[Federal Register Volume 63, Number 50 (Monday, March 16, 1998)]
[Notices]
[Pages 12752-12764]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-6715]


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DEPARTMENT OF COMMERCE

International Trade Administration
[A-557-805]


Extruded Rubber Thread From Malaysia; Final Results of 
Antidumping Duty Administrative Review

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

SUMMARY: On November 7, 1997, the Department of Commerce published in 
the Federal Register the preliminary results of the administrative 
review of the antidumping duty order on extruded rubber thread from 
Malaysia. This review covers four manufacturers/exporters of the 
subject merchandise to the United States (Filati Lastex Elastofibre 
(Malaysia), Heveafil Sdn. Bhd./Filmax Sdn. Bhd, Rubberflex Sdn. Bhd., 
and Rubfil Sdn. Bhd.). The period of review is October 1, 1995, through 
September 30, 1996.
    We gave interested parties an opportunity to comment on our 
preliminary results. We have based our analysis on the comments 
received and have changed the results from those presented in the 
preliminary results of review.

EFFECTIVE DATE: March 16, 1998.

FOR FURTHER INFORMATION CONTACT: Shawn Thompson or Fabian Rivelis, AD/
CVD Enforcement Group II, Office 5, Import Administration, 
International Trade Administration, U.S. Department of Commerce, 14th 
Street and Constitution Avenue, NW, Washington, DC 20230; telephone 
(202) 482-1776 or (202) 482-3853, respectively.

SUPPLEMENTARY INFORMATION:

Background

    On November 7, 1997, the Department of Commerce (the Department) 
published in the Federal Register its preliminary results of the 1995-
1996 administrative review of the antidumping duty order on extruded 
rubber thread from Malaysia (62 FR 60221). The Department has now 
completed this administrative review, in accordance with section 751(a) 
of the Tariff Act of 1930, as amended (the Act).

Scope of the Review

    The product covered by this review is extruded rubber thread. 
Extruded rubber thread is defined as vulcanized rubber thread obtained 
by extrusion of stable or concentrated natural rubber latex of any 
cross sectional shape, measuring from 0.18 mm, which is 0.007 inch or 
140 gauge, to 1.42 mm, which is 0.056 inch or 18 gauge, in diameter. 
Extruded rubber thread is currently classifiable under subheading 
4007.00.00 of the Harmonized Tariff Schedule of the United States 
(HTSUS). The HTSUS subheadings are provided for convenience and customs 
purposes. The written description of the scope of this review is 
dispositive.

Applicable Statute and Regulations

    Unless otherwise indicated, all citations to the Act are references 
to the provisions effective January 1, 1995, the effective date of the 
amendments made to the Act by the Uruguay Round Agreements Act (URAA). 
In addition, unless otherwise indicated, all citations to the 
Department's regulations are to the regulations codified at 19 CFR Part 
353 (April 1, 1997).

Facts Available

A. Heveafil Sdn. Bhd./Filmax Sdn. Bhd. (Heveafil)

    In accordance with section 776(a)(2) of the Act, we determine that 
the use of facts available is appropriate as the basis for Heveafil's 
dumping margin because the Department could not verify the information 
provided by Heveafil, as required under section 782(i) of the Act, 
despite the Department's attempts to do so.
    Specifically, we were unable to verify the cost of production (COP) 
and constructed value (CV) information provided by Heveafil because we 
discovered at verification that the company had destroyed the source 
documents upon which a large portion of its response was based. The 
destruction of these source documents raises particular concern, as 
Heveafil should have been aware of the necessity of retaining these 
documents based

[[Page 12753]]

upon its participation in prior segments of this proceeding. Moreover, 
there were significant delays in the verification process itself, 
caused by company difficulties in locating documents and the inability 
of company officials to link information in the questionnaire response 
to the accounting system. Our findings at verification are outlined in 
detail in the public version of the cost verification report from Shawn 
Thompson and Irina Itkin to Louis Apple, dated October 17, 1997 
(Heveafil cost verification report).
    Section 776(b) of the Act provides that adverse inferences may be 
used with respect to a party that has failed to cooperate to the best 
of its ability. See Statement of Administrative Action accompanying the 
URAA, H.R. Rep. No. 316, 103rd Cong., 2d Sess. 870 (SAA). Because we 
were unable to verify the information submitted by Heveafil in this 
period of review (POR) and because the company failed to adequately 
prepare and provide information during the verification, we determine 
that Heveafil did not cooperate to the best of its ability. Thus, 
pursuant to section 776(b) of the Act, we are basing Heveafil's margin 
on adverse facts available for purposes of the final results.
    As adverse facts available for Heveafil, we have used the highest 
rate calculated for any respondent in any segment of this proceeding. 
This rate is 54.31 percent. For further discussion, see Comment 16 in 
the ``Analysis of Comments Received'' section of this notice.

B. Rubfil Sdn. Bhd. (Rubfil)

    In accordance with section 776(a)(2)(A) of the Act, we also 
determine that the use of facts available is appropriate as the basis 
for Rubfil's dumping margin. Specifically, Rubfil failed to respond to 
the Department's questionnaire, issued in December 1996. Because Rubfil 
did not respond to the Department's questionnaire, we must use facts 
otherwise available to calculate Rubfil's dumping margin.
    Section 776(b) of the Act provides that adverse inferences may be 
used with respect to a party that has failed to cooperate by not acting 
to the best of its ability to comply with requests for information. The 
failure of Rubfil to reply to the Department's questionnaire 
demonstrates that it has failed to act to the best of its ability in 
this review and, therefore, an adverse inference is warranted.
    As adverse facts available for Rubfil, we have used the highest 
rate calculated for any respondent in any segment of this proceeding. 
This rate is 54.31 percent.

C. Corroboration of Secondary Information

    As facts available in this case, the Department has used 
information derived from a prior administrative review, which 
constitutes secondary information within the meaning of the SAA. See 
SAA at 870. Section 776(c) of the Act provides that the Department 
shall, to the extent practicable, corroborate secondary information 
from independent sources reasonably at its disposal. The SAA provides 
that ``corroborate'' means that the Department will satisfy itself that 
the secondary information to be used has probative value. See SAA, H.R. 
Doc. 316, Vol. 1, 103rd Cong., 2d sess. 870 (1994).
    To corroborate secondary information, the Department will, to the 
extent practicable, examine the reliability and relevance of the 
information to be used. However, unlike for other types of information, 
such as input costs or selling expenses, there are no independent 
sources for calculated dumping margins. Thus, in an administrative 
review, if the Department chooses as total adverse facts available a 
calculated dumping margin from the same or a prior segment of this 
proceeding, it is not necessary to question the reliability of the 
margin for that time period. With respect to the relevance aspect of 
corroboration, however, the Department will consider information 
reasonably at its disposal as to whether there are circumstances that 
would render a margin not relevant. Where circumstances indicate that 
the selected margin may not be appropriate, the Department will attempt 
to find a more appropriate basis for facts available. See, e.g., Fresh 
Cut Flowers from Mexico; Final Results of Antidumping Duty 
Administrative Review, 61 FR 6812, 6814 (February 22, 1996) (Fresh Cut 
Flowers) (where the Department disregarded the highest margin as 
adverse best information available because the margin was based on 
another company's uncharacteristic business expense resulting in an 
unusually high margin).
    For both Heveafil and Rubfil, we examined the rate applicable to 
extruded rubber thread from Malaysia throughout the course of the 
proceeding. With regard to its probative value, the rate specified 
above is reliable and relevant because it is a calculated rate from the 
1994-1995 administrative review. There is no information on the record 
that demonstrates that the rate selected is not an appropriate total 
adverse facts available rate for Heveafil and Rubfil. Thus, the 
Department considers this rate to be appropriate adverse facts 
available.

Normal Value Comparisons

    To determine whether sales of extruded rubber thread from Malaysia 
to the United States were made at less than normal value (NV), we 
compared the constructed export price (CEP) to the NV for Filati Lastex 
Elastofibre (Malaysia) (Filati) and Rubberflex Sdn. Bhd. (Rubberflex), 
as specified in the ``Constructed Export Price'' and ``Normal Value'' 
sections of this notice.
    On January 8, 1998, the Court of Appeals for the Federal Circuit 
issued a decision in CEMEX v. United States, 1998 WL 3626 (Fed Cir.). 
In that case, based on the pre-URAA version of the Act, the Court 
discussed the appropriateness of using CV as the basis for foreign 
market value when the Department finds home market sales to be outside 
the ``ordinary course of trade.'' This issue was not raised by any 
party in this proceeding. However, the URAA amended the definition of 
sales outside the ``ordinary course of trade'' to include sales below 
cost. See section 771(15) of the Act. Consequently, the Department has 
reconsidered its practice in accordance with this court decision and 
has determined that it would be inappropriate to resort directly to CV 
as the basis for NV, in lieu of foreign market sales, if the Department 
finds foreign market sales of merchandise identical or most similar to 
that sold in the United States to be outside the ``ordinary course of 
trade.'' Instead, the Department will use sales of similar merchandise, 
if such sales exist. The Department will use CV as the basis for NV 
only when there are no above-cost sales that are otherwise suitable for 
comparison. Therefore, in this proceeding, when making comparisons in 
accordance with section 771(16) of the Act, we considered all products 
sold in the home market as described in the ``Scope of the Review'' 
section of this notice, above, that were in the ordinary course of 
trade for purposes of determining appropriate product comparisons to 
U.S. sales. Where there were no sales of identical merchandise in the 
home market made in the ordinary course of trade to compare to U.S. 
sales, we compared U.S. sales to sales of the most similar foreign like 
product made in the ordinary course of trade, based on the 
characteristics listed in sections B and C of our antidumping 
questionnaire.

[[Page 12754]]

Level of Trade and CEP Offset

    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 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 CV, that of the sales from which we derive selling, 
general and administrative expenses (SG&A) and profit. For EP, the U.S. 
level of trade is also the level of the starting-price sale, which is 
usually from the exporter to importer. For CEP, it is the level of the 
constructed sale from the exporter to the importer.
    To determine whether NV sales are at a different level of trade 
than EP or CEP sales, 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 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 61731 (Nov. 19, 1997).
    Both Filati and Rubberflex claimed that they made home market sales 
at only one level of trade (i.e., sales to original equipment 
manufacturers) and that this level was different, and more remote, than 
the level of trade at which they made CEP sales.
    Because only one level of trade existed in the home market for both 
respondents, we conducted an analysis to determine whether a CEP offset 
was warranted for either company. In order to determine whether NV was 
established at a level of trade which constituted a more advanced state 
of distribution than the level of trade of the CEP, we compared the 
selling functions performed for home market sales with those performed 
with respect to the CEP transaction which excludes economic activities 
occurring in the United States. We found that both respondents 
performed essentially the same selling functions in their sales offices 
in Malaysia for both home market and U.S. sales. Therefore, the 
respondent's sales in Malaysia were not at a more advanced stage of 
marketing and distribution than the constructed U.S. level of trade, 
which represents an FOB foreign port price after the deduction of 
expenses associated with U.S. selling activities. Because we find that 
no difference in level of trade exists between markets, we have not 
granted a CEP offset to either Filati or Rubberflex. For a detailed 
explanation of this analysis, see the concurrence memorandum issued for 
the preliminary results of this review, dated October 31, 1997.

Constructed Export Price

    For all sales by Filati and Rubberflex, we based the starting price 
on CEP, in accordance with section 772(b) of the Act. For further 
discussion, see Comment 5 in the ``Analysis of Comments Received'' 
section of this notice.
    Moreover, for both companies, we revised the reported data based on 
our findings at verification.

A. Filati

    We calculated CEP based on the starting price to the first 
unaffiliated purchaser in the United States. In accordance with section 
772(c)(1)(B) of the Act, we added an amount for uncollected import 
duties in Malaysia. We made deductions from the starting price, where 
appropriate, for discounts and rebates. In addition, where appropriate, 
we made deductions for foreign inland freight, foreign brokerage and 
handling expenses, ocean freight, marine insurance, U.S. customs duty, 
U.S. brokerage and handling expenses, and U.S. inland freight, in 
accordance with section 772(c)(2)(A) of the Act.
    We made additional deductions to CEP, where appropriate, for 
commissions, credit expenses, U.S. indirect selling expenses, and U.S. 
inventory carrying costs, in accordance with section 772(d)(1) of the 
Act. We recalculated U.S. indirect selling expenses to exclude an 
offset claimed by Filati relating to imputed costs associated with 
financing antidumping and countervailing duty deposits, in accordance 
with the Department's practice. See Comment 4 in the ``Analysis of 
Comments Received'' section of this notice, for further discussion.
    Pursuant to section 772(d)(3) of the Act, we further reduced the 
starting price by an amount for profit, to arrive at CEP. In accordance 
with section 772(f) of the Act, we calculated the CEP profit rate using 
the expenses incurred by Filati and its affiliate on their sales of the 
subject merchandise in the United States and the foreign like product 
in the home market and the profit associated with those sales.

B. Rubberflex

    We calculated CEP based on the starting price to the first 
unaffiliated customer in the United States. We made deductions from the 
starting price, where appropriate, for discounts and rebates. We also 
made deductions for foreign inland freight, foreign brokerage and 
handling expenses, ocean freight, marine insurance, U.S. customs duty, 
and U.S. inland freight, in accordance with section 772(c)(2)(A) of the 
Act.
    We made additional deductions to CEP, where appropriate, for credit 
expenses, U.S. indirect selling expenses, and U.S. inventory carrying 
costs, in accordance with section 772(d)(1) of the Act. We recalculated 
U.S. indirect selling expenses to exclude an offset claimed by 
Rubberflex relating to imputed costs associated with financing 
antidumping and countervailing duty deposits, in accordance the 
Department's practice. See Comment 4 in the ``Analysis of Comments 
Received'' section of this notice, for further discussion.
    Pursuant to section 772(d)(3) of the Act, we further reduced the 
starting price by an amount for profit, to arrive at CEP. In accordance 
with section 772(f) of the Act, we calculated the CEP profit rate using 
the expenses incurred by Rubberflex and its affiliate on their sales of 
the subject merchandise in the United States and the foreign like 
product in the home market and the profit associated with those sales.

Normal Value

    In order to determine whether there is a sufficient volume of sales 
in the home market to serve as a viable basis for calculating NV (i.e., 
the aggregate volume of home market sales of the foreign like product 
is greater than five percent of the aggregate volume of U.S. sales), we 
compared the volume of each respondent's home market sales of the 
foreign like product to the volume of U.S. sales of subject 
merchandise, in accordance with section 773(a)(1)(C) of the Act. Based 
on this comparison, we determined that both Filati and Rubberflex had 
viable home markets during the POR. Consequently, we based NV on home 
market sales.
    Pursuant to section 773(b) of the Act, there were reasonable 
grounds to believe or suspect that Rubberflex had made home market 
sales at prices below

[[Page 12755]]

its COP in this review because the Department had disregarded sales 
below the COP for Rubberflex in a previous administrative review. See 
Notice of Final Results of Antidumping Duty Administrative Review: 
Extruded Rubber Thread from Malaysia, 61 FR 54767 (Oct. 22, 1996). 
Moreover, the petitioner submitted an adequate allegation that there 
were reasonable grounds to believe or suspect that Filati had made home 
market sales at prices below its COP in this review. As a result, the 
Department initiated an investigation to determine whether the 
respondents made home market sales during the POR at prices below their 
respective COPs.
    We calculated the COP based on the sum of each respondent's cost of 
materials and fabrication for the foreign like product, plus amounts 
for SG&A and packing costs, in accordance with section 773(b)(3) of the 
Act.
    We used the respondents' reported COP amounts, adjusted as 
discussed below, to compute weighted-average COPs during the POR. We 
compared the weighted-average COP figures to home market sales of the 
foreign like product, as required under section 773(b) of the Act, in 
order to determine whether these sales had been made at prices below 
the COP. On a product-specific basis, we compared the COP to home 
market prices, less any applicable movement charges and discounts.
    In determining whether to disregard home market sales made at 
prices below the COP, we examined whether such sales were made: (1) In 
substantial quantities within an extended period of time; and (2) at 
prices which permitted the recovery of all costs within a reasonable 
period of time in the normal course of trade. See Sec. 773(b)(1) of the 
Act.
    Pursuant to section 773(b)(2) of the Act, where less than 20 
percent of a respondent's sales of a given product were at prices less 
than the COP, we did not disregard any below-cost sales of that product 
because we determined that the below-cost sales were not made in 
``substantial quantities.'' Where 20 percent or more of a respondent's 
sales of a given product were at prices below the COP, we found that 
sales of that model were made in ``substantial quantities'' within an 
extended period of time, in accordance with section 773(b)(2)(B) of the 
Act. In such cases, we also determined that such sales were not made at 
prices which would permit recovery of all costs within a reasonable 
period of time, in accordance with section 773(b)(2)(D) of the Act. 
Therefore, we disregarded the below-cost sales. Where all sales of a 
specific product were at prices below the COP, we disregarded all sales 
of that product.
    We found that, for certain models of extruded rubber thread, more 
than 20 percent of both Filati's and Rubberflex's home market sales 
within an extended period of time were at prices less than COP. 
Further, the prices did not provide for the recovery of costs within a 
reasonable period of time. We therefore disregarded the below-cost 
sales and used the remaining above-cost sales as the basis for 
determining NV, in accordance with section 773(b)(1) of the Act. For 
those U.S. sales of extruded rubber thread for which there were no 
comparable home market sales in the ordinary course of trade, we 
compared CEP to CV, in accordance with section 773(a)(4) of the Act.
    In accordance with section 773(e) of the Act, we calculated CV 
based on the sum of each respondent's cost of materials, fabrication, 
SG&A, profit, and U.S. packing costs. In accordance with section 
773(e)(2)(A) of the Act, we based SG&A and profit on the amounts 
incurred and realized by each respondent in connection with the 
production and sale of the foreign like product in the ordinary course 
of trade, for consumption in the foreign country.
    Company-specific calculations are discussed below.

A. Filati

    We made the following adjustments to Filati's reported COP and CV 
data based on our findings at verification. For the cost of 
manufacturing (COM), in order to properly value second quality 
merchandise and apply the appropriate manufacturing variance, we first 
valued the second quality merchandise at the standard cost of the first 
quality product that was intended to be produced. We then calculated 
the variance between the revised total standard cost and the total 
actual cost, and applied the variance proportionately to each per-unit 
standard cost. We also recalculated Filati's reported general and 
administrative (G&A) expense ratio by excluding direct selling, 
indirect selling, G&A, and financial expenses from the denominator of 
the ratio. The resulting ratio was applied to the per-unit COM. 
Finally, we recalculated Filati's reported interest expense using the 
consolidated financial statements of its parent company. Specifically, 
we divided net interest expense by the cost of operations. For further 
discussion of these adjustments, see Comment 13 in the ``Analysis of 
Comments Received'' section, below, and the cost calculation memorandum 
from Michael Martin and Gina Lee to Christian Marsh, dated March 9, 
1998.
    Where NV was based on home market sales, we based NV on the 
starting price to unaffiliated customers. We made adjustments to 
Filati's reported sales data based on our findings at verification.
    For all price-to-price comparisons, we made deductions from the 
starting price for rebates, where appropriate. We also made deductions, 
where appropriate, for foreign inland freight, pursuant to section 
773(a)(6)(B) of the Act. Pursuant to section 773(a)(6)(C)(iii) of the 
Act, we made circumstance-of-sale adjustments, where appropriate, for 
differences in credit expenses, bank charges, and U.S. commissions. 
Where applicable, in accordance with 19 CFR 353.56(b)(1), we offset any 
commission paid on a U.S. sale by reducing the NV by the amount of home 
market indirect selling expenses and inventory carrying costs, up to 
the amount of the U.S. commission.
    In addition, we deducted home market packing costs and added U.S. 
packing costs, in accordance with section 773(a)(6) of the Act. Where 
appropriate, we made adjustments to NV to account for differences in 
physical characteristics of the merchandise, in accordance with section 
773(a)(6)(C)(ii) of the Act and 19 CFR 353.57.
    For CV-to-CEP comparisons, we made circumstance-of-sale 
adjustments, where appropriate, for differences in credit expenses, 
bank charges, and U.S. commissions, in accordance with sections 
773(a)(6)(C)(iii) and 773(a)(8) of the Act. Where applicable, in 
accordance with 19 CFR 353.56(b)(1), we offset any commission paid on a 
U.S. sale by reducing the NV by the amount of home market indirect 
selling expenses and inventory carrying costs, up to the amount of the 
U.S. commission.

B. Rubberflex

    Where NV was based on home market sales, we based NV on the 
starting price to unaffiliated customers. We made adjustments to 
Rubberflex's reported sales data based on our findings at verification.
    We made deductions from the starting price for discounts and 
rebates, where appropriate. We also made deductions for foreign inland 
freight and foreign inland insurance, pursuant to section 773(a)(6)(B) 
of the Act. In addition, we made a circumstance-of-sale adjustment for 
differences in credit expenses. We deducted home market packing costs 
and added U.S. packing costs, in accordance with section 773(a)(6) of 
the Act. Where appropriate, we made adjustments to NV to account for

[[Page 12756]]

differences in physical characteristics of the merchandise, in 
accordance with section 773(a)(6)(c)(ii) of the Act and 19 CFR 353.57.
    For CV-to-CEP comparisons, we made circumstance-of-sale 
adjustments, where appropriate, for differences in credit expenses.

Duty Absorption

    On December 16, 1996, the petitioner requested that the Department 
determine, with respect to all respondents, whether antidumping duties 
had been absorbed during the POR. Section 751(a)(4) of the Act provides 
for the Department, if requested, to determine during an administrative 
review initiated two or four years after the publication of the order, 
whether antidumping duties have been absorbed by a foreign producer or 
exporter if the subject merchandise is sold in the United States 
through an affiliated importer.
    For transition orders as defined in section 751(c)(6)(C) of the Act 
(i.e., orders in effect as of January 1, 1995), section 351.213(j)(2) 
of the Department's new antidumping regulations provide that the 
Department will make a duty-absorption determination, if requested, for 
any administrative review initiated in 1996 or 1998. See 62 FR 27394 
(May 19, 1997). Because the order on extruded rubber thread from 
Malaysia has been in effect since 1991, it is a transition order in 
accordance with section 751(c)(6)(C) of the Act. The preamble to the 
new antidumping regulations explains that reviews initiated in 1996 
will be considered initiated in the second year and reviews initiated 
in 1998 will be considered initiated in the fourth year (62 FR 27317, 
May 19, 1997). This approach ensures that interested parties will have 
the opportunity to request a duty-absorption determination prior to the 
time for sunset review of the order under section 751(c) of the Act on 
entries for which the second and fourth years following an order have 
already passed. Since this review was initiated in 1996, and a request 
was made for a determination, we are making a duty-absorption 
determination as part of this administrative review.
    As indicated above, section 751(a)(4) of the Act provides for a 
determination on duty absorption if the subject merchandise is sold in 
the United States through an affiliated importer. In this case, the 
respondents sold through importers that are affiliated. We have 
determined that duty absorption by all respondents has occurred in this 
administrative review. This determination is made only with respect to 
the percentages of sales shown below which were made through the 
respondents' U.S. affiliates and which had positive dumping margins:

------------------------------------------------------------------------
                                                           Percentage of
                                                               U.S.     
                                                            affiliates' 
             Manufacturer/exporter/reseller                 sales with  
                                                              dumping   
                                                              margins   
------------------------------------------------------------------------
Heveafil................................................          100.00
Filati..................................................          100.00
Rubberflex..............................................           57.35
Rubfil..................................................          100.00
------------------------------------------------------------------------

    With respect to Heveafil and Rubfil, because the former failed 
verification and the latter did not respond to our questionnaire, we 
determined the dumping margins for these two companies on the basis of 
adverse facts available. Lacking other information, we find duty 
absorption on all sales by these two companies. See Antifriction 
Bearings (Other Than Tapered Roller Bearings) and Parts Thereof from 
France, Germany, Italy, Japan, Romania, Singapore, Sweden and the 
United Kingdom; Final Results of Antidumping Duty Administrative 
Reviews, 62 FR 54043 (Oct. 17, 1997) (AFBs) and Tapered Roller Bearings 
and Parts Thereof, Finished and Unfinished, From Japan, and Tapered 
Roller Bearings, Four Inches or Less in Outside Diameter, and 
Components Thereof, From Japan; Final Results of Antidumping Duty 
Administrative Reviews, 63 FR 2558 (Jan. 15, 1998) (TRBs) (where we 
found duty absorption with respect to all sales for which the 
respondent provided no data in response to the Department's 
questionnaire).
    With respect to the other respondents with affiliated importers 
(i.e., Filati and Rubberflex) for which we did not apply adverse facts 
available, we must presume that the duties will be absorbed for those 
sales which were dumped. As the above chart indicates, 100 percent of 
Filati's sales, and 57.35 percent of Rubberflex's sales, by volume, 
were dumped. Our duty-absorption presumptions can be rebutted with 
evidence that the unaffiliated purchasers in the United States will pay 
the ultimately assessed duty. After publication of our preliminary 
results, we gave interested parties the opportunity to submit evidence 
that the unaffiliated purchasers in the United States will pay the 
ultimately assessed duties. However, we received no such evidence. 
Under these circumstances, we find that antidumping duties have been 
absorbed by all respondents on the percentages of U.S. sales indicated. 
Specific arguments relating to duty absorption are discussed in Comment 
1 of the ``Analysis of Comments Received'' section, below.

Currency Conversion

    We made currency conversions into U.S. dollars based on the 
exchange rates in effect on the dates of the U.S. sales as certified by 
the Federal Reserve Bank.
    Section 773A of the Act directs the Department to use a daily 
exchange rate in order to convert foreign currencies into U.S. dollars 
unless the daily rate involves a fluctuation. It is the Department's 
practice to find that a fluctuation exists when the daily exchange rate 
differs from the benchmark rate by 2.25 percent. The benchmark is 
defined as the moving average of rates for the past 40 business days. 
When we determine a fluctuation to have existed, we substitute the 
benchmark for the daily rate, in accordance with established practice.

Analysis of Comments Received

    We gave interested parties an opportunity to comment on the 
preliminary results. We received comments from North American Rubber 
Thread (the petitioner), and two respondents, Filati and Heveafil. We 
also received rebuttal comments from Filati and Heveafil.

General Issues

Comment 1: Duty Absorption
    According to the petitioner, the Department should find that the 
respondents are absorbing antidumping duties in cases where their U.S. 
subsidiaries are the importers of record.
    Filati and Heveafil assert that there is no evidence that they are 
absorbing antidumping duties in this review. According to these 
companies, the duties for this review period have yet to be assessed. 
Consequently, there can be no finding that these companies are 
absorbing duties for this POR.
    Moreover, these respondents state that both the URAA and SAA 
require that the Department perform a meaningful analysis of whether 
antidumping duties are absorbed. Therefore, these respondents argue 
that it is not lawful for the Department to merely presume that duty 
absorption has taken place by virtue of a finding that dumping margins 
exist on sales through affiliated importers. According to these 
respondents, such a presumption shifts the burden of demonstrating that 
duties are not being absorbed to the respondents. These respondents 
state that this presumption is both unfair and unreasonable because it 
is impossible to rebut, given that it would require their

[[Page 12757]]

customers to assume an unlimited, contingent liability for antidumping 
duties several years after the sale.
    Filati and Heveafil also contend that acceptance of the 
Department's presumption renders meaningless any sunset reviews, 
because the existence of dumping margins would be sufficient to make an 
affirmative finding.
    Finally, Heveafil argues that the Department should not find that 
it absorbed antidumping duties based on Rubfil's rate in a previous 
review because that rate clearly is not representative of Heveafil's 
sales patterns. Instead, Heveafil asserts that the Department should 
make a determination based on Heveafil's actual experience, as 
submitted to the Department in past reviews.
DOC Position
    We disagree with the respondents. An investigation as to whether 
there is duty absorption does not simply involve publishing the margin 
in the final results of review. The Department's determination that 
duty absorption exists is based on the lack of any information on the 
record that the first unaffiliated customer will be responsible for 
paying the duty that is ultimately assessed. Absent such an irrevocable 
agreement between the affiliated U.S. importer(s) and the first 
unaffiliated customer, there is no basis for the Department to conclude 
that the duty attributable to the margin is not being absorbed. See, 
e.g., AFBs at 54043 and 54044.
    As in previous cases where the Department has found duty absorption 
(see, e.g., AFBs and TRBs), this is an instance where the existence of 
margins raises an initial presumption that the affiliated importer(s) 
are absorbing the duty. As such, the burden of producing evidence to 
the contrary shifts to the respondent. See Creswell Trading Co., Inc. 
v. United States, 15 F.3d 1054 (CAFC 1994). Here, the respondents have 
failed to place evidence on the record, despite being given ample time 
to do so, in support of their position that their affiliated 
importer(s) are not absorbing the duties.
    Regarding Heveafil's argument that we should make our duty-
absorption determination based on Heveafil's actual experience, as 
submitted to the Department in past reviews, we also disagree. The 
Department's current practice is to find that duty absorption occurred 
for companies having a margin based on adverse facts available, absent 
any information to the contrary. See AFBs and TRBs. Because Heveafil 
submitted no information showing that its affiliated importer is not 
absorbing the duties for this POR, we find that duty absorption 
occurred.
    Finally, regarding the argument that the presumption of absorption 
renders the sunset provisions meaningless, we note that the Department 
has no experience in conducting sunset reviews. Thus, we are unable to 
determine the impact of any duty absorption finding on a subsequent 
sunset review.
Comment 2: Calculation of CV Profit
    The petitioner argues that the Department should exclude all below-
cost sales from the calculation of CV profit, in accordance with its 
practice. As support for this contention, the petitioner cites 
Mechanical Transfer Presses From Japan; Final Results of Antidumping 
Administrative Review, 62 FR 11820, 11822 (Mar. 13, 1997) (MTPs from 
Japan).
    Filati disagrees, citing to the Department's practice under the old 
law, in which the Department consistently rejected such arguments. 
Filati argues that the URAA does not require a change in the 
Department's practice. Specifically, Filati contends that the 
Department may exclude below-cost sales only when it determines that 
such sales are outside the ordinary course of trade. Filati cites 
Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts 
Thereof from France, Germany, Italy, Japan, Singapore, and the United 
Kingdom; Final Results of Antidumping Duty Administrative Reviews, 62 
FR 2081, 2114 (Jan. 15, 1997) (1994-1995 AFBs Reviews), where the 
Department stated that sales must be disregarded under the cost test 
before they can be excluded from the calculation of CV profit. Filati 
asserts that this practice is consistent with the SAA as well as the 
WTO antidumping code.
    Filati further argues that, in this case, the Department should not 
exclude any of its sales of second quality merchandise from the 
calculation of CV profit (or, correspondingly from the calculation of 
NV)--irrespective of whether they are above or below cost--because they 
are not outside the ordinary course of trade. According to Filati, 
these sales are the type of unusual, off-spec, infrequent sales 
contemplated by the SAA in its discussion of what types of below-cost 
sales should be included as part of NV. Specifically, Filati cites the 
SAA at 833, which states that ``below-cost sales may be used to 
determine normal value if those sales are obsolete or end-of-model-year 
merchandise.''
DOC Position
    We agree with Filati, in part. It is the Department's practice to 
disregard below-cost sales in the calculation of CV profit only when 
those sales fail the cost test. See, e.g., MTPs from Japan, 1994-1995 
AFBs Reviews, and Notice of Final Determination of Sales at Less Than 
Fair Value: Static Random Access Memory Semiconductors from Taiwan 63 
FR 8909 (Feb. 23, 1998) (SRAMs from Taiwan). Consequently, in 
accordance with our practice, we have excluded below-cost sales from 
the calculation of CV profit only when they were made in substantial 
quantities within an extended period of time at prices which would not 
permit the recovery of all costs within a reasonable period of time.
    We disagree with Filati's contention that its below-cost sales of 
second quality merchandise were made in the ordinary course of trade. 
The Department's practice is not to distinguish between first and 
second quality merchandise in conducting the cost test. See, e.g., 
Polyethylene Terephthalate Film, Sheet, and Strip from the Republic of 
Korea; Final Results of Antidumping Administrative Reviews and Notice 
of Revocation in Part, 61 FR 35177 (July 5, 1996). Consequently, where 
these sales failed the cost test, we find that they were made outside 
the ordinary course of trade. Accordingly, we have excluded such sales 
from our analysis for purposes of the final results.
Comment 3: Date of Payment
    The Department noted at verification that both Filati and 
Rubberflex had not received payment for certain U.S. sales. According 
to the petitioner, the Department should use the date of the final 
results as the date of payment for these transactions. The petitioner 
asserts that, if payment for these sales had been received by the time 
of verification, the respondents should have indicated this to the 
Department.
    Filati maintains that the Department's consistent policy is to use 
the last day of verification as the date of payment for the unpaid 
sales. See Brass Sheet and Strip from Sweden: Final Results of 
Antidumping Administrative Review, 60 FR 3617, 3620 (Jan. 18, 1995) 
(Brass Sheet and Strip from Sweden). Filati states that this date is 
the last date on which the Department can be certain that payment had 
not been received, given that the Department's regulations do not allow 
respondents to provide information after verification. Furthermore, 
Filati argues that the use of the date of the final results would be 
unduly punitive, because there is an

[[Page 12758]]

extended period between the time that the sales were made and the date 
of the final results of the review.
DOC Position
    The Department's recent practice regarding this issue has been to 
use the last day of verification as the date of payment for unpaid 
sales. See SRAMs from Taiwan and Brass Sheet and Strip from Sweden. In 
accordance with our practice, we have used the last day of verification 
as the date of payment for the transactions in question.

Company-Specific Issues

A. Filati

Comment 4: Offset for Imputed Costs Associated With AD/CVD Duty 
Deposits
    In its questionnaire response, Filati reported the opportunity 
costs associated with financing its cash deposits of antidumping and 
countervailing duties as an offset to U.S. indirect selling expenses. 
Filati notes that the Department's decision to deny this offset for 
purposes of the preliminary results is consistent with its recent 
practice. See AFBs. However, Filati contends that the Department's 
change in policy conflicts with prior decisions both by the Department 
and the Court of International Trade (CIT). See, e.g., 1994-1995 AFBs 
Reviews and Federal-Mogul v. United States, 950 F. Supp. 1179 (CIT 
1996).
    Specifically, Filati asserts that the reasoning in AFBs was flawed, 
in two respects. First, Filati asserts that AFBs was based on the 
premise that money is fungible. According to Filati, however, this 
point is irrelevant because the company has incurred a real expense 
which it would not have incurred but for the existence of the 
antidumping duty order. Second, Filati asserts that AFBs was based on 
the premise that there is no ``real'' opportunity cost associated with 
the duty deposits. Filati maintains that this point is also incorrect, 
because respondents making cash deposits are required to divert funds 
from more profitable ventures.
    According to Filati, the CIT has mandated that imputed interest 
expenses incurred with respect to antidumping or countervailing duty 
deposits are not ``selling expenses,'' and, therefore, the antidumping 
law does not allow their deduction from CEP. Consequently, Filati 
argues that the Department should allow its offset for purposes of the 
final results.
DOC Position
    We disagree. For these final results, we have continued to deny an 
offset to Filati's U.S. indirect selling expenses for expenses which 
Filati claims are related to financing of antidumping and 
countervailing duty cash deposits.
    As the Department explained in AFBs, the statute does not contain a 
precise definition of what constitutes a selling expense. Instead, 
Congress gave the administering authority discretion in this area. It 
is a matter of policy whether we consider there to be any financing 
expenses associated with cash deposits. We recognize that we have, to a 
limited extent, removed such expenses from indirect selling expenses 
for such financing expenses in other proceedings. However, we have 
reconsidered our position on this matter and have now concluded that 
this practice is inappropriate.
    We have long maintained, and continue to maintain, that antidumping 
duties, and cash deposits of antidumping duties, are not expenses that 
we should deduct from CEP. 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) and Parts 
Thereof From France, et al.; Final Results of Antidumping Duty 
Administrative Reviews, 57 FR 28360 (June 24, 1992). 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 
our 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 associated with cash deposits are not a direct, 
inevitable consequence of an antidumping order. As noted in AFBs, 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. See AFBs at 54079. 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; Final Results of 
Antidumping Duty Administrative Review, 61 FR 59407, 59412 (Nov. 22, 
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 CEP 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 CEP, we should also not deduct financing expenses that 
are arbitrarily associated with cash deposits. To draw an analogy as to 
why this logic is flawed, we also do not deduct corporate taxes from 
CEP; 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.

[[Page 12759]]

Comment 5: Treatment of EP Sales
    During the POR, Filati classified all sales shipped directly to 
U.S. customers as EP sales. The petitioner argues that the Department 
should treat these transactions as CEP sales because, according to the 
petitioner, Filati's U.S. subsidiary acts as more than a paper 
processor and communications link between the Malaysian parent and its 
customers. Specifically, the petitioner maintains that Filati's U.S. 
affiliate is involved in the actual negotiation of prices to 
unaffiliated U.S. customers.
    The petitioner cites to the following cases as precedent for 
reclassifying the transactions in question as CEP sales: Small Diameter 
Circular Seamless Carbon and Alloy Steel Standard, Line and Pressure 
Pipe From Germany: Preliminary Results of Antidumping Duty 
Administrative Review, 62 FR 47446, 47448 (Sept. 9, 1997); Notice of 
Preliminary Determinations of Sales at Less Than Fair Value and 
Postponement of Final Determinations: Brake Drums and Brake Rotors From 
the People's Republic of China, 61 FR 53190, 53194 (Oct. 10, 1996); 
Certain Cut-To-Length Carbon Steel Plate From Germany: Final Results of 
Antidumping Duty Administrative Review, 62 FR 18390, 18392 (Apr. 15, 
1997); and Sebacic Acid From the People's Republic of China; Final 
Results of Antidumping Duty Administrative Review, 62 FR 10530, 10532 
(Mar. 7, 1997). In those cases, the Department classified the 
respondents' U.S. sales as CEP transactions, because the U.S. companies 
performed significant selling functions in the United States. 
Consequently, the petitioner maintains that the Department should 
deduct the indirect selling and operating costs of Filati's U.S. 
subsidiary from the starting price for purposes of the final results.
    Filati contends that the Department properly treated its direct 
shipment sales as EP sales. Filati states that the Department has 
consistently classified Filati's direct shipment sales as EP sales from 
the original investigation through the latest published administrative 
review (i.e., Extruded Rubber Thread From Malaysia; Final Results of 
Antidumping Duty Administrative Review, 62 FR 52547 (Nov. 24, 1997)). 
Furthermore, Filati notes that the facts of this review in no way 
differ from the facts of previous reviews with respect to the role in 
the sales process of Filati's U.S. affiliate. According to Filati, the 
sales in question were made prior to entry in the normal, customary 
commercial channel for the customers involved. Moreover, Filati asserts 
that the selling activities of its U.S. affiliate were well within the 
range of activities that the Department has previously found to be 
consistent with EP sales.
    Filati notes that the cases cited by the petitioner are 
distinguishable from the circumstances present in this case, in that 
the U.S. subsidiaries in those cases set the prices of the direct 
sales. According to Filati, the Department confirmed at verification 
that Filati (USA) has no flexibility or authority to set prices or 
other significant terms for direct sales.
DOC Position
    We agree with the petitioner. When sales are made prior to the date 
of importation through an affiliated or unaffiliated entity in the 
United States, the Department uses the following criteria to determine 
whether U.S. sales should be classified as EP sales:
     The merchandise in question is shipped directly from the 
manufacturer to the unaffiliated buyer without being introduced into 
the physical inventory of the selling agent;
     Direct shipment from the manufacturer to the unaffiliated 
buyer is the customary channel for sales of the subject merchandise 
between the parties involved; and
     The selling agent in the United States acts only as a 
processor of sales-related documentation and a communication link with 
the unaffiliated U.S. buyer (i.e., a ``paper-pusher'').
See Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat 
Products from Korea: Final Results of Antidumping Duty Administrative 
Reviews, 62 FR 18404 (Apr. 15, 1997).
    Although the sales in question were made prior to importation and 
were shipped directly to the unaffiliated customer without entering the 
U.S. inventory, we note that the U.S. affiliate did not serve mainly as 
a processor of sales-related documentation and a communications link 
with the buyer. Specifically, Filati stated in its questionnaire 
response that, for all direct sales, its U.S. affiliate makes the 
initial contact with the U.S. customer, negotiates terms of sale, 
contacts Filati to arrange for production and shipment of the container 
to the United States, and issues the final invoice to, and collects 
payment from, the customer. See Filati's February 20, 1997, 
questionnaire response at A-9 and A-10. As noted in the U.S. sales 
verification report at page 5, we found no discrepancies with the 
information reported in Filati's response regarding its sales process.
    Because the extent of the affiliate's activities in the United 
States are significant, we find that the affiliate is not merely a 
paper processor. Accordingly, we have treated these transactions as CEP 
sales for purposes of the final results.
Comment 6: Sales with Zero Prices
    According to the petitioner, the Department should include Filati's 
sales with zero prices in its analysis for purposes of the final 
results. The petitioner states that these transactions are actual sales 
because: (1) The parties negotiated a price; and (2) Filati transferred 
title to the product to the customer. The petitioner asserts that 
Filati's decision to give a full rebate to the customer after the terms 
of sale were set does not negate the fact that a sale occurred.
    Filati contends that the Department correctly excluded the 
transactions in question from its analysis in the preliminary results. 
According to Filati, the concurrence memorandum cited by the petitioner 
predates the Department's current policy in this area, which was set in 
response to a decision by the Court of Appeals for the Federal Circuit 
(CAFC). See NSK v. United States 115 F.3d 965, 975 (CAFC 1997) (NSK). 
Specifically, Filati notes that the court held in NSK that the 
existence of consideration (i.e., a bargained-for exchange) is the 
determinative factor, absent which there can be no sale. According to 
Filati, because there was no consideration for the transactions in 
question, the Department cannot treat them as sales.
DOC Position
    We agree with Filati. At verification, we found that Filati shipped 
the merchandise in question, but then issued a refund to its customers 
after being informed that the merchandise was damaged and could not be 
used. See the Filati U.S. sales verification report from David Genovese 
and Irina Itkin, dated August 1, 1997, at page 2. The fact that Filati 
initially negotiated a price for these transactions is not relevant, 
because the sales were, in effect, canceled due to quality problems 
with the merchandise. Consequently, we find that these transactions 
were not sales, and we have excluded them from our analysis for 
purposes of the final results.
Comment 7: U.S. Commissions to Company Employees
    The petitioner argues that the Department should treat Filati's 
commission payments to its U.S. sales agent as a direct selling 
expense, in accordance with its current practice.

[[Page 12760]]

    According to Filati, the commissions in question are not 
commissions per se. Rather, Filati maintains that these payments are 
part of the compensation provided to its U.S. salesperson and, as such, 
were properly reported as indirect selling expenses. Moreover, Filati 
asserts that these commissions are paid periodically and are not 
related directly to specific sales; thus, Filati argues that, by 
definition, they cannot be direct selling expenses. Filati asserts that 
the Department should continue to treat these commissions as U.S. 
indirect selling expenses for purposes of the final results.
DOC Position
    We agree with Filati. At verification, we confirmed that the 
expenses in question were not commissions per se, but rather were part 
of the salary paid to a company employee and were not directly related 
to specific sales. Consequently, we find that these expenses were 
properly reported in Filati's U.S. indirect selling expenses and we 
have continued to treat them as such for purposes of the final results.
Comment 8: Calculation of Inventory Carrying Costs
    The petitioner contends that Filati incorrectly calculated 
inventory carrying costs on the basis of gross unit price, rather than 
COM. The petitioner asserts that the Department should recalculate 
inventory carrying costs using COM, in accordance with its standard 
practice.
    According to Filati, the Department instructed it to calculate its 
inventory carrying costs using gross unit price. Filati asserts that 
use of gross unit price is appropriate because the opportunity cost of 
carrying inventory is related to the price that a company receives, not 
the costs that it incurs.
DOC Position
    We agree with the petitioner. It is the Department's practice to 
calculate inventory carrying costs based on COM. See, e.g., Final 
Determination of Sales at Less than Fair Value: Canned Pineapple Fruit 
from Thailand, 60 FR 29553 (June 5, 1995) and Certain Corrosion-
Resistant Carbon Steel Flat Products from Australia; Final Results of 
Antidumping Duty Administrative Reviews, 61 FR 14049 (March 29, 1996). 
We note that companies generally value the cost of their finished goods 
inventory using the costs incurred to manufacture their products, 
rather than the value of future sales. Therefore, we recalculated 
inventory carrying costs using COM for purposes of the final results.
Comment 9: Double-Counting of Indirect Selling Expenses
    The petitioner argues that the Department may have double-counted 
the deduction for Filati's home market indirect selling expenses, in 
that the Department used home market indirect selling expenses to 
offset both U.S. commissions and the indirect selling expenses of 
Filati's U.S. subsidiary.
    According to Filati, the Department did not double-count indirect 
selling expenses because the Department denied Filati a CEP offset for 
purposes of the preliminary results. Consequently, Filati asserts that 
the Department did not use home market indirect selling expenses to 
offset the expenses of Filati's U.S. subsidiary.
DOC Position
    We agree with Filati. We used Filati's home market indirect selling 
expenses only to offset the company's U.S. commissions. Accordingly, we 
have not double-counted these expenses for purposes of the final 
results.
Comment 10: Treatment of Uncollected Duties In Price-to-CV Comparisons
    During the POR, the government of Malaysia allowed Filati to import 
rubber thread inputs duty free; however, when Filati sold extruded 
rubber thread in the home market, the government charged it a duty 
equal to three percent of the sales price. In the preliminary results, 
the Department treated these amounts as uncollected import duties and 
added them to the U.S. starting price for purposes of price-to-price 
comparisons. Filati argues that the Department should also have added 
an amount for uncollected import duties to the starting price for 
purposes of price-to-CV comparisons. Filati states that the statute 
requires such an adjustment regardless of whether normal value is based 
upon price or CV. See 19 U.S.C. 1677a(c)(1)(B).
DOC Position
    We agree. Section 772(c)(1)(B) of the Act directs the Department to 
increase CEP by the amount of any import duties imposed by the country 
of exportation which have been rebated, or which have not been 
collected, by reason of exportation of the subject merchandise to the 
United States. Because these duties have not been collected by reason 
of exportation of the subject merchandise, we have added them to CEP 
for all comparisons for purposes of the final results.
Comment 11: Inclusion of Uncollected Duties in COP
    According to Filati, the Department should not add the uncollected 
duties referenced in Comment 10 above to COP because they are not 
recorded as raw materials costs in Filati's accounting system. Filati 
notes that both 19 U.S.C. 1677b(b)(3) and the SAA at 834 require 
respondents to base their reported production costs on the actual costs 
recorded in their normal accounting records.
    However, Filati contends that, if the Department finds that the 
duties at issue should be included in COP, the Department should apply 
the duty percentage to raw material costs only.
DOC Position
    We disagree that we should not add the uncollected duties to COP. 
Section 773(f)(1)(A) of the Act requires the Department to depart from 
the records of the producer if: (1) Those records are not in accordance 
with the general accepted accounting principles (GAAP) of the exporting 
country; and (2) such costs do not reasonably reflect the costs 
associated with the production and sale of the merchandise. In this 
case, we acknowledge that Filati's treatment of these duties is in 
accordance with Malaysian GAAP. However, we find that this treatment is 
contrary to the requirements of section 773(f)(1)(A) of the Act, as it 
does not reasonably reflect Filati's cost of production. Specifically, 
we find that, because the amounts in question are charged by the 
Malaysian government in place of import duties on raw materials, they 
appropriately form part of Filati's cost of production. Accordingly, we 
have included these duties in the calculation of COP and CV.
    We also disagree that we should apply the three percent duty to 
Filati's raw materials costs. Because these duties are assessed as a 
percentage of home market price, we have continued to calculate them in 
this manner. To do otherwise would result in our not capturing the full 
amount of the duty, which would consequently understate the amount of 
duty included in COP and CV.
Comment 12: Selection of Cost Response
    Filati argues that the Department should use the COPs and CVs that 
it reported in its original section D response, rather than the costs 
reported in the supplemental response. Filati argues that, in its 
original response, it calculated the cost of manufacture for COP and CV 
based on a methodology that follows its normal standard cost accounting 
system and applies actual

[[Page 12761]]

inputs from its normal books and records. Filati argues it demonstrated 
at verification that the reported costs using this methodology 
reconcile to the actual costs used by Filati; that the reported costs 
were in accordance with applicable accounting norms; and that these 
costs reasonably reflect the cost of producing the merchandise. Filati 
asserts that the Department's normal practice is to accept a cost 
methodology when it is from the company's normal records, consistent 
with accounting norms, and is not proven to be distortive. Filati also 
argues that its original method is reasonable, as demonstrated by the 
small variance between its actual and standard costs.
DOC Position
    We disagree. Section 773(f)(1)(A) of the Act states that costs 
shall normally be calculated based on the records of the exporter or 
producer of the merchandise. Contrary to Filati's assertion, the costs 
reported in the company's original section D response were not those 
reflected in its normal cost accounting system. In its normal records, 
Filati records per-unit costs using a standard cost system and derives 
actual costs by applying cost variances. In its original response, 
Filati derived new per-unit costs by applying to its financial 
accounting data a new actual cost methodology. Although the data that 
Filati used in the original response were from its financial accounting 
system, the per-unit amounts were reallocated to obtain per-unit costs 
that differed from the per-unit costs in its normal accounting system. 
Filati developed new COPs and CVs specifically to respond to the 
Department's questionnaire.
    We find unpersuasive Filati's argument that its alternative costing 
method is reasonable. The Department normally relies on the records of 
the producer if they are in accordance with the GAAP of the exporting 
country and reasonably reflect the costs associated with the production 
and sale of the merchandise. Filati's standard cost system is 
acceptable under Malaysian GAAP and produces per-unit costs that 
reasonably reflect the costs associated with the production and sale of 
the merchandise.
    In a supplemental questionnaire, we directed Filati to resubmit its 
per-unit COPs and CVs based on the standard cost system it uses in the 
normal course of business. Filati complied with this request. 
Therefore, we used the costs and variances from Filati's standard cost 
system for purposes of the final results.
Comment 13: Offset to Financial Expenses
    Filati argues that the Department should allow the total amount of 
consolidated interest income as an offset to consolidated interest 
expense in the calculation of its financial expense ratio. According to 
Filati, the company demonstrated at verification that all of the 
interest income in question was from short-term investments.
DOC Position
    We agree. The audited consolidated financial statements show that 
the interest income was generated from current assets. Therefore, we 
have allowed the full amount of interest income as an offset to 
interest expense.
Comment 14: Unreported Costs
    The petitioner claims that Filati failed to report cost information 
for one second-quality, and several first-quality, products. According 
to the petitioner, the Department should assign costs to these products 
based on adverse facts available. The petitioner maintains that to do 
otherwise would reward Filati for its failure to report costs for the 
products in question.
    Filati maintains that it reported cost data for all products sold 
during the POR, pursuant to the Department's instructions. 
Specifically, Filati notes that it reported a single cost for each 
unique product, regardless of whether the product was sold as first- or 
second-quality merchandise. Filati asserts that it was not necessary to 
report a separate cost for first- and second-quality production of a 
given product in its COP and CV databases because the Department 
assigns the same cost to both. According to Filati, the Department 
should continue to use the costs of first- and second-quality products 
interchangeably in cases where the cost for one or the other quality 
was not explicitly identified in its databases.
DOC Position
    We agree with Filati. The costs that the petitioner alleges that 
Filati withheld are on the record of this proceeding. Since the per-
unit cost of a product is the same whether it is of first- or second-
quality, using the cost of one as a replacement for the other will not 
affect our analysis. Therefore, we have made no adverse inference with 
respect to the products in question for purposes of the final results.
Comment 15: G&A Expenses of Filati's Parent Company
    According to the petitioner, the Department should include the G&A 
expenses of MYCOM, Filati's parent company, in the calculation of 
Filati's CV. The petitioner notes that MYCOM provides management 
services to Filati.
    According to Filati, its reported G&A expenses include all expenses 
associated with the services provided by MYCOM. Filati contends that 
there is no basis for including any other portion of MYCOM's expenses 
in G&A, because these expenses relate to activities not associated with 
the production or sale of extruded rubber thread.
DOC Position
    We agree with the respondent. Filati included in its G&A expense 
calculation the amount its parent charges Filati for the services the 
parent provides. We reviewed this calculation at verification and found 
it to be reflective of the cost incurred for the types of services that 
MYCOM performed and the overall structure of the group companies 
involved. Therefore, we have made no adjustment to Filati's G&A rate 
calculation for additional MYCOM expenses.

B. Heveafil

Comment 16: Selection of Facts Available Rate for Heveafil
    Heveafil argues that the Department should assign it a dumping rate 
based on non-adverse facts available. Heveafil asserts that the 
Department may only assign a dumping rate using adverse facts available 
when it is unable to verify submitted data and the respondent ``failed 
to cooperate by not acting to the best of its ability.'' According to 
Heveafil, it cooperated to the best of its ability in this review by 
submitting complete questionnaire responses and successfully verifying 
its U.S. and home market sales data. Regarding the verification of its 
cost data, Heveafil states that, although certain records were 
inadvertently purged from its computer system, it acted to the best of 
its ability to cooperate.
    Specifically, Heveafil notes that it used its bills of materials 
(BOMs) to calculate the product-specific costs reported to the 
Department. Heveafil asserts that the database containing its BOMs was 
purged from its computer system after it was transmitted to the 
company's computer consultants for purposes of preparing a supplemental 
questionnaire response. Heveafil asserts that it assumed that the 
Department would consider the consultant's copy as an original source 
document. According to Heveafil, while this misunderstanding was 
unfortunate, it cannot be viewed as a failure to cooperate or an 
attempt to control

[[Page 12762]]

verification. In any event, Heveafil contends that it did not 
``destroy'' its BOMs database, as suggested by the Department's cost 
verification report, because the database existed in the form of the 
consultant's copy. Heveafil suggests that the Department should have 
used this database to relate the reported costs to its production 
records, even if the copy was considered to be only a worksheet.
    Heveafil states that the Department should assess Heveafil's level 
of cooperation in relation to its ability. In doing so, Heveafil claims 
that the Department should consider that many of its employees during 
this review were new to the company and did not have the experience in 
antidumping reviews and verifications gained by many former employees.
    Moreover, Heveafil argues that it did not stand to benefit from 
withholding its BOMs. Heveafil states that it requested to participate 
in this review because it expected an assessment rate of less than its 
cash deposit rate of 7.88 percent. Therefore, Heveafil maintains that 
it was clearly in its interest to provide all data necessary to the 
successful completion of the review.
    According to Heveafil, in the event that the Department uses 
adverse facts available in this case, it should not assign Heveafil the 
highest rate ever calculated for any respondent (i.e., 54.31 percent 
for Rubfil in the third review). Rather, Heveafil argues that the 
Department should assign it the highest rate it has received in a prior 
segment of the proceeding, consistent with the Department's treatment 
of Rubberflex in the third review. According to Heveafil, the 
Department assigned it the same rate as a company that did not 
cooperate at all in this review, while Heveafil submitted responses to 
all questionnaires, passed its sales verifications, and verified parts 
of the cost response. Heveafil argues that this arbitrary practice 
would not encourage cooperation from a respondent interested in 
participating in an administrative review because inadvertent errors 
might negate all efforts to cooperate. Heveafil cites to Gray Portland 
Cement and Clinker from Mexico; Final Results of Antidumping Duty 
Administrative Review, 62 FR 17581, 17588 (April 10, 1997) and Final 
Affirmative Countervailing Duty Determination: Certain Pasta from 
Italy, 61 FR 30288, 30306 (June 14, 1996) as cases where the Department 
has stated that the primary purpose for using adverse inferences is to 
encourage future respondent cooperation.
    Heveafil cites to Elemental Sulphur from Canada: Preliminary 
Results of Antidumping Duty Administrative Review, 62 FR 969, 970 (Jan. 
7, 1997) (Sulphur), Notice of Final Determination of Sales at Less Than 
Fair Value: Certain Pasta from Turkey, 61 FR 30309, 30310 (June 14, 
1996) (Pasta), and Chrome-Plated Lug Nuts from Taiwan; Final Results of 
Antidumping Duty Administrative Review and Termination in Part, 61 FR 
58372, 58373 (Nov. 14, 1996) (Lug Nuts) as cases where the Department 
has assigned respondents the highest rate ever assigned to any 
respondent in the proceeding only where the respondent deliberately 
misled the Department or refused a direct request for information. 
Heveafil states that, because it did not mislead the Department or 
refuse to provide original information, it would be inappropriate to 
assign it a rate on the same basis as the respondents in Sulphur, 
Pasta, and Lug Nuts.
    In addition, Heveafil argues that Rubfil's dumping rate from the 
third administrative review is not relevant to its own experience 
because: (1) There are significant differences in the companies' sizes 
and consequent price and cost structures; and (2) Rubfil's margin is 
approximately 45 percentage points above the highest margin ever 
received by Heveafil. Heveafil contends that there is no evidence in 
either its questionnaire responses or the Department's verification 
reports to suggest that its prices and costs have increased so 
drastically as to increase its dumping rate five times.
    Finally, Heveafil notes that Rubfil has appealed the Department's 
final results of the third review to the CIT. Heveafil maintains that, 
until the issues raised in that proceeding are resolved, Rubfil's 
dumping rate is not reliable.
DOC Position
    We disagree with Heveafil's argument that the Department should 
apply non-adverse facts available for the final results. Heveafil 
attributes its failure of the cost verification simply to a 
misunderstanding concerning the availability of its BOMs database. 
However, the purging of the BOMs database was just one factor which 
contributed to Heveafil's failed verification. In addition to purging 
its computer system of the BOMs, Heveafil was unable to provide hard 
copies of its BOMs during the POR. Thus, there was no reliable way to 
test the veracity of the computer consultant's copy of the computer 
database.
    At verification, we afforded Heveafil the opportunity to tie its 
reported cost data to its accounting system using source documents 
other than the BOMs. Specifically, on the first day of verification we 
requested the company's 1996 ``Budgeting Report'' which, according to 
the section D response, was the basis for the reported cost data. 
However, company officials indicated that they were unable to locate 
this document in its entirety. Moreover, when we attempted to reconcile 
the costs shown in the portion provided at verification, we were unable 
to do so in a number of instances. Similarly, we were unable to 
reconcile the costs for the products missing from the Budgeting Report 
to Heveafil's inventory records. For these reasons, we have determined 
that Heveafil did not cooperate to the best of its ability in verifying 
its reported cost data. See Heveafil cost verification report for 
further discussion.
    It is true that the Department considers a respondent's ability to 
cooperate in determining whether or not it has cooperated to the best 
of its ability. See, e.g., 1994-1995 AFBs Reviews. As stated in the 
1994-1995 AFBs Reviews, the Department considers the experience of the 
respondent in antidumping duty proceedings, whether the respondent was 
in control of the data the Department was unable to verify, and the 
extent to which the respondent might have benefitted from its own lack 
of cooperation.
    This is the fourth review of the antidumping duty order on extruded 
rubber thread from Malaysia. Heveafil has participated in each of the 
prior reviews, as well as the original less than fair value (LTFV) 
investigation. Although some of its accounting staff was inexperienced 
at the time of verification, we cannot conclude that the company as a 
whole was so inexperienced as to be unaware of the necessity of 
retaining key source documents for verification purposes.
    Moreover, we note that Heveafil generated the relevant source 
documents in the ordinary course of business. Therefore, we find that 
it maintained exclusive control of the documents necessary to prepare 
its response and conduct verification.
    We disagree with Heveafil's assertion that it did not stand to 
benefit from withholding source documents. Absent reliable data, we 
cannot accurately determine Heveafil's actual dumping liability during 
the POR. We find Heveafil's assertion that it expected to receive a 
significantly lower rate to be meaningless, because it is based not 
only on speculation but also on unverifiable data.
    We disagree with Heveafil that we should not assign, as adverse 
facts available, the highest rate calculated for

[[Page 12763]]

Rubfil in a prior segment of this proceeding. In arguing against the 
application of the highest rate calculated for any respondent in any 
review, Heveafil attempts to distinguish its degree of cooperation with 
the degree of cooperation exhibited by respondents in Sulphur, Pasta, 
and Lug Nuts. However, in each of those cases, the underlying reason 
for using the highest rate as adverse facts available was that the 
information submitted by the respondents was rendered unusable because 
it could not be verified. The Department's practice has been to reject 
a respondent's submitted information in toto when flawed and 
unverifiable cost data renders all price-to-price comparisons 
impossible. See Notice of Final Determination of Sales at Less Than 
Fair Value: Grain-Oriented Electrical Steel from Italy, 59 FR 33952, 
33953-54 (July 1, 1994).
    We also disagree with Heveafil's argument that Rubfil's rate from 
the third review is neither relevant nor reliable. Regardless of 
Rubfil's size relative to Heveafil, we find that its calculated rate 
reflects the business practices occurring in the rubber thread 
industry. Unlike in Fresh Cut Flowers, there is no evidence on the 
record of this review which indicates that Rubfil's calculated rate was 
based on an uncharacteristic business practice. Furthermore, the CIT 
has not yet ruled on the matter of Rubfil's appeal. Therefore, absent 
evidence to the contrary, we find that its rate is reliable and has 
probative value.
    We have considered Heveafil's argument that our selection of an 
adverse facts available rate in this review is not consistent with our 
treatment of Rubberflex in the third review. However, as stated in the 
1994-1995 AFBs Reviews, as adverse facts available, we must apply a 
rate sufficiently adverse so as to encourage cooperation from 
respondents in future reviews. The intent of using an adverse inference 
is to encourage successful verifications and to elicit the accurate 
reporting of sales and cost data in future segments of the proceeding. 
In this case, we find that the use of the highest rate ever calculated 
for Heveafil of 10.68 percent would not achieve this purpose.
Comment 17: Duty Reimbursement
    The petitioner argues that Heveafil's dumping duties should be 
doubled, in accordance with the Department's regulations, because 
Heveafil is, in effect, paying the dumping duties itself. Specifically, 
the petitioner notes that Heveafil's U.S. affiliate is not a separate 
entity, but, instead, is a branch of Heveafil. According to the 
petitioner, this branch is the importer of record for the subject 
merchandise and, consequently, is obligated to pay Heveafil's 
antidumping duties. Thus, the petitioner asserts that reimbursement has 
occurred.
    According to Heveafil, the Department should not double its dumping 
duties because the criteria under 19 CFR 353.26(a)(1) which would allow 
it to do so have not been met. Specifically, Heveafil asserts that it 
has neither paid antidumping duties on behalf of the importer nor 
reimbursed the importer for these duties, because it, through its U.S. 
branch, is itself the importer of record for all imports of subject 
merchandise.
    According to Heveafil, the Department faced a similar situation in 
Circular Welded Non-Alloy Steel Pipe and Tube from Mexico: Preliminary 
Results of Antidumping Duty Administrative Review and Partial 
Termination of Review, 62 FR 64564 (Dec. 8, 1997). In that case, the 
Department concluded that both the importer and exporter were one 
entity; consequently, there could be no payment to, or on behalf of, 
the importer within the meaning of the Department's regulations.
    Furthermore, Heveafil asserts that, even it the requirements of 19 
CFR 353.26 were to be met in this case, the remedy (i.e., reducing CEP 
by the amount of the dumping duties) could not be applied because the 
Department assigned Heveafil a dumping rate using facts available.
DOC Position
    We agree with Heveafil. The imposition of antidumping duties is 
intended to provide relief to U.S. industries injured by unfair trade 
practices of foreign competitors. In effect, the imposition of 
antidumping duties raises the price of subject merchandise to 
importers, thereby providing a level playing field upon which injured 
U.S. industries can compete. The remedial effect of the law is 
defeated, however, where exporters themselves pay antidumping duties, 
or reimburse importers for such duties. To ensure that the remedial 
effect of the law is not undermined, the Department has authority to 
reduce the U.S. starting price (used to determine dumping) by the 
amount of any duty paid, or reimbursed, by the producer or reseller, 
thereby increasing the amount of the duty ultimately collected.
    Reimbursement takes place between affiliated parties if the 
evidence demonstrates that the exporter directly pays antidumping 
duties for the affiliated importer or reimburses the importer for such 
duties. See 19 CFR 353.26; Color Television Receivers from the Republic 
of Korea; Final Results of Antidumping Duty Administrative Reviews, 61 
FR 4408 (Feb. 6, 1996); Brass Sheet and Strip from the Netherlands; 
Final Results of Antidumping Duty Administrative Reviews, 57 FR 9534, 
9537 (Mar. 19, 1992); and Brass Sheet and Strip from Sweden; Final 
Results of Antidumping Duty Administrative Review, 57 FR 2706, 2708 
(Jan. 23, 1992).
    While we note the petitioner's argument regarding the corporate 
relationship between Heveafil and its U.S. branch, it is the 
Department's practice to treat affiliated parties as separate entities 
when examining the question of reimbursement. See Final Results of 
Antidumping Duty Administrative Review: Circular Welded Non-Alloy Steel 
Pipe from Korea, 62 FR 55574 (Oct. 27, 1997). In this case, there is no 
evidence of inappropriate financial intermingling or of an agreement to 
reimburse antidumping duties between Heveafil and its U.S. branch. 
Therefore, the Department has no reason to require payment of twice the 
amount of any dumping duties owed.
    Finally, we have considered Heveafil's argument that the Department 
is unable to double dumping duties in a facts available situation. 
Since there is no evidence which would require such a determination, 
this argument is moot.

Final Results of Review

    As a result of comments received we have revised our preliminary 
results and determine that the following margins exist for the period 
October 1, 1995, through September 30, 1996:

------------------------------------------------------------------------
                                                              Percent   
                  Manufacturer/exporter                       margin    
------------------------------------------------------------------------
Filati Lastex Elastofibre (Malaysia)....................           52.89
Heveafil Sdn. Bhd./Filmax Sdn. Bhd......................           54.31
Rubberflex Sdn. Bhd.....................................            3.75
Rubfil Sdn. Bhd.........................................           54.31
------------------------------------------------------------------------

    The Department shall determine, and the Customs service shall 
assess, antidumping duties on all appropriate entries. Individual 
differences between CEP and NV may vary from the percentages stated 
above. We have calculated an importer-specific assessment rate based on 
the ratio of the total amount of antidumping duties calculated for the 
examined sales made during the POR to the total value of subject 
merchandise entered during the POR. This rate will be assessed 
uniformly on all entries of that

[[Page 12764]]

particular importer made during the POR. The Department will issue 
appraisement instructions directly to the U.S. Customs Service.
    Further, the following deposit requirements will be effective for 
all shipments of extruded rubber thread from Malaysia entered, or 
withdrawn from warehouse, for consumption on or after the publication 
date of the final results of this administrative review, as provided 
for by section 751(a)(1) of the Act: (1) The cash deposit rates for the 
reviewed companies will be the rates for those firms as stated above 
(except that for Heveafil the cash deposit rate will be reduced by 0.90 
percent, the current cash deposit rate attributable to export 
subsidies); (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 this review, or the LTFV investigation, but the manufacturer 
is, the cash deposit rate will be the rate established for the most 
recent period for the manufacturer of the merchandise; and (4) the cash 
deposit rate for all other manufacturers or exporters will continue to 
be 15.16 percent, the all others rate established in the LTFV 
investigation.
    These deposit requirements, when imposed, shall remain in effect 
until publication of the final results of the next administrative 
review.
    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 the only 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)), section 777(i) of 
the Act (19 U.S.C. 1677f(i)), and 19 CFR 353.22.

    Dated: March 9, 1998.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 98-6715 Filed 3-13-98; 8:45 am]
BILLING CODE 3510-DS-P