[Federal Register Volume 61, Number 142 (Tuesday, July 23, 1996)]
[Notices]
[Pages 38139-38166]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18541]


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DEPARTMENT OF COMMERCE
[A-588-837]


Notice of Final Determination of Sales at Less Than Fair Value: 
Large Newspaper Printing Presses and Components Thereof, Whether 
Assembled or Unassembled, From Japan

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

EFFECTIVE DATE: July 23, 1996.

FOR FURTHER INFORMATION CONTACT: Bill Crow or Dennis McClure, Office of 
AD/CVD Enforcement, Import Administration, International Trade 
Administration, U.S. Department of Commerce, 14th Street and 
Constitution Avenue, NW., Washington, D.C. 20230; Telephone: (202) 482-
0116 or (202) 482-3530, respectively.

The Applicable Statute

    Unless otherwise indicated, all citations to the Tariff Act of 1930 
(``the Act'') are references to the provisions effective January 1, 
1995, the effective date of the amendments made to the Act by the 
Uruguay Rounds Agreements Act (``URAA'').

Final Determination

    We determine that large newspaper printing presses and components 
thereof (``LNPPs'') from Japan are being, or are likely to be, sold in 
the United States at less than fair value (``LTFV''), as provided in 
section 735 of the Act.

Case History

    Since the preliminary determination on February 23, 1996 (60 FR 
8029, March 1, 1995), the following events have occurred:
    On February 26 and 27, 1996, the respondents, Mitsubishi Heavy 
Industries Ltd. (``MHI'') and its U.S. affiliate Mitsubishi 
Lithographic Printing (``MLP''); Tokyo Kikai Seisakusho Ltd. (``TKS'') 
and its U.S. affiliate TKS USA; and the petitioner, Rockwell Graphics 
Systems Inc. and its parent company, Rockwell International 
Corporation, requested disclosure of the Department's calculation 
methodologies used in the preliminary determination. On March 4, 1996, 
the petitioner alleged that the Department made two ministerial errors 
in its calculation with respect to constructed value (``CV'') and 
further manufacturing costs. The Department determined that neither of 
the allegations constituted ministerial errors. (See Memorandum from 
the Team to Richard W. Moreland, March 11, 1996.)
    On February 27, 1996, the Department issued supplemental sales 
questionnaire to MHI and TKS. On March 7, 1996, the respondents 
submitted their responses to the supplemental sales questionnaire. On 
March 5, 1996, the Department issued a supplemental cost questionnaire 
to TKS and on March 8, 1996, TKS submitted its response.
    In March and April 1996, we conducted verification of the sales and 
cost questionnaire responses of the respondents in Japan and the United 
States.
    On May 8, 1996, the Department received comments it solicited from 
interested parties in its preliminary determination regarding scope 
issues. On May 31, 1996, respondents submitted new sales and cost 
databases which incorporated factual corrections noted during 
verification.
    The respondents and the petitioner submitted case briefs on June 3, 
1996 and rebuttal briefs on June 10, 1996. The Department held a public 
hearing for this investigation on June 17, 1996. On June 19, 1996, MHI 
protested that certain elements of the petitioner's rebuttal brief 
contained new factual information. On June 20, 1996, the petitioner 
objected to MHI's complaint. On June 26, 1996, the Department returned 
the rebuttal brief to the petitioner, and notified the petitioner that 
the new material to which MHI had objected should be removed from the 
record of the investigation. The petitioner submitted a revised 
rebuttal brief on June 27, 1996.

Scope of Investigation

    Note: The following scope language reflects certain 
modifications from the notice of the preliminary determination. As 
specified below, we have clarified the scope to include incomplete 
LNPP systems, additions and components. We have also clarified the 
scope to include ``elements'' (otherwise referred to as ``parts'' or 
``subcomponents'') of a LNPP system, addition or component, which 
taken altogether constitute at least 50 percent of the cost of 
manufacture of the LNPP component of which they are a part. We have 
also

[[Page 38140]]

excluded from the definition of the five subject LNPP components any 
reference to specific subcomponents (i.e., the reference to a 
printing-unit cylinder in the definition of a LNPP printing unit). 
In addition, we have excluded the following Harmonized Tariff System 
of the United States (``HTSUS'') subheadings from the scope: 
8524.51.30, 8524.52.20, 8524.53.20, 8524.91.00, and 8524.99.00. See 
``Scope Comments'' section of this notice and the July 15, 1996 
Decision Memorandum to Barbara Stafford from The Team Re: Scope 
Issues in the Final Determinations.

    Scope: The products covered by these investigations are large 
newspaper printing presses, including press systems, press additions 
and press components, whether assembled or unassembled, whether 
complete or incomplete, that are capable of printing or otherwise 
manipulating a roll of paper more than two pages across. A page is 
defined as a newspaper broadsheet page in which the lines of type are 
printed perpendicular to the running of the direction of the paper or a 
newspaper tabloid page with lines of type parallel to the running of 
the direction of the paper.
    In addition to press systems, the scope of these investigations 
includes the five press system components. They are:
    (1) A printing unit, which is any component that prints in 
monocolor, spot color and/or process (full) color;
    (2) A reel tension paster (``RTP''), which is any component that 
feeds a roll of paper more than two newspaper broadsheet pages in width 
into a subject printing unit;
    (3) A folder, which is a module or combination of modules capable 
of cutting, folding, and/or delivering the paper from a roll or rolls 
of newspaper broadsheet paper more than two pages in width into a 
newspaper format;
    (4) Conveyance and access apparatus capable of manipulating a roll 
of paper more than two newspaper broadsheet pages across through the 
production process and which provides structural support and access; 
and
    (5) A computerized control system, which is any computer equipment 
and/or software designed specifically to control, monitor, adjust, and 
coordinate the functions and operations of large newspaper printing 
presses or press components.
    A press addition is comprised of a union of one or more of the 
press components defined above and the equipment necessary to integrate 
such components into an existing press system.
    Because of their size, large newspaper printing press systems, 
press additions, and press components are typically shipped either 
partially assembled or unassembled, complete or incomplete, and are 
assembled and/or completed prior to and/or during the installation 
process in the United States. Any of the five components, or collection 
of components, the use of which is to fulfill a contract for large 
newspaper printing press systems, press additions, or press components, 
regardless of degree of assembly and/or degree of combination with non-
subject elements before or after importation, is included in the scope 
of this investigation. Also included in the scope are elements of a 
LNPP system, addition or component, which taken altogether, constitute 
at least 50 percent of the cost of manufacture of any of the five major 
LNPP components of which they are a part.
    For purposes of this investigation, the following definitions apply 
irrespective of any different definition that may be found in Customs 
rulings, U.S. Customs law or the HTSUS: the term ``unassembled'' means 
fully or partially unassembled or disassembled; and (2) the term 
``incomplete'' means lacking one or more elements with which the LNPP 
is intended to be equipped in order to fulfill a contract for a LNPP 
system, addition or component.
    This scope does not cover spare or replacement parts. Spare or 
replacement parts imported pursuant to a LNPP contract, which are not 
integral to the original start-up and operation of the LNPP, and are 
separately identified and valued in a LNPP contract, whether or not 
shipped in combination with covered merchandise, are excluded from the 
scope of this investigation. Used presses are also not subject to this 
scope. Used presses are those that have been previously sold in an 
arm's length transaction to a purchaser that used them to produce 
newspapers in the ordinary course of business.
    Further, this investigation covers all current and future printing 
technologies capable of printing newspapers, including, but not limited 
to, lithographic (offset or direct), flexographic, and letterpress 
systems. The products covered by this investigation are imported into 
the United States under subheadings 8443.11.10, 8443.11.50, 8443.30.00, 
8443.59.50, 8443.60.00, and 8443.90.50 of the HTSUS. Large newspaper 
printing presses may also enter under HTSUS subheadings 8443.21.00 and 
8443.40.00. Large newspaper printing press computerized control systems 
may enter under HTSUS subheadings 8471.49.10, 8471.49.21, 8471.49.26, 
8471.50.40, 8471.50.80, and 8537.10.90. Although the HTSUS subheadings 
are provided for convenience and Customs purposes, our written 
description of the scope of this investigation is dispositive.

Scope Comments

    We have included scope issues for this investigation and the 
concurrent investigation of LNPP from Germany in the Final 
Determination of Sales at Less Than Fair Value: Large Newspaper 
Printing Presses and Components Thereof, Whether Assembled or 
Unassembled, from Germany (``LNPP from Germany''). The issues are 
voluminous and the resolution of these issues affects both 
investigations equally, as reflected in the universal comment period in 
the public hearing on LNPP scope. We have therefore utilized the German 
FR Notice as the vehicle to publish the scope comments from all 
interested parties in both investigations.

Period of Investigation

    The POI for MHI is July 1, 1991 through June 30, 1995, and July 1, 
1992 through June 30, 1995 for TKS. See: Preliminary Determination of 
Sales at LTFV: Large Newspaper Printing Presses and Components Thereof, 
Whether Assembled or Unassembled, from Japan, 60 FR 8029 (March 1, 
1995) (``LNPPs from Japan Preliminary Determination'').

Product Comparisons

    Although the home market was viable, in accordance with section 773 
of the Act, we based normal value (``NV'') on constructed value 
(``CV'') because we determined that the particular market situation, 
which requires that the subject merchandise be built to each customer's 
specifications, does not permit proper price-to-price comparisons. See: 
Preliminary Determination: LNPPs from Japan. 

Fair Value Comparisons

    To determine whether MHI's and TKS's sales of LNPPs to the United 
States were made at less than fair value, we compared Constructed 
Export Price (``CEP'') to the NV, as described in the ``Constructed 
Export Price'' and ``Normal Value'' sections of this notice. In 
accordance with section 777A(d)(1)(A)(ii), we calculated transaction-
specific CEPs (which in this case were synonymous with model-specific 
CEPs) for comparison to transaction-specific NVs.

Constructed Export Price (``CEP'') and Further Manufacturing (``FM'')

TKS
    TKS reported its sales as CEP and CEP/FM sales. Because we have

[[Page 38141]]

classified installation expenses as further manufacturing, we have 
treated all TKS sales as CEP/FM sales. We calculated CEP, in accordance 
with subsections 772(b) and (d) of the Act, for (1) Those sales to the 
first unaffiliated purchaser that took place after importation by a 
seller affiliated with the producer/exporter, and (2) those sales 
involving further manufacturing in the United States.
    We calculated CEP based on the same methodology used in the 
preliminary determination, with the following exceptions:
    (1) We deducted those indirect selling expenses that were 
associated with economic activity in the United States, whether 
incurred in the United States or in Japan, and irrespective of where 
recorded. We revised the reported indirect selling expense ratio to 
include all Japanese indirect selling expenses in the numerator and 
allocated this amount over the total value of TKS sales to be applied 
to U.S. sales value, not transfer prices; TKS had previously excluded 
branch sales office expenses from the numerator and included some 
transfer prices in the denominator. We also calculated these indirect 
selling expenses in accordance with the methodology explained in the 
DOC Position to Comment 1 of the ``Common Issues'' subsection of the 
``Interested Party Comments'' section of the final notice of the 
companion investigation of LNPP from Germany.
    (2) We recalculated TKS's reported indirect selling expenses 
incurred in the United States using the total expenses and total 
revenue for TKS USA during the fiscal years 1991 through 1995, in order 
to remove distortions in TKS USA's financial statements caused by 
auditors' modifications to revenue recognized during the POI. Our 
revision included additional selling expenses and excluded common G&A, 
as detailed in our July 15, 1996, calculation memorandum.
    (3) We recalculated the U.S. insurance premiums expenses for both 
marine insurance and for U.S. inland insurance, increasing the amounts 
reported to match the acceptable loss/premium ratio established by 
Yasuda Fire and Marine Insurance in its official correspondence.
MHI
    Although MHI reported its sales as EP sales, we reclassified all 
MHI sales as CEP/FM sales because MHI's affiliated U.S. sales agent 
acted as more than a processor of sales-related documentation and a 
communication link with the unaffiliated U.S. customers. The U.S. 
affiliate engaged in a broad range of activities including purchasing 
parts, warranty, technical services, and the coordination of 
installation, which we have classified as further manufacturing. We 
calculated CEP, in accordance with subsections 772 (b) and (d) of the 
Act, for these sales because they involved further manufacturing in the 
United States.
    We calculated CEP based on the same methodology used in the 
preliminary determination, with the following exceptions:
    (1) We treated post-sale warehousing in Japan as a movement charge 
and not as a direct selling expense;
    (2) We deducted the unpaid portion of the total contract price from 
the gross price of the Guard sale as a discount. The proprietary 
details of this adjustment do not allow further elaboration; the July 
15, 1996, MHI calculation memo records the methodology.
    (3) We deducted those indirect selling expenses that were 
associated with economic activity in the United States, whether 
incurred in the United States or in Japan, and irrespective of where 
recorded. We also calculated these indirect selling expenses in 
accordance with the methodology explained in the DOC Position to 
Comment 1 of the ``Common Issues'' subsection of the ``Interested Party 
Comments'' section of the final notice of the companion investigation 
of LNPP from Germany.
    (4) We modified the calculation of MLP's reported indirect selling 
expenses to no longer include an allocation of common G&A expenses, 
since total G&A applicable to LNPP is accounted for in the calculation 
of further manufacturing costs.
    (5) We have modified the calculation of MHI's indirect selling 
expenses incurred in the United States but recorded in Japan to remove 
the salary expenses for an MLP employee where those expenses were 
already accounted for in the calculation of the MLP indirect selling 
expenses.
    (6) We excluded from the calculation of the Guard commission those 
additional revenues remitted to MLP by Sumitomo Corporation (``SC'') 
from the total interest income earned while SC collected and held 
payment from Guard.
    (7) We increased the amount of the spare parts adjustment to the 
Piedmont gross price in order to account for the value of materials 
supplied by MHI for the Piedmont sale in excess of the contracted value 
of spare parts.

Normal Value/Constructed Value

    For the reasons outlined in the ``Product Comparisons'' section of 
this notice, we based NV on CV. In accordance with section 773(e) of 
the Act, we calculated CV based on the sum of each respondent's 
materials and fabrication costs plus amounts for selling, general and 
administrative (``SG&A'') expenses, U.S. packing costs. We based CV on 
the same methodology used in the preliminary determination, with the 
following exceptions:
TKS
    (1) We adjusted TKS USA's SG&A and indirect overhead costs in 
accordance with the submitted reclassification of rent, workmen's 
compensation and employee insurance.
    (2) We recalculated CEP profit to include packing, transportation 
and installation costs.
    (3) We modified our calculation of TKS USA's further manufacturing 
G&A rate by excluding the inputs acquired from TKS.
MHI
    (1) We recalculated MLP's G&A rate using the cost of goods sold 
(``CGS'') incurred in the United States and applied that rate to 
further manufacturing costs for each U.S. sale.
    (2) We recalculated home market profit to reflect the deduction of 
freight costs.
    (3) We recalculated CEP profit to reflect the deduction of home 
market packing costs.
    (4) We reallocated MHI's R&D costs to all LNPP contracts based on 
the relative manufacturing costs incurred for each contract.
    (5) We adjusted NV to include the loss on sale of obsolete LNPP 
inventory.

Price to CV Comparisons

    For CEP to CV comparisons, we deducted from CV the weighted-average 
home market direct selling expenses, pursuant to section 773(a)(8) of 
the Act.

Verification

    As provided in section 782(i) of the Act, we conducted verification 
of the information submitted by the respondent. We used standard 
verification procedures, including examination of relevant accounting 
and sales records and original source documents provided by the 
respondent.

Currency Conversion

    Section 773A(a) of the Act directs the Department to convert 
foreign currencies based on the dollar exchange rate in effect on the 
date of sale of the subject merchandise, except if it is established 
that a currency transaction on forward markets is directly linked to an 
export sale. When a company demonstrates that a sale on forward

[[Page 38142]]

markets is directly linked to a particular export sale in order to 
minimize its exposure to exchange rate losses, the Department will use 
the rate of exchange in the forward currency sale agreement. In this 
case, although MHI reported that forward currency exchange contracts 
applied to certain U.S. sales, we verified that these contracts were 
linked to certain payments, not to the particular dates of sale of the 
contracts (and thereby to calculation exchange rates) in question. See 
May 14, 1996, MHI Verification Report at 9. Therefore, for the purpose 
of the final determination, 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 Reserve Bank.
    Section 773A(a) directs the Department to use a daily exchange rate 
in order to convert foreign currencies into U.S. dollars, unless the 
daily rate involves a ``fluctuation.'' For this final determination, we 
have determined that a fluctuation exists when the daily exchange rate 
differs from the benchmark rate by 2.25 percent. The benchmark is 
defined as the rolling average of rates for the past 40 business days. 
When we determined that a fluctuation existed, we substituted the 
benchmark for the daily rate. 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. 
(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 yen did not undergo a sustained movement of appreciation 
against the U.S. dollar affecting any date of sale during the POI.

Interested Party Comments

Common Issues in the German and Japanese LNPP Investigations
    We have included all issues which are common to both this 
investigation and the concurrent investigation of LNPP from Germany, 
and which were commented on by parties in both proceedings, in the 
Final Determination of Sales at LTFV: LNPP from Germany, which is being 
published concurrently with this notice.
Common Issues for LNPP From Japan
Sales Issue
    Comment 1  CEP Offset: As noted in the Common Issues section of the 
German notice, MHI argues that its sales should be treated as EP sales 
and not as CEP sales. Further, MHI argues that if a CEP analysis is 
applied, then the Department must consider a CEP offset to MHI's NV. 
MHI claims that the Department will not look to the initial sales price 
for CEP sales, but will instead look to the price as calculated after 
CEP adjustments are made to make level-of-trade (``LOT'') comparisons. 
MHI explains the statute recognizes that, in certain cases, while sales 
may have been made at different levels of trade, the data may not exist 
to make an LOT adjustment. According to MHI, comparing CEP to an 
unadjusted NV would not result in the ``fair comparison'' mandated by 
the statute. Thus, MHI states that in order to make a fair comparison, 
the statute allows for a deduction of indirect selling expenses from 
the NV by an amount not more than the amount of U.S. indirect selling 
expenses.
    MHI states that, if the Department continues to use CEP analysis 
for purposes of the final determination, an LOT adjustment would be 
warranted because of the activities that would be removed from the CEP. 
According to MHI's interpretations, because a CEP analysis implies that 
MLP's economic activities are significant, removing the expenses 
incurred for such activities would likely change the level of trade at 
which CEP is calculated. Furthermore, MHI maintains that a CEP analysis 
would remove from U.S. price all of MHI's U.S. economic activity as 
well, further necessitating an LOT adjustment, since the starting price 
for MHI's U.S. sales and home market sales is at the same level of 
trade, i.e., direct to the end-user. MHI maintains that since there is 
no data on the record to make an actual LOT adjustment, the Department 
should make a CEP offset adjustment to NV instead.
    TKS maintains that the Department should grant to it a CEP offset 
pursuant to section 773(a)(7)(B) of the Act because: (1) TKS's home 
market sales are all at a single level of trade which is identical to 
that of TKS's unadjusted CEP sales; (2) the adjustments made to CEP 
place it at a different level of trade than its home market sales; and 
(3) no level of trade adjustment can be quantified. TKS claims that 
section 773(a)(7)(B) of the Act, which authorizes application of the 
CEP offset, applies to all of TKS's CV-to-CEP sales comparisons used in 
this investigation. TKS maintains that TKS's home market LNPP sales 
involve only one type of customer--newspaper publishing companies, and 
only one channel of distribution--direct sales to those publishing 
companies. According to TKS, the sales and distribution process for all 
these sales is straightforward, as TKS's own specialized sales force 
initiates and maintains customer relations.
    According to TKS, all of its U.S. sales involve a single type of 
customer--newspaper publishers, and a single channel of distribution--
customer-direct sales. TKS states that it is undisputed that TKS's U.S. 
sales are CEP sales due to the numerous critical activities performed 
by its subsidiary, TKS USA. According to TKS, it is the CEP adjusted 
for the various expenses related to such activities which determines 
the level of trade of a CEP sale.
    TKS states that after the adjustments mandated by section 772(d) 
are completed, the level of trade of its CEP sales is nearer to the 
factory gate than the level of TKS's customer-direct home market sales, 
because the Act requires the deduction of all the direct and indirect 
selling expenses included in the CEP sale. Maintaining that the level 
of trade for the NV calculation is a CV that includes both direct and 
indirect selling expenses, TKS contends that its home market sales, in 
comparison with adjusted CEP sales, are at a more remote stage of 
distribution. Thus, TKS argues, it is entitled to a CEP offset.
    In complete disagreement with the respondents, the petitioner 
maintains that no CEP offset is warranted in this investigation. It 
argues that MHI and TKS have failed to establish that NV and CEP were 
at different levels of trade. The petitioner points out that MHI had 
maintained up until verification that no LOT adjustment was required, 
and that TKS had only asserted in a footnote to one of its responses 
that it was entitled to a CEP offset. Given that neither respondent 
substantiated the necessity for an LOT adjustment which underpins a CEP 
offset, the petitioner maintains that no CEP offset is warranted. The 
petitioner's primary objection to MHI's contention that it is entitled 
to a CEP offset simply because the Department made CEP adjustments as 
required by the statute, rests on the observation that the Department 
appears to have flatly rejected such a position in its proposed 
antidumping regulations:

    It would not be appropriate to assume that the CEP is at a 
different level of trade than the prices used as the basis of normal 
value or that any such differences in the level of trade affect 
price comparability.


[[Page 38143]]


See Antidumping Duties; Countervailing Duties (Notice of Proposed 
Rulemaking and Request for Public Comments), 61 FR 7308, 7348 (February 
27, 1996). Although MHI has three different channels of distribution in 
the home market, the Department cannot ascertain which selling 
functions are performed by MHI and which are provided by trading 
companies or other entities for each type of home market sale. The 
petitioner argues that the lack of a factual foundation for evaluating 
levels of trade means that a LOT adjustment under section 773(a)(7)(A) 
cannot be made and, further, that a CEP offset under section 
773(a)(7)(B) is not authorized.
    The petitioner also takes issues with the respondents' argument 
that an LOT adjustment is warranted because of the activities that 
would be removed from the CEP starting price. The petitioner's 
interpretation is that such a position runs counter to the preamble to 
the CEP provision in the proposed regulations. The petitioner further 
argues that, should the Department follow the methodology of the 
Preliminary Results of Administrative Review: Armid Fiber from the 
Netherlands, 61 FR 15766, 15768 (April 9, 1996) (``Armid Fiber''), then 
it would still contest the notion that for CEP sales the level of trade 
will be evaluated based on the price after adjustments are made under 
section 772(d) of the Act. According to the petitioner, stripping away 
the actual selling functions reflected in the CEP price before 
comparison for level of trade purposes amounts to an artificial 
reconfiguration of the CEP level of trade. The petitioner argues that 
this has the effect of creating the appearance of different levels of 
trade when in the commercial market the levels are the same. Thus, the 
argument is set forth that if the Department adjusts the CEP for U.S. 
selling expenses and artificially views the CEP sale as not including 
the selling functions represented by those expenses, then it will be 
positing a difference in level of trade that does not exist. According 
to the petitioner, if the Department were to allow a CEP offset, then 
the Department must deduct all of the indirect selling expenses from 
the U.S. price.
    DOC Position: We disagree with the respondents. In this instant 
investigation, the respondents failed to provide the Department with 
the necessary data for the Department to consider an LOT adjustment. 
Without such data, a LOT adjustment under section 773(a)(7)(A) cannot 
be made and, further, that a CEP offset under section 773(a)(7)(B) is 
not authorized. Absent this information, the Department cannot 
determine whether an LOT adjustment is warranted, nor whether the level 
of trade in the home market is in fact further removed than the level 
of trade in the United States. We agree with the petitioner that a 
respondent is required to affirmatively demonstrate all the 
requirements which would entitle it to a CEP offset as a surrogate for 
an LOT adjustment. The petitioner correctly noted that the Department's 
questionnaire requested from respondents all the relevant information 
required for an LOT analysis and for the documentation and explanation 
of any claim for an LOT adjustment. We agree with the petitioner that 
this information was not provided. We note MHI's claim in its section A 
response that a ``level of trade adjustment is unnecessary,'' though at 
the time of the submission, MHI did not know that the Department's 
analysis would classify its U.S. sales as CEP transactions. Without the 
possibility of making a proper level of trade analysis, the Department 
cannot and should not grant a deduction from NV for home market 
indirect selling expenses.
    Further, we disagree with the respondents' most basic 
representation of their home market sales. Respondents now contend that 
there is one home market level of trade to which CEP is being compared, 
but this claim is not well substantiated. The information we have on 
the record for sales in the home market does not support this 
conclusion. For TKS, sales were not made only to end-users, i.e., 
newspaper publishers, but, as discovered during verification, were 
sometimes made to middle-men, such as leasing companies, in the home 
market. For MHI, we knew in general that the company made some sales 
involving trading companies based on one paragraph of explanation in 
MHI's section D response. We were informed during the ``sales and 
distribution'' portion of the verification that MHI had three distinct 
channels of distribution in the home market: (1) direct sales to end-
users; (2) sales through trading companies and (3) sales to trading 
companies. See May 14, 1996, verification report at pp. 4-5. For 
neither TKS nor MHI can we ascertain which selling functions are 
performed by them and which are provided by leasing companies, trading 
companies or other entities for each type of home market sale. Thus, 
the minimal amount of information provided does not support the 
conclusions reached by respondents.
    We note, however, that we also disagree, in part, with the 
petitioner. In those cases where an LOT comparison is warranted and 
possible, then for CEP sales the level of trade will be evaluated based 
on the price after adjustments are made under section 772(d) of the 
Act. As stated in Armid Fiber ``the level of trade of the U.S. sales is 
determined by the adjusted CEP rather than the starting price.''
Cost Issue
    Comment 2  Collection of Cost Data in Absence of the Initiation of 
a Cost Investigation: MHI argues that the Department's collection of 
cost data on all home market sales in the absence of the initiation of 
a cost investigation not only violates the 1994 GATT Antidumping 
Agreement (``the Agreement''), but is inconsistent with U.S. law and 
administrative practice. MHI cites Article 2.2.2 of the Agreement and 
section 773(e)(2)(A) of the Act to support its contention that the 
Department should not have solicited contract price and cost data in 
order to compute SG&A expenses and profit. MHI contends that there is 
no provision in either the Agreement or U.S. law which provides that a 
foreign producer automatically shall be subject to a sales-below-cost 
investigation after CV is determined to be the appropriate basis for 
NV. Instead, MHI contends that both the Agreement and U.S. law instruct 
the Department to conduct cost calculations on the basis of records 
kept by the respondent, provided that such records are in accordance 
with the generally accepted accounting principles (``GAAP'') of the 
exporting country and reasonably reflect the costs of production and 
sale of the product. MHI cites the Final Results of Administrative 
Review: Large Power Transformers from Italy, 52 FR 46,806 (1987) 
(``LPTs from Italy''), Preliminary Results of Administrative Review: 
Large Power Transformers from France, 61 FR 15461, 15462 (April 8, 
1996) (``LPTs from France''), and Preliminary Results of Administrative 
Review and Partial Termination in Part: Mechanical Transfer Presses 
from Japan, 61 FR 15034, 15035 (April 4, 1996) (``MTPs Preliminary 
Results (1996)''), in contending that the Department has resorted to CV 
as the basis for NV for reasons similar to those enunciated in the 
preliminary determination of this investigation, without automatically 
subjecting respondents to cost investigations. In those investigations, 
MHI maintains, the Department was correct to request product-line 
profit and loss information for its calculations of SG&A expense and 
profit. MHI states that it complied fully by submitting its internal 
profit and loss statements for LNPPs. Accordingly, MHI argues that SG&A 
and profit should be calculated

[[Page 38144]]

from MHI's internal profit and loss statements in the Department's 
final calculations.
    The petitioner maintains that the Department's request for home 
market contract price and cost data ``in order to compute SG&A and 
profit'' for its CV calculations in accordance with section 
773(e)(2)(A) of the Act was a reasonable action within its discretion 
in light of the requirements of the 1994 WTO Antidumping Agreement 
(``the Agreement'') and U.S. law.
    According to the petitioner, the Agreement and the Act which 
implements the Agreement require the Department to exclude below-cost 
sales from the calculation of SG&A and profit. The petitioner contests 
MHI's statement that section 773(f)(1) of the Act forbids the 
Department to examine transaction-specific data for profit and SG&A 
because it had a product-line financial statement. According to the 
petitioner, this position is without merit because nothing in the cited 
statutory provision in the URAA restricts the Department from 
requesting transaction-specific data. Petitioner also notes that MHI 
was capable of providing the information in a timely manner.
    The petitioner also objects to MHI's characterization of the 
collection of transaction-specific information on SG&A and profit as an 
``aberrational'' practice. According to the petitioner, at this early 
stage of implementation of the URAA, any such characterization is not 
credible, as the Department is entitled to evolve its practice under 
the new statute. Petitioner also points out that MHI failed to mention 
that in LPTs from France, the preliminary notice makes clear that 
substantial questions arose regarding profit and SG&A on the eve of the 
preliminary determination, and that, although the Department calculated 
profit based upon the LPT respondent's parent company's financial 
statements, the Department noted for the final determination that it 
would consider calculating the respondent's profit based only on above-
cost data if it had cost data for home market sales.
    Based on the record of this investigation, the petitioner maintains 
that it was clear from the response to section A that companies could 
report transaction-specific data, and that evidence pointed to below-
cost sales. According to the petitioner, given the recent changes in 
the law and congressional intent to exclude below-cost sales from CV 
profit in most cases, it was reasonable for the Department to seek 
transaction-specific data in this investigation in order to analyze 
whether below-cost sales should be excluded from CV profit, either on a 
mandatory or discretionary basis.
    DOC Position: We disagree with MHI that the Department violated the 
Agreement and U.S. law in soliciting and collecting cost and sales data 
for each home market sale. There is nothing in the Agreement or the 
statute which precludes the Department from requesting sales-specific 
cost and sales data for home market sales, regardless of whether a 
sales-below-cost investigation had been initiated. In addition, we 
disagree with MHI that the collection of project-specific home market 
sales and cost data was an aberration from the Department's normal 
practice. In this case, the petitioner provided a timely allegation of 
sales below cost and our review of the respondents' section A 
questionnaire responses revealed that transaction-specific cost 
information was readily available and could be provided by the 
respondents. This being one of the first cases under the new law, we 
are still developing our practice for computing profit and SG&A in 
accordance with the new law.
    Comment 3  If the Department Must Formally Initiate a Cost 
Investigation in Order to Disregard Below-Cost Sales: MHI argues that 
the Department did not act in accordance with the law when it excluded 
sales below cost as being outside the ordinary course of trade under 
sections 771(15) and 773(b)(1) of the Act. MHI contends that sales made 
below cost can be disregarded but that, as a prerequisite, the 
Department must have reasonable grounds to believe or suspect that 
below-cost sales have been made. Thus, the Department must formally 
initiate a cost investigation in order to disregard the below-cost 
sales, which it did not do in this instant investigation. MHI states 
that it would be consistent with the SAA and the proposed regulations 
to include below-cost sales in the calculation of SG&A and profit. MHI 
maintains that the facts in this investigation are consistent with the 
recognition by the SAA of those situations where unprofitable sales 
will be included in the calculation of the antidumping duty margin 
because, in this investigation, the Department determined that it was 
unnecessary to initiate and conduct a sales-below-cost inquiry. Also, 
MHI cites Federal-Mogul Corporation v. United States, 20 CIT ____, 
Slip.Op. 96-37 (February 13, 1996)(``Federal Mogul''), to support its 
claim that no home market sales should be excluded, because the burden 
of presenting evidence of below-cost sales rests on the petitioner, who 
failed to do so in this case. Absent a formal investigation of sales-
below-cost, MHI argues, there is no showing that MHI's home market 
sales are not in the ordinary course of trade.
    The petitioner asserts that MHI has misread Federal Mogul in its 
arguments. First, the petitioner maintains that Federal Mogul is of 
little relevance since it was decided under the former statute and 
Congress has effectively revised this area of agency practice. The 
petitioner states that the SAA clearly provides that, in most 
investigations, profit will be calculated using only above-cost sales. 
Second, the petitioner maintains that even under the old law, Federal 
Mogul does not support MHI's proposition that the petitioner bears the 
burden of presenting evidence that below-cost sales are outside of the 
ordinary course of trade. According to the petitioner, the court's 
ruling actually said that the reviewing court owed substantial 
deference to the agency and that, on appeal, the petitioner bore the 
burden of showing that the agency abused its administrative discretion. 
The petitioner states that the proposition that the Department 
unlawfully excluded below-cost home market sales is untenable, because 
no requirement for a formal initiation of a below-cost sale 
investigation is found in the new statute. Rather, the petitioner 
contends, the statute at section 773(b)(1) of the Act provides that the 
Department need only have ``reasonable grounds to believe or suspect'' 
that the home market sales of the respondent have been made at prices 
below the cost of production.
    DOC Position: We disagree with MHI. While the Department will 
typically initiate a sales-below-cost investigation before excluding 
home market sales as being outside the ordinary course of trade for 
purposes of calculating profit and SG&A for CV, the unique 
circumstances in this case required that we perform a below-cost 
analysis even though the Department elected not to formally initiate a 
sales-below-cost investigation.
    Early on in this investigation it was argued by all parties that we 
should base NV on CV due to the unique and customized nature of LNPPs. 
The Department determined that the particular market situation of these 
highly customized and unique products did not permit proper price-to-
price comparisons and, accordingly, we based NV on CV. The petitioner 
subsequently filed a timely and proper cost allegation which alleged 
that ``Japanese producers have sold the foreign like product at less 
than the cost of production in the home market.'' We elected not to 
formally address petitioner's below-cost allegation because we knew 
that we were going to base NV on CV for all

[[Page 38145]]

respondents, and the respondents'' questionnaire responses confirmed 
that transaction-specific cost data was readily available. Moreover, we 
did not want to burden respondents with having to respond to the very 
detailed section D questionnaire for home market sales that a formal 
below-cost investigation would require. Although, arguably, we should 
have formally addressed the sales-below-cost allegation, at the time of 
its filing, we did not foresee the implications a formal initiation of 
a sales-below-cost investigation would have on the CV profit and SG&A 
calculations.
    In past cases, under the old law, with similar types of products 
(i.e., large customized products that are manufactured over an extended 
period of time) in which we automatically based foreign market value 
(now NV) on CV, the Department relied on the statutory minimum of eight 
percent for profit. See, e.g., Preliminary Results of Administrative 
Review: LPTs from Japan, 57 FR 23,204 (June 2, 1992); and Final 
Determination of Sales at LTFV: MTPs from Japan, 55 FR 335 (January 4, 
1990) (``MTPs Final Determination (1990)''). We realized early in this 
case that in accordance with the new law, we would have to compute 
actual profit and SG&A as opposed to simply relying on the statutory 
minimum of eight percent. Accordingly, we requested sales and cost data 
for each sale in the home market which fell within the purview of this 
investigation.
    Section 773(e)(2)(A) of the Act specifies that SG&A and profit for 
CV be computed using only those sales of the foreign like product that 
were made in the ordinary course of trade. We analyzed the contract-
specific price and cost information we received from respondents. This 
information indicated that there were below-cost sales made in the home 
market, in substantial quantities, and over an extended period of time. 
Although we did not formally initiate a cost investigation under 
section 773(b) of the Act (despite the fact that a timely allegation 
had been made by the petitioner based on the respondent's data), the 
unique cost reporting aspects of this case were such that, in effect, 
the Department conducted a cost investigation and our analysis revealed 
evidence that there were home market sales of merchandise within the 
purview of this investigation which were below cost. Section 771(15) 
provides that sales and transactions considered outside of the ordinary 
course of trade include ``among others'' below-cost sales disregarded 
under section 773(b)(1). The Department interprets this provision to 
apply to the exclusion of below-cost sales, even if such sales were not 
formally disregarded pursuant to section 773(b)(1) of the Act.
    Comment 4  Each Home Market Sale of a LNPP, Addition, or Component 
Constitutes a Distinct Model for Purposes of Performing the Cost Test: 
MHI argues that even if the Department's exclusion of home market sales 
below cost from its SG&A and profit calculations was permissible, it 
should not treat the home market sales as distinct models for purposes 
of performing the cost test. Respondent refers to section 773(b)(1) of 
the Act that says the Department is required to exclude home market 
sales below cost if (1) they are made in substantial quantities, (2) 
over an extended period of time, and (3) at prices which do not permit 
recovery of costs in a reasonable period of time. MHI also cites 
section 773(b)(2)(C) of the Act, which states that substantial 
quantities must represent 20 percent or more of the volume of sales. In 
undertaking its preliminary analysis, MHI claims that the Department 
ignored this statutory definition of substantial quantities and 
automatically applied its model-specific cost test. Moreover, according 
to MHI, the Department's normal model-specific cost test loses 
relevancy when NV is based on CV. MHI refers to Policy Bulletin, No. 
94.3, ``Disregarding Sales Below Cost-Extended Period of Time'' (March 
25, 1994) to explain that the rationale for this test is to ensure that 
NV is not calculated for a particular pricing comparison by reference 
to sales made exclusively below cost.
    According to TKS, the Department's model-specific COP analysis and 
its consequential exclusion of below-cost sales from normal value 
calculations are not in accordance with subsection 773(b), the SAA, and 
the Department's own interpretation of the statute. TKS argues that the 
methodology employed by the Department ``practically read the 
``substantial quantities'' and cost recovery requirements out of the 
law.'' Yet TKS also concedes that the inherent physical diversity among 
LNPPs is such that ``it would be equally improper'' if the Department 
were to change the definition of model to encompass all home market 
sales during the POI. TKS maintains that, with a class of products 
consisting of highly-valued, uniquely customized machines, model-
specific analysis is not possible. TKS argues that disregarding sales 
made at below-cost prices is discretionary because the wording in 
section 773(b)(1) is that the Department ``may'' disregard sales. TKS 
concludes that because, in its view, the COP test cannot be conducted 
on a model-specific basis in this case, the Department should exercise 
its discretion and not disregard home market sales for normal value.
    The petitioner maintains that even if the Department decides that 
the statute does not require exclusion of below-cost sales, it plainly 
permits the Department to do so. Assuming arguendo that the Department 
did not investigate below cost sales pursuant to section 773(b)(1) of 
the Act, the petitioner maintains that it could nonetheless properly 
exercise its discretion to exclude such sales from its profit 
calculations under section 771(15).
    Concerning the proper definition of a ``model'' in this 
investigation, the petitioner agrees with the Department's finding that 
``each home market sale of an LNPP, addition, or component, constitutes 
a distinct model for purposes of performing the cost test'' because of 
the unique nature of the product under investigation. Accordingly, the 
petitioner supports the use of individual models to determine which 
home market sales should be excluded from profit and SG&A calculations 
because they were sold at less than the cost of production. The 
petitioner maintains that since the Department's model-specific test 
was not altered when the statute was amended, the Department properly 
applied its model-specific test in the preliminary determination. The 
petitioner disagrees with the respondents'' contention that full cost 
recovery on each sale is unreasonable in a large capital goods 
industry. The petitioner asserts that, in setting prices, LNPP 
producers typically perform cost estimates based on the full cost of 
production with an allowance for profit so as to cover their production 
costs on every sale. Thus, the petitioner maintains, a model-specific 
analysis is appropriate.
    DOC Position: We disagree with the respondent that the substantial 
quantities test must be performed on a basis other than a model-
specific basis. In past cases, the Department has routinely performed 
the cost test on a model-specific basis. See, e.g., Certain Cut-to-
Length Carbon Plate from Sweden, 61 FR 15,772, 15,775 (April 9, 1996) 
(Comment 5); Stainless Steel Angle from Japan, 60 FR 16,608, 16,616 
(1995) (Comment 12). As indicated in the SAA, at page 832, the 
Department will continue to perform the cost test on no wider than a 
model-specific basis. In this case, each LNPP sale clearly represents 
its own unique, customized, model of merchandise.
    Comment 5  The Department Should Calculate Profit on the Foreign 
Like

[[Page 38146]]

Product: MHI argues that the Department's preliminary analysis 
calculated SG&A and profit on both LNPP additions and systems in 
contravention of section 773(e)(2)(A). MHI notes that additions and 
systems are not equal in commercial value. Thus, MHI argues that if the 
Department continues its present methodology then it should only 
calculate SG&A and profit using home market sales of systems which are 
MHI's foreign like product.
    The petitioner objects to MHI's hypothesis that LNPP systems are a 
separate like product from LNPP additions. According to the petitioner, 
the Department has determined that a single like product exists which 
consists of all LNPP systems, press additions, and press components, 
regardless of state of completion. The petitioner argues that the 
Department made home market viability and other determinations required 
by the statute based on this definition, and that changing the like 
product definition without cause at this late stage of an investigation 
would involve reassessment of numerous issues which form the foundation 
of the Department's proceeding. Thus, the petitioner maintains, MHI's 
suggestion must fail as an argument unsupported by either the record or 
administrative precedent.
    DOC Position: We disagree with MHI that computing a single profit 
for both additions and systems is in contravention of section 
773(e)(2)(A) of the statute, which merely states that CV shall include, 
inter alia, ``actual amounts'' for profits ``in connection with the 
production and sale of a foreign like product. * * * '' The SAA makes 
no mention that the profit calculation should consist of different 
rates for different pools of products within the foreign like product. 
From early in the investigation we have determined that a single like 
product exists, and accordingly have computed profit based on all sales 
of the foreign like product occurring in the ordinary course of trade.
    Comment 6  Home Market LNPP Sales Do Not Constitute a Foreign Like 
Product: TKS maintains that the Department should base its CV profit 
calculation on either TKS's average LNPP profit or on the company's 
financial statement. TKS first argues that section 773(e)(2)(A) of the 
Act is not applicable to the CV profit calculation because the 
Department determined that TKS's home market LNPPs do not constitute a 
foreign like product. According to TKS, because the Department 
determined that TKS's Japanese sales of LNPP systems, additions and 
components could not be used as the basis for NV due to the particular 
market situation, the underlying analysis for that determination 
compels a conclusion that home market LNPPs are not a foreign like 
product within the meaning of section 771(16) of the Act (19 U.S.C. 
section 1677(16)). Accordingly, TKS maintains that section 773(e)(2)A) 
is not the applicable rule for CV profit calculation. TKS cites the 
Department's November 9, 1995, CV decision memorandum to support its 
contention that the Department determined that each LNPP sold by TKS in 
the United States and in Japan is unique and that the models sold in 
the two markets are not approximately equal in commercial value. 
Finally, TKS holds that the Department determined that the LNPPs sold 
in the United States and in Japan are not ``reasonably comparable'' to 
each other.
    TKS also argues that the correct rule for CV profit calculation in 
this case is found in section 773(e)(2)(B) of the statute, because the 
Department found that the particular market situation precluded price-
to-price comparisons. According to TKS, the SAA requires that the 
Department utilize section 773(e)(2)(B) in those instances where the 
method described in section 773(e)(2)(A) cannot be used, either because 
there are no home market sale of the foreign like product or because 
all such sales are at below-cost prices.
    TKS also argues that if, assuming arguendo, TKS's home market LNPP 
sales constitute a foreign like product, section 773(e)(2)(B) is still 
the applicable rule for CV profit calculation in this case because 
TKS's LNPPs are not sold in the ordinary course of trade. According to 
TKS, the fact that technical specifications are vastly different within 
the respective groups of components, additions and systems, LNPPs are, 
prima facie, merchandise produced according to unusual product 
specifications, which should be excluded from analysis according to 
section 771(15) of the Act.
    TKS offers a second subsidiary argument, that if, further assuming 
arguendo, its home market LNPP sales both constitute a foreign like 
product and are sold in the ordinary course of trade, section 
773(e)(2)(B) still controls CV profit calculations where, as here, the 
Department has determined that the ``particular market situation'' 
affecting home market sales does not render price-to-price comparisons 
feasible. TKS maintains that the SAA language does not limit the 
applicability of section 773(e)(2)(B) to situations where there are no 
home market sales of the foreign like product or situations where all 
sales are found to be made at below-cost prices. TKS argues that the 
applicability is, generally, for all situations where the NVs resulting 
from the application of section 773(e)(2)(A) would be ``irrational'' 
and ``unrepresentative.'' TKS argues that because profits are a 
significant element of price, it would be illogical for the Department 
to utilize, for CV purposes, the profits of those sales which it 
rejected for price comparison purposes.
    The petitioner believes that TKS's position is wrong because the 
Department has clearly defined the foreign like product to be LNPP 
systems, additions and components. The petitioner states that the fact 
that price-to-price comparisons could not be made does not mean that 
home market sales are outside the ordinary course of trade. The 
petitioner supports the Department's analysis that matching sales would 
require cost adjustments tantamount to computing a CV for each sale. 
The petitioner maintains that TKS's arguments are inconsistent with the 
precedents in MTPs Preliminary Results (1996) and LPTs from France (60 
FR 62808, December 7, 1995), wherein the Department rejected price-to-
price comparisons and instead used CV. According to the petitioner, in 
those cases the Department continued to use the home market profit data 
even though it could not perform price-to-price assessments, thereby 
negating the idea that the lack of price-to-price comparisons indicate 
that domestic sales are outside of the ordinary course of trade.
    DOC Position: We disagree with TKS that there were no sales of the 
foreign like product in the home market during the POI. TKS is 
incorrect to suppose that because we did not find home market sales 
which provided practicable price-to-price matches, no foreign like 
product existed. The foreign like product as defined by section 771(16) 
of the Act, (i.e., sales of LNPP in Japan) did exist, as revealed by 
our examination of LNPP equipment sold in the home market for purposes 
of the Department's home market viability test (pursuant to section 
773(a)(1)(C) of the Act) as stated in our November 9, 1995, decision 
memorandum regarding the determination of the appropriate basis for NV. 
However, the degree of unique customization for customers made the 
difference-in-merchandise adjustment for product price matching 
potentially so complex that the use of CV provided a more reliable and 
administrable methodology for establishing NV. As stated in our 
November 9, 1995, decision memorandum, the Department

[[Page 38147]]

declined comparison of products within the same class of products which 
have such prominent physical dissimilarities as to make comparisons and 
calculations of adjustments for such physical differences 
impracticable, pursuant to the ``particular market situation'' 
provision, section 773(a)(1)(C)(iii) of the Act.
    Because we have not determined the absence of the foreign like 
product in Japan, we disagree with TKS's suggestion that section 
773(e)(2)(B) should apply in determining CV profit. The correct 
statutory provision for CV profit calculations in this instance is 
section 773(e)(2)(A) and, accordingly, the Department's final margin 
calculations were formulated under its guidelinesse.
    Comment 7  The Department Has Discretion Not to Disregard Below-
Cost Sales: TKS maintains that the legislative history of the 1974 
Trade Act, as reemphasized in the URAA with respect to section 773(b), 
shows the Congressional intent that certain types of below-cost sales 
should not be disregarded for foreign market value (now NV) 
determinations. According to TKS, this legislative history reveals the 
intent of Congress that the Department exercise discretion under 
section 773(b) based upon the ``rationality of exporters pricing 
practices.'' TKS lists three reasons why the Department should consider 
the characteristics of the LNPP market and the rationality of the 
pricing practices of market participants such that it should exercise 
its discretion not to disregard sales made below cost. First, TKS 
claims that below-cost sales of LNPPs are not systematic, since they 
are infrequent transactions for unique, customized products. Second, 
TKS claims that below-cost sales of LNPPs occur for reasons beyond the 
producer's control. Third, TKS maintains that even though the producer 
may sustain losses in isolated sales, the producer usually recovers the 
losses over a period of three to four years. TKS claims that this is an 
appropriate case for the Department to exercise its discretion by not 
disregarding below-cost sales, as this instant case is the first 
antidumping investigation in which the Department considers the 
application of section 773(e)(2)(A) in the context of job-order cost 
accounting.
    With respect to the enforcement of the statute, the petitioner's 
approach is diametrically opposed to that of TKS. The petitioner 
maintains that, even if the Department decides that the statute does 
not require exclusion of below-cost sales, it plainly permits the 
Department to do so. The petitioner therefore urges the Department to 
use that discretion for the express exclusion of those home market 
sales below the cost of production.
    DOC Position: We disagree with TKS. The circumstances in the 
instant investigation do not call for the Department to exercise its 
discretionary authority to include sales made below cost, which were 
determined to be in substantial quantities, over an extended period of 
time, and prices which do not permit recovery of costs in a reasonable 
period of time. We agree with the petitioner's earlier comment that, 
that even if the statute does not require exclusion of below-cost 
sales, it plainly permits the Department to do so. If a company's 
market strategy results in below-cost sales of LNPPs, then a 
willingness to sell below cost is not negated by the relative 
infrequency of transactions for unique, customized products. First, the 
Department does not analyze the intent, per se, of the respondent in 
dumping its products, whether above, at or below cost. Second, even if 
intent were a factor, we believe TKS's arguments regarding job-order 
costing are incorrect. The procedure of developing each project during 
the sales negotiating and pricing process gives LNPP manufacturers 
every opportunity to recognize that they are concluding transactions 
that will be below the cost of production. Also, TKS's claim that it 
recovers its losses from a particular sale over time shows that it is 
necessary to analyze each sale as its own model. If costs cannot be 
recovered for each sale, which takes several years to conclude in 
delivery and installation, then that sale should be excluded. If TKS is 
willing to sell below cost for a particular sale, hoping to recover 
costs through other projects, whether subsequent sales of press 
additions and/or through servicing contracts, then it has, in effect, 
purposely used a transaction as a loss-leader, to the point of selling 
below cost.
    If we examine past circumstances where the Department has exercised 
its discretionary powers, and investigated the issue, not in terms of 
intent, but in terms of unique market conditions for particular 
products, we must still conclude that TKS has no basis to claim that 
below-cost sales of LNPPs occur for reasons beyond the producer's 
control. An example of sales where the Department has historically 
exercised its discretion not to exclude certain sales below cost occurs 
in the case of perishable agricultural products. See, e.g., Final 
Results of Administrative Review: Certain Fresh-Cut Flowers from 
Mexico, 56 FR 1794 (January 17, 1991). Flowers, fruits and vegetables 
are raised and sold en-masse, are subject to various conditions of 
weather, have a short shelf-life, and are often sold on a consignment 
basis. Thus, the Department has considered such products subject to 
forces beyond the producer's control which may cause occasional sales 
below cost. By comparison, LNPPs are precisely the appropriate case for 
the Department to exercise its discretion to disregard the below-cost 
sales in the context of job-order cost accounting, for in the context 
of this industry, the foreign like product is as removed as possible 
from the forces affecting perishable products.
    Comment 8  Circumstance of Sale adjustment for Credit Expenses: The 
petitioner argues that the Department should not have deducted credit 
expenses from MHI's and TKS's CV because CV did not include credit 
expenses in its original composition. According to its analysis of the 
preliminary determination calculations, the Department inappropriately 
failed to include home market credit expenses when calculating CV. 
Citing Final Determination of Sales at LTFV: Certain Granite Products 
from Italy, 53 FR 27187, 27191 (July 19, 1988), Final Determination of 
Sales at LTFV: PET Film, Sheet and Strip from the Republic of Korea, 56 
FR 16305, 16307 (April 22, 1991); Final Results of Administrative 
Review: Roller Chain, Other than Bicycle, from Japan, 55 FR 42602, 
42606 (October 22, 1990); and Preliminary Results of Administrative 
Review: Certain Fresh Cut Flowers from Colombia, 60 FR 30270, 30274 
(June 8, 1995), the petitioner argues the Department's standard 
practice requires the addition of imputed credit to CV. The petitioner 
maintains that in the instant investigation, when the Department made a 
circumstance of sale adjustment by subtracting home market credit 
expenses from CV, it removed an expense from a price that did not 
include that expense in the first place.
    MHI argues that the Department properly excluded home market credit 
expenses in its CV calculations. MHI further argues that the Department 
has recently changed its practice as found in Final Determination of 
Sales at LTFV: Certain Pasta from Italy, 61FR 30326, at Comment 14 
(June 14, 1996) (``Pasta''). MHI explains that the Department justified 
its change in practice by citing sections 773(b)(3)(B) and 773(e)(2)(A) 
of the Act, which direct the Department to calculate SG&A, including 
interest expense, based upon actual experience of the company. MHI 
contends that because the Act defines the calculation of general 
expenses for COP and CV in the same way, the Department stated that it 
would be inappropriate to

[[Page 38148]]

calculate interest expense differently for COP and CV. Furthermore, MHI 
contends that because the Department computes profit as the ratio of 
profit earned on home market sales to the cost of production, applying 
the ratio to a COP inclusive of imputed credit would be mathematically 
incorrect.
    TKS maintains that the petitioner's arguments are moot because they 
rely solely on the Department's practice prior to the 1994 amendments 
to the Act. TKS argues that the petitioner's position would only have 
validity if applied to cases investigated under the old law. According 
to TKS, the Department'' treatment of imputed credit is correctly based 
on the current section 773(e) of the Act, which requires that the 
``actual general expenses'' be added to CV. Since the current Act now 
provides that general expenses added to CV be limited to actual 
expenses, TKS maintains that imputed credit cannot be utilized, as it 
is not an actual expense, but a measure of opportunity cost. TKS cites 
to the basic rationale for the calculation of CV outlined in Pasta, to 
support its contention that only actual expenses will be applied to CV.
    DOC Position: We agree with respondents. Section 773(e)(2)(A) of 
the Act requires that the Department include in CV the actual amount of 
SG&A expenses (including net interest expense) incurred by the exporter 
or producer. Imputed credit is, by its nature, not an actual expense. 
Therefore, we did not include imputed credit in the CV calculation for 
the final determination.
    Comment 9: Headcount Methodology vs. CGS Methodology: TKS and MHI 
offer similar arguments concerning the proper methodology for 
allocation of general and administrative expenses. Below, Part A 
summarizes the arguments concerning TKS USA's operations and Part B the 
arguments concerning MLP's operations.

A. Allocation of TKS USA's Office Administration Expenses

    TKS objects to the allocation of TKS USA's office administration 
expenses on the basis of total CGS. TKS states that these expenses 
should be allocated on the basis of headcount, which impacts the 
calculation of both further manufacturing costs and reported selling 
expenses. TKS maintains that this is required because TKS USA's 
commercial activities include merchandise other than LNPP, namely (1) 
Sale of spare parts; (2) the conduct of press audits; (3) the sale and 
production of control systems; (4) the sale and production of digital 
ink pumps; and (5) independent maintenance/technical work, which are 
each conducted by a separate division with specific personnel assigned 
to each division.
    TKS maintains that the Department's allocation of SG&A expenses 
ignores the diversity of activities at TKS USA and assigns an 
inordinate share of the expenses to press sales. Although TKS admits 
that a CGS-based allocation is common Department practice, it claims 
that such practice is not mandated by either the Act or the 
Department's regulations. TKS maintains that for the final 
determination, the Department should exercise its discretion and 
utilize TKS's proposed headcount methodology to allocate administrative 
expenses.
    TKS maintains that the Department should give consideration to the 
fact that the headcount methodology is utilized internally by TKS USA 
in the normal course of business. Thus, TKS argues, to the extent that 
TKS USA has any historical practice employed previous to the 
investigation, it involves the headcount methodology.
    Finally, TKS cites to the Department's Final Results of Antidumping 
Duty Administrative Review: DRAMS of One Megabit or Above from the 
Republic of Korea (61 FR 20216, 20217, May 6, 1996), to support its 
contention that, just as the Department affirms that indirect selling 
expense allocations are not inflexibly limited to a value-based 
methodology, the Department should also recognize that G&A expenses 
should not be limited to a value-based approach.
    The petitioner argues that TKS's claim that it allocates G&A 
expenses based on headcount in the ordinary course of business to each 
of its separate divisions appears to contradict its submissions. The 
petitioner cites to TKS's section A response, where it stated that TKS 
USA ``does not maintain any internal financial statements of profit and 
loss statements for specific product lines, or specific internal 
business units.'' The petitioner also notes that TKS seems inconsistent 
in concluding that allocating TKS USA's G&A costs based on CGS is 
distortive in light of its position in favor of a value-based 
allocation of product-specific factory overhead and engineering costs. 
Finally, the petitioner juxtaposes TKS's reasoning with that of MRD, a 
respondent in the companion German LNPP investigation, who re-allocated 
G&A expenses on a value basis while citing to the Department's Final 
Determination: Certain Carbon and Alloy Steel Wire Rod from Canada, 59 
FR 18791, 18795 (April 20, 1994) (``Carbon and Alloy Steel Wire Rod)'', 
MRD recognized the ``subjective allocations'' which management often 
makes in allocating G&A using bases other than CGS.

B. MHI's Indirect Selling and G&A Expense Allocation

    MHI argues that the common G&A portion of MLP's indirect selling 
expenses should be allocated to LNPPs based on the number of employees 
involved in LNPP operations. MHI states that allocating common G&A by 
LNPP sales value does not accurately reflect the common G&A expenses 
incurred for LNPP sales activity. According to MHI, a headcount 
methodology of allocation reflects the greater importance and number of 
resources required to support its commercial press sales at MLP. MHI 
explains that MLP's staff must spend more time attending to issues 
related to commercial press sales activities than a sales-based 
allocation would reflect (e.g., personnel in MLP's accounting and 
purchasing sections spend significantly more time issuing invoices, 
monitoring sales accounts receivable, purchasing parts, and recording 
expenses related to commercial press operations than they do to LNPP 
operations). MLP explains that it provides financing services solely 
for commercial press sales. MHI claims that while a headcount 
methodology would still allocate too much common expense to LNPPs, such 
an allocation would nonetheless be more accurate than allocation by 
sales value. MHI states that its existing base of commercial press 
customers is vastly larger than the LNPP base and that the Department's 
methodology fails to capture the inherent slant of general expenses 
toward the servicing and maintenance of MLP's existing commercial press 
sales. MHI states that a sales-based allocation is a reasonable measure 
of cost when the only activity is selling. MHI also argues that the 
Department should consider that headcount methods are employed by MHI 
in the normal course of business, as would be expected, since sales-
based allocations of indirect expenses are uncommon in normal 
commercial systems.
    The petitioner argues that the Department's long-standing policy is 
to allocate U.S. indirect selling expenses on the basis of sales value, 
citing Final Determination of Sales at LTFV: Certain Internal-
Combustion, Industrial Forklift Trucks From Japan, 53 FR 12552, 12577 
(April 15, 1988) and the Department's questionnaire. The petitioner 
notes that the Department rejected the headcount allocation method at 
the preliminary determination and applied the standard allocation 
methodology. The petitioner

[[Page 38149]]

argues that MHI's use of headcount to allocate these expenses was 
created for purposes of this investigation and asserts that the 
Department has rejected such subjective management allocations of U.S. 
affiliate G&A expenses in prior cases, even where such methods were 
used in the normal course of business (citing the German companion case 
to this investigation). The petitioner takes issue with MHI's 
suggestion that indirect selling expenses are incurred only as a 
function of the number of employees directly involved in sales and 
servicing and states that this assertion ignores the fact that 
companies expend more common effort (e.g., senior management time, 
travel expenses, and entertainment) to win large-value sales.
    DOC Position: The Department disagrees with TKS's contention that 
TKS USA's office administration expenses should be allocated to its 
LNPP operations based on relative headcounts.
    Similarly, the Department disagrees with MHI's contention that 
MLP's common G&A expenses should be allocated to its LNPP and 
commercial press operations based on relative headcount.
    As set forth in Carbon and Alloy Steel Wire Rod, our normal 
methodology for allocating G&A expenses to different operations is 
based on CGS. Our methodology recognizes the fact that the G&A expense 
category consists of a wide range of different types of costs which are 
so unrelated or indirectly related to the immediate production process 
that any allocation based on a single factor (e.g., headcount) is 
purely speculative. The Department's normal method for allocating G&A 
costs based on CGS takes into account all production factors (i.e., 
materials, labor, and overhead) rather than a single arbitrarily chosen 
factor. Absent evidence that our normal G&A allocation method 
unreasonably states G&A costs, we continued to allocate such costs for 
the final determination based on CGS.
    Further, because we have treated the common G&A expenses in 
question as part of total G&A rather than as part of our calculation of 
total indirect selling expenses, the allocation methodology issue for 
the common G&A expenses impacts the calculation of the G&A rate and has 
no effect on the indirect selling expense calculations.

TKS-Specific Comments

Sales Issues
    Comment 1  Deduction of U.S. Indirect Selling Expenses from CEP: As 
noted in detail in the Common Issues section in the companion German 
notice, the petitioner maintains that the Department failed to deduct 
many of TKS's U.S. indirect selling expenses because they were recorded 
in the accounts of the foreign LNPP manufacturer. According to the 
petitioner, the Department should deduct all indirect selling expenses 
incurred on behalf of U.S. sales, irrespective of the location at which 
the expenses are actually incurred or the location of the company in 
whose books the expenses are recorded.
    As noted in the General Comments Section, above, TKS maintains that 
the Department has adopted a new methodology for calculating indirect 
selling expenses pursuant to the enactment of the URAA which make 
petitioner's arguments moot. TKS also makes the following arguments 
specific to its questionnaire response.
    TKS disagrees with the assertion that it was unwilling to 
accurately segregate expenses related to Japanese versus U.S. economic 
activity. TKS maintains that the record of the investigation 
demonstrates that it properly reported expenses and that there is no 
indication of unwillingness to comply with Department instruction to 
separately report expenses; TKS cites to the verification report to 
bolster its conclusion that the reported indirect expenses incurred in 
Japan on behalf of sales, including exports, do not contain U.S. 
economic activity.
    Lastly, TKS argues that if the Department does deduct from CEP 
indirect selling expenses incurred in Japan on behalf of U.S. sales, 
then the amount reported by TKS is the correct amount. TKS argues that 
its methodology, whereby it divided total indirect selling expenses 
incurred in Japan by the company headquarters, exclusive of branch 
office expenses, by the total transfer price value of all sales, is 
methodologically sound. It maintains that the expenses reported are in 
support of TKS USA and related to intra-company communications. 
Furthermore, TKS argues that since it is the sales price between TKS 
Ltd. and TKS USA which is reported in the company's financial 
statements, TKS should allocate total selling expenses incurred by the 
Tokyo office over the total sales as shown in the financial statements. 
TKS maintains that if the DOC does deduct indirect selling expenses 
associated with U.S. sales but incurred in Japan, then it should apply 
this ratio to the transfer price of each U.S. sale. TKS maintains that 
deriving a factor based on total sales revenue and then applying that 
ratio to each transaction's gross sales value would distort the results 
for two reasons: (1) The U.S. subsidiary is involved in further 
manufacturing for some sales, so that there can be a significant 
difference between transfer price and sales price; and (2) 
theoretically, the Department's proposed calculation method should not 
result in significant differences in the final calculated per-unit 
amount of U.S. selling expenses.
    DOC Position: We disagree with respondent's arguments. Since TKS 
calculated a universal indirect selling expense factor, including 
therein all expenses incurred in Japan associated with U.S. sales (and 
even included trade show expenses which were physically incurred in the 
U.S.), such expenses should be deducted from CEP, in keeping with the 
Department's definition of U.S. indirect selling expenses in Final 
Determination of Sales at LTFV: Certain Pasta from Italy, 61 FR 303256 
(June 14, 1996).
    With respect to the numerator of TKS's reported indirect selling 
expense factor, TKS must report all home market expenses since it is 
including all home market sales in its denominator. TKS's argument in 
its submissions that the branch offices have nothing to do with export 
sales is besides the point--the sales revenues included in the 
denominator have nothing to do with export sales either. The fact is 
that TKS has calculated a universal indirect selling expense factor for 
all sales in all markets, not a factor pertaining exclusively to TKS 
USA sales, not even exclusively to export sales.
    With respect to the denominator, TKS is mixing apples and oranges 
in its calculations. The portion of its denominator for home market and 
third-country revenue represents gross sales values; it is only the 
U.S. sales value which represents TKS Ltd.'s sales to a subsidiary. As 
TKS reported, and the Department verified, TKS Ltd. sold direct to end-
users and, on occasion, direct to unaffiliated middlemen such as 
leasing companies in the home market. In fact, it is this absence of a 
Japanese sales subsidiary which is part of TKS's arguments for a CEP 
offset based on a claimed single level of trade in Japan different from 
that in the United States. The indirect selling expenses which are 
incurred for all sales should be allocated over the sales value of all 
sales, not over a mix of domestic sales value, third-country sales 
value and U.S. transfer prices.
    It is because TKS's original calculations are such a hybrid that 
the correction to total revenue in the denominator slightly decreases 
the indirect selling expense ratio, whereas the proper application to 
gross sales

[[Page 38150]]

value increase what TKS called the ``per-unit'' amount. TKS, 
arithmetically speaking, was slightly overstating the size of the 
expense factor, but in applying that factor to non-arm's-length 
transfer prices, was significantly understating the per-press sales 
expenses. Even if all of the denominator were comprised of transfer 
price values, it would not necessarily be allowable as an allocation 
basis. TKS points out that the transfer-prices and sales prices differ 
greatly, which only underscores why the Department is reluctant to 
utilize in margin calculations prices that, by definition, were not set 
at arm's length. There may be specific, compelling circumstances 
whereby the Department exercises its discretion to rely on transfer 
prices to a limited degree. For example, for MAN Roland Druckmaschinen 
AG, a respondent in the companion investigation of LNPPs from Germany, 
the Department applied the indirect selling expense factor to the 
transfer price for certain sales which consisted only of parts and 
subcomponents which had no separate contract value. See Comment 1 of 
the ``Common Issues'' section of the Federal Register notice for LNPPs 
from Germany.
    We have recalculated the universal indirect selling expense 
accordingly and applied it to the gross sales value of U.S. sales.
    Comment 2  Reporting of All Selling Expenses Related to U.S. 
Economic Activity: Petitioner maintains that the Department discovered 
during its Japan verification that TKS incurred selling expenses 
related to U.S. economic activity, but failed to include the expenses 
in its reported U.S. indirect selling expenses. The petitioner points 
to the verification report stating that TKS splits the annual U.S. 
trade show expenses between TKS USA and TKS Ltd. Japan. Because the 
trade show is economic activity occurring in the United States, the 
petitioners argue that TKS should have reported the entire trade show 
expense as a U.S. selling expense rather than including a substantial 
portion of the expenses as part of general indirect selling expenses 
incurred in Japan. Further, the petitioner states that the practice of 
charging back expenses for U.S. economic activity occurred for numerous 
other expenses, including testing and training costs. The petitioner 
points out that since the indirect selling expenses of TKS Ltd. Japan 
were not subtracted from the U.S. price in the preliminary 
determination, TKS's charge-back procedures had the effect of 
overstating the U.S. price in the margin calculations. The petitioner 
argues that, even if the Department rejects the general argument that 
all indirect selling expenses supporting U.S. sales, including those 
incurred as well as recorded in Japan, be deducted from CEP, the 
Department should at a minimum deduct the Japan indirect selling 
expenses reported by TKS because of the inclusion of definite elements 
of U.S. economic activity.
    DOC Position: We agree in general with petitioner's argument. We 
have revised our general treatment of indirect selling expenses 
incurred on behalf of U.S. sales and recorded by the parent company in 
this final determination. As detailed in Common Issues comment 1, the 
Department is deducting from CEP indirect selling expenses associated 
with U.S. economic activity. We thus capture the expenses which pertain 
to economic activity in the United States which had not been deducted 
from CEP in the preliminary determination.
    Comment 3 Purchase of Insurance from an Affiliate: Petitioner 
posits that the information collected at verification supports its 
conclusion that the insurance relationship between TKS and Yasuda Fire 
and Marine Insurance Ltd. (``Yasuda)'', is not at arm's length. 
Petitioner points to the fact that the loss/premium ratio for covering 
TKS Ltd., even before the Spokane Spokesman Review accidents, had been 
significantly higher than the ratio which Yasuda normally establishes 
in creating a policy. These accidents, petitioner states, increased the 
loss premium ratio even more. Accordingly, the petitioner advocates 
that the Department increase TKS's reported insurance costs by the 
factor resulting from the division of the actual loss/premium ratio by 
the expected loss/premium ratio. The petitioner also asks the 
Department to re-examine whether any costs related to trucking 
accidents in the U.S. not covered by insurance should be considered as 
part of the constructed value of the Spokane Spokesman Review sale.
    TKS rejects the petitioner's argument that the Yasuda premiums are 
not at arm's length and offers the following in support of its 
position. According to TKS, it requested Yasuda to provide 
documentation with which the Department could compare TKS premiums to 
those paid by unaffiliated insurance customers but that Yasuda refused. 
Since the interest ownership is by Yasuda in TKS, and not vice versa, 
TKS explains that it had no means of compelling Yasuda to provide the 
information. TKS cites Article 16 of the Japanese law concerning the 
Regulation of Insurance offerings which ``* * * generally prohibits 
extension of preferential treatment for specific clients,'' to support 
the contention that, legally, Yasuda must set premiums at arm's-length 
levels.
    With respect to the petitioner's request that the Department 
increase reported insurance costs based on a comparison of Yasuda's 
preferred premium/loss ratio to that arising out of its actual 
experience with TKS, the respondent offers several challenges. First, 
TKS maintains that Yasuda has only identified a ``preferred'' ratio for 
return on its business efforts, and that there is no evidence on the 
record that the ratio is anything other than that. According to TKS, 
absent any information showing how often this ratio is actually 
achieved in actual business practice, the petitioner cannot draw 
conclusions about what occurs among unaffiliated customers of Yasuda. 
Second, TKS argues that the ratio is only a snapshot in time, 
immediately after a major loss and before the next premium renewal 
period. Third, TKS argues that petitioner's allegation that the loss 
premium ratio excludes the Spokane Spokesman Review loss is not 
supported by evidence, as Yasuda's letter clearly states that the 
reported loss/premium ratio covers TKS's exported cargos for the period 
from April 1990 through January 1996. TKS states that petitioner has 
not provided evidence that the loss amounts factored in the loss/
premium ratio are based on claims rather than on insurance-adjuster 
estimated loss amounts.
    Lastly, TKS maintains that, although it believes that the issue of 
the extent to which TKS's insurance actually covered the costs 
resulting from transit accidents is moot by virtue of the extraordinary 
nature of the costs, it must point out that petitioner is factually 
incorrect in arguing that the actual insurance settlement received in 
March 1996 did not fully cover the costs incurred in producing and 
transporting the replacement equipment.
    DOC Position: We agree with the petitioner, in part. We agree that 
TKS was unable to provide sufficient evidence that the Yasuda insurance 
expenses reported were at arm's length. We disagree with petitioner 
regarding the relationship between insurance coverage and the treatment 
of any extraordinary expenses incurred due to in-transit accidents for 
the Spokane Spokesman Review sale; whether or not such expenses were 
covered by Yasuda is not germane.
    We disagree with TKS's contention that the existence of article 16 
of Japanese law automatically means that Yasuda has complied with it. 
The only

[[Page 38151]]

benchmark which TKS and Yasuda provided was Yasuda's statement of its 
expected loss/premium ratio, which was significantly less than that 
which Yasuda experienced with TKS. This benchmark shows that the 
historical experience of Yasuda with TKS in terms of the relationship 
between the losses claimed by, and premiums paid by, TKS, has been 
significantly different from the loss/premium guidelines Yasuda claims 
to adhere to in its normal business practices. We also disagree with 
TKS that the policy ratio in Yasuda's letter reflects the claims paid 
on the Spokane accidents; our examination of the values involved show 
this to be arithmetically unsupportable, as detailed in the TKS July 
15, 1996, calculation memorandum. Nevertheless, we have not increased 
that ratio to include the petitioner's adjustment which imputes an 
additional claim amount for the Spokane accidents, as the potential 
effect of those accidents may (and to the degree there is any even 
partial objective nature to the Yasuda-TKS relationship should) 
increase future premiums. Since the expenses we are using in our 
calculations are those for the historical premiums paid during the POI, 
the ratio we used is based on loss/premium ratio for the period 
covering TKS sales as noted in the documentation reviewed at 
verification. We have therefore increased TKS's reported insurance 
costs by the factor resulting from the division of the actual loss/
premium ratio by the expected loss/premium ratio as shown in the Yasuda 
documentation. With respect to question of how the insurance coverage 
of expenses incurred due to accidents which befell the trucking of LNPP 
components for the Spokane Spokesman Review sale should or should not 
affect the final production expenses, see TKS Comment 8.
    Comment 4  TKS's Request for Exclusion of a Dallas Morning News 
Sale: TKS argues that the Department should exclude one of the sales 
made to the Dallas Morning News (``DMN)'' from its margin calculations. 
TKS argues that, while the Department is correct to state that the 
statutory reference to the exclusions of sales outside the ordinary 
course of trade from the dumping margin calculation does not, per se, 
pertain to U.S. sales, the Department may exercise its discretion to do 
so if the exclusion of a particular U.S. sale would prevent ``unfair 
results.'' TKS then reviews the history of the manufacturing of the 
sale in question, which was comprised of parts sourced from model LNPP 
units exhibited in 1989, 1990, 1991 and 1993. TKS maintains that it 
offered a greatly reduced price for this unit due to its belief that 
the machine had significantly lost its value from the repeated 
cannibalization of parts and frequent trade show presentations.
    TKS argues that the Department should exercise its discretion to 
exclude sales from the dumping analysis if the sales are not 
representative of the foreign producer's selling practices in the U.S. 
market. TKS cites the Final Results of Administrative Review: Fresh Cut 
Roses from Columbia, (60 FR 6980, 7004, February 6, 1995) (``Roses from 
Colombia'') to support its contention that the Department can and has 
excluded U.S. sales when they ``are clearly atypical and not part of 
the respondent's ordinary business practices, e.g., sample sales.'' TKS 
then cites to IPSCO, Inc. et al. v. United States, 687 F. Supp. 633,642 
(CIT 1988) where the court asked the Department to clarify the 
circumstances under which it would consider exclusion of U.S. sales. 
According to TKS, on remand, the Department stated that it could 
exclude certain U.S. sales from the margin analysis where such sales 
(1) are not representative of the seller's behavior, and (2) are so 
small that they would have an insignificant effect on the margin. TKS 
maintains the DMN sale in question is unlike any of the other sales 
reported, as no other product was produced from trade show models over 
an eight-year period of intermittent production processes and multiple 
episodes of intercontinental transportation. TKS buttresses its 
argument based on the percentage, by value, of total U.S. sales which 
this particular DMN sale represents (which number is proprietary). TKS 
states that this value is so small that exclusion of the sale from the 
dumping margin analysis would not impede the Department's calculations. 
TKS cites to American Permac, Inc. v. United States, 783 F. Supp. 1421 
1424 (1992) wherein the CIT stated that ``whether sales are in or out 
of the ordinary course of trade is not the determinative factor on the 
U.S. sales side of the equation. Fairness, distortion, 
representativeness are the issues to be examined.'' Finally, TKS 
disagrees with the Department's preliminary conclusion that the pricing 
of this DMN sale represented a concessionary price set as an inducement 
for other sales to the same customer, since TKS had one sale to the DMN 
prior to the transaction in question.
    The petitioner maintains that the Department fully reviewed this 
issue at the preliminary determination and that TKS has presented no 
new factual information or argument since the preliminary determination 
which would change the Department's conclusion. The petitioner 
maintains that TKS is incorrect in characterizing the DMN sale in 
question as being the only sale involving a press which was displayed 
at a trade show, as a later DMN sale also involved a press shown at 
such an event. The petitioner also maintains that TKS routinely uses 
parts from inventory in the construction of presses, so that the fact 
that TKS used inventoried parts for this sale is not indicative of its 
alleged ``special'' nature. The petitioner characterizes this sale as a 
loss leader sale, stating that this DMN sale ``was at a very low price 
because TKS knew that the DMN would soon be in the market for more 
press additions.''
    DOC Position: We disagree with TKS. While the Department has the 
discretion to exclude some types of U.S. sales when made in 
insignificant quantities, we do not believe that it would be 
appropriate to exclude this particular sale. In cases such as Roses 
from Colombia we excluded sample sales and in the Final Determination 
of Sales at LTFV: Coated Groundwood Paper from Finland, 56 FR 56363 
(November 4, 1991), (``Groundwood Paper'') we excluded U.S. trial sales 
and sales of damaged merchandise, where such sales were made in small 
quantities. In those cases, the transactions involved stood by 
themselves; that is, they were of commodity products which were not 
directly related to other sales. For example, in the case of Groundwood 
Paper, a printer would never be bound to a paper supplier just because 
it tried a free roll of normal quality paper, nor would a producer gain 
any leverage because it found a buyer with a unique application for 
damaged rolls of paper. Sales of LNPP, however, are of expensive, 
customized capital equipment which actually change the nature of the 
printer's operations. In this specific case, in light of the duration 
of relations between TKS and the DMN, one can reasonably interpret this 
sale as part of an over-arching marketing strategy vis-a-vis a long-
term business relationship with the DMN, i.e., as a loss leader sale.
    In this investigation we are reviewing a very small number of 
large-value contracts whose fulfilment as transactions spans several 
years. The Department's discretion to exclude sales must take into 
account the fact that there is such a small pool of sales which are 
available for analysis. Because the Department is not convinced that 
the DMN sale in question was so unusual that it should be disregarded, 
we are including this sale in our final analysis,

[[Page 38152]]

and are using the actual costs which were reported in the CV exhibits 
of TKS's January 18, 1996, supplemental submission, inclusive of any 
modifications arising from verification. The parts which were sourced 
from units existing in TKS's inventory were not used parts and should 
be included in those actual costs.
    Comment 5  U.S. Direct Expenses for the Dow Jones Sale: TKS 
maintains that the terms of sale for the Dow Jones sale were such that 
the customer, and not TKS, was responsible for transporting the 
merchandise from the U.S. port to the customer sites, and that the 
customer independently arranged for the installation of the press 
additions. TKS objects to the Department's preliminary determination 
that the number of hours spent on testing and training by TKS personnel 
warranted the classification of these expenses as further manufacturing 
costs. TKS maintains that the quantity of time spent on testing and 
training is not the proper measure to determine such a classification, 
and instead proposes that the terms of sale and nature of the work 
performed by TKS should govern. TKS states that at the initial stages 
of the investigation, both the petitioner and the Department appeared 
to consider installation and testing and training as selling or 
movement expenses. TKS states that it ``does not necessarily agree'' 
with the Department's preliminary analysis that the size of the 
machinery and complexity of the work compel a classification of 
installation as further manufacturing. Nevertheless, even assuming that 
this conclusion was valid, TKS argues that the Department's reasoning 
does not apply to the specific services performed by TKS for the Dow 
Jones sale because all manufacturing covered under the contract was 
completed prior to the importation of the merchandise. Accordingly, TKS 
describes the services as being the type of work which fits the 
definition of post-production technical services expenses. TKS points 
to its accounting records, whose nomenclature assigns the title 
``warranty jobs'' in order to support its contention that any technical 
modifications required during installation do not represent further 
manufacturing and assembly. While TKS does not deny that the testing 
operations were complicated since LNPP equipment is itself complex, it 
does not believe this is sufficient grounds for characterizing the 
testing and training expenses reported as further-manufacturing costs. 
TKS states that such activity clearly did not involve an extension of 
factory work, but only the routine post-delivery technical service 
required by high-priced, highly-engineered machinery.
    The petitioner maintains that TKS's argument is incorrect because 
the issue of when title transfers is not relevant to the expense 
classification issue. According to the petitioner, all those expenses 
which are correctly treated as further manufacturing--installation 
supervision as well as testing and training, occur after title is 
transferred. The petitioner also maintains that since TKS classified 
the Dow Jones sale as a further-manufactured transaction, all of the 
expenses, (including testing and training if treated as direct selling 
expenses), and the associated CEP profit would be deducted from the 
U.S. price.
    DOC Position: We disagree with TKS. TKS's argument is incorrect 
because the issue of when title transfers is not relevant to the 
expense classification issue. The Department must examine whether or 
not a party incurs costs and the nature of those costs. Whether a 
manufacturer delivers goods CIF duty paid U.S. port, delivered, FOB 
factory gate, or any other delivery designation only designates which 
movement charges the manufacturer is responsible for. As noted in the 
Department's general comment section, LNPP installation is not being 
treated as a movement expense. All those expenses incurred by TKS which 
we have treated as further manufacturing, i.e., installation 
supervision as well as the combined testing and training expenses, 
occur after title transferred. The Department does not have, as TKS 
implies, a policy whereby direct selling expenses are defined as being 
incurred after title passes. For example in Preliminary Results of 
Antidumping Duty Administrative Review: Certain Forged Steel 
Crankshafts from the United Kingdom, 60 FR 22045 (May 4, 1995), we 
treated pre-sale warehousing expenses as direct selling expenses 
because the producer had a general agreement with its U.S. customer to 
store subject merchandise; in that case we treated the warehousing as a 
direct selling expense even though the expenses was incurred before 
title passed to the customer. .We note here that we would not have 
treated training as part of total installation activities, but since 
TKS could not report testing separately from training expenses, we 
treated the combined value of the two as part of total further-
manufacturing.
    Comment 6  Exchange Rate for the Spokesman Review Sale: TKS 
maintains that the Department incorrectly utilized the daily rate as 
published by the Federal Reserve Board in converting values from yen to 
dollar amounts for the Spokesman Review sale. According to TKS, the 
daily rate fluctuated from the benchmark rate by more than 2.25 
percent, so that, in accordance with section 773A(a) of the Act, the 
benchmark rate should be used for this transaction.
    DOC Position: We agree with TKS. At the preliminary determination, 
the Department inadvertently utilized the daily exchange rate for the 
Spokesman Review sale, whereas, due to the degree of fluctuation 
experienced on that day, the benchmark rate is the correct exchange 
rate. We have utilized the benchmark rate for purposes of the final 
determination.
    Comment 7  TKS's May 31, 1996, Submission of Corrected Sales, CV 
and FM data: The petitioner maintains that there are a series of 
corrections which TKS failed to include in its May 31, 1996, submission 
of revised sales, CV, and FM databases. According to the petitioner, 
TKS failed to make numerous corrections based on the Department's 
preliminary determination. Further, petitioner disagrees with the 
argument filed by TKS on May 31, 1996, that if the Department uses a 
five-year average TKS USA indirect selling expenses ratio, then the 
Department cannot allocate G&A expenses based on the cost of sales 
without overstating indirect selling expenses.
    TKS contends that its May 31, 1996, submission was filed in direct 
response to the Department's May 22, 1996, letter instructing it to 
``incorporate all corrections of factual information which result from 
the verification procedure, both those which TKS identified prior to 
the commencement of verification and those noted during verification.'' 
TKS maintains that it was not instructed to make the changes which the 
Department made at the preliminary determination, as these involve 
methodological issues which TKS has not conceded for purposes of the 
final determination. As to the calculation of TKS USA indirect selling 
expenses, TKS argues that its submission was timely and that the 
arguments rested on data provided in verification exhibit 27 to the 
U.S. sales verification report.
    DOC Position: We agree with petitioner that not all methodological 
corrections necessary for the final margin calculation are reflected in 
the data submitted on May 31, 1996, by TKS. We have made, therefore, 
all necessary corrections and methodological adjustments to the data 
reported on May 31, 1996, to reflect the policies set forth in this 
final determination of sales at less than fair value. With respect to 
the issue

[[Page 38153]]

concerning TKS USA indirect selling expenses and G&A allocation, we 
have modified the calculation of the G&A allocation to further 
manufacturing thereby eliminating any possible double-counting with 
respect to the calculation of TKS USA indirect selling expenses. 
Accordingly, we are applying the corrected ratio established in the TKS 
USA verification report.
Cost Issues
    Comment 8  Treatment of Costs Due to Delivery Accidents: The 
petitioner maintains that the Department was incorrect in not including 
in the CV of the Spokane Spokesman Review sale the additional 
incidental expenses which were incurred because of accidents damaging 
portions of LNPP towers en route to the customer site, if those costs 
were not covered by insurance. The petitioner does not agree with the 
Department's application of the provision of the SAA which supports the 
exclusion of costs incurred due to unforeseen events. In its 
preliminary determination, the Department concluded that TKS had 
general knowledge of the possibility of accidents, but that any 
specific accident was an unforeseen event. The petitioner argues that a 
respondent, in its decisions on how to pack and ship LNPPs, its 
selection of vendors, routes, timetables and insurers, knowingly 
increases or decreases risks for the particular transactions affected. 
According to petitioner's reasoning, if certain costs are incurred 
which are not covered by insurance, this situation arises from multiple 
factors which resulted from the respondent's business practices. Thus, 
petitioner argues, the resulting costs are not truly ``unforseen'' and 
should be included in CV. Petitioner presents several hypothetical 
situations in which costs increase due to events for which a producer 
cannot have perfect foreknowledge, but which traditionally have been 
included as CV.
    TKS maintains that petitioner is wrong to claim that specific 
accidents, one of which resulted in a truck driver's death, were 
foreseeable and ordinary in nature. According to TKS, the Department's 
preliminary determination was correct in that it followed a two-part 
test for determining if costs are sufficiently extraordinary to merit 
exclusion from the margin calculations. TKS states that under the test 
used in the remand following the CIT's decision in Floral Trade Council 
of Davis California v. U.S., Slip Op. 92-213, 16 C.I.T. 1014 (December 
1, 1992), an extraordinary expense must be: (1) Infrequent in 
occurrence and (2) unusual in nature. According to TKS, the Department 
applied this test in the Final Determination of Sales at LTFV: Fresh 
Cut Roses from Ecuador, 60 FR 7019, (February 6, 1995), where the 
Department rejected a petitioner's arguments that certain losses due to 
windstorms were foreseeable. After reviewing all incidents of accidents 
in TKS's history of trucking presses, wherein less than one in three 
hundred U.S. shipments involved an accident, TKS maintains that the 
accidents which befell delivery of the Spokane Spokesman Review press 
additions were similar to phenomena like windstorms, and other events 
which the Department has previously classified as unforeseeable, 
infrequent, and hence extraordinary events.
    DOC Position: As in the preliminary determination, the Department 
maintains that the additional expenses stemming from the accidents 
constitute, in the words of the SAA at page 162 ``an unforeseen 
disruption in production that occurs which is beyond the management's 
control.'' See Memorandum from the Team regarding Exclusion of Two 
Sales, February 23, 1996. As such, when an unforeseen disruption in 
production occurs which is beyond the management's control, the 
Department will continue its current practice of using the original 
costs incurred for production prior to the unforeseen event. Therefore, 
for purposes of the final determination, we did not include any of the 
additional expenses incurred as a result of the accidents, irrespective 
of insurance coverage, in the CV for this sale.
    Comment 9  COMAR/Front Page Installation's Reported Costs: The 
petitioner alleges that TKS understated the costs incurred by its 
affiliate COMAR/Front Page Installations (``COMAR)''. The petitioner 
maintains that TKS reported costs for the installation of one of the 
DMN sales using an indirect overhead rate, inclusive of G&A, which was 
significantly lower than that contained in COMAR's financial 
statements. The petitioner objects to TKS's failure to reconcile the 
reported indirect overhead expenses with those recorded in COMAR's 
financial statements, despite instructions from the Department to do 
so. Furthermore, the petitioner questions COMAR's offset to actual 
production costs for interest revenue, which the petitioner claims is 
contrary to the Department's long-standing practice. For purposes of 
the final determination, the petitioner maintains that the Department 
should revise COMAR's submitted indirect overhead costs based on the 
rate reflected in its financial statements, and that the Department 
should disregard COMAR's negative interest expenses.
    TKS argues that the reported indirect overhead costs are based on 
the overhead expenses incurred in the months in which production took 
place and that documentation reviewed at verification both supports 
TKS's allocation methodology and reconciles to the company's financial 
statements. TKS concludes that petitioner's argument is without basis, 
and that it is unnecessary and unwarranted to adjust the reported 
costs, particularly given the relative insignificance of the costs to 
the total price.
    TKS also rejects the petitioner's argument to exclude the reported 
adjustment for interest income from the reported COMAR costs. TKS 
maintains that the petitioner not only failed to cite any basis for its 
position, but also ignored the facts in this case warranting the 
adjustment. TKS argues that while it is true that COMAR does not incur 
any interest expense, it is not true that there are no interest 
expenses added to the further-manufacturing costs. According to TKS, 
the reported further manufacturing costs include interest expense 
computed as the sum of the TKS consolidated interest rate factor and 
the total further manufacturing costs, which include those incurred by 
COMAR.
    DOC Position: We agree with TKS in part. Contrary to petitioner's 
assertions, the Department was able to verify that TKS's submitted 
indirect overhead costs reconcile to those reported in COMAR's 
financial statements. COMAR does not ordinarily assign indirect 
overhead costs to each of its jobs. In order to submit a fully absorbed 
cost of production to the Department, TKS developed what it 
characterized as an indirect overhead allocation rate. TKS allocated 
indirect overhead costs to each job on the basis of the ratio of 
indirect costs to direct costs during those months production occurred. 
The Department considers TKS's method of allocating indirect costs as a 
percentage of direct cost reasonable. Accordingly, no adjustment is 
deemed necessary.
    We disagree, however, that COMAR should be allowed to reduce 
production costs by the excess of interest income over interest 
expense. The Department allows interest expense to be offset by short 
term interest income, but only to the extent the company has interest 
expense. Not tying interest income in this manner would allow companies 
to arbitrarily subsidize a product by realizing financial activities 
not necessarily related to the production of the merchandise in 
question. Accordingly, we disallowed COMAR's

[[Page 38154]]

reported reduction in production costs for the excess of short-term 
interest income over interest expense.
    Comment 10  TKS Indirect Overhead Cost Allocations: The petitioner 
argues that the Department should reject TKS's indirect overhead cost 
allocations. According to the petitioner, TKS employed an allocation 
methodology which was far more general than either the other Japanese 
respondent or the respondent in the companion investigation of LNPPs 
from Germany. These other respondents generally calculated separate 
overhead rates for each major manufacturing process and applied the 
rates only to those products which undergo the specific processing. 
According to the petitioner, TKS failed to provide any source 
documents, or additional detail, for its overhead allocation 
methodology, or to otherwise support the factory overhead amounts 
provided in its responses. The petitioner objects to TKS's pooling of 
LNPP R&D expenses into company-wide overhead costs which were then 
allocated over total production, thus understating costs. The 
petitioner objects that TKS's cost system charges much more engineering 
cost to overhead accounts, as opposed to specific orders. Thus, 
petitioner reasons, TKS's treatment of a large portion of engineering 
costs as a part of common overhead results in a shifting of costs from 
engineering-intensive press additions to press systems, and thus from 
U.S. market sales to home market sales. Finally, the petitioner 
maintains that the fact that TKS's normal cost accounting system goes 
no further to accurately assign costs to particular sales does not 
absolve TKS from reporting reliable, actual costs to produce the 
subject merchandise. Petitioner cites precedents where the Department 
required respondents to report data in a more specific format than that 
created in the normal course of business. The petitioner thus requests 
that the Department utilize Rockwell's information as facts available 
for the final determination.
    TKS maintains that its indirect overhead allocation methodology is 
used in the normal course of business, is in accordance with Japanese 
GAAP and was thoroughly verified by the Department. Respondent notes 
that it complied fully with all requests for information made by the 
Department. TKS argues that a comparison of its allocation method to 
other companies is not the measure applied by the Department in 
determining the acceptability of an individual respondent's allocation 
methodology. Therefore, TKS maintains that the Department should accept 
its methodology as submitted and ignore petitioner's request to apply 
as facts available petitioner's own unverified overhead rates.
    TKS argues that the information provided to the Department during 
verification indicates that its allocation method is not distortive. 
TKS notes that during verification it demonstrated to the Department 
that both subject and non-subject products are treated identically 
within its system. Additionally, TKS notes that there is no indication 
in the verification report that the Department believes the methodology 
distorts costs.
    TKS disagrees with petitioner's contention that its allocation 
method fails to identify R&D costs incurred to specific LNPP projects. 
TKS maintains that it is unnecessary for the company to keep product-
specific R&D data and gives several reasons why LNPP's are charged with 
the correct proportion of R&D expenses.
    DOC Position: We believe that, in the instant proceeding, TKS's 
method of allocating indirect overhead costs is reasonable and have 
relied on it for the final determination. The legislative history of 
section 773(b) of the Act states that ``in determining whether 
merchandise has been sold at less than cost [the Department] will 
employ accounting principles generally accepted in the home market of 
the country of exportation if [the Department] is satisfied that such 
principles reasonably reflect the variable and fixed costs of producing 
the merchandise.'' H.R. Rep. No. 571, 93d Cong., 1st Sess. 71 (1973) 
(emphasis added). The CIT has upheld the Department's use of expenses 
recorded in a company's financial statements, when those statements are 
prepared in accordance with the home country's GAAP and do not 
significantly distort the company's actual costs. See, e.g., Laclede 
Steel Co. v. United States, Slip Op. 94-160 at 22 (CIT 1994).
    Accordingly, our practice is to adhere to an individual firm's 
recording of costs, if we are satisfied that such principles reasonably 
reflect the costs of producing the subject merchandise, and are in 
accordance with the GAAP of its home country. See, e.g., Canned 
Pineapple Fruit from Thailand; Final Determination of Sales at Less 
Than Fair Value (``Canned Pineapple from Thailand), 60 FR 29553, 29559 
(June 5, 1995); Certain Stainless Steel Welded Pipe from the Republic 
of Korea; Final Determination of Sales at Less Than Fair Value, 57 FR 
53693, 53705 (November 12, 1992). See also Furfuryl Alcohol from South 
Africa: Final Determination of Sales at Less Than Fair Value, 60 FR 
22550, 22556 (May 8, 1995) (``The Department normally relies on the 
respondent's books and records prepared in accordance with the home 
country GAAP unless these accounting principles do not reasonably 
reflect the COP of the merchandise''). Normal accounting practices 
provide an objective standard by which to measure costs, while allowing 
respondents a predictable basis on which to compute those costs. 
However, in those instances where it is determined that a company's 
normal accounting practices result in an unreasonable allocation of 
production costs, the Department will make certain adjustments or may 
use alternative methodologies that more accurately capture the costs 
incurred. See, e.g., New Minivans from Japan; Final Determination of 
Sales at Less Than Fair Value, 57 FR 21937, 21952 (May 26, 1992).
    In the instant proceeding, therefore, the Department examined 
whether the respondent's indirect overhead allocation methodology 
results in costs of producing the subject merchandise that reasonably 
reflect its cost of production. At verification, the Department 
requested and analyzed in detail source documents related to the 
allocation of the three indirect cost items making up a significant 
portion of the total indirect overhead costs. See TKS verification 
exhibits 26, 27 and 28. On a sample basis, we analyzed the significance 
of LNPP-specific indirect overhead costs versus non-LNPP specific 
indirect overhead costs. See TKS verification exhibit 31. We noted that 
the respective product line-specific amounts were comparable, 
supporting the conclusion that TKS's method for allocating indirect 
overhead costs was reasonable. As a result, we have determined that 
TKS's method of accounting for indirect overhead is used in the normal 
course of business, in accordance with Japanese GAAP and reasonably 
reflects the cost of producing LNPPs.
    We also disagree with petitioner that by pooling R&D expenses into 
company-wide overhead costs, TKS shifted costs away from U.S. press 
sales to home market sales. Petitioner's assumption that TKS incurs 
higher R&D costs on press additions compared to that of systems is 
purely speculative. It should also be clarified that the R&D costs 
pooled and allocated by TKS in its ordinary course of business do not 
include engineering costs which relate to specific projects as 
petitioner implies. These engineering costs are assigned to the 
projects to which they relate.
    Lastly, we agree with petitioner that the Department has in past 
cases

[[Page 38155]]

required respondents to report cost data in a more specific format than 
that created in the normal course of business. We disagree, however, 
that in this particular instance TKS needed to allocate its indirect 
overhead cost data in a more specific manner. TKS's primary business 
activity is the production and sale of LNPPs. Additionally, TKS's non-
LNPP production activities utilize production shops and sections that 
are also used by its LNPP operations. Since production of non-subject 
merchandise is relatively insignificant and the results of our testing 
at verification revealed that costs are reasonably allocated, a more 
detailed cost allocation method is not deemed necessary.
    Comment 11  The Reclassification of TKS USA's Rent, Employee 
Insurance, and Workman's Compensation Expenses: TKS objects to the 
Department's preliminary determination to disregard TKS USA's 
reclassification of rent, employee insurance, and workman's 
compensation expenses from SG&A to indirect overhead. TKS maintains 
that its total SG&A expenses, as reported on its audited financial 
statements, encompass three categories: (1) Indirect overhead expenses 
associated with the different divisions of the company; (2) selling 
expenses which are incurred in the selling of presses; and (3) office 
administration expenses which benefit the entire company. TKS explains 
that in order to be consistent with its current accounting treatment, 
it reclassified rent, employment insurance, and workman's compensation 
from office administration to indirect overhead for two fiscal years of 
the POI.
    The petitioner objects to TKS's request and states that the 
Department appropriately based its preliminary calculations on the 
expenses as reported in TKS's financial statements. The petitioner 
states that TKS has not submitted overwhelming evidence which 
petitioner believes necessary to change classifications of items in 
audited financial statements. The petitioner disagrees with TKS's 
contention that the 1995 classification of such expenses requires a 
change to the prior years' classifications of expenses. The petitioner 
states that, regardless of whether or not the prior years' results were 
reclassified, the expenses in question may appropriately be classified 
differently depending upon the year incurred. According to the 
petitioner, internal re-organizations to accommodate an expanding 
product line may change the nature of some expense from being 
reasonably applicable to the entire company to being more product-line 
specific.
    DOC Position: We agree with TKS that its classification of these 
costs as indirect overhead is reasonable. We verified that the method 
TKS used to allocate the prior year workman's compensation, employee 
insurance and rent costs is in accordance with its current accounting 
treatment of these costs and we consider it reasonable for these costs 
to relate to manufacturing operations. Additionally, we noted that each 
overhead cost item is allocated based on the factor that drives the 
cost (e.g., square footage for rent). We therefore relied on TKS's 
submitted reclassification of these indirect overhead costs for the 
final determination.
    Comment 12  Inclusion of General and Administrative Expenses in 
Imputed Credit: TKS maintains that the Department's preliminary 
inclusion of general expenses in the imputed credit calculation is 
contrary to the accounting principle governing the capitalization of 
interest, is inconsistent with the Department's past practice, and at a 
minimum results in a double-counting of the expense items that were 
included in the general expense factor.
    TKS cites Financial Accounting Standards Board (``FASB)'' rule 34 
as the accounting principle which the Department has relied upon in 
past cases as the rationale for capitalizing interest in cases 
involving merchandise with extended production periods. TKS interprets 
this principle as applying only to interest expenses, not to movement, 
selling or general expenses, because general expenses are period costs 
which are not part of the capital expenditures involved in the 
calculation of the capitalized interest. TKS concludes that by 
including general expenses in the calculation of imputed credit, and by 
calculating the net credit expense as the difference between the sum of 
production costs plus general expenses and various progress payments, 
the Department contradicts FASB 34, which explicitly provides that the 
capitalized interest shall be determined as the net of the actual costs 
and the actual progress payments.
    At a minimum, TKS contends that the Department must adjust its 
calculation methodology to avoid the double-counting of the expenses 
that are included in the general expense ratio. Specifically, TKS 
claims that the allocation of movement expenses and direct and indirect 
selling expenses to U.S. credit without a proportionate reduction of 
adjustments to CEP made for the same expenses under section 772 of the 
Act results in a double-counting of the expenses. TKS cites MTPs Final 
Determination (1990) where capitalized interest was categorized as a 
manufacturing cost instead of a credit expense, and where the 
Department explicitly allowed the offset of capitalized interest 
expense against the company's overall interest expense in the 
calculations. TKS maintains that likewise, the allocated movement, 
selling, and general expenses included in the credit calculation should 
be used to offset the amounts reported as a price adjustment or as a 
general expense for CV purposes.
    The petitioner contends that the Department correctly calculated 
imputed credit expenses using the net balance of costs incurred and 
progress payments made during the construction period. The petitioner 
alleges that TKS's characterization of the Department's calculation of 
imputed credit as a ``capitalized interest'' methodology is incorrect, 
and that TKS's references to FASB 34 are not relevant. The petitioner 
maintains that credit expenses are calculated using the sales price of 
the merchandise sold, which includes not only the manufacturing costs, 
but also amounts to cover general expenses. Accordingly, petitioner 
supports the Department's inclusion of general expenses in the costs 
incurred, stating that this methodology was necessary to keep the 
calculations internally consistent, (i.e., so that the credit income 
and offsetting expense would be calculated on a reasonably consistent 
basis). The petitioner claims that G&A expenses have always been 
factored into the Department's normal credit expense calculation.
    DOC Position: We agree with petitioner that SG&A expenses should be 
charged with imputed credit costs. As petitioner noted, it is the full 
cost of production rather than manufacturing costs that should be 
assessed with imputed credit. Because SG&A, by definition, are included 
in COP, and because the purpose of the imputed credit adjustment is to 
reflect the interest cost associated with the production costs incurred 
and the progress payments received during the production phase of the 
LNPP, it is appropriate to include SG&A expenses in the imputed credit 
calculations. Further, as also stated by petitioner, because the 
revenue side of our calculation captures the entire LNPP price, the 
cost side of the calculation should capture all production costs.
    We disagree with TKS that the Department double counted general 
expenses through its application of the imputed credit adjustment. We 
increased the base to which imputed

[[Page 38156]]

credit expense was computed in order to include all general expenses 
related to each press sale. We did not, as TKS contends, increase the 
imputed credit expense by the actual general expense amounts incurred.
    Comment 13  Transportation and Installation Charges and the 
Calculation of CEP Profit: TKS maintains that the home market cost of 
production used in the preliminary determination did not include the 
reported transportation and installation costs (``PTI)'', thereby 
understating the total costs and overstating the CEP profit ratio. TKS 
requests that the Department adjust its calculations to properly 
account for all costs associated with home market sales by summing the 
manufacturing costs and the transportation and installation expenses.
    DOC Position: We agree with respondent that the Department 
mistakenly excluded PTI costs in computing CEP profit for the 
preliminary determination. For the final determination, we recalculated 
CEP profit to include the PTI costs.
    Comment 14  Direct Selling Expenses and COM for U.S. Sales: 
According to TKS, if the Department continues to allocate the general 
expenses of TKS USA based on COM inclusive of inputs acquired from TKS 
in Japan, then it should exclude home market direct selling expenses 
from COM. Following TKS's logic, the inclusion of the home market 
direct selling expenses overstates the cost of producing the 
merchandise sold to the U.S., and therefore overstates the amount of 
the allocated general expenses associated with each U.S. sale. 
According to TKS, home market direct selling expenses have no relevance 
to sales of U.S. merchandise, and, since all direct selling expenses 
incurred on U.S. sales have already been assigned a proportionate share 
of the TKS USA general expenses, it is thus unnecessary and improper to 
include any home market direct selling expenses when allocating TKS USA 
general expenses to further manufacturing operations.
    The petitioner maintains that TKS's argument that home market 
direct selling expenses should not be included in the COP is based on a 
presumption that the Department intended to allocate the expenses to 
the cost of presses as imported (rather than the COP of the press sold 
in the home market). Assuming arguendo that TKS is correct, it agrees 
that the direct selling expenses should not be included in the 
calculation of the cost of the press as imported. However, the 
petitioner states that TKS neglected to mention that the Department 
would have to replace the direct selling expenses with the movement 
cost incurred to ship the presses from Japan to the U.S. port. Thus, if 
the Department decides to apply the U.S. G&A expense to the cost of 
presses as imported, the Department should deduct direct selling 
expenses from the COP of the Japanese press, replace the home market 
indirect selling expenses with the export indirect selling expenses and 
add movement costs from Japan to the U.S. port.
    DOC Position: Since we recalculated TKS USA's further manufacturing 
G&A expense rate exclusive of the inputs acquired from TKS, this point 
is moot.

MHI-Specific Comments

Sales Issues
    Comment 1  Removing Certain Sales from the Denominator of MLP's 
Indirect Selling Expense Calculation: The petitioner argues that the 
U.S. indirect selling expense factor calculated for MLP is incorrect 
because of the inclusion in its denominator of certain sales which were 
negotiated and concluded prior to MLP's existence. Thus, it concludes, 
MLP could not have incurred indirect selling expenses associated with 
such sales, and they should be removed from the denominator of the 
calculation. The parallel is drawn with MHI's treatment of the Guard 
sale in its calculation of MLP's indirect selling expense ratio.
    MHI argues that MLP properly included all LNPP sales recognized 
during the POI in the denominator of its indirect selling expense 
calculation, because of the activities required beyond the direct 
expenses incurred for installation and warranty work. Furthermore, MHI 
argues that for large, custom-built products, such as LNPPs, the end of 
the negotiation process does not signal the end of the sales process. 
Therefore, MHI explains that MLP performed sales-related activities 
during the POI. Moreover, if only sales negotiated during the POI are 
included, then the amount involved in the Washington Post contract 
should be included in the denominator for indirect selling expenses. 
MHI explains that if the petitioner's logic is followed, then the MLP 
indirect selling expense factor would actually decrease. According to 
MHI, indirect selling expenses for the Guard were not included in the 
MLP indirect selling expense allocation because MLP did not recognize 
the revenue; MLP did recognize the revenue associated with the sales it 
did make that were negotiated outside of the POI.
    DOC Position: We disagree with the petitioner. It is proper to 
include all sales recognized during the POI in the denominator whether 
the sale was made before or after the start of the POI since the 
expenses in the numerator apply to pre-POI sales as well. Even though 
the pre-POI sales were negotiated and concluded before MLP was founded, 
the Department calculates indirect selling expenses based on expenses 
and revenue recorded during the POI. Thus the numerator of the factor 
calculated utilizes the expenses recognized by MLP in the normal course 
of business for the period in question and the denominator of that 
factor utilizes the sales recognized by MLP in the normal course of 
business for the same period. The Department uncovered no manipulation 
or distortion which would cause us to reject MLP's normal recording of 
revenue based on sales recognition. At the preliminary determination 
the Department made an adjustment to the numerator of the indirect 
selling expense calculation, basing the allocation of general sales 
office expenses on sales revenue instead of the head-count methodology 
submitted by MHI. We have therefore employed an MLP indirect selling 
expense factor for purposes of this final determination which is 
exclusive of common G&A expenses. See also Japan ``Common Issues'' 
Comment 9.
    Comment 2  Commission Paid to a Possibly Affiliated Trading Company 
for the Piedmont Sale: The petitioner maintains that, in the 
preliminary determination, the Department incorrectly treated the 
trading company involved in the sale to the Piedmont Publishing Company 
as an unaffiliated entity. The petitioner cites many joint ventures by 
MHI and this trading company as evidence that these are affiliated 
entities. The petitioner further maintains that the relationships 
inherent in the membership of MHI and the trading company in the 
Mitsubishi company group (``Keiretsu)'', including the use of a common 
corporate name and logo, a tradition of company cooperation, cross-
ownership of stock, cross-lending and cross-borrowing, are indicators 
of affiliation.
    According to the petitioner, the affiliation status of the trading 
company raises a critical issue regarding the commission it received 
from MHI in connection with the Piedmont sale--namely whether that 
transaction was at arm's length. The transaction is characterized as 
not at arm's length by the petitioner, based on the relative size of 
the commission earned on the Piedmont sale as opposed to that earned by 
Sumitomo Corporation (``SC'') for the Guard sale. Because MHI did not 
provide the actual costs incurred by the trading company involved in 
the

[[Page 38157]]

Piedmont sale, the petitioner proposes that the Department apply the 
effective rate of the SC commission (i.e., the reported SC commission 
as a percentage of the Guard sales value) to the value of the Piedmont 
sale.
    MHI maintains that its sale to Piedmont is through a company which 
is not affiliated under the objective statutory criteria. MHI argues 
that the Department should reject the petitioner's request to adjust 
upward the reported commission paid by MHI for the Piedmont sale. MHI 
argues that investments between companies are not covered under the 
statute, specifically joint ownership of subsidiaries. MHI argues that 
the antidumping law concentrates on the actual control of parties, and 
that mere joint ownership does not rise to the level of control 
required to find affiliation because the trading company involved does 
not exert direct control through its stock holdings. MHI argues that 
the relationships among ``Mitsubishi companies'' are insufficient to 
allow MHI to control the trading company in the Piedmont sale, or to 
allow the trading company to control MHI.
    MHI argues that petitioner's assertions that MHI and the trading 
company are affiliated through: membership in a Keiretsu, common name 
and a logo, traditional business relationships, significant cross-
ownership of stock, and cross lending and borrowing, fail to satisfy 
the ``control'' test for affiliation. MHI argues that the SAA does not 
presume that members of family groupings are affiliated and that this 
is only one factor for consideration. MHI also argues that nowhere does 
the antidumping law or the SAA suggest that common name, logo, and 
traditional business relationships establishes control. MHI also argues 
that affiliation through stock ownership is measured by a five-percent-
or-greater threshold and the antidumping law does not deem shareholders 
as affiliated based on comparative (i.e., cumulative company group) 
share holdings. Furthermore, MHI argues that MHI and the trading 
company in the Piedmont sale have no financing arrangements.
    MHI further argues that the commission paid for the Piedmont sale 
is an arm's length transaction requiring no adjustments. MHI explains 
that the commission for the Guard sale was much greater because the 
role played by SC was more substantial than played by the other trading 
company in the Piedmont sale. Enumerating some of the additional 
functions performed by SC, MHI noted that it prospected for U.S. 
customers, provided U.S. sales strategy, and negotiated the sale.
    DOC Position: The Department disagrees with the petitioner's 
argument that the sale through the trading company to Piedmont should 
be treated as an affiliated party transaction for purposes of this 
final determination. Although MLP is owned jointly by MHI and the 
trading company, the Department does not view the joint ownership, in 
this particular situation, as a sufficient indication that MHI's 
relationship with the trading company is such that either is 
``operationally in a position to exercise restraint or direction'' over 
each other, as opposed to over MLP. We agree that cross-ownership of 
stock, cross-lending and cross-borrowing, a tradition of company 
cooperation, and particularly, combinations of significant degrees of 
such relationships, are possible indicators of affiliation. However, 
the Department stated in its February 23, 1996, Concurrence Memorandum 
that the extent of stock ownership in subsidiary organizations greater 
than five percent between the companies (i.e., their joint ownership of 
numerous enterprises, particularly LNPP enterprises) is, by itself, an 
insufficient indication of affiliation. We also maintain that the 
degree of cross-ownership and the level of joint-financing between MHI 
and the trading company are not significant enough to be indicators of 
affiliation.
    In its March 8, 1996, submission, MHI provided the proportion of 
sales made by MHI through the trading company to the number of total 
sales made by the trading company as well as the proportion of sales 
made by MHI through the trading company to the total sales made by MHI 
(i.e., comparative dependence data), basing the trading company's 
figures on publicly available trade data. MHI also provided additional 
information on stock ownership in a third party, which was zero. The 
Department requested MHI to provide the Department with commissions 
received by the trading company from other parties not affiliated with 
it, to use in case the Department determined MHI and the trading 
company to be affiliated and rejected MHI's claim that the commission 
for the trading company was at arm's length. We also recommended that 
MHI request the trading company to provide the trading company's 
selling expenses and G&A for the services provided to MHI in making 
this transaction. However, MHI stated that it asked the trading company 
to provide the relevant sales information and that the trading company 
refused by explaining that it was not affiliated in any way to MHI, and 
therefore under no obligation to cooperate on MHI's behalf.
    The MLP joint venture between MHI and the trading company does not 
in and of itself constitute control between MHI and the trading 
company. Moreover, MHI has cooperated and attempted to provide 
information requested by the Department for its sale through the 
trading company. Whether the trading's companies lack of full 
cooperation vis-a-vis reporting its expenses, as an unaffiliated party, 
should impute any lack of cooperation to MHI is moot in this instance 
because MHI was able to obtain the comparative dependence data from its 
own and public sources which was an important factor in our analysis of 
potential affiliation. Because the information currently on the record 
allows us to determine that for purposes of this investigation, the 
trading company is not affiliated with MHI, the data which the trading 
company did not submit is not required as part of our margin 
calculations.
    For purposes of this final determination, we have decided to treat 
the Piedmont sale as a sale through an unaffiliated trading company and 
have used the commission as reported in our final calculation. We note, 
however, that the Department will continue to develop an analytic 
framework to take into account all factors which, by themselves, or in 
combination, may indicate affiliation, such as corporate or family 
groupings, franchises or joint venture agreements, debt financing, or 
close supplier relationships in which the supplier or buyer becomes 
reliant upon the other. In future investigations and administrative 
reviews, the Department may need to re-analyze the different aspects of 
the Mitsubishi group first examined here, based on policy developments.
    Comment 3  Proposing a Discount on the Guard Sale: The petitioner 
proposes that the Department treat an unpaid payment reported by MHI as 
a direct deduction from the gross Guard contract price, in effect 
labeling the unpaid payment a discount. The payment was not made 
because of a dispute between Guard and MHI, the nature of which is 
proprietary, and discussed in greater detail in the July 15, 1996, 
calculation memorandum.
    MHI argues that the unpaid amount reported by MHI should not be 
treated as a discount. MHI explains that from a purely commercial 
perspective, it would make no sense to grant a discount because the 
unpaid amount is significantly greater than the cost of the item in 
dispute.

[[Page 38158]]

    DOC Position: We agree with petitioner that the adjustment to the 
gross price of the Guard sale should be made by treating the unpaid 
amount as a discount. In the Final Results of Antidumping Duty 
Administrative Review: Porcelain-on-Steel Cooking Ware From Mexico, 58 
FR 43327 (August 16, 1993), the Department applied BIA (now facts 
available) to those instances ``where three U.S. customers refused to 
pay the full amount of [respondent] ITCO's invoice'' even though ``ITCO 
continued to carry the unpaid amounts as outstanding balances on their 
accounts and continues to demand payment.'' We drew an adverse 
inference and reduced reported prices for these ``unauthorized 
discounts'' because there was ``no indication of reasonable expectation 
of payment.'' In the instant investigation of the Guard sale, there is 
again no indication of reasonable expectation of payment. Further 
proprietary details have been discussed on the record in the 
Department's July 15, 1996, calculation memorandum.
    Comment 4  The Nature of the Guard Sale, Including the Date of 
Sale: The petitioner maintains that the transaction which the 
Department classified as a sale by MHI through SC to the Guard 
Publishing Company should instead by treated as a sale from MHI to the 
SC, and that this price should be the basis for U.S. price. The 
petitioner disagrees with MHI's characterization of SC's role as that 
of a mere commission agent, primarily because MHI was not a signatory 
party to the contract which established the sale to Guard. Because the 
only sales contract to which MHI was a party is the purchase contract 
issued by SC to MHI, the petitioner believes that the Department's 
trading company rule requires the Department to treat the sale as made 
between MHI and SC. Citing the Final Determination: Certain Forged 
Steel Crankshafts from Japan, (52 FR 36984, October 2, 1987) (``Forged 
Crankshafts'') and the court ruling Peer Bearing Co. v. United States, 
800 F. Supp. 959, 964 (CIT 1992) (``Peer Bearing''), the petitioner 
states that the trading company rule provides that a sale to a trading 
company in a foreign market is a sale to the United States if the 
manufacturer knows that the merchandise is destined for the United 
States at the time the sale is made.
    First, the petitioner maintains that the evidence examined by the 
Department establishes that MHI sold the Guard LNPP system to SC. The 
petitioner stresses that the contract for sale from SC to Guard 
establishes this as fact. Petitioner criticizes the Department's 
acceptance of several subsidiary documents as evidence of MHI's 
involvement in the transaction between SC and Guard. According to the 
petitioner's analysis of relevant documents, SC could not have acted as 
MHI's sales agent because MHI obviously confirmed that SC was not 
authorized to bind MHI to the sales agreement between SC and Guard. The 
petitioner maintains that there is no documentary evidence that MHI 
participated in the SC/Guard negotiations, especially with respect to 
the paramount issue of contract price. While recognizing the necessity 
that SC consult with MHI on technical matters such as press 
configuration and installation planning, the petitioner emphasizes that 
there is no evidence on the record indicating MHI's involvement in 
establishing the price to Guard and the payment schedule from Guard to 
SC.
    Second, the petitioner maintains that SC's actions throughout the 
course of the Guard transaction establish that it was an independent 
trading company and not a commission agent of MHI. According to the 
petitioner, SC acted in the capacity of an independent trading company: 
it negotiated, established, and subsequently modified, on its own 
authority and behalf, the terms of sale of the LNPP system to Guard. 
The petitioner provides its interpretation of the basic documentation 
underlying the commission paid by MHI to SC, concluding that SC was not 
merely a commission agent.
    The petitioner states that the Department should consider the date 
of sale to be that for the purchase order placed between SC and MHI and 
that the Department was incorrect in its preliminary analysis, which 
concluded that MHI's role was tantamount to that of a seller in the 
original transaction between SC and Guard, based on (1) MHI's offer to 
be responsible for SCs obligations to Guard if there were to be a 
failure of performance by SC, and (2) MHI's commencement of the design 
and construction of the press prior to a written agreement between MHI 
and SC. According to petitioner's interpretation, the unilateral offer 
by MHI to guarantee SC's obligation to provide a conforming press 
system does not alter the fact that SC sold the subject merchandise to 
the Guard, but should be interpreted as a warranty by the press 
manufacturer that it would ultimately produce the goods sold by the 
independent trading company. The objection is raised that the 
Department misreads the U.C.C. provision on performance in connection 
with MHI's initial design and production activities. While the 
petitioner does not dispute that in certain circumstances partial 
performance may ratify an unexecuted contract, it maintains that the 
Department ignores the fact that the only contract to which MHI was a 
party, and which could thus be ratified, was the purchase order fully 
consummated later between MHI and SC, and which incorporated in it the 
terms of the earlier contract between SC and Guard. Because the 
material terms of sale, particularly price and quantity, were 
established between MHI and SC at a date later than the contract 
between SC and Guard, the petitioner maintains that the later date 
should be used in the antidumping analysis as the correct date of sale. 
Accordingly, it was only at this point in time that the essential terms 
were firm so that the parties could no longer unilaterally alter them.
    MHI argues that the Department properly analyzed the sale to Guard 
as a sale between MHI and Guard. MHI disagrees with the petitioner's 
argument that MHI never had a contractual relationship with Guard. 
First, MHI argues it played an integral part in making the sale, such 
as developing cost estimates used to set the price, signing the 
contract as a witness, and issuing a letter to Guard guaranteeing 
performance. Second, MHI argues the law of agency provides that when a 
party holds itself as an agent, it has the ability to bind the 
principle. Third, MHI asserts that the petitioner's argument that MHI 
must have produced this LNPP system as a ``subcontractor'' is presented 
without evidence.
    MHI further argues that SC was a commissioned sales agent of MHI, 
as evidenced by the documentation submitted by it, and agrees with the 
petitioner when it says the commission agreement did not create a sales 
contract. MHI maintains that it is a document which establishes the 
basis for a commission arrangement between a manufacturer and a sales 
agent and that the amount of SC's commission never involved post-sale 
negotiation.
    MHI also argues that the Department's ``trading company'' rule is 
not applicable to this sale. More specifically, MHI maintains the 
petitioner's contention that the Department should treat the purchase 
orders between MHI and SC as constituting the actual sale is wrong. 
First, MHI contends that the Department recognized that MHI did not 
sell a press to SC. Second, MHI contends that the trading company rule 
allows the Department to capture a respondent's sales which are 
delivered to the United States, where the respondent knows at the time 
of sale that the merchandise is destined to the United States. MHI

[[Page 38159]]

argues that the essential function of the rule is to determine which of 
a respondent's sales should be included in the dumping calculation, and 
contends that the trading company rule has been used to establish the 
proper U.S. price when the trading company acts as an independent 
reseller of subject merchandise. Accordingly, a different 
interpretation is given to Peer Bearing whereby MHI holds that the 
ruling does not require the Department to use the price contained on 
the purchase order, but stands for the proposition that the trading 
company rule is discretionary, based on the facts of the case. MHI also 
maintains that the Forged Crankshafts does not apply because in that 
case the trading company was responsible for setting the price and MHI 
was responsible for establishing the final price in this investigation. 
Thus, application of the trading company rule under these circumstances 
would be inappropriate.
    With respect to the date of sale debate, MHI argues that the 
Department correctly determined the proper date of sale. MHI cites MTPs 
Final Determination (1990) which states that, for sales of custom-built 
merchandise, the Department should establish a date at the earliest 
date when terms are fixed. MHI explains that there was confusion 
regarding MHI's sales process in the home market for certain sales 
because the essential terms of the sale were not fixed until the 
purchase order to the trading company was issued. MHI maintains that 
the Guard sale is quite different, because MHI signed the sales 
contract.
    DOC Position: The Department agrees with MHI that the preliminary 
determination properly treated the sale to Guard as a sale between MHI 
and Guard. In the Department's February 23, 1996, decision memorandum, 
we stated that one of the main issues was whether the sales price 
between MHI and SC or the sale price between SC and Guard is the 
appropriate price for our dumping analysis. Because MHI originally only 
reported the price from MHI to Guard, we requested that MHI submit the 
price of its sale to SC, as well as provide all basic documentation 
relating to the roles of Guard, SC, and MHI in this transaction. In our 
preliminary determination, we explained that the sales documentation 
provided by MHI demonstrated its integral involvement in the Guard 
transaction. No information placed on the record since that time, nor 
any information reviewed during verification, contradicts that 
conclusion. Following the commission agreement between MHI and SC, MHI 
was kept fully apprised of the negotiations between SC and Guard. 
Moreover, MHI's role as signatory witness on the contract between SC 
and Guard is evidence of MHI's direct involvement with the sale of the 
product in the U.S. market. The nature of this product shows that each 
sale involves merchandise which must meet the unique specifications of 
the customer, and the record shows that MHI began to design and 
construct the merchandise shortly after witnessing the contract for 
sale arranged by SC on its behalf. Therefore, we determined that the 
appropriate transaction for use in our antidumping analysis is the 
price established in the sale of LNPP from MHI through SC to Guard.
    The Department disagrees with the petitioner when it states that 
the date of sale should be that for the purchase order placed between 
SC and MHI. As stated in the preliminary determination, section 773(a) 
of the Act mandates the Department to compare the appropriate 
transaction to the ``normal value'' of the subject merchandise. Neither 
the statute nor the regulations determine the precise ``date of sale.'' 
Our proposed regulations provide that the Department will ``normally'' 
rely on the date of a company's invoice date as the date of sale. Our 
practice must also allow for specific instances where commercial 
realities dictate the use of some other instrument to set the date of 
sale. Our proposed regulation recognized that the invoice date ``may 
not be appropriate in some circumstances.'' In this instant 
investigation, where the long-term sales negotiations, design, 
production, shipment and installation of LNPPs require contractual 
documentation, the date of sale of the subject merchandise is best 
established by the date a contract is signed. Consistent with case 
precedents involving complex merchandise, such as LNPP, which is 
custom-made, the Department exercised a greater degree of flexibility 
in finding the existence of a firm agreement. See MTPs Final 
Determination (1990). The Department's determination of the date of 
sale was supported by its examination of the sales documentation 
submitted by MHI. We also looked to contract law (see, e.g., Gray 
Portland Cement and Clinker from Mexico, 55 FR 29,249 (1990)) to 
identify the point in time when the essential elements of the sale are 
firm, thus demonstrating an intent to be legally bound.
    While the date set by the contract signed by SC and Guard clearly 
identifies the seller (SC) and buyer (Guard) and sets the quantity and 
price for this transaction, MHI witnessed the sales agreement between 
SC and Guard and accepted responsibility for providing the merchandise 
which fulfilled SC's obligations to Guard. Moreover, after MHI signed 
the contract between SC and Guard as a witness, it began to design an 
LNPP system to Guard's unique specifications. Thus, it demonstrated its 
intent to be legally bound to the agreement through written instruments 
and its own performance on the contract. See U.C.C. Sec. 2-201(3)(a). 
At verification, the Department examined the written evidence and 
confirmed the actual company performance to support its conclusion for 
date of sale. Based on this evidence, the Department determined that, 
by virtue of MHI's participation in the sales process and its 
performance to fulfill the terms of the contract, MHI was a party to 
the sales agreement with Guard.
    Comment 5  Treatment of Technical Service Expenses: MHI maintains 
that the Department erred in its treatment of technical service 
expenses for the following reasons. First, MHI posits that, even 
assuming arguendo that installation is treated as further manufacturing 
activity, the technical services MHI provided had nothing to do with 
further manufacturing as they were incurred after installation and 
should not be treated as a part of installation. Second, MHI argues 
that the Department has usually treated technical service expenses as 
circumstance of sale adjustments, and should do so again.
    The petitioner argues that in the Department's preliminary 
determination it appropriately treated MHI's ``technical service'' 
expenses as an installation expense, because when the addendum to the 
contract covering how such expenses are to be incurred is read in 
conjunction with the original terms of the contract, it is clear that 
these technical service expenses relate directly to an alternative 
method of ensuring the customer that MHI would provide trouble-shooting 
and other services associated with installation.
    DOC Position: We disagree with the respondent. The Department 
correctly included technical service expenses as a part of total 
installation expenses. The sale of an LNPP involves the sale of a 
functional large newspaper printing press. The processes involved in 
installing the LNPP equipment include all those steps necessary to 
bring the equipment to a functional stage. This perspective also 
underlies our classification of the total installation costs as part of 
further manufacturing. All expenses, including component assembly, 
integration of newly sourced auxiliary components, site preparation, 
installation supervision, technical servicing, equipment testing, which

[[Page 38160]]

make the LNPP physically functional, are part of an installation 
process which creates the actual LNPPs which ``are capable of printing 
or otherwise manipulating a roll of paper more than two pages across'' 
in the production of newspapers. The Department is treating training 
expenses, where possible, as a separate category of direct selling 
expenses, since training involves the development of customers' 
personnel's operation skills, not the physical preparation and 
necessary modification of the actual merchandise which produces 
newspapers.
    Comment 6  Inclusion of Indirect Selling Expenses Allocable to 
Spare Parts: MHI maintains that it reported MLP indirect selling 
expenses for U.S. sales based on the total contract price of each U.S. 
sale, inclusive of the value of spare parts. Accordingly, MHI maintains 
that its calculation of those indirect selling expenses pertained to 
both LNPP systems and spare parts covered by the contract. Because the 
sales contracts for MHI's U.S. sales separately identified the value of 
spare parts, in its preliminary determination, the Department deducted 
the value of spare parts from the starting price. MHI argues that 
because it allocated its indirect selling expenses based on the total 
contract price of the LNPP and spare parts, the Department should 
exclude an allocable amount for indirect selling expenses incurred on 
behalf of these spare parts.
    The petitioner argues that MHI's argument that the indirect selling 
rate should be multiplied by the price of an LNPP less spare parts is 
methodologically inconsistent, since in any rate-based allocation, the 
transaction-specific value to which the rate is applied should be 
calculated in the same manner as the denominator used in the rate 
calculation itself. The petitioner asserts that the denominator used in 
the calculation of the indirect selling rate includes the value of 
spare parts. Therefore, the petitioner states that it would be 
inconsistent to apply the rate to the price of LNPP less spare parts. 
Furthermore, the petitioner argues that spare parts are not sold but 
are included free-of-charge in the LNPP sale and are thus a selling 
expense themselves, and should not carry the burden of an additional 
selling expense. Accordingly, the Department should continue to 
allocate total LNPP indirect selling expenses to the total LNPP sales.
    DOC Position: The Department disagrees with the respondent's 
argument that the Department should exclude an allocable amount of 
indirect selling expenses incurred on behalf of spare parts. We agree 
with the petitioner that it would be methodologically inconsistent for 
the Department to multiply the price of LNPP less spare parts when the 
indirect selling expense ratio includes indirect selling expenses for 
spare parts in the numerator and spare parts revenue in the 
denominator.
    Comment 7  Interest Rate Used for Calculation of Imputed Credit 
Expenses: MHI argues that the Department's practice of matching the 
denomination of the interest rate used in calculating imputed credit to 
the currency in which the sales are denominated is not applicable in 
this case. MHI explains that it is inconsistent with the requirement 
articulated in LMI-La Metalli Industriale, S.p.A. v. United States 912 
F.2d 455, 460 (Fed. Cir. 1990) (``LMI'') and interpreted by the CIT in 
United Engineering & Forging v. United States, 779 F. Supp. 1375 (CIT 
1991), aff'd, 996 F.2d 1236 (Fed. Cir. 1992) that the interest rate 
used for imputed credit accord with ``commercial reality'' and must be 
``on the basis of usual and reasonable commercial behavior.'' MHI 
argues that the Department's approach used in the preliminary 
determination is inconsistent with the principles of determining credit 
expenses based on the lowest available interest rate, and on the lowest 
rate of the country of manufacture when foreign borrowing is not 
available to the respondent.
    Moreover, MHI contends that the Department ignores the commercial 
reality for MHI, which is that all of its short-term debt was 
denominated in yen, so that MHI financed its working capital and 
accounts receivable for both domestic and export sales with yen-
denominated financial instruments. MHI maintains that it would have 
been irrational, in view of the lower interest rates available in 
Japan, for it to borrow in dollars. MHI maintains that the use of 
different interest rates for U.S. and Japanese sales is unreasonable 
since production costs for LNPPs sold in both markets were incurred in 
the same factory. MHI explains the circumstance of sale adjustment for 
differences in credit terms between the U.S. market and comparison 
market is designed to separate true price discrimination from 
differences in prices that arise from differences in commercial credit 
terms in each market.
    The petitioner argues that the Department correctly applied a U.S. 
dollar-denominated interest rate to compute MHI's imputed credit 
expenses on U.S. sales. The petitioner contends that the Department 
followed its established policy of basing imputed credit expenses on 
the interest rate of the currency in which the sales are denominated to 
correctly reflect the time value of U.S. dollars, the currency of 
transaction. The petitioner cites the Final Results of Administrative 
Review: Certain Cut-to-Length Carbon Steel Plate from Sweden, 61 FR 
15772, 80 (April 9, 1996) and the Final Results of Administrative 
Review: Certain Corrosion-Resistant Carbon Steel Flat Products from 
Australia, 61 FR 14049, 54 (March 29, 1996) to support its argument 
that sales are matched to the currency in which the sale is 
denominated. Furthermore, the petitioner argues that the Department's 
approach is consistent with LMI where the court stated that ``the 
imputation of credit cost itself is a reflection of the time value of 
money. * * * ''
    DOC Position: We disagree with MHI's argument that the Department's 
practice of matching the denomination of the interest rate used in 
calculating imputed credit to the currency in which the sales are 
denominated is not applicable in this case. As cited in our February 
23, 1996, Concurrence Memorandum for the preliminary determination, the 
Department explained its policy in selecting the interest rate 
applicable in calculating imputed credit expenses in the Final 
Determination of Sales at LTFV: Oil Country Tubular Goods from Austria, 
60 FR 33551, 33555 (June 28, 1995) (``OCTG from Austria''):

    A company selling in a given currency (such as sales denominated 
in dollars) is effectively lending to its purchasers in the currency 
in which its receivables are denominated (in this case, in dollars) 
for the period from shipment of its goods until the date it receives 
payment from its purchaser. Thus, when sales are made in, and future 
payments are expected in, a given currency, the measure of the 
company's extension of credit should be based on an interest rate 
tied to the currency in which its receivables are denominated. Only 
then does establishing a measure of imputed credit recognize both 
the time value of money and the effect of currency fluctuations on 
repatriating revenue.

    The Department disagrees with MHI's statement that the interest 
rate used by the Department is not in accord with ``commercial 
reality.'' The ``commercial reality'' should be evaluated on the basis 
of recognizing imputed credit on the time value of money and the effect 
of currency fluctuations on repatriating revenue. Furthermore, at 
verification the Department noted that MHI had U.S. short-term 
borrowing from an affiliated company. Thus, while the Department would 
not use the actual interest rate of the borrowing from an affiliated 
institution (as it is of questionable arm's-length nature), its 
existence indicates the ability and readiness of MLP, in general, to 
support its LNPP

[[Page 38161]]

activities which result in U.S. dollar-denominated revenues by 
borrowing in U.S. dollars. Thus, the Department's approach is 
consistent both with its practice in OCTG from Austria in that the 
first priority is to match the denomination of the interest factor to 
the denomination of the receivables in question and with LMI in that 
credit costs are imputed ``on the basis of usual and reasonable 
commercial behavior.''
    Comment 8  U.S. Dollar Short-Term Borrowing from Unaffiliated 
Lenders: MHI notes that as observed in the MLP sales verification 
report, MLP had a small amount of U.S. dollar-denominated borrowing 
from an affiliated company but also maintains that this fact does not 
warrant any revision to MHI's reported data. Stating that it had no 
borrowing in U.S. dollar-denominated instruments from any unaffiliated 
lenders, and that since the Department's normal practice is to exclude 
borrowings from affiliated lenders in the computation of short-term 
interest rates for imputed credit, MHI claims that the affiliated 
borrowing is technically irrelevant to the margin calculations.
    DOC Position: The Department agrees with MHI that it is the 
Department's practice to apply only short-term borrowing which is from 
unaffiliated parties. Therefore, the Department will not make any 
adjustments to imputed credit using the short-term interest rate from 
MHI's affiliated company.
    Comment 9  Guard Commission: MHI maintains that the amounts it 
reported for its commission payments on the Guard sale were verified 
and contends that the values it reported are correct and accurately 
reflect the structure of this complicated transaction. If the 
Department were to modify the amount of commission reported, then MHI 
argues that the Department should ensure that it makes a comparable 
adjustment in the imputed credit earned by MHI on the sale.
    The petitioner argues that verification confirmed that MHI 
misreported the total ``commission'' earned by SC on the Guard sale and 
argues that SC retained a payment and mark-up, plus an additional 
amount not factored into the commission calculation. In order to argue 
that the additional amount was interest earned on payments from the 
Guard to SC which was ``kept by SC in agreement with MHI,'' the 
petitioner cites directly to the Department's verification report. The 
petitioner asserts that even though the additional income was used to 
cover U.S. duties and brokerage, it should be included as commission 
expense.
    DOC Position: We disagree with the petitioner, in part. The direct 
payment portion of the commission, together with the amount of ``mark-
up'' between the contract value at which Guard purchased the LNPP and 
the invoice price which was owed by SC to MHI, have both been treated 
as the total commission amount on the sale. As noted in MHI comment 4, 
above, the Department has determined that the correct sale is from MHI 
to Guard, and that the correct starting price is the price paid by 
Guard. We must therefore deduct from the starting price whatever actual 
sales revenue was not received by MHI, that is, the mark-up between the 
purchase price between MHI and SC and the amount paid by Guard to SC. 
We disagree, however, with the petitioner's suggestion that the 
additional amount of interest income earned on payments from the Guard 
to SC and kept by SC in agreement with MHI, be deducted from the 
reported gross price. The majority of the interest earned on the 
payments from the Guard to SC was retained by SC. Only a small portion 
of the interest earned was transferred to MLP and included by MHI as a 
U.S. price increase. The amount of interest income retained by SC 
represents the time value of SC holding payments from Guard. Our 
imputed interest calculations begin measuring credit income/expense 
from the time payments begin to be made from SC to MHI. Because we 
verified payments as received and recorded by MHI (SC being an 
unaffiliated party not subject to verification), we should not use 
Guard's payment structure to SC as the framework for our imputed 
interest calculation. Thus we should not include the measure of the 
time value of holding payments during that same time frame, i.e., as 
payments flowed from Guard to SC, in determining the extent of the 
commission. However, as a corollary, we should not, and do not, include 
the additional payments from SC to MHI which resulted from interest 
income earned but not kept by SC for that same time frame--such 
amounts, because they exceeded the limits on actual interest income 
agreed to with MHI, were turned over to MHI by SC.
    Comment 10  Cost of Services and Materials Provided to MHI's 
Customers: MHI disagrees with the conclusion stated in the MHI sales 
verification report that the net value of free services and materials 
provided on the Guard sale were not reported in MHI's response. MHI 
contends that all costs associated with both parts and services were 
reported to the Department.
    DOC Position: The Department agrees that MHI reported the costs 
associated with the free parts and free services, but would modify its 
conclusion to state that MHI did not report the net value of the free 
parts and services as an adjustment to the gross price; this is 
important because MHI did provide the value of other free materials 
both in the form of a deduction from gross price and, alternatively, as 
an addition to total contract costs. Since the Department, in its 
preliminary determination, deducted similar free options from the total 
contract price wherever possible, instead of increasing CV by the 
associated costs, our verification report note was intended to reflect 
that MHI had not used the same identifiable format for the materials 
and services in question. Because the costs of free services were 
subsumed in the total expenses reported to the Department, and used in 
the current format of the calculations, no modification to the U.S. 
price for the free services is required. However, because the 
production cost of free parts is not being included in CV, the total 
value of free materials reported to the Department for the Guard 
contract has been increased by the value for the additional free parts 
observed at verification. The proprietary details are contained in the 
July 15, 1996, MHI Calculation Memorandum.
Cost Issues
    Comment 11  Allocation of Further Manufacturing G&A: The petitioner 
agrees that the investigation period for MHI provides an adequate time 
frame to sufficiently alleviate annual fluctuations and provide a 
representative U.S. G&A rate for MLP. However, the petitioner objects 
to the methodology employed at the preliminary determination in 
applying this rate to individual U.S. sales. According to the 
petitioner, MHI calculated the U.S. G&A rate by dividing MLP's total 
LNPP G&A expenses by total LNPP sales revenue. Petitioner protests that 
the Department incorrectly allocated U.S. G&A expenses back to 
individual U.S. sales in the preliminary determination by multiplying 
this U.S. G&A rate by the costs associated with U.S. further 
manufacturing only. According to petitioner, the Department has two 
remedies available: (1) If the Department continues to accept a U.S. 
G&A expense ratio based on total LNPP sales revenue, then it must apply 
that rate to the entire value of each sale, or (2) the Department may 
recalculate a U.S. G&A rate based on MLP's LNPP cost of sales for the 
relevant period and multiply this revised rate by the total cost of 
sales (i.e., the foreign COP plus U.S. further-manufacturing costs) of 
each transaction.

[[Page 38162]]

    While the petitioner asserts that the Department under-allocated 
U.S. G&A expenses, MHI maintains that U.S. G&A expenses were over-
allocated. MHI argues that the rate computed was based on an allocation 
of both G&A and indirect selling expenses over MLP's cost of goods sold 
and not over sales value, as petitioner claims. MHI asks that the 
Department utilize the allocation formula presented in its case brief 
for purposes of the final determination.
    DOC Position: We agree with petitioner that in the preliminary 
determination, a G&A rate which was based on MLP's total LNPP sales was 
applied to only the costs associated with further manufacturing. For 
the final determination, we recalculated a G&A rate based on MLP 
production costs incurred in the U.S. and applied the rate to MLP's 
further manufacturing costs. This method effectively allocates G&A 
expenses to the individual U.S. sales on the same basis used to 
calculate the rate. In our computation of the G&A rate, we excluded the 
indirect selling expenses that were erroneously included in the 
submitted MLP G&A rate used in the preliminary determination.
    Comment 12  The Application of the Major Inputs Rule: MHI argues 
the Department misapplied the major inputs rule and maintains that the 
rule is appropriate only in the context of diversionary dumping. MHI 
argues that the Department's application of the major input rule cannot 
be reconciled with the purpose of the rule. MHI states that major input 
prices can be adjusted only when the Department has received a specific 
allegation of below-cost sales of major inputs. In this investigation, 
the Department has not received any request from the petitioner to 
investigate below-cost sales of major inputs. MHI claims the Department 
requested COP information from MHI suppliers it deemed affiliated 
without the ``reasonable grounds'' necessary for such a request.
    Furthermore, MHI argues that, if the Department were to argue that 
its application of the major inputs rule in this case was an 
application of the ``transactions disregarded'' rule, then such an 
approach would still be contrary to the Department's administrative 
practice for investigating and adjusting the input prices for 
affiliated parties. MHI contends that the methodology employed at the 
preliminary determination differs radically from that used in other 
proceedings initiated since enactment of the URAA insofar as the 
Department has normally defined a ``major'' input as an essential 
component of the finished merchandise which accounts for a significant 
percentage of the total cost of materials, the total labor costs, or 
the overhead costs to produce one unit of the merchandise under review. 
MHI refers to antidumping questionnaires issued by the Department in 
recent proceedings to support this definition of a major input. MHI 
argues that the Department's thresholds of two percent for components 
and five percent for the system are not representative and that a range 
of ten to twenty percent is more representative.
    Petitioner asserts that MHI has misconstrued the statute. 
Petitioner states that the statute does not require the Department to 
have ``reasonable grounds'' to believe or suspect that an input was 
sold at less than cost of production in order to allow it to 
investigate affiliated supplier transactions. Petitioner indicates that 
the statute's requirement is that the Department have such ``reasonable 
grounds'' in order to permit determination of the value of the major 
input on the basis of information available regarding such cost of 
production, citing section 773(f) of the Act.
    Petitioner disputes MHI's contention that the Department's 
thresholds for major inputs of two percent for components and five 
percent for the system are arbitrarily low. Petitioner claims MHI's 
position is based on considering only the relative value of an input 
compared to the total production costs of an LNPP, failing to consider 
the value of the input in absolute terms, which may be significant even 
when the relative percentage is not.
    DOC Position: We disagree with MHI that the Department 
inappropriately obtained cost information from MHI suppliers deemed 
affiliated. MHI incorrectly interprets section 773(f)(3) of the Act to 
mean that the Department must have reasonable grounds to believe or 
suspect that a transaction between two affiliated parties occurred at 
below-cost prices in order to request cost information from the 
respondent's affiliated suppliers. In NSK Ltd. et. al. v. United 
States, Slip Op. 95-178 at 14-45 (CIT November 14, 1995) the CIT ruled 
that the purpose of section 773(f)(3) of the Act is to permit Commerce 
to use best evidence available (i.e., the cost of producing the input) 
when it has reasonable grounds to believe or suspect that below-cost 
sales occurred. The Court stated that there is no support in the 
legislative history of section 773(f)(3) of the Act for the claim that 
the Department must have reasonable grounds to believe or suspect that 
below-cost sales occurred in order to request COP data from an 
affiliated supplier.
    We disagree with MHI that the Department failed to apply its normal 
``significance'' test in determining that an input which represents at 
least two percent of the total cost of materials, labor, and overhead 
for any one of the five press components represents a major input in 
accordance with section 773(f)(3) of the Act. In a typical case in 
which the subject merchandise only requires a few inputs, we agree that 
a threshold of two percent for defining a major input appears low. 
However, in this case, LNPPs require thousands of inputs, with no 
single input representing a large share of the total LNPP cost. MHI 
obtained from affiliated suppliers numerous inputs representing over 
two percent of the total cost of a component (none of which represent 
more than five percent of the LNPP total production cost), the sum of 
which represents a significant portion of the total LNPP cost of 
production. Accordingly, since the inputs we tested represent the most 
significant inputs used to produce the subject LNPPs, we consider it 
appropriate in this instance to categorize inputs meeting the two 
percent threshold as major inputs. Our point is best highlighted by the 
following hypothetical situation. Suppose 100 percent of the inputs to 
a press were obtained from affiliated suppliers, with no one supplier 
providing more than two percent of the total. Under MHI's 
interpretation, the Department would have no authority to test whether 
affiliated supplier purchases occurred at above cost prices even though 
100 percent of the LNPP inputs were obtained from affiliated suppliers. 
Even MHI recognizes the unique nature of this case in determining what 
constitutes a major input. In an August 24, 1995 letter from MHI's 
counsel, MHI stated that:

    [W]ith respect to suppliers of parts, materials or services 
incorporated into large newspaper presses, the Department should 
request ``affiliated party'' information only from suppliers of 
``major inputs'' of parts, materials or services * * *. For example, 
if a major input were defined as any input accounting for one 
percent of total purchase price * * * 90 percent of the * * * 
suppliers could be ignored because their sales fall below this 
figure.

    Comment 13  Definition of An Affiliated Supplier: MHI argues that 
the Department failed to provide an explanation of its selection of 
affiliated suppliers, thereby acting unreasonably. MHI argues that a 
statement of reason (e.g., that a party is ``legally or operationally 
in a position to exercise restraint or direction over {an}other

[[Page 38163]]

person)'' is required, citing A. Hirsch v. United States, 729 F. Supp. 
1360, 1363 CIT. Instead, the Department's section D questionnaire 
suggests that the Department defines ``control'' in terms of sales 
dependence, insofar as the questionnaire requested that MHI ``list the 
major inputs received from all affiliated suppliers as well as from 
suppliers that furnish more than 50 percent of their total annual sales 
to {MHI}.'' MHI claims the Department erred in using what it believes 
to be a 50 percent threshold of total annual sales to determine 
affiliation because such a delineation is excessively low, lacks 
predictive value, and is inconsistent with the stringent statutory 
criteria for determining affiliation. MHI states that the Department 
should apply the criteria listed in the statute including formal 
criteria that indicate an actual, legal ability to exert control: 
membership in a corporate family; common officers and directors; 
partnership; employer-employee relationships; and direct or indirect 
ownership or five percent or more of the outstanding stock of an 
organization. MHI contends that the Department's greater-than-fifty-
percent sales dependence test is clearly inconsistent with these other 
criteria. Because sales dependence is not an actual, legal means for 
exerting direction or control, its predictive value is potentially less 
than that of the other statutory affiliation criteria. MHI suggests 
that a very high sales-dependence threshold, such as a weighted-average 
of 80 percent over four years, would make the Department's affiliation 
test predictive.
    Petitioner contends that determination of affiliation may be based 
on a close supplier relationship. Petitioner quotes the SAA, which 
states ``A company may be in a position to exercise restraint or 
direction, for example through corporate or family groupings, 
franchises or joint venture agreements, debt financing, or close 
supplier relationships in which the supplier or buyer becomes reliant 
upon the other''. Petitioner asserts that a company that purchases over 
50% of a supplier's sales could extract price and other concessions 
from the supplier by threatening to purchase the products from another 
vendor. Because such an action would severely impact the business of 
the supplier, the purchasing company is in a position to control the 
related supplier by exerting restraint or direction over the supplier. 
Thus, petitioner argues that the Department's definition of affiliated 
suppliers is in accordance with the statute.
    DOC Position: The Department agrees with petitioner that 
determination of affiliation may be based on a close supplier 
relationship. Section 771(33)(G) of the Act, in addressing affiliated 
persons, defines such affiliation by the following: ``any person who 
controls any other person and that other person will be considered 
affiliated persons.'' Section 771(33) of the Act makes clear that 
control exists if one person is ``legally or operationally in a 
position to exercise restraint or direction over the other person.'' 
Further, the SAA, at 168, cites a close supplier relationship as an 
example of such a situation. The SAA explains that ``the traditional 
focus on control through stock ownership fails to address adequately 
modern business arrangements, which often find one firm operationally 
in a position to exercise restraint or direction over another'' and 
that ``a company may be in a position to exercise restraint or 
direction, for example through corporate or family groupings, 
franchises or joint venture agreements, debt financing, or close 
supplier relationships in which the supplier or buyer becomes reliant 
upon the other.'' These SAA quotations refute MHI's assertion that we 
should determine affiliation based solely on a person's legal ability 
to exert control over another person.
    Early in this investigation, we requested information regarding 
each supplier identified as providing MHI with a production input 
representing greater than two percent of the total cost of 
manufacturing (``COM'') for any one component of an LNPP. From this 
information, we selected a sample of MHI suppliers based on either a 
combination of supplier reliance and employee relationships, or on 
significant supplier relationships over an extended period of time. We 
requested and were provided with cost information for these suppliers 
(except that, for one supplier, MHI informed the Department that the 
supplier could not segregate costs on a product-specific basis, and for 
two others MHI did not submit cost data because it maintained that the 
suppliers were not affiliated). Although we requested MHI to list 
inputs obtained from suppliers that furnished more than 50 percent of 
their total annual sales to MHI, we never indicated that this 
constitutes affiliation.
    Our treatment of close supplier relationships in this case is not 
necessarily an indication of our future practice. Since this part of 
the law is new to the Department, we need to refine our interpretation 
and application of the close supplier provision over time. We note that 
the Department will continue to develop an analytic framework to take 
into account all factors which, by themselves, or in combination, may 
indicate affiliation, such as corporate or family groupings, franchises 
or joint venture agreements, debt financing, or close supplier 
relationships in which the supplier or buyer becomes reliant upon the 
other. In future investigations and administrative reviews, the 
Department may need to reanalyze the different aspects of the 
Mitsubishi group first examined here, based on these developments.
    Comment 14  Facts Available for Affiliated Suppliers: MHI argues 
that, by failing to apply a reasonable affiliated parties methodology, 
the Department incorrectly relied upon the use of ``facts available'' 
and thus overstated MHI's estimated preliminary dumping margin. MHI 
maintains that the Department was incorrect in penalizing MHI for those 
suppliers that did not report their production costs to the Department. 
MHI argues that the Department did not give due consideration to the 
constraints contained in section 782(c)(1) of the Act, which provide 
that if an interested party promptly notifies the Department that it is 
unable to submit the requested information, the Department ``shall 
consider the ability of the interested party to submit the information 
in the requested form and manner and may modify such requirements to 
the extent necessary to avoid imposing an unreasonable burden on that 
party.'' MHI argues that two of its suppliers were unable to submit the 
requested information and that it promptly notified the Department. MHI 
claims that it is affiliated to neither of these suppliers. One 
supplier stated that it is not in any way affiliated with MHI or 
subject to MHI's direction or restraint. The other supplier explained 
that it was a small company and does not maintain cost records by 
product line. MHI argues that because the company is not affiliated to 
either of the two suppliers, the Department should not assume that MHI 
purchased the inputs from these suppliers at below-cost prices. 
Therefore, MHI claims that the Department should not have adjusted the 
prices to MHI from these suppliers.
    Petitioner claims that MHI's assertion that the Department 
misapplied facts available is entirely without foundation. Petitioner 
asserts that by applying a weighted-average affiliated supplier 
adjustment to the prices of the non-reporting affiliated suppliers, the 
Department adjusted the non-reporting affiliated suppliers' prices to 
reflect the differences between the transfer prices and the costs of 
production for the reporting affiliated suppliers. Petitioner argues 
that the application of such an

[[Page 38164]]

actual weighted-average cost-of-production adjustment is a reasonable 
and accurate method of adjusting the transfer prices for the affiliated 
suppliers that did not report their cost of production. Further, 
petitioner asserts that the Department would have been justified in 
applying adverse facts available by applying the highest cost of 
production adjustment available on the record.
    DOC Position: We disagree with MHI that the Department's affiliated 
supplier input cost adjustment constituted use of facts available. The 
Department computed weighted-average loss percentages for inputs 
acquired from a sample of affiliated suppliers based on the transfer 
prices and cost of production data submitted by MHI. The use of this 
sample, we believe, reduced the burden on MHI. We applied the weighted-
average loss percentages resulting from our sample to the total of 
affiliated supplier transfer prices as reported by MHI. MHI submitted 
no evidence to support their assertion that the amounts reported to the 
Department as ``Affiliated Purchases'' (which represents the base to 
which our affiliated party adjustment was applied) includes the 
company's purchases from either of the two suppliers in question.
    Comment 15  Calculation of CV Profit: MHI states that the 
Department failed to include freight costs in the total costs deducted 
from contract prices in its home market profit calculation. MHI 
maintains that by failing to subtract freight costs from home market 
prices to measure CV profit, the Department overstated the CV profit 
rate.
    MHI also claims that the Department failed to reduce home market 
prices by the costs incurred to pack the merchandise. MHI contends that 
under the approach taken by the Department, CEP profit calculations 
should include a deduction from gross contract prices of the total 
expenses incurred in selling the foreign like product in Japan, 
including packing expenses.
    The petitioner argues that the Department did subtract packing 
costs in determining the CEP profit. The petitioner argues that the 
packing was included in the cost of production. The petitioner suggests 
that if the Department decides to deduct packing from home market 
prices, then it should recalculate home market production costs to 
exclude packing.
    DOC Position: We agree with MHI. We recalculated the home market 
profit rate applied in our CV calculation to reflect the deduction of 
freight costs from home market sales prices. We also recalculated the 
CEP profit rate to reflect the deduction of home market packing costs. 
Although petitioner argues that we included packing costs in the cost 
of production (``COP)'' in our CEP profit rate calculation, the support 
petitioner offers in its argument documents our inclusion of packing 
costs in COP in our home market profit calculation rather than our CEP 
profit calculation. Petitioner is incorrect in its assertion that we 
included packing costs in the COP in our preliminary CEP profit rate 
calculation.
    Comment 16  SG&A as Applied to Further Manufacturing for Guard: MHI 
argues that the Department erroneously included selling expenses in its 
G&A expense ratio for the sale to Guard. MHI states that MLP did not 
participate in the sale to Guard and that, since the Department's 
stated intention was to allocate only MLP's G&A expenses to the cost of 
auxiliary parts and installation activities, the Department's inclusion 
of selling expenses is incorrect.
    DOC Position: We agree with MHI that the Department inadvertently 
included selling expenses in its allocation of MLP's G&A expenses to 
the costs of auxiliary parts and installation activities. In one of 
MHI's submissions it reported an MLP ``G&A Rate'' which the Department 
assumed was based solely on G&A expenses and included no selling 
expenses. At verification, we learned that this rate included indirect 
selling expenses. For the final determination, we adjusted the MLP G&A 
rate to exclude those indirect selling expenses.
    Comment 17  SG&A as Applied to Further Manufacturing for Piedmont: 
For the sale to Piedmont, MHI states that the Department double-counted 
a portion of MLP's SG&A expenses. MHI maintains that since the 
Department deducted from U.S. price indirect selling expenses which 
included an allocated amount for common G&A expenses based on sales 
value, all SG&A expenses attributable to the sale were fully allocated 
and deducted. Thus, MHI argues, the Department should not allocate MLP 
SG&A expenses to auxiliary parts and installation, effectively 
allocating the same portion of MLP's indirect expenses to the Piedmont 
sale twice.
    DOC Position: We agree with MHI that the Department inadvertently 
included indirect selling expenses in its allocation of MLP's G&A 
expenses to the costs of auxiliary parts and installation activities. 
The explanation for the inclusion of the selling expenses in the G&A 
allocation is addressed in the immediately preceding comment regarding 
the same issue applied to the Guard sale. MHI is also correct in their 
assertion that the indirect selling expenses which were deducted from 
U.S. price included an allocated amount for common G&A expenses. For 
the final determination, we adjusted the MLP G&A rate to exclude those 
indirect selling expenses and we excluded G&A expenses from the 
indirect selling expenses that were deducted from U.S. price.
    Comment 18  G&A Expenses as a Portion of Total Further-
Manufacturing Costs: According to MHI, the Act states that the starting 
price used to establish CEP shall be reduced by the amount of any 
expenses and profit associated with economic activity in the United 
States. MHI claims that the Department should not include G&A expenses 
incurred by MHI in Japan in the CEP, as these expenses are not U.S. 
economic activity, but instead pertain solely to activities of MHI's 
corporate administrative staff.
    The petitioner maintains that section 772(d)(2) of the Act does not 
state that only costs physically incurred in the United States are 
deductible from the CEP. The petitioner states that the statute says 
the Department shall reduce CEP by the cost of any further 
manufacturing or assembly including additional material and labor. The 
petitioner contends that ``the Department allocates a proportion of 
total corporate overhead, including G&A and interest expenses, to U.S. 
further manufacturing because U.S. activities derive significant 
benefit from parent corporate operations and oversight.'' Petitioner 
also observes that MHI's G&A rate was computed based on its 
consolidated financial statements, which include the further 
manufacturing costs. Therefore, petitioner concludes that the MHI G&A 
rate should be applied to the further manufacturing costs.
    DOC Position: The Department agrees with petitioner that the MHI 
G&A rate should be applied to the further manufacturing costs. As 
indicated by petitioner, MHI's G&A rate was calculated based upon 
consolidated CGS , which included further manufacturing costs. 
Therefore, in order to be mathematically consistent, MHI's consolidated 
G&A rate should be applied to the further manufacturing costs.
    Comment 19  U.S. Credit Expenses: MHI argues that the Department 
double-counted a portion of MHI's interest expenses associated with 
further-manufacturing activities. MHI maintains that the Department 
allocated actual interest expense to MHI's further manufacturing 
expenses and then imputed interest on not only the same further 
manufacturing expenses but also

[[Page 38165]]

on the actual interest expense. MHI maintains that if the Department 
continues to consider installation a further-manufacturing activity and 
to calculate an imputed credit associated with such further-
manufacturing activity, then it should not also allocate an amount for 
MHI's actual interest expense to these same activities.
    The petitioner argues that MHI confuses the actual corporate 
financing costs associated with LNPP operations with imputed credit 
costs. The petitioner asserts that imputed credit expenses should be 
included with the actual financing expenses in the unadjusted CV 
because any potential double counting is eliminated in the circumstance 
of sale adjustment for the imputed credit. Further, the petitioner 
argues that because the Department constructs a value for the product 
as imported into the U.S., rather than the further manufactured 
product, the Department correctly deducted all further-manufacturing 
costs (including financing expenses) in determining the CEP in order to 
ensure an apples-to-apples comparison.
    DOC Position: The Department stresses once again that the regular 
interest expense allocation and the imputed interest adjustments have 
different purposes and require independent analyses. See Japan ``Common 
Issues'' comment 8. MHI is incorrect in its assertion that by deducting 
both interest and imputed credit in our CEP calculation we have double 
counted the further manufacturing interest expense. The regular 
interest expense charged to further manufacturing represents a 
legitimate LNPP production cost. The imputed credit adjustment should 
be applied to the full production cost of the LNPP, including the 
regular interest expense. See MHI comment number 20. It is appropriate 
to impute interest on all production costs expected to be recovered 
upon sale of the LNPP. Therefore, the Department imputed interest on 
all the further manufacturing costs, including the actual interest 
expense.
    Comment 20  SG&A Applied and U.S. Credit Expenses: MHI claims that 
the Department should not have allocated SG&A expenses to MHI's U.S. 
credit expense adjustment. According to MHI, the Department's 
preliminary determination stated that its intention was to compute 
credit on MHI's production activity alone, not on SG&A activities. 
Furthermore, MHI maintains that the Department did not calculate MHI's 
Japan market credit expense adjustment based on production plus SG&A. 
According to MHI, SG&A expenses should be excluded because they are not 
production costs and are recognized in the year in which they were 
incurred. MHI also argues that since the Department's decision to 
compute credit expenses based on production costs was based on the 
requirement in this industry for substantial capital expenditures over 
an extended period of time, SG&A expenses should not be included, as 
they are not capital expenditures and are expensed in the year in which 
they were incurred.
    The petitioner argues that the Department should include SG&A in 
its imputed credit calculation and maintains that the Department 
applied the same methodology to both U.S. and home market imputed 
credit costs. The petitioner alleges that MHI is confusing 
manufacturing costs with production costs. The petitioner concludes 
that the Department's statement in the preliminary determination that 
it has calculated imputed credit on production costs is in fact 
reflected in the methodology evident in the calculations themselves, 
since the antidumping term ``cost of production'' includes selling, 
general, and administrative costs. The petitioner maintains that the 
Department's inclusion of these costs reflects the fact that, just like 
material, labor, and factory overhead, SG&A expenses are incurred and 
must be paid over the lengthy period between the receipt of the first 
installment payments and the receipt of final payment. Accordingly, the 
petitioner states that, since, on the revenue side of the equation, the 
imputed credit formula captures the whole price of the press (i.e., 
total production costs plus profit), the methodology should include all 
production costs on the expense side of the equation.
    DOC Position: We agree with petitioner that SG&A expenses should be 
charged with imputed credit costs. As petitioner states, it is the 
total cost of production rather than manufacturing costs that should be 
assessed with imputed credit. Because SG&A expenses, by definition, are 
included in COP, and because the purpose of the imputed credit 
adjustment is to reflect the interest cost associated with the 
production costs incurred and the progress payments received during the 
production phase of the LNPP, it is appropriate to include SG&A 
expenses in the imputed credit calculations. Further, as also stated by 
petitioner, because the revenue side of our calculation captures the 
entire LNPP price, the cost side of the calculation should capture all 
production costs.
    MHI is mistaken in its contention that we excluded SG&A expenses 
from our home market credit calculations. Appendix Q of the proprietary 
version of our preliminary determination memo of February 23, 1996 
clearly indicates that in our imputed interest calculations we adjusted 
production costs to reflect an adjusted ``total cost'' (which includes 
SG&A).
    Comment 21  Research & Development Costs: MHI argues that no 
adjustment for its reported research and development (``R&D'') expenses 
is warranted. MHI maintains that it reported these costs in the same 
manner in which they are normally calculated in its job cost system. 
MHI maintains that since its normal business practice is to calculate 
R&D costs on a product-specific basis and to allocate such costs to 
specific sales based on sales value, it was correct for MHI to report 
the costs to the Department as calculated on that same basis.
    DOC Position: Although MHI allocated R&D costs using its normal 
sales-value accounting methodology, the Department considers such an 
allocation inappropriate in an antidumping proceeding. Where there is 
an allegation that a product is being exported and sold at unfair 
prices (as compared to prices in the exporter's home market), we 
generally consider it inappropriate to allocate costs incurred for 
manufacturing operations based upon those same prices. Therefore, we 
reallocated MHI's R&D costs to all LNPP contracts based on the relative 
manufacturing costs incurred for each contract.

Continuation of Suspension of Liquidation

    In accordance with section 735(c)(1)(B) of the Act, we are 
directing the Customs Service to continue to suspend liquidation of all 
entries of LNPPs from Japan, as defined in the ``Scope of 
Investigation'' section of this notice, that are entered, or withdrawn 
from warehouse for consumption, on or after March 1, 1996, the date of 
publication of our preliminary determination in the Federal Register.
    Furthermore, we are also directing the U.S. Customs Service to 
continue to suspend liquidation of all entries of elements (parts or 
subcomponents) of components imported to fulfill a contract for a LNPP 
system, addition or component, from Japan, that are entered, or 
withdrawn from warehouse on or after March 1, 1996. Such suspension of 
liquidation will remain in effect provided that the sum of such entries 
represent at least 50 percent of the value, measured in terms of the 
cost

[[Page 38166]]

of manufacture, of the subject component of which they are part. This 
determination will be made by the Department only after all entries of 
the elements imported pursuant to a LNPP contract are made and the 
finished product pursuant to the LNPP contract is produced.
    For this determination, all foreign producers/exporters and U.S. 
importers in the LNPP industry be required to provide clearly the 
following information on the documentation accompanying each entry from 
Japan of elements pursuant to a LNPP contract: (1) The identification 
of each of the elements included in the entry, (2) a description of 
each of the elements, (3) the name of the LNPP component of which each 
of the elements are part, and (4) the LNPP contract number pursuant to 
which the elements are imported. The suspension of liquidation will 
remain in effect until such time as all of the requisite information is 
presented to U.S. Customs and the Department is able to make a 
determination as to whether the imported elements are at least 50 
percent of the cost of manufacture of the LNPP component of which they 
are part.
    With respect to entries of LNPP spare and replacement parts, and 
used presses, from Japan, which are expressly excluded from the scope 
of the investigation, we will instruct the Customs Service to continue 
not to suspend liquidation of these entries if they are separately 
identified and valued in the LNPP contract pursuant to which they are 
imported.
    In addition, in order to ensure that our suspension of liquidation 
instructions are not so broad as to cover merchandise imported for non-
subject uses, foreign producers/exporters and U.S. importers in the 
LNPP industry shall continue to be required to provide certification 
that the imported merchandise would not be used to fulfill a LNPP 
contract. As indicated above, we will also continue to request that 
these parties register with the Customs Service the LNPP contract 
numbers pursuant to which subject merchandise is imported.
    The Customs Service shall require a cash deposit or posting of a 
bond equal to the estimated amount by which the normal value exceeds 
the export price, as shown below.
    The weighted-average dumping margin is as follows:

------------------------------------------------------------------------
                                                      Weighted-average  
              Exporter/ manufacturer                  margin percentage 
------------------------------------------------------------------------
Mitsubishi Heavy Industries, Ltd..................                 62.96
Tokyo Kikai Seisakusho, Ltd.......................                 56.28
All Others........................................                 58.97
------------------------------------------------------------------------

    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, within 45 days, whether these imports are 
causing material injury, or threat of material injury, to an industry 
in the United States. 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 
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: July 15, 1996.
Robert S. LaRussa,
Acting Assistant Secretary for Import Administration.
[FR Doc. 96-18541 Filed 7-22-96; 8:45 am]
BILLING CODE 3510-DS-P