Opinion ID: 774577
Heading Depth: 2
Heading Rank: 2

Heading: Cost of Production

Text: 10 As indicated previously, there is only one issue on appeal. That issue is whether Commerce's reliance on Rima's depreciation records in its final administrative review comports with the statutory requirements of 19 U.S.C. § 1677b(f)(1)(A). 11 Commerce is required to impose an antidumping duty on imported merchandise that is being sold, or is likely to be sold, in the United States at less than its fair value to the detriment of a domestic industry. 19 U.S.C. § 1673(1)-(2) (1994); Koyo Seiko Co., Ltd. v. United States, No. 00-1500, at  (Fed. Cir. July 20, 2001). The amount of the duty equals the amount by which the normal value exceeds the export price (or the constructed export price) for the merchandise. 19 U.S.C. § 1673. Normal value is the price at which the foreign like product is first sold . . . for consumption in the exporting country, in the usual commercial quantities and in the ordinary course of trade and, to the extent practicable, at the same level of trade as [the price at which the subject merchandise is first sold (or agreed to be sold) before the date of importation by the producer or exporter of the subject merchandise outside of the United States to an unaffiliated purchaser in the United States or to an unaffiliated purchaser for exportation to the United States, i.e.,] the export price or [the price at which the subject merchandise is first sold (or agreed to be sold) in the United States before or after the date of importation by or for the account of the producer or exporter of such merchandise or by a seller affiliated with the producer or exporter, to a purchaser not affiliated with the producer or exporter, i.e., the] constructed export price. 19 U.S.C. §§ 1677b(a)(1), 1677a(a)-(b); cf SKF USA Inc. v. United States, 254 F.3d 1022, 1025-26 (Fed. Cir. 2001). Under specified circumstances, when Commerce has reasonable grounds to believe that sales of the foreign like product under consideration for the determination of normal value were less than the cost of production, the statute mandates calculation of constructed value (CV) in lieu of normal . 19 U.S.C. § 1677b(b); cf SKF, 254 F.3d at 1026. The CV serves as a minimum price level at which imported goods may be sold without incurring antidumping duties. Thai Pineapple Pub. Co. v. United States, 187 F.3d 1362, 1365 (Fed. Cir. 1999). Goods sold for less than the CV are assessed duties in an amount designed to bring their effective price to the importer up to the minimum level. Id. CV amounts are to include general expenses. 19 U.S.C. § 1677b(e). The cost of general expenses includes overhead. IPSCO, Inc. v. United States, 965 F.2d 1056, 1059 (Fed. Cir. 1992). Depreciation is a part of overhead costs, which are costs of production. If depreciation is not included in production costs, the CV is lowered, thereby lowering the minimum price level at which imported goods may be sold without incurring antidumping duties, i.e., lowering the dumping margin calculations.
12 The basic purpose of depreciation is to spread the cost of a capital asset over the accounting periods that benefit from the asset's use. Kermit D. Larson and Paul B.W. Miller, Fundamental Accounting Principles 532 (13th ed. 1993). Without the benefit of hindsight, the beneficial period of an asset's use, i.e., useful life, is necessarily an estimate, and it is usually not the same as actual life. Id. at 533. This estimate takes into account the decrease in the service potential of the asset resulting from such causes as physical wear and tear through ordinary use, as well as obsolescence caused by technological changes and the introduction of new and better machinery and methods of production. Id. 13 Although this type of cost-spreading is an estimate, under GAAP it is nevertheless supposed to be systematic and rational. Id.; Glenn L. Johnson and James A. Gentry, Finney and Miller's Principles of Accounting 287 (8th ed. 1980). A variety of generally accepted methods for allocating depreciation expenses of an asset exist, such as straight line, units of production, sum-of-the-years-digits, and double declining balance 1 . Id.; Johnson at 287. While GAAP requires the method chosen to be a reasonable reflection of the use of the asset, any method chosen is going to be artificial because depreciation is an allocation process as opposed to a valuation process. Id.; Johnson at 287.
14 19 U.S.C. § 1677b(f)(1)(A) provides that for purposes of CV calculations: 15 Costs shall normally be calculated based on the records of the exporter or producer of the merchandise, if such records are kept in accordance with the generally accepted accounting principles of the exporting country . . . and reasonably reflect the costs associated with the production and sale of the merchandise. The administering authority shall consider all available evidence on the proper allocation of costs, including that which is made available by the exporter or producer on a timely basis, if such allocations have been historically used by the exporter or producer, in particular for establishing appropriate amortization and depreciation periods, and allowances for capital expenditures and other development costs. 16 19 U.S.C. § 1677b(f)(1)(A). 17 In other words, the statute provides that as a general rule, an agency may either accept financial records kept according to generally accepted accounting principles in the country of exportation, or reject the records if accepting them would distort the company's true costs. Thai Pineapple, 187 F.3d at 1362; NTN Bearing Corp. v. United States, 74 F.3d 1204, 1206 (Fed. Cir. 1995). 18 We turn next to the SAA, which is regarded as an authoritative expression by the United States concerning the interpretation and application of the foregoing statute. The SAA provides: 19 In determining whether a company's records reasonably reflect costs, Commerce will consider U.S. generally accepted accounting principles employed by the industry in question. For example, a company's records might not fairly allocate the cost of an asset if a firm's financial statements reflect an extremely large amount of depreciation for the first year of an asset's life, or if there is no depreciation expense reflected for assets that have been idle. In such a situation, it would be appropriate for Commerce to adjust depreciation expenses. Costs shall be allocated using a method that reasonably reflects and accurately captures all of the actual costs incurred in producing and selling the product under investigation or review. Commerce also will consider whether the producer historically used its submitted cost allocation methods to compute the cost of the subject merchandise prior to the investigation or review and in the normal course of its business operations. Also, if Commerce determines that costs, including financing costs, have been shifted away from production of the subject merchandise, or the foreign like product, it will adjust cost appropriately, to ensure they are not artificially reduced. 20 Agreement on Implementation of Article VI of the GATT, 834-35, reprinted in 1994 U.S.C.C.A.N. at 4172. 21 Neither the statute nor the SAA instructs Commerce as to the methodology it must use to establish depreciation expenses in CV calculations. Consequently, our review focuses on whether Commerce was reasonable in accepting the depreciation methodology of Rima. United States v. Mead Corp., 121 S. Ct. 2164, 2172 (2001) (noting that where the legislative delegation to an agency of interpretive authority is implicit, a reviewing court . . . is obliged to accept the agency's position if Congress has not previously spoken to the point at issue and the agency's interpretation is reasonable.); See also Chevron, U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 844 (1984); Thai Pineapple, 187 F.3d at 1362; Daewoo Elec. Co. v. Int'l Union, 6 F.3d 1511, 1516 (Fed. Cir. 1993). 22 It is with the foregoing background in mind that we analyze the parties' contentions and the record to assess Commerce's reasonableness in relying on Rima's reported depreciation expense.