[Federal Register Volume 64, Number 59 (Monday, March 29, 1999)]
[Notices]
[Pages 14872-14884]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-7527]
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-201-821]
Notice of Final Determination of Sales at Less Than Fair Value:
Emulsion Styrene-Butadiene Rubber From Mexico
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: March 29, 1999.
FOR FURTHER INFORMATION CONTACT: Sunkyu Kim or John Maloney, Import
Administration: Group II, Office V, International Trade Administration,
U.S. Department of Commerce, 14th Street and Constitution Avenue, NW,
Washington, D.C. 20230; telephone: (202) 482-2613 or (202) 482-1503,
respectively.
Applicable Statute and Regulations
Unless otherwise indicated, all citations to the Tariff Act of
1930, as amended (the Act), are references to the provisions effective
January 1, 1995, the effective date of the amendments made to the Act
by the Uruguay Round Agreements Act (URAA). In addition, unless
otherwise indicated, all citations to the Department of Commerce's (the
Department's) regulations are to the regulations codified at 19 CFR
part 351, 62 FR 27926 (May 19, 1997).
Final Determination
We determine that emulsion styrene-butadiene rubber (ESBR) from
Mexico is being sold in the United States at less than fair value
(LTFV), as provided in section 735 of the Act. The estimated margins of
sales at LTFV are shown in the ``Continuation of Suspension of
[[Page 14873]]
Liquidation'' section of this notice, below.
Case History
Since the preliminary determination in this investigation on
October 28, 1998 (see Notice of Preliminary Determination of Sales at
Less Than Fair Value and Postponement of Final Determination: Emulsion
Styrene-Butadiene Rubber from Mexico, 63 FR 59519 (November 4, 1998)
(Preliminary Determination)), the following events have occurred:
On November 23, 1998, we received revised factual information from
Industrias Negromex, S.A. de C.V. (Negromex) regarding its sales
responses. In December 1998 and January 1999, we conducted on-site
verifications of questionnaire responses submitted by Negromex and its
affiliated U.S. importer, GIRSA, Inc. (GIRSA). Also, in January and
February 1999, we requested and received Negromex's revised home market
and U.S. sales databases reflecting verification revisions. On February
10, 1998, the petitioners (i.e., Ameripol Synpol Corporation and DSM
Copolymer) and Negromex submitted case briefs. On February 17, 1999,
the petitioners and Negromex submitted rebuttal briefs. We held a
public hearing on February 22, 1999.
Scope of Investigation
For purposes of this investigation, the product covered is ESBR.
ESBR is a synthetic polymer made via free radical cold emulsion
copolymerization of styrene and butadiene monomers in reactors. The
reaction process involves combining styrene and butadiene monomers in
water, with an initiator system, an emulsifier system, and molecular
weight modifiers. ESBR consists of cold non-pigmented rubbers and cold
oil extended non-pigmented rubbers that contain at least one percent of
organic acids from the emulsion polymerization process.
ESBR is produced and sold, both inside the United States and
internationally, in accordance with a generally accepted set of product
specifications issued by the International Institute of Synthetic
Rubber Producers (IISRP). The universe of products subject to this
investigation are grades of ESBR included in the IISRP 1500 series and
IISRP 1700 series of synthetic rubbers. The 1500 grades are light in
color and are often described as ``Clear'' or ``White Rubber.'' The
1700 grades are oil-extended and thus darker in color, and are often
called ``Brown Rubber.'' ESBR is used primarily in the production of
tires. It is also used in a variety of other products, including
conveyor belts, shoe soles, some kinds of hoses, roller coverings, and
flooring.
Products manufactured by blending ESBR with other polymers, high
styrene resin master batch, carbon black master batch (i.e., IISRP 1600
series and 1800 series) and latex (an intermediate product) are not
included within the scope of this investigation.
The products under investigation are currently classifiable under
subheading 4002.19.0010 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 scope
of this investigation is dispositive.
Period of Investigation
The period of investigation (POI) is April 1, 1997, through March
31, 1998.
Product 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
Investigation'' 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.
Fair Value Comparisons
To determine whether sales of ESBR from Mexico to the United States
were made at less than fair value, we compared the Constructed Export
Price (CEP) to the Normal Value (NV). Our calculations followed the
methodologies described in the preliminary determination except as
noted in the Constructed Export Price and Normal Value sections of this
notice, below.
Level of Trade
In the preliminary determination, we conducted a level of trade
analysis for Negromex. We determined that a level of trade adjustment
was warranted in lieu of a CEP offset. See Department's October 28,
1998, Level of Trade Analysis Memorandum to the File from The Team
through James Maeder. Both Negromex and the petitioners commented on
this issue. We have determined that it is appropriate to continue to
make a level of trade adjustment in lieu of a CEP offset in this case.
See Comment 2 in the ``Interested Party Comments'' section of this
notice, below. Accordingly, for purposes of the final determination, we
continue to hold that a level of trade adjustment, when appropriate, is
warranted for Negromex.
Constructed Export Price
As in the preliminary determination, we used CEP methodology for
all sales by Negromex, in accordance with section 772(b) of the Act,
because sales to the first unaffiliated purchaser took place after
importation into the United States. We revised the U.S. indirect
selling expense ratio of Negromex's affiliated importer, GIRSA, based
on our findings at verification. See Comment 4 in the ``Interested
Party Comments'' section of this notice, below. In addition, based on
our findings at verification, we included a warranty expense in the
United States in our calculation of CEP. Finally, we revised Negromex's
reported date of sale, and we adjusted the quantity for one sale, for
sales made under two long-term contracts consistent with our
established date of sale methodology as discussed in Comment 3 in the
``Interested Party Comments'' section of this notice, below. See also
Department's March 19, 1999, Final Determination Calculation
Memorandum.
Normal Value
We used the same methodology to calculate NV as that described in
the ``Normal Value'' section of the preliminary determination with the
following exceptions:
For home market sales invoiced and paid in U.S. dollars, we used
the reported dollar amount for purposes of calculating NV.
For one sale in the home market with no reported payment date, we
used the last day of verification as the payment date.
Cost of Production
We calculated the cost of production (COP) based on the sum of
Negromex's cost of materials and fabrication for the foreign like
product, plus amounts for home market selling, general and
administrative (SG&A) and financial expenses and packing costs, in
accordance with section 773(b)(3) of the Act. We relied on the
submitted COPs, with the following exceptions: (1) Based on our
findings at verification, as facts available, we adjusted the reported
cost of direct materials by increasing the cost of the portion of
styrene purchased from an affiliated party (see Comment 7, below); (2)
we revised the G&A expense ratio based on changes resulting from
verification; and (3) we included a
[[Page 14874]]
portion of the reported gains and losses on monetary position in our
calculation of financial expenses (see Comment 6, below).
Constructed Value
In accordance with section 773(e) of the Act, we calculated
constructed value (CV) based on the sum of Negromex's cost of
materials, fabrication, SG&A expenses, profit, and U.S. packing costs.
We relied on Negromex's submitted CV except for the adjusted direct
materials cost and G&A and financial expense ratios as noted in the
``Cost of Production'' section above.
Currency Conversion
As in the preliminary determination, we made currency conversions
into U.S. dollars based on the exchange rates in effect on the dates of
the U.S. sales, as certified by the Federal Reserve Bank in accordance
with section 773A of the Act.
Interested Party Comments
Comment 1: Treatment of Additional Matching Criteria Proposed by
Negromex
The petitioners argue that Negromex's proposal for the addition of
five matching criteria (ash content, free soap content, styrene content
variance, mooney viscosity variance, and vulcanization time tolerance)
to the Department's model match was untimely. According to the
petitioners, Negromex had the opportunity to suggest matching criteria
from the onset of this investigation and, in fact, was requested to do
so by the Department in a May 4, 1998, letter. Because Negromex did not
respond to that request and, instead, proposed the five additional
criteria after the issuance of the questionnaire, the petitioners
assert that the Department must reject Negromex's argument for the
additional criteria as late.
If the Department accepts Negromex's proposal as timely, the
petitioners argue that any minor variations in ESBR resulting from
customers' specifications should not lead the Department to treat ESBR
with the same IISRP grade as distinct products. According to the
petitioners, even though Negromex may make minor adjustments to its
production process to meet customers' specifications, Negromex has not
shown that such minor adjustments result in products different from the
products produced within the same IISRP grade. The petitioners assert
that the Department's practice is to consider physical characteristics
of the final product, as opposed to minor adjustments to the production
process, in selecting model matching criteria. See Notice of Final
Determination of Sales at Less than Fair Value: Stainless Steel Wire
Rod from Japan, 63 FR 40434, 40445 (July 29, 1998) (SSWR from Japan).
The petitioners claim that a customer's specifications often call for a
narrower range than Negromex's general specifications for the
percentage content of a specific input of ESBR. However, the
petitioners argue, it is likely that all ESBR produced by Negromex
falls within that narrower range. As a result, the petitioners contend
that ESBR with the same physical properties would be treated by the
Department as different products and would lead the Department to
improperly compare products based on customer specifications instead of
comparing products according to significant physical properties.
The petitioners also argue that Negromex has not demonstrated any
cost differences between ESBR produced for a customer's specifications
and other ESBR with the same IISRP grade. According to the petitioners,
the absence of cost differences distinguishes this case from Notice of
Final Determination of Sales at Less than Fair Value: Certain Pasta
from Italy, 61 FR 30326 (June 14, 1996) (Pasta from Italy), where the
Department accepted an additional physical characteristic as a matching
criterion because it materially affected the cost of production.
The petitioners further contend that, contrary to Negromex's claim,
ESBR produced according to a customer's specifications is not different
from general-specification ESBR simply because a customer will reject
ESBR not meeting its specifications. According to the petitioners,
differences between customer-specific and general-specification ESBR
are only due to varying ranges of refinement that different customers
require within the same IISRP grade and are insufficient to create
different products for purposes of model matching. The petitioners
assert that Negromex misinterpreted section 771(16)(A) of the Act,
defining ``identical'' merchandise, when it argued that ESBR products
are not identical unless they have identical chemical contents rather
than allowable ranges of content within a grade. According to the
petitioners, the Department determined that steel products with
different widths were still identical if they were within the same
width range set out in the Department's matching criteria. See Certain
Cold-Rolled Carbon Steel Flat Products from Germany; Final Results of
Antidumping Duty Administrative Review, 60 FR 65264, 65270 (December
19, 1995) (Carbon Steel Germany). The petitioners also assert that the
Department has found that customer preferences should not be considered
in determining identical merchandise. See Certain Cold-Rolled and
Corrosion-Resistant Carbon Steel Flat Products from Korea: Final
Results of Antidumping Duty Administrative Reviews, 62 FR 18404, 18446
(April 15, 1997) (Carbon Steel Korea).
Negromex argues that it included additional product characteristics
in response to the Department's questionnaire requesting inclusion of
any characteristics relevant to identifying home market sales of
identical merchandise. See Department's May 21, 1998, questionnaire at
B6 and C6. Thus, Negromex asserts that its proposal for the inclusion
of the five additional characteristics as matching criteria was timely
and, furthermore, that the Department did not treat the information as
untimely because the Department requested more information on those
characteristics in the August 13, 1998, supplemental questionnaire and
considered the inclusion of the characteristics as matching criteria
for purposes of the preliminary determination.
According to Negromex, the Department's rejection of the five
additional product characteristics in the preliminary determination
resulted in all ESBR within an IISRP grade being treated as identical
merchandise. Negromex asserts that such a result does not reflect
commercial reality because each of the five additional product
characteristics proposed by Negromex is essential in order to meet
particular specifications of its customers. Negromex alleges that the
record demonstrates that Negromex produces ESBR either according to
general IISRP specifications or according to customers' proprietary
specifications, and that its customers will reject merchandise if it
does not meet specifications, even if the product meets the
specifications of an IISRP grade. Negromex argues that the Department
improperly treated proprietary-specification ESBR and general-
specification ESBR as identical merchandise. Negromex contends that
such a result is precluded by section 771(16)(A) of the Act and
Department precedent that it is inconsistent to consider products sold
according to different specifications as identical. See Certain Cut-to-
Length Carbon Steel Plate from Finland; Final Results of Antidumping
Duty Administrative
[[Page 14875]]
Review, 62 FR 18468, 18470-71 (April 15, 1997) (Carbon Steel Finland).
Negromex argues that, in order to compare only sales of physically
identical merchandise, the Department's model matching criteria must
incorporate all commercially significant physical characteristics of
the products subject to investigation. See Certain Hot-Rolled Lead and
Bismuth Carbon Steel Products from the United Kingdom; Final Results of
Antidumping Duty Administrative Review, 63 FR 18879, 18881 (April 16,
1998) (Lead and Bismuth). Negromex further argues that Department
precedent establishes that the creation of a product concordance relies
on the matching of significant physical characteristics. Notice of
Final Results and Partial Recission of Antidumping Duty Administrative
Review: Roller Chain, Other Than Bicycle, from Japan, 62 FR 60472,
60475 (November 10, 1997) (Roller Chain).
Negromex asserts that physical characteristics, as opposed to
production costs, govern the identification of identical merchandise.
On that issue, Negromex alleges that the Department has held that a
common production process with identical production costs may produce
distinct products with differing physical characteristics. See, e.g.,
Notice of Final Determination of Sales at Less Than Fair Value: Certain
Preserved Mushrooms from India, 63 FR 72246, 72250 (December 31, 1998);
Polyethylene Terephthalate Film, Sheet, and Strip From the Republic of
Korea; Final Results of Antidumping Duty Administrative Review, 63 FR
37334, 37335 (July 10, 1998) (PET Film from Korea); Notice of Final
Determination of Sales at Less Than Fair Value: Fresh Atlantic Salmon
from Chile, 63 FR 31411, 31416 (June 9, 1998). Additionally, Negromex
asserts that the Department has accepted the principle by treating off-
specification ESBR and on-specification ESBR as non-identical products
in the preliminary determination, even though Negromex shows the same
costs for those two product types.
Negromex argues that the five additional product characteristics
are commercially significant and should be included in the Department's
model match because each characteristic is critical to the manufacture
of ESBR, the sale of ESBR, and the use of ESBR by Negromex's customers.
See Negromex's September 3, 1998, submission at page B22. In addition,
Negromex states that the Synthetic Rubber Manual, included in the
petition, recognizes both styrene content variance and mooney viscosity
as important physical characteristics of ESBR. Furthermore, Negromex
argues that the record in this case establishes that it sells ESBR as
either ``off-specification,'' ``general (IISRP) specification,'' or
``proprietary specification,'' and that sales of proprietary-
specification ESBR require it to produce several types of ESBR 1502 and
1712, which the Department verified. See December 22, 1998, Sales
Verification Report at 10.
Negromex finally argues that the record shows that it must alter
its production inputs and processes in order to meet customers'
specifications, including specifications for the five proposed
characteristics. In addition, Negromex asserts that the record shows
that quality checks are made to ensure that a customer's specifications
are met. All of this, Negromex urges, shows that the proposed five
additional characteristics are commercially relevant and should be
included by the Department's as model matching criteria for purposes of
the final determination.
DOC Position
We agree with the petitioners that the addition of the five
matching criteria proposed by Negromex (ash content, free soap content,
styrene content variance, mooney viscosity variance, and vulcanization
time tolerance) is not necessary to identify identical merchandise for
model matching purposes in this case. As discussed in the preliminary
determination, we determined that the ten product characteristics
included in our questionnaire designate the IISRP ESBR grade and
sufficiently defined identical products for matching purposes. See
Preliminary Determination at 59522. After a review of Negromex's
comments, we are not persuaded that their proposed criteria are
necessary to appropriately match sales of subject merchandise in the
United States with identical merchandise in the home market.
The Department has broad authority to determine model matching
criteria and necessarily selects criteria on a case-by-case basis. The
selection of appropriate matching criteria to define identical
merchandise under section 771(16)(A) of the Act is based on meaningful
physical characteristics and interested parties' comments. The
Department does not attempt to account for every conceivable physical
characteristic and may rely upon product standards when selecting
matching criteria. The criteria selection process allows the Department
to ``draw reasonable distinctions between products for matching
purposes, without attempting to account for every possible difference
inherent in the merchandise.'' Notice of Final Determination of Sales
at Less Than Fair Value: Steel Wire Rod from Canada, 63 FR 9182, 9197
(February 24, 1998) (Wire Rod from Canada). In this process, the
Department matches products as ``identical,'' consistent with section
771(16)(A) of the Act, even though they may contain minor physical
differences. Wire Rod from Canada at 9197. Additionally, the Department
has determined that a range of products can be treated as identical
within the meaning of section 771(16)(A) of the Act. Carbon Steel
Germany at 65271 (where the Department determined that steel products
falling within the same width and thickness ranges were identical); see
also Carbon Steel Korea at 18446 (where the Department treated products
with distinct paint coatings as identical and noted that products do
not have to be ``technically substitutable, purchased by the same types
of customers, or applied to the same end use'' in order to be treated
as ``identical'' merchandise within the meaning of section 771(16)(A)
of the Act (citation omitted)).
In order to determine ``meaningful physical characteristics'' for
selection in identifying identical merchandise, the Department has
looked to both price differences in the marketplace and cost
differences that may reflect different production processes. In Pasta
from Italy, the Department found an additional proposed matching
criterion, wheat quality, to be ``commercially significant and an
appropriate criterion for product matching'' after finding that
differences in wheat quality were reflected in wheat costs and pasta
prices. Pasta from Italy at 30346; see also Extruded Rubber Thread from
Malaysia; Final Results of Antidumping Duty Administrative Review, 62
FR 62547 (November 24, 1997) (where color was accepted as an
appropriate matching criterion because it materially affected cost).
However, costs are not always indicative of whether two products are
identical, and we recognize that the same production process and costs
can result in different products. For example, in PET Film from Korea,
the Department found that the same costs and production process
produced different products, but there the two products at issue were
physically different grades of film of markedly different levels of
quality and value. PET Film from Korea at 37335. Cases where the
Department has found non-identical products with the same production
process and costs usually involve seconds or other differences in
[[Page 14876]]
quality that affect value. See Notice of Final Determination of Sales
at Less Than Fair Value: Fresh Atlantic Salmon From Chile, 63 FR 31411,
31416 (June 9, 1998) (where the Department found different grades of
salmon from the same production process and with identical costs).
Even though product matching issues are decided on a case-by-case
basis, we can take guidance from cases where the Department has
addressed product matching issues involving products classified
according to standardized grades. In such cases, the Department will
typically match by grade, based on the appropriate physical
characteristics describing the grade, but normally will not choose
criteria to account for minor differences within a grade. For example,
in SSWR from Japan, we selected the American Iron and Steel Institute
(AISI) grade as a matching criterion in place of actual chemical
content. In that case, we found that grade sufficiently defined the
physical characteristics for matching purposes and decided that a type
of steel with unique manufacturing processes was not a different
product because the chemical content of that steel ``falls within the
ranges of established standard AISI steel grades.'' SSWR from Japan at
40445; see also Notice of Final Determination of Sales at Less Than
Fair Value: Stainless Steel Wire Rod from Taiwan, 63 FR 40461 (July 29,
1998) (where the Department matched products as identical based on the
grades of the product). However, where a product's characteristics are
outside the permissible range of chemical content established by a
defining grade or specification, we may reflect such a difference in
our criteria if the difference is significant. In SSWR from Japan, we
found that the respondents had appropriately reported their internal
grades, in lieu of AISI grades, only when the chemical compositions of
those internal products went beyond the range established by the
standard AISI grade specifications. SSWR from Japan at 40436.
In this case, the ten matching criteria used by the Department in
the preliminary determination, which are based on the IISRP standard
grades, sufficiently take account of all the commercially meaningful
physical characteristics for model matching. The five additional
matching criteria proposed by Negromex are not necessary in this case
to define identical products because they represent minor differences
within ESBR grades. Rather, we find that the internationally-recognized
grade classifications set forth by the IISRP provide an objective basis
for appropriately distinguishing between different ESBR products.
We do not agree that subject merchandise produced according to
proprietary specifications is a different product than merchandise
produced according to Negromex's general specifications, which comport
with an internationally-recognized IISRP standard grade. The record
indicates that proprietary specifications only further refine the
chemical ranges already defined by the general specifications for the
ESBR grade. We found no cases where a customer's proprietary
specifications for a characteristic went beyond the permissible range
for that physical input (e.g., styrene content variance) in Negromex's
general specifications. The evidence on the record shows that
proprietary-specification ESBR falls within permissible ranges for the
percentage and variance of material inputs and finished product
physical properties of general-specification ESBR. See Department's
December 22, 1998, Sales Verification Report at verification exhibit 9;
Department's February 2, 1999, Sales Verification Report at
verification exhibit 10; and Negromex's June 18, 1998, submission at
Exhibit 7. The facts on the record indicate that ESBR meeting a
customer's proprietary specifications would also meet Negromex's
general specifications. See December 22 Report at 10 and verification
exhibit 9 and February 2 Report at verification exhibit 10.
We recognize that the exact measure of all chemical properties will
differ among Negromex's various ESBR sales, even though ESBR with
varying levels of those properties fall within one IISRP grade. The
additional matching criteria proposed by Negromex would serve only to
subdivide several ESBR sales falling within one IISRP standard grade
into several ``different'' products for matching purposes. This would
cause the Department to recognize ``different'' products based on the
exactness of the chemical contents in customers' proprietary
specifications, even though these chemical contents are within the
range of the industry standard specification for a grade. Therefore,
there is no reason to depart from the industry standard and accept
criteria based on these minor differences reflected in customers'
specifications.
We also disagree with Negromex that the ``significance'' of the
additional criteria is undeniable based on the fact that its customers
can reject merchandise for not meeting customer specifications
(including the specifications for the proposed additional criteria).
Although we recognize that customers can reject merchandise if it is
not to their specifications, this fact, standing alone, is not a
sufficient basis to determined that physical characteristics are
``commercially significant.''
Moreover, the proposed additional criteria are not meaningful
physical characteristics because the minor differences that they
represent within a grade have no cost effect. Negromex has reported the
same cost for ESBR grade 1502, and the same cost for grade 1712,
regardless of whether a particular sale of either grade is designated
as general specification or proprietary specification. See Pasta from
Italy. In addition, although, as discussed above, identical processes
and costs may produce different products, such products are normally
seconds or have a different quality level reflected in their value.
While we have distinguished off-specification merchandise, i.e.,
seconds, in our model matching, the record indicates that proprietary-
specification ESBR is not a second and does not have a unique quality
level demonstrated by a difference in value, and there are no cost
differences. Therefore, we see no compelling reason to treat it as a
different product. See PET Film from Korea.
Notably, Negromex has not argued any price differences for
proprietary-specification ESBR that it alleges is a different product.
As stated, a demonstration of price differences would have supported
Negromex's argument that its additional criteria are meaningful
physical characteristics. See Pasta from Italy.
Negromex asserts that Roller Chain supports acceptance of the
additional matching criteria because they are ``commercially
significant.'' Negromex's reliance on Roller Chain, however, is
misplaced because that case did not involve industry product standards
or making distinctions between products that meet one industry grade.
Rather, it involved making distinctions between physically diverse
products. The minor variations at issue here are merely variations
within an industry grade and do not result in physically diverse
products.
Negromex also relies on Lead and Bismuth in its argument. In Lead
and Bismuth, the Department determined that the impurity level in the
steel (i.e., residual value) was a significant physical characteristic
even though there were no cost differences. As already stated, we
necessarily choose matching criteria on a case-by-case basis because of
myriad different products in antidumping investigations. The steel
product in Lead and Bismuth was
[[Page 14877]]
highly specialized and, as a result, we found that impurities were a
significant characteristic in that case despite the lack of cost
differences. In this case, the proposed criteria represent only minor
differences within grade specifications and are not meaningful physical
characteristics. As a result, our decision is not inconsistent with
Lead and Bismuth.
Additionally, Negromex argues that the decision in Carbon Steel
Finland supports acceptance of their proposed criteria. However, in
that case, the Department made identical matches based on national
specifications which are analogous to industry standards such as IISRP
ESBR grades. Carbon Steel Finland at 18470. The Department did not
match in that case based on customer-specific specifications. Thus, we
are not persuaded that we should accept criteria for matching based on
customers' proprietary specifications.
We note that, as discussed in the companion case to this
investigation on ESBR from the Republic of Korea, the Department
determined that an additional physical characteristic, mooney
viscosity, should be added as a model matching criterion because, in
that case, mooney viscosity was the sole physical property that
distinguished ESBR grades 1502 and 1507. In this case, we do not need
any of the five additional criteria, including mooney viscosity, to
differentiate ESBR grades. We will add mooney viscosity as a model
matching criterion, if necessary, in any future administrative review.
For the reasons stated above, we find that the ten matching
criteria included in our questionnaire are sufficient to identify
identical ESBR for matching purposes in this investigation.
Finally, we disagree with the petitioners that Negromex's proposal
for the addition of five matching criteria was untimely. The
Department's May 21, 1998, questionnaire states, ``[y]ou may add
additional product characteristics.'' See the Department's May 21,
1998, questionnaire at pages B-6 and C-6. Negromex first provided
information on the five proposed additional matching criteria in its
July 13, 1998, response to the Department's questionnaire. As a result,
Negromex's proposal for the addition of the five matching criteria was
not untimely and was considered for purposes of the final determination
in this investigation.
Comment 2: Negromex's Claim for a CEP Offset
Negromex asserts that there is no LOT in the home market comparable
to the CEP level of trade and that the levels of trade in the home
market are more advanced in the distribution chain than the CEP level
of trade. Consequently, Negromex argues that the Department must grant
a CEP offset under section 773(a)(7)(B) of the Act and 19 CFR
351.412(f).
Negromex claims that the record establishes that the home market
end user and distributor levels of trade each constitutes a more
advanced LOT than the CEP level of trade. Negromex states that it sells
directly to unaffiliated distributors and end users in the home market.
Negromex also states that GIRSA resells to both unaffiliated
distributors and unaffiliated end users in the United States. According
to Negromex, its sales to GIRSA (CEP sales) must be at a less advanced
market stage than home market sales because GIRSA resells to the same
types of customers that Negromex sells directly to in the home market.
Negromex asserts that sales in the home market to distributors or end
users cannot be at the same LOT as sales to GIRSA (CEP sales) because
GIRSA resells to distributors and end users.
Negromex also argues that verified information on the record
establishes that the home market levels of trade are more advanced than
the CEP level of trade. According to Negromex, there are eighteen
separate selling functions performed in support of ESBR sales in the
home market and in the United States. Negromex asserts that sixteen of
those eighteen functions were performed in support of sales to
unaffiliated distributors and all eighteen were performed in support of
sales to end users. Negromex claims that its submissions, and the
Department's verification reports, confirm its claims. Negromex next
asserts that, in contrast, it performs only four of the eighteen
selling functions in support of its sales to GIRSA. See Negromex's
November 23, 1998, submission at Exhibit 6. The remainder of the
selling functions, argues Negromex, are performed by GIRSA on behalf of
its U.S. customers. For selling functions shared by Negromex and GIRSA
(i.e., technical services, application advice, advertising and sales
promotion), Negromex claims that such functions are not performed on
sales to GIRSA. Further, Negromex argues that its advertising expenses
in the United States should not be included within the CEP selling
functions because those expenses are attributable to U.S. economic
activity. See section 772(d) of the Act and 19 CFR 351.402(b). Finally,
Negromex asserts that technical service and application advice by
Negromex is rare. Thus, because of the limited number of selling
functions performed at the CEP level of trade and the greater number
performed by Negromex in the home market, Negromex argues that both
home market levels of trade are at a more advance stage of distribution
than the CEP level of trade. As a result, Negromex asserts that section
773(a)(7)(B) of the Act requires that the Department grant a CEP offset
in this investigation.
The petitioners argue that the Department properly denied Negromex
a CEP offset in the preliminary determination and should continue to do
so for purposes of the final determination. According to the
petitioners, under section 773(a)(7)(B) of the Act, a CEP offset may be
made only when two conditions are satisfied. First, NV must be
established at a level of trade that is more advanced than the level of
trade of the CEP. Second, the information available does not provide
the Department with a basis to quantify a LOT adjustment. The
petitioners argue that neither condition has been met and, thus, no CEP
offset should be granted.
The petitioners assert that, in the preliminary determination, the
Department properly concluded that home markets sales made at the
unaffiliated distributor level of trade were comparable to U.S. sales
at the CEP level of trade. As a result, the petitioners claim that the
first statutory condition for a CEP offset has not been met because
there is a comparable level of trade in the home market to the CEP
level of trade. In addition, the petitioners argue that the second
statutory condition for a CEP offset was not met because, according to
the petitioners, there is sufficient data on the record to determine
the basis for a LOT adjustment.
The petitioners argue that Negromex performs the same types of
selling activities at the same quality and intensity for both home
market sales to unaffiliated distributors and CEP sales. According to
the petitioners, Negromex has tried to change this ``fact'' by
downplaying the extent of its selling activities supporting its CEP
sales. The petitioners assert that, in general, Negromex understates
its selling functions in support of CEP sales by portraying selling
functions performed by Negromex as selling functions performed by
GIRSA. Regarding technical service support specifically, the
petitioners allege that, even if GIRSA handles some routine technical
questions, the most important technical support comes from experts in
Mexico.
The petitioners further assert that, contrary to Negromex's
argument, Negromex's affiliation with GIRSA does not preclude
comparability between
[[Page 14878]]
those sales and sales to unaffiliated customers in the home market.
According to the petitioners, the affiliation of a purchaser is not
relevant to whether the same LOT can be found. In addition, the
petitioners claim that Negromex has not demonstrated any real
differences between the home market unaffiliated distributor LOT and
the CEP LOT. The petitioners argue that the Department's regulations
require, at the minimum, ``substantial differences'' in selling
activities to find a different LOT. See 19 CFR 351.412(c)(2). In
addition, the petitioners assert that the Department requires
purchasers at different places in the distribution chain and sellers
performing qualitatively or quantitatively different functions in
selling to them to find a different LOT. 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, 61732 (November 19,
1997) (Carbon Steel South Africa). According to the petitioners,
Negromex has not shown that its purchasers in the home and U.S. markets
occupy different places in the distribution chain, nor has Negromex
shown substantially different selling functions between sales to
unaffiliated distributors and sales to GIRSA. As a result, the
petitioners urge the Department to continue to find that the same LOT
exists in both markets.
DOC Position
We disagree with Negromex. As we stated in our preliminary
determination, 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 (LOT) as the EP or CEP
transaction. The NV LOT is that of the starting-price sales in the
comparison market or, when NV is based on CV, that of the sales from
which we derive SG&A expenses and profit. For EP, the LOT is also that
of the starting-price sale, which is usually from 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 LOT 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 in the comparison market. If the comparison-
market sales are at a different LOT 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 LOT of the export transaction, we make a LOT
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
Carbon Steel South Africa.
Negromex requested a CEP offset prior to our preliminary
determination in this investigation. See Negromex's June 18, 1998,
response at A13. We examined Negromex's claim based on the analysis
described above. We compared the selling functions performed for home
market sales with those performed with respect to the CEP transaction,
exclusive of economic activities occurring in the United States,
pursuant to section 772(d) of the Act, to determine if the home market
levels of trade constituted more advanced stages of distribution than
the CEP level of trade. See Department's October 28, 1998, Level of
Trade Analysis Memorandum to the File from The Team through James
Maeder. We found that ``one of the levels of trade in the home market,
sales to unaffiliated distributors, was comparable to the CEP level of
trade because of the similarities between the class of customer and
distribution channel.'' Preliminary Determination at 59521. Negromex
asserts that information placed on the record subsequent to the
preliminary determination demonstrates that its home market sales were
made at more advanced levels of trade than its sales to GIRSA. In light
of the additional information on the record, we have revisited our LOT
analysis.
We continue to find that Negromex sold to two levels of trade in
the home market, the end user level of trade and the unaffiliated
distributor level of trade. We find two distinct levels of trade in the
home market because Negromex's sales to end users are at a more
advanced stage in the chain of distribution and involve quantitatively
and qualitatively more selling functions than its sales to unaffiliated
distributors. In addition, we continue to find that Negromex's home
market sales to unaffiliated distributors are made at a level of trade
comparable to the CEP level of trade. Although Negromex may perform
nominally more selling functions in support of its sales to the
unaffiliated distributor LOT than it does in support of its sales to
the CEP LOT, we are not persuaded that these differences in selling
functions are so substantial as to result in two distinct levels of
trade.
Differences in selling activities do not require us to find two
distinct levels of trade. See, e.g., Carbon Steel South Africa at 61732
(where the Department found that differences in selling functions, even
substantial differences, do not alone sufficiently establish a
difference in the level of trade); see also 19 CFR 351.412(c)(2)
(``substantial differences in selling activities are a necessary, but
not sufficient, condition for determining that there is a difference in
the stage of marketing'').
In reexamining this issue, we find that both Negromex's
unaffiliated distributors and GIRSA are resellers of ESBR to
unaffiliated end users and both occupy the same place along the chain
of distribution. In fact, Negromex stated that GIRSA ``is akin to that
of a master distributor.'' Negromex's June 18, 1998, response at A18.
Thus, we disagree with Negromex's argument that its sales to GIRSA are
at a less advanced marketing stage because GIRSA, in turn, sells to the
same types of customers as Negromex. Moreover, both Negromex's home
market distributors and GIRSA provide significant services to their
ESBR customers and both function at the same place in the chain of
distribution for sales of ESBR in their respective markets.
Regarding the selling functions performed in support of Negromex's
home market and CEP sales, for purposes of the preliminary
determination, we found that Negromex performed analogous levels of
selling functions in support of its home market sales to unaffiliated
distributors and its CEP sales to GIRSA. See Preliminary Determination
at 59521; see also the Department's October 28, 1998, Level of Trade
Analysis Memorandum to the File through James Maeder. Our analysis of
selling functions, both for the preliminary determination and for the
final determination, focused specifically on home market sales to
unaffiliated distributors for comparison to CEP sales. Negromex's
arguments that its home market selling functions are not comparable to
its CEP selling functions did not clearly distinguish between selling
functions in support of sales to unaffiliated distributors as opposed
to selling functions in support of sales to end users. In its case
brief, Negromex argues that the levels of trade are not comparable
``[w]hen the very limited number of selling functions performed by
Negromex at the CEP level of trade on its sales to GIRSA, Inc. are
compared to the full range of selling functions performed by Negromex
on its sales to unaffiliated endusers and unaffiliated distributors in
the home market.'' Negromex's February 10, 1999, Case Brief at 29.
Selling functions performed in support of sales to end users,
[[Page 14879]]
however, are not relevant to our comparisons between the unaffiliated
distributor LOT and the CEP LOT. We have focused our analysis on a
comparison between the unaffiliated distributor LOT and the CEP level
of trade.
Negromex reported revised selling functions information in its
November 23, 1998, submission. The revised selling functions
information differed from the information relied on for the preliminary
determination (see Negromex's June 18, 1998, Section A response at
Exhibit A-5) in two significant ways. First, in its November 23
submission, Negromex reports either ``Yes'' or ``No'' for a selling
function, rather than the degree of a selling function (i.e., High,
Medium, Low) as it had for some selling functions in its Section A
response. Second, in its latter submission, Negromex reports eighteen
selling functions instead of the eight reported in its Section A
response. See Negromex's November 23, 1998, submission at pages 7-12
and Exhibit 6. We find, however, that, of the ten ``additional''
selling functions reported by Negromex, six out of the ten merely
reflect subdivisions of selling functions already reported by Negromex
in its June 18 response. For example, the ``Inventory Maintenance''
selling function originally reported became ``Immediate Post Production
Storage'' and ``Inventory Maintenance at Negromex Facilities.''
Negromex argues that it performs fourteen selling functions in
support of unaffiliated distributor sales but only four selling
functions in support of CEP sales. However, our analysis of the
information on the record indicates that the numerical disparity in the
selling functions has been substantially overstated. For example,
Negromex reports that it performs inventory maintenance at its
facilities for sales to distributors, but not for sales to GIRSA.
However, the Department learned at verification that ``Negromex
provides inventory maintenance at its plant for U.S. sales.''
Department's December 22, 1998, Sales Verification Report at 7-8. In
addition, we found at verification that Negromex also performs
technical service and application support functions from Mexico for its
U.S. sales. See Department's February 2, 1999, Sales Verification
Report at 7. As stated, a substantial difference in selling functions,
inter alia, must exist in order for the Department to find a different
LOT; a difference in the number of selling functions alone is not
sufficient. Although there are some differences in selling functions
between sales to distributors and sales to GIRSA, the differences are
not substantial. For example, the degree of the selling function
labeled ``Collection,'' performed for distributors, was originally
reported as ``Low'' and subsequently has been reported as ``Yes.''
Negromex reports this as ``No'' for sales to GIRSA and relies on this
as one of the differences between the selling functions, but we find
that a small difference in collection levels is not a significant
difference in selling activities. At verification, Negromex provided no
evidence of substantial differences in these selling functions.
Finally, the four new selling functions claimed by Negromex (credit
analysis, sales administration, post-sale customer service, and
contract/purchase order negotiation), reported as performed in support
of sales to distributors but not to GIRSA, are not significant selling
activities and Negromex has not supplied any information to indicate
otherwise.
We find that Negromex's sales to unaffiliated distributors in the
home market and to GIRSA in the United States are made at the same
point in the chain of distribution and involve selling functions that
are not substantially different. As a result, we continue to find that
the unaffiliated distributor LOT in the home market is comparable to
the CEP level of trade. Consequently, we made a LOT adjustment if we
compared sales in the United States to sales at the end user LOT in the
home market based on the established pattern of price differences
between the two levels of trade in the home market. Because we matched
sales at the comparable home market LOT and made a LOT adjustment, if
necessary, we did not make a CEP offset to NV.
Comment 3: Date of Sale for Long-Term Contracts
As found in the preliminary determination, Negromex's affiliated
U.S. importer, GIRSA, sold ESBR during the POI to one U.S. customer
under two long-term contracts. The terms of each year-long contract
provided that the U.S. customer was obligated to purchase a minimum
amount of ESBR during the contract's year-long duration. Prices for the
minimum required annual quantities were established in the contracts
based on a mathematical formula incorporating the published monthly
monomer prices and prices of butadiene and styrene, two major inputs of
ESBR.
Although Negromex originally acknowledged that these were long-term
contracts and thus reported the contract date as the date of sale for
the two contracts at issue, Negromex now argues that the Department
should not use the contract date as the date of sale, but refers to
these contracts as ``consignment inventory contracts'' and argues that
these are not long-term contracts, but rather monthly sales based on
the consignment terms of the contracts. Negromex contends that the
Department's practice regarding consignment sales is to treat the date
on which the customer withdraws inventory from consignment as the date
of sale. See Notice of Preliminary Results of Antidumping Duty
Administrative Review: Ferrosilicon from Brazil, 62 FR 16763, 16767
(April 8, 1997) (Ferrosilicon from Brazil); Final Determination of
Sales at Less Than Fair Value: Certain Stainless Steel Wire Rods from
France, 58 FR 68865, 68870 (December 29, 1993) (Rods from France).
Under the contract terms, a monthly quantity (1/12th of the annual
minimum quantity requirement) was set to be purchased and withdrawn
from consignment with an allowable variance of plus or minus twenty
percent each month. According to Negromex, the Department's precedent
regarding consignment contracts should be followed in this case because
the quantity under the contracts was not fixed on the dates of contract
but on the dates when the customer removed merchandise from its
consignment inventory. Negromex imputes the fifteenth of each month as
the average date for all of the U.S. customer's withdrawals from
consignment during every month and urges the Department to adopt the
fifteenth of each POI month as the dates of sale for each of the
contracts at issue.
Alternatively, if the Department determines that the date of sale
was not governed by the contracts' monthly consignment inventory terms,
Negromex argues that the Department should use the invoice dates as the
dates of sale. Because GIRSA's U.S. customer often failed to meet the
contracts' monthly purchase requirements, Negromex asserts that the
contract date did not establish the quantity term and thus it was not a
long-term contract. Therefore, according to Negromex, the contract date
should not be used as the date of sale. In support of its position,
Negromex references a case in which, because the customer's monthly
purchases exceeded the contract's monthly quantity requirements, the
Department determined that the date of sale was the invoice date. See
Certain Welded Carbon Steel Pipes and Tubes from Thailand: Final
Results of Antidumping Duty Administrative
[[Page 14880]]
Review, 63 FR 55578 (October 16, 1998) (Tubes from Thailand).
The petitioners urge the Department to continue to use the contract
date as the date of sale for the two long-term contracts. In support of
their position, the petitioners refer to the Department's statutory
provisions which allow the Secretary to choose a date other than
invoice date as the date of sale when another date more accurately
reflects the final determination of a sale's material terms by an
exporter or producer. See 19 CFR 351.402. The petitioners assert that
the Department should use the contract date as the date of sale because
that was the date on which the parties legally bound themselves to the
essential terms of sale, i.e., price and quantity.
The petitioners assert that the Department's policy in deciding
date of sale for long-term contracts with minimum quantity requirements
has been to recognize the contract date as the date of sale for all
merchandise sold up to the minimum quantity requirement. See Final
Determination of Sales at Less Than Fair Value: Gray Portland Cement
and Clinker from Japan, 56 FR 12156 (March 22, 1991); Titanium Sponge
From Japan: Final Results of Antidumping Duty Administrative Review and
Tentative Determination To Revoke in Part, 54 FR 13403, 13404 (April 3,
1989). See also Toho Titanium Co., Ltd. v. U.S., 743 F. Supp. 888, 890-
91 (CIT 1990). The petitioners argue that Negromex recognized that
these were long-term contracts and therefore properly included sales
made under the two long-term contracts invoiced after the POI in its
response to the Department's Section C questionnaire. See Negromex's
July 13, 1998, response at C14-C15.
According to the petitioners, Tubes from Thailand is unpersuasive
because the facts of that case involved neither a long-term contract
nor a minimum quantity requirement. Similarly, the petitioners assert
that cases cited by Negromex dealing with consignment sales contracts
are also irrelevant in this case because those cases did not involve
long-term contracts with minimum quantity requirements, but rather were
merely sales made on consignment. See Ferrosilicon from Brazil; Rods
from France. The petitioners conclude that Negromex was unable to
demonstrate why the Department should deviate from its practice of
using contract date as the date of sale for long-term contracts and
argue that the Department should continue using the contract date as
the date of sale in this case.
DOC Position
We disagree with Negromex. As discussed in the preliminary
determination, we followed our practice of using contract dates as the
dates of sale for these two U.S. long-term contracts because we
determined that price and quantity were fixed on the contract dates. We
are not persuaded by Negromex's arguments that the quantity terms in
the two contracts were not fixed and, consequently, these are not long-
term contracts. Therefore, the average day of release from consignment
each month is not the appropriate date of sale for sales under the two
contracts.
Pursuant to 19 CFR 351.401(i), the date of sale is normally the
date of invoice unless satisfactory evidence is presented that the
material terms of sale, price and quantity, are established on some
other date. See also Final Determination of Sales at Less Than Fair
Value: Polyvinyl Alcohol from Taiwan, 61 FR 14067 (March 29, 1996). The
Department has determined that a long-term contract's price term is
fixed if it is established by a published source outside of the control
of either party to the contract, such that there is nothing more that
the parties need to negotiate concerning the price of the goods sold.
See Final Determination of Sales of Less Than Fair Value: Brass Sheet
and Strip From France, 52 FR 812, 814 (January 9, 1987). In addition,
the Department has determined that, for a long-term contract with a
minimum quantity requirement, the contract date is the date of sale for
the minimum quantity specified in the contract. However, for situations
in which a customer has not yet agreed to purchase quantities above the
minimum requirement, the Department will use the date of invoice (or
other appropriate date) as the date of sale for all amounts sold in
excess of the minimum requirement. See Titanium Sponge From Japan;
Final Results of Antidumping Duty Administrative Review and Tentative
Determination To Revoke in Part, 54 FR 13403, 13404 (April 3, 1989);
see also Toho Titanium Co., Ltd. v. U.S., 743 F. Supp. 888, 890-91 (CIT
1990).
Because the price terms of the long-term contracts in this
investigation were based on a set formula of published monthly prices
for major inputs which were outside either contracting party's control,
we continue to find that the price was fixed on the contract dates. It
was on the dates of contract, therefore, that Negromex, as the price
discriminator, set the prices for these sales. Moreover, we are also
unpersuaded that the minimum quantity was not fixed at the time of the
contracts. Negromex points to the fact that the contracts indicate 1/
12th of the annual quantity is to be purchased each month, with an
acceptable variance of plus or minus twenty percent. However, although
monthly quantities to be withdrawn under the year-long contracts
deviated more than twenty percent for some months, the annual
quantities set by the contracts were not subject to any variation and
the full amount was required to be purchased during the contract year.
Thus, the fact that any minimum monthly amount was not withdrawn from
inventory does not negate the fact that the annual quantity term was
fixed by the parties on the contract date, regardless of the actual
terms of delivery thereafter. We disagree with Negromex that these are
``consignment inventory contracts,'' and find that the monthly
withdrawal terms are merely delivery terms which provide stability for
both parties throughout the duration of these long-term contracts.
Moreover, Negromex's attempt to equate the types of consignment
sales found in Ferrosilicon from Brazil and Rods from France is without
merit given our facts because those cases did not deal with long-term
contracts with established fixed minimum annual quantity requirements,
but were merely sales from consignment, as pointed out by the
petitioners. Finally, regarding Negromex's alternative argument if the
Department does not find these to be merely consignment sales, Tubes
from Thailand did not deal with a long-term contract, and the short-
term contract at issue did not actually fix the quantity term. Thus,
the Department appropriately used the invoice date as the date of sale
in that case. Based on the evidence before us, we are not persuaded to
change our practice on the date of sale issue in this case and, thus,
have continued to use the contract dates as the dates of sale for the
minimum quantity requirements of the two U.S. long-term contracts.
However, as in the preliminary determination, for any quantity sold
above the minimum contract requirements, we used the reported average
day of withdrawal from consignment (the fifteenth day of the month
preceding the invoice date) as the date of sale.
Comment 4: Calculation of Negromex's U.S. Indirect Selling Expense
Factor
The petitioners contend that the Department should adjust GIRSA's
indirect selling expense allocation because the Department was unable
to verify GIRSA's allocation of indirect expenses between subject and
non-subject merchandise. The petitioners
[[Page 14881]]
urge the Department to reallocate GIRSA's indirect selling expenses in
accordance with the petitioners' calculation methodology as provided in
their February 17, 1999, rebuttal brief.
Negromex contends that it correctly allocated the indirect selling
expenses of GIRSA and that the Department should continue to use the
reported allocation of indirect selling expenses in the final margin
calculation. In its response, Negromex allocated GIRSA's indirect
selling expenses among sales of all rubber products, including ESBR and
non-subject merchandise. See Department's February 2, 1999, Sales
Verification Report at 13. Negromex asserts that it correctly allocated
GIRSA's indirect selling expenses attributable to all rubber sales
based on GIRSA's accounting records and that the Department should not
reallocate these indirect selling expenses.
DOC Position
We agree with the petitioners that we should reallocate Negromex's
indirect selling expenses. At verification, GIRSA did not provide
documentation supporting its allocation of indirect selling expenses.
For example, GIRSA was unable to justify its allocation of all supplies
and furniture depreciation expenses to sales of rubber products,
including ESBR, and it could not support its allocation of no indirect
selling expenses to certain non-subject merchandise. See Department's
February 2, 1999, Sales Verification Report at 13. Therefore, because
GIRSA was unable to substantiate its indirect selling expense
allocation between rubber products and non-subject merchandise, we
reallocated the total amount of indirect selling expenses for all GIRSA
products over the total amount of GIRSA's POI sales for all products.
See Department's February 2, 1999, Sales Verification Report at 14; see
also Department's March 19, 1999, Final Determination Calculation
Memorandum.
We note that the petitioners, in their rebuttal brief, recalculated
GIRSA's indirect selling expense allocation using the same methodology
as outlined by the Department in its verification report. However, upon
reviewing the petitioners' calculation, we found clerical errors.
Accordingly, we did not adopt the calculation provided by the
petitioners. Instead, we applied the amount as calculated in our
verification report. See Department's February 2, 1999, Sales
Verification Report at 15.
Comment 5: Adjusting Normal Value for Export Rebates
Negromex grants rebates on ESBR sales to home market customers who
incorporate the purchased ESBR into exported non-subject merchandise.
Negromex's ESBR customers certify amounts of ESBR used in their
exported finished goods, calculate their respective ESBR rebates, and
submit rebate documentation for Negromex's approval. See Department's
December 22, 1999, Sales Verification Report at 17. After approving a
customer's export rebate calculation, Negromex applies an export rebate
to the customer's next invoice and issues a credit note for the rebate
upon the customer's request. See Department's December 22, 1999, Sales
Verification Report at 17; see also Negromex's September 3, 1998,
response at Exhibit SB-8.
The petitioners argue that the Department should not deduct these
rebates from normal value, arguing that to do so would wrongly
encourage ``input dumping,'' a practice which promotes lower export
prices in that raw material suppliers charge their customers less for
raw materials incorporated into exported products. See Petitioners'
February 10, 1999, Case Brief at 11. In this case, the petitioners
assert that because Negromex's export rebates provide Negromex's
customers opportunities to sell their goods at prices lower in foreign
markets than in the Mexican market, the Department should follow its
practice of denying price adjustments for export rebates, as the
Department views these rebates as ``input dumping.'' See Notice of
Final Determination of Sales at Less than Fair Value: Open-End Spun
Rayon Singles Yarn from Austria, 62 FR 43701, 43708 (Aug. 15, 1997)
(Rayon Singles Yarn); Final Results of Antidumping Duty Administrative
Review: Light-Walled Welded Rectangular Carbon Steel Tubing from
Taiwan, 56 FR 26382, 26383 (June 7, 1991) (Carbon Steel Tubing Taiwan).
Negromex asserts that the Department correctly adjusted normal
value for the export rebates which Negromex grants its customers who
incorporate ESBR into their exported products. According to Negromex,
the petitioners are mistaken in analogizing their export rebates to
``input dumping'' because the Department has only applied the ``input
dumping'' principle to deny a manufacturer's claim to normal value
adjustments for export rebates it receives from suppliers. The Act,
argues Negromex, mandates an adjustment of normal value for all price
adjustments, including export-based rebates, in order to correctly
compare normal value with prices at which ESBR is first sold in the
United States. See Section 773(a)(1)(B) of the Act. Negromex notes that
the Department has upheld adjustments for similar export-based rebates
in recent decisions and maintains that the Department should follow its
precedent of allowing export rebates in this case. See Circular Welded
Non-Alloy Steel Pipe and Tube from Mexico: Final Results of Antidumping
Duty Administrative Review, 63 FR 33041, 33045-46 (June 17, 1998) (Tube
from Mexico).
DOC Position
We agree with Negromex. Section 773(a)(1)(B)(i) of the Act requires
the Department to calculate normal value in a manner which most closely
approximates ``the price at which the foreign like product is first
sold * * * for consumption in the exporting country. * * * '' In order
to accurately reflect the foreign like product's price, the Department
must account for all price adjustments in calculating the home market
product's normal value. See 19 CFR 351.401(c). Because rebates affect
the price of subject merchandise in the home market, we agree that the
export rebates should be deducted in the calculation of Negromex's
normal value price in this case. See 19 CFR 351.401.
The petitioners' application of the ``input dumping'' concept to
the circumstances of this case is misplaced. The Department has
acknowledged that the practice by which raw materials suppliers price
their raw materials differently based on whether customers incorporate
the raw material into domestic or export products constitutes ``input
dumping.'' Carbon Steel Tubing Taiwan at 26383. The Department's policy
consistently has been to deny finished goods manufacturers an
adjustment to normal value for export rebates received from upstream
raw material suppliers. Carbon Steel Tubing Taiwan at 26383; Rayon
Singles Yarn at 43708. The issue facing the Department in this case,
however, is not a finished goods manufacturer's claim for an adjustment
to NV for export rebates granted by its raw material supplier. Instead,
Negromex is claiming an adjustment to NV for an export rebate granted
to its home market customers. Therefore, in keeping with our policy to
allow respondents an adjustment to normal value for export rebates
granted to downstream customers who incorporate the material into their
exported products (see Tube from Mexico at 33045-46), for purposes of
the final determination, we have continued
[[Page 14882]]
to adjust for export rebates in our calculation of normal value.
Comment 6: Gains and Losses on Monetary Position
Negromex contends that the Department should include the full
amount of reported net gain on monetary position in its calculation of
financial expenses. Negromex explains that these adjustments reflect
the gain on holding net monetary liabilities against reduction in the
value of the peso. According to Negromex, these inflation adjustments
are required by Mexican generally accepted accounting principles
(GAAP), and the Department's practice in Mexican cases is to include
these adjustments in the calculation of financial expenses. See Gray
Portland Cement and Clinker from Mexico: Final Results of Antidumping
Duty Administrative Review, 62 FR 17148, 17160 (April 9, 1997) (Cement
from Mexico).
The petitioners did not comment on this issue.
DOC Position
We agree with Negromex, in part. We agree that the gain on monetary
position should be included in the financial expense calculation, but
we disagree that it should be included in full. In accordance with
section 773(f)(1)(A) of the Act, the Department's practice is to rely
on costs derived from the respondent's books and records, as long as
they: (1) Are prepared in accordance with the home country's generally
accepted accounting principles (``GAAP''); (2) are based on allocations
that have been historically used by the company; and (3) do not result
in distorted production costs. Negromex has historically computed a net
gain or loss on monetary position for financial reporting purposes in
accordance with Mexican GAAP. This gain or loss reflects the impact of
Mexican inflation during the year on holding monetary assets and
liabilities.
In this instance, due to the inflation experienced in Mexico during
the POI, we consider it reasonable to include in the interest expense
computation the impact of holding monetary assets and liabilities
throughout the year. Even though Negromex normally computes its net
gain or loss on monetary position using all monetary assets and
liabilities (both current and long-term), we computed the net gain
amount using only Negromex's current monetary assets and liabilities.
The gain on monetary position and the foreign exchange loss, in this
case, are directly linked. That is, the same foreign-denominated debt
caused both a foreign exchange loss and a gain on monetary position.
The foreign exchange loss is driven by the devaluation of the peso as
compared to other currencies whereas the gain on monetary position is
driven by high inflation during the year. Consistent with our current
practice of including in the interest expense calculation only a
portion of the foreign exchange gains and losses related to foreign-
denominated debt (see, e.g., Notice of Final Determination of Sales at
Less Than Fair Value: Static Random Access Memory Semiconductors from
the Republic of Korea, 63 FR 8934, 8940 (February 23, 1998)), we only
included a portion of the gain on monetary position related to
Negromex's monetary assets and liabilities.
Our preferred method for computing the portion of foreign exchange
gains and losses related to debt is to amortize the gains or losses
over the remaining life of the foreign-denominated loans.
Alternatively, the Department may, as was done in this case, determine
the portion of the exchange gains or losses to include in the financing
expense computation based on the ratio of the current portion of the
foreign-denominated debt to total foreign denominated-debt, provided
that it reasonably approximates the result of using the remaining life
of the debt. See Wire Rod from Canada at 9187. Following this approach,
we consider it appropriate to include in the net monetary gain or loss
computation only those asset and liability amounts classified as
current. To only include the current portion of the foreign exchange
gains or losses related to debt but to include the entire gain or loss
on monetary position would be unreasonable and distortive. We note
that, in Cement from Mexico, we used both current and long-term
monetary assets and liabilities to compute the gain on monetary
position. However, we also included the foreign exchange gains and
losses on both the current and long-term foreign denominated debt. Our
practice has developed since that case in that we now only include a
portion of the foreign exchange gains and losses related to foreign-
denominated debt and thus we will only include a comparable portion of
the gains or losses on monetary position.
Comment 7: Purchase of Styrene From an Affiliated Party
At verification, the Department discovered that Negromex purchased
styrene, a major input in the production of ESBR, from an affiliated
party, Resirene S.A. de C.V. (Resirene). This information was not
reported to the Department in the company's questionnaire responses.
The petitioners argue that Negromex failed to make timely disclosure of
its purchases of styrene from Resirene, denying the Department and the
petitioners a reasonable opportunity to analyze and address the costs
of this input. The petitioners, citing to 19 CFR 351.407(b) (the major
input rule), point out that, in dealing with transactions between
affiliated companies, it is the Department's practice to value major
inputs at the highest of the transfer price, market price, or actual
production cost. However, the petitioners contend, lack of verifiable
evidence from Negromex in this instance precludes an application of the
major input rule.
According to the petitioners, the Department's attempt at
verification to examine the nature of Negromex's transaction with
Resirene and test the transfer price between the two companies does not
establish an adequate basis for application of the major input rule.
Specifically, the petitioners claim that the Department relied
primarily upon oral explanations by Negromex's materials manager and
faxed documents from Resirene (i.e., Resirene's financial statements
and a schedule of its purchases of styrene from unaffiliated suppliers
during the POI). The petitioners note that the Department did not speak
to anyone at Resirene and did not inspect any original documentation at
that company, rendering the faxed documents obtained at verification
unverified.
Furthermore, the petitioners assert that the transfer price between
Negromex and Resirene, which according to Negromex's official
represents Resirene's purchase price and cost of freight, does not
cover Resirene's entire cost of obtaining the material, such as general
and administrative expenses. Absent verified data concerning Resirene's
full cost of purchasing styrene, the petitioners argue that Negromex's
reported costs of styrene cannot be analyzed properly under the major
input rule. Therefore, the petitioners urge the Department to use facts
otherwise available in determining Negromex's costs of styrene for
purposes of the final determination.
Negromex contends that it properly reported its styrene costs in
its questionnaire response. Negromex notes that the cost of styrene
recorded in the company's accounting system and included in the COP and
CV data reported to the Department consists of two items: (1) The costs
of styrene purchased from an unaffiliated company; and (2) the costs of
styrene
[[Page 14883]]
purchased from its affiliate, Resirene. Negromex explains that it
engages in a joint purchasing arrangement with Resirene under which
Resirene purchases styrene from unaffiliated suppliers and resells it
to Negromex. According to Negromex, Resirene's sales of styrene to
Negromex are not included in Resirene's total sales and the costs are
not included in the company's cost of sales, as they are merely pass-
through transactions. Accordingly, Negromex contends that it would be
inappropriate to include G&A expenses of Resirene to Negromex's
purchases of styrene from Resirene.
DOC Position
We agree with the petitioners. In Section D of the Department's
questionnaire, we instructed Negromex to identify inputs that the
company receives from affiliated parties. See the Department's May 21,
1998, questionnaire at D-3. In its questionnaire response, Negromex
stated that ``[a]ll raw materials, service (water, electricity, and
natural gas) and subcontractor inputs are purchased from non-affiliated
parties. There were no purchases of any inputs used in the production
or manufacture of ESBR 1502 or 1712 from affiliated parties'' See
Negromex's September 22, 1998, Section D response at D6. However, as
noted above, we found at verification that Negromex purchased a portion
of styrene used in the production of ESBR from Resirene.
Section 773(f)(3) of the Act provides that, if transactions between
affiliated parties involve a major input, then the Department may value
the major input based on cost of production if the cost is greater than
the amount (higher of transfer price or market price) that would be
determined under section 773(f)(2). Under this provision, the
Department is required to review purchases from affiliated parties of
major inputs in order to determine that they reasonably reflect a fair
market value. In this instance, Negromex failed to provide information
regarding its purchases of styrene from Resirene in its questionnaire
responses, thus precluding the Department from adequately addressing
this issue prior to verification. Furthermore, at verification, the
information Negromex presented to the Department was insufficient to
verify that Negromex's purchases of styrene from Resirene were at fair
market value. Specifically, we were unable to review source
documentation substantiating Negromex's claim that its styrene
purchases from Resirene are merely ``pass-through'' transactions.
Section 776(a)(2) of the Act provides that, if an interested party:
(A) Withholds information that has been requested by the Department;
(B) fails to provide such information in a timely manner or in the form
or manner requested; (C) significantly impedes a proceeding under the
antidumping statute; or (D) provides such information but the
information cannot be verified, the Department shall, subject to
subsections 782(d) and (e), use facts otherwise available in reaching
the applicable determination. In addition, section 776(b) provides that
an adverse inference may be used against a party that has failed to
cooperate by not acting to the best of its ability to comply with
requests for information.
As detailed above, Negromex withheld information concerning its
purchases of styrene from an affiliated party in its questionnaire
responses. Moreover, Negromex did not disclose this information at the
start of verification, but rather it was discovered by the Department
during verification, as described in the verification report. See
Department's January 6, 1999, Cost Verification Report at 4. Under
these circumstances, we were unable to obtain sufficient information
needed to apply the major input rule, because, as described above, the
information provided about Resirene at verification was not verified.
Thus, we determine that use of partial facts available is appropriate
in valuing the cost of styrene in our calculation of cost of production
and constructed value. Furthermore, because Negromex failed to comply
with the Department's request for information regarding purchases of
inputs from affiliated parties, we find that it failed to cooperate to
the best of its ability in providing this information, and therefore,
adverse inferences are warranted. This is consistent with the
Department's practice of applying adverse facts available when certain
requested information is withheld by an interested party in its
questionnaire response, but discovered at verification. See, e.g.,
Notice of Final Determination of Sales at Less Than Fair Value: Certain
Preserved Mushrooms from Chile, 63 FR 56613, 56620 (October 22, 1998);
Notice of Final Determination of Sales at Less Than Fair Value:
Stainless Steel Wire Rod from Spain, 63 FR 40391, 40396 (July 29,
1998). As facts available, we adjusted Negromex's reported direct
materials cost by increasing the cost of the portion of styrene
purchased from Resirene by the amount of Resirene's G&A expenses as
computed from the company's 1997 financial statements. See Cost of
Production and Constructed Value Calculation Adjustments for the Final
Determination Memorandum, dated March 19, 1999.
Continuation of Suspension of Liquidation
In accordance with section 733(d) of the Act, we are directing the
Customs Service to continue to suspend liquidation of all entries of
ESBR from Mexico that are entered, or withdrawn from warehouse, for
consumption on or after November 4, 1998, the date of publication of
our preliminary determination in the Federal Register. The Customs
Service shall continue to require a cash deposit or the posting of a
bond equal to the weighted-average amount by which the normal value
exceeds the U.S. price, as indicated in the chart below. These
suspension-of-liquidation instructions will remain in effect until
further notice. The weighted-average dumping margins are as follows:
------------------------------------------------------------------------
Weighted
average
Exporter/manufacturer margin
percentage
------------------------------------------------------------------------
Negromex.................................................. 33.01
All Others................................................ 33.01
------------------------------------------------------------------------
Pursuant to section 735(c)(5)(A) of the Act, the Department has
excluded any zero and de minimis margins, and any margins determined
entirely under section 776 of the Act, from the calculation of the
``All Others Rate.''
ITC Notification
In accordance with section 735(d) of the Act, we have notified the
ITC of our determination. As our final determination is affirmative,
the ITC will, within 45 days, determine whether these imports are
materially injuring, or threaten material injury to, the U.S. industry.
If the ITC determines that material injury, or threat of material
injury does not exist, the proceeding will be terminated and all
securities posted will be refunded or canceled. If the ITC determines
that such injury does exist, the Department will issue an antidumping
duty order directing Customs officials to assess antidumping duties on
all imports of the subject merchandise entered for consumption on or
after the effective date of the suspension of liquidation.
Return or Destruction of Proprietary Information
This notice serves as the only reminder to parties subject to
Administrative Protective Order (APO)
[[Page 14884]]
of their responsibility concerning the return or destruction of
proprietary information disclosed under APO in accordance with 19 CFR
355.34(d). Failure to comply is a violation of the APO.
This determination is published pursuant to section 777(i) of the
Act.
Dated: March 19, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-7527 Filed 3-26-99; 8:45 am]
BILLING CODE 3510-DS-P