[Federal Register Volume 62, Number 86 (Monday, May 5, 1997)]
[Notices]
[Pages 24394-24414]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-11384]



[[Page 24394]]

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DEPARTMENT OF COMMERCE

International Trade Administration
[A-588-840]


Notice of Final Determination of Sales at Less Than Fair Value: 
Engineered Process Gas Turbo-Compressor Systems, Whether Assembled or 
Unassembled, and Whether Complete or Incomplete, from Japan

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

EFFECTIVE DATE: May 5, 1997.

FOR FURTHER INFORMATION CONTACT: Louis Apple, Import Administration, 
International Trade Administration, U.S. Department of Commerce, 14th 
Street and Constitution Avenue, N.W., Washington, D.C. 20230; 
telephone: (202) 482-1769, respectively.

THE APPLICABLE STATUTE: Unless otherwise indicated, all citations to 
the Tariff Act of 1930, as amended (``the Act''), are references to the 
provisions effective January 1, 1995, the effective date of the 
amendments made to the Act by the Uruguay Round Agreements Act 
(``URAA''). In addition, unless otherwise indicated, all citations to 
the Department's regulations are to the current regulations, as amended 
by the interim regulations, published in the Federal Register on May 
11, 1995 (60 FR 25130).

FINAL DETERMINATION: We determine that engineered process gas turbo-
compressor systems (``EPGTS''), whether assembled or unassembled, and 
whether complete or incomplete, 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 in this investigation (Notice 
of Preliminary Determination and Postponement of Final Determination: 
Engineered Process Gas Turbo-Compressor Systems, Whether Assembled or 
Unassembled, and Whether Complete or Incomplete from Japan (61 FR 
65013, December 10, 1996) (``Preliminary Determination'')), the 
following events have occurred.
    In January 1997, respondents Mitsubishi Heavy Industries, Ltd. 
(``MHI'') and Mitsubishi Corporation (``MC'') submitted supplemental 
questionnaire responses to the Department.
    In February 1997, we verified the questionnaire responses of MHI 
and MC in Tokyo and Hiroshima, Japan, and Houston, Texas. On March 10 
and 11, 1997, the Department issued its reports on verification 
findings.
    On February 18, 1997, per the Department's instructions in the 
preliminary determination, MHI, MC, and the petitioner, Dresser-Rand 
Company, submitted comments on the issue of ``affiliation.'' On 
February 21 and 24, 1997, MC and MHI, respectively, requested the 
Department to strike certain portions of the petitioner's submission on 
affiliation because it allegedly contained untimely new factual 
information. After reviewing the petitioner's submission, the 
Department determined on March 13, 1997, that certain information 
presented therein constituted new factual information, untimely filed, 
under section 353.31(a)(1)(i) of the Department's regulations, and 
informed the petitioner that unless otherwise discussed in the 
Department's verification reports, the information at issue would not 
be considered for purposes of the final determination.
    On February 28, 1997, per the Department's instructions in the 
preliminary determination, the petitioner and MHI submitted comments on 
the scope of the investigation, and suspension of liquidation 
instructions.
    The petitioner, MHI, and MC submitted case briefs on March 18, 
1997, and rebuttal briefs on March 24, 1997. The Department held a 
public hearing for this investigation on April 1, 1997.

Scope of Investigation

    The products covered by this investigation are turbo-compressor 
systems (i.e., one or more ``assemblies'' or ``trains'') which are 
comprised of various configurations of process gas compressors, drivers 
(i.e., steam turbines or motor-gear systems designed to drive such 
compressors), and auxiliary control systems and lubrication systems for 
use with such compressors and compressor drivers, whether assembled or 
unassembled, and whether complete or incomplete. One or more of these 
turbo-compressor assemblies or trains, may be combined. The systems 
covered are only those used in the petrochemical and fertilizer 
industries, in the production of ethylene, propylene, ammonia, urea, 
methanol, refinery and other petrochemical products. This investigation 
does not encompass turbo-compressor systems incorporating gas turbine 
drivers, which are typically used in pipeline transmission, injection, 
gas processing, and liquid natural gas service.
    The scope of this investigation excludes spare parts that are sold 
separately from a contract for an EPGTS. Parts or components imported 
for the revamp or repair of an existing EPGTS, or otherwise not 
included in the original contract of sale for the EPGTS of which they 
are intended to be a part, are expressly excluded from the scope.
    Compressors are machines used to increase the pressure of a gas or 
vapor, or mixture of gases and vapors. Compressors are commonly 
classified as reciprocating, rotary, jet, centrifugal, or axial 
(classified by the mechanical means of compressing the fluid), or as 
positive-displacement or dynamic-type (classified by the manner in 
which the mechanical elements act on the fluid to be compressed). 
Subject compressors include only centrifugal compressors engineered for 
process gas compression, e.g., ammonia, urea, methanol, propylene, or 
ethylene service.
    Turbines are classified (1) As steam or gas; (2) by mechanical 
arrangement as single-casing, multiple shaft, or tandem-compound (more 
than one casing with a single shaft); (3) by flow direction (axial or 
radial); (4) by steam cycle, whether condensing, non-condensing, 
automatic extraction, or reheat; and (5) by number of exhaust flows of 
a condensing unit. Steam and gas turbines are used in various 
applications. Only steam turbines dedicated for a turbo-compressor 
system are subject to this investigation.
    A motor and gear box may be used as a compressor driver in lieu of 
a steam turbine. A control system is used to monitor and control the 
operation of a turbo-compressor system. A lubrication system is 
engineered to support a subject compressor and steam turbine (or motor/
gear box).
    A typical EPGTS consists of one or more compressors driven by a 
turbine (or in some cases a motor drive). A compressor is usually 
installed on a base plate and the drive is installed on a separate base 
plate. The turbine (or motor drive) base plate will typically also 
include any governing or safety systems, couplings, and a gearbox, if 
any. The lube and oil seal systems for the turbine and compressor(s) 
are usually mounted on a separate base plate.
    The scope of this investigation covers both assembled and 
unassembled EPGTS from Japan. Because of their large size, EPGTS and 
their constituent parts are typically shipped partially assembled (or 
unassembled) to their destination where they are assembled and/or 
completed prior to their commissioning.

[[Page 24395]]

    The scope of this investigation also covers ``complete and 
incomplete'' EPGTS from Japan. A ``complete'' EPGTS covered by the 
scope consists of all of the components of an EPGTS (i.e., process gas 
compressor(s), driver(s), auxiliary control system(s) and lubrication 
system(s)) and their constituent parts, which are imported from Japan 
in assembled or unassembled form, individually or in combination, 
pursuant to a contract for a complete EPGTS in the United States. An 
``incomplete'' EPGTS covered by the scope of this investigation 
consists of parts of an EPGTS imported from Japan pursuant to a 
contract for a complete EPGTS in the United States, which taken 
altogether, constitute at least 50 percent of the cost of manufacture 
of the complete EPGTS of which they are a part. (See Comment 1 of the 
``Interested Party Comments'' section of this notice for discussion on 
the definition of ``incomplete EPGTS'' covered by the scope of this 
investigation and the methodology the Department will use to calculate 
the cost of manufacture.)
    EPGTS imported from Japan as an assembly or train (i.e., including 
turbines, compressors, motor and gear boxes, control systems and 
lubrication systems, and auxiliary equipment) may be classified under 
Harmonized Tariff Schedule of the United States (``HTSUS'') subheading 
8414.80.2015, which provides for centrifugal and axial compressors. The 
Customs Service may view the combination of turbine driver and 
compressor as ``more than'' a compressor and, as a result, classify the 
combination under HTSUS subheading 8419.60.5000.
    Compressors for use in EPGTS, if imported separately, may also be 
classified under HTSUS subheading 8414.80.2015. Parts for such 
compressors, including rotors or impellers and housing, are classified 
under HTSUS subheading 8414.90.4045 and 8414.90.4055.
    Steam turbines for use in EPGTS, if imported separately, may be 
classified under the following HTSUS subheadings: 8406.81.1020 (steam 
turbines, other than marine turbines, stationary, condensing type, of 
an output exceeding 40 MW); 8406.82.1010 (steam turbines, other than 
marine turbines, stationary, condensing type, exceeding 7,460 Kw); 
8406.82.1020 (steam turbines, other than marine turbines, stationary, 
condensing type, exceeding 7,460 Kw, but not exceeding 40 MW); 
8406.82.1050 (steam turbines, other than marine turbines, stationary, 
other than condensing type, not exceeding 7,460 Kw); 8406.82.1070 
(steam turbines, other than marine turbines, stationary, other than 
condensing type, exceeding 7,460 Kw, but not exceeding 40 MW). Parts 
for such turbines are classified under HTSUS subheading 8406.90.2000 
through 8406.90.4580.
    Control and other auxiliary systems may be classified under HTSUS 
9032.89.6030 (``automatic regulating or controlling instruments and 
apparatus: complete process control systems'').
    Motor and gear box entries may be classified under HTSUS subheading 
8501.53.4080, 8501.53.6000, 8501.53.8040, or 8501.53.8060. Gear speed 
changers used to match the speed of an electric motor to the shaft 
speed of a driven compressor, would be classified under HTSUS 
subheading 8483.40.5010.
    Lubrication systems may be classified under HTSUS subheading 
8414.90.4075.
    Although the HTSUS subheadings are provided for convenience and 
customs purposes, our written description of the scope of this 
investigation is dispositive.

Period of Investigation (``POI'')

    The POI is April 1, 1995 through May 31, 1996.

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 merchandise sold in the home 
market during the POI was not sufficiently similar to that sold in the 
United States to permit proper price-to-price comparisons.

Fair Value Comparisons

    To determine whether MHI's sales of EPGTS to the United States were 
made at LTFV, we compared constructed export price (``CEP'') to NV, as 
described in the ``Constructed Export Price'' and ``Normal Value'' 
sections of this notice.

Constructed Export Price

    Pursuant to section 772 of the Act, the basis for the fair value 
comparison is the price at which the merchandise is first sold to an 
unaffiliated purchaser in the United States or for export to the United 
States. MHI reported its sale to MC, a Japanese trading company, as an 
export price (``EP'') sale on the grounds that MC is an unaffiliated 
purchaser and, at the time of sale, MHI knew that the merchandise was 
intended for export to the United States. However, based on our 
examination of the sales documentation provided by MHI and MC and our 
findings at verification, which demonstrate that MC and its U.S. 
subsidiary, Mitsubishi International Corporation (``MIC''), acted as 
MHI's selling agents in the U.S. transaction under investigation, we 
have determined for purposes of this final determination that the 
proper basis for the fair value comparison is the sale by MHI, through 
MC/MIC, to the U.S. customer. Because MHI made this transaction through 
agents acting on its behalf and thus subject to its control, we 
determined that MHI and MC/MIC are affiliated within the meaning of 
section 771(33) of the Act. Because the function of MC/MIC, as U.S. 
sales agents, is beyond that of a ``processor of sales-related 
documentation'' and a ``communications link'' with the unaffiliated 
U.S. customer, we determined that the use of CEP is appropriate in the 
final determination of this case (see Final Determination of Sales at 
Less Than Fair Value: Large Newspaper Printing Presses and Components 
Thereof, Whether Assembled or Unassembled, from Germany, 61 FR 38166, 
38175-76 (July 23, 1996) (``LNPPs from Germany'')). (See Comment 2 in 
the ``Interested Party Comments'' section of this notice for discussion 
of principal-agency relationship between MHI and MC/MIC.)
    In accordance with sections 772(b) and (c) of the Act, we 
calculated CEP based on a packed, FOB Japanese port, duty paid price, 
inclusive of spare parts, to an unaffiliated customer in the United 
States through a Japanese trading company affiliated by virtue of an 
agency relationship with the Japanese producer. We excluded from this 
price any post-POI price amendments, in accordance with our standard 
practice. (See LNPPs from Germany 61 FR at 38181-2). We made a 
deduction from the starting price for MIC's cost of the non-subject 
parts which were included in the U.S. sale. (See Comment 5 of the 
``Interested Party Comments'' section of this notice.)
    We also made further deductions from CEP pursuant to section 772(c) 
and (d) of the Act based on the same methodology used in the 
preliminary determination with the following exceptions:
    1. We deducted the product liability expense which was reported in 
the respondent's January 27, 1997, U.S. sales listing.
    2. We deducted performance testing cost as a direct selling 
expense. We reclassified the reported performance testing cost from a 
manufacturing cost to a direct selling expense based on verification 
findings which demonstrated that this type of test was optional and 
only undertaken at the specific request of the customer in the

[[Page 24396]]

contract governing the sale. (See March 11, 1997, Report on the 
Verification in Tokyo, Japan and Houston, Texas of Mitsubishi Heavy 
Industries, Ltd. (``MHI'') and Mitsubishi Heavy Industries America 
(``MHIA'') (``MHI Sales Verification Report'') at 31.)
    3. We also deducted indirect selling expenses incurred by MHI that 
related to economic activity in the United States, including certain 
selling expenses incurred in Japan on the U.S. sale. (See Comment 6 in 
the ``Interested Party Comments'' section of this notice.) (See also 
April 24, 1997, Memorandum to the File Re: Office of Accounting 
Constructed Value and Constructed Export Price Adjustments for Final 
Determination)(``Calculation Memorandum'').)
    4. We also deducted U.S. import duties as well as selling expenses 
incurred by MC/MIC (see Comment 5 of the ``Interested Party Comment'' 
section of this notice).

Normal Value

    For the reasons outlined in the ``Product Comparisons'' section of 
this notice, we based NV on CV.
    In accordance with section 773(e)(1) of the Act, we calculated CV 
based on the sum of MHI's cost of materials, fabrication, selling, 
general, and administrative expenses (``SG&A''), and profit, plus U.S. 
packing costs.
    We based CV on the same methodology used in the preliminary 
determination with the following exceptions:
    1. We increased cost of manufacture (``COM'') to include the 
inventory loss related to the U.S. sale.
    2. We recalculated the home market direct and indirect selling 
expense rates based on only the home market sales made in the ordinary 
course of trade. (See Comment 6 in the ``Interested Party Comments'' 
section of this notice.)
    3. We recalculated CV profit based on only the home market sales 
made in the ordinary course of trade.
    4. We increased the COM of not only the U.S. sale, but also that of 
the home market sales, to account for the excess of affiliated 
suppliers' COP over the transfer price charged to MHI. (See Comment 16 
in the ``Interested Party Comments'' section of this notice.)

Price to CV Comparisons

    In comparing CEP to CV, we deducted from CV the weighted-average 
home market direct selling expenses, including imputed credit and 
installation-related expenses, pursuant to section 773(a)(8) of the 
Act. (See Comment 10 in the ``Interested Party Comments'' section of 
this notice.)

Currency Conversion

    We made currency conversions into U.S. dollars based on the rate 
applicable on the date of the U.S. sale due to a sustained movement in 
the exchange rate, as calculated by the Department using the 
methodology outlined in Policy Bulletin 96-1: Currency Conversions, 61 
FR 9434 (March 8, 1996) (``Policy Bulletin 96-1'').
    Section 773A(a) of the Act directs the Department to use a daily 
exchange rate in order to convert foreign currencies into U.S. dollars, 
unless the daily rate involves a fluctuation. It is the Department's 
practice to find 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 eight weeks. When 
we determine a fluctuation existed, we substitute the benchmark for the 
daily rate, in accordance with established practice. 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 methodology, see Policy 
Bulletin 96-1.) Such an adjustment period is required only when a 
foreign currency is appreciating against the U.S. dollar. The use of 
such an adjustment period was warranted in this case because the 
Japanese yen underwent a sustained movement. (See Comment 15 of the 
``Interested Party Comments'' section of this notice.)

Verification

    As provided in section 782(i) of the Act, we verified the 
information submitted by MHI and MC for use in our final determination. 
We used standard verification procedures, including examination of 
relevant accounting and sales/production records and original source 
documents provided by respondents.

Interested Party Comments

    Comment 1: Scope of Investigation.
    The scope of this investigation covers EPGTS used in the 
petrochemical and fertilizer industries, whether assembled or 
unassembled, and whether complete or incomplete. (See Initiation of 
Antidumping Investigation of Sales at Less Than Fair Value: EPGTS, 
Whether Assembled or Unassembled, and Whether Complete or Incomplete, 
from Japan (61 FR 28164, June 4, 1996)(``Initiation'').)
    Since the initiation of this investigation, the petitioner and MHI 
have debated two scope-related issues: (1) The definition of 
``incomplete'' EPGTS, and (2) the end uses of the EPGTS covered by the 
scope. For purposes of the preliminary determination, we clarified the 
scope of this investigation to include, among other things: (1) EPGTS 
used in the production of refinery products, and (2) ``incomplete'' 
EPGTS if the EPGTS parts (otherwise referred to as ``components'' or 
``subcomponents'') imported from Japan pursuant to a contract for a 
complete EPGTS in the United States, taken altogether, constitute at 
least 50 percent of the cost of manufacture of the complete EPGTS of 
which they are a part. (See Preliminary Determination at 65015.) Both 
of these issues, the parties' comments, and the Department's position 
are summarized below. For a complete discussion and analysis of these 
issues, see April 24, 1997, Memorandum to Jeffrey Bialos, Principal 
Deputy Assistant Secretary for Import Administration, from The Team Re: 
Scope Issues (``April 24, 1997, Scope Decision Memorandum'').

1. Definition of Incomplete EPGTS

    The petitioner asserts that the intent of the petition was to cover 
turbo-compressor ``systems'' engineered (custom made) for a particular 
plant process, and typically sold as a single unit at a single 
negotiated price, whether complete or incomplete. According to the 
petitioner, the intent of the petition was to include incomplete EPGTS 
and incomplete components if sold as part of a complete EPGTS. In order 
to define a subject incomplete EPGTS for purposes of the final 
determination, the petitioner argues that the Department should combine 
a ``cost-based'' test with an ``essential components'' test. 
Specifically, the petitioner maintains that the Department should amend 
its preliminary scope language to indicate that imports of EPGTS 
compressors, steam turbines, or any collection of components from Japan 
accounting for at least 50 percent of the total cost of manufacture of 
the EPGTS are subject merchandise. In the petitioner's opinion, this 
two-pronged approach is simple to administer, avoids circumvention and 
is consistent with the intent of the petition and the record throughout 
this investigation.
    The petitioner believes that many of the problems identified by the 
Department in the final determination of LNPPs from Germany and Japan 
which discouraged the Department from pursuing an ``essence'' test and

[[Page 24397]]

encouraged it to pursue a ``cost-based'' test (e.g., the difficulty in 
identifying the ``essence'' of a LNPP, given the great number of parts 
and subcomponents; the insignificant portion of total value of the LNPP 
represented by many of the critical elements identified by the 
petitioner) are not present in this case. According to the petitioner, 
there are four major components (i.e., compressor, driver (steam 
turbine or motor/gear), control system, and lubrication system); 
however, the compressor and turbine are the heart of the turbo-
compressor system both in terms of both function and manufacturing 
cost.1 The petitioner cites several cases where the 
Department applied essence criteria to define the scope of the 
investigation where, as here, the essential components were readily 
identifiable and dedicated for use in the complete product.
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    \1\ According to the petitioner, the compressor and turbine 
together account for 80-90 percent of the total system cost.
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    On the other hand, if the design and engineering of the turbo-
compressor system takes place in Japan, but the compressor is 
subcontracted to another country, the petitioner maintains that it is 
appropriate to invoke the 50 percent cost-based test to determine 
whether the incomplete EPGTS should be covered by the scope of the 
investigation. This would also address the situation where an 
incomplete compressor is imported, to be assembled after importation 
with other components, or where the foreign manufacturer produces and 
supplies nearly an entire turbo-compressor system, but neither the 
compressors nor the steam turbines are complete upon importation. 
Because individual components do not constitute an incomplete EPGTS 
unless they are used to fulfill an EPGTS contract, the petitioner notes 
that if the Japanese producer is supplying only individual components 
to be included in a system manufactured by a U.S. or third country 
supplier, the system will not be of Japanese origin and the components 
will not be covered.
    According to the petitioner, the purpose for establishing a two-
part test is to avoid, whenever possible, the complexity of a cost-
based test and to remove any incentive for a foreign manufacturer to 
circumvent the ``essence'' test by shipping its compressors or steam 
turbines in incomplete form. The petitioner notes further that its 
proposed two-prong approach places no undue burden on the importer to 
determine whether the components imported from Japan are essential 
components or account for 50 percent of the cost of manufacture of a 
system, and prevents the suspension of liquidation of non-scope 
merchandise unless the foreign producer and U.S. importer do not comply 
in a timely manner with the Department's certification requirements.
    The petitioner also requests that the Department further define the 
calculation methodology to be applied in the performance of the cost-
based test, asserting that all design and engineering costs, overhead, 
testing costs, installation costs, and other manufacturing expenses 
incurred in Japan with respect to the complete EPGTS (including the 
costs of any production assists provided by the Japanese manufacturer 
to U.S. or third country subcontractors) should be included in the 
Japan content portion of the cost-based test. Accordingly, the 
petitioner requests that the certification provided to Customs in the 
case of merchandise alleged to be outside the scope of any order in 
this case be amended to include such costs explicitly.
    Lastly, while the petitioner acknowledges that the Department's 
industry support determination was based on the producers of complete 
turbo-compressor systems, the petitioner asserts that the producers of 
complete EPGTS also produce incomplete EPGTS, and there is no evidence 
that there are producers of incomplete EPGTS, including compressors and 
turbines, in the United States other than those that the Department 
considered in its industry support determination. The petitioner also 
claims that complete and incomplete systems constitute a single like 
product, and hence, support of only producers of complete systems in 
the Department's industry support analysis is adequate. The petitioner 
further maintains that it is irrelevant whether supporters of the 
petition produced incomplete EPGTS, so long as they accounted for an 
adequate percentage of production of the domestic like product, which 
includes both complete and incomplete systems.
    MHI argues that only complete systems are covered by the scope of 
this investigation because only complete systems were subject to the 
Department's industry support determination made prior to initiation, 
and that determination cannot be revisited. MHI asserts that the 
Department identified the domestic like product to be a complete system 
and based its determination of industry support on the conclusion that 
the petition was filed on behalf of the domestic industry. To the 
extent that the Department finds that its industry support 
determination covered something other than complete systems, MHI argues 
that, at a minimum, the Department should not define a subject 
incomplete EPGTS in terms of individual components, as suggested by the 
petitioner's proposed ``essential components'' test, because this would 
unlawfully expand the scope of the proceeding to include merchandise 
(i.e., compressors and steam turbines) for which the Department did not 
make a determination of industry support.
    Further, MHI objects to the Department's use of a cost-based 
approach to define ``incomplete EPGTS'' for which liquidation would be 
suspended and, instead, proposes the adoption of a ``merchandise-
based'' approach whereby an incomplete system would be defined as two 
or more system components, at least one of which is a compressor and 
all of which are made in Japan. In MHI's opinion, the use of a cost-
based approach is inappropriate and unworkable because: (1) It does not 
ensure that the order will cover only the merchandise produced by a 
domestic industry for which the Department made its determination of 
industry support; (2) it fails to identify subject merchandise in terms 
of facts known at the time of importation; (3) there is uncertainty 
with respect to the final cost of manufacture and the types of expenses 
that should be included when calculating the final cost of manufacture 
of the complete system; and (4) it is unlikely that the Japanese 
producer will have available at the time of importation enough 
information about the final cost of the system to allow it to complete 
the requisite certification, particularly if the Japanese producer is 
providing only a portion of a system which will be assembled or 
completed with non-subject equipment produced by unaffiliated non-
Japanese manufacturers. In addition, MHI contends that even though a 
cash deposit would not be required for EPGTS entries accompanied by a 
certification that they constitute less than 50 percent of the cost of 
manufacture of the complete system, the Department unlawfully has 
directed Customs to suspend liquidation of allegedly non-subject 
merchandise pending its determination of the final cost of the system. 
According to MHI, duties may be imposed only on subject merchandise, 
and the Department does not avoid this issue by waiving the cash 
deposit requirement for merchandise certified to be outside the scope 
of the order.

[[Page 24398]]

    For these reasons, MHI asserts that the Department must adopt the 
above-described ``merchandise-based'' definition of a subject 
incomplete EPGTS for which liquidation would be suspended. In MHI's 
view, its approach is more consistent with the Department's methodology 
in past cases where essence criteria were used to define incomplete 
merchandise covered by the scope. Also, MHI maintains that a 
merchandise-based definition eliminates the problems inherent in both 
the Department's and the petitioner's suggested definition of an 
``incomplete'' system. Under MHI's definition, single components would 
fall outside the scope, eliminating the possibility that the scope 
could violate the Department's industry support determination. Further, 
it would allow foreign manufacturers, U.S. importers, the Department, 
and the Customs Service to determine at the time of importation whether 
an entry is subject to the order and, thus, remove unnecessary 
administrative burdens on all parties.
    In addition, MHI contends that the petitioner's concern about 
circumvention (which, in MHI's opinion, is not a valid concern in this 
case) does not justify the cost-based test which would unlawfully 
expand the scope of the investigation. Citing various past cases, MHI 
points out that the Department has consistently rejected scope 
expansions based on speculative allegations of circumvention and relied 
on the circumvention provisions of the antidumping law to provide 
relief even for petitioners who have direct evidence of circumvention.

DOC Position

    We disagree with both the petitioner and respondent. In our 
Preliminary Determination, we explained that because of their large 
physical size, EPGTS are typically imported into the United States in 
either partially assembled or disassembled form, perhaps in multiple 
shipments over an extended period of time, and may require the addition 
and integration of non-subject parts prior to, or during, the 
installation process in the United States. Consequently, we stated that 
we were concerned that because of the great number of parts involved, 
there is the potential that the Customs Service may inadvertently 
liquidate entries of subject merchandise based on its lack of 
completeness at the time of importation. Therefore, for suspension of 
liquidation purposes, we preliminarily decided to use the cost-based 
test described above to determine what constitutes a subject incomplete 
EPGTS. We noted that this approach has been used in past cases with 
similar fact patterns. (See, e.g., LNPPs from Germany and Japan, 61 FR 
38166, 38139, July 23, 1996).
    In order to determine whether the imported merchandise constitutes 
a subject incomplete EPGTS through the performance of the cost-based 
test, we stated in our preliminary determination that we would have to 
wait until all of the parts comprising an EPGTS are imported and the 
complete EPGTS is produced. Thus, we suspended liquidation of all 
importations of EPGTS parts from Japan at the preliminary cash deposit/
bond rate unless a certification was provided by the foreign 
manufacturer/exporter that the parts to be imported, when taken 
altogether, constitute less than 50 percent of the cost of manufacture 
of the complete EPGTS of which they are a part.
    For entries accompanied by the appropriate certification, we 
directed the Customs Service to suspend liquidation at a zero deposit/
bond rate. We also required parties to provide to the Department in 
advance of the entry with a copy of this certification along with the 
following information which would be subject to the Department's review 
and verification at a later date, if necessary: (1) The number of the 
sales contract pursuant to which the parts are imported, (2) a 
description of the parts included in the entry, (3) the actual cost of 
the imported parts, (4) the most recent cost estimate for the complete 
EPGTS and historical variance between estimated and actual costs, (5) a 
schedule of parts shipments to be made pursuant to the particular EPGTS 
contract, if more than one shipment is relevant, and (6) a schedule of 
EPGTS production completion in the United States. (See Preliminary 
Determination, 61 FR at 65018; and January 23, 1997, Letter from Louis 
Apple to James Cannon et al. re: Clarification of Preliminary 
Suspension of Liquidation Instructions * * * (``January 23, 1997, 
Suspension of Liquidation Instructions Clarification Letter.'')
    The scope of this investigation unambiguously covers EPGTS, whether 
assembled or unassembled, and whether complete or incomplete. As stated 
above, because of their large physical size, EPGTS are typically 
imported into the United States in either partially assembled or 
disassembled form, perhaps in multiple shipments over an extended 
period of time, and may require the addition and integration of non-
subject parts prior to, or during, the installation process in the 
United States. Given this fact, the Department, in its pre-initiation 
analysis, included ``incomplete'' EPGTS within the scope of the 
investigation to avoid creating loopholes for enforcement (including 
those arising from differing degrees of completeness of the imported 
merchandise) should an order result from this investigation. (See 
October 8, 1996, Memorandum to Jeffrey Bialos, Principal Deputy 
Assistant Secretary from The Team Re: Scope.) We were, and still are, 
concerned that because of the great number of parts involved, the 
Customs Service may inadvertently liquidate entries of subject 
merchandise based on a lack of completeness at the time of importation. 
The inclusion of the term ``incomplete'' in the scope, however, raised 
the issue of how to define the minimum level of incompleteness on which 
the Customs Service should suspend liquidation in order to maintain the 
effectiveness of any order that may be issued. For purposes of the 
preliminary determination, we defined this minimum level to be 50 
percent of the cost of manufacture of the complete EPGTS. This approach 
has been used in past cases with similarly complex merchandise and 
importation processes (see LNPPs from Germany and Japan).
    Further, contrary to MHI's suggestions, we note that from the 
Department's standpoint, it is not, and never has been, the individual 
components or subcomponents of the system per se that are at issue, but 
the combination of these components or subcomponents (i.e., the extent 
of an ``incomplete system'') imported pursuant to a contract for a 
complete EPGTS in the United States that would constitute covered 
merchandise whether by cost, essence, or some other approach (i.e., the 
sum of importations pursuant to a contract for a highly engineered and 
integrated turbo-compressor system, not the individual importations of 
the components or subcomponents, themselves.)
    In formulating our decision for purposes of the final 
determination, we made the following observations. First, the intent of 
the petition was to include incomplete EPGTS. (See, e.g., petition at 6 
* * * '' [T]his petition encompasses turbo-compressor systems, * * * 
whether assembled or unassembled and whether complete or incomplete at 
the time of entry'' (emphasis added).) In this regard, we note our 
authority to clarify the scope of an investigation, in general, and in 
a manner which reflects the intent of the petition, in particular. 
(See, e.g., LNPPs from Germany 61 FR at 38169 (July 23, 1996); Minebea 
Co., Ltd. v. United States, 782 F. Supp. 117, 120 (CIT 1992) (the 
Department uses its ``broad discretion to define and clarify the scope 
of an antidumping

[[Page 24399]]

investigation in a manner which reflects the intent of the 
petition'').)
    Second, incomplete EPGTS have been covered by the scope of this 
investigation since our initiation. (See Initiation at 28165 * * * 
''The scope of this investigation includes incomplete and unassembled 
systems.''); and Preliminary Determination at 65013, 65015).)
    Third, our industry support determination did not preclude us from 
considering less than complete systems in the scope of the 
investigation. Our industry support determination was based on the 
domestic like product which was defined as complete systems, including 
individual components/subcomponents and combinations of components/
subcomponents to the extent they are designed and dedicated to a 
specific system typically designed to contract specifications. (See 
Initiation, 61 FR at 28164.) This follows from the fact that specific 
components per se are not covered by the scope of the investigation 
unless they are included in the contract for the initial system 
designed and dedicated for use in the complete system. Therefore, a 
showing of industry support by U.S. manufacturers of components or 
subcomponents who do not manufacture or sell complete systems was not 
necessary. We note further that our definition of like product with 
respect to our industry support determination is consistent with the 
International Trade Commission's definition of like product in its 
preliminary injury determination.2 (See USITC Publication 
2976 (July 1996) at 8-10.)
---------------------------------------------------------------------------

    \2\ The ITC found preliminarily that complete and incomplete 
systems are part of the same domestic like product based on 
application of its semi-finished products analysis. The ITC stated 
that: (1) there is no independent use for an incomplete system other 
than to be assembled into a specific and complete system and, 
therefore, an incomplete system is dedicated for use in that EPGTS 
system; (2) incomplete and complete systems share many of the same 
characteristics and functions; and (3) there does not appear to be 
an established price for incomplete systems because complete systems 
are manufactured pursuant to a contract; thus, there are no 
independent sales or markets). See USITC Publication 2976 (July 
1996) at 8-10.
---------------------------------------------------------------------------

    In order to determine the level of industry support for the 
petition, the Department contacted five U.S. companies identified by 
the petitioner as producers of EPGTS, including Dresser-Rand Company, 
and requested that they provide production data on the number of 
compressor casings, (i.e., compressor shells which, by definition, are 
not complete systems), and the number and value of complete systems 
produced. Based on the information we received from these producers and 
that contained in the petition, we concluded that the producers who 
supported the petition accounted for more than 50 percent of the total 
production of the domestic like product. (See Initiation; May 28, 1996, 
Memorandum from Mary Jenkins and Howard Smith to The File Re: Industry 
Support; and May 28, 1997, Initiation Checklist.) We note that there is 
no evidence on the record indicating that there were U.S. producers of 
the like product other than the five producers contacted by the 
Department that should have been considered in its pre-initiation 
industry support analysis.
    Fourth, while both the petitioner and MHI seem to agree that as a 
practical matter, an incomplete EPGTS must include a compressor (as it 
is the most critical component which typically accounts for over 50 
percent of the manufacturing cost of a complete EPGTS) we do not 
believe that this 50 percent threshold is reached in a situation where 
only a compressor is imported pursuant to a contract for a multi-train 
EPGTS system which includes multiple compressors, turbines, and other 
components.
    Further, there are other difficulties inherent in accepting either 
the petitioner's or MHI's approach. Because of the large number of 
parts involved, the disassembly inherent in the importation process, 
and the potential for multiple shipments, an ``essence'' approach is 
difficult to administer by Customs without a comprehensive list of 
parts (identified at the most minimal level of disassembly 
realistically possible) comprising the essential complete component(s), 
which has not been provided by the petitioner or respondent. While the 
petitioner defines certain parts of a compressor and turbine in its 
attempt to define ``incomplete compressors and turbines'' covered by 
the scope in the petition,3 the parts identified do not 
represent such a comprehensive list. Also, respondent's approach does 
not resolve the question of whether the critical component(s) would 
constitute subject merchandise if it were incomplete in some minor way.
---------------------------------------------------------------------------

    \3\ The petitioner defines incomplete compressors and turbines 
for purposes of the petition as follows: ``An incomplete compressor 
* * * consists of either half of the casing * * * or the casing and 
end-caps * * * or * * * the rotor, whether or not mounted * * *.'' 
``An ``incomplete'' steam turbine * * * includes (1) either half of 
the turbine casing, whether or not mounted on a platform; or (2) the 
turbine rotor, whether or not mounted in the casing.'' See petition 
at 7 and 9.
---------------------------------------------------------------------------

    In addition, we note that MHI's definition of ``incomplete,'' which 
must include at least a complete compressor, restricts the scope much 
further than the petition, the Department's initiation, and preliminary 
determination. It would also allow an exporter to circumvent any order 
resulting from this investigation, simply by subcontracting the 
manufacture of the system compressor to another country.
    In sum, we believe that the approach pursued in the preliminary 
determination is reasonable, predictable, administrable, and consistent 
with our industry support determination. Under this approach, an 
imported incomplete system is covered by the scope of this 
investigation to the extent that its parts (imported pursuant to a 
contract for an EPGTS) comprise a certain minimum percentage of the 
cost of manufacture of the complete system. In response to MHI's 
argument that we would not know at the time of importation whether the 
imported incomplete merchandise was subject to duty, we acknowledge 
that in order to perform the cost-based test, we will have to wait 
until all of the parts/components comprising the system are imported 
and the complete system is produced, and that we will suspend 
liquidation on all imported EPGTS parts in the meantime. However, in 
the case of multiple shipments of components and component parts, the 
necessity for all shipments to be completed before the Department could 
determine whether or not the imported merchandise was subject to any 
order that may be issued in this case would also be relevant to the 
essence approach, in that the identification of the critical 
component(s) could only take place after all importations have been 
made.
    Further, by suspending liquidation at a zero cash deposit rate if 
the Japanese producer/exporter provides the appropriate certification 
and the requisite data substantiating the certification that the cost 
of the imported parts satisfies the 50 percent test, we believe that 
the importer would be relieved of the financial burden of posting cash 
deposits which would otherwise be required and not reimbursed until 
such time as the Department was able to make a determination as to 
whether the imported parts constituted subject merchandise (i.e., after 
the EPGTS is completed in the United States). At the same time, this 
approach provides sufficient safeguards to protect U.S. firms from 
potentially dumped subject merchandise.
    With respect to the respondent's concern that the Japanese producer 
may not know the final costs of the system so as to be able to certify 
accurately that the cost of the parts comprising the incomplete system 
is less than 50 percent of the cost of manufacture of the

[[Page 24400]]

complete system if he is providing only a portion of the complete 
system, we note that if an affiliate is supplying the additional parts 
to complete the system pursuant to a contract in the United States, we 
would naturally require that the Japanese producer/exporter provide, 
with the assistance of its affiliate, the actual final costs of the 
complete system. If an unaffiliated party is involved in the completion 
of the system in the United States, we would require that the Japanese 
producer/exporter include in its cost calculation the estimated or 
actual price for the parts supplied by the unaffiliated party. If the 
Japanese producer were supplying only individual components outside of 
a contract for a complete system (i.e., not ``pursuant to a contract 
for a complete EPGTS''), then its merchandise would not be covered by 
the scope of the investigation and the issue is moot.
    Therefore, for purposes of the final determination, we continue to 
define ``incomplete'' EPGTS covered by the scope as we did in our 
preliminary determination. Further, we appreciate the parties' concerns 
over the methodology to be used to calculate the cost of manufacture of 
the incomplete system in order to administer the cost-based test. 
Consequently, we have determined that it is appropriate to calculate 
this cost of manufacture inclusive of all costs incurred by the 
producer in Japan, including design and engineering, materials, 
overhead, quality control testing, and other manufacturing costs such 
as engineering assists provided to U.S. or third country 
subcontractors. In addition, we intend to issue suspension of 
liquidation instructions pursuant to the final determination similar to 
those issued in connection with the preliminary determination with some 
modification. Specifically, we will modify these instructions, as 
follows: (1) To suspend liquidation of EPGTS parts at a zero cash 
deposit/bond rate if the interested party (i.e., the Japanese producer/
exporter or U.S. importer) provides the requisite data substantiating 
its claim that the cost of the imported EPGTS parts satisfies the 50 
percent test within the context of a scope inquiry proceeding; (2) to 
require that the requisite data substantiating the interested party's 
claim, followed by an appropriate certification, be provided to the 
Department instead of to the Customs Service; (3) to include the cost 
calculation methodology described above; (4) to require the provision 
of certain additional information; and (5) to require that if the 
foreign producer/exporter finds that the costs reported to the 
Department were understated and that the cost of manufacture of the 
imported elements will be over 50 percent of the cost of manufacture of 
the EPGTS of which they are a part, that the party inform the 
Department immediately. See ``Suspension of Liquidation'' section of 
this notice for details.

2. EPGTS Used in the Production of Refinery Products

    MHI argues that the Department unlawfully expanded the scope of the 
investigation after initiation to include EPGTS used in the production 
of refinery and other petrochemical (downstream) products because this 
expansion included products outside the Department's determination of 
industry support which cannot be revisited after the initiation phase 
of an investigation. MHI contends that the record strongly suggests 
that the Department's industry support determination was made only with 
respect to the production of EPGTS used in the production of five 
specific chemicals listed in the petition: ethylene, propylene, 
ammonia, urea or methanol.
    The petitioner contends that the Department properly clarified the 
scope of the investigation to include EPGTS for use in the production 
of refinery and other petrochemical products. The petitioner asserts 
that the petition was intended to cover all EPGTS, not only the five 
end uses specified in the notice of initiation. The petitioner also 
asserts that the Department's scope clarification does not conflict 
with the Department's industry support determination because the 
producers consulted by the Department in its industry support 
determination constitute the universe of EPGTS suppliers, including 
EPGTS used in the production of refinery and other petrochemical 
products.

DOC Position

    We disagree with MHI for the reasons already outlined in our 
October 8, 1996, decision memorandum on this topic. In that memorandum, 
we stated that the petition was intended to cover EPGTS used to produce 
refinery products, as well as the other end uses already specified in 
the notice of initiation. It was never the Department's intention to 
revise the scope to exclude merchandise which the petition intended to 
cover. Rather, in an attempt to draft a clear and concise scope 
definition, the Department altered the original scope language in the 
petition, inadvertently limiting the end uses of the subject 
merchandise beyond what was intended by the petition. We noted that the 
Department has the discretion to clarify the scope at any time during 
the investigation in general, and in a manner which reflects the intent 
of the petition, in particular. (See, e.g., LNPPs from Germany, 61 FR 
at 38169; and Minebea Co., Ltd. v. United States.)
    Accordingly, we clarified the scope to include EPGTS used in the 
production of refinery products. We noted that this clarification did 
not conflict with our industry support determination prior to the 
initiation of this investigation. Our industry support determination 
related to the production of EPGTS systems used generally in the 
petrochemical and fertilizer industries, without distinction based on 
the type of application within these industries (e.g., refinery, 
ethylene, etc.). (See October 8, 1996 Memorandum to Jeffrey Bialos from 
the Team Re: Scope.) Moreover, there is no evidence on the record to 
indicate that there were U.S. producers of EPGTS used in the 
manufacture of refinery products other than those contacted by the 
Department in its industry support determination that should have been 
considered in the Department's analysis. As stated in our May 28, 1996 
Initiation Checklist, ``* * * we contacted all known producers and 
asked them to provide production data * * *.'' (See also Initiation, 61 
FR at 28164.)
    Therefore, for purposes of the final determination, we find no 
reason to depart from our original decision to clarify the scope of the 
investigation to include EPGTS used in the production of refinery 
products.
    Comment 2: Agency vs. Reseller.
    Throughout this investigation, the petitioner and MHI have argued 
over whether EP or CEP methodology should be used to establish the 
basis for the U.S. starting price. In this case, MHI sold subject 
merchandise to MC (a Japanese trading company) which, in turn, sold 
merchandise to the U.S. customer through MIC (MC's U.S. subsidiary). 
MHI reported its sale to MC as an EP transaction on the grounds that MC 
is allegedly an unaffiliated reseller and, at the time of sale, MHI 
knew that the merchandise was intended for export to the United States 
(i.e., the ``trading company'' rule). In our preliminary determination 
in this investigation, we determined that MC and MIC were acting as 
MHI's selling agents, not as independent resellers, in the transaction 
under investigation. This determination was made based on our 
preliminary examination of the sales documentation provided by MHI, 
which showed that MHI played an integral role in the U.S. sale. 
Accordingly, we determined preliminarily that the

[[Page 24401]]

proper basis for the fair value comparison was the sale by MHI, through 
MC/MIC, to the U.S. customer. Because MHI made this transaction through 
a U.S. agent which was acting on its behalf, we preliminarily 
determined that the use of CEP, rather than EP, was appropriate. (See 
Preliminary Determination, 61 FR at 65013.)
    The petitioner, MHI, and MC submitted extensive comments in their 
case and rebuttal briefs on this topic for purposes of the final 
determination. These comments and the Department's position are 
summarized below. For a complete discussion and analysis, see April 24, 
1997, Memorandum to Jeffrey Bialos, Principal Deputy Assistant 
Secretary for Import Administration, from The Team Re: Whether MC and 
its U.S. Subsidiary, MIC, Acted as Agents of MHI or Independent 
Resellers in the U.S. Sale Made to (the U.S. Customer), and the 
Consequences of this Finding in Determining the Appropriate Basis for 
U.S. Price (``April 24, 1997, Agency Decision Memorandum'').
    The petitioner argues that the Department should continue to treat 
the U.S. sale as a CEP sale in the final determination on the grounds 
that MC/MIC and MHI are ``affiliated persons'' under section 771(33)(G) 
of the Act because in the negotiation and sale of MHI's EPGTS to the 
U.S. customer, MC and MIC acted as sales agents.4 The 
petitioner states that the record evidence, augmented by verification 
findings, establishes that MHI was integrally involved throughout the 
sales negotiation process and that MC/MIC acted as agents for the 
producer, not as independent purchasers/resellers. The petitioner 
points to various facts on the record which reveal that MHI effectively 
controlled the price and all other material terms of sale which were 
ultimately agreed upon with the U.S. customer such as: (1) There were 
both direct and indirect communications between MHI and the U.S. 
customer throughout the transaction; (2) there were no significant 
differences between MIC's bid proposals to the U.S. customer for the 
subject merchandise which were ultimately accepted by the U.S. customer 
and those prepared by MHI for MC/MIC; (3) inquiries from the U.S. 
customer on the cost impact of proposed specification changes, both in 
the pre-and post-sale period, were relayed by MIC directly to MHI and 
MHI issued cost impact reports to the U.S. customer via MIC, except in 
one case in which MHI dealt directly with the customer; and (4) MC and 
MIC do not possess the necessary technical capacity or expertise 
regarding cost, price, production/delivery schedules and post-sale 
servicing to negotiate the U.S. sale.
---------------------------------------------------------------------------

    \4\ The petitioner also argues that MHI and MC/MIC are otherwise 
affiliated within the meaning of section 771(33)(F) of the Act. That 
is, even assuming MC and MIC did not act as agents for MHI, the 
petitioner maintains that the overall corporate relationship between 
the companies, including equity ownership, common directors, and 
numerous other ties establish that MC and MIC were, in effect, 
controlled by MHI.
---------------------------------------------------------------------------

    Further, the petitioner asserts that both under pre- and post-URAA 
antidumping law and practice, MC and MIC would be considered affiliated 
parties as MHI's agents, and thus their sales would warrant CEP 
treatment. In addition, the petitioner notes that the ``trading 
company'' rule does not apply to transactions between affiliated 
parties or between agents and principals, such as the transaction at 
issue in this case.
    MHI argues that the Department's decision to treat MHI's U.S. sale 
as a CEP sale in the preliminary determination based on its finding 
that MC/MIC acted as MHI's U.S. selling agents, contradicts the 
statute, Department practice, and the facts of this investigation. MHI 
contends that the Department's preliminary analysis was flawed for 
several reasons. First, MHI maintains that MHI's/MC's relationship 
fails to meet the criteria for establishing an agency relationship and 
the record establishes that MC was a purchaser of MHI's merchandise. 
While MHI admits that some of the facts on the record may show that MHI 
and MC acted cooperatively in making the U.S. sale, MHI asserts that 
this cooperation does not diminish the fact that MHI and MC were still 
independent companies, each seeking to maximize its own profit, and 
does not provide a basis for determining that an agency relationship 
existed. Citing Restatement (Second) of Agency section 12-14 (1957) 
(``Restatement''), MHI asserts that a principal/agency relationship is 
characterized by three criteria, all of which must be met in order for 
an agency relationship to exist, but none of which are met in this 
case: (1) The agent must have authority to alter the principal's legal 
relationship to third parties; (2) the agent must have a fiduciary duty 
to the principal or must act primarily for the benefit of the 
principal; and (3) the principal must have the right to control the 
conduct of the agent with respect to matters entrusted to him. Among 
other things, MHI points out that the pre- and post-contract 
correspondence reviewed by the Department confirms that, especially as 
to commercial matters, the U.S. customer dealt almost exclusively with 
MIC; no documents on the record establish that MC bound or was able to 
bind MHI to the U.S. customer or to any other third party. MHI points 
to other facts on the record to demonstrate that MHI and MC acted as 
independent companies, each operating on its own behalf and not 
controlling the other.
    Further, MHI explains that if the factors enumerated in section 14J 
of the Restatement (which assist in distinguishing an agent from a 
reseller) are applied to the facts of this case, it reveals that MC was 
a purchaser and reseller of MHI's merchandise. MHI points out: (1) The 
sales documentation on the record demonstrates that only MIC had direct 
communication with the customer on commercial matters prior to and 
after sale, and MHI was involved in post-sale logistical and technical 
negotiations with the U.S. customer; (2) the sales documentation 
submitted by MHI established that title and risk of loss was 
transferred from MHI to MC; (3) MC's scope of supply to the U.S. 
customer differed from MHI's scope of supply to MC; (4) MC had the 
right to retain the difference between what it paid to MHI and the 
revenue it received from the U.S. customer; (5) MC had the right to 
deal with the goods of persons other than MHI, as evidenced by examples 
of head-to-head competition between the two companies in sales of 
subject and non-subject merchandise during the POI; and (6) while MHI's 
identity was disclosed to the U.S. customer because of the custom-built 
nature of the goods and the fact that the manufacturers are specified 
in the customer's request for quotation, MIC dealt directly with the 
U.S. customer in its own name, and not on MHI's behalf.
    Second, MHI contends that the rejection of prices between 
unaffiliated parties for purposes of calculating CEP contradicts the 
language and the logic of the Act. MHI asserts that the Department has 
no legal authority to reject the sale price between two unaffiliated 
parties and to resort to CEP methodology, even if it finds an agency 
relationship based on cooperative marketing. MHI explains that under 
pre-URAA law (section 771(13) of the Act), the Department was permitted 
to collapse a principal and its agent for purposes of determining U.S. 
price. According to MHI, the URAA (section 771(33) of the Act, as 
explained in the Statement of Administrative Action (SAA) at 153) 
repealed this provision and replaced it with the requirement that 
prices may be rejected only between affiliated parties. MHI argues that 
in order for the Department to make a determination of affiliation, it 
must find that ``control,'' as defined under section 771(33) of the 
Act, exists outside

[[Page 24402]]

and independent of the transaction under investigation. According to 
MHI, ``control'' must be interpreted as the ability to force another 
party to act against its own economic interests.
    Third, MHI asserts that the Department's departure in its 
preliminary determination from the ``trading company'' rule without 
explanation was improper. MHI states that under normal practice, the 
Department will treat a respondent's sale to a trading company as a 
U.S. sale if the foreign manufacturer knows at the time of sale that 
the merchandise is destined for the United States. While MHI reported 
its U.S. sale in line with this settled practice, MHI asserts that the 
Department rejected it without explanation.
    Fourth, MHI argues that the U.S. sale meets the requirements of an 
EP sale in accordance with section 772(a) of the Act and the 
Department's proposed regulations (19 CFR 351.401). MHI contends that 
its U.S. sale is an EP sale because: (1) MHI sold the merchandise to MC 
prior to exportation; no inventorying was required or performed; and 
(2) MHI's U.S. economic activity for this sale was de minimis and its 
U.S. affiliate, MHIA, at most functioned as a communications link with 
MHI's head office and Hiroshima plant on technical issues. Because 
MHI's U.S. sale has none of the characteristics of a CEP sale, MHI 
concludes that it should be treated as an EP sale.
    Finally, MHI maintains that the existence of an agency relationship 
does not convert a sale to CEP that would otherwise be classified as an 
EP transaction. MHI argues that nothing in the Act or the Department's 
proposed regulations support the conclusion that the involvement of an 
unaffiliated party (even if characterized as an agent) itself, warrants 
CEP methodology. MHI points out that considering a sale between a 
principal and end user through an unaffiliated selling agent as a CEP 
transaction ignores the purpose for distinguishing EP and CEP 
transactions and results in distortive antidumping analysis. MHI 
explains that the adjustments to CEP which are not relevant to EP exist 
to eliminate distortions caused by selling functions and associated 
profits accruing to the manufacturer by reason of sales activities in 
the United States. In this case, however, MHI asserts that no U.S. 
activities or profits accrue to the manufacturer where it does not 
operate in the United States. Since the sale between the manufacturer 
and the end user is an arm's-length border price, albeit negotiated 
through the agent, no purpose is served by treating the transaction as 
CEP merely based on the agent's involvement. Nothing in the nature of 
the agency relationship suggests that the agent's commission from the 
manufacturer would not be at arm's length. MHI states further that 
under CEP analysis, the agent's commission would not be treated as a 
circumstance of sale adjustment, but as affiliated party activity that 
must be deducted, with profit, from CEP to ``construct'' an EP.
    According to MHI, if the Department utilizes CEP methodology for 
this sale, in effect, it would mandate that commissions per se cannot 
be made at arm's length and would fail to recognize a fundamental 
distinction between affiliation and agency, namely that agents may be 
either affiliated or unaffiliated with their principals. According to 
MHI, this distinction is reflected in the different definitions of 
control that exist in common law with respect to agents and the 
antidumping statute's treatment of affiliation. MHI explains that in 
common law, a principal's ``control'' over an agent focuses on 
manifestations of consent between the parties; thus, the agent remains 
free to engage in arm's-length negotiations with the principal over its 
compensation and other terms of the agency. MHI explains further that, 
in contrast, the scope of ``control'' as it relates to affiliated 
parties under the Act extends to the very terms of the parties' 
relationship and whether or not the controlling party can induce the 
controlled party to accept economic terms that the controlled party 
would not otherwise accept. MHI points out that in this latter context 
the Act requires the Department to disregard the price (or commission) 
established between the parties because that price is assumed not to be 
at arm's length. Where, however, the principal has no control over the 
terms of agency the agent accepts, no reason exists for the Department 
to disregard that commission. Thus, without other indicia of 
affiliation, MHI contends that applying a CEP methodology to a 
principal/agent relationship, thereby equating agency with affiliation, 
violates the intent of the EP/CEP distinction and distorts the 
antidumping analysis. Accordingly, MHI argues that a sale by a 
principal through an unaffiliated selling agent to an unaffiliated U.S. 
end user should be treated as an arm's-length EP transaction where the 
commission accrued by the agent is accounted for as a circumstance of 
sales adjustment.
    Like MHI, MC contends that MC and MIC acted as resellers and not as 
sales agents for MHI in the U.S. transaction at issue because: (1) The 
required characteristics of an agency relationship are not fulfilled, 
and (2) the parties' commercial behavior, sales documentation and 
internal accounting records are consistent with a purchase/resale 
relationship. According to MC, the price between MHI and MC is the 
relevant U.S. price (pursuant to the ``trading company'' rule) because 
MHI knew that the ultimate destination of the merchandise was the 
United States and MHI and MC are unaffiliated parties.
    Specifically, MC asserts that under U.S. law, an agency 
relationship has several required characteristics which are not present 
in the transaction under investigation. For example, it cannot exist 
without an explicit agreement from the principal authorizing the agent 
to act on his behalf in a specified context, and explicit consent by 
the agent to act on the principal's behalf and only at the principal's 
direction; and the agent does not act independently, pursuing his own 
economic interests, but rather is acting exclusively to promote the 
interests of the principal. According to MC, in a typical sales agent 
relationship, the agent's job is to locate potential customers for the 
principal. The principal makes all commercial decisions and takes 
whatever profits accrued from the transaction. The agent is compensated 
based on the principal/agent agreement. By contrast, resellers, while 
they must cooperate with the seller to conduct business, they are 
independent in their actions, take on more initiative and 
responsibility, and bear more risk in the transaction than an agent 
does. Specifically, resellers (1) Take title to the goods, (2) carry 
the risk of loss, and (3) are compensated based on the spread or mark-
up that they can achieve independently on a resale. Based on the 
behavior of the parties in the transaction and the documentation on the 
record, MC maintains that MC and MIC acted as independent resellers in 
the U.S. sale at issue. MC points out that if MC and MIC had been 
acting as sales agents in the transaction at issue, MHI would have: (1) 
Asked MIC or MC to solicit possible customers for MHI; (2) negotiated 
all commercial terms and entered into the contract with the customer; 
and (3) received the profit from the transaction, while MC/MIC would 
have merely received a commission pursuant to the agency agreement. 
According to MC, the record demonstrates that the sale at issue did not 
occur in this manner.
    Moreover, MC states that the legal documentation and internal 
accounting records of the transaction at issue likewise confirm that 
MC/MIC acted as

[[Page 24403]]

independent purchasers and resellers. MC asserts that the legal 
documentation shows that MC and MIC each took title to the MHI turbo-
compressor equipment, bore the risk of loss and were fully responsible 
for the further completion of the sale at issue. MC also asserts that 
MC's and MIC's internal accounting records reflect purchase and sale 
transactions, show that the price received from the resale customer is 
higher than the price paid by MC/MIC to its supplier, and do not report 
any commission.
    Finally, like MHI, MC disagrees with the petitioner's argument that 
the alleged agency relationship between MHI and MC is grounds for a 
finding of affiliation. MC maintains that by its nature, a transaction-
specific agency relationship could not rise to the level of permanence, 
significance, and control necessary to support a finding of affiliation 
that is suggested by the Department's proposed regulations.

DOC Position

    We agree with the petitioner. We determine that a principal and 
agent in a sales transaction, even if unrelated in a broader corporate 
sense, are ``affiliated'' within the meaning of section 771(33) of the 
Act. For the purpose of determining U.S. price, the pre-URAA law 
(section 771(13)) included an explicit reference to principal-agent 
relationships in the definition of ``exporter'' and, in practice, sales 
agents and their principals were deemed affiliated for the purpose of 
calculating U.S. price. (See, e.g., Final Determination of Sales at 
Less Than Fair Value: Furfuryl Alcohol from South Africa, 60 FR 22550 
(May 8, 1995) (``Furfuryl Alcohol from South Africa''); Electrolytic 
Manganese Dioxide from Japan: Final Results of Antidumping 
Administrative Review, 58 FR 28551 (May 14, 1993) (``Electrolytic 
Manganese Dioxide from Japan'').) In the URAA, Congress repealed this 
provision and replaced it with the new definition of ``affiliated 
persons'' in section 771(33) of the Act. While there is no explicit 
reference to agents in new section 771(33), we nevertheless interpret 
the new definition to include agents for several reasons. First, the 
legislative history is clear that Congress intended to expand, not 
limit, the definition of ``affiliated persons'' beyond that which 
existed under the pre-URAA law. Second, the new law defines an 
affiliated party to include ``any person who controls any other 
person'' or ``any person which is legally or operationally in a 
position to exercise restraint or direction over another person.'' 
Thus, this definition covers principal-agent relationships because, by 
definition, a principal controls its agent. The agent may act only to 
the extent its actions are consistent with the authority granted by the 
principal. Thus, control of the principal over its agent is the 
hallmark of an agency relationship. (See Restatement, section 14.)
    While we agree that an agent may negotiate at arm's length the 
terms of an agency agreement, we disagree with MHI that this leads to 
the conclusion that there is no control within the meaning of section 
771(33). With respect to activities undertaken pursuant to the agency 
(e.g., the sale of merchandise), the principal unquestionably controls 
the agent. Further, the very narrow definition of control proffered by 
MHI (i.e., the ability to force another party to act against its own 
economic interests) is inconsistent with the Act. The Act defines 
control as the ability, legally or operationally, to direct or restrain 
the acts of another. It is irrelevant whether that control is exercised 
to the benefit or detriment of the controlled party.
    In light of this interpretation, we believe that, contrary to the 
respondents' assertions, the ``trading company'' rule does not apply in 
cases where, as here, an agency relationship exists. This rule provides 
that when a foreign producer sells subject merchandise to an 
unaffiliated trading company in the home market with knowledge that the 
merchandise will be sold for exportation to the United States, the 
producer's price to the unaffiliated trading company (and thus EP) is 
the appropriate basis for U.S. price. (See Forged Steel Crankshafts 
from Japan, 52 FR 36984, October 2, 1987.) In a case where the trading 
company acts as the foreign producer's selling agent, however, the 
foreign producer and trading company would be considered affiliated by 
virtue of their principal-agent relationship. The trading company rule 
has been rejected in past cases with similar factual patterns where an 
agency relationship exists between the producer and trading company. 
(See Color Television Receivers, Except for Video Monitors, from 
Taiwan, 53 FR 49706, 49711, December 9, 1988.)
    Based on our analysis of the facts of record, we find that MC/MIC 
were acting as agents on MHI's behalf in the U.S. sale at issue. The 
analysis of whether a relationship constitutes an agency is case-
specific and can be quite complex; there is no bright line test. For 
example, although agency relationships are frequently established by a 
written contract, this is not essential. Under general principles of 
agency, the focus of the analysis is whether it is agreed that the 
agent is to act primarily for the benefit of the principal, not for 
itself. (See Restatement, sections 1 cmt.b. and 26 cmt.a. See also 
sections 14J and 14K.)
    The Department has examined allegations of an agency relationship 
in only a few cases and has focused on a range of criteria including: 
(1) The foreign producer's role in negotiating price and other terms of 
sale; (2) the extent of the foreign producer's interaction with the 
U.S. customer; (3) whether the agent/reseller maintains inventory; (4) 
whether the agent/reseller takes title to the merchandise and bears the 
risk of loss; and (5) whether the agent/reseller further processes or 
otherwise adds value to the merchandise. See, e.g., Furfuryl Alcohol 
from South Africa, 60 FR 22550; Electrolytic Manganese Dioxide from 
Japan, 58 FR 28551.
    In this case, based on an examination of these and other pertinent 
criteria outlined in the April 24, 1997, Agency Decision Memorandum, we 
found that an agency relationship existed between MHI and MC/MIC in the 
sales transaction at issue. In particular, we note that the record 
evidence demonstrates that MHI effectively controlled the price, among 
other terms of sale, in the transaction with the U.S. customer. The 
evidence also shows that MHI conducted some marketing of its product to 
the U.S. customer in the pre-sale period, and that its identity was 
disclosed throughout the sales documentation governing the sale in a 
manner indicative of a principal-agent relationship. In addition, MC/
MIC did not maintain inventory of, or further process, the subject 
merchandise. Although MC/MIC took title to the merchandise and bore the 
risk of loss, and that most of MHI's contact with the customer during 
the pre-sale period was indirect and limited to technical matters, we 
believe that based on the totality of the circumstances, that MC/MIC 
was under MHI's control in the transaction at issue and, therefore, an 
agency relationship existed.
    Therefore, we determine that MHI and MC/MIC are ``affiliated'' 
within the meaning of section 771(33) of the Act by virtue of their 
principal-agent relationship, not on the basis of the broader corporate 
relationship between the parties. Having determined that the parties 
are affiliated, we then considered whether the EP or CEP methodology 
was appropriate. Based on the extensive role of MC/MIC in the U.S. 
sales process, we have used CEP methodology in the final determination.
    Comment 3: Corporate Affiliation under Sections 771(33)(F) and (G) 
of the Act.

[[Page 24404]]

    The petitioner contends that MHI and MC/MIC are affiliated within 
the meaning of section 771(33)(F) of the Act. The petitioner contends 
further that because of their interlocking corporate relationship, MHI 
and MC are legally or operationally in a position to exercise restraint 
or direction over the other, and that the record contains sufficient 
evidence of common control between the two companies. The petitioner 
urges the Department to evaluate the indicia of control (i.e., 
corporate grouping, joint venture agreement, debt financing, close-
supply relationship) described in the SAA cumulatively within the 
context of control by a corporate group.
    Further, the petitioner believes, contrary to respondents, that 
``control'' within the meaning of section 771(33) of the Act, does not 
require that one party has the power to coerce another to act against 
its own interest and that this power extends beyond a particular 
transaction. The petitioner states that no statutory principle embodies 
this requirement. The petitioner believes that ``control'' within a 
particular transaction is particularly important in cases, such as the 
instant one, where there are few individual transactions and a producer 
may have strong influence over the ultimate purchaser by virtue of 
longstanding relationships.
    MHI maintains that MHI and MC do not satisfy the requirements for 
``control'' specified in sections 771(33)(F) and (G) of the Act and, 
therefore, should not be treated as affiliated parties in the 
Department's final antidumping analysis. MHI believes that to justify a 
finding of control, the Department must: (1) Be able to identify the 
controlling party and the controlled party; (2) examine MHI's and MC's 
corporate relationship outside the confines of a specific transaction; 
and (3) find evidence of the ability to exercise economic coercion 
where one party can force the other party to act against its own 
interest. MHI asserts that it is unlawful and illogical to conclude, as 
the petitioner does, that affiliated parties exercise mutual control, 
or that control can be diffused among a group of companies, the 
membership of which is not defined legally. According to MHI, the 
Department must determine that MHI controls MC, or MC controls MHI, or 
some identifiable third party controls them both. Moreover, MHI states 
further that this determination must be made in light of business and 
economic reality, suggesting that the control relationship must be 
significant and not easily replaced.
    Further, MHI maintains that its analysis of the facts in this 
investigation shows that MHI and MC did not have the ability to 
exercise restraint or direction under the control indicia enumerated in 
the SAA.
    Like MHI, MC claims that MC and MHI do not qualify as 
``affiliated'' persons under section 771(33) of the Act based on an 
analysis of their relationship in terms of each of the control indicia 
enumerated in the SAA. MC asserts that the affiliation issue was 
already examined in the final determination of LNPPS from Japan (61 FR 
38156-38157) where the Department ruled that the potential indicators 
of control between MHI and MC taken individually were an insufficient 
basis of finding control, and that the record facts with respect to 
MC's/MHI's relationship and their relationship with third parties have 
not changed so as to warrant a reversal of that decision.
    MC also repeats many of the same arguments and similar facts stated 
by MHI regarding the issue.

DOC Position

    The Department invited comments on this issue in its preliminary 
determination and evaluated the relevant facts in this case in the 
context of the control standard set forth in section 771(33) of the Act 
and the SAA. (See April 24, 1997, Memorandum to Jeffrey P. Bialos, 
Principal Deputy Assistant Secretary for Import Administration, from 
Louis Apple Re: Summary of Evidence on the Record of the Investigation 
Regarding Potential Affiliation of MHI and MC.) In the facts and 
circumstances of this case, however, we have determined that the 
Department does not need to render a determination on this issue 
because we have already found an agency relationship to exist and, on 
that basis, have found the parties to be affiliated pursuant to section 
771(33) of the Act. Accordingly, as noted in Comment 2 above, the 
Department used CEP methodology for this sale and has deducted the U.S. 
import duties and actual selling expenses incurred by MC/MIC pursuant 
to our practice set forth in Furfuryl Alcohol from South Africa.
    Comment 4: Level of Trade (``LOT'')/CEP Offset.
    The petitioner contends that MHI should not receive either a LOT 
adjustment or a CEP offset because it did not establish that its U.S. 
transaction with MC/MIC is at a different LOT from its home market 
sales. According to the petitioner, the record does not demonstrate 
that there are any quantitative or qualitative differences between 
MHI's home market and U.S. selling functions. The petitioner believes 
that, given the technical complexity of the subject merchandise and the 
importance of customer specifications to each sale, the same set of 
selling functions (e.g., bid preparation, warranty, and installation 
supervision) were performed by MHI for its EPGTS sales in both the home 
market and the United States. In support of this argument, the 
petitioner cites to the Notice of Proposed Rulemaking and Request for 
Public Comment explaining section 351.412(c)(2) of the Department's 
proposed regulations, which states: ``where the selling functions and 
activities are substantially the same, however, sales normally will be 
considered to have been made at the same level of trade.''
    MHI contends that if the Department determines that CEP is the 
appropriate basis for United States price, and collapses the activities 
of MHI with those of MC/MIC, the Department should grant MHI a CEP 
offset. MHI contends that it qualifies for a CEP offset because: (1) 
Its CV is at a different LOT from its U.S. sale; (2) no data exist to 
examine the price comparability between different home market LOTs; and 
(3) the U.S. sale occurs at a less advanced stage of distribution than 
its home market sales. In the alternative, MHI asks the Department to 
base the calculation of SG&A and profit for CV upon the home market 
sale to the trading company (i.e., MC), because that sale is allegedly 
at a LOT that is comparable to its U.S. sale.
    MHI asserts that its home market sales include certain selling 
functions not found in its sale to MC/MIC (e.g., initial customer 
contact, sales support operations, and delivery), and that its home 
market sales occur at a more advanced stage of distribution than its 
sale to MC/MIC. Citing Aramid Fiber Formed of Poly Para-Phenylene 
Terephthalamide from the Netherlands, 61 FR 51406, 51409 (1996), among 
other cases, MHI argues that because the adjustments to CEP under 
section 772(d) of the Act will create a LOT that is at a less advanced 
stage of distribution than MHI's LOT in the home market. Accordingly, 
MHI maintains that the Department should calculate a LOT adjustment to 
MHI's CV in the form of a CEP offset, if it does not base CV selling 
expenses and profit exclusively on MHI's home market sale to a trading 
company.

DOC Position

    We agree with the petitioner. In accordance with section 
773(a)(1)(B)(i) of the Act and the SAA accompanying the URAA, H.R. Doc. 
No. 316, 103d Cong., 2d Sess. at 829-831 (1994), to the extent 
practicable, the Department will calculate NV based on sales at the 
same

[[Page 24405]]

LOT as the U.S. sale(s). When the Department is unable to find sale(s) 
in the comparison market at the same LOT as the U.S. sale(s), the 
Department may compare sales in the United States to foreign market 
sales at a different LOT. Pasta from Italy, 61 FR at 30330-30331. The 
LOT of NV is that of the starting-price sales in the home market. When 
NV is based on CV, the LOT is that of the sales from which we derive 
SG&A and profit.
    For both EP and CEP, the relevant transaction for LOT is the sale 
from the exporter to the importer. While the starting price for CEP is 
that of a subsequent resale to an unaffiliated buyer, the construction 
of the EP results in a price that would have been charged if the 
importer had not been affiliated. We calculate the CEP by removing from 
the first resale to an independent U.S. customer the expenses specified 
in section 772(d) of the Act and the profit associated with these 
expenses. These expenses represent activities undertaken by, or on 
behalf of, the affiliated importer and, as such, they tend to occur 
after the transaction between the exporter and importer for which we 
construct CEP. Because the expenses deducted under section 772(d) of 
the Act represent selling activities in the United States, the 
deduction of these expenses normally yields a different LOT for the CEP 
than for the later resale (which we use for the starting price). 
Movement charges, duties, and taxes deducted under section 772(c) do 
not represent activities of the affiliated importer, and we do not 
remove them to obtain the CEP LOT.
    In order to determine whether foreign market sales are at a 
different LOT than U.S. sales, the Department examines whether the 
foreign market sales have been made at different stages in the 
marketing process, or the equivalent, than the U.S. sales. The 
marketing process in both markets begins with goods being sold by the 
producer and extends to the sale to the final user, regardless of 
whether the final user is an individual consumer or an industrial user. 
The chain of distribution between the producer and the final user may 
have many or few links, and the respondent's sales occur somewhere 
along this chain. In the United States this is generally to an 
importer, whether independent or affiliated. We review and compare the 
distribution systems in the foreign market and the United States, 
including selling functions, class of customer, and the extent and 
level of selling expenses for each claimed LOT. Customer categories or 
descriptions (such as trading company or end-user) are useful in 
identifying different LOTs, but are insufficient to establish that 
there is a difference in the LOT without substantiation. An analysis of 
the chain of distribution and of the selling functions substantiates or 
invalidates claimed customer classification levels. If the claimed 
customer levels are different, the selling functions performed in 
selling to each level should also be different. Conversely, if customer 
levels are nominally the same, the selling functions performed should 
also be the same. Different stages of marketing necessarily involve 
differences in selling functions, but differences in selling functions 
(even substantial ones) are not alone sufficient to establish a 
difference in the LOT. A different LOT is characterized by purchasers 
at different places in the chain of distribution and sellers performing 
qualitatively or quantitatively different functions in selling to them.
    When sales in the U.S. and foreign market cannot be compared at the 
same LOT, an adjustment to NV may be appropriate. Section 773(a)(7)(A) 
provides that, after making all appropriate adjustments to EP or CEP 
and NV, the Department will adjust NV to account for differences in 
these prices that are demonstrated to be attributable to differences in 
the LOT of the comparison sales in the foreign market.
    With respect to the CEP offset, the statute also permits an 
adjustment to NV if it is compared to U.S. sales at a different LOT, 
provided the NV is more remote from the factory than the CEP sales, and 
we are unable to determine whether the difference in LOT between CEP 
and NV affects the comparability of their prices.
    This latter situation can occur where there is no foreign market 
LOT equivalent to the U.S. sales level, or where there is an equivalent 
foreign market level, but the data are insufficient to support a 
conclusion on price effect. Where different functions at different LOTs 
are established under section 773(a)(7)(A)(i), but the data available 
do not form an appropriate basis for determining a LOT adjustment under 
section 773(a)(7)(A)(ii), the Department will make a CEP offset 
adjustment under section 773(a)(7)(B), which is the lower of: (1) The 
indirect selling expenses on the foreign market sale; or (2) indirect 
selling expenses deducted from the CEP starting price under section 
772(d)(1)(D).
    In applying these principles to the facts in this case, we began by 
removing from the CEP starting price the expenses specified in section 
772(d) of the Act and the profit associated with these expenses. These 
expenses represent activities undertaken by, or on behalf of, MC/MIC in 
connection with the first sale to an unaffiliated customer in the 
United States. In this regard, we identified: direct and indirect 
selling expenses incurred by MIC for initial customer contacts, sales 
negotiations, communications, and shipping logistics in the United 
States to the unaffiliated customer; installation-related expenses 
incurred by MHI in the United States following shipment of the subject 
merchandise to the unaffiliated U.S. customer; and, indirect selling 
expenses incurred by MHIA relating to U.S. office maintenance and 
technical support.
    Next, we sought to compare the distribution systems used by MHI for 
its U.S. and home market sales, including selling functions, class of 
customer, and the extent and level of selling expenses for each claimed 
LOT. In reviewing the selling functions performed by MHI for both the 
U.S. and home market sales transactions, we considered all types of 
selling activities, both claimed and unclaimed, that had been 
performed. As noted above, it is the Department's preference to examine 
selling functions on both a qualitative and quantitative basis. While 
MHI and MC provided information on the nature of the varying selling 
functions performed for the sales transactions in both the U.S. and 
home markets, respondents did not provide the Department with data 
quantifying these selling activities. Further, at verification, such 
information could not be derived from records and accounting systems 
maintained by respondents in the ordinary course of business.
    When we examined the CEP transaction between MHI and MC/MIC, we 
identified the following selling functions performed by MHI: sales 
negotiation and bid preparation; maintenance of sales office; technical 
specification development and monitoring; parts procurement activities; 
shipping arrangements; performance testing; and warranty extension. 
When we reviewed MHI's home market sales during the POI, we did not 
consider the one sale found to be outside the ordinary course of trade 
(i.e., below the cost of production). Instead, we focused upon the two 
remaining sales which were nominally made at different customer 
levels--that is, trading company and end-user. However, when we 
analyzed the selling functions at both levels, we found that they were 
basically the same. Specifically, MHI performed the following selling 
functions in connection with both home market sales: initial customer 
contact; sales negotiation and bid preparation; maintenance of sales 
offices; technical

[[Page 24406]]

specification development and monitoring; parts procurement activities; 
shipping arrangements; and warranty extension. The only selling 
function that might have been different between the two sales was 
installation activity. However, we have treated the expense relating to 
installation activity as a direct selling expense for which we have 
made a circumstances of sale adjustment pursuant to section 353.56(a) 
of our regulations. (See Memorandum to Case File, April 24, 1997.)
    As a result of this analysis, we have determined that an 
examination of MHI's selling functions in the home market does not 
validate the claimed customer classification levels. Therefore, we have 
determined that MHI's home market sales in the ordinary course of trade 
are not made at different LOTs, and we have based our calculation of 
SG&A and profit for CV upon these sales. (See ``Constructed Value'' 
section of this notice for more details.)
    Finally, we compared the LOT of the CEP sale to the LOT of CV. 
Here, again, we found no significant difference. Indeed, with only two 
exceptions, MHI did perform the same selling functions on its home 
market sales that it did on its CEP transaction with MC/MIC. These 
functions, as noted above, included: sales negotiation and bid 
preparation; maintenance of sales office; technical specification 
development and monitoring; parts procurement activities; shipping 
arrangements; and warranty extension. The only exceptions concern (1) 
Initial customer contact and (2) performance testing. As explained 
above, initial customer contact for the CEP sale was performed by, or 
on behalf of, MC/MIC. Therefore, this expense (and the profit 
associated with it) was deducted from the CEP starting price pursuant 
to section 772(d) of the Act. In connection with its home market sales, 
while MHI claimed to have performed initial customer contact functions, 
the Department was unable to verify the accuracy of this claim.
    With respect to performance testing conducted for the CEP 
transaction, the expense relating to this selling function is 
insignificant when compared to the total sales value of the CEP 
transaction (see Memorandum to the Case File, dated April 24, 1997). 
This difference in selling function between the U.S. and home markets 
is, therefore, not significant for purposes of our LOT analysis.
    In conclusion, our analysis of the record evidence regarding the 
distribution systems in the foreign market and the United States 
(including selling functions, class of customer, and the extent and 
level of selling expenses for each claimed LOT) does not reveal 
sufficient differences to justify either a LOT adjustment or a CEP 
offset. Although there appear to be differences associated with 
customer categories, these differences are not borne out by an analysis 
of the selling functions for the home market and CEP sale, which are 
largely the same. See Gray Portland Cement and Clinker from Mexico, 62 
FR 17148, 17155-58 (1997).
    Comment 5: MC's/MIC's Expenses and Value of Non-Subject Parts.
    The petitioner argues that all actual expenses incurred by MC/MIC 
in the U.S. transaction which were not deducted in the preliminary 
determination should be deducted in the final determination in 
accordance with section 772 (c) and (d) of the Act. These expenses 
include U.S. Customs duties paid by MIC and selling expenses incurred 
by MC/MIC which are associated with U.S. economic activity. In 
addition, the petitioner maintains that the Department should continue 
to deduct the value of non-subject parts from the CEP starting price 
based on the amount ultimately charged to the U.S. customer, rather 
than MIC's actual costs because there is no evidence that the former 
amount was not at arm's length.
    MHI argues that the petitioner's suggested adjustments to U.S. 
price should be rejected because: (1) CEP methodology is not warranted 
in this case for the reasons it explained in Comment 2 above; and (2) 
by using the MHI-to-MC price as the basis for starting price and thus 
applying EP methodology, the Department would substantively accommodate 
the adjustments proposed by the petitioner. MHI points out that all of 
MC's/MIC's expenses for the U.S. sale are included in the difference 
between the MHI's price to MC and MIC's price to the U.S. customer.

DOC Position

    We agree with the petitioner, in part. Based on our decision in 
Comment 3 above, we have deducted from CEP all actual expenses incurred 
by MC/MIC in the transaction, including U.S. import duties, selling 
expenses associated with U.S. economic activity, and MIC's cost of non-
subject parts from the CEP starting price.
    Comment 6: U.S. Indirect Selling Expenses Incurred in Country of 
Manufacture.
    The petitioner contends that certain items that were reported as 
part of MHI's indirect selling expenses were actually directly related 
with US sales activities and as such should be deducted from CEP. The 
petitioner identifies those items as pre-bid meetings, travel, and 
salesman visits. Because the nature of the subject merchandise in this 
investigation requires technical design to the customer's 
specifications, the petitioner asserts that the above-noted selling 
expenses incurred by MHI were necessarily attributable to the 
commercial activity in the United States and, therefore, should be 
deducted accordingly. To support this assertion, the petitioner cites 
Pasta from Italy, 61 FR at 30352. In the absence of information 
sufficient to identify these expenses as direct expenses, the 
petitioner argues that the Department should reduce CEP by MHI's 
corporate indirect selling expense rate, or at a minimum, deduct all of 
the Japanese indirect selling expenses reported by MHI.
    In contrast, MHI asserts that, first, it is improper for the 
petitioner to base its argument on the assumption that CEP methodology 
is warranted in this case. Further, MHI asserts that it is the 
Department's practice to deduct from CEP only those U.S. selling 
expenses actually incurred in the United States. In support of this 
assertion, MHI cites to the Department's decisions in Calcium Aluminate 
Flux from France, 61 FR 40396, 40397 (August 2, 1996) (``Flux from 
France''), and Certain Internal-Combustion Industrial Forklift Trucks 
from Japan, 62 FR 5592 (February 6, 1997) (``Forklift Trucks from 
Japan''). According to MHI, there is no evidence on the record in this 
investigation which connects MHI's reported indirect selling expenses 
with U.S. economic activity.

DOC Position

    We agree with petitioner that certain of the indirect selling 
expenses incurred by MHI for the U.S. sale are associated with economic 
activity that occurred in the United States. Specifically, during 
verification, we identified certain pre-bid expenses, including travel 
expenses, that are appropriately included in our deduction of CEP 
expenses. We have accounted for these expenses in our final CEP 
calculations. (See Calculation Memorandum.)
    Comment 7: Other Unclaimed Expenses.
    The petitioner argues that certain other direct selling expenses 
allegedly related to shipment logistics should be deducted on the 
grounds that they are necessarily attributable to U.S. economic 
activity.
    MHI disagrees. It contends that the Department verified that the 
expenses at issue either were not incurred or were

[[Page 24407]]

properly reported as part of cost of production for the U.S. sale. 
Therefore, MHI asserts that no deduction to CEP for these expenses is 
warranted.

DOC Position

    We disagree with the petitioner. As MHI correctly points out, we 
verified that the expenses at issue either were not incurred or were 
properly reported as part of cost of production for the U.S. sale. (See 
March 11, 1997 MHI Verification Report at 32.) Therefore, we have not 
made any adjustments to CEP for the alleged direct selling expenses.
    Comment 8: Mitsubishi Heavy Industries America (MHIA Houston) 
Selling Expenses.
    The petitioner asserts that MHI improperly allocated MHIA Houston's 
reported selling expenses over both U.S. and non-U.S. sales, thereby 
understating the selling expenses incurred by MHIA Houston for the U.S. 
sale. The petitioner argues that MHIA Houston's selling expenses should 
be allocated over total U.S. sales of turbo-machinery given that a 
significant portion of MHIA expenses were allocated to such sales and 
MHIA's small size effectively precludes it from servicing sales in non-
U.S. markets. Therefore, the petitioner requests that the Department 
reject MHI's allocation formula and allocate MHIA Houston's selling 
expenses over U.S. sales only.
    MHI disagrees, arguing that the Department verified that MHIA 
Houston was involved in sales to countries other than the United 
States. According to MHI, while the market for turbo-machinery is 
worldwide, Houston is a major center for turbo-compressor manufacturers 
and plant contractors. Therefore, it is not unusual for meetings to 
take place in Houston for sales of turbo-machinery to both U.S. and 
non-U.S. markets. Based on these factors, MHI asserts that its 
allocation methodology for MHIA Houston's selling expenses is 
reasonable and accurate, and should be accepted for the final 
determination.

DOC Position

    We agree with MHI. At verification, we reviewed documentation 
showing that MHIA was involved in technical support activities relevant 
to both U.S. and non-U.S. sales. We also verified the accuracy and 
completeness of the indirect selling amount reported by MHI. (See March 
11, 1997 MHI Verification Report at 30.) Therefore, we have deducted 
MHIA's indirect selling expenses.
    Comment 9: U.S. Credit Expense.

A. General Calculation Methodology

    The petitioner asserts that the Department should reject the 
portion of MHI's claimed U.S. credit expense which reflects credit 
income for payment received prior to shipment (i.e., progress payment) 
and, for purposes of the final determination, calculate credit expense 
equal to the corporate interest rate multiplied by the final payment 
amounts times the number of days between shipment and payment, divided 
by the number of days in the calendar year (i.e., 365). According to 
the petitioner, the progress payments on which MHI's reported credit 
income is based are improperly characterized by MHI as a negative 
credit expense; rather, these payments are a form of working capital 
financing. Further, citing Cellular Mobile Telephones and Subassemblies 
from Japan, 50 FR 45,447, 45,455 (October 31, 1995), the petitioner 
argues that the Department does not include progress payments received 
in its calculation without evidence of interest revenue resulting from 
these payments. The petitioner notes that only if the Department 
considers the cost to MHI of financing EPGTS as work-in-process during 
the period between the dates of sale and shipment should the Department 
offset that cost with the interest income imputed for progress 
payments.
    MHI and MC request that the Department continue to calculate MHI's 
credit expense for the U.S. sale inclusive of the pre-shipment credit 
income at issue. According to MHI, the inclusion of imputed credit 
benefit for payments received prior to shipment and imputed credit 
expense for payments received after shipment reflect MHI's total cost 
of extending credit to its U.S. customer. MHI asserts that if the 
Department were to calculate credit as the petitioner suggests, it 
would result in a credit expense adjustment that fails to fairly 
measure MHI's opportunity cost of extending credit to the U.S. versus 
home market customers. MHI explains that, in this instance, the payment 
terms for the U.S. sale require the U.S. customer to make advance 
payments (or progress payments) prior to the shipment of merchandise 
while payment terms for home market sales do not require pre-shipment 
or progress payments. According to MHI, failure to include both 
payments received before and after shipment of merchandise would ignore 
the payment terms specific to the U.S. sale. Additionally, MHI points 
out that the petitioner fails to recognize that MHI's cost of financing 
production is comparable for both its U.S. and home market sales. 
Because MHI incurs its production costs for both U.S. and home market 
sales in yen, MHI asserts that the imputed cost of financing these 
sales would be comparable. Thus, MHI maintains that the calculation 
methodology adopted by the Department in the preliminary determination, 
but for the short-term interest rate used (see Comment 9(B) below), 
correctly measures MHI's opportunity cost of extending credit on behalf 
of its U.S. sale.
    MC also disagrees with the petitioner, arguing that the Department 
considers production costs in its credit expense analysis only when the 
terms of sale call for the payment of significant capital outlays (up-
front) prior to production and shipment, which did not happen in the 
case of the U.S. sale. Further, MC takes issue with the petitioner's 
argument that a credit income adjustment is allowed only if interest 
revenues on pre-shipment payments were obtained, maintaining that 
imputed credit expense amounts are calculated regardless of the 
presence or absence of actual borrowings.

DOC Position

    We agree with respondents and have calculated U.S. imputed credit 
expenses inclusive of the credit income at issue in the final 
determination.
    The intent of making a circumstances of sale adjustment for imputed 
credit expenses incurred in the U.S. and comparison markets is to 
adjust for differences in the payment terms extended to customers in 
the two different markets. In this case, ignoring the imputed credit 
income in the calculation of U.S. credit expense would result in a 
credit expense adjustment which would fail to accurately measure MHI's 
opportunity cost of extending credit to U.S. versus home market 
customers. We note that the Department has calculated credit using both 
pre- and post-shipment payments in past cases involving large, 
customized equipment with relatively long production periods. (See 
Mechanical Transfer Presses from Japan: Final Results of Administrative 
Review, 61 FR 52,910, 52,914 (1996).) In certain other past cases such 
as LNPPS from Japan, the Department has determined it to be appropriate 
to offset production financing costs with progress payments, as 
suggested by the petitioner, because there were multiple progress 
payments relevant to sales in both the U.S. and comparison market and 
an unusually long production period associated with the subject 
merchandise. In this case, however, only one progress payment

[[Page 24408]]

was made for a relatively small portion of the total contract price, 
the production period was not unusually long (i.e., approximately one 
year), and no progress payments are applicable to MHI's home market 
sales made during the POI.
    Therefore, we have determined that there is no need to use an 
alternative calculation methodology which would offset credit income 
associated with progress payments with production financing costs or 
one that would exclude credit income altogether from the calculation.

B. Short-term Interest Rate

    MHI argues that in calculating imputed credit expenses for the U.S. 
sale the Department should use the actual cost of the short-term 
borrowing reported by MHI. MHI maintains that the Department's decision 
in the preliminary determination to use a dollar-denominated short-term 
interest rate appears to be an automatic application of matching the 
currency of the interest rate used to the currency of the sale. 
According to MHI, this approach does not conform with economic 
rationale in this case where most of MHI's short-term debt was 
denominated in yen. In support of recalculating U.S. credit expense 
using the interest rate based on yen-denominated borrowings, MHI cites 
to (1) LMI-La Metalli Industriale, S.p.A. v. United States, 912 F.2d. 
455 (Fed. Cir. 1990) (LMI) in favor of using the interest rate for 
imputed credit calculations that is in accordance with ``commercial'' 
reality, and (2) United Engineering & Forging v. United States, 779 F. 
Supp. 1375 (Ct. Int'l Trade 1991), aff'd, 996 F.2d. 1236 (Fed. Cir. 
1993) (United Engineering) in favor of using the lowest rate at which 
the respondent has borrowed or to which respondent has access. 
Therefore, MHI requests that the Department use the lowest interest 
rate to which the respondent would have access, i.e., the reported yen-
denominated interest rate, in calculating the imputed U.S. credit 
expense in the final determination.
    Further, MHI takes issue with the Department's reliance on the 
rationale outlined in LNPPs from Japan for using a dollar-denominated 
short-term interest rate in the preliminary determination of this case. 
MHI asserts that the Department's reasoning for the use of such a rate 
captures the value of the credit to the customer, rather than the cost 
to the seller of extending credit, which is contrary to the calculation 
of the LTFV margin which is made from the seller's perspective. 
Specifically, MHI states that if the Department is attempting to 
measure the value of the theoretical loan from the seller to the buyer 
during the period between shipment and payment from the buyer's 
perspective, then the interest rate used should be the rate in which 
the receivable is denominated. However, because the antidumping law 
seeks to calculate a dumping margin based on the seller's expenses, MHI 
maintains that the rate in which the receivable is denominated is 
irrelevant. Instead, MHI argues that the Department must calculate the 
cost of this theoretical loan from the seller's perspective. To do so, 
MHI contends that the Department must examine MHI's actual cost of 
capital, which in this case is denominated in yen.
    The petitioner argues that the Department correctly applied a U.S. 
dollar-denominated interest rate to compute MHI's imputed credit 
expense on the U.S. sale. The petitioner asserts that the LMI decision 
on which MHI relies was based on whether the chosen interest rate 
comports with ``usual and reasonable commercial behavior.'' Therefore, 
the petitioner argues that it is necessary to consider the 
circumstances as a whole and not merely conclude that the lowest 
interest rate should be used. According to the petitioner, the 
circumstances in this investigation are as follows: (1) The foreign 
producer has borrowings in U.S. dollars; (2) the U.S. sale is in U.S. 
dollars; and (3) over one year elapses between the date of shipment and 
the date of payment. Based on these conditions, the petitioner finds it 
reasonable to use a U.S. dollar-denominated rate for purposes of 
calculating U.S. credit expense. In support of its argument, the 
petitioner cites LNPPs from Japan.

DOC Position

    We agree with the petitioner and have calculated U.S. credit 
expense based on the U.S. dollar-denominated interest rate in the final 
determination. As noted in the final determination of LNPPs from Japan 
(61 FR 38160), when sales are made in, and future payments are expected 
in, a given currency, the measure of a company's extension of credit 
should generally be based on an interest rate tied to the currency in 
which its receivables are denominated, as the seller is effectively 
lending to its purchaser in that currency. (See also Final 
Determination of Sales at Less Than Fair Value: Oil Country Tubular 
Goods from Austria, 60 FR 33551, 33555 (June 28, 1995).) Indeed, in the 
present case, the Department verified that MHI had U.S.-denominated 
short-term borrowings, the existence of which indicates the ability and 
preparedness of MHI to support its EPGTS activities which result in 
U.S. dollar-denominated revenues by borrowing in U.S. dollars. 
Consequently, the Department's approach is consistent with LMI. 
Further, contrary to respondent's suggestion, such an approach does not 
capture the value of the credit extended to the customer instead of the 
cost of extending credit to the seller. Rather, the cost calculated is 
the cost to MHI, matching its dollar-denominated borrowing rate to its 
dollar-denominated receivables. Whether or not this also reflects the 
value to the buyer is irrelevant. Therefore, there is no basis to 
depart from the Department's well-established practice.
    Comment 10: Circumstances of Sale Adjustment for Home Market Credit 
Expenses.
    MHI argues that in the preliminary determination, the Department 
failed to make a circumstances of sale adjustment for home market 
imputed credit expenses. Specifically, MHI asserts that the Department 
reduced the CEP by the amount of imputed credit expenses related to 
MHI's U.S. sale, but did not make a corresponding adjustment for home 
market credit expenses by subtracting the reported home market credit 
expense from CV. MHI asserts that CV profit includes all items in the 
home market price that are not otherwise included in CV. MHI reasons 
that since imputed credit expense is included in the home market price, 
it is included in the calculation of CV through a combination of 
interest expense and home market profit. Therefore, MHI contends that 
in order to ensure a fair value comparison, the home market credit 
expense should be subtracted from CV as a circumstance of sale 
adjustment. MHI cites LNPPS from Japan to support its contention.
    The petitioner contends that no such circumstances of sale 
adjustment is appropriate when NV is based on CV. Citing LNPPS from 
Japan, the petitioner also argues that because imputed credit is, by 
its nature, not an actual expense that would be included in the 
calculation of CV in accordance with section 773(2)(A) of the Act, 
there is no basis for an adjustment to CV for this imputed expense.

DOC Position

    We agree with MHI. While we would not add an amount for imputed 
credit expenses in the calculation of CV pursuant to section 
773(e)(2)(A) of the Act, such expenses are reflected in the calculation 
of CV profit and interest expense. Under the URAA, for CV, the statute 
provides that SG&A be based on actual amounts incurred by the exporter

[[Page 24409]]

for production and sale of the foreign like product (see section 773(e) 
of the Act). After calculating CV in accordance with the statute, we 
have, in essence, a NV. Consistent with section 773(a)(8) of the Act, 
adjustments to NV are appropriate when CV is the basis for NV.
    The Department uses imputed credit expenses to measure the effect 
of specific respondent selling practices in the United States and the 
comparison market. Therefore, we have deducted from CV home market 
imputed credit expenses as a circumstances-of-sale adjustment in the 
calculation of NV. (See Antifriction Bearings (Other Than Tapered 
Roller Bearings) from France et al.; Final Results of Antidumping Duty 
Administrative Reviews, 62 FR 2081, 2119-2120 (January 15, 1997).) 
Specifically, we deducted an amount for home market imputed credit 
expense based on a ratio of imputed credit expenses incurred on home 
market sales made in the ordinary course of trade to corresponding 
sales revenue.
    Comment 11: Currency Conversion.
    The petitioner contends that the exchange rate used in the 
preliminary margin calculation was erroneously a ``sustained movement 
rate'' and not the official exchange rate in effect on the date of the 
U.S. sale as stated in the Department's preliminary determination 
notice. According to the petitioner, the Department should not 
automatically apply the ``mechanical formula,'' as outlined in the 
Department's Policy Bulletin 96-1: Currency Conversions (61 FR 9434, 
March 8, 1996) (``Policy Bulletin 96-1''), which results in the 
sustained movement rate in this case, because the sustained movement 
rate is not suited for cases where sales are few and sporadic. Rather, 
according to the petitioner, it is better suited for continuous sales 
of commodities from a price list or based on periodic price 
negotiations. In this investigation, the petitioner notes that the 
subject merchandise is not sold continuously from a price list or 
annual supply contracts; EPGTS are sold one at a time, and only few 
sales are made in any given period. Under these circumstances, the 
petitioner asserts that the parties involved in the transaction of such 
merchandise are aware of the exchange rates, the currency used in the 
transaction, and the prospect of hedging in order to reduce the risk of 
changes in the exchange rate between the date of sale and date of 
shipment. Therefore, the petitioner urges the Department to revise the 
currency conversion formula accordingly to reflect the actual exchange 
rate in effect on the date of the U.S. sale in the final determination.
    MHI disagrees with the petitioner, arguing that the petitioner's 
description of the Department's currency conversion methodology is 
limited to the Department's method for identifying exchange rate 
fluctuations. In the case of sustained movement, MHI states that the 
Department allows at least 60 days for exporters to adjust their 
prices. Further, MHI notes that neither the Act, the SAA, the 
legislative history, nor Policy Bulletin 96-1, limits the sustained 
movement rule to scenarios with high volume sales or numerous 
transactions.

DOC Position

    We agree with MHI, and made all currency conversions into U.S. 
dollars using the sustained movement rate which resulted from the 
methodology described in Policy Bulletin 96-1. As explained below, we 
do not believe that the facts in this case warrant departure from this 
methodology. We note that the sustained movement rate was also 
appropriately used in the Department's preliminary calculations, but 
the Department incorrectly described it as the official exchange rate 
in effect on the date of the U.S. sale in its notice of preliminary 
determination.
    Section 773(A) of the Act provides that the Department will convert 
foreign currencies on the date of the U.S. sale, subject to certain 
exceptions. Those exceptions require the Department to ignore 
``fluctuations'' in the exchange rate and to provide respondent(s) in 
an investigation at least 60 days to adjust prices after a ``sustained 
movement'' in the exchange rate. Because neither the Act, the 
Antidumping Agreement (Agreement on Implementation of Article VI, GATT 
1994) nor the Department's proposed regulations provide detail on 
defining fluctuations or sustained movements, we designed the exchange 
rate model described in Policy Bulletin 96-1 in order to: 1) Implement 
the statutory requirements in a timely fashion; 2) ensure that all 
exporters, when they set their U.S. prices and whether under order or 
not, can know with certainty the daily exchange rate the Department 
will use in a dumping analysis; and 3) capture the model in simple 
computer code to reduce administrative burdens in monitoring exchange 
rates. Having used this model for at least one year, it remains our 
intention now to evaluate it based on our experience and public 
comments that we have received. However, we will continue to use the 
current model until our evaluation is complete.
    The model classifies each daily rate as ``normal'' or 
``fluctuating'' based on a ``benchmark'' rate. The benchmark is a 
moving average of the actual daily exchange rates for the eight 
consecutive weeks immediately prior to the date of the actual daily 
exchange rate to be classified. Whenever the actual daily rate varies 
from the benchmark rate by more than two-and-a-quarter percent, the 
actual daily rate is classified as fluctuating. If within two-and-a-
quarter percent, the actual daily rate is classified as normal. Actual 
daily rates classified as normal are the official exchange rate for 
that day. However, when an actual daily rate is classified as 
fluctuating, the benchmark rate is the official rate for that day.
    Whenever the weekly average of actual daily rates exceeds the 
weekly average of benchmark rates by more than five percent for eight 
consecutive weeks (the recognition period), the model classifies the 
exchange rate change as a sustained movement. During the eight week 
recognition period, the model continues to classify each daily rate as 
normal or fluctuating and to substitute the benchmark rate for the 
actual daily rate when the daily rate is fluctuating.
    When a sustained movement is identified in the Department's 
exchange rate model, increasing the value of a foreign currency in 
relation to the dollar, as in the instant case, respondents under an 
investigation are given 60 calendar days to correct their prices in 
order to mitigate against distortions to the Department's antidumping 
analysis that may be caused by sustained movement in the exchange rate. 
The 60-day grace period is meant to apply to all respondents in a 
variety of industries, irrespective of the volume or number of their 
transactions in any given period. This 60-day grace period begins on 
the first day after the recognition period. During that period, the 
official rate in effect on the last day of the recognition period will 
be the official rate in investigations.
    In this case, the actual date of the U.S. sale fell within the 60-
day adjustment period previously described. On April 26, 1995, all of 
the Department's criteria for a sustained movement were met, and the 
Department found that a sustained movement had occurred. As a result, 
all official exchange rates between April 26, 1995, and June 26, 1995, 
including the rate on the date of the U.S. sale, were held at the April 
26, 1995, rate.
    We have no basis on which to depart from our current methodology. 
Further, the petitioner's suggestion that the model should 
differentiate the exchange rate used based on a respondent's

[[Page 24410]]

volume or number of transactions necessarily implies that the 
Department would be required to develop an exchange rate model on a 
case-specific basis. We do not agree that this would be appropriate. In 
addition, it would unnecessarily increase administrative burdens on the 
Department and on parties interested in monitoring the exchange rates 
used by the Department in its antidumping analysis.
    Comment 12: Treatment of the Home Market Sale Made at a Below-Cost 
Price.
    MHI contends that section 773(b)(1) of the Act does not permit the 
Department to conduct a sales-below-cost investigation solely to 
recalculate CV profit. MHI asserts that such an investigation may be 
pursued only as a mechanism to reject below-cost home or third country 
market sales as the basis for a price comparison. MHI allows that while 
the CV profit calculation may be considered to be part of the 
``determination of NV,'' section 773(b)(1) of the Act requires the 
rejection of below-cost sales before the Department can resort to CV. 
Moreover, according to MHI, the discussion of NV at section 773(b)(1) 
of the Act addresses only home and third country market sales, and not 
CV. Because the Department based its antidumping analysis on CV and not 
on HM prices, MHI maintains that it was inappropriate for the 
Department to conduct a sales-below-cost investigation.
    Petitioner urges the Department to follow the methodology that it 
used in the preliminary determination of this case and exclude from the 
CV profit computation all HM sales made by MHI at below-cost prices. 
Petitioner asserts that nothing in the statute, SAA, or agency practice 
suggests that the Department may use below-cost sales as the basis for 
CV profit. According to petitioner, section 773(a)(4) of the Act 
establishes CV as a type of NV. In computing CV, the statute directs 
the Department to include an amount for profit based on the actual 
amounts realized by the producer in connection with home market sales 
of the foreign like product. Petitioner notes that where home market 
sales were made at below-cost prices, section 773(b)(1) of the Act 
provides that the Department exclude such sales from its determination 
of NV. Thus, petitioner concludes that because CV is a type of NV and 
the profit from home market sales is a factor in computing CV, the 
exclusion of below-cost sales under section 773(b)(1) must apply to 
home market sales used as the basis for CV profit in the Department's 
antidumping analysis. Petitioner adds that, under MHI's interpretation 
of the statute, the Department would be precluded from determining 
whether home market sales (and the profits from such sales) were made 
within the ordinary course of trade in all cases where such sales are 
not sufficiently similar to U.S. sales to allow for a price-based NV.

DOC Position

    We agree with the petitioner that the Department has the authority 
to conduct a sales-below-cost investigation regardless of whether the 
HM prices are used as the basis for a price-based NV or solely for the 
CV profit calculation. At the beginning of this case, we determined 
that each EPGTS sold in the home and U.S. markets during the POI was 
manufactured to custom specifications for a unique application and, 
thus, would be too dissimilar to permit a price-to-price comparison 
between the subject merchandise sold in the United States and the 
foreign like product sold in Japan. Therefore, we determined that the 
NV should be based on CV in accordance with section 773(a)(4) of the 
Act.
    Section 773(e)(2)(A) of the Act directs the Department to include 
in CV an amount for profits earned from sales of the foreign like 
product in the ordinary course of trade and for consumption in the 
foreign country. The Act also states, at section 771(15), that below-
cost sales made within an extended period of time and in substantial 
quantities are considered outside the ordinary course of trade. 
Therefore, in cases where the petitioner provides the Department with 
reasonable grounds to believe or suspect that the foreign like product 
forming the basis for CV profit was sold at below-cost prices, we will 
conduct a cost investigation and will exclude those sales determined to 
be outside the ordinary course of trade.
    Comment 13: Reasonable grounds to believe or suspect that home 
market sales were made at below-cost prices.
    MHI argues that the Department lacked reasonable grounds to believe 
or suspect that sales were made at prices below their cost of 
production prior to initiating its sales below-cost investigation. MHI 
contends that the Department was mistaken in its characterization of 
MHI's post-cost allegation adjustments as new factual information. MHI 
insists that its November 22, 1996 rebuttal simply proved that 
petitioner's analysis was incorrect and that the data used by MHI in 
the rebuttal was, or could be, supported by reference to its previously 
submitted questionnaire responses. MHI asserts that it is incumbent 
upon the Department to specifically and precisely identify the new 
factual information in MHI's rebuttal. MHI claims that the Department's 
position that MHI submitted new factual information regarding the 
aggregate profitability of its HM sales is far to vague for a reviewing 
court to determine whether the Department correctly applied its own 
policy.
    Petitioner claims that despite MHI's November 22, 1996 rebuttal of 
petitioner's below-cost sales allegation, the Department had reasonable 
grounds to suspect a below-cost sale had been made in the HM. 
Petitioner states that in its rebuttal, MHI maintained that petitioner 
had committed a ``simple methodological error'' in its sales-below-cost 
allegation. Petitioner argues that MHI's rebuttal, rather than 
establishing that petitioner committed a methodological error, reveals 
that MHI reallocated production costs among the HM contracts in such a 
manner that each HM sale was shown to have been made at a profit. 
Further, petitioner asserts that MHI's subsequent January 1, 1997 
reallocation of production costs and concession that the sale in 
question was below cost, refutes any argument that the Department's 
rejection of the below-cost sale was unreasonable.

DOC Position

    We disagree with MHI. The information provided by petitioner in its 
sales-below-cost allegation provided reasonable grounds for us to 
believe or suspect that MHI had sold the foreign like product at a 
price that was less than the company's cost of production. Moreover, 
contrary to MHI's claims, the data provided in its November 22, 1996 
rebuttal comments constituted new factual information which we do not 
consider in making our determination to initiate a sales-below-cost 
investigation. Although the aggregate profitability of all home market 
sales (reported in the third column of figures of Attachment 1 of MHI's 
November 22, 1996, rebuttal) had been submitted in MHI's November 12, 
1996, submission, the revised aggregate profitability of only home 
market sales 1 and 2 (reported in the third column of figures of 
Attachment 1 of MHI's November 22, 1996, rebuttal) included cost 
adjustments, resulting in revised profits. The data in this column 
represents new information which was not previously on the record.
    Import Administration Policy Bulletin 94.1 sets forth the 
Department's practice with respect to new factual information submitted 
by respondents subsequent to the filing of a cost allegation by 
petitioners or other interested parties. The Bulletin states that the 
Department disregards any new information regarding the actual costs of 
production

[[Page 24411]]

where such information is used to rebut portions of an allegation. As 
noted in the Policy Bulletin, the Department's purpose in reviewing the 
sufficiency of an allegation is not to determine if sales were in fact 
made at below-cost prices. Instead, the Department must decide whether, 
based on the information available to the petitioner at the time of the 
allegation, there is sufficient reason to believe that below-cost sales 
exist.
    Comment 14: Home market sales made outside the ordinary course of 
trade.
    Petitioner claims that the SAA is clear that below-cost sales are 
outside the ordinary course of trade for purposes of calculating profit 
for CV. Petitioner cites the SAA and Section 773(e)(2)(A) of the Act as 
establishing that:
    (1) CV profit is to be calculated based on sales in the ordinary 
course of trade;
    (2) The Department may ignore sales that it disregards as a basis 
for NV, such as below-cost sales; and
    (3) Unlike current practice, in most cases, the Department would 
use profitable sales as the basis for calculating CV profit.
    Petitioner argues that section 771(15) of the revised act defines 
the ordinary course of trade to exclude below-cost HM sales disregarded 
under section 773(b)(1) and therefore below-cost sales rejected under 
section 773(b)(1) will also be rejected as a basis for profits. 
Petitioner maintains that the statute places the burden on MHI to 
establish that any below-cost sales are ordinary and should not be 
rejected. Petitioner asserts that therefore, it is clear that the HM 
below-cost sale in this case should be considered to be outside the 
ordinary course of trade and excluded from the CV profit computation.
    In the alternative, MHI argues that even if one of its HM sales was 
properly found to be below cost, that does not mean this sale should be 
``automatically'' excluded from the calculation of CV. Citing FAG U.K. 
v. United States, 945 F. Supp. 260 (CIT 1996) and a series of other 
cases, MHI argues that the burden is on petitioner to show that this 
below-cost sale was ``outside the ordinary course of trade'' within the 
meaning of section 771(15) of the Act. This burden, MHI asserts, has 
not been met and, therefore, all HM sales should be included in the 
calculation of CV.
    MHI also relies upon the SAA. According to MHI, the SAA's reference 
to profitable sales providing the basis ``in most cases'' for the 
calculation of profit in CV ``implicitly recognizes that there are 
situations in which unprofitable sales will also be included in the 
calculation.''

DOC Position

    For the most part, we disagree with MHI. As we state above in 
response to comment 1, section 773(e)(2)(A) of the Act provides that 
the calculation of profit in CV shall be based upon ``the actual 
amounts incurred and realized by the specific exporter or producer * * 
* in connection with the production and sale of a foreign like product, 
in the ordinary course of trade, for consumption in the foreign 
country'' (emphasis added). Section 771(15) of the Act further states 
that sales made below their cost of production within the meaning of 
section 773(b)(1) of the Act are not within the ``ordinary course of 
trade.'' The cases cited by MHI, including FAG U.K. v. United States, 
were decided under the pre-URAA version of the statute. That statutory 
language, unlike the current language, did ``not limit the meaning of 
`ordinary course of trade' to sales made above cost.'' 945 F. Supp at 
269.
    We also cannot agree with MHI's reading of the SAA. At page 169, 
the SAA states, in part:

    Commerce will base amounts for SG&A expenses and profit only on 
amounts incurred and realized in connection with sales in the 
ordinary course of trade of the particular merchandise in question 
(foreign like product). Commerce may ignore sales that it disregards 
as a basis for normal value, such as those disregarded because they 
are made at below-cost prices (emphasis added).

    It is clear from the record of this case that MHI made a sale in 
the HM at a price that was below the cost of production, within an 
extended period of time, and in substantial quantities (i.e., outside 
the ordinary course of trade). Accordingly, we believe that section 
773(e)(2)(A) of the Act supports our decision to exclude this sale from 
the CV profit computation. Because section 773(e)(2)(A) and its 
interpretation in the SAA indicate that CV profit should be calculated 
based on sales in the ordinary course of trade and that in most cases 
the Department should use profitable sales as the basis for calculating 
CV profit, it is our opinion that the party claiming that below-cost 
sales should not be considered outside the ordinary course of trade 
should generally bear the burden of proving such an assertion.
    Comment 15: Valuation of Inputs Purchased From Affiliated Parties.
    Petitioner contends that the valuation of affiliated party 
purchases should reflect arm's length values, including usual profits 
earned on arm's length transactions. Petitioner asserts that the 
Department has adjusted MHI's reported costs of inputs purchased from 
affiliated parties under the ``transactions disregarded'' clause of 
section 773(f)(2) of the revised act, rather than the ``major inputs'' 
clause of section 773(f)(3), which MHI assumes to be our basis for the 
adjustment. Petitioner argues that because the ``transactions 
disregarded'' clause of Section 773(f)(2) states that the reported 
costs should ``fairly reflect the amount usually reflected'', the 
Department should add a reasonable profit to the affiliated supplier's 
total cost in order to reflect an arm's length price. Petitioner claims 
that because MHI did not purchase comparable services from an 
unaffiliated supplier, and the affiliated supplier did not sell 
comparable services to an unaffiliated purchaser, the Department must 
determine an appropriate amount ``based on the information available as 
to what the amount would have been if the transaction was between 
persons who are not affiliated'' per section 773(f)(2). Petitioner 
asserts that the Department should apply the profit earned by the 
affiliated party on its sales to MHI pertaining to MHI's third country 
sales, as reported in an earlier section B submission.
    MHI maintains that the Department should not add profit to the 
inputs received from affiliated parties. MHI contends that although 
under the ``transactions disregarded'' and ``major input'' rules, the 
Department is authorized to adjust transfer prices to reflect market 
price or COP, neither of the rules allow the Department to construct a 
market price. MHI asserts that the Department's options are to 
substitute other market prices or COP for the transfer prices.
    MHI also claims that charging profit on its affiliated supplier 
purchases would conflict with the purpose of the statute by unfairly 
inflating MHI's costs. MHI argues that because the affiliated supplier 
in question is a wholly owned subsidiary of MHI's, by adjusting these 
inputs to reflect their COP, the Department effectively treats them as 
if MHI had produced them internally. MHI maintains that petitioner's 
argument that the Department should add to the affiliated party's COP, 
the profit that would have been earned by an unaffiliated supplier had 
it provided the services to MHI would be distortive. Further, MHI 
claims that petitioner has failed to demonstrate that the profit rate 
that the affiliated supplier earned, not on sales to an unaffiliated 
party, but rather on other sales to MHI, fairly reflects the amount 
usually reflected in sales of merchandise under consideration in the 
market under consideration'', as required by section 773(f)(2).

[[Page 24412]]

DOC Position

    Under the transactions disregarded rule of section 773(f)(2) of the 
Act, we requested MHI to submit the transfer prices for a selected 
sample of inputs that it purchased from affiliated suppliers for use in 
manufacturing the subject merchandise. In addition, we asked MHI to 
provide the arm's length prices charged by those affiliates to 
unaffiliated purchasers for the identical input or the arm's length 
prices charged by unaffiliated suppliers for sales of the identical 
input to MHI. Because MHI claimed that there were no such arm's length 
transactions between unaffiliated parties, the company submitted the 
transfer prices for its purchases from affiliated suppliers and the 
affiliated suppliers' corresponding COPs. For those inputs obtained 
from affiliated suppliers, we compared the transfer price paid by MHI 
to the affiliates' cost of producing the input. In one instance, we 
found that the cost of the input was greater than the transfer price 
between MHI and the affiliated supplier. For this transaction, because 
there were no comparable transactions of similar inputs between 
unaffiliated parties on which to base a value for inputs, we followed 
our practice of using the affiliated supplier's cost of production for 
that input as the information available as to what the amount would 
have been if the transaction had occurred between unaffiliated parties 
(See Antifriction Bearings (other than Tapered Roller Bearings) from 
France et. al.; Final Results of Antidumping Duty Administrative 
Reviews, 62 FR 2081, 2115 (January 15, 1997).) We disagree with 
petitioner that the profit earned on the services provided by the 
affiliate in connection with MHI's third country sales is 
representative of the services furnished in connection with the U.S. 
sale. Notwithstanding the fact that the transaction occurred between 
the same parties (i.e., MHI and its affiliated supplier), in this case, 
the input in question consists of services performed by an affiliate. 
The nature of these services and the unique character of the EPGTS 
products for which they were performed give us no reason to believe 
that the services were in any way similar or comparable to one another.
    Comment 16: Affiliated Party Input Adjustment.
    MHI states that the Department erred by adjusting the transfer 
prices of not only the major inputs purchased from affiliated 
suppliers, but also the minor inputs. MHI claims that because the 
Department has not established that these minor inputs were purchased 
at below-cost prices, the transfer prices of the minor inputs should 
not be adjusted.
    MHI contends that if the Department chooses to adjust MHI's U.S. 
sale for all affiliated party purchases (i.e., major and minor inputs), 
it should make a corresponding adjustment for HM sales.
    Petitioner claims that there is no statutory or rational basis for 
a parallel affiliated party purchases adjustment to HM production costs 
for purposes of calculating CV profit. Petitioner states that section 
773(e)(2) of the revised act indicates that ``actual'' HM profit earned 
in the ordinary course of trade should be included in the CV 
calculation. Petitioner argues that actual HM profits should not be 
reduced to the extent that the foreign producer's inputs were purchased 
from affiliated parties at non-arm's-length transfer prices. Petitioner 
also argues that although sections 773(f)(2) and (3) of the revised act 
expressly provide for affiliated party cost adjustments for CV 
calculations, section 773(b)(3), which pertains to COP for HM price 
comparisons, contains no provision for such adjustments.

DOC Position

    As noted above, we adjusted MHI's reported cost of inputs purchased 
from affiliates under the transactions disregarded rule per section 
773(f)(2) of the Act. This section relates to all inputs obtained from 
affiliates, not just major inputs. Accordingly, we applied the 
calculated affiliated party adjustment to all inputs obtained from 
affiliates.
    We agree with MHI that the affiliated party adjustment applied to 
CV should also be applied to the submitted cost of producing the HM 
sales. Section 773(f) of the Act identifies special rules for the 
calculation of COP and CV, one of which is the transactions disregarded 
rule. Since the statute does not direct the Department to treat 
affiliated party transactions differently for COP and CV, we applied 
the same affiliated party adjustment to both CV and COP.
    Comment 17: Calculation of the G&A Rate.
    Petitioner urges the Department to revise its preliminary 
calculation of MHI's G&A expenses to include all of the G&A expenses 
incurred by the company at each of its various corporate levels. 
Petitioner believes that the G&A expense rate used by the Department to 
compute COP and CV in its preliminary determination failed to include 
the administrative expenses of MHI's Hiroshima Machinery Works 
(``HMW''), the facility that produced the subject merchandise, as well 
as allocable portions of G&A expenses associated with other 
organizational levels within the company. As evidence of this problem, 
petitioner points to MHI's internal financial statements which report 
amounts for ``general'' and ``internal G&A'' that petitioner claims 
were not allocated to the subject merchandise under MHI's normal 
accounting system and, likewise, were excluded from COP and CV under 
the company's submission methodology.
    MHI argues that it fully accounted for all G&A expenses in the 
submitted COP and CV figures and that petitioner simply fails to 
understand the company's normal internal accounting system and its 
financial reporting methods. MHI claims that adjusting the G&A expense 
rate as petitioner proposes would result in double-counting both G&A 
and selling expenses. MHI notes the fact that the Department verified 
the company's G&A expense calculation and found that all such expenses 
had been properly included in the MHI's reported COP and CV figures.

DOC Position

    We agree with MHI that it properly accounted for all G&A expenses 
in the reported COP and CV amounts. Under the company's normal 
accounting system, both G&A and selling expenses are combined and 
allocated to EPGTS job orders through a factory overhead burden rate. 
The SG&A amounts to be allocated are reflected in the ``general'' and 
``internal G&A'' figures in the company's internal financial 
statements. Because the Department requires respondents to report 
separately the selling expenses incurred for the merchandise, MHI 
segregated these expenses for the HMW before allocating G&A expenses to 
each EPGTS as manufacturing overhead following its normal accounting 
methodology. Thus, as noted by MHI, basing the G&A expense rate on 
amounts from the company's internal financial statements would result 
in double-counting expenses already accounted for as part of either 
selling expenses or manufacturing overhead. We reviewed MHI's G&A 
expense calculation as part of our verification of the company's COP 
and CV submission and found that the reported costs reflected an 
appropriate amount of G&A expenses incurred by the company at each of 
its organizational levels.

Continuation of Suspension of Liquidation

    In accordance with section 735(c) of the Act, we are directing the 
Customs Service to continue to suspend liquidation of all entries of 
EPGTS from Japan, as defined in the ``Scope of Investigation'' section 
of this notice, that are entered, or withdrawn from

[[Page 24413]]

warehouse for consumption, on or after December 10, 1996, the date of 
publication of our preliminary determination in the Federal Register. 
We are also directing the Customs Service to suspend liquidation of all 
entries of parts of EPGTS imported pursuant to a contract for a 
complete EPGTS in the United States that are entered, or withdrawn from 
warehouse for consumption, on or after December 10, 1996. For these 
entries, the Customs Service will require a cash deposit or posting of 
a bond equal to the estimated amount by which the normal value exceeds 
the constructed export price as shown below. The suspension of 
liquidation with respect to EPGTS parts will remain in effect provided 
that the sum of such entries represents at least 50 percent of the cost 
of manufacture of the complete EPGTS of which they are part. This 
determination will be made only after all entries of parts imported 
pursuant to an EPGTS contract are made and the complete EPGTS pursuant 
to that contract is produced, unless a request for a scope inquiry is 
made by an interested party at least 75 calendar days prior to the 
intended date of entry of the EPGTS parts in which the interested party 
claims that the parts to be imported, when taken altogether, constitute 
less than 50 percent of the cost of manufacture of the complete EPGTS 
of which they are a part. Upon receiving such a request, the Department 
will initiate a scope inquiry and instruct the Customs Service to 
suspend liquidation at a zero cash deposit rate/bond rate (depending on 
which rate, if any, is effective at that time) if the party can 
establish to the Department's satisfaction, through the submission of 
the requisite information specified below, that the sum of the EPGTS 
parts to be imported pursuant to a particular EPGTS contract represents 
less than 50 percent of the cost of manufacture of the complete EPGTS 
of which they are a part.
    In such a review, we will require that the foreign producer/
exporter submit to the Department, where applicable and available, the 
following information and documentation substantiating its claim that 
all of the parts to be imported into the United States from Japan 
pursuant to a particular EPGTS contract constitute less than 50 percent 
of the cost of manufacture of the complete EPGTS of which they are a 
part and, thus, are not subject merchandise: (1) The EPGTS sales 
contract (and any amendments) pursuant to which the parts are imported; 
(2) a diagram of the complete EPGTS; (3) a description of the parts 
included in the entry(ies); (4) the actual or estimated cost of the 
imported parts (depending on what is available prior to the time of 
importation of the parts into the United States); (5) the most recent 
cost estimate of the complete EPGTS, and data on historical variances 
between estimated and actual costs of production of the EPGTS; (6) a 
financial statement for the business unit that produces EPGTS; (7) a 
schedule of parts shipments to be made pursuant to a particular EPGTS 
contract, if more than one shipment is relevant; and (8) a schedule of 
EPGTS production completion in the United States. The foreign producer/
exporter will also be required to serve the submitted materials upon 
counsel for the petitioner on the earlier of: (i) The same day they are 
filed with the Department, if an applicable Administrative Protective 
Order (``APO'') is outstanding, or (ii) within one day of the issuance 
of an applicable APO. Public versions of such materials will be served 
upon counsel for the petitioner in accordance with section 353.31 of 
the Department's regulations. The petitioner will have 15 calendar days 
from the date of receipt of such documents for review and the filing of 
comments. If, after providing this information to the Department, the 
foreign producer/exporter finds that the costs reported to the 
Department were understated and that the cost of manufacture of the 
imported parts will be over 50 percent of the cost of manufacture of 
the EPGTS of which they are a part, we will require that the party 
inform the Department immediately. After the expiration of the 15-day 
comment period, the Department will conduct its review of the submitted 
documentation and will, to the extent practicable, make an expedited 
preliminary ruling as to whether the merchandise falls outside of the 
scope. If the Department determines preliminarily that such merchandise 
is outside of the scope, for all such entries made pursuant to the same 
EPGTS contract, the Department will instruct the Customs Service to 
suspend liquidation at a zero deposit/bond rate.
    Pursuant to the Department's preliminary ruling, the U.S. importer 
will be able to declare a zero rate for the imported merchandise at 
issue. Upon entry of the merchandise into the U.S. Customs territory, 
the U.S. importer and/or foreign manufacturer/exporter will be required 
to submit an appropriate certification to the Department concerning the 
contents of the entry. An appropriate certification should read as 
follows:

    I [Name and Title], hereby certify that the cost of the 
engineered process gas turbo-compressor system parts from Japan 
contained in entry summary number(s) ______ pursuant to contract 
number ______, including the cost of design and engineering incurred 
by, and any assists provided by, the manufacturer or producer with 
respect to the engineered process gas turbo-compressor system, 
constitutes less than 50 percent of the cost of manufacture of the 
complete engineered process gas turbo-compressor system of which 
they are a part.

    The Department will make a final scope ruling within the context of 
an administrative review, if requested by interested parties. 
Verification of the submitted information will occur within the context 
of such review, when appropriate. If the Department finds in its final 
ruling that the imported merchandise falls below the 50 percent 
threshold, then the Department will instruct the Customs Service to 
liquidate the entries at issue without regard to antidumping duties. 
Conversely, if the Department finds that the imported merchandise falls 
within the scope (i.e., because the actual total cost of the parts 
imported pursuant to a contract for a complete EPGTS is 50 percent or 
more of the cost of manufacture of the complete EPGTS of which they are 
a part), then the U.S. importer will be subject to the assessment of 
antidumping duties on the imported parts, together with any applicable 
interest from the date of entry of such parts, at the rate determined 
in the administrative review.
    With respect to entries of EPGTS spare and replacement/repair parts 
from Japan, we will instruct the Customs Service not to suspend 
liquidation of these entries if they are not included in the original 
contract of sale for the EPGTS of which they are intended to be a part.
    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 shall be required to provide 
certification that the imported merchandise would not be used to 
fulfill an EPGTS contract. An appropriate certification should read as 
follows:

    I, [Name and Title], hereby certify that this entry/shipment 
does not contain merchandise that is imported from Japan pursuant to 
a contract for an engineered process gas turbo-compressor system and 
is, therefore, not subject to antidumping duties.

    We will also request that the interested parties register with the 
Customs Service the EPGTS contract numbers pursuant to which subject 
merchandise is imported. These suspension of liquidation instructions 
will remain in effect until further notice.

[[Page 24414]]

    The weighted-average dumping margins are as follows:

------------------------------------------------------------------------
                                                               Weighted-
                                                                average 
                    Exporter/Manufacturer                       margin  
                                                              percentage
------------------------------------------------------------------------
Mitsubishi Heavy Industries, Ltd. (MHI).....................       41.72
All-Others..................................................       41.72
------------------------------------------------------------------------

International Trade Commission (``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: April 24, 1997.
Robert S. LaRussa,
Acting Assistant Secretary for Import Administration.
[FR Doc. 97-11384 Filed 5-2-97; 8:45 am]
BILLING CODE 3510-DS-P