[Federal Register Volume 64, Number 27 (Wednesday, February 10, 1999)]
[Notices]
[Pages 6615-6631]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3277]
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DEPARTMENT OF COMMERCE
[International Trade Administration]
[A-475-818]
Notice of Final Results and Partial Rescission of Antidumping
Duty Administrative Review: Certain Pasta From Italy
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
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SUMMARY: On August 7, 1998, the Department of Commerce published the
preliminary results of its administrative review of the antidumping
duty order on certain pasta from Italy. The review covers shipments of
this merchandise to the United States by eight respondents during the
period January 19, 1996, through June 30, 1997.
For our final results, we have found that, for certain exporters,
sales of the subject merchandise have been made below normal value. We
will instruct the Customs Service to assess antidumping duties equal to
the difference between the export price or constructed export price and
the normal value.
EFFECTIVE DATE: February 10, 1999.
FOR FURTHER INFORMATION CONTACT: John Brinkmann, Office of AD/CVD
Enforcement, Group I, Import Administration, International Trade
Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, N.W., Washington, D.C. 20230; telephone: (202)
482-5288.
SUPPLEMENTARY INFORMATION:
Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute are
references to the provisions effective January 1, 1995, the effective
date of the amendments made to the Tariff Act of 1930 (the Act) by the
Uruguay Round Agreements Act (``URAA''). In addition, unless otherwise
indicated, all citations to the Department of Commerce's (``the
Department's'') regulations refer to the regulations codified at 19 CFR
Part 351, as published in the Federal Register on May 19, 1997 (62 FR
27296).
Case History
This review covers the following manufacturers/exporters of
merchandise subject to the antidumping duty order on certain pasta from
Italy: (1) Arrighi S.p.A. Industrie Alimentari (``Arrighi''); (2)
Barilla Alimentari S.r.L. (``Barilla''); (3) F. lli De Cecco di Filippo
Fara S. Martino S.p.A. (``De Cecco''); (4) Industria Alimentari
Colavita S.p.A. (``Indalco''); (5) La Molisana Industrie Alimentari
S.p.A. (``La Molisana''); (6) Pastificio Fratelli Pagani S.p.A.
(``Pagani''); (7) N. Puglisi & F. Industria Paste Alimentari S.p.A.
(``Puglisi''); and (8) Rummo S.p.A. Molino e Pastificio (``Rummo'').
On August 7, 1998, the Department published the preliminary results
of this review. See Notice of Preliminary Results and Partial Recission
of Antidumping Duty Administrative Review: Certain Pasta from Italy, 63
FR 42368 (Preliminary Results). From July 22 through July 30, 1998, we
verified the cost information submitted by De Cecco 1. From
July 27 through July 31, 1998, we verified the cost information
submitted by Puglisi. On September 23 and September 24, 1998, we
received case briefs from the following parties: (1) Borden Foods
Corp., Hershey Pasta and Grocery Group, Inc., and Gooch Foods, Inc.
(collectively, ``the petitioners''), (2) the five manufacturers/
exporters that responded to our requests for information (De Cecco,
Indalco, La Molisana, Puglisi, and Rummo); (3) Barilla; and (4) World
Finer Foods, Inc. (``World Finer Foods''), an importer of pasta
produced by Arrighi. We received rebuttal briefs from the petitioners,
De Cecco, Indalco, Puglisi, and Rummo from October 6 through October 8,
1998. On the basis of requests by interested parties, a public hearing
was held on October 19, 1998.
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\1\ We verified De Cecco's sales information prior to the
Preliminary Results, from May 4-8, 1998.
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Scope of Review
Imports covered by this review are shipments of certain non-egg dry
pasta in packages of five pounds (2.27 kilograms) or less, whether or
not enriched or fortified or containing milk or other optional
ingredients such as chopped vegetables, vegetable purees, milk, gluten,
diastases, vitamins, coloring and flavorings, and up to two percent egg
white. The pasta covered by this scope is typically sold in the retail
market, in fiberboard or cardboard cartons or polyethylene or
polypropylene bags, of varying dimensions.
Excluded from the scope of this review are refrigerated, frozen, or
canned pastas, as well as all forms of egg pasta, with the exception of
non-egg dry pasta containing up to two percent egg white. Also excluded
are imports of organic pasta from Italy that are accompanied by the
appropriate certificate issued by the Instituto Mediterraneo Di
Certificazione (IMC), by Bioagricoop Scrl, by QC&I International
Services or by Ecocert Italia.
The merchandise subject to review is currently classifiable under
item 1902.19.20 of the Harmonized Tariff Schedule of the United States
(HTSUS). Although the HTSUS subheading is provided for convenience and
customs purposes, the written description of the merchandise subject to
the order is dispositive.
Scope Rulings
(1) On August 25, 1997, the Department issued a scope ruling that
multicolored pasta, imported in kitchen display bottles of decorative
glass that are sealed with cork or paraffin and bound with raffia, is
excluded from the scope of the antidumping and countervailing duty
orders, (see Memorandum from Edward Easton to Richard Moreland, dated
August 25, 1997).
(2) On July 30, 1998, the Department issued a scope ruling, finding
that multipacks consisting of six one-pound packages of pasta that are
shrink-wrapped into a single package are within the scope of the
antidumping and countervailing duty orders. (See letter from Susan H.
Kuhbach, Acting Deputy Assistant Secretary for Import Administration,
to Barbara P. Sidari, Vice President, Joseph A. Sidari Company, Inc.,
dated July 30, 1998.)
(3) On October 23, 1997, the petitioners filed an application
requesting that the Department initiate an anti-circumvention
investigation against Barilla S.r.L., an Italian producer and exporter
of pasta. On October 5, 1998, the Department issued its final
determination that, pursuant to section 781(a) of the Act,
circumvention of the
[[Page 6616]]
antidumping duty order is occurring by reason of exports of bulk pasta
from Italy produced by Barilla which subsequently are repackaged in the
United States into packages of five pounds or less for sale in the
United States. (See Anti-circumvention Inquiry of the Antidumping Duty
Order on Certain Pasta from Italy: Affirmative Final Determination of
Circumvention of the Antidumping Duty Order, 63 FR 54672 (October 13,
1998).)
(4) On October 26, 1998, we self-initiated a scope inquiry to
determine whether a package weighing over five pounds as a result of
allowable industry tolerances may be within the scope of the
antidumping and countervailing duty orders. On November 18, 1998, the
Department received comments regarding this scope inquiry. The
Department received rebuttal comments on November 30, 1998. In
accordance with 19 CFR 351.225(f)(iii)(5), the Department will issue a
scope ruling within 120 days of the initiation of the inquiry.
Partial Rescission
As noted in the preliminary results, on September 2, 1997, the
petitioners withdrew their request for reviews of Castelletti S.p.A.,
Societa Transporti Castelletti, General Noli S.p.A., and R. Queirolo &
Co., S.p.A. In addition, Petrini, S.p.A. (``Petrini'') withdrew its
request for a review on October 24, 1997, and Delverde Srl
(``Delverde'') and Tamma Industrie Alimentari di Capitanata, SrL
(``Tamma'') withdrew their requests for a review on November 10, 1997.
Because there were no other requests for reviews of these companies,
and because the letters withdrawing the requests for reviews were
timely filed, we rescinded the review with respect to these companies
in accordance with 19 CFR 351.213(d)(1).
Use of Facts Available
Arrighi, Barilla, and Pagani ``failed to cooperate by not
responding to our antidumping questionnaire and, thus, have not acted
to the best of their abilities to comply with requests for information
* * * .'' See Preliminary Results, 63 FR at 42369. Accordingly, we
based the antidumping duty rate for these companies on facts otherwise
available and assigned to them the highest margin from the petition, as
adjusted by the Department, 71.49 percent. For the reasons described
below, we are continuing to assign Arrighi, Barilla, and Pagani the
highest margin from the petition, as adjusted by the Department, for
these final results.
Section 776(a) of the Act requires the Department to resort to
facts otherwise available if necessary information is not available on
the record or when an interested party or any other person ``fails to
provide [requested] information by the deadlines for submission of the
information or in the form and manner requested, subject to subsections
(c)(1) and (e) of section 782.'' As provided in section 782(c)(1) of
the Act, if an interested party ``promptly after receiving a request
from [the Department] for information, notifies [the Department] that
such party is unable to submit the information requested in the
requested form and manner,'' the Department may modify the requirements
to avoid imposing an unreasonable burden on that party.
Arrighi communicated with the Department concerning the
difficulties which impeded its ability to respond to the Department's
questionnaire. In a letter dated October 1, 1997, Arrighi stated that
it would be unable to respond to the Department's questionnaire due to
a deficiency of financial and personnel resources. Arrighi did add,
however, that it ``might be able to supply limited information if the
Department felt that might be worthwhile or helpful in the context of
this [review].''
While responding to the Department's questionnaire may be a burden
on Arrighi, the company has not demonstrated that it was unable to do
so. The company made only general claims regarding limited personnel
and financial resources, which is true for many companies that respond
to our questionnaires. Arrighi gave neither specific reasons why it
could not respond nor any specific proposal for what the company was
prepared to do and why it could do no more. Instead, the statements in
Arrighi's letter of October 1, 1997, demonstrate that the company
merely made a business decision not to allocate resources to this task.
Furthermore, it was also evident from the letter, taken as a whole,
that any ``limited information'' Arrighi might provide would be
insufficient to calculate a dumping margin. Therefore, given that the
company did not demonstrate an inability to respond to our
questionnaire or a willingness to cooperate to the best of its ability,
we find that the use of facts available in accordance with section
776(a) of the Act is warranted.
Barilla and Pagani neither responded to the Department's
questionnaire nor provided any notification or information to the
Department pursuant to section 782(c)(1) of the Act. Accordingly, we
find that these companies did not cooperate to the best of their
abilities and the use of facts available is appropriate for Barilla and
Pagani.
Where the Department must resort to facts available because a
respondent failed to cooperate to the best of its ability, section
776(b) of the Act authorizes the use of an inference adverse to the
interests of that respondent in selecting from among the facts
available. As discussed above, Arrighi, Barilla, and Pagani failed to
act to the best of their abilities to comply with our requests for
information. Accordingly, we have determined that an adverse inference
with respect to Arrighi, Barilla, and Pagani is warranted.
Section 776(b) of the Act authorizes the Department to use as
adverse facts available information derived from the petition, the
final determination in the antidumping investigation, a previous
administrative review, or any other information placed on the record.
Section 776(c) of the Act provides that the Department shall, to the
extent practicable, corroborate that secondary information from
independent sources reasonably at its disposal. The Statement of
Administrative Action (SAA) provides that ``corroborate'' means simply
that the Department will satisfy itself that the secondary information
has probative value (see H.R. Doc. 316, Vol. 1, 103d Cong., 2d sess.
870 (1994)).
To corroborate secondary information, the Department will, to the
extent practicable, examine the reliability and relevance of the
information to be used. The petition margin is reliable if, in light of
evidence reasonably available, it provides a reasonable estimate of a
level at which dumping occurred during the period of investigation
(``POI''). With respect to the relevance aspect of corroboration, the
Department will consider information reasonably at its disposal as to
whether there are circumstances that would render a margin not
relevant. Where circumstances indicate that a selected margin is not
appropriate as adverse facts available, the Department will disregard
the margin and determine an appropriate margin (see, e.g., Fresh Cut
Flowers from Mexico: Final Results of Antidumping Duty Administrative
Review, 61 FR 6812 (February 22, 1996)).
In this instance, as discussed below in Comment 5, we have no
reason to believe that the application of the highest petition margin
for Italian pasta, as revised by the Department, is inappropriate.
Therefore, for purposes of these final results, we are continuing to
assign Arrighi, Barilla, and Pagani the rate of 71.49 percent as
adverse facts
[[Page 6617]]
available. We find that this margin continues to be of probative value
and continues to be an appropriate basis for facts otherwise available.
We note that the SAA, at 870, states that ``the fact that corroboration
may not be practicable in a given circumstance will not prevent the
agencies from applying an adverse inference * * * .'' In addition, the
SAA at 869, emphasizes that the Department need not prove that the
facts available are the best alternative information.
Comparisons
We calculated export price (EP), constructed export price (CEP),
and normal value based on the same methodology used in the Preliminary
Results, with the following exceptions:
General
For those companies which have both CEP sales and commissions, we
have revised our commission and CEP-offset calculation (see Comments 2
and 3).
For those companies which have CEP sales, we have included U.S.
commissions in the calculation of the total selling expenses that we
deducted from revenues to determine the CEP-profit amount for
calculation of the CEP-profit rate (see memorandum from Jarrod
Goldfeder to the file, Analysis Memorandum for F. lli De Cecco di
Filippo Fara S. Martino S.p.A., December 7, 1998).
We have corrected a clerical error which had caused the weighted-
average normal value to be calculated over the 90/60-day
contemporaneity period rather than monthly (see Comment 8).
Indalco
We recalculated certain Indalco home market discounts (see a
separate business proprietary memorandum from Cindy Robinson to John
Brinkmann, Recalculation of Certain Home Market Discount for Industria
Alimentare Colavita, S.p.A in the Final Results of the First
Administrative Review of Certain Pasta from Italy, December 7, 1998).
We have corrected the following three computer-programming errors: (1)
An error concerning our level-of-trade comparison which matched EP
sales erroneously to only one level-of-trade (LOT-1) in the home market
when we intended to match to all home market sales (see Comment 8); (2)
an error concerning Indalco's U.S. invoice adjustments in which we
subtracted Indalco's invoice adjustments erroneously from, rather than
added them to, the reported U.S. gross unit price or U.S. sales
quantity, respectively (see memorandum from Cindy Robinson to the file,
Analysis Memorandum for Industria Alimentare Colavita, S.p.A, December
7, 1998); and (3) an error which prevented the computer program from
implementing an intended correction for commissions paid to one of
Indalco's home market sales agents (see Id.).
La Molisana
We matched U.S. sales to sales at the LOT1 level of trade (see
Comment 10B) and corrected a clerical error which caused us to double-
count the cost of vitamins in the U.S. total and variable costs of
manufacturing (see memorandum from Constance Handley to the file,
Analysis Memorandum for La Molisana Industrie Alimentari S.p.A.,
December 7, 1998) (La Molisana Analysis Memo).
Rummo
We used November 3, 1997, as a surrogate payment date to calculate
credit expenses for those sales without a reported date of payment (see
Comment 21). In addition, we corrected a programing error which
converted inventory carrying cost to a kilogram basis incorrectly. The
expense had already been reported in kilograms (see memorandum from
James Kemp to the file, Analysis Memorandum for Rummo S.p.A. Molino e
Pastificio, December 7, 1998).
Cost of Production
As discussed in the preliminary results, we conducted an
investigation to determine whether each of the five respondents
participating in the review made home market sales of the foreign like
product during the POR at prices below its cost of production (COP)
within the meaning of section 773(b)(1) of the Act.
We calculated the COP for these final results following the same
methodology as in the preliminary results, with the following
exceptions:
De Cecco
Based on minor corrections presented at the onset of the cost
verification, we revised the total cost of manufacture for several
control numbers and the interest expense factor. We also excluded the
general and administrative expenses (G&A) of Molino, De Cecco's
affiliated semolina supplier, in the calculation of the G&A rate (see
memorandum from Garri Gzirian to Neal Halper, Cost of Production and
Constructed Value Adjustments for the Final Determination, December 5,
1998).
Puglisi
We recalculated G&A to include the input of government grants
received (see Comment 13). We also adjusted Puglisi's product-specific
manufacturing costs in the following ways: (1) By reallocating the
product-specific depreciation and electricity expenses (see Comments 17
and 18); (2) by using the transfer prices for services provided by
Puglisi's affiliate (see Comment 16); and (3) by including certain
lease payments and a portion of the garbage tax paid at the end of the
year (see memorandum from Laurens van Houten to Neal Halper, Cost of
Production and Constructed Value Adjustments Calculations in the Final
Results of Pasta from Italy--N. Puglisi & F. Industria Paste Alimentari
S.p.A., November 24, 1998 (``Puglisi COP Memo'')).
Analysis of Comments Received
We gave interested parties an opportunity to comment on the
preliminary results. As noted above, we received comments and rebuttal
comments from the petitioners and respondents.
I. General Issues
Comment 1: Level-of-Trade Methodology and Constructed Export Price
(``CEP'') Offset
The petitioners argue that the Department applied an improper
methodology when conducting its level-of-trade analysis for De Cecco,
Rummo, and Puglisi. Specifically, they claim that the Department
granted De Cecco, Rummo, and Puglisi a CEP offset incorrectly on the
grounds that the Department conducted its level-of-trade analysis based
on the adjusted CEP, rather than the CEP starting price, and cite
Borden Inc. v. United States, 4 F. Supp. 2d 1221 (Ct. Int'l Trade 1998)
(``Borden''), and the Final Remand Results for Borden, Inc. et al. v.
United States, Consol. Court No. 96-08-01970 (August 28, 1998)
(``Remand Results''). In addition, the petitioners comment on the
Department's apparent intent to consider the level of trade of the CEP
starting price in determining the CEP offset, after the Department had
already established the level of trade of the adjusted CEP price. The
petitioners contend that section 773(a)(7)(B) of the Act grants the CEP
offset but it does not envision the use of two distinct and different
levels of trade. They urge the Department to revise its decision.
De Cecco argues that the Department examined CEP properly in
conducting its level-of-trade analysis for De Cecco and that the
Department's decision to grant a CEP offset is valid and correct and
should be sustained. It maintains that the petitioners' arguments
concerning the application of a CEP offset are immaterial to De Cecco
[[Page 6618]]
because De Cecco is entitled to the CEP offset regardless of whether
the Department conducts its analysis of level of trade based on the
U.S. starting price or the CEP.
Rummo states that the Department granted Rummo a CEP offset
properly after a level-of-trade analysis that was based on the CEP
price after adjustments made pursuant to section 772(d) of the Act.
Citing the Final Determination of Sales at Less than Fair Value: Static
Random Access Memory Semiconductors from the Republic of Korea, 63 FR
8934 (February 23, 1998) (SRAMs), Rummo claims that it has been the
Department's long-standing practice and is consistent with the statute
and SAA to analyze the level of trade of CEP sales at the constructed
export level price, i.e., after expenses associated with economic
activities in the United States have been deducted. Therefore, Rummo
contends that the petitioners' arguments are contrary to the statute,
the SAA, and the Department's long-standing policy. Furthermore, Rummo
notes that the Borden case the petitioners cite is not final or
conclusive because the Department is appealing that decision. Rummo
urges the Department to continue to apply the same level-of-trade
analysis for the final results.
Puglisi argues that the Department's level-of-trade methodology in
this review is both lawful and in accordance with each of the Court's
five stated guidelines in Borden. Specifically, concurring with the
Department in its remand results in Borden, Puglisi maintains that
``the Court did not explicitly require the Department to determine the
level of trade of the CEP based upon the CEP starting price.''
Furthermore, Puglisi states that the Department's level-of-trade
methodology focused on the selling functions, not the adjustments to
price, and as such was analytically distinct from the price
calculation. Finally, Puglisi states that the CEP offset was not
applied automatically as suggested by the petitioners; rather it was
only applied after the Department determined that there was no
information to provide an appropriate basis for determining a level-of-
trade adjustment. Therefore, Puglisi urges the Department to sustain
its preliminary decisions.
DOC Position: We agree with De Cecco, Rummo, and Puglisi that we
were consistent with the statute and with our long-standing policy when
we granted a CEP offset to De Cecco, Rummo, and Puglisi after
conducting both qualitative and quantitative level-of-trade analyses
based on adjusted CEP, rather than the CEP starting price. The Borden
case the petitioners cite is not a final and conclusive decision
because it is still subject to appeal. Accordingly, the Borden decision
is not binding on the Department.
As stated in the level-of-trade memorandum from John Brinkmann to
Susan Kuhbach, dated July 31, 1998, our level-of-trade analyses for De
Cecco, Rummo, and Puglisi showed that each company had only one CEP
level of trade in the U.S. market. This CEP level of trade differed
considerably from the single level of trade in the home market for each
company and was at a less advanced stage of distribution than the home
market level of trade. Consequently, we could not match to sales at the
same level of trade in the home market nor could we determine a level-
of-trade adjustment based on these three respondents' home market
sales. Furthermore, we have no other information that provides an
appropriate basis for determining a level-of-trade adjustment. Because
this is so, and because the normal value is at a more advanced level of
trade than the CEP, we made a CEP offset in accordance with section
773(a)(7)(B) of the Act.
Inasmuch as our level-of-trade methodology is consistent with the
statute and with our practice, we continued to apply the same
methodology to make level-of-trade comparisons based on the adjusted
CEP starting price for the purposes of the final results.
Comment 2: Commission Offset
The petitioners contend that the Department made a commission
offset to account for the difference in the commissions amount paid by
Rummo when U.S. commissions are greater than home market commissions.
They claim that an offset is authorized under 19 CFR 351.410(e) only
when there is a commission paid in one market but none in the other
market. If the Department disagrees with the petitioners' contention,
then they believe that a similar offset should be made when home market
commissions are greater than U.S. commissions. Further, with regard to
CEP sales, the petitioners point out that there was no offset made for
instances where there were commissions in the home market but none in
the U.S. market.
Rummo argues that the offset was applied correctly because Rummo
did not pay commissions on all of its home market sales. In a review,
Rummo contends, the Department compares individual U.S. sales to
monthly weighted-average prices in the home market. Therefore, because
Rummo had commissions on some sales, it states that the result was
weighted-average prices with small commissions which were significantly
less than commissions paid on U.S. sales. Rummo contends that the
Department's offset methodology is intended to compensate for this
imbalance.
DOC Position: We applied the EP commission offset in the
preliminary results correctly. When calculating normal value for EP
comparisons, the Department makes a circumstance-of-sale adjustment by
deducting home market commissions and adding U.S. commissions. In this
case, only a portion of home market sales have commissions; therefore,
only that portion of home market sales was reduced by a home market
commission. To account for those home market sales with no commissions,
we calculated a weighted-average surrogate home market commission based
on indirect selling expenses incurred on home market sales and deducted
that amount from the weighted-average monthly normal value, limited by
the amount of the difference between U.S. commissions and home market
commissions. Because we look at each individual sale in the U.S.
market, this problem does not occur and therefore there is no reason to
make an adjustment when U.S. commissions are lower than home market
commissions as suggested by the petitioners.
We agree with the petitioners that, for CEP sales, a commission
offset should be made in those instances where there were commissions
in the home market and none in the U.S. market. We have done so for
these final results. See Notice of Final Results and Partial Rescission
of Antidumping Duty Administrative Review; Canned Pineapple Fruit from
Thailand, 63 FR 43661, 43671 (August 14, 1998).
Comment 3: Segregation of Commission and CEP Offsets
The petitioners argue the Department erred in combining the CEP and
commission offsets in its computer program, thereby failing to limit
the CEP offset by the amount of U.S. indirect selling expenses.
Rummo and De Cecco agree with the petitioners that the offsets
should be segregated. Rummo points out that the offsets are intended to
accomplish different goals; the CEP offset is meant to be a surrogate
level-of-trade adjustment and the commission offset is meant to account
for the presence of commissions in one market and not the other (or for
unbalanced commission situations). Rummo contends these
[[Page 6619]]
offsets should be treated separately in the final results.
De Cecco also contends that the Department calculated the CEP
offset incorrectly based on the relationship of home market and U.S.
commissions. According to De Cecco, where commissions are paid in both
the domestic and U.S. markets on CEP sales, the Department calculates
the offset as the lower of home market indirect selling expenses
(including imputed expenses) or the sum of U.S. indirect selling
expenses (excluding those expenses incurred in the home market) and
U.S. commissions. Thus, De Cecco maintains this offset is assigned
without regard to the relationship between commissions in the two
markets.
DOC Position: While commissions and CEP offsets are two separate
offsets, separating them in the computer program could result in our
double-counting indirect selling expenses incurred in the home market.
The Department's regulations state that ``the amount of the [CEP]
offset will be the amount of indirect selling expenses included in
normal value, up to the amount of indirect selling expenses deducted in
determining constructed export price.'' 19 CFR 351.412(f)(2). Thus,
like the commission offset, the CEP offset is based on home market
indirect selling expenses. We will not deduct an amount greater than
home market indirect selling expenses for the combination of the two
offsets.
We do recognize, however, that the language in the computer program
for the preliminary results did not combine the two offsets properly.
We have used different programming language for the final results,
which allows us to combine the two offsets and limit the combined
deduction at the amount of home market indirect selling expenses. In
other words, the applicable offset is the full amount of the commission
offset, plus a CEP offset. The CEP offset is the lower of indirect
selling expenses incurred in the United States or the indirect selling
expenses incurred in the home market that remain after making the
commission offset.
II. Company-Specific Comments
Arrighi and Barilla
Comment 4: Use of an Adverse Inference for Arrighi and Barilla
World Finer Foods, who was an unaffiliated U.S. importer of
Arrighi's pasta products during the POR, and Barilla submitted comments
addressing the Department's application of the highest rate from the
petition, i.e., 71.49 percent, as the adverse facts available rate
assigned at the Preliminary Results.
Arrighi
World Finer Foods submitted comments addressing the Department's
application of an adverse inference in determining a rate for Arrighi.
According to World Finer Foods, and as noted in the ``Facts Available''
section above, Arrighi stated in a letter dated October 1, 1997, that
it would be unable to respond to the Department's questionnaire due to
deficiency of financial and personnel resources. World Finer Foods
notes that Arrighi did add, however, that it ``might be able to supply
limited information if the Department felt that might be worthwhile or
helpful in the context of this [review].'' Citing Allied Signal
Aerospace Co. v. United States, 996 F.2d 1185, 1192-93 (Fed. Cir.
1993), World Finer Foods argues further that the Department may not
find a respondent uncooperative where a respondent is experiencing
financial difficulties impeding its ability to provide the information
as requested and where it suggests alternative reporting methods.
World Finer Foods also argues that in a letter dated October 20,
1997, it offered to supply the Department with information concerning
its purchases from Arrighi. An officer of World Finer Foods met with
Department officials on January 8, 1998, and subsequently submitted
such information for the Department's examination on March 10, 1998. On
the basis of this information, the company asserts that the Department
had information demonstrating that during the POR Arrighi had
significantly increased its selling price to World Finer Foods since
the less-than-fair-value (LTFV) investigation. According to World Finer
Foods, the Department could have reasonably created a surrogate for
Arrighi's home market prices by using other respondents' information
``in order to develop a reasonably complete estimate of Arrighi's costs
and prices during the period of review.'' Moreover, World Finer Foods
alleges that the results of this review will affect only World Finer
Foods with respect to the assessment of antidumping duties, inasmuch as
Arrighi no longer sells its products in the U.S. market. Given World
Finer Foods' cooperation by responding to the best of its ability, it
asserts that the Department should not use an adverse inference in
applying the facts available to Arrighi.
With respect to Arrighi's failure to respond, the petitioners
contend that Arrighi made a deliberate business decision not to
respond, and indeed never filed any questionnaire responses, but only
stated that it might be able to supply limited information. The
petitioners note that, in Arrighi's October 1 letter to the Department,
the company acknowledged that it could not respond to the Department's
questionnaire because its company resources were dedicated to
developing alternative markets upon ceasing sales to the United States.
The petitioners distinguish Arrighi's situation from that of a company
in Certain Fresh Cut Flowers From Colombia: Final Results of
Antidumping Administrative Review, 59 FR 15159 (March 31, 1994), where
the Department acknowledged that a respondent undergoing liquidation
proceedings was precluded from utilizing its financial and personnel
resources toward providing a response to the Department's
questionnaire. The petitioners argue further that Arrighi's offer to
supply limited information does not in itself constitute a willingness
to cooperate fully since piecemeal data is not sufficient to conduct a
complete and accurate dumping analysis.
DOC Position: We disagree with World Finer Foods. As discussed in
the ``Facts Available'' section above, we have concluded that the
record demonstrates that Arrighi has not cooperated to the best of its
ability. Therefore, we are continuing to assign Arrighi 71.49 percent
as facts available for purposes of these final results.
Section 776(b) of the Act states that we may draw an adverse
inference where the party has not acted to the best of its ability to
comply with our requests for necessary information. Despite the
numerous arguments put forth by World Finer Foods, we disagree with
World Finer Foods' contention that Arrighi acted to the best of its
ability, given its financial circumstances, to comply with our requests
for information in this administrative review. Under certain limited
circumstances, such as where a company informs the Department in a
timely manner that it cannot comply with the Department's information
requests due to the liquidation of its assets, it may be appropriate
not to use an adverse inference in applying the facts available.
However, where a respondent continues to produce the subject
merchandise but fails altogether to provide information, we find that
it has failed to act to the best of its ability. See Certain Fresh Cut
Flowers From Colombia: Preliminary Results and Partial Rescission of
Antidumping Duty Administrative Review, 62 FR 16772, 16775 (April 8,
1997), and Certain Fresh Cut Flowers From Colombia: Final Results and
Partial Rescission of Antidumping Duty Administrative Review, 62 FR
53287 (October 14, 1997)
[[Page 6620]]
(``Flowers from Colombia'') (an adverse inference is warranted where a
respondent states merely ``that it was on the verge of bankruptcy'' but
provides no further information).
In the instant case, Arrighi was still in operation and reported
that it was devoting its company resources toward developing
alternative markets to the United States. Thus, unlike the respondent
in Flowers From Colombia, Arrighi made a conscious business decision
not to respond to the Department's questionnaire. Under these
circumstances, we find that Arrighi was unwilling, rather than unable,
to comply with our requests for information.
We also find that World Finer Foods' argument concerning Allied
Signal is unpersuasive. In Allied Signal, the Court held that the
Department's determination that SNFA, the respondent, had refused to
cooperate was unreasonable because it supplied some of the requested
information and also offered an alternative proposal to provide the
remaining information in a simplified form. However, in the present
case, Arrighi did not submit any information for the record nor did it
suggest any alternative or simplified reporting method. Arrighi merely
ended its letter of October 1, 1997, with a general offer to supply
limited information if it would be helpful. However, if a respondent
cannot provide information in the form or manner requested, section
782(c) of the Act places on the respondent the burden of suggesting
alternative forms in which the party is able to submit the information.
In this case Arrighi neither demonstrated that it could not respond in
the form or manner requested nor proposed an alternative.
Furthermore, we noted in the Preliminary Results that we examined
the documentation submitted by World Finer Foods, an importer that is
not a respondent in this review, and determined that it was
insufficient for purposes of calculating a dumping margin for Arrighi
in accordance with the statute. We find World Finer Foods' argument
that we had information demonstrating that Arrighi had significantly
increased its selling price to it during the POR, as compared to the
selling price during the LTFV investigation, to be unpersuasive. The
basis for the Department's determination of whether subject merchandise
has been sold at LTFV is a comparison between the export price or
constructed export price and normal value or constructed value. In this
case, we cannot determine the normal value of the subject merchandise.
Furthermore, we examined the information submitted by World Finer
Foods and have determined that it is inadequate for purposes of
estimating Arrighi's U.S. prices during the period of review. The
information is so incomplete that World Finer Foods' efforts cannot
overcome Arrighi's failure to respond.
Finally, we find that World Finer Foods' argument concerning the
effect the results of this review will have on an importer, such as
itself, is unpersuasive. Section 737(b)(1) of the Act requires that any
antidumping duties in excess of the amount deposited be collected when
the amount deposited is lower than the duty determined. Therefore,
importers are on notice that the cash deposit rate is not a duty
assessment rate but, rather, an estimate. Assessment may depend upon
the results of a review and, hence, the continued cooperation of the
exporter. There is no guarantee that the final assessment rate will not
be higher than the cash deposit rate. ``When a U.S. importer deals with
a foreign company that is subject to an antidumping duty order, the
importer must realize that the dumping margin could change to its
benefit or detriment.'' Union Camp Corporation v. United States, CIT
Court No. 97-03-00483, Slip Op. 98-38 at 22 (March 27, 1998).
Barilla
Barilla maintains that it informed the Department at the onset of
the review that it would not respond to the Department's questionnaire
due to the company's expenditures associated with building a new plant
in Iowa. Accordingly, Barilla characterizes its communication with the
Department as a ``course of action designed to minimize the
administrative inconvenience for the Department'' and, therefore, has
been ``as cooperative as possible within the constraints of reasonable
business practices.'' Thus, Barilla contends that an adverse inference
was not warranted.
The petitioners assert that the Department was justified in
assigning Barilla the highest petition rate as adverse facts available.
Since Barilla did not file any questionnaire responses and did not lack
the resources to do so, as evidenced by its ability to hire counsel to
file case briefs, the petitioners contend that Barilla's participation
in this review cannot be properly characterized as cooperative.
DOC Position: We disagree with Barilla. With respect to Barilla's
claim of cooperation in this review, we find the company's arguments
unpersuasive. Barilla has stated unequivocally that it made a
deliberate decision not to respond to the Department's questionnaire.
The primary issue is not administrative inconvenience, but rather the
Department's responsibility to conduct a review and calculate a margin.
It is evident, therefore, that Barilla's refusal to comply with the
Department's requests for information has significantly impeded this
proceeding. Therefore, we find that Barilla has failed to cooperate by
not acting to the best of its ability.
Comment 5: Reliability of the Highest Petition Margin
Barilla submitted comments addressing the use of the highest
petition margin as the facts available rate. According to Barilla, the
adverse facts available rate should be the highest calculated margin
from any segment of the proceeding, which is more reliable, reflective
of current market conditions, and consistent with the Department's
recent practice and judicial rulings. Barilla argues further that the
highest margin from the petition cannot be corroborated and has been
discredited by calculated, verified margins. Barilla also notes that,
in the LTFV investigation, the Department used an average of the
petition margins in applying adverse facts available to De Cecco, a
respondent the Department found to have significantly impeded the
Department's investigation, at considerable inconvenience and expense,
by not cooperating, citing Borden Inc. et al. v. United States, Consol.
Ct. No. 96-08-01970 (August 28, 1998 (``Redetermination on Remand'')
2. As such, Barilla asserts that it should not receive a
more adverse rate than that applied to De Cecco.
---------------------------------------------------------------------------
\2\ In litigation arising out of the LTFV investigation, the CIT
remanded to the Department its decision to use an adverse inference
for De Cecco and its determination of the appropriate rate to use as
facts available. Even if the Department determined that an adverse
inference was warranted, the CIT instructed the Department that it
could use a rate of no more than 21.34 percent, the highest
calculated and verified margin from the LTFV investigation. In
performing this remand, the Department applied this rate as adverse
facts available but argued that ``the use of this rate thwarts the
purpose of the adverse inference provision of the Statute by failing
to provide the necessary incentive for cooperation.'' On December
16, 1998, the CIT affirmed the Department's decision to use an
adverse inference and the CIT's decision to apply an antidumping
duty margin of 21.34 percent for De Cecco.
---------------------------------------------------------------------------
World Finer Foods considers the Department's application of the
highest rate of the petition as adverse facts available to be punitive,
arbitrary, and inconsistent with the statute, the Department's
regulations, judicial decisions, and the Department's normal
[[Page 6621]]
practice. It alleges that, because the results of this review will only
affect World Finer Foods with respect to the assessment of antidumping
duties (inasmuch as Arrighi no longer sells the subject merchandise in
the U.S. market) and given World Finer Foods' cooperation by responding
to the best of its ability, the Department should not apply the highest
petition rate as an adverse inference against Arrighi.
The petitioners agree with the Department's application of the
highest petition margin as adverse facts available. They assert that
the facts between De Cecco in the LTFV investigation and Arrighi and
Barilla in the instant review are different. According to the
petitioners, De Cecco was assigned an average rate from the petition
because it had made some effort to cooperate, although not to the best
of its ability, whereas Arrighi and Barilla never attempted to respond
to the Department's questionnaire. The petitioners contend further that
the Department assigned the highest margin from the petition as an
adverse facts available rate properly inasmuch as the Department need
not prove that the petition margins are the best alternative
information. They argue further that the Department must ensure that
Arrighi and Barilla do not benefit from their failure to respond to the
Department's questionnaire.
DOC Position: We disagree with Barilla and World Finer Foods.
Section 776(b) of the Act notes that adverse inferences may include
reliance on information derived from (1) the petition; (2) a final
determination in the investigation; (3) any previous review; or (4) any
other information placed on the record. Thus, the statute does not
limit the specific sources from which the Department may obtain
information for use as facts available. The SAA recognizes the
importance of facts available as an investigative tool in antidumping
duty proceedings. The Department's potential use of facts available
provides the only incentive to foreign exporters and producers to
respond to the Department's questionnaires. See SAA at 868.
In this segment of the proceeding, we have chosen as adverse facts
available the highest rate based on corroborated petition data, 71.49
percent. Our decision to use a rate higher than the average petition
rate is consistent with our decision in the LTFV investigation. In the
investigation, we determined that ``[b]ecause De Cecco made some effort
to cooperate, even though it did not cooperate to the best of its
ability, we did not choose the most adverse rate based on the
petition.'' See Notice of Final Determination of Sales at Less Than
Fair Value: Certain Pasta from Italy, 61 FR 30326, 30329 (June 14,
1996). See also Oil Country Tubular Goods From Japan; Final Results of
Antidumping Duty Administrative Review, 62 FR 48594 (September 16,
1997), and Certain Cut-to-Length Carbon Steel Plate From Sweden: Final
Results of Antidumping Duty Administrative Review, 62 FR 46947
(September 5, 1997). Thus, the Department chose an adverse facts
available rate of 46.67 percent; this represented the average rate
based on corroborated petition data.3
---------------------------------------------------------------------------
\3\ On December 16, 1998, the CIT affirmed the revised
antidumping duty margin of 21.34 percent for De Cecco, stating that
``De Cecco's new margin of [21.34%] fulfills the statutory purposes
to provide an incentive to cooperate with Commerce without utilizing
punitive, aberrational, or uncorroborated margins.'' The Department
has until February 16, 1999, to file an appeal with the Court of
Appeals for the Federal Circuit.
---------------------------------------------------------------------------
In this case, Arrighi, Barilla, and Pagani did not cooperate at all
with our requests for information. Since they made no attempt to
cooperate, we agree with the petitioners that these companies should
not receive the same or a lower rate than that of a company that made
some effort to cooperate with our requests for information. Moreover,
we believe that the highest petition margin is sufficiently adverse to
induce cooperation in subsequent administrative reviews. Therefore, for
purposes of these final results, we are continuing to assign the
highest margin from the petition as adverse facts available.
At the time of initiation of the LTFV investigation, we reviewed
all of the data the petitioners had submitted and the assumptions they
made in estimating dumping margins and, as a result, we adjusted the
petition rates. See Notice of Initiation of Antidumping Duty
Investigations: Certain Pasta from Italy and Turkey, 60 FR 30268, 30269
(June 8, 1995). For purposes of these final results, we compared the
petition rates with the range of transaction margins we found during
the investigation based on actual data submitted, which were the basis
for the final company-specific weighted-average dumping margins. See
``The Facts Available Rate and Corroboration of Secondary Information''
memorandum, dated February 3, 1999. Specifically, we reviewed the
transaction margins for those fully cooperative respondents that were
found to have dumping margins in the investigation and found that
certain respondents had a number of calculated margins in excess of the
highest petition margin. Thus, we concluded that the petition rates
were within the range of transaction dumping margins found for certain
respondents during the POI. Therefore, the petition rates represent a
reasonable estimate of a level of dumping that occurred during the POI,
i.e., they are reliable. In addition, there is no evidence of
circumstances that would render the petition margin inappropriate as
facts available. Therefore, we consider the petition rates
corroborated. Moreover, we have compared the petition rates with the
range of transaction margins calculated for the final results of this
review. Id. We found that the petition rates fall within the range of
individual transaction margins calculated for cooperative respondents.
While it is not necessary to find that the petition rates fall within
the range of margins calculated in this review, this evidence further
confirms the reliability of these rates in this case. Thus, we have
considered information reasonably at our disposal and no record
evidence exists indicating that the highest petition rate, as adjusted
by the Department, is aberrational, uncorroborated, or unduly punitive.
De Cecco
Comment 6: Major Inputs
De Cecco argues that, for the final results, the Department should
not use transfer prices to value transactions between De Cecco and its
affiliated semolina supplier, Molino F.lli De Cecco di Filippo S.p.A.
(``Molino''). Instead, De Cecco suggests that, for purposes of
computing cost of production and constructed value, the Department
should value transfers of semolina, the major input of pasta, from
Molino to De Cecco at Molino's cost.
De Cecco argues that the corporate entity Molino, 97.9 percent of
which is owned by De Cecco and the remainder by shareholders of De
Cecco's parent company, is in essence a wholly owned subsidiary of De
Cecco. De Cecco contends that sections 773(f)(2) (``transactions
disregarded'') and 773(f)(3) (``major-input rule'') of the Act do not
apply in this instance because, although Molino is incorporated
separately from De Cecco, Molino's semolina production and De Cecco's
pasta-manufacturing operation are part of a single integrated
production process under the same ownership. According to De Cecco,
Molino's sole purpose is to process grain, selected by De Cecco, into
semolina that is then transferred to De Cecco, which consumes all of
Molino's semolina production. Therefore, De Cecco contends that the
Department
[[Page 6622]]
should value transfers of semolina from Molino to De Cecco at Molino's
cost in order to reflect the economic and operational reality of the
relationship and transactions between these two companies. De Cecco
points out that the application of the major-input rule could subject
it to a dumping margin on the basis of an element of profit to the De
Cecco Group which De Cecco has chosen to accord to Molino rather than
to itself. The respondent argues that these matters are tax-driven and
not issues of economics or production.
Noting that the Department ``collapsed'' De Cecco and Molino e
Pastificio F.lli De Cecco S.p.A. (``Pescara''), another affiliated
supplier of semolina and a pasta producer, De Cecco argues that Molino
should be granted the same treatment since, as a provider of semolina
to De Cecco, Molino is no different than Pescara. De Cecco claims that,
because it conducts operations essential to De Cecco, Molino is in fact
more integral to De Cecco than Pescara. De Cecco asserts that it would
be inconsistent with the reasoning set forth in Final Results of
Antidumping Administrative Review: Certain Cold Rolled and Corrosion-
Resistant Carbon Steel Flat Products From Korea, 62 FR 18430 (April 15,
1997), to treat transfers of semolina from Molino to De Cecco
differently from transfers of semolina from Pescara to De Cecco.
The petitioners maintain that sections 773(f)(2) and (3) of the Act
permit the Department to value major inputs between affiliated
companies at the higher of transfer price, market price, or the cost to
the affiliated producer to value raw materials or services fairly used
in the production of subject merchandise. Citing Small Diameter
Circular Seamless Carbon and Alloy Steel Standard, Line and Pressure
Pipe from Germany: Final Results of Antidumping Duty Administrative
Review, 63 FR 13217, 13218 (March 18, 1998), the petitioners argue that
for the final results the Department should continue to apply the
transactions-disregarded and major-input rules in this case.
The petitioners point out that the Department's criteria for
``collapsing'' two or more affiliated producers are the following: (1)
the producers must be affiliated; (2) the producers must have
production facilities for similar or identical products that would not
require substantial retooling of either facility in order to
restructure manufacturing priorities; and (3) there must be a
significant potential for manipulation of price or production, citing
Certain Welded Carbon Steel Pipes and Tubes from Thailand: Preliminary
Results of Antidumping Duty Administrative Review, 63 FR 16974, 16975
(April 7, 1998). The petitioners also cite the Final Determination of
Sales at Less Than Fair Value: Fresh Atlantic Salmon from Chile, 63 FR
31411, 31421-27 (June 9, 1998), which, according to the petitioners,
demonstrates the Department's application of sections 773(f)(2) and
773(f)(3) of the Act. The petitioners contend that, since Molino is a
supplier of semolina and not a producer of subject merchandise, the
affiliation between De Cecco and Molino does not satisfy the three
criteria stated above, and, therefore, the transactions-disregarded and
major-input provisions of the statute should continue to be applied.
DOC Position: The Department does not agree that semolina De Cecco
purchased from its affiliated supplier, Molino, should be exempt from
the application of the major-input rule. Thus, we have continued to
rely on the higher of transfer price, market value, or the affiliate's
cost of production in accordance with sections 773(f)(2) and (3) of the
Act to value those transactions.
Sections 773(f)(2) and (3) of the Act prescribe how the Department
is to treat affiliated-party transactions in the calculation of cost of
production and constructed value. With respect to major inputs
purchased from affiliated suppliers, the Department's practice is that
such inputs will normally be valued at the higher of the affiliated
party's transfer price, the market price of the inputs, or the actual
costs incurred by the affiliated supplier in producing the input.
Since implementation of the URAA, the Department has applied this
interpretation consistently (see, e.g., Fresh Atlantic Salmon From
Chile: Final Determination of Sales at Less Than Fair Value, 63 FR
31426, 31427 (June 9, 1998) (Comment 22); Small Diameter Circular
Seamless Carbon and Alloy Steel Standard, Line and Pressure Pipe From
Germany: Final Results of Antidumping Duty Administrative Review, 63 FR
13217, 13218 (March 18, 1998) (Comment 1)), except in those situations
where it treats respondents who are producers of the subject
merchandise as a single entity for purposes of sales reporting and
margin calculations (see, e.g., Steel Flat Products from Korea (Comment
19)).
Each company in question, De Cecco and Molino, is a separate legal
entity in Italy. We disagree with the respondent that the operational
reality of close association between the two companies outweighs the
legal form of the entities. The Department has observed the legal
status of the responding parties to the proceeding consistently when
determining if the ``transactions-disregarded'' and ``major-input''
rule sections of the Act are applicable. See, e.g., Final Results of
Antidumping Duty Administrative Review: Certain Forged Steel
Crankshafts From the United Kingdom, 61 FR 54613, 54614 (October 21,
1996) (Comment 1) (``Crankshafts''). In Crankshafts, UES Steels and UEF
were unincorporated divisions of the same corporation and, thus, we did
not apply the ``transactions-disregarded'' and ``major-input rule''
sections of the Act.
We disagree with De Cecco that Molino should be granted the same
treatment as Pescara, a producer of the subject merchandise, because
Molino's operational relationship to De Cecco renders it more integral
to the respondent than Pescara. We collapsed the sales and production
activities of Pescara and DeCecco in accordance with 19 CFR 351.401(f),
not because of the integral nature of what each entity does for the
other. Section 351.401(f) of the regulations provides for special
treatment of affiliated producers where the potential for manipulation
of prices or production in an effort to evade antidumping duties
imposed on the sale of subject merchandise exists. In accordance with
this section of the regulations, we collapse all sales prices and
production costs of the affiliated entities as if they were a single
company. Since we do not apply the major-input rule for transactions
within the same company, the major-input rule does not apply for
transactions between Pescara and DeCecco. Inasmuch as Molino is not a
producer of the subject merchandise, is solely a producer of semolina,
and, unlike Pescara, has not been collapsed with De Cecco for purposes
of sales reporting and margin calculation, we have continued to treat
De Cecco and Molino as separate entities for the purposes of reporting
costs. We have continued to treat De Cecco and Pescara, which is both a
producer of the subject merchandise and a semolina supplier, as a
single entity for sales reporting and the calculation of an antidumping
margin for the final results. Thus, consistent with the exception to
the major-input rule established in the Steel Flat Products from Korea
case, we have collapsed De Cecco and Pescara for cost calculation
purposes. In effect, the Department, for purposes of these final
results, has treated De Cecco and Pescara as one entity and, thus, the
major-input rule is not applicable.
[[Page 6623]]
Therefore, we have used the actual COP to value semolina obtained by De
Cecco from Pescara.
Indalco
Comment 7: Treatment of Artiginal Pasta
The petitioners argue that the Department should disregard the
added pasta-shape codes and the corresponding product control numbers
(CONNUMs) for artiginal pasta which was produced by Indalco's
affiliate. They maintain that these added shape codes and CONNUMs are
improper because they were derived from differences in plant
facilities, a non-physical characteristic, rather than for differences
in shapes, as claimed by Indalco. According to the petitioners, Indalco
has not demonstrated in its response any bona fide differences in shape
or quality between artiginal pasta and other Indalco pasta produced in
its own facility (hereafter referred to as industrial pasta). They also
contend that Indalco failed to tie the cost difference associated with
artiginal pasta to differences in shapes of pasta. Therefore, they urge
the Department to consolidate Indalco's reported CONNUMs and revise
Indalco's reported COP and CV database to calculate a single, weighted-
average COP and CV for each product, as defined by the Department's
questionnaire.
The petitioners argue further that Indalco's use of line speeds to
differentiate artiginal pasta from industrial pasta is unwarranted
because the slower line speeds associated with artiginal production
could be attributable to the age or inefficiency at the artiginal pasta
plant, which is unrelated to pasta shape. By contrast, the petitioners
note that the Department's use of line speeds in the original
investigation to distinguish pasta shapes produced on the same
production line was warranted because some pasta cuts require slower
line speeds than other cuts. They argue that the issue of line speeds
in the original investigation and the line speed for artiginal pasta in
this review differs in that the shape of pasta dictated the line speed
during the investigation, but it is the production facility, rather
than pasta shape, that dictates the line speed for artiginal pasta.
Indalco maintains that artiginal pasta has distinctive physical
characteristics--such as rougher texture, unique hand-made appearance
and shape--which require it to be identified separately and matched
with other artiginal pasta and not with Indalco's industrial pasta.
Indalco notes that artiginal pasta's different characteristics are
obtained by using coarser semolina, bronze dies, smaller machines, and
lower temperature and slower speeds during the extrusion and drying
processes. Indalco argues that these distinctive physical
characteristics are commercially significant and relevant to consumers
and that they enable Indalco to command a selling price three to five
times higher for artiginal pasta than for industrial pasta.
With respect to the petitioners' argument regarding line speeds,
Indalco maintains that its affiliate's artiginal facility was newly
established in 1997 and, therefore, the differences in processing
artiginal and industrial pasta are not accidental differences in
efficiency or age of machinery but are specifically designed to produce
the unique artiginal characteristics. According to Indalco, artiginal
pasta cannot be produced on its industrial-pasta machinery using the
high-speed, high-temperature industrial process; rather, it must be
produced using slower, lower pressure and lower temperature during the
extrusion and drying processes in order to preserve artiginal pasta's
unique physical characteristics.
Indalco argues further that, in the original investigation, the
Department established seven pasta-shape categories to differentiate
the hundreds of pasta shapes that the pasta industry produces. Indalco
claims that, except in the most broad terms (long, short, nested,
etc.), the Department did not use the exact physical shape to classify
its shape categories. Rather, Indalco states, the Department used line
speed and the resulting impact on production cost and final price as a
distinguishing characteristic for classifying shape categories. Indalco
claims that, since the differences in line speed, production cost and
end price between industrial and artiginal shapes are far greater than
the differences the Department has already recognized among the various
industrial shape categories it identified, creation of the two new
artiginal shape categories is consistent and appropriate. Indalco notes
further that the Department's questionnaire contains instructions for
companies to follow in modifying shape classifications based on
documented differences in line speed.
DOC Position: We agree with Indalco that information on the record
in this case, including a video showing the production process,
supports Indalco's position that artiginal pasta merits separate
treatment. We also agree that it is the nature of the artiginal
production process, rather than the age and inefficiency of the
artiginal production plant, that leads to the slower line speeds for
the production of artiginal pasta cuts. As Indalco stated in its
response, its standard high-speed industrial pasta production lines can
produce hundreds of pieces of pasta simultaneously through Teflon-
coated dies while its artiginal machine produces only one or just a few
pieces at a time.
We agree with the petitioners that we used a 75 percent line-speed
benchmark in the investigation to distinguish pasta shape for
speciality long and short pasta cuts from regular long and short pasta
cuts produced on the same long or short production line. Typically,
pasta producers dedicate specific production lines to either long or
short pasta cuts and the purpose of the benchmark was to assign a
``speciality'' shape category to pasta cuts on a dedicated long or
short production line that were produced at less than 75 percent of the
rated line capacity. Thus, the use of line speed to distinguish
speciality shapes within long and short pasta cuts was not due to any
special physical differences in pasta cuts within the long or short
shape category (other than being long or short) but rather was
attributable solely to the higher production costs associated with
slower line speeds. For example, fettuccine, linguine, vermicelli, and
spaghetti are classified in the shape category for ``long cuts'' and
capellini and bucatini are classified in the shape category for
``speciality long cuts.'' All are generally produced on the same long
production line. While they share the same ``long'' shape
characteristic, they differ physically from one another in other
visible shape features (e.g., width and thickness). Yet we segregated
them ultimately into regular long or speciality long shape categories
on the basis of line speed. We used this shape-classification
methodology in both the original investigation and in this
administrative review and it has been communicated to respondents both
in instructions to the questionnaire, as well as in addressing
respondent requests for assigning shape classifications to shapes not
included in our questionnaire shape list (see, e.g., letters to William
Silverman of Rogers and Wells, dated October 27, 1995, and October 30,
1997).
While we agree with the petitioners that artiginal long and short
pasta cuts are produced on different production lines and in a
different factory than Indalco's industrial long and short pasta cuts,
the difference in line speeds between artiginal and industrial pasta of
the same general shape category (long or
[[Page 6624]]
short) is dramatic and must be addressed. The fact that a long or short
artiginal pasta cut takes up to 20 times longer to produce than the
comparable industrial long or short pasta cut is sufficiently
significant to warrant the creation of a special shape category for
artiginal pasta long or short cuts for the same reason that led the
Department to create speciality long and short shapes for industrial
pasta long or short cuts; in other words, the production cost for
artiginal pasta is significantly influenced by the slower line speeds
required to produce the same long or short industrial pasta cut. We
also note that artiginal long and short pasta cuts have different
physical characteristics than the same cuts produced on Indalco's
industrial pasta line. Rigatoni, for example, is classified as a
regular short cut but artiginal rigatoni differs significantly in
texture, shape, thickness and length from the industrial rigatoni.
Accordingly, we agree with Indalco that the artiginal pasta constitutes
a separate shape category and for these final results have continued to
assign separate product-control numbers to artiginal pasta. For the
same reason, we disagree with the petitioners that we should revise
Indalco's reported COP and CV database to calculate a single, weighted-
average COP and CV for industrial and artiginal pasta of the same shape
category. Therefore, we have continued to assign COP and CV to the
artiginal product-control numbers based on the cost associated with
manufacturing artiginal pasta.
Comment 8: Level-of-trade Comparison
The petitioners state that, according to the Department's
preliminary level-of-trade analysis, Indalco's home market consists of
two groups of customers which constitute two levels of trade: group 1
(LOT 1) (including wholesalers, supermarket chains and retailers), and
group 2 (LOT 2) (including food service entities). They claim that
Indalco's U.S. sales should be compared to its home market sales to LOT
2 customers on the grounds that the selling activities associated with
Indalco's U.S. sales were more similar to those associated with home
market LOT 2 customers.
Indalco argues that its U.S. sales to distributors should not be
matched to its home market sales to end-users (LOT 2). Rather, the
respondent contends, they should be matched to its home market sales to
wholesalers and supermarket chain distributors (LOT 1) on the following
grounds: (1) Both U.S. sales and home market LOT 1 sales were high-
volume, produced-to-order, direct sales, while home market LOT 2 sales
were small-lot, warehouse sales from inventory; and (2) home market LOT
1 customers are at a very early level of trade while the end-users
further down the chain of distribution are at the most advanced level-
of-trade.
Indalco argues further that the Department's level-of-trade
quantitative analysis erred in characterizing the warehousing function
as ``low'' for home market LOT 2 sales. According to Indalco, a
significant portion of home market LOT 2 sales were made from Indalco's
own on-site warehouse, the cost of which was included in the production
cost and, therefore, was excluded from the Department's level-of-trade
quantitative analysis.
DOC Position: We agree with Indalco in part. We agree that U.S.
sales should not be compared only to Indalco's home market LOT 2 sales,
but we disagree with Indalco that its U.S. sales should be compared
only to its home market LOT 1 sales. In this review, all of Indalco's
U.S. sales were EP sales made at a single level of trade. We found that
there were significant differences between the selling activities
associated with the U.S. sales and those associated with each of the
home market levels of trade. Consequently, we matched the U.S. sales to
home market sales without regard to level of trade and made no level-
of-trade adjustment. As noted in the ``Level-of-trade Findings''
memorandum from John Brinkmann to Susan Kuhbach dated July 31, 1998,
because we determined that U.S. and home market sales were not made at
the same level of trade, our intention in the preliminary results was
to match Indalco's U.S. sales without regard to level of trade.
However, in our preliminary computer program, we inadvertently matched
U.S. sales only to home market sales at LOT 1. We have corrected the
programming error in our final results.
Comment 9: Treatment of Indalco's Certain Home Market On-Invoice
Discounts
This comment contains proprietary information which cannot be
summarized here (see proprietary memorandum from Cindy Robinson to John
Brinkmann, Recalculation of Certain Home Market Discount for Industria
Alimentare Colavita, S.p.A in the Final Results of the First
Administrative Review of Certain Pasta from Italy, December 7, 1998).
La Molisana
Comment 10: Level of Trade
La Molisana submitted comments proposing the following level-of-
trade methodologies: (1) the Department should use brand distinctions
in determining a level of trade (see Comment 10A below); (2) if the
Department does not use brand distinctions, it should determine that
the sole level of trade in the United States is similar to the least
advanced level in the home market (see Comment 10B below); or (3) the
Department should use price-averaging groups in making price-to-price
comparisons (see Comment 10C below).
Comment 10A: Use of Brand Distinctions in Determining Level of Trade
In the U.S. and home markets, La Molisana sells both its own La
Molisana brand pasta and private-label brands. La Molisana argues that,
when customers contract with La Molisana to produce what is really the
customer's product (i.e., a private label), those customers occupy a
different point in the chain of distribution. In effect, the respondent
contends, such customers are ``co-manufacturers'' as compared to those
customers which purchase pasta under the La Molisana brand. In this
case, according to the respondent, the sole U.S. customer occupies two
different places in the chain of distribution depending on the brand of
pasta that it purchases.
Further, La Molisana states that different selling activities are
performed for the two different brands. For example, it asserts it
performs a high degree of advertising and promotional activities in
connection with its own brand and none for private label brands. Also,
La Molisana maintains an inventory of its own brand both at the factory
and at regional warehouses, whereas all private-label sales are made to
order. In terms of sales support, La Molisana uses both commissioned
sales agents and internal sales people to sell the La Molisana brand,
whereas all private-label sales are handled through its plant.
The petitioners point out that the Department already determined in
a July 31, 1998, memorandum to the file, ``La Molisana's Proposed
Level-of-trade Categories,'' that La Molisana's brand distinctions do
not satisfy the criteria for establishing that La Molisana and private-
label sales were made in different stages of the marketing process.
Finally, according to La Molisana, the U.S. distributor orders both
brands and occupies only one place in the chain of distribution.
DOC Position: We agree with the petitioners. As we stated in our
memorandum to the file, differences in selling functions alone do not
establish a level of trade. See Memorandum from John Brinkman to the
file, La Molisana's Proposed Level-of-trade Categories (July
[[Page 6625]]
31, 1998). La Molisana's original response did not classify buyers of
the private-label merchandise as a distinct customer category with a
distinct channel of distribution. La Molisana's single U.S. customer
for both La Molisana and private-label merchandise is defined by La
Molisana in its response as a distributor, a classification that does
not change depending on the brand purchased. Furthermore, in the case
of this customer, the difference in selling functions between the two
brands of merchandise rests primarily on advertising, which is not
sufficient to establish differences in levels of trade in this case.
Several home market customer categories, as defined by La Molisana, buy
both La Molisana and private-label brands, and there is no evidence on
the record to suggest that the channels of distribution within these
customer categories vary greatly depending on the brand purchased or
that a particular customer cannot receive both brands through the same
channel. Therefore, we did not use brand distinctions to determine
level of trade in these final results.
Comment 10B: Whether the U. S. Level of Trade is Comparable to the
Least-Advanced Level in the Home Market
La Molisana argues that miscategorization of the level of certain
selling functions caused the Department to conclude that the U.S. level
of trade was not similar to either of the two home market levels of
trade. First, La Molisana contends that distributors should be in the
same level of trade as wholesalers, buying consortia and supermarket
chains (HM1). Like these customers, the respondent asserts,
distributors act as middlemen who do not sell directly to end
customers, unlike the supermarkets, restaurants and retailers with whom
distributors were grouped for the preliminary results.
Second, La Molisana claims that the Department did not look at the
same sales and marketing selling functions in the two markets, looking
at four factors (discounts, two types of rebates and commissions) in
the home market, none of which were considered in the analysis of the
U.S. level of trade. La Molisana comments that, in the quantitative
frequency analysis of home market sales and marketing selling functions
in the home market, the Department looked at the number of observations
with positive values for each of the four factors considered and then
used those values to determine an overall average frequency for the
sales and marketing support category. La Molisana contends that the
Department, by not taking into account those factors which had no
observations with positive values, calculated an erroneous average.
Further, in the Preliminary Results La Molisana observes, the
Department gave equal weight to commissions and the three different
categories of discounts and rebates when calculating the average.
According to La Molisana, this resulted in understating the importance
of the use of a sales agent as a selling function. La Molisana argues
that the Department should consider discounts and rebates as a single
factor and commissions as another factor within the sales and marketing
support category; then it should give equal weight to both when
averaging them. If commissions were given their proper weight, La
Molisana contends, distributors would be found highly comparable to
supermarket chains in relation to the level of sales-processing
activity.
Third, La Molisana argues that customers in HM1, all of which
purchase both La Molisana and private-label brands, benefit from a
lesser degree of advertising and promotional activities because those
activities are only performed for the La Molisana brand. La Molisana
claims that the composition of sales to distributors with respect to
the two brands is comparable to that of the other groups in the HM1
category.
Finally, La Molisana contends that the Department misclassified the
level of activity for certain selling functions in the United States.
Freight and delivery arrangements made for U.S. sales are, according to
La Molisana, made in the same manner as those for the home market and
should be classified accordingly. If the Department corrects these
alleged miscategorizations, La Molisana believes it will conclude that
the single level of trade in the U.S. market is comparable to the HM1
level of trade in the home market. La Molisana points out that in the
underlying investigation the Department determined that sales were made
at the same level of trade in both markets, and it contends that
circumstances have not changed significantly.
The petitioners agree with the Department's level-of-trade analysis
in the preliminary results. The petitioners point out that including
the zero-frequency percentages in the quantitative portion of the
``sales and administration and marketing support'' category analysis
would not have a large enough effect on the result to change the
conclusion about the level of sales and marketing support provided by
distributors. They point out further that, if the Department were to
use the same factors to evaluate the U.S. sales and marketing support
that were used in the home market (i.e. discounts, rebates, and
commissions), the result would not change. With regard to La Molisana's
contention that the circumstances have not changed since the
investigation, the petitioners point out that the Department has
refined its level-of-trade analysis since the original investigation
and now conducts a more detailed examination.
DOC Position: We agree with La Molisana, in part. For the final
results, where possible, we have compared La Molisana's U.S. sales to
the HM1 level of trade in the home market and have included
distributors in the HM1 level of trade.
With regard to the classification of La Molisana's selling
functions, we recognize that the use of a sales agent is an important
consideration in the sales administration and marketing support
category. Therefore, in these final results we have given more weight
to the fact that agents are not used for sales to distributors.
Further, we have reviewed our analysis of the off-price-list discounts
received by distributors and have found them comparable to those
received by the other customers in HM1 (see La Molisana Analysis Memo).
In terms of the quantitative frequency analysis we performed for the
preliminary results, in which we determined the number of observations
with positive values for each selling-function variable, we emphasize
that this quantitative analysis was intended only as a guide for use in
the final analysis. The existence of any zero frequencies, together
with all other relevant factors as outlined in the narrative portion of
the response, was taken into account in the qualitative portion of our
level-of-trade analysis. Therefore, it is unnecessary to revise the
quantitative portion of the analysis. We acknowledge that we did not
look at the same functions in both the U.S. and home markets because
the same fields in the computer database did not exist for both. With
regard to the level of advertising and promotions support incurred by
distributers, the data show La Molisana's statement that the
composition of sales with respect to the two brands being similar
between distributors and the other customers in the HM1 category is
erroneous. We have not re-categorized the level of advertising support
to distributors in our final level-of-trade analysis.
In considering the U.S. freight arrangements, we agree with La
Molisana that these arrangements do require a comparable level of
activity as the freight arrangements made in the
[[Page 6626]]
home market, and we have factored that into our final level-of-trade
analysis.
Finally, to determine whether home market sales are at a different
level of trade than U.S. sales, we examine whether the home market
sales are at different stages in the marketing process than the U.S.
sales. The marketing process in both markets begins with goods being
sold by the producer and extends to the sale to the final user. The
chain of distribution between the two may have many or few links, with
the respondent's sales occurring somewhere along this chain. See Notice
of Final Determination of Sales at Less Than Fair Value: Certain Cut-
to-Length Carbon Steel Plate From South Africa, 62 FR 6173 (November
19, 1997). In looking at the chain of distribution to see where the
customer categories in the U.S. and home markets fall, it is clear that
La Molisana's U.S. customer is at the same point in the chain of
distribution as its customers in the home market level of trade HM1.
All of the home market customers in HM1 are the first to take
possession of the merchandise from La Molisana and none of them sells
directly to end-users. While position in the chain of distribution
alone does not determine level of trade, we feel that the selling
functions of these customers are sufficiently similar to those of the
U.S. customer to warrant considering them the same level of trade.
Even without changing the analysis with regard to advertising, our
revised analysis with regard to sales administration and marketing
support and chain of distribution warrants including distributors in
the HM1 level of trade with wholesalers, supermarket chains and buying
consortia.
Comment 10C: Use of Price-Averaging Groups in Making Price-to-Price
Comparisons
La Molisana argues that, if the Department does not match to the
HM1 level of trade, it should continue with its practice established in
the investigation of comparing sales by using price-averaging groups
based on customer category.
The petitioners argue that use of price-averaging groups based on
customer category would effectively substitute customer categories as
defined by the respondent itself for the detailed level-of-trade
analysis carried out by the Department.
DOC Position: Because we have decided to match La Molisana's sales
at the HM 1 level of trade, this argument is moot.
Comment 11: Calculation of the Difference-in-Merchandise Adjustment
La Molisana argues that the only ``physical difference'' between
U.S. and Italian pasta that it produces is the vitamin enrichment in
the U.S. pasta. Any other differences in cost do not result in a
physical difference and should not be included in the calculation of
the difference-in-merchandise (difmer adjustment). It claims a cost
differential arises between different types of pasta within a given
shape category because of different extrusion times involved in
producing them.
The petitioners claim that La Molisana's cost differences were
based on brand distinctions and the Department calculated a weighted-
average cost using the two submitted costs correctly to determine one
unique cost of manufacturing for each control number and used that cost
in the calculation of the difmer appropriately.
DOC Position: Contrary to the Department's instructions in Section
D, page D-1, of the antidumping questionnaire, which requested that the
respondent report one weighted-average cost for each unique control
number, La Molisana reported two costs for each control number based on
brand distinctions. The difference in these costs was not related to
extrusion times as claimed by La Molisana in its brief. See La
Molisana's November 10, 1998, section D response, p. D-20 and exhibit
D-9. Therefore, we have continued to use the weighted-average figure
based on the two costs presented by La Molisana as the basis for the
difmer.
Comment 12: Comparing Green Nested Pasta to Constructed Value
La Molisana claims that its green nested pasta is sufficiently
different from any other pasta type that it should be compared to
constructed value (CV). In the preliminary results, the Department
matched across shape, additives and enrichment resulting in a
comparison of vitamin-enriched green nested pasta to unenriched, plain
nested or, in some cases, specialty long cut pasta. Although the
calculated difmer falls just within the 20 percent range the Department
uses normally, La Molisana contends that in this case it results in an
unreasonable comparison of dissimilar merchandise.
The petitioners point out that the home market sales that the
Department used to compare La Molisana's U.S. sales of green nested
pasta do not exceed the 20 percent difmer test. They contend that the
Department's application of the decision in Cemex, S.A. v. the United
States (``Cemex'') dictates that the Department use similar merchandise
rather than CV to calculate margins when there are no comparison sales
of identical merchandise.
DOC Position: We agree with the petitioners. Although the 20
percent difmer test is not mandated by the statute, the Department has
used it continuously for a long period of time and in 1992 established
a clear policy on its use. See Policy Bulletin 92.2 Difference in
Merchandise; 20% rule (July 29, 1992). While the bulletin states that
we are not inflexibly bound to this guideline, we find no basis for
making an exception to this policy in this case. Moreover, La
Molisana's green nested pasta, which goes through the same production
process as the other pasta types and has largely the same ingredients,
is not sufficiently dissimilar from other pasta types to make these
comparisons unreasonable.
Puglisi
Comment 13: Offset to G&A for Government Grants and Restitution of
Lease Payments
Puglisi maintains that during Fiscal Year (FY) 1996 the company
received (1) grants for equipment purchases and (2) loan-restitution
payments for leased production equipment. Puglisi argues that the
Department should uphold its long-standing and consistent practice and
treat the grants for equipment purchases and the loan-restitution
payments as offsets to G&A expenses as it did in previous cases,
including the Final Determination of Sales at Less Than Fair Value:
Certain Pasta from Italy, 61 FR 30326 (July 14, 1996) (Pasta from
Italy), and Final Determination of Sales at Less Than Fair Value:
Furfuryl Alcohol from South Africa, 60 FR 22550, 22556 (May 8, 1995)
(Furfuryl Alcohol from South Africa).
The petitioners contend that the Department should exclude non-
production-related offsets from the calculation of G&A as was done in
the preliminary analysis. The petitioners argue that, because the
machinery-investment subsidy is available to all Italian companies, it
is general in nature. Therefore, they argue that the Department should
continue to exclude this subsidy as an offset to G&A for the final
results.
DOC Position: We agree with Puglisi that the grants for equipment
purchases and loan-restitution payments for leased production equipment
should be treated as offsets to total G&A expenses. The grants relate
specifically to the company's general operations. Consistent with our
findings in Pasta
[[Page 6627]]
from Italy, 61 FR 30326, 30355, and Furfuryl Alcohol from South Africa,
60 FR 22550, 22556, we have included the grants received for equipment
purchases and loan-restitution payments for leased production equipment
by the Italian government as offsets to total G&A expense for the final
margin calculation.
Comment 14: Gain on Sale of Puglisi's U.K. Property
Puglisi contends that the gain on the sale of the company's U.K.
property should be treated as an offset to G&A expense because the
property was used not only as a residence but also as an administrative
office and was therefore related to the general operations and
administration of the company. Puglisi argues that the Department
referred to the sale of the U.K. property incorrectly as a gain on a
sale of investments in its Preliminary Results. According to Puglisi,
the company sold an apartment in London in FY 1996, which had been used
as the residence and administrative office of the managing director of
an affiliated company, Puglisi Pasta (U.K.) Ltd. According to Puglisi,
the use of the property was treated as compensation to the director of
the affiliated company and benefitted the management operations as a
whole and therefore was not a passive investment. Puglisi contends that
the Department has treated the sales of fixed assets such as the London
property consistently as a G&A item in various cases including Final
Determination of Sales at Less Than Fair Value: Certain Welded
Stainless Steel Pipe From the Republic of Korea, 57 FR 53693, 53704
(Nov. 12, 1992) (Pipe from Korea), and Final Results of Antidumping
Administrative Review: Fresh Kiwifruit from New Zealand, 59 FR 48596,
48608 (September 22, 1994) (Kiwifruit 1994). Puglisi argues that
compensation to a shareholder/director, in kind or otherwise (e.g., the
provision of a residence/office), has been held by the Department to be
included properly in the calculation of COP. Thus, according to
Puglisi, any gain or loss on the sale of this compensating item should
also be included in G&A.
The petitioners contend that, for the final results, the Department
should disallow the gain on the sale of real estate located in the
United Kingdom as an offset to G&A expense. The petitioners argue that,
according to the case record, the U.K. property had been used as a
residence of the managing director and there is no evidence that this
property related to the production of subject merchandise. Further, the
petitioners contend that the gain on the sale of the U.K. real estate
was not related to the general operations of the company and the
disposition of the property does not reasonably reflect costs
associated with the production and sale of the merchandise under
review; therefore, they conclude, it should be excluded from G&A for
the final results.
DOC Position: In its case brief, Puglisi indicated for the first
time that this property is part of the compensation package paid to one
of the shareholders who is the director of its affiliated company
located in the United Kingdom. Pulgisi did not provide any support or
documentation for this assertion. Even if we treated the gain on sale
of the residential real estate as a G&A-type item and record support
existed, the use of the dwelling was part of the total compensation
package to the director of the affiliated company located in the United
Kingdom, not Puglisi. Thus, we disagree that the gain should be
included in Puglisi's G&A rate computation because the gain relates to
an asset that directly benefits the operations of the U.K. company (the
entity for which the compensated director works), not Puglisi.
Accordingly, we have disallowed this gain as an offset to Puglisi's G&A
expenses for the final results.
Comment 15: Inclusion of Purchased Products in the G&A Allocation
Denominator
Puglisi argues that the cost of the merchandise purchased for
resale should be included in the denominator in calculating the G&A
ratio because G&A expenses are the costs incurred by a company that
relate to the administrative activities of the company as a whole and
are not specific to one production line, one production facility or to
self-produced merchandise. Puglisi contends that the exclusion of these
cost-of-sales totals from the denominator used in the calculation of
the G&A ratio would not only distort the G&A calculation but contradict
clear and consistent Department policy. Puglisi argues that the
Department has held that G&A expenses, like selling expenses, are to be
treated as period-specific costs, relating to the general operations of
the company during a particular period and not to production activities
during the period. Puglisi also adds that the most recent version of
the Department's antidumping manual confirms that ``G&A is calculated
by dividing the fiscal year G&A expense by the fiscal year cost of
goods sold (adjusted for categories of expense not included in the cost
of manufacture (COM), such as packing) and then applying the percentage
to the COM of the product,'' citing the AD manual, Chapter 8,
XIII(c)(1)(d), pages 58-59. Therefore, Puglisi argues that G&A expenses
should be allocated over the total cost of goods sold, not over the
total cost of goods produced or over the total sales of goods produced.
The petitioners contend that the Department should exclude the cost
of merchandise purchased for resale from the cost-of-goods-sold
denominator used to calculate the G&A expense ratio in its final margin
calculation. The petitioners argue that it would be inappropriate to
allocate G&A expenses to merchandise that is purchased for resale
because minimal, if any, G&A expenses would be incurred for this
merchandise. In fact, according to the petitioners, any expenses
Puglisi would incur related to the pasta purchased for resale may more
appropriately be considered selling expenses.
DOC Position: We agree with Puglisi that the denominator we used to
compute the company's G&A expense rate should be the total cost of
sales as reported on the company's audited financial statements,
including that related to the pasta purchased for resale. As was
explained in the CIT decision in U.S. Steel Group, et al. v. United
States, et al., 998 F.Supp. 1151 (CIT 1998), G&A expenses are those
expenses which relate to the general operations of the company as a
whole rather than to the production process. As part of its normal
operations, Puglisi is sometimes required to purchase pasta for resale
to satisfy customer needs. Therefore, we consider the pasta purchased
for resale to be related to the general operations of Puglisi as a
whole and, for the final results, we recomputed Puglisi's G&A expense
rate inclusive of the cost of sales related to the pasta purchased for
resale.
Comment 16: Valuation of Inputs from Affiliated Parties
Puglisi argues that the Department should use the actual cost of
the services provided by its affiliate and not the transfer price
because the value of those services is not a significant percentage of
COM. Further, since Puglisi collapsed the two companies for purposes of
reporting cost of manufacturing, the major-input rule as provided under
section 773(f)(2) of the Act does not apply. Puglisi concludes that, in
the absence of the major-input rule, it is the Department's preference
to use the actual cost of inputs as reflected in the affiliated party's
accounting records and financial statements. Puglisi cites to Notice of
Final Determination of Sales at Less Than Fair Value: Stainless Steel
Wire Rod From Korea, 63 FR
[[Page 6628]]
40404, 40421 (July 29, 1998) (Korean Rod), to support its contention
that intra-company transactions between affiliated parties should be
valued at cost.
The petitioners argue that Puglisi should report the higher of
transfer price or actual cost of services provided by its affiliated
supplier, in accordance with the major-input rule.
DOC Position: We agree with Puglisi that, because the affiliated-
party input in question is not a major input, the major-input rule does
not apply. We disagree, however, that we should not use the transfer
price between Puglisi and its affiliate. Section 773(f)(2) of the Act
directs the Department to disregard transactions between two affiliated
persons if such transactions did not occur at arm's-length prices. In
this instance, we have determined that the transfer price between the
two companies occurred at an arm's-length price. Because there were no
comparable transactions between two non-affiliated parties to compare
to the transfer price between Puglisi and its affiliate, we compared
the transfer price to the affiliate's COP, noting that the transfer
price exceeded the COP. Thus, there is no reason not to use the
transfer price between Puglisi and its affiliate. See Notice of Final
Determination of Sales at Less Than Fair Value: Stainless Steel Wire
Rod from Japan, 63 FR 40434, 40440 (July 29, 1998).
We disagree with Puglisi that the facts in this case related to
collapsing the costs of Puglisi and its affiliated supplier are the
same as those in the Korean Rod case. In Korean Rod, we collapsed the
affiliated parties under 19 CFR 351.401(f) which concerns special
treatment of affiliated producers where there the potential for
manipulation of prices or production in an effort to evade antidumping
duties exists. In this case, Puglisi decided on its own to ``collapse''
itself and its affiliate for the purpose of reporting cost. However,
the Department does not collapse affiliated companies for margin-
calculation purposes unless both companies produce or sell the subject
merchandise since the Department collapses affiliated companies only
where the potential for price manipulation exists. In this case, the
affiliated company does not produce or sell the subject merchandise;
rather it provides certain services to Puglisi. Puglisi's unilateral
decision to collapse the two companies and to use its affiliate's COP
rather than the transfer price for transactions occurring between the
two parties during the POR was not in accordance with Department
practice. Therefore, we used transfer prices rather than COP for the
purposes of the final results.
Comment 17: Allocation of Electricity Expenses
Puglisi argues that it allocated production-line electricity costs
accurately and reasonably on the basis of total relative production
throughput times. According to Puglisi, this method accounts for
differences in electricity consumption or operating efficiencies
between production machines reasonably, as well as accounting for
differences in electricity usage due to drying times of the different
pasta shape types. Puglisi disagrees with the Department's contention
in the memorandum from Laurens van Houten to Christian B. Marsh,
Verification of the Cost of Production and Constructed Value Data, at
p.3, August 21, 1998 (Verification Report) that, because one particular
shape of pasta is produced predominately on a machine that uses much
less electricity than the other production lines, the reported
electricity cost was misallocated to that pasta shape. Puglisi argues
that, because it used relative production times, the electricity costs
were allocated to all pasta shapes properly.
The petitioners argue that Puglisi did not use the most reasonable
and verifiable method of electricity allocation available to it.
Because one shape code was produced predominantly on a machine that
uses significantly less electricity than the other machines, the
petitioners contend that the shape code produced on that machine should
be allocated less electricity consumption per standard machine time
than the other shapes. The petitioners maintain that the smaller
machine which produces the shape code in question is not more efficient
but uses less electricity because it is ``significantly smaller.'' The
petitioners argue that, because the shape code in question was produced
predominately on this older, smaller machine and company officials
indicated that this production line uses significantly less
electricity, electricity costs were over-allocated to that shape code.
DOC Position: We agree with Puglisi that it is reasonable to
allocate production-line electricity costs on the basis of total
relative production throughput times only if all the pasta production
machines consume the same amount of electricity per standard throughput
time. At verification, company officials indicated that one of
Puglisi's machines consumes significantly less electricity than the
other machines (see Verification Report at page 18). Since the shape
code in question was produced predominantly on the one machine which
consumed significantly less electricity per standard throughput time,
the electricity cost assigned to this shape is unreasonably high.
Evidence on the record shows that virtually all shapes produced by
Puglisi, with the exception of the shape code in question, can only be
made on the larger machines (see Verification Report, exhibit 20).
Because the reported costs for those few shapes (other than the shape
code in question) that can be produced on either the smaller or larger
machines were based on standard machine times of the larger machines,
we conclude that these shapes were produced predominantly on the larger
machines. It follows that, because the reported costs for the shape
code in question were based on the standard machine times for the small
machine only, we conclude that the shape code in question was produced
predominantly on the smaller machine. Therefore, for the final results
we have adjusted Puglisi's reported product-specific electricity costs
to take into account the lower electricity consumption of the older
machine in question.
Comment 18: Allocation of Depreciation Expenses
Puglisi argues that it reported its depreciation expenses in a
reasonable manner consistent with principles of Italian Generally
Accepted Accounting Principles (``GAAP''), Italian tax law, and
pursuant to its normal accounting practices. According to Puglisi,
these depreciation expenses include a multitude of capital expenditures
for repair, maintenance, modernization and calibration of machines of
various ages which Puglisi cannot isolate by production line. However,
it believes that the allocation of total depreciation expenses by
relative production throughput times accounts for any such repair or
improvement expense made after the initial purchase as well as any
``reasonable use allowance'' remaining on the older machines. Puglisi
maintains that it is not required under Italian GAAP or Italian tax law
to charge depreciation costs or expenses on a machine-specific basis.
Puglisi therefore does not do so in its normal accounting records
because there are too many additions to the depreciation expense
account which would require an extraordinary manual accounting effort
to isolate the costs per production line. Puglisi argues that the older
production line requires more maintenance, repair and modernization
expenditures than
[[Page 6629]]
the newer lines and, thus, carries a higher proportion of the
depreciable expenses for renovation maintenance from prior years than
the newer machines. Puglisi contends that, by treating the older
machine in a similar manner as the newer machines, it not only took
into account the many capital expenditures which were incurred over all
lines, but also the reasonable use allowance of a machine that was
purchased earlier than the other machines.
Puglisi argues that the Department should accept its method of
allocating depreciation expenses because this method is used in the
company's normal accounting records. Furthermore, citing section
773(f)(1)(A) of the Act, Puglisi asserts that the Department's long-
standing practice is to rely on data from a respondent's normal books
and records if they are prepared in accordance with the home country's
GAAP and reasonably reflect the cost of producing the merchandise.
The petitioners argue that the Department should reallocate
depreciation expenses for the final results based on its verification
findings. They contend that, because Puglisi treated all production
lines equally with respect to depreciation expense per standard machine
time, despite the fact that one line is significantly older,
depreciation expenses should be reallocated. The petitioners argue
that, while Puglisi states that there is ``a multitude of machine-
related expenses for repair, maintenance, calibration and modernization
of the various product lines'' and that the Department reviewed sample
invoices and documents for services and capital improvements made to
the long and short lines in FY 1992, there is no indication of this in
the Department's verification report.
DOC Position: We agree with Puglisi that the allocation of total
depreciation expenses by relative production throughput time is
reasonable as long as all production lines incur approximately the same
amount of depreciation expense. However, in this situation, we have
reason to believe this is not the case. At verification, we had
concerns as to whether Puglisi's oldest production line, which is
significantly older than the other lines, had any depreciable basis
remaining. We requested company officials to provide records to support
that the oldest production line still had a depreciable basis remaining
during the POR. Company officials failed to provide any such support
(see Verification Report at page 19).
In its case brief, Puglisi for the first time makes the claim that
its oldest production line incurred significantly more maintenance,
repair, and modernization costs than the other lines, and, thus, its
depreciable basis is comparable to that of the other lines. First, we
note that normally repairs and maintenance costs are expensed in the
year incurred, not capitalized and depreciated. Second, at
verification, Puglisi provided no evidence to support its claim that it
incurred and capitalized amounts related to repairs, maintenance, and
modernization for either its oldest or newer machines.
Finally, we disagree with Puglisi that we should accept its method
of allocating depreciation expense because it is used in the company's
normal accounting records. Puglisi does not allocate depreciation
expense to specific products in the normal course of business. Rather,
it developed its reporting methodology specifically for antidumping
purposes. For the final results, we adjusted Puglisi's allocation
methodology for depreciation by allocating depreciation expense only to
those products produced on the newer production lines.
Comment 19: Adjusted Leasing Costs
The petitioners argue that Puglisi made an adjustment incorrectly
to its recorded machinery leasing costs for a particular leased
machine. Accordingly, the petitioners contend that the Department
should adjust for this error for the final results.
Puglisi argues that the petitioners' assertion that it had adjusted
certain recorded machinery leasing cost incorrectly, for amounts posted
to the accounts after June 30, 1997, is an inherently factual issue
that must be decided based on the facts on the record. Puglisi contends
that this issue is entirely distinct from the other issue concerning
machinery-leasing restitution payments which are discussed separately
in its briefs.
DOC Position: We agree with the petitioners that Puglisi made an
adjustment to its recorded machinery leasing costs incorrectly. The
purpose of the adjustment was to take into account the fact that it did
not receive a particular leased machine until after the POR. Puglisi
believed that in its normal books and records it had recorded the first
lease payment related to this machinery during the first six months of
1997 (which falls within the POR). A review of the leasing account,
however, shows that the lease payment for which Puglisi adjusted the
account was not posted until after June 30, 1997. Thus, Puglisi reduced
its recorded costs by an amount that was not included initially. For
the final results, we increased Puglisi's costs to account for this
error.
Rummo
Comment 20: Bug-Infested and Defective Pasta
Rummo argues that the Department should reverse the position it
took in the preliminary results and exclude U.S. sales of defective or
bug-infested pasta to food banks from the margin calculation or, in the
alternative, craft a methodology to account for the
unrepresentativeness and distortive nature of the food-bank sales.
Rummo identifies five options for resolving this issue: (1) It contends
that the Department has considerable discretion to exclude U.S. sales
from the margin calculation when the sales are found to be distortive
or unrepresentative. Otherwise, according to Rummo, the Department is
required to employ a methodology which compensates for the distortion.
(2) It claims that the merchandise sold to food banks constitutes a by-
product of pasta and as such should be excluded from the margin
calculation with revenue earned from the food bank sales applied to
costs as an offset. (3) It contends that the Department has the
authority to weight-average U.S. sales to account for the
unrepresentativeness of distress sales of scope merchandise in the
United States. The company asserts that, if the Department chooses not
to exclude the sales in question altogether, this is a situation in
which the Department should use its discretion to weight-average U.S.
prices. (4) It contends that, if the Department does not exclude the
food-bank sales from the margin calculation, the Department should
compare the food-bank sales to constructed value, since the food-bank
sales are not ``like'' its home market sales of prime merchandise.
Rummo continues that, since merchandise sold to food banks constitutes
a by-product, the Department should adjust constructed value by
deducting the sales revenue generated from the sales in question. (5)
Rummo argues that, if the Department does not exclude all food-bank
sales from the margin calculation, it must exclude one sale to a food
bank for which no consideration was received.
The petitioners respond that Rummo has not placed sufficient
evidence on the record to support its claim that the merchandise sold
to food banks was, in fact, bug-infested or defective. Additionally,
the petitioners argue that the record evidence does not demonstrate
that the entire volume of
[[Page 6630]]
sales coded as food-bank sales in the database was sold to food banks.
The petitioners contend that the Department must affirm the preliminary
results because Rummo has not placed additional information on the
record that would alter the Department's preliminary decision on this
issue.
The petitioners claim that Rummo's internal memoranda and bills of
lading, placed on the record to explain the managerial decision to sell
the merchandise to food banks and to demonstrate that the merchandise
actually went to food banks, do not account for the entire volume of
sales coded as food-bank sales in Rummo's database. Furthermore, the
petitioners argue that the internal memoranda are contradictory in that
they indicate that some of the pasta discussed in the memoranda may not
have been actually sold to food banks as Rummo claims.
DOC Position: We agree with the petitioners that Rummo has not
demonstrated that the pasta coded as food-bank sales was defective or
bug-infested nor that it was actually sold to food banks. Therefore,
the arguments put forth by Rummo to account for the unrepresentative
and distortive nature of these low-price sales are moot. We have
included all of these sales in the margin calculation without making
any special adjustment or consideration for sales identified as food-
bank sales.
To support its claim that the merchandise in question was defective
or bug-infested and was sold to food banks, Rummo provided the
Department with four internal memoranda in its November 3, 1998,
section A response and eight bills of lading in a March 17, 1998,
submission. While the memoranda discuss food banks as a possible outlet
for defective pasta, but not bug-infested pasta, they refer to only a
small quantity of merchandise and provide no definitive evidence that
any defective pasta was sold to food banks. The memoranda also discuss
a problem with bug infestation, but they never refer to food banks as
an outlet for that merchandise and, instead, mention a different remedy
for the problem. Moreover, the quantity of problem merchandise
discussed in the memoranda is not linked directly to sales in the
database or to the bills of lading Rummo provided to document the food-
bank sales.
Likewise, the eight bills of lading, which document a quantity far
below that claimed as food-bank sales by Rummo, provide no direct link
between the pasta listed on the bills of lading and the observations
coded as food-bank sales in the database. Moreover, there is no
indication that the merchandise on the bills of lading was defective or
bug-infested, and, since we cannot link the pasta from the bills of
lading to that in the internal memoranda, we have no basis to conclude
that this merchandise was defective or bug-infested. Additionally, two
of the bills of lading list pasta products that are not coded as food-
bank sales in the database, which brings into question whether Rummo
reported the product type of the merchandise sold to food banks
properly. Therefore, we have concluded that the bills of lading do not
demonstrate sufficiently that the merchandise shipped to food banks was
defective or bug-infested. Finally, we note that Rummo did not provide
any information linking any of the food-bank sales in the database to
its support documentation.
Therefore, we have concluded that, while the documentation seems to
indicate that Rummo had a problem with some quantity of defective and
bug-infested pasta and may have shipped a portion of it to food banks,
the memoranda and bills of lading do not confirm the quantity nor do
they offer sufficient proof that any of the pasta labeled as food-bank
sales in the database was defective or insect-infested and subsequently
sold to food banks during the POR.
Comment 21: Credit Expenses
Rummo requests that the Department correct the calculation error in
its reported U.S. credit expenses that it identified in its September
4, 1998, submission. Rummo contends that it erred in calculating credit
expenses for U.S. sales in its supplemental response on sales for which
Rummo had not yet received payment. Rummo explains that, for sales with
missing payment dates, it calculated a weighted-average credit expense
on a customer-specific basis, when there were other sales to the same
customer for which Rummo had received payment. In cases where there
were no other sales to the same customer, Rummo states that it
calculated an overall credit expense based on all U.S. sales. Rummo
continues that an error occurred because it based the overall and
customer specific weighted-average credit expenses on a combination of
sales, without adjusting for differences in currencies, where credit
was reported in lira/kg for EP sales and $/lb for CEP sales. According
to Rummo, the flawed calculation inflated the credit expense for the
sales in question and resulted in a higher margin for Rummo.
The petitioners respond that the Department should recalculate
credit expense using the date of the final results as payment date.
They contend that it is the Department's practice to use the date of
the final results as the surrogate payment date when the respondent
does not provide the payment date.
DOC Position: Our review of Rummo's methodology for calculating the
credit expense for U.S. and home market sales with missing dates of
payment shows that Rummo calculated the credit expense using
inconsistent methodologies in each market. We have rejected Rummo's
methodology for calculating U.S. credit expense for sales with a
missing date of payment based on the average credit expense for a
specific customer or for aggregate customers because the credit expense
was calculated using average expense, rather than average credit days.
Furthermore, this methodology differs from the home market where Rummo
calculated credit expense for sales with a missing date of payment
using November 3, 1997, the date that Rummo submitted its sections A,
B, & C questionnaire responses to the Department, as the surrogate date
of payment. In order to achieve consistency in our calculations, we
have recalculated the credit expense for Rummo's U.S. sales with a
missing date of payment using November 3, 1997, as the date of payment.
We do not agree with the petitioners' assertion that we should use
the date of the final results as the payment date for U.S. sales
without a known date of payment. Although the Department has used the
date of the final results as a surrogate for date of payment in past
proceedings, we find that such a methodology would constitute an
adverse inference and is not warranted in this case.
Therefore, for these final results, we have revised our
calculations from the preliminary results by calculating credit expense
in both markets for sales with missing dates of payment by using
November 3, 1997, as the date of payment.
Final Results of Review
As a result of our review, we determine that the following margins
exist for the period January 19, 1996, through June 30, 1997:
------------------------------------------------------------------------
Margin
Manufacturer/exporter (percent)
------------------------------------------------------------------------
Arrighi.................................................... 71.49
Barilla.................................................... 71.49
De Cecco................................................... \1\ 0.32
Indalco.................................................... 2.00
La Molisana................................................ 12.26
Pagani..................................................... 71.49
Puglisi.................................................... 1.46
[[Page 6631]]
Rummo...................................................... 7.02
------------------------------------------------------------------------
\1\ De minimis.
The Department shall determine, and the Customs Service shall
assess, antidumping duties on all appropriate entries. In accordance
with 19 CFR 351.212 (b)(1), we have calculated importer-specific
assessment rates by dividing the dumping margin found on the subject
merchandise examined by the entered value of such merchandise. We will
direct the Customs Service to assess antidumping duties by applying the
assessment rate to the entered value of the merchandise entered during
the POR, except where the assessment rate is de minimis (see 19 CFR
351.106(c)(2)).
Furthermore, the following deposit requirements will be effective
for all shipments of the subject merchandise entered, or withdrawn from
warehouse, for consumption on or after the publication date of these
final results of administrative review, as provided by section 751(a)
of the Act: (1) For the companies named above, the cash deposit rate
will be the rate listed above, except if the rate is less than 0.5
percent and, therefore, de minimis, the cash deposit will be zero; (2)
for merchandise exported by manufacturers or exporters not covered in
this review but covered in a previous segment of this proceeding, the
cash deposit rate will continue to be the company-specific rate
published in the most recent final results in which that manufacturer
or exporter participated; (3) if the exporter is not a firm covered in
this review or in any previous segment of this proceeding, but the
manufacturer is, the cash deposit rate will be that established for the
manufacturer of the merchandise in these final results of review or in
the most recent final results; and (4) if neither the exporter nor the
manufacturer is a firm covered in this review or in any previous
segment of this proceeding, the cash deposit rate will be 11.26
percent, the all-others rate established in the LTFV investigation.
These deposit requirements shall remain in effect until publication of
the final results of the next administrative review.
This notice also serves as final reminder to importers of their
responsibility to file a certificate regarding the reimbursement of
antidumping duties prior to liquidation of the relevant entries during
this review period. Failure to comply with this requirement could
result in the Secretary's presumption that reimbursement of antidumping
duties occurred and in the subsequent assessment of double antidumping
duties.
This notice also is the only reminder to parties subject to
administrative protective order (APO) of their responsibility
concerning the return or destruction of proprietary information
disclosed under APO in accordance with 19 CFR 353.34(d). Failure to
comply is a violation of the APO.
This determination is issued and published in accordance with
sections 751(a)(1) and 777(i)(1) of the Act.
Dated: February 3, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-3277 Filed 2-9-99; 8:45 am]
BILLING CODE 3510-DS-P