E9-22192. Certain Pasta From Turkey: Preliminary Results of Countervailing Duty Changed Circumstances Review

AGENCY:

Import Administration, International Trade Administration, Department of Commerce.

SUMMARY:

On January 28, 2009, the Department of Commerce (“the Department”) published a notice of initiation of a changed circumstances review (“CCR”) of the countervailing duty (“CVD”) order on certain pasta from Turkey as requested by Marsan Gida Sanayi ve Ticret A.S. (“Marsan”) See Notice of Initiation of Countervailing Duty Changed Circumstances Review: Certain Pasta from Turkey, 74 FR 4938 (January 28, 2009) (“Initiation Notice”). As stated in the Initiation Notice, we are not applying the antidumping (“AD”) successor-in-interest methodology to determine whether Marsan is the successor to Gidasa Sabanci Gida Sanayi ve Ticaret A.S. (“Gidasa”) for CVD purposes. Id. at 4939. After receiving additional information regarding the circumstances which warranted the CCR of Gidasa, pursuant to the new criteria outlined in the “Preliminary Results of Changed Circumstances Review” section below, we preliminarily find that Marsan is not the successor to Gidasa, for purposes of the CVD cash deposit rates, and therefore its merchandise should continue to enter under the “all others” cash deposit rate. Interested parties are invited to comment on these preliminary results.

DATES:

Effective Date: September 15, 2009.

FOR FURTHER INFORMATION CONTACT:

Shelly Atkinson or Brandon Farlander, AD/CVD Operations, Office 1, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street & Constitution Avenue, NW., Washington, DC 20230; telephone: [phone] or [phone], respectively.

SUPPLEMENTARY INFORMATION:

Background

On July 24, 1996, the Department published in the Federal Register the order on certain pasta from Turkey. See Notice of Countervailing Duty Order: Certain Pasta (“Pasta”) From Turkey, 61 FR 38546 (July 24, 1996). On December 3, 2008, Marsan requested that the Department initiate and conduct expedited CCRs to determine that, for purposes of the AD and CVD cash deposits, Marsan is the successor to Gidasa. See Marsan's December 3, 2008, submission entitled, “Pasta from Turkey: Request for Expedited Changed Circumstances Review of AD/CVD Orders” (“CCR Request”). On January 28, 2009, the Department published a notice of initiation of a CCR of the CVD order for Marsan. See Initiation Notice. On April 16, 2009, the Department requested additional information and issued a questionnaire to Marsan, to which it responded on May 1, 2009. See Marsan's May 1, 2009, response entitled, “Pasta from Turkey: Marsan response to the supplemental questionnaire.”

On April 14, 2009, and June 2, 2009, the Department published its preliminary and final results, respectively for the CCR of the AD order on certain pasta from Turkey and found that Marsan was the successor-in-interest to Gidasa. See Certain Pasta from Turkey: Notice of Preliminary Results of Antidumping Duty Changed Circumstances Review, 74 FR 17153 (April 14, 2009); Certain Pasta from Turkey: Notice of Final Results of Antidumping Duty Changed Circumstances Review, 74 FR 26373 (June 2, 2009).

Scope of the Order

Imports covered by the order are shipments of certain non-egg dry pasta in packages of five pounds (or 2.27 kilograms) or less, whether or not enriched or fortified or containing milk or other optional ingredients such as chopped vegetables, vegetable purees, milk, gluten, diastases, vitamins, coloring and flavorings, and up to two percent egg white. The pasta covered by this scope is typically sold in the retail market, in fiberboard or cardboard cartons, or polyethylene or polypropylene bags, of varying dimensions.

Excluded from the order are refrigerated, frozen, or canned pastas, as well as all forms of egg pasta, with the exception of non-egg dry pasta containing up to two percent egg white.

The merchandise subject to review is currently classifiable under item 1902.19.20 of the Harmonized Tariff Schedule of the United States (“HTSUS”). Although the HTSUS subheading is provided for convenience and customs purposes, the written description of the merchandise subject to the order is dispositive.

Preliminary Results of Changed Circumstances Review

Pursuant to section 751(b)(1) of the Tariff Act of 1930, as amended (“the Act”), and 19 CFR 351.216, the Department will conduct a CCR upon receipt of information concerning, or a request from an interested party for review of, a CVD order which shows changed circumstances sufficient to warrant a review of the order. In this case, the Department finds that the information submitted by the respondent provided sufficient evidence of changed circumstances to warrant a review to determine whether Marsan is the successor to Gidasa for purposes of CVD cash deposit rates. Thus, in accordance with section 751(b) of the Act, the Department initiated a CCR to determine whether Marsan is the successor to Gidasa for purposes of CVD cash deposit rates with respect to imports of certain pasta from Turkey.

In Stainless Steel Sheet and Strip in Coils from the Republic of Korea: Preliminary Results of Countervailing Duty Changed Circumstances Review, 71 FR 75937 (December 19, 2006), the Department indicated that it intended to further consider the issue of whether alternative or additional successorship criteria, other than those the Department relies upon in an AD CCR, would be more appropriate in a successorship-type ^[1] CVD CCR context. Moreover, the Department stated that it anticipated issuing a Federal Register notice inviting the public to submit comments on the issue. Subsequently, the Department published Countervailing Duty Changed Circumstances Reviews; Request for Comment on Agency Practice, 72 FR 3107 (January 24, 2007) (“Request for Comment”), in which the Department highlighted various considerations relevant to the issue of CVD CCRs, and provided the public an opportunity to comment on whether any changes to the Department's practice regarding such reviews was warranted and, if so, what those changes should entail.

We received comments from two parties in response to the Request for Comment.^[2] The first commenter urged that any decision to revise or clarify the Department's CVD CCR practice should reflect the historically limited purpose of CCRs, which is to modify a successor's cash deposit rate for future entries until it obtains a new rate as a result of an administrative review. Citing to the statute, various past Department decisions and findings of the Court of International Trade, as well as noting various practical constraints, the commenter argued that CCRs are not administrative reviews and do not necessarily involve the calculation of rates related to specific entries. Administrative reviews, this party contended, are the appropriate forum in which to collect the evidence and calculate the precise level of subsidization for a successor company. In contrast, the function of CCRs is to address the effect of “changed circumstances” on a final affirmative determination that resulted in a CVD order. Put otherwise, the function of a CCR is to determine whether the company is essentially the same as the predecessor company for cash deposit purposes. If the company is not essentially the same, the commenter argued that the Department should normally assign the successor company the “all others” rate until an administrative review is requested as the all others rate is the default rate for exports that have not been investigated or subject to an administrative review. With regard to which criteria the Department should use in assessing whether the successor company is essentially the same as the predecessor company, this commenter argued for the following factors: (1) Organization structure; (2) management; and (3) production facilities relevant to the production and exportation of subject merchandise.

The second commenter agreed with the Department's observation in the Request for Comment that AD and CVD proceedings, while having some points of common analysis, are ultimately focused on analytically distinct questions; where AD proceedings are focused on the extent to which a foreign producer or exporter has made sales below fair value, CVD proceedings are focused on the extent to which a foreign producer or exporter has benefitted from subsidies. Therefore, the application of the AD “same business entity” criteria in a CVD CCR is, in this commenter's view, clearly inappropriate. This is because, in the case of a change in ownership for payment of market value, some or all of a respondent's previously received subsidies will no longer be countervailable, even where the company remains, after the change in ownership, the “same business entity” as it was before the transaction. According to this party, in these circumstances, the Department focus must be on the nature of the transaction and not the four factor “same business entity” test. This commenter believes that where, in a CVD CCR, the Department determines that a change in the company's ownership or structure has effected a significant change in the level of countervailable subsidization, it is incumbent on the Department to recalculate the cash deposit rate to reflect the change effected by the change in structure or ownership. However, a full recalculation of all aspects of the respondent's subsidies, to the extent that they are not directly related to the change in ownership or structure, is neither necessary nor appropriate. Finally, this commenter supported an expedited CVD CCR process where there is no indication that the level of subsidization has changed significantly as a result of the changed circumstances.

After considering parties' comments, and drawing on the Department's past experience with CVD CCRs, we are now prepared to promulgate a new approach that the Department intends to apply in the current as well as in future CVD CCR proceedings. As background, we start by laying out certain broad principles relevant to this issue. First, we note that section 751(b)(1) of the Act directs the Department to conduct a review of a final affirmative CVD determination when it receives a request from an interest party “which shows changed circumstances sufficient to warrant a review of such determination.” The statute does not define the term “changed circumstances.”

Nor does the statute require that the standards and analysis the Department uses in finding changed circumstances in the CVD context be identical to those used in the AD context. What may constitute sufficient grounds for initiating an AD CCR may not be sufficient grounds for initiating a CVD CCR and vice versa. As we noted in the Request for Comment and as reflected in the second commenter's arguments, above, to the extent that dumping is a matter of price discrimination and the AD CCR analysis is concerned with the pricing behavior of a successor company, such an analysis would not necessarily be relevant in the CVD context where subsidization, not price discrimination, is the analytical focus. In the context of a CVD CCR, the Department interprets the term “changed circumstances” in a manner consistent with the purpose of the CVD statute. Thus, the findings in an AD CCR may be different from, and irrelevant to, the findings in a CVD CCR.

Moreover, the limited purpose of a CVD CCR generally is to determine whether a company is essentially the same subsidized entity as the alleged predecessor company for cash deposit purposes. Accordingly, the Department decides whether the alleged predecessor company's rate applies to the party being examined. In the context of a CVD CCR, the Department does not normally calculate a new subsidy rate, or revised rate where applicable, for the party being examined. Among other reasons, a complete analysis of a respondent's subsidy rate (whether the respondent is a successor or not) would require, at a minimum, the submission and analysis of a full questionnaire response (and any supplemental responses), ample time for comment from interested parties, and possible verification. All this would not be feasible within the condensed time frame of a CCR. See 19 CFR 351.216(e). Rather, the Department conducts such an analysis in an administrative review, which is the administrative procedure provided in the statute precisely for this purpose.

With this in mind, our approach to CVD CCRs going forward will be as follows. As a general rule, in a CVD CCR, the Department will make an affirmative CVD successorship finding (i.e., that the respondent company is the same subsidized entity for CVD cash deposit purposes as the predecessor company) where there is no evidence of significant changes in the respondent's operations, ownership, corporate or legal structure during the relevant period (i.e., the “look-back window”) ^[3] that could have affected the nature and extent of the respondent's subsidy levels. Where the Department makes an affirmative CVD successorship finding, the successor's merchandise will be entitled to enter under the predecessor's cash deposit rate.

Structured in this manner, this CVD CCR analysis is intended to serve as a type of screening mechanism. Significant changes in the respondent's operations, ownership, corporate or legal structure that potentially could affect the nature and extent of the company's subsidization are a sufficient basis for reconsidering what constitutes the best estimate of the respondent's existing subsidy levels. In the face of such changes, it normally would be inappropriate for the Department to affirm a cash deposit rate that had been calculated during a previous time period based on a significantly different factual pattern. The most appropriate CVD cash deposit rate in this instance is the rate under which the merchandise of a newly-renamed entity would normally be entered, i.e., the “all others” cash deposit rate. Conversely, where there have not been any such significant changes during the look-back window, it normally is appropriate and reasonable for the Department to re-affirm the existing “predecessor” duty deposit rate as the best estimate of the respondent's existing rate of subsidization.

For the sake of clarity, consistency, and predictability, we are identifying the following non-exhaustive list of the types of changes that we normally consider to be significant and would affect the nature and extent of the requesting party's subsidization: ^[4] (1) Changes in ownership, other than regular buying and selling of publicly owned shares held by a broad array of investors, (2) corporate mergers and acquisitions involving the respondent's consolidated or cross-owned corporate family and outside companies, and (3) purchases or sales of significant productive facilities.

Where a change has occurred in the respondent's operations, ownership, corporate or legal structure that is not explicitly reflected in this non-exhaustive list, the Department will assess whether that change could affect the nature and extent of the respondent's subsidization and, therefore, whether the respondent is the same subsidized entity as the predecessor for CVD purposes, with reference to one or more of the following objective criteria: ^[5] (1) Continuity in the cross-owned or consolidated respondent company's financial assets and liabilities; (2) continuity in its production and commercial activities; and (3) continuity in the level of the government's involvement in the respondent's operations or financial structure (e.g., government ownership or control, the provision of inputs, loans, equity).^[6]

We have adopted the particular criteria noted above because, in contrast to the factors examined in an AD CCR, these better reflect those aspects of a company that generally are most impacted by, the target of, or the vehicle for subsidy benefits. For example, stabilizing a company's financial position, or facilitating investment in new productive capacity is often a goal of subsidization, and governments often achieve this subsidization through direct involvement in, or financial or “in kind” provisions to, the company.

Any party requesting a CVD CCR should provide, as part of its request, information sufficient to clearly identify and explain any significant changes in the respondent's operations, ownership, or corporate or legal structure during the look-back window. At a minimum, the request should include a full narrative with supporting documentation regarding any changes similar to those items in the non-exhaustive list above as well as complete information addressing the three objective criteria enumerated above. The supporting information should also include, where available, the translated financial statements on a consolidated basis for the respondent for the years of and immediately prior to any changes related to the non-exhaustive list and the objective criteria. (For example, if the change in question occurred in May 2008, annual consolidated financial statements should be provided for years 2007 and 2008). The requesting party should also identify in its request, to the extent of its knowledge, under what exporter/producer name and CVD cash deposit rate the subject merchandise is currently entering into the United States.

Upon receipt of a duly supported CVD CCR request containing the necessary information outlined above, the Department will initiate and conduct a CVD CCR, consistent with its regulations. In making a final CVD CCR finding, the Department will normally come to one of two conclusions: (1) The respondent company is the successor to the pre-change predecessor company and, therefore, the respondent's merchandise may enter under the predecessor's established duty deposit rate, or (2) the respondent company is not the successor, which means its merchandise is not entitled to enter under the claimed “predecessor's” previously established cash deposit rate.^[7]

Finally, we make the following general points about the application and likely implications of this new methodology. First, we reiterate that, for the reasons discussed above, our analysis will focus on whether a significant change occurred in the company's operations, ownership, corporate or legal structure and not whether those changes, in fact, ultimately did affect the respondent's subsidization or by how much. This latter question can only be decided based on a full analysis of a complete record compiled in the course of an administrative review and not on the limited facts or within the abbreviated time frame of a CVD CCR.

Second, we recognize that CVD CCRs involving companies that have been excluded from the order is a unique situation that may require additional consideration and, potentially, a different analysis. As we are not presented with that fact pattern in this case, we will address the issue of excluded companies in CVD CCRs, and articulate appropriate standards and analyses for such instances, where and when those circumstances arise.

Third, we will not initiate a CVD CCR if the question of the appropriate cash deposit rate can otherwise be addressed in an ongoing or, where appropriate, an impending administrative review. Initiating an additional CVD CCR in these circumstances poses an unnecessary burden on parties and on the Department's resources, and an ongoing administrative review generally provides an opportunity for a fuller record to be developed and for greater participation by interested parties.

Finally, for reasons discussed above, findings regarding successorship under an AD CCR are not necessarily relevant to a CVD CCR, and vice versa.

Analysis of Responses

On August 14, 2007, MGS Marmara Gida (“MGS”), a Turkish holding company, was formed by five individuals for the purpose of acquiring the respondent, Gidasa. The agreement to transfer Gidasa from its former owner to MGS was signed on the same day MGS incorporated, and the transfer was completed on March 3, 2008. On June 5, 2008, MGS changed Gidasa's legal corporate name to Marsan. Subsequently, in its submissions dated December 3, 2008, and May 1, 2009, Marsan informed the Department that a change in ownership occurred, and that MGS acquired all of Gidasa's assets, including its facilities and brand names.

Accordingly, we find that significant changes have occurred during the relevant “look-back” window, beginning January 1, 2008, in Gidasa's/Marasan's ownership and corporate structure.^[8] New investors and a new corporate entity now own and control the production of subject merchandise and such significant changes could impact the nature and extent of the respondent's subsidization. As stated above in our new policy, we are not going to analyze whether Marsan's rate of subsidization matches that of Gidasa (i.e., whether the level of subsidization has actually changed at some point on or after March 3, 2008, when significant changes occurred) or recalculate a new CVD cash deposit rate for Marsan. This type of analysis is more appropriately done in the context of an administrative review.

Since significant changes in Marsan's ownership and corporate structure have occurred that could potentially affect the nature and extent of the company's subsidization, pursuant to our new policy outlined above, we are finding that Marsan's merchandise is not entitled to enter under the CVD cash deposit rate previously established in the last CVD administrative review of Gidasa. Accordingly, we preliminarily determine that Marsan's merchandise should continue to enter under the “all others” CVD rate.

Public Comment

Any interested party may request a hearing within 10 days of publication of this notice. Any hearing, if requested, will be held no later than 19 days after the date of publication of this notice, or the first workday thereafter. See 19 CFR 351.310. Case briefs from interested parties may be submitted not later than 10 days after the date of publication of this notice. Rebuttal briefs, limited to the issues raised in those comments, may be filed not later than 17 days after the date of publication of this notice. See 19 CFR 351.309. All written comments shall be submitted in accordance with 19 CFR 351.303. Persons interested in attending the hearing, if one is requested, should contact the Department for the date and time of the hearing. The Department will publish the final results of this CCR in accordance with 19 CFR 351.216(e), including the results of its analysis of issues raised in any written comments. The current requirement for a cash deposit of estimated CVD duties on all subject merchandise at issue will continue unless and until it is modified pursuant to the final results of this CCR.

We are issuing and publishing these results and notice in accordance with sections 751(b)(1) and 777(i)(1) and (2) of the Act and 19 CFR 351.216.

Dated: September 9, 2009.

Ronald K. Lorentzen,

Acting Assistant Secretary for Import Administration.

Footnotes

1.  Recognizing the Department may conduct other types of CCRs, the discussion in this section focuses on “successorship” CCRs for determining the appropriate cash deposit rate for the respondent company in question.

2.  See Letter to Gregory W. Campbell, Office of Policy from Corus Group plc, entitled “Countervailing Duty Changed Circumstances Review; Request for Comments on Agency Practice,” dated February 23, 2007, and Letter to Gregory W. Campbell, Office of Policy, from Law Offices of Stewart and Stewart, entitled “Countervailing Duty Changed Circumstances Reviews: Request for Comment on Agency Practice; Comments of Stewart and Stewart,” dated February 23, 2007. Copies of these public comments are available on file in the Department's Central Records Unit in Room HCHB 1117 of the Department's main building.

3.  For purposes of CVD CCRs, the “look-back window” is defined as the period spanning from the present (i.e., the time the CCR request was submitted to the Department), back to the end of the period of investigation or, if there have been intervening opportunities to request an administrative review, the end of the period of review associated with the most recent opportunity to request an administrative review. The look-back window has been circumscribed in this manner based, in part, on the principle that if changed circumstances occurred prior to this period that were of concern to any party in the proceeding, that party could have requested an administrative review to consider those changes.

4.  This list is based on the Department's extensive experience in applying its regulations and existing practice to various factual patterns. Taking just one example, 19 CFR 351.525(b) provides general “attribution” rules that would apply when determining the subsidy rate when two previously unrelated subject merchandise producers merge. What is clear ex ante in applying these general rules is that the resulting rate for the merged entity would most likely be different from the previously calculated subsidy rates for either of the two pre-merger companies. Given the fact-intensive analysis involved, the extent to which the rate for the merged entity differs from either of the previous company's rates could only be determined in a full administrative review.

5.  This is not necessarily an exclusive list.

6.  Routine or “technical” fluctuations in subsidy rates stemming from, e.g., declining allocable subsidy benefits under the Department's declining balance methodology, ordinary fluctuations in sales denominators, or changing interest rates would not normally in themselves be a basis for a negative successorship finding.

7.  Generally, this means the “all others” cash deposit rate will apply.

8.  We note that the last date to request an administrative review was July 31, 2009, which would cover the period of review for January 1, 2008, to December 31, 2008. Therefore, based on our new policy, in this case the Department will examine changes that have occurred from January 1, 2008, through the time that Gidasa/Marsan submitted its CCR Request.