[Federal Register Volume 60, Number 24 (Monday, February 6, 1995)]
[Notices]
[Pages 7019-7043]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2607]
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DEPARTMENT OF COMMERCE
[A-331-801]
Final Determination of Sales at Less Than Fair Value: Fresh Cut
Roses from Ecuador
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: February 6, 1995.
FOR FURTHER INFORMATION CONTACT: James Terpstra or Pamela Ward, Office
of Antidumping Investigations, Import Administration, U.S. Department
of Commerce, 14th Street and Constitution Avenue, N.W., Washington,
D.C. 20230; telephone (202) 482-3965 or (202) 482-1174, respectively.
Final Determination
We determine that fresh cut roses (roses) from Ecuador are being,
or are likely to be, sold in the United States at less than fair value,
as provided in 19 U.S.C. 1673d. The estimated margins are shown in the
``Suspension of Liquidation'' section of this notice.
Case History
Since the notice of preliminary determination on September 13, 1994
(59 FR 48299, September 20, 1994), the following events have occurred.
In September and October, the Department of Commerce (the
Department) received responses to the Department's supplemental
questionnaires.
On September 20 and 27, 1994, Arbusta, Florinsa and Guanguilqui
Agro Industrial S.A. (Guaisa), three of the mandatory respondents, and
Inversiones Floricola S.A. (Floricola), the fourth mandatory
respondent, respectively, requested a postponement of the final
determination. On September 28, 1994, the Department agreed to postpone
the final determination until January 26, 1995 (59 FR 50725; October 5,
1994).
On September 20, 1994, Arbusta made allegations of clerical errors
in the calculation of Arbusta's preliminary margin. In addition,
Florinsa requested that the Department reconsider its preliminary
determination and assign it a less punitive BIA rate.
On September 28, 1994, the Department received a new sales listing
from Arbusta. This was returned to Arbusta on September 30, 1994, as
untimely in accordance with 19 C.F.R. 353.31(a).
On September 29 and 30, 1994, the Department received requests for
a public hearing from respondents, petitioners, and the Government of
Ecuador.
On September 30, 1994, petitioner submitted comments on the
Department's verification outline.
On October 3, 1994, White and Case entered a Notice of Appearance
on behalf of Denmar, S.A. an interested party. Denmar S.A. and its
related companies are, collectively, a producer, exporter and importer
of fresh cut roses from Ecuador.
Department personnel conducted sales and cost verifications of
respondents' data from October 3, 1994, through November 11, 1994, in
Quito, Ecuador; the Netherlands; Miami, Florida; New York, New York;
and Los Angeles, California.
On October 14, 1994, the Department received a notice of appearance
from Klayman & Associates on behalf of the Government of Ecuador and
received comments on the preliminary determination on October 17, 1994.
On November 23, 1994, the Department received new computer tapes
from Floricola.
In December the Department issued its verification reports.
The Department received general issues case briefs on December 2
and 12, 1994. The Department received general issues rebuttal briefs on
December 16 and 19, 1994. The Department received company specific case
briefs on December 23 and 30, 1994. The Department received company
specific rebuttal briefs on January 5, 1995.
On January 3, 1995, the Department received new computer tapes from
Guaisa, Florinsa and Arbusta.
On January 5, 1995, Klayman & Associates withdrew its appearance on
behalf of the Government of Ecuador. On the same day, Kay, Scholer,
Fierman, Hays & Handler entered an appearance on behalf of the
Government of Ecuador.
A public hearing was held on January 6, 1995.
Scope of Investigation
The products covered by this investigation are fresh cut roses,
including sweethearts or miniatures, intermediates, and hybrid teas,
whether imported as individual blooms (stems) or in bouquets or
bunches. Loose rose foliage (greens), loose rose petals and detached
buds are excluded from the scope of these investigations. Roses are
classifiable under subheadings 0603.10.6010 and 0603.10.6090 of the
Harmonized Tariff Schedule of the United States (HTSUS). The HTSUS
subheadings are provided for convenience and customs purposes. The
written description of the scope of this investigation is dispositive.
Period of Investigation
The period of investigation (POI) is January 1, 1993, through
December 31, 1993. See the April 14, 1994, Memorandum from the Team to
Richard W. Moreland.
Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute and to the
Department's regulations are in reference to the provisions as they
existed on December 31, 1994.
Best Information Available
We have determined, in accordance with 19 U.S.C. 1677e(c), that the
use of best information available (BIA) is appropriate for sales of the
subject merchandise by Florinsa. We have found that Florinsa's original
and deficiency questionnaire responses were unusable for the final
determination because they contained significant deficiencies and could
not be verified. See the January 19, 1995, Memorandum from the Team to
Barbara Stafford. These deficiencies were so substantial that it was
not possible for the [[Page 7020]] Department to calculate an
antidumping duty margin for Florinsa.
In assigning BIA, the Department applies a two-tier methodology
based on the degree of respondent's cooperation. In the first tier, the
Department normally assigns higher margins (i.e., margins based on more
adverse assumptions) for those respondents which did not cooperate in
an investigation or which otherwise impede the proceeding. If a
respondent is deemed as non-cooperative, the Department bases the final
margin for the relevant class or kind of merchandise on the higher of:
(1) The highest margin in the petition or (2) the highest calculated
margin of any respondent within the country that supplied adequate
responses for the relevant class or kind of merchandise.
In the second tier, the Department assigns lower margins to those
respondents who substantially cooperate in an investigation. These
margins are based on the higher of: (1) The highest calculated margin
for any respondent within that country that supplied adequate
information for the relevant class or kind of merchandise or (2) the
average of the margins in the petition. See, e.g., Final Determination
of Sales at Less than Fair Value: Antifriction Bearings (Other than
Tapered Roller Bearings) and Parts Thereof from the Federal Republic of
Germany, 54 FR 18992 (May 3, 1989).
The Department's two-tiered methodology for assigning BIA has been
upheld by the U.S. Court of Appeals for the Federal Circuit. See
Allied-Signal Aerospace Co. v. United States, 996 F.2d 1185 (Fed. Cir.
1993); see also Krupp Stahl AG v. United States, 822 F. Supp. 789 (CIT
1993).
Florinsa responded to our requests for information and we find that
it has been substantially cooperative for purposes of this final
determination. Accordingly, we used as second-tier BIA for this
respondent, the average of the margins contained in the petition, which
is 84.72 percent. This margin is higher than the highest margin
calculated for any respondent in this investigation.
Exclusion of BIA Rate From Calculation of the ``All Others'' Rate
The Department has determined to exclude from the calculation of
the ``All Others'' rate the BIA rate assessed to Florinsa. The
Department's general practice is to include in its calculation of an
``all others'' rate all investigated firms that receive affirmative
margins, including any firm whose margin is based upon BIA. However,
where appropriate, the Department has departed from its general
practice in prior cases and excluded BIA-based margins from the
calculation of the ``all others'' rate. See, e.g., Silicomanganese from
Brazil, 59 FR 55432 (November 7, 1994); Sweaters from Hong Kong
(Sweaters), 55 FR 30733 (July 27, 1990) (affirmed by the CIT in
National Knitwear).
For example, in Sweaters, an association of Hong Kong knitting
manufacturers and an association of U.S. textile and apparel importers
argued that firms not representative of the industry should not be
included in the calculation of the ``all others'' rate, particularly
where a firm had received a BIA-based margin. The Department agreed
that departure from its general practice was warranted because it would
have been ``inappropriate'' to include The BIA-based rate in the
calculation of the ``all others'' rate given ``(1) The enormous
disparity between the three verified rates and the highest rate in the
petition, i.e., approximately 20 times greater; (2) [the Department's]
examination of only the top 30 percent of total quota holdings, and (3)
the small number of firms investigated, i.e., four from a potential
pool of over 300.'' 55 FR 30737-38 (comment 3).
Like Sweaters, the unusual circumstances present in the instant
proceedings, particularly the Department's need to limit the number of
firms investigated, call into question the representativeness of
investigated firms with respect to noninvestigated firms. Specifically,
(1) The Department only examined companies which produced the
top 40 percent of the total export volume, as opposed to the normal
60 percent minimum proscribed by the Department's regulations (19
C.F.R. 353.42(b));
(2) the Department examined only a relatively small number of
firms, i.e., four out of a potential pool of 20 firms in Ecuador;
(3) the Department was unable, due to administrative burdens, to
accept voluntary respondents and exclusion requests.
Based on these circumstances and in light of the Sweaters
precedent, it is reasonable to exclude Florinsa's BIA-based margin from
the calculation of the ``all others'' rate. See comment 21, infra for
petitioner and respondent arguments. See also the January 13, 1995,
Memorandum from the Office of Chief Counsel to Susan G. Esserman.
Such or Similar Comparisons
We have determined that all roses covered by this investigation
comprise two categories of ``such or similar'' merchandise: culls and
export-quality roses. None of the respondents reported sales of culls
in the United States. Therefore, no comparisons in this such or similar
category were made. Regarding export quality roses, we compared United
States Price (USP) to constructed value (CV).
Fair Value Comparisons
To determine whether sales of roses from Ecuador to the United
States were made at less than fair value, we compared the USP to the CV
for all non-BIA respondents, as specified in the ``United States
Price'' and ``Foreign Market Value'' sections of this notice.
United States Price
For all U.S. prices, we calculated USP using weighted-average
monthly prices by rose type, where the appropriate data were available.
See Comments 4 and 5 below.
During the POI, respondents paid commissions to related parties in
the United States. However, we made no adjustment for these payments.
Instead, we subtracted the actual indirect selling expenses incurred by
the related party in the United States because we determined that to
account for both commissions and actual expenses would be distortive.
See Comment 7 below.
For sales by Arbusta and Guaisa, we based USP on purchase price, in
accordance with 19 U.S.C. 1677a(b), when the subject merchandise was
sold to unrelated purchasers in the United States prior to importation
and when exporter's sales price (ESP) methodology was not otherwise
indicated.
In addition, for Arbusta, Guaisa, and Floricola, where sales to the
first unrelated purchaser took place after importation into the United
States, we also based USP on ESP, in accordance with 19 U.S.C 1677a(c).
Each of the respondents classified credits related to quality
problems with the merchandise as warranty expenses. However, because
these quality-related credits functioned as price reductions, we
reclassified them as such.
We made company-specific adjustments, as follows:
1. Arbusta
For Arbusta, we calculated purchase price based on packed F.O.B.
Quito prices to unrelated customers. In accordance with 19 U.S.C.
1677a(d)(2)(A), we made deductions, where appropriate, for foreign
inland freight and for quality-related credits and for export taxes
imposed by the Government of Ecuador, in accordance with 19 U.S.C.
1677a(d)(2)(B). We also deducted DHL expenses for one customer.
[[Page 7021]]
We calculated ESP based on packed prices to unrelated customers in
the United States. We made deductions, where appropriate, for quality-
related credits, foreign inland freight, export taxes, air freight,
U.S. customs duties, U.S. brokerage and handling expenses and U.S.
inland freight. We also made deductions for direct selling expenses
inlcuding credit and for U.S. and Ecuadorian indirect selling expenses,
including inventory carrying costs.
Regarding export taxes, Arbusta did not report these taxes in its
sales listing. Because the taxes are included in the USP, we,
therefore, calculated them based on the formula given in Arbusta's
response.
2. Floricola
For Floricola, we calculated ESP based on packed prices to
unrelated customers in the United States. We made deductions, where
appropriate, for quality-related credits, including billing and other
credits, foreign inland freight, export taxes imposed by the government
of Ecuador, air freight, U.S. customs duties, U.S. inland freight and
credit expenses. We also made deductions for U.S., Panamanian, and
Ecuadorian indirect selling expenses, including brokerage and handling
expenses and inventory carrying costs.
Floricola failed to report inventory carrying costs on their ESP
sales. Accordingly, as in the preliminary determination, we calculated
these costs using an inventory carrying period of seven days.
3. Guaisa
For Guaisa, we calculated purchase price based on packed F.O.B.
Quito prices to unrelated customers. We made deductions, where
appropriate, for quality-related credits and foreign inland freight. We
also made deductions for export taxes imposed by the Government of
Ecuador.
We calculated ESP based on packed prices to unrelated customers in
the United States. We made deductions, where appropriate, for quality-
related credits, foreign inland freight, U.S. inland freight, air
freight, U.S. customs duties, U.S. brokerage and handling expenses,
employee commissions, credit expenses and indirect selling expenses
including warehousing expenses inventory carrying costs.
Guaisa reported that it earned a rebate, as well as six free round-
trip tickets, from its air freight carrier based on its volume of sales
to the United States during the POI. We deducted the rebate from
Guaisa's air freight calculations. However, because the airline tickets
were not a direct reduction in the air freight paid, we did not reduce
Guaisa's air freight.
Foreign Market Value
We based FMV on CV for all producers. For those respondents with
viable third country markets, we rejected sales to these markets. See
Comment 6 below. The remaining respondent had no viable home or third
country market. We calculated CV on a rose type basis, where the
appropriate data were available. See comment 5 below.
In order to determine whether there were sufficient sales of fresh
cut roses in the home market to serve as a viable basis for calculating
FMV, we compared the volume of home market sales of export quality
roses to the volume of third country sales of export quality roses in
accordance with 19 U.S.C. 1677b(a)(1)(A). Based on this comparison, we
determined that none of the three non-BIA respondents had viable home
markets.
In the preliminary determination, we based FMV for two of the three
non-BIA respondents on third country sales. However, as set forth in
Comment 6 below, we determined third country prices as an inappropriate
basis for FMV in this investigation. Therefore, we calculated FMV based
on CV for all non-BIA companies, in accordance with 19 U.S.C. 1677b(e).
Third Country Versus Constructed Value
The Department has determined that FMV should be based on CV rather
than third country. For a full discussion of this issue, see Comment 6
below.
Constructed Value
We also made specific adjustments to each respondent's submitted
COP and CV data as described below:
1. Arbusta
For Arbusta, we: (1) Adjusted amortization and depreciation
expenses for the effects of Ecuadorian inflation; (2) corrected G&A to
reflect income generated from the sale of humus; (3) reclassified the
FONIN tax to selling expenses; (4) removed foreign exchange gains
unrelated to production from the reported financial expenses.
2. Floricola
For Floricola, we: (1) Adjusted amortization and depreciation
expenses for the effects of Ecuadorian inflation; (2) corrected a
computational error in the amortization expense; (3) reclassified the
FONIN tax to selling expenses; (4) included the amortization of pre-
operating expenses and corrected the over accrual of other expenses in
G&A; (5) reclassified insurance reimbursements, gain on sale of fixed
assets and other expenses from financial expense to G&A; (6) revised
the cost of goods sold used as the allocation basis for G&A; and, (7)
decreased short term financial income for foreign exchange gains from
sales transactions.
3. Guaisa
For Guaisa, we: (1) Adjusted amortization and depreciation expenses
for the effects of Ecuadorian inflation; (2) corrected the allocation
methodology for certain expenses to a relative area planted
methodology; (3) included the write-off of greenhouses; (4) adjusted
costs for two clerical errors; (5) increased financial expenses to
include all interest paid; (6) increased financial expenses for
translation losses on loans denominated on foreign currencies; (7)
increased the quantity of export quality roses to reflect normal
production levels.
In order to calculate FMV, we made company-specific adjustments as
described below:
1. Arbusta
For CV to purchase price comparisons, we made circumstance of sale
adjustments for direct selling expenses including credit expenses.
For CV to ESP comparisons, we made deductions, where appropriate,
for direct selling expenses including credit expenses. We also deducted
from CV indirect selling expenses, including inventory carrying costs
up to the amount of indirect selling expenses incurred on U.S. sales,
in accordance with 19 CFR 353.56(b)(2).
2. Floricola
For CV to ESP comparisons, we made deductions, where appropriate
for direct selling expenses. We also deducted the indirect selling
expenses up to the amount of the indirect selling expenses incurred on
U.S. sales, in accordance with 19 CFR 353.56(b)(2).
3. Guaisa
For CV to purchase price comparisons, we made circumstance of sale
adjustments for direct selling expenses including credit expenses and
export taxes.
For CV to ESP comparisons, we made deductions, where appropriate,
for direct selling expenses including credit expenses and export taxes.
We also deducted from CV the indirect selling expenses, including
inventory carrying costs and warehousing expenses up to the amount of
indirect selling expenses [[Page 7022]] incurred on U.S. sales, in
accordance with 19 CFR 353.56(b)(2).
Currency Conversion
Because certified exchange rates for Ecuador were unavailable from
the Federal Reserve, we made currency conversions for expenses
denominated in Ecuadorian sucres based on the official monthly exchange
rates in effect on the dates of the U.S. sales as published by the
International Monetary Fund.
Verification
As provided in 19 U.S.C. 1677e(b), Department personnel conducted
sales and cost verifications of respondents' data from October 3, 1994,
through November 11, 1994, in Quito, Ecuador; the Netherlands; Miami,
Florida; New York, New York; and Los Angeles, California.
Critical Circumstances
In the petition, petitioner alleged that ``critical circumstances''
exist with respect to importation of roses. However, we did not
initiate a critical circumstances investigation. Because roses are
extremely perishable, it is not possible to accumulate an inventory of
roses in order to evade a potential antidumping duty order. Therefore,
we determined that an allegation that critical circumstances exist is
without merit. See the September 12, 1994, Concurrence Memorandum.
Interested Party Comments
The Department conducted LTFV investigations in Fresh Cut Roses
from Ecuador and Fresh Cut Roses from Colombia concurrently. We
determined that certain decisions should be applied consistently across
both cases, even though parties may have placed different arguments on
the record as these decisions concerned issues common to both cases.
All decision memoranda pertaining to general issues and corresponding
supporting documentation are on the record for both investigations. The
information discussed in the General Comments section of this notice is
all non-proprietary. Therefore, unless otherwise stated, the General
Comments apply to both investigations, even if parties in one
investigation did not specifically address the issue.
General Comments
Petitioner and respondents raised comments pertaining to the
concordance, the treatment of Difmer adjustments, the aggregation of
third country markets, and annual and monthly averaging of FMV. These
comments were rendered moot by the Department's decision to base FMV on
CV. See Comment 6 below.
Comments Pertaining to Scope
Comment 1: Roses in Bouquets
Respondents assert that roses in bouquets should not be included
within the scope of the investigation for four reasons: (1) There is no
legal basis for the Department to include within the scope of the
investigation only a component part contained in imported finished
merchandise (i.e., the roses within the bouquet); (2) bouquets are not
within the same class or kind of merchandise as roses according to the
criteria set out in Diversified Products v. United States, 572 F. Supp.
883, 889 (CIT 1983) (Diversified Products); (3) the Department lacks
the authority to expand the investigation to include bouquets; and (4)
petitioner does not represent producers of bouquets or producers of
``roses in bouquets.'' Respondents have supplied an analysis of the
information in these investigations as applied to Diversified Products.
Petitioner requests that the Department continue to include roses
in bouquets within the scope of its investigation. Petitioner states
that since the description of bouquets is found in the petition, the
Department's and ITC's preliminary determinations are dispositive as to
the scope of the investigation, and an analysis under Diversified
Products is unnecessary, although petitioner supplied such an analysis.
Petitioner states that the scope description in the petition covers all
fresh cut roses, whether imported as individual blooms (stems) or in
bouquets or bunches. Also, petitioner claims to represent growers
producing mixed bouquets of fresh cut flowers, and hence has standing
to file a petition covering bouquets.
Petitioner maintains that any antidumping duty order issued in this
investigation will be substantially undermined if foreign rose
producers/exporters can circumvent the order by importing bouquets of
fresh cut roses covered by the order. Petitioner states that it would
be absurd for the Department to permit respondents to combine
merchandise subject to the order to achieve a final product outside the
scope of the order.
DOC Position
Roses, including roses in bouquets, are within the scope of the
investigation and constitute a single class or kind of merchandise.
Because the scope covers only the roses in bouquets, not the bouquets
themselves, respondents' arguments that bouquets constitute a separate
class or kind are inapposite. Therefore, a Diversified Products
analysis is not required. The Department's conclusion that all roses,
whether or not imported as individual stems or in bouquets or bunches,
constitute a single class or kind of merchandise is consistent with its
determination in Flowers. See Flowers, 59 FR 15159, 15162-4 (March 31,
1994) (final results of 4th admin. review).
The packaging and presentation of roses in bunches and bouquets do
not transform the roses into merchandise outside the scope of the
order. See Final Determination of Sales at Less Than Fair Value; Red
Raspberries from Canada, 50 FR 19768, 19771 (May 10, 1985). Nor is the
rose transformed into a new article by virtue of being bunched or
placed in a bouquet. Notably, Customs disaggregates bouquets, requiring
separate reporting and collection of duties on individual flower stems
regardless of how they are imported. As a result, Customs, in this
case, will collect duty deposits only on individual rose stems
incorporated in bouquets, not the bouquets themselves.
Respondents argue that there is no legal basis for the Department
to include within the scope of an investigation only a component part
of imported finished merchandise, i.e., the roses within the bouquet.
As discussed above, consistent with Customs, the Department is not
treating bouquets as a distinct finished product.
Respondents' argument that the Department cannot expand the
investigation to include bouquets, also can be dismissed. A review of
the descriptions contained in the petition and the Department's and ITC
preliminary determinations reveals quite clearly that what is covered
by this investigation is all fresh cut roses, regardless of the form in
which they were imported. Specifically, the petition covers ``all fresh
cut roses, whether imported as individual blooms (stems) or in bouquets
or bunches, as provided in HTSUS 0603.10.60.'' Petition at 8 (emphasis
added). HTSUS 0603.10.60 covers
Cut flowers and flower buds of a kind suitable for bouquets or
for ornamental purposes, fresh * * *
0603.10.60 Roses:
10 Sweetheart
90 Other
Furthermore, the scope of this investigation unequivocally states that
The products covered by this investigation are fresh cut roses,
including sweethearts or miniatures, intermediates, and hybrid teas,
[[Page 7023]] whether imported as individual blooms (stems) or in
bouquets or bunches.
Preliminary Determination of Sales at Less Than Fair Value, 59 FR 48285
(Colombia), 59 FR 48294 (Ecuador) (emphasis added). Finally, in its
preliminary determination, the ITC found that ``the plain language of
Commerce's scope description in these investigations demonstrates that
the merchandise subject to investigation covers the roses in the
bouquets only,'' and not the bouquets themselves. ITC Pub. No. 2766 at
9 (March 1994). Neither the Department nor the petitioner has ever
attempted to include the bouquets themselves, nor any of the other
types of flowers which comprise a bouquet, within the scope of this
investigation. The plain language of the Department's scope description
demonstrates that the merchandise subject to investigation covers the
roses in the bouquets only and does not expressly state that the
bouquets are themselves covered. Notably, the ITC stated that
``[b]ouquets are referred to in the scope definition to indicate that
all fresh cut roses are covered, regardless of the form, or packaging,
they are imported in.'' ITC Pub. No. 2766 at 9 (March 1994).
Finally, we disagree with respondents' contention that petitioner
lacks standing in this investigation because it does not represent
producers of bouquets or producers or ``roses in bouquets.'' In order
to have standing in an antidumping investigation, petitioner must
produce, or represent producers of, the like product. See, e.g., Final
Determination of Sales at Less Than Fair Value: Nepheline Syenite from
Canada, 57 FR 9237 (March 17, 1992) (comment 5). We agree with the ITC
that there is one like product in this investigation--``all fresh cut
roses, regardless of variety, or whether included in bouquets.'' ITC
Pub. No. 2766 at 9, 14 (March 1994). Because petitioner represents
producers of fresh cut roses they have standing in this investigation.
Comment 2: Spray Roses
Respondent HOSA, an exporter/purchaser of spray roses, argues that
spray roses are a genetically distinct species of the rosa genus.
Therefore, HOSA argues that the Department should exclude spray roses
from the scope of the investigation. HOSA states that spray roses are
not explicitly included in the scope of the investigation. Furthermore,
HOSA argues that spray roses were never mentioned in the petition nor
were price or cost of production data provided in the petition for
spray roses. HOSA suggests that the Department analyze spray roses
pursuant to the criteria set out in Diversified Products analysis to
evaluate whether spray roses are within the scope of this
investigation.
Petitioner requests that the Department include spray roses in the
antidumping duty order. Petitioner states that since the description of
spray roses is found in the petition, the instant investigation and the
Department and ITC determinations are dispositive as to the scope of
the investigation and analysis under Diversified Products is
unnecessary, (although respondent provides an analysis under
Diversified Products). Petitioner asserts that all fresh cut roses,
without regard to stem length, species or variety, were specifically
covered in the scope of the petition. Petitioner contends that the fact
that spray roses may be of a distinct species of the rosaceae family
does not exclude them from the petition, since the petition includes
all roses, regardless of species. Although it claims it as unnecessary,
petitioner conducts an analysis under the Diversified Products criteria
to show that spray roses are properly included in the scope of the
petition.
DOC Position
We agree with petitioner. The descriptions of the merchandise in
the petition and in the Department's scope are dispositive with respect
to spray roses and the evidence on the record, including the ITC's
preliminary determination, supports treating this rose variety no
differently than other varieties within the same class or kind of
merchandise subject to these investigations.
The scope of the petition clearly refers to spray roses. First, the
petition notes that the scope ``* * * covers all fresh cut roses,
whether imported as individual blooms, stems or in bouquets or
bunches.'' Spray roses are fresh cut roses sold in bunches or bouquets
and are classified under the HTSUS subheading 0603.10.60, as are
standard roses. Second, the petition states that its scope is ``* * *
inclusive of all imported roses from Colombia and Ecuador, without
regard to stem length, species or varieties.'' Third, the scope
description in the petition cites the ITC's definition from the prior
roses investigation. See ITC's Publication 2178 at 4-15 (April 1989)
``Roses are members of the rosaceae family. * * *'' Genetically, spray
roses are members of the rosaceae family, as are standard roses.
While differences exist between spray and standard roses, it should
be noted that differences also exist between other varieties of roses
within the scope of this investigation. The ITC stated in its
preliminary finding of fresh cut roses from Colombia and Ecuador that
``* * * we note that different rose varieties also have varying stem
lengths and bloom sizes (e.g., as with spray roses, sweetheart roses
have smaller buds and shorter stems than traditional roses), which we
do not find to be significant differences in physical
characteristics.'' See ITC Pub. No. 2766 at 10 (March 1994). Although
the ITC's preliminary finding is not dispositive with respect to this
scope analysis, it clearly demonstrates that the physical differences
of each rose variety within the same like product category are not
merely unique to spray roses, and that the differences of the varieties
within the same like product category are not sufficient ``to rise to
the level'' of differences in the like product.
We also note that the rationale used by the ITC in these
investigations, of including spray roses within the same like product
category, is consistent with the Department's rationale as to whether a
product should or should not be in the same class or kind of
merchandise. In its notice of final determination of sales at LTFV in
Antifriction Bearings from West Germany, 54 FR 18992 (May 3, 1989), the
Department stated that ``the real question is whether the difference is
so material as to alter the essential nature of the product, and
therefore, rise to the level of class or kind differences.'' The class
or kind of merchandise subject to these investigations includes
different rose varieties such as sweethearts or miniatures,
intermediates, and hybrid teas. Like spray roses, each variety within
the class or kind differs from the other varieties. However, in this
instance, the similarities greatly outweigh the dissimilarities and the
dissimilarities do not alter the essential nature (i.e., that spray
roses are export quality roses) of the spray roses.
Comment 3: Rose Petals
Simpson & Turner, an importer of rose heads, rose petals (petals),
and foliage (by-products) argues that such products should be excluded
from the scope of this investigation because these products are not the
same ``class or kind of merchandise'' as the subject merchandise.
Simpson & Turner maintains that the petition refers to stems, but does
not mention petals or foliage, and the HTSUS description refers to
flower buds as ``flower buds of a kind suitable for bouquets or for
ornamental purposes.''
Simpson & Turner argues that rose heads, rose petals and foliage
were not [[Page 7024]] mentioned in the Department's LTFV
investigation's initiation or preliminary determination. The scope
description specifically refers to a fresh cut rose as a bloom, which
is clarified to be a stem. The scope description then defines the form
of importation of the stem as an individual, part of a bouquet or
bunch.
Petitioner asserts that Simpson & Turner fails to distinguish
imported ``rose bush foliage, rose petals, and rose heads'' from
``culls'' within the scope of the this investigation. Petitioner
asserts that culls are within the scope of the petition and
investigation. Petitioner states that in its preliminary determination,
the Department found that culls are a ``such or similar category''
separate from export quality roses but nonetheless covered by the
petition and states further that no party has challenged the
Department's determination that culls are within the scope of the
investigation.
Petitioner states that the description of merchandise provided by
Simpson & Turner, however, invites the Department to issue a scope
ruling that would permit culls to enter the United States outside the
order. To the extent that Simpson & Turner seek to exclude more than
loose rose petals, loose rose foliage, or stems without rose heads, the
described merchandise apparently consists of culls, which as such are
included by the plain language of the petition and by the Department's
unchallenged ruling concerning ``such or similar'' categories.
Petitioner further notes that culls are simply roses that did not
meet the criteria of quality and length required for export. Culls may
``have crooked stems, deformed buds, or have opened prematurely.''
(Guaisa Sec. A Resp. at 26). Consequently, petitioner asserts that the
roses imported by Simpson & Turner, consisting of rose heads with very
small stems or of roses ``normally discarded at the farm level in time
of grading due to poor appearance, stage of development and scarring''
meet the definition of culls and should thus be included within the
scope of these investigations.
DOC Position
We agree with Simpson & Turner. See Scope of Investigation above,
indicating that loose rose foliage (greens), loose rose petals and
detached buds should be excluded from the scope of these
investigations.
The scope used in the preliminary determination clearly stated that
roses which are imported as individual blooms (stems) or in bouquets or
bunches are included. However, we asked petitioner to comment on this
scope issue at the December 12, 1994, Colombia hearing, at which time
petitioner clearly stated that it does not consider loose rose foliage,
loose rose petals or buds detached from the stem to be included in the
scope of these investigations.
Comments Pertaining to USP
Comment 4: Annual and Monthly U.S. Price Averaging
Petitioner argues that USP should not be averaged over a full month
or over a year because such prices would be unrepresentative of
transaction-specific, daily or weekly U.S. sales. Petitioner claims
that both monthly and annual averaging would obscure or mask dumping.
Petitioner contends that monthly averaging would mask dumping of roses
at low prices within every month and that annual averaging would be
even more distortive, concealing dumping during months in which major
holidays occur.
Petitioner claims that the facts in the instant Roses
investigations do not support the reasons articulated in the Flowers
administrative reviews for departing from the normal Department
practice of using daily U.S. prices. Specifically, petitioner maintains
that, because roses have a shorter life span than other fresh cut
flowers, there is no basis for using a monthly average U.S. price.
Petitioner also asserts that respondents' inability to control
production, timing, or prices is irrelevant to the application of the
averaging provision in the statute.
Respondents claim that the Department erred in the preliminary
determination by comparing one average constructed value encompassing
all varieties and stem lengths to a product-specific monthly average
USP. Respondents argue that this comparison is inappropriate because,
although growers do not maintain cost records on a variety-specific or
stem-specific basis, different rose products have different physical
characteristics and different costs and values related to productivity
and consumer preferences, all of which result in widely different
prices. Respondents assert that if costs are standardized, yet prices
fluctuate according to consumer demand for particular rose products,
average costs can only be meaningfully compared to equivalent average
prices without artificially creating margins. Respondents argue that an
annual average constructed value should be compared to an annual
average USP. Respondents state that the unique factors characterizing
rose production, demand, and perishability, in addition to extreme
seasonality, compel the use of annual average U.S. prices.
Respondents maintain that using any type of monthly average USP in
the comparison measures only seasonality and not dumping. Specifically,
respondents argue that the Department must take into account: (1) That
the USP cycle is an unavoidable consequence of the highly seasonal
nature of U.S. demand; (2) the high perishability of the product; (3)
the rose production cycle is geared towards consumer demand which is
concentrated around Valentine's Day; and (4) roses cannot be stored and
rose production is a continuous process that cannot be turned off after
Valentine's Day. According to respondents, these conditions result in
unavoidable price swings. For these reasons, respondents contend that
using any type of monthly USP average artificially creates dumping
margins by establishing a benchmark that no producer can meet.
In addition, respondents contend that using monthly average USP
does not account for month-to-month volatility caused by the extreme
seasonality of U.S. demand. Therefore, respondents maintain that
monthly average U.S. prices are not representative for purposes of
comparison with an annual CV and that only an annual average USP
captures the full demand/production cycle, undistorted by seasonal
factors.
Regarding petitioner's contention that the Department should not
use a monthly USP in the Roses cases because, unlike flowers, roses
have a shorter life, Floramerica points out that shelf life alone does
not justify a departure from the Department's traditional averaging
methodology and further, that there is information on the record which
shows that roses do not have a shorter shelf life.
DOC Position
19 U.S.C. 1677f-1(b) and 19 353.59(b) provide the Department with
the discretionary authority to use sampling or averaging in determining
United States price, provided that the average is representative of the
transactions under investigation. In these investigations, we
determined, based on a combination of factors, to average U.S. sales.
The Department was confronted with approximately 555,000 Colombian
transactions which, when combined with the number of estimated U.S.
sales transactions from Ecuador, exceeded one million. As a result, a
decision to make fair value comparisons on a transaction-specific basis
would place an onerous, perhaps even an impossible, burden on the
Department in terms of data collection, verification, and
[[Page 7025]] analysis. Consequently, we exercised our discretion in
order to reduce the administrative burden and maximize efficient use of
our limited resources. Additionally, we recognize the need for
consistency in our treatment of these concurrent investigations and,
although the number of transactions may vary between the two countries,
uniform application of an averaging methodology ensures that both
Colombia and Ecuador will be treated on the same basis. See the June
24, 1994, Decision Memorandum pertaining to reporting requirements from
Team to Barbara Stafford.
Moreover, we took into account that the majority of respondents,
who make U.S. sales on consignment, have little, if any, ability to
provide the level of detail which would have been required for the
Department to do a transaction-specific analysis because unrelated
consignees generally keep accounts for respondents' U.S. sales in
monthly grower reports. Upon review of data submitted, and later
verified, we concluded that a month was the shortest period of time
which would permit all respondents to provide U.S. sales information on
a uniform basis, thus ensuring that we treated all respondents in a
similar manner in terms of data collection and analysis.
Importantly, because of the highly perishable nature of the
product, we believe that monthly averaging of U.S. prices in these
investigations provides a fair and more representative measure of
value. Unlike nonperishable merchandise, respondent growers cannot
withhold their roses from the market to await a better price. Rather,
respondents are faced with the choice of accepting whatever return they
can obtain on certain sales, so-called ``end-of-the-day'' and
``distress sales'', or of destroying the product. Were we to perform a
transaction-by-transaction comparison, such an approach, beyond the
limits imposed on the Department as described above, would give undue
and disproportionate weight to end-of-the-day sales. Even where a
respondent's normal sales were above fair value, he could be found to
be dumping solely on the basis of sales made as a result of
perishability. By adopting a monthly averaging period, we ensure that
the entire range of distress and nondistress sale prices are covered.
Furthermore, while use of actual prices and transaction-by-
transaction data is the norm, the statute allows for averaging provided
such averaging yields representative results. We conclude that, in
light of the above factors, using monthly averages of U.S. sales prices
constitutes the shortest period necessary to capture a representative
analysis of the ordinary trading practices in this industry. Our
approach is consistent with the Department's past practice in
investigations of fresh cut flowers as well as other perishable
agricultural products. See Certain Fresh Cut Flowers From Colombia:
Final Results of Antidumping Duty Administrative Review, 55 FR 20491
(May 17, 1990); Final Determination of Sales at Less Than Fair Value:
Certain Fresh Cut Flowers From Mexico, 52 FR 6361 (March 3, 1987).
Furthermore, our approach has been upheld consistently by the court.
See Floral Trade Council v. United States, 775 F. Supp. 1492, 1500-2
(CIT 1991); Asociacion Colombiana de Exportadores de Flores v. United
States, 704 F. Supp. 1114 (CIT 1989).
Lastly, we are unpersuaded by two additional arguments proffered by
petitioner to shorten the averaging period in these investigations.
First, petitioner claims a factual distinction between the life-span of
a rose and a fresh cut flower. However, we find that the record in
these investigations establishes that from the time of importation,
roses last approximately seven to ten days, while flowers last
approximately ten to fourteen days and both may be held for more than
one week in refrigerated coolers. Thus, we find this to be a
distinction without a difference. Second, petitioner argues that, by
not using a shorter averaging period, dumping during peak holiday
periods such as at Valentine's Day, will elude the Department.
According to petitioner, sales of roses imported before this holiday,
but which are sold after the holiday when demand is quite low, will be
sales at dumped prices. The petitioner does not consider such dumped
sales legitimately within the category of end-of-the-day sales, for
which our averaging period is designed to fairly account. Rather,
petitioner argues that by averaging these low- priced sales with high-
priced holiday sales for the month of February, dumping will be
understated. While we recognize that using a monthly averaging period
could result in some offsetting of high-priced sales with low-priced
sales, we believe that overall, monthly averaging is representative of
the transactions under investigation. Moreover, in verifying numerous
companies' February grower reports we found that only an insignificant
number of roses were imported in February after Valentine's Day, as
compared to the overwhelming volume imported during the first 13 days
of the month, thus ameliorating this circumstance.
Annual Averaging
While we recognize that averaging is necessary in these
investigations, we believe that averaging U.S. sales prices over a year
is inappropriate. As we stated in Flowers,
nothing in the statute, the legislative history, or the Department's
practice (including Final Determination of Sales of Not Less Than
Fair Value: Fresh Winter Vegetables from Mexico (45 FR 20512; March
24, 1980) supports the broad notion of annual averaged U.S. prices.
Annual averaging would extend too much credit to respondents by
allowing them to dump for entire months when demand is sluggish, so
long as they recoup their losses during months of high demand.
See Final Results of Antidumping Administrative Review and Revocation
in Part of the Antidumping Duty Order: Certain Fresh Cut Flowers from
Colombia, 56 FR 50554, 50556 (October 7, 1991). The CIT has agreed with
the Department that monthly averaging adequately compensates for
perishablilty but averaging over a longer period could obscure dumping.
See Floral Trade Council v. United States, 775 F. Supp. 1492, 1500 (CIT
1991).
Even though respondents argue that the demands of the U.S. market
determine their U.S. pricing and that they are price takers rather than
price setters, we note that the intent to dump is not the issue. See
Final Determination of Sales at Less Than Fair Value: Certain Fresh Cut
Flowers from Mexico, 52 FR 6361, 6364 (March 3, 1987). The issue is
whether, in fact, dumping is occurring.
Comment 5: Product Averaging
Regarding the use of variety and stem-specific monthly average
USPs, respondents contend that the Department is bound by its
longstanding administrative practice in the original investigations and
subsequent administrative reviews of Flowers to calculate monthly
average USPs by flower type, without regard to variety or grade.
Additionally, the Department has consistently concluded that comparing
CV data by flower type to grade or variety-specific USPs would produce
unfair and distorted results. Respondents maintain that the Department
has not furnished any reasonable explanation for its departure from
this practice in the preliminary determination.
Respondents urge the Department to compare all rose products to all
rose products on an annual average basis. Alternately, respondents
request that the Department compare product- [[Page 7026]] specific,
monthly U.S. prices to identical product-specific, monthly FMV prices.
Respondents note that where FMV is not available, CV should be used.
However, the profit element should be monthly FMV profit, not annual
FMV profit. In addition, respondents argue that average CV of all
products combined must be compared to U.S. prices of non-matched
products.
Petitioner argues that product averaging should not be used to
obliterate differences in prices due to physical differences in roses.
Petitioner stresses that it is particularly important that the prices
of the low-priced Visa roses are not averaged together with prices of
other red roses. Petitioner maintains that an average across varieties,
colors, or stem lengths substantially distorts the market reality.
DOC Position
We agree with respondents that averaging by flower type is
appropriate in this investigation. Consistent with Flowers, where
possible, we compared USP and CV on a rose type basis, i.e., hybrid
tea, sweetheart, etc. See, e.g., Fresh Cut Flowers From Colombia, 59 FR
15159, 15160-61 (March 31, 1994) (4th admin. review final). For a
number of companies, however, we were unable to compare USP and CV on a
rose type basis because the respondents do not keep their cost data in
such a fashion. As a result, in order to ensure an ``apples-to-apples''
comparison, we aggregated U.S. price data to arrive at a weighted-
average monthly USP for all rose types for comparison with respondents'
single average CV for all rose types. While it would have been
preferable to disaggregate rose costs for these respondents in order to
make a fair value comparison on a rose type basis, we were not able to
do so in this investigation because the data were not available and we
did not present respondents with a methodology for disaggregating
costs. However, we intend to do so in any future administrative reviews
if an order is issued. We will seek to devise a method to enable us to
compute cost by rose type, which will not require respondents to change
their method of recordkeeping.
Comments Pertaining to Third Country
Comment 6: Third Country as Basis for FMV
Petitioner maintains that there is no basis in law for rejecting
third country prices that are adequate to establish a viable market. In
addition, petitioner states that the Department's regulations state a
preference for the use of third country prices, where the home market
is not viable. Petitioner maintains that the statute prescribes
adjustments for differences in circumstances of sale, which can take
account of differences in markets, but it does not permit the
Department to simply reject a viable market, due to factors other than
dissimilar merchandise, for the purposes of determining FMV.
Petitioner claims that there is no evidence on the record to
establish that third country prices are incompatible for comparison to
U.S. prices. Petitioner questions the validity of respondents'
statistical studies, claiming that the statistical analyses provided by
Drs. Botero and Sykes and Lewis are unworthy of consideration because
they exclude the impact of dumping in their price analyses. According
to petitioner, if the Colombian and Ecuadoran growers are dumping
during the several off-peak (non-holiday) months in the U.S. market,
but not in other markets, such dumping would produce price changes in
the U.S. market that are much sharper and greater than the price
changes in Europe, thereby causing the greater volatility in the U.S.
market identified by respondents. Petitioner adds that, because the
Colombian and Ecuadoran imports constitute such a large percentage of
the U.S. market and because they sell through consignment agents on a
national basis, the supply of Colombian and Ecuadorian roses uniformly
depresses U.S. prices whenever those imports oversupply the U.S.
market.
Petitioner argues that the Botero and Sykes and Lewis reports are
further skewed because they use the prices of a single variety of red
rose, the Visa, which it asserts is the most price sensitive. Moreover,
these reports did not provide source documentation showing the
composition of the Dutch auction prices relied upon. Thus, it is
unclear how many varieties of roses were included in the comparison
database. In addition, since Colombian and Ecuadoran roses sold on the
Aalsmeer auction account for only a very small portion of all roses
exported to the EU, Aalsmeer prices may not be representative of
Colombian and Ecuadorian rose prices in the EU.
Petitioner argues that the statements provided in the Hortimarc
Report based on FTD data, which included traditional retail florists
and excluded non-traditional outlets such as supermarkets, and mass
merchandisers, ignores a significant number of spontaneous purchases
from their analysis.
Petitioner states that the Stern & Wechsler argument regarding the
opposing demand strains of the U.S. and EU market are irrelevant to the
comparison of foreign market values and U.S. prices. Petitioner
maintains that the U.S. market is as supply driven as any other market
during non-holiday months.
Petitioner recognizes that in the second administrative review of
Fresh Cut Flowers From Colombia, (55 FR 20491, May 17, 1990) (Flowers),
the Department departed from its normal practice and rejected third
country prices in favor of CV for the following three reasons: 1) third
country and U.S. price and volume movements were not positively
correlated which showed that different forces operated in the relevant
markets, in some instances, pushing prices in opposite directions; 2)
third country sales only occurred in peak months which resulted in a
distorted comparison of off-peak U.S. prices to peak third country
prices; and 3) the perishable nature of flowers and the inability to
control short-term production resulted in ``chance'' sales.
Petitioner argues that the Department's analysis of statistical
data on the record in these investigations confirmed a positive
correlation in prices, thus refuting the principal finding of the
Flowers case. In fact, petitioner argues that the basis for creating an
exception to the statutory preference for price-to-price comparisons
was the presence of a negative correlation. Regarding volatility,
petitioner notes that in Flowers, the Department never required that
prices be equally volatile in each market; volatility alone does not
require the Department to reject a price-to-price comparison. In fact,
petitioner argues that in Flowers the Department found differences in
volatility between the U.S. and European markets and price movement in
opposite directions in each market.
Regarding the second factor, petitioner observes that, unlike the
Flowers case, third country sales of roses even occur in off-peak
months and argues that the Department's six-month weighted average FMVs
take into account seasonal peaks and off-peaks. Moreover, petitioner
maintains that major flower buying holidays are the same in all markets
and, therefore, peaks will occur at similar times in all markets.
Finally, with regard to the issue of perishability and production
control, petitioner maintains that respondents may control production
by pinching back rose buds. In addition, petitioner notes that there is
evidence on the record indicating that third country sales of roses are
stable, some occurring as a result of negotiated standing orders
[[Page 7027]] and, therefore, there is a lesser incidence of chance
sales then was present in Flowers. Petitioner contends that statements
by respondents regarding a potential shift of exports from third
country markets to U.S. markets reveals the extent to which
respondents, in fact, control, plan, and target their rose exports to
certain markets.
Respondents claim that third country prices should be rejected in
favor of CV because the three factors found in Flowers are present in
these cases. With regard to the first Flowers factor, respondents quote
empirical evidence on the record showing substantial differences in
demand and pricing seasonality between U.S. and third country markets.
Respondents argue that there are two principal aspects of seasonality:
timing (i.e., the point in time at which demand peaks and valleys occur
in seasonal cycles) and volatility (i.e., the magnitude of peaks and
valleys). Respondents argue that, in Flowers, the Department relied on
both differences in timing and in volatility to explain why it rejected
third country prices. Respondents assert that in the rose industry, as
in the flower industry, (1) the U.S. market is holiday-demand driven;
(2) U.S. demand is not a stable consumption base because the majority
of roses are purchased primarily as gifts; and (3) the U.S. market is
demand driven. In contrast, respondents state that (1) the European
market is marked by relatively even year-round demand; (2) flower
purchasing on a more regular basis (not tied to gift giving) is a deep
rooted tradition in Europe; and (3) the European market is supply
driven.
Respondents have submitted several statistical analyses of the
different markets which, they claim, conclusively show that the
seasonal demand and pricing patterns are significantly different
between the markets. Respondents point to the second Botero report and
the Sykes & Lewis report which states that the mere presence of a price
correlation is insufficient proof that demand patterns are equivalent.
Respondents contend that while petitioner criticizes their statistical
analysis, petitioner has not provided any independent correlation
analysis regarding U.S. and third country prices.
With regard to the second Flowers factor, access to third country
markets, respondents claim that petitioner's own data rebut the
contention that respondents have substantial continuous access to third
country markets because there are no Colombian and Ecuadorian imports
of roses in at least one month for every country for which petitioner
has provided data. Respondents assert that petitioner's claim that
Colombian and Ecuadorian production is planned with third countries in
mind, and that roses are sold at the same fixed price over a period of
time as a result of a pre-negotiated arrangement, is a misunderstanding
of the facts on the record.
In addition, respondents claim that combining third country markets
would not rectify the gaps created by the absence of sales in all
months in individual markets. Respondents note that adding two markets
with partial year sales is still tantamount to using only peak prices
for foreign market value. With regard to the third Flowers factor,
respondents claim the control and perishability factor relied upon by
the Department in the Flowers case is equally applicable to roses.
Respondents cite to portions of the Department's Roses preliminary
determination where the Department noted that there are substantial
similarities between flowers and roses in perishability and short-term
lack of production control. Respondents also cite to the first Tayama
report which states that roses are even more perishable than fresh cut
flowers.
Respondents claim that petitioner oversimplifies their argument
regarding seasonality by neglecting to view all aspects of the Flowers
exception: the unique combination of differences in seasonality between
U.S. and third country markets for a highly perishable product for
which production cannot be controlled in the short term. Thus,
respondents maintain that the Roses case is a logical extension of the
Flowers case.
DOC Position
The Department agrees with respondents. In the preliminary
determination, we rejected respondents' request to use CV as the basis
for FMV because we determined that the record at that time did not
support the application of the Flowers' precedent. Since the
preliminary determination, a considerable amount of new information has
been submitted. Based on our review of this new information, we have
determined that the records in these cases warrant rejection of third
country sales in favor of CV. See the January 26, 1995, Decision
Memorandum pertaining to third country versus constructed value from
the Team to Barbara Stafford for a more detailed discussion of this
issue.
Information on the record establishes that the three factors
identified by the Department in Flowers as supporting the use of CV are
satisfied in this case. First, the market for roses in the U.S. differs
significantly from the markets in third countries. For example, as in
Flowers, price and quantity within the United States' rose market are
positively correlated; however, the price and quantity within Europe,
Canada, and Argentina are negatively correlated.
Similarly, the U.S. market for roses, like the U.S. market for
flowers, is more volatile in terms of price and quantity movements than
the markets in third countries markets; the European per capita
consumption of flowers is four to ten times greater than the United
States, and Colombian and Ecuadorian producers have, in general,
limited access to the main third country markets, i.e., the Dutch
auction. Thus, the differences in the rose markets are similar to the
differences that existed in Flowers.
The second Flowers factor we considered was whether a comparison of
third country sales to U.S. sales would require comparisons of low-
price U.S. sales in off-peak months with high-price third country sales
in peak months, or vice versa. In the preliminary determination, we
found that this factor was not present in these investigations because
(1) there were sufficient third country sales in each month of the POI
(when markets were combined); and, (2) using two six-month FMV periods
reduced distortion caused by price comparisons involving peak and non-
peak periods.
For purposes of this final determination, we have determined that
use of third country prices could result in off-peak U.S. sales being
compared with peak third country sales. While six-month averages
ameliorate potential distortions, almost all of the respondents do not
have third country sales in every month of the POI. It is only by
combining markets that respondents have sales in each month of the POI.
If we were to use third country prices as the basis for FMV, prices
during peak periods in one third country could be combined with prices
during peak periods in another third country. These peak prices would
then be compared to both peak and non-peak periods in the United
States. We find that this factor supports use of CV in these cases,
albeit to a somewhat lesser degree than in Flowers.
The third Flowers factor we considered was the extreme
perishability of roses--i.e., the inability to control short-term
production--and the resultant ``chance'' element to sales. As noted in
our preliminary determinations, there are substantial similarities
between the subject merchandise in these investigations and
[[Page 7028]] Flowers: (1) roses, like flowers, are extremely
perishable; (2) rose growers have relatively minor control over short-
term production; (3) rose production is also affected by exogenous
factors (e.g., weather, disease, etc.) like other flowers; and (4)
roses cannot be stored and we note that there are only very minor
alternative uses (e.g., drying).
In conclusion, we have determined that the factors that led the
Department use CV instead of third country prices in Flowers are
present in these investigations. Therefore, we have adopted CV as the
basis for comparison with U.S. prices.
Comments Pertaining to Related Party Commissions
Comment 7: Related Party Commissions
Petitioner requests that commissions paid to consignment agents
should be deducted from USP even where consignees are related parties.
Specifically, petitioners argue that (1) the statute directs us to
deduct commissions from USP in ESP situations, without discretion to
disregard U.S. commissions in related party transactions; (2) in
Timken, the court recognized that the statute required a deduction when
a U.S. importer was paid commissions, as opposed to earning
``profits;'' (3) the statute should be followed, regardless of the fact
that commissions were not deducted in Flowers; and (4) we should deduct
U.S. indirect selling expenses if such expenses exceed the related
consignee's commissions, in accordance with 19 U.S.C. 1677a(e)(2).
Respondents claim that the Department's treatment in the
preliminary determination of related party sales commissions is
invalid. They argue that deducting the related importer's commission
from U.S. price has the effect of deducting the importer's profit,
which the Department does not have the authority to do. The Department
should deduct the importer's actual selling expenses rather than
intracompany transfers. Respondents argue that the Department's
approach is inconsistent with past practice since related party
commissions have never been treated as a direct selling expense, but
rather have been collapsed in the past for the purposes of determining
U.S. price and expenses. Moreover, respondents assert that the
Department's statute and regulations do not authorize the Department to
deduct the higher of related party commissions or related party actual
expenses. Respondents claim that in selectively choosing deductions of
commissions or actual expenses, the Department fails to account for the
fact that the commission it treats as a cost is also sales related
income to the related importer. Respondents maintain that the
Department should ignore the sales commissions paid between related
parties on ESP sales, regardless of whether such commissions are at
arm's length, and treat as U.S. indirect selling expenses the
importer's share of operating and selling expenses allocable to the
exporter's subject sales.
DOC Position
The difference between a related consignee's commission and the
related consignee's U.S. indirect selling expenses is equal to the
related consignee's profit. The Department does not deduct profit from
USP in ESP transactions because the law does not allow it. 19 C.F.R.
353.41(e) (1) and (2) do, however, instruct us to make adjustments in
ESP situations for commissions and expenses generally incurred by or
for the account of the exporter in selling the merchandise.
With respect to treatment of related party commissions paid in the
U.S., we have in the past looked to the definition of ``exporter''
which provides that related party importers are to be collapsed with,
and treated as part of, the exporter. 19 U.S.C. 1677(13). In this
context, it is inappropriate to treat a commission the exporter has
paid to itself as an expense. The expense is the actual costs incurred
by or for the account of the exporter.
In LMI-Le Metalli Industriale, S.p.A. v. United States, 912 F.2d
455, 459 (Fed. Cir. 1990) (LMI), the CAFC indicated that related party
commissions can and should be adjusted for if the commissions are at
arm's-length and are directly related to the sales under review.\1\ By
implication, an arm's-length commission includes the actual indirect
selling expenses incurred by the commissionnaire and the
commissionnaire's profits. Thus, LMI allows us to deduct the profits
that are implicit in the commission. The facts in LMI, however, are
distinguishable from the facts in these investigations. In LMI, the
Court directed the Department to adjust for sales commissions paid to a
related subsidiary of the respondent in the home market. The sales on
which the commissions were paid in the home market were purchase price-
type transactions made with the assistance of the related party selling
agent. The issue of how to treat any selling expenses incurred by the
related party selling agent in addition to commissions earned by that
related party selling agent did not arise in LMI.
\1\In Coated Groundwood Paper from Finland, 56 FR 56363
(November 4, 1991), which was subsequent to LMI, we developed
guidelines to determine whether commissions paid to related parties,
either in the United States or in the foreign market, are at arm's-
length. If, based on the guidelines, we found commissions to be at
arm's-length, we stated that we would make an adjustment for such
commissions.
---------------------------------------------------------------------------
In the instant investigations, the sales on which the commissions
were paid are ESP transactions where, because the importer of the
merchandise is related to the exporter, we collapse the two pursuant to
19 U.S.C. 1677(13) and base USP on the sale to the first unrelated
party. In contrast to LMI, therefore, the producer and its related
party selling agent in these investigations are collapsed. Thus, the
commission represents an intracompany transfer of funds. Under these
circumstances, our past practice of ignoring intracompany transfers is
still applicable.
Furthermore, ESP transactions are fundamentally different from
purchase price transactions in that, with respect to ESP transactions,
19 U.S.C. 1677a(e), specifically allows for deductions of indirect
expenses. In contrast, with respect to purchase price transactions, 19
U.S.C. 1677a(d) only allows an adjustment for indirect expenses when
there are commissions in one of the two markets. Therefore, when
commissions are paid in an ESP situation, the opportunity for double
counting exists; this problem does not arise in a purchase price
situation like the one reviewed by the Court in LMI.
Whether the sales involved are purchase price or ESP, the
Department's goal is to derive a reliable USP by subtracting actual
expenses from actual sales prices. A commission paid by the exporter to
its collapsed related importer is not an expense incurred by the
exporter; rather the actual expenses incurred by the exporter are the
indirect selling expenses of the related consignee.
At the preliminary determination, we determined that related party
commissions were directly related to the sales under consideration.
However, we agree with respondents and, for the final determination,
considered commissions an intracompany transfer. We have therefore,
deducted only the amount of U.S. indirect selling expense for all
companies with related party commissions.
Comments Pertaining to Accounting
Comment 8: Inflation Adjusted Depreciation and Amortization
Petitioner argues that the Department should compute respondents'
[[Page 7029]] depreciation expense based on asset values which, in
accordance with Colombian GAAP, have been adjusted to reflect the
effects of inflation. Petitioner notes that respondents computed
depreciation charges for rose production costs based on the historical
cost of the underlying fixed assets. Petitioner maintains that because
of the effects of inflation on prices, respondents' methodology
inappropriately matches historical depreciation charges based on past
price levels with revenues generated from the sale of roses at current
price levels.
Petitioner notes that in past cases involving hyperinflationary
economies, the Department has corrected for the effects of inflation by
computing cost of production based on respondent's replacement costs.
Petitioner argues that although the POI inflation rates in Colombia did
not meet the Department's normal hyperinflation threshold, the annual
rate of inflation nevertheless has been so substantial as to cause the
government to adopt accounting standards that require an adjustment for
inflation. Thus, according to petitioner, the Department must correct
respondents' reported depreciation expense in order to avoid distorting
the cost of rose production.
Respondents claim that the Department should accept their submitted
rose production costs without taking into account the effects of the
inflation adjustment on depreciation expense. Respondents argue that,
although the inflation adjustment may result in additional costs in
their financial statements, these are not actual, historical costs.
Instead, the inflation adjusted costs are ``phantom'' costs required by
tax law, but not specifically addressed under GAAP.
Respondents maintain that the purpose of the tax law was to
generate tax revenues for the government, because any write-up of fixed
assets due to inflation results in additional income that must be
recognized in a firm's financial statements. Respondents contend that
if the Department determines that it must include the effects of the
fixed asset inflation adjustment in respondents' rose CV, then it also
must reduce CV by the amount of financial statement income generated by
the adjustment. Respondents note that such income is directly related
to production and, thus, there is no basis for failing to offset costs
if the inflation adjustment is included in CV.
Additionally, respondents claim that the Department already
effectively makes an inflation adjustment through the use of monthly
exchange rates in its computer program. Respondents state that the
exchange rate is related to differences in the two countries rates of
inflation, and the use of such exchange rates has an effect equivalent
to making the year-end inflation adjustment.
DOC Position
We agree with petitioner that respondents' failure to follow their
normal accounting practice of adjusting depreciation and amortization
expenses for the effects of inflation distorts rose production costs
for purposes of our antidumping analysis. The exclusion of the
inflation adjustment results in costs which are not reflective of
current price levels and thus produces an improper matching of revenues
and expenses. Therefore, we have revised the submitted COP and CV
figures to reflect inflation-adjusted depreciation and amortization
expenses based on the growers' normal accounting practices.
We disagree with respondents' claim that the Department's use of
monthly exchange rates effectively makes an inflation adjustment,
because the exchange rates are being applied to costs which are
reported in understated foreign currency. To avoid distortion in
production costs, we have used annual average constructed value figures
and converted them to U.S. dollars using a weighted-average exchange
rate based on the monthly volume of roses sold by each grower.
We also disagree with respondents' assertion that income resulting
from the inflation adjustment is directly related to production and
should be applied as an offset to financial expense. This annual
revaluation of non-monetary assets does not represent income during the
POI. Instead, it merely reflects an increase to respondent's financial
statement equity due to the restatement of non-monetary assets to
account for inflation.
Comment 9: Statutory General Expenses and Profit
Petitioner claims that statutory general expenses and profit should
be based on third country sales, since third country sales and third
country profit and general expenses would be used as a basis for FMV
when home market sales are not available.
Respondents maintain that the facts of this case and the statute
require that Department calculate profit on the basis of home market
sales, particularly since the Department made a finding in its
preliminary determination that home market sales of export quality
roses were made in the ordinary course of trade. In addition,
respondents note that where the Department used third country price
comparisons in its preliminary determination, if in the final
determination the Department chooses to reject third country prices in
the final determination in favor of CV, it cannot use annual average
third country profit margins in calculating CV, because this would be
the equivalent of comparing an annual average third country price to a
monthly average U.S. price.
DOC Position
In calculating CV, we used selling expenses based on U.S.
surrogates and the eight percent statutory minimum for profit where
there was not a viable home market for export quality roses. Where
there was a viable, but dissimilar, third country markets, we used U.S.
surrogates and the eight percent statutory profit because we have
determined that third country markets do not provide an appropriate
basis for foreign market value. See Comment 6 above.
We used U.S. selling expenses as a surrogate even though certain
producers had viable home markets for culls which are included in the
general class or kind of merchandise.
19 USC 1677b(e)(1)(B) states that the CV of imported merchandise
shall include an amount for general expenses and profit equal to that
usually reflected in sales of merchandise of the same general class or
kind as the merchandise under consideration which are made by producers
in the country of exportation, in the usual commercial quantities and
in the ordinary course of trade, except that--
(i) the amount for general expenses shall not be less than 10
percent of the cost as defined in subparagraph (A), and
(ii) the amount for profit shall not be less than 8 percent of the
sum of such general expenses and cost.
19 C.F.R. 353.50(a) states that if FMV is based on CV, the Secretary
will calculate the FMV by adding general expenses and profit usually
reflected in sales of merchandise of the same class or kind of
merchandise.
However, in the final determination of Certain Granite Products
from Italy, 53 FR 27187, 27191-2 (July 19, 1988)(comment 15), the
Department stated that, due to the uniqueness of one of the such or
similar categories of merchandise, there was no comparability between
sales in the home market and sales in the United States. Therefore, the
Department used the U.S. selling expenses as a surrogate in computing
CV instead of home market selling expenses. As in Certain Granite
Products from Italy, we find that, in the instant investigations, culls
are not representative of the [[Page 7030]] merchandise sold in the
United States, as these products are by definition not export-quality.
Comment 10: Allocation of Production Costs to Cull Roses
Respondents argue that the Department incorrectly calculated CV by
requiring growers to allocate production costs only to export quality
roses, thereby assigning no costs to cull roses. Respondents note that
because cull roses are included in the class or kind of merchandise,
they should be allocated a share of production costs equal to that of
export quality roses. Respondents point out that the Department has
never held that a product covered by an investigation should be treated
as a byproduct having no cost. Respondents also argue that the Federal
Circuit in Ipsco, Inc. v. United States, 965 F.2d 1056 (Fed. Cir. 1990)
defined byproducts as ``secondary products not subject to
investigation.''
Petitioner asserts that cull roses should be categorized as
byproducts to which, from an accounting standpoint, no production costs
should be allocated. Petitioner claims that an appropriate measure for
determining whether a specific product represents a byproduct or
coproduct is to determine if the production process would still be
performed if the product in question was the only one produced.
According to petitioner, no rose grower would establish operations
solely for the purpose of growing culls for sale and, therefore, cull
roses are unmistakably byproducts. Petitioner notes that ITA has
consistently and correctly treated cull roses as byproducts, with
revenues earned from their sale being properly recognized as other
income and, thus, deducted from the cost of producing export quality
roses.
DOC Position
We disagree with respondents' claim that CV was calculated
incorrectly by not allocating any production costs to cull roses. When
determining how to allocate costs among joint products, the Department
normally relies upon generally accepted accounting principles (GAAP) to
prescribe an appropriate cost allocation methodology. One of the
factors used to assess the proper accounting treatment of jointly-
produced products examines the value of each specific product relative
to the value of all products produced during, or as a result of, the
process of manufacturing the main product or products. In this regard,
the distinguishing feature of a byproduct is its relatively minor sales
value in comparison to that of the major product or products produced.
The Department's general practice in agricultural cases has been to
offset the total cost of production with revenue earned from the sale
of the reject agricultural products. The cultivation costs, net of any
recovery from byproducts, are then allocated over the quantity of non-
reject product actually sold. See, e.g., Fresh Cut Flowers from
Colombia, 52 FR 6844 (March 5, 1987); Fresh Cut Flowers from Peru, 52
FR 7003 (March 6, 1987); Fall-Harvested Round White Potatoes, 48 FR
51673 (November 10, 1983); Fresh Cut Roses from Colombia, 49 FR 30767
(August 1, 1984).
In Asociacion Colombiana de Exportadores v. United States, 704 F
Supp. 1114, 1125-26 (CIT 1989), the Court found that ``[c]ulls were
often disposed of as waste, or if saleable, were sold for low prices in
the local market. ITA's treatment of non-export quality flowers as a
byproduct was supported by substantial evidence. The record indicates
that cull value was relatively low and that the production of culls was
unavoidable. These both have been recognized by ITA in the past as
indicia of byproduct status.'' The CIT further noted, ``[c]ull value,
if determinable, should be deducted from cost of production and
production costs should not be allocated to culls.''
For each respondent in this investigation, the total revenue
generated from the sale of cull roses was minimal when compared to the
revenue generated from the sale of export quality roses. Other facts
concerning the production and sale of cull roses are also consistent
with those found in the investigation and subsequent administrative
reviews of Flowers. We therefore find that it is appropriate to treat
cull roses sold in the home market as a byproduct of the production of
export quality roses. This treatment is consistent with the
Department's previous practice of accounting for culls as a byproduct
in the calculation of COP and CV.
Finally, we disagree with respondents' argument that the inclusion
of cull roses in the class or kind of merchandise compels the
Department to use a particular cost accounting methodology. A decision
that a particular product is, or is not, within the scope of a
proceeding does not dictate, or necessarily have any relationship to,
the selection of the particular cost accounting methodology that must
be applied in the determination of COP and CV.
Unlike respondents, we do not read the Federal Appeals Court's
decision in Ipsco as standing for the proposition that in all
circumstances a byproduct for accounting purposes cannot be within the
class or kind of merchandise as that term is defined under the Act.
Moreover, as discussed above, our decision in this regard has been
explicitly upheld by the CIT.
Comment 11: CV--Interest Expense
Respondents argue that the Department grossly overstated each
respondents' net interest expense in calculating CV by using total
company-wide interest expense instead of the expense allocable to rose
production. Respondents request that the Department correct its
preliminary calculations in line 38 of the CV tables, and using the
allocated per unit interest expense calculated on the spreadsheet.
Petitioner agrees with respondents that net interest expenses were
potentially overstated in the preliminary determination and ITA should
allocate interest expenses on a sales dollar basis to roses and then to
rose stems, provided that interest expenses reported were in fact
reported with respect to all sales of all rose types to all markets.
DOC Position
We agree that for some respondents we incorrectly assigned total
company-wide financial expenses only to roses. For purposes of the
final determination, we allocated net financial expenses to roses and
non-subject merchandise using one of the following methodologies, each
of which we consider reasonable: cultivated area, cost of sales or cost
of cultivation. We computed a per stem financial cost by dividing the
net financial expenses related to roses by the total export quality of
stems sold.
Comment 12: CV--U.S. Indirect Selling Expenses
Respondents allege that the Department incorrectly included U.S.
indirect selling expenses incurred by respondents' related importers in
its calculation of constructed value. Respondents claim that including
these expenses in constructed value artificially inflated the FMV,
since these expenses would never have been incurred to sell roses in
the home market. In addition, respondents object to the Department's
calculation of an eight percent profit on these expenses, while at the
same time deducting related party commissions, and thereby all profit
earned by the related importer, from U.S. prices. Respondents hold that
the Department should include only all selling expenses incurred in
Colombia and Ecuador in its calculation of CV. [[Page 7031]]
Petitioner claims that the Department should include in constructed
value direct and indirect selling expenses equal to those expenses
incurred in third country markets, unless such markets are not viable.
And, to the extent that the Department deems home market sales to be
within the ordinary course of trade, and in the event that the home
market for any given respondent was viable, then the Department should
add home market selling expenses to constructed value. Petitioner
states that, in the absence of selling expenses from either the home or
third country market, the Department's practice is to add U.S. selling
expenses in computing SG&A.
DOC Position
For those companies with viable home markets, we used home market
indirect selling expenses. For those companies without viable home
markets we used U.S. indirect selling expenses as a surrogate. See
Comment 9 above. Respondents' objection to deduction of related party
commissions is addressed in Comment 7 above.
Comment 13: Per Unit CV in Dollars
Respondents argue that the Department's methodology used to obtain
the per unit CV in dollars produces a distorted, declining per unit
dollar CV. Respondents note that the Department's method involves
converting annual average per unit foreign-denominated costs to monthly
per unit dollar figures using the monthly exchange rate, which in part
reflects a relatively high inflation rate. Respondents claim that in
order to properly obtain the average per unit CV, the Department should
first convert each month's total foreign-denominated costs using that
month's exchange rate, and then sum these monthly dollar costs for the
period. Next, the total dollar costs should be divided by the total
quantity of roses sold to obtain the average per unit CV in dollars for
the period.
Petitioner does not object to respondents' request for
modifications in the Department's methodology, although petitioner
suggests that such modifications are unnecessary. If modified however,
petitioner argues that it is inappropriate to apply a foreign-dominated
interest rate in order to calculate imputed credit costs, unless the
exchange rate is also adjusted for currency devaluation.
DOC Position
We agree that in this case the Department's previous methodology
used to obtain per unit constructed value in U.S. dollars did not
provide an accurate result. In order to avoid distortion, we have
converted home market cost in local currency to U.S. dollars using the
annual average exchange rate.
Comment 14: Home Market Price Cost Test
Respondents maintain that the Department's sales below cost test
does not test whether a particular product is sold below its cost of
production. Respondents argue that the Department's normal methodology
is to compare prices to model-specific COPs. Because respondents were
only able to supply the Department with average COP information
representing an entire range of rose production, they argue that the
Department should compare annual average COP figures to average home
market prices of all varieties and stem lengths.
Additionally, respondents state that, to account for price
seasonality, the Department must use annual home market average prices
to properly test whether home market sales prices permit the recovery
of costs in a reasonable time. Respondents refer to the Botero Report
as evidence that the unusual seasonal prices of roses allow for ``below
average costs over periods of time, including months, that do not cover
a full price cycle.''
Petitioner argues that the court has rejected the comparison of
production costs with average home market prices. See, Timken Co. v.
United States, 673 F. Supp. 495, 516-17 (CIT 1987).
DOC Position
While it is our normal practice in determining sales below cost to
compare the price of each sale in the home market to the cost of
production (COP) of that product during the period under investigation,
in these investigations we were not able to do so because the
respondents do not segregate their cost data by rose type, variety and
stem length. As a result, we determined that to compare one yearly COP
(the POI in these investigations is one year), which combines all
export quality rose costs to prices for each variety of export quality
roses would not be appropriate. See Comment 5 above. Instead, we
combined prices of home market sales for all varieties on a monthly
basis to our annual COP, in conforming with our modified cost test for
agricultural products, as discussed below in Comment 15.
Although respondents urge the Department to combine individual
sales prices for all export quality roses in the home market on a
yearly basis to compare to the yearly COP calculation for export
quality roses, respondents have not persuaded us that such a radical
departure from our procedure is warranted in these circumstances. As
discussed in Comment 15, the Department has a specific test for
determining whether or not sales are below cost that encompasses
recovery of costs within a reasonable time, which we have applied here.
Comment 15: 50-90-10 Test
Respondents maintain that the Department originally intended to
change its 10-90-10 test to a 50/50 test whereby, if less than half of
all sales were below cost, then all sales should be used in creating
weighted-average FMVs, and if half or more of the sales were found to
be sold below cost, then home market sales would be rejected in their
entirety and FMV would be based on CV.
Petitioner maintains that respondents have misrepresented the
Department's past practice and ignored judicial precedent. Petitioner
maintains that the current 50-90-10 test by which the Department
removes from consideration ``significant'' quantities of sales made
below COP but uses those sales made above cost, is correct. Petitioner
maintains that the courts supported the Department's use of remaining
above-cost sales as sufficient for FMV in Timken Co. v. United States,
673 F. Supp. 495, 516-517 (CIT 1987), and that the basic principle
applies to all products.
DOC Position
We disagree with respondents. The Department has an established
practice which takes into account the realities of selling perishable
agricultural products. In Final Determination of Sales at Less Than
Fair Value: Certain Fresh Winter Vegetables from Mexico, 45 FR 20512,
20515 (March 24, 1980), after examining the nature of sales of
vegetables, the Department determined that it was a regular business
practice to make a relatively high number of sales of the subject
merchandise below cost because of the perishability of the product,
which rapidly ages into non-salable merchandise. As a result, the
Department determined that were it to apply the normal below cost test
used for nonperishable products, i.e., the 10-90-10 test, this would
not fairly reflect the economic realities of the fresh vegetable
industry. As a result, the Department concluded that it would permit
all sales at below cost to remain in the FMV comparison unless more
than 50 percent were found to be below cost. [[Page 7032]]
This modified test was clarified in a review of Final Results of
Antidumping Duty Administrative Review; Certain Fresh Cut Flowers from
Mexico, 58 FR 1794, 1795 (January 17, 1991), wherein the Department
explicitly stated that the test to be applied for determining sales
below cost for perishable agricultural products was a 50-90-10 test,
i.e., if between 50 and 90 percent of home market sales consisted of
prices below cost, then only the below cost sales were disregarded,
while if over 90 percent of sales were below cost then all sales in the
home market were disregarded. See Final Results of Antidumping Duty
Review: Certain Fresh Cut Flowers from Mexico, 56 FR 1795, 1795
(January 17, 1991).
This modified test still remains our current practice and
respondent's rationale for the adoption of a straight 50-50 test is an
unmerited modification. Were we to adopt respondents' either/or
position, i.e., if less than 50 percent are below cost we will use all
sales, and if more than 50 percent we will disregard all sales, then we
would, in effect, be concluding that 11 percent of widget sales above
cost are sufficient to be the basis for FMV but that 49 percent of rose
sales above cost are insufficient. This is an illogical result, which
we are not prepared to accept.
Comment 16: Duty Deposit Rate--Roses Shipped But Not Sold
Respondents urge the Department to adjust the deposit rate to
reflect the fact that many roses imported into the U.S. perish or are
destroyed prior to sale. To avoid over collecting duty deposits on
roses that never reach the U.S. market, and since there is no way of
distinguishing between roses that will be sold and roses that will be
destroyed at the time of entry, respondents argue that the duty deposit
rate should be adjusted downward to reflect the quantity of roses
shipped to the United States, but not sold. This practice is being used
in Flowers. Respondents suggest the Department multiply any ad valorem
rates it calculates by the ratio of total quantity sold divided by
total quantity shipped, as reported by each respondent.
Petitioner states that all imports at the time of importation are
potentially for sale and, therefore, must bear the appropriate cash
deposit rate. Because the percentage of roses that will go unsold
varies due to season, weather, problems in transportation, etc.,
petitioner argues that there is no accurate way to adjust for this
potential impact.
Additionally, petitioner states that if the Department does adjust
the duty deposit rate to account for roses shipped but not sold, than
it is appropriate to adjust the deposit rate to reflect the fact that
values entered by Customs are arbitrarily established on consignment
entries. Petitioner argues that the use of the calculated USP to derive
a cash deposit rate may bear no relation to the value used by Customs
for collecting duties. Therefore, petitioner believes that the duty
deposit rate should be adjusted upwards so that the duty amount
collected reflects the potentially uncollectible duty deposits
calculated in the final determination.
DOC Position
We disagree with respondent that the duty deposit rate should be
adjusted for roses shipped but not sold. We do, however, agree with
respondent, in part, that such adjustment is appropriate for assessment
purposes, which are distinct from duty deposit purposes. In the case
cited by respondents, Fresh Cut Flowers from Colombia 55 FR 20491 (May
17, 1990), the Department indicated that it would make such an
adjustment in preparing assessment instructions to the Customs Service.
The Department did not make such an adjustment to the duty deposit
rates in that case and has not done so in subsequent reviews.
We agree with petitioners that all imports at the time of
importation are potentially for sale, and that the percentage of roses
which go unsold varies with the seasons. Moreover, this percentage will
likely vary with each producer and reseller. Thus, any adjustment
contemplated would be speculative. It is preferable to wait until the
Department prepares assessment instructions on entries covered by these
deposit rates and then make such an adjustment based on the actual
experience of the affected companies.
Comment 17: Cash Deposits--The Department's Sampling Technique
Respondents claim that the all others cash deposit rate calculated
by the Department is not based on a representative sample of the
Colombian rose exporting population--it merely reflects the experience
of 16 of the largest exporters. Furthermore, according to respondents,
the all others rate disregards the representativeness of such
experience. Respondents maintain that this is inconsistent with the
Department's statutory requirement that any averages and samples used
must be representative of the whole. See 19 U.S.C. 1677f-1(b).
DOC Position
We disagree with respondents. The Department's normal practice, in
accordance with its regulations, is to select that number of the
largest exporters of the subject merchandise needed to represent 60
percent of the imports into the United States from the country under
investigation. Due to the large number of companies needed to reach 60
percent of imports in this investigation and the administrative burden
it would put on the Department's resources to investigate these
companies, the Department selected the 16 largest exporters
representing over 40 percent of the imports into the United States. See
the May 2, 1994, Decision Memorandum from the Team to Barbara Stafford.
The methodology used by the Department maximized its coverage of
imports into the United States. The technique of selecting the largest
exporters was employed in the Preliminary Determination of Sales at
Less Than Fair Value: Sweaters Wholly or in Chief Weight of Man-Made
Fiber from Taiwan, 55 FR 17779 (April 27, 1990). The other suggested
sampling methods, stratified and random, were not selected due to the
lack of sufficient industry-wide information on the universe of
Colombian and Ecuadorian rose growers (approximately 400 companies in
Colombia and 100 companies in Ecuador). The collection and analysis of
data to determine an appropriate sampling technique was not reasonably
within the power of the Department to undertake. Therefore, we have
chosen the most representative sample under the circumstances.
Comment 18: Duty Deposit Rate for Volunteer Companies
Respondents argue that the due process clause of the Fifth
Amendment to the U.S. Constitution precludes the Department from
requiring cash deposits with respect to companies that the Department
refused to investigate. Respondents cite Kemira Fibres Oy v. United
States, Slip Op. 94-120 (CIT July 26, 1994) to support their argument
that due process is required in antidumping proceedings. Such a course,
according to respondents, would represent an unconstitutional
deprivation of property without due process of law. Respondents
maintain that the cash deposit rate must be set at zero, and that all
cash deposits paid to date should be refunded, and any bonds posted
should be lifted, for all companies ready and willing to participate,
but not chosen by the Department.
Petitioner also refers to Kemira Fibres to support its argument
that procedural due process guarantees do not require trial-type
proceedings in all administrative determinations.
[[Page 7033]] Additionally, petitioner maintains that, as long as the
Department adheres to the procedures mandated by Congress and
implemented in the Department's regulations, then the Department has
afforded interested parties the process due. These regulations,
according to petitioner, allow interested parties the right to appear
and submit their views on the proceedings of an investigation, but they
do not require the Department to investigate every company that
requests a company-specific margin.
DOC Position
We agree with petitioner. Although it is the Department's practice
to accept voluntary respondents when we have the administrative
resources to do so, the Department's regulations do not require that we
accept responses from voluntary respondents. Furthermore, pursuant to
19 C.F.R. 353.14(c), the Department is required to investigate
exclusion requests only ``to the extent practicable in each
investigation.''
Due to the large number of producers and limited administrative
resources, the Department was unable to follow its standard practice of
investigating 60 percent of the exports of roses into the United
States. Accepting these voluntary respondents and investigating
exclusion requests would have reduced the number of ``mandatory''
respondents we could select. Because the Department is not required to
investigate all voluntary respondents and requests for exclusion, and
because the Department followed its regulations and policy concerning
voluntary respondents and exclusion requests, we have afforded
interested parties the process due.
Comment 19: Exclusion Requests
The Government of Ecuador and Expoflores argue that the Department
has deviated from its standard policy by refusing to accept requests
for exclusions or the submission of voluntary responses. Respondents
further argue that in the instant investigation this departure caused
excessive harm because the Department chose to investigate only 40
percent of the Ecuadorian rose industry, rather than the normal 60
percent of exports to the United States. Respondent's argue that three
Ecuadorian companies requested in timely fashion an exclusion from any
potential antidumping duty order. In addition, respondents claim that
Hilsea submitted a voluntary response to Section A of the Department's
questionnaire which the Department returned. Respondents argue that, by
denying Hilsea the opportunity to submit a voluntary response, the
Department deprived it of the opportunity of demonstrating to the
Department that it is not dumping subject merchandise in the United
States.
Petitioner states that the Department lawfully limited its
investigation to the largest Ecuadorian exporters accounting for 40
percent of U.S. imports from Ecuador and should not exclude
``voluntary'' respondents from the final determination, and that the
Department has discretion within the time limits of an LTFV
investigation to determine ``fair value'' on the basis of a percentage
of total imports. Petitioner states that the regulations indicate that
the Department ``normally'' will examine imports accounting for 60
percent of the volume or value sold during the POI. Petitioner states
that this is not a ``normal'' case, given the volume of transactions
and complexity of both it, and the companion investigation of roses
from Colombia. Further, petitioner asserts that the Department's
regulations specifically authorize the agency to investigate a subset
of all exporting companies in an antidumping investigation. Petitioner
asserts that the Department is not required to investigate every
company with U.S. imports. Finally, petitioner argues that the
availability of a refund, with interest, adequately protects
respondents that sought to volunteer, but who could not be accommodated
due to the sheer number of responses investigated. Petitioner maintains
that if such companies receive a lower rate than ``all others'',
however, the domestic industry is deprived of due process by a decision
that is not based on the record.
DOC Position
We agree with petitioner. Although it is the Department's practice
to accept voluntary respondents when we have the administrative
resources to do so, the Department's regulations do not require that we
accept responses from all who wish to submit voluntary respondents.
Further, considering concurrent investigations is within the discretion
of the Department.
Comment 20: Exclusion of BIA from ``All Others''
The GOE and Expoflores argue that the ``all others'' rate should
not be skewed by the inclusion of a BIA rate. These parties argue that
where the Department examines the pricing practices of only a
relatively small number of companies, the usual assumption that compels
the Department to include a margin based on BIA (i.e. that the pricing
practices of the investigated companies are representative) is lacking.
Petitioner argues that there is no basis to depart from the
standard Department practice of including BIA rates in the calculation
of the ``all others'' rate. Specifically, petitioner argues that where
BIA rates are not wildly different than rates calculated on the basis
of verified data, the court has endorsed the use of BIA rates as part
of the calculated all others rate.
DOC Position
We agree with respondents. See Exclusion of BIA Rate From
Calculation of the All Others Rate section above.
Comment 21: Rejection of Untimely Sales Tape
Petitioner argues that the Department cannot for any purpose accept
for the record the revised tapes required to be filed on January 3,
1995. Petitioner quotes a memorandum to the file regarding ``tape
submissions'' dated December 30, 1994, which indicates that the
Department extended the deadline for filing computer tapes from
December 30 to January 3, 1995. Petitioner states that specifically,
the memorandum records the deadline as ``9 a.m.'' Petitioner states
that, ``filing'' as a matter of law is not complete without service of
the tapes upon counsel for petitioner. 19 C.F.R. 353.31(g). Petitioner
argues that, under the regulations, ``[t]he Secretary will not accept
any document that is not accompanied by a certificate of service
listing the parties served, the type of document served, and, for each,
indicating the date and method of service.'' 19 C.F.R. 353.31(g).
Petitioner states that, in this case, there is no question that counsel
for petitioner are covered by the administrative protective order and
entitled to receive on a timely basis copies of any computer tapes
filed by respondents. Petitioner notes that the Department has
previously alerted counsel for Arbusta in this proceeding of the need
to serve computer tapes due to counsel's tardiness in serving earlier
tapes submitted to the Department. At this very late stage of the
proceedings, petitioner claims there is no basis to accept any new
computer tapes for the record, where service was not made and the
rights of petitioner have been so prejudiced.
Respondents did not comment on this issue.
DOC Position
We accepted respondent's sales tapes and gave petitioner time to
comment on these tapes. Although respondents did not provide the sales
tapes to petitioner [[Page 7034]] in a timely manner according to our
regulations, we accorded petitioner sufficient time to comment and
petitioner, therefore, was not prejudiced. See the January 17, 1995,
Memorandum to File.
Company Specific Comments
Arbusta
Comment 22
Petitioner argues that respondent's sales to its related U.S.
importer (related importer) were reported using an unreliable
methodology, and, therefore, U.S. price for these sales should be based
upon BIA. Specifically, petitioner takes issue with respondent's
methodology for identifying the country of origin of U.S. sales by
comparing production records with sales records.
Respondent argues that the Department should accept its method of
reporting U.S. sales whose origin cannot be identified from sales
records kept in the normal course of business. Respondent further
argues that the Department cannot punish it for maintaining commercial
records in the ordinary course of its business that do not identify
data in accordance with the Department requirements.
DOC Position
We agree with respondent. At verification we noted that, in order
to compile its sales listing for the Department, the related importer
excluded the following from its total POI sales: (1) sales of non-
Ecuadorian origin having a specific origin code; (2) non-subject
merchandise; and (3) samples. The result represented sales of
respondent-produced merchandise (representing approximately 86 percent
of its related importer's total sales of subject merchandise) and sales
of ``unknown'' origin. Based on records kept in the normal course of
business, respondent's related importer was unable to determine the
origin of the remaining sales. However, our review of the related
importer's method of using the average price on its grower's report to
determine which sales to report suggests that the sales of ``unknown''
origin were priced in accordance with sales of known origin. Therefore,
we find the method used to report sales of unknown origin to be
reasonable and non-distortive. Moreover, the related importer reported
actual prices in its sales listing. Therefore, we have accepted
respondent's reporting methodology as reflective of actual experience
and have used it for purposes of the final determination.
Comment 23
Petitioner claims we should base the LTFV margin for respondent's
consignment sales to two related consignees on BIA as we were unable
verify these consignees. Petitioner argues that, with respect to the
ESP sales listing for these consignees, as the data on the record was
not verifiable and acceptance of the growers report data would
constitute the submission of a substantially new response, the U.S.
sales listing of ESP sales to these two related parties is unreliable
and cannot be used for purposes of the final determination.
Respondent claims that, in preparing for verification, it
discovered that sales through its two consignees in Miami had been
systematically reported incorrectly in its sales listing, in part
because of a computer error. Respondent claims that it immediately
sought to rectify these errors by submitting a new sales listing for
these consignees on September 28, 1994, as part of its timely response
to the supplemental questionnaire issued by the Department on September
15, 1994. Respondent states that the Department erroneously rejected
the new sales listing on the untenable grounds that 19 C.F.R.
353.31(a)(1)(i) requires that factual information be submitted ``seven
days before the scheduled date on which the verification is to
commence.'' Respondent alleges that the Department's interpretation of
the regulation was grossly unfair and inconsistent with past precedent
as verification of the information was not scheduled until October 19
and 20, far longer than seven days after the submission date of
September 28, 1994. Thus, respondent contends that the new September
28, 1994, sales listing was filed well within the seven day deadline
set forth in 19 C.F.R. 353.31(a)(1)(i).
DOC Position
We agree with petitioner. Respondent attempted to submit an
entirely new, unsolicited sales tape beyond the deadlines established
by 19 C.F.R. 353.31(a). Contrary to respondent's assertion, the
September 28, 1994, sales listing was submitted less than two business
days prior to the October 3, 1994, start of verification. We rejected
the sales tape as untimely. Furthermore, when respondent provided
excerpts from the untimely revised sales list at verification in
Ecuador, we examined them and determined that they showed that the
original sales list was substantially inaccurate and would not verify.
See verification report. Accordingly, we have assigned BIA to these
unverified sales. As BIA, we have used the highest of the highest non-
aberrational margin calculated for any U.S. sale or the average
petition margin.
Comment 24
With regard to the rejected sales tapes of respondent's two related
consignees, petitioner argues that there is no basis in the record to
apply a ``neutral'' margin where respondent conceded that its original
sales listing was erroneous and where the revised data were neither
timely submitted nor verified. Petitioner states that partial BIA for
purposes of calculating the LTFV margins for the missing sales data
should consist of the higher of the highest non-aberrant transaction
margin or the average petition margin.
DOC Position
We agree with petitioner. See Comment 23 above.
Comment 25
Petitioner contends that, while the verification report erroneously
suggests that alleged ``free samples'' or sales with a ``zero'' price
should be removed from the sales listing, this conclusion is incorrect
under the statute and Department precedent. First, petitioner claims
that, as a matter of law, there is no basis to exclude any U.S. sale
from the fair value comparison and that the statute applies to all
sales, without the limitation ``ordinary course'' or otherwise. Ipsco,
Inc. v. United States, 687 F. Supp. 633, 640-41 (CIT. 1988). Hence,
petitioner argues that given an express limitation on the determination
of FMV and no corresponding exclusion from USP, statutory construction
requires that there be no exception in the latter case. See Ad Hoc
Committee of AZ-NM-TX-FL Producers of Gray Portland Cement v. United
States, 13 F.3d 398, 401 (Fed. Cir. 1994). Second, petitioner claims
that, to the extent that a box charge is recovered from sales at a
``zero'' price, such sales are indistinguishable from distress sales.
Moreover, petitioner states that because USPs were averaged in order to
take account of distress sales, such sales must be included in the
sales listing in order to produce a ``representative'' average price.
(19 U.S.C. Sec. 1677f-1(b).) An average without including the alleged
``distress'' sales is clearly not ``representative'' of all U.S. sales.
Floral Trade Council v. United States, 775 F. Supp. 1492, 1503 (CIT
1991), appeal pending, No. 94-1019, -1020. In Floral Trade Council, the
court affirmed ITA's determination that so-called ``distress'' sales
must be included in the U.S. sales listing because ``[a]veraging
already [[Page 7035]] accounts for perishability, and all United States
sales both in and out of the ordinary course of trade are included in
calculating USP.''
Respondent argues that its one zero-priced transaction should be
excluded from the sales listing because providing a sample does not
constitute a ``sale'' pursuant to 19 U.S.C. 1673. Respondent claims it
had one shipment of sample roses for which it received no revenue
whatsoever and that, by legal definition, a sale must include the
exchange of money. Moreover, respondent claims the Department has the
authority to exclude U.S. sales from a LTFV margin calculation if such
sales are not representative of the sellers' behavior and are so small
in quantity and value that they would have an insignificant effect on
the margin. See Ipsco Inc. v. United States, 714 F. Supp. 1211, 1217
(CIT 1989) (rev'd on other grounds, 965 F.2d 1056 (Fed. Cir. 1992)
(Ipsco)). Respondent states that this one shipment meets the criteria
set out in Ipsco.
DOC Position
We agree with respondent. We verified that all sales to one
customer in July had been shipped as free samples. In accordance with
our treatment of all sample sales in this case, we have deleted these
observations from the sales listing. Therefore, the verification report
states that U.S. (purchase price) observations 339 through 352 should
be removed from the sales listing.
Comment 26
Petitioner states that export taxes are a direct selling expense,
and are deductible from USP under 19 U.S.C. 1677a(d)(2). Accordingly,
petitioner states that FONIN export taxes should be calculated for all
U.S. sales and deducted in the sales listing. Petitioner agrees with
respondent that the FONIN tax should not be included in G&A expenses
and that such taxes must be deducted separately from U.S. price
pursuant to 19 U.S.C. 1677a(d)(2). With respect to the basis for
calculating the FONIN taxes, however, petitioner is unclear whether the
computer sales listings contain the ``reference value'' declared to the
Central Bank of Ecuador. In the absence of these values, petitioner
claims there is no record basis for calculating the FONIN tax in a
manner that will duplicate the actual tax paid. Petitioner argues that
the Department should, therefore, apply the tax to the gross price as
the best estimate of the amount paid.
Respondent claims that the Ecuadorian export tax, FONIN, was
calculated as 0.5 percent of the reference value declared to the
Central Bank of Ecuador and shown on the export invoice. Respondent
states that it reported FONIN taxes as part of administrative expenses
in its CV tables and the amount of FONIN paid during the POI therefore
should be deducted from its administrative expenses. Respondent
included FONIN in its indirect selling expense calculation and since
this expense is deducted from USP it must also be removed from indirect
selling expense to avoid double counting.
DOC Position
We agree with petitioner and with respondent, in part. Section
772(d)(2)(B) of the Act specifically directs that export taxes be
deducted from USP; therefore, we have deducted FONIN from USP and
adjusted expenses accordingly to avoid double counting. We have
calculated FONIN as a percentage of the gross unit price as was done in
the preliminary determination.
Comment 27
Petitioner states that credit costs on PP sales should be amended
to reflect the correct number of credit days as noted at verification.
DOC Position
We agree with petitioner. Consistent with our treatment of minor
changes to submitted data, we have used verified data for respondent's
credit days (see e.g., Final Determination of Sales at Less Than Fair
Value: New Minivans from Japan, 57 FR 21937, 21952 (May 26, 1992)
(Minivans).
Comment 28
Petitioner states that we should revise the quality credits
incurred by respondent's related importer in accordance with the
verification report. In its rebuttal brief, petitioner states that it
agrees with respondent that the Department should use the revised data
received at verification concerning these expenses.
Respondent states that while it provided revised figures for U.S.
quality credits, the revisions do not substantially affect previously
submitted data. Thus, respondent claims the Department should accept
its quality credit calculation as provided by it related importer at
verification.
DOC Position
We agree with petitioner and respondent and have used the quality
credits as verified. See e.g., Minivans.
Comment 29
Petitioner claims that verification of movement expenses on sales
through respondent's related importer established that the charges
reported to the Department could not be supported by its records.
Petitioner cites the sales verification report wherein the Department
stated that, with regard to movement expenses, it found that
respondent's related importer both over-reported and under-reported
certain of these expenses. Accordingly, petitioner states the
Department should deny the claimed adjustments and instead apply BIA.
Petitioner argues that for each charge we should impute the highest
per-unit amount claimed in any month to all sales. Petitioner notes
that the determinations cited by respondent do not support the
proposition that any changes identified by a respondent during
verification should be made, so long as they are not extensive.
Respondent states that, while it provided revised figures for U.S.
movement expenses, the revisions do not substantially affect previously
submitted data. Thus, respondent claims the Department should accept
its revised figures for movement expenses (brokerage and handling, air
freight and inland freight) provided by it related importer at
verification and which tied to its accounting system, even though these
figures differed slightly from the amounts reported. Respondent argues
that the use of the verified movement expenses in the Department's
final margin calculation would be consistent with the Department's
practice and precedent. Respondent cites the Final Determination of
Certain Steel Products from Italy, 58 FR 37327 (July 9, 1993), wherein
the Department used revised information provided by respondents at
verification because it did not substantially amend previously
submitted data.
DOC Position
We agree with respondent. We found that the verified movement
expenses were not greatly different from the reported figures.
Therefore, consistent with our treatment of minor discrepancies found
at verification, we have used the verified movement expenses. See e.g.,
Minivans.
Comment 30
Petitioner states that we should increase indirect selling expenses
incurred in Ecuador to include the full amount shown in respondent's
September 28, 1994, indirect selling expense exhibit. Petitioner notes
that [[Page 7036]] verification in Ecuador established that respondent
could not support the total indirect selling expenses incurred in
Ecuador and urges the Department to allocate the larger amount to ESP
sales as BIA.
DOC Position
We disagree with petitioner that BIA is warranted. At verification,
we noted a small discrepancy in respondent's submission. At
verification, we tied indirect selling expenses to the general ledgers
and trial balances. Consistent with our treatment of minor changes to
submitted data, we have used the verified data for respondent's
indirect selling expenses. See e.g., Minivans.
Comment 31
Petitioner takes issue with the verification of respondent's
reported ``estimator'' used to calculate foreign inland freight and
states that the Department should base foreign inland freight on BIA
for purposes of the final determination.
Respondent states that its foreign inland freight expense was based
on the cost paid to its unrelated trucking company to transport roses
from the farm to the airport. Respondent claims it accurately reported
this expense by dividing the standard charge by the number of boxes
shipped, and then dividing the per box charge by the number of stems
per box. Respondent claims that the Department verified the accuracy of
the standard freight charge by reviewing six selected entries to the
freight account from three months of the POI. With the exception of
freight charges paid to a former employee, respondent claims the
Department found its standard freight charge to be accurate. Thus,
respondent states the Department should accept this expense as
verified.
DOC Position
We agree with petitioner. Only fifty percent of the entries
examined tied to respondent's responses. Therefore, we have used the
highest foreign inland freight amount reported in respondent's response
as BIA.
Comment 32
Petitioner notes that verification disclosed that respondent offset
its short-term interest expenses by income from exchange-rate gains on
sales, sales of humus, and ``other'' income. Petitioner claims that
none of these income items is allowed as an offset to interest expenses
according to longstanding Department practice unless it is directly
linked to the interest expenses deducted. See, e.g., Silicon Metal from
Brazil, 59 FR 42806, 42811 (August 19, 1994) (final results admin.
review); Certain Carbon and Alloy Steel Wire Rod from Canada, 59 FR
18791, 18795 (April 20, 1994) (final LTFV determination).
Respondent claims it offset financial expenses with short-term
interest income and exchange gains generated from sales transactions.
Respondent cites the verification report wherein the Department,
``[e]xamined the assets which generated interest income and noted that
they were short-term in nature.'' Respondent states the Department also
noted that exchange gains that were offset against financial expenses
were from sales transactions. Thus, the Department should accept its
financial expenses as reported.
DOC Position
We agree with petitioners that these items are not proper offsets
to interest expenses as they are of a general and administrative
nature.
GUAISA
Comment 33
Petitioner argues that the U.S. sales listing is unreliable and
should be disregarded. Petitioner points out that at verification the
Department found one U.S. ``sale'' that was reported with a quantity,
price and payment date even though the roses were discarded at the
county dump. Petitioner contends that this sale was not a sale but a
computer generated transaction. Petitioner states that because one of
the eight ESP transactions reviewed at verification contained this
computer generated transaction, it is unclear whether, and to what
extent, other computer generated transactions are contained in the
sales listing. Petitioner argues that the reliability of Respondent's
related consignee's sales data is in question because of this
significant flaw. Therefore, petitioner contends, the Department should
not rely upon respondent's data but assign an LTFV margin to respondent
based on BIA.
DOC Position
We disagree with petitioner. We examined respondent's records in
considerable detail at verification and are satisfied that this
discrepancy is not widespread. Therefore, there is no basis to use BIA,
and we accept respondent's U.S. sales data for purposes of calculating
a margin.
Comment 34
Respondent claims that the Department should disregard disposal
sales from its sales listing and that ``disposal'' sales are different
from ``end of the day'' (i.e., distress) sales. Respondent states that
the purpose of a disposal sale is to discard waste and that disposal
sales are made to customers outside the fresh cut flower industry, such
as manufacturers of potpourri or dried flowers, and recyclers of
cardboard and plastic. Respondent maintains that it has a separate
coding system in its computer system for disposal sales and does not
pay its U.S. subsidiary a commission on these sales.
Respondent maintains that disposal sales differ from distress sales
because they are inflicted with disease or damage before entering the
United States. Further, respondent contends that it established at
verification that roses classified as disposal enter the United States
in damaged or diseased condition.
Respondent also argues that the discarded roses are essentially the
equivalent of ``secondary merchandise'' which the Department has
excluded from the calculation of USP in other cases (see, e.g., Certain
Cold-Rolled Carbon Steel Flat Products from Argentina, 58 FR 37062,
37077 (July 9, 1994) (Carbon Steel). Respondent notes that in Carbon
Steel, the Department excluded sales of non-prime merchandise where
sales of such merchandise were an insignificant portion of total sales.
Respondent maintains that its disposal sales constitute far less than
five percent by volume of its related consignee's sales. Respondent
claims that the high percentage of monthly disposal sales in May was
due to a propagation of botritis.
Regarding ``zero-value'' sales, respondent states that by
definition, a ``zero-value'' sale is one for which no revenue has been
collected. Respondent asserts that petitioner mistakenly claims that
the verification report states that a ``box charge is collected'' on
so-called zero-price sales because the verification report does not
make any reference to ``zero-value sales'' on the page cited by
petitioner. Respondent states that petitioner is confusing zero value
sales with disposal sales. The basic legal definition of a ``sale''
necessarily includes the exchange of money; this component is
distinctly absent from zero-value sales.
Petitioner argues that: (1) There is no record support and no
verified evidence that roses have been damaged or diseased before
entering the United States; and (2) there is no basis offered by
respondent on which the Department could segregate sales of diseased
roses from normal distress sales that result from the perishability of
roses. [[Page 7037]]
Petitioner adds that there is a large supply of roses on the market
in May due to the fact that roses cut for Valentine's Day have a second
``flush'' by May and may be shipped to the U.S. market, whether or not
there is sufficiently strong demand. Therefore, petitioner argues that
a particular stem price does not establish that the roses were damaged
or diseased. Furthermore, petitioner maintains that distress sales are
already accounted for by the use of a monthly average.
Regarding zero-value sales, petitioner maintains that as a matter
of law there is no basis for excluding any sales from the fair value
comparison (see Ipsco, Inc. v. United States. 687 F. Supp. 633, 640-41
(CIT 1988) and Ad Hoc Committee of AZ-NM-TX-FL Producers of Gray
Portland Cement v. United States, 13 F.3d 398, 401 (Fed. Cir. 1994).
Petitioner notes that because a box charge was paid on these sales,
respondents could easily evade an order by selling roses for a zero
price but charging for the box.
Petitioner argues that, to the extent that respondent unilaterally
and improperly excluded zero-price sales from its U.S. sales listing,
the monthly average U.S. prices are overstated and respondent's sales
listing must be rejected and the Department apply BIA.
DOC Position
Regarding ``disposal sales,'' we agree with petitioner and kept
these sales in the sales listing. At verification, we observed that a
large number of very low price sales were reported in the month of May.
Company officials stated that, the fact that a high number of these
sales were made at distressed prices in the month of May is not unusual
because it is the second harvest of the February crop and occurs in a
month when the supply exceeds demand. The fact that, in its brief,
respondent refers to these distress sales as ``disposal'' sales does
not change the fact that these are distress sales.
Regarding zero value sales, we agree with respondent that these
should be treated as sample sales. Respondent reported a small
percentage of its U.S. sales as sample sales. Consistent with our
treatment of samples in the preliminary determination and for all
companies, the Department has excluded sample sales from our U.S.
calculation in previous cases (see, e.g., Final Determination of Sales
at Less Than Fair Value: Professional Electric Cutting and Sanding and
Grinding Tools from Japan 58 FR 30144, 30146 May 26, 1993).
Comment 35
Petitioner argues that the Department should use the quality
credits reported on the growers reports for ESP sales. Petitioner
maintains that the Department was unable to tie the total amount of
credits allegedly outside the POI with the total amount given on sales
``inside'' the POI. Petitioner states that, even though respondent's
growers reports may contain credits applicable to 1992 sales, it does
not contain credits given in 1994 for 1993 sales. Therefore, because
credits on the growers reports cover an entire seasonal cycle, it is
reasonable to use credits awarded over a full year as the basis for
this adjustment even though the credits do not tie entirely to the POI.
Respondent states that the Department identified discrepancies in
its related consignee's U.S. quality credit calculation. However,
respondent maintains that the Department verified corrected data and,
therefore, should use its corrected data in the final determination.
Furthermore, respondent states that the difference between the amount
the Department was unable to tie from respondent's response to its
worksheets differed by only a small percentage from that reported.
Therefore, respondent argues that this does not discredit its
methodology of excluding credits paid on sales made before the POI and
including credits paid after the POI which were on sales made during
the POI.
Respondent maintains that the Department has erroneously referred
to the ``credit reimbursement'' as if it were a quality credit.
Respondent states that this ``credit reimbursement'' is compensation
from respondent's related consignee to respondent in the form of an
inter-company transfer and bears no connection to quality credits.
Respondent explains that the money transferred is actually ``excess''
profit accumulated by respondent's related consignee from sales of
roses from other farms during the Valentine's Day holiday. Furthermore,
respondent states that this credit reimbursement figure is not found in
any quality credit account but, as found by the Department at
verification, is recorded in respondent's related consignee's operating
statement as a cost of sales. Therefore, the Department should use the
verified quality credits, as stated above, in its quality credit
calculation and should exclude credit reimbursements from the
calculation.
DOC Position
We agree with petitioners. Because there is a discrepancy in
respondent's methodology of matching credits in the POI with sales
outside the POI, we used the quality credits reported on the growers
reports in our calculation, including the credits given on freight and
packing. We also included credit reimbursements as a quality credit
expense.
Respondent reported in its sales listing the quality credits shown
on the growers reports. At verification, we noted that by using the
growers reports to report quality credits, respondent had included
quality credits which applied to 1992 and excluded quality credits
reported in 1994 which applied to 1993. Therefore, at our request
respondent attempted to match the quality credits to the month the
sales occurred. Respondent provided a breakdown of the quality credits
for 1992; however, it did not provide a breakdown of quality credits
recorded in its 1994 records that applied to 1993 credits due to the
limited time available at verification. Therefore, we were able to
determine how, if at all, the quality credits should be adjusted.
However, we were satisfied that what they reported is what was actually
incurred and found no reason to conclude that the reported figures
should not be used. Therefore, we used the verified data from the
growers reports.
Comment 36
Respondent argues that at verification the Department found that it
received free airline tickets and freight rebates from its freight
carriers in recognition of the high level of business given the freight
carriers by respondent. Therefore, respondent contends that the
Department should treat the value of these tickets and rebates as a
deduction from total U.S. air freight expenses.
Petitioner notes that it is unclear whether respondent counted such
income as an offset to air freight expenses in its normal books and
records. Petitioner states that because neither the sales nor the cost
verification reports mention that such an item appeared in respondent's
general ledger or was treated other than as income to respondent's
officers, the record does not tie the airline tickets to POI sales of
roses.
Petitioner contends that although respondent claims that the
tickets were rewarded ``in recognition of the high level of business
given the freight carriers,'' there is no documentary evidence to
support this claim. Petitioner adds that no other Ecuadoran rose grower
made a similar claim and there is no support for the claimed
adjustment. [[Page 7038]]
DOC Position
Respondent reported an air freight rebate and six free airline
tickets received from its air cargo carrier in its response. For the
preliminary determination, we deducted the air freight rebate from air
freight expenses. We did not deduct the value of the six free round
trip airline tickets from respondent's air freight expenses. We
verified that respondents received rebates on air freight expenses
incurred during the POI. Therefore, we granted the percentage of rebate
allocable to roses based on exports of roses to exports of all
products. Regarding airline tickets, because these tickets are not a
reduction of the air freight expense of respondent, or a reduction to
respondent's cost, we discarded the airline tickets from our analysis.
Comment 37
Respondent argues that the Department should accept the reported
number of days for purposes of calculating imputed credit calculation
on its purchase price sales.
Respondent's accounting system did not electronically link the date
of sale and date of payment, instead respondent manually matched
invoices and payment records. Respondent stated that, a burdensome and
exhaustive task, some errors occurred. However, respondent argues that
these errors were not significant and worked to respondent's
disadvantage.
Petitioner argues that since the Department only verified a few
observations and found pervasive errors in credit days reported the
payment days reported are unreliable and the Department should apply
BIA. Petitioner asserts that, as partial BIA, the Department should
select the longest payment days from a non-aberrational transaction and
impute that period to all U.S. sales.
DOC Position
We agree, in part, with petitioner. As BIA, we used the highest
monthly weighted-average credit days reported on purchase price sales.
At verification, we found that every preselect and surprise sale had an
error in the calculation of the number of credit days outstanding for
third country and purchase price sales.
Comment 38
Respondent asserts that the Department should use the verified
interest rate for the imputed credit expense for purchase price sales.
Respondent argues that using the verified interest rate does not
substantially effect previously submitted information. Therefore,
respondent claims that, the Department, consistent with its precedent
and practice, should accept and use the revised calculations. In
support of this assertion, respondent cites the final determination of
Certain Steel Products from Italy, 58 FR 37327 (July 9, 1993) wherein
the Department used actual information provided by respondents at
verification which did not substantially amend previously submitted
data.
Petitioner argues that information regarding purchase price
interest rates collected at verification should not be accepted by the
Department merely on the ground that the revisions do not substantially
affect previously submitted. However, to the extent that these
corrections were verified and the Department was satisfied of their
accuracy, petitioner does not object to the use of the verified
interest rate.
DOC Position
We agree with both parties. We used the verified information for
calculating the interest rate for imputed credit.
Comment 39
Respondent, stating that it experienced extraordinary wind damage
on August 2 through 7, 1993, argues that the Department should not
include in COP or CV, the expenses it incurred to rebuild its
greenhouses. Respondent maintains that the hurricane winds experienced
during the POI were not a normal event. Respondent states that
according to U.S. GAAP, for an event to be considered ``extraordinary''
it ``must be unusual in nature and infrequent in occurrence.'' (See
Floral Trade Council v. United States, Slip Op. 92-213.) Respondent
contends that the hurricane winds it experienced were both ``unusual in
nature'' and ``infrequent in occurrence.'' Respondent states that this
was the first time that winds of such abnormally high and devastating
velocity struck the region, and thus such winds were highly abnormal
and could not be reasonably anticipated. Accordingly, respondent
contends that the Department should base CV on the actual production of
the first five months of the POI and expected production for the
remaining seven months. In addition, respondent urges the Department to
exclude its extraordinary costs associated with the damage from the
windstorm.
Petitioner notes that wind, like other weather conditions, is an
anticipated factor in growing roses. Petitioner maintains that certain
losses occur each year due to weather, disease, or the environment.
Therefore, there is no basis to treat respondent's wind damage costs
differently for this investigation.
Petitioner argues that respondent did not claim expenses associated
with the windstorm as ``extraordinary'' in its financial statements.
Thus, petitioner contends, there is no basis upon which normal and
allegedly ``extraordinary'' costs can be segregated.
Petitioner maintains that if an adjustment for extraordinary losses
is granted, it would be improper for the Department to determine unit
costs based on theoretical production. Instead, extraordinary cost from
the storm should be removed from the total and then actual costs
incurred should be spread over actual production.
DOC Position
We agree with respondent. At verification we reviewed news videos
and photographs of the wind damage. The severe wind storm damage
resulted in an unusual loss of crop. To make an appropriate adjustment
for this loss we have normalized the production level. We have relied
upon the actual number of stems sold in January through July 1993. For
the months which suffered crop losses due to the storm, i.e., August,
September, October and November, we have based our calculations of
monthly stems produced on the average of actual monthly sales from the
first seven months of 1993. This is a conservative estimate since
respondent had plants that would have begun to enter the productive
phase during the August-November period. Thus, under normal
circumstances, production would have increased to include additional
stems harvested from plants just starting the production period when
the wind storm occurred.
Finally, we disagree with petitioner that we should remove all
expenses as an extraordinary cost and that it would be inappropriate to
isolate an extra cost of the storm. The Department determined that the
major loss of the storm was the loss of the growing crop, the stems
which would have matured over approximately the next twelve weeks.
Therefore, we believe that it is appropriate to adjust for the loss of
the crop.
Comment 40
Petitioner states that verification disclosed that nursery plants
were excluded from the basis for allocating certain costs to rose
production. Petitioner argues that by depreciating the rose plants over
their useful life, respondent takes account of the pre-production stage
of its rose plants. Therefore, respondent should not also exclude
plants in the pre-production [[Page 7039]] stage from the total to
which costs are allocated. Otherwise, no costs are attributed to the
pre-production rose plants.
Petitioner states that respondent's allocation of services (e.g.,
insurance and depreciation expenses) by the number of plants, rather
than the area in production is reasonable. However, petitioner argues
that greenhouse depreciation, machinery and equipment depreciation,
insurance on the facility, and service costs are related to area in
production, not the number of plants.
Petitioner also argues that the record does not establish that the
nursery stock was sold exclusively to unrelated customers. Therefore,
if some or all of the nursery stock was used in respondent's
greenhouses, then there is no basis for excluding these costs or
allocating a portion to rose production.
Furthermore, petitioner contends that because respondent did not
segregate these costs in its response, the Department should determine
whether the number-of-plants allocation (including nursery plants)
reasonably approximates the production-area allocation. If not,
petitioner argues that the Department should use the higher percentage
as the allocation basis as BIA.
Respondent argues that petitioner's theory that the pre-production
stage of a rose plant is accounted for by depreciating rose plants over
their useful life is erroneous. Respondent asserts that petitioner is
confusing the amortization of pre-production costs of rose plants
ultimately grown by respondent for production, with the separate
business of selling nursery rose plants to unrelated parties.
Respondent maintains that the sale of nursery plants constitutes a
separate line of business and the costs of nursery plants, like any
other plant not subject to this investigation, should not be included
in the CV calculation of fresh cut roses.
Respondent adds that it allocated service, insurance and
depreciation expenses on the basis of number of plants which included
nursery rose plants. Respondent states that nursery plants are not
considered production plants and are sold to unrelated customers in the
normal course of business. Therefore, respondent contends that the
nursery plants, like any other plant not subject to this investigation,
should not be included in the CV calculation.
DOC Position
We agree with petitioner that using the number of plants to
allocate certain expenses is not an accurate measure. At verification,
we reviewed respondent's plant allocation methodology and determined
that it was inaccurate. With the exception of the plants themselves,
other inputs in the growing process seem to be more closely linked to
the area under cultivation. We also reviewed the calculation of area
under cultivation. As we have determined that it is more correct to
allocate the costs in question based on cultivation area, we have re-
allocated the cost on that basis.
Comment 41
Respondent states that it translated dollar-denominated loans and
payments into sucres in its financial statements and that during the
POI, that a fictitious loss was created and recorded in the translation
gain/loss account. Respondent argues that this account is purely
cosmetic and does not reflect actual costs of production. Therefore,
the Department should not include the fictitious translation expenses
in its CV calculation.
Petitioner asserts that because respondent's so-called
``translation'' losses on foreign-currency loans are recorded in
respondent's financial statement in the ordinary course of business and
in accordance with GAAP, they should not be disregarded. Petitioner
asserts that, in order to repay foreign-currency loans, respondent will
be required to convert sucres to the currency of the loan. Therefore,
repayment is affected by the exchange rate. Moreover, the overall
financial condition of respondent, and its ability to raise capital and
obtain loans, is affected by the translation losses shown on its
financial statements. Accordingly, petitioner argues, there is no basis
to ignore these costs in determining the total cost of production.
DOC Position
We agree with petitioner. The translation loss reflects an actual
increase in the amount of sucres that will be paid to settle these
borrowings. We have therefore included the translation loss and
amortized it over the remaining life of the loan.
Comment 42
Petitioner maintains that respondent treated interest payments to a
shareholder as normal interest expenses in its ordinary books and
records. Petitioner cites Kiwi Fruit from New Zealand, 59 FR 48596,
48599 (September 22, 1994) (final results of admin. review) in which
the Department stated:
Absent specific evidence to the contrary, we consider expenses
recorded in a company's financial statements to reflect actual
expenses incurred
in its operations * * * Respondent has not presented any documentary
evidence in support of its claim that the recorded expenses were not
actual expenses. Accordingly, we continue to rely on the growers'
financial statements for orchard expenses in the final results.
Moreover, petitioner maintains that the proceeds of the loan were
used for working capital, not capital expenditures. Petitioner contends
that the shareholder and the company did not treat the loan as a stock
purchase or otherwise as an increase in capitalization. Therefore, the
issue is not whether the interest costs of the loan should be excluded,
but whether the provision of working capital was at a favorable less
than arm's length rate. If so, petitioner maintains that the
transaction should be treated as any other related-party input and
revalued at an arm's length interest rate. Alternatively, the interest
paid to a shareholder should be treated as income to that shareholder
in return for management services. Furthermore, petitioner maintains
that because of the nature of the relationship between the shareholder
and respondent, the ``interest'' paid to the shareholder should be
deemed to be part of his salary.
Respondent states that this ``loan'' was more in the nature of an
investment and was recorded in respondent's records as a loan for tax
purposes only. Furthermore, respondent states that it followed the
Department's questionnaire instructions which state to ``include all
interest expenses incurred on your company's long and short-term debt
from unrelated sources.* * *'' Therefore, respondent states that the
Department should not include interest paid to a shareholder as part of
respondent's financial costs.
DOC Position
We agree with petitioner. At verification, the Department was
unable, due to time constraints, to collect sufficient information to
determine what the original classification of a loan should have been.
Since the loan was not recorded originally as an equity investment and
is reflected in the company's books and records as borrowings, we have
no basis to reclassify it as equity. Therefore, consistent with the
company's financial statement treatment, we have included interest
expense for this loan in our cost calculations.
[[Page 7040]]
Inversiones Floricola, S.A.
Comment 43
Petitioner argues that a small rose producer in Ecuador (because
its identity is proprietary, it will hereinafter be referred to as
``company X'') is related to respondent and that respondent did not
report sales from this farm in its sales listing. Regarding the nature
of the relationship, petitioner states that there is sufficient
evidence of ownership between respondent and company X. Petitioner
argues that: (1) The rose farms of the group most likely have similar
production processes and could, therefore, shift production to company
X to supply respondent's U.S. customers to take advantage of a possible
lower antidumping duty margin; and (2) there is at least a possibility
of future price manipulation due to knowledge of marketing and
production information for both respondent and company X; (4) there is
no evidence on the record of an absence of control of production or
sales at the group of companies and that respondent's claim that
Sunburst Farms controls marketing, sales, and pricing for respondent
are unsupported by the evidence on the record; and (5) even the
smallest amount of third country sales by company X would establish the
viability of respondent's third country markets. Therefore, petitioner
argues that company X and respondent are related parties and as such,
company X's sales should have been reported. Petitioner argues that, as
cooperative BIA, the Department should assign the average margin from
the petition to company X.
Respondent maintains that it is the only rose-producing entity
among its related companies, and that it has fully reported its sales
and cost information in this investigation. Regarding company X,
respondent argues that it is not a related party under 19 U.S.C.
1677(13). Respondent states that it is neither an agent nor a principal
of company X. Furthermore, respondent states that it owns no interest
in company X and company X owns no interest in respondent. Respondent
argues that there is no direct or indirect ownership link between
respondent and company X.
Moreover, respondent maintains that respondent and company X
operate as separate and distinct entities. Respondent argues that there
is no common control between company X and respondent. Company X does
not share employees, land, equipment, administrative offices,
distribution channels, or pricing and production decisions with
respondent or respondent's related farm. Respondent maintains that
production, marketing, sales, and pricing decisions for respondent are
made by Sunburst Farms Miami and Sunburst Farms Holland in accordance
with export market conditions. Furthermore, there are no contractual
relations or similar business dealings between respondent and company
X.
Regarding petitioner's assertion that respondent could shift
production to company X, respondent argues that company X is primarily
a dairy farm and does not have sufficient capacity to take over more
than a negligible portion of respondent's production. Furthermore,
respondent states that the Department verified that no expenses or
revenue from any other farm runs through company X's checking account.
Respondent thus argues that joint control of both entities cannot be
established and therefore, these companies are not related within the
meaning of 19 U.S.C. 1677(13). However, if the Department determines
that respondent and company X are related, respondent maintains that
the Department should apply a separate rate for company X, and that the
Department should use respondent's verified data to calculate its rate.
DOC Position
It is the Department's practice to collapse parties related within
the meaning of section 771(13) of the Act when the facts demonstrate
that the relationship is such that there is a strong possibility of
manipulation of prices and production decisions that would result in
circumvention of the antidumping law. See Nihon Cement Co. v. United
States, Slip Op. 93-80 (CIT May 25, 1993); Certain Iron Metal
Construction Castings from Canada, 55 FR 460, 460 (January 5, 1990)
(final results of admin. review); Antifriction Bearings (Other Than
Tapered Roller Bearings) and Parts Thereof from the Federal Republic of
Germany, 54 FR 18992, 19089 (May 3, 1989) (final results of LTFV
investigation). Based on the evidence on the record, we find that
respondent and company X are not related parties within the meaning of
section 771(13) of the Act and, as a result, should not be collapsed in
this investigation.
Pursuant to section 771(13) of the Act, the Department examined (A)
whether respondent was the agent or principal of company X; (B/C)
whether respondent owns or controls any interest in the business of
company X, or vice versa; and (D) whether there is any direct or
indirect common ownership between respondent and company X, involving
at least 20 percent of the voting power or control. The Department
found no evidence that any of these statutory indicators of relatedness
existed with respect to respondent and company X.
Petitioner's arguments concerning interlocking shareholders,
shifting of production, possibility of price manipulation, and control
of production and sales, are inapposite because they are related to
factors that the Department considers in determining whether to
collapse companies for the purpose of calculating a single dumping
margin. See, e.g., Antifriction Bearings from France, etc., 58 FR
39729, 39772 (July 26, 1993) (final results of 3d admin. review)
(``AFBs III''). Significantly, however, a collapsing analysis is only
done on related parties. See, e.g., AFBs III at 39772. (``[T]he
Department uses * * * factors in determining whether to collapse
related enterprises.* * *'') (emphasis added). In most cases, the
relatedness of the parties is quite clear, i.e., a parent and a
subsidiary, or two sister subsidiaries. See, e.g., AFBs III at 39772.
In contrast, in this investigation there is no evidence that, pursuant
to the definition of related parties under section 771(13) of the Act,
respondent and company X are related. As a result, we have not
performed a collapsing analysis.
Comment 44
Respondent argues that the statute requires the Department to use
general expenses and profit related to home market sales of the same
general class or kind of merchandise that are in the ordinary course of
trade. The respondent maintains that its home market sales of culls are
the same general class or kind of merchandise as export- quality roses.
Respondent also maintains that culls are a regular and recurring part
of business in Ecuador and are in the ordinary course of trade.
Therefore, the respondent contends that the Department should use its
verified home market selling expenses in CV. Regarding profit,
respondent argues that the appropriate profit for use in CV is the
statutory minimum eight percent.
Respondent argues that if the Department uses its U.S. selling
expenses in CV, it must modify its methodology for calculating
respondent's ESP offset to eliminate the margin-creating effects of its
preliminary ESP offset calculation.
Respondent further argues that if the Department uses its U.S.
selling expenses, then the Department should not include the Panama and
farm-level components of those expenses in CV. Respondent contends that
the inclusion of farm-level or Panamanian expenses
[[Page 7041]] double-counts home market expenses as expenses incurred
in the United States are already being used as a supposed proxy.
Moreover, the expenses incurred in Panama relating to U.S. sales have
nothing to do with the home market because the Panamanian selling agent
is involved only with export sales.
Petitioner maintains that the home market is not a viable market in
the ordinary course of trade with respect to export quality roses.
Petitioner argues that the home market is a market for distress sales.
Petitioner states that the Department should use third-country expenses
and profits to calculate CV.
Petitioner argues that it is appropriate to add selling expenses on
the same terms as the constructed value (i.e., using annual average
indirect selling expense). Petitioner further argues that if the
Department relies on U.S. selling expenses to compute CV, all U.S.
selling expenses, whether incurred in Ecuador, Panama, or in the United
States should be included. Petitioner argues that it has been the
Department's practice and upheld by the courts that all expenses
incurred in selling merchandise in the United States should be deducted
from ESP, regardless of whether the entity incurring the expenses was
physically located in the United States.
DOC Position
We disagree with respondents and have used U.S. selling expenses as
a surrogate (see Comment 9). We agree with petitioners that all
expenses incurred in selling merchandise in the United States should be
deducted from ESP, regardless of whether the entity incurring the
expenses was physically located in the United States. Further, we
disagree that modification of our standard ESP offset methodology is
warranted in this case.
Comment 45
Petitioner asserts that the verification report indicates that
common indirect selling expenses were allocated to three Panamanian
companies which were involved with the sale of roses. However,
petitioner argues that the verification report indicates that certain
selling expenses were not allocated to the company involved in the sale
of respondent's roses. Petitioner contends that all indirect selling
expenses should be reallocated.
Respondent asserts that it allocated its indirect selling expenses
among all three of the Panamanian companies based on the relative sales
revenue of each company. Respondent argues that the allocation is
clearly supported in the verification report.
DOC Position
We agree with respondent. We verified that all selling expenses
were reported and allocated appropriately.
Comment 46
Petitioner asserts that the sales verification report indicates
that respondent understated its per-unit indirect selling expenses
incurred in Ecuador because it allocated its expenses over sales to two
related companies. Petitioner argues that, because the Department is
unable to segregate respondent's third country sales from third country
sales of its two related companies, all third country sales should be
excluded from the denominator for purposes of calculating an indirect
selling expense factor. Petitioner also contends that respondent has
not previously alleged that it performed all export selling functions
for all three companies and that it is too late for such an allegation.
Petitioner argues that respondent's case brief on this topic is purely
post hoc. Therefore, petitioner maintains that the Department should
allocate respondent's export selling expenses solely to respondent's
export sales.
Respondent contends that the verification report is incorrect with
regard to its assertion that respondent understated its farm-level U.S.
indirect selling expenses. The verification report states that
respondent should have used the export sales revenue specific to
respondent, not the sales revenue of its two related companies in the
denominator of the ratio used to allocate farm-level selling expenses
to roses. However, respondent argues that the total indirect expenses
incurred by the above-three companies were incurred in respondent's
central office. Respondent maintains that it was not possible to
isolate farm- or product-specific selling expenses from the total
selling expenses incurred at the central office. Respondent further
maintains that the central office provides selling support functions
for all products sold by all entities in the Group. Therefore,
respondent calculated the ratio used to determine the portion of total
selling expenses allocable to roses by including revenue from sales of
all products from all three companies in the ratio's denominator.
Respondent contends that if it had only used sales revenue from the
products sold by respondent, it would have overstated, not understated,
the amount of the total selling expenses allocable to roses. Respondent
argues, therefore, that the Department should accept respondent's
verified data for the final determination.
DOC Position
We agree with respondent and have used respondent's allocation
methodology and the verified information for purposes of the final
determination. See e.g., Minivans.
Comment 47
Petitioner argues that respondent incorrectly excluded all selling
expenses allocable to Sunburst New York. Petitioner contends that there
is no evidence on the record that supports respondent's claim that
Sunburst New York's selling expenses should be excluded because it only
handled imports from the Netherlands. Petitioner argues that the
evidence on the record indicates that Sunburst New York charged
Sunburst Miami for freight forwarding fees, which suggests that imports
from Ecuador or Colombia, rather than Holland, were sold by Sunburst
New York. Petitioner argues that absent evidence concerning purchases
and sales by Sunburst New York, the record does not support exclusion
of Sunburst New York's selling expenses.
Respondent maintains that Sunburst New York is a separate corporate
entity, wholly-owned by Sunburst Farms Miami, which acts exclusively as
an importer and freight forwarder of Dutch flowers. Sunburst New York
does not make any sales of Dutch flowers, all such sales are made by
Sunburst Farms Miami's Holland sales department. Respondent contends
that the freight forwarding fees charged by Sunburst New York to
Sunburst Farms Miami are intracompany fees to reimburse Sunburst New
York for its freight forwarding operations and are, thus, unrelated to
sales of subject merchandise.
DOC Position
We agree with respondent. At verification, we found that Sunburst
Farms had a separate sales department that dealt solely with products
imported from Holland. Therefore, we find that respondent appropriately
excluded Sunburst New York's selling expenses from its allocation.
Comment 48
Petitioner argues that the Department should correct home market
indirect selling expenses based on verification.
Respondent did not address this issue.
DOC Position
We agree with petitioner. We corrected home market indirect selling
expenses to reflect findings at verification. See, e.g., Minivans.
[[Page 7042]]
Comment 49
Petitioner states that, according to the cost verification report,
fixed costs incurred with respect to packing were excluded from the
calculated cost of production. Petitioner contends that there is no
basis to conclude that these costs should be treated as packing
expenses solely because the depreciation and insurance costs were
related to the post harvest areas. Petitioner argues that, regardless
of whether or not these costs were ``post-harvest,'' they should be
treated as cultivation costs and added to overhead.
Respondent states that it removed fixed overhead costs related to
packing from its packing calculation pursuant to the Department's
instructions prior to verification. However, respondent maintains that
these costs relate to functions such as hydration and grading, which
are associated with packing costs and have nothing to do with
production. Therefore, respondent argues these costs should not be
included in its cost of cultivation and are most appropriately
classified as packing costs.
DOC Position
We agree with respondent that these are packing costs. In our
August 2, 1994, questionnaire, we requested that respondent remove
fixed costs from its packing expenses. At that time we thought it
appropriate to classify these expenses as part of COP. However, during
the cost verification, we analyzed these costs and determined that it
was appropriate to include these expenses in packing.
Comment 50
Petitioner states that, according to the verification report,
respondent excluded year-end adjustments to farm specific G&A of: (1)
Amortization of pre-operating expenses, and (2) reduction for an over
accrual of social benefits.
Regarding pre-operating expenses, petitioner argues that respondent
should include all amortized pre-operating expenses in G&A following
normal company accounting practices absent evidence that the expenses
were incurred with respect to operations other than rose production.
Regarding the over-accrual of social benefits, petitioner states
that the verification report is unclear as to whether there is evidence
that there is a basis for departing from the financial statements.
Absent such evidence, petitioner argues that the financial statement
figures should be used.
Regarding the over-accrual of social benefits, respondent contends
that at year-end, it adjusted its social benefits costs to reflect the
actual social benefits paid during the year. Respondent states that the
costs reported to the Department included the over-accrual. Therefore,
the subtraction of the amount of the over-accrual from G&A expenses
noted in the verification report should be made.
DOC Position
We agree with petitioner. We found at verification that these items
are G&A expenses of the company and made an adjustment. This verified
data was used in our final determination. See, e.g., Minivans.
Comment 51
Petitioner argues that respondent's per unit G&A expenses were
understated. Petitioner contends that the percentage G&A factor was
applied to the reported cultivation costs, excluding the post harvest
costs. Petitioner maintains that the Department should correct this
error so that the cost of production and constructed value reflect full
costs.
DOC Position
We agree with petitioner. The application of the G&A ratio resulted
in an understatement of this expense. Therefore, for our final
determination we corrected this by applying the ratio on the same basis
upon which it was calculated.
Comment 52
Petitioner argues that income from exchange-rate gains on sales,
insurance reimbursement, gains on sales of fixed assets, and income
from social security cannot be allowed to offset respondent's interest
expenses unless these income items are linked to the interest expenses
deducted.
Respondent argues that income from exchange-rate gains on sales,
insurance reimbursement, and gains on sales of fixed assets are related
to production or has been generated from short-term investments of
working capital and are, therefore, allowable as offsets to its
financial expenses.
DOC Position
We agree with petitioner that these are not properly offsets to
financial expenses. However, the insurance reimbursement and gains on
sales of fixed assets, while not a financial expense of the company, do
reflect items of a G&A nature. Accordingly, we have included them as
such in our calculations.
Comment 53
Petitioner argues that Sunburst Farm's interest revenue on late
accounts should be corrected as per the verification report.
DOC Position
We agree with petitioner and used Sunburst Miami's verified
interest income for purposes of our final determination. See, e.g.,
Minivans.
Comment 54
Respondent argues that, pursuant to the Department's instructions,
it segregated the amount of FONIN taxes paid from its cost of
cultivation and reported this amount separately. Respondent maintains
that the Department verified this expense without discrepancy.
Respondent contends that the Department should use the actual allocated
amounts for the final. Additionally, respondent argues that the
Department should deduct from cost of cultivation the amount of FONIN
tax originally reported.
Petitioner maintains that, to the extent the Department verified
the revised FONIN tax, these amounts are appropriately deducted from
USP.
DOC Position
We agree with petitioner and respondent in part. We deducted the
verified amounts of FONIN tax from USP. We also deducted the FONIN tax
reported in COP.
Comment 55
Respondent maintains that the Department should accept the
corrections it submitted in its revised sales tape for purposes of the
final determination. Additionally, respondent argues that the
Department should use the verified interest expense Sunburst paid
during the POI rather than the reported percent.
Petitioner contends that the Department should verify that the
corrections respondent reportedly changed concerning foreign inland
freight, U.S. inland freight, quality credits, U.S. indirect selling
expenses, interest revenue, air freight, brokerage and handling, and
packing cost were properly implemented.
DOC Position
We agree with both parties. We have reviewed the new sales listing
and found that respondent made the changes as per the verification
report. Therefore, used these revised expenses in our calculations. In
addition, we used respondent's revised U.S. interest rate.
[[Page 7043]]
Suspension of Liquidation
In accordance with 19 U.S.C. 1673b, we are directing the Customs
Service to continue to suspend liquidation of all entries of fresh cut
roses from Ecuador, as defined in the ``Scope of Investigation''
section of this notice, that are entered, or withdrawn from warehouse,
for consumption on or after the date of publication of this notice in
the Federal Register. The Customs Service shall require a cash deposit
or the posting of a bond on all entries equal to the estimated
weighted-average amount by which the foreign market value of the
merchandise subject to this investigation exceeds United States price
as shown in the table below. The margins are as follows:
------------------------------------------------------------------------
Margin
Manufacturer/Producer/Exporter (percent)
------------------------------------------------------------------------
Arbusta-Agritab (and its related farms Agrisabe, Agritab,
and Flaris)............................................... 5.38
Florin S.A. (and its related farms Cuentas En Participacion
Florinsa-Ertego (Florinsa Cotopaxi) and Exflodec)......... 84.72
Guanguilqui Agro Industrial S.A. (and its related farm
Indipasisa)............................................... 14.24
Inversiones Floricola S.A. (and its related farm Flores
Mitad Del Mundo S.A.)..................................... 4.63
All Others................................................. 6.32
------------------------------------------------------------------------
ITC Notification
In accordance 19 U.S.C. 1673d(d) we have notified the ITC of our
determination.
Notification to Interested Parties
This notice also serves as the only reminder to parties subject to
administrative protective order (APO) in this investigation of their
responsibility covering the return or destruction of proprietary
information disclosed under APO in accordance with 19 C.F.R. 353.34(d).
Failure to comply is a violation of the APO.
This determination is published pursuant 19 U.S.C. 1673d(d) and 19
C.F.R. 353.20(b)(2).
Dated: January 26, 1995.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 95-2607 Filed 2-3-95; 8:45 am]
BILLING CODE 3510-DS-P
