[Federal Register Volume 63, Number 204 (Thursday, October 22, 1998)]
[Notices]
[Pages 56613-56623]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28393]


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DEPARTMENT OF COMMERCE

International Trade Administration
[A-337-804]


Notice of Final Determination of Sales at Less Than Fair Value: 
Certain Preserved Mushrooms from Chile

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

EFFECTIVE DATE: October 22, 1998.

FOR FURTHER INFORMATION CONTACT: David J. Goldberger or Katherine 
Johnson, Import Administration, International Trade Administration, 
U.S. Department of Commerce, 14th Street and Constitution Avenue, N.W., 
Washington, D.C. 20230; telephone: (202) 482-4136 or (202) 482-4929, 
respectively.

The Applicable Statute:

    Unless otherwise indicated, all citations to the Tariff Act of 
1930, as amended (``the Act''), are references to the provisions 
effective January 1, 1995, the effective date of the amendments made to 
the Act by the Uruguay Round Agreements Act (``URAA''). In addition, 
unless otherwise indicated, all citations to the Department of Commerce 
(``Department'') regulations are to the regulations at 19 CFR Part 351, 
62 FR 27296, May 19, 1997.

Final Determination:

    We determine that certain preserved mushrooms (``mushrooms'') from 
Chile are being sold in the United States at less than fair value 
(``LTFV''), as provided in section 735 of the Act. The estimated 
margins are shown in the ``Suspension of Liquidation'' section of this 
notice.

Case History

    Since the preliminary determination (Preliminary Determination of 
Sales at Less Than Fair Value: Certain Preserved Mushrooms from Chile, 
63 FR 41786, August 5, 1998), the following events have occurred:
    The respondent, Nature's Farm Products (NFP) submitted revisions 
and corrections to its questionnaire responses during July and August 
1998.
    During August 1998, we conducted verification of NFP's responses to 
the antidumping questionnaire. Following verification, we requested NFP 
to submit revised sales and cost of production data bases, which NFP 
submitted on September 2, 1998. On September 1, 1998, we issued our 
verification report (see Memorandum for the File dated September 1, 
1998 (``Verification Report'')).
    The petitioners and NFP submitted case briefs on September 9, 1998. 
On September 10, 1998, the petitioners withdrew their request for a 
public hearing. Both parties submitted rebuttal briefs on September 15, 
1998.

Scope of Investigation

    For purposes of this investigation, the products covered are 
certain preserved mushrooms whether imported whole, sliced, diced, or 
as stems and pieces. The preserved mushrooms covered under this 
investigation are the species Agaricus bisporus and Agaricus bitorquis. 
``Preserved mushrooms'' refer to mushrooms that have been prepared or 
preserved by cleaning, blanching, and sometimes slicing or cutting. 
These mushrooms are then packed and heated in containers including but 
not limited to cans or glass jars in a suitable liquid medium, 
including but not limited to water, brine, butter or butter sauce. 
Preserved mushrooms may be imported whole, sliced, diced, or as stems 
and pieces. Included within the scope of the investigation are 
``brined'' mushrooms, which are presalted and packed in a heavy salt 
solution to provisionally preserve them for further processing.
    Excluded from the scope of this investigation are the following: 
(1) All other species of mushroom, including straw mushrooms; (2) all 
fresh and chilled mushrooms, including

[[Page 56614]]

``refrigerated'' or ``quick blanched mushrooms''; (3) dried mushrooms; 
(4) frozen mushrooms; and (5) ``marinated,'' ``acidified'' or 
``pickled'' mushrooms, which are prepared or preserved by means of 
vinegar or acetic acid, but may contain oil or other additives.
    The merchandise subject to this investigation is classifiable under 
subheadings 2003.10.27, 2003.10.31, 2003.10.37, 2003.10.43, 2003.10.47, 
2003.10.53, and 0711.90.4000 of the Harmonized Tariff Schedule of the 
United States (``HTS''). Although the HTS subheadings are provided for 
convenience and Customs purposes, the written description of the 
merchandise under investigation is dispositive.

Period of Investigation

    The period of investigation (``POI'') is January 1, 1997, through 
December 31, 1997.

Product Comparisons

    In accordance with section 771(16) of the Act, we considered all 
products produced by NFP covered by the description in the ``Scope of 
Investigation'' section, above, and sold to Brazil during the POI to be 
foreign like products for purposes of determining appropriate product 
comparisons to U.S. sales. As discussed below, we determined that there 
were no comparable third country sales in the ordinary course of trade 
during the POI. Therefore, we compared U.S. sales to constructed value 
( ``CV''), as described below.

Fair Value Comparisons

    To determine whether sales of mushrooms from Chile to the United 
States were made at less than fair value, we compared constructed 
export price (``CEP'') to the Normal Value (``NV''), as described in 
the ``Constructed Export Price'' and ``Normal Value'' sections of this 
notice, below. In accordance with section 777A(d)(1)(A)(i) of the Act, 
we calculated weighted-average CEPs for comparison to weighted-average 
NVs.

Level of Trade

    In the preliminary determination, we compared all U.S. sales to CV. 
Because we were unable to determine whether there is a difference in 
level of trade between any U.S. sales and CV, we did not apply a LOT 
adjustment or CEP offset to NV. No party to this investigation 
commented on this determination, and we have continued to compare all 
U.S. sales to CV for this final determination. Therefore, we have not 
made a LOT adjustment or CEP offset in this final determination.

Constructed Export Price

    We calculated CEP, in accordance with subsection 772(b) of the Act, 
because sales to the first unaffiliated purchaser took place after 
importation into the United States.
    We calculated CEP based on the same methodology used in the 
preliminary determination, with the following exceptions:
    Based on information discovered at verification, we made additions 
to CEP for repacking charges billed to customers on certain sales, and 
deductions to CEP for unreported repacking expenses, bank fees, and 
additional discounts (see Comment 8).
    We revised the calculation of indirect selling expenses incurred by 
NFP/USA in the United States to reclassify a portion of these expenses, 
incurred in support of NFP's production activities in Chile, to COP and 
CV general and administrative expenses (see Cost Calculation Memorandum 
to Neal Halper from Michael Martin dated October 13, 1998 (``Cost 
Calculation Memo'')).
    We made corrections to specific transactions examined at 
verification to revise warehouse-to-customer freight expense to reflect 
an actual expense of zero on one sale, and to reallocate the expense on 
a mixed shipment of subject and nonsubject merchandise in the shipment 
on another sale. We also eliminated the double-counting of U.S. 
warehousing expenses on one U.S. sale.

Normal Value

    After testing (1) home market and third country viability as 
discussed below, and (2) whether third country sales were at below-cost 
prices, we calculated NV as noted in the ``Price-to-CV Comparisons'' 
section of this notice.

1. Home and Third Country Market Viability

    As discussed in the preliminary determination, we examined whether 
there is a sufficient volume of sales in the home market to serve as a 
viable basis for calculating NV, in accordance with section 
773(a)(1)(C) of the Act. We verified that NFP's aggregate volume of POI 
home market sales of the foreign like product was less than five 
percent of its aggregate volume for POI U.S. sales for the subject 
merchandise; and therefore, the home market was not viable for NFP. We 
also verified that Brazil, NFP's largest third country market, was 
viable in accordance with section 773(a)(1)(B)(ii) of the Act (see 
Comment 12). Therefore, in accordance with section 773(a)(1)(C) of the 
Act, we determined that Brazil is the appropriate third country market 
for calculating NV.

2. Cost of Production Analysis

    As discussed in the preliminary determination, we conducted an 
investigation to determine whether NFP made sales of the foreign like 
product in the third country during the POI at prices below their cost 
of production (``COP''). In accordance with section 773(b)(3) of the 
Act, we calculated the weighted average COP, by model, based on the sum 
of NFP's cost of materials, fabrication, and general expenses. We 
relied on the submitted COPs except in the following specific instances 
where the submitted costs were not appropriately quantified or valued. 
For a more complete discussion, see Cost Calculation Memo. The 
following is a summary of the adjustments made to NFP's reported costs:
Financial Statement Disclosures
    To account for each discrepancy between an account balance and the 
underlying asset or liability, we applied non-adverse facts available. 
In identifying the appropriate facts available on the record from which 
to make our adjustments, we used data reported in NFP's 1996 and 1997 
financial statements (see Comment 2, Comment 6, and Comment 10).
Monetary Correction
    We included a portion of the monetary correction amounts reflected 
in NFP's 1997 financial statements. Specifically, we (1) included 
depreciation expense calculated on revalued asset values; (2) included 
exchange gains and losses on current assets and liabilities; (3) 
included a portion of the exchange gains and losses on long-term debt; 
and (4) excluded gains and losses on non-monetary assets and 
liabilities. Chilean Generally Accepted Accounting Principles 
(``GAAP'') appears to treat each of these items as part of the overall 
monetary correction adjustment (see Comment 9).
Allocation of Costs
    Consistent with the preliminary determination, we continued to 
allocate mushroom growing costs between fresh and preserved mushrooms 
based on the weight, in kilograms, of fresh mushrooms initially picked 
for either fresh or preserved mushrooms. Additionally, we continued to 
allocate mushroom costs entering the cannery (growing costs and harvest 
costs for preserved mushrooms, except for mushroom picking labor) 
between individual products based on the

[[Page 56615]]

weight, in kilograms, of output (see Comment 5).
General and Administrative Expense (``G&A'')
    We calculated a company-wide G&A rate by dividing the total G&A 
expense (inclusive of expenses paid for by NFP/USA, as noted above) by 
the total manufacturing cost.
Interest Expense
    We calculated a net financial expense amount and divided it by the 
total manufacturing costs. In calculating the net financial expense, we 
excluded from the interest expense several financial income and expense 
items that related to prior periods (see Cost Calculation Memo).

3. Test of Third Country Sales Prices

    As in our preliminary determination, we compared the weighted-
average COP for NFP, adjusted where appropriate, to third country sales 
of the foreign like product as required under section 773(b) of the 
Act. In determining whether to disregard third country market sales 
made at prices less than the COP, we examined whether (1) within an 
extended period of time, such sales were made in substantial 
quantities, and (2) such sales were made at prices which permitted the 
recovery of all costs within a reasonable period of time. On a product-
specific basis, we compared the COP to the third country market prices, 
less any applicable movement charges, and direct and indirect selling 
expenses.

4. Results of the COP Test

    Pursuant to section 773(b)(2)(C) of the Act, where less than 20 
percent of 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 during the POI were at prices less than the 
COP, we determined such sales to have been made in ``substantial 
quantities'' within an extended period of time in accordance with 
section 773(b)(2)(B) of the Act. 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 all of NFP's Brazilian sales were at prices below the 
COP. Thus, in the absence of any above-cost Brazilian sales, we 
compared CEP to CV in accordance with section 773(a)(4) of the Act.

Calculation of CV

    As in our preliminary determination, we calculated CV based on the 
sum of NFP's cost of materials, fabrication, selling, general, and 
administrative (``SG&A'') expenses, interest, U.S. packing costs, and 
profit, in accordance with section 773(e) of the Act. We made the same 
adjustments to NFP's reported costs for the CV calculation as discussed 
above for the COP calculation.
    Because there were no above-cost Brazilian sales and hence no 
actual company-specific SG&A expenses and profit data available for 
NFP's sales of the foreign like product to Brazil, we calculated these 
amounts in accordance with section 773(e)(2)(B)(iii) of the Act and the 
Statement of Administrative Action Accompanying the URAA, H.R. Doc. 
316, 103d Cong., 2d Sess. (1994) (``SAA''). Section 773(e)(2)(B)(iii) 
of the Act authorizes the Department to determine these amounts using 
any other reasonable method with the appropriate ``profit cap.'' In the 
preliminary determination, we used NFP's actual selling expenses 
incurred in Chile on Brazilian sales. No party to this investigation 
has commented on this determination. Therefore, we have continued to 
use these selling expense amounts in this final determination.
    As in our preliminary determination, we were unable to determine a 
``profit cap'' under alternative (iii) of section 773(e)(2)(B) of the 
Act, because we do not have actual amounts incurred by NFP on sales of 
merchandise in the same general category as the subject merchandise and 
because NFP is the only producer subject to this investigation. 
Accordingly, we again applied the1996 profit margin for Ianasafrut 
S.A., a leading Chilean fruit and vegetable producer as facts available 
under section 773(e)(2)(B)(iii) of the Act, for NFP's CV profit (see 
Comment 11).

Price-to-CV Comparisons

    For price-to-CV comparisons, we made adjustments to CV in 
accordance with section 773(a)(8) of the Act. We deducted from CV the 
amount of indirect selling expenses capped by the amount of the U.S. 
commissions.

Currency Conversion

    As in the preliminary determination, 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, in accordance 
with section 773A of the Act.

Verification

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

Interested Party Comments

Comment 1: Inclusion of Fresh Mushrooms in Scope

    NFP argues that the scope of investigation should include fresh 
mushrooms, frozen mushrooms, dried, marinated, acidified and pickled 
mushrooms, as well as preserved mushrooms. NFP claims that, based on 
the criteria set forth in Diversified Products v. United States, 572 F. 
Supp. 883, 889 (CIT 1993) (``Diversified Products''), i.e., 1) the 
general characteristics of the merchandise; 2) the expectations of the 
ultimate purchaser; 3) the channel of trade in which the products are 
sold; and 4) the ultimate use of the merchandise, there is a 
significant overlap among the types of mushrooms such that they all 
should be considered a single class or kind. Based on this proposed 
scope of the investigation, NFP claims that the petitioners should be 
found to lack standing under section 773a(b)(4) of the Act because they 
do not represent the U.S. industry.
    In support of its scope claim, NFP argues that fresh and preserved 
agaricus bisporus and agaricus bitorquis mushrooms are essentially the 
same but for preservation. NFP contends that fresh and preserved 
mushrooms are interchangeable and compete directly with each other. NFP 
adds that most producers of preserved mushrooms are also producers of 
fresh mushrooms. Moreover, NFP states, fresh and preserved mushrooms 
share the same channels of distribution since its pizza chain, food 
processor, and institutional customers purchase both fresh and 
preserved mushrooms. NFP cites Initiation of Antidumping Duty 
Investigation: Fresh Garlic from the People's Republic of China, 59 FR 
9470, February 28, 1994 (``Garlic''), and Initiation of Antidumping 
Investigation: Freshwater Crawfish Tail Meat from the People's Republic 
of China, 61 FR 54154, October 17, 1996, (``Crawfish'') as analogous 
cases where the scope of

[[Page 56616]]

the investigation included both preserved and fresh products.
    The petitioners respond that it is established Department practice 
that the petition defines the scope of an investigation. Citing Final 
Determination of Sales at Less Than Fair Value: Stainless Steel Wire 
Rod from Japan, 63 FR 40434, July 29, 1998 (``SSWR from Japan''), the 
petitioners state that the Department's authority and role in 
determining whether a product is covered is based on an analysis of the 
express language and intent of the petition. The petitioners continue 
that, in this instance, the petition makes clear that the petitioners 
intended only to include ``preserved'' mushrooms and not fresh 
mushrooms in this investigation. The petitioners also contend that 
NFP's argument based on the Diversified Products criteria is misplaced, 
citing the decision in Minebea Co. Ltd. v. United States, F. Supp. 117 
(CIT 1992) that the Diversified Products analysis is only necessary if 
the petition is ambiguous, which it is not in this case.

DOC Position

    We disagree with NFP that the scope of this investigation should be 
expanded to include fresh and other varieties of mushrooms. As we 
stated in SSWR from Japan, the scope of an investigation is determined, 
in general, by the petition. The petition in this investigation 
expressly excluded:

    (1) all other species of mushrooms [other than preserved 
mushrooms of the Agaricus bisporus and Agaricus bitorquis species] 
including straw mushrooms; (2) all fresh and chilled mushrooms, 
including ``refrigerated'' or ``quick blanched mushrooms''; (3) 
dried mushrooms; (4) frozen mushrooms; and (5) ``marinated,'' 
``acidified,'' or ``pickled'' mushrooms, which are prepared or 
preserved by means of vinegar or acetic acid, but may contain oil or 
other additives. (See January 6, 1998, petition at page 13.)

    Because the scope language in the petition unambiguously excluded 
fresh, frozen, dried, marinated, acidified, and pickled mushrooms, a 
Diversified Products analysis is not warranted. See Minebea Co., Ltd. 
v. United States, 782 F. Supp. 117, 120 (CIT 1992), aff'd on other 
grounds 984 F.2d 1178 (Fed. Cir. 1993); and Final Determination of 
Sales at Less Than Fair Value: Fresh Cut Roses from Colombia, 60 FR 
6980, February 6, 1995 (``Roses from Colombia''). Therefore, in this 
case, we have followed our general practice and defined the scope of 
the investigation consistent with the intent of the petition. See 
Mitsubishi Heavy Indus., Ltd. v. United States, 986 F. Supp. 1428, 
1432-33 (CIT 1997) (upholding the Department's authority to define or 
clarify the scope of the investigation to reflect the intent of the 
petition). Our scope definitions in the Garlic and Crawfish 
investigations are distinguishable from this investigation because the 
petitions in those cases expressly defined the scope to include both 
fresh and other varieties of the same agricultural product.
    Moreover, because we have properly defined the scope of this 
investigation consistent with the intent of the petition, we need not 
revisit the issue of industry support. The Department has already made 
its determination regarding industry support for the merchandise under 
investigation, i.e., certain preserved mushrooms, as specified by the 
petitioners, in its initiation determination (Initiation of Antidumping 
Investigations: Certain Preserved Mushrooms From Chile, India, 
Indonesia, and the People's Republic of China, 63 FR 5360, February 2, 
1998). As clearly expressed in section 732(c)(4)(E) of the Act, after 
the administering authority determines that it is appropriate to 
initiate an investigation, the determination regarding industry support 
shall not be reconsidered. See also Notice of Final Determination of 
Sales at Less Than Fair Value: Fresh Atlantic Salmon From Chile, 63 FR 
31411, June 9, 1998 (``Salmon from Chile'').

Comment 2: Use of Facts Available in Lieu of the Questionnaire Response

    The petitioners argue that NFP's questionnaire responses are 
seriously deficient and unreliable, and, therefore, the Department must 
base the final determination on the facts otherwise available, in 
accordance with section 776(a) of the Act, using the corroborated 
margin in the petition. Specifically, the petitioners cite instances at 
verification where NFP did not provide requested information, or where 
the Department discovered relevant information that was not included in 
NFP's questionnaire responses. The petitioners also point to the 
results of the independent audit of NFP's financial statements for 1996 
and 1997, where the auditors were unable to reconcile NFP's books and 
records with the financial statements and otherwise unable to account 
for significant assets and liabilities. The petitioners assert that the 
verification and audit problems compromise the integrity of the sales 
and COP data bases reported to the Department, warranting the use of 
facts available. Further, the petitioners contend, the use of adverse 
facts available is appropriate because NFP did not act to the best of 
its ability in providing information to the Department, and the 
information on the record cannot be used without undue difficulties.
    NFP responds that the application of total adverse facts available 
is not warranted because NFP has complied fully with the Department's 
requests, its information was verified, its responses are sufficiently 
complete and can be used without undue difficulty, and that NFP has 
acted to the best of its ability to provide the requested information. 
While NFP concedes that it made some errors and inadvertent omissions 
of information, which may require the use of facts available for 
certain specific expense items, NFP states that, in the context of the 
vast amount of data submitted, the errors made were minor and 
immaterial and do not prevent their use for the final determination. 
NFP notes that the verification report indicates that the vast majority 
of information submitted by NFP was accurate and verifiable. With 
regard to the audit of financial statements, NFP states that, as a 
private company, NFP is not obligated to have audited financial 
statements, and that the absence of an audited financial statement does 
not prevent an adequate verification.

DOC Position

    Section 776(a) of the Act authorizes the resort to facts available 
only where necessary information is not available on the record or an 
interested party withholds information, fails to comply with the 
Department's reporting requirements, significantly impedes the 
proceeding, or submits unverifiable information. We have examined NFP's 
submitted information in light of these factors and determined that 
resorting to total facts available is not warranted in this 
investigation. Although we agree with petitioners that NFP's responses 
contain certain deficiencies, as discussed below in various comments, 
we have applied partial facts available, using adverse inferences where 
appropriate, for certain unreported items in its sales data base. This 
application of facts available is consistent with the SAA at 869, which 
authorizes the use of facts available to fill gaps in the record due to 
deficient responses.
    With respect to NFP's submitted cost information, NFP's auditors 
identified three discrepancies in the 1997 draft audit report that 
raise questions as to the proper valuation of certain accounts. 
However, because these discrepancies were specific and quantifiable 
through information in NFP's 1996 and 1997 financial statements, we 
were able to

[[Page 56617]]

make adjustments to the reported costs for the discrepancies. Given the 
proprietary nature of this information, these adjustments are detailed 
in the Cost Calculation Memo. We were also able to reconcile NFP's 
reported costs to its 1997 financial statements (see Verification 
Report at pages 8 through 10). Because we were able to make these 
necessary adjustments to NFP's submitted costs and reconcile NFP's 
reported costs to its financial statements, we do not consider this 
information to be unreliable for use in the final determination.
    Section 782(e) of the Act establishes five conditions that must be 
met before the Department rejects deficient information submitted by a 
respondent. NFP submitted requested information within the established 
deadlines, and substantially cooperated with the Department's 
information requests. We successfully verified most of the information 
in NFP's questionnaire responses, as NFP noted in its rebuttal brief. 
For example, we verified the completeness of NFP's reported U.S. and 
Brazilian sales transactions, as well as the reliability of the cost of 
manufacture, sales price data (except for the items discussed below at 
Comment 8), and SG&A expenses (see Verification Report). For those 
areas where verification of the data was incomplete, or where relevant 
information was discovered at verification, we were able to rely upon 
information obtained in the course of verification, or facts available, 
to make appropriate adjustments to the submitted data. We were able to 
make appropriate adjustments for the identified deficiencies and we 
were able to use the submitted information without undue difficulties. 
For these reasons, we find that NFP's submissions are complete to the 
extent that the data can serve as a reliable basis for reaching our 
final determination. Finally, we are satisfied that, except for certain 
items, NFP has demonstrated that it acted to the best of its ability in 
this investigation and has not otherwise significantly impeded this 
investigation. Therefore, rejection of its responses in their entirety 
is inappropriate based on the facts of this proceeding.

Comment 3: Start-Up Cost Adjustment Claim

    NFP claims that an adjustment should be made to its CV and COP for 
the final determination to account for its use of new production 
facilities and the technical problems associated with the initial phase 
of commercial production, in accordance with section 773(f)(1)(C) of 
the Act. NFP argues that it meets the first condition for the startup 
adjustment, i.e., use of new production facilities or a new product 
that requires substantial additional investment, because its production 
facility, built in 1994, is new, and that the product is new to Chile. 
NFP also claims that it meets the second criterion for the startup 
adjustment, i.e., production levels are limited by technical problems 
associated with the initial phase of commercial production, because it 
encountered technical problems related to three key raw materials which 
has prevented it from reaching commercial production levels as of the 
end of the POI. As part of this claim, NFP asserts that the Department 
should differentiate its startup adjustment analysis between industrial 
and agricultural products. NFP contends that the analysis utilized in 
past cases dealt exclusively with industrial products, while a 
different set of standards must be applied to agricultural products, 
where the time period needed to resolve technical problems is 
significantly longer due to the length of production (i.e., growing) 
cycles.
    The petitioners contend that the Department properly rejected NFP's 
startup adjustment claim in the preliminary determination, based on 
NFP's inability to meet the statutory requirements for this adjustment. 
The petitioners dispute NFP's argument that the adjustment should 
account for the technical problems associated with its operations. The 
petitioners cite the SAA in noting that a company must demonstrate that 
the costs incurred are associated with the initial phase of commercial 
production and not with chronic production problems. According to the 
petitioners, NFP's technical problems and associated costs are not a 
result of the initial costs of purchasing and operating new capital 
equipment and thus there is no basis to allow a startup adjustment.

DOC Position

    We disagree with NFP that a startup adjustment is warranted in this 
case. Section 773(f)(1)(C)(ii) of the Act authorizes adjustments for 
start-up operations ``only where (I) a producer is using new production 
facilities or producing a new product that requires substantial 
additional investment, and (II) production levels are limited by 
technical factors associated with the initial phase of production'' 
during the POI. Based on our analysis of the information NFP submitted 
to support its claim, we determine that NFP's production operations do 
not satisfy these criteria.
    In making this determination, we have not constructed a different 
analytical framework for agricultural products, as NFP advocates, 
because the startup analysis necessarily entails examining industry-
specific factors in determining whether the two criteria are satisfied. 
The SAA at 837 states that the analysis will vary from industry to 
industry and product to product, requiring a fact-intensive inquiry. 
Furthermore, the Preamble to the Proposed Regulations states that the 
start-up ``conditions are somewhat generalized because they must allow 
for any number of startup operation scenarios'' (61 FR 7339, February 
27, 1996). Moreover, the production process for preserved mushrooms is 
more a manufacturing process than an agricultural one. Most of the 
mushroom growing phase entails the production of compost, while the 
canning phase is purely a manufacturing operation. Therefore, given the 
inherent fact-intensive nature of the startup analysis and the 
production process for preserved mushrooms, a different analytical 
framework is unnecessary in this case.
    First, we do not consider NFP's facilities to be ``new'' during the 
POI within the meaning of section 773(f)(1)(C)(ii)(I) of the Act. 
Although the statute does not define ``new production facilities,'' the 
SAA indicates that the startup period must occur during the period of 
investigation or review. The SAA at 836 states that ``[m]ere 
improvements to existing products or ongoing improvements to existing 
facilities will not qualify for a startup adjustment'' (emphasis 
added). NFP's production facilities were three years old at the start 
of the POI. That is, the POI began in NFP's fourteenth growing 
``season.'' On this basis, we disagree with NFP's assertions that its 
production facilities were new during the POI.
    The SAA and the Department's regulations define new production 
facilities as including ``the substantially complete retooling of an 
existing plant'' during the period of investigation or review (SAA at 
836; 19 CFR 351.407(d)(1)(i)). This substantial retooling must involve 
the replacement of nearly all production equipment and a complete 
revamping of existing machinery (SAA at 836). NFP has not identified 
any additional costs associated with ``substantially retooling'' its 
production facilities.
    Moreover, the record does not support NFP's claim that it was 
producing a new product during the POI. NFP produced and exported 
preserved mushrooms to the United States for several years prior to the 
POI. Although NFP switched its methods for producing preserved

[[Page 56618]]

mushrooms in 1991, this second process commenced in 1994 and was well 
established by the start of the POI. Additionally, this second process 
did not result in a different type of preserved mushroom. As NFP 
acknowledged, this change merely improved the quality of mushrooms sold 
under its name. Such improvements, implemented two years prior to the 
POI, do not qualify as ``new products'' for purposes of a startup 
adjustment. See SAA at 836 and Final Results of Administrative Review: 
Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat Products 
from Korea, 63 FR 13170, 13200, March 18, 1998. Nor do we consider 
NFP's expansion into the Chilean or Brazilian markets to constitute the 
production of a new product, but rather a development of new markets. 
Given the limited purpose of a startup adjustment, there is no basis in 
the statute or regulations to broaden its application to expansion of a 
mature product into new markets.
    This finding that NFP did not use new production facilities or 
produce a new product during the POI is sufficient to deny NFP's claim. 
See Final Determination of Sales at Not Less Than Fair Value: Collated 
Roofing Nails from Korea, 62 FR 51420, 51426, October 1, 1997. However, 
we note that NFP also has failed to establish that its production 
levels during the POI were limited by technical factors associated with 
the initial phase of production in accordance with section 
773(f)(1)(C)(ii)(II) of the Act. Specifically, NFP has provided 
insufficient evidence to support a claim that production levels were 
limited for any reason, whether related to technical factors or not. 
The only information provided by NFP to support its claim that POI 
production levels were limited is a comparison of its production yields 
to yields of U.S. producers, which NFP identifies as efficient 
operations producing high quality mushrooms.
    The SAA, however, does not refer to quality of merchandise produced 
or the efficiency of production operations as a criterion for measuring 
production levels. The SAA at 836 directs the Department to examine the 
number of units processed as a primary indicator of production levels 
in determining the end of the start-up period. See also Final 
Determination of Sales at Less Than Fair Value: Static Random Access 
Memory Semiconductors from Taiwan, 63 FR 8909, 8930, February 23, 1998. 
In other words, the Department must look at processed units, not output 
yields. NFP provided no information, for example, on historical 
production or capacity usage related to its operations from 1994, the 
year its production facility was put into operation, through 1997, the 
end of the POI, to serve as a benchmark for measuring commercial 
production levels during the POI. The only evidence NFP submitted was a 
comparison of its production to that of U.S. producers, asserting that 
such levels are indicative of industry standards. However, we do not 
consider U.S. producers' production levels as an appropriate standard 
for the Chilean industry. We note that U.S. producers are subject to 
different climate conditions and availability of raw materials, thus 
making comparisons unreliable. Moreover, under a comparative yield 
approach, a respondent may never leave start-up because it may never 
reach comparable yields of U.S. producers.
    As further evidence that NFP was not in a startup period 
experiencing technical factors that limited production, we note that, 
in 1996, the year before the POI, NFP posted a provision for non-
performing fixed assets because the expected revenue stream did not 
justify the capitalized values. In other words, in 1996, NFP determined 
that its production problems were not temporary but chronic. The SAA at 
838 states that a company ``must demonstrate that, for the period under 
investigation or review, production levels were limited by technical 
factors associated with the initial phase of commercial production and 
not by factors unrelated to startup, such as. * * * chronic production 
problems.''
    Section 773(f)(1)(C)(ii) of the Act establishes that both prongs of 
the test must be met before a startup adjustment is warranted. In this 
case, we find that NFP has failed both prongs of the test and, 
accordingly, we deny NFP's claim for a start-up adjustment.

Comment 4: Treatment of Raw Materials for Mushroom Growing as Fixed 
Costs

    NFP contends that the raw materials used in the growing process 
should be classified as fixed overhead expenses because these costs are 
fixed per crop, regardless of the crop's yield of the particular 
product. NFP also states that these raw material expenses are not a 
part of the final product since the growing medium (i.e., compost) is 
sold as scrap at the end of the growing cycle.
    The petitioners state that these costs are properly classified as 
direct raw materials because they meet the textbook definition of 
materials that are physically observable as being identified with the 
finished good and that may be traced to the finished good in an 
economically feasible manner. The petitioners compare the materials 
identified by NFP--compost, straw, manure, spawn, etc.--to salmon feed 
in salmon production, which, in Salmon from Chile, the Department 
properly classified as a direct material cost item. The petitioners add 
that it is incorrect to classify these materials as fixed overhead 
costs such as rent, insurance, and depreciation, which do not vary with 
production volume.

DOC Position

    We agree with petitioners that raw materials are more appropriately 
accounted for as variable costs because the consumption of these 
materials (and therefore the expense) varies as production volumes rise 
and fall. Although crop yields may vary slightly between growing 
cycles, in general, fewer mushrooms grow in a smaller quantity of 
growing medium than in a larger quantity. As such, the production of 
the finished product, e.g., mushrooms, varies with the amount of raw 
materials used in the production process. However, in this case, 
treating raw material costs as fixed or variable has no impact on our 
dumping calculations because we have allocated all manufacturing costs 
(with the exception of mushroom picking labor) in the same manner, and 
no difference-in-merchandise adjustment is necessary.

Comment 5: Allocation of Fixed Costs

    NFP argues that fixed overhead costs should be allocated on a basis 
other than the input weight of the merchandise into the production 
(i.e. canning) process. NFP proposes an allocation based on the 
estimated number of mushrooms consumed for each type of mushroom 
product. Alternatively, NFP suggests allocations based on gross sales 
value or total contribution margin for each type of product. NFP 
contends that these methodologies are more appropriate than the weight 
input methodology because the latter allocates a higher proportion of 
costs to pieces and stems, cut from the larger mushrooms, than the 
smaller whole preserved mushrooms based on size.
    The petitioners respond that allocating costs based on the 
estimated number of mushrooms is unreasonable given that preserved 
mushrooms are sold by weight, not by the number of mushrooms per can. 
Noting that, in the production process, mushrooms are weighed, rather 
than counted, the petitioners contend that a weight-based allocation 
reflects the production and sales process of the product. Furthermore, 
the petitioners claim that the number-based allocation

[[Page 56619]]

methodology is based on unverified, untimely submitted information, and 
leads to a distortive shift of costs.

DOC Position:

    We agree with the petitioners that a weight-based allocation 
methodology is appropriate in this case. In accordance with section 
773(f)(1)(A) of the Act, the Department normally relies on data from a 
respondent's normal books and records where those records are prepared 
in accordance with the home country's GAAP, and where they reasonably 
reflect the costs of producing the merchandise. Normal GAAP accounting 
practices provide both respondents and the Department with a reasonably 
objective and predictable basis by which to compute costs for the 
merchandise under investigation. However, in those instances where it 
is determined that a company's normal accounting practices result in a 
misallocation of production costs, the Department will adjust the 
respondent's costs or use alternative calculation methodologies that 
more accurately capture the actual costs incurred to produce the 
merchandise. See, e.g., Final Determination of Sales at Less Than Fair 
Value: New Minivans from Japan, 57 FR 21937, 21952, May 26, 1992, 
(adjusting a respondent's U.S. further manufacturing costs because the 
company's normal accounting methodology did not result in an accurate 
measure of production costs); and Final Determination of Sales at Less 
Than Fair Value: Canned Pineapple Fruit from Thailand, 60 FR 29553, 
29559, June 5, 1995.
    NFP did not have an established cost accounting system and, 
therefore, for purposes of this investigation, NFP developed a 
reporting methodology. In NFP's original section D questionnaire 
response, it chose to allocate costs (e.g., manufacturing costs, G&A 
expenses, and financial expenses) between products based on their 
relative sales values. At the request of the Department, NFP submitted 
a revised response with costs based on a weight-based allocation 
methodology. For purposes of the final determination, we are relying on 
NFP's costs derived from a weight-based allocation methodology, with 
the specific adjustments noted elsewhere in this notice.
    Section 351.407(c) of the Department's regulations states that 
``[i]n determining the appropriate method for allocating costs among 
products, the Secretary may take into account production quantities, 
relative sales values, and other quantitative and qualitative factors 
associated with the manufacture and sale of the subject merchandise and 
the foreign like product.'' We rejected NFP's sales value based 
methodology because it would, if used, require historical costs and 
sales data for fresh and preserved mushrooms over a period encompassing 
several years prior to the antidumping proceeding. See Final Results of 
Antidumping Duty Administrative Review: Canned Pineapple Fruit From 
Thailand, 63 FR 7399, February 13, 1998. NFP did not provide the data 
necessary to utilize a sales value-based methodology. Moreover, we have 
determined that an allocation methodology based on weight is reasonable 
for the following reasons: (1) NFP tracks the mushrooms through the 
production process by weight, not by number of mushrooms or by relative 
sales value; (2) mushrooms are sold by weight, not by the number of 
mushrooms per can; and, (3) regardless of whether the mushrooms are 
going to preserved or fresh product, they are substantially the same 
input products. On this basis, we continue to rely upon a weight-based 
methodology because this calculation reasonably reflects the costs of 
producing the subject merchandise.
    We disagree with NFP that the Department recognized in the 
verification report that an allocation basis other than weight should 
be used for allocating costs. In our report, we stated that the cost-
generating elements of growing mushrooms for both preserved and fresh 
mushrooms are identical, that a considerable quantity of mushrooms 
initially selected for the fresh sales market were eventually canned, 
and that canned whole mushrooms may be re-processed into pieces and 
stems. Additionally, the Department has accounted for specific cost 
differences supported by factual documentation, such as differences in 
picking costs supported by labor union agreements specifying the 
additional compensation for picking specific sizes of mushrooms.
    Finally, we also disagree with NFP that costs could be allocated 
based on the number of mushrooms used in producing specific products. 
NFP's suggestion is not feasible, since neither the actual number of 
mushrooms consumed for each specific product, nor the applicable yield 
rates are on the record. It would be inappropriate to extrapolate the 
specific numbers required for such a calculation from a sample of less 
than ten mushrooms, as suggested by NFP.

Comment 6: Revisions to COP and CV Data based on Auditor's Proposals

    The petitioners contend that the Department should reject revisions 
to the COP and CV data base that NFP presented at the commencement of 
verification, based on adjustments proposed by NFP's auditors. The 
petitioners argue that these adjustments are 1) based on an incomplete 
audit that could not reconcile key parts of NFP's accounting records, 
2) not included in NFP's tax return, and 3) associated with pre-POI 
expenses and thus are not relevant.
    NFP states that there is no legal basis for rejecting these 
revisions because they were requested by the Department. According to 
NFP, excluding these adjustments would result in less accurate 
information. NFP adds that it is not relevant whether the tax return 
and financial statements are in complete agreement as there are 
differences between GAAP for financial reporting purposes and tax law 
for tax reporting purposes.

DOC Position

    We agree with NFP. There is no basis to reject the audit 
adjustments proposed by NFP's auditors. All of the auditor's proposed 
adjustments appear to be in conformance with Chilean GAAP. While some 
of the adjustments relate to transactions that occurred in prior 
periods, auditors are required to post these adjustments to NFP's 
records. Moreover, we are satisfied that our adjustments to account for 
the items discussed in Comment 2 above isolate those problems and 
reasonably quantify any potential understatement to the reported costs. 
Additionally, the fact that the financial statements do not agree to 
NFP's tax return is not relevant, since the tax return was prepared 
soon after the end of the tax year, while the audit report did not 
become available until August 1998. Furthermore, the petitioners' 
arguments are unpersuasive because there are differences between the 
reporting standards applicable to a tax return and those applicable to 
an audited financial statement. Therefore, the exclusion of these items 
in NFP's tax return, filed prior to completion of the audit, does not 
render the adjustments unreliable.

Comment 7: Treatment of Unreconciled Value Item in NFP Financial 
Statement

    The petitioners argue that the Department must adjust NFP's 
reported cost or sales data for an unreconciled value recorded in NFP's 
POI financial

[[Page 56620]]

statements.1 To account for this unreconciled item cited by 
NFP's independent auditor, the petitioners state that the Department 
should apply facts available and either make an upward adjustment to 
the cost of manufacture, or assume that the unreconciled value reflects 
unreported sales to the United States and apply the highest calculated 
margin to the value in question and include this amount in the overall 
margin calculation.
---------------------------------------------------------------------------

    \1\ NFP has requested business proprietary treatment for the 
identification of this specific item.
---------------------------------------------------------------------------

    NFP agrees that the value item was not completely reconciled during 
the Department's verification, but refers to the stated reason in the 
verification report, which shows that NFP's approach was fully 
consistent with Chilean and U.S. GAAP. NFP agrees with the petitioners 
that costs should be adjusted, but that the appropriate adjustment 
should result in a decrease in NFP's costs.

DOC Position

    We agree with the petitioners in part. In the audit report, NFP's 
auditors identify discrepancies between certain account balances and 
the underlying assets and liabilities (see Comment 2 above). While we 
agree with the petitioners that we must adjust for these items, we 
disagree with the petitioners' proposal to include these differences as 
unreported sales, because the footnotes to the 1996 financial 
statements indicate that the unreconciled differences are not due to 
sales related activity. Therefore, we have adjusted NFP's costs for the 
unreconciled item by applying the difference identified in the 
footnotes to the 1996 financial statements. Since we are able to adjust 
NFP's reported costs for the specific items noted by its auditors using 
information contained in NFP's submitted financial statements, we have 
done so for the final determination. See Cost Calculation Memo.

Comment 8: Treatment of Unreported Adjustments to U.S. Sales Prices

    Citing a number of omissions and errors to U.S. price adjustments 
discovered at verification, the petitioners argue that the Department 
should make adverse inferences in applying facts available to account 
for these items. Specifically, the petitioners contend that the 
following adjustments should be made:
    (a) To account for unreported discounts, the Department should 
apply the amount of the discount to every U.S. sale.
    (b) To account for unreported letter of credit and bank fees, the 
Department should apply the highest fee found for any sale and apply 
that amount to every U.S. sale.
    (c) To account for unreported freight and palletizing charges on 
certain U.S. sales, the Department should apply the highest charges for 
these items found at verification to these sales.
    (d) To account for unreported repacking expenses (i.e., palletizing 
and shrink wrap expenses), the Department should apply the highest 
amount for these expenses found at verification to all U.S. sales.
    NFP asserts that the errors in reporting these adjustments were 
inadvertent and that it provided the Department with the information 
necessary to make appropriate adjustments. Specifically, NFP responds:
    (a) To account for unreported discounts, the Department's 
adjustment should not exceed the amount of total discounts granted by 
NFP/USA.
    (b) No adjustment should be made for letter of credit fees because 
the letters of credit were between NFP and NFP/USA, i.e., two 
affiliates. Should the Department consider bank fees as sales expenses, 
the expenses should be allocated based on sales value.
    (c) No adjustment is necessary for freight and palletization 
charges to customers as NFP supplied this information in a revised 
sales listing at the Department's request.
    (d) To account for unreported repacking expenses, the expenses 
should be allocated fairly across sales.

DOC Position

    Section 776(a) of the Act requires the Department to use the facts 
otherwise available when necessary information is not on the record or 
an interested party withholds requested information. As petitioners 
point out and NFP acknowledges, NFP failed to report these price 
adjustments in its questionnaire responses. Moreover, NFP did not 
identify these adjustments at the start of verification, but rather 
they were discovered by the Department during verification, as 
described in the verification report. Under these circumstances, we 
must account for these adjustments using the facts available. Because 
NFP failed to provide these requested items, we find that it failed to 
cooperate to the best of its ability in providing this information, 
and, therefore, adverse inferences are warranted, where possible. 
Therefore, we applied the highest discount percentage observed to all 
U.S. sales, as adverse facts available for the unreported discounts. We 
have also applied an adverse inference to the unreported freight 
charges by disregarding this addition to CEP.
    NFP paid bank fees to unaffiliated banks for NFP's intracompany 
sales of the subject merchandise to NFP/USA. We did not have sale-
specific information on these bank fees because the bank fees were 
assessed on the container shipments from Chile, not the sale 
transactions to the unaffiliated parties. Therefore, we have applied 
the percentage derived from the total expense attributable to these 
fees, divided by NFP/USA's total POI sales, as obtained at 
verification, as the only information available for this adjustment. 
Similarly, we did not have sale-specific information for repacking 
expenses, so we have applied the percentage derived from the total 
expense attributable to these expenses, divided by NFP/USA's total POI 
sales, as obtained at verification, as the only information available 
for this adjustment. Thus, for these two adjustments, no adverse 
inference is possible, based on the record evidence.
    However, we do not find the use of adverse inferences appropriate 
with regard to the palletization charges billed to NFP's customers. 
Palletization charges were included in the gross prices NFP reported to 
the Department prior to verification. As discussed in the Verification 
Report at pages 17 and 18, and Exhibit 52, NFP provided a full breakout 
of these additions to price, and we verified the data. This information 
was included in a supplemental response specifically requested by the 
Department subsequent to verification and submitted on September 2, 
1998. Therefore, we used this information in our final determination.
    Finally, although neither party raised this issue in its briefs, we 
also applied adverse facts available for unreported bank fees on 
Brazilian sales. As discussed in the verification report, NFP incurred 
these expenses on all but one Brazilian sale, but failed to report 
these items in its questionnaire responses. For the applicable sales, 
we made an adverse inference by applying the lowest percentage rate of 
expense observed for a sale at verification to the other Brazilian 
sales.

Comment 9: Monetary Correction

    NFP contends that the Department should include the full amount of 
its monetary adjustments in its COP and CV calculations since these 
inflation adjustments are required by Chilean GAAP, and the Department 
accepted monetary correction adjustments in Final Results and Partial 
Recission of

[[Page 56621]]

Antidumping Duty Administrative Review: Certain Fresh Cut Flowers from 
Colombia (62 FR 53287, October 14, 1997) (``Flowers from Colombia''). 
Moreover, NFP asserts that the petitioners have not identified any 
legal basis for denying monetary adjustments.
    The petitioners object to any monetary correction offset to NFP's 
financial expense because the problems noted by NFP's independent 
auditor bring into doubt the accuracy and reasonableness of claimed 
corrections. Further, the petitioners argue that it is unreasonable to 
measurably adjust NFP's financial results, which are based on non-
monetary factors, because of changes in inflation or exchange rates. 
The petitioners contend that, at most, the Department should allow a 
monetary correction only for the current portion of NFP's bank loans, 
as in the preliminary determination.

DOC Position

    The Department's practice with respect to inflation (including the 
monetary correction of financial data) is to adjust for those items 
that have a significant impact on the antidumping analysis and to 
exclude those aspects of the adjustment that would distort the 
analysis. See, e.g., Flowers From Columbia, 62 FR at 53299-300; Roses 
from Colombia, 60 FR at 6993; and, Salmon From Chile, 63 FR at 31432. 
Consistent with this practice, we have: (1) included the depreciation 
expense calculated on revalued asset values; (2) included the exchange 
gains and losses on current assets and liabilities; (3) included a 
portion of the exchange gains and losses on long-term debt; and (4) 
excluded the gains and losses on non-monetary assets and liabilities.
    We did not include the full amount of NFP's monetary correction 
adjustment because, as explained below, certain monetary adjustments do 
not constitute, in any meaningful sense, true income or expense to the 
company. In cases such as this one, where Chile experienced moderate 
levels of inflation during the POI but not at a level requiring the 
Department's high-inflation methodology, the Department's practice does 
not attempt to address all of the inflationary effects resulting within 
the twelve months of the investigation or review period, because any 
attempt to quantify the effects of inflation on each measure of cost 
and price would impose an unreasonable level of complexity to the 
Department's antidumping analysis. Consequently, in non-high-inflation 
cases, we do not calculate cost using a constant currency or 
replacement cost methodology. Instead, the Department adjusts for 
certain significant expenses, such as depreciation and amortization, 
because these expenses are derived from asset values recorded at 
historical cost and whose useful lives extend beyond the period of 
investigation or review. Since the compounded effects of inflation 
distort historical costs and the associated depreciation expense, use 
of unadjusted historical depreciation expenses would understate costs. 
See, e.g., Flowers from Columbia, 62 FR at 53299.
    Furthermore, there is neither a statutory requirement that the 
Department adjust for all effects of inflation in its analysis, nor a 
requirement to use all aspects of a country's GAAP. Rather, the statute 
merely requires that the Department include in its calculation of CV 
the cost of manufacturing ``during a period which would ordinarily 
permit the production of the merchandise in the ordinary course of 
business.'' See section 773(e)(1) of the Act. Given the inability to 
measure the effects of inflation on each cost and price item, the 
Department's practice reasonably achieves the statutory mandate to 
calculate cost in a manner that reasonably reflects the costs 
associated with the production and sale of the merchandise. Indeed, the 
CIT has held that full accounting for inflation is neither necessary 
nor possible. See Budd Co. v. United States, 773 F. Supp. 1549, 1554 
(CIT 1991) (``The glowing deficiency in Plaintiff's argument is the 
underlying premise that a full accounting for inflation is necessary or 
even possible.''). On this basis, we disagree with NFP's assertion that 
inclusion of its entire monetary correction is required in this case.
    Additionally, we disagree with NFP's claim that the Department 
should include the annual revaluation of non-monetary assets and 
liabilities in our calculation. The annual revaluation of non-monetary 
assets (e.g., fixed assets) does not represent income during the fiscal 
year. Likewise, the revaluation of non-monetary liabilities (e.g., 
equity and capital) does not represent a loss during the fiscal year. 
Rather, they represent the restatement of non-monetary assets and 
liabilities into current price levels. In other words, the restatement 
of the book value of a truck into a greater number of (lower value) 
pesos does not result in an economic gain, since one still only owns a 
truck. Therefore, we do not include these revaluations in our 
antidumping analysis. Instead, we include only the amortization of the 
revalued assets and liabilities, since they represent the expenses 
stated at current price levels and directly relate to the period under 
investigation.
    Likewise, we disagree with petitioners' assertion that the 
Department should exclude all of the inflation adjustments (i.e., 
monetary correction) for purposes of calculating COP or CV. As 
explained above, certain elements of monetary correction must be taken 
into account to avoid certain distortions to the antidumping analysis. 
The exclusion of all inflation adjustments would result in costs that 
are not reflective of current price levels, producing an improper 
matching of revenues and expenses. See Roses from Colombia, 62 FR at 
6993. Finally, we also disagree with petitioner's assertion that the 
monetary corrections should be ignored because of the problems noted by 
NFP's independent auditors. As noted elsewhere in this notice, the 
declarations made by the auditors were for specific problems which the 
Department addressed through appropriate adjustments.

Comment 10: Depreciation Adjustment

    The petitioners challenge NFP's claim of a depreciation adjustment 
to the COP and CV calculations because the adjustment relates to an 
unreconciled item in NFP's financial statements. In addition, citing 
Final Determination of Sales at Less Than Fair Value: Static Random 
Access Memory Semiconductors from the Republic of Korea (63 FR 8934, 
February 23, 1998) (SRAMS from Korea), the petitioners contend that the 
Department's practice is to grant special depreciation adjustments only 
when used by a respondent in its regular course of business over time, 
while NFP's claim is of an extraordinary nature.
    NFP responds that the adjustment is in full accordance with the 
appropriate Statement of Financial Accounting Standards (``SFAS''), 
which is also part of Chilean GAAP. According to NFP, its application 
of GAAP to its financial statements is systematic, rational, not 
extraordinary, and, additionally, there is no legal basis to reject 
this adjustment.

DOC Position

    We disagree with the petitioners. As discussed above in the 
response to Comment 5, the Department relies on data from a 
respondent's normal books and records where those records are prepared 
in accordance with home country GAAP and reasonably reflect the costs 
of producing the merchandise. In 1996, NFP wrote down the value of 
certain non-performing fixed assets to amounts in line with the asset's 
ability to generate revenue. At that time, NFP recognized the loss 
associated with the write-down on the income statement. The write-down 
of the value of non-

[[Page 56622]]

performing fixed assets was in accordance with both U.S. and Chilean 
GAAP, and was reflected in NFP's historical books and records. The 
write-down of asset values in the period prior to an investigation does 
not, in this case, distort the costs reported for the POI, because, as 
of the filing of the petition, the asset values were properly valued 
and were in accordance with both U.S. and Chilean GAAP. Although the 
audit report for financial statements which first disclosed the write-
down was dated April 30, 1998, raising the concern that the adjustment 
was made only for purposes of this investigation, evidence on the 
record demonstrates that the write-down was recorded to NFP's books and 
records prior to the filing of the petition.
    Additionally, we disagree with the petitioners that the write-down 
affects our ability to adjust NFP's costs. The calculation of the 
write-down was not dependent on the unreconciled difference in fixed 
assets, cited in the auditors report, but rather was based on the net 
present value of the assets. Moreover, the Department has adjusted for 
this unreconciled difference.
    Finally, the petitioners' cite to SRAMS from Korea is inapposite, 
because that case related to the selection or change in depreciation 
methodology, not to the proper valuation of assets and the accounting 
principle of conservatism. That is, NFP wrote down the value of its 
fixed assets when it became reasonably certain that the expected 
revenue stream did not justify the capitalized values. Therefore, for 
the reasons discussed above, we have accepted NFP's reported 
depreciation expense calculation. However, we have reallocated the 
expense based on production quantity rather than sales value, 
consistent with the methodology discussed in our response to Comment 5.

Comment 11: Source for Calculation of CV Profit

    The petitioners claim that, in calculating CV under section 
773(e)(2)(B)(iii) of the Act, the Department should rely on 
contemporaneous, POI data (i.e., 1997 data), rather than the 1996 data 
from Ianasafrut, a Chilean fruit and vegetable producer, used in the 
preliminary determination.
    Although NFP agrees with the petitioners that, ideally, the 
surrogate for CV profit should be based on POI data, NFP contends that, 
in the absence of any better information on the record, the Department 
should continue to use the 1996 Ianasafrut data as a surrogate for 
NFP's CV profit.

DOC Position

    Section 773(e)(2)(B)(iii) of the Act authorizes the Department to 
use any reasonable method to determine profit with an appropriate 
``cap'' for purposes of CV. Because we were unable to determine an 
appropriate profit ``cap,'' we calculated CV with an amount for profit 
on the basis of facts available, as provided in the SAA at 841. Based 
on the record evidence, we used the 1996 profit margin for Ianasafrut 
S.A., a leading Chilean fruit and vegetable producer as a reasonable 
surrogate for NFP's profit. As we explained in the preliminary 
determination, we consider this data, which was submitted in the 
petition, as a reasonable surrogate for CV profit because it is based 
upon a Chilean producer's sales experience on the same general category 
of merchandise subject to investigation.
    Section 773(e)(2)(B)(iii) does not prohibit the use of non-POI data 
in determining CV profit, but rather provides the Department with broad 
authority to determine a reasonable surrogate. Although not 
contemporaneous with the POI, we find no other basis to reject 
Ianasafrut's 1996 profit margin as a reasonable surrogate for CV 
profit. Therefore, in the absence of any other reasonable data on the 
record of this proceeding, we continued to use this data in this final 
determination.

Comment 12: Brazilian Sales as Basis for Normal Value

    The petitioners claim that NFP failed to establish that Brazil is 
the appropriate foreign market for U.S. sales. According to the 
petitioners, Chilean export statistics indicate that Hong Kong may be a 
larger foreign market for NFP than Brazil. In addition, the petitioners 
suggest that NFP's refusal to provide the financial statement for NFP's 
Hong Kong affiliate may be an attempt to conceal sales through the Hong 
Kong affiliate.
    NFP contends that there is no factual basis to the petitioners' 
suggestion that Hong Kong is a viable third country market. NFP states 
that the determination on the viability of the Brazilian market should 
rest on NFP's submitted and verified data. In addition, NFP disputes 
the petitioners' allegations that it intentionally withheld data from 
the Department and states that it was prepared to provide any sales 
data on Hong Kong sales had the Department requested such information.

DOC Position

    We agree with NFP. We found no discrepancies in NFP's sales 
reporting (see Verification Report). Further, we found no evidence at 
verification that any other foreign market was larger than Brazil 
during the POI. Our ability to make this determination was not affected 
by our inability to examine the Hong Kong affiliate's financial 
statement because we were able to examine all of NFP's sales records in 
Chile. Therefore, we are satisfied that Brazil is the appropriate third 
country market in this proceeding.

Comment 13: Export Incentive

    NFP argues that the export incentive credits it received for its 
export sales should be treated as either revenue or as a reduction of 
costs, rather than disregarded, as in the preliminary determination. In 
support of its claim, NFP states that the export incentive credit is 
considered additional revenue under Chilean law, and that no 
countervailing duty case has been filed against it.
    The petitioners agree with the Department's preliminary 
determination that there is no statutory basis for a USP or NV 
adjustment for the export incentive. Further, the petitioners contend 
that NFP failed to demonstrate that it actually received any of these 
credits during the POI in a manner akin to a duty drawback claim, under 
which NFP initially reported this item.

DOC Position

    We agree with the petitioners. Section 772(c)(1) of the Act limits 
additions to the EP or CEP starting price to packing, rebated import 
duties (i.e., ``duty drawback''), or the amount of any countervailing 
duty imposed on the product to offset an export subsidy. The Chilean 
export incentive does not meet any of these conditions. The program is 
not contingent upon importation of inputs used to produce the exported 
subject merchandise--the duty drawback system contemplated under 
section 772(c)(1)(B) of the Act. See e.g., Certain Welded Carbon Steel 
Pipes and Tubes from India; Final Results of Antidumping Duty 
Administrative Review, (63 FR 32825, 32828-29, June 16, 1998). Instead, 
the incentives are provided to any Chilean exporter (see NFP May 19, 
1998, supplemental response at Appendix S-12). Similarly, section 
773(a)(6) of the Act does not provide for this type of adjustment to 
NV. Therefore, there is no statutory basis for adjusting NFP's price 
data for this export incentive. We also disagree with NFP's contention 
that we should account for this incentive by reducing its costs because 
section 773(b)(3) of the Act provides no basis for such a reduction 
when the respondent

[[Page 56623]]

participates in an export incentive program such as that presented 
here. Accordingly, we have continued to disregard this claimed 
adjustment in our calculation.

Comment 14: Imputed Interest Rate for Brazilian Sales

    NFP contends that the Department should use NFP/USA's short-term 
interest rate for calculating imputed credit on sales to Brazil, as 
applied in NFP's questionnaire response, rather than the short-term 
U.S. dollar interest rates the Department observed at verification. NFP 
states that the NFP/USA rate is more appropriate because NFP/USA is the 
primary funding source of NFP's operations.

DOC Position

    As stated in Import Administration Policy Bulletin 98-2, where the 
respondent (the seller) has short-term borrowings in the same currency 
as that of the transaction the Department's practice is to use the 
respondent's own weighted-average short-term borrowing rate realized in 
that currency to quantify the credit expenses incurred. For example, 
for U.S. dollar transactions, we impute credit expenses using the 
respondent's interest rate realized on U.S. dollar borrowings. See, 
e.g., Final Determination of Sales at Less Than Fair Value: Oil Country 
Tubular Goods from Austria, 60 FR 33551, 33555, June 28, 1995. We 
observed at verification that NFP, in fact, has short-term borrowings 
in U.S. dollars, the currency of its sales to Brazil. Thus, NFP's 
actual experience is the proper basis for determining the imputed 
credit interest rate. The only information on the record that we have 
for the imputed rate is the examples seen at verification. In our 
verification report, we noted the lowest and highest interest rates 
observed. Therefore, as facts available, we recalculated NFP's imputed 
interest rate using the midpoint of the U.S. dollar short-term 
borrowings observed at verification. We made no adjustments to NFP's 
reported inventory carrying expense claim because we had insufficient 
information to recalculate this expense using NFP's sale-specific 
methodology.

Continuation of Suspension of Liquidation

    In accordance with section 735(c)(1)(B) of the Act, we are 
directing the Customs Service to continue to suspend liquidation of all 
entries of subject merchandise from Chile, that are entered, or 
withdrawn from warehouse, for consumption on or after August 5, 1998 
(the date of publication of the preliminary determination in the 
Federal Register). The Customs Service shall continue to require a cash 
deposit or posting of a bond equal to the estimated amount by which the 
normal value exceeds the U.S. price as shown below. These suspension of 
liquidation instructions will remain in effect until further notice. 
The weighted-average dumping margins are as follows:

------------------------------------------------------------------------
                                                              Weighted-
                                                               average
                   Exporter/manufacturer                        margin
                                                              percentage
------------------------------------------------------------------------
Nature's Farm Products (Chile) S.A.........................       148.51
All Others.................................................       148.51
------------------------------------------------------------------------

ITC Notification

    In accordance with section 735(d) of the Act, we have notified the 
International Trade Commission (ITC) of our determination. As our final 
determination is affirmative, the ITC will, within 45 days, determine 
whether these imports are materially injuring, or threaten material 
injury to, the U.S. industry. If the ITC determines that material 
injury, or threat of material injury does not exist, the proceeding 
will be terminated and all securities posted will be refunded or 
canceled. If the ITC determines that such injury does exist, the 
Department will issue an antidumping duty order directing Customs 
officials to assess antidumping duties on all imports of the subject 
merchandise entered for consumption on or after the effective date of 
the suspension of liquidation.
    This determination is issued and published in accordance with 
sections 735(d) and 777(i)(1) of the Act.

    Dated: October 13, 1998.
Robert A. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 98-28393 Filed 10-21-98; 8:45 am]
BILLING CODE 3510-DS-P