Federal Mogul Corp. v. United States
United States Court of Appeals for the Federal Circuit
63 F.3d 1572 (1995)

- Written by Solveig Singleton, JD
Facts
The International Trade Administration, Department of Commerce (Commerce) (defendant) reviewed imports of antifriction bearings under United States antidumping law. The United States imposed a duty on imported goods that were sold in the goods’ home market for higher prices than they were sold for in the United States. The duty was calculated by subtracting the United States price (USP) from the foreign market value (FMV), yielding the so-called dumping margin. Japan imposed a value added tax (VAT) on Japanese sales, making the Japanese FMV higher than the USP. However, this was not considered unfair competition. The Tariff Act of 1930 (act), 19 U.S.C. § 1677a(d)(1)(C), empowered Commerce to adjust price calculations if the FMV was higher because of added tax. The Court of International Trade interpreted subparagraph (C) to require Commerce to apply a VAT to the USP rather than subtracting the VAT from the FMV. However, calculating the VAT as a percentage of the USP created a distortion known as the multiplier effect, causing the dumping margin to appear larger than it should. For example, if a product was sold in the United States for $90 and in Japan for $100, subject to a 10 percent Japanese VAT, the FMV would be $110. Subtracting the USP from the FMV would yield a $10 dumping margin. However, if a 10 percent VAT were added to the USP, the USP would become $90 plus $9, yielding $99. Subtracting the USP from the FMV would yield an $11 dumping margin, not the correct margin of $10. To preserve tax neutrality, Commerce adjusted the price under the act’s circumstances-of-sale provision. The courts rejected this interpretation. Commerce next adjusted the USP by adding the actual amount of the VAT charged in Japan to the USP. The United States Mogul Corporation (Mogul) (plaintiff) sued Commerce in the Court of International Trade, arguing that the act required Commerce to calculate the VAT as a percentage, as Japan did. Mogul argued that Commerce’s interpretation was unreasonable and not entitled to deference because the courts had rejected Commerce’s earlier effort. The court ruled in Mogul’s favor. The General Agreement on Tariffs and Trade (GATT) stated that products were not to be subjected to antidumping duties because they were exempt from tax in the domestic market. International agreements implementing the GATT called for due allowance to be made for taxation.
Rule of Law
Issue
Holding and Reasoning (Plager, J.)
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