[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Notices]
[Pages 30326-30366]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-14736]



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DEPARTMENT OF COMMERCE
International Trade Administration
[A-475-818]


Notice of Final Determination of Sales at Less Than Fair Value: 
Certain Pasta From Italy

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

EFFECTIVE DATE: June 14, 1996.

FOR FURTHER INFORMATION CONTACT: John Brinkmann or Michelle Frederick, 
Office of Antidumping Investigations, Import Administration, 
International Trade Administration, U.S. Department of Commerce, 14th 
Street and Constitution Avenue, N.W., Washington, D.C. 20230; 
telephone: (202) 482-5288 or (202) 482-0186, respectively.

THE APPLICABLE STATUTE: Unless otherwise indicated, all citations to 
the statute are references to the provisions effective January 1, 1995, 
the effective date of the amendments made to the Tariff Act of 1930 
(the Act) by the Uruguay Round Agreements Act (URAA).

Final Determination

    We determine that certain pasta (``pasta'') from Italy is being 
sold in the United States at less than fair value (LTFV), as provided 
in section 735 of the Act. The estimated margins are shown in the 
``Suspension of Liquidation'' section of this notice.

Case History

    Since the publication of the preliminary determination of sales at 
less than fair value in this investigation on December 14, 1995, (60 FR 
1344, January 19, 1996) (Preliminary Determination) the following 
events have occurred:
    In January 1996, the Department received letters from the AFI Pasta 
Group, Pastaficio Guido Ferrara (interested parties), and Hershey Foods 
Corp., Borden Inc., and Gooch Foods, Inc. (collectively ``the 
petitioners'') regarding the provisional antidumping measures in this 
investigation and whether the suspension of liquidation affected 
entries of the subject merchandise 120 days after the Department's 
preliminary determination. The Department determined that the requests 
for an extension of the final determination contained an implied 
request to extend the provisional measures period, during which 
liquidation is suspended, to six months (see Extension of Provisional 
Measures memorandum dated February 7, 1996).

[[Page 30327]]

    On January 22, 1996, the Department requested that Arrighi S.p.A. 
Industrie Alimentari (Arrighi); F.lli De Cecco di Filippo Fara San 
Martino S.p.A. (De Cecco); Delverde S.r.l. (Delverde); De Matteis 
Agroalimentare S.p.A. (De Matteis); La Molisana Industrie Alimentari 
S.p.A. (La Molisana); Liguori Pastificio Dal 1820 S.p.A. (Liguori); 
Pastificio Fratelli Pagani S.p.A. (Pagani); and Saral Industrie 
Alimentari Della Sardegna S.r.l. (Saral) (collectively respondents) 
provide additional information and comments relating to level of trade.
    After publication of the preliminary determination, the 
petitioners, Pastaficio Guido Ferrara, and two of the respondents, De 
Matteis and La Molisana, alleged that the Department made ministerial 
errors in calculating the preliminary margins. We determined that 
ministerial errors were made with regard to Arrighi and Pagani. (See, 
Notice of Amended Preliminary Determination of Sales at Less Than Fair 
Value: Certain Pasta from Italy, (61 FR 7472, February 26, 1996).)
    The Department received responses to supplemental section D 
questionnaires from Pagani, Delverde, De Matteis, Arrighi, La Molisana, 
Liguori, and De Cecco in February 1996. Minor corrections to their cost 
responses were filed by Pagani, De Matteis, Arrighi, Liguori, and La 
Molisana prior to the respective cost verifications.
    Prior to verification, the Department requested each company to 
provide a reconciliation between the quantity and value reported in its 
questionnaire response and the company's published financial reports. 
The Department verified the respondents' sales and cost questionnaire 
responses during the months of February, March, and April in Italy and 
the United States. Verification of De Cecco's sales and cost responses 
were canceled for reasons described in the ``Facts Available'' section, 
below.
    On February 13, 1996, the petitioners argued that the Department 
should employ transaction-specific export and constructed export price 
comparisons for Delverde in the Department's final determination (see 
``Targeted Dumping'' below).
    On April 2 and April 30, 1996, Spruce Foods, a U.S. importer of 
organic pasta from Italy, submitted materials from the Italian Ministry 
of Agriculture and Forestry and from Associazione Marchigiana 
Agricultura Biologica concerning the certification of organic pasta in 
Italy to support its request that the Department exclude organic pasta 
from the scope of both this investigation and the companion 
countervailing duty investigation. (See ``Scope'' section, below.)
    Case and rebuttal briefs were submitted on April 29, 1996, and May 
1, 1996, respectively, by the petitioners and the respondents. At the 
request of the petitioners and several respondents, a public hearing 
was held on May 6, 1996.

Facts Available

    At the preliminary determination, the Department found that De 
Cecco had not provided a complete reporting of all of its ``affiliated 
parties,'' as requested in the antidumping questionnaire. The 
Department stated that, ``[i]nasmuch as the company's responses to date 
indicate that both the U.S. and home market sales databases are 
incomplete and that certain sales data and production costs have not 
been reported, we cannot conduct an accurate cost of production 
analysis or less-than-fair-value analysis using the reported prices.'' 
See Preliminary Determination. Because of these deficiencies, the 
Department was unable to use De Cecco's responses to calculate a margin 
for the preliminary determination of sales at less than fair value. The 
Department stated that it would proceed with the investigation and 
attempt to verify De Cecco's information if De Cecco cooperated and 
provided ``accurate and complete'' information in response to 
supplemental questionnaires.
    On January 11, 1996, the Department issued a supplemental 
questionnaire to De Cecco, requesting that it revise its section D 
response so as to incorporate cost information for its affiliated 
party, Molino e Pastificio De Cecco S.p.A. (Pescara). On February 2, 
1996, De Cecco submitted a response to the January 11, 1996, 
supplemental questionnaire. On February 5, 1996, the Department issued 
a supplemental questionnaire regarding the Pescara portion of the 
February 2, 1996, response and the Department reiterated several 
questions that remained unanswered from the January 11, 1996, 
supplemental questionnaire. On February 6, 7, and 9, De Cecco submitted 
revisions to its February 2nd response. On February 8, 1996, the 
Department received a request from the petitioners to cancel 
verification of De Cecco's new data and to use facts available to 
determine the final dumping margin. On February 15, 1996, the 
Department issued a decision memorandum announcing that it would not 
verify De Cecco's responses because it was determined that the February 
2 and 6 submissions constituted completely new cost of production (COP) 
responses (the latter of which was untimely), and 2) the acceptance of 
new responses would have imposed undue difficulties on the Department 
in completing the case within the statutory deadlines. These points 
were further developed in a Memorandum to the File from the Office of 
Accounting, ``Analysis of cost of production and constructed value data 
submitted by F.lli De Cecco di Filippo Fara San Martino S.p.A.,'' dated 
February 16, 1996. That memorandum stated:
    (1) Rather than addressing the Department's initial concerns 
documented in the January 11, 1996, supplemental questionnaire 
regarding the November 27 cost questionnaire response, De Cecco's 
February 2 submission reported revised COP and constructed value (CV) 
figures based on a new cost calculation methodology, developed by the 
company after the Department's preliminary determination.
    (2) Every COP and CV figure reported by De Cecco changed between 
the February 2, 1996, response and the February 6, 1996, submission.
    (3) De Cecco failed to explain the significant decreases between 
the costs reported in the November 27, 1995, and February 2, 1996, 
responses, and between the February 2, 1996, response and the February 
6, 1996, submission.
    (4) The inclusion of Pescara's costs did not explain the 
significant differences we observed in De Cecco's own total cost 
figures reported originally in the November 27 response and later in 
the February 6, 1996, submission.
    (5) For every product reported by Pescara, specific production 
quantities for internal product code numbers changed between the 
February 2 and February 6 responses.
    (6) In its February 2 and February 6 responses, De Cecco added new 
product control numbers but failed to explain the source of these new 
products.
    (7) De Cecco's February 2 response included completely new 
information, and was subsequently superseded by additional submissions.
    (8) It was not until February 13 that De Cecco submitted its 
reconciliation of reported costs to its financial statements, 37 days 
after the Department's request and ten days after the deadline.

(See also Memorandum to Barbara R. Stafford from Pasta Team, 
``Antidumping Duty Investigation of Certain Pasta from Italy: Use of 
Facts Available for F.lli De Cecco di Filippo Fara San Martino 
S.p.A.,'' dated February 15, 1996.)

[[Page 30328]]

    Because it was not possible for the Department to analyze the new 
responses, issue necessary supplemental questionnaire(s), receive 
responses to the supplemental questionnaire(s), and conduct 
verification within the statutory time limits, the Department did not 
verify the cost responses submitted by De Cecco.
    Section 776(a) requires the Department to resort to facts available 
when, inter alia, an interested party or any other person ``fails to 
provide {requested} information by the deadlines for submission of the 
information or in the form and manner requested, subject to subsections 
(c)(1) and (e) of section 782,'' and when the use of facts available is 
consistent with section 782(d) of the statute. Section 782(c)(1) 
provides for the Department to modify its information request if a 
party, ``promptly after receiving a request from {the Department} for 
information, notifies {the Department} that such party is unable to 
submit the information requested in the requested form and manner. * * 
* '' As De Cecco provided no such notification to the Department, 
subsection (c)(1) was inapplicable.
    The determination under section 776(a) as to whether a respondent 
``fail{ed} to provide {requested} information by the deadlines for 
submission of the information or in the form and manner requested,'' 
must be considered in light of section 782(d), ``Deficient 
Submissions.'' Section 782(d) provides that, if the Department 
``determines that a response to a request for information * * * does 
not comply with the request, {the Department} shall promptly inform the 
person submitting the response of the nature of the deficiency and 
shall, to the extent practicable, provide that person with an 
opportunity to remedy or explain the deficiency in light of the time 
limits established for the completion of investigations or reviews 
under this title.'' [Emphasis added.] On January 11, the Department 
informed De Cecco by means of the Department's supplemental 
questionnaire that its November 27, 1995, COP response did not comply 
with the Department's original COP questionnaire and explained why the 
response was deficient. Further, the Department provided De Cecco with 
``the opportunity to remedy or explain the deficiency in light of the 
time limits established.'' In order to ensure completion of the 
investigation within the statutory time period, the Department provided 
De Cecco with the opportunity to remedy its submission by February 2, 
which would allow the Department sufficient time to analyze the 
supplemental information, prepare for verification of the response, as 
supplemented, and conduct verification.
    However, on February 2 and February 6, De Cecco submitted two 
separate responses to the supplemental questionnaire. The Department 
determined that neither of these responses constituted a ``remedy'' or 
``explanation'' of the deficiencies of its original COP response, but 
rather were entirely new COP responses. Section 782(d) states that: 
``If that person submits further information in response to such 
deficiency and either--(1) {the Department} finds that such response is 
not satisfactory, or (2) such response is not submitted within the 
applicable time limits, then {the Department} may, subject to 
subsection (e), disregard all or part of the original and subsequent 
responses.'' The SAA at 195 states that 782(d) ``is not intended to 
allow parties to submit continual clarifications or corrections of 
information or to submit information that cannot be evaluated within 
the applicable deadlines. If subsequent submissions remain deficient or 
are not submitted on a timely basis, Commerce and the Commission may 
decline to consider all or part of the original and subsequent 
submissions * * * '' As detailed, the Department found that De Cecco's 
responses of February 2 and February 6 were ``not satisfactory'' 
because they constituted entirely new responses to the Department's 
original COP questionnaire. Moreover, the February 6 submission was 
``not submitted within the applicable time limits.'' Thus, because De 
Cecco's original response constituted a deficient submission within the 
meaning of section 782(d), and because its responses to the opportunity 
to remedy or explain the deficiency did not satisfy the requirements of 
section 782(d), De Cecco ``failed to provide {requested} information by 
the deadlines for submission of the information or in the form or 
manner required.'' Section 776(a) directs the Department in this 
situation to use the facts available, subject to section 782(e).
    Section 782(e) provides that the Department ``shall not decline to 
consider information that is submitted by an interested party and is 
necessary to the determination but does not meet all the applicable 
requirements established by {the Department}, if:
    (1) The information is submitted by the deadline established for 
its submission;
    (2) The information can be verified;
    (3) The information is not so incomplete that it cannot serve as a 
reliable basis for reaching the applicable determination;
    (4) The interested party has demonstrated that it acted to the best 
of its ability in providing the information and meeting the 
requirements established by {the Department} with respect to the 
information; and,
    (5) The information can be used without undue difficulties.''
    Thus, if any one of these criteria is not met, the Department may 
decline to consider the information at issue in making its 
determination. In conducting our analysis, the Department assumed, 
arguendo, that De Cecco's information (except for the clearly untimely 
February 6 submission) satisfied the first two criteria. With regard to 
the third criterion, whether the information may serve as a ``reliable 
basis'' for the Department's determination, the respondent had 
indicated on the record that the original response was fundamentally 
unreliable (i.e., although De Cecco stated its response was based upon 
standard costs, counsel noted that De Cecco ``does not have a standard 
cost accounting system''). When this statement was considered in 
combination with the fact that De Cecco's February submissions replaced 
the initial response, it was clear that the deficient original response 
could not serve as a reliable basis for the Department's determination. 
Moreover, as the February 6 submission explicitly stated that the 
February 2 submission was unreliable, the February 2 submission could 
not serve as a reliable basis for the Department's determination.
    As to criterion four, De Cecco had not demonstrated that it acted 
to the best of its ability in providing the requested information 
because De Cecco had failed to respond in a satisfactory manner to the 
Department's supplemental request for information and had provided 
completely new COP responses in February 1996, long after the 
Department's November 27, 1995, deadline for such a response. Finally, 
as to the last criterion, if the Department would have accepted the new 
submissions, it would have experienced undue difficulties in performing 
an analysis, obtaining any clarifications prior to verification, and 
permitting petitioners to participate fully in the process.
    Because section 782(e) did not prevent the Department from 
declining to consider De Cecco's COP information, and 782(d) allowed 
the Department to disregard De Cecco's original deficient COP response 
and its unsatisfactory responses to the Department's subsequent 
request, the Department

[[Page 30329]]

determined that De Cecco failed to provide its COP information by the 
deadlines established or in the form and manner requested. Section 
776(a) thus required the Department to use the facts available in 
making its determination as to De Cecco.
    The resort to facts available for De Cecco's cost data rendered its 
home market sale prices unusable, as the home market sales could not be 
tested to determine whether they were made at prices above production 
cost. A second problem with using the home market sales data was the 
absence of reliable difference in merchandise figures (DIFMERS). Under 
section 773(a)(6)(C) of the statute, when comparing normal value to 
export price the Department is required to account for the effect of 
physical differences between the merchandise sold in each market. In 
this case, DIFMERS were required for substantially all United States 
and home market matches; the pasta product sold in the United States is 
vitamin-enriched while nearly all the pasta sold in the home market is 
not. Because DIFMER data is based on cost information from the section 
D response (which was rejected by the Department), the effect of 
physical differences could not be taken into account. Because the home 
market sales data could not be verified, it could not be used by the 
Department in making its final determination.
    In the absence of home market sales data (i.e., when the home 
market is viable but there are insufficient sales above COP to compare 
with U.S. sales), the Department would normally resort to the use of 
constructed value as normal value. However, the constructed value 
information reported by De Cecco was part of the rejected cost data. 
Therefore, the use of facts available for cost of production data 
precluded the use of the submitted constructed value information.
    We considered the use of ranged public data submitted by other 
respondents or the petitioners' own cost data as possible alternatives 
to De Cecco's reported constructed value information. The petitioners' 
cost data was not on the record because their allegation of sales below 
cost of production was based on De Cecco's discredited DIFMER data. 
Moreover, it would not have been appropriate to use ranged public data 
submitted by other respondents as facts available for normal value in 
this investigation. Each control number covers sales of numerous unique 
product codes. The use of ranged public data would likely have resulted 
in the comparison of De Cecco's U.S. sales to the constructed value of 
a completely different product mix reported by the remaining 
respondents. Such comparisons would have been meaningless. Thus, 
neither the use of petitioners' cost, nor the use of ranged public 
data, was an acceptable alternative for normal value.
    In conclusion, there was no reasonable basis for determining a 
normal value for De Cecco. It was impossible, therefore, to perform any 
comparison to U.S. prices. As a result, we did not use De Cecco's U.S. 
sales data in determining an antidumping margin. The Department, 
therefore, had no choice but to resort to a total facts available 
methodology.
    Section 776(b) provides that adverse inferences may be used against 
a party that has failed to cooperate by not acting to the best of its 
ability to comply with requests for information. See also SAA at 870. 
De Cecco's failure to provide complete and accurate information in a 
timely manner and its failure to clarify inconsistencies in its 
submissions to the record demonstrate that De Cecco has failed to 
cooperate to the best of its ability in this investigation. Thus, the 
Department has determined that, in selecting among the facts otherwise 
available for De Cecco, an adverse inference is warranted.
    On the basis of our having compared the sizes of the calculated 
margins for the other respondents to the estimated margins in the 
petition, we have concluded that the petition is the only appropriate 
information on the record which could form the basis for a dumping 
calculation for De Cecco. In accordance with section 776(c) of the Act, 
we attempted to corroborate the data contained in the petition. When 
analyzing the petition, the Department reviewed all of the data the 
petitioners had submitted and the assumptions that petitioners made in 
calculating estimated dumping margins. As a result of that analysis, 
the Department revised the home market prices that petitioners relied 
upon in calculating the estimated dumping margins. On the basis of 
those adjustments, the Department recalculated the estimated dumping 
margins for certain pasta from Italy and found them to range from 21.85 
percent to 71.49 percent. See Initiation of Antidumping Duty 
Investigation: Certain Pasta from Italy and Turkey, 60 FR 30268, 30269 
(June 8, 1995). Because De Cecco made some effort to cooperate, even 
though it did not cooperate to the best of its ability, we did not 
choose the most adverse rate based on the petition. As facts otherwise 
available, we are assigning to De Cecco the simple average of the range 
of the margins stated in the notice of initiation, 46.67 percent.

Targeted Dumping

    On February 13, 1996, the petitioners requested that the Department 
compare Delverde's transaction-specific export prices in the United 
States to weighted-average normal values, in accordance with the 
``targeted dumping'' provisions of section 777A(d)(1)(B) of the Act. 
The petitioners alleged that there was a statistical pattern of 
different export prices among different groups of both Delverde's EP 
and CEP purchasers and that the use of a weighted-average price would 
have the effect of masking lower prices. The Department has denied this 
request on the ground that the petitioners' analysis failed to meet the 
basic requirements of subsections 777A(d)(1)(B) (i) and (ii) of the 
Act.
    The petitioners' allegation was the result of their having selected 
groups of customers on the basis of relatively higher and lower prices. 
After the groups had been selected, petitioners ran statistical 
procedures to establish that the prices of certain groups were lower 
than those of other groups. These results, however, were predetermined 
by the initial composition of the different groups. Moreover, by not 
supplying any relevant source of comparison benchmark prices, 
petitioners failed to demonstrate that the price differences were 
``significant,'' as required by section 777A(d)(1)(B)(i) of the Act.
    Even assuming, arguendo, that petitioners had shown targeting, in 
order for the targeted dumping provision to be applied, section 
777A(d)(1)(B)(ii) requires that the price differences cannot be taken 
into account by comparing the weight-averaged normal values to the 
weight-averaged U.S. prices. The petitioners' allegation fails to make 
this demonstration. Accordingly, this targeted dumping allegation does 
not provide the Department with a sufficient basis for comparing 
Delverde's transaction-specific export prices in the United States to 
its weighted-average normal value.

Scope of Investigation

    The merchandise under investigation consists of certain non-egg dry 
pasta in packages of five pounds (or 2.27 kilograms) or less, whether 
or not enriched or fortified or containing milk or other optional 
ingredients such as chopped vegetables, vegetable purees, milk, gluten, 
diastases, vitamins, coloring and flavorings, and up to two percent egg 
white. The pasta covered by this scope is typically sold in the retail 
market, in fiberboard or cardboard cartons or polyethylene or

[[Page 30330]]

polypropylene bags, of varying dimensions.
    Excluded from the scope of these investigations are refrigerated, 
frozen, or canned pastas, as well as all forms of egg pasta, with the 
exception of non-egg dry pasta containing up to two percent egg white. 
Also excluded are imports of organic pasta from Italy that are 
accompanied by the appropriate certificate issued by the Associazione 
Marchigiana Agricultura Biologica (AMAB).
    The merchandise under investigation is currently classifiable under 
items 1902.19.20 of the Harmonized Tariff Schedule of the United States 
(HTSUS). Although the HTSUS subheadings are provided for convenience 
and customs purposes, our written description of the scope of this 
investigation is dispositive.

Exclusion for Certain Organic Pasta

    On October 2, 1995, a U.S. importer of Italian pasta requested that 
the Department exclude from the scope of this investigation, and the 
companion countervailing duty investigation, pasta certified to be 
``organic pasta'' in compliance with European Economic Community 
Regulation No. 2092/91. This regulation sets forth a regime of 
standards for the cultivation, processing, storage, and transportation 
of organic foodstuffs with inspections of farms and processing plants 
by EEC-approved national certification authorities. In addition to the 
description of the EEC regime, the exclusion request included a copy of 
a sample certificate issued by the AMAB and a description, in English, 
of the AMAB organization.
    On November 9, 1995, the petitioners stated that they were willing 
to modify the scope of the petition and the investigation to exclude 
certified organic pasta of Italian origin if U.S. imports of such pasta 
were accompanied by certificates issued pursuant to EEC Regulation No. 
2092/91.
    On November 21, we requested additional data on the EEC regulation 
from the Section of Agriculture of the Delegation of the European 
Commission of the European Union. On December 8, 1995, the European 
Commission submitted responses to our inquiries. The information 
included a list of seven Italian inspection and certification 
authorities (of which AMAB was one) and the statement that EEC 
Regulation No. 2092/91 ``* * * does not provide for certification of 
products intended for export to third countries.'' Although the 
Department was not able to fashion an exclusion of organic pasta from 
the scope of these investigations in our preliminary determination, we 
stated that if certification procedures similar to those under the EEC 
regulation were established for exports to the United States, we would 
reconsider an exclusion for organic pasta.
    On April 2, 1996, the importer, that had originally requested the 
exclusion, submitted a letter attaching a copy of a decree, with a 
translation into English, from the Italian Ministry of Agriculture and 
Forestry authorizing AMAB to certify foodstuffs as organic for the 
implementation of EEC Regulation 2092/91. On April 30, 1996, this 
importer forwarded letters (with accompanying translations into 
English) from the Director General of the Italian Ministry of 
Agriculture and Forestry and from the Director of AMAB. The letter from 
the Ministry states that it has authorized AMAB to insure compliance 
with organic farming methods and to issue organic certificates since 
December of 1992. The letter from the Director of AMAB states that this 
organization will take responsibility for its organic pasta 
certificates and will supply any necessary documentation to U.S. 
authorities. On this basis, we are able to exclude--and do exclude--
imports of organic pasta from Italy that are accompanied by the 
appropriate certificate issued by AMAB from the scope of these 
investigations.

Period of Investigation

    The period of investigation (POI) is May 1, 1994, through April 30, 
1995.

Product Comparisons

    In accordance with section 771(16) of the Act, we considered all 
products produced by the respondent, covered by the description in the 
Scope of Investigation section and sold in the home market during the 
POI, to be foreign like products for the purposes of determining 
appropriate product comparisons to U.S. sales. Where there were no 
sales of identical merchandise in the home market to compare to U.S. 
sales, we compared U.S. sales to the next most similar foreign like 
product on the basis of the characteristics listed in Appendix III of 
the Department's antidumping questionnaire.

Level of Trade

    As set forth in section 773(a)(1)(B)(i) of the Act and in the 
Statement of Administrative Action (SAA) accompanying the Uruguay Round 
Agreements Act, at 829-831, to the extent practicable, the Department 
will calculate normal values based on sales at the same level of trade 
as the U.S. sales. When the Department is unable to find sales in the 
comparison market at the same level of trade as the U.S. sale(s), the 
Department may compare sales in the U.S. and foreign markets at 
different levels of trade.
    In accordance with section 773(a)(7)(A) of the Act, if sales at 
different levels of trade are compared, the Department will adjust the 
normal value to account for the difference in level of trade if two 
conditions are met. First, there must be differences between the actual 
selling functions performed by the seller at the level of trade of the 
U.S. sale and the level of trade of the normal value sale. Second, the 
differences must affect price comparability as evidenced by a pattern 
of consistent price differences between sales at the different levels 
of trade in the market in which normal value is determined.
    Section 773(a)(7)(B) of the Act establishes the procedures for 
making a CEP offset when: (1) normal value is at a different level of 
trade; and (2) the data available do not provide an appropriate basis 
for a level of trade adjustment. In addition, in accordance with 
section 773(a)(7)(B), in order to qualify for a CEP offset, the level 
of trade in the home market must constitute a more advanced stage of 
distribution than the level of trade of the CEP.
    In implementing these principles in this case, the Department's 
first task was to obtain information about the selling activities of 
the producers/exporters. Information relevant to level of trade 
comparisons and adjustments was requested in our July 10, 1995 
questionnaire, and in supplemental questionnaires sent on October 23, 
1995, and January 22, 1996. We asked each respondent to establish any 
claimed levels of trade based on the selling functions provided to each 
proposed customer group, and to document and explain any claims for a 
level of trade adjustment.
    Our review of these submissions shows that the respondents have 
identified levels of trade in various manners. In some instances, 
respondents used traditional customer categories (e.g., wholesaler, 
retailer), or customer groups (e.g., supermarkets, wholesalers, buying 
consortium) to identify levels of trade, while in other instances they 
used factors such as channels of distribution. In order to determine 
whether separate levels of trade actually existed within or between the 
U.S. and home markets, we reviewed the selling functions attributable 
to the customer groups claimed by the respondents. Pursuant to section 
773(a)(1)(B)(i) of the Act, and the SAA at 827, in identifying levels 
of

[[Page 30331]]

trade for directly observed (i.e., not constructed) export price and 
normal value sales, we considered the selling functions reflected in 
the starting price, before any adjustments. For constructed export 
price (CEP) sales, we considered the selling functions reflected in the 
price after the deduction of expenses and profit under Section 772(d) 
of the Act. Whenever sales within a customer group were made by or 
through an affiliated company or agent, we ``collapsed'' the affiliated 
parties before considering the selling functions performed. The selling 
functions and activities examined for each reported customer group 
were: (1) the process used to establish the terms and conditions of 
sale (``sales process''); (2) whether the sale was produced to order or 
filled from normal inventory (``inventory maintenance''); (3) whether 
the customer was serviced from a forward warehouse (``forward 
warehousing''); (4) freight and delivery provided or arranged by the 
manufacturer/exporter (``freight''); (5) manufacturer provided or 
shared direct advertising or in-store promotion expenses 
(``advertising''); and (6) warranty service program or after-sales 
service provided by producer (``warranties'').
    In reviewing the selling functions reported by the respondents for 
each customer group, we considered all types of selling functions, both 
claimed and unclaimed, that had been performed. Where possible, we 
further examined whether the selling function was performed on a 
substantial portion of sales within the relevant customer group. In 
analyzing whether separate levels of trade exist in this investigation, 
we found that no single selling function in the pasta industry was 
sufficient to warrant a separate level of trade (see, Notice of 
Proposed Rulemaking and Request for Public Comments, 61 FR 7307, 7348 
(February 27, 1996)) (Proposed Regulations).
    In determining whether separate levels of trade existed in or 
between the U.S. and home markets, the Department considered the level 
of trade claims of each respondent, but the ultimate decision was based 
on the Department's analysis of the selling functions associated with 
the customer groups reported by the respondents. (In this analysis, 
customer group refers to the customers or groups of customers 
identified by respondents.) Although Liguori, De Matteis, Arrighi, and 
Delverde did not argue that comparisons should be made on the basis of 
level of trade, the statute requires that, where possible, the 
Department make comparisons at the same level of trade. Therefore, we 
looked at the issue of level of trade for each respondent for which we 
calculated a margin.
    To the extent practicable, we compared normal value at the same 
level of trade as the U.S. sale. For respondents Arrighi, Delverde, and 
La Molisana we compared the sole level of trade in the U.S. market to 
the home market level of trade which we found to be identical in 
aggregate selling functions to the level of trade in the United States. 
In the case of De Matteis and Pagani, we found two home market levels 
of trade, one of which was determined to be identical in aggregate 
selling functions to that found in the United States. For respondent 
Liguori, we compared the level of trade in the U.S. market to the sole 
home market level of trade and found them to be dissimilar in aggregate 
selling functions. Therefore, we established normal value at a level of 
trade different than the U.S. sales.
    We then examined whether a level of trade adjustment was 
appropriate for Liguori when comparing its U.S. level of trade to its 
home market level of trade. However, because there was only a single 
home market level of trade, there was no basis for making a level of 
trade adjustment based on a demonstration of a consistent pattern of 
price differences between the home market levels of trade. The SAA 
states that ``if information on the same product and company is not 
available, the adjustment may also be based on sales of other products 
by the same company. In the absence of any sales, including those in 
recent time periods, to different levels of trade by the exporter or 
producer under investigation, Commerce may further consider the selling 
experience of other producers in the foreign market for the same 
product or other products.'' SAA at 830. The alternative methods for 
calculating a level of trade adjustment for Liguori were examined. 
However, we do not have information which would allow us to examine 
pricing patterns based on Liguori's sales of other products at the same 
level of trade as the home market sales and there are no other 
respondents with the same levels of trade as those found for the home 
market sales of Liguori. Therefore, we were unable to calculate a level 
of trade adjustment for Liguori based on these alternative methods. 
Accordingly, Liguori's U.S. sales were compared to home market sales 
based solely on the product characteristics of the merchandise.
    Although Pagani did have identical U.S. and home market levels of 
trade, for certain U.S. product categories there were no sales of 
comparable merchandise at the same level of trade. We then examined the 
prices of comparable product categories, net of all adjustments, 
between Pagani's two home market levels of trade, and found a 
consistent pattern of price differences. Therefore, for the U.S. 
product categories without a match to an identical home market level of 
trade, we made the comparison at a different level of trade, and made a 
level of trade adjustment based on the weighted-average difference 
between the prices at the two home market levels of trade. In this 
case, the adjustment resulted in an increase to normal value.
    As noted below in the ``Comparison Methodology'' section of this 
notice, where there were distinct price differences between a 
respondent's customer categories within similar levels of trade, or 
within different levels of trade in the case of Liguori and Pagani, we 
considered the customer category in creating the averaging groups for 
our comparisons.
    A complete description of the level of trade analysis for each 
respondent is presented in the DOC Position to Comment 1E below.

Fair Value Comparisons

    To determine whether sales of pasta by the Italian respondents to 
the United States were made at less than fair value, we compared the 
Export Price (EP) and/or Constructed Export Price (CEP) to the Normal 
Value (NV), as described in the ``Export Price and Constructed Export 
Price'' and ``Normal Value'' sections of this notice. In accordance 
with section 777A(d)(1)(A)(i) of the Act, we calculated weighted-
average EPs and CEPs for comparisons to weighted-average NVs. For a 
further discussion, see the Comparison Methodology section, below.

Export Price and Constructed Export Price

    We calculated EP, in accordance with subsections 772 (a) and (c) of 
the Act, for each of the respondents, where the subject merchandise was 
sold directly to the first unaffiliated purchaser in the United States 
prior to importation and CEP was not otherwise warranted based on the 
facts of record. In addition, for Delverde, we calculated CEP, in 
accordance with subsections 772 (b) through (d) of the Act, for those 
sales to the first unaffiliated purchaser that took place after 
importation into the United States.
    Furthermore, as in the preliminary determination, we did not 
include the resale of subject merchandise purchased in Italy from 
unaffiliated producers. For Arrighi, however, we were unable to

[[Page 30332]]

determine which particular U.S. sales were of merchandise produced by 
firms other than Arrighi. Therefore, we weight the dumping margin for 
Arrighi for each product category it identified by (1) calculating a 
ratio of the volume of Arrighi-produced product to the combined total 
volumes of Arrighi-produced and purchased product in the same period, 
and (2) applying the ratio to the quantity for the corresponding 
product sold to the United States during the POI. This allowed us to 
calculate a margin based on an estimated quantity of Arrighi-produced 
product (see Arrighi's Comment 6).
    We calculated EP and CEP based on the same methodology used in the 
preliminary determination. For certain respondents, we recalculated 
reported credit expenses in instances where they had not reported a 
shipment and/or payment date because the merchandise had not yet been 
shipped or paid for at the time of filing the response. For those sales 
missing a shipment and/or a payment date, we used the average credit 
days of all transactions with a reported shipment and payment date. 
Additional company-specific adjustments were made as follows:

Arrighi

    We made minor corrections to the U.S. sales database based on 
errors noted at verification and we recalculated the warranty claim 
expense for U.S. sales to reflect verified claim expenses. We also 
recalculated inventory carrying expense to correct the price basis used 
in the calculation, and to apply a weighted average short-term interest 
rate based on Arrighi's and Italpasta's company-specific short-term 
interest rates (see Arrighi's Comment 2).

Delverde

    In those instances where negative values were reported for U.S. 
credit expenses (i.e., where Delverde received payment prior to 
shipment), we set the credit expense to zero. As discussed in Comment 5 
for Delverde below, we did not rely on certain CEP sales by Delverde 
USA because we determined that the date of these sales fell outside the 
POI. Consistent with our treatment of slotting fees paid in the home 
market, we reclassified the slotting expenses reported by Delverde USA 
(i.e., field ``ADVERT2U'') as indirect selling expenses. We made 
deductions for warranties and additional direct selling expenses 
reported by Tamma Industrie Alimentari di Capitanata, SrL (Tamma), a 
Delverde affiliate. We also increased Tamma's packing costs, indirect 
selling expense and warehousing cost to reflect the findings of the 
cost verification.

De Matteis

    We deleted one invoice from the U.S. database because it was 
discovered at verification that the sale was made outside of the POI.

La Molisana

    We adjusted La Molisana's reported direct advertising expense by 
reclassifying a portion as an indirect expense. See, Comments 2C and 3B 
for La Molisana, below. We recalculated the reported indirect selling 
expenses to reflect verified expenses. In addition, we increased the 
indirect expenses by including certain unreported expenses discovered 
at verification. We also corrected the control number associated with 
certain products to reflect the shape classifications confirmed at 
verification.

Liguori

    For certain of Liguori's U.S. sales, that are associated with a 
particular invoice number, we corrected the shipment date and the 
imputed credit expenses, based on errors noted at verification.

Pagani

    We revised the interest rate used for calculating Pagani's credit 
expense and its inventory carrying costs based on information found at 
verification. We deleted the following sales from the U.S. sales 
listing: sales made outside of the POI, duplicate entries, and a sale 
made to a Canadian company.

Normal Value

    In accordance with section 773(a)(1)(B) of the Act, we have based 
NV on sales in Italy or, where appropriate, on constructed value (CV).
    For each of the respondents, we made adjustments, where 
appropriate, for physical differences in the merchandise, in accordance 
with 19 CFR 353.57. In addition, we deducted home market packing costs 
and added U.S. packing costs for all respondents.
    We adjusted for differences in commissions in accordance with 19 
CFR 353.56(a)(2) as follows: Where commissions were paid on some home 
market sales to calculate normal value and U.S. commissions were 
greater than the sum of both home market commissions and indirect 
selling expenses, we deducted from normal value either (1) home market 
indirect selling expenses attributable to those sales on which 
commissions were not paid, or (2) the difference between the U.S. and 
home market commissions. Where commissions were paid on home market 
sales but not on sales to the U.S., we deducted the lesser of either 
(1) the home market commissions, or (2) the sum of the weighted average 
indirect selling expenses paid on U.S. sales. Where no commissions were 
paid on home market sales used to calculate normal value, we deducted 
the lesser of either (1) the amount of the commissions paid on the U.S. 
sales, or (2) the sum of the weighted average indirect selling expenses 
paid on home market sales, capped by the amount of the commission paid 
on U.S. sales. Finally, regardless of the applicable scenario, the 
amount of the commission paid on the U.S. sales was added to normal 
value.
    For certain respondents, we recalculated reported credit expenses 
in instances where they had not reported a shipment and/or payment date 
because the merchandise had not yet been shipped or paid for at the 
time of filing the response. For those sales missing a shipment and/or 
a payment date, we used the average credit days of all transactions 
with a reported shipment and payment date.
    Liguori and La Molisana reported that the sales to their respective 
affiliated customer(s) were made at arm's length prices. We used the 
affiliated party test applied at the preliminary determination to 
determine whether sales to affiliated customers were made on an arm's-
length basis, although we modified it to consider price differences 
that result from comparisons of sales to different customer categories. 
(For a further discussion of this issue see, Comment 1 under the 
``Company Specific Comments--La Molisana'' section of this notice, 
below. Sales not made at arm's-length prices were excluded from our 
LTFV analysis.
    We compared all home market sales to the cost of production (COP), 
as described below. Where home market prices were above COP, we 
calculated NV based on the same methodology used in the preliminary 
determination, with the following exceptions:

Arrighi

    We made minor corrections to the home market sales database based 
on errors noted at verification (see Arrighi's Comment 1). For home 
market credit expense calculation, we used a weighted average short-
term interest rate based on Arrighi's and Italpasta's company-specific 
short-term interest rates (see Arrighi's Comment 2). We also 
recalculated inventory carrying expense to correct the price basis used 
in the calculation, and to apply the weighted average short-term 
interest rate. We reclassified as indirect selling expenses advertising 
expense 1 and direct selling expenses based on verification findings 
(see Arrighi's Comments 4 and 5). For

[[Page 30333]]

Italpasta sales that incurred inland freight, we used the lowest 
reported unit inland freight expense as ``facts available'' because 
this expense could not be completely verified (see Arrighi's Comment 
3).
    Additionally, because section 773(a)(1)(B)(i) of the Act 
incorporates, by reference, the definition of foreign like product in 
section 771(16) of the Act, it prohibits our using sales of merchandise 
produced by persons other than the respondents in our calculation of 
normal value. Accordingly, we have excluded from our analysis all of 
the sales from each of the companies of subject merchandise in the 
Italian market that were not produced by the respondent companies (see 
Arrighi's Comment 7).

Delverde

    We recalculated home market credit based on the weighted average of 
the company-specific short term borrowing rates reported by Delverde 
and Tamma. We also increase Tamma's packing cost, indirect selling 
expenses and warehousing cost to reflect the findings of cost 
verification.

De Matteis

    All reported commission expenses that were found to be salaries 
were reclassified as indirect selling expenses.

La Molisana

    We disallowed La Molisana's claim for a certain rebate (REBATE2H) 
because the company failed to provide support documentation for the 
claimed amount at verification. See La Molisana Comment 4, below. We 
recalculated the indirect selling expense factor to reflect the amounts 
confirmed at verification. In addition, we reclassified trade promotion 
expenses as direct advertising expenses. See Comment 2B, below. 
Finally, we reallocated the POI expenses over the appropriate 
denominator confirmed at verification.
    Additionally, we increased the reported advertising expense to 
include the ``television sponsorship'' expense discovered at 
verification. See La Molisana Comment 2A, below.

Liguori

    For certain home market sales, associated with a particular 
invoice, we corrected the payment date and the imputed credit expenses 
based on errors noted at verification.

Pagani

    We deleted home market sales of enriched pasta, other than enriched 
whole wheat pasta, because these sales were deemed to have been made 
outside of the ordinary course of business. In addition, we deleted 
duplicate entries, sales recorded as gifts, sales made outside of the 
POI, and sales to employees from the home market database. We also 
updated the interest rate used for calculating Pagani's credit expense 
and its inventory carrying costs.

Cost of Production Analysis

    As discussed in the preliminary determination notice, the 
Department conducted an investigation to determine whether each 
respondent made home market sales during the POI at prices below COP 
within the meaning of section 773(b) of the Act. Before making any fair 
value comparisons, we conducted the COP analysis described below.

A. Calculation of COP

    We calculated the COP based on the cost of materials, fabrication, 
general expenses, and home market packing in accordance with section 
773(b)(3) of the Act. We relied on the submitted COP data, except in 
the following instances where the costs were not appropriately 
quantified or valued.
Arrighi
    1. We corrected Arrighi's understated depreciation expense to 
reflect its normal, full-year depreciation expense for fixed assets 
that were temporarily idle.
    2. We corrected general and administrative expenses (G&A) for costs 
that were improperly excluded by Arrighi and its affiliate, Italpasta 
S.p.A. (Italpasta).
    3. We revised the cost of goods sold figure used as the denominator 
in the G&A and financial expense ratios and recalculated Arrighi and 
Italpasta's G&A and financial expense ratios.
    4. We recalculated the semolina costs reported by Arrighi's 
affiliated mill to correct for errors in the cost of raw materials
    5. We increased Arrighi's material costs to agree with the actual 
material costs reported under the company's financial accounting 
system.
    6. We increased Arrighi's G&A expenses to include the G&A expenses 
incurred by its parent company.
    7. We revised Arrighi and Italpasta's financial expenses to include 
bank charges and to exclude exchange gains and losses related to sales 
transactions.
De Matteis
    1. We revised the cost of goods sold figure used as the denominator 
in De Matteis' submitted G&A and financial expense rates, and 
recalculated its per-unit G&A and financial expenses using the revised 
rates.
Delverde and Tamma
    1. We corrected the depreciation expense reported by Tamma, a 
Delverde affiliate.
    2. We increased Tamma's financial expenses to include foreign 
exchange losses incurred on the extinguishment of debt.
    3. We revised the combined cost of sales figure used by Delverde to 
calculate its G&A and financial expense rates, reducing it for 
byproduct revenues and intercompany transfers between Delverde and 
Tamma.
    4. We did not calculate a separate financial expense rate for use 
in the CV calculations because the statute states that COP and CV are 
based on the actual costs and not imputed costs.
Pagani
    1. We increased Pagani's cost of semolina for unreported freight 
costs.
    2. We increased Pagani's fixed overhead for clerical errors 
reported to the Department on the first day of verification. We also 
increased fixed overhead to include an additional two months of 
depreciation expense on a new production line.
    3. We revised Pagani's cost of sales figure used to calculate the 
G&A expense ratio to exclude packing costs and to include all fixed 
overhead costs.
    4. We revised Pagani's consolidated financial expense rate 
calculation to account for the following: we reduced the costs of sales 
figure for byproduct revenue that was used to offset the cost of 
production; we included fixed overhead costs that had been omitted from 
the costs of sales figure; we excluded packing costs from the cost of 
sales figure; and we adjusted the consolidated cost of sales figure to 
account for intercompany transfers.
Liguori
    1. We reallocated fuel costs based on the number of pasta 
production lines in operation.
La Molisana
    1. We increased reported costs to account for an unreconciled 
difference between La Molisana's cost and financial accounting systems.
    2. We increased the reported cost of semolina production, 
disallowing La Molisana's offset for revenues received from sales of 
finished semolina.
    3. We increased the reported costs for the understatement of wheat, 
labor and electricity costs due to the use of the calendar year 1994 
costs rather than POI costs.

[[Page 30334]]

    4. We increased reported costs to account for an unreconciled 
difference between La Molisana's total production costs and its 
reported production costs for 1994.
    5. We reduced reported depreciation expense for an overstatement 
discovered during verification.
    6. We increased G&A expenses to disallow an offset for foreign 
exchange gains related to sales transactions.
    7. We increased reported financial expenses to disallow long-term 
interest income used to offset financial expenses and to include 
financial expenses that were allocated to the flour mill.
    8. We revised the cost of sales figure used as the denominator in 
La Molisana's G&A and financial expense ratios, and recalculated its 
per-unit G&A and financial expenses using the revised rates.

B. Test of Home Market Prices

    We compared the adjusted weighted-average COP figures to home 
market sales of the foreign like product on a product-specific basis, 
in order to determine whether these sales had been made at below-cost 
prices within an extended period of time in substantial quantities, and 
at prices that did not permit recovery of all costs within a reasonable 
period of time. The home market prices compared were net of any 
applicable movement charges, discounts, rebates, packing, and direct 
and indirect selling expenses.

C. Results of COP Test

    Pursant to section 773(b)(2)(C), where less than 20 percent of 
sales during the POI of a given product are at prices less than the 
COP, we do not disregard any below-cost sales of that product because 
the below-cost sales are not made in substantial quantities within an 
extended period of time. Where 20 percent or more of sales of a given 
product are at prices less than the COP, we disregard only the below-
cost sales because such sales are found to be made within an extended 
period of time, in accordance with section 773(b)(2)(B) of the Act, and 
at prices which would not permit recovery of all costs within a 
reasonable period of time, in accordance with section 773(b)(2)(D) of 
the Act. Where all sales of a specific product are at prices below the 
COP, we disregard all sales of that product, and calculate NV based on 
CV, in accordance with section 773(a)(4) of the Act.
    We found that, for certain types of pasta, more than 20 percent of 
the following respondents' home market sales were sold at below COP 
prices within an extended period of time in substantial quantities: 
Arrighi, Delverde, De Matteis, La Molisana, Pagani and Liguori. Further 
we did not find that these sales provided for the recovery of costs 
within a reasonable period of time. We therefore excluded these sales 
and used the remaining above-cost sales as the basis for determining NV 
if such sales existed, in accordance with section 773(b)(1). For those 
types of pasta for which there were no above-cost sales in the ordinary 
course of trade, we compared export prices to CV.

D. Calculation of CV

    In accordance with section 773(e)(1) of the Act, we calculated CV 
based on the sum of cost of materials, fabrication, general expenses 
and U.S. packing costs as reported in the U.S. sales database. We 
recalculated the respondents' CV based on the methodology described in 
the calculation of COP above.
    For each of the respondents, we made adjustments, where 
appropriate, for physical differences in the merchandise in accordance 
with section 773(a)(6)(C)(ii) of the Act. Where the difference in 
merchandise adjustment for any product comparison exceeded 20 percent, 
we based normal value on CV. In addition, in accordance with section 
773(a)(6)(B), we deducted home market packing costs and added U.S. 
packing costs for all respondents.

Comparison Methodology

    In accordance with section 777A(d)(1)(A)(i) of the Act, we 
calculated weighted-average EPs or CEPs for comparison to weighted 
average normal values, or to constructed values, where appropriate. The 
weighted averages were calculated and compared by product 
characteristics and, where appropriate, level of trade and/or price 
averaging groups. The SAA states that in determining the comparability 
of sales for inclusion within a particular average, ``Commerce will 
consider factors it deems appropriate, such as * * * the class of 
customer involved,'' SAA at 842. The Department, not the respondents, 
determines which customers may be grouped together for product 
comparison purposes. Cf., N.A.R., S.p.A. v. U.S., 741 F. Supp. 936 
(CIT, 1990). Based on the chain of distribution for the pasta industry, 
we have identified the following five distinct customer categories that 
represent different points in the chain of distribution: (1) other 
pasta manufacturers (Pastificios) who purchase and resell pasta; (2) 
distributors; (3) wholesalers; (4) retailers; and (5) consumers. Each 
of these customer categories was defined by functions commonly 
associated with each category of customer in the areas of: (1) category 
of the supplier; (2) contractual relationship with the supplier; (3) 
exclusivity of sales territory; (4) exclusivity of product range; (5) 
sales practices; and (6) downstream customer category.
    For those respondents (De Matteis and Pagani) with the same level 
of trade in the U.S. and home markets and a single, identical customer 
category in each market, the weighted-average prices were calculated 
and compared by product characteristics and level of trade. For those 
respondents having the same level of trade in the U.S. and home 
markets, and multiple customer categories, the weighted-average prices 
were calculated and compared by product characteristics, level of 
trade, and the identical or, in the case of La Molisana, the most 
comparable customer category in terms of remoteness from factory, if we 
found that there were consistent price differences among the various 
customer categories. Price differentials were analyzed by first 
calculating the average price net of all reported expenses for each 
product control number and unique customer category in each market. The 
average net unit prices for each control number in the customer 
category least remote in the chain of distribution were compared to the 
identical product control number in the customer category at the next 
most remote level in the chain of distribution. Price differentials 
were considered to be consistent if there were uniform price 
differences between the customer categories. For those respondents 
(Arrighi and Delverde) with the same level of trade in the U.S. and 
home markets and multiple customer categories, but no consistent price 
differentials, the weighted-average prices were calculated and compared 
by product characteristic and level of trade. We determined for Arrighi 
that a price differential analysis was not measurable because Arrighi 
had grouped different customer categories in its reported customer 
groups, and we were unable to separate these customers by customer 
category. For those respondents (Liguori) with different levels of 
trade in the U.S. and home market, the weighted-average prices were 
calculated and compared by product characteristics and by customer 
category, if we found that there were consistent price differentials 
among the customer categories.

Currency Conversion

    We made currency conversions into U.S. dollars based on the 
official exchange rates in effect on the dates of the U.S. sales as 
certified by the Federal

[[Page 30335]]

Reserve Bank. Section 773A(a) of the Act directs the Department to use 
a daily exchange rate in order to convert foreign currencies into U.S. 
dollars. Further, section 773A(b) directs the Department to allow a 60-
day adjustment period when a currency has undergone a sustained 
movement. A sustained movement has occurred when the weekly average of 
actual daily rates exceeds the weekly average of benchmark rates by 
more than five percent for eight consecutive weeks. The benchmark is 
defined as the moving average of rates for the past 40 business days. 
(For an explanation of this method, see, Policy Bulletin 96-1: Currency 
Conversions, 61 FR 9434, March 8, 1996). Such an adjustment period is 
required only when a foreign currency is appreciating against the U.S. 
dollar. The use of an adjustment period was not warranted in this case 
because the Italian lira did not undergo a sustained movement, nor were 
there currency fluctuations during the POI.

Verification

    As provided in section 782(i) of the Act, we verified information 
provided by the respondents, with the exception of De Cecco, using 
standard verification procedures, including the examination of relevant 
sales and financial records, and selection of original source 
documentation containing relevant information. In addition, we 
conducted verification of Saral to confirm its claim that it no longer 
exports pasta to the United States.

Interested Party Comments

I. General Issues

    Comment 1 Level of Trade: Comment 1A Whether the Department Should 
Consider the Class of Customer and/or Channel of Distribution in 
Determining Whether Separate LOTs Exist: The petitioners and La 
Molisana argue that the level of trade (LOT) methodology adopted by the 
Department in its preliminary determination is flawed and should be 
substantially revised in the final determination. Specifically, the 
petitioners and La Molisana assert that the Department improperly 
focused solely on selling functions and ignored the customer groups 
and/or channels of distribution identified by each respondent as 
potentially different points in the chain of distribution.
    The petitioners assert that it has been long recognized by the 
Department and the Court of International Trade (CIT) that levels of 
trade reflect ``an attempt to reconstruct prices at a specific, 
'common' point in the chain of commerce * * *''), Smith Corona v. 
United States, 713 F.2d 1568, 1571-72 (Fed. Cir. 1983). Claiming that 
the new statute, the SAA, and the Department's Proposed Regulations do 
not define LOT or establish criteria for determining separate LOTs, the 
petitioners and La Molisana argue that the fundamental concept of LOT 
has not changed under the new statute. Therefore, they each contend 
that the definition of LOT still reflects the Court of Appeals' and the 
Department's longstanding interpretation of that term (i.e., that LOT 
refers to different points in the chain of distribution). (See, e.g., 
Import Administration Policy Number 92/1 at 2 (July 29, 1992), (``In 
asking for LOT information, the Department is trying to determine where 
in the distribution chain the respondents' customer falls (end user, 
distributor, retailer).'') Certain Carbon and Alloy Steel Wire Rod from 
Canada, 59 FR 18,791, 18,794 (April 20, 1994), (``Comparisons are made 
at distinct, discernable levels of trade based on the function each 
level of trade performs, such as end-user, distributor, and 
retailer.'')).
    Although the petitioners and La Molisana recognize that the new 
statute contains certain refinements to the LOT concept, both parties 
argue that the amendments to the law made by the URAA did not alter the 
fundamental definition of LOT as noted above. Consequently, they argue 
that the starting point for determining whether different LOTs exist is 
whether the sales take place at different points in the chain of 
distribution. The petitioners and La Molisana cite Certain Stainless 
Steel Wire Rods from France: Preliminary Results of Antidumping Duty 
Administrative Review, 61 FR 8915, 8916 (March 6, 1996) (French Rod) as 
a recent case where, in analyzing potential LOTs, the Department relied 
upon the distinctions the respondents identified between channels of 
distribution. (``Respondents reported two channels of distribution in 
the home market. * * * We examined and verified the selling functions 
performed in each channel. * * * Overall we determine that the selling 
functions between the two sales channels are sufficiently similar to 
consider them one level of trade in the home market.'')), French Rod, 
61 FR 8916. Therefore, both La Molisana and the petitioners assert that 
the Department should consider the potential LOTs identified by the 
respondents, in terms of channels of distribution or customer groups, 
in determining whether separate LOTs exist.
    Arrighi argues that the LOT methodology adopted by the Department 
in its preliminary determination was factually correct and in 
accordance with the law and the URAA. Arrighi disagrees with the 
petitioners' and La Molisana's claim that the amendments to the law 
made by the URAA did not alter the fundamental definition of LOT. 
According to Arrighi, because the SAA specifically states that ``in 
order to establish the existence of different LOTs, a respondent 
company must show that different selling activities are performed by 
the respondent company at each LOT,'' and there is no mention of 
another criterion or test in either the statute or the SAA, the 
position in the chain of distribution of the respondent's customers 
should not be a precondition to finding separate LOTs.
    Arrighi contends that the Department confirmed that the selling 
functions of a respondent are the proper determinative factor in 
establishing different LOTs in its comments that were issued with the 
Proposed Regulations for the URAA. Arrighi claims that while certain 
commentators argued that a respondent company must sell to customers at 
different points in the chain of distribution before asserting that 
different LOTs exist, the Department rejected this position, stating 
that the ``only test identified in the statute for the legitimacy of 
the claimed LOTs is the activity of the seller.''
    DOC Position: We agree with Arrighi that it is appropriate to look 
at the selling functions of a respondent to determine whether separate 
levels of trade exist. While neither the Act nor the SAA provides an 
explicit definition of level of trade or establishes criteria for 
determining whether separate levels of trade exist, the SAA does 
specify that the Department requires evidence that ``different selling 
activities are actually performed at the allegedly different levels of 
trade'' before recognizing distinct levels of trade. SAA at 829. This 
is confirmed again by the SAA in the discussion of the required pattern 
of price differences for the LOT adjustment, where it states that 
``where it is established that there are different levels of trade 
based on the performance of different selling activities * * *,'' 
Commerce will make a LOT adjustment. SAA at 830. Thus, the Act and the 
SAA have identified selling activities as a key factor in determining 
levels of trade; however, the statute does not require that this 
analysis begin and end with the selling activities of the producer/
exporter.
    In the preliminary determination, the Department stated that it 
would continue to examine its policy for

[[Page 30336]]

making level of trade comparisons and adjustments. After reviewing the 
comments we received on this issue as well as the Department's recent 
practice for determining the existence of levels of trade, we have 
determined that certain modifications to the LOT methodology used in 
the preliminary determination are warranted. As described in the 
``Level of Trade'' section of this notice, above, in order to determine 
whether distinct levels of trade exist, we have examined the full array 
of selling functions provided to each of the customer groups alleged by 
the respondents. As noted in Comment 1C below, we believe that this 
approach will allow us to consider all types of selling functions, both 
claimed and unclaimed, that had been actually performed in determining 
the level of trade and avoid instances where a single selling function 
difference on individual sales transactions warrants the finding of a 
distinct level of trade. Finally, by reviewing the selling functions 
within each of the alleged customer groups, we expect that the analysis 
will capture any possible differences in the mix of selling activities 
provided for each customer group.
    Comment 1B Whether the Selling Functions of a Respondent Should be 
Considered in Determining Whether Separate LOTs Exist: La Molisana 
argues that the functions or services performed by the respondents are 
not determinative of whether different LOTs exist and should not be 
taken into consideration in the Department's LOT analysis. La Molisana 
asserts that Section 773(a)(7)(A) of the new statute provides for a LOT 
adjustment ``if the difference in LOT * * *involves the performance of 
different selling activities.'' Accordingly, La Molisana asserts that 
the selling activities of the respondent cannot be part of the 
definition of LOT and only become relevant after it is determined that 
separate LOTs, in fact, exist. Therefore, La Molisana argues that the 
question of whether the seller performs different selling functions is 
only relevant in determining whether a LOT adjustment is warranted.
    The petitioners argue that the SAA is clear in stating that selling 
functions are intended to be an integral part of establishing whether 
different LOTs exist. (``Commerce will grant [LOT] adjustments only 
where: 1) there is a difference in the LOT (i.e., there is a difference 
between the actual functions performed by the sellers at the different 
levels of trade in the two markets)). SAA at 829. The petitioners 
contend that the SAA's reference to a ``difference between the actual 
functions performed'' clearly implies that a distinction in LOT should 
not be made without a finding of functional differences. In addition, 
the petitioners claim that the SAA implies that something more than a 
mere reference to the class of customer would be needed to identify 
separate LOTs (``[n]ominal reference to a company as a `wholesaler,' 
for example, will not be sufficient'' [in determining LOT]). SAA at 
829. Therefore, the petitioners argue that a selling function analysis 
is relevant in determining whether separate LOTs exist and that the 
Department should continue to examine the selling functions of the 
respondents in its final determination. The petitioners cited French 
Rod as a recent case where the Department examined the selling 
activities of the respondent in determining whether there were separate 
LOTs (``In order to identify LOTs, the Department must review 
information concerning the selling functions of the exporter,'' French 
Rod, 61 FR 8916 (March 6, 1996).
    Finally, the petitioners claim that because all of La Molisana's 
U.S. sales are EP sales, no indirect selling expenses are deducted from 
either the U.S. or home market prices. Therefore, the petitioners argue 
that La Molisana is incorrect in stating that an examination of selling 
functions is double counting and that the margin calculations already 
account for all expenses incurred by La Molisana.
    Arrighi and De Matteis both argue that the existence of different 
selling functions is the proper basis for establishing whether 
different LOTs exist. For a further discussion of Arrighi's arguments 
concerning this issue, see Comment 1A, above.
    DOC Position: We agree with the petitioners. The SAA states that, 
``Commerce will require evidence from the foreign producers that the 
functions performed by the sellers at the same level of trade in the 
U.S. and foreign markets are similar, and that different selling 
activities are actually performed at the allegedly different levels of 
trade * * *. On the other hand, Commerce need not find that the two 
levels involve no common selling activities to determine that there are 
two levels of trade.'' SAA at 159, and Cf., Proposed Regulations at 
7348. Thus, as noted in Comment 1A above, information about the selling 
activities of the producer/exporter is essential to the identification 
of levels of trade.
    Comment 1C Whether the Department Should Reject The Four Selling 
Function Coding System Used in the Preliminary Determination: In the 
event the Department determines it is appropriate to define LOTs based 
on selling function distinctions, the petitioners, La Molisana, 
Delverde and De Matteis argue that the LOT coding methodology used in 
the preliminary determination should be rejected because it is 
inconsistent with law and commercial reality. Neither Liguori, Pagani 
or Arrighi commented on the specifics of the LOT coding methodology 
used in the preliminary determination. However, Arrighi and Liguori 
state that they agree with the outcome of the Department's preliminary 
LOT analysis.
    First, the petitioners and La Molisana assert that the Department's 
LOT coding system resulted in a finding that a difference in any one 
selling function is sufficient to define a separate LOT. The 
petitioners and La Molisana argue that this methodology is at odds with 
the Department's Proposed Regulations which specifically reject the 
notion that a difference in one selling function alone would be 
sufficient to define an entirely separate LOT in most instances. Cf., 
e.g., Notice of Proposed Rulemaking and Request for Public Comments, 61 
FR 7308, 7348 (February 27, 1996) (Proposed Regulations) at 7348.
    Second, the petitioners argue that the selling function categories 
used in the preliminary determination are unreasonable and overly 
narrow. Given the different combinations of the four selling function 
categories used in the preliminary determination, there were 16 
possible LOT combinations in each market. Both the petitioners and La 
Molisana assert that because LOT is used as a matching criterion, the 
overly-narrow LOT segments resulted in large amounts of home market 
sales not being used to determine whether dumping was occurring. For 
example, with respect to Arrighi, the petitioners claim that as a 
result of the Department's preliminary LOT methodology, less than one 
percent of Arrighi's home market sales were used as comparison sales to 
determine whether dumping was occurring.
    Third, La Molisana and De Matteis both argue that the Department's 
use of sales with the same number of selling expense categories to 
determine the ``next most comparable LOT'' in the preliminary 
determination has no factual or logical basis. Specifically, La 
Molisana and De Matteis assert that the Department's methodology 
essentially treats each selling function category as having an equal 
effect on the sales price. La Molisana and De Matteis contend this not 
true and that in reality, each selling function influences pricing in a 
different manner.

[[Page 30337]]

    Fourth, La Molisana and De Matteis argue that the Department's 
preliminary methodology erred by measuring the existence or absence of 
a selling activity in absolute terms, rather than in degrees. La 
Molisana and De Matteis assert that in determining LOT comparisons, the 
relative degree or extent to which an activity or function is performed 
(e.g., ``great degree,'' ``moderate degree'' or ``small degree'') 
should be taken into account by the Department in the final 
determination.
    The petitioners argue that the extent or cost of the function 
provided should not be used to distinguish selling activities. The 
petitioners assert that while expenses for services to some customers 
may be more than to others, the expense difference may not reflect a 
true difference in selling activities or services, but instead 
represent the costs associated with sales shipped in larger or smaller 
quantities or to different geographic locations. In addition, the 
petitioners note that because the Department did not request data 
concerning the degree to which any selling activity is performed, there 
is no basis for the Department to perform such an analysis in this 
case.
    Fifth, Delverde argues that the LOT coding methodology is 
fundamentally flawed in concept because it ``constructed'' a LOT based 
on selling functions that were not part of CEP. Specifically, Delverde 
argues that the statutory definition of CEP clearly describes a price 
at an ex-factory LOT. Delverde claims that although the Department 
concluded that Delverde provided movement and advertising services in 
connection with its CEP sales, both types of expenses were deducted 
from the U.S. starting price when CEP was calculated. Therefore, 
Delverde contends that the Department's preliminary methodology created 
a ``constructed'' CEP LOT that was more advanced than the LOT of the 
actual CEP.
    DOC Position: In the preliminary determination, the Department 
stated that it would continue to examine its policy for making level of 
trade comparisons and adjustments. After reviewing the comments we 
received on this issue as well as the Department's recent practice for 
determining the existence of separate levels of trade, we agree with 
the respondents that certain modifications to the LOT methodology 
utilized in the preliminary determination are warranted. Specifically, 
we find that: (1) the preliminary coding methodology measured levels of 
trade based on the existence of individual selling functions, rather 
than basing levels of trade on the collective array of selling 
activities performed by the seller; and (2) the coding system led to 
the result that a difference in just one selling function on any given 
sale necessarily justified a difference in level of trade. Although 
neither the Act nor the SAA provide explicit guidelines for identifying 
levels of trade, the preamble to the Proposed Regulations reflects our 
practice and states that ``small differences in the functions of the 
seller will not alter the level of trade.'' Proposed Regulations at 
7348. Although the Proposed Regulations provide that a single function 
may be so significant as to constitute the existence of a separate 
level of trade, we have determined that no single selling function in 
the pasta industry warrants the finding of a separate level of trade. 
Therefore, as noted in the ``Level of Trade'' section of this notice, 
above, we have revised the level of trade methodology used for the 
final determination. In order to determine whether separate levels of 
trade existed within or between the U.S. and home markets, we have 
reviewed the full array of selling functions, in the aggregate, 
provided to each of the customer groups alleged by the respondents. In 
addition, because we have determined that no single selling function in 
the pasta industry is so significant as to alter the LOT, we have no 
longer considered a single difference in selling function to justify 
the finding of a separate level of trade.
    We agree, in part, with La Molisana and De Matteis' assertion that 
the relative extent to which an activity or function is performed 
should be considered in the Department's LOT analysis. As noted in the 
``Level of Trade'' section of this notice, above, before determining 
that a particular selling function was performed for a particular 
customer group, we examined whether the selling function was performed 
on a substantial number of sales within the customer group. We disagree 
with La Molisana and De Matteis, however, that the degree to which a 
selling function is performed (i.e., ``great degree'', ``moderate 
degree'' or ``small degree'') should be considered in our LOT analysis 
for this investigation. While it is conceivable that the Department may 
determine in a particular case that it is necessary to consider the 
degree to which a particular selling function is performed in its 
analysis, the selling functions in this case were such that they can be 
viewed as either having been performed or not having been performed. 
Accordingly, we have not taken the degree to which a selling function 
is performed into consideration in conducting our LOT analysis.
    Delverde's arguments concerning whether the LOT coding methodology 
improperly ``constructed'' a LOT based on selling functions that were 
not part of CEP are addressed separately under the ``Company Specific 
Comments'' section of this notice, below.
    Comment 1D Which Selling Functions Should be Considered in 
Determining Whether Separate LOTs Exist: In lieu of the LOT methodology 
adopted in the preliminary determination, the petitioners and De 
Matteis argue that the Department should examine the full array of 
selling functions, in the aggregate, provided to each potential LOT to 
determine whether separate LOTs exist. The petitioners assert that this 
methodology was adopted by the Department in the French Rod case where 
the Department examined the collective array of selling activities 
performed for each channel of distribution and found that minor 
differences between the home market sales examined did not justify 
segmenting the sales into different LOTs (``[we] found that the two 
sales channels provided many of the same or similar selling functions 
including: strategic planning, order evaluation, warranty claims, 
technical services, inventory maintenance, packing and freight and 
delivery. We found some differences between the two channels of trade 
in advertising, customer contacts, computer systems (order input/
invoice system), and administrative functions. Overall, we determine 
that the selling functions between the two sales channels are 
sufficiently similar to consider them as one level of trade in the home 
market''). 61 FR at 8916.
    Specifically, the petitioners assert that the following selling 
functions are relevant to the Department's LOT analysis for the U.S. 
and Italian pasta markets: (1) freight & delivery; (2) customer sales 
contacts; (3) advertising; (4) technical services; (5) warranties; (6) 
inventory maintenance (pre-sale); (7) post-sale warehousing; and (8) 
administrative functions. In addition, the petitioners contend that in 
performing the selling function analysis, the Department should ensure 
that the selling activity is consistently applied to all, or at least 
the vast majority, of customers at each potential LOT identified. The 
petitioners claim it would be inappropriate to consider a selling 
function applicable to a particular LOT where the function was not 
provided to all customers, or on some but not all sales.
    In the event the Department determines it is appropriate to 
consider

[[Page 30338]]

the selling functions of the respondent in determining whether separate 
LOTs exist, La Molisana argues that by examining the selling activities 
of respondents, the Department is ``in a sense double-counting'' 
because the selling functions have already been accounted for in the 
margin calculations. For example, La Molisana claims that in its margin 
calculations, the Department deducts freight expenses from both the 
export price and home market price in order to make an ``apples to 
apples'' comparison of the prices. Accordingly, La Molisana asserts 
that it is unnecessary to account for potential price differences in 
freight expenses by treating sales sold on an ex-factory basis to be a 
different LOT than sales made on a delivered basis. Therefore, La 
Molisana asserts that only those selling activities that are not 
otherwise accounted for in the margin calculation should be considered 
in determining the LOT.
    Regarding whether the Department should examine all selling 
activities undertaken or should focus only on those activities that are 
not already accounted for in the dumping calculation, the petitioners 
note that the SAA cautions the Department against making adjustments 
for the same activities twice, once as a circumstance of sale 
adjustment and once as a LOT adjustment. SAA at 830. Therefore, the 
petitioners assert that it might be appropriate to consider selling 
functions only to the extent that such functions were not already 
accounted for as a COS adjustment. Because all of La Molisana's U.S. 
sales are EP sales, the petitioners claim that indirect selling 
expenses are not deducted from either the U.S. or home market prices. 
Therefore, only indirect selling expenses (and their related selling 
activities) might serve as the basis for distinguishing LOTs.
    Whichever approach the Department adopts (either examining all 
selling functions or only those not otherwise accounted for in the 
margin calculations), the petitioners argue that the Department must 
begin with the same starting point for the sales prices compared. For 
example, the petitioners assert that if the Department adjusts CEP 
sales to exclude U.S. selling functions, the Department should 
similarly adjust EP and normal value sales for all statutory 
adjustments before examining LOT.
    Finally, the petitioners argue that the Department should not 
attempt to define LOTs based on the following factors because they do 
not relate to differences in selling activities:
    (1) Quantities/Volumes Sold: The petitioners assert that the SAA 
states that differences based on quantities sold are not a legitimate 
basis for defining LOTs or LOT adjustments. SAA at 830.
    (2) Geographical Location of the Customer: The petitioners claim 
that the fact that two customers may be located in physically distinct 
geographical areas does not, in and of itself, demonstrate that 
different LOTs exist.
    (3) Which Selling Entity Performs the Functions: The petitioners 
assert that whether a selling function is performed by an unaffiliated 
sales agent, an affiliated sales agent or the manufacturer, the same 
function is provided and the costs to the seller are the same. 
Therefore, the petitioners argue that the Department should not 
differentiate LOT based on which entity performs the selling function. 
La Molisana asserts the LOT can only be defined with respect to the 
first arm's length transaction. Therefore, La Molisana argues that 
selling activities performed by an unaffiliated agent should not be 
considered in the Department's analysis.
    (4) Commissions: The petitioners argue that commissions are merely 
payments to an agent to perform the same function that would otherwise 
be incurred by the manufacturer directly. Accordingly, the petitioners 
argue that commissions are an invalid basis to distinguish LOT.
    (5) Whether the Services Were ``Intentionally'' Provided: Arrighi 
argues that the Department should differentiate between selling 
functions that were provided based on whether Arrighi intentionally 
marketed the service to the customer or not (see Comment 1E, below). 
The petitioners assert that nothing in the statute authorizes the 
Department to distinguish between selling functions based on the intent 
of the seller. Therefore, the petitioners argue that Arrighi's attempt 
to include the factor of ``intent'' into the LOT analysis should be 
rejected.
    (6) Discounts and Rebates: The petitioners and La Molisana argue 
that discounts and rebates are pricing mechanisms, not selling 
functions or activities, and that the presence of a discount or rebate 
has no bearing on the point in the chain of distribution at which the 
transaction occurs. In addition the petitioners and La Molisana contend 
that the dumping calculations recognize that discounts and rebates are 
a function of price by deducting them as ``price adjustments'' rather 
than ``circumstance of sale (COS) adjustments.'' Proposed Regulations 
at 7381. For all of these reasons, the petitioners and La Molisana 
argue that discounts and rebates should not be included as a selling 
function distinction for LOT purposes.
    (7) Distinctions Between Customers Based on Price: The petitioners 
assert that the statute does not suggest that LOT distinctions can be 
based on price differentials. (For a further discussion and arguments 
on a related issue - whether to consider price distinctions in defining 
customer categories, see Comment 2D, below.)
    DOC Position: We agree with the petitioners and De Matteis that the 
Department's level of trade analysis should consider the full array of 
selling functions in the aggregate, and ensure that the selling 
function was consistently applied to at least the vast majority of 
customers and sales in each level of trade. As stated in the ``Level of 
Trade'' section of this notice, above, no single selling function in 
this industry warranted a separate level of trade and, wherever 
possible, we examined whether the selling function was performed on a 
substantial portion of sales within the customer groups reported by the 
respondents. A company specific description of the selling functions 
assigned to the level(s) of trade for each respondent is provided in 
Comment 1E, below. Three of the respondents, Pagani, Delverde and De 
Matteis, were found to have more than one (but no more than two) levels 
of trade in either their U.S. or home market; in each of these 
instances there were at least two selling function differences between 
the levels of trade. In determining whether a selling function was 
applicable to a substantial portion of customers in the reported 
customer group, we relied on the respondent's narrative responses and 
sales transaction data, as well as information obtained during 
verification.
    We disagree with La Molisana and, in part, with the petitioners 
regarding the starting point for considering selling functions in 
determining the level of trade. The process of establishing whether 
separate levels of trade exist is distinct from both the margin 
calculation and the level of trade adjustment. We reject any attempt to 
alter the statutory criteria for levels of trade, even if such 
alteration might arguably eliminate a redundant step.
    Section 773(a)(1)(B)(i) of the statute states that normal value 
will be based on ``the price at which the foreign like product is first 
sold * * * and to the extent practicable, at the same level of trade as 
the export price or constructed export price.'' The SAA specifies that 
normal value will be calculated ``at the same level of trade as the 
constructed export price or the starting price for

[[Page 30339]]

export sales.'' SAA at 827. Therefore, in identifying levels of trade 
for export price and normal value sales, we considered the selling 
functions reflected in the starting price, before any adjustment, for 
the customer group reported by the respondent. Section 772(d) of the 
Act provides that constructed export price will be based on the price 
after the deduction of expenses and profit. Thus, for CEP sales, we 
considered the selling functions reflected in the price after the 
deduction of expenses and profit under Section 772(d) of the Act.
    We agree, in part, with the petitioners regarding the types of 
selling functions that should or should not be considered in defining 
levels of trade. The selling functions to be considered in establishing 
whether separate levels of trade exist were based on the nature of the 
pasta industry. The five selling functions used by the Department to 
establish the levels of trade in this investigation are reflective of 
the functions and activities incurred in the sale of pasta to the U.S. 
and in the home market. These functions have been identified in the 
``Level of Trade'' section of this notice, above. However, we disagree 
with the petitioners that technical services or post-sale warehousing 
should be included in the selling function analysis; these activities 
did not occur in the pasta industry. Regarding the other selling 
functions, we were generally in agreement with the petitioners' 
recommendations regarding which selling functions to include in 
determining levels of trade. Regarding La Molisana's claim that we 
should start our level of trade analysis with the first arm's length 
transaction, as noted in the ``Level of Trade'' section of this notice, 
above, we collapsed affiliated parties before considering the level of 
trade.
    Comment 1E Company-Specific Analysis of Selling Functions: The 
petitioners argue that a review of the selling functions undertaken by 
each of the respondents to the U.S. and home market customers, based on 
the collective approach to analyzing selling functions utilized in 
French Rod, shows that there are few, if any, functional differences 
between the U.S. and home market sales of pasta. Therefore, petitioners 
claim that the Department should determine that different LOTs do not 
exist for any of the respondents within the U.S. or Italian markets or 
between the U.S. and Italian markets.
    Certain respondents challenge the petitioners' assumptions 
regarding the selling functions performed. The petitioners' analysis 
and the respondents' rebuttal comments are summarized below. Insofar as 
the Department has conducted its own selling function analysis to 
determine whether separate LOTs exist, many of the arguments presented 
by the petitioners and the respondents are now moot and, therefore, 
have not been specifically addressed. Therefore, the Departmental 
Position for each respondent reflects the results of the Department's 
selling function analysis. The selling function analysis utilized by 
the Department is described in the ``Level of Trade'' section of this 
notice, above.
(1) Liguori
    The petitioners claim that there are no differences in selling 
functions accorded to its home market customers by Liguori. Therefore, 
the petitioners assert that a single LOT exists in the home market. In 
the U.S. market, the petitioners claim that Liguori's record 
establishes no functional distinctions between the services offered on 
Liguori's U.S. sales. Thus, the petitioners claim that a single LOT 
exists for all U.S. sales. Regarding the U.S. to home market 
comparison, the petitioners contend that the only functional 
differences between the U.S. and home market sales are the presence of 
freight and delivery and warranty services on home market sales that 
are not present on U.S. sales. The petitioners assert that these 
differences are not sufficient to distinguish LOTs and that the 
Department should consider all U.S. and home market sales to be at the 
same LOT. If the Department determines that the home market sales are 
at a more advanced LOT, the petitioners argue that no LOT adjustment 
should be applied because Liguori has not claimed or demonstrated 
entitlement to such an adjustment. (For a further discussion of LOT 
adjustments, see Comment 1F, below.)
    Liguori agrees with the petitioners. Specifically, Liguori states 
that the company has neither claimed a level of trade adjustment to 
normal value nor has it requested that its U.S. prices and normal value 
be compared within levels of trade. Thus, Liguori asserts that the 
level of trade methodology employed in the preliminary determination 
achieved a result consistent with Liguori's own position (i.e., no 
level of trade adjustment was granted).
    DOC Position: We agree with the petitioners and Liguori, in part. 
Based on our own analysis of the selling functions performed by 
Liguori, as described in the ``Level of Trade'' section of this notice, 
above, we found that all U.S. and home market sales were made at a 
single LOT. However, we determined that the U.S. LOT was different from 
the home market LOT.
    Liguori reported two customer groups in the U.S. market. We found 
that Liguori performed similar selling functions for these customer 
groups in the areas of inventory maintenance, forward warehousing, 
freight, advertising, and warranties. However, we found different sales 
processes for these customer groups. Overall, we determined that the 
selling functions between these two customer groups are sufficiently 
similar to consider them as one level of trade. For the home market, 
Liguori reported six customer groups. We found these customer groups to 
be similar in that Liguori performed the following selling functions 
for certain customer groups: sales process, inventory maintenance, 
forward warehousing, freight, advertising and warranties. We found 
these customer groups to be different in how Liguori performed the 
following selling functions for certain customer groups in the areas of 
sales processing, forward warehousing, and advertising. Overall, we 
determined the selling functions between these six customer groups to 
be sufficiently similar to consider them one level of trade.
    We then compared the level of trade in the U.S. market to the home 
market level of trade and found the selling functions performed for 
certain customer groups in the areas of sales processing, forward 
warehousing, and advertising to be similar. We found the selling 
functions performed for certain customer groups in the areas of sales 
process, inventory maintenance, forward warehousing, freight, 
advertising, and warranties to be dissimilar. Overall, these factors 
warrant finding the U.S. and home market sales to be made at different 
levels of trade.
(2) La Molisana
    The petitioners argue that its review of the array of selling 
functions offered to La Molisana's home market customers reveals no 
significant distinctions in the selling functions which would justify a 
finding of different LOTs in the home market. The petitioners contend 
that the selling functions La Molisana relied upon to differentiate its 
home market LOTs are invalid. Specifically, the petitioners contend the 
following: (1) any price distinctions between distributors and non-
distributors are a result of differences in the quantities purchased 
and geographic location of the customer, both invalid bases for 
differentiating LOTs; (2) no matter whether La Molisana incurs 
administrative services directly or pays others to incur these

[[Page 30340]]

expenses, the question of which entity performs the function is not a 
valid basis to distinguish LOTs; and (3) the degree or extent to which 
inventory maintenance and advertising functions were performed is 
irrelevant.
    Since all of La Molisana's U.S. sales are made to a distributor, 
the petitioners assert that a single LOT exists in the U.S. market. 
Regarding the U.S. to home market comparison, the petitioners argue 
that with the exception of inventory maintenance, the selling functions 
offered to its U.S. and home market customers are the same and that all 
U.S. and home market sales should be considered to be at the same LOT 
in the final determination.
    La Molisana argues that in the event the Department determines it 
is appropriate to examine the selling functions in determining whether 
separate LOTs exist, the petitioners have failed to support their 
assertion that the home market distributor LOT is not distinguished 
from the rest of its home market sales. La Molisana recognizes that 
price differences are not a basis for determining distinctions in LOTs. 
However, La Molisana argues that the mere existence of separate price 
lists is important evidence of the significance of the different 
customer categories in commercial practice in the home market. In 
addition, La Molisana contends that the distributor price list applies 
to all sales to distributors, regardless of the volume sold. Further, 
La Molisana argues that while there is inevitably some ``inventory'' on 
all sales, since it takes time to pack and load the merchandise, this 
type of inventory is very different from maintaining stocks of 
inventory for just in time (JIT) delivery, a function not performed on 
its distributor sales. In addition, La Molisana asserts that it does 
not incur advertising expenses for advertisements directed at its 
customer's customer for sales made to wholesalers and distributors. 
Instead, La Molisana asserts that this advertising is directed at its 
customer's customer's customer. Therefore, La Molisana argues that its 
home market distributor sales should be found to be a different LOT 
than its other home market sales and that all of its U.S. distributor 
sales should be compared to the home market distributor sales in the 
final determination.
    DOC Position: We agree with the petitioners and La Molisana, in 
part. Based on our own analysis of the selling functions performed by 
La Molisana, as described in the ``Level of Trade'' section of this 
notice, above, we found that a single LOT exists in each market and 
that all U.S. and home market sales were made at the same LOT.
    La Molisana reported one customer group in the U.S. We found one 
level of trade for the U.S. market because La Molisana performed the 
same selling functions to all customers in that single category. For 
the home market, La Molisana reported six customer groups. We found 
that La Molisana performed similar selling functions to certain 
customer groups with regard to: sales process, inventory maintenance, 
forward warehousing, freight, advertising and warranties. We found that 
La Molisana performed different selling functions for certain customer 
groups with regard to forward warehousing. Overall, we determined the 
selling functions performed by La Molisana for each of the six home 
market customer groups to be sufficiently similar to consider them as 
one level of trade.
    We then compared the level of trade in the U.S. market to the home 
market level of trade and found the selling functions performed by La 
Molisana for certain customer groups for inventory maintenance and 
forward warehousing to be dissimilar between the markets. However, we 
found the selling functions performed by La Molisana for certain 
customer groups in the area of sales process, forward warehousing, 
freight, advertising, and warranties to be similar. Overall, these 
factors warrant finding U.S. and home market sales as the same level of 
trade.
(3) Arrighi
    In its original questionnaire responses, Arrighi requested that LOT 
distinctions in the home market be made based on customer groups, and 
submitted data that would allow the Department to segregate home market 
data by either channel of distribution or customer group to determine 
whether different LOTs exist. The petitioners contend that a review of 
the actual selling functions associated with home market and U.S. sales 
demonstrates that selling functions do not vary based on either 
customer group or channel of distribution. In addition, with respect to 
customer category, the petitioners contend that Arrighi has not 
differentiated its customer groups based on commercial points in the 
chain of distribution and selling functions, but rather has made LOT 
distinctions based on factors such as the volume of the sales involved. 
With respect to channel of distribution, petitioners cite Arrighi's own 
statement that ``the functions performed and services offered by 
Arrighi in each distribution channel do not vary'' (see, Arrighi's 
August 16, 1995, questionnaire response, at A-8) in support of their 
claim that all of Arrighi's sales to both markets occur at the same 
level of trade.
    Regarding the U.S. to home market comparison, the petitioners 
contend that since all of Arrighi's U.S. sales are to a single class of 
customer and all home market sales are made at a single level of trade 
based on the absence of distinct selling functions, all U.S. sales 
should be compared to all home market sales, without regard to LOT 
distinctions.
    Arrighi contends that since the petitioners' arguments are based on 
a flawed LOT analysis, their comments concerning Arrighi's and 
Italpasta's levels of trade are likewise meritless and factually 
incorrect. Contrary to the petitioners' arguments, Arrighi claims that 
its LOTs are based upon differing selling functions and services, not 
sales quantities or geographic location. Specifically, Arrighi claims 
that the customers at one of its LOTs require a disproportionate amount 
of sales and administrative support relative to customers at the other 
LOTs. Concerning the petitioners' claim that Arrighi's LOTs are based 
on geography, Arrighi argues that while geographic location is the 
reason some of the selling functions for certain customers are 
provided, it is the difference in selling functions, and not geographic 
location, which distinguishes these customers as being at a distinct 
LOT. With respect to the specific selling functions, Arrighi claims 
that its provision of freight and inventory maintenance to a certain 
class of customers constitute selling functions.
    DOC Position: We agree with the petitioners and Arrighi, in part. 
Based on our own analysis of the selling functions performed by 
Arrighi, as described in the ``Level of Trade'' section of this notice, 
above, we found that a single LOT exists in each market and that all 
U.S. and home market sales were made at the same LOT.
    Arrighi reported one customer class in the U.S., that was comprised 
of three customer groups. However, as noted in the ``Comparison 
Methodology'' section of this notice, above, Arrighi provided 
insufficient information in the sales database for the Department to 
perform an analysis of the selling functions performed for each of the 
three customer groups. Therefore, we found one level of trade for the 
U.S. market. For the home market, Arrighi reported three customer 
groups. As noted in the ``Normal Value'' section of this notice, above, 
we have excluded sales to one customer group because we determined that 
the quantity of these sales was insignificant and there were no sales

[[Page 30341]]

made by Arrighi to a comparable customer in the U.S. (for further 
discussion, see, the Department's June 3, 1996, final determination 
calculation memorandum for Arrighi). We found the remaining two 
customer groups similar in that Arrighi performed the same selling 
functions for each group. Overall, we determined the selling functions 
performed for these two home market customer groups are sufficiently 
similar to consider the sales made to them to be at one LOT.
    We then compared the LOT in the U.S. market to the home market LOT 
and found them to be only dissimilar in Arrighi's performance of the 
freight selling function. We found the selling functions performed, 
including sales process, inventory maintenance, forward warehousing, 
advertising and warranties, to be similar. Overall, these factors 
warrant finding the U.S. sales and home market sales to be at the same 
level of trade.
(4) De Matteis
    The petitioners contend that although De Matteis identifies a 
number of customer categories, it does not correlate these customer 
classes to its reported LOTs. Therefore the petitioners have based 
their LOT analysis on De Matteis' reported channels of distribution. 
The petitioners argue that their review of the selling functions 
offered to De Matteis' home market channels of distribution reveals 
that the only functional difference between the selling functions 
offered on De Matteis' home market sales is the presence of freight and 
delivery services on sales of De Matteis' own brand name pasta which 
are not present on sales made to resellers. Citing the Proposed 
Regulations, the petitioners assert that this difference is not 
sufficient to distinguish LOTs and that the Department should consider 
all of De Matteis' home market sales to be at one LOT (small 
differences in the functions of the seller will not alter the level of 
trade). Proposed Regulations at 7348.
    Regarding De Matteis' assertion that there are significant 
differences in LOT based on whether the company markets its own brand 
name pasta or sells it to a reseller, the petitioners argue that 
because the pasta sold to resellers is produced to order, De Matteis 
takes an active role. Therefore, the petitioners assert that customer 
contacts are present on both types of sales and cannot be a basis for 
differentiating LOTs.
    Since De Matteis reports that all of its U.S. sales are at a single 
LOT, the petitioners assert that U.S. and home market sales should be 
compared without regard to LOT distinctions. If the Department 
determines that differences exist between the U.S. and home market 
LOTs, the petitioners argue that no LOT adjustment should be applied 
because De Matteis has not claimed or demonstrated entitlement to such 
an adjustment. (For a further discussion of LOT adjustments, see 
Comment 1F, below.)
    De Matteis argues that the petitioners erroneously state that the 
company has not correlated its home market or U.S. customer categories 
to its reported LOTs. De Matteis asserts that it has consistently 
stated in its submissions that it sells to the following channels of 
distribution/customer groups in the U.S. and home markets: (1) sales to 
companies that resell the pasta under their own name (i.e., pastificios 
and the U.S. trading company); and (2) sales of its own brands of pasta 
to distributors and retailers. De Matteis asserts that these two 
channels of distribution/customer groups should be considered to be 
separate LOTs because its sales to retailers and distributors are one 
step further in terms of remoteness from the factory than its sales to 
pastificios and the U.S. trading company.
    In addition, De Matteis asserts that a collective examination of 
the selling functions performed for each channel of distribution show 
distinct LOTs in the home market. Contrary to the petitioners' 
arguments, De Matteis argues that although it must take an active role 
in its sales to pastificios, the degree to which it engages in overall 
selling functions differs significantly between the two channels of 
distribution/customer groups. For example, De Matteis asserts that it 
performs no significant functions or services for pastificio customers 
while it is responsible for warehousing and inventory control, 
advertising and promotional activities, brand name development, 
distribution, and the development of packaging materials for its sales 
to retailers and distributors. In addition, De Matteis asserts that its 
sales to pastificios are large orders which generally require less 
sales and administrative resources. Further, De Matteis contends that 
the extent to which the company engages in customer contacts and the 
development of packaging varies significantly between the two channels/
customer groups.
    Finally, regarding inventory maintenance services, De Matteis 
argues that the Department should distinguish between merchandise 
placed in the warehouse for production scheduling which is not 
intentionally marketed as a service to the customer and merchandise 
held in inventory for JIT delivery. De Matteis asserts that it 
intentionally markets an ``inventory'' service on merchandise sold from 
stock for JIT delivery and that its administrative expenses and risk 
exposure are greater on these sales than on sales produced to order. De 
Matteis asserts that these costs are reflected in the higher prices 
charged to the customer.
    DOC Position: We agree with the petitioners and De Matteis, in 
part. Based on our own analysis of the selling functions performed by 
De Matteis, as described in the ``Level of Trade'' section of this 
notice, above, we found that a single LOT exists in the U.S. market and 
that the home market sales were made at two different LOTs.
    De Matteis reported one customer group in the U.S. that was 
comprised of a single class of customer. Therefore, we found one level 
of trade for the U.S. market. For the home market, De Matteis reported 
three customer groups described as distributors, retailers and pasta 
manufacturers. We found the distributor and retailer customer groups 
similar with regard to the selling functions performed by De Matteis 
for sales process, inventory maintenance, forward warehousing, 
advertising and warranties. We found these two groups to differ in De 
Matteis' performance of the selling function for freight. Overall, we 
determined the selling functions between these two customer groups are 
sufficiently similar to consider them as one level of trade (LOT 2). We 
found customer group ``pasta manufacturer'' similar to the other two 
groups (LOT 2) with regard to the selling functions performed for 
certain customer groups in the areas of warranty service and freight, 
and different in selling function regarding sales process, inventory 
maintenance, forward warehouse, freight, and advertising. Overall, we 
determined the selling functions between this customer group and the 
other two customer groups sufficiently dissimilar to consider these 
customer groups a separate level of trade (LOT 1).
    We then compared the level of trade in the U.S. market to the two 
home market levels of trade and found that all selling functions 
performed for LOT 1 customers in the home and U.S. markets were the 
same. We found the level of trade in the U.S. market dissimilar to LOT2 
with regard to the selling functions for certain customer groups in the 
areas of sales process, inventory maintenance, forward warehousing, 
freight, and advertising. Therefore, we are treating U.S. sales and 
home market sales in LOT 1 as being sold at the same level of trade.

[[Page 30342]]

(5) Pagani
    The petitioners argue that their review of the array of selling 
functions offered to Pagani's home market customers reveals no 
significant distinctions in the selling functions which would justify a 
finding of different LOTs in the home market. The petitioners contend 
that the selling functions Pagani relied upon to differentiate its home 
market LOTs are invalid in that: (1) quantity differences or 
differences in the sales resources allocated to various customer 
classes do not meet the statutory standard for differentiating LOTs; 
(2) no matter whether Pagani takes the order and handles payment 
directly or an affiliate undertakes these functions, the question of 
which entity performs the function is not a valid basis to distinguish 
LOTs; and (3) the fact that different prices are offered to various 
customer categories does not show that different selling functions 
exist.
    Since Pagani reports that all of its U.S. sales are at a single 
LOT, the petitioners assert that all U.S. and home market sales should 
be compared without regard to LOT distinctions.
    Pagani did not comment on the petitioners' LOT analysis.
    DOC Position: We agree with the petitioners, in part. Based on our 
own analysis of the selling functions performed by Pagani, as described 
in the ``Level of Trade'' section of this notice, above, we found that 
a single LOT exists in the U.S. market and that home market sales were 
made at two different LOTs.
    Pagani reported one customer group in the U.S. that was comprised 
of a single customer. Therefore, we found one level of trade for the 
U.S. market. For the home market, Pagani reported seven customer 
groups. We found that six of the seven customer groups had similar 
selling functions performed by Pagani with regard to: sales process, 
inventory maintenance, forward warehousing (for certain customer 
groups), freight, advertising and warranties. We found certain customer 
groups to differ in selling functions performed for forward 
warehousing. Overall, we determined the selling functions between these 
six customer groups are sufficiently similar to consider them as one 
level of trade (LOT 2). We found the remaining customer group ``pasta 
manufacturer'' similar to other customer groups in selling functions 
performed by Pagani with regard to sales process, forward warehousing, 
advertising, and warranties, and different from other customer groups 
in the areas of inventory maintenance, forward warehousing, freight and 
advertising. Overall, we determined the selling functions performed for 
this customer group compared to the other six customer groups 
sufficiently dissimilar to constitute a separate level of trade (LOT 
1).
    We then compared the level of trade in the U.S. market to the home 
market levels of trade and found the selling functions performed by 
Pagani in the U.S. to be identical to all selling functions performed 
on LOT 1 sales in the home market. We found the level of trade in the 
U.S. market dissimilar to LOT 2 with regard to certain customer groups 
in the areas of inventory maintenance, forward warehousing, freight, 
and advertising. Therefore, we considered U.S. sales and home market 
sales in LOT 1 to be made at the same level of trade.
(6) Delverde
    The petitioners assert that Delverde failed to submit information 
necessary to determine whether different selling functions correspond 
to different levels of trade. Specifically the petitioners contend that 
Delverde failed to release under APO the customer names relating to 
certain customer codes. As a result, the petitioners claim they are 
unable to distinguish between the selling functions performed on EP and 
CEP sales, respectively. Therefore, the petitioners argue that the 
Department should find that all U.S. and home market sales are at the 
same LOT. In the event the Department determines it is appropriate to 
analyze Delverde's sales to determine whether separate LOTs exist, the 
petitioners argue that the Department should begin its analysis with an 
unadjusted CEP. (For a further discussion of this issue, see the 
``Company Specific Comments--Delverde'' section of this notice, below).
    Delverde argues that the petitioners mischaracterize the record as 
to the information submitted by the company. Delverde asserts that the 
CEP and EP sales are not intermixed in the database and were clearly 
identified as either ``CEP'' or ``EP'' sales in the sales listing as 
were the customer codes and categories. Finally, Delverde contends that 
it is under no obligation to provide customer names to the petitioners.
    DOC Position: We agree with the petitioners and Delverde, in part. 
Based on our own analysis of the selling functions performed by 
Delverde, as described in the ``Level of Trade'' section of this 
notice, above, we found that single LOTs exist in each market and that 
all U.S. and home market sales were made at the same LOT.
    Delverde reported four customer groups in the U.S. market. We found 
that certain customer groups were similar based on the following 
selling functions performed by Delverde in the areas of sales process, 
inventory maintenance, forward warehousing, freight, advertising, and 
warranties. We found certain customer groups to differ in sales process 
and advertising. Overall, we determined the selling functions performed 
by Delverde for these four customer groups are sufficiently similar to 
consider them as one level of trade. For the home market, Delverde also 
reported four customer groups. We found certain customer groups similar 
in the following selling functions: sales process, inventory 
maintenance, forward warehousing, freight, advertising, and warranties. 
We found that certain customer groups differed in the selling function 
for forward warehousing. Overall, we determined the selling functions 
performed by Delverde for these four customer groups as sufficiently 
similar to consider them as one level of trade.
    We then compared the level of trade in the U.S. market to the home 
market level of trade and found the selling functions performed by 
Delverde in each market to differ for certain customer groups with 
regard to sales process and advertising. We found the following selling 
functions performed by Delverde for certain customer groups to be 
similar: sales process, inventory maintenance, forward warehousing, 
freight, advertising, and warranties. Overall, these similarities 
warrant finding the U.S. sales and home market sales to be made at the 
same level of trade.
    Comment 1F LOT Adjustments: To the extent the Department finds LOT 
distinctions between U.S. and home market sales, the petitioners argue 
that there is no justification for a LOT adjustment for any of the 
respondents in this investigation. Specifically, the petitioners assert 
that Section 773(a)(7)(A) of the Act states that LOT adjustments are 
permissible only to the extent that it has been demonstrated that the 
difference between EP or CEP and normal value reflects differences in 
LOTs involving the performance of different selling functions and ``a 
pattern of consistent price differences between sales'' at the 
different LOTs in the home market. In addition, the petitioners assert 
that the SAA states that ``if a respondent claims an adjustment to 
decrease normal value, as with all adjustments which benefit a 
responding firm, the respondent must demonstrate the appropriateness of 
such adjustment.'' SAA at 829. Therefore, the petitioners argue that by 
law, the respondents bear the burden of

[[Page 30343]]

demonstrating entitlement to a LOT adjustment and that none of the 
respondents in this investigation have met this burden.
    The petitioners assert that Arrighi, De Cecco, Liguori, Delverde, 
and De Matteis have not claimed a LOT adjustment. Absent even a claim 
for the LOT adjustment, let alone any evidence demonstrating 
entitlement, the petitioners argue that no LOT adjustment should be 
granted.
    Although La Molisana and Pagani have each made claims for a LOT 
adjustment, the petitioners argue that neither respondent has 
demonstrated entitlement to the adjustment. The petitioners argue that 
La Molisana has admitted that a number of the selling function 
differences between the LOTs identified reflect factors already 
accounted for in the margin calculations. Therefore, the petitioners 
assert that if it is ``double counting'' to consider these functions in 
defining LOTs as La Molisana asserts (see Comment 1B, above), it is 
also ``double counting'' to calculate LOT adjustments reflecting these 
differences. In addition, the petitioners argue that because La 
Molisana has based its LOT adjustment on differences between the net 
prices for each control number by customer category, La Molisana has 
not demonstrated price distinctions based on LOTs that exist under the 
new law (i.e., the petitioners assert that LOTs are based both on the 
point in the chain of distribution and the selling functions of the 
respondent).
    The petitioners argue that Pagani has not tied its proposed LOTs to 
different selling functions because the company improperly relies on 
quantity differences and rebates in support of its claim for a LOT 
adjustment. In addition, the petitioners argue that Pagani's claimed 
price adjustment fails to establish a pattern of price differences.
    Concerning the petitioner's argument that it is double counting to 
calculate LOT adjustments based on selling function differences which 
were accounted for in the margin calculations, La Molisana argues that 
certain functions (e.g., indirect selling expenses and inventory 
maintenance) have not been fully accounted for in the Department's 
calculations. In addition La Molisana asserts that the statute states 
that the Department must base LOT adjustments on price differences. 
Finally, if the Department compares U.S. distributor sales to home 
market sales at other LOTs, La Molisana asserts that it has provided 
all the necessary information to calculate a LOT adjustment in 
accordance with the criteria set forth in the statute.
    Liguori contends that the Department's preliminary determination 
incorrectly stated that Liguori claimed a LOT adjustment for 
comparisons between different LOTs (Preliminary Determination, 61 FR 
1344, 1347 (January 19, 1996)). Liguori asserts that it has not claimed 
any LOT adjustment.
    DOC Position: We agree with the petitioners, in part. As described 
in the ``Level of Trade'' section of this notice, above, Pagani was the 
only company for whom the Department made a level of trade adjustment. 
As noted, we found no basis for making a level of trade adjustment for 
any of the other respondents in this investigation. The level of trade 
adjustment for Pagani was not based on the adjustment claimed by Pagani 
but rather on the Department's independent analysis of the home market 
levels of trade and patterns of price differences. In light of the fact 
that we did not base this LOT adjustment on Pagani's claimed LOT 
adjustment, we regard the petitioners argument concerning the burden on 
respondent to demonstrate entitlement to a LOT adjustment to be moot.
    In addition, we agree with Liguori that the preliminary 
determination incorrectly stated that Liguori claimed a LOT adjustment. 
Liguori has not claimed a LOT adjustment.
    Comment 2 Price Averaging: Comment 2A Whether to Take Customer 
Category into Account in Creating the Weighted-Average Groups used for 
Product Comparisons: La Molisana, Arrighi and De Matteis argue that, in 
performing its product comparisons, the Department should compare 
products based on averaging groups that reflect customer categories. La 
Molisana, Arrighi and De Matteis claim that both the SAA and the 
Department's Proposed Regulations recognize that customer class is a 
factor the Department may consider in composing its averaging groups. 
(``In determining the comparability of sales for inclusion in a 
particular average, Commerce will consider factors it deems 
appropriate, such as * * * the class of customer involved..''). SAA at 
842. See also, Proposed Regulations at 7348 (Nevertheless, the 
Department does recognize that prices within a single LOT, defined by 
seller function, can be affected by the class of customer, and the 
Department will make every effort to compare sales at the same LOT to 
the same class of customer).
    In addition, La Molisana, Arrighi and De Matteis assert that record 
evidence demonstrates that each company consistently offers 
significantly different prices to its various customer categories. 
Therefore, La Molisana asserts that in accordance with the Department's 
Proposed Regulations, there is a clear and consistent dividing line 
between La Molisana's sales to different customer categories, ([in 
identifying averaging groups based on customer category] ``the 
Department's general approach ``[will be to look for clear dividing 
lines among sales] * * *''). Proposed Regulations at 7349. Finally, La 
Molisana, Arrighi and De Matteis assert that comparing products based 
on averaging groups that reflect customer categories would be 
consistent with a recent final determination where the Department found 
no separate LOTs, but compared averaging groups by customer category. 
Notice of Final Determination of Sales at Less Than Fair Value: 
Polyvinyl Alcohol from Taiwan, 61 FR 14,064, 14069 (March 29, 1996) 
(Polyvinyl Alcohol) (* * * in composing an averaging group, customer 
classification is a factor the Department may take into account * * *. 
Therefore, we have made comparisons of average prices within the same 
customer class wherever possible). In addition, Arrighi and De Matteis 
cite Fresh Kiwifruit from New Zealand: Preliminary Results of 
Antidumping Duty Administrative Review, 61 FR 15922, 15924 (April 10, 
1996) (Kiwifruit) (finding that all sales were made at one LOT, but 
comparing averaging groups by channel of distribution) and French Rod 
(finding two levels of trade, but comparing averaging groups by channel 
of distribution within each LOT). La Molisana argues that, for the 
above reasons, the Department should compare its U.S. distributor sales 
to its home market distributor sales.
    The petitioners argue that neither the law nor the facts of this 
investigation support making product comparisons based on customer 
classes unless it is demonstrated that the difference between customer 
classes reflect a difference in the LOT. Citing Section 773(a)(1)(B) of 
the Act, the petitioners contend that normal value is defined based on 
price comparisons reflecting the same physical characteristics and, 
where possible, the same LOT, as the export or constructed export 
price. Therefore, the petitioners assert that absent a finding of 
different LOTs among the various customer categories, the Department 
cannot make product comparisons based on customer categories or 
channels of distribution.
    Although the petitioners recognize that the SAA refers to ``the 
class of customer involved'' as a factor that the Department may 
consider in creating averaging groups, the petitioners contend that the 
Department's Proposed Regulations emphasize that the use of

[[Page 30344]]

averaging groups was intended to apply only to U.S. prices, and was not 
meant to affect the calculation of normal value. (``In applying the 
average-to-average method, the Secretary will identify those sales * * 
* to the United States that are comparable, and will include such sales 
in an ``averaging group.'' ``An averaging group will consist of subject 
merchandise * * * that is sold to the United States at the same level 
of trade. In identifying sales to be included in an averaging group, 
the Secretary also will take into account, where appropriate, the 
region of the United States in which the merchandise is sold * * *''). 
Proposed Regulations at 7386 (section 351.414(d)). (Emphasis added).
    The petitioners contend that normal value is still defined in the 
law based on price comparisons reflecting the same product 
characteristics and, where possible, the same LOT. Therefore, the 
petitioners argue that the Department does not have the authority under 
the new statute to subdivide home market sales into separate groups 
based on customer classes unless it is first demonstrated that the 
difference between customer classes reflects a difference in LOT. The 
petitioners claim that to do otherwise would effectively be using the 
product averaging concept to re-define normal value.
    Finally, the petitioners argue that the Department's recent 
practice of considering either the class of customer or the channel of 
distribution as a factor in the averaging group without first finding 
distinct LOTs is unlawful and inconsistent. Specifically, the 
petitioners assert that in Polyvinyl Alcohol the Department created 
product averaging groups based on customer categories stating that it 
found ``significantly different prices, depending on the customer 
category.'' 61 FR at 14070. The petitioners contend that in French Rod 
and Kiwifruit the Department relied on channels of distribution, rather 
than customer categories, in determining the averaging groups and 
further identified no pricing distinctions between the channels 
examined. In all three cases the petitioners assert that the Department 
made no statutory citations and provided little or no explanation for 
its actions.
    DOC Position: We agree with La Molisana, Arrighi and De Matteis 
that customer category is a factor the Department may consider in 
composing its averaging groups. Section 777A(d)(1)(A)(i) of the Act 
states that the Department will determine whether the merchandise is 
being sold in the United States at less than fair value ``by comparing 
the weighted average of the normal values to the weighted average of 
the export prices (and/or constructed export prices) for comparable 
merchandise.'' In addition, the SAA specifies that in order to ensure 
that the weighted-averages are meaningful, ``Commerce will calculate 
averages for comparable sales of subject merchandise'' sold in both the 
U.S. and foreign markets. ``In determining the comparability of sales 
for inclusion within a particular average, Commerce will consider 
factors it deems appropriate, such as * * * the class of customer 
involved.'' SAA at 842. See also, Proposed Regulations at 7349.
    Although we agree with the petitioners that the Proposed 
Regulations refer to the term ``averaging groups'' only in the context 
of U.S. sales, we do not agree with the petitioners' assertion that the 
use of averaging groups was intended to apply only to U.S. prices, and 
was not meant to affect the calculation of normal value. As noted 
above, the statute directs the Department to compare weighted average 
normal values to weighted-average export prices/constructed export 
prices. In addition, the SAA states that for inclusion within a 
particular average, the Department will consider factors it deems 
appropriate. Therefore, in order to ensure a fair comparison, customer 
category is a factor that may be used in both the calculation of export 
price and/or constructed export price and normal value.
    As noted in the ``Comparison Methodology'' section of this notice, 
above, and Comment 2B, below, it is the responsibility of the 
Department, not respondents, to determine which customers may be 
grouped together for product comparison purposes. Accordingly, 
consistent with the SAA and our practice in Polyvinyl Alcohol, we have 
relied on the revised customer categories in calculating the weighted-
average values used for sales comparisons in instances where: (a) we 
found that distinct customer categories existed, and (b) we determined 
that there was a consistent and uniform pattern of pricing differences 
among the customer categories. (For a further discussion on price 
averaging and the calculation of the weighted average prices for each 
respondent, see the ``Comparison Methodology'' section of this notice, 
above.)
    Comment 2B Whether to Accept the Customer Classifications or 
Channels of Distribution Alleged by the Respondents: The petitioners 
argue that in the event the Department determines it is appropriate to 
create averaging groups based on customer categories or channels of 
distribution, it is up to the Department, not the respondents, to 
determine which customers may be grouped together. Timken Co. v. United 
States, 630 F. Supp. 1327 (Ct. Int'l Trade 1986) (the Court held that 
the Department is obligated to choose the home market models for 
comparison and may not delegate this role to respondents). In addition, 
the petitioners cite to the SAA in support of their contention that the 
Department should not accept a respondent's ``nominal reference to 
customer classes'' without requiring evidence of actual class 
differences based on the selling functions of the respondent. SAA at 
829. To the extent the Department rejects reliance on selling functions 
as a means of distinguishing customer categories, the petitioners argue 
that the Department should, at a minimum, determine whether different 
customers exist at different points in the chain of commerce. Citing 
PETs from Singapore, the petitioners assert that it is not the 
Department's practice to accept, without question, the respondents' 
characterizations of its customer classes as the basis for determining 
its product comparisons groups. (See, e.g., Final Determination of 
Sales at less Than Fair Value: Certain Portable Electric Typewriters 
from Singapore, 58 FR 43334, 43338-43339 (August 16, 1993) (PETs from 
Singapore) (stating that all retailers had the same function and, thus, 
no distinction between the claimed customer categories was justified.)
    If the Department determines it is appropriate to weight-average by 
customer class, the petitioners argue that La Molisana's data do not 
support a distinction between the seven customer categories the company 
identifies in the home market. The petitioners assert that not only has 
La Molisana failed to demonstrate that the seven customer classes 
operate at different points in the chain of distribution, but La 
Molisana has also failed to demonstrate: (1) that there are different 
selling functions corresponding to each customer class; (2) that there 
are price distinctions among the customer categories (i.e., as noted in 
Comment 1E, above, the petitioners assert that the price differences 
claimed by La Molisana resulted from the geographic location of the 
customer and quantities purchased, not differences due to the class of 
customer; and (3) that there is no other evidence on the record 
supporting La Molisana's contention that there are distinct customer 
categories in the home market.

[[Page 30345]]

    In the absence of any verified data indicating distinctions between 
the various customer categories, the petitioners assert that the 
Department cannot distinguish between La Molisana's customer categories 
for purposes of defining LOT or product comparison purposes. Therefore, 
the petitioners argue that the Department should not find that there 
are distinct customer categories in the home market and should make its 
product comparisons based solely on the physical characteristics of the 
merchandise without regard to customer category or channel of 
distribution.
    DOC Position: We agree with the petitioners that it is the 
responsibility of the Department, not respondents, to identify which 
customers may be grouped together for product comparison purposes. This 
has been our consistent practice and policy. Cf., N.A.R., S.p.A. v. 
United States, 741 F. Supp. 936 (Ct. Int'l Trade 1990). (Insofar as a 
foreign manufacturer, given the opportunity of selecting which product 
comparisons should be used, would most likely make a choice that is 
most advantageous to itself, the identification of product comparisons 
are made by the Department.) See also, United Engineering & Forging v. 
United States, 779 F. Supp. 1375, 1381 (Ct. Int'l Trade 1991); See 
Final Determination of Sales at Less than Fair Value: Certain Hot-
Rolled Carbon Steel Flat Products and Certain Cold-Rolled Carbon Steel 
Flat Products from the Netherlands, 58 Fed. Reg. 37199, 37202 (July 9, 
1993). Therefore, as noted in the ``Comparison Methodology'' section of 
this notice, above, it is the responsibility of the Department, not 
respondents, to determine which customers may be grouped together for 
product comparison purposes. Based on the chain of distribution for the 
pasta industry, we reclassified the customer groups identified by the 
respondents into five distinct customer categories representing 
distinct points in the chain of distribution. For a further discussion, 
see the ``Comparison Methodology'' section of this notice, above.
    Regarding the petitioners' assertion that La Molisana failed to 
demonstrate that there are distinct customer categories in the home 
market, we agree that La Molisana's data do not support a distinction 
between the six customer groups identified. Based on our analysis of La 
Molisana's proposed customer groups, we have determined that there are 
three distinct customer categories representing different points in the 
chain of distribution in the home market (i.e., wholesalers, retailers 
and consumers). However, we disagree with the petitioners' contention 
that La Molisana has not demonstrated that there are price distinctions 
among the home market customer categories. Based on our analysis of the 
average net prices for each product control number and the three 
customer categories identified by the Department in the home market, we 
conclude that La Molisana consistently offered different prices, 
depending on the customer category. (For a further discussion of this 
issue, See Comment 1--Arm's Length Test of the ``Company Specific 
Comments--La Molisana'' section of this notice, below.)
    Comment 2C Whether to Use Customer Category or Channel of 
Distribution in Defining the Averaging Groups used for Product 
Comparisons: The petitioners argue that to the extent a respondent has 
claimed distinctions in home market sales based on channels of 
distribution, the Department should reject these distinctions and 
instead rely on customer categories in creating the product comparison 
groups. The petitioners assert that nothing in the new statute, the 
SAA, or the Proposed Regulations permits the Department to consider 
channels of distribution in making product comparisons. As case 
precedent for their position, the petitioners cite PETS from Singapore 
where the Department explicitly rejected the respondent's request that 
it rely on channels of distribution as a comparison criteria, finding 
no support in the law for such an approach. (``Furthermore, channel of 
distribution is not a proper merchandise comparison criterion * * * 
``there is no regulatory basis for comparing identical channels of 
distribution.'') Id. at 43338.
    DOC Position: We agree with the petitioners that channels of 
distribution are not an appropriate basis for creating product 
averaging groups. As noted in Comment 2A above, the SAA states that in 
determining which sales to include within a particular average, 
``Commerce will consider factors it deems appropriate, such as the 
physical characteristics of the merchandise, the region of the country 
in which the merchandise is sold, the time period, and the class of 
customer involved.'' SAA at 842. See also, Proposed Regulations at 
7349. The SAA does not contemplate the use of channels of distribution 
as a basis for creating an averaging group.
    In addition, it has been the Department's past policy and practice, 
as outlined in Import Administration Policy Bulletin Number 92/2 
(``Matching at Levels of Trade''), to consider the customer category, 
not channel of distribution, to determine whether the respondent's 
customers exist at distinct points in the chain of distribution (e.g., 
end-user, distributor, retailer). Therefore, we have not relied on a 
respondent's reported channels of distribution in creating the 
weighted-average prices used for product comparisons in this final 
determination.
    Comment 2D Whether the Department Can Rely on Price Differences as 
a Method for Distinguishing Customer Categories: If the Department 
determines it is not necessary to establish that there are different 
selling functions as a means of distinguishing customer categories, the 
petitioners argue that the Department should not define customer 
categories based on price distinctions as it did in Polyvinyl Alcohol. 
The petitioners assert that if price distinctions were all that were 
needed to define customer category, respondents would have a ``field 
day'' manipulating the dumping law by grouping its low-priced home 
market sales together and requesting that the Department compare its 
U.S. sales to this group of low-priced sales. Although the petitioners 
recognize that price distinctions may be relevant to a determination of 
whether product comparisons should be segmented by customer category, 
the petitioners argue that prices themselves cannot be the sole 
criterion. In order to establish that there are separate customer 
categories, the petitioners argue that the Department must first 
determine that different customers exist at different points in the 
chain of commerce.
    DOC Position: We agree with the petitioners that price distinctions 
can not be a basis for determining the existence of customer 
categories. As noted in the ``Comparison Methodology'' section of this 
notice and Comment 2A, above, in order to determine whether the 
customer groups proposed by the respondents actually represented 
different customer categories, we considered whether the alleged 
customer groups represented distinct points in the chain of 
distribution. Therefore, price distinctions were not considered a 
relevant factor in defining the existence of customer categories. The 
existence of consistent price differences, however, was considered in 
determining whether customer categories should be taken into 
consideration in creating the product averaging groups.
    Comment 3 Should Wheat Quality Be Considered as a Product Matching 
Criterion: The petitioners assert that Liguori, Delverde, and Tamma 
have altered the Department's product matching criteria by adding wheat 
quality as a physical characteristic. They urge the Department to 
delete

[[Page 30346]]

wheat quality as a product matching criterion for three reasons. First, 
petitioners allege that by changing the product matching criteria set 
out in the Department's questionnaire, these respondents have 
established a second ``foreign like product'' within the meaning of the 
Act. Petitioners argue that the Act does not allow for the introduction 
of additional foreign like products into an investigation. Second, 
petitioners argue that the product matching criteria ought to be 
confined to those specified in the Appendix to the Department's 
questionnaire. Permitting respondents to select matching criteria, 
would enable respondents to analyze their pricing data and, then, to 
select the matching criteria which would lower their exposure to 
dumping margins. Petitioners reference Timken v. United States, 630 F. 
Supp. 1327, 1338 (1986) (``Timken''), for the proposition that the 
Department is prohibited from delegating the selection of the physical 
characteristics for product matching. Third, as a factual matter, 
petitioners assert that both the physical differences and the cost 
differences associated with wheat quality are insignificant.
    Respondents contend that the existence of different semolina 
qualities was confirmed by a wheat expert in the U.S. Department of 
Agriculture as well as by the Department at verification. Moreover, the 
Department had instructed respondents to establish product matching 
criteria which reflected all differences in physical product 
characteristics, not merely those listed in the Appendix to the 
Department's questionnaire. Accordingly, reporting wheat quality as a 
matching characteristic was an appropriate response to the Department's 
questionnaire. With respect to petitioners' assertions that the 
physical and cost differences associated with wheat qualities were 
inconsequential, respondents assert that these differences are material 
and that their materiality was verified by the Department.
    DOC Position: We disagree with petitioners' reading of Section 771 
(16) of the Act. This section sets out the basis for the Department's 
comparison of U.S. sales to sales in the home market. It defines 
``foreign like product'' as follows:
    The term foreign like product means merchandise in the first of the 
following categories in respect of which a determination for the 
purposes of subtitle B of this title can be satisfactorily made:
    (A) The subject merchandise and other merchandise which is 
identical in physical characteristics with, and was produced in the 
same country by the same by the same person as, that merchandise.
    (B) Merchandise--
    (i) Produced in the same country and by the same person as the 
merchandise which is the subject of investigation,
    (ii) Like that merchandise in component material or materials and 
in the purposes for which used, and
    (iii) Approximately equal in commercial value to that merchandise.
    (C) Merchandise--
    (i) Produced in the same country and by the same person and of the 
same general class or kind as the merchandise which is the subject of 
the investigation,
    (ii) Like that merchandise in the purposes for which used, and
    (iii) Which the administering authority determines may reasonably 
be compared with that merchandise.
    Foreign like products, therefore, are specific to each responding 
company. When certain respondents reported wheat quality as a physical 
characteristic which would result in more appropriate product matches, 
the Department required that they justify the claimed differences in 
wheat quality. At the respective verifications, each of these 
respondents established that different wheat (i.e., semolina) qualities 
existed and that these were measured by ash and gluten content. It was 
primarily these characteristics which were used to select semolina for 
pasta production. We verified that physical differences exist and that 
the cost of the highest grade of semolina is materially more than that 
of the lowest grade. We found these quality differences reflected in 
semolina costs and pasta prices. We found that they are commercially 
significant and an appropriate criterion for product matching. 
Moreover, in our judgment, petitioners' reliance on Timken is 
misplaced. The differences in wheat quality reported by these 
respondents, and verified by the Department, resulted in more 
appropriate product matches, as contemplated by section 771(16).

II. Company-Specific Comments

Arrighi

    Comment 1 Findings at Verification: The petitioners contend that 
the Department should make the following corrections to Arrighi's 
response: adjust Arrighi's claimed home market rebate percentage for 
one of its customers; revise Arrighi's U.S. sales listing to include 
allocated warranty expense claims; eliminate early payment discounts 
for an Italpasta invoice; adjust the credit period for another 
Italpasta invoice; and revise the rebate calculation for sales to a 
particular Italpasta customer to correct errors discovered at the 
Arrighi and Italpasta sales verifications.
    DOC Position: We agree with the petitioners. We have used the 
corrected figures to calculate Arrighi's margin.
    Comment 2 Interest Rates Used in Calculating Home Market Credit 
Expense: Arrighi states that, contrary to past Department practice, the 
Department mistakenly used Arrighi's home market short-term interest 
rate in calculating credit expenses for Italpasta's home market sales. 
Arrighi contends that the Department should calculate the credit 
expenses for Arrighi's and Italpasta's home market sales using verified 
company-specific short-term interest rates.
    Petitioners counter that, because the Department determined that 
Arrighi and Italpasta are affiliated, the Department's use of Arrighi's 
short-term interest rate for both Arrighi's and Italpasta's sales was 
appropriate.
    DOC Position: We agree with petitioners in part. The Department 
weight-averaged Arrighi's and Italpasta's short-term interest rates for 
home market credit expense calculations.
    Comment 3 Inland Freight: Petitioners contend that because the 
Department could not verify Italpasta's claimed inland freight charges, 
it should deny Italpasta's claimed home market inland freight charges 
in their entirety or should, at a minimum, use the smallest freight 
cost reported by Italpasta for all of Italpasta's home market sales.
    Arrighi maintains that the Department's verification report 
inaccurately implies that Italpasta refused to provide information 
about transport costs when using its own trucks. According to Arrighi, 
the tasks of identifying the sales where Italpasta used its own truck, 
calculating a transaction-specific transport expense, and 
substantiating its claim that common-carrier rates were a reasonable 
surrogate, would have been extremely burdensome because of the lack of 
comprehensive shipping records. Arrighi contends that the Department's 
requests at verification were unreasonable and untimely; therefore, 
Italpasta's inability to provide the requested information at 
verification should not be deemed by the Department as a refusal to 
cooperate. Accordingly, Arrighi argues that the Department should use 
the reported per-unit freight expenses for sales shipped using 
Italpasta's own trucks.
    DOC Position: We agree with petitioners. As stated in the

[[Page 30347]]

Department's verification report, despite repeated efforts to verify 
various aspects of Italpasta's inland freight expense when its own 
trucks were used, this movement expense could not be verified. It is 
important to note that there is no way in which to determine, on a 
transaction-specific basis, whether the merchandise was transported by 
common carrier or using Italpasta's own truck. To account for this 
unverified movement expense in the margin calculation, as facts 
available, we have used Italpasta's lowest reported inland freight 
expense for all home market sales. We chose this adverse rate because, 
in our view, Italpasta did not act to the best of its ability to 
substantiate the expenses of using its own trucks.
    Comment 4 Advertising expenses: Petitioners allege that the 
Department should treat both of Italpasta's claimed advertising 
expenses (i.e., ``advertising expense 1'' and ``advertising expense 
2'') as indirect selling expenses, rather than as direct selling 
expenses. Citing the verification report, petitioners contend that 
Italpasta was unable to support its claim that these expenses were 
directly related to sales or were directed at Italpasta's customers' 
customers.
    With respect to advertising expense 1, Arrighi maintains that even 
though Italpasta's records do not note transfers of promotional items 
from Italpasta to its customer and then to the customer's customers, 
this should not detract from the fact that these items, by their 
nature, are promotional items of the type normally given out to the 
general public (i.e., Italpasta's customer's customers). According to 
Arrighi, the large quantity of these items purchased by Italpasta make 
it highly unlikely that these items were not given to the general 
public.
    Concerning advertising expense 2, Arrighi argues that samples shown 
at verification demonstrated that only the Italpasta brand name was 
displayed and that the advertising was directed at the general public. 
According to Arrighi, broadcast advertising and sponsorship of sport 
teams, by their nature, are directed at the general public and, 
therefore, these expenses were properly reported.
    DOC Position: We agree with Arrighi concerning advertising expense 
2. The information on the record reflects that advertising expense 2 
was properly reported as a direct advertising expense for Italpasta 
brand sales. The Department requires that advertising expenses that are 
claimed as direct expenses must be shown to be directed to the ultimate 
consumer of the merchandise. See, e.g., Final Results of Administrative 
Review: Antifriction bearings (Other Than Tapered Roller Bearings) and 
Parts Thereof From Various Countries, 58 FR 39729, 39741 (July 26, 
1993). The advertising 2 expenses listed in Italpasta's subaccount 
noted banners shown at sports events and television publicity, which 
are typically considered by the Department to be advertising directed 
at the customer's customer. As Arrighi correctly noted, the samples 
provided at verification demonstrated that only the Italpasta brand was 
promoted through such advertising.
    With respect to advertising expense 1, however, the information on 
the record does not demonstrate that these promotional items (such as 
sports trophies, calendars, pens, and so forth) are in any way directed 
at the customer's customers or directly tied to sales of the subject 
merchandise. Therefore, advertising expense 1 has been reclassified as 
an indirect selling expense for purposes of the final determination.
    Comment 5 Direct Selling Expenses: Petitioners contend that the 
Department should treat Italpasta's claimed direct selling expenses for 
introduction incentive fees as indirect selling expenses. Citing the 
verification report, petitioners state that Italpasta failed to 
substantiate its claim that these payments were contingent upon the 
customer purchasing the pasta.
    Arrighi counters that it is not unusual that such promotional 
agreements do not include language which specifies the merchandise 
purchasing requirement. According to Arrighi, if the customer did not 
already agree to purchase the pasta, then the agreements would never 
have been made. Therefore, Arrighi maintains that these promotional 
payments are directly related to the subsequently purchased pasta and 
should be treated as a direct selling expense.
    DOC Position: We agree with petitioners that introduction incentive 
fees should be treated as indirect selling expenses. The Court of 
Appeals for the Federal Circuit has explained that direct selling 
expenses ``are `expenses which vary with the quantity sold,' '' Zenith 
Elecs. Corp v. United States, 77 F.3d 426, 431 (Fed. Cir. 1996), or 
that are ``related to a particular sale,'' Torrington Co. v. United 
States, 68 F.3d at 1347, 1353 (Fed. Cir. 1995). While Arrighi has 
claimed that these promotional payments were contingent upon the 
customer purchasing the pasta, Arrighi has not proven that the payment 
varies with the quantity of pasta sold, or that the payment can be tied 
directly to a particular transaction. Therefore, we are treating these 
expenses as indirect selling expenses for purposes of the final 
determination.
    Comment 6 U.S. Resales of Purchased Pasta: Arrighi argues that the 
methodology used to account for U.S. resales in the preliminary 
determination is inconsistent with past agency practice because it was 
applied on a control number-specific basis. Arrighi contends that the 
data on the record allows the Department to limit the impact of its 
adjustment to only those products that contained purchased merchandise 
by applying its methodology on a product-specific basis. Further, 
Arrighi argues that the Department did not implement its stated 
methodology from the preliminary determination. According to Arrighi, 
instead of calculating the adjustment ratio by dividing the volume of 
pasta produced for a particular control number by the combined volumes 
of produced and purchased pasta for that control number, the Department 
actually calculated the ratio by dividing the control number's 
production volume by its sales volume, resulting in an inconsistent 
ratio calculation.
    For these reasons, Arrighi requests that the Department make the 
following changes to its resale methodology: (1) the adjustment should 
be performed on a product-specific basis; and (2) the adjustment ratio 
should be based on volume produced over volume produced plus volume 
purchased.
    Petitioners counter that the Department's methodology for excluding 
U.S. sales of purchased pasta was reasonable and should be used in the 
final analysis. According to petitioners, Arrighi's request to change 
the methodology is an attempt to redefine product matching hierarchy 
and product characteristics and should be rejected by the Department.
    DOC Position: We agree with Arrighi. The denominator of the resale 
adjustment ratio in the preliminary margin calculation was inconsistent 
with the numerator. For purposes of the final determination, the 
Department has used revised production and purchase volume data from 
Arrighi's February 12, 1996, submission to recalculate the adjustment 
ratio for purchased pasta, basing it on the ratio of purchased pasta to 
the sum of total production and purchases, by product code. We have 
applied this revised adjustment factor to the quantities of U.S. sales 
for each product code known to include sales of purchased pasta.
    Comment 7 Home Market Resales of Purchased Pasta: Arrighi argues 
that the Department's methodology for excluding home market sales of

[[Page 30348]]

purchased pasta was unreasonable because it excluded a large number of 
sales of pasta that were actually produced by Arrighi and that should 
have been included in the calculation of Arrighi's margin. By excluding 
numerous sales of pasta produced by Arrighi, Arrighi contends that the 
Department eliminated a significant quantity of valid sales and price 
information decreasing the accuracy of the calculation of Arrighi's 
normal value.
    Additionally, Arrighi asserts that the Department's treatment of 
home market resales is inconsistent with its adjustment methodology for 
Arrighi's U.S. resales of pasta. Arrighi requests that the Department 
modify its treatment of Arrighi's home market sales of purchased pasta 
and calculate product-specific quantity adjustment factors (i.e., total 
volume of product produced divided by sum of total quantity of product 
produced and purchased) and apply this factor to the quantity of each 
sale of that product. Finally, Arrighi requests that the Department 
correct certain clerical errors concerning the control number 
references in Arrighi's margin calculation program.
    The petitioners maintain that the Department's methodology is 
consistent with Department practice and conclude that there is no 
reason for the Department to depart from the methodology used in the 
preliminary determination to exclude home market sales of purchased 
pasta from the calculation of normal value.
    DOC Position: We agree with petitioners. Section 771(16) prohibits 
the Department from using sales of merchandise produced by persons 
other than the respondents in the calculation of normal value. The 
information on the record only provides volume figures of purchased 
pasta, by product code, during the POI. Based on the information on the 
record, it is impossible to isolate the amount of purchased pasta 
actually sold by Arrighi during the POI. Therefore, we excluded all 
sales of pasta with product codes known to include purchased pasta 
during the POI to ensure that the pool of home market sales is not 
tainted with sales of purchased pasta.
    Furthermore, Arrighi's alternative adjustment methodology is 
contrary to section 771(16) because it would allow sales of purchased 
pasta to be included in the calculation of normal value. Therefore, we 
have used the preliminary determination methodology for the final 
determination.
    With respect to the alleged clerical errors in the control number 
identification of certain product codes for both U.S. and home market 
sales of purchased pasta, we agree with Arrighi and have corrected 
these errors pursuant to Arrighi's revised control number groupings.
    Comment 8 Depreciation Expense: Arrighi believes its reported 
depreciation expense is correct because it is based on the costs 
recorded in its audited annual financial statements. It contends that a 
respondent's costs will normally be calculated based on that company's 
records if the records are kept in accordance with generally accepted 
accounting principles and reasonably reflect the company's costs. See 
section 773(f)(1)(A) of the Act. Arrighi holds that its auditors 
specifically reviewed its depreciation expense and they did not take 
issue with the lower depreciation rate. It claims that the reduced 
depreciation reflects its costs because the assets received less usage 
during the year. Arrighi suggests that if the Department adjusts the 
depreciation expense it should allow, at a minimum, the reduced 
depreciation expense on the assets placed in service during the year.
    The petitioners state that the Department should increase the 
depreciation expense to reflect Arrighi's normal depreciation rates. 
The petitioners note that, unlike the reduced rates used in the 
submission, Arrighi's normal depreciation rates are based on fixed 
annual rates and do not reflect the number of units produced or 
reductions in capacity utilization. Thus, according to the petitioners, 
the reported depreciation expense should be based on the normal annual 
rate.
    DOC Position: We agree with the petitioners. Recording of 
depreciation expenses provides a systematic, rational method of 
recognizing the costs of fixed assets. This allocates the one-time 
expense of purchasing (or constructing) fixed assets over the longer 
time period which these assets will benefit. In this case, the company 
simply elected to record less than a full year's depreciation expense 
without any change in the underlying economic assumptions and estimates 
on which its depreciation expense was based. Without documentary 
evidence of such a change in the underlying assumptions, it is 
inappropriate for the respondent to recognize less than a full year's 
depreciation expense.
    We note that although the Department calculates costs in accordance 
with the generally accepted accounting principles (``GAAP'') of the 
home market country, the Department will not do so if the use of a 
country's GAAP does not reasonably reflect a company's costs. In such 
cases, the Department may make adjustments or may use alternative 
methodologies that more accurately reflect the costs incurred. See, 
e.g., Final Determination of Sales at Less than Fair Value: New 
Minivans from Japan (``Minivans from Japan'') 57 FR 21937, 21952 (May 
26, 1992).
    Comment 9 Excluded Costs: The petitioners note that Arrighi 
excluded from its reported costs the cost of purchased pasta, 
charitable contributions, and repairs. They also note that Italpasta 
excluded from its reported costs, the cost of purchased wheat flour, 
company vehicles, gifts to customers, and publication material. They 
argue that there is no basis for these costs to be excluded from the 
COP and CV since the Department's questionnaire requires respondents to 
report actual costs incurred during the POI. The petitioners state that 
the Department should revise Arrighi and Italpasta's cost data to 
include all costs incurred during the POI.
    Arrighi argues that most of the amounts it excluded from the 
reported costs were related to purchased pasta and the purchase and 
sale of nonsubject merchandise. It contends that it properly excluded 
these costs.
    DOC Position: We agree, in part, with both the petitioners and 
Arrighi. The Department excluded sales of purchased pasta from the 
sales reporting requirements. Therefore, Arrighi properly excluded the 
costs of the purchased pasta from its COP and CV. Additionally, the 
Department only requires a respondent to report the COP and CV for 
subject merchandise. Accordingly, Arrighi properly excluded the costs 
of nonsubject merchandise.
    However, as the petitioners point out, Arrighi and Italpasta also 
excluded from reported costs certain types of general expenses. These 
expenses relate to company operations as a whole and not to a specific 
product. Moreover, Arrighi has not provided any information or 
reasonable grounds to conclude that these items are related solely to 
purchased pasta or non-subject merchandise. Therefore, we revised 
Arrighi and Italpasta's G&A expenses to include these costs.
    Amounts incurred for gifts to customers and publication materials 
are related to the marketing of products and Italpasta should have 
included these costs in its reported indirect selling expenses. 
Therefore, we have revised the company's indirect selling expenses to 
reflect these items.
    Comment 10 Cost of Sales: The petitioners state that Arrighi 
calculated its reported G&A and financial expense ratios using total 
sales as the

[[Page 30349]]

denominator. They contend that Arrighi applied these ratios to the cost 
of manufacture which understated the reported G&A and financial 
expenses. Italpasta, the petitioners argue, also calculated its G&A and 
financial expense ratios using an overstated denominator. They claim 
that Italpasta included selling expenses, packing expenses, and 
transportation expenses in the denominator of the ratio calculations 
but applied the ratio to a product cost of manufacture which did not 
include these costs. The petitioners contend that the Department should 
correct these errors in Arrighi's and Italpasta's G&A and financial 
expense ratios.
    Arrighi acknowledges that it incorrectly reported the cost of goods 
sold figure used in its calculation of G&A and financial expense 
ratios. Arrighi states that it used the incorrect amount due to a 
translation error on its part. It concedes that the cost of goods sold 
calculated by the Department and used in the preliminary determination 
is more accurate.
    DOC Position: We agree with the petitioners and Arrighi. Arrighi 
and Italpasta did not apply the G&A and financial expense ratios to the 
same basis in their calculation, resulting in an understatement of each 
company's per-unit G&A and financial expenses. We calculated a revised 
cost of goods sold figure by subtracting scrap revenue, packing, 
selling, and G&A expenses from total production costs reported in each 
company's financial statement. This resulted in revised G&A and 
financial expense rates that are computed on a basis consistent with 
the COM figures to which they were applied.
    Comment 11 COP of Affiliated Party: The petitioners argue that 
Arrighi's affiliated mill understated its unit cost of semolina by 
including the weight of water in its reported production quantities. 
They contend that the weight of the output from the mill was greater 
than the weight of the input into the mill due to water added during 
the milling process. The petitioners believe that the Department should 
adjust the mill's unit costs to a dry measure basis by dividing the 
total costs by the weight of the durum wheat that was used in the 
milling process.
    Arrighi states that it calculated the unit semolina costs by 
dividing the mill costs by the mill output which resulted in a yielded 
semolina cost. The semolina which was used as the input into the next 
step of pasta production reflects the relatively wet semolina input. 
Arrighi then yielded the pasta production costs to a dry weight by 
calculating the unit cost of pasta based on packed pasta quantities. It 
argues that the semolina COP for its affiliated mill appropriately 
accounted for water added in the production process.
    DOC Position: We agree with Arrighi. Assuming all finished goods 
are identical, dividing the total cost incurred to produce the finished 
products by the quantity of finished goods produced results in the unit 
cost of each product. Deriving the unit cost in this manner accounts 
for yield changes. This is the methodology Arrighi's affiliated mill 
used to calculate the cost of durum wheat in finished semolina. 
Therefore, the gain attributable to water added during production was 
captured by the mill's raw material cost methodology, and, it was not 
necessary for us to make an adjustment to the affiliate's semolina 
production costs for the weight gain attributable to water.
    Comment 12 Allocation of Cost at Affiliated Mill: The petitioners 
argue that Arrighi's affiliated mill allocated its costs between soft 
wheat and durum wheat production using a basis which it was not able to 
substantiate. They note that the affiliated mill allocated variable 
costs, variable overhead, fixed overhead, G&A, and financial costs 
based on the relative cost of soft wheat and durum wheat. The cost 
verification report, according to the petitioners, stated that soft 
wheat and durum wheat were processed in the same manner using the same 
machinery and production process. They argue that quantity of 
production reflects the resources used and the relative costs incurred 
by the mill since the processes and the machinery for soft wheat and 
durum wheat are the same. The petitioners believe that the Department 
should reallocate the manufacturing costs based on production quantity 
at the mill.
    DOC Position: Arrighi's affiliated mill used an allocation 
methodology that did not accurately reflect the costs incurred to mill 
durum wheat. The mill allocated its conversion costs (labor and 
overheads) between soft wheat and durum wheat based on the relative 
cost of the raw material purchased. Personnel from the mill stated that 
the only difference between processing soft wheat and durum wheat was 
that the soft wheat was bagged while durum wheat was shipped in bulk. 
This represents a very minor difference in packing costs only. They 
also stated that the same machinery was used to mill both soft wheat 
and durum wheat. The cost of converting a raw material to a finished 
product is dependent on the processes performed and the machinery used 
and not the cost of the raw material input. Therefore, if the 
production process and machinery are the same regardless of the type of 
wheat milled, the conversion costs also would be the same. Since the 
processes and machinery were the same, we reallocated the mill 
conversion costs based on total production of the mill, regardless of 
the type of wheat processed. After we recalculated the cost of semolina 
from the affiliated mill, we compared this amount to the weighted-
average transfer price to Arrighi and Italpasta. We found that the 
transfer price did not reflect the semolina's full cost of production. 
Therefore, we relied on the actual cost to value the semolina from the 
related mill.
    Comment 13 Allocation of G&A and Financial Expense at Affiliated 
Mill: The petitioners argue that Arrighi's affiliated mill calculated a 
per-unit amount for G&A and financial expenses while the Department's 
questionnaire instructed the respondents to allocate these costs based 
on cost of sales. They believe that the Department should recalculate 
the mill's G&A and financial expenses based on the cost of sales.
    DOC Position: We agree with the petitioners. The mill allocated 
total G&A and financial expenses between soft wheat and durum wheat 
based on the relative cost of wheat purchased. His methodology is 
contrary to the Department's normal practice, which is to compute a 
ratio based on the relationship of these expenses to the cost of sales 
of the company. See, e.g., Preliminary Results of Antidumping 
Administrative Review: Roller Chain (Other than Bicycle) from Japan, 60 
FR 43771 (August 23, 1995), Final Determination of Sales at Less Than 
Fair Value: Small Business Telephone Systems from Korea, 54 FR 53141 
(December 27, 1989) and Final Results of Antidumping Administrative 
Review of Antifriction Bearings (Other Than Tapered Roller Bearings) 
and Parts Thereof from France, Germany, Italy, Japan, Romania, 
Singapore, Sweden, Thailand, and the United Kingdom, 56 FR 31692, 
Comment 25, (July 11, 1991). Therefore, we recalculated G&A and 
financial expense ratios as a percentage of cost of goods sold and 
multiplied these rates by the product specific cost of manufacture.
    Comment 14 Understated Material Costs: The petitioners argue that 
the Department should increase Arrighi's raw material costs because 
Arrighi's submitted material costs were based on amounts from its 
management reports. They state that at verification the Department 
found that the costs of materials in the management reports

[[Page 30350]]

were understated and did not reconcile to the financial accounting 
system.
    Arrighi did not comment on this issue.
    DOC Position: We agree with the petitioners. As indicated in the 
questionnaire, the Department instructed Arrighi that the per-unit COP 
and CV must reconcile to the actual costs reported in the accounting 
system used by the company to prepare its financial statements. 
Arrighi's financial accounting system did not allow for the segregation 
of material costs. Hence, Arrighi used information from its management 
reports to segregate the material costs reported to the Department. At 
verification, we found an unreconciled difference between the 
management reports and the financial accounting system. Company 
officials stated that Arrighi's financial accounting system reflected 
its actual costs. We therefore increased the reported material costs to 
agree with the actual material costs reported in the company's 
financial accounting system.
    Comment 15 Parent Company G&A: The petitioners propose that the 
Department increase Arrighi's reported G&A expenses to include G&A 
expense amounts incurred by its parent company. They argue that the 
questionnaire instructed Arrighi to include in its reported G&A, an 
amount for administrative services performed by its parent. Based on 
the record evidence, the petitioners conclude that Arrighi was the only 
subsidiary of its parent and argue, therefore, that all of the parent's 
expenses should be included in Arrighi's G&A expenses.
    Arrighi did not comment on this issue.
    DOC Position: We agree with the petitioners. As indicated in Final 
Determination of Sales at Less Than Fair Value: Certain Hot-Rolled 
Carbon Steel Flat Products, Certain Cold-Rolled Carbon Steel Flat 
Products, Certain Corrosion-Resistant Carbon Steel Flat Products, and 
Certain Cut-to-Length Carbon Steel Plate from Canada, 58 FR 37082 (July 
9, 1993), all expenses incurred by a parent company without operations, 
relate to the subsidiaries with operations. Additionally, our standard 
questionnaire instructs respondent companies to include an amount for 
administrative services performed by its parent company or other 
affiliates. Arrighi did not include in its reported G&A any amount for 
administrative services performed by its parent. Additionally, the 
evidence on the record shows that Arrighi is the only subsidiary of its 
parent company and that the parent did not engage in activities other 
than those relating to Arrighi's pasta operations. Since the only 
activity of the parent was to act as a holding company for Arrighi, it 
is reasonable to assume that any expenses it incurred were for the 
benefit of Arrighi. Therefore, we increased Arrighi's G&A expense to 
include the net expenses incurred by its parent company.
    Comment 17  Financial Expenses: The petitioners argue that Arrighi 
improperly excluded bank fees from its reported financial expenses. 
They contend that financial expenses should include all interest 
expenses and fees incurred to finance the operations of the company.
    The petitioners also argue that Italpasta incorrectly included 
exchange gains and losses generated from sales transactions in its 
calculation of the financial expense rate. They assert that the 
Department generally does not consider exchange rate gains and losses 
from sales transactions in its COP and CV. Therefore, they believe that 
the Department should revise the financial expenses of Italpasta to 
exclude the exchange rate gains and losses generated from sales 
transactions.
    Arrighi did not comment on these issues.
    DOC Position: We agree with the petitioners. Fees paid to a bank to 
obtain or maintain a loan are integral parts of financial expenses. 
Therefore, we increased Arrighi's financial expense to include the bank 
fees it incurred.
    Regarding foreign exchange gains and losses, it is the Department's 
normal practice to distinguish such gains and losses realized or 
incurred in connection with sales transactions from those associated 
with purchases of production inputs. See, e.g., Notice of Final 
Determination of Sales at Less Than Fair Value: Small Diameter Circular 
Seamless Carbon and Alloy Steel, Standard, Line and Pressure Pipe From 
Italy, 60 FR 31981 (June 19, 1995) and Notice of Final Determination of 
Sales at Less Than Fair Value: Silicomanganese from Venezuela 
(``Silicomanganese from Venezuela''), 59 FR 55436 (November 7, 1994). 
The Department does not include in COP and CV exchange gains and losses 
on accounts receivable because the exchange rate used to convert home 
market or third-country sales to U.S. dollars is that in effect on the 
date of the U.S. sale. The Department does include foreign exchange 
gains and losses on financial assets and liabilities in its COP and CV 
calculation where they are related to the company's production. 
Financial assets and liabilities are directly related to a company's 
need to borrow money, and we include the cost of borrowing in our COP 
and CV calculations. We therefore adjusted Arrighi's and Italpasta's 
financial expense rate calculation to exclude exchange gains and losses 
related to the company's sales transactions.

De Cecco

    Comment 1  Use of Facts Available: De Cecco argues that the 
Department should not have canceled verification of its sales and cost 
responses. De Cecco argues that its February 2 and February 6 responses 
were satisfactory responses to the requests for supplemental 
information to remedy the deficient November 27 response, and should 
have been accepted by the Department.
    The petitioners argue that the Department should continue to use 
facts available to calculate the final margins. Both De Cecco's and the 
petitioners' specific arguments are described in the Facts Available 
section, above.
    DOC Position: We agree with the petitioners that facts available 
should be used to calculate the final dumping margin for De Cecco. Our 
reasons are set out in the Facts Available section, above.
    Comment 2  Use of Adverse Facts Available: De Cecco argues that the 
Department should not have used adverse facts available in determining 
De Cecco's margin for the preliminary determination because De Cecco 
provided complete answers to all requested information in a timely 
manner and otherwise cooperated to the best of its ability. Both De 
Cecco's specific arguments and the petitioners' comments are discussed 
in the Facts Available section, above.
    DOC Position: We agree with the petitioners that De Cecco's 
February 6, 1996, cost submission consisted of new information. The 
receipt of subsequent, unsolicited submissions left no time for the 
Department, or the petitioners, to review, reconcile, or comment on the 
new submissions in time to conduct any meaningful verification of the 
cost data. We disagree with De Cecco's characterization of its 
participation as having ``provided complete answers to all requested 
information in a timely manner and otherwise cooperated to the best of 
its ability.'' De Cecco submitted a new cost methodology in February, 
did not attempt to explain the differences between the data submitted 
in its various February responses, and did not attempt to explain the 
differences between the data submitted in February and the original 
data submitted in November 1995. We do not consider these facts as 
evidence that De Cecco acted to the best of its ability to respond to 
the questionnaire. Finally,

[[Page 30351]]

De Cecco's argument that it failed to understand our questionnaire 
instructions concerning affiliated persons because it was reading them 
within the context of Italian law is unpersuasive. Appendix I of the 
questionnaire contained a glossary that defined, inter alia, the term 
``Affiliated Persons.'' Moreover, the Department works with all 
respondents, and their representatives, to clarify any questions they 
might have about questionnaire requirements.
    Comment 3  Corroboration of Secondary Information:  De Cecco argues 
that if the Department uses facts available, it should corroborate such 
information by using other information readily available and should not 
rely exclusively on the petition in determining De Cecco's margin rate. 
It asserts that the Department is obligated to determine the dumping 
margin as accurately as possible. De Cecco argues that the Department 
acts unreasonably if it rejects low margin information in favor of high 
margin information that is demonstrably less probative. Rhone Poulenc, 
Inc. v. United States, 899 F.2d 1185,1991 (Fed. Cir. 1990); Floral 
Trade Council v. United States, 822 Fed. Supp. 766, 711 (CIT 1993). De 
Cecco contends that the Department failed to corroborate the 
information it relied upon in calculating the facts available margin 
applied to De Cecco in the preliminary determination. It insists that 
the Department could have utilized information from other respondents 
(e.g., Delverde, whose costs, it assumes, are most similar) or averages 
from the calculated margins of other companies, and should do so for 
the final determination.
    The petitioners disagree with De Cecco's argument that its costs 
are similar to Delverde's simply because they are located in the same 
town in Italy. Moreover, the petitioners believe that the Department 
properly followed the statutory requirements for calculating De Cecco's 
dumping margin based on facts available.
    DOC Position: We disagree with De Cecco that corroboration of 
information used for facts available means determining accurate dumping 
margins for a specific company. Accurate dumping margins can only be 
calculated on the basis of reliable information provided by the 
respondent. De Cecco did not provide such information. We also disagree 
that we have any basis for accepting De Cecco's assumptions that 
Delverde's costs of producing pasta should have some bearing on the 
dumping margin assigned to De Cecco.
    In this case, the petition is the only information on the record 
which could appropriately form the basis for a dumping calculation. 
Section 776(c) of the Act provides that where the Department relies 
upon ``secondary information,'' the Department shall, to the extent 
practicable, corroborate that information from independent sources 
reasonably available to the Department. The SAA, at page 870, clarifies 
that the petition is ``secondary information,'' and that 
``corroborate'' means to determine that the information has probative 
value. Id. During our analysis of the petition, we reviewed all of the 
data submitted and the assumptions that petitioners had made when 
calculating estimated dumping margins. In addition, we contacted the 
source of the market research data and confirmed to our satisfaction 
the reliability of the market research information presented in the 
petition. As a result of our analysis, we revised the home market 
prices that petitioners had relied upon in calculating the estimated 
dumping margins. On the basis of these revisions, we recalculated the 
estimated dumping margins and found them to range from 21.85 percent to 
71.49 percent.

Delverde

    Comment 1  Collapsing Delverde and Tamma for Purposes of 
Calculating the Dumping Margin: In the preliminary determination, the 
Department concluded that Delverde and Tamma are affiliated companies 
within the meaning of section 771(33) of the Act based on response 
information that the common ownership of these companies exceeded five 
percent. Consistent with Departmental practice, we also concluded that 
the information on the record required us to collapse Delverde and 
Tamma into a single entity for purposes of calculating a dumping 
margin. (See, Final Results of Antidumping Duty Administrative Review: 
Iron Construction Castings from Canada, 59 FR 25603 (May 17, 1994); 
Final Determination of Sales at Less Than Fair Value: Certain Granite 
from Italy (``Italian Granite''), 53 FR 24335 (July 19, 1988).) This 
decision was based on our finding ties of common ownership, 
interlocking boards of directors, similar production processes and 
shared transactions. (See letter from Gary Taverman to Delverde of 
August 22, 1995.)
    For the final determination, Delverde argues that the two companies 
should be treated as separate companies because ``neither company 
exercises control over the other within the meaning of section 771(33) 
of the Act''. Specifically, Delverde asserts that neither company is 
legally or operationally in a position to exercise restraint or 
direction over the other company based on the following claims: (a) 
Tamma holds only a minority ownership interest in Delverde; (b) the 
companies operate as wholly separate commercial entities and do not 
consolidate financial statements or share cost/financial information; 
(c) the common board member is not involved in the day-to-day business 
operations of Delverde; (d) pricing and marketing strategies are 
conducted independently; (e) the companies have separate letterheads 
and locations; (f) there are no common employees or managers; (g) 
production information is not shared; and (i) Tamma sells semolina to 
Delverde at arm's length prices.
    The petitioners state that the ownership relationship between 
Delverde and Tamma clearly meets the definition of affiliated persons. 
Whether affiliated companies operate independently or in conjunction is 
not at issue, and does not alter the fact that Delverde and Tamma are 
affiliated companies. Accordingly, the petitioners urge the Department 
to uphold its preliminary determination and collapse the data of 
Delverde and Tamma into a single entity in the final margin 
calculations.
    DOC Position: In determining whether to collapse related or 
affiliated companies, the Department must decide whether the affiliated 
companies are sufficiently intertwined as to permit the possibility of 
price manipulation. In making this decision, the Department considers 
factors such as: (1) The level of common ownership; (2) interlocking 
boards of directors; (3) the existence of production facilities for 
similar or identical products that would not require retooling either 
plant's facilities to implement a decision to restructure either 
company's manufacturing priorities; and (4) whether the operations of 
the companies are intertwined as evidenced by coordination in pricing 
decisions, shared employees or transactions between the companies. See, 
e.g., Certain Granite Products from Spain, 53 FR 24335 (1988); Italian 
Granite; Cellular Mobile Telephones and Subassemblies from Japan (43 FR 
48011, 1989); Steel Wheels from Brazil, 45 FR 8780 (1989); Certain Hot-
Rolled Carbon Steel Flat Products, Certain Cold-Rolled Carbon Steel 
Flat Products, Certain Corrosion-Resistant Steel Plate from Canada, 58 
FR 37099 (1993). The Department's use of these factors was implicitly 
accorded deference by the Court of International Trade (CIT) in Nihon 
Cement Co., Ltd., et al. v. United States, Slip Op. 93-80 (CIT 
1993)(which overturned our determination for a

[[Page 30352]]

failure to articulate the evidence which supported the different 
elements of this test).
    While consistent with our practice on this issue, section 
351.401(f) of the Department's proposed regulations give a new 
articulation to the collapsing test. Under this articulation, the 
Department will treat affiliated producers as a single entity where 
those producers have production facilities for similar or identical 
products that would not require substantial retooling of either 
facility in order to restructure manufacturing priorities, and where 
there is a significant potential for the manipulation of price or 
production, as evidenced by common ownership, interlocking boards of 
directors or shared management, and intertwined operations.
    The administrative record establishes a close, intertwined 
relationship between Delverde and Tamma. At verification of Delverde 
and Tamma, we confirmed reported information concerning ownership, 
boards of directors, transactions, and production processes. This 
information demonstrates that these affiliated producers have similar 
production processes and exhibit a significant potential for price 
manipulation as evidenced by interlocking boards of directors and 
shared transactions. Based on the information on the record, we believe 
that Delverde and Tamma cannot be considered separate manufacturers 
under the antidumping law, and that it is appropriate to calculate a 
single, weighted-average margin for these companies.
    Comment 2 Calculation of Constructed Export Price for Delverde: In 
the preliminary determination, we calculated CEP by deducting from the 
starting price (i.e., the price to the unaffiliated purchaser) 
discounts and rebates, international movement expenses, U.S. movement 
expenses, direct U.S. selling expenses, commissions and CEP profit, as 
well as indirect selling expenses and inventory carrying costs 
associated with economic activities occurring in the United States. We 
did not deduct the indirect selling expenses and inventory carrying 
costs incurred by the foreign producer in Italy because we did not deem 
these expenses to be specifically related to commercial activity in the 
United States.
    For the final determination, both petitioners and Delverde argue 
that the Department is required by the statute to deduct all expenses, 
including indirect expenses incurred by the foreign producer, in 
calculating CEP. The parties state that nothing in section 772(d)(1) 
suggests that the expenses listed in subparagraphs (1)-(D) must be 
related to activities that take place within the United States, or that 
such expenses must be incurred within the territory of the United 
States. They argue that the inclusion of a clause in the statutory 
definition of CEP (i.e., 772(d)(1)(D)) mandating the deduction of any 
selling expenses from the U.S. starting price) ensures that all 
indirect selling costs are stripped from the selling price. The parties 
further argue that the legislative history establishes that Congress 
intended the new CEP provision to be merely a clarification of prior 
law which provided for the deduction of all direct and indirect selling 
expenses, regardless of whether the expenses were attributable to 
activities in the United States. While the parties acknowledge that the 
language of the SAA may be unclear or ambiguous, they argue that, as a 
matter of law, such language cannot be used by the Department to 
override the clear and unambiguous language of the statute. 
Accordingly, both the petitioners and Delverde contend that in 
calculating CEP the Department must deduct all selling expenses, as 
required by section 772(d), regardless of where the expenses are 
incurred.
    These arguments concerning statutory interpretation 
notwithstanding, Delverde also contends that the Department made a 
factual error by not classifying the inventory carrying costs incurred 
by the foreign producer on U.S. sales as specifically related to 
commercial activity in the United States. Delverde notes that pasta on 
which the inventory carrying expense is incurred is enriched pasta that 
cannot be sold in Italy. Delverde states that this pasta is dedicated 
to the U.S. market from the point in production that vitamins are 
added, and is segregated from other pasta while in inventory. 
Accordingly, Delverde argues that all reported inventory maintenance 
expenses for enriched pasta are necessarily related to U.S. commercial 
activity.
    DOC Position: Consistent with the SAA and our proposed regulations, 
the Department reads section 772(d)(1) of the Act to require us to make 
deductions to CEP only for the expenses associated with economic 
activity in the United States (see SAA at 823 and the Department's 
proposed Regulations at 7331 and 7381). Our preliminary determination 
reflected this requirement insofar as our deductions to CEP excluded 
those expenses we deemed not specifically related to commercial 
activity in the United States (i.e., Delverde's indirect selling and 
inventory carrying expenses incurred in Italy).
    For the final determination, we reevaluated our treatment of 
indirect expenses incurred in Italy based on our findings at 
verification. In the case of indirect selling expenses, the indirect 
selling accounts reviewed at verification indicated that Delverde 
accurately identified each of the expenses that specifically related to 
U.S. commercial activity. With regard to inventory carrying costs, our 
observations confirmed Delverde's explanation that enriched pasta, 
other than whole wheat pasta, is virtually all sold to the United 
States and that any inventory carrying costs incurred on enriched pasta 
is necessarily attributable to U.S. economic activity. Therefore, we 
included inventory carrying costs and indirect selling expenses 
incurred in Italy (i.e., database fields DINVCARU and DINDIRSU) in our 
deductions from CEP.
    Comment 3 Payment Dates of Delverde Sales: At verification, we 
noted that Delverde had not updated the payment dates reported for U.S. 
and home market sales that were paid after submission of its September, 
1995, sales response. This caused the credit expense for these sales to 
be incorrectly calculated in the preliminary determination. Following 
verification, Delverde provided a revised sales tape with updated 
payment information for its U.S. sales. It did not revise the payment 
data for its home market sales, although this revision would have 
decreased the normal value of the affected sales.
    According to the petitioners, Delverde should be penalized for not 
disclosing its error prior to verification. The petitioners contend 
that all U.S. sales transactions by Delverde, showing a payment date of 
September 13, 1995, should be reset to a payment date of March 15, 1996 
(the date of the sales verification) for purposes of calculating the 
credit expense on these sales.
    DOC Position: For the final determination, we calculated U.S. 
credit based on the revised and verified payment information provided 
by Delverde. We believe this approach is appropriate because it is 
consistent with our practice of promoting accuracy and completeness in 
the calculation of margins, a practice which forms the basis for our 
approach to both pre- and post-verification submissions. See, Murata 
Mfg. Co. v. United States, 829 F. Supp. 603, 607 (CIT 1993) with NSK 
Ltd. v. United States, 798 F. Supp. 721 (CIT 1992), aff'd, 996 F.2d 
1236 (Fed. Cir. 1993) (Cf. the preamble of the Department's proposed 
regulations at

[[Page 30353]]

7323). We also believe that this approach is conservative because the 
revised payment information adversely affects the credit calculation of 
U.S. sales, and does not include revised home market information that 
would have been beneficial to the respondent.
    Comment 4 Revised Sales Tapes: The petitioners assert that the 
Department should carefully review the revised sales tapes submitted by 
Delverde and Tamma to ensure that the proper revisions have been made 
to the proper fields. For any field that has not been properly 
modified, the petitioners contend that the Department should apply 
facts available. In the case of CEP sales by FSM and Cavalier, U.S. 
importers related to Delverde, the petitioners argue that the 
widespread and fundamental changes submitted by Delverde very late in 
the investigation call into question the reliability of Delverde's 
responses. In light of the changes submitted by Delverde, the 
petitioners argue that if the Department identifies any anomalies in 
the data contained on the final sales tape, it should apply facts 
available to Delverde's sales in their entirety.
    Delverde insists that all its affiliated entities have cooperated 
with the Department at every stage of this investigation. According to 
Delverde, the submission of computer tapes to update their sales 
databases for revisions occurring after November 27, 1995, and to 
ensure that the database incorporates verified information clearly 
serves a useful function, and is intended to reduce the burden on the 
Department and other parties. Delverde emphasizes that every effort has 
been made to ensure that the sales tapes reflect exactly those changes 
previously identified by Delverde and Tamma, or requested by the 
Department. Delverde contends that there is no basis for the 
petitioners' unsupported speculation or requests for the use of ``facts 
available'' with respect to unspecified ``anomalies.''
    DOC Position: We agree that Delverde and its affiliated entities 
have been cooperative throughout this investigation. At our request, 
Delverde submitted revised computer tapes that updated their sales 
databases for revisions made subsequent to November 27, 1995, and 
incorporated changes identified at verification. We have examined these 
tapes and there is no basis for the petitioners' assertion that the use 
of facts available is warranted for selected portions of Delverde's 
databases or for Delverde's sales in their entirety.
    Comment 5  Slotting fees on CEP sales by Delverde USA: The 
petitioners argue that the Department's verifiers noted certain 
irregularities with respect to the slotting fees paid to a certain 
Delverde USA customer. According to the petitioners, the Department 
reviewed four invoices to the customer at verification that Delverde 
USA explained were up-front slotting fees on post-POI sales. The 
petitioners argue that because Delverde did not provide full disclosure 
of the details of any ``up-front'' slotting fees paid before the POI, 
the Department must associate the expenses with the POI since that is 
when they were incurred. The petitioners request that the Department 
increase the slotting expense reported in field ADVERT2U for this 
customer, or apply facts available in the absence of available sales 
information for this customer.
    Delverde states that the petitioners' arguments reflect a 
fundamental misunderstanding of Delverde USA's sales to this customer 
and of the methodology used to report this customer's slotting expense. 
Delverde asserts that the petitioners' arguments fail to take into 
account the fact that sales to this customer by Delverde USA are made 
pursuant to an agreement which became effective at the end of the POI. 
Delverde argues that it has never claimed that the referenced invoices 
are related to post-POI sales. Rather, as reflected in the Department's 
verification report, Delverde notes that the referenced invoices relate 
to post-POI shipments which were appropriately included in calculating 
the slotting expenses reported in ADVERT2U for this customer. Delverde 
also dismisses the petitioners' suggestion that Delverde did not 
disclose the details of up-front slotting fees that might have been 
paid to this customer before the POI. Given that Delverde USA's 
business with this customer began with the agreement at the end of the 
POI, Delverde asserts that it is factually incorrect to assume that up-
front slotting fees were paid to this customer prior to the POI. 
Delverde submits that the petitioners' request for an adjustment to 
field ADVERT2U should be rejected.
    DOC Position: At verification, we reviewed Delverde USA's agreement 
with the customer, dated near the end of the POI. We also reviewed four 
invoices which represent the totality of sales made pursuant to the 
agreement, each of which was invoiced and shipped after the POI. The 
results of this review indicate that, more than a year after the 
agreement, only a small fraction of the total quantity of pasta 
specified in the agreement had been sold and delivered to the customer. 
We also found that another fundamental element of the agreement had 
only been partially implemented. Consequently, although Delverde USA 
continues to consider its relationship with this customer to be 
unchanged, in our judgment the agreement is not in effect. We therefore 
reclassified the date of sale for these invoices to the invoice date, 
pursuant to Delverde's date of sale methodology for its other sales and 
to our findings at verification. Given that this reclassification 
indicates that the four invoices were dated outside the period of 
investigation, we did not include these sales in the final margin 
calculations for Delverde. Therefore, the arguments concerning the 
ADVERT2U field are moot.
    Comment 6  Delverde USA's Indirect Selling Expenses: In its revised 
calculation of U.S. indirect selling expenses, Delverde USA added a 
separate line item to POI operating expenses for a slotting fee 
provided to one U.S. customer. The petitioners contend that this is an 
improper means of accounting for a slotting fee expense, which is 
customer-specific in nature. According to the petitioners, proper 
accounting for this customer-specific expense would be to allocate this 
additional expense over the POI sales to this customer. The petitioners 
recommend that if the Department is unable to readily arrive at a total 
sales figure for this customer, it should use facts available and add 
the highest slotting fee expense reported in the U.S. sales database 
(field ADVERT2U) to any existing expenses in this field for this 
customer.
    Delverde maintains that it is appropriate to treat the cost 
incurred in selling to this customer as an indirect selling expense. As 
explained by Delverde at verification, Delverde USA actively solicited 
the business of this customer because of that customer's retail 
outlets. In order to secure the opportunity to sell to that potential 
customer, the customer demanded an up-front payment which Delverde USA 
provided in the form of an initial delivery of pasta free of charge. In 
providing the up-front payment, Delverde sought to induce that customer 
to begin placing large volume, follow-up orders on an on-going basis. 
Delverde notes that its investment was not successful as the customer 
subsequently purchased and paid for only a very small amount of 
merchandise. Delverde notes that no other orders were placed by the 
customer, despite the customer's demand for, and receipt of, the up-
front payment.
    Based on this explanation, Delverde argues that Delverde USA's 
investment

[[Page 30354]]

is properly recognized as a general cost of doing business. Given that 
the customer did not subsequently place orders with Delverde USA, 
Delverde argues that it would not be appropriate to treat the expenses 
as a slotting cost related solely to this customer. Rather, Delverde 
argues that it is the lack of follow-up business that distinguishes 
this situation from other instances where slotting fees were reported 
in field ADVERT2U.
    DOC Position: We agree with Delverde that it is appropriate to 
treat the up-front slotting fee provided to one Delverde USA customer, 
as an indirect selling expense for all sales to all customers. Such 
treatment is warranted in this instance given that no orders were 
subsequently placed with Delverde USA by this customer. Accordingly, we 
believe that the lack of follow-up business distinguishes this 
situation from other instances where slotting fees were reported on a 
customer-specific basis in field ADVERT2U.
    Comment 7  Delverde's Request for a CEP Offset: Delverde did not 
claim a level of trade adjustment for its EP sales. With respect to its 
CEP sales, the company argues that the statute directs the Department 
to deduct all selling expenses from the CEP and that the resulting 
adjusted CEP is an ex-factory price. Delverde then concludes that the 
adjusted CEP, or ex-factory price, is at the ex-factory level of trade. 
In the absence of ex-factory sales in its home market, Delverde further 
argues that it is impossible to quantify the price effect of selling 
functions involved in sales at levels of trade more advanced than ex-
factory, and, as a consequence, it must be entitled to the CEP offset.
    The petitioners argue that Delverde would have had to submit data 
concerning its selling functions in response to the Department's 
requests related to the Department's level of trade analysis in order 
to qualify for a CEP offset. As a consequence of failing to provide the 
Department with this requested information, the petitioners assert that 
the SAA prohibits a CEP offset.
    DOC Position: The Department requested level of trade information 
from Delverde on October 23, 1995, and on January 22, 1996. Delverde 
responded with the argument that it had not claimed a level of trade 
adjustment for its EP sales and that it was pointless for the 
Department to compare CEP activities for level-of-trade purposes. As a 
result of Delverde's refusal to provide the requested information, the 
Department has had to infer different selling functions from the 
narrative of Delverde's responses concerning other topics. On the basis 
of our analysis of its selling functions, described in the ``Level of 
Trade'' section of this notice, above, we concluded that Delverde's 
U.S. sales and home market sales are made at the same level of trade. 
As stated in the SAA, at page 160, ``Only where different functions at 
different levels of trade are established under Section 773(a)(7)(A)(i) 
[and a level of trade adjustment is not appropriate] will Commerce make 
a constructed export price offset adjustment under Section 
773(a)(7)(B).'' Accordingly, we did not grant Delverde's request for a 
CEP offset in our final determination.
    Comment 8  Water Gain: Tamma argues that its semolina yield 
calculation correctly and accurately accounts for water absorbed by the 
wheat in producing semolina. It states that its submitted quantity of 
semolina and byproducts produced from a given quantity of durum wheat 
reflects the water gain. Tamma explains that the higher moisture 
content of milled semolina and byproducts is an inherent physical 
characteristic of those products. Tamma argues, therefore, that it 
would be improper to back out the weight gain attributable to such an 
inherent physical characteristic and such an adjustment would distort 
Tamma's semolina yield rates by not fully capturing the actual quantity 
of milled semolina produced.
    The petitioners argue that Tamma's semolina costs should be 
increased to properly account for the water gain. They state that it is 
not acceptable to allow Tamma to compare the ``wet'' semolina output to 
the ``dry'' durum wheat input to calculate yield loss. A ``dry'' input, 
the petitioners contend, should be compared to a ``dry'' output in 
deriving yield loss.
    DOC Position: We agree with Tamma that its semolina yield 
calculation properly accounted for the water gain during the milling 
process. We noted in our verification report a concern that the water 
weight gain might understate semolina costs by overstating production 
quantities. However, after further review of information on the record, 
we note that Tamma allocated its milling cost (i.e., wheat and 
conversion costs), net of byproduct revenue, based on the actual 
quantity of semolina produced. Therefore, the weight gain attributable 
to water has been properly absorbed by allocating milling costs to 
finished semolina output.
    Comment 9  Depreciation Expense: Tamma contends that its reported 
depreciation expense is accurate and does not distort costs. It argues 
that the submitted depreciation expense is identical to the amount 
reported in its audited financial statements and fixed asset ledger. 
Tamma further argues that its method of calculating the depreciation 
expense conforms with Italian GAAP and that the actual useful lives of 
its fixed assets reflect the expanded depreciation period allowed under 
Italian law. Tamma states that it is the Department's practice to 
accept home market GAAP when it does not distort production costs and 
cites Final Determination of Sales at Less Than Fair Value: Fresh Cut 
Roses from Colombia, 60 FR 6980, 6997 (February 6, 1995); Final 
Determination of Sales at Less Than Fair Value: Small Diameter Circular 
Seamless Carbon and Alloy Steel, Standard, Line and Pressure Pipe from 
Italy, 60 FR 31981 (June 19, 1995); Final Results of Sales at Less Than 
Fair Value: Certain Cut-To-Length Carbon Steel Plate from Germany, 61 
FR 13834 (March 28, 1996); and Final Results of Sales at Less than Fair 
Value: Canned Pineapple Fruit from Thailand, 60 FR 29553 (June 5, 
1995).
    The petitioners contend that the Department should increase Tamma's 
depreciation expense. They argue that Tamma reduced its straight-line 
depreciation rates from the Italian civil code to rates it employs for 
income tax purposes which are inappropriate for a dumping analysis.
    DOC Position: We disagree with Tamma. To calculate depreciation 
expense, Tamma relied on industry specific depreciable asset lives 
authorized by the Italian Civil Code. However, Tamma later modified 
these depreciable asset lives in calculating depreciation expense for 
all of its assets, including the manufacturing equipment used to 
produce pasta. Contrary to Tamma's argument, the change to its assets 
depreciable lives was not the result of new events, changing 
conditions, experience, or additional information. Instead, Tamma's 
change in depreciable life was made only for its effect on the 
company's profitability.
    Generally, the Department relies on a company's home country GAAP; 
the Department will not do so, however, if the use of a country's GAAP 
does not accurately recognize a company's actual costs. (See, e.g., 
Minivans from Japan; Final Determination of Sales at Less than Fair 
Value: Dynamic Random Access Memory Semiconductors of One Megabit and 
Above from the Republic of Korea, 58 FR 15467, 15479 (March 23, 1993).) 
Recording of depreciation expenses provides a systematic, rational 
method of recognizing the costs of fixed assets. This allocates the 
one-time expense of purchasing (or constructing) fixed assets over the 
longer time period

[[Page 30355]]

which these assets will benefit. In this case, the Department found 
that the basis used for the financial statement, even if stated in 
accordance with Italian GAAP, is contrary to sound accounting 
principles and the Department's practice. Tamma simply elected to 
change its depreciation rate (which, in effect, changed the useful 
lives of the company's production assets) without any change in the 
underlying economic assumptions and estimates on which its depreciation 
method was based. Without documentary evidence of such a change in the 
underlying assumptions, it is inappropriate for the respondent to 
recognize less than a full year's depreciation expense.
    Comment 10  Foreign Exchange Losses Related to Debt: Tamma contends 
that its capitalization of foreign exchange losses realized in 
connection with loans used to purchase capital assets conforms to 
Italian law and Italian GAAP. It further argues that because the loss 
relates directly to the acquisition of capital assets, and is amortized 
over a period that is less than the useful lives of those assets, its 
capitalization of the exchange rate losses is reasonable and does not 
distort costs. See, Final Determination of Sales at Less Than Fair 
Value: Fresh Cut Roses from Ecuador, 60 FR 7019, 7039 (February 6, 
1995) (``Roses from Ecuador'').
    The petitioners contend that it is appropriate to recognize the 
entire exchange loss because the loss was incurred during the POI and 
the source of the loss is fungible in nature. They argue that a foreign 
exchange loss on debt owed is logically recognized at the end of the 
fiscal period. The petitioners also argue that the exchange loss cannot 
be related to the acquisition of the asset because it did not occur at 
the time of acquisition.
    DOC Position: We disagree with Tamma. In determining COP for the 
POI, the Department includes all costs incurred during the POI. If 
current losses are deferred to some future time, the costs would not 
appropriately match to the sales of the company during the POI. The 
Department has recognized this principle in the past in dealing with 
capitalized foreign exchange gains and losses relating to loans. See, 
Final Determination of Sales at Less Than Fair Value: Dynamic Random 
Access Memory Semiconductors of One Megabit and Above from the Republic 
of Korea, 58 FR 15467, 15479 (March 22, 1993).
    In this case, the extinguishment of debt caused a foreign exchange 
loss which represents a cost that provides no future benefit to Tamma. 
Tamma has argued that the exchange loss relates to the acquisition of 
assets and should be capitalized and amortized because this method was 
allowed in Roses from Ecuador. However, we note that in Roses from 
Ecuador the capitalized loss reflected an actual increase in the loan 
amount and the loss was amortized over the remaining life of the loan. 
The exchange loss in this case is also a cost of Tamma's borrowed funds 
but it is not an increase in the loan amount because it was incurred to 
extinguish the debt. Nor is the loss a cost of Tamma's equipment 
because this loss does not add to the utility of the equipment.
    We also note that contrary to Tamma's claims, the company's method 
of capitalizing this cost is not a recommended method under Italian 
GAAP. We note that the Italian National Council of Accountants 
(``NCA'') which issues recommended ``Principles of Accounting'' in 
Italy states that ``a resulting exchange loss should be recognized 
immediately'' (See, Larry L. Orsini, John P. Mcallister and Rajeev N. 
Parikh, ``Italy,'' World Accounting'', Volume 2, (Matthew Bender & Co., 
Inc., New York, New York, 1995) p. ITA.37[1].) Also, Tamma's 
capitalization and amortization of this loss is not acceptable under 
U.S. GAAP which states that such losses must be recognized in the 
period in which they are incurred.
    Comment 11  Subsidy Used to Offset G&A: Tamma claims that it 
properly reduced its G&A expenses by the amount of a grant from the 
Italian government which it received in 1994. Tamma argues that the 
grant effectively reduced its cost of producing subject merchandise and 
notes that the Department has previously allowed government grants as 
offsets against production costs. See, e.g., Final Determination of 
Sales at Less Than Fair Value: Aramid Fiber Formed of Poly-Phenylene 
Terephthalamide from the Netherlands, 59 FR 22684, 22556 (May 8, 1994); 
and, Final Determination of Sales at Less Than Fair Value: Oil Country 
Tubular Goods from Argentina, 60 FR 33539, 33546 (June 28, 1995).
    The petitioners contend that Tamma should not be allowed to offset 
G&A expenses by a grant received from the Italian government because it 
is not clear if the grant was received during the POI. Therefore the 
Department should view the grant simply as additional income and not an 
as offset to G&A costs.
    DOC Position: We disagree with the petitioners. Tamma's management 
demonstrated that the purpose of the grant was to assist the company in 
improving the general operation of its pasta production facilities. 
Thus, we found that the grant related to the company's pasta operations 
and have allowed the amount received by Tamma during the POI as an 
offset to Tamma's G&A expenses.
    Comment 12 G&A and Interest Expense Revisions: The petitioners 
state that the Department should correct Tamma and Delverde's combined 
G&A expense factor and financing expense factor for certain clerical 
errors found or reported during verification.
    Tamma and Delverde agree with the petitioners.
    DOC Position: We agree with both the petitioners and the 
respondents and have corrected the combined cost of sales figure used 
by Tamma and Delverde to compute their G&A and financial expense 
ratios. In computing COP and CV, the Department normally requires 
respondents to allocate G&A and financing expenses to subject 
merchandise based on the ratio derived by dividing total G&A and 
financing expenses by the respondent's cost of sales. Delverde and 
Tamma derived a combined cost of sales figure based on total production 
costs (i.e., direct material and conversion costs) that was adjusted 
for the change in beginning and ending inventory values. However, this 
combined cost of sales did not include the scrap and byproduct revenue 
offset that the two companies used to reduce their cost of 
manufacturing. Nor did it exclude the intercompany transfers between 
the two companies. These omissions overstated the combined cost of 
sales figure which in turn understated the interest and financing 
expense allocated to subject merchandise.

De Matteis

    Comment 1 Commission Expenses: The petitioners argue that the 
Department should adjust De Matteis' claimed home market commission 
expenses to correct for errors discovered at verification. 
Specifically, the petitioners argue that the Department should deny the 
commissions claimed by De Matteis for all sales through selling agents 
3 and 4, and for 1994 sales made by selling agent 2.
    De Matteis did not comment on this issue.
    DOC Position: We agree with the petitioners. These payments were 
reviewed during verification and found to be salary expenses, not 
commissions.
    Comment 2 Exchange Rates: De Matteis contends that the Department 
incorrectly used a mixture of weighted-average and daily exchange 
rates. Specifically, it argues that the Department used daily exchange 
rates to

[[Page 30356]]

convert Lire into dollars in calculating certain values for the foreign 
unit price in dollars (FUPDOL), normal value, packing, differences in 
merchandise (DIFMER), and U.S. direct selling expenses, while the 
Department converted U.S. price using a weighted-average rate.
    The petitioners did not comment on this issue.
    DOC Position: We agree with De Matteis that we inadvertently used 
the daily exchange rate in two lines of the computer program used to 
calculate the margins for the preliminary determination. These two 
lines of the computer program specifically dealt with matches to CV. 
Because no U.S. sales were matched to CV for De Matteis for the 
preliminary determination, there was no effect on the margin for the 
preliminary determination. We have corrected the computer programming 
language for the final determination.
    Comment 3 G&A and Financial Expense Ratios: The petitioners argue 
that in calculating its G&A and financing expense ratios, De Matteis 
failed to reduce the cost of sales denominator by the amount of 
revenues received from the sale of byproducts. As a result of the 
miscalculation, petitioners contend that De Matteis understated its 
reported per-unit G&A and financing expenses.
    De Matteis agrees with the petitioners.
    DOC Position: We agree with both parties. De Matteis applied its 
G&A and financing expense ratios to per-unit cost of manufacturing 
amounts for pasta that were net of revenues received by the company 
from sales of certain byproducts. In computing these ratios, however, 
De Matteis did not reduce its cost of sales denominator for the 
byproduct revenue it received. This resulted in an understatement of 
G&A and financing expense which we have corrected for the final 
determination by subtracting byproduct revenues from De Matteis' cost 
of sales.

La Molisana

    Comment 1 Arm's Length Test: La Molisana argues that the arm's 
length test utilized in the preliminary determination is 
methodologically unsound because it fails to take into account price 
differences that result from comparisons of sales to different customer 
categories. Specifically, La Molisana claims that the test leads to a 
distortion of price comparability because it compares affiliated 
distributor sales to unaffiliated sales to all customer categories 
without taking into account the fact that the prices charged to 
distributors (both affiliated and unaffiliated) are considerably lower 
than the prices charged to unaffiliated non-distributors. In addition, 
La Molisana asserts that the Department verified that the company 
maintains separate price lists for distributors and non-distributors 
and that the price lists reflect significantly different prices. In 
support of this argument La Molisana provided a table in its case brief 
depicting the weighted-average net prices for each control number, 
level of trade (based on the LOTCODE assigned by the Department in the 
preliminary determination), affiliated distributor, unaffiliated 
distributor and unaffiliated non-distributor. La Molisana asserts that 
this table clearly demonstrates that the prices charged to affiliated 
and unaffiliated distributors are considerably lower than the prices 
charged to non-distributors.
    Finally, La Molisana contends that in previous investigations the 
Department has recognized that there may be other factors that should 
be taken into account in conducting the arm's length test. See, e.g., 
Final Determinations of Sales at Less than Fair Value: Certain Hot-
Rolled Carbon Steel Flat Products, Certain Cold-Rolled Carbon Steel 
Flat Products, Certain Corrosion-Resistant Carbon Steel Flat Products, 
and Certain Cut-to-Length Steel Plate from France, 58 FR 37062, 37077 
(July 9, 1993). (The Department agreed that modifying the arm's length 
test to take differences in quantity into account would ``fine-tune'' 
the arm's length test.) For all of these reasons La Molisana argues 
that the Department should revise the arm's length test by basing the 
test on customer category as well as control number and level of trade.
    The petitioners argue that the Department should continue to base 
the arm's length test solely on control number and level of trade, 
without regard to customer category. The petitioners contend that La 
Molisana has failed to show clear and documented evidence of price 
distinctions between distributors and non-distributors and that the 
Department should not consider the class of customer in determining 
whether sales are made at arm's length prices.
    DOC Position: We agree with La Molisana that the test used in the 
preliminary determination may have been distorted because it failed to 
take into account price differences that result from comparisons of 
sales to different customer categories. Section 353.403 of the 
Department's Proposed Regulations states that the Secretary may 
calculate normal value based on an affiliated party sale only if 
satisfied that the price is ``comparable'' to the price at which the 
producer sold the merchandise to an unaffiliated party. As noted in the 
``Comparison Methodology'' section of this notice, above, it is the 
responsibility of the Department, not respondents, to determine which 
customers may be grouped together for product comparison purposes. In 
this instance, the record establishes that there are three distinct 
customer classes in the home market (i.e., wholesalers, retailers and 
consumers) and that La Molisana offered significantly different prices, 
depending on the customer category. In addition, La Molisana made sales 
to both affiliated and unaffiliated customers within the same customer 
category during the POI. Consequently, in order to make a fair 
determination regarding the price comparability of the affiliated party 
sales, we have determined that it is appropriate to use customer 
categories in our arm's length test. We believe that the inclusion of 
customer category in the arm's length test conforms with the principle, 
found in both section 353.45(a) of the Department's existing 
regulations and section 351.403 of the proposed regulations, that 
affiliated prices must be comparable to unaffiliated party prices in 
order for the affiliated party prices to be used by the Department. 
Therefore, for the above reasons, we have modified the test used in 
this final determination to account for the customer category.
    Comment 2 Home Market Advertising Expenses: A. ``TV Sponsors'': La 
Molisana argues that certain previously unreported home market 
advertising expenses discovered at verification should be considered 
direct advertising expenses in the final determination. Specifically, 
La Molisana asserts that the Department verified that the expenses 
discovered at verification related to La Molisana's sponsorship of a 
television program where, during one segment of the show, La Molisana's 
pasta and logo were prominently displayed. Therefore, La Molisana 
contends that the advertising expenses associated with sponsoring this 
show were directed at its customer's customer and should be considered 
part of its direct advertising expenses in the final determination.
    The petitioners argue that the Department should not include the 
expenses associated with sponsoring the television show in the final 
determination because the expenses were not provided until 
verification.
    DOC Position: We agree with La Molisana that the expenses included 
in the ``TV Sponsors'' account should be considered part of La 
Molisana's direct advertising expenses in the final margin

[[Page 30357]]

calculations. At verification we confirmed that the advertisements were 
directed at downstream customers (i.e., the ultimate consumers). 
Therefore, we have treated these expenses as direct advertising 
expenses in the final determination.
    B. Trade Promotion Expenses: La Molisana argues that certain trade 
promotion expenses (which were treated as indirect expenses in the 
preliminary determination) are direct advertising expenses and should 
be treated as such in the final determination. It contends that these 
expenses are incurred in order to make its pasta more visible to the 
retail shopper and to encourage retail shoppers to purchase La 
Molisana's pasta. Therefore, La Molisana argues that trade promotion 
expenses are directed at its customer's customer.
    The petitioners argue that the Department should continue to treat 
trade promotion expenses as indirect selling expenses in the final 
determination because these expenses are paid directly to La Molisana's 
customers and therefore do not represent reimbursements for expenses 
its customers incurred in advertising La Molisana's products to 
downstream customers.
    DOC Position: We agree with La Molisana. For expenses incurred in 
advertising to be considered direct expenses there must be an 
assumption by the seller of the purchaser's advertising costs. In 
instances where the respondent assumes the total cost of promoting the 
product to downstream customers, we recognize that it is inherently 
difficult to tie any form of advertising to a specific sale. Therefore, 
the Department generally does not make that a requirement before 
accepting a claimed advertising expense as a direct expense. 
Nevertheless, the advertising must be proven to be directed towards the 
customer's customer (i.e., the ultimate consumer) and incurred on 
products under investigation. At verification we confirmed that trade 
promotion expenses are aimed at the ultimate consumers of La Molisana's 
pasta (i.e., the retail shoppers). Therefore, we have treated these 
expenses as direct advertising expenses in the final margin 
calculations.
    C. Introduction Incentive Fees: La Molisana argues that certain 
introduction incentive fees (which were initially reported as 
advertising expenses and were treated as indirect expenses in the 
preliminary determination) are direct selling expenses and should be 
treated as such in the final determination. Specifically, La Molisana 
claims that the Department verified that introduction incentives are 
paid in order to obtain shelving space in supermarkets. La Molisana 
claims that it must pay these fees in order to make the sale and that 
this fee is not paid unless it makes a sale. Therefore, the 
introduction incentive fees bear a direct relationship to the sales in 
question and should be treated as direct selling expenses in the final 
determination.
    The petitioners argue that the Department should continue to treat 
introduction incentive fees as indirect selling expenses in the final 
determination. The petitioners assert that La Molisana should not be 
permitted to submit new or revised claims for direct expenses after 
verification. In addition, the petitioners contend that introduction 
incentive fees are not directly related to the merchandise under 
investigation because they are flat fees that are incurred whether or 
not any actual sale occurs.
    DOC Position: We agree with the petitioners that introduction 
incentive fees should be treated as indirect selling expenses. As we 
stated in the DOC Position on Comment 5 concerning Arrighi, the Court 
of International Trade has explained that direct selling expenses ``are 
expenses which vary with the quantity sold,'' or that are ``related to 
a particular sale.'' In this instance, La Molisana did not demonstrate 
that these fees vary with the quantity of pasta sold or that they can 
be tied directly to particular transactions. Therefore, we have 
continued to treat this expense as an indirect selling expense in the 
final margin calculations.
    Comment 3 A. U.S. Advertising Expenses: La Molisana argues that its 
U.S. advertising expenses should be treated as indirect selling 
expenses in the final determination because the advertisements are not 
directed at its customer's customer. Specifically La Molisana asserts 
that it reimburses its U.S. distributor for a portion of the 
advertising expenses the U.S. distributor incurs promoting La 
Molisana's products to its customer's customer in the United States. 
Therefore, La Molisana argues that the advertisements are aimed at La 
Molisana's customer's customer's customer, not its customer's customer. 
As such, La Molisana argues that these expenses are not direct selling 
expenses because it is the Department's practice to treat advertising 
expenses as direct selling expenses only if those expenses are directed 
at the customer's customer.
    The petitioners argue that the Department should continue to treat 
La Molisana's U.S. advertising expenses as direct advertising expenses 
in the final determination because these expenses represent 
reimbursements La Molisana paid to its U.S. customer for expenses that 
the U.S. customer incurred to advertise La Molisana's products to 
downstream customers in the United States.
    DOC Position: We agree with the petitioners. For advertising to be 
treated as a direct expense it must be assumed on behalf of the 
respondent's customer and be incurred on the products under 
investigation. It is the Department's policy to classify advertising 
expenses directed at the ultimate consumer as direct and to classify 
advertising directed towards intermediary customers as indirect. See, 
e.g., Dynamic Random Access Memory Semiconductor's of One Megabyte or 
Above From the Republic of Korea, Final Results of Administrative 
Review, 61 FR 20216 (May 6, 1996). Antifriction (other than Tapered 
Roller Bearings) Bearings from France, 60 FR 10909 (February 28, 1995). 
At verification it was confirmed that La Molisana reimburses its 
unaffiliated U.S. customer for a portion of the advertising expenses 
this customer incurs promoting La Molisana's products to the ultimate 
consumers in the United States. Consequently we have treated these 
expenses as direct advertising expenses in the final determination.
    B. Alleged Error in the Treatment of Certain Advertising Expenses 
in the Preliminary Determination: La Molisana asserts that in its 
preliminary determination the Department treated trade promotion and 
introduction incentive fees as indirect expenses in the home market 
while the same expenses were treated as direct expenses in the U.S. 
market. La Molisana argues that regardless of whether the Department 
classifies trade promotion expenses and introduction incentive fees as 
indirect or direct expenses in the final determination, it should 
afford the expenses similar treatment in both the U.S. and home 
markets.
    The petitioners did not comment on this issue.
    DOC Position: We have reviewed La Molisana's assertion and agree 
that the preliminary determination failed to treat trade promotion 
expenses and introduction incentive fees similarly in the U.S. and home 
markets. This was an inadvertent error on the part of the Department. 
We have corrected this error by treating introduction incentive fees as 
indirect expenses and trade promotion expenses as indirect expenses in 
both the U.S. and home markets in the final margin calculations. (For a 
discussion of the classification of

[[Page 30358]]

these expenses see, Comments 2B and 2C, above.)
    Comment 4  Home Market Rebate: The petitioners argue that the 
Department should deny La Molisana's claim for the second type of home 
market rebate reported in its questionnaire response (i.e., the rebate 
based on a percentage of pre-determined sales targets) because La 
Molisana failed to provide support documentation for the reported 
amounts at verification.
    La Molisana did not comment on this issue.
    DOC Position: We agree with the petitioners. Section 782(i) of the 
Act states that: ``The administering authority shall verify all 
information relied upon in making a final determination in an 
investigation.'' At verification, company officials were unprepared to 
provide support documentation for this rebate and, as a result, the 
reported rebate amount was not verified. Accordingly, we have not made 
an adjustment for the second rebate in the calculation of normal value.
    Comment 5  Cost Reporting Period: La Molisana reported its costs on 
a calendar year basis. The petitioners argue that the Department should 
use costs during the POI to calculate La Molisana's cost of production. 
They note that the Department's antidumping questionnaire provides that 
COP and CV data should be calculated based on the actual costs incurred 
during the POI. Moreover, the petitioners claim it is the Department's 
routine practice to require respondents to report their costs incurred 
during the POI. See, Final Determination of Sales at Less Than Fair 
Value: Stainless Steel Bar from Spain, 59 FR 66931, 66938 (December 28, 
1994); Final Determination of Sales at Not Less Than Fair Value: 
Stainless Steel Bar from Italy, 59 FR 66921, 66929 (December 28, 1994).
    La Molisana counters that calculating cost on a calendar year basis 
was appropriate because the company only makes accruals when its 
accounting records are closed at year-end. It contends that the 
Department has a clear preference for respondents to use the accrual 
method of accounting when calculating costs. In this case, where La 
Molisana did not perform monthly closings, using the calendar year 
costs was appropriate because such costs included accruals and year-end 
adjustments.
    DOC Position: We agree with petitioners that the Department 
generally examines the materials, labor, and overhead incurred during 
the POI. The questionnaire requests COP and CV data calculated based on 
the actual costs during the POI. See, Final Determination of Sales at 
Less Than Fair Value: Stainless Steel Bar from Spain, 59 FR 66931, 
66938 (December 28, 1994); Final Determination of Sales at Not Less 
Than Fair Value: Stainless Steel Bar from Italy, 59 FR 66921, 66929 
(December 28, 1994). In the instant case, the Department compared 
significant elements of the cost of manufacturing computed on a 
calendar year basis and on a POI basis. We adjusted La Molisana's 
reported wheat, labor, and electricity costs to reflect POI basis 
costs. Although the Department prefers costs reported on the accrual 
basis, we have determined, in this case, that cash basis costs for the 
first four months of 1995 were acceptable since the verification 
testing indicated these expenses reasonably reflected the costs 
associated with the production and sale of the merchandise. The eight 
months of 1994 costs were calculated on the accrual basis.
    Comment 6 Total Cost Reconciliation: The petitioners urge the 
Department to increase La Molisana's reported costs to account for 
discrepancies between the unit costs in La Molisana's general ledger 
and the unit costs reported in La Molisana's questionnaire response. 
They state the Department found that La Molisana's finished goods 
inventory account showed an average unit cost higher than the average 
unit cost reported by La Molisana in its questionnaire response. They 
argue that the inventory value is probative evidence that the reported 
costs should be higher because the balance of the inventory account 
agreed to the audited financial statements. The petitioners also refer 
to the Department's analysis in the verification report that showed 
that average costs reflected in La Molisana's accounting ledgers for 
traditional pasta exported to third country markets was higher than the 
average costs reported by La Molisana in its questionnaire response, 
even though the average costs in the questionnaire response included 
traditional pasta and the more expensive nested pasta. These factors, 
combined with the fact that La Molisana declined to reconcile the total 
costs reported in the questionnaire response to the total costs in its 
accounting ledgers, should compel the Department to increase the unit 
costs reported by La Molisana so that they are consistent with the 
costs recorded in La Molisana's accounting ledgers which reconcile to 
its financial statements.
    La Molisana argues that the Department's calculation of a higher 
cost for subject merchandise sold to third country markets has no 
significance for reported costs and no adjustment to reported costs is 
warranted. La Molisana does not dispute the fact that a reconciling 
difference exists but disagrees with the Department's attribution of 
this difference to third country merchandise. It declares that if the 
Department allocates the reconciling difference over all production or 
alternatively over Italian and U.S. production, the result is an 
insignificant adjustment to the reported costs. It states that the 
difference could have resulted from incorrect product mix assumptions 
made by the Department, arithmetic errors by the Department, or 
assumptions made about production quantities of various products. La 
Molisana contends that the difference could be explained by a higher 
proportion of spinach pasta and tomato pasta in the third country mix, 
as these products have a higher cost than plain pasta. Moreover, La 
Molisana claims that providing the reconciliation in the limited time 
available was not possible with a small staff. Finally, La Molisana 
contends that the reconciliation was not necessary for verification 
since the Department tied individual cost elements to the cost accounts 
which subsequently agreed to the income statement for 1994.
    DOC Position: We agree with the petitioners that La Molisana's 
reported costs should be increased to account for the unreconciled 
difference between La Molisana's total production costs for 1994 and La 
Molisana's reported per-unit costs. Since La Molisana declined to 
prepare the reconciliation requested by the Department, the Department 
prepared a reconciliation of total production costs using information 
available from the record in this case. The reconciliation is necessary 
to establish that La Molisana captured and appropriately allocated all 
costs incurred for the period. Our analysis showed that an unreconciled 
difference remains.
    Although La Molisana takes issue with the format of the 
reconciliation and the assumptions made, the Department provided La 
Molisana ample opportunity to provide this reconciliation. Such a 
reconciliation was specifically requested in the Department's 
supplemental Section D questionnaire and at verification. We believe 
that it is unacceptable in this situation to expect the Department to 
bear the responsibility of attempting to identify and perform the 
numerous and substantial recalculations necessary for the development 
of a completely accurate reconciliation. The Department's 
reconciliation provides a reasonable basis to identify costs that La 
Molisana may have failed to report, and

[[Page 30359]]

we have relied on this reconciliation in order to adjust the company's 
reported costs.
    Comment 7 Difference in System Costs: The petitioners argue that 
the Department should adjust for differences in costs between La 
Molisana's cost accounting records and the company's financial 
accounting records. They suggest that the Department adjust La 
Molisana's reported costs so that these costs reconcile to the amounts 
shown in La Molisana's financial accounting system, since these costs 
are the most reliable and relate directly to La Molisana's financial 
statements.
    La Molisana notes that general expenses reported elsewhere in its 
response account for much of the absolute difference between the costs 
recorded under its two accounting systems. La Molisana states that the 
remaining difference is immaterial and, thus, no adjustment is 
warranted.
    DOC Position: The Department agrees, in part, with both petitioners 
and with La Molisana. La Molisana is correct in stating that its 
reported general expenses account for much of the absolute difference 
between the company's cost and financial accounting systems. 
Petitioners correctly point out, however, that COP and CV should 
reflect the actual costs reported under La Molisana's financial 
accounting system. We have, therefore, adjusted La Molisana's costs to 
reflect the company's financial accounting records. In this instance 
the company could not explain the difference between its financial and 
cost accounting systems.
    Comment 8 Financial Expenses: The petitioners urge the Department 
to revise La Molisana's financial expenses to include the interest 
expense allocated to the flour mill and to exclude interest income 
earned on bonds with maturities of longer than one year. They cite the 
antidumping questionnaire which states that in calculating net interest 
expenses for COP, the respondent should include interest expense 
incurred for both long- and short-term borrowing, and that these 
interest expenses can be offset only by interest income earned on 
short-term investments of working capital. The petitioners state that 
short-term investments are investments of less than one year and, 
therefore, La Molisana should not have included income from bonds with 
maturities longer than one year in its net interest expense 
calculations.
    In principal, La Molisana does not object to reclassifying the 
interest expense allocated to the flour mill, provided that the 
Department allows the corresponding decrease to the semolina costs. It 
disagrees that the Department should treat long-term interest income in 
any way different from long-term interest expense. La Molisana claims 
that, since investment activities receive cash from operations and 
lending activities use cash to fund operations, all funds generated 
from investment activities should be netted with interest expense to 
obtain the net financing expense of the company. La Molisana maintains 
that it demonstrated at verification its positive cash flow during 
prior years. This cash was used to invest in bonds. La Molisana cites 
to the Department's principle of fungible funds as articulated in the 
Final Results of an Antidumping Duty Administrative Review: Titanium 
Sponge from Japan, 55 FR 42227 (October 18, 1990).
    DOC Position: We agree with petitioners. The Department considers 
interest expense to be the actual interest incurred by the company on 
both short- and long-term debt, reduced by the interest income earned 
on short-term assets. The Department has determined that the purchase 
and holding of long-term assets, such as bonds, that produce interest 
income represent investment activities that are wholly unrelated to the 
manufacturing business of the company. See, Final Determination at 
Sales at Less Than Fair Value: Calcium Aluminate Cement, Cement Clinker 
and Flux from France, 59 FR 14136, 14147 (March 25, 1994). Although the 
source of the funds to purchase these bonds may have been company 
operations, the purpose of holding long-term investments is not to fund 
current manufacturing operations. Investing in long-term securities is 
a separate and distinct activity from manufacturing. (See, e.g., Final 
Results of an Antidumping Duty Administrative Review: Certain Cold-
Rolled Carbon Steel Flat Products from Germany, 60 FR 65264, 65270 
(December 19, 1995) and Final Determination at Sales at Less Than Fair 
Value: Sweaters Wholly or in Chief Weight of Man-Made Fiber from the 
Republic of Korea; 55 FR 32659, 32667 (August 10, 1990).)
    This approach was affirmed in NTN Bearing Corp. v. United States, 
Slip Op. 95-165 (CIT 1995) (``NTN Bearing''). Relying on its earlier 
decision in Timken Co. v. United States, 852 F. Supp. 1040, 1048 (CIT 
1994) (``Timken''), the court clarified that to qualify for an offset, 
interest income must be related to the ``ordinary operations of a 
company.'' NTN Bearing at 32. While this standard does not require that 
interest income be tied directly to the production of the subject 
merchandise, a respondent must show ``a nexus between the reported 
interest income'' and its ``manufacturing operation.'' Id. at 33; see 
also Timken at 1048. Unlike interest income earned from the short-term 
investment of working capital, only rarely will interest income earned 
from a company's investment activities in bonds meet this standard.
    Because La Molisana failed to show the necessary nexus between its 
bond interest income and manufacturing operations, the Department has 
denied the claimed offset. The Department did allow an offset for 
short-term interest income where La Molisana demonstrated that short-
term assets from funds generated by the pasta manufacturing and selling 
operations of the company produced the income.
    Finally, we reclassified interest expenses allocated to the flour 
mill to the interest expenses reported for the company as a whole 
because it is the Department's normal practice to calculate net 
interest expense based on the actual experience of the company, not 
each separate division or section. We agree with La Molisana that it is 
appropriate to reduce semolina costs for the amount of interest expense 
which was reclassified.
    Comment 9 Foreign Exchange Gains and Losses: The petitioners argue 
that La Molisana incorrectly included foreign exchange gains and losses 
from sales transactions in its calculation of G&A expenses. They 
declare that the Department should exclude these foreign exchange gains 
and losses from the cost of production because La Molisana did not 
incur these amounts on purchases of raw materials or other inputs 
needed to produce the subject merchandise.
    La Molisana argues that if the foreign exchange gains and losses 
from sales transactions are not included La Molisana's G&A then the 
Department should include them in home market indirect selling 
expenses.
    DOC Position: We agree with petitioners. It is the Department's 
normal practice to distinguish between exchange gains and losses 
realized or incurred in connection with sales transactions and those 
associated with purchases of production inputs. See, e.g., Final 
Determination of Sales at Less Than Fair Value: Small Diameter Circular 
Seamless Carbon and Alloy Steel, Standard, Line and Pressure Pipe From 
Italy, 60 FR 31981 (June 19, 1995) and Silicomanganese from Venezuela. 
Accordingly, the Department does not include in COP and CV exchange 
gains and losses on accounts receivable because the exchange rate used 
to convert home market or third-country

[[Page 30360]]

sales to U.S. dollars is that in effect on the date of the U.S. sale. 
The Department typically includes foreign exchange gains and losses in 
the cost of manufacture when a respondent realized these gains and 
losses to produce the subject merchandise (e.g., acquisition of raw 
materials or other inputs needed to produce the subject merchandise). 
See, Final Determination of Sales at Less Than Fair Value: Saccharin 
from Korea, 59 FR 58826, 58828 (November 15, 1994). La Molisana does 
not dispute the fact that these foreign exchange gains and losses 
result from sales of finished products.
    With respect to La Molisana's claim that these amounts should be 
treated as indirect selling expenses, the Department has determined 
that the gains and losses do not constitute an indirect selling 
expense. Under section 773A of the Act, the Department converts foreign 
currencies on the date of sale. Only where a company can demonstrate 
that a sale of foreign currency on forward markets is directly linked 
to a particular export sale will the Department use the rate of 
exchange in the forward currency sale agreement. La Molisana did not 
demonstrate that they could link any sale of foreign currency on a 
forward market to any particular export sale.
    Comment 10 Calculation of G&A and Financial Expense Ratios: The 
petitioners argue that La Molisana should have followed the methodology 
in the antidumping questionnaire and allocated G&A and interest 
expenses based on cost of sales instead of sales revenue. The 
petitioners further argue that the company incorrectly applied its 
calculated ratio to a cost of manufacturing figure instead of a sales 
price.
    La Molisana disagrees with petitioners and states that its total 
sales revenue was used in calculating the denominator only as the 
starting point for its calculation of production costs.
    DOC Position: The Department has determined that the allocation 
basis La Molisana used in its calculation of the G&A and interest 
expense factors was incorrect. The company's calculation, which relied 
on sales revenue minus certain adjustments as the denominator, results 
in a ratio that understates the company's G&A and financial expense. We 
have recalculated these ratios on the basis of La Molisana's 1994 cost 
of sales.
    Comment 11 Sales of Semolina: The petitioners allege that La 
Molisana understated reported semolina costs by reducing the amounts 
incurred by the revenue received from semolina sold to outside parties. 
They argue that revenue from sales of semolina should not be used to 
offset the cost of production for semolina. Instead, the petitioners 
advocate computing the per-unit cost of semolina by dividing total 
semolina costs incurred during the POI by the total semolina produced 
during the POI. They argue that semolina and water are the primary 
materials used to produce pasta and, therefore, semolina is a primary 
ingredient rather than a byproduct of pasta production.
    La Molisana argues that semolina is a byproduct because semolina is 
an intermediate product in the production of pasta and has relatively 
minor value compared with pasta. Therefore, it was appropriate to 
offset semolina production costs with sales revenue from semolina. 
Moreover, La Molisana asserts that its treatment of semolina sales is 
consistent with its internal accounting.
    DOC Position: We agree with petitioners. Contrary to La Molisana's 
claim, semolina production is not incidental to the production of 
pasta. In fact, the milling of durum wheat results in semolina, which 
is the raw material input into pasta production. In this case, La 
Molisana seeks to reduce its cost of semolina consumed in pasta 
production by profit earned on sales of finished semolina. The 
Department's normal practice does not allow respondents to claim 
revenues earned from other finished products as offsets in calculating 
the cost of producing subject merchandise, see, e.g. Final Results of 
Antidumping Administrative Review: Titanium Sponge from Japan, 555 FR 
42227, (October 18, 1990).
    With regard to La Molisana's claim that semolina is a byproduct, as 
stated above, semolina is an input to pasta production that can also be 
sold as a finished product. The Department has specific, objective 
criteria for identifying byproducts (see Final Results of Antidumping 
Administrative Review: Elemental Sulphur from Canada, 61 FR 8239, 8241 
(March 4, 1996)). La Molisana has failed to explain how semolina meets 
this criteria. Therefore, we have recalculated per-unit semolina costs 
for the final determination by dividing total costs to produce semolina 
by the quantity of semolina produced.
    Comment 12 Semolina Water Weight Gain: The petitioners argue that 
production yields for semolina should be calculated using the same 
basis for output and input and should not be inflated merely because 
water is added during the milling process. They advocate increasing 
semolina costs to account for the water weight gain.
    La Molisana notes that with regard to water weight gain in the 
milling process, the reported semolina yields do not account for the 
water weight gain. However, La Molisana does consider the water weight 
gain in pasta production. Although the process starts with the 
relatively wet semolina, the cost of these materials correctly account 
for the yield to arrive at the cost of the finished pasta.
    DOC Position: The Department agrees that it is appropriate to 
consider the change in weight resulting from the addition of water in 
the milling process. We noted a concern in our verification report that 
the water weight gain might understate semolina costs by overstating 
production quantities. However, after further review of this issue, we 
found that La Molisana's costs correctly accounted for this change by 
allocating the total input costs over the output tons of finished, 
dried pasta.
    Comment 13 Initiation of the Cost Investigation: La Molisana argues 
that only those sales identified by petitioners as being below cost in 
their initial cost allegation are subject to elimination from normal 
value. Inasmuch as petitioners had failed to identify any control 
number as having had 20 percent or more of its sales below cost, La 
Molisana argues that the Department has no basis to eliminate any of 
the company's sales from normal value.
    The petitioners respond that they need only to provide the 
Department with a reasonable basis to believe or suspect the existence 
of below-cost sales. They argue that they are not required to 
demonstrate that such below-cost sales account for more than 20 percent 
of the respondent's total sales volume. The petitioners state that it 
is the Department's responsibility after the initiation of a cost 
investigation to collect cost of production information and to analyze 
that information to determine whether or not below cost sales were made 
in substantial quantities.
    DOC Position: The Department agrees with the petitioners that they 
are not required to demonstrate in their cost allegation that more than 
20 percent of the home market or third country sales were made at 
prices below the cost of production. The Tariff Act specifies only that 
the Department must have ``reasonable grounds to believe or suspect'' 
that respondents have made sales below cost in their home or third 
country markets. (See section 773(b).) The CIT has affirmed the 
Department's position in Huffy Corp. v. United States, 632 F. Supp. 50 
(1986) that the Act requires the petitioners to demonstrate only that 
sales, not substantial sales, have been made at below cost prices.
    Comment 14 Constructed Value Offset: La Molisana notes that the 
Department did not apply the accounts

[[Page 30361]]

receivable offset to interest expense for purposes of constructed 
value. It argues it has been Departmental practice to apply such an 
offset.
    The petitioners did not comment on this issue.
    DOC Position: The Department has not applied the accounts 
receivable offset to interest expense in the calculation of constructed 
value for three reasons. First, the new statute directs Commerce to 
calculate selling, general and administrative costs, including interest 
expense, based upon the actual experience of the company. See section 
773(b)(3)(B) and section 773(e)(2)(A) of the Tariff Act of 1930, as 
amended. Under our past practice, the accounts receivable offset was 
allowed as a reduction in interest expense to account for imputed 
credit expense which the Department included in constructed value. 
Because we base interest expense for constructed value on the actual 
amounts incurred by respondent, and do not include imputed credit 
expenses, it is no longer necessary to reduce the expense by the 
accounts receivable offset. Second, the Act defines the calculation of 
general expenses for cost of production and constructed value in the 
same way. Therefore, it would be inappropriate to calculate interest 
expense differently for cost of production and constructed value. 
Third, the Department computes profit under the statute as the ratio of 
profit earned on home market sales (i.e., net sales price less the cost 
of production) to the cost of production. Applying this ratio to a 
constructed value inclusive of imputed offset would be mathematically 
incorrect when the ratio was based on a cost of production exclusive of 
imputed expenses.

Liguori

    Comment 1 Whether Liguori's Home Market Advertising Expense is 
Overstated: The petitioners argue that Liguori's post-verification 
submission overstated its home market advertising expenses. They note 
that page 2 of the Department's sales verification report found that 
certain of these expenses had been incurred by an affiliate of Liguori' 
and urge that the Department disallow this amount of the home market 
advertising expenses.
    The petitioners further assert that another portion of Liguori's 
reported advertising expenses had not been verified successfully by the 
Department and urged that this amount be excluded from Liguori's 
revised home market advertising expenses.
    Liguori contends that its home market direct advertising expenses, 
as corrected, conform with the Department's verification findings. The 
first of these two amounts was incurred by Liguori's affiliate on 
behalf of Liguori; it was posted in its affiliate's general ledger 
account as a direct advertising expense. Liguori cites to page 26 of 
the sales verification report. With respect to the second aspect of the 
advertising expense, which petitioners classified as unverified, 
Liguori argues that the only reason the amount was not verified was 
because the Department did not devote the time to verify it.
    DOC Position: We disagree with the petitioners that Liguori's home 
market advertising expense is overstated. We verified that the amount 
mentioned on page 26 of the sales verification report covers the actual 
expenses that were incurred by Liguori's affiliate on behalf of Liguori 
to pay for expenses that qualified as direct advertising expenses. The 
appearance of a conflict between the amounts described on page 2 and on 
page 26 of the sales verification report is attributable to differences 
in the time periods under consideration. The amount on page 2 of the 
verification report covers only the POI months during 1994, while the 
amount on page 26 covers the entire POI. Both figures refer to the same 
accounts in the general ledger of Liguori's affiliate and we are 
satisfied that both are direct advertising expenses. These figures are 
also consistent with the findings in Liguori's cost verification. See, 
Exhibit 1, at page 19, of the cost verification report. The Department 
considers this entire amount to qualify as direct advertising expenses.
    With regard to the amount that was unverified, the Department does 
not verify every item reported or presented at verification. The 
Department exercised its discretion not to examine this amount on the 
grounds that it is small and that we had verified other aspects of 
these advertising expenses. Consequently, the Department considers this 
amount as being verified as a direct advertising expense.
    Comment 2 Customer Categories: The petitioners note that the 
Department was not able to verify the reasons for Liguori's different 
classifications for its U.S. customers. They urge the Department not to 
rely on Liguori's reported customer categories or channels of 
distribution for any reason, including the use of averaging groups and/
or level of trade comparisons.
    Liguori asserts that its reported customer coding is the same 
coding that it uses in its internal accounting system, and that this 
was verified by the Department.
    DOC Position: We agree with Liguori, in part. We verified that 
Liguori's reported customer coding was based on the customer 
classifications used in its internal accounting system in the ordinary 
course of business. Nevertheless, as discussed in the Level of Trade 
Section, above, the Department has reclassified Liguori's reported 
customer categories for use in our level of trade, arm's length 
pricing, and averaging group analyses.
    Comment 3 Minor Changes Found at Verification:  The petitioners 
state that the Department found, at verification, that Liguori had 
misidentified certain product codes and urge the Department to 
reclassify these pasta shapes for the final determination. Liguori 
contends that these pasta shapes were reclassified in its March 5, 
1996, submission.
    Liguori also states that certain minor changes to its sales 
responses are warranted in the final determination as a result of minor 
errors identified prior to, or in the course of, verification. Liguori 
notes that these changes were identified in the new sales tape 
submitted on March 5, 1996.
    DOC Position:  We agree with Liguori that these pasta shapes have 
been reclassified correctly in its March 5, 1996, submission. We 
confirm that most of these minor changes were incorporated in Liguori's 
March 5, 1996, submission.
    Certain minor errors noted at verification were not incorporated in 
Liguori's March 5, 1996, submission. We have made the necessary 
revisions to one home market invoice and to one U.S. invoice concerning 
payment/shipment dates and credit expenses in Liguori's database for 
the margin calculation.
    Comment 4 Resellers vs. End-users:  Liguori notes that, in the 
preliminary determination, the Department stated incorrectly that: 
``Liguori reported that {its} sales to {its} * * * affiliated resellers 
were made at arm's length.'' Liguori argues that the record clearly 
reflects that Liguori made no sales to, or through, affiliated 
resellers. It asserts that all of its home market sales to affiliates 
were to end-users that consumed the pasta in the course of their own 
commercial activities. These affiliated customers did not resell 
subject merchandise to unaffiliated parties.
    DOC Position: We agree with Liguori that all its home market sales 
to affiliates were to end-users. At verification, we noted that these 
sales were to affiliated end-users which consumed the pasta in the 
course of their own commercial activities and that these affiliated 
customers did not resell subject merchandise to unaffiliated parties.

[[Page 30362]]

    Comment 5 Allocation of Fuel Costs: The petitioners argue that 
pasta drying times and the resulting fuel costs are affected by the 
shape of the pasta. In particular, the wall thickness of pasta has the 
greatest effect on drying time. For example, thin spaghetti would incur 
less drying time and fuel costs than jumbo shells. As a consequence, 
according to the petitioner, Liguori's unsubstantiated method of 
allocating fuel costs on a short and long product basis is improper. 
The petitioners urge the Department to allocate fuel costs to 
production lines equally since Liguori does not maintain records that 
would enable the Department to base the allocation on line speed.
    Liguori does not object to an equal allocation of fuel costs among 
production lines.
    DOC Position: We agree with petitioners that Liguori was not able 
to provide support for its fuel allocation methodology. We reviewed the 
company's records to determine if Liguori maintained data that would 
enable the Department to base the allocation on a more accurate method. 
We found that Liguori did not maintain the type of detailed information 
that would allow for a specific allocation of these costs. We therefore 
allocated the fuel costs equally among pasta production lines.

Pagani

    Comment 1 Facts Available: The petitioners contend that both 
Pagani's sales database and its cost of production database are 
unreliable and that the Department should assign Pagani a FA rate for 
the final determination.
    Pagani contends that it has diligently reported its sales and cost 
data in compliance with each of the Department's requests during the 
investigation. With regard to its sales database, Pagani states that 
the Department thoroughly tested the accuracy and completeness of its 
sales data. The company asserts that the Department not only tested and 
reconciled the sales information used in the calculation of the 
preliminary margin, but also reconciled the total sales figure in the 
database into its financial statements. With regard to its cost 
information, Pagani argues that it properly allocated costs between 
subject and non-subject merchandise. In addition, Pagani contends that 
it appropriately valued raw materials and finished goods inventory 
pursuant to Italian GAAP.
    DOC Position: We agree with Pagani. While Pagani has submitted 
different volume and value figures during the investigation, most of 
these changes were requested by the Department and verified. Although 
computer problems delayed the verification process, they did not 
prevent the Department from fully verifying Pagani's sales database. 
The differences between the figures submitted in the original home 
market and U.S. databases and those in the most recently submitted 
databases are not significant. On the basis of our sales and cost 
verifications, it is reasonable and appropriate to calculate a margin 
for the final determination based on information on the record.
    Comment 2 Movement Expenses: The petitioners contend that the 
Department should treat the entire amount of Pagani's inland freight 
expenses as indirect selling expenses because some of the expenses were 
pre-sale expenses while others were post-sale expenses. The specific 
issue involves proprietary information and, therefore, cannot be 
discussed in any detail. See, petitioners' brief, at pages 126-127.
    Pagani contends that the overwhelming majority of its inland 
freight expenses are direct selling expenses attributable to the post-
sale delivery of its product from its factory or warehouse to its 
customers. At the very least, Pagani states that the Department should 
deduct from normal value the amount verified as being direct in nature.
    DOC Position: Section 773(a)(6)(B)(i) of the Act directs the 
Department to reduce normal value by ``the cost of all containers and 
coverings and all other costs, charges, and expenses incident to 
placing the foreign like product in condition packed ready for shipment 
to the place of delivery to the purchaser * * *.'' Accordingly, the 
Department treats all movement expenses as direct expenses regardless 
of whether they are pre- or post-sale in nature. Therefore, we have 
treated Pagani's pre-sale and post-sale inland freight charges as 
direct expenses.
    Comment 3 Sales to Employees: The petitioners state that the 
heavily discounted price for pasta that Pagani offers to its employees 
should not be included in normal value. They state that these sales 
were made at pre-agreed, discounted prices that were considerably lower 
than Pagani's prices to its regular customers. The petitioners further 
state that the discounted prices offered to Pagani's employees are a 
type of fringe benefit, and are made outside of the ordinary course of 
trade.
    Pagani states that its sales of pasta to its employees constitute a 
regular practice, pursuant to an agreement with the Italian government 
and provincial trade unions. Pagani further states that these sales are 
made in ordinary wholesale quantities and in the ordinary course of 
trade. Pagani states that the ``customer'' can be relied upon to take 
delivery of a regular quantity on a regular basis, pursuant to an 
agreement that operates as a requirements contract, subject to a 
maximum purchase level.
    DOC Position: We agree with petitioners. Because these sales are 
made pursuant to an agreement with the Italian government and 
provincial trade unions, we do not consider them to have been made in 
the ordinary course of trade. Rather, these sales are in the nature of 
an employee benefit.
    Comment 4 Disallowing Certain Home Market Expenses: The petitioners 
contend that the Department should continue to disregard certain home 
market expenses when calculating weighted-average normal values. Any 
further discussion of this issue is not possible because of the 
proprietary nature of the expense. Pagani did not comment on this 
issue.
    DOC Position: We agree with the petitioners. We will not deduct 
this expense from normal value.
    Comment 5 U.S. Interest Rate: The petitioners state that the loan 
reviewed by the Department at verification is not representative of 
Pagani's normal financing experience. The petitioners argue several 
additional points as to why the interest rate from this loan should not 
be used. Further discussion of this issue is not possible because of 
the proprietary nature of the loan.
    Pagani states that it has revised its U.S. interest rate to reflect 
the actual dollar borrowing rate incurred on its foreign currency loan.
    DOC Position: We disagree with the petitioners. It is standard 
Department practice to rely upon the respondent's actual experience 
when this information has been verified. See, e.g., Final Determination 
of Sales at Less than Fair Value: Polyvinyl Alcohol From the People's 
Republic of China, 61 FR 14057, 14061-14062 (March 29, 1996). We used 
the U.S. dollar borrowing rate for the calculation of Pagani's U.S. 
credit expense.
    Comment 6 Exclusion of Invoice 112: Pagani argues that this 
particular sale should be excluded from the Department's calculations 
because it was made at a ``salvage price'' owing to the product's 
limited remaining shelf-life. Pagani further contends that this 
transaction is unique in Pagani's experience with selling its product 
in the U.S. market. Finally, citing Circular Welded Non-Alloy Steel 
Pipe from the Republic of Korea, (57 FR 42942, September 17, 1992) and 
Ipsco, Inc. v. United States, 714 F. Supp. 1211,1217 (CIT 1989) 
(``Ipsco''), Pagani stresses the

[[Page 30363]]

Department's practice of excluding `* * * sales which are not 
representative of the seller's behavior * * *' Id.
    The petitioners state that the sale in question was made through 
the usual distribution channels and that there was no indication that 
the goods sold were defective, or otherwise were of inferior quality. 
Based on these statements and citing to both the Ipsco case and to the 
Final Determination of Sales at Less Than Fair Value: Fresh Kiwifruit 
from New Zealand, 57 FR 13695 (April 17, 1992), the petitioners contend 
that the Department should use this sale in its margin calculation for 
the final determination.
    DOC Position: We agree with petitioners. The exclusion from the 
ordinary course of trade only applies to the calculation of normal 
value. Although the Department has excluded aberrant U.S. sales from 
price comparisons on occasion, these exclusions have been confined to 
situations where there were very few U.S. sales in the category 
excluded. See, e.g., Preliminary Determination of Sales at Less Than 
Fair Value: Canned Pineapple Fruit from Thailand, 60 FR 2734, 2737 
(January 11, 1995). That is not the case here, where Pagani is 
requesting the exclusion of a material percentage of the U.S. database.
    Comment 7 Exclusion of Certain U.S. Sales: Petitioners argue that 
the Department should not have excluded certain sales from Pagani's 
margin calculations for the preliminary determination. Further 
discussion of this issue is not possible because of the proprietary 
nature of these sales. See petitioners' brief, at 134-135. Pagani did 
not address the issue.
    DOC Position: The Department used its standard computer programming 
language at the preliminary determination. Those programming 
instructions isolated the sales at issue in the calculation of the 
dumping margin in the preliminary determination. The program did not, 
however, exclude the sales described by the petitioners. The Department 
used this standard programming language for the final determination.
    Comment 8 Freight-in Costs of Semolina: Petitioners argue that the 
Department should increase Pagani's reported cost of semolina to 
include freight-in costs of semolina purchased from unaffiliated 
suppliers. Petitioners believe that freight-in costs are an integral 
part of the acquisition cost of semolina.
    Pagani did not comment on this issue.
    DOC Position: We agree with petitioners. We increased Pagani's 
reported costs to include the freight-in cost of semolina purchased 
from certain unaffiliated suppliers. Freight-in costs are part of the 
acquisition cost of the material.
    Comment 9 Depreciation Expense on New Production Line: The 
petitioners argue that Pagani's submitted depreciation expense was 
understated because Pagani used 1994 depreciation expense as a 
surrogate for the POI depreciation expense. They also argue that 
Pagani's submitted depreciation expense did not include two months of 
depreciation expense for a new production line which was placed in 
service during March 1995, and that the Department should increase 
Pagani's depreciation expense for the two months that this new line was 
in use. They suggest that the Department should also increase Pagani's 
1994 depreciation expense to account for inflation between 1994 and 
1995.
    Pagani does not disagree with petitioners suggestion to increase 
depreciation expense for the new line. However, it argues that it is 
unnecessary to account for the effects of inflation since the 
petitioners supplied no evidence that inflating the costs would provide 
a more accurate cost of production.
    DOC Position: We agree with both the petitioners and Pagani, in 
part. We increased Pagani's fixed overhead cost to include two months 
of depreciation expense for the new production line which began 
operating in March 1995. However, we did not increase Pagani's 
depreciation expense to reflect the effects of inflation as the 
petitioners suggested because it is not the Department's general 
practice to adjust for inflation at low levels such as those present in 
Italy during 1994 and 1995.
    Comment 10 Subsidy Offset to G&A: The petitioners argue that the 
Department should disallow Pagani's offset to G&A expenses for European 
Union Export Restitution payments received for pasta sales made outside 
the European Union (``EU''). They argue that G&A expenses are part of 
the cost of production for products sold in Italy and that a 
reimbursement for sales outside the EU has no relationship to the cost 
of production in Italy. Further, they contend that it is improper to 
include these reimbursements as an offset to Pagani's 1994 G&A expense 
because the reimbursements may be for sales that occurred prior to 
1994.
    Pagani contends that it should be allowed to offset G&A expenses 
with the EU Export Restitution payments. It argues that it is the 
Department's normal practice to consider G&A expenses relating to the 
activities of the company as a whole and not merely those relating to a 
specific market. Pagani states that it based its G&A expenses on the 
full-year amount reported in its 1994 audited financial statements, the 
fiscal year that most closely corresponded to the POI.
    DOC Position: We disagree with the petitioners. The EU Export 
Restitution payments are paid to pasta exporters who purchase and use 
EU wheat to produce pasta to compensate for the high price of EU wheat. 
In the Final Determination of Sales at Less Than Fair Value: Stainless 
Steel Bar From India, 60 FR 66915 (December 28, 1994), the Final 
Determination of Sales at Less Than Fair Value: Aramid Fiber Formed of 
Poly-Phenylene Terephthalamide from the Netherlands, 59 FR 22684, 22556 
(May 8, 1995), and the Final Determination of Sales at Less Than Fair 
Value: Oil Country Tubular Goods from Argentina, 60 FR 33539, 33546 
(June 28, 1995), the Department found that the receipt of similar 
governmental reimbursements could be used to offset production costs 
because they were found to be directly related to the production of 
subject merchandise. Therefore, in this case, the restitution payments 
Pagani received from the EU relate directly to the production of 
subject merchandise and represent an appropriate offset to the 
company's production costs.
    As for the petitioners' concern that the restitution payments may 
relate to events that occurred prior to 1994, we note that Pagani 
obtained the amount of the restitution from its 1994 audited financial 
statements where it was reported as a part of miscellaneous income. It 
is the Department's normal practice to require respondents to report 
annual G&A expenses and any corresponding miscellaneous income offsets 
that are general in nature for the fiscal year that mostly corresponds 
to the POI.
    Comment 11 Exchange Gains: The petitioners believe that the 
Department should exclude exchange gains from the calculation of G&A 
expenses because the amount of the exchange gains is related to 
accounts receivable. Pagani contends that it appropriately included the 
exchange gains as an offset to G&A expenses.
    DOC Position: We agree with the petitioners that the exchange gains 
should not be used to offset G&A and, accordingly, have excluded this 
amount from the calculation of G&A expenses. It is the Department's 
normal practice to distinguish between exchange gains from sales 
transactions (i.e., accounts receivable) and exchange gains from 
purchase transactions. The Department

[[Page 30364]]

does not normally include exchange gains from sales transactions in G&A 
expenses. See Silicomanganese from Venezuela.
    Comment 12 Egg Pasta Cost of Manufacturing: The petitioners argue 
that Pagani's submission methodology overstates the cost of manufacture 
for non-subject merchandise, i.e., egg pasta. They argue that the only 
significant difference between egg pasta and non-egg pasta is the egg 
additive and that the cost of Pagani's egg additive is not as 
significant as the difference between the unit cost of egg and non-egg 
pasta. Additionally, the petitioners state that Pagani's conversion 
cost of both subject and non-subject merchandise should be the same 
because the production steps are similar and are performed on the same 
equipment. Therefore, subject and non-subject merchandise should have a 
similar cost of manufacturing.
    Pagani argues that the different costs of manufacturing of subject 
and non-subject merchandise is reasonable. Egg pasta is more costly to 
produce because the egg additive is expensive and this type of pasta 
requires higher conversion costs to produce. Pagani explains that the 
egg pasta it produces is either a nested or soupette product that is 
manufactured on the production line with the highest operating costs. 
On the other hand, subject merchandise is mostly short and long cut 
pasta manufactured on production lines with lower operating cost.
    DOC Position: We disagree with petitioners. We did not find 
Pagani's cost of egg pasta to be overstated. As noted in our 
verification report, Pagani's egg pasta had higher production costs 
than subject merchandise. (See Memorandum to Christian B. Marsh from 
Stan T. Bowen, April 17, 1996, at 15.) Our verification report also 
notes that we reviewed the cost of manufacturing of non-subject 
merchandise. We found that the egg additive, which is not used in 
subject merchandise, comprised a significant portion of the raw 
material weight of egg pasta. The egg additive had a higher per 
kilogram cost than the semolina used by Pagani. Additionally, we found 
that Pagani's egg pasta production consisted primarily of nested and 
soupette products, which incur the highest conversion costs of all of 
Pagani's product lines. We also note that Pagani's finished egg pasta 
was valued at a higher cost than non-egg merchandise in the company's 
finished goods inventory ledgers for the past several years. Therefore, 
Pagani's reported cost of manufacturing of egg pasta did not appear to 
deviate from the valuation method used by the company in its normal 
accounting records.
    Comment 13 Inventory Valuation: The petitioners contend that 
Pagani's inventory valuation method (i.e., higher of cost of 
acquisition or market price) overstates the value of Pagani's beginning 
and ending inventory. This in turn, distorts Pagani's current cost of 
production. The petitioners also contend that Pagani did not account 
for all of the semolina consumed in production. They argue that the 
impact on the cost of manufacturing of Pagani's flawed inventory 
valuation is significant.
    Pagani states that its method of valuing inventory is authorized 
under Italian law and that it is the Department's well-documented 
practice to employ home market GAAP in calculating COP and CV. 
Additionally, Pagani argues that the petitioners give no reason why 
Pagani's inventory valuation method is inappropriate. Pagani argues 
that the difference in semolina consumption quantities is immaterial.
    DOC Position: We agree with Pagani. We found that the company's 
method of valuing inventory has no significant affect on the production 
costs of subject merchandise. Pagani valued ending inventories of 
finished pasta based on the weighted-average cost of production for the 
period. The ending inventory of raw materials, other materials, and 
packing materials were valued based on the higher of acquisition cost 
or market price. (See Memorandum to Christian B. Marsh from Stan T. 
Bowen, April 17, 1996, at 9.) Although Pagani's ending inventory 
quantities and value changed between year-end 1993 and 1994, we noted 
that the per-unit inventory values of raw materials and finished 
merchandise did not fluctuate significantly between periods. 
Furthermore, we compared the value of finished goods reported in 
Pagani's inventory ledgers to the company's actual cost of 
manufacturing for the POI and noted no significant difference between 
the values. We also compared the value of the raw materials reported in 
Pagani's year-end inventory ledgers to Pagani's acquisition costs 
during the month of December 1994 and noted no significant difference 
between the values.
     As for the petitioners' concern that Pagani understated its POI 
semolina consumption quantities, we note that the petitioners relied on 
a reconciliation schedule of semolina quantities which had several 
typographical errors. The dates reported on this schedule suggested 
that the reconciliation was for the POI but, in fact, the 
reconciliation covered the 1994 calendar year. Thus, the POI 
consumption quantities provided on the schedule of monthly semolina 
purchases and consumption quantities in the verification exhibit will 
not agree to the total quantities consumed during 1994 calendar years. 
In our judgement, the petitioners concern that Pagani understated its 
POI semolina consumption quantity is not supported by the record.

Industria Alimentare Colavita S.p.A. (Indalco)

    Comment 1 Requirements for Voluntary Respondents are Unreasonable 
and Contrary to Law: Indalco asserts that the Department's policy 
toward accepting voluntary respondents is both unreasonable and fails 
to comply with the requirements of the Antidumping Agreement (Agreement 
on Implementation of Article VI of GATT 1994). Indalco had requested 
voluntary status and responded to section A of our questionnaire. When 
the Department informed Indalco that it would only accept voluntary 
respondents in this investigation if a mandatory respondent failed to 
participate and if the voluntary respondent complied with the same 
deadlines that the Department established for the mandatory 
respondents, Indalco requested both a commitment from the Department to 
be accepted as a respondent and a four-week extension for its responses 
to sections B and C of our questionnaire. When the Department denied 
these requests, Indalco withdrew its request to be a voluntary 
respondent. Now, Indalco insists that the Department either exclude it 
from the final antidumping determination and from the coverage of any 
antidumping duty order, should one be issued in this investigation. In 
the alternative, Indalco requests a sufficient period of time to submit 
responses to sections B and C of the questionnaire and that the 
Department calculate an individual margin for the company.
    The petitioners argue that the Department properly denied the 
request of Indalco to participate as a voluntary respondent in this 
investigation because the number of respondents already involved was 
burdensome to the Department.
    DOC Position: The Department communicated its policy toward 
voluntary respondents participating in this investigation and provided 
specific written guidance on the Department's criteria for including a 
voluntary respondent in the investigation. (See July 12, 1995, letter 
from Gary Taverman to Indalco.) Additionally, the

[[Page 30365]]

Department responded to Indalco's request that the Department make a 
formal decision to include Indalco in the investigation by explaining 
that it would make the decision after Saral had submitted certain 
documentation necessary to the Department for determining whether to 
exclude Saral from the investigation. The submission from Saral was due 
August 31, 1995, before Indalco's responses to sections B and C of the 
Department's questionnaire were due. The Department also stated in that 
letter that it ``{i}f Saral is not required to participate as a 
mandatory respondent * * * the Department will include Indalco as a 
respondent if it has met all filing deadlines.'' [Emphasis added.] As 
for its request for a four-week extension from the time the decision is 
made (not from the September 6, 1995, due date) to submit responses to 
sections B and C of the questionnaire on August 28, 1995, the 
Department granted a one-week extension of the B and C deadline to 
correspond with the latest response due date for any mandatory 
respondent. On August 29, 1995, Indalco withdrew its request to be 
included as a voluntary respondent in the investigation and did not 
state any reason for its withdrawal.
    Neither the statute nor the Antidumping Agreement conflict with the 
Department's selection of mandatory or voluntary respondents in this 
investigation. Section 782(a) of the Act implements the obligations of 
the United States under Article 6.10.2 of the Antidumping Agreement. 
This section authorizes the Department to limit voluntary respondents 
where the number of respondents is so large that the calculation of 
individual dumping margins would be unduly burdensome and would prevent 
the timely completion of the investigation. Our determination as to 
which voluntary respondents to select is not limited to our 
consideration of the number of voluntary responses. The SAA, at page 
873, explicitly permits the Department, under certain circumstances, to 
decline to accept any voluntary respondents.
    Under Article 6.10.2 of the Antidumping Agreement, the antidumping 
authorities may take into account the total number of exporters and 
producers in determining whether to restrict the consideration of the 
number of voluntary responses; we are not limited in our consideration 
to the number of voluntary responses. (``Where the number of exporters 
and producers is so large that individual examinations would be unduly 
burdensome to the authorities and prevent the timely completion of the 
investigation.'')
    Had the Department acquiesced in granting Indalco a one-month 
extension to complete its questionnaire response as a precondition for 
its further participation in the investigation, Indalco's participation 
would have prevented the timely completion of the investigation. 
Moreover, the Department has no authority now to delay its final 
determination so that Indalco can complete the questionnaire and no 
reason to excuse Indalco's failure to present the Department with its 
reasons for withdrawing its participation earlier in the investigation. 
Finally, Indalco has not provided the Department with any rationale for 
excluding the company from the coverage of the final determination or 
from an antidumping duty order, should one be issued as a result of 
this investigation. Should an antidumping order be issued in this 
investigation, Indalco can request that its sales be examined in an 
administrative review under section 751 of the Act.

Continuation of Suspension of Liquidation

    In accordance with section 733(d) of the Act, we are directing the 
Customs Service to continue to suspend liquidation of all entries of 
pasta from Italy, as defined in the ``Scope of Investigation'' section 
of this notice, that are entered, or withdrawn from warehouse for 
consumption, on or after January 19, 1996, the date of publication of 
our preliminary determination in the Federal Register. Article VI.5 of 
the General Agreement on Tariffs and Trade (GATT) provides that ``[n]o 
product * * * shall be subject to both antidumping and countervailing 
duties to compensate for the same situation of dumping or export 
subsidization.'' The Department has determined in its Final Affirmative 
Countervailing Duty Determination: Certain Pasta from Italy, that the 
product under investigation benefitted from export subsidies. Normally, 
where the product under investigation is also subject to a concurrent 
countervailing duty (CVD) investigation, we would instruct the U.S. 
Customs Service to require a cash deposit or posting of a bond equal to 
the weighted-average amount by which the normal value exceeds the 
export price, as shown below, minus the amount determined to constitute 
an export subsidy. (See, Antidumping Order and Amendment of Final 
Determination of Sales at Less Than Fair Value: Extruded Rubber Thread 
from Malaysia, 57 FR 46150 (October 7, 1992).) For Arrighi, Delverde, 
and La Molisana, we are subtracting for deposit purposes the cash 
deposit rate attributable to the export subsidies found in the 
countervailing duty investigation. The ``all others'' deposit rate is 
based on subtracting the rate attributable to the export subsidies 
found in the CVD investigation for those companies that are respondents 
in the antidumping duty investigation and are found to have dumping 
margins.
    In this investigation, De Cecco has not cooperated with the 
Department and has not acted to the best of its ability in providing 
the Department with necessary information. This has prevented the 
Department from making its normal determination of whether the 
subsidies in question may have affected the calculation of the dumping 
margin. Thus, as indicated above, De Cecco's margin is based on facts 
available, taken from the petition. Insofar as the dumping margin for 
De Cecco is not a calculated margin, there is no way to determine the 
portion of the antidumping duty which is attributable to the export 
subsidy. For that reason, and to prevent De Cecco from benefitting from 
its non-cooperation in this investigation, we have not subtracted the 
amount of any export subsidy from that margin.
    This suspension of liquidation will remain in effect until further 
notice.
     The weighted-average dumping margins are as follows:

------------------------------------------------------------------------
                                     Weighted-average margin    Bonding 
       Exporter/manufacturer                percentage        percentage
------------------------------------------------------------------------
Arrighi............................  20.24..................      17.99 
De Cecco*..........................  46.67..................      46.67 
Delverde...........................  2.80...................       1.68 
De Matteis.........................  0.67...................       0.00 
                                     (de minimis)...........            
La Molisana........................  14.78..................      14.73 
Liguori............................  12.41..................      12.41 
Pagani.............................  12.90..................      12.90 
All Others.........................  11.21..................     10.38  
------------------------------------------------------------------------
* Facts Available Rate.                                                 

    The all others rate applies to all entries of subject merchandise 
except for entries of merchandise produced by the respondents listed 
above.

ITC Notification

    In accordance with section 735(d) of the Act, we have notified the 
ITC of our determination. As our final determination is affirmative, 
the ITC will determine whether these imports are causing material 
injury, or threat of material injury, to the industry within 45 days. 
If the ITC determines that material injury, or threat of material 
injury, does not exist, the proceeding will be terminated and all 
securities posted will be refunded or canceled. If

[[Page 30366]]

the ITC determines that such injury does exist, the Department will 
issue an antidumping duty order directing Customs officials to assess 
antidumping duties on all imports of the subject merchandise entered, 
or withdrawn from warehouse, for consumption on or after the effective 
date of the suspension of liquidation.
    This determination is published pursuant to section 735(d) of the 
Act.

    Dated: June 3, 1996.
Paul L. Joffe,
Acting Assistant Secretary for Import Administration.
[FR Doc. 96-14736 Filed 6-13-96; 8:45 am]
BILLING CODE 3510-DS-P