Preliminary Determination of Sales at Less Than Fair Value: Fresh Cut Roses From Ecuador

DEPARTMENT OF COMMERCE

(A-331-801)

Preliminary Determination of Sales at Less Than Fair Value: Fresh

Cut Roses From Ecuador

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: September 20, 1994.

FOR FURTHER INFORMATION CONTACT: Shawn Thompson, Office of Antidumping

Investigations, Import Administration, U.S. Department of Commerce,

14th Street and Constitution Avenue, N.W., Washington, D.C. 20230;

telephone (202) 482-1776.

PRELIMINARY DETERMINATION: We preliminarily determine that fresh cut

roses (roses) from Ecuador are being, or are likely to be, sold in the

United States at less than fair value, as provided in section 733 of

the Tariff Act of 1930 (the Act), as amended. The estimated margins are

shown in the ``Suspension of Liquidation'' section of this notice.

Case History

Since the notice of initiation on March 7, 1994 (59 FR 11771, March

14, 1994), the following events have occurred.

On March 31, 1994, the U.S. International Trade Commission (ITC)

issued an affirmative preliminary determination.

On April 13, 1994, three companies, the Caicedo Group, Hilsea

Investments Ltd. (Hilsea), and Quitoflores, requested that they be

excluded from any potential antidumping duty order issued as a result

of this investigation. Due to constraints on the Department's

administrative resources, we were unable to investigate companies

requesting to be excluded from the potential order or requesting to

receive a questionnaire on a voluntary basis (See the May 2, 1994,

memorandum from the team to Barbara R. Stafford).

On April 19, 1994, the Department decided to collect constructed

value (CV) information from all respondents in addition to home market

or, where appropriate, third country sales information (See the April

19, 1994, memorandum from the team to Barbara R. Stafford).

On May 5, 1994, the Department issued sales and cost questionnaires

to the following four Ecuadorian companies: Arbusta-Agritab (Arbusta),

Inversiones Floricola S.A. (Floricola), Florin S.A. (Florinsa), and

Guanguilqui Agro Industrial S.A. (Guaisa). These companies accounted

for approximately 40 percent of the exports of the subject merchandise

during the period of investigation (POI). Although the Department

``normally will examine not less than 60 percent of the dollar value or

volume of the merchandise sold'' during the POI, 19 CFR 353.42 (b)(1),

due to the limited administrative resources, the Department chose to

examine less than 60 percent (See the May 3, 1994, memorandum from

David L. Binder to Richard W. Moreland).

On June 7, 1994, the Department relieved all respondents from the

requirement of reporting sales of roses imported and/or sold as part of

bouquets (See the June 7, 1994, memorandum from the team to Barbara R.

Stafford).

On June 14, 1994, the Department selected the appropriate third

country markets for all four of the respondents (See the June 14, 1994,

memorandum from the team to Barbara R. Stafford). However, since

respondents argued that third country markets were fundamentally

different from the U.S. market, it was decided that the final basis for

foreign market value (FMV) for the respondents (either third country

sales or CV) would not be determined until more information was

received (See the ``Third Country Sales Versus Constructed Value''

section of this notice for further discussion).

On June 24, 1994, the Floral Trade Council, petitioner in this

investigation, requested a postponement of the preliminary

determination until September 12, 1994, pursuant to 19 CFR 353.15(c)

(1994). The Department granted this request on June 28, 1994 (59 FR

34409, July 5, 1994).

Also, on June 24, 1994, the Department instructed respondents to

report monthly-average price data for the U.S. and third country

markets (See the June 24, 1994, memorandum from the team to Barbara R.

Stafford).

On July 25, 1994, Floricola, one of the four respondents, submitted

an amendment to its questionnaire response. In that amendment,

Floricola stated that, based on further review, it did not have viable

third country markets.

Respondents submitted responses to the Department's sales and cost

questionnaires in May, June, and July 1994. Hilsea also submitted a

voluntary response to section A on May 26, 1994. Because the Department

determined that it did not have the administrative resources to accept

voluntary responses, Hilsea's response was returned on June 3, 1994.

The Department issued deficiency sales and cost questionnaires in

June, July, August, and September 1994. Respondents submitted their

responses to these deficiency sales and cost questionnaires in June and

August 1994. Responses to the September deficiency letters are due

later this month.

On September 12, 1994, the Department decided to base FMV for

Arbusta and Guaisa on third country sales (See the September 12, 1994,

memorandum from the team to Barbara R. Stafford). For a further

discussion, see the ``Third Country Versus Constructed Value'' section

of this notice.

Scope of Investigation

The products covered by this investigation are fresh cut roses,

including sweethearts or miniatures, intermediates, and hybrid teas,

whether imported as individual blooms (stems) or in bouquets or

bunches. Roses are classifiable under subheadings 0603.10.6010 and

0603.10.6090 of the Harmonized Tariff Schedule of the United States

(HTSUS). The HTSUS subheadings are provided for convenience and customs

purposes. The written description of the scope of this investigation is

dispositive.

Period of Investigation

The Department initiated this investigation using our standard six-

month POI from September 1, 1993, to February 28, 1994. On April 5,

1994, petitioner submitted comments on the POI. On April 11, 1994,

respondents also submitted comments on the POI. On April 14, 1994, the

Department altered the POI to calendar year 1993 because of the

seasonal nature of sales and production in the rose industry (See the

April 14, 1994, memorandum from the team to Richard W. Moreland).

In addition, for purposes of price-to-price comparisons, we are

basing FMV on two six month periods: January 1, 1993, through June 30,

1993, and July 1, 1993, through December 31, 1993. For further

discussion of these periods, see the September 12, 1994, concurrence

memorandum.

Best Information Available

We have determined, in accordance with section 776(c) of the Act,

that the use of best information available (BIA) is appropriate for

sales of the subject merchandise by Florinsa.

In assigning BIA, the Department applies a two-tier methodology

based on the degree of respondent's cooperation. In the first tier, the

Department normally assigns higher margins (i.e., margins based on more

adverse assumptions) for those respondents which did not cooperate in

an investigation or which otherwise impede the proceeding. If a

respondent is deemed as non-cooperative, the Department bases the

preliminary margin for the relevant class or kind of merchandise on the

higher of: (1) the highest margin in the petition or (2) the highest

calculated margin of any respondent within the country that supplied

adequate responses for the relevant class or kind of merchandise.

In the second tier, the Department assigns lower margins to those

respondents who substantially cooperate in an investigation. These

margins are based on the higher of: (1) The highest calculated margin

for any respondent within that country that supplied adequate

information for the relevant class or kind of merchandise or (2) the

average margin of the margins in the petition (See, e.g., Final

Determination of Sales at Less than Fair Value: Antifriction Bearings

(Other than Tapered Roller Bearings) and Parts Thereof from the Federal

Republic of Germany, 54 FR 18992 (May 3, 1989)).

The Department's two-tiered methodology for assigning BIA has been

upheld by the U.S. Court of Appeals for the Federal Circuit (See

Allied-Signal Aerospace Co. v. United States, 996 F.2d 1185 (Fed. Cir.

1993); See also Krupp Stahl AG v. United States, 822 F. Supp. 789 (CIT

1993)).

We have determined that Florinsa's original and deficiency

questionnaire responses were unusable for the preliminary determination

because they contain significant deficiencies (See the September 12,

1994, memorandum from David L. Binder to Barbara R. Stafford). However,

because Florinsa responded to our requests for information, we find

that it has been substantially cooperative for purposes of this

preliminary determination. Accordingly, we used as second-tier BIA for

this respondent the average of the margins contained in the petition,

which is 84.72 percent. This margin is higher than the highest margin

calculated for any respondent in this investigation.

Furthermore, we have issued a supplemental deficiency letter to

Florinsa. If this respondent submits an adequate and timely response to

this letter, we will conduct verification for Florinsa and will

consider its information for purposes of the final determination.

Such or Similar Comparisons

We have determined that all roses covered by this investigation

comprise two categories of ``such or similar'' merchandise: culls and

export-quality roses. None of the respondents reported sales of culls

in the United States. Therefore, no comparisons in this such or similar

category were made. Regarding export quality roses, where possible, we

made comparisons of identical merchandise. Where there were no sales of

identical merchandise in the home market or third country market to

compare to U.S. sales, we made similar merchandise comparisons on the

basis of: (1) form (e.g., as part of a bouquet, an individual stem,

etc.), (2) type (e.g., hybrid tea, sweetheart, etc.), (3) color, (4)

stem length, and (5) variety. We did not make any adjustments for

differences in the physical characteristics of the merchandise because

respondents reported no cost differences between the varieties.

Fair Value Comparisons

To determine whether sales of roses from Ecuador to the United

States were made at less than fair value, we compared the United States

price (USP) to the FMV for all non-BIA respondents, as specified in the

``United States Price'' and ``Foreign Market Value'' sections of this

notice.

United States Price

For sales by Arbusta and Guaisa, we based USP on purchase price, in

accordance with section 772(b) of the Act, when the subject merchandise

was sold to unrelated purchasers in the United States prior to

importation and when exporter's sales price (ESP) methodology was not

otherwise indicated.

In addition, for Arbusta, Guaisa, and Floricola, where sales to the

first unrelated purchaser took place after importation into the United

States, we also based USP on ESP, in accordance with section 772(c) of

the Act.

During the POI, each of the respondents paid commissions to related

parties in the United States. We determined that these commissions were

directly related to the sales under consideration. We also tested these

commissions for these respondents to determine whether they were paid

at arm's length using the criteria set forth in the Final Determination

of Sales at Less Than Fair Value: Coated Groundwood Paper from Belgium

(56 FR 56359, November 4, 1991). Where we found that they were paid at

arm's length, we deducted them from USP. However, we found that

respondents used these commissions as a mechanism for reimbursing their

related parties for their actual expenses. Accordingly, in order to

avoid double-counting, where the actual expenses of the related party

were less than the commissions, we deducted only the commissions. Where

the commissions were less than the actual expenses, we also deducted

the amount by which the actual expenses exceeded the commissions (See

the September 12, 1994, concurrence memorandum).

In addition, each of the respondents classified credits related to

quality problems with the merchandise as warranty expenses. However,

because these quality-related credits functioned as price reductions,

we reclassified them as such.

Finally, none of the respondents reported inventory carrying costs

on their ESP sales. Accordingly, we calculated these costs using an

inventory carrying period of seven days, which, due to the perishable

nature of the product, is the maximum amount of time that can transpire

between the time a rose is cut and when it must be sold to the ultimate

customer, according to a public report by Harry K. Tayama, Ph.D.,

submitted in the companion investigation on fresh cut roses from

Colombia and placed, as well, on the public record for this

investigation.

For all U.S. prices, we used monthly USPs, because we determined

that monthly prices are representative of the transactions under

investigation (See the September 12, 1994, concurrence memorandum).

We made company-specific adjustments, as follows:

1. Arbusta

For Arbusta, we calculated purchase price based on packed F.O.B.

Quito prices to unrelated customers. In accordance with section

772(d)(2)(A) of the Act, we made deductions, where appropriate, for

foreign inland freight. We also made deductions for export taxes

imposed by the government of Ecuador, in accordance with section

772(d)(2)(B) of the Act.

We calculated ESP based on packed prices to unrelated customers in

the United States. We made deductions, where appropriate, for quality-

related credits, foreign inland freight, export taxes, air freight,

U.S. customs duties, U.S. brokerage and handling expenses, U.S. inland

freight, and credit expenses. Also, as described above, we deducted the

greater of related party commissions or indirect selling expenses.

Arbusta failed to report foreign inland freight expenses for a

small number of transactions in its ESP sales listing. As BIA for these

expenses, we assigned the highest freight amount for any other of

Arbusta's ESP transactions.

Regarding export taxes, Arbusta did not report these taxes in its

sales listing. Because the taxes are included in the USP, we,

therefore, calculated them based on the formula given in Arbusta's

response.

Arbusta calculated U.S. customs duties for its sales agents in

Miami on the basis of sales volume. Because these duties were incurred

on the basis of sales value, we recalculated them accordingly.

Arbusta calculated credit expenses using an interest rate based, in

part, on loans taken outside the POI. Therefore, we revised the

interest rate to reflect only POI-related borrowings and recalculated

credit expenses using this revised rate.

Regarding indirect selling expenses in Ecuador, we based these

expenses on BIA because Arbusta did not report them in its sales

listing. As BIA, we included the per unit expense reported in Arbusta's

calculation of CV. However, because Arbusta did not include the

indirect selling expenses of one of its four related farms, as an

additional BIA amount, we divided the expenses of the other three

related farms by three and added this to the total expense amount.

Regarding indirect selling expenses incurred by Arbusta's related

party in New York, we determined that Arbusta's calculations contained

a number of errors. Accordingly, we based these expenses on BIA. As

BIA, we used the single highest amount reported for any sales

transaction by this related party.

Regarding indirect selling expenses incurred by Arbusta's other

U.S. related parties, Arbusta reported monthly indirect selling

expenses instead of a yearly average. Accordingly, we recalculated the

expenses reported for one of these parties as a percentage of annual

sales value. However, the expenses reported for the other related party

appeared to pertain to another expense, unrelated to indirect selling

expenses. Therefore, we based the calculation of this expense on BIA

for sales through this company. As BIA, we applied the annual

percentage noted above.

2. Floricola

For Floricola, we calculated ESP based on packed prices to

unrelated customers in the United States. We made deductions, where

appropriate, for quality-related credits, including billing and other

credits, foreign inland freight, export taxes imposed by the government

of Ecuador, air freight, U.S. customs duties, U.S. Department of

Agriculture inspection fees, U.S. inland freight, and credit expenses.

We also made deductions for U.S., Panamanian, and Ecuadorian indirect

selling expenses, including inventory carrying costs and brokerage and

handling expenses, because these services were performed in-house.

Floricola did not report export taxes. Because it is clear from

other questionnaire responses that all exporters pay this tax and that

the tax is included in the USP, as BIA, we calculated it using the

formula provided in Arbusta's response.

3. Guaisa

For Guaisa, we calculated purchase price based on packed F.O.B.

Quito prices to unrelated customers. We made deductions, where

appropriate, for quality-related credits and foreign inland freight. We

also made deductions for export taxes imposed by the government of

Ecuador. We corrected respondent's inaccurate foreign inland freight

calculation by reallocating truck maintenance expenses over the entire

POI.

We calculated ESP based on packed prices to unrelated customers in

the United States. We made deductions, where appropriate, for quality-

related credits, foreign inland freight, air freight, U.S. customs

duties, U.S. brokerage and handling expenses, and credit expenses.

Also, as described above, we deducted the greater of related party

commissions or indirect selling expenses.

Guaisa reported that it earned a rebate, as well as six free round-

trip tickets, from its air freight carrier based on its volume of sales

to the United States during the POI. We deducted the rebate from

Guaisa's air freight calculations. However, because it is not clear

that the airline tickets affect air freight costs, we did not adjust

air freight for the value of these tickets.

Finally, Guaisa did not include the administrative expenses of its

U.S. sales subsidiary in its calculation of U.S. indirect selling

expenses. Moreover, Guaisa included employee commissions in its

indirect selling expenses. Because the U.S. subsidiary is solely a

sales organization, we reclassified its administrative expenses as

indirect selling expenses, and included these expenses in our

calculations. In addition, we reclassified employee commissions as

commission expenses and made a separate adjustment for them.

Foreign Market Value

In calculating FMV, wherever there were no sales of comparable

merchandise in the home market or third country markets, we based FMV

on CV. In addition, in accordance with 19 CFR 353.58, for price-to-

price comparisons, we compared U.S. sales to third country sales made

at the same level of trade, where possible.

In order to determine whether there were sufficient sales of fresh

cut roses in the home market to serve as a viable basis for calculating

FMV, we compared the volume of home market sales of export quality

roses to the volume of third country sales of export quality roses in

accordance with section 773(a)(1)(B) of the Act. Based on this

comparison, we determined that none of the three non-BIA respondents

had a viable home market.

For sales made by Arbusta and Guaisa, we based FMV on third country

sales or CV, when there were no third country sales of comparable

merchandise. In accordance with 19 CFR 353.49(c), we selected for these

respondents more than one third country because a single third country

did not meet the Department's viability standards.

In accordance with 19 CFR 353.49(b), we selected the appropriate

third country markets for Arbusta and Guaisa based on the following

criteria: similarity of merchandise sold in the third country to the

merchandise exported to the United States, the volume of sales to the

third country, and the similarity of market organization between the

third country and U.S. markets. For a complete discussion of the

selection of third country markets, see the June 14, 1994, memorandum

from the team to Barbara R. Stafford.

For all transactions made by Floricola, we based FMV on CV in

accordance with sections 773(a)(2) and (e) of the Act, because it did

not have sufficient sales of such or similar merchandise in the home

market or in any third country markets during the POI. Additionally, we

based FMV on CV for a portion of Arbusta's and Guaisa's transactions,

because these sales had no matches of such or similar merchandise in

the third country markets in the same period as the sales made in the

United States. For a further discussion, see the ``Third Country Sales

Versus Constructed Value'' section of this notice.

For all CV transactions, for general expenses, which includes

selling and financial expenses (SG&A), we used the greater of the

reported general expenses or the statutory minimum of ten percent of

the cost of cultivation. For Arbusta's and Guaisa's profit, we used the

greater of the weighted-average third country profit during the POI or

the statutory minimum of eight percent of the cost of cultivation and

general expenses, in accordance with section 773(e)(B) of the Act. For

Floricola, we based profit on the statutory minimum of eight percent of

the cost of cultivation and total general expenses, in accordance with

section 773(e)(B) of the Act. We based the amortization expense upon

amounts normally recorded by each company in their usual recordkeeping.

We rejected adjustments that respondents made to the amortization

expense solely for purposes of this investigation. We also made

specific adjustments to respondents' CV data as described below:

1. Guaisa

For Guaisa, we 1) reallocated general and administrative expenses

among products based upon the area under cultivation; 2) removed the

effect of a special adjustment made to eliminate the costs associated

with a severe windstorm; and 3) reallocated financial expenses among

products based upon the area under cultivation.

2. Floricola

For Floricola, we removed the reported net interest income credit

from the CV calculation because we only allow interest income to offset

the interest expense.

In order to calculate FMV, we made company-specific adjustments as

follows:

1. Arbusta

For Arbusta, we based FMV on packed prices to unrelated customers

in Argentina and Germany.

For third country price-to-purchase price comparisons, we deducted

post-sale home market movement charges from FMV under the circumstance-

of-sale provision of 19 CFR 353.56. This adjustment included home

market inland freight. Pursuant to 19 CFR 353.56(a)(2), we made

circumstance-of-sale adjustments, where appropriate, for differences in

credit expenses.

For third country price-to-ESP comparisons, we made deductions for

foreign inland freight and credit expenses. We also made a deduction

for inventory carrying costs based on an inventory carrying period of

seven days, as was done for the calculation of USP. We disallowed

Arbusta's claimed indirect selling expense adjustment because Arbusta

failed to provide an adequate narrative description or a worksheet

showing its calculations.

We recalculated credit expenses using Arbusta's POI short-term

interest rate as discussed in the ``United States Price'' section of

this notice.

For all price-to-price comparisons, we deducted third country

packing costs and added U.S. packing costs, in accordance with section

773(a)(1) of the Act. We recalculated packing expenses in both markets

to exclude depreciation on one of Arbusta's packing facilities. In

addition, we recalculated these expenses on an annual basis because

Arbusta's monthly calculations contained adjusting entries which were

not properly matched with the month in which the expense was incurred.

For CV-to-purchase price comparisons, we made circumstance of sale

adjustments, where appropriate, for credit expenses.

For CV-to-ESP comparisons, we made deductions, where appropriate,

for credit expenses. We also deducted from CV the weighted-average

third country market indirect selling expenses, including inventory

carrying costs, up to the amount of the greater of related party

commissions or indirect selling expenses incurred on U.S. sales, in

accordance with 19 CFR 353.56(b)(2). We added U.S. packing expenses, in

accordance with section 773(a)(1) of the Act.

2. Guaisa

For Guaisa, we based FMV on packed prices to unrelated customers in

Germany and Sweden.

For third country price-to-purchase price comparisons, we deducted

quality-related credits. We also deducted post-sale home market

movement charges from FMV under the circumstance-of-sale provision of

19 CFR 353.56. This adjustment included foreign inland freight.

Pursuant to 19 CFR 353.56(a)(2), we made circumstance-of-sale

adjustments, where appropriate, for differences in credit expenses and

commissions paid to an unrelated party. We deducted third country

packing costs and added U.S. packing costs, in accordance with section

773(a)(1) of the Act.

For third country price-to-ESP comparisons, we made deductions for

foreign inland freight, credit expenses and commissions paid to an

unrelated party. We also deducted the weighted-average third country

indirect selling expenses, up to the amount of the greater of related

party commissions or indirect selling expenses, including invoice

carrying costs, incurred on U.S. sales, in accordance with 19 CFR

353.56(b)(1) (See the September 12, 1994, concurrence memorandum).

Inventory carrying costs were based on an inventory carrying period of

seven days, as was done for the calculation of USP.

Regarding credit expenses, Guaisa incorrectly calculated the credit

period for certain third country transactions. In addition, Guaisa

calculated its short-term interest rate based on borrowings from

related parties. Accordingly, as BIA, we used the shortest credit

period reported for any third country sale. We then recalculated

Guaisa's third country and U.S. purchase price credit expenses using

its interest rate paid to unrelated parties.

For CV-to-purchase price comparisons, we made circumstance of sale

adjustments, where appropriate, for credit expenses.

For CV-to-ESP comparisons, we made deductions, where appropriate,

for credit expenses. We also deducted from CV the weighted-average

third country market indirect selling expenses, including inventory

carrying costs, up to the amount of the greater of related party

commissions or indirect selling expenses, including indirect carrying

costs, incurred on U.S. sales, in accordance with 19 CFR 353.56(b)(2).

We added U.S. packing costs, in accordance with section 773(a)(1) of

the Act.

3. Floricola

For Floricola, we based FMV on CV. The CV includes the cost of

materials and cultivation of the merchandise exported to the United

States, plus SG&A expenses, profit, and packing. We used U.S. selling

expenses in our CV calculation instead of using Floricola's home market

selling expenses. For the final determination, however, we will revisit

the issue of the appropriate selling expenses for use in Floricola's CV

calculation.

We deducted credit expenses. We also deducted U.S. indirect selling

expenses, including inventory carrying costs, in accordance with 19 CFR

353.56(b)(1) (See the September 12, 1994, concurrence memorandum).

We also added U.S. packing costs, in accordance with section

773(a)(1) of the Act.

Third Country Versus Constructed Value

On March 30, 1994, counsel for 14 of the 16 Colombian respondents

in the companion investigation on fresh cut roses from Colombia

requested that the Department reject third-country sales and rely

instead on constructed value as The basis for FMV. We considered this

issue for this case as well.

The Department's normal preference, based on its regulations, is to

utilize third-country sales rather than constructed value when there is

a viable third country market. See 19 CFR 353.48(b). Respondents have

urged departure from this practice, citing Certain Fresh Cut Flowers

from Colombia; Final Results of Antidumping Duty Administrative Review

55 FR 20491 (May 17, 1990) (Flowers). The Department determined in

Flowers that departure from our normal practice was warranted after an

analysis of three unusual factors present in that case. Respondents

argue that the facts in this investigation present even more compelling

reasons to reject third-country sales than were present in Flowers. In

determining whether the circumstances in this case are such that it

should fall under the exception established in Flowers, we have

analyzed the information presented in light of the three factors set

forth in Flowers: 1) negative correlation of price and volume movements

between markets; 2) peak to non-peak comparisons; and 3) the

perishability of the subject merchandise.

As a threshold matter, we note that the record in this case is

different from Flowers in that European markets play a relatively less

important role in our analysis. In Flowers, the Department's analysis

focused solely on a comparison of the U.S. market with European markets

as the vast majority of third country markets under consideration were

in Europe. The Department did not evaluate conditions in other markets.

In this case, and the companion investigation in Colombia, respondents

reported significant sales to Argentina and Canada, as well as Europe.

Respondents in this case have submitted additional information for all

the relevant markets--Europe, Canada, and Argentina. However, it is not

clear that the information submitted up to this point supports

respondents' assertion that sales in the third country markets should

not be compared to U.S. sales in this case.

Negative Correlation Factor

In Flowers, the Department found a negative correlation between

price and volume movements in the United States and European markets.

This negative correlation indicated that price differences between

markets could either mask or exaggerate dumping. The Department

determined that the negative correlation was caused by a number of

elements, including: 1) the greater price and volume volatility of the

U.S. market; 2) the sporadic, gift-giving nature of U.S. demand; 3)

respondents' lack of access to the European auctions (the main

distribution point for flowers in Europe); and 4) differing peak price

periods.

Respondents argue that, in this case, there is similar evidence of

a negative correlation of price and volume movements between the U.S.

and third country markets. In support of their position, respondents

have submitted several reports. A 1994 report by Professor Tayama

analyzes, among other things, the consumption patterns for roses in the

United States, Europe, Canada and Argentina, and compares seasonal and

holiday purchasing patterns in the markets. Tayama asserts that both

Europe and Canada have mature and relatively stable markets because

both markets are supply driven (i.e., in times of peak production as

supply increases, prices go down). In contrast, Tayama claims that the

U.S. market is demand driven--the majority of sales are made for

Valentine's Day when demand increases and prices rise. With regard to

Argentina, Tayama states that roses are grown for home consumption and

imports occur mainly during the winter months, as in Europe. Moreover,

Tayama asserts, Argentina has a different seasonal and holiday pattern

from the United States. No market, he states, has the extraordinary

demand for roses that exists in the U.S. market on Valentine's Day.

Petitioners have countered Tayama's assertions with an August 10,

1994, submission which contains, among other things, a report by Roses

Inc., an association of U.S. rose producers. The Roses Inc. report

raises questions about the conclusions in the Tayama report, asserting

that: 1) there is a global market for roses which is driven by demand

everywhere; and 2) key holiday periods are actually very similar

between the United States and Europe--specifically that the highest

prices in both the United States and Europe occur in February. Thus, we

are not in a position to conclude that the Tayama report provides a

sufficient basis to determine that comparison of U.S. sales to third

country sales is inappropriate.

In support of the conclusions drawn in the Tayama report,

respondents submitted the 1994 Fresh Cut Roses: Issues in the

Estimation of Dumping in the U.S. Market (Botero Report) which contains

a statistical analysis of the United States, European, and Canadian

markets and seeks to demonstrate the lack of correlation between price

movements in the third country and U.S. markets. The Botero Report

provides three types of statistical analyses which, according to

respondents, support their contention that third country prices should

not be used due to the ``different equilibrium conditions'' of these

markets as compared to the U.S. market for roses. First, Botero

analyzes price movements within the United States, Europe and Canada,

from which he concludes that different market forces are at work (i.e.,

price and quantity movements within Europe and Canada are negatively

correlated and price and quantity movements within the United States

are positively correlated). Second, Botero analyzes price and quantity

movements across markets and concludes that there is no correlation

between the U.S. market and either the European or Canadian markets.

Third, he estimates the price cycles for roses in the U.S., European

and Canadian markets and concludes that ``the seasonal patterns of the

two markets [U.S. and European, U.S. and Canadian] are different and

therefore monthly price comparisons do not reflect price

discrimination.'' Botero asserts that these test results demonstrate

that prices in these third country markets should not be compared to

prices in the U.S. market to determine price discrimination.

We have reviewed the Botero Report and have concerns regarding the

data and the statistical parameters used to perform the statistical

analysis on European, Canadian and U.S. rose prices. For example, Dr.

Botero relied on prices that may not be comparable. U.S. prices for a

single hybrid tea variety rose were compared to European prices for all

hybrid tea variety roses; and U.S. import prices, rather than U.S.

domestic prices, were compared to European domestic prices. These

comparisons may be inappropriate--we have no basis to conclude that a

single hybrid tea rose is representative of all hybrid tea roses, or

that U.S. import prices are representative of U.S. domestic prices.

Moreover, Dr. Botero's F-test results appear to be invalid. Dr. Botero

apparently used the incorrect degrees of freedom--(k,n-2) instead of

(k-1,n-2). More importantly, Dr. Botero appears to have misread the ``F

Table'': he reported the value of Fn-2,k at the 99 percent

confidence level, rather than Fk-1,n-2 at the 99 percent

confidence level. Finally, Dr. Botero provided no explanation of his

use of a 99 percent confidence level.

In light of these questions, the Department, at this stage, finds

the information on the record inconclusive as to whether the third

country and U.S. markets are negatively correlated. We intend to

further evaluate the Botero Report for purposes of making our final

determination. Further details relating to this issue are set forth in

the September 12, 1994, memorandum to Barbara Stafford.

Peak to Non-Peak Factor

Third country sales in Flowers were not made over the entire year.

They were made only in peak months. The record established that

Colombian growers had little access to the European auction system and

were only able to export flowers to Europe during those months when

domestic supply was low. On the other hand, the Colombian growers

targeted 80 percent of their production to the U.S. market and made

sales to the United States in every month. As a result, the Department

determined that it was unable to make contemporaneous sales comparisons

in all months and would be required to compare low-value U.S. sales in

off-peak months with high-value third country sales in peak months.

The circumstances on the record in this case are somewhat

different. One of the three companies reporting third country sales has

year-round sales to a single third country market, while the other two

companies have third country sales in every month in the markets

selected by the Department pursuant to Sec. 353.49(c). Therefore, it

appears that the Department may have sufficient contemporaneous sales

in the aggregate for all twelve months of the POI. Further, the

Department has based FMV on two six-month averages; the use of such

averages also should reduce any potential for distortion.

Perishability Factor

The third factor considered in Flowers was related to the role of

perishability on production and sale. This factor included: 1) the

extreme perishability of the subject merchandise; 2) the inability of

producers to control short-term production; and 3) the inability to

store or make alternative use of the product. The Department found that

the respondents planned 80 percent of their production around the U.S.

market and sold excess production in markets in which they did not

necessarily plan to sell. These factors combined to create a ``chance

element'' to third country sales which raised the concern that any

observed price differences would be unrelated to dumping.

We note that there are substantial similarities between flowers and

roses. First, roses, like flowers, are extremely perishable. Second,

rose growers have relatively greater, though still minor, control over

short-term production than flower growers because of their ability to

pinch back buds. Third, as with flowers, roses cannot be stored and we

note that there are only very minor alternative uses (e.g., drying).

While some respondents are able to sell a small percentage of their

production to markets other than the United States as a regular part of

their business plan, which reduces to some extent the ``chance''

element to selling excess production, we note that this was also true

with some companies in Flowers. See Methodological Issues Concerning

Colombian Cut Flowers, Sparks Commodities, Inc. 1989.

In view of the questions raised above, we conclude that, for the

purpose of the preliminary determination, the evidence at this stage is

not sufficient to justify departure from our normal practice of

reliance on third country prices. However, we intend to revisit this

issue in our final determination in light of further information and

analysis with regard to the three factors set out in Flowers as well as

any other facts that might be relevant on this issue.

Currency Conversion

Because certified exchange rates for Ecuador were unavailable from

the Federal Reserve, we made currency conversions for expenses

denominated in Ecuadorian sucres based on the official monthly exchange

rates in effect on the dates of the U.S. sales as published by the

International Monetary Fund.

Verification

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

information used in making our final determination.

Critical Circumstances

In the petition, petitioner alleged that ``critical circumstances''

exist with respect to importation of roses. However, we did not

initiate a critical circumstances investigation because, since roses

are extremely perishable, it is not possible to accumulate an inventory

of roses in order to evade a potential antidumping duty order.

Therefore, we determined that an allegation that critical circumstances

exist is without merit (See the September 12, 1994, concurrence

memorandum).

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 fresh cut

roses from Ecuador, as defined in the ``Scope of Investigation''

section of this notice, 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 the posting of a bond equal to the estimated preliminary dumping

margins, as shown below. The suspension of liquidation will remain in

effect until further notice. The weighted-average dumping margins are

as follows:

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

Margin

Manufacturer/Producer/Exporter percent

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

Arbusta-Agritab (and its related farms Agrisabe, Agritab,

and Flaris)............................................... 39.85

Florin S.A. (and its related farms Cuentas En Participacion

Florinsa-Ertego (Florinsa Cotopaxi) and Exflodec)......... 84.72

Guanguilqui Agro Industrial S.A. (and its related farm

Indipasisa)............................................... 20.60

Inversiones Floricola S.A. (and its related farm Flores

Mitad Del Mundo S.A.)..................................... 10.34

All others................................................. 49.76

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

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 whether imports of the subject merchandise are

materially injuring, or threaten material injury to, the U.S. industry,

before the later of 120 days after the date of the preliminary

determination or 45 days after our final determination.

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 October 17, 1994, and

rebuttal briefs no later than October 24, 1994. In accordance with 19

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

interested parties an opportunity to comment on arguments raised in

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

October 25, 1994, at 9:30 a.m. 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 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 in the Federal Register. The request 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.

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

Act (19 U.S.C. 1673b(f)) and 19 CFR 353.15(a)(4).

Dated: September 12, 1994.

Susan G. Esserman,

Assistant Secretary for Import Administration.

[FR Doc. 94-23196 Filed 9-19-94; 8:45 am]

BILLING CODE 3510-DS-P