[Federal Register Volume 63, Number 251 (Thursday, December 31, 1998)]
[Notices]
[Pages 72268-72283]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-34705]


-----------------------------------------------------------------------

DEPARTMENT OF COMMERCE

International Trade Administration
[A-560-802]


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

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

EFFECTIVE DATE: December 31, 1998.

FOR FURTHER INFORMATION CONTACT: Mary J. Jenkins or David J. 
Goldberger, Import Administration, International Trade Administration, 
U.S. Department of Commerce, 14th Street and Constitution Avenue, N.W., 
Washington, D.C. 20230; telephone: (202) 482-1756 or (202) 482-4136, 
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 
(April 1998).
FINAL DETERMINATION:
    We determine that certain preserved mushrooms (``mushrooms'') from 
Indonesia 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 amended preliminary determination (Notice of Amended 
Preliminary Determination of Sales at Less Than Fair Value: Certain 
Preserved Mushrooms from Indonesia, 63 FR 46776, September 2, 1998, the 
following events have occurred:
    In September 1998, respondents submitted to the Department the 1997 
annual reports for PT Indofood Sukses Makmur Tbk (``Indofood'') and PT 
IndoEvergreen Agro Business Corp. (``IndoEvergreen''). PT Zeta Agro 
Corporation (Zeta) provided the Department with supplemental 
information regarding its start-up adjustment claim.
    PT Dieng Djaya (Dieng) and PT Surya Jaya Abadi Perkasa (Surya Jaya) 
(Dieng/Surya Jaya) and Zeta submitted to the Department on September 
24, 1998, and

[[Page 72269]]

October 5, 1998, respectively, corrections to their previously 
submitted responses for errors that were found during their 
preparations for verification. During September and October 1998, we 
verified Dieng/Surya Jaya's and Zeta's questionnaire response. 
Following verification, we requested Surya Jaya to submit a revised 
sales tape to include previously unreported, transaction-specific bank 
charges incurred on U.S. sales. We also requested that Zeta submit a 
revised sales tape to include the above-mentioned charges, as well as 
revisions to brokerage and inland freight charges that were previously 
submitted on October 5, 1998. The requested revised data were submitted 
to the Department on November 5, 1998. On November 2 and 3, 1998, we 
issued our verification reports for Dieng/Surya Jaya and Zeta, 
respectively (see Memoranda to the File Regarding Verification of Sales 
and Cost Responses dated November 2, 1998 for Dieng and Surya Jaya, and 
November 3, 1998 for Zeta (``Dieng, Surya Jaya and Zeta Verification 
Reports,'' respectively).
    The petitioners, respondents and Pillsbury Company, an importer of 
subject merchandise (``Pillsbury''), submitted case briefs on November 
9, 1998. On November 10, 1998, petitioners withdrew their request for 
the public hearing which they submitted on August 7, 1998. Petitioners, 
respondents and Pillsbury submitted rebuttal briefs on November 13, 
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 ``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 2003.10.0027, 2003.10.0031, 2003.10.0037, 2003.10.0043, 
2003.10.0047, 2003.10.0053, 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.

Fair Value Comparisons

    To determine whether sales of mushrooms from Indonesia to the 
United States were made at LTFV, we compared export price (``EP'') to 
the normal value (``NV''), as described in the ``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 EPs 
for comparison to weighted-average NVs.
    Furthermore, for Dieng/Surya Jaya, we calculated weighted-average 
EPs based on the combined set of Dieng's and Surya Jaya's U.S. sales, 
and then compared the consolidated set of weighted-average EPs with a 
single set of weighted-average NVs to properly derive the final 
weighted-average margin for the collapsed entity. (See Comment 5 in the 
``Interested Party Comments'' section of this notice for further 
discussion.)
    In this proceeding, we verified that none of the respondents had a 
viable home market or third country market. Therefore, consistent with 
our preliminary determination, we used CV as the basis for NV when 
making comparisons, in accordance with section 773(a)(4) of the Act.

Export Price

    As in the preliminary determination, for both Dieng/Surya Jaya and 
Zeta we used EP methodology, in accordance with section 772(a) of the 
Act, because the merchandise was sold directly to the first 
unaffiliated purchaser in the United States prior to importation and 
CEP methodology was not otherwise indicated.

Dieng/Surya Jaya

    We calculated EP using the same methodology as in the preliminary 
determination, with the following exceptions: We made a deduction to 
the starting price for discounts associated with certain sales reported 
by Surya Jaya (see Surya Jaya Verification Report at 14). We did not 
deduct foreign inland insurance charges incurred by Dieng because we 
verified that these costs were associated with imports of raw materials 
rather than sales of subject merchandise (see Dieng Verification Report 
at 22). We also did not make an adjustment for Dieng's claimed duty 
drawback, as Dieng could not provide evidence of linkage between import 
duties paid and taxes rebated during the POI. (See Comment 9 in the 
``Interested Party Comment'' section for further discussion.)
    Based on our verification findings, we made the following revisions 
to Dieng's U.S. sales database: (1) revised the product, style, grade, 
customer codes, and payment dates for certain transactions, where 
appropriate (see Dieng Verification Report at 19-20); (2) revised the 
POI per-unit bank charge, incorrectly reported as brokerage and 
handling expense in the response, to reflect a value-based allocation 
(see Dieng Verification Report at 22-23); (3) revised the reported POI 
per-unit freight charge (see Dieng Verification Report at 21-22); and 
(4) recalculated credit expense based on the revised payment dates for 
certain transactions and the short-term interest rate verified for 
Surya Jaya (see Dieng Verification Report at 25 and Surya Jaya 
Verification Report at 16).
    Based on our verification findings, we made the following revisions 
to Surya Jaya's U.S. sales database: (1) changed the product code, 
style, customer code, grade, weight, control number, number of cans per 
carton, sales date, payment date, brokerage charge, and quantity for 
certain transactions, where appropriate (see Surya Jaya Verification 
Report at 14-15, and Exhibit 15 of the Dieng/Surya Jaya September 24, 
1998 submission); (2) accounted for discounts granted on certain 
transactions, where appropriate (see Surya Jaya Verification Report at 
14); and (3) recalculated credit expense based on the short-term 
interest rate and payment dates verified for Surya Jaya (see Surya Jaya 
Verification Report at 16).

Zeta

    We calculated EP using the same methodology as in the preliminary 
determination. Based on our verification findings, we made revisions to 
Zeta's

[[Page 72270]]

U.S. sales database, where appropriate, to correct errors in: (1) the 
reported sales dates for certain transactions (see Zeta Verification 
Report at 11-12); (2) the reported shipment date, type of container, 
weight, product code, control number, number of cans per-carton, and 
quantity for certain transactions (see Zeta Verification Report at 20, 
and Zeta October 5, 1998 submission at 2; and (3) the per-unit expense 
amounts reported for insurance, inland freight, and brokerage/handling 
for certain transactions (see Zeta Verification Report at 20-22, and 
Zeta's October 5, 1998 submission at Exhibit 2).

Normal Value

    After testing home market viability as noted above, we calculated 
NV as noted in the ``Price-to-CV Comparisons'' section of this notice.

Calculation of CV

    In accordance with section 773(e) of the Act, we calculated CV 
based on the sum of each respondent's cost of materials, fabrication 
costs, selling, general, and administrative expenses (SG&A), profit, 
and U.S. packing costs. In accordance with section 773(e)(2) of the 
Act, we based selling expenses and profit on amounts incurred and 
realized in the foreign country. Because none of the respondents had a 
viable home market, we based selling expenses and profit on one of the 
alternatives under section 773(e)(2)(B) of the Act. Specifically, 
section 773(e)(2)(B)(iii) of the Act permits the Department to use any 
reasonable method. Therefore, we based selling expenses and profit on 
amounts derived from the 1997 financial statements of an Indonesian 
foods producer. See Comment 2 in the ``Interested Party Comments'' 
section of this notice.

Dieng/Surya Jaya

    We made the following adjustments to the cost data submitted by 
Dieng/Surya Jaya:

Dieng

    1. We calculated CV based on the cost of manufacturing (``COM'') 
during the POI, instead of the cost of goods sold (``COGS'') during the 
POI. See Comment 3 in the ``Interested Party Comments'' section of this 
notice.
    2. We recalculated Dieng's per-unit CVs using a weight-based 
allocation methodology instead of relying on Dieng's standards to 
allocate costs. See Comments 6 and 7 in the ``Interested Party 
Comments'' section of this notice.
    3. We calculated the cost of fancy and non-fancy mushrooms based on 
the weighted-average cost of Dieng's purchases of mushrooms and Dieng's 
own cost to produce mushrooms. See Comment 7 in the ``Interested Party 
Comments'' section of this notice.
    4. We recalculated Dieng's general and administrative (G&A) expense 
ratio excluding selling expenses.
    5. We recalculated the reported financing expense ratio excluding 
the double counting of short-term interest income.

Surya Jaya

    1. We calculated CV based on the COM during the POI, instead of the 
COGS during the POI. See Comment 3 in the ``Interested Party Comments'' 
section of this notice.
    2. We recalculated Surya Jaya's per-unit CV's using a weight-based 
allocation methodology instead of relying on its affiliated company's 
(Dieng's) standards to allocate costs. See Comments 6 and 7 in the 
``Interested Party Comments'' section of this notice.
    3. We recalculated the reported financing expense ratio, excluding 
bank charges associated with letters of credit directly related to U.S. 
sales of subject merchandise and including short-term interest income. 
See Comment 4 in the ``Interested Party Comments'' section of this 
notice.
    4. We excluded from the reported cost of preserved mushrooms the 
offset for fresh mushroom sales revenues, and we allocated the 
resulting total costs equally to all mushrooms produced. See Comment 10 
in the ``Interested Party Comments'' section of this notice.

Zeta

    We made the following adjustments to the cost data submitted by 
Zeta:
    1. We calculated CV based on the COM during the POI, instead of the 
COGS during the POI. See Comment 3 in the ``Interested Party Comments'' 
section of this notice.
    2. We allocated growing costs to sales of fresh mushrooms based on 
weight rather than sales value as discussed in the preliminary 
determination at 41785.
    3. We recalculated the cost of fancy and non-fancy mushrooms based 
on the weighted-average cost of Zeta's purchases of mushrooms and 
Zeta's own production cost of mushrooms. See Comment 13 in the 
``Interested Party Comments'' section of this notice.
    4. We reclassified certain claimed offsets to COM as G&A and 
combined these amounts with the G&A expenses verified and reported by 
Zeta as G&A in its audited financial statements to derive the G&A 
expense ratio applied to COM. See Comments 12 and 15 in the 
``Interested Party Comments'' section of this notice.
    5. We excluded the revenue and cost associated with casing soil and 
spawn compost sales from the reported cost of preserved mushrooms. See 
Comment 12 in the ``Interested Party Comments'' section of this notice.
    6. We recalculated the reported financial expense ratio to include 
certain foreign exchange gains on accounts payable.
    7. We recalculated CV using the net production quantity of 
preserved canned mushrooms instead of the reported gross production 
quantity. See Comment 16 in the ``Interested Party Comments'' section 
of this notice.
    8. We denied Zeta's claimed start-up adjustment because it did not 
satisfy the criteria under section 773(f)(1)(C) of the Act. See Comment 
11 in the ``Interested Party Comments'' section of this notice.

Price-to-CV Comparisons

    For price-to-CV comparisons, we applied the same general 
methodology used in the preliminary determination. However, we also 
made a circumstance-of-sale adjustment, pursuant to section 
773(a)(6)(C)(iii) of the Act and 19 CFR 351.410(c), for U.S. bank 
charges which we verified to be direct selling expenses. (See Comment 4 
in the ``Interested Party Comments'' section of this notice for further 
discussion.) In addition, we made a circumstance-of-sale adjustment for 
revised U.S. credit expenses, where appropriate.
    Petitioners argue that the Department should use two averaging 
periods in its margin calculations to account for the effect of the 
devaluation of the Indonesian rupiah. Petitioners contend that CV 
differs significantly and dramatically over the course of the POI when 
exchange rates are taken into account.
    We have continued to use POI averages for this final determination. 
For further details, please see the discussion in Comment 1 of the 
``Interested Party Comments'' section of this notice, below.

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, ignoring 
fluctuations, 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 respondents for use in our final 
determination. We used standard verification procedures, including 
examination of relevant

[[Page 72271]]

accounting and production records and original source documents 
provided by respondents.

Interested Party Comments

General Comments

    Comment 1: Averaging Periods to Account for the Effect of Time on 
Price Comparability
    Petitioners request that the Department reconsider its preliminary 
decision not to use two six-month averaging periods to calculate the 
dumping margins in this investigation. Petitioners urge the Department 
to depart from its standard use of a single weighted-average price to 
ensure that the currency conversion methodology does not distort the 
Department's calculations of the dumping margins. Petitioners point out 
that the first half of the POI (January-June 1997) was characterized by 
low inflation (approximately 1.5 percent) and virtually no depreciation 
of the currency (less than 3 percent), and that the second half of the 
POI (July-December 1997) was characterized by unexpected, sudden and 
dramatic inflation (approximately 8.1 percent) and extraordinary 
currency devaluation (over 60 percent). Petitioners state that the 
respondents' pricing practices remained the same, in that respondents 
did not take any affirmative actions to minimize or eliminate their 
dumping margins in the second half of 1997 in comparison to the first 
half of 1997. They argue, however, that with respect to the calculation 
of NV, when the rupiah is converted to dollars during the second half 
of the POI, the constant annual weighted-average will be as much as 65 
percent lower than the identical CV that is converted during the first 
half of the POI. In this instance, petitioners state that an otherwise 
stable and constant CV changes dramatically over the course of the 
investigation period when converted to U.S. dollars simply because of 
the currency conversion method that is used. In face of these facts, 
petitioners argue that the merit of using a single weighted-average 
normal value for the entire POI must be carefully evaluated.
    Petitioners cite a number of cases to demonstrate that the 
Department has the authority, under section 777A(d)(1)(A) of the Act, 
to use a variety of methods to compare prices in determining whether 
sales at LTFV exist. Moreover, petitioners note that the SAA at 843 
recognizes that in determining sales comparability for purposes of 
inclusion in a particular average, time is a factor which may affect 
the comparability of sales and that the Department may resort to short 
time periods when NVs included in the averaging group differ 
significantly over the POI. The cases cited by petitioners to support 
their statement, include: the Final Determination of Sales at Less Than 
Fair Value: Nitrocellulose from Brazil, 55 FR 23120, June 6, 1990 
(``Nitrocellulose from Brazil''), where the Department recognized and 
attempted to minimize the effect of severe currency devaluation; 
Certain Fresh Cut Flowers from Colombia: Final Results and Partial 
Recission of Antidumping Duty Administrative Review (62 FR 53287, 
October 14, 1997) (``Colombian Flowers''), where the Department revised 
its methodology in light of the ``devaluation of the Colombian 
currency;'' the Final Determination of Sales at Less Than Fair Value: 
Fresh Kiwi Fruit from New Zealand, 57 FR 13695, April 17, 1992 (``Kiwi 
Fruit from New Zealand''), where the Department expanded the POI to 
ensure ``an accurate measure of less than fair value sales;'' and the 
Final Determination of Sales at Less Than Fair Value: Polyvinyl Alcohol 
from Taiwan, 61 FR 14106, March 29, 1996 (``PVA from Taiwan''), where 
the Department established two averaging periods because of a 
``distinct dividing line'' between price trends in the home market.
    In addition to the cases previously cited, the petitioners further 
point out that the SAA at 841 notes that the ``goal'' of the 
Department's practice ``is to ensure that the process of currency 
conversion does not distort dumping margins.'' Citing Melamine 
Chemicals v. United States, 732 F. 2d 924, 929; 932 (Fed. Cir. 1984), 
and Koyo Seiko, 20 F. 3d 1156,1158 (Fed. Cir. 1994), petitioners assert 
that dumping margins should not be ``artificially'' eliminated because 
of unanticipated changes in the exchange rate given that the goal of 
the antidumping law is to protect the domestic industry from unfair 
trade practices.
    In response to the respondents' contention prior to the preliminary 
determination that the decline in the rupiah did not cause any 
distortions or ``masking'' of dumping because the decline affected both 
respondents'' sales revenues and costs, petitioners maintain that: (1) 
the devaluation did not affect the respondents costs because the 
purchases of cans, which comprise a major portion of their costs, made 
after the rupiah devalued were excluded from their reporting; and (2) 
petitioners' foreign market research and respondents' past financial 
statements showed substantial losses until the rupiah devaluation at 
which point the respondents showed a profit.
    Moreover, petitioners assert that the Department has on other 
occasions made special adjustments to a respondent's costs to account 
for ``extraordinary events'' that occurred during the POI or period of 
review to achieve a fair result, particularly when a company's own 
financial statements highlight the unusual and extreme nature of the 
event. (See e.g., Notice of Final Determination of Sales at Less than 
Fair Value: Large Newspaper Printing Presses and Components Thereof, 
Whether Assembled or Unassembled from Japan, 51 FR 38139, 38153 July 
23, 1996.)
    Petitioners conclude that if a respondent is dumping during a time 
of stable inflation and currency valuation, dumping should not be 
eliminated by of an extraordinary devaluation of the currency that 
otherwise has no impact on the respondent's pricing practices.
    According to respondents, none of the cases cited by petitioners 
support their argument. Respondents assert that the statute and the 
regulations already provide a methodology for making currency 
conversions in the face of movements in exchange rates such as the 
devaluation at issue. Absent a rational explanation from petitioners as 
to why the currency conversion provisions are inadequate to handle 
exchange rate movements, respondents maintain that the Department 
should not use currency changes as a reason to depart from the 
averaging requirements. Respondents contend that the facts in all of 
the cases cited by petitioners can be distinguished from those in this 
investigation on the basis that respondents' U.S. prices did not ``move 
significantly'' during the POI.
    Furthermore, respondents assert that no data are available to 
calculate CVs for two six-month averaging periods because the 
Department required the respondents to report CV on an annual basis. 
Unlike other cases such as Static Random Access Memory Semiconductors 
From Taiwan, 62 FR 8909, February 23, 1998, where the Department 
solicited and used quarterly price and cost data in its analysis in 
recognition of significant price movement during the POI, respondents 
claim that the Department did not solicit CV data on a semi-annual 
basis in this case allegedly because respondents' U.S. prices did not 
move significantly.
    Finally, respondents state that the calculated NV in rupiah terms 
was stable during 1997, but that does not mean that respondents were 
not affected by the rupiah's decline. Respondents

[[Page 72272]]

point out that, first, the rupiah's decline meant that the interest and 
principal payments for U.S. dollar-denominated loans increased. Second, 
the rupiah's decline meant that production inputs based on imported 
material, such as cans, became more expensive. Respondents claim that 
contrary to petitioners' allegations, these higher can purchase costs 
were incorporated into Dieng's actual costs, which were used as the 
basis for Dieng's reported costs. Therefore, respondents maintain that 
comparing CV based on a full year, which includes the effects of the 
rupiah's decline, to two averages based on half-yearly prices, will 
create dumping margins where none existed. Based on the foregoing 
arguments, respondents conclude that the Department's regulations are 
sufficient to address currency exchange fluctuations and, therefore, 
the Department should adhere to its preliminary decision and continue 
to average prices over the entire POI.
    Similarly, Pillsbury, an importer of subject merchandise, argues 
that the Department should continue to reject petitioners' request for 
two averaging periods after finding no evidence that there has been a 
significant change in the respondents' pricing or marketing behavior 
during the POI. Pillsbury points out that the Department has subdivided 
the POI in the limited circumstances where exporters behaved 
differently at different times in the investigation period. Pillsbury 
attests, based on its own knowledge, that the Department's finding of 
no change in the exporters' pricing or marketing behavior during the 
POI is correct. Pillsbury argues that the cases cited by petitioners to 
support their arguments are neither a precedent for the result they 
seek, nor broadly analogous to the circumstances of this investigation 
and, in fact, support rejection of petitioners' position.

DOC Position

    Whether the Department should use shorter averaging periods where 
there is a significant decline in the value of the foreign currency 
over the POI is a complex issue. In such cases, we are concerned that 
using a single average NV for the POI could mask significant dumping 
during the period prior to the devaluation. Consequently, it may be 
necessary to use two or more averaging periods to avoid a distortion in 
the dumping analysis. However, we note that using two averaging periods 
in this case, as proposed by the petitioners, would have virtually no 
effect and therefore this issue is without consequence. Thus, we have 
declined to alter our methodology in this case. We will continue to 
examine in future cases whether it is appropriate to use two or more 
averaging periods, or some other method, to avoid distortion in the 
dumping analysis. We note that we have given further consideration to 
the reasons stated in the preliminary determination for using one 
averaging period. Although we continue to find that there are 
distinctions between PVA from Taiwan and this case, we believe that 
consideration of those distinctions is not sufficient. In addition to 
changes in selling practices, we believe that we should also consider 
other factors, such as prolonged large changes in exchange rates, in 
determining whether it is appropriate to use more than one averaging 
period.
    Comment 2: Calculation of Profit and Selling Expenses for CV
    Respondents argue that the Department improperly calculated profit 
and selling expenses in Dieng/Surya Jaya's and Zeta's CV calculation in 
the preliminary determination by basing its calculations on the selling 
expenses and profit contained in the 1996 financial statement of 
Indofood, an Indonesian food producer that does not produce preserved 
mushrooms. Respondents contend that the Department should have used the 
1997 financial statements of IndoEvergreen, a producer of subject 
merchandise and a non-mandatory respondent in this investigation, as it 
is the only available information on the record which satisfies the 
statutory requirements under Section 773(C)(2)(B) of the Act for 
calculating CV profit and selling expenses based on alternative 
methods.
    Pillsbury states that, regardless of whether the Department decides 
to use information from IndoEvergreen or Indofood in determining profit 
for the mandatory respondents, it should use the available 1997 profit 
data. According to Pillsbury, in determining an exporter's actual 
profit under 19 U.S.C. Section 1677b(e)(2)(A), the Department considers 
profit realized during the POI, not an earlier period. Pillsbury 
continues that, because 19 U.S.C. Section 1677b(e)(2)(B)(ii) and (iii) 
are designed as substitute methods to determine the exporter's profit, 
they too should reflect the POI.
    Petitioners disagree, stating that the Department cannot use any 
financial statements from 1997 because: (1) neither IndoEvergreen nor 
Indofood recorded any net income (or profit) in 1997; and (2) the 
substantial depreciation of the Indonesian rupiah in 1997 significantly 
impacted the financial results of both companies, thus making their 
expenses and financial results aberrational and, thus, unusable for our 
purposes.
    Specifically, petitioners contend that the Department cannot assign 
``zero'' profit to CV in an investigation because profit, which 
reflects net income, is positive, and that the SAA directs the 
Department to include profit in the calculation of CV. While 
petitioners agree with Pillsbury that it is ``axiomatic'' that 1997 
data would normally provide the appropriate basis for determining 
profit in this investigation, they state that there is no profit 
information from 1997 on the record of this investigation. Citing Final 
Determination of Sales at Less Than Fair Value: Collated Roofing Nails 
from Taiwan, 62 FR 51427, October 1, 1997 (``Collated Roofing Nails 
from Taiwan'') and Silicomanganese from Brazil: Final Results of 
Antidumping Duty Administrative Review, 62 FR 37869, July 15, 1997 
(``Silicomanganese from Brazil''), among other cases, the petitioners 
emphasize that zero profit is not a valid option. Therefore, the 
petitioners maintain that the Department must use profit data on the 
record from 1996. Moreover, petitioners assert that, as noted in the 
SAA, if the Department were to assign a ``zero'' profit rate to 
respondents based on the 1997 results of IndoEvergreen, then 
respondents would benefit ``perversely'' from their own unfair pricing 
because IndoEvergreen is not a mandatory respondent in this 
investigation, and is therefore subject to the ``all others'' rate 
which is determined by the weighted-average dumping margin of Dieng/
Surya Jaya and Zeta.
    Furthermore, petitioners argue that not only is there no profit on 
the record for the two 1997 financial statements submitted by 
respondents, but the results contained therein are aberrational and 
unusable for purposes of determining selling expenses and profit 
because they reflect extraordinary losses as a result of the 
depreciation of the Indonesian rupiah which affected both Indofood's 
and IndoEvergreen's performance in 1997.
    In addition, the petitioners point out that just as IndoEvergreen's 
1997 financial statement is unusable for the reasons previously stated, 
IndoEvergreen's 1996 financial statement is also unusable and was 
properly rejected by the Department in its preliminary determination 
because it was unaudited. Citing the Final Determination of Sales at 
Less than Fair Value: Canned Pineapple Fruit from Thailand 60 FR 29553, 
June 5, 1995 (``CPF from Thailand''), petitioners point out that it is 
the Department's practice to use audited financial

[[Page 72273]]

statements in the calculation of expenses and profit for CV because 
these statements provide the most accurate and reasonable basis for 
estimating actual expenses. Therefore, petitioners argue that the 
Department has only one option in the final determination, and that is 
to derive CV profit and selling expenses using the 1996 financial 
statements of Indofood.

DOC Position:

    We agree with respondents, Pillsbury, and petitioners in part. 
While our general methodology for calculating CV profit did not change 
since the preliminary determination, we are using a different source of 
financial data to recalculate selling expense and profit amounts. As in 
the preliminary determination, we applied alternative three under 
section 773(e)(2)(B) of the Act to obtain an amount for selling expense 
and profit. As facts available, we used the 1997 financial statements 
of Indofood, adjusted as described below, in our calculation of CV 
selling expenses and profit. For G&A expenses, we have continued to use 
the actual expenses contained in the respondents' financial statements, 
as revised based on verification findings.
    As noted correctly by petitioners, the use of a zero or negative 
profit in our CV calculation would be inconsistent with the SAA and the 
Department's past practice. (See, e.g., Silicomanganese from Brazil at 
37877, where the Department determined that a positive amount for 
profit must be included in the CV calculation.)
    While in this case the 1997 financial statements of both 
IndoEvergreen and Indofood record losses in 1997, we have determined 
that the use of Indofood's 1997 financial statement to calculate CV 
selling expenses and profit is reasonable after making certain 
appropriate adjustments. Indofood's financial statement represents 
financial results predominately on home market sales and thus, the 
resulting income reasonably represents a home market profit. In 
addition, while Indofood's 1997 income statement shows a net loss for 
the year, it was profitable in 1997 before taking into account an 
extraordinary expense that appears to relate to foreign currency losses 
associated with debt. The Department's practice with respect to foreign 
currency losses associated with debt is to recognize only the loss 
related to the current portion of the debt. (See Fresh Atlantic Salmon 
from Chile, 63 FR 31430, June 9, 1998 (``Salmon from Chile'').) 
Therefore, by including only the current portion of the foreign 
currency loss, the company's operations show a profit. We did not use 
the 1997 financial statement of IndoEvergreen, a producer of subject 
merchandise and a non-mandatory respondent in this investigation, 
because it represents financial results predominately on sales to the 
U.S. and third country markets. Thus, it was not possible to compute a 
home market profit figure from IndoEvergreen's financial statements.
    Based on the foregoing, we conclude that Indofood's 1997 financial 
statement, adjusted as previously described, is the most reasonable 
alternative on the record of this proceeding on which to base the 
calculation of CV selling expenses and profit under section 
773(e)(2)(B)(iii) of the Act because Indofood is a large processor of 
food products, its 1997 financial statement overwhelming reflects home 
market sales, and the information is contemporaneous with the POI.
    Comment 3: Use of COM Versus COGS.
    Petitioners argue that the Department must revise respondents' 
reported costs to properly reflect respondents' COM during the POI, not 
their costs of producing the goods sold during the POI which include 
historical costs of inventory from the prior period and exclude the 
cost of ending inventory. Petitioners contend that since COGS includes 
beginning inventory and net purchases during the period, but excludes 
ending inventory, respondents have effectively ignored the increased 
costs of imported materials associated with the devaluation of the 
rupiah during the last few months of the POI. Petitioners further argue 
that, pursuant to respondents' reporting methodology, the costs of a 
product that was produced during the POI, but not sold during the POI, 
are not included in CV. Petitioners assert that respondents should not 
be allowed to manipulate reported costs by including costs incurred 
prior to the start of the POI and excluding costs incurred towards the 
end of the POI. Finally, petitioners contend that the use of COM in the 
calculation of NV based on CV is a long-standing practice that has been 
required by the Department in virtually all cases.

DOC Position:

    We agree with petitioners that the reported costs should be derived 
using the COM rather than the COGS. The Department's long-standing 
practice is to calculate the cost of production (``COP'') and CV based 
on the COM of the subject merchandise during the POI, where available, 
rather than on the COGS during the POI. The COM represents the cost to 
manufacture the product during the period. The Department does not use 
the COGS because it typically includes the value of merchandise held in 
inventory at the beginning of the period and excludes the value of 
merchandise produced but not sold during the period. The value of the 
merchandise sold from beginning inventory relates to a previous period. 
Additionally, COGS may include inventory values that have been adjusted 
(e.g., inventory written down) to the lower of cost or market and, 
therefore, do not represent the actual production costs. As stated in 
section 773(e)(1) of the Act, the COM for CV shall include the COM 
``during a period which would ordinarily permit the production of the 
merchandise in the ordinary course of business.'' Using the COM during 
the POI normally covers the period needed to produce the subject 
merchandise just prior to export and excludes the changes in inventory. 
Furthermore, only under case-specific circumstances does the Department 
extend the period used to calculate the COM outside of the POI (e.g., 
if the production cycle of the subject merchandise extends beyond the 
POI). Although the CV section of the Act does not specifically address 
a cost reporting period, section 773(b)(2)(D) of the Act states that 
the recovery of costs is provided for ``[i]f prices which are below the 
per unit cost of production at the time of sale are above the weighted 
average per unit cost of production for the period of investigation or 
review'' (emphasis added).
    Moreover, in this case, the respondents incorrectly derived the 
per-unit costs that were used in the preliminary determination by 
dividing the COGS by the units produced during the POI, not the units 
sold. To properly derive the per-unit costs, we divided the COM 
incurred during the period by the units produced during the period.
    Therefore, in the final determination, we have adjusted the 
reported costs for each respondent based on the COM during the POI in 
accordance with our normal practice and our findings at verification. 
(See Calculation Memorandum for Dieng/Surya Jaya and Zeta, 
respectively, dated December 18, 1998.)
    Comment 4: Zeta and Surya Jaya's Bank Charges
    Petitioners argue that the bank charges found at verification that 
were incurred by Zeta and Surya Jaya should be deducted from U.S. price 
because the bank charges were directly related to the two companies' 
U.S. sales of subject merchandise.
    Respondents note that if the Department deducts bank charges from

[[Page 72274]]

Surya Jaya and Zeta's U.S. sales prices, the Department should not 
include these bank charges in the financial expenses calculated for CV 
purposes.

DOC Position:

    We agree with both petitioners and respondents in part. We verified 
that bank charges directly associated with U.S. sales of subject 
merchandise were incorrectly included in the calculation of the 
financial expense for Surya Jaya and the SG&A expense for Zeta. (See 
Surya Jaya Verification Report at 16, and Zeta Verification Report at 
23, respectively.) Accordingly, we have made a circumstance-of-sale 
adjustment to NV for the bank charges at issue in accordance with 
section 351.410(c) of the Department's regulations, and have excluded 
them from the calculation of the financial expense and G&A expense for 
CV purposes, where applicable, for each company.

Dieng/Surya Jaya Comments

    Comment 5: Failure to Calculate Weight-averaged EP for Dieng/Surya 
Jaya
    Respondents maintain that the Department failed to treat affiliated 
producers, Dieng and Surya Jaya, as a single collapsed entity in the 
preliminary determination based on the calculation methodology 
employed. Specifically, respondents assert that, although the 
Department calculated one set of weighted-average NVs for both Dieng 
and Surya Jaya, it incorrectly calculated a separate set of weighted-
average EPs for Dieng's U.S. sales and Surya Jaya's U.S. sales. The 
Department then proceeded to calculate separate margins for Dieng and 
Surya Jaya, and averaged these two margins to derive the preliminary 
margin for both companies. In order to comply with section 
777A(d)(1)(A)(i) of the Act which was the Department's stated intent in 
the preliminary determination, respondents argue that the Department 
should calculate a single set of weighted-average EPs based on the 
combined set of U.S. sales of both Dieng and Surya Jaya, and then 
compare these consolidated U.S. sales with a single set of weighted-
average NVs (in this case CVs) to properly derive the final weighted-
average margin for the collapsed entity.

DOC Position:

    We agree with respondents and have adjusted our calculations as 
appropriate as explained in the ``Fair Value Comparisons'' section of 
this notice.
    Comment 6: Use of Dieng's Standard Cost System and Reported Cost 
Allocation
    Petitioners argue that the Department should reject Dieng's cost 
allocation methodology because it is based on standard costs that yield 
illogical and inaccurate results. To support their argument, 
petitioners present an analysis of the difference in the reported 
adjusted or ``actual'' cost and the standard cost for the direct 
material costs of a four-ounce product. Petitioners argue that the 
analysis shows that the difference between the ``standard'' cost and 
the ``actual'' cost cannot be considered reasonable or accurate and, 
therefore, should be rejected. Petitioners point out that, at 
verification, when the Department compared the per-unit standard cost 
for several products from the ending inventory to the reported adjusted 
per-unit costs, it noted inconsistencies for all products, and that the 
variance percentage was negative for some products and positive for 
others. According to petitioners, such inconsistencies should not exist 
between products in which the only difference is the total net drained 
weight of the container size. According to petitioners, the first major 
problem is not the direction or sign of the variance, but the magnitude 
of the variance. The second major problem is that Dieng's standard 
costs have not been used historically by Dieng in the normal course of 
business, which is in violation of the statute and the SAA. With 
respect to the first problem, petitioners state that Dieng offers no 
explanation as to the gross disparities between standard costs and its 
reported ``actual'' costs, other than the fact that total costs overall 
do not vary as dramatically as per-unit costs. Petitioners argue that 
the issue is whether Dieng's standard costs and its allocation of these 
overall costs to each individual product are accurate. With respect to 
the second problem, petitioners point out that according to the 
verification report, the ``simple'' standard cost system was not 
designed or implemented until the end of 1995, just one year prior to 
the beginning of the POI.
    Petitioners assert that the Department's practice is to calculate 
costs on the basis of records kept by the respondent if the Department 
is satisfied, among other things, that the respondent's records 
reasonably reflect the costs of producing the subject merchandise. If 
the Department determines that a company's normal accounting practices 
result in a unreasonable allocation of production costs, petitioners 
assert that the Department will make certain adjustments or may use 
alternative methodologies that more accurately capture the costs 
incurred. Petitioners maintain that Dieng's standard cost allocations 
have not been used historically in the normal course of business and do 
not reasonably reflect the costs associated with the subject 
merchandise, as the above analysis indicates. Therefore, petitioners 
contend that the Department should adjust Dieng's reported costs using 
the weight-based methodology proposed in petitioners' case brief and 
used in the Chilean preserved mushrooms investigation.
    Respondents argue that the Department should continue to use the 
reported costs of Dieng/Surya Jaya for purposes of calculating the 
final dumping margin because the Department has verified that Dieng's 
standard cost system is reliable and reasonably reflects the actual 
costs incurred by Dieng during the POI. Respondents further state that 
the Department's statements in the Dieng verification report 
questioning the reliability of Dieng's cost standards based on the 
observation that ``individual standard costs are adjusted by different 
percentages and different directions'' are flawed because they are 
based on incorrect data or misapplied accounting principles. 
Respondents maintain that petitioners ignore the substantial record 
evidence demonstrating the reliability of Dieng's standard cost system, 
which has been fully verified and audited by an independent auditor.
    Respondents contend that petitioners' comments should be rejected 
for the following specific reasons: First, respondents maintain that a 
comparison of total per-unit standard costs to total per-unit actual 
costs is inappropriate because it overlooks the effects of the 
individual variances calculated for each cost element. According to 
respondents, the approach suggested in the verification report and by 
petitioners would require the calculation of a uniform variance based 
on the total actual cost and the total standard cost, but the 
application of this uniform variance would inappropriately cut across 
all cost elements and distort the individual variances specifically 
calculated for each cost element. This approach would be inconsistent 
with Department practice, as exemplified in New Minivans from Japan: 
Final Determination of Sales at Less Than Fair Value, 57 FR 21937, May 
26, 1992 (``Minivans from Japan''), where the Department used 
individual variance factors for materials and for labor and overhead 
and adjusted the reported production costs for each minivan

[[Page 72275]]

model to reflect the use of the revised variance factors for each cost 
element; and Antifriction Bearings (Other Than Tapered Roller Bearings) 
and Parts Thereof From France, Germany, Italy, Japan, Romania, 
Singapore, Sweden, and the United Kingdom, 60 FR 10900, February 28, 
1995, where the Department rejected application of plant-wide variances 
to all products (instead of product-specific variances) because it 
overstated costs for non-subject merchandise. Respondents continue that 
Dieng never reported total standards and Dieng's cost accounting system 
does not use the total standards that the verification report used for 
comparison.
    Second, respondents assert that the questions raised in the 
Department's verification report rely on the erroneous proposition that 
variances from a standard occur in one direction, which is inconsistent 
with cost accounting principles. Respondents explain that, by 
definition, variances from a standard are not adjusted in the same 
direction. Respondents state that Dieng complied with the requirements 
of the Department's questionnaire and reported all of the variances 
calculated for each cost element (material, labor, variable and fixed 
overhead) in its normal standard cost system. Dieng then calculated a 
percentage variance that was applied uniformly to the standard cost 
established for that element for all of Dieng's products. According to 
the respondents, the analysis in the verification report ignored the 
variances calculated at each cost element and instead compared only 
total per-unit variances. Although the variance for each cost element 
is uniformly applied to all products, respondents explain that the 
overall variances calculated by the method used in the verification 
report (i.e., the sum of all cost elements) will be favorable for some 
products, but unfavorable for other products. Respondents point out 
that this result is not inconsistent with the variances calculated for 
elements which are uniform. In respondents' opinion, the conclusions 
suggested in the verification report provide no legitimate basis on 
which to question the reliability of Dieng's standard cost accounting 
system.
    Third, respondents maintain that, regardless of the magnitude of 
the variances, the Department verified that Dieng's standard costs 
distributed all of Dieng's actual costs as tied to the audited 
financial statement. Accordingly, respondents argue that Dieng's 
reported production costs accurately reflect Dieng's actual costs 
because they were based on Dieng's reliable standard cost allocation 
system. Moreover, respondents point out that the magnitude of the 
variance for each cost element does not determine the reliability of a 
company's standard cost system. To support their statements, 
respondents cite to Final Results of Antidumping Duty Administrative 
Review: Porcelain-on-Steel Cookware from Mexico, 62 FR 42496, August 7, 
1997 (``Porcelain-on-Steel Cookware from Mexico''), where the 
Department refused to use facts available because of the magnitude of 
the respondent's reported variances and determined that the 
respondent's variances were allocated to a sufficient level of product-
specific detail to satisfy the Department's questionnaire requirements. 
Respondents maintain further that petitioners' suggestion that the 
Department ignore the variances calculated for each cost element and 
apply an overall variance is contrary to Department practice and 
fundamental accounting principles. According to the respondents, record 
evidence shows that the total of all standard costs is very close to 
the total of actual costs reported. In this regard, respondents point 
out that after adjusting the reported cost data for the difference 
between COM and COGS, as noted in the Department's verification report, 
Dieng's actual material costs (and thus total actual costs) increase, 
resulting in a small overall variance between standard and actual 
costs. Respondents interpret this result to mean that the total 
standard material costs virtually match the actual costs incurred by 
Dieng, and that the material cost system accurately measures Dieng's 
production costs.
    Fourth, respondents argue that petitioners ignore the Department's 
statutory preference for using the existing cost system of a respondent 
if it is consistent with local Generally Accepted Accounting Principles 
(``GAAP'') and is not distortive pursuant to section 773(f)(1)(A) of 
the Act. Respondents point out that Dieng's independent auditor and the 
Department both confirmed that Dieng's accounts are consistent with the 
GAAP of Indonesia. Respondents conclude that in light of these facts, 
the Department's practice requires the acceptance and use of Dieng's 
standard costs to calculate the CV of Dieng/Surya Jaya.
    Pillsbury argues that the Department should continue to base its CV 
calculation on the standard costs reported by Dieng in the final 
determination because the Department verified that these costs are used 
in the normal course of business, are consistent with GAAP in 
Indonesia, and reasonably reflect the cost of producing the subject 
merchandise in Indonesia.

DOC Position:

    We agree with petitioners that the per-unit costs generated by 
Dieng's standard cost system are distorted and cannot be relied upon to 
form the basis of CV for the final determination. 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 mis-allocation of production costs, the Department adjusts 
the respondent's costs or uses alternative calculation methodologies 
that more accurately capture the actual costs incurred to produce the 
merchandise. See, e.g., Minivans from Japan at FR 21952 (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 CPF from Thailand at FR 29559 (where the 
Department rejected the use of Dole's normal cost allocation 
methodology because it did not ``reasonably reflect'' the cost of 
producing the merchandise).
    In the instant case, we find that Dieng's standard costs do not, as 
noted below, reasonably allocate costs to individual products. While we 
agree with respondents that the variances for individual cost elements 
may be favorable or unfavorable and that the net effect of variances 
could make individual unit standard costs move in different directions, 
the magnitude of Dieng's individual variances seriously calls into 
question the reasonableness of the individual product standard costs. 
In the Porcelain-on-Steel Cookware from Mexico proceeding cited by 
Dieng, the Department accepted the large variances because inflation in 
Mexico was greater than 50 percent during the period and therefore 
large price variances in one direction were expected. However, the 
magnitude of the variances in Dieng's system cannot be explained by 
inflation. Extraordinarily large variances, by definition, mean that 
the standard costs that went into deriving those variances do not 
reasonably reflect the actual costs

[[Page 72276]]

incurred to produce the individual products. These large variances 
occurred even though the standards were new, which raises questions as 
to whether the standards were accurately developed by Dieng. 
Furthermore, our observations at verification imply that they were not 
accurately developed. We note that the individual cost elements of 
Dieng's per-unit standards, such as direct labor, indirect labor, 
energy, and depreciation, are identical to each other and do not vary 
according to the specific requirements of each cost element necessary 
to produce the individual products. Additionally, Dieng used the price 
of the two mushroom qualities (i.e., fancy and non-fancy) it purchased 
as the standard cost of all mushrooms in its derivation of per-unit 
standards, without factoring in its own production cost. This 
methodology artificially allocates more mushroom costs to products that 
use fancy mushrooms (i.e. mushrooms sold whole or in slices). The 
reliability of Dieng's standard costs is further undermined by Dieng's 
apparent unfamiliarity with calculating variances. As Dieng admits, it 
improperly calculated the variance between standard and actual 
materials by using the COGS rather than the COM, and now argues that, 
after this problem is corrected, the remaining variance is reasonable 
for the reasons previously explained. We disagree that after this 
adjustment the materials variance is reasonable for the reasons 
previously explained. Furthermore, Dieng does not address the other 
large variances (i.e. direct labor, indirect labor, energy, and 
depreciation).
    We also disagree with Dieng's argument that it is not a problem 
that the individual variances are large because the overall variance is 
not great. The fact that the inaccurate standards for each major cost 
element add up to a total that is closer to the actual total costs does 
not support the claim that individual standard costs are reliable. The 
issue here is the allocation of costs between products or, in other 
words, the reliability of the standards, not the inclusion of total 
costs. We are not persuaded by the fact that there was no objection to 
the use of its standard costs noted by the auditors in Dieng's 
financial statements. Consistent with CPF from Thailand and Salmon from 
Chile, the absence of the auditor's direct comment does not indicate 
reasonableness of those standards for CV calculation purposes; rather 
it indicates that either the standards used to value ending inventory 
were lower than market prices or any mis-statement was not significant 
to the financial statement's presentation.
    For the final determination, we rejected the use of Dieng's 
standard costs and derived CV using a weight-based allocation 
methodology, as explained further in Comment 7 below. For the same 
reasons, we have not used Dieng's standard costs to derive Surya Jaya's 
per-unit costs, as reported, but have derived CV using a weight-based 
allocation methodology.
    Comment 7: Revision of Dieng's Submitted Costs Using Production 
Quantity and Total Costs
    Petitioners argue that the Department should reject Dieng's cost 
allocation methodology since it yields unreasonable results, and revise 
Dieng's submitted costs to reasonably reflect the costs of producing 
the subject merchandise using a weight-based allocation. For example, 
petitioners point out that a careful review of Dieng's production 
process shows that Dieng's claim that whole mushrooms ``require longer 
actual time to process'' than pieces and stems is due to the fact that 
the ``workers set aside the whole mushrooms until there are sufficient 
mushrooms to manufacture whole mushrooms (or sliced mushrooms) in a 
production batch.'' Therefore, the petitioners assert that the only 
extra ``time'' involved is the time mushrooms must be ``set aside,'' 
which, despite Dieng's claim to the contrary, does not imply that the 
production time is any longer. Petitioners suggest that the Department 
revise the submitted costs by allocating Dieng's reported production 
costs using a drained-weight methodology. Petitioners state that such 
an allocation methodology based on net drained weight produced is 
consistent with the Department's chosen methodology in the companion 
investigation of preserved mushrooms from Chile, where respondent's 
reported allocation methods were rejected by the Department. 
Petitioners also note that Dieng's affiliate Surya Jaya improperly used 
Dieng's standard costs even though it did not use a standard cost 
system to record its own costs. Since Dieng's standard cost system is 
unreliable and Surya Jaya does not use a standard cost system, 
petitioners argue that Surya Jaya's costs must also be restated 
according to the methodology previously described.
    Respondents argue that petitioners failed to provide an alternative 
allocation methodology that would be more reasonable than Dieng's 
standard cost system. According to respondents, petitioners' proposal 
to use a weight-based allocation of costs is not more accurate because 
a weight-based allocation does not properly account for the cost and 
processing time differences in producing the different types of canned 
mushrooms. Specifically, respondents point out that: (1) petitioners 
have used the purchase price of cans during the POI which is 
inappropriate and inconsistent with the Department's practice of using 
consumption costs; (2) petitioners' methodology would ignore the 
additional time and costs associated with the processing of fancy 
mushrooms in manufacturing sliced and whole mushrooms; (3) Dieng's 
standard cost system differs from that of the respondent in the Chilean 
preserved mushrooms case, because unlike Dieng, the Chilean respondent 
had no established cost accounting system and had to develop a 
methodology; and (4) Dieng's standard costs are an acceptable and 
accurate means to report costs that are specific to each grade of 
subject merchandise sold to the United States, whereas allocating costs 
purely on the basis of weight would render the product characteristics 
useless in this investigation
    Respondents further contend that use of a weight-based allocation 
would result in the creation of dumping margins simply by comparing a 
uniform per-kilogram cost to products, the actual costs and prices of 
which reflect more than weight. Respondents point out that the 
Department has recognized that a weight-based allocation is not 
appropriate in the context of a processed agricultural product. 
Respondents state, for example, that in CPF from Thailand, at FR 
29560), the Department rejected a proposal to depart from the 
respondents' normal cost allocation in favor of a weight-based 
allocation. In that case, respondents state that the Department 
explained that a weight-based allocation of pineapple fruit costs would 
not be appropriate, and that ``using weight alone as the allocation 
criteria sets up the illogical supposition that a load of shells, 
cores, and ends [used to produce juice products] cost just as much as 
an equal weight of trimmed and cored pineapple cylinders used to 
produce canned pineapple fruit.'' Respondents state that, for 
mushrooms, a weight-based allocation would make the analogous illogical 
presumption that a load of fancy mushrooms used to produce whole or 
sliced preserved mushrooms costs just as much as an equal weight of 
non-fancy mushrooms when the record evidence shows that fancy and non-
fancy mushrooms have different acquisition costs.

[[Page 72277]]

DOC Position:

    We agree with petitioners that Dieng's reported costs are 
unreliable and have recalculated Dieng's per-unit costs using a weight-
based methodology. Because Surya Jaya's submitted costs were based on 
Dieng's standard cost system which we have rejected for purposes of the 
final determination, we have also recalculated Surya Jaya's costs using 
a weight-based methodology.
    As discussed in Comment 6 above, we have determined that Dieng's 
standard cost system is not reliable because the allocation methods 
used in Dieng's system distort costs. While Dieng argues we must use 
its standard costs to account for processing differences, we note that 
one reason the standards were rejected was that they do not 
differentiate costs based on product differences. Moreover, we agree 
with petitioners that the set-aside time in canning whole mushrooms 
does not imply that the production time for whole mushrooms is longer. 
In fact, sliced mushrooms and pieces and stems require an additional 
processing step.
    We also disagree with Dieng's assertion that there are cost 
differences in specific grades of mushrooms. As stated by company 
officials during verification, the cost of producing different 
qualities (i.e., grades) of mushrooms is the same. (See Dieng 
Verification Report at 7.) The actual cost of growing mushrooms is the 
same regardless of the value of the different grades of mushrooms. See 
Notice of Final Determination of Sales at Less Than Fair Value: Certain 
Preserved Mushrooms from Chile, 63 FR 56613, October 22, 1998 
(``Mushrooms from Chile''). Mushrooms are grown in batches where the 
natural process results in product of varying size and quality. 
Mushrooms can be either sold directly after harvest or be processed 
further and sold in several different forms and containers. The 
production processes may be manipulated by the producer, within the 
confines of the natural growing process, to obtain different yields on 
certain sizes and qualities. Furthermore, mushrooms are sold by weight. 
Because the identical process, climate conditions, and production 
factors are applied to fancy and non-fancy mushrooms, the actual cost 
to grow each kilogram of mushroom is the same regardless of whether it 
is sold fresh or preserved, whole or in a variety of other forms. In 
Salmon from Chile at FR 31416, as in the instant case, the Department 
found that, ``with minor exceptions, each company's recorded costs of 
the subject merchandise did not vary by grade or weight band [(i.e., 
size)] * * * and that the costs of certain of these matching groups are 
the same.'' In citing to Ipsco v. United States, 965 F2d 1056 (Fed. 
Cir. 1992) (``IPSCO'') in the Salmon from Chile case, the Department 
stated that ``as with premium salmon, prime-grade pipe was of higher 
quality and, as such, commanded a higher price in the marketplace (Id. 
at 1058). In the proceeding underlying the IPSCO decision, the 
Department compared U.S. sales of prime and limited service grade pipe 
to CVs based on the actual costs of each grade, which were identical. 
Therein the respondents objected to this methodology vis-a-vis 
comparisons involving U.S. sales of lower grade of merchandise. The 
Court of Appeals for the Federal Circuit (``CAFC'') rejected this 
claim, ruling that the Department had `calculated constructed value 
precisely as the statute directs' in basing CV on the actual cost of 
production for each grade (Id. at 1060).'' See Salmon from Chile at FR 
31416-31417.
    Furthermore, Dieng incorrectly cites to CPF from Thailand to 
support its position that a weight-based allocation is not appropriate. 
In that case, the cost of producing the pineapple was allocated between 
products, not between different grades of the same product. Different 
grades of mushrooms are not separate and distinct products, they are 
different grades of the same product.
    Consistent with Mushrooms from Chile, we have determined that an 
allocation methodology based on weight is reasonable for the following 
reasons: (1) both Dieng/Surya Jaya and Zeta track the mushrooms through 
the production process by weight, not by number of mushrooms or by 
grade; (2) mushrooms are sold by weight; (3) virtually the same 
activities and expenses are incurred in growing each kilogram; and (4) 
regardless of whether the mushrooms are sold as preserved or fresh 
product, they are substantially the same product (i.e., they are not 
joint products). Simply stated, the cost-generating elements of growing 
mushrooms for both preserved and fresh, ``fancy'' or ``non-fancy,'' 
whole or pieces, large or small mushrooms are identical; and canned 
whole mushrooms may be, and often are, re-processed into pieces and 
stems. On this basis, we are relying upon a weight-based methodology 
because it reasonably reflects the costs of producing the subject 
merchandise. The respondents' argument that a weight-based methodology 
would render the product characteristics useless is incongruous because 
the actual costs for each grade of mushrooms are the same and would not 
be distorted by a weight-based allocation.
    As to Dieng's argument concerning the value of purchased mushrooms, 
although Dieng does purchase different grades of mushrooms at different 
costs, the differences in purchase prices should not be used to create 
artificial differences in the cost of Dieng's own mushroom production. 
First, we note that a product's market price does not always follow its 
cost of production. Second, in this case, it is Dieng's supplier that 
is benefitting from the higher price commanded by higher quality 
mushrooms and Dieng is incurring the cost of having to buy these 
mushrooms at higher market prices. Dieng's cost of its purchased 
mushrooms is its purchase price, but its cost of its self grown 
mushrooms is its growing costs. Therefore, we have weight averaged 
Dieng's cost of producing mushrooms with its acquisition price for 
purchases of different grades of mushrooms in the final determination. 
(See December 18, 1998, Calculation Memorandum.)
    Comment 8: Revision of Dieng's Can Cost
    Petitioners contend that the Department should revise Dieng's 
reported can costs to include the higher prices paid by Dieng during 
the latter part of the POI after the depreciation of the rupiah in 
accordance with the Department's past practice. Citing such cases as 
CPF from Thailand, petitioners state that the Department has determined 
in past cases that it is inappropriate to exclude the cost of material 
purchases toward the end of the POI in its submitted costs. According 
to petitioners, Dieng shows in its response the actual prices it paid 
for cans during the POI, but does not use these prices in reporting its 
can costs. Petitioners further contend that Dieng records its raw 
materials and indirect materials inventory at a moving average cost. 
Therefore, petitioners argue that Dieng's can cost should be reported 
on a moving average cost basis, which would include the higher prices 
of cans purchased toward the end of the POI and exclude the historical 
cost of beginning inventory, in accordance with the Department's cost 
reporting objective to determine the COP during the POI.
    Respondents state that petitioners' proposal is contrary to 
Department practice and unnecessary. According to respondents, record 
evidence demonstrates that Dieng's can purchases in late 1997 were 
incorporated into Dieng's reported can cost. Moreover, respondents 
state that using Dieng's 1997 can purchase cost would

[[Page 72278]]

unreasonably ignore the fact that Dieng consumed cans from inventory 
that included pre-POI purchases. Citing Certain Welded Stainless Steel 
Pipe From the Republic of Korea 57 FR 53693, November 12, 1991, 
respondents maintain that the Department has consistently held that 
purchase prices do not accurately value material input costs because 
they fail to account for the cost of material already in inventory and 
actually used during the POI. Finally, respondents assert that no 
adjustment to can costs is necessary because Dieng allocated the actual 
costs of cans--which is a moving average cost that incorporates both 
the change in raw materials inventory and all purchases during the 
fiscal year (POI)--in its CV calculations.

DOC Position:

    We agree with the respondents. As stated in Comment 3 above, it is 
the Department's practice to use the cost of manufacturing the subject 
merchandise during the POI. Dieng's reported cost of cans appropriately 
included the cost of cans consumed in producing the subject merchandise 
during the POI, rather than the cost of cans purchased during the POI. 
The Department uses the replacement cost of an input only in high 
inflation situations. Because we did not find high inflation in 
Indonesia during the POI, we have continued to use the cost of cans 
consumed in producing the subject merchandise during the POI in 
calculating the COP.
    Comment 9: Duty Drawback Adjustment Claim
    Given that Dieng could not provide any evidence of linkage between 
duties paid and taxes rebated for excise taxes paid on imported glass 
jars during the POI, petitioners argue that the Department should 
reject Dieng's duty drawback adjustment claim.

DOC Position:

    We agree with petitioners. It is the Department's practice to allow 
an upward adjustment to U.S. price for duty drawback if the respondent 
meets the Department's long-standing two-part test: (1) that there be a 
direct link between the import duty and the rebate granted; and (2) 
that the respondent has sufficient imports of raw materials used in the 
production of the final exported product to account for the drawback 
received on the exported product. At verification, Dieng could not 
provide any evidence of a nexus between import duties paid and taxes 
rebated during the POI (see Dieng Verification Report at 2 and 25). 
Because Dieng did not satisfy part one of the two-part test, we have 
rejected its claim for a duty drawback adjustment in the final 
determination.
    Comment 10: Offset to COM and G&A for Non-subject Merchandise
    Petitioners argue that the Department incorrectly indicates in its 
verification report that certain items identified by Surya Jaya to 
offset production costs, such as fresh mushrooms and used compost 
sales, bank interest, or reevaluation of ending inventory, should 
probably be reclassified to G&A expenses. Petitioners state that, for 
some of these items, there is no information on the record to indicate 
that they are related to the subject merchandise. As such, the 
petitioners claim that it would be inappropriate to offset G&A expenses 
with such items. The petitioners also state that should the Department 
decide to offset Surya Jaya's G&A expenses with the items that were 
used to offset production costs, it must make sure that the same items 
will not be used as offsets to COM.

DOC Position:

    We agree with petitioners in part. Consistent with our normal 
methodology, we have continued to allow used compost sales as an offset 
to COM, as they constitute revenue from the sales of scrap resulting 
from the production of subject merchandise. (See e.g., Collated Roofing 
Nails From Taiwan, 62 FR 51427, October 1, 1997.) Additionally, we have 
continued to include Surya Jaya's adjustments of raw material costs 
(e.g., revaluation of ending inventory) in the COM. However, we have 
excluded the revenue from fresh mushroom sales from Surya Jaya's offset 
calculation (and reallocated growing costs) because they constitute 
sales of a primary product, not a scrap resulting from production of 
the subject merchandise. Furthermore, we included the short-term bank 
interest income cited by petitioners in the financing expense 
calculation as an offset to interest expense in accordance with our 
normal practice.

Zeta Comments

    Comment 11: Zeta's Start-up Adjustment Claim
    Zeta contends that it has demonstrated that it is a producer using 
new production facilities and that production levels were limited by 
technical factors associated with the initial phase of production. 
Consequently, it should be granted a start-up adjustment under section 
773(f)(1)(C) of the Act in the final determination. Zeta argues that 
the Department's preliminary determination, which rejected Zeta's claim 
for a start-up adjustment because Zeta failed to identify suitable 
technical factors limiting production levels in the initial phase of 
production, is inconsistent with the statute and fails to consider the 
nature of Zeta's operations.
    First, Zeta asserts that its claimed start-up cost relates to new 
production facilities, explaining that its mushroom growing facilities 
and cannery were not mere improvements to existing facilities but were 
built new and were not substantially completed until after the POI. 
Second, in accordance with 19 CFR section 351.407(d)(2) and (3), Zeta 
states that it has properly quantified the start-up period and has 
provided evidence that establishes the end of the start-up period which 
marks the end of the initial phase of commercial production. In 
addition to production units, Zeta states that it provided data 
demonstrating that the capacity utilization rates for January through 
June 1997 were substantially lower than those of July through December 
1997.
    Third, Zeta maintains that its technical factors relate to the 
integrated nature of Zeta's operations for producing preserved 
mushrooms. Unlike many of the U.S. preserved mushroom producers, Zeta 
explains that it is an integrated producer, growing fresh mushrooms 
that are processed into preserved mushrooms. According to Zeta, fresh 
mushrooms are not merely raw material for the canning operations, but 
are actually an intermediate state of production in the process of 
producing canned mushrooms. Zeta states that it reported its production 
costs based on the following direct cost centers: spawn making, compost 
manufacture, casing soil manufacture, growing and harvesting, and 
cannery. Accordingly, Zeta argues that the Department must not consider 
Zeta's canning operations to be the only production stage relevant to 
start-up operations but, rather, only the final part of Zeta's 
production process which begins with fresh mushroom growing operations 
(spawn, compost, casing soil, growing, harvest).
    Moreover, Zeta asserts that the integrated nature of its operations 
was part of Zeta's original business development plan. According to 
Zeta, the feasibility study of its corporate plan reflects several 
important facts relevant to the Department's analysis of Zeta's start-
up adjustment. As outlined in the feasibility study, Zeta sought funds 
to complete Stage I (which planned for the construction of Zeta's 
cannery and growing facilities) and Stage II (which planned for the 
construction of additional growing facilities for the independent 
farmers) of the construction of production facilities. According to 
respondent, completion of

[[Page 72279]]

both Stage I and Stage II was necessary to provide Zeta with a 
sufficient supply of mushrooms to achieve full production levels for 
both growing and canning. Zeta asserts that Stage II construction was 
not substantially completed until February 1998, because Zeta 
encountered substantial engineering difficulties in the construction of 
the foundations for the growing facilities due to heavy rainfall and 
unexpected drainage and runoff problems. Zeta explains further that the 
delay in Stage II construction due to engineering adjustments prevented 
Zeta from reaching full capacity for its fresh mushroom growing 
operations. As a result, Zeta claims that it was unable to reach full 
commercial production levels of preserved mushrooms until the fresh 
mushroom growing facilities were substantially completed. Zeta claims 
further that its start-up period did not end until July 1997 when it 
had completed enough growing facilities to achieve significant 
production levels.
    Zeta concludes, based on the foregoing points, that it has fully 
satisfied the statutory criteria for a start-up adjustment. Zeta 
proposes that the Department grant a start-up adjustment by 
substituting the unit production costs incurred with respect to the 
merchandise at the end of the start-up period for the unit production 
costs incurred during the start-up period, and that the Department 
amortize the start-up costs over the shelf-life of preserved mushrooms 
(i.e., 24 months).
    Pillsbury argues that Zeta qualifies for a start-up adjustment to 
account for its new facilities' mushroom growing shortfall in the first 
half of 1997 which resulted from technical factors that limited the 
volume of fresh mushrooms that were grown and, therefore, the amount of 
preserved mushrooms that could be produced. Pillsbury argues that the 
Department's characterization of Zeta's start-up problem in the 
preliminary determination as a ``shortage of raw materials'' implies 
that the production of canning-quality mushrooms is a different 
operation than the production of certain preserved mushrooms. Pillsbury 
states further that Zeta's questionnaire response shows that the 
production of mushrooms is an integral part of the canning process, and 
thus growing the requisite number and quality of mushrooms is part of 
the production process, not a precursor to it.
    Petitioners disagree, stating that the integrated nature of Zeta's 
operations is not in dispute, nor is it germane to the question of 
start-up. Petitioners argue that the difficulties encountered at some 
other point in the production process are simply part of poor business 
planning, and are not related to the start-up costs incurred to build 
the new canning facility. Rather, petitioners state that the 
engineering difficulties experienced by Zeta during the construction of 
the growing facilities were attributable to weather-related conditions 
that affected the growing facility construction, not the new canning 
facility. According to petitioners, technical factors that limit 
production at the cannery facility might include things such as 
difficulty getting new machinery to operate properly, or engineering 
problems encountered with canning the goods. Petitioners point out that 
the SAA makes clear that the limited production must not be related to 
factors unrelated to start-up, such as ``chronic production problems.'' 
Petitioners argue that based on Zeta's own admission, the limit in 
production had more to do with weather-related problems rather than the 
actual operation of the canning facility. Accordingly, petitioners 
maintain that the Department should reject Zeta's claimed start-up 
adjustment in the final determination.

DOC Position:

    We disagree with Zeta that a start-up adjustment is warranted in 
this case. Section 773(f)(1)(C)(ii) of the Act authorizes adjustments 
for start-up operations ``only where a producer is using new production 
facilities or producing a new product that requires substantial 
additional investment, and production levels are limited by technical 
factors associated with the initial phase of production'' during the 
POI. Based on our analysis of the information Zeta submitted to support 
its claim, we have determined that Zeta's production levels were not 
limited by technical factors associated with the initial phase of 
production.
    Prior to the POI, Zeta built its own mushroom growing facility and 
its own canning facility. Both of these facilities were in operation 
prior to the POI. Zeta stated that, to fulfill the government's 
requirement of local participation in new agricultural industries, a 
certain amount of Zeta's mushrooms had to be sourced from local 
farmers. As a result, an unaffiliated cooperative of mushroom farmers 
built a mushroom growing facility, to which Zeta provided its technical 
expertise. The mushroom growing facility owned by this unaffiliated 
cooperative is the facility that experienced the delays in construction 
(i.e., due to the building of retaining walls as a result of heavy 
rainfall which caused excessive erosion of the foundations for the 
growing facility) that Zeta claims constituted the technical factor 
(i.e., shortage of fresh mushrooms) that limited Zeta's canned mushroom 
production. Therefore, Zeta is not claiming a start-up adjustment based 
on technical factors experienced at its own facility, but rather the 
technical factors associated with the unaffiliated farmer cooperative's 
growing facility.
    We disagree with Zeta that our preliminary determination failed to 
consider the nature of Zeta's operations. In making this determination, 
we followed the guidelines set forth in the SAA at page 837, which 
provide that the analysis will vary from industry to industry and 
product to product, requiring a fact-intensive inquiry. Similarly, the 
preamble to the Department's proposed regulations states that the 
start-up criteria ``are somewhat generalized because they must allow 
for any number of start-up operation scenarios'' (61 FR 7339, February 
27, 1996).
    We acknowledge that Zeta's growing and canning facilities are new 
production facilities. However, Zeta's growing and canning facilities 
were completed before the beginning of the POI and its commercial 
production levels were not limited by technical factors associated with 
the initial phase of its commercial production, as evidenced by 
significant production levels during the POI. (See the Verification 
Report at page 16.) We also note that the ``technical factors'' alleged 
by Zeta relate solely to the operations of Zeta's unaffiliated mushroom 
supplier. Zeta's own preserved mushroom operations include only its 
mushrooms growing operations and canning facility, not those of an 
unaffiliated supplier. We do not believe that technical difficulties 
experienced at an unaffiliated supplier's facility qualify as 
sufficient ``technical factors'' under section 773(f)(1)(C) of the Act. 
The result of the technical difficulties experienced by the 
cooperative--the lack of supply of the raw material input to Zeta's 
canning factory and the resulting underutilization of capacity--does 
not satisfy the criteria for a start-up adjustment.
    Moreover, Zeta reached commercial production levels before the POI 
and increased production during the POI. While Zeta may not have been 
able to utilize its canning facility at a higher production rate, we 
note that the SAA at page 836 states that ``the attainment of peak 
production levels will not be the standard for identifying the end of 
the start-up period, because the start-up period may end well before a 
company achieves optimum capacity utilization.''

[[Page 72280]]

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 sum, section 773(f)(1)(C)(ii) of the Act establishes that both 
prongs of the test must be met to warrant a start-up adjustment. In 
this case, we found that Zeta failed to meet the second prong of the 
test and, accordingly, have denied Zeta's claim for a start-up 
adjustment in the final determination.
    Comment 12: Items Used to Offset Zeta's Material Production Costs
    Zeta contends that items related to the production of subject 
merchandise (i.e., spawn compost and casing soil sales revenue, and 
scrap mushrooms sales revenue) should be offset against Zeta's material 
production costs; and items unrelated to the production of subject 
merchandise (i.e., ``gain from claim'' and ``loss on others'') should 
not be offset against production costs, but rather should be offset 
against Zeta's G&A expenses.
    With respect to revenues from the sale of spawn compost and casing 
soil, Zeta explains that it sold these items to independent farmers who 
used them to grow fresh mushrooms. Zeta further explains that it 
purchased fresh mushrooms from the independent farmers, offsetting its 
accounts payable to the farmers for fresh mushroom purchases by the 
value of its sales of spawn compost and casing soil to the farmers. 
Zeta states that the Department has recognized that the revenue from 
sales of intermediate products used in the production of subject 
merchandise such as spawn compost and casing soil must be taken as an 
offset to the COM regardless of whether these sales are classified as 
``scrap'' or ``rejected'' merchandise. Although the Department's 
verification report notes that revenue from Zeta's sales of spawn 
compost and casing soil was not generated from scrap or rejected 
merchandise, Zeta argues that the Department must also acknowledge that 
Zeta received revenues that were used directly to offset Zeta's 
material input costs in Zeta's accounting system. Zeta points out that 
the Department has made similar adjustments to production costs for 
revenue associated with production inputs in past cases (e.g., CPF from 
Thailand at 29566, and Certain Fresh Cut Flowers from Colombia, 59 FR 
15159, (March 31, 1994). Accordingly, Zeta contends that the Department 
should offset Zeta's material costs with the revenue from the sales of 
spawn compost and casing soil. Finally, with respect to the revenue 
received from the sale of scrap mushrooms, Zeta argues that the 
Department should use this revenue as an offset to Zeta's production 
costs, consistent with the Department's past practice (e.g, Chrome 
Plated Lug Nuts from Taiwan, 56 FR 36130, 36134, July 31, 1991).
    Petitioners argue that Zeta's sales of spawn compost and casing 
soil should not be used to offset its production (material) costs, and 
that the revenue from the spoiled or sample mushrooms should only be 
allowed as an offset to Zeta's material costs if it was reported in 
Zeta's books and accounted for in its reported production costs. With 
regard to Zeta's claim for sales of spawn compost and casing soil as an 
offset to production costs, the petitioners assert that these ``sales'' 
did not generate actual revenues for Zeta because Zeta and the 
independent farmers were involved in a barter arrangement where Zeta 
traded its spawn compost and casing soil for fresh mushrooms. 
Therefore, since Zeta's accounts receivable for sales of spawn compost 
and casing soil were offset by its accounts payable for purchases of 
fresh mushrooms, petitioners contend that there were no actual revenues 
or payments involved. Furthermore, petitioners state that Zeta's 
reference to CPF from Thailand and Certain Fresh Cut Flowers from 
Colombia in support of its argument that the sales revenue in question 
related to material costs should be used to offset production costs is 
not relevant because Zeta's claimed offset is not based on revenue 
actually received, as its accounts receivable was offset by its 
accounts payable under the barter arrangement. Petitioners claim that 
pursuant to the Department's practice, claims of credits, rebates or 
offsets should always be tied to the actual amounts received, not the 
amount claimed. Petitioners point out that in CPF from Thailand 
respondent's offset for sugar refunds was rejected by the Department 
because it was based on amounts earned, not received. Accordingly, 
petitioners maintain that the Department should not account for Zeta's 
``artificial'' sale of spawn compost and casing soil as an offset to 
Zeta's material input costs. Petitioners further state that even if the 
Department were to grant such an offset, however, the offset should not 
be allocated only across canned mushrooms, but must be allocated across 
all mushroom products, including both fresh and canned mushrooms.
    Finally, petitioners argue that certain items such as ``gain from 
claim'' and ``loss on others'' included in Zeta's production cost 
offset calculation should not be reclassified as G&A expenses, as 
suggested in the Department's verification report. Because there is no 
information on the record to indicate that the ``gain from claim'' is 
related to the subject merchandise, petitioners contend that it would 
be inappropriate to offset G&A expenses with this amount if it is not 
related to the subject merchandise. However, petitioners assert that 
should the Department decide to offset Zeta's G&A expense with certain 
items that were used to offset production costs, it should be careful 
to not use the same items as offsets to production costs.

DOC Position:

    We agree with petitioners and respondents in part. With respect to 
the revenue from scrap mushrooms (i.e. mushrooms falling to the floor 
or samples taken during the pre-canning selection process, and 
mushrooms selected for quality control purposes in the post-canning 
process), we have allowed it as an offset to COM, as it constitutes 
revenue from the sale of scrap resulting from the production of subject 
merchandise, consistent with our normal practice. (See Collated Roofing 
Nails from Taiwan.) With respect to the revenue from spawn compost and 
casing soil sales, however, we have not allowed it as an offset to 
production costs because it relates to sales of a primary product 
(i.e., not scrap or a by-product). We note that these sales constitute 
a separate line of business and Zeta plans to continue to sell these 
items on a regular basis to the unaffiliated farmers. If we were to 
include these revenues as an offset to production costs, as Zeta 
suggests, we would be reducing the cost of preserved mushrooms by any 
profit earned on the sales of spawn compost and casing soil. Although 
these products are raw materials in the production of preserved 
mushrooms, Zeta's sales of spawn compost and casing soil are made to 
unaffiliated parties and, therefore, not used in the production of 
Zeta's preserved mushrooms. While the sales of spawn compost and casing 
soil should not offset the cost of producing preserved mushrooms, the 
cost of producing these products for sale should also not be included 
in Zeta's preserved mushrooms production costs. Therefore, we have 
excluded an amount for the cost of sales of spawn compost and casing 
soil from Zeta's reported mushroom cost. Furthermore, we disagree with 
petitioners that because the sales of spawn compost and casing soil to 
the independent farmers and the purchases of mushrooms from the 
independent farmers are cleared through the same account, they are not

[[Page 72281]]

actual sales and purchases. Zeta practices accrual accounting and as 
such recognizes the sales or purchases when booked. We found at 
verification that these transactions were independent and therefore 
have treated them accordingly.
    With respect to the ``gain from claim'' included in respondent's 
COM offset calculation, we verified that this item related to revenue 
obtained from an insurance claim on a shipment of subject merchandise, 
which is more appropriately classified as an offset to G&A expenses, 
rather than production costs. (See Zeta Verification Report at 26.) 
Therefore, we have excluded it from Zeta's production cost offset 
calculation and included it in the calculation of the G&A expense 
ratio. We have treated the ``loss on others'' which relates to safety 
deposit box rental charges incurred during the POI as G&A expenses, and 
removed it from the COM offset calculation because it relates to the 
general expenses of the company rather than production costs. We also 
verified that the ``loss on claim'' included in the COM offset 
calculation as a reduction to the offset amount related to payment made 
to a U.S. customer for excess glass jar wastage. Because the cost of 
containers are included in the COM for purposes of our dumping analysis 
in this case, we have continued to include the ``loss on claim'' in the 
calculation of COM. (See Zeta Verification Report at 26.)
    Comment 13: Cost of Producing Fancy Mushrooms and Non-fancy 
Mushrooms
    Zeta argues that the Department should value its mushroom inputs 
consistent with Zeta's treatment of these costs in its accounting 
system. Zeta argues that the Department confirmed at verification that 
Zeta's costs for fancy mushrooms differ from the costs for non-fancy 
mushrooms. Contrary to the Department's statements in its verification 
report, Zeta asserts that it actually over-reported costs of fresh 
mushrooms in its submitted costs and provided a cost analysis to 
support this claim in its November 9, 1998 case brief at pages 23 and 
24. Therefore, Zeta argues that adjusting the costs for an under-
allocation of costs alleged in the Department's verification report is 
therefore unwarranted.
    Petitioners disagree, arguing that the Department should correct 
Zeta's understatement of fresh mushroom costs based on its verification 
findings. According to petitioners, Zeta restated its average per-unit 
cost of internally grown mushrooms to reflect the difference in value 
(i.e., purchase price) between fancy and non-fancy mushrooms purchased 
from third parties. Further, petitioners maintain that Zeta's 
contention that its methodology overstates costs rather than 
understates costs is illogical because it uses the per-unit mushroom 
costs that have already been ``restated.'' Therefore, petitioners 
contend that Zeta's suggestion that its costs were over-reported is 
unsupported by the evidence on the record and should be rejected by the 
Department.

DOC Position:

    We disagree with Zeta. While the Department verified that Zeta 
purchases fancy and non-fancy mushrooms at different prices, it incurs 
and records one average cost for growing its own mushrooms. Zeta's 
proposed method would create an artificial difference in cost for its 
own production. As discussed in Comment 7 above, the cost of producing 
different grades of mushrooms are the same. We note that Zeta purchases 
only a small quantity of mushrooms and produces the rest of its 
mushrooms.
    We disagree with the analysis of costs set forth in Zeta's case 
brief. In its case brief, Zeta incorrectly added the quantity of fancy 
and non-fancy mushroom production. In fact, Zeta transposed the total 
fancy and non-fancy quantities and therefore used the incorrect amounts 
in attempting to show the total mushroom cost reported. As stated in 
the verification report at 2 and 15, Zeta under-allocated mushroom cost 
in the reported costs. For the final determination, we have allocated 
Zeta's total mushroom cost based on the weighted-average cost of its 
mushroom purchases and its own mushroom production costs. (See Comment 
7, above, for further discussion.)
    Comment 14: Cost Allocation Based on Adjustment Factors Derived 
from Difference in Processing Time
    Zeta contends that the Department should accept Zeta's reported 
cost allocation that is based on its normal accounting records which 
incorporate time study standards that reflect differences in processing 
time between mushroom styles (i.e., whole, sliced, and pieces and 
stems). Zeta argues that it complied with the Department's request to 
report costs on a product-specific basis. Accordingly, given that its 
accounting and production records incorporated the processing time 
studies on a product-specific basis, Zeta maintains that the Department 
should use Zeta's reported cost allocation because it satisfies the 
Department's requirement. Furthermore, according to Zeta's cost 
allocation methodology is consistent with the Department's requirement 
that respondent allocate costs to subject merchandise at the greatest 
level of specificity permitted by the respondent's regularly-kept 
production records, whether or not such allocation is actually used in 
the company's accounting system. Among other cases, respondents cite 
Certain Cold-Rolled and Corrosion Resistant Carbon Steel Flat Rolled 
Products: Final Results of Antidumping Administrative Review (62 13195, 
March 18, 1998) and Final Determination of Sales at Less Than Fair 
Value: Stainless Steel Wire Rod From Korea (63 FR 40404, July 29, 1998) 
to support the proposition that respondents can allocate costs on a 
more detailed, product-specific level than that in their normal cost 
accounting methodology in order to report costs on a control number-
specific basis, as required by the Department. Zeta argues that its 
cost allocation methodology is also consistent with its production 
process. For example, Zeta states that it has higher costs for fancy 
mushrooms than non-fancy mushrooms, and that petitioners' methodology 
would ignore the additional time and cost associated with the 
processing of fancy mushrooms in manufacturing sliced and whole 
mushrooms. Zeta argues that the Department's failure to use Zeta's 
adjustment factor in Zeta's cost allocation would render the product 
characteristics useless in this investigation because allocation of 
costs strictly on the basis of weight, as proposed by the petitioners, 
would mean that all products would have the same per-unit weight cost 
which is incorrect. Zeta contends that since its normal production 
records report the processing time studies on a product-specific basis, 
and since Zeta's submitted cost allocations comply with the 
Department's requirement that costs be reported on a product-specific 
basis, Zeta concludes that the Department should accept Zeta's reported 
cost allocations.
    Petitioners maintain that the Department should reject Zeta's cost 
allocations which have not been historically used in its accounting 
system in the normal course of business. Petitioners assert that Zeta 
admits that its reported costs are an ``adaptation'' of its actual cost 
accounting system. Petitioners state that Zeta's time study standards 
were never verified by the Department and, more importantly, these 
studies represent a deviation from Zeta's normal cost accounting 
system. Petitioners contend that the Department confirmed at 
verification that these allocations are not, and have not been, used by 
Zeta in its normal course of

[[Page 72282]]

business, and that they were created solely for this investigation. 
According to petitioners, this violates well-established Department 
policy, the SAA and the U.S. antidumping law. Petitioners cite Salmon 
from Chile at 31432, stating that the Department's long-standing 
practice, as codified in section 773(f)(1)(A) of the Act, is to rely on 
data from a respondent's normal books and records which are prepared in 
accordance with home country GAAP and reasonably reflect the costs of 
producing and selling the subject merchandise.
    Petitioners assert that Zeta admits that its normal system 
distinguishes costs by container and drained weight, and not by grade 
or style, and that there are no meaningful distinctions in the 
production process between products. Petitioners point out that Zeta 
states in its response that the cost system does not distinguish 
between different types of products, and other than the slicing of the 
mushrooms into sliced mushrooms or pieces and stems, the canning 
process is identical for all mushrooms. In particular, petitioners 
contend that Zeta's application of the price differential between 
``fancy and non-fancy'' fresh mushrooms sourced from unaffiliated 
farmers to its own internal costs of production for raw mushrooms is 
unreasonable because Zeta purchased such a small percentage from 
unaffiliated farmers and there was no distinction between fancy or non-
fancy styles. Petitioners maintain that since Zeta has declared on the 
record of this investigation that ``the canning process is identical 
for all mushrooms,'' there is no need for a novel allocation of labor 
and overhead costs based on the unsupported and unverified claim that 
whole mushrooms require more time to process than sliced mushrooms. 
Because Zeta has failed to demonstrate that its normal books and 
records do not reasonably reflect the costs associated with the 
production of the subject merchandise, the petitioners state that the 
Department should reject Zeta's submitted cost allocations and 
calculate CV based on Zeta's normal books and records, using the 
methodology proposed by petitioners in its case brief and consistent 
with the method used in Mushrooms from Chile.

DOC Position:

    We agree with petitioners. The time studies used by Zeta to adjust 
reported costs for differences in processing are not used by Zeta in 
the normal course of business and therefore cannot be used in the final 
determination. In accordance with section 773(f)(1)(A) of the Act, the 
Department will normally use a company's allocation methodology ``if 
such allocations have been historically used'' by the producer. In this 
case, we verified that Zeta does not allocate costs based on 
differences in processing times in its normal books and records. 
Moreover, Zeta did not substantiate processing differences at 
verification, and the Department did not verify the validity of the 
time studies or the claim that they are used at all in Zeta's normal 
production records. Therefore, we have continued to calculate Zeta's 
costs using a weight-based methodology and have disregarded Zeta's 
costs adjusted for processing differences.
    Comment 15: Use of Revised G&A Rate Calculated in the Verification 
Report
    Zeta argues that the Department, in its verification report, 
erroneously classified selling expenses incurred at its Jakarta sales 
office as G&A expenses, claiming that this classification is 
inconsistent with the findings of the Department recorded elsewhere in 
Zeta's verification report. Zeta argues that classification of these 
expenses as selling expenses is consistent with Department practice 
which has always classified general expenses related to a selling 
operation as selling expenses. To support its claim, respondent cites a 
number of cases, (e.g., Certain Cold-Rolled Carbon Steel Flat Products 
From Germany: Final Results of Antidumping Duty Administrative Review, 
60 FR 65264, December 19, 1995) where the Department stated that it 
classified expenses associated with running a sales office or related 
to sales activities as indirect selling expenses, rather than non-
sales-related G&A expenses. Accordingly, Zeta contends that the 
Department should continue to calculate Zeta's G&A expense factor as it 
did in the preliminary determination, separating the selling expenses 
described above from the G&A expenses.
    Petitioners reply that Zeta's allegation is in contradiction with 
Zeta's own audited financial statement which classified the exact 
amount as G&A expenses. Petitioners state that it is the Department's 
long-standing policy to use audited financial statements in the 
calculation of SG&A because they are more reliable than a company's own 
estimated or reported figures (see CPF from Thailand at FR 29565). 
Petitioners point out that the Department reviewed and verified Zeta's 
classification of selling and G&A expenses at verification and tied the 
SG&A expenses from Zeta's trial balances to its audited financial 
statements. Petitioners argue that, in light of the above facts, the 
Department should reject Zeta's claim and use the verified figure in 
the calculation of Zeta's G&A expenses.

DOC Position:

    We disagree with Zeta. Section 773(e)(2)(A) of the Act states that 
CV should include an amount incurred for G&A expenses in connection 
with the production and sale of the subject merchandise. Based on 
representations made by Zeta officials and our observations at 
verification, the expenses Zeta recorded in its audited financial 
statements as G&A expenses are expenses related to the company 
operations, not solely to support the company's selling functions. 
Therefore, we have calculated Zeta's G&A expenses using the amount 
verified and recorded by Zeta as G&A in its audited financial 
statements.
    Comment 16: Adjusting Zeta's Costs to Account for the Difference 
Between Gross and Net Production Quantity
    Petitioners argue that the Department should adjust Zeta's reported 
costs upward to account for the difference between net and gross 
production because the Department discovered at verification that Zeta 
understated its reported costs by allocating total costs over the gross 
production of the subject merchandise, rather the net production. 
Petitioners contend that by using this method, Zeta has improperly 
allocated total costs over waste, rejects, and samples.

DOC Position:

    We agree with petitioners. In order to include yield losses in the 
canning process, we have derived the per-unit cost using the net 
production of canned mushrooms. Using this methodology allows us to 
allocate the cost of waste, rejects, and samples to those products 
available for sale. We have adjusted respondent's cost in accordance 
with our findings at verification (see Zeta Verification Report at 2).

Continuation of Suspension of Liquidation

    In accordance with section 735(c)(1)(B) of the Act, we are 
directing the Customs Service to begin suspension of liquidation for PT 
Dieng Djaya/PT Surya Jaya Abadi Perkasa of all entries of subject 
merchandise that are entered, or withdrawn from warehouse, for 
consumption on or after the date of publication of the final 
determination in the Federal Register. We are also directing the 
Customs Service to continue to suspend liquidation for PT Zeta Agro 
Corporation of all entries of subject merchandise from Indonesia, that 
are

[[Page 72283]]

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
------------------------------------------------------------------------
PT Dieng Djaya/PT Surya Jaya Abadi Perkasa..................        7.94
PT Zeta Agro Corporation....................................       22.84
All Others..................................................       11.26
------------------------------------------------------------------------

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.
Richard W. Moreland,
Acting Assistant Secretary for Import Administration.
[FR Doc. 98-34705 Filed 12-30-98; 8:45 am]
BILLING CODE 3510-DS-P