[Federal Register Volume 64, Number 238 (Monday, December 13, 1999)]
[Notices]
[Pages 69494-69503]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-32225]
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-570-847]
Persulfates from the People's Republic of China: Final Results of
Antidumping Duty Administrative Review
AGENCY: Import Administration, International Trade Administration,
Department of Commerce
ACTION: Notice.
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SUMMARY: On August 6, 1999, the Department of Commerce published the
preliminary results of its first administrative review of the
antidumping duty order on persulfates from the People's Republic of
China. See Persulfates from the People's
[[Page 69495]]
Republic of China: Preliminary Results of Antidumping Duty
Administrative Review, and Partial Rescission of Administrative Review,
64 FR 42912 (August 6, 1999). The period of review is December 27,
1996, through June 30, 1998. Based on our analysis of comments
received, we have made changes to the margins calculated for purposes
of the preliminary results, including corrections of certain clerical
errors. The final weighted-average dumping margins are listed below in
the section entitled ``Final Results of Review.''
We have determined that sales have been made below normal value
during the period of review. Accordingly, we will instruct the Customs
Service to assess antidumping duties based on the difference between
export price and normal value.
EFFECTIVE DATE: December 13, 1999.
FOR FURTHER INFORMATION CONTACT: Sunkyu Kim or James Nunno, AD/CVD
Enforcement Group I, Office II, Import Administration, International
Trade Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, NW, Washington, DC 20230; telephone: (202) 482-
2613 or (202) 482-0783, respectively.
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 Agreements
Act. In addition, unless otherwise indicated, all citations to the
Department of Commerce's (the Department's) regulations are to the
regulations at 19 CFR Part 351 (April 1998).
SUPPLEMENTARY INFORMATION:
Background
On August 6, 1999, the Department published in the Federal Register
the preliminary results of the administrative review of the antidumping
duty order on persulfates from the People's Republic of China (PRC).
See Persulfates from the People's Republic of China: Preliminary
Results of Antidumping Duty Administrative Review, and Partial
Rescission of Administrative Review, 64 FR 42912 (August 6, 1999)
(Preliminary Results). We gave interested parties an opportunity to
comment on our preliminary results and held a public hearing on October
28, 1999. The following parties submitted comments: FMC Corporation
(the petitioner); Shanghai Ai Jian Import & Export Corporation (Ai
Jian), Sinochem Jiangsu Wuxi Import & Export Corporation (Wuxi), and
Shanghai Ai Jian Reagent Works (AJ Works) (producer for Ai Jian and
Wuxi) (collectively, the respondents).
The Department has now completed this administrative review in
accordance with section 751(a) of the Act.
Scope of Review
The products covered by this review are persulfates, including
ammonium, potassium, and sodium persulfates. The chemical formula for
these persulfates are, respectively, (NH sub4 ) sub2 S sub2 O sub8 , K
sub2 S sub2 O sub8 , and Na sub2 S sub2 O sub8 . Ammonium and potassium
persulfates are currently classified under subheading 2833.40.60 of the
Harmonized Tariff Schedule of the United States (HTSUS). Sodium
persulfate is classified under HTSUS subheading 2833.40.20. Although
the HTSUS subheadings are provided for convenience and customs
purposes, our written description of the scope of this review is
dispositive.
Export Price
For both Ai Jian and Wuxi, we calculated export price (EP) in
accordance with section 772(a) of the Act, because the subject
merchandise was sold directly to the first unaffiliated purchaser in
the United States prior to importation and constructed export price
(CEP) methodology was not otherwise warranted, based on the facts of
record. We calculated EP based on the same methodology used for
purposes of the preliminary results.
Normal Value
Section 773(c)(4) of the Act requires the Department to value the
non-market economy (NME) producer's factors of production, to the
extent possible, in one or more market economy countries that: (1) are
at a level of economic development comparable to that of the NME, and
(2) are significant producers of comparable merchandise. As stated in
the Preliminary Results, the Department has determined in this case
that India meets both statutory requirements for an appropriate
surrogate country. For purposes of the final results, we have continued
to rely on India as the surrogate country. Accordingly, we have
calculated normal value (NV) using Indian surrogate values for the PRC
producers' factors of production except in those instances where an
input was sourced from a market economy and paid for in a market
economy currency.
We used the same methodology for calculating NV as that described
in the Preliminary Results, with the following exceptions: (1) We
corrected our adjustment for the sales and excise taxes included in the
values reported in Chemical Weekly because of an inadvertent error (see
comment 12 below); (2) we adjusted the calculation of freight costs
incurred between the suppliers of packing materials (i.e., polyethylene
and woven bags, polyethylene sheet, wood pallets, fiberboard, and
polypropylene sacks) and AJ Works in order to correct certain errors
made in the preliminary results calculations; (3) we included AJ Works'
indirect labor hours in our calculation of labor expenses, which were
inadvertently omitted from our preliminary results calculations (see
comment 10 below); (4) we adjusted AJ Works' reported indirect labor
hours to account for the labor hours of additional employees that were
previously not included (see comment 10 below); (5) we reclassified
certain depreciation expenses from Calibre Chemicals Pvt. Limited's
(Calibre's) financial statements as selling, general, and
administrative expenses (SG&A) expenses, which results in a change to
the overall factory overhead and SG&A ratios (see comment 7 below). See
the U.S. Price and Factors of Production Adjustments for the Final
Results (Calculation Memorandum) and Final Results Factors Valuation
Memorandum from the Team to the File (Factors Memorandum) dated
December 6, 1999, for a more detailed explanation of these calculation
changes.
Analysis of Comments Received
Comment 1: Construction Costs for New PRC Factory and Alleged Fire at
the New Facility
The petitioner argues that the Department failed to incorporate in
the normal value calculation costs related either to the construction
of a new factory or to a fire that allegedly occurred at AJ Works
during the period of review (POR) and, as a result, the normal value
was understated. The petitioner further argues that, despite the
petitioner's requests, the Department failed to obtain from AJ Works
information related to these two events. The petitioner asserts that
the Department has an obligation to investigate antidumping cases and
to assign fair dumping margins, and that the failure to obtain data
requested by the petitioner constitutes an abuse of discretion. The
petitioner cites several court cases in which it claims that the Court
of International Trade (CIT) required the Department to perform an
investigation of the facts related to the issues of the related
antidumping
[[Page 69496]]
proceedings (e.g., Wieland-Werke AG v. United States, 4 F. Supp. 2d
1207 (CIT 1998), Rhone-Poulenc, Inc. v. United States, 927 F. Supp.
451, 456 (CIT 1996), and Freeport Minerals Company v. United States,
776 F.2d 1029, 1034 (Fed. Cir. 1985)).
The petitioner states that the initial operations of a new
production plant have an adverse effect on all categories of
manufacturing costs. In particular, the petitioner notes that during
the initial phase of production, the production volume will generally
be lower than normal, which results in higher per-unit fixed costs,
most notably depreciation expenses. Similarly, the petitioner states
that a company that experienced a fire will have higher per-unit costs
due to the disruption in production. In a market-economy case, the
petitioner asserts, costs related to a new factory or a fire are
captured in the cost of manufacturing of a market-economy respondent.
In this case, the petitioner argues, if the Department does not account
for such increases in AJ Works' cost of manufacturing, the normal value
for the respondents will be understated.
The petitioner contends that the Department should have issued a
questionnaire to AJ Works in order to confirm that a fire did occur at
AJ Works' production facility and obtain sufficient information to
allow the Department to value the costs related to the fire. With
respect to the construction of a new factory, the petitioner submits
that the Department must develop a methodology for calculating
additional costs and increase AJ Works' normal value accordingly.
The respondents rebut that the petitioner's concerns about costs
related to the construction of a new factory or an alleged fire are
irrelevant in an NME proceeding. The respondents argue that although AJ
Works' accounting records may indicate additional factory overhead and
SG&A expenses resulting from costs related to the construction of a new
factory or a fire, such expenses were incurred in NME currencies and
are, therefore, considered by the statute to be unreliable for purposes
of calculating dumping margins. Citing the preamble to the Department's
regulations in which the Department stated that the ``use of an NME
price as a benchmark is inappropriate because it is the unreliability
of NME prices that drives us to use the special NME methodology in the
first place,'' the respondents argue that the Department does not
consider the expenses incurred by the NME producer relevant to the
surrogate value analysis. See Antidumping Duties: Countervailing
Duties; Final Rule, 62 FR 27296, 27367-27368 (May 19, 1997) (Final
Rule). Thus, the respondents argue that the petitioner's proposal to
add ``factors of construction'' to the calculation of AJ Works'' normal
value is contrary to statutory intent and the Department's established
NME practice of disregarding transactions that involve non-market
economy prices.
Furthermore, the respondents claim that the Department does not
permit an adjustment of the surrogate factory overhead, SG&A or profit
values merely because the circumstances of the surrogate producer are
different from that of the NME respondent's experience. The respondents
cite the preamble to the Department's regulation in which the
Department stated that ``we do not believe it is appropriate to check
surrogate values {for manufacturing overhead, general expenses, and
profit} against the NME respondents' experience.'' Final Rule, 62 FR at
27366.
Regarding the petitioner's argument concerning the Department's
obligation to investigate claims made by the petitioner, the
respondents assert that in the same court cases cited by the
petitioner, the CIT did not obligate the Department to investigate
information that is irrelevant to the Department's determination or
based on speculation. In the present case, the respondents continue,
the petitioner's concerns about AJ Works' construction and fire-related
costs are purely speculative and contradicted by the record evidence
that has been fully verified by the Department. Accordingly, the
respondents urge the Department to reject the petitioner's proposal to
calculate ``factors of construction'' or costs related to an alleged
fire.
DOC Position
We disagree with the petitioner that the normal value we calculated
for AJ Works in the preliminary results is understated. In accordance
with section 773(c)(1) of the Act, we calculated normal value based on
AJ Works' factors of production, including amounts for direct
materials, labor hours, energy, and surrogate values for factory
overhead, SG&A and profit. The petitioner requests that we increase the
normal value to capture additional costs AJ Works incurred related to
the construction of a new factory and an alleged fire. The petitioner's
argument, however, has no statutory basis. The NME normal value
provisions of the statute neither direct us nor provide us with a
method by which to make the types of adjustments requested by the
petitioner. In addition, such an adjustment is not in accordance with
Department practice.
With respect to the petitioner's argument concerning the increase
in the per-unit fixed costs, in particular depreciation expenses,
during an initial phase of production, we note that such expenses are
included in factory overhead, which in this review is based on the
surrogate overhead expenses of Calibre. We do not find it appropriate,
however, to adjust Calibre's factory overhead costs to match the
experience of AJ Works. In this regard, we cite to the Department's
position in Tapered Roller Bearings and Parts Thereof, Finished or
Unfinished, From Romania: Final Results and Rescission in Part of
Antidumping Duty Administrative Review, 61 FR 51427 (October 2, 1996)
(TRBs from Romania). In that review, we stated, ``[t]he Department
normally bases normal value completely on factor values from a
surrogate country on the premise that the actual experience in the NME
cannot meaningfully be considered.'' See TRBs from Romania, 61 FR at
51429. Based on this principle, the Department articulated in other
cases that with respect to overhead and SG&A surrogate values, the
Department does not customize the values to match the circumstances of
the PRC producer. See e.g., Tapered Roller Bearings and Parts Thereof,
Finished and Unfinished, From the People's Republic of China: Final
Results of 1996-1997 Antidumping Duty Administrative Review and New
Shipper Review and Determination Not To Revoke Order in Part, 63 FR
63842, 63853 (November 17, 1998); Certain Helical Spring Lock Washers
From the People's Republic of China: Final Results of Antidumping
Administrative Review, 61 FR 41994, 41999 (August 13, 1996).
Accordingly, we find no basis to attempt to manipulate Calibre's
financial data to capture construction-related costs incurred by AJ
Works.
Contrary to the petitioner's claim, none of the court cases cited
by the petitioner requires that we obtain information that is not
relevant to our determination. Although we do have information on the
record that AJ Works began production in a new facility during the POR,
we did not obtain further information concerning costs related to the
new production facility because such information is not relevant for
purposes of calculating normal value within the parameters of our NME
calculation methodology. For the same reason, we did not obtain
information on whether AJ Works experienced a fire during the POR.
[[Page 69497]]
Comment 2: Whether to use Calibre's 1997 or 1998 Data, or the Average
for Purposes of Calculating Factory Overhead, SG&A, and Profit
To value the respondents' factory overhead, SG&A and profit for
purposes of the preliminary results, we calculated surrogate ratios
based on Calibre's financial statements for fiscal years 1997 and 1998.
(Calibre's fiscal year begins on April 1 and ends on March 30.) Both
the petitioner and the respondents disagree with the Department's
calculation of these surrogate ratios based on the average of 1997 and
1998 data.
The petitioner argues that if the Department does not include
additional costs related to the construction of the new factory in the
calculation of normal value, the Department, as an alternative, should
use Calibre's 1997 financial data, as opposed to an average of 1997/
1998 data. The petitioner contends that the data from Calibre's 1997
fiscal year is more reflective of AJ Works' experience of constructing
a new factory during the POR, because information from Calibre's
financial statements suggests that Calibre expanded its production
facilities during its 1997 fiscal year. Specifically, the petitioner
argues that certain overhead costs decreased from Calibre's 1997 fiscal
year to its 1998 fiscal year, although its production volume increased.
The data also indicate that production capacity increased, while
expenses related to subcontracting labor decreased during that same
period.
The petitioner asserts that the Department has broad discretion in
the selection and application of surrogate values, and that it may
reject certain portions of Calibre's financial statements, or all of
its financial statements, if it determines that these data are not
reliable indicators of surrogate values for factory overhead, SG&A, or
profit. The petitioner cites Nation Ford Chemical Company v. United
States, 166 F.3d 1373, 1377 (Fed. Cir. 1999) (Nation Ford), in which
the Department maintained that it ``has the discretion to use whatever
values are the most reflective of the experience of the NME producer.''
Therefore, because Calibre's data indicate that it expanded its
production facility during the 1997 fiscal year, the petitioner argues
that the Department should use only the 1997 data in its calculations
in order to reflect accurately the experience of AJ Works.
The respondents, on the other hand, argue that the Department
should calculate surrogate overhead, SG&A expenses, and profit based
only on Calibre's 1998 data because Calibre's 1998 fiscal year is
contemporaneous with most of the respondents' U.S. sales. The
respondents state that for administrative reviews, the Department
calculates entry-specific dumping margins based on the date of each
U.S. sale, in accordance with section 751(a)(2)(A) of the Act and 19
CFR 351.414. The respondents claim that the fundamental reasoning
behind this methodology is to determine whether the specific U.S. sale
is being sold at less than fair value when compared to the normal value
of merchandise produced contemporaneously with the U.S. sale. The
respondents contend that the Department's decision to average Calibre's
1997 and 1998 financial data creates a distorted normal value that is
not contemporaneous with the sales of subject merchandise.
The petitioner objects to the respondents' argument to use only
Calibre's 1998 data, and argues that contemporaneity is more accurately
defined by the review period itself, not the period of time within a
review period that a respondent made its sales to the United States.
The petitioner asserts that the respondents' argument is not supported
by case precedence, and that the proposed methodology of choosing
surrogate value data based on the date of the U.S. sale can allow an
NME respondent to manipulate its future U.S. sale dates based on the
available surrogate value data. The petitioner also argues that in
addition to contemporaneity, accuracy is an important factor in
selecting surrogate value data.
DOC Position
We disagree with both the petitioner and the respondents. First, we
address the petitioner's argument that factory overhead expenses should
be based solely on Calibre's 1997 fiscal year. The POR in this review
overlaps both Calibre's 1997 and 1998 fiscal years. Calibre's 1997
fiscal year covers three months of the POR while Calibre's 1998 fiscal
year falls entirely within the POR. In valuing factors of production,
we select, where possible, surrogate values that are representative of
a range of prices either within the POR or most contemporaneous with
the POR. In this case, both Calibre's 1997 and 1998 fiscal years are
contemporaneous with the POR.
With respect to the petitioner's argument that Calibre's 1997
fiscal year is most reflective of AJ Works' experience during the POR
because it allows the Department to estimate the increase in AJ Works'
costs, we emphasize the Department's consistent practice with regard to
this matter discussed above under Comment 1. Specifically, as noted
above, the Department does not tailor the factory overhead and SG&A
expenses of a surrogate company to match the experience of the PRC
producer. The U.S. Court of Appeals upheld in Nation Ford that,
although ``a surrogate value must be as representative of the situation
in the NME country as is feasible,'' we are not required to ``duplicate
the exact production experience of the NME producer'' at the expense of
choosing a surrogate value that most accurately represents the fair
market value of the various factors of production in the surrogate
country. Further, the U.S. Court of Appeals upheld the decision made in
Magnesium Corp. of Am. v. United States, 166 F. 3d 1364 (CAFC 1999),
that a factors of production analysis ``does not require item-by-item
accounting for factory overhead.'' Therefore, for purposes of
calculating surrogate factory overhead based on Calibre's data, we find
it inappropriate to attempt to match Calibre's factory overhead
expenses to AJ Works' production experience.
Regarding the respondents' arguments, we disagree that the use of
both 1997 and 1998 data distorts normal value and is inconsistent with
the Department's practice. First, the respondents incorrectly argue
that 19 CFR 351.414 directs the Department to compare each U.S. sale to
the normal value that is contemporaneous with the date of U.S. sales.
This section of our regulations applies to the calculation of normal
value in a market economy, which is not applicable in this
administrative review, because AJ Works is located in an NME country.
In an NME proceeding, contemporaneity is defined by the POR itself,
not the period of time within the POR that a respondent made its sales
to the United States. As noted above, the POR in this instance is
within both Calibre's 1997 and 1998 fiscal year periods. Furthermore,
as the petitioner notes, in selecting surrogate values, we consider the
accuracy of the data in addition to contemporaneity. As we noted in the
Preliminary Results, because of the substantial differences between
Calibre's 1997 and 1998 overhead and SG&A data, we determined that it
was appropriate to average the 1997 and 1998 fiscal years in order to
smooth out the effect of such differences. Thus, while Calibre's fiscal
year 1998 fully coincides with the POR, the POR in fact is within both
Calibre's 1997 and 1998 fiscal year periods and using both fiscal years
results in the most accurate surrogate values for factory overhead and
SG&A.
[[Page 69498]]
Based on the foregoing, we continued to find that averaging
Calibre's 1997 and 1998 fiscal year data is most appropriate and,
therefore, have continued to use the average data for purposes of
calculating surrogate factory overhead, SG&A, and profit ratios.
Calculation of Factory Overhead
Comment 3: Allocation of Factory Overhead Expenses Between Subject and
Non-Subject Merchandise
For purposes of our preliminary results, we allocated Calibre's
total factory overhead expenses between subject and non-subject
merchandise based on raw material input quantities as reported in the
company's financial statements. The respondents contend that the
Department's allocation methodology is unsupported by record evidence
and inconsistent with Department practice. First, the respondents argue
that neither the Department nor the petitioner provided any documentary
support for using raw material input quantity as the allocation basis.
In particular, the respondents claim the Department's analysis fails to
explain why it is more appropriate to use relative input quantities
rather than input values as the allocation basis.
In fact, the respondents submit, the Department has a preference
for a value-based allocation methodology where two co-products produced
from a common production process vastly differ in value. In support of
their contention, the respondents cite Polyvinyl Alcohol From Taiwan:
Final Results of Antidumping Duty Administrative Review, 63 FR 32810,
32815 (June 16, 1998) (PVA from Taiwan), in which the Department
determined that the production costs for two co-products were properly
allocated based on the relative sales value of the two co-products. In
the present case, the respondents claim that the sales value of
Calibre's non-subject merchandise is significantly higher than the
sales value of its subject merchandise. The respondents base this claim
on a comparison of the respondents' POR-average unit price of the
subject merchandise to the 1998 U.S. import values of the non-subject
merchandise. Given the greater revenue-generating power of non-subject
merchandise, the respondents assert that it is more appropriate to
allocate costs based on value. Accordingly, the respondents argue that
the Department should allocate Calibre's overhead costs between subject
and non-subject merchandise based on the relative raw material input
value.
The petitioner maintains that the Department's allocation
methodology is supported by record evidence, and is based on sound cost
accounting principles. In particular, the petitioner points to a
February 16, 1999, letter placed on the record from an FMC Corporation
official supporting the use of relative raw material consumption
amounts as an allocation basis. The petitioner further argues that
Calibre's subject and non-subject merchandise cannot be considered co-
products. The petitioner, citing PVA from Taiwan, notes that co-
products are ``produced simultaneously up to a point, after which they
become separated from one another.'' 61 FR 14064, 14071. In this case,
the petitioner claims, Calibre's non-subject products require different
raw materials than the subject merchandise, and, therefore, the
products cannot be commingled during production. Therefore, the
petitioner concludes by asserting that a value-based allocation
methodology is inappropriate with respect to Calibre's overhead costs.
According to the petitioner, the most common basis for allocating
costs between products that are not co-products is machine hours,
direct labor hours, production volume, or raw material input
quantities. In this case, the petitioner observes, among these factors,
the only information available in Calibre's financials statements is
the raw material input quantities. Therefore, the petitioner submits
that the Department's allocation of Calibre's overhead expenses based
on raw material input quantity is the only reasonable way to allocate
costs in this case.
DOC Position
Calibre's financial statements do not contain sufficient
information for us to determine whether the company's non-subject
products are co-products in the production process of persulfates. The
Department's regulations, however, provide generally that, in
determining the appropriate method for allocating costs among products,
we ``may take into account production quantities, relative sales
values, and other quantitative and qualitative factors associated with
the manufacture and sales of the subject merchandise.'' See 19 CFR
351.407(c). In this case, Calibre's factory overhead costs to be
allocated include depreciation costs, consumable stores, repairs and
maintenance costs, and other manufacturing overheads. These types of
overhead items are associated with the production volume of each
product and, as such, can be measured either by the relative raw
material input quantities or the output quantity of each finished
product. Calibre's financial statements do not provide the relative
production quantity of each finished product, but do provide the
relative raw material input usage. Accordingly, given the data
available from Calibre's financial statements, we find that relative
raw material input usage provides the most reasonable and accurate
basis to allocate overhead costs between Calibre's products.
Comment 4: Calculating Factory Overhead as a Percentage of Material,
Labor, and Energy Costs
The respondents contend that the Department improperly calculated
the surrogate factory overhead ratio by dividing Calibre's overhead
expenses by material costs only. The respondents state that the
Department's established practice in this regard is to divide the
surrogate company's overhead costs by the cost of materials, labor, and
energy. This methodology, the respondents argue, is based on the
fundamental understanding that overhead costs relate to more than just
material costs, but also to labor and energy costs. According to the
respondents, the relative raw material consumption quantities, which
the Department used to allocate Calibre's overhead expenses between its
subject and non-subject merchandise, can also be applied to Calibre's
labor and energy costs in order to calculate a denominator inclusive of
material, labor, and energy costs.
The petitioner counters that there is no information available upon
which to allocate Calibre's labor and energy costs among the company's
finished products. The petitioner points out that Calibre's financial
statements do not identify the labor expenses or electricity usage for
each finished product. Accordingly, the petitioner submits that the
methodology used by the Department provides the most accurate
calculation possible of the overhead costs incurred for the production
of persulfates.
DOC Position
We disagree with the respondents that our calculation methodology
with respect to the surrogate factory overhead ratio is improper or
distorted. Although the respondents are correct that the Department's
standard methodology of calculating overhead expenses is to divide the
total factory overhead expenses by the total material, energy and labor
costs, the Department has the discretion to adopt alternative
approaches of calculating factory overhead, SG&A and profit ratios
depending on the specific facts of the case. See, e.g., Manganese Metal
From
[[Page 69499]]
the People's Republic of China: Final Results of Second Antidumping
Administrative Review, 64 FR 49447, 49456 (September 13, 1999), in
which the Department derived labor-exclusive surrogate overhead and
SG&A percentages. In this review, as explained in our Preliminary
Results, we determined that because of the differing cost structures
between Calibre's production of subject and non-subject merchandise, it
was more appropriate first to allocate Calibre's overhead expenses
between its product lines. Given the available data in Calibre's
financial statements and information on the record, we determined that
raw material input quantity is the most accurate basis to allocate
overhead expenses. Specifically, we defined overhead as a percentage of
Calibre's raw material costs. We then applied this ratio directly to
the raw material costs that we calculated based on AJ Works' reported
factors of production. Based on the foregoing, we maintain that our
preliminary results calculation of the factory overhead rate provides
the most reasonable methodology based on the information on the record.
With respect to labor and energy costs, however, there is no
information available from which to allocate these costs among the
company's finished products, and, hence, no way to use labor and energy
costs along with material costs in order to calculate overhead.
Calculation of SG&A Expenses
Comment 5: Appropriate Indian Surrogate Company
For purposes of the preliminary results, we based SG&A expenses on
Calibre's financial data and calculated the expenses as a percentage of
total cost of manufacturing, in accordance with the Department's
standard methodology. The petitioner argues that Calibre's SG&A data is
unreliable because it cannot be viewed as representative of the
operations of AJ Works. The petitioner bases its argument on two
grounds. First, the petitioner claims that, as with factory overhead
costs, Calibre's dissimilar cost structure between subject and non-
subject merchandise distorts the company's SG&A expenses, when
calculated using the Department's traditional methodology.
Specifically, the petitioner asserts that an allocation of SG&A
expenses on the basis of Calibre's cost of manufacturing would
overstate the amount of the SG&A expenses attributed to non-subject
merchandise due to the fact that the majority of Calibre's cost of
manufacturing is made up of raw materials costs for non-subject
merchandise. The petitioner observes that there is no reasonable basis
upon which to allocate the total SG&A expenses between persulfates and
non-subject merchandise because, by their nature, SG&A expenses are
unrelated to the immediate manufacturing process and any allocation
methodology is wholly arbitrary.
The petitioner further notes that in a market economy case it does
not matter that the respondent may manufacture a variety of diverse
products because the SG&A factor is based on the actual expenses
incurred by the market economy respondent. In a non-market economy
case, however, the petitioner asserts that the SG&A factor is based on
the SG&A experience of a surrogate company whose operations may not
accurately reflect those of the NME producer, and that such a situation
applies to this administrative review.
Second, the petitioner claims that Calibre's SG&A rate, when
compared to other representative benchmark rates, demonstrates that
Calibre's data grossly understate the SG&A rate for persulfates
production. Specifically, the petitioner makes a comparison of
Calibre's data to both the SG&A data of National Peroxide, an Indian
producer of comparable merchandise that the Department relied upon in
the original investigation, and to the SG&A data of the Indian
chemicals and metals industry as reflected in the Reserve Bank of India
Bulletin (RBI) data.
Accordingly, based on the foregoing reasons, the petitioner submits
that we should reject Calibre's SG&A data and rely upon National
Peroxide's SG&A data as the most accurate surrogate value available in
this review. The petitioner cites a number of past cases in support of
its position that the Department has wide discretion in the selection
of surrogate values, including using a mix of financial data of two
different surrogate companies.
The respondents counter that the petitioner failed to provide any
legal or factual support for its argument that Calibre's data is
unreliable. As a legal matter, the respondents emphasize that the
Department's NME practice establishes a clear preference for selecting
surrogate value sources that are producers of subject merchandise. The
respondents argue that it would only be necessary to use data from a
surrogate producer of comparable merchandise if the data of the
surrogate producer of the identical merchandise is incomplete,
distorted, or not contemporaneous. In this instance, the respondents
assert that the petitioner has not demonstrated that Calibre's data is
incomplete or distorted for purpose of calculating the surrogate SG&A
expense ratio. Therefore, the respondents urge the Department to reject
the petitioner's argument and continue to rely upon Calibre's SG&A
data.
DOC Position
We disagree with the petitioner that Calibre's financial data is
inappropriate for purposes of calculating a surrogate SG&A ratio.
First, we address the petitioner's assertion that Calibre's SG&A data
is distorted because it overstates the amount of the SG&A expenses
attributed to non-subject merchandise and understates the amount
attributed to subject merchandise. As the petitioner notes, in market-
economy cases, the Department's long-standing practice with respect to
allocating general expenses to individual products is to calculate a
rate by dividing the company's general expenses by its total cost of
sales, as reported in the respondent's audited financial statements.
See the Department's standard Section D Cost of Production and
Constructed Value questionnaire at page D-17. This method recognizes
general expenses are costs that relate to the company's overall
operations, rather than to the operations of a division within the
company or to a single product line. See Final Determinations of Sales
at Less Than Fair Value: Certain Hot-Rolled Carbon Steel Flat Products,
Certain Cold-Rolled Carbon Steel Flat Products, and Certain Corrosion-
Resistant Carbon Steel Flat Products From Japan, 58 FR 37154, 37166
(July 9, 1993); and Notice of Final Determination of Sales at Less Than
Fair Value: Stainless Steel Wire Rod From Sweden, 63 FR 40449, 40459
(July 29, 1998). Although this proceeding involves a non-market economy
country, the immediate issue at hand involves deriving an SG&A ratio
using the financial data of a market-economy company. Unlike factory
overhead costs, SG&A expenses are not considered to be directly related
to the production of merchandise. In fact, in most cases, general
expenses are so indirectly related to a particular production process
that the most reasonable allocation basis is the company's total cost
of manufacturing. Thus, while it is appropriate to allocate the factory
overhead costs between subject and non-subject merchandise on a basis
other than cost, we find no basis to allocate SG&A expenses to specific
product lines on any other basis.
While we recognize that Calibre's financial data does not mirror
the actual experience of AJ Works, this does not
[[Page 69500]]
render Calibre's data unreliable for purposes of calculating a
surrogate SG&A ratio within the context of the Department's NME
methodology. As discussed above under comments 1 and 2, ``[t]he
Department normally bases normal value completely on factor values from
a surrogate country on the premise that the actual experience in the
NME cannot meaningfully be considered.'' See TRBs from Romania, 61 FR
at 51429. Therefore, with respect to overhead and SG&A surrogate
values, the Department does not tailor the values to match the
circumstances of the PRC producer. Accordingly, the fact that Calibre's
financial data may not reflect AJ Works' actual experience provides no
basis to conclude that Calibre's data is unreliable.
In this case, we have on the record three different sources for
valuing factory overhead, SG&A and profit ratios: the financial
statements of Calibre, the financial statements of National Peroxide,
and the RBI data. In the less-than-fair-value (LTFV) proceeding, the
Department rejected RBI data as a basis for surrogate values and,
instead, used the financial data of National Peroxide. We determined
that, in the absence of data from a surrogate producer that produced
merchandise that was identical to persulfates, it was necessary to use
data of a surrogate producer that produced comparable merchandise. In
the instant review, we have on the record the financial statements of
an Indian persulfates producer. As the respondents note, the
Department's NME practice establishes a preference for selecting
surrogate value sources that are producers of identical merchandise,
provided that the surrogate data is not distorted or otherwise
unreliable. For the reasons discussed above, we do not find Calibre's
data distorted or otherwise unreliable.
With respect to the cases cited by the petitioner, we note that
with the exception of Beryllium Metal and High Beryllium Alloys From
the Republic of Kazakstan, 62 FR 2648 (January 17, 1997) (Beryllium
Metal From Kazakstan), none of the cases involved relying on multiple
sources for factory overhead, SG&A and profit ratios. In Beryllium
Metal From Kazakstan, we calculated SG&A and profit ratios based on
financial data from the primary surrogate country, Peru. With respect
to overhead, we relied on financial data from a producer in Brazil
because there was a lack of detailed overhead cost data from Peru. In
the instant review, Calibre's financial statements provide sufficient
detailed data for us to calculate an SG&A ratio in accordance with our
normal methodology.
The petitioner proposes that we value factory overhead and profit
based on Calibre's financial statements, but value SG&A expenses based
on National Peroxide's financial statements. We find this approach to
be inappropriate and unwarranted. A company's profit amount is a
function of its total expenses. Using Calibre's financial data for
factory overhead and profit, then using National Peroxide's data for
SG&A, as proposed by the petitioner, results in applying a profit ratio
that bears no relationship to the overhead and SG&A ratios. In
addition, the petitioner's approach increases the potential for double-
counting or under-counting of expenses because different companies may
classify expenses differently.
Accordingly, based on the foregoing considerations, we conclude
that, in the instant review, Calibre's financial data provides the best
available information with respect to surrogate values for factory
overhead, SG&A and profit ratios. Therefore, for purposes of these
final results, we have continued to rely upon Calibre's financials for
these values.
Comment 6: Understatement of SG&A Expenses
The petitioner argues that for purposes of the preliminary results,
the Department understated SG&A expenses by omitting wages and salaries
of selling and administrative personnel. The petitioner observes that
Indian companies generally include the total salaries and wages for all
labor (i.e., direct and indirect production labor and SG&A labor) in
one expense category (``Employment Costs''), separate and apart from
SG&A expenses. According to the petitioner, because the SG&A factor the
Department used for purposes of the preliminary results did not include
any portion of the ``Employment Costs'' category, we failed to include
any costs for selling and administrative personnel in the calculation.
For purposes of the final results, the petitioner argues that we should
estimate the number of hours for selling and administrative personnel
at Ai Jian and Wuxi and increase the SG&A expenses by multiplying the
estimated hours for each company by the hourly wage rate.
The respondents object to the petitioner's argument by first noting
that in our preliminary results, we included cost categories for
``service and jobwork expenses,'' ``directors'' remuneration,'' and
``professional charges'' from Calibre's data as part of SG&A expenses.
The respondents continue by stating that, contrary to the petitioner's
claim, categories listed under ``Employment Costs'' relate to direct
and indirect labor costs associated with the production of merchandise
and do not include SG&A labor. Moreover, the respondents argue that the
petitioner's proposed methodology would double-count SG&A labor.
Accordingly, the respondents urge the Department to reject the
petitioner's argument.
DOC Position
We agree with the respondents. Based on our review of Calibre's
financial statements, while we find that categories listed under
``Employment Costs'' relate to direct and indirect labor costs
associated with the production of merchandise, there is no information
to indicate that these categories also include SG&A labor costs. As the
respondents note, we included cost categories for ``service and jobwork
expenses,'' ``directors'' remuneration,'' ``professional charges,''
``selling expenses,'' and ``administrative overheads'' in SG&A
expenses. In order for us to compute SG&A labor hours as a separate
element of factors of production, as proposed by the petitioner, it
would be necessary to derive SG&A expenses from Calibre's financial
data exclusive of all labor components. Given the lack of sufficient
detailed data, we are not able to break out labor costs from Calibre's
SG&A expense categories. Accordingly, we did not calculate SG&A labor
hours as a separate component in our factors of production calculation.
Rather, we are making a reasonable assumption that SG&A labor is
included in the surrogate SG&A ratio.
Comment 7: Depreciation Expenses
The respondents argue that for purposes of the preliminary results,
the Department improperly included all depreciation expenses as part of
factory overhead without allocating a portion of the expenses to SG&A.
According to the respondents, Department practice mandates that
depreciation costs be allocated according to the function and value of
the assets, and only depreciation costs that are attributable to assets
related to manufacturing costs may be allocated to factory overhead. At
a minimum, the respondents assert that the Department should allocate
depreciation costs for ``Residential Building'' and ``Furniture and
Fixtures'' to SG&A and a portion of the costs for ``Computers'' and
``Vehicles'' to SG&A.
The petitioner asserts that the record evidence does not include
any information that would allow the
[[Page 69501]]
Department to allocate depreciation costs as suggested by the
respondents. Thus, the petitioner states that the Department should
classify all expenses in question as manufacturing expenses and include
them in factory overhead.
DOC Position
We agree with the respondents that depreciation costs should be
allocated between factory overhead and SG&A based on the value and
function of the assets, in accordance with Department practice. See
e.g., Tapered Roller Bearings and Parts Thereof, Finished and
Unfinished, from the People's Republic of China, 62 FR 6189 (February
11, 1997). Calibre's financial statements contain a breakdown of the
total depreciation costs for fiscal year 1998. Based on this
information, we classified each expense category as either overhead or
SG&A for purposes of these final results. Where it was unclear whether
an expense would be more properly categorized as overhead rather than
SG&A (i.e., ``Computers'' and ``Vehicles''), we allocated the expense
amount evenly between the two categories. With respect to fiscal year
1997 depreciation costs, Calibre's financial statements do not provide
a breakdown of the total amount. Therefore, we allocated the total
costs between overhead and SG&A based on the percentage of total costs
allocated to each category for fiscal year 1998. See the Factors
Memorandum for detailed analysis.
Comment 8: Reclassifying ``Service and Jobwork'' Expenses
The respondents claim that the Department improperly classified
``Service and Jobwork'' expenses as SG&A expenses. According to the
respondents, the reference to ``jobwork'' identifies these expenses as
related to subcontracting labor expenses that should be considered as
part of direct manufacturing labor costs, rather than as SG&A expenses.
The petitioner submits that because Calibre's financial statements
do not describe the type of expenses that are included in the line item
``Service and Jobwork'' expenses, it is within the Department's
discretion to classify these expenses on the basis of the best
information available. The petitioner suggests that it is much more
likely that these expenses relate primarily to auxiliary manufacturing
services rather than to contract labor hired to assist in the
production of merchandise. Accordingly, the petitioner states that the
Department should continue to include these expenses in SG&A.
DOC Position
We disagree with the respondents. As noted by the petitioner,
Calibre's financial statements do not provide a description of the type
of expenses that are included in the ``Service and Jobwork'' expenses
line item. Therefore, there is no basis to conclude that these expenses
represent labor costs directly associated with the production of
merchandise. Moreover, as noted by both the petitioner and respondents
under comment 6 above, it appears that direct and indirect labor costs
related to production are separately reported under ``Employment
Costs'' in Calibre's financial statements. Therefore, because the
``Service and Jobwork'' expenses line item is listed as a separate
category, and not under ``Employment Costs,'' we conclude that we
properly treated these expenses as SG&A.
Comment 9: Scrap Income
The respondents claim that the Department erroneously applied
Calibre's sale of scrap as an offset to its cost of manufacturing in
the calculation of SG&A ratio. According to the respondents, the
Department's practice is to apply an offset for scrap only when the
respondent claims an offset for scrap. Given that the respondents in
this review did not receive scrap revenue, the respondents assert that
it would be inappropriate for the Department to attribute scrap revenue
from the surrogate Indian producer to the data reported by the
respondents.
The petitioner did not comment on this issue.
DOC Position
We disagree with the respondents and have continued to include
Calibre's sales of scrap as an offset to its cost of manufacturing for
purposes of deriving a surrogate SG&A ratio. The Department's practice
is to treat scrap sales as a reduction in cost of manufacturing. See
e.g., Notice of Final Determination of Sales at Less Than Fair Value:
Certain Preserved Mushrooms from the People's Republic of China, 63 FR
72255 (December 31, 1998). While AJ Works had no scrap sales and did
not claim an offset for scrap, this is irrelevant to our calculation of
a surrogate SG&A ratio. Calibre did receive revenue from sale of scrap
materials, and this revenue is an offset to its cost of manufacturing.
Therefore, in calculating Calibre's SG&A ratio as a percentage of its
cost of manufacturing, we need to include all revenues and expenses
that affect its cost of manufacturing. Accordingly, we have continued
to offset Calibre's cost of manufacturing with the scrap revenue
amount. As noted above under Comment 5, in calculating surrogate
overhead and SG&A ratios, we consider all components of the surrogate
company's manufacturing and general expenses without tailoring them to
match the circumstances of the NME producer. See e.g., TRBs from the
PRC, 63 FR at 63853.
Comment 10: Indirect Labor
The petitioner contends that the Department, for purposes of the
preliminary results, failed to include indirect labor hours in the
calculation of normal value. According to the petitioner, because the
surrogate Indian company's financial statements do not include salaries
or wages for indirect workers in the factory overhead expenses, the
Department needs to include AJ Works' total indirect labor hours as a
factor of production. The petitioner further asserts that AJ Works
under-reported the number of indirect labor hours in the factors of
production data submitted to the Department. Accordingly, the
petitioner argues that the Department should increase the reported
number of indirect hours to account for all of the indirect workers
reported by AJ Works using the methodology proposed in its case brief.
The respondents rebut that the Department correctly included the
factory's indirect labor hours in the calculation of normal value. The
respondents further state that, contrary to the petitioner's claim, the
Department found no discrepancies at verification concerning its
reported indirect labor hours.
DOC Position
We agree with the petitioner that we erred in the preliminary
results calculations by not including indirect labor hours in the
factors of production calculation. We further agree with the petitioner
that based on our review of information on the record, the number of
indirect labor hours AJ Works reported in its factors of production
table understates the total number of indirect labor hours involved in
the production of subject merchandise during the POR. Specifically, AJ
Works, in its November 19, 1998, Section D response, stated that it
reported indirect labor hours associated with ``inventory maintenance''
in the factors of production table. In its February 4, 1999,
supplemental Section D response, AJ Works provided a list of all
divisions in the factory and the corresponding number of employees in
each division. Our review of this list indicates that AJ Works omitted
labor hours for certain
[[Page 69502]]
employees indirectly related to the production of subject merchandise,
such as quality control, technology and energy department personnel.
Therefore, for purposes of the final results, we increased the number
of indirect labor hours based on information AJ Works provided in its
supplemental Section D response and included the revised per-unit
indirect labor hour in our calculation of normal value. See the
Calculation Memorandum for a detailed analysis.
Comment 11: Separate Rates
The petitioner submitted for the record a copy of a Circular issued
by the Chinese Communist Party on January 14, 1997, entitled ``Notice
of the Communist Party of China Central Committee on Reinforcing and
Improving Party Building in the State-Owned Enterprises'' (The
Circular). Citing excerpts from The Circular, the petitioner claims
that The Circular expressly imposes Communist Party control over, among
other things, decisions regarding the selection of management and
decisions concerning the disposition of proceeds of export sales and
profits. Accordingly, the petitioner claims, the Department should, on
the basis of The Circular, presume de facto state control over state
enterprises and apply a single country-wide rate to the respondents in
this proceeding.
The respondents counter that the petitioner fails to demonstrate
how The Circular demonstrates de facto control of any of the
respondents in this review. The respondents argue that they have
substantiated their claim of de facto independence from the central
Chinese government and demonstrated that they are unaffected by the
provisions of The Circular. Accordingly, the respondents request the
Department to reject the petitioner's argument.
DOC Position
We disagree with the petitioner. We note that the petitioner
submitted The Circular on the record of the LTFV investigation of
persulfates from the PRC, covering the period January through June
1996, and requested that the Department revisit its policy regarding
separate rates. For purposes of the final determination, the Department
stated that ``* * * it is not clear that [The Circular] nullifies or
amends any laws or regulations that grant operational independence to
exporters, or that it will result in de facto government control over
export activities of [state-owned exporters] at some time,'' and
determined that Ai Jian and Wuxi merited separate rates.
In the instant review, we found that the two exporters subject to
review operate independently with respect to exports. Specifically, we
found that (1) export prices are not set by or subject to government
control; (2) company officials have the authority to negotiate and sign
contracts; (3) each company has control over disposition of foreign
currency earned from export sales; and (4) each company has autonomy
from the government regarding the selection of management (see the
Sales Verification Report for Ai Jian and Wuxi, dated June 24, 1999).
Therefore, because the evidence on the record of this review
demonstrates an absence of government control, both in law and in fact,
with respect to the respondents' export activities, we have continued
to assign both Ai Jian and Wuxi separate rates.
Comment 12: Chemical Prices
The petitioner argues that the Department overstated the excise and
sales taxes deducted from prices published in Chemical Weekly due to an
incorrect calculation, which results in an understatement of the
surrogate values for these inputs.
The respondents agree with the petitioner.
DOC Position
We agree. We have made the appropriate corrections for purposes of
the final results.
Final Results of the Review
As a result of our analysis of the comments we received, we have
made changes to our analysis. We determine the following weighted-
average margins existed for the period December 27, 1996, through June
30, 1998:
------------------------------------------------------------------------
Margin
Manufacturer/Exporter (percent)
------------------------------------------------------------------------
Shanghai Ai Jian Import & Export Corporation............... 5.41
Sinochem Jiangsu Wuxi Import & Export Corporation.......... 7.18
------------------------------------------------------------------------
Assessment Rates
The Department shall determine and the Customs Service shall assess
antidumping duties on all appropriate entries. The Department will
issue appropriate appraisement instructions directly to the Customs
Service upon completion of this review. The final results of this
review shall be the basis for the assessment of antidumping duties on
entries of merchandise covered by this review and for future deposits
of estimated duties. For assessment purposes, we do not have the
information to calculate an estimated entered value. Accordingly, we
have calculated importer-specific duty assessment rates for the
merchandise by aggregating the dumping margins calculated for all U.S.
sales on an importer-specific basis and dividing this amount by the
total quantity of those sales. This rate will be assessed uniformly on
all entries of that particular importer made during the POR.
Furthermore, the following deposit requirements will be effective
upon publication of this notice of final results of this antidumping
duty administrative review for all shipments of the subject merchandise
entered, or withdrawn from warehouse, for consumption on or after the
publication date, as provided by section 751(a)(1) of the Act: (1) The
cash deposit rate for each reviewed company will be the rate indicated
above; (2) the cash deposit rate for Guangdong Petroleum will continue
to be 34.97 percent, the company-specific rate from the LTFV
investigation; (3) the cash deposit rate for all other PRC exporters
will continue to be 119.02 percent, the PRC-wide rate established in
the LTFV investigation; and (4) the cash deposit rate for non-PRC
exporters of subject merchandise from the PRC will be the rate
applicable to the PRC supplier of that exporter. These deposit
requirements shall remain in effect until publication of the final
results of the next administrative review.
Notification of Interested Parties
This notice serves as a final reminder to importers of their
responsibility under 19 CFR 351.402(f) to file a certificate regarding
the reimbursement of antidumping duties prior to liquidation of the
relevant entries during this review period. Failure to comply with this
requirement could result in the Secretary's presumption that
reimbursement of antidumping duties occurred and the subsequent
assessment of double antidumping duties.
This notice also serves as 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 section 351.306 of the Department's regulations.
Timely notification of return/destruction of APO materials or
conversion to judicial protective order is hereby requested. Failure to
comply with the regulations and the terms of an APO is a sanctionable
violation.
This administrative review is issued and published in accordance
with
[[Page 69503]]
sections 751(a)(1) and 777(i)(1) of the Act.
Dated: December 6, 1999.
Richard W. Moreland,
Acting Assistant Secretary for Import Administration.
[FR Doc. 99-32225 Filed 12-10-99; 8:45 am]
BILLING CODE 3510-DS-P
