[Federal Register Volume 59, Number 215 (Tuesday, November 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-27667]
[[Page Unknown]]
[Federal Register: November 8, 1994]
VOL. 59, NO. 215
Tuesday, November 8, 1994
DEPARTMENT OF COMMERCE
International Trade Administration
[A-570-827]
Notice of Final 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: November 8, 1994.
FOR FURTHER INFORMATION CONTACT: Kristin Heim or Thomas McGinty, Office
of Countervailing Investigations, Import Administration, International
Trade Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, N.W., Washington, D.C. 20230; telephone: (202)
482-3798 or (202) 482-5055, respectively.
Final Determination
The Department of Commerce (``the Department'') determines 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 735 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 preliminary determination in this investigation on June
8, 1994, (59 FR 30911, June 16, 1994), the following events have
occurred.
From July 4 through 15, 1994, Department officials conducted
verification of the responses of the responding exporters, Shanghai
Foreign Trade Corporation (SFTC), Shanghai Lansheng Corporation
(Lansheng), Guangdong Provincial Stationery & Sporting Goods Import &
Export Corp. (Guangdong), and China First Pencil Co., Ltd. (China
First), a responding exporter and manufacturer; and the responding
manufacturers Shanghai Three Star Stationery Industry Corporation
(Three Star), and Anhui Stationery Company (Anhui).
On July 22, 1994, petitioner alleged that there is a reasonable
basis to believe or suspect that critical circumstances exist with
respect to imports of certain cased pencils from the PRC. On August 10,
1994, the Department published in the Federal Register a notice of
postponement of the final determination (59 FR 40865). On August 26,
1994, the Department published in the Federal Register a preliminary
affirmative determination of critical circumstances (59 FR 44128).
Petitioner and respondents submitted case and rebuttal briefs on
September 21 and October 3, 1994, respectively. A public hearing was
held on October 5, 1994.
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, and 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, the Department solicited comments
from interested parties on whether all cased pencils constitute one
class or kind of merchandise. Respondents first argued that raw
pencils/pencil blanks and semi-finished pencils constitute a separate
class or kind of merchandise apart from finished pencils.
In addition, the Asia Pencil Association, an interested party in
this investigation, argued that specialty pencils (e.g., carpenter and
art pencils) constitute a separate class or kind of merchandise.
However, the information submitted in support of its claim was
insufficient to allow us to make a preliminary determination that
specialty pencils are a separate class or kind of merchandise and no
new information on specialty pencils has been submitted since the
preliminary determination.
Based on the information provided, the Department preliminarily
determined that neither specialty pencils nor raw blanks constituted a
separate class or kind of merchandise.
In a submission dated June 2, 1994, respondents argued that the
merchandise subject to this investigation comprises four separate
classes or kinds of merchandise. Those arguments were filed too late to
be considered for the preliminary determination and were to have been
addressed fully in this determination. However, in their case brief of
September 21, 1994, respondents argued that there are three classes or
kinds of merchandise: Commodity, colored and designer. The Department
will therefore address only respondents' most recent argument about the
appropriate number of classes or kinds of merchandise under
investigation.
In order to establish whether cased pencils represent a single
class or kind of merchandise, we examine below each of the criteria
used by the Department to determine class or kind as described in 19
CFR 353.29(i) (1) and (2) and Diversified Products Corp. v. United
States, 6 CIT 155, 572 F.Supp. 883 (1983).
Physical Characteristics
Respondents argue that commodity pencils are invariably hexagonal
with a graphite core and a plain paint finish, colored pencils have a
chemical-intensive core and designer pencils are round with a graphite
core and ``proprietary artwork'' designs.
Petitioner argues that, while the outward physical form of pencils
sometimes differs, the production process is identical, except for the
finishing. Petitioner submits that some commodity pencils are round
while some designer pencils are hexagonal as well as triangular; that
graphite pencils come in varying degrees of hardness due to varying
chemical composition; and that the chemical core for colored pencils
does not distinguish it from all other ``disposable, delible, portable
marking instruments that require sharpening to renew the core.''
The cased pencils described in the scope of this proceeding are
disposable writing instruments. Two essential elements are present in
all cased pencils. These are (1) a core which contains the material
that, when the pencil is put to use, leaves a mark on a surface and (2)
the casing in which the core rests. As such, we conclude that the
physical characteristics of all pencils within the scope are similar.
Regarding respondents' argument that the chemical-intensive cores
of colored pencils should serve to distinguish them from other pencils
in the scope, we note that the core composition of commodity pencils
also varies based on the desired hardness and blackness of the pencil.
Hence, we do not find this to be a basis for distinguishing colored
from other pencils.
With regard to shape, petitioner and respondents have submitted
conflicting arguments. Based on the evidence on this record, the
Department determines that commodity and designer pencils do not always
have different shapes. Finally, with regard to the proprietary artwork
on designer pencils, the difference from commodity pencils includes the
application of foil, paint, ferrules, erasers, or some form of eye-
catching topper. While these add-ons make the pencils physically
different from commodity pencils, they do not change the basic physical
characteristics of the product, i.e., a core encased in wood or other
material.
Customer Use and Expectations
Respondents argue that commodity pencils are used in schools and
businesses for writing; colored pencils are usually for children and
always for coloring (not writing); and designer pencils are for
collecting. In addition, respondents argue that marks made by most
colored pencils are not able to be erased, while those of graphite
pencils are. Petitioner contends that the customer use and expectation
of all pencils is to make a mark on a surface.
We agree that the expectations and uses of colored pencils are
various and may differ from the expectations and uses of commodity and
designer pencils. With respect to designer pencils, however, there is
no evidence to support respondents' claim that these pencils are solely
for collecting. While they are collectable, they are also used as
writing instruments. Therefore, we have no basis to distinguish
designer pencils from commodity pencils in terms of customer use and
expectations.
Channels of Trade
The channels of trade for PRC pencil sales are similar for all
pencil types. The producer and/or exporter sells either directly to
retail customers or distributors in the United States. The distributors
then sell to either retailers or end-users in the United States.
According to petitioner, U.S. produced pencils are also sold by
manufacturers to retail customers or distributors. These distributors
may also sell to retailers, businesses or schools. Hence, we find that
all pencils within the scope of this proceeding are sold in the same
channels of trade.
Manner in Which Pencils Are Advertised and Displayed
There is conflicting evidence on the record in this investigation
with respect to the manner in which pencils are advertised and
displayed. Petitioner points to a China First catalog submitted in
response to section A of our questionnaire. Petitioner argues that
since all types of pencils are included in the China First catalog
(some individual pages include a number of different types of pencils),
we should conclude that the manner in which pencils are displayed is
similar regardless of pencil type. Petitioner also submits that
different types of pencils are often displayed together in retail
outlets.
Conversely, respondents submit that the manner of displaying and
advertising pencils is particular to the type of pencil being offered
for sale. Respondents contend that colored pencils are not offered for
sale in office supply stores and commodity pencils cannot be found in
toy stores and party shops. Respondents contend that even in the
unusual event that commodity, colored, and designer pencils were
offered for sale in the same store, they would not be displayed
together.
Based on our research, both petitioner and respondents are correct.
Specialty stores such as party shops do not usually stock commodity
pencils. On the other hand, office supply stores or pharmacies such as
``Staples'' or ``CVS'' carry all three pencil types (commodity, colored
and designer). In some instances they are displayed together, in other
instances they are displayed separately.
Conclusion
Based on the arguments presented and our own research and analysis,
the Department is not persuaded that a determination of three separate
classes or kinds of merchandise is warranted in this investigation.
Although the products differ in certain respects, on the whole the
similarities greatly outweigh the dissimilarities. In its Notice of
Final Determination of Sales at Less Than Fair Value: Antifriction
Bearings from West Germany, 54 FR 18992 (May 3, 1989), the Department
stated that ``the real question is whether the differences are so
material as to alter the essential nature of the product, and
therefore, rise to the level of class or kind differences.'' In this
instance, the differences do not alter the essential nature of the
product. In addition, although such a finding is not dispositive to
this analysis, the ITC recently issued its report on Cased Pencils from
Thailand stating that ``all cased pencils . . . have similar physical
characteristics and uses.'' (ITC Publication 2816, at I-8). Therefore,
we conclude that commodity, colored and designer pencils are a single
class or kind of merchandise.
Period of Investigation
The period of investigation (POI) is June 1, 1993, through November
30, 1993.
Separate Rates
The four participating exporters, SFTC, Guangdong, China First, and
Lansheng have each requested a separate rate. SFTC and Guangdong are
companies owned by ``all the people.'' China First and Lansheng are
shareholding companies, both of which were previously owned by ``all
the people.'' China First issued shares in 1992 and Lansheng issued
shares in September 1993. In the preliminary determination, Guangdong,
SFTC, and Lansheng received separate rates. With respect to China
First, we preliminarily determined that, due to the lack of information
on the record regarding China First's ownership structure, we could not
grant China First a separate rate at that time.
In the Final Determination of Sales at Less Than Fair Value:
Compact Ductile Iron Works from the People's Republic of China, 58 FR
37909 (July 14, 1993) (CDIW), the Department determined that state-
owned companies, i.e., those owned by the central government, were not
eligible for separate rates. In the Final Determination of Sales at
Less Than Fair Value: Silicon Carbide from the People's Republic of
China, 59 FR 22585, (May 2, 1994) (Silicon Carbide), we found that the
PRC central government had devolved control of state-owned enterprises,
i.e., enterprises ``owned by all the people.'' As a result, we
determined that companies owned ``by all the people'' were eligible for
individual rates, if they met the criteria developed in 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.
In this investigation, and in the recent final determination
involving paper clips from the PRC (59 FR 51170, October 7, 1994), we
have examined companies that had been ``owned by all the people,'' but
are now shareholding companies with varying levels of government
ownership. When these companies were ``owned by all the people,'' the
central government devolved control of them. Hence, we focused our
examination on whether the change in ownership form to shareholding
companies altered that devolution of control. We found that it did not.
Significantly, we found that the government (whether the central
government or the Government of Shanghai) did not vote the shares.
(See, verification reports of Lansheng and China First.) Although the
government held its shares on behalf of the people, in one case those
shares were voted by the company's former general manager (Mr.
Lansheng), and in the other by the workers (China First).
Because we have found that the government has, in effect, severed
the voting rights from the shares it holds in trust on behalf of the
people and bestowed those rights on the enterprises themselves, we
determine that Lansheng and China First do not fall within the
prohibition set out in CDIW. Hence, the Department has applied the
criteria developed in Sparklers and amplified in Silicon Carbide to
determine whether these companies, as well as the companies ``owned by
all the people,'' should receive separate rates. Under this analysis,
the Department assigns a separate rate only when an exporter can
demonstrate the absence of both de jure1 and de facto2
governmental control over export activities.
---------------------------------------------------------------------------
\1\ Evidence supporting, though not requiring, a finding of de
jure absence of central control includes: (1) absence of restrictive
stipulations associated with an individual exporter's business and
export licenses; (2) any legislative enactments decentralizing
control of companies; or (3) any other formal measures by the
government decentralizing control of companies.
\2\ The factors considered include: (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).
---------------------------------------------------------------------------
De Jure Analysis
The PRC laws placed on the record of this case establish that the
responsibility for managing companies owned by ``all the people'' has
been transferred from the government to the enterprise itself. These
laws include: ``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 states that enterprises have the right to set
their own prices (see Article 26). This principle was restated in the
1992 Regulations (see Article IX).
While the PRC government has devolved control over state-owned
enterprises, the government has continued to regulate certain products
through export controls. The Export Provisions list designates those
products subject to direct government control. Pencils do not appear on
the Export Provisions list and are not, therefore, subject to the
constraints of these provisions.
Consistent with Silicon Carbide, we determined that the existence
of these laws demonstrates that Guangdong and SFTC, companies owned by
``all the people,'' are not subject to de jure control.
Since Lansheng and China First were initially companies owned by
``all the people,'' the laws cited above establish that the government
devolved control over such companies. The only additional law that is
pertinent to the de jure analysis of Lansheng and China First as share
companies is the Company Law (effective July 1, 1994). While Lansheng
and China First indicated that they were organized consistent with the
Company Law, the law did not enter into force until seven months after
the POI. In any event, this law does not alter the government's de jure
devolution of control that occurred when the companies were owned ``by
all the people.'' Therefore, we have determined that Lansheng and China
First are not subject to de jure control.
In light of reports3 indicating that laws shifting control
from the government to the enterprises themselves have not been
implemented uniformly, an analysis of de facto control is critical to
determining whether respondents are, in fact, subject to governmental
control.
---------------------------------------------------------------------------
\3\See ``PRC Government Findings on Enterprise Autonomy,'' in
Foreign Broadcast Information Service-China-93-133 (July 14, 1993)
and 1992 Central Intelligence Agency Report to the Joint Economic
Committee, Hearings on Global Economic and Technological Change:
Former Soviet Union and Eastern Europe and China, Pt.2 (102 Cong.,
2d Sess)
---------------------------------------------------------------------------
De Facto Control Analysis
We analyze below the issue of de facto control based on the
criteria set forth in Silicon Carbide.
Guangdong
In the course of verification, we confirmed that Guangdong's export
prices are not set, or subject to approval, by any government
authority. This point was supported by Guangdong's sales documentation,
company correspondence, and confirmed through questioning of a Shanghai
Commission of Foreign Trade and Economic Cooperation (COFTEC)
representative. Through an examination of sales documents pertaining to
U.S. pencil sales, we also noted that Guangdong is able to negotiate
prices with its customers without government interference or influence.
We confirmed, through an examination of bank documents, that
Guangdong has the authority to borrow freely, independent of government
authority. We further found that, although required to exchange 20
percent of its foreign exchange proceeds at the official exchange rate,
Guangdong retained proceeds from its export sales and made independent
decisions regarding disposition of profits and financing of losses.
Guangdong's financial and accounting records supported this conclusion.
Finally, we have determined that Guangdong has autonomy from the
central government in making decisions regarding the selection of
management. At verification, we found that management is elected by the
Employee's Congress, which is made up of 60 percent workers and 40
percent department chiefs. First candidates are nominated by the
workers in each department. The Employee's Congress then reviews the
qualifications of potential candidates and elects them. A review of the
documentation of the election process indicated that COFTEC then
confirms Guangdong's election of management. Based on an analysis of
all these factors, we have determined that Guangdong is not subject to
de facto control by governmental authorities.
SFTC
During verification, we established that SFTC's export prices are
set by the company and do not require approval by any governmental
authority. SFTC has the authority to negotiate and sign contracts and
other agreements independent of any government authority as evidenced
by our examination of correspondence and written agreements and
contracts. We also confirmed that SFTC retained proceeds from its
export sales and made independent decisions regarding disposition of
profits by examining bank account records, financial records, and
purchase contracts.
Based on our examination of management appointment announcements
and other correspondence, we have determined that SFTC had autonomy
from the government in making decisions regarding the selection of
management. Management was elected by 50 departmental staff
representatives. These representatives were themselves elected by
workers in each department. Documentation provided by SFTC demonstrated
that the provincial government merely acknowledged SFTC's election of
management. In light of the above evidence of the lack of de facto
government control, we have concluded that SFTC is entitled to a
separate rate.
Lansheng
In conducting a de facto analysis of Lansheng, we have examined the
factors set forth in Silicon Carbide, and whether the change in
corporate structure alters our conclusion regarding those factors.
Lansheng's sales documentation and correspondence support the
conclusion that no government entity exercises control over Lansheng's
export prices. Additionally, our examination of numerous contracts with
domestic and foreign trading companies demonstrates that Lansheng has
the authority to negotiate and sign contracts and other agreements
without interference from any governmental entity. We confirmed during
verification that this situation did not change after Lansheng became a
share company.
Before Lansheng became a share company, the general manager of its
predecessor company, Shanghai Stationery & Sporting Goods Import and
Export Company (Shanghai Stationery), was elected on February 27, 1993.
The election proceeded in the following manner.
First, for every ten employees, there was one elected
representative. Second, the representatives then elected the general
manager. Third, once the general manager was elected, the company sent
a letter, announcing the election to COFTEC. COFTEC then approved the
election process and sent a letter of congratulations to the company.
While COFTEC technically had the authority to reject an elected
manager, it reportedly had never done so.
After Lansheng became a share company, the same manager continued
to lead the company. At the first general shareholders' meeting, when
Lansheng's Board of Directors was elected, the shares held by the State
Asset Management Bureau (SAMB) were voted by the general manager of the
former company, Shanghai Stationery. Subsequently, the newly elected
Board of Directors appointed the former general manager as Chairman of
the Board for Lansheng. The evidence on the record regarding the
election of management indicates that no representative of the SAMB was
present at, or participated in, the election of the Board of Directors
or the decision to retain current management. Moreover, the chairman's
authority to vote the shares held by the government supports the
conclusion that the chairman and the board, rather than the government,
have the authority to appoint the company's management.
We also found that Lansheng retained proceeds from export sales and
made independent decisions regarding the disposition of profits and
financing of losses both before and after becoming a share company.
This point was supported through examination of Lansheng's bank account
records and bank loan applications.
As indicated above, the record indicates that Lansheng's change to
a share company did not have any effect on the government's devolution
of control over Lansheng. The evidence shows that, following its
conversion to a share company, 25.1 percent of Lansheng's shares were
sold publicly, with the proceeds returning to the company as new
capital investment. The remaining 74.9 percent of the shares represents
the value of the assets in the original company, Shanghai Stationery
(which was owned ``by all the people''). Evidence on the record
indicates that these remaining shares are held in trust by the SAMB,
just as its assets were held in trust when Lansheng was owned ``by all
the people.'' The company's management, which has remained the same
throughout its transition to a share company, votes these shares at the
general shareholders' meetings of Lansheng. This evidence supports the
conclusion that, under the new corporate structure, the government has
not exerted control over Lansheng through the exercise of shareholder
rights or otherwise; operational control remains in the hands of
company management.
China First
China First has been a public company since 1992. China First's
shareholders include both the state and individual PRC and foreign
investors. At verification, through an examination of the minutes from
the 2nd Annual Shareholders Meeting, company records, and discussions
with government and company officials, we found that the holder of the
state-owned shares was the ``Office for State Assets Administration of
the Shanghai Municipality'' (SAASM) and that SAASM's shares are voted
by the company's employee shareholders. We also note the record shows
that, as of verification, more than 50 percent of China First's shares
were held by private, individual investors, both foreign and Chinese.
In conducting a de facto analysis of China First, we have examined
the factors set forth in Silicon Carbide. China First's sales
documentation and correspondence supports the conclusion that no
government entity exercises control over China First's export prices.
Additionally, our examination of numerous contracts with domestic and
foreign trading companies demonstrates that China First has independent
authority to negotiate and sign contracts and other agreements, such as
joint ventures.
China First holds a general shareholders meeting annually. At this
meeting the shareholders elect the Board of Directors, each of whom
serves a three year term. Employees vote the shares held by the
government in selecting the Board. The Board of Directors in turn
selects the company's management. Because the state-owned shares
represent a minority interest and because those shares are, in fact,
voted by employee shareholders, the evidence supports the conclusion
that the government does not control selection of the Board of
Directors or other members of management.
We also found that China First retained proceeds from export sales
and made independent decisions regarding the disposition of profits and
financing of losses both before and after becoming a share company.
This point was supported through an examination of China First's
financial and accounting records, and bank accounts. The evidence
supports the conclusion that, under the corporate structure of China
First, the government has not exerted control through the exercise of
shareholder rights or otherwise; operational control remains in the
hands of company management.
Conclusion
In the case of Guangdong, SFTC, Lansheng and China First, the
record demonstrates an absence of de jure and de facto government
control. Accordingly, we determine that each of these exporters should
receive a separate rate.
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: Certain Paper Clips from the People's Republic of
China, 59 FR 511680 (October 7, 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,
the Department has treated the PRC as an NME for purposes of this
investigation.
Where the Department is investigating imports from an NME, section
773(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 comparable 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, respondents have urged the Department to
employ the alternative methodology provided in section 773(c)(2) of the
Act, i.e., the export price of a pencil from a comparable market
economy. In particular, they have argued that because the primary input
into PRC pencils, lindenwood, cannot be valued exactly, the Department
is compelled to employ the alternative valuation of FMV. Petitioner
argues against using the alternative methodology for FMV. Instead,
petitioner suggests that prices for jelutong wood be used to value
lindenwood, as the Department did in the preliminary determination.
We have determined that the absence of a price for lindenwood in
the surrogate country does not preclude us from using the factors of
production methodology. However, we have not used the jelutong prices
relied upon in our preliminary determination. For further discussion of
the arguments regarding the alternative methodology, see, Comment 1,
below.
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 (1)
at a level of economic development comparable to that of the nonmarket
economy country, and (2) significant producers of comparable
merchandise. Of the countries that have been determined to be
economically comparable to the PRC, evidence on the record of this case
indicates that India, Pakistan and Indonesia are significant producers
of pencils (see, Calculation Memorandum, attachment 1, October 31,
1994). In order to select the surrogate from among these countries that
meet the statutory criteria, we have reviewed the data that has been
submitted and that we have been able to develop on factor values from
these countries.
With respect to Pakistan, we have not located data for a
significant number of the Chinese production factors. Among the missing
factors are: certain packing materials, polyvinyl acetate, semi-skilled
labor, SG&A, profit, and all transportation rates except trucking for a
distance of 1000 km. For Indonesia, we have data for even fewer
factors. In India, we have factor values for all inputs (other than
wood, as discussed below, and tallow). Moreover, we have obtained 1993
values for India, the most recent time period available for data from
any surrogate country. Because India meets the statutory criteria for
surrogate country selection, and because we have more complete Indian
data, we determine that India is the preferred surrogate market in the
instant investigation. Therefore, except for certain inputs described
below, we have relied on Indian prices to value the Chinese factors of
production.
Fair Value Comparisons
To determine whether sales of pencils from the PRC to the United
States by China First, Guangdong, SFTC, and 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. We do not have
verified factors of production for a portion of SFTC's U.S. sales
discovered at verification. For these sales, we have applied 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, 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. In two
instances, sales were made on a C&F basis. For these sales, we adjusted
for freight expenses.
Foreign Market Value
As discussed above, we calculated FMV, based on the 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 usages to account for the resale of scrap materials, where
applicable.
In determining the appropriate surrogate value to assign to each
factor of production, we used publicly available published information
(PAPI), where possible. The PAPI used was: (1) an average non-export
value; (2) most current; (3) product-specific; and (4) tax-exclusive.
The following materials were not valued in India:
Wood
The wood used by the Chinese producers in pencil production
(Chinese lindenwood) has been the subject of much debate in this
investigation. Wood is the most significant input into a finished
pencil. (For the domestic industry, it accounts for approximately 50
percent of the cost.)
Prior to the preliminary determination, we consulted industry
experts who told us that jelutong was ``quite similar'' to lindenwood
and that ``in price, property and uses, American basswood is nearly
indistinguishable from lindenwood.'' Although we had this information
at the time of the preliminary determination, we did not have a
surrogate value for basswood. Instead, we used a basket category of
woods imported into India to assign a value to lindenwood. This
category did not include lindenwood or basswood, but did include
jelutong, which the record indicated was used to produce pencils in
Indonesia.
Since the preliminary determination, both respondents and
petitioner have provided information on the price and quality of
basswood, the most similar wood to lindenwood. The prices are those
charged by U.S. producers to U.S. customers. Despite extensive
research, no surrogate market or world prices for basswood have been
found.
Having determined that basswood is most similar to lindenwood, we
have used U.S. basswood prices to value the wood input. Although
section 773(c)(4) directs the Department to value the NME factors of
production in a comparable surrogate country that is a significant
producer of comparable merchandise, this is required only to the extent
possible. In this case, where wood is such a significant input and
where the only alternative to the basswood price, a price for jelutong,
is so much higher than the most comparable wood, we have determined
that it is appropriate to use the most comparable wood even though we
can only find prices for this input in the United States.
Erasers, Ferrules and Paint
Respondents provided information which led us to question the
quality of the Indian PAPI for erasers, ferrules, paint, animal glue
and foil. Based on a comparison of the Indian values to the Pakistani
values and the values provided in the petition for these inputs (the
only other sources of prices for these inputs), we determine that the
Indian values for ferrules, erasers and paint were aberrational.
Therefore, we valued these factors using Pakistani import statistics
(see, Calculation Memorandum, October 31, 1994).
Tallow
Tallow is not imported or, to the best of our knowledge, sold in
India or Pakistan. Therefore, we have valued this input in Indonesia.
As discussed above, Indonesia has been found to be economically
comparable to the PRC and to be a significant producer of pencils.
Non-material Inputs
We used Indian 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 BIA, the most expensive distance/modes
combination (i.e., the longest truck rates) that was available in
India. We were unable to obtain values for two modes of transportation
(man-drawn carts, inland water transport). Therefore, we assumed that
these forms were competitive with trucking rates over similar
distances.
To value electricity, we used PAPI from the Asian Development Bank
on Indian rates. To value coal and natural gas, we used Indian Import
Statistics for 1993, the Monthly Statistics of Mineral Production, and
the Indian Bureau of Mines dated November 1992, respectively. To value
water, we used the Indian industrial schedule from the Water Utilities
Data Book.
For all material and energy values that were for a period prior to
the POI, we adjusted the factor values to account for inflation between
the applicable time period 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 applicable time period 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 1993. 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. However, we used the statutory minimum of
eight percent for profit because the profit percentage derived from the
RBI data was less than the statutory minimum of eight percent of
materials, labor, factory overhead, and SG&A expenses.
We made no adjustments for selling expenses. Packing materials were
valued using Indian PAPI. These prices were adjusted to include the
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, only SFTC, Guangdong, China First and Lansheng are
entitled to separate dumping margins. Other exporters identified by the
PRC Ministry of Foreign Trade and Economic Cooperation (MOFTEC) have
failed to respond to our questionnaire. Lacking responses from these
companies, we are basing the PRC country-wide rate on BIA in accordance
with section 776(c) of the Act.
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 Final Determination of Sales at
Less Than Fair Value: Certain Cold-Rolled Carbon Steel Flat Products
From Argentina (Argentina Steel), 58 FR 7066, 7069-70 (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, the non-responding companies failed to cooperate. Therefore,
we are assigning to them the highest margin in the petition, as
recalculated by the Department for the initiation and on the basis of
petitioner's updated information submitted in May 1994. Also, in
recalculating the petition rate, we substituted the U.S. basswood price
discussed above for the wood value used by petitioner. In making this
change we relied on PRC wood usage factors because of the possibility
that the amount of wood used to produce a pencil will vary depending on
wood type.
We are also applying BIA to a portion of SFTC's sales. SFTC was
cooperative in this investigation. However, we are lacking the
necessary data for FMV calculations for three sets of pencil sales. We
do not find these deficiencies sufficient to call into question the
overall reliability of SFTC's data. Therefore, we are applying partial
BIA to these sales. As partial BIA, we applied the higher of (a) the
highest margin alleged in the petition, or (b) the highest calculated
rate of any respondent in the investigation.
Verification
As provided in section 776(b) of the Act, we verified information
provided by respondents using standard verification procedures,
including the examination of relevant sales and financial records, and
original source documentation.
Continuation of Suspension of Liquidation
For China First and Guangdong we calculated a zero margin.
Therefore, in accordance with 19 CFR 353.21 and consistent with Jia
Farn Manufacturing Co., Ltd. v. United States, Slip Op. 93-42 (March
26, 1993), we will exclude from the application of any order issued
imports of subject merchandise that are sold by either China First or
Guangdong and manufactured by the producers whose factors formed the
basis for the zero margin. Under the NME methodology, the zero rate for
each exporter is based on a comparison of the exporter's U.S. price and
FMV based on the factors of production of a specific producer (which
may be a different party). The exclusion, therefore, applies only to
subject merchandise sold by the exporter and manufactured by that
specific producer. Merchandise that is sold by the exporter but
manufactured by other producers will be subject to the order, if one is
issued. This is consistent with Jia Farn which held that exclusion of
merchandise manufactured and sold by respondent did not cover
merchandise sold but not manufactured by respondent. Therefore,
merchandise that is sold by China First or Guangdong but produced by
another producer is subject to suspension of liquidation at the ``all
others'' cash deposit rate.
In accordance with sections 733(d)(1) and 735(c)(4) (A) and (B) of
the Act, we are directing the U.S. Customs Service to continue to
suspend liquidation of all entries of pencils from the PRC that are
entered, or withdrawn from warehouse, for consumption on or after March
18, 1994, (i.e., 90 days prior to the date of publication of our
preliminary determination in the Federal Register), except entries of
the excluded merchandise described above. The U.S. 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-
Manufacturer/Producer/Exporter average margin
percentage
------------------------------------------------------------------------
China First/Company A................................... 0.00
China First/Any other manufacturer...................... 44.66
Guangdong/Company B..................................... 0.00
Guangdong/Any other manufacturer........................ 44.66
SFTC.................................................... 8.31
Shanghai Lansheng....................................... 17.45
All Others.............................................. 44.66
------------------------------------------------------------------------
Critical Circumstances
On August 22, 1994, the Department issued its preliminary
determination that critical circumstances exist in this investigation
with respect to pencils exported by SFTC, China First, Lansheng, and
``all others.''
Section 733(e)(1) of the Act provides that the Department will
determine that there is a reasonable basis to believe or suspect that
critical circumstances exist if:
(A) (1) there is a history of dumping in the United States or
elsewhere of the class or kind of merchandise which is the subject of
this investigation, or
(2) the person by whom, or for whose account, the merchandise was
imported knew or should have known that the exporter was selling the
merchandise which is subject of the investigation at less than its fair
value, and
(B) there have been massive imports of the class or kind of
merchandise which is the subject of the investigation over a relatively
short period.
Because we have determined that Guangdong and China First in
connection with their responding suppliers have not sold cased pencils
to the U.S. at less than fair value during the POI, we determine that
critical circumstances do not exist with respect to these companies.
Therefore, we have limited our analysis of critical circumstances to
SFTC and Lansheng.
History of Dumping
As stated in our preliminary determination of critical
circumstances, in April 1994, the Government of Mexico published an
antidumping duty order on certain cased pencils produced and exported
from the PRC. On this basis, we determine that there is a history of
dumping elsewhere of the class or kind of merchandise under
investigation.
Massive Imports
In accordance with 19 CFR 353.16(f) and 353.16(g), to determine
whether imports have been massive over a relatively short period of
time, we consider: 1) the volume and value of the imports; 2) seasonal
trends (if applicable); and 3) the share of domestic consumption
accounted for by the imports.
When examining volume and value data, the Department typically
compares the export volume for equal periods immediately preceding and
following the filing of the petition. Under 19 CFR 353(f)(2), unless
the imports in the comparison period have increased by at least 15
percent over the imports during the base period, we will not consider
the imports to have been ``massive.''
The U.S. volume and value information submitted by the respondents
in this investigation and used by the Department in its preliminary
determination of critical circumstances is unchanged. Based on this
information, we find that imports of pencils from the PRC have been
massive over a relatively short period of time for both SFTC and
Lansheng. Also, for the non-responding exporters, we have assumed as
BIA that imports have been massive.
Therefore, the statutory criteria for finding critical
circumstances have been met for SFTC and Lansheng and all non-
responding PRC exporters of pencils.
Interested Party Comments
Comment 1: Respondents argue that section 773(c)(1) of the Act
requires the Department to value the specific input used by the PRC
producer based on the best available information regarding values in
the surrogate country or countries. Absent an acceptable surrogate
value for each factor, the Department must consider the use of the
exception provided for in the statute at section 773(c)(2) of the Act.
This is especially so where, as here, the Department lacks a surrogate
value for the single most significant input, lindenwood.
Respondents submit that the Conference Report to what became the
Trade and Competitiveness Act of 1988 shows Congress' recognition that
in some cases the Department will be unable to develop adequate and
usable sources of surrogate factor values (which, in turn, will deprive
nonmarket economy producers and exporters of any notion of fairness),
requiring resort to the alternative provided in the statute, i.e.,
export prices of comparable merchandise from an economically comparable
country. See, Omnibus Trade & Competitiveness Act of 1988--Conference
Report, Rep. No. 100-576, 100th Cong., 2d Sess. at 592 (1988).
Respondents assert that this Conference Report reflects Congress'
desire to provide nonmarket economy countries with some semblance of
realism and reasonableness in the determination of their foreign market
values.
Petitioner argues that the statute provides a clear preference for
the factors of production methodology over the alternative, export
prices of comparable merchandise from an economically comparable
country. Petitioner asserts that the Department can only use the export
price alternative if the Department finds that the available
information is inadequate for purposes of determining the FMV of the
subject merchandise. In this case, the price of jelutong is acceptable
for valuing the Chinese wood price.
Petitioner claims further that the Indian export data regarding
pencils provided by respondents covers too few pencils and provides no
information with respect to the quality of those pencils. Therefore,
petitioner contends, the Indian export data provide an inadequate basis
for determining FMV. The Department should not reject the adequate and
detailed surrogate value data in favor of deficient export data.
DOC Position: The statute states that the Department shall
``determine the foreign market value of the merchandise on the basis of
the value of the factors of production utilized in producing the
merchandise,'' and furthermore that, ``the valuation of the factors of
production shall be based on the best available information regarding
the values of such factors in a market economy country or countries
considered to be appropriate by the administering authority.'' See
section 773(c)(1) of the Act. The Act further provides that, if the
Department finds the available information inadequate for purposes of
determining foreign market value based on the factors of production,
the Department shall base FMV on the price at which comparable
merchandise is produced and exported in one or more market economy
countries at a comparable level of economic development to that of the
nonmarket economy. See, section 773(c)(2).
In this investigation, we have determined that we have sufficient
information on factor values to rely on the factors of production
methodology. Although we do not have a value for the specific wood used
by PRC producers, the Department may exercise its discretion in
selecting a comparable input by which to value this factor.
In Ceiling Fans From the People's Republic of China: Notice of
Court Decision; Exclusion From the Application of the Antidumping Duty
Order, in Part; Termination of Administrative Reviews; and Amended
Final Determination and Order (59 FR 9956, March 2, 1994), the
Department stated that ``. . . section 773(c)(1) of the Act provides
for valuation of factors of production on the best available
information from an appropriate surrogate country, not on the basis of
perfectly conforming information.'' In this instance, we have evidence
that basswood is virtually indistinguishable from lindenwood.
Therefore, as explained in FMV section of this notice, we have used
basswood as a surrogate value for lindenwood.
Moreover, we are not persuaded that the use of the statutory
exception in this investigation would increase the accuracy of our
calculations. The comparison of an average Indian export price with
each of the several different pencil types exported to the U.S. by the
PRC respondents could lead to significant distortions and inherent
unfairness. Because the Indian export price may reflect a wide variety
of pencil types, PRC exporters selling lower value-added pencils, e.g.,
raw or semi-finished, could be severely penalized by such an approach.
Similarly, PRC exporters of higher value-added pencils, e.g., colored,
foil, or designer, could profit.
Absent some workable method for adjusting the average Indian export
price to reflect the differences in merchandise exported by the
respondents, we cannot agree that the export price methodology yields a
better measure of FMV in this case.
Comment 2: Respondents argue that, if the Department does not use
the export price of Indian pencils as FMV, then it must reject the use
of jelutong as a surrogate for lindenwood.
Wood is the single most significant input used in the production of
wooden cased pencils, as petitioner's own figures demonstrate. All
respondents use lindenwood exclusively in the production of pencils.
Respondents submit that lindenwood is a very low-quality wood with
little alternative commercial use. The basket of woods chosen by the
Department in its preliminary determination as a surrogate value for
lindenwood is a group of tropical timbers, whereas lindenwood is a
temperate hardwood. Respondents submit that, at the very least, the
basket of woods should include lindenwood. Therefore, respondents argue
that the basket category is unacceptable for use as a surrogate for
lindenwood.
Petitioner argues that the Department properly relied upon the
price of jelutong for valuing the wood input. Based on the evidence
developed by the Department, jelutong is ``quite similar'' to
lindenwood. Also, petitioner asserts that jelutong is used to produce
pencils.
Petitioner submits that the Department has previously found it
appropriate to rely on available information for the price of a similar
input material when surrogate information for the identical material is
not available. See, Final Determination of Sales at Less Than Fair
Value: Sebacic Acid from the People's Republic of China, 59 FR 28053,
28058 (May 31, 1994). Thus, according to petitioner, because the record
demonstrates that jelutong and lindenwood are similar types of wood,
jelutong is an adequate surrogate and meets the statutory requirement.
DOC Position: All parties agree that wood is the single most
significant input used in the production of wooden cased pencils. Thus,
the Department has taken great care in its determination of the
appropriate surrogate value for PRC lindenwood. In light of information
submitted by both petitioner and respondents and the Department's own
research after the preliminary determination, we determine that the
value of jelutong and/or the Indian basket category of tropical woods
used in the preliminary determination is not an adequate surrogate for
lindenwood. We find the jelutong value inappropriate because our
research indicates that, although jelutong is used in pencil
production, it is an entirely different genus of wood. Jelutong is a
tropical soft timber and lindenwood is a temperate hardwood. Simply
because both woods are used to produce pencils does not, in our
estimation, indicate that they are comparable in quality or value.
Indeed, when the price of jelutong is compared to the price of
basswood, the wood identified as most comparable to lindenwood, it
reveals that the value of jelutong is not comparable.
Moreover, we note that the Indian import value used for logs in the
preliminary determination was based on a basket category. The basket
category is made up of seven types of wood; three of these are similar
in properties and use to lindenwood, four are not as similar.
Therefore, even if we were to agree with petitioner that jelutong is an
acceptable surrogate for lindenwood, it is questionable whether this
basket price even reflects a value for jelutong.
The price used in the preliminary determination for sawn jelutong,
in contrast to the price for logs, is a world market price. Therefore,
the problem of jelutong is twofold: it is less similar to lindenwood
than is basswood and it is reported in a basket category for one of the
two forms in which PRC producers purchased lindenwood.
Comment 3: Petitioner argues that, should the Department decide to
use a U.S. price for basswood, it should not use the price provided by
respondents. Petitioner argues that the type of basswood described in
respondents' submission is not suitable for pencil production.
Specifically, the information submitted by respondents is for grade 4/4
FAS+ (FAS+ indicates highest quality) basswood, whereas pencil
production requires at least grade 12/4. In support of this, petitioner
points to a study which it submitted which shows that U.S. producers
would use 12/4 and 16/4 basswood.
DOC Position: One PRC producer who supplies pencils to a PRC
exporter purchases wooden slats, rather than logs or sawn timber, to
produce pencils. Slats are thin pieces of wood that are further
processed than logs. The U.S. prices we have for basswood which has
been processed beyond the log stage (i.e., sawn lumber) are for grade
4/4 (submitted by respondents) and for grades 12/4 and 16/4 (obtained
by the Department). None of these grades corresponds to the actual
input purchased by the PRC company in question (e.g. slats).
Lacking information on the specific input used by the PRC producer,
we have relied on petitioner's study as indicative of the grades of
sawn lumber that would be used to produce pencils. Moreover, we also
note that the prices submitted by respondents were for September 1994,
after the POI.
Petitioner's submission also indicated that U.S. producers would
use FAS+ and 1C (number 1 common) quality wood. Therefore, we averaged
the prices during the POI of 12/4 and 16/4 basswood at FAS+ and 1C
quality levels.
The other PRC producers in this investigation purchase logs of
lindenwood for their pencil production. We obtained basswood log price
listings during the POI from another publication (see, Calculation
Memorandum, October 31, 1994) and we used POI prices for log basswood
for these producers.
Comment 4: Respondents argue that the Department should review its
determination of India as the most appropriate surrogate, and in light
of new information, determine that Pakistan is the most appropriate
surrogate. Specifically, a comparison of revised 1994 World Bank
statistics in the World Development Report shows that Pakistan's
economy is more comparable to that of the PRC than India's, based on
per capita GNP and growth rates. Moreover, the Pakistani factor value
data is more timely, i.e., closer to the POI, and reflects larger,
``commercially viable'' import quantities.
Petitioner claims that India should remain the preferred surrogate
because the Department has consistently determined it to be the
appropriate surrogate for the PRC, based on the criteria set forth in
section 773(c)(4) of the Act. Furthermore, according to petitioner, the
statute does not require that the Department choose the most comparable
surrogate, but rather only that the Department base its surrogate
determination on a country: (1) whose economy is comparable to that of
the PRC, and (2) which is a significant producer of comparable
merchandise. In petitioner's view, Pakistan does not meet the second
criterion. Finally, petitioner argues that the Pakistani factor values
placed on the record by respondents do not cover all the inputs.
DOC Position: Based on World Bank data, the Department has
identified a number of countries that are at a level of economic
development comparable to the PRC. Among these comparable countries are
Pakistan, India, and Indonesia. We have also determined that Pakistan,
India, and Indonesia are significant producers of pencils (see,
Concurrence Memorandum, October 31, 1994). Therefore, all three
countries meet the statutory criteria for being selected as the
surrogate in this investigation.
In this case, India is the country where, in comparison to other
potential surrogates, we have been able to obtain values for the
overwhelming majority of factors. (Pakistani values were available for
approximately half the factors, Indonesia less than that.) Therefore,
we have chosen India as our primary surrogate and we are valuing most
of the factors there. This is consistent with our practice of
attempting to use a single country, where possible, for valuing
factors. See, e.g., Final Determination of Sales at Less Than Fair
Value: Sulfanilic Acid from the People's Republic of China, 57 FR 29705
(July 6, 1992).
We also note that we have been able to obtain Indian data that is
contemporaneous with the Pakistani data submitted by respondents.
Therefore, while we agree that ``timeliness'' of the data may be a
reason to select one potential surrogate over another, that issue does
not arise in this case. (Respondents' comment regarding ``commercially
viable'' amounts is addressed in the context of the Department's
decisions with respect to specific factors.)
Comment 5: If the Department continues to use India as the
surrogate country, respondents argue that certain Indian factors data
are skewed. Therefore the Department should reject these Indian factors
in favor of more reasonable, commercially justifiable and current data
submitted by respondents. Specifically, they contend that Pakistani
factor values for erasers, ferrules, plastic foil, animal glue and
paint represent more reasonable surrogate values than the information
used by the Department in its preliminary determination. They state
that the time period covered by the Pakistani data is broader and more
recent, the Pakistani values are based on more commercially viable
import volumes, and for erasers, ferrules and animal glue, the
Pakistani values are more aligned with the U.S. industry cost data
submitted by petitioner.
Petitioner argues that Pakistani data represent a larger volume of
merchandise simply because Pakistani tariff categories are broader than
Indian tariff categories, which are based on the HTS. Petitioner
further asserts that it is the Department's practice to use data from a
single country where possible in valuing factors of production.
Finally, petitioner claims that it is meaningless that some of the
Pakistani data are closer to the costs of the U.S. pencil industry. The
United States is not a surrogate country, therefore, U.S. prices are
irrelevant to the calculation of FMV.
DOC Position: Although we have selected India as the appropriate
surrogate country in this investigation, this does not mean that we are
required to use those Indian factor values that we find to be
aberrational. We have analyzed the Indian factor values for erasers,
ferrules, paint, animal glue, and plastic foil. We compared these
factor values with Pakistani and U.S. values based on U.S. costs taken
from the petition and found the Indian factor values for erasers,
ferrules and paint to be aberrational. (See, Calculation Memorandum,
October 31, 1994.) Therefore, we have used import statistics from
Pakistan, another country which is economically comparable to the PRC
and which is a significant producer of comparable merchandise, in order
to value these three factors as accurately as possible.
We agree with petitioner that, when possible, the Department's
preference is to use a single surrogate market to value the factors of
production. However, as stated above, when the facts of a case indicate
that this will not permit accurate valuation of the input, we are not
required to do so. Where necessary, we have used factor values from
multiple countries in a number of recent NME investigations. See, Final
Determination of Sales at Less Than Fair Value: Paper Clips from the
People's Republic of China 59 FR 51168 (October 7, 1994); Final
Determination of Sales at Less Than Fair Value: Headwear from the
People's Republic of China 54 FR 11983 (March 23, 1989); and Final
Determination of Sales at Less Than Fair Value: Shop Towels from the
People's Republic of China 55 FR 34307 (August 22, 1990).
We disagree with petitioner's claim that U.S. prices are
irrelevant. Where, as here, questions have been raised about PAPI with
respect to particular material inputs in the chosen surrogate, it is
the Department's responsibility to examine that PAPI. To make this
examination, we relied on the data on the record--Pakistani and U.S.
values. For these inputs, U.S. values served to corroborate the claim
that certain Indian PAPI for these factors was unreliable.
Comment 6: Petitioner argues that the Department should use
nitrocellulose-based lacquer classified under HTS item number
3208.90.09 to derive a value for the lacquer used by respondents in
pencil production. Petitioner submits that given the properties of the
two HTS categories of lacquer that have been considered by the
Department to value the PRC producer's lacquer, nitrocellulose-based
lacquer is the most appropriate.
DOC Position: As stated above, we have found the Indian price for
paint (lacquer) to be aberrational and have, therefore, used Pakistani
data to value paint. Pakistani import statistics are reported in the
Standard International Trade Classification (SITC) format which is a
United Nations sanctioned nomenclature. Due to the nature of the SITC
system, there are fewer product categories, which means that a greater
variety of items is included in each category. Pakistani data on
specific subcategories of lacquers are unavailable. The SITC subheading
we used was 5334202 which encompasses both the HTS subheading proposed
by petitioner and the one used by the Department in the preliminary
determination. The description of SITC subheading 5334202 is
``lacquers.''
Comment 7: Petitioner argues that the Department should rely on the
actual expense and profit percentages for the Indian pencil industry,
rather than the amounts in the petition, for the calculation of the
``all others'' rate. The actual data concerning expense and profit
percentages is the best available information and, therefore, would
provide an ``all others'' FMV that better reflects the actual surrogate
values for these items.
Petitioner further states that the Department should adjust the
``all others'' rate to reflect transportation costs reported by the
Chinese respondents. Petitioner suggests that the Department apply the
highest transportation cost, port handling and loading charge, and
containerization fee reported by respondents. Petitioners submit that
non-responding PRC exporters should not be rewarded for their non-
cooperation by receiving the benefit of a margin that does not reflect
all costs.
DOC Position: We disagree with petitioner. We do not believe it is
appropriate to adjust petition data only where the values would
increase. Although an adverse inference is drawn when exporters do not
cooperate, this does not mean that the BIA rate should be as high as
possible.
In this case we have made one adjustment to the petition data based
on surrogate values developed in the course of this investigation. This
adjustment was to revalue the wood input using basswood prices. We made
this adjustment because, based on what we have learned, the most
similar wood to lindenwood is basswood. Having rejected jelutong as a
surrogate for lindenwood, it would not be appropriate to use jelutong
even in a BIA situation.
Comment 8: Petitioner argues that the Indian import data do not
convey the full value of the materials in India because they exclude
Indian customs tariffs applicable to these materials. In valuing the
imported materials, the Department should apply the ad valorem tariff
rate imposed by the Indian government.
Respondents argue that both India and Pakistan have drawback
schemes whereby exporters are reimbursed for or exempted from the
payment of import duties collected on inputs. Thus, the added cost of
import duties is not one which would be incurred, and it should not be
added to the already inflated values represented in surrogate values
derived from Indian import statistics.
DOC Position: We disagree with petitioner. The purpose of the
factors methodology is to construct the FMV of NME-produced goods using
values in the surrogate country. Theoretically two costs could be
calculated--the cost for a domestically sold pencil and the cost of an
exported pencil--if the country permits duty free importation of inputs
for exports. We are constructing the value of the exported merchandise,
therefore, it is appropriate to use the costs the surrogate producer
would face in producing exported merchandise. Consistent with our
standard practice in this regard, we are not adding the Indian import
duties to the values reported in the published Indian import statistics
as those duties would have been rebated upon export of the finished
products. See, Final Determination of Sales at Less than Fair Value:
Certain Helical Spring Lock Washers from the People's Republic of
China, 58 FR 48833, 48841-42 (September 20, 1993).
Comment 9: Petitioner claims that respondents belatedly submitted
Pakistani import data covering certain of the raw materials used in
pencil production on September 13, 1994. Petitioner argues that this
information should be rejected by the Department because (1) the time
for submitting surrogate value information had long since passed, and
(2) under the Department's regulation, factual information submitted
after the commencement of verification is untimely and should be
rejected. See 19 CFR Secs. 353.31(a)(1)(i),(b)(3). Petitioner contends
that the information was not submitted in response to a current request
by the Department, and respondents did not request or receive an
extension of the long-expired previous requests for surrogate
information. Thus, this information does not fall into one of the
narrow exceptions for late submissions included in 19 CFR
Secs. 353.31(b)(2), (b)(3), of the Department's regulation.
DOC Position: Contrary to petitioner's contention, respondents
requested and received an extension by telephone (See, Memorandum to
File from Team dated September 28, 1994), for the submission of PAPI.
Petitioner, in fact, was also granted an extension for the submission
of PAPI once an extension was requested.
Comment 10: At verification, it was discovered that a U.S. producer
provided one manufacturer with a material input free of charge.
Petitioner argues that the Department should assign a value to this
input, regardless of whether it was provided free of charge. The
Department is required by the statute to include all inputs in the
construction of FMV for comparison to U.S. sales.
Respondents contend that the situation in the instant investigation
is analogous to a situation where a U.S. customer has a tolling
arrangement with a foreign producer. Respondents argue that in such
situations the Department has consistently compared the price charged
to the U.S. customer--exclusive of materials supplied by the customer
to the price charged for similar arrangements in the home market. See,
Final Determination of Sales at Less Than Fair Value: Brass Sheet and
Strip from France 52 FR 812 (January 9, 1987). Respondents point out
that in Final Determination of Sales of Less Than Fair Value: Brass
Sheet and Strip from Korea 51 FR 40834 (November 10, 1986), the
Department stated that ``[i]f we were to compare the prices of tolled
to non-tolled sales, extensive adjustments would have to be made. For
example, if the U.S. transaction is a non-tolled sale, we would have to
adjust home market prices for non-tolled sales so that they would
reflect in addition the cost of the customer supplied inputs. In the
opposite situation, home market prices for non-tolled sales would
somehow have to be adjusted downward.'' Respondents conclude that in
this case the Department is constructing a value and not adjusting a
price; therefore, any materials supplied by a U.S. customer should not
be included in the constructed FMV.
DOC Position: We agree with respondents. The factors of production
methodology constructs the value of the subject merchandise as
exported. We verified that a certain input in one of the pencils sold
to a certain customer was provided free of charge to the producer/
exporter. If we were comparing a constructed FMV inclusive of this free
input to a U.S. sale to a different customer who had not provided the
input, it is possible that an adjustment to FMV would have been
warranted. However, this is not the case. We compared the constructed
factor value for this pencil type with U.S. sales of this type of
pencil to only the customer that provided the input. Therefore,
contrary to petitioner's argument, we have correctly valued the NME
producers factors of production for this merchandise.
Comment 11: Petitioner argues that the verification report shows
numerous substantive material errors in SFTC's questionnaire response.
These serious deficiencies warrant the application of comprehensive BIA
for SFTC.
Respondents argue that the Department should not resort to total
BIA for SFTC as it did in the preliminary determination in this
investigation. Respondents argue that SFTC has cooperated fully
throughout this investigation and, therefore, the Department should
calculate a margin based on the data supplied by the company and
verified by the Department.
Respondents argue that where information is either missing or
unavailable, the Department should not seek unnecessarily to punish
SFTC given the company's cooperative approach in this investigation.
The following paragraphs outline the specific data problems and
respondents' suggested treatment of these problems.
Prior to verification, the company discovered that it had
misreported the pencil producers for a number of transactions.
Respondents point out that, upon the commencement of verification, the
verifier was informed of this issue. Since, as a result of this
misreported information, SFTC was unable to provide factors data for
the actual producers for certain transactions, respondents contend that
BIA, if applied, should be the highest calculated margin for any of
SFTC's pencil sales of similar merchandise, if available. Respondents
contend that in the case where similar merchandise is not available,
BIA, if applied, should be the highest calculated margin for any SFTC
sale.
In addition, at verification the Department found that SFTC
incorrectly reported two different suppliers for one transaction.
Respondents argue that this discrepancy is minor because SFTC reported
and the Department verified data from both suppliers. Therefore, the
Department should simply use the verified factors data for the correct
supplier, rather than resorting to BIA.
Respondents argue that the discovery at verification that two of
SFTC's shipments to the U.S. were shipped C&F, and not FOB, is an
oversight of little significance. The data were collected at
verification and can now be used to calculate the correct freight for
these sales. Similarly, it was discovered that two invoice numbers were
incorrect, as reported. Respondents submit that these were
typographical errors of no significance.
Finally, at verification it was discovered that SFTC inadvertently
excluded a sale of yellow pencils it thought was produced and supplied
by a producer whose pencils it was previously permitted to exclude from
the sales listing (See Memorandum from Elizabeth Graham to Barbara
Stafford, dated April 7, 1994). Respondents argue that the Department
should use the actual producer's factors data to calculate the margin
for this sale. Respondents submit that the Department has paint usage
for this supplier, that whether the paint is white or yellow is of no
consequence, and that the Department has the appropriate usage rates
for ferrules and erasers.
In its supplemental questionnaire response dated May 17, 1994, SFTC
notified the Department that portions of reported raw pencil sales had
been supplied by a factory previously thought to have supplied only
yellow pencils. Respondents submit that, as BIA, the Department should
use the highest margin calculated for other sales of raw pencils.
A small number of sample shipments not reported in SFTC's sales
response were noted in the sales verification report (See SFTC
Verification Report, at 5 and Exhibit 11). These shipments were never
sold. Therefore, in respondents' view, these invoices should be
considered properly excluded from SFTC's sales listing.
DOC Position: Although we found at verification that SFTC had a
number of misreported pieces of information, SFTC has made every effort
to cooperate in this investigation. In addition, as noted above, we do
not find that these deficiencies are sufficient to call into question
the overall reliability of SFTC's data. Therefore, contrary to
petitioner's assertion, we determine that SFTC's response does not
warrant the application of total BIA and we applied partial BIA as
described in the BIA section of this notice. However, the partial BIA
methodology suggested by respondents would result in assigning a zero
margin for sales for which we are missing the necessary factors data.
Because such BIA would not be adverse, we find it inappropriate. We
are, therefore, applying as partial BIA the petition rate.
With respect to our finding at verification that two U.S. sales
were made on C&F terms rather than FOB as reported, we simply adjusted
SFTC's freight expenses accordingly.
At both the SFTC verification and the verification of its U.S.
sales office, we noted sample shipments of raw pencils. It is the
Department's practice to exclude sample sales from its calculations, if
evidence exists that the sample sales were not made in substantial
quantities. See, e.g., Final Determination of Sales at Less Than Fair
Value: Professional Electric Cutting Tools and Professional Electric
Sanding/Grinding Tools from Japan, 58 FR 30144 (May 26, 1993), and
Final Determination of Sales at Less Than Fair Value: Sulphur Dyes,
Including Sulphur Vat Dyes from the United Kingdom 58 FR 3253, (January
8, 1993). In this case, we found no evidence that SFTC routinely offers
samples to its U.S. customer. Rather, at verification, we established
that only a small quantity of raw pencils were provided to the U.S.
customer for quality testing. Therefore, we have not treated these
sample shipments as U.S. sales.
Comment 12: Respondents argue that the Department was incorrect in
its preliminary determination of critical circumstances with respect to
imports of pencils into the U.S. from China First, SFTC, and Lansheng.
Respondents argue that critical circumstances are not present.
Respondents assert that, on their face, the Mexican dumping
findings relied on by the Department are incredible (451 percent) and
should be disregarded with respect to the requirement that a history of
dumping be found. Furthermore, the Mexican finding was based on BIA,
and the only Chinese producer identified was Guangdong. According to
the ITC record, none of the other PRC respondents in the instant
investigation was named or participated in the Mexican case or exported
significant quantities of pencils to Mexico. Accordingly, China First,
SFTC or Lansheng have no history of dumping.
Absent history of dumping, importer knowledge of dumping is
required in order for the Department to find critical circumstances.
Respondents assert that the final determination in this investigation
will reflect dumping margins much lower than those established in the
preliminary determination, thus eliminating any suggestion that
importers had the required knowledge of dumping.
Finally, respondents contend that the statutory phrase ``relatively
short period of time'' was meant to denote a period of time in the
post-filing period which was shorter than the pre-filing period used
for comparison. By comparing equivalent periods of time prior to and
after the filing of the petition, the Department has exceeded its
statutory authority. Therefore, the Department should modify its
methodology for the final determination.
Petitioner argues that respondents have not explained why Mexican
antidumping proceedings are inherently suspect. The size of the margins
found in the Mexican proceeding is not relevant; what is relevant is
that Mexico, a signatory to the General Agreement on Tariffs and Trade
(GATT) Antidumping Code, issued an affirmative finding of dumping. This
meets the statutory standard for history of dumping. It is immaterial
whether a particular foreign exporter is named in a third country
antidumping finding, or does not export to that third country.
Petitioner takes issue with respondents' claim that the
``relatively short period of time'' phrase ``was meant to denote a
period of time in the post-filing period which was shorter than the
pre-filing period used for comparison.'' Congress identified the
statutory ``relatively short period'' as that between the commencement
of an investigation and the preliminary determination. H.R. Rep. No.
96-317, 96th Cong., 1st Sess. 63 (1979). The Department's regulation
comports with the legislative purpose. See, 19 CFR 353.16(g).
Respondents have failed to demonstrate that the regulation is neither
reasonable nor a proper exercise of the Secretary of Commerce's
discretion. See Smith-Corona Group v. United States, 713 F.2d 1568
(Fed. Cir. 1983). Petitioner argues that in order to make its
determination, Commerce must compare the post-filing period with a
similar ``normal'' period before the case began.
Finally, petitioner submits that the statute directs the Department
to determine whether ``there have been massive imports of the
merchandise which is the subject of investigation over a relatively
short period.'' See section 735(a)(3) of the Act. Petitioner argues
that the Department is directed to analyze the subject merchandise as a
whole, and that there is no provision for the exception of individual
exporters when the massive imports criterion is met. Thus an
affirmative final critical circumstances determination is warranted for
all exporters, including Guangdong in this investigation.
DOC Position: We disagree with respondents' assertion that the
Mexican antidumping determination with respect to pencils from the PRC
should be disregarded by the Department. On the contrary, the Mexican
determination meets exactly the statutory requirement under section
733(e)(1) of the Act with respect to a history of dumping of the class
or kind of merchandise under investigation in the United States or
elsewhere. Moreover, with respect to respondents' assertion that the
Mexican finding identified only one respondent, we note that the order
exists as to pencils from the PRC and not as to one particular
respondent. Therefore, we do not believe that we should single out only
those producers specifically mentioned in the Mexican finding.
We disagree with respondents' contention that the Department
exceeded its statutory authority in selecting an equal period of time
before and after the filing of the petition in this investigation. The
Department acted in accordance with the requirements of the statute and
past practice by examining equal time periods to determine whether or
not imports of pencils from the PRC have been massive over a relatively
short period of time. See, e.g., Preliminary Determination of Sales at
Less Than Fair Value: Coumarin from the People's Republic of China, 59
FR 39727 (August 4, 1994) and Final Determination of Sales at Less Than
Fair Value: Industrial Belts from Italy, 54 FR 15483 (April 18, 1989).
Finally, we disagree with petitioner's assertion that the
Department is statutorily required to determine the existence of
critical circumstances on an aggregate basis. When company-specific
information is available, we conduct our analysis on a company-specific
basis. In the event that such information is not available, we use the
most specific information available in making our critical
circumstances determination. In this investigation, we have reached our
critical circumstances determination on a company-specific basis
because respondents provided the information which permitted us to do
so.
Comment 13: Petitioner argues that the Department should explicitly
provide in its final determination that Chinese pencils transshipped
through Hong Kong are within the scope of this investigation.
DOC Position: The scope of the order, if one is issued, will cover
certain cased pencils produced in the PRC. The fact that the PRC
pencils are transshipped through a third country en route to the U.S.
would not alter the fact that they are PRC-produced pencils subject to
the order. Therefore, Chinese produced pencils that are transshipped
through Hong Kong (or any other country) are within the scope of this
investigation and are subject to any antidumping duties imposed as a
result of this proceeding.
ITC Notification
In accordance with section 735(d) of the Act, we have notified the
International Trade Commission (ITC) of our determination. As our
determination is affirmative, the ITC will determine whether these
imports are materially injuring, or threatening material injury to, the
U.S. industry within 45 days. If the ITC determines that material
injury, or threat of material injury does not exist, the proceeding
will be terminated and all securities posted will be refunded or
cancelled. If the ITC determines that such injury does exist, the
Department will issue an antidumping order directing U.S. Customs
officials to assess antidumping duties on all imports of the subject
merchandise entered, or withdrawn from warehouse, for consumption on or
after the date of suspension of liquidation.
Notification to Interested Parties
This notice serves as the only reminder to parties subject to
administrative protective order (APO) of their responsibility
concerning the return or destruction of proprietary information
disclosed under APO in accordance with 19 CFR 353.34(d). Failure to
comply is a violation of the APO.
This determination is published pursuant to section 735(d) of the
Act and 19 CFR 353.20(a)(4).
Dated: October 31, 1994.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 94-27667 Filed 11-7-94; 8:45 am]
BILLING CODE 3510-DS-P