[Federal Register Volume 64, Number 154 (Wednesday, August 11, 1999)]
[Notices]
[Pages 43659-43672]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-20739]
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-570-803]
Heavy Forged Hand Tools, Finished or Unfinished, With or Without
Handles, From the People's Republic of China; Final Results and Partial
Recission of Antidumping Duty Administrative Reviews
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Notice of Final Results of Antidumping Duty Administrative
Reviews.
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SUMMARY: The Department of Commerce (the Department) published the
preliminary results of the administrative reviews of the antidumping
duty orders on heavy forged hand tools, finished or unfinished, with or
without handles (HFHTs), from the People's Republic of China (PRC) in
the Federal Register on February 5, 1999 (64 FR 5770). These reviews
cover the time period, February 1, 1997 through January 31, 1998. We
gave interested parties an opportunity to comment on our preliminary
results. Based upon our analysis of the comments received, we have made
changes to the margins and the margin calculations presented in the
preliminary results of the reviews. The final weighted-average dumping
margins are listed below in the section entitled Final Results of
Review. We will instruct the U.S. Customs Service (Customs) to assess
antidumping duties accordingly.
EFFECTIVE DATE: August 11, 1999.
FOR FURTHER INFORMATION CONTACT: Lyman Armstrong or James Terpstra, AD/
CVD Enforcement, Office 4, Group II, Import Administration,
International Trade Administration, U.S. Department of Commerce, 14th
Street and Constitution Avenue, N.W., Washington D.C. 20230; telephone
(202) 482-3601 or 482-3965, respectively.
Applicable Statute
Unless otherwise indicated, all citations to the statute are
references to the provisions as of January 1, 1995, the effective date
of the amendments made to the Tariff Act of 1930 (the Act) by the
Uruguay Round Agreements Act
[[Page 43660]]
(URAA). In addition, unless otherwise indicated, all citations to the
Department's regulations are to 19 CFR Part 351 (April 1998).
Background
The Department published the preliminary results of the
administrative reviews of the antidumping duty orders on HFHTs from the
PRC in the Federal Register on February 5, 1999 (HFHTs Prelims). See 64
FR 5770. We received case and rebuttal briefs from O. Ames Co., and its
division, Woodings-Verona (Petitioner), on March 11 and March 16,
respectively. We also received joint case and rebuttal briefs from
Fujian Machinery & Export Corp. (FMEC), Shandong Huarong General Group
Corp. (SHGC), Liaoning Machinery Import & Export Corp. (LMC), Tianjin
Machinery Import & Export Corp. (TMC), and Shandong Machinery Import &
Export Corp. (SMC) (collectively Respondents) on March 11 and March 16,
respectively. On March 25 we determined that Respondents' case brief
contained new factual information because it referenced data that had
not been submitted prior to the deadlines outlined in 19 CFR
351.301(b)(2). See March 25, 1999, Commerce Department letter to
Respondents regarding case briefs. On April 8, 1999, Respondents
submitted a revised case brief, redacting the new factual information.
Also, on April 30, 1999, we determined that Petitioner's brief also
contained new factual information. See April 30, 1999, Commerce
Department letter to Petitioner regarding case briefs. Subsequently,
the Department removed the untimely filed data from the record. We held
a hearing on April 27, 1999. On May 12, 1999 Petitioner asked us to
reconsider our decision to reject the new factual information contained
in its case brief. However, we did not change our finding that this
untimely filed new information had to be returned. On June 10 and July
13, the Department published notice that pursuant to section 733
(c)(1)(A) of the Act, these HFHTs reviews were extraordinarily
complicated and required postponement of the final review results until
no later than August 4, 1999. See 64 FR 31178 and 64 FR 37742,
respectively.
In the preliminary review results of HFHTs, we decided to
preliminarily rescind the reviews for certain companies reporting no
shipments of certain classes or kinds of HFHTs pending confirmation of
these claims from Customs. On April 16, 1999, Customs confirmed that
LMC had no shipments of hammers/sledges, picks/mattocks, and axes/adzes
during the period of review (POR). Similarly, Customs confirmed that
SHGC had no shipments during the POR of picks/mattocks and hammers/
sledges. As a result, the Department is rescinding the reviews of LMC
with respect to hammers/sledges, picks/mattocks, and axes/adzes and the
reviews of SHGC with respect to picks/mattocks and hammers/sledges. See
the Facts Available section below regarding the final disposition of
the remaining recission requests filed by SHGC, TMC, FMEC, and SMC.
The Department has now completed these reviews in accordance with
section 751 of the Act.
Scope of Reviews
Imports covered by these reviews are shipments of HFHTs from the
PRC comprising the following classes or kinds of merchandise: (1)
Hammers and sledges with heads over 1.5 kg (3.33 pounds) (hammers/
sledges); (2) bars over 18 inches in length, track tools, and wedges
(bars/wedges); (3) picks/mattocks; and (4) axes/adzes.
HFHTs include heads for drilling, hammers, sledges, axes, mauls,
picks, and mattocks, which may or may not be painted, which may or may
not be finished, or which may or may not be imported with handles;
assorted bar products and track tools including wrecking bars, digging
bars, and tampers; and steel wood-splitting wedges. HFHTs are
manufactured through a hot forge operation in which steel is sheared to
the required length, heated to forging temperature, and formed to final
shape on forging equipment using dies specific to the desired product
shape and size. Depending on the product, finishing operations may
include shot-blasting, grinding, polishing, painting, and the insertion
of handles for handled products. HFHTs are currently classifiable under
the following Harmonized Tariff Schedule (HTS) subheadings: 8205.20.60,
8205.59.30, 8201.30.00, and 8201.40.60. Specifically excluded are
hammers and sledges with heads 1.5 kg (3.33 pounds) in weight and
under, hoes and rakes, and bars 18 inches in length and under. Although
the HTS subheadings are provided for convenience and customs purposes,
our written description of the scope of these orders is dispositive.
Facts Available (FA)
In accordance with section 776(a) of the Act, we have determined
that the use of FA is appropriate for several producers. For FMEC and
SMC and their supplying factories A and B, we found that these
companies provided information which could not be verified, as
described in section 776(a)(2)(D) of the Act. See comments 2 through 6
below. For SHGC with respect to axes/adzes, and for TMC with respect to
axes/adzes and bars/wedges, we found that these companies, in claiming
no shipments when there were transactions, withheld information
requested by the Department, as described in section 776(a)(2)(A) of
the Act. Similarly, for FMEC and SMC, we found that both companies
withheld information with respect to bars/wedges, by claiming no
shipments when there were transactions by these entities involving this
class or kind of hand tools.
Adverse Inferences
In accordance with section 776(b) of the Act, we find that the
companies listed above claiming no shipments when they had transactions
involving certain classes or kinds of HFHTs failed to cooperate by not
acting to the best of their abilities. Contrary to what was reported by
these Respondents, on April 16, 1999, Customs notified the Department
of U.S. sales by these companies of the above noted classes or kinds of
HFHTs. We notified Respondents of this and gave them an opportunity to
comment. On May 10, 1999, Respondents provided various explanations as
to why such sales were not reported. However, we found Respondents'
explanations to be without merit. We found that the Customs data showed
that all unreported sales were of subject merchandise sold by these
companies during the POR. As a consequence, Respondents were obligated
to report these sales. As much of the underlying data is confidential,
a more detailed discussion of this analysis is contained in the
Memorandum Regarding Unreported Sales, dated August 3, 1999. Because
Respondents failed completely to report these sales, no U.S. price and
normal value (NV) data exist on the records of these proceedings that
would permit sales comparisons and margin calculations. As a result
there is no basis for a margin estimate other than FA. Moreover, the
fact that Respondents failed completely to report the sales of subject
merchandise indicates that they did not act to the best of their
abilities and that adverse inferences are warranted.
For purposes of 776(b) of the Act, an adverse inference may include
reliance on secondary information such as information derived from the
petition, the final determination in the investigation, and previous
administrative review results, or reliance on any other information
[[Page 43661]]
placed on the record. In this case, as adverse FA (AFA) with respect to
axes/adzes for SHGC and with respect to axes/adzes and bars/wedges for
TMC, we selected the highest rate from all segments of the respective
proceedings. Specifically, we have used the rates of 18.72 percent for
axes/adzes and 47.88 percent for bars/wedges. See Comment 6 for a
further discussion of these rates. As SMC and FMEC have not satisfied
the Department that they are entitled to separate rates, shipments of
bars/wedges from these two companies will be subject to the PRC rate
for bars/wedges, which is an AFA rate based on the highest margin from
any segment of this proceeding. See Comments 6 and 7 below. With
respect to TMC, LMC, and SHGC, we are issuing separate rates because
TMC, LMC, and SHGC have satisfied the Department that they are entitled
to separate rates for the proceedings in question.
Section 776(c) of the Act provides that the Department shall, to
the extent practicable, corroborate secondary information from
independent sources reasonably at its disposal. The Statement of
Administrative Action, H.R. Doc. 103-316, Vol.1, at 870 (1994) (SAA)
provides that ``corroborate'' means simply that the Department will
satisfy itself that the secondary information to be used has probative
value. See SAA at 870.
To corroborate secondary information, the Department will, to the
extent practicable, examine the reliability and relevance of the
information to be used. However, unlike other types of information,
such as surrogate values, there are no independent sources for
calculated dumping margins. The only source for calculated margins is
an administrative determination. Thus, in an administrative review, if
the Department chooses as AFA a calculated dumping margin from a prior
segment of the proceeding, it is not necessary to question the
reliability of the margin for that time period. With respect to the
relevance aspect of corroboration, however, the Department will
consider information reasonably at its disposal as to whether there are
circumstances that would render a margin not relevant. Where
circumstances indicate that the selected margin is not appropriate as
AFA, the Department will disregard the margin and determine an
appropriate margin. See, e.g., Fresh Cut Flowers from Mexico;
Preliminary Results of Antidumping Duty Administrative Review, 60 FR
49567, 49568 (September 26, 1995) (the Department disregarded the
highest margin as best information available because that margin was
based on an extraordinarily high business expense resulting from
uncharacteristic investment activities, which resulted in the high
margin). In the instant review, because there is no evidence to suggest
that these margins are not relevant, the Department finds no need to
disregard such information as appropriate FA.
Analysis of the Comments Received
We gave interested parties an opportunity to comment on the
preliminary results. We received case and rebuttal briefs from
Petitioner and case and rebuttal briefs from Respondents.
Comment 1: Factual Errors
Respondents contend that the preliminary results notice contains
several significant factual errors, which in turn call into question
the overall accuracy of the verification results issued by the
Department. Respondents first claim that, in the verification reports,
the dates listed for the verifications of FMEC and SMC are incorrect.
Respondents further assert that the Department incorrectly implies in
the preliminary results notice that the verified factories produce and
supply subject merchandise to either SMC or FMEC, when in fact the
factories supply both SMC and FMEC with subject merchandise.
Respondents argue that the Department incorrectly stated in the
preliminary results notice that it found unreported factors of
production for both factories, where in actuality, the Department found
during verification that only one factory failed to report certain
factors of production. Respondents contend that these discrepancies
illustrate fundamental flaws in the Department's characterization of
the verification results, the conclusions of which provided the basis
for the Department's preliminary review results.
Department's Position
We disagree with Respondents that the verification reports were
materially in error. Respondents are correct that the dates in the
verification reports were inadvertently transposed. In addition,
Respondents are correct that the report erroneously indicated that each
factory only supplied one trading company. Moreover, we agree with
Respondents that the Department found unreported factors of production
at only one factory. However, these minor errors in no way undermine
the findings in the report, or call into question the underlying
accuracy and objectivity of the reports. Indeed, none of these minor
errors relates in any way to the significant problems encountered at
verification and described in the reports, including the companies'
failure to substantiate certain factor data, provide relevant
investment records, or to reconcile the total quantity and value of
reported sales to the firms' books and records. See Comments 2, 3, 4,
and 5 below.
Comment 2: Whether FMEC Failed Verification
FMEC claims that its failures during verification were justifiable
for five general reasons: first, FMEC argues it had insufficient time
to prepare for verification because of a Chinese holiday that fell a
few days prior to the beginning of the verification; second, FMEC
claims that the two-day time period allotted for verification was
insufficient; third, FMEC argues that the Department was merely
attempting to ``verify the negative,'' which is contrary to Department
practice; fourth, FMEC argues that failure to provide certain data was
immaterial to the dumping analysis; and finally, FMEC argues that its
accounting system is not flexible and thus not easily translatable for
antidumping verification purposes. As such, FMEC claims that it acted
to the best of its ability by providing extensive information, and that
the Department should rely on the data that were provided during
verification as sufficient data for margin calculation purposes.
In particular, FMEC argues that contrary to the Department's
statement in the January 29, 1999, Determination of Adverse Facts
Available Based on Verification Failure in the Administrative Review of
Heavy Forged Hand Tools from the People's Republic of China Regarding
Adverse Facts Available Memorandum (AFA Memorandum) that it had ``ample
time, specifically ten days * * * to analyze the outline and thus
prepare for verification,'' FMEC in fact had only four business days to
prepare for verification because of a Chinese holiday that immediately
preceded verification. FMEC argues that the Department was aware of the
holiday and that FMEC would be closed from October 1 through October 4
for the holiday.
According to FMEC, the Department's standard 2-day allocation for
verification of a Chinese company is flexible, and thus, because the
verification followed a national holiday, the Department should have
extended the allotted time for verification. FMEC argues that, while
the Department's standard practice may be to provide two days for a
verification, it has not always followed this standard. FMEC notes that
[[Page 43662]]
in the verification conducted for the 1992-1993 HFHT review, and in
several other cases, the Department provided more than two days for
verification. FMEC claims that in Disposable Pocket Lighters from the
People's Republic of China, 60 FR 5899, 5900 (Jan. 31, 1995), the
Department indicated a need for flexibility in dealing with the time
allowed for verification and the timing of verification where Chinese
holidays conflict with scheduled verifications.
FMEC further argues that the problems regarding timing were
compounded by the extensive number of general questions asked by the
verifiers in their attempt to ``verify the negative,'' or in essence to
review the entire operations of the trading company to determine that
no unreported sales of subject merchandise were made by FMEC through
any aspect of its operations. FMEC asserts that the verifiers' attempt
to ``verify the negative'' was contrary to the intent of verification
and case law defining the scope of verification. FMEC cites Belmont
Industries v. United States, 733 F. Supp. 1507, 1508 (CIT 1990),
arguing that verification should ``normally * * * entail selective
examination rather than testing of an entire universe,'' of
possibilities. FMEC also cites Monsanto Co. v. United States, 698 F.
Supp. 275, 281 (CIT 1988), arguing that verification is ``a spot check
and is not intended to be an exhaustive examination of the Respondents'
business.''
FMEC's fourth argument is that its failure to provide certain data
during verification was immaterial. FMEC agrees that it was unable to
provide four different types of data, but maintains that such data were
not necessary for verification. The data requested that FMEC could not
produce include in part: (1) A complete list of sales; (2) financial
records for long-and short-term investments; (3) quantity and value
worksheets; and (4) voucher books and records. With respect to the
first two types of data, a complete list of sales and financial records
for long-and short-term investments, FMEC notes that the records were
either locked away or not kept at FMEC's offices. FMEC argues that it
does not have an integrated computer system and therefore offered
instead the FMEC catalogue in order to provide sales information. FMEC
argues that the verifiers agreed to move on, accepting copies of the
catalogues. Additionally, FMEC argues that, although financial records
were locked away, company officials provided a list of FMEC
investments.
FMEC argues that it could not prepare the ``quantity and value''
worksheets, because it does not have a flexible accounting system that
allows sales tracing to financial records. FMEC also claims that the
documents relevant to this request were kept in a locked cabinet, and
that the accountant with the key had already left for the day, since
the request did not come until approximately 5:30 p.m.
As to the requested voucher books and records, FMEC notes that
``[t]he verifiers actually visited the accounting department office
where the records were kept during the business day, but did not ask
for the records at that time.'' FMEC contends, however, that ``most of
the verifiers'' concerns can be satisfactorily answered by other
information on the record. FMEC also claims that although it was unable
to reconcile total U.S. sales to its financial statements, and
specifically could not provide any accounting voucher books for the
four requested months, January-April, it did not realize such
information would be necessary. See Memorandum To the File on
Verification of the Questionnaire Response of Fujian Machinery &
Equipment Import and Export Corporation in the Administrative Review of
Heavy Forged Hand Tools from the People's Republic of China (January 6,
1999). Additionally, regarding the absence of available financial
records requested for certain entities, FMEC asserts that there is no
evidence that any of these entities shipped subject merchandise during
the POR. Regardless, Respondents contend, any financial records FMEC
had would not have included sales records. Further in response to the
Department's assertion in the AFA Memorandum that FMEC's failure to
show ``there was no affiliation with its U.S. customer undermines the
bona fides of the reported prices,'' FMEC claims that there simply is
no affiliation between FMEC and its U.S. customers.
Finally, FMEC argues that, ``but for the timing,'' the necessary
documents would have been provided. FMEC claims that the Department
verifiers did not advise the company officials that they could submit
any information following the verification. FMEC asserts that, the
Department should have informed FMEC that it could have more time to
supply these records, in accordance with 19 CFR 351.301(b)(2), and that
counsel should have been told by Department officials that FMEC had not
supplied all requested information. FMEC maintains that it provided
extensive records to the verifiers, and that given the circumstances,
the Department should use the sales information submitted by FMEC or
reopen the verification for the narrow purpose of collecting the
information.
Petitioner claims the Department was correct in determining that
FMEC failed verification as a result of FMEC's inability to provide key
accounting records, including records concerning sales in the first
three months of the POR and all relevant records detailing the
company's investments. Taken together, Petitioner notes that this
resulted in the verifier's inability to confirm the accuracy of the
reported U.S. sales.
Petitioner disagrees with Respondents' claim that the verification
failure was due to insufficient time, noting that the amount of time
spent verifying FMEC's submissions was consistent with past Department
practice. Further, Petitioner contends that because this is the seventh
administrative review of the antidumping orders on HFHTs, FMEC should
be familiar with the Department's review and verification process.
Finally, Petitioner also disagreed with Respondents' assertion that
the problems encountered at verification were immaterial. Petitioner
claims that the Department's inability to ascertain whether U.S. sales
were properly reported is not only material, but detrimental to
establishing the integrity of the entire database submitted by the
Respondent.
Department's Position
We disagree with FMEC's claim that it did not fail verification and
that its failures to provide appropriate documentation during
verification were justifiable. As stated in our AFA Memorandum, we
encountered a number of serious problems at verification. Among the
most serious was FMEC's failure to provide sales data for four months
of the POR. As a result, we could not confirm that all U.S. sales were
properly reported, which is one of the most important goals of
verification. FMEC also did not respond to our requests for quantity
and value worksheets, a sales listing, and financial records relating
to long-and short-term investments. As discussed below, these requests
were crucial to our confirmation of the submitted data.
With respect to FMEC's claim that it had inadequate time to prepare
for verification, we disagree. FMEC claims that it only had four
business days to prepare for the verification, because there was a
national holiday preceding the verification which caused FMEC to be
closed for several days just before the verification. However, FMEC
agreed in advance to the selected verification
[[Page 43663]]
dates, and did not express concern about the proximity of the national
holiday at that time. In order to secure approval to travel to the PRC
on official government business, it is necessary to secure a letter of
invitation from the company being visited in advance of submitting a
visa application. In this case, the letter of invitation was provided
by Respondents nearly a month before verification. This required that
Department verifiers, the Respondents, and their counsel discuss
verification scheduling well in advance of the actual dates of
verification. Moreover, the verification outline was sent to
Respondents 10 days in advance, as is customary, and was similar to the
verification outlines used in verifying these companies in the past.
Thus, FMEC did, in fact, have ample time to prepare for verification.
We also disagree with FMEC's contention that two days was not a
reasonable period of time to allow for verification. The Department
typically allows two days for verifying trading companies and two days
for verifying factories in PRC cases (see Memorandum to the File on
Verification in Beijing, PRC, of the Questionnaire Response of China
Processed Food Import & Export Company in the Antidumping Duty
Investigation of Certain Preserved Mushrooms from the People's Republic
of China (October 16, 1998)). The amount of verification time can be
adjusted within limits to accommodate the circumstances of a case. In
this instance, no adjustment was appropriate. Data that the Department
requested in advance of its visit were not accessible to the
verification team when it was requested. FMEC maintained a list of the
data requests made by the Department throughout the verification and
understood clearly what information requests were pending. All
outstanding information requests were repeatedly followed up throughout
the two days of the Department's stay. The verification team stayed
late both days of verification to allow sufficient time for company
officials to provide requested information. At no time during the
verification did the company officials request additional time to
provide the information. Because the delays were the result of FMEC's
failures, it was not necessary or appropriate to extend the time
allotted for verification.
We also disagree with Respondent's assertion that the Department
improperly attempted to ``verify the negative.'' The verifiers simply
followed standard verification procedures which call for the
confirmation that all sales have been reported completely and
accurately. This procedure is known as the ``completeness test,'' which
was described in the verification outline provided to FMEC prior to the
start of verification. The completeness test is routinely conducted as
part of virtually all sales verifications and requires that all sales
records be available for examination by the verifiers. This procedure
is a critical aspect of verification and is specifically designed to
test whether all sales in the United States (and home market, where
appropriate) were properly reported. Since dumping is a measure of
price discrimination, and prices are reflected in sales documentation,
a complete record of sales is indispensable for an accurate measure of
dumping. Thus, FMEC's claim that the Department acted contrary to
Department practice by attempting to verify the negative is without
merit.
Furthermore, because of the volume of information that has to be
evaluated at verification, the Department is necessarily limited in the
number and scope of documents examined. Therefore, many verification
procedures, including the completeness test, call for the testing of a
subset of the total amount of information in the questionnaire response
using the company's accounting records. For example, it is common to
select only certain months to test for unreported sales. In the instant
case, we requested but were completely unable to test four full months
of the POR. Therefore, there was no way to determine whether all sales
were properly reported.
We also disagree with FMEC's contention that its failure to provide
certain data was immaterial. During verification, FMEC failed to
produce, among other things: (1) A complete list of sales; (2)
financial records for long-and short-term investments; (3) quantity and
value worksheets; and (4) financial records, including voucher books
and records, for four full months of the POR.
As we mentioned above, a complete listing of sales, along with
quantity and value worksheets, and financial records for long- and
short-term investments, are necessary to successfully perform the
``completeness test'' and confirm that all sales have been properly
reported. The integrity of the Respondent's entire response is based
upon the confirmation that all sales have been reported properly. The
quantity and value worksheets also serve another important purpose in
that they provide a baseline for the accounting ledgers and worksheets
that are used to verify many other topics. For this reason, the
questionnaire issued to FMEC required it to submit a quantity and value
reconciliation on the record prior to the start of verification. FMEC
failed to provide such data before or during verification.
Additionally, without financial records for four full months of the
POR, the Department can neither confirm total sales, nor confirm the
completeness of the responses as a whole.
FMEC contends that much of the documentation was locked away or
unavailable, and that ``but for the time,'' such information would have
been presented. This response is insufficient. FMEC received the
verification outline well in advance, and has participated in
verifications for several years. Although FMEC claims that its failures
to produce information were immaterial, it has provided no
justification for the absence of key personnel or for assuming that it
would not need to provide four full months of financial data from the
POR. A respondent must be prepared to verify any section of its
response during the scheduled verification.
We also disagree with FMEC's claim that, because it does not have a
flexible accounting system, it consequently should be relieved from
presenting certain information at verification. The verification
outline used in this case, which was similar to the standard
verification outlines used in all non-market economy (NME) cases,
requested information that is necessary for determining the accuracy
and completeness of the submissions. Regardless of the nature of a
particular company's record-keeping system, the information provided in
submissions to the Department must be verifiable and the Department
must be satisfied that the questionnaire responses are complete and
accurate. While some companies have elaborate computerized records and
reliable, audited financial statements, many producers and exporters
have rudimentary record-keeping systems or lack audited financial
statements, and the Department adjusts its verification procedures
accordingly. In this case the verifiers made deliberate efforts to work
within the constraints of FMEC's limited accounting system and were
still unable to confirm the completeness and accuracy of FMEC's
responses. The fact that the verifiers took into account the nature of
the company's accounting records in attempting to perform standard
verification procedures is clearly reflected in the Department's
verification reports. For example, the verifiers altered the extent of
the reconciliation they were asking FMEC to perform. However, despite
limiting their requests to departmental levels within FMEC and
confining the reconciliation
[[Page 43664]]
to a smaller time period, FMEC failed to provide sufficient data from
its books and records to confirm the accuracy of its response.
FMEC further argues that the information actually verified should
be sufficient to address the Department's concerns. However, as
explained above, the information that FMEC failed to provide is a
crucial part of the Department's ``completeness test,'' which allows
the Department to verify that the Respondent has accurately reported
all sales of subject merchandise. FMEC simply did not provide the
Department with documentation at verification that confirmed all
reported sales. Thus, the examples cited by FMEC of instances in which
alternative information was provided during verification pertaining to
selected shipments and certain suppliers were not sufficient to confirm
the reliability of FMEC's response.
Finally, FMEC argues that, ``but for the timing,'' the necessary
documents would have been provided, and that the Department verifiers
did not advise the company officials that they could submit any
information following the verification. FMEC argues that the Department
should have informed FMEC that it could have more time to supply these
records, in accordance with 19 CFR 351.301(b)(2), and that counsel
should have been told that FMEC had not supplied all requested
information. However, Respondents maintained a list of data requests by
the Department and understood what had been supplied and what was still
pending. If FMEC wished to submit additional requested data, it could
have inquired immediately as to that possibility.
Comment 3: Whether SMC Failed Verification
SMC contends that it did not fail verification and that it
responded completely to virtually every question posed by the
verifiers. SMC claims that the AFA Memorandum is distorted and
erroneous in reporting the events at the SMC verification, and does not
tie with the SMC verification report.
SMC also claims that the verifiers had complete access to all SMC
Department records and that the verifiers were confused about access to
the complete records of the No. 2 Hardware & Tools Department and the
Agricultural Tools Department. SMC argues that although the
verification report states that records from the No. 2 Hardware & Tools
Department were not available, in fact the verifiers reviewed various
records from that Department. SMC claims that, contrary to the
verification report, the verifiers looked at the books containing sales
of picks by the Agriculture Tools Department and saw that there were no
pick sales other than those reported. SMC notes, in fact, that every
sale checked by the verifiers was found to be non-subject merchandise.
SMC states that because of the many concurrent verification requests
being addressed and the general confusion of the verification, it was
impossible in the time allowed to complete the tracing for both the No.
2 Hardware & Tools Department and the Agriculture Tools Department.
SMC argues that the primary problem during verification involved
the Department's verification request that SMC ``provide a breakdown of
the value of the No. 2 Hardware & Tools Department's 1997 sales by U.S.
and non-U.S. sales of each subject merchandise product; and of all
sales of each individual other product; and to reconcile these figures
to their department's and the company's financial statement.'' SMC
contends that the verification report is incorrect in its statements
that, ``company officials did not have available at verification any
invoices except for the invoices of the reported U.S. sales of the
subject merchandise. When we asked about the invoices and other sales
documentation, company officials told us that the individual salesmen
kept all sales documentation, and by that time, the documentation was
no longer available because these salesmen had already left the office
for the day.'' SMC claims, in fact, that the complete sales records of
the No. 2 Hardware & Tools Department and the Agricultural Tools
Department were in the verification room during the entire
verification. Additionally, SMC contends that the Agricultural Tools
Department manager was present throughout the verification and could
locate any files in the boxes in the room. SMC has provided a
photograph of a box in the verification room as evidence that the
documents were present and available for review. SMC claims that in
only one instance was a sales person unavailable during the
verification, an instance when the verifiers expressly asked for an
unannounced check of some other SMC department.
SMC claims that at the end of the second day, the only incomplete
verification project was a request for information concerning SMC's
affiliated U.S. entity, Pacific Tools. SMC argues that its failure to
provide Pacific Tools' data is immaterial, and reiterates that there
has never been any question of affiliation between SMC and its U.S.
customers.
SMC argues that its individual department records were successfully
reconciled. SMC states that, in regard to the verification exercise
which attempted to reconcile department statements and SMC's 1997
financial statement, although small differences existed in SMC's
department statements and its financial statement, these differences
have no relationship to company sales, and in fact, the sales data in
both statements are the same. SMC also states that its accounting
system is maintained in accordance with Chinese generally accepted
accounting principles (GAAP), although the verifiers independently
concluded that they were not.
Finally, SMC argues that other issues identified as contributing to
the verification failure are in fact minor; specifically, (1) the
failure to report one U.S. sale; (2) the non-completion of the
Agricultural Department reconciliation; (3) the incorrect reporting of
the port of entry for one shipment; (4) the failure of SMC to
substantiate that ocean freight payments were paid in foreign currency;
and (5) the failure of SMC to acknowledge and report several companies,
formerly departments of SMC, that would potentially be considered
affiliated with SMC.
Petitioner claims the Department's determination that SMC failed
verification is appropriate because SMC did not provide any quantity or
value reconciliation for its Agriculture Tools Department's sales,
failed to reconcile its financial records to the financial statement
submitted to the Department, and was unable to provide ownership and
financial information regarding the company's U.S. affiliate, SMC
Pacific Tools, Inc. Petitioner claims that when combined, these
problems prevented the Department from ascertaining the reliability of
SMC's reported sales, made it impossible to tie SMC's sales from its
Hand Tool Department to its company-wide financial record, and
undermined the Department's ability to verify whether the U.S. sales
were bona fide transactions.
Petitioner disagrees with the Respondents that the problems
encountered at verification were either minor or immaterial. Petitioner
claims that the Respondents' comments contradict the verifiers' record
and that SMC is merely attempting to submit untimely and unverifiable
data on the record after verification.
Department's Position
We disagree with SMC's claim that its verification failures were
minor. The verification report and the AFA Memorandum from the
preliminary
[[Page 43665]]
determination clearly establish that the company failed to adequately
demonstrate that it had reported all sales. Specifically, SMC was
unable to confirm the total sales for its Agriculture Department. In
addition SMC was unable to satisfy the Department that SMC's affiliated
U.S. importer was not affiliated with other firms, including customers.
As a consequence, the Department was not able to perform the
``completeness test.'' See Comment 2 of this notice for a more detailed
discussion of the importance of the completeness test.
Moreover, SMC's assertions that the verifiers did examine the books
of the Agricultural Department are flatly contradicted by the
Department's verification report. According to the verification report,
SMC acknowledged that SMC officials did not have available at
verification any invoices except invoices of the reported U.S. sales of
subject merchandise. When verifiers asked about other invoices and
sales documentation to test the completeness of the reported U.S.
sales, company officials told the verifiers that the individual
salesman who kept all sales documentation had left for the day. See
Memorandum to the File on Verification of the Questionnaire Response of
Shandong Machinery Import and Export Corporation in the Administrative
Review of Heavy Forged Hand Tools from the People's Republic of China
(January 6, 1999). Consequently, while SMC salesmen may have been
present throughout the verification process, the specific sales
personnel that had access to requested documentation were not available
when necessary. As explained in Comment 2 of this notice, a respondent
must be prepared to verify any section of its response during the
scheduled verification.
SMC further claims that a complete tracing of sales was difficult,
since its system was not computerized and such an activity must be
manually done. However, as explained in Comment 2 of this notice, a
respondent in an antidumping proceeding is not relieved of its
responsibility to substantiate its submissions simply because it has a
rudimentary bookkeeping system. Moreover, the verification team did not
demand records that did not exist; rather they attempted to work with
the existing record-keeping system of the company. For example, when
the verifiers requested sales reconciliations, SMC informed them that
complying with the request would be difficult due to its bookkeeping
system. Therefore, the verifiers then requested less complicated
versions of the reconciliations by limiting their requests, for
example, to certain products or months. Nevertheless, SMC failed to
provide even the data that were ordinarily maintained in its books and
records. Thus, SMC failed to provide key documentation during
verification that was necessary to test the completeness of SMC's
response, and because the lack of documentation calls into question the
reliability of SMC's responses as a whole, we find that SMC failed
verification.
Comment 4: Whether Factory a Failed Verification
Respondents assert that Factory A did not fail verification.
Respondents argue that the factory measures its costs through the use
of ``caps'' (``estimated'' costs) in the ordinary course of business.
Respondents note that while Factory A keeps ``actual'' costs for steel
inputs, for all other inputs, the costs are measured only through the
use of established ``caps.'' Because the vast majority of input cost in
the production of hand tools is steel, Respondents maintain that inputs
other than steel are inconsequential, and hence, easily adapted to the
use of ``caps.'' Respondents claim that the Department had determined
that ``caps'' were reasonable using factory records in previous
reviews.
Respondents suggest that the verifiers confused some of the
deficiencies noted in the preliminary results notice by claiming that,
contrary to the notice, there were no unreported factors of production
from Factory A. Respondents next argue that while the reported cost
figures for Factory A were in some cases inaccurate, the factory
reported the same estimated input figures as the Department verified in
1994 and the differences were consistent. Respondents assert that the
under-reported inputs are more than compensated by the over-reported
inputs, and that it should be expected that there would be variances
from the ``caps.'' Respondents stress that each of the reported
``caps,'' which are essentially estimates, was reasonable, even though
not traceable to the company's financial statement.
Respondents believe that the main problem at the Factory A
verification was the failure of the factory to tie factor inputs to
financial statements. Respondents argue that the submissions never
indicated that the factories had records which specifically tied
``caps'' to their financial statements, and that with the exception of
steel inputs for Factory A, all factor inputs were based solely on
``caps.'' Respondents argue that it was abundantly clear that the
factory did not have records which could trace factor inputs on a per
product basis, and that nothing in the verification outline requires
companies to prepare materials that do not exist. Respondents insist
that the Department's verification outline did not require the factory
to tie ``caps'' to financial statements.
Respondents note that Factory A separately calculated the amount of
steel it used to produce the subject merchandise, but argue that just
because it could now report actual steel physical weights did not mean
it could tie its steel consumption per item of subject merchandise to
its financial statements.
Petitioner claims that the Department was justified in rejecting
the factor data of Factory A because Factory A could not reconcile its
reported factors of production or ``caps'' with the factory's actual
accounting records. More specifically, Factory A could not verify the
actual consumption of coal, electricity, or steel.
Department's Position
We disagree with Respondents' argument that the Department has
``accepted caps'' in the past and should do so again. This is a
misleading characterization of what happened in previous reviews. The
questionnaire in this and previous reviews requires Respondents to
report for each factor of production (FOP) the quantity used to
manufacture one unit of subject merchandise during the POR, e.g., the
actual kilograms (kgs.) of steel used to produce one hand tool. In this
and previous reviews, Respondents reported ``caps'' instead of the
actual per-unit utilization of inputs, because they claimed their
bookkeeping systems were limited. However, it is not entirely accurate
to say that the Department accepted ``caps'' in previous reviews.
Rather, in the previous review segment, as a result of verification, we
confirmed that the reported FOP data, i.e., the ``caps,'' were
reasonable approximations of actual consumption. As such we used this
data to calculate NV.
However, verification objectives, testing, and results vary with
the review segment, company, and facts. In the verification in this
review, we once again tested the reasonableness of certain reported FOP
data by weighing the input materials as they entered the production
process. We found that the factor utilization rates the company
reported in its questionnaire response appeared to be reasonable
estimates of the weight of certain material inputs. Although we weighed
the input materials as in the previous review and found them not widely
variant from reported factors, we also asked the
[[Page 43666]]
company to demonstrate that the reported factor utilization figures or
``caps'' were accurate and reflected the company's actual production
experience by tracing these ``caps'' to the company's accounting
records in some way. This is a basic goal of verification and the
company failed.
Respondents' argument, in essence, is that the only way the
Department needs to test their reported factors is to weigh several
pieces at verification and ignore any systematic link between the
reported factors and the company's books and records. This is not
acceptable. While it is useful to test the production factors that a
company reports in various ways, the reliability of the factor
utilization rates ultimately depends on the ability of the respondent
to trace the calculation of this rate to the company's actual
production experience as it has been recorded in the company's
accounting records, a demonstration that in this review segment the
company could not make.
This approach is consistent with the position the Department took
regarding the use of ``caps'' in Natural Bristle Paintbrushes and Brush
Heads from the People's Republic of China; Final Review Results of
Antidumping Duty Administrative Review, 64 FR 27506 (May 20, 1999)
(Natural Bristle Paintbrushes) for the review period covering 97-98.
While the Department had considered ``caps'' reasonable in past
segments of this proceeding, the Department found that there were
discrepancies in the 97-98 review between the reported ``cap'' amounts
and the figures presented at verification. Because the Department could
not deduce how the information in the questionnaire was derived, the
Department did not consider the information verified.
Regarding Respondents' assertion that the errors noted at
verification were minor, we disagree. The verification reports clearly
set forth the significant problems encountered at verification. Company
officials at Factory A could not support or document actual consumption
of coal and electricity. In addition, we were unable to tie steel
purchases to steel consumption as reported in the questionnaire
response. Furthermore, as discussed above, company officials could not
establish links between reported ``caps'' and company accounting
records for specific products. See AFA Memorandum. Despite the
rudimentary record keeping of the company, it was the responsibility of
Factory A to demonstrate how its questionnaire response is derived from
the production data captured in its books and records. Factory A failed
to do so in this case.
In concluding that Factory A failed verification, we examined the
entire record supporting the factual data in the questionnaire response
and considered the critical impact that any questionable items may have
had on our NV calculations. We ultimately determined that the
inaccuracies and unverified claims, in toto, were such that the
reported data were not a reliable basis for calculating a dumping
margin. We also note that, regardless of whether Factory A passed
verification, the Department would be applying FA, nonetheless, because
of the critical deficiencies in the sales verifications of FMEC and
SMC.
Comment 5: Whether Factory B Failed Verification
Respondents argue that Factory B did not fail verification. First,
Respondents claim that the verifiers confused some of the deficiencies
noted in the preliminary results notice. Respondents claim that, while
the verifiers identified three unreported inputs in the notice, these
should be considered part of factory overhead rather than separate
factor inputs. Respondents argue that these inputs are not significant,
and that, even if the record is incomplete, it is not so incomplete as
to warrant the use of total FA.
Respondents also contend that the reported figures did not contain
many errors, and that the ``caps'' verified in 1994 are the same
figures as the current ``caps'' for the same types of subject
merchandise. Respondents argue that reported factors relating to the
most important inputs, steel and steel scrap, were confirmed during
verification, and that the verifiers unnecessarily conducted an
extensive review of three insignificant unreported factors. Respondents
further argue that Factory B provided its complete records, and that
the submissions never indicated that the factory had records which
specifically tied the reported ``caps'' to the factory's financial
statements. Respondents argue that the Department has accepted ``caps''
in the past, recognizing that variances between reported ``caps'' and
the actual figures existed. Respondents stress that in previous HFHT
reviews, it was established that the ``caps'' were estimated, that the
estimates were reasonably close to the actual factor inputs used, and
thus, the Department accepted the reported ``caps'.
Petitioner claims that the Department was justified in rejecting
the cost data of Factory B because Factory B could not reconcile its
reported factors of production or ``caps'' with the factory's actual
accounting records, could not confirm the actual consumption of coal or
electricity used in the production process, and could not confirm the
levels of the additional factors of production not included in Factory
B's data.
Department's Position
We disagree that Factory B did not fail verification. As detailed
in the AFA Memorandum, there are several reasons for concluding that
the information reported for Factory B was unreliable. First, the
company did not adequately document its FOP data, including the most
important factor, which is steel. Second, we discovered at verification
additional factors of production that Factory B had not reported to the
Department. Finally, Factory B provided insufficient data to support
the consumption figures that it had reported for coal and electricity.
Although Factory B attempts to defend these deficiencies by arguing the
limitations of its bookkeeping system, it is the factory's
responsibility to demonstrate how its questionnaire response is derived
from its actual production experience as reflected in the factory's
financial records. Factory B failed to do this.
We also disagree with Respondents' assertion that the Department
had accepted ``caps'' in the past and that the reported ``caps'' were
adequately verified in this review segment. As explained in Comment 4
of this notice, we performed limited testing of the ``caps'' in the
last review segment. In this review, we asked the factory to trace
these ``caps'' to its records. Thus, for the Department to consider the
reported production factors reliable, the factory should have
demonstrated how they were derived from the company's accounting
records. However, as we mention above, Factory B failed in this
exercise as it was unable to show any systematic link between the
reported factors and the factory's books and records. The verification
report, in discussing the grade, type, and specifications of steel used
by Factory B, identifies the important ways in which the reported
production factors were found to be inaccurate. As these findings are
proprietary, please see Memorandum to the File on Verification of the
Questionnaire Response of Factory B in the Administrative Review of
Heavy Forged Hand Tools from the People's Republic of China (January 6,
1999) and the AFA Memorandum for a more detailed discussion of this and
other deficiencies.
[[Page 43667]]
We also disagree with Respondents' arguments that the factors the
Department states were not reported were insignificant, that these
factors should appropriately be subsumed within the factory overhead
factor, and that the Department allotted too much time to these factors
at verification. There was no way to confirm these claims at
verification as Factory B was not able to substantiate a number of its
production factors. Furthermore, because the information concerning the
additional FOPs was new, the Department had no choice but to devote
some time to these data at verification, to ascertain, if possible, the
extent of the new information uncovered.
In concluding that Respondents failed verification we examined the
entire record supporting the factual data in the questionnaire response
and considered the critical impact that any questionable items may have
had on our NV calculations. We ultimately determined that the
inaccuracies and unverified claims, in toto, were such that the
reported data did not provide a reliable basis for calculating a
dumping margin. Furthermore, regardless of these findings, the
Department would apply FA to transactions involving Factory B because
of the critical deficiencies in the sales verifications of FMEC and
SMC.
Comment 6: Whether the Application of AFA Is Warranted
Respondents claim that, given the level of cooperation and the
substantial evidence on the record that they acted to the best of their
abilities during verification, application of AFA is unwarranted.
Respondents argue that the Department applies a five-part test, as
detailed in the Notice of Final Determination of Sales at Less Than
Fair Value: Certain Preserved Mushrooms from Chile, 63 FR 56613, 56616
(October 22, 1998) (Mushrooms from Chile), when determining whether
information should be accepted in the face of verification failures.
The five factors considered are whether: (1) Submissions of information
were made timely; (2) Respondents substantially cooperated with the
Department's information requests; (3) some successful verification of
the questionnaire response was made; (4) for unverifiable information,
there was alternative information available to allow ``appropriate
adjustments to the submitted data;'' and (5) the Department was able to
make adjustments for the identified deficiencies and could use the
submitted information without undue difficulties. Respondents note that
when applying these factors in Mushrooms from Chile, the Department
chose not to apply AFA, despite certain deficiencies, because the
Respondent had ``demonstrated that it acted to the best of its ability
in the investigation and [did] not otherwise significantly [impede the]
investigation.''
According to Respondents, the verifications at Factory A, Factory
B, SMC, and FMEC were largely successful. Despite discrepancies in
verifying certain sales and cost information, these four companies
assert that they provided alternative information sufficient to verify
the data in their questionnaire responses and that they have cooperated
to the best of their abilities. Respondents maintain that the conduct
of SMC and FMEC is neither wholly unresponsive, blatantly
uncooperative, nor resulted in any significant impediments to the
verification or review. SMC claims that its conduct demonstrates an
effort to comply with the Department's information requests and
precludes any application of AFA. Similarly, Respondents stress that
the inability of FMEC to provide certain documents to the Department
does not evidence any level of non-cooperation or willful withholding
of information, but rather resulted from unfortunate timing.
Respondents further claim that Factories A and B were prepared for
verification and did cooperate to the best of their ability. Outlining
the data the factories did supply, Respondents argue that their conduct
does not warrant application of AFA.
Respondents insist that the Department cannot expect companies to
prepare and maintain records solely for purposes of the antidumping
statute. Respondents claim that, while the Department in its AFA memo
repeatedly points to a failure of Respondents to provide financial
statements to tie in to their production records, this expectation is
unreasonable unless such a financial statement is kept in the ordinary
course of business. In this case, Respondents argue, the companies do
not prepare internal financial statements, and the verification should
have been limited instead to an examination of ``whether the allocation
methods are used in the normal accounting records and whether they have
been historically used by the company.'' See Certain Cut-to-Length
Carbon Steel Plate from Mexico: Final Results of Antidumping Duty
Administrative Review, 64 FR at 77 (January 4, 1999). Applying that
standard, the records provided to the Department at the verifications
are the normal accounting records and methods used historically by
Respondents. Further, the Respondents argue that by providing these
records, use of AFA cannot be supported or sustained.
Finally, Respondents contend that the PRC-wide rate assigned to
FMEC and SMC is based on tainted steel surrogate data from the second
review, and that, even if the Department resorts to AFA, it has to have
some basis for the rates selected. Respondents claim that the
preliminary PRC-wide rates, which were applied to FMEC and SMC, are
invalid as a matter of law. Respondents assert that these rates, taken
from the 1992-1993 review, were changed due to the remand in Olympia
Indus., Inc. v. United States, Consol. Ct. No. 95-10-01339, (Slip Op.
98-49 (April 17, 1998) (Olympia), which the Court affirmed on February
17, 1998. Thus, Respondents argue, the Department has no legal
authority to assert AFA rates or PRC-wide rates based on rates which
the Department has itself acknowledged contain ``aberrational'' data.
Petitioner asserts that the Department correctly assigned AFA to
SMC and FMEC for their lack of cooperation during verification.
Petitioner points out that both SMC and FMEC failed to provide
financial information at verification to confirm sales and ownership
data. SMC failed to verify its Agriculture Tool Department's sales,
failed to reconcile its 1997 financial record, and failed to confirm
its ownership stake in SMC Pacific Tool. Similarly, FMEC failed to
provide numerous financial statements containing important sales data,
and failed to provide accounting records regarding its affiliation with
a U.S. party. Petitioner claims that these deficiencies prevented the
Department from using the Respondents' data to calculate margins, and
from evaluating whether the Respondents should be given separate
margins or should be considered a single PRC entity.
Department's Position
We disagree with Respondents that adverse inferences are not
warranted in this case. With respect to the PRC, FMEC, SMC, and their
supplying factories A and B, we found that these parties did not
cooperate to the best of their abilities. On April 23, 1998, the
Department sent a questionnaire to the Ministry of Foreign Trade and
Economic Cooperation (``MOFTEC'') in order to collect information
relevant to the calculation of the PRC-wide rate. MOFTEC did not
respond. SMC and FMEC likewise did not justify separate rates or
provide a consolidated response representing all non-independent
exporters of HFHTs. In addition, as discussed above in comments 2
through
[[Page 43668]]
5, the accuracy of SMC's and FMEC's individual responses could not be
substantiated at verification. These verification failures were the
direct result of these companies' failure to supply a wide variety of
requested information.
We also disagree with Respondents' claims that the same facts that
caused the Department not to apply AFA in Mushrooms from Chile exist in
these reviews. In Mushrooms from Chile, the Department applied the
criteria established in section 782(e) of the Act, which directs the
Department to consider information, even if the information did not
meet all the Department's requirements, if: (1) The information is
submitted within the established deadlines; (2) the interested party
acted to the best of its ability in providing the requested
information; (3) the information can be verified; (4) the information
is not so incomplete that it cannot serve as a reliable basis for
reaching a determination; and (5) the information can be used without
undue difficulties. After reviewing the record of the investigation in
Mushrooms from Chile, the Department decided that it was not
appropriate to reject the respondent's data in its entirety, but to
apply partial facts available. Contrary to the facts involved in the
Chilean mushroom investigation, the inaccuracies and unverified
information in SMC's and FMEC's responses in the HFHTs' proceedings,
when taken in total, are so substantial that they prevent the
Department from using any part of SMC's or FMEC's responses to
determine whether dumping margins exist. Consequently, the Department
finds that, pursuant to sections 776(a)(2)(D) and 776(b), the use of an
adverse inference is appropriate in determining dumping margins, as
these entities have not acted to the best of their abilities to comply
with our requests for information.
As explained in the following comment entitled ``Separate Rates,''
the PRC entity, which did not respond to our information requests,
includes both SMC and FMEC, as these firms were not able to justify
being assigned separate rates for any class or kind of HFHT. Pursuant
to section 776(b) of the Act, we are relying on AFA to determine the
margin for the PRC-wide entity. This is consistent with the
Department's practice in cases where a firm fails verification or the
Department receives no response to its questionnaires. See Natural
Bristle Paintbrushes.
For each of these HFHTs' proceedings, we have used as AFA for the
PRC-wide rate the highest rate from any segment of the respective
proceedings. Specifically, the highest rates are: 18.72 percent for
axes/adzes; 47.88 percent for bars/wedges; 27.71 percent for hammers/
sledges; and 98.77 percent for picks/mattocks.
As to the Respondents' claim that the PRC-wide rates that we
selected for the preliminary results are not appropriate due to changes
in the rates as a result of litigation on the 1992-1993 review, we
agree. The Department reviewed the PRC-wide rates on remand in Olympia
and stated that it had eliminated Japanese exports to India for the
purposes of valuing the steel input factor in the final results of the
1992/1993 HFHT reviews, thereby lowering the margins in these cases. We
have taken the Olympia decision into account when we reviewed the
highest rates from any segment of these respective proceedings.
Comment 7: Separate Rates
Respondents argue that the Department had no basis in law or fact
to deny separate rates for FMEC and SMC. Respondents argue that no part
of the verification addressed the separate rates issue, and that the
first mention of this issue was in the preliminary results notice.
Respondents argue that for de jure control, the verifiers looked at
FMEC's business license, that the verifiers noted no restrictive
stipulations, and that the record shows no government control. For de
facto control, Respondents argue, the reports show that FMEC and SMC
set their own prices, kept the proceeds, negotiated their contracts,
and selected their own management.
Respondents further raise the question, if the Department's policy
that ``separate rates questionnaire responses must be evaluated each
time a respondent makes a separate rates claim,'' why did the
Department's verification outline fail to include any separate rates'
questions? Respondents argue that the Department's citation to
Manganese Metal from the People's Republic of China, Final Results and
Partial Rescission of Antidumping Duty Administrative Review, 63 FR
12441 (March 13, 1998), is misplaced, because it does not involve a
change in the Department's granting a separate rate following a
verification. Additionally, Respondents argue that the Department's
basis for denying separate rates rested on Respondents' failure to
provide information that was irrelevant to this issue. Accordingly,
Respondents claim that the Department abused its discretion in denying
separate rates for FMEC and SMC.
Respondents stress that the Department determined that FMEC and SMC
qualified for separate rates in the previous five administrative
reviews. Citing Certain Iron Construction Castings from the People's
Republic of China; Final Results of Antidumping Duty Administrative
Review, 57 FR 24245 (June 8, 1992), Respondents claim that it is the
Department's practice to maintain separate rates unless there is an
indication that a Chinese company's status has changed.
Petitioner supports the Department's decision to assign the PRC-
wide rate to both SMC and FMEC, as AFA. Petitioner claims that
Respondents failed to provide the Department with verified information
regarding their eligibility for separate rates. Petitioner disagrees
with Respondents that the record shows that FMEC and SMC set their own
prices, kept the proceeds, negotiated their contracts, and selected
their own management. Petitioner claims that the problems at
verification resulted in the Department's inability to verify U.S.
sales and to verify affiliations which could have a direct impact on
the Department's separate rate determination. Petitioner notes that,
while the Department has, in other cases, calculated separate rates for
Respondents that failed verification, the present case is factually
different from those circumstances. Citing Natural Bristle Paintbrushes
and Brush Heads From the People's Republic of China; Preliminary
Results and Partial Recission of Antidumping Duty Administrative
Review, 64 FR 2192 (Jan. 13, 1999) (Natural Bristle Paintbrushes
Prelim), Petitioner claims that Respondents in that case warranted a
separate rate based on the fact that the verification failure resulted
from the Department's inability to verify the information provided by
the supplier, and not from any discrepancies in the information
provided by the exporter; and that verification of the company revealed
that it warranted a separate rate. Thus, Petitioner argues that the
Natural Bristle Paintbrushes Prelim is distinguishable from this case.
Petitioner also claims that assigning the PRC-wide margins to SMC
and FMEC as AFA is appropriate regardless of the separate rate
analysis, because the PRC-wide rates are the highest margins calculated
in any prior segment of these cases. Petitioner claims that SMC and
FMEC warrant the highest rate calculated because they failed to
cooperate to the best of their abilities in verifying their cost and
sales data. In similar situations, Petitioner claims that the
Department has assigned AFA citing Natural Bristle Paintbrushes Prelim
and Elemental Sulphur from Canada; Final Results of Antidumping
Administrative
[[Page 43669]]
Reviews, 62 FR 37958 (July 15, 1997). Further, Petitioner suggests that
by assigning the PRC-wide rate to SMC and FMEC, the Department will
ensure that these companies will not benefit from their lack of
cooperation.
Department's Position
We disagree with Respondents' assertion that the record supports a
finding of separate rates for FMEC and SMC. As stated in the
preliminary results of these reviews, the failure to satisfy requests
for information that would confirm various elements of these firms'
questionnaire responses directly compromised the information that
formed the basis of these entities' separate rates' claims. More
specifically, we determined that, due to the nature of the verification
failures of SMC and FMEC and the inadequacy of their cooperation, it
was not possible to confirm information regarding these entities'
affiliations, ownership arrangements, and corporate structure. See
Heavy Forged Hand Tools From the People's Republic of China:
Preliminary Results of Antidumping Duty Administrative Review, 64 FR
5770 (February 5, 1999). Thus, even though we did not directly examine
all aspects of these firms' separate rates' claims at verification, the
separate rates' claims were called into question because the data
unsuccessfully addressed at verification were key to our separate
rates' analysis.
Comment 8: Surrogate Value for Steel
For HFHTs that are not made from scrap, Petitioner argues that the
Department erred in selecting its steel surrogate values. In the
previous administrative reviews of this case, the Department valued
steel inputs for these tools based upon HTS category 7214.50, the
classification for forged bars and rods. However, in this review, based
on the descriptions of the production process in the record, the
Department decided to use HTS category 7207.20.09, the classification
for semi-finished steel, to value the steel input. Petitioner claims
that HTS category 7207.20.09 is not appropriate because it covers
billets and blooms that must be further hot-rolled to ensure that they
meet the tolerances necessary to be forged into hand tools. While
Petitioner acknowledges that the petition did refer to the raw material
for HFHTs as a ``billet,'' Petitioner maintains that the Respondents do
not hot roll semi-finished steel billets in their production process.
Instead, according to the Respondents' questionnaire responses, the
hand tool manufacturers purchase finished round bars, cut them to
proper length, and then forge them into tools. Petitioner contends that
because ``bars'' are used in the Respondents' production process, it is
not appropriate to use an ``unfinished'' product to value the steel
input into HFHTs. Petitioner argues that the use of HTS category
7207.20.09 is inconsistent with the statutory mandate, because it is
unrelated to the factors of production that are utilized in producing
subject merchandise. The proper category to value the steel input is
HTS category 7214.50 because it includes finished bars.
Respondents support the Department's use of the HTS category
7207.20.09 to value the steel input, claiming that it constitutes the
best available information regarding the materials being used by the
HFHT manufacturers to produce subject merchandise. While the
Respondents agree that the Department used the correct HTS category to
value steel inputs, the Respondents contend that the Department should
recalculate the surrogate value within the HTS subheading used. More
specifically, Respondents argue that the April-September 1997 Indian
Imports from Germany and Qatar under HTS category 7207.20.09 are
aberrational in price and therefore should be disregarded to avoid
distorting the per unit value for steel. Respondents cite the
Department's final remand results in Olympia, arguing that the
Department's decision in that review to disregard certain Japanese
imports as aberrational suggests that the Department should disregard
the imports from Germany and Qatar in this review, because they are
similarly aberrational.
Finally, Respondents claim the Department double-counted the values
for steel in the month of April 1997.
Department's Position
We disagree with Petitioners. In our preliminary review results we
stated that we had changed the HTS category that we used to value steel
from 7214.50 used in previous reviews to 7207.20.09 because the former
covered ``finished rods and bars'' and the latter covered
``unfinished'' steel. This was based on our analysis of the petition,
the ITC report, the questionnaire responses in this review segment, the
HTS, and conversations with product experts. This analysis suggested
that the input material used by the PRC producers was unfinished and
that the input material underwent a number of operations which could be
characterized as ``finishing'' operations, including forging.
However, in reviewing this analysis in light of the comments raised
by the parties we realized that our use of the term ``unfinished'' was
somewhat imprecise in the discussion regarding the choice of
appropriate surrogate values. One of the primary differences between
HTS categories 7214.50 and 7207.20.09 is that the former covers ``bars
and rods'' and the latter covers ``ingots and other primary forms''
(including billets). Thus, in considering which of these categories
most closely reflects the input materials used by respondents, the most
important determinant is whether the steel input for the HFHTs in
question is closest to a billet or a bar, not whether the input is
``finished'' or ``unfinished.''
In reviewing the record evidence we noted that both Respondents and
Petitioners used a variety of terms to describe the input materials.
The petition originally filed in this proceeding describes the input
material as ``fine grain special bar quality carbon steel'' in one
place, and as a ``billet'' in another. See Petition for the Imposition
of Antidumping Duties on Heavy Forged Hand Tools, With or Without
Handles, from the People's Republic of China, at pages 14 and 35,
respectively (April 4, 1990). Similarly, Respondents refer to the input
materials as ``ordinary merchant grade 1045 steel bar'' and
``billets.'' See TMC's and Shandong Huarong's Response to the
Department's April 23, 1998 Questionnaire--Section C and D (June 24 and
26, 1998). In order to address this issue we asked Respondents a series
of questions designed to clarify the type of input used. See June 18
letter to Respondents regarding Steel Value. Their responses indicated
that they used billets. See Shandong Huarong and TMC Response to
Department's June 18, 1999 Supplemental Questionnaire (June 23, 1999).
Accordingly, for these final review results, we continue to hold that
HTS category 7207.20.09 is a better HTS category to value the steel
input used in the HFHTs in question because it covers billets, not
bars.
We also disagree with Petitioner's assertion that this category is
inappropriate because it covers both semi-finished billets and blooms.
Almost all of the HTS categories we use cover a range of products, some
of which include products other than the specific input in question.
Nevertheless, the category selected is still the factor value on the
record of this review that most closely resembles the production input
actually used by the PRC producers.
We disagree with Respondents' claim that the Department incorrectly
double-counted the values for steel in the month of April 1997.
However, we
[[Page 43670]]
identified an error in the calculation of unit values derived from the
April-September time period which we have corrected in these final
review results. In addition, we agree with Respondents' final claim
that the average unit values for steel imports from Germany and Qatar
under this HTS category are so substantially higher when compared with
the great majority of other imports under this category that they are
aberrational. As such we have excluded these imports from our analysis.
Comment 9: Surrogate Value for Steel Scrap
Petitioner argues that for HFHTs made from scrap railroad wheels
and rails, the record evidence does not support using HTS category
7204.41 to value Respondents' steel input. Petitioner claims that
railroad wheels used as scrap are not classified under HTS category
7204.41. Furthermore, Petitioner contends that the used railroad wheels
and rails that are resold in the scrap market command almost twice the
price of scrap that is resold in the form of mill waste, turnings, and
shavings. According to Petitioner, railroad scrap is a premium quality
scrap as opposed to the scrap by-products that are covered under HTS
category 7204.41, an item number which generally encompasses the
cheapest grades of scrap available. As evidence Petitioner cites to
experience in the U.S. scrap market where used railroad wheels command
almost twice the price of certain other scrap forms. Petitioner
therefore maintains that the scrap steel should be valued as bars under
HTS category 7214.50. However, if the Department continues to use HTS
category 7204.41, Petitioner argues that the Department should take
into account the scrap market data discussed above and double the unit
value we derive from the import statistics. Petitioner further notes
that the Department has never verified TMC's use of railroad wheels in
the production process for certain HFHTs.
Respondents argue that the Department used the correct HTS category
to value the scrap steel input and oppose Petitioner's suggestion that
the average import unit value be doubled to reflect the value of the
scrap railroad wheels. Respondents contend that the statute requires
the Department to use surrogate values when they are available, not
U.S. experience. In addition, respondents oppose HTS category 7214.50,
the input classification that Petitioner advocates, because it does not
include used railroad wheels and rails. Respondents argue in addition
that Petitioner made no timely request that the Department conduct a
verification of TMC.
Department's Position
Based on the arguments raised by the parties, subsequent to the
preliminary review results, we identified a new value for scrap which
may more closely resemble the production input actually used by
respondents. This value, HTS category 7204.49, encompasses heavier
scrap steel than the category previously used. This category is
significantly closer to the scrap railroad wheels and rails that the
Respondents use than the mill waste, turnings, and shavings that are
classified under HTS category 7204.41. See Memorandum to the File
regarding Selection of Scrap Steel, dated June 7, 1999.
Comment 10: NME Shipments
The Respondents claim that the Department made a clerical error
when we included imports from the Democratic People's Republic of Korea
(the DPRK) but not imports from the Republic of Korea (the ROK) in the
Indian import statistics used to value certain FOPs for HFHTs.
Department's Position
We agree with the Respondents that an error occurred when we
inadvertently included import data for shipments from the DPRK, but
omitted the import data for shipments from the ROK in establishing
factor values. It is the Department's practice to exclude from the
import data used to value FOP import information pertaining to NMEs.
Consequently, the Department has included the import data from the ROK
and omitted the import data from the DPRK in these final review
results.
Comment 11: Ocean Freight Rate for SHGC
Respondents claim that the Department should have used market value
ocean freight rates for all SHGC shipments since it represents the best
information available. Instead, the Department used surrogate value
ocean freight rates for all shipments except one. The one exception
concerned a shipment by SHGC that was transported by a market economy
vendor and paid for by SHGC using a market economy currency. It is the
market economy rates used for this shipment that Respondents argue the
Department should use to value all ocean freight for SHGC.
Petitioner did not comment on this issue.
Department's Position
We disagree with the Respondents. Record evidence indicates that,
with one exception, SHGC used NME carriers for its shipments. Since,
with this one exception, SHGC did not use a market economy vendor or
pay market economy prices for its shipments, we appropriately used
surrogate values for all but this one shipment. This is consistent with
our longstanding practice of using actual prices only when the NME
producer (1) sources an input from a market economy country; and (2)
pays for the input in a market economy currency. See, e.g., Final
Determination of Sales at Less than Fair Value: Chrome Plated Lug Nuts
From the People's Republic of China, 56 FR 46153 (September 10, 1991);
Final Determination of Sales at Less Than Fair Value: Oscillating Fans
and Ceiling Fans From the People's Republic of China, 56 FR 55271,
55274-75 (October 25, 1991); Final Determination of Sales at Less Than
Fair Value: Saccharin from the People's Republic of China, 59 FR 58818,
58822-23 (November 15, 1994); Notice of Final Determination of Sales at
Less Than Fair Value: Disposable Pocket Lighters From the People's
Republic of China, 60 FR 22359, 22366 (May 5, 1995); Tapered Roller
Bearings and Parts Thereof, Finished and Unfinished, From the People's
Republic of China; Final Results of Antidumping Duty Administrative
Reviews, 61 FR 65527, 65553 (December 13, 1996).
We also disagree with Respondents' claim that the one market
economy currency transaction is the ``best available information'' for
valuing the remaining NME transactions because that value reflects the
``actual'' value of ocean freight. This contention is without merit.
Respondents have not suggested why, nor provided any information to
support the argument that, this one market economy transaction is a
better surrogate value than the value we used from a comparable
economy, as is our normal practice.
Comment 12: The Surrogate Value for Coal
The Respondents argue that the Department should abandon the data
source it used to price coal and value this input using the more
contemporaneous Indian import statistics for coal imported during the
POR. Respondents note that the Department relied on Indian import
statistics for valuing coal expenditures in the 96-97 Preliminary
Results of Antidumping Duty Administrative Review of Certain Helical
Spring Lock Washers from the People's Republic of China, 63 FR 60299
(November 9, 1998) (Helical Spring Lock Washers). Thus,
[[Page 43671]]
Respondents claim that the Department should do the same here.
Petitioner did not comment on this issue.
Department's Position
We disagree with Respondents. Respondents cite to an earlier review
result in another proceeding as support for their claim that the
Department should use Indian import statistics to value coal. However,
the Department's decision on factor valuation is based on the best
information available in each review segment. In this case, we used
information from the International Atomic Energy Agency's Publication,
Energy Prices and Taxes, Second Quarter 1998, to value coal because the
publication provided values for coal on a more specific basis. In
particular, this publication provided values for coal used in
industrial applications. The Indian import statistics for coal that
Respondents recommend do not distinguish between coal used for
household and industrial applications. Because the use of coal in HFHT
production is an industrial application, we believe the value for coal
used in industrial applications is more specific and more reflective of
this factor's value.
Comment 13: The Surrogate Value for Cartons
Respondents argue that the Department should use the most recent
Indian import statistics to value cartons even though the statistical
reporting unit for more recent imports under this HTS category is no
longer kilograms, the unit Respondents used for this production factor.
Respondents argue that these data are more contemporaneous.
Petitioner did not comment on this issue.
Department's Position
We disagree. Respondents reported their carton data on a per
kilogram basis. In order to accurately value this production factor, we
use data that are reported on a per kilogram basis. As a result, for
these final results, the Department used Indian import statistics for
cartons from an earlier time period, February 1995, when the
statistical reporting unit for the HTS category in question was still
kilograms. As we discussed in the HFHTs Prelims, we adjusted these data
using the wholesale price indices for India reported in the IMF's
publication, International Financial Statistics, to account for price
differences between the period of the FOP data and the POR.
Comment 14: Truck Freight
The Respondents claim that the Department double-counted the truck
freight expense, by including both mileage and factory overhead in its
factor valuation. Respondents suggest that, where a company uses its
own trucks, the Department should simply assume these expenses are
included as part of a company's factory overhead. In the alternative,
Respondents argue that the Department should use the Times of India
truck rate for all domestic truck transportation, rather than using
this rate only in those instances when transportation was provided by
company-operated trucks. While Respondents acknowledge that the Times
of India truck rate covers company-operated trucks, not non-company
operated trucks, they nonetheless cite Helical Spring Lock Washers,
noting that in that case, the Department used the Times of India rate
for all domestic truck transportation.
Department's Position
We disagree with Respondents. First, Respondents have provided no
evidence to demonstrate that truck expenses are already included in
factory overhead. Second, the Department treats the cost of operating
the company's own vehicles as a separate, distinguishable expense from
the costs related to use of non-company operated trucks. We used the
Times of India rate to value the cost of a company-operated truck
because this is the most appropriate surrogate value. For non-company
operated trucks, i.e., the purchase of freight delivery services in the
PRC, we used information contained in an August 1993 embassy cable,
which we have placed on the record of these reviews, describing the
cost of truck transportation for an Indian company located in Bombay
used in the Final Determination of Sales at Less Than Fair Value:
Certain Helical Spring Lock Washers from the People's Republic of China
(58 FR 48833). We also disagree that Helical Spring Lock Washers
supports using company-operated truck rates for valuing all truck
transportation. In that review segment the Department used only
company-operated truck rates to value truck transportation because the
company used only company-operated trucks during the POR.
Comment 15: Selling, General, and Administrative Expenses (SG&A),
Factory Overhead, and Profit
Respondents claim that the surrogate values used for calculating
SG&A, factory overhead, and profit were from large industries and
therefore not appropriate for the small companies engaged in producing
the subject material. Citing Helical Spring Lock Washers, Respondents
argue that despite the Department's practice of using the most
contemporaneous data available, Commerce should use the data for
smaller companies from other reviews in this case because these data
are more representative of the business conditions in China and the
industry producing HFHTs.
Petitioner argues that the Department should maintain the use of
the current surrogate values for SG&A, factory overhead, and profit,
since they are more contemporaneous.
Department's Position
We agree with the Respondents. For these final review results we
valued the factors for factory overhead, SG&A, and profit using the
surrogate data employed for these factors in Helical Spring Lock
Washers. More specifically, these data were derived from the Reserve
Bank of India Bulletin, a publication that we have placed on the record
of this review and reflects the experience of companies from smaller
industries. The PRC producers subject to this review are small
producers. Thus, the surrogate data used in Helical Spring Lock Washers
is more appropriate for valuing SG&A, factory overhead, and profit,
because it is more reflective of the business experience of small
industries, and therefore, the HFHTs' sector.
Final Results of the Reviews
As a result of our reviews, we have determined that the following
margins exist for the period February 1, 1997 through January 31, 1998:
------------------------------------------------------------------------
Margin
Manufacturer/exporter Time period (percent)
------------------------------------------------------------------------
Shandong Huarong General Group
Corporation
Bars/Wedges........................ 2/1/97-1/31/98 1.27
Axes/Adzes......................... 2/1/97-1/31/98 18.72
Liaoning Machinery Import & Export
Corporation
Bars/Wedges........................ 2/1/97-1/31/98 0.00
[[Page 43672]]
Tianjin Machinery Import & Export
Corporation
Hammers/Sledges.................... 2/1/97-1/31/98 0.14
Picks/Mattocks..................... 2/1/97-1/31/98 0.00
Bars/Wedges........................ 2/1/97-1/31/98 47.88
Axes/Adzes......................... 2/1/97-1/31/98 18.72
PRC-wide rates
Axes/Adzes......................... 2/1/97-1/31/98 18.72
Bars/Wedges........................ 2/1/97-1/31/98 47.88
Hammers/Sledges.................... 2/1/97-1/31/98 27.71
Picks/Mattocks..................... 2/1/97-1/31/98 98.77
------------------------------------------------------------------------
The Department shall determine, and Customs shall assess,
antidumping duties on all appropriate entries. Pursuant to 19 CFR
351.212(b)(1), where we analyzed and used a company's response in
issuing these final review results, we have calculated an importer-
specific duty assessment rate by dividing the total amount of dumping
margins calculated for sales to each importer by the total number of
units of those same sales sold to that importer. The unit dollar amount
will be assessed uniformly against each unit of merchandise of that
specific importer's entries during the POR. As discussed above, SMC and
FMEC did not justify receiving separate rates. They are covered by the
PRC-wide rates for the different classes or kinds of HFHTs. Where a
rate is based on FA, this rate will be uniformly applied to all imports
of that merchandise. In accordance with 19 CFR 351.106(c)(2), we also
will instruct Customs to liquidate without regard to antidumping duties
any entries for which the importer-specific antidumping duty assessment
rate is de minimis, i.e., less than 0.5 percent. The Department will
issue appraisement instructions directly to Customs.
Furthermore, the following cash deposit requirements will be
effective upon publication of this notice of final results of reviews
for all shipments of HFHTs from the PRC entered, or withdrawn from
warehouse, for consumption on or after the publication date of this
notice, as provided for by section 751(a)(1) of the Act: (1) The cash
deposit rates for the reviewed companies named above which have
separate rates (SHGC, LMC, and TMC) will be the rates stated above for
those firms and for the classes or kinds of HFHTs listed above; (2) for
any previously reviewed PRC and non-PRC exporter with a separate rate,
(including those companies and products where we terminated the
review), the cash deposit rate will be the company-and product-specific
rate established for the most recent period; (3) for all other PRC
exporters, including SMC and FMEC, which failed to justify receiving
separate rates in this segment of the proceeding, the cash deposit
rates will be the product-specific PRC-wide rates as stated above; and
(4) the cash deposit rates for non-PRC exporters of subject merchandise
from the PRC will be the product-specific rates applicable to the PRC
supplier of that exporter. These cash deposit requirements shall remain
in effect until publication of the final results of the next
administrative review.
This notice serves as a final reminder to importers of their
responsibility under section 351.402(f) of the Department's regulations
to file a certificate regarding reimbursement of antidumping duties
prior to liquidation of the relevant entries during this POR. Failure
to comply with this requirement could result in the Secretary's
presumption that reimbursement of antidumping duties occurred and the
subsequent assessment of double the amount of antidumping duties.
This notice also serves as a reminder to parties subject to
administrative protective order (APO) of their responsibility
concerning the disposition of proprietary information disclosed under
APO in accordance with section 351.305(a)(3) of the Department's
regulations. Timely written notification of the return/destruction of
APO materials or conversion to judicial protective order is hereby
requested. Failure to comply with the regulations and the terms of an
APO is a sanctionable violation.
These administrative reviews and notice are in accordance with
sections 751(a)(1) and 777(i)(1) of the Act (19 U.S.C. 1675(a)(1) and
1677f(i)(1)).
Dated: August 4, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-20739 Filed 8-10-99; 8:45 am]
BILLING CODE 3510-DS-P
