[Federal Register Volume 63, Number 238 (Friday, December 11, 1998)]
[Notices]
[Pages 68429-68436]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-33003]



[[Page 68429]]

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DEPARTMENT OF COMMERCE

International Trade Administration
[A-489-805]


Notice of Final Results and Partial Rescission of Antidumping 
Duty Administrative Review: Certain Pasta From Turkey

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

SUMMARY: On August 7, 1998, the Department of Commerce published the 
preliminary results of its first administrative review of the 
antidumping duty order on certain pasta from Turkey. The review covers 
three exporters of the subject merchandise. The period of review is 
January 19, 1996, through June 30, 1997.
    For our final results, we have found that, for one exporter, sales 
of the subject merchandise have been made below normal value. We will 
instruct the Customs Service to assess antidumping duties based on the 
difference between the export price or constructed export price and the 
normal value.
    We find that, for the one company that had shipments during the 
review period and participated in the review, sales have not been made 
below normal value. We will instruct the Customs Service not to assess 
antidumping duties on the subject merchandise exported by this company.

EFFECTIVE DATE: December 11, 1998.

FOR FURTHER INFORMATION CONTACT: Dennis McClure or John Brinkmann, 
Office of AD/CVD Enforcement, Group I, Import Administration, 
International Trade Administration, U.S. Department of Commerce, 14th 
Street and Constitution Avenue, N.W., Washington, D.C. 20230; 
telephone: (202) 482-3530 and (202) 482-5288, respectively.

SUPPLEMENTARY INFORMATION:

Applicable Statute and Regulations

    Unless otherwise indicated, all citations to the statute are 
references to the provisions effective January 1, 1995, the effective 
date of the amendments made to the Tariff Act of 1930 (the Act) by the 
Uruguay Round Agreements Act (URAA). In addition, unless otherwise 
indicated, all citations to the Department of Commerce's (the 
Department's) regulations refer to the regulations codified at 19 CFR 
Part 351 (April 1998).

Case History

    This review covers three manufacturers/exporters of merchandise 
subject to the antidumping duty order on certain pasta from Turkey: 
Pastavilla Kartal Makarnacilik Sanayi ve Ticaret A.S. (Pastavilla), 
Filiz Gida Sanayi ve Ticaret (Filiz), and Nuh Ticaret ve Sanayi A.S. 
(Nuh Ticaret). Since the publication of the preliminary results of this 
review on August 7, 1998, (see Notice of Preliminary Results and 
Partial Rescission of Antidumping Duty Administrative Review: Certain 
Pasta from Turkey, 63 FR 42373 (Preliminary Results)), the following 
events have occurred. From August 10 through 14, 1998, we verified the 
cost information submitted by Pastavilla. From August 17 through 21, 
1998, we verified the sales information submitted by Pastavilla and its 
affiliated sales agent Duzey Pazarlama A.S. (Duzey). On September 2 and 
3, 1998, we verified Pastavilla's sales information at its affiliated 
sales agent Vitelli Foods, Inc. (Vitelli Foods), in the United States. 
On September 24 and 25, 1998, respectively, we received case briefs 
from Pastavilla and the petitioners (Borden Foods Corp., Hershey Pasta 
and Grocery Group, Inc., and Gooch Foods, Inc.). We received rebuttal 
briefs from both parties on October 1, 1998.

Scope of Review

    Imports covered by this review are shipments of certain non-egg dry 
pasta in packages of five pounds (2.27 kilograms) or less, whether or 
not enriched or fortified or containing milk or other optional 
ingredients such as chopped vegetables, vegetable purees, milk, gluten, 
diastases, vitamins, coloring and flavorings, and up to two percent egg 
white. The pasta covered by this scope is typically sold in the retail 
market, in fiberboard or cardboard cartons or polyethylene or 
polypropylene bags, of varying dimensions.
    Excluded from the scope of this review are refrigerated, frozen, or 
canned pastas, as well as all forms of egg pasta, with the exception of 
non-egg dry pasta containing up to two percent egg white.
    The merchandise subject to review is currently classifiable under 
item 1902.19.20 of the Harmonized Tariff Schedule of the United States 
(HTSUS). Although the HTSUS subheading is provided for convenience and 
customs purposes, the written description of the merchandise under 
order is dispositive.

Scope Ruling

    On October 26, 1998, we self-initiated a scope inquiry to determine 
whether a package weighing over five pounds as a result of allowable 
industry tolerances may be within the scope of the antidumping and 
countervailing duty orders. On November 18, 1998, the Department 
received comments from interested parties regarding this scope inquiry. 
The Department received rebuttal comments on November 30, 1998. In 
accordance with 19 CFR 351.225(f)(iii)(5), the Department will issue a 
scope ruling within 120 days of initiation of the inquiry.

Partial Rescission

    We originally initiated a review of three companies: Pastavilla, 
Filiz, and Nuh Ticaret (see Notice of Initiation of Antidumping Duty 
Administrative Review, 62 FR 45621 (August 28, 1997)). However, as 
noted in the preliminary results, Nuh Ticaret notified us that it had 
no shipments of subject merchandise during the period of review (POR). 
We have confirmed this with information from the Customs Service. We 
received no comments concerning Nuh Ticaret for the final results. 
Therefore, in accordance with 19 CFR 351.213(d)(3) and consistent with 
Department practice, we are rescinding our review of Nuh Ticaret (see, 
e.g., Certain Welded Carbon Steel Pipe and Tube from Turkey: Final 
Results and Partial Rescission of Antidumping Administrative Review, 63 
FR 35191 (June 29, 1998) and Certain Fresh Cut Flowers From Colombia; 
Final Results and Partial Rescission of Antidumping Duty Administrative 
Review, 62 FR 53287, 53288 (October 14, 1997)).

Use of Facts Available

    Filiz did not respond to the Department's antidumping 
questionnaire. We have confirmed that the questionnaire was received by 
Filiz (see Memorandum to the File dated March 4, 1998) and, 
accordingly, for the reasons described below, we are assigning to Filiz 
a margin based on adverse facts available for these final results.
    Section 776(a) of the Act requires the Department to resort to 
facts available if necessary information is not available on the record 
or when an interested party or any other person ``fails to provide 
[requested] information by the deadlines for submission of the 
information or in the form and manner requested, subject to subsections 
(c)(1) and (e) of section 782.'' As provided in section 782(c)(1) of 
the Act, if an interested party ``promptly after receiving a request 
from [the Department] for information, notifies [the Department] that 
such party is unable to submit the information requested in the 
requested form and manner,'' the Department may modify

[[Page 68430]]

the requirements to avoid imposing an unreasonable burden on that 
party. Since Filiz did not provide any notification or information to 
the Department, subsections (c)(1) and (e) do not apply in this 
situation. Accordingly, we find, in accordance with section 776(a) of 
the Act, that the use of facts available is appropriate for Filiz for 
these final results.
    Where the Department must resort to facts available because a 
respondent failed to cooperate to the best of its ability, section 
776(b) of the Act authorizes the use of an inference adverse to the 
interests of that respondent in selecting from among the facts 
available. Filiz's failure to respond to our antidumping questionnaire 
demonstrates that it has failed to act to the best of its ability to 
comply with requests for information. Accordingly, we have determined 
that an adverse inference with respect to Filiz is warranted.
    Section 776(b) of the Act also authorizes the Department to use as 
adverse facts available information derived from the petition, the 
final determination in the antidumping investigation, a previous 
administrative review, or any other information placed on the record. 
Section 776(c) of the Act provides that the Department shall, to the 
extent practicable, corroborate that secondary information from 
independent sources reasonably at its disposal. The SAA provides that 
``corroborate'' means simply that the Department will satisfy itself 
that the secondary information has probative value (see H.R. Doc. 316, 
Vol. 1, 103d 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. With respect to the relevance aspect of 
corroboration, 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 is not appropriate as adverse facts available, the Department 
will disregard the margin and determine an appropriate margin (see, 
e.g., Fresh Cut Flowers from Mexico: Final Results of Antidumping Duty 
Administrative Review, 61 FR 6812 (February 22, 1996)).
    In this instance, we have no reason to believe that the application 
of the highest petition margin for Turkish pasta, as revised by 
Commerce, is inappropriate. Therefore, we have assigned Filiz the rate 
of 63.29 percent as adverse facts available. This margin is the same 
margin derived from the petition that was corroborated and assigned to 
Filiz during the investigation (see, Notice of Final Determination of 
Sales at Less Than Fair Value: Certain Pasta from Turkey, 61 FR 30309 
(June 14, 1996)). For purposes of these final results, we find that 
this margin continues to be of probative value. We note that the SAA, 
at 870, states that ``the fact that corroboration may not be 
practicable in a given circumstance will not prevent the agencies from 
applying an adverse inference.* * *'' In addition, the SAA at 869, 
emphasizes that the Department need not prove that the facts available 
are the best alternative information.

Price Comparisons

    For Pastavilla, we calculated constructed export price (CEP) and 
normal value based on the same methodology used in the Preliminary 
Results, with the following exceptions:
    1. We applied the domestic inland freight expense, exclusive of 
value added tax (VAT), to Pastavilla's U.S. sale (see Comment 2).
    2. We revised Pastavilla's freight expense for home market sales 
based upon our verification findings (see Comment 4).
    3. We calculated an inventory carrying cost for the period of time 
between when the merchandise entered the United States and when it was 
shipped to the U.S. customer (see Comment 5).
    4. We have recalculated the free pasta discount (see Comment 6).

Cost of Production

    As discussed in the preliminary results, we conducted an 
investigation to determine whether Pastavilla made home market sales of 
the foreign like product during the POR at prices below its cost of 
production (COP) within the meaning of section 773(b)(1) of the Act.
    We calculated the COP following the same methodology as in the 
preliminary results, with the following exceptions:
    1. We adjusted Pastavilla's monthly per-unit semolina and vitamin 
costs by dividing the monthly cost of each material by the monthly 
quantity of ``packed pasta'' (see Comment 9).
    2. We included Pastavilla's severance reserve in the calculation of 
COP and constructed value (CV) to reflect the fully absorbed cost of 
producing the pasta (see Comment 11).
    3. To calculate the general and administrative (G&A) expense ratio, 
we have excluded packing costs from the cost of sales figure used in 
the calculation (see Comment 12).
    4. We indexed Pastavilla's monthly G&A expenses and cost of sales 
figures using the wholesale price index, published by the International 
Monetary Fund, in order to compute a constant currency G&A expense 
ratio (see Comment 13).
    5. We have computed Pastavilla's interest expense rate on an 
unconsolidated basis and included the foreign exchange losses in 
Pastavilla's interest expense calculation (see Comment 15).

Analysis of Comments Received

    We gave interested parties an opportunity to comment on these 
preliminary results. As noted above, we received case briefs and 
rebuttal comments from the petitioners and Pastavilla.

Sales Comments

Comment 1: Application of Facts Available

    The petitioners argue that the Department should apply total 
adverse facts available because Pastavilla did not report its U.S. 
sales of 5 lb. 1 oz. packages of pasta. The petitioners contend that 
Pastavilla's sales of 5 lb. 1 oz. packages of pasta to the United 
States are subject to this review because: (1) the questionnaire 
instructed Pastavilla to report products sold that contained between 
2251 and 2500 grams of pasta; (2) several of the U.S. sales documents, 
including the customer's purchase order and Pastavilla's U.S. 
affiliates invoice to the customer, described the pasta as ``5lb'' 
pasta; (3) the pasta in 5 pound and 5 lb. 1 oz. packages are identical, 
except that the label is changed to avoid paying antidumping duties; 
and (4) the pasta was sold to distributors and retailers for sale in 
the retail market.
    The petitioners further contend that, because it is the industry 
standard to overfill packages, packages containing slightly over five 
pounds (i.e., 5 lb. 1 oz.) are within the scope of the order. Finally, 
the petitioners argue that total adverse facts available is warranted 
because the Department allowed Pastavilla to truncate its reporting 
period based on its assertion that Pastavilla made no sales to the 
United States prior to January 1997, and, at verification, it was 
revealed that Pastavilla made U.S. sales in 1996. The petitioners 
contend that Pastavilla should be assigned the adverse facts available 
rate of 63.29 percent, in accordance with sections 776(a) and 782(d) of 
the Act.
    Alternatively, the petitioners request that the Department use the 
facts

[[Page 68431]]

available margin of 63.29 percent for the U.S. sales that Pastavilla 
did not report.
    Pastavilla argues that the scope of the order includes only pasta 
in packages of five pounds or less and that the Department's 
questionnaire did not require Pastavilla to report sales of 5 lb. 1 oz. 
packages. It states that the Department confirmed at verification that 
the 5 lb. 1 oz. packages weighed in excess of the 5 lb. 1 oz. weight 
and that packaging was specifically printed for this production. 
Pastavilla further asserts that the petitioners erred in their claim 
that, because Pastavilla's 5 lb. 1 oz. packages may be within the 
packaging tolerance for five-pound pasta, they are subject merchandise. 
Pastavilla points out that while the scope has a numerical upper limit 
of five pounds, it makes no mention of manufacturing tolerances, and 
asserts that when a numerical measure is stated in a scope notice, that 
the numerical measure governs (see Antifriction Bearings (Other Than 
Tapered Roller Bearings) and Parts Thereof From France, et al.; Notices 
Final Results of Antidumping Duty Administrative Reviews, Partial 
Termination of Administrative Reviews, and Revocation in Part of 
Antidumping Duty Orders, 60 FR 10899, 10958 (February 28, 1995) 
(Antifriction Bearings)).
    Pastavilla contends that it imported a negligible quantity of 5 lb. 
1 oz. packages, and the importation of these 5 lb. 1 oz. packages does 
not warrant total facts available. Concerning the petitioners claim 
that the pasta was sold to distributors and retailers for sale in the 
retail market, Pastavilla argues that the 5 lb. 1 oz. packages are not 
``typically sold in the retail market'' as the scope language states, 
but rather are sold to distributors and as bulk products in ``price 
clubs.'' Pastavilla acknowledged that Vitelli Foods' invoice to the 
customer stated ``five pound'' pasta rather than 5 lb. 1 oz. pasta 
because the company had not changed its product descriptors in its 
computer system, but maintains that the sales were of 5 lb. 1 oz. 
packages and are therefore excluded from the scope of the order. 
Finally, Pastavilla states that while the pasta in five pound packages 
can be identical to the pasta in 5 lb. 1 oz. packages, it does not 
imply that the quantity in the two packages are the same.

DOC Position

    We disagree with the petitioners that the Department should apply 
total adverse facts available to Pastavilla or facts available to 
Pastavilla's U.S. sales of 5 lb. 1 oz. packages. The scope of the 
orders states, that ``[i]mports covered by this review are shipments of 
certain non-egg dry pasta packages of five pounds (or 2.27 kilograms) 
or less . . .'' In its questionnaire, the Department instructed 
Pastavilla to report pasta sold in packages of five pounds or less. We 
broke out the packing size ranges into 250 gram increments for 
uniformity in reporting, and while the largest range (2,251 to 2,500 
grams) would include packages greater than five pounds, those reporting 
instructions do not constitute a scope ruling.
    Our normal basis for determining whether a product is included 
within the scope of the order is the description of the merchandise 
contained in the petition, the initial investigation, and the 
determinations of the Secretary (including prior scope determinations) 
and the Commission (see 19 CFR 351.225(k)(1)). If these descriptions 
are not dispositive, the Department may conduct a scope inquiry in 
accordance with 19 CFR 351.225(k)(2), and examine the following 
criteria: (i) the physical characteristics of the product; (ii) the 
expectations of the ultimate purchasers; (iii) the ultimate use of the 
product; and (iv) the channels of trade in which the product is sold. 
On October 26, 1998, the Department initiated a scope inquiry to 
determine whether a package weighing over five pounds may be within the 
scope of the order (see October 26, 1998 memorandum to Richard W. 
Moreland). It would be inappropriate to conclude that Pastavilla failed 
to report certain sales until the scope inquiry is finished.
    Concerning the petitioners' argument that total adverse facts 
available is warranted because Pastavilla did not report sales to the 
United States that were made prior to January 1997, at verification we 
confirmed that these were sales of 5 lb. 1 oz. packages.

Comment 2: Calculation of Inland Freight Expenses for the U.S. Sale

    Pastavilla alleges that the Department erred in adding VAT to its 
reported domestic inland freight expense when calculating U.S. price. 
Pastavilla contends that the Department did not adjust its other 
expenses for VAT and that, if this adjustment is to be applied, to 
achieve parity, it should be applied on the home market side as well as 
the U.S. side. Pastavilla cites the SAA concerning tax neutrality in 
support of its argument (see SAA, H.R. Doc. No. 103-316, 103d Cong., 2d 
Sess. at 157 (1994)).
    The petitioners argue that the Department was correct in revising 
Pastavilla's reported inland freight expenses in the preliminary 
results to include the taxes shown on the freight invoice. They contend 
that it is Department practice to exclude taxes from the prices of the 
merchandise, but that this tax exclusion does not extend to movement 
charges because adjustments for movement charges should reflect the 
actual costs incurred to transport the merchandise. Concerning 
Pastavilla's reference to achieving parity, the petitioners state that 
notes on the sample home market freight invoice submitted by Pastavilla 
indicated that taxes were included in Pastavilla's reported home market 
freight expenses.

DOC Position

    We agree with Pastavilla that the VAT should be excluded from the 
calculation of domestic inland freight expenses for the U.S. sale. 
However, we must note that our decision is not based on the ``tax 
neutrality'' argument Pastavilla presents, but is based solely on our 
requirement to achieve parity in our calculations. In other words, if 
home market expenses are reported exclusive of the VAT, U.S. expenses 
should also be reported exclusive of the VAT. As Pastavilla suggests, 
if this VAT adjustment were to be applied to the inland freight expense 
on the U.S. side it should be applied to Pastavilla's home market 
expenses as well. We find no basis for the petitioners' claim that 
Pastavilla included VAT expenses in its reported home market expenses. 
Therefore, for these final results we have revised our calculations 
from the preliminary results by excluding VAT from inland freight 
expenses.

Comment 3: Elimination of Sales Failing Arm's-Length Test

    Pastavilla argues that the Department should include in its 
calculation of normal value sales by its affiliated reseller, Sok, 
which failed the Department's arm's-length test. Pastavilla contends 
that sales to Sok failed the arm's-length test because of Sok's status 
as a ``hard-discount retailer,'' not because of its affiliation with 
Pastavilla.
    The petitioners assert that the Department was correct in applying 
its standard arm's-length test to sales to Sok because Pastavilla 
failed to provide Sok's sales to its unaffiliated customers and, at the 
same time, has not provided any suggestions concerning an alternate 
method for determining whether these sales were at arm's-length prices. 
Furthermore, the petitioners cite the preamble to the Department's 
regulations stating that the Department will continue to apply the 
current 99.5 percent test unless, and until, it develops a new method 
(see

[[Page 68432]]

Antidumping Duties; Countervailing Duties; Final Rule, 62 FR 27296, 
27355 (May 19, 1998)).

DOC Position

    We agree with the petitioners that the Department should continue 
to apply its standard arm's-length test to Pastavilla's sales to Sok 
for the final results. We conducted the arm's-length analysis of 
Pastavilla's sales to Sok, because Pastavilla stated, and we agreed, 
that it was unable to report Sok's sales to the first unaffiliated 
customer. The arm's-length test is based on the affiliation between Sok 
and Pastavilla, irrespective of Sok's status as an alleged ``hard-
discount retailer.''
    In conducting the arm's-length analysis, we followed our standard 
practice and compared sales prices to unaffiliated customers to sales 
prices to affiliated customers at the same level of trade and, where 
prices to affiliated customers were, on average, less than 99.5 percent 
of prices to unaffiliated customers, we rejected the sales to 
affiliated parties as not representing arm's-length prices (see Certain 
Pasta from Italy; Notice of Final Determination of Sales at Less Than 
Fair Value, 61 FR 30326, 30332 (June 14, 1996)).

Comment 4: Overstatement of Home Market Freight Expenses

    The petitioners argue that the Department should correct 
Pastavilla's overstatement of its home market freight expenses noted in 
the Department's September 16, 1998, Sales Verification Report (SVR).
    Pastavilla argues that the adjustment is negligible and may be 
ignored (see 19 CFR 351.413).

DOC Position

    We agree with the petitioners and have corrected Pastavilla's home 
market freight expenses to reflect verification findings.

Comment 5: U.S. Inventory Carrying Cost

    The petitioners argue that the Department should calculate imputed 
U.S. inventory carrying costs for the period of time between when the 
merchandise entered the United States and when it was shipped to the 
customer. They assert that the Department should calculate these costs 
based on the cost of manufacturing, the interest rate used to calculate 
imputed credit expenses, and the inventory period noted by the 
Department in the SVR.
    Pastavilla argues that it should not be subjected to U.S. inventory 
carrying costs for this period of time because: (1) its importer did 
not take the pasta into inventory, but rather shipped the merchandise 
to the customer directly from the port of entry; and (2) shipment was 
not made until 16 days after entry because of delays in Customs.

DOC Position

    We agree with the petitioners that U.S. inventory carrying costs 
should be calculated for Pastavilla. In accordance with section 
772(d)(1) of the Act, we made deductions from CEP, where appropriate, 
for those indirect selling expenses that related to economic activity 
in the United States, including U.S. inventory carrying costs (see 
Extruded Rubber Thread from Malaysia; Final Results of Antidumping Duty 
Administrative Review, 63 FR 12752, 12754 (March 16, 1998)). Pastavilla 
was instructed specifically to report U.S. inventory carrying costs for 
the period of time between when the merchandise entered the United 
States and when it was shipped to the U.S. customer both in the 
Department's original and supplemental questionnaires. Pastavilla 
reported that the merchandise was not held in inventory in the United 
States. However, at verification we noted that Pastavilla's shipment 
remained at the port of entry for 16 days before being shipped to the 
customer.
    Concerning Pastavilla's argument that we should not apply inventory 
carrying cost due to the delay in Customs, we maintain that regardless 
of the cause of the delay, inventory carrying costs are meant to 
capture the opportunity cost of Pastavilla for having the merchandise 
in inventory.
    For these final results, we calculated Pastavilla's U.S. inventory 
carrying expenses based on net price, the interest expense used in 
calculating credit, and the inventory period verified by the 
Department. We did not base our calculations on cost of manufacturing, 
as the petitioners suggest, because to do so would have been 
inconsistent with Pastavilla's other inventory carrying cost 
calculations. Pastavilla calculated its other inventory carrying 
expenses based on net price and explained in its questionnaire 
responses that to have based its calculations on cost of manufacture 
would have been a significant burden.

Comment 6: Valuation of Discounted Pasta

    The petitioners argue that the Department should not accept the 
free pasta discount claimed by Pastavilla because Pastavilla's method 
of calculating the discount based on the list price and quantity on the 
invoice (1) does not reflect the actual cost of the discount to 
Pastavilla and (2) overstates the actual value of the discount. 
Alternatively, if the Department does allow the merchandise discount, 
the petitioners contend that the Department should recalculate the 
discount based on the cost of manufacture because the discount amounts, 
as reported by Pastavilla, are overstated.
    Pastavilla argues that it was correct in valuing its free pasta 
discount based on the price of the free goods rather than the cost of 
the free goods. According to Pastavilla, this methodology is consistent 
with how the discount is entered into Pastavilla's accounting records 
and how it is reflected on the invoice. From an opportunity cost 
perspective, Pastavilla contends that what is given up in providing the 
free goods is the revenue of the sale, not the cost of production. 
Finally, Pastavilla claims that the cost data necessary to re-value the 
discount at cost is not easily available. According to Pastavilla, this 
task is particularly complex in a case such as this that involves 
indexing for inflation and averaging of the cost data by the 
Department.
    Pastavilla agrees with the petitioners that the free goods discount 
should be recalculated using the total quantity on the invoice and a 
net unit price.

DOC Position

    We disagree with the petitioners that Pastavilla's claimed free 
pasta discount should be denied. We verified that Pastavilla's free 
merchandise discount is a legitimate discount that must be taken into 
account in our calculations. However, we agree with the petitioners 
that Pastavilla's methodology overstated the actual value of the 
discount. We have recalculated the free pasta discount based on the 
total quantity of merchandise the customer received, including the free 
pasta. Additionally, we used the invoice price, net of any other 
discounts, in our calculation (See December 7, 1998, Final Results 
Analysis Memorandum).
    We disagree with the petitioners' claim that the free goods 
discount should be based on the cost of manufacture. To value the free 
goods discount on the net invoice value of the merchandise is 
consistent with Pastavilla's normal accounting practices, which are in 
accordance with Turkish standards and International Accounting 
Standards (see Comment 7 below), and it is a reasonable representation 
of Pastavilla's costs of providing the free goods discount to its 
customers.

[[Page 68433]]

Comment 7: Valuation of Home Market Warranty Expense

    The petitioners claim that Pastavilla overstated its home market 
warranty expenses because these expenses were calculated based on the 
sale price of the returned pasta rather than on the cost of manufacture 
of the returned pasta. In addition, the petitioners allege that 
Pastavilla should have reduced its claimed warranty expenses by the 
amount of revenue obtained from any resales of the returned pasta. The 
petitioners argue that the Department should deny these warranty 
expenses entirely or, at a minimum, they should be recalculated based 
on the cost of manufacture.
    Pastavilla argues that it properly calculated its home market 
warranty expenses based on the invoice value of the damaged pasta. It 
claims that this methodology is consistent with its normal accounting 
practices, as warranty claims are entered into the accounting system at 
the invoice value and it has no accounting record of the quantity of 
goods to which the warranty claim applies. Pastavilla contends that its 
accounting system does not record information to calculate warranty 
expenses based on cost, and, since its accounting system is in 
accordance with Turkish standards and International Accounting 
Standards, the Department should accept it.

DOC Position

    We agree with Pastavilla and have accepted its calculation of home 
market warranty expenses. To base the calculations on the invoice value 
of the merchandise is consistent with Pastavilla's normal accounting 
practices, which are in accordance with Turkish standards and 
International Accounting Standards, and it is a reasonable 
representation of Pastavilla's warranty expenses. Further, Pastavilla 
is unable to calculate warranty expenses as the petitioners suggest 
because its warranty claims are entered into the accounting system at 
the invoice value and Pastavilla has no accounting record of the 
revenue obtained from resales of the returned pasta or the quantity of 
goods to which the warranty claim applies.

Comment 8: Direct Warranty Expenses for U.S. Sales

    The petitioners contend that Pastavilla's claims are incorrect that 
it did not incur warranty expenses in connection with its U.S. sale and 
that the loss from the damaged pasta is reflected in the invoice. They 
argue that the loss from the damaged pasta was directly related to the 
U.S. sale and should be treated as a direct warranty expense. The 
petitioners allege that the Department should calculate direct warranty 
expenses for the final results based on the cost of manufacture of the 
damaged pasta. Alternatively, the petitioners contend that the 
Department should calculate direct warranty expenses for Pastavilla's 
U.S. sale based on the invoice price of the damaged pasta.
    Pastavilla argues that it did not incur warranty expenses on its 
U.S. sale. Pastavilla explains that of the 1,300 cases of pasta shipped 
to the United States, only three were damaged. Pastavilla contends that 
because its U.S. affiliate only invoiced and received payment for 1,297 
cases, the damaged cases were already adjusted for in the sales 
response. Pastavilla argues that it would have been necessary to 
account for the damaged goods in the sales response only if Pastavilla 
had received payment for the three cases and had later issued a credit. 
According to Pastavilla, its sales response reflects the lack of 
revenue from the damaged cases and to calculate a U.S. warranty expense 
as the petitioners suggest would double-count the loss to Pastavilla.

DOC Position

    We agree with Pastavilla that the loss from the damaged cases is 
already reflected in the U.S. sales response. The invoice to the 
customer reflects a quantity net of the damaged cases and, at 
verification, we confirmed that Pastavilla's U.S. affiliate did not 
receive payment for the damaged cases. Warranty expenses typically 
involve replacing the defective merchandise or crediting a customer for 
the defective merchandise. In this instance, the damaged cases were not 
part of the sale and, therefore, it would be inappropriate to make an 
adjustment for warranty expenses.

Cost Comments

Comment 9: Yield Loss

    Pastavilla claims that the methodology used to calculate COP and CV 
fully captures all yield losses. It argues that in its ordinary cost 
accounting system, a theoretical production amount (i.e., naked pasta), 
which includes scrap, is used to calculate COM. However, because this 
was a theoretical amount, Pastavilla used finished goods (i.e., packed 
pasta) quantities to calculate the per-unit COM for the antidumping 
review.
    The petitioners argue that the Department should revise 
Pastavilla's reported semolina costs to account for yield losses 
occurring during the production of pasta. Because the methodology used 
by Pastavilla does not account for the semolina that was lost during 
the production of pasta, the petitioners contend that Pastavilla's 
reported per-unit cost of semolina are understated.

DOC Position

    While we agree with Pastavilla that it adequately accounted for 
yield loss related to its reported conversion costs, we disagree that 
its methodology used to calculate the monthly materials costs included 
in COP and CV captures the impact of yield loss associated with the 
production of pasta. Pastavilla used finished ``packed pasta'' 
quantities to calculate its per-unit conversion costs (i.e., direct 
labor, variable overhead, and fixed overhead). By using ``packed 
pasta'' quantities, Pastavilla's reported conversion costs reasonably 
capture the yield loss incurred during the manufacturing process (e.g., 
waste, moisture evaporation). To calculate its reported per-unit 
material costs (i.e., semolina and vitamins), however, Pastavilla did 
not rely on its ``packed pasta'' quantities. Instead, the company 
relied on the monthly quantities of semolina consumed during the 
production process. Thus, Pastavilla understated its cost of materials 
because it used the cost per unit of semolina consumed rather than the 
cost per unit of ``packed pasta.'' In other words, Pastavilla's 
material costs do not reflect the yield loss associated with the 
manufacturing process. To capture the cost associated with its material 
yield losses, Pastavilla should have calculated its per-unit material 
cost using the same ``packed pasta'' quantities that it used to 
calculate its per-unit conversion costs. Thus, for the final results, 
we adjusted Pastavilla's monthly per-unit semolina and vitamin costs by 
dividing the monthly cost of each material by the monthly quantity of 
``packed pasta.''

Comment 10: Vitamin Replacement Costs and First Day Corrections

    The petitioners assert that the Department should not accept the 
minor correction made to the vitamin costs submitted at verification. 
They state that Pastavilla's revised methodology calculates per-unit 
vitamin costs by dividing by the quantity of semolina used in the 
production of pasta, rather than by the quantity of packed pasta. Thus, 
the petitioners contend that the per-unit cost of vitamins are 
understated. In addition, according to the petitioners, Pastavilla's 
vitamin costs are not based on the replacement cost methodology.

[[Page 68434]]

    Pastavilla states that the Department should use the verified 
vitamin costs as reported in the clerical error submission. As for 
making the other corrections asserted by the petitioners, Pastavilla 
disagrees.

DOC Position

    For the final results, we revised Pastavilla's per-unit vitamin 
costs using the replacement cost methodology. The replacement cost 
methodology values the vitamins used in production at the vitamins' 
monthly purchase price within each respective month. Adopting this 
methodology accounts for the monthly fluctuations in costs for 
inventories, due to the high inflation experienced during the POR. To 
calculate Pastavilla's per-unit vitamin cost, we relied on packed pasta 
quantities and not the quantity of vitamins input into the production 
process (see Comment 9 for more details). As for the concerns about 
accepting Pastavilla's vitamin costs reported in its clerical error 
submission, they are moot because we did not rely on the information 
for the reasons discussed above.

Comment 11: Severance Reserve Benefits

    Pastavilla argues that the Department should not adjust its 
reported COP and CV figures to include its severance reserve. Instead, 
Pastavilla claims that the reserve should be treated differently than 
the actual severance expense paid to employees which it included in the 
calculation of COP and CV. According to the company, the reserve merely 
represents a possible liability that may never have to be paid. If an 
employee quits or is fired for cause, there is no severance obligation 
due to the employee. Thus, the severance reserve is not a reserve for 
actual expenses incurred, but only for the maximum possible expense 
that might be incurred. Moreover, the reserve is never actually funded 
by the company. Therefore, Pastavilla contends that it is inappropriate 
to classify the reserve as an element of cost, and cites as support for 
its position the Department's decision in Final Determination of Sales 
at Less Than Fair Value: Dynamic Random Access Memory Semiconductors of 
One Megabit and Above From the Republic of Korea, 58 FR 15467, 15479 
(March 23, 1993) (DRAMs from Korea). In that case, the Department found 
that ``it would not be reasonable to make an adjustment for royalty 
expenses which were not actually incurred, and may not be incurred.''
    The petitioners argue that the Department should include the 
reserve for severance benefits in the COP and CV calculation. According 
to the petitioners, the severance expense is a normal operating cost 
which is recorded on Pastavilla's income statement. Moreover, even if 
the expense was recorded as a reserve account, the amount still 
represents a liability that was incurred by Pastavilla as a result of 
operations during the POR. Therefore, the Department should include the 
severance reserve in the calculation of COP and CV.

DOC Position

    We agree with the petitioners that Pastavilla's reserve for 
severance benefits should be included in the calculation of COP and CV. 
Under Turkish law, an employer is required to establish a reserve for 
severance benefits. The employer then pays these severance benefits to 
an employee who is terminated after a minimum period of service. In its 
normal course of business, Pastavilla accrues the monthly cost of this 
liability in accordance with Turkish GAAP, and the accrual is reflected 
as an expense on the monthly income statement. Hence, Pastavilla 
recognizes the accrual as an expense in accordance with Turkish GAAP 
even though it requires no cash funding. Our established practice is to 
include this type of cost in the calculation of COP and CV, because 
this severance reserve represents an expense recognized within the POR 
and should be reflected in the product cost, in accordance with full 
absorption costing principle (see Certain Cut-to-Length Carbon Steel 
Plate From Germany; Notice of Final Results of Antidumping Duty 
Administrative Review, 61 FR 13834, 13838 (March 28, 1996)). As a 
result, we included Pastavilla's severance reserve in the calculation 
of COP and CV to reflect the fully absorbed cost of producing the 
pasta.
    We disagree that DRAMS from Korea supports Pastavilla's claim that 
severance expenses should not be included in the calculation of COP and 
CV. In that proceeding, the Department was asked to include an 
estimated royalty expense which was not recorded in the company's 
financial statements, nor was the company under any legal or accounting 
obligation to pay or record the expense. In the instant review, the 
reserve for severance benefits is a recognized expense which is 
regularly accounted for in Pastavilla's books.

Comment 12: Calculation of G&A Expense Ratio

    Pastavilla contends that it correctly computed its G&A expense 
ratio by including packing costs in the denominator. Pastavilla argues 
that G&A expenses benefit the entire company (including the packing 
activities of the company) and therefore the cost of the packing must 
be included in the denominator. To support its position, Pastavilla 
cites the decision made in Notice of Final Determination of Sales at 
Less Than Fair Value: Steel Reinforcing Bars from Turkey, 62 FR 9737, 
9748 (March 4, 1997) (Steel Reinforcing Bars from Turkey). In that 
proceeding, the Department stated that G&A expenses must be allocated 
over all activities if they support such activities.
    The petitioners argue that packing costs should be excluded from 
the cost of sales (COS) when calculating the G&A and financial expense 
rates. The petitioners claim that when calculating these rates, COS is 
used as the denominator. The calculated rates should then be applied to 
a COM which is on the same basis. According to the petitioners, packing 
costs should be excluded from the COS because it is not included in the 
COM.

DOC Position

    We disagree with Pastavilla that packing cost should be included in 
the denominator (i.e., COS figure) used to calculate the G&A expense 
ratio. If the Department calculated the G&A expense ratio as Pastavilla 
suggests, the result would be distortive because we would be applying a 
ratio which includes packing cost in the denominator to a base which 
does not include packing cost. In order to correctly reflect the G&A 
expenses incurred by Pastavilla, the G&A ratio must be calculated using 
a COS figure that excludes packing costs and applied to a COM that 
excludes packing costs. This is consistent with methodology used in the 
Notice of Final Results of Antidumping Duty Administrative Review: 
Circular Welded Non-Alloy Steel Pipe from the Republic of Korea, 63 FR 
32833, 32837 (June 16, 1998) and the Final Determination of Sales at 
Less Than Fair Value: Static Random Access Memory Semiconductors from 
Taiwan, 63 FR 8910, 8933 (February 23, 1998).
    As to the respondent's citation to Steel Reinforcing Bars from 
Turkey, we disagree that this case supports the company's claim that 
packing should be included in the cost of sales figure. In that 
proceeding, the petitioners argued that the Department should exclude 
specific non-manufacturing activities

[[Page 68435]]

(i.e., cost associated with a port and a cafeteria) from the COS 
figure. We denied the exclusion because we found these costs related to 
a separate line of business and, thus, the company should allocate a 
portion of the G&A expense to those activities. To calculate the G&A 
expense ratio for the final results, we have excluded packing costs 
from the cost of sales figure used in the calculation.

Comment 13: Indexing Monthly G&A Expenses and Cost of Sales Figures

    The petitioners argue that the Department should index Pastavilla's 
monthly G&A expenses to account for the high inflation that incurred in 
Turkey during the POR. According to the petitioners, the Department's 
practice is to index G&A expenses in cases involving inflationary 
economies.
    Pastavilla contends that G&A should not be indexed and 
recalculated. Pastavilla states that G&A expenses are period costs, and 
it is distortive to calculate a monthly G&A and then index it for 
constant currency. Pastavilla claims that since both the numerator and 
denominator of the G&A calculation are equally affected by the high 
inflation, the ratio between them for an annual period is an 
appropriate measure of G&A expense, without further adjustment. In 
addition, Pastavilla claims that G&A expenses are not affected by 
inventory valuation practices which distort costs in an inflationary 
economy, and a constant-currency restatement is not necessary for the 
calculation of the G&A expense rate.

DOC Position

    We agree with the petitioners that Pastavilla's monthly G&A 
expenses and cost of sales figures should be indexed when calculating 
the G&A expense ratio. During Pastavilla's accounting year, the Turkish 
currency lost its purchasing power at such a rate that comparisons of 
unadjusted general expenses and cost of sales occurring at different 
times are not comparable to the same expenses incurred at the beginning 
of the year. That is, the ratio of G&A to cost of sales is not 
necessarily constant for each month throughout the year. Without 
indexation, the calculation of a general expense ratio produces a 
potentially meaningless result because the ratio is applied to an 
indexed COM. The two figures have to be on the same basis. To calculate 
a meaningful general expense ratio, it is necessary to restate each 
month's general expenses and cost of sales figures in equivalent terms, 
that is, the currency value at a given point in time. For the final 
results, we indexed Pastavilla's monthly G&A expenses and cost of sales 
figures using the wholesale price index, published by the International 
Monetary Fund, in order to compute a constant currency G&A expense 
ratio.

Comment 14: Omission of Year-end Adjustments and Production Quantities

    The petitioners argue that the Department should include 
Pastavilla's 1997 year-end adjustments in the COP and CV calculations. 
The petitioners state that year-end adjustments represent actual costs 
which were incurred during the POR, and therefore, the adjustments 
should be included in the calculations of COP and CV.
    Further, the petitioners state that the Department should adjust 
Pastavilla's conversion costs for the final results to correct the 
error in the per-unit costs resulting from an overstatement of the 
production quantities of approximately ten tons.
    Pastavilla argues that the Department determined at verification 
that the year-end adjustments had no impact on their costs, and there 
is no reason to make an adjustment to its reported costs. With respect 
to the ten ton production quantity discrepancy, Pastavilla states that 
it has reported the production quantity correctly. In addition, 
according to Pastavilla, even if the adjustment was reflected in the 
calculation of COP and CV it would have no impact.

DOC Position

    We agree with the petitioners that the year-end adjustments and the 
corrected production quantities should be included in the calculation 
of COP and CV. However, we reviewed the information on the record and 
note that adjusting for the excluded year-end adjustments and the 
corrected production quantities would have no impact on the margin for 
the final results (see Final Results of Antidumping Administrative 
Review: Aramid Fiber Formed of Poly Para-Phenylene Terephthalamide from 
the Netherlands, FR 61 51406, 51408 (October 2, 1996) and Notice of 
Final Determination of Sales at Less Than Fair Value: Large Newspaper 
Printing Presses and Components Thereof, Whether Assembled or 
Unassembled, From Germany, FR 61 38185, 38166 (July 23, 1996)). 
Therefore, for the final results we are not revising the reported costs 
to reflect the year-end adjustments and ten additional tons of pasta 
produced.

Comment 15: Financial Expense Ratio

    Pastavilla argues that the Department should continue to use its 
parent company's (Koc Group) consolidated financial statements to 
calculate interest expense. It asserts that the Department's practice 
has been that where a respondent is a member of a group of companies; 
use of the parent company's consolidated financial expense ratio is 
appropriate. Citing Dupont v. United States, Slip Op. 98-7 at 12 (Ct. 
Int'l Trade, January 29, 1998), the court stated that where (i) the 
group controls the held company, (ii) there are consolidated financial 
statements, and (iii) there are inter-company financing agreements, the 
consolidated financial statements should be used to calculate the 
financial expense rate. Pastavilla states that they have met all three 
of those criteria. Thus, the Department should remain consistent with 
its normal methodology and use Pastavilla's group-wide interest 
expense.
    Further, Pastavilla contends that the reclassification of the 
interest expense was due to the capitalization of interest, for an 
investment project, which is in conformity with Turkish law. Pastavilla 
states that they did not reclassify interest expense and the foreign 
exchange loss to depreciation expense as a directive from the parent 
company.
    In addition, Pastavilla argues that there is no reason to assume 
that any other subsidiary within the Koc Group capitalized interest or 
foreign expenses. Pastavilla states that capitalization of interest is 
permitted under International Accounting Standard (IAS) 23, and must be 
disclosed in the audited financial statements. According to Pastavilla, 
since the Koc Group's financials are in accordance with the IAS, 
capitalization would be noted in the financial statements, and the lack 
of any reference in the audited consolidated financial statements 
indicates that no company in the Koc Group capitalizes interest to a 
degree of having a material effect on the financial statements. 
Therefore, the Department has no reason to assume capitalization of 
interest is occurring among Koc Group members.
    Finally, Pastavilla argues that the reported short-term interest 
income used to offset the interest expense at the consolidated level is 
a reasonable estimation. It states that even if half of the Koc Group's 
financial income were from long-term sources, which is unlikely in 
Turkey's high inflationary environment, the income from short-term 
sources would exceed the total interest expense.

[[Page 68436]]

    The petitioners contend that the Department should use Pastavilla's 
company-specific financial data to calculate the financial expense 
rate. According to the petitioners, although the Department's practice 
is to use consolidated financial statements to calculate financial 
expenses, when errors are discovered in the consolidated data the 
Department should deviate from its normal practice.
    In addition, the petitioners assert that the interest expense and 
foreign exchange losses which were reclassified as depreciation 
expense, and not included in the reported COP and CV, should be 
included in the financial and G&A expense rate calculation, 
respectively. According to the petitioners, the interest expense should 
have been included in Pastavilla's reported financial expenses because 
the expenses were incurred during the period of review. The foreign 
exchange losses are normally included in the COP and CV when a 
respondent realized these losses on the purchases of inputs needed to 
produce subject merchandise. Pastavilla did not provide information to 
show that these losses were not incurred for purchases of inputs. 
Therefore, the interest expense and foreign exchange losses should be 
included in the calculation of the financial and G&A expense rates.

DOC Position

    We agree with Pastavilla that the Department's general practice is 
to use a company's consolidated financial statements to calculate the 
financial expense ratio. Pastavilla's reported consolidated interest 
expense computation, however, is critically flawed, thus making it 
unusable for the final results. Specifically, Pastavilla did not 
provide monthly interest expenses and cost of goods sold amounts for 
the consolidated Koc Group entity. This information was requested in 
both our supplemental section D questionnaire and in the cost 
verification agenda in order for us to have the necessary information 
to calculate an indexed financial expense ratio. In both instances, 
company officials asserted that the Koc Group's monthly interest 
expense and cost of goods sold amounts was too difficult to obtain and 
calculate. Consequently, they did not provide the information. As a 
result, we do not have the necessary information to calculate an 
indexed consolidated financial expense ratio. Consequently, we are 
forced to use facts available, pursuant to section 776(a) of the Act. 
Pastavilla did, however, submit POR monthly interest expense and cost 
of sales amounts for the unconsolidated entity, thus, enabling us to 
compute an indexed interest expense rate. Because it does not appear 
that Pastavilla's consolidated interest expense rate would be higher 
than its indexed unconsolidated rate, we used its unconsolidated 
interest expense rate as facts available for the final results.
    The issues concerning Pastavilla's capitalization of interest 
expense are moot because we have computed Pastavilla's interest expense 
rate on an unconsolidated basis as facts available.
    Finally, we note that because we have calculated Pastavilla's 
interest expense rate at the unconsolidated level as facts available, 
it does not matter whether we treat its foreign exchange losses as G&A 
or interest expense. The same amount of costs related to these items 
are captured either way. For the final results, we included the foreign 
exchange losses in Pastavilla's interest expense calculation.

Final Results of Review

    As a result of our review, we find that the following margins exist 
for the period January 19, 1996, through June 30, 1997:

------------------------------------------------------------------------
                                                                 Margin
                    Manufacturer/exporter                      (percent)
------------------------------------------------------------------------
Pastavilla Kartal Makarnacilik Sanayi Ticaret A.S............       0.00
Filiz Gida...................................................      63.29
------------------------------------------------------------------------

    The Department shall determine, and the Customs Service shall 
assess, antidumping duties on all appropriate entries. As determined by 
the zero margin in these final results, we will instruct the Customs 
Service not to assess antidumping duties on Pastavilla's entries of the 
merchandise subject to the review. We will direct the Customs Service 
to assess antidumping duties on Filiz's entries of the merchandise 
subject to review by applying the assessment rate listed above to the 
entered value of the merchandise.
    Furthermore, the following deposit requirements will be effective 
for all shipments of the subject merchandise from Turkey entered, or 
withdrawn from warehouse, for consumption on or after the publication 
date of these final results of administrative review, as provided by 
section 751(a) of the Act: (1) the cash deposit rate for Pastavilla 
will be zero and the cash deposit rate for Filiz will be 63.29 percent; 
(2) for previously reviewed or 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, a prior review, or the original less-than-fair-
value (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) if neither the exporter nor 
the manufacturer is a firm covered in this review or in any previous 
segment of this proceeding, the cash deposit rate will be 60.87 
percent, the ``all others'' rate established in the LTFV investigation. 
These deposit requirements shall remain in effect until publication of 
the final results of the next administrative review.
    These cash deposit requirements shall remain in effect until 
publication of the final results of the next administrative review.
    This notice also serves as final reminder to importers of their 
responsibility 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 in the subsequent assessment of double antidumping 
duties.
    This notice also is the only reminder to parties subject to 
administrative protective order (APO) of their responsibility 
concerning the return or destruction of proprietary information 
disclosed under APO in accordance with 19 CFR 353.34(d). Failure to 
comply is a violation of the APO.
    This determination is issued and published in accordance with 
sections 751(a)(1) and 777(i)(1) of the Act.

    Dated: December 7, 1998.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 98-33003 Filed 12-10-98; 8:45 am]
BILLING CODE 3510-DS-P