[Federal Register Volume 66, Number 215 (Tuesday, November 6, 2001)]
[Notices]
[Pages 56062-56078]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-27854]


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DEPARTMENT OF COMMERCE

INTERNATIONAL TRADE ADMINISTRATION

[A-122-838]


Notice of Preliminary Determination of Sales at Less Than Fair 
Value and Postponement of Final Determination: Certain Softwood Lumber 
Products From Canada

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

EFFECTIVE DATE: November 6, 2001.

FOR FURTHER INFORMATION CONTACT: Charles Riggle or Constance Handley, 
Office 5, AD/CVD Enforcement, Import Administration, International 
Trade Administration, U.S. Department of Commerce, 14th Street and 
Constitution Avenue, NW., Washington, DC 20230; telephone: (202) 482-
0650 or (202) 482-0631, respectively.

The 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 Department of Commerce (Department) 
regulations refer to the regulations codified at 19 CFR part 351 (April 
2001).

Preliminary Determination

    We preliminarily determine that certain softwood lumber products 
from Canada are being sold, or are likely to be sold, in the United 
States at less than fair value (LTFV), as provided in section 733 of 
the Act. The estimated margins are shown in the Suspension of 
Liquidation section of this notice.

Case History

    This investigation was initiated on April 23, 2001. See Notice of 
Initiation of Antidumping Duty Investigation: Certain Softwood Lumber 
Products From Canada, 66 FR 21328, April 30, 2001 (Initiation Notice). 
Since the initiation of the investigation, the following events have 
occurred:
    On May 18, 2001, the United States International Trade Commission 
(the ITC) preliminarily determined that there is a reasonable 
indication that an industry in the United States is threatened with 
material injury by reason of imports from Canada of softwood lumber.
    From the outset of this investigation, the Department has 
recognized that there is a large number of softwood lumber producers in 
Canada, who sell a myriad of different products through hundreds of 
thousands of individual transactions. The Department has sought to work 
with interested parties to appropriately limit the data reporting 
requirements, so as to make the proceeding more manageable for all 
concerned.
    Accordingly, on April 25, 2001, in advance of issuing antidumping 
questionnaires, the Department issued a letter to interested parties, 
including the petitioners \1\ and the 15 largest known producers/
exporters of softwood lumber from Canada, soliciting comments on issues 
of respondent selection, fair value comparison methodology, and 
possible limitation of reporting of sales and cost data. We received 
comments from the interested parties on May 2, 2001, and rebuttal 
comments on May 8, 2001.
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    \1\ The petitioners are the coalition for Fair Lumber Imports 
Executive Committee; the United Brotherhood of Carpenters and 
Joiners; and the Paper, Allied-Industrial, Chemical and Energy 
Workers International Union.
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    Upon consideration of the comments received with respect to 
respondent selection, on May 25, 2001, the Department selected as 
mandatory respondents the six largest producers/exporters of subject 
merchandise: Abitibi-Consolidated Inc. (Abitibi); Canfor Corporation 
(Canfor); Slocan Forest Products Ltd. (Slocan); Tembec Inc. (Tembec); 
West Fraser Timber Co. Ltd. (West Fraser), and Weyerhaeuser Company 
(Weyerhaeuser). The Department concluded also that, due to the vast 
workload entailed by the investigation of these six companies, it would 
not be able to examine voluntary respondents. See Selection of 
Respondents, below.
    On May 25, 2001, the Department issued an antidumping questionnaire 
to the selected respondents.\2\ In view of the large number of 
transactions involved, the Department instructed respondents to limit 
the reporting of U.S. and home market sales to identical products sold 
in both markets, provided that such products accounted for at least 33 
percent of all merchandise sold to the United States during the period 
of investigation.
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    \2\ Section A of the questionnaire requests general information 
concerning a company's corporate structure and business practices, 
the merchandise under investigation that it sells, and the manner in 
which it sells that merchandise in all of its markets. Section B 
requests a complete listing of all home market sales, or, if the 
home market is not viable, of sales in the most appropriate third-
country market. Section C requests a complete listing of U.S. sales. 
Section D requests information on the cost of production of the 
foreign like product and the constructed value of the merchandise 
under investigation.
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    On June 7, 2001, the Department was contacted by Abitibi, who 
inquired whether the Department would consider further limiting the 
reporting requirements to certain major product groups. The Department 
agreed to consider such a proposal, provided that there was unanimous 
agreement among the interested parties. On June 19, 2001, the six 
mandatory respondents agreed to limit the reporting of sales and costs 
to specific products. On June 20, 2001, the petitioners submitted a 
letter proposing that the Department adopt the proposal set forth by 
the mandatory respondents. See Product Comparisons, below. The 
Department agreed to this proposal.
    Throughout June and July 2001, several meetings were held with 
counsel for the six mandatory respondents and the petitioners, to 
discuss a number of company-specific reporting issues, which resulted 
in the Department agreeing to exclude certain additional sales from the 
reporting requirements. These meetings are described in memoranda 
placed in the official file. See, e.g., Memorandum from the Team to the 
File (June 15, 2001) and Memorandum from the Team to the File (July 10, 
2001).
    The respondents submitted their initial responses to the 
antidumping questionnaire in late June 2001. After analyzing these 
responses, we issued supplemental questionnaires to the respondents to 
clarify or correct the initial questionnaire responses. We received 
timely responses to these questionnaires.
    On August 9, 2001, we requested that interested parties submit 
comments on the appropriateness and feasibility of matching sales of 
U.S. merchandise to home market sales of similar

[[Page 56063]]

merchandise, in the event that all home market sales of the identical 
comparison merchandise were found to be sold at below the cost of 
production and disregarded. Each of the mandatory respondents stated 
that the Department must attempt to compare U.S. sales to home market 
sales of similar products before resorting to constructed value. See 
Product Comparisons, below. The petitioners argued that the Department 
should only make identical comparisons.

Postponement of Final Determination

    Section 735(a)(2) of the Act provides that a final determination 
may be postponed until not later than 135 days after the date of the 
publication of the preliminary determination if, in the event of an 
affirmative preliminary determination, a request for such postponement 
is made by exporters who account for a significant proportion of 
exports of the subject merchandise. Section 351.210(e)(2) of the 
Department's regulations requires that exporters requesting 
postponement of the final determination must also request an extension 
of the provisional measures referred to in section 733(d) of the Act 
from a four-month period until not more than six months. We received 
requests to postpone the final determination from Canfor, Slocan, 
Tembec, West Fraser, and Weyerhaeuser. In their requests, the 
respondents consented to the extension of provisional measures to no 
longer than six months. Since this preliminary determination is 
affirmative, the request for postponement is made by exporters who 
account for a significant proportion of exports of the subject 
merchandise, and there is no compelling reason to deny the respondents' 
request, we have extended the deadline for issuance of the final 
determination until the 135th day after the date of publication of this 
preliminary determination in the Federal Register.

Period of Investigation

    The period of investigation (POI) is April 1, 2000, through March 
31, 2001. This period corresponds to the four most recent fiscal 
quarters prior to the filing of the petition (i.e., April 2, 2001).

Scope of Investigation

    The products covered by this investigation are softwood lumber, 
flooring and siding (softwood lumber products). Softwood lumber 
products include all products classified under headings 4407.1000, 
4409.1010, 4409.1090, and 4409.1020, respectively, of the Harmonized 
Tariff Schedule of the United States (HTSUS), and any softwood lumber, 
flooring and siding described below. These softwood lumber products 
include:
    (1) coniferous wood, sawn or chipped lengthwise, sliced or peeled, 
whether or not planed, sanded or finger-jointed, of a thickness 
exceeding six millimeters;
    (2) coniferous wood siding (including strips and friezes for 
parquet flooring, not assembled) continuously shaped (tongued, grooved, 
rabbeted, chamfered, V-jointed, beaded, molded, rounded or the like) 
along any of its edges or faces, whether or not planed, sanded or 
finger-jointed;
    (3) other coniferous wood (including strips and friezes for parquet 
flooring, not assembled) continuously shaped (tongued, grooved, 
rabbeted, chamfered, V-jointed, beaded, molded, rounded or the like) 
along any of its edges or faces (other than wood mouldings and wood 
dowel rods) whether or not planed, sanded or finger-jointed; and
    (4) coniferous wood flooring (including strips and friezes for 
parquet flooring, not assembled) continuously shaped (tongued, grooved, 
rabbeted, chamfered, V-jointed, beaded, molded, rounded or the like) 
along any of its edges or faces, whether or not planed, sanded or 
finger-jointed.
    Although the HTSUS subheadings are provided for convenience and 
U.S. Customs purposes, the written description of the merchandise under 
investigation is dispositive.

Scope Issues

    In the Initiation Notice, we invited all interested parties to 
raise issues and comment regarding the product coverage under the scope 
of this investigation. We received numerous comments, including scope 
clarification requests, scope exclusion requests, and requests for 
determinations of separate classes or kinds. The requests covered 
approximately 50 products, ranging from species, like Western Red Cedar 
and Douglas Fir, to fencing products, bed frame components, pallet 
stock, and joinery and carpentry products. We published a preliminary 
list of scope exclusions in the Notice of Preliminary Affirmative 
Countervailing Duty Determination, Preliminary Affirmative Critical 
Circumstances Determination, and Alignment of Final Determination With 
Final Antidumping Duty Determination: Certain Softwood Lumber Products 
from Canada, 66 FR 43186-43188 (August 17, 2001) (CVD Preliminary).
    In our review of the comments received since the first list of 
product exclusions was issued in the CVD Preliminary, we found that 
some of the excluded product definitions required further 
clarification. Based on our analysis of the comments received, we have 
amended the list of excluded products that was originally presented in 
the CVD Preliminary. The amended list of scope exclusions is divided 
into two groups:
    A. Softwood lumber products excluded from the scope:

1. Trusses and truss kits, properly classified under HTSUS 4418.90
2. I-Joist beams
3. Assembled box spring frames
4. Pallets and pallet kits, properly classified under HTSUS 4415.20
5. Garage doors
6. Edge-glued wood, properly classified under HTSUS 4421.90.98.40
7. Properly classified complete door frames.
8. Properly classified complete window frames
9. Properly classified furniture

    B. Softwood lumber products excluded from the scope only if they 
meet certain requirements:
    1. Stringers (pallet components used for runners): if they have at 
least two notches on the side, positioned at equal distance from the 
center, to properly accommodate forklift blades, properly classified 
under HTSUS 4421.90.98.40.
    2. Box-spring frame kits: if they contain the following wooden 
pieces--two side rails, two end (or top) rails and varying numbers of 
slats. The side rails and the end rails should be radius-cut at both 
ends. The kits should be individually packaged, they should contain the 
exact number of wooden components needed to make a particular box 
spring frame, with no further processing required. None of the 
components exceeds 1" in actual thickness or 83" in length.
    3. Radius-cut box-spring-frame components, not exceeding 1" in 
actual thickness or 83" in length, ready for assembly without further 
processing. The radius cuts must be present on both ends of the boards 
and must be substantial cuts so as to completely round one corner.
    4. Fence pickets requiring no further processing and properly 
classified under HTSUS 4421.90.70, 1" or less in actual thickness, up 
to 8" wide, 6' or less in length, and have finials or decorative 
cuttings that clearly identify them as fence pickets. In the case of 
dog-eared fence pickets, the corners of the boards should be cut off so 
as to remove pieces of wood in the shape of isosceles right angle 
triangles with sides measuring 3/4 inch or more.
    We have preliminarily determined that the products listed in groups 
(A) and (B) above are outside the scope of

[[Page 56064]]

this investigation. (These findings will also apply to the companion 
CVD investigation.) See Memorandum to Bernard T. Carreau from Maria 
MacKay, Gayle Longest, David Layton on Scope Clarification in the 
Antidumping and Countervailing Duty Investigations on Softwood Lumber 
from Canada (October 30, 2001), which is on public file in the CRU, 
room B-099 of the main Commerce building. The Department will issue its 
preliminary findings on requests for separate class or kind treatment 
for certain softwood lumber products prior to the briefing period, to 
allow parties the opportunity to comment on these findings prior to the 
final determination.

Selection of Respondents

    Section 777A(c)(1) of the Act directs the Department to calculate 
individual dumping margins for each known exporter and producer of the 
subject merchandise. However, section 777A(c)(2) of the Act gives the 
Department discretion, when faced with a large number of exporters/
producers, to limit its examination to a reasonable number of such 
companies if it is not practicable to examine all companies. Where it 
is not practicable to examine all known producers/exporters of subject 
merchandise, this provision permits the Department to investigate 
either: (1) A sample of exporters, producers, or types of products that 
is statistically valid based on the information available at the time 
of selection, or (2) exporters and producers accounting for the largest 
volume of the subject merchandise that can reasonably be examined.
    After consideration of the complexities expected to arise in this 
proceeding (including the complex corporate structures of many lumber 
manufacturers, the potential for collapse of respondents with 
affiliated producers/exporters, the large number of transactions 
involved, and issues of product matching), as well as the resources 
available to the Department, we determined that it was not practicable 
in this investigation to examine all known producers/exporters of 
subject merchandise. We found that given our resources, we would be 
able to investigate the six producers/exporters with the greatest 
export volume, as identified above. For a more detailed discussion of 
respondent selection in this investigation, see Memorandum from the 
Team to Bernard Carreau (May 25, 2001). In that memorandum, we 
indicated that the Department would not be able to investigate 
voluntary respondents, unless one of the mandatory respondents failed 
to answer the antidumping questionnaire or additional resources became 
available.
    The Department received responses to the antidumping questionnaire 
from three producers/exporters of the subject merchandise, Weldwood of 
Canada Limited, Beaubois Coaticook Inc., and Saguenay Inc., each 
requesting that it be investigated as a voluntary respondent. On July 
18, 2001, the Department issued a memorandum stating, and notified the 
parties, that, as indicated in the May 25, 2001, memorandum, because 
none of the mandatory respondents failed to respond, the Department 
would not be able to examine any voluntary respondents.

Collapsing Determinations

    The Department's regulations provide for the treatment of 
affiliated producers as a single entity where: (1) Those producers have 
production facilities for similar or identical products that would not 
require substantial retooling of either facility in order to 
restructure manufacturing priorities, and (2) the Department concludes 
that there is a significant potential for the manipulation of price or 
production.\3\ In identifying a significant potential for the 
manipulation of price or production, the Department may consider such 
factors as: (i) The level of common ownership; (ii) the extent to which 
managerial employees or board members of one firm sit on the board of 
directors of an affiliated firm; and (iii) whether operations are 
intertwined, such as through the sharing of sales information, 
involvement in production and pricing decisions, the sharing of 
facilities or employees, or significant transactions between the 
affiliated producers.\4\ These factors are illustrative, and not 
exhaustive.
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    \3\ See 19 CFR 351.401(f)(1).
    \4\ See 19 CFR 351.401(f)(2).
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    In this investigation, we have preliminarily determined to collapse 
Abitibi with affiliate Scieries Saguenay Ltee. (Saguenay). See 
Memorandum from the Team to Bernard Carreau (July 18, 2001).\5\ We have 
also determined to collapse Canfor with affiliates Howe Sound Pulp and 
Paper Limited Partnership (Howe Sound), Lakeland Mills Ltd. (Lakeland), 
and The Pas Lumber Company Ltd. (The Pas). See Memorandum from the Team 
to Bernard Carreau (August 23, 2001).\6\
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    \5\ While the collapse of Abitibi and Saguenay was appropriate 
given the relationship of the two companies, the Department found 
that Saguenay made only a small volume of sales during the POI 
relative to the volume of sales made by Abitibi. We therefore 
instructed Abitibi not to report those sales. See Memorandum from 
the Team to Bernard Carreau (August 24, 2001). Nonetheless, 
consistent with the Department's decision to collapse Abitibi with 
Saguenay, the dumping margin calculated using Abitibi's data will 
extend to Saguenay.
    \6\ While the collapse of Canfor with Lakeland, The Pas, and 
Howe Sound was appropriate given the relationship of these 
companies, the Department found that Howe Sound made only a small 
volume of sales during the POI. We therefore instructed Canfor not 
to report sales by Howe Sound. See Memorandum from the Team to 
Bernard Carreau (September 6, 2001). Nonetheless, consistent with 
the Department's decision to collapse Canfor with Howe Sound, the 
dumping margin calculated using Canfor's data (including the data of 
Lakeland and The Pas) will extend to Howe Sound.
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    In addition to the companies collapsed by the Department, certain 
respondents determined that they should be collapsed with their 
affiliates. Specifically, in its questionnaire response, Abitibi 
collapsed the sales of its affiliates Produits Forestiers Petit Paris, 
Inc., Produits Forestiers La Tuque, Inc., and Societe en Commandite 
Scierie Opticiwan. Tembec collapsed the sales of its affiliates Marks 
Lumber Ltd. (Marks) and Excel Forest Products (Excel)\7\ in its 
questionnaire response. West Fraser collapsed the sales of its 
affiliates West Fraser Forest Products Inc. (WFFP) and Seehta Forest 
Products Ltd. in its questionnaire response. Weyerhaeuser collapsed the 
sales of its affiliate Weyerhaeuser Saskatchewan Ltd. in its 
questionnaire response. In addition, the Department excused 
Weyerhaeuser from reporting sales of its subsidiary, Monterra Lumber 
Mills Ltd., due to the fact that these sales were a small portion of 
its total sales.\8\
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    \7\ While the collapse of Tembec with Marks and Excel was 
appropriate given the relationship of the companies, the Department 
found that Marks made only a small volume of sales during the POI 
relative to the volume of sales made by Tembec. We therefore 
instructed Tembec not to report those sales. See Memorandum from the 
Team to Gary Taverman (July 11, 2001). Additionally, Tembec stated 
in its section A questionnaire response that it would not report 
sales or costs for Excel unless otherwise instructed by the 
Department. In a letter submitted to the Department on June 15, 
2001, the petitioners stated they would not object to the exclusion 
of sales made by Excel from the reporting requirements. The 
Department did not request that Tembec submit sales and cost 
information for Excel. Therefore, the dumping margin calculated 
using Tembec's data will extend to both Marks and Excel.
    \8\ See Memorandum from the Team to Gary Taverman (July 16, 
2001).
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Product Comparisons

    Pursuant to section 771(16) of the Act, all products produced by 
the respondents that meet the definition of the scope of the 
investigation and were sold in the comparison market during the POI 
fall within the definition of the foreign like product.
    All parties to this proceeding have agreed, from the outset of the 
investigation, that the sheer number of different products sold by the 
respondents would significantly

[[Page 56065]]

complicate the investigation. With a view to easing this administrative 
burden, the Department's questionnaire initially instructed respondents 
to limit the reporting of U.S. and home market sales to identical 
products sold in both markets, provided that such products accounted 
for at least 33 percent of all merchandise sold to the United States 
during the period of investigation. In defining identical products, the 
Department instructed respondents to consider the following physical 
characteristics, which were identified after consideration of comments 
from interested parties: (1) Product category (e.g., dimensional 
lumber, timbers, boards); (2) species (e.g., Western SPF, Western Red 
Cedar), (3) grade, (4) moisture content, (5) thickness, (6) width, (7) 
length, (8) surface finish, (9) end trimming, (10) further processing 
(e.g., edged, drilled, notched).
    As noted above, on June 7, 2001, Abitibi contacted the Department, 
inquiring as to whether the Department would consider further limiting 
the reporting requirements to certain major product groups. The 
Department agreed to consider such a proposal, provided that (1) all of 
the respondents and the petitioners indicated, on the record, their 
agreement, (2) the submission provided a clear definition of each 
product for which the parties requested exclusion, and (3) to the 
extent that a product was excluded from the reporting requirements, it 
would be excluded for all respondents. See Memorandum from the Team to 
the File (June 7, 2001).
    On June 19, 2001, the six mandatory respondents jointly submitted a 
letter proposing further narrowing of product reporting requirements. 
Specifically, the proposal was to limit reporting to dimension lumber 
of certain species (Western SPF, Eastern SPF, Douglas Fir/Western 
Larch, Western Hemlock/Amabilis Fir, and Western Red Cedar); the sole 
exception to this rule was that decking and timber would be reported 
for Western Red Cedar products. On June 20, 2001, the petitioners 
submitted a letter in which they encouraged the Department to adopt the 
joint proposal set forth by the mandatory respondents. The Department 
agreed to this proposal by letters to the parties on June 26, 2001.
    The petitioners argued that the Department should proceed 
immediately from identical matches to constructed value when identical 
comparisons are below cost. See the petitioners' August 21, 2001 
submission. All six of the mandatory respondents stated that the 
Department must attempt to compare U.S. sales to home market sales of 
similar products before resorting to constructed value. Upon 
consideration of those comments, the Department requested that each 
respondent submit a complete home market sales listing, subject to the 
reporting limitations outlined in the Department's June 26, 2001 
letter.\9\ The Department received timely responses to these requests. 
See letters from the Department of Commerce to Abitibi, Canfor, Slocan, 
Tembec, West Fraser, and Weyerhaeuser (September 14, 2001).
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    \9\ Certain respondents had already submitted databases 
containing data for similar merchandise, while others had not. Among 
those respondents that had submitted data for similar merchandise, 
some had reported all similar sales, while others had reported only 
selected similar sales. In order to ensure consistency across all 
respondents, the Department instructed all companies to submit home 
market sales on a uniform basis.
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    In limiting the reporting requirements in this manner, it was our 
initial intention to compare U.S. sales to home market sales of 
identical products only. However, during the course of this 
investigation, it became apparent that a very large number of home 
market sales might have been made at below the cost of production (see 
Cost of Production, below), raising the issue of whether we should 
compare the U.S. products to similar merchandise sold in Canada or to a 
normal value based on constructed value. Although we have established 
limited reporting requirements for this investigation, this does not 
preclude our attempting to compare U.S. sales to similar home market 
sales where possible, before relying on CV as the basis for normal 
value. This is consistent with the practice implemented under Policy 
Bulletin 98.1, Basis for Normal Value When Foreign Market Sales Are 
Below Cost (February 23, 1998), where the Department stated that it 
``will use constructed value as the basis for normal value only when 
there are no above-cost sales that are otherwise suitable for 
comparison.'' (Pursuant to the decision by the Court of Appeals of the 
Federal Circuit in Cemex v. United States, 133 F.3d 897,904 (Fed. 
Cir.1998), the Department does not automatically resort to constructed 
value, in lieu of comparison market sales, as the basis for normal 
value, where sales of merchandise identical to that sold in the United 
States are disregarded as below cost.) Accordingly, the Department 
considered whether it was feasible and appropriate in this 
investigation to make comparisons of similar products, where identical 
comparisons are below cost. On August 9, 2001, we requested that 
interested parties comment on this issue.
    In accordance with the Department's established practice, we have 
determined that, where possible, it is appropriate to make comparisons 
of similar products. To this end, the Department has developed a 
product hierarchy which takes into account the expressed views of the 
interested parties.
    To the extent that the grades reported by the respondents did not 
follow the grading system established by the National Lumber Grading 
Association (NLGA), the Department requested that all respondents 
assign the NLGA equivalent grade for all sales, along with supporting 
documentation describing the physical characteristics of any non-NLGA 
grade. Certain of Slocan's proprietary grades have specifications above 
existing NLGA grade categories. For these grades, we assigned a new 
code representing a non-NLGA, premium grade product. For certain other 
grades, the grade codes and descriptions did not match each other. We 
have recoded these grades. See October 30, 2001 memorandum to Gary 
Taverman: Treatment of Slocan Forest Products Ltd.s Proprietary Lumber 
Grades.
    Further, we note that spruce-pine-fir is designated as a species 
combination by the NLGA. Otherwise, Eastern and Western Spruce-Pine-Fir 
are identical from the viewpoints of the markets and with respect to 
end-use. The ``eastern'' and ``western'' designations are simply a 
regional distinction which is irrelevant for purposes of product 
comparison in this investigation. Therefore, we have combined Eastern 
Spruce-Pine-Fir and Western Spruce-Pine-Fir into a single species. See 
October 30, 2001, memorandum to Gary Taverman: Comparability of Eastern 
and Western Spruce-Pine-Fir, which is on file in the CRU.
    Section 773(a)(6)(C)(ii) of the Act provides for an adjustment to 
normal value for differences in physical characteristics of the 
products being compared (i.e., a difference in merchandise (difmer) 
adjustment). Where we do not have home market sales within the ordinary 
course of trade on which to base normal value for comparison with sales 
of the identical products sold to the United States, we have attempted 
to base normal value on sales of the most similar product for which we 
have adequate information to perform a difmer adjustment.
    As noted above, where we determine that the merchandise sold to the 
United States does not have the same physical characteristics as the 
merchandise sold

[[Page 56066]]

in the foreign market, and where those differences have an effect on 
prices, the statute provides for a reasonable allowance for such 
differences in the Department's calculation of normal value. As 
explained in Policy Bulletin 92.2, Differences in Merchandise; 20% 
Rule, (July 29, 1992), the Department has ``rarely been able to 
determine the direct price effect of a difference in merchandise.'' As 
a result, difmer ``adjustments are based almost exclusively on the cost 
of the physical difference.'' Nevertheless, in addressing comments to 
its proposed regulations in 1997, the Department specifically retained 
language preserving, as an option, the use of market value in measuring 
a difmer.\10\
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    \10\ See Antidumping Duties; Countervailing Duties; Final Rule, 
62 FR 27296, 27370 (May 19, 1997) and section 351.411(b) of the 
Department's regulations.
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    In applying our normal methodology for calculating a difmer 
adjustment, we first attempted to adjust normal value by the net 
difference in the variable manufacturing costs associated with the 
differences in the physical characteristics of the two products. For 
purposes of the preliminary determination, the Department is relying on 
the cost databases submitted by the respondents, which allocate costs 
by quantity. See Cost of Production Analysis, Value-Based vs. Quantity-
Based Allocation section, below. While the companies reported their 
variable manufacturing costs for each unique product, there were a 
number of actual physical differences between products for which the 
respondents were unable to identify a cost difference. For instance, 
Abitibi stated that ``cost differences were provided so as to permit 
the calculation of cost-based difmers, for example, between Eastern SPF 
and Western SPF, between green and dried products, and between rough 
and dressed products. There are certain other product characteristics 
for which it will not be possible in this case to calculate a 
difference in production costs.'' \11\ Likewise, none of the other 
respondents was able to report differences in production costs for 
certain differences in physical characteristics, including, e.g., 
thickness, width, and length. As a result, for most situations where we 
attempted to compare U.S. sales to home market sales of similar 
products, we were unable to make a cost-based difmer adjustment.
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    \11\ See Abitibi's August 16, 2001 letter to the Secretary (at 
5-6).
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    Therefore, for this preliminary determination, we have concluded 
that it is not appropriate to match products that do not have the 
following identical physical characteristics: grade, thickness, width 
and length. These are significant physical characteristics that cannot 
be accounted for by means of a cost-based difference-in-merchandise 
adjustment. The respondents in this investigation have reported that 
their methods of tracking costs and the nature of producing lumber do 
not allow them to distinguish costs by grade or size. Specifically, the 
respondents have reported that they cannot report costs that 
distinguish between factors other than moisture, surface finish, end 
trim and further manufacturing. Our analysis confirms that most lumber 
produced within a given species has the same production cost. See Cost 
of Production Analysis, Value-Based vs. Quantity-Based Allocation 
section, below.
    The respondents have cited to UHFC Company v. United States, 916 
F.2d 689 (Fed. Cir. 1990), where the Court of Appeals for the Federal 
Circuit (CAFC), in that specific case, instructed the Department on 
remand to match across different strengths/grades, despite the fact 
that differences in costs could not be calculated. In that case, the 
product involved was animal glue, where different strengths/grades were 
produced at the same time, using the same production process. The 
respondents claim that in accordance with the Court's decision in that 
case, ``the Department must calculate a value-based difference-in-
merchandise in this case in those instances where similar products are 
compared and there is no variable cost data available to permit the 
calculation of a cost-based difmer.'' See August 16, 2001, letter from 
Abitibi (at 8). Among the suggested bases for a value-based difmer 
adjustment were data published in Random Lengths, respondents' own 
reported sales data covering the POI, or historical pricing data.
    We disagree that the UHFC decision requires the calculation of a 
value-based difmer adjustment in this case. First, this investigation 
is distinguishable from the circumstances of the UHFC case, where there 
was only a single difference, i.e. glue strength, between the products. 
In the instant investigation, there are several significant differences 
in physical characteristics which affect price. As a result, we have 
determined that we have no comparable basis on which to adjust for 
physical differences between similar products based upon market value, 
as has been suggested by the respondents. By Abitibi's own admission, 
Random Lengths data are not comprehensive enough to identify all of the 
differences among the entire range of products. See Abitibi's 
submission of August 16, 2001, at page 8, footnote 4.
    Second, even if the Department had the pricing data needed to make 
a value-based difmer adjustment, it would not be appropriate to base 
the adjustment on sales outside the ordinary course of trade. As there 
were no home market sales in the ordinary course of trade during the 
POI of many of the products involved here, no value-based difmer 
adjustment could be calculated for many of the comparisons based on POI 
sales. With respect to sales outside the POI, we have no basis on which 
to determine that those sales were in the ordinary course of trade, 
particularly regarding products for which all sales during the POI were 
outside the ordinary course of trade.
    Furthermore, using the prices of U.S. sales as the basis for a 
value-based difmer adjustment is also not appropriate, as the fairness 
of these prices is the focus of this investigation. The fact that these 
sales are the basis of an allegation of dumping renders them 
inappropriate for any consideration in the calculation of normal value. 
While value-based difmer adjustments involving U.S. sales may be 
attributable to differences in physical characteristics between two 
products, they may also be attributable to dumping. For these reasons, 
we find no basis for comparing sales of similar products using a value-
based difmer adjustment.
    As a result, we have matched sales of subject merchandise to 
comparison market sales of similar products only where we were able to 
quantify a cost-based difmer adjustment for differences in end trim, 
surface finish and further processing. While the respondents did report 
costs for the moisture content characteristic, we were unable to 
consider those costs for purposes of the difmer adjustment because to 
do so would have resulted in bypassing other physical characteristics 
(i.e., width, length and thickness) for which we could not quantify a 
difmer adjustment.
    This methodology is consistent with other antidumping proceedings 
that involved foreign like product with significant differences in 
physical characteristics that cannot be accounted for by means of a 
cost-based difmer adjustment. See, e.g., Notice of Preliminary 
Determination of Sales at Less Than Fair Value and Postponement of 
Final Determination; Fresh Tomatoes from Mexico, 61 FR 56608, 56610 
(November 1, 1996), and Notice of Preliminary Determination of Sales at 
Less Than Fair Value and Postponement of Final Determination; Fresh 
Atlantic Salmon from Chile, 63 FR 2664, 2666 (January 16, 1998), 
accord, Notice of

[[Page 56067]]

Final Determination of Sales at Less Than Fair Value: Fresh Atlantic 
Salmon From Chile, 63 FR 31411 (June 9, 1998) (Atlantic Salmon). See, 
also, Notice of Preliminary Determination of Sales at Less Than Fair 
Value: Greenhouse Tomatoes From Canada, 66 FR 51010, 51012 (October 5, 
2001), where the Department stated: ``Since the respondents have 
reported that they cannot report costs that distinguish between factors 
other than type, we have matched sales of subject merchandise to home-
market sales of identical type, color, size, and grade, but not to 
home-market sales of similar merchandise.''

Fair Value Comparisons

    To determine whether sales of softwood lumber from Canada were made 
in the United States at less than fair value, we compared the export 
price (EP) or constructed export price (CEP) to the normal value (NV), 
as described in the Export Price and Constructed Export Price and 
Normal Value sections of this notice. In accordance with section 
777A(d)(1)(A)(i) of the Act, we calculated weighted-average EPs and 
CEPs and compared these prices to weighted-average normal values or 
CVs, as appropriate.

Export Price and Constructed Export Price

    In accordance with section 772 of the Act, we calculated either an 
EP or a CEP, depending on the nature of each sale. Section 772(a) of 
the Act defines EP as the price at which the subject merchandise is 
first sold before the date of importation by the exporter or producer 
outside the United States to an unaffiliated purchaser in the United 
States, or to an unaffiliated purchaser for exportation to the United 
States.
    Section 772(b) of the Act defines CEP as the price at which the 
subject merchandise is first sold in the United States before or after 
the date of importation, by or for the account of the producer or 
exporter of the merchandise, or by a seller affiliated with the 
producer or exporter, to an unaffiliated purchaser, as adjusted under 
sections 772(c) and (d) of the Act.
    For all respondents, we calculated EP and CEP, as appropriate, 
based on prices charged to the first unaffiliated customer in the 
United States. We found that all of the respondents made a number of EP 
sales during the POI. These sales are properly classified as EP sales 
because they were made outside the United States by the exporter or 
producer to unaffiliated customers in the United States prior to the 
date of importation.
    We also found that each respondent made CEP sales during the POI. 
Some of these sales involved softwood lumber sold through vendor-
managed inventory (VMI). Because such sales were made by the respondent 
after the date of importation, the sales are properly classified as CEP 
sales. In addition, both West Fraser and Weyerhaeuser made sales to the 
United States through U.S. subsidiaries.
    We generally relied on the date of invoice as the date of sale. 
Consistent with the Department's practice, where the invoice was issued 
after the date of shipment, we relied on the date of shipment as the 
date of sale.
    The POI overlaps with the last year of the Softwood Lumber 
Agreement (SLA). Under the SLA, Canadian exporters paid fees for 
exports over certain quantities. We allocated the SLA fees of each 
respondent across all transactions in its U.S. sales file and treated 
them as an export tax in making adjustments to U.S. prices.
    We made company-specific adjustments as follows:

(A) Abitibi

    Abitibi made both EP and CEP transactions. We calculated an EP for 
sales where the merchandise was sold directly by Abitibi to the first 
unaffiliated purchaser in the United States prior to importation, and 
CEP was not otherwise warranted based on the facts of record. We 
calculated a CEP for sales made by Abitibi to the U.S. customer through 
VMI or reload centers after importation into the United States. EP and 
CEP sales were based on the packed, delivered, ex-mill, FOB reload 
center, and CIF U.S. port (ocean freight paid) prices, as applicable.
    We made deductions from the starting price for movement expenses in 
accordance with section 772(c)(2)(A) of the Act. These include internal 
freight incurred in transporting merchandise to reload and VMI centers, 
ocean freight and associated expenses for shipments by ocean vessel, as 
well as freight to the U.S. customer, warehousing, U.S. and Canadian 
brokerage, inland insurance, and, when applicable, marine insurance. We 
also deducted any discounts, rebates and export taxes.
    In accordance with section 772(d)(1) of the Act, for CEP sales, we 
deducted from the starting price those selling expenses that were 
incurred in selling the subject merchandise in the United States, 
including direct selling expenses (credit and advertising expenses) and 
imputed inventory carrying costs. Abitibi did not report any other 
indirect selling expenses incurred in the United States. Finally, in 
accordance with section 772(d)(3) of the Act, we deducted an amount of 
profit allocated to the expenses deducted under sections 772(d)(1) and 
(2) of the Act.

(B) Canfor

    We based EP on delivered and FOB prices to unaffiliated customers 
in the United States. We adjusted the starting price by the amount of 
billing adjustments, early payment discounts, and rebates. We reduced 
the starting price, where appropriate, for movement expenses including 
foreign inland freight, U.S. customs duty, U.S. freight, warehousing, 
and miscellaneous movement charges. We offset the amount of freight 
expenses by the amount of reported rebates from the freight carriers. 
We also deducted export taxes from the starting price.
    In addition to these adjustments, for CEP sales, in accordance with 
section 772(d)(1) of the Act, we adjusted the starting price by the 
amount of direct selling expenses and revenues (i.e., credit expenses 
and interest revenue). We further reduced the starting price by the 
amount of indirect selling expenses incurred in the United States. 
Finally, in accordance with section 772(d)(3) of the Act, we deducted 
an amount of profit allocated to the expenses deducted under sections 
772(d)(1) and (2) of the Act.

(C) Slocan

    Slocan made both EP and CEP transactions. We calculated an EP for 
sales where the merchandise was sold directly by Slocan to the first 
unaffiliated purchaser in the United States prior to importation, and 
CEP was not otherwise warranted based on the facts of record. We 
calculated a CEP for sales made by Slocan to the U.S. customer through 
VMI or reload centers after importation into the United States. EP and 
CEP sales were based on the packed, delivered, ex-mill, and FOB reload 
center prices, as applicable.
    We made deductions from the starting price for movement expenses in 
accordance with section 772(c)(2)(A) of the Act. These include domestic 
freight incurred in transporting merchandise to reload centers and to 
VMI customers, as well as freight to U.S. customer, warehousing, U.S. 
and Canadian brokerage. We also deducted from the starting price any 
discounts, rebates and export taxes.
    In accordance with section 772(d)(1) of the Act, for CEP sales, we 
deducted from the starting price those selling expenses that were 
incurred in selling the subject merchandise in the United States, 
including direct selling expenses (i.e., credit and inventory carrying 
costs)

[[Page 56068]]

and imputed inventory carrying costs. Slocan did not report any other 
indirect selling expenses incurred in the United States. Finally, in 
accordance with section 772(d)(3) of the Act, we deducted an amount of 
profit allocated to the expenses deducted under sections 772(d)(1) and 
(2) of the Act.

(D) Tembec

    Tembec made both EP and CEP transactions during the POI. We 
calculated an EP for sales where the merchandise was sold directly by 
Tembec to the first unaffiliated purchaser in the United States prior 
to importation. We calculated a CEP for sales made by Tembec to the 
U.S. customer through U.S. reload facilities and through VMI 
facilities. EP and CEP sales were based on the packed, delivered 
prices.
    Tembec did not report making CEP sales during the POI. However, 
because the date of sale is the date the products are shipped from the 
reload centers and the invoice date is either the date of shipment or 
the following business day, the Department is treating sales made 
through U.S. reload centers as CEP sales. For these same reasons, the 
Department has determined that all sales made to Tembec's VMI customer 
are properly classified as CEP sales.
    We made deductions from the starting price for movement expenses in 
accordance with section 772(c)(2)(A) of the Act. These include inland 
freight incurred in transporting merchandise to Canadian reload centers 
and warehousing expenses, as well as freight to the U.S. customer or 
reload facility, warehousing expenses, and U.S. brokerage. We also 
deducted from the starting price any discounts, rebates and export 
taxes.
    In accordance with section 772(d)(1) of the Act, for CEP sales, we 
deducted from the starting price those selling expenses that were 
incurred in selling the subject merchandise in the United States, 
including indirect selling expenses and direct selling expenses (credit 
expenses). Finally, in accordance with section 772(d)(3) of the Act, we 
deducted an amount of profit allocated to the expenses deducted under 
sections 772(d)(1) and (2) of the Act.

(E) West Fraser

    West Fraser made both EP and CEP transactions. We calculated an EP 
for sales where the merchandise was sold directly by West Fraser to the 
first unaffiliated purchaser in the United States prior to importation, 
and CEP was not otherwise warranted based on the facts of record. We 
calculated a CEP for sales made by West Fraser to the U.S. customer 
through VMI or reload centers after importation into the United States. 
EP and CEP sales were based on the packed, delivered, ex-mill, and FOB 
reload center prices, as applicable.
    We made deductions from the starting price for movement expenses in 
accordance with section 772(c)(2)(A) of the Act. These include internal 
freight incurred in transporting merchandise to reload centers, to VMI 
customers, and freight to the U.S. customer, warehousing, U.S. and 
Canadian brokerage and inland insurance. We also deducted any 
discounts, rebates and export taxes from the starting price.
    In accordance with section 772(d)(1) of the Act, for CEP sales, we 
deducted from the starting price those selling expenses that were 
incurred in selling the subject merchandise in the United States, 
including direct selling expenses, (e.g., credit and advertising 
expenses) and imputed inventory carrying costs. Finally, in accordance 
with section 772(d)(3) of the Act, we deducted an amount of profit 
allocated to the expenses deducted under sections 772(d)(1) and (2) of 
the Act.

(F) Weyerhaeuser

    Weyerhaeuser made both EP and CEP transactions. We calculated an EP 
for sales where the merchandise was sold directly by Weyerhaeuser to 
the first unaffiliated purchaser in the United States prior to 
importation, and CEP was not otherwise warranted based on the facts of 
record. We calculated a CEP for sales made by Weyerhaeuser to the U.S. 
customer through reload centers, VMI and its affiliated reseller 
Weyerhaeuser Building Materials (WBM-US) after importation into the 
United States. EP and CEP sales were based on the packed, delivered or 
FOB prices.
    From its customer service centers in the United States and Canada, 
Weyerhaeuser made sales of merchandise which had been commingled with 
that of other producers. Weyerhaeuser provided a weighting factor to 
determine the quantity of Weyerhaeuser-produced Canadian merchandise 
for these sales. We are using the weighting factors to estimate the 
volume of Weyerhaeuser-produced merchandise sold from customer service 
centers. Where a manufacturer other than Weyerhaeuser was identified, 
we removed those sales from the database.
    We made deductions from the starting price for movement expenses in 
accordance with section 772(c)(2)(A) of the Act. These include freight 
to U.S. and Canadian warehouses or reload centers, warehousing expense 
in Canada and the United States, brokerage and handling, and freight to 
the final customer. For the purposes of this preliminary determination, 
we also deducted remanufacturing costs incurred at the warehouse with 
movement expenses, as Weyerhaeuser was unable to separate these costs 
from warehousing costs for all of its warehouses. We also deducted from 
the starting price any discounts, rebates and export taxes.
    In accordance with section 772(d)(1) of the Act, for CEP sales, we 
deducted from the starting price those selling expenses that were 
incurred in selling the subject merchandise in the United States, 
including indirect selling expenses and direct selling expenses (e.g., 
credit expenses). Finally, in accordance with section 772(d)(3) of the 
Act, we deducted an amount of profit allocated to the expenses deducted 
under sections 772(d)(1) and (2) of the Act.

Normal Value

A. Selection of Comparison Markets

    Section 773(a)(1) of the Act directs that NV be based on the price 
at which the foreign like product is sold in the home market, provided 
that the merchandise is sold in sufficient quantities (or value, if 
quantity is inappropriate) and that there is no particular market 
situation that prevents a proper comparison with the EP or CEP. The 
statute contemplates that quantities (or value) will normally be 
considered insufficient if they are less than 5 percent of the 
aggregate quantity (or value) of sales of the subject merchandise to 
the United States. We found that all six mandatory respondents had 
viable home markets for lumber.
    To derive NV, we made the adjustments detailed in the Calculation 
of Normal Value Based on Home Market Prices and Calculation of Normal 
Value Based on Constructed Value, sections below.

B. Cost of Production Analysis

    Based on allegations contained in the petition, and in accordance 
with section 773(b)(2)(A)(i) of the Act, we found reasonable grounds to 
believe or suspect that softwood lumber sales were made in Canada at 
prices below the cost of production (COP). See Initiation Notice, 66 FR 
at 21331. As a result, the Department has conducted investigations to 
determine whether the respondents made home market sales at prices 
below their respective COPs during the POI within the meaning of 
section 773(b) of the Act. We conducted the COP analysis described 
below.

[[Page 56069]]

1. Calculation of COP
    In accordance with section 773(b)(3) of the Act, we calculated a 
weighted-average COP based on the sum of the cost of materials and 
fabrication for the foreign like product, plus amounts for general and 
administrative (G&A) expenses, selling expenses, packing expenses and 
interest expenses.
2. Value-Based vs. Quantity-Based Allocation
    For purposes of our cost analysis, for each respondent, we have 
used the submitted cost files which were based on costs allocated by 
volume, measured in MBF (``thousand board feet''), and not the 
alternative costs files based on various value allocation methods 
submitted by four of the six respondents.
    We find the reliance on the volume-based method reasonable because 
1) it is the method followed in the industry and, more importantly, in 
the books and records of the six respondents; 2) it reasonably reflects 
the actual cost incurred to produce each individual product; and 3) it 
is consistent with the Department's practice, which was upheld in IPSCO 
Inc., v. United States, 965 F. 2d, 1056, 1059-1060 (Fed. Cir. 1992). 
(IPSCO).
    We issued the antidumping duty questionnaire in this case on May 
25, 2001. In the questionnaire, we directed the respondents to report 
their per-unit costs based on their normal books and records. Section 
773(f)(1)(A) states that, (i)n general--costs shall normally be 
calculated based on the records of the exporter or producer of the 
merchandise, if such records are kept in accordance with the generally 
accepted accounting principles of the exporting country and reasonably 
reflect the costs associated with the production and sale of the 
merchandise.'' In their filings to the Department, the respondents 
reported either that they do not have a cost accounting system, and 
that they calculate one average cost within a given saw mill, or they 
calculate costs by process, using an average cost per MBF. Abitibi 
reported that it ``uses an average cost system that assigns the same 
cost to every item processed.'' See Abitibi's section D questionnaire 
response, page D-22 (July 23, 2001). In addition, Abitibi noted ``We 
record the cost of all products on an average foot board measure basis 
* * * all products are assigned the same average cost based on the 
nominal dimensions of the finished product.'' See Abitibi's section D 
questionnaire response, page D-23 (July 23, 2001). Canfor stated that, 
``like other lumber producers, Canfor in the normal course of business 
uses an average cost system that assigns the identical cost to each 
item processed at a cost center.'' See Canfor's submission requesting 
limited reporting requirements (June 8, 2001). Likewise, West Fraser 
reported that it ``does not value production costs differently for cost 
accounting and financial accounting purposes. In its monthly financial 
reports, West Fraser averages the costs reported in its financial 
accounts over the production of each of its mills. The result is an 
average cost per mfbm.'' See West Fraser's section D questionnaire 
response, page D-22 (July 23, 2001). Weyerhaeuser reported that (i)n 
the ordinary course of business, Weyerhaeuser mills do not maintain 
production or financial data that would permit a reliable allocation of 
processing costs to specific products.'' See Weyerhaeuser's submission 
requesting limited reporting requirements (June 8, 2001). However, we 
note that Weyerhaeuser further explained that (t)he mills can 
distinguish between certain operations (e.g., kiln-dried or green, 
planed or not planed), but for the most part, mills merely track total 
sawmill costs and quantities of wood products (throughput) in MBF.'' 
See Weyerhaeuser's submission requesting limited reporting requirements 
(June 8, 2001). Tembec reported that it ``does not calculate product 
specific costs in its normal books and records, nor does it track all 
of the physical characteristics identified by the Department.'' See 
Tembec's submission requesting limited reporting requirements (June 8, 
2001). Slocan stated that ``a process costing system is employed at 
each division, under which product costs are obtained by accumulating 
costs by process cost center and then determining an average cost per 
unit of production (for lumber, the average cost per mfbm, thousand 
board measure of lumber).'' See Slocan's section D questionnaire 
response, page D-30 (July 23, 2001). Based on the representations of 
each of the six respondents, none uses a value-based cost allocation 
method in its normal books and records. Instead, the industry practice 
appears to be to calculate costs based on broad simple average cost per 
MBF for all products or a more detailed process specific cost per MBF. 
As such, the per MBF cost files are consistent with the records of the 
exporters or producers of the merchandise.
    As to the reasonableness of a volume based allocation, while 
different sawmills may specialize in specific products, within a 
sawmill we find that there are virtually no differences in cost per MBF 
due to grade, length, width, and thickness of lumber produced from a 
given species. As noted above, the same material inputs, processing and 
overhead costs are incurred. Lumber products of different sizes are 
typically cut from the same log, at times literally from opposite sides 
of the same saw blade. Nothing in the production process imparts the 
characteristic of grade, e.g., grain, color, or markings in the wood. 
As the same processes, material inputs, labor and overhead are used by 
the respondents in producing the various grades and dimensions of 
lumber produced within a given species, and as the lumber of differing 
grades and dimensions are in composition substantially the same 
product, it is reasonable to assign the same cost per MBF for each 
grade and dimension.\12\
---------------------------------------------------------------------------

    \12\ We note that most of the respondents do track, and have 
broken out costs for species, moisture content (i.e., dried or non-
dried), surface finishing (i.e., planed or non-planed), precision 
end-trimming, and further processing (i.e., drilled, notched, etc.). 
Similarly, in Atlantic Salmon, the Department determined that there 
were no cost differences between grades of salmon or between weight 
bands. The Department stated that ``Our examination of the 
voluminous record evidence concerning this issue, including 
verification findings, confirms that the costs as reported 
reasonably reflect the actual costs of producing each matching group 
(i.e., each combination of form, grade, and weight band), and that 
the costs of certain of these matching groups are the same.''
---------------------------------------------------------------------------

    In analyzing the respondents' value-based methodologies, we 
reviewed the lumber production process described by each respondent and 
considered the appropriate allocation factors for the various input 
costs. In short, the lumber production process is as follows: (1) A 
stand of trees is cut and sorted by species; (2) logs are moved to a 
sawmill and debarked; (3) logs are input into the sawmill, where lumber 
of differing grades and dimensions are cut from the same log; (4) rough 
cut lumber is either sold directly or sold after specific further 
processing operations (e.g., lumber can be planed or dried or both); 
and (5) lumber is graded at the end of the production process. All 
processing costs can be directly identified with the end products. For 
example, the cost of planing operations can reasonably be identified 
and allocated to planed products based on the volume of planed lumber 
produced. Therefore, it would not be appropriate to allocate these 
processing costs by value. The only cost that could arguably be 
allocated by value is the material cost, in this case, the log 
costs.\13\ However, for the reasons

[[Page 56070]]

described above, we conclude that even the cost of the log is more 
appropriately allocated on a volume basis.
---------------------------------------------------------------------------

    \13\ We note that some respondents inappropriately allocated all 
of their costs, including sawmill, planing and drying costs, based 
on the relative values of all end products produced, even though 
such costs should be allocated only to products that underwent such 
processing and in a manner which accurately reflects the costs of 
those operations. Likewise, some respondents inappropriately 
allocated all log costs, without regard to species, based on the 
relative values of end products, even though the species-specific 
wood costs could be separately identified.
---------------------------------------------------------------------------

    Lastly, we note that allocating the same cost per MBF for each 
grade and dimension of lumber produced is consistent with past Court 
decisions and Department practice. For example, in IPSCO, the Federal 
Circuit Court overturned the CIT's decision where the CIT instructed 
Commerce not to allocate costs equally between prime and limited 
service pipe, but instead to allocate costs based on the relative sales 
values of the merchandise. The Federal Circuit Court agreed with the 
Department's position that since the respondent expended the same 
materials, capital, labor, and overhead for both grades of pipe, both 
should be assigned the same cost. Specifically, the Federal Circuit 
Court stated that, ``(i)n light of the language of (the Statute), ITA's 
original methodology for calculating constructed value was a consistent 
and reasonable interpretation of section (773(c) of the Act)''.
3. Individual Company Adjustments
    We relied on the COP data submitted by each respondent in its cost 
questionnaire response, except in specific instances where the 
submitted costs were not appropriately quantified or valued, or 
otherwise required adjustment, as discussed below:

(A) Abitibi

    1. We adjusted Abitibi's reported G&A expenses to include the total 
amount of goodwill amortized by Abitibi in fiscal year 2000.
    2. We adjusted Abitibi's reported G&A to include the redemption of 
stock options, which the Department considers to be a form of employee 
compensation.
    3. We revised Abitibi's net financial expenses to reflect company-
wide net financial expenses rather than the net financial expenses of 
the lumber division that were reported.
    See Memorandum from Lavonne Jackson to Neal Halper for Abitibi's 
Cost of Production and Constructed Value Calculation Adjustments for 
the Preliminary Determination, (October 30, 2001).

(B) Canfor

    1. We adjusted Canfor and Lakeland's byproduct revenue offset to 
reflect a market price for transactions with affiliates.
    2. We revised Canfor's G&A expenses based on the unconsolidated 
financial statements for the year ended December 29, 2000, including an 
amount for administrative services performed on the company's behalf by 
its parent company. Canfor's reported G&A expenses were based on the 
consolidated financial statements of the parent company.
    3. We revised Lakeland's G&A expense rate calculation by using the 
G&A expenses presented in the October 31, 2000 audited financial 
statements. The reported G&A expense rate was calculated based on 
Lakeland's internal financial statements and not on its audited 
financial statements. We also disallowed the interest income and other 
income used as an offset to the total G&A expenses.
    4. We revised The Pas' G&A expense rate calculation by using the 
G&A expenses presented in the October 31, 2000 audited financial 
statements. The reported G&A expense rate was calculated based on The 
Pas' internal financial statements and not on its audited financial 
statements. We included amortization expenses in the calculation. 
Additionally, we disallowed the interest income and the share of 
earnings of a partly owned company used as an offset to the total G&A 
expenses.
    5. We revised The Pas' net financial expense calculation by using 
the net financial expense presented in the October 31, 2000 audited 
financial statements. The reported net financial expense rate was 
calculated based on The Pas' internal financial statements and not on 
its audited financial statements. We included exchange losses on debt 
in the financial expenses.
    6. We calculated a weighted-average byproduct revenue adjustment 
and the revised G&A and financial expense rates based on the production 
volumes of Canfor, Lakeland and The Pas since we consider the three 
companies combined to be one cost respondent.
    See Memorandum from Taija Slaughter to Neal Halper for Canfor's, 
Lakeland's and The Pas' Cost of Production and Constructed Value 
Calculation Adjustments for the Preliminary Determination (October 30, 
2001).

(C) Slocan

    We did not include Slocan's proposed startup period adjustment for 
improvements to the Mackenzie planer mill. Section 773(f)(1)(C)(ii) of 
the Act states that the Department will make an adjustment for startup 
costs where: (1) A producer is using a new facility or producing a new 
product that requires substantial additional investment, and (2) 
production levels are limited by technical factors associated with the 
initial phase of commercial production. Based on the information 
submitted, it does not appear that Slocan's Mackenzie mill qualifies as 
a new facility, nor does the lumber produced at the Mackenzie mill 
qualify as a new product under the definitions listed in the Statement 
of Administrative Action accompanying the Uruguay Round Agreements Act, 
H.R. Doc. 103-316, Vol. 1 (1994) (SAA) at 836. The Mackenzie mill has 
not ``undergone a substantially complete retooling of an existing 
plant'' which requires the replacement of nearly all production 
machinery or the equivalent rebuilding of existing machinery. See SAA 
at 836. Furthermore, the SAA at 836 states: ``Mere improvements to 
existing products or ongoing improvements to existing facilities will 
not qualify for a start-up adjustment.''
    See Memorandum from Michael Harrison to Neal Halper for Slocan's 
Cost of Production and Constructed Value Calculation Adjustments for 
the Preliminary Determination, (October 30, 2001).

(D) Tembec

    1. We adjusted Tembec's byproduct revenue offset to reflect a 
market price for transactions with affiliates. In addition, we have 
adjusted the BC byproduct revenue offset for the apparent computational 
error.
    2. We also adjusted the reported amounts for movement expenses for 
certain sales categorized as ``delivered to customer,'' certain sales 
made through U.S. reload centers and certain sales without a reported 
amount for freight to the reload center, where applicable.
    See Memorandum from Peter Scholl to Neal Halper for Tembec's Cost 
of Production and Constructed Value Calculation Adjustments for the 
Preliminary Determination, (October 30, 2001). See also, Calculation 
Memorandum from Christopher Riker to the File for Tembec's Preliminary 
Determination in the Antidumping Duty Investigation (October 30, 2001).

(E) West Fraser

    1. We adjusted West Fraser's byproduct revenue offset to reflect a 
market price for transactions with affiliates.

[[Page 56071]]

    2. We recalculated West Fraser's G&A expense rate to be based on 
the company-wide figures instead of the reported divisional figures. We 
also included the write-down of capital assets and excluded indirect 
selling expenses.
    See Memorandum from Gina Lee to Neal Halper for West Fraser's Cost 
of Production and Constructed Value Calculation Adjustments for the 
Preliminary Determination, (October 30, 2001).

(F) Weyerhaeuser

    1. For B.C. Coastal Group, we have revised the wood, rough-cut 
lumber and byproduct revenue cost database fields to reflect a thousand 
board feet-based allocation of costs.
    2. We adjusted Weyerhaeuser's byproduct revenue offset to reflect a 
market price for transactions with affiliates.
    3. We recalculated Weyerhaeuser's G&A expense rate to be based on 
the company-wide figures instead of the reported divisional figures.
    See Memorandum from Michael Martin to Neal Halper for 
Weyerhaeuser's Cost of Production and Constructed Value Calculation 
Adjustments for the Preliminary Determination, (October 30, 2001).
4. Test of Home Market Sales Prices
    We compared the adjusted weighted-average COP for each respondent 
to its home market sales of the foreign like product, as required under 
section 773(b) of the Act, to determine whether these sales had been 
made at prices below the COP within an extended period of time (i.e., a 
period of one year) in substantial quantities and whether such prices 
were sufficient to permit the recovery of all costs within a reasonable 
period of time. On a model-specific basis, we compared the revised COP 
to the home market prices, less any applicable movement charges, export 
taxes, discounts and rebates.
5. Results of the COP Test
    Pursuant to section 773(b)(2)(C) of the Act, where less than 20 
percent of a respondent's sales of a given product were at prices less 
than the COP, we did not disregard any below-cost sales of that product 
because we determined that the below-cost sales were not made in 
``substantial quantities.'' Where 20 percent or more of a respondent's 
sales of a given product during the POI were at prices less than the 
COP, we determined such sales to have been made in ``substantial 
quantities'' within an extended period of time in accordance with 
section 773(b)(2)(B) of the Act. Because we compared prices to the POI 
average COP, we also determined that such sales were not made at prices 
which would permit recovery of all costs within a reasonable period of 
time, in accordance with section 773(b)(2)(D) of the Act. Therefore, we 
disregarded the below-cost sales.
    For all respondents, we found that more than 20 percent of the home 
market sales of certain softwood lumber products within an extended 
period of time were made at prices less than the COP. Further, the 
prices did not provide for the recovery of costs within a reasonable 
period of time. We therefore disregarded the below-cost sales and used 
the remaining sales as the basis for determining normal value, in 
accordance with section 773(b)(1) of the Act.
    For those U.S. sales of softwood lumber for which there were no 
useable home market sales in the ordinary course of trade, we compared 
EPs or CEPs to the constructed value in accordance with section 
773(a)(4) of the Act. See Calculation of Normal Value Based on 
Constructed Value section, below.

C. Calculation of Normal Value Based on Home Market Prices

    The respondents reported home market sales data for purposes of the 
calculation of NV. We determined price-based NVs for responding 
companies as follows. For all the respondents, we made adjustments for 
any differences in packing in accordance with sections 773(a)(6)(A) and 
773(a)(6)(B)(i) of the Act, and we deducted movement expenses pursuant 
to section 773(a)(6)(B)(ii) of the Act.

(1) Abitibi

    We based home market prices on the packed prices to unaffiliated 
purchasers in Canada. We adjusted the starting price for foreign inland 
freight, warehousing expenses, insurance, discounts, rebates, and 
billing adjustments. For comparisons made to EP sales, we made 
circumstance-of-sale (COS) adjustments by deducting direct selling 
expenses incurred for home market sales (credit and advertising 
expenses) and adding U.S. direct selling expenses (e.g., credit and 
advertising expenses). For comparisons made to CEP sales, we deducted 
home market direct selling expenses but did not add U.S. direct selling 
expenses. No other adjustments to NV were claimed or allowed.

(2) Canfor

    We based home market prices on the packed prices to unaffiliated 
purchasers in Canada. We adjusted the starting price by the amount of 
billing adjustments, early payment discounts, and rebates, and movement 
expenses including inland freight, warehousing, and miscellaneous 
movement charges. We offset the amount of freight expenses by the 
amount of reported rebates from the freight carriers. For comparisons 
made to EP sales, we made COS adjustments for direct expenses and 
revenues, including credit expenses and interest revenue and warranty 
expenses. For comparisons made to CEP sales, we deducted home market 
direct selling expenses but did not add U.S. direct selling expenses. 
No other adjustments to NV were claimed or allowed.

(3) Slocan

    We based home market prices on the packed prices to unaffiliated 
purchasers in Canada. We adjusted the starting price for billing 
adjustments, early payment discounts, rebates, inland freight to 
warehouse, inland freight to customer, and freight rebates.
    For comparisons made to EP sales, we made COS adjustments by 
deducting direct selling expenses incurred for home market sales and 
adding U.S. direct selling expenses (e.g., credit). For comparisons 
made to CEP sales, we deducted home market direct selling expenses but 
did not add U.S. direct selling expenses. No other adjustments to NV 
were claimed or allowed.

(4) Tembec

    We based home market prices on the packed prices to unaffiliated 
purchasers in Canada. We adjusted the starting price for billing 
adjustments, early payment discounts, rebates, foreign inland freight, 
warehousing expenses and shipping costs. For comparisons made to EP 
sales, we made COS adjustments by deducting direct selling expenses and 
revenues for home market sales (credit and interest revenue) and adding 
U.S. direct selling expenses (e.g., credit expenses). For comparisons 
made to CEP sales, we deducted home market direct selling expenses but 
did not add U.S. direct selling expenses. No other adjustments to NV 
were performed.

(5) West Fraser

    During the period of investigation, West Fraser sold the foreign 
like product to an affiliated chain of retail home improvement centers 
in Canada. These sales, which constituted a significant portion of West 
Fraser's home market sales, failed the

[[Page 56072]]

Department's arm's length test.\14\ Although West Fraser has recently 
provided information concerning downstream sales by the affiliate, we 
have been unable to analyze this information for this preliminary 
determination. The issue facing the Department for the preliminary 
determination is whether adverse facts available should be applied with 
respect to these sales. For the reasons detailed below, we have 
preliminarily determined that adverse facts available is not warranted. 
We will, however, re-evaluate this decision in our final determination.
---------------------------------------------------------------------------

    \14\ To test whether sales are made at arm's length, we compare 
the prices of sales to affiliated and unaffiliated customers net of 
all movement charges, direct selling expenses, discounts and 
packing. Where prices to the affiliated parties are on average 99.5 
percent or more of the price to the unaffiliated party, we determine 
that those sales made to the related party are at arm's length and 
review these sales in our determination of normal value. Otherwise, 
the sales to the affiliated party are excluded from the calculation 
of normal value.
---------------------------------------------------------------------------

    In the questionnaire issued to West Fraser on May 25, 2001, we 
requested that it report home market downstream sales if such sales 
were made by an affiliated reseller. See question 11 on page G-6 of the 
Department's antidumping questionnaire. In response, West Fraser asked 
that it be excused from reporting the downstream sales as it no longer 
owned the home improvement chain and no longer had access to the 
necessary sales records. Further, as late as August 16, 2001, West 
Fraser continued to assert that the reporting of the downstream sales 
was unnecessary as its sales to the affiliated customer would pass the 
arm's length test. Based on these representations, the Department 
allowed West Fraser not to report the downstream sales.
    On October 2, 2001, the petitioners, claiming that their analysis 
showed that West Fraser's sales to the affiliate failed the arm's 
length test, argued that the Department should assign adverse facts 
available to those transactions. They claimed that the Department had 
requested the downstream sales on several occasions and that West 
Fraser had provided materially inaccurate information.
    In response, West Fraser reiterated its earlier arguments regarding 
the sales. West Fraser also asserted that because the affiliated 
customer sold lumber produced by a number of Canadian mills, and 
because the members of the chain had numerous and often incompatible 
computer systems, it would be virtually impossible to report all the 
information requested for the downstream sales. Further, it argued that 
because the downstream sales were at the retail level, it was unlikely 
that they would be considered as normal value because of differences in 
level of trade with the U.S. sales. (These points were subsequently 
expressed in an October 23, 2001, letter from the Government of Canada 
to Under Secretary for International Trade Grant Aldonas and in ex 
parte meetings with DAS Bernard Carreau and Assistant Secretary for 
Import Administration Faryar Shirzad.)
    Nevertheless, because our analysis indicated that the West Fraser 
affiliated sales had indeed failed the arm's length test, on October 
12, 2001, we wrote West Fraser requiring that it report, by October 26, 
2001, all the downstream sales. If it were unable to do so, we asked 
that it suggest an alternative methodology to calculate normal value 
for the sales in question. A timely response to our October 12 letter 
was received. Given that we were unable to analyze this submission 
prior to this preliminary determination, and based on the 
representations made by West Fraser with respect to the likelihood that 
these sales would not be included in our analysis, we have 
preliminarily decided to not assign adverse facts available to these 
sales.\15\ We will examine this issue thoroughly at verification and if 
we conclude that West Fraser failed to act to the best of its ability 
in responding to our questionnaire, we will reconsider the adverse 
facts available decision.
---------------------------------------------------------------------------

    \15\ In order to use adverse facts available, the Department 
must make a finding, supported by substantial evidence, that the 
``interested party...failed to cooperate by not acting to the best 
of its ability to comply with a request for information.'' See 
section 777(b) of the Act.
---------------------------------------------------------------------------

    We based home market prices on the packed prices to unaffiliated 
purchasers in Canada. We adjusted the starting price for billing 
adjustments, early payment discounts, inland freight to the warehouse, 
warehousing expenses, special handling charges, inland freight to 
customers, freight rebates, tarping expenses and fuel surcharges.
    For comparisons made to EP sales, we made COS adjustments by 
deducting direct selling expenses incurred for home market sales and 
adding U.S. direct selling expenses (e.g., credit). For comparisons 
made to CEP sales, we deducted home market direct selling expenses but 
did not add U.S. direct selling expenses. No other adjustments to NV 
were claimed or allowed.

(6) Weyerhaeuser

    We based home market prices on the packed prices to unaffiliated 
purchasers in Canada. We adjusted the starting price for freight to the 
warehouse/reload center, warehousing expenses, freight to the final 
customer, remanufacturing done at the warehouse, discounts, rebates, 
and billing adjustments. For comparisons made to EP sales, we made COS 
adjustments by deducting direct selling expenses incurred for home 
market sales (credit and warranty/quality claims expenses) and adding 
U.S. direct selling expenses (e.g., credit and warranty/quality claims 
expenses). For comparisons made to CEP sales, we deducted home market 
direct selling expenses but did not add U.S. direct selling expenses. 
No other adjustments to NV were claimed or allowed.

D. Calculation of Normal Value Based on Constructed Value

    Section 773(a)(4) of the Act provides that where NV cannot be based 
on comparison market sales, NV may be based on CV. Accordingly, for 
those models of softwood lumber products for which we could not 
determine the NV based on comparison-market sales, either because there 
were no useable sales of a comparable product or all sales of the 
comparable products failed the COP test, we based NV on the CV.
    Section 773(e)(1) of the Act provides that the constructed value 
shall be based on the sum of the cost of materials and fabrication for 
the imported merchandise, plus amounts for selling, general, and 
administrative expenses, profit, and U.S. packing costs. For each 
respondent, we calculated the cost of materials and fabrication based 
on the methodology described in the Calculation of COP section, above. 
We based SG&A and profit for each respondent on the actual amounts 
incurred and realized by the respondents in connection with the 
production and sale of the foreign like product in the ordinary course 
of trade for consumption in the comparison market, in accordance with 
section 773(e)(2)(A) of the Act. We used U.S. packing costs as 
described in the Export Price section, above.
    We made adjustments to CV for differences in COS in accordance with 
section 773(a)(8) of the Act and 19 CFR 351.410. For comparisons to EP, 
we made COS adjustments by deducting direct selling expenses incurred 
on home market sales from, and adding U.S. direct selling expenses to, 
constructed value. For comparisons to CEP, we made COS adjustments by 
deducting from CV direct selling expenses incurred on home market 
sales.

Level of Trade/CEP Offset

    In accordance with section 773(a)(1)(B) of the Act, to the extent

[[Page 56073]]

practicable, we determine NV based on sales in the comparison market at 
the same level of trade as the EP or CEP transaction. The NV level of 
trade is that of the starting-price sale in the comparison market or, 
when normal value is based on CV, that of the sales from which we 
derive SG&A expenses and profit. For EP sales, the U.S. level of trade 
is also the level 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 is at a different level of trade than EP or 
CEP, we examine stages in the marketing process and selling functions 
along the chain of distribution between the producer and the 
unaffiliated customer. If the comparison-market sales are at a 
different level of trade and the difference affects price comparability 
with U.S. sales, as manifested in a pattern of consistent price 
differences between the sales on which NV is based and comparison-
market sales at the level of trade of the export transaction, we make a 
level-of-trade adjustment under section 773(a)(7)(A) of the Act. For 
CEP sales, if the NV level is more remote from the factory than the CEP 
level and there is no basis for determining whether the difference in 
the levels between NV and CEP affects price comparability, we adjust NV 
under section 773(a)(7)(B) of the Act (the CEP-offset provision). See 
Notice of Final Determination of Sales at Less Than Fair Value: Certain 
Cut-to-Length Carbon Steel Plate from South Africa, 62 FR 
61731(November 19, 1997).
    In implementing these principles in this investigation, we obtained 
information from each respondent about the marketing stages involved in 
the reported U.S. and home market sales, including a description of the 
selling activities performed by the respondents for each of their 
channels of distribution. In identifying levels of trade for EP and 
home market sales we considered the selling functions reflected in the 
starting price before any adjustments. For CEP sales, we considered 
only the selling activities reflected in the price after the deduction 
of expenses and profit pursuant to section 772(d) of the Act. 
Generally, if the reported levels of trade are the same, the functions 
and activities of the seller should be similar. Conversely, if a party 
reports levels of trade that are different for different categories of 
sales, the functions and activities may be dissimilar.
    In this investigation, we found that the respondents, with the 
exception of Weyerhaeuser, perform minimal selling functions in the 
United States and home markets. With respect to the other respondents' 
EP sales, we found a single level of trade in the United States and a 
single, identical, level of trade in the home market. Accordingly, it 
was unnecessary to make any level-of-trade adjustment for comparison of 
EP and home market prices. All six respondents also made CEP sales. For 
each of these respondents, except Weyerhaeuser, we found that the 
adjusted CEP level of trade was essentially the same as that of the 
single home market level of trade, such that no level-of-trade 
adjustment or CEP offset was necessary.

(A) Abitibi

    Abitibi reported three channels of distribution in the home market. 
The first channel of distribution (channel 1) included direct sales 
from Canadian mills or reload centers to customers. The second channel 
of distribution (channel 3) consisted of sales made to large retailers, 
distributors, building materials manufacturers and other large lumber 
producers and are a form of VMI. The third channel of distribution 
(channel 4) consisted of e-commerce sales. We compared selling 
functions in each of these three channels of distribution and found 
that the sales process, freight services and inventory maintenance 
activities were similar. Accordingly, we preliminarily determine that 
home market sales in these three channels of distribution constitute a 
single level of trade.
    In the U.S. market, Abitibi had both EP and CEP sales. Abitibi 
reported EP sales to end-users and distributors through three channels 
of distribution. These three EP channels of distribution do not differ 
from the three channels of distribution in the home market. Because the 
sales process, freight services and inventory maintenance were similar, 
we preliminarily determine that EP sales in these three channels of 
distribution constitute a single level of trade which is identical to 
the home market level of trade.
    With respect to CEP sales, Abitibi reported these sales through two 
channels of distribution. The first (channel 2) included direct sales 
from U.S. reload centers to customers. The second (channel 3) consisted 
of sales made to large retailers, distributors, building materials 
manufacturers and other large lumber producers and are a form of VMI. 
The selling functions related to freight arrangements and inventory 
maintenance for these two channels of distribution were not 
significantly different and, therefore, we determined there is only one 
CEP level of trade.
    In determining whether separate levels of trade exist between U.S. 
CEP sales and home market sales, we examined the selling functions in 
the distribution chains and customer categories reported in both 
markets. In our analysis of levels of trade for CEP sales, we consider 
only the selling activities reflected in the price after the deduction 
of expenses and profit under section 772(d) of the Act.
    Abitibi's sales to end-users and distributors in the home market 
and in the U.S. market do not involve significantly different selling 
functions. Abitibi's Canadian-based services for CEP sales were similar 
to the single home market level of trade with respect to sales process 
and warehouse/inventory maintenance. Abitibi did not report indirect 
selling expenses other than imputed inventory carrying costs in the 
U.S. for any of its sales channels. Because we found the level of trade 
for CEP sales to be similar to the home market level of trade, we made 
no level-of-trade adjustment or CEP offset. See section 773(a)(7)(A) of 
the Act.

(B) Canfor

    Canfor reported four channels of distribution in the home market, 
with six customer categories. The first channel of distribution 
(channel 1) included sales where merchandise was shipped directly from 
one of Canfor's sawmills to a Canadian customer. The second channel of 
distribution (channel 2) consists of sales made through remanufacturing 
operations, where merchandise was shipped from the primary mill through 
one or more secondary manufacturing facilities before delivery to the 
end customer. The third channel of distribution (channel 3) consisted 
of sales made through reloads, where merchandise is shipped from the 
primary mill though one or more lumber-handling and inventory yards 
before delivery to the final customer. The fourth channel of 
distribution (channel 4) consisted of sales made pursuant to VMI 
programs.
    We compared the selling functions in these four channels of 
distribution and found that they differed only slightly in that certain 
services were provided for VMI programs that were not provided to other 
channels including: product brochures, inventory management, education 
on environmental issues, and in-store training. Also, office 
wholesalers (wholesalers that do not hold inventory), one of Canfor's 
customer categories, only purchased through channel 1 and home centers 
requested custom packing, wrapping, and bar coding. With respect to the 
sales process, freight and delivery services,

[[Page 56074]]

warranty services, custom-packing services, providing technical 
information, inspecting quality claims, and participating in trade 
shows, the sales to all customer categories in all channels were 
similar in all respects. Accordingly, we preliminarily determine that 
home market sales in these four channels of distribution constitute a 
single level of trade.
    In the U.S. market, Canfor had both EP and CEP sales. Canfor 
reported EP sales to end-users and distributors through all four 
channels of distribution, including mill direct sales (channel 1), 
sales made from remanufacturing facilities (channel 2), sales made from 
Canadian reload facilities (channel 3), and sales made through VMI 
programs (channel 4). These four EP channels of distribution do not 
significantly differ from the channels of distribution in the home 
market. Accordingly, we preliminarily determine that EP sales in these 
four channels of distribution constitute a single level of trade which 
is identical to the home market level of trade.
    With respect to CEP sales, Canfor reported these sales through 
channel 3, sales made from U.S. reload facilities. In addition, the 
Department has determined that Canfor's VMI sales are properly 
classified as CEP sales. The selling functions performed for these two 
channels of distribution were not significantly different in terms of 
freight arrangements, inventory management and warranty services, and 
therefore we determined there is only one CEP level of trade.
    In determining whether separate levels of trade exist between U.S. 
CEP sales and home market sales, we examine selling functions, 
distribution chains, and customer categories. In our analysis of level 
of trade for CEP sales, we consider only the selling activities 
reflected in the price after the deduction of expenses and profit under 
section 772(d) of the Act.
    Canfor's sales to end-users and distributors in the home market and 
in the U.S. market do not involve significantly different selling 
functions. Canfor's Canadian-based services for its CEP sales were 
similar to the single home market level of trade with respect to sales 
process and inventory management. Canfor reported minimal indirect 
selling expenses in the U.S. Because we found the level of trade for 
CEP sales to be similar to the home market level of trade, we made no 
level-of-trade adjustment or CEP offset. See section 773(a)(7)(A) of 
the Act.

(C) Slocan

    Slocan reported three channels of distribution in the home market: 
(1) Direct sales to customers; (2) local sales made directly from 
mills; and (3) sales through reload operations. The first channel, 
coded in its submissions as channel 1, is comprised of direct sales and 
shipments to customers, and are the large majority of sales. The 
second, coded as channel 2, consist of ``local'' sales from mills to 
local customers, who received their merchandise at the mills. The 
third, coded as channel 3, consisted of sales through reload centers. 
We compared the selling functions in the three channels of distribution 
and found that Slocan's sales process was identical across all of them. 
In addition, freight services and inventory maintenance activities were 
similar. Although channel 3 sales involve reload centers not owned by 
Slocan, the company maintained control of the merchandise until it is 
sold to the customer in all three channels. Accordingly, we 
preliminarily determine that home market sales in these three channels 
of distribution constitute a single level of trade.
    In the U.S. market, Slocan had both EP and CEP sales. Slocan 
reported EP sales through two channels of distribution: (1) Direct 
sales to customers; and (2) settlements of futures contracts. The 
first, coded channel 1, covered direct sales and shipments to 
customers. All other EP sales were ex-pit settlements of SPF lumber 
futures positions on the Chicago Mercantile Exchange (CME), i.e., sales 
settled outside the pit of the CME. Slocan treats the CME like a 
customer. These sales, coded as channel 4, effectively use the same 
channel of distribution as channel 1 once the sale is arranged. 
Although the sales process for channel 4 differs somewhat from that of 
other EP sales and home market sales, the selling functions and 
channels of distribution for both channel 1 and channel 4 are similar 
with respect to delivery and freight services. Therefore, we 
preliminarily determine that EP sales in the U.S. market constitute a 
single level of trade.
    On this basis, it appears that the level of trade of Slocan's home 
market sales do not involve significantly different selling functions 
than the level of trade of the company's EP sales, and that the 
distinctions do not constitute a difference in level of trade between 
the two markets.
    Slocan's CEP sales were reported in two channels of distribution: 
(1) Sales through reload operations; and (2) sales through VMI 
programs. The first, coded as channel 2, consist of sales shipped from 
reload centers, operated by unaffiliated parties. Unlike home market 
and EP sales, the shipment instruction would go to the reload center 
rather than the mill. All channel 2 sales were reported as CEP sales. 
Slocan also reported some VMI sales, coded as channel 3, in which 
inventory was stored by the customer, although Slocan held title to the 
merchandise until it was sold. Slocan's Canada-based services for its 
CEP sales include order taking, issuing invoices to purchasers, and 
shipment instructions and inventory management for channel 2 sales. 
With respect to channel 3 sales, Slocan's involvement included the 
collection of weekly invoices of withdrawals from inventory and keeping 
track of inventory levels. Slocan did not report any indirect selling 
expenses other than imputed inventory carrying costs in the United 
States for either of these channels. Given the similarity of selling 
functions between these two channels of distribution, we concluded, 
preliminarily, that they constituted a single level of trade.
    In determining whether separate levels of trade existed between 
U.S. CEP sales and home market sales, we examined the selling functions 
for the chains of distribution and customer categories reported in the 
home market and the United States. In determining levels of trade for 
CEP sales, we considered only the selling activities reflected in the 
price after the deduction of expenses and profit under section 772(d) 
of the Act.
    This CEP level of trade was also similar to the single home market 
level of trade with respect to sales process and warehouse/inventory 
maintenance. We found this CEP level of trade to be similar to home 
market level of trade. Therefore, where possible, we matched CEP sales 
to normal value based on home market sales and made no level-of-trade 
adjustment or CEP offset. See section 773(a)(7)(A) of the Act.

(D) Tembec

    Tembec reported two channels of distribution in the home market. 
The first channel of distribution (channel 1) included sales made to 
wholesalers who take title to--but not physical possession of--the 
lumber and resell it to end-users. The second channel of distribution 
(channel 2) consisted of sales made to the same customers but these 
shipments go through a reload center en route to the customer. We 
compared the selling functions in these two channels of distribution 
and found that, while they differed slightly with respect to the 
subject merchandise being

[[Page 56075]]

shipped to an origin reload center (a reload center located close to 
the sawmill), they were similar with respect to both the sales process 
and freight services. Accordingly, we preliminarily determine that home 
market sales in these two channels of distribution constitute a single 
level of trade.
    In the U.S. market, Tembec had both EP and CEP sales. Tembec 
reported EP sales to end-users and distributors through the same two 
channels of distribution reported for home market sales. These two EP 
channels of distribution do not differ from the two channels of 
distribution in the home market. Because the sales process, freight 
services and inventory maintenance were similar, we preliminarily 
determine that EP sales in these two channels of distribution 
constitute a single level of trade which is identical to the home 
market level of trade.
    With respect to CEP sales, the Department has determined that 
Tembec made these sales through one channel of distribution, which 
consisted of U.S. sales that travel through a U.S. reload center en 
route to the customer, as well as VMI sales. Because Tembec made CEP 
sales through one channel of distribution, we have determined there is 
only one CEP level of trade.
    In determining whether separate levels of trade exist between U.S. 
CEP sales and home market sales, we examined the selling functions 
reported for different distribution chains and customer categories in 
the home market and the United States. In determining levels of trade 
for CEP sales, we consider only the selling activities reflected in the 
price after the deduction of expenses and profit under section 772(d) 
of the Act.
    Tembec's sales to end-users and distributors in the home market and 
in the U.S. market do not involve significantly different selling 
functions. Tembec's Canadian-based services for CEP sales were similar 
to the single home market level of trade with respect to sales process 
and freight arrangements. Tembec normally provides transportation to 
the customer. For VMI sales, Tembec provides the same services, but 
invoices the customer based on the customer's need to maintain 
inventory levels. Because we found the level of trade for CEP sales to 
be similar to the home market level of trade, we made no level-of-trade 
adjustment or CEP offset. See section 773(a)(7)(A) of the Act.

(E) West Fraser

    West Fraser reported three channels of distribution in the home 
market, with nine customer categories. The first channel of 
distribution (channel 1) included sales made directly to end-users and 
distributors. The second channel of distribution (channel 2) consisted 
of sales made to end-users and distributors through unaffiliated origin 
reload centers. The third channel of distribution (channel 3) consisted 
of sales made to end-users and distributors through VMI programs. We 
compared these three channels of distribution and found that, while 
selling functions differed slightly with respect to the merchandise 
shipped to an origin reload center and inventory maintenance service 
for VMI customers, they were similar with respect to sales process, 
freight services, inventory services and warranty services. 
Accordingly, we preliminarily determine that home market sales in these 
three channels of distribution constitute a single level of trade.
    In the U.S. market, West Fraser had both EP and CEP sales. West 
Fraser reported EP sales to end-users and distributors through four 
channels of distribution and nine customer categories. The first three 
EP channels of distribution differed from the three channels of 
distribution within the home market only with respect to paper 
processing services in connection with West Fraser's export quota under 
the SLA. The fourth EP channel of distribution (channel 4) consisted of 
sales made to end-users and distributors through Canadian customers 
with quota transfer. This fourth EP channel is similar to channel 1. 
Inasmuch as these different channels were similar with respect to sales 
process, freight services and warranty service, we preliminarily 
determine that EP sales in these four channels of distribution 
constitute a single level of trade which is identical to the home 
market level of trade.
    With respect to CEP sales, West Fraser's channel of distribution 
(channel 5) included sales to end-users and distributors through West 
Fraser's subsidiary, WFFP. The company WFFP is a Canadian entity 
created to act as the importer of record and hold title to lumber sold 
in the United States. These sales were made via unaffiliated 
destination reload centers in the United States. In determining whether 
separate levels of trade actually existed between CEP sales and home 
market sales, we examined the selling functions in the different 
distribution chains and customer categories reported in the home market 
and the United States. In determining levels of trade for CEP sales, we 
consider only the selling activities reflected in the price after the 
deduction of expenses and profit under section 772(d) of the Act. West 
Fraser's Canadian-based services for its CEP sales include order-
taking, invoicing and inventory management. West Fraser's Canadian 
sales agents occasionally arrange for reload center excess storage and 
freight from U.S. destination reload centers to unaffiliated end users.
    West Fraser did not report any indirect selling expenses in the 
United States except imputed inventory carrying costs. Any services 
occurring in the United States are provided by the unaffiliated reload 
centers, which are paid a fee by West Fraser. These expenses have been 
deducted from the CEP starting price as movement expenses.
    West Fraser's sales to end-users and distributors in the home 
market and the importers in the U.S. market do not involve 
significantly different selling functions. The CEP level of trade was 
similar to the single home market level of trade with respect to sales 
process, and inventory maintenance. We found the level of trade for CEP 
sales similar to the home market level of trade. Therefore, we made no 
level-of-trade adjustment or CEP offset. See section 773(a)(7)(A) of 
the Act.

(F) Weyerhaeuser

    Weyerhaeuser reported four channels of distribution in the home 
market, with seven customer categories. The channels of distribution 
are (1) mill-direct sales; (2) VMI sales; (3) Mill-direct sales made 
through Weyerhaeuser Building Materials (WBM); and (4) sales made out 
of inventory by WBM. To determine whether separate levels of trade 
exist in the home market, we examined the selling functions, the chain 
of distribution, and the customer categories reported in the home 
market.
    For each of its channels of distribution, Weyerhaeuser's selling 
functions included invoicing, freight arrangement, warranty/quality 
claims, marketing and promotional activities, technical service, sales 
and product training, market information, advanced shipping notices, 
online order status information, and toll-free customer service lines. 
For each channel, except WBM sales from inventory, Weyerhaeuser offered 
certification of adherence to sustainable forestry initiatives. 
Weyerhaeuser's sales made out of inventory by WBM appear to involve 
substantially more selling functions, and to be made at a different 
point in the chain of distribution than mill-direct sales. WBM 
functions as a distributor for the B.C. Coastal Group (BCC) and 
Canadian Lumber Business (CLB) and, although not a separate legal

[[Page 56076]]

entity, operated as a reseller. WBM operates a number of customer 
service centers (CSC) throughout Canada where it provides local sales 
offices and just-in-time inventory locations for customers. All sales 
made through WBM must be ``sold'' internally to WBM by BCC or CLB, and 
then sold to the final customer by WBM's local sales force. Freight 
must be arranged to the WBM inventory location and then to the final 
customer. CSCs will also engage in minor further manufacturing to fill 
a customer order, if the desired product is not in inventory. WBM also 
sells from inventory through its trading group (TG). The TG maintains 
some sales offices of its own, and also has sales personnel at some 
CSCs. The TG maintains its inventory at public reloads.
    WBM also sells on a mill-direct basis. Although double-invoicing 
(i.e., mill invoices WBM, which invoices the final customer) is 
involved, there is no need to maintain local just-in-time inventory or 
arrange freight twice. Therefore, we do not consider mill-direct sales 
made through WBM to be at a separate level of trade from mill-direct 
sales made by CLB and BCC.
    Sales made through VMI arrangements also appear to involve 
significantly more selling activities than mill-direct sales. CLB has a 
designated sales team responsible for VMI sales which works with the 
customers to develop a sales volume plan, manages the flow of products 
and replenishing process, and aligns the sales volume plan with 
Weyerhaeuser's production plans. It also offers extra services such as 
bar coding, cut-in-two, half packing and precision end trimming. BCC's 
VMI sales are partially managed by WBM, which assists in determining 
the timing of shipments. BCC invoices WBM when the merchandise is 
shipped to the VMI warehouse and WBM invoices the customer as the 
product is shipped from the VMI warehouse.
    Of the seven customer categories, industrial users, retail dealers 
and home improvement warehouses (HIW) made purchases through all four 
channels of distribution. Wholesalers and buying groups made purchases 
through all channels except VMI. Manufactured-home builders made all 
purchases through WBM, either directly from the mill or from inventory.
    We find there are no significant differences in customer categories 
among the various channels of distribution. However, because both VMI 
and WBM inventory sales involve significantly more selling functions 
than the mill-direct sales, we consider them at a more advanced level 
of trade for purposes of this preliminary determination. While the 
selling activities for VMI and WBM inventory sales are not identical, 
the principal selling activity for both is just-in-time inventory 
maintenance. Thus, we consider them to be at the same level of trade. 
Accordingly, we find that there are two levels of trade in the home 
market, mill-direct (HM1) and VMI and WBM sales out of inventory (HM2).
    Weyerhaeuser reported seven channels of distribution in the U.S. 
market, with seven customer categories. The channels of distribution 
are (1) mill-direct sales; (2) VMI sales; (3) CLB sales through U.S. 
reloads; (4) TG quota sales (5) CLB/WBM-CA transfer sales; (6) WBM-U.S. 
direct sales and (7) WBM-U.S. inventory sales. The EP channels are 
mill-direct sales, TG quota sales and WBM-CA transfer sales. The other 
channels are CEP channels. In determining whether separate levels of 
trade existed between U.S. and home market sales, we examined the 
selling functions, the chain of distribution, and customer categories 
reported in the U.S. market.
    With regard to the mill-direct sales, Weyerhaeuser has the same 
selling activities as it does for mill-direct sales in Canada. With 
regard to TG quota sales, until October 2000, the TG maintained border 
reloads where it engaged in resorting and grading and minor further 
manufacturing such as end-cutting. It is unclear from Weyerhaeuser's 
response if any of these services were performed for lumber sold 
through the TG in the Canadian market. All other selling activities 
engaged in by the TG were the same in the U.S. and Canadian markets.
    The WBM-CA transfer sales are made through one CSC and appear to 
have the same selling functions as other Canadian CSCs. Therefore, 
where possible, we matched the U.S. mill-direct sales (U.S.1) to the 
Canadian mill-direct sales (HM1) and the U.S. TG and WBM-CA transfer 
sales (U.S.2) to Canadian TG sales and CSC sales (HM2).
    In examining levels of trade for CEP sales, we consider only the 
selling activities reflected in the price after the deduction of 
expenses and profit under section 772(d) of the Act. Weyerhaeuser's 
Canadian selling functions for VMI sales to the United States include 
the same selling functions performed for home market VMI sales, as 
described above. Although the VMI warehouses are located in the United 
States, most, if not all, of the associated selling functions appear to 
be performed in Canada. Therefore, even after the deduction of U.S. 
expenses and profit we find that the U.S. VMI sales (U.S.2) are made at 
the same level of trade as home market VMI sales (HM2).
    CLB sales through U.S. reloads also appear to have most of their 
selling functions occurring in Canada. While Weyerhaeuser states that 
it maintains just-in-time inventory for its U.S. customers at these 
reloads, it does not maintain local sales offices, and the sales do not 
involve a reseller. Therefore, these sales do not appear to be at a 
different point in the chain of distribution than mill-direct sales in 
Canada. In addition, CLB does not appear to offer the same services 
from its U.S. reloads that it offers its VMI customers. Therefore, for 
purposes of this preliminary determination, we are considering CLB's 
sales through U.S. reloads to be at the same level of trade as its 
mill-direct sales (U.S.1 and HM1).
    With regard to WBM's U.S. sales made through CSCs, significant 
selling activities occur in the United States, such as maintaining 
local sales offices and just-in-time inventory, and arranging freight 
to the final customer. The selling functions occurring in Canada are 
the same selling functions performed for mill-direct sales. Therefore, 
after the deduction of U.S. expenses and profit, we find that WBM's 
U.S. sales made through CSCs are at the same level of trade as mill-
direct sales (U.S.1 and HM1).
    Of the seven customer categories, wholesalers, HIWs, and retail 
dealers all buy through all channels of distribution. The remaining 
categories, industrial users, truss manufacturers, buying groups, and 
manufactured-home builders, all buy through multiple channels of 
distribution. Therefore, we do not find customer category to be a 
useful indicator of level of trade for these customer types.
    Because we found a pattern of consistent price differences between 
levels of trade, where we matched across levels of trade, we made a 
level of trade adjustment under section 773(a)(7)(A) of the Act.

Currency Conversions

    We made currency conversions in accordance with section 773A of the 
Act based on daily exchange rates as certified by the Federal Reserve 
Bank.

Critical Circumstances

    In their April 2, 2001, petition, the petitioners requested that 
the Department monitor import data of the subject merchandise to 
determine whether imports have been massive since the expiration of the 
SLA. In the April 30, 2001, notice of initiation, the Department agreed 
to monitor these

[[Page 56077]]

imports and stated that if the relevant criteria are established, we 
would issue a critical circumstances finding at the earliest possible 
date. Throughout the course of this investigation, the petitioners have 
submitted additional comments concerning this issue and recommended 
that the Department make an affirmative determination of critical 
circumstances.
    Inasmuch as the petitioners submitted critical circumstances 
allegations more than 20 days before the scheduled date of the 
preliminary determination, section 351.206(c)(2)(i) of the Department's 
regulations provides that we must issue our preliminary critical 
circumstances determinations not later than the date of the preliminary 
determination.
    If critical circumstances are alleged, section 733(e)(1) of the Act 
directs the Department to examine whether there is a reasonable basis 
to believe or suspect that: (A)(i) (t)here is a history of dumping and 
material injury by reason of dumped imports in the United States or 
elsewhere of the subject merchandise, or (ii) the person by whom, or 
for whose account, the merchandise was imported knew or should have 
known that the exporter was selling the subject merchandise at less 
than its fair value and there was likely to be material injury by 
reason of such sales, and (B) there have been massive imports of the 
subject merchandise over a relatively short period.
    In determining whether imports of the subject merchandise have been 
``massive,'' the Department normally will examine (i) the volume and 
value of the imports, (ii) seasonal trends, and (iii) the share of 
domestic consumption accounted for by the imports. Section 
351.206(h)(2) of the Department's regulations provides that an increase 
in imports of 15 percent or more during a ``relatively short period'' 
may be considered ``massive.'' In addition, section 351.206(i) of the 
Department's regulations defines ``relatively short period'' as 
generally the period beginning on the date the proceeding begins (i.e., 
the date the petition is filed) and ending at least three months later. 
As a consequence, the Department compares import levels during at least 
the three-months period immediately after initiation with at least the 
three-month period immediately preceding initiation to determine 
whether there has been at least a 15-percent increase in imports of 
subject merchandise. Where information is available for longer periods, 
the Department will compare such data. See, e.g., Preliminary 
Determinations of Critical Circumstances: Steel Concrete Reinforcing 
Bars From Ukraine and Moldova, 65 FR 70696, 70697 (November 27, 2000).
    In this case, because data were available for additional months, 
the Department compared import and shipment data during the five-month 
period immediately after initiation with the five-month period 
immediately preceding initiation to determine whether there has been at 
least a 15-percent increase in imports of subject merchandise. Based on 
this comparison, the Department preliminarily found that there were no 
massive imports with respect to the mandatory respondents and the 
companies in the ``all others'' category. For further details, see the 
Department's Preliminary Determination of Critical Circumstances 
memorandum from Bernard T. Carreau to Faryar Shirzad, (October 30, 
2001). As discussed in the above-referenced memorandum, the 
Department's finding that massive imports did not exist for these 
companies is based on seasonal adjustments of the relevant shipment and 
import data. Because the second prong of the statute regarding critical 
circumstances has not been met for afore-mentioned companies, the 
Department preliminarily determined that critical circumstances do not 
exist for these companies.

Verification

    In accordance with section 782(i) of the Act, we intend to verify 
information to be used in making our final determination.

Suspension of Liquidation

    In accordance with section 733(d) of the Act, we are directing the 
Customs Service to suspend liquidation of all entries of certain 
softwood lumber products from Canada, that are entered, or withdrawn 
from warehouse, for consumption on or after the date of publication of 
this notice in the Federal Register. We are also instructing the 
Customs Service to require a cash deposit or the posting of a bond 
equal to the weighted-average amount by which the normal value exceeds 
the EP or CEP, as indicated in the chart below. These instructions 
suspending liquidation will remain in effect until further notice.
    The weighted-average dumping margin are as follows:

------------------------------------------------------------------------
                                                              Weighted-
                                                               average
                     Exporter/producer                          margin
                                                              percentage
------------------------------------------------------------------------
Abitibi (and its affiliates Produits Forestiers Petit Paris        13.64
 Inc., Produits Forestiers La Tuque Inc., Scieries Saguenay
 Ltee., Societe En Commandite Scierie Opticwan)............
Canfor (and its affiliates Lakeland Mills Ltd., The Pas            12.98
 Lumber Company Ltd., Howe Sound Pulp and Paper Limited
 Partnership)..............................................
Slocan.....................................................        19.24
Tembec (and its affiliates Marks Lumber Ltd., Excel Forest         10.76
 Products).................................................
West Fraser (and its affiliates West Fraser Forest Products         5.94
 Inc., Seehta Forest Products Ltd.)........................
Weyerhaeuser (and its affiliates Monterra Lumber Mills             11.93
 Ltd., Weyerhaeuser Saskatchewan Ltd.).....................
All Others.................................................        12.58
------------------------------------------------------------------------

ITC Notification

    In accordance with section 733(f) of the Act, we have notified the 
ITC of our preliminary determination. If our final antidumping 
determination is affirmative, the ITC will determine whether these 
imports are materially injuring, or threaten material injury to, the 
U.S. industry. The deadline for that ITC determination would be the 
later of 120 days after the date of this preliminary determination or 
45 days after the date of our final determination.

Public Comment

    All parties will be notified of the specific schedule for 
submission of case and rebuttal briefs. In general, case briefs for 
this investigation must be submitted no later than one week after the 
issuance of the verification reports. Rebuttal briefs must be filed 
within five days after the deadline for submission of case briefs. A 
list of authorities used, a table of contents, and an executive summary 
of issues should accompany any briefs submitted to the Department. 
Executive summaries should be limited to five pages total, including 
footnotes.
    Section 774 of the Act provides that the Department will hold a 
hearing to afford interested parties an opportunity to comment on 
arguments raised in case or rebuttal briefs, provided that such a 
hearing is requested by any interested party. If a request for a 
hearing is made in this investigation, the hearing will tentatively be 
held two days after the deadline for submission of the rebuttal briefs, 
at the U.S. Department of

[[Page 56078]]

Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 
20230. Parties should confirm by telephone the time, date, and place of 
the hearing 48 hours before the scheduled time.
    Interested parties who wish to request a hearing, or to participate 
if one is requested, must submit a written request within 30 days of 
the publication of this notice. Requests should specify the number of 
participants and provide a list of the issues to be discussed. Oral 
presentations will be limited to issues raised in the briefs.
    We will issue our final determination no later than 135 days after 
the date of publication of this notice in the Federal Register.
    This determination is issued and published pursuant to sections 
733(f) and 777(i)(1) of the Act.

    Dated: October 30, 2001.
Faryar Shirzad,
Assistant Secretary for Import Administration.
[FR Doc. 01-27854 Filed 11-5-01; 8:45 am]
BILLING CODE 3510-DS-P