[Federal Register Volume 69, Number 191 (Monday, October 4, 2004)]
[Notices]
[Pages 59197-59204]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2479]


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DEPARTMENT OF COMMERCE

International Trade Administration

[A-821-819]


Notice of Preliminary Determination of Sales at Less Than Fair 
Value and Postponement of Final Determination: Magnesium Metal From the 
Russian Federation

AGENCY: Import Administration, International Trade Administration, 
Department of Commerce.
SUMMARY: In response to a petition filed by U.S. Magnesium LLC (U.S. 
Magnesium), United Steelworkers of America, Local 8319, Glass, Molders, 
Pottery, Plastics and Allied Workers International, Local 374 
(collectively, the Petitioners), the U.S. Department of Commerce (the 
Department) initiated and is conducting an investigation of sales of 
magnesium metal from the Russian Federation for the period January 1, 
2003, through December 31, 2003. See Notice of Initiation of 
Antidumping Duty Investigations: Magnesium Metal From the People's 
Republic of China and the Russian Federation, 69 FR 15293 (March 25, 
2004) (Initiation Notice). The Department preliminarily determines that 
magnesium metal from the Russian Federation is being or is likely to be 
sold in the United States at less than fair value (LTFV), as provided 
in Section 733 of the Tariff Act of 1930, as amended (the Act). The 
estimated margins of sales at LTFV are listed in the ``Suspension of 
Liquidation'' section of this notice. Interested parties are invited to 
comment on this preliminary determination.

EFFECTIVE DATE: October 4, 2004.

FOR FURTHER INFORMATION CONTACT: Joshua Reitze or Sebastian Wright at 
(202) 482-0666 or (202) 482-5254, respectively; Office of AD/CVD 
Operations VI, Import Administration, Room 1870, International Trade 
Administration, U.S. Department of Commerce, 14th Street and 
Constitution Avenue, NW., Washington, DC 20230.

SUPPLEMENTARY INFORMATION:

[[Page 59198]]

Preliminary Determination

Case History

    This investigation was initiated on March 18, 2004. See Initiation 
Notice. Since the initiation of the investigation, the following events 
have occurred.
    On March 26, 2004, the Department issued a letter providing 
interested parties an opportunity to comment on a proposed set of 
model-match criteria. We received comments in response to this letter 
from the Petitioners and JSC Avisma Magnesium-Titanium Works and VSMPO-
Tirus, U.S. (Avisma) on April 1, 2004. Based on these submissions, we 
determined the appropriate model-match characteristics and included 
them in the antidumping questionnaire issued to Avisma and Solikamsk 
Magnesium Works (SMW), Respondents in this investigation, on April 24, 
2004.
    On March 31, 2004, the Department set aside a period for all 
interested parties to raise issues regarding the scope of this 
investigation. On April 16, 2004, the following companies submitted 
timely comments: Reade Manufacturing Company, Magnesium Elektron North 
America, Inc., and Hart Metals, Inc. (collectively, Reade) and Avisma. 
On April 26, 2004, the Department received rebuttal comments from the 
Petitioners, and additional comments from Northwest Alloys, Inc. 
(Northwest) and Alcoa, Inc. (Alcoa). On June 25, June 28, and July 9, 
2004, we received additional comments on the scope of this 
investigation from Petitioners, Alcoa, Reade, and Avisma, in response 
to questions that we issued to all interested parties on June 9, 2004.
    On May 17, 2004, the United States International Trade Commission 
(ITC) preliminarily determined that there is a reasonable indication 
that imports of the products subject to this investigation are 
materially injuring an industry in the United States producing the 
domestic like products. See Magnesium From China and Russia, 69 FR 
29329 (May 21, 2004) (ITC Preliminary Determination).
    On June 28, 2004, the Petitioners requested that the Department 
extend the preliminary determination in this investigation from August 
5, 2004, to September 24, 2004. See Notice of Postponement of 
Preliminary Determinations in Antidumping Duty Investigations of 
Magnesium Metal From the People's Republic of China and the Russian 
Federation, 69 FR 43561 (July 21, 2004) (Postponement of Preliminary 
Determinations). Because there were no compelling reasons to deny the 
request, we postponed the preliminary determination to September 24, 
2004, under section 733(c)(1) of the Act.
    In their petition, the Petitioners alleged that Russian energy 
costs were distorted by excessive involvement by the Russian government 
in the energy sector, and requested that the Department make 
adjustments to energy costs to account for the effects of this 
involvement. In the Initiation Notice, the Department stated its intent 
to investigate the Russian government's involvement in the energy 
sector, and to consider whether an adjustment was appropriate. On July 
30, 2004, the Petitioners submitted additional information to support 
their claim that Russian government involvement resulted in gas and 
electricity prices that do not reflect ``economic reality,'' stating 
their argument that the Department has the legal authority to disregard 
or adjust the energy costs reported by Respondents to account for this 
distortion, and suggesting options for correcting the effects of this 
distortion. On September 1 and 3, 2004, Avisma submitted arguments to 
rebut the Petitioners' claims. On September 15, 2004, SMW submitted 
comments which endorsed the legal analysis of Avisma's September 1 and 
3, 2004, comments.

Postponement of Final Determination and Extension of Provisional 
Measures

    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. On September 
14 and September 21, 2004, we received requests to postpone the final 
determination from SMW and Avisma, respectively. Both requests 
consented to the extension of provisional measures from four months to 
no longer than six months. Since this preliminary determination is 
affirmative, the requests for postponement are made by exporters that 
account for a significant proportion of exports of the subject 
merchandise, and since there is no compelling reason to deny the 
Respondents' requests, 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 
and have extended provisional measures to no longer than six months.

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. Where it is not practicable to examine all known 
producers/exporters of subject merchandise, section 777A(c)(2) of the 
Act 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. In the petition, 
the Petitioners identified two potential producers and exporters of 
magnesium metal in the Russian Federation: Avisma and SMW. This was 
confirmed by the Department's analysis of data collected by U.S. 
Customs and Border Protection (CBP), which was placed on the record on 
June 17, 2004.
    On May 21, 2004, the Department received an e-mail message from 
another Russian producer of magnesium. In a subsequent e-mail message, 
the producer informed the Department that it had sold a small amount of 
subject merchandise to the United States during the period of 
investigation (POI). It also informed the Department that it is 
unrelated to the other Respondents. The sales amount reported by this 
producer is extremely small in comparison to the import statistics on 
the ITC Web site. As discussed in the memorandum for selection of 
Respondents, the Department found that it was not practical to examine 
all known exporters and producers of the subject merchandise. See 
Antidumping Duty Investigation of Magnesium Metal From the Russian 
Federation; Selection of Mandatory Respondents, June 29, 2004 
(Respondent Selection Memo). Furthermore, the Department found that the 
two Respondents named in the initiation account for almost all exports 
of subject merchandise to the United States. Id. Accordingly, because 
Avisma and SMW account for the largest volume of the subject 
merchandise that can be reasonably examined, the Department has 
calculated individual dumping margins for those two companies. See 
section 777A(c)(2)(B) of the Act.

[[Page 59199]]

Period of Investigation

    The period of investigation (POI) is January 1, 2003, through 
December 31, 2003. This period corresponds to the four most recent 
fiscal quarters prior to the month of filing of the petition (i.e., 
March 2004) involving imports from a market economy, and is in 
accordance with the Department's regulations. See 19 CFR 351.204(b)(1).

Scope of Investigation

    For the purpose of this investigation, the product covered is 
magnesium metal (also referred to as magnesium). The products covered 
by this investigation are primary and secondary pure and alloy 
magnesium metal, regardless of chemistry, raw material source, form, 
shape, or size. Magnesium is a metal or alloy containing by weight 
primarily the element magnesium. Primary magnesium is produced by 
decomposing raw materials into magnesium metal. Secondary magnesium is 
produced by recycling magnesium-based scrap into magnesium metal. The 
magnesium covered by this investigation includes blends of primary and 
secondary magnesium.
    The subject merchandise includes the following pure and alloy 
magnesium metal products made from primary and/or secondary magnesium, 
including, without limitation, magnesium cast into ingots, slabs, 
rounds, billets, and other shapes, and magnesium ground, chipped, 
crushed, or machined into raspings, granules, turnings, chips, powder, 
briquettes, and other shapes: (1) Products that contain at least 99.95 
percent magnesium, by weight (generally referred to as ``ultra-pure'' 
magnesium); (2) products that contain less than 99.95 percent but not 
less than 99.8 percent magnesium, by weight (generally referred to as 
``pure'' magnesium); and (3) chemical combinations of magnesium and 
other material(s) in which the magnesium content is 50 percent or 
greater, but less that 99.8 percent, by weight, whether or not 
conforming to an ``ASTM Specification for Magnesium Alloy.''
    The scope of this investigation excludes: (1) Magnesium that is in 
liquid or molten form; and (2) mixtures containing 90 percent or less 
magnesium in granular or powder form by weight and one or more of 
certain non-magnesium granular materials to make magnesium-based 
reagent mixtures, including lime, calcium metal, calcium silicon, 
calcium carbide, calcium carbonate, carbon, slag coagulants, fluorspar, 
nephaline syenite, feldspar, alumina (Al203), calcium aluminate, soda 
ash, hydrocarbons, graphite, coke, silicon, rare earth metals/
mischmetal, cryolite, silica/fly ash, magnesium oxide, periclase, 
ferroalloys, dolomite lime, and colemanite.\1\
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    \1\ This second exclusion for magnesium-based reagent mixtures 
is based on the exclusion for reagent mixtures in the 2000-2001 
investigations of magnesium from China, Israel, and Russia. See 
Final Determination of Sales at Less Than Fair Value: Pure Magnesium 
in Granular Form From the People's Republic of China, 66 FR 49345 
(September 27, 2001); Final Determination of Sales at Less Than Fair 
Value: Pure Magnesium From Israel, 66 FR 49349 (September 27, 2001); 
Final Determination of Sales at Not Less Than Fair Value: Pure 
Magnesium From the Russian Federation, 66 FR 49347 (September 27, 
2001). These mixtures are not magnesium alloys, because they are not 
chemically combined in liquid form and cast into the same ingot.
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    The merchandise subject to this investigation is classifiable under 
items 8104.11.00, 8104.19.00, 8104.30.00, and 8104.90.00 of the 
Harmonized Tariff Schedule of the United States (HTSUS). Although the 
HTSUS items are provided for convenience and customs purposes, the 
written description of the merchandise under investigation is 
dispositive.

Scope Issues

    On March 31, 2004, the Department set aside a period for all 
interested parties to raise issues regarding the scope of this 
investigation. As discussed above, we received comments from Reade, 
Northwest, Alcoa, and Avisma, as well as rebuttal comments from 
Petitioners. These comments are summarized in the Department's 
September 24, 2004 memorandum Product Coverage in Magnesium Metal From 
the Russian Federation (Product Coverage Memorandum). In their 
comments, parties raised two issues: (1) Whether alloy and pure 
magnesium should be treated as two separate like products; and (2) 
whether ultra high purity (UHP) magnesium should be excluded from the 
scope of this investigation. Based on our analysis of the evidence on 
the record, we preliminarily determine that UHP magnesium is within the 
scope of the investigation. We also preliminarily determine that pure 
magnesium and alloy magnesium constitute a single like product. For a 
detailed discussion of our decision, see Product Coverage Memorandum.

Fair Value Comparisons

    To determine whether sales of magnesium metal were made in the 
United States at LTFV, we compared the constructed export price (CEP) 
to the normal value (NV), as described in the ``Constructed Export 
Price'' and ``Normal Value'' sections below. In accordance with section 
777A(d)(1)(A)(i) of the Act, we calculated weighted-average CEPs. We 
then compared these to weighted-average home market prices in Russia.

Date of Sale

    Avisma reported invoice date as the date of sale for both the home 
and U.S. markets. Avisma issues invoices at the time of shipment, 
which, in the home market, may come after payment. For contract sales, 
the invoice establishes the price and quantity of the sale, as well as 
the parameters by which price and quantity may change under the 
contract. Invoices also set the price and quantity for spot sales. 
Because the material terms of sale are established when the invoice is 
issued, and because of our presumption that invoice date is the date of 
sale, as stated in section 351.401(i) of our regulations, we are using 
invoice date as the date of sale for all Avisma transactions in both 
markets.
    For both the home and U.S. markets, SMW reported contract date as 
the date of sale. The contract date is the date when the material terms 
of sale (i.e., price and quantity) are first established with the 
customer, but, as with Avisma's contracts, these values are allowed to 
change under the terms of the contract. In such cases where the price 
or quantity of a contract were amended, SMW reported the date of the 
amendment as the date of sale. SMW reported all sales with contracts 
that were initiated or amended during or prior to the POI and with 
invoices issued during the POI.
    Because the material terms of SMW's contracts are susceptible to 
amendment, and in fact are amended, we are using invoice date as the 
date of sale for this preliminary determination for both the home and 
U.S. markets. As noted above, the Department's regulations presume that 
invoice date is the date of sale. See 19 CFR 351.401(i) (``In 
identifying the date of sale of the subject merchandise or foreign like 
product, the Secretary normally will use the date of invoice''). 
Therefore, we preliminarily determine that invoice date is the proper 
date of sale for both markets.

Constructed Export Price

    For U.S. price, we used CEP, as defined in section 772(b) of the 
Act. 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 such merchandise or by a seller affiliated with the 
producer or exporter, to a purchaser not affiliated with the

[[Page 59200]]

producer or exporter, as adjusted under subsections 772(c) and (d) of 
the Act.
    In its questionnaire responses, Avisma identified all of its sales 
to the United States as CEP sales. All of Avisma's sales are properly 
classified as CEP sales because they were made for the account of 
Avisma, by Avisma's U.S. affiliate, VSMPO-Tirus, U.S., Inc. (Tirus US), 
to unaffiliated purchasers in the United States. U.S. sales to the 
first unaffiliated party were made in the United States, by the U.S. 
affiliate, thus satisfying the Department's requirements for treating 
sales as CEP sales. Avisma and Tirus US are affiliated through common 
ownership. See Section 771(33)(F) of the Act.
    In accordance with Section 772(c)(2) of the Act, for Avisma's CEP 
sales we made deductions from price for movement expenses and 
discounts, and additions for billing adjustments, where appropriate. 
More specifically, after reviewing the terms of delivery for Avisma's 
CEP sales to the United States, we deducted early payment discounts, 
added billing adjustments, and deducted foreign inland freight from 
plant to port, international freight and insurance, U.S. customs 
duties, U.S. brokerage and handling, and U.S. inland freight. See 
Analysis Memorandum for Magnesium Metal from the Russian Federation: 
JSC AVISMA Titanium-Magnesium Works and VSMPO-Tirus, U.S., Inc. (Avisma 
Analysis Memorandum).
    Section 772(d)(1) of the Act provides for additional adjustments to 
calculate CEP. Accordingly, we deducted direct selling expenses and 
indirect selling expenses related to commercial activity in the United 
States. Pursuant to section 772(d)(3) of the Act, we made an adjustment 
for CEP profit.
    SMW also identified all of its U.S. sales as CEP sales in its 
questionnaire responses. During the POI, all sales of SMW's subject 
merchandise to the United States were made through its U.S. affiliates, 
Solimin and Cometals. We find that Cometals is affiliated with SMW by 
virtue of an agency agreement, in which Cometals acts as a North 
American distributor of pure and alloy magnesium products. See Section 
771(33) of the Act; See also Notice of Final Determination of Sales at 
Less Than Fair Value: Engineered Process Gas Turbo-Compressor Systems, 
Whether Assembled or Unassembled, and Whether Complete or Incomplete, 
from Japan, 62 FR 24394, 24403 (May 5, 1997). For a complete discussion 
of the basis for finding SMW and Cometals affiliated, see Analysis 
Memorandum for Magnesium Metal from the Russian Federation: Solikamsk 
Magnesium Works (SMW Analysis Memorandum). We also find that Solimin is 
affiliated with SMW under section 771(33)(G) of the Act because it is 
wholly owned by SMW. All of SMW's sales are properly classified as CEP 
sales because they were made for the account of SMW, by SMW's U.S. 
affiliates, Solimin and Cometals, to unaffiliated purchasers in the 
United States. U.S. sales to the first unaffiliated party were made in 
the United States, by the U.S. affiliates, thus satisfying the 
Department's requirements for characterizing sales as CEP sales.
    In accordance with section 772(c)(2) of the Act, for SMW's CEP 
sales, we made deductions from price for movement expenses and billing 
adjustments, where appropriate. More specifically, after reviewing the 
terms of delivery for SMW's CEP sales, we deducted foreign inland 
freight from plant to port; foreign brokerage, handling, and port 
charges; international freight and insurance; U.S. brokerage, handling, 
and port charges; U.S. warehousing; U.S. and foreign customs duties; 
and U.S. inland freight. See SMW Analysis Memorandum.
    In accordance with section 772(d)(1) of the Act, we deducted direct 
selling expenses and indirect selling expenses related to commercial 
activity in the United States. Pursuant to section 772(d)(3) of the 
Act, we made an adjustment for CEP profit.

Normal Value

A. Selection of Comparison Markets

    Section 773(a)(1) of the Act directs the Department to calculate NV 
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. Under the statute, the Department will normally consider 
quantity (or value) insufficient if it is less than five percent of the 
aggregate quantity (or value) of sales of the subject merchandise to 
the United States. See Section 773(a)(1)(C) of the Act. We found that 
both Avisma and SMW had a viable home market for magnesium metal. As 
such, Avisma and SMW submitted home market sales data for the 
calculation of NV. In deriving NV, we made adjustments as detailed in 
the section below on ``Calculation of Normal Value Based on Home Market 
Prices'' section.

B. Affiliated Party Transactions and Arm's-Length Test

    We used sales to affiliated customers in the home market only where 
we determined such sales were made at arm's-length prices (i.e., at 
prices comparable to the prices at which the Respondent sold identical 
merchandise to unaffiliated customers). To test whether the sales to 
affiliates were made at arm's-length prices, we compared the unit 
prices of sales to affiliated and unaffiliated customers net of all 
movement charges, direct selling expenses, discounts and packing. In 
accordance with the Department's practice, if the prices charged to an 
affiliated party were, on average, between 98 and 102 percent of the 
prices charged to unaffiliated parties for merchandise identical or 
most similar to that sold to the affiliated party, we consider the 
sales to be at arm's-length prices. See 19 CFR 351.403(c). For the sole 
affiliated reseller that failed the arm's-length test, we based NV on 
its sales to unaffiliated parties (i.e., downstream sales). The 
remaining affiliated parties that did not pass the arm's-length test 
were consumers, and, therefore, there were no downstream sales on which 
to base NV. Sales to these affiliated consumers were excluded from our 
NV calculations. See 19 CFR 351.403(d); see also Antidumping 
Proceedings: Affiliated Party Sales in the Ordinary Course of Trade, 67 
FR 69186 (November 15, 2002).

C. Cost of Production Analysis

    On June 29, 2004, Petitioners alleged that Avisma and SMW made 
sales in the home market at less than the COP. On July 15, 2004, 
Petitioners amended this allegation and revised their methodology. 
Based on these allegations, and in accordance with section 
773(b)(2)(A)(i) of the Act, we found reasonable grounds to believe or 
suspect that magnesium sales were made in Russia at prices below the 
cost of production (COP). See Initiation of Sales Below Cost 
Investigation: Avisma (July 22, 2004) (Avisma Cost Initiation 
Memorandum) and Initiation of Sales Below Cost Investigation: Solikamsk 
Magnesium Works (July 30, 2004) (SMW Cost Initiation Memorandum). As a 
result, the Department is conducting an investigation to determine 
whether Avisma and SMW made home market sales of magnesium at prices 
below their respective COPs during the POI within the meaning of 
section 773(b) of the Act.

[[Page 59201]]

1. Calculation of Cost of Production
    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 the home 
market selling, general, and administrative (SG&A) expenses, including 
interest expenses and packing expenses. We relied on the COP data 
submitted by Avisma and SMW in their cost questionnaire responses, with 
the following changes.
    We adjusted Avisma's financial expense ratio to include the total 
net foreign exchange gains and losses from Avisma's 2003 audited 
financial statements. See Memorandum to Neal M. Halper, Director, 
Office of Accounting, from Robert B. Greger, Senior Accountant, Cost of 
Production and Constructed Value Calculation Adjustments for the 
Preliminary Determination for Magnesium Metal from the Russian 
Federation, (September 24, 2004). For SMW, we revised the reported 
general and administrative (G&A) expense ratio to include certain 
administrative costs recorded as part of the cost of goods sold in the 
company's financial statements. We then excluded these costs from the 
cost of goods sold denominator that we used to calculate the G&A 
expense ratio. We also revised SMW's reported financial expense ratio 
to exclude certain administrative costs from the cost of goods sold 
denominator that we used to calculate the end ratio. See Memorandum to 
Neal M. Halper, Director, Office of Accounting, from Ernest Z. Gzyrian, 
Senior Accountant, Cost of Production and Constructed Value Calculation 
Adjustments for the Preliminary Determination for Magnesium Metal from 
the Russian Federation--Solikamsk Magnesium Works, (September 24, 
2004).
    As noted above under ``Case History,'' Petitioners have alleged 
that Russian energy costs are distorted by excessive government 
involvement, and have requested that the Department make adjustments to 
Respondents' reported energy costs to account for the effects of this 
involvement. In their various submissions (identified in the ``Case 
History'' section above). Petitioners argue such adjustments are 
allowed under section 773(f) of the Act, which states:

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 (or the producing country, where appropriate) and 
reasonably reflect the costs associated with the production and sale 
of the merchandise.

    Petitioners argue the use of the word ``normally'' in section 
773(f) of the Act gives the Department the discretion to disregard 
reported costs in certain circumstances. According to Petitioners, 
energy is a cost ``associated with'' the production and sale of 
magnesium. Petitioners argue that non-market forces pervade the Russian 
energy sector, and that Russian energy prices do not reflect the true 
cost of energy production. In support of their position, Petitioners 
submitted documents from various organizations examining the Russian 
energy sector, and based on their analysis of these documents, they 
proposed options for the requested adjustment. Petitioners also noted 
that the Department's 2002 memorandum granting Russia market economy 
status, and the suspension agreement signed in 2002 in the antidumping 
investigation of cut-to-length carbon steel plate from Russia, alluded 
to the fact that prices in the Russian energy sector would merit 
particular scrutiny in future antidumping proceedings. In Petitioners' 
view, therefore, there is a sufficient legal and factual basis to 
reject Respondents' reported energy costs.
    Respondents, on the other hand, argue that the Department has no 
authority to disregard their reported energy costs. Respondents note 
that, in a case involving a market economy, the Department is required 
to use the companies' reported energy costs unless one of the 
exceptions specified in the statute exists. Respondents argue that the 
statute focuses on the costs to the respondent, not the costs of an 
unaffiliated energy supplier, and there is no statutory authority to 
disregard a company's costs due to alleged government action. Rather, 
Respondents argue, there is a long line of precedent from both the 
Department and the courts holding that a company's reported costs may 
not be adjusted due to the receipt of government subsidies.
    We believe that the legal arguments raised by both Petitioners and 
Respondents have merit, but we do not reach this legal issue in this 
preliminary determination. For the reasons discussed below, we have 
preliminarily concluded that the factual record of this investigation, 
to date, does not lead us to conclude that the Department should 
disregard Respondents' reported energy costs at this time.
    We have carefully reviewed Petitioners' allegations regarding 
energy prices in Russia, as well as all relevant facts and information 
on the record, particularly since the Department has, in other 
contexts, expressed concerns about Russian energy pricing and pricing 
policies. Because, in the production of magnesium, gas costs are less 
important than electricity costs, our discussion focuses on electricity 
costs.\2\ While the evidence that Petitioners have placed on the record 
indicates that Russian energy reforms remain incomplete, particularly 
on the structural side, the evidence and arguments advanced to date do 
not sufficiently support Petitioners' allegation that Russian 
electricity prices are highly distorted from a full cost-recovery 
standpoint.
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    \2\ For a comparison of the relative importance of each input in 
overall magnesium production costs, see SMW Analysis Memorandum and 
Avisma Analysis Memorandum.
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    The analysis submitted by Petitioners to support their allegation 
that there is a significant price distortion compares retail-level cost 
(of sales off the low-voltage grid) to electricity prices Respondents 
paid, which, as reported by Respondents in their questionnaire 
responses, reflect sales off the high-voltage grid, i.e., at the 
wholesale level. Therefore, this does not appear to be an apples-to-
apples comparison. Petitioners also argue that any measure of cost 
recovery must take into account the costs of replacing the electricity 
transmission and distribution grid. While the Department continues to 
evaluate these arguments, we have several concerns. For example, it is 
unclear how the higher distribution costs that are associated with 
sales off a low-voltage grid should or could be evaluated in a 
wholesale price-cost analysis. Furthermore, the matter of estimating 
capital costs is problematic, in part, because of assumptions about 
future conditions that can underlie some estimates.
    Finally, Petitioners argue that a meaningful measure of cost 
recovery for the electricity sector must include a price for gas used 
to make electricity that itself reflects full cost recovery. With 
respect to this argument, we have identified a number of issues that 
require further consideration. For example, one would need to assess 
the role of other non-gas based electricity supply sources in 
determining whether a significant distortion exists and the extent to 
which it is appropriate to employ estimates of future prices in 
calculating any adjustment to electricity prices. In addition, 
assuming, arguendo, that the Department were to reach the issue of 
whether it has the legal authority to disregard reported costs of 
production of the subject merchandise, this still leaves open the 
question of the

[[Page 59202]]

boundaries of any such authority to examine the cost of inputs into the 
inputs used in producing the subject merchandise.
    Given these questions and reservations, the Department considers 
that it is appropriate to use Respondents' reported energy costs for 
purposes of the preliminary determination. We will, however, continue 
examining this issue in preparation for our final determination. We 
encourage the parties to submit additional information and arguments on 
this issue, inviting them in particular to comment on the concerns that 
we have outlined above. We also will be verifying Respondents' 
questionnaire responses including the information about their energy 
purchases that we have relied upon in this preliminary analysis. In 
order to allow proper review by the Department and all interested 
parties, we request that any additional arguments and factual 
information concerning this issue be filed as early as possible during 
the remainder of the proceeding. With respect to factual information, 
the following deadlines will apply. Any new, revised or updated factual 
information concerning Respondents' actual energy costs and all aspects 
of their energy usage and their relationships (if any) with energy 
suppliers must be submitted no later than the deadlines specified in 
any future questionnaires issued by the Department and in accordance 
with 19 CFR 351.301(c)(2)(ii), since such information is part of the 
questionnaire responses which must be verified. Any new factual 
information and arguments pertaining to the broader issue of whether 
electricity prices in Russia are or are not significantly distorted and 
whether an adjustment to such prices is or is not warranted must be 
submitted no later than November 8, 2004, and rebuttals of any such 
factual information and rebuttal comments no later than November 18, 
2004, in accordance with 19 CFR 351.301(c)(1) and (c)(2)(ii). If the 
Department finds that an adjustment may be warranted after further 
review, we will issue for comment a memorandum outlining our 
preliminary analysis of why such an adjustment is warranted and the 
type of adjustment we are proposing, in order to ensure that all 
aspects of such an adjustment are carefully considered in time for the 
final determination.
2. Test of Home Market Sales Prices
    We compared the weighted-average COP for Avisma and SMW to their 
home market sales prices 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 COP to the 
home market prices, less any applicable movement charges, discounts, 
rebates, and direct and indirect selling expenses.
3. Results of the COP Test
    We disregarded below-cost sales where (1) 20 percent or more of 
either Respondent's sales of a given product during the POI were made 
at prices below the COP, and thus such sales were made within an 
extended period of time in substantial quantities in accordance with 
sections 773(b)(2)(B) and (C) of the Act, and (2) based on comparisons 
of price to weighted-average COPs for the POI, we determined that the 
below-cost sales of the product were at prices which would not permit 
recovery of all costs within a reasonable time period, in accordance 
with section 773(b)(2)(D) of the Act. We found that both Avisma and SMW 
made sales below cost and we disregarded such sales where appropriate.

D. Calculation of Normal Value Based on Home Market Prices

    Where appropriate, we determined NV for Avisma and SMW based on 
home market prices. However, both Respondents reported a significant 
number of ``barter'' sales in the home market. As this is the first 
investigation of Russian exporters conducted since the Department 
determined Russia to be a market economy,\3\ within the context of the 
Act, the Department has not previously been presented with the issue of 
examining barter sales in the Russian market.
---------------------------------------------------------------------------

    \3\ See Memorandum for Faryar Shirzad from Albert Hsu, Inquiry 
into the Status of the Russian Federation as a Non-Market Economy 
Country Under the U.S. Antidumping Law, dated June 6, 2002, 
effective April 1, 2002.
---------------------------------------------------------------------------

    We have examined barter sales in the Argentinian and Japanese 
markets in two cases decided prior to the effective date of the 
amendments made by the Uruguay Round Agreements Act (URAA). In Notice 
of Preliminary Determination of Sales at Less Than Fair Value: Certain 
Cold-Rolled Carbon Steel Flat Products From Argentina, 58 FR 7066 (Feb. 
4, 1993), we disregarded barter sales as being outside the ordinary 
course of trade. In Final Determination of Sales at Less Than Fair 
Value: Certain All-Terrain Vehicles From Japan, 54 FR 4864, 4865 (Jan. 
31, 1989), we found barter trade to be small and insignificant, and 
disregarded it.
    In Gray Portland Cement and Clinker From Mexico: Final Results of 
Antidumping Duty Administrative Review, 68 FR 54203 (Sept. 16, 2003) 
(Cement From Mexico), a case subsequent to the passage of the URAA, the 
Department encountered an exchange of cement between a Mexican producer 
and an unaffiliated U.S. customer. The Respondent in that case argued 
that this ``swap'' of cement should not be considered a U.S. sale. 
Relying on information confirmed at verification, the Department 
concluded that this ``swap'' of cement with an unaffiliated customer 
constituted a U.S. sale. We stated that ``{w{time} e verified the 
appropriateness of {the reported price{time}  and found no 
discrepancies. At verification, CEMEX explained that this amount 
reflects a price established between CEMEX and its unaffiliated 
customer for actual sales made between the parties in the past.'' See 
Cement From Mexico and accompanying Issues and Decision Memorandum, at 
comment 9. Thus, we noted the importance of verification, especially 
concerning the ``appropriateness'' of the reported price.
    Therefore, the Department will need to examine this issue in 
greater detail. Questions we will need to examine further concerning 
these sales include, but are not limited to: the alignment of barter 
prices with non-barter prices charged for similar goods sold; the 
linkage of the price charged with the goods received, including any 
internal and external procedures for ensuring reasonable compensation 
is received in exchange for magnesium; and how these sales are recorded 
in Respondents' books and records. Of particular concern in this case, 
is the apparent discrepancy between prices charged on average for 
products sold on a barter basis compared to prices charged for the 
identical or most similar products when sold on a cash basis. While the 
Department has issued questionnaires concerning these sales in general, 
given the novelty of this issue for the Russian market, noted above, we 
do not currently have enough information concerning these sales on the 
record, and therefore have concluded that we should disregard the 
barter sales in our calculations for this preliminary determination.
    For all remaining sales, we deducted home market movement expenses, 
pursuant to section 773(a)(6)(A) of the Act. We made circumstances of 
sale (COS) adjustments for Avisma's and SMW's transactions by deducting 
direct selling expenses incurred for home

[[Page 59203]]

market sales (credit expense). We also made adjustments for any 
differences in packing, pursuant to section 773(a)(6)(B)(ii) of the 
Act. See Avisma Analysis Memorandum and SMW Analysis Memorandum.

E. 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 constructed value 
(CV). Accordingly, for sales of magnesium 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 CV.
    Section 773(e) of the Act provides that CV shall be based on the 
sum of the cost of materials and fabrication for the imported 
merchandise, plus amounts for SG&A expenses, profit, and U.S. packing 
costs. We calculated the cost of materials and fabrication based on the 
methodology described in the ``Cost of Production Analysis'' section, 
above. We based SG&A and profit on the actual amounts incurred and 
realized 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 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 
CEP, we made COS adjustments by deducting from CV direct selling 
expenses incurred on home-market sales.

F. Level of Trade/Constructed Export Price Offset

    In accordance with section 773(a)(1)(B)(i) of the Act, to the 
extent practicable, we determine NV based on sales in the comparison 
market at the same LOT as U.S. sales. See 19 CFR 351.412. The NV LOT is 
the level of the starting-price sale in the comparison market or, when 
NV is based on CV, the level of the sales from which we derive SG&A and 
profit. For EP, the U.S. LOT 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 sales are at a different LOT than EP or CEP 
sales, we examine stages in the marketing process and selling functions 
along the chain of distribution between the producer and the 
unaffiliated customer in the home market. If the comparison-market 
sales are at a different LOT, and the difference affects price 
comparability, as manifested in a pattern of consistent price 
differences between the sales on which NV is based and comparison-
market sales at the LOT of the export transaction, we make an LOT 
adjustment under section 773(a)(7)(A) of the Act. Finally, for CEP 
sales, if the NV level is more remote from the factory than the CEP 
level and there is no basis for determining whether the difference in 
the levels between NV and CEP affects price comparability, we adjust NV 
under section 773(a)(7)(B) of the Act (the CEP offset provision). See 
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). For CEP sales, we consider only the selling 
activities reflected in the price after the deduction of expenses and 
CEP profit under section 772(d) of the Act. See Micron Technology Inc. 
v. United States, 243 F.3d 1301, 1314-1315 (Fed. Cir. 2001).
    In the current investigation, SMW claimed that sales in the home 
market and the United States market were made at different LOTs, but 
did not claim a LOT adjustment. Based on the selling functions 
performed, we preliminarily determine that SMW did not sell at 
different LOTs in the home and U.S. markets. After examining the 
selling functions for the one LOT reported in the United States, and 
the two claimed LOTs reported in the home market, we determine that 
these sale are, in fact, all made at one LOT. While SMW claimed that 
there were some differences between these various distribution 
channels, which it claimed to constitute separate LOTs, we have 
preliminarily determined that some of these differences do not 
constitute differences in selling functions. Differences between other 
functions, e.g., provisions of warranty or types of packing, are 
already accounted for through other aspects of the Department's 
calculations, such as the deduction of direct selling expenses from CEP 
and NV. Moreover, the Department finds that the differences in selling 
functions are not significant differences. Since much of our analysis 
involves business proprietary information, a full discussion of the 
bases for our preliminary determination is set forth in the SMW 
Analysis Memorandum.
    In conducting this analysis, we examined the U.S. LOT after 
excluding the selling functions performed by SMW's U.S. affiliates 
(i.e., after excluding those selling functions associated with the 
expenses deducted under 772(d)(1)). Because we have determined that the 
U.S. LOT is the same LOT as that in the home market, we have 
preliminarily determined that the NV LOT is not more remote from the 
factory than the CEP LOT, and that, therefore, a CEP offset is not 
warranted under section 773(a)(7)(B) of the Act.
    Avisma reported one LOT in the home market and one LOT in the 
United States. It did not claim a LOT adjustment. After examining the 
selling functions performed in the home market and the United States 
(excluding those functions performed by the U.S. affiliate) we have 
preliminarily determined that the LOT for home market and U.S. sales is 
the same. See Avisma Analysis Memorandum. We have concluded that there 
are no significant differences between the selling functions performed 
in these two markets by Avisma. We note that, as with SMW, some of the 
reported differences do not appear to relate to selling functions, but 
to other functions. Also as with SMW, because U.S. and home market 
sales are at the same LOT, a CEP offset is not appropriate.

Currency Conversions

    We made currency conversions into U.S. dollars in accordance with 
section 773A of the Act based on exchange rates in effect on the dates 
of the U.S. sales, as obtained from the Federal Reserve Bank (the 
Department's preferred source for exchange rates).

Verification

    In accordance with section 782(i) of the Act, we will verify the 
questionnaire responses of Avisma and SMW before making our final 
determination.

Suspension of Liquidation

    In accordance with section 733(d)(2) of the Act, we are directing 
CBP to suspend liquidation of all entries of magnesium from Russia 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 CBP to require a cash deposit or the posting of a bond 
equal to the weighted-average dumping margins as indicated in the chart 
below. These instructions suspending liquidation will remain in effect 
until further notice. The weighted-average dumping margins are as 
follows:

------------------------------------------------------------------------
                                                              Weighted-
                                                               average
                     Producer/exporter                         margin
                                                            (percentage)
------------------------------------------------------------------------
Avisma....................................................         10.62
SMW.......................................................         21.49
All Others................................................         12.36
------------------------------------------------------------------------


[[Page 59204]]

Disclosure

    In accordance with 19 CFR 351.224(b), the Department will disclose 
to interested parties the calculations performed in this preliminary 
determination within five days of the date of public announcement.

Public Comment

    Interested parties are invited to comment on the preliminary 
determination. Interested parties may submit case briefs on the later 
of 50 days after the date of publication of this notice or ten days 
after the issuance of the verification reports. See 19 CFR 
351.309(c)(1)(I). Rebuttal briefs, the content of which is limited to 
the issues raised in the case briefs, must be filed within five days 
after the deadline for the submission of case briefs. See 19 CFR 
351.309(d). 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.
    In accordance with section 774 of the Act, we will hold a public 
hearing, if requested, to afford interested parties an opportunity to 
comment on arguments raised in case or rebuttal briefs. If a request 
for a hearing is made, we will tentatively hold the hearing two days 
after the deadline for submission of rebuttal briefs at the U.S. 
Department of Commerce, 14th Street and Constitution Avenue, NW., 
Washington, DC 20230, at a time and in a room to be determined. Parties 
should confirm by telephone the date, time, and location of the hearing 
48 hours before the scheduled date.
    Interested parties who wish to request a hearing, or to participate 
in a hearing if one is requested, must submit a written request to the 
Assistant Secretary for Import Administration, U.S. Department of 
Commerce, Room 1870, within 30 days of the date of publication of this 
notice. Requests should contain: (1) The party's name, address, and 
telephone number; (2) the number of participants; and (3) a list of the 
issues to be discussed. At the hearing, oral presentations will be 
limited to issues raised in the briefs. See 19 CFR 351.310(c). The 
Department will make its final determination no later than 135 days 
after the date of the Department's preliminary determination. See 19 
CFR 351.210(b)(1).

International Trade Commission Notification

    In accordance with section 733(f) of the Act, we have notified the 
ITC of the Department's preliminary affirmative determination. If the 
final determination in this proceeding is affirmative, the ITC will 
determine before the later of 120 days after the date of this 
preliminary determination or 45 days after the final determination 
whether imports of magnesium metal from the Russian Federation are 
materially injuring, or threatening material injury to, the U.S. 
industry.
    This determination is issued and published pursuant to sections 
733(f) and 777(i)(1) of the Act.

    Dated: September 24, 2004.
James J. Jochum,
Assistant Secretary for Import Administration.
[FR Doc. E4-2479 Filed 10-1-04; 8:45 am]
BILLING CODE 3510-DS-P