Notice of Preliminary Determination of Sales at Less Than Fair Value: Certain Cased Pencils From the People's Republic of China

DEPARTMENT OF COMMERCE

International Trade Administration

[A-570-827]

Notice of Preliminary Determination of Sales at Less Than Fair

Value: Certain Cased Pencils From the People's Republic of China

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: June 16, 1994.

FOR FURTHER INFORMATION CONTACT: Cynthia Thirumalai or Kristin Heim,

Office of Countervailing Investigations, Import Administration,

International Trade Administration, U.S. Department of Commerce, 14th

Street and Constitution Avenue NW., Washington, DC 20230; telephone:

(202) 482-4087 or (202) 482-3798, respectively.

Preliminary Determination: We preliminarily determine that certain

cased pencils (pencils) from the People's Republic of China (PRC) are

being, or are likely to be, sold in the United States at less than fair

value (LTFV), as provided in section 733 of the Tariff Act of 1930, as

amended (the Act). The estimated margins are shown in the ``Suspension

of Liquidation'' section of this notice.

Case History

Since the initiation of this investigation on November 29, 1993 (58

FR 64548, December 8, 1993), the following events have occurred.

On December 27, 1993, the U.S. International Trade Commission (ITC)

notified us of its preliminary determination that there is a reasonable

indication that an industry in the United States is materially injured

by reason of imports of pencils from the PRC that are alleged to be

sold at less than fair value.

On January 5, 1994, we sent a survey to the PRC's Ministry of

Foreign Trade and Economic Cooperation (MOFTEC) and certain companies

in the PRC requesting information on production and sales of pencils

exported to the United States. The names of the companies were found in

the petition and in data supplied by the Port Import-Export Reporting

Service (PIERS). We requested MOFTEC's assistance in forwarding the

survey to all exporters and producers of pencils and submitting

complete responses on their behalf. On January 14, the survey was sent

to the Asia Pencil Association.

On January 31, 1994, responses to the survey were received from the

China First Pencil Co., Ltd. (China First), an exporter and producer;

Shanghai Foreign Trade Corp. (SFTC), an exporter; Shanghai Lansheng

Corp. (Shanghai Lansheng), an exporter; Shanghai Machinery & Equipment

Import & Export Corp. (Shanghai Machinery), an exporter; and Shanghai

Three Star Stationery Industry Corp. (Three Star), a producer and

domestic reseller. Shanghai Machinery reported that while it had

exported pencils in the past, it did not make any sales to the United

States during the POI.

On February 9, 1994, four more companies responded to our survey:

Songnan Pencil Factory, a producer; Xinbang Joint Venture Factory, a

producer; Guangdong Provincial Stationery & Sporting Goods Import &

Export Corp. (Guangdong), an exporter; and Anhui Stationery Company

(Anhui), a producer.

On February 16, 17, and 23, 1994, all PRC producers and exporters

identified in the course of this proceeding, i.e., through the

petition, in PIERS data, in letters of appearance and as provided by

MOFTEC, for which we had addresses were sent full questionnaires.

During the month of March, in response to our questionnaire, we

received letters from a number of companies stating that they either

did not export cased pencils to the United States during the POI or

acted merely as freight forwarders.

On March 8, 1994, we postponed the preliminary determination in

this investigation (see 59 FR 10784, March 8, 1994).

SFTC requested on March 24, 1994, that it not be required to submit

sales and factors of production information for certain pencils it

exported to the United States during the POI. On April 4, 1994, SFTC

amended its request. Because the sales and factor of production

information covered a small percentage of SFTC's sales to the United

States, we granted SFTC's amended request (see Memorandum from E.

Graham to B. Stafford, April 7, 1994, on file in the Central Records

Unit in room B-099 of the Main Commerce Building).

On May 10, 11, and 25, 1994, petitioner submitted information

concerning the costs of certain raw materials which are used in the

production of pencils but that were not specifically addressed in the

petition. Petitioner also requested that the Department recalculate the

petition margins based on the information in its submission of May 25,

1994.

Between June 3, 1994, and this preliminary determination,

respondents submitted updated and additional information. Given the

late dates on which this information was provided, we found it

administratively infeasible to use this information (with the exception

of company-specific conversion factors) in our preliminary

determination.

Scope of Investigation

The products covered by this investigation are certain cased

pencils of any shape or dimension which are writing and/or drawing

instruments that feature cores of graphite or other materials encased

in wood and/or man-made materials, whether or not decorated and whether

or not tipped (e.g., with erasers, etc.) in any fashion, and either

sharpened or unsharpened. The pencils subject to this investigation are

classified under subheading 9609.10.00 of the Harmonized Tariff

Schedule of the United States (``HTSUS'').

Specifically excluded from the scope of this investigation are

mechanical pencils, cosmetic pencils, pens, non-cased crayons (wax),

pastels, charcoals, or chalks.

Although the HTSUS subheading is provided for convenience and

customs purposes, our written description of the scope of this

investigation is dispositive.

Class or Kind of Merchandise

At the time of our initiation, we solicited comments from

interested parties on whether all cased pencils constitute one class or

kind of merchandise. Respondents have argued that raw pencils/pencil

blanks and semi-finished pencils constitute a separate class or kind of

merchandise apart from finished pencils. Based on the information

provided, we find that these products do not constitute a separate

class or kind of merchandise. (See memorandum from E. Graham to B.

Stafford, April 15, 1994.) In a submission dated June 2, 1994,

respondents argued that the merchandise subject to this investigation

comprises four separate classes or kinds of merchandise. While this

argument was made too late to be considered for our preliminary

determination, we will address this in our final determination.

The Asia Pencil Association argued that specialty pencils (e.g.,

carpenter and art pencils) should constitute a separate class or kind

of merchandise. However, the information submitted in support of their

claim was insufficient to allow us to make a determination that

specialty pencils are a separate class or kind of merchandise.

Period of Investigation

The POI is June 1, 1993, through November 30, 1993.

Separate Rates

China First, Guangdong, SFTC, and Shanghai Lansheng have each

requested a separate rate. Guangdong's and SFTC's business licenses

each indicate that they are owned ``by all the people.'' As stated in

the Final Determination of Sales at Less than Fair Value: Silicon

Carbide from the People's Republic of China (59 FR 22585, 22586 (May 2,

1994)) (``Silicon Carbide'') ``ownership of a company by all the people

does not require the application of a single rate.'' Accordingly,

Guangdong and SFTC are eligible for consideration for separate rates.

Shanghai Lansheng has reported that, for the majority of the POI,

it was owned ``by all the people'' and that it was later reorganized as

a shareholding company. It has indicated that its shares are traded on

the Shanghai stock exchange. In the Preliminary Determination of Sales

at Less Than Fair Value and Postponement of Final Determination:

Certain Paper Clips from the People's Republic of China (``Paper

Clips'') (59 FR 25885, 25887, May 18, 1994) the Department stated that

``a `municipal government' owns 70 percent of [Shanghai Lansheng's]

shares.'' There is no evidence on the record that this municipality

controls other exporters of cased pencils that made sales to the United

States during the POI. We will, however, evaluate this issue carefully

during verification.

Since ownership by all the people (the situation applicable to

Shanghai Lansheng during the majority of the POI) ``does not require

the application of a single rate'' and there was no central government

ownership during the later part of the POI, Shanghai Lansheng is

eligible for consideration for a separate rate.

China First has reported that it is a shareholding company and has

provided a list of its shareholders. According to China First, the

shareholders elect the board of directors which, in turn, appoints the

general manager. Its questionnaire response states that there are three

types of shares: A shares held by Chinese legal persons, B shares held

by non-Chinese legal persons and Enterprise shares. We do not have on

the record any information addressing the similarities or differences

in rights accruing to the various types of shares.

Based on our examination of the information provided regarding the

shareholder identities and the ownership structure of China First, we

have determined that we do not have enough information on the record to

grant it a separate rate at this time. Due to the proprietary nature of

the information, we are not able to discuss the ownership structure of

China First in further detail in this notice; however, there is a

proprietary decision memorandum regarding this issue on the record (see

Decision Memorandum of June 8, 1994). We are assigning China First the

PRC country-wide rate for purposes of this preliminary determination.

To establish whether a firm is sufficiently independent to be

entitled to a separate rate, the Department analyzes each exporting

entity under a test arising out of the Final Determination of Sales at

Less Than Fair Value: Sparklers from the People's Republic of China (56

FR 20588, May 6, 1991) (``Sparklers'') and amplified in Silicon

Carbide. Under the separate rates criteria, the Department assigns

separate rates only where respondents can demonstrate the absence of

both de jure and de facto governmental control over export activities.

1. Absence of De Jure Control

Three PRC laws that have been placed on the record in this

proceeding indicate that the responsibility for managing enterprises

``owned by all of the people'' is with the enterprises themselves and

not with the government. These are the ``Law of the People's Republic

of China on Industrial Enterprises Owned by the Whole People,'' adopted

on April 13, 1988 (``1988 Law''); ``Regulations for Transformation of

Operational Mechanism of State-Owned Industrial Enterprises,'' approved

on August 23, 1992 (``1992 Regulations''); and the ``Temporary

Provisions for Administration of Export Commodities,'' approved on

December 21, 1992 (``Export Provisions'').

The 1988 Law and 1992 Regulations shifted control from the

government to the enterprises themselves. The 1988 Law provides that

enterprises owned ``by the whole people'' shall make their own

management decisions, be responsible for their own profits and losses,

choose their own suppliers and purchase their own goods and materials.

The 1988 Law also has other provisions which indicate that enterprises

have management independence from the government. The 1992 Regulations

provide that these same enterprises can, for example, set their own

prices (Article IX); make their own production decisions (Article XI);

use their own retained foreign exchange (Article XII); allocate profits

(Article II); sell their own products without government interference

(Article X); make their own investment decisions (Article XIII);

dispose of their own assets (Article XV); and hire and fire their

employees without government approval (Article XVII).

The Export Provisions list those products subject to direct

government control. Pencils do not appear on the Export Provisions list

and are not, therefore, subject to the export constraints.

The existence of these laws indicates Guangdong, SFTC and Shanghai

Lansheng are not de jure subject to central government control.

However, there is some evidence that the provisions of the above-cited

laws and regulations have not been implemented uniformly among

different sectors and/or jurisdictions in the PRC (see ``PRC Government

Findings on Enterprise Autonomy,'' in Foreign Broadcast Information

Service--China-93-133 (July 14, 1993). Therefore, the Department has

determined that an analysis of de facto control is critical to

determining whether respondents are, in fact, subject to governmental

control.

2. Absence of De Facto Control

The Department typically considers four factors in evaluating

whether each respondent is subject to de facto government control of

its export functions: (1) Whether the export prices are set by or

subject to the approval of a governmental authority; (2) whether the

respondent has authority to negotiate and sign contracts and other

agreements; (3) whether the respondent has autonomy from the government

in making decisions regarding the selection of management; and (4)

whether the respondent retains the proceeds of its export sales and

makes independent decisions regarding disposition of profits or

financing of losses (see Silicon Carbide).

Guangdong, SFTC and Shanghai Lansheng have each asserted that (1)

it establishes its own export prices; (2) it negotiates contracts

without guidance from any governmental entities or organizations; (3)

its management operates with a high degree of autonomy and there is no

information on the record that suggests central government control over

selection of management; and (4) it retains the proceeds of its export

sales, and has the authority to sell its assets and to obtain loans. In

addition, company-specific pricing during the POI does not suggest any

coordination among exporters (i.e., the prices for comparable products

appear to differ among companies). This information supports a

preliminary finding that there is a de facto absence of governmental

control of export functions.

Consequently, Guangdong, SFTC and Shanghai Lansheng have

preliminarily met the criteria for the application of separate rates.

We will examine this issue in detail at verification and determine

whether the questionnaire responses are supported by verifiable

documentation.

There is an additional issue relating to governmental control that

we will consider further for purposes of our final determination.

Guangdong and SFTC have indicated that the appointments of their

general managers are subject to approval by the local Commission on

Foreign Trade and Economic Cooperation (COFTEC) office. While the

significance of this is unclear, the evidence cited above indicates

that the COFTEC offices do not control the key functions of the

enterprises. However, we will examine at verification the precise

nature of the authority that the COFTEC offices exercise over the

enterprises.

Nonmarket Economy

The PRC has been treated as a nonmarket economy (NME) in past

antidumping investigations. (See, e.g., Final Determination of Sales at

Less than Fair Value: Sebacic Acid from the People's Republic of China

(54 FR 28053 (May 31, 1994)). No information has been provided in this

proceeding that would lead us to overturn our former determinations.

Therefore, in accordance with 771(18)(c) of the Act, we have treated

the PRC as an NME for purposes of this investigation.

Where the Department is investigating imports from an NME, section

772(c)(1) of the Act directs us to base FMV on the NME producers'

factors of production, valued in a comparable market economy that is a

significant producer of the merchandise. Section 773(c)(2) of the Act

alternatively provides that where available information is inadequate

for using the factors of production methodology, FMV may be based on

the export prices for comparable merchandise from market economy

countries at a comparable level of economic development.

In this investigation, the respondents have urged the Department to

make use of the alternative methodology provided in section 773(c)(2)

of the Act. In particular, they have argued that the primary input into

PRC pencils, lindenwood, cannot be valued elsewhere. Petitioner has

also questioned the Department's ability to value certain inputs using

publicly available published information (PAPI) from India, as Indian

input statistics cover broader product categories. Petitioner does not

request that the Department use the alternative methodology for FMV.

Instead, it suggests that U.S. producers' costs be used to value these

inputs.

For purposes of the preliminary determination, we have relied on

the methodology provided by section 773(c)(1) of the Act to determine

FMV. The sources of individual factor prices are discussed under the

FMV section, below. However, as a result of the comments made by

petitioner and respondents on the relevance of factor prices in India,

we will be seeking additional data on factor values and on export

prices that could also be used under the alternative methodology

provided in section 773(c)(2) of the Act for possible use in our final

determination.

Surrogate Country

As discussed above, section 773(c)(4) of the Act requires the

Department to value the NME producers' factors of production, to the

extent possible, in one or more market economy countries that are at a

level of economic development comparable to that of the nonmarket

economy country, and that are significant producers of comparable

merchandise. The Department has determined that India and Pakistan are

the countries most comparable to the PRC in terms of overall economic

development. (See memorandum from the Office of Policy to the file,

dated March 18, 1994.) In addition, there is evidence on the record

that pencils are produced in India.

Although India is the preferred surrogate country for purposes of

valuing the factors of production used in producing the subject

merchandise, we have resorted to Pakistan and Indonesia for certain

surrogate values where Indian values were either unavailable or

significantly outdated. We have obtained and relied upon PAPI wherever

possible.

Fair Value Comparisons

To determine whether sales of pencils from the PRC to the United

States by Guangdong and Shanghai Lansheng were made at less than fair

value, we compared the United States price (USP) to the foreign market

value (FMV), as specified in the ``United States Price'' and ``Foreign

Market Value'' sections of this notice.

Because all of SFTC's responses were not received in time for

consideration in this preliminary determination and, therefore, we had

only partial information for calculating FMV, we have based SFTC's

margin on the best information available (BIA). (See ``Best Information

Available'' section of this notice.)

United States Price

We based USP on purchase price, in accordance with section 772(b)

of the Act, because the subject merchandise was sold directly by the

Chinese exporters to unrelated parties in the United States prior to

importation into the United States.

For those exporters that responded to the Department's

questionnaire and were found to be eligible for a separate rate, we

calculated purchase price based on packed, FOB foreign-port prices to

unrelated purchasers in the United States. We made deductions for

containerization, loading, port handling expenses and foreign inland

freight valued in a surrogate country.

Foreign Market Value

We calculated FMV based on factors of production reported by the

factories which produced the subject merchandise for the three

exporters. The factors used to produce pencils include materials,

labor, and energy. We made adjustments to materials costs for the

resale of scrap materials, where applicable.

In determining which surrogate value to use for valuing each factor

of production, we selected, where possible, the PAPI value which was:

(1) An average non-export value; (2) representative of a range of

prices within the POI if submitted by an interested party, or most

contemporaneous with the POI; (3) product-specific; and (4) tax-

exclusive.

We used surrogate transportation rates to value inland freight

between the source of the production factor and the pencil factories,

and between factories, where appropriate. In those cases where a

respondent failed to provide any information on transportation

distances and modes, we applied, as best information available, the

most expensive distance/modes combination (i.e., the longest truck

rates) that was available from the surrogate information we had

selected. For two modes of transportation (man-drawn carts, inland

water transport), we were unable to obtain PAPI or cable information in

time for this preliminary determination. To value these two modes of

transportation, we assumed that these forms competed effectively with

an alternate form of transportation over similar distances and used the

applicable rates for the alternate form.

To value the raw materials and packing materials, we used PAPI. Our

sources included: Indian Import Statistics for 1989, 1991 and 1992; and

Indonesian Import Statistics for 1989.

To value wood slats, we used the Asian market price for jelutong

wood in the sawn form during the POI as reported in the Market News

Service Report for Tropical Timber and Timber Products dated November

1993. To value wood logs, we used Indian import statistics for a group

of woods in rough form which included jelutong wood. The record in this

proceeding shows that jelutong wood is used in pencil production and is

similar to lindenwood, the input used by the PRC producers. For

ferrules we used Indian import statistics for a basket aluminum

category and for paint we used the import statistics category

identified by respondents.

To value electricity, we used PAPI from the Asian Development Bank.

To value coal and natural gas, we used Indian Import Statistics for

1992 and the Monthly Statistics of Mineral Production, Indian Bureau of

Mines dated November 1992, respectively. To value water, we used a

public cable from the U.S. consulate in Pakistan which was originally

provided in the investigation of Sulfanilic Acid From the PRC because

we could not locate a value for water in any Indian or Pakistani

publication.

For all material and energy prices that were for a period prior to

the POI, we adjusted the factor values to account for inflation between

the time period in question and the POI using wholesale price indices

published in International Financial Statistics (IFS) by the

International Monetary Fund.

To value labor amounts, we used the International Labor Office's

1993 Yearbook of Labor Statistics. To determine the number of hours in

an Indian workday, we used the Country Reports: Human Rights Practices

for 1990. We adjusted the factor values to account for inflation

between the time period in question and the POI using the consumer

price indices published in IFS.

To value factory overhead, we calculated percentages based on

elements of industry group income statements from The Reserve Bank of

India Bulletin (RBI), December 1992. We based our overhead percentage

calculations on the RBI data, adjusted to reflect an energy-exclusive

overhead percentage. For selling, general and administrative (SG&A)

expenses, we calculated percentages based on the RBI data. We used the

calculated SG&A percentages because they were greater than the ten

percent statutory minimum. We also used the calculated profit

percentage because it was greater than the statutory minimum of eight

percent of materials, labor, factory overhead, and SG&A expenses.

We made no adjustments for selling expenses. We added surrogate

freight costs for the delivery of packing materials to the factories

producing pencils.

Best Information Available

Because information has not been presented to the Department to

prove otherwise, any PRC companies not participating in this

investigation are not entitled to separate dumping margins. Potential

exporters identified by the Ministry of Foreign Trade and Economic

Cooperation (MOFTEC) have failed to respond to our questionnaire. In

the absence of responses from these and other PRC exporters during the

POI, we are basing the PRC country-wide rate on BIA. As discussed

above, we are also applying BIA to SFTC.

In determining what to use as BIA, the Department follows a two-

tiered methodology, whereby the Department normally assigns lower

margins to those respondents that cooperated in an investigation and

more adverse margins for those respondents which did not cooperate in

an investigation. As outlined in the Preliminary Determination of Sales

at Less Than Fair Value: Certain Cold-Rolled Carbon Steel Flat Products

From Argentina (``Argentina Steel''), 58 FR 7066, 7069, 7070 (February

4, 1993), when a company refuses to provide the information requested

in the form required, or otherwise significantly impedes the

Department's investigation, it is appropriate for the Department to

assign to that company the higher of (a) the highest margin alleged in

the petition, or (b) the highest calculated rate of any respondent in

the investigation. Here, since some PRC exporters failed to respond to

our questionnaire, we are assigning to them the highest margin in the

petition, as recalculated by the Department for the initiation and for

this determination using petitioner's updated information submitted May

1994. This rate applies to all exporters other than those responding

exporters which have shown their independence from central government

control.

Since SFTC has been cooperative in this proceeding, and since we

have preliminarily determined it is eligible for a separate rate, we

are assigning a margin based on the highest calculated rate for any

respondent in the investigation (see Argentina Steel).

Verification

As provided in section 776(b) of the Act, we will verify all

information determined to be acceptable for use in making our final

determination.

Suspension of Liquidation

In accordance with section 733(d)(1) of the Act, we are directing

the Customs Service to suspend liquidation of all entries of pencils

from the PRC that are entered, or withdrawn from warehouse, for

consumption on or after the date of publication of this notice in the

Federal Register. The Customs Service shall require a cash deposit or

posting of a bond equal to the estimated amount by which the FMV

exceeds the USP as shown below. These suspension of liquidation

instructions will remain in effect until further notice.

The weighted-average dumping margins are as follows:

------------------------------------------------------------------------

Weighted-

average

Manufacturer/producer/exporter margin

percentage

------------------------------------------------------------------------

Guangdong.................................................. 58.34

SFTC....................................................... 100.98

Shanghai Lansheng.......................................... 100.98

PRC country-wide rate*..................................... 107.63

------------------------------------------------------------------------

*Including China first.

ITC Notification

In accordance with section 733(f) of the Act, we have notified the

ITC of our determination. If our final determination is affirmative,

the ITC will determine before the later of 120 days after the date of

this preliminary determination or 45 days after our final determination

whether these imports are materially injuring, or threaten material

injury to, the U.S. industry.

Public Comment

In accordance with 19 CFR 353.38, case briefs or other written

comments in at least ten copies must be submitted to the Assistant

Secretary for Import Administration no later than August 8, 1994, and

rebuttal briefs, no later than August 12, 1994. In accordance with 19

CFR 353.38(b), we will hold a public hearing, if requested, to afford

interested parties an opportunity to comment on arguments raised in

case or rebuttal briefs. Tentatively, the hearing will be held at 10

a.m. on August 15, 1994, at the U.S. Department of Commerce, Room 3708,

14th Street and Constitution Avenue NW., Washington, DC 20230. Parties

should confirm by telephone the time, date, and place of the hearing 48

hours before the scheduled time.

Interested parties who wish to request a hearing, or to participate

if one is requested, must submit a written request to the Assistant

Secretary for Import Administration, U.S. Department of Commerce, Room

B-099, within ten days of the publication of this notice. Requests

should contain: (1) The party's name, address, and telephone number;

(2) the number of participants; and (3) a list of the issues to be

discussed. In accordance with 19 CFR 353.38(b), oral presentations will

be limited to issues raised in the briefs. If this investigation

proceeds normally, we will make our final determination by August 22,

1994.

This determination is published pursuant to section 733(f) of the

Act and 19 CFR 353.15(a)(4).

Dated: June 8, 1994.

Susan G. Esserman,

Assistant Secretary for Import Administration.

[FR Doc. 94-14624 Filed 6-15-94; 8:45 am]

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