[Federal Register Volume 59, Number 87 (Friday, May 6, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-10993]
[[Page Unknown]]
[Federal Register: May 6, 1994]
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-421-805]
Notice of Final Determination of Sales at Less Than Fair Value:
Aramid Fiber Formed of Poly-Phenylene Terephthalamide From the
Netherlands
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: May 6,1994.
FOR FURTHER INFORMATION CONTACT: Jennifer Katt or Michael Ready, Office
of Antidumping Investigations, Import Administration, International
Trade Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, NW.; Washington, DC 20230; telephone: (202) 482-
0498 or (202) 482-2613, respectively.
FINAL DETERMINATION: We determine that imports of aramid fiber formed
of poly-phenylene terephthalamide (PPD-T aramid fiber) from the
Netherlands are being, or are likely to be, sold in the United States
at less than fair value (LTFV), as provided in section 735 of the
Tariff Act of 1930, as amended (the Act). The estimated weighted-
average margins are shown in the ``Continuation of Suspension of
Liquidation'' section of this notice.
Case History
Since our preliminary determination on December 9, 1993 (58 FR
65699, December 16, 1993), the following events have occurred:
On December 16, 1993, we received a request from the sole
respondent in this investigation, Aramide Maatschappij V.O.F. (Arami)
and Akzo Fibers, Inc. (the U.S. selling agent) (collectively Akzo) to
postpone the final determination in this investigation until 135 days
after the date of publication of the preliminary determination. On
December 22, 1993, we did so and postponed this final determination
until May 2, 1994 (58 FR 69329, December 30, 1993).
On February 23, 1994, petitioner (E.I. Du Pont de Nemours &
Company) requested that references to tire cord fabric be deleted from
the scope of the investigation. On April 21, 1994, petitioner revised
its previous request, asking that tire cord fabric be expressly
excluded from the scope of this investigation. (See ``Scope of the
Investigation'' section of this notice, below.) Akzo submitted
supplemental responses to sections B (third-country sales), C (United
States sales) and D (cost of production/constructed value) of the
questionnaire, revisions and corrections to its sales responses, and/or
revised computer tapes in December 1993, as well as February, March and
April of 1994.
We conducted verification of Akzo's sales and cost questionnaire
responses in the Netherlands and the United States in February and
March of 1994, respectively.
Akzo and petitioner submitted case and rebuttal briefs on March 28
and 31, 1994, respectively. At Akzo's request, a public hearing was
held on April 1, 1994.
Scope of the Investigation
The products covered by this investigation are all forms of poly
para-phenylene terephthalamide aramid fiber from the Netherlands. These
consist of PPD-T aramid in the form of filament yarn (including single
and corded), staple fiber, pulp (wet or dry), spun-laced and spun-based
nonwovens, chopped fiber and floc. Tire cord fabric is excluded from
the class or kind of merchandise under investigation. PPD-T aramid
fiber is classifiable under subheadings 5402.10.3020, 5402.10.3040,
5402.32.3000, 5503.10.0000, 5601.30.0000 and 5902.10.0000 of the
Harmonized Tariff Schedule of the United States (HTSUS). Although the
HTSUS numbers are provided for convenience and customs purposes, our
written description of the scope of this investigation is dispositive.
Changes to the Scope of the Investigation
Prior to our preliminary determination, petitioner requested that
we clarify that ``tire cord fabric'' constructed of PPD-T aramid fiber
is included within the scope of this investigation. After considering
comments from both parties, we preliminarily determined that this
product is included within the scope of this investigation (58 FR
65699, December 16, 1993). We also invited comments from interested
parties on this issue. Subsequent to the preliminary determination,
petitioner requested that tire cord fabric be expressly excluded from
the scope of this investigation. Also, Akzo submitted arguments
opposing the inclusion of tire cord fabric. We have therefore excluded
tire cord fabric from the class or kind of merchandise covered by this
investigation.
Petitioner also requested that the term ``nonwovens'', as used in
the description of the scope of the investigation, be clarified to
include only spun-based and spun-laced nonwovens composed of PPD-T
aramid fiber. We have made this clarification.
Finally, at the request of the U.S. International Trade Commission,
we have replaced the words ``this includes'' with the words ``these
consist of'' to further clarify the products covered by this
investigation.
Class or Kind
Prior to our preliminary determination, Akzo argued that this
investigation should involve at least three classes or kinds of
merchandise: Yarn, staple fiber and pulp. After considering extensive
comments from both parties, we preliminarily determined that the
products covered by this investigation constitute a single class or
kind of merchandise, and three such or similar categories. (See
Preliminary Concurrence Memorandum, dated December 9, 1993, on file in
room B-099 of the main building of the Department of Commerce). In our
preliminary determination, we invited additional comments from
interested parties on this issue. However, no additional evidence
supporting a finding of three classes or kinds has been submitted. In
addition, no comments in opposition to our preliminary determination
have been filed. We therefore continue to find that the products
covered by this investigation constitute a single class or kind of
merchandise.
Period of Investigation
The period of investigation (POI) is January 1, 1993, through June
30, 1993.
Such or Similar Comparisons
We made fair value comparisons using the following such or similar
categories: (1) Yarn; (2) staple fiber; and (3) pulp. Where we were not
able to compare U.S. sales to sales of identical merchandise, we made
similar merchandise comparisons on the basis of the criteria defined in
Appendix V to the antidumping duty questionnaire, on file in room B-099
of the main building of the Department of Commerce. In accordance with
19 CFR 353.58, we made comparisons at the same level of trade, where
possible.
Fair Value Comparisons
To determine whether Akzo's sales to the United States of PPD-T
aramid fiber were made at less than fair value, we compared the United
States price (USP) to the foreign market value (FMV), as specified in
the ``United States Price'' and ``Foreign Market Value'' sections of
this notice.
United States Price
We calculated USP according to the methodology described in our
preliminary determination, with the following exceptions:
1. We included certain sales in our calculation of USP which Akzo
contends were pursuant to a long-term contract negotiated prior to the
POI. (For a further discussion of these sales, see comment 1 below.)
2. We increased U.S. indirect selling expenses by the amount of G&A
expenses allocated to the aramid fibers business unit of Akzo Fibers
Inc. by its parent company, Akzo America Inc. (see comment 6 below).
3. We recalculated inventory carrying costs incurred in the
Netherlands on U.S. sales to reflect the short-term borrowing rate of
Arami, (i.e., the actual producer and seller of subject merchandise),
(see comment 8 below).
4. We used the date of the start of the Dutch sales verification
for all missing payment dates.
Foreign Market Value
As stated in our preliminary determination, we determined that the
home market was not viable for any of the three such or similar
categories. We selected Germany as the third country market for sales
of yarn and staple fiber, and Japan as the third country market for
sales of pulp. We calculated FMV as noted in the ``Price-to-Price'' and
``Price to Constructed Value (CV)'' sections of this notice.
Cost of Production
Petitioner alleged that Akzo's third country sales were made at
prices below the cost of production (COP). On the basis of petitioners'
allegations, we gathered and verified data on production costs.
We compared Akzo's third country prices to the COP as explained in
our preliminary determination.
In order to determine whether third country prices were above the
COP, we calculated the COP based on the sum of Arami's (i.e., the
actual producer and seller of subject merchandise) submitted costs of
materials, fabrication, general expenses, and packing, except in the
following instances where the costs were not appropriately quantified
or valued:
1. We recalculated interest expense based solely on Arami's
financial statements (see DOC position for comment 12);
2. We included certain non-operating expenses in general and
administrative (G&A) expenses (see DOC position for comment 17); and
3. We disallowed Arami's claimed reduction in fixed overhead for
certain intercompany charges (see DOC position for comments 14 and 15).
Accordingly, we increased its submitted cost of manufacturing.
Price-to-Price Comparisons
For those products for which we had an adequate number of sales at
prices equal to or greater than the COP, we based FMV on third country
prices. We calculated FMV using the methodology described in our notice
of preliminary determination, with the following exceptions:
1. We recalculated inventory carrying costs incurred in the
Netherlands on German and Japanese sales and German credit expenses to
reflect the short-term borrowing rate of Arami (see comment 7 below).
2. We used the average credit days of all transactions with a
reported shipment and payment date for sales missing both a shipment
and payment date. We have inserted the date of the start of the Dutch
sales verification for those sales with missing payment dates only.
3. We corrected a clerical error in the calculation of third
country indirect selling expenses.
Price to CV Comparisons
For those products without an adequate number of sales at prices
above the COP, we based FMV on CV. We calculated CV based on the sum of
the cost of materials, fabrication, general expenses, and U.S. packing
cost. In accordance with section 773(e)(1)(B) (i) and (ii) of the Act
we: (1) Included the greater of Arami's reported general expenses or
the statutory minimum of ten percent of the cost of manufacture (COM),
as appropriate and; (2) for profit, we used the higher of the statutory
minimum of eight percent of the sum of COM and general expenses or the
actual profit incurred as calculated on a market specific basis (see
Comment 18). As a result, for the German market we used actual profit
and for the Japanese market we used the statutory minimum of eight
percent. We calculated CV based on the methodology described in the
calculation of COP above, with the following exceptions:
1. In the financing calculation, we included additional interest
expense based on market value (See Comment 13).
2. We corrected a clerical error in the calculation of third
country profit.
In instances where we compared Akzo's U.S. prices to CV, we made
deductions, where appropriate, for the weighted-average third country
direct selling expenses. We also deducted the weighted-average third
country indirect selling expenses. We limited this adjustment by the
amount of indirect selling expenses incurred on U.S. sales, in
accordance with 19 CFR 353.56(b)(2).
Final Determination of Critical Circumstances
Petitioner alleged that ``critical circumstances'' exist with
respect to imports of PPD-T aramid fiber from the Netherlands. Pursuant
to section 733(e)(1) of the Act and 19 CFR 353.16, we have analyzed the
allegations using the Department's standard methodology as discussed in
our preliminary determination, except that for purposes of determining
whether there have been massive imports we compared imports in five-
month periods rather than four-month periods (see DOC position for
comment 4). Accordingly, we find that critical circumstances do not
exist.
Currency Conversion
We made currency conversions based on the official exchange rates
in effect on the dates of the U.S. sales as certified by the Federal
Reserve Bank of New York.
Verification
As provided in section 776(b) of the Act, we verified information
provided by Akzo by using standard verification procedures, including
the examination of relevant sales and financial records, and selection
of original source documentation containing relevant information.
Interested Party Comments
Certain comments cannot be discussed in this notice due to their
business proprietary nature. The comments which have been excluded do
not lend themselves to public summarization, and therefore have been
discussed in the business proprietary version of the Final Concurrence
Memorandum dated May 2, 1994 (Final Concurrence Memorandum), on file in
room B-099 of the main building of the Department of Commerce.
Comment 1: Petitioner argues that the Department of Commerce (the
Department) should include in its calculation of U.S. price Akzo's
shipments during the POI made pursuant to a long-term agreement
negotiated prior to the POI. Petitioner contends that the particular
terms and circumstances of Akzo's agreement with this customer do not
create a binding commitment on the part of either the buyer or seller
and therefore do not create an enforceable sales contract.
Akzo argues that these shipments were pursuant to a long-term
contract established prior to the POI and therefore are properly
excluded from the U.S. database. Akzo further argues that certain terms
and circumstances of the agreement should not prevent it from being
considered a contract with a date of sale prior to the POI because the
two parties acted upon and adhered to the contract. Finally, respondent
points out that the Department confirmed at verification that all sales
to this customer during the period of the contract were at the contract
price.
DOC Position: In order for this agreement to be considered a long-
term contract established prior to the POI, the agreement must fix both
the price and quantity. At verification we examined all invoices to the
customer for sales pursuant to the agreement during its effective
period. Although we found that all sales were made at the specified
price, we also found that the quantity purchased was substantially less
than the amount specified in the contract.
Therefore, we conclude that the quantity was not fixed by the terms
of the agreement because the quantities actually purchased over the
period of the agreement were unrelated to those specified by the
agreement. For this reason, we determine that the date of the agreement
does not constitute the date of sale. Accordingly, we have used the
date of shipment as the date of sale and have included all shipments to
this customer during the POI in our calculation of U.S. price.
Comment 2: Petitioner argues that the Department should include in
its calculation of U.S. price Akzo's shipments during the POI pursuant
to a supply agreement which was signed prior to the POI but modified
during the POI. Petitioner asserts that the modification to the
agreement, in effect, created a new agreement with a date of sale
within the POI.
Akzo argues that the contract modification did not alter the
essential terms of the contract. Therefore, according to Akzo, all POI
shipments pursuant to this agreement have a date of sale prior to the
POI and thus are properly excluded from the U.S. sales database.
DOC Position: We agree with Akzo. We verified that the essential
terms of the contract, the price and quantity, were not altered as a
result of the modification. Therefore, we consider Akzo's agreement
with this customer to be a long-term contract with a date of sale prior
to the POI. Consequently, the shipments in question were properly not
reported.
Comment 3: Petitioner argues that Akzo's shipments made pursuant to
supply contracts with two customers during the POI should be reported
as U.S. sales, if not already reported.
Akzo contends that these sales have been reported.
DOC Position: The sales in question were reported.
Comment 4: Petitioner argues that the Department should find that
imports of subject merchandise were massive over a relatively short
period of time and that consequently, critical circumstances exist in
this investigation under 735 (a)(3)(B) of the Act. In its analysis,
petitioner compared shipments to the United States with a base period
prior to the filing of the petition of May-July, 1993, with shipments
to the United States in the post-petition comparison period of August-
October, 1993. Using this comparison, petitioner found that imports had
increased during the comparison period by more than 15 percent, the
Department's benchmark.
Akzo argued that imports were not massive, and that the
petitioner's methodology was not consistent with the practice of the
Department.
DOC Position: We agree with Akzo. In this case, the petition was
filed on July 2, 1993. It is the Department's standard policy, in cases
where the petition is filed during the first half of the month, to
include the month of filing in the post-petition comparison period, not
the base period, as petitioner suggests (See, e.g., Certain Portable
Electronic Typewriters from Singapore, 58 FR 43337 (1993)).
Additionally, although 19 CFR 353.16(g) requires that we examine at
least three months, it is the Department's practice to examine the
longest period for which information is available up until the
preliminary determination (See, e.g., Certain Cut-to-Length Carbon
Steel Plate from the United Kingdom, 58 FR 37216 (1993)). When the five
month period subsequent to and including the month that the petition
was filed is compared to the previous five months, we find that imports
were not at levels we consider massive.
Comment 5: Petitioner argues that certain sales of scrap (which
were excluded from our analysis in the preliminary determination
because the quantity involved was insignificant) should be included in
the calculation of U.S. price for the following reasons: (1) The fact
that the quantities are small is irrelevant; (2) other sales of the
merchandise in question are included in the cost of production
calculations; and (3) according to product specifications in Akzo's
invoices, the merchandise in question is clearly a form of PPD-T aramid
fiber which is subject to investigation.
Akzo argues that the Department properly excluded sales of scrap
from its preliminary determination because the quantities sold in the
United States were small and there were no similar sales of scrap in
the comparison third country markets. Additionally, Akzo asserts that
exclusion of scrap sales is consistent with the treatment of non-prime
material in the recent carbon flat steel cases, where the Department
disregarded sales of second quality merchandise in the U.S. market
where there were no similar sales in the home market and they
constituted an insignificant portion (less than five percent) of the
respondent's total U.S. sales, (Final Determination of Sales at Less
Than Fair Value: Certain Hot-Rolled and Certain Cold-Rolled Steel from
the Netherlands, 58 FR 37199, 37201 (July 9, 1993)).
Akzo further argues that petitioner's reliance on the product
designations on the invoices is misplaced because scrap is generated as
part of the beaming (i.e., repacking) process in the United States.
DOC Position: We agree with Akzo. The volume of scrap sales is
insignificant and there are no comparable third country sales.
Therefore, we have continued to exclude these sales from our
calculations. In addition, at verification we verified that most of the
scrap is tailings generated by the U.S. repacking operation and that,
invoice descriptions notwithstanding, the product is sold as waste and
the customer has no recourse to quality claims.
Comment 6: Petitioner argues that we should not exclude certain
(G&A) expenses incurred by Akzo America, Inc. in the calculation of
indirect selling expenses for purposes of the ESP deduction from U.S.
price. Petitioner further argues that it is long-standing Department
practice to consider G&A expenses incurred by the U.S. selling arms of
a foreign producer to be indirect ``selling expenses'' for purposes of
this deduction.
Akzo argues that it has captured all expenses of the selling
affiliate, Akzo Fibers, in its calculation of indirect selling
expenses. In addition, Akzo asserts that it has captured all selling-
related expenses which were allocated to the aramid fiber business unit
of Akzo Fibers by Akzo America. Akzo contends that all remaining G&A
expenses carried on the books of Akzo America are not associated with
the selling function at Akzo Fibers and therefore are properly not
included in the calculation of U.S. indirect selling expenses.
DOC Position: We agree with petitioner. Akzo America is the parent
company that provides administrative, accounting and finance services
for all of Akzo's North American subsidiaries. In addition, there is no
evidence that it provides any services for Akzo N.V. (its parent
company in the Netherlands) other than to facilitate the activities of
the subsidiaries in the United States. Therefore, all expenses incurred
by Akzo America, including those classified on its books as G&A, are
indirectly related to the selling activities of the subsidiaries.
Consequently, we have included in the calculation of U.S. indirect
selling expenses the amount of Akzo America's G&A expenses which have
been allocated to the aramid fibers business unit of Akzo Fibers.
Comment 7: Petitioner argues that certain other G&A expenses listed
on the June 1993 financial statement of Akzo America have not been
allocated to any of the North American subsidiaries and that the
representative portion attributable to the aramid fiber business unit
should be included in the calculation of indirect selling expenses for
purposes of the ESP deduction from U.S. price.
Akzo argues that these G&A costs are the same G&A expenses which
are the subject of Comment 6 above.
DOC Position: We agree with petitioner that the G&A expenses of
Akzo America should be included in the calculation of indirect selling
expenses for purposes of the ESP deduction from U.S. price (see comment
6). However, we agree with Akzo that these G&A costs are the same G&A
expenses which are the subject of Comment 6 (see memorandum to the
file, dated April 22, 1994). Therefore, no additional increase to U.S.
indirect selling expenses is necessary.
Comment 8: Petitioner argues that in calculating the Dutch portion
of U.S. inventory carrying costs, the Department should use the short-
term borrowing rate of Arami (i.e., the actual producer and seller of
the subject merchandise), rather than the rate of Akzo N.V., the parent
company. Petitioner asserts that Arami's borrowing rate is appropriate
because Arami is the company which actually financed the inventory and
is a separate corporate entity from Akzo N.V.
Akzo argues that Akzo N.V.'s short-term borrowing rate should be
used in calculating the Dutch portion of the inventory carrying cost
for the same reasons it argues that Akzo N.V. and Arami should be
consolidated for determining a financial expense ratio for CV and COP.
(See the discussion below at Comment 11). Respondent also argues, in
the event that the Department decides not to collapse the two companies
and uses Arami's short-term borrowing rate in calculating U.S.
inventory carrying cost, that the Department should also use Arami's
short-term borrowing rate in the calculation of inventory carrying
costs incurred in the Netherlands on sales made in Japan and Germany
and in the calculation of German credit.
DOC Position: As noted in our response to Comment 11 below, we have
determined that it is not appropriate to collapse Arami and Akzo N.V.
Therefore, we agree with petitioner and have used the short-term
borrowing rate of Arami in calculating the inventory carrying costs
incurred in the Netherlands on U.S., German and Japanese sales. We have
also applied Arami's rate in the calculation of German credit expense,
as suggested by Akzo.
Comment 9: Petitioner argues that Akzo's U.S. customs duty
calculation may be incorrect because there are discrepancies between
the list of customs entries for subject merchandise entering Akzo's
warehouses in the United States during the POI and the list of all
shipments to the United States provided by Akzo in connection with the
critical circumstances allegation.
Akzo argues that petitioner has erroneously assumed that the
entries included in the two lists should correspond exactly. In fact,
respondent argues, the list of shipments includes additional entries
that did not enter Akzo's warehouse but were transferred directly to
U.S. customers, entries made after the POI, and invoices that were
cancelled.
DOC Position: We agree with Akzo. The two lists will not correspond
exactly. One list represents the volume of subject merchandise entering
Akzo's U.S. warehouses during the POI, while the other represents the
volume of subject merchandise shipped from the Netherlands during the
POI. In addition, at verification we determined that the list of
entries used for Akzo's U.S. duty calculation was complete and
accurate.
Comment 10: Akzo argues that the Department made clerical errors in
its calculation of the ESP offset and difference in merchandise
adjustment in its preliminary determination.
DOC Position: We agree with respondent. We have corrected these
errors in our final determination. Also, see our response to Comment
18.
Comment 11: Petitioner argues that Arami and Akzo N.V. should not
be consolidated for COP or CV calculations. Petitioner states that
while they were clearly related, Akzo N.V. held only a 50 percent
equity interest in Arami and their operations were never consolidated
for financial reporting or any other purposes. According to both Dutch
and U.S. generally accepted accounting principles (GAAP), consolidation
is required when one company holds more than a 50 percent equity
interest in another company. Petitioner asserts that the reorganization
of the Arami joint venture should not be factored into the Department's
cost analysis because this development occurred after the POI.
Petitioner claims that if the Department departed from its practice of
investigating costs and prices during the POI, it would constitute an
arbitrary departure from established practice as well as an invitation
for post-POI cost and price manipulation by foreign producers.
Petitioner maintains that the Department's reason for collapsing
transactions between related parties which do not reflect ``arm's
length'' costs is to eliminate any substantial risk of price and cost
manipulation between those companies. Petitioner states that the legal
and operational structure of Arami was designed so that its operations
would not be consolidated under Dutch law. Additionally, petitioner
asserts that the actual cost of producing aramid fiber is more
accurately reflected by Arami's own books and records instead of its
records consolidated with the Akzo Group. Petitioner contends that the
companies in the cases cited by Arami do not relate to this case
because the companies met the requirements for consolidation and should
have been consolidated under GAAP (i.e., equity ownership was greater
than 50 percent).
Arami claims that Akzo N.V. exerted significant control over its
operation not only in 1993, but in all preceding years. Arami states
evidence of this close interrelationship is illustrated by its
financing transactions as well as evidence of organizational and
operational control. Arami argues that it is the Department's practice
to combine financing activities of companies where one company exerts
significant control over the other company. It also claims that this is
in keeping with the Department's position on fungibility of capital.
Arami has informed the Department that Akzo Fibers Aramide B.V., a
wholly-owned subsidiary of Akzo N.V., increased its equity interest in
Arami to 95 percent effective December 31, 1993. Arami concludes that,
based on the fungibility of capital, increased equity ownership and
significant control, the Department should consolidate Arami with Akzo
N.V. for cost of production and constructed value purposes. Arami
states that it was consolidated with Akzo N.V. for balance sheet
reporting purposes as of December 31, 1993, and would be fully
consolidated on both the income statement and balance sheet in the
fiscal year 1994.
Additionally, Arami claims that in previous cases, the Department
has combined the parent and subsidiary's costs even though
consolidation did not occur in the normal course of business. In citing
the Final Determination of Sales at Less Than Fair Value: Certain
Carbon Steel Butt-weld Pipe Fittings from Thailand (pipe fittings), 57
FR 21065 (1992), respondent quotes the Department as saying: ``* * * it
is the Department's policy to combine the financing activities of a
parent and subsidiary when the parent exercises control over the
subsidiary (i.e. meets the requirements for consolidation).''
Respondent also cites the Final Determination of Sales at Less Than
Fair Value: Ferrosilicon from Brazil (Ferrosilicon), 59 FR 732 (1994),
to further support its claim.
DOC Position: We agree with petitioner, and have not consolidated
Arami and Akzo N.V. for purposes of this antidumping investigation. The
corporate reorganization which was effective December 31, 1993, was not
considered by the Department because it occurred subsequent to the POI.
Each of the joint venture partners had equal control over decisions
involving Arami's operations until the new agreement was signed in
1994. Under Dutch GAAP, if a company does not have equity ownership of
greater than 50 percent, but still has control over another company, it
is required to consolidate. Since Arami was not consolidated with Akzo
prior to reorganization, we can reasonably conclude that Akzo did not
have sufficient control over Arami to warrant consolidation under Dutch
GAAP. Therefore, consolidation of Arami and the Akzo N.V. for
antidumping purposes based on a significant control argument is
unwarranted.
In the two cases cited by Arami, the GAAP of those countries
required consolidation when one company owned more than 50 percent of
another. In the Pipe Fittings case, the Japanese parent company, Awaji
Sangyo K.K. Company Ltd. (ASK) owned more than 50 percent of Awaji
Sangyo Co. Ltd., (AST) of Thailand. Although ASK and AST did not
prepare consolidated financial statements, the Department in its cost
verification report (April 4, 1992, pg.3) noted ``* * * the operations
should have been consolidated in accordance with generally accepted
accounting principles.'' In Ferrosilicon, the parent company owned
greater than 50 percent of Minasligas, its subsidiary under
investigation. Brazilian and U.S. GAAP require consolidation when the
equity interests exceed 50 percent. In each of those cases, control was
indicated by equity ownership and GAAP required consolidation. In
contrast to the above cases, Arami did not meet the requirements for
consolidation. For further analysis of this issue, see the Final
Concurrence Memorandum.
Comment 12: Since Arami was not consolidated with Akzo N.V. during
the POI, petitioner asserts interest expense should be calculated based
solely on Arami's 1992 audited financial statements. Petitioner argues
that the Department must disregard the reorganization finalized
subsequent to the POI which resulted in Arami being consolidated with
Akzo N.V. for balance sheet purposes. In addition, petitioner states
this consolidation did not affect the income statement encompassing the
POI.
Arami argues that the combined 1992 financial statement data of
Arami and Akzo N.V. is the correct basis for computing interest expense
because Akzo N.V. exerts significant control over Arami's operations
and capital is fungible. Arami argues that the consolidation for
balance sheet purposes as of December 31, 1993, affects the entire
fiscal year 1993.
DOC Position: We disagree with respondent. A company's balance
sheet presents a snapshot of its assets and claims on those assets
(liabilities and equity) as of a specific point in time (i.e., 12/31/
93). An income statement reports a company's performance over a
specified period of time (i.e., 1/1/93-12/31/93). Arami's operating
results were not consolidated with the results of the Akzo N.V. Group
in 1993. Based on the Department's decision not to consolidate Arami
with Akzo N.V., we calculated interest expense for COP and CV based
solely on Arami's financial statements. For further analysis of this
issue, see the Final Concurrence Memorandum.
Comment 13: Petitioner asserts that interest on loans provided by a
related party should be included in the calculation of Arami's
financing costs for COP and CV purposes. Petitioner states that
according to the Court of Appeals for the Federal Circuit in IPSCO,
Inc. v. U.S., 965 F.2d 1056 (1992), cost of production is linked to
constructed value. Thus, the petitioner states that the constructed
value provision authorizing the Department to disregard related party
transactions which are not arms-length in nature can be applied to cost
of production calculations. Petitioner asserts that Arami's argument
for consolidation does not eliminate the costs associated with these
loans. Furthermore, the year end reorganization does not modify costs
incurred during the POI. Petitioner contends that consolidation did not
affect the income statement for the period January 1 through December
31, 1993.
Arami claims that as a result of the new joint venture agreement
signed in 1994, Arami's balance sheet was consolidated with that of
Akzo N.V., eliminating all related party loans. Therefore, the
Department cannot impute an interest cost to loans that do not exist as
of December 31, 1993. Arami claims its 1992 audited financial statement
data should be used in calculating interest expense, but adds that the
significant change in Arami's corporate structure must be considered.
Arami continues that if the Department determines consolidation is
unwarranted, and decides imputation of interest expense is necessary
for CV, it should not impute interest for COP. Arami argues that the
Department's long standing policy is to compute COP based on a
company's actual costs, thus, there is no basis on which to impute
interest for COP.
DOC Position: According to section 773(e)(2) of the Act, for CV, if
a transaction between related companies does not fairly reflect the
market value, the Department may determine that element of value using
the best evidence available. In this case, we found that the loans in
question were at below-market interest rates. Thus, we included the
interest incurred on the loans provided by Arami's related party in the
calculation of financing costs for CV purposes.
We determined that no related party financing adjustment is
necessary for COP purposes. In determining actual costs of production,
the Department normally adheres to the GAAP of the respondent's home
country. Under Dutch GAAP, economic activities are normally
consolidated for all companies that have direct or indirect ownership
greater than 50 percent. In accordance with ITA's standard practice,
the supplier's actual costs of production should be used to value
inputs acquired from companies that are directly or indirectly related
by more than 50 percent. Inputs acquired from companies that have
direct or indirect ownership of 50 percent or less, should normally be
valued using transfer prices (i.e., purchaser's actual cost).
Accordingly, for COP purposes, we used Arami's transfer prices.
For further analysis of these issues, see the Final Concurrence
Memorandum.
Comment 14: Petitioner states that certain charges were paid by
Arami for services rendered by related Akzo companies. Since certain of
these charges are used to approximate the price charged in an arm's
length transaction and were actual costs incurred, Petitioner states it
is appropriate to include these costs in the cost of manufacturing.
Arami claims certain of these charges are intracompany transactions
which do not represent true costs and will be discontinued in 1994,
therefore, these costs should be excluded from the cost of
manufacturing for both COP and CV purposes.
DOC Position: We disagree with respondent. These charges relate to
intercompany transactions between Arami and another company, which
represent actual costs incurred by Arami and recorded on its books
during the POI. Arami incorrectly categorized these costs as
intracompany transactions which relates to transactions between
divisions within a company. The fact that this charge may be
discontinued in 1994 does not mean the costs should be excluded for
1993. Accordingly, we included these charges in Arami's COP and CV
calculations.
Comment 15: Petitioner states that certain costs incurred by Akzo
N.V. prior to the POI and recorded in Arami's 1992 audited financial
statements in accordance with GAAP should be included in the COP.
Petitioner states that this expense should be either charged to U.S.
sales as a selling expense or to all sales as a general and
administrative expense.
Akzo argues that these costs incurred by Akzo N.V. do not represent
true costs for Arami during the POI. The accrual on Arami's books for
this cost has not been paid to Akzo N.V. and the expense will no longer
be charged in 1994. Therefore, this intercompany transaction should be
excluded from the submitted cost of manufacturing.
DOC Position: Since this expense relates to the general production
activity of Arami, we included it in Arami's general and administrative
expense calculation for COP and CV purposes. This expense represents an
actual cost recorded on Arami's books during the POI and the fact that
the expense will no longer be charged in 1994 is not relevant.
Comment 16: Petitioner asserts that the Department should disallow
a certain adjustment to Arami's fixed overhead costs for grants because
it is not recorded in Arami's cost accounting system and the reduction
in costs attributed to this adjustment distorts Arami's true cost of
manufacturing. Petitioner notes that if the Department allows this
reduction, we should self-initiate a countervailing duty investigation.
Arami claims that it properly adjusted its fixed overhead costs by
a certain amount because this adjustment is recorded in Arami's
financial accounting system, and is included in its audited financial
statements. Arami notes that inclusion of this adjustment in no way
distorts Arami's costs, because it reflects amounts actually incurred.
Additionally, Akzo notes that because not all grants are
countervailable, the Department should resist petitioner's statements
requesting self-initiation of a countervailing duty investigation.
DOC Position: This adjustment reflects actual costs incurred by
Arami as recorded on its books in accordance with GAAP, and was
properly included in its submitted COP and CV. We believe subsidies are
more properly handled in the context of the countervailing duty law.
Petitioner is free to submit a countervailing duty petition. Should
such a petition be submitted and meet the requirements of the
countervailing duty regulations (19 CFR 355.12), the Department would
initiate such an investigation. However, no justification has been
presented here for a departure from the Department's general policy of
not self-initiating countervailing duty investigations.
Comment 17: Petitioner claims that several other non-operating
expense items should be included in G&A costs because each of these
expenses relate to the aramid fibers business. Petitioner asserts all
G&A expenses related to the subject merchandise should be included in
cost of production and constructed value.
Arami claims that no additional adjustment to G&A expense for non-
operating expenses is warranted. Arami asserts that two of the expenses
noted by petitioner are already included in the submitted G&A
calculation. Additionally, Arami contends that the related party
provision included in other non-operating expenses is an intracompany
payment and has no relevance in the context of this dumping
investigation.
DOC Position: We adjusted the G&A calculation to include the
related party payment and two other non-operating expense items noted
in the cost verification report which were associated with the general
operations of Arami. The related party payment is an actual cost
incurred by Arami and recorded on its books in accordance with GAAP.
Two of the other non-operating expenses mentioned by the petitioner are
already included in submitted G&A costs, thus no adjustment is
necessary.
Comment 18: Arami contends that for purposes of constructed value,
the Department should calculate a weighted-average profit figure for
pulp sales in Japan and yarn and staple sales in Germany.
DOC Position: We disagree with Arami. We believe that it is
appropriate to calculate all selling expenses and profit specific to
the market in which the products in question were sold rather than
average profit across two or more countries. Consequently, we
calculated one average profit for pulp sold in Japan and another for
yarn and staple sold in Germany.
However, we corrected a clerical error in the calculation of profit
noted by Arami which resulted in double counting.
Continuation of Suspension of Liquidation
We are directing the Customs Service to continue to suspend
liquidation of all entries of PPD-T aramid fiber from the Netherlands
that are entered, or withdrawn from warehouse, for consumption on or
after December 16, 1993, the date of publication of our preliminary
determination in the Federal Register. The Customs Service shall
require a cash deposit or posting of a bond equal to the estimated
amount by which the FMV of the merchandise subject to this
investigation exceeds the U.S. price, as shown below. This suspension
of liquidation will remain in effect until further notice. The
weighted-average dumping margins are as follows:
------------------------------------------------------------------------
Weighted-
Producer/manufacturer exporter average
margin
------------------------------------------------------------------------
Akzo....................................................... 55.84
All Others................................................. 55.84
------------------------------------------------------------------------
ITC Notification
In accordance with section 735(d) of the Act, we have notified the
U.S. International Trade Commission of our determination.
Notification to Interested Parties
This notice also serves as the only reminder to parties subject to
administrative protective order (APO) of their responsibility
concerning the return or destruction of proprietary information
disclosed under APO in accordance with 19 CFR 353.34(d). Failure to
comply is a violation of the APO. This determination is published
pursuant to section 735(d) of the Act and 19 CFR 353.20(a)(4).
Dated: May 2, 1994.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 94-10993 Filed 5-5-94; 8:45 am]
BILLING CODE 3510-DS-P
