[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