[Federal Register Volume 64, Number 50 (Tuesday, March 16, 1999)]
[Notices]
[Pages 12967-12977]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-6280]


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DEPARTMENT OF COMMERCE

International Trade Administration
[A-557-805]


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

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

SUMMARY: On November 9, 1998, the Department of Commerce published in 
the Federal Register the preliminary results of the administrative 
review of the antidumping duty order on extruded rubber thread from 
Malaysia. This review covers four manufacturers/exporters of the 
subject merchandise to the United States (Filati Lastex Elastofibre 
(Malaysia) (Filati), Heveafil Sdn. Bhd./Filmax Sdn. Bhd (collectively 
Heveafil), Rubberflex Sdn. Bhd. (Rubberflex), and Rubfil Sdn. Bhd. 
(Rubfil)). The period of review (POR) is October 1, 1996, through 
September 30, 1997.
    We gave interested parties an opportunity to comment on our 
preliminary results. We have based our analysis on the comments 
received and have changed the results from those presented in the 
preliminary results of review.

EFFECTIVE DATE: March 16, 1999.

FOR FURTHER INFORMATION CONTACT: Shawn Thompson or Irina Itkin, AD/CVD 
Enforcement Group II, Office 5, Import Administration, International 
Trade Administration, U.S. Department of Commerce, 14th Street and 
Constitution Avenue, NW, Washington, DC 20230; telephone (202) 482-1776 
or (202) 482-0656, respectively.

SUPPLEMENTARY INFORMATION:

Background

    On November 9, 1998, the Department of Commerce (the Department) 
published in the Federal Register its preliminary results of the 1996-
1997 administrative review of the antidumping duty order on extruded 
rubber thread from Malaysia (63 FR 60295). The Department has now 
completed this administrative review, in accordance with section 751(a) 
of the Tariff Act of 1930, as amended (the Act).

Scope of the Review

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

Applicable Statute and Regulations

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

Facts Available

A. Rubfil

    In accordance with section 776(a)(2)(A) of the Act, we determine 
that the use of facts available is appropriate as the basis for 
Rubfil's dumping margin. Specifically, Rubfil failed to respond to the 
Department's questionnaire, issued in November 1997. Because Rubfil did 
not respond to the Department's questionnaire, we must use facts 
otherwise available to calculate Rubfil's dumping margin.
    Section 776(b) of the Act provides that adverse inferences may be 
used with respect to a party that has failed to cooperate by not acting 
to the best of its ability to comply with requests for information. See 
Statement of Administrative Action accompanying the URAA, H.R. Rep. No. 
316, 103rd Cong., 2d Sess. 870 (SAA). The failure of Rubfil to reply to 
the Department's questionnaire demonstrates that it has failed to act 
to the best of its ability in this review and, therefore, an adverse 
inference is warranted.
    As adverse facts available for Rubfil, we have used the highest 
rate calculated for any respondent in any segment of this proceeding. 
This rate is 54.31 percent.

B. Corroboration of Secondary Information

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

Normal Value Comparisons

    To determine whether sales of extruded rubber thread from Malaysia 
to

[[Page 12968]]

the United States were made at less than normal value (NV), we compared 
the constructed export price (CEP) to the NV for Filati, Heveafil, and 
Rubberflex, as specified in the ``Constructed Export Price'' and 
``Normal Value'' sections of this notice.
    When making comparisons in accordance with section 771(16) of the 
Act, we considered all products sold in the home market as described in 
the ``Scope of the Review'' section of this notice, above, that were in 
the ordinary course of trade for purposes of determining appropriate 
product comparisons to U.S. sales. Where there were no sales of 
identical merchandise in the home market made in the ordinary course of 
trade to compare to U.S. sales, we compared U.S. sales to sales of the 
most similar foreign like product made in the ordinary course of trade, 
based on the characteristics listed in sections B and C of our 
antidumping questionnaire.

Level of Trade and CEP Offset

    In accordance with section 773(a)(1)(B) of the Act, to the extent 
practicable, we determine NV based on sales in the comparison market at 
the same level of trade as export price (EP) or CEP. The NV level of 
trade is that of the starting-price sales in the comparison market or, 
when NV is based on constructed value (CV), that of the sales from 
which we derive selling, general and administrative expenses (SG&A) and 
profit. For EP, the U.S. level of trade is also the level of the 
starting-price sale, which is usually from the exporter to importer. 
For CEP, it is the level of the constructed sale from the exporter to 
the importer.
    To determine whether NV sales are at a different level of trade 
than EP or CEP sales, we examine stages in the marketing process and 
selling functions along the chain of distribution between the producer 
and the unaffiliated customer. If the comparison-market sales are at a 
different level of trade and the difference affects price 
comparability, as manifested in a pattern of consistent price 
differences between the sales on which NV is based and comparison-
market sales at the level of trade of the export transaction, we make a 
level-of-trade adjustment under section 773(a)(7)(A) of the Act. 
Finally, for CEP sales, if the NV level is more remote from the factory 
than the CEP level and there is no basis for determining whether the 
difference in the levels between NV and CEP affects price 
comparability, we adjust NV under section 773(a)(7)(B) of the Act (the 
CEP offset provision). See Notice of Final Determination of Sales at 
Less Than Fair Value: Certain Cut-to-Length Carbon Steel Plate from 
South Africa, 62 FR 61731 (Nov. 19, 1997).
    Filati, Heveafil, and Rubberflex claimed that they made home market 
sales at only one level of trade (i.e., sales to original equipment 
manufacturers). In order to determine whether NV was established at a 
level of trade which constituted a more advanced state of distribution 
than the level of trade of the CEP, we compared the selling functions 
performed for home market sales with those performed with respect to 
the CEP transactions which exclude economic activities occurring in the 
United States. We found that Filati, Heveafil, and Rubberflex performed 
essentially the same selling functions in their sales offices in 
Malaysia for both home market and U.S. sales. Therefore, the 
respondents' sales in Malaysia were not at a more advanced stage of 
marketing and distribution than the constructed U.S. level of trade, 
which represents an F.O.B. foreign port price after the deduction of 
expenses associated with U.S. selling activities. Because we find that 
no difference in level of trade exists between markets, we have not 
granted a CEP offset to any of the respondents. For a detailed 
explanation of this analysis, see the concurrence memorandum issued for 
the preliminary results of this review, dated November 2, 1998. Also 
see Comment 2 in the ``Analysis of Comments Received'' section of this 
notice.

Constructed Export Price

    For all sales by Filati, Heveafil, and Rubberflex, we based the 
starting price on CEP, in accordance with section 772(b) of the Act. 
For Filati, we have treated sales shipped directly from Malaysia to the 
U.S. customer as CEP sales because we find that the extent of the 
affiliate's activities performed in the United States in connection 
with these sales is significant. For further discussion, see Comment 1 
in the ``Analysis of Comments Received'' section of this notice.
    In addition, for all three companies, we revised the reported data 
based on our findings at verification.

A. Filati

    We calculated CEP based on the starting price to the first 
unaffiliated purchaser in the United States. In accordance with section 
772(c)(1)(B) of the Act, we added an amount for uncollected import 
duties in Malaysia. We made deductions from the starting price, where 
appropriate, for rebates. In addition, where appropriate, we made 
deductions for foreign inland freight, foreign brokerage and handling 
expenses, ocean freight, marine insurance, U.S. customs duty, U.S. 
brokerage and handling expenses, U.S. inland freight, and U.S. 
warehousing expenses, in accordance with section 772(c)(2)(A) of the 
Act.
    We made additional deductions to CEP, where appropriate, for 
commissions, credit expenses, U.S. indirect selling expenses, and U.S. 
inventory carrying costs, in accordance with section 772(d)(1) of the 
Act. We disallowed an offset claimed by Filati relating to imputed 
costs associated with financing antidumping and countervailing duty 
deposits, in accordance with the Department's practice. See Extruded 
Rubber Thread from Malaysia; Final Results of Antidumping Duty 
Administrative Review, 63 FR 12752, 12754, 12758 (Mar. 16, 1998) 
(Thread Fourth Review); and Antifriction Bearings (Other Than Tapered 
Roller Bearings) and Parts Thereof from France, Germany, Italy, Japan, 
Romania, Singapore, Sweden and the United Kingdom; Final Results of 
Antidumping Duty Administrative Reviews, 62 FR 54043, 54075 (Oct. 17, 
1997) (AFBs). Also see Comment 3 in the ``Analysis of Comments 
Received'' section of this notice, for further discussion.
    Pursuant to section 772(d)(3) of the Act, we further reduced the 
starting price by an amount for profit, to arrive at CEP. In accordance 
with section 772(f) of the Act, we calculated the CEP profit rate using 
the expenses incurred by Filati and its affiliate on their sales of the 
subject merchandise in the United States and the foreign like product 
in the home market and the profit associated with those sales.

B. Heveafil

    In cases where Heveafil shipped merchandise directly from Malaysia 
to U.S. customers, we used the bill of lading date as the date of sale 
for these shipments, rather than the date of the U.S. invoice as 
reported. For these shipments, we find that there is a long lag time 
between the date of shipment to the customer and the date of invoice. 
Therefore, in accordance with our policy and consistent with the 
preliminary results, we used the bill of lading date as the date of 
sale. See the concurrence memorandum issued for the preliminary results 
of this review, dated November 2, 1998, for further discussion.
    We calculated CEP based on the starting price to the first 
unaffiliated customer in the United States. In accordance with section 
772(c)(1)(B) of the Act, we added an amount for uncollected import 
duties in Malaysia.

[[Page 12969]]

We made deductions from the starting price, where appropriate, for 
rebates. We also made deductions for foreign inland freight, foreign 
brokerage and handling expenses, ocean freight, marine insurance, U.S. 
customs duty, U.S. brokerage and handling expenses, U.S. inland 
freight, and U.S. warehousing expenses, in accordance with section 
772(c)(2)(A) of the Act.
    We made additional deductions to CEP, where appropriate, for credit 
expenses, repacking expenses, U.S. indirect selling expenses, and U.S. 
inventory carrying costs, in accordance with section 772(d)(1) of the 
Act. Regarding indirect selling expenses, we disallowed an offset 
claimed by Heveafil relating to imputed costs associated with financing 
antidumping and countervailing duty deposits, in accordance the 
Department's practice. See Thread Fourth Review and AFBs.
    Pursuant to section 772(d)(3) of the Act, we further reduced the 
starting price by an amount for profit, to arrive at CEP. In accordance 
with section 772(f) of the Act, we calculated the CEP profit rate using 
the expenses incurred by Heveafil and its affiliate on their sales of 
the subject merchandise in the United States and the foreign like 
product in the home market and the profit associated with those sales.

C. Rubberflex

    We calculated CEP based on the starting price to the first 
unaffiliated customer in the United States. We made deductions from the 
starting price, where appropriate, for rebates. We also made deductions 
for foreign inland freight, foreign brokerage and handling expenses, 
ocean freight, marine insurance, U.S. customs duty, U.S. inland 
freight, and U.S. warehousing expenses, in accordance with section 
772(c)(2)(A) of the Act.
    We made additional deductions to CEP, where appropriate, for credit 
expenses, U.S. indirect selling expenses, and U.S. inventory carrying 
costs, in accordance with section 772(d)(1) of the Act.
    Pursuant to section 772(d)(3) of the Act, we further reduced the 
starting price by an amount for profit, to arrive at CEP. In accordance 
with section 772(f) of the Act, we calculated the CEP profit rate using 
the expenses incurred by Rubberflex and its affiliate on their sales of 
the subject merchandise in the United States and the foreign like 
product in the home market and the profit associated with those sales.

Normal Value

    In order to determine whether there is a sufficient volume of sales 
in the home market to serve as a viable basis for calculating NV (i.e., 
the aggregate volume of home market sales of the foreign like product 
is greater than five percent of the aggregate volume of U.S. sales), we 
compared the volume of each respondent's home market sales of the 
foreign like product to the volume of U.S. sales of subject 
merchandise, in accordance with section 773(a)(1)(C) of the Act. Based 
on this comparison, we determined that each respondent had a viable 
home market during the POR. Consequently, we based NV on home market 
sales.
    Pursuant to section 773(b) of the Act, there were reasonable 
grounds to believe or suspect that Filati, Heveafil, and Rubberflex had 
made home market sales at prices below their COPs in this review 
because the Department had disregarded sales below the COP for these 
companies in the most recently completed administrative review. See 
Thread Fourth Review. As a result, the Department initiated an 
investigation to determine whether the respondents made home market 
sales during the POR at prices below their respective COPs.
    We calculated the COP based on the sum of each respondent's cost of 
materials and fabrication for the foreign like product, plus amounts 
for SG&A and packing costs, in accordance with section 773(b)(3) of the 
Act.
    Except as follows, we used the respondents' reported COP amounts to 
compute weighted-average COPs during the POR:
    Regarding the COP data reported by Filati, we found that in certain 
instances Filati reported multiple costs for a single control number. 
In those cases, we used the higher of the costs for purposes of the 
final results. In addition, we disallowed a portion of an offset 
claimed by Filati to its reported financing expenses because Filati was 
unable to demonstrate at verification that this offset was related to 
short-term income. See Comment 8.
    Regarding the COP data reported by Heveafil, we reclassified 
certain variable overhead expenses as fixed overhead, based on our 
findings at verification. We also adjusted the company's financing 
expenses to reflect our findings at verification. Finally, as facts 
available we increased the material costs reported for one product by 
the percentage by which the reported costs differed from the standard 
costs observed at verification. See Comment 10.
    Regarding the COP data reported by Rubberflex, we increased these 
costs to include a portion of the 1997 year-end adjustments made by the 
company's auditors. See Comment 12.
    We compared the weighted-average COP figures to home market sales 
of the foreign like product, as required under section 773(b) of the 
Act, in order to determine whether these sales had been made at prices 
below the COP. On a product-specific basis, we compared the COP to home 
market prices, less any applicable movement charges and discounts.
    In determining whether to disregard home market sales made at 
prices below the COP, we examined whether such sales were made: (1) in 
substantial quantities within an extended period of time; and (2) at 
prices which permitted the recovery of all costs within a reasonable 
period of time in the normal course of trade. See section 773(b)(1) of 
the Act.
    Pursuant to section 773(b)(2) of the Act, where less than 20 
percent of a respondent's sales of a given product were at prices less 
than the COP, we did not disregard any below-cost sales of that product 
because we determined that the below-cost sales were not made in 
``substantial quantities.'' Where 20 percent or more of a respondent's 
sales of a given product were at prices below the COP, we found that 
sales of that model were made in ``substantial quantities'' within an 
extended period of time, in accordance with section 773(b)(2)(B) of the 
Act. In such cases, we also determined that such sales were not made at 
prices which would permit recovery of all costs within a reasonable 
period of time, in accordance with section 773(b)(2)(D) of the Act. 
Therefore, we disregarded the below-cost sales. Where all sales of a 
specific product were at prices below the COP, we disregarded all sales 
of that product.
    In this review segment, we found that, for certain models of 
extruded rubber thread, more than 20 percent of each respondent's home 
market sales within an extended period of time were at prices less than 
COP. Further, the prices did not provide for the recovery of costs 
within a reasonable period of time. We therefore disregarded the below-
cost sales and used the remaining above-cost sales as the basis for 
determining NV, in accordance with section 773(b)(1) of the Act.
    Company-specific calculations are discussed below.

A. Filati

    In all instances, NV for Filati was based on home market sales. 
Accordingly, we based NV on the starting price to unaffiliated 
customers. We made deductions from the starting price for rebates, 
where appropriate. We also made deductions, where appropriate, for 
foreign inland freight,

[[Page 12970]]

pursuant to section 773(a)(6)(B) of the Act. Pursuant to section 
773(a)(6)(C)(iii) of the Act, we also made deductions for home market 
credit expenses and bank charges. Where applicable, in accordance with 
19 CFR 351.410(e), we offset any commission paid on a U.S. sale by 
reducing the NV by the amount of home market indirect selling expenses 
and inventory carrying costs, up to the amount of the U.S. commission.
    In addition, we deducted home market packing costs and added U.S. 
packing costs, in accordance with section 773(a)(6) of the Act. Where 
appropriate, we made adjustments to NV to account for differences in 
physical characteristics of the merchandise, in accordance with section 
773(a)(6)(C)(ii) of the Act and 19 CFR 351.411.

B. Heveafil

    In all instances, NV for Heveafil was based on home market sales. 
Accordingly, we based NV on the starting price to unaffiliated 
customers. We made deductions from the starting price for discounts, 
where appropriate. We also made deductions for foreign inland freight 
and foreign inland insurance, pursuant to section 773(a)(6)(B) of the 
Act. Pursuant to section 773(a)(6)(C)(iii) if the Act, we also made 
deductions for home market credit expenses and bank charges.
    In addition, we deducted home market packing costs and added U.S. 
packing costs, in accordance with section 773(a)(6) of the Act. Where 
appropriate, we made adjustments to NV to account for differences in 
physical characteristics of the merchandise, in accordance with section 
773(a)(6)(c)(ii) of the Act and 19 CFR 351.411.

C. Rubberflex

    In all instances, NV for Rubberflex was based on home market sales. 
Accordingly, we based NV on the starting price to unaffiliated 
customers. We made deductions from the starting price for foreign 
inland freight and foreign inland insurance, pursuant to section 
773(a)(6)(B) of the Act. Pursuant to section 773(a)(6)(C)(iii) of the 
Act, we also made deductions for home market credit expenses.
    In addition, we deducted home market packing costs and added U.S. 
packing costs, in accordance with section 773(a)(6) of the Act. Where 
appropriate, we made adjustments to NV to account for differences in 
physical characteristics of the merchandise, in accordance with section 
773(a)(6)(c)(ii) of the Act and 19 CFR 351.411.

Currency Conversion

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

Analysis of Comments Received

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

A. Filati

Comment 1: Treatment of Direct Container Sales

    During the POR, Filati shipped certain sales directly from the 
factory in Malaysia to its U.S. customers. The Department treated these 
``direct container'' shipments as CEP sales for purposes of the 
preliminary results. Filati argues that this treatment was incorrect, 
based on the Department's criteria for determining whether a sale is an 
EP transaction (rather than a CEP sale). Filati relies in large part 
upon the Department's determination in Certain Cold-Rolled and 
Corrosion-Resistant Carbon Steel Flat Products From Korea: Final 
Results of Antidumping Duty Administrative Review, 61 FR 18547 (Apr. 
26, 1996) (Carbon Steel from Korea) to support its position. Filati 
asserts that Carbon Steel from Korea identifies the factors the 
Department will consider when determining the classification of sales. 
Id. at 18551. Whenever sales are made prior to the date of importation 
through an affiliated sales agent in the United States, the Department 
concludes that EP is the most appropriate determinant of the U.S. price 
where all of the following factors are present:
     The merchandise in question is shipped directly from the 
manufacturer to the unaffiliated buyer without being introduced into 
the physical inventory of the selling agent;
     Direct shipment from the manufacturer to the unaffiliated 
buyer is the customary channel for sales of the subject merchandise 
between the parties involved; and
     The selling agent in the United States acts only as a 
processor of sales-related documentation and a communication link with 
the unaffiliated U.S. buyer. Id.
    Filati contends that each of these criteria is met with respect to 
its direct container sales. Specifically, Filati states that, because 
the bill of lading date was reported as the date of sale and this date 
was prior to entry, the direct container sales were made prior to 
importation. In addition, Filati asserts that the first and second 
criteria are met, since: (1) the subject merchandise was shipped 
directly to the U.S. customer without being introduced into the 
physical inventory of Filati USA; and (2) direct shipments have been a 
normal commercial channel for the customer involved.
    Regarding the third criterion, Filati argues that the Department 
erroneously found in the preliminary results that the activities 
carried out by Filati USA exceeded those of a document processor and 
communication link. Filati contends that the selling activities 
performed by Filati USA are within the range of activities previously 
determined by the Department to be consistent with EP classification.
    Filati acknowledges that Filati USA takes title to the merchandise, 
invoices the customer, and in some cases, arranges and pays for 
delivery from the port of entry. However, Filati contends that Filati 
USA has only limited authority to set prices in the United States. As 
support for this assertion, Filati cites to the Filati USA verification 
report, where the Department noted that prices are quoted in accordance 
with a window that is set based on consultations with the parent 
company.
    In addition, Filati asserts that the Department has accorded EP 
treatment to sales by respondents who performed selling functions that 
were more significant than those performed by Filati USA. Filati cites 
to Carbon Steel from Korea and AK Steel Corp. v. United States, Slip 
Op. 98-159 at 10-12 (Court of International Trade (CIT), Nov. 23, 1998) 
(AK Steel) in support of its position. In the former, the Department 
found that sales were properly classified as purchase price (the old-
law equivalent of EP) transactions when the U.S. affiliate: (1) 
extended credit to certain customers by permitting them to

[[Page 12971]]

delay payment for subject merchandise, (2) identified customers; (3) 
negotiated prices; (4) provided some warranty-related services; (5) 
engaged in marketing activities that included development of downstream 
applications for subject merchandise; and (6) posted cash deposits of 
antidumping and countervailing duties on behalf of its U.S. customers. 
Filati argues that the activities performed by Filati USA are less 
significant than those performed by the respondent in Carbon Steel from 
Korea, because Filati USA is not involved in advanced marketing or 
product development. Consequently, Filati contends that there is even 
more justification for classifying its direct container shipments as EP 
transactions than there was in Carbon Steel from Korea.
    Filati states that, in AK Steel, the CIT upheld the Department's EP 
classification of ``back-to-back'' sales where the U.S. affiliate: (1) 
took title to the shipment; (2) acted as importer of record; (3) made 
initial contact with the direct shipment customer; (4) negotiated price 
based upon predetermined factors; (5) received purchase orders from the 
customer and forwarded them to the exporter/producer for confirmation; 
(6) invoiced the customer; (7) conducted market research and economic 
planning; (8) ``found'' (and possibly solicited) direct container 
customers; (9) arranged and paid for post-sale warehousing, 
transportation, U.S. Customs duties, brokerage, handling, and other 
expenses; and (10) extended credit to and accepted payment from direct 
container customers. Regarding the instant case, Filati argues that, 
because there is no evidence that Filati USA ``found'' direct container 
customers or conducted market research and economic planning, Filati's 
activities relating to direct container sales were also less 
significant than those performed by the respondent in AK Steel.
    Finally, Filati notes that the Department found that Filati's 
direct container shipments were PP/EP transactions in the second and 
third reviews of this proceeding. Filati contends that, because its 
method of making these shipments has not changed since the time of 
those reviews, the Department should continue to treat direct container 
sales as EP transactions in the instant review.
    According to the petitioner, the Department correctly treated 
Filati's direct container shipments as CEP transactions. As support for 
its position, the petitioner cites to the Filati USA verification 
report at page 4, where the Department stated that Filati USA 
determines the prices for direct container sales. The petitioner also 
cites to the Notice of Final Determinations of Sales at Less Than Fair 
Value: Brake Drums and Brake Rotors from the People's Republic of 
China, 62 FR 9160, 9171 (Feb. 28, 1997) and Small Diameter Circular 
Seamless Carbon and Alloy Steel Standard, Line and Pressure Pipe From 
Germany: Preliminary Results of Antidumping Duty Administrative Review, 
63 FR 13217 (Mar. 18, 1998). In those cases, the Department determined 
that the respondents' sales were CEP transactions because it concluded 
that, in the former case, the U.S. affiliate was instrumental in 
determining the terms of sale, while in the latter, the selling 
functions of the U.S. affiliate extended beyond those of a processor of 
documents or a communications link.

DOC Position

    We agree with the petitioner. In our preliminary results of review, 
we examined the facts of this case in light of the statutory 
definitions of EP and CEP sales. Section 772(b) of the Act, as amended, 
defines CEP as ``the price at which the subject merchandise is first 
sold (or agreed to be sold) in the United States before or after the 
date of importation by or for the account of the producer or exporter 
of such merchandise or by a seller affiliated with the producer or 
exporter, to a purchaser not affiliated with the producer or exporter, 
as adjusted'' (emphasis added). Section 772(a) of the Act defines EP as 
``the price at which the subject merchandise is first sold (or agreed 
to be sold) before the date of importation by the producer or exporter 
of the subject merchandise outside of the United States to an 
unaffiliated purchaser in the United States, or to an unaffiliated 
purchaser for exportation to the United States, as adjusted'' (emphasis 
added).
    As the statutory definitions state, sales before importation can be 
classified as either EP or CEP sales. The decisive factor for sales 
prior to importation is where the selling activity takes place (i.e., 
in or outside the United States). Distinguishing EP and CEP 
transactions based on where selling activity takes place is consistent 
with the purpose of ensuring that, where appropriate, expenses related 
to selling activity in the United States are deducted to reach a 
constructed ``export'' price.
    It is the Department's practice to examine several criteria to 
determine whether sales made prior to importation through a sales agent 
to an unaffiliated customer in the United States are EP sales, 
including: (1) Whether the merchandise was shipped directly from the 
manufacturer to the unaffiliated U.S. customer; (2) whether this was 
the customary commercial channel between the parties involved; and (3) 
whether the function of the U.S. selling agent was limited to that of a 
``processor of sales-related documentation'' and a ``communications 
link'' with the unaffiliated U.S. buyer. Where all three criteria are 
met, indicating that the activities of the U.S. selling agent are 
ancillary to the sale, the Department has determined the sales to be EP 
sales. Where one or more of these conditions are not met the Department 
has classified the sales in question as CEP sales. (See, e.g., Viscose 
Rayon Staple Fiber from Finland: Final Results of Antidumping Duty 
Administrative Review, 63 FR 32820, 32821 (June 16 1998) (Viscose Rayon 
from Finland); Certain Cold-Rolled and Corrosion-Resistant Carbon Steel 
Flat Products from Korea: Final Results of Antidumping Duty 
Administrative Reviews, 63 FR 13170 (Mar. 18, 1998).)
     The crucial distinction between EP and CEP treatment lies in the 
last factor (i.e., whether the entity in the United States acted only 
as a processor of documentation and a communication link). This factor 
entails a fact-based analysis to determine whether the entity in the 
United States is actually engaged in significant selling activities, in 
which case CEP applies, or is merely performing ancillary functions for 
a foreign seller, in which case EP is appropriate. The classification 
of sales as EP or CEP is not confined to tallying up the various 
functions of the U.S. selling agent. In Industrial Nitrocellulose From 
the United Kingdom: Notice of Final Results of Antidumping Duty 
Administrative Review, 64 FR 6609, 6611 (Feb. 10, 1999), we observed 
that ``[t]he Department looks at the totality of the evidence to 
determine whether an agent's role in the sales process is beyond the 
ancillary role.'' As noted above, in cases where the U.S. affiliate or 
sales agent has a significant role in making U.S. sales (including 
setting the price in the United States and providing after-sale 
support), we generally find that CEP treatment is appropriate. See, 
e.g., Notice of Final Determination of Sales at Less Than Fair Value: 
Stainless Steel Wire Rod From Spain, 63 FR 40391, 40395 (July 29, 1998) 
(SSWR from Spain); and Viscose Rayon from Finland.
    Our analysis of the facts in this case indicates that during the 
POR Filati USA's role in making direct container sales was extensive. 
Specifically, Filati

[[Page 12972]]

USA: (1) Made initial contact with the customer; (2) transmitted the 
order to Filati in Malaysia; (3) quoted prices without consulting the 
parent company on a sale-by-sale basis; (4) took title to the 
merchandise; (5) invoiced, and received payment from, the customer; and 
(6) arranged and paid for delivery from the U.S. port to the customer. 
See the Filati USA verification report at page 4. Thus, the record 
shows that Filati USA was significantly involved in every aspect of the 
sales to U.S. direct container customers, except for arranging for 
shipment of the subject merchandise from Malaysia to the U.S. port of 
entry.
    Filati USA's role in negotiating the terms of the sales in question 
is more significant than that of a conduit of information between the 
U.S. customer and the Malaysia parent. Specifically, Filati USA had the 
authority to contact U.S. customers directly, and then to negotiate and 
accept sales terms on a case-by-case basis without Filati's approval. 
Both of these functions contradict Filati's claim that the U.S. 
subsidiary's role is ancillary. The record of this case shows Filati 
USA's involvement in the U.S. sales process is extensive, as evidenced 
by the selling functions described herein. Based on these facts, we 
determine that Filati USA's role in making direct container sales 
exceeds that of a mere processor of sales-related documentation and 
communication link between the parent company and U.S. customer.
    Filati argues that its sales should be classified as EP sales 
because its selling activities fall within a range of activities 
previously determined to be EP sales. However, as discussed above, this 
determination must be based on the facts as a whole. The facts here 
demonstrate that Filati is substantially involved in the selling of the 
subject merchandise. Therefore, CEP treatment is required.
    We also find unpersuasive Filati's claim that Filati USA had 
limited authority to set prices because it did so only within 
parameters set by Filati. In similar circumstances, we have found the 
U.S. subsidiary's role in making the sales at issue to be significant 
enough to warrant their treatment as CEP sales. For example, in SSWR 
from Spain, we found that the U.S. subsidiary's ability to negotiate 
prices within the parameters set by the parent company, in conjunction 
with other sale related activities, was sufficient to warrant 
classification of those sales as CEP sales. In addition, in U.S. Steel 
Group v. United States Slip Op. 98-96 at 26 (CIT July 7, 1998), the CIT 
upheld the Department's classification of U.S. sales as CEP 
transactions, based in part on the U.S. subsidiary's ability to 
negotiate prices above the minimum set by the parent company.
    We also find that Filati's reliance upon Carbon Steel from Korea is 
misplaced. The record on which that determination was based 
demonstrated that the U.S. subsidiary performed limited liaison 
functions in the processing of sales-related documentation and a 
limited role as a communication link. Moreover, in the most recent 
administrative review conducted on carbon steel from Korea, the 
Department reclassified the respondents' U.S. sales as CEP transactions 
based on record evidence establishing that the U.S. subsidiary was, in 
fact, substantially involved in selling the subject merchandise. See 
Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat Products 
From Korea: Final Results of Antidumping Duty Administrative Review, 63 
FR 13170, 13177 (Mar. 18, 1998) (Carbon Steel from Korea II) (the 
respondents' selling agent played a key role in the sales negotiation 
process by writing and signing sales contracts and a central role in 
all sales activities after the merchandise arrived in the United 
States).
    We similarly find Filati's cite to AK Steel to be inapposite. In AK 
Steel, the CIT affirmed the Department's initial classification of 
direct container sales as EP transactions based on the fact that there 
was no evidence on the record to indicate that the U.S. subsidiary had 
the freedom to negotiate prices. More importantly, the CIT in AK Steel 
expressly distinguished its holding in that case from its prior holding 
in U.S. Steel Group, citing to this factual distinction as the basis 
for reconciling the decisions.
    Consequently, consistent with the final results of the fourth 
review of this proceeding (see Thread Fourth Review) and the 
Department's current practice, we have continued to treat these 
transactions as CEP sales for purposes of the final results.

Comment 2: CEP Offset

    Filati argues that the Department erroneously denied it a CEP 
offset in the preliminary results. First, Filati contends that the 
Department's finding that U.S. sales are made at the same level of 
trade as home market sales is inconsistent with its finding that the 
U.S. subsidiary performs significant selling functions. Specifically, 
Filati argues that, because the selling functions performed by the U.S. 
subsidiary are not taken into account when determining the selling 
functions in the CEP channel, it would be impossible to find that home 
market sales, which include all selling functions, are made at the same 
level of trade as CEP sales.
    In addition, the respondent claims that, with respect to U.S. sales 
from inventory, Filati USA undertakes additional selling functions 
(i.e., inventory maintenance, addressing of customer complaints, and 
handling of returns and refunds related to merchandise quality 
problems) which are excluded from the LOT analysis for the CEP channel, 
but are performed by Filati for home market sales. Consequently, Filati 
contends that a CEP offset is warranted because its home market sales 
are made at a more advanced level of trade than its CEP sales.
    According to the petitioner, the Department correctly denied a CEP 
offset to Filati because Filati failed to develop the record to support 
its CEP offset claim. Specifically, the petitioner claims that Filati 
has failed to demonstrate that its level of trade in the home market is 
different from its level of trade in the United States. The petitioner 
argues that Filati's claim that a CEP offset is warranted is based 
solely on the fact that the U.S. subsidiary has involvement in making 
U.S. sales and on the fact that those sales are determined to be CEP 
sales. As support for its position, the petitioner cites to the 
legislative history of the URAA, which emphasizes that CEP offsets are 
not automatically provided, but rather are granted when respondents 
demonstrate that certain stated conditions are true.

DOC Position

    We agree with the petitioner. In accordance with section 
773(a)(7)(B) of the Act, the Department grants a CEP offset where a 
respondent demonstrates that its home market sales are made at a more 
advanced state of distribution that its U.S. sales. In this case, we 
conducted an analysis in order to determine whether Filati's normal 
values were established at a level of trade which constituted a more 
advanced state of distribution than the level of trade of the CEP. See 
the ``Level of Trade and CEP Offset'' section of this notice, above. 
After performing this analysis, the Department found that Filati 
performed essentially the same selling functions in its sales offices 
in Malaysia for both home market and U.S. sales.
    We disagree with Filati that this finding is inconsistent with a 
finding that Filati's U.S. subsidiary performs significant selling 
functions. We note

[[Page 12973]]

that Filati's U.S. sales initially are at a more advanced level of 
distribution than its home market sales. After the deduction of the 
selling expenses associated with selling activities occurring in the 
United States, however, the levels of trade in both markets become the 
same. At this point, the relevant U.S. transaction becomes the 
constructed sale between the exporter (i.e., Filati) and the importer 
(i.e., Filati USA). Consequently, based on the information on the 
record, we have continued to deny a CEP offset to Filati for these 
final results.

Comment 3: Offset for Imputed Costs Associated With AD/CVD Duty 
Deposits

    In its questionnaire response, Filati reported the opportunity 
costs associated with financing its cash deposits of antidumping and 
countervailing duties as an offset to U.S. indirect selling expenses. 
Filati concedes that the Department's decision to deny this offset for 
purposes of the preliminary results is consistent with the recent 
practice articulated in AFBs. However, Filati contends that the 
Department's change in policy conflicts with prior decisions both by 
the Department and the CIT. See, e.g., Antifriction Bearings (Other 
Than Tapered Roller Bearings) and Parts Thereof From France, Germany, 
Italy, Japan, Singapore, and the United Kingdom; Final Results of 
Antidumping Duty Administrative Reviews, 62 FR 2081, 2104 (Jan. 15, 
1997 (1994-1995 AFBs Reviews); and Federal-Mogul v. United States, 950 
F. Supp. 1179 (CIT 1996).
    Specifically, Filati asserts that the reasoning in AFBs was flawed 
in two respects. First, Filati asserts that AFBs was based on the 
premise that money is fungible. According to Filati, however, this 
point is irrelevant because the company has incurred a real expense 
which it would not have incurred but for the existence of the 
antidumping duty order. Second, Filati asserts that AFBs was based on 
the premise that there is no ``real'' opportunity cost associated with 
the duty deposits. Filati maintains that this point is also incorrect, 
because respondents making cash deposits are required to divert funds 
from more profitable ventures.
    In addition, Filati contends that the CIT has taken a consistent 
position which approves of the offset. Filati cites to Timken Co. v. 
United States, 16 F. Supp. 2d 1102, 1105 (CIT 1998) (Timken), which 
lists the cases in which the court has upheld the Department's 
decisions to grant the adjustment and the cases in which it has 
remanded decisions to deny the offset.
    Finally, according to Filati, the Department has correctly held 
that the costs associated with antidumping or countervailing duty 
deposits are not ``selling expenses.'' Consequently, Filati maintains 
that the antidumping law does not allow their deduction from CEP.
    Based on the above arguments, Filati contends that the Department 
should allow its offset to indirect selling expenses for the imputed 
cost of financing its cash deposits of antidumping and countervailing 
duties for purposes of the final results.

DOC Position

    We disagree. For these final results, we have continued to deny an 
offset to Filati's U.S. indirect selling expenses for expenses which 
Filati claims are related to financing of antidumping and 
countervailing duty cash deposits.
    As the Department explained in AFBs, the statute does not contain a 
precise definition of what constitutes a selling expense. Instead, 
Congress gave the administering authority discretion in this area. It 
is a matter of policy whether we consider there to be any financing 
expenses associated with cash deposits. We recognize that we have, to a 
limited extent in other proceedings, removed such expenses from 
indirect selling expenses. However, we have reconsidered our position 
on this matter and have now concluded that this practice is 
inappropriate.
    We have long maintained, and continue to maintain, that antidumping 
duties, and cash deposits of antidumping duties, are not expenses that 
we should deduct from CEP. To do so would involve a circular logic that 
could result in an unending spiral of deductions for an amount that is 
intended to represent the actual offset for the dumping. See, e.g., 
Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, 
From Japan, and Tapered Roller Bearings, Four Inches or Less in Outside 
Diameter, and Components Thereof, From Japan; Final Results of 
Antidumping Duty Administrative Reviews, 63 FR 63860, 63865 (Nov. 17, 
1998); Tapered Roller Bearings and Parts Thereof, Finished and 
Unfinished, From Japan, and Tapered Roller Bearings, Four Inches or 
Less in Outside Diameter, and Components Thereof, From Japan; Final 
Results of Antidumping Duty Administrative Reviews, 63 FR 2558, 2571 
(Jan. 15, 1998); Certain Cut-to-Length Carbon Steel Plate from Germany; 
Final Results of Antidumping Duty Administrative Review, 62 FR 18390, 
18395 (April 15, 1997); and Antifriction Bearings (Other Than Tapered 
Roller Bearings) and Parts Thereof From France, et al.; Final Results 
of Antidumping Duty Administrative Reviews, 57 FR 28360 (June 24, 
1992). We have also declined to deduct legal fees associated with 
participation in an antidumping case, reasoning that such expenses are 
incurred solely as a result of the existence of the antidumping duty 
order. Id. Underlying our logic in both these instances is an attempt 
to distinguish between business expenses that arise from economic 
activities in the United States and business expenses that are direct, 
inevitable consequences of the dumping order.
    Financial expenses associated with cash deposits are not a direct, 
inevitable consequence of an antidumping order. As noted in AFBs, money 
is fungible. If an importer acquires a loan to cover one operating 
cost, that may simply mean that it will not be necessary to borrow 
money to cover a different operating cost. See AFBs at 54079. Companies 
may choose to meet obligations for cash deposits in a variety of ways 
that rely on existing capital resources or that require raising new 
resources through debt or equity. For example, companies may choose to 
pay deposits by using cash on hand, obtaining loans, increasing sales 
revenues, or raising capital through the sale of equity shares. In 
fact, companies face these choices every day regarding all their 
expenses and financial obligations. There is nothing inevitable about a 
company's having to finance cash deposits and there is no way for the 
Department to trace the motivation or use of such funds even if it 
were. Indeed, in this case the record evidence demonstrates that Filati 
did not borrow funds in the United States, either to finance its cash 
deposits or to fund other business expenses.
    In a different context, we have made similar observations. For 
example, we stated that ``debt is fungible and corporations can shift 
debt and its related expenses toward or away from subsidiaries in order 
to manage profit.'' See Ferrosilicon From Brazil; Final Results of 
Antidumping Duty Administrative Review, 61 FR 59407, 59412 (Nov. 22, 
1996) (regarding whether the Department should allocate debt to 
specific divisions of a corporation).
    Thus, while it is appropriate to exclude from CEP deductions cash 
deposits themselves and legal fees associated with participation in 
dumping cases, we do not see a sound basis for extending this practice 
to expenses allegedly associated with financing cash deposits. By the 
same

[[Page 12974]]

token, for the reasons stated above, we would not allow an offset for 
financing the payment of legal fees associated with participation in a 
dumping case.
    We see no merit to the argument that, since we do not deduct cash 
deposits from CEP, we should also not deduct financing expenses that 
are arbitrarily associated with cash deposits. Our treatment of these 
financing expenses is consistent with out treatment of other expenses, 
such as taxes. Although we do not deduct corporate taxes from CEP, we 
would not reduce selling expenses to reflect financing costs alleged to 
be associated with payment of such taxes.
    We also determine that we should not use an imputed amount that 
would theoretically be associated with financing of cash deposits. 
There is no real opportunity cost associated with cash deposits when 
the paying of such deposits is a precondition for doing business in the 
United States. Like taxes, rent, and salaries, cash deposits are simply 
a financial obligation of doing business. Companies cannot choose not 
to pay cash deposits if they want to import, nor can they dictate the 
terms, conditions, or timing of such payments. By contrast, we impute 
credit and inventory carrying costs when companies do not show an 
actual expense in their records because companies have it within their 
discretion to provide different payment terms to different customers 
and to hold different inventory balances for different markets. We 
impute costs in these circumstances as a means of comparing different 
conditions of sale in different markets. Thus, our policy on imputed 
expenses is consistent; under this policy, the imputation of financing 
costs to actual expenses is inappropriate.
    Regarding Filati's cite to Timken, we note that in this decision 
the CIT acknowledged that it is the Department's current practice to 
deny the offset to indirect selling expenses for financing cash 
deposits related to antidumping or countervailing duties. However, the 
CIT recognized that it has upheld the Department when it has decided to 
grant the offset to indirect selling expenses. Consistent with the 
CIT's prior decisions, it sustained the Department's determination to 
grant the offset. While we concede that Timken references a number of 
cases which were remanded to the Department after denying the offset, 
we note that these cases were decided according to the Department's 
prior practice regarding the offset.
    Moreover, even were we to reverse our stated practice and allow an 
offset, we would not do so in this case because Filati did not incur 
any financing costs in the United States. Further, as we noted above, 
it would be inappropriate to impute an amount which would be associated 
with financing cash deposits in theory only, since the record shows 
that Filati did not finance its cash deposits.
    Finally, we disagree with Filati's argument that: it incurred a 
real expense that it would not have incurred but for the existence of 
the antidumping duty order. The only expenses relevant to this question 
are U.S. financing expenses. Because the record shows no evidence of 
financing activity in the United States, we find that Filati incurred 
no ``real'' expense, despite its assertions to the contrary.
    Therefore, in accordance with our current practice, we have 
continued to deny an offset to Filati's indirect selling expenses for 
purposes of the final results.

Comment 4: Foreign Movement Expenses on U.S. Sales

    During the POR, Filati sold certain products from its U.S. 
inventory which were imported prior to the POR. Because Filati did not 
incur any foreign movement expenses during the POR for these products, 
Filati based the movement expenses for these products on the average of 
the expenses incurred for similar products imported during the POR, 
rather than on the actual expenses incurred. At verification, Filati 
provided the actual (i.e., pre-POR) movement expenses associated with 
these sales.
    According to Filati, the Department should accept its reported 
movement expenses, rather than using the pre-POR data obtained at 
verification. Filati argues that using the reported data is the most 
reasonable method for Commerce to employ because that methodology uses 
the data that is most current.

DOC Position

    We disagree. It is the Department's preference to use actual data 
over estimates when calculating price adjustments. The fact that the 
actual movement expenses in question were incurred prior to the POR 
makes them neither inaccurate nor unacceptable. Rather, this data is 
more accurate than the reported data because it represents the amounts 
that Filati actually incurred to transport the merchandise sold during 
the POR. Therefore, we have used the actual movement expenses incurred 
on these sales for purposes of the final results.

Comment 5: Conversion of Movement Charges Into Per-Pound Amounts

    Filati asserts that the Department failed to convert certain U.S. 
movement expenses which were reported on per-kilogram basis to a per-
pound basis before performing its margin calculations. Filati argues 
that the Department should correct this error for purposes of the final 
results.

DOC Position

    We agree. Although Filati stated in its questionnaire response that 
these expenses were reported on a per-pound basis, we found at 
verification that they were actually reported as amounts per kilogram. 
Consequently, we have treated them as such for purposes of the final 
results.

Comment 6: Inclusion of Uncollected Duties in COP

    During the POR, the government of Malaysia allowed Filati to import 
rubber thread inputs duty free; however, when Filati sold extruded 
rubber thread in the home market, the government charged it a duty 
equal to three percent of the sales price. In the preliminary results, 
the Department treated these amounts as uncollected import duties and 
added them to the U.S. starting price and to COP.
    According to Filati, the Department should not add these 
uncollected duties to COP because they are not recorded as raw 
materials costs in Filati's accounting system. Filati notes that 
section 773(f)(1)(A) of the Act and 19 U.S.C. section 1677b(f)(1)(A) 
require respondents to base their reported production costs on the 
actual costs recorded in their normal accounting records.
    However, Filati contends that, if the Department finds that 
Filati's cost of production should be adjusted for these amounts, then: 
(1) the percentage should be applied only to raw material costs, since 
the duties are based on imported raw materials only; and (2) the 
Department should use the weighted-average of the amounts paid during 
the POR, rather than transaction-specific amounts, since the 
questionnaire instructs respondents to report costs on a weighted-
average basis. Filati notes that the use of POR figures would be 
consistent with the Department's treatment of these figures in the 
fourth administrative review of this proceeding.
    Although this issue was not raised by Heveafil, we note that it 
applies to this company as well because Heveafil also paid the same 
type of duties.

DOC Position

    We disagree with Filati, in part. Section 773(f)(1)(A) of the Act 
requires the Department to depart from the records of the producer if: 
(1) Those

[[Page 12975]]

records are not in accordance with the general accepted accounting 
principles (GAAP) of the exporting country; and (2) such costs do not 
reasonably reflect the costs associated with the production and sale of 
the merchandise. In this case, we acknowledge that Filati's treatment 
of these duties is in accordance with Malaysian GAAP. However, we find 
that this treatment is contrary to the requirements of section 
773(f)(1)(A) of the Act, as it does not reasonably reflect Filati's 
cost of production. Specifically, we find that, because the amounts in 
question are charged by the Malaysian government in place of import 
duties on raw materials, they appropriately form part of Filati's cost 
of production. Accordingly, we have included these duties in the 
calculation of COP and CV.
    We also disagree that we should apply the three percent duty to 
Filati's raw materials costs. Because these duties are assessed as a 
percentage of home market price, we have continued to calculate them in 
this manner. To do otherwise would result in our not capturing the full 
amount of the duty, which would consequently understate the amount of 
duty included in COP and CV.
    However, we agree with Filati that we should use weight-averaged 
figures when applying the uncollected duty to the COP because we 
calculate a weight-averaged COP. We have revised our calculations to 
use weight-averaged amounts for purposes of the final results.
    Because Heveafil also reported uncollected duties in its 
questionnaire response, we have also calculated Heveafil's duties in 
the same manner.

Comment 7: G&A Expenses of Filati's Parent Company

    According to the petitioner, the Department should include the G&A 
expenses of MYCOM, Filati's parent company, in the calculation of 
Filati's COP. The petitioner notes that MYCOM provides management 
services to Filati.
    According to Filati, its reported G&A expenses include all expenses 
associated with the services provided by MYCOM. Filati contends that 
there is no basis for including any other portion of MYCOM's expenses 
in G&A, because these expenses relate to activities not associated with 
the production or sale of extruded rubber thread.

DOC Position

    We agree with Filati. Filati included in its G&A expense 
calculation the amount its parent charges Filati for the services the 
parent provides. We reviewed this calculation at verification and found 
it to be reflective of the cost incurred for the types of services that 
MYCOM performed. Therefore, we have made no adjustment to Filati's G&A 
rate calculation for additional MYCOM expenses.

Comment 8: Offset to Financial Expenses

    Filati reported its financing expenses based on the consolidated 
financial statements of its holding company. Filati offset these 
expenses with the interest income shown on these financial statements. 
At verification, Filati was not able to demonstrate that the full 
amount of this offset was generated from short-term sources. (See the 
Filati cost verification report at page 17.)
    Filati argues that the Department should grant the full amount of 
interest income as an offset to financing expenses because Filati 
demonstrated at verification that interest income is generated from 
only two sources, both of which are short-term in nature. In addition, 
Filati asserts that, should the Department determine that only a 
partial offset is reasonable, it should: (1) base the offset amount on 
both short-term deposits and cash-in-bank balances; and (2) use the 
average balances for these accounts, rather than the year-end balances, 
because interest is earned over time. In addition, Filati argues that, 
should the Department exclude short-term deposits from the calculation 
of the offset, it should use the average of the cash-in-bank balances 
for 1996 and 1997 for the same reason.

DOC Position

    We agree, in part. At verification, Filati was able to demonstrate 
that one of the two sources mentioned above, cash in bank, generated 
short-term interest income. Contrary to its assertions, Filati was not 
able to demonstrate that the other source, short-term deposits, 
generated any income at all. See the Filati cost verification report at 
page 17. For this reason, we granted a partial offset to financing 
expenses based on the cash-in-bank balance.
    We also agree that it is appropriate to use average balances for 
1996 and 1997 in our calculation of the offset. We have calculated the 
offset accordingly for purposes of the final results.

B. Heveafil

Comment 9: Errors in Heveafil's Sales Responses

    According to the petitioner, the Department discovered at 
verification that Heveafil's home market and U.S. sales data contained 
significant errors. Specifically, the petitioner claims that Heveafil: 
(1) reported incorrect dates of shipment and payment for home market 
sales, resulting in overstated home market credit expenses; (2) 
reported Malaysian customs duties on home market sales for which there 
were no duties; and (3) understated a number of adjustments related to 
U.S. sales. The petitioner asserts that the Department should adjust 
Heveafil's sales data using facts available in order to ensure that 
Heveafil's dumping margin is not understated.
    Heveafil concedes that the Department found errors at verification 
but maintains that these errors were small and inadvertent. Heveafil 
notes that most of the errors in dates of shipment were provided at the 
beginning of verification and that the Department found only a single 
instance of overstated customs duties. Regarding the U.S. adjustments 
referenced by the petitioner, Heveafil asserts that the Department 
found the reported data to be incorrect in only five instances and that 
some of these errors were not in Heveafil's favor. Therefore, Heveafil 
asserts that the Department should accept the corrections provided at 
verification, rather than applying facts available.

DOC Position

    We agree with Heveafil. The errors in question were neither 
significant nor pervasive. Because it is the Department's practice to 
accept minor corrections at verification, we have accepted these 
corrections for purposes of the final results.

Comment 10: Errors in Heveafil's Cost Responses

    According to the petitioner, the Department discovered at 
verification that Heveafil misreported its costs. Specifically, the 
petitioner claims that Heveafil understated certain material costs, 
misstated yield rates, and misclassified certain variable overhead 
costs as fixed. The petitioner asserts that the Department should 
correct these problems by applying adverse inferences.
    Heveafil disagrees, stating that its cost response is accurate and 
acceptable. According to Heveafil, the Department found at verification 
that Heveafil actually overstated its total costs. Heveafil notes that 
its costs would be understated only if the Department were to correct 
them for errors found at verification (e.g., the double-counting of 
certain variable overhead expenses, etc.).
    Regarding its yield rates, Heveafil maintains that these rates were 
correct and reconcilable to the standard yield rates used in the normal 
course of the

[[Page 12976]]

company's business. Heveafil argues that standard yields, by 
definition, differ from actual yields due to factors such as downtime. 
Heveafil asserts that, because it accounted for the differences between 
its standard and actual yields through the application of a variance, 
the Department should accept its yields as reported.
    Finally, Heveafil maintains that its classification of its overhead 
expenses as variable or fixed in this administrative review is 
consistent with its classification of these expenses in previous 
administrative reviews. Heveafil asserts that, if the Department 
disagrees with Heveafil's classification, it should reclassify these 
expenses rather than reject them in their entirety.

DOC Position

    We agree with Heveafil, in part. Although we found at verification 
that the manufacturing costs in Heveafil's questionnaire response 
contained certain errors, we noted that these errors generally resulted 
in the overstatement of the company's costs. Moreover, we find that 
none of these errors was so significant as to warrant the rejection of 
Heveafil's data. Consequently, we have continued to rely on it for 
purposes of the final results.
    In general, when the Department deems a respondent's data to be 
acceptable, our practice has been to correct it for errors found at 
verification. However, we have not done so in this case (except as 
noted below), because: (1) although Heveafil was able to identify the 
total amount of certain errors at verification, it was unable to 
provide corrections on a product-specific level; and (2) correcting 
only some errors without correcting others would result in a net 
understatement of Heveafil's COM.
    Regarding the issue of whether Heveafil misclassified certain fixed 
overhead costs as variable, we agree with the petitioner. Because we 
can reclassify these costs as fixed overhead without changing the total 
COM reported, we have done so for purposes of the final results.
    Finally, we have corrected two additional errors found at 
verification which are unrelated to the items noted above. First, we 
found that the standard material costs were understated for one 
product. Consequently, we have increased the material costs reported 
for this product by the percentage by which the reported costs differed 
from the correct standard costs, as facts available. We also revised 
Heveafil's reported financing expenses, in order to: (1) Include an 
amount for foreign exchange losses related to accounts payable 
transactions during the POR; and (2) exclude an amount for bank charges 
which had also been reported as selling expenses.

C. Rubberflex

Comment 11: Calculation of U.S. Indirect Selling Expenses

    The petitioner argues that Rubberflex understated the indirect 
selling expenses of its U.S. subsidiary, Flexfil, because it allocated 
a certain portion of these expenses to Canadian sales which were not 
invoiced by Flexfil. According to the petitioner, the Department should 
reallocate these expenses using only the sales made by the subsidiary 
and recorded in the subsidiary's books. In support of its position, the 
petitioner cites to the Final Determination of Sales at Less Than Fair 
Value; Certain Welded Stainless Steel Pipes from Taiwan, 57 FR 53705, 
53718 (Nov. 12, 1992) (WSSP from Taiwan), where the Department found 
that the indirect selling expenses of a U.S. subsidiary may not be 
allocated over sales which do not appear on its books.
    Rubberflex contends that it properly allocated the indirect selling 
expenses in question. Rubberflex notes that Flexfil is actively 
involved in making Canadian sales, because Flexfil conducts all 
activities associated with procuring, maintaining, and servicing 
Rubberflex's Canadian accounts. Rubberflex asserts that the only 
difference between Flexfil's role in making Canadian and U.S. sales is 
in the area of billing; there, Rubberflex invoices the Canadian 
customers directly, whereas Flexfil invoices its U.S. customers. 
According to Rubberflex, this difference exists so that Rubberflex can 
take advantage of certain financing options in Malaysia that would not 
be available were Flexfil the purchaser of record.
    Rubberflex argues that this case is distinguishable from WSSP from 
Taiwan, in that the respondent in that case only maintained 
correspondence records related to its off-the-books sales. Rubberflex 
contends that Flexfil's involvement meets a much higher standard, as 
noted above. For this reason, Rubberflex asserts that Flexfil's 
indirect selling expenses were appropriately allocated to Canadian 
sales.

DOC Position

    We agree with Rubberflex. At verification, we confirmed that 
Flexfil was actively involved in making sales to Canada. Therefore, 
because the indirect selling expenses incurred by Flexfil related, in 
part, to sales to Canada, we find that it is appropriate to allocate a 
portion of these expenses to Canadian sales. Accordingly, we have 
accepted Flexfil's indirect selling expenses for purposes of the final 
results.

Comment 12: Calculation of the Cost of Production

    According to the petitioner, the Department found at verification 
that Rubberflex understated its production costs. Specifically, the 
petitioner maintains that Rubberflex failed to include in its costs: 
(1) certain year-end adjustments related to the POR; and (2) bank 
charges. The petitioner asserts that the Department should increase the 
costs reported by the amounts found at verification.
    Rubberflex states that it defers to the Department's judgement on 
this issue.

DOC Position

    We agree with the petitioner, in part. We have increased the costs 
reported by Rubberflex to incorporate the portion of the year-end 
adjustments related to the POR, based on our findings at verification. 
We have made no additional adjustment to Rubberflex's costs for bank 
charges, however, because Rubberflex correctly included the amount of 
these charges in the indirect selling expenses reported in its most 
recent home market sales listing.

Final Results of Review

    As a result of comments received we have revised our analysis and 
determine that the following margins exist for the period October 1, 
1996, through September 30, 1997:

------------------------------------------------------------------------
                                                              Percent
                  Manufacturer/exporter                       margin
------------------------------------------------------------------------
Filati Lastex Elastofibre (Malaysia)....................            2.07
Heveafil Sdn. Bhd./Filmax Sdn. Bhd......................            4.78
Rubberflex Sdn. Bhd.....................................            1.22
Rubfil Sdn. Bhd.........................................           54.31
------------------------------------------------------------------------

    The Department shall determine, and the Customs Service shall 
assess, antidumping duties on all appropriate entries. We have 
calculated importer-specific assessment rates based on the ratio of the 
total amount of antidumping duties calculated for the examined sales to 
the total entered value of those sales. These rates will be assessed 
uniformly on all entries of that particular importer made during the 
POR. The Department will issue appraisement instructions directly to 
the Customs Service.
    Further, the following deposit requirements will be effective for 
all shipments of extruded rubber thread from Malaysia entered, or 
withdrawn

[[Page 12977]]

from warehouse, for consumption on or after the publication date of the 
final results of this administrative review, as provided for by section 
751(a)(1) of the Act: (1) The cash deposit rates for the reviewed 
companies will be the rates for those firms as stated above; (2) for 
previously investigated companies not listed above, the cash deposit 
rate will continue to be the company-specific rate published for the 
most recent period; (3) if the exporter is not a firm covered in this 
review, or the LTFV investigation, but the manufacturer is, the cash 
deposit rate will be the rate established for the most recent period 
for the manufacturer of the merchandise; and (4) the cash deposit rate 
for all other manufacturers or exporters will continue to be 15.16 
percent, the all others rate established in the LTFV investigation.
    These deposit requirements, when imposed, shall remain in effect 
until publication of the final results of the next administrative 
review.
    This notice serves as a final reminder to importers of their 
responsibility under 19 CFR 351.402(f) to file a certificate regarding 
the reimbursement of antidumping duties prior to liquidation of the 
relevant entries during this review period. Failure to comply with this 
requirement could result in the Secretary's presumption that 
reimbursement of antidumping duties occurred and the subsequent 
assessment of double antidumping duties.
    This notice also serves as the only reminder to parties subject to 
administrative protective order (APO) of their responsibility 
concerning the disposition of proprietary information disclosed under 
APO in accordance with section 353.34(d) of the Department's 
regulations. Timely notification of return/destruction of APO materials 
or conversion to judicial protective order is hereby requested. Failure 
to comply with the regulations and the terms of an APO is a 
sanctionable violation.
    This administrative review and notice are in accordance with 
section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)), section 777(i) of 
the Act (19 U.S.C. 1677f(i)), and 19 CFR 351.210(c).

Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-6280 Filed 3-15-99; 8:45 am]
BILLING CODE 3510-DS-P