[Federal Register Volume 71, Number 95 (Wednesday, May 17, 2006)]
[Notices]
[Pages 28661-28665]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-7504]


-----------------------------------------------------------------------

DEPARTMENT OF COMMERCE

International Trade Administration

A-570-504


Petroleum Wax Candles from the People's Republic of China: 
Initiation of Anticircumvention Inquiry on Antidumping Duty Order

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

ACTION: Notice of Initiation of Anticircumvention Inquiry on 
Antidumping Duty Order: Petroleum Wax Candles from the People's 
Republic of China

-----------------------------------------------------------------------

SUMMARY: In response to a request from the National Candle Association 
(NCA), the Department of Commerce (the Department) is initiating an 
anticircumvention inquiry pursuant to section 781(a) of the Tariff Act 
of 1930, as amended, (the Tariff Act) to determine whether certain 
imports of molded or carved articles of wax from the People's Republic 
of China (PRC) are circumventing the antidumping duty order on 
petroleum wax candles from China.

EFFECTIVE DATE: May 17, 2006.

FOR FURTHER INFORMATION CONTACT: Angela Strom or Robert James, AD/CVD 
Operations, Office 7, Import Administration, International Trade 
Administration, U.S. Department of Commerce, 14th Street and 
Constitution Avenue, NW., Washington, DC, 20230; telephone: 202-482-
2704 and 202-482-0649, respectively.

SUPPLEMENTARY INFORMATION:

[[Page 28662]]

Background

    On December 14, 2005, the NCA requested that the Department conduct 
an anticircumvention inquiry pursuant to section 781(a) of the Tariff 
Act to determine whether candles assembled in the United States from 
molded or carved articles of wax (wax forms) from the PRC are 
circumventing the antidumping duty order on petroleum wax candles from 
China. See Antidumping Duty Order: Petroleum Wax Candles From the 
People's Republic of China, 51 FR 30686 (August 28, 1986) (Candles 
Order). NCA alleges that the molded or carved articles of wax from 
China are essentially wickless wax candles. NCA maintains that 
producers in China are shipping wickless wax forms to the United 
States, with or without a pre-drilled hole in the center, for final 
assembly of the candle through insertion of a wick and clip assembly. 
Such assembly in the United States, NCA avers, constitutes 
circumvention of the order on petroleum wax candles from the PRC. See 
Request for Determination of Circumvention - Wickless Wax Candles 
Petroleum Wax Candles from the People's Republic of China (A-570-504) 
dated December 14, 2005 (NCA Request). No interested parties provided 
comment on NCA's request.

Scope of the Order

    The products covered by this order are certain scented or unscented 
petroleum wax candles made from petroleum wax and having fiber or 
paper-cored wicks. They are sold in the following shapes: tapers, 
spirals, and straight-sided dinner candles; rounds, columns, pillars, 
votives; and various wax-filled containers. The products were 
classified in the original investigation under the Tariff Schedules of 
the United States item 755.25, Candles and Tapers. The products are 
currently classified under the Harmonized Tariff Schedule of the United 
States, Annotated for Statistical Reporting Purposes (2006) (HTSUS) 
item 3406.00.00. Although the HTSUS subheading is provided for 
convenience and Customs purposes, our written description of the scope 
of this proceeding remains dispositive. See Candles Order; see also 
Notice of Final Results of the Antidumping Duty New Shipper Review: 
Petroleum Wax Candles from the People's Republic of China, 69 FR 77990 
(December 29, 2004).

Scope of the Inquiry

    The products covered by this inquiry are certain scented or 
unscented petroleum wax forms presently classified under United States 
HTSUS No. 9602.00.40. The wax forms are sold in the following shapes: 
tapers, spirals, and straight-sided dinner candles; rounds, columns, 
pillars, votives; and various wax-filled containers, whether or not 
having pre-drilled wick holes. The wax forms are complete wax candles 
other than the absence of the wick and are of the same class or kind as 
the candles subject to the Candles Order. The wax forms are further 
assembled in the United States by a minor hole drilling process, simple 
wick and clip insertion or both; the final assembled wax candles are 
identical to those candles subject to the Candles Order presently 
classified under HTSUS No. 3406.00.00. Although the HTSUS subheading is 
provided for convenience and Customs purposes, our written description 
of the scope of this proceeding remains dispositive.

Initiation of Anticircumvention Inquiry:

Applicable Statute

    Section 781 of the Tariff Act addresses circumvention of 
antidumping or countervailing duty orders. With respect to merchandise 
assembled or completed in the United States, section 781(a)(1) provides 
that if (A) The merchandise sold in the United States is of the same 
class or kind as any other merchandise that is the subject of an 
antidumping duty order; (B) such merchandise sold in the United States 
is completed or assembled in the United States from part or components 
produced in the foreign country with respect to which such order 
applies; (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 is a significant portion of the total 
value of the merchandise, then the Department may include within the 
scope of the order the imported parts or components produced in the 
foreign country used in the completion or assembly of the merchandise 
in the United States.
    In determining whether the process of assembly or completion in the 
United States is minor or insignificant, section 781(a)(2) directs the 
Department to consider: (A) The level of investment; (B) the level of 
research and development; (C) the nature of the production process; (D) 
the extent of production facilities and (E) whether the value of 
processing performed in the United States represents a small proportion 
of the value of the merchandise sold in the United States. Section 
781(a)(3) sets forth the factors to consider in determining whether to 
include parts or components in an antidumping duty order. The 
Department shall take into account: (A) The pattern of trade, including 
sourcing patterns; (B) 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; and (C) whether 
imports into the United States of the parts or components produced in 
the foreign country have increased after the initiation of the 
investigation which resulted in the issuance of the order.
    With respect to section 781(a) of the Tariff Act, NCA provided the 
following evidence with respect to the listed criteria:

Section 781(a)(1)(A): Merchandise of the Same Class or Kind

    NCA maintains that the wickless wax forms, having undergone final 
assembly in the United States, are identical to the candles covered by 
the Candles Order. NCA submitted photographs of a completed petroleum 
wax candle with a label stating the wax was ``Hand Poured in China'' 
while the candle was ``Assembled in U.S.A.'' See NCA Request at Exhibit 
3. NCA also identified certain importers requesting customs tariff 
classification rulings for articles of wax with a hole drilled directly 
through the center, but not containing a wick. Some rulings indicated 
the wax articles are to be further processed into candles by, e.g., 
``drilling a hole when needed, adding wicks, dipping, polishing, 
labeling and packaging.'' See NCA's April 4, 2006 submission at 14.

Section 781(a)(1)(B): Completion or Assembly of Merchandise in the 
United States Using Foreign Parts or Components

    NCA alleges the wickless wax forms imported from China account for 
virtually all of the finished candle's weight and total cost. NCA 
argues that the only other component, the wick and clip assembly added 
in the United States, is a minor portion of the final product, both in 
terms of weight and cost of materials for the candle. NCA alleges that 
in some instances, the wax forms are imported with a wick hole pre-
drilled ready for assembly in the United States. In other cases, the 
drilling may be done after importation. Wick and clip assemblies can be 
shipped with the wax forms, or sourced separately. In either scenario, 
NCA insists, the requirements of section 781(a)(1)(B) are satisfied.

[[Page 28663]]

Section 781(a)(1)(C): Minor or Insignificant Assembly or Completion

    NCA argues that production of the wax form comprises almost the 
entirety of the production process for a finished candle and that the 
final assembly or completion in the United States of a candle, through 
drilling a hole and inserting the wick and clip assembly, is minor and 
insignificant. Although NCA is not able to provide specific information 
from the Chinese industry on the production of the wax forms, NCA 
argues that the Department can look to the U.S. domestic industry for 
general information on the production process of a candle. According to 
NCA, the process of inserting a wick in the United States is minor or 
insignificant, whether measured qualitatively or quantitatively.
    NCA addresses in turn each of the five factors set forth at section 
781(a)(2) of the Tariff Act:
    A. Level of Investment in the United States
    NCA argues that the level of investment in the United States is 
minor compared to the level of investment in China. NCA explains that 
the production of the wax form in the PRC requires specialized capital 
equipment and trained labor. NCA states that the production of wax 
forms requires investment in specialized equipment, including large 
vats in which to melt wax slabs, a steam boiler, as well as molds to 
create the wax forms. NCA also states that investment in trained labor 
is necessary for production of the wax form, including the manual 
blending of dyes and perfumes, individual removal of the wax forms from 
the molds, and hand polishing and beveling of the forms. In comparison, 
NCA argues that insertion of the wick and clip assembly in the United 
States requires no investment in production facilities or equipment. 
NCA asserts that such assembly can be done by hand without any 
specialized equipment. Even if a firm opts to invest in equipment to 
automate the hole drilling and wick and clip assembly process in the 
United States, total investments would nonetheless remain minor 
compared to the level of investment required in the PRC to produce the 
wax forms. In support of its argument, NCA provided data based on 
domestic producers' actual experience which indicate the hole drilling 
and wick and clip assembly process constitutes a very minor percentage 
of the total manufacturing cost of the finished candle. See NCA Request 
at Exhibit 4. NCA claims domestic producers report that even when these 
processes are highly automated, the level of investment is a minor 
percentage of the total investment in candle production facilities and 
equipment. Thus, NCA argues that the majority of the required level of 
investment is in China and the level of investment in the United States 
is minor.
    B. The Level of Research and Development in the United States
    NCA asserts the level of research and development is concentrated 
in the candle production facilities in the PRC. According to NCA, the 
bulk of product research and development is centered on new shapes, 
designs, colors, scents, wax types and combinations and wick types. NCA 
argues that wick hole drilling and wick and clip assembly techniques 
are mature production processes, requiring a ``negligible'' portion of 
research and development expenses. See NCA Request at 20. NCA suggests 
the Department's findings in the Anti-Circumvention Inquiry of 
Antidumping and Countervailing Duty Orders on Certain Pasta from Italy: 
Affirmative Final Determinations of Circumvention of Antidumping and 
Countervailing Duty Orders, 68 FR 54888 (September 19, 2003) are 
apposite because in that proceeding, the Department found repackaging 
of pasta into retail size containers to be a ``technically mature'' 
production process requiring very little research and development. See 
NCA Request at 20, n. 20, citing 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, 68 FR 46571, 46574 (August 6, 2003).
    C. Nature of the Production Process in the United States
    NCA contrasts the minor finishing operations performed in the 
United States to the major production, testing and market research 
efforts involved in producing the wickless wax forms in the PRC. See 
NCA Request at 21. According to NCA, ``the process of inserting the 
wick and clip assembly and, in some cases drilling the wick hole, in 
the United States is comparatively simple, requiring little in the way 
of production facilities or specialized equipment.'' Id. at 22. Based 
on the experience of domestic producers, NCA estimates that the costs 
of drilling a hole, including labor and overhead, account for a small 
percentage of the total production process. Id. at Exhibit 4. NCA 
argues that the remaining steps, wick and clip assembly in the United 
States, are also extremely simple steps requiring neither specialized 
equipment nor extensive production facilities. NCA again references the 
cost information from U.S. domestic candle producers, indicating that 
the cost for wick and clip assembly, inclusive of materials, labor and 
overhead, accounts for a very small percentage of the total 
manufacturing cost of a candle. Id. Accordingly, even if hole drilling, 
in addition to the wick and clip assembly, is included as part of the 
U.S. production process, NCA argues the combined total costs would 
account for a minor part of the entire candle production process as 
compared to the production of the wax form in China.
    D. Extent of the Production Facilities in the United States
    As discussed in the ``Level of Investment in the United States'' 
section, supra at section A, NCA claims the hole drilling and wick and 
clip assembly process is simple and requires little in the way of 
production facilities. NCA argues that the process does not require 
specialized equipment, and most of the processing and assembly can be 
done by hand. Accordingly, NCA concludes that the extent of the 
production facilities in the United States required to assemble 
finished candles is insignificant.
    E. Whether the Value of Processing Performed in the United States 
Represents a Small Portion of the Value of the Merchandise Sold in the 
United States
    NCA notes publicly available import data do not permit a 
calculation of the proportion of valued added in the United States. 
According to NCA, import statistics provide information on the value, 
but not the quantity, of molded or carved articles of wax; thus, NCA 
could not determine an average unit value for the imported wax form. 
However, NCA argues the calculation should more properly look at the 
value of the final merchandise sold, i.e., the completed candle, which 
uses the wax form. Relying upon information provided by domestic candle 
producers, NCA argues that the value of the wick and clip assembly in 
the United States represents a small proportion of the value of the 
final completed candle sold in the United States. NCA argues that even 
including the value of additional U.S. packaging to the calculation, 
such as cellophane wrap and labeling, the proportional value of U.S. 
processing remains small when compared to the total value of the candle 
as sold.
    Furthermore, NCA stresses that Congress directed the Department to 
focus more on the nature of the processing, rather than merely the 
difference in value between the finished product and the imported parts 
or

[[Page 28664]]

components. NCA Request at 26, n. 32, citing 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, 64 FR 40336, 40347 (July 26, 1999) 
(``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'' citing S. 
Rep. No. 103-412, 81-82 (1994)). Whether examined from the qualitative 
value or the quantitative nature of processing, NCA argues that the 
U.S. processing is insignificant in proportion to the value of the 
merchandise sold in the United States.

Section 781(a)(1)(D): Whether the Value of the Parts or Components 
Produced in the Foreign Country is a Significant Portion of the Total 
Value of the Merchandise

    NCA argues that the value of the imported wax form constitutes not 
only a significant portion but virtually all of the material cost of 
the total value of the final assembled candles. See NCA Request at 26. 
As NCA has also claimed some wax forms are imported with the wicks and 
clip assemblies included, the value of shipments of PRC-origin parts 
and components would constitute an even greater portion almost all of 
the total value of the final assembled candle. See NCA Request at 
Exhibit 5. NCA also suggests that the value of the wax form, a 
significant portion of the total value of the merchandise in any 
analysis, is drastically understated since the wax form is not subject 
to the current 108.30 percent antidumping duty on wax candles. In 
measuring the value of the imported wax forms, NCA argues, the 
Department should adjust that value upward to include the amount of 
antidumping duties which would otherwise be included in the cost of the 
wax forms.

Section 781(a)(3): Other Factors to Consider

    Finally, NCA addresses the three ``other factors'' the Department 
must consider as part of an anticircumvention determination based upon 
assembly or completion in the United States:

Pattern of Trade

    NCA notes the patterns of trade from the PRC have shifted 
noticeably, with an increase in imports of wax forms coupled with a 
decrease in imports of finished candles. NCA points out the timing of 
this shift can be traced to the first Customs classification, dated in 
May 1999, finding that drilled wax forms would be classifiable under 
HTSUS subheading 9602.00.4000, for ``molded or carved articles of 
wax,'' rather than subheading 3406.00.0000 for petroleum wax candles. 
Notably, the subheading for molded and carved articles of wax has a 
duty rate of 1.8 percent ad valorem. Since Customs and Border 
Protection (CBP) ruled that wax forms would be properly classifiable 
under item 9602.00.4000, NCA notes, imports of wax forms from the PRC 
have increased markedly, with a substantial jump in 2005 alone. See NCA 
Request at Exhibit 6.
    NCA also argues that since the original investigation, there have 
been numerous attempts by PRC producers to circumvent the Candles 
Order, including methods as varied as ``massive transshipments through 
Hong Kong,'' to a ``continuing stream of scope requests,'' to increased 
shipments of blended wax candles including palm or vegetable wax. Id. 
at 3 through 6. According to NCA, these wickless wax forms are subject 
merchandise that are completed in the United States and NCA alleges 
they serve no purpose other than to undergo minor further processing 
and assembly into a complete candle through the insertion of the wick 
in the United States. Id. at 7.

Relationship between Manufacturer or Exporter and U.S. Assembler

    NCA states it is not aware of and unable to ascertain whether any 
relationship exists between the U.S. importers and Chinese producers of 
wax forms.

Increase in Imports of the Parts or Components

    As discussed in the ``Pattern of Trade'' section above, NCA asserts 
that imports of wax forms have increased since 1999, with the most 
notable increases in 2004 and 2005. See NCA Request at Exhibit 6. NCA 
suggests that as successive attempts by Chinese producers to circumvent 
the Candles Order have been closed down, Chinese producers have 
increasingly relied on imports of wax forms from the PRC to the United 
States. NCA points out that the value of imports of wax forms from the 
PRC nearly tripled from 2003 to 2004, and that imports in 2005 
increased an additional 65 percent over 2004 levels. See NCA Request at 
29. Therefore, there has been an increase in the import into the United 
States of wickless wax forms from the PRC after the investigation was 
initiated in 1985.

Analysis

    Based on our analysis of NCA's Request, as well as the record 
developed by the Department to date, as discussed further below, we 
determine that a formal anticircumvention inquiry is warranted with 
respect to imports of wax forms for completion into petroleum wax 
candles by certain companies identified by petitioner. NCA has 
presented information indicating that candles sold in the United 
States, which were assembled or completed in the United States from wax 
forms imported from the PRC, are of the same class or kind of 
merchandise as that subject to the antidumping duty order.
    With regard to the completion or assembly of the merchandise in the 
United States using the wax forms imported from the PRC, NCA has also 
presented information documenting an increase in imports of the wax 
forms that may be used in the assembly of finished candles within the 
United States. NCA also provided evidence that the process of assembly 
or completion in the United States is minor or insignificant, as NCA 
discussed the relevant statutory factors as applied to the final 
assembly of candles through wick and clip assembly. Although NCA did 
not have direct and specific information from U.S. assemblers, it was 
able to provide information based on the actual experience of its 
members, U.S. domestic candle producers, that provided significant 
information on wick and clip assembly in particular, and commercial 
candle production in general.
    The Department finds the information provided by NCA relating to 
the level of investment, research and development, the nature of the 
production process in the United States, the extent of production 
facilities in the United States, and 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 all supports 
its request for the Department to initiate an anticircumvention 
inquiry. With respect to whether the value of the parts or components 
produced in the PRC, i.e., the wax forms, is a significant portion of 
the total value of the candle, NCA again was able to provide 
information from the domestic candle industry indicating the value of 
the wax form is a significant portion of the total value of the 
finished candle. Finally, NCA provided evidence on the changing pattern 
of trade and increase in imports of wax forms, a part or component of 
the finished candle, in support of its request

[[Page 28665]]

for the initiation of an anticircumvention inquiry.
    Accordingly, the Department is initiating a formal 
anticircumvention inquiry concerning the antidumping duty order on 
petroleum wax candles from the PRC, pursuant to section 781(a) of the 
Tariff Act. Based upon the information included in NCA's Request and 
its April 4, 2006 submission, as well as our analysis of relevant CBP 
import data, the Department is initiating this anticircumvention 
inquiry with respect to the following firms: DECOR-WARE, Inc., A&M 
Wholesalers, Inc., Albert E. Price, and Northern Lights Enterprises.\1\ 
See Memorandum to the File, dated May 11, 2006 (placing business 
proprietary CBP data on the record of this proceeding). In accordance 
with 19 CFR 351.225(l)(2), if the Department issues a preliminary 
affirmative determination that imports of wax forms and other candle 
components are circumventing the order on petroleum wax candles from 
the PRC, we will instruct CBP to suspend liquidation and require a cash 
deposit of estimated duties on the merchandise subject to this inquiry 
from the date of initiation.
---------------------------------------------------------------------------

    \1\ Identified as Decoware Inc., A & M Wholesalers Inc., Albert 
E. Price Inc, and Northern Lights Enterprises as the importers on 
record in CBP data.
---------------------------------------------------------------------------

    The Department notes that at this time it is initiating this 
inquiry solely with respect to the four firms listed above. Based on 
the record developed to date, the Department does not have sufficient 
evidence that other firms mentioned by NCA are engaging in the 
activities that NCA alleges are circumventing the Candles Order. See 
Memorandum to the File, dated May 11, 2006. However, if within 45 days 
of the date of this initiation, the Department receives sufficient 
evidence that other importers are importing wax forms for completion 
into finished candles in the United States, we will consider examining 
any such additional importers.
    The Department will establish a schedule for questionnaires and 
comments on the issues. Pursuant to Section 781(f) of the Tariff Act, 
the Department intends to issue its final determination within 300 days 
from the date of signature of this initiation.
    This notice is published in accordance with section 781(a) of the 
Tariff Act and 19 CFR 351.225.

    Dated: May 11, 2006.
David M. Spooner,
Assistant Secretary for Import Administration.
[FR Doc. E6-7504 Filed 5-16-06; 8:45 am]
BILLING CODE 3510-DS-S