[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Notices]
[Pages 30326-30366]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-14736]
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-475-818]
Notice of Final Determination of Sales at Less Than Fair Value:
Certain Pasta From Italy
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: June 14, 1996.
FOR FURTHER INFORMATION CONTACT: John Brinkmann or Michelle Frederick,
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 or (202) 482-0186, 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 Italy 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 publication of the preliminary determination of sales at
less than fair value in this investigation on December 14, 1995, (60 FR
1344, January 19, 1996) (Preliminary Determination) the following
events have occurred:
In January 1996, the Department received letters from the AFI Pasta
Group, Pastaficio Guido Ferrara (interested parties), and Hershey Foods
Corp., Borden Inc., and Gooch Foods, Inc. (collectively ``the
petitioners'') regarding the provisional antidumping measures in this
investigation and whether the suspension of liquidation affected
entries of the subject merchandise 120 days after the Department's
preliminary determination. The Department determined that the requests
for an extension of the final determination contained an implied
request to extend the provisional measures period, during which
liquidation is suspended, to six months (see Extension of Provisional
Measures memorandum dated February 7, 1996).
[[Page 30327]]
On January 22, 1996, the Department requested that Arrighi S.p.A.
Industrie Alimentari (Arrighi); F.lli De Cecco di Filippo Fara San
Martino S.p.A. (De Cecco); Delverde S.r.l. (Delverde); De Matteis
Agroalimentare S.p.A. (De Matteis); La Molisana Industrie Alimentari
S.p.A. (La Molisana); Liguori Pastificio Dal 1820 S.p.A. (Liguori);
Pastificio Fratelli Pagani S.p.A. (Pagani); and Saral Industrie
Alimentari Della Sardegna S.r.l. (Saral) (collectively respondents)
provide additional information and comments relating to level of trade.
After publication of the preliminary determination, the
petitioners, Pastaficio Guido Ferrara, and two of the respondents, De
Matteis and La Molisana, alleged that the Department made ministerial
errors in calculating the preliminary margins. We determined that
ministerial errors were made with regard to Arrighi and Pagani. (See,
Notice of Amended Preliminary Determination of Sales at Less Than Fair
Value: Certain Pasta from Italy, (61 FR 7472, February 26, 1996).)
The Department received responses to supplemental section D
questionnaires from Pagani, Delverde, De Matteis, Arrighi, La Molisana,
Liguori, and De Cecco in February 1996. Minor corrections to their cost
responses were filed by Pagani, De Matteis, Arrighi, Liguori, and La
Molisana prior to the respective cost verifications.
Prior to verification, the Department requested each company to
provide a reconciliation between the quantity and value reported in its
questionnaire response and the company's published financial reports.
The Department verified the respondents' sales and cost questionnaire
responses during the months of February, March, and April in Italy and
the United States. Verification of De Cecco's sales and cost responses
were canceled for reasons described in the ``Facts Available'' section,
below.
On February 13, 1996, the petitioners argued that the Department
should employ transaction-specific export and constructed export price
comparisons for Delverde in the Department's final determination (see
``Targeted Dumping'' below).
On April 2 and April 30, 1996, Spruce Foods, a U.S. importer of
organic pasta from Italy, submitted materials from the Italian Ministry
of Agriculture and Forestry and from Associazione Marchigiana
Agricultura Biologica concerning the certification of organic pasta in
Italy to support its request that the Department exclude organic pasta
from the scope of both this investigation and the companion
countervailing duty investigation. (See ``Scope'' section, below.)
Case and rebuttal briefs were submitted on April 29, 1996, and May
1, 1996, respectively, by the petitioners and the respondents. At the
request of the petitioners and several respondents, a public hearing
was held on May 6, 1996.
Facts Available
At the preliminary determination, the Department found that De
Cecco had not provided a complete reporting of all of its ``affiliated
parties,'' as requested in the antidumping questionnaire. The
Department stated that, ``[i]nasmuch as the company's responses to date
indicate that both the U.S. and home market sales databases are
incomplete and that certain sales data and production costs have not
been reported, we cannot conduct an accurate cost of production
analysis or less-than-fair-value analysis using the reported prices.''
See Preliminary Determination. Because of these deficiencies, the
Department was unable to use De Cecco's responses to calculate a margin
for the preliminary determination of sales at less than fair value. The
Department stated that it would proceed with the investigation and
attempt to verify De Cecco's information if De Cecco cooperated and
provided ``accurate and complete'' information in response to
supplemental questionnaires.
On January 11, 1996, the Department issued a supplemental
questionnaire to De Cecco, requesting that it revise its section D
response so as to incorporate cost information for its affiliated
party, Molino e Pastificio De Cecco S.p.A. (Pescara). On February 2,
1996, De Cecco submitted a response to the January 11, 1996,
supplemental questionnaire. On February 5, 1996, the Department issued
a supplemental questionnaire regarding the Pescara portion of the
February 2, 1996, response and the Department reiterated several
questions that remained unanswered from the January 11, 1996,
supplemental questionnaire. On February 6, 7, and 9, De Cecco submitted
revisions to its February 2nd response. On February 8, 1996, the
Department received a request from the petitioners to cancel
verification of De Cecco's new data and to use facts available to
determine the final dumping margin. On February 15, 1996, the
Department issued a decision memorandum announcing that it would not
verify De Cecco's responses because it was determined that the February
2 and 6 submissions constituted completely new cost of production (COP)
responses (the latter of which was untimely), and 2) the acceptance of
new responses would have imposed undue difficulties on the Department
in completing the case within the statutory deadlines. These points
were further developed in a Memorandum to the File from the Office of
Accounting, ``Analysis of cost of production and constructed value data
submitted by F.lli De Cecco di Filippo Fara San Martino S.p.A.,'' dated
February 16, 1996. That memorandum stated:
(1) Rather than addressing the Department's initial concerns
documented in the January 11, 1996, supplemental questionnaire
regarding the November 27 cost questionnaire response, De Cecco's
February 2 submission reported revised COP and constructed value (CV)
figures based on a new cost calculation methodology, developed by the
company after the Department's preliminary determination.
(2) Every COP and CV figure reported by De Cecco changed between
the February 2, 1996, response and the February 6, 1996, submission.
(3) De Cecco failed to explain the significant decreases between
the costs reported in the November 27, 1995, and February 2, 1996,
responses, and between the February 2, 1996, response and the February
6, 1996, submission.
(4) The inclusion of Pescara's costs did not explain the
significant differences we observed in De Cecco's own total cost
figures reported originally in the November 27 response and later in
the February 6, 1996, submission.
(5) For every product reported by Pescara, specific production
quantities for internal product code numbers changed between the
February 2 and February 6 responses.
(6) In its February 2 and February 6 responses, De Cecco added new
product control numbers but failed to explain the source of these new
products.
(7) De Cecco's February 2 response included completely new
information, and was subsequently superseded by additional submissions.
(8) It was not until February 13 that De Cecco submitted its
reconciliation of reported costs to its financial statements, 37 days
after the Department's request and ten days after the deadline.
(See also Memorandum to Barbara R. Stafford from Pasta Team,
``Antidumping Duty Investigation of Certain Pasta from Italy: Use of
Facts Available for F.lli De Cecco di Filippo Fara San Martino
S.p.A.,'' dated February 15, 1996.)
[[Page 30328]]
Because it was not possible for the Department to analyze the new
responses, issue necessary supplemental questionnaire(s), receive
responses to the supplemental questionnaire(s), and conduct
verification within the statutory time limits, the Department did not
verify the cost responses submitted by De Cecco.
Section 776(a) requires the Department to resort to facts available
when, inter alia, an interested party or any other person ``fails to
provide {requested} information by the deadlines for submission of the
information or in the form and manner requested, subject to subsections
(c)(1) and (e) of section 782,'' and when the use of facts available is
consistent with section 782(d) of the statute. Section 782(c)(1)
provides for the Department to modify its information request if a
party, ``promptly after receiving a request from {the Department} for
information, notifies {the Department} that such party is unable to
submit the information requested in the requested form and manner. * *
* '' As De Cecco provided no such notification to the Department,
subsection (c)(1) was inapplicable.
The determination under section 776(a) as to whether a respondent
``fail{ed} to provide {requested} information by the deadlines for
submission of the information or in the form and manner requested,''
must be considered in light of section 782(d), ``Deficient
Submissions.'' Section 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 the completion of investigations or reviews
under this title.'' [Emphasis added.] On January 11, the Department
informed De Cecco by means of the Department's supplemental
questionnaire that its November 27, 1995, COP response did not comply
with the Department's original COP questionnaire and explained why the
response was deficient. Further, the Department provided De Cecco with
``the opportunity to remedy or explain the deficiency in light of the
time limits established.'' In order to ensure completion of the
investigation within the statutory time period, the Department provided
De Cecco with the opportunity to remedy its submission by February 2,
which would allow the Department sufficient time to analyze the
supplemental information, prepare for verification of the response, as
supplemented, and conduct verification.
However, on February 2 and February 6, De Cecco submitted two
separate responses to the supplemental questionnaire. The Department
determined that neither of these responses constituted a ``remedy'' or
``explanation'' of the deficiencies of its original COP response, but
rather were entirely new COP responses. Section 782(d) states that:
``If that person submits further information in response to such
deficiency and either--(1) {the Department} finds that such response is
not satisfactory, or (2) such response is not submitted within the
applicable time limits, then {the Department} may, subject to
subsection (e), disregard all or part of the original and subsequent
responses.'' The SAA at 195 states that 782(d) ``is not intended to
allow parties to submit continual clarifications or corrections of
information or to submit information that cannot be evaluated within
the applicable deadlines. If subsequent submissions remain deficient or
are not submitted on a timely basis, Commerce and the Commission may
decline to consider all or part of the original and subsequent
submissions * * * '' As detailed, the Department found that De Cecco's
responses of February 2 and February 6 were ``not satisfactory''
because they constituted entirely new responses to the Department's
original COP questionnaire. Moreover, the February 6 submission was
``not submitted within the applicable time limits.'' Thus, because De
Cecco's original response constituted a deficient submission within the
meaning of section 782(d), and because its responses to the opportunity
to remedy or explain the deficiency did not satisfy the requirements of
section 782(d), De Cecco ``failed to provide {requested} information by
the deadlines for submission of the information or in the form or
manner required.'' Section 776(a) directs the Department in this
situation to use the facts available, subject to section 782(e).
Section 782(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.''
Thus, if any one of these criteria is not met, the Department may
decline to consider the information at issue in making its
determination. In conducting our analysis, the Department assumed,
arguendo, that De Cecco's information (except for the clearly untimely
February 6 submission) satisfied the first two criteria. With regard to
the third criterion, whether the information may serve as a ``reliable
basis'' for the Department's determination, the respondent had
indicated on the record that the original response was fundamentally
unreliable (i.e., although De Cecco stated its response was based upon
standard costs, counsel noted that De Cecco ``does not have a standard
cost accounting system''). When this statement was considered in
combination with the fact that De Cecco's February submissions replaced
the initial response, it was clear that the deficient original response
could not serve as a reliable basis for the Department's determination.
Moreover, as the February 6 submission explicitly stated that the
February 2 submission was unreliable, the February 2 submission could
not serve as a reliable basis for the Department's determination.
As to criterion four, De Cecco had not demonstrated that it acted
to the best of its ability in providing the requested information
because De Cecco had failed to respond in a satisfactory manner to the
Department's supplemental request for information and had provided
completely new COP responses in February 1996, long after the
Department's November 27, 1995, deadline for such a response. Finally,
as to the last criterion, if the Department would have accepted the new
submissions, it would have experienced undue difficulties in performing
an analysis, obtaining any clarifications prior to verification, and
permitting petitioners to participate fully in the process.
Because section 782(e) did not prevent the Department from
declining to consider De Cecco's COP information, and 782(d) allowed
the Department to disregard De Cecco's original deficient COP response
and its unsatisfactory responses to the Department's subsequent
request, the Department
[[Page 30329]]
determined that De Cecco failed to provide its COP information by the
deadlines established or in the form and manner requested. Section
776(a) thus required the Department to use the facts available in
making its determination as to De Cecco.
The resort to facts available for De Cecco's cost data rendered its
home market sale prices unusable, as the home market sales could not be
tested to determine whether they were made at prices above production
cost. A second problem with using the home market sales data was the
absence of reliable difference in merchandise figures (DIFMERS). Under
section 773(a)(6)(C) of the statute, 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. In
this case, DIFMERS were required for substantially all United States
and home market matches; the pasta product sold in the United States is
vitamin-enriched while nearly all the pasta sold in the home market is
not. Because DIFMER data is based on cost information from the section
D response (which was rejected by the Department), the effect of
physical differences could not be taken into account. Because the home
market sales data could not be verified, it could not be used by the
Department in making its final determination.
In the absence of home market sales data (i.e., when the home
market is viable but there are insufficient sales above COP to compare
with U.S. sales), the Department would normally resort to the use of
constructed value as normal value. However, the constructed value
information reported by De Cecco was part of the rejected cost data.
Therefore, the use of facts available for cost of production data
precluded the use of the submitted constructed value information.
We considered the use of ranged public data submitted by other
respondents or the petitioners' own cost data as possible alternatives
to De Cecco's reported constructed value information. The petitioners'
cost data was not on the record because their allegation of sales below
cost of production was based on De Cecco's discredited DIFMER data.
Moreover, it would not have been appropriate to use ranged public data
submitted by other respondents as facts available for normal value in
this investigation. Each control number covers sales of numerous unique
product codes. The use of ranged public data would likely have resulted
in the comparison of De Cecco's U.S. sales to the constructed value of
a completely different product mix reported by the remaining
respondents. Such comparisons would have been meaningless. Thus,
neither the use of petitioners' cost, nor the use of ranged public
data, was an acceptable alternative for normal value.
In conclusion, there was no reasonable basis for determining a
normal value for De Cecco. It was impossible, therefore, to perform any
comparison to U.S. prices. As a result, we did not use De Cecco's U.S.
sales data in determining an antidumping margin. The Department,
therefore, had no choice but to resort to a total facts available
methodology.
Section 776(b) provides that adverse inferences may be used against
a party that has failed to cooperate by not acting to the best of its
ability to comply with requests for information. See also SAA at 870.
De Cecco's failure to provide complete and accurate information in a
timely manner and its failure to clarify inconsistencies in its
submissions to the record demonstrate that De Cecco has failed to
cooperate to the best of its ability in this investigation. Thus, the
Department has determined that, in selecting among the facts otherwise
available for De Cecco, an adverse inference is warranted.
On the basis of our having compared the sizes of the calculated
margins for the other respondents to the estimated margins in the
petition, we have concluded that the petition is the only appropriate
information on the record which could form the basis for a dumping
calculation for De Cecco. In accordance with section 776(c) of the Act,
we attempted to corroborate the data contained in the petition. When
analyzing the petition, the Department reviewed all of the data the
petitioners had submitted and the assumptions that petitioners made in
calculating estimated dumping margins. As a result of that analysis,
the Department revised the home market prices that petitioners relied
upon in calculating the estimated dumping margins. On the basis of
those adjustments, the Department recalculated the estimated dumping
margins for certain pasta from Italy and found them to range from 21.85
percent to 71.49 percent. See Initiation of Antidumping Duty
Investigation: Certain Pasta from Italy and Turkey, 60 FR 30268, 30269
(June 8, 1995). Because De Cecco made some effort to cooperate, even
though it did not cooperate to the best of its ability, we did not
choose the most adverse rate based on the petition. As facts otherwise
available, we are assigning to De Cecco the simple average of the range
of the margins stated in the notice of initiation, 46.67 percent.
Targeted Dumping
On February 13, 1996, the petitioners requested that the Department
compare Delverde's transaction-specific export prices in the United
States to weighted-average normal values, in accordance with the
``targeted dumping'' provisions of section 777A(d)(1)(B) of the Act.
The petitioners alleged that there was a statistical pattern of
different export prices among different groups of both Delverde's EP
and CEP purchasers and that the use of a weighted-average price would
have the effect of masking lower prices. The Department has denied this
request on the ground that the petitioners' analysis failed to meet the
basic requirements of subsections 777A(d)(1)(B) (i) and (ii) of the
Act.
The petitioners' allegation was the result of their having selected
groups of customers on the basis of relatively higher and lower prices.
After the groups had been selected, petitioners ran statistical
procedures to establish that the prices of certain groups were lower
than those of other groups. These results, however, were predetermined
by the initial composition of the different groups. Moreover, by not
supplying any relevant source of comparison benchmark prices,
petitioners failed to demonstrate that the price differences were
``significant,'' as required by section 777A(d)(1)(B)(i) of the Act.
Even assuming, arguendo, that petitioners had shown targeting, in
order for the targeted dumping provision to be applied, section
777A(d)(1)(B)(ii) requires that the price differences cannot be taken
into account by comparing the weight-averaged normal values to the
weight-averaged U.S. prices. The petitioners' allegation fails to make
this demonstration. Accordingly, this targeted dumping allegation does
not provide the Department with a sufficient basis for comparing
Delverde's transaction-specific export prices in the United States to
its weighted-average normal value.
Scope of Investigation
The merchandise under 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
[[Page 30330]]
polypropylene bags, of varying dimensions.
Excluded from the scope of these investigations 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.
Also excluded are imports of organic pasta from Italy that are
accompanied by the appropriate certificate issued by the Associazione
Marchigiana Agricultura Biologica (AMAB).
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.
Exclusion for Certain Organic Pasta
On October 2, 1995, a U.S. importer of Italian pasta requested that
the Department exclude from the scope of this investigation, and the
companion countervailing duty investigation, pasta certified to be
``organic pasta'' in compliance with European Economic Community
Regulation No. 2092/91. This regulation sets forth a regime of
standards for the cultivation, processing, storage, and transportation
of organic foodstuffs with inspections of farms and processing plants
by EEC-approved national certification authorities. In addition to the
description of the EEC regime, the exclusion request included a copy of
a sample certificate issued by the AMAB and a description, in English,
of the AMAB organization.
On November 9, 1995, the petitioners stated that they were willing
to modify the scope of the petition and the investigation to exclude
certified organic pasta of Italian origin if U.S. imports of such pasta
were accompanied by certificates issued pursuant to EEC Regulation No.
2092/91.
On November 21, we requested additional data on the EEC regulation
from the Section of Agriculture of the Delegation of the European
Commission of the European Union. On December 8, 1995, the European
Commission submitted responses to our inquiries. The information
included a list of seven Italian inspection and certification
authorities (of which AMAB was one) and the statement that EEC
Regulation No. 2092/91 ``* * * does not provide for certification of
products intended for export to third countries.'' Although the
Department was not able to fashion an exclusion of organic pasta from
the scope of these investigations in our preliminary determination, we
stated that if certification procedures similar to those under the EEC
regulation were established for exports to the United States, we would
reconsider an exclusion for organic pasta.
On April 2, 1996, the importer, that had originally requested the
exclusion, submitted a letter attaching a copy of a decree, with a
translation into English, from the Italian Ministry of Agriculture and
Forestry authorizing AMAB to certify foodstuffs as organic for the
implementation of EEC Regulation 2092/91. On April 30, 1996, this
importer forwarded letters (with accompanying translations into
English) from the Director General of the Italian Ministry of
Agriculture and Forestry and from the Director of AMAB. The letter from
the Ministry states that it has authorized AMAB to insure compliance
with organic farming methods and to issue organic certificates since
December of 1992. The letter from the Director of AMAB states that this
organization will take responsibility for its organic pasta
certificates and will supply any necessary documentation to U.S.
authorities. On this basis, we are able to exclude--and do exclude--
imports of organic pasta from Italy that are accompanied by the
appropriate certificate issued by AMAB from the scope of these
investigations.
Period of Investigation
The period of investigation (POI) is May 1, 1994, through April 30,
1995.
Product Comparisons
In accordance with section 771(16) of the Act, we considered all
products produced by the respondent, covered by the description in the
Scope of Investigation section and sold in the home market during the
POI, to be foreign like products for the purposes of determining
appropriate product comparisons to U.S. sales. Where there were no
sales of identical merchandise in the home market to compare to U.S.
sales, we compared U.S. sales to the next most similar foreign like
product on the basis of the characteristics listed in Appendix III of
the Department's antidumping questionnaire.
Level of Trade
As set forth in section 773(a)(1)(B)(i) of the Act and in the
Statement of Administrative Action (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.
Section 773(a)(7)(B) of the Act establishes the procedures for
making a CEP offset when: (1) normal value is at a different level of
trade; and (2) the data available do not provide an appropriate basis
for a level of trade adjustment. In addition, in accordance with
section 773(a)(7)(B), in order to qualify for a CEP offset, the level
of trade in the home market must constitute a more advanced stage of
distribution than the level of trade of the CEP.
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 10, 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 the respondents have
identified levels of trade in various manners. In some instances,
respondents used traditional customer categories (e.g., wholesaler,
retailer), or customer groups (e.g., supermarkets, wholesalers, buying
consortium) to identify levels of trade, while in other instances they
used factors such as 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 the respondents. Pursuant to section
773(a)(1)(B)(i) of the Act, and the SAA at 827, in identifying levels
of
[[Page 30331]]
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. For constructed export
price (CEP) sales, we considered the selling functions reflected in the
price after the deduction of expenses and profit under Section 772(d)
of the Act. 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 the respondents 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 each respondent, but the ultimate decision was based
on the Department's analysis of the selling functions associated with
the customer groups reported by the respondents. (In this analysis,
customer group refers to the customers or groups of customers
identified by respondents.) Although Liguori, De Matteis, Arrighi, and
Delverde did not argue that comparisons should be made on the basis of
level of trade, the statute requires that, where possible, the
Department make comparisons at the same level of trade. Therefore, we
looked at the issue of level of trade for each respondent for which we
calculated a margin.
To the extent practicable, we compared normal value at the same
level of trade as the U.S. sale. For respondents Arrighi, Delverde, and
La Molisana we compared the sole level of trade in the U.S. market to
the home market level of trade which we found to be identical in
aggregate selling functions to the level of trade in the United States.
In the case of De Matteis and Pagani, we found two home market levels
of trade, one of which was determined to be identical in aggregate
selling functions to that found in the United States. For respondent
Liguori, 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 Liguori 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 Liguori were examined.
However, we do not have information which would allow us to examine
pricing patterns based on Liguori'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 Liguori. Therefore, we were unable to calculate a level
of trade adjustment for Liguori based on these alternative methods.
Accordingly, Liguori's U.S. sales were compared to home market sales
based solely on the product characteristics of the merchandise.
Although Pagani did have identical U.S. and home market levels of
trade, for certain U.S. product categories there were no sales of
comparable merchandise at the same level of trade. We then examined the
prices of comparable product categories, net of all adjustments,
between Pagani's two home market levels of trade, and found a
consistent pattern of price differences. Therefore, for the U.S.
product categories without a match to an identical home market level of
trade, we made the comparison at a different level of trade, and made a
level of trade adjustment based on the weighted-average difference
between the prices at the two home market levels of trade. In this
case, the adjustment resulted in an increase to normal value.
As noted below in the ``Comparison Methodology'' section of this
notice, where there were distinct price differences between a
respondent's customer categories within similar levels of trade, or
within different levels of trade in the case of Liguori and Pagani, we
considered the customer category in creating the averaging groups for
our comparisons.
A complete description of the level of trade analysis for each
respondent is presented in the DOC Position to Comment 1E below.
Fair Value Comparisons
To determine whether sales of pasta by the Italian respondents to
the United States were made at less than fair value, we compared the
Export Price (EP) and/or Constructed Export Price (CEP) to the Normal
Value (NV), as described in the ``Export Price and Constructed 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 and CEPs for comparisons to weighted-average NVs. For a
further discussion, see the Comparison Methodology section, below.
Export Price and Constructed Export Price
We calculated EP, in accordance with subsections 772 (a) and (c) of
the Act, for each of the respondents, where the subject merchandise was
sold directly to the first unaffiliated purchaser in the United States
prior to importation and CEP was not otherwise warranted based on the
facts of record. In addition, for Delverde, we calculated CEP, in
accordance with subsections 772 (b) through (d) of the Act, for those
sales to the first unaffiliated purchaser that took place after
importation into the United States.
Furthermore, as in the preliminary determination, we did not
include the resale of subject merchandise purchased in Italy from
unaffiliated producers. For Arrighi, however, we were unable to
[[Page 30332]]
determine which particular U.S. sales were of merchandise produced by
firms other than Arrighi. Therefore, we weight the dumping margin for
Arrighi for each product category it identified by (1) calculating a
ratio of the volume of Arrighi-produced product to the combined total
volumes of Arrighi-produced and purchased product in the same period,
and (2) applying the ratio to the quantity for the corresponding
product sold to the United States during the POI. This allowed us to
calculate a margin based on an estimated quantity of Arrighi-produced
product (see Arrighi's Comment 6).
We calculated EP and CEP based on the same methodology used in the
preliminary determination. For certain respondents, we recalculated
reported credit expenses in instances where they had not reported a
shipment and/or payment date because the merchandise had not yet been
shipped or paid for at the time of filing the response. For those sales
missing a shipment and/or a payment date, we used the average credit
days of all transactions with a reported shipment and payment date.
Additional company-specific adjustments were made as follows:
Arrighi
We made minor corrections to the U.S. sales database based on
errors noted at verification and we recalculated the warranty claim
expense for U.S. sales to reflect verified claim expenses. We also
recalculated inventory carrying expense to correct the price basis used
in the calculation, and to apply a weighted average short-term interest
rate based on Arrighi's and Italpasta's company-specific short-term
interest rates (see Arrighi's Comment 2).
Delverde
In those instances where negative values were reported for U.S.
credit expenses (i.e., where Delverde received payment prior to
shipment), we set the credit expense to zero. As discussed in Comment 5
for Delverde below, we did not rely on certain CEP sales by Delverde
USA because we determined that the date of these sales fell outside the
POI. Consistent with our treatment of slotting fees paid in the home
market, we reclassified the slotting expenses reported by Delverde USA
(i.e., field ``ADVERT2U'') as indirect selling expenses. We made
deductions for warranties and additional direct selling expenses
reported by Tamma Industrie Alimentari di Capitanata, SrL (Tamma), a
Delverde affiliate. We also increased Tamma's packing costs, indirect
selling expense and warehousing cost to reflect the findings of the
cost verification.
De Matteis
We deleted one invoice from the U.S. database because it was
discovered at verification that the sale was made outside of the POI.
La Molisana
We adjusted La Molisana's reported direct advertising expense by
reclassifying a portion as an indirect expense. See, Comments 2C and 3B
for La Molisana, below. We recalculated the reported indirect selling
expenses to reflect verified expenses. In addition, we increased the
indirect expenses by including certain unreported expenses discovered
at verification. We also corrected the control number associated with
certain products to reflect the shape classifications confirmed at
verification.
Liguori
For certain of Liguori's U.S. sales, that are associated with a
particular invoice number, we corrected the shipment date and the
imputed credit expenses, based on errors noted at verification.
Pagani
We revised the interest rate used for calculating Pagani's credit
expense and its inventory carrying costs based on information found at
verification. We deleted the following sales from the U.S. sales
listing: sales made outside of the POI, duplicate entries, and a sale
made to a Canadian company.
Normal Value
In accordance with section 773(a)(1)(B) of the Act, we have based
NV on sales in Italy or, where appropriate, on constructed value (CV).
For each of the respondents, we made adjustments, where
appropriate, for physical differences in the merchandise, in accordance
with 19 CFR 353.57. In addition, we deducted home market packing costs
and added U.S. packing costs for all respondents.
We adjusted for differences in commissions in accordance with 19
CFR 353.56(a)(2) as follows: Where commissions were paid on some home
market sales to calculate normal value and U.S. commissions were
greater than the sum of both home market commissions and indirect
selling expenses, we deducted from normal value either (1) home market
indirect selling expenses attributable to those sales on which
commissions were not paid, or (2) the difference between the U.S. and
home market commissions. Where commissions were paid on home market
sales but not on sales to the U.S., we deducted the lesser of either
(1) the home market commissions, or (2) the sum of the weighted average
indirect selling expenses paid on U.S. sales. Where no commissions were
paid on home market sales used to calculate normal value, we deducted
the lesser of either (1) the amount of the commissions paid on the U.S.
sales, or (2) the sum of the weighted average indirect selling expenses
paid on home market sales, capped by the amount of the commission paid
on U.S. sales. Finally, regardless of the applicable scenario, the
amount of the commission paid on the U.S. sales was added to normal
value.
For certain respondents, we recalculated reported credit expenses
in instances where they had not reported a shipment and/or payment date
because the merchandise had not yet been shipped or paid for at the
time of filing the response. For those sales missing a shipment and/or
a payment date, we used the average credit days of all transactions
with a reported shipment and payment date.
Liguori and La Molisana reported that the sales to their respective
affiliated customer(s) were made at arm's length prices. We used the
affiliated party test applied at the preliminary determination to
determine whether sales to affiliated customers were made on an arm's-
length basis, although we modified it to consider price differences
that result from comparisons of sales to different customer categories.
(For a further discussion of this issue see, Comment 1 under the
``Company Specific Comments--La Molisana'' section of this notice,
below. Sales not made at arm's-length prices were excluded from our
LTFV analysis.
We compared all home market sales to the cost of production (COP),
as described below. Where home market prices were above COP, we
calculated NV based on the same methodology used in the preliminary
determination, with the following exceptions:
Arrighi
We made minor corrections to the home market sales database based
on errors noted at verification (see Arrighi's Comment 1). For home
market credit expense calculation, we used a weighted average short-
term interest rate based on Arrighi's and Italpasta's company-specific
short-term interest rates (see Arrighi's Comment 2). We also
recalculated inventory carrying expense to correct the price basis used
in the calculation, and to apply the weighted average short-term
interest rate. We reclassified as indirect selling expenses advertising
expense 1 and direct selling expenses based on verification findings
(see Arrighi's Comments 4 and 5). For
[[Page 30333]]
Italpasta sales that incurred inland freight, we used the lowest
reported unit inland freight expense as ``facts available'' because
this expense could not be completely verified (see Arrighi's Comment
3).
Additionally, because section 773(a)(1)(B)(i) of the Act
incorporates, by reference, the definition of foreign like product in
section 771(16) of the Act, it prohibits our using sales of merchandise
produced by persons other than the respondents in our calculation of
normal value. Accordingly, we have excluded from our analysis all of
the sales from each of the companies of subject merchandise in the
Italian market that were not produced by the respondent companies (see
Arrighi's Comment 7).
Delverde
We recalculated home market credit based on the weighted average of
the company-specific short term borrowing rates reported by Delverde
and Tamma. We also increase Tamma's packing cost, indirect selling
expenses and warehousing cost to reflect the findings of cost
verification.
De Matteis
All reported commission expenses that were found to be salaries
were reclassified as indirect selling expenses.
La Molisana
We disallowed La Molisana's claim for a certain rebate (REBATE2H)
because the company failed to provide support documentation for the
claimed amount at verification. See La Molisana Comment 4, below. We
recalculated the indirect selling expense factor to reflect the amounts
confirmed at verification. In addition, we reclassified trade promotion
expenses as direct advertising expenses. See Comment 2B, below.
Finally, we reallocated the POI expenses over the appropriate
denominator confirmed at verification.
Additionally, we increased the reported advertising expense to
include the ``television sponsorship'' expense discovered at
verification. See La Molisana Comment 2A, below.
Liguori
For certain home market sales, associated with a particular
invoice, we corrected the payment date and the imputed credit expenses
based on errors noted at verification.
Pagani
We deleted home market sales of enriched pasta, other than enriched
whole wheat pasta, because these sales were deemed to have been made
outside of the ordinary course of business. In addition, we deleted
duplicate entries, sales recorded as gifts, sales made outside of the
POI, and sales to employees from the home market database. We also
updated the interest rate used for calculating Pagani's credit expense
and its inventory carrying costs.
Cost of Production Analysis
As discussed in the preliminary determination notice, the
Department conducted an investigation to determine whether each
respondent 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 cost of materials, fabrication,
general expenses, and home market packing in accordance with section
773(b)(3) of the Act. We relied on the submitted COP data, except in
the following instances where the costs were not appropriately
quantified or valued.
Arrighi
1. We corrected Arrighi's understated depreciation expense to
reflect its normal, full-year depreciation expense for fixed assets
that were temporarily idle.
2. We corrected general and administrative expenses (G&A) for costs
that were improperly excluded by Arrighi and its affiliate, Italpasta
S.p.A. (Italpasta).
3. We revised the cost of goods sold figure used as the denominator
in the G&A and financial expense ratios and recalculated Arrighi and
Italpasta's G&A and financial expense ratios.
4. We recalculated the semolina costs reported by Arrighi's
affiliated mill to correct for errors in the cost of raw materials
5. We increased Arrighi's material costs to agree with the actual
material costs reported under the company's financial accounting
system.
6. We increased Arrighi's G&A expenses to include the G&A expenses
incurred by its parent company.
7. We revised Arrighi and Italpasta's financial expenses to include
bank charges and to exclude exchange gains and losses related to sales
transactions.
De Matteis
1. We revised the cost of goods sold figure used as the denominator
in De Matteis' submitted G&A and financial expense rates, and
recalculated its per-unit G&A and financial expenses using the revised
rates.
Delverde and Tamma
1. We corrected the depreciation expense reported by Tamma, a
Delverde affiliate.
2. We increased Tamma's financial expenses to include foreign
exchange losses incurred on the extinguishment of debt.
3. We revised the combined cost of sales figure used by Delverde to
calculate its G&A and financial expense rates, reducing it for
byproduct revenues and intercompany transfers between Delverde and
Tamma.
4. We did not calculate a separate financial expense rate for use
in the CV calculations because the statute states that COP and CV are
based on the actual costs and not imputed costs.
Pagani
1. We increased Pagani's cost of semolina for unreported freight
costs.
2. We increased Pagani's fixed overhead for clerical errors
reported to the Department on the first day of verification. We also
increased fixed overhead to include an additional two months of
depreciation expense on a new production line.
3. We revised Pagani's cost of sales figure used to calculate the
G&A expense ratio to exclude packing costs and to include all fixed
overhead costs.
4. We revised Pagani's consolidated financial expense rate
calculation to account for the following: we reduced the costs of sales
figure for byproduct revenue that was used to offset the cost of
production; we included fixed overhead costs that had been omitted from
the costs of sales figure; we excluded packing costs from the cost of
sales figure; and we adjusted the consolidated cost of sales figure to
account for intercompany transfers.
Liguori
1. We reallocated fuel costs based on the number of pasta
production lines in operation.
La Molisana
1. We increased reported costs to account for an unreconciled
difference between La Molisana's cost and financial accounting systems.
2. We increased the reported cost of semolina production,
disallowing La Molisana's offset for revenues received from sales of
finished semolina.
3. We increased the reported costs for the understatement of wheat,
labor and electricity costs due to the use of the calendar year 1994
costs rather than POI costs.
[[Page 30334]]
4. We increased reported costs to account for an unreconciled
difference between La Molisana's total production costs and its
reported production costs for 1994.
5. We reduced reported depreciation expense for an overstatement
discovered during verification.
6. We increased G&A expenses to disallow an offset for foreign
exchange gains related to sales transactions.
7. We increased reported financial expenses to disallow long-term
interest income used to offset financial expenses and to include
financial expenses that were allocated to the flour mill.
8. We revised the cost of sales figure used as the denominator in
La Molisana's G&A and financial expense ratios, and recalculated its
per-unit G&A and financial expenses using the revised rates.
B. Test of Home Market Prices
We compared the adjusted weighted-average COP figures to home
market sales of the foreign like product on a product-specific basis,
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. The home market prices compared were net of any
applicable movement charges, discounts, rebates, packing, and direct
and indirect selling expenses.
C. Results of COP Test
Pursant to section 773(b)(2)(C), where less than 20 percent of
sales during the POI of a given product are at prices less than the
COP, we do not disregard any below-cost sales of that product because
the below-cost sales are not made in substantial quantities within an
extended period of time. Where 20 percent or more of sales of a given
product are at prices less than the COP, we disregard only the below-
cost sales because such sales are 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 are at prices below the
COP, we disregard all sales of that product, and calculate NV based on
CV, in accordance with section 773(a)(4) of the Act.
We found that, for certain types of pasta, more than 20 percent of
the following respondents' home market sales were sold at below COP
prices within an extended period of time in substantial quantities:
Arrighi, Delverde, De Matteis, La Molisana, Pagani and Liguori. Further
we did not find that these sales provided for the recovery of costs
within a reasonable period of time. We therefore excluded these sales
and used the remaining above-cost sales as the basis for determining NV
if such sales existed, in accordance with section 773(b)(1). For those
types of pasta 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 the sum of cost of materials, fabrication, general expenses
and U.S. packing costs as reported in the U.S. sales database. We
recalculated the respondents' CV based on the methodology described in
the calculation of COP above.
For each of the respondents, we made adjustments, where
appropriate, for physical differences in the merchandise in accordance
with section 773(a)(6)(C)(ii) of the Act. Where the difference in
merchandise adjustment for any product comparison exceeded 20 percent,
we based normal value on CV. In addition, in accordance with section
773(a)(6)(B), we deducted home market packing costs and added U.S.
packing costs for all respondents.
Comparison Methodology
In accordance with section 777A(d)(1)(A)(i) of the Act, we
calculated weighted-average EPs or CEPs for comparison to weighted
average normal values, or to constructed values, where appropriate. 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 those respondents (De Matteis and Pagani) with the same level
of trade in the U.S. and home markets and a single, identical customer
category in each market, the weighted-average prices were calculated
and compared by product characteristics and level of trade. For those
respondents having the same level of trade in the U.S. and home
markets, and multiple customer categories, the weighted-average prices
were calculated and compared by product characteristics, level of
trade, and the identical or, in the case of La Molisana, the most
comparable customer category in terms of remoteness from factory, if we
found that there were consistent price differences among the various
customer categories. Price differentials were analyzed by first
calculating the average price net of all reported expenses for each
product control number and unique customer category in each market. The
average net unit prices for each control number in the customer
category least remote in the chain of distribution were compared to the
identical product control number in the customer category at the next
most remote level in the chain of distribution. Price differentials
were considered to be consistent if there were uniform price
differences between the customer categories. For those respondents
(Arrighi and Delverde) with the same level of trade in the U.S. and
home markets and multiple customer categories, but no consistent price
differentials, the weighted-average prices were calculated and compared
by product characteristic and level of trade. We determined for Arrighi
that a price differential analysis was not measurable because Arrighi
had grouped different customer categories in its reported customer
groups, and we were unable to separate these customers by customer
category. For those respondents (Liguori) with different levels of
trade in the U.S. and home market, the weighted-average prices were
calculated and compared by product characteristics and by customer
category, if we found that there were consistent price differentials
among the customer categories.
Currency Conversion
We made currency conversions into U.S. dollars based on the
official exchange rates in effect on the dates of the U.S. sales as
certified by the Federal
[[Page 30335]]
Reserve Bank. Section 773A(a) of the Act directs the Department to use
a daily exchange rate in order to convert foreign currencies into U.S.
dollars. Further, section 773A(b) directs the Department to allow a 60-
day adjustment period when a currency has undergone a sustained
movement. A sustained movement has occurred when the weekly average of
actual daily rates exceeds the weekly average of benchmark rates by
more than five percent for eight consecutive weeks. The benchmark is
defined as the moving average of rates for the past 40 business days.
(For an explanation of this method, see, Policy Bulletin 96-1: Currency
Conversions, 61 FR 9434, March 8, 1996). Such an adjustment period is
required only when a foreign currency is appreciating against the U.S.
dollar. The use of an adjustment period was not warranted in this case
because the Italian lira did not undergo a sustained movement, nor were
there currency fluctuations during the POI.
Verification
As provided in section 782(i) of the Act, we verified information
provided by the respondents, with the exception of De Cecco, using
standard verification procedures, including the examination of relevant
sales and financial records, and selection of original source
documentation containing relevant information. In addition, we
conducted verification of Saral to confirm its claim that it no longer
exports pasta to the United States.
Interested Party Comments
I. General Issues
Comment 1 Level of Trade: Comment 1A Whether the Department Should
Consider the Class of Customer and/or Channel of Distribution in
Determining Whether Separate LOTs Exist: The petitioners and La
Molisana 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 La Molisana 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.
The petitioners assert that it has been long recognized by the
Department and the Court of International Trade (CIT) that levels of
trade 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 and La Molisana 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 and La Molisana recognize that the new
statute contains certain refinements to the LOT concept, both parties
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 and La Molisana 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, both La Molisana and 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.
Arrighi argues that the LOT methodology adopted by the Department
in its preliminary determination was factually correct and in
accordance with the law and the URAA. Arrighi disagrees with the
petitioners' and La Molisana's claim that the amendments to the law
made by the URAA did not alter the fundamental definition of LOT.
According to Arrighi, because the SAA specifically states that ``in
order to establish the existence of different LOTs, a respondent
company must show that different selling activities are performed by
the respondent company at each LOT,'' and there is no mention of
another criterion or test in either the statute or the SAA, the
position in the chain of distribution of the respondent's customers
should not be a precondition to finding separate LOTs.
Arrighi contends that the Department confirmed that the selling
functions of a respondent are the proper determinative factor in
establishing different LOTs in its comments that were issued with the
Proposed Regulations for the URAA. Arrighi claims that while certain
commentators argued that a respondent company must sell to customers at
different points in the chain of distribution before asserting that
different LOTs exist, the Department rejected this position, stating
that the ``only test identified in the statute for the legitimacy of
the claimed LOTs is the activity of the seller.''
DOC Position: We agree with Arrighi that it is appropriate to look
at the selling functions of a respondent to determine whether separate
levels of trade exist. While neither the Act nor the SAA provides an
explicit definition of level of trade or establishes criteria for
determining whether separate levels of trade 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 levels of trade. 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
levels of trade; 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
[[Page 30336]]
making level of trade 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 levels of trade, 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 levels of trade exist, we have examined the full array
of selling functions provided to each of the customer groups alleged by
the respondents. As noted in Comment 1C 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 level of trade and avoid instances where a single selling function
difference on individual sales transactions warrants the finding of a
distinct level of trade. 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 1B Whether the Selling Functions of a Respondent Should be
Considered in Determining Whether Separate LOTs Exist: La Molisana
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. La Molisana
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, La Molisana 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, La Molisana 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).
Finally, the petitioners claim that because all of La Molisana's
U.S. sales are EP sales, no indirect selling expenses are deducted from
either the U.S. or home market prices. Therefore, the petitioners argue
that La Molisana is incorrect in stating that an examination of selling
functions is double counting and that the margin calculations already
account for all expenses incurred by La Molisana.
Arrighi and De Matteis both argue that the existence of different
selling functions is the proper basis for establishing whether
different LOTs exist. For a further discussion of Arrighi's arguments
concerning this issue, see Comment 1A, above.
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 determine that there are
two levels of trade.'' SAA at 159, and Cf., Proposed Regulations at
7348. Thus, as noted in Comment 1A above, information about the selling
activities of the producer/exporter is essential to the identification
of levels of trade.
Comment 1C 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, La Molisana,
Delverde and De Matteis argue that the LOT coding methodology used in
the preliminary determination should be rejected because it is
inconsistent with law and commercial reality. Neither Liguori, Pagani
or Arrighi commented on the specifics of the LOT coding methodology
used in the preliminary determination. However, Arrighi and Liguori
state that they agree with the outcome of the Department's preliminary
LOT analysis.
First, the petitioners and La Molisana 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 and La Molisana 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. Both the petitioners and La
Molisana 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. For
example, with respect to Arrighi, the petitioners claim that as a
result of the Department's preliminary LOT methodology, less than one
percent of Arrighi's home market sales were used as comparison sales to
determine whether dumping was occurring.
Third, La Molisana and De Matteis both argue that the Department's
use of sales with the same number of selling expense categories to
determine the ``next most comparable LOT'' in the preliminary
determination has no factual or logical basis. Specifically, La
Molisana and De Matteis assert that the Department's methodology
essentially treats each selling function category as having an equal
effect on the sales price. La Molisana and De Matteis contend this not
true and that in reality, each selling function influences pricing in a
different manner.
[[Page 30337]]
Fourth, La Molisana and De Matteis argue that the Department's
preliminary methodology erred by measuring the existence or absence of
a selling activity in absolute terms, rather than in degrees. La
Molisana and De Matteis assert that in determining LOT comparisons, the
relative degree or extent to which an activity or function is performed
(e.g., ``great degree,'' ``moderate degree'' or ``small degree'')
should be taken into account by the Department in the final
determination.
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.
Fifth, Delverde argues that the LOT coding methodology is
fundamentally flawed in concept because it ``constructed'' a LOT based
on selling functions that were not part of CEP. Specifically, Delverde
argues that the statutory definition of CEP clearly describes a price
at an ex-factory LOT. Delverde claims that although the Department
concluded that Delverde provided movement and advertising services in
connection with its CEP sales, both types of expenses were deducted
from the U.S. starting price when CEP was calculated. Therefore,
Delverde contends that the Department's preliminary methodology created
a ``constructed'' CEP LOT that was more advanced than the LOT of the
actual CEP.
DOC Position: In the preliminary determination, the Department
stated that it would continue to examine its policy for making level of
trade 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 levels of trade, we agree with
the respondents that certain modifications to the LOT methodology
utilized in the preliminary determination are warranted. Specifically,
we find that: (1) the preliminary coding methodology measured levels of
trade based on the existence of individual selling functions, rather
than basing levels of trade 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 level of trade. Although
neither the Act nor the SAA provide explicit guidelines for identifying
levels of trade, 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
level of trade, we have determined that no single selling function in
the pasta industry warrants the finding of a separate level of trade.
Therefore, as noted in the ``Level of Trade'' section of this notice,
above, we have revised the level of trade methodology used for the
final determination. In order to determine whether separate levels of
trade 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 the respondents. 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 level of trade.
We agree, in part, with La Molisana and De Matteis' assertion that
the relative extent to which an activity or function is performed
should be considered in the Department's LOT analysis. As noted in the
``Level of Trade'' section of this notice, above, before determining
that a particular selling function was performed for a particular
customer group, we examined whether the selling function was performed
on a substantial number of sales within the customer group. We disagree
with La Molisana and De Matteis, however, that the degree to which a
selling function is performed (i.e., ``great degree'', ``moderate
degree'' or ``small degree'') should be considered in our LOT analysis
for this investigation. While it is conceivable that the Department may
determine in a particular case that it is necessary to consider the
degree to which a particular selling function is performed in its
analysis, the selling functions in this case were such that they can be
viewed as either having been performed or not having been performed.
Accordingly, we have not taken the degree to which a selling function
is performed into consideration in conducting our LOT analysis.
Delverde's arguments concerning whether the LOT coding methodology
improperly ``constructed'' a LOT based on selling functions that were
not part of CEP are addressed separately under the ``Company Specific
Comments'' section of this notice, below.
Comment 1D 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 and De
Matteis 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 & 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.
In the event the Department determines it is appropriate to
consider
[[Page 30338]]
the selling functions of the respondent in determining whether separate
LOTs exist, La Molisana argues that by examining the selling activities
of respondents, the Department is ``in a sense double-counting''
because the selling functions have already been accounted for in the
margin calculations. For example, La Molisana claims that in its margin
calculations, the Department deducts freight expenses from both the
export price and home market price in order to make an ``apples to
apples'' comparison of the prices. Accordingly, La Molisana asserts
that it is unnecessary to account for potential price differences in
freight expenses by treating sales sold on an ex-factory basis to be a
different LOT than sales made on a delivered basis. Therefore, La
Molisana asserts that only those selling activities that are not
otherwise accounted for in the margin calculation should be considered
in determining the LOT.
Regarding whether the Department should examine all selling
activities undertaken or should focus only on those activities that are
not already accounted for in the dumping calculation, the petitioners
note that the SAA cautions the Department against making adjustments
for the same activities twice, once as a circumstance of sale
adjustment and once as a LOT adjustment. SAA at 830. Therefore, the
petitioners assert that it might be appropriate to consider selling
functions only to the extent that such functions were not already
accounted for as a COS adjustment. Because all of La Molisana's U.S.
sales are EP sales, the petitioners claim that indirect selling
expenses are not deducted from either the U.S. or home market prices.
Therefore, only indirect selling expenses (and their related selling
activities) might serve as the basis for distinguishing LOTs.
Whichever approach the Department adopts (either examining all
selling functions or only those not otherwise accounted for in the
margin calculations), the petitioners argue that the Department must
begin with the same starting point for the sales prices compared. For
example, the petitioners assert that if the Department adjusts CEP
sales to exclude U.S. selling functions, the Department should
similarly adjust EP and normal value sales for all statutory
adjustments before examining LOT.
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.
La Molisana asserts the LOT can only be defined with respect to the
first arm's length transaction. Therefore, La Molisana argues that
selling activities performed by an unaffiliated agent should not be
considered in the Department's analysis.
(4) Commissions: The petitioners argue that commissions are merely
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) Whether the Services Were ``Intentionally'' Provided: Arrighi
argues that the Department should differentiate between selling
functions that were provided based on whether Arrighi intentionally
marketed the service to the customer or not (see Comment 1E, below).
The petitioners assert that nothing in the statute authorizes the
Department to distinguish between selling functions based on the intent
of the seller. Therefore, the petitioners argue that Arrighi's attempt
to include the factor of ``intent'' into the LOT analysis should be
rejected.
(6) Discounts and Rebates: The petitioners and La Molisana 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 and La Molisana contend
that the dumping calculations recognize that discounts and rebates are
a function of price by deducting them as ``price adjustments'' rather
than ``circumstance of sale (COS) adjustments.'' Proposed Regulations
at 7381. For all of these reasons, the petitioners and La Molisana
argue that discounts and rebates should not be included as a selling
function distinction for LOT purposes.
(7) 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 and arguments
on a related issue - whether to consider price distinctions in defining
customer categories, see Comment 2D, below.)
DOC Position: We agree with the petitioners and De Matteis that the
Department's level of trade 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 level of trade. As stated in the ``Level of
Trade'' section of this notice, above, no single selling function in
this industry warranted a separate level of trade and, wherever
possible, we examined whether the selling function was performed on a
substantial portion of sales within the customer groups reported by the
respondents. A company specific description of the selling functions
assigned to the level(s) of trade for each respondent is provided in
Comment 1E, below. Three of the respondents, Pagani, Delverde and De
Matteis, were found to have more than one (but no more than two) levels
of trade in either their U.S. or home market; in each of these
instances there were at least two selling function differences between
the levels of trade. In determining whether a selling function was
applicable to a substantial portion of customers in the reported
customer group, we relied on the respondent's narrative responses and
sales transaction data, as well as information obtained during
verification.
We disagree with La Molisana and, in part, with the petitioners
regarding the starting point for considering selling functions in
determining the level of trade. The process of establishing whether
separate levels of trade exist is distinct from both the margin
calculation and the level of trade adjustment. We reject any attempt to
alter the statutory criteria for levels of trade, even if such
alteration might arguably eliminate a redundant step.
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 level of trade as
the export price or constructed export price.'' The SAA specifies that
normal value will be calculated ``at the same level of trade as the
constructed export price or the starting price for
[[Page 30339]]
export sales.'' SAA at 827. Therefore, in identifying levels of trade
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 the respondent. Section 772(d) of the
Act provides that constructed export price will be based on the price
after the deduction of expenses and profit. Thus, for CEP sales, we
considered the selling functions reflected in the price after the
deduction of expenses and profit under Section 772(d) of the Act.
We agree, in part, with the petitioners regarding the types of
selling functions that should or should not be considered in defining
levels of trade. The selling functions to be considered in establishing
whether separate levels of trade exist were based on the nature of the
pasta industry. The five selling functions used by the Department to
establish the levels of trade 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 levels of trade. Regarding La Molisana's claim that we
should start our level of trade analysis with the first arm's length
transaction, as noted in the ``Level of Trade'' section of this notice,
above, we collapsed affiliated parties before considering the level of
trade.
Comment 1E Company-Specific Analysis of Selling Functions: The
petitioners argue that a review of the selling functions undertaken by
each of the respondents 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 any of the respondents within the U.S. or Italian markets or
between the U.S. and Italian markets.
Certain respondents challenge the petitioners' assumptions
regarding the selling functions performed. The petitioners' analysis
and the respondents' rebuttal comments are summarized below. 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 and the respondents 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.
(1) Liguori
The petitioners claim that there are no differences in selling
functions accorded to its home market customers by Liguori. Therefore,
the petitioners assert that a single LOT exists in the home market. In
the U.S. market, the petitioners claim that Liguori's record
establishes no functional distinctions between the services offered on
Liguori's U.S. sales. Thus, the petitioners claim that a single LOT
exists for all U.S. sales. Regarding the U.S. to home market
comparison, the petitioners contend that the only functional
differences between the U.S. and home market sales are the presence of
freight and delivery and warranty services on home market sales that
are not present on U.S. sales. The petitioners assert that these
differences are not sufficient to distinguish LOTs and that the
Department should consider all U.S. and home market sales to be at the
same LOT. If the Department determines that the home market sales are
at a more advanced LOT, the petitioners argue that no LOT adjustment
should be applied because Liguori has not claimed or demonstrated
entitlement to such an adjustment. (For a further discussion of LOT
adjustments, see Comment 1F, below.)
Liguori agrees with the petitioners. Specifically, Liguori states
that the company has neither claimed a level of trade adjustment to
normal value nor has it requested that its U.S. prices and normal value
be compared within levels of trade. Thus, Liguori asserts that the
level of trade methodology employed in the preliminary determination
achieved a result consistent with Liguori's own position (i.e., no
level of trade adjustment was granted).
DOC Position: We agree with the petitioners and Liguori, in part.
Based on our own analysis of the selling functions performed by
Liguori, 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.
Liguori reported two customer groups in the U.S. market. We found
that Liguori performed similar selling functions for these customer
groups in the areas of inventory maintenance, forward warehousing,
freight, advertising, and warranties. However, we found different sales
processes for these customer groups. Overall, we determined that the
selling functions between these two customer groups are sufficiently
similar to consider them as one level of trade. For the home market,
Liguori reported six customer groups. We found these customer groups to
be similar in that Liguori 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 Liguori performed the
following selling functions for certain customer groups in the areas of
sales processing, forward warehousing, and advertising. Overall, we
determined the selling functions between these six customer groups to
be sufficiently similar to consider them one level of trade.
We then compared the level of trade in the U.S. market to the home
market level of trade and found the selling functions performed for
certain customer groups in the areas of sales processing, forward
warehousing, and advertising to be similar. We found the selling
functions performed for certain customer groups in the areas of sales
process, inventory maintenance, forward warehousing, freight,
advertising, and warranties to be dissimilar. Overall, these factors
warrant finding the U.S. and home market sales to be made at different
levels of trade.
(2) La Molisana
The petitioners argue that its review of the array of selling
functions offered to La Molisana's home market customers reveals no
significant distinctions in the selling functions which would justify a
finding of different LOTs in the home market. The petitioners contend
that the selling functions La Molisana relied upon to differentiate its
home market LOTs are invalid. Specifically, the petitioners contend the
following: (1) any price distinctions between distributors and non-
distributors are a result of differences in the quantities purchased
and geographic location of the customer, both invalid bases for
differentiating LOTs; (2) no matter whether La Molisana incurs
administrative services directly or pays others to incur these
[[Page 30340]]
expenses, the question of which entity performs the function is not a
valid basis to distinguish LOTs; and (3) the degree or extent to which
inventory maintenance and advertising functions were performed is
irrelevant.
Since all of La Molisana's U.S. sales are made to a distributor,
the petitioners assert that a single LOT exists in the U.S. market.
Regarding the U.S. to home market comparison, the petitioners argue
that with the exception of inventory maintenance, the selling functions
offered to its U.S. and home market customers are the same and that all
U.S. and home market sales should be considered to be at the same LOT
in the final determination.
La Molisana argues that in the event the Department determines it
is appropriate to examine the selling functions in determining whether
separate LOTs exist, the petitioners have failed to support their
assertion that the home market distributor LOT is not distinguished
from the rest of its home market sales. La Molisana recognizes that
price differences are not a basis for determining distinctions in LOTs.
However, La Molisana argues that the mere existence of separate price
lists is important evidence of the significance of the different
customer categories in commercial practice in the home market. In
addition, La Molisana contends that the distributor price list applies
to all sales to distributors, regardless of the volume sold. Further,
La Molisana argues that while there is inevitably some ``inventory'' on
all sales, since it takes time to pack and load the merchandise, this
type of inventory is very different from maintaining stocks of
inventory for just in time (JIT) delivery, a function not performed on
its distributor sales. In addition, La Molisana asserts that it does
not incur advertising expenses for advertisements directed at its
customer's customer for sales made to wholesalers and distributors.
Instead, La Molisana asserts that this advertising is directed at its
customer's customer's customer. Therefore, La Molisana argues that its
home market distributor sales should be found to be a different LOT
than its other home market sales and that all of its U.S. distributor
sales should be compared to the home market distributor sales in the
final determination.
DOC Position: We agree with the petitioners and La Molisana, in
part. Based on our own analysis of the selling functions performed by
La Molisana, as described in the ``Level of Trade'' section of this
notice, above, we found that a single LOT exists in each market and
that all U.S. and home market sales were made at the same LOT.
La Molisana reported one customer group in the U.S. We found one
level of trade for the U.S. market because La Molisana performed the
same selling functions to all customers in that single category. For
the home market, La Molisana reported six customer groups. We found
that La Molisana performed similar selling functions to certain
customer groups with regard to: sales process, inventory maintenance,
forward warehousing, freight, advertising and warranties. We found that
La Molisana performed different selling functions for certain customer
groups with regard to forward warehousing. Overall, we determined the
selling functions performed by La Molisana for each of the six home
market customer groups to be sufficiently similar to consider them as
one level of trade.
We then compared the level of trade in the U.S. market to the home
market level of trade and found the selling functions performed by La
Molisana for certain customer groups for inventory maintenance and
forward warehousing to be dissimilar between the markets. However, we
found the selling functions performed by La Molisana for certain
customer groups in the area of sales process, forward warehousing,
freight, advertising, and warranties to be similar. Overall, these
factors warrant finding U.S. and home market sales as the same level of
trade.
(3) Arrighi
In its original questionnaire responses, Arrighi requested that LOT
distinctions in the home market be made based on customer groups, and
submitted data that would allow the Department to segregate home market
data by either channel of distribution or customer group to determine
whether different LOTs exist. The petitioners contend that a review of
the actual selling functions associated with home market and U.S. sales
demonstrates that selling functions do not vary based on either
customer group or channel of distribution. In addition, with respect to
customer category, the petitioners contend that Arrighi has not
differentiated its customer groups based on commercial points in the
chain of distribution and selling functions, but rather has made LOT
distinctions based on factors such as the volume of the sales involved.
With respect to channel of distribution, petitioners cite Arrighi's own
statement that ``the functions performed and services offered by
Arrighi in each distribution channel do not vary'' (see, Arrighi's
August 16, 1995, questionnaire response, at A-8) in support of their
claim that all of Arrighi's sales to both markets occur at the same
level of trade.
Regarding the U.S. to home market comparison, the petitioners
contend that since all of Arrighi's U.S. sales are to a single class of
customer and all home market sales are made at a single level of trade
based on the absence of distinct selling functions, all U.S. sales
should be compared to all home market sales, without regard to LOT
distinctions.
Arrighi contends that since the petitioners' arguments are based on
a flawed LOT analysis, their comments concerning Arrighi's and
Italpasta's levels of trade are likewise meritless and factually
incorrect. Contrary to the petitioners' arguments, Arrighi claims that
its LOTs are based upon differing selling functions and services, not
sales quantities or geographic location. Specifically, Arrighi claims
that the customers at one of its LOTs require a disproportionate amount
of sales and administrative support relative to customers at the other
LOTs. Concerning the petitioners' claim that Arrighi's LOTs are based
on geography, Arrighi argues that while geographic location is the
reason some of the selling functions for certain customers are
provided, it is the difference in selling functions, and not geographic
location, which distinguishes these customers as being at a distinct
LOT. With respect to the specific selling functions, Arrighi claims
that its provision of freight and inventory maintenance to a certain
class of customers constitute selling functions.
DOC Position: We agree with the petitioners and Arrighi, in part.
Based on our own analysis of the selling functions performed by
Arrighi, as described in the ``Level of Trade'' section of this notice,
above, we found that a single LOT exists in each market and that all
U.S. and home market sales were made at the same LOT.
Arrighi reported one customer class in the U.S., that was comprised
of three customer groups. However, as noted in the ``Comparison
Methodology'' section of this notice, above, Arrighi provided
insufficient information in the sales database for the Department to
perform an analysis of the selling functions performed for each of the
three customer groups. Therefore, we found one level of trade for the
U.S. market. For the home market, Arrighi reported three customer
groups. As noted in the ``Normal Value'' section of this notice, above,
we have excluded sales to one customer group because we determined that
the quantity of these sales was insignificant and there were no sales
[[Page 30341]]
made by Arrighi to a comparable customer in the U.S. (for further
discussion, see, the Department's June 3, 1996, final determination
calculation memorandum for Arrighi). We found the remaining two
customer groups similar in that Arrighi performed the same selling
functions for each group. Overall, we determined the selling functions
performed for these two home market customer groups are sufficiently
similar to consider the sales made to them to be at one LOT.
We then compared the LOT in the U.S. market to the home market LOT
and found them to be only dissimilar in Arrighi's performance of the
freight selling function. We found the selling functions performed,
including sales process, inventory maintenance, forward warehousing,
advertising and warranties, to be similar. Overall, these factors
warrant finding the U.S. sales and home market sales to be at the same
level of trade.
(4) De Matteis
The petitioners contend that although De Matteis identifies a
number of customer categories, it does not correlate these customer
classes to its reported LOTs. Therefore the petitioners have based
their LOT analysis on De Matteis' reported channels of distribution.
The petitioners argue that their review of the selling functions
offered to De Matteis' home market channels of distribution reveals
that the only functional difference between the selling functions
offered on De Matteis' home market sales is the presence of freight and
delivery services on sales of De Matteis' own brand name pasta which
are not present on sales made to resellers. Citing the Proposed
Regulations, the petitioners assert that this difference is not
sufficient to distinguish LOTs and that the Department should consider
all of De Matteis' home market sales to be at one LOT (small
differences in the functions of the seller will not alter the level of
trade). Proposed Regulations at 7348.
Regarding De Matteis' assertion that there are significant
differences in LOT based on whether the company markets its own brand
name pasta or sells it to a reseller, the petitioners argue that
because the pasta sold to resellers is produced to order, De Matteis
takes an active role. Therefore, the petitioners assert that customer
contacts are present on both types of sales and cannot be a basis for
differentiating LOTs.
Since De Matteis reports that all of its U.S. sales are at a single
LOT, the petitioners assert that U.S. and home market sales should be
compared without regard to LOT distinctions. If the Department
determines that differences exist between the U.S. and home market
LOTs, the petitioners argue that no LOT adjustment should be applied
because De Matteis has not claimed or demonstrated entitlement to such
an adjustment. (For a further discussion of LOT adjustments, see
Comment 1F, below.)
De Matteis argues that the petitioners erroneously state that the
company has not correlated its home market or U.S. customer categories
to its reported LOTs. De Matteis asserts that it has consistently
stated in its submissions that it sells to the following channels of
distribution/customer groups in the U.S. and home markets: (1) sales to
companies that resell the pasta under their own name (i.e., pastificios
and the U.S. trading company); and (2) sales of its own brands of pasta
to distributors and retailers. De Matteis asserts that these two
channels of distribution/customer groups should be considered to be
separate LOTs because its sales to retailers and distributors are one
step further in terms of remoteness from the factory than its sales to
pastificios and the U.S. trading company.
In addition, De Matteis asserts that a collective examination of
the selling functions performed for each channel of distribution show
distinct LOTs in the home market. Contrary to the petitioners'
arguments, De Matteis argues that although it must take an active role
in its sales to pastificios, the degree to which it engages in overall
selling functions differs significantly between the two channels of
distribution/customer groups. For example, De Matteis asserts that it
performs no significant functions or services for pastificio customers
while it is responsible for warehousing and inventory control,
advertising and promotional activities, brand name development,
distribution, and the development of packaging materials for its sales
to retailers and distributors. In addition, De Matteis asserts that its
sales to pastificios are large orders which generally require less
sales and administrative resources. Further, De Matteis contends that
the extent to which the company engages in customer contacts and the
development of packaging varies significantly between the two channels/
customer groups.
Finally, regarding inventory maintenance services, De Matteis
argues that the Department should distinguish between merchandise
placed in the warehouse for production scheduling which is not
intentionally marketed as a service to the customer and merchandise
held in inventory for JIT delivery. De Matteis asserts that it
intentionally markets an ``inventory'' service on merchandise sold from
stock for JIT delivery and that its administrative expenses and risk
exposure are greater on these sales than on sales produced to order. De
Matteis asserts that these costs are reflected in the higher prices
charged to the customer.
DOC Position: We agree with the petitioners and De Matteis, in
part. Based on our own analysis of the selling functions performed by
De Matteis, as described in the ``Level of Trade'' section of this
notice, above, we found that a single LOT exists in the U.S. market and
that the home market sales were made at two different LOTs.
De Matteis reported one customer group in the U.S. that was
comprised of a single class of customer. Therefore, we found one level
of trade for the U.S. market. For the home market, De Matteis reported
three customer groups described as distributors, retailers and pasta
manufacturers. We found the distributor and retailer customer groups
similar with regard to the selling functions performed by De Matteis
for sales process, inventory maintenance, forward warehousing,
advertising and warranties. We found these two groups to differ in De
Matteis' performance of the selling function for freight. Overall, we
determined the selling functions between these two customer groups are
sufficiently similar to consider them as one level of trade (LOT 2). We
found customer group ``pasta manufacturer'' similar to the other two
groups (LOT 2) with regard to the selling functions performed for
certain customer groups in the areas of warranty service and freight,
and different in selling function regarding sales process, inventory
maintenance, forward warehouse, freight, and advertising. Overall, we
determined the selling functions between this customer group and the
other two customer groups sufficiently dissimilar to consider these
customer groups a separate level of trade (LOT 1).
We then compared the level of trade in the U.S. market to the two
home market levels of trade and found that all selling functions
performed for LOT 1 customers in the home and U.S. markets were the
same. We found the level of trade in the U.S. market dissimilar to LOT2
with regard to the selling functions for certain customer groups in the
areas of sales process, inventory maintenance, forward warehousing,
freight, and advertising. Therefore, we are treating U.S. sales and
home market sales in LOT 1 as being sold at the same level of trade.
[[Page 30342]]
(5) Pagani
The petitioners argue that their review of the array of selling
functions offered to Pagani's home market customers reveals no
significant distinctions in the selling functions which would justify a
finding of different LOTs in the home market. The petitioners contend
that the selling functions Pagani relied upon to differentiate its home
market LOTs are invalid in that: (1) quantity differences or
differences in the sales resources allocated to various customer
classes do not meet the statutory standard for differentiating LOTs;
(2) no matter whether Pagani takes the order and handles payment
directly or an affiliate undertakes these functions, the question of
which entity performs the function is not a valid basis to distinguish
LOTs; and (3) the fact that different prices are offered to various
customer categories does not show that different selling functions
exist.
Since Pagani reports that all of its U.S. sales are at a single
LOT, the petitioners assert that all U.S. and home market sales should
be compared without regard to LOT distinctions.
Pagani did not comment on the petitioners' LOT analysis.
DOC Position: We agree with the petitioners, in part. Based on our
own analysis of the selling functions performed by Pagani, as described
in the ``Level of Trade'' section of this notice, above, we found that
a single LOT exists in the U.S. market and that home market sales were
made at two different LOTs.
Pagani reported one customer group in the U.S. that was comprised
of a single customer. Therefore, we found one level of trade for the
U.S. market. For the home market, Pagani reported seven customer
groups. We found that six of the seven customer groups had similar
selling functions performed by Pagani with regard to: sales process,
inventory maintenance, forward warehousing (for certain customer
groups), freight, advertising and warranties. We found certain customer
groups to differ in selling functions performed for forward
warehousing. Overall, we determined the selling functions between these
six customer groups are sufficiently similar to consider them as one
level of trade (LOT 2). We found the remaining customer group ``pasta
manufacturer'' similar to other customer groups in selling functions
performed by Pagani with regard to sales process, forward warehousing,
advertising, and warranties, and different from other customer groups
in the areas of inventory maintenance, forward warehousing, freight and
advertising. Overall, we determined the selling functions performed for
this customer group compared to the other six customer groups
sufficiently dissimilar to constitute a separate level of trade (LOT
1).
We then compared the level of trade in the U.S. market to the home
market levels of trade and found the selling functions performed by
Pagani in the U.S. to be identical to all selling functions performed
on LOT 1 sales in the home market. We found the level of trade in the
U.S. market dissimilar to LOT 2 with regard to certain customer groups
in the areas of inventory maintenance, forward warehousing, freight,
and advertising. Therefore, we considered U.S. sales and home market
sales in LOT 1 to be made at the same level of trade.
(6) Delverde
The petitioners assert that Delverde failed to submit information
necessary to determine whether different selling functions correspond
to different levels of trade. Specifically the petitioners contend that
Delverde failed to release under APO the customer names relating to
certain customer codes. As a result, the petitioners claim they are
unable to distinguish between the selling functions performed on EP and
CEP sales, respectively. Therefore, the petitioners argue that the
Department should find that all U.S. and home market sales are at the
same LOT. In the event the Department determines it is appropriate to
analyze Delverde's sales to determine whether separate LOTs exist, the
petitioners argue that the Department should begin its analysis with an
unadjusted CEP. (For a further discussion of this issue, see the
``Company Specific Comments--Delverde'' section of this notice, below).
Delverde argues that the petitioners mischaracterize the record as
to the information submitted by the company. Delverde asserts that the
CEP and EP sales are not intermixed in the database and were clearly
identified as either ``CEP'' or ``EP'' sales in the sales listing as
were the customer codes and categories. Finally, Delverde contends that
it is under no obligation to provide customer names to the petitioners.
DOC Position: We agree with the petitioners and Delverde, in part.
Based on our own analysis of the selling functions performed by
Delverde, as described in the ``Level of Trade'' section of this
notice, above, we found that single LOTs exist in each market and that
all U.S. and home market sales were made at the same LOT.
Delverde reported four customer groups in the U.S. market. We found
that certain customer groups were similar based on the following
selling functions performed by Delverde in the areas of sales process,
inventory maintenance, forward warehousing, freight, advertising, and
warranties. We found certain customer groups to differ in sales process
and advertising. Overall, we determined the selling functions performed
by Delverde for these four customer groups are sufficiently similar to
consider them as one level of trade. For the home market, Delverde also
reported four customer groups. We found certain customer groups similar
in the following selling functions: sales process, inventory
maintenance, forward warehousing, freight, advertising, and warranties.
We found that certain customer groups differed in the selling function
for forward warehousing. Overall, we determined the selling functions
performed by Delverde for these four customer groups as sufficiently
similar to consider them as one level of trade.
We then compared the level of trade in the U.S. market to the home
market level of trade and found the selling functions performed by
Delverde in each market to differ for certain customer groups with
regard to sales process and advertising. We found the following selling
functions performed by Delverde for certain customer groups to be
similar: sales process, inventory maintenance, forward warehousing,
freight, advertising, and warranties. Overall, these similarities
warrant finding the U.S. sales and home market sales to be made at the
same level of trade.
Comment 1F 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 or CEP 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 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
[[Page 30343]]
demonstrating entitlement to a LOT adjustment and that none of the
respondents in this investigation have met this burden.
The petitioners assert that Arrighi, De Cecco, Liguori, Delverde,
and De Matteis have not claimed a LOT adjustment. Absent even a claim
for the LOT adjustment, let alone any evidence demonstrating
entitlement, the petitioners argue that no LOT adjustment should be
granted.
Although La Molisana and Pagani have each made claims for a LOT
adjustment, the petitioners argue that neither respondent has
demonstrated entitlement to the adjustment. The petitioners argue that
La Molisana has admitted that a number of the selling function
differences between the LOTs identified reflect factors already
accounted for in the margin calculations. Therefore, the petitioners
assert that if it is ``double counting'' to consider these functions in
defining LOTs as La Molisana asserts (see Comment 1B, above), it is
also ``double counting'' to calculate LOT adjustments reflecting these
differences. In addition, the petitioners argue that because La
Molisana has based its LOT adjustment on differences between the net
prices for each control number by customer category, La Molisana has
not demonstrated price distinctions based on LOTs that exist under the
new law (i.e., the petitioners assert that LOTs are based both on the
point in the chain of distribution and the selling functions of the
respondent).
The petitioners argue that Pagani has not tied its proposed LOTs to
different selling functions because the company improperly relies on
quantity differences and rebates in support of its claim for a LOT
adjustment. In addition, the petitioners argue that Pagani's claimed
price adjustment fails to establish a pattern of price differences.
Concerning the petitioner's argument that it is double counting to
calculate LOT adjustments based on selling function differences which
were accounted for in the margin calculations, La Molisana argues that
certain functions (e.g., indirect selling expenses and inventory
maintenance) have not been fully accounted for in the Department's
calculations. In addition La Molisana asserts that the statute states
that the Department must base LOT adjustments on price differences.
Finally, if the Department compares U.S. distributor sales to home
market sales at other LOTs, La Molisana asserts that it has provided
all the necessary information to calculate a LOT adjustment in
accordance with the criteria set forth in the statute.
Liguori contends that the Department's preliminary determination
incorrectly stated that Liguori claimed a LOT adjustment for
comparisons between different LOTs (Preliminary Determination, 61 FR
1344, 1347 (January 19, 1996)). Liguori asserts that it has not claimed
any LOT adjustment.
DOC Position: We agree with the petitioners, in part. As described
in the ``Level of Trade'' section of this notice, above, Pagani was the
only company for whom the Department made a level of trade adjustment.
As noted, we found no basis for making a level of trade adjustment for
any of the other respondents in this investigation. The level of trade
adjustment for Pagani was not based on the adjustment claimed by Pagani
but rather on the Department's independent analysis of the home market
levels of trade and patterns of price differences. In light of the fact
that we did not base this LOT adjustment on Pagani's claimed LOT
adjustment, we regard the petitioners argument concerning the burden on
respondent to demonstrate entitlement to a LOT adjustment to be moot.
In addition, we agree with Liguori that the preliminary
determination incorrectly stated that Liguori claimed a LOT adjustment.
Liguori has not claimed a LOT adjustment.
Comment 2 Price Averaging: Comment 2A Whether to Take Customer
Category into Account in Creating the Weighted-Average Groups used for
Product Comparisons: La Molisana, Arrighi and De Matteis argue that, in
performing its product comparisons, the Department should compare
products based on averaging groups that reflect customer categories. La
Molisana, Arrighi and De Matteis claim that both the SAA and the
Department's Proposed Regulations recognize that customer class is a
factor the Department may consider in composing its averaging groups.
(``In determining the comparability of sales for inclusion in 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 7348 (Nevertheless, the
Department does recognize that prices within a single LOT, defined by
seller function, can be affected by the class of customer, and the
Department will make every effort to compare sales at the same LOT to
the same class of customer).
In addition, La Molisana, Arrighi and De Matteis assert that record
evidence demonstrates that each company consistently offers
significantly different prices to its various customer categories.
Therefore, La Molisana asserts that in accordance with the Department's
Proposed Regulations, there is a clear and consistent dividing line
between La Molisana's sales to different customer categories, ([in
identifying averaging groups based on customer category] ``the
Department's general approach ``[will be to look for clear dividing
lines among sales] * * *''). Proposed Regulations at 7349. Finally, La
Molisana, Arrighi and De Matteis assert that comparing products based
on averaging groups that reflect customer categories would be
consistent with a recent final determination where the Department found
no separate LOTs, but compared averaging groups by customer category.
Notice of Final Determination of Sales at Less Than Fair Value:
Polyvinyl Alcohol from Taiwan, 61 FR 14,064, 14069 (March 29, 1996)
(Polyvinyl Alcohol) (* * * in composing an averaging group, customer
classification is a factor the Department may take into account * * *.
Therefore, we have made comparisons of average prices within the same
customer class wherever possible). In addition, Arrighi and De Matteis
cite Fresh Kiwifruit from New Zealand: Preliminary Results of
Antidumping Duty Administrative Review, 61 FR 15922, 15924 (April 10,
1996) (Kiwifruit) (finding that all sales were made at one LOT, but
comparing averaging groups by channel of distribution) and French Rod
(finding two levels of trade, but comparing averaging groups by channel
of distribution within each LOT). La Molisana argues that, for the
above reasons, the Department should compare its U.S. distributor sales
to its home market distributor sales.
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
[[Page 30344]]
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 level
of trade. 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 agree with La Molisana, Arrighi and De Matteis
that customer category is a factor the Department may consider in
composing its averaging groups. 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 2B, 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 2B 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, 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.)
If the Department determines it is appropriate to weight-average by
customer class, the petitioners argue that La Molisana's data do not
support a distinction between the seven customer categories the company
identifies in the home market. The petitioners assert that not only has
La Molisana failed to demonstrate that the seven customer classes
operate at different points in the chain of distribution, but La
Molisana has also failed to demonstrate: (1) that there are different
selling functions corresponding to each customer class; (2) that there
are price distinctions among the customer categories (i.e., as noted in
Comment 1E, above, the petitioners assert that the price differences
claimed by La Molisana resulted from the geographic location of the
customer and quantities purchased, not differences due to the class of
customer; and (3) that there is no other evidence on the record
supporting La Molisana's contention that there are distinct customer
categories in the home market.
[[Page 30345]]
In the absence of any verified data indicating distinctions between
the various customer categories, the petitioners assert that the
Department cannot distinguish between La Molisana's customer categories
for purposes of defining LOT or product comparison purposes. Therefore,
the petitioners argue that the Department should not find that there
are distinct customer categories in the home market and should make its
product comparisons based solely on the physical characteristics of the
merchandise without regard to customer category or channel of
distribution.
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 the
respondents into five distinct customer categories representing
distinct points in the chain of distribution. For a further discussion,
see the ``Comparison Methodology'' section of this notice, above.
Regarding the petitioners' assertion that La Molisana failed to
demonstrate that there are distinct customer categories in the home
market, we agree that La Molisana's data do not support a distinction
between the six customer groups identified. Based on our analysis of La
Molisana's proposed customer groups, we have determined that there are
three distinct customer categories representing different points in the
chain of distribution in the home market (i.e., wholesalers, retailers
and consumers). However, we disagree with the petitioners' contention
that La Molisana has not demonstrated that there are price distinctions
among the home market customer categories. Based on our analysis of the
average net prices for each product control number and the three
customer categories identified by the Department in the home market, we
conclude that La Molisana consistently offered different prices,
depending on the customer category. (For a further discussion of this
issue, See Comment 1--Arm's Length Test of the ``Company Specific
Comments--La Molisana'' section of this notice, below.)
Comment 2C 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 2A 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 a
respondent's reported channels of distribution in creating the
weighted-average prices used for product comparisons in this final
determination.
Comment 2D 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 were
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 2A, above, in order to determine whether the
customer groups proposed by the respondents 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 3 Should Wheat Quality Be Considered as a Product Matching
Criterion: The petitioners assert that Liguori, Delverde, and Tamma
have altered the Department's product matching criteria by adding wheat
quality as a physical characteristic. They urge the Department to
delete
[[Page 30346]]
wheat quality as a product matching criterion for three reasons. First,
petitioners allege that by changing the product matching criteria set
out in the Department's questionnaire, these respondents have
established a second ``foreign like product'' within the meaning of the
Act. Petitioners argue that the Act does not allow for the introduction
of additional foreign like products into an investigation. Second,
petitioners argue that the product matching criteria ought to be
confined to those specified in the Appendix to the Department's
questionnaire. Permitting respondents to select matching criteria,
would enable respondents to analyze their pricing data and, then, to
select the matching criteria which would lower their exposure to
dumping margins. Petitioners reference Timken v. United States, 630 F.
Supp. 1327, 1338 (1986) (``Timken''), for the proposition that the
Department is prohibited from delegating the selection of the physical
characteristics for product matching. Third, as a factual matter,
petitioners assert that both the physical differences and the cost
differences associated with wheat quality are insignificant.
Respondents contend that the existence of different semolina
qualities was confirmed by a wheat expert in the U.S. Department of
Agriculture as well as by the Department at verification. Moreover, the
Department had instructed respondents to establish product matching
criteria which reflected all differences in physical product
characteristics, not merely those listed in the Appendix to the
Department's questionnaire. Accordingly, reporting wheat quality as a
matching characteristic was an appropriate response to the Department's
questionnaire. With respect to petitioners' assertions that the
physical and cost differences associated with wheat qualities were
inconsequential, respondents assert that these differences are material
and that their materiality was verified by the Department.
DOC Position: We disagree with petitioners' reading of Section 771
(16) of the Act. This section sets out the basis for the Department's
comparison of U.S. sales to sales in the home market. It defines
``foreign like product'' as follows:
The term foreign like product means merchandise in the first of the
following categories in respect of which a determination for the
purposes of subtitle B of this title can be satisfactorily made:
(A) The subject merchandise and other merchandise which is
identical in physical characteristics with, and was produced in the
same country by the same by the same person as, that merchandise.
(B) Merchandise--
(i) Produced in the same country and by the same person as the
merchandise which is the subject of investigation,
(ii) Like that merchandise in component material or materials and
in the purposes for which used, and
(iii) Approximately equal in commercial value to that merchandise.
(C) Merchandise--
(i) Produced in the same country and by the same person and of the
same general class or kind as the merchandise which is the subject of
the investigation,
(ii) Like that merchandise in the purposes for which used, and
(iii) Which the administering authority determines may reasonably
be compared with that merchandise.
Foreign like products, therefore, are specific to each responding
company. When certain respondents reported wheat quality as a physical
characteristic which would result in more appropriate product matches,
the Department required that they justify the claimed differences in
wheat quality. At the respective verifications, each of these
respondents established that different wheat (i.e., semolina) qualities
existed and that these were measured by ash and gluten content. It was
primarily these characteristics which were used to select semolina for
pasta production. We verified that physical differences exist and that
the cost of the highest grade of semolina is materially more than that
of the lowest grade. We found these quality differences reflected in
semolina costs and pasta prices. We found that they are commercially
significant and an appropriate criterion for product matching.
Moreover, in our judgment, petitioners' reliance on Timken is
misplaced. The differences in wheat quality reported by these
respondents, and verified by the Department, resulted in more
appropriate product matches, as contemplated by section 771(16).
II. Company-Specific Comments
Arrighi
Comment 1 Findings at Verification: The petitioners contend that
the Department should make the following corrections to Arrighi's
response: adjust Arrighi's claimed home market rebate percentage for
one of its customers; revise Arrighi's U.S. sales listing to include
allocated warranty expense claims; eliminate early payment discounts
for an Italpasta invoice; adjust the credit period for another
Italpasta invoice; and revise the rebate calculation for sales to a
particular Italpasta customer to correct errors discovered at the
Arrighi and Italpasta sales verifications.
DOC Position: We agree with the petitioners. We have used the
corrected figures to calculate Arrighi's margin.
Comment 2 Interest Rates Used in Calculating Home Market Credit
Expense: Arrighi states that, contrary to past Department practice, the
Department mistakenly used Arrighi's home market short-term interest
rate in calculating credit expenses for Italpasta's home market sales.
Arrighi contends that the Department should calculate the credit
expenses for Arrighi's and Italpasta's home market sales using verified
company-specific short-term interest rates.
Petitioners counter that, because the Department determined that
Arrighi and Italpasta are affiliated, the Department's use of Arrighi's
short-term interest rate for both Arrighi's and Italpasta's sales was
appropriate.
DOC Position: We agree with petitioners in part. The Department
weight-averaged Arrighi's and Italpasta's short-term interest rates for
home market credit expense calculations.
Comment 3 Inland Freight: Petitioners contend that because the
Department could not verify Italpasta's claimed inland freight charges,
it should deny Italpasta's claimed home market inland freight charges
in their entirety or should, at a minimum, use the smallest freight
cost reported by Italpasta for all of Italpasta's home market sales.
Arrighi maintains that the Department's verification report
inaccurately implies that Italpasta refused to provide information
about transport costs when using its own trucks. According to Arrighi,
the tasks of identifying the sales where Italpasta used its own truck,
calculating a transaction-specific transport expense, and
substantiating its claim that common-carrier rates were a reasonable
surrogate, would have been extremely burdensome because of the lack of
comprehensive shipping records. Arrighi contends that the Department's
requests at verification were unreasonable and untimely; therefore,
Italpasta's inability to provide the requested information at
verification should not be deemed by the Department as a refusal to
cooperate. Accordingly, Arrighi argues that the Department should use
the reported per-unit freight expenses for sales shipped using
Italpasta's own trucks.
DOC Position: We agree with petitioners. As stated in the
[[Page 30347]]
Department's verification report, despite repeated efforts to verify
various aspects of Italpasta's inland freight expense when its own
trucks were used, this movement expense could not be verified. It is
important to note that there is no way in which to determine, on a
transaction-specific basis, whether the merchandise was transported by
common carrier or using Italpasta's own truck. To account for this
unverified movement expense in the margin calculation, as facts
available, we have used Italpasta's lowest reported inland freight
expense for all home market sales. We chose this adverse rate because,
in our view, Italpasta did not act to the best of its ability to
substantiate the expenses of using its own trucks.
Comment 4 Advertising expenses: Petitioners allege that the
Department should treat both of Italpasta's claimed advertising
expenses (i.e., ``advertising expense 1'' and ``advertising expense
2'') as indirect selling expenses, rather than as direct selling
expenses. Citing the verification report, petitioners contend that
Italpasta was unable to support its claim that these expenses were
directly related to sales or were directed at Italpasta's customers'
customers.
With respect to advertising expense 1, Arrighi maintains that even
though Italpasta's records do not note transfers of promotional items
from Italpasta to its customer and then to the customer's customers,
this should not detract from the fact that these items, by their
nature, are promotional items of the type normally given out to the
general public (i.e., Italpasta's customer's customers). According to
Arrighi, the large quantity of these items purchased by Italpasta make
it highly unlikely that these items were not given to the general
public.
Concerning advertising expense 2, Arrighi argues that samples shown
at verification demonstrated that only the Italpasta brand name was
displayed and that the advertising was directed at the general public.
According to Arrighi, broadcast advertising and sponsorship of sport
teams, by their nature, are directed at the general public and,
therefore, these expenses were properly reported.
DOC Position: We agree with Arrighi concerning advertising expense
2. The information on the record reflects that advertising expense 2
was properly reported as a direct advertising expense for Italpasta
brand sales. The Department requires that advertising expenses that are
claimed as direct expenses must be shown to be directed to the ultimate
consumer of the merchandise. See, e.g., Final Results of Administrative
Review: Antifriction bearings (Other Than Tapered Roller Bearings) and
Parts Thereof From Various Countries, 58 FR 39729, 39741 (July 26,
1993). The advertising 2 expenses listed in Italpasta's subaccount
noted banners shown at sports events and television publicity, which
are typically considered by the Department to be advertising directed
at the customer's customer. As Arrighi correctly noted, the samples
provided at verification demonstrated that only the Italpasta brand was
promoted through such advertising.
With respect to advertising expense 1, however, the information on
the record does not demonstrate that these promotional items (such as
sports trophies, calendars, pens, and so forth) are in any way directed
at the customer's customers or directly tied to sales of the subject
merchandise. Therefore, advertising expense 1 has been reclassified as
an indirect selling expense for purposes of the final determination.
Comment 5 Direct Selling Expenses: Petitioners contend that the
Department should treat Italpasta's claimed direct selling expenses for
introduction incentive fees as indirect selling expenses. Citing the
verification report, petitioners state that Italpasta failed to
substantiate its claim that these payments were contingent upon the
customer purchasing the pasta.
Arrighi counters that it is not unusual that such promotional
agreements do not include language which specifies the merchandise
purchasing requirement. According to Arrighi, if the customer did not
already agree to purchase the pasta, then the agreements would never
have been made. Therefore, Arrighi maintains that these promotional
payments are directly related to the subsequently purchased pasta and
should be treated as a direct selling expense.
DOC Position: We agree with petitioners that introduction incentive
fees should be treated as indirect selling expenses. The Court of
Appeals for the Federal Circuit has explained that direct selling
expenses ``are `expenses which vary with the quantity sold,' '' Zenith
Elecs. Corp v. United States, 77 F.3d 426, 431 (Fed. Cir. 1996), or
that are ``related to a particular sale,'' Torrington Co. v. United
States, 68 F.3d at 1347, 1353 (Fed. Cir. 1995). While Arrighi has
claimed that these promotional payments were contingent upon the
customer purchasing the pasta, Arrighi has not proven that the payment
varies with the quantity of pasta sold, or that the payment can be tied
directly to a particular transaction. Therefore, we are treating these
expenses as indirect selling expenses for purposes of the final
determination.
Comment 6 U.S. Resales of Purchased Pasta: Arrighi argues that the
methodology used to account for U.S. resales in the preliminary
determination is inconsistent with past agency practice because it was
applied on a control number-specific basis. Arrighi contends that the
data on the record allows the Department to limit the impact of its
adjustment to only those products that contained purchased merchandise
by applying its methodology on a product-specific basis. Further,
Arrighi argues that the Department did not implement its stated
methodology from the preliminary determination. According to Arrighi,
instead of calculating the adjustment ratio by dividing the volume of
pasta produced for a particular control number by the combined volumes
of produced and purchased pasta for that control number, the Department
actually calculated the ratio by dividing the control number's
production volume by its sales volume, resulting in an inconsistent
ratio calculation.
For these reasons, Arrighi requests that the Department make the
following changes to its resale methodology: (1) the adjustment should
be performed on a product-specific basis; and (2) the adjustment ratio
should be based on volume produced over volume produced plus volume
purchased.
Petitioners counter that the Department's methodology for excluding
U.S. sales of purchased pasta was reasonable and should be used in the
final analysis. According to petitioners, Arrighi's request to change
the methodology is an attempt to redefine product matching hierarchy
and product characteristics and should be rejected by the Department.
DOC Position: We agree with Arrighi. The denominator of the resale
adjustment ratio in the preliminary margin calculation was inconsistent
with the numerator. For purposes of the final determination, the
Department has used revised production and purchase volume data from
Arrighi's February 12, 1996, submission to recalculate the adjustment
ratio for purchased pasta, basing it on the ratio of purchased pasta to
the sum of total production and purchases, by product code. We have
applied this revised adjustment factor to the quantities of U.S. sales
for each product code known to include sales of purchased pasta.
Comment 7 Home Market Resales of Purchased Pasta: Arrighi argues
that the Department's methodology for excluding home market sales of
[[Page 30348]]
purchased pasta was unreasonable because it excluded a large number of
sales of pasta that were actually produced by Arrighi and that should
have been included in the calculation of Arrighi's margin. By excluding
numerous sales of pasta produced by Arrighi, Arrighi contends that the
Department eliminated a significant quantity of valid sales and price
information decreasing the accuracy of the calculation of Arrighi's
normal value.
Additionally, Arrighi asserts that the Department's treatment of
home market resales is inconsistent with its adjustment methodology for
Arrighi's U.S. resales of pasta. Arrighi requests that the Department
modify its treatment of Arrighi's home market sales of purchased pasta
and calculate product-specific quantity adjustment factors (i.e., total
volume of product produced divided by sum of total quantity of product
produced and purchased) and apply this factor to the quantity of each
sale of that product. Finally, Arrighi requests that the Department
correct certain clerical errors concerning the control number
references in Arrighi's margin calculation program.
The petitioners maintain that the Department's methodology is
consistent with Department practice and conclude that there is no
reason for the Department to depart from the methodology used in the
preliminary determination to exclude home market sales of purchased
pasta from the calculation of normal value.
DOC Position: We agree with petitioners. Section 771(16) prohibits
the Department from using sales of merchandise produced by persons
other than the respondents in the calculation of normal value. The
information on the record only provides volume figures of purchased
pasta, by product code, during the POI. Based on the information on the
record, it is impossible to isolate the amount of purchased pasta
actually sold by Arrighi during the POI. Therefore, we excluded all
sales of pasta with product codes known to include purchased pasta
during the POI to ensure that the pool of home market sales is not
tainted with sales of purchased pasta.
Furthermore, Arrighi's alternative adjustment methodology is
contrary to section 771(16) because it would allow sales of purchased
pasta to be included in the calculation of normal value. Therefore, we
have used the preliminary determination methodology for the final
determination.
With respect to the alleged clerical errors in the control number
identification of certain product codes for both U.S. and home market
sales of purchased pasta, we agree with Arrighi and have corrected
these errors pursuant to Arrighi's revised control number groupings.
Comment 8 Depreciation Expense: Arrighi believes its reported
depreciation expense is correct because it is based on the costs
recorded in its audited annual financial statements. It contends that a
respondent's costs will normally be calculated based on that company's
records if the records are kept in accordance with generally accepted
accounting principles and reasonably reflect the company's costs. See
section 773(f)(1)(A) of the Act. Arrighi holds that its auditors
specifically reviewed its depreciation expense and they did not take
issue with the lower depreciation rate. It claims that the reduced
depreciation reflects its costs because the assets received less usage
during the year. Arrighi suggests that if the Department adjusts the
depreciation expense it should allow, at a minimum, the reduced
depreciation expense on the assets placed in service during the year.
The petitioners state that the Department should increase the
depreciation expense to reflect Arrighi's normal depreciation rates.
The petitioners note that, unlike the reduced rates used in the
submission, Arrighi's normal depreciation rates are based on fixed
annual rates and do not reflect the number of units produced or
reductions in capacity utilization. Thus, according to the petitioners,
the reported depreciation expense should be based on the normal annual
rate.
DOC Position: We agree with the petitioners. Recording of
depreciation expenses provides a systematic, rational method of
recognizing the costs of fixed assets. This allocates the one-time
expense of purchasing (or constructing) fixed assets over the longer
time period which these assets will benefit. In this case, the company
simply elected to record less than a full year's depreciation expense
without any change in the underlying economic assumptions and estimates
on which its depreciation expense was based. Without documentary
evidence of such a change in the underlying assumptions, it is
inappropriate for the respondent to recognize less than a full year's
depreciation expense.
We note that although the Department calculates costs in accordance
with the generally accepted accounting principles (``GAAP'') of the
home market country, the Department will not do so if the use of a
country's GAAP does not reasonably reflect a company's costs. In such
cases, the Department may make adjustments or may use alternative
methodologies that more accurately reflect the costs incurred. See,
e.g., Final Determination of Sales at Less than Fair Value: New
Minivans from Japan (``Minivans from Japan'') 57 FR 21937, 21952 (May
26, 1992).
Comment 9 Excluded Costs: The petitioners note that Arrighi
excluded from its reported costs the cost of purchased pasta,
charitable contributions, and repairs. They also note that Italpasta
excluded from its reported costs, the cost of purchased wheat flour,
company vehicles, gifts to customers, and publication material. They
argue that there is no basis for these costs to be excluded from the
COP and CV since the Department's questionnaire requires respondents to
report actual costs incurred during the POI. The petitioners state that
the Department should revise Arrighi and Italpasta's cost data to
include all costs incurred during the POI.
Arrighi argues that most of the amounts it excluded from the
reported costs were related to purchased pasta and the purchase and
sale of nonsubject merchandise. It contends that it properly excluded
these costs.
DOC Position: We agree, in part, with both the petitioners and
Arrighi. The Department excluded sales of purchased pasta from the
sales reporting requirements. Therefore, Arrighi properly excluded the
costs of the purchased pasta from its COP and CV. Additionally, the
Department only requires a respondent to report the COP and CV for
subject merchandise. Accordingly, Arrighi properly excluded the costs
of nonsubject merchandise.
However, as the petitioners point out, Arrighi and Italpasta also
excluded from reported costs certain types of general expenses. These
expenses relate to company operations as a whole and not to a specific
product. Moreover, Arrighi has not provided any information or
reasonable grounds to conclude that these items are related solely to
purchased pasta or non-subject merchandise. Therefore, we revised
Arrighi and Italpasta's G&A expenses to include these costs.
Amounts incurred for gifts to customers and publication materials
are related to the marketing of products and Italpasta should have
included these costs in its reported indirect selling expenses.
Therefore, we have revised the company's indirect selling expenses to
reflect these items.
Comment 10 Cost of Sales: The petitioners state that Arrighi
calculated its reported G&A and financial expense ratios using total
sales as the
[[Page 30349]]
denominator. They contend that Arrighi applied these ratios to the cost
of manufacture which understated the reported G&A and financial
expenses. Italpasta, the petitioners argue, also calculated its G&A and
financial expense ratios using an overstated denominator. They claim
that Italpasta included selling expenses, packing expenses, and
transportation expenses in the denominator of the ratio calculations
but applied the ratio to a product cost of manufacture which did not
include these costs. The petitioners contend that the Department should
correct these errors in Arrighi's and Italpasta's G&A and financial
expense ratios.
Arrighi acknowledges that it incorrectly reported the cost of goods
sold figure used in its calculation of G&A and financial expense
ratios. Arrighi states that it used the incorrect amount due to a
translation error on its part. It concedes that the cost of goods sold
calculated by the Department and used in the preliminary determination
is more accurate.
DOC Position: We agree with the petitioners and Arrighi. Arrighi
and Italpasta did not apply the G&A and financial expense ratios to the
same basis in their calculation, resulting in an understatement of each
company's per-unit G&A and financial expenses. We calculated a revised
cost of goods sold figure by subtracting scrap revenue, packing,
selling, and G&A expenses from total production costs reported in each
company's financial statement. This resulted in revised G&A and
financial expense rates that are computed on a basis consistent with
the COM figures to which they were applied.
Comment 11 COP of Affiliated Party: The petitioners argue that
Arrighi's affiliated mill understated its unit cost of semolina by
including the weight of water in its reported production quantities.
They contend that the weight of the output from the mill was greater
than the weight of the input into the mill due to water added during
the milling process. The petitioners believe that the Department should
adjust the mill's unit costs to a dry measure basis by dividing the
total costs by the weight of the durum wheat that was used in the
milling process.
Arrighi states that it calculated the unit semolina costs by
dividing the mill costs by the mill output which resulted in a yielded
semolina cost. The semolina which was used as the input into the next
step of pasta production reflects the relatively wet semolina input.
Arrighi then yielded the pasta production costs to a dry weight by
calculating the unit cost of pasta based on packed pasta quantities. It
argues that the semolina COP for its affiliated mill appropriately
accounted for water added in the production process.
DOC Position: We agree with Arrighi. Assuming all finished goods
are identical, dividing the total cost incurred to produce the finished
products by the quantity of finished goods produced results in the unit
cost of each product. Deriving the unit cost in this manner accounts
for yield changes. This is the methodology Arrighi's affiliated mill
used to calculate the cost of durum wheat in finished semolina.
Therefore, the gain attributable to water added during production was
captured by the mill's raw material cost methodology, and, it was not
necessary for us to make an adjustment to the affiliate's semolina
production costs for the weight gain attributable to water.
Comment 12 Allocation of Cost at Affiliated Mill: The petitioners
argue that Arrighi's affiliated mill allocated its costs between soft
wheat and durum wheat production using a basis which it was not able to
substantiate. They note that the affiliated mill allocated variable
costs, variable overhead, fixed overhead, G&A, and financial costs
based on the relative cost of soft wheat and durum wheat. The cost
verification report, according to the petitioners, stated that soft
wheat and durum wheat were processed in the same manner using the same
machinery and production process. They argue that quantity of
production reflects the resources used and the relative costs incurred
by the mill since the processes and the machinery for soft wheat and
durum wheat are the same. The petitioners believe that the Department
should reallocate the manufacturing costs based on production quantity
at the mill.
DOC Position: Arrighi's affiliated mill used an allocation
methodology that did not accurately reflect the costs incurred to mill
durum wheat. The mill allocated its conversion costs (labor and
overheads) between soft wheat and durum wheat based on the relative
cost of the raw material purchased. Personnel from the mill stated that
the only difference between processing soft wheat and durum wheat was
that the soft wheat was bagged while durum wheat was shipped in bulk.
This represents a very minor difference in packing costs only. They
also stated that the same machinery was used to mill both soft wheat
and durum wheat. The cost of converting a raw material to a finished
product is dependent on the processes performed and the machinery used
and not the cost of the raw material input. Therefore, if the
production process and machinery are the same regardless of the type of
wheat milled, the conversion costs also would be the same. Since the
processes and machinery were the same, we reallocated the mill
conversion costs based on total production of the mill, regardless of
the type of wheat processed. After we recalculated the cost of semolina
from the affiliated mill, we compared this amount to the weighted-
average transfer price to Arrighi and Italpasta. We found that the
transfer price did not reflect the semolina's full cost of production.
Therefore, we relied on the actual cost to value the semolina from the
related mill.
Comment 13 Allocation of G&A and Financial Expense at Affiliated
Mill: The petitioners argue that Arrighi's affiliated mill calculated a
per-unit amount for G&A and financial expenses while the Department's
questionnaire instructed the respondents to allocate these costs based
on cost of sales. They believe that the Department should recalculate
the mill's G&A and financial expenses based on the cost of sales.
DOC Position: We agree with the petitioners. The mill allocated
total G&A and financial expenses between soft wheat and durum wheat
based on the relative cost of wheat purchased. His methodology is
contrary to the Department's normal practice, which is to compute a
ratio based on the relationship of these expenses to the cost of sales
of the company. See, e.g., Preliminary Results of Antidumping
Administrative Review: Roller Chain (Other than Bicycle) from Japan, 60
FR 43771 (August 23, 1995), Final Determination of Sales at Less Than
Fair Value: Small Business Telephone Systems from Korea, 54 FR 53141
(December 27, 1989) and Final Results of Antidumping Administrative
Review of Antifriction Bearings (Other Than Tapered Roller Bearings)
and Parts Thereof from France, Germany, Italy, Japan, Romania,
Singapore, Sweden, Thailand, and the United Kingdom, 56 FR 31692,
Comment 25, (July 11, 1991). Therefore, we recalculated G&A and
financial expense ratios as a percentage of cost of goods sold and
multiplied these rates by the product specific cost of manufacture.
Comment 14 Understated Material Costs: The petitioners argue that
the Department should increase Arrighi's raw material costs because
Arrighi's submitted material costs were based on amounts from its
management reports. They state that at verification the Department
found that the costs of materials in the management reports
[[Page 30350]]
were understated and did not reconcile to the financial accounting
system.
Arrighi did not comment on this issue.
DOC Position: We agree with the petitioners. As indicated in the
questionnaire, the Department instructed Arrighi that the per-unit COP
and CV must reconcile to the actual costs reported in the accounting
system used by the company to prepare its financial statements.
Arrighi's financial accounting system did not allow for the segregation
of material costs. Hence, Arrighi used information from its management
reports to segregate the material costs reported to the Department. At
verification, we found an unreconciled difference between the
management reports and the financial accounting system. Company
officials stated that Arrighi's financial accounting system reflected
its actual costs. We therefore increased the reported material costs to
agree with the actual material costs reported in the company's
financial accounting system.
Comment 15 Parent Company G&A: The petitioners propose that the
Department increase Arrighi's reported G&A expenses to include G&A
expense amounts incurred by its parent company. They argue that the
questionnaire instructed Arrighi to include in its reported G&A, an
amount for administrative services performed by its parent. Based on
the record evidence, the petitioners conclude that Arrighi was the only
subsidiary of its parent and argue, therefore, that all of the parent's
expenses should be included in Arrighi's G&A expenses.
Arrighi did not comment on this issue.
DOC Position: We agree with the petitioners. As indicated in Final
Determination of Sales at Less Than Fair Value: Certain Hot-Rolled
Carbon Steel Flat Products, Certain Cold-Rolled Carbon Steel Flat
Products, Certain Corrosion-Resistant Carbon Steel Flat Products, and
Certain Cut-to-Length Carbon Steel Plate from Canada, 58 FR 37082 (July
9, 1993), all expenses incurred by a parent company without operations,
relate to the subsidiaries with operations. Additionally, our standard
questionnaire instructs respondent companies to include an amount for
administrative services performed by its parent company or other
affiliates. Arrighi did not include in its reported G&A any amount for
administrative services performed by its parent. Additionally, the
evidence on the record shows that Arrighi is the only subsidiary of its
parent company and that the parent did not engage in activities other
than those relating to Arrighi's pasta operations. Since the only
activity of the parent was to act as a holding company for Arrighi, it
is reasonable to assume that any expenses it incurred were for the
benefit of Arrighi. Therefore, we increased Arrighi's G&A expense to
include the net expenses incurred by its parent company.
Comment 17 Financial Expenses: The petitioners argue that Arrighi
improperly excluded bank fees from its reported financial expenses.
They contend that financial expenses should include all interest
expenses and fees incurred to finance the operations of the company.
The petitioners also argue that Italpasta incorrectly included
exchange gains and losses generated from sales transactions in its
calculation of the financial expense rate. They assert that the
Department generally does not consider exchange rate gains and losses
from sales transactions in its COP and CV. Therefore, they believe that
the Department should revise the financial expenses of Italpasta to
exclude the exchange rate gains and losses generated from sales
transactions.
Arrighi did not comment on these issues.
DOC Position: We agree with the petitioners. Fees paid to a bank to
obtain or maintain a loan are integral parts of financial expenses.
Therefore, we increased Arrighi's financial expense to include the bank
fees it incurred.
Regarding foreign exchange gains and losses, it is the Department's
normal practice to distinguish such gains and losses realized or
incurred in connection with sales transactions from those associated
with purchases of production inputs. See, e.g., Notice of 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 (June 19, 1995) and Notice of Final Determination of
Sales at Less Than Fair Value: Silicomanganese from Venezuela
(``Silicomanganese from Venezuela''), 59 FR 55436 (November 7, 1994).
The Department does not include in COP and CV exchange gains and losses
on accounts receivable because the exchange rate used to convert home
market or third-country sales to U.S. dollars is that in effect on the
date of the U.S. sale. The Department does include foreign exchange
gains and losses on financial assets and liabilities in its COP and CV
calculation where they are related to the company's production.
Financial assets and liabilities are directly related to a company's
need to borrow money, and we include the cost of borrowing in our COP
and CV calculations. We therefore adjusted Arrighi's and Italpasta's
financial expense rate calculation to exclude exchange gains and losses
related to the company's sales transactions.
De Cecco
Comment 1 Use of Facts Available: De Cecco argues that the
Department should not have canceled verification of its sales and cost
responses. De Cecco argues that its February 2 and February 6 responses
were satisfactory responses to the requests for supplemental
information to remedy the deficient November 27 response, and should
have been accepted by the Department.
The petitioners argue that the Department should continue to use
facts available to calculate the final margins. Both De Cecco's and the
petitioners' specific arguments are described in the Facts Available
section, above.
DOC Position: We agree with the petitioners that facts available
should be used to calculate the final dumping margin for De Cecco. Our
reasons are set out in the Facts Available section, above.
Comment 2 Use of Adverse Facts Available: De Cecco argues that the
Department should not have used adverse facts available in determining
De Cecco's margin for the preliminary determination because De Cecco
provided complete answers to all requested information in a timely
manner and otherwise cooperated to the best of its ability. Both De
Cecco's specific arguments and the petitioners' comments are discussed
in the Facts Available section, above.
DOC Position: We agree with the petitioners that De Cecco's
February 6, 1996, cost submission consisted of new information. The
receipt of subsequent, unsolicited submissions left no time for the
Department, or the petitioners, to review, reconcile, or comment on the
new submissions in time to conduct any meaningful verification of the
cost data. We disagree with De Cecco's characterization of its
participation as having ``provided complete answers to all requested
information in a timely manner and otherwise cooperated to the best of
its ability.'' De Cecco submitted a new cost methodology in February,
did not attempt to explain the differences between the data submitted
in its various February responses, and did not attempt to explain the
differences between the data submitted in February and the original
data submitted in November 1995. We do not consider these facts as
evidence that De Cecco acted to the best of its ability to respond to
the questionnaire. Finally,
[[Page 30351]]
De Cecco's argument that it failed to understand our questionnaire
instructions concerning affiliated persons because it was reading them
within the context of Italian law is unpersuasive. Appendix I of the
questionnaire contained a glossary that defined, inter alia, the term
``Affiliated Persons.'' Moreover, the Department works with all
respondents, and their representatives, to clarify any questions they
might have about questionnaire requirements.
Comment 3 Corroboration of Secondary Information: De Cecco argues
that if the Department uses facts available, it should corroborate such
information by using other information readily available and should not
rely exclusively on the petition in determining De Cecco's margin rate.
It asserts that the Department is obligated to determine the dumping
margin as accurately as possible. De Cecco argues that the Department
acts unreasonably if it rejects low margin information in favor of high
margin information that is demonstrably less probative. Rhone Poulenc,
Inc. v. United States, 899 F.2d 1185,1991 (Fed. Cir. 1990); Floral
Trade Council v. United States, 822 Fed. Supp. 766, 711 (CIT 1993). De
Cecco contends that the Department failed to corroborate the
information it relied upon in calculating the facts available margin
applied to De Cecco in the preliminary determination. It insists that
the Department could have utilized information from other respondents
(e.g., Delverde, whose costs, it assumes, are most similar) or averages
from the calculated margins of other companies, and should do so for
the final determination.
The petitioners disagree with De Cecco's argument that its costs
are similar to Delverde's simply because they are located in the same
town in Italy. Moreover, the petitioners believe that the Department
properly followed the statutory requirements for calculating De Cecco's
dumping margin based on facts available.
DOC Position: We disagree with De Cecco that corroboration of
information used for facts available means determining accurate dumping
margins for a specific company. Accurate dumping margins can only be
calculated on the basis of reliable information provided by the
respondent. De Cecco did not provide such information. We also disagree
that we have any basis for accepting De Cecco's assumptions that
Delverde's costs of producing pasta should have some bearing on the
dumping margin assigned to De Cecco.
In this case, the petition is the only information on the record
which could appropriately form the basis for a dumping calculation.
Section 776(c) of the Act provides that where the Department relies
upon ``secondary information,'' the Department shall, to the extent
practicable, corroborate that information from independent sources
reasonably available to the Department. The SAA, at page 870, clarifies
that the petition is ``secondary information,'' and that
``corroborate'' means to determine that the information has probative
value. Id. During our analysis of the petition, we reviewed all of the
data submitted and the assumptions that petitioners had made when
calculating estimated dumping margins. In addition, we contacted the
source of the market research data and confirmed to our satisfaction
the reliability of the market research information presented in the
petition. As a result of our analysis, we revised the home market
prices that petitioners had relied upon in calculating the estimated
dumping margins. On the basis of these revisions, we recalculated the
estimated dumping margins and found them to range from 21.85 percent to
71.49 percent.
Delverde
Comment 1 Collapsing Delverde and Tamma for Purposes of
Calculating the Dumping Margin: In the preliminary determination, the
Department concluded that Delverde and Tamma are affiliated companies
within the meaning of section 771(33) of the Act based on response
information that the common ownership of these companies exceeded five
percent. Consistent with Departmental practice, we also concluded that
the information on the record required us to collapse Delverde and
Tamma into a single entity for purposes of calculating a dumping
margin. (See, Final Results of Antidumping Duty Administrative Review:
Iron Construction Castings from Canada, 59 FR 25603 (May 17, 1994);
Final Determination of Sales at Less Than Fair Value: Certain Granite
from Italy (``Italian Granite''), 53 FR 24335 (July 19, 1988).) This
decision was based on our finding ties of common ownership,
interlocking boards of directors, similar production processes and
shared transactions. (See letter from Gary Taverman to Delverde of
August 22, 1995.)
For the final determination, Delverde argues that the two companies
should be treated as separate companies because ``neither company
exercises control over the other within the meaning of section 771(33)
of the Act''. Specifically, Delverde asserts that neither company is
legally or operationally in a position to exercise restraint or
direction over the other company based on the following claims: (a)
Tamma holds only a minority ownership interest in Delverde; (b) the
companies operate as wholly separate commercial entities and do not
consolidate financial statements or share cost/financial information;
(c) the common board member is not involved in the day-to-day business
operations of Delverde; (d) pricing and marketing strategies are
conducted independently; (e) the companies have separate letterheads
and locations; (f) there are no common employees or managers; (g)
production information is not shared; and (i) Tamma sells semolina to
Delverde at arm's length prices.
The petitioners state that the ownership relationship between
Delverde and Tamma clearly meets the definition of affiliated persons.
Whether affiliated companies operate independently or in conjunction is
not at issue, and does not alter the fact that Delverde and Tamma are
affiliated companies. Accordingly, the petitioners urge the Department
to uphold its preliminary determination and collapse the data of
Delverde and Tamma into a single entity in the final margin
calculations.
DOC Position: In determining whether to collapse related or
affiliated companies, the Department must decide whether the affiliated
companies are sufficiently intertwined as to permit the possibility of
price manipulation. In making this decision, the Department considers
factors such as: (1) The level of common ownership; (2) interlocking
boards of directors; (3) the existence of production facilities for
similar or identical products that would not require retooling either
plant's facilities to implement a decision to restructure either
company's manufacturing priorities; and (4) whether the operations of
the companies are intertwined as evidenced by coordination in pricing
decisions, shared employees or transactions between the companies. See,
e.g., Certain Granite Products from Spain, 53 FR 24335 (1988); Italian
Granite; Cellular Mobile Telephones and Subassemblies from Japan (43 FR
48011, 1989); Steel Wheels from Brazil, 45 FR 8780 (1989); Certain Hot-
Rolled Carbon Steel Flat Products, Certain Cold-Rolled Carbon Steel
Flat Products, Certain Corrosion-Resistant Steel Plate from Canada, 58
FR 37099 (1993). The Department's use of these factors was implicitly
accorded deference by the Court of International Trade (CIT) in Nihon
Cement Co., Ltd., et al. v. United States, Slip Op. 93-80 (CIT
1993)(which overturned our determination for a
[[Page 30352]]
failure to articulate the evidence which supported the different
elements of this test).
While consistent with our practice on this issue, section
351.401(f) of the Department's proposed regulations give a new
articulation to the collapsing test. Under this articulation, the
Department will treat affiliated producers as a single entity where
those producers have production facilities for similar or identical
products that would not require substantial retooling of either
facility in order to restructure manufacturing priorities, and where
there is a significant potential for the manipulation of price or
production, as evidenced by common ownership, interlocking boards of
directors or shared management, and intertwined operations.
The administrative record establishes a close, intertwined
relationship between Delverde and Tamma. At verification of Delverde
and Tamma, we confirmed reported information concerning ownership,
boards of directors, transactions, and production processes. This
information demonstrates that these affiliated producers have similar
production processes and exhibit a significant potential for price
manipulation as evidenced by interlocking boards of directors and
shared transactions. Based on the information on the record, we believe
that Delverde and Tamma cannot be considered separate manufacturers
under the antidumping law, and that it is appropriate to calculate a
single, weighted-average margin for these companies.
Comment 2 Calculation of Constructed Export Price for Delverde: In
the preliminary determination, we calculated CEP by deducting from the
starting price (i.e., the price to the unaffiliated purchaser)
discounts and rebates, international movement expenses, U.S. movement
expenses, direct U.S. selling expenses, commissions and CEP profit, as
well as indirect selling expenses and inventory carrying costs
associated with economic activities occurring in the United States. We
did not deduct the indirect selling expenses and inventory carrying
costs incurred by the foreign producer in Italy because we did not deem
these expenses to be specifically related to commercial activity in the
United States.
For the final determination, both petitioners and Delverde argue
that the Department is required by the statute to deduct all expenses,
including indirect expenses incurred by the foreign producer, in
calculating CEP. The parties state that nothing in section 772(d)(1)
suggests that the expenses listed in subparagraphs (1)-(D) must be
related to activities that take place within the United States, or that
such expenses must be incurred within the territory of the United
States. They argue that the inclusion of a clause in the statutory
definition of CEP (i.e., 772(d)(1)(D)) mandating the deduction of any
selling expenses from the U.S. starting price) ensures that all
indirect selling costs are stripped from the selling price. The parties
further argue that the legislative history establishes that Congress
intended the new CEP provision to be merely a clarification of prior
law which provided for the deduction of all direct and indirect selling
expenses, regardless of whether the expenses were attributable to
activities in the United States. While the parties acknowledge that the
language of the SAA may be unclear or ambiguous, they argue that, as a
matter of law, such language cannot be used by the Department to
override the clear and unambiguous language of the statute.
Accordingly, both the petitioners and Delverde contend that in
calculating CEP the Department must deduct all selling expenses, as
required by section 772(d), regardless of where the expenses are
incurred.
These arguments concerning statutory interpretation
notwithstanding, Delverde also contends that the Department made a
factual error by not classifying the inventory carrying costs incurred
by the foreign producer on U.S. sales as specifically related to
commercial activity in the United States. Delverde notes that pasta on
which the inventory carrying expense is incurred is enriched pasta that
cannot be sold in Italy. Delverde states that this pasta is dedicated
to the U.S. market from the point in production that vitamins are
added, and is segregated from other pasta while in inventory.
Accordingly, Delverde argues that all reported inventory maintenance
expenses for enriched pasta are necessarily related to U.S. commercial
activity.
DOC Position: Consistent with the SAA and our proposed regulations,
the Department reads section 772(d)(1) of the Act to require us to make
deductions to CEP only for the expenses associated with economic
activity in the United States (see SAA at 823 and the Department's
proposed Regulations at 7331 and 7381). Our preliminary determination
reflected this requirement insofar as our deductions to CEP excluded
those expenses we deemed not specifically related to commercial
activity in the United States (i.e., Delverde's indirect selling and
inventory carrying expenses incurred in Italy).
For the final determination, we reevaluated our treatment of
indirect expenses incurred in Italy based on our findings at
verification. In the case of indirect selling expenses, the indirect
selling accounts reviewed at verification indicated that Delverde
accurately identified each of the expenses that specifically related to
U.S. commercial activity. With regard to inventory carrying costs, our
observations confirmed Delverde's explanation that enriched pasta,
other than whole wheat pasta, is virtually all sold to the United
States and that any inventory carrying costs incurred on enriched pasta
is necessarily attributable to U.S. economic activity. Therefore, we
included inventory carrying costs and indirect selling expenses
incurred in Italy (i.e., database fields DINVCARU and DINDIRSU) in our
deductions from CEP.
Comment 3 Payment Dates of Delverde Sales: At verification, we
noted that Delverde had not updated the payment dates reported for U.S.
and home market sales that were paid after submission of its September,
1995, sales response. This caused the credit expense for these sales to
be incorrectly calculated in the preliminary determination. Following
verification, Delverde provided a revised sales tape with updated
payment information for its U.S. sales. It did not revise the payment
data for its home market sales, although this revision would have
decreased the normal value of the affected sales.
According to the petitioners, Delverde should be penalized for not
disclosing its error prior to verification. The petitioners contend
that all U.S. sales transactions by Delverde, showing a payment date of
September 13, 1995, should be reset to a payment date of March 15, 1996
(the date of the sales verification) for purposes of calculating the
credit expense on these sales.
DOC Position: For the final determination, we calculated U.S.
credit based on the revised and verified payment information provided
by Delverde. We believe this approach is appropriate because it is
consistent with our practice of promoting accuracy and completeness in
the calculation of margins, a practice which forms the basis for our
approach to both pre- and post-verification submissions. See, Murata
Mfg. Co. v. United States, 829 F. Supp. 603, 607 (CIT 1993) with NSK
Ltd. v. United States, 798 F. Supp. 721 (CIT 1992), aff'd, 996 F.2d
1236 (Fed. Cir. 1993) (Cf. the preamble of the Department's proposed
regulations at
[[Page 30353]]
7323). We also believe that this approach is conservative because the
revised payment information adversely affects the credit calculation of
U.S. sales, and does not include revised home market information that
would have been beneficial to the respondent.
Comment 4 Revised Sales Tapes: The petitioners assert that the
Department should carefully review the revised sales tapes submitted by
Delverde and Tamma to ensure that the proper revisions have been made
to the proper fields. For any field that has not been properly
modified, the petitioners contend that the Department should apply
facts available. In the case of CEP sales by FSM and Cavalier, U.S.
importers related to Delverde, the petitioners argue that the
widespread and fundamental changes submitted by Delverde very late in
the investigation call into question the reliability of Delverde's
responses. In light of the changes submitted by Delverde, the
petitioners argue that if the Department identifies any anomalies in
the data contained on the final sales tape, it should apply facts
available to Delverde's sales in their entirety.
Delverde insists that all its affiliated entities have cooperated
with the Department at every stage of this investigation. According to
Delverde, the submission of computer tapes to update their sales
databases for revisions occurring after November 27, 1995, and to
ensure that the database incorporates verified information clearly
serves a useful function, and is intended to reduce the burden on the
Department and other parties. Delverde emphasizes that every effort has
been made to ensure that the sales tapes reflect exactly those changes
previously identified by Delverde and Tamma, or requested by the
Department. Delverde contends that there is no basis for the
petitioners' unsupported speculation or requests for the use of ``facts
available'' with respect to unspecified ``anomalies.''
DOC Position: We agree that Delverde and its affiliated entities
have been cooperative throughout this investigation. At our request,
Delverde submitted revised computer tapes that updated their sales
databases for revisions made subsequent to November 27, 1995, and
incorporated changes identified at verification. We have examined these
tapes and there is no basis for the petitioners' assertion that the use
of facts available is warranted for selected portions of Delverde's
databases or for Delverde's sales in their entirety.
Comment 5 Slotting fees on CEP sales by Delverde USA: The
petitioners argue that the Department's verifiers noted certain
irregularities with respect to the slotting fees paid to a certain
Delverde USA customer. According to the petitioners, the Department
reviewed four invoices to the customer at verification that Delverde
USA explained were up-front slotting fees on post-POI sales. The
petitioners argue that because Delverde did not provide full disclosure
of the details of any ``up-front'' slotting fees paid before the POI,
the Department must associate the expenses with the POI since that is
when they were incurred. The petitioners request that the Department
increase the slotting expense reported in field ADVERT2U for this
customer, or apply facts available in the absence of available sales
information for this customer.
Delverde states that the petitioners' arguments reflect a
fundamental misunderstanding of Delverde USA's sales to this customer
and of the methodology used to report this customer's slotting expense.
Delverde asserts that the petitioners' arguments fail to take into
account the fact that sales to this customer by Delverde USA are made
pursuant to an agreement which became effective at the end of the POI.
Delverde argues that it has never claimed that the referenced invoices
are related to post-POI sales. Rather, as reflected in the Department's
verification report, Delverde notes that the referenced invoices relate
to post-POI shipments which were appropriately included in calculating
the slotting expenses reported in ADVERT2U for this customer. Delverde
also dismisses the petitioners' suggestion that Delverde did not
disclose the details of up-front slotting fees that might have been
paid to this customer before the POI. Given that Delverde USA's
business with this customer began with the agreement at the end of the
POI, Delverde asserts that it is factually incorrect to assume that up-
front slotting fees were paid to this customer prior to the POI.
Delverde submits that the petitioners' request for an adjustment to
field ADVERT2U should be rejected.
DOC Position: At verification, we reviewed Delverde USA's agreement
with the customer, dated near the end of the POI. We also reviewed four
invoices which represent the totality of sales made pursuant to the
agreement, each of which was invoiced and shipped after the POI. The
results of this review indicate that, more than a year after the
agreement, only a small fraction of the total quantity of pasta
specified in the agreement had been sold and delivered to the customer.
We also found that another fundamental element of the agreement had
only been partially implemented. Consequently, although Delverde USA
continues to consider its relationship with this customer to be
unchanged, in our judgment the agreement is not in effect. We therefore
reclassified the date of sale for these invoices to the invoice date,
pursuant to Delverde's date of sale methodology for its other sales and
to our findings at verification. Given that this reclassification
indicates that the four invoices were dated outside the period of
investigation, we did not include these sales in the final margin
calculations for Delverde. Therefore, the arguments concerning the
ADVERT2U field are moot.
Comment 6 Delverde USA's Indirect Selling Expenses: In its revised
calculation of U.S. indirect selling expenses, Delverde USA added a
separate line item to POI operating expenses for a slotting fee
provided to one U.S. customer. The petitioners contend that this is an
improper means of accounting for a slotting fee expense, which is
customer-specific in nature. According to the petitioners, proper
accounting for this customer-specific expense would be to allocate this
additional expense over the POI sales to this customer. The petitioners
recommend that if the Department is unable to readily arrive at a total
sales figure for this customer, it should use facts available and add
the highest slotting fee expense reported in the U.S. sales database
(field ADVERT2U) to any existing expenses in this field for this
customer.
Delverde maintains that it is appropriate to treat the cost
incurred in selling to this customer as an indirect selling expense. As
explained by Delverde at verification, Delverde USA actively solicited
the business of this customer because of that customer's retail
outlets. In order to secure the opportunity to sell to that potential
customer, the customer demanded an up-front payment which Delverde USA
provided in the form of an initial delivery of pasta free of charge. In
providing the up-front payment, Delverde sought to induce that customer
to begin placing large volume, follow-up orders on an on-going basis.
Delverde notes that its investment was not successful as the customer
subsequently purchased and paid for only a very small amount of
merchandise. Delverde notes that no other orders were placed by the
customer, despite the customer's demand for, and receipt of, the up-
front payment.
Based on this explanation, Delverde argues that Delverde USA's
investment
[[Page 30354]]
is properly recognized as a general cost of doing business. Given that
the customer did not subsequently place orders with Delverde USA,
Delverde argues that it would not be appropriate to treat the expenses
as a slotting cost related solely to this customer. Rather, Delverde
argues that it is the lack of follow-up business that distinguishes
this situation from other instances where slotting fees were reported
in field ADVERT2U.
DOC Position: We agree with Delverde that it is appropriate to
treat the up-front slotting fee provided to one Delverde USA customer,
as an indirect selling expense for all sales to all customers. Such
treatment is warranted in this instance given that no orders were
subsequently placed with Delverde USA by this customer. Accordingly, we
believe that the lack of follow-up business distinguishes this
situation from other instances where slotting fees were reported on a
customer-specific basis in field ADVERT2U.
Comment 7 Delverde's Request for a CEP Offset: Delverde did not
claim a level of trade adjustment for its EP sales. With respect to its
CEP sales, the company argues that the statute directs the Department
to deduct all selling expenses from the CEP and that the resulting
adjusted CEP is an ex-factory price. Delverde then concludes that the
adjusted CEP, or ex-factory price, is at the ex-factory level of trade.
In the absence of ex-factory sales in its home market, Delverde further
argues that it is impossible to quantify the price effect of selling
functions involved in sales at levels of trade more advanced than ex-
factory, and, as a consequence, it must be entitled to the CEP offset.
The petitioners argue that Delverde would have had to submit data
concerning its selling functions in response to the Department's
requests related to the Department's level of trade analysis in order
to qualify for a CEP offset. As a consequence of failing to provide the
Department with this requested information, the petitioners assert that
the SAA prohibits a CEP offset.
DOC Position: The Department requested level of trade information
from Delverde on October 23, 1995, and on January 22, 1996. Delverde
responded with the argument that it had not claimed a level of trade
adjustment for its EP sales and that it was pointless for the
Department to compare CEP activities for level-of-trade purposes. As a
result of Delverde's refusal to provide the requested information, the
Department has had to infer different selling functions from the
narrative of Delverde's responses concerning other topics. On the basis
of our analysis of its selling functions, described in the ``Level of
Trade'' section of this notice, above, we concluded that Delverde's
U.S. sales and home market sales are made at the same level of trade.
As stated in the SAA, at page 160, ``Only where different functions at
different levels of trade are established under Section 773(a)(7)(A)(i)
[and a level of trade adjustment is not appropriate] will Commerce make
a constructed export price offset adjustment under Section
773(a)(7)(B).'' Accordingly, we did not grant Delverde's request for a
CEP offset in our final determination.
Comment 8 Water Gain: Tamma argues that its semolina yield
calculation correctly and accurately accounts for water absorbed by the
wheat in producing semolina. It states that its submitted quantity of
semolina and byproducts produced from a given quantity of durum wheat
reflects the water gain. Tamma explains that the higher moisture
content of milled semolina and byproducts is an inherent physical
characteristic of those products. Tamma argues, therefore, that it
would be improper to back out the weight gain attributable to such an
inherent physical characteristic and such an adjustment would distort
Tamma's semolina yield rates by not fully capturing the actual quantity
of milled semolina produced.
The petitioners argue that Tamma's semolina costs should be
increased to properly account for the water gain. They state that it is
not acceptable to allow Tamma to compare the ``wet'' semolina output to
the ``dry'' durum wheat input to calculate yield loss. A ``dry'' input,
the petitioners contend, should be compared to a ``dry'' output in
deriving yield loss.
DOC Position: We agree with Tamma that its semolina yield
calculation properly accounted for the water gain during the milling
process. We noted in our verification report a concern that the water
weight gain might understate semolina costs by overstating production
quantities. However, after further review of information on the record,
we note that Tamma allocated its milling cost (i.e., wheat and
conversion costs), net of byproduct revenue, based on the actual
quantity of semolina produced. Therefore, the weight gain attributable
to water has been properly absorbed by allocating milling costs to
finished semolina output.
Comment 9 Depreciation Expense: Tamma contends that its reported
depreciation expense is accurate and does not distort costs. It argues
that the submitted depreciation expense is identical to the amount
reported in its audited financial statements and fixed asset ledger.
Tamma further argues that its method of calculating the depreciation
expense conforms with Italian GAAP and that the actual useful lives of
its fixed assets reflect the expanded depreciation period allowed under
Italian law. Tamma states that it is the Department's practice to
accept home market GAAP when it does not distort production costs and
cites Final Determination of Sales at Less Than Fair Value: Fresh Cut
Roses from Colombia, 60 FR 6980, 6997 (February 6, 1995); 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 (June 19, 1995); Final Results of Sales at Less Than
Fair Value: Certain Cut-To-Length Carbon Steel Plate from Germany, 61
FR 13834 (March 28, 1996); and Final Results of Sales at Less than Fair
Value: Canned Pineapple Fruit from Thailand, 60 FR 29553 (June 5,
1995).
The petitioners contend that the Department should increase Tamma's
depreciation expense. They argue that Tamma reduced its straight-line
depreciation rates from the Italian civil code to rates it employs for
income tax purposes which are inappropriate for a dumping analysis.
DOC Position: We disagree with Tamma. To calculate depreciation
expense, Tamma relied on industry specific depreciable asset lives
authorized by the Italian Civil Code. However, Tamma later modified
these depreciable asset lives in calculating depreciation expense for
all of its assets, including the manufacturing equipment used to
produce pasta. Contrary to Tamma's argument, the change to its assets
depreciable lives was not the result of new events, changing
conditions, experience, or additional information. Instead, Tamma's
change in depreciable life was made only for its effect on the
company's profitability.
Generally, the Department relies on a company's home country GAAP;
the Department will not do so, however, if the use of a country's GAAP
does not accurately recognize a company's actual costs. (See, e.g.,
Minivans from Japan; Final Determination of Sales at Less than Fair
Value: Dynamic Random Access Memory Semiconductors of One Megabit and
Above from the Republic of Korea, 58 FR 15467, 15479 (March 23, 1993).)
Recording of depreciation expenses provides a systematic, rational
method of recognizing the costs of fixed assets. This allocates the
one-time expense of purchasing (or constructing) fixed assets over the
longer time period
[[Page 30355]]
which these assets will benefit. In this case, the Department found
that the basis used for the financial statement, even if stated in
accordance with Italian GAAP, is contrary to sound accounting
principles and the Department's practice. Tamma simply elected to
change its depreciation rate (which, in effect, changed the useful
lives of the company's production assets) without any change in the
underlying economic assumptions and estimates on which its depreciation
method was based. Without documentary evidence of such a change in the
underlying assumptions, it is inappropriate for the respondent to
recognize less than a full year's depreciation expense.
Comment 10 Foreign Exchange Losses Related to Debt: Tamma contends
that its capitalization of foreign exchange losses realized in
connection with loans used to purchase capital assets conforms to
Italian law and Italian GAAP. It further argues that because the loss
relates directly to the acquisition of capital assets, and is amortized
over a period that is less than the useful lives of those assets, its
capitalization of the exchange rate losses is reasonable and does not
distort costs. See, Final Determination of Sales at Less Than Fair
Value: Fresh Cut Roses from Ecuador, 60 FR 7019, 7039 (February 6,
1995) (``Roses from Ecuador'').
The petitioners contend that it is appropriate to recognize the
entire exchange loss because the loss was incurred during the POI and
the source of the loss is fungible in nature. They argue that a foreign
exchange loss on debt owed is logically recognized at the end of the
fiscal period. The petitioners also argue that the exchange loss cannot
be related to the acquisition of the asset because it did not occur at
the time of acquisition.
DOC Position: We disagree with Tamma. In determining COP for the
POI, the Department includes all costs incurred during the POI. If
current losses are deferred to some future time, the costs would not
appropriately match to the sales of the company during the POI. The
Department has recognized this principle in the past in dealing with
capitalized foreign exchange gains and losses relating to loans. See,
Final Determination of Sales at Less Than Fair Value: Dynamic Random
Access Memory Semiconductors of One Megabit and Above from the Republic
of Korea, 58 FR 15467, 15479 (March 22, 1993).
In this case, the extinguishment of debt caused a foreign exchange
loss which represents a cost that provides no future benefit to Tamma.
Tamma has argued that the exchange loss relates to the acquisition of
assets and should be capitalized and amortized because this method was
allowed in Roses from Ecuador. However, we note that in Roses from
Ecuador the capitalized loss reflected an actual increase in the loan
amount and the loss was amortized over the remaining life of the loan.
The exchange loss in this case is also a cost of Tamma's borrowed funds
but it is not an increase in the loan amount because it was incurred to
extinguish the debt. Nor is the loss a cost of Tamma's equipment
because this loss does not add to the utility of the equipment.
We also note that contrary to Tamma's claims, the company's method
of capitalizing this cost is not a recommended method under Italian
GAAP. We note that the Italian National Council of Accountants
(``NCA'') which issues recommended ``Principles of Accounting'' in
Italy states that ``a resulting exchange loss should be recognized
immediately'' (See, Larry L. Orsini, John P. Mcallister and Rajeev N.
Parikh, ``Italy,'' World Accounting'', Volume 2, (Matthew Bender & Co.,
Inc., New York, New York, 1995) p. ITA.37[1].) Also, Tamma's
capitalization and amortization of this loss is not acceptable under
U.S. GAAP which states that such losses must be recognized in the
period in which they are incurred.
Comment 11 Subsidy Used to Offset G&A: Tamma claims that it
properly reduced its G&A expenses by the amount of a grant from the
Italian government which it received in 1994. Tamma argues that the
grant effectively reduced its cost of producing subject merchandise and
notes that the Department has previously allowed government grants as
offsets against production costs. See, e.g., Final Determination of
Sales at Less Than Fair Value: Aramid Fiber Formed of Poly-Phenylene
Terephthalamide from the Netherlands, 59 FR 22684, 22556 (May 8, 1994);
and, Final Determination of Sales at Less Than Fair Value: Oil Country
Tubular Goods from Argentina, 60 FR 33539, 33546 (June 28, 1995).
The petitioners contend that Tamma should not be allowed to offset
G&A expenses by a grant received from the Italian government because it
is not clear if the grant was received during the POI. Therefore the
Department should view the grant simply as additional income and not an
as offset to G&A costs.
DOC Position: We disagree with the petitioners. Tamma's management
demonstrated that the purpose of the grant was to assist the company in
improving the general operation of its pasta production facilities.
Thus, we found that the grant related to the company's pasta operations
and have allowed the amount received by Tamma during the POI as an
offset to Tamma's G&A expenses.
Comment 12 G&A and Interest Expense Revisions: The petitioners
state that the Department should correct Tamma and Delverde's combined
G&A expense factor and financing expense factor for certain clerical
errors found or reported during verification.
Tamma and Delverde agree with the petitioners.
DOC Position: We agree with both the petitioners and the
respondents and have corrected the combined cost of sales figure used
by Tamma and Delverde to compute their G&A and financial expense
ratios. In computing COP and CV, the Department normally requires
respondents to allocate G&A and financing expenses to subject
merchandise based on the ratio derived by dividing total G&A and
financing expenses by the respondent's cost of sales. Delverde and
Tamma derived a combined cost of sales figure based on total production
costs (i.e., direct material and conversion costs) that was adjusted
for the change in beginning and ending inventory values. However, this
combined cost of sales did not include the scrap and byproduct revenue
offset that the two companies used to reduce their cost of
manufacturing. Nor did it exclude the intercompany transfers between
the two companies. These omissions overstated the combined cost of
sales figure which in turn understated the interest and financing
expense allocated to subject merchandise.
De Matteis
Comment 1 Commission Expenses: The petitioners argue that the
Department should adjust De Matteis' claimed home market commission
expenses to correct for errors discovered at verification.
Specifically, the petitioners argue that the Department should deny the
commissions claimed by De Matteis for all sales through selling agents
3 and 4, and for 1994 sales made by selling agent 2.
De Matteis did not comment on this issue.
DOC Position: We agree with the petitioners. These payments were
reviewed during verification and found to be salary expenses, not
commissions.
Comment 2 Exchange Rates: De Matteis contends that the Department
incorrectly used a mixture of weighted-average and daily exchange
rates. Specifically, it argues that the Department used daily exchange
rates to
[[Page 30356]]
convert Lire into dollars in calculating certain values for the foreign
unit price in dollars (FUPDOL), normal value, packing, differences in
merchandise (DIFMER), and U.S. direct selling expenses, while the
Department converted U.S. price using a weighted-average rate.
The petitioners did not comment on this issue.
DOC Position: We agree with De Matteis that we inadvertently used
the daily exchange rate in two lines of the computer program used to
calculate the margins for the preliminary determination. These two
lines of the computer program specifically dealt with matches to CV.
Because no U.S. sales were matched to CV for De Matteis for the
preliminary determination, there was no effect on the margin for the
preliminary determination. We have corrected the computer programming
language for the final determination.
Comment 3 G&A and Financial Expense Ratios: The petitioners argue
that in calculating its G&A and financing expense ratios, De Matteis
failed to reduce the cost of sales denominator by the amount of
revenues received from the sale of byproducts. As a result of the
miscalculation, petitioners contend that De Matteis understated its
reported per-unit G&A and financing expenses.
De Matteis agrees with the petitioners.
DOC Position: We agree with both parties. De Matteis applied its
G&A and financing expense ratios to per-unit cost of manufacturing
amounts for pasta that were net of revenues received by the company
from sales of certain byproducts. In computing these ratios, however,
De Matteis did not reduce its cost of sales denominator for the
byproduct revenue it received. This resulted in an understatement of
G&A and financing expense which we have corrected for the final
determination by subtracting byproduct revenues from De Matteis' cost
of sales.
La Molisana
Comment 1 Arm's Length Test: La Molisana argues that the arm's
length test utilized in the preliminary determination is
methodologically unsound because it fails to take into account price
differences that result from comparisons of sales to different customer
categories. Specifically, La Molisana claims that the test leads to a
distortion of price comparability because it compares affiliated
distributor sales to unaffiliated sales to all customer categories
without taking into account the fact that the prices charged to
distributors (both affiliated and unaffiliated) are considerably lower
than the prices charged to unaffiliated non-distributors. In addition,
La Molisana asserts that the Department verified that the company
maintains separate price lists for distributors and non-distributors
and that the price lists reflect significantly different prices. In
support of this argument La Molisana provided a table in its case brief
depicting the weighted-average net prices for each control number,
level of trade (based on the LOTCODE assigned by the Department in the
preliminary determination), affiliated distributor, unaffiliated
distributor and unaffiliated non-distributor. La Molisana asserts that
this table clearly demonstrates that the prices charged to affiliated
and unaffiliated distributors are considerably lower than the prices
charged to non-distributors.
Finally, La Molisana contends that in previous investigations the
Department has recognized that there may be other factors that should
be taken into account in conducting the arm's length test. See, e.g.,
Final Determinations of Sales at Less than Fair Value: Certain Hot-
Rolled Carbon Steel Flat Products, Certain Cold-Rolled Carbon Steel
Flat Products, Certain Corrosion-Resistant Carbon Steel Flat Products,
and Certain Cut-to-Length Steel Plate from France, 58 FR 37062, 37077
(July 9, 1993). (The Department agreed that modifying the arm's length
test to take differences in quantity into account would ``fine-tune''
the arm's length test.) For all of these reasons La Molisana argues
that the Department should revise the arm's length test by basing the
test on customer category as well as control number and level of trade.
The petitioners argue that the Department should continue to base
the arm's length test solely on control number and level of trade,
without regard to customer category. The petitioners contend that La
Molisana has failed to show clear and documented evidence of price
distinctions between distributors and non-distributors and that the
Department should not consider the class of customer in determining
whether sales are made at arm's length prices.
DOC Position: We agree with La Molisana that the test used in the
preliminary determination may have been distorted because it failed to
take into account price differences that result from comparisons of
sales to different customer categories. Section 353.403 of the
Department's Proposed Regulations states that the Secretary may
calculate normal value based on an affiliated party sale only if
satisfied that the price is ``comparable'' to the price at which the
producer sold the merchandise to an unaffiliated party. 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. In
this instance, the record establishes that there are three distinct
customer classes in the home market (i.e., wholesalers, retailers and
consumers) and that La Molisana offered significantly different prices,
depending on the customer category. In addition, La Molisana made sales
to both affiliated and unaffiliated customers within the same customer
category during the POI. Consequently, in order to make a fair
determination regarding the price comparability of the affiliated party
sales, we have determined that it is appropriate to use customer
categories in our arm's length test. We believe that the inclusion of
customer category in the arm's length test conforms with the principle,
found in both section 353.45(a) of the Department's existing
regulations and section 351.403 of the proposed regulations, that
affiliated prices must be comparable to unaffiliated party prices in
order for the affiliated party prices to be used by the Department.
Therefore, for the above reasons, we have modified the test used in
this final determination to account for the customer category.
Comment 2 Home Market Advertising Expenses: A. ``TV Sponsors'': La
Molisana argues that certain previously unreported home market
advertising expenses discovered at verification should be considered
direct advertising expenses in the final determination. Specifically,
La Molisana asserts that the Department verified that the expenses
discovered at verification related to La Molisana's sponsorship of a
television program where, during one segment of the show, La Molisana's
pasta and logo were prominently displayed. Therefore, La Molisana
contends that the advertising expenses associated with sponsoring this
show were directed at its customer's customer and should be considered
part of its direct advertising expenses in the final determination.
The petitioners argue that the Department should not include the
expenses associated with sponsoring the television show in the final
determination because the expenses were not provided until
verification.
DOC Position: We agree with La Molisana that the expenses included
in the ``TV Sponsors'' account should be considered part of La
Molisana's direct advertising expenses in the final margin
[[Page 30357]]
calculations. At verification we confirmed that the advertisements were
directed at downstream customers (i.e., the ultimate consumers).
Therefore, we have treated these expenses as direct advertising
expenses in the final determination.
B. Trade Promotion Expenses: La Molisana argues that certain trade
promotion expenses (which were treated as indirect expenses in the
preliminary determination) are direct advertising expenses and should
be treated as such in the final determination. It contends that these
expenses are incurred in order to make its pasta more visible to the
retail shopper and to encourage retail shoppers to purchase La
Molisana's pasta. Therefore, La Molisana argues that trade promotion
expenses are directed at its customer's customer.
The petitioners argue that the Department should continue to treat
trade promotion expenses as indirect selling expenses in the final
determination because these expenses are paid directly to La Molisana's
customers and therefore do not represent reimbursements for expenses
its customers incurred in advertising La Molisana's products to
downstream customers.
DOC Position: We agree with La Molisana. For expenses incurred in
advertising to be considered direct expenses there must be an
assumption by the seller of the purchaser's advertising costs. In
instances where the respondent assumes the total cost of promoting the
product to downstream customers, we recognize that it is inherently
difficult to tie any form of advertising to a specific sale. Therefore,
the Department generally does not make that a requirement before
accepting a claimed advertising expense as a direct expense.
Nevertheless, the advertising must be proven to be directed towards the
customer's customer (i.e., the ultimate consumer) and incurred on
products under investigation. At verification we confirmed that trade
promotion expenses are aimed at the ultimate consumers of La Molisana's
pasta (i.e., the retail shoppers). Therefore, we have treated these
expenses as direct advertising expenses in the final margin
calculations.
C. Introduction Incentive Fees: La Molisana argues that certain
introduction incentive fees (which were initially reported as
advertising expenses and were treated as indirect expenses in the
preliminary determination) are direct selling expenses and should be
treated as such in the final determination. Specifically, La Molisana
claims that the Department verified that introduction incentives are
paid in order to obtain shelving space in supermarkets. La Molisana
claims that it must pay these fees in order to make the sale and that
this fee is not paid unless it makes a sale. Therefore, the
introduction incentive fees bear a direct relationship to the sales in
question and should be treated as direct selling expenses in the final
determination.
The petitioners argue that the Department should continue to treat
introduction incentive fees as indirect selling expenses in the final
determination. The petitioners assert that La Molisana should not be
permitted to submit new or revised claims for direct expenses after
verification. In addition, the petitioners contend that introduction
incentive fees are not directly related to the merchandise under
investigation because they are flat fees that are incurred whether or
not any actual sale occurs.
DOC Position: We agree with the petitioners that introduction
incentive fees should be treated as indirect selling expenses. As we
stated in the DOC Position on Comment 5 concerning Arrighi, the Court
of International Trade has explained that direct selling expenses ``are
expenses which vary with the quantity sold,'' or that are ``related to
a particular sale.'' In this instance, La Molisana did not demonstrate
that these fees vary with the quantity of pasta sold or that they can
be tied directly to particular transactions. Therefore, we have
continued to treat this expense as an indirect selling expense in the
final margin calculations.
Comment 3 A. U.S. Advertising Expenses: La Molisana argues that its
U.S. advertising expenses should be treated as indirect selling
expenses in the final determination because the advertisements are not
directed at its customer's customer. Specifically La Molisana asserts
that it reimburses its U.S. distributor for a portion of the
advertising expenses the U.S. distributor incurs promoting La
Molisana's products to its customer's customer in the United States.
Therefore, La Molisana argues that the advertisements are aimed at La
Molisana's customer's customer's customer, not its customer's customer.
As such, La Molisana argues that these expenses are not direct selling
expenses because it is the Department's practice to treat advertising
expenses as direct selling expenses only if those expenses are directed
at the customer's customer.
The petitioners argue that the Department should continue to treat
La Molisana's U.S. advertising expenses as direct advertising expenses
in the final determination because these expenses represent
reimbursements La Molisana paid to its U.S. customer for expenses that
the U.S. customer incurred to advertise La Molisana's products to
downstream customers in the United States.
DOC Position: We agree with the petitioners. For advertising to be
treated as a direct expense it must be assumed on behalf of the
respondent's customer and be incurred on the products under
investigation. It is the Department's policy to classify advertising
expenses directed at the ultimate consumer as direct and to classify
advertising directed towards intermediary customers as indirect. See,
e.g., Dynamic Random Access Memory Semiconductor's of One Megabyte or
Above From the Republic of Korea, Final Results of Administrative
Review, 61 FR 20216 (May 6, 1996). Antifriction (other than Tapered
Roller Bearings) Bearings from France, 60 FR 10909 (February 28, 1995).
At verification it was confirmed that La Molisana reimburses its
unaffiliated U.S. customer for a portion of the advertising expenses
this customer incurs promoting La Molisana's products to the ultimate
consumers in the United States. Consequently we have treated these
expenses as direct advertising expenses in the final determination.
B. Alleged Error in the Treatment of Certain Advertising Expenses
in the Preliminary Determination: La Molisana asserts that in its
preliminary determination the Department treated trade promotion and
introduction incentive fees as indirect expenses in the home market
while the same expenses were treated as direct expenses in the U.S.
market. La Molisana argues that regardless of whether the Department
classifies trade promotion expenses and introduction incentive fees as
indirect or direct expenses in the final determination, it should
afford the expenses similar treatment in both the U.S. and home
markets.
The petitioners did not comment on this issue.
DOC Position: We have reviewed La Molisana's assertion and agree
that the preliminary determination failed to treat trade promotion
expenses and introduction incentive fees similarly in the U.S. and home
markets. This was an inadvertent error on the part of the Department.
We have corrected this error by treating introduction incentive fees as
indirect expenses and trade promotion expenses as indirect expenses in
both the U.S. and home markets in the final margin calculations. (For a
discussion of the classification of
[[Page 30358]]
these expenses see, Comments 2B and 2C, above.)
Comment 4 Home Market Rebate: The petitioners argue that the
Department should deny La Molisana's claim for the second type of home
market rebate reported in its questionnaire response (i.e., the rebate
based on a percentage of pre-determined sales targets) because La
Molisana failed to provide support documentation for the reported
amounts at verification.
La Molisana did not comment on this issue.
DOC Position: We agree with the petitioners. Section 782(i) of the
Act states that: ``The administering authority shall verify all
information relied upon in making a final determination in an
investigation.'' At verification, company officials were unprepared to
provide support documentation for this rebate and, as a result, the
reported rebate amount was not verified. Accordingly, we have not made
an adjustment for the second rebate in the calculation of normal value.
Comment 5 Cost Reporting Period: La Molisana reported its costs on
a calendar year basis. The petitioners argue that the Department should
use costs during the POI to calculate La Molisana's cost of production.
They note that the Department's antidumping questionnaire provides that
COP and CV data should be calculated based on the actual costs incurred
during the POI. Moreover, the petitioners claim it is the Department's
routine practice to require respondents to report their costs incurred
during the POI. See, Final Determination of Sales at Less Than Fair
Value: Stainless Steel Bar from Spain, 59 FR 66931, 66938 (December 28,
1994); Final Determination of Sales at Not Less Than Fair Value:
Stainless Steel Bar from Italy, 59 FR 66921, 66929 (December 28, 1994).
La Molisana counters that calculating cost on a calendar year basis
was appropriate because the company only makes accruals when its
accounting records are closed at year-end. It contends that the
Department has a clear preference for respondents to use the accrual
method of accounting when calculating costs. In this case, where La
Molisana did not perform monthly closings, using the calendar year
costs was appropriate because such costs included accruals and year-end
adjustments.
DOC Position: We agree with petitioners that the Department
generally examines the materials, labor, and overhead incurred during
the POI. The questionnaire requests COP and CV data calculated based on
the actual costs during the POI. See, Final Determination of Sales at
Less Than Fair Value: Stainless Steel Bar from Spain, 59 FR 66931,
66938 (December 28, 1994); Final Determination of Sales at Not Less
Than Fair Value: Stainless Steel Bar from Italy, 59 FR 66921, 66929
(December 28, 1994). In the instant case, the Department compared
significant elements of the cost of manufacturing computed on a
calendar year basis and on a POI basis. We adjusted La Molisana's
reported wheat, labor, and electricity costs to reflect POI basis
costs. Although the Department prefers costs reported on the accrual
basis, we have determined, in this case, that cash basis costs for the
first four months of 1995 were acceptable since the verification
testing indicated these expenses reasonably reflected the costs
associated with the production and sale of the merchandise. The eight
months of 1994 costs were calculated on the accrual basis.
Comment 6 Total Cost Reconciliation: The petitioners urge the
Department to increase La Molisana's reported costs to account for
discrepancies between the unit costs in La Molisana's general ledger
and the unit costs reported in La Molisana's questionnaire response.
They state the Department found that La Molisana's finished goods
inventory account showed an average unit cost higher than the average
unit cost reported by La Molisana in its questionnaire response. They
argue that the inventory value is probative evidence that the reported
costs should be higher because the balance of the inventory account
agreed to the audited financial statements. The petitioners also refer
to the Department's analysis in the verification report that showed
that average costs reflected in La Molisana's accounting ledgers for
traditional pasta exported to third country markets was higher than the
average costs reported by La Molisana in its questionnaire response,
even though the average costs in the questionnaire response included
traditional pasta and the more expensive nested pasta. These factors,
combined with the fact that La Molisana declined to reconcile the total
costs reported in the questionnaire response to the total costs in its
accounting ledgers, should compel the Department to increase the unit
costs reported by La Molisana so that they are consistent with the
costs recorded in La Molisana's accounting ledgers which reconcile to
its financial statements.
La Molisana argues that the Department's calculation of a higher
cost for subject merchandise sold to third country markets has no
significance for reported costs and no adjustment to reported costs is
warranted. La Molisana does not dispute the fact that a reconciling
difference exists but disagrees with the Department's attribution of
this difference to third country merchandise. It declares that if the
Department allocates the reconciling difference over all production or
alternatively over Italian and U.S. production, the result is an
insignificant adjustment to the reported costs. It states that the
difference could have resulted from incorrect product mix assumptions
made by the Department, arithmetic errors by the Department, or
assumptions made about production quantities of various products. La
Molisana contends that the difference could be explained by a higher
proportion of spinach pasta and tomato pasta in the third country mix,
as these products have a higher cost than plain pasta. Moreover, La
Molisana claims that providing the reconciliation in the limited time
available was not possible with a small staff. Finally, La Molisana
contends that the reconciliation was not necessary for verification
since the Department tied individual cost elements to the cost accounts
which subsequently agreed to the income statement for 1994.
DOC Position: We agree with the petitioners that La Molisana's
reported costs should be increased to account for the unreconciled
difference between La Molisana's total production costs for 1994 and La
Molisana's reported per-unit costs. Since La Molisana declined to
prepare the reconciliation requested by the Department, the Department
prepared a reconciliation of total production costs using information
available from the record in this case. The reconciliation is necessary
to establish that La Molisana captured and appropriately allocated all
costs incurred for the period. Our analysis showed that an unreconciled
difference remains.
Although La Molisana takes issue with the format of the
reconciliation and the assumptions made, the Department provided La
Molisana ample opportunity to provide this reconciliation. Such a
reconciliation was specifically requested in the Department's
supplemental Section D questionnaire and at verification. We believe
that it is unacceptable in this situation to expect the Department to
bear the responsibility of attempting to identify and perform the
numerous and substantial recalculations necessary for the development
of a completely accurate reconciliation. The Department's
reconciliation provides a reasonable basis to identify costs that La
Molisana may have failed to report, and
[[Page 30359]]
we have relied on this reconciliation in order to adjust the company's
reported costs.
Comment 7 Difference in System Costs: The petitioners argue that
the Department should adjust for differences in costs between La
Molisana's cost accounting records and the company's financial
accounting records. They suggest that the Department adjust La
Molisana's reported costs so that these costs reconcile to the amounts
shown in La Molisana's financial accounting system, since these costs
are the most reliable and relate directly to La Molisana's financial
statements.
La Molisana notes that general expenses reported elsewhere in its
response account for much of the absolute difference between the costs
recorded under its two accounting systems. La Molisana states that the
remaining difference is immaterial and, thus, no adjustment is
warranted.
DOC Position: The Department agrees, in part, with both petitioners
and with La Molisana. La Molisana is correct in stating that its
reported general expenses account for much of the absolute difference
between the company's cost and financial accounting systems.
Petitioners correctly point out, however, that COP and CV should
reflect the actual costs reported under La Molisana's financial
accounting system. We have, therefore, adjusted La Molisana's costs to
reflect the company's financial accounting records. In this instance
the company could not explain the difference between its financial and
cost accounting systems.
Comment 8 Financial Expenses: The petitioners urge the Department
to revise La Molisana's financial expenses to include the interest
expense allocated to the flour mill and to exclude interest income
earned on bonds with maturities of longer than one year. They cite the
antidumping questionnaire which states that in calculating net interest
expenses for COP, the respondent should include interest expense
incurred for both long- and short-term borrowing, and that these
interest expenses can be offset only by interest income earned on
short-term investments of working capital. The petitioners state that
short-term investments are investments of less than one year and,
therefore, La Molisana should not have included income from bonds with
maturities longer than one year in its net interest expense
calculations.
In principal, La Molisana does not object to reclassifying the
interest expense allocated to the flour mill, provided that the
Department allows the corresponding decrease to the semolina costs. It
disagrees that the Department should treat long-term interest income in
any way different from long-term interest expense. La Molisana claims
that, since investment activities receive cash from operations and
lending activities use cash to fund operations, all funds generated
from investment activities should be netted with interest expense to
obtain the net financing expense of the company. La Molisana maintains
that it demonstrated at verification its positive cash flow during
prior years. This cash was used to invest in bonds. La Molisana cites
to the Department's principle of fungible funds as articulated in the
Final Results of an Antidumping Duty Administrative Review: Titanium
Sponge from Japan, 55 FR 42227 (October 18, 1990).
DOC Position: We agree with petitioners. The Department considers
interest expense to be the actual interest incurred by the company on
both short- and long-term debt, reduced by the interest income earned
on short-term assets. The Department has determined that the purchase
and holding of long-term assets, such as bonds, that produce interest
income represent investment activities that are wholly unrelated to the
manufacturing business of the company. See, Final Determination at
Sales at Less Than Fair Value: Calcium Aluminate Cement, Cement Clinker
and Flux from France, 59 FR 14136, 14147 (March 25, 1994). Although the
source of the funds to purchase these bonds may have been company
operations, the purpose of holding long-term investments is not to fund
current manufacturing operations. Investing in long-term securities is
a separate and distinct activity from manufacturing. (See, e.g., Final
Results of an Antidumping Duty Administrative Review: Certain Cold-
Rolled Carbon Steel Flat Products from Germany, 60 FR 65264, 65270
(December 19, 1995) and Final Determination at Sales at Less Than Fair
Value: Sweaters Wholly or in Chief Weight of Man-Made Fiber from the
Republic of Korea; 55 FR 32659, 32667 (August 10, 1990).)
This approach was affirmed in NTN Bearing Corp. v. United States,
Slip Op. 95-165 (CIT 1995) (``NTN Bearing''). Relying on its earlier
decision in Timken Co. v. United States, 852 F. Supp. 1040, 1048 (CIT
1994) (``Timken''), the court clarified that to qualify for an offset,
interest income must be related to the ``ordinary operations of a
company.'' NTN Bearing at 32. While this standard does not require that
interest income be tied directly to the production of the subject
merchandise, a respondent must show ``a nexus between the reported
interest income'' and its ``manufacturing operation.'' Id. at 33; see
also Timken at 1048. Unlike interest income earned from the short-term
investment of working capital, only rarely will interest income earned
from a company's investment activities in bonds meet this standard.
Because La Molisana failed to show the necessary nexus between its
bond interest income and manufacturing operations, the Department has
denied the claimed offset. The Department did allow an offset for
short-term interest income where La Molisana demonstrated that short-
term assets from funds generated by the pasta manufacturing and selling
operations of the company produced the income.
Finally, we reclassified interest expenses allocated to the flour
mill to the interest expenses reported for the company as a whole
because it is the Department's normal practice to calculate net
interest expense based on the actual experience of the company, not
each separate division or section. We agree with La Molisana that it is
appropriate to reduce semolina costs for the amount of interest expense
which was reclassified.
Comment 9 Foreign Exchange Gains and Losses: The petitioners argue
that La Molisana incorrectly included foreign exchange gains and losses
from sales transactions in its calculation of G&A expenses. They
declare that the Department should exclude these foreign exchange gains
and losses from the cost of production because La Molisana did not
incur these amounts on purchases of raw materials or other inputs
needed to produce the subject merchandise.
La Molisana argues that if the foreign exchange gains and losses
from sales transactions are not included La Molisana's G&A then the
Department should include them in home market indirect selling
expenses.
DOC Position: We agree with petitioners. It is the Department's
normal practice to distinguish between exchange gains and losses
realized or incurred in connection with sales transactions and those
associated with purchases of production inputs. 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 (June 19, 1995) and Silicomanganese from Venezuela.
Accordingly, the Department does not include in COP and CV exchange
gains and losses on accounts receivable because the exchange rate used
to convert home market or third-country
[[Page 30360]]
sales to U.S. dollars is that in effect on the date of the U.S. sale.
The Department typically includes foreign exchange gains and losses in
the cost of manufacture when a respondent realized these gains and
losses to produce the subject merchandise (e.g., acquisition of raw
materials or other inputs needed to produce the subject merchandise).
See, Final Determination of Sales at Less Than Fair Value: Saccharin
from Korea, 59 FR 58826, 58828 (November 15, 1994). La Molisana does
not dispute the fact that these foreign exchange gains and losses
result from sales of finished products.
With respect to La Molisana's claim that these amounts should be
treated as indirect selling expenses, the Department has determined
that the gains and losses do not constitute an indirect selling
expense. Under section 773A of the Act, the Department converts foreign
currencies on the date of sale. Only where a company can demonstrate
that a sale of foreign currency on forward markets is directly linked
to a particular export sale will the Department use the rate of
exchange in the forward currency sale agreement. La Molisana did not
demonstrate that they could link any sale of foreign currency on a
forward market to any particular export sale.
Comment 10 Calculation of G&A and Financial Expense Ratios: The
petitioners argue that La Molisana should have followed the methodology
in the antidumping questionnaire and allocated G&A and interest
expenses based on cost of sales instead of sales revenue. The
petitioners further argue that the company incorrectly applied its
calculated ratio to a cost of manufacturing figure instead of a sales
price.
La Molisana disagrees with petitioners and states that its total
sales revenue was used in calculating the denominator only as the
starting point for its calculation of production costs.
DOC Position: The Department has determined that the allocation
basis La Molisana used in its calculation of the G&A and interest
expense factors was incorrect. The company's calculation, which relied
on sales revenue minus certain adjustments as the denominator, results
in a ratio that understates the company's G&A and financial expense. We
have recalculated these ratios on the basis of La Molisana's 1994 cost
of sales.
Comment 11 Sales of Semolina: The petitioners allege that La
Molisana understated reported semolina costs by reducing the amounts
incurred by the revenue received from semolina sold to outside parties.
They argue that revenue from sales of semolina should not be used to
offset the cost of production for semolina. Instead, the petitioners
advocate computing the per-unit cost of semolina by dividing total
semolina costs incurred during the POI by the total semolina produced
during the POI. They argue that semolina and water are the primary
materials used to produce pasta and, therefore, semolina is a primary
ingredient rather than a byproduct of pasta production.
La Molisana argues that semolina is a byproduct because semolina is
an intermediate product in the production of pasta and has relatively
minor value compared with pasta. Therefore, it was appropriate to
offset semolina production costs with sales revenue from semolina.
Moreover, La Molisana asserts that its treatment of semolina sales is
consistent with its internal accounting.
DOC Position: We agree with petitioners. Contrary to La Molisana's
claim, semolina production is not incidental to the production of
pasta. In fact, the milling of durum wheat results in semolina, which
is the raw material input into pasta production. In this case, La
Molisana seeks to reduce its cost of semolina consumed in pasta
production by profit earned on sales of finished semolina. The
Department's normal practice does not allow respondents to claim
revenues earned from other finished products as offsets in calculating
the cost of producing subject merchandise, see, e.g. Final Results of
Antidumping Administrative Review: Titanium Sponge from Japan, 555 FR
42227, (October 18, 1990).
With regard to La Molisana's claim that semolina is a byproduct, as
stated above, semolina is an input to pasta production that can also be
sold as a finished product. The Department has specific, objective
criteria for identifying byproducts (see Final Results of Antidumping
Administrative Review: Elemental Sulphur from Canada, 61 FR 8239, 8241
(March 4, 1996)). La Molisana has failed to explain how semolina meets
this criteria. Therefore, we have recalculated per-unit semolina costs
for the final determination by dividing total costs to produce semolina
by the quantity of semolina produced.
Comment 12 Semolina Water Weight Gain: The petitioners argue that
production yields for semolina should be calculated using the same
basis for output and input and should not be inflated merely because
water is added during the milling process. They advocate increasing
semolina costs to account for the water weight gain.
La Molisana notes that with regard to water weight gain in the
milling process, the reported semolina yields do not account for the
water weight gain. However, La Molisana does consider the water weight
gain in pasta production. Although the process starts with the
relatively wet semolina, the cost of these materials correctly account
for the yield to arrive at the cost of the finished pasta.
DOC Position: The Department agrees that it is appropriate to
consider the change in weight resulting from the addition of water in
the milling process. We noted a concern in our verification report that
the water weight gain might understate semolina costs by overstating
production quantities. However, after further review of this issue, we
found that La Molisana's costs correctly accounted for this change by
allocating the total input costs over the output tons of finished,
dried pasta.
Comment 13 Initiation of the Cost Investigation: La Molisana argues
that only those sales identified by petitioners as being below cost in
their initial cost allegation are subject to elimination from normal
value. Inasmuch as petitioners had failed to identify any control
number as having had 20 percent or more of its sales below cost, La
Molisana argues that the Department has no basis to eliminate any of
the company's sales from normal value.
The petitioners respond that they need only to provide the
Department with a reasonable basis to believe or suspect the existence
of below-cost sales. They argue that they are not required to
demonstrate that such below-cost sales account for more than 20 percent
of the respondent's total sales volume. The petitioners state that it
is the Department's responsibility after the initiation of a cost
investigation to collect cost of production information and to analyze
that information to determine whether or not below cost sales were made
in substantial quantities.
DOC Position: The Department agrees with the petitioners that they
are not required to demonstrate in their cost allegation that more than
20 percent of the home market or third country sales were made at
prices below the cost of production. The Tariff Act specifies only that
the Department must have ``reasonable grounds to believe or suspect''
that respondents have made sales below cost in their home or third
country markets. (See section 773(b).) The CIT has affirmed the
Department's position in Huffy Corp. v. United States, 632 F. Supp. 50
(1986) that the Act requires the petitioners to demonstrate only that
sales, not substantial sales, have been made at below cost prices.
Comment 14 Constructed Value Offset: La Molisana notes that the
Department did not apply the accounts
[[Page 30361]]
receivable offset to interest expense for purposes of constructed
value. It argues it has been Departmental practice to apply such an
offset.
The petitioners did not comment on this issue.
DOC Position: The Department has not applied the accounts
receivable offset to interest expense in the calculation of constructed
value for three reasons. First, the new statute directs Commerce to
calculate selling, general and administrative costs, including interest
expense, based upon the actual experience of the company. See section
773(b)(3)(B) and section 773(e)(2)(A) of the Tariff Act of 1930, as
amended. Under our past practice, the accounts receivable offset was
allowed as a reduction in interest expense to account for imputed
credit expense which the Department included in constructed value.
Because we base interest expense for constructed value on the actual
amounts incurred by respondent, and do not include imputed credit
expenses, it is no longer necessary to reduce the expense by the
accounts receivable offset. Second, the Act defines the calculation of
general expenses for cost of production and constructed value in the
same way. Therefore, it would be inappropriate to calculate interest
expense differently for cost of production and constructed value.
Third, the Department computes profit under the statute as the ratio of
profit earned on home market sales (i.e., net sales price less the cost
of production) to the cost of production. Applying this ratio to a
constructed value inclusive of imputed offset would be mathematically
incorrect when the ratio was based on a cost of production exclusive of
imputed expenses.
Liguori
Comment 1 Whether Liguori's Home Market Advertising Expense is
Overstated: The petitioners argue that Liguori's post-verification
submission overstated its home market advertising expenses. They note
that page 2 of the Department's sales verification report found that
certain of these expenses had been incurred by an affiliate of Liguori'
and urge that the Department disallow this amount of the home market
advertising expenses.
The petitioners further assert that another portion of Liguori's
reported advertising expenses had not been verified successfully by the
Department and urged that this amount be excluded from Liguori's
revised home market advertising expenses.
Liguori contends that its home market direct advertising expenses,
as corrected, conform with the Department's verification findings. The
first of these two amounts was incurred by Liguori's affiliate on
behalf of Liguori; it was posted in its affiliate's general ledger
account as a direct advertising expense. Liguori cites to page 26 of
the sales verification report. With respect to the second aspect of the
advertising expense, which petitioners classified as unverified,
Liguori argues that the only reason the amount was not verified was
because the Department did not devote the time to verify it.
DOC Position: We disagree with the petitioners that Liguori's home
market advertising expense is overstated. We verified that the amount
mentioned on page 26 of the sales verification report covers the actual
expenses that were incurred by Liguori's affiliate on behalf of Liguori
to pay for expenses that qualified as direct advertising expenses. The
appearance of a conflict between the amounts described on page 2 and on
page 26 of the sales verification report is attributable to differences
in the time periods under consideration. The amount on page 2 of the
verification report covers only the POI months during 1994, while the
amount on page 26 covers the entire POI. Both figures refer to the same
accounts in the general ledger of Liguori's affiliate and we are
satisfied that both are direct advertising expenses. These figures are
also consistent with the findings in Liguori's cost verification. See,
Exhibit 1, at page 19, of the cost verification report. The Department
considers this entire amount to qualify as direct advertising expenses.
With regard to the amount that was unverified, the Department does
not verify every item reported or presented at verification. The
Department exercised its discretion not to examine this amount on the
grounds that it is small and that we had verified other aspects of
these advertising expenses. Consequently, the Department considers this
amount as being verified as a direct advertising expense.
Comment 2 Customer Categories: The petitioners note that the
Department was not able to verify the reasons for Liguori's different
classifications for its U.S. customers. They urge the Department not to
rely on Liguori's reported customer categories or channels of
distribution for any reason, including the use of averaging groups and/
or level of trade comparisons.
Liguori asserts that its reported customer coding is the same
coding that it uses in its internal accounting system, and that this
was verified by the Department.
DOC Position: We agree with Liguori, in part. We verified that
Liguori's reported customer coding was based on the customer
classifications used in its internal accounting system in the ordinary
course of business. Nevertheless, as discussed in the Level of Trade
Section, above, the Department has reclassified Liguori's reported
customer categories for use in our level of trade, arm's length
pricing, and averaging group analyses.
Comment 3 Minor Changes Found at Verification: The petitioners
state that the Department found, at verification, that Liguori had
misidentified certain product codes and urge the Department to
reclassify these pasta shapes for the final determination. Liguori
contends that these pasta shapes were reclassified in its March 5,
1996, submission.
Liguori also states that certain minor changes to its sales
responses are warranted in the final determination as a result of minor
errors identified prior to, or in the course of, verification. Liguori
notes that these changes were identified in the new sales tape
submitted on March 5, 1996.
DOC Position: We agree with Liguori that these pasta shapes have
been reclassified correctly in its March 5, 1996, submission. We
confirm that most of these minor changes were incorporated in Liguori's
March 5, 1996, submission.
Certain minor errors noted at verification were not incorporated in
Liguori's March 5, 1996, submission. We have made the necessary
revisions to one home market invoice and to one U.S. invoice concerning
payment/shipment dates and credit expenses in Liguori's database for
the margin calculation.
Comment 4 Resellers vs. End-users: Liguori notes that, in the
preliminary determination, the Department stated incorrectly that:
``Liguori reported that {its} sales to {its} * * * affiliated resellers
were made at arm's length.'' Liguori argues that the record clearly
reflects that Liguori made no sales to, or through, affiliated
resellers. It asserts that all of its home market sales to affiliates
were to end-users that consumed the pasta in the course of their own
commercial activities. These affiliated customers did not resell
subject merchandise to unaffiliated parties.
DOC Position: We agree with Liguori that all its home market sales
to affiliates were to end-users. At verification, we noted that these
sales were to affiliated end-users which consumed the pasta in the
course of their own commercial activities and that these affiliated
customers did not resell subject merchandise to unaffiliated parties.
[[Page 30362]]
Comment 5 Allocation of Fuel Costs: The petitioners argue that
pasta drying times and the resulting fuel costs are affected by the
shape of the pasta. In particular, the wall thickness of pasta has the
greatest effect on drying time. For example, thin spaghetti would incur
less drying time and fuel costs than jumbo shells. As a consequence,
according to the petitioner, Liguori's unsubstantiated method of
allocating fuel costs on a short and long product basis is improper.
The petitioners urge the Department to allocate fuel costs to
production lines equally since Liguori does not maintain records that
would enable the Department to base the allocation on line speed.
Liguori does not object to an equal allocation of fuel costs among
production lines.
DOC Position: We agree with petitioners that Liguori was not able
to provide support for its fuel allocation methodology. We reviewed the
company's records to determine if Liguori maintained data that would
enable the Department to base the allocation on a more accurate method.
We found that Liguori did not maintain the type of detailed information
that would allow for a specific allocation of these costs. We therefore
allocated the fuel costs equally among pasta production lines.
Pagani
Comment 1 Facts Available: The petitioners contend that both
Pagani's sales database and its cost of production database are
unreliable and that the Department should assign Pagani a FA rate for
the final determination.
Pagani contends that it has diligently reported its sales and cost
data in compliance with each of the Department's requests during the
investigation. With regard to its sales database, Pagani states that
the Department thoroughly tested the accuracy and completeness of its
sales data. The company asserts that the Department not only tested and
reconciled the sales information used in the calculation of the
preliminary margin, but also reconciled the total sales figure in the
database into its financial statements. With regard to its cost
information, Pagani argues that it properly allocated costs between
subject and non-subject merchandise. In addition, Pagani contends that
it appropriately valued raw materials and finished goods inventory
pursuant to Italian GAAP.
DOC Position: We agree with Pagani. While Pagani has submitted
different volume and value figures during the investigation, most of
these changes were requested by the Department and verified. Although
computer problems delayed the verification process, they did not
prevent the Department from fully verifying Pagani's sales database.
The differences between the figures submitted in the original home
market and U.S. databases and those in the most recently submitted
databases are not significant. On the basis of our sales and cost
verifications, it is reasonable and appropriate to calculate a margin
for the final determination based on information on the record.
Comment 2 Movement Expenses: The petitioners contend that the
Department should treat the entire amount of Pagani's inland freight
expenses as indirect selling expenses because some of the expenses were
pre-sale expenses while others were post-sale expenses. The specific
issue involves proprietary information and, therefore, cannot be
discussed in any detail. See, petitioners' brief, at pages 126-127.
Pagani contends that the overwhelming majority of its inland
freight expenses are direct selling expenses attributable to the post-
sale delivery of its product from its factory or warehouse to its
customers. At the very least, Pagani states that the Department should
deduct from normal value the amount verified as being direct in nature.
DOC Position: Section 773(a)(6)(B)(i) of the Act directs the
Department to reduce normal value by ``the cost of all containers and
coverings and all other costs, charges, and expenses incident to
placing the foreign like product in condition packed ready for shipment
to the place of delivery to the purchaser * * *.'' Accordingly, the
Department treats all movement expenses as direct expenses regardless
of whether they are pre- or post-sale in nature. Therefore, we have
treated Pagani's pre-sale and post-sale inland freight charges as
direct expenses.
Comment 3 Sales to Employees: The petitioners state that the
heavily discounted price for pasta that Pagani offers to its employees
should not be included in normal value. They state that these sales
were made at pre-agreed, discounted prices that were considerably lower
than Pagani's prices to its regular customers. The petitioners further
state that the discounted prices offered to Pagani's employees are a
type of fringe benefit, and are made outside of the ordinary course of
trade.
Pagani states that its sales of pasta to its employees constitute a
regular practice, pursuant to an agreement with the Italian government
and provincial trade unions. Pagani further states that these sales are
made in ordinary wholesale quantities and in the ordinary course of
trade. Pagani states that the ``customer'' can be relied upon to take
delivery of a regular quantity on a regular basis, pursuant to an
agreement that operates as a requirements contract, subject to a
maximum purchase level.
DOC Position: We agree with petitioners. Because these sales are
made pursuant to an agreement with the Italian government and
provincial trade unions, we do not consider them to have been made in
the ordinary course of trade. Rather, these sales are in the nature of
an employee benefit.
Comment 4 Disallowing Certain Home Market Expenses: The petitioners
contend that the Department should continue to disregard certain home
market expenses when calculating weighted-average normal values. Any
further discussion of this issue is not possible because of the
proprietary nature of the expense. Pagani did not comment on this
issue.
DOC Position: We agree with the petitioners. We will not deduct
this expense from normal value.
Comment 5 U.S. Interest Rate: The petitioners state that the loan
reviewed by the Department at verification is not representative of
Pagani's normal financing experience. The petitioners argue several
additional points as to why the interest rate from this loan should not
be used. Further discussion of this issue is not possible because of
the proprietary nature of the loan.
Pagani states that it has revised its U.S. interest rate to reflect
the actual dollar borrowing rate incurred on its foreign currency loan.
DOC Position: We disagree with the petitioners. It is standard
Department practice to rely upon the respondent's actual experience
when this information has been verified. See, e.g., Final Determination
of Sales at Less than Fair Value: Polyvinyl Alcohol From the People's
Republic of China, 61 FR 14057, 14061-14062 (March 29, 1996). We used
the U.S. dollar borrowing rate for the calculation of Pagani's U.S.
credit expense.
Comment 6 Exclusion of Invoice 112: Pagani argues that this
particular sale should be excluded from the Department's calculations
because it was made at a ``salvage price'' owing to the product's
limited remaining shelf-life. Pagani further contends that this
transaction is unique in Pagani's experience with selling its product
in the U.S. market. Finally, citing Circular Welded Non-Alloy Steel
Pipe from the Republic of Korea, (57 FR 42942, September 17, 1992) and
Ipsco, Inc. v. United States, 714 F. Supp. 1211,1217 (CIT 1989)
(``Ipsco''), Pagani stresses the
[[Page 30363]]
Department's practice of excluding `* * * sales which are not
representative of the seller's behavior * * *' Id.
The petitioners state that the sale in question was made through
the usual distribution channels and that there was no indication that
the goods sold were defective, or otherwise were of inferior quality.
Based on these statements and citing to both the Ipsco case and to the
Final Determination of Sales at Less Than Fair Value: Fresh Kiwifruit
from New Zealand, 57 FR 13695 (April 17, 1992), the petitioners contend
that the Department should use this sale in its margin calculation for
the final determination.
DOC Position: We agree with petitioners. The exclusion from the
ordinary course of trade only applies to the calculation of normal
value. Although the Department has excluded aberrant U.S. sales from
price comparisons on occasion, these exclusions have been confined to
situations where there were very few U.S. sales in the category
excluded. See, e.g., Preliminary Determination of Sales at Less Than
Fair Value: Canned Pineapple Fruit from Thailand, 60 FR 2734, 2737
(January 11, 1995). That is not the case here, where Pagani is
requesting the exclusion of a material percentage of the U.S. database.
Comment 7 Exclusion of Certain U.S. Sales: Petitioners argue that
the Department should not have excluded certain sales from Pagani's
margin calculations for the preliminary determination. Further
discussion of this issue is not possible because of the proprietary
nature of these sales. See petitioners' brief, at 134-135. Pagani did
not address the issue.
DOC Position: The Department used its standard computer programming
language at the preliminary determination. Those programming
instructions isolated the sales at issue in the calculation of the
dumping margin in the preliminary determination. The program did not,
however, exclude the sales described by the petitioners. The Department
used this standard programming language for the final determination.
Comment 8 Freight-in Costs of Semolina: Petitioners argue that the
Department should increase Pagani's reported cost of semolina to
include freight-in costs of semolina purchased from unaffiliated
suppliers. Petitioners believe that freight-in costs are an integral
part of the acquisition cost of semolina.
Pagani did not comment on this issue.
DOC Position: We agree with petitioners. We increased Pagani's
reported costs to include the freight-in cost of semolina purchased
from certain unaffiliated suppliers. Freight-in costs are part of the
acquisition cost of the material.
Comment 9 Depreciation Expense on New Production Line: The
petitioners argue that Pagani's submitted depreciation expense was
understated because Pagani used 1994 depreciation expense as a
surrogate for the POI depreciation expense. They also argue that
Pagani's submitted depreciation expense did not include two months of
depreciation expense for a new production line which was placed in
service during March 1995, and that the Department should increase
Pagani's depreciation expense for the two months that this new line was
in use. They suggest that the Department should also increase Pagani's
1994 depreciation expense to account for inflation between 1994 and
1995.
Pagani does not disagree with petitioners suggestion to increase
depreciation expense for the new line. However, it argues that it is
unnecessary to account for the effects of inflation since the
petitioners supplied no evidence that inflating the costs would provide
a more accurate cost of production.
DOC Position: We agree with both the petitioners and Pagani, in
part. We increased Pagani's fixed overhead cost to include two months
of depreciation expense for the new production line which began
operating in March 1995. However, we did not increase Pagani's
depreciation expense to reflect the effects of inflation as the
petitioners suggested because it is not the Department's general
practice to adjust for inflation at low levels such as those present in
Italy during 1994 and 1995.
Comment 10 Subsidy Offset to G&A: The petitioners argue that the
Department should disallow Pagani's offset to G&A expenses for European
Union Export Restitution payments received for pasta sales made outside
the European Union (``EU''). They argue that G&A expenses are part of
the cost of production for products sold in Italy and that a
reimbursement for sales outside the EU has no relationship to the cost
of production in Italy. Further, they contend that it is improper to
include these reimbursements as an offset to Pagani's 1994 G&A expense
because the reimbursements may be for sales that occurred prior to
1994.
Pagani contends that it should be allowed to offset G&A expenses
with the EU Export Restitution payments. It argues that it is the
Department's normal practice to consider G&A expenses relating to the
activities of the company as a whole and not merely those relating to a
specific market. Pagani states that it based its G&A expenses on the
full-year amount reported in its 1994 audited financial statements, the
fiscal year that most closely corresponded to the POI.
DOC Position: We disagree with the petitioners. The EU Export
Restitution payments are paid to pasta exporters who purchase and use
EU wheat to produce pasta to compensate for the high price of EU wheat.
In the Final Determination of Sales at Less Than Fair Value: Stainless
Steel Bar From India, 60 FR 66915 (December 28, 1994), the Final
Determination of Sales at Less Than Fair Value: Aramid Fiber Formed of
Poly-Phenylene Terephthalamide from the Netherlands, 59 FR 22684, 22556
(May 8, 1995), and the Final Determination of Sales at Less Than Fair
Value: Oil Country Tubular Goods from Argentina, 60 FR 33539, 33546
(June 28, 1995), the Department found that the receipt of similar
governmental reimbursements could be used to offset production costs
because they were found to be directly related to the production of
subject merchandise. Therefore, in this case, the restitution payments
Pagani received from the EU relate directly to the production of
subject merchandise and represent an appropriate offset to the
company's production costs.
As for the petitioners' concern that the restitution payments may
relate to events that occurred prior to 1994, we note that Pagani
obtained the amount of the restitution from its 1994 audited financial
statements where it was reported as a part of miscellaneous income. It
is the Department's normal practice to require respondents to report
annual G&A expenses and any corresponding miscellaneous income offsets
that are general in nature for the fiscal year that mostly corresponds
to the POI.
Comment 11 Exchange Gains: The petitioners believe that the
Department should exclude exchange gains from the calculation of G&A
expenses because the amount of the exchange gains is related to
accounts receivable. Pagani contends that it appropriately included the
exchange gains as an offset to G&A expenses.
DOC Position: We agree with the petitioners that the exchange gains
should not be used to offset G&A and, accordingly, have excluded this
amount from the calculation of G&A expenses. It is the Department's
normal practice to distinguish between exchange gains from sales
transactions (i.e., accounts receivable) and exchange gains from
purchase transactions. The Department
[[Page 30364]]
does not normally include exchange gains from sales transactions in G&A
expenses. See Silicomanganese from Venezuela.
Comment 12 Egg Pasta Cost of Manufacturing: The petitioners argue
that Pagani's submission methodology overstates the cost of manufacture
for non-subject merchandise, i.e., egg pasta. They argue that the only
significant difference between egg pasta and non-egg pasta is the egg
additive and that the cost of Pagani's egg additive is not as
significant as the difference between the unit cost of egg and non-egg
pasta. Additionally, the petitioners state that Pagani's conversion
cost of both subject and non-subject merchandise should be the same
because the production steps are similar and are performed on the same
equipment. Therefore, subject and non-subject merchandise should have a
similar cost of manufacturing.
Pagani argues that the different costs of manufacturing of subject
and non-subject merchandise is reasonable. Egg pasta is more costly to
produce because the egg additive is expensive and this type of pasta
requires higher conversion costs to produce. Pagani explains that the
egg pasta it produces is either a nested or soupette product that is
manufactured on the production line with the highest operating costs.
On the other hand, subject merchandise is mostly short and long cut
pasta manufactured on production lines with lower operating cost.
DOC Position: We disagree with petitioners. We did not find
Pagani's cost of egg pasta to be overstated. As noted in our
verification report, Pagani's egg pasta had higher production costs
than subject merchandise. (See Memorandum to Christian B. Marsh from
Stan T. Bowen, April 17, 1996, at 15.) Our verification report also
notes that we reviewed the cost of manufacturing of non-subject
merchandise. We found that the egg additive, which is not used in
subject merchandise, comprised a significant portion of the raw
material weight of egg pasta. The egg additive had a higher per
kilogram cost than the semolina used by Pagani. Additionally, we found
that Pagani's egg pasta production consisted primarily of nested and
soupette products, which incur the highest conversion costs of all of
Pagani's product lines. We also note that Pagani's finished egg pasta
was valued at a higher cost than non-egg merchandise in the company's
finished goods inventory ledgers for the past several years. Therefore,
Pagani's reported cost of manufacturing of egg pasta did not appear to
deviate from the valuation method used by the company in its normal
accounting records.
Comment 13 Inventory Valuation: The petitioners contend that
Pagani's inventory valuation method (i.e., higher of cost of
acquisition or market price) overstates the value of Pagani's beginning
and ending inventory. This in turn, distorts Pagani's current cost of
production. The petitioners also contend that Pagani did not account
for all of the semolina consumed in production. They argue that the
impact on the cost of manufacturing of Pagani's flawed inventory
valuation is significant.
Pagani states that its method of valuing inventory is authorized
under Italian law and that it is the Department's well-documented
practice to employ home market GAAP in calculating COP and CV.
Additionally, Pagani argues that the petitioners give no reason why
Pagani's inventory valuation method is inappropriate. Pagani argues
that the difference in semolina consumption quantities is immaterial.
DOC Position: We agree with Pagani. We found that the company's
method of valuing inventory has no significant affect on the production
costs of subject merchandise. Pagani valued ending inventories of
finished pasta based on the weighted-average cost of production for the
period. The ending inventory of raw materials, other materials, and
packing materials were valued based on the higher of acquisition cost
or market price. (See Memorandum to Christian B. Marsh from Stan T.
Bowen, April 17, 1996, at 9.) Although Pagani's ending inventory
quantities and value changed between year-end 1993 and 1994, we noted
that the per-unit inventory values of raw materials and finished
merchandise did not fluctuate significantly between periods.
Furthermore, we compared the value of finished goods reported in
Pagani's inventory ledgers to the company's actual cost of
manufacturing for the POI and noted no significant difference between
the values. We also compared the value of the raw materials reported in
Pagani's year-end inventory ledgers to Pagani's acquisition costs
during the month of December 1994 and noted no significant difference
between the values.
As for the petitioners' concern that Pagani understated its POI
semolina consumption quantities, we note that the petitioners relied on
a reconciliation schedule of semolina quantities which had several
typographical errors. The dates reported on this schedule suggested
that the reconciliation was for the POI but, in fact, the
reconciliation covered the 1994 calendar year. Thus, the POI
consumption quantities provided on the schedule of monthly semolina
purchases and consumption quantities in the verification exhibit will
not agree to the total quantities consumed during 1994 calendar years.
In our judgement, the petitioners concern that Pagani understated its
POI semolina consumption quantity is not supported by the record.
Industria Alimentare Colavita S.p.A. (Indalco)
Comment 1 Requirements for Voluntary Respondents are Unreasonable
and Contrary to Law: Indalco asserts that the Department's policy
toward accepting voluntary respondents is both unreasonable and fails
to comply with the requirements of the Antidumping Agreement (Agreement
on Implementation of Article VI of GATT 1994). Indalco had requested
voluntary status and responded to section A of our questionnaire. When
the Department informed Indalco that it would only accept voluntary
respondents in this investigation if a mandatory respondent failed to
participate and if the voluntary respondent complied with the same
deadlines that the Department established for the mandatory
respondents, Indalco requested both a commitment from the Department to
be accepted as a respondent and a four-week extension for its responses
to sections B and C of our questionnaire. When the Department denied
these requests, Indalco withdrew its request to be a voluntary
respondent. Now, Indalco insists that the Department either exclude it
from the final antidumping determination and from the coverage of any
antidumping duty order, should one be issued in this investigation. In
the alternative, Indalco requests a sufficient period of time to submit
responses to sections B and C of the questionnaire and that the
Department calculate an individual margin for the company.
The petitioners argue that the Department properly denied the
request of Indalco to participate as a voluntary respondent in this
investigation because the number of respondents already involved was
burdensome to the Department.
DOC Position: The Department communicated its policy toward
voluntary respondents participating in this investigation and provided
specific written guidance on the Department's criteria for including a
voluntary respondent in the investigation. (See July 12, 1995, letter
from Gary Taverman to Indalco.) Additionally, the
[[Page 30365]]
Department responded to Indalco's request that the Department make a
formal decision to include Indalco in the investigation by explaining
that it would make the decision after Saral had submitted certain
documentation necessary to the Department for determining whether to
exclude Saral from the investigation. The submission from Saral was due
August 31, 1995, before Indalco's responses to sections B and C of the
Department's questionnaire were due. The Department also stated in that
letter that it ``{i}f Saral is not required to participate as a
mandatory respondent * * * the Department will include Indalco as a
respondent if it has met all filing deadlines.'' [Emphasis added.] As
for its request for a four-week extension from the time the decision is
made (not from the September 6, 1995, due date) to submit responses to
sections B and C of the questionnaire on August 28, 1995, the
Department granted a one-week extension of the B and C deadline to
correspond with the latest response due date for any mandatory
respondent. On August 29, 1995, Indalco withdrew its request to be
included as a voluntary respondent in the investigation and did not
state any reason for its withdrawal.
Neither the statute nor the Antidumping Agreement conflict with the
Department's selection of mandatory or voluntary respondents in this
investigation. Section 782(a) of the Act implements the obligations of
the United States under Article 6.10.2 of the Antidumping Agreement.
This section authorizes the Department to limit voluntary respondents
where the number of respondents is so large that the calculation of
individual dumping margins would be unduly burdensome and would prevent
the timely completion of the investigation. Our determination as to
which voluntary respondents to select is not limited to our
consideration of the number of voluntary responses. The SAA, at page
873, explicitly permits the Department, under certain circumstances, to
decline to accept any voluntary respondents.
Under Article 6.10.2 of the Antidumping Agreement, the antidumping
authorities may take into account the total number of exporters and
producers in determining whether to restrict the consideration of the
number of voluntary responses; we are not limited in our consideration
to the number of voluntary responses. (``Where the number of exporters
and producers is so large that individual examinations would be unduly
burdensome to the authorities and prevent the timely completion of the
investigation.'')
Had the Department acquiesced in granting Indalco a one-month
extension to complete its questionnaire response as a precondition for
its further participation in the investigation, Indalco's participation
would have prevented the timely completion of the investigation.
Moreover, the Department has no authority now to delay its final
determination so that Indalco can complete the questionnaire and no
reason to excuse Indalco's failure to present the Department with its
reasons for withdrawing its participation earlier in the investigation.
Finally, Indalco has not provided the Department with any rationale for
excluding the company from the coverage of the final determination or
from an antidumping duty order, should one be issued as a result of
this investigation. Should an antidumping order be issued in this
investigation, Indalco can request that its sales be examined in an
administrative review under section 751 of the Act.
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 Italy, 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 Italy, that the
product under investigation benefitted from export subsidies. Normally,
where the product under investigation is also subject to a concurrent
countervailing duty (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).) For Arrighi, Delverde,
and La Molisana, we are subtracting for deposit purposes the cash
deposit rate attributable to the export subsidies found in the
countervailing duty investigation. The ``all others'' deposit rate is
based on subtracting the rate attributable to the export subsidies
found in the CVD investigation for those companies that are respondents
in the antidumping duty investigation and are found to have dumping
margins.
In this investigation, De Cecco 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, De Cecco's margin is based on facts
available, taken from the petition. Insofar as the dumping margin for
De Cecco 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 De Cecco from benefitting from
its non-cooperation in this investigation, we have not subtracted the
amount of any export subsidy from that margin.
This suspension of liquidation will remain in effect until further
notice.
The weighted-average dumping margins are as follows:
------------------------------------------------------------------------
Weighted-average margin Bonding
Exporter/manufacturer percentage percentage
------------------------------------------------------------------------
Arrighi............................ 20.24.................. 17.99
De Cecco*.......................... 46.67.................. 46.67
Delverde........................... 2.80................... 1.68
De Matteis......................... 0.67................... 0.00
(de minimis)...........
La Molisana........................ 14.78.................. 14.73
Liguori............................ 12.41.................. 12.41
Pagani............................. 12.90.................. 12.90
All Others......................... 11.21.................. 10.38
------------------------------------------------------------------------
* Facts Available Rate.
The all others rate applies to all entries of subject merchandise
except for entries of merchandise produced by the respondents listed
above.
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
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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. 96-14736 Filed 6-13-96; 8:45 am]
BILLING CODE 3510-DS-P
