Final Determination of Sales at Less Than Fair Value: Coumarin From the People's Republic of China

DEPARTMENT OF COMMERCE

International Trade Administration

[A-570-830]

Final Determination of Sales at Less Than Fair Value: Coumarin

From the People's Republic of China

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: December 28, 1994.

FOR FURTHER INFORMATION CONTACT:

David J. Goldberger or Louis Apple, Office of Antidumping

Investigations, Import Administration, International Trade

Administration, U.S. Department of Commerce, 14th Street and

Constitution Avenue, NW., Washington, DC. 20230; telephone: (202) 482-

4136 or (202) 482-1769, respectively.

Final Determination:

We determine that courmarin 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), a provided in section 735 of the Tariff Act of

1930, as amended (the Act). The estimated margins are shown in the

``Continuation of Suspension of Liquidation'' section of this notice.

The U.S. Department of Commerce (the Department) also determines that

critical circumstances exist for all exporters except Jiangsu Native

Produce Import & Export Corp. (Jiangsu Native).

Case History

Since the preliminary determination on July 24, 1994 (Notice of

Preliminary Determination of Sales at Less Than Fair Value: Courmarin

from the People's Republic of China, 59 FR 3841, July 30, 1994), the

following events have occurred.

During August 1994, respondents submitted revised information on

factors of production. From August 13 through 22, 1994, we verified the

responses of the exporters Jiangsu Native and Tianjin Native Produce

Import & Export Corp. (Tianjin Native); and the manufacturers Changzhou

No. 2 Chemical Factory (Changzhou No. 2) and Tianjin Perfumery Factory

(Tianjin Perfumery). Prior to scheduled verifications, counsel for

Tianjin Chemicals Import & Export Corp. and Gaoyo City Perfumery

Factory advised the Department that these clients would not agree to

verification. On August 18, 1994, counsel withdrew its appearance for

the two respondents.

On August 11, 1994, we received a request from respondents to

postpone the final determination in this investigation, pursuant to 19

CFR 353.20. Accordingly, on August 31, 1994, we did so (59 FR 46618,

September 9, 1994).

Petitioner and respondents filed case briefs on October 19, 1994,

and rebuttal briefs on October 24, 1994. A public hearing was held on

October 26, 1994.

Scope of Investigation

The product covered by this investigation is courmarin. Courmarin

is an aroma chemical with the chemical formula C9H6O2

that is also known by other names, including 2H-1-benzopyran-2-one,

1,2-benzopyrone, cis-o-coumaric acid lactone, courmarinic anhydride, 2-

Oxo-1,2-benzopyran, 5,6-benzo-alpha-pyrone, ortho-hydroxyc innamic acid

lactone, cis-ortho-courmaric acid anhydride, and tonka bean camphor.

All forms and variations of courmarin are included within the scope

of the investigation, such as courmarin in crystal, flake, or powder

form, and ``crude'' or unrefined courmarin (i.e. prior to purification

or crystallization). Excluded from the scope are ethylcourmarins

(C11H10O2) and methylcoumarins (C10H8O2).

Coumarin is classifiable under subheading 2932.21.0000 of the

Harmonized Tariff Schedule of the United States (HTSUS). 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 July 1 through December 31,

1993.

Separate Rates

Both of the participating exporters, Jiangsu Native and Tianjin

Native, have requested a separate, company-specific dumping margin.

Their respective business licenses indicate that they 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 jure and

de facto governmental control over export activities.

De Jure Analysis\1\

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

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

including the respondent companies, 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). In particular, 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). The Export Provisions list those products subject to

direct government control. Coumarin does not appear on the Export

Provisions list and is not, therefore, subject to the constraints of

those provisions. Consistent with Silicon Carbide, we determine that

the existence of these laws demonstrates that Jiangsu Native and

Tianjin Native, companies owned by ``all the people,'' are not subject

to de jure control.

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

jure absence of central control includes: (1) An 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 measure

by the government decentralizing control of companies.

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An additional PRC law concerning foreign exchange was obtained by

the Department during this investigation. During verification,

Changzhou No. 2 submitted a copy of the PRC's ``Provisional Regulations

on Handling the Turnover to the State of Foreign Exchange Quotas,''

issued on January 1, 1991 (Foreign Exchange Regulations). As stated in

these regulations, ``[i]n the case of general commodities, 20 percent

of export exchange earnings shall be turned over gratis to the State.''

We find that these foreign exchange requirements have functioned as an

implied export tax rather than a demonstration of state control over

export activities. Therefore, the existence of these foreign exchange

regulations is not a cause for a finding of de jure government control.

(See Comment 1 for further discussion of this issue).

In light of reports\2\ indicating that laws shifting control from

the government to the enterprises themselves have not been implemented

uniformly, our standard analysis of de facto control becomes critical

in determining whether respondents are, in fact, subject to

governmental control.

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\2\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.).

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De Facto Control Analysis\3\

In the course of verification, we confirmed that export prices for

both Jiangsu and Tianjin Native are not set, nor subject to approval,

by any government authority. This point was supported by the companies'

sales documentation and customer correspondence. We also confirmed,

based on examination of documents related to sales negotiations,

written agreements and other correspondence, that respondents have the

authority to negotiate and sign contracts and other agreements

independent of government intervention. We further found that, during

the POI, although required to remit a portion of their foreign exchange

earnings to the government, respondents retained proceeds from their

export sales, net of the ``implied export tax,'' and made independent

decisions regarding disposition of profits and financing of losses. The

respondents' financial statements, accounting records, and bank

statements supported this conclusion.

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\3\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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Based on our examination of company correspondence files during

verification, we have determined that both Jiangsu Native and Tianjin

Native had autonomy from the central government in making decisions

regarding the selection of management. In the case of Tianjin Native,

the general manager was elected by an employee assembly. We found no

involvement by any government entity in Tianjin Native's selection of

management.

With respect to Jiangsu Native, we found that the general manager

was appointed by the local administering authority, the Jiangsu Council

on foreign Trade and Economic Cooperation (JCOFTEC). While this may

indicate that Jiangsu Native is subject to the control of JCOFTEC,

there is no evidence that any other exporter of the subject merchandise

is currently under the control of JCOFTEC. Therefore, we have concluded

that this does not preclude Jiangsu Native from receiving a separate

rate.\4\ This determination is consistent with our recent decision in

Final Determination of Sales at Less Than Fair Value: Paper Clips from

the People's Republic of China, 59 JR 51168, (October 7, 1994) (Paper

Clips).

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\4\All non-responding exporters are presumed to be under the

control of the central government. There is no basis on which to

conclude that any non-responding exporter is controlled by JCOFTEC.

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Based on the foregoing analysis, we have determined that Jiangsu

Native and Tainjin Native are entitled to separate rates.

Nonmarket Economy

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

past antidumping investigations (see e.g., Final Determination of Sales

at Less Than Fair Value: Saccharin from the People's Republic of China,

59 FR 58818 (November 15,1994) (Saccharin). 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, we continue to treat 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 NME country, and (2) significant

producers of comparable merchandise. The Department has determined that

India is the country most comparable to the PRC in terms of overall

economic development (see Memorandum from David Mueller, Director,

Office of Policy, to Gary Taverman, Director of Division I of Office of

Antidumping Investigations, dated March 10, 1994). In addition, there

is evidence on the record that India is a significant producer of

coumarin.

Fair Value Comparisons

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

States by Jiangsu Native and Tianjin Native 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

United States price was calculated on the basis of purchase price,

as described in the preliminary determination, in accordance with

section 772(b) of the Act. Pursuant to findings at verification, we

adjusted foreign inland freight for Changzhou No. 2 based on verified

distances between factory and port of exportation. No additional

revisions were made to either exporter's USP.

Foreign Market Value

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

based on factors of production reported by the factories in the PRC

which produced the subject merchandise for the two participating

exporters. We calculated FMV based on factors of production as cited in

the preliminary determination, making the following adjustments:

For Tianjin Perfumery, we based the value for the

salicylaldehyde input on a weighted-average of self-produced

salicylaldehyde and purchased salicylaldehyde, according to the

proportion of each used during the POI. Labor and energy factors were

prorated between salicylaldehyde and coumarin production based on

verification information. (See Comment 5 for further discussion).

For Changzhou No. 2, we recalculated inland freight

distances between factory and input supplier, based on verified

distances; adjusted the number of direct labor hours upward, on

verified time sheets and included a factor for unreported usage of

plastic bags for packing, which was discovered at verification.

We added input freight values to packing materials for

both producers.

We revised the factor calculations for both producers to

remove water as a separate material input, as the Department is

treating water as part of ``factory overhead'' (see Comment 9 for

further discussion).

To calculate FMV, the verified factor amounts for each company were

multiplied by the appropriate surrogate values for the different input

materials. In determining which surrogate value to use for valuing each

factor of production, we selected, where it was available and was non-

aberrational, publicly available published information (``public

information'') from India. If there were multiple such sources for a

given factor, we selected the value that was (a) most current; (b)

product specific; and (c) tax-exclusive. With regard to those few

factors for which we did not have public information, or where such

values were considered aberrational (as discussed below), we have

relied on price quotes obtained in India and submitted by petitioner.

As a result, we have used the same surrogate values used in the

preliminary determination, with the following exceptions:

For chlorine and hydrochloric acid, we have reassigned

values based on price quotes submitted by petitioner, because we found

that values derived from Indian import statistics are aberrational.

(See Comment 6 for further discussion of this issue.)

For inputs purchased from market-economy countries, we

have assigned the market price to those inputs, if they were purchased

by the manufacturers directly from foreign suppliers in convertible

currency. Inputs purchased from market-economy countries by trading

companies for use by their suppliers, have been assigned the surrogate

value (see Comment 7 for further discussion of this issue).

Finally, with respect to by-product offsets, we have revised our

FMV calculations to offset the cost to manufacture coumarin by the

amount of by-product recovered, which is consistent with Generally

Accepted Accounting Principles (GAAP) and Department practice (see

Final Determination of Sales at Less Than Fair Value: Sebacic Acid from

the PRC, 59 FR 28053 (May 31, 1994)) (``Sebacic Acid''). In the

preliminary determination, we accepted an offset to the cost of

materials for by-product values. For Changzhou No. 2, we have

disallowed the offset for sodium hypochlorite because the company could

not demonstrate than an economic benefit accrued to the firm from the

disposition of this by-product (see Comment 8 for further discussion).

Best Information Available (BIA)

In this investigation, some PRC exporters failed to respond to our

questionnaire or failed to participate in verification. We have

determined that those exporters should receive rates based on BIA. In

addition, because we presume all exporters to be centrally controlled,

absent verified information to the contrary, in accordance with section

776(c) of the Act, we have assigned a margin based on BIA to all

exporters who have not demonstrated their independence from central

control. This determination is consistent with our use of a BIA-based

``All Others'' rate in other recent investigations (see e.g., Silicon

Carbide).

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

tiered methodology, whereby the Department normally assigns less

adverse margins to those respondents that cooperated in an

investigation and more adverse margins for those respondents that did

not cooperate in an investigation. As outlined in the Final

Determination of Sales at Less Than Fair Value: Certain Hot-Rolled

Carbon Steel Flat Products, Certain Cold-Rolled Carbon Steel Flat

Products, and Certain Cut-to-Length Carbon Steel Plated From Belgium

(58 FR 37083, July 9, 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, (b) the highest calculated rate of any

respondent in the investigation, or (c) the margin from the preliminary

determination for that firm.

We consider all PRC exporters that did not respond, failed to

participate in verification, or otherwise did not participate in the

investigation, to be uncooperative and are assigning to them the

highest margin based on information submitted in the petition, as

recalculated by the Department. In recalculating the petition rate, we

reassigned the value of salicylaldehyde based on the average unit value

for the Indian import statistics category that includes

salicylaldehyde. We did not adjust the petition margins for chlorine

and hydrochloric acid values, because these are inputs used in

salicylaldehyde production, and the petition's margin methodology was

not based on the input values for salicylaldehyde. When applying BIA

from the petition, Department practice is not to revise the information

accepted at initiation, except where the petition includes erroneous or

grossly aberrational data (see e.g., Final Determination of Sales at

Less Than Fair Value: Certain Cased Pencils from the People's Republic

of China, 59 FR 55625, November 8, 1994) (Pencils). In this instance,

the surrogate value cited for salicylaldehyde, the principal raw

material, was fair in excess of any other value for the material

obtained in the course of this investigation. Therefore, we revised the

petition calculation using the same value for salicylaldehyde that we

are using in our company-specific FMV calculations. The recalculated

petition rate applies to all exporters other than those responding

exporters that are receiving separate rates.

Critical Circumstances

In our preliminary determination, we found that critical

circumstances exist with respect to imports of coumarin from Tianjin

Native and ``all other'' exporters in the PRC. We also found that

critical circumstances did not exist with respect to imports of

coumarin from Jiangsu Native.

Pursuant to section 733(e)(1) of the Act and 19 CFR 353.16, we

based that preliminary determination on a finding of (1) an imputed

knowledge of dumping to the importers because the estimated dumping

margins were in excess of 25 percent, and (2) massive imports of

coumarin over a relatively short period, based on an analysis of

respondents' shipment data. We used BIA as the basis for our

determination of critical circumstances for non-respondent exporters.

Because information submitted for the preliminary determination has

been verified, and no additional information was submitted since that

determination, the Department affirms the analysis as explained in its

preliminary finding. Accordingly, we determine that critical

circumstances exist with respect to imports of coumarin from Tianjin

Native and firms covered by the ``All Others'' rate. Regarding imports

of coumarin from Jiangsu Native, we determine that critical

circumstances do not exist, as we did at the preliminary determination.

Verification

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

information submitted by respondents for use in our final

determination. We used standard verification procedures, including

examination of relevant accounting and production records, and original

source documents provided by respondents.

Interested Party Comments

Comment 1: Separate Rates Eligibility--The petitioner argues that

the Department should find that Jiangsu Native and Tianjin Native are

subject to de jure and de facto control by the central government in

the PRC. The respondents argue that ``the totality of the information

on the record'' demonstrates that the respondent companies are not

subject to de jure and de facto state control.

De Jure Analysis Comments

The petitioner argues that the laws submitted by the respondents in

this investigation ``evince significant governmental control over these

companies.'' As an example, the petitioner cites to Chapter VI, Article

55, of the 1988 Law, which states that ``[t]he government, or the

government department in charge, shall * * * uniformly issue mandatory

plans to enterprises * * * examine and approve plans submitted by

enterprises * * * appoint or remove from office or reward or penalize

factory directors.'' The petitioner also cites to the Foreign Exchange

Regulations, as evidence that enterprises in the PRC are subject to

significant foreign currency surrender requirements and other

restrictions on access to foreign currency earnings. Specifically, the

petitioner cites to Article 1, Section 3 of the Foreign Exchange

Regulations which states that ``[i]n the case of general commodities,

20% of export exchange earnings shall be turned over gratis to the

State.'' Finally, the petitioner cites to a 1994 World Bank report,

China Foreign Trade Reform (World Bank Report), which describes a

foreign trade contract system in the PRC which has ``the effect of

holding local authorities and FTCs (foreign trade companies) to what

are in effect mandatory export targets.''

The respondents argue that the Department has reviewed the 1988 Law

in previous PRC investigations, and has consistently rejected that

document as a basis for a finding of de jure control. The respondents

further argue that mandatory plans and foreign trade contracts are

reserved for controlled industries or products in the PRC, as listed in

the Export Provisions list--and that coumarin is not one of the

controlled products. The respondents also argue that the Department has

recognized the limited scope of mandatory plans in the PRC, and cite to

a verification report in Silicon Carbide which reported that ``[a]fter

1988, the central government was not in the internal workings of

companies. In particular, there were no mandatory plans, with the

exception of critical elements of the national economy,'' * * * such as

``grain, cotton, and coal.'' (See, Silicon Carbide, Verification Report

of Meeting at Ministry of Foreign Trade and Economic Cooperation

(MOFTEC), February 15, 1994). With respect to the Foreign Exchange

Regulations, the respondents argue that these regulations reflect the

``complex foreign exchange system'' relating to Chinese currency and

foreign exchange credits in the PRC, but that the regulations ``do not

require that the respondents give a portion of their sales revenues to

the government.''

De Facto Control Comments

The petitioner argues that an examination of the factors considered

by the Department in assessing evidence of de facto control, leads to a

finding of government control of export functions. According to the

petitioner, respondent companies: (1) Do not freely establish export

prices nor have unrestricted autonomy to negotiate and sign contracts,

because of the restrictions and controls imposed by the foreign trade

contract system as outlined in the World Bank Report; (2) do not have

autonomy regarding selection of management, because the general manager

of Jiangsu Native was appointed by the JCOFTEC; and (3) do not retain

all proceeds of their export sales because of significant restrictions

on access to foreign currency earnings, and, in the case of Tianjin

Native, the respondent's proceeds from export sales are deposited into

an account labeled ``China Native,'' the national trading company known

as China Native Produce Import & Export Corporation.

The respondents argue that the evidence on the administrative

record in this investigation, ``overwhelmingly'' supports a finding of

a de facto lack of state control. The respondents assert that (1) the

Department examined the exporter's purchase orders, invoices, and

correspondence files, and these documents demonstrated that the

exporters freely negotiate prices with customers; (2) JCOFTEC's

``recommendation'' of a general manager was done according to law; and

(3) China Native does not have any access or control over Jiangsu

Native's bank account, and respondents were able to retain earnings in

the amount invoiced to customers at the Renminbe converted rate. In

addition, the respondents argue that the Department examined

respondents' correspondence and financial files at verification and

found no evidence of mandatory business plans.

DOC Position: Regarding mandatory plans, we agree with the

respondents that the provision in the 1988 Law for mandatory export

plans applies to controlled industries or products, as identified in

the Export Provisions list. Coumarin is not identified in the list. The

business plans obtained from respondent companies at verification,

which were prepared by the respondents and submitted to the local

administering authorities, consisted of export targets based on company

growth from previous years. We find that these business plans do not

demonstrate mandatory government planning or government interference in

the respondents' export activities.

With respect to the foreign trade contract system described in the

World Bank Report, we find respondents' statement that such contracts,

which fix export quantities for specific products, only apply to

controlled industries as identified in the Export Provisions list, to

be consistent with the evidence of record. We find that there is no

evidence on the record indicating that a government entity controlled

Jiangsu Native's or Tianjin Native's report activities during the POI

through a foreign trade contract. To the contrary, we verified that the

companies negotiated and signed contracts and other agreements without

interference from any government entity. Although business plans are

part of the foreign trade contracting system as discussed above, we do

not find these plans demonstrate government interference in the

respondents' exporting activities.

Regarding the foreign currency requirements cited by petitioner, we

agree with the World Bank Report which refers to the PRC's foreign

exchange system as a ``very substantial tax burden on Chinese

exports,'' and an ``implied export tax.'' Absent the foreign currency

requirements, an exporter would have realized a greater portion of the

income associated with its export sales. This income reduction is

comparable to a tax payment. We found that during the POI, Jiangsu

Native retained proceeds from its export sales, net of the ``implied

export tax,'' and made independent decisions regarding the disposition

of profits.

As stated in the ``Separate Rates'' section of this notice, we have

determined that both Jiangsu Native and Tianjin Native had autonomy

from the central government in making decisions regarding the selection

of management. With respect to Jiangsu Native, although JCOFTEC may

exercise some control through the appointment of the general manager,

there is no evidence that any other exporter of the subject merchandise

is currently under the control of JCOFTEC. Therefore, Jiangsu Native

remains eligible for a separate rate.

Comment 2: Separate Rates for Suppliers--The respondents argue that

manufacturing respondents should be assigned the same rate as their

respective exporters, and not the ``all others'' rate. The respondents

urge the Department to issue instructions to Customs that clarify that

the calculated rates apply to the particular manufacturers. In support

of this argument, the respondents cite Departmental practice outlined

in Final Determination of Sales at Less Than Fair Value: Sulfur Dyes,

Including Sulfur Vat Dyes, from the People's Republic of China (58 FR

7543, February 8, 1993) (Sulfur Dyes), where the Department listed LTFV

margins for specific exporters paired with the PRC factory which

supplied that exporter. The respondents argue further that because the

manufactures in this investigation were ``cooperative,'' it would be

``contrary to the statute and judicial precedent to assign a BIA margin

to these companies.''

Also relying on Sulfur Dyes, the petitioner agrees with the

respondents to the extent that it is appropriate for the Department to

assign the margin calculated for a given exporter to that exporter and

its supplying factory. However, the petitioner argues that the

Department should not assign the responding manufacturer separate rates

because: (1) the companies have not responded to the Department's

separate rates questionnaire and, therefore, have not demonstrated that

they are entitled to any rate other than the ``all others'' rate; and

(2) separate rates should only apply to the producer/exporter pair on

whom that rate was based. The petitioner cites to Paper Clips where the

Department found that companies that had claimed that they had no

shipments during the POI could not receive any rate other than the

country-wide BIA rate because those companies had not replied to the

Department's separate rates questionnaire.

DOC Position: As noted by the petitioner, Department practice is to

examine sales by exporters. We have determined that exporters and

producers should not be ``paired'' in our instructions to Customs.

Although exporters and producers were paired in Sulfur Dyes, recent

Department practice has been to assign rates only to exporters, and in

the case of multiple suppliers, margins have been based on weight-

averaged FMVs (see, e.g., Final Determination of Sales at Less Than

Fair Value: Certain Cut-to-length Carbon Steel Plate from Poland (58 FR

27205, July 9, 1993), Pencils,\5\ and Preliminary Determination of

Sales at Less Than Fair Value: Magnesium from the People's Republic of

China, 59 FR 55420, November 7, 1994). In this investigation, the

manufacturing respondents did not export coumarin to the United States.

Our separate rates determinations apply only to the exporters of the

subject merchandise who have responded to the Department's

questionnaire and were verified on this issue. Therefore, we are not

assigning rates to the suppliers.

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\5\In Pencils, the Department calculated a zero rate for one

exporter based upon the factors of production provided by the

suppliers of the exporter. The Department determined that the zero

rate applied only to the exporter's sales of merchandise produced by

those suppliers, and that, if the exporter sold merchandise produced

by other suppliers, that merchandise would be subject to the ``All

Others'' rate. However, in the same case, the Department gave

another exporter that had multiple suppliers, and did not have a

zero rate, a single margin based on the weighted-average FMV of all

suppliers.

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Comment 3: Exporters' SG&A and Profit--The petitioner argues that

the Department must include SG&A expenses and profit of the exporters,

as well as the suppliers, to arrive at the FMV of the subject

merchandise. The resulting FMV would be based on the SG&A and profits

associated with sales of coumarin to the United States during the POI.

The petitioner cites Department practice in Final Determination of

Sales at Less Than Fair Value: Fresh and Chilled Atlantic Salmon from

Norway (56 FR 7665, February 25, 1991) (Norwegian Salmon), which stated

that the Department ``combined the SG&A of the farmer and the exporter

for the statutory ten percent test.'' The petitioner argues that

because responding exporters did not report SG&A expenses, the

Department should rely on the manufacturers' SG&A, as well as profit,

rates and apply them to the exporters' costs.

The respondents argue that the Department followed its normal

practice in the preliminary determination, in that the surrogate value

for SG&A includes all selling expenses necessary to sell chemical

products in the home market (see e.g., Paper Clips, Preliminary

Determination of Sales at Less Than Fair Value: Silicomanganese from

the People's Republic of China (59 FR 31199, June 17, 1994), Sebacic

Acid, and Silicon Carbide). The respondents further assert that the

petitioner has incorrectly interpreted Norwegian Salmon because in that

case, the Department included the SG&A expenses of the exporters

because the farmers had no selling expenses, and the case involved the

use of third country sales as FMV. The respondents claim that the

petitioner's suggested calculation for SG&A and profit would deviate

from the Department's normal practice, and would result in double-

counting.

DOC Position: We find the petitioner's reliance on Norwegian Salmon

to be misplaced because of the differences in fact patterns in the

investigations, as cited by the respondents. Therefore, consistent with

Department practice in NME cases, as cited by the respondents, we find

that SG&A and profit of the exporters should not be included in the

calculation of FMV. The statute and regulations provide for valuation

of factors used in the production of (emphasis added) the subject

merchandise. As stipulated in Sec. 353.52(c) of the Department's

regulations, FMV is calculated ``using constructed value based on

factors of production incurred in the home market country in producing

(emphasis added) the subject merchandise.'' Therefore, we have only

used the SG&A and profit of the manufacturers.

Comment 4: Captively-produced Inputs--The petitioner argues that

the Department should value only inputs used in the coumarin production

process, and, therefore, should not base the FMV of coumarin on the

value of the factors of production of the captively-produced

intermediate product, salicylaldehyde. The petitioner argues that

coumarin is the merchandise under investigation, and not

salicylaldehyde. According to the petitioner, valuation of only the

subject merchandise, is consistent with section 773 of the Act. The

petitioner further argues that, since the Department did not value the

factors of production for captively-produced phenol, the Department

must be consistent and not value factors for any captively-produced

input.

The respondents argue that section 773 of the Act requires that FMV

be based on ``the value of the factors of production utilized in

producing'' coumarin. In this case, the respondents contend that there

are two production stages utilized in producing coumarin: (1)

Salicylaldehyde production, and (2) finishing production of coumarin.

Therefore, they argue that both stages should be valued. Further, the

respondents cite the antidumping investigation concerning refined

antimony trioxide as establishing Departmental practice of valuing

significant input materials in all stages of the production process,

including intermediate stages (see Final Determination of Sales at Less

Than Fair Value: Refined Antimony Trioxide from the People's Republic

of China, 57 FR 6801, February 28, 1992) (Refined Antimony).

DOC Position: We agree with the respondents that under section 773

of the Act it is appropriate to value all of the factors of production,

including intermediate inputs captively-produced by the responding

producer. Further, this methodology is consistent with Department

practice in NME cases (see e.g., Refined Antimony, and the Calculation

Memorandum for the Final Determination of Sales at Less Than Fair

Value: Sulfanilic Acid from the People's Republic of China, 57 FR

29705, July 6, 1992). Regarding Changzhou No. 2's captively-produced

phenol, we will not value its factors of production because phenol

accounts for an insignificant percentage of materials, based on

quantity and value, required to produce coumarin.

Comment 5: Purchased Salicylaldehyde--The petitioner argues that,

since Tianjin Perfumery purchased significant quantities of its

salicylaldehyde from outside suppliers, the Department should calculate

the value of this input based on a weighted-average of the self-

produced and purchased salicylaldehyde. The petitioner contends that

the purchased portion of salicylaldehyde, and not the inputs into its

production, should be valued in a surrogate country, including

additional cost for inland freight. As such, this methodology would be

consistent with Department practice, cited in Final Results of

Antidumping Duty Administrative Review: Silicon Metal from Brazil, 59

FR 42806 (August 19, 1994), which holds that ``it is inappropriate to

specifically identify inputs obtained at a lower cost to a particular

product or production run.''

The respondents argue that, because the factory was able to satisfy

its salicylaldehyde input needs for coumarin sold to the U.S. during

the POI with its self-produced amounts, there is no need to ignore the

factory's production factors for valuing all of the salicylaldehyde

factor. Thus, it is not necessary to resort to surrogate values because

the factory was able to cover its input needs.

DOC Position: We agree with the petitioner that the salicylaldehyde

value for Tianjin Perfumery should be based on a weighted-average of

Tianjin Native's own factors and the purchased salicylaldehyde, because

the company both self-produced and purchased the salicylaldehyde during

the POI. While this situation does not occur often, where it does

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

Furfuryl Alcohol from the People's Republic of China, signed on

December 9, 1994), we use the weighted-average. This methodology

recognizes the additional economic cost to a producer when it

substitutes outside purchases for an input it normally produces. The

weighted-average cost is thus more representative of the company's cost

of production during the POI than to assume that it produced all of the

input material.

Comment 6. Chlorine--The respondents contend that the surrogate

value for chlorine applied at the preliminary determination is

aberrational and unrealistic. The respondents compare the value derived

from Indian import statistics, which was used for the preliminary

determination, to numerous examples of alternative price sources,

including Indian price quotes submitted by the petitioner. According to

their analysis, the Indian import value is several times higher than

these other values. While acknowledging the Department's preference for

public information such as the Indian import statistics, the

respondents cite Silicon Carbide where the Department has tested the

reasonableness of its surrogate values and rejected those it found to

be aberrational. For the final determination, the respondents argue

that the Department should value chlorine using the petitioner's Indian

price quote, or values based on either Indonesian import statistics or

U.S. export statistics.

The petitioner responds that the Department properly followed its

practice of utilizing public information for valuing chlorine in India

based on import statistics rather than the unpublished price quote, and

should continue to do so for the final determination.

DOC Position: We agree with the respondents that, although the

Indian import value is preferable according to our methodology, this

value is aberrational. We note that, in addition to Silicon Carbide,

the Department specifically rejected surrogate values for chlorine and

hydrochloric acid in Saccharin (materials common to saccharin and

coumarin production) derived from Indian import statistics because

these values were aberrational when compared against data derived from

export statistics from five countries (Canada, Germany, Japan, South

Korea, and the United States) that exported the materials to India. The

only other Indian values for chlorine and hydrochloric acid properly

submitted for the record in this investigation are the petitioner'

price quotes. Therefore, we value both chlorine and hydrochloric acid

using these Indian price quotes.

Comment 7: Inputs from Market-Economy Countries--The petitioner

argues that raw material inputs that manufacturers purchased from PRC

trading companies in PRC currency should be valued in a surrogate

country, even though the inputs were purchased by the trading companies

from market economy sources in convertible currency. The petitioner

points out that the convertible currency prices were paid by the

trading companies and not the manufacturers, and that prices paid by

the manufacturer to the trader were in nonconvertible currency.

Therefore, the petitioner contends that these factors should be

assigned surrogate values.

The respondents contend that the Department should use the actual

import prices for these inputs, as it did in the preliminary

determination. As the respondents explain, these purchases were made by

the trading companies on behalf of the producers because of the trading

companies' access to foreign currency. The producers reimbursed the

trading companies for the imported goods in RMB. The respondents add

that there is no support for the petitioner's position in Departmental

practice. They cite Paper Clips where market prices for imported goods

were used to value certain inputs that were obtained by PRC

manufacturers through their suppliers.

DOC Position: We agree with the petitioner. Department practice

allows for the valuation of inputs in NME cases based on market prices

paid by the manufacturer for goods obtained from a market economy

source because these prices reflect commercial reality (see e.g.,

Saccharin and Final Determination of Sales at Less Than Fair Value:

Oscillating Fans and Ceiling Fans from the PRC (56 FR 55271, October

25, 1991) (Fans). In this case, some of the transactions are conducted

by the trading companies and not the manufacturers. Thus, the

manufacturer obtained the input from a PRC source (the trading company)

and paid for the input in PRC currency. This is not the type of

situation encountered in Saccharin or Fans where we have accepted the

actual prices paid. (We note that the respondents' cite to Paper Clips

is incorrect; we did not use the import prices in the situation cited.)

Accordingly, for those market economy-source inputs that were

exclusively obtained by PRC trading companies and resold to the

manufacturers, we have applied the appropriate surrogate value.

Comment 8: By-Products--The petitioner argues that all subsidiary

products generated in the production of coumarin should be classified

as by-products, rather than co-products, due to the insignificance of

by-product sales values when compared to the subject merchandise.

Nonetheless, the petitioner goes on to argue that no by-product offsets

should be made to FMV in this investigation because: (1) Hydrochloric

acid, alcohol, and sodium hypochlorite are by-products of

salicylaldehyde production and no coumarin production; (2) insufficient

information was provided by the respondents on product held in

inventory; therefore, the Department should assume that the

manufacturers did not sell coumarin by-products, and GAAP allows for

by-product adjustments only for product sold; (3) there is insufficient

information on the record to substantiate that the coumarin production

facilities at Changzhou No. 2 benefit from the sodium hypochlorite that

was given away by the manufacturer; and (4) the respondents failed to

provide the Department with sufficient information regarding the grade,

quality, purity, and after-separation costs of the by-products.

The respondents agree that all subsidiary products recovered during

the production of coumarin should be classified as by-products.

However, regarding valuation of the by-products, the respondents argue

that the petitioner's suggestions are erroneous because: (1) GAAP allow

for by-product offsets on the basis of production quantities, as well

as sales quantities; (2) there is ample information on the record to

demonstrate that the factories sell recovered by-products, except for

product held in inventory; (3) Changzhou No. 2 does not retain sodium

hypochlorite for its own use, but disposes of it in a manner that

yields an economic benefit to the company; and (4) the respondents

reported all necessary physical parameters of the by-products,

including concentration levels, and the record indicates that no after-

separation costs are incurred by the factories in the sale of the by-

products.

DOC Position: In this investigation, we find that alcohol, acetic

acid and hydrochloric acid, are produced as a result of the production

of coumarin, and that these products have low sales values compared

with the sales value of coumarin. Therefore, we find these products to

be by-products, and that the cost to manufacture coumarin should be

offset by the value of by-product recovered, except for sodium

hypochlorite, adjusted for concentration levels. Such treatment is

consistent with GAAP and previous Department practice (see e.g.,

Sebacic Acid). We agree with the respondents that GAAP allows for by-

product offsets on the basis of production quantities. We have also

verified the respondent's reported sales of by-products, including

concentration levels, and that thee are no after-separation costs

associated with the by-products. We determined that no offset should be

made for the sodium hypochlorite recovered and disbursed by Changzhou

No. 2, because the company could neither demonstrate that any economic

benefit accrued to the firm, nor that the benefit was linked to

coumarin production.

Comment 9: Water--The respondents argue that the Department erred

in its preliminary determination, in calculating a cost for water,

separate from factory overhead. The respondents cite to Department

practice that includes water costs in factory overhead, i.e., Paper

Clips and Silicon Carbide.

The petitioner argues that the Indian survey data from the metals

and chemicals market sector used to calculate factory overhead

contained water costs associated with administrative functions. The

petitioner further argues that there is no evidence in the record

indicating that water used for production purposes is included in the

factory overhead category of ``other manufacturing expense.''

DOD Position: The facts in this case are very similar to those in

Saccharin with respect to water consumption. In Saccharin we found that

it is normal practice to include water in factory overhead, and that it

is reasonable to presume that water is included in the Indian surrogate

value overhead percentage. Accordingly, we have revised FMV

calculations for both producers and not valued water as a separate

input.

Continuation of Suspension of Liquidation

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

we are directing the Customs Service to continue to suspend liquidation

of all entries of coumarin from the PRC, that are entered, or withdrawn

from warehouse, for consumption on or after the date of publication of

this notice in the Federal Register. The Customs Service shall require

a cash deposit or posting of a bond equal to the estimated amount by

which the FMV exceeds the USP as shown below. These suspension of

liquidation instructions will remain in effect until further notice.

The weighted-average dumping margins are as follows:

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

Weighted-

Manufacturer/producer/ average

exporter margin Critical circumstances

percentage

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

Jiangsu Native Produce I/E 15.04 Negative.

Corp.

Tianjin Native Produce I/E 50.35 Affirmative.

Corp.

All Others................... 160.80 Affirmative.

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

ITC Notification

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

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

determination is affirmative, the ITC will determine whether these

imports are causing material injury, or threat of material injury, to

the industry in the United States, 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 duty order directing

Customs officials to assess antidumping duties on all imports of the

subject merchandise entered, or withdrawn from warehouse, for

consumption on or after the effective date of the suspension of

liquidation.

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: December 19, 1994.

Susan G. Esserman,

Assistant Secretary for Import Administration.

[FR Doc. 94-31962 Filed 12-27-94; 8:45 am]

BILLING CODE 3510-DS-M