Final Determination of Sales at Not Less Than Fair Value: Saccharin From Korea

DEPARTMENT OF COMMERCE

[A-580-823]

Final Determination of Sales at Not Less Than Fair Value:

Saccharin From Korea

AGENCY: Import Administration, International Trade Administration,

Department of Commerce

EFFECTIVE DATE: November 15, 1994.

FOR FURTHER INFORMATION CONTACT: Thomas McGinty or Peter Wilkniss,

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) 482-5055 and 482-0588, respectively.

FINAL DETERMINATION: We determine that saccharin from Korea is not

being, nor is likely to be, sold in the United States at less than fair

value, as provided in section 733 of the Tariff Act of 1930, as amended

(the ``Act'').

Case History

Since the publication of the preliminary determination in the

Federal Register on June 23, 1994 (59 FR 32416), the following events

have occurred. On July 6, 1994, pursuant to section 353.20(b)(1) of the

Department's regulations, petitioner requested that the final

determination in this case be postponed. On July 19, 1994, the

Department published in the Federal Register a notice postponing the

deadline for the final determination in this case until November 7,

1994. On July 12, 1994, at the request of the Department, Jeil Moolsan

Company Inc. (``JMC'') submitted a revised response to the Department's

cost of production questionnaire. On July 18, 19, and 20, 1994, the

Department verified JMC's sales information at JMC's offices in Seoul,

South Korea. On July 25, 26, and 27, 1994, the Department verified

JMC's cost of production data at JMC's office in Seoul, South Korea. On

September 16, 1994, and September 23, 1994, petitioner and respondent

submitted case and rebuttal briefs to the Department. On September 30,

1994, the Department held a public hearing in this investigation.

Scope of the Investigation

The product covered by this investigation is saccharin. Saccharin

is a non-nutritive sweetener used in beverages and foods, personal care

products such as toothpaste, table-top sweeteners, animal feeds, and

metalworking fluids. Three forms of saccharin are typically available

as referenced in the American Chemical Society's Chemical Abstract

Service (``CAS''). These forms are sodium saccharin (CAS #128-44-9),

calcium saccharin (CAS #6485-34-3), and acid (or insoluble) saccharin

(CAS #81-07-2). Saccharin is classified under subheading 2925.11.00 of

the Harmonized Tariff Schedule of the United States (``HTS''). The

scope of this investigation includes all types of saccharin imported

under this HTS subheading including research and specialized grades.

The HTS subheading is provided for convenience and customs purposes.

Our written description of the scope of this investigation is

dispositive.

Period of Investigation

The period of investigation (``POI'') is June 1, 1993, through

November 30, 1993.

Product Comparisons

In making our fair value comparisons, in accordance with the

Department's standard methodology, we first compared merchandise

identical in all respects. If no identical merchandise was sold, we

compared the most similar merchandise, as determined by the model-

matching criteria contained in Appendix V of the questionnaire

(``Appendix V'') (on file in Room B-099 of the main building of the

Department of Commerce (``Public File'')).

Regarding level of trade, JMC reported and we verified that JMC

sells only to distributors in the United States and to both

distributors and trading companies in the U.K. (U.K. sales were used

for foreign market value because the home market was determined not to

be viable, see, ``Foreign Market Value'' section below.) However, JMC

reported that there is no difference between prices or conditions of

sale made at the distributor and trading company levels of trade. We

examined this issue at verification and found no evidence that JMC's

prices or conditions of sale differed on the basis of level of trade.

Therefore, in keeping with past practice (see, e.g., Final Results of

Administrative Review: Antifriction Bearings and Parts Thereof from the

Federal Republic of Germany, et al. (56 FR 31692, 31709-11; July 11,

1991), and in accordance with 19 CFR 353.58, we have compared JMC's

U.S. sales to distributors to U.K. sales to either distributors or

trading companies, without distinction, in determining whether or not

JMC made sales at less than fair value.

Fair Value Comparisons

To determine whether JMC's sales for export to the United States

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. With the exception of one sale to the United States, all

comparisons of U.S. and third country sales involved identical

merchandise. For the U.S. sale which was compared to a sale of similar

merchandise, we made an adjustment for physical differences in

merchandise pursuant to 19 CFR 353.57.

United States Price

Because JMC's U.S. sales of saccharin were made to unrelated

purchasers prior to importation into the United States, and the

exporter's sales price methodology was not indicated by other

circumstances, we based USP on the purchase price (``PP'') sales

methodology in accordance with section 772(b) of the Act.

We calculated JMC's PP based on packed and delivered prices to

unrelated customers in the United States. We made deductions to the

U.S. price, where appropriate, for foreign brokerage and handling,

containerization, marine insurance, and freight expenses and charges.

In accordance with section 772(d)(1)(B) of the Act, we made an addition

to the U.S. price for the amount of import duties imposed on inputs

which were subsequently rebated upon exportation of the finished

merchandise to the United States.

Foreign Market Value

In order to determine whether there was a sufficient volume of

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

FMV, we compared the volume of home market sales of subject merchandise

to the volume of third country sales of subject merchandise, in

accordance with section 773(a)(1)(B) of the Act. As a result, we

determined that the home market was not viable. Therefore, we have

based FMV on JMC's sales to the largest third country market by volume,

the U.K., in accordance with 19 CFR 353.49(b).

We calculated FMV based on delivered prices, inclusive of packing,

to customers in the U.K. From the delivered price, we deducted third

country packing and added U.S. packing costs. In light of the decision

of the court of Appeals for the Federal Circuit in Ad Hoc Committee of

AZ-NM-TX-FL Producers of Gray Portland Cement v. United States, 13 F3d

398 (Fed. Cir. 1994), we deducted post-sale movement charges from FMV

under the circumstance-of-sale provision of 19 CFR 353.56(a). Pursuant

to section 773(a)(4)(B) of the Act and 19 CFR 353.56(a)(2), we also

made circumstance-of-sale adjustments for differences in quality

inspection charges and expenses related to securing credit including:

advise charges, postage, interest paid to the bank in relation to the

terms of payment, and outside bank charges. In addition, we added the

amount of import duties imposed on inputs which as subsequently rebated

upon exportation of the finished merchandise to the U.K.

Cost of Production

Petitioner alleged that JMC made third country sales during the POI

at prices below the cost of production (``COP''). Based on petitioner's

allegations, we concluded that we had reasonable grounds to ``believe

or suspect'' that sales were made below COP. Thus, we initiated a COP

investigation pursuant to section 773(b) of the Act.

We performed a product-specific cost test, in which we examined

whether each home market sale was priced below that product's COP. The

Department defines COP as the sum of direct material, direct labor,

variable and fixed factory overhead, general expenses, and packing

expense, in accordance with 19 CFR 353.51(c). (See, e.g., Preliminary

Results of Antidumping Duty Administrative Review: Polyethylene

Terephthalate Film, Sheet, and Strip from the Republic of Korea (59 FR

35099; July 8, 1994).) We compared the COP for each product to the

third country unit price, net of movement expenses.

With the following exceptions, we relied on submitted and verified

COP information. At verification, we found that JMC included commission

and dividend income as an offset to G&A expenses in its cost of

production response. Since dividend income relates to the investment

activities of JMC and not to JMC's production activity, we have

adjusted JMC's reported G&A expenses to exclude dividend income as an

offset to JMC's G&A expense. Likewise, commission income is related to

the activities of JMC's retail division, not JMC's cost of producing

saccharin. Therefore, we have also excluded commission income as an

offset to JMC's G&A expense.

In accordance with section 773(b) of the Act, we also examined

whether JMC's third country sales were made below COP in substantial

quantities over an extended period of time, and whether such sales were

made at prices that would permit the recovery of all costs within a

reasonable period of time in the normal course of trade.

To satisfy the requirement of section 773(b)(1) that below-cost

sales be disregarded only if made in substantial quantities, the

following methodology was used: For each product where less than ten

percent, by quantity, of the third country sales made during the POI

were made at prices below the COP, we included all sales of that model

in the computation of FMV. For each product where ten percent or more,

but less than 90 percent, of the home market sales made during the POI

were priced below COP, we excluded from the calculation of FMV those

third country sales which were priced below COP, provided that the

below-cost sales of that product were made over an extended period of

time. Where we found that more than 90 percent of JMC's sales were at

prices below the COP, and such sales were made over an extended period

of time, we disregarded all sales of that product and calculated FMV

based on constructed value.

In accordance with section 773(b)(1) of the Act, in order to

determine whether below-cost sales had been made over an extended

period of time, we compared the number of months in which below-cost

sales occurred for each product to the number of months in the POI in

which that product was sold. If a product was sold in three or more

months of the POI, we did not exclude below-cost sales unless there

were below-cost sales in at least three months during the POI. When we

found that sales of a product only occurred in one or two months, the

number of months in which the sales occurred constituted the extended

period of time; i.e., where sales of a product were made in only two

months, the extended period of time was two months, where sales of a

product were made in only one month, the extended period of time was

one month. (See Preliminary Results and Partial Termination of

Antidumping Duty Administrative Reviews: Tapered Roller Bearings, Four

Inches or Less in Outside Diameter, and Components Thereof, From Japan

(58 FR 69336, 69338, December 10, 1993). We examined JMC's model-

specific COP data, as corrected based on our findings at verification,

and found no sales below COP.

Currency Conversion

We made currency conversions based on the official exchange rates

in effect on the dates of the U.S. sales as certified by the Federal

Reserve Bank of New York.

Margin Calculation

Based on the calculation methodology outlined above, we calculated

a margin of zero percent for U.S. sales of saccharin from Korea.

Verification

As provided in section 776(b) of the Act, we verified information

provided by the respondent using standard verification procedures,

including the examination of relevant sales and financial records, and

selection of original source documentation containing relevant

information.

Interested Party Comments

Comment 1

Petitioner argues that evidence has been uncovered in this

investigation which suggests that JMC employs a dual cost accounting

system. Under such a system, JMC could arrange for dual pricing from

suppliers and assign all low cost inputs to either home market or third

country production in order to minimize below cost sales. Further,

petitioner argues that the impact of such a system could be more

distortive in a situation where the home market is determined to be not

viable. This would allow all high cost inputs to be allocated to

domestic production thereby decreasing the likelihood that the

Department's cost analysis would find sales below cost in the third

country market.

According to petitioner, in Certain Circular Welded Carbon Steel

Pipes and Tubes from the Republic of Korea, 49 FR 9926 (March 16,

1984), the Department reasoned that where different costs are

associated with producing for export as compared with domestic

production and the merchandise is identical, it is appropriate to use

the average cost of producing that merchandise in calculating cost of

production or constructed value. Therefore, when presented with

evidence that a respondent maintains two distinct cost systems, the

Department has no alternative but to disregard the respondent's COP

information and apply the best information available. Petitioner

asserts that such a situation exists in this investigation.

Respondent argues that JMC does not maintain a dual cost system.

Respondent outlines the verification procedures employed by the

Department to verify the accuracy and completeness of JMC's cost

accounting system and argues that the Department conducted a complete

verification of JMC's cost of production response and found no evidence

to indicate that such a system exists.

Respondent points out that the word ``export'' referred to by

petitioner as evidence of the existence of a dual cost system pertains

to JMC's cost of sales accounts. These sales accounts are used by JMC

to track the cost of sales to each market at any given time. However,

JMC's production costs across markets for identical merchandise are

identical.

DOC Position

We disagree with petitioner. We conducted a thorough verification

of JMC's cost accounts and cost of production questionnaire response

and found no evidence that JMC employs a dual cost system as alleged by

petitioner. The only evidence petitioner points to is that JMC

maintains separate accounts for the cost of export and domestic sales.

However, based on our review of JMC's accounting system, we are

satisfied that the per unit cost of export and domestic sales are not

segregated and that no additional costs have been allocated to either

home market or third country sales.

Comment 2

Petitioner contends that the Department should disallow any offsets

to JMC's general and administrative expenses (``G&A'') that cannot be

tied to the production of the subject merchandise, but should include

in G&A any losses on foreign currency transactions and translations.

Petitioner points to two instances in JMC's cost of production

submission where G&A offsets are claimed and should be disallowed.

First, petitioner cites the cost verification report where the

Department stated that JMC had included dividend and commission income

as an offset to G&A, yet neither related to the production of

saccharin. Second, petitioner argues that ``miscellaneous income''

should not be allowed as an offset, since there is no evidence that

this income is related to the production of the subject merchandise.

Petitioner argues that foreign exchange losses on foreign currency

transactions and translations should be included in the G&A

calculation, since all company debt is fungible. Foreign exchange

gains, however, should be excluded from G&A, unless it can be proven

that such gains are directly related to the production of subject

merchandise.

Respondent agrees with petitioner that the commission and dividend

income is not directly related to the production of the subject

merchandise. Respondent agrees that commission income should not be

allowed as an offset to G&A, but since the dividend income is generated

from assets which are classified in the ``current assets'' section of

JMC's balance sheet and represents a use of working capital, dividend

income is properly reported as an offset to G&A.

Respondent argues that miscellaneous income is also properly

claimed as an offset to G&A because, contrary to petitioner's

contention, this income is associated with JMC's manufacturing

operations. Respondent points to the verified cost response at page 20,

supplemented by Attachment D-11. According to respondent, miscellaneous

income consists of (1) an import agent fee, (2) commission income for

advertising, and (3) sales of iron scrap.

Respondent asserts that, contrary to petitioner's brief, gains and

losses resulting from exchange rate fluctuations between the date of

shipment and the date of payment, and gains and losses from translation

of foreign currency loans, are separate and unrelated issues.

Respondent asserts that gains and losses resulting from exchange rate

fluctuations between the date of shipment and date of payment are not

part of COP and thus have been appropriately excluded from the COP

calculation. Respondent argues, however, that translation gains and

losses related to debt should both be included in the calculation of

interest expense.

DOC Position

We agree with petitioner with respect to JMC's treatment of

commission and dividend income. Since commission and dividend income

are not related to JMC's production of the subject merchandise (see

``Cost of Production'' section of this notice), they cannot be included

in the G&A calculation. Therefore, we have adjusted JMC's reported G&A

expense accordingly.

We agree with respondent that miscellaneous income should be

permitted as an offset to G&A because this income is related to JMC's

production operations. Therefore, we have included this income as an

offset to G&A, as reported.

We agree with respondent, in part, with respect to foreign exchange

gains and losses in that transaction and translation gains and losses

should be examined separately. Foreign exchange gains and losses

related to purchases of inputs to produce the subject merchandise

should be included in COM. However, since we cannot conclusively

determine whether JMC's net exchange loss on transactions was related

specifically to such purchases, we consider it inappropriate to include

the net loss in COM. Instead, we would normally include the net

exchange loss in the G&A calculation, but since its inclusion would

have virtually no effect on COP, we have not recorded such an

adjustment.

We agree with respondent that foreign exchange gains and losses on

year-end translation of financial assets and liabilities should be

included in JMC's calculation of interest expense. But since JMC has

net interest income in excess of these losses, there is no effect on

COP. Therefore, no adjustment was made to JMC's interest expense for

these losses.

Comment 3

Respondent contends that, contrary to the Department's sales

verification report, JMC's reporting of quality inspection expense on a

per kilogram basis is correct because JMC's gross unit price, as

reported, is also on a per kilogram basis. Therefore, it makes no

difference whether the adjustment for this expense is made on a per

kilogram basis or as a percentage of the FOB price.

DOC Position

We agree with respondent. In the verification report, we noted that

JMC had incurred this expense on the basis of value, not quantity.

However, because JMC's gross unit price is reported on the same basis

there is no need to adjust JMC's reported quality inspection expense.

ITC Notification

In accordance with section 735(d) of the Act, we have notified the

ITC of our determination.

Notification to Interested Parties

This notice serves as the only reminder to parties subject to

administrative protective order (APO) of their responsibility

concerning the return or destruction of proprietary information

disclosed under APO in accordance with 19 CFR 353.34(d). Failure to

comply is a violation of the APO.

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

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

Dated: November 7, 1994.

Susan G. Esserman,

Assistant Secretary for Import Administration.

[FR Doc. 94-28161 Filed 11-14-94; 8:45 am]

BILLING CODE 3510-DS-P