of the Questionnaire at 32). Commerce asserts that its rationale is correct that repacking bears no relationship to movement of the merchandise because the merchandise was moved from Japan to the United States prior to any repacking. Commerce further argues that repackaging expenses are distinct from warehousing expenses, because warehousing expenses are associated with storage before or during the movement process. Commerce finally argues that its statutory construction is correct because 04-1223 7 § 1677a(d)(1)(B) did not limit direct selling expenses to the enumerated credit expenses, guarantees, or warranties.
Congress expected that Commerce “be able to speak with the force of law when it addresses ambiguity,” United States v. Mead Corp., 533 U.S. 218, 229 (2001), in administering the antidumping statute. SKF USA, Inc. v. United States, 263 F.3d 1369, 1381 & n.14 (Fed. Cir. 2001). Therefore, we review Commerce’s determination under Chevron. SKF, 263 F.3d at 1381 & n.14. The first question is “whether Congress has directly spoken to the precise question at issue.” Chevron, 467 U.S. at 842. We conclude that as to NSK’s repacking expenses Congress has not spoken, because both the movement and sale provisions of the statute may be reasonably interpreted to cover those costs. Neither provision mentions repacking specifically. On the one hand, repacking could be a movement expense because it could arise “incident to bringing the subject merchandise from the original place of shipment . . . to the place of delivery in the United States.” 19 U.S.C. § 1677a(c)(2)(A) (2000). Just as warehousing is considered a movement expense, repacking, especially to enable warehousing, could be deemed a movement expense. On the other hand, repacking could be a selling expense because it could be an “expense[] that result[s] from, and bear[s] a direct relationship to, the sale” to particular customers. Id. § 1677a(d)(1)(B). Having received an order, the importer could repack the merchandise to accommodate the customer. Because the movement and selling expense statutes do not unambiguously classify repacking expenses in one 04-1223 8 category or the other, we must consider Commerce’s interpretation under step two of Chevron. “[I]f the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.” Chevron, 467 U.S. at 843. We conclude that Commerce’s determination that NSK’s repacking expenses are properly classified as selling expenses under 19 U.S.C. § 1677a(d)(1)(B) is impermissible. Commerce’s classification of repacking expenses as selling expenses is internally inconsistent with its classification of U.S. warehousing expenses and U.S. warehouse-to-customershipping expenses as movement expenses. Commerce’s first attempt to explain why repacking is not a movement expense is that “[t]he repacking of subject merchandise in the United States bears no relationship to moving the merchandise from one point to another.” Final Results, 63 Fed. Reg. at 33,339. This point is unpersuasive because it is inconsistent with Commerce’s treatment of warehousing. If the test is “bear[ing a] relationship to moving the merchandise,” then U.S. warehousing (i.e., storing goods while awaiting sale to a customer) should not be a movement expense—goods do not move when they are stored. Commerce next argues that NSK’s successful movement of merchandise from Japan to the United States without repacking is evidence that “repacking is not necessary to move merchandise.” Id. This rationale is unpersuasive because it too is inconsistent with Commerce’s treatment of the U.S. warehousing expense. Under Commerce’s rationale, U.S. warehousing also should be excluded from the scope of 04-1223 9 § 1677a(c)(2)(A) movement expenses because the merchandise, in theory, could be moved from Japan to a U.S. customer without U.S. warehousing, simply by shipping the merchandise directly from Japan to the U.S. customer. However, Commerce considers U.S. warehousing to be a movement expense. Finally, Commerce implies that even though the statute might allow it to classify repacking as a movement expense, because repacking occurs to enable a sale— whether to satisfy a customer’s request for a different lot size or to accommodate shipping—it is a sales expense under § 1677a(d)(1)(B). See id. Once again, Commerce’s rationale is internally inconsistent. Treating repacking as a sales expense is inconsistent with treating U.S. shipping as a movement expense. If enabling sales is the test, then U.S. shipping should be a sales expense. Like repacking that enables sales, U.S. shipping occurs after a customer places an order. Indeed, the cost of shipping the merchandise from the U.S. warehouse to the U.S. customer is incurred only because of and in furtherance of the sale. Commerce treats U.S. shipping as a movement expense, however, and fails to explain the inconsistency. Expenses incurred for U.S. repacking, U.S. warehousing, and U.S. shipping (from the warehouse to particular customers) are analogous. To be consistent, it would appear that Commerce should classify them as the same type of expenses, whether that be as movement expenses or as sales expenses. If Commerce wants to treat these expenses inconsistently, then under Chevron we still must defer, but only if Commerce reasonably explains the inconsistency and does not act arbitrarily. See SKF, 263 F.3d at 1381-82 (vacating Commerce’s decision to inconsistently define a term in two provisions of the antidumping statute because Commerce acted arbitrarily 04-1223 10 by not providing a reasonable explanation for the inconsistency); Nat’l Org. of Veterans v. Sec’y of Veterans Affairs, 260 F.3d 1365, 1379 (Fed. Cir. 2001) (remanding a Department regulation to allow the agency to provide a reasonable explanation for its decision to interpret virtually identical statutory language inconsistently). Because Commerce did not sufficiently explain the aforementioned inconsistencies, its determination is arbitrary and impermissible. Commerce’s classification of NSK’s repacking expenses as selling expenses is vacated and remanded for reconsideration consistent with this opinion. On remand, we caution Commerce to be mindful that repacking may have occurred for a number of different reasons. NSK indicated in its questionnaire response (the only evidence on which Commerce relied in making its decision) that NSK’s practice is to bulk ship its merchandise from Japan to U.S. warehouses on pallets used for international shipping. NSK was required to unpack the merchandise from the international shipping pallets, and “in some instances,” repack the merchandise into individual or small quantity boxes prior to shipment to U.S. customers. Joint Appx. at 205 (emphasis added). On this record, substantial evidence may not support a determination that NSK’s repacking expenses were incurred as a direct result of or in furtherance of sales to particular customers. Indeed, NSK’s counsel noted at oral argument that repacking is sometimes done for other reasons, e.g., to enable warehousing.