[Federal Register Volume 62, Number 220 (Friday, November 14, 1997)]
[Notices]
[Pages 61084-61092]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-29958]
[[Page 61084]]
-----------------------------------------------------------------------
DEPARTMENT OF COMMERCE
International Trade Administration
[A-791-802]
Notice of Final Results of Antidumping Duty Administrative
Review: Furfuryl Alcohol From the Republic of South Africa
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
-----------------------------------------------------------------------
SUMMARY: On July 8, 1997, the Department of Commerce published the
preliminary results of its administrative review of the antidumping
duty order on furfuryl alcohol from the Republic of South Africa. The
review covers shipments of this merchandise to the United States during
the period December 16, 1994, through May 31, 1996, the period of
review.
Based on our analysis of the comments received, and the correction
of certain ministerial errors, we have changed the preliminary results.
The final results are listed below in the section ``Final Results of
Review.''
EFFECTIVE DATE: November 14, 1997.
FOR FURTHER INFORMATION CONTACT: Michelle Frederick or Kris Campbell,
Office of AD/CVD Enforcement II, Import Administration, International
Trade Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, N.W., Washington, D.C. 20230; telephone: (202)
482-0186 and (202) 482-3813, respectively.
SUPPLEMENTARY INFORMATION:
Applicable Statute and Regulations
Unless otherwise indicated, all citations to the Tariff Act of
1930, as amended (``the Act''), are references to the provisions
effective January 1, 1995, the effective date of the amendments made to
the Act by the Uruguay Round Agreement Act (``URAA''). In addition,
unless otherwise indicated, all citations to the Department of
Commerce's (``the Department's'') regulations are to the provisions
codified at 19 CFR part 353, as of April 1, 1996. Where we cite to the
Department's new regulations (19 CFR part 351, 62 FR 27926 (May 19,
1997) (``New Regulations'') as an indication of current Department
practice, we have so stated.
Background
This review covers one manufacturer/exporter to the United States
of the subject merchandise, Illovo Sugar Limited (``ISL''). On July 8,
1997, the Department published in the Federal Register the Preliminary
Results of Administrative Review of the Antidumping Duty Order on
Furfuryl Alcohol from the Republic of South Africa, 62 FR 36488 (``the
preliminary results''). We received case and rebuttal briefs from QO
Chemicals, Inc (``the petitioner'') and ISL on August 7, 1997, and
August 26, 1997, respectively. A public hearing was held on August 28,
1997.
The Department has now completed this administrative review in
accordance with section 751 of the Act.
Scope of the Review
The merchandise covered by this order is furfuryl alcohol
(C4H3OCH2OH). Furfuryl alcohol is a
primary alcohol, and is colorless or pale yellow in appearance. It is
used in the manufacture of resins and as a wetting agent and solvent
for coating resins, nitrocellulose, cellulose acetate, and other
soluble dyes. The product subject to this order is classifiable under
subheading 2932.13.00 of the Harmonized Tariff Schedule of the United
States (HTSUS). Although the HTSUS subheading is provided for
convenience and customs purposes, our written description of the scope
of this proceeding is dispositive.
Constructed Export Price (``CEP'')
For sales to the United States, we calculated CEP based on the same
methodology used in the preliminary results, with the following
exceptions:
1. We excluded certain sales made of furfuryl alcohol which entered
the United States prior to the suspension of liquidation. See Comment
6.
2. We based the calculation of the CEP profit rate on information
contained in ISL's audited financial statements regarding profits made
on ``by-products'' rather than on the total profit figure in the
company's financial statements. See Comment 8.
3. We have treated the quality testing expense that ISL incurs upon
furfuryl alcohol's arrival in the United States as a movement expense
and not as an indirect selling expense. See Comment 9.
4. We limited the deduction of indirect expenses incurred in the
home market on behalf of U.S. sales to the expenses of ISL personnel
incurred for travel to the United States. See Comment 10.
5. Tank car rental credits gained for transporting furfuryl alcohol
in the United States are no longer added to CEP because the reported
tank car rental expense is net of such credits. See Comment 11.
6. Certain U.S. inventory carrying costs have been converted from
Rand to U.S. dollars. See Comment 12.
Normal Value (``NV'')
We used the same methodology to calculate NV as that described in
the preliminary results.
Analysis of Comments Received
In accordance with 19 CFR 353.38, we gave interested parties an
opportunity to comment on the preliminary results. We received a case
brief from the petitioner and a rebuttal brief from ISL (e.g.,
``Petitioner Case Brief'', ``ISL Rebuttal Brief'').
Comment 1: Fictitious Home Market: The petitioner argues that the
Department erred in the preliminary results by not determining that a
fictitious market exists in South Africa rendering HM sales of furfuryl
alcohol inappropriate as a basis for NV. The petitioner contends that
the Department unlawfully restricted the applicability of the
fictitious market provision (section 773(a)(2) of the Act) to
situations where there is evidence of different movements in prices at
which different forms of the foreign like product are sold or offered
for sale.
Specifically, the petitioner argues that the Department's
restriction of this provision to situations involving price movements
of different forms of the foreign like product is incorrect for the
following reasons. First, the legislative history of the 1988 amendment
to the fictitious market provision (which provides that the Department
may consider ``different movements in prices at which different forms
of the foreign like product are sold or offered for sale'' as evidence
of a fictitious market) clearly indicates that this evidence is simply
an illustrative example of a fictitious market and does not prevent the
Department from finding a fictitious market based on other evidence. In
this regard, the petitioner cites the Senate Report accompanying this
amendment: ``The purpose of this provision is to highlight one
particular example of a fictitious market.'' S.Rep. No. 71, 100th
Congress., 1st Sess. at 126 (1987) (Senate Report) (emphasis
petitioner's). Second, the petitioner contends that the Department's
interpretation conflicts with PQ Corp v. United States, 652 F. Supp.
724, 729 (CIT 1987) (``PQ Corp.''), which, although it predated the
1988 amendment, continues to offer the proper reading of the general
purpose of the fictitious market provision as concerned with preventing
``parties from manipulating dumping margins by * * * offering
merchandise at a price that does not reflect its actual market
[[Page 61085]]
price.'' Third, the petitioner claims that the Department's reasoning
renders the provision a nullity in all cases where there is only one
form of the foreign like product, as in this review. The petitioner
concludes that the Department's overly restrictive reading of the
fictitious market provision has allowed ISL to manipulate the results
of this review by establishing a fictitious market through severe home
market price reductions even though the world price for furfuryl
alcohol increased during the period of review (``POR'').
ISL responds that the petitioner's reading of the fictitious market
provision is overly broad and contends that the Department should
sustain its position in the preliminary results that a fictitious
market does not exist in the home market. Citing Tubeless Steel Disc
Wheels from Brazil, 56 FR 14083 (April 5, 1991) (Disc Wheels),
Porcelain-on-Steel Cooking Ware from Mexico, 58 FR 32095 (June 8, 1993)
(Porcelain Cookware), and the Department's June 30, 1997, Memorandum,
ISL contends that: (a) The Department has always required evidence of
price movements of different forms of the foreign like product before
pursuing a fictitious market allegation; (b) furfuryl alcohol is a
single, unitary product and there is no possibility that the prices of
different forms of the foreign like product could be manipulated to
distort the dumping margin; and (c) contrary to the petitioner's
interpretation of PQ Corp., this case stands for the proposition that
there is no reason to invoke the fictitious market provision absent
evidence that a sale is anything less than a bona fide transaction; in
this case, the viability and reality of the transactions is not in
dispute. ISL adds that the petitioner's concern with reduced home
market prices is more appropriate to a below-cost allegation, which the
petitioner chose not to file, and concludes that a respondent is within
its discretion to eliminate price discrimination by either raising U.S.
price, lowering home market price, or doing a combination of the two,
citing Final Results of Redetermination to Court Remand, The Timken
Company v. United States, CIT Case No. 94-01-00008 (December 17, 1996))
(Timken Remand).
DOC Position: We agree with ISL that the record evidence regarding
its South African sales does not warrant a finding that ISL has
established a fictitious home market. Our general practice in
determining whether a fictitious market exists is to require evidence
that the decrease in the price of home market sales of the foreign like
product was accompanied by an increase in the price of sales of
``different forms of the foreign like product.'' See Disc Wheels, 56 FR
at 14085 (``[B]efore pursuing a [fictitious market] allegation, the
Department must have sufficient evidence to believe that there have
been different movements in the prices at which different forms of the
subject merchandise have been sold in the home market'') and Porcelain
Cookware, 58 FR at 32096 (``In order for price differences to serve as
a basis for initiating a fictitious sales inquiry . . . the Department
must have sufficient evidence to believe or suspect that there have
been different movements in the prices at which different forms of the
subject merchandise have been sold in the home market and that such
movements appear to reduce the amount by which foreign market value
(FMV) exceeds the U.S. price of the merchandise''). As we explained in
the June 30, 1997, Memorandum, the facts that the petitioner presents
in support of its claim, centering around a single supplier selling at
low prices in the home market, do not justify an expansion of our
practice.
Although our position regarding the petitioner's claim was stated
clearly in that memorandum, we make the following additional points
regarding the petitioner's comments as contained in its case brief.
First, given the language in the Senate Report to the 1988 amendment to
the fictitious market provision that price movements within a foreign
like product are ``one example of a fictitious market,'' it is possible
that we may determine in the future that a fact pattern other than
price movements within a foreign like product constitutes a fictitious
market. However, the fact pattern before us, involving a single
respondent that lowered its home market prices during the POR, is
insufficient to make such a determination and, in fact, would conflict
with a basic tenet of the dumping law were we to do so. As noted in the
Timken Remand, a respondent may reduce or eliminate dumping either by
raising its U.S. prices or by lowering its home market prices of
merchandise subject to the order. A finding that ISL has created a
fictitious market based solely on ISL's lowering of its home market
furfuryl alcohol prices would contradict this basic proposition.
Second, regarding the petitioner's argument that CIT's decision in
PQ Corp. requires a different result, we agree with the petitioner that
the court indicated that a fictitious market could exist when the price
of merchandise ``does not reflect its actual price.'' However, we
disagree that the information on the record indicates that ISL's home
market sales fail to meet this standard. Rather, ISL's home market
sales were bona fide transactions involving a significant number of
customers made during the course of the POR. These customers ordered,
received, and paid for the merchandise in the normal course of business
based on prices contained in ISL's price lists. Further, the total
quantity of ISL's home market sales was far in excess of the viability
threshold and in our view those South African sales must be considered
one of the company's primary markets.
Finally, based on the above facts concerning ISL's home market
sales, we disagree with the petitioner's assertion that the Department
is rendering the fictitious market provision a nullity where, as here,
there was no other form of the foreign like product to which a price
comparison can be made. Rather, given the facts surrounding ISL's home
market sales, we have determined that the harm that this provision
seeks to prevent (artificial pricing leading to the elimination of a
finding of dumping) is not present in this case. As a result, there is
no reason in this proceeding to go beyond our normal practice of
determining the existence of a fictitious market based on a comparison
of prices of different forms of the foreign like product.
Comment 2: Home Market Customer Affiliation: The petitioner argues
that ISL is affiliated with its home market customers due to its self-
described status as the only established producer and seller of
furfuryl alcohol in South Africa. Citing the SAA's discussion (at 838)
of possible affiliation in the absence of an equity relationship (in
elaborating on section 771(33)(G) of the Act), the petitioner states
that affiliation can result from the ability of one company ``to
exercise restraint or direction'' over another company through a
``close supplier relationships in which the supplier or buyer becomes
reliant upon the other.''
In addition, the petitioner commented on the following specific
aspects of the Department's June 30, 1997, Memorandum, which provided
an analysis of this issue for the preliminary results. In this
memorandum, the Department noted that: (a) ISL's home market customers
appear to be free to purchase furfuryl alcohol from any source willing
to offer it; (b) a 10 percent tariff rate appeared to be the only
barrier to trade facing furfuryl alcohol; and (c) that it appears that
furfuryl alcohol based resins compete with phenolic resins.
The petitioner counters these points by arguing that: (a) as stated
in the Final Results of Antidumping Duty
[[Page 61086]]
Administrative Review: Certain Welded Stainless Steel Pipe from Taiwan,
62 FR 37543, 37550 (July 14, 1997), the Department focuses on actual
supplier relationships, not putative statements regarding freedom to
purchase from other suppliers; (b) the 10 percent tariff is significant
given the absence of furfuryl alcohol imports to South Africa during
the POR; (c) there is evidence of barriers to trade such as
insignificant purchasing power, immense transportation distances from
foreign suppliers, insufficient storage for foreign bulk shipments, and
the possibility of ISL's customers' damaging their relationship with
ISL, the sole domestic supplier; and (d) there are in fact no
substitutes for furfuryl alcohol in its primary uses.
These facts, the petitioner concludes, demonstrate affiliation
between ISL and its home market customers, warranting the rejection of
ISL's home market sales unless they are determined to have been made at
arm's length.
ISL responds that the Department was correct in determining, in its
June 30, 1997, Memorandum at 8, that the petitioner's allegation that
ISL is affiliated with its home market customers is ``an overly broad
interpretation of the affiliation via control provision in section
771(33)(G).'' According to ISL, the fact that it is the sole domestic
producer of furfuryl alcohol in South Africa is not sufficient to
support a finding of affiliation with its home market customers.
Specifically, ISL argues that: (a) None of the home market customers is
related to ISL by ownership; (b) sales are freely negotiated with home
market customers using the company's price lists; (c) there are no
long-term sales or agency agreements with home market customers; (d)
all home market customers are free to purchase from abroad; (e) there
are no import barriers on furfuryl alcohol--the tariff rate on this
product entering South Africa before December 1996 was 10 percent and
zero thereafter; and (f) the International Trade Commission's (ITC)
report notes that while there are no precise substitutes for furfuryl
alcohol itself, phenolic resins compete in the foundry industry with
furfuryl alcohol's primary downstream products, furan resins.
Accordingly, ISL contends, there are no indicia of control.
Finally, ISL notes that the Department has recently considered this
issue in a number of cases and did not find affiliation between
domestic producers of the foreign like product and home market
customers because the requisite control did not exist, citing inter
alia, Final Determination of Sales at Less than Fair Value: Open-End
Spun Rayon Singles Yarn from Austria, 62 FR 43701 (August 15, 1997).
ISL states that in each case involving this issue, the petitioner
argued that affiliation existed because of a close supplier
relationship between the producer and its customer or supplier, and the
Department declined to find the parties affiliated because the
requisite control relationship did not exist.
DOC Position: We disagree with the petitioner's contention that ISL
is affiliated with all of its home market customers. The basis for
petitioner's claim, the fact that ISL is the only manufacturer of
furfuryl alcohol in South Africa, is insufficient for a finding of
affiliation. Further, the petitioner failed to provide any evidence
that ISL controls its home market customers. As we stated in the June
30, 1997, Memorandum at 8, ``ISL's dominant position in the home market
is not sufficient, in and of itself, to find affiliation between ISL
and its customers.'' We also noted in that memorandum that the other
primary evidence that the petitioner provided to support its
affiliation claim, ISL's POR pricing in the home market, ``does not
suggest that the company is in a position to exercise restraint or
control over its customers, since customers will generally seek the
lowest price possible from their suppliers.'' Id.
We also do not accept the petitioner's allegation that ISL controls
its home market customers due to significant barriers to trade, an
absence of imports during the POR of the subject merchandise, and no
substitutes for furfuryl alcohol in its primary uses. First, the
factors proposed by the petitioner would be more relevant to an
assertion that ISL is controlling its customers through high pricing,
not low pricing. Second, while we agree with the petitioner that there
was an absence of imports during the POR, the petitioner's other
arguments are speculative (e.g., whether a 10 percent tariff is a
``significant'' barrier to trade). Further, if we were to consider the
absence of imports as determinative of affiliation, we would in effect
find affiliation in any sole supplier situation. In sum, these factors,
whether true or not, do not indicate that ISL controls its customers.
Comment 3: Particular Market Situation in the Home Market: The
petitioner disagrees with the Department preliminary determination (as
detailed in its June 30, 1997, Memorandum) that a ``particular market
situation'' did not exist in South Africa. Citing this Memorandum, the
petitioner first notes that this finding was based in part on the
inapplicability of any of the three illustrative examples of particular
market situations in the SAA and the absence of any model matching
complications. Moreover, the petitioner states that the Department
based its finding on the position that the facts of the case be
analyzed more appropriately under the below-cost and fictitious market
provisions of the Act.
The petitioner disagrees with this finding based on its contention
that a particular market situation does exist in South Africa due to
the absence of competitive pricing. It maintains that the SAA makes
clear that competitive pricing is an important consideration in
assessing the existence of a particular market situation, citing the
``government control over pricing'' example of a possible particular
market situation listed in the SAA (at 822) (i.e., ``where there is
government control over pricing to such an extent that home market
prices cannot be considered to be competitively set''). Acknowledging
that the instant proceeding does not involve government control, the
petitioner argues that the key element of this example of a particular
market situation is whether prices are competitively set, not whether
there is government control of prices. In support of its argument, the
petitioner cites Certain Cold-Rolled and Corrosion-Resistant Carbon
Steel Flat Products from Korea, 62 FR 18404 (April 15, 1997), where the
Department considered whether pricing practices in an oligopolistic
market constituted a particular market situation but ultimately found
competitive pricing, and no particular market situation, in that case.
Contrary to the Korean oligopoly in question, the petitioner asserts
that ISL is a monopolist and as such, allowed for no price competition
of any type in this case.
Regarding the Department's position that the facts of the case are
more appropriately analyzed under the fictitious market provision, the
petitioner argues that both the fictitious market and particular market
situation provisions are applicable because both are intended to
preserve the integrity of the Department's analysis by eliminating
inappropriate sales from consideration. The petitioner affirms its
claim that, given a correct understanding of the facts of this case and
of the particular market situation provision, the Department should
disregard ISL's home market sales and require ISL to submit third
country sales data.
ISL responds that the Department should sustain its position in the
preliminary results that a particular market situation does not exist
in the
[[Page 61087]]
home market. In its rebuttal brief (at 8) ISL interprets Certain Cold-
Rolled and Corrosion-Resistant Steel Flat Product from Korea to mean
that ``[t]he fact that there are very few, or even one, producer in a
market is not evidence, per se, that prices are not competitively
set.'' ISL reiterates its claim, first made in Comment 3, above, that
there are no import barriers to furfuryl alcohol entering South Africa
and, therefore, foreign producers are free to compete, just as non-
furfuryl alcohol products compete in the foundry industry with furfuryl
alcohol's primary downstream products.
ISL further argues that none of the circumstances of particular
market situations outlined in the SAA are present in this case. Thus,
ISL concludes, the petitioner is actually arguing for the creation of a
new form of particular market situation based on the sole criterion
that a foreign producer has lowered it home market prices. Accordingly,
ISL, urges the Department to reject the petitioner's expansive reading
of the Act.
DOC Position: Although we agree with the petitioner that the list
of examples in the SAA regarding what may constitute a particular
market situation is not exhaustive, we disagree that such a finding is
warranted under the facts of this case. First, we do not agree with the
petitioner that the facts of this case are analogous to the
``government control over pricing'' example in the SAA. In this regard,
we agree with ISL's interpretation of Cold-Rolled Steel. In that case,
although we considered whether oligopolistic pricing practices might
constitute a particular market situation, we ultimately determined that
prices were competitively set. In fact, we explicitly found that even
though different pricing patterns may occur in an oligopolistic market,
such patterns are not evidence, per se, sufficient to establish that
prices are not competitively set. We conceded that there was
substantial Korean government involvement in the industry, but did not
find ``convincing evidence'' of control (Cold-Rolled Steel, 62 FR at
18412). The Department found that there was price competition based on
discounts, credit adjustments, and freight equalization. Similarly, the
fact pattern in the instant proceeding, involving a large volume of
low-priced sales of furfuryl alcohol sold to a significant number of
home market customers from price lists, does not indicate an absence of
competitive pricing.
As we stated in the June 30, 1997, Memorandum, the facts as
presented by the petitioner, focusing on a single supplier that has
lowered its home market prices, are more appropriately analyzed in the
context of the below-cost and fictitious market provisions of the
statute. In this regard, the petitioner did not make a below-cost
allegation in this segment of the proceeding and, as discussed above,
our analysis of the petitioner's claim in the context of a fictitious
market allegation indicates that the facts presented by petitioner do
not warrant such a finding.
Comment 4: Whether the Antidumping Duty Reimbursement Regulation
Applies to ISL: ISL argues that the Department's doubling of the
assessment rate in the preliminary results, which was based on the
Department's finding that ISL reimbursed its affiliated U.S. importer
Harborchem, is impermissible because: (1) The reimbursement regulation
should not apply to affiliated importers; (2) the reimbursement
provision's focus on raising U.S. prices is improper, since the Act
itself is not concerned with the absolute level of the price at which
subject merchandise is sold in the United States; and (3) even if the
reimbursement provision is valid and can legally be applied to
affiliated parties, there was no reimbursement of actual duties
assessed in this case.
The petitioner disagrees with ISL, stating that: (1) The Department
can apply the reimbursement regulation to affiliated parties; and (2)
there is clear evidence in this case that ISL reimbursed its U.S.
affiliate for AD duties during the POR, citing the Department's
proprietary preliminary analysis memorandum (Analysis Memorandum to the
File, June 30, 1997, at 2).
DOC Position: Since the assessment rate for this review is zero,
there are no duties to be assessed. Hence, this issue is moot.
Comment 5: Affiliation of ISL and Harborchem: The petitioner argues
that ISL and its U.S. importer, Harborchem, are not affiliated parties
and, accordingly, the Department should base U.S. price on export price
rather than CEP in the final results. The petitioner maintains that the
Department's finding in the original investigation that these parties
are affiliated, on which the Department subsequently relied in stating
that the facts had not changed in this review, was incorrect. The
petitioner contends that the record demonstrates that Harborchem is not
ISL's agent under the law of agency or the four-part test originally
relied on by the Department.
The petitioner states that since the Act does not define the term
``agent,'' the term must give its common law meaning, i.e., ``that an
agent is to act on behalf of and for the benefit of the principal.''
Petitioner Brief at 16. Citing, inter alia, Waterhout v. Associated Dry
Goods, Inc., 835 F.2d 718 (8th Cir. 1987), the petitioner adds that a
second tenet of the law of agency is that a determination as to the
existence of an agency relationship is to be based on the factual
circumstances at hand and not on a party's characterization of itself
as an agent.
The petitioner submits that, in this case, there is no record
evidence indicating an agency relationship between ISL and Harborchem,
since ISL merely characterizes Harborchem as its an agent; instead, the
evidence shows two distinct commercial transactions: one in which
Harborchem purchases furfuryl alcohol from ISL and another in which
Harborchem resells the merchandise to a third party. Specifically, the
petitioner states that:
(a) ISL negotiates price and quantity with Harborchem;
(b) ISL sells to Harborchem;
(c) ISL invoices and receives payment Harborchem; and
(d) Harborchem then separately stores, markets, ships, and receives
payment for the merchandise.
Thus, the petitioner asserts, Harborchem acts on its own behalf,
and ISL and Harborchem each seek to maximize profits. Moreover, the
petitioner asserts that mere coordination of certain activities for
their mutual benefit is not critical in determining an agency
relationship.
ISL responds that it is in fact affiliated with Harborchem. First,
ISL argues that the question of relationship was examined thoroughly in
the investigation and at on-site verifications of both ISL and
Harborchem. Second, ISL agrees with the Department's preliminary
finding that the facts considered by the Department in its original
determination are the same as those in the current review, namely:
(a) ISL participated directly with Harborchem in the marketing of
furfuryl alcohol to ultimate U.S. customers;
(b) ISL participated directly in pricing and sales negotiations
with ultimate U.S. customers;
(c) ISL interacted directly, as well as through Harborchem, with
ultimate U.S. customers on product testing and quality control;
(d) ISL and Harborchem communicated on a daily basis on matters
related to marketing and sales to the ultimate customers;
(e) ISL exerted a substantial degree of control over Harborchem
marketing and pricing of furfuryl alcohol to the ultimate U.S.
customers; and
[[Page 61088]]
(f) the two parties viewed their relationship as one of principal
and agent.
As support for its contention that these facts apply to the POR as
well as the period of investigation (POI), ISL cites to evidence on the
record of this review regarding the correspondence between Harborchem
and ISL on the setting of U.S. prices, the approval by ISL of any
significant sales and marketing efforts, and the granting of permission
by ISL on other business decisions.
Regarding the petitioner's arguments concerning the nature of an
``agency'' relationship, ISL submits that although the URAA replaced
the definition of ``related party'' with the definition of
``affiliation'' based on a ``control'' concept, Congress did not intend
to narrow the criteria it uses for determining affiliation, and the
Department has in fact continued to use the same criteria for assessing
``control'' as was used under the pre-URAA law related party ``agency''
provision. In this respect, ISL cites the post-URAA cases Melamine from
Indonesia and Rayon Singles Yarn from Austria, where the Department
examined:
(a) Whether one party controlled pricing of the subject
merchandise;
(b) Whether a long-term sales agreement existed;
(c) Whether there were any restrictions on purchasing from or
selling to other sources; and
(d) Whether there were other indicia of affiliation, such as a
joint venture arrangement.
ISL asserts that the facts surrounding its relationship with
Harborchem meet this standard.
Finally, ISL cites the preamble to the New Regulations as proving
that, because section 771(33) of the statute refers to a person being
in a position to exercise restraint or direction, the Department is
required to examine the ability to control, not the actual exercise of
control (62 FR 27298). ISL concludes that, based on the facts as stated
above, the record shows that ISL is in a position to exercises
restraint over Harborchem.
DOC Position: We disagree with the petitioner. As both parties
note, in the less-than-fair-value (LTFV) investigation, we examined
this issue in depth at verification (see Final Determination of Sales
at Less Than Fair Value: Furfuryl Alcohol From South Africa, 60 FR
22550 (May 8, 1995) (Final Determination of Sales at LTFV)). Our
examination was based on the criteria for determining an agency
relationship as established in Final Determination of Sales at Not Less
Than Fair Value: Certain Forged Steel Crankshafts from Japan, 52 FR
36984, 36985 (October 2, 1987). Contrary to the petitioner's
assertions, the information on the record in this review again
indicates that a finding of affiliation between ISL and Harborchem is
appropriate.
As noted in our preliminary results, the facts that led to our
finding in the LTFV investigation have not changed. The petitioner
provides no evidence that the facts have changed. ISL, on the other
hand, submitted evidence (at Exhibit A-4 of its September 19, 1996
response) in response to our questionnaire that indicates that the
agency relationship between ISL and Harborchem still exists. For
example, this evidence indicates that ISL and Harborchem routinely
coordinate marketing and sales activity, including pricing, for sales
to U.S. customers.
Rather than provide evidence that the facts have changed during
this review period, the petitioners are suggesting that these facts are
not sufficient for a finding of affiliation. We agree with the
petitioner that although the Act does not define agency, the existence
of an agency relationship is based on the factual circumstances. The
four-pronged test relied upon in the LTFV investigation explores the
factual circumstances of the relationship between ISL and Harborchem.
At verification, based on correspondence files, we determined that ISL:
(1) participates directly with Harborchem in marketing furfuryl alcohol
to U.S. customers; (2) participates directly in pricing and sales
negotiations with U.S. customers; (3) interacts directly, as well as
through Harborchem, with U.S. customers on product testing and quality
control matters; and (4) interacts with U.S. customers directly (Final
Determination of Sales at LTFV, 60 FR at 22552-53). In the current
review, ISL provided additional documentary evidence of this
relationship consistent with our finding in the LTFV investigation.
Proprietary correspondence documents were submitted by ISL in its
September 1996 response (Exhibit A-4a and b) that demonstrated that:
ISL and Harborchem have an exclusive distributor agreement; frequently
discuss pricing to U.S. customers; and participate in joint marketing
efforts. Documents submitted also show that ISL maintains direct
contact with U.S. end-user customers and exerts control over U.S.
marketing efforts. In addition, documentation concerning the
arrangement and sharing of profits between the two parties were
included in Exhibit A-22 of the April 10, 1997, response and
documentation showing Harborchem seeking and obtaining ISL's approval
of a purchase of furfuryl alcohol from alternative source, were
submitted in Exhibit A-23 of the same response. Therefore, we continue
to find that, based on our four-prong test, ISL and Harborchem maintain
an agency relationship and are affiliated within the meaning of section
771(33) of the Act. Consequently, we have used CEP for sales to the
United States.
Comment 6: Exclusion of Certain U.S. Sales: ISL requests that the
Department exclude from its analysis U.S. sales of subject merchandise
that entered prior to suspension of liquidation, which ISL identified
using a first-in, first-out (``FIFO'') inventory accounting
methodology. ISL further asserts that certain of these sales merit
exclusion regardless of the validity of its FIFO analysis, based on the
fact that they were shipped prior to the first post-suspension entry of
merchandise.
In the preliminary results, the Department rejected ISL's request,
citing Final Results of Antidumping Duty Administrative Review:
Industrial Belts and Components and Parts Thereof, Whether Cured or
Uncured from Italy, 57 FR 8295 (March 9, 1992) (``Industrial Belts''),
wherein the Department had similarly rejected an exclusion request
based on a FIFO inventory analysis. ISL states that the preliminary
results did not sufficiently explain the Department's reasons for
denying the request. ISL contemplates two possible reasons for this
rejection: (a) that the Department finds a FIFO matching methodology to
be inherently unacceptable; or (b) that the Department requires a
further explanation regarding ISL's FIFO analysis.
In arguing against the first reason, ISL states that Harborchem's
normal inventory accounting records use the FIFO methodology employed
in its exclusion request. ISL also notes that Harborchem uses FIFO to
match specific entries and sales as part of its internal cost control
and reporting systems to ensure proper accounting treatment. ISL
contends that since furfuryl alcohol is a fungible liquid, this is the
only methodology available for matching pre-suspension entries to
specific POR sales. ISL notes that the Department verified Harborchem's
inventory accounting records during the less than fair value
investigation. Citing Industrial Quimica del Nalon v. United States, 15
CIT 240, 243-44 (1991), ISL contends that the Department's rejection of
the only methodology available to link entries to sales would
constitute an abuse of the Department's discretion and, in the
[[Page 61089]]
words of the ruling, ``fly in the face of established business
practice.''
Regarding the second possible reason, ISL provides in its brief a
further explanation of the methodology employed in the company's
responses to ensure that the analysis is clear to the Department. In so
doing, ISL points to worksheets, inventory records, and entry and sales
data that provide sufficient information to allow the Department to tie
the sales in question to pre-suspension entries.
Finally, ISL asserts that even if the Department chooses to reject
again ISL's FIFO methodology, the company is still entitled to the
exclusion of certain sales from the antidumping analysis. ISL notes
that the record shows that the first shipment of furfuryl alcohol to
enter the United States during the POR, i.e., after suspension, entered
the United States after sales by Harborchem to U.S. customers had
already been made and delivered during the POR. ISL states that it is
therefore physically impossible for those sales to have been made using
furfuryl alcohol entered during the POR.
The petitioner responds that the Department should continue to
reject ISL's exclusion request. It argues that ISL did not sufficiently
link POR sales to specific pre-suspension entries because the company's
receipt and inventory records are inconsistent and unreliable, as
demonstrated by certain discrepancies on the record. Specifically, the
petitioner notes that ISL, in its April 10, 1997, supplemental
response, conceded that it made two mistakes in reporting its inventory
in its initial response. The petitioner asserts that this
unreliability, together with ``the Department's justifiable reluctance
to use hypothetical constructions to link U.S. sales to specific pre-
suspension entries,'' necessitates the Department's continued rejection
of the request.
DOC Position: We agree with ISL, in part. As discussed below, all
but one of the POR sales that ISL requested be excluded are not
appropriately part of our analysis because they involve merchandise
that entered the United States prior to the suspension of liquidation.
See Certain Stainless Steel Wire Rod from France, 61 FR 47874, 47875
(September 11, 1996). Accordingly, we have not included these sales in
our calculation of ISL's antidumping duty rate for this POR. However,
we have included one such sale in our analysis because it cannot be
tied to pre-suspension merchandise.
We note that the petitioner is correct in pointing out the
Department's reluctance to use hypothetical constructions to link U.S.
sales to specific pre-suspension entries. This was demonstrated in
Industrial Belts, wherein the Department rejected an exclusion request
based on a FIFO inventory analysis. However, we excluded a majority of
the sales at issue based not on a FIFO analysis but on the fact that
these sales were shipped before the first post-suspension entry of
subject merchandise. See Memorandum from Michelle Frederick and Scott
Oudkirk to Richard W. Moreland (November 5, 1997) (``November 5, 1997,
Memorandum''). We have excluded these sales from our analysis because
it would not be possible for those sales to have been shipped using
merchandise that entered during the POR.
We excluded a second group of sales based on a FIFO analysis that
involves a single POR entry made prior to these sales. For these sales,
the data contained in ISL's response indicates that the company's
storage of inventory involved the co-mingling of only one POR entry of
furfuryl alcohol with a pre-existing inventory of pre-suspension
furfuryl alcohol. As detailed in the November 5, 1997, Memorandum,
ISL's inventory, sales, and entry data contained in its responses
establishes that it had sufficient pre-suspension inventory, prior to
the one POR entry of subject merchandise at issue, to cover all but one
of the second group of sales for which ISL requested the exclusion. To
the extent that we attribute the merchandise involved in such sales to
this pre-suspension inventory, rather than to the single POR entry that
occurred prior to these sales, this analysis is based on a FIFO
methodology. However, given that the fact pattern involves only a
single POR entry occurring prior to these sales, along with the fact
that this is a unitary liquid product, it is appropriate under these
circumstances to determine that these sales involved pre-suspension
merchandise. We note that, in the unique circumstances of this case,
the respondent was able to provide supporting documentation regarding
entry and sales data not only for the claimed exclusions, but also for
the remainder of the South African-sourced POR sales.
Finally, we have not excluded one sale (the final chronological
sale in the second group) because the inventory of pre-suspension
furfuryl alcohol was insufficient to cover this sale.
Regarding the petitioner's contention that ISL's inventory records
are inconsistent and unreliable, we found that an examination of the
evidence on the record demonstrates that any inconsistencies are
relatively minor and that the mistakes reported by ISL were corrected
in supplemental responses (see the memorandum referenced above).
Therefore, the record as a whole allowed us to sufficiently link
entries to sales and to exclude sales when appropriate.
Finally, we note that the petitioner claimed at the public hearing,
with respect to ISL's counsel's discussion of this issue, that certain
information presented by ISL was not included in its hearing briefs. We
have determined that ISL's counsel did not reveal new information
during the hearing and that it was responding to a question raised by
the Department regarding this issue. The information that ISL's counsel
referenced was already on the record in the form of entry dates, sale
dates, inventory records and location of inventory.
Comment 7: Level of Trade and CEP Offset: ISL asserts that the
Department's preliminary determination that the level of trade (LOT) at
which ISL sold furfuryl alcohol in the home market level is not more
advanced than the LOT of the CEP sales is incorrect because it ignores
significant selling functions performed in the home market. In
particular, ISL states that there is a ``significant difference in the
level of selling function provided at each LOT.''
ISL argues that the Department ignored the level or degree of
selling activities that ISL performed with respect to home market
versus U.S. sales, as well as the corresponding greater amounts of time
and energy spent performing these activities in conducting home market
sales. Further, ISL stated that, whereas ISL itself undertook all of
these activities in conducting home market sales, it merely supported
Harborchem, which was principally responsible for marketing and selling
activities in the United States. For this reason, ISL claims that the
degree of the selling functions it provides to home market customers is
greater than that of those provided for Harborchem such that the home
market LOT is more advanced than the LOT of the CEP. In support of this
claim, ISL compared the number of customers, the number of shipments,
and the individual shipment sizes in the home market to shipments to
Harborchem, noting that ``[t]he average size of a shipment to
Harborchem was over 30 times as large as a shipment in the home
market.'' Therefore, ISL claims it is entitled to a CEP offset.
The petitioner responds that the Department did not ignore specific
selling functions in the home market but, rather, determined that the
selling functions performed by ISL for sales in the home market did not
differ substantially from those performed by
[[Page 61090]]
ISL for sales to Harborchem. The petitioner adds that ISL exaggerates
the differences between the number of customers and shipments in the
home market compared with those to Harborchem. Finally, the petitioner
notes that ISL's contention in its case brief that the company plays a
supporting, non-principal role for U.S. sales is at variance with
earlier statements made in support of ISL's claim of affiliation with
Harborchem, i.e., that ISL plays a joint role with Harborchem in the
U.S. market.
DOC Position: We disagree with ISL. We have continued to find that
a CEP offset is inappropriate because the record evidence indicates
that ISL's home market sales are not made at a more advanced LOT than
that of the CEP.
Section 773(a)(7) of the Act provides that one requirement for
granting a CEP offset is that the home market sale must be made at a
more advanced stage of distribution than the LOT of the CEP. In order
to determine whether home market sales were at the same, or a
different, LOT than U.S. sales, we examined whether home market sales
had been made at a different stage in the marketing process. Section
351.412(c)(2) of the new regulations defines an LOT as a marketing
stage ``or the equivalent'' and provides that different LOTs depend on
one level (or stage) being more remote, characterized by an additional
layer of selling activities, amounting in the aggregate to a
substantially different selling function. Substantial differences in
the amount of selling expenses associated with two groups of sales also
may indicate that the two groups are at different LOTs.
Accordingly, as a threshold matter in examining whether home market
sales were made at a more advanced LOT than the LOT of the CEP, we
considered the selling activities performed for the home market LOT and
compared them to the selling activities performed for the LOT of the
CEP. Specifically, we examined the selling activities performed by ISL
for setting up, shipping, and delivering furfuryl alcohol destined for
the U.S. market up to the point of tank storage at the U.S. port of
entry (selling activities reflected in the price after the deduction of
expenses and profit under section 772(d) of the Act). Next, we compared
the selling activities performed by ISL for home market sales.
In the preliminary results, we determined that there was one LOT in
the home market and, furthermore, that the LOT for home market sales
was comparable to the LOT of the CEP. In other words, we determined
that the home market LOT did not constitute a more advanced stage of
distribution than the LOT of the CEP and, therefore, no adjustment to
price (i.e., LOT adjustment or CEP offset) was necessary. We explained,
in detail, in the preliminary results our rationale for making this
determination. 62 FR 36488, 36490 (July 8, 1997). ISL's arguments in
its case brief do not establish that our analysis in the preliminary
results was incorrect.
We disagree with ISL's argument that we ignored the level or degree
of selling functions performed in the home market. While it is our
preference to examine selling functions on both a qualitative and a
quantitative basis, our examination is not contingent on the number of
customers nor on the number of sales for which the activity is
performed.
Thus, having determined that the LOT for home market sales is
comparable to the LOT of the CEP, we are precluded in this case from
granting a CEP offset.
Comment 8: Basis for the Calculation of CEP Profit: The petitioner
argues that the Department's calculation of CEP profit understates the
amount of profit that should be deducted from CEP. In the preliminary
results, the Department relied upon revenue and cost of sales data from
ISL's 1995 and first-half 1996 financial statements to calculate a
profit ratio. The figures in those financial statements are
representative of all ISL products. The petitioner cites the SAA (at
824-825, regarding section 772(f)(2)(C) of the Act) for the proposition
that, where the Department has not requested cost data, CEP profit
information shall be based on ``the narrowest category of merchandise
sold in the United States and the exporting country which includes the
subject merchandise or * * * the narrowest category of merchandise sold
in all countries which includes the subject merchandise.'' The
petitioner contends that there is information on the record, in the
form of an internal report, that would allow the Department to base the
calculation of a CEP profit ratio on a more narrow category of
merchandise, e.g. excluding sugar, than that contained in ISL's
financial statements.
ISL argues that the financial statements on which the Department
relied in its calculation of profit are audited and, given the
Department's normal reliance on audited or published data, are the
proper basis for the calculation of a CEP profit ratio. ISL notes that
the information that the petitioner advocates is found in an unverified
internal report used to report gross sales and profit figures. As such,
it does not take account of reversals, reconciliations, and adjustments
made only at year-end. Therefore, the Department should continue to use
the information contained in the audited financial statements in its
calculation of a CEP profit ratio for the final results.
DOC Position: We agree with the petitioner in part. Section
772(f)(2)(C)(iii) of the Act provides that, absent more specific data
related to expenses incurred in selling subject merchandise in the
United States or home market, the expenses used in the profit
calculation should be based on ``the narrowest category of merchandise
sold in all countries which includes the subject merchandise.'' In this
review, there is information on the record that would allow the
Department to base the calculation of a CEP profit ratio on a more
narrow category of merchandise than that covered by ISL's overall
profit amount for all products sold by the company. However, contrary
to petitioner's assertions, the audited financial statements contain
profit data on a product basis (i.e. by-products) that is sufficiently
narrow to fulfill the statutory requirements regarding CEP profit.
Instead of relying on the internal report, we were able to derive a
more appropriate CEP profit ratio from the audited financial
statements, thus meeting our obligation to rely on information for the
``narrowest category of merchandise.'' We were able to discern from the
audited financial statements the relative amount of profit due to the
sale of sugar, ISL's primary merchandise, and the profit due to the
sales of by-products, which includes the subject merchandise sold.
Thus, we revised the CEP profit ratio for the final results based on
information from audited financial statements. (See Analysis Memorandum
to File, November 5, 1997.)
We note that, given the statutory preference for profit based on a
narrow category of merchandise, the use of internal financial reports
may be appropriate where we do not otherwise have sufficiently tailored
profit data. The preamble of the proposed regulations at 61 FR 7308,
7332 (February 27, 1996), reflects this, stating ``[p]aragraph (d)(2)
[of section 351.402] specifies that the Department will not be limited
to audited financial statements, but may use any appropriate financial
report, including internal reports, the accuracy of which can be
verified, if verification is conducted. This provision reflects the
suggestion of commentators that the Department make clear its
discretion to use financial reports prepared in the normal course of
business that are as specific as possible
[[Page 61091]]
to the merchandise under investigation or review.''
Comment 9: Inclusion of Quality Testing Expenses in the Calculation
of CEP Profit: The petitioner notes that the Department determined that
the expense ISL incurs for the quality testing of furfuryl alcohol upon
its arrival in the United States is an indirect selling expense. The
Department therefore made a circumstance of sale adjustment to CEP for
the preliminary results, but the petitioner contends that this quality
testing expense should also be included as part of total selling
expenses for the calculation of CEP profit.
ISL argues that this expense is a movement expense undertaken
solely for U.S. sales insurance purposes because of the possibility of
contamination during shipment and because the U.S. Customs periodically
requires purity reports. Therefore, ISL argues that this expense is not
an indirect selling expense and, as a movement expense, should not be
included as part of selling expenses when calculating CEP profit.
DOC Position: We agree with ISL that the quality testing expense
that the company incurs upon furfuryl alcohol's arrival in the United
States is a movement expense undertaken solely for U.S. sales as a
result of shipment from South Africa. We note ISL's description at page
84 of its September 19, 1996, response, that, ``Furfuryl alcohol is
tested on arrival to detect any impurities that may have entered the
product while in transit * * * [t]he testing is performed * * * at the
time the product is unloaded from the maritime vessel.'' We also note
that there is no similar testing done for shipments in the home market;
all semi-bulk sales of furfuryl alcohol in the home market are made
f.o.b., so there is no chance of contamination that will result in a
loss to the company and though drum sales are sometimes made on a
c.i.f. basis, it is not subject to contamination because it is packed.
Because contamination only results from transporting furfuryl alcohol
via a shipping vessel, which carries many other different products, not
just furfuryl alcohol, we have determined that the quality testing
expense is associated with the type of transportation, and, thus, is a
movement expense. Accordingly, we have changed the margin calculation
to treat this expense as a movement expense, which is not included in
total U.S. expenses in the calculation of CEP profit.
Comment 10: Treatment of ISL U.S. Travel Expenses in the Margin
Calculation: The petitioner claims that the expenses ISL personnel
incurred for travel to the United States to market furfuryl alcohol are
indirect selling expenses incurred in the United States. As such, they
should be deducted from U.S. price when calculating CEP and should be
included in the total U.S. selling expenses used to derive profit
attributable to those expenses.
ISL contends that the expenses in question are already included in
the South African component of U.S. indirect selling expenses, given
that most of the expenses associated with U.S. travel of ISL personnel,
such as airfare and salaries, were incurred and paid for in the home
market. Therefore, it would be incorrect for the Department to deduct
these expenses once again.
DOC Position: We agree with ISL that the expenses ISL personnel
incurred for travel to the United States to market furfuryl alcohol are
included in the South African component of U.S. indirect selling
expenses (DINDIRSU). As such, for the preliminary results, they had
already been deducted from U.S. price when calculating CEP.
We do not deduct indirect selling expenses incurred in the home
market on behalf of U.S. sales, except when such expenses are
associated with economic activity in the United States. The expenses of
ISL personnel incurred for travel to the United States are associated
with economic activity in the United States. Therefore, for these final
results, we segregated the expenses of ISL personnel incurred for
travel to the United States from all other indirect expenses incurred
in the home market on behalf of U.S. sales, and deducted only those
travel expenses from CEP. See Final Results and Partial Rescission of
Antidumping Duty Administrative Review; Certain Fresh Cut Flowers from
Colombia, 62 FR 53287, 53293 (October 14, 1997) (``selling expenses
incurred in the home market that are not associated with U.S. economic
activity should neither be deducted from CEP nor included in the basis
for calculating CEP profit'').
Comment 11: Addition of Tank Car Rental Credits to CEP: The
petitioner claims that the U.S. tank car rental expense is reported net
of credits. Therefore, tank car rental credits should not be added to
CEP.
ISL concedes the petitioner's claim.
DOC Position: We agree that the U.S. tank car rental expense
reported is net of credits for tank car utilization. Therefore, we have
deducted these expenses from CEP.
Comment 12: Conversion of Certain Inventory Carrying Cost Expenses:
ISL contends that the Department failed to convert the U.S. inventory
carrying cost expense, which is expressed in rand, to U.S. dollars.
The petitioner did not comment on this issue.
DOC Position: We agree with ISL. This expense was expressed in rand
because the inventory value used in the calculation of this inventory
carrying cost was the total cost of manufacture in rand. Accordingly,
we have converted this to U.S. dollars.
Final Results of Review
As a result of our review, we determine that the following margin
exists for the period of December 16, 1994, through May 31, 1996:
------------------------------------------------------------------------
Margin
Manufacturer/exporter (percent)
------------------------------------------------------------------------
Illovo Sugar Ltd........................................... 0.00
------------------------------------------------------------------------
The results of this review shall be the basis for the assessment of
antidumping duties on entries of merchandise covered by the review and
for future deposits of estimated duties for the manufacturer/exporter
subject to this review. The Department will issue appraisement
instructions directly to the U.S. Customs Service.
Furthermore, the following deposit requirements will be effective
for all shipments of the subject merchandise entered, or withdrawn from
warehouse, for consumption on or after the publication date of these
final results of this administrative review, as provided by section
751(a)(2)(C) of the Act: (1) The cash deposit rate for ISL is zero; (2)
if the exporter is not a firm covered in this review or the original
investigation, but the manufacturer is, the cash deposit rate will be
the rate established for the most recent period for the manufacturer of
the merchandise; and (3) if neither the exporter nor the manufacturer
is a firm covered in this or any previous review or the original
investigation, the cash deposit rate will be the ``all others'' rate of
11.55 percent established in the less than fair value investigation (60
FR 28840, June 21, 1995). These deposit requirements will remain in
effect until publication of the final results of the next
administrative review.
This notice also serves as a final reminder to importers of their
responsibility under 19 CFR 353.26 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
[[Page 61092]]
subsequent assessment of double antidumping duties.
This notice is the only reminder to parties subject to
administrative protective order (``APO'') of their responsibility
concerning the disposition of proprietary information disclosed under
APO in accordance with 19 CFR 353.34(d)(1). Timely written notification
of the return or destruction of APO materials, or conversion to
judicial protective order is hereby requested. Failure to comply is a
violation of the APO.
This administrative review and notice are in accordance with
section 751(a) of the Act and 19 CFR 353.22, and this notice is
published in accordance with section 777(i) of the Act.
Dated: November 5, 1997.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 97-29958 Filed 11-13-97; 8:45 am]
BILLING CODE 3510-25-P
