Notice of Final Determination of Sales at Less Than Fair Value: Saccharin from the People's Republic of China

DEPARTMENT OF COMMERCE

[A-570-829]

Notice of Final Determination of Sales at Less Than Fair Value:

Saccharin from the People's Republic of China

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: November 15, 1994.

FOR FURTHER INFORMATION CONTACT: Jennifer Yeske or Penelope Naas,

Office of Countervailing Investigations, Import Administration,

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

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

telephone: (202) 482-0189 or (202) 482-3534, respectively.

FINAL DETERMINATION: The Department of Commerce (``the Department'')

determines that saccharin from the People's Republic of China (PRC) is

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

value (LTFV), as provided in section 735 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 preliminary determination in this investigation (59 FR

32412, June 23,1994), the following events have occurred.

On July 1, 1994, in accordance with section 735(a)(2)(A) of the

Act, the respondents in this investigation requested that the

Department postpone its final determination in this investigation until

135 days after the date of publication of the preliminary

determination. Accordingly, the Department postponed its final

determination until November 7, 1994 (59 FR 37969, July 26, 1994).

From August 4 through August 13, 1994, Department officials

conducted verification of the responses of the responding exporters--

Shanghai KJ Import and Export Corporation (``Shanghai IE'') and Suzhou

Cereals Import and Export Corporation (``Suzhou IE'') ; and the

producers--Suzhou Auxiliary Agent Factory, Shanghai No. 6

Pharmaceutical Factory, and the Wangxin Branch of Shanghai No. 6

Pharmaceutical Factory.

Petitioner and respondents submitted case and rebuttal briefs on

September 23 and September 29, 1994, respectively. A public hearing was

held on October 4, 1994.

Scope of 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 Registry #128-44-

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

saccharin (CAS #81-07-2). Saccharin is currently classifiable under

subheading 2925.11.00 of the Harmonized Tariff Schedules of the United

States (HTSUS). The scope of this investigation includes all types of

saccharin imported under this HTSUS subheading including research and

specialized grades.

Although the HTSUS 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.

Separate Rates

Both of the two participating exporters, Shanghai IE and Suzhou IE,

have requested a separate rate. We confirmed at verification that both

companies are ``owned by all the people.'' In the Final Determination

of Sales at Less Than Fair Value: Silicon Carbide from the People's

Republic of China, 59 FR 22585, (May 2, 1994) (Silicon Carbide), we

found that the PRC central government had devolved control of state-

owned enterprises, i.e., enterprises ``owned by all the people.'' As a

result, we determined that companies owned ``by all the people'' were

eligible for individual rates, if they met the criteria developed in

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 this analysis, the

Department assigns a separate rate only when an exporter can

demonstrate the absence of both de jure1 and de facto2

governmental control over export activities.

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\1\Evidence supporting, though not requiring, a finding of de

jure absence of central control includes: (1) Absence of restrictive

stipulations associated with an individual exporter's business and

export licenses; (2) any legislative enactments decentralizing

control of companies; or (3) any other formal measures by the

government decentralizing control of companies.

\2\The factors considered include: (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).

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De Jure Analysis

The PRC laws placed on the record of this case establish that the

responsibility for managing companies owned by ``all the people'' has

been transferred from the government to the enterprise itself. These

laws include: ``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).3 The 1988 Law states that enterprises have the right

to set their own prices (see Article 26). This principle was restated

in the 1992 Regulations (see Article IX).

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\3\While the PRC government has devolved control over state-

owned enterprises, the government has continued to regulate certain

products through export controls. The Export Provisions list

designates those products subject to direct government control.

Saccharin does not appear on the Export Provisions list and is not,

therefore, subject to the constraints of these provisions.

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Consistent with Silicon Carbide, we determined that the existence

of these laws demonstrates that Shanghai IE and Suzhou IE, companies

owned by ``all the people,'' are not subject to de jure control. In

light of reports4 indicating that laws shifting control from the

government to the enterprises themselves have not been implemented

uniformly, an analysis of de facto control is critical in determining

whether respondents are, in fact, subject to governmental control.

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

\4\See ``PRC Government Findings on Enterprise Autonomy,'' in

Foreign Broadcast Information Service-China-93-133 (July 14, 1993)

and 1992 Central Intelligence Agency Report to the Joint Economic

Committee, Hearings on Global Economic and Technological Change:

Former Soviet Union and Eastern Europe and China, Pt.2 (102 Cong.,

2d Sess)

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

De Facto Control Analysis

We analyze below the issue of de facto control based on the

criteria set forth in Silicon Carbide.

Suzhou IE

In the course of verification, we confirmed that Suzhou IE's export

prices are not set, or subject to approval, by any government

authority. This point was supported by the company's sales

documentation, company correspondence, and confirmed through

questioning of a Suzhou Commission of Foreign Trade and Economic

Cooperation (COFTEC) representative. Through an examination of sales

documents pertaining to U.S. saccharin sales, we also noted that Suzhou

IE has the authority to negotiate contracts, including price, with its

customers without government interference.

We confirmed, through an examination of bank documents, that Suzhou

IE has the authority to borrow freely, independent of government

authority. We also confirmed that Suzhou IE has negotiated other

contracts independent of government authority. For instance, the

company has (1) recently entered into a real estate venture with one

Chinese and one foreign partner to purchase a building south of Suzhou,

(2) leased the first floor of its current building to a garment

manufacturer, and (3) purchased an automobile for company use.

We have determined that Suzhou IE has autonomy from the central

government in making decisions regarding the selection of management.

At verification, we found that the current general manager joined the

company in 1992, following the retirement of his predecessor. We

learned at verification that Suzhou IE recruited the current general

manager from the Suzhou/China Council for Promotion of International

Trade as it wanted a more ``internationally'' minded leader. We also

learned that the rest of management is typically selected by the

General Manager based on the Suzhou IE staff's opinion of the

competency of the candidate. We also found that an employees' committee

exists at the company made up of approximately one-third of all staff.

However, according to the company, this committee operates informally,

addressing issues such as wages and employee absences. Moreover, the

Suzhou COFTEC representative confirmed that the company does send the

names of its managers to Suzhou COFTEC, but we learned at verification

that this is only so COFTEC will know who to contact at the company to

disseminate and gather information.

Finally, we found that during the POI, although required to

exchange a certain percentage of its foreign exchange at the official

exchange rate, Suzhou IE retained proceeds from its export sales and

made independent decisions regarding disposition of profits and

financing of losses. The company's financial and accounting records

supported this conclusion.

Based on an analysis of all these factors, we have determined that

Suzhou IE is not subject to de facto control by governmental

authorities.

Shanghai IE

In our verification of whether Shanghai IE is subject to de facto

control, we found additional information regarding the company's

ownership. We confirmed that it was a start-up company formed in 1992

and, according to its business license, is ``owned by all the people.''

The company was established with the sponsorship and capital of the

general manager and four other investors who work for other PRC

companies. These individuals constitute Shanghai IE's current board of

directors. They contributed capital to the company and also obtained a

loan from another PRC company. According to information reviewed at

verification, these investors decide how to handle and distribute the

profits of the company.

In the course of verification, we also confirmed that Shanghai IE's

export prices are not set, or subject to approval, by any government

authority. This point was supported by the company's sales

documentation, company correspondence, and confirmed through

questioning of a Shanghai Commission of Foreign Trade and Economic

Cooperation (COFTEC) representative. Through an examination of sales

documents pertaining to U.S. saccharin sales, we also noted that

Shanghai IE is able to negotiate contracts, including price, with its

customers without government interference.

We confirmed, through an examination of bank documents, that

Shanghai IE has the authority to borrow freely, independent of

government authority. We also confirmed that Shanghai IE has negotiated

other contracts independent of government authority. For instance, the

company has: (1) Leased an office in the PuDong area of Shanghai at a

specified rent, (2) negotiated a rental agreement with a warehousing

company, and (3) purchased an automobile for company use.

We have also determined that Shanghai IE has autonomy from the

central government in making decisions regarding the selection of

management. At verification, we found that management is selected by

the company with no outside involvement. We also learned at

verification that the general manager is chosen by the board of

directors (i.e., the original investors) of the company. The general

manager, in turn, chooses all of the company employees, with the advice

of current employees. We reviewed an employee contract at verification

which supported this explanation. Moreover, the Shanghai COFTEC

representative stated that the company does not need to receive any

approval from COFTEC regarding its management selections.

Finally, we found that during the POI, although required to

exchange a certain percentage of its foreign exchange at the official

exchange rate, Shanghai IE retained proceeds from its export sales and

made independent decisions regarding disposition of profits and

financing of losses. The company's financial and accounting records

supported this conclusion.

Based on an analysis of all these factors, we have determined that

Shanghai IE is not subject to de facto control by governmental

authorities.

Conclusion

In the case of both Suzhou IE and Shanghai IE, the record

demonstrates an absence of de jure and de facto government control.

Accordingly, we determine that each of these exporters should receive a

separate rate.

Market-Oriented Industry Claim

Respondents have argued that they should be treated as a market-

oriented industry (``MOI''). However, we received MOI response

information from only two saccharin producers in the PRC. We have no

information on the remaining producers, of which there are at least

four (according to information on the record provided by the Ministry

of Foreign Trade and Economic Cooperation (``MOFTEC'')). Consequently,

we have no basis to determine whether the production and sales

practices of these producers are representative of PRC saccharin

producers as a whole. Therefore, consistent with the policy outlined in

the investigation of Certain Helical Spring Lock Washers from the PRC,

(See, January 19, 1993, Memorandum from David L. Binder to Richard W.

Moreland), we have determined that the PRC saccharin producers are not

an MOI.

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: Certain Paper Clips from the People's Republic of

China, 59 FR 51168 (October 7, 1994)). No information has been provided

in this proceeding that would lead us to overturn our former

determinations. Therefore, in accordance with section 771(18)(c) of the

Act, the Department has treated the PRC as an NME for purposes of this

investigation.

Surrogate Country

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 (1) at a level of economic

development comparable to that of the nonmarket economy country, and

(2) significant producers of comparable merchandise. Of the countries

that have been determined to be economically comparable to the PRC,

evidence on the record of this case (i.e., export statistics data)

indicates that India and Indonesia are significant producers of

comparable merchandise, food-grade chemicals. We recognize that the

food-grade chemical category is broad. However, because there are a

significant variety of methods by which saccharin is produced, we have

no means by which we can narrow this category further. Therefore, we

have determined that it is appropriate to select from among the

countries that are significant producers of a broad range of food-grade

chemicals which encompass a variety of processes and input

combinations. This method is reasonable particularly in light of the

unavailability of reliable data on any appropriate export prices from

the list of potential surrogates. (For a further discussion of the

comparability of food-grade chemicals, please see November 7, 1994,

Memorandum from Team to Susan Kuhbach).

In order to select a single surrogate from among those countries

that meet the statutory criteria, we have reviewed the data that has

been submitted and that we have been able to develop on factor values

from these countries. We compared the Indian and Indonesian values

against data developed from export statistics from five countries

(Canada, Germany, Japan, South Korea, and the United States) that

export the materials to these two countries. We rejected Indian and

Indonesian values that were not reasonably comparable to the median. We

then sought to ascertain which of the two countries provided a more

complete data base for valuing the factors of production. Upon the

basis of the above analysis, we selected Indonesia as our primary

surrogate. Accordingly (except for certain inputs described below) we

have relied upon Indonesian prices to value the PRC producers' factors

of production.

Fair Value Comparisons

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

States by Suzhou IE and Shanghai IE 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.

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, and because the exporters' sales

price methodology was not indicated by any other circumstances.

For those exporters that responded to the Department's

questionnaire, we calculated purchase price based on packed, CIF

delivered prices to unrelated purchasers in the United States. We made

deductions for containerization expenses and foreign inland freight

based on Indonesian values. We made deductions for foreign handling and

brokerage fees, and marine and inland insurance based on Indian values

because we lacked Indonesian values. We also deducted ocean freight

using international freight rates from Shanghai to New York obtained by

the Department.

Foreign Market Value

In accordance with section 773(c) of the Act, we calculated FMV

using factors of production reported by the factories. The factors used

to produce saccharin include materials, labor, and energy. To calculate

FMV, the reported quantities were multiplied by the appropriate

surrogate values for the different inputs. For each of the factories,

we made adjustments to material costs for recovery of by-products in

the production process.

Our primary data source in Indonesia is the import data as reported

in the Indonesian Foreign Trade Statistical Bulletin. We compared the

Indonesian import price to the median of these five export prices, and

where the Indonesian import price was reasonably comparable to the

median, we used the Indonesian import value for the PRC production

factor. Where the import data was determined to be aberrational, we

turned to Indonesian export data and performed the same analysis. Where

the Indonesian export prices were also found to be aberrational, we

first used non-aberrational Indian import statistics, and where those

were not available, we then examined domestic prices in India (as

reported in Chemical Business and Indian Chemical Weekly) by applying

the comparison noted above. Finally, if the prices in both comparable

countries were found to be aberrational, we used the median export

prices.

We adjusted the factor values, when necessary, to the POI, using

wholesale price indices (WPIs) published by the International Monetary

Fund (IMF). We also converted factor values, when necessary, to U.S.

dollars using rates published by the IMF. For the chemicals methanol

and toluene, we have converted information on the record from liters to

kilograms, using the conversion rates used by responding companies and

confirmed at verification.

We used Indonesian transportation rates to value inland freight

between the source of the production factor and the saccharin

factories. In those cases where the respondent failed to provide any

information on transportation distances and modes, we applied, as BIA,

the most expensive distance/mode combination that was available from

the surrogate information we had selected.

To value electricity, we used publicly-available, published

information (``PAPI'') from the Electric Utilities Data Book for the

Asia and Pacific Region (January 1993), published by the Asian

Development Bank. This source provides an electricity rate for

industrial use from our preferred surrogate country. We adjusted this

value to the POI using the WPIs published by the IMF. To value

distilled water, we have used the purest water price for Indonesia as

published in Water Utilities Data Book for the Asian and Pacific Region

(November 1993) by the Asian Development Bank. To value coal, we used

the Indonesian Foreign Trade Statistical Bulletin for January 1993

through November 1993.

To value labor amounts, we used Indonesian wage rates reported in

the International Labor Office's 1993 Yearbook of Labor Statistics. We

adjusted these values using the CPIs published by the IMF. We lacked

Indonesian values for factory overhead. Therefore, to value factory

overhead, we calculated percentages based on elements of industry group

income statements from The Reserve Bank of India Bulletin (RBI),

December 1993. For general expense percentages, we used the RBI data

and allocated total general expenses over the total RBI-based

materials, labor, and overhead cost calculated for each factory. The

RBI data yielded a general expense percentage greater than the ten

percent statutory minimum. For profit, we used the statutory minimum of

eight percent of materials, labor, factory overhead, and general

expenses, because the RBI percentage was less than eight percent.

Acid saccharin is produced using sodium saccharin as an input. At

verification we found that Wangxin failed to report that it had

purchased sodium saccharin to use as an input in its production of acid

saccharin, as well as using its own manufactured sodium saccharin. Nor

did it report how much acid saccharin was produced using the purchased

sodium saccharin. Because we do not know the amount of acid saccharin

produced from purchased sodium saccharin, we cannot adjust each factor

input to calculate separate factors of production for acid saccharin.

To compensate for respondent's understatement of the factors of

production for both sodium and acid saccharin, we have treated

purchased sodium saccharin as an input to both the sodium and acid

saccharin produced by Wangxin.

Best Information Available

Because information has not been presented to the Department to

prove otherwise, only Shanghai IE and Suzhou IE are entitled to

separate dumping margins. Other exporters identified by the PRC

Ministry of Foreign Trade and Economic Cooperation (MOFTEC) have failed

to respond to our questionnaire. Lacking responses from these and other

PRC exporters during the POI, we are basing the PRC country-wide rate

on BIA in accordance with section 776(c) of the Act.

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, 7069-70 (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, the non-responding companies failed to cooperate. Therefore,

we are assigning to them the highest margin in the petition, as

recalculated by the Department for the initiation.

Verification

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

provided by respondents using standard verification procedures,

including the examination of relevant sales and financial records, and

original source documentation.

Interested Party Comments

Comment 1: Surrogate Values

Respondents argue that, pursuant to Chemical Products Corp. v.

U.S., 645 F. Supp. 289 (CIT 1986), the Department should not use

surrogate value information from India because the Indian surrogate

values are hyperinflated and would lead to a skewed raw material cost.

Respondents contend that when the Indian surrogate values are compared

to raw material costs in the United States or the rest of the world,

the Indian values are two to thirty times higher. These surrogate

values are not reflective of the experience in China because,

presumably, the costs in a developing country should be lower than the

costs in a developed country. Moreover, respondents argue that the

Chinese production process is more efficient than petitioner's;

therefore, the Chinese production cost should be lower. Based on this

analysis, a total cost of more than four times the U.S. cost, as the

Department found in its preliminary determination could not be

accurate.

Furthermore, based on the Department's study of Trade Barriers in

India, respondents contend that the Indian Government has implemented a

distortive import policy which requires import licenses and duties as

high as 110 percent for chemical imports. Therefore, values reported in

Indian Import Statistics are not appropriate because they reflect

hyperinflated chemical import costs.

Petitioner argues that, pursuant to the Department's rules and

regulations, and long-standing practice in dealing with NME antidumping

investigations, the Department must use PAPI from India as the

preferred surrogate values for the factors of production.

Petitioner contends that respondents' comparison between surrogate

values in India and raw material costs in the United States is

inappropriate because: (1) Raw material costs in India are more

comparable to raw material costs in the PRC because India is at a level

of economic development comparable to the PRC; (2) respondents do not

purchase raw materials from the United States; and (3) the use of one

U.S. price would entail using other U.S. prices (e.g., labor rates) in

order to maintain consistency.

With respect to the Department's report on Indian foreign trade

barriers, petitioner argues that the report does not support

respondents' argument that the surrogate values used in the preliminary

determination are hyperinflated because: (1) The raw materials

discussed in the report are agricultural and consumer items; chemicals

are not mentioned on the list; (2) regarding import licenses, there is

no evidence that the category ``chemicals and pharmaceuticals''

includes saccharin inputs; (3) the requirement for a license does not

indicate the existence of a tariff; and (4) the report date does not

match the POI.

DOC Position

We have determined that certain Indian import statistics should not

be used (see, ``Surrogate Country'' section of the notice). However, we

disagree with respondents' analysis. We find no basis on the record for

presuming that costs are less in the PRC than in the United States

because the PRC is a developing country or that PRC producers are more

efficient than their U.S. competitors.

We also disagree with petitioner's position regarding use of Indian

PAPI. As discussed above, we have identified both India and Indonesia

as meeting the statutory criteria for selection as a surrogate. We

determined that the Indonesian data were the most complete. Therefore,

we selected Indonesia over India for valuing factors.

Comment 2: BIA vs. BAI

Respondents draw a distinction between the term ``best available

information'' in section 773(c)(1)(B) of the Act for valuing of factors

of production and best information available (``BIA'') within the

meaning of section 776 of the Act. They contend that the Department has

an obligation to thoroughly investigate and obtain the best available

information with respect to values for raw material inputs in the

surrogate country. Respondents argue that they should not be punished

if they do not provide sufficient PAPI information. Rather, the burden

rests on the Department to seek out the best available information.

Petitioner argues that the Department did not use BIA when

selecting surrogate values for India in the preliminary determination.

Rather, the Department cross-checked the values used in the preliminary

determination with values listed in Chemical Weekly, Chemical Business,

and Indian Import Statistics and found them to be the best available

information for use in the preliminary determination.

DOC Position

We agree with petitioner. The Department has made significant,

independent efforts throughout the investigation to obtain PAPI. For

both the preliminary and final determinations, our selection of

surrogate values was based on the best available information on the

record as mandated by the statute. We did not use BIA as respondents

argue.

Comment 3: Phthalic Anhydride

Respondents state that when an input is sourced from a market

economy, the Department should use the actual price paid to value that

input. The Department verified that Shanghai No. 6 purchased phthalic

anhydride from South Korea. Therefore, the Department should use this

verified price to value this input for all three Chinese producers.

Petitioner maintains, however, that there is no information on the

record proving that all of Shanghai No. 6's phthalic anhydride was

sourced from Korea. Because the total amount purchased from Korea is

not known, it cannot be assumed that the phthalic anhydride purchased

by Shanghai No. 6 was used by its subsidiary, Wangxin, for its

production of saccharin. The Korean price, therefore, cannot be

attributed to Wangxin-produced material. Petitioner finds this omission

significant because most of the saccharin sold by Shanghai IE was

produced by Wangxin. Furthermore, petitioner asserts that there is no

evidence to suggest that Suzhou purchases its phthalic anhydride from

Korea or any other market economy source.

DOC Position

As the Department stated in the Final Determination of Sales at

Less than Fair Value: Oscillating Fans and Ceiling Fans from the PRC,

(56 FR 55271, 55275; October 25, 1991) (``Fans''), ``{R}equiring the

use of surrogate values in a situation where actual market-based prices

incurred by a particular firm are available would be contrary to the

statutory purpose.'' (See, also Lasko Metal Products v. United States,

810 F.Supp. 314 (CIT 1992), affirming Fans in this regard). Therefore,

because we verified that Shanghai No. 6 Factory actually imported

phthalic anhydride from South Korea, at this price, we have used the

price it actually paid to value this input.

However, there is no evidence on the record to suggest that either

Wangxin or Suzhou Factory purchased phthalic anhydride from a market

economy supplier. Therefore, we have no basis for applying this price

in valuing phthalic anhydride for these two companies.

Comment 4: Solution Strengths

Respondents maintain that the PAPI sources used in the preliminary

determination could contain prices for chemicals in 100 percent

concentration, rather than prices for the industrial grade chemicals

that are used in the production of saccharin. According to respondents,

adjustments should be made for these ``quality differences'' in

accordance with the Conference Report for the 1988 Omnibus Trade Act

and the 1987 Senate Finance Report. Respondents, therefore, request

that the Department seek out the strength or concentration levels of

the chemical prices and use surrogate values and factor amounts which

reflect the same concentrations.

Petitioner points out that there is no evidence that the surrogate

values are for 100 percent concentration. In fact, several of the

surrogate values used were described as being ``in solution.''

Furthermore, petitioner claims that 100 percent pure concentrates are

not the normal industrial standard. Therefore, the Department should

not assume that the chemicals reported in the PAPI are for 100 percent

concentrations. Rather, the Department should assume that the prices

reflect the standard industrial chemical grades used by the Chinese,

eliminating the need for any adjustments.

DOC Position

We agree with petitioner that there is no basis for assuming that

the PAPI is for chemicals in 100 percent concentration. Although, we do

not know what the exact concentration levels are, we find it reasonable

to assume that the PAPI reflects standard concentrations commonly sold.

Moreover, we verified that the PRC companies do not use special, non-

standard-grade chemicals. Therefore, the import/export statistics that

we have used to value these chemicals have not been adjusted for

concentration levels.

Comment 5: Selling Expenses

Respondents argue that since the RBI data used at the preliminary

determination listed selling expenses (i.e., advertising, selling

commissions, and bad debt expenses) separately, the Department

improperly included these expenses in its constructed value

calculation. Respondents cite Fans in support of the argument that when

selling expenses can be separately identified, they should be excluded

from the SG&A ratio.

DOC Position

In Fans, the Department determined that it would be unreasonable to

add U.S. selling expenses to the FMV without making a corresponding

downward adjustment to account for the selling expenses embodied in the

surrogate SG&A. Likewise, it would be unreasonable to deduct the

surrogate selling expenses from the FMV without making the appropriate

circumstance of sale (``COS'') adjustment (i.e., adding U.S. selling

expenses to the FMV). In this case, respondents have not identified the

direct and indirect selling expenses incurred on their U.S. sales.

Therefore, even if we were to agree that a COS adjustment was

appropriate, we do not have the information with which to make such an

adjustment.

Comment 6: Freight Rates

Respondents argue that prices paid for inputs in the PRC already

include freight costs. Therefore, freight should not be added.

Petitioner states that it is irrelevant whether the Chinese input

prices include freight. The important consideration is whether it is

included in the surrogate prices. If it is not included, the Department

should continue with its past practice and include freight in the cost

of each input.

DOC Position

We agree with petitioner that it is irrelevant whether the prices

paid by the PRC producers include freight, as we are not using PRC

prices. Instead, we are concerned with prices in the surrogate country.

In this investigation, our surrogate values do not include inland

freight. Therefore, we have included the cost of freight in the cost of

each input.

Comment 7: Water, Distilled Water and Ice

Respondents state that in past cases, the Department has treated

water as a component of factory overhead; therefore, the Department

should not calculate separate costs for water, distilled water, or ice.

They argue that distilled water is merely used to wash the sodium

saccharin once it is produced. Therefore, distilled water should be

treated similarly to materials such as the soap and oil used to clean a

machine. Suzhou Factory argues that ice is also an indirect material

used to cool the chemical reaction to a desired temperature. According

to the respondents, normally the consumption of indirect materials such

as ice or distilled water in a manufacturing operation is treated as a

component of factory overhead. They also argue that factory overhead

has both a variable and fixed component and just because a cost varies

with production volume does not preclude it from being a factory

overhead item.

Moreover, Suzhou argues that if the Department does not include

water in factory overhead, then the water used by Suzhou should not be

valued. The Department verified that Suzhou obtains its water from a

nearby river and uses electricity to pump the water for use in the

production process. Suzhou points out that in Final Determination of

Sales at Less than Fair Value: Sebacic Acid from the PRC (59 FR 28053;

May 31, 1994); Final Determination of Sales at Less than Fair Value:

Sulfanilic Acid from the PRC (57 FR 29705; July 6, 1992); and Final

Determination of Sales at Less than Fair Value: Sulfur Dyes, Including

Sulfur Vat Dyes, from the PRC, (58 FR 7537; February 8, 1993) no cost

was attributed to water where the water was pumped from wells in the

plant. According to Suzhou, since the water is not paid for, except for

the cost of the electricity to pump it out of the river, establishing

specific cost items for water and electricity would constitute double

counting.

Petitioner argues that distilled water is not a utility. Since this

``special'' water, which is purchased in significant amounts by

Shanghai No. 6 Factory, is used to wash the saccharin before it is

packaged and sold, it must be regarded as a raw material input.

According to petitioner, this water is used ``to improve the quality of

the mixture'' and, therefore, is used directly in production.

Consequently, petitioner argues that distilled water should not be

included in factory overhead.

Furthermore, petitioner states that ice is used to cool the

reactors--an activity which is directly related to the production of

saccharin. Moreover, the ice is intentionally purchased by respondents,

and is a necessary material because of the manner in which respondents

produce saccharin. Petitioner argues that the Department's policy is

clear--if the material is used in production, then it should be

included in the direct materials calculation.

DOC Position

We agree with respondents that water and ice should be included in

factory overhead. Because it is a normal practice to include such cost

in factory overhead, we find it reasonable to presume that water and

ice are included in the Indian overhead value we used. Therefore, if we

were to assign separate values to water and ice, we would be double-

counting the cost.

However, with respect to the distilled water used by Shanghai No. 6

Factory, we are not persuaded that the input would normally be included

in factory overhead. Unlike other forms of water used in production

facilities, distilled water is specially processed, packaged, and

shipped to customers. Further, it is required for a particular segment

of the production process for which the standard water will not

suffice. This is more typical of items that are accounted for as direct

material inputs, rather than as overhead items. Therefore, we have

valued it separately.

Comment 8: Treatment of Indirect Materials and Trace Chemicals

Respondents argue that various trace chemicals, used when a

particular batch does not meet acceptable standards, and other

chemicals, used to cool the reactors during the production process,

should be treated as components of factory overhead as they would be in

market economy cases. For instance, Shanghai No. 6 Factory claims that

the trace chemicals used in the production of saccharin are not raw

material inputs. According to this company, these items were not used

on a monthly basis, nor were these items substituted for other

chemicals. The company explained that they were used in small amounts

only when something in the batch fell below accepted levels.

Furthermore, Wangxin argues that the chemicals discovered at

verification should not be considered unreported raw material inputs;

rather, they should be treated as auxiliary materials as indicated on

its books. The company argues that the items are used to cool the

production process and should be treated as components of factory

overhead.

Respondents claim that these are examples of indirect materials,

which should be a part of the factory overhead cost. They claim that,

as the Department verified at Suzhou Factory, the Chinese treat

auxiliary materials, depreciation expenses and repair and maintenance

expenses as factory overhead items. Moreover, respondents cite to an

accounting textbook which states that indirect manufacturing costs,

commonly called factory overhead, include minor items, which are

expensed as supplies or indirect materials. In nonmarket economy cases,

the surrogate country supplies the factory overhead ratio, which would

include all such indirect materials. To value these items separately

and include them in the cost would result in double-counting.

Petitioner responds that the Department should not treat so-called

``indirect or auxiliary materials'' as factory overhead. Petitioner

also argues that the frequency of the use of the unreported chemicals

and the issue of whether or not they were substitutes are irrelevant.

The fact remains that the Shanghai No. 6 used these raw materials in

the production of saccharin. According to petitioner, it is not the

Department's concern if a PRC company produces a poor quality product.

Petitioner also suggests that it is irrelevant how the respondents

treat these expenses. Petitioner argues that the Department's policy is

clear--if the material is used in production, then it should be

included in the direct materials calculation.

DOC Position

We disagree with petitioner's characterization of the Department's

practice, i.e., if a material is used in the production process, it

should be included in the direct materials calculation. As stated

above, with respect to water and ice, it is standard practice to

classify certain inputs as variable overhead. The types of inputs in

question here, trace chemicals and chemicals used to cool the reactors,

are infrequently used in the production process and typically are small

in value relative to the total cost of manufacturing the product and,

hence, would be included in overhead. Therefore, we have assumed these

inputs would be included in the Indian overhead value we have used in

our calculations, and have not valued them separately.

Comment 9: Labor Cost

Suzhou Factory argues that it inadvertently included in its

production workers eight administrative people (statisticians).

According to Suzhou, the selling, general and administrative ratio

obtained from the surrogate country will include all administrative

workers. Therefore, the Department should not include the eight

statisticians in the calculation of labor cost.

DOC Position

We disagree with respondent. We confirmed at verification that

these eight statisticians played a significant role in production by

directly monitoring the inputs into the production of saccharin.

Therefore, we do not agree that they would be classified as

administrative workers and included as part of the Indian SG&A value.

Consequently, the labor hours associated with these workers have been

included as part of the labor factor for producing saccharin.

Comment 10: Warehousing

Petitioner notes that at verification the Department discovered

that saccharin can remain at Shanghai IE's warehouse for up to two

weeks before it is shipped to the United States. Since Shanghai IE

provided no transaction-specific data showing specifically how many

days the product remained in the warehouse prior to shipment, the

Department must assume that shipments are warehoused for two weeks.

Using this information, the Department should calculate the cost of

warehousing and subtract this amount from each U.S. sale reported

during the POI.

Shanghai IE argues that it stated at verification that saccharin

typically remains in its warehouse for 1-2 days (in rare instances, the

product may remain at the warehouse for up to two weeks). According to

Shanghai IE, since the saccharin stays in its warehouse usually only

for one to two days, any warehouse charges should be minimal.

DOC Position

We disagree with both petitioner and respondent. The Department

considers warehousing costs to be selling expenses. As noted in the

response to Comment 5 above, we cannot make circumstance of sale

adjustments for selling expenses when, as in the present case, all such

expenses cannot be separately identified in both the FMV and U.S.

price.

Comment 11: Marine Insurance and Ocean Freight

Petitioner notes that respondents claimed at verification that

marine insurance and ocean freight charges were incurred in U.S.

dollars and that the unit amounts reported in the sales responses were

calculated based on amounts recorded in relevant exhibit documents.

However, since respondents did not provide explanations regarding the

derivation of their respective charges at verification, the Department

should not use these charges for the final determination. Petitioner

also states that, notwithstanding the fact that these charges were

incurred in U.S. dollars, the charges were incurred with PRC companies.

Consequently, petitioner suggests that the Department should use the

same methodology it used for the preliminary determination--

international freight rates from Sealand Service Inc.

Shanghai IE argues that it paid U.S. dollars to a Chinese agent of

Sealand Service Inc. Consequently, the Department should use the actual

freight costs in its calculations. Alternatively, Shanghai IE suggests

that the Department should use the international freight rates from

Sealand.

DOC Position

When the factor is being purchased from a domestic supplier in an

NME, we are directed by statute to use a surrogate value. It is our

standard practice to use international rates for ocean freight when

available. Accordingly, we have used the international rates from

Sealand for ocean freight and Indian values for marine insurance (see,

e.g., Preliminary Determination of Sales at Less Than Fair Value:

Coumarin from the PRC; 59 FR 39727, August 4, 1994). We agree with

petitioner that the currency in which the two charges were incurred is

irrelevant.

Comment 12: Wangxin's Payments to Shanghai No. 6

Petitioner cites the verification reports as demonstrating that

Shanghai No. 6 Factory ``directly controls'' Wangxin's product quality

and, therefore, ``their entire production process.'' Petitioner also

points out that pursuant to this agreement, Shanghai No. 6 provides

certain services to Wangxin, and in return, Wangxin pays Shanghai No. 6

for these services. The petitioner submits that since this information

was not previously reported to the Department, the Department should

adjust Wangxin's reported total cost of production to take into account

the amount of these payments made to Shanghai No. 6.

Respondents argue that in nonmarket economy investigations the

Department uses factors of production and surrogate values to determine

foreign market value. The Department does not use the actual costs from

the production process. According to respondents, if the Department is

going to increase Wangxin's costs by market prices for payments to

Shanghai No. 6, the Department should also use market prices for all

the other raw material inputs in this case.

DOC Position

Royalty payments and quality control testing costs are explicitly

included in the RBI-based factory overhead value. Therefore, there

would be no need to calculate a separate amount for these payments.

Comment 13: Market-Oriented Industry Claim

Respondents argue that although they believe that the Chinese

saccharin industry is a MOI, they did not argue that the Department

should treat the Chinese saccharin industry as a MOI in their case

brief because they believe that the Department has no real intention of

applying such a standard to this case or to any other case in the

future. Respondents claim that the Department only pursued a cursory

discussion with several suppliers at verification, but did not, as

respondents suggested, send any of the verifiers to Beijing for

meetings with the Ministry of Foreign Trade and Economic Cooperation

(MOFTEC) or the Ministry of Chemical Industries to determine whether

the chemical inputs are subject to the state plan, as it has done in

the past.

Respondents also claim that the Department completely gutted its

MOI test in Silicon Carbide from the PRC when it determined that since

the Chinese government regulates the price and allocation of coal, an

energy resource, the silicon carbide industry cannot be an MOI.

Respondents point out that the U.S. government regulates the price of

numerous energy resources, including coal, electricity, natural gas and

oil. Respondents state that the key question facing the Department is

whether the PRC government involvement in the economy so distorts the

market situation that the input prices for saccharin are not reflective

of the true costs of production.

Petitioner argues that (1) suppliers interviewed by Department

officials at verification do not represent all chemical suppliers, (2)

the chemicals supplied by those interviewed are not the main raw

material inputs used in the production of saccharin, (3) the suppliers

did not provide any written documentation to support their statements,

and (4) none of Wangxin's suppliers were present at verification.

Petitioner also notes that respondents have not met the MOI criteria

delineated by the Department in Preliminary Determination of Sales at

Less Than Fair Value: Oscillating Fans and Ceiling Fans from the

People's Republic of China (56 FR 25664; June 5, 1991) and Final

Determination of Sales at Less Than Fair Value: Chrome-Plated Lug Nuts

from the People's Republic of China (56 FR 46153; September 10, 1991).

DOC Position

Respondents have argued that they should be treated as a market-

oriented industry (``MOI''). The burden to demonstrate that an MOI

exists rests with respondents and, as petitioner points out,

respondents made no meaningful effort to meet the burden. We received

MOI response information from only two of at least six saccharin

producers in the PRC. Consequently, we have no basis to determine

whether the production and sales practices of these producers are

representative of PRC saccharin producers as a whole. With respect to

the fact that the Department did not send members of the verification

team to Beijing, we note that this point is irrelevant given that

respondents did not provide information with respect to the entire

saccharin industry.

Continuation of Suspension of Liquidation

In accordance with sections 733(d)(1) and 735(c)(4)(A and B) of the

Act, we are directing the Customs Service to continue to suspend

liquidation of all entries of saccharin from the PRC that are entered,

or withdrawn from warehouse, for consumption on or after June 23, 1994,

which is the date of publication of our notice of preliminary

determination 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 Margin

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

Manufacturer/producer/exporter Percentage

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

Shanghai IE................................................ 160.68

Suzhou IE.................................................. 276.62

All Others................................................. 391.42

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

ITC Notification

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

International Trade Commission (ITC) of our determination. As our

determination is affirmative, the ITC will determine whether these

imports are materially injuring, or threatening material injury to, the

U.S. industry within 45 days. If the ITC determines that material

injury, or threat of material injury does not exist, the proceeding

will be terminated and all securities posted will be refunded or

cancelled. If the ITC determines that such injury does exist, the

Department will issue an antidumping order directing U.S. Customs

officials to assess antidumping duties on all imports of the subject

merchandise entered, or withdrawn from warehouse, for consumption on or

after the date of suspension of liquidation.

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 735(d) of the

Act and 19 CFR 353.20(a)(4).

Dated: November 7, 1994.

Susan G. Esserman,

Assistant Secretary for Import Administration.

[FR Doc. 94-28162 Filed 11-14-94; 8:45 am]

BILLING CODE 3510-DS-P