BINATIONAL PANEL REVIEW
PURSUANT TO
THE NORTH AMERICAN FREE TRADE AGREEMENT
Article 1904

IN THE MATTER OF:

Certain corrosion-resistant steel sheet products originating in or exported from the United States of America (Injury)

Before: William E. Code (Chair)
Harry First
D. Michael M. Goldie
Kathleen F. Patterson
Robert E. Ruggeri

MEMORANDUM OPINION AND ORDER

June 23, 1995

C.J. Michael Flavell and Geoffrey C. Kubrick of Flavell Kubrick and Lalonde for U.S. Steel, a Division of USX Corporation, LTV Steel Company, Inland Steel Company and I/N Kote.

Riyaz Dattu and Colin Baxter of McCarthy Tétrault for Stelco Inc.

John Morin, Steven D’Arcy and Laura Lundie of Fasken Campbell Godfrey for Dofasco Inc.

Greg Somers of Osler, Hoskin and Harcourt for Sorevco Inc.

Michael Ciavaglia of the Department of Justice for the Deputy Minister of National Revenue, Customs, Excise and Taxation.

TABLE OF CONTENTS

I. INTRODUCTION

II. ADMINISTRATIVE HISTORY

III. PANEL PROCEEDINGS

IV. SUMMARY OF ISSUES AND PANEL DECISION

V. STANDARD OF REVIEW

VI. INCLUSION OF CERTAIN COSTS

A. General Principles Governing Review of the Deputy Minister’s Determination of the Costs Under Sections 16(2)(b) and (19)(b) of SIMA

B. Cost of Settling an Antitrust Suit Involving Bessemer & Lake Erie Railroad

C. Interest Charge Related to the U.S. Coal Industry Retiree Health Benefit Act

VII. INCOME RELATED TO ANTITRUST SUIT - BESSEMER & LAKE ERIE RR CO. (LTV)

VIII. CHANGES TO ALLOCATIONS

A. Energy Buyers v. USX

B. Inland I/N Kote Overhead

C. Exclusion of Joint Venture Profits from Cost of Production (LTV)

IX. INCOME OFFSET

A. Use of Financing Income to Offset Financing Expenses (LTV and Inland)

B. Offset of Pension Costs (Inland)

C. Bankruptcy Costs and Credit for Emerging From Bankruptcy (LTV)

X. DATE OF SALE

XI. CONCLUSION AND ORDER

MEMORANDUM OPINION

I. INTRODUCTION

This panel review was requested and complaints were filed by U.S. Steel (a division of U.S.X. Corporation) ("U.S. Steel" or "USS"), LTV Steel Company ("LTV"), Inland Steel Company ("Inland") and I/N Kote ("I/N Kote") to contest the final determination of dumping issued by the Deputy Minister of National Revenue for Customs and Excise ("Deputy Minister") in the matter of certain corrosion-resistant steel sheet products originating in or exported from the United States of America. This Panel has jurisdiction over this action pursuant to Chapter Nineteen of the ¹ North American Free Trade Agreement ("NAFTA") and Section 77.15 of the Special Import Measures Act, R.S.C. 1985, c. S-15, as amended ("SIMA"). The products at issue in this review are imports of certain corrosion-resistant steel sheet products from the United States of America by or on behalf of U.S. Steel, LTV, Inland and I/N Kote.

II. ADMINISTRATIVE HISTORY

On September 27, 1993, a formal dumping complaint was submitted by Dofasco Inc. and Stelco Inc. respecting certain corrosion-resistant steel products. The Deputy Minister initiated a dumping investigation on November 17, 1993, pursuant to Section 31(1) of SIMA on the basis that there was evidence that the subject goods were being dumped and that the dumping had caused, was causing and was likely to cause material injury to the production of like goods in Canada. On March 31, 1994, the Deputy Minister made a preliminary determination of dumping with respect to imports of the subject goods, pursuant to Section 38(1)(a) of SIMA.

June 29, 1994 the Deputy Minister issued a final determination that certain subject goods originating in or exported from the United States were being dumped in Canada by the following weighted average margins:

Inland/I/N Kote 8.1%

LTV Steel Company Inc. 13.2%

USX United States Steel 4.2%

On December 20, 1993 the Canadian International Trade Tribunal made a final finding that the dumping of subject goods from the United States was causing material injury to the Canadian industry of like goods.

III. PANEL PROCEEDINGS

U.S. Steel, Inland, I/N Kote and LTV the ("U.S. Complainants") filed a first request for panel review on August 12, 1994. On September 9, 1994 the U. S. Complainants filed a Complaint with the Canadian Secretary pursuant to Section 39 of the NAFTA Article 1904 panel rules. An Amended Complaint was subsequently filed on September 29, 1994. Stelco Inc. filed a motion on December 5, 1994 requesting the Panel to rule that the Amended Complaint was not properly before the panel. The U.S. Complainants subsequently withdrew the Amended Complaint on December 14, 1994.

The U.S. Complainants filed Briefs of Argument on December 13, 1994. The Deputy Minister filed a Brief of Argument on February 10, 1995. Dofasco Inc., Sorevco and Company Limited and Stelco Inc. filed written Briefs of Argument on February 10, 1995. The U.S. Complainants filed a Reply brief on February 28, 1995.

A public hearing took place in Ottawa, Ontario on March 20, 1995 in which all participants referenced in the immediately preceding paragraph presented oral argument before the Panel.

IV. SUMMARY OF ISSUES AND PANEL DECISION

Issues Presented

The U.S. Complainants argue that the Deputy Minister erred:

1. in including the following costs in his Sections 16(2)(b) and 19(b) calculations of subject goods:
(a) costs related to the settlement of an antitrust action against a former railroad subsidiary of USX Corporation, the Bessemer and Lake Erie Railroad ("B&LE") (USS);

(b) an interest charge incurred on liability under the U.S. Coal Industry Retiree Health Benefit Act (LTV);

2. in not including LTV’s alleged receipt of funds in settlement of the B&LE litigation (LTV);

3. in changing U.S. Complainants’ method of allocating the following costs or credits:

(a) The Deputy Minister did not include in the calculation of USS’ 1993 costs a credit taken in 1993 to adjust for overestimating a liability in 1992 related to litigation with the Energy Buyers Corp;

(b) The Deputy Minister changed the allocation of overhead costs made by Inland and I/N Kote; © The Deputy Minister did not adjust LTV’s cost of production to account for profits earned by electrogalvanizing joint ventures in which LTV was a partner;

4. in not including certain items in his section 16(2)(b) and 19(b) calculations:

(a) short term interest income (Inland) and short term interest income in excess of interest expense (LTV);

(b) pension credit (Inland); © credit for emerging from bankruptcy (LTV); and

5. in employing the order confirmation date as the date of sale rather than the date of invoicing/shipping (Inland, I/N Kote, LTV). Panel Decision

REMANDS issues 1(a) and (b) concerning the B&LE litigation and the Coal Retiree Act interest charge;

REMANDS issue 4(a) concerning short term interest income; and  

AFFIRMS all other aspects of the Deputy Minister’s determination at issue before this Panel.

V. STANDARD OF REVIEW

A binational panel appointed under Article 1904 of the NAFTA Agreement to review a final anti-dumping or countervailing duty determination is to

…determine whether such determination was in accordance with the anti-dumping or countervailing duty law of the importing Party.

In doing so, and in accordance with Annex 1911 of NAFTA, it applies as its standard of review the grounds set out in subsection 18.1(4) of the Federal Court Act R.S.C. 1985 c. F-7 as amended. It must determine whether the authority whose acts are being reviewed:

(a) acted without jurisdiction, acted beyond its jurisdiction or refused to exercise its jurisdiction;

(b) failed to observe a principle of natural justice, procedural fairness or other procedure that it was required by law to observe; © erred in law in making a decision or an order, whether or not the error appears on the face of the record;

(d) based its decision or order on an erroneous finding of fact that it made in a perverse or capricious manner or without regard for the material before it;

e) acted, or failed to act, by reason of fraud or perjured evidence; or

(f) acted in any other way that was contrary to law.

Article 1904(2) of the NAFTA provides that for the purpose of this review:

…the antidumping or countervailing duty law consists of the relevant statutes, legislative history, regulations, administrative practice and judicial precedents to the extent that a court of the importing Party would rely on such materials in reviewing a final determination…

In effect, a binational panel is constituted as a court of first instance undertaking judicial review of a tribunal decision. It is accepted by all participants that the judgments of the Supreme Court of Canada constitute binding legal precedents for all lower courts in Canada, as well as for binational panels.

The most recent pronouncement in the field of administrative law is found in C.B.C. v. Canada Labour Relations Board, a judgment of the Supreme Court of Canada pronounced on 27 January 1995. This case originated with a complaint of an unfair labour practice by the Canadian Broadcasting Corporation. The underlying facts have little to do with what is before this panel. In his reasons for judgment commencing at p. 14 Mr. Justice Iacobucci provides a useful summary of the state of the present law on this subject. The following excerpts are from his reasons for judgment:

A. The Standard of Review

1. General Principles

28 The first step in the judicial review of an administrative tribunal’s decision is to determine the appropriate standard of review.

As was noted in Pezim v. British Columbia (Superintendent of Brokers), [1994] 2 S.C.R. 557, at pp. 589-90: There exist various standards of review with respect to the myriad of administrative agencies that exist in our country. The central question in ascertaining the standard of review is to determine the legislative intent in conferring jurisdiction on the administrative tribunal. In answering this question, the courts have looked at various factors. Included in the analysis is an examination of the tribunal’s role or function. Also crucial is whether or not the agency’s decisions are protected by a privative clause. Finally, of fundamental importance, is whether or not the question goes to the jurisdiction of the tribunal involved.

Having regard to these and other factors, the courts have developed a spectrum that ranges from the standard of patent unreasonableness at one extreme to that of correctness at the other…

29 Generally speaking, where the tribunal whose decision is under review is protected by a broad privative clause, its decision is subject to review on a standard of patent unreasonableness. However, this is only true so long as the tribunal has not committed a jurisdictional error. Jurisdictional questions addressed by the tribunal are independently reviewed on a correctness standard. An error on such a jurisdictional question will result in the entire decision of the tribunal being set aside.

30 In distinguishing jurisdictional questions from questions of law within a tribunal’s jurisdiction, this Court has eschewed a formalistic approach. Rather, it has endorsed a "pragmatic and functional analysis",…The goal is to determine whether the legislature intended that the question in issue be ultimately decided by the tribunal, or rather by the courts.

2. Application of General Principles to this Appeal

31 … The labour relations tribunal, in its federal and provincial manifestations, is a classic example of an administrative body which is both highly specialized and highly insulated from review. …The Canada Labour Relations Board must develop a coherent and workable structure for the application of the numerous statutory provisions…In order for these workers and their employers to receive rapid resolution of their disputes in a manner which can be rationalized with their other rights and duties under the Canada Labour Code, the decisions of the Board cannot routinely be overturned by the courts whenever they disagree with the Board’s treatment of an isolated issue. … (Citations to authorities in the above omitted.)

The Deputy Minister’s determination is not protected by a privative clause. Some statutory guidance is obtained from the words of Article 1902(2)(d)(ii) of the NAFTA:

(ii) the object and purpose of this Agreement and this Chapter, which is to establish fair and predictable conditions for the progressive liberalization of trade between the Parties to this Agreement while maintaining effective and fair disciplines on unfair trade practices… (Emphasis added.)

The word "effective" in the emphasized clause above implies the development of a high level of skill based on continuing experience and monitoring of trade relations. "Fair" implies a process permitting parties affected an adequate opportunity of stating their case or meeting what is alleged against them.

As might be expected at this stage of the binational panel review process, there is a considerable measure of agreement on the principles applicable to reviews of a final determination by the Deputy Minister under SIMA, the relevant legislation.

Applying the classification adopted in s. 18.1(4) of the Federal Court Act, the following provides a general guide to the application of current law:

1. "Acted without jurisdiction, acted beyond its jurisdiction or refused to exercise its jurisdiction"; Jurisdiction of administrative tribunals is statutory in origin and correctness is the test in the interpretation of the constituting statute. Before this test is applied by the court in substitution for that of the tribunal, the court must analyze "the purpose of the statute creating the tribunal, the reason for its existence, the area of expertise of its members and the nature of the problem before the tribunal".

From this pragmatic and functional analysis the court will determine the extent to which the legislature wished the tribunal to define its own jurisdiction. Where this intention is manifest, as in the case of labour relations tribunals, the courts will intervene on a jurisdictional issue only if the tribunal’s interpretation is patently unreasonable.

Even without the protection of a privative clause, the Deputy Minister’s determination of jurisdiction under SIMA should not be interfered with unless it is patently unreasonable. Thereafter, correctness in the determination of jurisdiction is the test and is the test adopted by previous panels.

2. "Failed to observe the principle of natural justice, procedural fairness or other procedure that it was required by law to observe." A material breach of this ground of review would result in loss of jurisdiction. Fairness according to the exigencies of the fact finding process is the criterion. The Deputy Minister is not a quasi-judicial tribunal and the criterion is satisfied if an affected party is provided a reasonable opportunity to present its case and to respond to the case against it.

3. "Erred in law in making a decision or an order, whether or not the error appeared on the face of the record." Where the tribunal purports to interpret a general statute or regulation, other than its constituent statute or the relevant regulations, it must be correct as it is not assumed it has any skill or experience in the general interpretation of statutes. As noted, in the application of its own statute and regulations, the standard is reasonableness.

4. "Based its decision or order on an erroneous finding of fact that it made in a perverse or capricious manner or without regard for the material before it". A specialized tribunal such as the Deputy Minister is entitled to wide latitude in findings of fact provided there is some relevant evidence supporting those findings. Neither of the two remaining categories under s. 18.1(4) of the Federal Court Act has relevance here.

The Panel has applied these principles in its review of the issues.

VI. INCLUSION OF CERTAIN COSTS

A. General Principles Governing Review of the Deputy Minister’s Determination of the Costs Under Sections 16(2)(b) and (19)(b) of SIMA

Several of the issues before this Panel are bound together by a common problem: What is the appropriate interpretation of "cost" for purposes of Sections 16(2)(b) and 19 (b) of SIMA?

... of the cost of production of the goods, the administration and selling costs with respect to the goods and an amount for profit". SIMA, s.16(2)(b). This language is somewhat different from the language for constructing value under s.19(b) ("administrative, selling and all other costs," emphasis added). To the extent that any of the determinations in this case involve determinations of cost under both sections of the Act, however, none of the parties claim that the difference in language affects the result. Furthermore, while there have been many discussions concerning the difference in statutory language between sections 16 and 19, it is not disputed that Section 16 is not broader than Section 19. Consequently, if a cost is inappropriate for Section 19, it would also be inappropriate for Section 16.

Section 19 comes into play when the Deputy Minister is unable to determine the normal value of the goods in question by examining actual prices in the exporting country, but must instead determine normal value by constructing what the price should have been. This constructed value (in the language of the statute) is "the aggregate of (i) the cost of production of the goods, (ii) an amount for administrative, selling and all other costs, and (iii) and an amount for profits."² A regulation under SIMA has been adopted to help implement section 19. In relevant part this regulation defines the statutory phrase "cost of production" to mean "all costs" that are "attributable to, or in any manner related to, the production of the goods." The statutory phrase "administrative, selling and all other costs" is defined as the sum of administrative and selling costs "that are directly attributable to the production and sale of the goods," costs of warranties or guarantees "attributable to the goods," and "other costs" that are "attributable to the goods" but are not otherwise named.³

Thus, although the language of SIMA speaks broadly of administrative and selling costs, and profits, without using the modifier "of the goods," the regulation makes clear that the Deputy Minister’s inquiry is to be focused on the goods in question. For each category of cost, the regulation states that the Deputy Minister will determine the costs "attributable to the goods."

Beyond the statute and regulation, however, there is little in the way of prior Canadian law to guide this Panel in undertaking its review of those items of cost which the Deputy Minister has determined are properly attributable to the products involved in this investigation. Guidance to the propriety of the Deputy Minister’s approach to the question of "cost" is provided from jurisprudence that has been developed by binational panels following the enactment of the U.S. - Canada Free Trade Agreement. These panel decisions have apparently guided the decisions of the Deputy Minister. Three of these panel decisions are particularly relevant to our decision, Beer, ⁴ Gypsum, and Cold-Rolled Steel. In each case the Panel was required to deal with the definition of ^{5 6} "cost" under SIMA.

Beer involved the exclusion of below cost sales of Stroh’s beer under section 16(2)(b) of SIMA. In computing cost, the Deputy Minister had included the interest expense that Stroh had incurred in its acquisition of two beer companies. The Deputy Minister agreed that the borrowing to finance the acquisitions had to have been "related" to the brewery at which the allegedly dumped beer had been produced; it argued that there was such a relation. In other words the Panel agreed that a producer’s costs for his non-subject goods could not be allocated to subject goods. The Panel agreed with the Deputy Minister’s construction of the statute, but found no evidence to support the determination that there was such a relation. The Panel accordingly remanded the issue for reconsideration.

The next case was Gypsum. The question was whether to include two items as a "cost" under section 19(b); 1) the interest expenses that National Gypsum incurred in connection with a leveraged buy-out of the company; and 2) the interest expenses that U.S. Gypsum incurred in connection with the adoption of its "poison pill" provisions. The Deputy Minister did not include these expenses as a cost of production of the gypsum board in question because the expenditures were not "related" to the production or operation of the subsidiaries of the two companies producing gypsum board.

A Canadian producer, Westroc, sought review, arguing that the Deputy Minister erred in not including these interest expenses, which Westroc characterized as "part of each exporter’s general costs of doing business". The Deputy Minister argued that the expenses were not costs ⁷ under section 19(b) because they were not (in the language of the regulations) "attributable" to the subject goods. For a cost to be attributable, the Deputy Minister argued, there must be a "causal connection" between the cost and the production of the goods in question.⁸

The Panel disagreed with the Deputy Minister’s interpretation of the statute and its regulation. Stating that there was no "particular judicial or other authority determining or assisting in the interpretation" of section 19 or the regulation, the Panel proceeded to parse the statute to determine what "connection" the costs must bear to the subject goods. To determine [constructed] value, the Deputy Minister is directed to calculate the sum of certain specified costs and "all other costs". It is clearly implied that such costs must bear a connection with the subject goods (as opposed to non-subject goods), but there is nothing to indicate that such costs should be limited to costs caused by the production of the subject goods, such as head office expenses for the management of the company of which the production of the

subject goods forms a part, and not include other costs which are to be found on the books of the company (emphasis added). ⁹ Although the interest expense for both the LBO and poison pill might have been simply characterized as relating to the operations of the entire company (like the CEO’s salary, for example) and hence be attributable, in part, to the subject goods, the Panel chose to write more broadly. The Panel stated that the interest expense "required payment" and "would be deducted as an expense" in "calculating the net profit or loss of the company".¹⁰

The Gypsum panel distinguished the Beer decision since "[t]here was no suggestion [in Beer], as there is in this case, that the costs might not be allocated to any production." The issue ¹¹ in Gypsum, therefore, was how to treat corporate expenses which were not related to any particular production, including the subject goods.

The Panel rejected the Deputy Minister’s interpretation that only costs caused by or related to production of the subject goods can be included in the cost calculation: [A]ll costs of a corporation, paid or accruing as payables, must be spread in some reasonable manner over the products of the corporation.

The statutory direction that "all other costs" are to be allocated indicates that every type of corporate expenditure, no matter how extraordinary or unrelated to production, is to be allocated to all products in some fair way.¹²

Therefore, as in Beer, the Gypsum panel held that costs which were specifically related to a corporation’s non-subject goods cannot be included in a cost calculation of the subject goods. However, other expenses, such as general corporate or overhead costs, no matter how unrelated to production of the subject goods, can be allocated over all production including the subject goods. Gypsum was followed by the third case, Cold-Rolled Steel. The Deputy Minister, apparently acquiescing in the broad interpretation of the statute in Gypsum, found a number of items to include under sections 16(2)(b) and 19(b) of SIMA when computing the "cost" of the steel products under investigation: costs of maintaining a parent entity, interest on financing obligations at the parent level, general bankruptcy expenses, and costs incurred under the Coal Retiree Act (about which more later).

The Panel’s decision on all four items stressed that attribution of costs to a particular product should be done in a way that "provides a more accurate assessment both of the profitability of the steel operation and of its constructed costs". Thus, it agreed with the Deputy Minister’s ¹³ allocation of the items of "headquarters" costs and bankruptcy expenses, but it disagreed on the Coal Retiree Act obligations. With regard to the latter, the Cold-Rolled Steel panel felt that the Beer decision was a more "appropriate" precedent than Gypsum. The Coal Retiree Act charge was ¹⁴ "directly attributable" to "idled coal operations". To include this charge "would create a serious ¹⁵ distortion in the expenses of the steel operation and an inaccurate picture of the costs of steel production during the relevant period for purposes of comparison". ¹⁶

The Panel explained that "general overhead costs are to be distinguished, however, from costs that specifically relate to other operations of the corporation, which cannot reasonably be

included in s. 16(2)(b) determinations, as the Beer Panel has already stated, nor in a section 19(b) cost construction." Relying on Beer, the Panel held that: ¹⁷ It is the Panel’s conclusion that there is neither a legal nor a factual basis for charges such as this, that directly relate to LTV’s coal operation, to be included in a determination or construction of the costs of its steel operation.¹⁸

The Panel also distinguished Cold-Rolled Steel from Gypsum: "There Revenue Canada had failed to include a general corporate expense arising out of a company’s efforts to fend off a take-over attempt. … The expense was at the general corporate level and was not attributable to a specific operation of the company not producing the goods in question." If there is a consistent theme among the decisions of all three panels, it is that there must be some "connection" between the costs in question and the subject goods. This is consistent with the overall purpose of the statute itself. SIMA, after all, does not prohibit low prices in Canada. It prohibits unfairly low prices. Prices are unfair either if they are below the exporter’s selling price for the goods in its home market, or are below what should fairly have been the exporter’s price, that is, below what it cost the exporter to produce, plus profit. Critical to the latter determination, in the words of the Deputy Minister’s regulation, is to find out what costs are "attributable" to the product that is being investigated.

In determining costs under section 19, the goal, therefore, is to find this connection between the item in question and the cost of the goods under investigation. To look for this connection, as the panels in all three cases implied, is to attempt to obtain as accurate a picture as possible of the costs during the relevant period so as to compare that price to the prices charged to consumers in Canada. See Cold-Rolled Steel. It is this "connection" test which we now attempt to apply, recognizing that "connection" must include direct costs and indirect costs attributed through the appropriate distribution of general corporate expenses.

B. Cost of Settling an Antitrust Suit Involving Bessemer & Lake Erie Railroad

Complainant, U.S. Steel, seeks review on the grounds that the Deputy Minister included certain costs not attributable to the subject goods in the constructed normal values calculations under SIMA Sections 16(2)(b) and 19(b). The costs at issue are expenses incurred by U.S. Steel (with interest) in 1993 related to the settlement of antitrust litigation against the Bessemer and Lake Erie Railroad [hereinafter B&LE], a former subsidiary of USX Corporation. USX sold the B&LE in 1988, but, under the terms of sale, remained obligated for any liability resulting from the pending litigation. In the antitrust litigation, B&LE, according to the administrative record, had been accused of monopolizing inland transportation and dock handling on iron ore from the 1950’s to the early 1980’s, but the characterization of the complained of activity was not identified with precision. ¹⁹

The litigation was instigated by LTV Steel and others against a number of eastern U.S. railroads, including B&LE. LTV Steel appears to have regarded that the main purpose of the conspiracy was to delay to it and others the benefits of cost savings in the operation of self unloading ore vessels on the Great Lakes.

The Deputy Minister has not clarified USX’s rationale for charging the B&LE settlement to the U.S. Steel Group beyond the fact that B&LE was a subsidiary of USX Corporation and in the latter’s sale of B&LE, it retained an obligation to satisfy the judgment. USX Corporation consists of 3 groups: Marathon Group, U.S. Steel Group and Delhi Group. In turn the U.S. Steel Group includes U.S. Steel (the complainant here). USX Corporation’s common stock consists of three classes, each identified with one of the groups. Each group issues separate annual reports and financial statements. These statements reflect USX Corporation’s attribution to each group of assets, liabilities (including contingent liabilities) and stakeholders’ equity in USX Corporation. Such expense was not incurred by U. S. Steel during the period of investigation. We are not persuaded by this point as the charge was clearly taken on USX’s books during 1993.

The Deputy Minister subsequently allocated the expenses of the US Steel Group "to the steel operations in a manner consistent with the allocation of other fixed expenses, that is, as a percentage of costs of sales of the group." Final Exporter Summary, Administrative Record, Index Page 103, Tab J, p. 57. attribution does not affect legal title to such assets and responsibility for such liabilities. These remain with USX Corporation.²⁰

The Deputy Minister’s Calculation For purposes of determining normal value, the Deputy Minister, in his preliminary and final determinations, included both the B&LE litigation judgment and its accruing interest in his arithmetic calculating U.S. Steel’s profitability and constructed value.

The complainant’s essential point is that the B&LE litigation costs are related to USX’s former railroad operations, not its steel operations, stressing the "attribution" requirement articulated clearly in Section 11 of the Regulations. The Deputy Minister, however, believed that Gypsum ²¹ required him to allocate the cost of this judgment to the cost of the subject goods. Quoting the broad language in Gypsum ("The section speaks without qualification of ‘all other costs’ ..."), the Deputy Minister stated:

USX could not charge these costs to the B&LE as the railroad is no longer in the US Steel Group. The B&LE was sold in 1988 with USX Corporation retaining liability for the judgment and any related interest expenses. In the absence of a railroad division these expenses were charged directly to the US Steel Group (as shown in the financial statement) because the B&LE used to be a part of the US Steel Group.²²

The Deputy Minister acknowledges "the direction provided in the Cold-Rolled Steel Sheet and Beer Panel decisions which distinguished general overhead expenses from costs that specifically related to other operations of a corporation. Expenses relating to other operations of a corporation are not to be included in paragraph 16(2)(b) domestic profitability analyses or subsection 19(b) cost construction".

Counsel for the Deputy Minister further elaborated in his brief: Had USX and U.S. Steel retained a railroad operation, the anti-trust settlement and related expenses could have been allocated to the company’s railroad operation and thus not form part of the cost of the subject goods. ... In the absence of a specific operation to which these expenses could be charged, the Deputy Minister had no alternative but to consider these expenses incurred by U.S. Steel to be of a general corporate nature. (emphasis added)²³

Therefore, the Deputy Minister does not claim that the B&LE railroad charges were related to steel production. Rather, he argues that the B&LE expenses are "of a general corporate nature" and therefore, under Gypsum, can be allocated to the subject goods.

A close reading of Gypsum, however, indicates that the Deputy Minister was not, in fact, compelled to allocate these expenses to the cost of producing the subject goods. It is true that Gypsum contains broad language about allocating "all other costs," but, as we have pointed out above, Gypsum still draws the statutorily required distinction between the subject goods and non-subject goods, that is, other goods made by the company in question.

To determine that value [that is, constructed value], the Deputy Minister is directed to calculate the sum of certain specified costs and "all other costs." It is clearly implied that such costs must bear a connection with the subject goods (as opposed to non-subject goods), but there is nothing to indicate that such costs should be limited to costs caused by the production of the subject goods, such as head office expenses for the management of the company of which the production of the subject goods forms a part, and not include other costs which are found on the books of the company.²⁴

What this makes clear is that a connection must be made to the subject goods either as a cost directly related to those goods or as an overhead cost properly allocated to those goods. In our view, however, the Deputy Minister has failed to articulate the connection between the subject goods and the B&LE expense or to articulate a reason, other than the reference to Gypsum, for inclusion in general overhead expense. In the absence of such a finding, the Deputy Minister cannot simply say that his allocation was required by the holding of Gypsum. The Deputy Minister asserted, as a factual matter, that, "In the absence of a specific operation to which these expenses could be charged, [he] had no other alternative but to consider these expenses incurred by U.S. Steel to be of a general corporate nature". We have not been presented with sufficient evidence of record supporting that conclusion. The mere fact that the B&LE expense was apparently charged to the books of the U.S. Steel Group does not alone, without, for example, further explanation or analysis of the corporate structure, support the treatment of the railroad expense as overhead for SIMA purposes.

A connection to steel is not made merely by demonstrating payment of a liability assumed by the parent upon the sale of the subsidiary railroad. In fact, the Deputy Minister found that if the railroad were still a subsidiary during the period of investigation, no allocation of the cost of the judgment to steel would have been made. This eliminates any implicit finding of the required connection.

The Deputy Minister is not relieved of the necessity of finding a connection between cost and subject goods merely because the apparently appropriate cost centre has been sold. It is not clear from the record to which the Panel was referred what the B&LE’s relationship was to the Steel Operations Group. The Deputy Minister has not pointed us to anything in the record supporting the conclusion that it was reasonable to allocate the charge to the steel operations once the B&LE expense was charged to the larger and more diverse Steel Group. Without sufficient further explanation of why the parent company charged the Steel Group with the liability, we cannot uphold the Deputy Minister’s decision.

Accordingly, the Panel remands this issue to the Deputy Minister for reconsideration whether evidence of record supports the conclusion that the cost recorded by virtue of the antitrust judgment against the B&LE is "connected" to the subject goods. If the Deputy Minister finds that there is such a connection, his reasoning shall be provided to the panel. If the Deputy Minister finds no connection, the resultant recomputation should be provided.

C. Interest Charge Related to the U.S. Coal Industry Retiree Health Benefit Act

The Deputy Minister included in LTV’s Section 16(2)(b) and 19(b) calculations an interest charge incurred by LTV on the principal sum of its estimated liability under the U.S. Coal Industry Retiree Health Benefit Act (the "Coal Retiree Act"). The charge on the principal sum was ²⁵ taken in the fiscal year ending December 31, 1992. The charge taken in respect of the interest liability accrued in 1993. The period of investigation in the present matter was from 1 January 1993 to 30 June 1993.

The issue of the proper allocation of liabilities under this Act has been considered by the Cold-Rolled Steel Panel. In its opinion of June 14, 1994, that Panel wrote:

The Panel finds that with regard to the Coal Retiree Act charge against LTV, Revenue Canada acted unreasonably in including it in corporate overhead rather than treating it as a cost relating to a separate operation in both its § 19(b) cost construction. Revenue Canada unreasonably interpreted the provisions of SIMA to require the inclusion of these charges, and erroneously attributed them to the steel operations of LTV without evidence to support that decision. The Panel remands this matter to Revenue Canada to revise its § 16(2)(b) calculation for LTV and, if necessary, its § 19(b) calculation excluding the Coal Retiree Act charge.²⁶

The charge in question amounted to $140 million, described as the present value of all future estimated liabilities related to the requirements of the Coal Retiree Act. Those were succinctly described by the Cold-Rolled Steel Panel: In this instance, the charge to LTV is directly attributable to its idled coal operations. LTV’s liability is based on its share of coal retirees from its coal operations. In enacting the Coal Retiree Act, the U.S. Congress specifically chose to apportion liability for retirees whose former employers were no longer in business among those coal operators (or successor companies) who had been party to the earlier union agreements, rather than to the current coal mining companies who entered the business after the agreements were reached. Thus, while it is true that the liability of LTV for the charge arose in 1992 because U.S. government action (when the company no longer had any active coal mining activity), the source and basis for that liability flow directly from the number of employees LTV had in its coal mining operations, and who are now retired.²⁷

The Deputy Minister, however, has allocated the 1993 interest charge to LTV’s steel production facilities for the purpose of constructing the cost of product sold in the Canadian market. He does so on the grounds that there is more complete information available to this Panel than to the

Cold-Rolled Steel Panel. The Cold-Rolled Steel Panel had described the coal mining operations as ²⁸ "idled", attaching no time dependent qualifications to this condition. According to the Deputy Minister, additional information filed during this investigation showed that no coal had been produced since 1986 from LTV-owned operations, or for eight years.

It was on the basis of and in the light of this additional information that the Deputy Minister reviewed data that had been available to the Cold-Rolled Steel Panel and found that the coal operations were "extant". He concluded that:

it was not reasonable to assign costs to extant companies which have been inactive for years and for which there is no apparent expectation of their resuming operations. While it may be proper to allocate costs to a separate profit centre regardless of the profitability of that operation, it is not reasonable to assign costs to subsidiaries which appear to have permanently ceased operations.²⁹

The panel finds no basis on which to distinguish the facts of the present case from the facts of the Cold-Rolled Steel decision. Accordingly, the panel remands the issue of the LTV Coal Retiree Act interest costs with instructions to remove this item from calculations under both sections 16(2)(b) and section 19(b) of SIMA. In so doing, the Panel need not reach the question as to what the panel would have done in the event that the Minister had successfully established that the record supported the position that the coal operations were effectively non-extant.