Opinion ID: 772548
Heading Depth: 2
Heading Rank: 3

Heading: Level of Trade Adjustment

Text: 78 We now turn to the second issue, concerning the level of trade adjustment. Here Micron contends, and the Court of International Trade agreed, that the deductions to the starting price in CEP sales set forth in 19 U.S.C. 1677a(d) and discussed above should not be made before the level of trade comparison is made. Resolution of this issue requires an understanding of how the level of trade adjustment works. 79 As discussed above, the level of trade adjustment is designed to ensure that the normal value and U.S. price are being compared for countervailing duty purposes at the same level of trade, that is, at the same marketing stage in the chain of distribution that begins with the manufacturer. Each more remote level [of trade] must be characterized by an additional layer of selling activities, amounting in the aggregate to a substantially different selling function. Preamble, 62 Fed. Reg. at 27,371. 11 Accordingly, [t]he adjustments under subsection (d) normally change the level of trade. Id. at 27,370. 80 Micron contends that deducting the selling expenses set forth in 19 U.S.C. 1677a(d) before making the level of trade comparison in CEP sales is unfair because the deduction changes the level of trade, and the Court of International Trade agreed, relying on its holding and reasoning in Borden Inc. v. United States, 4 F. Supp. 2d 1221 (Ct. Int'l Trade 1998). We are at a loss to understand why this is so. The theory appears to be that selling expenses are incurred both in the home market and the U.S. market and thus, accordingly, such expenses should not be deducted from CEP before making the level of trade comparison. But the theory of the statute does not require that the level of trade comparison be made at the more advanced level of trade reflected in unadjusted CEP. Rather, the level of trade comparison is to be made at the level of trade that most nearly corresponds to EP - i.e., a sale to an unaffiliated importer and at the level of trade which will be used in the duty calculation. This is the level of trade reflected in adjusted CEP. Admittedly, Commerce's methodology results in comparison of adjusted CEP with unadjusted normal value. However, as discussed above, the very purpose of the comparison is to determine whether an adjustment should be made to normal value. That adjustment itself results in comparability. 81 Whatever the theoretical merits or demerits of the two different approaches, the plain text of the statute and the text of the accompanying SAA answer the question for us. The statute states that Commerce shall establish normal value, to the extent practicable, at the same level of trade as the export price or constructed export price [CEP]. . . 19 U.S.C. 1677b(a)(1)(B)(i), and further specifically defines CEP as the price at which merchandise is first sold (or agreed to be sold) in the United States as adjusted under subsections (c) and (d) . . . . 19 U.S.C. 1677a(b) (emphasis added). Read together, these two provisions show that Commerce is required to deduct the subsection (d) expenses from the starting price in the United States before making the level of trade comparison since that deduction will likely affect the level of trade. 82 The clear language of the SAA further demonstrates that Congress intended that Commerce use the adjusted price for CEP sales after the subsection (d) deductions are made, rather than the starting price, when making the level of trade comparison. The SAA states that the amended statute requires Commerce to the extent practicable, [to] establish normal value based on home market (or third country) sales at the same level of trade as the constructed export price or the starting price for the export price. SAA at 829, reprinted in 1994 U.S.C.C.A.N. 4040, 4167 (emphasis added). Congress' intent is clear: when making a level of trade comparison for EP sales, Commerce is to use the starting price, i.e., the unadjusted price. In contrast, when making a level of trade comparison for CEP sales, Commerce is to use the constructed price, i.e., the price which reflects the deductions made pursuant to 1677a(d). 83 We note that it can be argued under these provisions that an adjustment to CEP under subsection (c) of 19 U.S.C. 1677a is also required before making the level of trade comparison. That issue is not presented here. We need not (and do not) decide the question as to the necessity of the subsection (c) adjustments before making the level of trade comparison. 12 84 Micron next argues that the practical effect of Commerce's methodology in requiring the 1677a(d) deductions is to improperly require, in every case, either a level of trade adjustment or a CEP offset. Commerce itself has recognized that [t]he statute clearly anticipates that an adjustment for differences in levels of trade will not be necessary every time the Department [of Commerce] uses CEP. Preamble, 62 Fed. Reg. at 27,351. But such adjustments will not be routine under Commerce's interpretation of the scope of the D deductions. Indeed, Micron conceded at oral argument that if the deductions set forth in 19 U.S.C. 1677a(d)(1)(D) do not include all indirect selling expenses, as we have held, the question whether the deductions set forth under 1677a(d) are made before or after the level of trade comparison has relatively less impact. This is presumably because the inclusion or exclusion of the more limited deductions set forth in subsection D has less impact on the level of trade, i.e., less impact on the selling functions reflected in the price, than the broader deduction of all selling expenses. 85 Furthermore, the CEP offset will not be automatic. Indeed, as Commerce explained in its Preamble: 86 Some commenters suggested that the CEP offset is automatic. 87 This is not the case. The Department will calculate CEP by deducting only selling expenses and profit associated with selling activities in the United States. Thus, the resulting CEP will retain an element of selling expenses and an element of profit, as do directly observed export prices. We do not agree that there never will be comparable sales in the foreign market. 88 62 Fed. Reg. at 27,372. Moreover, in several antidumping investigations concerning CEP sales, application of Commerce's methodology has not resulted in the grant of either a level of trade adjustment or a CEP offset. See, e.g., Fresh Kiwifruit from New Zealand, 64 Fed. Reg. 36,844, 36,845-46 (July 8, 1999) (prelim. admin. review); Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts Thereof from France, Germany, Italy, Japan, Romania, Singapore, Sweden and the United Kingdom, 62 Fed. Reg. 54,043, 54,060 (Oct. 17, 1997) (comment 7) (final admin. review); Notice of Preliminary Determination of Sales at Less Than Fair Value and Postponement of Final Determination: Steel Wire Rod From Canada, 62 Fed. Reg. 51,572, 51,575-76 (Oct. 1, 1997). 89 In sum, we find that the statute unambiguously requires Commerce to deduct the selling expenses set forth in 19 U.S.C. 1677a(d) before making a level of trade comparison, and we reject the holding and rationale of the Court of International Trade in Borden, Inc. v. United States, 4 F. Supp. 2d 1221 (Ct. Int'l Trade 1998). We therefore reverse the Court of International Trade's disposition of Issue 2.