[Federal Register Volume 63, Number 50 (Monday, March 16, 1998)]
[Notices]
[Pages 12764-12784]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-6714]
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-201-802]
Gray Portland Cement and Clinker From Mexico: Final Results of
Antidumping Duty Administrative Review
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Notice of final results of antidumping duty administrative
review.
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SUMMARY: On September 10, 1997, the Department of Commerce (the
Department) published the preliminary results of its administrative
review of the antidumping duty order on gray portland cement and
clinker from Mexico. The review covers one manufacturer/exporter,
CEMEX, S.A. de C.V (CEMEX), and its affiliated party Cementos de
Chihuahua, S.A. de C.V. (CDC), and the period August 1, 1995, through
July 31, 1996. We gave interested parties an opportunity to comment on
the preliminary results. We received comments from petitioner and
respondent. We received rebuttal comments from the petitioner and
respondent.
EFFECTIVE DATE: March 16, 1998.
FOR FURTHER INFORMATION CONTACT: Nithya Nagarajan, Kristen Stevens or
John Totaro, Import Administration, International Trade Administration,
U.S. Department of Commerce, 14th Street and Constitution Avenue, N.W.,
Washington, D.C. 20230; telephone: (202) 482-3793.
SUPPLEMENTARY INFORMATION:
Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute are
references to the provisions effective January 1, 1995, the effective
date of the amendments made to the Tariff Act of 1930 (the Act) by the
Uruguay Round Agreements Act (URAA). In addition, unless otherwise
indicated, all citations to the Department's regulations are to the
regulations at 19 CFR Part 353 (April 1997).
Background
On September 10, 1997, the Department published in the Federal
Register (62 FR 47626) the preliminary results of its administrative
review of the antidumping duty order on gray portland cement and
clinker from Mexico covering the period August 1, 1995 through July 31,
1996. The Department has now completed this review in accordance with
section 751(a) of the Act.
Scope of the Review
The products covered by this review include gray portland cement
and clinker. Gray portland cement is a hydraulic cement and the primary
component of concrete. Clinker, an intermediate material product
produced when manufacturing cement, has no use other than being ground
into finished cement. Gray portland cement is currently classifiable
under the Harmonized Tariff Schedule (HTS) item number 2523.29 and
cement clinker is currently classifiable under HTS item number 2523.10.
Gray portland cement has also been entered under HTS item number
2523.90 as ``other hydraulic cements.'' The HTS subheadings are
provided for convenience and U.S. Customs Service purposes only. The
Department's written description remains dispositive as to the scope of
the product coverage.
Verification
As provided in section 782(i) of the Act, we verified information
provided by the respondent using standard verification procedures,
including on site inspection of the manufacturer's facilities and the
examination of relevant sales and financial records. Our verification
results are outlined in verification reports in the official file of
this case (public versions of these reports are on file in room B-099
of the Department's main building).
Analysis of Comments Received
The Southern Tier Cement Committee (petitioner), CEMEX, and CDC
submitted case briefs on October 24, 1997. Petitioner and CEMEX
submitted supplemental case briefs on December 5, 1997. All parties
submitted rebuttal briefs on December 19, 1997. A public hearing was
held on February 12, 1998.
Revocation of the Underlying Order
Comment 1
CEMEX contends that the Department lacks the authority to assess
antidumping duties pursuant to the final results of this review because
at the time the original less-than-fair-value
[[Page 12765]]
(LTFV) investigation was initiated (October 16, 1989), the Department
assumed that the petition was filed ``on behalf of'' a regional
industry without measuring whether a majority of the industry actually
supported the request. The Department should have measured industry
support, CEMEX argues, because a GATT panel recommended in July of 1992
that an antidumping petition filed ``on behalf of'' an industry must be
supported by an appropriate majority of the industry, and such support
must be ascertained prior to initiating an investigation. According to
CEMEX, the panel's recommendation is applicable to the instant
administrative review for two reasons.
First, CEMEX claims that the Antidumping Agreement which resulted
from the Uruguay Round of global trade talks ``adopted'' the
requirement of industry support articulated by the GATT panel.
Moreover, CEMEX asserts, the new standard regarding industry support
for a petition is contained in the URAA and since this review is
governed by the amendments to the antidumping law occasioned by the
URAA, ``the new standard should be used in this case.''
Second, even if the new requirement on standing does not apply
retroactively to a determination the Department made over eight years
ago, the antidumping statute that was in effect in 1989 did not define
the term ``on behalf of.'' Faced with this lacuna in the statute, CEMEX
asserts, the Department is compelled by the decision in Murray v.
Schooner Charming Betsy, 6 U.S. 64, 2 Cranch 64 (1804) to reinterpret
U.S. law in accordance with the international obligations of the United
States. In the opinion of CEMEX, this means that the Department is
required in the sixth review to revisit the issue of initiation in the
original LTFV investigation and abide by the 1992 GATT panel ruling.
CDC also argues that the Department must terminate this review and
revoke the underlying antidumping duty order. According to CDC, the
plain language of the antidumping statute requires petitions in
regional industry cases to be filed on behalf of the producers who
account for ``all or virtually all'' of the production in the region.
Since the antidumping order covering cement from Mexico was based, CDC
asserts, on a petition that was not supported by producers accounting
for all or almost all of the region's production, the order was issued
in violation of U.S. law.
Finally, CDC argues that lack of standing to file an antidumping
duty petition is a ``jurisdictional'' defect which parties may raise at
any time. Citing Zenith Electronics Corp. v. United States, Gilmore
Steel Corp. v. United States, and Oregon Steel Mills, Inc. v. United
States, CDC contends that the Department has the authority to revoke an
order that never had the requisite level of industry support.
Petitioner argues that the Department properly initiated the
original antidumping investigation and that respondent's claim that the
Department should revoke the antidumping order is barred because it has
been previously adjudicated adversely to CEMEX and CDC. In this regard,
petitioner notes that both parties tried to challenge the initiation of
the original LTFV investigation before a binational panel convened
under the auspices of Chapter 19 of the North American Free Trade
Agreement (NAFTA) to review the final results of the third
administrative review. In a unanimous opinion issued on September 13,
1996, the panel rejected the very claims that CEMEX and CDC advance in
the instant review. Thus, petitioner argues, the principle of ``issue
preclusion'' (or ``collateral estoppel'') should prevent CEMEX and CDC
from ``relitigating'' these claims before the Department in the sixth
administrative review.
Petitioner also contends that the respondent's claim lacks any
legal basis because it is barred by the statute of limitations which
requires ``any appeal of the decision to initiate the antidumping
investigation to be filed within 30 days of the publication of the
antidumping order.'' Additionally, petitioner asserts, CEMEX and CDC
failed to ``exhaust available administrative remedies'' by not raising
the issue before the Department in the original LTFV investigation .
CEMEX and CDC also failed to raise this issue in the now-concluded
litigation over the LTFV investigation and, therefore, the claim is
barred by res judicata. Petitioner also contends that much of the basis
for CEMEX's and CDC's claim is an unadopted GATT panel report which is
not binding international law. Furthermore, petitioner claims that the
Department ``lacks authority under the statute to rescind its
initiation of the original investigation in the context of an
administrative review.'' Finally, petitioner asserts, citing Suramerica
de Aleaciones Laminada, C.A. v. United States, that the courts have
upheld the Department's prior practice of presuming industry support
for a petition in absence of ``any showing to the contrary.''
Department's Position
For the following reasons, respondent's arguments are without
merit. First, like the GATT itself, panel reports under the 1947 GATT
were not self-executing and thus had no direct legal effect under U.S.
law.
Second, neither the 1947 GATT nor the 1979 GATT Antidumping Code
obligated the United States to affirmatively establish prior to the
initiation of a regional-industry case that all or almost all of the
producers in the region supported the petition. There certainly was no
suggestion in either instrument that the standing requirements in
regional-industry cases were any more rigorous than the standing
requirements in national-industry cases.
Furthermore, GATT panel reports, such as the one issued in 1992,
had no legal effect or formal status unless and until they were adopted
by the GATT Council or, in the case of antidumping measures, the GATT
Antidumping Code Committee. This followed from the fact that the 1947
GATT operated, throughout its history, on the basis of consensus for
purposes of decision-making in general and the resolution of disputes
in particular. In the present case, it is undisputed that the GATT
panel report was never adopted by the Antidumping Code Committee. Thus,
the recommendations contained in the report were never binding, did not
impose any international obligations upon the United States, and did
not trigger the rule of statutory construction set forth in the
Charming Betsy case.
Third, the object of CEMEX's and CDC's comments is not the
preliminary results of this review. Rather, they complain about the
initiation of the original LTFV investigation--an event which occurred
over eight years ago and over five years before the effective date of
the URAA. The time to voice such objections before the Department was
during the investigation. Instead, CEMEX and CDC, as well as the other
Mexican cement producer that participated in the original investigation
(Apasco, S.A. de C.V.), sat silent before the Department. See Final
Determination of Sales at Less Than Fair Value; Gray Portland Cement
and Clinker From Mexico, 55 FR 29244 (1990). Moreover, neither CEMEX
nor any other party appealed the agency's final affirmative LTFV
determination (including the decision to initiate) to the appropriate
court, and the statute of limitations for doing so has long expired.
See 19 U.S.C. 1516a(a)(2)(A).
The only one who appealed the Department's final LTFV determination
was the petitioner. It challenged certain aspects of the Department's
final determination before the U.S. Court of International Trade
(``CIT'') and the U.S. Court of Appeals for the Federal Circuit
(Federal Circuit). See Ad Hoc
[[Page 12766]]
Committee Of AZ-NM-TX-FL Producers of Gray Portland Cement v. United
States, Slip Op. 94-152 (CIT), aff'd, 68 F.3d 487 (Fed. Cir. 1995).
CEMEX participated in that litigation as an intervenor on the side of
the Department. On October 10, 1995, the Federal Circuit issued an
opinion which disposed of the last issue in that case.
Therefore, even if the Department, of its own volition, were to
reinterpret U.S. law in light of the 1992 GATT panel report, it lacks
the legal authority in this review to revoke the order or otherwise
rescind the initiation of the underlying investigation. As we stated in
the final results of the third administrative review and reaffirm here:
* * * the Department has no authority to rescind its initiation
of the LTFV investigation. Under sections 514(b) and 516A(c)(1) of
the Act, a LTFV determination regarding initiation becomes final and
binding unless a court challenge to that determination is timely
initiated under 516A. Even if judicial review of a determination is
timely sought, the Department's determination continues to control
until there is a resulting court decision ``not in harmony with that
determination.'' See 19 U.S.C. Sec. 1516a(c)(1). In this case, no
one challenged the Department's determination on standing before the
CIT. Therefore, that determination is final and binding on all
persons, including the Department.
Gray Portland Cement and Clinker from Mexico; Final Results Of
Antidumping Duty Administrative Review, 60 FR 26865 (1995) (emphasis
added). See also Gray Portland Cement and Clinker from Mexico; Final
Results of Antidumping Duty Administrative Review, 62 FR 17581 (1997)
(final results of fourth administrative review); Gray Portland Cement
and Clinker from Mexico; Final Results of Antidumping Duty
Administrative Review, 62 FR 17148 (1997) (final results of five
administrative review).
Fourth, no court, including the court in Gilmore Steel, has ever
held that the Department has the authority, in an administrative review
under section 751(a) of the Act, to reach back more than eight years
and reexamine the issue of industry support for the original petition.
Gilmore Steel involved a challenge to the termination of a pending
investigation based upon information obtained in the course of that
investigation. In particular, the petitioner contended that the
Department lacked the authority to rescind the investigation based upon
insufficient industry support for the petition after the 20-day period
provided for in section 732(c) of the Act had elapsed. 585 F. Supp. at
673. In upholding the Department's determination, the court recognized
that administrative officers have the authority to correct errors, such
as ``jurisdictional defects,'' at anytime during the proceeding. Id. at
674-75. The court did not state or imply that a change in legal
interpretation (in this case a non-binding one) authorizes
administrative officers to reopen prior agency decisions which are
otherwise final. The court simply held that the administering authority
may, in the context of the original investigation, rescind an ongoing
proceeding after expiration of the 20-day initiation period.
Although the Zenith Electronics case did involve an administrative
review, it did not concern questions about industry support for a
petition in the original investigation. Rather, the plaintiffs in
Zenith Electronics alleged that the petitioner was no longer a domestic
``interested party'' with standing to request an administrative review.
872 F. Supp. at 994. As in Gilmore Steel, the court found that the
Department had the authority to determine whether the proceeding from
which the appeal was taken--the administrative review--was properly
initiated. Nothing in Zenith Electronics or Gilmore Steel supports
CDC's argument that a party may challenge industry support for a
petition more than eight years after the fact in the context of an
administrative review under section 751(a) of the Act.
Lastly, CDC completely misapprehends the holding in Oregon Steel
Mills. First, the case involved a challenge to the Department's
authority to revoke an antidumping duty order based upon new facts, not
upon a reexamination of the facts as they existed during the original
LTFV investigation. Secondly, the new fact was the industry's
affirmative expression of no further support for the antidumping order.
Under these circumstances, the Federal Circuit held that it was lawful
for the investigating authority, in the context of a ``changed
circumstances'' review pursuant to section 751(b) of the Act, to revoke
an order over the objection of one member of the industry. 862 F.2d at
1544-46. The court did not state that industry support for an order
must be affirmatively established throughout the life of an order.
Indeed, the court went to lengths to explain that it was not ruling on
the claim that ``loss of industry support for an existing order creates
a 'jurisdictional defect.''' Id. at 1545 n. 4. As subsequent courts
have explained, the holding in Oregon Steel Mills is limited to the
proposition that the Department may, but need not, revoke an order when
presented with record evidence which demonstrates a lack of industry
support for the continuation of the order. See, e.g., Suramerica De
Aleaciones Laminadas v. United States, 966 F.2d 660, 666 (Fed. Cir.
1992); Citrosuco Paulista, S.A. v. United States, 704 F. Supp. 1075,
1085 (CIT 1988).
In short, the cases cited by CEMEX and CDC are inapposite. None of
them support the argument that the Department has the authority, in an
administrative review under section 751(a) of the Act, to reach back
more than eight years and reexamine the issue of industry support for
the original petition.
Finally, we note, as we did in the final results of the third,
fourth, and fifth administrative reviews, that numerous courts upheld
the Department's prior practice of assuming, in the absence of evidence
to the contrary, that a petition filed on behalf of a regional or
national industry is supported by that industry. See, e.g., NTN Bearing
Corp. v. United States, 757 F. Supp. 1425, 1427-30 (CIT 1991);
Citrosuco, 704 F. Supp. at 1085; Comeau Seafoods v. United States, 724
F. Supp. 1407, 1410-12 (CIT 1989).
Indeed, the very issue raised by CEMEX and CDC was before the
Federal Circuit in the Suramerica case. 966 F.2d at 665 & 667. In
Suramerica the appellees challenged the Department's interpretation of
the phrase ``on behalf of'' which applied to both national-and
regional-industry cases. Specifically, the appellees argued that the
Department's prior practice of presuming industry support for a
petition was contrary to the statute and an unadopted GATT panel report
involving the U.S. antidumping order on certain stainless steel hollow
products from Sweden. In affirming the Department's practice, the
Federal Circuit observed that the phrase ``on behalf of'' was not
defined in the statute. Id. at 666-67. The statute was, in fact, open
``to several possible interpretations.'' In the opinion of the court,
the Department's practice with regard to standing and industry support
for a petition reflected a reasonable ``middle position.'' 966 F.2d at
667. While there was a gap in the statute, the court stated, ``Congress
did make [one thing] clear--Commerce has broad discretion in deciding
when to pursue an investigation, and when to terminate one.'' Id.
The court then dismissed the argument that the gap in the statute
must be interpreted in a manner that is consistent with the 1947 GATT
or the GATT panel ruling:
[[Page 12767]]
Appellees next argue that the statutory provisions should be
interpreted to be consistent with the obligations of the United
States as a signatory country of the GATT. Appellees argue that the
legislative history of the statute demonstrates Congress's intent to
comply with the GATT in formulating these provisions. Appellees
refer also to a GATT panel--a group of experts convened under the
GATT to resolve disputes--which ``recently rejected [Commerce's]
views on the meaning of `on behalf of.' ''
We reject this argument. First, the GATT panel itself
acknowledged and declared that its examination and decision were
limited in scope to the case before it. The panel also acknowledged
that it was not faced with the issue of whether, even in the case
before it, Commerce had acted in conformity with U.S. domestic
legislation.
Second, even if we were convinced that Commerce's interpretation
conflicts with the GATT, which we are not, the GATT is not
controlling. While we acknowledge Congress's interest in complying
with U.S. responsibilities under the GATT, we are bound not by what
we think Congress should or perhaps wanted to do, but by what
Congress in fact did. The GATT does not trump domestic legislation;
if the statutory provisions at issue here are inconsistent with the
GATT, it is matter for Congress and not this court to decide and
remedy. See 19 U.S.C. 2504(a); Algoma Steel Corp. v. United States,
865 F.2d 240, 242 (Fed. Cir. 1989).
Id. at 667-68 (emphasis added).
Produced As vs. Sold As
Comment 2
CEMEX argues that the Department's methodology for calculating
normal value (NV) has been fundamentally flawed since the original LTFV
investigation. CEMEX claims that the Department has matched U.S. sales
to home market sales using a ``sold as'' methodology which matches U.S.
sales to home market sales on the basis of how the cement is sold
(e.g., according to the cement type listed on the invoice.) CEMEX
asserts that since the original investigation, it has argued that the
Department should use a ``produced as'' methodology which matches U.S.
sales to home market sales based on the physical characteristics of the
cement being sold.
CEMEX asserts that in the original LTFV investigation, the
Department learned that cement is differentiated according to standards
established by the American Society for Testing and Materials (ASTM).
According to these standards, the physical and performance
specifications for a Type II cement are more exacting than the
specifications for a Type I cement. Similarly, the specifications for
Type V cement are more exacting than for Type II. A cement that meets
the physical and performance specifications for a higher grade cement
also meets the specifications for a lower grade cement.
During the POR, CEMEX sold cement invoiced as Type I, Type II, and
Type V in Mexico and cement invoiced as Type II in the United States.
However, all cement invoiced as Type II or Type V (and a small amount
invoiced as Type I) contains the physical and performance
specifications of Type V cement. CEMEX states that customers requiring
a lower grade of cement can use the higher grade cement for their
applications. Thus, CEMEX asserts that cement producers will sell a
higher grade cement to a customer needing only a lower level ASTM
cement when it is commercially sensible to do so.
CEMEX argues that according to 19 U.S.C. 1677(b)(A)(1)(B)(i), the
Department must base NV on the price at which the ``foreign like
product'' is sold in the home market. CEMEX contends that the foreign
like product can only be merchandise ``identical in physical
characteristics with'' the cement sold in the United States.
Furthermore, CEMEX argues that the dumping law requires the inclusion
of all sales having identical physical characteristics, including those
invoiced as another product. CEMEX argues that the ``sold-as''
methodology would not include all of the appropriate home market sales
during the POR (i.e., ``Type I and V'' produced at the Hermosillo
plants).
Petitioner argues that CEMEX waived its objection to the
Department's matching methodology by not appealing the Department's
final determination in the original LTFV investigation and not raising
the issue in any of the previous reviews. Petitioner further argues
that the Department's questionnaire instructed CEMEX to ``assign a
control number to each unique product reported in the Section B sales
data file'' and to assign an identical control number to identical
merchandise sold in the home market and in the United States.
Petitioner asserts that CEMEX assigned unique control numbers to
merchandise that was invoiced as Type I, Type II, and Type V cement,
even though it may have been the same cement from the same plant. Thus,
CEMEX reported its sales on an ``as invoiced'' basis, rather than on an
``as produced'' basis. Petitioner argues that CEMEX only raised this
issue after the Department discovered that all cement produced at the
Hermosillo plants and sold as Type I, Type II, or Type V cement was
basically identical in physical characteristics.
Additionally, petitioner asserts that CEMEX altered its production
and shipping arrangements for Type II cement to artificially lower the
dumping margin. Petitioner argues that the statute does not direct the
Department to ``blindly compare the merchandise exported to the United
States with all identical merchandise sold in the home market.''
Rather, the Department must recognize the commercial reality that
prices can vary based on the specifications to which a product is sold,
even though the products in question are physically identical.
Furthermore, petitioner asserts that in this case it is impossible to
match Type II cement exported by CEMEX to the United States with all
home market sales of cement produced at the Hermosillo plants because
CEMEX did not report a plant code to identify its home market sales
with the producing plant.
Department's Position
We agree, in part, with CEMEX. Section 771(16)(A) of the Act
expresses a clear preference for matching sales in the United States
with sales in the home market of merchandise that is ``identical in
physical characteristics.'' See CEMEX, S.A. v. United States, 1998 U.S.
App. LEXIS 163 (Fed. Cir.). When circumstances require the Department
to compare non-identical merchandise, the statute, at section
773(a)(6)(C)(ii) of the Act, provides for a ``difference-in-
merchandise'' adjustment (DIFMER) which is normally equal to the
difference in cost of production attributable to differences in
physical characteristics. 19 CFR 353.57.
Since the inception of this proceeding, we have seen that all
cement generally conforms to the standards established by the ASTM.
These standards tend to classify cement according to its physical
characteristics, dimensional characteristics, and/or performance
properties. Also from the outset, interested parties and the Department
have used ASTM standards to identify merchandise subject to this
antidumping order and to inform how, and on what basis, we match sales
of identical or similar merchandise. Specifically, the Department has
sought, wherever possible, to match sales of ASTM standard Type II to
Type II, ASTM standard Type V to Type V, and so forth.
During the period covered by the original investigation, the
Department discovered one or more instances where Mexican producers
sold cement meeting one ASTM standard on the basis of cement meeting a
lower (included) ASTM standard. However, in the final determination,
the Department described these sales as a mistake and not ``the
ordinary practice in the
[[Page 12768]]
industry.'' Final Determination of Sales at Less Than Fair Value, Gray
Portland Cement and Clinker from Mexico, 55 FR 29244, 29248 (1990).
Therefore, based on the fact that it was the normal industry practice
to produce and sell on the same basis, the Department accepted that
``matching by ASTM standard was the most reasonable basis for making
equitable identical merchandise comparisons.'' Id. at 29248.
Devising a methodology for matching sales is often a difficult task
and the courts have recognized that the Department has broad discretion
``to choose the manner in which * * * merchandise shall be selected.''
Koyo Seiko Co. v. United States, 66 F.3d 1204, 1209 (Fed. Cir. 1995).
In the instant proceeding, we have sought, throughout each of the past
six reviews, including the present one, to (i) match based on physical
characteristics, (ii) rely on ASTM standards to distinguish one type of
cement from another, and (iii) rely on sales documentation as a
convenient surrogate for more direct evidence (e.g., mill test
certificates) of cement type. In general, this methodology has not
generated much controversy. Indeed, as petitioner notes in its comments
on the preliminary results, this issue has not been in dispute since
the original LTFV investigation.
In the instant review, the Department repeatedly requested CEMEX to
provide information on whether home market sales of Type I, Type II,
and Type V cement were produced to meet other specifications or whether
merchandise is produced and sold on the same basis. CEMEX consistently
reported that it sold cement in the home market as either Type I, Type
II, or Type V although these products may meet other ASTM standards.
Not until the conclusion of verification did the Department discover
that the practice of producing one type of cement and selling it as
another type was not an isolated incident or mistake. In fact, the
record now demonstrates that all U.S. sales and all home market sales
from the Hermosillo plants during the POR met the ASTM standard for
Type V cement, but were sold as meeting the specifications for Type I,
II, and/or V.
Under these circumstances, we believe it would be unreasonable to
match merchandise on a ``sold as'' basis. For one thing, it would make
any cost of production or DIFMER calculations more difficult, if not
impossible. Secondly, such an approach would not address any sales that
were merely labeled ``gray portland cement'' or ``cement.'' Finally, a
``sold as'' approach would lend itself to the type of product
manipulation about which petitioner has so often expressed concern.
Therefore, for purposes of the instant review, the Department will
apply the matching methodology applied in the preliminary results of
the instant review. Petitioner has expressed concerns that matching
using physical characteristics will enable CEMEX to manipulate home
market sales to conform to certain specifications, thereby limiting the
Department's ability to properly review sales of merchandise in the
comparison markets. In order to properly address these concerns, the
Department will continue to closely review and monitor sales of both
identical and similar merchandise in the home market to ensure that, in
subsequent reviews, an accurate and reliable database of home market
and U.S. sales are reported. For example, in the next administrative
review, the Department has requested CEMEX to report its home market
sales on both an ``as sold'' and ``as produced'' basis.
The Department disagrees with petitioner's comment that we cannot
match sales on a ``produced as'' basis because CEMEX did not report
plant codes. In the current review, the record demonstrates that CEMEX
only produced cement meeting the ASTM specifications for Type V at its
plants in Hermosillo. Additionally, CEMEX has stated that all cement
invoiced as Type II or V was produced at the Hermosillo plants, and
thus meets the ASTM specifications for Type V. Finally, the Department
has isolated sales of cement produced at the Hermosillo plants and sold
as Type I through Cementos del Yaqui at the Campana and Yaqui plants.
Ordinary Course of Trade
Comment 3
CEMEX contends that the Department improperly concluded that its
home market sales of Type II and Type V cement produced at the
Hermosillo plants were outside the ordinary course of trade. CEMEX
argues that the Department's analysis only relied on facts which
indicate that sales were outside the ordinary course of trade. CEMEX
asserts that the Department must evaluate all evidence on the record of
the review, including any evidence that indicates that sales are made
within the ordinary course of trade. CEMEX believes that the Department
ignored legally relevant factors which indicate that these sales were
made within the ordinary course of trade.
First, CEMEX asserts that the Department failed to recognize that a
bona fide home market demand existed for Type II and Type V cement
produced at the Hermosillo plants. Second, CEMEX contends that the
Department failed to recognize that these sales were of first-quality,
non-defective merchandise. Finally, CEMEX argues that the Department
failed to acknowledge that rebate, discount, and payment terms varied
by customer, not by cement type.
CEMEX claims that additional aspects of the administrative record
demonstrate that its home market sales of Type II and V cement were
made within the ordinary course of trade during the sixth
administrative review. To support this argument, CEMEX maintains that
the Department should focus on the actual sale terms and practices
surrounding the sales of Type II and Type V cement as compared to other
cement types subject to the order (i.e., Type I cement). In this
regard, CEMEX notes that shipping terms for all cement types were
identical (C.I.F. or F.O.B.) which is ``indicative'' of sales in the
ordinary course of trade. Moreover, CEMEX notes that all pre-sale
freight expenses absorbed by CEMEX for Type II and V sales were
incurred in precisely the same manner as pre-sale freight expenses for
all other cement types, including Type I.
CEMEX further argues that the Department should not have focused on
shipping distances to the customer. Shipping distances and freight
costs, CEMEX asserts, are the result of geographic locality, rather
than differences in sales practices, and thus should not affect the
Department's ordinary-course-of-trade determination. Finally, CEMEX
argues that shipping distances have never been a consideration in any
other ordinary-course-of-trade determination
Next, CEMEX contends that the difference in profitability between
sales of Type II/V cement and Type I cement is not of sufficient
magnitude to be indicative of sales outside the ordinary course of
trade. CEMEX argues that the profitability of Type II sales is
substantial in absolute terms and significantly higher than in prior
reviews. According to CEMEX, the preamble to the Department's new
regulations defines ``abnormally low profits'' indicative of sales
outside the ordinary course of trade as ``negative profitability.''
CEMEX argues that by regarding differences in magnitude of
profitability as a factor indicative of sales outside the ordinary
course of trade, the Department is requiring companies to earn
virtually equal profits on all different products in order for sales to
be considered within the ordinary course of trade.
CEMEX maintains that the profit differential is not caused by price
[[Page 12769]]
disparities, but rather by the higher average freight costs associated
with sales of Type II cement. CEMEX asserts that it has maximized
profits by supplying its home market Type II customers from Hermosillo;
therefore, the profit differential is the result of a legitimate
business decision, indicating that home market sales of Type II cement
are within the ordinary course of trade.
CEMEX argues that sales of Type II and Type V cement are made in
the same manner and for the same reasons as sales of Type I cement.
Thus, CEMEX questions the Department's comments about the
``promotional'' nature of its Type II and V sales. According to CEMEX,
if the Department's reasoning for this factor is taken literally, any
attempt by a producer to diversify a product line outside of the mass
market would be indicative of those sales being outside the ordinary
course of trade. CEMEX claims that there has been no proceeding at the
Department since the second review of this case which has relied on
this factor in an ordinary-course-of-trade-determination.
CEMEX further asserts that in the first review the Department found
CEMEX's consolidation of Type II cement production in northwestern
Mexico to be based on legitimate business reasons (i.e., maximization
of company profitability). Therefore, if the Department finds a
company's motivation to sell cement in a profitable manner irrelevant
to the ordinary course of trade argument, then the company's possible
motivation for selling specific cement types must also not be relevant.
CEMEX also argues that the relative sales volume of Type II and
Type V sales (as compared to other cement types) is not indicative of
sales outside the ordinary course of trade. In particular, CEMEX
argues, Department precedent establishes that low relative sales volume
is a factor indicative of sales outside the ordinary course trade only
in situations where there is no bona fide demand or ready market for
the product. For example, in Thai Pipe and Tube, CEMEX asserts that the
Department found certain sales to be within the ordinary course of
trade notwithstanding low relative sales volume as there was a bona
fide demand for the product in the home market. CEMEX maintains that
the administrative record in this case establishes both a significant
volume of home market sales for Type II and Type V cement, in absolute
terms, and the existence of a bona fide home market demand for these
products. In addition, CEMEX argues that information on the record of
this review shows that sales volumes for Type II and Type V cement have
been increasing from review to review and that it now exceeds 5% of
U.S. sales.
Likewise, CEMEX argues that historical sales trends support its
view that home market sales of Type II and Type V cement have been made
within the ordinary course of trade. According to CEMEX, home market
customers have been purchasing Type II cement for ten years, including
the five years that preceded the antidumping order. Additionally, CEMEX
asserts that with regard to Type V cement, the Department's analysis of
historical sales trends is factually incorrect because the Department
ignores the fact that CEMEX's subsidiary, Tolteca, has made continuous
sales of Type V cement since 1964. Finally, CEMEX asserts that the
incorporation of the fictitious market verification report from the
second review into the record of this review eliminates any need to
rely on facts available regarding historical sales patterns.
Lastly, CEMEX contends that the number and type of Type II and Type
V customers are not indicative of sales outside the ordinary course of
trade. According to CEMEX, it is the existence of customers, not the
number of customers, that is relevant to this issue. CEMEX asserts that
the Department has found a small number of home market customers to be
indicative of sales outside the ordinary course of trade only when the
sales have been limited to home market sales of export overrun
merchandise or non-specification merchandise. When the subject
merchandise has been sold to satisfy a bona fide home market demand,
sales to a small number of customers have been found inside the
ordinary course of trade.
Petitioner contends that the Department correctly applied the
statute by excluding all home market sales of Type II and Type V cement
from the calculation of NV. Petitioner maintains that the Department
properly considered the totality of the circumstances, including all
factors expressly considered by the Department in prior reviews, and
several of the ``alleged'' factors relied upon by CEMEX. In particular,
petitioner asserts that in this review (similar to the second and fifth
reviews) the Department has not found an absence of bona fide demand,
but the existence of limited home market demand.
Petitioner also argues that the Department correctly found that
CEMEX's home market shipping arrangements for Type II and Type V cement
were unusual compared to its arrangements for other types of cement. In
particular, petitioner argues that during the POR, CEMEX shipped Type
II and Type V cement greater distances and absorbed the freight
expense. To support its claim, petitioner points out that prior to the
antidumping order, CEMEX produced Type II cement at 11 plants
throughout Mexico. In direct response to the antidumping order;
however, petitioner claims that CEMEX radically altered its production
and distribution arrangements for Type II cement by consolidating
production at Hermosillo despite the fact that home market demand for
this cement type is centered in the Mexico City area.
Petitioner asserts that CEMEX's claim that shipping terms were
identical for all cement types is misleading, noting that Type I sales
terms were ``either FOB CEMEX plant or terminal or CIF at customer's
delivery point'' while Type II and Type V cement were never sold using
the plant as point of shipment. Furthermore, Petitioner asserts that
CEMEX's treatment of handling revenue and freight adjustment rebates
differed between sales of Type I cement and sales of Types II and V.
Additionally, petitioner argues that CEMEX's statement that shipping
distances are not relevant to the ordinary course of trade
determination is both factually and legally wrong.
Petitioner contends that the record demonstrates that CEMEX
consolidated production of Type II and Type V at Hermosillo in direct
response to the antidumping order with the intention of circumventing
the order. Petitioner further claims that CEMEX sold cement meeting
Type II specifications from plants closer to Mexico City than the
Hermosillo plants using product designations such as ``Type I,'' ``Type
I Modified,'' ``Type I plus'' and ``Type I special cement.'' Petitioner
supports this claim by referencing quality tests certificates submitted
on the record of this review by petitioner and chemical analysis
spreadsheets located in Exhibit 46 of the Department's July 21, 1997
home market sales verification report. Petitioner points out that CEMEX
has made several contradictory statements regarding sales of cement
under these alternative descriptions. Furthermore, petitioner asserts
that CEMEX concedes it can produce Type II cement at its plants
producing Type I cement, but that it would not be economically feasible
to produce Type II low alkali cement at such plants.
As further evidence that sales of Type II and V are outside the
ordinary course of trade, petitioner claims that CEMEX restricted its
sales volume of Type II cement after the antidumping order by
[[Page 12770]]
ceasing to promote and offer Type II for sale as a general purpose
cement, and selling it only as a specialty cement to those customers
demonstrating a specific need for Type II in order to diminish the
impact of absorbing the higher transportation costs. Petitioner asserts
that Type II and Type V cement are now sold to a ``niche'' market.
Prior to the order, CEMEX sold Type II as interchangeable with Type I
and pozzolanic cement. In addition, petitioner asserts that CEMEX
restricted its sales according to ``customer need'' by selling Type II
cement only to customers demanding optional specifications of Type II
low-alkali cement and actively discouraging Type II sales by reviewing
with the customer whether there is a need for low-alkali cement.
Petitioner contends that the Department correctly considered
relative sales volume as a factor in its ordinary-course-of-trade
analysis. Petitioner argues that CEMEX does not explain the probative
value of ``absolute-term'' analysis of sales volumes and, in fact, the
statute requires the type of comparative analysis between cement types
used by the Department. CEMEX's assertion that small sales volumes are
only indicative of sales outside the ordinary course of trade when
there is not a bona fide home market demand would not be consistent
with the Department's principle of considering ``each case on its own
facts, not according to some set of preconceived factors.'' In
addition, petitioner points out that only a small percentage of CEMEX's
Type II and V cement production are sold in the home market; thus,
petitioner likens these sales to ``'overrun'' merchandise designed for
export.''
Petitioner further asserts that the number, type, and geographic
location of customers for CEMEX's Type II and Type V sales are unusual
relative to Type I. In contrast to the broad range of customers and
uses for Type I cement, Type II and Type V cement was principally sold
only to certain types of customers (usually large industrial
contractors) for particular projects. Petitioner states that the courts
have upheld the use of a limited number of customers as a factor in the
ordinary course of trade analysis. See, e.g., Mantex, 841 F. Supp. At
1307; Laclede Steel, 18 CIT at 967. Petitioner cites differences in
presentation types (bag or bulk) between the different cement types as
additional evidence of different customer types. Moreover, CEMEX's
customers for Type II and Type V cement are concentrated in the Mexico
City area, while its customers for Type I and pozzolanic cement are
dispersed throughout Mexico. Furthermore, from the Hermosillo plants,
CEMEX sells cement invoiced as Type II and Type V only to distant
customers, while it artificially sells the identical cement to nearby
customers as Type I.
Petitioner asserts that CEMEX's profit on Type II sales is
unusually small in comparison to its profits on all cement types, with
an even greater difference if there is an ``apples to apples''
comparison for sales from the Yaqui plant. Petitioner asserts that this
difference is further magnified by a ``before freight'' and after
freight'' comparison of Yaqui sales. Petitioner asserts that CEMEX only
began selling Type II and Type V cement in the home market when it
began production for export in the mid-1980s. Then, after the
antidumping order, CEMEX was able ``to drastically change its
production and distribution for those cement types without disturbing
its profitability on sales of Type I and pozzolanic cement.''
Petitioner agrees with the Department's determination that CEMEX
sold Type II and Type V cement for reasons other than profit as CEMEX
failed to address this factor in the sixth review. Petitioner points to
CEMEX's admission in earlier reviews (which are now part of the record
of the instant review) that CEMEX's sales of Type II cement exhibit a
promotional quality not evidenced in ordinary sales of cement.
Petitioner argues that CEMEX's contention that consolidation of
production at Hermosillo was a legitimate business decision is
irrelevant to the ordinary course of trade determination. Moreover,
petitioner claims that CEMEX has failed to preserve this issue for the
final results by not including it in its case brief.
Department's Position
Consistent with our preliminary results, the Department has
determined that CEMEX's home market sales of Type II and Type V cement
produced at the Hermosillo plants were outside the ordinary course of
trade during the sixth review. Section 773(a)(1)(B) of the Act states,
in part, that NV is ``the price at which the foreign like product is
first sold (or, in absence of a sale, offered for sale) for consumption
in the exporting country, in the usual commercial quantities and in the
ordinary course of trade * * *'' The term ``ordinary course of trade''
is defined as ``the conditions and practices which, for a reasonable
time prior to the exportation of the subject merchandise, have been
normal in the trade under consideration with respect to merchandise of
the same class or kind.'' The Statement of Administrative Action (SAA)
which accompanied the passage of the URAA further clarifies this
portion of the statute, when it states: ``Commerce may consider other
types of sales or transactions to be outside the ordinary course of
trade when such sales or transactions have characteristics that are not
ordinary as compared to sales or transactions generally made in the
same market.'' SAA, at 164. Thus, the statute and the SAA are clear
that a determination of whether sales (other than those specifically
addressed in section 771(15)) are in the ordinary course of trade must
be based on an analysis comparing the sales in question with sales of
merchandise of the same class or kind generally made in the home market
(i.e., the Department must consider whether certain home market sales
of cement are ordinary in comparison with other home market sales of
cement).
The purpose of the ordinary course of trade provision ``is to
prevent dumping margins from being based on sales which are not
representative'' of the home market. Monsanto Co. v. United States, 698
F. Supp. 275, 278 (CIT 1988). By basing the determination of NV upon
representative sales, the provision ensures that the comparison between
NV and sales to the United States is done on an ``apples-to-apples''
basis. However, Congress has not specified any criteria that the agency
should use in determining the appropriate ``conditions and practices.''
Thus, the Department, ``in its discretion, chooses how best to analyze
the many factors involved in a determination of whether sales are made
with in the ordinary course of trade.' '' Thai Pineapple Public Co. v.
United States, 946 F. Supp. 11, 14-17 (CIT 1996) (quoting Laclede Steel
Co. v. United States, Slip Op. 95-144 at 6 (CIT Aug. 11, 1995).
In the instant review, the Department's decision to exclude sales
of Type II and Type V cement from the calculation of NV centered around
the unusual nature and characteristics of these sales compared to the
vast bulk of CEMEX's other home market sales. Based upon these
differences, the Department concluded that they were not representative
of CEMEX's home market sales. Stated differently, these sales were not
within CEMEX's ordinary course of trade.
The Department's ordinary-course-of-trade inquiry is far-reaching.
The agency must evaluate not just ``one factor taken in isolation but
rather * * * all the circumstances particular to the sales in
question.'' Murata Mfg. Co. v. United
[[Page 12771]]
States, 820 F. Supp. 603, 607 (CIT 1993) (quoting Certain Welded Carbon
Steel Standard Pipes and Tubes from India, Final Results of Antidumping
Duty Administrative Review, 56 FR 64753, 64755 (1991). This broad
approach recognizes that each company has its own conditions and
practices particular to its trade. For example, it might be a normal
practice for one company to sell samples in its line of business; for
other companies, that might be an abnormal practice. In short, the
Department examines the totality of the facts in each case to determine
if sales are being made for ``unusual reasons'' or under ``unusual
circumstances.'' Electrolytic Manganese Dioxide from Japan Final
Results of Antidumping Duty Administrative Review, 58 FR 28551, 28552
(1993).
A full discussion of our conclusions, requiring reference to
proprietary information, is contained in several Department memoranda
in the official file for this case (public versions of these memoranda
are on file in room B-099 of the Department's main building).
Generally, however, we have found, with respect to Type II cement: (1)
the volume of Type II home market sales is extremely small compared to
sales of other cement types; (2) the number and type of customers
purchasing Type II cement is substantially different from other cement
types; (3) Type II is a speciality cement sold to a niche market; (4)
shipping distances and freight costs for Type II cement sold in the
home market is significantly greater than for sales of other cement
types; and (5) CEMEX's profit on Type II sales is small in comparison
to its profits on all cement types.
In addition, there are two items, historical sales trends and the
``promotional quality'' of CEMEX's Type II cement sales, which were
cited previously as factors in the second review ordinary-course
analysis, but which are not discussed above. On March 10, 1997, the
Department issued a questionnaire requesting CEMEX to support its
position that home market sales of Type II cement were within the
ordinary course of trade by addressing, among other things,
``historical sales trends'' and ``marketing reasons for sales other
than profit.'' CEMEX's response, (copies of its submission from the
fifth administrative review), failed to address these two items. Thus,
the Department assumes that the facts regarding these items have not
changed since the second review and that: (i) CEMEX did not sell Type
II cement until it began production for export in the mid-eighties,
despite the fact that a small domestic demand for such existed prior to
that time; and (ii) sales of Type II cement continue to exhibit a
promotional quality that is not evidenced in CEMEX's ordinary sales of
cement.
With respect to CEMEX's home market sales of Type V cement produced
at the Hermosillo plants, we note that these sales are less unusual
than its home market sales of Type II cement. For example, CEMEX's
profit rate on Type V sales is slightly closer to its profit rate on
Type I sales than is true of its Type II sales. Notwithstanding this
distinction, the Department has determined, after considering the
totality of circumstances surrounding these sales, that CEMEX's home
market sales of Type V cement are also outside the ordinary course of
trade.
First, the volume of these sales, either individually or in
combination with sales of Type II cement, is extremely small compared
to sales of Type I cement. Secondly, the number and type of customers
purchasing Type V cement is substantially different from those
purchasing Type I. As is true of Type II, Type V is a speciality cement
that CEMEX sells to a niche market. Finally, shipping distances and
freight costs for sales of Type V cement are significantly greater than
for sales of Type I. Like its sales of Type II cement, CEMEX's sales of
Type V cement are shipped over unusually long distances.
Consistent with our preliminary results, we have also determined,
based upon the facts otherwise available, that: (1) CEMEX did not sell
Type V cement in Mexico until it began production for export in the
mid-eighties, despite the fact that a small domestic demand for such
existed prior to that time; and (2) sales of Type V cement continue to
exhibit (as they did in the second review) a promotional quality that
is not evidenced in CEMEX's ordinary sales of cement. We continue to
believe, for reasons expressed in our preliminary results, that this
use of facts available is warranted and appropriate.
In sum, the Department has determined that CEMEX's home market
sales of Type II and Type V cement produced at the Hermosillo plants
are not representative of its sales in Mexico of the class or kind of
merchandise under investigation. We note that while our decision is
based solely upon the facts established in the record of the sixth
review, those facts are very similar to the facts which led the
department to determine in the second review that home market sales of
Type II cement were outside the ordinary course of trade. This
determination was recently affirmed by the Federal Circuit in the CEMEX
case (1998 U.S. App. LEXIS 163) (`` * * * Commerce's decision that the
sales of Types II and V cements were outside the ordinary course of
trade was supported by substantial evidence.'').
The Department disagrees with CEMEX's contention that (i) low sales
volume is only relevant to the ordinary-course-of-trade issue if there
is no bona fide home market demand, and (ii) the presence of home
market demand is indicative of sales inside the ordinary course of
trade. First, the Department verified in the second review that there
was a small, but apparently legitimate, home market demand for Type II
and Type V cements. However, that finding did not lead to a
determination that the subject sales were made within the ordinary
course of trade. As we note above, the Federal Circuit, in the CEMEX
case, affirmed the Department's determination that CEMEX's home market
sales of Types II and V were outside the ordinary course of trade.
Secondly, the Department has often found sales to be outside the
ordinary course of trade where volume was considered with other, non-
demand-related, factors. For example, in Final Determination of Sales
at Less Than Fair Value; Sulfur Dyes Including Sulfur Vat Dyes, from
the United Kingdom, 58 FR 3253, 3256 (1993), the Department concluded
that sales were outside the ordinary course of trade based upon
abnormally high volume, low price, and the existence of a ``special
agreement'' to promote the product at issue. In Tapered Roller Bearings
and Parts Thereof, Finished and Unfinished, from Japan, 52 FR 30700,
30704 (1987), the Department determined that sales were outside the
ordinary course of trade because the sales in question were of small
volume and high prices, most of the sales were canceled prior to
invoice, and there were no comparable sales in the United States. We
have also excluded transactions from the calculation of NV based upon
sales made to employees and negligible volume. See, e.g., New Minivans
from Japan, 57 FR 43, 46 (1992). In short, the Department's consistent
and longstanding practice has been to consider sales volume along with
numerous other factors, depending upon the specific product involved.
The Department also disagrees with CEMEX's claim that instead of
considering shipping distances and freight costs, we should focus on
shipping terms and practices. First, the normal practice in Mexico is
to ship cement, a heavy material, over relatively short distances.
Indeed, over 95% of all cement shipments in Mexico cover less than 150
miles. While CEMEX's home
[[Page 12772]]
market shipments of Type I cement conformed to this norm, its shipments
of Type II and V occurred over substantially greater distances. CEMEX's
claim that these ``differences in shipping distances is simply a
geographic fact'' and the result of a ``legitimate business decision''
missed their mark. A company may have sound business reasons for
changing its methods of operation; but, if sales resulting from this
new business practice are not normal for the company (for a reasonable
time prior to exportation), then they cannot be said to be within that
company's ordinary course of trade. As the CIT succinctly stated in its
examination of the second administrative review:
Whatever the real strategy behind the consolidation in the
North, the result was an abnormal shipping arrangement for Types II
and V cement, which weighs heavily in favor of a finding of sales
made outside the ordinary course of trade.
CEMEX, Slip Op. 95-72 at 11 (CIT 1995), aff'd, 1998 U.S. App. LEXIS
163.
Secondly, while it is true, as CEMEX points out, that shipping
terms (e.g., CIF or FOB plant) for Types II and V are in some respects
similar to Type I, we believe this contention proceeds from an
incorrect premise. In an ordinary-course-of-trade inquiry, the
pertinent issue is whether the conditions and practices are ``normal''
for the company in question. For the years preceding the antidumping
order, it was CEMEX's normal business practice to pass along the cost
of pre-sale freight to purchasers of its Type II and V cement. For
CEMEX to absorb freight costs after the issuance of the order is an
``unusual circumstance,'' particularly given the high freight costs for
Type II and V cement.
Finally, we disagree with CEMEX's contention that our analysis of
historical sales trends is factually incorrect. CEMEX's production of
Type II and Type V cement is a relatively recent phenomenon for a
company producing cement in Mexico for nearly nine decades. CEMEX did
not produce Type V cement for the home market until March 1989, when it
purchased Tolteca. Company officials conceded at verification in the
second review that CEMEX did not produce Type II cement for the home
market until the mid-1980s when it was required for export to other
countries. CEMEX's argument that it should somehow receive credit for
having acquired Tolteca fails to focus upon the pertinent ordinary
course of trade issue `` that is, whether the sale of Type II and V
cement was a normal condition or practice for CEMEX, not whether it was
a normal condition or practice for another company in Mexico.
Therefore, the fact that Tolteca (as an independent company) produced
Type V cement is unpersuasive.
Comment 4
CEMEX asserts that home market sales of cement produced at
Hermosillo to customers needing only Type I cement should be used in
the calculation of NV. CEMEX claims that the Department should have
been able to make an ordinary course of trade determination in
connection with these sales because its January 29, 1997 submission
informed the Department that these sales met the physical
specifications for Type V cement. CEMEX further claims that the
Department could have determined whether these sales were below cost
because the Department could have used the submitted cost databases to
perform this analysis.
According to CEMEX, sales of Type I cement produced at the
Hermosillo plants were, in fact, not outside the ordinary course of
trade since sales volumes were significant in absolute terms, sales
were to the same types of customers as other Type I sales, and the
shipping distances and freight costs for cement sold as Type I out of
Hermosillo were not unlike all other sales of Type I. Additionally, the
profitability for the Hermosillo-produced sales to Type I customers is
not significantly different than the profitability for all other Type I
sales. Finally, CEMEX argues that the ``promotional quality'' factor
cannot apply since customers perceive this cement to be the same type
of cement as all other Type I cement.
Petitioner argues that the Department properly relied upon facts
available to exclude sales of Type I cement produced at Hermosillo from
its dumping calculations. Petitioner argues that the Department was
only prepared to verify whether sales of Type II cement were outside
the ordinary course trade. The Department did not learn until
verification that cement produced at the Hermosillo plants and invoiced
as Type I was, in fact, physically identical to the cement labeled as
Type II and Type V. Because neither party raised the ordinary course of
trade issue with respect to Type I sales, the Department was not
prepared, nor able, to verify this issue. Petitioner asserts that if
CEMEX had revealed the true nature of these sales prior to
verification, the Department could have performed an ordinary course of
trade analysis on these sales.
Petitioner asserts that it is not possible in this review to
determine exactly which sales of Type I cement in the home market were
produced at the Hermosillo plants because CEMEX did not report a plant
code for its sales. Additionally, the reported costs for cement
produced at the Hermosillo plants were based on an allocation of costs
for Type V cement according to how the cement was sold. Therefore, it
is impossible to conduct a product-specific cost test. Petitioner
asserts that the home market database is ``extremely flawed'' with
regard to these sales. Petitioner states that the statute provides the
Department with the authority to use facts available whenever (1)
necessary information is not on the record, (2) an interested party
withholds information that is requested, (3) an interested party
significantly impedes a proceeding, or (4) the information submitted
cannot be verified. 19 U.S.C. 1677e(a). According to petitioner, each
one of these prerequisites to using facts available is satisfied in the
instant review.
Department's Position
Pursuant to section 776(a) of the Act, we have continued to
exclude, as facts available, sales of Type I cement produced at the
Hermosillo plants from our calculation of NV. As stated in our
preliminary results of review, home market sales of Type I, Type II,
and Type V cement produced at Hermosillo actually satisfy the ASTM
specifications for Type V cement. Because the Department only received
this information at verification, the Department was unable to
determine whether these sales provided an appropriate basis for
calculating NV. In particular, the Department lacked information which
would allow it to determine whether these sales were made above cost or
within the ordinary course of trade. For example, the Department
discovered at verification that the reported production costs for the
different types of cement supposedly produced at Hermosillo were, in
fact, based upon an allocation of costs for Type V that was tied to
sales ratios.
The Department has not received any information between our
preliminary results of review and these final results which would
warrant the inclusion of these sales in our calculation of NV.
Therefore, the Department is continuing to exclude home market sales of
Type I cement produced at the Hermosillo plants from our dumping
calculations in this review.
Comment 5
CEMEX contends that even if all of its home market sales of
identical
[[Page 12773]]
merchandise were properly excluded from the calculation of NV, the
statute requires the Department to base NV upon constructed value (CV),
not home market sales of similar merchandise (i.e., Type I). In support
of its position, CEMEX cites DRAMs from the Republic of Korea in which
the Department resorted to CV when all sales of comparison merchandise
were excluded from the calculation of NV because they failed the arm's
length test. CEMEX argues that in the instant review, all sales to the
United States were of Type II cement; therefore, if all home market
sales of this type are excluded, Commerce must base NV on CV, not on
home market sales of the next most similar merchandise, Type I.
Petitioner argues that, having excluded home market sales of Type
II and Type V from the calculation of NV, the Department correctly
based NV on sales of the next most similar merchandise, not CV.
According to petitioner, the cases relied upon by CEMEX in its brief
are those where the Department is required by the statute to exclude
sales of the identical or most similar merchandise because they were
below the cost of production. In any event, petitioner asserts that
CEMEX's reported costs for the Hermosillo plants are extremely flawed
and cannot be used to calculate CV.
Department's Position
Subsequent to the preparation of case and rebuttal briefs in this
review, the Federal Circuit issued its opinion in the CEMEX case. In
that case, the appellate court affirmed the Department's use of Type I
cement (as opposed to CV) to calculate NV when CEMEX's home market
sales of identical merchandise (Type II and V) were found to be outside
the ordinary course of trade in the second administrative review of
this order. 1998 U.S. App. LEXIS 163. Indeed, the Federal Circuit
declared that this result was required by ``the plain language of the
statute * * * when sales of identical merchandise have been found to be
outside the ordinary course of trade.''
Although the court did not have before it the statutory amendments
occasioned by the URAA, the specific provision at issue (section
771(16) of the Act) was not changed in any meaningful sense.
Accordingly, our determination on this issue has not changed from the
preliminary results.
Fictitious Market
Comment 6
Petitioner claims that CEMEX established a fictitious niche market
for home market sales of Type II cement. In particular, petitioner
argues that CEMEX, in reaction to the antidumping order, created an
artificial and highly restricted market for Type II cement with the
intention of manipulating the calculation of NV for identical
merchandise ``to mask the fact that the average home market price of
the entire class of subject merchandise covered by the order (including
Type I, Type V, and pozzolanic cement) continued to greatly exceed the
U.S. price of the imported merchandise.'' As a result, petitioner
believes a price comparison that is based on home market sales of Type
II cement would disguise CEMEX's dumping. Petitioner states that the
evidence on the record in this review continues to demonstrate, as it
has in prior reviews, that CEMEX established a separate and
artificially limited home market distribution channel for sales of Type
II cement in order to circumvent the antidumping order and to lower its
margin.
CEMEX counters that the Department has correctly rejected
petitioner's fictitious market allegation in prior administrative
reviews of this antidumping order, and should reject the same argument
in this review. CEMEX states that in past reviews the Department
accepted CEMEX's business reasons for consolidating production of Type
II cement in northwest Mexico, and for not passing on freight costs for
Type II cement to its customers. According to CEMEX, the Department
also determined in prior reviews that CEMEX provided sufficient
evidence of genuine demand for Type II cement in Mexico.
Department's Position
Since the sales in question have been found to be outside the
ordinary course of trade and, accordingly, will not be used in the
calculation of NV, it is not necessary for us to address this issue for
these final results.
Collapsing
Comment 7
CDC argues that the Department's decision to ``collapse'' CDC with
CEMEX is contrary to its established practice and is not justified by
the facts on the record of this review. CDC cites the Department's
determination in Antifriction Bearings (Other Than Tapered Rolling
Bearings) and Parts Thereof From the From the Federal Republic of
Germany, Final Determination of Sales at Less Than Fair Value, 54 FR
18992 (1989) in which the Department states the ``it is the
Department's general practice not to collapse related parties except in
relatively unusual situations, where the type and degree of
relationship is so significant that we find that there is strong
possibility of price manipulation. The Department has refused to
collapse firms in situations where the facts suggest that such a
possibility does not exist.'' CDC asserts that the new regulations
support this interpretation by strongly rejecting a recommendation that
the Department collapse upon finding ``any potential for price
manipulation.'' CDC asserts that the potential for price and product
manipulation is the primary rationale for collapsing two related
companies. CDC believes that the facts in this review are similar to
those in the Nihon case where the court found that cross ownership and
overlapping boards of directors were not sufficient grounds to warrant
collapsing two entities. CDC asserts that a company's liability under
the antidumping law should be based on that company's own pricing
decisions, not those of an affiliated party.
CDC asserts that the Department's decision to collapse CDC and
CEMEX is based on an insufficient legal analysis and ignores record
evidence. According to CDC, the Department should apply a two-step test
for collapsing, and show (1) that the two companies are affiliated
parties with production facilities that would not require substantial
retooling, and (2) that there exists between the two companies a
significant potential for manipulation of price or production. CDC
concedes that it is affiliated with CEMEX, but argues that the
``significant potential'' element of the test is not met. CDC argues
that there are three elements to be considered in determining
``significant potential': level of common ownership, overlapping boards
of directors, and intertwined operations. CDC contends that the
Department only addressed the first two factors, but does not provide
any analysis as to whether operations are intertwined.
As to common ownership, CDC argues that CEMEX is only a minority
shareholder in CAMSA (CDC's parent company) and the majority of shares
are still retained by CDC. CDC asserts that its sale of stock to CEMEX
was purely a business decision made for financial reasons and CEMEX's
share does not constitute a controlling interest under Mexican law.
As far as management overlap, CDC acknowledges that members of
CEMEX's management sit on the boards of directors of CDC and its
affiliated companies. However, CDC asserts that (1) CEMEX's
representatives are in the minority on all of these boards, (2) the
[[Page 12774]]
Terrazas/Marquez families are in the majority on all boards, (3) CDC's
pricing and production are not discussed at the board meetings of CDC
or any of the groups's companies, and (4) that CEMEX's interest in CDC
is only that of a passive investor. Therefore, CDC contends that this
management/director overlap does not, and will not, result in a
significant potential for manipulation of price or production.
CDC argues that the third element of the significant potential test
is not established by the facts on the record. CDC argues that the
record shows that: (1) the daily operations of CDC are controlled
strictly by management, which is appointed by the majority shareholder;
(2) CDC and CEMEX do not coordinate pricing strategies in the U.S.
market or the Mexican market; (3) the natural markets of CDC and CEMEX
do not overlap; (4) CDC and CEMEX do not share sales, distribution, or
marketing systems in either the U.S. or Mexico; and (5) there were no
commercial transactions between CDC and CEMEX during the sixth review.
In addition, CDC argues that CEMEX's role as an engineering consultant
during the construction of the Samalayuca plant does not indicate
``significant potential for affecting CDC's production and pricing
decisions.'' CDC states that it has shown that this consulting advice
was provided by CEMEX on an arm's length basis. Furthermore, CDC
asserts that CEMEX's statement at verification that it provided these
consulting services to CDC as a result of its ownership interest in CDC
does not indicate that CEMEX can coerce CDC to choose it for consulting
advice or affect CDC's decisions with respect to any pricing or
production issue. Also, CDC does not dispute that CDC and CEMEX have
similar production processes and equipment, but the record facts do not
demonstrate significant potential for manipulation.
Finally, CDC asserts that there is no policy reason in this case to
collapse CDC and CEMEX. CDC distinguishes the facts in this case from
those in Queen's Flowers de Colombia v. United States (97-120 Slip. Op.
at 9). Unlike the two collapsed entities in that case, CDC argues,
CEMEX and CDC do not constitute a single producer of cement and are
separate legal entities. Additionally, CDC asserts that collapsing is
not needed to prevent circumvention because CDC submitted all of its
own questionnaire responses and participated in verification. CDC
asserts that collapsing does not satisfy the purpose of the statute
which is to determine dumping margins as accurately as possible. CDC
argues that in the cement industry, high inland freight costs limit
CDC's natural market; therefore, regardless of the antidumping margin,
CDC cannot increase its market beyond these geographic constraints. CDC
states that there is no incentive for the owners or management of CDC
to agree to any plan that could give rise to an unpredictable monetary
liability for CDC's imports. CDC sees no reason why CDC's liability for
antidumping duties should be determined by cost, pricing, and sales
decisions made by a minority shareholder.
Petitioner argues that, as in the original LTFV investigation and
every administrative review conducted to date, the Department should
collapse CDC and CEMEX, and that CDC has provided no justification for
the Department to depart from this approach. Petitioner asserts that
CDC's argument that collapsing CEMEX and CDC is contrary to the
Department's established practice is refuted by the history of this
proceeding. The Department has always collapsed in this proceeding and
circumstances have not changed. The Department has the authority to
collapse affiliated producers.
Petitioner argues that all of the factors normally considered by
the Department support collapsing CEMEX and CDC. First, petitioner
argues that the Department has collapsed in numerous cases where one
party holds less than a majority interest in another party. In this
review, petitioner contends, CEMEX is in a position to exercise
restraint or direction over CDC, though not through majority voting
rights. Petitioner claims that this degree of control is not even
required for the Department to collapse affiliated parties--as long as
similar production processes and significant potential for price or
production manipulation are evidenced.
Second, petitioner argues that the existence of interlocking
directors between CDC and CEMEX is evidence of significant potential
for the manipulation of price and production if these companies are not
collapsed.
Third, petitioner argues that the following facts demonstrate that
CEMEX and CDC have intertwined business operations that demonstrate a
``significant potential'' for price and production manipulation: (1)
CEMEX and CDC formerly shipped to the U.S. through the same channel of
distribution--an affiliated importer; (2) CEMEX provides CDC with
consulting services and assistance in marketing and exports; and (3)
CEMEX provided engineering and technical assistance to CDC in building
the Samalayuca plant, services which CEMEX stated that it does not
provide to non-affiliated parties.
Finally, petitioner states that there are no valid ``policy''
reasons not to collapse CEMEX and CDC in this review. Petitioner argues
that despite CDC's assertion that the ``type of manipulation the
Department has cited in other cases simply cannot occur in the cement
industry'' because ``each producer has a limited geographic market''
and that the parties ``cannot increase [their] market beyond these
natural and geographic limitations,'' the Department must only consider
the existence of a significant potential for manipulation. According to
petitioner, the record evidence demonstrates that there is a natural
overlap in the U.S. market for imports from CDC and CEMEX. Petitioner
states that the two producers could also reallocate their geographic
shares of the Mexican market in a manner that manipulates the dumping
margin and circumvents the order.
Department's Position
The Department agrees with CDC that it must consider all relevant
factors when collapsing two affiliated parties. Section 351.401(f) of
the Department's new regulations (Antidumping Duties; Final Rule, 62 FR
27296, 27410 (May 19, 1997)), describes the Department's current policy
regarding when it will treat two or more affiliated producers as a
single entity (i.e., ``collapse'') for purposes of calculating a
dumping margin. In order for the Department to treat two or more
producers as a single entity (1) the producers must be affiliated, (2)
the producers must have production facilities that are sufficiently
similar so that a shift in production would not require substantial
retooling, and (3) there must be a significant potential for the
manipulation of price or production.
First, because CEMEX indirectly owns more than five percent of the
outstanding voting shares of CDC, the Department considers CEMEX and
CDC to be affiliated within the meaning of section 771(33)(F) of the
Act. In addition, both CEMEX and CDC manufactured Type I and Type II
cement during the period of review. Second, as CDC and CEMEX have
similar production processes and facilities, a shift in production
would not require substantial retooling. Record evidence for the sixth
administrative review also reveals intertwined business operations
between CDC and CEMEX. (A complete analysis surrounding the
Department's decision to collapse CDC and CEMEX, requiring reference to
[[Page 12775]]
proprietary information, is contained in the Department's Memorandum
from Roland L. MacDonald to Joseph A. Spetrini, dated September 2,
1997, located in the official file for this case. A public version of
this memorandum is on file in room B-099 of the Department's main
building.)
Third, given the level of common ownership and cross board members,
which provides a mechanism for the two parties to share pertinent
pricing and production information, similar production facilities that
would not require substantial retooling, as well as intertwined
business operations, the Department finds that if CDC and CEMEX are not
collapsed, there is a significant potential for price manipulation
which could undermine the effectiveness of the order.
Level of Trade (LOT)/ CEP Offset
Comment 8
Petitioner argues that the Department erroneously determined that
CEMEX's and CDC's home market sales were at a different level of trade
than their sales to the United States, and on that basis granted CEMEX
and CDC a constructed export price (CEP) offset adjustment to NV.
According to petitioner, the Department found no differences in level
of trade in the previous (fifth) review and the facts in this review
are virtually identical to the facts in that review. Petitioner claims
that the Department's methodology for analyzing the level of trade and
CEP offset issues has not changed since the fifth review and,
therefore, no basis exists for a different result with respect to the
level of trade and CEP offset issues in this review.
Specifically, petitioner argues that, in the preliminary results of
this review, the Department found that CEMEX and CDC perform more
selling functions for sales to end-users and ready-mixers in the home
market than for sales to affiliated importers in the United States.
Petitioner argues that the Department must find more than the fact that
selling functions in the home market and the United States differ in
intensity to find a difference in level of trade.
Petitioner also argues that if the Department grants a CEP offset
to CEMEX and CDC, it should modify the methodology employed in the
preliminary results. Petitioner first argues that if the Department
grants a CEP offset adjustment, the Department should classify CEMEX
and CDC's U.S. terminal expenses as movement expenses, not indirect
selling expenses. Second, petitioner argues that if the Department
grants a CEP offset adjustment, the Department should modify its
treatment of U.S. indirect selling expenses incurred in Mexico.
Petitioner states that by not deducting from CEP the indirect selling
expenses incurred in Mexico that supported U.S. sales, the Department
in the preliminary results in effect calculated an ex-U.S. border
price, not an ex-factory price, while the deductions made for home
market sales calculate an ex-factory price. According to petitioner,
comparison of these two prices is unfair, and runs counter to the
apples-to-apples price comparison required by the statute. Finally,
petitioner argues that the Department should base its identification of
levels of trade on the starting price for both EP and CEP sales, not
the CEP price adjusted for selling expenses and profit. Petitioner
claims that the CEP level of trade, as with the home market, should be
based on the price paid by the first unaffiliated customer prior to
deductions for expenses and profit. In addition, petitioner argues that
if the Department grants a CEP offset adjustment, we should reclassify
CEMEX and CDC's U.S. terminal expenses from U.S. indirect selling
expenses to movement expenses.
CDC argues that the Department properly granted CDC a CEP offset.
CDC argues that the Department's regulations direct the Department to
determine NV at the level of trade of the CEP, which includes any CEP
deductions under section 772(d) of the Act. In light of this
interpretation of the statute, argues CDC, any comparison of selling
functions for the purpose of determining CDC's eligibility for a CEP
offset must focus on CDC's activities in selling to the two markets,
not on the activities of its U.S. affiliate. CDC argues that the record
demonstrates that its home market sales were made at a more advanced
level of trade than its U.S. sales, thus satisfying the level of trade
standard.
CEMEX agrees with the Department's preliminary results which
granted CEMEX a CEP offset based on the law and on verified
information. First, CEMEX concurs with the Department's determination
that the sales to Sunbelt Cement, CEMEX's affiliated U.S. distributor,
were at a less advanced level of trade than the level of trade of home
market sales. CEMEX notes that the CEP adjustments made under section
772(d) of the Act remove all the marketing and distribution activities
of Sunbelt Cement thereby altering the level of trade of the starting
price to a less remote link in the chain of distribution. CEMEX
contends that the appropriate comparison is based on the selling
functions performed by CEMEX with respect to its sales in Mexico and
its sales to the U.S. (``[f]or both EP and CEP, the relevant
transaction for the level of trade analysis is the sale (or constructed
sale) from the exporter to the importer'' 62 FR 47632).
Third, CEMEX argues that the Department appropriately determined
that CEMEX performed significantly different selling functions for CEP
and home market sales and the home market level of trade was more
advanced. CEMEX rejects petitioner's implication that because the
Department reached a different determination in from the fifth review,
that the sixth review preliminary results must be wrong. CEMEX also
rejects petitioner's hypothesis that because the U.S. market is
important to CEMEX's business, CEMEX's centralized strategic planning
in Mexico must support exports to the United States. CEMEX states that
activities with respect to procuring/sourcing materials and other
assets for U.S. operations are performed by CEMEX's U.S. affiliate.
Finally, CEMEX disagrees with petitioner's argument that market
research, advertising, after-sales service, and technical advice are
all insignificant in selling cement. CEMEX notes that the list of
selling activities that CEMEX included in the responses are
representative of the activities that the Department has included in
level of trade questionnaires issued to companies in other cases.
Department's Position
In accordance with section 773(a)(1)(B) of the Act, to the extent
practicable, we determine NV based on sales in the comparison market at
the same level of trade as the export price (EP) or CEP. The NV level
of trade is that of the starting-price sales in the comparison market,
or, when NV is based on constructed value (CV), that of sales from
which we derive selling, general and administrative (SG&A) expenses and
profit. For EP, the U.S. level of trade is also the level of the
starting-price sale, which is usually from exporter to importer. For
CEP, it is the level of the constructed sales from the exporter to the
importer.
To determine whether NV sales are at a different level of trade
than EP or CEP, we examine stages in the marketing process and selling
functions along the chain of distribution between the producer and the
unaffiliated customer. If the comparison-market sales are at a
different level of trade, and the difference affects price
comparability, as manifested in a pattern of consistent price
differences between the sales on which NV is based and comparison-
market sales at the level of trade of the
[[Page 12776]]
export transaction, we make a level of trade adjustment under section
773(a)(7)(A) of the Act. Finally, for CEP sales, if the NV level is
more remote from the factory than the CEP level and there is no basis
for determining whether the difference in the levels between NV and CEP
affects price comparability, we adjust NV under section 773(a)(7)(B) of
the Act (the CEP offset provision). See Notice of Final Determination
of Sales at Less Than Fair Value: Certain Cut-to-Length Carbon Steel
Plate from South Africa, 62 FR 61971 (November 19, 1997).
Although CEMEX and CDC are collapsed for purposes of determining
the weighted-average dumping margin, the Department has determined that
CEMEX and CDC's home market sales are at different levels of trade
based upon a review of the selling functions performed by CEMEX and CDC
to their respective customers. Therefore, for purposes of this
administrative review, we are performing separate level of trade
analyses for CEMEX's sales and CDC's sales in the home market.
CEMEX claimed that it has three levels of trade in the home
market--sales to end-users concrete manufacturers, and distributors
through two channels of distribution, bulk and bagged cement. It also
reported two levels of trade in the U.S. market--sales of bulk cement
to end-users and ready-mixers. We disagree with CEMEX that there are
three levels of trade in the home market and two levels of trade in the
U.S. market. We have determined that CEMEX sells to one level in the
home market and one level of trade in the U.S. market.
Based on our analysis, we concluded the following: (1) there is one
level of trade in the home market and one level of trade in the U.S.;
(2) there is a quantitative and qualitative difference in the selling
functions performed by CEMEX in the home market and the United States;
(3) there are two distinct and separate levels of trade; (4) we do not
have information which would allow us to examine pricing patterns based
on respondent's sales of other products at the same level as the U.S.
CEP; and (5) we have determined that NV is at a more advanced level of
trade than the CEP. Therefore, we granted a CEP offset consistent with
the aforementioned statutory provision. For a complete discussion of
the Department's analysis, see the Level of Trade Memorandum, dated
March 9, 1998.
CDC claimed that it has two levels of trade in the home market--
sales to end-users and concrete manufacturers through two channels of
distribution, bulk and bagged cement. It also reported two CEP levels
of trade in the U.S. market--sales of bulk cement to end-users and
ready-mixers. We disagree with CDC that there are two levels of trade
in the home market and two levels of trade in the U.S. market. We have
determined that CDC sells to one level of trade in the home market and
one level of trade in the U.S. market. Finally, we found no record
evidence to suggest that EP and CEP sales by CDC are at the same level
of trade, nor is there evidence to suggest that EP and home market
sales are at different trades of trade. Therefore, based on the
information on the record, we have determined that CDC's home market
sales and EP sales are at the same level of trade and no LOT adjustment
has been granted.
Based on our analysis of CDC's CEP sales, we concluded the
following: (1) there is one level of trade in the home market and one
level of trade in the U.S.; (2) there is a quantitative and qualitative
difference in the selling functions performed by CDC in the home market
and the United States; (3) these are two distinct and separate levels
of trade; (4) we do not have information which would allow us to
examine pricing patterns based on respondent's sales of other products
at the same level as the U.S. CEP; and (5) we have determined that NV
is at a more advanced level of trade than the CEP. Therefore, we
granted a CEP offset consistent with the aforementioned statutory
provision. For a complete discussion of the Department's analysis, see
the Level of Trade Memorandum, dated March 9, 1998.
Finally, in response to petitioner's argument that CEMEX and CDC's
U.S. terminal expenses should be considered movement expenses, we
confirmed at verification (see U.S. Sales Verification Report dated
July 21, 1997), that the reported terminal expenses are the expenses
associated with making sales in the United States from the various
sales offices/terminals. The evidence on the record does not indicate
that these are expenses associated with the storage or movement of the
subject merchandise prior to, or subsequent to the final sale. The
Department reviewed the methodology employed by CEMEX and CDC to
determine if the reported expenses were in accordance with Departmental
practice. We found no discrepancies with respondent's reporting of U.S.
indirect selling expenses and, consistent with our final determination
in the fifth administrative review, we continue to treat the reported
terminal expenses as U.S. indirect selling expenses.
Comment 9
CEMEX argues that Commerce included sales made by its affiliated
reseller PROMEXMA, a retailer of cement and building materials. CEMEX
argues that the sales functions provided by PROMEXMA differ
substantially from those provided by the other CEMEX sales offices.
CEMEX argues that sales made to retailers, such as PROMEXMA, are
different than those made to distributors and end users. CEMEX asserts
that the preliminary results of this review fail to analyze the role of
PROMEXMA within ``the seller's whole scheme of marking.'' CEMEX also
argues that the Department did not conduct a complete comparison of
PROMEXMA sale prices with all other sale prices. CEMEX argues that
individual sale quantities and prices by PROMEXMA were significantly
different than all other home market sales.
Petitioner asserts that CEMEX has failed to establish that home
market sales made by its affiliated distributor, PROMEXMA, were at a
different level of trade. Establishing that PROMEXMA is a different
class of customer (a retailer) is not sufficient--CEMEX has failed to
demonstrate that PROMEXMA performs selling functions that are
qualitatively or quantitatively different than the functions CEMEX
performs with respect to all other home market sales. Therefore, it
would be contrary to the statute and the Department's practice to
determine that sales by PROMEXMA were at a different level of trade.
Petitioner maintains that the Department correctly determined in the
preliminary result that all of CEMEX's home market sales, including
sales by PROMEXMA, were made at the same level of trade. Therefore,
these sales should be included in the calculation of NV.
Department's Position
We agree with petitioner. As we stated in the preliminary results
of this review ``[c]ustomer categories such as distributor, original
equipment manufacturer (OEM) or wholesaler are commonly used by
respondents to describe levels of trade, but, without substantiation,
they are insufficient to establish that a claimed level of trade is
valid.'' As stated above in our discussion of level of trade, the
Department has determined that based on the facts placed on the record
of this review, that all of CEMEX's home market sales of Type I cement
were made at the same level of trade. Therefore, consistent with our
decision in the preliminary results of review, the
[[Page 12777]]
Department has continued to weight-average all home market sales on a
monthly basis and has compared these sales to CEP sales in the U.S.
market.
Comment 10
CEMEX asserts that the Department failed to limit price comparisons
to sales at the same level of trade. Specifically, CEMEX argues that
sales of bagged cement are made at a different level of trade than
sales of cement in bulk. CEMEX asserts that there is a consistent
pattern of differences in the price of cement sold in bulk and in bags.
CEMEX argues that consumers are willing to pay a premium for the
convenience of buying a bag of cement. Additionally, CEMEX argues that
sales of cement in bags involve far more selling functions that sales
in bulk.
Petitioner maintains that CEMEX has failed to establish that its
home market sales of bagged cement were at a different level of trade
than its home market sales of bulk cement.
Petitioner asserts that the preliminary results correctly included
both in the calculation of NV because the merchandise is identical, the
only difference being packaging. Petitioner argues that consistent with
the statute the net prices for identical merchandise need not be
equivalent (i.e., taking into account an adjustment for packaging) to
be averaged together in the calculation of NV.
Department's Position
We agree with petitioner. The Department has included the entire
universe of Type I sales in its calculation of NV because bulk and
bagged sales constitute identical merchandise. The only difference
between these products is the packaging; therefore, the Department has
made an adjustment for packaging differences. In addition, as stated in
the level of trade section of this notice (see Comment 8, above), the
Department has determined that CEMEX sold at one level of trade in the
home market; therefore, comparing by discreet channels of distribution
is not warranted as there is only one level of trade. Therefore, we
have not calculated NV for each channel of distribution as requested by
CEMEX and have used our standard methodology for comparing NV to U.S.
sales for purposes of these final results of review.
Comment 11
CEMEX argues that Commerce failed to limit sales comparisons to the
same customer category. CEMEX asserts that although all customers
negotiate sales prices starting at the same base price, the discount
offered in each market differs according to customer category (i.e.,
distributors, end-users, and ready mixers.) CEMEX argues that it has
established distinct customer classifications in both markets and thus
Commerce should compare prices by customer category.
Petitioner argues that all cases by CEMEX in support of price
comparisons by customer category are original investigations. In
addition, petitioner asserts that there is no basis in the statute for
averaging prices by customer category in administrative reviews.
Petitioner maintains that the statute says nothing about averaging
prices based on customer category, only that the Department ``shall
limit its averaging of prices to a period not exceeding the calendar
month that corresponds most closely to the calendar month of the
individual export sale.'' 19 U.S.C. 1677f-1(d)(2).
In addition, petitioner asserts the CEMEX has not demonstrated that
it is necessary to compare prices by customer category. CEMEX claims
that its prices/discounts vary by customer class, but provides no
evidence to support this claim. Petitioner argues that the evidence on
the record of this review does not support the claim that there is a
pattern of price differences between customer categories.
Department's Position
We agree with petitioner. Section 773(a)(1)(B) of the Act does not
direct the Department to make comparisons on the basis of customer
categories. It merely directs us to compare U.S. sales to the price at
which the foreign like product is first sold for consumption in the
exporting country, in the usual commercial quantities, and in the
ordinary course of trade. Moreover, section 777A(d)(2) states a
preference for ``average-to-individual'' price comparisons in
administrative reviews under section 751(a) of the Act. ``With the
exception of the contemporaneity rule in section 777A(d)(2), neither
the statute nor the SAA provides any guidance of what, if any, factors
should be considered when averaging in reviews.'' Certain Stainless
Wire Rods From France, 61 FR 47874, 47879 (1996).
As stated in the level of trade section of this notice (see Comment
8, above), the Department has determined that CEMEX sold at one level
of trade in the home market. Therefore, we have not calculated NV for
each customer category as requested by CEMEX and have used our standard
methodology for comparing NV to U.S. sales for purposes of these final
results of review.
Differences in Merchandise (DIFMER)
Comment 12
CEMEX claims that the Department improperly made a DIFMER
adjustment based on facts available equal to 20 percent of total cost
of manufacturing. CEMEX claims that it has established that there were
physical differences between Type I and Type II by providing all
supporting documentation for the reported weight-averaged VCOM for Type
I and Type II for each plant, which the Department then verified. CEMEX
also claims that the Department's own reporting requirements for COP
and CV require the weight-averaged costs incurred at all facilities to
be reported, and that the Department has granted claimed DIFMER
adjustments in other cases when such adjustments were based on
weighted-average costs at several facilities. Therefore, CEMEX should
not be penalized for not being able to exclude from its DIFMER data
costs associated with differences in production efficiencies at the
different plants. CEMEX cites Gray Portland Cement and Clinker from
Japan, 60 FR 43761, 762-763 (1995), in which the Department granted the
respondent a DIFMER adjustment, as the Department was satisfied that
the respondent reasonably tied cost differences to physical differences
in merchandise, not withstanding reported differences in plant
efficiencies.
Furthermore, CEMEX claims that government verifiers should have
known prior to verification that all of CEMEX's cement produced at
Hermosillo met the Type V specifications. CEMEX asserts that Commerce
should have known that it could not strip out, for DIFMER purposes, the
effects of ``plant efficiencies.'' CEMEX asserts that even if the
Department were justified in foregoing the use of CEMEX's plant cost of
production data, it was not legally justified in immediately leaping to
``facts available because there is cost of production data on the
record of the sixth review for two plants of CEMEX's affiliated party
CDC.'' CEMEX argues that if the Department collapses the two entities,
it must do so for all purposes, not just for purposes which
``artificially serve to increase antidumping duty liability.''
CEMEX argues that the Department does not have carte blanche in
arriving at a ``facts available'' number. CEMEX argues that the 20%
adverse DIFMER chosen by the Department constitutes ``secondary
information'' within the meaning of 19 U.S.C. 1677(C) which can only be
used as facts available if it can
[[Page 12778]]
be corroborated with outside information or can otherwise be supported
by substantial evidence in the administrative record. CEMEX claims that
the 20% DIFMER adjustment cannot be corroborated because it vastly
overstates any possible DIFMER adjustment needed to account for actual
physical differences in the cost of producing Type I and Type II
cement. CEMEX points to CDC's DIFMER adjustment which is substantially
less than 20% and to an affidavit submitted by petitioner in its
submission of July 12, 1995 which concludes that the cost-of-production
differential between Type I and Type II cement is ``negligible.'' CEMEX
cites Rhone Poulenc, Inc v. United States, in which the Court of
Appeals for the Federal Circuit determined that it would be improper
for the DOC to reject low margin information in favor of high margin
information that was clearly less probative of current conditions.
CEMEX also cites Saha Thai Steel Pipe Co. Ltd. v. United States, in
which the CIT determined that the Department must ``seek to avoid the
use of unrepresentative or extraordinary high surrogate data as BIA.''
CEMEX argues that the application of a 20% DIFMER adjustment would be
punitive and has no basis in the administrative record or commercial
reality.
CEMEX maintains that reliance on a 20% DIFMER adjustment simply
because it was upheld by the CIT in the second review is unjustified.
CEMEX argues that each administrative review is different and,
furthermore, the 20% BIA rate used in the second review was based on
the fact that CEMEX had refused to respond to specific requests for
information from the Department. In this case, CEMEX argues that it has
fully responded to the Department's requests and the agency has
verified the accuracy of CEMEX's reported cost information.
Petitioner argues that the Department correctly applied a 20
percent DIFMER adjustment adverse to CEMEX as facts available.
Petitioner asserts that as a result of its belated disclosure regarding
the types of cement produced at the Yaqui and Campana plants, CEMEX
impeded the review, failed verification, and prevented the Department
from obtaining and evaluating other information that could have been
used to calculate a DIFMER adjustment for CEMEX. Additionally,
petitioner claims that CEMEX failed to report information tying the
differences in variable costs of production of Type I and Type II
cement to the physical differences in the merchandise.
Petitioner argues that the Department did not learn until
verification that CEMEX's claimed DIFMER adjustment was not based on
differences in the physical characteristics between Type I and Type II
cement, but rather on an allocation of costs between Type I and Type II
sales for the same physical product--Type V cement. Furthermore, at
verification, CEMEX admitted that the reported difference in variable
cost for Type I cement produced at Yaqui and Type I produced at its
other plants related to plant efficiency. CEMEX should have provided
this information earlier. The Department was similarly misled in the
fifth review, petitioner asserts, but these revelations were not made
in that review. CEMEX repeatedly asserted in questionnaire responses
that it was entitled to a DIFMER adjustment simply because there were
differences in the variable production costs for Type I and Type II
cement, and argued in its case brief that is variable production costs
were usable for determining DIFMER. At verification, however, CEMEX
stated that it was not entitled to a DIFMER adjustment. CEMEX's
disclosure at verification that there were in fact no differences in
physical characteristics between the cement types produced at Yaqui
prevented the Department from collecting and analyzing other
information that could have been used to calculate the DIFMER
adjustment.
Petitioner disagrees with CEMEX's suggestion that the Department
should have applied CDC's DIFMER rather than using facts available as
this would allow CEMEX to avoid responsibility for misleading the
Department and would reward CEMEX for its non-compliance with the
Department's requests for information and impending of the review.
Petitioner argues that CEMEX repeatedly failed to provide requested
information tying the differences in variable production costs to
differences in physical characteristics. In this review, the facts show
that there are physical differences between Type I and Type II cement,
and that these differences result in different variable costs of
production. CEMEX, however, despite the Department's explicit and
repeated requests, provided no information to isolate and quantify the
cost differences that are specifically attributable to the physical
differences. Petitioner states that this is CEMEX's burden under the
regulations and the Department's practice. Thus, CEMEX is not entitled
to its claimed DIFMER adjustment.
Petitioner also argues that CEMEX's own information contradicts its
claim for a DIFMER adjustment. This data shows that Type II has tighter
specifications than Type I which result in it being more expensive to
produce. It requires additional raw materials and additional grinding
time. Data submitted by CDC corroborates this information.
Petitioner rebuts CEMEX's assertion that the Department should
instead use data that is subject to corroboration for facts available.
Petitioner argues that in this case the 20 percent adjustment is
appropriate but corroboration of that percentage is impracticable.
CEMEX's argument that the DIFMER should be lower is based on
information that the Department was unable to verify. In this review,
facts available DIFMER from the second review is the appropriate model
for the Department's treatment of CEMEX's claimed DIFMER adjustment in
this review.
Petitioner argues that there is no basis in the record or the
Department's practices for calculating CEMEX's DIFMER adjustment from
costs incurred at a single plant. In the fifth review, the Department
departed from its longstanding practice and granted CEMEX a favorable
DIFMER adjustment based solely on CEMEX's reported costs of producing
Type I and Type II cement at a single facility, the Yaqui plant.
Petitioner asserts that in this review, the Department should use
weighted-average costs for all of CEMEX's plants. However, this will be
impossible because CEMEX impeded the review by not providing
information requested by the Department and failed verification.
Furthermore, the adjustment will necessarily be distorted if the
Department uses costs for the identical merchandise sold as different
products.
Department's Position
Pursuant to section 773(a)(6)(C)(ii) of the Act, the Department
will make adjustments to NV for physical differences in merchandise
sold in the foreign market as compared to sales in the U.S. market.
Pursuant to Section 353.57 of the Department's regulations, we will
only adjust for differences in variable costs which correspond to
physical differences in producing the merchandise, not due to
differences in plant efficiencies. However, CEMEX has failed to report
DIFMER information based solely on physical differences in merchandise.
In the preliminary determination, the Department determined that it
was appropriate to use adverse facts available. The Department reached
this conclusion because CEMEX did not make clear until verification
that it only produced Type V cement at its Yaqui and Campana
facilities. Therefore, the DIFMER reported for cement sold as Types I
and II at these facilities did not
[[Page 12779]]
reflect differences in merchandise and was not a proper basis for a
DIFMER adjustment. Given the late stage of the proceeding at which
these facts came to light, the Department was not able to collect and
analyze other DIFMER data and made a twenty percent upward adjustment
to CEMEX's home market prices.
The Department continues to believe that CEMEX could and should
have made clear the circumstances surrounding its reported DIFMER. In
light of the comments received, the Department has evaluated possible
alternatives to the twenty percent upward adjustment using the limited
information on the record. Because of different plant efficiencies, the
Department could not compare the variable costs at the Yaqui and
Campana facilities with the variable costs at CEMEX's numerous
facilities producing Type I cement. Therefore, as facts available and
in order to minimize the effect of varying plant efficiencies, the
Department has compared CEMEX's variable costs to produce cement at the
Hermosillo plants (sold as Types I, II, and V) with the lowest variable
costs reported by a CEMEX Type I facility. This calculation results in
an upward adjustment to home market prices that in this case is
sufficiently adverse, but is based on CEMEX's actual cost information.
We disagree with the assertion that CEMEX's adjustment should be
based upon CDC's data. As stated in our preliminary determination,
CDC's DIFMER is based on the differences in physical characteristics
between Type I and Type II cement, whereas CEMEX's DIFMER adjustment
would have to be based on differences in physical characteristics
between Type I and Type V cement. The record evidence indicates that
there are significant differences between the various types of cement
produced at the various facilities. These are primarily due to
different grinding and heating treatments and other factors. Therefore,
we have determined that it would not be appropriate to apply CDC's Type
I--Type II DIFMER adjustment to CEMEX's sales of Type I-V cement.
Consistent with our findings in the preliminary results of review,we
have applied a calculated DIFMER to CDC's home market sales based upon
plant-specific reported data.
Normal Value
Comment 13
Petitioner argues that the Department should deny CEMEX a freight
deduction for home market sales of Type I cement because, contrary to
the Department's practice and regulations, CEMEX has not demonstrated
that (i) it is not feasible to provide freight expense data on home
market sales on a transaction-specific basis, and (ii) company-specific
reporting of average freight expenses does not create inaccuracies.
CEMEX argues that the Department's preliminary results correctly
adjusted NV for CEMEX's verified freight expenses. CEMEX contends that
it reported pre-sale and post-sale freight expenses broken down on a
monthly basis based on (i) the selling company, (ii) the type of cement
shown on the invoice, and (iii) the method of presentation (bulk or
bagged). CEMEX first notes that the Department verified the accuracy of
these factors for five separate cement plants and found no
discrepancies. CEMEX also notes that the methodology employed in the
instant review is identical to the methodology CEMEX used in the fifth
review, which was accepted by the Department. CEMEX states that the
Department's regulations authorize the use of a reasonable allocation
methodology when transaction specific reporting is not feasible,
provided that the methodology used is not distortive. CEMEX notes that
transaction-specific reporting was not feasible due to the extremely
large number of sales. CEMEX also notes that in its ordinary course of
business, CEMEX cumulates transaction-specific freight expenses on a
company basis; thus reallocation of freight expenses on a point-of
sale, plant, or customer basis would not be feasible.
Finally, CEMEX rejects petitioner's argument that CEMEX's
allocation is distortive. First, CEMEX states that it used a weight-
based allocation methodology, matching the manner in which CEMEX's
freight expenses were incurred. Second, CEMEX calculated its freight
expenses on a cement-type and presentation-specific basis, without
reference to out-of-scope merchandise, further reducing the possibility
for distortion. Third, CEMEX calculated monthly, rather than annual (or
period-wide) factors. Fourth, CEMEX's allocation used the most specific
methodology permitted by company records. Finally, CEMEX rejects
petitioner's argument that freight expenses were distortive because
CEMEX did not take into account differing delivery distances between
the point of sale and the customer. CEMEX counters that in cases where
the company records cumulate freight charges and it is not possible to
tie the destination of each shipment to cumulated expenses, the use of
an overall, weight-based factor has been found by the Department to be
reasonable (Certain Circular Welded Carbon Steel Pipes and Tubes from
Thailand, 61 FR 1328, 1333 (1996)).
Department's Position
We agree with CEMEX. The Department has allowed a deduction for
freight expenses for Type I sales because the reported expenses
provided are in accordance with Departmental methodology, consistent
with the company's accounting practices, and were substantiated at
verification. (see July 21, 1997 Verification Report at 9.) CEMEX has
reported home market Type I freight in accordance with its accounting
system and provided the data on a company, cement-type, and
presentation-specific, basis. Based on our findings at verification,
the Department determined that respondent's reported freight costs for
sales of Type I cement are not distortive and provide a reasonable
estimate of actual transaction-specific freight expenses. Therefore, we
are granting CEMEX a home market freight adjustment for sales of Type I
cement.
Commment 14
Petitioner argues that CDC's reported freight expenses between two
of its plants, Samalayuca and Chihuahua, are distortive because: (1)
the expenses are not calculated on a transaction-specific basis, (2)
the reported freight expenses for Type I cement may include freight
expenses for clinker, and (3) freight expenses charged to CDC by
affiliated parties may not be at arm's length. Petitioner argues,
therefore, that these expenses should not be allowed.
CDC asserts that the Department properly deducted from NV its home
market inland freight expenses from plant to distribution warehouse.
CDC asserts that although the Department prefers transaction-specific
reporting, it does permit the use of allocations where transaction-
specific reporting is impossible. In this case, CDC argues that
transaction-specific reporting is impossible because bagged cement
produced at the Samalayuca plant was shipped to the Chihuahua plant
warehouse where it was commingled with cement produced at Chihuahua.
CDC asserts that it provided two allocation methodologies to the
Department, and the Department did not request further information on
this issue. CDC further argues that it provided evidence on the record
that the reported freight expenses (INLFTWH) include freight for cement
only and that affiliated party freight expenses were at arm's length.
This
[[Page 12780]]
evidence included freight invoices from affiliated and unaffiliated
parties.
Department's Position
We agree with CDC. The Department has allowed a deduction for home
market freight expenses due to the fact that CDC reported its freight
expenses in accordance with Departmental methodology. CDC provided
invoices from affiliated and unaffiliated transportation companies
demonstrating that the reported freight costs were at arm's length.
Based on this information, the Department determined that the reported
freight was accurate and non-distortive. Therefore, for the instant
review, we have utilized all reported home market freight expenses in
our final results of review.
Comment 15
Petitioner argues that the methodology for calculating freight
expenses incurred by a CDC affiliate, Construcentro commingles costs
related to cement with various other hardware items. Petitioner argues
that this commingling distorts the reported freight costs for cement
only, and that the Department should disallow CDC a freight adjustment
for sales through Construcentro.
CDC argues that because other lighter products are commingled with
cement, it is not possible to calculate a product-specific, sale-
specific, per-unit freight cost for sales by Construcentro to its
customers. CDC argues that is methodology of calculating the total cost
of freight by the total sales value is non-distortive, and is the
identical methodology accepted by the Department in the fifth review.
Department's Position
We agree with CDC. The Department has allowed a deduction for home
market freight expenses incurred by CDC's downstream affiliate,
Construcentro, due to the fact that CDC reported its freight expenses
in accordance with Departmental methodology. After reviewing CDC's
methodology for allocating freight costs, the Department has determined
that the reported freight costs were accurate and non-distortive.
Although in certain instances, non-subject merchandise accompanies
shipments of subject merchandise, CDC's allocation methodology is a
conservative means of calculating freight costs. Allocating based on
sales value results in a total freight deduction that is less than if
freight costs were calculated based on weight. In addition, record
evidence indicates the CDC would be unable, in the normal course of
business, to isolate the freight costs associated with subject and non-
subject merchandise in these particular cases. Therefore, for the
instant review, we have utilized all reported home market freight
expenses in our final results of review.
Comment 16
According to petitioner, CEMEX is not entitled to a deduction for
either allocated or transaction-specific price rebates. Petitioner
argues that the allocation methodology used by CEMEX for reporting
certain rebates is distortive, because the allocated rebates may
include rebates on sales of non-subject merchandise. For transaction-
specific rebates, petitioner argues that CEMEX failed to establish that
(1) its customers were aware, prior to the sale, of the conditions of
the rebate and the amount of the rebate, and (2) the rebates was
granted pursuant to a standard business practice or established
program.
CEMEX argues that the Department's preliminary results correctly
adjusted NV for CEMEX's verified rebates. CEMEX notes that it provided
adequate sample documentation for its rebate programs, and that the
Department verified this information. CEMEX rejects petitioner's claim
that CEMEX's customers were not aware of its rebate policies at the
time they were purchasing cement from CEMEX. According to CEMEX, as all
rebates were negotiated on a customer-specific basis and customers were
aware of the discounts for which they were eligible. CEMEX also notes
that petitioner made the same argument in the fifth administrative
review, which the Department rejected.
Next, CEMEX rebuts petitioner's argument that it was wrong for the
Department to adjust NV because CEMEX failed to establish that it was
not feasible for CEMEX to report all rebates on a transaction specific
basis. Next, CEMEX argues that in fact the majority of rebates reported
were transaction-specific. CEMEX also notes that the use of an
allocation methodology for one specific rebate program is required, as
this post-sale quantity discount is tied to total customer purchases
over a stated period of time and is applied to the customer's
outstanding accounts receivable, not to an individual transaction or
invoice. CEMEX notes that the Department has long recognized that
rebates which are not granted on a transaction-specific basis cannot be
reported on a transaction-specific basis (Corrosion Resistant Carbon
Steel Flat Products from Canada, 61 FR 13815, 13821 (1996)).
Finally, CEMEX rejects petitioner's allegation that CEMEX's rebate
calculations included rebates paid on sales of out-of-scope
merchandise. CEMEX contends that the Department verified that only
rebates and sales of the subject merchandise during the appropriate
time period were included in the rebate allocations.
Department's Position
We agree with CEMEX. The Department has allowed CEMEX's claimed
rebate adjustments because the data was submitted in accordance with
the Department's methodology and was substantiated at verification.
While the Department prefers that discounts, rebates, and other price
adjustments be reported on a transaction-specific basis, the Department
has long recognized that some price adjustments are not granted to
customers on that basis, and thus cannot be reported on that basis.
Generally, ``we have accepted claims for discounts, rebates, and other
billing adjustments as direct adjustments to price if we determined
that the respondent, in reporting these adjustments, acted to the best
of its ability and that its reporting methodology was not unreasonably
distortive.'' See Antifriction Bearings (Other than Tapered Roller
Bearings) and Parts Thereof from France, et al., Final Results of
Antidumping Duty Administrative Reviews, 62 FR 2081 (1997).
Furthermore, the Department disagrees with petitioner's argument
that the rebates at issue were not granted on a transaction-specific
basis. These rebates were reported on a customer-specific basis for
cement sold in a specific form, bag or bulk, and applied equally (as a
fixed percentage of price) to all invoices for a given month. The
Department does not agree with petitioner that respondent's methodology
is sufficient to warrant treatment of the adjustments as indirect
expenses in the home market. In this case, the amount of the
``allocation'' is limited to a few specific transactions, all to the
same customer, and typically within a very limited period of time.
Thus, the danger of unreasonable distortions, which is the averaging
effect on prices, is extremely limited in this case. This case is
similar to situations, permitted by the Department as direct
adjustments, in which a rebate is granted on a limited number of
purchases by a single customer. Because CEMEX's method of reporting its
rebate is reasonable, the Department has allowed it as a direct
adjustment.
[[Page 12781]]
Comment 17
Petitioner argues that CDC is not entitled to a deduction for
certain other price adjustments combined in the OTHADJH and OTHDISH
fields in its home market sales database. Petitioner argues that (1)
the adjustments are distortive because they result in a negative net
price for certain sales, (2) CDC did not establish that the adjustments
were granted pursuant to a standard business practice or under a pre-
established program, (3) CDC did not establish that the adjustments
were made in proportionate amounts with respect to sales of out-of-
scope merchandise, and (4) CDC has commingled price adjustments
benefitting sales of products other than cement. For these reasons, the
other price adjustments should be denied.
CDC rebuts petitioner's argument that the Department should deny
its other adjustments. CDC acknowledges that for a very few sales this
deduction results in a negative price, but CDC states that it made the
Department aware of this in the first supplemental response. CDC
provides language for the computer program to delete these negative
sales. CDC also argues that it provided evidence to the Department in
its April 7, 1997 submission demonstrating that customers are aware of
the terms of the other adjustments and that CDC maintains records of
these terms. CDC also argues that these discounts are restricted to the
subject merchandise because they are recorded on a product-specific
basis, by product code, and by presentation (bag or bulk). Finally, CDC
argues that the petitioner misinterpreted the ``concrete pavement
discount.'' CDC asserts that this is a discount on the cement used for
concrete paving projects, not for sales of concrete. CDC states that
the methodology used in the sixth review for this discount is identical
to the methodology accepted by the Department in the fifth review.
Department's Position
We agree with CDC. The Department has allowed CDC's claimed
adjustments because these adjustments were reported in accordance with
Departmental methodology. Based on the information placed on the record
of this review, the Department has determined that CDC was able to
allocate these adjustments on a product-specific, customer-specific
basis for the month in which the sale occurred, thereby not creating a
distortive effect on NV. Therefore, we are granting CDC these
adjustments. However, we have disregarded those sales which result in
negative prices due to these adjustments and have not included these in
the calculation of NV.
Comment 18
Petitioner argues in its case brief that the Department erred in
basing CEMEX's short-term interest rate on CDC's short-term interest
rate. In the preliminary results, the Department found that CEMEX
improperly used its interest rate for long-term loans in calculating
imputed expenses, and substituted CDC's short-term interest rate.
Petitioner argues that because CEMEX affirmatively misrepresented the
fact that it had short-term, peso-denominated debt during the sixth
review period, the Department should apply adverse facts available. The
effect of the adverse facts available, according to petitioner, should
be to (1) completely deny CEMEX's claimed imputed credit expenses and
inventory carrying costs, (2) revise the calculation of these expenses
using IMF rates instead of CDC's rates, or (3) substitute an interest
rate for borrowing by CEMEX based on the shortest period available.
CEMEX argues that it accurately reported its interest rate
experience. CEMEX claims that the factual record shows that it fully
and accurately described its debt position, providing the interest
rates applicable to the current portion of its long-term loans as a
benchmark for short-term, peso-loan interest rates, and that this
description was verified and accepted by the Department. CEMEX also
rejects petitioner's argument that the Department should not have used
the verified short-term interest rate from CDC. CEMEX argues that the
Department was correct to use this data since it has determined that
CDC and CEMEX constitute a ``single entity.''
Department's Position
We agree with CEMEX. CEMEX incorrectly included the long-term
interest rate in its reported calculation. However, consistent with our
decision in the final results of review in the fifth administrative
review and in the preliminary results of the instant review, the
Department has continued to use the interest rate reported by CDC as a
surrogate value for CEMEX's interest rate as facts available because it
is the short-term market interest rate of CEMEX's collapsed affiliate.
Comment 19
CDC argues that the expenses reported in the field ADVERTH should
be considered direct expenses because they reflect advertising directed
at the customer's customer. Furthermore, CDC cites the verification
report which notes that ``Company officials indicated that in Mexico,
CDC performs significant direct advertising.''
Department's Position
We disagree with CDC. The Department normally considers direct
expenses as expenses that result from, and bear a direct relationship
to, the particular sale in question. In the instant review, the
advertising at issue is associated with sales of subject and non-
subject cement and promotes the overall corporate image of CDC.
Therefore, consistent with prior Departmental practice, we have treated
these expenses as indirect selling expenses in the home market and have
not adjusted NV for these expenses except to the extent that these
expenses are included in the CEP offset.
Calculation of Export Price and Constructed Export Price
CEP Profit Calculation
Comment 20
Petitioner argues that the Department failed to include home market
indirect selling expenses and inventory carrying costs that were
incurred on sales to the United States in ``total United States
expenses'' for purposes of calculating CEP profit. Petitioner argues
that these expenses (DINDIRSU and DINVCARU) should be deducted from the
CEP. (See Comment 8). Therefore, any expense properly deducted from CEP
should also be included in ``total United States expenses'' for the
calculation of CEP profit.
CEMEX and CDC rebut petitioner's argument that DINDIRSU and
DINVCARU should be included in total U.S. expenses to calculate CEP
profit. They argue that because these expenses are not deducted from
CEP, they should not be included in the total U.S. expenses when
calculating CEP profit. Furthermore, CDC and CEMEX argue that the
Department made an error in creating a formula for calculating the CEP
ratio. Specifically, they argue that the Department should not have
subtracted Foreign Inventory Carrying Costs (DINVCARU) from U.S. direct
selling expenses (DIREXPU) for the CEP ratio calculation because the
direct selling expenses did not originally include these expenses.
Department's Position
The Department agrees in part with petitioner. As these expenses
are not associated with economic activities in the United States, they
have not been deducted from CEP and they should not be included in
``total United States expenses'' for purposes of calculating
[[Page 12782]]
CEP profit. CEP profit is calculated based on the total revenue and
total actual expenses incurred in making the sale to the unaffiliated
purchaser in the U.S. market. Therefore, consistent with recent
developments in the Department's methodology, we have included the
variable DINDIRSU in the calculation of CEP profit. However, neither
inventory carrying costs (DINVCARU), nor U.S. imputed credit (CREDITU)
are included in the calculation, as these are imputed expenses and by
definition not actual expense. We additionally agree that DINVCARU
should not be subtracted from DIREXPU in the CEP ratio calculation and
have corrected this in the final results.
Comment 21
CEMEX and CDC further argue that the Department should include the
costs associated with further manufactured sales in the CEP ratio
calculation. They argue that the Department calculated total U.S.
revenue using all U.S. sales, including further manufactured sales.
However, in calculating total U.S. expenses, the Department did not
include the costs associated with further manufacturing (FURMANU,
INDIRS2U and USOTREU). CEMEX additionally argues that the Department
should have included sales to affiliated parties that failed the arm's
length test in the calculation of CEP profit. CEMEX argues that the SAA
directs the Department to include all production and selling expenses
incurred for sales of subject merchandise in the U.S. and sales of the
foreign like product in the exporting country.
Petitioner counters that the Department's treatment of further
manufacturing expenses for purposes of calculating CEP profit was
correct. Despite CEMEX's and CDC's argument that the Department should
have included transportation expenses and indirect selling expenses
related to further manufactured sales in calculating CEP profit,
petitioner argues that the Department made a reasonable choice in this
matter. Petitioner also argues that the Department need not consider
respondent's argument that the Department should have included further
manufacturing costs in the CEP ratio calculation. In response to
CEMEX's argument that sales failing the arm's length test should be
included in the calculation of CEP profit, petitioner notes that the
Department rejected CEMEX's argument in the final results of the prior
administrative review. Gray Portland Cement and Clinker From Mexico, 62
FR 24414, 24414-15 (1997).
Department's Position
We agree with CEMEX and CDC. Consistent with the Department's
discussion of CEP profit above, we have included those CEP expenses
associated with further manufactured sales in our calculation of CEP
profit. The variable FURMANU has been included in the calculation of
CEP profit in the variable SELLEXPU. However, we disagree that sales
failing the arm's length test should be included in the calculation of
CEP profit. See Gray Portland Cement and Clinker from Mexico, 62 FR
244414, 244415 (1997).
Financing Cash Deposits
Comment 22
Petitioner argues that the Department erroneously allowed CDC an
offset to U.S. indirect selling expenses for the cost of financing
antidumping cash deposits. CDC's claimed offset should be denied
because (1) while the Department has allowed limited exemptions for
cash deposits themselves, ``[f]inancing expenses allegedly associated
with cash deposits are not a direct, inevitable consequence of an
antidumping order,'' and (2) CDC's claim is based on imputed, not
actual, financing expenses.
CDC counters that the Department's allowance of an offset for the
cost of financing antidumping cash deposits is in accordance with past
practice and judicial precedence. CDC cites AFBs from Japan, and the
December 3, 1997 CIT decision in which the court remanded to the
Department a decision to deny the offset (Timken Co. v. United States).
CDC further argues that the Department has in the past allowed the
adjustment regardless of how it is financed.
Department's Position
We agree with petitioner that we should deny an adjustment to CDC's
U.S. indirect selling expenses for imputed expenses which CDC claims
are related to financing of cash deposits. The statute does not contain
a precise definition of what constitutes a selling expense. Instead,
Congress has given the Department discretion in this area. It is a
matter of policy whether we consider there to be any financing expenses
associated with cash deposits.
The Department has long maintained, and continues to maintain, that
antidumping duties, and cash deposits of antidumping duties, are not
expenses that should be deducted from U.S. price. To do so would
involve a circular logic that could result in an unending spiral of
deductions for an amount that is intended to represent the actual
offset for the dumping. See, e.g., Antifriction Bearings (Other than
Tapered Roller Bearings) & Parts from France, et al., 62 FR 54043
(1997). We have also declined to deduct legal fees associated with
participation in an antidumping case, reasoning that such expenses are
incurred solely as a result of the existence of the antidumping duty
order. Id. Underlying the logic in both these instances is an attempt
to distinguish between business expenses that arise from economic
activities in the United States and business expenses that are direct,
inevitable consequences of the dumping order. Financial expenses
allegedly associated with cash deposits are not a direct, inevitable
consequence of an antidumping order.
Money is fungible. If an importer acquires a loan to cover one
operating cost, that may simply mean that it will not be necessary to
borrow money to cover a different operating cost. Companies may choose
to meet obligations for cash deposits in a variety of ways that rely on
existing capital resources or that require raising new resources
through debt or equity. For example, companies may choose to pay
deposits by using cash on hand, obtaining loans, increasing sales
revenues, or raising capital through the sale of equity shares. In
fact, companies face these choices every day regarding all their
expenses and financial obligations. There is nothing inevitable about a
company having to finance cash deposits and there is no way for the
Department to trace the motivation or use of such funds, even if it
were.
In a different context, we have made similar observations. For
example, we stated that ``debt is fungible and corporations can shift
debt and its related expenses toward or away from subsidiaries in order
to manage profit'' (see Ferrosilicon from Brazil, 61 FR 59407, 59412
(1996) (regarding whether the Department should allocate debt to
specific divisions of a corporation)).
So, while under the statute we may allow a limited exemption from
deductions from U.S. price for cash deposits themselves and legal fees
associated with participation in dumping cases, we do not see a sound
basis for extending this exemption to financing expenses allegedly
associated with financing cash deposits. By the same token, for the
reasons stated above, we would not allow an offset for financing the
payment of legal fees associated with participation in a dumping case.
We see no merit to the argument that, since we do not deduct cash
deposits from U.S. price, we should also not deduct financing expenses
that are
[[Page 12783]]
arbitrarily associated with cash deposits. To draw an analogy as to why
this logic is flawed, we also do not deduct corporate taxes from U.S.
price; however, we would not consider a reduction in selling expenses
to reflect financing alleged to be associated with payment of such
taxes.
Finally, we also determine that we should not use an imputed amount
that would theoretically be associated with financing of cash deposits.
There is no real opportunity cost associated with cash deposits when
the paying of such deposits is a precondition for doing business in the
United States. Like taxes, rent, and salaries, cash deposits are simply
a financial obligation of doing business. Companies cannot choose not
to pay cash deposits if they want to import nor can they dictate the
terms, conditions, or timing of such payments. By contrast, we impute
credit and inventory carrying costs when companies do not show an
actual expense in their records because companies have it within their
discretion to provide different payment terms to different customers
and to hold different inventory balances for different markets. We
impute costs in these circumstances as a means of comparing different
conditions of sale in different markets. Thus, our policy on imputed
expenses is consistent; under this policy, the imputation of financing
costs to actual expenses is inappropriate.
Other Issues
Comment 23
CEMEX argues that the Department failed to use the actual daily
exchange rates as published by the Federal Reserve Board in New York,
but rather used the rates from the Department's exchange rate model.
CEMEX argues that this is inconsistent with the determination in the
final results of the fifth review which stated that the exchange rate
model is not suitable for use with hyper inflationary economies, and
the daily rate should be used unless there is compelling evidence that
a fluctuation or sustained movement in the currencies value has
occurred.
Petitioner maintains that the Department did not err in its choice
of exchange rates. Use of the exchange rate model was correct since the
Mexican economy was not hyper-inflationary during the sixth review POR.
Department's Position
We agree with CEMEX that the Department should use actual daily
exchange rates. For the final results of review, we have used the daily
exchange rates as provided by Dow Jones Business Information Services.
The Department's new regulations at section 351.415 state: ``this
exchange rate model is not suitable for use with hyper-inflationary
currencies. In these cases, we intend to use the daily rate absent
compelling evidence that a fluctuation or sustained movement in the
currency's value has occurred.'' As stated in our preliminary results
of review, the Department found that based on the information on the
record of this review, the annual inflation rate in Mexico during the
POR exceeded 40 percent. Therefore, consistent with our prior practice,
we limited our comparisons to sales in the same month, to avoid any
distortions caused by the effects of inflation in the reported prices.
However, in our preliminary results of review, the Department
inadvertently failed to use the actual daily exchange rates as directed
by the Department's exchange rate methodology (see Change in Policy
Regarding Currency Conversions (61 FR 9434, March 8, 1996)). Thus, the
actual daily exchange rate has been used in the final results for all
currency conversion during the POR.
Comment 24
Petitioner claims that the Department made a programming error
which granted a CEP offset to NV on EP sales.
CDC rebuts this argument by pointing out that although the margin
calculation program appears to deduct OFFSETH from EP sale, the program
has defined this value as zero for EP sales.
Department's Position
We agree with CDC that the variable OFFSETH was set to zero for EP
sales in the preliminary results. Therefore, no CEP offset was granted
on EP sales. However, in order to ensure that the final programming is
more transparent, the Department has removed this language from the
final results of review.
Comment 25
Petitioner claims that the Department made the following errors in
the computer program: (1) the Department failed to exclude sales of
Type I cement produced by the CEMEX plant at Campana from the
calculation of NV by referencing an incorrect plant code in the arm's
length test and the margin calculation program; (2) the Department
failed to exclude non-arm's length sales to affiliated parties in the
margin calculation program due to a programming error; and (3) the
Department incorrectly calculated CEMEX's U.S. credit expense by
misplacing a decimal point in the calculation.
Department's Position
The Department agrees with these contentions and has included the
appropriate corrections in the final results. See Final Analysis
Memorandum dated March 9, 1998 located in room B099 of the Department's
main building. In addition, the Federal Register notice for the
preliminary results of this review (62 FR 47626) stated that indirect
selling expenses incurred in the home market were deducted from gross
unit price to determine net prices in the arm's length test. In fact,
these were not deducted from the calculation.
Final Results of Review
As a result of this review, we have determined that the following
margins exist for the period August 1, 1995, through July 31, 1996:
------------------------------------------------------------------------
Margin
Company percentage
------------------------------------------------------------------------
CEMEX, S.A................................................. 36.30
------------------------------------------------------------------------
The Department shall determine, and the U.S. Customs Service shall
assess, antidumping duties on all appropriate entries. The Department
shall issue appraisement instructions directly to the Customs Service.
For assessment purposes, we have calculated importer-specific duty
assessment rates for the merchandise based on the ratio of the total
amount of antidumping duties calculated for the examined sales during
the POR to the total entered value of sales examined during the POR.
Individual differences between U.S. price and normal value may vary
from the percentages stated above. As a result of this review, we have
determined that the importer-specific duty assessments rates are
necessary.
Furthermore, the following deposit requirements shall be effective
upon publication of this notice of final results of review for all
shipments of gray portland cement and clinker from Mexico, entered, or
withdrawn from warehouse, for consumption on or after the publication
date, as provided for by section 751(a)(1) of the Tariff Act: (1) the
cash deposit rate for the reviewed company will be the rate stated
above; (2) for previously investigated companies not listed above, the
cash deposit rate will continue to be the company-specific rate
published for the most recent period; (3) if the exporter is not a firm
covered in these reviews, or the original LTFV investigations, but the
manufacturer is, the cash deposit rate
[[Page 12784]]
will be the rate established for the most recent period for the
manufacturer of the merchandise; and (4) if neither the exporter nor
the manufacturer is a firm covered in these reviews, the cash deposit
rate for this case will continue to be 61.85 percent, which was the
``all others'' rates in the LTFV investigations. See Final
Determination of Sales at Less Than Fair Value: Gray Portland Cement
and Clinker from Mexico, 55 FR 29244, (1990).
The deposit requirements, when imposed, shall remain in effect
until publication of the final results of the next administrative
reviews.
This notice serves as a final reminder to importers of their
responsibility under 19 CFR 353.26 to file a certificate regarding the
reimbursement of antidumping duties prior to liquidation of the
relevant entries during this review period. Failure to comply with this
requirement could result in the Secretary's presumption that
reimbursement of antidumping duties occurred and the subsequent
assessment of double antidumping duties.
This notice also serves as a reminder to parties subject to
administrative protective order (``APO'') of their responsibility
concerning the disposition of proprietary information disclosed under
APO in accordance with section 353.34(d) of the Department's
regulations. Timely notification of return/destruction of APO materials
or conversion to judicial protective order is hereby requested. Failure
to comply with the regulations and the terms of an APO is a
sanctionable violation.
This administrative review and notice are in accordance with
section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)) and section 353.22
of the Department's regulations.
Dated: March 9, 1998.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 98-6714 Filed 3-13-98; 8:45 am]
BILLING CODE 3510-DS-P