02-3387. Notice of Initiation of Antidumping Duty Investigation: Pneumatic Directional Control Valves from Japan

AGENCY:

Import Administration, International Trade Administration, Department of Commerce.

ACTION:

Initiation of antidumping duty investigation.

EFFECTIVE DATE:

February 12, 2002

FOR FURTHER INFORMATION CONTACT:

Brian Ledgerwood or Frank Thomson at [phone] or [phone], respectively; Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW, Washington, DC 20230.

Initiation of Investigation

The Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are references to the provisions effective January 1, 1995, the effective date of the amendments made to the Tariff Act of 1930, as amended (“the Act”), by the Uruguay Round Agreements Act (“URAA”). In addition, unless otherwise indicated, all citations to the Department of Commerce's (“the Department's”) regulations are references to the provisions codified at 19 CFR Part 351 (2001).

The Petition

On January 14, 2002, the Department received a petition filed in proper form by the Pneumatics Group (“the petitioners”), consisting of the following parties: Festo Corporation^[1] , IMI Norgren, Inc., Numatics, Inc., and Parker Hannifan Corporation. The Department received information supplementing the petition on January 30, 2002 and January 31, 2002.

In accordance with section 732(b) of the Act, the petitioners allege that imports of PDCVs from Japan are being, or are likely to be, sold in the United States at less than fair value within the meaning of section 731 of the Act, and that such imports are materially injuring, or are threatening to materially injure, an industry in the United States.

The Department finds that the petitioners filed this petition on behalf of the domestic industry because they are an interested party, as defined in sections 771(9)(E) and 771(9)(F) of the Act and have demonstrated sufficient industry support with respect to the antidumping investigation that they are requesting the Department to initiate. (See the Determination of Industry Support for the Petition section below.)

Scope of Investigation

The scope of the investigation includes all pneumatic directional control valves, whether assembled or unassembled, regardless of size, configuration, intended or actual use, method of actuation, and material(s) employed in construction, other than aerospace-type fluid power valves as further described below. The subject merchandise thus includes, but is not necessarily limited to, manual, mechanical, air-operated, and solenoid type pneumatic directional control valves.

Specifically excluded from the scope are aerospace-type pneumatic fluid power valves, defined as pneumatic fluid power valves that have been certified for use in airframes, aircraft engines, or other aerospace applications pursuant to standards established or required by the Federal Aviation Administration or Department of Defense in the United States, or by the counterparts of these agencies in other countries.

The subject merchandise is currently classified under subheadings 8481.20.0060 and 8481.20.0070 of the Harmonized Tariff Schedule of the United States (“HTSUS”). Aerospace-type fluid power valves, which are excluded from the scope, are not entered under the subheadings just described, but are instead entered under various other subheadings.

Although the HTSUS subheadings are provided for convenience and U.S. Customs Service (“Customs”) purposes, the written description of the merchandise under investigation is dispositive.

During our review of the petition, we discussed the scope with the petitioners to ensure that the scope in the petition accurately reflects the product for which the domestic industry is seeking relief. Moreover, as discussed in the preamble to the Department's regulations (Antidumping Duties; Countervailing Duties; Final Rule, 62 FR 27296, 27323 (May 19, 1997)), we are setting aside a period for parties to raise issues regarding product coverage. The Department encourages all parties to submit such comments within 20 days of publication of this notice. Comments should be addressed to Import Administration's Central Records Unit at Room 1870, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW, Washington, D.C. 20230. The period of scope consultations is intended to provide the Department with ample opportunity to consider all comments and consult with parties prior to the issuance of the preliminary determination.

Determination of Industry Support for the Petition

Section 771(4)(A) of the Act defines the “industry” as the producers as a whole of a domestic like product. Thus, when determining the degree of industry support, the statute directs the Department to look to producers and workers who produce the domestic like product. The International Trade Commission (“ITC”), which is responsible for determining whether “the domestic industry” has been injured, must also determine what constitutes a domestic like product in order to define the industry. While both the Department and the ITC must apply the same statutory definition regarding the domestic like product (section 771(10) of the Act), they do so for different purposes and pursuant to separate and distinct authority. In addition, the Department's determination is subject to limitations of time and information. Although this may result in different definitions of the like product, such differences do not render the decision of either agency contrary to the law.^[2]

Section 771(10) of the Act defines the domestic like product as “a product which is like, or in the absence of like, most similar in characteristics and uses with, the article subject to an investigation under this title.” Thus, the reference point from which the domestic like product analysis begins is “the article subject to an investigation,” i.e., the class or kind of merchandise to be investigated, which normally will be the scope as defined in the petition. Moreover, the petitioners do not offer a definition of domestic like product distinct from the scope of the investigation.

The petition covers PDCVs as defined in the Scope of the Investigation section, above, a single class or kind of merchandise. The Department has no basis on the record to find the petitioners' definition of the domestic like product to be inaccurate. The Department, therefore, has adopted the domestic like product definition set forth in the petition.

On January 25, 2002, the Department received comments regarding industry support from the Japan Fluid Power Association (a majority of whose members, including SMC Corporation, are producers in Japan of PDCVs). On January 29, 2002 and February 1, 2002, the Department received comments regarding industry support from SMC Corporation, a Japanese producer of PDCVs and SMC Corporation of America, a U.S. importer of the subject merchandise (collectively, “SMC Corporation”).

The Department has reviewed the comments of both the Japan Fluid Power Association and SMC Corporation. In order to estimate production for the domestic industry as defined for purposes of this case, the Department has relied on the petition and amendments thereto, and Department research. See the Industry Support Attachment to the Import Administration AD Investigation Checklist, dated February 4, 2002 (“Initiation Checklist”) (public version on file in the Central Records Unit of the Department of Commerce, Room B-099) for further description.

Section 732(b)(1) of the Act requires that a petition be filed on behalf of the domestic industry. Section 732(c)(4)(A) of the Act provides that a petition meets this requirement if the domestic producers or workers who support the petition account for: (1) at least 25 percent of the total production of the domestic like product; and (2) more than 50 percent of the production of the domestic like product produced by that portion of the industry expressing support for, or opposition to, the petition. Information contained in the petition and its supplements, and information gathered through Department research demonstrate that the domestic producers or workers who support the petition account for over 50 percent of total production of the domestic like product. Therefore, the domestic producers or workers who support the petition account for at least 25 percent of the total production of the domestic like product, and the requirements of section 732(c)(4)(A)(i) and section 732(c)(4)(D) are met. See Initiation Checklist. Furthermore, because the Department received no domestic opposition to the petition, the domestic producers or workers who support the petitions account for more than 50 percent of the production of the domestic like product produced by that portion of the industry expressing support for or opposition to the petitions. See Initiation Checklist. Thus, the requirement of section 732(c)(4)(A)(ii) is met.

Accordingly, the Department determines that the petition was filed on behalf of the domestic industry within the meaning of section 732(b)(1) of the Act. See Initiation Checklist.

Period of Investigation

The anticipated period of investigation (“POI”) is January 1, 2001, through December 31, 2001.

Constructed Export Price and Normal Value

The following are descriptions of the allegations of sales at less than fair value upon which the Department has based its decision to initiate this investigation. The sources of data for the deductions and adjustments relating to home market and U.S. price are detailed in the Initiation Checklist.

The Department has analyzed the information in the petition and considers the country-wide import statistics for the anticipated POI and pricing information used to calculate the estimated margin to be sufficient for purposes of initiation. Based on the information submitted in the petition, adjusted where appropriate, we are initiating this investigation, as discussed below and in the Initiation Checklist. Should the need arise to use any of this information as facts available under section 776 of the Act in our preliminary or final determinations, we will re-examine the information and may revise the margin calculation, if appropriate.

Constructed Export Price

The petitioners identified one company that they believe accounts for a substantial majority of imports of subject merchandise from Japan. The petitioners state that this producer sells subject merchandise through its U.S. affiliate. The petitioners based constructed export price (“CEP”) on the affiliate's price list. The list prices include all import charges and duties, but do not include U.S. inland transportation. To arrive at a net-price, the petitioners deducted from the list price an amount for SMC Corporation of America's (“SMC-USA's”) standard-discount. To arrive at ex-factory price, petitioners deducted import charges based on the average import charge reported in U.S. import statistics for entries of the subject merchandise during the last four quarters for which data are available (2000Q4 - 2001Q3). Petitioners made a further deduction for import duties and a deduction to account for SMC-USA's U.S. selling expenses. Petitioners based U.S. selling expenses on the aggregate selling expense ratio experienced by the PDCV-producing members of the Pneumatics Group during the year 2000.^[3] The petitioners stated that SMC-USA's selling expense ratio is not publicly available and cannot reasonably be estimated by other publicly available means. Therefore, the petitioners calculated a net U.S. price by subtracting import charges and duties, and U.S. selling expenses. The petitioners provided a publically available selling expense ratio in their January 30, 2002, amendment to the petition. However, because the non-public selling expense ratio provided in the original petition is more conservative, we have continued to use the ratio that was provided in the original petition.

Normal Value

With respect to normal value (“NV”), the petitioners provided home market prices that were obtained from a party in Japan for PDCVs that are comparable to the products exported to the United States which serve as the basis for CEP. Petitioners applied relevant discounts to the yen-denominated price and then converted the net price to U.S. dollars by using exchange rates applicable to the twelve-month period preceding the petition, as published by the Federal Reserve Board. Petitioners did not deduct inland freight from the sales value.

Based on the comparison of CEP to NV, petitioners calculated estimated dumping margins from 9.28 to 107.46 percent. Based on an examination of the information submitted in the petition, adjusted where appropriate, and comparing CEP to NV, we have determined that, for purposes of this initiation, there is a reasonable basis to believe or suspect that dumping has occurred (see Initiation Checklist).

Fair Value Comparisons

The Department has examined the adequacy and accuracy of the information the petitioners used in their calculations of U.S. and home market prices and has found that it represents information reasonably available to petitioners supporting the allegation of dumping (see Initiation Checklist).

Based on the data provided by the petitioners, there is reason to believe that imports of PDCVs from Japan are being, or are likely to be, sold at less than fair value.

Allegations and Evidence of Material Injury and Causation

The petitioners allege that the U.S. industry producing the domestic like product is being materially injured, or is threatened with material injury, by reason of the imports of the subject merchandise sold at less than NV. The petitioners contend that the industry's injured condition is evident in the decline of U.S. producers' output, sales, market share, profits, productivity, return on investment, and capacity utilization, as well as negative effects on cash flow, inventories, employment, wages, growth, ability to raise capital, investment, and existing development and production efforts. The allegations of injury and causation are supported by relevant evidence including U.S. Customs import data, lost sales, and pricing information. We have examined the accuracy and adequacy of the evidence provided in the petition and have determined that the petition alleges the elements necessary for the imposition of a duty under section 731 of the Act and contains information reasonably available to the petitioners supporting the allegations (see Initiation Checklist, Material Injury section).

Initiation of Antidumping Investigation

Based upon our examination of the petition on PDCVs from Japan and the petitioners' responses to our supplemental questionnaire clarifying the petition, we have found that the petition meets the requirements of section 732 of the Act. See Initiation Checklist. Therefore, we are initiating an antidumping duty investigation to determine whether imports of PDCVs from Japan are being, or are likely to be, sold in the United States at less than fair value. Unless this deadline is postponed, we will make our preliminary determination no later than 140 days after the date of this initiation. See Case Calendar section of the Initiation Checklist.

Distribution of Copies of the Petition

In accordance with section 732(b)(3)(A) of the Act, a copy of the public version of the petition has been provided to the representatives of the government of Japan. We will attempt to provide a copy of the public version of the petition to each exporter named in the petition, as appropriate.

International Trade Commission Notification

We have notified the ITC of our initiation, as required by section 732(d) of the Act.

Preliminary Determination by the ITC

The ITC will determine, no later than February 28, 2002, whether there is a reasonable indication that imports of PDCVs from Japan are causing material injury, or threatening to cause material injury, to a U.S. industry. A negative ITC determination will result in the investigation being terminated; otherwise, this investigation will proceed according to statutory and regulatory time limits.

This notice is issued and published pursuant to section 777(i) of the Act.

February 4, 2002.

Faryar Shirzad,

Assistant Secretary for Import Administration.

Footnotes

1.  Produces pneumatic fluid power products, but not pneumatic directional control valves (“PDCVs”), in the United States

2.  See Algoma Steel Corp. Ltd., v. United States, 688 F. Supp. 639, 642-44 (CIT 1988); High Information Content Flat Panel Displays and Display Glass from Japan: Final Determination; Rescission of Investigation and Partial Dismissal of Petition, 56 FR 32376, 32380-81 (July 16, 1991).

3.  The PDCV-producing members of the Pneumatics Group are not publically held companies, therefore it was necessary to aggregate and average these three companies’ selling expenses to derive an appropriate ratio.