[Federal Register Volume 71, Number 235 (Thursday, December 7, 2006)]
[Notices]
[Pages 70949-70956]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-20777]


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DEPARTMENT OF COMMERCE

International Trade Administration

A-570-827


Certain Cased Pencils from the People's Republic of China; 
Preliminary Results of Antidumping Duty Administrative Review

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

SUMMARY: The Department of Commerce (``the Department'') has 
preliminarily determined that sales by the respondents in this review, 
covering the period December 1, 2004, through November 30, 2005, have 
been made at prices at less than normal value (``NV''). If these 
preliminary results are adopted in the final results of this review, we 
will instruct U.S. Customs and Border Protection (``CBP'') to assess 
antidumping duties on all appropriate entries. The Department invites 
interested parties to comment on these preliminary results.

EFFECTIVE DATE: December 7, 2006.

FOR FURTHER INFORMATION CONTACT: Brian Smith or Gemal Brangman, AD/CVD 
Operations, Office 2, Import Administration, International Trade 
Administration, U.S. Department of Commerce, 14\th\ Street and 
Constitution Avenue, NW, Washington, DC 20230; telephone (202) 482-1766 
and (202) 482-3773, respectively.

SUPPLEMENTARY INFORMATION:

Background

    On December 28, 1994, the Department published in the Federal 
Register an antidumping duty order on certain cased pencils from the 
People's Republic of China (``PRC''). See Antidumping Duty Order: 
Certain Cased Pencils From the People's Republic of China, 59 FR 66909 
(December 28, 1994).
    On December 1, 2005, the Department published in the Federal 
Register a notice of ``Opportunity to Request Administrative Review'' 
of the antidumping duty order on certain cased pencils from the PRC 
covering the period December 1, 2004, through November 30, 2005. See 
Antidumping or Countervailing Duty Order, Finding, or Suspended 
Investigation; Opportunity to Request Administrative Review, 70 FR 
72109 (December 1, 2005).
    On December 9, 2005, in accordance with 19 CFR 351.213(b), a PRC 
exporter/producer, Shandong Rongxin Import and Export Co., Ltd. 
(``Rongxin''), requested an administrative review of the order on 
certain cased pencils from the PRC. On December 30, 2005, the 
petitioner\1\ requested a review of three companies.\2\ In addition, on 
January 3, 2006, the following exporter/producers requested their own 
reviews\3\: CFP, Three Star, Beijing Dixon Stationary Company Ltd. 
(``Dixon''), and Oriental International Holding Shanghai Foreign Trade 
Co., Ltd. (``SFTC'') requested their own reviews.
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    \1\ The petitioner includes Sanford L.P., Musgrave Pencil 
Company, RoseMoon Inc., and General Pencil Company.
    \2\ These companies are: China First Pencil Company, Ltd. 
(``CFP''), Shanghai Three Star Stationery Industry Corp. (``Three 
Star''), and Tianjin Custom Wood Processing Co., Ltd. (``TCW'').
    \3\ CFP, Three Star, Dixon, and SFTC filed submissions dated 
December 31, 2005, requesting a review, in accordance with 19 CFR 
351.213(b). However, because the Department was closed on December 
31, 2005, the Department accepted these submissions for filing on 
January 3, 2006, the next business day.
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    On January 27, 2006, the Department published in the Federal 
Register a notice of initiation for this administrative review covering 
the companies listed in the requests received from the interested 
parties. See Initiation of Antidumping and Countervailing Duty 
Administrative Reviews and Request for Revocation in Part, 71 FR 5241 
(February 1, 2006) (``Initiation Notice'').
    On February 8, 2006, the Department issued quantity and value 
(``Q&V'') questionnaires to each PRC company

[[Page 70950]]

listed in the Initiation Notice.\4\ These questionnaires requested the 
quantity and value for the identified companies that produced and/or 
exported certain cased pencils from the PRC. On February 14, 2006, SFTC 
timely withdrew its review request in accordance with 19 CFR 
351.213(d)(1).
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    \4\ In two prior administrative reviews of this antidumping duty 
order, the Department collapsed CFP with Three Star. See Certain 
Cased Pencils From the People's Republic of China: Final Results and 
Partial Rescission of Antidumping Duty Administrative Review, 70 FR 
42301 (July 22, 2005), and accompanying Issues and Decision 
Memorandum at Comment 1; and Certain Cased Pencils From the People's 
Republic of China: Final Results and Partial Rescission of 
Antidumping Duty Administrative Review, 71 FR 38366 (July 6, 2006), 
and accompanying Issues and Decision Memorandum at Comment 7 (``PRC 
Pencils 2003-2004 AR'').
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    In response to the Department's Q&V questionnaire, the following 
companies responded on February 22, 2006, that they exported subject 
merchandise to the United States during the period of review (``POR''): 
(1) CFP; (2) Three Star; (3) Dixon; and (4) Rongxin. TCW indicated that 
it had no exports, sales or entries of subject merchandise to the 
United States during the POR.
    On March 10, 2006, we met with counsel for CFP, Three Star, and 
Dixon, at its request, to discuss respondent selection in this 
administrative review (see Memorandum to the File, entitled Ex-Parte 
Meeting with Counsel for Beijing Dixon Stationary Company Ltd., China 
First Pencil Company, et al., dated March 10, 2006).
    Because it was not practicable for the Department to individually 
examine all of the companies covered by the review, the Department 
limited its examination for these preliminary results to the largest 
producers/exporters that could reasonably be examined, accounting for 
the greatest possible export volume, pursuant to section 777A(c)(2)(B) 
of the Tariff Act of 1930, as amended (``the Act''). Therefore, the 
Department selected CFP and Three Star as the mandatory respondents in 
this review and designated Dixon and Rongxin as Section A respondents. 
See Memorandum From Irene Darzenta Tzafolias, Acting Office Director, 
to Stephen Claeys, Deputy Assistant Secretary, entitled Antidumping 
Duty Administrative Review of Certain Cased Pencils from the People's 
Republic of China: Selection of Respondents, dated March 23, 2006. 
Accordingly, on March 23, 2006, we issued the full antidumping duty 
questionnaire to CFP and Three Star and only Section A of the 
questionnaire to Dixon and Rongxin.
    On July 19, 2006, we placed on the record of this segment of the 
proceeding documentation submitted by CFP and Three Star in prior 
segments for purposes of examining whether these companies should be 
collapsed in this review. See Memorandum to the File from Brian C. 
Smith, Team Leader, entitled 2004-2005 Administrative Review of the 
Antidumping Duty Order on Certain Cased Pencils from the People's 
Republic of China: Placement of Additional Documents on the Record of 
This Review, dated July 19, 2006.
    On August 9, 2006, we extended the time limit for the preliminary 
results in this review until December 1, 2006. See Certain Cased 
Pencils From the People's Republic of China: Notice of Extension of 
Time Limit for 2004-2005 Administrative Review, 71 FR 45519 (August 9, 
2006).
    On August 10, 2006, in accordance with section 751(a)(3)(A) of the 
Act, the Department rescinded this review with respect to SFTC because 
it withdrew its request for a review in a timely manner. The Department 
also rescinded this review with respect to TCW because it did not have 
shipments of subject merchandise to the United States during the POR. 
See Certain Cased Pencils From the People's Republic of China: Notice 
of Partial Rescission of Antidumping Duty Administrative Review, 71 FR 
47169 (August 16, 2006).
    The Department is conducting this administrative review in 
accordance with section 751 of the Act.

Mandatory Respondents

    On March 23, 2006, the Department issued the full antidumping duty 
questionnaire to CFP and Three Star. On April 20 and 25, 2006, CFP and 
Three Star submitted their section A questionnaire response (``section 
A response''). On May 15, 2006, CFP and Three Star submitted their 
sections C and D questionnaire responses (``sections C and D 
responses'').
    On June 1, 2006, the Department issued CFP and Three Star a section 
A supplemental questionnaire and they submitted their response on June 
29, 2006 (``supplemental section A response''). On June 19, 2006, the 
Department issued CFP and Three Star a section C supplemental 
questionnaire and they submitted their response on July 11, 2006. On 
July 11, 2006, the Department issued CFP and Three Star a section D 
supplemental questionnaire and CFP and Three Star submitted their 
response on August 30 and September 6, 2006, respectively. On October 
20 and 24, 2006, the Department issued CFP and Three Star additional 
section D supplemental questionnaires and they submitted their 
responses on October 31, 2006.
    On November 29, 2006, Three Star submitted information per the 
Department's request. On December 1, 2006, the Department issued CFP 
and Three Star a supplemental questionnaire for purposes of clarifying 
certain items in their response. As the due date for submitting their 
response to this questionnaire is after these preliminary results, the 
Department will consider CFP's and Three Star's response to this 
supplemental questionnaire for the final results.

Section A Respondents

    On March 23, 2006, the Department issued the section A 
questionnaire to Dixon and Rongxin. Rongxin and Dixon submitted their 
section A questionnaire responses on April 14 and 26, 2006, 
respectively.
    On May 3, 2006, the Department issued Rongxin a section A 
supplemental questionnaire, to which it responded on May 24, 2006. On 
May 16, 2006, the Department issued Dixon a section A supplemental 
questionnaire, to which it responded on June 9, 2006.

Surrogate Country and Factors

    On February 9, 2006, the Department identified five countries, 
including India, that are comparable to the PRC in terms of overall 
economic development to use as surrogates in this review for purposes 
of valuing factors of production (see Memorandum from Ron Lorentzen, 
Director, Office of Policy, to Irene Darzenta-Tzafolias, Acting Office 
Director, Office 2, dated February 9, 2006). On May 17, 2006, the 
Department solicited comments on surrogate country selection from 
interested parties. The Department received no comments from the 
interested parties. See the ``Normal Value'' section below for further 
detail.
    On July 7, 2006, the Department received surrogate-value 
information from the petitioner. On November 6, 2006, CFP and Three 
Star submitted surrogate-value information. Because CFP's and Three 
Star's surrogate-value information was submitted four months past the 
original deadline (i.e., July 7, 2006), we did not consider it for 
purposes of these preliminary results. However, we will consider CFP's 
and Three Star's surrogate-value information for purposes of the final 
results. For a detailed discussion of the Department's selection of 
surrogate values and financial ratios, see ``Factor Valuations'' 
section below. See also Memorandum from the Team to the File, entitled 
2004-2005 Antidumping Duty Administrative Review of Certain Cased 
Pencils from the People's Republic of China - Factors Valuation

[[Page 70951]]

For the Preliminary Results (``Factor Valuation Memorandum''), dated 
December 1, 2006, which is on file in Central Records Unit (``CRU'') in 
Room B-099 of the main Department building.

Scope of the Order

    Imports covered by this order are shipments of certain cased 
pencils of any shape or dimension (except as described below) which are 
writing and/or drawing instruments that feature cores of graphite or 
other materials, encased in wood and/or man-made materials, whether or 
not decorated and whether or not tipped (e.g., with erasers, etc.) in 
any fashion, and either sharpened or unsharpened. The pencils subject 
to the order are currently classifiable under subheading 9609.10.00 of 
the Harmonized Tariff Schedule of the United States (``HTSUS''). 
Specifically excluded from the scope of the order are mechanical 
pencils, cosmetic pencils, pens, non-cased crayons (wax), pastels, 
charcoals, chalks, and pencils produced under U.S. patent number 
6,217,242, from paper infused with scents by the means covered in the 
above-referenced patent, thereby having odors distinct from those that 
may emanate from pencils lacking the scent infusion. Also excluded from 
the scope of the order are pencils with all of the following physical 
characteristics: (1) length: 13.5 or more inches; (2) sheath diameter: 
not less than one-and-one quarter inches at any point (before 
sharpening); and (3) core length: not more than 15 percent of the 
length of the pencil.
    In addition, pencils with all of the following physical 
characteristics are excluded from the scope of the order: novelty jumbo 
pencils that are octagonal in shape, approximately ten inches long, one 
inch in diameter before sharpening, and three-and-one eighth inches in 
circumference, composed of turned wood encasing one-and-one half inches 
of sharpened lead on one end and a rubber eraser on the other end.
    Although the HTSUS subheading is provided for convenience and 
customs purposes, the written description of the scope of the order is 
dispositive.

Affiliation - CFP and Three Star

    To the extent that section 771(33) of the Act does not conflict 
with the Department's application of separate rates and enforcement of 
the non-market economy (``NME'') provision, section 773(c) of the Act, 
the Department will determine that exporters and/or producers are 
affiliated if the facts of the case support such a finding.\5\ For the 
reasons discussed below, we find that this condition has not prevented 
us from examining in this administrative review whether CFP and its 
subsidiary producers\6\ are affiliated with Three Star.
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    \5\ See, e.g., Certain Preserved Mushrooms From the People's 
Republic of China: Preliminary Results of Antidumping Duty 
Administrative Review, 71 FR 64930, 64934 (November 6, 2006), and 
Certain Preserved Mushrooms From the People's Republic of China: 
Preliminary Results and Partial Rescission of Fifth Antidumping Duty 
Administrative Review, 70 FR 10965, 10969 (March 7, 2005).
    \6\ CFP's pencil-producing subsidiaries include the following 
companies: Shanghai First Writing Instrument Co., Ltd., Shanghai 
Great Wall Pencil Co., Ltd., and China First Pencil Fang Zheng Co. 
Ltd.
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    In prior administrative reviews involving CFP and Three Star, the 
Department found CFP to be affiliated with Three Star as a result of 
Shanghai Light Industry, Ltd.'s (``SLI'') direct oversight and control 
over both CFP and Three Star.\7\
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    \7\ See, e.g., PRC Pencils 2003-2004 AR, 71 FR 38366, and 
accompanying Issues and Decision Memorandum at Comment 7.
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    In this review, CFP and Three Star claim that they are no longer 
affiliated and should not be collapsed because SLI no longer has 
oversight of their operations. In addition, CFP and Three Star maintain 
that the Department has no basis to collapse them because SLI 
transferred the shares it held in trust for CFP to the Huangpu District 
State Assets Administration Office (``HSAO'') on October 11, 2005, and 
SLI transferred oversight of the assets it held in trust for Three Star 
to the HSAO on September 8, 2005.\8\ In this review, the Department has 
examined whether CFP and its pencil-producing subsidiaries are still 
affiliated with Three Star for purposes of determining whether they 
should be collapsed in this review. For further discussion on this 
matter, see Memorandum From Team to James P. Maeder, Jr., Office 
Director, entitled Certain Cased Pencils from the People's Republic of 
China: Whether to Continue To Collapse CFP and its Pencil-Producing 
Subsidiaries with Three Star, dated December 1, 2006 (``Affiliation/
Collapsing Memo'').
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    \8\ See page A-5 of CFP's section A response and page A-2 of 
Three Star's section A response.
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    Based on our analysis, we preliminarily find that during this POR, 
CFP and its pencil-producing subsidiaries were still affiliated with 
Three Star through the common control by SLI, pursuant to section 
771(33)(F) and (G) of the Act. As for CFP's and Three Star's claim that 
SLI transferred the shares and/or oversight of assets it held in trust 
for both companies, the evidence indicates that these alleged events 
took place at the end of this POR. Therefore, because SLI continued to 
hold in trust a significant amount of CFP's sales and has oversight 
over all of Three Star's assets for the vast majority of the POR, these 
share and/or asset oversight transfers do not alter our conclusion that 
CFP, its pencil-producing subsidiaries, and Three Star were affiliated 
during the POR through common control by SLI. See Affiliation/
Collapsing Memo for further discussion.

Collapsing-CFP and Three Star

    Pursuant to 19 CFR 351.401(f), the Department will collapse 
producers and treat them as a single entity where (1) those producers 
are affiliated, (2) the producers have production facilities for 
producing similar or identical products that would not require 
substantial retooling of either facility in order to restructure 
manufacturing priorities, and (3) there is a significant potential for 
manipulation of price or production. We also note that the rationale 
for collapsing, to prevent manipulation of price and/or production (see 
19 CFR 351.401(f)), applies to both producers and exporters, if the 
facts indicate that producers of like merchandise are affiliated as a 
result of their mutual relationship with an exporter.
    To the extent that this provision does not conflict with the 
Department's application of separate rates and enforcement of the NME 
provision, section 773(c) of the Act, the Department will collapse two 
or more affiliated entities in a case involving an NME country if the 
facts of the case warrant such treatment. Furthermore, we note that the 
factors listed in 19 CFR 351.401(f)(2) are not exhaustive, and in the 
context of an NME investigation or administrative review, other factors 
unique to the relationship of business entities within the NME may lead 
the Department to determine that collapsing is either warranted or 
unwarranted, depending on the facts of the case. See Hontex 
Enterprises, Inc. v. United States, 248 F. Supp. 2d 1323, 1342 (Ct. 
Int'l. Trade 2003) (noting that the application of collapsing in the 
NME context may differ from the standard factors listed in the 
regulation).
    In summary, if there is evidence of significant potential for 
manipulation or control between or among producers which produce 
similar and/or identical merchandise, but may not all produce their 
product for sale to the United States, the Department may find such 
evidence sufficient to apply the collapsing criteria in an NME context 
in order to determine whether all or some of those affiliated producers 
should be treated as one entity (see, e.g., Certain Preserved Mushrooms 
From the People's

[[Page 70952]]

Republic of China: Preliminary Results and Partial Rescission of Fifth 
Antidumping Duty Administrative Review, 70 FR at 10971 (unchanged in 
final results); and Certain Preserved Mushrooms From the People's 
Republic of China: Final Results of Sixth Antidumping Duty New Shipper 
Review and Final Results and Partial Rescission of the Fourth 
Antidumping Duty Administrative Review, 69 FR 54635, 54637 (September 
9, 2004), and accompanying Issues and Decision Memorandum at Comment 
1). We also note that the rationale for collapsing, to prevent 
manipulation of price and/or production (see 19 CFR 351.401(f)), 
applies to both producers and exporters, if the facts indicate that 
producers of like merchandise are affiliated as a result of their 
mutual relationship with an exporter.
    As noted above in the ``Affiliation - CFP and Three Star'' section 
of this notice, we find a sufficient basis to conclude that CFP and its 
pencil-producing subsidiaries and Three Star are affiliated through the 
common control by SLI pursuant to section 771(33)(F) and (G) of the 
Act. All of CFP's three pencil-producing subsidiaries and Three Star 
produced cased pencils during the POR, which would be subject to the 
antidumping duty order if this merchandise entered the United States 
(see factors of production data submitted by CFP and Three Star in 
their section D responses). Therefore, we find that the first and 
second collapsing criteria are met because these producers have 
production facilities for producing similar or identical products, such 
that no retooling at any of the three facilities is required in order 
to restructure manufacturing priorities.
    Finally, we find that the third collapsing criterion is met in this 
case because a significant potential for manipulation of price or 
production exists among CFP and Three Star. See Affiliation/Collapsing 
Memo for further discussion. Therefore, based on the reasons mentioned 
in the Affiliation/Collapsing Memo and the guidance of 19 CFR 
351.401(f), we have preliminarily collapsed CFP, its pencil-producing 
subsidiaries, and Three Star because there is a significant potential 
for manipulation of production and/or sales decisions among these 
parties. Consequently, we have considered CFP, its pencil-producing 
subsidiaries, and Three Star as a single entity for purposes of 
determining whether or not the collapsed entity as a whole is entitled 
to a separate rate. This decision is specific to the facts presented in 
this review and is based on several considerations, including the 
structure of the collapsed entity, the level of control between/among 
affiliates, and the level of participation by each affiliate in the 
proceeding. Given the unique relationships which arise in NMEs between 
individual companies and the government, a separate rate will be 
granted to the collapsed entity only if the facts, taken as a whole, 
support such a finding (see ``Separate-Rates Determination'' section 
below for further discussion).

Separate-Rates Determination

    In proceedings involving NME countries, the Department begins with 
a rebuttable presumption that all companies within the country are 
subject to government control and thus should be assessed a single 
antidumping duty deposit rate (i.e., a country-wide rate). One 
respondent in this review, Dixon, is wholly owned by a company located 
outside the PRC. Therefore, an additional separate-rates analysis is 
not necessary to determine whether Dixon's export activities are 
independent from government control. See e.g., Polyethylene Retail 
Carrier Bags From the People's Republic of China: Preliminary Results 
of Antidumping Duty Administrative Review, 71 FR 54021, 54024 
(September 13, 2006), citing Notice of Final Determination of Sales at 
Less Than Fair Value: Creatine Monohydrate From the People's Republic 
of China, 64 FR 71104, 71105 (December 20, 1999) (the Department 
determined that the respondent wholly owned by persons located in Hong 
Kong qualifies for a separate rate).
    The other Section A respondent, Rongxin, is a limited liability 
company. The mandatory respondents, CFP and Three Star, are a joint 
stock limited company and a company ``owned by all of the people,'' 
respectively. However, CFP's shares are held in trust in part by SLI, 
which is also owned by ``all of the people.'' Moreover, SLI, as 
trustee, has oversight over Three Star's assets. As discussed above in 
the ``Collapsing-CFP and Three Star'' section of this notice, we have 
preliminarily considered CFP and Three Star as a collapsed entity.
    To establish whether a respondent is sufficiently independent from 
government control of its export activities so as to be entitled to a 
separate rate, the Department analyzes each entity exporting the 
subject merchandise under a test arising from the Notice of Final 
Determination of Sales at Less Than Fair Value: Sparklers From the 
People's Republic of China, 56 FR 20588 (May 6, 1991), at Comment 1, 
and amplified in the Final Determination of Sales at Less Than Fair 
Value: Silicon Carbide From the People's Republic of China, 59 FR 
22585, 22587 (May 2, 1994) (``Silicon Carbide''). In accordance with 
the separate-rates criteria, the Department assigns separate rates in 
NME cases only if the respondent can demonstrate the absence of both de 
jure and de facto government control over export activities. Thus, a 
separate-rates analysis is necessary to determine whether the export 
activities of Rongxin and the CFP-Three Star collapsed entity are 
independent from government control.
1. Absence of De Jure Control
    Evidence supporting, though not requiring, a finding of de jure 
absence of government control over exporter activities includes: (1) an 
absence of restrictive stipulations associated with the individual 
exporter's business and export licenses; (2) any legislative enactments 
decentralizing control of companies; and (3) any other formal measures 
by the government decentralizing control of companies. See, e.g., 
Certain Preserved Mushrooms From the People's Republic of China; 
Preliminary Results of Antidumping Duty Administrative Review, 71 FR at 
64935.
    The CFP-Three Star collapsed entity and Rongxin have placed on the 
administrative record the following documents to demonstrate absence of 
de jure control: the 1994 ``Foreign Trade Law of the People's Republic 
of China;'' the ``Company Law of the PRC,'' effective as of July 1, 
1994; and ``The Enterprise Legal Person Registration Administrative 
Regulations,'' promulgated on June 13, 1988. In other cases involving 
products from the PRC, respondents have submitted the following 
additional documents to demonstrate absence of de jure control, and the 
Department has placed these additional documents on the record of this 
segment, as well: the ``Law of the People's Republic of China on 
Industrial Enterprises Owned by the Whole People,'' adopted on April 
13, 1988; and the 1992 ``Regulations for Transformation of Operational 
Mechanisms of State-Owned Industrial Enterprises.'' See December 1, 
2006, memorandum to the file which places the above-referenced laws on 
the record of this segment.
    As in prior cases, we have analyzed these laws and have found them 
to establish sufficiently an absence of de jure control of joint 
ventures and companies owned by ``all of the people'' absent proof on 
the record to the contrary. See, e.g., Notice of Final Determination of 
Sales at Less than Fair

[[Page 70953]]

Value: Furfuryl Alcohol from the People's Republic of China, 60 FR 
22544 (May 8, 1995) (``Furfuryl Alcohol''), and Notice of Preliminary 
Determination of Sales at Less Than Fair Value and Postponement of 
Final Determination: Certain Partial-Extension Steel Drawer Slides with 
Rollers from the People's Republic of China, 60 FR 29571, 29573 (June 
5, 1995).
2. Absence of De Facto Control
    As stated in previous cases, there is some evidence that certain 
enactments of the PRC central government have not been implemented 
uniformly among different sectors and/or jurisdictions in the PRC. See 
Silicon Carbide, 59 FR at 22587. Therefore, the Department has 
determined that an analysis of de facto control is critical in 
determining whether respondents are, in fact, subject to a degree of 
government control which would preclude the Department from assigning 
separate rates.
    The Department typically considers the following four factors in 
evaluating whether a respondent is subject to de facto government 
control of its export functions: (1) whether the export prices are set 
by, or subject to the approval of, a government agency; (2) whether the 
respondent has the authority to negotiate and sign contracts and other 
agreements; (3) whether the respondent has autonomy from the government 
in making decisions regarding the selection of management; and (4) 
whether the respondent retains the proceeds of its export sales and 
makes independent decisions regarding the disposition of profits or 
financing of losses. See Silicon Carbide, 59 FR at 22586-87 and 
Furfuryl Alcohol, 60 FR at 22545.
    The affiliates in the CFP-Three Star collapsed entity (where 
applicable) and Rongxin each has asserted the following: (1) each 
establishes its own export prices; (2) each negotiates contracts 
without guidance from any government entities or organizations; (3) 
each makes its own personnel decisions; and (4) each retains the 
proceeds of its export sales, uses profits according to its business 
needs, and has the authority to sell its assets and to obtain loans. 
Additionally, each respondent's questionnaire responses indicate that 
its pricing during the POR was not coordinated among exporters. As a 
result, there is a sufficient basis to preliminarily determine that 
each respondent listed above (including the CFP-Three Star collapsed 
entity as a whole) has demonstrated a de facto absence of government 
control of its export functions and is entitled to a separate rate. 
Consequently, we have preliminarily determined that each of these 
respondents has met the criteria for the application of separate rates. 
Moreover, with respect to the affiliates included in the CFP-Three Star 
collapsed entity, we have assigned to all of them the same antidumping 
rate in these preliminary results for the above-mentioned reasons.

Fair-Value Comparisons

    To determine whether the respondents' sales of subject merchandise 
were made at less than NV, we compared the export price (``EP'') to NV, 
as described in the ``Export Price'' and ``Normal Value'' sections of 
this notice, below.

Export Price

    In accordance with section 772(a) of the Act, the Department 
calculated EPs for sales by the CFP-Three Star collapsed entity to the 
United States because the subject merchandise was sold directly to 
unaffiliated customers in the United States (or to unaffiliated 
resellers outside the United States with knowledge that the merchandise 
was destined for the United States) prior to importation, and 
constructed export price methodology was not otherwise indicated. In 
accordance with 19 CFR 351.401(c), we made deductions from the net 
sales price for foreign inland freight and foreign brokerage and 
handling for all U.S. sales. Each of these services was provided by an 
NME vendor and, thus, as explained in the ``Normal Value'' section 
below, we based the amounts of the deductions for these movement 
charges on values from a surrogate country.
    Where appropriate for certain sales, we also made deductions from 
the net sales price for international freight and marine insurance in 
accordance with 19 CFR 351.401(c). For international freight (i.e., 
ocean freight), we used the reported expenses because the respondent 
used a market-economy freight carrier and paid for those expenses in a 
market-economy currency. However, because the respondent used a non-
market economy service provider for marine insurance, we valued this 
expense based on a publicly available price quote from a marine 
insurance provider obtained from http://www.rjgconsultants.com/insurance.html.
    For the reasons stated in the ``Normal Value'' section below, we 
selected India as the primary surrogate country. To value brokerage and 
handling, the Department used an average of the publicly summarized 
data from the following two sources, which we have placed on the record 
of this review: (1) data reported in the U.S. sales listing in the 
February 28, 2005, submission from Essar Steel Ltd. in the antidumping 
duty administrative review of Certain Hot-Rolled Carbon Steel Flat 
Products from India, A-533-820 (covering December 2003 - November 
2004); and (2) data reported in Pidilite Industries' March 9, 2004, 
public version response submitted in the antidumping duty investigation 
of Carbazole Violet Pigment 23 from India, A-533-838 (covering the 
period November 2002 - September 2003). We identify the source used to 
value foreign inland freight in the ``Normal Value'' section of this 
notice, below. We adjusted these values, as appropriate, to account for 
inflation or deflation between the effective period and the POR. We 
calculated the inflation or deflation adjustments for these values 
using the wholesale price indices (``WPI'') for India as published in 
the International Financial Statistics Online Service maintained by the 
Statistics Department of the International Monetary Fund at the website 
http://www.imfstatistics.org (``IFS'').

Normal Value

    Section 773(c)(1) of the Act provides that, in the case of an NME, 
the Department shall determine NV using a factors of production 
(``FOP'') methodology if the merchandise is exported from an NME 
country and the information does not permit the calculation of NV using 
home-market prices, third-country prices, or constructed value under 
section 773(a) of the Act.
    The Department will base NV on FOPs because the presence of 
government controls on various aspects of these NME economies renders 
price comparisons and the calculation of production costs invalid under 
our normal methodologies. Therefore, we calculated NV based on FOPs in 
accordance with sections 773(c)(3) and (4) of the Act and 19 CFR 
351.408(c). The FOPs include: (1) hours of labor required; (2) 
quantities of raw materials employed; (3) amounts of energy and other 
utilities consumed; and (4) representative capital costs. We used the 
FOPs reported by respondents for materials, energy, labor, and packing.
    In accordance with section 773(c)(4) of the Act, the Department 
valued the FOPs, to the extent possible, using the costs of the FOPs in 
one or more market-economy countries that are at a level of economic 
development comparable to that of the PRC and are significant producers 
of comparable merchandise. We determined that India is comparable to 
the PRC in terms of per capita gross national product and the

[[Page 70954]]

national distribution of labor. Furthermore, India is a significant 
producer of comparable merchandise. See Memorandum from Ron Lorentzen, 
Director, Office of Policy, to Irene Darzenta-Tzafolias, Acting Office 
Director, Office 2, dated February 9, 2006, regarding potential 
surrogate countries, which is available in the CRU - Public File.
    In accordance with 19 CFR 351.408(c)(1), when a producer sources an 
input from a market-economy country and pays for it in market-economy 
currency, the Department will normally value the factor using the 
actual price paid for the input. See 19 CFR 351.408(c)(1); see also 
Lasko Metal Products v. United States, 43 F.3d 1442, 1445-1446 (Fed. 
Cir. 1994) (affirming the Department's use of market-based prices to 
value certain FOPs). Where a portion of the input is purchased from a 
market-economy supplier and the remainder from an NME supplier, the 
Department will normally use the price paid for the inputs sourced from 
market-economy suppliers to value all of the input, provided the volume 
of the market-economy inputs as a share of total purchases from all 
sources is ``meaningful.'' See Antidumping Duties; Countervailing 
Duties; Final rule, 62 FR 27295, 27366 (May 19, 1997); Shakeproof v. 
United States, 268 F.3d 1376, 1382 (Fed. Cir. 2001). See also 19 CFR 
351.408(c)(1).
    With regard to both the Indian import-based surrogate values and 
the market-economy input values, we have disregarded prices that we 
have reason to believe or suspect may be subsidized. See Tapered Roller 
Bearings and Parts Thereof, Finished and Unfinished, From the People's 
Republic of China; Final Results of 1999-2000 Administrative Review, 
Partial Rescission of Review, and Determination Not To Revoke Order in 
Part, 66 FR 57420 (November 15, 2001), and accompanying Issues and 
Decision Memorandum at Comment 1. We have found that India, Indonesia, 
South Korea, and Thailand maintain broadly available, non-industry-
specific export subsidies, and it is reasonable to infer that exports 
to all markets from these countries may be subsidized. See Certain 
Frozen Fish Fillets From the Socialist Republic of Vietnam: Preliminary 
Results and Preliminary Partial Rescission of Antidumping Duty 
Administrative Review, 70 FR 54007, 54011 (September 13, 2005) 
(unchanged in final results); and China National Machinery Import & 
Export Corporation v. United States, 293 F. Supp. 2d 1334, 1336 (Ct. 
Int'l. Trade 2003), aff'd 104 Fed. App. 183 (Fed. Cir. 2004).
    We are also guided by the statute's legislative history that 
explains that it is not necessary to conduct a formal investigation to 
ensure that such prices are not subsidized. See H.R. Rep. 100-576 at 
590-91 (1988), reprinted in 1988 U.S.C.C.A.N. 1547, 1623. Rather, the 
Department bases its decision on information that is available to it at 
the time it is making its determination. Therefore, we have not used 
prices from these countries either in calculating the Indian import-
based surrogate values or in calculating market-economy input values. 
See Factor Valuation Memorandum.

Factor Valuations

    Section 773(c)(3) of the Act states that ``the factors of 
production utilized in producing merchandise include, but are not 
limited to the quantities of raw materials employed.'' Therefore, the 
Department is required under the Act to value all inputs. To calculate 
NV, we multiplied the reported per-unit factor quantities by publicly 
available Indian surrogate values. In selecting the surrogate values, 
we considered the quality, specificity, and contemporaneity of the 
data.
    In accordance with section 773(c)(1) of the Act, for purposes of 
calculating NV, we attempted to value the FOPs using surrogate values 
that were in effect during the POR. If we were unable to obtain 
surrogate values that were in effect during the POR, we adjusted the 
values, as appropriate, to account for inflation or deflation between 
the effective period and the POR. We calculated the inflation or 
deflation adjustments for all factor values, as applicable, except 
labor, using the WPI for the appropriate surrogate country as published 
in the IFS.
    As appropriate, we adjusted input prices by including freight costs 
to make them delivered prices. Specifically, we added to the Indian 
import surrogate values a surrogate freight cost calculated using the 
shorter of the reported distance from the domestic supplier to the 
factory or the distance from the nearest port of export to the factory 
where appropriate (i.e., where the sales terms for the market-economy 
inputs were not delivered to the factory). This adjustment is in 
accordance with the decision of the Court of Appeals for the Federal 
Circuit in Sigma Corp. v. United States, 117 F. 3d 1401 (Fed. Cir. 
1997). We valued the FOPs as follows:
    (1) Except where noted below, we valued all reported material, 
energy, and packing inputs using Indian import data from the World 
Trade Atlas (``WTA'') for December 2004 through November 2005, in 
accordance with the Department's established practice in this case (see 
e.g., Certain Cased Pencils From the People's Republic of China: 
Preliminary Results of Antidumping Duty Administrative Review and 
Intent to Rescind in Part, 70 FR 76755, 76759 (December 28, 2005) 
(``Prelim PRC Pencils 2003-2004 AR'') (unchanged in the final results).
    (2) For tallow, we used inflated Indian import data from the WTA 
for the period December 2003 through November 2004 because 
contemporaneous data were not available.
    (3) For ferrules, kaolin clay, pigment, plastic toppers, master 
cartons, packing boxes, and plastic boxes, we used inflated Indian 
import data from the WTA for the period December 2002 through November 
2003 because contemporaneous data were not available.
    (4) For a certain input (for which the respondent claims 
proprietary treatment), we used inflated Indian import data from the 
WTA for the period December 2002 through November 2003 because 
contemporaneous data were not available.
    (5) To value lindenwood pencil slats, we used publicly available, 
published U.S. prices for American basswood lumber because price 
information for Chinese lindenwood and American basswood is not 
available from any of the potential surrogate countries.\9\ The U.S. 
lumber prices for basswood are published in the 2006 Hardwood Market 
Report for the period December 4, 2004, through November 26, 2005.
---------------------------------------------------------------------------

    \9\ In the antidumping investigation of certain cased pencils 
from the PRC, the Department found Chinese lindenwood and American 
basswood to be virtually indistinguishable and thus used U.S. prices 
for American basswood to value Chinese lindenwood. See Notice of 
Final Determination of Sales at Less Than Fair Value: Certain Cased 
Pencils From the People's Republic of China, 59 FR 55625, 55632 
(November 8, 1994). This methodology was upheld by the Court of 
International Trade. See Writing Instrument Manufacturers 
Association, Pencil Section, et. al. v. United States, 984 F. Supp. 
629, 639 (Ct. Int'l. Trade 1997), aff'd 178 F.3d 1311 (Fed. Cir. 
1998).
---------------------------------------------------------------------------

    (6) The CFP-Three Star collapsed entity reported that meaningful 
percentages of its purchases of specific inputs were sourced from 
market-economy countries and paid for in market-economy currencies. 
Pursuant to 19 CFR 351.408(c)(1), we used the actual price paid by the 
CFP-Three Star collapsed entity for these inputs.

[[Page 70955]]

Where applicable, we also adjusted these values to account for freight 
costs incurred between the supplier and respondent. See Factor 
Valuation Memorandum and Memorandum from the Team to the File, entitled 
Analysis for the Preliminary Results of the Antidumping Duty 
Administrative Review of Certain Preserved Mushrooms from the People's 
Republic of China: China First Pencil Company, Ltd. (``CFP'') and 
Shanghai Three Star Stationery Industry Corp. (``Three Star'') 
(``Preliminary Calculation Memorandum''), dated December 1, 2006.
    (7) We valued electricity using rates from Energy Prices and Taxes: 
Second Quarter 2003, published by the International Energy Agency. We 
valued steam coal using the Teri Energy Data Directory & Yearbook 
(2004). We adjusted these values, as appropriate, to account for 
inflation or deflation between the effective period and the POR.
    (8) We valued steam using January-June 1999 Indian price data from 
the July 24, 2000 issue of PR Newswire. We adjusted this value, as 
appropriate, to account for inflation between the effective period and 
the POR.
    (9) We valued labor, consistent with 19 CFR 351.408(c)(3), using 
the PRC regression-based wage rate as reported on Import 
Administration's home page, Import Library, Expected Wages of Selected 
NME Countries, revised in November 2005, and posted to Import 
Administration's website at http://ia.ita.doc.gov/wages. The source of 
this wage rate data is the Yearbook of Labour Statistics 2003, 
International Labor Office, (Geneva: 2003), Chapter 5B: Wages in 
Manufacturing (http://laborsta.ilo.org). The years of the reported wage 
rates range from 1998 to 2003. Because this regression-based wage rate 
does not separate the labor rates into different skill levels or types 
of labor, we have applied the same wage rate to all skill levels and 
types of labor reported by the respondent.
    (10) We derived ratios for factory overhead, depreciation, and 
selling, general and administrative expenses, interest expenses, and 
profit for the finished product using the 2003-2004 (``FY04'') 
financial statement of Camlin Inc. (``Camlin''), an Indian producer of 
the subject merchandise, in accordance with the Department's practice 
with respect to selecting financial statements for use in NME cases 
(see, e.g., Notice of Final Determination of Sales at Less Than Fair 
Value: Chlorinated Isocyanurates From the People's Republic of China, 
70 FR 24502 (May 10, 2005), and accompanying Issues and Decision 
Memorandum at Comment 2. The Department prefers to derive financial 
ratios using data from those surrogate producers whose financial data 
will not be distorted or otherwise unreliable. In prior reviews of this 
product, the Department derived the surrogate financial ratios from the 
financial statement of Asia Wood International Corporation (``Asia 
Wood''), a Filipino producer of wood products (see e.g., Prelim PRC 
Pencils 2003-2004 AR, 70 FR at 76760, unchanged in PRC Pencils 2003-
2004 AR, 71 FR 38366). However, we determined to use the FY04 financial 
statement of Camlin for purposes of the preliminary results of this 
review because: (a) India is our primary surrogate country; (b) Camlin 
is an Indian producer of the subject merchandise; and (c) Camlin's FY04 
data, like Asia Wood's data, is equally contemporaneous with our POR. 
The copy of Camlin's FY04 financial report that the Department obtained 
appeared to be missing a few pages. However, we find Camlin's FY04 
report to be more reliable and less distortive than Asia Wood's 
financial data because Asia Wood is not a producer of subject 
merchandise and is located in the Philippines. Moreover, we were able 
to obtain the omitted information in Camlin's FY04 financial report 
from Camlin's 2004-2005 (``FY05'') financial report. The FY05 report 
contained certain relevant portions of Camlin's FY04 data. Taken 
together, these two financial statements provide complete financial 
data for Camlin's FY04 period.
    Also, in accordance with the Department's current practice, 
although part of Camlin's FY05 period was contemporaneous with the POR, 
we did not use Camlin's FY05 financial data in deriving surrogate 
ratios because Camlin did not realize a profit during its FY05 period 
(see e.g., Certain Helical Spring Lock Washers From the People's 
Republic of China: Final Results of Antidumping Duty Administrative 
Review, 70 FR 28274 (May 17, 2005), and accompanying Issues and 
Decision Memorandum at Comment 8; and Notice of Final Determination of 
Sales at Less Than Fair Value: Barium Carbonate From the People's 
Republic of China, 68 FR 46577 (August 6, 2003), and accompanying 
Issues and Decision Memorandum at Comment 6). Finally, we applied these 
ratios to the CFP-Three Star collapsed entity's costs (determined as 
noted above) for materials, labor, and energy.
    (11) We used truck rates published at http://www.infreight.com to 
value freight services provided to transport: (a) the finished product 
to the port; and (b) direct materials, packing materials, and coal from 
the suppliers of the inputs to the producers. We also used, where 
appropriate, 2003 train rates obtained from www.Indianrailways.gov and 
a July 1997 inland water rate published by the Inland Waterways 
Authority of India.
    For further discussion of the surrogate values we used for these 
preliminary results of review, see the Factor Valuation Memorandum, 
which is on file in the CRU - Public File.

Currency Conversion

    We made currency conversions into U.S. dollars, in accordance with 
section 773A(a) of the Act, based on the exchange rates in effect on 
the dates of the U.S. sales, as certified by the Federal Reserve Bank.

Preliminary Results of Review

    We preliminarily determine that the following margins exist for the 
period December 1, 2004, through November 30, 2005:

------------------------------------------------------------------------
                                                                Margin
                    Manufacturer/exporter                      (percent)
------------------------------------------------------------------------
China First Pencil Company, Ltd.(which includes its                 1.33
 affiliates China First Pencil Fang Zheng Co., Shanghai
 First Writing Instrument Co., Ltd., Shanghai Great Wall
 Pencil Co., Ltd., and Shanghai Three Star Stationary
 Industry Corp.)\10\........................................
Pany Beijing Dixon Stationary Company, Ltd..................        1.33
Shandong Rongxin Import & Export Co., Ltd...................        1.33
------------------------------------------------------------------------
\10\For this review, we consider China First Pencil Company, Ltd., China
  First Pencil Fang Zheng Co., Shanghai First Writing Instrument Co.,
  Ltd., Shanghai Great Wall Pencil Co., Ltd., and Shanghai Three Star
  Stationary Industry Corp. to constitute a single entity

    As stated above in the ``Separate-Rates Determination'' section of 
this notice, Dixon and Rongxin both qualify for a separate rate in this 
review. Moreover, as stated above in the ``Background'' section of this 
notice, we limited this review by selecting the largest exporters. As 
Section A respondents, Dixon and Rongxin will be assigned the weighted-
average dumping margin based on the calculated margins of mandatory 
respondents which are not

[[Page 70956]]

de minimis or based on adverse facts available, in accordance with 
Department practice. See e.g., Notice of Final Determinations of Sales 
at Less Than Fair Value: Brake Drums and Brake Rotors From the People's 
Republic of China, 62 FR 9160, 9174 (February 28, 1997). Accordingly, 
we have assigned these two respondents the dumping margin assigned to 
the CFP-Three Star collapsed entity.
    In accordance with 19 CFR 351.224(b), the Department will disclose 
to interested parties within five days of the date of publication of 
this notice the calculations it performed for the preliminary results. 
An interested party may request a hearing within 30 days of publication 
of the preliminary results. See 19 CFR 351.310(c). Interested parties 
may submit written comments (case briefs) within 30 days of publication 
of the preliminary results and rebuttal comments (rebuttal briefs), 
which must be limited to issues raised in the case briefs, within five 
days after the time limit for filing case briefs. See 19 CFR 
351.309(c)(1)(ii) and 19 CFR 351.309(d). Parties who submit arguments 
are requested to submit with the argument: (1) a statement of the 
issue; (2) a brief summary of the argument; and (3) a table of 
authorities. Further, the Department requests that parties submitting 
written comments provide the Department with a diskette containing the 
public version of those comments. We will issue a memorandum 
identifying the date of a hearing, if one is requested. Unless the 
deadline is extended pursuant to section 751(a)(3)(A) of the Act, the 
Department will issue the final results of this administrative review, 
including the results of our analysis of the issues raised by the 
parties in their comments, within 120 days of publication of the 
preliminary results.

Assessment Rates

    Upon completion of this administrative review, the Department will 
determine, and CBP shall assess, antidumping duties on all appropriate 
entries. For the CFP-Three Star collapsed entity, we have calculated 
customer-specific antidumping duty assessment amounts for subject 
merchandise based on the ratio of the total amount of antidumping 
duties calculated for the examined sales to the total quantity of sales 
examined. We calculated these assessment amounts because there is no 
information on the record which identifies entered values or the 
importers of record for the CFP-Three Star collapsed entity's reported 
U.S. sales transactions. For Dixon and Rongxin (i.e., respondents which 
are being assigned the margin calculated for the CFP-Three Star 
collapsed entity), we will instruct CBP to assess antidumping duties on 
each of these company's entries equal to the margin these companies 
receive in the final results, regardless of the importer or customer.
    The Department intends to issue assessment instructions to CBP 15 
days after the date of publication of the final results of review. If 
these preliminary results are adopted in the final results of review, 
we will direct CBP to assess the resulting assessment amounts, 
calculated as described above, on each of the applicable entries during 
the review period.

Cash Deposit Requirements

    The following deposit requirements will apply to all shipments of 
certain cased pencils from the PRC entered, or withdrawn from 
warehouse, for consumption on or after the publication date of the 
final results of this administrative review, as provided by section 
751(a)(1) of the Act: (1) the cash deposit rates for the reviewed 
companies named above will be the rates for those firms established in 
the final results of this administrative review; (2) for any previously 
reviewed or investigated PRC or non-PRC exporter, not covered in this 
review, with a separate rate, the cash deposit rate will be the 
company-specific rate established in the most recent segment of this 
proceeding; (3) for all other PRC exporters, the cash deposit rate will 
be the PRC-wide rate established in the final results of this review; 
and (4) the cash deposit rate for any non-PRC exporter of subject 
merchandise from the PRC will be the rate applicable to the PRC 
exporter that supplied that exporter. These deposit requirements, when 
imposed, shall remain in effect until publication of the final results 
of the next administrative review.

Notification to Interested Parties

    This notice serves as a preliminary reminder to importers of their 
responsibility under 19 CFR 351.402(f)(2) to file a certificate 
regarding the reimbursement of antidumping duties prior to liquidation 
of the relevant entries during this review period. Failure to comply 
with this requirement could result in the Secretary's presumption that 
reimbursement of antidumping duties occurred and the subsequent 
assessment of double antidumping duties.
    We are issuing and publishing the preliminary results determination 
in accordance with sections 751(a)(1) and 777(i)(1) of the Act.

    Dated: December 1, 2006.
David M. Spooner,
Assistant Secretary for Import Administration.
[FR Doc. E6-20777 Filed 12-6-06; 8:45 am]
BILLING CODE 3510-DS-S