E7-19423. Polyethylene Terephthalate Film, Sheet, and Strip from the Republic of Korea: Preliminary Results of Changed Circumstances Review and Intent To Reinstate Kolon Industries, Inc. in the Antidumping Duty Order

AGENCY:

Import Administration, International Trade Administration, Department of Commerce.

SUMMARY:

On November 14, 1996, the Department of Commerce (the Department) revoked in part the antidumping duty order on polyethylene terephthalate film, sheet and strip (PET film) from the Republic of Korea (Korea) with respect to subject merchandise manufactured and exported by Kolon Industries, Inc. (Kolon). See Polythylene Terephthalate Film, Sheet, and Strip from the Republic of Korea: Final Results of Antidumping Duty Administrative Review and Notice of Revocation in Part, 61 FR 58734 (November 14, 1996) (Revocation). As the result of an adequate allegation from domestic interested parties in this proceeding, the Department, pursuant to section 751(b)(1) of the Tariff Act of 1930, as amended (the Act), is now conducting a changed circumstances review to determine whether Kolon has resumed dumping PET film and whether the antidumping order should be reinstated for PET film manufactured and exported by Kolon. See Initiation of Antidumping Duty Changed Circumstances Review: Polyethylene Terephthalate Film Sheet and Strip from Korea, 72 FR 527 (January 5, 2007) (CCR Initiation). We preliminarily determine that Kolon has sold PET film at less than normal value (NV) and that the order on PET film from Korea should be reinstated with respect to PET film manufactured and exported by Kolon. We will instruct U.S. Customs and Border Protection (CBP) to suspend liquidation of all entries of PET film manufactured and exported by Kolon and entered, or withdrawn from warehouse, for consumption on or after the date of publication of this notice in the Federal Register.

EFFECTIVE DATE:

October 2, 2007.

FOR FURTHER INFORMATION CONTACT:

Michael J. Heaney or Robert James, AD/CVD Operations, Office 7, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230; telephone: [phone] or [phone], respectively.

SUPPLEMENTARY INFORMATION:

Background

On June 5, 1991, the Department published in the Federal Register the antidumping duty order on PET film from Korea. See Antidumping Duty Order: Polyethylene Terephthalate Film Sheet and Strip From Korea, 56 FR 25660 (June 5, 1991). On November 14, 1996 , the Department revoked the order with respect to Kolon after having determined that Kolon sold the merchandise at not less than normal value for a period of at least three consecutive years. See Revocation. The three administrative reviews forming the basis of the revocation are the June 1, 1992 through May 31, 1993, review; the June 1, 1993, through May 31, 1994, review; and the June 1, 1994, through May 31, 1995, review. The final results of the June 1992 through May 31, 1993, and the June 1993 through May 31, 1994, administrative reviews were published on July 5, 1996. See Polyethylene Terephthalate Film Sheet and Strip from Korea; Final Results of Antidumping Duty Administrative Review and Notice of Revocation in Part 61 FR 35177, (July 5, 1996) (Second and Third Final Results). The final results of the June 1994 through May 31, 1995, administrative review were published on November 14, 1996. See Polyethylene Terephthalate Film, Sheet, and Strip from Korea; Final Results of Antidumping Duty Administrative Review and Notice of Revocation in Part 61 FR 58374, (November 14, 1996) (Fourth Final Results). Pursuant to 19 CFR 353.25(b) of the regulations in effect at the time, and as part of its request for revocation, on June 28, 1996, Kolon agreed to immediate reinstatement in the Order should the Department conclude that subsequent to the revocation, Kolon sold the subject merchandise at less than normal value (NV). (19 CFR 353.25(b) has been superceded by 19 CFR 351.222(b)(2)(i)(B).) However, the language in 19 CFR 351.222(b)(2)(i)(B) is largely unchanged from 19 CFR 353.25. See CCR Initiation at 530.

Due to allegations of resumed dumping submitted by DuPont Teijin Films (DuPont), Mitsubishi Polyester Film, Inc. (Mitsubishi), and Toray Plastics America Inc. (Toray) (collectively DuPont, Mitsubishi, and Toray are the Petitioners), we initiated a changed circumstance review on January 5, 2007,¹ to determine whether Kolon has resumed dumping and whether we should reinstate the antidumping duty order for subject merchandise manufactured and exported by Kolon. See CCR Initiation at 528-9.

On December 27, 2006, we documented our analysis regarding the reasonableness of the data presented by Petitioners in their allegations. See the December 27, 2006, “Initiation Checklist for the Changed Circumstances Review of Polyethylene Terephthalate Film Sheet and Strip from Korea.” On January 4, 2007, we issued a questionnaire to Kolon. Kolon submitted its response to Sections A, B, C, and D of our questionnaire on February 28, 2007. On April 3, 2007, we issued our first supplemental questionnaire to Kolon. Kolon submitted its response to our April 3, 2007, questionnaire on April 30, 2007. On June 8, 2007, we issued a second supplemental questionnaire to Kolon to which Kolon responded on June 29, 2007. Based on our analysis of Kolon's home market and U.S. sales data, we preliminarily determine that Kolon sold PET film at issue at less than NV during the July 1, 2005 through June 30, 2006 period of review.

Verification

As provided in section 782(i)(3) of the Act and 19 CFR 351.307(b)(iv), the Department verified the cost of production (COP), constructed value (CV), home market sales, and U.S. sales questionnaire responses of Kolon. We conducted the COP/CV verification from August 6 to August 10, 2007. We conducted the home market and U.S. sales verification from August 11 to August 15. We used standard verification procedures, including on-site inspection of Kolon's facilities, and examination of relevant sales and financial records. Our verification results are outlined in the COP/CV and home market and U.S. sales verification reports for Kolon. For a further discussion, see Memorandum to the file through Neal Halper, from Ernest Gziryan (“COP/CV verification report”), and Memorandum to the File through Robert James, from Michael Heaney and Maryanne Burke (“Home market and U.S. sales verification report”.)

Scope of the Order

Imports covered by this review are shipments of all gauges of raw, pretreated, or primed polyethylene terephthalate film, sheet, and strip, whether extruded or coextruded. The films excluded from this review are metallized films and other finished films that have had at least one of their surfaces modified by the application of a performance enhancing resinous or inorganic layer of more than 0.00001 inches (0.254 micrometers) thick.

PET film is currently classifiable under Harmonized Tariff Schedule (HTS) subheading 3920.62.00. The HTS subheading is provided for convenience and for customs purposes. The written description remains dispositive as to the scope of the product coverage.

This changed circumstances review covers Kolon and the period July 1, 2005 through June 30, 2006

Basis for Reinstatement

In requesting revocation, Kolon certified, pursuant to the Department's regulations, that it agreed to immediate reinstatement of the order, so long as any exporter or producer is subject to the order, if the Secretary concluded that subsequent to the revocation, Kolon sold PET film at less than NV. See Revocation at 58374. Under both 19 CFR 353.25(b) (the regulation in effect at the time the Department revoked the order with respect to Kolon) and 19 CFR 351.222(b)(2)(i)(B) (the current regulation governing revocation) as long as an antidumping duty order remains in force, an entity previously granted a revocation may be reinstated under that order if it is established that the entity has resumed the dumping of subject merchandise.

In this case, because other exporters in Korea remain subject to the antidumping duty order on Polyethylene Terephthalate Film, Sheet, and Strip from Korea, the order remains in effect, and Kolon may be reinstated in the order. The Department granted Kolon revocation based in part upon its agreement to immediate reinstatement in the antidumping duty order if the Department were to find that the company resumed dumping of PET film from Korea. See Revocation at 58374.

As described in the “U.S. Price” and “Normal Value” sections, below, we have examined Kolon's response and have preliminarily found that Kolon's dumping margin for the review period is greater than de minimis. Accordingly, we preliminarily intend to reinstate Kolon in the antidumping order.

Fair Value Comparisons

To determine whether sales of PET film from Korea to the United States were made at less than NV, we compared Kolon's constructed export (CEP) and export price (EP) sales made in the United States to unaffiliated purchasers, to NV as described in the “United States Price” and “Normal Value” sections of this notice, below. In accordance with section 777A(d)(2) of the Act, we compared individual CEP and EP sales to monthly weighted-average NVs.

Product Comparisons

In accordance with section 771(16) of the Act we considered all products produced by Kolon covered by the description in the “Scope of the Review” section, above, and sold in the home market during the POR, to be foreign like products for purposes of determining appropriate product comparisons to U.S. sales. We first attempted to compare contemporaneous U.S. and comparison-market sales of products that are identical with respect to the following characteristics: 1) specification; 2) thickness, 3) surface treatment, and 4) grade. Where we were unable to compare sales of the identical merchandise, we compared U.S. sales to comparison-market sales of the most similar merchandise based on the above characteristics. Where there were no sales of foreign like product to compare to a U.S. sale, we compared the price of the U.S. sale to constructed value (CV).

Level of Trade

In accordance with section 773(a)(1)(B) of the Act, to the extent practicable, we base NV on sales made in the comparison market at the same level of trade (LOT) as the CEP or EP transaction. The NV LOT is defined as the starting-price sales in the home market or, when NV is based on constructed value (CV), as the sales from which selling, general, and administrative (SG&A) expenses and profit are derived. The EP LOT is defined as the starting price in the United States to the unaffiliated U.S. customer. With respect to CEP transactions in the U.S. market, the CEP LOT is defined as the level of the constructed sale from the exporter to the importer. See 773(a)(7)(A) of the Act.

To determine whether NV sales are at a different LOT than CEP sales, we examine stages in the marketing process and selling functions along the chain of distribution between the producer and the unaffiliated customer. See 19 CFR 351.412(c)(2). If the comparison-market sales are at a different LOT, and the difference affects price comparability, as manifested in a pattern of consistent price differences between the sales on which NV is based and comparison-market sales at the LOT of the export transaction, we make a LOT adjustment under section 773(a)(7)(A) of the Act. For CEP sales, if the NV level is more remote from the factory than the CEP level and there is no basis for determining whether the difference in the levels between NV and CEP affects price comparability, we adjust NV under section 773(a)(7)(B) of the Act (the CEP offset provision). See, e.g., Final Determination of Sales at Less Than Fair Value: Greenhouse Tomatoes From Canada, 67 FR 8781 (February 26, 2002) and accompanying Issues and Decisions Memorandum at Comment 8; see also Certain Hot-Rolled Flat-Rolled Carbon Quality Steel Products from Brazil; Preliminary Results of Antidumping Duty Administrative Review, 70 FR 17406, 17410 (April 6, 2005); unchanged in Notice of Final Results of Antidumping Duty Administrative Review of Certain Hot-Rolled Flat-Rolled Carbon Quality Steel Products from Brazil, 70 FR 58683 (October 7, 2005). For CEP sales, we consider only the selling activities reflected in the price after the deduction of expenses and CEP profit under section 772(d) of the Tariff Act. See Micron Technology, Inc. v. United States, 243 F.3d 1301, 1314-1315 (Fed. Cir. 2001). We expect that if the claimed LOTs are the same, the functions and activities of the seller should be similar. Conversely, if a party claims that the LOTs are different for different groups of sales, the functions and activities of the seller should be dissimilar. See Porcelain-on-Steel Cookware from Mexico: Final Results of Administrative Review, 65 FR 30068 (May 10, 2000) and accompanying Issues and Decisions Memorandum at Comment 6 .

We obtained information from Kolon regarding the marketing stages involved in making its reported foreign market and U.S. sales to unaffiliated customers. Kolon provided a description of all selling activities performed, along with a flowchart and tables comparing the levels of trade among each channel of distribution and customer category for both markets. See Kolon's February 28, 2007 questionnaire response at A-3.

For the home market, Kolon identified two channels of distribution described as follows: 1) direct shipments (i.e., products produced to order) and 2) warehouse shipments from inventory. Within each of these two channels of distribution, Kolon made sales to unaffiliated customers. See Kolon's February 28, 2007, questionnaire response at A-5. We reviewed the level at which Kolon performed each of these selling functions with respect to each claimed channel of distribution and customer category. For all of the activities listed (which included sales forecasting, strategic and economic planning, sales promotion, order processing, and technical assistance), the level of performance for both direct shipments and warehouse shipments was identical across all types of customers. Based on our analysis of all of Kolon's home market selling functions, we find all home market sales were made at the same LOT, the NV LOT. We also found that Kolon provided a similar level of selling functions on all of its EP sales, and that the level of these EP selling functions was comparable to the level of selling functions that Kolon performed on its home market sales. Id. Based on the foregoing, we determine that there is one level of trade on Kolon's EP sales and that the EP LOT is comparable to the HM LOT.

Kolon also indicated it made CEP sales through its U.S. affiliate, Kolon USA. Id. We then compared the CEP LOT to the NV LOT. The CEP LOT is based on the selling activities associated with the transaction between Kolon and its affiliated importer, Kolon USA, whereas the NV LOT is based on the selling activities associated with the transactions between Kolon and unaffiliated customers in the home market. Our analysis indicates the selling functions performed for home market customers are either performed at a higher degree of intensity or are greater in number than the selling functions performed for Kolon USA. For example, in comparing Kolon's selling activities, we find there are more functions performed in the home market which are not a part of CEP transactions (e.g., sales promotion, inventory maintenance, sales and marketing support, customs clearance). For selling activities performed for both home market sales and CEP sales (e.g., processing customer orders, freight and delivery arrangements), we find Kolon actually performed each activity at a higher level of intensity in the home market. We note that CEP sales from Kolon to Kolon USA generally occur at the beginning of the distribution chain, representing essentially a logistical transfer of inventory that resembles ex-factory sales. In contrast, all sales in the home market occur closer to the end of the distribution chain and involve smaller volumes and more customer interaction which, in turn, require the performance of more selling functions. Id. Based on the foregoing, we conclude that the NV LOT is at a more advanced stage than the CEP LOT.

Because we found the home market and U.S. sales were made at different LOTs, we examined whether a LOT adjustment or a CEP offset may be appropriate in this review. As we found only one LOT in the home market, it was not possible to make a LOT adjustment to home market prices, because such an adjustment is dependent on our ability to identify a pattern of consistent price differences between the home market sales on which NV is based and home market sales at the LOT of the export transaction. See 19 CFR 351.412(d)(1)(ii). Furthermore, we have no other information that provides an appropriate basis for determining a LOT adjustment. Because the data available do not form an appropriate basis for making a LOT adjustment, and because the NV LOT is at a more advanced stage of distribution than the CEP LOT, we have made a CEP offset to NV in accordance with section 773(a)(7)(B) of the Act.

United States Price

Section 772(a) of the Act defines EP as “the price at which the subject merchandise is first sold (or agreed to be sold) before the date of importation by the producer or exporter of subject merchandise outside of the United States to an unaffiliated purchaser for exportation to the United States.” Section 772(b) of the Act defines CEP as “the price at which the subject merchandise is first sold (or agreed to be sold) in the United States before or after the date of importation by or for the account of the producer or exporter of the subject merchandise or by a seller affiliated with the producer or exporter, to a purchaser not affiliated with the producer or exporter.” For purposes of this changed circumstances review, Kolon classified all of its U.S. sales shipped directly from Korea to the United States as EP sales. Kolon reported all sales that were invoiced through its U.S. subsidiary Kolon USA as CEP transactions. For these preliminary results, we have accepted these classifications. The merchandise shipped directly to unaffiliated customers in the U.S. market was not sold through an affiliated U.S. importer, and we find no other grounds for treating these transactions as CEP sales. We, therefore, preliminarily determine that these transactions were EP sales. We have classified as CEP transactions the merchandise that was invoiced through Kolon USA because these sales were “sold in the United States” within the meaning of the Act.

Export Price

We calculated EP in accordance with section 772(a) of the Act. We based EP on packed prices to customers in the United States. We made adjustments for billing adjustments and early payment discounts. We also made adjustments for the following movement expenses: foreign inland freight, foreign brokerage and handling charges, ocean freight, marine insurance, U.S. inland freight, and U.S. customs duties.

Constructed Export Price

In accordance with section 772(b) of the Act, for those sales to the first unaffiliated purchaser that took place after importation into the United States, we calculated CEP. We based CEP on packed prices to unaffiliated purchasers in the United States. We made adjustments for billing adjustments and early payment discounts. We made deductions for movement expenses in accordance with section 772(c)(2)(A) of the Act; these included foreign inland freight, foreign brokerage and handling charges, ocean freight, marine insurance, U.S. inland freight, and U.S. customs duties. As further directed by section 772(d)(1) of the Act, we deducted those selling expenses associated with economic activity in the United States including direct selling expenses (i.e., commissions, warranties, warehousing, and U.S. credit expenses), inventory carrying costs, and other U.S. indirect selling expenses. Based upon our findings at verification, we used the verified amounts for brokerage and handling (see Home Market and U.S. sales verification report at page 2), international freight (Id. at page 23), inventory carrying costs (Id. at page 2), and U.S. indirect selling expenses (Id.). We also made an adjustment for profit in accordance with section 772(d)(3) of the Act. Finally, we made an addition to U.S. price for duty drawback in accordance with section 772(c)(1)(B) of the Act.

Normal Value

A. Selection of Comparison Market

To determine whether there is a sufficient volume of sales in the home market to serve as a viable basis for calculating NV (i.e., the aggregate volume of home market sales of the foreign like product is greater than five percent of the aggregate volume of U.S. sales), we compared Kolon's volume of home market sales of the foreign like product to the volume of its U.S. sales of the subject merchandise, in accordance with section 773(a)(1)(B) of the Act. Because Kolon's aggregate volume of home market sales of the foreign like product was greater than five percent of its aggregate volume of U.S. sales for subject merchandise, we determined the home market was viable. See, e.g., Kolon's February 28, 2007 supplemental questionnaire response at Appendix A-1.

B. Cost of Production Analysis

Based upon a timely allegation from Petitioners that Kolon made sales below the cost of production during the POR, we had reasonable grounds to believe or suspect that sales of the foreign like product under consideration for the determination of NV in this review may have been made at prices below the COP, as provided by section 773(b)(2)(A)(ii) of the Act. See letter from Ronald Meltzer to Department, dated July 19, 2006 at 15. Pursuant to section 773(b)(1) of the Act, we initiated a COP investigation of sales by Kolon. See CCR Intiation at 529.

In accordance with section 773(b)(3) of the Act, we calculated COP based on the sum of Kolon's cost of materials and fabrication for the foreign like product, plus amounts for general and administrative expenses (G&A), and interest expenses. We relied on the COP information provided by Kolon except in the following three instances:

First, during the POR, Kolon purchased PET chips used in the production of PET film. At verification, Kolon did not provide supporting documents showing how the cost of purchased chips was allocated to products, rendering the allocation of the purchased chips cost unverified. Therefore, in accordance with section 776(a)(2)(D) of the Act, as partial facts available, we increased the reported cost of manufacturing of all products by the percentage representing the total cost of purchased chips in the total reported cost of manufacturing. See Cost Verification Report section V.C. and the Cost of Production and Constructed Value Calculation Memorandum for the Preliminary Results. Second, we adjusted the reported G&A expense rate to disallow the offset for the gain on sale of certain assets. Third, we recalculated the interest expense ratio using a cost of sales denominator in which packing costs was removed. See Cost verification report at page 21.

To determine whether Kolon's home market sales had been made at prices below the COP, we computed weighted-average COPs during the POR, and compared the weighted-average COP figures to home market sales prices of the foreign like product as required under section 773(b) of the Act. On a product-specific basis, we compared the COP to the home market prices net of billing adjustments, discounts and rebates, any applicable movement charges, selling expenses and packing expenses.

In determining whether to disregard home market sales made at prices below the COP, we examined, in accordance with sections 773(b)(1)(A) and (B) of the Act, whether, within an extended period of time, such sales were made in substantial quantities, and whether such sales were made at prices which permitted the recovery of all costs within a reasonable period of time in the normal course of trade. Where less than 20 percent of the respondent's home market sales of a given model were at prices below the COP, we did not disregard any below-cost sales of that model because we determined that the below-cost sales were not made within an extended period of time and in “substantial quantities.” Where 20 percent or more of the respondent's home market sales of a given model were at prices less than the COP, we disregarded the below-cost sales because: (1) they were made within an extended period of time in “substantial quantities,” in accordance with sections 773(b)(2)(B) and (C) of the Act; and (2) based on our comparison of prices to the weighted-average COPs for the POR, they were at prices which would not permit the recovery of all costs within a reasonable period of time, in accordance with section 773(b)(2)(D) of the Act.

Our cost test for Kolon revealed that, for home market sales of certain models, less than 20 percent of the sales of those models were at prices below the COP. We therefore retained all such sales in our analysis and used them as the basis for determining NV. Our cost test also indicated that for home market sales of other models, more than 20 percent were sold at prices below the COP within an extended period of time and were at prices which would not permit the recovery of all costs within a reasonable period of time. Thus, in accordance with section 773(b)(1) of the Act, we excluded these below-cost sales from our analysis and used the remaining above-cost sales as the basis for determining NV.

C. Constructed Value

In accordance with section 773(e) of the Act, we calculated CV based on the sum of Kolon's material and fabrication costs, SG&A expenses, profit, and U.S. packing costs. We calculated the COP component of CV as described above in the “Cost of Production Analysis” section of this notice. In accordance with section 773(e)(2)(A) of the Act, we based SG&A expenses and profit on the amounts incurred and realized by the respondent in connection with the production and sale of the foreign like product in the ordinary course of trade, for consumption in the foreign country.

D. Price-to-Price Comparisons

We calculated NV based on prices to unaffiliated customers in Korea. We used Kolon's adjustments and deductions as reported. We made deductions, where appropriate, for foreign inland freight pursuant to section 773(a)(6)(B) of the Act. In addition, for comparisons involving similar merchandise, we made adjustments for differences in cost attributable to differences in physical characteristics of the merchandise compared pursuant to section 773(a)(6)(C)(ii) of the Act and 19 CFR 351.411. We also made adjustments for differences in circumstances of sale (COS) in accordance with section 773(a)(6)(C)(iii) of the Act and 19 CFR 351.410. We made COS adjustments for imputed credit expenses. As noted above in the “Level of Trade” section of this notice, we also made an adjustment for the CEP offset in accordance with section 773(a)(7)(B) of the Act. Finally, we deducted home market packing costs and added U.S. packing costs in accordance with sections 773(a)(6)(A) and (B) of the Act.

E. Price-to-CV Comparisons

If we were unable to find a home market match of such or similar merchandise, in accordance with section 773(a)(4) of the Act, we based NV on CV. Where appropriate, we made adjustments to CV in accordance with section 773(a)(8) of the Act.

Currency Conversion

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

Preliminary Results of Review

As a result of our review we preliminarily determine the following weighted-average dumping margin exists for the period July 1, 2005 through June 30, 2006:

Manufacturer / Exporter	Weighted Average Margin (percentage)
Kolon	6.00%

The Department will disclose to parties the calculations performed in connection with these preliminary results within ten days of the date of publication of this notice. Interested parties may request a hearing within 30 days of the publication. Any hearing, if requested, will be held 39 days after the publication of this notice or the first workday thereafter. Interested parties may submit case briefs not later than 30 days after the date of publication of this notice. Rebuttal briefs, limited to issues raised in the case briefs, may be filed not later than 37 days after the date of publication of this notice.

Reinstatement and Suspension of Liquidation

Since we have preliminarily established that PET film from Korea manufactured and exported by Kolon is being sold at less than NV, Kolon is hereby preliminarily reinstated in the antidumping duty order. We will instruct CBP to suspend liquidation of all entries of subject merchandise manufactured and exported by Kolon entered, or withdrawn from warehouse, for consumption on or after the date of publication of this notice in the Federal Register. Furthermore, a cash-deposit requirement of 6.00 percent will be in effect for all shipments of the subject merchandise manufactured and produced by Kolon entered, or withdrawn from warehouse, for consumption on or after the publication date of this notice. This requirement shall remain in effect until publication of the final results of the next administrative review unless the Department finds that Kolon has not resumed dumping in the final results of this changed circumstance review.

The Department intends to complete this review within 120 days of the date on which it publishes the preliminary results of this changed circumstances review. In accordance with 19 CFR 351.221(c)(3)(i), the final results of the changed circumstance review will set forth the factual and legal conclusions upon which our results are based, a description of any action proposed based on those results, and our analysis of any comments received. This notice is in accordance with section 751(b)(1) of the Act and 19 CFR 351.216 and 351.222.

Dated: September 26, 2007.

Joseph A. Spetrini,

Deputy Assistant Secretary for Import Administration.

Footnotes

1.  The initiation notice was signed by the Acting Assistant Secretary for Import Administration on December 27, 2006.