[Federal Register Volume 61, Number 142 (Tuesday, July 23, 1996)]
[Notices]
[Pages 38166-38189]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18542]
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DEPARTMENT OF COMMERCE
[A-428-821]
Notice of Final Determination of Sales at Less Than Fair Value:
Large Newspaper Printing Presses and Components Thereof, Whether
Assembled or Unassembled, From Germany
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: July 23, 1996.
FOR FURTHER INFORMATION CONTACT: V. Irene Darzenta or William Crow, AD/
CVD Enforcement, Import Administration, International Trade
Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, N.W., Washington, D.C. 20230; Telephone: (202)
482-6320 or (202) 482-0116, respectively.
The Applicable Statute
Unless otherwise indicated, all citations to the statute are
references to the provisions effective January 1, 1995, the effective
date of the amendments made to the Tariff Act of 1930 (``the Act'') by
the Uruguay Rounds Agreements Act (``URAA'').
Final Determination
We determine that large newspaper printing presses and components
thereof (``LNPPs'') from Germany are being, or are 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 publication of the preliminary determination of sales at
LTFV (60 FR 8035, March 1, 1996), the following events have occurred:
On February 27, 1996, the Department disclosed to the petitioner
(Rockwell Graphics, Inc. ) and the respondents (MAN Roland
Druckmaschinen AG (``MRD'') and Koenig Bauer-Albert AG (``KBA'')) the
calculation methodologies used in the preliminary determination. On
March 4 and 5, 1996, the petitioner and MRD, respectively, alleged that
the Department made certain ministerial errors in its preliminary
calculations. On March 15, 1996, the Department determined that none of
the allegations constituted ministerial errors. See March 15, 1996,
Memorandum from the Team to Richard W. Moreland Re: Alleged Ministerial
Errors in the Calculation of the Preliminary Antidumping Duty Margin
for MAN Roland Druckmaschinen AG.
On March 4 and 6, 1996, the Department issued supplemental cost and
sales questionnaires to MRD and its U.S. subsidiary MAN Roland Inc.
(``MRU''). MRD submitted responses to these questionnaires on March 13,
1996.
On March 7, 1996, we met with members of the German Ministry of
Economics to discuss the status of the proceeding.
On March 14, 1996, the Department returned the updated cost
information submitted by MRD in its March 13, 1996, submission which
was determined to be untimely.
In March and April 1996, we conducted verification of the cost and
sales questionnaire responses of MRD in Germany and the United States.
On April 3 and 25, 1996, MRD submitted the corrections to its response
that were presented at verification. On May 14 and 16, 1996, the
Department issued its reports on verification findings.
On May 8, 1996, the Department received comments it solicited from
interested parties in its preliminary determination regarding scope
issues. KBA refiled its scope comments on May
[[Page 38167]]
17, 1996, pursuant to the Department's request to exclude new
information determined to be filed untimely.
The petitioner and the respondents submitted case briefs on June 3,
1996, and rebuttal briefs on June 10, 1996. On June 11, 1996, the
Department requested that MRD revise its case brief to exclude untimely
new factual information. MRD submitted revised briefs on June 13, 1996.
The Department held a public hearing for this investigation on June 17,
1996.
Facts Available
KBA failed to respond to the Department's questionnaire. Section
776(a)(2) of the Act provides that if an interested party (1) withholds
information that has been requested by the Department, (2) fails to
provide such information in a timely manner or in the form or manner
requested, (3) significantly impedes a determination under the
antidumping statute, or (4) provides such information but the
information cannot be verified, the Department shall use facts
otherwise available in reaching the applicable determination. Because
KBA failed to respond to the Department's questionnaire, we must use
facts otherwise available with regard to KBA.
Section 776(b) provides that adverse inferences may be used against
a party that has failed to cooperate by not acting to the best of its
ability to comply with requests for information. See also Statement of
Administrative Action (``SAA''), at 870. KBA's failure to reply to the
Department's questionnaire demonstrates that KBA has failed to
cooperate to the best of its ability in this investigation. Thus, the
Department has determined that, in selecting among the facts otherwise
available to KBA, an adverse inference is warranted. As facts otherwise
available, we are assigning to KBA the margin stated in the notice of
initiation, 46.40 percent.
Section 776(c) provides that when the Department relies on
secondary information (such as the petition) in using the facts
otherwise available it must, to the extent practicable, corroborate
that information from independent sources that are reasonably at its
disposal. When analyzing the petition, the Department reviewed all of
the data the petitioner relied upon in calculating the estimated
dumping margin. This estimated dumping margin was based on a comparison
of the bid price for a sale of a LNPP system made by MRD to an
unrelated U.S. customer and the constructed value (``CV'') of that LNPP
system. As a result of that analysis, the Department modified the CV
methodology that the petitioner relied upon in calculating the
estimated margin. On the basis of those modifications, the Department
recalculated the estimated dumping margin and found it to be 46.40
percent. The Department corroborated all of the secondary information
from which the margin was calculated during our pre-initiation analysis
of the petition, to the extent appropriate information was available
for this purpose at that time. For purposes of the preliminary
determination, the Department re-examined the price information
provided in the petition in light of information developed during the
investigation, and found that it continued to be of probative value.
For purposes of the final determination, we compared the petition price
information against verified data, and again found that it continued to
be of probative value. See Comment 1 of the ``Company-Specific''
subsection of the ``Interested Party Comments'' section of this notice.
Scope of Investigation
Note: The following scope language reflects certain
modifications from the notice of the preliminary determination. As
specified below, we have clarified the scope to include incomplete
LNPP systems, additions and components. We have also clarified the
scope to include ``elements'' (otherwise referred to as ``parts'' or
``subcomponents'') of a LNPP system, addition or component, which
taken altogether, constitute at least 50 percent of the cost of
manufacture of the LNPP component of which they are a part. We have
also excluded from the definition of the five subject LNPP
components any reference to specific subcomponents (i.e., the
reference to a printing-unit cylinder in the definition of a LNPP
printing unit). In addition, we have excluded the following
Harmonized Tariff System of the United States (``HTSUS'')
subheadings from the scope: 8524.51.30, 8524.52.20, 8524.53.20,
8524.91.00, and 8524.99.00. See ``Scope Comments'' section of this
notice and the July 15, 1996 Decision Memorandum to Barbara Stafford
from The Team Re: Scope Issues in the Final Determinations.
Scope: The products covered by these investigations are
largenewspaper printing presses, including press systems, press
additions and press components, whether assembled or unassembled,
whether complete or incomplete, that are capable of printing or
otherwise manipulating a roll of paper more than two pages across. A
page is defined as a newspaper broadsheet page in which the lines of
type are printed perpendicular to the running of the direction of the
paper or a newspaper tabloid page with lines of type parallel to the
running of the direction of the paper. In addition to press systems,
the scope of these investigations includes the five press system
components. They are:
(1) a printing unit, which is any component that prints in
monocolor, spot color and/or process (full) color;
(2) a reel tension paster (``RTP''), which is any component that
feeds a roll of paper more than two newspaper broadsheet pages in width
into a subject printing unit;
(3) a folder, which is a module or combination of modules capable
of cutting, folding, and/or delivering the paper from a roll or rolls
of newspaper broadsheet paper more than two pages in width into a
newspaper format;
(4) conveyance and access apparatus capable of manipulating a roll
of paper more than two newspaper broadsheet pages across through the
production process and which provides structural support and access;
and
(5) a computerized control system, which is any computer equipment
and/or software designed specifically to control, monitor, adjust, and
coordinate the functions and operations of large newspaper printing
presses or press components.
A press addition is comprised of a union of one or more of the
press components defined above and the equipment necessary to integrate
such components into an existing press system.
Because of their size, large newspaper printing press systems,
press additions, and press components are typically shipped either
partially assembled or unassembled, complete or incomplete, and are
assembled and/or completed prior to and/or during the installation
process in the United States. Any of the five components, or collection
of components, the use of which is to fulfill a contract for large
newspaper printing press systems, press additions, or press components,
regardless of degree of assembly and/or degree of combination with non-
subject elements before or after importation, is included in the scope
of this investigation. Also included in the scope are elements of a
LNPP system, addition or component, which taken altogether, constitute
at least 50 percent of the cost of manufacture of any of the five major
LNPP components of which they are a part.
For purposes of this investigation, the following definitions apply
irrespective of any different definition that may be found in Customs
rulings, U.S. Customs law or the HTSUS: the term ``unassembled'' means
fully or partially unassembled or disassembled; and (2) the term
``incomplete'' means lacking one or more elements with which the LNPP
is intended to be equipped in
[[Page 38168]]
order to fulfill a contract for a LNPP system, addition or component.
This scope does not cover spare or replacement parts. Spare or
replacement parts imported pursuant to a LNPP contract, which are not
integral to the original start-up and operation of the LNPP, and are
separately identified and valued in a LNPP contract, whether or not
shipped in combination with covered merchandise, are excluded from the
scope of this investigation. Used presses are also not subject to this
scope. Used presses are those that have been previously sold in an
arm's length transaction to a purchaser that used them to produce
newspapers in the ordinary course of business.
Further, this investigation covers all current and future printing
technologies capable of printing newspapers, including, but not limited
to, lithographic (offset or direct), flexographic, and letterpress
systems. The products covered by this investigation are imported into
the United States under subheadings 8443.11.10, 8443.11.50, 8443.30.00,
8443.59.50, 8443.60.00, and 8443.90.50 of the HTSUS. Large newspaper
printing presses may also enter under HTSUS subheadings 8443.21.00 and
8443.40.00. Large newspaper printing press computerized control systems
may enter under HTSUS subheadings 8471.49.10, 8471.49.21, 8471.49.26,
8471.50.40, 8471.50.80, and 8537.10.90. Although the HTSUS subheadings
are provided for convenience and Customs purposes, our written
description of the scope of this investigation is dispositive.
Scope Comments
The petitioner and the respondents in this investigation and the
concurrent investigation of LNPPs from Japan submitted comments in
their case and rebuttal briefs on several scope-related issues. These
scope issues pertain to: (1) the treatment of elements (parts or
subcomponents) of LNPPs; (2) the use of the ``to fulfill a contract''
language; (3) the inclusion of HTSUS subheading 8524 which encompasses
magnetic tapes; and (4) the treatment of imported merchandise of U.S.
origin. Although certain issues were raised by the parties within the
context of either the German or Japanese investigation, we have
consolidated them for purposes of the final determinations because the
resolution of these issues impacts the scope of both investigations.
Each of these issues, the interested parties' comments and the
Department's position are summarized below. For the complete discussion
and analysis, see the July 15, 1996 Memorandum to Barbara Stafford from
The Team Re: Scope Issues in the Final Determinations.
1. Elements of LNPPs
As stated in the ``Scope of Investigation'' section above, the
scope of the LNPPs investigations covers LNPP systems, additions and
the five major press system components, whether assembled or
unassembled, that are capable of printing or otherwise manipulating a
roll of paper more than two pages across. Because of their large size,
LNPPs are typically imported into the United States in either partially
assembled or disassembled form, in multiple shipments over an extended
period of time, and may require the addition and integration of non-
subject elements prior to or during the installation process in the
United States. Consequently, we stated in our notice of initiation that
``any of the five components, or collection of components, the use of
which is to fulfill a contract for an LNPP system, addition, or
component, regardless of degree of disassembly and/or degree of
combination with non-subject elements before or after importation, is
included in the scope of [these] investigation[s].'' The interpretation
of the intent of this language in the scope resulted in significant
controversy among the interested parties in these investigations.
Generally, the petitioner has interpreted it to mean that incomplete
components and their constituent elements from a subject country are
covered within the scope. The respondents have generally interpreted
our initiation scope language to include only complete components,
arguing that the inclusion of incomplete merchandise in the scope would
necessarily precipitate the inclusion of elements which would conflict
with the Department's industry support determination.
To clarify the issue, in our preliminary determinations, we stated
that we interpreted the current scope to ``include those elements or
collection of elements imported from a subject country insofar as they
constitute any one of the five covered components which are, in turn,
used to fulfill a contract for a LNPP press system, press addition or
press component.'' We also stated that ``individual parts per se are
not covered by the scope of these investigations unless taken as a
whole they constitute a subject component used to fulfill an LNPP
contract.'' This interpretation, however, raised the question: at what
point do the elements imported from a subject country rise to the level
of a LNPP component, addition or system subject to the scope of these
investigations? This question was particularly difficult to answer in
light of the complex nature of the importation of LNPPs--i.e., the high
degree of disassembly and/or incompleteness and the multiple shipments
of parts and subcomponents in various combinations over an extended
period of time. Therefore, we had to decide on a reasonable and
practical approach in determining what constitutes a subject LNPP
component, addition or system, and in so doing, establish the basis on
which we will include elements in the scope.
We considered primarily two alternative approaches for analyzing
what governs the inclusion of parts or subcomponents within the scope
of these investigations (other than spare or replacement parts which
are expressly excluded from the scope if they are separately identified
and valued in a LNPP contract), and solicited comments from interested
parties on the merits of these approaches. One approach considers, on a
case-by-case basis, whether the imported parts or subcomponents when
taken together are essentially a LNPP system, addition or component.
This so-called ``essence'' approach focuses on the question of which
parts are most critical to the operation of the subject merchandise so
that when taken together they constitute an essentially complete LNPP
component, addition or system. A second approach considers the value of
the imported parts or subcomponents relative to the total value of the
finished LNPP component, addition or system in the United States. That
is, we would determine that the imported parts or subcomponents would
be within the scope if they comprised a certain minimum percentage of
the value of the parts or subcomponents of a finished LNPP system,
addition or component. This value would be measured in terms of the
cost of manufacture, rather than price, because (1) we are primarily
concerned with where the actual manufacturing is occurring and not the
market value, and (2) the imported elements are not normally priced
separately from the LNPP which they comprise in the ordinary course of
business.
In general, the interested party comments received on this issue
reflect widely diverging views. The basis of the controversy among the
parties centers on the interpretation of the following excerpts from
the current scope language: (1) ``regardless of degree of disassembly
and/or degree of combination with non-subject elements before or after
importation;'' and (2) ``individual elements when taken as a
[[Page 38169]]
whole constitute a subject component.'' The petitioner views this
language as necessarily referring to both complete and incomplete
components given the nature of the imported merchandise, and proposes
that the Department clarify the scope to include incomplete merchandise
from a subject country insofar as it includes any one of 16 key
elements, which it defines to be critical to the functioning of a LNPP.
KBA and the respondents in the Japan investigation, Mitsubishi Heavy
Industries, Ltd. (``MHI'') and Tokyo Kikai Seisakusho, Ltd. (``TKS''),
view the scope language as referring to complete merchandise.
Alternatively, KBA argues for a value test whereby imported elements
would be covered if their value exceeded at least 60 percent of the
value (or 50 percent of the cost) of the finished system (or at least
90 percent of the value of any individual LNPP component), while MHI
advances arguments for an essence approach that would be predicated
upon the importation of all elements which it defines to be critical to
the functioning of a LNPP. MRD generally supports an essence approach
assessed on a case-by-case basis but favors maintaining flexibility on
the issue, while TKS offers no option, arguing that both approaches
would result in the unlawful expansion of the scope to include parts
and subcomponents.
We agree with the petitioner that incomplete merchandise by
necessity must be included in the scope of these investigations. Given
the very large size of LNPPs and the complex importation process,
complicated by the further manufacturing and/or installation activities
performed in the United States by the respondents, it was the
Department's intent to use the language at issue to avoid creating
loopholes for circumvention, including those arising from differing
degrees of completeness of the imported merchandise. The Department is
concerned that, because of the great number of parts involved, there is
the potential that a party may attempt to exclude its merchandise from
the scope of these investigations on the basis of a lack of completion.
From the Department's standpoint, it is not (and never has been) the
individual elements per se that are the issue, but the combination of
these elements that would rise to the level of covered merchandise
whether by essence or by value (i.e., the sum of importations pursuant
to a LNPP contract, not the individual importations or parts
themselves). Given the significant controversy that has been generated
over the scope of these investigations, we believe that clarification
of the scope is warranted in this case. We note that the Department has
the authority to clarify the scope language at any time during an
investigation. See Final Determination of Sales at Less Than Fair
Value: Small Diameter Seamless Carbon and Alloy Standard, Line and
Pressure Pipe from Italy, 60 FR 31981, 31984, 31987 (June 19, 1995);
Minebea Co., Ltd. v. United States, 782 F. Supp. 117, 120 (CIT 1992);
and Kern-Liebers USA v. United States, 881 F. Supp. 618 (CIT 1995).
The parties' diverging views on the approach the Department should
pursue in resolving the issue attests to the fact that there is no
perfect solution to the problem. The selection of one or the other
approach for purposes of the final determinations, however, is
unavoidable if our scope is to have reasonable clarity and
administrability, given the complexity of the importation of the
subject merchandise and the potential for circumvention. The pursuit of
either approach necessitates clarification of the scope to include
explicitly incomplete Japanese- or German-origin LNPPs. Given that the
minimum level of scope coverage is any of the five LNPP components,
both the essence and value approaches must be examined on a component-
specific basis.
The essence approach has superficial appeal because it seeks, in
principle, to capture what a particular subject LNPP component actually
is--i.e., the ``heart'' of it. However, the information obtained from
the interested parties and other sources make it difficult, if not
impossible, to state that a particular element is the ``essence'' of a
LNPP component. In past cases in which the number of parts and
subcomponents comprising the subject merchandise was limited, we have
identified specific elements, or groups of elements, as constituting
the ``whole'' or ``essence'' of the subject merchandise. See e.g.,
Final Determination of Sales at Less Than Fair Value: Bicycles from the
People's Republic of China, 61 FR 19026 (April 30, 1996); Final
Determination of Sales at Less Than Fair Value: Professional Electric
Cutting Tools and Professional Electric Sanding/Grinding Tools from
Japan, 58 FR 30144 (May 26, 1993); and Final Determination of Sales at
Less Than Fair Value: Gene Amplification Thermal Cyclers and
Subassemblies Thereof, from the United Kingdom, 56 FR 32172 (July 15,
1991). In this case, however, given the large number of parts and
subcomponents which are combined to produce a subject LNPP component,
we believe that it is impossible to conclude, for example, that a side
frame or a blanket cylinder is the ``essence'' of a printing unit, as
suggested by the petitioner.
Added to the difficulty of accepting the petitioner's ``essence''
proposition in general is the fact that many of the critical elements
identified by the petitioner individually represent an insignificant
portion of the total value of the LNPP component of which they are
part, and the identification of named elements may require modification
over time due to technological advances. Furthermore, there is the
unresolved question of whether a critical element would constitute the
``essence'' of a subject component if it itself were incomplete in some
minor way. In other words, the problem faced in this case is
qualitatively unlike the problems faced in the other cases, cited
above, where it was possible to reduce the ``essence'' definition to a
single, non-contradictory definition.
Therefore, if no single element can be identified as the
``essence'' of a particular LNPP component, and if requiring that all
of the ``essential'' elements listed by the petitioner or other parties
be of subject country origin would unacceptably limit the intended
scope of these investigations, then the ``essence'' approach is
unworkable.
We believe that the value approach is consistent, predictable, and
administrable. According to this approach, imported elements are
covered if they constitute a certain minimum percentage of the value,
based on the cost of manufacture, of the particular component of which
they are a part. We acknowledge, however, that in order to perform the
value test, we will have to wait until after all of the elements
comprising the LNPP component are imported and the LNPP component is
produced, and that we will suspend liquidation on all imported elements
in the meantime. In addition, the argument has been made that the value
approach is more uncertain with respect to duty assessment, as all
shipments would need to be completed before the value test on a
finished product basis would be assessed. However, we note that this
would also be true if we took the ``essence'' approach, in that the
identification of critical elements could only take place after all
importations have been made.
Furthermore, we have instituted the concept of a value test in the
past where the nature of the merchandise and its importation lent
itself to circumvention. See Final Determination at Sales at Less Than
Fair Value: Cellular Mobile Telephones and Subassemblies from Japan, 50
FR 45447, 45448 (October 31,
[[Page 38170]]
1985); and Mitsubishi Elec. Corp. v. United States, 898 F.2d. 1577,
1582 (Fed. Cir. 1990).
In this case, exercising our discretion to develop an administrable
scope, we determine that if the sum of the value of elements imported
to fulfill a LNPP contract is at least 50 percent of the value,
measured in terms of the cost of manufacture, of any of the five named
components covered by the scope into which they are incorporated, then
the imported elements are covered by the scope. An individual component
is covered by the scope if the imported elements comprising it
represent at least 50 percent of the value of the component, even if
the contract pursuant to which the elements are imported is for an
entire LNPP system and the remaining components are not within the
scope.
We believe that this 50 percent threshold is a workable standard
and is sufficiently significant to capture certain critical elements as
well. We also believe that pursuing the value test on the basis of cost
of manufacture, rather than price, is less susceptible to manipulation
and more readily traceable to company records because the imported
elements are normally not priced separately from the LNPP which they
comprise in the ordinary course of business.
In addition, given our rejection of the essence approach for the
purpose of the scope, we believe that including any references to
specific subcomponents of covered components (i.e., printing-unit
cylinder) in the definition of the five covered components would be
improper. Therefore, we have excluded them from the scope.
Based on the foregoing analysis, we have clarified the scope to
include incomplete LNPP systems, additions or components. For the
reasons explained above, we note that this does not constitute an
``expansion'' of the scope, as the respondents allege, but merely a
necessary clarification.
For purposes of these investigations, incomplete LNPPs will be
defined as any element or group of elements of a LNPP system, addition
or component that are imported from a subject country lacking one or
more elements needed to fulfill a contract for a LNPP system, addition
or component. Such elements would be covered by the scope of these
investigations if they represent at least 50 percent of the value,
measured in terms of the cost of manufacture, of the finished component
of which they are a part. Therefore, as stipulated in the
``Continuation of Suspension of Liquidation'' section of this notice,
we are instructing the Customs Service to suspend liquidation on all
entries of elements of LNPP components imported to fulfill a contract
for a LNPP system, addition or component, in order to assess the cost
of manufacture of these imports relative to the cost of manufacture of
the finished component of which they are part. The 50 percent value
test will be administered by the Department after all entries of such
merchandise have been made and the component of which they are part is
produced.
To facilitate the Department's performance of the value test, all
foreign producers/exporters and U.S. importers in the LNPP industry
shall be required to provide clearly the following information on the
documentation accompanying each entry from Germany and Japan of
elements pursuant to a LNPP contract: (1) the identification of each of
the elements included in the entry, (2) a description of each of the
elements, (3) the name of the LNPP component of which each of the
elements are part, (4) the LNPP contract number pursuant to which the
elements are imported. The suspension of liquidation will remain in
effect until such time as all of the requisite information is presented
to U.S. Customs and the Department is able to make a determination as
to whether the imported elements are at least 50 percent of cost of
manufacture of the LNPP component of which they are part.
2. ``To Fulfill A Contract'' Language in the Scope
The current scope of these investigations ties subject merchandise
to a contract for the sale of a LNPP system, addition or component, and
the issue has been raised by one respondent as to whether such
provision is lawful. Specifically, MHI argues that the ``to fulfill a
contract'' provision in the scope definition incorrectly applies the
antidumping law and the assessment of antidumping duties to contracts
instead of products, creates an unacceptable uncertainty as to the
scope of products covered by these investigations, and risks being
overinclusive. The petitioner argues that the Department has not
applied the antidumping law to contracts. It asserts that the language
at issue does not mean that the contract itself is the subject of the
investigation, although it is an indispensable consideration in the
investigation because it determines the price.
We disagree with the respondent. A contract is neither the object
of our investigations, nor the object of the assessment of tariffs.
Instead, a contract is a documentary instrument for facilitating the
identification of the subject merchandise for the assessment of duties
arising from an antidumping order. As such, a contract is similar to
customs entry forms and company invoices commonly used in the process
of liquidating foreign products entering the customs territory of the
United States. Therefore, we disagree with MHI's contention that the
Department would be replacing products with contracts as the object of
the investigation.
Given the complex nature of the importation of the product (i.e., a
high degree of disassembly/incompleteness, and multiple shipments of
innumerable parts and subcomponents over an extended period of time),
the reference to a LNPP contract in this context is the only
administrable means of identifying the subject merchandise. Therefore,
we have continued using the ``to fulfill a contract'' language in the
scope and in our continuation of suspension of liquidation instructions
to the Customs Service.
3. HTSUS Subheading 8524
MHI maintains that the Department should amend the scope of these
investigations to exclude those tariff categories that encompass
magnetic tape--i.e., HTSUS numbers 8524.51.30, 8524.52.20. 8524.53.20,
8524.91.00 and 8524.99.00--because the subject merchandise does not
include magnetic tape. According to MHI, the only component covered by
the scope that could possibly include such a product, the computerized
control system, instead includes hard and floppy disks. MHI contends
that if the Department includes the HTSUS classifications for either
magnetic tape or other generic computer components, it will
inappropriately interfere with the liquidation of a multitude of
computer-related products that are not relevant to the LNPP
investigations.
HTSUS 8524 covers ``records, tapes and other recorded media for
sound or other similarly recorded phenomena, including matrices and
meters for the production of records,'' but excluding photographic or
cinematographic goods. The above-specified HTSUS numbers currently
included in the scope refer to ``other magnetic tapes,'' ``other video
tape recordings'' and ``other recorded media for reproducing phenomena
other than sound or image.'' HTSUS 8524 was included in the scope at
the initiation stage of these investigations, pursuant to a
conversation with the National Import Specialist who, at that time,
advised the Department that the LNPP computerized control system may
enter the U.S. Customs territory under the HTSUS
[[Page 38171]]
subheading 8524. See July 20, 1995, Memorandum to the File Re: Scope
Definition-Discussion with National Import Specialist; and the February
15, 1996, Memorandum to the File Re: HTSUS Subheadings.
Pursuant to further conversations with the National Import
Specialist for the merchandise at issue, we learned that imported
software or media regardless of application is separately identified in
the HTSUS for Customs valuation purposes, and that records, tapes and
other recorded media of heading 8524 remain classified under that
heading, whether or not they are entered with the apparatus for which
they are intended. Therefore, theoretically, computer subcomponents
such as the software destined for use in a LNPP could be classified as
``other recorded media'' under HTSUS 8524. However, in practice, this
classification may not necessarily apply to LNPPs. We note that there
is no evidence on the record of these proceedings at the present time
indicating that the software of computerized control systems imported
to fulfill LNPP contracts is entered under the HTSUS subheading at
issue.
Our practice in crafting the scope of any investigation is to
include language that states that ``[a]lthough the HTSUS subheadings
are provided for convenience and Customs purposes, our written
description of the scope . . . is dispositive.'' This language means
that it is the description of the merchandise, and not its Customs
classification, that is controlling for the assessment of antidumping
duties. Therefore, notwithstanding the HTSUS numbers under which the
software of a LNPP computerized control system is imported from Germany
or Japan, it would be covered if it met the criteria set forth in Scope
Comment 1 above.
In this case, however, because we have no evidence on the record to
indicate that computer control subcomponents are imported under the
category at issue, we see no need to continue to include the above-
specified HTSUS numbers in the scope of these investigations.
Therefore, we have excluded them from the scope of these
investigations for purposes of the final determinations.
4. U.S.-Origin Goods Returned
KBA requests clarification that U.S.-origin elements and components
would not be subject to antidumping duties if any are reimported, in
accordance with the HTSUS which provides that such ``U.S. goods
returned'' are not subject to any duties.
HTSUS 9801 generally provides that articles produced in and
exported from the United States and subsequently returned to the United
States, without having been advanced in value or improved in condition
by any process of manufacture or other means while abroad, are exempt
from duties. HTSUS 9802 generally provides that articles returned to
the United States, after having been exported to be advanced in value
or improved in condition by any process of manufacture or other means,
are dutiable on the value of the processing conducted outside of the
United States. Articles returned to the United States that have not
lost their physical identity and have not undergone such advancement in
value or improvement in condition abroad, except assembly and
operations incidental to that assembly, would be subject to duties on
the value of the imported article less the cost or the value of the
U.S. content.
Therefore, under HTSUS 9801, the respondent's proposition is valid
if the U.S.-origin elements are returned to the United States in the
same manner as they were exported from the United States. Under HTSUS
9802, the issue is less clear for antidumping purposes. While U.S.
Customs law provides for a partial exemption of duty for U.S.-articles
sent abroad for processing or assembly and returned to the United
States, the Department has concluded in the past that the general rule
applicable to ordinary customs duties is not controlling with respect
to antidumping duties, and that the United States Customs Service
American Goods Returned (``AGR'') program, pursuant to HTSUS 9802, is
subject to the collection of antidumping duties on the full value of
the merchandise, including the U.S. portion. The Department has stated
that any interpretation which sought to limit the application of
antidumping duties on AGR goods to the foreign content would be
inconsistent with the Department's statutory mandate to assess
antidumping duties on the extent to which the normal value (``NV'')
(previously referred to as ``foreign market value'') exceeds the export
price (previously referred to as ``United States price''). Application
of antidumping duties only on the foreign processing or content portion
of the import might mean that the margin of dumping would not be fully
offset. See Final Determination of Sales at Less Than Fair Value:
Certain Corrosion-Resistant Carbon Steel Products from Canada (58 FR
37099, July 9, 1993), as affirmed by the Binational Panel under the
United States-Canada Free Trade Agreement (In the Matter of: Certain
Corrosion-Resistant Carbon Steel Products from Canada; USA-93-1904-03
(October 31, 1994)).
In other words, if the U.S.-origin elements were combined with
other elements prior to reimportation into the United States to produce
a subject LNPP in accordance with the criteria set forth in Scope
Comment 1 above, antidumping duties would be assessed on the full value
of the import, inclusive of the U.S. content. Therefore, based on the
foregoing analysis, we have not clarified the scope in the manner
suggested by KBA.
Period of Investigation
The POI for MRD is July 1, 1993 through June 30, 1995. See
Preliminary Determination of Sales at Less Than Fair Value: Large
Newspaper Printing Presses and Components Thereof, Whether Assembled or
Unassembled, from Germany, 61 FR 8035, March 1, 1996) (``LNPPs
Preliminary Determination'').
Product Comparisons
Although the home market was viable, in accordance with section 773
of the Act, we based NV on CV because we determined that the particular
market situation, which requires that the subject merchandise be built
to each customer's specifications, does not permit proper price-to-
price comparisons. See LNPPs Preliminary Determination.
Fair Value Comparisons
To determine whether MRD's sales of LNPPs to the United States were
made at LTFV, we compared Constructed Export Price (``CEP'') to the NV,
as described in the ``Constructed Export Price'' and ``Normal Value''
sections of this notice. In accordance with section 777A(d)(1)(A)(ii),
we calculated transaction-specific CEPs (which in this case were
synonymous with model-specific CEPs) for comparison to transaction-
specific NVs. See LNPPs Preliminary Determination.
Constructed Export Price
MRD reported its sales as either CEP or EP. We classified all of
MRD's sales as CEP sales because its affiliated U.S. sales agent acted
as more than a processor of sales-related documentation and a
communication link with the unaffiliated U.S. customers; and the U.S.
affiliate engaged in a broad range of activities including installation
support, which we have classified as further manufacturing. See Comment
2 and Comment 3 of the ``Common Issues'' subsection of the
[[Page 38172]]
``Interested Party Comments'' section of this notice. We calculated
CEP, in accordance with subsections 772 (b) and (d) of the Act, for
those sales to the first unaffiliated purchaser by a seller affiliated
with the producer/exporter that took place before importation and
involved further manufacturing in the United States.
We excluded MRD's sale to The Charlotte Observer (``Charlotte'')
from our final analysis because it involved the importation of parts
and subcomponents, the sum of the cost of manufacture of which was less
than 50 percent of the cost of manufacture of the LNPP component of
which they are a part. See ``Scope of Investigation'' and ``Scope
Comments'' sections of this notice. See also Comment 2 of the
``Company-Specific Issues'' subsection of the ``Interested Party
Comments'' section of this notice.
We calculated CEP based on the same methodology used in the
preliminary determination, with the following exceptions:
(1) Where appropriate, we revised/updated the respondent's data in
accordance with verification findings. See May 14, 1996 Memoranda for
David L. Binder from V. Irene Darzenta Re: the Verification of the
Questionnaire Responses of MAN Roland Druckmaschinen AG and MAN Roland
Inc. (``MRD and MRU Sales Verification Reports.'').
(2) We excluded all post-POI price amendments. See Comment 3 of the
``Company-Specific Issues'' subsection of the ``Interested Party
Comments'' section of this notice.
(3) We deducted from CEP those indirect selling expenses that were
associated with economic activity in the United States, whether
incurred in the United States or in Germany, and irrespective of where
recorded, after making certain adjustments. We recalculated those
indirect selling expenses incurred by MRD in Germany in accordance with
the methodology explained in the DOC Position to Comment 1 of the
``Common Issues'' subsection of the ``Interested Party Comments''
section of this notice. We recalculated those indirect selling expenses
incurred by MRU in the United States using the verified indirect
selling expense rate for the POI based on sales revenues. See Comment 5
of the ``Company-Specific Issues'' subsection of the ``Interested Party
Comments'' section of this notice.
(4) For the Rochester and Wilkes Barre sales, we recalculated
warranty expenses using the verified warranty expense factor applicable
to MRD's historical experience in the home market for all LNPP products
based on the respondent's representations at verification that MRD
would be primarily responsible for any warranty servicing necessary for
these two sales. For Fargo and Global, warranty expenses were
recalculated based on the warranty expense factor reflecting MRU's
historical experience, revised to reflect verification findings, given
the respondent's representations that MRU is primarily responsible for
any warranty servicing necessary for these two sales. See Comment 6 of
the ``Company-Specific Issues'' subsection of the ``Interested Party
Comments'' section of this notice.
(5) We added warehousing income accrued on one sale.
Normal Value/Constructed Value
For the reasons outlined in the ``Product Comparisons'' section of
this notice, we based NV on CV.
In accordance with section 773(e) of the Act, we calculated CV
based on the sum of the respondent's materials and fabrication costs,
plus amounts for selling, general and administrative (``SG&A'')
expenses and U.S. packing costs. We based our CV calculation on the
same methodology used in the preliminary determination, revised to
reflect verification findings, where appropriate, with the following
exceptions:
(1) As facts available, we calculated the cost of manufacturing for
the sales to Rochester and Wilkes Barre based on the respondent's
submitted cost estimates, adjusted for the variance between estimated
and actual costs for a completed sale of a similar Geoman press. See
Comment 9 of the ``Company-Specific Issues'' subsection of the
``Interested Party Comments'' section of this notice.
(2) In calculating MRU's further manufacturing general and
administrative (``G&A'') rate, we divided POI G&A expenses by cost of
sales recognized during the POI, excluding the cost for parts purchased
from MRD. See Comment 14 of the ``Company-Specific Issues'' subsection
of the ``Interested Party Comments'' section of this notice.
Price to CV Comparisons
For CEP to CV comparisons, we deducted from CV the weighted-average
home market direct selling expenses, pursuant to section 773(a)(8) of
the Act.
Verification
As provided in section 782(i) of the Act, we attempted to verify
the information submitted by the respondent. We used standard
verification procedures, including examination of relevant accounting
and sales records and original source documents provided by the
respondent.
Currency Conversion
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. In this case, although
MRD reported that forward currency exchange contracts applied to
certain U.S. sales, we could not verify that these contracts were
directly linked to the particular sales in question. See May 14, 1996
MRD Sales Verification Report at 37. Therefore, for the purpose of the
final determination, 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) 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.'' For this final determination, we
have determined that a fluctuation exists when the daily exchange rate
differs from the benchmark rate by 2.25 percent. The benchmark rate is
defined as the rolling average of rates for the past 40 business days.
When we determined a fluctuation existed, we substituted the benchmark
for the daily rate. 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. (For an
explanation of this method, see, Policy Bulletin 96-1: Currency
Conversions, 61 FR 9434, March 8, 1996.). Such an adjustment period is
required only when a foreign currency is appreciating against the U.S.
dollar. The use of an adjustment period was not warranted in this case
because the deutschemark did not undergo a sustained movement, nor were
there any currency fluctuations during the POI.
[[Page 38173]]
Interested Party Comments
Common Issues in the German and Japanese LNPP Investigations
The petitioner and the respondents in this investigation and the
concurrent investigation of LNPPs from Japan raised certain common
issues in their case and rebuttal briefs. Therefore, for purposes of
these final determinations, we have consolidated the common issues in
this notice in order to respond to them.
Comment 1 Deduction of U.S. Indirect Selling Expenses from CEP:
The petitioner maintains that the Department failed to deduct most of
the U.S. indirect selling expenses because they were recorded in the
accounts of the foreign LNPP manufacturers. According to the
petitioner, the Department should deduct all indirect selling expenses
incurred on behalf of U.S. sales, irrespective of the location at which
the expenses are actually incurred or the location of the company in
whose books the expenses are recorded. The petitioner interprets
section 351.402(b) of the proposed regulations (Notice of Proposed
Rulemaking and Request of Public Comments, 61 FR 7308, 7381 (February
27, 1996)) which states that ``the Secretary will make adjustments to
CEP under section 772(d) of the Act for expenses associated with
commercial activities in the United States, no matter where incurred''
to mean that the actual physical location of those commercial
activities is not a qualifying criterion. The petitioner maintains that
much of the pre-contract sales activity is handled by the foreign
manufacturer of LNPP and that the expenses incurred for such activity
should be deducted from CEP. The petitioner states that if the
Department deducts U.S. indirect selling expenses from CEP based on the
geographic location in which they were incurred or booked, it would
create an enormous loophole through which expenses directly associated
with U.S. sales could simply disappear.
According to the petitioner, respondents in antidumping cases with
CEP could increase net U.S. prices by merely shifting selling expenses
from the books of their U.S. affiliates to those of the foreign parent
companies.
The petitioner states further that, at a minimum, the Department
should deduct from CEP all expenses included in the foreign
manufacturer's accounts that relate to U.S. economic activity. These
costs include: (1) All direct and indirect costs incurred for
installation, warranty and technical servicing and training, regardless
of where such expenses are originally incurred; (2) all indirect costs
associated with pre-contract design, bid preparation, cost estimation,
and negotiations for U.S. sales, regardless of where such expenses are
originally incurred; and (3) all direct and indirect selling expenses
which were originally incurred in the United States by either the U.S.
affiliate or the foreign manufacturer, and have been recorded in the
accounts of the foreign manufacturer. To the extent that a respondent
has not specifically identified which portions of its U.S. indirect
selling expenses booked by the foreign manufacturer are related to U.S.
economic activity, the Department should deduct all such expenses from
CEP.
MRD disagrees. MRD argues that neither the statute nor the proposed
regulations support the petitioner's proposition. MRD states that in
accordance with section 772(d) of the Act and the Department's proposed
regulations, the deduction for indirect selling expenses is limited to
expenses incurred in the United States for economic activities in the
United States. MRD adds that its sales section in Germany responsible
for U.S. sales activities performs these activities in Germany, and
that the costs for these activities cannot be deducted from U.S. price
under section 772(d).
MRD argues, however, that if the Department decides to deduct
indirect selling expenses incurred outside the United States from U.S.
price, then it should recalculate the amounts reported for U.S. sales.
The respondent explains that to calculate the reported expenses, it
first divided the actual MRD indirect selling expenses by the total
value of sales recorded by MRD, and applied the resulting expense rate
to the gross contract price for each U.S. sale. However, the MRD sales
figures used to derive the expense rate include only the amounts for
the sales from MRD to MRU and not the value added in the United States,
whereas the gross contract price for each sale to which the expense
rate was applied does reflects the total value of the presses delivered
to the customer inclusive of the value added by MRU. Therefore, to make
a consistent calculation, MRD argues that the Department should either
recalculate the MRD indirect selling expense rate using figures that
correspond to the gross contract prices, or it should use the existing
rate but apply it only to the transfer price between MRD and MRU for
each sale.
TKS maintains that the Department has adopted a new methodology for
calculating indirect selling expenses pursuant to the enactment of the
URAA which make petitioner's arguments moot. According to TKS, the
Department has determined that the language of the SAA which refers to
``economic activity occurring in the United States'' is to be
interpreted as activities of the respondent which physically occur in
the United States. TKS cites to the Final Determination of Sales at
Less Than Fair Value: Certain Pasta from Italy, 61 FR 30326 (June 14,
1996) (``Pasta Final Determination'') and the Preliminary Results of
Administrative Review: Certain Steel Wire Rod from France, 61 FR 8915,
8917 (March 6, 1996) to support its contention that the petitioner's
stance is inconsistent not only with the instructions of the SAA but
with recent Department precedents.
MHI argues that the Department properly excluded from U.S. indirect
selling expenses those costs incurred for non-U.S. economic activity.
MHI argues that the methodology adopted by the Department was
consistent with the SAA, section 772(d), and the Department's proposed
regulations. Finally, MHI cites the Pasta Final Determination (at
Comment 2), explaining that the Act requires the Department to make
deductions to CEP only for those expenses associated with economic
activity in the United States. MHI further argues that if the
Department continues to treat MHI's U.S. sales as CEP sales, then it
should continue to deduct only the indirect selling expenses incurred
on behalf of economic activities occurring in the United States.
DOC Position: We agree with the petitioner in general. The SAA (at
823) states that: ``[U]nder new section 772(d), constructed export
price will be calculated by reducing the price of the first sale to an
unaffiliated customer in the United States by the amount of expenses
(and profit) associated with economic activities occurring in the
United States,'' including, inter alia, ``any `indirect selling
expenses' '' (emphasis added). In the Pasta Final Determination, the
Department determined that it was proper to deduct indirect selling
expenses incurred in the home market in support of U.S. sales because
such expenses were ``specifically related to U.S. commercial
activity.'' See Pasta Final Determination at 30352. The indirect
selling expenses reported by the respondents in these investigations
are of the same class and nature as those determined to be associated
with U.S. economic activity in the Pasta Final Determination, i.e.,
they are general selling expenses incurred and booked by the parent
company in the home market to support export sales, including those for
the
[[Page 38174]]
United States. This approach is in conformity with the SAA at page 824,
which directs that section 772(d)(1)(D) provides for the deduction of
indirect selling expenses from CEP where those expenses ``* * * would
be incurred by the seller regardless of whether the particular sales in
question are made, but reasonably may be attributed (at least in part)
to such sales.'' We have therefore deducted indirect selling expenses
incurred in the home market on U.S. sales from CEP, after making
certain necessary adjustments.
While we agree with the petitioner that all indirect selling
expenses directly associated with U.S. economic activity, irrespective
of the location where they were incurred, should be deducted from CEP,
we do not believe that it is correct to use an indirect selling expense
factor which is derived from a pool of expenses and sales revenue which
covers both U.S. and non-U.S. sales. The indirect selling expense ratio
reported by MHI for activities recorded at MHI's Japanese headquarters
and factory sales offices consists of a numerator inclusive of common
selling expenses as well as specific selling expenses supporting U.S.
exports and other exports sales, divided by a denominator consisting of
all export sales. Similarly, the indirect selling expense ratio
reported by MRD for activities recorded at MRD's Augsburg facilities
consists of data related to both the U.S. and other export markets. The
indirect selling expense ratio reported by TKS for activities recorded
at TKS's Tokyo headquarters consists of a numerator inclusive of common
selling expenses as well as specific selling expenses supporting U.S.
exports, other exports sales, and domestic sales, divided by a
denominator consisting of world-wide sales. These allocations resulted
in each company's reported indirect selling expense rate.
Each respondent's indirect selling expenses incurred in the home
market were reported as including expenses generally associated with
U.S. exports, although the respondents maintained that such expenses
did not relate to ``U.S. economic activity.'' At verification, we were
able to confirm that certain of the indirect selling expenses were
associated with U.S. economic activity. We were unable, however, to
quantify the portion of the total indirect selling expenses which were
associated with the U.S. sales. Therefore, for these final
determinations, we have deducted, as non-adverse facts available, only
a portion of the total indirect selling expenses recorded in the home
market using the following methodology. First, we calculated total
indirect selling expenses by multiplying the reported rate referred to
above by each CEP price. We then subtracted that amount from each CEP
price. Next, we calculated a factor which is the proportion of all
those adjustments to CEP made under section 772(d) of the Act divided
by the contract price net of the total indirect selling expenses
calculated previously. The resulting factor was then applied to the
indirect selling expense amount. We then deducted the resulting value
from CEP. This methodology applies the indirect selling expenses only
to the portion of CEP price which differentiates CEP from export price
(``EP'').
Comment 2 EP or CEP Sales--U.S. Subsidiaries' Activities: MHI
contests the Department's preliminary conclusion that the U.S. LNPP
transactions under investigation should be classified as CEP sales. MHI
argues that MHI's U.S. sales should not have been treated as CEP sales
because (1) the Department mischaracterized the extent of the U.S.
economic activities of its U.S. subsidiary MLP (USA) Inc. (``MLP''),
and (2) the Department should not have treated installation as further
manufacturing.
MHI claims that MLP's sales activities were not as broad as
characterized by the Department. According to MHI, MHI's sales clearly
qualify as EP sales under Section 772(a) of the Act. MHI states that
the Department generally has three criteria for determining if a sale
is to be based on EP. MHI states that the third criterion, where an
affiliated U.S. agent ``acted as more than a processor of sales-related
documentation and a communications link with the unaffiliated United
States customers * * * .'' was applied to MLP and was the main reason
for applying CEP to MHI's sales. MHI claims that MLP's sales-related
activities were limited. According to MHI, subcontractors were
responsible for installation, and MLP only sent engineers to supervise.
According to MHI, the primary role of MLP is to act as an interface
between the MHI sales team in Tokyo and MHI's U.S. customers. MHI
argues that MLP did nothing more than implement purchasing instructions
from MHI for a certain limited number of parts.
MHI cites the Final Results of the Administrative Review of Certain
Corrosion-Resistant Carbon Steel Flat Products from Korea (61 FR 18547,
18562, April 26, 1996) (``Flat Products from Korea'') to support its
contention that in setting up MLP's sales activities, MHI merely
transferred these routine selling functions to its related selling
agent in the United States and the substance of the transaction was
unchanged. In Flat Products from Korea, the Department treated the
respondent's sales as EP sales (formerly referred to as ``purchase
price'') even though the U.S. affiliate had engaged in activity in the
United States. The Department found that not all of the respondent's
sales were delivered directly to the customer. However, the selling
functions were normally undertaken by the exporter. According to MHI,
the Department's analysis in Flat Products from Korea centered on what
activities were conducted for the transaction as a whole and not on
where the transaction took place. MHI explains that MLP's limited
installation activities, limited sales activities, and limited parts
procurement activities only represent a transfer of routine sales-
related activities to the United States.
MRD maintains that the Department should analyze the Rochester and
Wilkes-Barre sales as EP sales, rather than CEP transactions. This
respondent states that the Department's preliminary decision to treat
these sales as CEP sales was based on a misapplication of the standards
used to distinguish EP from CEP sales. MRD maintains that the standard
for such differentiation is whether the performance of functions by the
U.S. subsidiary changes the substance of the transaction or the
functions themselves. According to MRD, MRU's role in the Rochester and
Wilkes-Barre sales does not transform the sales from EP to CEP sales,
as it was not essential. MRD asserts that the functions performed by
MRU for these sales--document processing, arranging for local sourcing
of certain materials and services, communicating and coordinating with
the customer--are the same functions that MRD routinely performs from
Germany for third country sales. By contrast, the sales to Charlotte,
Fargo and Global did require MRU's participation and are properly
characterized as CEP sales, as they were either produced almost
entirely at MRU's facilities in the United States or underwent
substantial further processing there.
Furthermore, MRD argues that, because the Rochester and Wilkes-
Barre sales were made prior to importation and were not sold from the
U.S. affiliate's inventory or subject to further manufacturing in the
United States, they must be treated as EP sales under the Department's
established practice. Also, MRD contends that the minor warehousing
required for these sales as a result of the logistical problems
inherent in shipments of large capital equipment, and the addition of
non-
[[Page 38175]]
German parts during the installation process, does not transform these
sales into CEP sales. Additionally, MRD notes that the Department's
reliance on New Minivans from Japan (57 FR 21937, May 26, 1992)
(``Minivans'') and Certain Internal-Combustion Forklift Trucks from
Japan (``Forklifts'') (53 FR 12552, April 15, 1988) in the preliminary
determination to treat the sales at issue as CEP sales is misplaced.
MRD states that, in Minivans, the Department concluded that the U.S.
subsidiaries of the Japanese automobile manufacturers played such a
significant role in the U.S. sales and distribution structure for their
imported automobiles that the sales had to be classified as CEP sales.
The types of efforts performed by these U.S. subsidiaries required a
U.S. presence similar to that required for a sale from the U.S.
subsidiary's own inventory. In contrast, none of the functions
performed by MRU for the Rochester and Wilkes-Barre sales require a
presence in the United States. MRD explains that, in Forklifts, the
Department's reasoning for classifying sales made through an affiliated
sales agent to an unaffiliated purchaser as EP sales hinged in part on
the fact that the functions performed by the affiliated seller did not
change the substance of the transaction, and in part on the fact that
the sales were made prior to importation. Therefore, MRD asserts that,
in accordance with the reasoning outlined in Forklifts, the sales to
Rochester and Wilkes-Barre should be treated as EP sales.
The petitioner maintains that under the language of the statute,
all U.S. sales made by all respondents in these investigations must be
treated as CEP transactions. The petitioner argues that the export
price definition contained in the statute does not apply to sales made
by a U.S. selling affiliate of a foreign manufacturer or exporter. The
petitioner states that, despite the apparent clarity of the statutory
language, the Department's practice has been to consider a sale by an
affiliate as an ``indirect'' export price transaction where the
merchandise is shipped directly to the buyer without any inclusion in
the selling affiliate's inventory, and where the U.S. sales affiliate
acts only as a processor of documentation and as a communications link
with the unaffiliated buyer. It maintains that the indirect export
price definition in the respondents' case cannot be applied because the
U.S. sales subsidiaries functioned as more than a mere processor of
sales-related correspondence. The petitioner cites to the Flat Products
from Korea and Polyethylene Terephthalate Film, Sheet and Strip from
Japan (60 FR 32133, 32135, June 20, 1995) to support its contention
that just as the lack of additional expenses such as technical
services, advertising and warranties by an U.S. affiliate indicate the
use of export price, so, conversely, where the U.S. affiliate performs
additional functions such as technical support, training, and warranty
servicing, the Department will treat the sale as a CEP transaction. The
petitioner enumerates the various functions performed by the U.S.
affiliates of MHI, TKS and MRD--marketing, sales promotion, training,
warehousing and installation support, where applicable--and asserts
that these activities constitute more than mere processing of sales
documentation.
Furthermore, the petitioner notes that TKS recognized that the
selling activities of its selling agent far exceeded the Department's
minimal threshold for indirect export price sales and reported its U.S.
sales as CEP and further-manufactured sales. The petitioner states that
although MHI reported its sales as EP transactions, the Department
correctly classified its U.S. sales as CEP-further-manufactured sales
at the preliminary determination. According to the petitioner, this
preliminary determination was confirmed during verification, where the
Department reviewed the documentation of MLP's procurement of auxiliary
parts and its sales servicing activities, both of which go well beyond
the narrow confines established by the Department for indirect export
sales.The petitioner disagrees with MRD's claim that the Department
classifies a sale as EP unless the functions performed by the U.S.
affiliate could not have been performed by the foreign producer/
exporter without the U.S. affiliate. The petitioner asserts that it is
the significance of the activities performed by the U.S. affiliate and
not their transportability that counts in the CEP versus EP analysis.
The petitioner also refutes MRD's analysis of the Department's
decisions in Minivans and Forklifts, claiming that in both cases the
Department focused on the functions performed by the U.S. sales
affiliate. In addition, the petitioner states that the only exception
to the rule that warehousing necessitates CEP treatment is when the
producer provides warehousing at the customer's demand, which is not
the case for the Rochester and Wilkes-Barre sales.
Finally, the petitioner maintains that CEP treatment is required
because the installation activities of respondents' U.S. affiliates
constitute further manufacturing, which by definition means that these
affiliates were more than documentation processors and communication
links. According to the petitioner, maintaining U.S. operations to
oversee further manufacturing of LNPPs necessarily entails salaries for
engineers and supervisors, and the general and administrative expenses
to support them. Under such circumstances, the petitioner argues that
characterization of a further manufactured sale as a standard export
price transaction would ignore these substantial U.S. expenses related
to the sale of subject merchandise, and would not result in a fair
comparison. For all of these reasons, the petitioner argues that the
substantial U.S. economic activities require the Department to treat
the U.S. sales as CEP transactions.
DOC Position: We agree with the petitioner and have treated all of
the respondents' U.S. sales as CEP sales. In past cases such as
Forklifts, where the Department has ruled that sales such as those at
issue (i.e., sales made through a related sales agent in the United
States to an unrelated purchaser prior to the date of importation) are
EP sales (formerly purchase price), it has examined several criteria,
including: (1) Whether or not the sales were shipped directly from the
manufacturer to the unaffiliated U.S. customer; (2) whether or not the
sales follow customary commercial channels between the parties
involved; and (3) whether or not the function of the U.S. selling agent
is beyond that of a ``processor of sales-related documentation'' and a
``communications link'' with the unrelated U.S. buyer. Where all three
criteria are met (i.e., sales are not inventoried, the commercial
channel is customary and the function of the U.S. selling agent is not
substantively more than a ``processor of sales-related documentation''
and a ``communications link''), the Department has regarded the routine
selling functions of the exporter as ``merely having been relocated
geographically from the country of exportation to the United States,''
and has determined the sales to be EP sales. In other words, where the
functions are performed ``does not change the substance of the
transactions or the functions themselves.'' See Forklifts at 12553.
There are numerous cases where the Department has relied on the above-
specified criteria to characterize sales as EP (formerly purchase
price) or CEP (formerly exporter's sales price), including: Minivans;
Flat Products from Korea; and Final Determination of Sales at Less Than
Fair Value: Stainless Steel
[[Page 38176]]
Wire Rod from France (58 FR 68865, 68868-9, December 29, 1993).
With respect to MHI, we believe that the various activities of
MHI's subsidiary MLP were substantially more than ``routine selling
functions.'' Rather, MLP was significantly involved with the sale of
LNPP in the following areas: selling agency, after-sales servicing,
sourcing of non-subject parts, and supervision of installation. As
MHI's principal sales agent in the United States, MLP was directly
responsible for identification of Piedmont as a buyer, and cooperated
with Sumitomo in the delegation of oversight for the Guard sale. With
respect to after-sales servicing, MLP incurred warranty expenses for
both sales. Also, for both sales, MLP supervised installation through
the work of its engineers, and procured parts which were substantial in
quantity, value and functional importance. For the Piedmont sale, MLP
provided direct technical assistance, and for both the Guard and
Piedmont sales MLP was responsible for direct oversight of installation
performed by subcontractors, including payment of services rendered.
With respect to MRD, we also believe that the third EP criterion is
not satisfied in the case of MRU. MRU's role with respect to the sales
at issue is beyond that of a mere ``processor of sales documentation''
and ``communications link.'' MRU played a major role in the
negotiations between MRD and the U.S. customer for the Rochester and
Wilkes-Barre sales, from the bidding stage through to the final
contracts and subsequent amendments to the final contracts, and
incurred significant SG&A expenses in the process. The contractual
documentation and sales-related correspondence viewed at verification
attests to this fact. Furthermore, we verified that MRU supports MRD's
activities in the shipment and installation process relevant to these
sales. This is evidenced by the fact that MRU is responsible for the
post-sale warehousing of the merchandise shipped from Germany (which,
while performed to meet the customer''s timing needs, was not
considered by the respondent to be a routine service performed under
the terms of the original sales contract), as well as the contracting
of rigging companies and the sourcing of auxiliary parts essential to
the installation process in the United States. Given its parts
procurement role, it is possible that MRU may engage in warranty
servicing support activities for the Rochester and Wilkes-Barre sales
in the post-installation and start-up period.
Furthermore, this reasoning is consistent with our decision to
treat installation expenses as part of further manufacturing under
section 772(d). See DOC Position to Comment 3, below. Maintaining U.S.
operations to oversee further manufacturing of LNPPs necessarily
entails significant expenses including salaries for engineers and
supervisors, and the general and administrative expenses to support
them. Under such circumstances, the characterization of a further
manufactured sale as an export price transaction would ignore these
substantial U.S. expenses related to the sale of subject merchandise
and would result in an unfair comparison in the dumping analysis. We
believe that the presence of a subsidiary's participation in further-
manufacturing activities particularly bolsters the use of CEP analysis.
We note that the Department has always analyzed further manufacturing
in the context of CEP (formerly exporter's sales price) methodology. In
the Final Determination of Sales at Less Than Fair Value: Certain
Carbon and Alloy Steel Wire Rod from Canada, 59 FR 18791, 18794 (April
20, 1994), the Department considered the possibility of performing EP
(formerly purchase price) analysis on certain sales which involved
further processing by an unaffiliated subcontractor. The Department
excluded the sales in question from its analysis because the removal of
value added by the unaffiliated purchaser from the purchase price would
have resulted in further manufactured purchase price sales, and thus
would have been completely inconsistent with section 772 of the Act.
TKS reported all of its sales as CEP sales, so that the general
issue of CEP analysis is moot. TKS maintains, however, that its Dow
Jones sale is CEP but not a further-manufactured sale. For discussion
of this issue, see TKS Comment 5 in the companion Federal Register
notice for LNPPs from Japan.
Comment 3 The Treatment of Installation Expenses: MHI argues that
the Department should not treat installation expenses as further
manufacturing. MHI refers to U.S. law and case precedent to support its
claim that installation does not constitute further manufacturing. The
respondent cites to the Senate Committee On Finance, et al., Uruguay
Round Agreements Act, S. Rep. No. 412, 103d Cong., 2d Sess. 66 (1994),
to support its contention that an adjustment for further manufacturing
is appropriate for an increase in value based on a process of
manufacture or assembly of the imported merchandise after importation
and before the sale to an unaffiliated purchaser. MHI believes that
these criteria form a temporal restriction whereby value must be added
at a point after importation but prior to the date of sale of the
subject merchandise. MHI therefore contends that the installation MHI
provides on its U.S. sales cannot qualify for a further-manufacturing
adjustment because it was provided after, and not prior to, sale and
delivery to the customer's specified destination sites.
MHI argues that the principles in Forklifts and Certain Small
Business Telephone Systems and Subassemblies Thereof from Korea (54 FR
53141, December 27, 1989) (``SBTS'') to which the Department referred
at its preliminary determination, do not apply to LNPPs. According to
MHI, in SBTS, the Department determined that the combination of subject
and non-subject merchandise should be treated as further manufacturing
activity. MHI contends that the bulk of its LNPP installation and
installation supervision expenses do not relate to the combination of
subject and non-subject merchandise, but to the reassembly of LNPP
components.
MHI claims that in its operations, while auxiliary parts were
shipped directly to the site of installation, they could have easily
been shipped to Japan and then back to the site of installation. MHI
contends that this scenario is substantively different from that in
Forklifts, where Toyota's U.S. economic activities involved extensive
relocation of its Japanese manufacturing activities to the United
States. MHI claims that it does not normally ``install'' a LNPP at its
Wadaoki assembly facility prior to exportation, nor does it complete
final reassembly of the finished components anywhere but at the
customer site after shipment and delivery. MHI maintains that it is
purely accidental that the Department happened to use the term
``installation'' in discussing the respondent's U.S. economic activity
in Forklifts.
MHI argues that LNPP installation should be treated as a movement
expense, rather than as part of further manufacturing. MHI cites
section 772(c)(2)(A) of the Act which states that EP (or CEP) for
movement related activity should be reduced by ``the amount, if any,
included in such price, attributable to any additional costs, charges,
or expenses * * * which are incident to bringing the subject
merchandise * * * to the place of delivery in the United States * *
*.'' MHI maintains that the Department should follow its practice in
the
[[Page 38177]]
investigation of Mechanical Transfer Presses from Japan (55 FR 335,
January 4, 1990) (``MTPs''), where it determined that installation
charges should be treated as movement expenses, because LNPP systems
present virtually identical shipment reassembly requirements as MTPs.
MHI disagrees with the Department's preliminary determination that
the items added to a LNPP during installation are ``integral'' to the
function of the press, whereas those items added to MTPs during
installation were not. MHI explains that the Department has not cited
any support for determining that additions made to MTPs in the United
States were not integral to MTPs. MHI maintains that, even assuming
arguendo, that certain LNPP auxiliary parts were integral to press
operation, the Department gave no reason why the addition of
``integral'' parts, as opposed to ``non-integral'' parts, is a legally
meaningful distinction. MHI states its conclusion that such a
distinction is irrelevant to a determination on the nature of
installation costs.
MHI also disagrees with the Department's preliminary conclusion
that LNPP installation is far more complex than the reassembly
operations examined in the investigation of MTPs. MHI claims that its
review of the public record of the MTPs investigation revealed no basis
to determine that the reassembly and installation of LNPPs is more
complex than that of MTPs, since there was no public discussion of any
of the attributes of MTP installation which would indicate complexity,
such as: the time involved in installation, the number of engineers
required to complete installation, the length of time for installation,
or the amount of expense (absolute or relative) incurred during
installation.
MRD argues that the Department should classify the installation
costs for the Rochester and Wilkes-Barre sales as movement costs,
rather than installation costs, in accordance with its longstanding
practice in cases involving large capital equipment. MRD asserts that
the factual pattern in this case is similar to that in MTPs and Large
Power Transformers from Japan (48 FR 26498, 26501, June 8, 1993)
(``LPTs''), rather than in SBTS and Forklifts, the cases on which the
Department incorrectly relied in the preliminary determination. MRD
explains that the installation process in the instant case, similar to
that in MTPs, is required because of the size of the merchandise
involved, and the resultant need for disassembly of the merchandise for
exportation and subsequent reassembly at the customer's site. According
to MRD, the situations in SBTS and Forklifts involved the modification
of the subject merchandise after importation at the option of the
customer not the simple reassembly of the merchandise as a result of
the shipment process. In addition, MRD asserts that the fact that LNPPs
often are not fully assembled before shipment (otherwise known as
``staging''), or that some additional non-German items are incorporated
into the press system during installation, does not change the nature
of the installation process.
The petitioner states that the Department properly classified
installation charges in its preliminary determination as part of U.S.
further manufacturing under section 772(d)(2) because the U.S.
installation process involves extensive technical activities on the
part of engineers and installation supervisors and the integration of
subject and integral, non-subject merchandise necessary for the
operation of LNPPs. The petitioner maintains that the Department has
never applied a blanket rule on installation expenses, treating them as
assembly, a circumstance of sale adjustment, or shipment expenses,
depending on the particular circumstances involved. Where those
circumstances include incorporation of integral, non-subject components
during installation or complex installation operations that are more
than mere reassembly, the precedent clearly supports treatment of
installation expenses as further manufacturing. The petitioner
contrasts the level of complexity in this investigation to that in MTPs
to support its contention that, in addition to the integration of non-
subject parts, the very complexity of the installation and the extent
of entirely new assembly also affects the Department's treatment of the
expenses. The petitioner asserts that in MTPs, installation costs were
treated as shipment expenses because installation primarily involved
simple ``reassembly'' of parts originally disassembled at the foreign
producer's export facilities. The petitioner maintains that the
Department's determination in MTPs is not applicable to LNPPs because
none of the U.S. LNPP sales involved the mere reassembly of subject
merchandise. Also, the petitioner contends that the subject merchandise
in this investigation was never fully assembled and tested before
shipment, but instead was fully constructed for the first time at the
customer's site, involving many hours of engineering, installation and
testing, and the integration and installation of the subject
merchandise into the physical and electrical plant of each customer's
facility. In addition, the petitioner disagrees with MRD's analysis of
Forklifts and SBTS, stating that in both cases the Department treated
the addition of integral components, or integration of subject and non-
subject subassemblies, during installation as further manufacturing.
DOC Position: We agree with the petitioner. We believe that the
Department correctly classified installation charges as part of further
manufacturing because the U.S. installation process involves extensive
technical activities on the part of engineers and installation
supervisors and the integration of subject and non-subject merchandise
necessary for the operation of LNPPs. As the parties have stated, the
Department has not applied a blanket rule on the treatment of
installation expenses, sometimes treating them as assembly costs, a
circumstance of sale adjustment or shipment expenses, depending on the
particular circumstances involved. See Forklifts, 53 FR 12552, 12565
(April 15, 1988); SBTS, 54 FR 53141, 53151 (December 27, 1989) and
MTPs, 55 FR 335, 339 (January 4, 1990). Where those circumstances
include the incorporation of integral, non-subject components during
installation or complex installation operations that are more than mere
reassembly, the precedent clearly supports treatment of installation
expenses as further manufacturing. See SBTS. In this case, the
respondents' U.S. subsidiaries' roles in the sale, installation and
servicing of LNPPs, and their supervision of the incorporation of
integral, non-subject components during installation, constitute a
process that is more than mere reassembly.
The integration of integral non-subject merchandise and the
technical complexity of LNPP installation distinguishes the instant
processes from that of MTPs, which was a ``mere reassembly of subject
parts.'' Unlike the equipment covered in MTPs, the respondents' LNPPs
were never fully assembled and fully tested in the country of
production, since the integral parts incorporated at the plant sites in
the U.S. were required for the press to actually run to print a
newspaper. Finally, the installation of these LNPPs involves
integration of the merchandise into the physical and electrical plant
of the customer's installation site and often requires modification of
LNPP components or the site itself for successful completion of the
LNPP.
With respect to MHI, for both the Piedmont and Guard sales, the
purchase of integral parts for installation was not limited, as
suggested by the respondent,
[[Page 38178]]
but was significant. The role played by MLP in installation activities
is evidenced by its purchasing of auxiliary parts, installation
supervision and other oversight responsibilities. The Department's
treatment of MLP's oversight, control and payment of third-party
installation as further manufacturing is completely consistent with the
Final Determination of Sales at Less Than Fair Value: Dynamic Random
Access Memory Semiconductors of One Megabit and Above from the Republic
of Korea, 58 FR 15467, 15476 (March 23, 1993), wherein the Department
determined that fees paid for processing by an unaffiliated
subcontractor were further manufacturing expenses. Contrary to MHI's
characterizations, the Department believes that the extent of such
activities performed on these sales was significant, as measured by the
value of such services to the total contract price of the sales.
Further, with respect to MHI's arguments, we note also that there
is no ``temporal restriction'' to the definition of further
manufacturing. The Department stated in SBTS (at Comment 9):
Because non-subject merchandise is added to the subject
subassemblies, the portion of installation expenses attributable to
the addition of the non-subject merchandise cannot reasonably be
treated as a circumstance of sale adjustment. It is, rather, part of
the value added in conjunction with the non-subject merchandise.
Whether this value is added before or after the sale is irrelevant
because, for this product, EIS's customers expect the installed
system to have the characteristics added by the non-subject
merchandise. (Emphasis added.)
This fundamental customer expectation of the characteristics of the
final, installed and functional equipment holds true for LNPP as well.
Comment 4 Treatment of Sales With ``Abnormally High Profits'': If
the Department continues to undertake a review of individual home
market sales in its final calculation, MHI contends that the Department
should also exclude sales with abnormally high profits. MHI argues that
sales with abnormally high profit also fall within the definition of
sales occurring outside the ordinary course of trade. MHI asserts that
two of its home market sales have abnormally high profits and therefore
should be excluded.
MRD argues that the Department should include profit on ``after-
sale'' sales in calculating home market profit. However, since MRD's
normal records do not segregate ``after-sale'' profits by market or
product line, MRD asserts that the Department should use the overall
average profit of its Web Press Division. If the Department calculates
profit on a transaction-specific basis, MRD contends that home market
sales with abnormally high profits should be excluded from the CV
profit calculation.
The petitioner maintains that the Department should use the same CV
profit methodology applied in the preliminary determination (i.e.,
calculate profit on a model-specific basis). With respect to MHI, the
petitioner asserts that there was nothing in the record which suggests
that profits on any sales were ``abnormally'' high. The petitioner
argues that the sales were at arm's length so the profit level should
be normal. Moreover, the petitioner asserts that there are too few
sales to establish a pattern of normal versus abnormal profit. In
addition, the petitioner maintains that the profit rates suggested by
MHI as being abnormally high do not distort the average profit.
With respect to MRD, the petitioner asserts that even the highest
profit calculated on MRD's home market sales is not abnormal because it
falls with the variability range for all home market sales and, thus,
should not be excluded. With respect to ``after-sale'' sales, the
petitioner argues that the profit on ``after-sale'' services is not
part of the foreign like product. Moreover, the petitioner could not
segregate these ``after-sale'' profits by product-line.
DOC Position: We disagree with respondents that simply because
certain home market sales had profits higher than those of numerous
other sales, the profits are automatically abnormally high and outside
the ordinary course of trade for purposes of computing CV profit. In
order to determine that profits are abnormally high, there must be
certain unique or unusual characteristics related to the sales in
question. However, the respondents have provided no credible
information other than the numerical profit amounts to support their
contention that certain home market sales had abnormally high profits.
Accordingly, we excluded no home market sales from the CV profit
calculation due to abnormally high profits.
We agree with the petitioner that ``after-sale'' sales are not part
of the foreign like product. Thus, MRD's argument that the Department
should include profits from these ``after sale'' sales is misplaced.
Company-Specific Issues in the German LNPP Investigation
Comment 1 KBA's Final Margin: KBA believes that its final margin
should be based on the data relevant to the MRD sale in the petition,
adjusted based on the verified information on the record.
Alternatively, KBA believes that it should be assigned the ``all
others'' rate.
For purposes of the final determination, KBA argues that the
Department cannot legally assign KBA the 46.40 percent margin based on
the adjusted petition rate in the notice of initiation, as it did in
the preliminary determination, because the record evidence shows that
the petition data are incorrect and cannot be corroborated. In addition
to the pre-initiation modifications made to the data in the petition,
KBA asserts that the Department must further corroborate that
information based on the accurate, verified information on the record
and assign the resultant revised amount to KBA. KBA states that the SAA
cautions that secondary information, such as petition information, used
as facts otherwise available, may not be reliable because it is based
on unverified allegations. Therefore, to the extent practicable, it
must be corroborated from independent sources that are reasonably
available to the Department. KBA points out that the SAA (and the
Department's proposed regulations) also states that independent sources
include information obtained from interested parties during the
investigation. Because the revised petition rate is based solely on
data for one of MRD's sales and MRD has fully participated in the
investigation, KBA argues that the verified information on the record
with respect to this sale can and should be used to corroborate and, if
necessary, to revise petitioner's information further.
Furthermore, KBA maintains that the Department's corroboration
procedures for purposes of the preliminary determination were legally
insufficient. KBA takes issue with the Department's claim that it re-
examined the petition price data and found it continued to have
probative value. According to KBA, the test is not to re-examine or
determine whether the data have probative value, but to corroborate
that data to the extent practicable. KBA does not view the 46.40
percent margin alleged in the notice of initiation, which is based on
MRD's data, as evidence of the dumping margin on KBA imports of subject
merchandise, because it is significantly higher than the 17.70 percent
preliminary margin calculated for MRD. In light of this fact and the
evidence on the record, KBA does not believe it is accurate or
reasonable to claim that the petition price data has any probative
value. In accordance with the statute and the practice set out in the
preliminary determination of Bicycles from the People's Republic of
China (60 FR 56567, November 9, 1995)
[[Page 38179]]
(``Bicycles''), KBA asserts that wherever data collected from MRD is
inconsistent with the data contained in the petition on the MRD sale,
the Department should reject the petition data in favor of MRD's actual
data for use as facts otherwise available. KBA also asserts that the
decision in the preliminary determination of Certain Pasta from Italy
(61 FR 1344, January 19, 1996) (``Pasta Preliminary Determination'') on
which the Department relied in making its facts available ruling for
KBA in the preliminary determination was inconsistent with the statute
to the extent that it did not go beyond its pre-initiation analysis in
its efforts to corroborate petition information. In addition, unlike
the Pasta Preliminary Determination, where the Department used as facts
available the median of the range of estimated dumping margins from the
notice of initiation, the Department in the instant investigation based
KBA's margin on a sole sale of another company and the facts supporting
the alleged margin have been proven incorrect during the course of this
investigation.
Alternatively, KBA suggests that it be assigned the ``all others''
rate. KBA adds that it withdrew its participation from the
investigation because the extensive cost of preparing a response was
totally disproportionate to its role in the U.S. market where its past
sales of German-made LNPPs were insignificant and no future sales of
German-made LNPPs were expected. For this reason, KBA asserts that the
Department should consider it a non-shipper in which case it would
receive the ``all others'' rate. KBA maintains that the Department
should not make adverse inferences against KBA, as KBA's decision not
to respond to the Department's questionnaire was driven by financial
reasons and not by any other perceived benefit from non-submission of
information. At the time KBA made its decision, it had no way of
knowing the margin MRD would receive, whether the Department would
accept its data, whether the information would be verified and/or
whether the Department would use facts available. Additionally, KBA
asserts that prior to the 1995 amendment to the antidumping statute,
the Department's practice was to issue questionnaires to exporters
accounting for the first 60 percent of exports of subject merchandise.
Had this rule still been applicable, KBA states that it probably would
not have been deemed a mandatory respondent and received a
questionnaire in this investigation. Thus, it would have received the
``all others'' rate which, in this case, would have been MRD's rate.
The petitioner maintains that the Department properly assigned KBA
the margin contained in the notice of initiation as facts available in
the preliminary determination, contending that KBA's refusal to
cooperate justifies an adverse inference. According to the petitioner,
KBA was properly identified as one of two exporters of subject
merchandise to the United States and, therefore, the Department was
fully justified in its decision to require it to respond to the
antidumping questionnaire. The petitioner also dismisses KBA's claims
that its small volume of exports somehow exempts it from responding to
the Department's questionnaire. Under the URAA, the Department must
establish a separate margin for each exporter, unless the number of
transactions or exporters makes such a procedure impractical, which is
not the situation in this case. In addition, the petitioner dismisses
KBA's reasons for refusing to cooperate as irrelevant since the statute
does not condition the use of an adverse inference on the motive of a
non-cooperating party. According to the petitioner, applying an adverse
inference in KBA's case ensures that a non-cooperating party does not
benefit more by its failure to cooperate than to comply with the
Department's requirements. Finally, in the petitioner's view, the
Department did corroborate the secondary data used as facts otherwise
available. According to the petitioner, the statute establishes that
the Department satisfies the corroboration requirement if it finds that
the information at issue has probative value. In this investigation,
the petitioner asserts that the pre-initiation analysis of the petition
satisfied this threshold.
DOC Position: We agree with the petitioner. In our preliminary
determination, pursuant to section 776 of the Act, we assigned KBA the
margin in the notice of initiation as facts otherwise available because
it failed to respond to the Department's questionnaire. We stated at
that time that, in accordance with section 776(b) of the Act, an
adverse inference was warranted with respect to KBA because it failed
to cooperate by not acting to the best of its ability to comply with
the Department's request for information so that the Department could
make a determination with respect to the extent of KBA's dumping or
lack thereof. Consistent with our preliminary determination, we believe
that an adverse inference is warranted with respect to KBA for purposes
of the final determination. See ``Facts Available'' section of this
notice.
We disagree with the respondent's claim that the Department should
not use facts available or make adverse inferences in its case, but
rather should apply the ``all others'' rate . According to section
776(a) of the Act, the Department shall use facts available if an
interested party does not provide necessary information or
significantly impedes an investigation. The SAA explains that the
Department's potential use of facts available provides the ``only
incentive to foreign exporters and producers to respond to the
Department's questionnaire'' (SAA at 868). Applying an adverse
inference to a non-cooperating party ensures that the non-responding
party does not obtain a more favorable result by failing to cooperate
than if it had cooperated fully. The facts available or adverse
inference applied need not be proven to be the best alternative
information, only that it is reasonable to use under the particular
circumstances (SAA at 869). In this case, if KBA were to receive the
``all others'' margin instead of the adverse facts available margin, as
KBA suggests, it would receive the exact same treatment as MRD, which
responded to the Department's questionnaire. This result would not
fulfill the objective of section 776 of the Act. Similarly, we note
that it would be inappropriate to assign to KBA, as adverse facts
available, the actual margin calculated for the MRD sale in the
petition, because this rate is lower than the final overall margin for
MRD which cooperated fully in this investigation.
With respect to the respondent's opposition to our corroboration
procedures, we note that the SAA (at 870) defines corroboration of
secondary information to mean that the Department will satisfy itself
that the secondary information to be used as the basis for facts
available has ``probative value.'' The determination of ``probative
value'' is assessed on a case-by-case basis. We stated in our
preliminary notice that, in accordance with section 776(c) of the Act,
we corroborated all of the secondary information on which the margin in
the petition was based during our pre-initiation analysis of the
petition to the extent appropriate information was available for that
purpose at that time. For purposes of the preliminary determination, we
re-examined the price information provided in the petition in light of
information developed during the investigation, and found that it
continued to be of probative value. For the final determination, we
compared
[[Page 38180]]
the petition price information with
verified data on the record and again
found that it continued to be of
probative value. Nothing in the statute
or the SAA compel us to go beyond
these procedures.
Contrary to the respondent's claims, our corroboration procedures
in this case are not inconsistent with the preliminary determinations
in Pasta or Bicycles. In Bicycles, the Department compared the data in
the petition to secondary data which included, but was not limited to,
the same type of data used as the basis for the petition and the
audited financial reports of two of the largest Indian bicycle
producers. These procedures did not seek to replace the secondary
information with respondent-specific information, but rather to compare
it against that information in order to determine if it had ``probative
value.'' In Pasta, unlike the instant investigation where KBA did not
attempt at all to respond to the Department's questionnaire, the
company to which facts available was applied at least attempted to
respond to the Department's questionnaire, but the information it
submitted was inadequate and unusable. Also, in the Pasta Final
Determination, we concluded that the petition was the only appropriate
information on the record to be used as facts available on the basis of
having compared the sizes of the calculated margins for the other
respondents to the estimated margins in the petition. In the Pasta
case, as in the instant case, the other respondents' estimated margins
were lower than the petition margins. In addition, in Pasta the
Department did not go beyond its pre-initiation analysis in its
corroboration procedures. See Pasta Final Determination, 61 FR 30326,
30329 (June 14, 1996).
Furthermore, KBA's references to the pre-1995 antidumping law with
respect to the Department's determination of the appropriate recipients
to the Department's questionnaire are irrelevant. Under the URAA, the
Department is now required to investigate all known producers/exporters
of subject merchandise unless the number of transactions or exporters
is administratively burdensome (SAA at 814). Furthermore, despite the
fact that there was no dumping allegation in the petition specifically
against KBA, the Department is required to conduct its own research as
to the universe of producers/exporters of subject merchandise and the
appropriate recipients of its questionnaire. Thus, based on information
received from the U.S. Embassy in Bonn, we named KBA as a respondent.
See August 28, 1995, Memorandum to the File from Irene Darzenta, et
al., Re: Questionnaire Recipients. For whatever reason KBA decided to
withdraw from the investigation as an active respondent, the Department
must now make adverse inferences consistent with the principles
outlined above. Therefore, for purposes of the final determination, we
have assigned to KBA the amended petition margin in the notice of
initiation of 46.40 percent.
Comment 2 Sales Exclusion Requests: MRD argues that the Department
should exclude certain sales from its final calculations--namely,
Charlotte, Fargo and Global--because they involve imports of parts and
subcomponents that are not subject to the scope of the investigation.
With respect to the Charlotte sale, the respondent argues that, in the
initial phases of the investigation, both the petitioner and MRD agreed
that it should be excluded from the Department's analysis because the
substantial U.S. content would distort the Department's calculations.
MRD states that, while the Department's preliminary determination did
not dispute this reasoning, it questioned whether it had the authority
to exclude this sale based solely on this fact. Because the Department
had not reached a final decision on scope at that time, it decided to
preliminarily include the Charlotte sale in its analysis. MRD continues
to believe that this sale does not represent subject merchandise and
therefore should be excluded. According to MRD, none of the imported
parts and subcomponents (taken singly or together) constitutes a LNPP
component whether defined by the Department in terms of essence or
value.
Moreover, MRD asserts that the Charlotte sale involved an unusual
situation and, if included in the Department's analysis, would distort
the calculation of the antidumping margin. Specifically, MRD states
that MRU experienced significant problems in the design and
manufacturing of the press because of ``mismanagement,'' which resulted
in significant cost overruns and profit loss. The Department's
preliminary determination deducted all of the costs incurred in the
United States, including the unexpected cost overruns, from the total
sales price to determine CEP, thereby resulting in a very high dumping
margin for this sale. MRD points out that the Department has the
authority to exclude unusual sales, such as Charlotte, from its
analysis if inclusion of those sales would distort the results.
Alternatively, if the Department does not exclude the sale to
Charlotte, it should calculate CEP for that sale under the ``Special
Rule'' of section 772(e) of the Act which provides that the Department
may employ alternative methods to determine CEP when the U.S. value
added exceeds the value of the imported merchandise. MRD asserts
further that the first two alternative methodologies described in
section 772(e) would be difficult to apply to the Charlotte sale
because there were no sales of identical or other merchandise that
could be compared to the NV for the Charlotte sale. Therefore, MRD
maintains the Department should use ``another reasonable method''
permitted under the ``Special Rule'' of section 772(e) of the Act. At a
minimum, MRD argues that the Department should assign a substantial
portion of the loss on the sale to the U.S. operations that caused it.
Furthermore, MRD argues that the sales to Fargo and Global should
also be excluded because they do not consist of subject components and
therefore fall outside the scope. Also, as explained in its various
responses, both sales involved unusual circumstances. In general, the
Fargo sale involved the sale of a discontinued printing unit produced
partially in Germany and partially in the United States. The Global
sale involved a combination of used equipment from MRU's inventory and
a new printing unit which was produced partially in Germany and
partially in the United States, and sold to a reseller which was
responsible for its installation. Even if the Department were to
conclude that the parts and subcomponents imported from Germany for
these sales were within the scope, MRD urges the Department to exercise
its discretion to exclude these sales from its analysis based on the
fact that they are small and atypical.
The petitioner states that the Department should include all three
sales at issue in its analysis. With respect to Charlotte, the
petitioner argues that the cost overruns as a result of
``mismanagement'' experienced by the respondent on this sale are not a
valid reason to exclude the sale or apply special methodology within
the context of the antidumping statute or the Department's practice.
According to the petitioner, if a cost overrun by itself required
exclusion of a sale, the cost calculation would become unfairly skewed
in favor of low-cost sales. The petitioner also disputes respondent's
claim that Rockwell agreed to exclude this sale from the investigation,
stating that only in the context of its proposal for a four-year POI
did it think that the Department could forego analysis of this sale
given its complexity and the reporting burden. However, in the two-
year POI adopted by the Department,
[[Page 38181]]
the petitioner believes it is too significant to omit and the
respondent has already met the burden of reporting the data for this
sale.
The petitioner argues that the Charlotte sale does not meet the
criteria for exclusion of a U.S. sale from the dumping calculation
because it is not ``atypical'' within the context of the LNPP industry
or so small as to have an insignificant effect on the margin. In
addition, the petitioner maintains that MRD's ``alternative methods''
approach is unsubstantiated. According to the petitioner, MRD's
proposed alternative of attributing all or some of the loss on the
Charlotte sale is unreasonable under section 772(e) of the Act which
provides for the exclusion of losses in the adjustment for further
manufacturing. Finally, the petitioner asserts that the merchandise
sold to Charlotte is subject to the scope because it includes certain
parts and subcomponents which are explicitly covered by the scope.
With respect to Fargo and Global, the petitioner contends that
these sales also constitute subject merchandise and were not
``atypical.'' The petitioner claims that the imported merchandise for
both transactions contained all of the relevant mechanical parts of one
of the five LNPP components which would have included certain parts
explicitly specified in the scope. The petitioner also maintains that
the fact that these sales involved discontinued equipment or were small
in terms of value does not make them ``atypical,'' given the limited
number and uniqueness of each of the U.S. sales under investigation,
and the nature of the LNPP industry where technological advances which
result in the discontinuation of previous product lines are common.
DOC Position: We agree generally with the respondent with respect
to the Charlotte sale, and with the petitioner with respect to the
Fargo and Global sales. The Charlotte sale involved the importation
from Germany of less than complete components destined to fulfill a
contract for a LNPP system in the United States. Both the Fargo and
Global sales involved the importation from Germany of less than
complete components for the fulfillment of a contract for LNPP
additions. As stated in the ``Scope of Investigation'' section of this
notice, we have determined that elements (i.e., parts and
subcomponents) imported to fulfill a LNPP contract shall be included in
the scope of the investigation if the sum of their cost of manufacture
is at least 50 percent of the cost of manufacture of the finished LNPP
component of which they are a part. In the case of Charlotte, our
analysis of the sum of the manufacturing cost of the elements relative
to the manufacturing cost of each of the components of which they are a
part is less than 50 percent. Because the imported elements do not meet
the 50 percent threshold on a component-specific basis and, therefore,
do not constitute subject merchandise, we excluded the Charlotte sale
from our final analysis.
Applying the above-specified value test to the imported elements
relevant to the Fargo and Global sales yields the opposite result. That
is, the cost of the imported elements is greater than 50 percent of the
cost of the component of which they are a part. The Department may
exclude U.S. sales from its analysis if these sales are: (1) Not
representative of the seller's behavior, or (2) so small that they
would have an insignificant impact in the margin. See IPSCO, Inc. v.
United States (714 F. Supp. 1211, 1217 (CIT 1989). In the past, the
Department excluded certain ``atypical'' or unrepresentative U.S.
sales, where the total pool of U.S. sales was great. See SBTS, 54 FR
53141, 53148 (December 27, 1989). In the case of LNPPs, however, where
the sales are few and unique, such exclusion would not be appropriate.
Given the limited number of U.S. sales in this investigation and the
fact that the sales at issue fall within the scope of the
investigation, we have no basis on which to exclude these sales from
our final analysis. Therefore, we included the sales to Fargo and
Global in our final analysis.
Comment 3 Post-Petition Price Amendments: The petitioner contends
that the Department should disregard all post-petition price amendments
and use instead the contract price as of the date of the filing of the
petition as the starting price. The petitioner asserts that such
amendments applied to the Rochester, Wilkes-Barre and Charlotte sales.
Citing the Final Determination of Sales at Less Than Fair Value: Cell
Site Transceivers from Japan, 49 FR 43080, 43084 (October 26, 1984)
(``Cell Site Transceivers''), among other cases, the petitioner states
that the Department's practice calls for the rejection of alterations
in the prices of subject merchandise after the filing of a petition in
order to prevent manipulation of potential dumping margins. According
to the petitioner, that rationale is applicable in this investigation,
where MRD had every reason to negotiate a new price that would reduce
the dumping margin. With respect to Rochester in particular, the
petitioner finds suspect the significant profit gained by MRD in the
amended portion of the transaction. Moreover, the number of reported
amendments indicates that even the latest reported price adjustments
might not be the last. Therefore, the petitioner asserts that the
Department should rely on the sales prices in effect on the date of the
filing of the petition and disregard the effects of any post-POI
amendments on prices and cost.
MRD disagrees. First, it argues that it is common for
specifications (and therefore price) for large capital equipment like
LNPPs to be modified after the initial contract is signed, and the
Department has recognized this in past cases. According to the
respondent, such changes are not unusual and do not support the
conclusion that the seller has manipulated its prices to avoid dumping.
Second, with respect to the Rochester price amendment, the Department
reviewed the correspondence which showed the amendment had been
contemplated before the petition filing. Third, MRD finds the
petitioner's analysis of its interests to be questionable, as it is
always in MRD's interests to negotiate the highest possible price for
its sales notwithstanding the filing of the antidumping case.
DOC Position: We agree with the petitioner. In past cases, the
Department has stated that its standard practice is not to accept price
adjustments instituted after the filing of a petition. Despite the
nature of the merchandise under investigation, we have held that we are
cautious in accepting price increases which occur after receipt of a
petition so as to discourage potential manipulation of potential
dumping margins, and have determined the original contract price which
pre-dated the filing of the petition as the proper basis for U.S.
price. The transactions and prices under investigation are those in
effect as of the filing of the petition. See Cell Site Transceivers;
Final Determination of Sales at Less Than Fair Value: Certain Hot-
Rolled Carbon Steel Flat Products, Certain Cold-Rolled Carbon Steel
Flat Products, Certain Corrosion-Resistant Carbon Steel Flat Products,
and Certain Cut-to-Length Carbon Steel Plate from Canada, 58 FR 37099,
37112 (July 9, 1993); Final Results of Administrative Review: Stainless
Steel Wire Rod from France, 50 FR 9813, 9814 (March 12, 1995); and
Final Results of Administrative Review: 64K Dynamic Random Access
Memory Components from Japan, 51 FR 15943, 15953 (April 29, 1996).
Similarly, at the preliminary determination in this investigation, we
stated with respect to the Rochester price amendment that while we did
not believe that the contract amendment per se altered the date of sale
(given the industry involved
[[Page 38182]]
and the nature of the construction process for these large, customized
machines under investigation, where minor specification changes are
routine), we were ``troubled by the fact that the sale price was
modified officially after the filing of the petition in this
investigation, and that the potential for the respondent to influence
purposely the margin calculation may exist.'' See February 23, 1996,
Memorandum to Richard W. Moreland from The Team Re: Sales Exclusion
Issues at 8.
Therefore, based on the foregoing analysis, we have not considered
any of the post-POI price amendments relevant to MRD's U.S. sales in
our final analysis. In addition, we note that the petitioner's
assertion that post-POI price amendments applied to three of MRD's
sales is incorrect. While we verified that post-POI price amendments
applied to MRD's Rochester and Wilkes Barre sales, we did not observe
any such price amendment to apply to the Charlotte sale, as suggested
by the petitioner. Notwithstanding this fact, the issue is moot with
respect to the Charlotte sale given that we have excluded it from our
final analysis. See DOC Position to Comment 2 of the ``Company-Specific
Issues'' subsection of the ``Interested Party Comments'' section of
this notice.
We also note that our final calculation of CEP for the Rochester
and Wilkes Barre sales, exclusive of post-POI price amendments, is
consistent with our calculation of CV for these sales which is based on
the respondent's submitted cost estimates and does not include the
costs associated with the post-POI price amendments. See DOC Position
to Comment 9 of the ``Company-Specific Issues'' subsection of the
``Interested Party Comments'' section of this notice.
Comment 4 Date of Sale: MRD maintains that the Department should
use the letter of intent as the date of sale for its U.S. sales, as
this document is the first written evidence that an agreement has been
reached on the basic terms of those sales. Citing LPTs (48 FR 26498,
26499, June 8, 1993) and MTPs (55 FR 335, 341, January 4, 1990), MRD
asserts that the Department has consistently used the date of earliest
written evidence of agreement as the date of sale in cases involving
large made-to-order products and has consistently held that minor
changes in technical specifications after the date of initial agreement
do not alter the date of sale. MRD states that the basic terms in the
final contracts were identical in all material respects to the terms
outlined in the letters of intent, as supplemented by the additional
terms set forth in the final proposals referenced in the letters of
intent. In addition, the fact that MRD begins production after the
signing of the letter of intent provides further justification for
treating the letter of intent date as the sale date. According to MRD,
general contract law (Section 2-201(3)(a) of the Uniform Commercial
Code) provides that a valid contract exists when the seller starts
production for custom order goods that are not suitable for sale to
others in the ordinary course of trade. MRD argues further that the
cancellation clauses in the letters of intent for Rochester and Wilkes
Barre should not affect the date of sale analysis because the fact
remains that at the time of the letter of intent, the parties had
reached agreement on all of the basic terms of the sale.
The petitioner argues that in accordance with the Department's
long-standing practice, the appropriate date of sale in this
investigation is the date of contract. According to the petitioner, the
essential terms of sale in the LNPP industry (i.e., specifications,
price, payment schedules, warranty terms and installation requirements)
are established by the final contract, and not the letter of intent.
The petitioner states that the Department verified that MRD's letters
of intent for selected U.S. sales did not definitively establish the
material terms of sale. Finally, the petitioner asserts that in the
cases cited by the respondent to support its argument that the
Department's precedent establishes the date of sale earlier in the
transaction involving large customized equipment, the date of sale
adopted was the contract date or, in the absence of a formal written
confirmation of sale, the initial order date. In this case, the
petitioner points out that the letters of intent required a formal
written confirmation of sale.
DOC Position: We agree with the petitioner. The Department has a
longstanding practice, which bases the date of sale on the date when
all the essential terms (usually price and quantity) are firmly
established and no longer within the control of the parties to alter
without penalty. See, e.g., Final Determination of Sales at Less Than
Fair Value: Polyvinyl Alcohol from Taiwan, 61 FR 14064, 14067 (March
29, 1996).
In this case, we determined that the appropriate date of sale is
the date of contract, and we solicited data from the respondent on this
basis. As stated in MTPs, the Department's policy regarding the date of
sale in the case of large, customized merchandise ``has favored
establishing the date of sale at an earlier point in the sale
transaction process than at a later point, as it might be the case of
fungible-type commodities which are offered for sale in the ordinary
course of trade.'' See MTPs at 341. The appropriate ``earlier point''
in the sale transaction for date of sale purposes is determined on a
case-by-case basis. In this case, we determined that the earliest point
in the sale transaction, where the essential terms of sale for the LNPP
industry (i.e., specifications, price, payment schedules, warranty
terms and installation requirements) would be established definitively,
is the sale contract date, given the volume of sales correspondence
generated in the sales process and the potential minor specification
changes that may be made to the merchandise during the production
process and after delivery. Furthermore, at verification, we observed
that the terms of sale stipulated in the letters of intent did not
definitively establish the material terms of sale, as they were subject
to change and to a definitive agreement of sale (i.e., a sale
contract). See MRD Sales Verification Report at 11-12.
Therefore, for purposes of the final determination, we have
determined the date of contract to be the appropriate date of sale. Our
determination of the date of sale in this case is distinguishable from
that in the case of MHI's Guard sale in the companion investigation of
LNPPs from Japan. In MRD's case, the date of sale issue involves
identifying the producer's earliest written documentation establishing
the essential terms of sale, whereas in MHI's case the issue involves
identifying the appropriate parties to the sale for date of sale
purposes. See MHI Comment 4 in the Federal Register notice of LNPPs
from Japan.
Comment 5 U.S. Indirect Selling Expense Cap: The petitioner argues
that the Department should not cap U.S. indirect selling expenses
allocated to particular sales at the amount incurred during the POI
because the allocation cap ignores the expenses incurred on sales of
subject merchandise outside of the POI. According to the petitioner,
the Department's allocation methodology employed in the preliminary
determination rests on the assumption that POI sales could not have
incurred selling expenses outside of the POI. But in cases such as the
instant one, when sales efforts last for years and yield only a limited
number of large sales at irregular intervals, it is logical to find
that the amount spent to negotiate a given group of sales was greater
than the total selling expenses incurred in the limited period in which
the sales were made. Furthermore, the Department's cap is inconsistent
with section
[[Page 38183]]
772(d)(1) of the Act which requires the deduction from CEP of any
expenses generally incurred in selling the subject merchandise.
According to the petitioner, whether the respondent incurred indirect
selling expenses during the POI is irrelevant to this requirement. In
addition, the Department's cap ignores the pattern of MRD's sales,
where the POI sales are few but selling expenses are incurred on a
regular basis before, during and after the POI to account for
activities ranging from the development of bids to amendments to signed
contracts. The petitioner argues further that the Department should
reject MRD's proposals to cap U.S. indirect selling expenses up to the
amount of total expenses incurred during the POI on newspaper sales, as
this would amount to allocating POI indirect selling expenses over POI
sales orders, which is contrary to the Department's normal calculation
methodology.
If the Department is concerned about the magnitude of the verified
POI selling expenses and their potential overstatement relative to
total POI sales, the petitioner suggests that the Department follow
past practice and use verified data relevant to a three-year period.
The petitioner asserts that the Department should not use the
respondent's four-year data because, among other reasons, they were not
reconciled to audited financial statements and included expenses
incurred in 1991-1992 by a facility which is no longer in operation
and, therefore, are unrepresentative of current experience.
Furthermore, the petitioner argues that the Department should
remove the data pertaining to Canadian transactions from the
calculation of indirect selling expenses. According to the petitioner,
section 772(d)(1) of the Act allows adjustments to CEP only to reflect
costs of selling the subject merchandise. Since purchases by Canadian
customers are not subject to this investigation, the petitioner
maintains that they cannot be used in the allocation of indirect
selling expenses. Furthermore, MRD provided no information illustrating
that the selling expenses incurred on Canadian sales are representative
of those incurred on U.S. sales.
MRD maintains that the Department should allocate U.S. indirect
selling expenses incurred during the POI over the value of orders
received during that period, which would avoid the need to apply a
``cap'' on such expenses as was done in the preliminary determination.
Alternatively, the Department should revise the ``cap'' on U.S.
indirect selling expenses to avoid assigning the selling expenses for
commercial presses to newspaper presses.
Furthermore, MRD finds the petitioner's proposals unacceptable. The
respondent believes the petitioner's arguments are based on the
incorrect assumption that indirect selling expenses can be matched to
specific sales. To the contrary, MRD explains indirect selling expenses
are fixed expenses that do not vary with sales, and thus they should be
allocated over the value of orders received during the POI. MRD reasons
that in this case, because the Department is applying the indirect
selling expense rate to sales made during the POI (i.e., sales for
which orders were received during the POI), it must calculate the rate
on the basis of the total value of orders received. MRD attempts to
refute the petitioner's assertions that a particular period or
calculation would capture the expenses that properly relate to the
sales under investigation, stating that the expenses can only relate
generally to all of MRD's sales efforts. With respect to the three-year
analysis advanced by the petitioner, MRD states that in the petition,
Rockwell argued for a four-year POI because the three-year period from
July 1992 to June 1995 was a period of sales depression that did not
adequately capture the LNPP business cycle. If the Department were to
accept the proposition that indirect selling expenses must be allocated
over sales recognized for accounting purposes, then MRD maintains that
it should use a period that encompasses the entire LNPP industry cycle,
i.e., a four-year period.
With respect to the petitioner's argument that the Department
should remove the Canadian sales data from the calculation, MRD
disagrees. It explains that MRU sales personnel who are responsible for
sales in the United States are also responsible for sales in Canada and
Latin America, and that the expenses for these salesmen cannot be tied
to specific sales or markets. Accordingly, the only possible allocation
method is to divide the total expenses of MRU's sales personnel by the
total value of the sales generated by those personnel.
DOC Position: We agree in part with both the petitioner and MRD.
The Department normally calculates indirect selling expenses as a
percentage of POI cost of goods sold or POI sales revenue recognized.
See Final Determination of Sales at Less Than Fair Value: Certain
Corrosion-Resistant Carbon Steel Flat Products and Certain Cut-to-
Length Carbon Steel Plate from Mexico, 58 FR 37192, 37198 (July 9,
1993). In this case, the respondent has argued since the preliminary
determination that the Department should calculate the POI selling
expense rate based on sales orders, rather than sales recognized, so as
not to overstate selling expenses on POI sales in years where sales
revenue recognized is unusually low relative to actual selling expenses
incurred. Conversely, the petitioner has maintained that such a
calculation would grossly understate expenses for POI sales because it
would disregard the substantial expenses incurred before and after the
investigation period for POI sales.
In the preliminary determination, because application of the POI
indirect selling expense rate reported by MRD to U.S. sales prices
resulted in transaction-specific selling expenses which exceeded the
total indirect selling expenses incurred by MRU during the POI, we
capped the amount of indirect selling expenses deducted from CEP by the
total indirect selling expenses actually incurred by MRU during the
POI. While this is not our normal practice, we applied a ``cap'' on
U.S. indirect selling expenses in the preliminary determination because
the figures reported by the respondent appeared inaccurate and we did
not have sufficient information to make any other adjustment. The
petitioner claims that this ``cap'' ignores the fact that, in cases
such as LNPPs when sales efforts last for years and yield only large
sales at irregular intervals, the amount spent to negotiate a given
group of sales may be greater than the total selling expenses incurred
in the limited period in which the sales were made. Likewise, we note
that significant sales efforts may be made and significant selling
expenses may be incurred in a given period in the pursuit of a given
sale without resulting in the consummation of that sale. Contrary to
the petitioner's claim, indirect selling expenses are period expenses
which cannot be associated directly with specific sales and, therefore,
no direct correlation is possible despite the particular period chosen
for analysis.
Since our preliminary determination, we verified that the actual
POI indirect selling expense rate was significantly lower than that
reported by the respondent, as a result of the correction of clerical
errors. See MRU Sales Verification Report at 22-24. Our analysis of the
verified actual indirect selling expenses incurred relative to the
verified sales revenue recognized for the two fiscal years captured by
the POI does not indicate that application of the verified POI rate
would distort the calculation of CEP. Consequently, we see no need to
cap these expenses for
[[Page 38184]]
purposes of the final determination. Therefore, we have applied the
verified indirect selling expense percentage to U.S. sales contract
prices (exclusive of post-POI price amendments) and have deducted the
resulting expense amounts from CEP. Given the nature of these expenses,
it is not possible to segregate the selling expenses that relate to
foreign sales from those that relate to U.S. sales. Therefore, we did
not remove the data pertaining to these sales from our calculation of
the indirect selling expense rate, as suggested by the petitioner.
Comment 6 General Methodology for Calculating U.S. Warranty
Expenses: The petitioner maintains that the two U.S. warranty expense
calculations provided by MRD in its questionnaire responses are flawed.
The first one (contained in Appendix SC-21-A of the February 1, 1996
submission), which the Department used in its preliminary
determination, improperly included foreign sales data; and the second
one (contained in Appendix 9 of the March 13, 1996 submission), which
was examined by the Department at verification, improperly allocated
four years of warranty expenses over more than seven years of sales,
thereby understating U.S. warranty costs. The petitioner contends that
the Department should recalculate the MRU warranty expense rate to be
applied to CEP based on historical data for a four-year period
exclusive of data pertaining to foreign sales and inclusive of sales
revenues realized only during the period to which the warranty costs
pertain. The petitioner explains that past Department decisions
recognize that, especially on sales of large capital equipment such as
LNPPs, the warranty expense calculation must estimate future expenses
based on historical costs, rather than capture current warranty costs,
for U.S. sales, because the long time for production and installation
may lead to warranty expenses incurred long after the review period.
The petitioner maintains further that the inclusion of sales to
foreign customers (i.e., sales to Canadian customers) in the warranty
expense rate calculation employed in the preliminary determination is
improper. According to the petitioner, section 772(d)(1) of the Act
allows adjustments to CEP only to reflect costs of selling the subject
merchandise in the United States. Since purchases by Canadian customers
are not subject to investigation, the petitioner maintains that they
cannot be used in the calculation of warranty expenses. Moreover, MRD
provided no evidence that the warranty expenses incurred on Canadian
sales are representative of those incurred on U.S. sales.
The petitioner explains further that, at verification, the
Department examined a warranty calculation provided by the respondent
(in Appendix 9 of the March 13, 1996 submission) that properly
segregated U.S. and foreign sales. However, that calculation allocated
four years of warranty expenses over contract values that spanned a
period of more than seven years, which in the petitioner's opinion
results in an understatement of the actual cost. Therefore, the
petitioner suggests that the Department subtract from that warranty
expense calculation both Canadian sales, and sales revenues realized
for the period prior to that for which warranty expenses were reported.
The petitioner argues that, unlike MRD's proposed calculations, its
proposed calculation is consistent with historical experience.
MRD argues that petitioner's proposition would result in a
mismatching of warranty costs and sales, and would massively overstate
the actual warranty expenses MRU will incur on sales during the POI.
According to MRD, the purpose of the warranty calculation is to
determine a reasonable estimate, based on an analysis of historical
data, of the warranty costs that will be incurred in the future on the
sales under investigation. As such, the petitioner's proposed
calculations do not meet that purpose. With respect to the initial
warranty expense calculation it reported based on historical
experience, MRD contends that the removal of Canadian sales, as
requested by the petitioner, would seriously distort the warranty
calculations by leaving an unrepresentative sample that would not be
sufficient to determine the historical ratio of warranty expenses to
sales. MRD points out that in its March 13, 1996 submission, it
provided a detailed analysis that shows the actual warranty expenses
incurred on sales during the last four years. Based on this review of
MRU's actual warranty expense experience on sales for which complete
warranty expense information is available, the respondent argues that
the U.S. warranty rate resulting from its initial calculation (February
1, 1996 submission) reasonably reflects MRU's actual experience on
sales for which the warranty period has been completed. This analysis
also demonstrates that petitioner's proposed calculation grossly
overestimates MRU's actual warranty experience. MRD notes that
throughout this proceeding the petitioner has insisted that, before
estimates can be used in this case, they must be supported by
``benchmarks'' based on the actual costs for actual transactions. The
respondent asserts that the petitioner's proposed calculation fails
that test and accordingly must be rejected.
In addition, MRD argues that the Department should revise its U.S.
warranty calculation with respect to the Rochester, Wilkes-Barre and
Fargo sales, so as to avoid double counting. MRD asserts that the
warranty calculation methodology employed in the preliminary
determination for Rochester and Wilkes-Barre was incorrect and
unreasonable because it assumed that warranty services would be
performed more than once, i.e., full warranty expenses were attributed
to both MRD and MRU. According to MRD, whatever warranty services are
needed for these presses will be performed only once--either by MRD, by
MRU or a combination thereof. Therefore, the Department should either
(1) apply only the MRD warranty expense rate to these sales; (2) apply
only the MRU warranty expense rate to these sales; or (3) apply an
average of the MRD and MRU rates to these sales. With respect to Fargo,
MRD argues that the Department's preliminary calculations double-
counted warranty expenses by adding the actual warranty expenses
already incurred with the total expected warranty expenses. To estimate
expected warranty expenses, MRD states that one should use either the
actual warranty expenses to date (plus an estimate of the remaining
warranty expenses that are expected) or the estimated total warranty
expenses based on the value of the product.
DOC Position: We agree with both the petitioner and respondent, in
part. The Department's normal practice in computing warranty expenses
is to use historical data over a four- or five-year period preceding
the filing of the petition to estimate the likely warranty expenses on
POI sales. The underlying rationale for this practice is the
recognition that, in many industries, warranty costs on sales made
during the POI might not occur until long after the POI and,
consequently, POI sales cannot be tied to their associated actual
warranty expenses for reporting purposes. See Final Determination of
Sales at Less Than Fair Value: Bicycles from the People's Republic of
China, 61 FR 19026, 19041 (April 30, 1996); Final Determination of
Sales at Less Than Fair Value: Certain Carbon and Alloy Steel Wire Rod
from Canada, 59 FR 18791, 18795 (April 20, 1994); and Final
Determination of Sales at Less Than Fair Value: Coated Groundwood Paper
from Finland, 56 FR 56363, 56379
[[Page 38185]]
(November 4, 1991). Historical costs are especially appropriate in the
case of LNPPs because the long time for production and installation of
the subject merchandise may lead to warranty expenses being incurred
long after the POI. See Final Results of Administrative Review:
Mechanical Transfer Presses from Japan, 57 FR 12798, 12799 (April 13,
1992).
Therefore, for purposes of the final determination, we have used
the warranty expense rate reported by the respondent in its February 1,
1996 submission, revised to reflect the correction of certain clerical
errors found at verification. We have applied this rate to the contract
price of those U.S. POI sales for which MRU is primarily responsible
for providing warranty servicing, and then deducted the resulting
amount from CEP.
As for the petitioner's requested removal from the calculation of
the data pertaining to non-subject sales, we agree in principle. While
we have the information to segregate the warranty costs that relate to
these sales from those that relate to U.S. sales in the calculation, we
do not have sufficient information to segregate the corresponding sales
values from the calculation for two out of the four fiscal years
included in the calculation. Therefore, given this problem and the fact
that the warranty expense rate inclusive of the foreign sales
reasonably reflects MRU's actual experience on sales whose warranty
period has been completed, we have not made the adjustment proposed by
the petitioner.
With respect to the respondent's argument that the Department
should revise its warranty expense calculation regarding Rochester,
Wilkes-Barre and Fargo, we agree. In this case, both MRD and MRU
provide warranty services. However, whether or not they incur warranty
costs on a particular sale depends on their role in the production of
the merchandise covered by the sale. In the preliminary determination,
we incorrectly deducted from the CEP of the Rochester and Wilkes Barre
sales warranty expenses reflecting the historical experience of MRU in
addition to that of MRD, based on the assumption that both companies
would be playing a role in warranty servicing. Since that time,
however, we verified that MRD will be primarily responsible for the
warranty servicing on these LNPP systems, given that they were almost
entirely produced in Germany by MRD. See MRD Sales Verification Report
at 28. Therefore, for the Rochester and Wilkes Barre sales, we have
applied the verified warranty expense rate relevant to MRD's historical
experience in Germany for all LNPP products. With respect to the Fargo
and Global sales, MRD reported and the Department verified that MRU is
primarily responsible for the servicing of any warranty claims on these
sales. Therefore, for these sales it is more appropriate to use a
warranty expense rate based on the historical experience of MRU as
described above. Because we have excluded the Charlotte sale from our
analysis for the reasons stated in the DOC Position to Comment 2 of the
``Company-Specific Issues'' subsection of this notice, the issue is
moot with respect to this sale.
Comment 7 Global Sale: MRD asserts that, if the Department
includes the sale to Global in its analysis, it should analyze the
total sale, including the used merchandise that was an integral part of
the sale. The respondent asserts that this sale was unusual in that it
involved both new and used equipment that was purchased by a reseller
in the United States for ultimate sale to the end user. MRD argues that
the new and used equipment was sold as a package and the customer did
not have the option of buying only the used equipment or the new
equipment at the respective price stipulated in the sales contract. MRD
submits that in past cases, the Department has ruled that, where the
contract sets a separate price for non-integral, non-subject equipment,
it will rely on the contract price to determine the value to be
assigned to that equipment. However, with respect to the Global sale,
MRD argues that the used equipment in that sale was clearly integral to
the sale. As such, the Department should make an adjustment for that
used equipment based on its cost, and should allocate to it a portion
of the total profit or loss on the sale.
The petitioner contends that MRD's failure to provide adequate
information on the cost of the used equipment requires the exclusion of
the used equipment from the Department's final calculations on the
basis of the contract price. The petitioner asserts that the cost of
this equipment reflected the inventory value which was, in turn, based
on the acquisition price plus shipping costs less salvage value. This
does not yield the market value which, according to the petitioner, is
the correct measure of whether MRU received a reasonable profit on the
used merchandise. The petitioner also claims that MRD did not present
information at verification to allow the Department to confirm the
reported cost.
DOC Position: We disagree with the respondent. For the reasons
outlined in DOC Position to Comment 2 of the ``Company-Specific
Issues'' subsection of this notice, we have not excluded the Global
sale from our final analysis. The Global sale involved the sale of both
a used press and new equipment. Used presses are expressly excluded
from the scope of our investigation. See ``Scope of Investigation''
section of this notice. We also note that the value of the used
equipment was identified separately in the contractual documentation
governing the sale. Given these facts, we have no basis upon which to
include the used equipment portion of the sale in our final analysis as
an integral part of the sale. As a result, we deducted from the
calculation of CEP the contract price relevant to the used equipment.
This is consistent with our treatment with respect to spare and
replacement parts, which are also expressly excluded from the scope and
therefore excluded from our analysis, where their value is separately
outlined in the contractual documentation.
Comment 8 Spare Parts: MRD requests that the Department adjust its
calculations to avoid double-counting of the cost of spare parts. MRD
assert that if the spare parts price is deducted from the U.S. price,
then the cost of the spare parts should be excluded from CV. On the
other hand, if the spare parts cost is included in the CV then the
spare parts price should not be deducted from U.S. price.
DOC Position: We agree. Consistent with our preliminary
determination, where the value of the spare parts was separately
identified in the contractual documentation governing the U.S. sale, we
deducted the spare parts value from the contract price in the
calculation of CEP. In this case, we also excluded the cost of the
spare parts from the CV.
Comment 9 Costs for Rochester and Wilkes-Barre Sales: MRD argues
that the Department should calculate CV for the Rochester and Wilkes-
Barre sales based on costs calculated in accordance with the company's
project-specific work plan. MRD contends that these costs are accurate
and reliable, and that they are based on a system used by the company
in its normal course of business. MRD states that it calculated the
cost of each project-specific work plan based on a project-specific
bill of materials and production instructions prepared before the
initiation of this investigation.
MRD further asserts that it did not mislead the Department
regarding the availability of actual cost data for completed press
components. MRD states that it was able to compare project-specific
work plan costs to the actual costs recorded in its cost accounting
system for certain home market sales. MRD also notes that for Rochester
and a few home market sales,
[[Page 38186]]
it was able to compare the project-specific work plan costs for
individual parts to the actual costs recorded in its normal accounting
system for the same parts.
MRD maintains that if the Department chooses to reject the costs
calculated from the project-specific work plan for Rochester and
Wilkes-Barre, it should rely on the cost estimates submitted by MRD as
facts available rather than on the antidumping rate from the petition.
According to MRD, the cost estimating system calculates costs based on
an analysis of actual experience for previous projects of the same
press model. MRD argues that the petition rate does not contain MRD's
actual historical experience regarding materials, labor and production
operations which was considered in developing the submitted cost
estimates for the Rochester and Wilkes-Barre sales.
The petitioner maintains that the Department should reject the cost
figures reported for the Rochester and Wilkes-Barre sales because the
basis for these costs deviates from MRD's normal accounting practices
and the reported amounts were derived after initiation of the
investigation. The petitioner notes that verification revealed that MRD
created the project-specific standard work plan costs for these sales
solely for the purpose of responding to the Department's antidumping
questionnaire. Thus, according to the petitioner, the cost reporting
methodology employed by the respondent for the Rochester and Wilkes-
Barre sales presents significant potential for manipulation. Even if
MRD could not manipulate the actual parts listed in the work plan, the
petitioner asserts that it is certainly possible for MRD to have
manipulated the cost of those parts.
The petitioner contends that MRD misled the Department about its
method of calculating production costs for these unfinished sales.
According to the petitioner, in making its decision whether to review
the Rochester and Wilkes-Barre sales as part of our investigation, the
Department relied on MRD's claims that, as part of verification,
project-specific standard costs could be compared to actual costs
incurred to date on a component-by-component basis. The petitioner
notes, however, that MRD was unable to identify which components had
been completed and could not reconcile costs actually incurred to the
project-specific work plan costs. In addition, during verification, the
Department found that the projects were not completed to the extent
claimed by MRD. The petitioner also disagrees with MRD's
characterization of its project-specific work plan standard costing
system as the type of system routinely accepted by the Department in
past cases. The petitioner asserts that the Department only accepts
such systems when an adjustment can be made to convert standard costs
to actual costs. According to the petitioner, MRD's methodology does
not allow any such adjustment.
For these reasons, the petitioner urges the Department to rely on
facts available or exclude these sales altogether from its final
analysis. As facts available, the petitioner suggests using the CV
information in the petition which it argues contains the most probative
facts on the record.
DOC Position: We agree with the petitioner that we cannot rely on
MRD's projected costs calculated from its project-specific work plans
as the basis for CV in our final determination. The Department normally
requires respondents to report the actual cost of producing the subject
product. Since the Rochester and Wilkes-Barre sales were not completed
as of the date we issued the Section D questionnaire, MRD could not
provide the actual cost of production. However, for these two sales,
the respondent urged the Department to rely on its projected cost of
production, which we normally do not accept, because there were so few
sales and there was concern as to whether we would have any sales to
investigate. MRD stated that its projected costs would be derived from
the company's ``standard costing performed in the normal course of
business,'' that substantial actual costs would be incurred by
verification, and that such actual costs could be reconciled to the
costs of each project-specific work plan. Because MRD urged the
Department to depart from its normal method of accepting only actual
costs rather than projected costs, it was MRD's responsibility to
provide the data necessary to justify the accuracy and reliability of
its projected cost methodology.
As part of its CV submissions to the Department, MRD explained its
reporting methodology for the Rochester and Wilkes-Barre sales.
Specifically, MRD claimed that: ``For those products for which
production is not yet complete but for which detailed work-plans are
available (such as Rochester and Wilkes-Barre), the actual costs have
been used to determine the cost of manufacture to date, and the
standard costs calculated from the project-specific work-plans have
been used to determine the cost remaining for the project.'' See MRD's
December 13, 1995 Section D response at 41. At verification, however,
we learned that instead of including actual costs incurred to date for
each project, MRD's submitted costs for the Rochester and Wilkes-Barre
sales were based entirely on the total standard costs calculated from
the project-specific work plans. Moreover, MRD's project-specific
standard costing system, which was the basis for its submitted costs,
could not be reconciled to MRD's audited financial statements. Absent
the control of the respondent's normal audited accounting system, we
are unable to determine whether MRD's projected cost data for the
Rochester and Wilkes-Barre sales is reliable and accurate.
In addition to the difficulties noted above in reconciling MRD's
project-specific standard work plan costs for the Rochester and Wilkes-
Barre sales, we also found that the submitted costs for these projects
had been derived after the initiation of this antidumping investigation
and calculated specifically for the submission. MRD itself noted in its
case brief that the company calculated the detailed standard costing of
Rochester and Wilkes-Barre project-specific work plans after initiation
of this antidumping investigation. See June 13, 1996 Revised Case Brief
at 62. During verification, MRD officials also indicated that these
same cost calculations had been prepared solely for the purpose of
providing CV information in this case.
For these reasons, we have rejected MRD's cost projections for the
Rochester and Wilkes-Barre sales in our final determination, and have
relied on facts available to compute the cost of these sales. As facts
available, we used MRD's submitted cost estimates for each of the two
sales. We adjusted the estimated cost for a cost variance amount which
we calculated as the difference between estimated and actual costs for
sales of the same press model produced and completed during the POI.
We determined that the cost estimates could be relied upon for
several reasons. First, unlike the project-specific standard work plan
costs submitted by MRD for the Rochester and Wilkes-Barre sales, MRD
prepares a cost estimate for every press in the normal course of
business. Second, MRD completed the cost estimates for Rochester and
Wilkes-Barre prior to the initiation of this case. Third, MRD relied on
its actual production experience for the same model presses
(``Geoman'') to develop cost estimates for similar Geoman presses
included in the Rochester and Wilkes-Barre contracts. Lastly, MRD
provided estimated and actual cost data for the Geoman sales completed
during the POI, thus enabling us to adjust
[[Page 38187]]
estimated costs for the Rochester and Wilkes-Barre sales based on MRD's
past experience with the same press model.
Comment 10 Variances: MRD argues that the Department incorrectly
used fiscal 1995 overhead variance rates to adjust overhead costs for
the 1996 fiscal year. MRD contends that the Department should rely on
the company's reported variance figures which were based on actual
partial-year variance rates for the first six months of fiscal 1996 and
full-year budgeted variance rates for the remainder of that year. MRD
maintains that its use of a budgeted variance for fiscal year 1996 was
actually conservative considering that the actual variance for the
first half of that year was more favorable than the budgeted amount.
Lastly, MRD argues that the Department cannot possibly apply the prior
year's variance to the current period's costs as it did in the
preliminary determination because the variance for each period reflects
the utilization for that specific period.
The petitioner argues that the Department should continue to adjust
MRD's costs to reflect the full year's actual variance for fiscal 1995.
The petitioner asserts that MRD's budgeted variances do not accurately
predict full-year results and rely on potentially unrealistic capacity
utilization statistics. According to the petitioner, MRD's comparison
of budgeted and actual variances do not confirm the reasonableness of
either the actual or budgeted variances reported. Moreover, the
petitioner maintains that the part-year variances may exclude year-end
adjustments reflected in the annual budgeted variance calculation. The
petitioner concludes that prior year's actual experience provides a
more accurate projection of fiscal 1996 actual costs given the
uncertainty about the conflicting plant capacity and utilization rates
on the record.
DOC Position: We agree with the petitioner that MRD's budgeted
variances do not accurately predict full-year operating results and
rely on unrealistic capacity utilization levels. In addition, year-end
adjustments or one-time annual costs may not be reflected in the part-
year actual variance. Therefore, we rejected MRD's reported part-year
actual variance and budgeted fiscal year variance calculation for
fiscal 1996. As an alternative, we relied on the prior fiscal year
actual variance which is consistent with the methodology applied in our
the preliminary determination.
Comment 11 Imputed Credit: MRD contends that the Department's
normal practice is to include only differences in selling expenses in
the circumstance of sale adjustment. Therefore, MRD argues that the
imputed cost of financing production should be excluded from the
circumstance of sale credit calculation because the differences in the
timing of production costs do not affect price comparability.
Additionally, MRD asserts that negotiated payment terms are not
affected by the lengthy production period for LNPPs. By linking the
payment terms to the production cost schedules, as was done in the
preliminary determination, the Department contradicts the basic
principle that money is fungible. Thus, MRD argues that progress
payments and production costs should not be matched on a customer-
specific basis. Also, MRD maintains that imputed interest expenses
should not be calculated for SG&A expenses. Moreover, the Department
should only apply this circumstance of sale adjustment to NV if the
normal imputed credit is included in the CV calculation.
The petitioner asserts that the Department correctly made a
circumstance of sale adjustment for imputed credit expense by including
both production costs and progress payments in the calculation. In
addition, the petitioner argues that SG&A should be included in the
imputed credit expense calculation because these costs are part of the
total production costs compared to the total price of each press (i.e.,
total production plus profit). Furthermore, the petitioner agrees with
MRD that the Department should deduct home market imputed credit
expenses as a circumstance of sale adjustment only if they include
imputed credit in CV.
DOC Position: We believe that it is appropriate in this instance to
recognize the comprehensive financing arrangement for each sale as a
circumstance of sale adjustment. LNPPs require substantial capital
expenditures over an extended time period because of their size and
lengthy production process (e.g., two to three years including the
design phase). Moreover, the projects generally call for the purchaser
to provide scheduled progress payments before completion of a project.
Our normal imputed credit calculation (i.e., cost of financing
receivables between shipment dates and payment dates) does not measure
the effect of progress payments made relative to production costs
incurred. To adjust sales prices for the effect of the respondent
incurring significant capital outlays at the beginning of a project
(back loaded payments) or receiving large sums of money up front (front
loaded payments), we calculated imputed credit for each home market and
U.S. sale by recognizing both financing costs incurred and payments
received.
We agree with the petitioner that SG&A should be included as
production costs for calculating the imputed credit expense because the
total contract price for each press (sum of payments) reflects the
total production costs plus profit. We disagree with the petitioner,
however, with regard to the issue of including imputed credit expense
in CV. Section 773(e)(2)(A) of the Act, requires that the Department
include in CV the actual amount of SG&A, including net interest
expense, incurred by the exporter or producer. We agree with the
respondent's position that imputed credit is not an actual expense.
Therefore, we did not include imputed credit in the CV calculation for
the final determination.
Comment 12 Imputed Capitalized Interest Costs: MRD claims that the
statute and German Generally Accepted Accounting Principles (GAAP) do
not allow imputed capitalized interest expenses in the cost of
manufacture. Therefore, the Department should include only the actual
interest costs incurred rather than both actual financing and imputed
capitalized interest expenses. MRD further argues that the Department's
normal interest expense calculation already includes all the actual
costs of financing production. MRD further argues that the interest
cost capitalized should not exceed the total interest cost incurred by
the company and the Department should make an appropriate offset to the
interest costs included in general expenses.
The petitioner contends that if the Department does not include the
timing of production costs as a factor in its credit calculation, it
should include capitalized interest expenses in CV to reflect MRD's
financing of production incurred prior to payments received.
DOC Position: Since we are calculating imputed interest as a
circumstance of sale adjustment and not as a capitalized cost in the
cost of manufacture, this issue is moot.
Comment 13 Combining MAN Plamag and MRD Production Costs: In
calculating cost of manufacturing, MRD argues that the Department
should average the labor and overhead rates of both the MAN Plamag and
MRD facilities because LNPPs are produced at both locations. Although
MAN Plamag is a separate legal entity from MRD, MRD contends that MAN
Plamag meets the five criteria for collapsing companies as used in Iron
Construction Castings from Canada, 59 FR 25603-04 (May 17, 1994).
Moreover, MRD maintains that the Department's policy
[[Page 38188]]
is to average costs where management has the capability to shift
production between multiple facilities. Therefore, the Department
should include respondent's ``multiple facilities'' adjustment which
modifies the single facility costs to reflect the average of the two
facilities.
The petitioner contends that, because the two facilities do not
produce the same models, MRD has not met the criteria for cost
averaging. Even if MRD had met the criteria for averaging costs, the
petitioner argues that MRD's calculation is inconsistent with
Department practice. MRD selectively averaged labor and overhead rates,
but not SG&A expenses or research and development costs. The petitioner
concludes that this selective form of weight averaging distorts costs
and should be rejected.
DOC Position: We agree with the petitioner that we should not
average costs for MRD and MAD Plamag. MAN Plamag is a separate
corporate entity from MRD. Specifically, MAN Plamag is an affiliated
party to MRD (not a division or factory within MRD) which supplies MRD
with one of the major production inputs (RTPs). In determining the cost
of manufacturing, the Department evaluates whether affiliated party
transactions for major inputs occur at prices that are arm's length in
nature and above the supplier's cost of production. Contrary to MRD's
assertion, the Department's normal practice is not to automatically
collapse affiliated suppliers and the respondent company. In fact, the
five criteria noted by MRD relate to collapsing companies for sales
purposes rather than cost.
Comment 14 Further Manufacturing G&A: The petitioner maintains
that the Department should calculate an average further manufacturing
G&A expense over a multiple-year period based on actual historical data
that reasonably represents the costs incurred, and those yet to be
incurred, by MRD from its LNPP operations. The petitioner also urges
the Department to ensure that the denominator in its further
manufacturing G&A expense rate is consistent with the allocation base
of each individual transaction to which the rate is applied. Lastly,
the petitioner contends that because MRD did not reconcile its
submitted fiscal year 1992 and 1993 G&A expenses to its audited
financial statements, the Department should reject the G&A expenses
reported by MRD for those two years.
MRD argues that the Department should allocate further
manufacturing G&A expenses over the cost of sales orders during the POI
rather than over the cost of sales actually recognized during that
period. If the Department chooses to allocate G&A over sales
recognized, then MRD asserts that the amount of G&A expenses should be
capped. To calculate this cap, MRD contends that actual G&A expenses
should be allocated between commercial and newspaper presses based on
cost of goods sold during the POI.
DOC Position: For the final determination, we computed MRD's
further manufacturing G&A expense rate based on the ratio of the
reported G&A expenses to cost of sales (less the cost of imported
German parts recognized during the POI). Consistent with the
petitioner's arguments, we applied this G&A expense rate to the U.S.
further manufacturing costs of each press. G&A expenses are period
costs which relate to activities of the company during the period in
which they are incurred. Accordingly, we allocated G&A expenses over
costs incurred during the POI rather than the hypothetical cost of
orders received during the period. Based on our approach, we concluded
capping of G&A was not necessary because the total G&A assigned to all
U.S. sales does not exceed the total amount of G&A being allocated.
Comment 15 Loss on Plant Closure and Disposal of Assets: MRD
argues that the loss on the closure of the Middlesex and North
Stonington facilities should be excluded from the cost calculation
because these costs were extraordinary. In support of its position, MRD
cites Certain Welded Stainless Steel Pipe from the Republic of Korea
(57 FR 53693, 53704, November 12, 1992) in which the Department
excluded the gain of the sale of a manufacturing plant because the
transaction was considered extraordinary rather than a routine disposal
of fixed assets.
The petitioner maintains that the costs incurred for the Middlesex
plant closure should be included in MRD's further manufacturing G&A
expense calculation because this facility was the location of the
newspaper press division.
DOC Position: The plant closure costs at issue were incurred prior
to the POI. Because we calculated G&A expenses based on POI data, this
point is moot.
Continuation of Suspension of Liquidation
In accordance with section 735(c)(1)(B) of the Act, we are
directing the Customs Service to continue to suspend liquidation of all
entries of LNPPs from Germany, as defined in the ``Scope of
Investigation'' section of this notice, that are entered, or withdrawn
from warehouse for consumption, on or after March 1, 1996, the date of
publication of our preliminary determination in the Federal Register.
Furthermore, we are also directing the U.S. Customs Service to
continue to suspend liquidation of all entries of elements (parts or
subcomponents) of components imported to fulfill a contract for a LNPP
system, addition or component, from Germany, that are entered, or
withdrawn from warehouse on or after March 1, 1996, with the exception
of those entries of elements imported by MRU to fulfill the contract
for the sale of a LNPP system to The Charlotte Observer (``Charlotte
contract''). Such suspension of liquidation will remain in effect
provided that the sum of such entries represent at least 50 percent of
the value, measured in terms of the cost of manufacture, of the subject
component of which they are part. This determination will be made by
the Department only after all entries of the elements imported pursuant
to a LNPP contract are made and the finished product pursuant to the
LNPP contract is produced.
For this determination, all foreign producers/exporters and U.S.
importers in the LNPP industry be required to provide clearly the
following information on the documentation accompanying each entry from
Germany of elements pursuant to a LNPP contract: (1) The identification
of each of the elements included in the entry, (2) a description of
each of the elements, (3) the name of the LNPP component of which each
of the elements are part, and (4) the LNPP contract number pursuant to
which the elements are imported. The suspension of liquidation will
remain in effect until such time as all of the requisite information is
presented to U.S. Customs and the Department is able to make a
determination as to whether the imported elements are at least 50
percent of the cost of manufacture of the LNPP component of which they
are part.
With respect to entries of LNPP spare and replacement parts, and
used presses, from Germany, which are expressly excluded from the scope
of the investigation, we will instruct the Customs Service to continue
not to suspend liquidation of these entries if they are separately
identified and valued in the LNPP contract pursuant to which they are
imported.
In addition, in order to ensure that our suspension of liquidation
instructions are not so broad as to cover merchandise imported for non-
subject uses, foreign producers/exporters and U.S. importers in the
LNPP industry
[[Page 38189]]
shall continue to be required to provide certification that the
imported merchandise would not be used to fulfill a LNPP contract. As
indicated above, we will also continue to request that these parties
register with the Customs Service the LNPP contract numbers pursuant to
which subject merchandise is imported.
The Customs Service shall require a cash deposit or posting of a
bond equal to the estimated amount by which the normal value exceeds
the export price, as shown below. Any securities posted since March 1,
1996, on entries of elements relevant to MRU's Charlotte contract shall
be refunded or canceled.
The weighted-average dumping margins are as follows:
------------------------------------------------------------------------
Weighted-
average
Exporter/manufacturer margin
percentage
------------------------------------------------------------------------
MAN Roland Druckmaschinen AG............................... 30.80
Koenig Bauer-Albert AG..................................... \1\ 46.40
All Others................................................. 30.80
------------------------------------------------------------------------
\1\ Facts Available Rate.
The all others rate applies to all entries of subject merchandise
except for entries of merchandise produced by the respondents listed
above.
International Trade Commission (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: July 15, 1996.
Robert S. LaRussa,
Acting Assistant Secretary for Import Administration.
[FR Doc. 96-18542 Filed 7-22-96; 8:45 am]
BILLING CODE 3510-DS-P