[Federal Register Volume 76, Number 53 (Friday, March 18, 2011)]
[Notices]
[Pages 14910-14917]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-6451]


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DEPARTMENT OF COMMERCE

International Trade Administration

[A-570-929]


Small Diameter Graphite Electrodes From the People's Republic of 
China: Initiation of Anti-Circumvention Inquiry

AGENCY: Import Administration, International Trade Administration, 
Department of Commerce.
SUMMARY: In response to requests from SGL Carbon LLC and Superior 
Graphite Co. (``Petitioners''), Petitioners in the original 
investigation, the Department of

[[Page 14911]]

Commerce (``Department'') is initiating an anti-circumvention inquiry 
pursuant to section 781(b) of the Tariff Act of 1930, as amended (``the 
Act''), to determine whether certain merchandise from the United 
Kingdom (``U.K.'') is being exported to the United States by U.K. 
Carbon and Graphite Co., Ltd. (``UKCG'') in circumvention of the 
antidumping duty order on small diameter graphite electrodes (``SDGE'') 
from the People's Republic of China (``PRC'').\1\
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    \1\ See Antidumping Duty Order: Small Diameter Graphite 
Electrodes from the People's Republic of China, 74 FR 8775 (February 
26, 2009) (``SDGE Order'').

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DATES: Effective Date: March 18, 2011.

FOR FURTHER INFORMATION CONTACT: Brendan Quinn, AD/CVD Operations, 
Office 8, Import Administration, International Trade Administration, 
U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., 
Washington, DC 20230; telephone: (202) 482-5848.

SUPPLEMENTARY INFORMATION: 

Background

    On October 12, 2010, Petitioners filed a submission alleging that 
UKCG, a company located in the United Kingdom, is engaged in 
circumvention of the SDGE Order, by importing unfinished SDGE 
components \2\ from the PRC to the United Kingdom, performing minor 
completion and assembly on these items, and exporting finished subject 
merchandise to the United States as SDGE of U.K. origin, thus, not 
subject to the SDGE Order.\3\ In this submission, Petitioners request 
that the Department initiate and conduct a proceeding to clarify 
whether the scope of the SDGE Order includes unfinished graphitized 
SDGE components, as imported by UKCG from the PRC based on either the 
dispositive written descriptions of the scope pursuant to 19 CFR 
351.225(k)(1) or, a further analysis of the product in question 
pursuant to factors enumerated in 19 CFR 351.225(k)(2). Alternatively, 
Petitioners request that the Department initiate an anti-circumvention 
proceeding, pursuant to 19 CFR 351.225(h), to determine whether the 
importation of the aforementioned SDGE components by UKCG from the PRC 
for finishing in the United Kingdom and subsequent sale to the United 
States constitutes circumvention of the SDGE Order, as defined in 
section 781(b) of the Act.
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    \2\ According to Petitioners, the unfinished merchandise in 
question is defined in UKCG's submissions as, e.g., ``graphite 
electrodes,'' ``rods,'' ``graphite billets,'' graphite shapes,'' 
``synthetic graphite electrode rod,'' and ``re-machined graphite 
electrode.'' Petitioners characterize these inputs as ``unfinished 
SDGE,'' whereas UKCG refers to them as ``artificial graphite.'' For 
customs purposes, these materials are, generally, classified under 
HTS 3801.10.00, defined as ``Artificial Graphite; Colloidal or Semi-
Colloidal Graphite; Preparations Based on Graphite or Other Carbon 
in the Form of Pastes, Blocks, Plates or Other Semi-Finished 
Goods.'' For ease of reference, these materials are referred to as 
``unfinished SDGE components'' or ``artificial graphite rods'' 
throughout this notice.
    \3\ See Letter from Petitioners entitled, ``Small Diameter 
Graphite Electrodes from the People's Republic of China,'' dated 
October 12, 2010 (``Initiation Request'').
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    On October 29, 2010, the Department received a letter on behalf 
UKCG in rebuttal to Petitioners' request for a scope or anti-
circumvention ruling.\4\ In this submission, UKCG asserts that there is 
no need for the Department to undertake a full scope or anti-
circumvention inquiry, arguing that the unfinished SDGE component 
inputs in question have already been excluded from the scope of the 
SDGE Order. On November 12, 2010, we received further comments from 
Petitioners in response to UKCG's October 29, 2010, submission.\5\
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    \4\ See Letter from UKCG entitled, ``Small Diameter Graphite 
Electrodes from the People's Republic of China: Response to 
Petitioners' Submission of October 12, 2010, On Behalf of UK 
Graphite and Carbon Co., Ltd.,'' dated October 29, 2010 
(``Initiation Rebuttal Comments'').
    \5\ See Letter from Petitioners entitled, ``Small Diameter 
Graphite Electrodes from the People's Republic of China,'' dated 
November 12, 2010 (``Petitioners' Response to UKCG's Initiation 
Rebuttal Comments'').
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    On November 24, 2010, the Department requested that Petitioners 
supplement their scope request with certain additional information to 
aide in our decision whether to initiate a formal scope or anti-
circumvention inquiry.\6\ In this questionnaire, the Department 
requested that Petitioners provide further information regarding both 
the pattern of trade for imports of unfinished SDGE components into the 
United Kingdom from the PRC and domestic U.K. production of unfinished 
SDGE components during the relevant time period. On November 30, 2010, 
we received Petitioners' response to the Department's pre-initiation 
questionnaire.\7\ On December 14, 2010, we received a rebuttal from 
UKCG in response to Petitioners' SQR.\8\
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    \6\ See the Department's Letter to Petitioners entitled, ``Small 
Diameter Graphite Electrodes from the People's Republic of China: 
Scope Inquiry Request Regarding Certain Merchandise Imported By UK 
Carbon and Graphite Company, Ltd.,'' dated November 24, 2010 (``Pre-
Initiation Supplemental Questionnaire'' or Pre-Initiation SQ'').
    \7\ See Letter from Petitioners entitled, ``Small Diameter 
Graphite Electrodes from the People's Republic of China,'' dated 
November 30, 2010 (``Petitioners' Pre-Initiation Supplemental 
Questionnaire Response'' or ``Petitioners' SQR''). Upon receipt of 
this submission, we found that the record, henceforth, contained 
sufficient information from which the Department may determine 
whether a formal anti-circumvention inquiry is warranted.
    \8\ See Letter from UKCG entitled, ``Small Diameter Graphite 
Electrodes from the People's Republic of China: Response to 
Petitioners' Submission of November 30, 2010, On Behalf of UK 
Graphite and Carbon Co., Ltd.,'' dated December 14, 2010 (``UKCG's 
Rebuttal to Petitioners' Pre-Initiation Supplemental Questionnaire 
Response'' or ``UKCG's SQR Rebuttal'').
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    On November 29, 2010, the Department received, via e-mail, a 
document from the British Embassy in support of UKCG's arguments, which 
the Department placed on the record of this proceeding.\9\
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    \9\ See the Department's Memorandum from Brendan Quinn to The 
File entitled, ``Scope/Anti-Circumvention Inquiry of Small Diameter 
Graphite Electrodes from the People's Republic of China: Placing 
Document on the Record,'' dated February 2, 2011. In this document, 
the British Government related its support for UKCG and implored the 
Department to take into consideration certain arguments forwarded in 
UKCG's submissions, particularly with regard to the Binding Origin 
Information ruling discussed below. Because this document did not 
provide any new argument or information onto the record, we have not 
further summarized the British Embassy's letter for the purposes of 
this notice.
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    On January 13, 2011, the Department extended the deadline to 
initiate an anti-circumvention inquiry by 21 days, pursuant to 19 CFR 
351.302(b).\10\ On February 4, 2011, the Department further extended 
the deadline to initiate by 14 days, pursuant to 19 CFR 351.302(b).\11\
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    \10\ See the Department's letter to Petitioners entitled, 
``Small Diameter Graphite Electrodes from the People's Republic of 
China: Scope Inquiry Request Regarding Certain Unfinished 
Merchandise Imported By UK Carbon and Graphite Company, Ltd.,'' 
dated January 13, 2011 (``Initiation Extension Letter'').
    \11\ See the Department's letter to Petitioners entitled, 
``Small Diameter Graphite Electrodes from the People's Republic of 
China: Scope Inquiry Request Regarding Certain Unfinished 
Merchandise Imported By UK Carbon and Graphite Company, Ltd.,'' 
dated February 4, 2011 (``Second Initiation Extension Letter'').
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Scope of the Order

    The merchandise covered by this order includes all small diameter 
graphite electrodes of any length, whether or not finished, of a kind 
used in furnaces, with a nominal or actual diameter of 400 millimeters 
(16 inches) or less, and whether or not attached to a graphite pin 
joining system or any other type of joining system or hardware. The 
merchandise covered by this order also includes graphite pin joining 
systems for small diameter graphite electrodes, of any length, whether 
or not finished, of a kind used in furnaces, and whether or not the 
graphite pin joining system is attached to, sold with, or sold 
separately from, the small diameter graphite electrode. Small diameter 
graphite electrodes and graphite pin joining systems for small

[[Page 14912]]

diameter graphite electrodes are most commonly used in primary melting, 
ladle metallurgy, and specialty furnace applications in industries 
including foundries, smelters, and steel refining operations. Small 
diameter graphite electrodes and graphite pin joining systems for small 
diameter graphite electrodes that are subject to this order are 
currently classified under the Harmonized Tariff Schedule of the United 
States (``HTSUS'') subheading 8545.11.0000. The HTSUS number is 
provided for convenience and customs purposes, but the written 
description of the scope is dispositive.

Determination Not To Initiate a Scope Proceeding

    As noted above, Petitioners have requested the Department initiate 
either a scope proceeding to clarify whether the scope of the SDGE 
Order includes the merchandise in question pursuant to 19 CFR 
351.225(k) or an anti-circumvention proceeding pursuant to section 
781(b) of the Act and 19 CFR 351.225(h).
    In the instant case, although Petitioners have provided substantial 
record evidence which may support the initiation of either type of 
inquiry, the Department has concluded that the issues raised by the 
parties are better addressed in the context of an anti-circumvention 
proceeding pursuant to section 781(b) of the Act and 19 CFR 
351.225(h).\12\ In particular, due to the specificity of Petitioners' 
request as it pertains to a particular company (i.e., UKCG) and certain 
record information as to the timing of the pattern of trade (as 
discussed below), the Department has determined that a decision to 
initiate an anti-circumvention inquiry is the most appropriate course 
of action to address Petitioners' concerns at present. As a result of 
this determination, the Department will not initiate a scope proceeding 
pursuant to 19 CFR 351.225(k) at this time.
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    \12\ As such, the remainder of this notice will focus on the 
statutory criteria for the initiation of an anti-circumvention 
inquiry, as defined in section 781(b) of the Act. See the Initiation 
of Anti-Circumvention Proceeding section of this notice, below, for 
a full summary of both Petitioners' and UKCG's comments regarding 
initiation of an anti-circumvention inquiry. See also the Analysis 
section of this notice, below, for the full discussion of the 
Department's determination to initiate an anti-circumvention inquiry 
pursuant to section 781(b) of the Act and 19 CFR 351.225(h).
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Initiation of Anti-Circumvention Proceeding

Statutory Criteria for Initiation of Anti-Circumvention Proceeding

    Section 781(b)(1) of the Act provides that the Department may find 
that importation of certain merchandise completed or assembled in a 
third country constitutes circumvention of an antidumping duty order 
if:
    (A) The merchandise imported into the United States is of the same 
class or kind as merchandise produced in a foreign country that is 
subject to the order.
    (B) Before importation to the United States, such imported 
merchandise is completed or assembled in another foreign country from 
merchandise which is either subject to the order or is produced in the 
foreign country subject to the order.
    (C) The process of assembly or completion in the third country is 
minor or insignificant.\13\
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    \13\ In determining whether the process of assembly or 
completion is minor or insignificant, section 781(b)(2) of the Act 
instructs the Department into account: (a) The level of investment 
in the foreign country; (b) the level of research and development in 
the foreign country; (c) the nature of the production process in the 
foreign country; (d) the extent of production facilities in the 
foreign country; and (e) whether the value of the processing 
performed in the foreign country represents a small proportion of 
the value of the merchandise imported into the United States.
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    (D) The value of the merchandise produced in the country subject to 
the order amounts to a significant portion of the total value of the 
merchandise exported to the United States.
    (E) Such action would be appropriate to prevent evasion of the 
order in question. In evaluating these aforementioned criteria, section 
781(b)(3) of the Act further instructs the Department to take into 
account:
    1. The pattern of trade, including sourcing patterns.
    2. Whether the manufacturer or exporter of the merchandise in 
question from the country subject to the order (i.e., the PRC producer 
of unfinished SDGE components) is affiliated with the third country 
party that completes or assembles the merchandise for subsequent 
importation into the United States (i.e., UKCG).
    3. Whether imports into the third country (i.e., the United 
Kingdom) of the merchandise in question (i.e., unfinished SDGE 
components from the PRC) have increased after the initiation of the 
investigation which resulted in the issuance of the order.

Petitioners' Request for Initiation of an Anti-Circumvention Proceeding 
\14\
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    \14\ Petitioners' request included arguments for both the 
initiation of a scope and anti-circumvention inquiry. Because, as 
noted in the Determination Not To Initiate a Scope Proceeding, 
above, we are focusing this notice on the determination as to 
whether to initiate an anti-circumvention ruling, we have not 
summarized or addressed the arguments forwarded by Petitioners, 
which were submitted to specifically support the initiation of a 
scope ruling. However, we have included and addressed all arguments 
submitted in support of the initiation of an anti-circumvention 
inquiry, even in the instance that they were first presented in 
support of a scope initiation.
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    In their October 12, 2010, Initiation Request, Petitioners 
presented the following evidence with respect to each of the 
aforementioned statutory criteria:
A. Merchandise of the Same Class or Kind
    Petitioners contend that the SDGE products exported to the United 
States by UKCG are identical to those subject to the SDGE Order.\15\
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    \15\ See Initiation Request at 23.
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B. Completion of Merchandise in a Foreign Country
    Petitioners further assert that the unfinished SDGE component 
inputs imported by UKCG from the PRC for further processing before 
exportation to the United States are themselves subject 
merchandise.\16\ Petitioners argue that the language of the scope (as 
included in the initial Petition, SDGE Order, and Final ITC 
Determination) identifies the graphitization process as the point at

[[Page 14913]]

which an electrode form becomes a graphite electrode subject to the 
SDGE Order.\17\ As such, Petitioners contend that this graphitization 
process (performed in the PRC) confers both country of origin and, 
thus, ``unfinished'' subject merchandise status on the SDGE components 
in question, even if further machining occurs in a third country to 
become ``finished'' subject merchandise. Therefore, Petitioners 
conclude, the finished merchandise exported to the United States is not 
only produced from subject merchandise but, due to the nature of 
further processing not being sufficient to alter the country of origin, 
the finished merchandise is itself subject merchandise produced in the 
PRC.\18\
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    \16\ With respect to the description of in-scope merchandise, 
Petitioners cite to the Letter from Petitioners entitled, ``Small 
Diameter Graphite Electrodes from the People's Republic of China--
Antidumping Duty Petition,'' dated January 17, 2008 (``Petition''), 
Small Diameter Graphite Electrodes, Inv. 731-TA-1143 (Final), Pub. 
4062, dated February 2009 (``Final ITC Determination''), and the 
SDGE Order. They argue that the scope of the SDGE Order, as 
established in these documents, explicitly includes ``unfinished'' 
SDGEs whether or not attached to a pin joining system. They assert 
that the inclusion of the ``unfinished'' language reflects the fact 
that unfinished SDGEs undergo no further processing beyond the 
graphitization stage, other than machining, as stated in the Final 
ITC Determination. As such, Petitioners contend that the scope is 
unambiguously dispositive regarding the inclusion of unfinished 
SDGE. Contrary to UKCG's claims that the SDGE components purchased 
from the PRC were not ``unfinished'' SDGE but, rather, inputs 
transformed into SDGE by manufacturing operations in the United 
Kingdom, Petitioners note that: (a) The 2009 UKCG financial 
statement describes the business of UKCG as the ``purchasing, 
processing, and sale of synthetic graphite electrodes for the steel 
and foundry industries;'' (b) the unfinished SDGE components in 
question contain the correct grade of petroleum coke mix, and have 
been baked, formed, carbonized, impregnated, and graphitized, thus, 
the resulting cylindrical rod, as produced in the PRC and imported 
into the U.K., has all the essential characteristics of a graphite 
electrode; (c) UKCG's own proprietary description of the U.K. 
processing on these artificial graphite rods demonstrates that only 
minor machining and finishing operations are performed, which do not 
impart any essential performance characteristics to the finished 
product. Therefore, according to Petitioners, the merchandise that 
UKCG imports from the PRC is ``unfinished'' SDGE as defined by the 
scope of the SDGE Order and, because the concept of scope 
encompasses both the product description and the country of origin 
of the product, the merchandise in question is of PRC origin and is 
subject merchandise both before and after finishing in the United 
Kingdom. See Initiation Request at 8-16.
    \17\ With respect to the specific argument that the 
graphitization process confers ``unfinished'' status to the SDGE in 
process and is, thus, at that point ``subject'' to the SDGE Order 
and, furthermore, origin of the country in which this process takes 
place, Petitioners cite to the Petition at 3, stating, ``The 
electrode form then undergoes the graphitization process, in which 
the electrode is heated in a furnace to an extremely high 
temperature (2600-3000 degrees centigrade). Through this process, 
the electrodes are transformed into graphite.'' Petitioners also 
cite to the Final ITC Determination at 4, stating, ``unfinished 
SDGEs undergo no further processing beyond the graphitization stage 
other than machining.''
    \18\ See Initiation Request at 23-24.
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C. Minor or Insignificant Process
1. Level of Investment
    Petitioners note that PRC producers have invested extensively in 
the SDGE industry, which includes significant investment in both 
manufacturing facilities and production equipment worth many millions 
of dollars. Petitioners contend that the bulk of this investment goes 
to the heavy industrial processes required for the production of SDGE 
(e.g., raw material handling, mixing, forming, baking, impregnating, 
and graphitizing), each of which occur prior to the final machining 
stage. Petitioners point out that, on the contrary, the total worth of 
UKCG's plant, including its single machine shop and finishing 
equipment, as shown in UKCG's financial statement, demonstrates that 
the level of investment required for a PRC manufacturer to produce an 
unfinished graphitized electrode is far greater than the level of 
investment needed by UKCG to perform its finishing processes.\19\
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    \19\ See Initiation Request at 25-26.
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2. Level of Research and Development
    Petitioners argue that, although they do not have detailed 
information regarding research and development (``R&D'') expenses 
incurred by either UKCG or Chinese producers of SDGE, as explained in 
the ``Level of Production Processes'' section, immediately below, the 
technology required to manufacture merchandise up to the graphitization 
process of production (and, thus, the related R&D costs), should 
greatly exceed the R&D costs associated with finishing of the 
merchandise and that the R&D costs associated with the finishing of the 
merchandise are relatively insignificant by comparison.\20\
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    \20\ See Initiation Request at 26.
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3. Level of Production Processes
    Petitioners contend that an understanding of the production of 
subject merchandise is essential to the analysis of whether or not UKCG 
is engaged in minor or insignificant production. As such, Petitioners 
detail the SDGE production process, demonstrating how raw materials are 
formed, baked, impregnated (if needed), re-baked, graphitized, finished 
and packaged. Petitioners emphasize the significant energy needed to 
graphitize the product and emphasize that, upon completion of this 
process, the electrode becomes an ``unfinished'' SDGE subject to the 
SDGE Order. Petitioners point out that, for PRC manufacturers to 
produce unfinished SDGE components for shipment to UKCG, they must 
perform each of these processes from the mixing of raw materials 
through to packaging, save finishing, which accounts for the vast 
majority of production costs (based on an analysis of proprietary 
information provided in the initial antidumping petition). In contrast, 
Petitioners argue that UKCG merely finishes \21\ and repackages SDGE 
into UKCG branded cartons, processes amounting to insignificant costs 
when compared to those incurred by PRC producers to perform the heavy 
industrial processes summarized above.\22\
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    \21\ Petitioners note that the ``finishing'' process involves 
machining of an electrode's outside surface so that it is sized to 
exact dimensions and tolerances (according to National Electrical 
Manufacturers Association standards for U.S. bound products), and 
may also include machining and fitting the ends of an electrode with 
a threaded graphite pin connecting/joining system. See Initiation 
Request at 28.
    \22\ See Initiation Request at 27-30.
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4. Extent of Production Facilities
    As detailed above, Petitioners note that the facilities needed to 
form, bake, impregnate, re-bake, graphitize and pack the subject 
merchandise in the PRC for exportation to the United Kingdom (e.g., 
equipment such as mills, sifters, calcinatories, presses, ovens, and 
tanks) is far more significant than the single machining shop needed to 
finish the products exported by UKCG to the United States.\23\
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    \23\ See Initiation Request at 30-31.
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5. Value of Further Processing Compared to Total Value of Exported 
Merchandise
    As noted above, Petitioners assert that, based on proprietary 
information supplied in the Petition, the cost of finishing a graphite 
electrode represents an insignificant amount of the total cost of 
manufacture for a SDGE.\24\
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    \24\ See Initiation Request at 31-32.
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D. Value of Merchandise Produced in the PRC
    Petitioners argue that, for reasons summarized above, the value of 
merchandise produced in the PRC represents the vast majority of the 
total value of the product.\25\
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    \25\ See Initiation Request at 32.
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E. Whether Action Is Appropriate To Prevent Evasion of the Order
    Petitioners reassert that UKCG imports graphitized components of 
SDGE (which, they contend are, subject merchandise) from PRC producers 
of subject merchandise, which are then finished and packaged for export 
to the United States as a product of the United Kingdom. Petitioners 
note that UKCG has relied on a European Binding Origin Information 
(``BOI'') ruling as support for the U.K. origin designation it applied 
to the merchandise in question. However, Petitioners argue, this ruling 
was issued for the purposes of trade within the European common market, 
and has no legal status in the United States. Moreover, Petitioners 
conclude that their arguments, as summarized above, invalidate any 
claim by UKCG that the finishing process is so substantial that it 
warranted a change in country of origin from the PRC to the United 
Kingdom.\26\
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    \26\ See Initiation Request at 32-35.
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F. Additional Factors
1. Pattern of Trade
    Petitioners argue that, since the filing of the antidumping 
Petition and issuance of the preliminary determination in the initial 
less than fair value (``LTFV'') investigation in August 2008,\27\ UKCG 
has shipped SDGE to the United States, sourced and finished from PRC-
produced graphitized components, in significant and increasing 
quantities. According to

[[Page 14914]]

Petitioners, at the time of initiation of the LTFV investigation in 
February 2008,\28\ the United Kingdom had no exports of SDGE of U.K. 
origin to the United States, but that UKCG began exporting the 
merchandise in question to the United States beginning two months after 
the publication of the preliminary determination.\29\ According to 
Petitioners, during the period November 2008 through March 2010, UKCG 
exports of SDGE represented 96 percent of the total SDGE exports from 
the United Kingdom to the United States, and such exports occurred in 
significant and increasing quantities subsequent to the issuance of the 
SDGE Order. Petitioners also placed Chinese Customs data on the record, 
which they claim demonstrates a significant increase in imports of 
finished SDGE from the PRC into the U.K. corresponding to the 
aforementioned increase in exports to the U.S.\30\
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    \27\ See Small Diameter Graphite Electrodes From the People's 
Republic of China: Preliminary Determination of Sales at Less Than 
Fair Value, Postponement of Final Determination, and Affirmative 
Preliminary Determination of Critical Circumstances, in Part, 73 FR 
49408 (August 21, 2008).
    \28\ See Small Diameter Graphite Electrodes From the People's 
Republic of China: Initiation of Antidumping Duty Investigation, 73 
FR 8287 (February 13, 2008).
    \29\ Petitioners note that the preliminary margins ranged from 
132.80 to 159.34, indicating that significant dumping margins might 
be levied against SDGE from the PRC in the final determination.
    \30\ See Initiation Request at 35-37.
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2. Affiliation
    Though Petitioners do not claim that UKCG is affiliated with any of 
the PRC producers from which it sourced the merchandise in question, 
they cite to UKCG's existing business relationship with PRC producers 
of merchandise subject to the SDGE Order.\31\
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    \31\ See Initiation Request at 38.
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3. Import Volume Subsequent to the Investigation and Order
    As noted above, Petitioners identify the following trends since the 
filing of the antidumping petition and issuance of the preliminary 
determination of the initial LTFV investigation in August 2008: UKCG 
has shipped Chinese-sourced subject merchandise to the United States in 
significant and increasing quantities; UKCG exports of SDGE represent 
the vast majority of the total SDGE exports from the United Kingdom to 
the United States; and customs data from the PRC and United States show 
a significant increase in PRC exports of SDGE to the United Kingdom and 
U.K exports to the United States.\32\
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    \32\ See id.
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Comments Received Subsequent to the Initiation Request

A. UKCG's Rebuttal Comments
    On October 29, 2010, the Department received a letter on behalf 
UKCG in rebuttal to Petitioners' October 12, 2010, requests for a scope 
and/or anti-circumvention ruling. In this submission, UKCG asserts that 
there is no need for the Department to undertake a full scope or anti-
circumvention inquiry, arguing that the unfinished SDGE component 
inputs in question have already been excluded from the scope of the 
SDGE Order, the finished SDGE exports are of U.K. origin, and that 
Petitioners' October 12, 2010, submission merely reiterates old 
allegations which have been previously rebutted based on record 
evidence.\33\ UKCG presents the following arguments in support of its 
position:
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    \33\ See UKCG's Initiation Rebuttal Comments at 1-2.
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    Legal Standards: UKCG argues that the scope of the SDGE Order, 
which was drafted by Petitioners, explicitly excludes the unfinished 
material in question. Citing to Hylsa, S.A. de C.V. v. United States, 
22 C.I.T. 44, 49 (1998), UKCG asserts that it is legally impermissible 
to bring such excluded merchandise back into the case, either as part 
of a scope or anti-circumvention proceeding.\34\
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    \34\ See UKCG's Initiation Rebuttal Comments at 3.
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    Artificial Graphite Is Not Covered by the SDGE Order: UKCG argues 
that the addition of the term ``unfinished'' to the scope of the SDGE 
Order is a lawyer-created term with no meaning in the industry and, as 
such, the term ``unfinished'' electrode could be applied to even the 
raw materials used to create SDGE. UKCG claims that the items imported 
into the United Kingdom are not ``unfinished'' SDGE but, rather, 
artificial graphite rods. UKCG cites to separate customs rulings from 
the United States and the United Kingdom/European Union (``E.U.'') that 
it purports define the product in question as artificial graphite and 
not unfinished SDGE.\35\
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    \35\ See UKCG's Initiation Rebuttal Comments at 3-4.
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    Petitioners Did Not Include Artificial Graphite Rods in the Scope 
of the Order: UKCG notes that SGL Carbon, a Petitioner, and Graftech, a 
producer of electrodes who supported Petitioners in their filing of the 
initial Petition, have themselves imported items classified as 
artificial graphite rods under the 3801 tariff classification used by 
UKCG in its classification of the unfinished materials in question. As 
such, UKCG asserts that Petitioners knew of such materials and their 
classification under HTS subheading 3801, but expressly did not include 
them within the scope of the SDGE Order, either in the dispositive 
scope narrative or in the HTS classification listed in the narrative. 
Therefore, UKCG concludes that, because Petitioners were aware of the 
use of separate terminology and HTS classification for artificial 
graphite products and finished graphite electrode products, considering 
the fact that they refrained from including the former within the scope 
of the SDGE Order, their request to include such products in the order 
is inappropriate at this stage of the proceeding.\36\
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    \36\ See UKCG's Initiation Rebuttal Comments at 4-6.
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    Petitioners' Country of Origin Citation Is Without Factual Basis: 
UKCG avers that Petitioners have provided no factual basis for their 
assertion that the ITC Final Determination holds that the 
graphitization process confers the final country of origin status for 
the purposes of the SDGE Order, and that any offhanded remark on this 
issue in the ITC Final Determination is without authority and 
contradicted by customs rulings from both the United Kingdom and the 
United States.\37\
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    \37\ See UKCG's Initiation Rebuttal Comments at 6.
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    A U.K. BOI Ruling Found That Artificial Graphite Rods Are Not 
Electrodes, and Petitioners Misstate the Effect of This BOI Ruling: 
UKCG argues that U.K. authorities examined the issue at hand and 
determined that the unfinished SDGE components in question were 
properly classified as ``Artificial Graphite'' under HTS subcategory 
3801.10, rather than as ``Carbon Electrodes'' under HTS subcategory 
8548.11. UKCG asserts that Petitioners have misunderstood the impact of 
this BOI, because the submission of any untrue information on an E.U. 
export declaration is considered an illegal act.\38\
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    \38\ See UKCG's Initiation Rebuttal Comments at 6-8. This BOI 
ruling is provided in UKCG's Initiation Rebuttal Comments at Exhibit 
2.
---------------------------------------------------------------------------

    A U.S. CBP Ruling Also Found That Artificial Graphite Rods Are Not 
Electrodes: UKCG notes that a February 23, 2009, ruling by U.S. Customs 
and Border Protection (``CBP'') found that semi-manufactures of 
artificial graphite rods are expressly included in the explanatory note 
of HTSUS 3801. UKCG points out the CPB ruling states that ``artificial 
graphite rods in their imported condition will consist of un-machined 
semi-manufactures that must be cut, machined to fine tolerances and 
surface finished before they can be considered finished articles in 
{HTSUS{time} 

[[Page 14915]]

heading 8545,'' and ultimately determines that unfinished artificial 
graphite electrode rods identical to the product at issue in the 
instant case should be classified under HTSUS 3801.10.5000. UKCG 
asserts that, in this ruling, CBP specifically declares that the items 
in question are a form of artificial graphite rods, which are semi-
manufactured inputs that have not yet taken on the nature of an 
electrode.\39\
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    \39\ See UKCG's Initiation Rebuttal Comments at 8-9.
---------------------------------------------------------------------------

B. Petitioners' Response to UKCG's Rebuttal

    On November 12, 2010, Petitioners submitted a response to UKCG's 
Rebuttal Comments. Petitioners first note their disagreement with 
UKCG's categorization of the unfinished SDGE components in question as 
artificial graphite rods not subject to the SDGE Order, and reiterate 
their contention that the scope of the SDGE Order clearly includes such 
merchandise.\40\ Petitioners then present specific rebuttals to certain 
arguments forwarded by UKCG, summarized below:
---------------------------------------------------------------------------

    \40\ See Petitioners' Response to UKCG's Initiation Rebuttal 
Comments at 1-4.
---------------------------------------------------------------------------

    ``Unfinished'' SDGE Are Clearly Defined: Petitioners argue that, 
despite UKCG's assertion that the term ``unfinished'' is a term without 
meaning and that Petitioners' conclusion that graphitization confers 
country of origin to the SDGE in question is unfounded, the Petition 
and Final ITC Determination clearly define ``unfinished SDGE'' as SDGE 
that have been graphitized but not further machined or finished. 
Furthermore, Petitioners argue that whether or not the term 
``unfinished'' has a specific meaning in the trade is irrelevant for 
antidumping purposes.\41\
---------------------------------------------------------------------------

    \41\ See Petitioners' Response to UKCG's Initiation Rebuttal 
Comments at 4-5.
---------------------------------------------------------------------------

    UKCG's Argument That Artificial Graphite Was Expressly Excluded 
From the Scope Is Flawed: Petitioners argue that, because the 
``unfinished'' SDGE language was included within the scope of the SDGE 
Order (which, according to Petitioners, includes the unfinished SDGE 
components in question), there was no need to consider the 
classification of artificial graphite rods. Furthermore, Petitioners 
note that the scope clearly indicates that the HTSUS number provided is 
for convenience and customs purposes, but should not be considered 
dispositive.\42\
---------------------------------------------------------------------------

    \42\ See Petitioners' Response to UKCG's Initiation Rebuttal 
Comments at 6.
---------------------------------------------------------------------------

    The BOI Ruling Is Not Relevant to This Proceeding: Petitioners 
contend that the BOI Ruling cited to by UKCG as evidence that the 
merchandise in question is of U.K. origin is not relevant for 
antidumping purposes because: (a) It speaks to HTS classifications, 
which are not dispositive to the scope of the SDGE Order; (b) the BOI 
does not address the specific issue relevant in the instant proceeding 
(i.e., whether artificial graphite rods are unfinished SDGE); (c) the 
BOI is a ruling applicable to trade within the European Community and 
has no application for exports to other countries, including the United 
States; and (d) no customs ruling, whether United Kingdom or United 
States in origin, can bind or limit the scope of a U.S. antidumping 
duty order.\43\
---------------------------------------------------------------------------

    \43\ See Petitioners' Response to UKCG's Initiation Rebuttal 
Comments at 6-7. Citing to Tapered Roller Bearings and Parts 
Thereof, Finished and Unfinished, From the People's Republic of 
China: Final Results of Antidumping Duty Administrative Review, 74 
FR 3987 (January 22, 2009), and accompanying Issues and Decisions 
Memorandum (``Tapered Roller Bearings'') at Comment 1, Petitioners 
assert that only the Department has the authority to define what 
products are within or outside the scope of an order.
---------------------------------------------------------------------------

    Commerce Should Request Immediate Suspension of Liquidation: 
Petitioners argue that because UKCG has incorrectly reported the 
country of origin in its entry documents (i.e., listing the United 
Kingdom rather than the PRC) and, in so doing, has avoided suspension 
of liquidation and antidumping duty deposits that are required under 
the SDGE Order, the Department should immediately request that CBP 
reverse the liquidation of such entries in order to properly suspend 
liquidation and collect the appropriate antidumping duty deposits.\44\
---------------------------------------------------------------------------

    \44\ See Petitioners' Response to UKCG's Initiation Rebuttal 
Comments at 7-8.
---------------------------------------------------------------------------

Responses to the Department's Request for Supplemental Information

    On November 24, 2010, the Department requested that Petitioners 
supplement their scope request with certain additional information to 
aide in the Department's decision to initiate a formal scope or anti-
circumvention inquiry.\45\ In this questionnaire, the Department 
requested that Petitioners provide further information regarding both 
the pattern of trade for imports of ``unfinished SDGE'' into the United 
Kingdom from the PRC and domestic U.K. production of ``unfinished 
SDGE'' during the relevant time period. On November 30, 2010, we 
received Petitioners' response to the Department's pre-initiation 
questionnaire.\46\ On December 14, 2010, we received a rebuttal from 
UKCG in response to Petitioners' submission.\47\
---------------------------------------------------------------------------

    \45\ See Pre-Initiation Supplemental Questionnaire.
    \46\ See Petitioners' SQR.
    \47\ See UKCG's SQR Rebuttal.
---------------------------------------------------------------------------

A. Petitioners' Supplemental Questionnaire Response
    In their November 30, 2010, response, Petitioners submitted 
information onto the record regarding U.K. imports under HTS 3801.10.00 
\48\ from the PRC (i.e., the HTS subcategory most specific to 
unfinished SDGE components in question) for the years 2008-2010.\49\ 
Petitioners assert that these data show a direct correlation between 
the antidumping investigation on SDGE and imports of the unfinished 
merchandise in question into the United Kingdom from the PRC, noting 
that:
---------------------------------------------------------------------------

    \48\ ``Artificial Graphite; Colloidal or Semi-Colloidal 
Graphite; Preparations Based on Graphite or Other Carbon in the Form 
of Pastes, Blocks, Plates or Other Semi-Finished Goods.''
    \49\ See Petitioners' SQR at Attachment 1. These data were 
obtained from HM Revenue and Customs' UK Overseas Trade Statistics 
and Regional Trade Statistics Web site, available at http://www.hmrc.gov.uk/stats/trade-statistics.htm.
---------------------------------------------------------------------------

     The monthly average volume of imports of merchandise 
classified under HTS 3801.10.00 from January through August 2008 was 
66,208 kg, but in September 2008, the month following the preliminary 
determination, imports increased to a monthly average of 603,944 
kg.\50\
---------------------------------------------------------------------------

    \50\ See Petitioners' SQR at 1.
---------------------------------------------------------------------------

     In the four months between the announcement of the 
preliminary determination and the final determination, September 
through December 2008, the average monthly imports were 574,162 kg, but 
the volume of imports rose to 815,061 kg in January 2009, the month 
corresponding to the announcement of the final determination.\51\
---------------------------------------------------------------------------

    \51\ See Petitioners' SQR at 1-2.
---------------------------------------------------------------------------

     The volume of imports, by year, has increased dramatically 
since the filing of the initial antidumping duty petition, with 
2,152,370 kg (averaging 180,198 kg per month) imported in 2008, 
3,097,554 kg (averaging 258,130 per month) in 2009, and 8,751,286 kg 
(annualized, averaging 729,273 kg per month) in 2010.\52\
---------------------------------------------------------------------------

    \52\ See Petitioners' SQR at 2.
---------------------------------------------------------------------------

    Petitioners argue that these data demonstrate that the antidumping 
duty investigation resulted in a significant increase of imports of 
``unfinished SDGE'' into the United Kingdom from the PRC, and allege 
that this increase is attributable to a scheme undertaken by PRC 
producers to unlawfully avoid U.S. antidumping duties.\53\ Finally, 
Petitioners maintain that they do not know of any SDGE manufacturing 
operations in the United Kingdom during the relevant time period, other

[[Page 14916]]

than the finishing operations performed by UKCG.\54\
---------------------------------------------------------------------------

    \53\ See Petitioners' SQR at 2-3.
    \54\ See Petitioners' SQR at 3.
---------------------------------------------------------------------------

B. UKCG's Rebuttal to Petitioners' Supplemental Questionnaire Response
    In rebuttal, UKCG asserts that the information submitted by 
Petitioners in both their Initiation Request and SQR is misleading 
because it: (a) Misstates the amounts of SDGE exported by UKCG to the 
United States, (b) misinterprets the significance of UKCG's increase of 
business with the United States as an attempt to circumvent the Order 
when it is only a result of increased global marketing on behalf of the 
company, and (c) draws incorrect conclusions regarding circumvention 
due to a reliance on publicly available information for HTS subcategory 
3801, which is a basket category containing items much more broad than 
just artificial graphite rods.\55\
---------------------------------------------------------------------------

    \55\ See UKCG's SQR Rebuttal at 2.
---------------------------------------------------------------------------

    UKCG argues that the CBP data used by Petitioners in the Initiation 
Request to demonstrate the amount of SDGE exported to the United States 
by UKCG during the relevant time period do not accurately reflect the 
volume of exports. UKCG also disputes Petitioners' assertion from the 
Initiation Request that UKCG did not export SDGE to the United States 
until November 2008 (two months after the Department's announcement of 
the preliminary determination), and demonstrates that the company had 
certain exports of SDGE produced in the same manner as the merchandise 
in question prior to that date.\56\
---------------------------------------------------------------------------

    \56\ See UKCG's SQR Rebuttal at 2-4.
---------------------------------------------------------------------------

    Furthermore, UKCG attributes its increase in U.S. business to 
certain factors unrelated to the LTFV investigation and subsequent SDGE 
Order, including:
     The actual significance of any U.S. sales being 
overstated, because the low base of existing sales volume would yield 
any increase (or decrease) to appear significant in percentage terms, 
even though the actual change in sales volume was considerably less 
meaningful.\57\
---------------------------------------------------------------------------

    \57\ See UKCG's SQR Rebuttal at 4.
---------------------------------------------------------------------------

     Internal efforts to obtain a larger global market share, 
which predate the SDGE Order.\58\
---------------------------------------------------------------------------

    \58\ See UKCG's SQR Rebuttal at 4-5.
---------------------------------------------------------------------------

     The increase in demand due to the shortage of electrodes 
in the United States, created by high antidumping duties imposed on PRC 
SDGE.\59\
---------------------------------------------------------------------------

    \59\ See UKCG's SQR Rebuttal at 4.
---------------------------------------------------------------------------

    Finally, UKCG argues that it is misleading for Petitioners to point 
to a swing in the import figures for a broad-basket 3801.10.00 
``artificial graphite'' HTS subcategory, such as the large increase in 
January 2009, and attribute such an increase to UKCG's sales of 
finished SDGE to the United States, since the total amount UKCG sales 
of finished SDGE to the United States during that year was lower than 
the imports of unfinished artificial graphite imported into the country 
in that single month. UKCG also points out that, though Petitioners 
submitted import data extracted from the uktradeinfo.com website in the 
November 30, 2010 SQR, they did not provide other information available 
at the same Web site, which shows that over 40 U.K. companies imported 
products under HTS 3801.10.00 in 2008. UKCG asserts that this 
information undermines Petitioners' arguments regarding circumvention, 
and shows the import data for HTS 3801.10.00 to be overstated and 
unreliable.\60\
---------------------------------------------------------------------------

    \60\ See UKCG's SQR Rebuttal 5-6.
---------------------------------------------------------------------------

Analysis

    Based on our analysis of Petitioners' anti-circumvention inquiry 
request, summarized above, the Department determines that Petitioners 
have satisfied the criteria to warrant an initiation of a formal anti-
circumvention inquiry pursuant to section 781(b)(1) of the Act and 19 
CFR 351.225(h). In accordance with 19 CFR 351.225(e), if the Department 
finds that the issue of whether a product is included within the scope 
of an order cannot be determined based solely upon the application and 
the descriptions of the merchandise, the Department will notify by mail 
all parties on the Department's scope service list of the initiation of 
a scope inquiry, including an anti-circumvention inquiry. In addition, 
in accordance with 19 CFR 351.225(f)(1)(ii), a notice of the initiation 
of an anti-circumvention inquiry issued under paragraph (e) of this 
section will include a description of the product that is the subject 
of the anti-circumvention inquiry, i.e., SDGE, as provided in the scope 
of the SDGE Order, produced from unfinished artificial graphite rod 
components from the PRC that are further machined and finished in the 
United Kingdom for exportation to the United States. Furthermore, in 
accordance with 19 CFR 351.225(f)(1)(ii), the Department will explain 
the reasoning for its decision to initiate an anti-circumvention 
inquiry, which is provided below.
    With regard to whether the merchandise exported to the United 
States is of the same class or kind as subject merchandise produced in 
the PRC, Petitioners have presented information to the Department 
indicating that, pursuant to section 781(b)(1)(A) of the Act, the 
merchandise being exported from the United Kingdom by UKCG may be of 
the same class or kind as SDGE produced in the PRC, which are subject 
to the SDGE Order. While UKCG contends that its finished SDGE exports 
to the United States are of U.K. origin, UKCG has not presented 
evidence demonstrating that the merchandise exported to the United 
States is not of the same class or kind as merchandise subject to the 
SDGE Order. Consequently, the Department finds that Petitioners have 
provided sufficient information in their requests regarding the class 
or kind of merchandise to warrant initiation of an anti-circumvention 
inquiry.
    With regard to completion or assembly of merchandise in a foreign 
country, pursuant to section 781(b)(1)(B) of the Act, Petitioners have 
also presented information to the Department indicating that the SDGE 
exported from the United Kingdom are being processed by UKCG from 
unfinished components which are produced in the PRC (i.e., the country 
subject to the SDGE Order) and which might be, themselves, ``unfinished 
SDGE'' subject to the SDGE Order. While UKCG argues that such inputs 
are not subject to the SDGE Order, it does not provide evidence to 
contradict Petitioners' claim that the finished SDGE exported to the 
United States by UKCG are produced from inputs sourced from the PRC. 
Therefore, we find that the information presented by Petitioners 
regarding this criterion supports their request to initiate an anti-
circumvention inquiry.
    Further, we find that Petitioners have provided sufficient evidence 
to demonstrate that the processing performed in the United Kingdom may 
be minor or insignificant, as described by sections 781(b)(1)(C) and 
781(b)(2) of the Act. In particular, we find that Petitioners' 
submissions suggest that the level of overall investment, R&D, 
sophistication of production processes (and the degree to which they 
alter the fundamental characteristics of the merchandise), and 
production facilities needed for UKCG to machine and finish the 
components in question into finished SDGE for exportation to the United 
States may be insignificant, especially when compared to the level of 
investment, facilities, R&D, and processes required by SDGE producers 
in the PRC to manufacture said components. We find that Petitioners

[[Page 14917]]

have also provided evidence to demonstrate that finishing processes in 
the United Kingdom may add little value to the merchandise imported 
into the United Kingdom, as exported to the United States. Though UKCG 
provides rebuttal evidence to demonstrate that the processes performed 
in the United Kingdom are, indeed, sophisticated and contend that 
Petitioners' arguments are based on the incorrect conclusion that the 
SDGE component inputs sourced from the PRC are in-scope (citing to the 
U.K. Customs and CBP rulings noted above), we do not find that their 
arguments are sufficient to deter the Department from initiating an 
anti-circumvention inquiry to attain more information regarding the 
concerns raised by Petitioners. As a result, our subsequent analysis 
will focus on UKCG's machining and finishing operations in the United 
Kingdom (in addition to information regarding pattern of trade, as 
discussed below) and we will closely examine the nature of the 
materials sourced from the PRC and whether those materials are subject 
to the scope of the SDGE Order.
    With respect to the value of the merchandise produced in the PRC 
pursuant to section 781(b)(1)(D) of the Act, Petitioners rely on their 
``minor or insignificant processing'' arguments summarized above, as 
well as certain proprietary cost information provided in the initial 
Petition, to indicate that the value of the unfinished SDGE components 
may be significant relative to the total value of a the finished SDGE 
exported to the United States. We find that the information, as 
discussed above, adequately meets the requirements for initiation 
pursuant to section 781(b)(1)(D) of the Act.
    Regarding whether action is needed to prevent evasion of the SDGE 
Order, pursuant to section 781(b)(1)(E) of the Act, Petitioners do not 
address this issue directly, instead addressing this criterion in their 
arguments regarding ``pattern of trade'' pursuant to section 781(b)(3) 
of the Act. Specifically, they rebut UKCG's reliance on the BOI ruling 
and the CBP ruling as support for either the appropriateness of the HTS 
3801 sub-classification for the unfinished components or confirmation 
of U.K. origin of the finished merchandise in question. Petitioners 
conclude that neither ruling is relevant for the purposes of the issues 
present in the instant proceeding. Conversely, UKCG emphasizes the 
weight of these determinations and implores the Department to consider 
them in its analysis on the issue of proper classification of the 
unfinished SDGE components for the purposes of this initiation 
determination. We will seek more information regarding the proper 
country of origin classification for the finished SDGE imported into 
the United States; however, we note that Petitioners are correct to 
point out that neither the BOI nor the CBP ruling are legally binding 
for the purposes of antidumping proceedings in the United States.\61\ 
While we will give each document due consideration for the purposes of 
our ultimate anti-circumvention determination, we do not find the 
content of either document sufficient to compel the Department to 
decline to initiate such a proceeding.
---------------------------------------------------------------------------

    \61\ See, e.g., Tapered Roller Bearings at Comment 1.
---------------------------------------------------------------------------

    Finally, we find that Petitioners have provided sufficient 
evidence, in both their Initiation Request and SQR, to fulfill the 
additional initiation criteria specified in section 781(b)(3) of the 
Act. Though Petitioners do not show that UKCG is affiliated with any 
PRC producer of subject merchandise, they demonstrate that the company 
has a business relationship with PRC producers of subject merchandise. 
Furthermore, information provided by Petitioners regarding imports and 
exports under HTS 3801 and 8545, suggests that (a) U.K. importers are 
sourcing PRC-produced unfinished SDGE components in increasing 
quantities, and (b) exports of finished SDGE from the United Kingdom 
have increased since the beginning of the initial SDGE investigation. 
Although UKCG provides evidence to demonstrate that Petitioners' 
information may be distorted or misstated due to certain factors, the 
Department intends to seek further information on this pattern of trade 
issue during the course of this inquiry, and will request greater 
detail as to the nature of UKCG's relationship with PRC producers of 
subject merchandise and timing of sales and sourcing. As such, though 
we recognize UKCG's concerns regarding the conclusions reached by 
Petitioners in their analysis of the pattern of trade data placed on 
the record, we do not agree with UKCG that the Department should 
conclude that such concerns are sufficient to refrain from further 
inquiry.
    Therefore, for the reasons stated above, we have determined that 
Petitioners have provided sufficient basis for the Department to 
initiate a formal anti-circumvention inquiry concerning the SDGE Order, 
pursuant to section 781(b) of the Act. In accordance with 19 CFR 
351.225(l)(2), if the Department issues a preliminary affirmative 
determination, we will then instruct CBP to suspend liquidation and 
require a cash deposit of estimated duties on the merchandise.
    This anti-circumvention inquiry covers UKCG only. If, within 
sufficient time, the Department receives a formal request from an 
interested party regarding potential circumvention of the SDGE Order by 
other companies in the United Kingdom, we will consider conducting 
additional inquiries concurrently.
    The Department will, following consultation with interested 
parties, establish a schedule for questionnaires and comments on the 
issues. The Department intends to issue its final determination within 
300 days of the date of publication of this initiation pursuant to 
section 781(f) of the Act. This notice is published in accordance with 
19 CFR 351.225(f).

    Dated: February 17, 2011.
Ronald K. Lorentzen,
Deputy Assistant Secretary for Import Administration.
[FR Doc. 2011-6451 Filed 3-17-11; 8:45 am]
BILLING CODE P