[Federal Register Volume 59, Number 219 (Tuesday, November 15, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-28162]


[[Page Unknown]]

[Federal Register: November 15, 1994]


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DEPARTMENT OF COMMERCE
[A-570-829]

 

Notice of Final Determination of Sales at Less Than Fair Value: 
Saccharin from the People's Republic of China

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

EFFECTIVE DATE: November 15, 1994.

FOR FURTHER INFORMATION CONTACT: Jennifer Yeske or Penelope Naas, 
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) 482-0189 or (202) 482-3534, respectively.

FINAL DETERMINATION: The Department of Commerce (``the Department'') 
determines that saccharin from the People's Republic of China (PRC) is 
being, or is 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 (59 FR 
32412, June 23,1994), the following events have occurred.
    On July 1, 1994, in accordance with section 735(a)(2)(A) of the 
Act, the respondents in this investigation requested that the 
Department postpone its final determination in this investigation until 
135 days after the date of publication of the preliminary 
determination. Accordingly, the Department postponed its final 
determination until November 7, 1994 (59 FR 37969, July 26, 1994).
    From August 4 through August 13, 1994, Department officials 
conducted verification of the responses of the responding exporters--
Shanghai KJ Import and Export Corporation (``Shanghai IE'') and Suzhou 
Cereals Import and Export Corporation (``Suzhou IE'') ; and the 
producers--Suzhou Auxiliary Agent Factory, Shanghai No. 6 
Pharmaceutical Factory, and the Wangxin Branch of Shanghai No. 6 
Pharmaceutical Factory.
    Petitioner and respondents submitted case and rebuttal briefs on 
September 23 and September 29, 1994, respectively. A public hearing was 
held on October 4, 1994.

Scope of Investigation

    The product covered by this investigation is saccharin. Saccharin 
is a non-nutritive sweetener used in beverages and foods, personal care 
products such as toothpaste, table top sweeteners, animal feeds, and 
metalworking fluids. Three forms of saccharin are typically available 
as referenced in the American Chemical Society's Chemical Abstract 
Service (CAS). These forms are sodium saccharin (CAS Registry #128-44-
9), calcium saccharin (CAS #6485-34-3), and acid (or insoluble) 
saccharin (CAS #81-07-2). Saccharin is currently classifiable under 
subheading 2925.11.00 of the Harmonized Tariff Schedules of the United 
States (HTSUS). The scope of this investigation includes all types of 
saccharin imported under this HTSUS subheading including research and 
specialized grades.
    Although the HTSUS subheading is provided for convenience and 
customs purposes, our written description of the scope of this 
investigation is dispositive.

Period of Investigation

    The period of investigation (``POI'') is June 1, 1993, through 
November 30, 1993.

Separate Rates

    Both of the two participating exporters, Shanghai IE and Suzhou IE, 
have requested a separate rate. We confirmed at verification that both 
companies are ``owned by all the people.'' 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. 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.
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    \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).
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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).3 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).
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    \3\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. 
Saccharin does not appear on the Export Provisions list and is not, 
therefore, subject to the constraints of these provisions.
---------------------------------------------------------------------------

    Consistent with Silicon Carbide, we determined that the existence 
of these laws demonstrates that Shanghai IE and Suzhou IE, companies 
owned by ``all the people,'' are not subject to de jure control. In 
light of reports4 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 in determining 
whether respondents are, in fact, subject to governmental control.
---------------------------------------------------------------------------

    \4\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)
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De Facto Control Analysis

    We analyze below the issue of de facto control based on the 
criteria set forth in Silicon Carbide.

Suzhou IE

    In the course of verification, we confirmed that Suzhou IE's export 
prices are not set, or subject to approval, by any government 
authority. This point was supported by the company's sales 
documentation, company correspondence, and confirmed through 
questioning of a Suzhou Commission of Foreign Trade and Economic 
Cooperation (COFTEC) representative. Through an examination of sales 
documents pertaining to U.S. saccharin sales, we also noted that Suzhou 
IE has the authority to negotiate contracts, including price, with its 
customers without government interference.
    We confirmed, through an examination of bank documents, that Suzhou 
IE has the authority to borrow freely, independent of government 
authority. We also confirmed that Suzhou IE has negotiated other 
contracts independent of government authority. For instance, the 
company has (1) recently entered into a real estate venture with one 
Chinese and one foreign partner to purchase a building south of Suzhou, 
(2) leased the first floor of its current building to a garment 
manufacturer, and (3) purchased an automobile for company use.
    We have determined that Suzhou IE has autonomy from the central 
government in making decisions regarding the selection of management. 
At verification, we found that the current general manager joined the 
company in 1992, following the retirement of his predecessor. We 
learned at verification that Suzhou IE recruited the current general 
manager from the Suzhou/China Council for Promotion of International 
Trade as it wanted a more ``internationally'' minded leader. We also 
learned that the rest of management is typically selected by the 
General Manager based on the Suzhou IE staff's opinion of the 
competency of the candidate. We also found that an employees' committee 
exists at the company made up of approximately one-third of all staff. 
However, according to the company, this committee operates informally, 
addressing issues such as wages and employee absences. Moreover, the 
Suzhou COFTEC representative confirmed that the company does send the 
names of its managers to Suzhou COFTEC, but we learned at verification 
that this is only so COFTEC will know who to contact at the company to 
disseminate and gather information.
    Finally, we found that during the POI, although required to 
exchange a certain percentage of its foreign exchange at the official 
exchange rate, Suzhou IE retained proceeds from its export sales and 
made independent decisions regarding disposition of profits and 
financing of losses. The company's financial and accounting records 
supported this conclusion.
    Based on an analysis of all these factors, we have determined that 
Suzhou IE is not subject to de facto control by governmental 
authorities.

Shanghai IE

    In our verification of whether Shanghai IE is subject to de facto 
control, we found additional information regarding the company's 
ownership. We confirmed that it was a start-up company formed in 1992 
and, according to its business license, is ``owned by all the people.'' 
The company was established with the sponsorship and capital of the 
general manager and four other investors who work for other PRC 
companies. These individuals constitute Shanghai IE's current board of 
directors. They contributed capital to the company and also obtained a 
loan from another PRC company. According to information reviewed at 
verification, these investors decide how to handle and distribute the 
profits of the company.
    In the course of verification, we also confirmed that Shanghai IE's 
export prices are not set, or subject to approval, by any government 
authority. This point was supported by the company'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. saccharin sales, we also noted that 
Shanghai IE is able to negotiate contracts, including price, with its 
customers without government interference.
    We confirmed, through an examination of bank documents, that 
Shanghai IE has the authority to borrow freely, independent of 
government authority. We also confirmed that Shanghai IE has negotiated 
other contracts independent of government authority. For instance, the 
company has: (1) Leased an office in the PuDong area of Shanghai at a 
specified rent, (2) negotiated a rental agreement with a warehousing 
company, and (3) purchased an automobile for company use.
    We have also determined that Shanghai IE has autonomy from the 
central government in making decisions regarding the selection of 
management. At verification, we found that management is selected by 
the company with no outside involvement. We also learned at 
verification that the general manager is chosen by the board of 
directors (i.e., the original investors) of the company. The general 
manager, in turn, chooses all of the company employees, with the advice 
of current employees. We reviewed an employee contract at verification 
which supported this explanation. Moreover, the Shanghai COFTEC 
representative stated that the company does not need to receive any 
approval from COFTEC regarding its management selections.
    Finally, we found that during the POI, although required to 
exchange a certain percentage of its foreign exchange at the official 
exchange rate, Shanghai IE retained proceeds from its export sales and 
made independent decisions regarding disposition of profits and 
financing of losses. The company's financial and accounting records 
supported this conclusion.
    Based on an analysis of all these factors, we have determined that 
Shanghai IE is not subject to de facto control by governmental 
authorities.

Conclusion

    In the case of both Suzhou IE and Shanghai IE, 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.

Market-Oriented Industry Claim

    Respondents have argued that they should be treated as a market-
oriented industry (``MOI''). However, we received MOI response 
information from only two saccharin producers in the PRC. We have no 
information on the remaining producers, of which there are at least 
four (according to information on the record provided by the Ministry 
of Foreign Trade and Economic Cooperation (``MOFTEC'')). Consequently, 
we have no basis to determine whether the production and sales 
practices of these producers are representative of PRC saccharin 
producers as a whole. Therefore, consistent with the policy outlined in 
the investigation of Certain Helical Spring Lock Washers from the PRC, 
(See, January 19, 1993, Memorandum from David L. Binder to Richard W. 
Moreland), we have determined that the PRC saccharin producers are not 
an MOI.

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 51168 (October 7, 1994)). No information has been provided 
in this proceeding that would lead us to overturn our former 
determinations. Therefore, in accordance with section 771(18)(c) of the 
Act, the Department has treated the PRC as an NME for purposes of this 
investigation.

Surrogate Country

    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 (i.e., export statistics data) 
indicates that India and Indonesia are significant producers of 
comparable merchandise, food-grade chemicals. We recognize that the 
food-grade chemical category is broad. However, because there are a 
significant variety of methods by which saccharin is produced, we have 
no means by which we can narrow this category further. Therefore, we 
have determined that it is appropriate to select from among the 
countries that are significant producers of a broad range of food-grade 
chemicals which encompass a variety of processes and input 
combinations. This method is reasonable particularly in light of the 
unavailability of reliable data on any appropriate export prices from 
the list of potential surrogates. (For a further discussion of the 
comparability of food-grade chemicals, please see November 7, 1994, 
Memorandum from Team to Susan Kuhbach).
    In order to select a single surrogate from among those 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. We compared the Indian and Indonesian values 
against data developed from export statistics from five countries 
(Canada, Germany, Japan, South Korea, and the United States) that 
export the materials to these two countries. We rejected Indian and 
Indonesian values that were not reasonably comparable to the median. We 
then sought to ascertain which of the two countries provided a more 
complete data base for valuing the factors of production. Upon the 
basis of the above analysis, we selected Indonesia as our primary 
surrogate. Accordingly (except for certain inputs described below) we 
have relied upon Indonesian prices to value the PRC producers' factors 
of production.

Fair Value Comparisons

    To determine whether sales of saccharin from the PRC to the United 
States by Suzhou IE and Shanghai IE 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.

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, and because the exporters' sales 
price methodology was not indicated by any other circumstances.
    For those exporters that responded to the Department's 
questionnaire, we calculated purchase price based on packed, CIF 
delivered prices to unrelated purchasers in the United States. We made 
deductions for containerization expenses and foreign inland freight 
based on Indonesian values. We made deductions for foreign handling and 
brokerage fees, and marine and inland insurance based on Indian values 
because we lacked Indonesian values. We also deducted ocean freight 
using international freight rates from Shanghai to New York obtained by 
the Department.

Foreign Market Value

    In accordance with section 773(c) of the Act, we calculated FMV 
using factors of production reported by the factories. The factors used 
to produce saccharin include materials, labor, and energy. To calculate 
FMV, the reported quantities were multiplied by the appropriate 
surrogate values for the different inputs. For each of the factories, 
we made adjustments to material costs for recovery of by-products in 
the production process.
    Our primary data source in Indonesia is the import data as reported 
in the Indonesian Foreign Trade Statistical Bulletin. We compared the 
Indonesian import price to the median of these five export prices, and 
where the Indonesian import price was reasonably comparable to the 
median, we used the Indonesian import value for the PRC production 
factor. Where the import data was determined to be aberrational, we 
turned to Indonesian export data and performed the same analysis. Where 
the Indonesian export prices were also found to be aberrational, we 
first used non-aberrational Indian import statistics, and where those 
were not available, we then examined domestic prices in India (as 
reported in Chemical Business and Indian Chemical Weekly) by applying 
the comparison noted above. Finally, if the prices in both comparable 
countries were found to be aberrational, we used the median export 
prices.
    We adjusted the factor values, when necessary, to the POI, using 
wholesale price indices (WPIs) published by the International Monetary 
Fund (IMF). We also converted factor values, when necessary, to U.S. 
dollars using rates published by the IMF. For the chemicals methanol 
and toluene, we have converted information on the record from liters to 
kilograms, using the conversion rates used by responding companies and 
confirmed at verification.
    We used Indonesian transportation rates to value inland freight 
between the source of the production factor and the saccharin 
factories. In those cases where the respondent failed to provide any 
information on transportation distances and modes, we applied, as BIA, 
the most expensive distance/mode combination that was available from 
the surrogate information we had selected.
    To value electricity, we used publicly-available, published 
information (``PAPI'') from the Electric Utilities Data Book for the 
Asia and Pacific Region (January 1993), published by the Asian 
Development Bank. This source provides an electricity rate for 
industrial use from our preferred surrogate country. We adjusted this 
value to the POI using the WPIs published by the IMF. To value 
distilled water, we have used the purest water price for Indonesia as 
published in Water Utilities Data Book for the Asian and Pacific Region 
(November 1993) by the Asian Development Bank. To value coal, we used 
the Indonesian Foreign Trade Statistical Bulletin for January 1993 
through November 1993.
    To value labor amounts, we used Indonesian wage rates reported in 
the International Labor Office's 1993 Yearbook of Labor Statistics. We 
adjusted these values using the CPIs published by the IMF. We lacked 
Indonesian values for factory overhead. Therefore, 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. For general expense percentages, we used the RBI data 
and allocated total general expenses over the total RBI-based 
materials, labor, and overhead cost calculated for each factory. The 
RBI data yielded a general expense percentage greater than the ten 
percent statutory minimum. For profit, we used the statutory minimum of 
eight percent of materials, labor, factory overhead, and general 
expenses, because the RBI percentage was less than eight percent.
    Acid saccharin is produced using sodium saccharin as an input. At 
verification we found that Wangxin failed to report that it had 
purchased sodium saccharin to use as an input in its production of acid 
saccharin, as well as using its own manufactured sodium saccharin. Nor 
did it report how much acid saccharin was produced using the purchased 
sodium saccharin. Because we do not know the amount of acid saccharin 
produced from purchased sodium saccharin, we cannot adjust each factor 
input to calculate separate factors of production for acid saccharin. 
To compensate for respondent's understatement of the factors of 
production for both sodium and acid saccharin, we have treated 
purchased sodium saccharin as an input to both the sodium and acid 
saccharin produced by Wangxin.

Best Information Available

    Because information has not been presented to the Department to 
prove otherwise, only Shanghai IE and Suzhou IE 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 and other 
PRC exporters during the POI, 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 Preliminary 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.

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.

Interested Party Comments

Comment 1: Surrogate Values

    Respondents argue that, pursuant to Chemical Products Corp. v. 
U.S., 645 F. Supp. 289 (CIT 1986), the Department should not use 
surrogate value information from India because the Indian surrogate 
values are hyperinflated and would lead to a skewed raw material cost. 
Respondents contend that when the Indian surrogate values are compared 
to raw material costs in the United States or the rest of the world, 
the Indian values are two to thirty times higher. These surrogate 
values are not reflective of the experience in China because, 
presumably, the costs in a developing country should be lower than the 
costs in a developed country. Moreover, respondents argue that the 
Chinese production process is more efficient than petitioner's; 
therefore, the Chinese production cost should be lower. Based on this 
analysis, a total cost of more than four times the U.S. cost, as the 
Department found in its preliminary determination could not be 
accurate.
    Furthermore, based on the Department's study of Trade Barriers in 
India, respondents contend that the Indian Government has implemented a 
distortive import policy which requires import licenses and duties as 
high as 110 percent for chemical imports. Therefore, values reported in 
Indian Import Statistics are not appropriate because they reflect 
hyperinflated chemical import costs.
    Petitioner argues that, pursuant to the Department's rules and 
regulations, and long-standing practice in dealing with NME antidumping 
investigations, the Department must use PAPI from India as the 
preferred surrogate values for the factors of production.
    Petitioner contends that respondents' comparison between surrogate 
values in India and raw material costs in the United States is 
inappropriate because: (1) Raw material costs in India are more 
comparable to raw material costs in the PRC because India is at a level 
of economic development comparable to the PRC; (2) respondents do not 
purchase raw materials from the United States; and (3) the use of one 
U.S. price would entail using other U.S. prices (e.g., labor rates) in 
order to maintain consistency.
    With respect to the Department's report on Indian foreign trade 
barriers, petitioner argues that the report does not support 
respondents' argument that the surrogate values used in the preliminary 
determination are hyperinflated because: (1) The raw materials 
discussed in the report are agricultural and consumer items; chemicals 
are not mentioned on the list; (2) regarding import licenses, there is 
no evidence that the category ``chemicals and pharmaceuticals'' 
includes saccharin inputs; (3) the requirement for a license does not 
indicate the existence of a tariff; and (4) the report date does not 
match the POI.

DOC Position

    We have determined that certain Indian import statistics should not 
be used (see, ``Surrogate Country'' section of the notice). However, we 
disagree with respondents' analysis. We find no basis on the record for 
presuming that costs are less in the PRC than in the United States 
because the PRC is a developing country or that PRC producers are more 
efficient than their U.S. competitors.
    We also disagree with petitioner's position regarding use of Indian 
PAPI. As discussed above, we have identified both India and Indonesia 
as meeting the statutory criteria for selection as a surrogate. We 
determined that the Indonesian data were the most complete. Therefore, 
we selected Indonesia over India for valuing factors.

Comment 2: BIA vs. BAI

    Respondents draw a distinction between the term ``best available 
information'' in section 773(c)(1)(B) of the Act for valuing of factors 
of production and best information available (``BIA'') within the 
meaning of section 776 of the Act. They contend that the Department has 
an obligation to thoroughly investigate and obtain the best available 
information with respect to values for raw material inputs in the 
surrogate country. Respondents argue that they should not be punished 
if they do not provide sufficient PAPI information. Rather, the burden 
rests on the Department to seek out the best available information.
    Petitioner argues that the Department did not use BIA when 
selecting surrogate values for India in the preliminary determination. 
Rather, the Department cross-checked the values used in the preliminary 
determination with values listed in Chemical Weekly, Chemical Business, 
and Indian Import Statistics and found them to be the best available 
information for use in the preliminary determination.

DOC Position

    We agree with petitioner. The Department has made significant, 
independent efforts throughout the investigation to obtain PAPI. For 
both the preliminary and final determinations, our selection of 
surrogate values was based on the best available information on the 
record as mandated by the statute. We did not use BIA as respondents 
argue.

Comment 3: Phthalic Anhydride

    Respondents state that when an input is sourced from a market 
economy, the Department should use the actual price paid to value that 
input. The Department verified that Shanghai No. 6 purchased phthalic 
anhydride from South Korea. Therefore, the Department should use this 
verified price to value this input for all three Chinese producers.
    Petitioner maintains, however, that there is no information on the 
record proving that all of Shanghai No. 6's phthalic anhydride was 
sourced from Korea. Because the total amount purchased from Korea is 
not known, it cannot be assumed that the phthalic anhydride purchased 
by Shanghai No. 6 was used by its subsidiary, Wangxin, for its 
production of saccharin. The Korean price, therefore, cannot be 
attributed to Wangxin-produced material. Petitioner finds this omission 
significant because most of the saccharin sold by Shanghai IE was 
produced by Wangxin. Furthermore, petitioner asserts that there is no 
evidence to suggest that Suzhou purchases its phthalic anhydride from 
Korea or any other market economy source.

DOC Position

    As the Department stated in the Final Determination of Sales at 
Less than Fair Value: Oscillating Fans and Ceiling Fans from the PRC, 
(56 FR 55271, 55275; October 25, 1991) (``Fans''), ``{R}equiring the 
use of surrogate values in a situation where actual market-based prices 
incurred by a particular firm are available would be contrary to the 
statutory purpose.'' (See, also Lasko Metal Products v. United States, 
810 F.Supp. 314 (CIT 1992), affirming Fans in this regard). Therefore, 
because we verified that Shanghai No. 6 Factory actually imported 
phthalic anhydride from South Korea, at this price, we have used the 
price it actually paid to value this input.
    However, there is no evidence on the record to suggest that either 
Wangxin or Suzhou Factory purchased phthalic anhydride from a market 
economy supplier. Therefore, we have no basis for applying this price 
in valuing phthalic anhydride for these two companies.

Comment 4: Solution Strengths

    Respondents maintain that the PAPI sources used in the preliminary 
determination could contain prices for chemicals in 100 percent 
concentration, rather than prices for the industrial grade chemicals 
that are used in the production of saccharin. According to respondents, 
adjustments should be made for these ``quality differences'' in 
accordance with the Conference Report for the 1988 Omnibus Trade Act 
and the 1987 Senate Finance Report. Respondents, therefore, request 
that the Department seek out the strength or concentration levels of 
the chemical prices and use surrogate values and factor amounts which 
reflect the same concentrations.
    Petitioner points out that there is no evidence that the surrogate 
values are for 100 percent concentration. In fact, several of the 
surrogate values used were described as being ``in solution.'' 
Furthermore, petitioner claims that 100 percent pure concentrates are 
not the normal industrial standard. Therefore, the Department should 
not assume that the chemicals reported in the PAPI are for 100 percent 
concentrations. Rather, the Department should assume that the prices 
reflect the standard industrial chemical grades used by the Chinese, 
eliminating the need for any adjustments.

DOC Position

    We agree with petitioner that there is no basis for assuming that 
the PAPI is for chemicals in 100 percent concentration. Although, we do 
not know what the exact concentration levels are, we find it reasonable 
to assume that the PAPI reflects standard concentrations commonly sold. 
Moreover, we verified that the PRC companies do not use special, non-
standard-grade chemicals. Therefore, the import/export statistics that 
we have used to value these chemicals have not been adjusted for 
concentration levels.

Comment 5: Selling Expenses

    Respondents argue that since the RBI data used at the preliminary 
determination listed selling expenses (i.e., advertising, selling 
commissions, and bad debt expenses) separately, the Department 
improperly included these expenses in its constructed value 
calculation. Respondents cite Fans in support of the argument that when 
selling expenses can be separately identified, they should be excluded 
from the SG&A ratio.

DOC Position

    In Fans, the Department determined that it would be unreasonable to 
add U.S. selling expenses to the FMV without making a corresponding 
downward adjustment to account for the selling expenses embodied in the 
surrogate SG&A. Likewise, it would be unreasonable to deduct the 
surrogate selling expenses from the FMV without making the appropriate 
circumstance of sale (``COS'') adjustment (i.e., adding U.S. selling 
expenses to the FMV). In this case, respondents have not identified the 
direct and indirect selling expenses incurred on their U.S. sales. 
Therefore, even if we were to agree that a COS adjustment was 
appropriate, we do not have the information with which to make such an 
adjustment.

Comment 6: Freight Rates

    Respondents argue that prices paid for inputs in the PRC already 
include freight costs. Therefore, freight should not be added. 
Petitioner states that it is irrelevant whether the Chinese input 
prices include freight. The important consideration is whether it is 
included in the surrogate prices. If it is not included, the Department 
should continue with its past practice and include freight in the cost 
of each input.

DOC Position

    We agree with petitioner that it is irrelevant whether the prices 
paid by the PRC producers include freight, as we are not using PRC 
prices. Instead, we are concerned with prices in the surrogate country. 
In this investigation, our surrogate values do not include inland 
freight. Therefore, we have included the cost of freight in the cost of 
each input.

Comment 7: Water, Distilled Water and Ice

    Respondents state that in past cases, the Department has treated 
water as a component of factory overhead; therefore, the Department 
should not calculate separate costs for water, distilled water, or ice. 
They argue that distilled water is merely used to wash the sodium 
saccharin once it is produced. Therefore, distilled water should be 
treated similarly to materials such as the soap and oil used to clean a 
machine. Suzhou Factory argues that ice is also an indirect material 
used to cool the chemical reaction to a desired temperature. According 
to the respondents, normally the consumption of indirect materials such 
as ice or distilled water in a manufacturing operation is treated as a 
component of factory overhead. They also argue that factory overhead 
has both a variable and fixed component and just because a cost varies 
with production volume does not preclude it from being a factory 
overhead item.
    Moreover, Suzhou argues that if the Department does not include 
water in factory overhead, then the water used by Suzhou should not be 
valued. The Department verified that Suzhou obtains its water from a 
nearby river and uses electricity to pump the water for use in the 
production process. Suzhou points out that in Final Determination of 
Sales at Less than Fair Value: Sebacic Acid from the PRC (59 FR 28053; 
May 31, 1994); Final Determination of Sales at Less than Fair Value: 
Sulfanilic Acid from the PRC (57 FR 29705; July 6, 1992); and Final 
Determination of Sales at Less than Fair Value: Sulfur Dyes, Including 
Sulfur Vat Dyes, from the PRC, (58 FR 7537; February 8, 1993) no cost 
was attributed to water where the water was pumped from wells in the 
plant. According to Suzhou, since the water is not paid for, except for 
the cost of the electricity to pump it out of the river, establishing 
specific cost items for water and electricity would constitute double 
counting.
    Petitioner argues that distilled water is not a utility. Since this 
``special'' water, which is purchased in significant amounts by 
Shanghai No. 6 Factory, is used to wash the saccharin before it is 
packaged and sold, it must be regarded as a raw material input. 
According to petitioner, this water is used ``to improve the quality of 
the mixture'' and, therefore, is used directly in production. 
Consequently, petitioner argues that distilled water should not be 
included in factory overhead.
    Furthermore, petitioner states that ice is used to cool the 
reactors--an activity which is directly related to the production of 
saccharin. Moreover, the ice is intentionally purchased by respondents, 
and is a necessary material because of the manner in which respondents 
produce saccharin. Petitioner argues that the Department's policy is 
clear--if the material is used in production, then it should be 
included in the direct materials calculation.

DOC Position

    We agree with respondents that water and ice should be included in 
factory overhead. Because it is a normal practice to include such cost 
in factory overhead, we find it reasonable to presume that water and 
ice are included in the Indian overhead value we used. Therefore, if we 
were to assign separate values to water and ice, we would be double-
counting the cost.
    However, with respect to the distilled water used by Shanghai No. 6 
Factory, we are not persuaded that the input would normally be included 
in factory overhead. Unlike other forms of water used in production 
facilities, distilled water is specially processed, packaged, and 
shipped to customers. Further, it is required for a particular segment 
of the production process for which the standard water will not 
suffice. This is more typical of items that are accounted for as direct 
material inputs, rather than as overhead items. Therefore, we have 
valued it separately.

Comment 8: Treatment of Indirect Materials and Trace Chemicals

    Respondents argue that various trace chemicals, used when a 
particular batch does not meet acceptable standards, and other 
chemicals, used to cool the reactors during the production process, 
should be treated as components of factory overhead as they would be in 
market economy cases. For instance, Shanghai No. 6 Factory claims that 
the trace chemicals used in the production of saccharin are not raw 
material inputs. According to this company, these items were not used 
on a monthly basis, nor were these items substituted for other 
chemicals. The company explained that they were used in small amounts 
only when something in the batch fell below accepted levels. 
Furthermore, Wangxin argues that the chemicals discovered at 
verification should not be considered unreported raw material inputs; 
rather, they should be treated as auxiliary materials as indicated on 
its books. The company argues that the items are used to cool the 
production process and should be treated as components of factory 
overhead.
    Respondents claim that these are examples of indirect materials, 
which should be a part of the factory overhead cost. They claim that, 
as the Department verified at Suzhou Factory, the Chinese treat 
auxiliary materials, depreciation expenses and repair and maintenance 
expenses as factory overhead items. Moreover, respondents cite to an 
accounting textbook which states that indirect manufacturing costs, 
commonly called factory overhead, include minor items, which are 
expensed as supplies or indirect materials. In nonmarket economy cases, 
the surrogate country supplies the factory overhead ratio, which would 
include all such indirect materials. To value these items separately 
and include them in the cost would result in double-counting.
    Petitioner responds that the Department should not treat so-called 
``indirect or auxiliary materials'' as factory overhead. Petitioner 
also argues that the frequency of the use of the unreported chemicals 
and the issue of whether or not they were substitutes are irrelevant. 
The fact remains that the Shanghai No. 6 used these raw materials in 
the production of saccharin. According to petitioner, it is not the 
Department's concern if a PRC company produces a poor quality product. 
Petitioner also suggests that it is irrelevant how the respondents 
treat these expenses. Petitioner argues that the Department's policy is 
clear--if the material is used in production, then it should be 
included in the direct materials calculation.

DOC Position

    We disagree with petitioner's characterization of the Department's 
practice, i.e., if a material is used in the production process, it 
should be included in the direct materials calculation. As stated 
above, with respect to water and ice, it is standard practice to 
classify certain inputs as variable overhead. The types of inputs in 
question here, trace chemicals and chemicals used to cool the reactors, 
are infrequently used in the production process and typically are small 
in value relative to the total cost of manufacturing the product and, 
hence, would be included in overhead. Therefore, we have assumed these 
inputs would be included in the Indian overhead value we have used in 
our calculations, and have not valued them separately.

Comment 9: Labor Cost

    Suzhou Factory argues that it inadvertently included in its 
production workers eight administrative people (statisticians). 
According to Suzhou, the selling, general and administrative ratio 
obtained from the surrogate country will include all administrative 
workers. Therefore, the Department should not include the eight 
statisticians in the calculation of labor cost.

DOC Position

    We disagree with respondent. We confirmed at verification that 
these eight statisticians played a significant role in production by 
directly monitoring the inputs into the production of saccharin. 
Therefore, we do not agree that they would be classified as 
administrative workers and included as part of the Indian SG&A value. 
Consequently, the labor hours associated with these workers have been 
included as part of the labor factor for producing saccharin.

Comment 10: Warehousing

    Petitioner notes that at verification the Department discovered 
that saccharin can remain at Shanghai IE's warehouse for up to two 
weeks before it is shipped to the United States. Since Shanghai IE 
provided no transaction-specific data showing specifically how many 
days the product remained in the warehouse prior to shipment, the 
Department must assume that shipments are warehoused for two weeks. 
Using this information, the Department should calculate the cost of 
warehousing and subtract this amount from each U.S. sale reported 
during the POI.
    Shanghai IE argues that it stated at verification that saccharin 
typically remains in its warehouse for 1-2 days (in rare instances, the 
product may remain at the warehouse for up to two weeks). According to 
Shanghai IE, since the saccharin stays in its warehouse usually only 
for one to two days, any warehouse charges should be minimal.

DOC Position

    We disagree with both petitioner and respondent. The Department 
considers warehousing costs to be selling expenses. As noted in the 
response to Comment 5 above, we cannot make circumstance of sale 
adjustments for selling expenses when, as in the present case, all such 
expenses cannot be separately identified in both the FMV and U.S. 
price.

Comment 11: Marine Insurance and Ocean Freight

    Petitioner notes that respondents claimed at verification that 
marine insurance and ocean freight charges were incurred in U.S. 
dollars and that the unit amounts reported in the sales responses were 
calculated based on amounts recorded in relevant exhibit documents. 
However, since respondents did not provide explanations regarding the 
derivation of their respective charges at verification, the Department 
should not use these charges for the final determination. Petitioner 
also states that, notwithstanding the fact that these charges were 
incurred in U.S. dollars, the charges were incurred with PRC companies. 
Consequently, petitioner suggests that the Department should use the 
same methodology it used for the preliminary determination--
international freight rates from Sealand Service Inc.
    Shanghai IE argues that it paid U.S. dollars to a Chinese agent of 
Sealand Service Inc. Consequently, the Department should use the actual 
freight costs in its calculations. Alternatively, Shanghai IE suggests 
that the Department should use the international freight rates from 
Sealand.

DOC Position

    When the factor is being purchased from a domestic supplier in an 
NME, we are directed by statute to use a surrogate value. It is our 
standard practice to use international rates for ocean freight when 
available. Accordingly, we have used the international rates from 
Sealand for ocean freight and Indian values for marine insurance (see, 
e.g., Preliminary Determination of Sales at Less Than Fair Value: 
Coumarin from the PRC; 59 FR 39727, August 4, 1994). We agree with 
petitioner that the currency in which the two charges were incurred is 
irrelevant.

Comment 12: Wangxin's Payments to Shanghai No. 6

    Petitioner cites the verification reports as demonstrating that 
Shanghai No. 6 Factory ``directly controls'' Wangxin's product quality 
and, therefore, ``their entire production process.'' Petitioner also 
points out that pursuant to this agreement, Shanghai No. 6 provides 
certain services to Wangxin, and in return, Wangxin pays Shanghai No. 6 
for these services. The petitioner submits that since this information 
was not previously reported to the Department, the Department should 
adjust Wangxin's reported total cost of production to take into account 
the amount of these payments made to Shanghai No. 6.
    Respondents argue that in nonmarket economy investigations the 
Department uses factors of production and surrogate values to determine 
foreign market value. The Department does not use the actual costs from 
the production process. According to respondents, if the Department is 
going to increase Wangxin's costs by market prices for payments to 
Shanghai No. 6, the Department should also use market prices for all 
the other raw material inputs in this case.

DOC Position

    Royalty payments and quality control testing costs are explicitly 
included in the RBI-based factory overhead value. Therefore, there 
would be no need to calculate a separate amount for these payments.

Comment 13: Market-Oriented Industry Claim

    Respondents argue that although they believe that the Chinese 
saccharin industry is a MOI, they did not argue that the Department 
should treat the Chinese saccharin industry as a MOI in their case 
brief because they believe that the Department has no real intention of 
applying such a standard to this case or to any other case in the 
future. Respondents claim that the Department only pursued a cursory 
discussion with several suppliers at verification, but did not, as 
respondents suggested, send any of the verifiers to Beijing for 
meetings with the Ministry of Foreign Trade and Economic Cooperation 
(MOFTEC) or the Ministry of Chemical Industries to determine whether 
the chemical inputs are subject to the state plan, as it has done in 
the past.
    Respondents also claim that the Department completely gutted its 
MOI test in Silicon Carbide from the PRC when it determined that since 
the Chinese government regulates the price and allocation of coal, an 
energy resource, the silicon carbide industry cannot be an MOI. 
Respondents point out that the U.S. government regulates the price of 
numerous energy resources, including coal, electricity, natural gas and 
oil. Respondents state that the key question facing the Department is 
whether the PRC government involvement in the economy so distorts the 
market situation that the input prices for saccharin are not reflective 
of the true costs of production.
    Petitioner argues that (1) suppliers interviewed by Department 
officials at verification do not represent all chemical suppliers, (2) 
the chemicals supplied by those interviewed are not the main raw 
material inputs used in the production of saccharin, (3) the suppliers 
did not provide any written documentation to support their statements, 
and (4) none of Wangxin's suppliers were present at verification. 
Petitioner also notes that respondents have not met the MOI criteria 
delineated by the Department in Preliminary Determination of Sales at 
Less Than Fair Value: Oscillating Fans and Ceiling Fans from the 
People's Republic of China (56 FR 25664; June 5, 1991) and Final 
Determination of Sales at Less Than Fair Value: Chrome-Plated Lug Nuts 
from the People's Republic of China (56 FR 46153; September 10, 1991).

DOC Position

    Respondents have argued that they should be treated as a market-
oriented industry (``MOI''). The burden to demonstrate that an MOI 
exists rests with respondents and, as petitioner points out, 
respondents made no meaningful effort to meet the burden. We received 
MOI response information from only two of at least six saccharin 
producers in the PRC. Consequently, we have no basis to determine 
whether the production and sales practices of these producers are 
representative of PRC saccharin producers as a whole. With respect to 
the fact that the Department did not send members of the verification 
team to Beijing, we note that this point is irrelevant given that 
respondents did not provide information with respect to the entire 
saccharin industry.

Continuation of Suspension of Liquidation

    In accordance with sections 733(d)(1) and 735(c)(4)(A and B) of the 
Act, we are directing the Customs Service to continue to suspend 
liquidation of all entries of saccharin from the PRC that are entered, 
or withdrawn from warehouse, for consumption on or after June 23, 1994, 
which is the date of publication of our notice of preliminary 
determination 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 Margin                        
------------------------------------------------------------------------
               Manufacturer/producer/exporter                 Percentage
------------------------------------------------------------------------
Shanghai IE................................................       160.68
Suzhou IE..................................................       276.62
All Others.................................................       391.42
------------------------------------------------------------------------

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: November 7, 1994.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 94-28162 Filed 11-14-94; 8:45 am]
BILLING CODE 3510-DS-P