[Federal Register Volume 68, Number 151 (Wednesday, August 6, 2003)]
[Notices]
[Pages 46571-46577]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-20046]


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DEPARTMENT OF COMMERCE

International Trade Administration

[A-475-818, C-475-819]


Anti-Circumvention Inquiry of the Antidumping and Countervailing 
Duty Orders on Certain Pasta From Italy: Affirmative Preliminary 
Determinations of Circumvention of Antidumping and Countervailing Duty 
Orders

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

ACTION: Notice of Affirmative Preliminary Determinations of 
Circumvention of Antidumping and Countervailing Duty Orders.

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SUMMARY: On April 27, 2000, the Department of Commerce (the Department) 
self-initiated an anti-circumvention inquiry to determine whether an 
Italian producer of pasta is circumventing the antidumping and 
countervailing duty orders on certain pasta from Italy, issued July 24, 
1996. We preliminarily determine that certain pasta produced in Italy 
by Pastificio Fratelli Pagani S.p.A. (Pagani) and exported to the 
United States in packages of greater than five pounds, which are 
subsequently repackaged in the United States into packages of five 
pounds or less, constitutes circumvention of the antidumping and 
countervailing duty orders on certain pasta from Italy, within the 
meaning of section 781(a) of the Tariff Act of 1930, as amended (the 
Act), and 19 CFR 351.225(g). Interested parties are invited to comment 
on this preliminary determination.

EFFECTIVE DATE: August 6, 2003.

FOR FURTHER INFORMATION CONTACT: Zev Primor or Ronald Trentham, AD/CVD 
Enforcement, Office IV, International Trade Administration, U.S. 
Department of Commerce, 14th Street and Constitution Avenue NW., 
Washington, DC 20230; telephone: (202) 482-4114 or (202) 482-6320.

SUPPLEMENTARY INFORMATION:

[[Page 46572]]

Scope of Antidumping and Countervailing Duty Orders

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

Scope Rulings

    The Department has issued the following scope rulings to date:
    (1) On August 25, 1997, the Department issued a scope ruling that 
multicolored pasta, imported in kitchen display bottles of decorative 
glass that are sealed with cork or paraffin and bound with raffia, is 
excluded from the scope of the antidumping and countervailing duty 
orders. See Memorandum from Edward Easton to Richard Moreland, dated 
August 25, 1997, on file in the Central Records Unit (CRU) of the main 
Commerce Building, Room B-099.
    (2) On July 30, 1998, the Department issued a scope ruling, finding 
that multipacks consisting of six one-pound packages of pasta that are 
shrink-wrapped into a single package are within the scope of the 
antidumping and countervailing duty orders. See Letter from Susan H. 
Kuhbach, Acting Deputy Assistant Secretary for Import Administration, 
to Barbara P. Sidari, Vice President, Joseph A. Sidari Company, Inc., 
dated July 30, 1998, on file in the CRU.
    (3) On October 23, 1997, the petitioners filed a request that the 
Department initiate an anti-circumvention investigation against Barilla 
S.r.L. (Barilla). On October 5, 1998, the Department issued a final 
determination that, pursuant to section 781(a) of the Act, Barilla was 
circumventing the antidumping duty order by exporting bulk pasta from 
Italy which it subsequently repackaged in the United States into 
packages of five pounds or less for sale in the United States. See 
Anti-Circumvention Inquiry of the Antidumping Duty Order on Certain 
Pasta from Italy: Affirmative Final Determination of Circumvention of 
the Antidumping Duty Order, 63 FR 54672 (October 13, 1998) (Barilla 
Circumvention Inquiry).
    (4) On October 26, 1998, the Department self-initiated a scope 
inquiry to determine whether a package weighing over five pounds as a 
result of allowable industry tolerances may be within the scope of the 
antidumping and countervailing duty orders. On May 24, 1999, we issued 
a final scope ruling finding that, effective October 26, 1998, pasta in 
packages weighing up to (and including) five pounds four ounces, and so 
labeled, is within the scope of the antidumping and countervailing duty 
orders. See Memorandum from John Brinkmann to Richard Moreland, dated 
May 24, 1999, on file in the CRU.

Scope of the Anti-Circumvention Inquiry

    The product subject to this anti-circumvention inquiry is certain 
pasta produced in Italy by Pagani and exported to the United States in 
packages of greater than five pounds (2.27 kilograms) that meets all 
the requirements for the merchandise subject to the antidumping and 
countervailing duty orders, with the exception of packaging size, and 
which is repackaged into packages of five pounds (2.27 kilograms) or 
less after entry into the United States.
    By way of background, during the investigations, the issue of 
whether to expand the scope of the investigations to include pasta in 
packages of greater than five pounds was addressed in an October 10, 
1995, decision memorandum (see Memorandum to Susan Esserman from Pasta 
Team, through Barbara Stafford).\1\ In considering this issue, the 
Department acknowledged that the weight-restricted scope language could 
allow pasta producers to export their pasta in bulk and repackage it 
into packages of five pounds or less in the United States; however, it 
was the Department's understanding, based on assertions by Borden, 
Inc., New World Pasta, Inc., and Gooch Foods, Inc. (collectively, the 
petitioners), that repackaging operations of this sort would be too 
costly and inefficient and thus would not pose a circumvention threat. 
As a consequence, we did not alter the scope of the merchandise covered 
by the investigations.
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    \1\ This memorandum was written as a result of a request made by 
the petitioners and the Association of Food Industries past a group 
to expand the scope to include pasta imported in packages over five 
pounds.
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Background

    On August 30, 1999, we issued an antidumping questionnaire to 
Pagani for the third administrative review of the antidumping duty 
order, covering the period July 1, 1998 through June 30, 1999. In its 
October 1, 1999, questionnaire response, Pagani stated that it 
``exported sacks of non-subject bulk pasta for repackaging after 
importation.'' Based upon our verification of Pagani's questionnaire 
responses in the third administrative review, we initiated this 
inquiry. See Certain Pasta from Italy: Notice of Initiation of Anti-
circumvention Inquiry on the Antidumping and Countervailing Duty Orders 
(Notice of Initiation), 65 FR 26179 (May 5, 2000). Since the initiation 
of this inquiry on April 27, 2000 the following events have occurred.
    On May 10, 2000, the Department issued a circumvention 
questionnaire to Pagani. We requested information with respect to 
Pagani's corporate structure, sales and shipment information, process 
of repackaging in the United States, value of merchandise repackaged in 
the United States, and pattern of trade and levels of imports.
    On June 14, 2000, Pagani responded to the Department's 
questionnaire. Pagani's response revealed that it did not have its own 
manufacturing or repackaging facility in the United States. Rather, all 
of the repackaging activity in the United States was conducted by an 
unaffiliated party. Section 781(a) of the Act sets forth the criteria 
the Department must examine when determining whether to include 
merchandise completed or assembled in the United States within the 
scope of an existing order. We determined it was necessary to collect 
information from the unaffiliated U.S. parties participating in the 
repackaging operations to examine these criteria. Accordingly, on 
December 7, 2000, the Department issued a supplemental circumvention 
questionnaire to an unaffiliated U.S. repacker and a U.S. customer that 
participated in

[[Page 46573]]

repackaging. In addition, on December 7, 2000, we issued a supplemental 
questionnaire to Pagani.
    On January 29, 2001, Pagani responded to the Department's 
supplemental questionnaire. We did not receive a response from the 
unaffiliated U.S. repacker or U.S. customer.

Pagani's Proposed Certification Scheme

    Pagani described its reasoning for its repackaging operation in the 
United States in its responses. Pagani asserts that its business is 
primarily in the food service sector, including restaurants, not in the 
retail sector which was the target of the petitioners' original 
complaint. Pagani maintains that many restaurants prefer to buy pasta 
in one pound packages for reasons of portion control and inventory 
maintenance and, thus, Pagani, wishing to continue to supply pasta to 
the United States, explored the possibility of repackaging pasta in the 
United States. In 1997, Pagani located the unaffiliated repacker, a 
U.S. company in the business of packing dried food products such as 
crackers. The unaffiliated U.S. repacker already possessed the 
equipment to pack short-cut pasta, and it acquired from Pagani a 
packaging line for long cuts. Pagani began its U.S. repackaging 
operations in the third quarter of 1997.
    Pagani does not believe the repackaging operations subject to this 
inquiry constitute circumvention. Nevertheless, Pagani proposed that, 
in the event of an affirmative finding of circumvention, the Department 
adopt a certification scheme which it states would enable the 
Department to exclude bulk pasta that is not to be repackaged after 
importation, e.g., bulk pasta shipped directly to institutional or food 
service users. Specifically, Pagani states that each of its 
unaffiliated customers who purchase pasta in packages greater than five 
pounds (hereafter referred to as ``bulk pasta'') would certify that it 
would not repack any bulk pasta into packages of five pounds or less. 
Pagani states that this certification follows the certification program 
that Barilla, an Italian producer and exporter of pasta, proposed and 
which the Department accepted in its final determination of anti-
circumvention. See Barilla Circumvention Inquiry, 63 FR at 54672.

Nature of the Anti-Circumvention Inquiry

    Section 781(a)(1) of the Act provides that the Department, after 
taking into account any advice provided by the United States 
International Trade Commission (ITC) under section 781(e) of the Act, 
may include the imported merchandise under review within the scope of 
an order if the following criteria have been met: (A) The merchandise 
sold in the United States is of the same class or kind as the 
merchandise that is the subject to the antidumping duty and 
countervailing duty orders; (B) such merchandise sold in the United 
States is completed or assembled in the United States from parts or 
components produced in the foreign country with respect to which such 
orders apply; (C) the process of assembly or completion in the United 
States is minor or insignificant; and (D) the value of the parts or 
components produced in the foreign country to which the antidumping 
duty and countervailing duty orders apply is a significant portion of 
the total value of the merchandise sold in the United States.
    Section 781(a)(3) of the Act further provides that, in determining 
whether to include parts or components in the order, the Department 
shall consider: (1) The pattern of trade, including sourcing patterns; 
(2) whether the manufacturer or exporter of the parts or components is 
affiliated with the person who assembles or completes the merchandise 
sold in the United States from the parts or components produced in the 
foreign country with respect to which the orders or above findings 
apply; and (3) whether imports into the United States of the parts or 
components produced in such foreign country have increased after the 
initiation of the investigation which resulted in the issuance of such 
orders or findings.
    The Department's questionnaire, transmitted to Pagani on May 10, 
2000, and supplemental questionnaire, transmitted on December 7, 2000, 
were designed to elicit information for purposes of conducting both 
qualitative and quantitative analyses in accordance with the criteria 
enumerated at section 781(a) of the Act. In addition, a questionnaire 
was transmitted to an unaffiliated U.S. repacker and U.S. customer. 
This approach is consistent with our analysis in previous anti-
circumvention inquiries. See, e.g., Hot-Rolled Lead and Bismuth Carbon 
Steel Products from Germany and the United Kingdom; Negative Final 
Determinations of Circumvention of Antidumping and Countervailing Duty 
Orders (Carbon Steel Products), 64 FR 40336 (July 26, 1999) and Barilla 
Circumvention Inquiry. For the Department to ascertain the value of the 
completed merchandise sold in the United States, we requested that 
Pagani provide cost data relevant to the production of pasta produced 
in Italy that is repackaged and sold in the United States, as well as 
the costs associated with the processing and repackaging operations 
performed in the United States.

Statutory Analysis

(1) Whether Merchandise Sold in the United States is of the Same Class 
or Kind as Other Merchandise That Is Subject to the Orders

    The merchandise under review is imported as bulk pasta, then 
repackaged by an unaffiliated U.S. food packager, and sold in the 
United States as non-egg dry pasta in packages of five pounds (2.27 
kilograms) or less. As the antidumping and countervailing duty orders 
encompass ``certain non-egg dry pasta in packages of five pounds (2.27 
kilograms) or less,'' the merchandise subject to this inquiry is the 
same class or kind of merchandise as that subject to the antidumping 
and countervailing duty orders on certain pasta from Italy.

(2) Whether Merchandise Sold in the United States Is Completed or 
Assembled in the United States From Parts or Components Produced in the 
Foreign Country With Respect to Which the Orders Apply

    Although the terms ``parts'' or ``components'' are not defined 
specifically, the bulk pasta produced by Pagani that is subsequently 
repackaged in the United States is imported from Italy, which is the 
country to which the orders apply. Specifically, the legislative 
history identifies the types of circumvention that are addressed by 
section 781(a) of the Act: (1) The importation of parts or components 
to be assembled in the United States into the class or kind of 
merchandise covered by the order, such as when picture tubes and 
printed circuit boards are shipped by the manufacturer to a related 
subsidiary in the United States to be assembled and sold as television 
receivers; and (2) the importation of an incomplete or unfinished 
article to be completed in the United States, by means other then 
assembly, into the class or kind of merchandise covered by the order, 
such as when steel pipe is imported by a related party that threads it 
and sells it as threaded pipe. H. Rep. No. 100-40, at 134 (1987).
    In this particular case, the bulk pasta is imported into the United 
States from Italy and assembled into smaller packages of five pounds or 
less. The major parts and components that make up repackaged pasta 
consist of: pasta, packaging film, and cartons. In all instances, the 
pasta is imported from Italy, the country subject to the antidumping 
and countervailing duty orders. For certain scenarios the

[[Page 46574]]

packaging film and cartons used in the repackaging were produced in the 
United States and the only imported ``part'' or ``component'' was the 
bulk pasta. Nonetheless, the criterion is still satisfied because bulk 
pasta constitutes almost the entire finished product sold in the United 
States.
    In other instances, packaging film and cartons are also imported 
into the United States from Italy along with the bulk pasta. Thus, the 
merchandise sold in the United States was completed or assembled in the 
United States entirely from parts or components produced in the foreign 
country with respect to which the orders apply.

(3) Whether the Process of Assembly or Completion in the United States 
is Minor or Insignificant

    Section 781(a)(2) lists the factors the Department will consider in 
determining whether the process of assembly or completion is minor or 
insignificant. These criteria are: (A) The level of investment in the 
United States; (B) the level of research and development in the United 
States; (C) the nature of the production process in the United States; 
(D) the extent of the production facilities in the United States; and 
(E) whether the value of the processing performed in the United States 
represents a small proportion of the value of the merchandise sold in 
the United States. With regard to the criteria listed above, the 
Statement of Administrative Action (SAA) accompanying the Uruguay Round 
Agreements Act, H. R. Doc. No. 103-316, at 893 (1994), states that no 
single factor listed in section 781(a)(2) of the Act will be 
controlling. The SAA also states that the Department will evaluate each 
of the factors as they exist in the United States depending on the 
particular circumvention scenario. Id. Therefore, the importance of any 
one of the factors listed under 781(a)(2) of the Act can vary from case 
to case depending on the particular circumstances unique to each 
specific circumvention inquiry.
    In this anti-circumvention inquiry, we attempted to base our 
analysis of whether the process of repackaging bulk pasta in the United 
States was minor or insignificant on both qualitative and quantitative 
factors concerning the nature of the processing performed in the United 
States, in accordance with the criteria of section 781(a)(2) of the 
Act. This approach is consistent with our analysis in previous anti-
circumvention inquiries. See, e.g., Carbon Steel Products and Barilla 
Circumvention Inquiry.
(A) The Level of Investment in the United States
    As explained above in the Background section, we did not receive 
responses to our December 7, 2000, questionnaire from the unaffiliated 
U.S. repacker or the U.S. customer. Thus, the only information on the 
record concerning investment is the fact that Pagani sold one long-cut 
repackaging line to the unaffiliated U.S. repacker. After two years 
this line was returned to Pagani. See March 16, 2001, Memorandum from 
Pasta Circumvention Team to the File (Proprietary Analysis Memo). Thus, 
the record is inconclusive as to whether the level of investment in the 
United States is minor.
    Pagani provided information showing that 25 percent of its 
productive assets in Italy are involved in the packing of pasta. Pagani 
argues that this shows that investment in packing operations is 
significant. However, Pagani has no investment itself in the United 
States. Moreover, there is no reliable way to compare the investment in 
productive assets of Pagani, a pasta manufacturer in Italy, with the 
investment in productive assets of the unaffiliated food repacker in 
the United States. Thus, Pagani's information and argument provide no 
support for finding that investment in the United States in the 
repackaging operation is not minor.
(B) The Level of Research and Development (R&D) in the United States
    Because repackaging bulk pasta is a technically mature process, R&D 
into the process of repackaging is not a significant factor in this 
industry (see Barilla Circumvention Inquiry). In addition, Pagani did 
not perform or assist with any R&D in connection with the repackaging 
of bulk pasta in the United States.
(C) The Nature of the Production Process in the United States
    As discussed above, the only element of the production process 
performed in the United States is the repackaging of the pasta into 
packages of five pounds or less. According to its questionnaire 
response, the repackaging of Pagani's pasta proceeded in accordance 
with three different methods:
    (1) Pagani sold retail pasta to the U.S. customer and subcontracted 
to have the repacking done in the United States.
    Pagani exported bulk pasta in plain large plastic bags (i.e., 
``neutro'' bags), along with the film and cartons into which it would 
be repackaged for shipment to the ultimate consignee. The pasta, film 
and cartons were shipped by Pagani to the repacker; the repacker broke 
open the large plastic bags, packed the pasta into the film, put the 
film packages into the cartons, and sent the pasta to the U.S. 
customer. In such transactions, the packaging company invoiced Pagani 
for the repackaging services (including any supplies used therein), and 
Pagani invoiced the U.S. customer for pasta, for film and cartons, and 
for the repackaging service (a tolling arrangement, in the sense that 
Pagani had ownership of the pasta, the film and the cartons until the 
repackaging was completed and the pasta was shipped and invoiced to the 
customer).
    (2) Pagani sold bulk pasta to the U.S. customer who repacked the 
pasta in the United States at its own expense.
    Pagani sold bulk pasta packed in large plastic bags to a U.S. 
customer on a delivered CIF or FOB port basis, as applicable. The 
merchandise was then shipped to the consignee (the U.S. customer, in 
care of the repackaging company's location). The U.S. customer bought 
the packing film and supplied it to the repacker for the subsequent 
repackaging into retail packages of five pounds or less. In this type 
of sale, Pagani invoiced the U.S. customer for the pasta, and all other 
expenses incurred by Pagani. Film and repackaging fees were invoiced by 
their respective providers directly to the importer. According to 
Pagani, this scenario represented a simple export sale of ``neutro'' 
packed pasta.
    (3) Pagani sold pasta to the U.S. customer and the film to the 
repacking company.
    Pagani invoiced the U.S. customer for the bulk pasta and then 
invoiced the repacking company for the packaging material. The 
repackaging company then invoiced the U.S. customer for the repacking 
fee and materials. Pagani invoiced the U.S. customer for the repacking 
fee which was included in the price of the bulk pasta.
    For all three methods, the bulk pasta was exported in ``neutro'' 
bags to the unaffiliated U.S. repacker, transferred to smaller 
packages, and shipped to the U.S. customer by the repacker. The neutro-
packed pasta is required by U.S. law to be repacked, since it is 
unlawful to sell food in the United States in packages without labeling 
information.
    We have little direct information regarding the nature of the 
repackaging process in the Unites States actually employed by the 
unaffiliated U.S. repacker. The only potentially relevant information 
is about the general nature of packing operations conducted by

[[Page 46575]]

pasta manufacturers.\2\ The manufacturing process for the production of 
pasta involves multiple steps and advanced technology. In the initial 
production stage, semolina flour is mixed with water to a specific 
moisture level. Specific pasta types are then extruded through 
different dies in a die block. Following extrusion, the product 
proceeds through several separate drying stages, after which the pasta 
is cooled. The cooled dry pasta is then packaged into the desired 
finished package size (e.g., one pound bags, five pound bags, ten pound 
bags, etc.) and these finished packages are placed into larger shipping 
boxes.
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    \2\ Pagani submitted an excerpt from a book that discussed pasta 
packaging. However, there is no way to determine whether this 
information is relevant to the actual operations of the unaffiliated 
repacker.
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    In contrast to these steps, which require significant capital 
expenditures and labor, and which all typically would take place in 
Italy, the repackaging in the United States simply involves the last 
stage of processing. For exports of bulk pasta, the merchandise is 
packaged in Italy into ``neutro'' bags, rather than into the finished 
package size. In the United States the pasta is merely transferred from 
large bags into smaller packages. Thus, while we do not know what 
process the unaffiliated repacker actually employs, the only 
information we do have strongly suggests that the nature of the 
repackaging operation is minor relative to the entire process of pasta 
production.
(D) The Extent of Production Facilities in the United States
    Like the level of investment, the only information we have concerns 
one processing line that is of comparatively little value, and was in 
operation only temporarily. Thus, the record is inconclusive as to the 
extent of production facilities in the United States.
(E) Whether the Value of the Processing Performed in the United States 
Represents a Small Proportion of the Value of the Merchandise Sold in 
the United States
    Pagani calculated the value added in the United States as the price 
it paid for repacking on a per-unit basis, (i.e. per one one-pound bag 
of pasta). Using this calculation, Pagani asserted that the value of 
the processing in the United States is significant. Pagani did not 
provide a range of the value added in its public version of its 
submission. However, our analysis of Pagani's data shows that the value 
of the processing performed in the United States represents a small 
proportion of the value of the merchandise sold in the United States 
(see Proprietary Analysis Memo).
    In summary, we preliminarily find that the record evidence supports 
a finding that the process of assembly or completion in the United 
States is minor and insignificant. In fact, based on a review of the 
record evidence it is clear that the actual production process for the 
pasta is concentrated in Pagani's pasta production facilities in Italy. 
While some of the statutory factors are inconclusive, the information 
on the record tends to show that the repackaging operation in the 
United States is minor and insignificant. The legislative history to 
section 781(a) establishes that Congress intended the Department to 
make determinations regarding circumvention on a case-by-case basis in 
recognition that the facts of individual cases and the nature of 
specific industries vary widely. In particular, Congress directed the 
Department to focus more on the nature of the production process and 
less on the difference in value between the subject merchandise and the 
imported parts or components. See S. Rep. No. 103-412, at 81-82 (1994). 
Thus, we believe that it is appropriate to place more weight on the 
nature of the production and packaging process (the latter of which 
merely involves removing pasta from larger bags and placing it in 
smaller packages) rather than attempt to establish a numerical 
standard, which would be contrary to the intentions of Congress. See 
Carbon Steel Products, 64 FR at 40347. Therefore, our decision is based 
more on the qualitative nature of the process rather than the 
quantitative amount of the value added.
(4) Whether the Value of Imported Parts or Components is a Significant 
Portion of the Total Value of the Merchandise
    Under section 781(a)(1)(D) of the Act, the value of the imported 
parts or components must be a significant portion of the total value of 
the subject merchandise sold in the United States in order to find 
circumvention. The major parts and components that make up repackaged 
pasta consist of: pasta, packaging film, and cartons. As discussed in 
the section of this notice entitled Whether Merchandise Sold in the 
United States is Completed or Assembled in the United States from Parts 
or Components Produced in the Foreign Country with Respect to which the 
Orders Apply, in all instances the bulk pasta is imported from Italy. 
For certain scenarios where the packaging film and cartons used in the 
repackaging were produced in the United States, the only ``imported 
part or component'' was the bulk pasta. In the remaining instances, the 
packaging film and cartons are imported into the United States along 
with the bulk pasta. Based on our analysis, the value of Italian pasta 
imported in bulk constitutes the great majority of the value of the 
finished product ultimately sold to customers in the United States and 
thus constitutes a significant portion of the value of the repackaged 
pasta (see Proprietary Analysis Memo).

Other Factors To Consider

    In making a determination whether to include parts or components 
within an order, section 781(a)(3) of the Act instructs us to take into 
account such factors as: the pattern of trade, including sourcing 
patterns; whether affiliation exists between the exporter of the parts 
and the person who assembles or completes the merchandise sold in the 
United States; and whether imports into the United States of the parts 
produced in the foreign country have increased after the initiation of 
the investigation which resulted in the issuance of the order. Each of 
these factors are examined below.

(1) Pattern of Trade

    The first factor to consider under section 781(a)(3) of the Act is 
changes in the pattern of trade, including changes in the sourcing 
patterns of the bulk pasta. Before the antidumping and countervailing 
duty orders on pasta from Italy were issued, Pagani had a well 
established food service channel of trade in which it sold pasta in 
packages of five pounds or less. After the antidumping and 
countervailing duty orders were issued, Pagani began selling bulk pasta 
for repackaging in the United States, in order to continue to supply 
pasta to its food service customers. Pagani began this repackaging in 
1997. Thus, the pattern of trade changed after the imposition of the 
orders.

(2) Affiliation

    The second factor to consider under section 781(a)(3) of the Act is 
whether the manufacturer or exporter of the bulk pasta is affiliated 
with the entity that repackages the merchandise sold in the United 
States from the imported bulk pasta. Based on available information, 
Pagani and the U.S. repacker are not affiliated within the meaning of 
section 771(33) of the Act. There is neither common ownership, direct 
or indirect control, nor a joint venture between the companies.

[[Page 46576]]

(3) Whether Imports Have Increased

    The third factor to be considered under section 781(a)(3) is 
whether imports of bulk pasta into the United States have increased 
after the initiation of the original investigation. In our December 7, 
2000, supplemental questionnaire, we requested Pagani to provide the 
volume and value of all Pagani pasta exported to the United States for 
1994-2000. We requested Pagani to provide the information for sales of 
(1) pasta exported in packages of five pounds or greater that is 
repackaged in the United States into packages that are less than or 
equal to five pounds; (2) pasta sold in packages of greater than five 
pounds; and (3) pasta imported into the United States already in 
packages of five pounds or less that is subject to the antidumping and 
countervailing duty orders. This information is relevant to gauging the 
extent to which Pagani altered its exports (i.e., by shifting its 
exports from merchandise subject to the orders to bulk pasta). Pagani 
failed to provide the requested information. Therefore, we are unable 
to determine whether imports have increased, based on record data.
    Section 776(a) of the Act requires the Department to resort to 
facts otherwise available if necessary information is not available on 
the record or when an interested party or any other person ``fails to 
provide [requested] information by the deadlines for submission of the 
information or in the form and manner requested, subject to subsections 
(c)(1) and (e) of section 782.'' As provided in section 782 (c)(1) of 
the Act, if an interested party ``promptly after receiving a request 
from [the Department] for information, notifies [the Department] that 
such party is unable to submit the information requested in the 
requested form and manner together with a full explanation and 
suggested alternative forms in which such party is able to submit the 
information,'' the Department may modify the requirements to avoid 
imposing an unreasonable burden on that party. Since Pagani did not 
provide any such notification to the Department, subsection (c)(1) does 
not apply to this situation. Furthermore, since Pagani failed to 
respond to the Department's questions regarding volume and value of all 
Pagani pasta exported to the United States during the period 1994-2000, 
we must base the preliminary determination in this inquiry on the facts 
otherwise available.
    Section 776(b) of the Act permits the Department to use an 
inference that is adverse to the interests of an interested party if 
that party has ``failed to cooperate by not acting to the best of its 
ability to comply with a request for information.'' Because Pagani 
refused to comply with the Department's request for information without 
adequate explanation or suggested alternatives, we find that Pagani 
failed to cooperate by not acting to the best of its ability to comply 
with the Department's request. Pagani's refusal to respond to our 
questions regarding Pagani's volume and value of exports impedes our 
ability not only to determine if circumvention of the antidumping and 
countervailing duty orders is occurring, but also to distinguish 
between its bulk imports for repackaging and any bulk imports which may 
have been exempt from the scope of the antidumping and countervailing 
duty orders. Therefore, the adverse inference we are relying upon in 
accordance with section 776(b) of the Act is that Pagani's exports of 
pasta in bulk packages to the United States, for repackaging in the 
United States prior to delivery to the ultimate customer, have 
increased over the relevant period.

Summary of Statutory Analysis

    As discussed above, in order to make an affirmative determination 
of circumvention, all the elements under sections 781(a)(1) of the Act 
must be satisfied, taking into account the factors under section 
781(a)(2) of the Act. First, the merchandise repackaged and sold in the 
United States is within the same class or kind of merchandise that is 
subject to the order. Second, bulk pasta was exported to the United 
States and then assembled into smaller packages of five pounds or less 
after importation. Third, the process of assembly or completion in the 
United States is minor and insignificant. Thus, we find affirmative 
evidence of circumvention in accordance with sections 781(a)(1) and (2) 
of the Act. We next considered the factors required by section 
781(a)(3) of the Act, in reaching our determination. The facts 
concerning pattern of trade, sourcing, affiliation, and import trends 
indicate that there is circumvention of the pasta orders. Consequently, 
our statutory requirements lead us to find that during the period of 
time examined there was circumvention of the orders as a result of the 
repackaging operation discussed above.

Certification Option

    Pagani certified that the U.S. repackaging operation, which began 
in the third quarter of 1997, was terminated for long cuts in 1999. 
With regard to short cuts, Pagani submitted a certification from the 
U.S. repacker stating that short cuts of pasta from Pagani was last 
invoiced on February 8, 2000. Thus, Pagani asserts that the repackaging 
operations have ceased.
    As discussed above in Pagani Proposed Certification Scheme, Pagani 
requested that the Department implement a certification scheme, similar 
to the program presented in the Barilla Circumvention Inquiry, whereby 
each of Pagani's unaffiliated U.S. customers would certify that it 
would resell all pasta purchased from Pagani in the packaging in which 
the pasta was delivered to it, and would not repack any pasta from 
packages greater than five pounds into packages of five pounds or less. 
According to Pagani, this scheme would enable the Department to exclude 
bulk pasta that was not destined for repackaging after importation, 
e.g., bulk pasta shipped directly to institutional or food service 
users, from the scope of the antidumping and countervailing duty 
orders.
    We have preliminarily determined to adopt the certification scheme 
proposed by Pagani. According to that scheme, Pagani and each of 
Pagani's unaffiliated customers who purchase bulk pasta would certify 
that it would not repackage any bulk pasta into packages of five pounds 
or less.

Suspension of Liquidation

    We have made an affirmative preliminary finding that Pagani's 
activities for the repacking of bulk pasta into packages of five pounds 
or less for sale in the United States constitute circumvention. The 
merchandise subject to suspension of liquidation is pasta in packages 
of greater than five pounds as defined in the Scope of the Anti-
circumvention Inquiry section of this notice, unaccompanied by the 
appropriate certification. In accordance with section 773(d) of the 
Act, the Department normally directs the U.S. Bureau of Customs and 
Border Protection (BCBP) to suspend liquidation and to require a cash 
deposit of estimated duties, at the applicable rate, on all 
unliquidated entries of bulk pasta from Italy not accompanied by 
appropriate certification, produced by Pagani, that were entered, or 
withdrawn from warehouse, for consumption on or after April 27, 2000, 
the date of initiation of this anti-circumvention inquiry.
    However, due to cessation of Pagani's circumvention activity, the 
Department will not instruct BCBP to require such certification until 
such time as petitioner or other interested parties provide to the 
Department a reasonable

[[Page 46577]]

basis to believe or suspect that the order is being circumvented. If 
such information is provided, we will require certification only for 
the product(s) for which evidence is provided that such products are 
being used in the circumvention of the order. Normally we will require 
only the importer of record to certify to the end-use of the imported 
merchandise. If it later proves necessary for adequate implementation, 
we may also require Pagani to provide such certification on invoices 
accompanying shipments to the United States. See Notice of Final 
Determinations of Sales at Less Than Fair Value: Certain Large Diameter 
Carbon and Alloy Seamless Standard, Line and Pressure Pipe From Japan; 
and Certain Small Diameter Carbon and Alloy Seamless Standard, Line and 
Pressure Pipe From Japan and the Republic of South Africa, 65 FR 25907 
(May 4, 2000).

Notification of the International Trade Commission

    The Department, consistent with section 781(e) of the Act, will 
notify the ITC of this preliminary determination to include the 
merchandise subject to this inquiry within the antidumping and 
countervailing duty orders on certain pasta from Italy. Pursuant to 
section 781(e) of the Act, the ITC may request consultations concerning 
the Department's proposed inclusion of the subject merchandise. If, 
after consultations, the ITC believes that a significant injury issue 
is presented by the proposed inclusion, it will have 60 days to provide 
written advice to the Department.

Public Comment

    Interested parties may request a hearing within 10 days of 
publication of this notice. Case briefs and/or written comments from 
interested parties may be submitted no later than 20 days from the 
publication of this notice. Rebuttal briefs and rebuttals to comments, 
limited to issues raised in those briefs or comments may be filed no 
later than 27 days after publication of this notice. Any hearing, if 
requested, will be held no later than 34 days after publication of this 
notice. The Department will publish the final determination with 
respect to this anti-circumvention inquiry, including the results of 
its analysis of any written comments.
    This affirmative preliminary circumvention determination is in 
accordance with section 781(a) of the Act and 19 CFR 351.225.

    Dated: August 30, 2003.
Joseph A. Spetrini,
Acting Assistant Secretary for Grant Aldonas, Under Secretary.
[FR Doc. 03-20046 Filed 8-5-03; 8:45 am]
BILLING CODE 3510-DS-P