[Federal Register Volume 62, Number 204 (Wednesday, October 22, 1997)]
[Notices]
[Pages 54823-54824]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-27991]


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DEPARTMENT OF COMMERCE

International Trade Administration
[A-583-824]


Notice of Termination of New Shipper Antidumping Duty 
Administrative Review: Polyvinyl Alcohol From Taiwan

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

EFFECTIVE DATE: October 22, 1997.

FOR FURTHER INFORMATION CONTACT: Everett Kelly or Brian Smith, Import 
Administration, International Trade Administration, U.S. Department of 
Commerce, 14th Street and Constitution Avenue, N.W., Washington, D.C. 
20230; telephone: (202) 482-4194 or (202) 482-1766, 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 references to the Department's regulations are 
to those codified at 19 CFR part 353, as they existed on April 1, 1996.

Background

    On December 18, 1996, the Department published in the Federal 
Register notice the initiation of a new shipper administrative review 
of the antidumping duty order on polyvinyl alcohol from Taiwan covering 
the exporter Perry Chemical Corporation (``Perry'') and the period May 
1, 1996, through October 31, 1996 (61 FR 68237, December 28, 1996).
    Under Section 751(a)(2)(B)(i) of the Act, the Department will 
conduct an administrative review to establish an individual weighted 
average dumping margin if the Department receives a request from an 
exporter or producer that establishes (1) it did not export the 
merchandise that was the subject of the antidumping duty order to the 
United States during the period of investigation and (2) it is not 
affiliated within the meaning of section 771(33), any exporter or 
producer who exported the merchandise to the United States during that 
period of investigation.
    In the less than fair value (LTFV) investigation, the Department 
investigated the sales of Chang Chun Petrochemicals, Ltd. (Chang Chun), 
the only exporter of PVA from Taiwan during the period of 
investigation, including sales to Perry, a U.S. importer. The record 
indicates that Perry has had a longstanding business relationship as an 
importer of PVA produced by Chang Chun and imported the subject 
merchandise produced and exported by Chang Chun during the period of 
the LTFV investigation. The Department found Chang Chun to be dumping 
at a rate of 19.21 percent during the LTFV investigation. In this 
review, the business relationship remains essentially unchanged. As 
shown by proprietary information on the record in this review, Perry 
continues to be the importer and Chang Chun continues to undertake the 
entire production of PVA.
    For the sales in question in this review, Perry states that in 
addition to being the importer, it is now also the ``manufacturer/
exporter'' of the subject merchandise, and that as a new exporter, it 
is entitled to a new shipper rate. Perry indicates that to produce the 
subject merchandise, Perry purchased the primary input of PVA, vinyl 
acetate monomer (VAM) from a Taiwan producer of VAM through an 
unaffiliated U.S. trading company. Perry contracted with Chang Chun to 
produce PVA utilizing Perry's VAM under a tolling arrangement. Perry 
then sold the PVA to unaffiliated customers in the United States and 
Canada during the period of review (POR).
    In most past cases involving tolling arrangements the Department 
considered the manufacturer of the product exported to the United 
States to be the processor or toller, and not the party which 
controlled the production process, set the prices of the finished 
product in all markets, and held title to both the inputs and the 
subject merchandise (see, e.g., Final Determination of Sales at Less 
Than Fair Value: Certain Small Diameter Welded Carbon Steel Pipes and 
Tubes from the Phillippines, 51 FR 33099, September 18, 1986).
    Within the last few years, the Department has reconsidered its 
position of deeming the toller the manufacturer. A toller has no 
control over the price charged to U.S. and domestic buyers of the 
finished product, nor does a toller set the price in either market. 
Moreover, because the Department only considered the price or cost of 
the tolling in making comparisons between U.S. prices and prices of 
sales of the foreign like product, the Department did not capture all 
of the costs of manufacturing the subject merchandise, e.g., cost of 
inputs, as required by the statute section 773. Therefore, this 
approach did not allow for analysis of price comparisons between the 
finished products.
    To resolve this situation, the Department revised its tolling 
practice. Rather than treat the toller as the producer, the Department 
now will treat the party who keeps title to the inputs and the finished 
product, controls the entire production process, and sets the price of 
the finished product in each market as the producer and, hence, the 
proper respondent (see Discussion Memorandum: A Proposed Alternative to 
Current Tolling Methodology in the Current Antidumping (AD) Reviews of 
Carbon Steel Flat Products, Memorandum from Joseph A. Spetrini, Deputy 
Assistant Secretary for Compliance, to Susan G. Esserman, Assistant 
Secretary for Import Administration, dated December 12, 1994).
    This approach is also reflected in the Department's preamble to its 
new regulations (Antidumping Duties; Countervailing Duties; Final Rule, 
62 FR 27295 (May 19,1997). Under section 351.401(h) of the new 
regulations, which, although not legally in effect for this new shipper 
review, are, at the time of this request for review, an expression of 
the Department's practice, the Department will not consider a toller or 
subcontractor to be a manufacturer or producer where the toller or 
subcontractor does not acquire ownership of the finished product and 
does not control the relevant sale of the subject merchandise and the 
foreign like product. See also Antidumping Duties; Countervailing 
Duties; Final Rule, 62 FR 27296, 27411 (legally effective only for 
segments of the proceeding initiated based on requests filed after June 
18,

[[Page 54824]]

1997, but nevertheless a restatement of the Department's practice).
    Perry claims that under the tolling agreement between Perry and 
Chang Chun, Perry maintains control of the entire production process by 
(1) controlling the supply of the major input, VAM, used to produce 
tolled PVA by Chang Chun, (2) controlling Chang Chun's production of 
tolled PVA through the specifications (grades) and amounts to be 
produced, (3) retaining title to VAM and the finished product 
throughout the tolling process, and (4) establishing the prices, the 
quantities and specifications/grade at which the tolled PVA will be 
sold in the United States and other markets. Perry pays a fee to Chang 
Chun for these services.
    Perry has stated the following on the record of this proceeding:
    (1) Perry controlled the sales process of the tolled PVA.
    As detailed in its questionnaire responses, Perry controlled all 
aspects of its tolled PVA sales. It identified customers and negotiated 
the terms of sale with them. Perry arranged the warehousing and 
palletization of the tolled PVA prior to delivery to its customers. 
Perry shipped the merchandise to its customers and carried the accounts 
receivables until payment was received.
    (2) Perry controlled the production of the tolled merchandise.
    As detailed in its questionnaire responses, Perry controlled Chang 
Chun's production of PVA according to the terms of the tolling 
agreement. Perry determined all specifications for production of the 
PVA. Chang Chun could not deviate from Perry's production 
specifications without Perry's written approval. (This is reflected in 
the warranty terms set out in the contract.) Chang Chun could not 
produce PVA from the VAM owned by Perry without Perry's written 
instructions.
    (3 ) Perry held title to the input materials.
    As detailed in Perry's questionnaire responses, Perry purchased VAM 
through an unaffiliated trading company. Perry retained title to the 
merchandise throughout the PVA production process while the material 
was in Chang Chun's possession. Title did not transfer until it passed 
to Perry's customers upon delivery to them.
    Petitioner, Air Products and Chemicals, Inc., argues that Chang 
Chun, not Perry, is the producer of the subject merchandise because the 
processing performed by Chang Chun is not a minor finishing operation, 
but rather a substantial transformation which converts VAM into the 
subject merchandise. Petitioner further contends that the Department 
should terminate this review because, based on the facts presented in 
this proceeding, there is no material difference between the Chang Chun 
sales to Perry in the LTFV investigation, when Perry was merely an 
importer, and the alleged tolling relationship now in existence between 
Chang Chun and Perry. The only difference is the paperwork. Petitioner 
concluded that Perry is not entitled to a new shipper review because 
Chang Chun is the true manufacturer of the subject merchandise.
    Petitioner also argues that Perry is not entitled to a new shipper 
review because Perry and Chang Chun are affiliated under the affiliated 
parties provision of section 771(33)(G) of the Act. Petitioner contends 
that although Perry is not affiliated with Chang Chun through stock 
ownership, it is affiliated with Chang Chun by its close supplier 
relationship and its debt financing.
    Perry responds that it has fully satisfied the Department's revised 
interpretation of a manufacturer/exporter of tolled merchandise and, 
therefore, Chang Chun is not the manufacturer of the merchandise. Perry 
further states that petitioner's conclusion that Chang Chun is the 
manufacturer is inconsistent with the standard for manufacturer/
producer status codified in the Department's new regulations at 19 CFR 
section 351.401(h) (1997). Finally, Perry responds that, as the 
proprietary information placed on the record shows, its accounts 
payable to Chang Chun is not debt financing and does not establish an 
affiliation under the Act. Moreover, Chang Chun made a submission 
asserting that it does not exercise control over Perry through the 
supplier relationship.
    We have determined that Perry does not qualify as a new shipper 
regardless of whether we regard it as the producer of PVA tolled by 
Chang Chun. If we were to continue to regard Chang Chun as the 
producer, Chang Chun (not Perry) would be both the producer and the 
exporter, because Chang Chun has knowledge at the time it sells to 
Perry that the subject merchandise is for export to the United States. 
On the other hand, if Perry is the producer based on a tolling 
arrangement with Chang Chun, we find that Perry would be affiliated 
with Chang Chun, an exporter of subject merchandise during the 
investigation.
    Perry claims that it controlled all aspects of the subcontractor's 
operations in the tolling transaction--i.e., Chang Chun's processing of 
VAM. Perry's own questionnaire responses indicated that Perry exercised 
direction over Chang Chun in all facets of the processing of VAM. This 
direction purportedly also illustrated in the tolling agreement between 
Perry and Chang Chun, included as part of the February 26, 1997, 
questionnaire response.
    Under section 771(33)(G) of the Act, the Department will consider 
parties to be ``affiliated'' if one person controls any other person. 
The statutory provision defines control as a situation in which one 
person is legally or operationally in a position to exercise restraint 
or direction over another person. Based on our analysis of the 
information on the record, we do not find that Chang Chun exercises 
control over Perry through debt financing or the supplier relationship. 
However, based on Perry's own statements on the record, Perry was 
legally and operationally in a position to exercise direction over 
Chang Chun's production of PVA under contract to Perry and exported by 
Perry to the United States during the POR. Accordingly, Perry's 
assertions indicate that Perry and Chang Chun are affiliated persons 
within the meaning of section 771(33)(G) of the Act with regard to 
Perry's sales of PVA tolled by Chang Chun.
    Based on this determination of affiliation, this proceeding does 
not meet the requirements of section 751(a)(2)(B) of the Act for 
conducting a new shipper review with regard to Perry's sales of tolled 
PVA since Perry is affiliated with Chang Chun, which was a producer who 
exported and producer of the subject merchandise during the period of 
the LTFV. This determination of affiliation under section 771(33)(G) of 
the Act is based on the particular facts of this review, and is made 
only in the context of determining Perry's eligibility for a new 
shipper review under section 751(a)(2)(B). Alternatively, if Perry is 
not the manufacturer based on a tolling arrangement, there likewise is 
no basis for conducting a new shipper review. Therefore, the Department 
is terminating this review.

    Dated: October 14, 1997.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 97-27991 Filed 10-21-97; 8:45 am]
BILLING CODE 3510-DS-P