[Federal Register Volume 59, Number 115 (Thursday, June 16, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-14624]


[[Page Unknown]]

[Federal Register: June 16, 1994]


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DEPARTMENT OF COMMERCE
International Trade Administration
[A-570-827]

 

Notice of Preliminary Determination of Sales at Less Than Fair 
Value: Certain Cased Pencils From the People's Republic of China

AGENCY: Import Administration, International Trade Administration, 
Department of Commerce.

EFFECTIVE DATE: June 16, 1994.

FOR FURTHER INFORMATION CONTACT: Cynthia Thirumalai or Kristin Heim, 
Office of Countervailing Investigations, Import Administration, 
International Trade Administration, U.S. Department of Commerce, 14th 
Street and Constitution Avenue NW., Washington, DC 20230; telephone: 
(202) 482-4087 or (202) 482-3798, respectively.

Preliminary Determination: We preliminarily determine that certain 
cased pencils (pencils) from the People's Republic of China (PRC) are 
being, or are likely to be, sold in the United States at less than fair 
value (LTFV), as provided in section 733 of the Tariff Act of 1930, as 
amended (the Act). The estimated margins are shown in the ``Suspension 
of Liquidation'' section of this notice.

Case History

    Since the initiation of this investigation on November 29, 1993 (58 
FR 64548, December 8, 1993), the following events have occurred.
    On December 27, 1993, the U.S. International Trade Commission (ITC) 
notified us of its preliminary determination that there is a reasonable 
indication that an industry in the United States is materially injured 
by reason of imports of pencils from the PRC that are alleged to be 
sold at less than fair value.
    On January 5, 1994, we sent a survey to the PRC's Ministry of 
Foreign Trade and Economic Cooperation (MOFTEC) and certain companies 
in the PRC requesting information on production and sales of pencils 
exported to the United States. The names of the companies were found in 
the petition and in data supplied by the Port Import-Export Reporting 
Service (PIERS). We requested MOFTEC's assistance in forwarding the 
survey to all exporters and producers of pencils and submitting 
complete responses on their behalf. On January 14, the survey was sent 
to the Asia Pencil Association.
    On January 31, 1994, responses to the survey were received from the 
China First Pencil Co., Ltd. (China First), an exporter and producer; 
Shanghai Foreign Trade Corp. (SFTC), an exporter; Shanghai Lansheng 
Corp. (Shanghai Lansheng), an exporter; Shanghai Machinery & Equipment 
Import & Export Corp. (Shanghai Machinery), an exporter; and Shanghai 
Three Star Stationery Industry Corp. (Three Star), a producer and 
domestic reseller. Shanghai Machinery reported that while it had 
exported pencils in the past, it did not make any sales to the United 
States during the POI.
    On February 9, 1994, four more companies responded to our survey: 
Songnan Pencil Factory, a producer; Xinbang Joint Venture Factory, a 
producer; Guangdong Provincial Stationery & Sporting Goods Import & 
Export Corp. (Guangdong), an exporter; and Anhui Stationery Company 
(Anhui), a producer.
    On February 16, 17, and 23, 1994, all PRC producers and exporters 
identified in the course of this proceeding, i.e., through the 
petition, in PIERS data, in letters of appearance and as provided by 
MOFTEC, for which we had addresses were sent full questionnaires. 
During the month of March, in response to our questionnaire, we 
received letters from a number of companies stating that they either 
did not export cased pencils to the United States during the POI or 
acted merely as freight forwarders.
    On March 8, 1994, we postponed the preliminary determination in 
this investigation (see 59 FR 10784, March 8, 1994).
    SFTC requested on March 24, 1994, that it not be required to submit 
sales and factors of production information for certain pencils it 
exported to the United States during the POI. On April 4, 1994, SFTC 
amended its request. Because the sales and factor of production 
information covered a small percentage of SFTC's sales to the United 
States, we granted SFTC's amended request (see Memorandum from E. 
Graham to B. Stafford, April 7, 1994, on file in the Central Records 
Unit in room B-099 of the Main Commerce Building).
    On May 10, 11, and 25, 1994, petitioner submitted information 
concerning the costs of certain raw materials which are used in the 
production of pencils but that were not specifically addressed in the 
petition. Petitioner also requested that the Department recalculate the 
petition margins based on the information in its submission of May 25, 
1994.
    Between June 3, 1994, and this preliminary determination, 
respondents submitted updated and additional information. Given the 
late dates on which this information was provided, we found it 
administratively infeasible to use this information (with the exception 
of company-specific conversion factors) in our preliminary 
determination.

Scope of Investigation

    The products covered by this investigation are certain cased 
pencils of any shape or dimension which are writing and/or drawing 
instruments that feature cores of graphite or other materials encased 
in wood and/or man-made materials, whether or not decorated and whether 
or not tipped (e.g., with erasers, etc.) in any fashion, and either 
sharpened or unsharpened. The pencils subject to this investigation are 
classified under subheading 9609.10.00 of the Harmonized Tariff 
Schedule of the United States (``HTSUS'').
    Specifically excluded from the scope of this investigation are 
mechanical pencils, cosmetic pencils, pens, non-cased crayons (wax), 
pastels, charcoals, or chalks.
    Although the HTSUS subheading is provided for convenience and 
customs purposes, our written description of the scope of this 
investigation is dispositive.

Class or Kind of Merchandise

    At the time of our initiation, we solicited comments from 
interested parties on whether all cased pencils constitute one class or 
kind of merchandise. Respondents have argued that raw pencils/pencil 
blanks and semi-finished pencils constitute a separate class or kind of 
merchandise apart from finished pencils. Based on the information 
provided, we find that these products do not constitute a separate 
class or kind of merchandise. (See memorandum from E. Graham to B. 
Stafford, April 15, 1994.) In a submission dated June 2, 1994, 
respondents argued that the merchandise subject to this investigation 
comprises four separate classes or kinds of merchandise. While this 
argument was made too late to be considered for our preliminary 
determination, we will address this in our final determination.
    The Asia Pencil Association argued that specialty pencils (e.g., 
carpenter and art pencils) should constitute a separate class or kind 
of merchandise. However, the information submitted in support of their 
claim was insufficient to allow us to make a determination that 
specialty pencils are a separate class or kind of merchandise.

Period of Investigation

    The POI is June 1, 1993, through November 30, 1993.

Separate Rates

    China First, Guangdong, SFTC, and Shanghai Lansheng have each 
requested a separate rate. Guangdong's and SFTC's business licenses 
each indicate that they are owned ``by all the people.'' As stated in 
the Final Determination of Sales at Less than Fair Value: Silicon 
Carbide from the People's Republic of China (59 FR 22585, 22586 (May 2, 
1994)) (``Silicon Carbide'') ``ownership of a company by all the people 
does not require the application of a single rate.'' Accordingly, 
Guangdong and SFTC are eligible for consideration for separate rates.
    Shanghai Lansheng has reported that, for the majority of the POI, 
it was owned ``by all the people'' and that it was later reorganized as 
a shareholding company. It has indicated that its shares are traded on 
the Shanghai stock exchange. In the Preliminary Determination of Sales 
at Less Than Fair Value and Postponement of Final Determination: 
Certain Paper Clips from the People's Republic of China (``Paper 
Clips'') (59 FR 25885, 25887, May 18, 1994) the Department stated that 
``a `municipal government' owns 70 percent of [Shanghai Lansheng's] 
shares.'' There is no evidence on the record that this municipality 
controls other exporters of cased pencils that made sales to the United 
States during the POI. We will, however, evaluate this issue carefully 
during verification.
    Since ownership by all the people (the situation applicable to 
Shanghai Lansheng during the majority of the POI) ``does not require 
the application of a single rate'' and there was no central government 
ownership during the later part of the POI, Shanghai Lansheng is 
eligible for consideration for a separate rate.
    China First has reported that it is a shareholding company and has 
provided a list of its shareholders. According to China First, the 
shareholders elect the board of directors which, in turn, appoints the 
general manager. Its questionnaire response states that there are three 
types of shares: A shares held by Chinese legal persons, B shares held 
by non-Chinese legal persons and Enterprise shares. We do not have on 
the record any information addressing the similarities or differences 
in rights accruing to the various types of shares.
    Based on our examination of the information provided regarding the 
shareholder identities and the ownership structure of China First, we 
have determined that we do not have enough information on the record to 
grant it a separate rate at this time. Due to the proprietary nature of 
the information, we are not able to discuss the ownership structure of 
China First in further detail in this notice; however, there is a 
proprietary decision memorandum regarding this issue on the record (see 
Decision Memorandum of June 8, 1994). We are assigning China First the 
PRC country-wide rate for purposes of this preliminary determination.
    To establish whether a firm is sufficiently independent to be 
entitled to a separate rate, the Department analyzes each exporting 
entity under a test arising out of the Final Determination of Sales at 
Less Than Fair Value: Sparklers from the People's Republic of China (56 
FR 20588, May 6, 1991) (``Sparklers'') and amplified in Silicon 
Carbide. Under the separate rates criteria, the Department assigns 
separate rates only where respondents can demonstrate the absence of 
both de jure and de facto governmental control over export activities.

1. Absence of De Jure Control

    Three PRC laws that have been placed on the record in this 
proceeding indicate that the responsibility for managing enterprises 
``owned by all of the people'' is with the enterprises themselves and 
not with the government. These are the ``Law of the People's Republic 
of China on Industrial Enterprises Owned by the Whole People,'' adopted 
on April 13, 1988 (``1988 Law''); ``Regulations for Transformation of 
Operational Mechanism of State-Owned Industrial Enterprises,'' approved 
on August 23, 1992 (``1992 Regulations''); and the ``Temporary 
Provisions for Administration of Export Commodities,'' approved on 
December 21, 1992 (``Export Provisions'').
    The 1988 Law and 1992 Regulations shifted control from the 
government to the enterprises themselves. The 1988 Law provides that 
enterprises owned ``by the whole people'' shall make their own 
management decisions, be responsible for their own profits and losses, 
choose their own suppliers and purchase their own goods and materials. 
The 1988 Law also has other provisions which indicate that enterprises 
have management independence from the government. The 1992 Regulations 
provide that these same enterprises can, for example, set their own 
prices (Article IX); make their own production decisions (Article XI); 
use their own retained foreign exchange (Article XII); allocate profits 
(Article II); sell their own products without government interference 
(Article X); make their own investment decisions (Article XIII); 
dispose of their own assets (Article XV); and hire and fire their 
employees without government approval (Article XVII).
    The Export Provisions list those products subject to direct 
government control. Pencils do not appear on the Export Provisions list 
and are not, therefore, subject to the export constraints.
    The existence of these laws indicates Guangdong, SFTC and Shanghai 
Lansheng are not de jure subject to central government control. 
However, there is some evidence that the provisions of the above-cited 
laws and regulations have not been implemented uniformly among 
different sectors and/or jurisdictions in the PRC (see ``PRC Government 
Findings on Enterprise Autonomy,'' in Foreign Broadcast Information 
Service--China-93-133 (July 14, 1993). Therefore, the Department has 
determined that an analysis of de facto control is critical to 
determining whether respondents are, in fact, subject to governmental 
control.

2. Absence of De Facto Control

    The Department typically considers four factors in evaluating 
whether each respondent is subject to de facto government control of 
its export functions: (1) Whether the export prices are set by or 
subject to the approval of a governmental authority; (2) whether the 
respondent has authority to negotiate and sign contracts and other 
agreements; (3) whether the respondent has autonomy from the government 
in making decisions regarding the selection of management; and (4) 
whether the respondent retains the proceeds of its export sales and 
makes independent decisions regarding disposition of profits or 
financing of losses (see Silicon Carbide).
    Guangdong, SFTC and Shanghai Lansheng have each asserted that (1) 
it establishes its own export prices; (2) it negotiates contracts 
without guidance from any governmental entities or organizations; (3) 
its management operates with a high degree of autonomy and there is no 
information on the record that suggests central government control over 
selection of management; and (4) it retains the proceeds of its export 
sales, and has the authority to sell its assets and to obtain loans. In 
addition, company-specific pricing during the POI does not suggest any 
coordination among exporters (i.e., the prices for comparable products 
appear to differ among companies). This information supports a 
preliminary finding that there is a de facto absence of governmental 
control of export functions.
    Consequently, Guangdong, SFTC and Shanghai Lansheng have 
preliminarily met the criteria for the application of separate rates. 
We will examine this issue in detail at verification and determine 
whether the questionnaire responses are supported by verifiable 
documentation.
    There is an additional issue relating to governmental control that 
we will consider further for purposes of our final determination. 
Guangdong and SFTC have indicated that the appointments of their 
general managers are subject to approval by the local Commission on 
Foreign Trade and Economic Cooperation (COFTEC) office. While the 
significance of this is unclear, the evidence cited above indicates 
that the COFTEC offices do not control the key functions of the 
enterprises. However, we will examine at verification the precise 
nature of the authority that the COFTEC offices exercise over the 
enterprises.

Nonmarket Economy

    The PRC has been treated as a nonmarket economy (NME) in past 
antidumping investigations. (See, e.g., Final Determination of Sales at 
Less than Fair Value: Sebacic Acid from the People's Republic of China 
(54 FR 28053 (May 31, 1994)). No information has been provided in this 
proceeding that would lead us to overturn our former determinations. 
Therefore, in accordance with 771(18)(c) of the Act, we have treated 
the PRC as an NME for purposes of this investigation.
    Where the Department is investigating imports from an NME, section 
772(c)(1) of the Act directs us to base FMV on the NME producers' 
factors of production, valued in a comparable market economy that is a 
significant producer of the merchandise. Section 773(c)(2) of the Act 
alternatively provides that where available information is inadequate 
for using the factors of production methodology, FMV may be based on 
the export prices for comparable merchandise from market economy 
countries at a comparable level of economic development.
    In this investigation, the respondents have urged the Department to 
make use of the alternative methodology provided in section 773(c)(2) 
of the Act. In particular, they have argued that the primary input into 
PRC pencils, lindenwood, cannot be valued elsewhere. Petitioner has 
also questioned the Department's ability to value certain inputs using 
publicly available published information (PAPI) from India, as Indian 
input statistics cover broader product categories. Petitioner does not 
request that the Department use the alternative methodology for FMV. 
Instead, it suggests that U.S. producers' costs be used to value these 
inputs.
    For purposes of the preliminary determination, we have relied on 
the methodology provided by section 773(c)(1) of the Act to determine 
FMV. The sources of individual factor prices are discussed under the 
FMV section, below. However, as a result of the comments made by 
petitioner and respondents on the relevance of factor prices in India, 
we will be seeking additional data on factor values and on export 
prices that could also be used under the alternative methodology 
provided in section 773(c)(2) of the Act for possible use in our final 
determination.

Surrogate Country

    As discussed above, section 773(c)(4) of the Act requires the 
Department to value the NME producers' factors of production, to the 
extent possible, in one or more market economy countries that are at a 
level of economic development comparable to that of the nonmarket 
economy country, and that are significant producers of comparable 
merchandise. The Department has determined that India and Pakistan are 
the countries most comparable to the PRC in terms of overall economic 
development. (See memorandum from the Office of Policy to the file, 
dated March 18, 1994.) In addition, there is evidence on the record 
that pencils are produced in India.
    Although India is the preferred surrogate country for purposes of 
valuing the factors of production used in producing the subject 
merchandise, we have resorted to Pakistan and Indonesia for certain 
surrogate values where Indian values were either unavailable or 
significantly outdated. We have obtained and relied upon PAPI wherever 
possible.

Fair Value Comparisons

    To determine whether sales of pencils from the PRC to the United 
States by Guangdong and Shanghai Lansheng were made at less than fair 
value, we compared the United States price (USP) to the foreign market 
value (FMV), as specified in the ``United States Price'' and ``Foreign 
Market Value'' sections of this notice.
    Because all of SFTC's responses were not received in time for 
consideration in this preliminary determination and, therefore, we had 
only partial information for calculating FMV, we have based SFTC's 
margin on the best information available (BIA). (See ``Best Information 
Available'' section of this notice.)

United States Price

    We based USP on purchase price, in accordance with section 772(b) 
of the Act, because the subject merchandise was sold directly by the 
Chinese exporters to unrelated parties in the United States prior to 
importation into the United States.
    For those exporters that responded to the Department's 
questionnaire and were found to be eligible for a separate rate, we 
calculated purchase price based on packed, FOB foreign-port prices to 
unrelated purchasers in the United States. We made deductions for 
containerization, loading, port handling expenses and foreign inland 
freight valued in a surrogate country.

Foreign Market Value

    We calculated FMV based on factors of production reported by the 
factories which produced the subject merchandise for the three 
exporters. The factors used to produce pencils include materials, 
labor, and energy. We made adjustments to materials costs for the 
resale of scrap materials, where applicable.
    In determining which surrogate value to use for valuing each factor 
of production, we selected, where possible, the PAPI value which was: 
(1) An average non-export value; (2) representative of a range of 
prices within the POI if submitted by an interested party, or most 
contemporaneous with the POI; (3) product-specific; and (4) tax-
exclusive.
    We used surrogate transportation rates to value inland freight 
between the source of the production factor and the pencil factories, 
and between factories, where appropriate. In those cases where a 
respondent failed to provide any information on transportation 
distances and modes, we applied, as best information available, the 
most expensive distance/modes combination (i.e., the longest truck 
rates) that was available from the surrogate information we had 
selected. For two modes of transportation (man-drawn carts, inland 
water transport), we were unable to obtain PAPI or cable information in 
time for this preliminary determination. To value these two modes of 
transportation, we assumed that these forms competed effectively with 
an alternate form of transportation over similar distances and used the 
applicable rates for the alternate form.
    To value the raw materials and packing materials, we used PAPI. Our 
sources included: Indian Import Statistics for 1989, 1991 and 1992; and 
Indonesian Import Statistics for 1989.
    To value wood slats, we used the Asian market price for jelutong 
wood in the sawn form during the POI as reported in the Market News 
Service Report for Tropical Timber and Timber Products dated November 
1993. To value wood logs, we used Indian import statistics for a group 
of woods in rough form which included jelutong wood. The record in this 
proceeding shows that jelutong wood is used in pencil production and is 
similar to lindenwood, the input used by the PRC producers. For 
ferrules we used Indian import statistics for a basket aluminum 
category and for paint we used the import statistics category 
identified by respondents.
    To value electricity, we used PAPI from the Asian Development Bank. 
To value coal and natural gas, we used Indian Import Statistics for 
1992 and the Monthly Statistics of Mineral Production, Indian Bureau of 
Mines dated November 1992, respectively. To value water, we used a 
public cable from the U.S. consulate in Pakistan which was originally 
provided in the investigation of Sulfanilic Acid From the PRC because 
we could not locate a value for water in any Indian or Pakistani 
publication.
    For all material and energy prices that were for a period prior to 
the POI, we adjusted the factor values to account for inflation between 
the time period in question and the POI using wholesale price indices 
published in International Financial Statistics (IFS) by the 
International Monetary Fund.
    To value labor amounts, we used the International Labor Office's 
1993 Yearbook of Labor Statistics. To determine the number of hours in 
an Indian workday, we used the Country Reports: Human Rights Practices 
for 1990. We adjusted the factor values to account for inflation 
between the time period in question and the POI using the consumer 
price indices published in IFS.
    To value factory overhead, we calculated percentages based on 
elements of industry group income statements from The Reserve Bank of 
India Bulletin (RBI), December 1992. We based our overhead percentage 
calculations on the RBI data, adjusted to reflect an energy-exclusive 
overhead percentage. For selling, general and administrative (SG&A) 
expenses, we calculated percentages based on the RBI data. We used the 
calculated SG&A percentages because they were greater than the ten 
percent statutory minimum. We also used the calculated profit 
percentage because it was greater than the statutory minimum of eight 
percent of materials, labor, factory overhead, and SG&A expenses.
    We made no adjustments for selling expenses. We added surrogate 
freight costs for the delivery of packing materials to the factories 
producing pencils.

Best Information Available

    Because information has not been presented to the Department to 
prove otherwise, any PRC companies not participating in this 
investigation are not entitled to separate dumping margins. Potential 
exporters identified by the Ministry of Foreign Trade and Economic 
Cooperation (MOFTEC) have failed to respond to our questionnaire. In 
the absence of responses from these and other PRC exporters during the 
POI, we are basing the PRC country-wide rate on BIA. As discussed 
above, we are also applying BIA to SFTC.
    In determining what to use as BIA, the Department follows a two-
tiered methodology, whereby the Department normally assigns lower 
margins to those respondents that cooperated in an investigation and 
more adverse margins for those respondents which did not cooperate in 
an investigation. As outlined in the Preliminary Determination of Sales 
at Less Than Fair Value: Certain Cold-Rolled Carbon Steel Flat Products 
From Argentina (``Argentina Steel''), 58 FR 7066, 7069, 7070 (February 
4, 1993), when a company refuses to provide the information requested 
in the form required, or otherwise significantly impedes the 
Department's investigation, it is appropriate for the Department to 
assign to that company the higher of (a) the highest margin alleged in 
the petition, or (b) the highest calculated rate of any respondent in 
the investigation. Here, since some PRC exporters failed to respond to 
our questionnaire, we are assigning to them the highest margin in the 
petition, as recalculated by the Department for the initiation and for 
this determination using petitioner's updated information submitted May 
1994. This rate applies to all exporters other than those responding 
exporters which have shown their independence from central government 
control.
    Since SFTC has been cooperative in this proceeding, and since we 
have preliminarily determined it is eligible for a separate rate, we 
are assigning a margin based on the highest calculated rate for any 
respondent in the investigation (see Argentina Steel).

Verification

    As provided in section 776(b) of the Act, we will verify all 
information determined to be acceptable for use in making our final 
determination.

Suspension of Liquidation

    In accordance with section 733(d)(1) of the Act, we are directing 
the Customs Service to suspend liquidation of all entries of pencils 
from the PRC that are entered, or withdrawn from warehouse, for 
consumption on or after the date of publication of this notice in the 
Federal Register. The Customs Service shall require a cash deposit or 
posting of a bond equal to the estimated amount by which the FMV 
exceeds the USP as shown below. These suspension of liquidation 
instructions will remain in effect until further notice.
    The weighted-average dumping margins are as follows: 

------------------------------------------------------------------------
                                                              Weighted- 
                                                               average  
               Manufacturer/producer/exporter                   margin  
                                                              percentage
------------------------------------------------------------------------
Guangdong..................................................        58.34
SFTC.......................................................       100.98
Shanghai Lansheng..........................................       100.98
PRC country-wide rate*.....................................       107.63
------------------------------------------------------------------------
*Including China first.                                                 

ITC Notification

    In accordance with section 733(f) of the Act, we have notified the 
ITC of our determination. If our final determination is affirmative, 
the ITC will determine before the later of 120 days after the date of 
this preliminary determination or 45 days after our final determination 
whether these imports are materially injuring, or threaten material 
injury to, the U.S. industry.

Public Comment

    In accordance with 19 CFR 353.38, case briefs or other written 
comments in at least ten copies must be submitted to the Assistant 
Secretary for Import Administration no later than August 8, 1994, and 
rebuttal briefs, no later than August 12, 1994. In accordance with 19 
CFR 353.38(b), we will hold a public hearing, if requested, to afford 
interested parties an opportunity to comment on arguments raised in 
case or rebuttal briefs. Tentatively, the hearing will be held at 10 
a.m. on August 15, 1994, at the U.S. Department of Commerce, Room 3708, 
14th Street and Constitution Avenue NW., Washington, DC 20230. Parties 
should confirm by telephone the time, date, and place of the hearing 48 
hours before the scheduled time.
    Interested parties who wish to request a hearing, or to participate 
if one is requested, must submit a written request to the Assistant 
Secretary for Import Administration, U.S. Department of Commerce, Room 
B-099, within ten days of the publication of this notice. Requests 
should contain: (1) The party's name, address, and telephone number; 
(2) the number of participants; and (3) a list of the issues to be 
discussed. In accordance with 19 CFR 353.38(b), oral presentations will 
be limited to issues raised in the briefs. If this investigation 
proceeds normally, we will make our final determination by August 22, 
1994.
    This determination is published pursuant to section 733(f) of the 
Act and 19 CFR 353.15(a)(4).

    Dated: June 8, 1994.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 94-14624 Filed 6-15-94; 8:45 am]
BILLING CODE 3510-DS-P