[Federal Register Volume 62, Number 158 (Friday, August 15, 1997)]
[Notices]
[Pages 43701-43709]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-21710]


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DEPARTMENT OF COMMERCE

International Trade Administration
[A-433-807]


Notice of Final Determination of Sales at Less Than Fair Value: 
Open-End Spun Rayon Singles Yarn From Austria

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

EFFECTIVE DATE: August 15, 1997.

FOR FURTHER INFORMATION CONTACT: Russell Morris or Robert Copyak, 
Office of CVD/AD Enforcement VI, Import Administration, International 
Trade Administration, U.S. Department of Commerce, Room 4012, 14th 
Street and Constitution Avenue, N.W., Washington, D.C. 20230; telephone 
(202) 482-2786.

The Applicable Statute

    Unless otherwise indicated, all citations to the statute are 
references to the provisions of the Tariff Act of 1930, as amended by 
the Uruguay Round Agreements Act effective January 1, 1995 (the 
``Act''). In addition, unless otherwise indicated, all citations to the

[[Page 43702]]

Department's regulations are to 19 CFR Part 353 (1997).

Final Determination

    We determine that open-end spun rayon singles yarn from Austria is 
being, or is 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 of Sales at Less Than Fair Value and 
Postponement of Final Determination: Open-End Spun Rayon Singles Yarn 
from Austria, (62 FR 14399 (March 26, 1997)), the following events have 
occurred:
    In May, we verified the questionnaire responses of respondents, 
Linz Textil GmbH (Linz) and G. Borckenstein und Sohn A.G. 
(Borckenstein). Petitioner, The Ad-Hoc Committee of Open-End Rayon Yarn 
Producers, and respondents submitted case briefs on June 30, 1997, and 
rebuttal briefs on July 7, 1997.

Scope of Investigation

    The investigation covers all items of open-end spun singles yarn 
containing 85% or more rayon staple fiber. The merchandise is 
classifiable under subheading 5510.11.0000 of the Harmonized Tariff 
Schedule of the United States (HTSUS). Although the HTSUS subheading is 
provided for convenience and for Customs purposes, our written 
description of the scope of this investigation is dispositive.

Period of Investigation

    The period of investigation (POI) is July 1, 1995 through June 30, 
1996.

Fair Value Comparisons

    To determine whether sales to the United States of the subject 
merchandise by respondents were made at less than fair value, we 
compared the Export Price (``EP'') to the Normal Value (``NV''), as 
described in the ``Export Price'' and ``Normal Value'' sections of this 
notice. As set forth in section 773(a)(1)(B)(i) of the Act, we 
calculated NV based on sales at the same level of trade as the U.S. 
sale. In accordance with section 777A(d)(1)(A)(i), we compared the 
weighted average EPs to weighted-average NVs during the POI. In 
determining averaging groups for comparison purposes, we considered the 
appropriateness of such factors as physical characteristics.
1. Physical Characteristics
    In accordance with section 771(16) of the Act, we considered all 
products covered by the description in the ``Scope of Investigation'' 
section, above, produced in Austria by the respondents and sold in the 
home market during the POI, to be foreign like product for purposes of 
determining appropriate product comparisons to U.S. sales. Where there 
were no sales of identical merchandise in the home market to compare to 
U.S. sales, we compared U.S. sales to the most similar foreign like 
product on the basis of the characteristics listed in the Department's 
antidumping questionnaire. In making the product comparisons, we relied 
on the following criteria (listed in order of preference): weight, 
percentage of rayon fiber, color, denier, finish, and luster. All 
comparisons were based on the same grade of yarn.
2. Level of Trade
    In the preliminary determination, the Department determined that no 
difference in level of trade existed between home market and U.S. sales 
for either Borckenstein or Linz (Notice of Preliminary Determination of 
Sales at Less Than Fair Value and Postponement of Final Determination: 
Open-End Spun Rayon Singles Yarn from Austria, (62 FR 14399 (March 26, 
1997)). Our findings at verification confirmed that Borckenstein and 
Linz performed essentially the same selling activities for all reported 
home market and U.S. sales. Accordingly, we determine that all price 
comparisons are at the same level of trade and an adjustment pursuant 
to section 773(a)(7)(A) is unwarranted.

Export Price

    We calculated EP, in accordance with subsections 772 (a) and (c) of 
the Act, for each of the respondents, where the subject merchandise was 
sold directly to the first unaffiliated purchaser in the United States 
prior to importation and use of constructed export price (CEP) was not 
otherwise warranted based on the facts of record.
    We made company-specific adjustments as follows:
1. Linz
    We calculated EP based on packed, delivered/duty paid and f.o.b. 
prices to unaffiliated customers in the United States. Where 
appropriate, we made deductions from the starting price (gross unit 
price) for the following charges: Austrian inland freight (which 
included brokerage), insurance (which included inland and marine 
insurance), ocean freight, U.S. duty, clearing charges, bond expenses, 
U.S. freight and post-sale warehousing, in accordance with section 
772(c)(2).
    Linz reported that it did not borrow in U.S. dollars during the 
POI. In accordance with the Department's policy (see, e.g., Notice of 
Final Results of Antidumping Duty Administrative Review: Certain Cut-
to-Length Carbon Steel Plate from Sweden, (61 FR 15780, April 9, 
1996)), we recalculated the U.S. imputed credit expense using the 
average short-term lending rates published by the Federal Reserve as 
surrogate U.S. interest rates, for purposes of making the circumstance 
of sale adjustment for this expense. In addition, in the preliminary 
determination, we treated post-sale warehousing as a circumstance of 
sale adjustment. For the final determination, we have deducted post-
sale warehousing from the export price because it is a movement expense 
(see, e.g., Certain Stainless Steel Wire Rods from France: Final 
Results of Antidumping Duty Administrative Review, (62 FR 7206, 
February 18, 1997)).
    Based on our verification findings, we deducted an additional small 
movement expense, called the ``vorlage,'' which Linz had omitted in 
reporting movement charges to the United States (see Comment 2).
2. Borckenstein
    For Borckenstein, we calculated EP based on packed, CIF, U.S. port 
prices to an unaffiliated customer in the United States. Where 
appropriate, we made deductions from the starting price (gross unit 
price) for international freight (which included freight from the plant 
to port of export and ocean freight) and marine insurance, in 
accordance with section 772(c)(2)(A).
    We have considered petitioner's request to use CEP. Based on our 
analysis and verification findings, however, we do not find that 
sufficient evidence exists to indicate that the sole U.S. importer and 
Borckenstein are affiliated parties. Pursuant to section 771(33) of the 
Act, we reviewed Borckenstein's relationship with the U.S. importer 
during verification and determined that petitioner's claim is 
unwarranted (see Comment 10).
    We made the following correction, based on our verification 
findings. In our preliminary determination, we treated the U.S. 
commissions paid by Borckenstein to its U.S. selling agent as rebates. 
Upon a thorough review of documentation during verification, and our 
analysis of arguments from interested parties, we have determined that 
the fee paid by Borckenstein to its selling agent on U.S. sales is a 
commission (see Comment 14).

[[Page 43703]]

Normal Value

Cost of Production Analysis
    As discussed in the preliminary determination, the Department found 
reasonable grounds to believe or suspect that Linz's and Borckenstein's 
sales in the home market were made at prices below the cost of 
producing the merchandise. As a result, the Department initiated an 
investigation to determine whether Linz and Borckenstein had made home 
market sales during the POI at prices below their respective cost of 
production (``COP'') within the meaning of section 773(b) of the Act. 
Although the Department was unable to include a COP analysis of 
Borckenstein's home market sales in the preliminary determination, the 
final determination does include a COP analysis of Borckenstein's home 
market sales.
    Before making any fair value comparisons, we conducted the COP 
analysis described below for each company:
1. Linz
A. Calculation of COP
    We calculated the COP based on the sum of Linz's cost of materials 
and fabrication for the foreign like product, plus amounts for home 
market selling, general and administrative expenses (``SG&A'') and 
packing costs in accordance with section 773(b)(3) of the Act.
    In calculating Linz's SG&A, we adjusted the submitted net interest 
expense amount to include only short-term interest income as an offset 
(see Comment 8).
B. Test of Home Market Prices
    We compared the respondent's submitted POI weighted-average COP 
figures, as adjusted, to home market sales of the foreign like product 
as required under section 773(b) of the Act, in order to determine 
whether these sales had been made at below-cost prices within an 
extended period of time in substantial quantities, and whether the 
below-cost prices would permit recovery of all costs within a 
reasonable period of time. On a product-specific basis, we compared the 
COP to the home market prices, less any applicable movement charges and 
direct selling expenses. As in our preliminary determination, we did 
not deduct indirect selling expenses from the home market price because 
these expenses were included in the SG&A rate for COP.
C. Results of COP Test
    Pursuant to section 773(b)(2)(C) of the Act, where less than 20 
percent of a respondent's sales of a given product are at prices less 
than COP, we do not disregard any below-cost sales of that product 
because we determined that the below-cost sales were not made in 
``substantial quantities.'' Where 20 percent or more of a respondent's 
sales of a given product during the POI are at prices less than the 
COP, we determine such sales to have been made in ``substantial 
quantities'' within an extended period of time in accordance with 
section 773(b)(2)(B) of the Act, and not made at prices which would 
permit recovery of all costs within a reasonable period of time, in 
accordance with section 773(b)(2)(D) of the Act. In such cases, we 
disregard the below-cost sales. Under the Department's practice, when 
all sales of a specific product are at prices below the COP, we 
disregard all sales of that product, and calculate NV based on 
constructed value (``CV'').
    Based on our COP test, we found that less than 20 percent (by 
quantity) of Linz's sales of a given product were at less than COP. 
Thus, we did not disregard any below-cost sales. For matching purposes, 
export prices were compared to home market prices for all comparisons, 
and CV was not required.
D. Price to Price Comparison
    We calculated NV based on packed, delivered prices to unaffiliated 
customers and prices to affiliated customers where the sales were made 
at arm's length. Where appropriate, we made deductions from the 
starting price (gross unit price) for foreign inland freight and inland 
insurance, in accordance with section 773(a)(6)(B). In addition, where 
appropriate, we adjusted for differences in circumstances of sale for 
credit expenses and commissions (including appropriate offsets), in 
accordance with section 773(a)(6)(C)(iii). We also deducted home market 
packing costs and added U.S. packing costs, in accordance with section 
773(a)(6) (A) and (B) of the Act. We made adjustments, where 
appropriate, for physical differences in the merchandise in accordance 
with section 773(a)(6)(C)(ii) of the Act. In no case did the difference 
in merchandise adjustment for the comparison product exceed 20 percent 
of the U.S. product's cost of manufacturing.
    For purposes of the difference in merchandise adjustment, Linz 
reported a different cost of manufacturing for identical yarns due to 
the fact that different machines produce the yarn. Since the difference 
in merchandise adjustment is intended to account for physical 
differences in similar merchandise being compared and not differences 
in the production process, we have calculated a single weighted-average 
cost of manufacturing for identical yarns.
    Linz also reported an amount upon which to base an adjustment for 
differences in quantities sold in the United States and Austrian 
markets. However, Linz was unable to demonstrate, based on information 
on the record, that pricing differences were related to quantity. 
Accordingly, we have not made the requested adjustment (see Comment 6).
    Linz was instructed to provide sales made to affiliated weaving 
mills in Austria (see Comment 5). We tested these sales to ensure that 
the affiliated party sales were at arm's-length. To conduct this test, 
we compared the starting prices of sales to affiliated and unaffiliated 
customers net of all movement charges, direct selling expenses, and 
packing. We utilized the 99.5 percent benchmark ratio used in the 1993 
carbon steel investigations. See, e.g., Final Determination of Sales at 
Less Than Fair Value: Certain Cold-Rolled Carbon Steel Flat Products 
from Argentina (58 FR 37062, 37077 (July 9, 1993)). Where no affiliated 
customer price ratio could be constructed because identical merchandise 
was not sold to unaffiliated customers, we were unable to determine 
that these sales were made at arm's-length and, therefore, we excluded 
them from our LTFV analysis.
    We made the following corrections, based on our verification 
findings. For the preliminary determination, Linz did not report home 
market indirect selling expenses; therefore, we were unable to offset 
commissions paid in the United States with home market indirect selling 
expenses. Subsequent to the preliminary determination, Linz submitted 
its indirect selling expenses. However, we were unable to verify the 
full amount of Linz's claimed home market indirect selling expenses, 
and have recalculated the allowable portion of indirect selling 
expenses to be used as an offset to the U.S. commission (see Comment 
3).
    During verification, we discovered the interest rate used to 
calculate home market credit expenses was based on long-term lending. 
However, we did find that the company maintained two lines of credit 
for export sales during the POI. Although these lines of credit are 
based on a percentage of the company's annual export turnover, the 
company can borrow against these lines of credit to finance more than 
just exports. The credit lines are available for financing

[[Page 43704]]

current assets and liabilities and the interest rates charged are set 
on a quarterly basis. Therefore, we have recalculated Linz's home 
market credit expenses based upon the average interest rate charged on 
these lines of credit in order to reflect the company's actual short-
term borrowing experience.
2. Borckenstein
A. Calculation of COP
    We calculated the COP based on the sum of Borckenstein's cost of 
materials and fabrication for the foreign like product, plus amounts 
for home market selling, general and administrative expenses (SG&A) and 
packing costs in accordance with section 773(b)(3) of the Act.
    We adjusted Borckenstein's depreciation expense to include 
depreciation expense for all categories of fixed assets used in the 
production of the subject merchandise and for assets used to perform 
the administrative functions of the company (see Comment 15).
B. Test of Home Market Prices
    We compared the respondent's submitted POI weighted-average COP 
figures, as adjusted, to home market sales of the foreign like product 
as required under section 773(b) of the Act in order to determine 
whether these sales had been made at below-cost prices within an 
extended period of time in substantial quantities, and were not at 
prices which permit recovery of all costs within a reasonable period of 
time. On a model-specific basis, we compared the COP to the home market 
prices, less any applicable movement charges and direct selling 
expenses. We deducted indirect selling expenses from the home market 
price because these expenses were not included in the G&A rate for COP.
C. Results of COP Test
    Pursuant to section 773(b)(2)(C) of the Act, where less than 20 
percent of a respondent's sales of a given product are at prices less 
than COP, we do not disregard any below-cost sales of that product 
because we determined that the below-cost sales were not made in 
``substantial quantities.'' Where 20 percent or more of a respondent's 
sales of a given product during the POI are at prices less than the 
COP, we determine such sales to have been made in ``substantial 
quantities'' within an extended period of time in accordance with 
section 773(b)(2)(B) of the Act, and that such sales are not made at 
prices which would permit recovery of all costs within a reasonable 
period of time, in accordance with section 773(b)(2)(D) of the Act. In 
such cases, we disregard the below-cost sales. Under the Department's 
practice, when all sales of a specific product are at prices below the 
COP, we disregard all sales of that product, and calculate NV based on 
CV.
    Based on our COP test, we found that less than 20 percent (by 
quantity) of Borckenstein's sales of a given product were at less than 
COP. Thus, we did not disregard any below-cost sales. For matching 
purposes, export prices were compared to home market prices for all 
comparisons, and CV was not required.
D. Price to Price Comparisons
    We calculated NV based on packed, delivered prices to unaffiliated 
customers. Where appropriate, we made deductions from the starting 
price (gross unit price) for foreign inland freight and inland 
insurance, in accordance with section 773(a)(6)(B). In addition, where 
appropriate, we adjusted for differences in circumstances of sale for 
credit expenses, export credit insurance, and commissions (including 
appropriate offsets), in accordance with section 773(a)(6)(C)(iii). We 
also deducted home market packing costs and added U.S. packing costs, 
in accordance with section 773(a)(6) (A) and (B) of the Act. We made 
adjustments, where appropriate, for physical differences in the 
merchandise in accordance with section 773(a)(6)(C)(ii) of the Act. In 
no case did the difference in merchandise adjustment for the comparison 
product exceed 20 percent of the U.S. product's cost of manufacturing.
    Borckenstein also reported an amount upon which to base an 
adjustment for differences in quantities sold in the U.S. and Austrian 
markets, pursuant to 19 CFR 353.55(b). Although Borckenstein claimed 
that it incurred differing manufacturing costs based on quantities 
produced, it was unable to demonstrate, based on information on the 
record, that pricing differences were related to quantity. Our review 
of the submitted prices indicated that prices did not vary based upon 
the quantity sold. Accordingly, we have not made the requested 
adjustment (see Comment 11).
    We made the following modification to the calculations for the 
final determination. In our preliminary determination, we treated the 
U.S. commissions paid by Borckenstein to its U.S. selling agent as 
rebates. As a result, there was no offset for indirect selling expenses 
in the home market. Upon a thorough review of documentation during 
verification, we have determined that the fee paid by Borckenstein to 
its selling agent on U.S. sales is a commission. Therefore, we have 
offset the U.S. commission with Borckenstein's home market indirect 
selling expenses (see Comment 14).

Currency Conversion

    We made currency conversions into U.S. dollars based on the 
official exchange rates in effect on the dates of the U.S. sales as 
certified by the Federal Reserve Bank.
    Section 773A(a) of the Act directs the Department to convert 
foreign currencies based on the dollar exchange rate in effect on the 
date of sale of the subject merchandise, except if it is established 
that a currency transaction on forward markets is directly linked to an 
export sale. When a company demonstrates that a sale on forward markets 
is directly linked to a particular export sale in order to minimize its 
exposure to exchange rate losses, the Department will use the rate of 
exchange in the forward currency sale agreement.
    Section 773A(a) also 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 moving average of rates for the past 40 business days. When we 
determine a fluctuation to have existed, we substitute the benchmark 
rate 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, see Change in Policy Regarding 
Currency Conversions 61 FR 9434 (March 8, 1996). Such an adjustment 
period is required only when a foreign currency is appreciating against 
the U.S. dollar. The use of an adjustment period was not warranted in 
this case because the Austrian Schilling did not undergo a sustained 
movement.

Verification

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

[[Page 43705]]

Interested Party Comments

Linz

Comment 1: Comparison of Sales of Second-Quality Merchandise

    Petitioner asserts that the comparison of sales of second-quality 
merchandise in the home market to first quality export sales to the 
U.S. is inconsistent with the Department's standard practice. 
Accordingly, petitioner claims that the Department should revise its 
preliminary results to ensure that first quality and second quality 
merchandise are treated as distinct products in the Department's margin 
program for purposes of the final determination. Linz argues that the 
Department should include Linz's sales to the home market of second-
quality merchandise in the margin calculation.
    DOC Position: The petitioner is correct that it is the Department's 
policy to compare U.S. and home market merchandise of comparable 
quality.  See, e.g., Notice of Final Results of Antidumping 
Administrative Review: Porcelain on Steel Cookware from Mexico, 62 FR 
25908 (May 12, 1997). Only first quality merchandise was sold in the 
U.S. market. Therefore, for purposes of this final determination, first 
quality products sold in the United States were compared only to first 
quality merchandise sold in the home market.

Comment 2: Movement Expenses

    The petitioner contends that Linz failed to fully report all of its 
movement expenses to the United States. Petitioner states that the 
Department discovered that Linz failed to report the ``vorlage'' 
freight expenses incurred in transporting merchandise to the United 
States during verification. As a result, the Department should account 
for this unreported expense by applying, as facts available, an 
adjustment for this expense to be deducted from the price of each U.S. 
sale. Linz asserts that the Department should not adjust all U.S. sales 
for a movement expense that may not have actually been incurred. Linz 
states that this expense is not found on the invoices of all freight 
forwarders.
    DOC Position: During verification, the Department discovered that 
Linz had inadvertently failed to report a minor freight expense 
incurred in transporting merchandise to the United States. This 
expense, called ``vorlage,'' was part of the company's freight bill. 
This expense was reported on all of the freight bills reviewed by the 
Department for U.S. sales. Therefore, during verification, we collected 
several U.S. freight bills and calculated the average ``vorlage'' 
charged on U.S. sales. We have deducted the average ``vorlage'' expense 
from the sales price of all U.S. sales as ``facts available'' in 
accordance with section 776(a) of the Act.

Comment 3: Commission Offset

    Petitioner argues that Linz's estimated indirect selling expenses 
were not verified, and, thus, cannot be used as a commission offset. 
Petitioner contends that there are two problems with Linz's estimated 
indirect selling expense, and, therefore, only the general indirect 
selling expense was properly calculated and should be included in the 
Department's margin calculation. First, petitioner states that all of 
Linz's estimated indirect selling expenses were fully captured in the 
general expense amount and that creation of an additional expense 
estimate is not warranted. Second, the Department was unable to verify 
the allocation method of the estimated selling expenses to domestic 
sales at verification.
    Linz argues that it arrived at a general per unit indirect selling 
amount applicable to all sales and then adjusted this amount to reflect 
the proportion allocated to home market sales for which no separate 
selling agents are involved. Linz states that this allocation is 
reasonable and properly accepted based upon the stated experience of 
the sales manager.
    DOC Position: We agree with the petitioner. Commissions are paid on 
U.S. sales but none are paid on home market sales. In our preliminary 
determination, the Department did not perform a commission offset, 
pursuant to 19 CFR section 353.56(b), as Linz had not provided 
information on its indirect selling expenses in the home market. After 
the preliminary determination, Linz provided an amount for home market 
indirect selling expenses. Linz reported two indirect selling expense 
amounts: a general indirect selling expense amount and an additional 
estimated home market indirect selling expense amount.
    At verification, Linz explained how it calculated its estimated 
indirect selling expenses incurred on home market sales. Linz stated 
that beginning with a total indirect selling amount that captures the 
expenses for all production (open-end and ring-spun yarn), Linz arrived 
at a general per unit amount applicable to all sales on a global scale. 
It then adjusted this amount to reflect the proportion attributable 
solely to home market sales. Linz estimated that only 20 percent of 
indirect selling must be allocated to home market sales because there 
are no selling agents in their domestic market. We requested to review 
worksheets to determine how they calculated this percentage. Linz 
stated that no worksheets were used in this calculation. Because no 
worksheets were used to calculate this portion of indirect selling 
expenses that Linz claimed to be attributed to home market sales, and 
because they were unable to tie the estimate to any source 
documentation, the Department cannot consider this additional estimated 
home market selling expense as verified. Therefore, we are not allowing 
this portion of the indirect selling expense adjustment. However, 
because we were able to verify the general indirect selling expense 
claim, we have used that amount as the basis of the commission offset.

Comment 4: Granting of Early Payment Discount

    Petitioner contends that Linz's early payment discounts on home 
market sales should not be granted to customers that did not meet the 
terms of the discount program. Petitioner states that Linz applied an 
early payment discount to a number of sales where payment was not made 
within the requisite time period, as agreed upon in the terms of 
payment. Linz states that the Department should subtract all early 
payment discounts from the normal value, regardless of whether payment 
was made within the time period specified in the payment terms.
    DOC Position: At verification, the Department carefully reviewed 
the customer accounts involving early payment discounts, both those 
taken within and outside the requisite time period, and found that the 
discounts were in fact granted. Because we verified that the discounts 
were given on the sales, we have taken them into account in this final 
determination.

Comment 5: Deficiencies With Affiliated Sales

    Petitioner argues that there are significant errors in Linz's 
revised data file for sales to affiliates in the home market. 
Petitioner states that in submitting its revised data, Linz did not 
report gross price, sales date, pay date, rebates, discounts, rebates 
or credit expenses. Petitioner states that the Department was forced to 
verify Linz's revised affiliated sales during verification and that 
none of the reported sales to affiliates were traced for accuracy 
during verification. Thus, petitioner argues that the Department should 
employ the use of facts available in analyzing Linz's sales to 
affiliated parties in the home market. At a minimum, the Department 
should deny

[[Page 43706]]

the unverified adjustments claimed by Linz.
    Linz states that nowhere in the Department's verification report 
does the Department state that it could not verify any adjustment. Linz 
states that the verification team reviewed the affiliated party sales 
extensively because of a ``data sort'' problem encountered and 
corrected at verification. Linz asserts that the verification team 
checked the records of these sales through numerous sales traces.
    DOC Position: During verification, we discovered that there was a 
problem with the data base for Linz's home market affiliated sales. 
This problem was caused during a ``data sort'' for the affiliated data 
base used in our preliminary determination. The company only resorted 
the first few fields in the data base, while the other data fields 
remained in the original order. This caused the observation numbers to 
be out of sequential order and, thus, the information on pricing and 
expenses were unrelated to the specified sale in the data base. After 
discovering this error at verification, Linz correctly sorted the data 
fields and provided a corrected affiliated party sales listing.
    We collected this revised affiliated party sales listing as a 
verification exhibit. The price reported in this sales listing was less 
the early payment discount. The sales listing also reported the freight 
expenses. The Department then verified this corrected data base and 
traced the information reported on these affiliated party sales to 
source documents. Thus, we verified the accuracy of the revised home 
market affiliated party sales data base and have used it where 
appropriate in this final determination. However, because the company 
did not report any other adjustment for these sales, the only 
deductions made from the starting price were for early payment 
discounts and freight expense.

Comment 6: Quantity Adjustment Under Section 353.55(b)

    Linz has requested recognition of quantity price adjustments under 
Sec. 353.55(b)(1) of the Department's regulations. Linz states that it 
has supplied the Department with information to show that its small 
quantity price adjustment policy was motivated by a commercial need to 
equalize the per-unit administrative expenses of processing large and 
small quantity orders. Linz further states that it has demonstrated 
that the amount of any price differential is wholly or partially due to 
the differences in quantities sold in the two markets, and that it has 
demonstrated that the small quantity price adjustment was consistently 
applied on a majority of its home market sales in the POI.
    Petitioner argues that there is no basis to grant Linz's claim of a 
small quantity surcharge. Petitioner states that Linz was unable to 
verify the accuracy or relevance of their internal memorandum on low 
volume sales, which serves as the basis for Linz's claim. They state 
that prices and quantities in the home market were inconsistent with 
the guidelines established by Linz for the low quantity price add-ons. 
Thus, there has been no demonstration that price increases for small 
quantity sales were applied in a consistent manner as required by 
Department policy.
    DOC Position: Pursuant to 19 CFR 353.55(b), ``The Secretary will 
calculate foreign market value based on sales with quantity discounts 
if:

    (1) During the period examined or during a more representative 
period, the producer or reseller granted quantity discounts of at 
least the same magnitude on 20 percent or more of sales of such or 
similar merchandise for the relevant country [Six-Month Rule]; or
    (2) the producer demonstrates to the Secretary's satisfaction 
that the discounts reflect savings specifically attributable to the 
production of different quantities [Cost Justification Method].''

    The Department expounded upon its requirements for including 
quantity discounts in its analysis in Final Determination of Sales at 
Less Than Fair Value: Brass Sheet and Strip from the Netherlands, 
(Brass Sheet and Strip) 53 FR 23431 (June 22, 1988). The Department 
asserted that:

 to be eligible for a quantity-based adjustment [six-month rule], a 
respondent must demonstrate a clear and direct correlation between 
price differences and quantities sold or costs incurred. This 
requirement applies equally to an allowance for quantity differences 
under the six-month rule or the cost justification requirement. 
Under the six-month rule, it is not sufficient that, during the POI, 
the respondent merely granted discounts of at least the same 
magnitude with respect to 20 percent or more of such or similar 
merchandise sold in the ordinary course of trade in the market used 
to establish foreign market value[;] the exporter must also 
demonstrate, using evidence such as a price list or quantity 
discount schedule, that it gave discounts on a uniform basis and 
that such discounts were available to substantially all home market 
customers. With regard to a cost-based adjustment, the exporter must 
demonstrate that the discounts are warranted on the basis of savings 
which are specifically attributable to the production of the 
different quantities involved. (Emphasis added)

    Linz has specified that it is seeking to include a small quantity 
surcharge under the Department's so-called ``six-month'' rule, 
contained in Section 353.55(b)(1) of the Department's regulations. The 
Department requires consistency under this rule in two respects: The 
first is whether or not price increases were applied when appropriate. 
The second is whether or not price increases, when applied, were 
applied consistently in accordance with the pricing policy.
    Linz stated that, for small quantity purchasers in the home market, 
it adds a small quantity price add-on to account for the additional 
administrative expenses incurred in servicing small quantity 
purchasers. Linz based its claimed small quantity surcharge on a 
September 1992 internal memorandum on low volume sales. This memorandum 
specifies four small quantity categories with a specified price 
increase for each of the quantity brackets.
    In the preliminary determination, the Department denied Linz's 
claim for a small quantity surcharge. Linz stated in its January 6, 
1997 supplemental response that the application of its small quantity 
price adjustment is ``flexible, made on a case-by-case basis, and is 
meant only as a guideline.'' Therefore, Linz was unable to demonstrate, 
based on the information on the record, the required consistency.
    Prior to verification, Linz provided additional information on its 
small quantity surcharge. The company stated that while its small 
quantity adjustment policy was meant to be a guideline and to be 
flexible, it was to be followed in all possible cases and was to be 
applied to virtually all small quantity sales. Linz stated that, during 
the POI, it followed the small quantity price increases in all cases 
but eleven. The company stated that there were specific reasons why 
there were eleven exceptions to this policy during the POI.
    For purposes of this final determination, we again examined Linz's 
home market sales to determine whether or not price increases were 
applied when appropriate, and to determine whether or not price 
increases were applied consistently in accordance with Linz's 1992 
internal memorandum on low volume sales. An examination of Linz's home 
market prices during the POI demonstrated that Linz did not 
consistently adhere to its small quantity add-on pricing policy with 
respect to the four quantity brackets listed in its 1992 sales 
memorandum, even disregarding the eleven sales which Linz stated were 
exceptions to this pricing policy. Therefore, we do not find that there 
was a clear and direct correlation between price and quantity. Thus, 
the company

[[Page 43707]]

did not meet the requirements of section 353.55(b) of the regulations 
and we have not granted their claimed differences due to small quantity 
surcharges.

Comment 7: Sales of Comparable Quantities

    Linz argues that absent an adjustment to normal value for quantity 
discounts under section 353.55(b) of the regulations, the Department 
should resort to comparisons of only sales in comparable quantities in 
the two markets. Linz states that under 19 C.F.R. 353.55(a), ``in 
comparing the United States price with foreign market value, the 
Secretary normally will use sales of comparable quantities of 
merchandise.'' Linz states that all sales in both the U.S. and home 
market over a certain amount are treated equally in terms of quantity 
pricing adjustments. Thus, the Department should only use home market 
sales over that amount in calculating normal value.
    Petitioner states that the Department should reject Linz's 
arguments for comparable quantities. Petitioner states that in defining 
its notion of comparable quantities, Linz has classified all sales into 
one of two quantity ranges, and that these comparable quantity ranges 
are flawed for two reasons. First, they contradict the five quantity 
ranges that Linz has claimed in the context of the quantity discount. 
Thus, Linz is arguing for one set of quantity ranges with respect to 
quantity discounts, and a different set of quantity ranges with respect 
to comparable quantities. Second, Linz has created an overly-broad 
upper range.
    DOC Position: The issue of comparison of comparable quantities 
arose in Notice of Final Determination of Sales at Less Than Fair 
Value: Extruded PVC and Polystyrene Framing Stock from the United 
Kingdom (Framing Stock), 61 FR 51412 (October 2, 1996). In Framing 
Stock, we stated that information on the record demonstrated that the 
prices between different quantity bands were sufficiently distinct to 
warrant comparisons at comparable quantity bands. In the instant 
investigation, we reviewed the pricing information on home market sales 
between sales over a certain quantity and those below that quantity to 
determine whether the prices between these two quantity bands were 
sufficiently distinct to also warrant comparisons at comparable 
quantities. Based upon our pricing analysis, we found that the pricing 
between the two quantity bands was not sufficiently distinct to warrant 
comparisons at comparable quantity bands. Therefore, we based normal 
value on the weighted-average of all comparable sales, regardless of 
quantity.

Comment 8: Calculation of Financial Expenses

    Petitioner states that the Department should continue to include 
only short-term interest income as an offset to interest expense. 
Petitioner notes that, in the preliminary determination, the Department 
adjusted Linz's reported interest income to approximate the portion of 
interest income attributable to short-term assets. However, as a result 
of verification, petitioner concludes that the Department now has the 
data to accurately determine which items of interest income are short-
term and which are long-term. Linz states that petitioner, in its 
brief, did not specifically state which amount of Linz's interest 
income is short-term and long-term. As a result, Linz argues that the 
Department should disregard petitioner's request for an adjustment to 
the calculation of Linz's interest expense.
    DOC Position: We agree with petitioner. During verification, the 
Department verified the portion of interest income related to short-
term investments of its working capital. For the final determination, 
the Department adjusted Linz's reported net interest expense rate to 
include only short-term interest income as an offset to interest 
expense.

Comment 9: Parent Company G&A

    The petitioner claims that Linz understated its general and 
administrative expenses by failing to account for expenses incurred by 
its non-operating corporate parent. Petitioner argues that because the 
section D questionnaire instructed Linz to include in its reported G&A 
an amount for administrative services performed by its parent, the 
Department should increase Linz's reported G&A expenses to include a 
G&A expense amount incurred by its parent company. Linz asserts that 
the Department has already included the expenses of Linz's parent 
company in its calculation of the G&A expense.
    DOC Position: The Department's practice is to include a portion of 
parent company G&A expenses where appropriate. In this case, Linz's 
reported G&A expense already reflects expenses incurred on its behalf 
by its parent. Therefore, to include additional G&A amounts as argued 
by petitioner would overstate G&A.

Borckenstein

Comment 10: Affiliation Due To Close Supplier Relationship

    Petitioner claims that information on the record indicates a close 
supplier relationship between Borckenstein and its sole U.S. customer 
of the subject merchandise, Beavertown, and thus Borckenstein and the 
U.S. customer would fall within the definition of affiliated parties 
set forth in section 771(33) of the Act. Petitioner contends that a 
determination of affiliation may be based on a close supplier 
relationship for the following reasons. By purchasing a large 
percentage of a supplier's subject sales, the buyer could extract price 
and other concessions from the supplier by threatening to purchase the 
products from another vendor. Because such an action would severely 
impact the business of the supplier, the purchasing company is in a 
position to control the related supplier by exerting restraint or 
direction over the supplier. Therefore, petitioner argues that 
Borckenstein and Beavertown are affiliated and that Borckenstein's U.S. 
sales should be classified as CEP sales.
    Borckenstein states that it is not affiliated with Beavertown and 
that there is no close supplier relationship based upon the percentage 
of Beavertown's purchases compared to Borckenstein's total sales 
revenue. Borckenstein argues that petitioner's assertion that this 
percentage should only be based on subject sales and not on subject and 
non-subject sales is flatly contrary to current Department practice. 
Borckenstein states that the Department's standard practice of 
determining close supplier relationship is based on the percentage of 
``total annual sales,'' not solely the percentage of subject sales. See 
Notice of Final Determination of Sales at Less Than Fair Value: Large 
Newspaper Printing Presses and Components Thereof, Whether Assembled or 
Unassembled from Japan, (hereinafter Printing Presses) 61 FR 38139, 
(July 23, 1996).
    DOC Position: We disagree with the petitioner's claim that 
information on the record indicates that a close supplier relationship 
exists between Borckenstein and its sole U.S. customer of subject 
merchandise. We examined this issue at verification and did not find 
evidence of a close supplier relationship. In addition, the Department 
has dealt with a similar issue in other recent cases and likewise did 
not find affiliation. See, e.g., Printing Presses.
    In Printing Presses, the Department indicated, among other factors, 
that close supplier relationships may occur

[[Page 43708]]

when a majority of a supplier's sales are made to one customer. 
However, in the instant case, Borckenstein's financial records indicate 
that Beavertown's purchases account for only a small portion of 
Borckenstein's total sales revenue, which is based on sales of the 
subject merchandise and closely related products. Therefore, 
Borckenstein is not reliant on Beavertown, and we find no close 
supplier relationship in this case. Thus, the two parties are not 
affiliated under 771(33) of the Act.

Comment 11: Quantity Discount Under Section 353.55(b)

    Borckenstein states that the information on the record supports an 
adjustment for differences in quantities sold in the U.S. and Austrian 
markets pursuant to section 773(a)(6) of the Act and section 353.55(b) 
of the Department's regulations. The claim for the quantity adjustment 
is based on raw material rebates received from Borckenstein's raw 
material supplier, and the additional cost of machine recalibrations in 
the home market. Petitioner states that Borckenstein has failed to 
demonstrate a clear and direct correlation between price differences 
and quantities sold, or price differences and costs incurred. 
Therefore, Borckenstein's claimed quantity adjustment pursuant to 
section 353.55(b) must be denied.
    DOC Position: We agree with the petitioner. The criteria for 
recognizing quantity discounts pursuant to 19 CFR 353.55(b) have been 
fully explained in the Department's Position to Comment 6. Borckenstein 
has not demonstrated a clear and direct correlation between price 
differences and quantities sold or costs incurred. See the discussion 
of Brass Sheet and Strip referenced in Comment 6. Furthermore, although 
Borckenstein contends that the additional cost of machine 
recalibrations are appropriate costs on which to base a difference in 
quantities adjustment, however, it is the Department's practice not to 
allow a quantity based adjustment under 19 CFR 353.55(b) based upon the 
additional setup time that is required for shorter runs. The Department 
will grant cost adjustment claims based on direct manufacturing costs; 
recalibration of machinery does not constitute a direct cost. In 
addition, the claim for the rebate of raw material does not meet the 
standard set forth in Brass Sheet and Strip for an adjustment under 
353.55(b). It is our practice to use one average cost for a raw 
material; different costs cannot be attributed to the same raw 
material. Therefore, Borckenstein is unable to demonstrate that price 
differences are attributable to the production of different quantities. 
Accordingly, the Department has not granted Borckenstein's claim for a 
quantity discount.

Comment 12: Raw Material Rebate

    Petitioner argues that the Department should not grant an 
adjustment for a raw material rebate that Borckenstein receives from 
its supplier and that Borckenstein claims it used to produce subject 
merchandise destined for the U.S. market. Petitioner states that the 
granting of an export-based rebate on raw material purchases is 
commonly referred to as ``input dumping,'' and the Department has 
condemned input dumping in past cases, and must continue to do so in 
the present case. Borckenstein contends that the Department should 
adjust for its claimed raw material rebate. Borckenstein argues that 
the rebate is not directed at the U.S. market but to the customer who 
purchases large quantities of product which allows Borckenstein to 
achieve economies of scale in production. Borckenstein also asserts 
that petitioner is incorrect when it stated that there is input dumping 
in this case.
    DOC Position: Section 773(a)(4)(B) of the Act authorizes the 
Department to adjust for ``differences in circumstances of sales,'' 
which include such things as differences in commissions, credit terms, 
guarantees, warranties, technical assistance, and servicing. We note 
that while the regulations do provide for adjustments to production 
cost differences in two instances (where quantity discounts reflect 
savings in production of different quantities (19 CFR 353.55(b)(2)), 
and where differences in production cost are due to differences in 
physical characteristics (19 CFR 353.57(b)), neither of these 
provisions is applicable here. Since the type of adjustment at issue 
here does not relate to physical differences in merchandise, it is not 
an allowable adjustment under the difference-in-merchandise provision. 
In addition, in view of the fact that the proposed adjustment cannot be 
deemed a sales-related expense, it is not appropriate to adjust for the 
rebate as a circumstance of sale.

Comment 13: Raw Material Costs

    The petitioner asserts that Borckenstein's costs of production for 
home market sales is underreported. Petitioner states that Borckenstein 
received a rebate on raw material only for finished yarn exported to 
the United States. Since this rebate did not apply to home market 
sales, this rebate should not be attributable to raw material costs for 
COP applied to home market sales. Thus, the actual fiber costs incurred 
by Borckenstein for home market sales are higher than have been 
reported. Borckenstein states that the raw material costs reported by 
Borckenstein are weighted-average costs between the home market and the 
U.S. market, consistent with standard Department methodology. In 
addition, Borckenstein states that the Department verified the accuracy 
of Borckenstein's reported material cost at verification and found no 
discrepancies.
     DOC Position: We agree with Borckenstein that the Department's 
normal practice is to compute a single weighted-average COP for each 
unique model subject to the investigation. Accordingly, we did not 
adjust Borckenstein's reported raw material cost for the final 
determination.

Comment 14: Treatment of Commission as a Rebate

    The petitioner asserts that Beavertown Mills, Borckenstein's sole 
U.S. customer of subject merchandise, is wholly-owned by Titan Textile 
Co., and that Borckenstein's commission agent is also wholly-owned by 
Titan Textile Co. Thus, petitioner asserts that the reported commission 
payments are in effect payments to the customer itself. According to 
petitioner, the amount paid to the customer cannot be considered a 
commission, but is instead a rebate. Therefore, the Department should 
continue to treat the claimed commission as a rebate. Borckenstein 
contends that the payment is made to its selling agent, therefore, the 
payment should be considered a commission, not a rebate. Borckenstein 
contends that the selling agent never takes possession of the 
merchandise, nor does it pay the selling agent directly for the 
merchandise. In addition, Borckenstein states that these payments of 
commissions are accounted for in its books as commissions, and are 
invoiced to its selling agent as commissions.
    DOC Position: In the preliminary determination, the Department 
treated Borckenstein's U.S. commissions as rebates based on its 
understanding that the commission agent was wholly-owned by 
Beavertown's parent company. Because the commission was treated as a 
rebate there was no offset for indirect selling expenses in the 
preliminary determination. At verification, we learned that 
Borckenstein uses selling agents for all of its U.S. sales. The 
Department established that the selling agent used for sales of the 
subject merchandise performed the functions of a

[[Page 43709]]

commission agent. We verified that the U.S. customer, not the selling 
agent, pays Borckenstein for the merchandise. In addition, Borckenstein 
makes payments directly to the selling agent for services rendered in 
the sales transaction.
    During verification, we also reviewed documentation regarding the 
shareholder listings for Borckenstein's selling agent, Beavertown, and 
Beavertown's parent company which demonstrated that the selling agent 
is not affiliated with Beavertown. The controlling shareholder of the 
selling agent owns no shares in either Beavertown or Beavertown's 
parent company. Therefore, we do not find Borckenstein's selling agent 
to be affiliated with Beavertown under section 771(33) of the Act for 
the purposes of the treatment of this commission. Therefore, in this 
final determination, we have treated this expense as a commission and 
offset it with home market indirect selling expenses.

Comment 15: Depreciation Expense in Reported Cost of Production

    The petitioner contends that Borckenstein underreported its 
depreciation expense. Among the excluded costs were depreciation 
expenses for the plant in which the product is produced, all 
depreciation related to the general and administrative functions of the 
company, and depreciation related to assets that directly or indirectly 
support the manufacturing operation. Borckenstein states that it does 
not object to an appropriate and reasonable increase of submitted 
depreciation expenses in calculating the cost of production.
    DOC Position: We agree with petitioner. For the final 
determination, we recalculated depreciation expense to include 
depreciation from the other categories of fixed assets used in the 
production of the subject merchandise. Additionally, we included a 
portion of the depreciation expense related to Borckenstein's assets 
used to perform the administrative functions of the company.

Comment 16: Failure to Include Indirect Material Expenses

    The petitioner contends that Borckenstein failed to include 
indirect material expenses in its reported cost of production. The 
indirect materials excluded were: (1) Materials purchased for the 
refurbishment of the open-end equipment specifically used to produce 
the merchandise under investigation; and (2) repair materials. Further, 
the petitioner asserts that these costs were incurred during the fiscal 
period on which Borckenstein's cost response was based, and related 
directly to the equipment used to produce the merchandise under 
investigation. Borckenstein states that it properly reported indirect 
material expenses in its reported cost of production, and that, at 
verification, the Department determined that the expenses in question 
were not incurred for the production of the subject merchandise during 
the POI.
    DOC Position: The Department agrees, in part, with petitioner. The 
Department verified that the majority of the parts purchased by 
respondent in the last month of the cost calculation period were used 
to refurbish and extend the useful life of the machinery sold 
subsequent to the POI. Given the fact that Borckenstein intended to 
sell the machinery, the company expensed the cost of these parts rather 
than capitalize them. In the normal course of business, Borckenstein 
depreciates its machinery over four years. Since the refurbishment was 
so extensive, we agree that the costs incurred should have been 
capitalized. Accordingly, we consider it appropriate for Borckenstein 
to depreciate the refurbishment costs over four years beginning with 
the month of purchases (the last month of the POI). Thus, Borckenstein 
should recognize one month of depreciation related to the purchased 
parts in its submitted POI costs of manufacturing. We verified that the 
remaining parts Borckenstein purchased at the end of the year related 
to repairs and maintenance for the subsequent year. In the ordinary 
course of business, Borckenstein expenses small parts and maintenance 
supplies when purchased rather than when consumed. As such, the 
Department maintains that the cost of these parts are representative of 
Borckenstein's yearly repairs and maintenance expense and should be 
included in its COP and CV. However, consistent with 19 C.F.R. 
Sec. 353.59(a), which permits the Department to disregard insignificant 
adjustments, we have elected not to adjust Borckenstein's COM for 
either the depreciation expense or cost of the parts, since the 
addition of these costs would not affect our overall margin 
calculation.

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 
open-end spun rayon singles yarn that are entered, or withdrawn from 
warehouse, for consumption on or after March 26, 1997, the date of 
publication of our preliminary determination in the Federal Register. 
We will instruct the Customs Service to require a cash deposit or the 
posting of a bond equal to the weighted-average amount by which the 
normal value exceeds the export price, as indicated in the chart below. 
This suspension of liquidation will remain in effect until further 
notice.

------------------------------------------------------------------------
                                                               Weighted 
                                                                average 
                    Exporter/manufacturer                       margin  
                                                              percentage
------------------------------------------------------------------------
Linz........................................................       12.36
Borckenstein................................................        2.36
All Others..................................................        7.42
------------------------------------------------------------------------

    Pursuant to section 733(d)(1)(A) and section 735(c)(5) of the Act, 
the Department has not included zero or de minimis weighted-average 
dumping margins, or margins determined entirely under section 776 of 
the Act, in the calculation of the ``all others'' rate.

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: August 8, 1997.
Richard W. Moreland,
Acting Assistant Secretary for Import Administration.
[FR Doc. 97-21710 Filed 8-14-97; 8:45 am]
BILLING CODE 3510-DS-P