[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Notices]
[Pages 30309-30326]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-14735]
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DEPARTMENT OF COMMERCE
INTERNATIONAL TRADE ADMINISTRATION
[A-489-805]
Notice of Final Determination of Sales at Less Than Fair Value:
Certain Pasta From Turkey
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: June 14, 1996.
FOR FURTHER INFORMATION CONTACT: John Brinkmann, Michelle Frederick or
Sunkyu Kim, Office of Antidumping Investigations, Import
Administration, International Trade Administration, U.S. Department of
Commerce, 14th Street and Constitution Avenue, N.W., Washington, D.C.
20230; telephone: (202) 482-5288, (202) 482-0186, or (202) 482-2613,
respectively.
The Applicable Statute
Unless otherwise indicated, all citations to the statute are
references to the provisions effective January 1, 1995, the effective
date of the amendments made to the Tariff Act of 1930 (the Act) by the
Uruguay Round Agreements Act (URAA).
Final Determination
We determine that certain pasta (pasta) from Turkey is being sold
in the United States at less than fair value (LTFV), as provided in
section 735 of the Act. The estimated margins are shown in the
``Suspension of Liquidation'' section of this notice.
Case History
Since the preliminary determination of sales at less than fair
value in this investigation on December 14, 1995, (60 FR 1351, January
19, 1996) (Preliminary Determination), the following events have
occurred:
On January 22, 1996, the Department requested that Filiz Gida
Sanayii ve Ticaret (Filiz) and Maktas Makarnacilik ve Ticaret T.A.S.
(Maktas), the two respondents in this case, submit additional
information relating to level of trade. Responses were received on
January 31, 1996, as part of their supplemental Section D questionnaire
responses.
On January 25, 1996, Hershey Foods Corp., Borden Inc., and Gooch
Foods, Inc. (collectively the petitioners) alleged ministerial errors
in the Department's preliminary determination calculations regarding
the two respondents. The respondents alleged a ministerial error in the
Department's preliminary determination on January 26, 1996.
With respect to the petitioners' allegation, we agreed that errors
were made as alleged and the errors were found to constitute
significant ministerial errors because the correction resulted in a
difference of at least five absolute percentage points and was at least
25 percent greater than the preliminary margin, for both Filiz and
Maktas. With respect to the respondents' allegation, we determined that
the respondents' allegation did not constitute a ministerial error. See
Memorandum to Barbara R. Stafford from the Team dated February 6, 1996.
An amended preliminary determination was issued on February 12, 1996
(61 FR 6348, February 20, 1996).
We conducted verification of Filiz's and Maktas's sales and cost
questionnaire responses in Turkey in February and March 1996.
On May 1, 1996, Maktas, at the request of the Department, submitted
[[Page 30310]]
revised computer tapes that corrected clerical errors discovered at
verification.
Filiz, Maktas and the petitioners submitted case briefs on April
30, 1996, and rebuttal briefs on May 3, 1996. At the request of both
the petitioners and the respondents, a public hearing was held on May
7, 1996.
On May 8, 1996, the the Embassy of Turkey requested that the
Department accept into the record a copy of Maktas's major
shareholder's 1994 financial statements. The Department informed the
Embassy that it could not accept any new information into the record at
that point. (See, Memorandum to File from Barbara R. Stafford, May 8,
1996.)
Scope of Investigation
The scope of this investigation consists of certain non-egg dry
pasta in packages of five pounds (or 2.27 kilograms) or less, whether
or not enriched or fortified or containing milk or other optional
ingredients such as chopped vegetables, vegetable purees, milk, gluten,
diastases, vitamins, coloring and flavorings, and up to two percent egg
white. The pasta covered by this scope is typically sold in the retail
market, in fiberboard or cardboard cartons or polyethylene or
polypropylene bags, of varying dimensions.
Excluded from the scope of this investigation are refrigerated,
frozen, or canned pastas, as well as all forms of egg pasta, with the
exception of non-egg dry pasta containing up to two percent egg white.
In the companion countervailing and antidumping duty investigations
involving pasta from Italy, we have excluded imports of organic pasta
that are accompanied by the appropriate certificate issued by the
Associazione Marchigiana Agricultura Biologica (AMAB). The Department
has determined that AMAB is legally authorized to certify foodstuffs as
organic for the Government of Italy(GOI). If certification procedures
similar to those implemented by the GOI are established by the
Government of Turkey for exports of organic pasta to the United States,
we would consider an exclusion for organic pasta at that time.
The merchandise under investigation is currently classifiable under
items 1902.19.20 of the Harmonized Tariff Schedule of the United States
(HTSUS). Although the HTSUS subheadings are provided for convenience
and customs purposes, our written description of the scope of this
investigation is dispositive.
Period of Investigation
The period of investigation (POI) is May 1, 1994, through April 30,
1995.
Facts Available
Section 776(a)(2) of the Act provides that if an interested party
or any other person--(A) Withholds information that has been requested
by the administering authority, (B) fails to provide such information
by the deadlines for the submission of the information or in the form
and manner requested, subject to subsections (c)(1) and (e) of section
782, (C) significantly impedes a proceeding under this title, or (D)
provides such information but the information cannot be verified as
provided in section 782(i), the administering authority * * * shall,
subject to section 782(d), use the facts otherwise available in
reaching the applicable determination under this title.
Section 782(c)(1) permits the Department to modify the requests for
information in its questionnaires if that party, ``promptly after
receiving a request {from the Department} for information, notifies
{the Department} that such party is unable to submit the requested
information in the requested form and manner.'' The Statement of
Administrative Action (SAA) to the Uruguay Round Agreements Act (URAA)
makes clear that paragraph (c)(1) is intended to apply to the
Department's requests for information in computerized form. SAA at 865.
Subsection (e) provides that the Department shall not decline to
consider information that is submitted by an interested party and is
necessary to the determination but does not meet all the applicable
requirements established by the Department if--
(1) the information is submitted by the deadline established for
its submission,
(2) the information can be verified,
(3) the information is not so incomplete that it cannot serve as a
reliable basis for reaching the applicable determination,
(4) the interested party has demonstrated that it acted to the best
of its ability in providing the information and meeting the
requirements established by the Department with respect to the
information, and
(5) the information can be used without undue difficulties.
Accordingly, in using the facts available, the Department may
disregard information submitted by a respondent if any of the five
criteria has not been met.
A. Filiz
As discussed in the Preliminary Determination, the Department
initiated a cost of production (COP) investigation of Filiz on June 8,
1995. In its questionnaire, the Department requested that in providing
cost data, Filiz's valuation of materials used be based upon current
material prices in accordance with the Department's normal methodology
in hyperinflationary cases. (See, Fair Value Comparisons section.) In
its response, however, Filiz reported its raw materials costs using
last-in, first-out (LIFO) accounting. Filiz maintained that its use of
LIFO assumptions accurately reflected the replacement cost methodology
requested in the questionnaire. However, Filiz's response raised
questions regarding the accuracy of its reported material costs,
insofar as LIFO does not require materials used in production to be
valued at costs from the current period. Instead, LIFO allows materials
consumed to be valued at costs from both current and prior periods.
Although we informed Filiz that the valuation of materials and
conversion costs should be based upon current costs, Filiz provided an
inventory accounting methodology that valued some semolina at costs
from previous months. This deficiency was brought to Filiz's attention
in a supplemental questionnaire and again during verification, but the
company failed to modify its methodology to comply with the
Department's instructions. Furthermore, during verification, Filiz
declined to provide information necessary to quantify the
understatement of costs associated with this method.
The results of our investigation, and the evidence which appears on
the record, indicate that the use of a LIFO inventory methodology by
Filiz has had a significant distortive impact on its reported COP data.
Accordingly, we find that Filiz has not provided adequate data to
compute its material costs. (For a more detailed explanation, see
Memorandum to the File from Michael Martin and William Jones, May 20,
1996).
In addition, Filiz stated in its response to our antidumping duty
questionnaire that its annual financial statements are prepared on an
actual (not constant) currency basis. During our cost verification,
however, we became aware that Filiz had available audited 1994 constant
currency financial statements which had not been disclosed to the
Department. We were informed by company officials that auditors from an
outside accounting firm had prepared these statements from Filiz's
normal audited financial statements (which are prepared in accordance
with Turkish tax law) and that Filiz personnel would not be able to
answer any questions related to the
[[Page 30311]]
constant currency statements. We requested that a copy of these
financial statements be introduced as a verification exhibit, but Filiz
denied our request. Furthermore, although we were permitted to examine
the statements for a limited time at verification, we were not
permitted to make copies of them, nor take the statements off the
premises.
Nevertheless, our limited review of these statements gave us reason
to believe that significant distortions exist in the COP and
constructed value (CV) data submitted by Filiz. Specifically, the notes
to the constant currency financial statements revealed that adjustments
had been recorded for certain severance costs, pension liabilities,
deferred salaries, operational expenses and interest on loans. We were
informed that these adjustments were not reflected in the financial
statements Filiz used to derive its COP and CV figures. The nature of
the adjustments suggested that Filiz had excluded certain expenses
incurred during the POI from its reported COP and CV data, and also
raised concerns about whether the submitted conversion costs, general
and administrative expenses and financial expenses accurately reflected
the company's production costs. During the public hearing, counsel for
Filiz stated that the adjustments were recorded to restate Filiz's
submitted cash-basis financial statements to the accrual basis required
under international accounting standards. Filiz's failure to explain or
provide these financial statements as a verification exhibit prevents
us from quantifying the magnitude of the distortions which exist in the
submitted COP and CV data.
The use of LIFO inventory methodology by Filiz and its failure to
provide the constant currency financial statements render Filiz's
submitted COP and CV data unusable for purposes of margin calculations.
Accordingly, the Department must consider the use of the facts
available in determining a margin for Filiz, pursuant to section 776(a)
of the Act.
Insofar as Filiz has not raised the issue of difficulty in
providing information in the informational format or medium requested
by the Department, section 782(c)(1) does not apply in this case.
When examined in light of the requirements of section 782(e), the
facts in this case indicate that Filiz's cost data is thoroughly and
systematically flawed. The gaps and inaccuracies in Filiz's cost data
render its use impossible. First, for the reasons detailed above, the
accuracy of Filiz's submitted cost data could not be verified, as
required by section (e)(2). Second, because of the flaws in its cost
data, Filiz's submitted cost data ``cannot serve as a reliable basis
for reaching the applicable determination'' under section (e)(3), nor
can it ``be used without undue difficulties'' under section (e)(5).
Third, in its failure to provide information based on current material
costs (rather than LIFO) and its refusal to allow the constant currency
financial statements to be entered into the record (or even closely
examined by the Department or explained by Filiz itself at
verification), Filiz has not acted to the ``best of its ability'' in
meeting the Department's requirements, pursuant to section 782(e)(4) of
the Act.
The use of facts available is also subject to section 782(d) of the
Act. Subsection 782(d) provides that if the Department ``determines
that a response to a request for information * * * does not comply
with the request, {the Department} shall promptly inform the person
submitting the response of the nature of the deficiency and shall, to
the extent practicable, provide that person with an opportunity to
remedy or explain the deficiency in light of the time limits
established for completion of investigations or reviews under this
title.'' Filiz had ample opportunity to correct the defects in its
submitted cost data. As indicated above, the deficiency in Filiz's
submissions regarding materials costs was brought to its attention in a
supplemental questionnaire and again during verification. Filiz,
however, failed to modify its methodology to comply with the
Department's instructions. Thus, Filiz has not acted to the best of its
ability during this investigation. Therefore, in applying the facts
available under section 776, the Department is acting consistently with
section 782(d).
Furthermore, during verification, Filiz declined to provide
information that might have remedied the deficiencies: when the
Department became aware at verification of systematic flaws in Filiz's
cost data, Filiz refused to enter the statements into the
administrative record or allow the Department's verification team to
examine it closely, thereby ``significantly impeding'' the Department's
ability to conduct its investigation (and verify Filiz's submitted
data) under section 776(a)(2)(C) of the Act.
For the foregoing reasons, the Department has determined that,
insofar as Filiz has failed to provide cost data in the form and manner
requested by the Department, and has ``significantly impeded'' this
investigation, it is required by section 776(a) of the Act to use the
facts available with respect to Filiz's cost data. However, the
Department must also determine whether (1) the use of facts available
for Filiz's cost data renders the rest of Filiz's submitted information
(i.e., the sales data) unusable, and (2) whether the use of adverse
information as facts available is warranted.
First, we have determined that the resort to facts available for
Filiz's cost data renders its sales data unusable. Because of the
flawed nature of the cost data, home market sales cannot be tested to
determine whether they were made at prices above production cost.
Insofar as the Department can only make price-to-price comparisons
(normal value to export price) on those home market sales that are made
above cost, the systematically flawed nature of the cost data makes
these comparisons impossible. A second problem with using the home
market sales data is the absence of reliable difference in merchandise
figures (DIFMERS). When comparing normal value to export price, the
Department is required to account for the effect of physical
differences between the merchandise sold in each market. See, section
773(a)(6)(C) of the Act. Insofar as DIFMER data is based on cost
information, the effect of these physical differences cannot be
determined by the Department.
In addition, the Department cannot derive a normal value that can
be compared with U.S. price data. When home market sales prices cannot
be used, the Department resorts to the use of constructed value as
normal value. See, sections 773(a)(4), 773(e). However, the constructed
value information reported by Filiz is part of the cost data that,
because it is systematically flawed, has been rejected by the
Department. Therefore, the use of facts available for Filiz's cost data
precludes the use of the submitted constructed value information. The
Department's prior practice has been to reject a respondent's submitted
information in toto when flawed and unreliable cost data renders any
price-to-price comparison impossible. The rationale for this policy is
contained in Notice of Final Determination of Sales at Less than Fair
Value: Grain-Oriented Electrical Steel From Italy, 59 Fed. Reg. 33952,
33953-54 (July 1, 1994), (Grain-Oriented Electrical Steel From Italy),
where the respondent failed the cost verification. The Department
explained that the rejection of a respondent's questionnaire response
in toto is appropriate and consistent with past practice in instances
where a respondent failed to provide verifiable COP information:
[[Page 30312]]
If the Department were to accept verified sales information when
a respondent's cost information (a substantial part of the response)
does not verify, respondents would be in a position to manipulate
margin calculations by permitting the Department to verify only that
information which the respondent wishes the Department to use in its
margin calculation.
That is the situation with Filiz, which has provided accurate and
verified sales information, but has not provided accurate and usable
cost data and has hindered verification of its cost data (see Cost
Verification Report). Although Grain-Oriented Electrical Steel from
Italy was a case involving the Best Information Available (BIA) under
the ``old'' statute, it demonstrates the Department practice of
regarding verified sales information as unusable when the corresponding
cost data is so flawed that price-to-price comparisons are rendered
impossible. Cf. Certain Corrosion-Resistant Carbon Steel Flat Products
from Korea: Final Results of Antidumping Duty Administrative Review, 61
FR 18547, 18559 (April 26, 1996) (the use of total BIA warranted where
reliable price-to-price comparisons are not possible).
Accordingly, we find that there is no reasonable basis for
determining normal value for Filiz in this case. As a result, there is
nothing to compare to U.S. sales to derive a margin calculation. The
Department has resorted, therefore, to total facts available for Filiz.
The next step is to determine whether an adverse inference is
warranted. Section 776(b) of the Act provides that, where the
Department ``finds that an interested party has failed to cooperate by
not acting to the best of its ability to comply with a request for
information from {the Department} * * * {the Department} may use an
inference that is adverse to the interests of that party in selecting
from among the facts otherwise available.''
As discussed above, Filiz failed to provide cost data in the form
and manner requested by the Department, notwithstanding the
Department's repeated requests. Second, Filiz refused to allow the
constant currency financial statements to be entered into the
administrative record of this case. We have thus determined that Filiz
has not cooperated by virtue of not acting to the best of its ability
in this investigation. Accordingly, consistent with section 776(b)(1)
of the Act, we have applied, as total facts available to Filiz, the
higher of the margin from the petition or the highest rate calculated
for a respondent in this proceeding, which is 63.29 percent.
Section 776(c) of the Act provides that where the Department relies
on ``secondary information,'' the Department shall, to the extent
practicable, corroborate that information from independent sources
reasonably at the Department's disposal. The SAA, accompanying the
URAA, clarifies that the petition is ``secondary information.'' See,
SAA at 870. The SAA also clarifies that ``corroborate'' means to
determine that the information used has probative value. Id. However,
where corroboration is not practicable, the Department may use
uncorroborated information.
In the present case, based on our comparison of the sizes of the
calculated margin for the other respondent in this proceeding to the
estimated margin in the petition, we have concluded that the petition
is the most appropriate information on the record to form the basis for
a dumping calculation. Accordingly, the Department has based the margin
on information in the petition. In accordance with section 776(c) of
the Act, we attempted to corroborate the data contained in the
petition. The petitioners based export prices on U.S. import
statistics. We find that this information has probative value because
it was obtained from an independent, public source. See, Notice of
Final Determination of Sales at Less Than Fair Value: Circular Welded
Non-Alloy Steel Pipe from South Africa 61 FR 94, 24271 (May 14, 1996).
The normal value was based on prices between a Turkish producer of
pasta and its wholesaler which were obtained from a market research
report.
When analyzing the petition, the Department contacted the
consultant who prepared the market research report and confirmed the
accuracy of the data as provided in the petition. Accordingly, we have
corroborated, to the extent practicable, the data contained in the
petition.
B. Maktas
In our January 16, 1996, supplemental questionnaire of the
Department requested Maktas to provide a copy of the 1994 financial
statements of its major shareholder, Piyale-Besin Sanayi ve Ticaret
A.S. (Piyale-Besin). In its response, Maktas did not provide a copy of
Piyale-Besin's financial statements, stating that since ``Piyale-Besin
is merely a shareholder of Maktas, the financial statements of Piyale-
Besin are irrelevant to this investigation.'' At the cost verification,
the Department again requested Piyale-Besin's 1994 financial
statements. The Department explained to Maktas that the Department's
normal practice is to request financial information from shareholders
that own a significant percentage of a respondent's stock. Maktas,
however, declined to provide to the Department the financial statements
of Piyale-Besin.
The failure of Maktas to provide Piyale-Besin's financial
statements raises significant questions as to the accuracy of certain
expenses reported to the Department, namely, interest, general and
administrative (G&A), and selling expenses. It is the Department's
practice to require the use of consolidated group information for the
calculation of interest expenses based on the fact that the
consolidated group's controlling entity has the power to determine the
capital structure of each member of the group. See, e.g., Final
Determination of Sales at Less Than Fair Value: Certain Small Business
Telephone Systems and Subassemblies Thereof From Korea, 54 FR 53141,
53149 (December 27, 1989). Piyale-Besin has such power since it owns a
substantial majority of Maktas and its affiliates. It is the
Department's position that majority equity ownership is prima facie
evidence of corporate control. See, e.g., Final Determination of Sales
at Less Than Fair Value: Small Diameter Circular Seamless Carbon and
Alloy Steel, Standard, Line and Pressure Pipe From Italy, 60 FR 31981,
31991 (June 19, 1995). However, because Maktas did not provide Piyale-
Besin's financial statements, we have no information about Piyale-
Besin's interest expenses. Therefore, in accordance with section 776(a)
of the Act, we have applied facts available for Maktas's interest
expenses. In addition to our lack of information regarding interest
expenses, we are not able to confirm that Piyale-Besin did not provide
G&A services to Maktas or incur selling expenses on behalf of Maktas.
Accordingly, we have also applied facts available for G&A and selling
expenses.
Further, Maktas's refusal to provide Piyale-Besin's financial
statements demonstrates that it failed to cooperate by not acting to
the best of its ability to comply with requests for information,
insofar as Piyale-Besin's financial statements do exist and are
available. Indeed, on May 8, 1996, several weeks after the Department
conducted verification, the Embassy of Turkey requested that the
Department accept into the record 1994 financial statements of Piyale-
Besin, which the Embassy of Turkey would provide. The Department
rejected the Embassy's request and informed the Embassy that it was too
late to accept new factual information for the record. Therefore, in
accordance with section 776(b) of the Act, we have determined that an
adverse inference is warranted in the selection of the facts otherwise
available
[[Page 30313]]
for interest, G&A, and selling expenses. As adverse facts available, we
calculated an estimate of Piyale-Besin's interest expenses by applying
the effective interest rate incurred by Maktas during 1994 to the
average amount of Maktas equity owned by Piyale-Besin during the year.
We then added the calculated interest expense to the combined interest
expense of Maktas and three affiliated parties. As in the preliminary
determination, we excluded foreign exchange gains and adjusted the
monthly interest expense amounts for inflation using the wholesale
price index. For G&A expenses, we have no evidence regarding the level
of G&A expense for a company doing business in Turkey, other than the
information reported by Maktas. Therefore, we assumed that Piyale-
Besin's G&A would be at the same level as Maktas. Lastly, for selling
expenses, we treated the indirect selling expenses Maktas incurred on
its sales to the United States as a direct selling expense and made a
circumstance of sale adjustment (COS) for these expenses. (See Comment
2 below.)
Product Comparisons
For purposes of determining appropriate product comparisons to U.S.
sales, we compared identical merchandise, or where there were no sales
of identical merchandise in the home market to compare to U.S. sales,
we made comparisons based on the characteristics listed in the
Department's antidumping questionnaire, as had been applied in the
preliminary determination, and in accordance with section 771(16) of
the Act.
Level of Trade
As set forth in section 773(a)(1)(B)(i) of the Act and in the SAA
accompanying the Uruguay Round Agreements Act, at 829-831, to the
extent practicable, the Department will calculate normal values based
on sales at the same level of trade as the U.S. sales. When the
Department is unable to find sales in the comparison market at the same
level of trade as the U.S. sale(s), the Department may compare sales in
the U.S. and foreign markets at different levels of trade.
In accordance with section 773(a)(7)(A) of the Act, if sales at
different levels of trade are compared, the Department will adjust the
normal value to account for the difference in level of trade if two
conditions are met. First, there must be differences between the actual
selling functions performed by the seller at the level of trade of the
U.S. sale and the level of trade of the normal value sale. Second, the
differences must affect price comparability as evidenced by a pattern
of consistent price differences between sales at the different levels
of trade in the market in which normal value is determined.
In implementing these principles in this case, the Department's
first task was to obtain information about the selling activities of
the producers/exporters. Information relevant to level of trade
comparisons and adjustments was requested in our July 12, 1995
questionnaire, and in supplemental questionnaires sent on October 23,
1995, and January 22, 1996. We asked each respondent to establish any
claimed levels of trade based on the selling functions provided to each
proposed customer group, and to document and explain any claims for a
level of trade adjustment.
Our review of these submissions shows that Maktas has identified
levels of trade based on channels of distribution. In order to
determine whether separate levels of trade actually existed within or
between the U.S. and home markets, we reviewed the selling functions
attributable to the customer groups claimed by Maktas. Pursuant to
section 773(a)(1)(B)(i) of the Act, and the SAA at 827, in identifying
levels of trade for directly observed (i.e., not constructed) export
price and normal value sales, we considered the selling functions
reflected in the starting price, before any adjustments. Whenever sales
within a customer group were made by or through an affiliated company
or agent, we ``collapsed'' the affiliated parties before considering
the selling functions performed. The selling functions and activities
examined for each reported customer group were:
(1) The process used to establish the terms and conditions of sale
(``sales process''); (2) whether the sale was produced to order or
filled from normal inventory (``inventory maintenance''); (3) whether
the customer was serviced from a forward warehouse (``forward
warehousing''); (4) freight and delivery provided or arranged by the
manufacturer/exporter (``freight''); (5) manufacturer provided or
shared direct advertising or in-store promotion expenses
(``advertising''); and (6) warranty service program or after-sales
service provided by producer (``warranties'').
In reviewing the selling functions reported by Maktas for each
customer group, we considered all types of selling functions, both
claimed and unclaimed, that had been performed. Where possible, we
further examined whether the selling function was performed on a
substantial portion of sales within the relevant customer group. In
analyzing whether separate levels of trade exist in this investigation,
we found that no single selling function in the pasta industry was
sufficient to warrant a separate level of trade (see, Notice of
Proposed Rulemaking and Request for Public Comments, 61 FR 7307, 7348
(February 27, 1996)) (Proposed Regulations).
In determining whether separate levels of trade existed in or
between the U.S. and home markets, the Department considered the level
of trade claims of Maktas, but the ultimate decision was based on the
Department's analysis of the selling functions associated with the
customer groups reported by Maktas.
To the extent practicable, we compared normal value at the same
level of trade as the U.S. sale. For Maktas, we compared the level of
trade in the U.S. market to the sole home market level of trade and
found them to be dissimilar in aggregate selling functions. Therefore,
we established normal value at a level of trade different than the U.S.
sales.
We then examined whether a level of trade adjustment was
appropriate for Maktas when comparing its U.S. level of trade to its
home market level of trade. However, because there was only a single
home market level of trade, there was no basis for making a level of
trade adjustment based on a demonstration of a consistent pattern of
price differences between the home market levels of trade. The SAA
states that ``if information on the same product and company is not
available, the adjustment may also be based on sales of other products
by the same company. In the absence of any sales, including those in
recent time periods, to different levels of trade by the exporter or
producer under investigation, Commerce may further consider the selling
experience of other producers in the foreign market for the same
product or other products.'' SAA at 830. The alternative methods for
calculating a level of trade adjustment for Maktas were examined.
However, we do not have information which would allow us to examine
pricing patterns based on Maktas's sales of other products at the same
level of trade as the home market sales and there are no other
respondents with the same levels of trade as those found for the home
market sales of Maktas. Therefore, we were unable to calculate a level
of trade adjustment for Maktas based on these alternative methods.
Accordingly, Maktas's U.S. sales were compared to home market sales
based solely on the product characteristics of the merchandise.
[[Page 30314]]
As noted below in the ``Comparison Methodology'' section of this
notice, where there were distinct price differences within different
levels of trade in the case of Maktas, we considered the customer
category in creating the averaging groups for our comparisons.
Fair Value Comparisons
To determine whether sales of pasta by Maktas to the United States
were made at less than fair value, we compared the Export Price (EP) to
the Normal Value (NV), as described in the ``Export Price'' and
``Normal Value'' sections of this notice. In accordance with section
777A(d)(1)(A)(i) of the Act, we calculated weighted-average EPs for
comparisons to weighted-average NVs.
As discussed in the Preliminary Determination, we determined that
Turkey's economy experienced hyperinflation during the POI.
Accordingly, to avoid the distortions caused by the effects of
hyperinflation on prices, we calculated EPs and NVs on a monthly
average basis, rather than on a POI average basis.
Export Price
We calculated EP in accordance with section 772(a) of the Act,
because the subject merchandise was sold directly to the first
unaffiliated purchase in the United States prior to importation and
Constructed Export Price (CEP) methodology was not otherwise warranted
based on the facts of this investigation. We calculated EP based on the
same methodology used in the preliminary determination. We made the
following additional adjustment, based on information obtained at
verification; we included export customs commission expenses as part of
brokerage and handling expenses and made deductions for these expenses
from the starting price (gross unit price).
Normal Value
In accordance with section 773(a)(1)(B) of the Act, we based NV on
home market sales, or, where appropriate, on CV. We compared all home
market sales to the COP, as described below. Where home market prices
were above the COP, we calculated NV based on the same methodology used
in the preliminary determination, with the following exceptions:
1. As discussed above, we applied facts available for selling
expenses. As facts available, we treated the indirect selling expenses
Maktas incurred on its sales to the United States as a direct selling
expense and made a COS adjustment for these expenses. Indirect selling
expenses as reported were revised based on information obtained at
verification.
2. We made an additional COS adjustment for bank charges incurred
on U.S. sales, based on information obtained at verification.
3. We used revised home market short-term interest rates obtained
at verification for computing imputed credit expenses for home market
sales. For the month of August 1994, in which Maktas did not report a
short-term borrowing rate, we used the average of the short-term
borrowing rates for July and September 1994.
4. For sales made through Andas Gida Dagitim ve Ticaret A.S.
(Andas), one of Maktas's two affiliated distributors in the home
market, we made no deductions for inland insurance because it was found
at verification that Andas did not actually incur any expense for
inland insurance during the POI.
Cost of Production Analysis
As discussed in the preliminary determination notice, the
Department conducted an investigation to determine whether Maktas made
home market sales during the POI at prices below COP within the meaning
of section 773(b) of the Act. Before making any fair value comparisons,
we conducted the COP analysis described below.
A. Calculation of COP
We calculated the COP based on the sum of Maktas's cost of
materials and fabrication for the foreign like product, plus amounts
for home market selling, general and administrative expenses (SG&A) and
packing costs in accordance with section 773(b)(3) of the Act. As noted
in the Preliminary Determination, we used the respondent's reported
monthly COP figures which were based on the current production costs
incurred during each month of the POI. This was done in order to avoid
the distortive effect of inflation on our comparison of costs and
prices. We relied on the reported COP amounts with the following
exceptions:
1. As discussed above in the Facts Available section, we applied
facts available for interest and G&A expenses.
2. Based on information obtained at verification, we recalculated
fixed overhead costs by including certain depreciation expenses. See,
Comment 7 below.
3. We recalculated packing costs for certain products. See, Comment
6 below.
B. Test of Home Market Prices
As stated in the Preliminary Determination, we used the
respondent's adjusted monthly COP amounts and the wholesale price index
published by the Government of Turkey's State Institute of Statistics
to compute an annual weighted-average COP for the POI. We compared the
adjusted weighted-average COP figures to home market sales of the
foreign like product as required under section 773(b) of the Act, in
order to determine whether these sales had been made at below-cost
prices within an extended period of time in substantial quantities, and
at prices that did not permit recovery of all costs within a reasonable
period of time. On a product specific basis, we compared the COP to the
home market prices, less any applicable movement charges, discounts,
rebates, packing, and direct and indirect selling expenses.
C. Results of COP Test
Pursuant to section 773(b)(2)(C) of the Act, where less than 20
percent of sales during the POI of a given product were at prices less
than the COP, we did not disregard any below-cost sales of that product
because the below-cost sales were not made in substantial quantities
within an extended period of time. Where 20 percent or more of sales of
a given product were at prices less than the COP, we disregarded only
the below-cost sales because such sales were found to be made within an
extended period of time, in accordance with section 773(b)(2)(B) of the
Act, and at prices which would not permit recovery of all costs within
a reasonable period of time, in accordance with section 773(b)(2)(D) of
the Act. Where all sales of a specific product were at prices below the
COP, we disregarded all sales of that product, and calculated NV based
on CV, in accordance with section 773(a)(4) of the Act.
We found that, for certain pasta products, more than 20 percent of
Maktas's home market sales were sold at below COP prices within the
POI. Further, these sales did not provide for the recovery of costs
within a reasonable period of time. We determined, therefore, that
these below cost sales were made in substantial quantities within an
extended period of time and we excluded these sales and considered the
remaining above-cost sales in determining NV, if such sales existed, in
accordance with section 773(b). For those pasta products for which
there were no above-cost sales in the ordinary course of trade, we
compared export prices to CV.
D. Calculation of CV
In accordance with section 773(e)(1) of the Act, we calculated CV
based on
[[Page 30315]]
the sum of Maktas's cost of materials, fabrication, SG&A and U.S.
packing costs as reported in the U.S. sales database. In accordance
with sections 773(e)(2)(A), we based SG&A and profit on the amounts
incurred and realized by the respondent in connection with the
production and sale of the foreign like product in the ordinary course
of trade for consumption in the foreign country. Where appropriate, we
calculated CV based on the methodology described above in the
calculation of COP and added an amount for profit. For selling
expenses, we used the weighted-average home market selling expenses.
Comparison Methodology
In accordance with section 777A(d)(1)(A)(i) of the Act, we
calculated weighted-average EPs for comparison to weighted-average NVs.
The weighted averages were calculated and compared by product
characteristics and, where appropriate, level of trade and/or price
averaging groups. The SAA states that in determining the comparability
of sales for inclusion within a particular average, ``Commerce will
consider factors it deems appropriate, such as * * * the class of
customer involved,'' SAA at 842. The Department, not the respondents,
determines which customers may be grouped together for product
comparison purposes. Cf., N.A.R., S.p.A. v. U.S., 741 F. Supp. 936
(CIT, 1990). Based on the chain of distribution for the pasta industry,
we have identified the following five distinct customer categories that
represent different points in the chain of distribution: (1) Other
pasta manufacturers (Pastificios) who purchase and resell pasta; (2)
distributors; (3) wholesalers; (4) retailers; and (5) consumers. Each
of these customer categories was defined by functions commonly
associated with each category of customer in the areas of: (1) category
of the supplier; (2) contractual relationship with the supplier; (3)
exclusivity of sales territory; (4) exclusivity of product range; (5)
sales practices; and (6) downstream customer category.
For Maktas, based on our analysis, we found that there were
consistent price differentials among the customer categories in the
home market. Therefore, the weighted-average prices were calculated and
compared by product characteristics and by customer category.
Currency Conversion
The Department's preferred source for daily exchange rates is the
Federal Reserve Bank. However, the Federal Reserve Bank does not track
exchange rates for the Turkish lira. Therefore, we made currency
conversions based on the daily exchange rate from the Dow Jones
Service, as published in the Wall Street Journal. As discussed below
under Comment 12, we used the actual daily exchange rates for the final
determination.
Verification
As provided in section 782(i) of the Act, we verified information
provided by Maktas 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
Comment 1 Use of Facts Available for Filiz: The petitioners argue
that Filiz failed verification and, therefore, the Department should
base its final determination on total adverse facts available.
Specifically, the petitioners claim that Filiz significantly impeded
the investigation and acted in an uncooperative fashion by: withholding
its constant currency financial statements; failing to report materials
costs in accordance with the Department's instructions; and refusing to
provide consolidated financial information.
With respect to the constant currency financial statements, the
petitioners argue that Filiz's submitted cost data is flawed due to the
absence of adjustments which were observed by the verifiers in notes to
these financial statements. Furthermore, the petitioners argue that
Filiz was uncooperative by not allowing the constant currency financial
statements as an exhibit and by failing to provide adequate
explanations for concerns which were raised by the Department regarding
the adjustments found in the statements.
Moreover, the petitioners claim that Filiz was instructed by the
Department to report its material costs based upon current material
prices, rather than a LIFO (last-in, first-out) methodology, but failed
to do so. Finally, the petitioners assert that, insofar as Filiz failed
to provide the Department with its consolidated 1994 financial
information, the Department must use adverse facts available.
According to the petitioners, if the Department determines not to
use total facts available, it must adjust Filiz's costs for errors and
correct its final margin calculations to account for inaccuracies and
omissions in the reported costs and expenses that the Department
discovered during verification.
Filiz urges the Department to reject the petitioners' assertion
that facts available should be used for the final determination.
Contrary to the petitioners' contention, Filiz asserts that it was
entirely cooperative throughout the investigation and that its costs
were fully verified. Specifically, Filiz claims that the constant
currency financial statements are irrelevant to this investigation,
that it reported material costs as reflected in its accounting system,
and that it was an impossible task to provide the Department with
consolidated financial information. Filiz suggests that the Department
should use its submitted costs, adjusted for a few clerical errors, for
the final determination.
Filiz argues that the Department did not need to utilize the
constant currency statements because they are irrelevant to this
investigation, insofar as they are adjusted for inflation, were
prepared in accordance with international accounting standards, and
reflect the consolidation of Filiz and Filiz Pazarlama (its affiliate).
In furtherance of its contention that the Department did not need
to make use of the constant currency financial statements, Filiz argues
that its independent accountants did not, in fact, perform an audit on
Filiz's 1994 financial statement, but rather prepared a consolidated,
inflation-adjusted report from the financial statements of the two
corporations (Filiz and Filiz Pazarlama). Moreover, according to Filiz
the adjustments which were noted in the constant currency statements
were not required under Turkish tax law and all pertinent costs of
production are captured in the financial statements which were
submitted to the Department. Filiz suggests that the constant currency
statements may not be used in this investigation since consolidated
financial statements prepared in Turkey do not eliminate intragroup
transactions, and argues that this renders such consolidated financial
statements valueless for antidumping purposes since the Department
holds that intragroup sales must be eliminated from a consolidated
statement.
In addition, Filiz argues that it properly reported material costs
in accordance with the Department's instructions and that the apparent
underreporting described by the petitioners is merely a phenomenon
caused by the high level of sophistication in Filiz's cost accounting
system. According to Filiz, it properly replaced semolina costs with
the average purchase price for the month
[[Page 30316]]
and used a LIFO inventory assumption thereafter. Filiz claims that it
could not have taken any action to avoid the consequence discussed in
the Department's verification report without severing the linkage
between the company's normal accounting procedures and its reported
costs. Therefore, Filiz argues that the Department should accept its
reported costs as they reconcile to its cost accounting system and have
been fully verified.
Finally, Filiz notes that it submitted the stand-alone financial
statements of its parent company and argues that it is prohibited by
Turkish tax law from consolidating the financial statements of the 40
or so affiliated parties in its group. Filiz maintains that it provided
a group-wide interest expense ratio in a supplemental response and that
this figure should be used by the Department for the imputation of any
expenses. In the absence of any evidence of financial transactions
between Filiz and its affiliated parties, Filiz asserts that there is
no justification for amending its reported interest expenses.
DOC Position: Our decision to use facts available for the final
determination is discussed in detail in the Facts Available section. In
this section we respond to additional comments by Filiz which were not
addressed therein.
Based upon our limited review of Filiz's constant currency
financial statements, we agree with Filiz that they were adjusted for
inflation, prepared in accordance with international accounting
standards, and reflect the consolidation of Filiz and an affiliated
distributor of pasta. However, none of these characteristics mitigate
questions raised by the ``major adjustments'' we observed in a note to
the financial statements. These adjustments, which were not recorded by
Filiz in its submitted financial statements, cause us to question
whether Filiz's reported conversion costs, G&A expenses, and financial
expenses accurately reflect the company's production costs.
The fact that these consolidated financial statements were
inflation-adjusted and prepared in accordance with international
accounting standards does not reduce our concerns. Although Filiz
claims that these adjustments arise from differences between Turkish
tax law and international accounting standards, it does not explain why
these differences were not taken into account during its preparation of
the COP and CV data. As noted in the cost verification report, Price
Waterhouse has stated that the differences between these two sets of
accounting rules (Turkish and international) are significant and, in
fact, the constant currency financial statements would present a more
accurate picture of Filiz's costs: ``In general, lack of clearly
defined commercial accounting principles and the predominance of tax
law mean that reports prepared in accordance with Turkish law should be
treated with extreme caution and the framework of fair presentation
under IASC `Standards Recommended by the International Accounting
Standards Committee' is preferred.'' (Doing Business in Turkey by Price
Waterhouse (1993), page 101.)
Additionally, Filiz's counsel stated during the public hearing that
the financial statements used by Filiz to calculate its reported costs
were prepared on a cash basis. The potential effect of calculating
production costs on a cash basis, rather than an accrual basis, is
especially significant due to the hyperinflation which existed in
Turkey during 1994 (inflation totaled 121.24 percent, according to the
IMF's International Financial Statistics).
The suggestion at verification by counsel for Filiz that the
company's management and staff were unable to answer any questions
about the constant currency statements because they were prepared by
the company's auditors, is not supported by international accounting
standards. As noted in the cost verification report, and as confirmed
by Filiz, the constant currency statements were prepared in accordance
with standards issued by the International Accounting Standards
Committee (IAS). According to the IAS, ``The management of an
enterprise has the primary responsibility for the preparation of the
financial statements of the enterprise.'' (Framework for the
Preparation and Presentation of Financial Statements, International
Accounting Standards Committee (July 1989) at paragraph 11.)
Accordingly, it is reasonable to expect that Filiz personnel should
have been able to answer the Department's questions about these
statements. Moreover, Filiz management had ample opportunity to consult
with its auditors, if they believed it was necessary to do so, for a
proper understanding of the statements. Instead, Filiz chose to
withhold the statements and explanations.
Additionally, Filiz appears to contradict itself when it argues
that the constant currency financial statements do not eliminate
intragroup transactions. Filiz claims that certain companies in Turkey
produce consolidated financial statements in which ``no elimination of
intragroup transactions or unrealized intercompany profits is
possible.'' (Doing Business in Turkey, page 106.) We note, however,
that if these statements were prepared in accordance with IAS
standards, as claimed, then, such transactions would not have been
included: ``intragroup balances and intragroup transactions and
resulting unrealized profits should be eliminated in full.''
(Consolidated Financial Statements and Accounting for Investments in
Subsidiaries, International Accounting Standards Committee (April 1989)
at paragraph 30.)
Regarding the LIFO methodology, the Department provided clear
instructions to Filiz that the ``valuation of materials used should be
based upon current material prices.'' (See, July 12, 1995 questionnaire
at D-13 and October 13, 1995 supplemental questionnaire at 3.)
Furthermore, the respondent was instructed to contact the Department if
there were any questions regarding its computation of costs.
With regard to Filiz's comments regarding its consolidated
financial information, these issues became moot when the Department
decided to base its final determination on total adverse facts
available.
Comment 2 Use of Facts Available for Maktas: The petitioners argue
that the Department should use total facts available for Maktas in the
final determination because: (1) Maktas failed to provide the
Department with critical information; (2) the Department made repeated
requests for such information; (3) Maktas ignored these requests and
provided no explanation why it would not provide the requested
information; and (4) without this information, the Department cannot
rely on or properly verify other information provided by Maktas.
Specifically, petitioners note that Maktas refused to provide the
Department with the 1994 financial statements of its major shareholder,
Piyale-Besin, and the monthly financial statements of Mafer Ambalaj
Sanayi ve Ticaret Ltd. Sti (Mafer), one of Maktas's affiliated
companies. Without the financial statements of these two companies, the
petitioners contend that the Department could not confirm the accuracy
of the information provided in both the COP/CV and sales verifications,
and, thus, the Department cannot calculate an appropriate normal value
or perform accurate sales comparisons.
According to the petitioners, Maktas's failure to provide financial
statements for Piyale-Besin results in a failure by the Department to
verify whether Piyale-Besin has provided Maktas with any assistance or
absorbed any costs related to administration, finance,
[[Page 30317]]
accounting, selling, marketing, or advertising of pasta. Additionally,
the petitioners contend that without Piyale-Besin's financial
information, the Department could not properly verify sales information
for Maktas and its affiliates. In particular, the petitioners raise
questions about Maktas's claim that, with the exception of Maktas's two
affiliated distributors in the home market (i.e., Tumgida Dagitim ve
Ticaret Ltd. Sti. and Andas), none of the affiliated companies of
Maktas, including Piyale-Besin, is engaged in the production or sale of
pasta.
Moreover, the petitioners note that Maktas failed to provide the
Department with monthly financial information for Mafer, which was
requested in a supplemental questionnaire. Accordingly to the
petitioners, without the monthly financial statements of Mafer, the
Department could not verify Maktas's claim that Mafer is an inactive
company. The petitioners in particular question whether Mafer, who is
related to Maktas, has provided Maktas with any packaging materials for
pasta which, if true, could result in discrepancies in the reported
packaging costs.
In support of its position for application of total facts
available, the petitioners cite Grain-Oriented Electrical Steel From
Italy, where the Department concluded that ``without verified COP/CV
data'' the Department has no basis to calculate an appropriate normal
value and cannot perform sales comparisons. Therefore, the Department
used total facts available in that case. Similarly, the petitioners
urge the Department to use total facts available for Maktas in the
final determination.
Furthermore, the petitioners argue that the Department should apply
adverse facts available because the respondent failed to cooperate by
not acting to the best of its ability to comply with a request for
information. The petitioners claim that Maktas's refusal to provide the
financial information of Piyale-Besin and Mafer demonstrates that
Maktas has been uncooperative and has significantly impeded this
investigation. Accordingly, the petitioners contend that the Department
should select as facts available the highest margin contained in the
petition for use in the final determination.
Maktas argues that the application of facts available is
unwarranted. In the absence of significant intercompany transactions
between Piyale-Besin and itself, Maktas claims that it would be
improper to presume that expenses of Piyale-Besin and itself should be
consolidated for purposes of margin calculation. In support of its
argument, Maktas cites Final Determination of Sales at Less Than Fair
Value: Ferrosilicon from Brazil, 59 FR 732, 737 (January 6, 1994)
(Ferrosilicon from Brazil).
According to Maktas, even though the Department was not able to
examine the financial statements of Piyale-Besin, it had full access to
all of Maktas's financial records from which to verify that there were
no significant transactions between Piyale-Besin and Maktas. Maktas
submits that, in fact, there was one small sales transaction between
Piyale-Besin and Tumgida during the POI, which was reported in its
response and subsequently excluded from the preliminary margin
calculation. Maktas maintains that the Department, through its
examination of Maktas, Andas, and Tumgida's sales records, verified
that no other transactions between Piyale-Besin and the respondent
occurred during the POI. Accordingly, Maktas argues that it should not
be subjected to facts available by reason of not providing the
financial statements of Piyale-Besin.
With respect to Mafer, Maktas maintains that Mafer was inactive
during the POI. Mafer's 1994 year-end financial statement, which was
provided to the Department in its November 13, 1995, submission,
reports a small amount of gross sales and cost of services. Maktas
asserts that such small financial figures are indicative of an inactive
company. Therefore, Maktas contends that it should not be subjected to
any facts available by reason of not providing the monthly financial
statements of Mafer.
DOC Position: We disagree with the petitioners' claim that we
should use total adverse facts available for Maktas in the final
determination. With respect to Piyale-Besin, we do not believe that
Maktas's refusal to provide Piyale-Besin's financial statements
warrants the application of total adverse facts available. However, as
discussed above in the Facts Available section of the notice, we
conclude that the application of facts available for certain elements
of cost and sales data (i.e., interest, G&A and selling expenses) is
appropriate for our final determination.
Regarding the petitioners' reliance on Grain-Oriented Electrical
Steel From Italy in support of its request for total facts available,
we note that circumstances as presented in that case are distinct from
those in this investigation. Unlike in Grain-Oriented Electrical Steel
From Italy, there were no significant problems found in Maktas's
reported materials, labor, and overhead costs. While it is true that
Maktas's failure to provide the financial statements of Piyale-Besin
raises questions as to the accuracy of certain reported expenses,
Maktas was able to substantiate much of the remaining information
contained in its COP/CV database. Therefore, the application of total
adverse facts available would be inappropriate.
Furthermore, with respect to the petitioners' assertion that
without access to Piyale-Besin's financial statements we could not
verify Maktas's claim that Piyale-Besin is not engaged in the sale of
pasta, we refer to the Dun and Bradstreet ``Business Information
Report'' (BIR) on Piyale-Besin which we independently obtained for the
record on January 24, 1996. The BIR states that Piyale-Besin is an
``investment company'' with five employees, which supports Maktas's
contention that Piyale-Besin is only a holding company. Further, the
BIR lists ``affiliates'' of Piyale-Besin. Based on information on the
record, we are satisfied that none of the active affiliates listed in
the BIR, other than Maktas, Tumgida and Andas, are engaged in the
production or sale of pasta. Thus, we believe that it is reasonable to
conclude that Maktas has completely reported its sales of pasta.
Turning to Maktas's argument, we note that Maktas's reliance on
Ferrosilicon from Brazil in support of its position that consolidation
of interest expense (or any other expenses) is required ``only after it
has been established that the holding company and the respondent have
significant financial transactions with each other'' is misplaced. In
that case, the Department clearly stated its position that ``the cost
of capital is fungible, therefore, calculating interest expenses based
on consolidated statements is the most appropriate methodology.'' Id.
at 732. With respect to Mafer, we agree with Maktas that the evidence
on the record supports its claim that Mafer is inactive.
Comment 3 Level of Trade: Comment 3A Whether the Department Should
Consider the Class of Customer and/or Channel of Distribution in
Determining Whether Separate LOTs Exist: The petitioners and Maktas
argue that the level of trade (LOT) methodology adopted by the
Department in its preliminary determination is flawed and should be
substantially revised in the final determination. Specifically, the
petitioners and Maktas assert that the Department improperly focused
solely on selling functions and ignored the customer groups and/or
channels of distribution identified by each respondent as potentially
different points in the chain of distribution.
[[Page 30318]]
The petitioners assert that it has been long recognized by the
Department and the Court of International Trade (CIT) that LOTs reflect
``an attempt to reconstruct prices at a specific, `common' point in the
chain of commerce * * *''), Smith Corona v. United States, 713 F.2d
1568, 1571-72 (Fed. Cir. 1983). Claiming that the new statute, the SAA,
and the Department's Proposed Regulations do not define LOT or
establish criteria for determining separate LOTs, the petitioners argue
that the fundamental concept of LOT has not changed under the new
statute. Therefore, they each contend that the definition of LOT still
reflects the Court of Appeals' and the Department's longstanding
interpretation of that term (i.e., that LOT refers to different points
in the chain of distribution). (See, e.g., Import Administration Policy
Number 92/1 at 2 (July 29, 1992), (``In asking for LOT information, the
Department is trying to determine where in the distribution chain the
respondents' customer falls (end user, distributor, retailer).'')
Certain Carbon and Alloy Steel Wire Rod from Canada, 59 FR 18,791,
18,794 (April 20, 1994), (``Comparisons are made at distinct,
discernable levels of trade based on the function each level of trade
performs, such as end-user, distributor, and retailer.'')).
Although the petitioners recognize that the new statute contains
certain refinements to the LOT concept, the petitioners argue that the
amendments to the law made by the URAA did not alter the fundamental
definition of LOT as noted above. Consequently, they argue that the
starting point for determining whether different LOTs exist is whether
the sales take place at different points in the chain of distribution.
The petitioners cite Certain Stainless Steel Wire Rods from France:
Preliminary Results of Antidumping Duty Administrative Review, 61 FR
8915, 8916 (March 6, 1996) (French Rod) as a recent case where, in
analyzing potential LOTs, the Department relied upon the distinctions
the respondents identified between channels of distribution.
(``Respondents reported two channels of distribution in the home market
* * *. We examined and verified the selling functions performed in each
channel * * *. Overall we determine that the selling functions between
the two sales channels are sufficiently similar to consider them one
level of trade in the home market.'')), French Rod, 61 FR 8916.
Therefore, the petitioners assert that the Department should consider
the potential LOTs identified by the respondents, in terms of channels
of distribution or customer groups, in determining whether separate
LOTs exist.
DOC Position: While neither the Act nor the SAA provides an
explicit definition of LOT or establishes criteria for determining
whether separate LOTs exist, the SAA does specify that the Department
requires evidence that ``different selling activities are actually
performed at the allegedly different levels of trade'' before
recognizing distinct LOTs. SAA at 829. This is confirmed again by the
SAA in the discussion of the required pattern of price differences for
the LOT adjustment, where it states that ``where it is established that
there are different levels of trade based on the performance of
different selling activities * * *,'' Commerce will make a LOT
adjustment. SAA at 830. Thus, the Act and the SAA have identified
selling activities as a key factor in determining LOTs; however, the
statute does not require that this analysis begin and end with the
selling activities of the producer/exporter.
In the preliminary determination, the Department stated that it
would continue to examine its policy for making LOT comparisons and
adjustments. After reviewing the comments we received on this issue as
well as the Department's recent practice for determining the existence
of LOTs, we have determined that certain modifications to the LOT
methodology used in the preliminary determination are warranted. As
described in the ``Level of Trade'' section of this notice, above, in
order to determine whether distinct LOTs exist, we have examined the
full array of selling functions provided to each of the customer groups
alleged by Maktas. As noted in Comment 3C below, we believe that this
approach will allow us to consider all types of selling functions, both
claimed and unclaimed, that had been actually performed in determining
the LOT and avoid instances where a single selling function difference
on individual sales transactions warrants the finding of a distinct
LOT. Finally, by reviewing the selling functions within each of the
alleged customer groups, we expect that the analysis will capture any
possible differences in the mix of selling activities provided for each
customer group.
Comment 3B Whether the Selling Functions of a Respondent Should be
Considered in Determining Whether Separate LOTs Exist: Maktas argues
that the functions or services performed by the respondents are not
determinative of whether different LOTs exist and should not be taken
into consideration in the Department's LOT analysis. Maktas asserts
that Section 773(a)(7)(A) of the new statute provides for a LOT
adjustment ``if the difference in LOT * * * involves the performance of
different selling activities.'' Accordingly, Maktas asserts that the
selling activities of the respondent cannot be part of the definition
of LOT and only become relevant after it is determined that separate
LOTs, in fact, exist. Therefore, Maktas argues that the question of
whether the seller performs different selling functions is only
relevant in determining whether a LOT adjustment is warranted.
The petitioners argue that the SAA is clear in stating that selling
functions are intended to be an integral part of establishing whether
different LOTs exist. (``Commerce will grant {LOT} adjustments only
where: (1) There is a difference in the LOT (i.e., there is a
difference between the actual functions performed by the sellers at the
different levels of trade in the two markets)). SAA at 829. The
petitioners contend that the SAA's reference to a ``difference between
the actual functions performed'' clearly implies that a distinction in
LOT should not be made without a finding of functional differences. In
addition, the petitioners claim that the SAA implies that something
more than a mere reference to the class of customer would be needed to
identify separate LOTs { ``[n]ominal reference to a company as a
`wholesaler,' for example, will not be sufficient'' in determining
LOT}. SAA at 829. Therefore, the petitioners argue that a selling
function analysis is relevant in determining whether separate LOTs
exist and that the Department should continue to examine the selling
functions of the respondents in its final determination. The
petitioners cited French Rod as a recent case where the Department
examined the selling activities of the respondent in determining
whether there were separate LOTs (``In order to identify LOTs, the
Department must review information concerning the selling functions of
the exporter,'' French Rod, 61 FR 8916 (March 6, 1996).
DOC Position: We agree with the petitioners. The SAA states that,
``Commerce will require evidence from the foreign producers that the
functions performed by the sellers at the same level of trade in the
U.S. and foreign markets are similar, and that different selling
activities are actually performed at the allegedly different levels of
trade * * *. On the other hand, Commerce need not find that the two
levels involve no common selling activities to
[[Page 30319]]
determine that there are two levels of trade.'' SAA at 159, and Cf.,
Proposed Regulations at 7348. Thus, as noted in Comment 3A above,
information about the selling activities of the producer/exporter is
essential to the identification of LOTs.
Comment 3C Whether the Department Should Reject The Four Selling
Function Coding System Used in the Preliminary Determination: In the
event the Department determines it is appropriate to define LOTs based
on selling function distinctions, the petitioners argue that the LOT
coding methodology used in the preliminary determination should be
rejected because it is inconsistent with law and commercial reality.
First, the petitioners assert that the Department's LOT coding system
resulted in a finding that a difference in any one selling function is
sufficient to define a separate LOT. The petitioners argue that this
methodology is at odds with the Department's Proposed Regulations which
specifically reject the notion that a difference in one selling
function alone would be sufficient to define an entirely separate LOT
in most instances. Cf., e.g., Notice of Proposed Rulemaking and Request
for Public Comments, 61 FR 7308, 7348 (February 27, 1996) (Proposed
Regulations) at 7348.
Second, the petitioners argue that the selling function categories
used in the preliminary determination are unreasonable and overly
narrow. Given the different combinations of the four selling function
categories used in the preliminary determination, there were 16
possible LOT combinations in each market. The petitioners assert that
because LOT is used as a matching criterion, the overly-narrow LOT
segments resulted in large amounts of home market sales not being used
to determine whether dumping was occurring.
Finally, the petitioners argue that the extent or cost of the
function provided should not be used to distinguish selling activities.
The petitioners assert that while expenses for services to some
customers may be more than to others, the expense difference may not
reflect a true difference in selling activities or services, but
instead represent the costs associated with sales shipped in larger or
smaller quantities or to different geographic locations. In addition,
the petitioners note that because the Department did not request data
concerning the degree to which any selling activity is performed, there
is no basis for the Department to perform such an analysis in this
case.
DOC Position: In the preliminary determination, the Department
stated that it would continue to examine its policy for making LOT
comparisons and adjustments. After reviewing the comments we received
on this issue as well as the Department's recent practice for
determining the existence of separate LOTs, we agree with the
petitioners that certain modifications to the LOT methodology utilized
in the preliminary determination are warranted. Specifically, we find
that: (1) The preliminary coding methodology measured LOTs based on the
existence of individual selling functions, rather than basing LOTs on
the collective array of selling activities performed by the seller; and
(2) the coding system led to the result that a difference in just one
selling function on any given sale necessarily justified a difference
in LOT. Although neither the Act nor the SAA provide explicit
guidelines for identifying LOTs, the preamble to the Proposed
Regulations reflects our practice and states that ``small differences
in the functions of the seller will not alter the level of trade.''
Proposed Regulations at 7348. Although the Proposed Regulations provide
that a single function may be so significant as to constitute the
existence of a separate LOT, we have determined that no single selling
function in the pasta industry warrants the finding of a separate LOT.
Therefore, as noted in the ``Level of Trade'' section of this notice,
above, we have revised the LOT methodology used for the final
determination. In order to determine whether separate LOTs existed
within or between the U.S. and home markets, we have reviewed the full
array of selling functions, in the aggregate, provided to each of the
customer groups alleged by Maktas. In addition, because we have
determined that no single selling function in the pasta industry is so
significant as to alter the LOT, we have no longer considered a single
difference in selling function to justify the finding of a separate
LOT.
Comment 3D Which Selling Functions Should be Considered in
Determining Whether Separate LOTs Exist: In lieu of the LOT methodology
adopted in the preliminary determination, the petitioners argue that
the Department should examine the full array of selling functions, in
the aggregate, provided to each potential LOT to determine whether
separate LOTs exist. The petitioners assert that this methodology was
adopted by the Department in the French Rod case where the Department
examined the collective array of selling activities performed for each
channel of distribution and found that minor differences between the
home market sales examined did not justify segmenting the sales into
different LOTs (``{we} found that the two sales channels provided many
of the same or similar selling functions including: strategic planning,
order evaluation, warranty claims, technical services, inventory
maintenance, packing and freight and delivery. We found some
differences between the two channels of trade in advertising, customer
contacts, computer systems (order input/invoice system), and
administrative functions. Overall, we determine that the selling
functions between the two sales channels are sufficiently similar to
consider them as one level of trade in the home market''). 61 FR at
8916.
Specifically, the petitioners assert that the following selling
functions are relevant to the Department's LOT analysis for the U.S.
and Italian pasta markets: (1) Freight and delivery; (2) customer sales
contacts; (3) advertising; (4) technical services; (5) warranties; (6)
inventory maintenance (pre-sale); (7) post-sale warehousing; and (8)
administrative functions. In addition, the petitioners contend that in
performing the selling function analysis, the Department should ensure
that the selling activity is consistently applied to all, or at least
the vast majority, of customers at each potential LOT identified. The
petitioners claim it would be inappropriate to consider a selling
function applicable to a particular LOT where the function was not
provided to all customers, or on some but not all sales.
Finally, the petitioners argue that the Department should not
attempt to define LOTs based on the following factors because they do
not relate to differences in selling activities:
(1) Quantities/Volumes Sold: The petitioners assert that the SAA
states that differences based on quantities sold are not a legitimate
basis for defining LOTs or LOT adjustments. SAA at 830.
(2) Geographical Location of the Customer: The petitioners claim
that the fact that two customers may be located in physically distinct
geographical areas does not, in and of itself, demonstrate that
different LOTs exist.
(3) Which Selling Entity Performs the Functions: The petitioners
assert that whether a selling function is performed by an unaffiliated
sales agent, an affiliated sales agent or the manufacturer, the same
function is provided and the costs to the seller are the same.
Therefore, the petitioners argue that the Department should not
differentiate LOT based on which entity performs the selling function.
(4) Commissions: The petitioners argue that commissions are merely
[[Page 30320]]
payments to an agent to perform the same function that would otherwise
be incurred by the manufacturer directly. Accordingly, the petitioners
argue that commissions are an invalid basis to distinguish LOT.
(5) Discounts and Rebates: The petitioners argue that discounts and
rebates are pricing mechanisms, not selling functions or activities,
and that the presence of a discount or rebate has no bearing on the
point in the chain of distribution at which the transaction occurs. In
addition the petitioners contend that the dumping calculations
recognize that discounts and rebates are a function of price by
deducting them as ``price adjustments'' rather than ``COS
adjustments.'' Proposed Regulations at 7381. For all of these reasons,
the petitioners argue that discounts and rebates should not be included
as a selling function distinction for LOT purposes.
(6) Distinctions Between Customers Based on Price: The petitioners
assert that the statute does not suggest that LOT distinctions can be
based on price differentials. (For a further discussion of this issue,
see Comment 4D below.)
DOC Position: We agree with the petitioners that the Department's
LOT analysis should consider the full array of selling functions in the
aggregate, and ensure that the selling function was consistently
applied to at least the vast majority of customers and sales in each
LOT. As stated in the ``Level of Trade'' section of this notice, above,
no single selling function in this industry warranted a separate LOT
and, wherever possible, we examined whether the selling function was
performed on a substantial portion of sales within the customer groups
reported by Maktas. A company specific description of the selling
functions assigned to the level(s) of trade for Maktas is provided in
Comment 3E, below. In determining whether a selling function was
applicable to a substantial portion of customers in the reported
customer group, we relied on Maktas's narrative responses and sales
transaction data, as well as information obtained during verification.
Section 773(a)(1)(B)(i) of the statute states that normal value
will be based on ``the price at which the foreign like product is first
sold * * * and to the extent practicable, at the same LOT as the export
price or constructed export price.'' The SAA specifies that normal
value will be calculated ``at the same LOT as the constructed export
price or the starting price for export sales.'' SAA at 827. Therefore,
in identifying LOTs for export price and normal value sales, we
considered the selling functions reflected in the starting price,
before any adjustment, for the customer group reported by Maktas.
We agree, in part, with the petitioners regarding the types of
selling functions that should or should not be considered in defining
LOTs. The selling functions to be considered in establishing whether
separate LOTs exist were based on the nature of the pasta industry. The
five selling functions used by the Department to establish the LOTs in
this investigation are reflective of the functions and activities
incurred in the sale of pasta to the U.S. and in the home market. These
functions have been identified in the ``Level of Trade'' section of
this notice, above. However, we disagree with the petitioners that
technical services or post-sale warehousing should be included in the
selling function analysis; these activities did not occur in the pasta
industry. Regarding the other selling functions, we were generally in
agreement with the petitioners' recommendations regarding which selling
functions to include in determining LOTs.
Comment 3E Company-Specific Analysis of Selling Functions: The
petitioners argue that a review of the selling functions undertaken by
Maktas to the U.S. and home market customers, based on the collective
approach to analyzing selling functions utilized in French Rod, shows
that there are few, if any, functional differences between the U.S. and
home market sales of pasta. Therefore, petitioners claim that the
Department should determine that different LOTs do not exist for Maktas
within the U.S. or Turkish markets or between the U.S. and Turkish
markets.
Insofar as the Department has conducted its own selling function
analysis to determine whether separate LOTs exist, many of the
arguments presented by the petitioners are now moot and, therefore,
have not been specifically addressed. Therefore, the Departmental
Position for each respondent reflects the results of the Department's
selling function analysis. The selling function analysis utilized by
the Department is described in the ``Level of Trade'' section of this
notice, above.
The petitioners argue that Maktas's request for differentiating
LOTs on must be rejected for two reasons: (1) Maktas has not
demonstrated which sales are in which channel of distribution
identified, or even that all sales within a channel are shipped as
described, and (2) the selling functions examined by the Department
provide no basis for distinguishing home market LOTs. Further, the
petitioners argue that an examination of the selling functions used by
the Department at the preliminary determination provides no basis to
find different LOTs in the U.S. or home market. Therefore, the
petitioners argue that the Department should continue to compare U.S.
sales to all home market sales for the final determination.
DOC Position: We agree with the petitioners, in part. Based on our
own analysis of the selling functions performed by Maktas, as described
in the ``Level of Trade'' section of this notice, above, we found that
all U.S. and home market sales were made at a single LOT. However, we
determined that the U.S. LOT was different from the home market LOT.
Maktas reported one customer group in the U.S. market. For the home
market, Maktas reported seven customer groups. We found these customer
groups to be similar in that Maktas performed the following selling
functions for certain customer groups: sales process, inventory
maintenance, forward warehousing, freight, advertising and warranties.
We found these customer groups to be different in how Maktas performed
forward warehousing for certain customer groups. Overall, we determined
the selling functions between these seven customer groups to be
sufficiently similar to consider them one LOT.
We then compared the LOT in the U.S. market to the home market LOT
and found the selling functions performed for certain customer groups
in the areas of freight, forward warehousing, and warranties to be
similar. We found the selling functions performed for certain customer
groups in the areas of sales process, inventory maintenance, forward
warehousing, and advertising to be dissimilar. Overall, these factors
warrant finding the U.S. and home market sales to be made at different
LOTs.
Comment 3F LOT Adjustments: To the extent the Department finds LOT
distinctions between U.S. and home market sales, the petitioners argue
that there is no justification for a LOT adjustment for any of the
respondents in this investigation. Specifically, the petitioners assert
that Section 773(a)(7)(A) of the Act states that LOT adjustments are
permissible only to the extent that it has been demonstrated that the
difference between EP and normal value reflects differences in LOTs
involving the performance of different selling functions and ``a
pattern of consistent price differences between sales'' at the
different LOTs in the home market. In addition, the petitioners assert
that the SAA states that ``if a respondent claims an
[[Page 30321]]
adjustment to decrease normal value, as with all adjustments which
benefit a responding firm, the respondent must demonstrate the
appropriateness of such adjustment.'' SAA at 829. Therefore, the
petitioners argue that by law, the respondents bear the burden of
demonstrating entitlement to a LOT adjustment and that Maktas has not
met this burden.
DOC Position: We agree with the petitioners, in part. As described
in the ``Level of Trade'' section of this notice, above, we found no
basis for making a LOT adjustment for Maktas. In light of the fact that
we did not make a LOT adjustment, we regard the petitioners argument
concerning the burden on respondent to demonstrate entitlement to a LOT
adjustment to be moot.
Comment 4A Whether to Take Customer Category into Account in
Creating the Weighted-Average Groups used for Product Comparisons: The
petitioners argue that neither the law nor the facts of this
investigation support making product comparisons based on customer
classes unless it is demonstrated that the difference between customer
classes reflect a difference in the LOT. Citing Section 773(a)(1)(B) of
the Act, the petitioners contend that normal value is defined based on
price comparisons reflecting the same physical characteristics and,
where possible, the same LOT, as the export or constructed export
price. Therefore, the petitioners assert that absent a finding of
different LOTs among the various customer categories, the Department
cannot make product comparisons based on customer categories or
channels of distribution.
Although the petitioners recognize that the SAA refers to ``the
class of customer involved'' as a factor that the Department may
consider in creating averaging groups, the petitioners contend that the
Department's Proposed Regulations emphasize that the use of averaging
groups was intended to apply only to U.S. prices, and was not meant to
affect the calculation of normal value. (``In applying the average-to-
average method, the Secretary will identify those sales* * * to the
United States that are comparable, and will include such sales in an
``averaging group.'' ``An averaging group will consist of subject
merchandise* * * that is sold to the United States at the same LOT. In
identifying sales to be included in an averaging group, the Secretary
also will take into account, where appropriate, the region of the
United States in which the merchandise is sold* * *.''). Proposed
Regulations at 7386 (section 351.414(d)). (Emphasis added).
The petitioners contend that normal value is still defined in the
law based on price comparisons reflecting the same product
characteristics and, where possible, the same LOT. Therefore, the
petitioners argue that the Department does not have the authority under
the new statute to subdivide home market sales into separate groups
based on customer classes unless it is first demonstrated that the
difference between customer classes reflects a difference in LOT. The
petitioners claim that to do otherwise would effectively be using the
product averaging concept to re-define normal value.
Finally, the petitioners argue that the Department's recent
practice of considering either the class of customer or the channel of
distribution as a factor in the averaging group without first finding
distinct LOTs is unlawful and inconsistent. Specifically, the
petitioners assert that in Polyvinyl Alcohol the Department created
product averaging groups based on customer categories stating that it
found ``significantly different prices, depending on the customer
category.'' 61 FR at 14070. The petitioners contend that in French Rod
and Kiwifruit the Department relied on channels of distribution, rather
than customer categories, in determining the averaging groups and
further identified no pricing distinctions between the channels
examined. In all three cases the petitioners assert that the Department
made no statutory citations and provided little or no explanation for
its actions.
DOC Position: We disagree with the petitioners. Section
777A(d)(1)(A)(i) of the Act states that the Department will determine
whether the merchandise is being sold in the United States at less than
fair value ``by comparing the weighted average of the normal values to
the weighted average of the export prices (and/or constructed export
prices) for comparable merchandise.'' In addition, the SAA specifies
that in order to ensure that the weighted-averages are meaningful,
``Commerce will calculate averages for comparable sales of subject
merchandise'' sold in both the U.S. and foreign markets. ``In
determining the comparability of sales for inclusion within a
particular average, Commerce will consider factors it deems
appropriate, such as * * * the class of customer involved.'' SAA at
842. See also, Proposed Regulations at 7349.
Although we agree with the petitioners that the Proposed
Regulations refer to the term ``averaging groups'' only in the context
of U.S. sales, we do not agree with the petitioners' assertion that the
use of averaging groups was intended to apply only to U.S. prices, and
was not meant to affect the calculation of normal value. As noted
above, the statute directs the Department to compare weighted average
normal values to weighted-average export prices/constructed export
prices. In addition, the SAA states that for inclusion within a
particular average, the Department will consider factors it deems
appropriate. Therefore, in order to ensure a fair comparison, customer
category is a factor that may be used in both the calculation of export
price and/or constructed export price and normal value.
As noted in the ``Comparison Methodology'' section of this notice,
above, and Comment 4B, below, it is the responsibility of the
Department, not respondents, to determine which customers may be
grouped together for product comparison purposes. Accordingly,
consistent with the SAA and our practice in Polyvinyl Alcohol, we have
relied on the revised customer categories in calculating the weighted-
average values used for sales comparisons in instances where: (a) We
found that distinct customer categories existed, and (b) we determined
that there was a consistent and uniform pattern of pricing differences
among the customer categories. (For a further discussion on price
averaging and the calculation of the weighted average prices for each
respondent, see the ``Comparison Methodology'' section of this notice,
above.)
Comment 4B Whether to Accept the Customer Classifications or
Channels of Distribution Alleged by the Respondents: The petitioners
argue that in the event the Department determines it is appropriate to
create averaging groups based on customer categories or channels of
distribution, it is up to the Department, not the respondents, to
determine which customers may be grouped together. Timken Co. v. United
States, 630 F. Supp. 1327 (Ct. Int'l Trade 1986) (the Court held that
the Department is obligated to choose the home market models for
comparison and may not delegate this role to respondents). In addition,
the petitioners cite to the SAA in support of their contention that the
Department should not accept a respondent's ``nominal reference to
customer classes'' without requiring evidence of actual class
differences based on the selling functions of the respondent. SAA at
829. To the extent the Department rejects reliance on selling functions
as a means of distinguishing customer categories, the petitioners argue
that the Department should, at a minimum,
[[Page 30322]]
determine whether different customers exist at different points in the
chain of commerce. Citing PETs from Singapore, the petitioners assert
that it is not the Department's practice to accept, without question,
the respondents' characterizations of its customer classes as the basis
for determining its product comparisons groups. (See, e.g., Final
Determination of Sales at less Than Fair Value: Certain Portable
Electric Typewriters from Singapore, 58 FR 43334, 43338-43339 (August
16, 1993)(PETs from Singapore) (stating that all retailers had the same
function and, thus, no distinction between the claimed customer
categories was justified.)
DOC Position: We agree with the petitioners that it is the
responsibility of the Department, not respondents, to identify which
customers may be grouped together for product comparison purposes. This
has been our consistent practice and policy. Cf., N.A.R., S.p.A. v.
United States, 741 F. Supp. 936 (Ct. Int'l Trade 1990). (Insofar as a
foreign manufacturer, given the opportunity of selecting which product
comparisons should be used, would most likely make a choice that is
most advantageous to itself, the identification of product comparisons
are made by the Department.) See also, United Engineering & Forging v.
United States, 779 F. Supp. 1375, 1381 (Ct. Int'l Trade 1991); See
Final Determination of Sales at Less than Fair Value: Certain Hot-
Rolled Carbon Steel Flat Products and Certain Cold-Rolled Carbon Steel
Flat Products from the Netherlands, 58 Fed. Reg. 37199, 37202 (July 9,
1993).
Therefore, as noted in the ``Comparison Methodology'' section of
this notice, above, it is the responsibility of the Department, not
respondents, to determine which customers may be grouped together for
product comparison purposes. Based on the chain of distribution for the
pasta industry, we reclassified the customer groups identified by
Maktas into two distinct customer categories representing distinct
points in the chain of distribution. For a further discussion, see the
``Comparison Methodology'' section of this notice, above.
Comment 4C Whether to Use Customer Category or Channel of
Distribution in Defining the Averaging Groups used for Product
Comparisons: The petitioners argue that to the extent a respondent has
claimed distinctions in home market sales based on channels of
distribution, the Department should reject these distinctions and
instead rely on customer categories in creating the product comparison
groups. The petitioners assert that nothing in the new statute, the
SAA, or the Proposed Regulations permits the Department to consider
channels of distribution in making product comparisons. As case
precedent for their position, the petitioners cite PETS from Singapore
where the Department explicitly rejected the respondent's request that
it rely on channels of distribution as a comparison criteria, finding
no support in the law for such an approach. (``Furthermore, channel of
distribution is not a proper merchandise comparison criterion * * *
there is no regulatory basis for comparing identical channels of
distribution.'') Id. at 43338.
DOC Position: We agree with the petitioners that channels of
distribution are not an appropriate basis for creating product
averaging groups. As noted in Comment 4A above, the SAA states that in
determining which sales to include within a particular average,
``Commerce will consider factors it deems appropriate, such as the
physical characteristics of the merchandise, the region of the country
in which the merchandise is sold, the time period, and the class of
customer involved.'' SAA at 842. See also, Proposed Regulations at
7349. The SAA does not contemplate the use of channels of distribution
as a basis for creating an averaging group.
In addition, it has been the Department's past policy and practice,
as outlined in Import Administration Policy Bulletin Number 92/2
(``Matching at Levels of Trade''), to consider the customer category,
not channel of distribution, to determine whether the respondent's
customers exist at distinct points in the chain of distribution (e.g.,
end-user, distributor, retailer). Therefore, we have not relied on
Maktas's reported channels of distribution in creating the weighted-
average prices used for product comparisons in this final
determination.
Comment 4D Whether the Department Can Rely on Price Differences as
a Method for Distinguishing Customer Categories: If the Department
determines it is not necessary to establish that there are different
selling functions as a means of distinguishing customer categories, the
petitioners argue that the Department should not define customer
categories based on price distinctions as it did in Polyvinyl Alcohol.
The petitioners assert that if price distinctions were all that was
needed to define customer category, respondents would have a ``field
day'' manipulating the dumping law by grouping its low-priced home
market sales together and requesting that the Department compare its
U.S. sales to this group of low-priced sales. Although the petitioners
recognize that price distinctions may be relevant to a determination of
whether product comparisons should be segmented by customer category,
the petitioners argue that prices themselves cannot be the sole
criterion. In order to establish that there are separate customer
categories, the petitioners argue that the Department must first
determine that different customers exist at different points in the
chain of commerce.
DOC Position: We agree with the petitioners that price distinctions
can not be a basis for determining the existence of customer
categories. As noted in the ``Comparison Methodology'' section of this
notice and Comment 4A, above, in order to determine whether the
customer groups proposed by Maktas actually represented different
customer categories, we considered whether the alleged customer groups
represented distinct points in the chain of distribution. Therefore,
price distinctions were not considered a relevant factor in defining
the existence of customer categories. The existence of consistent price
differences, however, was considered in determining whether customer
categories should be taken into consideration in creating the product
averaging groups.
Comment 5 Cost Test: Maktas states that the Department should
conduct its 80/20 cost test on a monthly basis rather than over the
POI. Maktas argues that the use of the POI to determine the extent of
below cost sales for each control number sometimes results in normal
values that are based on only a few above-cost sales. According to
Maktas, the comparisons involving these above-cost sales ``drive'' the
dumping margins for certain control numbers in certain months. Maktas
refers to these above-cost sales as outliers and argues that the
Department should delete the outliers from the sales database in
performing its margin calculations. Furthermore, Maktas claims that, in
a hyperinflationary economy, the Department has the discretion to
determine that a single month is an extended period of time and,
therefore, the 80/20 cost test should be conducted on a monthly basis
for this investigation.
The petitioners argue that the methodology used by the Department
to determine whether sales should be disregarded is in accordance with
the law. They state that the statute and the SAA direct the Department
to use a below-cost test that includes the full POI and argue that the
Act does not provide for an exception from this rule for
hyperinflationary economies.
[[Page 30323]]
Accordingly, the petitioners argue that the Department properly used
the POI to determine whether it should disregard respondents' below-
cost sales. The petitioners also claim that the Department's use of the
few remaining above-cost sales as a basis for normal value in certain
months is in accordance with the law. According to the petitioners, the
SAA directs the Department to resort to constructed value only if there
are no above-cost sales in the ordinary course of trade in the foreign
market under consideration.
DOC Position: We disagree with Maktas. The Department's practice is
to apply the 80/20 test on a POI basis since the SAA directs us to
``examine below-cost sales occurring during the entire period of
investigation or review, as opposed to a shorter time period.''
Although Maktas argues that the Department has the discretion to
determine that, in a hyperinflationary economy, we should conduct the
80/20 test on a single month, it has not provided any basis as to why
we should depart from our general practice of applying the cost test
over the entire POI. The only reason offered by Maktas is a belief that
such a deviation might reduce the effect of so-called ``outlier
sales.'' Moreover, section 773(b)(2)(B) of the Act defines the extended
period of time in which we are to conduct the cost test as ``normally
one year, but not less than six months.''
Finally, despite the concerns raised by Maktas with regard to
basing normal value on ``outliers,'' the petitioners are correct in
stating that the law requires us to use any sales found to be above
cost in the ordinary course of business before resorting to CV as the
basis for normal value.
Comment 6 Indexing of Costs: Maktas objects to the Department's use
of an index to restate submitted monthly production costs. While the
use of such an index to adjust costs may smooth out the effects of
inflation, Maktas argues that the law's focus on exporter behavior
precludes the Department from performing such an adjustment.
Additionally, Maktas contends that the Department has not determined
whether prices of below-cost sales allow for the recovery of costs in a
reasonable period of time.
The petitioners did not comment on this issue.
DOC Position: We disagree with Maktas and have calculated the
company's COM following the same methodology as used in our preliminary
determination. (See, memorandum from William H. Jones and Michael P.
Martin to Christian B. Marsh, dated December 13, 1995.) The
Department's normal practice in non-hyperinflationary cases has been to
calculate a single weighted-average COM, mitigating the effects of
monthly cost fluctuations. Such fluctuations may result from the timing
of expenses and production runs. We have determined that, where the
data permits, it is also appropriate to calculate an annual weighted-
average cost in hyperinflationary cases. However, since the value of
the local currency (Turkish lira) changed significantly during the POI,
the nominal value of costs incurred at different times are not
comparable. As a result, it is necessary to restate the average cost
into equivalent terms.
To calculate a meaningful, period-average COM, it was first
necessary to restate each month's cost of manufacturing in equivalent
terms. After each month's cost of manufacturing was restated in
equivalent terms, they were added together and divided by the quantity
produced during the POI to obtain an annual weighted-average COM
expressed in period-end currency. Because this figure is stated in the
currency value at the end of the POI, it is necessary to apply the
index again to restate it in each month's respective currency value.
The resulting monthly COM amounts are used as the basis for monthly COP
and CV figures.
Finally, we disagree with Maktas's assertion that we failed to
perform the recovery of cost test, as required under section
773(b)(2)(D) of the Act. We compared each home market price to the
weighted-average per-unit production costs stated in the value of the
month of sale. This approach properly tests whether the prices of
below-cost sales allow for the recovery of costs in a reasonable period
of time.
Comment 7 Packing Costs: Maktas argues that its reported packing
costs should be adjusted for inflation to avoid understating packing
costs for certain home market sales, inflating normal values and
increasing dumping margins. Maktas suggests that this problem can be
solved by removing certain small-volume products from the sales
database. Alternatively, Maktas argues that the Department should use
production information on the administrative record to identify
products which were not produced in every month and that the Department
should index the reported packing costs from previous months by means
of the wholesale price index.
The petitioners argue that the Department should not attempt to
adjust Maktas's reported packing costs as there is no consistent
pattern for the discrepancies noted in Maktas's reported packing costs
during the cost verification. Additionally, the petitioners argue that
the Department cannot make a proper inflation adjustment to Maktas's
reported packing costs without information regarding purchases of
packing materials during the POI.
DOC Position: The timing of packing materials purchases in a
hyperinflationary economy may result in an over-or under statement of
net home market prices. We have determined, therefore, that it is
appropriate to adjust packing costs as suggested by Maktas and have
indexed its reported packing costs for certain products which were not
produced in each month of the POI. Although a more accurate solution to
the timing problems would be achieved by indexing all packing costs, in
a manner similar to that by which we adjusted COM for our preliminary
determination, the petitioners are correct in their assertion that the
information necessary for such an adjustment is not on the record.
Comment 8 Depreciation Expenses: Maktas argues that its audited
depreciation figures should not be revised by the Department. According
to Maktas, its depreciation expenses were recorded in accordance with
Turkish tax law and that there is no evidence that its treatment of
depreciation distorts ``real'' costs.
The petitioners claim that Maktas failed to include certain POI
depreciation costs associated with its annual fixed asset revaluation,
current year additions, and holiday shut-down periods during the POI.
They note that these amounts were identified by the Department in
Maktas's financial statements, but were not included by Maktas in its
reported costs. Further, since Maktas failed to provide financial
statements for its parent company, the petitioners argue that there may
be unreported depreciation expenses in addition to those identified
during verification. Therefore, the petitioners claim that the
Department cannot rely on Maktas's reported depreciation expenses and
also cannot obtain an appropriate depreciation figure by adjusting for
the unreported amounts which were identified by the Department.
DOC Position: We agree with the petitioners that Maktas understated
its reported costs by improperly excluding certain depreciation
expenses and we have adjusted COP and CV by adding these amounts to
Maktas's reported fixed overhead costs. Maktas has not offered any
explanation as to why these depreciation expenses should not be
included in its COP or CV.
[[Page 30324]]
The depreciation costs associated with the annual fixed asset
revaluation were classified by Maktas as ``other operating expenses''
in the company's financial statements. Depreciation costs related to
current year fixed asset additions were classified as ``extraordinary
expenses,'' along with depreciation costs incurred during normal,
recurring holiday shut-down periods. All of these costs are necessary
to obtain a fair measurement of costs incurred by Maktas during the POI
for its production assets and, thus, these amounts should be included
in its COP and CV.
We are satisfied that the adjustments described above will result
in an appropriate depreciation expense figure for Maktas's production
assets. As to the petitioners' concern regarding possible unreported
expenses incurred by Maktas's parent, Piyale-Besin, we have determined
that facts available should be applied for the calculation of G&A
expenses for Maktas. See, Facts Available discussion above.
Comment 9 Tax Assessments: Maktas argues that the taxes identified
by the Department's cost verification team are not part of the
company's cost of production and were appropriately excluded from its
reported costs.
The petitioners claim that the Department normally includes
extraordinary expenses in its cost of production calculations. The
petitioners argue that, if the Department decides to recalculate
Maktas's reported costs, it should include the tax assessments which
were excluded by the respondent.
DOC Position: We agree with the petitioners that these taxes should
be included in COP and CV. Maktas has classified as extraordinary
expenses certain taxes which were calculated on the value of company
assets. Maktas also excluded other asset-based taxes which it believes
will be recovered from the Turkish government pursuant to ongoing
litigation. The Department's practice has been to allow a respondent to
exclude certain costs if they demonstrate that such costs are both
unusual in nature and infrequent in occurrence. See, e.g., Final
Determination of Less Than Fair Value: Certain Hot-Rolled Carbon Steel
Flat Products, Certain Cold-Rolled Carbon Steel Flat Products, and
Certain Cut-to-Length Carbon Steel Plate from Belgium, 58 FR
37083,37088 (July 9, 1993). Maktas has not demonstrated that the taxes
assessed on asset values are unusual in nature nor has it demonstrated
that they are infrequent in occurrence. Certain business and property
taxes are a normal expense of operating a business and, as such, are
appropriately included in COP and CV.
Furthermore, the Department does not normally consider income
taxes, based on the profit/loss of a corporation, to be a cost of
producing the product. (See, e.g., Final Determination; Rescission of
Investigation and Partial Dismissal of Petition: High Information
Content Flat Panel Displays and Display Glass Therefor from Japan, 56
FR 32376, 32392 (July 16, 1991).) However, taxes based on asset values
have been included by the Department in COP. See, e.g., Final
Determination of Sales at Less Than Fair Value: Oil Country Tubular
Goods from Argentina, 60 FR 33539, 33550 (June 28, 1995). Therefore, we
have included the taxes in Maktas's production costs.
Comment 10 Foreign Exchange Gains: Maktas argues that all of its
foreign exchange gains which resulted directly from export sales should
be applied as an offset against interest expense, since it incurs
interest expense to produce and sell merchandise. In support of its
position, Maktas cites Final Determination of Sales at Less Than Fair
Value: Certain Carbon and Alloy Steel Wire Rod from Canada, 59 FR 18791
(April 20, 1994) (Wire Rod from Canada), in which the Department
allowed a respondent to offset interest expense with dividend income
received. Maktas also cites to Final Determination of Sales at Less
Than Fair Value: Fresh Cut Roses from Ecuador, 60 FR 7019 (February 6,
1995) (Roses from Ecuador).
The petitioners argue that interest expenses are a normal part of
the Department's cost of production calculation. The petitioners
contend that foreign exchange gains resulting from export sales of
finished pasta are unrelated to the cost of producing pasta in Turkey.
Therefore, the petitioners claim that the Department should continue to
exclude foreign exchange gains from its cost of production calculation
for the final determination.
DOC Position: We agree with the petitioners. Maktas's foreign
exchange gains relate to export sales transactions and, thus, are
calculated on the accounts receivable balances associated with such
sales. It is the Department's normal practice to exclude exchange gains
and losses on accounts receivable because the exchange rate used to
convert home market sales to U.S. dollars is that in effect on the date
of the U.S. sale. See, e.g., Final Determination of Sales at Less Than
Fair Value: Small Diameter Circular Seamless Carbon and Alloy Steel,
Standard, Line and Pressure Pipe from Italy, 60 FR 31991 (June 19,
1995).
With regard to Maktas's reliance on Wire Rod from Canada, the
respondent provided no explanation as to why it believes foreign
exchange gains are the equivalent of dividend income. Moreover, the
facts in Wire Rod from Canada are quite different from the facts in the
instant investigation. In Wire Rod from Canada, the respondent
demonstrated that its dividend income was directly linked to the
interest expense to which it was applied. Maktas has not demonstrated
any direct link between its foreign exchange gains and its production
costs and, in fact, has argued that they are unrelated. Therefore, we
excluded Maktas's exchange gains from the interest expense rate
calculation. Furthermore, the Department's position in Roses from
Ecuador is contrary to Maktas's argument and represents an example of
our normal practice, i.e., to disallow the application of foreign
exchange gains on sales transactions as offsets to financial expenses.
Comment 11 Short-Term Interest Rate: The petitioners argue that the
Department should use the same short-term interest rate to calculate
imputed credit expenses for Maktas's U.S. and home market sales. The
petitioners argue that since the short-term borrowings that Maktas
actually used to finance the credit period for its sales in Turkey were
also the short-terms borrowings that Maktas used to finance the credit
period for its U.S. sales, the interest rates used to calculate imputed
credit expenses should be the same for U.S. and home market sales.
Maktas objects to the petitioners' request and asserts that the
Department should not use the same interest rates in computing imputed
credit expenses for U.S. and home market sales.
DOC Position: We disagree with the petitioners. The Department's
policy is to calculate imputed credit costs using a weighted average
short-term borrowing rate which reflects the currency in which the sale
was invoiced. See, Final Determination of Sales at Less Than Fair
Value: Canned Pineapple Fruit from Thailand, 60 FR 107 (June 5, 1995);
Final Determination of Sales at Less than Fair Value: Certain Carbon
Steel Butt-Weld Pipe Fittings from Thailand, 60 FR 10552 (February 27,
1995). Consistent with the Department's practice, we have continued to
apply Maktas's actual Turkish lira denominated short-term borrowing
rates for all home market sales. For sales to the United States, all of
which were denominated in U.S. dollars, we applied a U.S. dollar short-
term interest rate obtained from public information because Maktas did
not
[[Page 30325]]
have any U.S. dollar denominated borrowings during the POI.
Comment 12 Exchange Rate Conversion: Maktas asserts that the
currency conversion methodology used at the preliminary determination
should be discarded for the final determination. Specifically, Maktas
disagrees with the Department's policy of using a 40-day period to
establish a benchmark rate for purposes of defining fluctuations and
sustained movement in the exchange rate. Maktas argues that a 30-day
period would be more appropriate than a 40-day period.
More importantly, the respondent submits that given the extreme
depreciation of the Turkish lira against the U.S. dollar in 1994, the
Department should use actual daily rates in making currency
conversions.
The petitioners argue that the Department should continue to use
the currency conversion methodology used in the preliminary
determination for the final margin calculation.
DOC Position: We believe that it is more appropriate in this case
to use actual daily exchange rates for currency conversion purposes. As
noted in Policy Bulletin 96-1: Currency Conversions, 61 FR 9434 (March
8, 1996), the Department is continuing to examine the appropriateness
of the currency conversion policy in situations where the foreign
currency depreciates substantially against the dollar over the POI. In
those situations, it may be appropriate to rely on daily exchange
rates. When the rate of domestic price inflation is significant, as it
is in this case, it is important that we use as a basis for NV home
market prices that are as contemporaneous as possible with the date of
the U.S. sale. This is to minimize the extent to which calculated
dumping margins are overstated or understated due solely to price
inflation that incurred in the intervening time period between the U.S.
and home market sales. For this reason, as noted above in the Fair
Value Comparisons section, we calculated EPs and NVs on a monthly
average basis. This need for a high degree of contemporaneity applies
not only to home market sales, but to the exchange rate as well, since
the dollar value of pasta that Maktas sells in its home market--upon
which the calculated margin ultimately rests--depends on (1) the lira
price of that pasta, and (2) the dollar price of the lira. Since the
dollar value of the lira tends to fall over time--when the rate of
domestic price inflation is significant--it is just as important to use
contemporaneous exchange rates as it is to use contemporaneous (lira-
denominated) home market prices. For this reason, we have used the
daily exchange rates for currency conversion purposes.
Comment 13 Inventory Carrying Cost and Indirect Selling Expenses:
Maktas argues that the Department should make an adjustment to NV for
inventory carrying costs and indirect selling expenses. With respect to
inventory carrying costs, the respondent claims that inventory carrying
costs should be treated in the same manner as imputed credit expenses,
and that no distinction can be drawn between EP and CEP sales for
purposes of application of inventory carrying cost. Specifically,
Maktas submits that adjustments for both imputed credit expenses and
imputed inventory carrying costs are based on ``opportunity cost''
rationale. As with imputed credit expenses, Maktas argues that the
opportunity cost of holding inventory is a real expense that should be
adjusted for regardless of whether the sales transaction is EP or CEP.
Further, Maktas notes that ``the new legal requirement of section
773 of the Act that a `fair comparison shall be made between the export
price or constructed export price and normal value' requires that like
economic elements be treated in a like manner.'' Given the analogy
between imputed credit expenses and inventory carrying costs, Maktas
urges the Department to adjust normal value for inventory carrying
costs in the same manner as imputed credit expenses.
Additionally, Maktas asserts that, in order to make such a ``fair
comparison'', the Department should adjust normal value for the
difference in indirect selling expenses attributable to the U.S. and
home market sales.
The petitioners submit that the statute does not allow the
Department to make the type of adjustments requested by the respondent.
With respect to inventory carrying costs, the petitioners note that the
respondent fails to recognize an important difference between imputed
credit expense and inventory carrying cost which is that while imputed
credit expense is a COS adjustment that typically can be calculated on
a sale-by-sale basis, inventory carrying cost represents indirect
selling expenses that are not tied to any particular sales. Regarding
indirect selling expenses, the petitioners note that because Maktas's
U.S. sales are based on export price, no adjustment to normal value for
indirect selling expenses is permitted.
DOC Position: We agree with the petitioners that the statute does
not allow the Department to make the type of adjustments for inventory
carrying costs and indirect selling expenses requested by Maktas. In
export price sales, it is the Department's practice to make an
adjustment for inventory carrying costs or indirect selling expenses if
the respondent claims a commission adjustment to export price. Because
Maktas's U.S. sales are based on export price and no commissions were
reported for either the home or U.S. market, there is no basis for
making an adjustment for inventory carrying costs or indirect selling
expenses. Moreover, the deduction of inventory carrying costs or
indirect selling expenses is not one of the enumerated requirements
under Section 773 of the Act, which provides for adjustments to normal
value to achieve a fair comparison between the export price and normal
value.
Regarding Maktas's assertion the inventory carrying costs should be
treated in the same manner as imputed credit expenses, we disagree with
Maktas that the two items are analogous. Imputed credit expenses
represent a direct selling expense which can be tied to particular
sales. Inventory carrying costs, on the other hand, represent indirect
selling expenses that would be incurred regardless of whether
particular sales were made.
Comment 14 Goodwill: Maktas submits that the Department should make
an adjustment for the ``goodwill'' which Maktas's products enjoy in the
domestic market. Specifically, Maktas notes that its products, which
are sold under the ``Piyale'' brand name, are well known throughout
Turkey and have higher value than they enjoy elsewhere. In the United
States, Maktas sells to importers who, in turn, sell under their own
brand name. Accordingly, Maktas asserts that an adjustment should be
made in the margin calculation for the brand recognition it commands in
the domestic market.
The petitioners oppose Maktas's request for an adjustment for
``goodwill''.
DOC Position: We disagree with Maktas. When making price
comparisons, the Department makes adjustments to account for any
differences in the prices resulting from verified differences in
circumstances of sales. The ``goodwill'' Maktas described is not an
expense item and, therefore does not qualify as a COS adjustment.
Moreover, such ``goodwill'' is not susceptible to verifiable
quantification. Therefore the Department has no basis to make an
adjustment for it.
Comment 15 Corrections Found at Verification: Maktas requests that
a number of corrections presented at, and found during, the sales
verification should be incorporated into the
[[Page 30326]]
Department's calculations of the final margins.
DOC Position: All corrections as confirmed on-site at the sales
verification were incorporated in the Department's calculation of the
final margin.
Continuation of Suspension of Liquidation
In accordance with section 733(d) of the Act, we are directing the
Customs Service to continue to suspend liquidation of all entries of
pasta from Turkey, as defined in the ``Scope of Investigation'' section
of this notice, that are entered, or withdrawn from warehouse for
consumption, on or after January 19, 1996, the date of publication of
our preliminary determination in the Federal Register. Article VI.5 of
the General Agreement on Tariffs and Trade (GATT) provides that ``[n]o
product * * * shall be subject to both antidumping and countervailing
duties to compensate for the same situation of dumping or export
subsidization.'' The Department has determined, in its Final
Affirmative Countervailing Duty Determination: Certain Pasta from
Turkey, that the product under investigation benefitted from export
subsidies. Normally, where the product under investigation is also
subject to a concurrent CVD investigation, we would instruct the U.S.
Customs Service to require a cash deposit or posting of a bond equal to
the weighted-average amount by which the normal value exceeds the
export price (as shown below), minus the amount determined to
constitute an export subsidy. (See, Antidumping Order and Amendment of
Final Determination of Sales at Less Than Fair Value: Extruded Rubber
Thread from Malaysia, 57 FR 46150 (October 7, 1992)). However, in this
investigation, Filiz has not cooperated with the Department and has not
acted to the best of its ability in providing the Department with
necessary information. This has prevented the Department from making
its normal determination of whether the subsidies in question may have
affected the calculation of the dumping margin. Thus, as indicated
above, Filiz's margin is based on total adverse facts available, taken
from the petition. Insofar as the dumping margin for Filiz is not a
calculated margin, there is no way to determine the portion of the
antidumping duty which is attributable to the export subsidy. For that
reason, and to prevent Filiz from benefitting from its non-cooperation
in this investigation, we have not subtracted the amount of any export
subsidy from that margin. For Maktas, we are subtracting for deposit
purposes the cash deposit rate attributable to the export subsidies
found in the countervailing duty investigation (12.61 percent) from the
antidumping bonding rate for Maktas. We are also subtracting from the
``All Others'' rate the cash deposit rate attributable to the export
subsidies included in the countervailing duty investigation for All
Others.
This suspension of liquidation will remain in effect until further
notice.
The weighted-average dumping margins are as follows:
------------------------------------------------------------------------
Weighted-
average Deposit
Exporter/manufacturer margin percentages
percentages
------------------------------------------------------------------------
Filiz......................................... 63.29 63.29
Maktas........................................ 56.87 44.26
All Others.................................... 56.87 47.49
------------------------------------------------------------------------
Pursuant to section 735(c)(5)(A) of the Act, the Department has
excluded Filiz's margin from the calculation of the All Others rate
because it was determined entirely under section 776 of the Act.
ITC Notification
In accordance with section 735(d) of the Act, we have notified the
ITC of our determination. As our final determination is affirmative,
the ITC will determine whether these imports are causing material
injury, or threat of material injury, to the industry within 45 days.
If the ITC determines that material injury, or threat of material
injury, does not exist, the proceeding will be terminated and all
securities posted will be refunded or canceled. If the ITC determines
that such injury does exist, the Department will issue an antidumping
duty order directing Customs officials to assess antidumping duties on
all imports of the subject merchandise entered, or withdrawn from
warehouse, for consumption on or after the effective date of the
suspension of liquidation.
This determination is published pursuant to section 735(d) of the
Act.
Dated: June 3, 1996.
Paul L. Joffe,
Acting Assistant Secretary for Import Administration.
[FR Doc. 96-14735 Filed 6-13-96; 8:45 am]
BILLING CODE 3510-DS-P
