[Federal Register Volume 65, Number 30 (Monday, February 14, 2000)]
[Notices]
[Pages 7349-7361]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-3391]


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DEPARTMENT OF COMMERCE

International Trade Administration

[A-475-818]


Notice of Final Results of Antidumping Duty Administrative 
Review: Certain Pasta From Italy

AGENCY: Import Administration, International Trade Administration, 
Department of Commerce.
SUMMARY: On August 9, 1999, the Department of Commerce (the

[[Page 7350]]

Department) published the preliminary results and a partial rescission 
of its administrative review of the antidumping duty order on certain 
pasta from Italy. This review covers shipments by seven respondents 
during the period of review July 1, 1997, through June 30, 1998.
    For our final results, we have found that, for certain respondents, 
sales of the subject merchandise have been made below normal value 
(NV). We will instruct the United States Customs Service to assess 
antidumping duties equal to the difference between the export price 
(EP) or constructed export price (CEP) and the NV.

EFFECTIVE DATE:  February 14, 2000.

FOR FURTHER INFORMATION CONTACT:  John Brinkmann or Jarrod Goldfeder, 
Office of AD/CVD Enforcement, Group II, Import Administration, 
International Trade Administration, U.S. Department of Commerce, 14th 
Street and Constitution Avenue, NW., Washington, DC 20230; telephone: 
(202) 482-4126 or (202) 482-2305, respectively.

SUPPLEMENTARY INFORMATION:

Applicable Statute and Regulations

    Unless otherwise indicated, all citations to the statute are 
references to the provisions effective January 1, 1995, the effective 
date of the amendments made to the Tariff Act of 1930 (the Act), by the 
Uruguay Round Agreements Act (URAA). In addition, unless otherwise 
indicated, all citations to the Department's regulations refer to the 
regulations codified at 19 CFR part 351 (April 1999).

Case History

    This review covers the following manufacturers/exporters of 
merchandise subject to the antidumping duty order on certain pasta from 
Italy: (1) Commercio-Rappresentanze-Export S.r.l. (Corex); (2) F.lli De 
Cecco di Filippo Fara S. Martino S.p.A. (De Cecco); (3) La Molisana 
Industrie Alimentari S.p.A. (La Molisana); (4) N. Puglisi & F. 
Industria Paste Alimentari S.p.A. (Puglisi); (5) Pastificio Antonio 
Pallante (Pallante); (6) Pastificio Maltagliati S.p.A. (Maltagliati); 
and (7) Rummo S.p.A. Molino e Pastificio (Rummo).
    On August 9, 1999, the Department published the preliminary results 
of this review. See Notice of Preliminary Results and Partial 
Rescission of Antidumping Duty Administrative Review: Certain Pasta 
from Italy, 64 FR 43152 (Preliminary Results). As noted in the 
Preliminary Results, we rescinded this review with respect to F. 
Divella Molina e Pastificio, Pastificio Fabianelli S.p.A., Industria 
Alimentari Colavita S.p.A., and Riscossa F.lli Mastromauro S.r.l., 
because each of these companies timely filed letters with the 
Department withdrawing the requests for reviews and because there were 
no other requests for reviews of these companies. On September 15, 
1999,\1\ we received case briefs from: (1) Borden, Inc., New World 
Pasta, Inc., and Gooch Foods, Inc. (collectively, the petitioners), and 
(2) four of the manufacturers/exporters that participated in this 
review (De Cecco, La Molisana, Maltagliati, and Rummo). We received 
rebuttal briefs from the petitioners, De Cecco, and Maltagliati on 
September 22, 1999. A public hearing was not held with respect to this 
review.\2\
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    \1\ On September 21, 1999, we rejected the case briefs submitted 
by the petitioners and Maltagliati, pursuant to section 
351.301(b)(2) of the Department's regulations, because we found that 
the briefs contained untimely new factual information. These case 
briefs were resubmitted on September 21, 1999, without the new 
information. Furthermore, on October 12, 1999, we rejected La 
Molisana's case brief, pursuant to section 351.301(c)(2) of the 
Department's regulations, because La Molisana submitted information 
requested by the Department after the deadline specified in a 
February 22, 1999 request. La Molisana resubmitted its case brief 
without the new information on October 14, 1999.
    \2\ Although Maltagliati requested a hearing on August 26, 1999, 
that request was subsequently withdrawn on September 7, 1999.
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    On November 30, 1999, the Department extended the time limits for 
completion of the final results of this review by 60 days. See Certain 
Pasta from Italy: Extension of Final Results of Antidumping Duty 
Administrative Review, 64 FR 68320 (December 7, 1999). We issued 
supplemental questionnaires to and received responses from De Cecco in 
December 1999.

Scope of Review

    Imports covered by this review are shipments of certain non-egg dry 
pasta in packages of five pounds (2.27 kilograms) or less, whether or 
not enriched or fortified or containing milk or other optional 
ingredients such as chopped vegetables, vegetable purees, milk, gluten, 
diastases, vitamins, coloring and flavorings, and up to two percent egg 
white. The pasta covered by this scope is typically sold in the retail 
market, in fiberboard or cardboard cartons, or polyethylene or 
polypropylene bags of varying dimensions.
    Excluded from the scope of this review are refrigerated, frozen, or 
canned pastas, as well as all forms of egg pasta, with the exception of 
non-egg dry pasta containing up to two percent egg white. Also excluded 
are imports of organic pasta from Italy that are accompanied by the 
appropriate certificate issued by the Instituto Mediterraneo Di 
Certificazione (IMC), by Bioagricoop Scrl, by QC&I International 
Services, by Ecocert Italia or by Consorzio per il Controllo dei 
Prodotti Biologici.
    The merchandise subject to review is currently classifiable under 
item 1902.19.20 of the Harmonized Tariff Schedule of the United States 
(HTSUS). Although the HTSUS subheading is provided for convenience and 
customs purposes, the written description of the merchandise subject to 
the order is dispositive.

Scope Rulings

    The Department has issued the following scope rulings to date:
    (1) On August 25, 1997, the Department issued a scope ruling that 
multicolored pasta, imported in kitchen display bottles of decorative 
glass that are sealed with cork or paraffin and bound with raffia, is 
excluded from the scope of the antidumping and countervailing duty 
orders. See Memorandum from Edward Easton to Richard Moreland, dated 
August 25, 1997, on file in the Central Records Unit (CRU) of the main 
Commerce Building, Room B-099.
    (2) On July 30, 1998, the Department issued a scope ruling, finding 
that multipacks consisting of six one-pound packages of pasta that are 
shrink-wrapped into a single package are within the scope of the 
antidumping and countervailing duty orders. See letter from Susan H. 
Kuhbach, Acting Deputy Assistant Secretary for Import Administration, 
to Barbara P. Sidari, Vice President, Joseph A. Sidari Company, Inc., 
dated July 30, 1998, on file in the CRU.
    (3) On October 23, 1997, the petitioners filed an application 
requesting that the Department initiate an anti-circumvention 
investigation against Barilla, an Italian producer and exporter of 
pasta. On October 5, 1998, the Department issued its final 
determination that, pursuant to section 781(a) of the Act, 
circumvention of the antidumping duty order is occurring by reason of 
exports of bulk pasta from Italy produced by Barilla which subsequently 
are repackaged in the United States into packages of five pounds or 
less for sale in the United States. See Anti-circumvention Inquiry of 
the Antidumping Duty Order on Certain Pasta from Italy: Affirmative 
Final Determination of Circumvention of the Antidumping Duty Order, 63 
FR 54672 (October 13, 1998).

[[Page 7351]]

    (4) On October 26, 1998, the Department self-initiated a scope 
inquiry to determine whether a package weighing over five pounds as a 
result of allowable industry tolerances may be within the scope of the 
antidumping and countervailing duty orders. On May 24, 1999 we issued a 
final scope ruling finding that, effective October 26, 1998, pasta in 
packages weighing or labeled up to (and including) five pounds four 
ounces is within the scope of the antidumping and countervailing duty 
orders. See Memorandum from John Brinkmann to Richard Moreland, dated 
May 24, 1999, on file in the CRU.

Price Comparisons

    We calculated EP, CEP, and NV based on the same methodology 
described in the Preliminary Results, with the following exceptions:

De Cecco

    We changed the negative discount values in De Cecco's U.S. sales 
database to positive values. See Comment 8.
    We corrected two clerical errors in the calculation of CEP profit. 
See Comment 9.
    We revised the calculation of indirect selling expenses incurred in 
the United States by De Cecco's U.S. affiliate, Prodotti Mediterranei, 
Inc. (PMI). See Analysis Memorandum for F.lli De Cecco di Filippo Fara 
S. Martino S.p.A. for the Final Results of the Second Administrative 
Review on Certain Pasta from Italy, February 7, 2000, on file in the 
CRU.

Maltagliati

    We deducted billing adjustments from the home market gross price 
prior to recalculating imputed credit expenses. See Comment 14.

Rummo

    We corrected certain clerical errors in the calculation of CEP 
profit. See Comment 19.
    We revised U.S. movement expenses by recalculating warehousing 
expenses as a weighted average expense for all warehouses. See Comment 
20.

Cost of Production

    As discussed in the Preliminary Results, we conducted an 
investigation to determine whether each of the seven respondents 
participating in the review made home market sales of the foreign like 
product during the period of review (POR) at prices below their cost of 
production (COP) within the meaning of section 773(b)(1) of the Act.
    For all respondents, we found 20 percent or more of the sales of a 
given product during the 12 month period were at prices less than the 
weighted-average COP for the POR. Therefore, we determined that these 
below-cost sales were made in ``substantial quantities'' within an 
extended period of time, and 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)(B), (C), and (D) of the Act. 
Therefore, for purposes of these final results, we disregarded these 
below-cost sales and used the remaining sales as the basis for 
determining NV, pursuant to section 773(b)(1) of the Act.
    We calculated the COP for these final results following the same 
methodology as in the Preliminary Results, with the following 
exceptions:

De Cecco

    We revised the variable cost of manufacture (VCOM) and total cost 
of manufacture (TCOM) components of De Cecco's COP and constructed 
value (CV) data in light of our reliance upon the major input rule. See 
Comment 3.

La Molisana

    We revised the submitted COP and CV data to exclude costs of 
purchased pasta, where the supplier from whom the pasta was purchased 
could be identified. See Comment 10.
    We removed the costs of purchased pasta from the variable material 
costs, such that La Molisana's DIFMER calculation was based on La 
Molisana's actual costs of producing pasta. See Comment 11.

Maltagliati

    We revised the general and administrative (G&A) expense included in 
CV by multiplying the G&A expense ratio by the revised cost of 
manufacturing plus packing. See Comment 17.
    We revised the interest expense ratio included in COP and CV by 
multiplying the short-term interest rate by the revised cost of 
manufacturing plus packing. See Comment 18.

Analysis of Comments Received

    We gave interested parties an opportunity to comment on the 
Preliminary Results. As noted above, we received comments and/or 
rebuttal comments from the petitioners and certain respondents.

De Cecco

Comment 1: Application of CEP and Commission Offsets
    De Cecco claims that the Department, through the erroneous 
application of an offset, overstated NV. According to De Cecco, when a 
CEP offset is granted and commissions are paid in the home market but 
not in the United States, the Department reduces NV by the amount of 
the home market commission and by the CEP offset, which is equal to the 
lesser of the home market commission or indirect selling expenses 
incurred in the United States. De Cecco acknowledges that the CEP 
offset was correctly calculated and applied. De Cecco contends, 
however, that the Department incorrectly increased NV with a second 
offset, which was calculated as the lesser of home market commissions 
or U.S. indirect selling expenses incurred in Italy.
    The petitioners allege that the Department incorrectly capped the 
home market commission offset for De Cecco's CEP sales by the amount of 
the U.S. indirect selling expenses incurred in Italy. As a result, the 
Department allowed a greater deduction from NV (i.e., the subtraction 
of home market commissions), but a much smaller addition to the NV was 
made to offset the deduction. The petitioners, noting that De Cecco 
paid commissions on its home market sales but not on its U.S. sales, 
argue that the Department should have calculated the commission offset 
as the lesser amount of the home market commissions or the entire 
amount of U.S. indirect selling expenses for all of De Cecco's U.S. 
sales. Citing section 351.401(e) of the Department's regulations, which 
provides that the Department will limit the amount of the commission 
offset by the amount of indirect selling expenses incurred in the ``one 
market,'' the petitioners contend that the Department's segregation of 
De Cecco's U.S. indirect selling expenses on the basis of geographical 
areas (i.e., the United States and Italy) was inappropriate. The 
appropriate basis for segregating such expenses under the Department's 
regulations, the petitioners continue, is whether those indirect 
selling expenses were incurred for sales in the ``one market'' where 
commissions were not paid, not where those expenses were incurred. 
Furthermore, the petitioners cite past cases where the Department used 
the total amount of U.S. indirect selling expenses, rather than the 
limited amount of such expenses incurred in the respondent's home 
market, in its calculations for a home market commission offset.
    DOC Position: We disagree with the petitioners and De Cecco. First, 
we disagree with the petitioners' argument that the commission offset 
should not be capped by the amount of indirect expenses attributable to 
De Cecco's CEP sales but incurred in Italy. The amount of De Ceccos's 
indirect selling expenses

[[Page 7352]]

attributable to U.S. sales and associated with economic activities 
incurred in the United States are deducted from the CEP starting price 
under section 772(d) of the Act. Consequently, in order to avoid 
deducting the same indirect expenses twice, we must exclude from the 
commission offset calculation those indirect expenses associated with 
economic activities in the United States, which are already deducted in 
the calculation of the CEP.
    Second, we disagree with De Cecco's argument, and believe that it 
may reflect De Cecco's misunderstanding of our prior explanation of the 
various adjustments to home market prices for indirect selling 
expenses. In accordance with section 351.410(e) of the Department's 
regulations, where commissions are incurred in one market (in this case 
the home market), but not in the other, we make an allowance for 
indirect selling expenses in the other market up to the amount of the 
commissions. In this case, because commissions were paid in the home 
market, but not in the United States, and thus were deducted from the 
home market price, we made an adjustment to offset the commission 
deduction. We make such an adjustment, which falls under the heading of 
a circumstance-of-sale adjustment, by adding the offset to home market 
price rather than subtracting it from the U.S. price. Thus, the overall 
adjustment to NV involves deducting home market commissions and then 
adding U.S. indirect selling expenses up to the amount of the home 
market commissions. As noted above, in CEP situations, the amount of 
U.S. indirect selling expenses available for purposes of the commission 
offset is limited by the extent to which such indirect selling expenses 
were incurred in the home market for U.S. sales.
Comment 2: Major Inputs
    De Cecco argues that the Department should not use transfer prices 
to value transactions between De Cecco and Molino F.lli De Cecco di 
Filippo S.p.A. (Molino), its affiliated supplier of semolina, the major 
input of pasta. Instead, De Cecco claims that, for purposes of 
computing COP and CV, the Department should value transfers of semolina 
from Molino to De Cecco at Molino's cost.
    De Cecco argues that the corporate entity Molino, 97.9 percent of 
which is owned by De Cecco and the remainder by shareholders of De 
Cecco's parent company, is in essence a wholly owned subsidiary of De 
Cecco. Although Molino is incorporated separately from De Cecco, 
Molino's semolina production and De Cecco's pasta-manufacturing 
operation are part of a single integrated production process under the 
same ownership. De Cecco states that Molino's sole function is to 
process grain, selected by De Cecco, into semolina. The semolina is 
then transferred to De Cecco, which consumes all of Molino's semolina 
production, at a transfer price above Molino's COP. Therefore, De Cecco 
contends that the Department should value transfers of semolina from 
Molino to De Cecco at Molino's cost in order to reflect the economic 
and operational reality of the relationship and transactions between 
these two companies.
    Noting that the Department ``collapsed'' De Cecco and Molino e 
Pastificio F.lli De Cecco S.p.A. (Pescara), another affiliated supplier 
of semolina and a pasta producer, De Cecco argues that Molino should be 
granted the same treatment since, as a provider of semolina to De 
Cecco, Molino is no different than Pescara. De Cecco claims that, 
because Molino conducts operations essential to De Cecco, Molino is in 
fact more integral to De Cecco than Pescara. De Cecco asserts that it 
would be inconsistent with the reasoning set forth in Final Results of 
Antidumping Administrative Review: Certain Cold Rolled and Corrosion-
Resistant Carbon Steel Flat Products From Korea, 62 FR 18430 (April 15, 
1997) (Steel Flat Products from Korea), to treat transfers of semolina 
from Molino to De Cecco differently from transfers of semolina from 
Pescara to De Cecco.
    The petitioners observe that in the first administrative review of 
this proceeding, the Department rejected the same argument by De Cecco 
and employed the major-input rule inasmuch as Molino was separately 
incorporated from De Cecco during the POR. See Notice of Final Results 
and Partial Rescission of Antidumping Duty Administrative Review: 
Certain Pasta from Italy, 64 FR 6615, 6621-6623 (February 10, 1999) 
(96/97 Final Results). Given that the law and the facts of this review 
are the same as the preceding review, the petitioners argue that the 
Department should continue to value Molino's semolina production at 
Molino's transfer price.
    DOC Position: The Department does not agree that semolina De Cecco 
purchased from its affiliated supplier, Molino, should be exempt from 
the application of the major-input rule. Thus, in accordance with 
sections 773(f)(2) and (3) of the Act, for purposes of calculating COP 
and CV, we have continued to rely on the higher of the transfer price, 
the market price of the inputs, or the actual costs incurred by the 
affiliated supplier in producing the input. This finding is consistent 
with the Department's final results in the first administrative review 
of this proceeding. See 96/97 Final Results, 64 FR at 6621-6623.
    As we noted in the 96/97 Final Results, the Department has applied 
this interpretation consistently since implementation of the URAA, 
except in those situations where it treats respondents who are 
producers of the subject merchandise as a single entity for purposes of 
sales reporting and margin calculations. Because each company in 
question, De Cecco and Molino, is a separate legal entity in Italy, we 
disagree with the respondent that the operational reality of close 
association between the two companies outweighs the legal form of the 
entities.
    Moreover, we disagree with De Cecco that Molino should be granted 
the same treatment as Pescara, a producer of the subject merchandise, 
because Molino's operational relationship to De Cecco renders it more 
integral to the respondent than Pescara. We collapsed the sales and 
production activities of Pescara and De Cecco in accordance with 19 CFR 
351.401(f), not because of the integral nature of what each entity does 
for the other. Section 351.401(f) of the regulations provides for 
special treatment of affiliated producers where the potential for 
manipulation of prices or production in an effort to evade antidumping 
duties imposed on the sale of subject merchandise exists. In accordance 
with this section of the regulations, we collapse all sales prices and 
production costs of the affiliated entities as if they were a single 
company. Since we do not apply the major-input rule for transactions 
within the same company, the major-input rule does not apply for 
transactions between Pescara and De Cecco. Molino is solely a producer 
of semolina and not of the subject merchandise and thus, unlike 
Pescara, Molino is not subject to the collapsing regulation of section 
351.401(f) of the Department's regulations. Therefore, we have 
continued to treat De Cecco and Molino as separate entities for the 
purposes of reporting costs. We have continued to treat Pescara, which 
is both a producer of the subject merchandise and a semolina supplier, 
and De Cecco as a single entity for sales reporting and the calculation 
of an antidumping margin for the final results. Thus, consistent with 
the exception to the major-input rule established in the Steel Flat 
Products from Korea case, we have collapsed De Cecco and Pescara for 
cost calculation purposes. In effect, the

[[Page 7353]]

Department, for purposes of these final results, has treated De Cecco 
and Pescara as one entity and, thus, the major-input rule is not 
applicable. Therefore, we have used the actual COP to value semolina 
obtained by De Cecco from Pescara.
Comment 3: Difference in Merchandise Adjustment
    Assuming arguendo that the Department continues to employ the 
major-input rule and uses the transfer price between Molino and De 
Cecco, De Cecco contends that the Department should not make a 
difference in merchandise (DIFMER) adjustment for vitamin enrichment 
when comparing similar products. According to De Cecco, section 
351.411(b) of the Department's regulations requires that the Department 
only consider differences in variable costs associated with physical 
differences in merchandise when adjusting for differences in 
merchandise compared. The only physical difference between pasta 
products sold in the home market and those sold in the United States is 
vitamin enrichment, i.e., home market pasta products are not vitamin 
enriched (non-enriched pasta) whereas U.S. products are vitamin-
enriched (enriched pasta). Thus, each product code sold in the United 
States has a comparable product sold in the home market that, with the 
exception of enrichment, is identical. Accordingly, De Cecco's per-unit 
cost of enrichment is the appropriate measure of the DIFMER adjustment. 
Because Molino transfers enriched and non-enriched semolina at the same 
price, however, De Cecco does not incur a difference in the variable 
cost of manufacturing enriched versus non-enriched pasta. De Cecco 
argues, therefore, that if the Department bases De Cecco's COP and CV 
on the transfer price from Molino under section 773(f)(3) of the Act, 
the transfer price is also the appropriate measure for the DIFMER 
adjustment.
    The petitioners argue that the Department should continue to add a 
cost-based DIFMER adjustment to NV in order to account for physical 
differences in merchandise being compared. The petitioners note that 
while section 773(f)(3) of the Act governs the major-input rule, DIFMER 
adjustments are mandated by section 773(a)(6)(C)(ii) of the Act. 
Whereas the DIFMER requirement ensures that physical differences in 
merchandise are always considered when making product comparisons, the 
purpose of the major-input rule is to ensure that costs are properly 
captured for purposes of the sales-below-cost test. Therefore, the 
petitioners contend that the Department has no discretion to disregard 
the physical differences of the merchandise being compared.
    DOC Position: We agree with De Cecco. The petitioners' assertions 
overlook the fact that the Department does not rely on a respondent's 
reported costs solely for the calculation of COP and CV. We also use 
cost information in a variety of other aspects of our margin 
calculations. For example, when determining the commercial 
comparability of the foreign like product in accordance with section 
771(16) of the Act, it has been our long-standing practice to rely on 
product-specific VCOMs and TCOMs for U.S. and home market merchandise. 
Likewise, when making a DIFMER adjustment to NV in accordance with 
section 773(b) of the Act, it has been our practice to calculate the 
adjustment as the difference between the product-specific VCOMs for the 
U.S. and home market merchandise compared. 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 2557, 2573-74 (January 15, 1998).
    As noted above in Comment 2, in calculating De Cecco's COP and CV 
for pasta, we employed the major-input rule and, consequently, valued 
the semolina used in the production of pasta at the transfer price from 
De Cecco's affiliate, Molino. In this case, the transfer price from 
Molino to De Cecco was the same for both enriched and non-enriched 
semolina. In valuing De Cecco's semolina cost to reflect the transfer 
price, we made a direct adjustment to De Cecco's reported COP and CV 
material costs, which had been valued by De Cecco at Molino's cost of 
production. Since material cost is a component of the VCOM and of the 
TCOM, and these are in turn components of COP and CV, we should also 
have adjusted the material cost component of both VCOM and TCOM to 
reflect the use of transfer price for the material cost, but did not. 
Accordingly, we have now adjusted the VCOM and TCOM to reflect the use 
of transfer price for the material cost and have made our determination 
of whether a DIFMER adjustment is appropriate using the revised VCOM 
data. This decision is consistent with section 773(a)(6) of the Act, 
which grants us the discretion to determine a suitable method to 
calculate a DIFMER adjustment and does not restrict our selection of an 
appropriate methodology to any particular approach.
Comment 4: Vitamin Costs
    According to the petitioners, the Department should adjust De 
Cecco's reported average cost of vitamin enrichment to reflect actual 
costs. Although De Cecco claimed that it calculated its vitamin cost by 
dividing the cost incurred for vitamins used during the POR by the 
total quantity of enriched pasta produced, the petitioners argue that 
non-enriched pasta products were included in the denominator. As a 
result, the petitioners continue, the unit cost for U.S. products to be 
added to NV as part of the DIFMER adjustment was understated. 
Therefore, the petitioners request that the Department exclude the 
production quantities of non-enriched pasta products from the 
denominator of the per-unit vitamin enrichment cost calculation.
    De Cecco maintains that the submitted production quantity indeed 
includes only vitamin-enriched pasta produced by De Cecco for its U.S. 
affiliate, PMI. De Cecco claims that the petitioners' claim is 
inaccurate because the product codes questioned by the petitioners 
represent bulk pasta that is placed in containers for shipment, but is 
not packaged for sale at retail. Assuming arguendo that, for the final 
results, the Department relies upon De Cecco's cost information, 
including the costs of vitamin enrichment, De Cecco contends that the 
Department should continue to rely upon De Cecco's submitted per-unit 
vitamin enrichment costs.
    DOC Position: As discussed above in Comment 2, the Department is 
recalculating De Cecco's VCOM and TCOM components of COP and CV in 
light of our reliance upon the major-input rule, thereby altering the 
DIFMER calculation. Because we are using a single transfer price from 
Molino for both enriched and non-enriched semolina, rather than 
Molino's costs, the arguments put forth by the petitioners and De Cecco 
as to the accuracy of the per-unit cost of vitamin enrichment in the 
DIFMER calculation are moot.
Comment 5: Classification of Sales as EP and CEP
    The petitioners urge the Department to reclassify De Cecco's 
reported EP sales as CEP sales because of PMI's role in the EP channels 
of distribution. Although De Cecco stated in its responses that there 
is no difference between PMI's role in the EP and CEP channels of 
distribution and that De Cecco's CEP sales would qualify for EP sales 
were it not for the existence of inventory in the United States, the

[[Page 7354]]

petitioners allege that De Cecco's description of its sales process 
clearly indicates that the selling activities for its U.S. sales took 
place in the United States. For example, PMI invoiced U.S. customers 
and collected payments from U.S. customers and, therefore, according to 
the petitioners, took title to the pasta before selling the merchandise 
to U.S. customers. The petitioners argue that reclassification of De 
Cecco's reported EP sales as CEP sales is further supported by the 
methodology used by De Cecco to allocate PMI's indirect selling 
expenses equally over its U.S. sales, indicating that De Cecco 
considered the role PMI played in EP and CEP sales to be similar. Since 
the function of PMI was not limited to that of a ``processor of sales-
related documentation'' and a ``communications link'' with the 
unaffiliated U.S. customer, the petitioners contend that the 
Department, consistent with its policy, should classify all of De 
Cecco's U.S. sales as CEP sales.
    De Cecco counters that PMI's role in the U.S. sales process is 
consistent with that in the first administrative review and, therefore, 
the Department should continue to find that De Cecco correctly 
classified its U.S. sales. According to De Cecco, it classified its 
U.S. sales as EP sales where the subject merchandise was shipped 
directly from De Cecco's factory in Italy to the unaffiliated customer 
in the United States, the manner of sale and shipment was the customary 
channel between De Cecco and its unaffiliated customer, and the role of 
PMI was merely that of a ``processor of sales-related documentation'' 
and a ``communications link'' with the unaffiliated U.S. customer. In 
response to the petitioners' comments, De Cecco argues that PMI took 
title but not possession and never placed the subject merchandise in 
its inventory. Furthermore, invoicing customers, collecting cash 
payments, and taking title to the subject merchandise are consistent 
with the role of a sales-related paper processor and communications 
link. Given that PMI's functions are consistent with the Department's 
requirement that the role of the sales agent be limited to paper 
processing and providing a communications link with the unaffiliated 
U.S. customer, De Cecco maintains that the Department should not 
reclassify De Cecco's U.S. sales.
    DOC Position: We agree with De Cecco that the facts on the record 
of this review show that the sales reported as EP sales should continue 
to be classified as EP sales. Pursuant to sections 772(a) and (b) of 
the Act, an EP transaction is a sale of merchandise by a producer or 
exporter outside the United States for export to the United States that 
is made prior to importation. A CEP sale is a sale made in the United 
States, before or after importation, by or for the account of the 
producer or exporter or by an affiliate of the producer or exporter. In 
determining whether sales involving a U.S. subsidiary should be 
characterized as EP sales, the Department has examined the following 
criteria: (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. affiliate is limited to that of a 
``processor of sales-related documentation'' and a ``communication 
link'' with the unrelated U.S. buyer. See, e.g., Porcelain-on-Steel 
Cookware from Mexico: Final Results of Antidumping Duty Administrative 
Review, 64 FR 26934 (May 18, 1999); Final Results of Antidumping Duty 
Administrative Review: Certain Corrosion-Resistant Carbon Steel Flat 
Products and Certain Cut-to-Length Carbon Steel Plate From Canada 
(Canadian Steel) 63 FR 12725, 12738 (March 16, 1998). In the Canadian 
Steel case, the Department clarified its interpretation of the third 
prong of this test, as follows:

    Where the factors indicate that the activities of the U.S. 
affiliate are ancillary to the sale (e.g., arranging transportation 
or customs clearance, invoicing), we treat the transactions as EP 
sales. Where the U.S. affiliate has more than an incidental 
involvement in making sales (e.g., solicits sales, negotiates 
contracts or prices, or provides customer support), we treat the 
transactions as CEP sales.''

63 FR at 12738.
    With respect to the first prong of the test, it is undisputed that 
the merchandise associated with the subject merchandise at issue was 
shipped directly from De Cecco's factory in Italy to the unaffiliated 
customer in the United States without passing through PMI's inventory.
    With respect to the second prong of the test, this manner of sale 
and shipment is the customary commercial channel between the parties 
involved. EP sales were made with the participation of PMI in the 
investigation and in the immediately preceding review. Thus, this is a 
customary channel of trade. We note, however, that it is not necessary 
for EP sales to be the predominant channel of trade in a given review 
for it to be the customary channel between the parties involved.
    With respect to the third prong of the test, the Department 
verified in the first administrative review that while PMI serves as a 
connection to De Cecco for supporting activities in the United States, 
prices, terms, and conditions in effect were established by De Cecco in 
Italy and were applied to all sales in the United States. See 
Verification of the Sales Response of F.lli De Cecco di Filippo Fara S. 
Martino S.p.A. (``De Cecco'') in the First Administrative Review of the 
Antidumping Duty Order of Certain Pasta from Italy, dated September 2, 
1998, at 8. The record in this review demonstrates no new fact pattern 
and supports a conclusion that PMI's participation in these sales 
relates to services among those the Department considers as being 
``ancillary'' to the sale. PMI does not solicit or negotiate these 
sales, does not set the price for these sales, and provides little 
customer support in connection with these sales.
    Therefore, for these final results, we are continuing to treat as 
EP transactions those sales which De Cecco reported as EP sales.
Comment 6: Indirect Selling Expenses Incurred in the United States
    Assuming arguendo that the Department does not reclassify De 
Cecco's EP sales as CEP transactions, the petitioners argue that the 
Department should not grant De Cecco a CEP offset and should remove 
indirect selling expenses incurred by De Cecco in Italy from the CEP 
starting price. If the Department continues to accept De Cecco's 
classification of U.S. sales, grants a CEP offset, and retains De 
Cecco's indirect selling expenses in Italy in the CEP, the petitioners 
argue that the Department should reallocate indirect selling expenses 
incurred by PMI between De Cecco's reported EP and CEP sales. The 
petitioners note that De Cecco allocated indirect selling expenses 
incurred in the United States by PMI over all U.S. sales using the same 
ratio of indirect selling expenses over total sales revenue, regardless 
of whether the sales were EP or CEP, because PMI's role in EP and CEP 
sales did not differ. The petitioners contend, however, that De Cecco's 
allocation methodology is flawed since the selling activities for EP 
sales must take place outside the United States whereas the selling 
activities for CEP sales generally occur within the United States. In 
De Cecco's case, EP sales were made directly to distributors, while CEP 
sales were distributed from warehouses in the United States maintained 
by PMI. These CEP sales incurred additional costs related to inventory 
maintenance and transportation arrangements, which

[[Page 7355]]

were likely captured as part of PMI's indirect selling expenses. Hence, 
the petitioners urge the Department to reallocate De Cecco's total 
reported indirect selling expenses incurred by PMI for its U.S. sales 
such that all of these expenses are applied to CEP sales only (see, 
e.g., Notice of Final Determination of Sales at Less than Fair Value: 
Stainless Steel Round Wire from Korea, 64 FR 17342 (April 9, 1999)) or, 
alternatively, ensure that these expenses are allocated based on the 
proportion of EP and CEP sales.
    De Cecco claims that the petitioners' arguments lack factual 
support and are based on a mischaracterization of the record in this 
review. According to De Cecco, PMI's role is fundamentally the same for 
EP and CEP sales. PMI's selling functions are limited since De Cecco 
sells almost exclusively to distributors and, but for the U.S. 
inventory used to supply certain customers, all U.S. sales would be 
classified as EP. The only cost differences between EP and CEP sales 
are those costs associated with transporting merchandise to and storing 
the merchandise in the U.S. warehouses. In addition, ocean freight, 
U.S. brokerage and handling, and other transport expenses were reported 
to account for differences in EP and CEP sales. PMI did not incur 
additional expenses as a result of communication with the warehouses 
since PMI sent orders for EP sales to Italy and orders for CEP sales to 
the warehouses and, therefore, did not expend any additional level of 
effort for CEP sales. Therefore, De Cecco urges the Department to 
reject the petitioners' allocation method in favor of the method 
submitted by De Cecco, which is consistent with the methodology used in 
the first administrative review.
    DOC Position: We agree with De Cecco that the company's methodology 
is appropriate. In Stainless Steel Round Wire from Korea, we allocated 
U.S. indirect selling expenses entirely to CEP sales because the record 
indicated that the respondent had not isolated the expenses associated 
with the significantly active role, in terms of selling activities, 
played by the affiliate with respect to CEP sales. In its response, De 
Cecco listed four general categories of U.S. indirect selling expenses 
incurred by PMI: salaries and benefits, services, depreciation, and 
other income or expenses. Based on our analysis of the record, we find 
that there is no evidence indicating that these indirect selling 
expenses were proportionately related more to CEP sales. These expenses 
relate to all of De Cecco's sales in the United States during the POR, 
not just CEP sales. See De Cecco's November 5, 1998 questionnaire 
response, at C-30, Exhibit C-16 (detailing the indirect selling 
expenses incurred in the United States by PMI). Therefore, we have 
continued to allocate these expenses among EP and CEP sales.
    With respect to the petitioners' request that the we deduct 
indirect selling expenses incurred in Italy for U.S. sales from the 
U.S. price to calculate the CEP, as explained above in Comment 1, 
section 772(d) of the Act requires that only those indirect selling 
expenses attributable to U.S. sales and associated with economic 
activities occurring in the United States be deducted from the CEP 
starting price. Accordingly, we have not altered our CEP calculation in 
this regard for these final results.
Comment 7: Home Market Rebates
    The petitioners argue that the Department should disregard two of 
De Cecco's home market rebates (``Other Rebates #1'' and ``Other 
Rebates #2'') as direct deductions from price since the record does not 
establish whether these two rebates were transaction-specific or were 
granted as a fixed percentage of sales price. According to the 
petitioners, the Department's practice, as affirmed by the United 
States Court of International Trade in SKF USA, Inc. v. United States, 
No. 97-01-00054, Slip Op. 99-56 at 8-15 (Ct. Int'l Trade June 29, 1999) 
(SKF), is to disregard rebates as direct deductions unless the actual 
amount for each individual sale was calculated. See also Antifriction 
Bearings (Other Than Tapered Roller Bearings) and Parts Thereof from 
France, Germany, Italy, Japan, Singapore, Sweden, and the United 
Kingdom: Final Results of Antidumping Duty Administrative Review and 
Partial Termination of Administrative Review, 61 FR 66472, 66498 (Dec. 
17, 1996) (AFBs 93/94 Final Results).
    De Cecco asserts that the record is complete as to the nature of 
these rebates and the allocation methodology. All of De Cecco's rebates 
are granted in the normal course of business for programs known by the 
buyer in advance of the sale. According to De Cecco, the reported 
rebates are allocated as they were granted, by customer, over the sales 
to which they apply. As such, De Cecco contends that all of the rebates 
granted by De Cecco, including ``Other Rebates #1'' and ``Other Rebates 
#2,'' meet the Department's established standards for direct 
adjustments to price.
    DOC Position: We agree with De Cecco that the record is complete 
with respect to these two rebate categories. In its November 5, 1998 
questionnaire response, at page B-27, De Cecco described ``Other 
Rebates #1'' and ``Other Rebates #2'' as general rebate categories, 
granted for various reasons and including all other rebates granted to 
customers that cannot be classified into one of the other specific 
rebate categories. Thus, transaction-specific reporting was not 
feasible given the large number of sales and the miscellaneous nature 
of these adjustments. In describing the method by which rebates were 
reported to the Department, De Cecco stated that it ``divided the total 
customer-specific rebate value for each type of rebate by the total net 
sales value for the customer'' in order to derive an actual rebate 
ratio (emphasis supplied). See De Cecco's November 5, 1998 
questionnaire response, at B-24. This rebate ratio, in turn, was 
applied to the unit price net of discounts to compute the specific 
rebate for each item listed on the invoice. Furthermore, De Cecco 
stated that it ``computed the rebates for each of the rebate fields in 
the same manner.'' Thus, sufficient information was provided to 
establish that De Cecco's ``Other Rebates #1'' and ``Other Rebates #2'' 
were allocated on a reasonable customer-specific manner and otherwise 
in accordance with section 351.401(g) of the Department's regulations. 
Accordingly, for these final results, we have continued to treat 
``Other Rebates #1'' and ``Other Rebates #2'' as direct deductions to 
home market prices.
    With regard to SKF, we note that that case related to Department 
practice which pre-dated the URAA and adoption of section 351.401(g) of 
the Department's regulations. Although AFBs 93/94 Final Results was 
issued post-URAA, the Department's current allocation methodology for 
price adjustments was upheld by the United States Court of 
International Trade. See Timken Co. v. United States, 16 F. Supp. 2d 
1102 (CIT 1998) (approving the Department's post-URAA policy for 
treating rebates as selling expenses where the information submitted is 
reliable and verifiable).
Comment 8: Negative U.S. Discounts
    The petitioners observe that De Cecco reported negative values for 
``on invoice'' discounts on certain U.S. sales, despite the fact that 
De Cecco's questionnaire responses stated that any discounts are 
reported as positive values. Accordingly, the petitioners suggest that 
the Department convert the negative discount amounts in De Cecco's U.S. 
sales database to positive amounts in order to make the reported

[[Page 7356]]

discount amounts consistent with De Cecco's narrative response.
    De Cecco notes that these negative discounts are insignificant 
because each has its first non-zero value in the fifth position to the 
right of the decimal point, i.e., thousandths of a cent. Consequently, 
De Cecco urges the Department to set these negative discounts to zero 
rather than converting the discounts to positive values.
    DOC Position: We agree with the petitioners. De Cecco clearly 
stated in its November 5, 1998, questionnaire submission, at page C-14, 
that ``[a]ny discount is reported as a positive value.'' Moreover, it 
is reasonable to presume that all discounts, where reported, are 
intended to be deductions from the U.S. gross unit price, irrespective 
of the significance of the charge. Therefore, for the final results we 
have converted the negative discount values in De Cecco's U.S. sales 
database to positive values.
Comment 9: CEP Profit
    The petitioners claim that the Department made two errors with 
respect to selling expenses used in the calculation of CEP profit. 
First, the Department erroneously subtracted imputed credit and 
inventory carrying costs, which were reported by De Cecco on a pound 
basis, from total direct and indirect selling expenses, which were both 
converted from a pound basis to a kilogram basis earlier in the margin 
calculation program. Second, in attempting to deduct the sum of imputed 
inventory carrying costs incurred in the United States (when 
calculating the total actual selling expenses for U.S. sales), the 
Department inadvertently double-counted the field, thereby understating 
the CEP profit rate.
    De Cecco agrees with the petitioners' suggested revisions to the 
calculation of CEP profit.
    DOC Position: We agree with both parties and have made the 
appropriate changes for these final results.

La Molisana

Comment 10: Inclusion of Purchased Pasta Costs in COP
    La Molisana claims that the cost of purchased pasta, where the 
unaffiliated supplier is identifiable, should not be included in the 
calculation of La Molisana's weighted-average COP for each control 
number (CONNUM). La Molisana alleges that in submitting COP and CV data 
to the Department, it erred by including in the weighted-average cost, 
by CONNUM, pasta that could be linked to specific unaffiliated 
suppliers. As a result of incorporating the price paid for purchased 
pasta in the weighted-average cost calculations, the actual COP, 
weight-averaged by CONNUM, is distorted with respect to the number of 
home market sales appearing to fall below cost and the DIFMER 
adjustment calculation.
    La Molisana urges the Department to revise the company's weighted-
average COP and CV data to exclude the cost of pasta purchased from 
unaffiliated suppliers, where such suppliers can be separately 
identified, for purposes of the sales-below-cost test, for the 
following reasons: (1) the Department did not consider sales of pasta 
products that were purchased wholly from other manufacturers, and were 
identified as such in the sales databases, for purposes of the 
calculation of dumping margins; (2) the antidumping questionnaire 
instructed respondents to exclude the costs of purchased pasta from the 
weighted-average cost of manufacturing, where the supplier of the pasta 
type sold can be identified; \3\ (3) Appendix III of the antidumping 
questionnaire instructed respondents to weight-average costs for 
CONNUMs based on production volumes and costs incurred in the 
production process, but pasta purchased from unaffiliated suppliers is 
not part of La Molisana's production process; (4) the Department's 
established practice in this proceeding is to exclude separately 
identifiable purchased pasta from weighted-average costs; (5) pursuant 
to section 773(b)(3)(A) of the Act, the COP is equal to ``the cost of 
materials of any kind employed in producing the foreign like product, 
during a period which would ordinarily permit the production of that 
foreign like product in the ordinary course of business,'' thus, given 
that pasta purchased from unaffiliated suppliers is not the foreign 
like product produced by La Molisana, it should not be included in the 
weighted-average costs; and (6) it is the Department's judicially-
mandated duty to correct an ``obvious and easily correctable'' error 
(see NTN Bearing Corp. v. United States, 73 F.3d 1204 (1995) (remarking 
that it is the Department's duty to calculate accurate antidumping 
margins); see also Koyo Seiko Co. v. United States, 14 CIT 680, 682 
(1990) (emphasizing that fair and accurate determinations are critical 
for the proper administration of antidumping laws). Given the record 
evidence and the arguments set forth, La Molisana contends that the 
Department should correct the error in the cost information submitted 
by La Molisana for the final results.
---------------------------------------------------------------------------

    \3\ La Molisana concedes that the antidumping questionnaire 
required respondents to include commingled pasta in the weighted-
average cost of manufacture. Commingled pasta is a pasta type that 
has been both produced by the respondent and purchased from an 
unaffiliated supplier, but which cannot be separately identified, in 
the weighted-average cost of manufacture. La Molisana claims, 
however, that the costs it is requesting that the Department remove 
are not of commingled pasta, but of pasta that can be specifically 
linked to other unaffiliated suppliers.
---------------------------------------------------------------------------

    The petitioners claim that La Molisana's arguments regarding its 
cost data are inconsistent with the respondent's statements in its 
questionnaire response. Specifically, La Molisana stated in its March 
22, 1999, response that ``[p]ursuant to the Department's instructions, 
La Molisana has recalculated the COP and CV for each CONNUM based on 
the actual cost of manufacturing incurred during the POR, i.e., July 1, 
1997 through June 30, 1998.'' As such, the petitioners contend that the 
Department should reject the information and arguments submitted by La 
Molisana.
    DOC Position: We agree with La Molisana in part. When pasta 
purchased from an unaffiliated supplier cannot be separately identified 
for sales purposes by the respondent (so-called ``commingled pasta''), 
the Department's practice is to include the cost of purchased pasta in 
the weighted-average cost of manufacture. If purchased pasta can be 
directly tied to specific sales by the respondent, the associated costs 
of that purchased pasta are excluded from the weighted-average cost of 
manufacture. The evidence on the record shows that La Molisana's 
reported COPs and CVs may include the cost of purchased pasta that was 
subsequently resold where the purchased pasta could be directly tied to 
specific sales.
    In response to the Department's September 1, 1998, antidumping duty 
questionnaire, \4\ La Molisana included in its weighted-average costs, 
the price paid for pasta types and shapes that were purchased in part 
from outside suppliers, but which were commingled with pasta La 
Molisana itself manufactured, and thus which could not be linked to 
specific sales. However, La Molisana also erroneously included the 
costs of purchasing pasta, where the subsequent sales by La Molisana 
can be

[[Page 7357]]

tied directly to the supplier from whom pasta was purchased. Although 
we instructed La Molisana to provide detailed worksheets illustrating 
how the weighted-average costs for each CONNUM were derived, La 
Molisana did not provide such worksheets for each unique CONNUM 
reported in the COP and CV databases. Therefore, we are unable to 
correct all of La Molisana's CONNUMs to exclude the costs of pasta 
types wholly purchased and subsequently resold by La Molisana. 
Consequently, where there is available information on the record to 
allow us to revise accurately La Molisana's COP and CV data to exclude 
costs of purchased pasta (where La Molisana did not produce that 
particular pasta type), we have done so for these final results.
---------------------------------------------------------------------------

    \4\ Appendix V of the antidumping duty questionnaire required 
all respondents who made sales of commingled pasta during the POR 
``to provide a single weighted-average cost of manufacture 
reflecting the actual costs of manufacture and the costs associated 
with purchasing commingled pasta types'' for each CONNUM in which 
the company had sales of commingled pasta. Respondents were also 
directed to exclude the costs of purchased pasta where the supplier 
of the pasta type sold could be identified in the weighted-average 
cost of manufacturing.
---------------------------------------------------------------------------

Comment 11: DIFMER Calculation
    According to La Molisana, the Department's calculation of the 
DIFMER adjustment incorrectly accounted for differences other than 
physical differences in merchandise, contrary to the Department's 
regulations. See 19 CFR 351.411 (requiring that the Department, in 
comparing U.S. sales with comparison market sales, make reasonable 
adjustments to NV for differences in physical characteristics between 
the merchandise sold in the United States and the merchandise sold in 
the foreign market that have an effect on prices). La Molisana contends 
that the only physical difference between the merchandise sold in the 
home market and the United States is that the merchandise sold in the 
United States is vitamin-enriched and has a minuscule difference in the 
cost of scrap. Due to La Molisana's improper inclusion of purchased 
pasta in the reported weighted-average COP and CV databases, however, 
the DIFMER adjustment calculated by the Department for La Molisana 
contains significant cost differences between virtually identical 
products sold in the home market and the United States. This problem 
will be resolved, La Molisana concludes, if the Department recalculates 
weighted-average costs in light of the error described above in Comment 
10. Thus, La Molisana urges the Department to recalculate La Molisana's 
DIFMER adjustment based on the fact that the only physical differences 
in merchandise between merchandise sold in the United States and in the 
home market is for vitamin enrichment and scrap.
    According to the petitioners, given La Molisana's own statements on 
the record that the same CONNUMs in the home market may have a slightly 
different cost of production than the corresponding CONNUM of pasta 
exported to the United States, the Department should reject La 
Molisana's arguments regarding the DIFMER adjustment. Specifically, La 
Molisana stated that differences in the VCOM between CONNUMs of pasta 
sold in the home market and of pasta exported to the United States 
exist, in part, because CONNUMs in the home market contain a greater 
variety and number of pasta shapes and pasta types, some of which are 
more expensive and more costly to produce or that are only purchased 
from unrelated suppliers.
    DOC Position: Pursuant to 19 CFR 351.411, in making a reasonable 
allowance for differences in the physical characteristics of 
merchandise sold in the home market that is compared to merchandise 
sold in the United States, the Department ``will consider only 
differences in the variable costs associated with the physical 
differences'' (emphasis supplied). As noted above in Comment 10, La 
Molisana was required to provide a single weighted-average cost of 
manufacture by CONNUM to reflect ``the actual costs of manufacture and 
the costs associated with purchasing commingled pasta types.'' Since 
material cost is a component of the VCOM and the TCOM, and these in 
turn are components of COP and CV, we adjusted La Molisana's reported 
material costs to reflect the costs associated with purchasing 
commingled pasta types. We note, however, that the costs of purchased 
pasta do not solely contain the variable cost elements of producing 
pasta, but also include fixed cost elements. In order to eliminate the 
possibility of distortions in La Molisana's DIFMER adjustment, it is 
appropriate to base the calculation solely on the basis of La 
Molisana's actual costs of producing pasta. Accordingly, based on 
available information on the record, we have altered our DIFMER 
calculation for these final results to remove the costs of purchased 
pasta from the variable material costs. See Analysis Memorandum for La 
Molisana Industrie Alimentari S.p.A. for the Final Results of the 
Second Administrative Review on Certain Pasta from Italy, February 7, 
2000.
    We further note that the reliance on La Molisana's actual costs of 
production for the DIFMER adjustment calculation is distinguished from 
De Cecco's DIFMER calculation, described above in Comment 3, inasmuch 
as De Cecco purchased semolina, which is a variable cost component of 
producing pasta.

Maltagliati

Comment 12: Treatment of Customer Categories in Level of Trade Analysis
    Maltagliati claims that flaws in the Department's level of trade 
(LOT) methodology caused the Department to erroneously combine home 
market customer categories 3 (distributors) and 4 (retailers) into a 
single home market LOT.
    First, the Department's quantitative analysis of selling functions 
should be based on the quantity (weight) of customer category sales 
associated with a selling function, rather than on the number of 
customer category transactions for a selling function. Maltagliati 
claims that nothing it does in the sale of pasta or in the servicing of 
customers to achieve those sales is based on the number of 
observations, Maltagliati provides its own LOT analysis based on 
quantities sold and claims that the results of this analysis supports 
classifying customer category 3 into a separate LOT (which Maltagliati 
claims is similar to the U.S. LOT in terms of both selling functions 
and average sales quantity).
    Maltagliati then claims that, by averaging the specific selling 
activities captured in the selling activity group \5\ for sales 
administration and marketing support into one overall figure, the 
Department has diluted the significance of these activities. This error 
is further compounded when the Department summarizes the results of its 
LOT analysis for each of its five selling activity groups, and gives 
the sales administration and marketing support selling activity group 
the same weight as that of the other four selling activity groups. 
Maltagliati further argues that two of the Department's five selling 
activity groups (freight and delivery, and warehousing) are not true 
selling functions which influence whether or not a sale will be made, 
but rather are freight-related activities which occur as a result of 
the sale. As such, these selling activity groups should be excluded 
from the Department's LOT analysis.
---------------------------------------------------------------------------

    \5\ See Memorandum for Gary Taverman from John Brinkmann, ``97/
98 Administrative Review of Pasta from Italy and Turkey: Level of 
Trade Findings,'' dated August 2, 1999 (LOT Memo) (setting forth 
sales process and marketing support, freight and delivery, 
warehousing, advertising, and quality assurance/warranty service as 
the selling activity groups considered in the LOT analysis)
---------------------------------------------------------------------------

    Finally, Maltagliati argues that the Department did not apply the 
same complete LOT analysis to Maltagliati that it applied to La 
Molisana, another respondent in this review. Maltagliati asserts that, 
even though Maltagliati and

[[Page 7358]]

La Molisana had similar levels of selling expense differences in the 
customer categories analyzed, the Department ultimately looked at the 
place of La Molisana's customer categories in the chain of distribution 
to determine their appropriate LOT. Maltagliati asserts that, if this 
methodology is applied to Maltagliati, the Department will find that 
Maltagliati's home market distributor customer category is at a 
different LOT than its retail home market customer category, and that 
the home market distributor customer category is at the same LOT as its 
U.S. LOT.
    The petitioners contend that the Department applied its standard 
LOT analysis and properly classified Maltagliati's home market retail 
and distributor customer category sales as the same LOT. They counter 
Maltagliati's claim that the Department should measure selling 
activities on the basis of quantity sold by noting that this approach 
is not supported by the statute or the Department's regulations and 
practice, and fails simple reasoning. They cite, inter alia, section 
351.412(c)(2) of the Department's regulations, which states that the 
Department ``will determine that sales are made at different levels of 
trade if they are made at different marketing stages,'' as an example 
of the emphasis on measuring the activities of ``sales'' rather than 
quantities, and of the Department's obligation to measure how 
frequently the selling activity is utilized in the different marketing 
stages. Since sales ``observations'' reported by Maltagliati are 
analogous to sales, it is proper for the Department to rely upon 
reported observations to determine the frequency with which certain 
claimed selling activities were incurred within each customer category. 
They further note that measuring by quantity sold does not affect the 
level of effort required to perform a selling function. For example, if 
freight service was offered to customers in customer categories 3 and 
4, regardless of quantity sold, the same selling functions must be 
performed (e.g. contacting the freight company, receiving a freight 
quote, hiring the freight company, and paying the freight company). The 
quantity sold does not alter or change the effort or amount of the 
selling function in any manner, and the only varying factor is whether 
a particular selling activity was performed for a particular sale.
    Regarding Maltagliati's contention that the discounts, rebates and 
commissions included in the sales administration and marketing support 
selling activity should be segregated into separate selling activity 
groups, the petitioners note that these components are direct 
deductions to the gross unit price. As ``like selling activities'' it 
is therefore appropriate to analyze all types of price adjustments in a 
single category. Finally, the petitioners reject Maltagliati's argument 
that freight and delivery and warehousing are not true selling 
activities. Contrary to Maltagliati's position, offering freight on a 
sale could help make the sale in the first place if the customer finds 
value in that selling activity.
    DOC Position: We agree with Maltagliati that customer categories 3 
(distributors) and 4 (retailers) should be classified as separate and 
distinct LOTs in the home market; however, we have made this 
determination based on a reconsideration of the quantitative and 
qualitative information described in the preliminary results LOT Memo. 
We continue to disagree with Maltagliati that the Department's LOT 
analysis should be based on quantity of merchandise sold, rather than 
the number of sales, and that the Department's classification and 
consideration of LOT selling groups and activities was distortive.
    In determining the sufficiency of Maltagliati's claim that 
distributors and retailers constitute separate home market LOTs, we 
reconsidered the services performed for sales to distributors and 
retailers in each of the selling activity groups. For the sales 
administration and marketing support selling activity group, we 
observed that Maltagliati provided retailers with more types of 
discounts (i.e., category discounts, promotional discounts, and 
quantity discounts) than it did to distributors and relied upon sales 
agents more frequently for sales to distributors than for sales to 
retailers. We further find that the types of year-end rebates in 
question are based on the quantity of pasta purchased over the year, 
and do not require the same level of sustained selling activities 
associated with the discounts, which often must be determined on a 
sale-specific basis. Therefore, for these final results we have 
concluded that for the sales administration and marketing support 
selling activity group, Maltagliati performs a higher level of selling 
activities for retailers than it does for distributors.
    In reconsidering the types of selling activities performed in the 
advertising and sales promotion selling activity group, we have 
determined that Maltagliati places a much stronger emphasis on 
advertising and promoting sales to retailers than to distributors. 
Examples of direct advertising in the home market include: leaflets 
announcing short-term promotions to consumers, hiring of people to 
stand in stores to direct consumers to the promoted product, 
advertising on trucks, advertising in newspapers, advertising on 
telephone book/yellow pages, promotional items (e.g., caps, pens, 
aprons, posters, football team t-shirts, and other related activities), 
brochures, catalogs, and attendance at food fairs. See Maltagliati's 
October 6, 1998 questionnaire response, at A-8; Analysis Memorandum for 
Pastificio Maltagliati S.p.A. in the Preliminary Results in the Second 
Administrative Review on Certain Pasta from Italy, August 2, 1999, at 
Attachment 2, page 5; see also infra Comment 13. The nature of these 
activities demonstrates that, in terms of the number and variety of 
advertising programs, most of Maltagliati's advertising activities are 
directed at consumers, the customers of retailers, rather than at the 
customers of distributors (e.g., retailers, restaurants). Therefore, 
for the final results, we have concluded that Maltagliati performs a 
higher level of selling activity for advertising and sales promotion 
for retailers than it does for distributors.
    Based on the higher degree of selling activities associated with 
sales process and marketing support, and advertising, that Maltagliati 
performs with respect to retailer sales, we now consider distributors 
and retailers to constitute separate levels of trade in the home 
market. Furthermore, we have determined that home market sales at the 
distributor level of trade were made at the same level of trade as U.S. 
sales, and for the final determination, where possible, we have 
compared Maltagliati's U.S. sales to the distributor LOT in the home 
market. See Final Results Analysis Memorandum for Pastificio 
Maltagliati S.p.A., December 7, 1999.
    Since we have subsequently classified Maltagliati's retail and 
distributor sales as separate LOTs, for the reasons noted above, the 
specific objections raised by Maltagliati concerning the Department's 
LOT analysis of Maltagliati are moot. However, it should be noted that 
the final LOT analysis for Maltagliati was based on the same general 
methodology described by the Department in the LOT Memo, which was 
utilized in the Preliminary Results. We disagree with Maltagliati's 
principal arguments that the Department should measure utilization of a 
selling activity by the quantity of merchandise sold. We further 
disagree that the Department's categorization of selling activities 
into five selling activity groups has diluted the significance of 
certain selling activities (i.e., those in the sales

[[Page 7359]]

administration and marketing support) while other activities, such as 
freight and warehousing, are not selling activities but rather freight-
related activities that occur as a result of the sale. The Department's 
bases for measuring a company's utilization of claimed selling 
activities and for categorizing selling activities into selling 
activity groups are fully explained in the LOT Memo.
Comment 13: Treatment of Advertising Expense
    The petitioners argue that Maltagliati's home market advertising 
expenses are general in nature and should be treated as indirect 
selling expenses. The petitioners explain that qualifying advertising 
expenses (i.e., direct advertising) are only those advertising expenses 
that are directed at the customer's customer. In particular, the 
petitioners claim that Maltagliati's most significant claimed 
advertising expense, incurred for an international food exhibition, 
CIBUS, was not specifically directed to Maltagliati's customers' 
customers.
    Maltagliati explained that the Department verified and found the 
claimed advertising expenses were aimed at either Maltagliati's 
distributors' customers (i.e., aimed at retailers), or at the 
Maltagliati's retailers' customers (i.e., aimed at end users). 
Therefore, these expenses were specific and direct.
    DOC Position: We agree with Maltagliati and continue to treat the 
reported home market advertising as a direct expense. At verification 
we noted that ``all advertising included as a direct expense appeared 
to be targeted at Maltagliati's customers' customer.'' See Verification 
of the Questionnaire Response of Pastificio Maltagliati S.p.A. 
(``Maltagliati'') in the Second Administrative Review of the 
Antidumping Duty Order of Certain Pasta from Italy, June 22, 1999, at 
25, 26. Moreover, we consider the CIBUS fair to be a direct advertising 
expense because, as we noted at the sales verification, this fair, 
which was open to the public, was attended by the customers of 
Maltagliati's customers, including retailers (distributors' customers) 
and end-users (retailers' customers).
Comment 14: Calculation of Imputed Credit
    The petitioners claim that the Department failed to deduct billing 
adjustments from the home market gross price before calculating the 
imputed credit expense.
    Maltagliati argues that billing errors are usually found and 
corrected after a customer pays for its purchase. As a result, 
Maltagliati suggests that taking a credit on this expense is 
appropriate.
    DOC Position: We agree with the petitioners. Credit expenses are 
the costs of financing sales accounts receivables. Imputed credit 
expenses, therefore, represent the amounts that the Department 
attributes to theoretical interest expenses incurred between the 
shipment date and payment date. In this respect, a billing adjustment 
is only made because a mistake was made in billing. Therefore, in order 
to accurately calculate imputed credit, it is appropriate to deduct 
billing adjustments before calculating imputed credit. We note that in 
the Preliminary Results we deducted billing adjustments from the U.S. 
gross price before calculating the U.S. imputed credit expense. 
Therefore, for these final results, we have deducted home market 
billing adjustments from the gross price before calculating the home 
market imputed credit expense.
Comment 15: Calculation of Entered Value
    The petitioners claim that the Department incorrectly calculated 
the entered value used to calculate the countervailing duty adjustment 
by failing to deduct U.S. customer discounts, U.S. duties, and U.S. 
commissions from the gross price.
    Maltagliati argues that entered value is typically based on an 
F.O.B. price and that only ocean freight and marine insurance should be 
deducted from the C.I.F. or C & F duty paid price to obtain the F.O.B. 
price.
    DOC Position: We agree in part with the petitioners and in part 
with Maltagliati. Where the actual entered value has not been provided 
in the U.S. sales response, it is the Department's practice to estimate 
entered value on an F.O.B. basis. For instance, in Polyvinyl Alcohol 
from Taiwan: Final Results of Antidumping Duty Administrative Review, 
63 FR 32810 (June 16, 1998), we estimated the entered value by 
deducting international movement expenses from the sales value. Since 
all of Maltagliati's commissions in this review are incurred and paid 
by the seller and are not part of the actual value of the invoice, we 
are not deducting the commissions from the gross price to calculate 
entered value. However, we note that in Maltagliati's case, some of the 
sales terms are C.I.F. or C & F duty paid. In addition, with regard to 
discounts, we agree with the petitioners that discounts recorded on the 
invoice as deductions to the gross unit invoice price should be 
deducted from the gross unit price for purposes of determining entered 
value in order to reflect the actual amount invoiced to the customer. 
Therefore, for the final results, in addition to deducting ocean 
freight and marine insurance, we are also deducting U.S. duty and on-
invoice discounts from the gross U.S. price to calculate entered value.
Comment 16: Conversion into Proper Unit of Measure
    The petitioners argue that the Department failed to convert U.S. 
advertising expenses to the proper unit of measure.
    Maltagliati notes that the Department manually recalculated the 
U.S. advertising expenses and inserted the correct expense into the SAS 
program.
    DOC Position: We agree with Maltagliati. See Analysis Memorandum 
for Pastificio Maltagliati S.p.A. in the Preliminary Results in the 
Second Administrative Review on Certain Pasta from Italy, August 2, 
1999, at Attachment 3.
Comment 17: Calculation of General and Administrative Expenses
    The petitioners argue that the Department failed to add packing to 
the total cost of manufacture before calculating G&A expenses for CV.
    Maltagliati explains that it is a moot point since no U.S. sales 
were matched to CV.
    DOC Position: We agree with the petitioners. Maltagliati calculated 
its G&A expenses based on a sales denominator that included packing. 
When this ratio is multiplied by a cost of manufacturing that is 
exclusive of packing, as was done in the preliminary calculations, the 
resulting G&A amount is understated. Consequently, for the final 
results, we have corrected our calculations by adding U.S. packing 
costs to the revised cost of manufacture before calculating CV.
Comment 18: Calculation of Interest Expense
    The petitioners argue that the Department failed to recalculate 
interest expense, for the purposes of COP and CV, based on the revised 
cost of manufacture resulting from changes in the cost of semolina that 
the Department identified at verification.
    DOC Position: We agree with the petitioners and have recalculated 
interest expense based on the revised cost of manufacture. Furthermore, 
for the reasons delineated in Comment 17, we have added home market and 
U.S. packing, respectively, to the total cost of manufacturing before 
recalculating interest expense for COP and CV.

[[Page 7360]]

Rummo

Comment 19: CEP Profit
    According to Rummo, in calculating the total net revenue component 
of the CEP profit, the Department incorrectly converted U.S. quantity 
from pounds to kilograms. Rummo contends that the effect of multiplying 
per-unit amounts expressed in U.S. dollars per pound by kilograms 
instead of pounds overstates the amount of U.S. revenue for each sale. 
This in turn inflates Rummo's CEP profit ratio because the total 
revenue amount used to calculate the profit is overstated.
    The petitioners claim that, based on the record, it is ambiguous as 
to whether U.S. quantity is reported in pounds or kilograms. Assuming 
arguendo that U.S. quantity was reported in pounds, the petitioners 
note that the Department did not convert U.S. quantity from pounds to 
kilograms because U.S. quantity was multiplied, not divided, by 2.20462 
when calculating total net revenue. Since the Department consistently 
calculated revenue, selling expenses and movement expenses by 
multiplying these items by 2.20462, the petitioners argue that the 
Department should not make any changes to the final margin program.
    DOC Position: We agree with Rummo that we miscalculated the CEP 
profit ratio. We disagree, however, with Rummo's assessment that we 
inadvertently converted U.S. quantity from pounds to kilograms. As the 
petitioners noted, we multiplied, not divided, U.S. quantity by 
2.20462. Therefore, we have corrected the calculation of U.S. revenue, 
selling expenses, and movement expenses. In addition, we discovered 
that an error existed in the calculation of U.S. cost of goods sold, in 
that we did not convert U.S. quantity from pounds to kilograms where 
the record is clear that U.S. quantity was reported in pounds. 
Therefore, in the final margin calculation program, we have converted 
U.S. quantity from pounds to kilograms in the calculation of U.S. cost 
of goods sold for purposes of determining CEP profit.
Comment 20: U.S. Warehousing Expenses
    Rummo argues that the methodology by which the Department 
calculated the per-unit U.S. warehousing expense is incorrect because 
it did not account for transshipments between warehouses. The 
Department had calculated per-unit U.S. warehousing expense by dividing 
the cost of operating each warehouse by the total quantity of pasta 
sold from each warehouse. Rummo contends that since a given warehouse 
may transfer pasta to another warehouse and incur an expense that is 
captured in the numerator, the denominator should include the sum of 
pasta sold out of a warehouse and the quantity of pasta transshipped to 
another warehouse. The Department's methodology overstated the per-unit 
warehouse expense for warehouses that transshipped a large quantity of 
pasta, yet only sold a small quantity of pasta. If the Department 
disagrees with the above methodology, Rummo suggests that the 
Department use a simple average for warehousing expense.
    The petitioners contend that since Rummo improperly reported 
warehousing expense as an indirect selling expense instead of a 
movement expense, the Department should not recalculate warehousing 
expense using transshipped quantities. Furthermore, the petitioners 
note that the transshipped quantities were not verified.
    DOC Position: The Department agrees with Rummo that the methodology 
used in the Preliminary Results overstated certain per-unit warehouse 
expenses. However, the Department disagrees with Rummo's suggestion to 
calculate a per-unit warehouse expense by dividing total expenses 
incurred by the sum of quantity sold and transshipments. The 
warehousing expense should capture expenses incurred only from sold 
pasta.
    Therefore, for the final results, the Department calculated a 
weighted-average warehousing expense by dividing the sum of expenses 
incurred from each warehouse by the total quantity of pasta sold from 
each warehouse.
Comment 21: Treatment of In-Store Demonstration Expenses
    In the Preliminary Results, the Department reclassified in-store 
demonstration expenses, reported by Rummo as indirect selling expenses, 
as direct selling expenses because such expenses were aimed at Rummo's 
customers' customer. Rummo argues that in-store demonstration expenses 
are properly classified as indirect selling expenses. Although Rummo 
pays a fee to a company to perform in-store demonstrations, Rummo has 
no control over whether any demonstrations are actually performed. 
Thus, Rummo claims that it is improper to treat these expenses as 
``advertising'' expenses when Rummo is uncertain as to whether the 
funds were even used for advertising.
    The petitioners assert that Rummo would not pay a fee to a company 
unless it received some service in return. Otherwise, Rummo would 
renegotiate its agreement in order to exclude these fees. Moreover, 
these fees should be classified as direct expenses since they are aimed 
at the customers of Rummo's customers.
    DOC Position: We agree with the petitioners. Rummo never claimed in 
its responses that it paid a fee to a company for in-store 
demonstrations without certain knowledge as to whether the in-store 
demonstrations actually occurred. Section 351.410(d) of the 
Department's regulations defines expenses that are assumed by the 
seller on behalf of the buyer as ``assumed expenses'' or 
``assumptions'' which are treated as direct selling expenses. For this 
reason, an assumption of the advertising expense to a customer's 
customer is often referred to as ``direct advertising'' and is treated 
as a direct expense. See Notice of Final Results and Antidumping Duty 
Administrative Review: Antifriction Bearings (Other Than Tapered Roller 
Bearings) and Parts Thereof From France, Germany, Italy, Japan, 
Singapore, and the United Kingdom, 62 FR 2102 (January 15, 1997) 
(Comment 5); see also Antidumping Duties; Countervailing Duties; 
Proposed Rule, 61 FR 7308, 7346-47 (1996). Therefore, we are continuing 
to treat in-store demonstration expenses as direct selling expenses.

Final Results of Review

    As a result of our review, we determine that the following margins 
exist for the period July 1, 1997 through June 30, 1998:

------------------------------------------------------------------------
           Manufacturer/Exporter                  Margin (percent)
------------------------------------------------------------------------
Corex.....................................  zero
De Cecco..................................  0.44 (de minimis)
La Molisana...............................  15.71
Maltagliati...............................  14.99
Pallante..................................  3.44
Puglisi...................................  0.19 (de minimis)
Rummo.....................................  2.41
------------------------------------------------------------------------

    The Department shall determine, and the United States Customs 
Service shall assess, antidumping duties on all appropriate entries. In 
accordance with 19 CFR 351.212(b)(1), we have calculated importer-
specific assessment rates by aggregating the dumping margins calculated 
for all U.S. sales to each importer and dividing this amount by the 
estimated entered value of the same merchandise. We will direct the 
United States Customs Service to assess antidumping duties on 
appropriate entries by applying the assessment rate to the entered 
value of the merchandise entered during the POR, except where the 
assessment rate is zero or de minimis (see 19 CFR 351.106(c)(2)).

[[Page 7361]]

Cash Deposit Requirements

    To calculate the cash-deposit rate for each producer and/or 
exporter included in this administrative review, we divided the total 
antidumping duties due for each company by the total net value for that 
company's sales during the review period.
    Furthermore, the following cash deposit rates will be effective for 
all shipments of certain pasta from Italy entered, or withdrawn from 
warehouse, for consumption upon publication of the final results of 
this administrative review, as provided by section 751(a)(2)(A) and (C) 
of the Act: (1) The cash deposit rates for the companies listed above 
will be the rates indicated above, except if the rate is less than 0.5 
percent and, therefore, de minimis, the cash deposit will be zero; (2) 
for previously reviewed or investigated companies not listed above, the 
cash deposit rate will continue to be the company-specific rate 
published for the most recent final results in which that manufacturer 
or exporter participated; (3) if the exporter is not a firm covered in 
this review, a prior review, or the original less-than-fair-value 
(LTFV) investigation, but the manufacturer is, the cash deposit rate 
will be the rate established for the most recent final results for the 
manufacturer of the merchandise; and (4) if neither the exporter nor 
the manufacturer is a firm covered in this or any previous review 
conducted by the Department, the cash deposit rate will be 11.26 
percent, the ``All Others'' rate established in the LTFV investigation. 
See Notice of Antidumping Duty Order and Amended Final Determination of 
Sales at Less Than Fair Value: Certain Pasta from Italy, 61 FR 38547 
(July 24, 1996). These deposit requirements 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 a reminder to parties subject to 
administrative protective order (APO) of their responsibility 
concerning the return or destruction of proprietary information 
disclosed under APO in accordance with 19 CFR 351.305. Timely 
notification of return/destruction of APO materials or conversion to 
judicial protective order is hereby requested. Failure to comply is a 
violation of the APO.
    This determination is issued and published in accordance with 
sections 751(a)(1) and 777(i)(1) of the Act.

    Dated: February 7, 2000.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 00-3391 Filed 2-11-00; 8:45 am]
BILLING CODE 3510-DS-P