[Federal Register Volume 61, Number 43 (Monday, March 4, 1996)]
[Notices]
[Pages 8239-8253]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-4979]
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DEPARTMENT OF COMMERCE
[A-122-047]
Elemental Sulphur From Canada; Final Results of Antidumping
Finding Administrative Review
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Notice of Final Results of Antidumping Finding Administrative
Review.
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SUMMARY: On July 24, 1995, the Department of Commerce (the Department)
published the preliminary results of its 1991-92 administrative review
of the antidumping finding on elemental sulphur from Canada (60 FR
7872). The review covers 15 manufacturers/exporters of the subject
merchandise to the United States and the period December 1, 1991
through November 30, 1992 (the POR). We gave interested parties an
opportunity to comment on our preliminary results. Based on our
analysis of the comments received, we have made changes, including
corrections of certain clerical errors, in the margin calculation for
Husky Oil Ltd. (Husky). These changes have resulted in a change in the
best information available (BIA) rates assigned to Mobil Oil Canada,
Ltd. and Petrosul International (Petrosul) for this review. Therefore,
the final results differ from the preliminary results. The final
weighted-average dumping margins for each of the reviewed firms are
listed below in the section entitled ``Final Results of Review.''
EFFECTIVE DATE: March 4, 1996.
FOR FURTHER INFORMATION CONTACT: Thomas O. Barlow or Michael Rill,
Office of Antidumping Compliance, Import Administration, International
Trade Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, Washington, D.C. 20230; telephone: (202) 482-0410
or -4733, respectively.
SUPPLEMENTARY INFORMATION:
Background
On July 24, 1995, the Department published in the Federal Register
the preliminary results of review (60 FR 6872) of the period December
1, 1991 through November 30, 1992. Pennzoil, a domestic producer, and
two exporters, Husky and Mobil, requested a public hearing which was
held on September 27, 1995. The Department has now conducted this
review in accordance with section 751 of the Tariff Act of 1930, as
amended (the Tariff Act).
Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute and to the
Department's regulations are references to the provisions as they
existed on December 31, 1994.
Scope of the Review
The period of review (POR) is December 1, 1991 through November 30,
1992. Imports covered by this review are shipments of elemental sulphur
from Canada. This merchandise is classifiable under Harmonized Tariff
Schedule (HTS) subheadings 2503.10.00, 2503.90.00, and 2802.00.00.
The HTS subheading is provided for convenience and for U.S. Customs
purposes. The written description of the scope of this order remains
dispositive as to product coverage.
Verification
As provided in section 776(b) of the Tariff Act, we conducted sales
and cost verifications of Husky and Mobil and verified information
provided by these respondents by using standard verification
procedures, including on-site inspection of the producer's facilities,
the examination of relevant
[[Page 8240]]
sales and financial records, and selection of original documentation
containing relevant information. Our verification results are outlined
in the public versions of the verification reports.
Analysis of Comments Received
We gave interested parties an opportunity to comment on the
preliminary results. We received case briefs and rebuttal briefs from
Pennzoil, Husky, Mobil, and Petrosul.
Comment 1
Pennzoil agrees with the Department's decision to base Husky's
foreign market value (FMV) on constructed value (CV). Pennzoil
maintains, however, that the Department understated Husky's CV by
failing to include in the calculations the direct operating and general
facilities expenses relating to the sulphur block storage area.
Additionally, Pennzoil argues that the Department failed to include in
the sulphur cost of manufacture (COM) a portion of the property, plant
and equipment (PP&E) writedown attributable to the sections of its
processing plants after the split-off point for sulphur production.
Husky argues that it was proper to exclude the direct operating and
general facilities expenses it incurred for the sulphur block storage
lease. Husky maintains that these expenses relate to natural gas
processing and, therefore are not a sulphur handling cost.
Department's Position
We agree with Pennzoil that inclusion of the direct operating and
general facility costs related to sulphur block storage in CV is
appropriate. As explained in the decision memorandum, Memorandum To
Susan G. Esserman From Joseph A. Spetrini: Team Recommendation Related
to the Cost Accounting Treatment of Elemental Sulphur from Canada, June
29, 1995, all costs incurred after the liquid sulphur exits the sulphur
recovery unit relate to the production of sulphur. At this point in the
production process, Husky has the choice of either selling the liquid
sulphur, forming it for overseas sale, or pouring it to block for long-
term storage. All of these choices relate to selling sulphur, either
currently or in the future. Accordingly, we consider it appropriate to
include, as part of the cost of producing sulphur, all costs incurred
in the sulphur block storage lease.
We disagree with Pennzoil, however, that a portion of Husky's
writedown of PP&E should be included in the COM for sulphur. These
writedowns relate to certain properties in which the carrying value on
Husky's books exceeds the estimated future cash value of mineral
reserves. Since such costs are associated entirely with exploration and
development of mineral reserves, we consider this type of writedown to
be a cost incurred prior to the sulphur production split-off point. As
such, we consider these costs to be part of Husky's natural gas
operations. We have, therefore, excluded Husky's PP&E writedown from
our calculated sulphur costs (see related byproduct/coproduct issue at
Comments 2 and 3).
Comment 2
Pennzoil claims that the Department erred in finding that sulphur
produced by Husky is not a coproduct. Pennzoil contends that, in
accordance with Generally Accepted Cost Accounting Principles (GACAP),
a joint product is deemed to be a coproduct if the value of its
production during a certain period of time is significant in relation
to the other products generated from the same production process during
the same time period (relative value analysis). Pennzoil maintains
that, in accordance with GACAP and the Treasury Department's position
in Elemental Sulphur from Canada: Antidumping; Tentative Determination
to Modify or Revoke Dumping Finding, 44 FR 8057, 8058 (February 8,
1979), the standard for significant value is whether the value of
production for the joint product exceeds ten percent of the total joint
product revenues. Pennzoil argues that the value of Husky's sulphur
production during the POR exceeds the threshold for classifying it as a
coproduct.
Pennzoil also argues that the Department erred in its preliminary
results by determining relative value on a company-wide basis rather
than on a plant-specific basis. According to Pennzoil, the value of
sulphur production at each of Husky's sour gas processing plants is
clearly significant in relation to the value of all other products
generated from the same process during the POR. Pennzoil claims that it
is Departmental practice to follow GACAP, and that GACAP requires that
the relative value analysis be applied only to products that are in
fact jointly produced in the same manufacturing process. Pennzoil avers
that it is illogical to combine revenues from both sour and sweet gas
processing facilities in determining relative value since sweet gas
operations have different production processes, a different cost
structure, and do not produce sulphur. Furthermore, Pennzoil notes that
investments in sour gas facilities are made with the expectation of
sulphur revenues, whereas such is not the case with sweet facilities.
Accordingly, Pennzoil concludes, sweet gas revenues should not play a
role in determining the cost of production (COP) for sulphur. However,
even if the Department determines that relative value must be
determined on a company-wide basis, Pennzoil maintains that the value
of sulphur production during the POR still exceeds the threshold for
classifying Husky's sulphur as a coproduct.
In addition to relative sales value considerations, Pennzoil notes
several qualitative factors which it claims further support its
position that sulphur is a coproduct of natural gas production. First,
Pennzoil notes that Husky's normal accounting system does not
separately identify the costs of producing individual products. Second,
Pennzoil notes that very significant additional processing of hydrogen
sulfide (H2S) occurs after the split-off point. Third, Pennzoil
contends that Husky intentionally produces sulphur, as illustrated by
its investment in a highly sour gas field and its purchase of liquid
sulphur for the manufacture of formed sulphur. According to Pennzoil,
all of these factors lead to the conclusion that sulphur must be
treated as a coproduct of natural gas production, and that a portion of
Husky's joint production costs must therefore be allocated to sulphur
based on the volume of H2S in the raw gas stream.
Husky argues that the record is replete with evidence to support
the Department's preliminary results to treat sulphur as a byproduct of
natural gas production. Husky maintains that it normally accounts for
sulphur as a byproduct and, thus, assigns no inventory value to sulphur
production in the ordinary course of its business. Husky notes that
this practice is in accordance with its home country Generally Accepted
Accounting Principles (GAAP). Husky also argues that GACAP is not a
recognized set of authoritative accounting principles. Husky states
that the production of sulphur is an unavoidable consequence of natural
gas production from sour gas wells and, thus, will occur regardless of
any action the company takes. Husky maintains that the only reason it
produces sulphur is to fulfill its obligation under Canadian
environmental laws to remove H2S from the unrefined natural gas
stream and convert it into elemental sulphur.
Moreover, Husky claims that Pennzoil's assertion that Husky
invested in certain sour gas fields with the intention of producing
sulphur is misplaced. Husky claims that while it
[[Page 8241]]
may have hoped to earn supplemental sulphur income from its investment
in sour gas fields, sulphur amounts to little more than a liability to
Husky.
Husky argues that its revenue from sulphur production during the
POR is insignificant compared to that of the other products produced
during the same time period. Husky maintains that, in analyzing
relative value, the Department has never held to a bright-line test. In
fact, Husky notes that there have been numerous recent antidumping
decisions involving byproduct/coproduct issues, and in none of these
instances did the Department impose a ten-percent bright-line standard
as part of its relative value analysis. Husky claims that Pennzoil's
reference to the 1979 tentative Treasury Department decision in support
of a ten-percent threshold has never been accepted by the Department
and is, therefore, unpersuasive. Husky also notes that Pennzoil's
proposed adjustments to relative value analysis performed in the
preliminary results are without merit.
Additionally, Husky contends that the relative value analysis must
be performed on a company-wide basis for two reasons. First, Husky
asserts, not all sulphur processed at a certain facility is associated
with sour gas from that same facility. However, Husky argues, when
sulphur is sold from the processing facility, the revenues are recorded
on the books of the processing facility rather than on the books of the
refining facility. Second, Husky claims that it makes all decisions
regarding its treatment of sulphur on a company-wide basis. Husky notes
that, although each facility maintains lease statistics regarding
production and sales quantities for all products and for all producers,
corporate sales personnel rather than the individual facility operators
make sulphur sales decisions.
Department's Position
In calculating the costs of producing subject merchandise, the
Department's practice is to adhere to an individual firm's recording of
costs in accordance with GAAP of its home country if the Department is
satisfied that such principles reasonably reflect the costs of
producing the subject merchandise. See, e.g., Final Determination of
Sales at Less Than Fair Value: Canned Pineapple From Thailand, 60 FR
29553, 29559-62 (June 5, 1995); Final Determination of Sales at Less
Than Fair Value: Furfuryl Alcohol from South Africa, 60 FR 22556 (May
8, 1995) (``The Department normally relies on the respondent's books
and records prepared in accordance with the home country GAAP unless
these accounting principles do not reasonably reflect the COP of the
merchandise''). The Department's practice has been sustained by the
CIT. See, e.g., Laclede Steel Co. v. United States, Slip Op. 94-160 at
21-25 (CIT October 12, 1994) (CIT upheld the Department's decision to
reject the respondent's reported depreciation expenses in favor of
verified information obtained directly from the company's financial
statements that was consistent with Korean GAAP).
Normal accounting practices provide an objective standard by which
to measure costs, while allowing a respondent a predictable basis on
which to compute those costs. However, in those instances where it is
determined that a company's normal accounting practices result in an
unreasonable allocation of production costs, the Department will make
certain adjustments or may use alternative methodologies that more
accurately capture the costs incurred. See, e.g., Final Determination
of Sales at Less Than Fair Value: New Minivans from Japan, 57 FR 21937,
21952 (May 26, 1992) (Department adjusted a company's U.S. further
manufacturing costs because the company's normal accounting methodology
did not result in an accurate measure of production costs); Pineapple,
60 FR at 29560 (Department adjusted a company's allocation of fruit
costs because the company's normal accounting methodology resulted in
an unreasonable allocation of such costs between canned pineapple fruit
and juice products).
In the instant proceeding, therefore, the Department examined
whether Husky's accounting treatment of sulphur was reasonable. In
examining Husky's books and records at verification we found that Husky
had treated sulphur as a byproduct for at least a number of years.
Furthermore, we found no evidence that Husky had not relied
historically upon its byproduct treatment of sulphur to compute its
production costs. In addition, evidence on the record, i.e., audited
financial statements, indicates that Husky's byproduct methodology was
accepted by its independent auditors. Given the auditors' acceptance of
the respondent's financial statements and any lack of evidence to the
contrary, we conclude that Husky's normal accounting treatment of
sulphur is consistent with Canadian GAAP.
Notwithstanding the Department's conclusion that Husky's treatment
of sulphur as a byproduct is in accordance with Canadian GAAP, the
Department's byproduct/coproduct analysis includes a number of
additional factors. (As discussed in comment 3 below, the Department
accepted Husky's assignment of no sulphur processing plant costs to
sulphur production. However, the Department did not accept Husky's
normal accounting treatment of sulphur handling facility costs because
such treatment did not reasonably reflect the costs associated with
production of sulphur.)
The Department's practice, in accordance with GAAP, is to recognize
a particular joint product as either a coproduct or byproduct based, in
part, on the significance of that product relative to the other joint
product[s] and to the producing company as a whole. See e.g.,
Preliminary Determination of Sales at Less Than Fair Value: Sebacic
Acid From the People's Republic of China, 59 FR 565, 568-69 (January 5,
1994); Cost Accounting: A Managerial Emphasis, Charles Horngren, George
Foster, Seventh Edition, Prentice Hall, Englewood Cliffs, N.J., 1991 at
539-44 (Horngren). In this case, we have determined that sulphur is a
relatively insignificant byproduct of Husky's natural gas operations.
As a result of our relative value analysis and our analysis of other
relevant factors, discussed below, we have accepted Husky's treatment
of sulphur as a byproduct and have assigned to the subject merchandise
only those costs that Husky incurred on the product after it left the
sulphur recovery unit. (See our response to related Comment 3 below
regarding sulphur production costs.)
In past cases involving coproducts and byproducts, the Department
has looked to several factors in order to measure the significance of
particular joint products (see, e.g., Final Determination of Sales at
Less Than Fair Value: Furfuryl Alcohol from South Africa, 60 FR 22550
(May 8, 1995) (Furfuryl Alcohol) and Concurrence Memorandum: Final
Determination: Antidumping Duty Investigation of Furfuryl Alcohol from
South Africa, May 1, 1995 (Furfuryl Memo) (See Memo To File From Case
Analyst, December 13, 1995 (making Furfuryl Memo part of record of this
proceeding); Final Determination of Sales at Less Than Fair Value:
Sebacic Acid From the People's Republic of China, 59 FR 28056 (May 31,
1994) (Sebacic Acid)). Among these factors were the following: 1) the
relative sales value of the product compared to that of all other joint
products produced during the same time period, 2) whether the product
is an unavoidable consequence of producing another product, 3) whether
management intentionally controls production of the product, 4) whether
[[Page 8242]]
the product requires significant further processing after the split-off
point, and 5) how the company has historically accounted for the
product. No single factor is dispositive in our determination. Rather,
we must consider each factor in light of all of the facts and
circumstances surrounding the case. In this case, we considered each of
the preceding factors in reaching our decision to treat sulphur as a
byproduct of the natural gas production process.
For the first factor, relative sales value, we compared the sales
value of sulphur produced during the POR to that of all other joint
products respondent produced during the same time period. From this
analysis, we determined that the value of sulphur Husky produced
represented a relatively insignificant portion of the total revenues
generated by Husky's joint production process for refining natural gas.
In making this determination, we analyzed joint product revenues on
a company-wide basis for the natural gas production process rather than
on a plant-by-plant basis as Pennzoil requested. Pennzoil argued that,
since natural gas from sour gas fields must undergo additional
processing to remove the sulphur content, the cost structure of sour
gas production facilities differs from that of the sweet gas facilities
and, thus, should be subjected to a separate relative sales value
analysis. While it may be possible, and even reasonable in certain
circumstances, to perform a joint product analysis on a plant-by-plant
basis, it certainly is not mandated by law, by general accounting
practices, or by any other authority. In a case involving joint
products, the Department considers the significance of individual joint
products resulting from a common production process. (See Sebacic
Acid). In this case, Husky's common production process is the
production of natural gas, a process which yields sulphur. This reality
is not changed by the fact that certain of Husky's gas fields (i.e.,
sweet fields) did not yield levels of H2S necessitating the
conversion of H2S to sulphur; overall, due to the nature of
Husky's natural gas operations, sulphur is an inevitable consequence of
that natural gas production process. Husky's primary business objective
is the exploration, refinement, and sale of natural gas (and oil).
Relative to Husky's natural gas production and revenue, sulphur
production and revenue resulting from that natural gas production was
not significant during the period under review. Given these
considerations, we believe that Husky's sulphur production should be
evaluated within the context of its overall natural gas operations.
Furthermore, Husky makes decisions regarding the treatment of
sulphur, particularly the accounting treatment of sulphur, on a
company-wide basis. In addition, sulphur sales decisions are made by
corporate sales personnel and not by the individual facility operators.
Given the relationship of sulphur to natural gas production by Husky,
Husky's corporate-wide decision-making practices, and the fact that
such practices are consistent with Canadian and U.S. GAAP, we believe
that it is appropriate to perform our relative sales value analysis on
a company-wide basis for the natural gas process.
Lastly with regard to relative sales value, we disagree with
Pennzoil's contention that the Department has established a ten-percent
threshold in determining the significance of revenues generated by
joint products. Pennzoil's reference to the Treasury Department's 1979
tentative determination as the standard in this case does not reflect
recent Department decisions involving coproduct/byproduct
determinations. As explained above, the Department considers the
relative revenues generated by joint products in conjunction with other
important factors in order to determine the significance of the joint
product in question. See, e.g., Furfuryl Alcohol and Furfuryl Memo,
where the Department based its determination of the coproduct/byproduct
issue on the same five factors noted above. Because the relative value
analysis must be viewed within the context of other factors, as well as
within the specific circumstances of the case, it would be
inappropriate for the Department to establish Pennzoil's suggested
``bright-line'' threshold under which the entire coproduct/byproduct
analysis would rest solely on whether revenues from the joint product
exceeded ten percent of total revenues for all joint products.
Pennzoil's minor proposed adjustments to our relative value
calculations, therefore, would not effect our analysis of the relative
sales value factor, nor our overall analysis.
Concerning the second factor, whether sulphur is an unavoidable
consequence of producing natural gas, we believe that Husky's natural
gas production determines the amount of sulphur that the company
produces. In order to produce natural gas, Husky must remove poisonous
H2S from the unrefined gas stream and convert it to elemental
sulphur in accordance with strict environmental laws. Because Husky has
no control over the amount of H2S in the gas stream and,
therefore, the production of sulphur, Husky further processed and sold
only part of the sulphur resulting from the treatment of H2S
during the POR. Without limiting the production of refined natural gas,
Husky did not have the option of limiting sulphur production, and,
therefore, poured the remaining portion of sulphur production to block
as a means of long-term storage. It is clear that when producing
natural gas, Husky has no choice but to produce elemental sulphur from
H2S, if for no other reason than it must do so to meet
environmental standards. Sulphur, therefore, is an unavoidable
consequence of natural gas production.
In the case of the third factor, whether management intentionally
controls production of the product, while we cannot overlook the fact
that Husky derives a portion of its revenues from sulphur, we do not
find this to be evidence that the company's management intends to
produce sulphur. Rather, as noted above, sulphur production is a
requirement, resulting from Husky's decision to produce natural gas.
The fact remains that, at significantly high levels, sulphur becomes an
impediment to cost-effective natural gas production. In these
instances, the high sulphur content in natural gas may force producers
to abandon their plans to produce either product.
We disagree with Pennzoil's comment that Husky's investment in
highly sour gas fields and its purchase of liquid sulphur during the
POR indicate an intent on the part of the company's management to
produce sulphur. Pennzoil's point concerning Husky's gas field
investment is purely speculative. As to Husky's purchase of liquid
sulphur from another supplier, the reason Husky purchases liquid
sulphur is explained at page 9 of its proprietary January 9, 1994 cost
submission to the Department, and this explanation does not support
Pennzoil's position.
For the fourth factor, whether the product requires significant
further processing after the split-off point, we found that the
H2S resulting from natural gas refining did undergo significant
additional processing after the split-off point in order to transform
it into marketable sulphur. As further explained in our response to
Comment 3 below, however, we consider much of the additional processing
to be associated with natural gas production in that it relates to the
removal and treatment of the poisonous H2S gas which, due to
environmental laws, Husky must break down into its primary elements of
sulphur and water. As a result, any further processing generally
[[Page 8243]]
is necessitated by factors not within the company's control.
Finally, with regard to the last factor, how the company has
historically accounted for the product, the Department verified that
Husky did not assign any of its production costs to sulphur during the
POR. Instead, as discussed above, under its normal accounting system,
Husky charged all sulphur processing and handling costs to its natural
gas operations. Husky's accounting treatment of assigning no costs to
sulphur was in accordance with Canadian GAAP and sanctioned by its
auditors as demonstrated by the fact that the company's 1991 and 1992
financial statements did not report inventory balances for the sulphur
that Husky produced in those years. Notably, for accounting purposes,
U.S. producers of natural gas also consider sulphur to be a byproduct.
Contrary to Pennzoil's assertions, we are unaware of the existence
of GACAP as a unified body of cost accounting principles that mandates
our treating sulphur as a coproduct in this case. We believe that the
method Husky used to account for its sulphur production was consistent
both with the company's home market GAAP and with its view of sulphur
as a byproduct of its natural gas operations. Based on our analysis of
the above factors as they relate to the facts in this case, we have
determined that the sulphur Husky produced during the POR was a
byproduct of its natural gas production operations.
Comment 3
Pennzoil argues that, even if the Department decides to treat
sulphur as a natural gas byproduct, it violated the antidumping statute
in its preliminary results of review by accounting only for the
processing costs Husky incurred subsequent to the sulphur recovery
unit. Pennzoil states that section 773(e) of the Tariff Act expressly
requires that the cost of fabrication or other processing of any kind
be included in CV. Pennzoil maintains that sulphur recovery costs are,
in fact, processing costs related to sulphur production that must be
included in the Department's CV calculation in accordance with the
statute. Pennzoil further argues that, by excluding sulphur recovery
costs from its CV calculation, the Department also violated
congressional intent as manifested in the sales-below-cost provision of
the statute. Pennzoil claims that one of the reasons that Congress
enacted the sales-below-cost provision was to afford protection to the
U.S. sulphur industry.
According to Pennzoil, the Department's accounting treatment of
sulphur production costs is in opposition to what it calls ``GACAP''.
Pennzoil maintains that GACAP represents a common and accepted body of
cost accounting principles that, among other things, provides guidance
concerning the appropriate method for assigning costs to byproducts.
According to Pennzoil, in accounting for joint products under GACAP,
costs incurred after the production split-off point are separately
identifiable and must therefore be charged directly to the specific
products produced. In keeping with this principle, Pennzoil contends
that, having correctly determined the split-off point in the natural
gas production process as occurring prior to the sulphur recovery unit,
the Department was compelled under GACAP to account for all of Husky's
sulphur recovery costs as part of the cost of processing sulphur.
Pennzoil argues that, if the Department continues to treat sulphur as a
byproduct, it cannot assign to natural gas production all of the costs
associated with Husky's sulphur recovery unit.
Pennzoil notes that, in calculating production costs, the
Department relies on respondent's normal cost accounting methodologies
so long as those methodologies are in accordance with the company's
home market GAAP and reasonably reflect the costs associated with
producing the subject merchandise. Pennzoil claims, however, that it
cannot find from the record where Husky assigns production costs to
either natural gas or sulphur under its normal accounting system. Thus,
according to Pennzoil, the Department's assignment of all processing
costs (including sulphur recovery unit costs) to natural gas production
while charging none to sulphur contravenes Husky's normal accounting
practices. Moreover, Pennzoil notes that, even if Husky's accounting
method assigns zero production costs to sulphur production, this
treatment is distortive because it fails to assign to sulphur the
actual costs of producing the sulphur. Thus, Pennzoil contends, the
Department should not follow Husky's cost accounting method because it
would not reasonably reflect the costs of producing the subject
merchandise.
Pennzoil also maintains that Department precedent requires that
byproducts absorb all separately identifiable costs incurred after the
split-off point in production. In support of this argument, Pennzoil
cites Silicomanganese from Venezuela: Notice of Final Determination of
Sales at Less Than Fair Value, 59 FR 55436 (November 7, 1994), where
the Department assigned to merchandise it deemed a byproduct all of the
separable further processing costs incurred by the respondent. Pennzoil
maintains that the facts in this case are similar to those in the
Silicomanganese from Venezuela and, thus, there is no reason for the
Department to exclude sulphur recovery costs from its sulphur cost
calculations if it chooses to treat the subject merchandise as a
byproduct.
Pennzoil states that the U.S. Department of Interior (DOI) has
prescribed rules for assigning costs to sulphur which mandate that
sulphur production be assigned all costs incurred after separation from
natural gas. Pennzoil notes that the DOI rules relate to the
calculation of royalty payments affecting the joint production of
natural gas and sulphur on federal land, and argues that it would be
erroneous and contrary to law for the Department to depart from these
rules by treating sulphur recovery costs as part of natural gas
production costs.
Husky maintains that, contrary to Pennzoil's assertion, Section
773(c) of the Tariff Act does not mandate specific cost allocation
methodologies and that the Department's preliminary CV calculations
were fully in accordance with its statutory mandate. Husky contends
that the Department properly defined the split-off point for purposes
of the preliminary results of review, but that H2S is not a
separately identifiable product until after it has been converted into
elemental sulphur. According to Husky, the process of converting
H2S into sulphur, a function of the sulphur recovery unit, is a
gas cost and is identifiable solely with the process of preparing gas
for market. Therefore, Husky contends that the Department should
continue to treat all costs up to and including the sulphur recovery
unit as related to gas production operations.
Department's Position
We disagree with Pennzoil that the costs Husky incurred in its
sulphur recovery unit should be allocated to sulphur production.
Rather, we have determined that these costs are associated with Husky's
gas production operations. Whether or not Congress enacted the sales-
below-cost provision to afford protection to the U.S. sulphur industry,
as Pennzoil claims, the statute nowhere specifies how specific
processing costs should be allocated among products.
Normally, we consider the split-off point in a joint production
process to be where the products become physically separable. We
normally assign these post-split-off costs to each separately
identifiable product because this is the point where a company has a
choice of
[[Page 8244]]
whether to further process each separable product or to dispose of it.
This case is unique, however, in that even though the physical split-
off point is prior to the sulphur recovery unit, Husky does not have
the option of disposing of all H2S. As explained below, in order
to refine natural gas, Husky must incur costs in the sulphur recovery
unit.
As part of the natural gas production process, H2S is
separated from the unrefined gas stream in the gas processing plant.
H2S output from the gas processing plant enters the sulphur
recovery unit where it breaks down into its primary components of
sulphur and water. H2S is a poisonous, corrosive compound for
which there is no market and, by Canadian law, it cannot be released
into the atmosphere. In order to refine natural gas, Husky has no
choice under Canadian environmental regulations but to incur H2S
processing costs in its sulphur recovery unit. To operate or use a
natural gas plant and process natural gas, Canadian law requires
companies to have certain licenses. These licenses dictate, among other
things, certain minimum standards for the reclamation of sulphur
contained in the gas delivered to a plant, and the types and quantities
of effluent permissible from a plant. Furthermore, agreements with
natural gas pipe-line operators specify that no more than a maximum
amount of contaminants, including H2S, be contained in gas
introduced into a pipe-line. In addition, there is no dispute as to the
extremely poisonous nature of H2S, a compelling reason to
stabilize this element into sulphur and water. Finally, it is
undisputed that there is a positive direct correlation between the
processing of sour natural gas and the production of H2S. As
saleable natural gas is produced from a sour gas stream and moved into
the pipeline, so too must the movement of H2S proceed within
permissible means; otherwise the gas plant must cease operations.
Therefore, it is of limited concern to Husky to analyze whether sales
revenue it receives for sulphur sales is able to offset costs it incurs
in the sulphur recovery unit and handling facility because it must by
law dispose of the H2S in a harmless manner. Rather, only where
the costs of the sulphur recovery unit and handling facility impair the
profits of refined natural gas might an analysis of sulphur sales
revenue vis-a-vis the costs incurred in the sulphur recovery unit and
handling facility be of greater consideration. In that case, it is
likely that overall production for a particular gas field would cease
if the costs associated with the removal and sale of sulphur caused the
natural gas line of business to operate at a loss.
Contrary to Pennzoil's claim that Husky assigns no production costs
to natural gas under its normal accounting system, we noted during
verification that Husky assigns all gas and sulphur processing costs to
production of natural gas (see the Department's position to Comment 2).
We disagree with Pennzoil's categorization of GACAP as the
accounting rules which dictate our accounting treatment for COP and CV
cases. Neither the accounting profession nor the Department recognizes
GACAP as an authoritative source. This is a creation of Pennzoil, which
selectively chose different cost accounting concepts from over 15
different texts dating back to 1920. While we recognize certain cost
accounting concepts, we do not advocate one acceptable concept over
another for all cases. Rather, we consider the facts surrounding each
case. Cost accounting texts are fairly general in nature, with their
purpose being to illustrate the various acceptable methods for
allocating costs in certain situations. One of the key points cost
accounting texts try to emphasize is that in most instances there is no
single, right answer see e.g. Horngren. The way a company ultimately
allocates costs to the various product lines depends on numerous
factors unique to that company, including the products it manufactures,
its corporate structure, and the way in which its management uses its
accounting data. Id.
We disagree with Pennzoil that the facts of this case require that
we allocate costs of the sulphur recovery unit. In Silicomanganese from
Venezuela, the slag which resulted from the production of Grade B
silicomanganese did not require further processing and it could have
been disposed of in its current state, unlike the H2S which
results from the production of natural gas. The respondent company,
however, chose to process it into Grade C product rather than to
dispose of it. In this case, Husky does not have this option, but must
process the dangerous H2S in order to break it down into a stable
and safe form (i.e., sulphur and water) in accordance with Canadian
law.
Finally, there is no connection between the DOI's proposed rules
and our statute and regulations. Accordingly, we consider it irrelevant
how DOI proposes to calculate royalty payments for sulphur produced on
federal land.
In conclusion, we have allocated only costs incurred subsequent to
the sulphur recovery unit to sulphur production. We believe these costs
reasonably reflect the costs associated with the production of sulphur.
Comment 4
Husky maintains that, in accordance with past precedents, the
Department should allow the company to offset its sulphur processing
costs with revenues it earned from processing other companies' sulphur.
Husky claims that, as a matter of law, costs for antidumping purposes
can be offset by income so long as that income is directly related to
the production of the product under review.
In support of its position, Husky cites two cases in which the
Department offset costs for miscellaneous income, and several cases in
which the Department allowed an offset to production costs for the sale
of byproducts and scrap which resulted from the production of the
subject merchandise. Husky cites Porcelain-on-Steel Cooking Ware from
Mexico; Final Results of Antidumping Administrative Review, 55 FR
21061, 21063 (May 22, 1990) (Cooking Ware), and Frozen Concentrated
Orange Juice from Brazil: Final Determination of Sales at Less Than
Fair Value, 52 FR 8324, 8329 (March 17, 1987) (Orange Juice) to support
its position.
Pennzoil contends that the Department was correct in not allowing
Husky to deduct processing fees from its sulphur COM. According to
Pennzoil, the processing fees do not result from Husky's normal
operations but, rather, relate to the company's acting as a
subcontractor on behalf of other sulphur producers. Pennzoil claims
that it is unaware of any situation in which the Department has allowed
respondents to offset their production costs for fee income generated
from another line of business.
Department's Position
We disagree with Husky's contention that the sulphur processing
revenues it received represent a reduction in the company's sulphur
production costs. During the POR, in addition to processing its own
sulphur, Husky processed large quantities of sulphur belonging to other
companies. These companies paid Husky processing fees based on the
quantity of sulphur that Husky processed for them. In computing its
sulphur costs, Husky offset the total cost of all sulphur it produced
during the POR by an amount representing the gross earnings from the
sulphur which it processed for the other companies. Husky then
calculated a per-unit sulphur cost by dividing the remaining balance of
production costs, net of gross
[[Page 8245]]
processing revenues, by the quantity of sulphur that the company had
produced for its own account. The effect of this methodology was to
reduce Husky's own sulphur production costs by the amount of profits
that the company earned from processing sulphur that belonged to the
other companies.
Contrary to Husky's assertions, we find that the revenues it
received from processing sulphur for other companies do not relate
directly to the production costs it incurred in producing the subject
merchandise on its own account. Instead, these fees represent income
Husky earned from a separate line of business as a subcontractor
offering sulphur processing services. Husky provided these services to
its customers for a fee which represented the processing costs Husky
incurred, plus a mark-up for profit. However, the net profits that
Husky earned from processing sulphur as part of its separate
subcontractor operations did not reduce the costs that it incurred to
process and sell its own sulphur.
We disagree with Husky that, by disallowing its processing revenue
offset, we are deviating from our position in past cases. In neither of
the cases cited by Husky, Cooking Ware and Orange Juice, did we allow
respondents to reduce the production costs of subject merchandise by
profit earned from another line of business. Rather, consistent with
our normal practice, we allowed offsets to the cost of producing the
subject merchandise for revenues earned on the sale of byproducts and
scrap which resulted from the production of the subject merchandise.
This practice is distinguishable from Husky's situation in that the
revenues Husky earned on its subcontracting operations do not directly
relate to Husky's production of the subject merchandise. Rather, they
relate to its subcontracting operations which is a separate line of
business. Therefore, we have not offset Husky's sulphur COP and CV by
revenues it earned on its subcontracting operations.
Comment 5
Husky argues that the Department should allocate depreciation
expense to the sulphur handling facility on a net realizable value
(NRV) basis. Husky maintains that an NRV allocation basis is reasonable
since, in its normal accounting system, it allocates no expenses to
sulphur. Husky further maintains that it is within the Department's
discretion to use a value-based allocation methodology. In support of
its position, Husky cites Pineapple as a recent determination in which
the Department relied on a value-based cost allocation methodology.
Husky argues that, using a cost-based allocation methodology, as the
Department did for purposes of the preliminary results of this review,
overstates the depreciation expense allocated to sulphur production.
Husky also claims that it is inconsistent for the Department to
determine, as it did in the preliminary results of review, that sulphur
is a byproduct based on its relative sales value while, at the same
time, rejecting an allocation of depreciation expense that similarly
relies on relative sales values.
Husky further contends that, regardless of how the Department
decides to allocate depreciation expense to sulphur, it must adjust for
the fact that an unrelated company pays Husky a capital charge which,
in effect, reimburses Husky for a portion of its depreciation expense
incurred for the use of its facility. Husky maintains that, in the
preliminary results of review, the Department erroneously computed per-
unit depreciation expense for sulphur by including this capital charge
in total depreciation costs, but failed to include this company's
related quantity of sulphur production. According to Husky, the
Department should correct this error either by reducing Husky's
depreciation expense for the year by the capital charge payment, or by
allocating total depreciation expense over the total quantity of
sulphur Husky produced, regardless of ownership.
Pennzoil argues that the Department correctly allocated
depreciation expense based on the direct operating costs Husky incurred
in each functional leasehold area. According to Pennzoil, the
Department prefers to allocate indirect costs using a cost-based
allocation methodology rather than one based on net sales revenue.
Additionally, Pennzoil notes that Husky recognized this fact when it
allocated the cost of its general facilities and other expenses to each
lease based on the direct costs incurred for each lease. Pennzoil
maintains that depreciation expense incurred in connection with each
lease is more closely related to the lease's operating expenses than to
the NRV of the products produced at the facility. Additionally,
Pennzoil contends that Husky's cite to Pineapple as support for a
sales-based allocation is misplaced. Pennzoil notes that, in that case,
the Department determined that it was appropriate to rely on the value-
based allocation method because the respondent had used this method for
a number of years in its normal accounting system. Pennzoil notes that,
in the instant case, Husky created its NRV allocation methodology
solely for the purpose of this review.
Pennzoil also contends that, consistent with its finding in the
preliminary results, just as the Department should not reduce Husky's
per-unit sulphur COP by the profit earned on processing a certain other
company's sulphur, neither should the Department adjust Husky's
depreciation expense to account for the capital charge received from
the other company.
Department's Position
We disagree with Husky that it is appropriate to allocate
depreciation expense among its products based on a relative sales
values methodology. Although Husky claims that it does not maintain a
fixed asset ledger that records depreciation expense for each of its
leases, this does not mean that the company's depreciation expense
represents an actual joint production cost that, under certain
circumstances, may be appropriately allocated on the basis of relative
sales value. On the contrary, in this instance, the depreciation
expense for fixed assets that Husky used to produce sulphur, natural
gas, and other products bears no direct relationship to the sales value
generated from those products. Therefore, allocation on the basis of
sales value could lead to cost distortions and would not be
appropriate.
The Department typically has found that respondents maintain
sufficiently detailed fixed asset records that allow them to account
for depreciation expense on a product-specific basis. In this case,
however, because Husky's records do not permit the company to trace
depreciation expense in such a manner, we believe that it is
appropriate to treat these costs like other indirect costs, such as
manufacturing overhead or general and administrative expenses. The
Department generally favors a cost-based allocation methodology for
indirect costs. For example, the Department has consistently required
that respondents allocate general and administrative expenses on the
basis of cost of sales rather than on relative sales revenue or other
inappropriate bases. See, e.g., Tapered Roller Bearings, Finished and
Unfinished, and Parts Thereof from Japan, Final Results of Antidumping
Administrative Review, 56 FR 41508, 41516, August 21, 1991). As
Pennzoil has pointed out, Husky itself adopted such a cost-based
methodology in allocating its indirect general facilities costs on the
basis of the direct costs it incurred at each lease. Thus, the cost-
based methodology the Department used to re-allocate Husky's
depreciation
[[Page 8246]]
expense for the preliminary results was both consistent with past
Department practice and with Husky's own method of allocating the other
indirect costs the company incurred during the POR.
Husky is incorrect in referring to the Department's determination
in Pineapple as support for its value-based allocation of depreciation
expense. As noted above, in the instant case, the need to treat
depreciation expense as an indirect cost (and thereby allocate the
amount incurred among the various products produced by Husky) arises
from limitations in the company's own accounting system. Since Husky's
accounting system does not distinguish fixed assets used to produce
sulphur after the split off point in production, some method must be
used to allocate the otherwise fully separable costs associated with
fixed assets to produce sulphur. In Pineapple, however, the Department
dealt with the issue of allocating genuine joint production costs that
were otherwise inseparable up to the production split-off point where
the process yielded distinct products.
Pineapple also differs from the instant case in the fact that the
pineapple growers had, for many years prior to the antidumping
investigation, accounted for joint processing costs on the basis of
relative sales value. As noted previously, however, Husky's value-based
methodology is not part of its normal accounting system and was devised
by the company specifically for the purpose of allocating depreciation
costs in this review.
We disagree with Husky's claim that use of the relative sales value
in our sulphur byproduct analysis is inconsistent with our rejection of
it as the basis for allocating depreciation expense among the company's
products. As discussed in our response to Comment 2, relative sales
value is but one of several factors that we considered in measuring the
significance of sulphur as part of our coproduct/byproduct analysis. It
is not a dispositive factor, especially in situations in which the
relative sales values of subject and non-subject merchandise are
measured only during periods covered by an antidumping investigation or
administrative review. Contrary to Husky's assertions, the fact that
the Department considers sales value as one of several factors in its
coproduct/byproduct analysis for the subject merchandise does not, as a
consequence, make the price charged for that merchandise a reliable
basis upon which to allocate depreciation expenses or other such
normally separable costs. Accordingly, the Department has allocated
depreciation expense using a cost-based methodology, consistent with
its treatment in the preliminary results.
Lastly, we agree with Husky that it is appropriate to include a
certain company's sulphur production quantity in the calculation of
per-unit depreciation expense. Therefore, we have accounted for all
quantities processed at the facility, regardless of whether the product
was owned by Husky, in establishing the per-unit depreciation costs.
Comment 6
Pennzoil asserts that, with regard to selling, general and
administrative (SG&A) expenses included in CV, the Department properly
included Husky's third-country royalty expenses, but neglected to
include PRISM Sulphur Corporation's (PRISM's) SG&A expenses incurred on
Husky's behalf. Pennzoil cites the Department's Dumping Manual at p. 53
and Final Determination of Sales at Less Than Fair Value: Certain
Forged Steel Crankshafts From the Federal Republic of Germany, 52 FR
28170 (July 28, 1987), to support its position.
Husky asserts that the Department properly excluded PRISM's general
expenses from CV and that the Department correctly limited general
expenses to those Husky incurred, since only Husky's general expenses
are included in the third-country sales prices it reported. Husky
asserts that the third-country prices the Department used in its
analysis were not the prices PRISM charged to its unrelated customers
but rather were the ``netback'' revenue Husky received from PRISM,
which represents Husky's net return, exclusive of the expenses
(including general expenses) PRISM incurred in selling the sulphur to
third countries. Husky asserts that exceeding the 20-percent
difference-in-merchandise threshold (DIFMER) is the only reason the
Department did not use the reported prices (netback revenues) and,
since these prices were the verified arm's-length prices from Husky to
PRISM, the Department appropriately limited the general expenses
included in the CV calculation to the general expenses in that price.
Therefore, Husky contends that the Department should dismiss Pennzoil's
argument and base the final results on the reported and verified
expenses Husky incurred.
Department's Position
We agree with Pennzoil and have attributed a portion of PRISM's
selling expenses to Husky for CV purposes. Section 773(e) of the Tariff
Act specifies that general expenses be equal to that usually reflected
in sales of merchandise of the same general class or kind but not less
than 10 percent of COM. Because PRISM, essentially a sales
organization, incurred expenses of the kind usually reflected in sales
of merchandise of the same general class or kind on Husky's behalf, we
have allocated PRISM's operating expenses to Husky, and, therefore, to
the calculation of CV in our determination of Husky's dumping margin.
Comment 7
Pennzoil asserts that the Department's margin calculation for Husky
contains an error in that the Department calculated Husky's weighted-
average margin by dividing total duties due by the gross sales value of
U.S. sales instead of dividing the total duties due by the net U.S.
sales value.
Department's Position
We agree and have recalculated Husky's weighted-average dumping
margin by dividing total duties due by the net U.S. sales value,
consistent with our normal practice.
Comment 8
Husky asserts that the Department made two ministerial errors in
its calculation of Husky's margin and requests the Department to
correct these errors. Husky indicates that the Department double-
counted U.S. packing costs for bagged and powdered sulphur and that the
royalty expense the Department included as a direct selling expense
component of general expenses was not equivalent to the royalty expense
the Department subtracted as a circumstance-of-sale adjustment as
required by statute and Department practice.
Department's Position
We agree and have corrected the errors in these final results.
Comment 9
Pennzoil asserts that the Department erred in determining that the
rate it calculated for Husky should be applied to Mobil as BIA, because
Petrosul's margin would be more adverse and must be applied to Mobil as
BIA.
Mobil asserts that, if the Department calculates a margin for
Petrosul based on Pennzoil's cost allegation or on Husky's CV as
Pennzoil proposes, under no circumstances should the Department apply
this rate to Mobil. Mobil asserts that the Department's preference is
to use verified information as the basis of BIA for a cooperative
respondent and cites In the Matter of Replacement Parts for Self-
Propelled Bituminous Paving Equipment from
[[Page 8247]]
Canada, USA-90-1904-01 at 81 (May 15, 1992), concerning the
Department's selection of BIA, Smith Corona v. United States, 796 F.
Supp. 1532, 1536-37 (CIT 1992), and other cases for the proposition
that the court favors a verified BIA rate over an unverified BIA rate,
and favors BIA based on ``reasonably accurate'' information of record
if verified data is not available (Associacion Colombiana de
Exportadores de Flores, 717 F. Supp. 834 (CIT 1989); Alberta Pork
Producers' Marketing Board v. United States, 669 F. Supp. 445 (CIT
1987)). Mobil asserts that, because it cooperated in this review, the
Department based its BIA margin on Husky's verified information and
that it would be unreasonable to penalize Mobil by using unverified
information that results in an artificially high dumping margin.
Mobil asserts that there is no support for Pennzoil's approach
because 1) the Department did not verify the price information Petrosul
submitted, 2) the CV information in Pennzoil's cost allegation was not
only not verified, but was based on a coproduct methodology, and 3) the
Department thoroughly and successfully verified Mobil's cost responses
and determined Mobil produces sulphur as a byproduct.
Department's Position
In our preliminary results, we determined that, because Mobil
substantially cooperated in this segment of the proceeding by
responding to our requests for information and participating in
verification, application of second-tier BIA for Mobil was appropriate.
The second-tier approach results in the application of the higher of
(1) the highest rate ever applicable to the firm for the same class or
kind of merchandise from either the LTFV investigation or a prior
administrative review or, if the firm has never before been
investigated or reviewed, the ``all others'' rate from the LTFV
investigation; or (2) the highest calculated rate in this review for
the class or kind of merchandise for any firm from the same country of
origin (see, e.g., Allied-Signal Aerospace Co. v. United States, 966
F.2d 1185, 1191 (Fed. Cir. 1993); Antifriction Bearings (Other Than
Tapered Roller Bearings) and Parts Thereof From France, et al.: Final
Results of Antidumping Duty Administrative Reviews, Partial Termination
of Antidumping Reviews, and Revocation in Part of Antidumping Duty
Orders, 60 FR 10900, 10908 (February 28, 1995)). The highest rate
previously applicable to Mobil is 5.56 percent. Therefore, the rate
calculated for Husky, the highest calculated rate in this review, shall
apply to Mobil as this rate is higher than the rate previously
applicable to Mobil. Pennzoil has not presented an argument which
persuades the Department to deviate from application of its established
BIA policy with regard to Mobil. With regard to the Department's
treatment of Petrosul, see Comment 13.
Comment 10
Pennzoil asserts that the Department erred in concluding that 5.66
[sic] percent was the highest rate previously assigned to Mobil, as the
Department's first administrative review found a margin for Mobil of
12.9 percent, and, although unpublished, Mobil's entries were
liquidated at that rate. Pennzoil cites Elemental Sulphur from Canada:
Preliminary Results of Administrative Review of Antidumping Finding and
Tentative Determination to Revoke in Part, 49 FR 45789, 45790
(September 15, 1981), and provides copies of telexes to Customs and an
attachment to a letter to a respondent with proposed assessment rates
to support its position. Accordingly, Pennzoil asserts, if the revised
BIA rate the Department calculates for Petrosul is the highest
calculated rate in this review, the Department should apply that rate
to Mobil, but under no circumstances should Mobil receive a rate lower
than 12.9 percent.
Mobil asserts that its highest previous rate is 5.56 percent, and
disputes Pennzoil's assertion that its highest previous rate is 12.9
percent. Mobil claims that although the Department's September 15, 1981
preliminary results indicate a 12.9-percent rate for the period July 1,
1978 through December 31, 1978 and a 75.19-percent rate for the period
January 1, 1979 through November 30, 1980, there was a correction to
the November 28, 1986 instructions on which Pennzoil relies in its
arguments. Mobil explains that the Department issued instructions
stating that entries for the January 1979 through November 1981 should
not be liquidated. Mobil points to the Department's 1987 final results
for the period January 1, 1979 through November 30, 1981, which
established a rate of zero for Mobil (52 FR 41601). Mobil concludes
that there are no published final results or Customs instructions that
would support Pennzoil's claimed rate of 12.9 percent for the period
July 1, 1978 through December 31, 1978. Concerning the October 6, 1986
telex identified by Pennzoil relating to Mobil's entries for 1982-83 at
12.9 percent, Mobil asserts that it was obviously based on the same
error underlying the November 28, 1986 instruction.
Department's Position
We agree with Mobil. The Department's practice is to rely on the
published final results of a review or investigation to determine the
highest rate ever applicable to a firm. We never published final
results of review with a rate of 12.9 percent, for any period, for
Mobil's sales. The highest published final review rate the Department
has been able to ascertain for Mobil is 5.56 percent.
However, because the rate calculated in this review for Husky is
higher than 5.56 percent, that rate shall apply to Mobil's transactions
as second-tier BIA in this review.
Comment 11
Mobil believes a 1978 U.S. Customs ruling issued to Mobil Chemical
(Mochem) (predecessor of Mobil Mining and Minerals (MMM), a U.S.
affiliate of Mobil), holding that sulphur purchased by Mochem for
internal use was exempt from antidumping duties, is still applicable.
Mobil asserts that the reason for the exemption was that, although the
sulphur is used in the manufacture of diammonium phosphate fertilizer
(DAP), the end-product, DAP, contains no sulphur as it ends up in the
form of gypsum, a waste product. Thus, Mobil contends that there is no
sale to an unrelated customer of sulphur or of the product containing
sulphur from which U.S. price could be derived. Mobil asserts that
Mobil, Mochem, and MMM have relied on this ruling and Customs has never
assessed antidumping duties on sulphur imported by MoChem and MMM for
use in the manufacture of DAP.
Mobil further asserts that it has an arrangement with MMM and a
certain unrelated U.S. entity whereby Mobil sells sulphur to its U.S.
affiliate, MMM, which then ``swaps'' this sulphur with the unrelated
U.S. entity, such that Mobil sulphur is delivered to this unrelated
U.S. entity in return for the delivery of sulphur from this unrelated
U.S. entity to MMM.
Mobil asserts that MMM does not resell the sulphur, but discards it
as a waste product in the form of gypsum. As there is no arm's-length
price, Mobil contends that the Customs Service ruling applies. Mobil
requests that the Department issue liquidation instructions which
direct Customs not to assess duties on any imports of Mobil sulphur by
a certain unrelated U.S. entity which that entity purchased pursuant to
the swap arrangement.
[[Page 8248]]
Pennzoil asserts that the Department may not exempt imports of
Mobil sulphur by this unrelated U.S. entity from the assessment of
antidumping duties. Pennzoil argues that the 1978 Customs ruling does
not apply to the sulphur the unrelated entity acquired in its swap
transactions.
Pennzoil asserts that the limited exemption in the 1978 Customs
ruling was based on a repealed statute and Treasury Department
regulation and that the ruling applies only to sulphur MMM used to
produce DAP at a plant which closed in 1987. Pennzoil further asserts
that, because Mobil has not disclosed the purpose for which the entity
used the sulphur, the Department cannot determine that the ruling
applies to Mobil's sulphur, given that Customs granted the exemption
under the provision that the sulphur was consumed in the production of
DAP. Pennzoil contends that the unrelated U.S. entity may have imported
the Mobil sulphur for resale to U.S. customers and there is no evidence
on the record of this review that the entity ever produced DAP, let
alone consumed the Mobil sulphur in the course of producing that
product. Pennzoil notes that, contrary to the statement in the Customs
ruling, gypsum is a salable product.
Pennzoil asserts that, given the Department's application of total
BIA to Mobil, the Department should not rely on Mobil's factual
assertions and reward it by excluding U.S. sales from coverage by the
finding.
Finally, Pennzoil asserts that Mobil's request constitutes an
improper request for a scope determination and that such an exclusion
would create significant administrative burdens for Customs and the
Department. Pennzoil contends that any liquidation instructions would
need to contain certain restrictions in view of the fact that the 1978
ruling expressly does not cover a percentage of sulphur imported by
Mobil's related entity that do not go to the Depue Plant, or that go to
Depue but are used in the production of sulfuric acid.
Department's Position
The 1978 Treasury ruling does not apply to these transactions since
the ruling is narrowly drafted to apply only to shipments of Mobil
sulphur to a Mobil affiliate used for a specific purpose. Moreover, the
specific language of the Treasury ruling does not address ``swap''
transactions.
After discussing the basis for the exclusion, the ruling concludes:
``Sulphur imported by Mobil Chemical from its Canadian affiliate, Mobil
Oil Canada, and used in the production of diammonium phosphate
fertilizer (DAP) will be appraised by U.S. Customs without regard to
the Antidumping Act, 1921, as amended. That portion of the Canadian
elemental sulphur imported by Mobil Chemical from Mobil Oil Canada and
not shipped to the Depue plant or that used in the production of
sulfuric acid will be appraised for antidumping duties.'' Letter to
Patrick F.J. Macrory, Esq. from Salvatore E. Caramagno, Director,
Classification and Value Division, Department of the Treasury, U.S.
Customs Service, January 10, 1978.
The ruling does not apply to Mobil's Canadian sulphur actually
consumed by an unrelated U.S. entity, regardless of the use to which
MMM ultimately put the exchanged or ``swapped'' sulphur (ostensibly,
this is U.S.-produced sulphur, obtained from the unrelated U.S.
entity). It is the U.S.-produced product that is ``discarded as a waste
product in the form of gypsum'' (Mobil Brief, August 28, 1995 at 5),
and not Mobil's Canadian sulphur.
In any event, even if the ruling applied to these transactions, the
Department agrees with Pennzoil that any exemption of this sulphur
would be improper in the context of the application of total BIA to
Mobil, given the serious doubts concerning the reliability and
completeness of its submissions. While Mobil segregated the volumes of
sulphur that were subject to these swap transactions in its sales
listings, as exhibited by Verification of Sales Questionnaire Response
of Mobil Oil Canada Ltd., November 22, 1994 (Verification Report), and
explained in Memorandum to Joseph A. Spetrini from Holly A. Kuga, re:
Use of Best Information Available for Mobil Oil Canada, Ltd., in 1991-
92 Administrative Review of Antidumping Finding on Elemental Sulphur
from Canada (May 10, 1995)) (Memo), the Department concluded that
problems it encountered at Mobil's sales verification rendered
``Mobil's entire sales response seriously defective and an
inappropriate basis on which to conduct a dumping analysis.'' Memo at
4. The Department further concluded, among other things, that, ``given
the magnitude and scope of the other problems encountered at
verification of Mobil, the Department has serious doubts concerning the
overall reliability and completeness of Mobil's submission. Therefore,
we do not believe that Mobil's responses constitute a proper basis on
which to base a calculated margin.'' Memo at 4-5.
For purposes of these final results, we believe that a problem
exists in addition to our inability to conduct a proper dumping
analysis. This problem concerns the proper segregation of the swap
transactions by Mobil in its sales response, since not all transactions
with this unrelated U.S. entity during the POR were the subject of
these swaps. Given the overall unreliability of Mobil's sales
submissions to the Department, and for the additional reason above, the
Department will not exempt from the assessment of antidumping duties
any of the Canadian sulphur delivered to this unrelated U.S. entity
during the POR.
Comment 12
Mobil states that it recognizes that the Department applied total
BIA to its transactions because of difficulties during its sales
verification, but offers comments concerning its reported costs that
were successfully verified in the event the Department decides to use
its costs.
Pennzoil asserts that the Department cannot use the cost data
provided by Mobil and urges the Department to reject Mobil's suggestion
for a number of reasons. First, Pennzoil comments that Mobil failed the
sales verification and the Department's use of total BIA is consistent
with the statute, Department precedent and decisions of the CIT. Citing
Empresa Nacional Siderurgica, S.A. and the Government of Spain v.
United States, Ct. No. 93-09-00630-AD, Slip Op. 95-33 at 9 (CIT March
6, 1995), and Rhone-Poulenc, Inc. v. United States, 710 F. Supp. 341,
346 (CIT, 1990), Pennzoil asserts that where a company fails
verification so that the Department cannot rely on its U.S. selling
prices, it has no choice but to resort to total BIA because U.S. prices
are an absolutely essential element of the calculation of a dumping
margin. Second, Pennzoil argues that the Department cannot rely on
Mobil's cost information as the basis for FMV because Mobil failed to
report production costs for its sulphur-producing facilities in the
manner and detail which the Department's questionnaire requires.
Pennzoil asserts that Mobil failed to separately identify the costs
associated with sulphur handling and without this information the
Department cannot compute the CV of sulphur under either a coproduct or
byproduct cost accounting methodology. Third, Pennzoil contends that
Mobil's cost data are useless as a basis for determining CV because the
Department could not verify the barrel-of-oil equivalent method Mobil
used. In addition, Pennzoil asserts that this method is totally
inappropriate for identifying sulphur production costs, since the
market value of sulphur
[[Page 8249]]
derives from its value in fertilizer, not its thermal heat. Further,
Pennzoil argues, the relative BOE figures bear no relationship to those
products' volume or value and Mobil failed to provide any basis for its
BOE-per-MT conversion factor. Pennzoil notes the Department's cost
verification report wherein the Department stated the BOE methodology
``might not be an appropriate basis for the allocation of joint
costs.'' Finally, citing the Department's BIA memorandum for Mobil
wherein the Department states it has ``serious doubts concerning the
overall reliability and completeness of Mobil's submissions,'' Pennzoil
asserts that the Department determined that it could not rely on any of
Mobil's responses to calculate a dumping margin.
Department's Position
We affirm our decision in the preliminary results to assign Mobil
total BIA for this review based on problems we encountered at
verification of its sales responses. Given those problems, we do not
believe that Mobil's responses constitute a proper basis on which to
base a calculated margin. See Memo at 4-5. Mobil's costs would be of
use only if there were reliable, verified sales information, which
there is not. The issue of the appropriateness or validity of Mobil's
reported costs is, therefore, moot.
Comment 13
Pennzoil asserts that the Department properly resorted to BIA for
Petrosul but did not select the correct BIA rate to apply to Petrosul's
sales. Pennzoil asserts that, in applying Husky's calculated margin to
Petrosul, the Department rewarded Petrosul and its suppliers for their
failure to supply requested COP information. Pennzoil argues that the
use of Husky's margin assumes that Petrosul's sulphur is produced as a
byproduct, and that, in any event, the record demonstrates that
Petrosul's U.S. prices varied from Husky's. Instead, Pennzoil contends
that the Department should calculate a margin for Petrosul by comparing
its reported U.S. prices to a CV calculated from information in
Pennzoil's cost allegation, or compare Petrosul's United States prices
(USPs) to a public CV calculated for Husky.
Citing the Department's Final Results of Antidumping Duty
Administrative Reviews; Oil Country Tubular Goods from Canada, 56 FR
38408, 38410 (August 13, 1991) (OCTG), Pennzoil asserts that it is the
Department's practice to use cost information provided by the
petitioners as BIA when the suppliers of an otherwise cooperative
exporter fail to provide COP information: this information is then
compared to the USPs of the exporter to determine margins. Pennzoil
states that in relying on a ``company-specific'' finding for Husky and
Mobil that sulphur is a byproduct, the Department concluded that
because ``only sulphur handling facility costs should be allocated to
sulphur production, the necessary [ cost ] information is not available
from Pennzoil's cost allegation'' to use as BIA for Petrosul's
suppliers' cost information. Pennzoil asserts that the Department's
assumption that a byproduct cost methodology is appropriate for
Petrosul is unsupported by evidence on the record and is contrary to
the Department's BIA practice of making adverse assumptions when a
party fails to provide requested information. Pennzoil asserts that the
Department must assume that Petrosul's sulphur was a coproduct and
should, as in OCTG, compare Petrosul's USPs to a CV based on the
coproduct information in Pennzoil's cost allegation.
Citing Shop Towels of Cotton from the People's Republic of China;
Final Results of Antidumping Duty Administrative Review, 55 FR 7756
(March 5, 1990), Pennzoil further asserts that the Department acted
contrary to its practice when it failed to use ``other information'' on
the record that indicated a higher margin existed for Petrosul and
insists that the Department should have compared Petrosul's USPs to the
CV calculated for Husky plus Petrosul's SG&A expense and profit.
Pennzoil claims that the Department failed to compare Petrosul's
USP to Husky's CV on the grounds that Department policy prohibits
cross-respondent use of proprietary data, but Pennzoil asserts that
Pineapple and Silicon Metal from Brazil, 59 FR 42806 (August 19, 1994),
demonstrate that no such policy exists and that, even if such a policy
exists, the Department should not apply it in a manner that thwarts its
established BIA practice. Pennzoil concludes that, at a minimum, the
Department should calculate a margin for Petrosul by comparing its
reported USPs to a CV calculated, in part, using Husky's public data
and adding Petrosul's SG&A and profit.
Citing Allied-Signal Aerospace Co. v. United States, 966 F.2d 1185,
1191 (Fed. Cir. 1993), Krupp Stahl A.G. v. United States, 822 F. Supp.
789, 792 (CIT 1993), and Chemical Products Corp. v. United States, 645
F. Supp. 289, 295 (CIT 1986), Petrosul asserts that the Department is
accorded substantial discretion and deference in determining BIA and
claims that, while it may rely on information submitted by petitioner,
it is not required to do so. Petrosul asserts that the Department
followed its practice of assigning to Petrosul, a cooperative
respondent, the highest calculated rate in this review based on the
second-tier of its two-tiered methodology. Citing Citrosuco Paulista,
S.A. v. United States, 704 F. Supp. 1075, 1088 (CIT 1988), Petrosul
asserts that the Department must either conform itself to prior
decisions or explain the reasons for a departure, and that Pennzoil has
provided no new arguments or facts that would justify such a departure.
Petrosul asserts that Pennzoil's reliance on OCTG is misplaced
because in OCTG the Department noted that it could have simply used
total BIA, but that it was more reasonable to use BIA to calculate only
the COP. In addition, Petrosul asserts that because the review covered
only one exporter, the Department was prevented from using other
respondents' COP information as surrogate information. Petrosul asserts
the only alternative open to the Department would have been to use the
highest margin previously assigned to the exporter, but because the
exporter was cooperative, the Department declined to do so.
In addition, Petrosul disputes Pennzoil's contentions that, first,
application of Husky's rate, calculated using a byproduct methodology,
results in a less adverse rate for Petrosul and, second, that the
Department should have assigned a higher BIA rate to Petrosul based on
Petrosul's U.S. pricing data. Citing Disposable Pocket Lighters from
the People's Republic of China; Final Determination of Sales at Less
Than Fair Value, 60 FR 22359, 22360 (May 5, 1995), Petrosul asserts
that the Department normally assigns less adverse margins to
respondents that cooperate, and citing Emerson Power Transmission
Corporation v. United States, No. 92-07-00480, Slip Op. at 19 (CIT
Sept. 1, 1995), Petrosul asserts that once the Department establishes
that BIA is appropriate, it has broad discretion in determining what
information to use. Citing the preliminary results in this review,
Petrosul asserts that the Department may apply either total BIA or
select individual pieces of data to substitute for missing or
unreliable data. Citing Shop Towels of Cotton from the People's
Republic of China; Final Results of Antidumping Duty Administrative
Review, 55 FR 7756 (March 5, 1990), Petrosul asserts that, while it may
be appropriate to rely on other information as BIA, the Department is
not required
[[Page 8250]]
to rely on more adverse information, particularly where a respondent
has been cooperative, and, thus, the Department is not required to
assign Petrosul a higher BIA based on information which differs from
the information on which it calculated Husky's dumping margin.
Department's Position
We disagree with Pennzoil that we should calculate a margin for
Petrosul by comparing its reported USPs to a CV calculated from
information in Pennzoil's cost allegation, or compare Petrosul's USPs
to a public CV calculated for Husky. We are satisfied that selection of
Husky's calculated rate is the appropriate BIA for Petrosul for this
review, is consistent with our practice, and effectuates the purpose of
the BIA rule.
The Department has broad discretion in determining what constitutes
BIA in a given situation (Krupp Stahl A.G. v. United States, 822 F.
Supp. 789, 792 (CIT 1993); see also Allied-Signal Aerospace Co. v.
United States, 966 F.2d 1185, 1191 (Fed. Cir. 1993) ``[B]ecause
Congress has `explicitly left a gap for the agency to fill' in
determining what constitutes the best information available, the ITA's
construction of the statute must be accorded considerable
deference.''). The court has upheld the Department's two-tiered BIA
methodology as ``a reasonable and permissible exercise of the ITA's
statutory authority to use the best information available when a
respondent refuses or is unable to provide requested information.''
Allied Signal at 1192.
We agree with Pennzoil that we are not prohibited from resorting to
a petitioner's cost information for BIA when the suppliers of an
otherwise cooperative exporter fail to provide COP information.
However, we are not compelled to do so. Furthermore, in this case,
Pennzoil's cost allegation does not contain the necessary information,
as the allegation does not individually identify the costs we have
determined to be related to sulphur production and we are not able to
ascertain them.
For the preliminary results, the Department concluded that
``[b]ecause the Department has determined that only sulphur handling
facility costs should be allocated to sulphur production, the necessary
information is not available from Pennzoil's cost allegation. As a
result, we do not have the option of utilizing Pennzoil's cost data.''
See Memorandum to Joseph A. Spetrini, from Holly A. Kuga, re: 1991-92
Antidumping Administrative Review of the Antidumping Finding on
Elemental Sulphur from Canada: Use of Best Information Available for
Petrosul International Due to Lack of Any Useable Cost of Production
Information (July 11, 1995) at 6 (Petrosul Memo). While the
determination that ``only sulphur handling facility costs should be
allocated to sulphur production'' is based on company-specific
determinations of the status of sulphur as either a coproduct or
byproduct, the Department notes that it made these determinations with
regard to two of the three respondents that actively participated in
this review. In OCTG, noting the wide discretion afforded it in
determining what constitutes BIA, the Department determined that it
would be more reasonable to use BIA to calculate cost of production for
the respondent instead of applying total BIA because the cost
information was not in the control of the respondent (OCTG at 38411).
The Department acknowledges that it could assume that Petrosul's
sulphur is a coproduct, but where we have found byproduct status for
two of three respondents' sulphur, and where Petrosul has been deemed
to be a cooperative respondent (see Petrosul Memo at 7), it is
reasonable to disregard Pennzoil's cost data reported under a coproduct
methodology.
Furthermore, the Department's decisions in Pineapple and Silicon
Metal from Brazil do not stand for the proposition that cross-
respondent use of proprietary data is permissible absent consent or
adequate safeguards to protect the confidentiality of the data. In
Pineapple and Silicon Metal from Brazil, adequate safeguards to protect
the confidentiality of the data were present, i.e., in Pineapple, we
used proprietary data from several respondents such that no one
respondent's proprietary data was vulnerable to disclosure. That is not
the case in this review. The Department does not believe that use of
Husky's public or ranged proprietary data would protect the
confidentiality of the data.
In addition, in TECHNOIMPORTEXPORT and Peer Bearing Company v.
United States, 766 F. Supp. 1169, 1177 (CIT 1991), the court stated
that ``the use of confidential data without the communicated consent of
the company from which the data is compiled is contrary to law and
established ITA policy.''
Finally, the fact that Petrosul's U.S. sales data indicate USPs
that differ from Husky's does not alter our decision. The Department
must assess all of the facts on the record in making its determination,
including the degree of cooperation or noncooperation of a respondent.
For these final results, we determine that it is appropriate to apply
total cooperative BIA to Petrosul since it is consistent both with our
practice and the purpose of the BIA rule.
Comment 14
Petrosul asserts that the Department's COP investigation should
focus on Petrosul's cost of acquisition (COA) rather than production
costs of its suppliers and that as a matter of law the Department is
not entitled to disregard Petrosul's COA in a COP investigation.
Petrosul asserts that there is no statutory basis for disregarding
Petrosul's COA as Petrosul is not related to its suppliers and, citing
section 773(e)(4) of the Tariff Act, asserts that the scope of the
Department's authority to disregard transaction values is limited
expressly to transactions between related parties. Therefore, in
determining FMV through CV, Petrosul contends that the Department may
not look beyond the cost of acquiring materials to the supplier's COP
where the transactions are between parties that are not related as
defined by the Tariff Act.
Citing Consolidated International Automotive, Inc. v. United
States, 809 F. Supp. 125 (CIT 1992), and Washington Red Raspberry Comm.
v. United States, 657 F. Supp. 537 (CIT 1987), Petrosul asserts that
the court rejected the argument that a CV analysis should look beyond
transfer prices of inputs to the COP of such inputs incurred by
unrelated suppliers, and explicitly reversed the Department's refusal
to accept transaction prices in COP investigations of resellers where
the transactions were unrelated. Petrosul asserts that it is unrelated
to its suppliers, and, unlike the exporters in Red Raspberry, it is a
truly independent reseller. Petrosul contends that the total absence of
any relationship precludes the Department from pursuing an
investigation based on the COP of Petrosul's suppliers.
Pennzoil asserts that, while section 773(b) of the Tariff Act does
not define the ``cost of production'', by its terms it requires actual
production costs, not a purchaser's cost of acquiring the finished
product, to be compared to home market prices, and that Department
regulations expressly state that COP will be based on ``the cost of
materials, fabrication, and general expenses, but excluding profit.''
Pennzoil asserts that Petrosul's argument for basing COP on acquisition
cost does not address the language of section 773(b) of the Tariff Act,
Department precedent, the Department's explanation for its use of BIA
in the preliminary results, or the Department memorandum on these
matters. Instead,
[[Page 8251]]
Pennzoil argues, Petrosul's cites to statutory language and cases
dealing with the valuation of inputs used in producing subject
merchandise in determining CV which, according to Pennzoil, is
irrelevant since Petrosul, a reseller, did not manufacture sulphur from
any inputs.
Pennzoil rebuts Petrosul's reference to section 773(e)(4) of the
Tariff Act, and argues that it defines ``related parties'' for the
purposes of sections 773(e) (2) and (3), and that these sections
address valuation of inputs in determining CV. Pennzoil asserts that
section 773(e)(1) requires that CV include all inputs in the production
of subject merchandise and that, since Petrosul did not purchase liquid
sulphur as a material input in the production of that same subject
merchandise, Pennzoil contends that these provisions are irrelevant.
Pennzoil further asserts that Consolidated Automotive and Red
Raspberry involve valuation of inputs in calculating CV, the first
which upheld the Department's use of the transaction price of lug nut
blanks (an input) in determining the CV of chrome-plated lug nuts
(subject merchandise), and the latter which found unlawful the
Department's failure to use the transaction price of red raspberries
(an input) in determining the CV of fresh and frozen red raspberries
packed in bulk containers and suitable for further processing (the
subject merchandise). Pennzoil asserts that, contrary to Petrosul's
assertion, the exporters in Red Raspberry were not resellers, but
rather manufacturers.
Pennzoil concludes that the CIT has not reviewed the Department's
practice of rejecting acquisition cost as a basis for the COP of
merchandise sold by a reseller, but that, given the substantial
discretion afforded the Department, its interpretation of section
773(b) is proper because using acquisition cost would be contrary to
the plain language of the sales-below-cost provision and would defeat
its purpose.
Department's Position
The record indicates that Petrosul purchases elemental sulphur
after its conversion from H2S and without further processing.
Petrosul admits it is not a producer of elemental sulphur, but rather
merely a reseller. Because Petrosul is not involved in the production
of elemental sulphur, the issue of the proper valuation of inputs is
not relevant. Therefore, the statutory provisions and cases cited by
Petrosul are not relevant.
Petrosul does not itself produce the elemental sulphur it sells.
Department practice in such situations is to compare the production
costs of the producer (Petrosul's supplier/producers), plus the
producer's SG&A and the SG&A of the seller (Petrosul), to the seller's
home market sales to determine whether home market sales were made
below the COP. Upon receiving a satisfactory allegation of sales below
cost, the Department is required to investigate those allegations. This
investigation is mandated by section 773(b) of the Tariff Act, which
provides that:
Whenever the administering authority has reasonable grounds to
believe or suspect that sales in the home market of the country of
exportation, or, as appropriate, to countries other than the United
States, have been made at prices which represent less than the cost
of producing the merchandise in question, it shall determine
whether, in fact, such sales were made at less than the cost of
producing the merchandise. . . .
Section 773(b) of the Act (1994) (emphasis added).
As stated above, consistent with the Department's policy on this
matter with regard to resellers, the Department has interpreted ``cost
of producing the merchandise'' to mean the production costs of the
producer, plus the producer's SG&A, plus the SG&A of the reseller. See
Memorandum from David Mueller to Reviewers, December 18, 1990, attached
to Petrosul Memo; see, also, Fresh and Chilled Atlantic Salmon from
Norway, 56 FR 7661 (February 25, 1991); Oil Country Tubular Goods
(OCTG) from Canada, 56 FR 38406 (August 13, 1991); and Fresh Kiwifruit
from New Zealand, 57 FR 13695 (April 17, 1992). See also Petrosul Memo.
While this interpretation may create a burden upon a respondent such as
Petrosul, to hold otherwise would allow a huge loophole and open
domestic producers to competition with below cost exports without
remedy because the producer could continue to sell his production below
cost, and, as long as he does not know the destination, the
intermediate prices would be taken as COP for resellers, regardless of
the actual costs incurred. Because the Department was unable to obtain
the costs of producing the elemental sulphur supplied to Petrosul, the
Department was unable to proceed to the next step in a sales-below-
cost-investigation: comparison of the sulphur COP to Petrosul's home-
market prices. Therefore, the Department relied on BIA.
Comment 15
Petrosul asserts that the use of its COA is particularly
appropriate in the case of a waste product like elemental sulphur and
claims that the substance actually recovered from natural gas or oil is
hydrogen sulphide gas, which is not ``merchandise'' within the COP
language of section 773(b) of the Tariff Act (19 U.S.C. Sec. 1677b(b)).
Therefore, Petrosul contends that the cost of extracting hydrogen
sulphide and converting it into elemental sulphur is not a ``cost of
producing the merchandise'' but is a cost mandated by both commerce and
law of disposal of hydrogen-sulphide, a byproduct or waste product.
Petrosul asserts that production of recovered elemental sulphur is
involuntary, that it is purchased immediately after its conversion from
hydrogen sulphide without further processing, and, therefore, the
``cost of producing the merchandise'' is properly limited to
acquisition, handling, administrative and sales costs incurred by
Petrosul. Petrosul asserts that its COA is the most accurate measure of
the product's COP since that is the first time value is attributed to
the product.
Department's Position
Petrosul obtains elemental sulphur for resale and not H2S.
Therefore, we need the COP of sulphur for our analysis. In addition,
the Department has determined that it must ascribe some costs to the
production of sulphur, even if it considers sulphur a byproduct (see,
e.g., Comment 3; see also Memorandum to Susan G. Esserman from Joseph
A. Spetrini; Team Recommendation Related to The Cost Accounting
Treatment of Elemental Sulphur From Canada, June 29, 1995). It is clear
that Petrosul's suppliers bear some of these costs in handling
elemental sulphur after converting it from H2S as the Department
determined that costs incurred in the sulphur handling facility,
including loading, transferring of the product and a portion of general
facilities costs relate directly to the sale of sulphur (Id. at 6).
Because the Department does not have these costs, it was unable to
proceed with its cost investigation of Petrosul.
Comment 16
Petrosul asserts that the Department acknowledged that Petrosul
cooperated fully in this review, and that it provided all information
requested except for its suppliers' COPs, which it does not have and
cannot force its suppliers to provide. Under such circumstances,
Petrosul contends that reliance on BIA is arbitrary, capricious, an
abuse of discretion and contrary to law as there is nothing that
Petrosul could do.
Petrosul asserts that even in antidumping proceedings, parties are
entitled to due process protection, citing Sugiyama Chain Co., Ltd. v.
United
[[Page 8252]]
States, 852 F. Supp. 1103, 1115 (CIT 1994) (Sugiyama), yet the
Department's approach here condemns all independent resellers to BIA
margins in COP investigations where the unrelated supplier chooses not
to cooperate. Petrosul contends that it is a violation of due process
of law for the Department to assign BIA margins to respondents that
cannot produce information which is not, and will never be, in their
possession.
Petrosul asserts that it never had an opportunity to respond to the
Department's request for its suppliers' costs, information which is
beyond Petrosul's reach, and that Petrosul is being denied the
opportunity to respond. Petrosul cites Sigma Corp. v. United States,
841 F. Supp. 1255 (CIT 1993), where the court reversed the Department's
reliance on BIA for a respondent that never was given an opportunity to
respond, to support its position.
Pennzoil asserts that basing Petrosul's margin of dumping on BIA is
not fundamentally unfair, an abuse of discretion or a denial of due
process. Pennzoil argues that there is no alternative to reliance on
BIA for Petrosul in the absence of actual COP data, as use of
acquisition cost would subvert the sales-below-cost provision of the
Tariff Act.
Department's Position
The Department believes Petrosul has been fully afforded procedural
due process. The Department requested cost information from Petrosul's
suppliers, all of whom refused to provide such information. Section
776(c) of the Act requires the Department to use BIA ``whenever a party
or any other person refuses or is unable to produce information
requested in a timely manner or in the form required, or otherwise
significantly impedes an investigation.'' Further, Department
regulations provide that ``[t]he Secretary will use the best
information available whenever the Secretary (1) [d]oes not receive a
complete, accurate, and timely response to the Secretary's request for
factual information; or (2) [i]s unable to verify, within the time
specified, the accuracy and completeness of the factual information
submitted.'' 19 CFR 353.37(a). Because the Department could not
identify any other source of data that would provide a reasonable
surrogate for the missing supplier-producers' cost of producing
elemental sulphur, the only alternative open to the Department is to
apply total BIA to Petrosul.
With regard to Petrosul's assertion that it never had an
opportunity to respond to the Department's request for its suppliers's
costs, given the Department's practice, Petrosul was fully aware of the
import of its suppliers' refusal to reply to the Department's
questionnaire.
Final Results of Review
We determine the following percentage weighted-average margins
exist for the period December 1, 1991 through November 30, 1992:
------------------------------------------------------------------------
Percent
Manufacturer/exporter margin
------------------------------------------------------------------------
Husky Oil Ltd............................................... 7.17
Mobil Oil Canada, Ltd....................................... \1\ 7.17
Petrosul.................................................... \1\ 7.17
Alberta..................................................... (\2\)
Allied...................................................... (\2\)
Norcen...................................................... (\2\)
Brimstone................................................... \3\ 28.9
Burza....................................................... \3\ 28.9
Canamex..................................................... \3\ 28.9
Delta....................................................... \3\ 28.9
Drummond.................................................... \3\ 28.9
Fanchem..................................................... \3\ 28.9
Real........................................................ \3\ 28.9
Saratoga.................................................... \3\ 28.9
Sulbow...................................................... \3\ 28.9
------------------------------------------------------------------------
\1\ Cooperative BIA rate.
\2\ No shipments or sales subject to this review. The firm has no
individual rate from any segment of this proceeding. As a result, the
firm will be subject to the ``all others'' rate.
\3\ Non-cooperative BIA rate.
The Department shall determine, and the Customs Service shall
assess, antidumping duties on all appropriate entries. Individual
differences between USP and FMV may vary from the percentages stated
above. The Department will issue appraisement instructions on each
exporter directly to the Customs Service.
Furthermore, the following deposit requirements will be effective
for all shipments of elemental sulphur, entered or withdrawn from
warehouse, for consumption on or after the publication date of these
final results, as provided by section 751)a)(1) of the Tariff Act: (1)
the cash deposit rate for the reviewed companies will be the rates
listed above; (2) for previously reviewed or investigated companies not
listed above, the cash deposit rate will continue to be the company-
specific rate published for the most recent period; (3) if the exporter
is not a firm covered in this review, a prior review, or the original
LTFV investigation, but the manufacturer is, the cash deposit rate will
be the rate established for the most recent period for the manufacturer
of the merchandise; and (4) if neither the exporter nor the
manufacturer is a firm covered in this or any previous review, or the
less-than-fair-value (LTFV) investigation, the cash deposit rate will
be the ``new shipper'' rate established in the first review conducted
by the Department in which a ``new shipper'' rate was established, as
discussed below.
On May 25, 1993, the Court of International Trade (CIT), in Floral
Trade Council v. United States, 822 F. Supp. 766 (CIT 1993), and
Federal-Mogul Corporation and The Torrington Company v. United States,
822 F. Supp. 782 (CIT 1993), decided that once an ``All Others'' rate
is established for a company it can only be changed through an
administrative review. The Department has determined that in order to
implement these decisions, it is appropriate to reinstate the ``All
Others'' rate from the LTFV investigation (or that rate as amended for
correction or clerical errors as a result of litigation) in proceedings
governed by antidumping duty orders. In proceedings governed by
antidumping findings, unless we are able to ascertain the ``All
Others'' rate from the Treasury LTFV investigation, we have determined
that it is appropriate to adopt the ``new shipper'' rate established in
the first final results of administrative review we published (or that
rate as amended for correction or clerical errors as a result of
litigation) as the ``All Others'' rate for the purposes of establishing
cash deposits in all current and future administrative reviews.
Because this proceeding is governed by an antidumping finding, and
we are unable to ascertain the ``All Others'' rate from the Treasury
LTFV investigation, the ``All Others'' rate for the purposes of this
review would normally be the ``new shipper'' rate established in the
first notice of final results of administrative review we published.
However, a ``new shipper'' rate was not established or ascertainable in
that notice. Therefore, for the purposes of this review, we have drawn
the ``All Others'' rate of 5.56 percent from the final results of
administrative review of this finding we conducted generally for the
period December 1, 1980 through November 30, 1982. See Elemental
Sulphur from Canada; Final Results of Administrative Review of
Antidumping Finding, 48 FR 53592 (November 28, 1983).
These deposit requirements shall remain in effect until publication
of the final results of the next administrative review.
This notice also serves as a final reminder to importers of their
responsibility under 19 CFR 353.26 to file a certificate regarding the
reimbursement of antidumping duties prior to liquidation of the
relevant entries during this review period. Failure to comply with this
requirement
[[Page 8253]]
could result in the Secretary's presumption that reimbursement of
antidumping duties occurred and the subsequent assessment of double
antidumping duties.
This notice also serves as a reminder to parties subject to
administrative protective orders (APOs) of their responsibility
concerning the disposition of proprietary information disclosed under
APO in accordance with 19 CFR 353.34(d)(1). Timely written notification
of the return/destruction of APO materials or conversion to judicial
protective order is hereby requested. Failure to comply with the
regulations and the terms of an APO is a sanctionable violation.
This administrative review and notice are in accordance with
section 751(a)(1) of the Tariff Act (19 U.S.C. 1675(a)(1)) and 19 CFR
353.22.
Dated: February 22, 1996.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 96-4979 Filed 3-1-96; 8:45 am]
BILLING CODE 3510-DS-P