[Federal Register Volume 62, Number 158 (Friday, August 15, 1997)]
[Notices]
[Pages 43701-43709]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-21710]
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-433-807]
Notice of Final Determination of Sales at Less Than Fair Value:
Open-End Spun Rayon Singles Yarn From Austria
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: August 15, 1997.
FOR FURTHER INFORMATION CONTACT: Russell Morris or Robert Copyak,
Office of CVD/AD Enforcement VI, Import Administration, International
Trade Administration, U.S. Department of Commerce, Room 4012, 14th
Street and Constitution Avenue, N.W., Washington, D.C. 20230; telephone
(202) 482-2786.
The Applicable Statute
Unless otherwise indicated, all citations to the statute are
references to the provisions of the Tariff Act of 1930, as amended by
the Uruguay Round Agreements Act effective January 1, 1995 (the
``Act''). In addition, unless otherwise indicated, all citations to the
[[Page 43702]]
Department's regulations are to 19 CFR Part 353 (1997).
Final Determination
We determine that open-end spun rayon singles yarn from Austria is
being, or is likely to be, sold in the United States at less than fair
value (``LTFV''), as provided in section 735 of the Act.
Case History
Since the preliminary determination in this investigation (Notice
of Preliminary Determination of Sales at Less Than Fair Value and
Postponement of Final Determination: Open-End Spun Rayon Singles Yarn
from Austria, (62 FR 14399 (March 26, 1997)), the following events have
occurred:
In May, we verified the questionnaire responses of respondents,
Linz Textil GmbH (Linz) and G. Borckenstein und Sohn A.G.
(Borckenstein). Petitioner, The Ad-Hoc Committee of Open-End Rayon Yarn
Producers, and respondents submitted case briefs on June 30, 1997, and
rebuttal briefs on July 7, 1997.
Scope of Investigation
The investigation covers all items of open-end spun singles yarn
containing 85% or more rayon staple fiber. The merchandise is
classifiable under subheading 5510.11.0000 of the Harmonized Tariff
Schedule of the United States (HTSUS). Although the HTSUS subheading is
provided for convenience and for Customs purposes, our written
description of the scope of this investigation is dispositive.
Period of Investigation
The period of investigation (POI) is July 1, 1995 through June 30,
1996.
Fair Value Comparisons
To determine whether sales to the United States of the subject
merchandise by respondents were made at less than fair value, we
compared the Export Price (``EP'') to the Normal Value (``NV''), as
described in the ``Export Price'' and ``Normal Value'' sections of this
notice. As set forth in section 773(a)(1)(B)(i) of the Act, we
calculated NV based on sales at the same level of trade as the U.S.
sale. In accordance with section 777A(d)(1)(A)(i), we compared the
weighted average EPs to weighted-average NVs during the POI. In
determining averaging groups for comparison purposes, we considered the
appropriateness of such factors as physical characteristics.
1. Physical Characteristics
In accordance with section 771(16) of the Act, we considered all
products covered by the description in the ``Scope of Investigation''
section, above, produced in Austria by the respondents and sold in the
home market during the POI, to be foreign like product for purposes of
determining appropriate product comparisons to U.S. sales. Where there
were no sales of identical merchandise in the home market to compare to
U.S. sales, we compared U.S. sales to the most similar foreign like
product on the basis of the characteristics listed in the Department's
antidumping questionnaire. In making the product comparisons, we relied
on the following criteria (listed in order of preference): weight,
percentage of rayon fiber, color, denier, finish, and luster. All
comparisons were based on the same grade of yarn.
2. Level of Trade
In the preliminary determination, the Department determined that no
difference in level of trade existed between home market and U.S. sales
for either Borckenstein or Linz (Notice of Preliminary Determination of
Sales at Less Than Fair Value and Postponement of Final Determination:
Open-End Spun Rayon Singles Yarn from Austria, (62 FR 14399 (March 26,
1997)). Our findings at verification confirmed that Borckenstein and
Linz performed essentially the same selling activities for all reported
home market and U.S. sales. Accordingly, we determine that all price
comparisons are at the same level of trade and an adjustment pursuant
to section 773(a)(7)(A) is unwarranted.
Export Price
We calculated EP, in accordance with subsections 772 (a) and (c) of
the Act, for each of the respondents, where the subject merchandise was
sold directly to the first unaffiliated purchaser in the United States
prior to importation and use of constructed export price (CEP) was not
otherwise warranted based on the facts of record.
We made company-specific adjustments as follows:
1. Linz
We calculated EP based on packed, delivered/duty paid and f.o.b.
prices to unaffiliated customers in the United States. Where
appropriate, we made deductions from the starting price (gross unit
price) for the following charges: Austrian inland freight (which
included brokerage), insurance (which included inland and marine
insurance), ocean freight, U.S. duty, clearing charges, bond expenses,
U.S. freight and post-sale warehousing, in accordance with section
772(c)(2).
Linz reported that it did not borrow in U.S. dollars during the
POI. In accordance with the Department's policy (see, e.g., Notice of
Final Results of Antidumping Duty Administrative Review: Certain Cut-
to-Length Carbon Steel Plate from Sweden, (61 FR 15780, April 9,
1996)), we recalculated the U.S. imputed credit expense using the
average short-term lending rates published by the Federal Reserve as
surrogate U.S. interest rates, for purposes of making the circumstance
of sale adjustment for this expense. In addition, in the preliminary
determination, we treated post-sale warehousing as a circumstance of
sale adjustment. For the final determination, we have deducted post-
sale warehousing from the export price because it is a movement expense
(see, e.g., Certain Stainless Steel Wire Rods from France: Final
Results of Antidumping Duty Administrative Review, (62 FR 7206,
February 18, 1997)).
Based on our verification findings, we deducted an additional small
movement expense, called the ``vorlage,'' which Linz had omitted in
reporting movement charges to the United States (see Comment 2).
2. Borckenstein
For Borckenstein, we calculated EP based on packed, CIF, U.S. port
prices to an unaffiliated customer in the United States. Where
appropriate, we made deductions from the starting price (gross unit
price) for international freight (which included freight from the plant
to port of export and ocean freight) and marine insurance, in
accordance with section 772(c)(2)(A).
We have considered petitioner's request to use CEP. Based on our
analysis and verification findings, however, we do not find that
sufficient evidence exists to indicate that the sole U.S. importer and
Borckenstein are affiliated parties. Pursuant to section 771(33) of the
Act, we reviewed Borckenstein's relationship with the U.S. importer
during verification and determined that petitioner's claim is
unwarranted (see Comment 10).
We made the following correction, based on our verification
findings. In our preliminary determination, we treated the U.S.
commissions paid by Borckenstein to its U.S. selling agent as rebates.
Upon a thorough review of documentation during verification, and our
analysis of arguments from interested parties, we have determined that
the fee paid by Borckenstein to its selling agent on U.S. sales is a
commission (see Comment 14).
[[Page 43703]]
Normal Value
Cost of Production Analysis
As discussed in the preliminary determination, the Department found
reasonable grounds to believe or suspect that Linz's and Borckenstein's
sales in the home market were made at prices below the cost of
producing the merchandise. As a result, the Department initiated an
investigation to determine whether Linz and Borckenstein had made home
market sales during the POI at prices below their respective cost of
production (``COP'') within the meaning of section 773(b) of the Act.
Although the Department was unable to include a COP analysis of
Borckenstein's home market sales in the preliminary determination, the
final determination does include a COP analysis of Borckenstein's home
market sales.
Before making any fair value comparisons, we conducted the COP
analysis described below for each company:
1. Linz
A. Calculation of COP
We calculated the COP based on the sum of Linz's cost of materials
and fabrication for the foreign like product, plus amounts for home
market selling, general and administrative expenses (``SG&A'') and
packing costs in accordance with section 773(b)(3) of the Act.
In calculating Linz's SG&A, we adjusted the submitted net interest
expense amount to include only short-term interest income as an offset
(see Comment 8).
B. Test of Home Market Prices
We compared the respondent's submitted POI weighted-average COP
figures, as adjusted, to home market sales of the foreign like product
as required under section 773(b) of the Act, in order to determine
whether these sales had been made at below-cost prices within an
extended period of time in substantial quantities, and whether the
below-cost prices would permit recovery of all costs within a
reasonable period of time. On a product-specific basis, we compared the
COP to the home market prices, less any applicable movement charges and
direct selling expenses. As in our preliminary determination, we did
not deduct indirect selling expenses from the home market price because
these expenses were included in the SG&A rate for COP.
C. Results of COP Test
Pursuant to section 773(b)(2)(C) of the Act, where less than 20
percent of a respondent's sales of a given product are at prices less
than COP, we do not disregard any below-cost sales of that product
because we determined that the below-cost sales were not made in
``substantial quantities.'' Where 20 percent or more of a respondent's
sales of a given product during the POI are at prices less than the
COP, we determine such sales to have been made in ``substantial
quantities'' within an extended period of time in accordance with
section 773(b)(2)(B) of the Act, and not made at prices which would
permit recovery of all costs within a reasonable period of time, in
accordance with section 773(b)(2)(D) of the Act. In such cases, we
disregard the below-cost sales. Under the Department's practice, when
all sales of a specific product are at prices below the COP, we
disregard all sales of that product, and calculate NV based on
constructed value (``CV'').
Based on our COP test, we found that less than 20 percent (by
quantity) of Linz's sales of a given product were at less than COP.
Thus, we did not disregard any below-cost sales. For matching purposes,
export prices were compared to home market prices for all comparisons,
and CV was not required.
D. Price to Price Comparison
We calculated NV based on packed, delivered prices to unaffiliated
customers and prices to affiliated customers where the sales were made
at arm's length. Where appropriate, we made deductions from the
starting price (gross unit price) for foreign inland freight and inland
insurance, in accordance with section 773(a)(6)(B). In addition, where
appropriate, we adjusted for differences in circumstances of sale for
credit expenses and commissions (including appropriate offsets), in
accordance with section 773(a)(6)(C)(iii). We also deducted home market
packing costs and added U.S. packing costs, in accordance with section
773(a)(6) (A) and (B) of the Act. We made adjustments, where
appropriate, for physical differences in the merchandise in accordance
with section 773(a)(6)(C)(ii) of the Act. In no case did the difference
in merchandise adjustment for the comparison product exceed 20 percent
of the U.S. product's cost of manufacturing.
For purposes of the difference in merchandise adjustment, Linz
reported a different cost of manufacturing for identical yarns due to
the fact that different machines produce the yarn. Since the difference
in merchandise adjustment is intended to account for physical
differences in similar merchandise being compared and not differences
in the production process, we have calculated a single weighted-average
cost of manufacturing for identical yarns.
Linz also reported an amount upon which to base an adjustment for
differences in quantities sold in the United States and Austrian
markets. However, Linz was unable to demonstrate, based on information
on the record, that pricing differences were related to quantity.
Accordingly, we have not made the requested adjustment (see Comment 6).
Linz was instructed to provide sales made to affiliated weaving
mills in Austria (see Comment 5). We tested these sales to ensure that
the affiliated party sales were at arm's-length. To conduct this test,
we compared the starting prices of sales to affiliated and unaffiliated
customers net of all movement charges, direct selling expenses, and
packing. We utilized the 99.5 percent benchmark ratio used in the 1993
carbon steel investigations. See, e.g., Final Determination of Sales at
Less Than Fair Value: Certain Cold-Rolled Carbon Steel Flat Products
from Argentina (58 FR 37062, 37077 (July 9, 1993)). Where no affiliated
customer price ratio could be constructed because identical merchandise
was not sold to unaffiliated customers, we were unable to determine
that these sales were made at arm's-length and, therefore, we excluded
them from our LTFV analysis.
We made the following corrections, based on our verification
findings. For the preliminary determination, Linz did not report home
market indirect selling expenses; therefore, we were unable to offset
commissions paid in the United States with home market indirect selling
expenses. Subsequent to the preliminary determination, Linz submitted
its indirect selling expenses. However, we were unable to verify the
full amount of Linz's claimed home market indirect selling expenses,
and have recalculated the allowable portion of indirect selling
expenses to be used as an offset to the U.S. commission (see Comment
3).
During verification, we discovered the interest rate used to
calculate home market credit expenses was based on long-term lending.
However, we did find that the company maintained two lines of credit
for export sales during the POI. Although these lines of credit are
based on a percentage of the company's annual export turnover, the
company can borrow against these lines of credit to finance more than
just exports. The credit lines are available for financing
[[Page 43704]]
current assets and liabilities and the interest rates charged are set
on a quarterly basis. Therefore, we have recalculated Linz's home
market credit expenses based upon the average interest rate charged on
these lines of credit in order to reflect the company's actual short-
term borrowing experience.
2. Borckenstein
A. Calculation of COP
We calculated the COP based on the sum of Borckenstein's cost of
materials and fabrication for the foreign like product, plus amounts
for home market selling, general and administrative expenses (SG&A) and
packing costs in accordance with section 773(b)(3) of the Act.
We adjusted Borckenstein's depreciation expense to include
depreciation expense for all categories of fixed assets used in the
production of the subject merchandise and for assets used to perform
the administrative functions of the company (see Comment 15).
B. Test of Home Market Prices
We compared the respondent's submitted POI weighted-average COP
figures, as adjusted, to home market sales of the foreign like product
as required under section 773(b) of the Act in order to determine
whether these sales had been made at below-cost prices within an
extended period of time in substantial quantities, and were not at
prices which permit recovery of all costs within a reasonable period of
time. On a model-specific basis, we compared the COP to the home market
prices, less any applicable movement charges and direct selling
expenses. We deducted indirect selling expenses from the home market
price because these expenses were not included in the G&A rate for COP.
C. Results of COP Test
Pursuant to section 773(b)(2)(C) of the Act, where less than 20
percent of a respondent's sales of a given product are at prices less
than COP, we do not disregard any below-cost sales of that product
because we determined that the below-cost sales were not made in
``substantial quantities.'' Where 20 percent or more of a respondent's
sales of a given product during the POI are at prices less than the
COP, we determine such sales to have been made in ``substantial
quantities'' within an extended period of time in accordance with
section 773(b)(2)(B) of the Act, and that such sales are not made at
prices which would permit recovery of all costs within a reasonable
period of time, in accordance with section 773(b)(2)(D) of the Act. In
such cases, we disregard the below-cost sales. Under the Department's
practice, when all sales of a specific product are at prices below the
COP, we disregard all sales of that product, and calculate NV based on
CV.
Based on our COP test, we found that less than 20 percent (by
quantity) of Borckenstein's sales of a given product were at less than
COP. Thus, we did not disregard any below-cost sales. For matching
purposes, export prices were compared to home market prices for all
comparisons, and CV was not required.
D. Price to Price Comparisons
We calculated NV based on packed, delivered prices to unaffiliated
customers. Where appropriate, we made deductions from the starting
price (gross unit price) for foreign inland freight and inland
insurance, in accordance with section 773(a)(6)(B). In addition, where
appropriate, we adjusted for differences in circumstances of sale for
credit expenses, export credit insurance, and commissions (including
appropriate offsets), in accordance with section 773(a)(6)(C)(iii). We
also deducted home market packing costs and added U.S. packing costs,
in accordance with section 773(a)(6) (A) and (B) of the Act. We made
adjustments, where appropriate, for physical differences in the
merchandise in accordance with section 773(a)(6)(C)(ii) of the Act. In
no case did the difference in merchandise adjustment for the comparison
product exceed 20 percent of the U.S. product's cost of manufacturing.
Borckenstein also reported an amount upon which to base an
adjustment for differences in quantities sold in the U.S. and Austrian
markets, pursuant to 19 CFR 353.55(b). Although Borckenstein claimed
that it incurred differing manufacturing costs based on quantities
produced, it was unable to demonstrate, based on information on the
record, that pricing differences were related to quantity. Our review
of the submitted prices indicated that prices did not vary based upon
the quantity sold. Accordingly, we have not made the requested
adjustment (see Comment 11).
We made the following modification to the calculations for the
final determination. In our preliminary determination, we treated the
U.S. commissions paid by Borckenstein to its U.S. selling agent as
rebates. As a result, there was no offset for indirect selling expenses
in the home market. Upon a thorough review of documentation during
verification, we have determined that the fee paid by Borckenstein to
its selling agent on U.S. sales is a commission. Therefore, we have
offset the U.S. commission with Borckenstein's home market indirect
selling expenses (see Comment 14).
Currency Conversion
We made currency conversions into U.S. dollars based on the
official exchange rates in effect on the dates of the U.S. sales as
certified by the Federal Reserve Bank.
Section 773A(a) of the Act directs the Department to convert
foreign currencies based on the dollar exchange rate in effect on the
date of sale of the subject merchandise, except if it is established
that a currency transaction on forward markets is directly linked to an
export sale. When a company demonstrates that a sale on forward markets
is directly linked to a particular export sale in order to minimize its
exposure to exchange rate losses, the Department will use the rate of
exchange in the forward currency sale agreement.
Section 773A(a) also directs the Department to use a daily exchange
rate in order to convert foreign currencies into U.S. dollars unless
the daily rate involves a fluctuation. It is the Department's practice
to find that a fluctuation exists when the daily exchange rate differs
from the benchmark rate by 2.25 percent. The benchmark is defined as
the moving average of rates for the past 40 business days. When we
determine a fluctuation to have existed, we substitute the benchmark
rate for the daily rate, in accordance with established practice.
Further, section 773A(b) directs the Department to allow a 60-day
adjustment period when a currency has undergone a sustained movement. A
sustained movement has occurred when the weekly average of actual daily
rates exceeds the weekly average of benchmark rates by more than five
percent for eight consecutive weeks, see Change in Policy Regarding
Currency Conversions 61 FR 9434 (March 8, 1996). Such an adjustment
period is required only when a foreign currency is appreciating against
the U.S. dollar. The use of an adjustment period was not warranted in
this case because the Austrian Schilling did not undergo a sustained
movement.
Verification
As provided in section 782(i) of the Act, we verified the
information submitted by the respondents for use in our final
determination. We used standard verification procedures, including
examination of relevant accounting and production records and original
source documents provided by respondents.
[[Page 43705]]
Interested Party Comments
Linz
Comment 1: Comparison of Sales of Second-Quality Merchandise
Petitioner asserts that the comparison of sales of second-quality
merchandise in the home market to first quality export sales to the
U.S. is inconsistent with the Department's standard practice.
Accordingly, petitioner claims that the Department should revise its
preliminary results to ensure that first quality and second quality
merchandise are treated as distinct products in the Department's margin
program for purposes of the final determination. Linz argues that the
Department should include Linz's sales to the home market of second-
quality merchandise in the margin calculation.
DOC Position: The petitioner is correct that it is the Department's
policy to compare U.S. and home market merchandise of comparable
quality. See, e.g., Notice of Final Results of Antidumping
Administrative Review: Porcelain on Steel Cookware from Mexico, 62 FR
25908 (May 12, 1997). Only first quality merchandise was sold in the
U.S. market. Therefore, for purposes of this final determination, first
quality products sold in the United States were compared only to first
quality merchandise sold in the home market.
Comment 2: Movement Expenses
The petitioner contends that Linz failed to fully report all of its
movement expenses to the United States. Petitioner states that the
Department discovered that Linz failed to report the ``vorlage''
freight expenses incurred in transporting merchandise to the United
States during verification. As a result, the Department should account
for this unreported expense by applying, as facts available, an
adjustment for this expense to be deducted from the price of each U.S.
sale. Linz asserts that the Department should not adjust all U.S. sales
for a movement expense that may not have actually been incurred. Linz
states that this expense is not found on the invoices of all freight
forwarders.
DOC Position: During verification, the Department discovered that
Linz had inadvertently failed to report a minor freight expense
incurred in transporting merchandise to the United States. This
expense, called ``vorlage,'' was part of the company's freight bill.
This expense was reported on all of the freight bills reviewed by the
Department for U.S. sales. Therefore, during verification, we collected
several U.S. freight bills and calculated the average ``vorlage''
charged on U.S. sales. We have deducted the average ``vorlage'' expense
from the sales price of all U.S. sales as ``facts available'' in
accordance with section 776(a) of the Act.
Comment 3: Commission Offset
Petitioner argues that Linz's estimated indirect selling expenses
were not verified, and, thus, cannot be used as a commission offset.
Petitioner contends that there are two problems with Linz's estimated
indirect selling expense, and, therefore, only the general indirect
selling expense was properly calculated and should be included in the
Department's margin calculation. First, petitioner states that all of
Linz's estimated indirect selling expenses were fully captured in the
general expense amount and that creation of an additional expense
estimate is not warranted. Second, the Department was unable to verify
the allocation method of the estimated selling expenses to domestic
sales at verification.
Linz argues that it arrived at a general per unit indirect selling
amount applicable to all sales and then adjusted this amount to reflect
the proportion allocated to home market sales for which no separate
selling agents are involved. Linz states that this allocation is
reasonable and properly accepted based upon the stated experience of
the sales manager.
DOC Position: We agree with the petitioner. Commissions are paid on
U.S. sales but none are paid on home market sales. In our preliminary
determination, the Department did not perform a commission offset,
pursuant to 19 CFR section 353.56(b), as Linz had not provided
information on its indirect selling expenses in the home market. After
the preliminary determination, Linz provided an amount for home market
indirect selling expenses. Linz reported two indirect selling expense
amounts: a general indirect selling expense amount and an additional
estimated home market indirect selling expense amount.
At verification, Linz explained how it calculated its estimated
indirect selling expenses incurred on home market sales. Linz stated
that beginning with a total indirect selling amount that captures the
expenses for all production (open-end and ring-spun yarn), Linz arrived
at a general per unit amount applicable to all sales on a global scale.
It then adjusted this amount to reflect the proportion attributable
solely to home market sales. Linz estimated that only 20 percent of
indirect selling must be allocated to home market sales because there
are no selling agents in their domestic market. We requested to review
worksheets to determine how they calculated this percentage. Linz
stated that no worksheets were used in this calculation. Because no
worksheets were used to calculate this portion of indirect selling
expenses that Linz claimed to be attributed to home market sales, and
because they were unable to tie the estimate to any source
documentation, the Department cannot consider this additional estimated
home market selling expense as verified. Therefore, we are not allowing
this portion of the indirect selling expense adjustment. However,
because we were able to verify the general indirect selling expense
claim, we have used that amount as the basis of the commission offset.
Comment 4: Granting of Early Payment Discount
Petitioner contends that Linz's early payment discounts on home
market sales should not be granted to customers that did not meet the
terms of the discount program. Petitioner states that Linz applied an
early payment discount to a number of sales where payment was not made
within the requisite time period, as agreed upon in the terms of
payment. Linz states that the Department should subtract all early
payment discounts from the normal value, regardless of whether payment
was made within the time period specified in the payment terms.
DOC Position: At verification, the Department carefully reviewed
the customer accounts involving early payment discounts, both those
taken within and outside the requisite time period, and found that the
discounts were in fact granted. Because we verified that the discounts
were given on the sales, we have taken them into account in this final
determination.
Comment 5: Deficiencies With Affiliated Sales
Petitioner argues that there are significant errors in Linz's
revised data file for sales to affiliates in the home market.
Petitioner states that in submitting its revised data, Linz did not
report gross price, sales date, pay date, rebates, discounts, rebates
or credit expenses. Petitioner states that the Department was forced to
verify Linz's revised affiliated sales during verification and that
none of the reported sales to affiliates were traced for accuracy
during verification. Thus, petitioner argues that the Department should
employ the use of facts available in analyzing Linz's sales to
affiliated parties in the home market. At a minimum, the Department
should deny
[[Page 43706]]
the unverified adjustments claimed by Linz.
Linz states that nowhere in the Department's verification report
does the Department state that it could not verify any adjustment. Linz
states that the verification team reviewed the affiliated party sales
extensively because of a ``data sort'' problem encountered and
corrected at verification. Linz asserts that the verification team
checked the records of these sales through numerous sales traces.
DOC Position: During verification, we discovered that there was a
problem with the data base for Linz's home market affiliated sales.
This problem was caused during a ``data sort'' for the affiliated data
base used in our preliminary determination. The company only resorted
the first few fields in the data base, while the other data fields
remained in the original order. This caused the observation numbers to
be out of sequential order and, thus, the information on pricing and
expenses were unrelated to the specified sale in the data base. After
discovering this error at verification, Linz correctly sorted the data
fields and provided a corrected affiliated party sales listing.
We collected this revised affiliated party sales listing as a
verification exhibit. The price reported in this sales listing was less
the early payment discount. The sales listing also reported the freight
expenses. The Department then verified this corrected data base and
traced the information reported on these affiliated party sales to
source documents. Thus, we verified the accuracy of the revised home
market affiliated party sales data base and have used it where
appropriate in this final determination. However, because the company
did not report any other adjustment for these sales, the only
deductions made from the starting price were for early payment
discounts and freight expense.
Comment 6: Quantity Adjustment Under Section 353.55(b)
Linz has requested recognition of quantity price adjustments under
Sec. 353.55(b)(1) of the Department's regulations. Linz states that it
has supplied the Department with information to show that its small
quantity price adjustment policy was motivated by a commercial need to
equalize the per-unit administrative expenses of processing large and
small quantity orders. Linz further states that it has demonstrated
that the amount of any price differential is wholly or partially due to
the differences in quantities sold in the two markets, and that it has
demonstrated that the small quantity price adjustment was consistently
applied on a majority of its home market sales in the POI.
Petitioner argues that there is no basis to grant Linz's claim of a
small quantity surcharge. Petitioner states that Linz was unable to
verify the accuracy or relevance of their internal memorandum on low
volume sales, which serves as the basis for Linz's claim. They state
that prices and quantities in the home market were inconsistent with
the guidelines established by Linz for the low quantity price add-ons.
Thus, there has been no demonstration that price increases for small
quantity sales were applied in a consistent manner as required by
Department policy.
DOC Position: Pursuant to 19 CFR 353.55(b), ``The Secretary will
calculate foreign market value based on sales with quantity discounts
if:
(1) During the period examined or during a more representative
period, the producer or reseller granted quantity discounts of at
least the same magnitude on 20 percent or more of sales of such or
similar merchandise for the relevant country [Six-Month Rule]; or
(2) the producer demonstrates to the Secretary's satisfaction
that the discounts reflect savings specifically attributable to the
production of different quantities [Cost Justification Method].''
The Department expounded upon its requirements for including
quantity discounts in its analysis in Final Determination of Sales at
Less Than Fair Value: Brass Sheet and Strip from the Netherlands,
(Brass Sheet and Strip) 53 FR 23431 (June 22, 1988). The Department
asserted that:
to be eligible for a quantity-based adjustment [six-month rule], a
respondent must demonstrate a clear and direct correlation between
price differences and quantities sold or costs incurred. This
requirement applies equally to an allowance for quantity differences
under the six-month rule or the cost justification requirement.
Under the six-month rule, it is not sufficient that, during the POI,
the respondent merely granted discounts of at least the same
magnitude with respect to 20 percent or more of such or similar
merchandise sold in the ordinary course of trade in the market used
to establish foreign market value[;] the exporter must also
demonstrate, using evidence such as a price list or quantity
discount schedule, that it gave discounts on a uniform basis and
that such discounts were available to substantially all home market
customers. With regard to a cost-based adjustment, the exporter must
demonstrate that the discounts are warranted on the basis of savings
which are specifically attributable to the production of the
different quantities involved. (Emphasis added)
Linz has specified that it is seeking to include a small quantity
surcharge under the Department's so-called ``six-month'' rule,
contained in Section 353.55(b)(1) of the Department's regulations. The
Department requires consistency under this rule in two respects: The
first is whether or not price increases were applied when appropriate.
The second is whether or not price increases, when applied, were
applied consistently in accordance with the pricing policy.
Linz stated that, for small quantity purchasers in the home market,
it adds a small quantity price add-on to account for the additional
administrative expenses incurred in servicing small quantity
purchasers. Linz based its claimed small quantity surcharge on a
September 1992 internal memorandum on low volume sales. This memorandum
specifies four small quantity categories with a specified price
increase for each of the quantity brackets.
In the preliminary determination, the Department denied Linz's
claim for a small quantity surcharge. Linz stated in its January 6,
1997 supplemental response that the application of its small quantity
price adjustment is ``flexible, made on a case-by-case basis, and is
meant only as a guideline.'' Therefore, Linz was unable to demonstrate,
based on the information on the record, the required consistency.
Prior to verification, Linz provided additional information on its
small quantity surcharge. The company stated that while its small
quantity adjustment policy was meant to be a guideline and to be
flexible, it was to be followed in all possible cases and was to be
applied to virtually all small quantity sales. Linz stated that, during
the POI, it followed the small quantity price increases in all cases
but eleven. The company stated that there were specific reasons why
there were eleven exceptions to this policy during the POI.
For purposes of this final determination, we again examined Linz's
home market sales to determine whether or not price increases were
applied when appropriate, and to determine whether or not price
increases were applied consistently in accordance with Linz's 1992
internal memorandum on low volume sales. An examination of Linz's home
market prices during the POI demonstrated that Linz did not
consistently adhere to its small quantity add-on pricing policy with
respect to the four quantity brackets listed in its 1992 sales
memorandum, even disregarding the eleven sales which Linz stated were
exceptions to this pricing policy. Therefore, we do not find that there
was a clear and direct correlation between price and quantity. Thus,
the company
[[Page 43707]]
did not meet the requirements of section 353.55(b) of the regulations
and we have not granted their claimed differences due to small quantity
surcharges.
Comment 7: Sales of Comparable Quantities
Linz argues that absent an adjustment to normal value for quantity
discounts under section 353.55(b) of the regulations, the Department
should resort to comparisons of only sales in comparable quantities in
the two markets. Linz states that under 19 C.F.R. 353.55(a), ``in
comparing the United States price with foreign market value, the
Secretary normally will use sales of comparable quantities of
merchandise.'' Linz states that all sales in both the U.S. and home
market over a certain amount are treated equally in terms of quantity
pricing adjustments. Thus, the Department should only use home market
sales over that amount in calculating normal value.
Petitioner states that the Department should reject Linz's
arguments for comparable quantities. Petitioner states that in defining
its notion of comparable quantities, Linz has classified all sales into
one of two quantity ranges, and that these comparable quantity ranges
are flawed for two reasons. First, they contradict the five quantity
ranges that Linz has claimed in the context of the quantity discount.
Thus, Linz is arguing for one set of quantity ranges with respect to
quantity discounts, and a different set of quantity ranges with respect
to comparable quantities. Second, Linz has created an overly-broad
upper range.
DOC Position: The issue of comparison of comparable quantities
arose in Notice of Final Determination of Sales at Less Than Fair
Value: Extruded PVC and Polystyrene Framing Stock from the United
Kingdom (Framing Stock), 61 FR 51412 (October 2, 1996). In Framing
Stock, we stated that information on the record demonstrated that the
prices between different quantity bands were sufficiently distinct to
warrant comparisons at comparable quantity bands. In the instant
investigation, we reviewed the pricing information on home market sales
between sales over a certain quantity and those below that quantity to
determine whether the prices between these two quantity bands were
sufficiently distinct to also warrant comparisons at comparable
quantities. Based upon our pricing analysis, we found that the pricing
between the two quantity bands was not sufficiently distinct to warrant
comparisons at comparable quantity bands. Therefore, we based normal
value on the weighted-average of all comparable sales, regardless of
quantity.
Comment 8: Calculation of Financial Expenses
Petitioner states that the Department should continue to include
only short-term interest income as an offset to interest expense.
Petitioner notes that, in the preliminary determination, the Department
adjusted Linz's reported interest income to approximate the portion of
interest income attributable to short-term assets. However, as a result
of verification, petitioner concludes that the Department now has the
data to accurately determine which items of interest income are short-
term and which are long-term. Linz states that petitioner, in its
brief, did not specifically state which amount of Linz's interest
income is short-term and long-term. As a result, Linz argues that the
Department should disregard petitioner's request for an adjustment to
the calculation of Linz's interest expense.
DOC Position: We agree with petitioner. During verification, the
Department verified the portion of interest income related to short-
term investments of its working capital. For the final determination,
the Department adjusted Linz's reported net interest expense rate to
include only short-term interest income as an offset to interest
expense.
Comment 9: Parent Company G&A
The petitioner claims that Linz understated its general and
administrative expenses by failing to account for expenses incurred by
its non-operating corporate parent. Petitioner argues that because the
section D questionnaire instructed Linz to include in its reported G&A
an amount for administrative services performed by its parent, the
Department should increase Linz's reported G&A expenses to include a
G&A expense amount incurred by its parent company. Linz asserts that
the Department has already included the expenses of Linz's parent
company in its calculation of the G&A expense.
DOC Position: The Department's practice is to include a portion of
parent company G&A expenses where appropriate. In this case, Linz's
reported G&A expense already reflects expenses incurred on its behalf
by its parent. Therefore, to include additional G&A amounts as argued
by petitioner would overstate G&A.
Borckenstein
Comment 10: Affiliation Due To Close Supplier Relationship
Petitioner claims that information on the record indicates a close
supplier relationship between Borckenstein and its sole U.S. customer
of the subject merchandise, Beavertown, and thus Borckenstein and the
U.S. customer would fall within the definition of affiliated parties
set forth in section 771(33) of the Act. Petitioner contends that a
determination of affiliation may be based on a close supplier
relationship for the following reasons. By purchasing a large
percentage of a supplier's subject sales, the buyer could extract price
and other concessions from the supplier by threatening to purchase the
products from another vendor. Because such an action would severely
impact the business of the supplier, the purchasing company is in a
position to control the related supplier by exerting restraint or
direction over the supplier. Therefore, petitioner argues that
Borckenstein and Beavertown are affiliated and that Borckenstein's U.S.
sales should be classified as CEP sales.
Borckenstein states that it is not affiliated with Beavertown and
that there is no close supplier relationship based upon the percentage
of Beavertown's purchases compared to Borckenstein's total sales
revenue. Borckenstein argues that petitioner's assertion that this
percentage should only be based on subject sales and not on subject and
non-subject sales is flatly contrary to current Department practice.
Borckenstein states that the Department's standard practice of
determining close supplier relationship is based on the percentage of
``total annual sales,'' not solely the percentage of subject sales. See
Notice of Final Determination of Sales at Less Than Fair Value: Large
Newspaper Printing Presses and Components Thereof, Whether Assembled or
Unassembled from Japan, (hereinafter Printing Presses) 61 FR 38139,
(July 23, 1996).
DOC Position: We disagree with the petitioner's claim that
information on the record indicates that a close supplier relationship
exists between Borckenstein and its sole U.S. customer of subject
merchandise. We examined this issue at verification and did not find
evidence of a close supplier relationship. In addition, the Department
has dealt with a similar issue in other recent cases and likewise did
not find affiliation. See, e.g., Printing Presses.
In Printing Presses, the Department indicated, among other factors,
that close supplier relationships may occur
[[Page 43708]]
when a majority of a supplier's sales are made to one customer.
However, in the instant case, Borckenstein's financial records indicate
that Beavertown's purchases account for only a small portion of
Borckenstein's total sales revenue, which is based on sales of the
subject merchandise and closely related products. Therefore,
Borckenstein is not reliant on Beavertown, and we find no close
supplier relationship in this case. Thus, the two parties are not
affiliated under 771(33) of the Act.
Comment 11: Quantity Discount Under Section 353.55(b)
Borckenstein states that the information on the record supports an
adjustment for differences in quantities sold in the U.S. and Austrian
markets pursuant to section 773(a)(6) of the Act and section 353.55(b)
of the Department's regulations. The claim for the quantity adjustment
is based on raw material rebates received from Borckenstein's raw
material supplier, and the additional cost of machine recalibrations in
the home market. Petitioner states that Borckenstein has failed to
demonstrate a clear and direct correlation between price differences
and quantities sold, or price differences and costs incurred.
Therefore, Borckenstein's claimed quantity adjustment pursuant to
section 353.55(b) must be denied.
DOC Position: We agree with the petitioner. The criteria for
recognizing quantity discounts pursuant to 19 CFR 353.55(b) have been
fully explained in the Department's Position to Comment 6. Borckenstein
has not demonstrated a clear and direct correlation between price
differences and quantities sold or costs incurred. See the discussion
of Brass Sheet and Strip referenced in Comment 6. Furthermore, although
Borckenstein contends that the additional cost of machine
recalibrations are appropriate costs on which to base a difference in
quantities adjustment, however, it is the Department's practice not to
allow a quantity based adjustment under 19 CFR 353.55(b) based upon the
additional setup time that is required for shorter runs. The Department
will grant cost adjustment claims based on direct manufacturing costs;
recalibration of machinery does not constitute a direct cost. In
addition, the claim for the rebate of raw material does not meet the
standard set forth in Brass Sheet and Strip for an adjustment under
353.55(b). It is our practice to use one average cost for a raw
material; different costs cannot be attributed to the same raw
material. Therefore, Borckenstein is unable to demonstrate that price
differences are attributable to the production of different quantities.
Accordingly, the Department has not granted Borckenstein's claim for a
quantity discount.
Comment 12: Raw Material Rebate
Petitioner argues that the Department should not grant an
adjustment for a raw material rebate that Borckenstein receives from
its supplier and that Borckenstein claims it used to produce subject
merchandise destined for the U.S. market. Petitioner states that the
granting of an export-based rebate on raw material purchases is
commonly referred to as ``input dumping,'' and the Department has
condemned input dumping in past cases, and must continue to do so in
the present case. Borckenstein contends that the Department should
adjust for its claimed raw material rebate. Borckenstein argues that
the rebate is not directed at the U.S. market but to the customer who
purchases large quantities of product which allows Borckenstein to
achieve economies of scale in production. Borckenstein also asserts
that petitioner is incorrect when it stated that there is input dumping
in this case.
DOC Position: Section 773(a)(4)(B) of the Act authorizes the
Department to adjust for ``differences in circumstances of sales,''
which include such things as differences in commissions, credit terms,
guarantees, warranties, technical assistance, and servicing. We note
that while the regulations do provide for adjustments to production
cost differences in two instances (where quantity discounts reflect
savings in production of different quantities (19 CFR 353.55(b)(2)),
and where differences in production cost are due to differences in
physical characteristics (19 CFR 353.57(b)), neither of these
provisions is applicable here. Since the type of adjustment at issue
here does not relate to physical differences in merchandise, it is not
an allowable adjustment under the difference-in-merchandise provision.
In addition, in view of the fact that the proposed adjustment cannot be
deemed a sales-related expense, it is not appropriate to adjust for the
rebate as a circumstance of sale.
Comment 13: Raw Material Costs
The petitioner asserts that Borckenstein's costs of production for
home market sales is underreported. Petitioner states that Borckenstein
received a rebate on raw material only for finished yarn exported to
the United States. Since this rebate did not apply to home market
sales, this rebate should not be attributable to raw material costs for
COP applied to home market sales. Thus, the actual fiber costs incurred
by Borckenstein for home market sales are higher than have been
reported. Borckenstein states that the raw material costs reported by
Borckenstein are weighted-average costs between the home market and the
U.S. market, consistent with standard Department methodology. In
addition, Borckenstein states that the Department verified the accuracy
of Borckenstein's reported material cost at verification and found no
discrepancies.
DOC Position: We agree with Borckenstein that the Department's
normal practice is to compute a single weighted-average COP for each
unique model subject to the investigation. Accordingly, we did not
adjust Borckenstein's reported raw material cost for the final
determination.
Comment 14: Treatment of Commission as a Rebate
The petitioner asserts that Beavertown Mills, Borckenstein's sole
U.S. customer of subject merchandise, is wholly-owned by Titan Textile
Co., and that Borckenstein's commission agent is also wholly-owned by
Titan Textile Co. Thus, petitioner asserts that the reported commission
payments are in effect payments to the customer itself. According to
petitioner, the amount paid to the customer cannot be considered a
commission, but is instead a rebate. Therefore, the Department should
continue to treat the claimed commission as a rebate. Borckenstein
contends that the payment is made to its selling agent, therefore, the
payment should be considered a commission, not a rebate. Borckenstein
contends that the selling agent never takes possession of the
merchandise, nor does it pay the selling agent directly for the
merchandise. In addition, Borckenstein states that these payments of
commissions are accounted for in its books as commissions, and are
invoiced to its selling agent as commissions.
DOC Position: In the preliminary determination, the Department
treated Borckenstein's U.S. commissions as rebates based on its
understanding that the commission agent was wholly-owned by
Beavertown's parent company. Because the commission was treated as a
rebate there was no offset for indirect selling expenses in the
preliminary determination. At verification, we learned that
Borckenstein uses selling agents for all of its U.S. sales. The
Department established that the selling agent used for sales of the
subject merchandise performed the functions of a
[[Page 43709]]
commission agent. We verified that the U.S. customer, not the selling
agent, pays Borckenstein for the merchandise. In addition, Borckenstein
makes payments directly to the selling agent for services rendered in
the sales transaction.
During verification, we also reviewed documentation regarding the
shareholder listings for Borckenstein's selling agent, Beavertown, and
Beavertown's parent company which demonstrated that the selling agent
is not affiliated with Beavertown. The controlling shareholder of the
selling agent owns no shares in either Beavertown or Beavertown's
parent company. Therefore, we do not find Borckenstein's selling agent
to be affiliated with Beavertown under section 771(33) of the Act for
the purposes of the treatment of this commission. Therefore, in this
final determination, we have treated this expense as a commission and
offset it with home market indirect selling expenses.
Comment 15: Depreciation Expense in Reported Cost of Production
The petitioner contends that Borckenstein underreported its
depreciation expense. Among the excluded costs were depreciation
expenses for the plant in which the product is produced, all
depreciation related to the general and administrative functions of the
company, and depreciation related to assets that directly or indirectly
support the manufacturing operation. Borckenstein states that it does
not object to an appropriate and reasonable increase of submitted
depreciation expenses in calculating the cost of production.
DOC Position: We agree with petitioner. For the final
determination, we recalculated depreciation expense to include
depreciation from the other categories of fixed assets used in the
production of the subject merchandise. Additionally, we included a
portion of the depreciation expense related to Borckenstein's assets
used to perform the administrative functions of the company.
Comment 16: Failure to Include Indirect Material Expenses
The petitioner contends that Borckenstein failed to include
indirect material expenses in its reported cost of production. The
indirect materials excluded were: (1) Materials purchased for the
refurbishment of the open-end equipment specifically used to produce
the merchandise under investigation; and (2) repair materials. Further,
the petitioner asserts that these costs were incurred during the fiscal
period on which Borckenstein's cost response was based, and related
directly to the equipment used to produce the merchandise under
investigation. Borckenstein states that it properly reported indirect
material expenses in its reported cost of production, and that, at
verification, the Department determined that the expenses in question
were not incurred for the production of the subject merchandise during
the POI.
DOC Position: The Department agrees, in part, with petitioner. The
Department verified that the majority of the parts purchased by
respondent in the last month of the cost calculation period were used
to refurbish and extend the useful life of the machinery sold
subsequent to the POI. Given the fact that Borckenstein intended to
sell the machinery, the company expensed the cost of these parts rather
than capitalize them. In the normal course of business, Borckenstein
depreciates its machinery over four years. Since the refurbishment was
so extensive, we agree that the costs incurred should have been
capitalized. Accordingly, we consider it appropriate for Borckenstein
to depreciate the refurbishment costs over four years beginning with
the month of purchases (the last month of the POI). Thus, Borckenstein
should recognize one month of depreciation related to the purchased
parts in its submitted POI costs of manufacturing. We verified that the
remaining parts Borckenstein purchased at the end of the year related
to repairs and maintenance for the subsequent year. In the ordinary
course of business, Borckenstein expenses small parts and maintenance
supplies when purchased rather than when consumed. As such, the
Department maintains that the cost of these parts are representative of
Borckenstein's yearly repairs and maintenance expense and should be
included in its COP and CV. However, consistent with 19 C.F.R.
Sec. 353.59(a), which permits the Department to disregard insignificant
adjustments, we have elected not to adjust Borckenstein's COM for
either the depreciation expense or cost of the parts, since the
addition of these costs would not affect our overall margin
calculation.
Continuation of Suspension of Liquidation
In accordance with section 735(c) of the Act, we are directing the
Customs Service to continue to suspend liquidation of all entries of
open-end spun rayon singles yarn that are entered, or withdrawn from
warehouse, for consumption on or after March 26, 1997, the date of
publication of our preliminary determination in the Federal Register.
We will instruct the Customs Service to require a cash deposit or the
posting of a bond equal to the weighted-average amount by which the
normal value exceeds the export price, as indicated in the chart below.
This suspension of liquidation will remain in effect until further
notice.
------------------------------------------------------------------------
Weighted
average
Exporter/manufacturer margin
percentage
------------------------------------------------------------------------
Linz........................................................ 12.36
Borckenstein................................................ 2.36
All Others.................................................. 7.42
------------------------------------------------------------------------
Pursuant to section 733(d)(1)(A) and section 735(c)(5) of the Act,
the Department has not included zero or de minimis weighted-average
dumping margins, or margins determined entirely under section 776 of
the Act, in the calculation of the ``all others'' rate.
ITC Notification
In accordance with section 735(d) of the Act, we have notified the
ITC of our determination. As our final determination is affirmative,
the ITC will determine, within 45 days, whether these imports are
causing material injury, or threat of material injury, to an industry
in the United States. If the ITC determines that material injury, or
threat of material injury, does not exist, the proceeding will be
terminated and all securities posted will be refunded or canceled. If
the ITC determines that such injury does exist, the Department will
issue an antidumping duty order directing Customs officials to assess
antidumping duties on all imports of the subject merchandise entered,
or withdrawn from warehouse, for consumption on or after the effective
date of the suspension of liquidation.
This determination is published pursuant to section 735(d) of the
Act.
Dated: August 8, 1997.
Richard W. Moreland,
Acting Assistant Secretary for Import Administration.
[FR Doc. 97-21710 Filed 8-14-97; 8:45 am]
BILLING CODE 3510-DS-P
