Zenith Electronics Corporation v. United States v. Aoc International, Inc., Fulet Electronic Industrial Co., Ltd., Sampo Corp., and Tatung Co., and Capetronic (Bsr) Ltd.

Citation: 77 F.3d 426Docket: 95-1139

Court: Court of Appeals for the Federal Circuit; April 11, 1996; Federal Appellate Court

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The United States Court of Appeals for the Federal Circuit is reviewing a case involving Zenith Electronics Corporation as the plaintiff and the United States as the defendant-appellant, with several international corporations as defendants-appellees. The appeal arises from a judgment by the United States Court of International Trade, which found that the International Trade Administration (Commerce) miscalculated a circumstances-of-sale adjustment while determining antidumping duties on color television receivers imported from Taiwan. The court ruled that Commerce's interpretation of the relevant statute was not given proper deference, leading to the decision being reversed and remanded.

Under antidumping laws, additional duties are imposed on imported products sold below fair value, calculated as the difference between foreign market value and the United States price. Commerce can compute these prices based on either purchase price or exporter's sales price, depending on the relationship between the importer and the producer. Adjustments are made to ensure fair comparisons between foreign market value and U.S. price, including a specific adjustment for circumstances of sale as mandated by statutory provisions. The case centers on the proper application of this adjustment in the context of the antidumping duties for the affected television receivers.

In 1984, the Department of Commerce issued an antidumping duty order on color television receivers from Taiwan and later published the final results of its first administrative review for the period from October 19, 1983, to March 31, 1985. During this review, Commerce permitted adjustments to the foreign market values of AOC International, Inc., Fulet Electronic Industrial Co. Ltd., and Sampo Corp. (collectively "the CTV companies") for warranty expenses, but restricted these adjustments to the costs of parts used for warranty repairs. Claims for adjustments related to salaries and benefits for in-house technicians were denied, as Commerce categorized these as indirect selling expenses that would occur regardless of sales. Conversely, adjustments for warranty expenses in the U.S. included costs for labor from outside contractors, resulting in higher U.S. adjustments compared to home market adjustments and increased dumping margins for the CTV companies.

The CTV companies contested Commerce's decision in the Court of International Trade, arguing that all warranty-related costs, including in-house labor, should be considered direct selling expenses eligible for adjustment. The United States countered that not all components of warranty expenses qualify for adjustments, asserting that each must independently meet the criteria for direct selling expenses.

The Court of International Trade sided with the CTV companies, stating there is no statutory or regulatory requirement for each expense component to independently qualify as a directly-related selling expense. The court determined that in-house labor costs for warranty repairs are not fixed costs regardless of sales and remanded the case to Commerce for further consideration. Subsequently, the court affirmed the remand outcomes in a related case, prompting an appeal from Commerce. Commerce contended that the court erred by requiring acceptance of all identifiable cost components in an adjustment, arguing that only costs directly related to the sales should be included, and criticized the court for overriding its determination regarding in-house warranty labor expenses.

Two primary issues are addressed: (1) whether the Court of International Trade incorrectly concluded that the Department of Commerce must incorporate all cost components in a circumstances-of-sale adjustment; and (2) whether the court erred in categorizing in-house warranty labor costs as direct expenses that should be included in such adjustments. The interpretation of the governing statutes is examined de novo, with reliance on the Chevron framework, which stipulates that if congressional intent is clear, that intent must be followed. If Congress is silent or ambiguous, the agency's interpretation is given deference as long as it is a permissible construction of the statute. 

In this case, the court finds no clear congressional intent requiring all cost components to be included in the adjustment, deeming Commerce's interpretation reasonable and in accordance with law. Regarding the second issue, Commerce's findings must be upheld unless they lack substantial evidence or violate the law, with "substantial evidence" defined as adequate evidence that a reasonable mind could accept. The court concludes that Commerce's interpretation and application of the circumstances-of-sale provision is reasonable and supported by substantial evidence.

The statute governing foreign market value adjustments, as highlighted in Greyhound Corp. v. Mt. Hood Stages, Inc., indicates that if differences between U.S. prices and foreign market values are partially attributable to differing sale circumstances, allowances must be made. However, the statute lacks specific guidelines for handling warranty expenses or defining what constitutes a "due" allowance. It permits the Secretary of Commerce to analyze the individual cost components of claimed adjustments without explicit limitations. Legislative history, including the 1958 circumstances-of-sale provision and the 1979 Trade Agreements Act, suggests an intent to facilitate fair price comparisons, but does not provide precise directives regarding adjustments. The 1979 House Report emphasizes that adjustments should be identifiable, quantifiable, and supported by clear evidence to avoid unjustified reductions in dumping margins.

The language indicates that there has been affirmative approval regarding the longstanding practice of limiting deductions for differences in circumstances of sale to direct expenses. Direct expenses, which vary with quantity sold, are distinguished from indirect expenses, which do not. In a case where warranty terms differ between domestic and foreign markets, the Department of Commerce is required to account for these differences but has discretion in determining the appropriate allowance, constrained by the principle that adjustments should only be made for direct expenses.

An agency’s interpretation of a statute is granted deference when Congress does not explicitly address an issue. Under Chevron, courts only assess the reasonableness of an agency's interpretation when the statute is ambiguous. Thus, Commerce’s interpretation of section 1677b(a)(4)(B), which mandates that each cost component of a claimed adjustment must qualify as a direct expense, aligns with legislative intent and historical practices that have been in place since 1960. This limitation was designed to prevent abuses in the application of the circumstances-of-sale provision, where foreign producers previously claimed deductions for indirect expenses that obscured price disparities.

Commerce's interpretation of section 1677b(a)(4)(B) is designed to prevent abuse by foreign producers who may attempt to manipulate dumping margins by including various indirect expenses in their claims for circumstances-of-sale adjustments, such as warranties. Not all expenses listed by producers may impact the price differential between foreign market value and the U.S. price. The government aims to avoid allowing unscrupulous practices through careful analysis of cost components to ascertain their direct impact on the adjustment allowance. 

The CTV companies' assertion that antidumping regulations require Commerce to adjust for all warranty-related costs is rejected. Section 353.15(a) restricts adjustments to those that are directly related to the sales in question. While warranties are cited as an example of a situation where a reasonable allowance will typically be made, this does not obligate Commerce to include all claimed costs. Commerce's discretion in determining which components to include is upheld, as its interpretation aligns with the regulation's intent.

Furthermore, the regulation specifies that adjustments should be guided primarily by the seller's costs, which does not equate to a mandate for including all identified cost components. Commerce's approach, which favors practicality over extensive econometric analysis, allows for cost data to inform adjustments without necessitating the inclusion of every expense claimed by producers. Thus, Commerce's interpretation is consistent with the regulatory framework and is not found to be erroneous or inconsistent.

The court examined whether the CTV companies' in-house warranty labor costs should be classified as "fixed" expenses. The U.S. Department of Commerce distinguishes between direct and indirect warranty expenses, allowing direct selling expenses such as free parts and payments to unrelated servicing firms but excluding indirect costs like serviceman's wages from its adjustments. The CTV companies contended that their in-house warranty labor costs were direct because they fluctuate with sales terms. However, the evidence presented did not support this claim, as a spreadsheet showed inconsistencies where warranty labor costs decreased during periods of increased sales and vice versa. Consequently, the court upheld Commerce's classification of these costs as indirect expenses. The judgment of the Court of International Trade was reversed, and the case was remanded for recalculation of dumping margins in accordance with this ruling. All parties were instructed to bear their own costs. Additionally, the applicable antidumping laws were noted to be those in effect prior to the 1995 amendments, as they do not apply to reviews initiated before January 1, 1995.

Commerce's regulations permit the deduction of indirect expenses from foreign market value if the U.S. price is based on the exporter's sales price, a process referred to as the "ESP offset." Although the CTV companies argue that Commerce must accept all claimed adjustments related to selling expenses, they acknowledged that not all costs, such as overhead from warranty departments, should be included. Their position highlights the inconsistency in their interpretation of the statute, as they recognized that some costs may be inappropriate for adjustment. Furthermore, Commerce's regulation specifies that "warranties" are merely examples of circumstances warranting adjustment, not an absolute obligation to include every cost labeled as a warranty expense. Commerce made adjustments for warranty differences, which the CTV companies disputed, but these adjustments were within Commerce's discretion and not plainly erroneous. The regulation allows Commerce to prioritize cost data over the impact of these differences on market value, simplifying the analysis needed for adjustments. Ultimately, Commerce does not consider all warranty-related costs as direct selling expenses; it includes only certain direct expenses while excluding indirect warranty expenses, such as in-house labor costs.

Commerce classified payments to unrelated servicing firms as "direct expenses" and in-house warranty labor costs as "indirect expenses," declining to adjust for the latter. The CTV companies contended that their in-house warranty expenses should be treated as direct expenses due to their variability with sales terms. However, the determining factor is whether these expenses vary with the quantity of televisions sold. The CTV companies argued that their in-house labor expenses do correlate with sales volume, but evidence presented, including a spreadsheet of monthly warranty expenses and sales data from December 1983 to December 1984, did not support this claim. The spreadsheet indicated that despite fluctuations in sales, in-house salary and benefit expenses did not consistently rise or fall in tandem with sales figures. Consequently, Commerce's classification of in-house warranty labor expenses as indirect was upheld. The judgment of the Court of International Trade was reversed and remanded for recalculation of dumping margins consistent with this finding, with each party bearing its own costs. Additionally, amendments to antidumping laws enacted by Congress do not apply to administrative reviews initiated before January 1, 1995, thus the laws in effect during the relevant period were applied.

Commerce's regulations permit the deduction of indirect expenses from foreign market value when the U.S. price is based on the exporter's sales price, as outlined in 19 C.F.R. 353.15c (1985), currently found in 19 C.F.R. 353.56(b) (1995). This adjustment, known as an "ESP offset," is not contested in this context. At the time, the Treasury was responsible for administering the antidumping laws. The trial court ruled that Commerce must accept all components of a respondent's claimed adjustment once it determines that the selling expense is directly related. However, the CTV companies acknowledged that certain costs, such as overhead from warranty departments, should not be included in these adjustments. This admission indicates that, while they believe all related costs should be accepted, they recognize that not all costs classified under the circumstance of sale are appropriate for inclusion, thereby challenging their own interpretation of the statute and regulations.