Notice of Final Determination of Sales at Less Than Fair Value: Certain Pasta From Turkey

DEPARTMENT OF COMMERCE

INTERNATIONAL TRADE ADMINISTRATION

[A-489-805]

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

Certain Pasta From Turkey

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: June 14, 1996.

FOR FURTHER INFORMATION CONTACT: John Brinkmann, Michelle Frederick or

Sunkyu Kim, Office of Antidumping Investigations, Import

Administration, International Trade Administration, U.S. Department of

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

20230; telephone: (202) 482-5288, (202) 482-0186, or (202) 482-2613,

respectively.

The Applicable Statute

Unless otherwise indicated, all citations to the statute are

references to the provisions effective January 1, 1995, the effective

date of the amendments made to the Tariff Act of 1930 (the Act) by the

Uruguay Round Agreements Act (URAA).

Final Determination

We determine that certain pasta (pasta) from Turkey is being sold

in the United States at less than fair value (LTFV), as provided in

section 735 of the Act. The estimated margins are shown in the

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

Case History

Since the preliminary determination of sales at less than fair

value in this investigation on December 14, 1995, (60 FR 1351, January

19, 1996) (Preliminary Determination), the following events have

occurred:

On January 22, 1996, the Department requested that Filiz Gida

Sanayii ve Ticaret (Filiz) and Maktas Makarnacilik ve Ticaret T.A.S.

(Maktas), the two respondents in this case, submit additional

information relating to level of trade. Responses were received on

January 31, 1996, as part of their supplemental Section D questionnaire

responses.

On January 25, 1996, Hershey Foods Corp., Borden Inc., and Gooch

Foods, Inc. (collectively the petitioners) alleged ministerial errors

in the Department's preliminary determination calculations regarding

the two respondents. The respondents alleged a ministerial error in the

Department's preliminary determination on January 26, 1996.

With respect to the petitioners' allegation, we agreed that errors

were made as alleged and the errors were found to constitute

significant ministerial errors because the correction resulted in a

difference of at least five absolute percentage points and was at least

25 percent greater than the preliminary margin, for both Filiz and

Maktas. With respect to the respondents' allegation, we determined that

the respondents' allegation did not constitute a ministerial error. See

Memorandum to Barbara R. Stafford from the Team dated February 6, 1996.

An amended preliminary determination was issued on February 12, 1996

(61 FR 6348, February 20, 1996).

We conducted verification of Filiz's and Maktas's sales and cost

questionnaire responses in Turkey in February and March 1996.

On May 1, 1996, Maktas, at the request of the Department, submitted

[[Page 30310]]

revised computer tapes that corrected clerical errors discovered at

verification.

Filiz, Maktas and the petitioners submitted case briefs on April

30, 1996, and rebuttal briefs on May 3, 1996. At the request of both

the petitioners and the respondents, a public hearing was held on May

7, 1996.

On May 8, 1996, the the Embassy of Turkey requested that the

Department accept into the record a copy of Maktas's major

shareholder's 1994 financial statements. The Department informed the

Embassy that it could not accept any new information into the record at

that point. (See, Memorandum to File from Barbara R. Stafford, May 8,

1996.)

Scope of Investigation

The scope of this investigation consists of certain non-egg dry

pasta in packages of five pounds (or 2.27 kilograms) or less, whether

or not enriched or fortified or containing milk or other optional

ingredients such as chopped vegetables, vegetable purees, milk, gluten,

diastases, vitamins, coloring and flavorings, and up to two percent egg

white. The pasta covered by this scope is typically sold in the retail

market, in fiberboard or cardboard cartons or polyethylene or

polypropylene bags, of varying dimensions.

Excluded from the scope of this investigation are refrigerated,

frozen, or canned pastas, as well as all forms of egg pasta, with the

exception of non-egg dry pasta containing up to two percent egg white.

In the companion countervailing and antidumping duty investigations

involving pasta from Italy, we have excluded imports of organic pasta

that are accompanied by the appropriate certificate issued by the

Associazione Marchigiana Agricultura Biologica (AMAB). The Department

has determined that AMAB is legally authorized to certify foodstuffs as

organic for the Government of Italy(GOI). If certification procedures

similar to those implemented by the GOI are established by the

Government of Turkey for exports of organic pasta to the United States,

we would consider an exclusion for organic pasta at that time.

The merchandise under investigation is currently classifiable under

items 1902.19.20 of the Harmonized Tariff Schedule of the United States

(HTSUS). Although the HTSUS subheadings are 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 May 1, 1994, through April 30,

1995.

Facts Available

Section 776(a)(2) of the Act provides that if an interested party

or any other person--(A) Withholds information that has been requested

by the administering authority, (B) fails to provide such information

by the deadlines for the submission of the information or in the form

and manner requested, subject to subsections (c)(1) and (e) of section

782, (C) significantly impedes a proceeding under this title, or (D)

provides such information but the information cannot be verified as

provided in section 782(i), the administering authority * * * shall,

subject to section 782(d), use the facts otherwise available in

reaching the applicable determination under this title.

Section 782(c)(1) permits the Department to modify the requests for

information in its questionnaires if that party, ``promptly after

receiving a request {from the Department} for information, notifies

{the Department} that such party is unable to submit the requested

information in the requested form and manner.'' The Statement of

Administrative Action (SAA) to the Uruguay Round Agreements Act (URAA)

makes clear that paragraph (c)(1) is intended to apply to the

Department's requests for information in computerized form. SAA at 865.

Subsection (e) provides that the Department shall not decline to

consider information that is submitted by an interested party and is

necessary to the determination but does not meet all the applicable

requirements established by the Department if--

(1) the information is submitted by the deadline established for

its submission,

(2) the information can be verified,

(3) the information is not so incomplete that it cannot serve as a

reliable basis for reaching the applicable determination,

(4) the interested party has demonstrated that it acted to the best

of its ability in providing the information and meeting the

requirements established by the Department with respect to the

information, and

(5) the information can be used without undue difficulties.

Accordingly, in using the facts available, the Department may

disregard information submitted by a respondent if any of the five

criteria has not been met.

A. Filiz

As discussed in the Preliminary Determination, the Department

initiated a cost of production (COP) investigation of Filiz on June 8,

1995. In its questionnaire, the Department requested that in providing

cost data, Filiz's valuation of materials used be based upon current

material prices in accordance with the Department's normal methodology

in hyperinflationary cases. (See, Fair Value Comparisons section.) In

its response, however, Filiz reported its raw materials costs using

last-in, first-out (LIFO) accounting. Filiz maintained that its use of

LIFO assumptions accurately reflected the replacement cost methodology

requested in the questionnaire. However, Filiz's response raised

questions regarding the accuracy of its reported material costs,

insofar as LIFO does not require materials used in production to be

valued at costs from the current period. Instead, LIFO allows materials

consumed to be valued at costs from both current and prior periods.

Although we informed Filiz that the valuation of materials and

conversion costs should be based upon current costs, Filiz provided an

inventory accounting methodology that valued some semolina at costs

from previous months. This deficiency was brought to Filiz's attention

in a supplemental questionnaire and again during verification, but the

company failed to modify its methodology to comply with the

Department's instructions. Furthermore, during verification, Filiz

declined to provide information necessary to quantify the

understatement of costs associated with this method.

The results of our investigation, and the evidence which appears on

the record, indicate that the use of a LIFO inventory methodology by

Filiz has had a significant distortive impact on its reported COP data.

Accordingly, we find that Filiz has not provided adequate data to

compute its material costs. (For a more detailed explanation, see

Memorandum to the File from Michael Martin and William Jones, May 20,

1996).

In addition, Filiz stated in its response to our antidumping duty

questionnaire that its annual financial statements are prepared on an

actual (not constant) currency basis. During our cost verification,

however, we became aware that Filiz had available audited 1994 constant

currency financial statements which had not been disclosed to the

Department. We were informed by company officials that auditors from an

outside accounting firm had prepared these statements from Filiz's

normal audited financial statements (which are prepared in accordance

with Turkish tax law) and that Filiz personnel would not be able to

answer any questions related to the

[[Page 30311]]

constant currency statements. We requested that a copy of these

financial statements be introduced as a verification exhibit, but Filiz

denied our request. Furthermore, although we were permitted to examine

the statements for a limited time at verification, we were not

permitted to make copies of them, nor take the statements off the

premises.

Nevertheless, our limited review of these statements gave us reason

to believe that significant distortions exist in the COP and

constructed value (CV) data submitted by Filiz. Specifically, the notes

to the constant currency financial statements revealed that adjustments

had been recorded for certain severance costs, pension liabilities,

deferred salaries, operational expenses and interest on loans. We were

informed that these adjustments were not reflected in the financial

statements Filiz used to derive its COP and CV figures. The nature of

the adjustments suggested that Filiz had excluded certain expenses

incurred during the POI from its reported COP and CV data, and also

raised concerns about whether the submitted conversion costs, general

and administrative expenses and financial expenses accurately reflected

the company's production costs. During the public hearing, counsel for

Filiz stated that the adjustments were recorded to restate Filiz's

submitted cash-basis financial statements to the accrual basis required

under international accounting standards. Filiz's failure to explain or

provide these financial statements as a verification exhibit prevents

us from quantifying the magnitude of the distortions which exist in the

submitted COP and CV data.

The use of LIFO inventory methodology by Filiz and its failure to

provide the constant currency financial statements render Filiz's

submitted COP and CV data unusable for purposes of margin calculations.

Accordingly, the Department must consider the use of the facts

available in determining a margin for Filiz, pursuant to section 776(a)

of the Act.

Insofar as Filiz has not raised the issue of difficulty in

providing information in the informational format or medium requested

by the Department, section 782(c)(1) does not apply in this case.

When examined in light of the requirements of section 782(e), the

facts in this case indicate that Filiz's cost data is thoroughly and

systematically flawed. The gaps and inaccuracies in Filiz's cost data

render its use impossible. First, for the reasons detailed above, the

accuracy of Filiz's submitted cost data could not be verified, as

required by section (e)(2). Second, because of the flaws in its cost

data, Filiz's submitted cost data ``cannot serve as a reliable basis

for reaching the applicable determination'' under section (e)(3), nor

can it ``be used without undue difficulties'' under section (e)(5).

Third, in its failure to provide information based on current material

costs (rather than LIFO) and its refusal to allow the constant currency

financial statements to be entered into the record (or even closely

examined by the Department or explained by Filiz itself at

verification), Filiz has not acted to the ``best of its ability'' in

meeting the Department's requirements, pursuant to section 782(e)(4) of

the Act.

The use of facts available is also subject to section 782(d) of the

Act. Subsection 782(d) provides that if the Department ``determines

that a response to a request for information * * * does not comply

with the request, {the Department} shall promptly inform the person

submitting the response of the nature of the deficiency and shall, to

the extent practicable, provide that person with an opportunity to

remedy or explain the deficiency in light of the time limits

established for completion of investigations or reviews under this

title.'' Filiz had ample opportunity to correct the defects in its

submitted cost data. As indicated above, the deficiency in Filiz's

submissions regarding materials costs was brought to its attention in a

supplemental questionnaire and again during verification. Filiz,

however, failed to modify its methodology to comply with the

Department's instructions. Thus, Filiz has not acted to the best of its

ability during this investigation. Therefore, in applying the facts

available under section 776, the Department is acting consistently with

section 782(d).

Furthermore, during verification, Filiz declined to provide

information that might have remedied the deficiencies: when the

Department became aware at verification of systematic flaws in Filiz's

cost data, Filiz refused to enter the statements into the

administrative record or allow the Department's verification team to

examine it closely, thereby ``significantly impeding'' the Department's

ability to conduct its investigation (and verify Filiz's submitted

data) under section 776(a)(2)(C) of the Act.

For the foregoing reasons, the Department has determined that,

insofar as Filiz has failed to provide cost data in the form and manner

requested by the Department, and has ``significantly impeded'' this

investigation, it is required by section 776(a) of the Act to use the

facts available with respect to Filiz's cost data. However, the

Department must also determine whether (1) the use of facts available

for Filiz's cost data renders the rest of Filiz's submitted information

(i.e., the sales data) unusable, and (2) whether the use of adverse

information as facts available is warranted.

First, we have determined that the resort to facts available for

Filiz's cost data renders its sales data unusable. Because of the

flawed nature of the cost data, home market sales cannot be tested to

determine whether they were made at prices above production cost.

Insofar as the Department can only make price-to-price comparisons

(normal value to export price) on those home market sales that are made

above cost, the systematically flawed nature of the cost data makes

these comparisons impossible. A second problem with using the home

market sales data is the absence of reliable difference in merchandise

figures (DIFMERS). When comparing normal value to export price, the

Department is required to account for the effect of physical

differences between the merchandise sold in each market. See, section

773(a)(6)(C) of the Act. Insofar as DIFMER data is based on cost

information, the effect of these physical differences cannot be

determined by the Department.

In addition, the Department cannot derive a normal value that can

be compared with U.S. price data. When home market sales prices cannot

be used, the Department resorts to the use of constructed value as

normal value. See, sections 773(a)(4), 773(e). However, the constructed

value information reported by Filiz is part of the cost data that,

because it is systematically flawed, has been rejected by the

Department. Therefore, the use of facts available for Filiz's cost data

precludes the use of the submitted constructed value information. The

Department's prior practice has been to reject a respondent's submitted

information in toto when flawed and unreliable cost data renders any

price-to-price comparison impossible. The rationale for this policy is

contained in Notice of Final Determination of Sales at Less than Fair

Value: Grain-Oriented Electrical Steel From Italy, 59 Fed. Reg. 33952,

33953-54 (July 1, 1994), (Grain-Oriented Electrical Steel From Italy),

where the respondent failed the cost verification. The Department

explained that the rejection of a respondent's questionnaire response

in toto is appropriate and consistent with past practice in instances

where a respondent failed to provide verifiable COP information:

[[Page 30312]]

If the Department were to accept verified sales information when

a respondent's cost information (a substantial part of the response)

does not verify, respondents would be in a position to manipulate

margin calculations by permitting the Department to verify only that

information which the respondent wishes the Department to use in its

margin calculation.

That is the situation with Filiz, which has provided accurate and

verified sales information, but has not provided accurate and usable

cost data and has hindered verification of its cost data (see Cost

Verification Report). Although Grain-Oriented Electrical Steel from

Italy was a case involving the Best Information Available (BIA) under

the ``old'' statute, it demonstrates the Department practice of

regarding verified sales information as unusable when the corresponding

cost data is so flawed that price-to-price comparisons are rendered

impossible. Cf. Certain Corrosion-Resistant Carbon Steel Flat Products

from Korea: Final Results of Antidumping Duty Administrative Review, 61

FR 18547, 18559 (April 26, 1996) (the use of total BIA warranted where

reliable price-to-price comparisons are not possible).

Accordingly, we find that there is no reasonable basis for

determining normal value for Filiz in this case. As a result, there is

nothing to compare to U.S. sales to derive a margin calculation. The

Department has resorted, therefore, to total facts available for Filiz.

The next step is to determine whether an adverse inference is

warranted. Section 776(b) of the Act provides that, where the

Department ``finds that an interested party has failed to cooperate by

not acting to the best of its ability to comply with a request for

information from {the Department} * * * {the Department} may use an

inference that is adverse to the interests of that party in selecting

from among the facts otherwise available.''

As discussed above, Filiz failed to provide cost data in the form

and manner requested by the Department, notwithstanding the

Department's repeated requests. Second, Filiz refused to allow the

constant currency financial statements to be entered into the

administrative record of this case. We have thus determined that Filiz

has not cooperated by virtue of not acting to the best of its ability

in this investigation. Accordingly, consistent with section 776(b)(1)

of the Act, we have applied, as total facts available to Filiz, the

higher of the margin from the petition or the highest rate calculated

for a respondent in this proceeding, which is 63.29 percent.

Section 776(c) of the Act provides that where the Department relies

on ``secondary information,'' the Department shall, to the extent

practicable, corroborate that information from independent sources

reasonably at the Department's disposal. The SAA, accompanying the

URAA, clarifies that the petition is ``secondary information.'' See,

SAA at 870. The SAA also clarifies that ``corroborate'' means to

determine that the information used has probative value. Id. However,

where corroboration is not practicable, the Department may use

uncorroborated information.

In the present case, based on our comparison of the sizes of the

calculated margin for the other respondent in this proceeding to the

estimated margin in the petition, we have concluded that the petition

is the most appropriate information on the record to form the basis for

a dumping calculation. Accordingly, the Department has based the margin

on information in the petition. In accordance with section 776(c) of

the Act, we attempted to corroborate the data contained in the

petition. The petitioners based export prices on U.S. import

statistics. We find that this information has probative value because

it was obtained from an independent, public source. See, Notice of

Final Determination of Sales at Less Than Fair Value: Circular Welded

Non-Alloy Steel Pipe from South Africa 61 FR 94, 24271 (May 14, 1996).

The normal value was based on prices between a Turkish producer of

pasta and its wholesaler which were obtained from a market research

report.

When analyzing the petition, the Department contacted the

consultant who prepared the market research report and confirmed the

accuracy of the data as provided in the petition. Accordingly, we have

corroborated, to the extent practicable, the data contained in the

petition.

B. Maktas

In our January 16, 1996, supplemental questionnaire of the

Department requested Maktas to provide a copy of the 1994 financial

statements of its major shareholder, Piyale-Besin Sanayi ve Ticaret

A.S. (Piyale-Besin). In its response, Maktas did not provide a copy of

Piyale-Besin's financial statements, stating that since ``Piyale-Besin

is merely a shareholder of Maktas, the financial statements of Piyale-

Besin are irrelevant to this investigation.'' At the cost verification,

the Department again requested Piyale-Besin's 1994 financial

statements. The Department explained to Maktas that the Department's

normal practice is to request financial information from shareholders

that own a significant percentage of a respondent's stock. Maktas,

however, declined to provide to the Department the financial statements

of Piyale-Besin.

The failure of Maktas to provide Piyale-Besin's financial

statements raises significant questions as to the accuracy of certain

expenses reported to the Department, namely, interest, general and

administrative (G&A), and selling expenses. It is the Department's

practice to require the use of consolidated group information for the

calculation of interest expenses based on the fact that the

consolidated group's controlling entity has the power to determine the

capital structure of each member of the group. See, e.g., Final

Determination of Sales at Less Than Fair Value: Certain Small Business

Telephone Systems and Subassemblies Thereof From Korea, 54 FR 53141,

53149 (December 27, 1989). Piyale-Besin has such power since it owns a

substantial majority of Maktas and its affiliates. It is the

Department's position that majority equity ownership is prima facie

evidence of corporate control. See, e.g., Final Determination of Sales

at Less Than Fair Value: Small Diameter Circular Seamless Carbon and

Alloy Steel, Standard, Line and Pressure Pipe From Italy, 60 FR 31981,

31991 (June 19, 1995). However, because Maktas did not provide Piyale-

Besin's financial statements, we have no information about Piyale-

Besin's interest expenses. Therefore, in accordance with section 776(a)

of the Act, we have applied facts available for Maktas's interest

expenses. In addition to our lack of information regarding interest

expenses, we are not able to confirm that Piyale-Besin did not provide

G&A services to Maktas or incur selling expenses on behalf of Maktas.

Accordingly, we have also applied facts available for G&A and selling

expenses.

Further, Maktas's refusal to provide Piyale-Besin's financial

statements demonstrates that it failed to cooperate by not acting to

the best of its ability to comply with requests for information,

insofar as Piyale-Besin's financial statements do exist and are

available. Indeed, on May 8, 1996, several weeks after the Department

conducted verification, the Embassy of Turkey requested that the

Department accept into the record 1994 financial statements of Piyale-

Besin, which the Embassy of Turkey would provide. The Department

rejected the Embassy's request and informed the Embassy that it was too

late to accept new factual information for the record. Therefore, in

accordance with section 776(b) of the Act, we have determined that an

adverse inference is warranted in the selection of the facts otherwise

available

[[Page 30313]]

for interest, G&A, and selling expenses. As adverse facts available, we

calculated an estimate of Piyale-Besin's interest expenses by applying

the effective interest rate incurred by Maktas during 1994 to the

average amount of Maktas equity owned by Piyale-Besin during the year.

We then added the calculated interest expense to the combined interest

expense of Maktas and three affiliated parties. As in the preliminary

determination, we excluded foreign exchange gains and adjusted the

monthly interest expense amounts for inflation using the wholesale

price index. For G&A expenses, we have no evidence regarding the level

of G&A expense for a company doing business in Turkey, other than the

information reported by Maktas. Therefore, we assumed that Piyale-

Besin's G&A would be at the same level as Maktas. Lastly, for selling

expenses, we treated the indirect selling expenses Maktas incurred on

its sales to the United States as a direct selling expense and made a

circumstance of sale adjustment (COS) for these expenses. (See Comment

2 below.)

Product Comparisons

For purposes of determining appropriate product comparisons to U.S.

sales, we compared identical merchandise, or where there were no sales

of identical merchandise in the home market to compare to U.S. sales,

we made comparisons based on the characteristics listed in the

Department's antidumping questionnaire, as had been applied in the

preliminary determination, and in accordance with section 771(16) of

the Act.

Level of Trade

As set forth in section 773(a)(1)(B)(i) of the Act and in the SAA

accompanying the Uruguay Round Agreements Act, at 829-831, to the

extent practicable, the Department will calculate normal values based

on sales at the same level of trade as the U.S. sales. When the

Department is unable to find sales in the comparison market at the same

level of trade as the U.S. sale(s), the Department may compare sales in

the U.S. and foreign markets at different levels of trade.

In accordance with section 773(a)(7)(A) of the Act, if sales at

different levels of trade are compared, the Department will adjust the

normal value to account for the difference in level of trade if two

conditions are met. First, there must be differences between the actual

selling functions performed by the seller at the level of trade of the

U.S. sale and the level of trade of the normal value sale. Second, the

differences must affect price comparability as evidenced by a pattern

of consistent price differences between sales at the different levels

of trade in the market in which normal value is determined.

In implementing these principles in this case, the Department's

first task was to obtain information about the selling activities of

the producers/exporters. Information relevant to level of trade

comparisons and adjustments was requested in our July 12, 1995

questionnaire, and in supplemental questionnaires sent on October 23,

1995, and January 22, 1996. We asked each respondent to establish any

claimed levels of trade based on the selling functions provided to each

proposed customer group, and to document and explain any claims for a

level of trade adjustment.

Our review of these submissions shows that Maktas has identified

levels of trade based on channels of distribution. In order to

determine whether separate levels of trade actually existed within or

between the U.S. and home markets, we reviewed the selling functions

attributable to the customer groups claimed by Maktas. Pursuant to

section 773(a)(1)(B)(i) of the Act, and the SAA at 827, in identifying

levels of trade for directly observed (i.e., not constructed) export

price and normal value sales, we considered the selling functions

reflected in the starting price, before any adjustments. Whenever sales

within a customer group were made by or through an affiliated company

or agent, we ``collapsed'' the affiliated parties before considering

the selling functions performed. The selling functions and activities

examined for each reported customer group were:

(1) The process used to establish the terms and conditions of sale

(``sales process''); (2) whether the sale was produced to order or

filled from normal inventory (``inventory maintenance''); (3) whether

the customer was serviced from a forward warehouse (``forward

warehousing''); (4) freight and delivery provided or arranged by the

manufacturer/exporter (``freight''); (5) manufacturer provided or

shared direct advertising or in-store promotion expenses

(``advertising''); and (6) warranty service program or after-sales

service provided by producer (``warranties'').

In reviewing the selling functions reported by Maktas for each

customer group, we considered all types of selling functions, both

claimed and unclaimed, that had been performed. Where possible, we

further examined whether the selling function was performed on a

substantial portion of sales within the relevant customer group. In

analyzing whether separate levels of trade exist in this investigation,

we found that no single selling function in the pasta industry was

sufficient to warrant a separate level of trade (see, Notice of

Proposed Rulemaking and Request for Public Comments, 61 FR 7307, 7348

(February 27, 1996)) (Proposed Regulations).

In determining whether separate levels of trade existed in or

between the U.S. and home markets, the Department considered the level

of trade claims of Maktas, but the ultimate decision was based on the

Department's analysis of the selling functions associated with the

customer groups reported by Maktas.

To the extent practicable, we compared normal value at the same

level of trade as the U.S. sale. For Maktas, we compared the level of

trade in the U.S. market to the sole home market level of trade and

found them to be dissimilar in aggregate selling functions. Therefore,

we established normal value at a level of trade different than the U.S.

sales.

We then examined whether a level of trade adjustment was

appropriate for Maktas when comparing its U.S. level of trade to its

home market level of trade. However, because there was only a single

home market level of trade, there was no basis for making a level of

trade adjustment based on a demonstration of a consistent pattern of

price differences between the home market levels of trade. The SAA

states that ``if information on the same product and company is not

available, the adjustment may also be based on sales of other products

by the same company. In the absence of any sales, including those in

recent time periods, to different levels of trade by the exporter or

producer under investigation, Commerce may further consider the selling

experience of other producers in the foreign market for the same

product or other products.'' SAA at 830. The alternative methods for

calculating a level of trade adjustment for Maktas were examined.

However, we do not have information which would allow us to examine

pricing patterns based on Maktas's sales of other products at the same

level of trade as the home market sales and there are no other

respondents with the same levels of trade as those found for the home

market sales of Maktas. Therefore, we were unable to calculate a level

of trade adjustment for Maktas based on these alternative methods.

Accordingly, Maktas's U.S. sales were compared to home market sales

based solely on the product characteristics of the merchandise.

[[Page 30314]]

As noted below in the ``Comparison Methodology'' section of this

notice, where there were distinct price differences within different

levels of trade in the case of Maktas, we considered the customer

category in creating the averaging groups for our comparisons.

Fair Value Comparisons

To determine whether sales of pasta by Maktas to the United States

were made at less than fair value, we compared the Export Price (EP) to

the Normal Value (NV), as described in the ``Export Price'' and

``Normal Value'' sections of this notice. In accordance with section

777A(d)(1)(A)(i) of the Act, we calculated weighted-average EPs for

comparisons to weighted-average NVs.

As discussed in the Preliminary Determination, we determined that

Turkey's economy experienced hyperinflation during the POI.

Accordingly, to avoid the distortions caused by the effects of

hyperinflation on prices, we calculated EPs and NVs on a monthly

average basis, rather than on a POI average basis.

Export Price

We calculated EP in accordance with section 772(a) of the Act,

because the subject merchandise was sold directly to the first

unaffiliated purchase in the United States prior to importation and

Constructed Export Price (CEP) methodology was not otherwise warranted

based on the facts of this investigation. We calculated EP based on the

same methodology used in the preliminary determination. We made the

following additional adjustment, based on information obtained at

verification; we included export customs commission expenses as part of

brokerage and handling expenses and made deductions for these expenses

from the starting price (gross unit price).

Normal Value

In accordance with section 773(a)(1)(B) of the Act, we based NV on

home market sales, or, where appropriate, on CV. We compared all home

market sales to the COP, as described below. Where home market prices

were above the COP, we calculated NV based on the same methodology used

in the preliminary determination, with the following exceptions:

1. As discussed above, we applied facts available for selling

expenses. As facts available, we treated the indirect selling expenses

Maktas incurred on its sales to the United States as a direct selling

expense and made a COS adjustment for these expenses. Indirect selling

expenses as reported were revised based on information obtained at

verification.

2. We made an additional COS adjustment for bank charges incurred

on U.S. sales, based on information obtained at verification.

3. We used revised home market short-term interest rates obtained

at verification for computing imputed credit expenses for home market

sales. For the month of August 1994, in which Maktas did not report a

short-term borrowing rate, we used the average of the short-term

borrowing rates for July and September 1994.

4. For sales made through Andas Gida Dagitim ve Ticaret A.S.

(Andas), one of Maktas's two affiliated distributors in the home

market, we made no deductions for inland insurance because it was found

at verification that Andas did not actually incur any expense for

inland insurance during the POI.

Cost of Production Analysis

As discussed in the preliminary determination notice, the

Department conducted an investigation to determine whether Maktas made

home market sales during the POI at prices below COP within the meaning

of section 773(b) of the Act. Before making any fair value comparisons,

we conducted the COP analysis described below.

A. Calculation of COP

We calculated the COP based on the sum of Maktas's cost of

materials and fabrication for the foreign like product, plus amounts

for home market selling, general and administrative expenses (SG&A) and

packing costs in accordance with section 773(b)(3) of the Act. As noted

in the Preliminary Determination, we used the respondent's reported

monthly COP figures which were based on the current production costs

incurred during each month of the POI. This was done in order to avoid

the distortive effect of inflation on our comparison of costs and

prices. We relied on the reported COP amounts with the following

exceptions:

1. As discussed above in the Facts Available section, we applied

facts available for interest and G&A expenses.

2. Based on information obtained at verification, we recalculated

fixed overhead costs by including certain depreciation expenses. See,

Comment 7 below.

3. We recalculated packing costs for certain products. See, Comment

6 below.

B. Test of Home Market Prices

As stated in the Preliminary Determination, we used the

respondent's adjusted monthly COP amounts and the wholesale price index

published by the Government of Turkey's State Institute of Statistics

to compute an annual weighted-average COP for the POI. We compared the

adjusted weighted-average COP figures to home market sales of the

foreign like product as required under section 773(b) of the Act, in

order to determine whether these sales had been made at below-cost

prices within an extended period of time in substantial quantities, and

at prices that did not permit recovery of all costs within a reasonable

period of time. On a product specific basis, we compared the COP to the

home market prices, less any applicable movement charges, discounts,

rebates, packing, and direct and indirect selling expenses.

C. Results of COP Test

Pursuant to section 773(b)(2)(C) of the Act, where less than 20

percent of sales during the POI of a given product were at prices less

than the COP, we did not disregard any below-cost sales of that product

because the below-cost sales were not made in substantial quantities

within an extended period of time. Where 20 percent or more of sales of

a given product were at prices less than the COP, we disregarded only

the below-cost sales because such sales were found to be made within an

extended period of time, in accordance with section 773(b)(2)(B) of the

Act, and at prices which would not permit recovery of all costs within

a reasonable period of time, in accordance with section 773(b)(2)(D) of

the Act. Where all sales of a specific product were at prices below the

COP, we disregarded all sales of that product, and calculated NV based

on CV, in accordance with section 773(a)(4) of the Act.

We found that, for certain pasta products, more than 20 percent of

Maktas's home market sales were sold at below COP prices within the

POI. Further, these sales did not provide for the recovery of costs

within a reasonable period of time. We determined, therefore, that

these below cost sales were made in substantial quantities within an

extended period of time and we excluded these sales and considered the

remaining above-cost sales in determining NV, if such sales existed, in

accordance with section 773(b). For those pasta products for which

there were no above-cost sales in the ordinary course of trade, we

compared export prices to CV.

D. Calculation of CV

In accordance with section 773(e)(1) of the Act, we calculated CV

based on

[[Page 30315]]

the sum of Maktas's cost of materials, fabrication, SG&A and U.S.

packing costs as reported in the U.S. sales database. In accordance

with sections 773(e)(2)(A), we based SG&A and profit on the amounts

incurred and realized by the respondent in connection with the

production and sale of the foreign like product in the ordinary course

of trade for consumption in the foreign country. Where appropriate, we

calculated CV based on the methodology described above in the

calculation of COP and added an amount for profit. For selling

expenses, we used the weighted-average home market selling expenses.

Comparison Methodology

In accordance with section 777A(d)(1)(A)(i) of the Act, we

calculated weighted-average EPs for comparison to weighted-average NVs.

The weighted averages were calculated and compared by product

characteristics and, where appropriate, level of trade and/or price

averaging groups. The SAA states that in determining the comparability

of sales for inclusion within a particular average, ``Commerce will

consider factors it deems appropriate, such as * * * the class of

customer involved,'' SAA at 842. The Department, not the respondents,

determines which customers may be grouped together for product

comparison purposes. Cf., N.A.R., S.p.A. v. U.S., 741 F. Supp. 936

(CIT, 1990). Based on the chain of distribution for the pasta industry,

we have identified the following five distinct customer categories that

represent different points in the chain of distribution: (1) Other

pasta manufacturers (Pastificios) who purchase and resell pasta; (2)

distributors; (3) wholesalers; (4) retailers; and (5) consumers. Each

of these customer categories was defined by functions commonly

associated with each category of customer in the areas of: (1) category

of the supplier; (2) contractual relationship with the supplier; (3)

exclusivity of sales territory; (4) exclusivity of product range; (5)

sales practices; and (6) downstream customer category.

For Maktas, based on our analysis, we found that there were

consistent price differentials among the customer categories in the

home market. Therefore, the weighted-average prices were calculated and

compared by product characteristics and by customer category.

Currency Conversion

The Department's preferred source for daily exchange rates is the

Federal Reserve Bank. However, the Federal Reserve Bank does not track

exchange rates for the Turkish lira. Therefore, we made currency

conversions based on the daily exchange rate from the Dow Jones

Service, as published in the Wall Street Journal. As discussed below

under Comment 12, we used the actual daily exchange rates for the final

determination.

Verification

As provided in section 782(i) of the Act, we verified information

provided by Maktas using standard verification procedures, including

the examination of relevant sales and financial records, and selection

of original source documentation containing relevant information.

Interested Party Comments

Comment 1 Use of Facts Available for Filiz: The petitioners argue

that Filiz failed verification and, therefore, the Department should

base its final determination on total adverse facts available.

Specifically, the petitioners claim that Filiz significantly impeded

the investigation and acted in an uncooperative fashion by: withholding

its constant currency financial statements; failing to report materials

costs in accordance with the Department's instructions; and refusing to

provide consolidated financial information.

With respect to the constant currency financial statements, the

petitioners argue that Filiz's submitted cost data is flawed due to the

absence of adjustments which were observed by the verifiers in notes to

these financial statements. Furthermore, the petitioners argue that

Filiz was uncooperative by not allowing the constant currency financial

statements as an exhibit and by failing to provide adequate

explanations for concerns which were raised by the Department regarding

the adjustments found in the statements.

Moreover, the petitioners claim that Filiz was instructed by the

Department to report its material costs based upon current material

prices, rather than a LIFO (last-in, first-out) methodology, but failed

to do so. Finally, the petitioners assert that, insofar as Filiz failed

to provide the Department with its consolidated 1994 financial

information, the Department must use adverse facts available.

According to the petitioners, if the Department determines not to

use total facts available, it must adjust Filiz's costs for errors and

correct its final margin calculations to account for inaccuracies and

omissions in the reported costs and expenses that the Department

discovered during verification.

Filiz urges the Department to reject the petitioners' assertion

that facts available should be used for the final determination.

Contrary to the petitioners' contention, Filiz asserts that it was

entirely cooperative throughout the investigation and that its costs

were fully verified. Specifically, Filiz claims that the constant

currency financial statements are irrelevant to this investigation,

that it reported material costs as reflected in its accounting system,

and that it was an impossible task to provide the Department with

consolidated financial information. Filiz suggests that the Department

should use its submitted costs, adjusted for a few clerical errors, for

the final determination.

Filiz argues that the Department did not need to utilize the

constant currency statements because they are irrelevant to this

investigation, insofar as they are adjusted for inflation, were

prepared in accordance with international accounting standards, and

reflect the consolidation of Filiz and Filiz Pazarlama (its affiliate).

In furtherance of its contention that the Department did not need

to make use of the constant currency financial statements, Filiz argues

that its independent accountants did not, in fact, perform an audit on

Filiz's 1994 financial statement, but rather prepared a consolidated,

inflation-adjusted report from the financial statements of the two

corporations (Filiz and Filiz Pazarlama). Moreover, according to Filiz

the adjustments which were noted in the constant currency statements

were not required under Turkish tax law and all pertinent costs of

production are captured in the financial statements which were

submitted to the Department. Filiz suggests that the constant currency

statements may not be used in this investigation since consolidated

financial statements prepared in Turkey do not eliminate intragroup

transactions, and argues that this renders such consolidated financial

statements valueless for antidumping purposes since the Department

holds that intragroup sales must be eliminated from a consolidated

statement.

In addition, Filiz argues that it properly reported material costs

in accordance with the Department's instructions and that the apparent

underreporting described by the petitioners is merely a phenomenon

caused by the high level of sophistication in Filiz's cost accounting

system. According to Filiz, it properly replaced semolina costs with

the average purchase price for the month

[[Page 30316]]

and used a LIFO inventory assumption thereafter. Filiz claims that it

could not have taken any action to avoid the consequence discussed in

the Department's verification report without severing the linkage

between the company's normal accounting procedures and its reported

costs. Therefore, Filiz argues that the Department should accept its

reported costs as they reconcile to its cost accounting system and have

been fully verified.

Finally, Filiz notes that it submitted the stand-alone financial

statements of its parent company and argues that it is prohibited by

Turkish tax law from consolidating the financial statements of the 40

or so affiliated parties in its group. Filiz maintains that it provided

a group-wide interest expense ratio in a supplemental response and that

this figure should be used by the Department for the imputation of any

expenses. In the absence of any evidence of financial transactions

between Filiz and its affiliated parties, Filiz asserts that there is

no justification for amending its reported interest expenses.

DOC Position: Our decision to use facts available for the final

determination is discussed in detail in the Facts Available section. In

this section we respond to additional comments by Filiz which were not

addressed therein.

Based upon our limited review of Filiz's constant currency

financial statements, we agree with Filiz that they were adjusted for

inflation, prepared in accordance with international accounting

standards, and reflect the consolidation of Filiz and an affiliated

distributor of pasta. However, none of these characteristics mitigate

questions raised by the ``major adjustments'' we observed in a note to

the financial statements. These adjustments, which were not recorded by

Filiz in its submitted financial statements, cause us to question

whether Filiz's reported conversion costs, G&A expenses, and financial

expenses accurately reflect the company's production costs.

The fact that these consolidated financial statements were

inflation-adjusted and prepared in accordance with international

accounting standards does not reduce our concerns. Although Filiz

claims that these adjustments arise from differences between Turkish

tax law and international accounting standards, it does not explain why

these differences were not taken into account during its preparation of

the COP and CV data. As noted in the cost verification report, Price

Waterhouse has stated that the differences between these two sets of

accounting rules (Turkish and international) are significant and, in

fact, the constant currency financial statements would present a more

accurate picture of Filiz's costs: ``In general, lack of clearly

defined commercial accounting principles and the predominance of tax

law mean that reports prepared in accordance with Turkish law should be

treated with extreme caution and the framework of fair presentation

under IASC `Standards Recommended by the International Accounting

Standards Committee' is preferred.'' (Doing Business in Turkey by Price

Waterhouse (1993), page 101.)

Additionally, Filiz's counsel stated during the public hearing that

the financial statements used by Filiz to calculate its reported costs

were prepared on a cash basis. The potential effect of calculating

production costs on a cash basis, rather than an accrual basis, is

especially significant due to the hyperinflation which existed in

Turkey during 1994 (inflation totaled 121.24 percent, according to the

IMF's International Financial Statistics).

The suggestion at verification by counsel for Filiz that the

company's management and staff were unable to answer any questions

about the constant currency statements because they were prepared by

the company's auditors, is not supported by international accounting

standards. As noted in the cost verification report, and as confirmed

by Filiz, the constant currency statements were prepared in accordance

with standards issued by the International Accounting Standards

Committee (IAS). According to the IAS, ``The management of an

enterprise has the primary responsibility for the preparation of the

financial statements of the enterprise.'' (Framework for the

Preparation and Presentation of Financial Statements, International

Accounting Standards Committee (July 1989) at paragraph 11.)

Accordingly, it is reasonable to expect that Filiz personnel should

have been able to answer the Department's questions about these

statements. Moreover, Filiz management had ample opportunity to consult

with its auditors, if they believed it was necessary to do so, for a

proper understanding of the statements. Instead, Filiz chose to

withhold the statements and explanations.

Additionally, Filiz appears to contradict itself when it argues

that the constant currency financial statements do not eliminate

intragroup transactions. Filiz claims that certain companies in Turkey

produce consolidated financial statements in which ``no elimination of

intragroup transactions or unrealized intercompany profits is

possible.'' (Doing Business in Turkey, page 106.) We note, however,

that if these statements were prepared in accordance with IAS

standards, as claimed, then, such transactions would not have been

included: ``intragroup balances and intragroup transactions and

resulting unrealized profits should be eliminated in full.''

(Consolidated Financial Statements and Accounting for Investments in

Subsidiaries, International Accounting Standards Committee (April 1989)

at paragraph 30.)

Regarding the LIFO methodology, the Department provided clear

instructions to Filiz that the ``valuation of materials used should be

based upon current material prices.'' (See, July 12, 1995 questionnaire

at D-13 and October 13, 1995 supplemental questionnaire at 3.)

Furthermore, the respondent was instructed to contact the Department if

there were any questions regarding its computation of costs.

With regard to Filiz's comments regarding its consolidated

financial information, these issues became moot when the Department

decided to base its final determination on total adverse facts

available.

Comment 2 Use of Facts Available for Maktas: The petitioners argue

that the Department should use total facts available for Maktas in the

final determination because: (1) Maktas failed to provide the

Department with critical information; (2) the Department made repeated

requests for such information; (3) Maktas ignored these requests and

provided no explanation why it would not provide the requested

information; and (4) without this information, the Department cannot

rely on or properly verify other information provided by Maktas.

Specifically, petitioners note that Maktas refused to provide the

Department with the 1994 financial statements of its major shareholder,

Piyale-Besin, and the monthly financial statements of Mafer Ambalaj

Sanayi ve Ticaret Ltd. Sti (Mafer), one of Maktas's affiliated

companies. Without the financial statements of these two companies, the

petitioners contend that the Department could not confirm the accuracy

of the information provided in both the COP/CV and sales verifications,

and, thus, the Department cannot calculate an appropriate normal value

or perform accurate sales comparisons.

According to the petitioners, Maktas's failure to provide financial

statements for Piyale-Besin results in a failure by the Department to

verify whether Piyale-Besin has provided Maktas with any assistance or

absorbed any costs related to administration, finance,

[[Page 30317]]

accounting, selling, marketing, or advertising of pasta. Additionally,

the petitioners contend that without Piyale-Besin's financial

information, the Department could not properly verify sales information

for Maktas and its affiliates. In particular, the petitioners raise

questions about Maktas's claim that, with the exception of Maktas's two

affiliated distributors in the home market (i.e., Tumgida Dagitim ve

Ticaret Ltd. Sti. and Andas), none of the affiliated companies of

Maktas, including Piyale-Besin, is engaged in the production or sale of

pasta.

Moreover, the petitioners note that Maktas failed to provide the

Department with monthly financial information for Mafer, which was

requested in a supplemental questionnaire. Accordingly to the

petitioners, without the monthly financial statements of Mafer, the

Department could not verify Maktas's claim that Mafer is an inactive

company. The petitioners in particular question whether Mafer, who is

related to Maktas, has provided Maktas with any packaging materials for

pasta which, if true, could result in discrepancies in the reported

packaging costs.

In support of its position for application of total facts

available, the petitioners cite Grain-Oriented Electrical Steel From

Italy, where the Department concluded that ``without verified COP/CV

data'' the Department has no basis to calculate an appropriate normal

value and cannot perform sales comparisons. Therefore, the Department

used total facts available in that case. Similarly, the petitioners

urge the Department to use total facts available for Maktas in the

final determination.

Furthermore, the petitioners argue that the Department should apply

adverse facts available because the respondent failed to cooperate by

not acting to the best of its ability to comply with a request for

information. The petitioners claim that Maktas's refusal to provide the

financial information of Piyale-Besin and Mafer demonstrates that

Maktas has been uncooperative and has significantly impeded this

investigation. Accordingly, the petitioners contend that the Department

should select as facts available the highest margin contained in the

petition for use in the final determination.

Maktas argues that the application of facts available is

unwarranted. In the absence of significant intercompany transactions

between Piyale-Besin and itself, Maktas claims that it would be

improper to presume that expenses of Piyale-Besin and itself should be

consolidated for purposes of margin calculation. In support of its

argument, Maktas cites Final Determination of Sales at Less Than Fair

Value: Ferrosilicon from Brazil, 59 FR 732, 737 (January 6, 1994)

(Ferrosilicon from Brazil).

According to Maktas, even though the Department was not able to

examine the financial statements of Piyale-Besin, it had full access to

all of Maktas's financial records from which to verify that there were

no significant transactions between Piyale-Besin and Maktas. Maktas

submits that, in fact, there was one small sales transaction between

Piyale-Besin and Tumgida during the POI, which was reported in its

response and subsequently excluded from the preliminary margin

calculation. Maktas maintains that the Department, through its

examination of Maktas, Andas, and Tumgida's sales records, verified

that no other transactions between Piyale-Besin and the respondent

occurred during the POI. Accordingly, Maktas argues that it should not

be subjected to facts available by reason of not providing the

financial statements of Piyale-Besin.

With respect to Mafer, Maktas maintains that Mafer was inactive

during the POI. Mafer's 1994 year-end financial statement, which was

provided to the Department in its November 13, 1995, submission,

reports a small amount of gross sales and cost of services. Maktas

asserts that such small financial figures are indicative of an inactive

company. Therefore, Maktas contends that it should not be subjected to

any facts available by reason of not providing the monthly financial

statements of Mafer.

DOC Position: We disagree with the petitioners' claim that we

should use total adverse facts available for Maktas in the final

determination. With respect to Piyale-Besin, we do not believe that

Maktas's refusal to provide Piyale-Besin's financial statements

warrants the application of total adverse facts available. However, as

discussed above in the Facts Available section of the notice, we

conclude that the application of facts available for certain elements

of cost and sales data (i.e., interest, G&A and selling expenses) is

appropriate for our final determination.

Regarding the petitioners' reliance on Grain-Oriented Electrical

Steel From Italy in support of its request for total facts available,

we note that circumstances as presented in that case are distinct from

those in this investigation. Unlike in Grain-Oriented Electrical Steel

From Italy, there were no significant problems found in Maktas's

reported materials, labor, and overhead costs. While it is true that

Maktas's failure to provide the financial statements of Piyale-Besin

raises questions as to the accuracy of certain reported expenses,

Maktas was able to substantiate much of the remaining information

contained in its COP/CV database. Therefore, the application of total

adverse facts available would be inappropriate.

Furthermore, with respect to the petitioners' assertion that

without access to Piyale-Besin's financial statements we could not

verify Maktas's claim that Piyale-Besin is not engaged in the sale of

pasta, we refer to the Dun and Bradstreet ``Business Information

Report'' (BIR) on Piyale-Besin which we independently obtained for the

record on January 24, 1996. The BIR states that Piyale-Besin is an

``investment company'' with five employees, which supports Maktas's

contention that Piyale-Besin is only a holding company. Further, the

BIR lists ``affiliates'' of Piyale-Besin. Based on information on the

record, we are satisfied that none of the active affiliates listed in

the BIR, other than Maktas, Tumgida and Andas, are engaged in the

production or sale of pasta. Thus, we believe that it is reasonable to

conclude that Maktas has completely reported its sales of pasta.

Turning to Maktas's argument, we note that Maktas's reliance on

Ferrosilicon from Brazil in support of its position that consolidation

of interest expense (or any other expenses) is required ``only after it

has been established that the holding company and the respondent have

significant financial transactions with each other'' is misplaced. In

that case, the Department clearly stated its position that ``the cost

of capital is fungible, therefore, calculating interest expenses based

on consolidated statements is the most appropriate methodology.'' Id.

at 732. With respect to Mafer, we agree with Maktas that the evidence

on the record supports its claim that Mafer is inactive.

Comment 3 Level of Trade: Comment 3A Whether the Department Should

Consider the Class of Customer and/or Channel of Distribution in

Determining Whether Separate LOTs Exist: The petitioners and Maktas

argue that the level of trade (LOT) methodology adopted by the

Department in its preliminary determination is flawed and should be

substantially revised in the final determination. Specifically, the

petitioners and Maktas assert that the Department improperly focused

solely on selling functions and ignored the customer groups and/or

channels of distribution identified by each respondent as potentially

different points in the chain of distribution.

[[Page 30318]]

The petitioners assert that it has been long recognized by the

Department and the Court of International Trade (CIT) that LOTs reflect

``an attempt to reconstruct prices at a specific, `common' point in the

chain of commerce * * *''), Smith Corona v. United States, 713 F.2d

1568, 1571-72 (Fed. Cir. 1983). Claiming that the new statute, the SAA,

and the Department's Proposed Regulations do not define LOT or

establish criteria for determining separate LOTs, the petitioners argue

that the fundamental concept of LOT has not changed under the new

statute. Therefore, they each contend that the definition of LOT still

reflects the Court of Appeals' and the Department's longstanding

interpretation of that term (i.e., that LOT refers to different points

in the chain of distribution). (See, e.g., Import Administration Policy

Number 92/1 at 2 (July 29, 1992), (``In asking for LOT information, the

Department is trying to determine where in the distribution chain the

respondents' customer falls (end user, distributor, retailer).'')

Certain Carbon and Alloy Steel Wire Rod from Canada, 59 FR 18,791,

18,794 (April 20, 1994), (``Comparisons are made at distinct,

discernable levels of trade based on the function each level of trade

performs, such as end-user, distributor, and retailer.'')).

Although the petitioners recognize that the new statute contains

certain refinements to the LOT concept, the petitioners argue that the

amendments to the law made by the URAA did not alter the fundamental

definition of LOT as noted above. Consequently, they argue that the

starting point for determining whether different LOTs exist is whether

the sales take place at different points in the chain of distribution.

The petitioners cite Certain Stainless Steel Wire Rods from France:

Preliminary Results of Antidumping Duty Administrative Review, 61 FR

8915, 8916 (March 6, 1996) (French Rod) as a recent case where, in

analyzing potential LOTs, the Department relied upon the distinctions

the respondents identified between channels of distribution.

(``Respondents reported two channels of distribution in the home market

* * *. We examined and verified the selling functions performed in each

channel * * *. Overall we determine that the selling functions between

the two sales channels are sufficiently similar to consider them one

level of trade in the home market.'')), French Rod, 61 FR 8916.

Therefore, the petitioners assert that the Department should consider

the potential LOTs identified by the respondents, in terms of channels

of distribution or customer groups, in determining whether separate

LOTs exist.

DOC Position: While neither the Act nor the SAA provides an

explicit definition of LOT or establishes criteria for determining

whether separate LOTs exist, the SAA does specify that the Department

requires evidence that ``different selling activities are actually

performed at the allegedly different levels of trade'' before

recognizing distinct LOTs. SAA at 829. This is confirmed again by the

SAA in the discussion of the required pattern of price differences for

the LOT adjustment, where it states that ``where it is established that

there are different levels of trade based on the performance of

different selling activities * * *,'' Commerce will make a LOT

adjustment. SAA at 830. Thus, the Act and the SAA have identified

selling activities as a key factor in determining LOTs; however, the

statute does not require that this analysis begin and end with the

selling activities of the producer/exporter.

In the preliminary determination, the Department stated that it

would continue to examine its policy for making LOT comparisons and

adjustments. After reviewing the comments we received on this issue as

well as the Department's recent practice for determining the existence

of LOTs, we have determined that certain modifications to the LOT

methodology used in the preliminary determination are warranted. As

described in the ``Level of Trade'' section of this notice, above, in

order to determine whether distinct LOTs exist, we have examined the

full array of selling functions provided to each of the customer groups

alleged by Maktas. As noted in Comment 3C below, we believe that this

approach will allow us to consider all types of selling functions, both

claimed and unclaimed, that had been actually performed in determining

the LOT and avoid instances where a single selling function difference

on individual sales transactions warrants the finding of a distinct

LOT. Finally, by reviewing the selling functions within each of the

alleged customer groups, we expect that the analysis will capture any

possible differences in the mix of selling activities provided for each

customer group.

Comment 3B Whether the Selling Functions of a Respondent Should be

Considered in Determining Whether Separate LOTs Exist: Maktas argues

that the functions or services performed by the respondents are not

determinative of whether different LOTs exist and should not be taken

into consideration in the Department's LOT analysis. Maktas asserts

that Section 773(a)(7)(A) of the new statute provides for a LOT

adjustment ``if the difference in LOT * * * involves the performance of

different selling activities.'' Accordingly, Maktas asserts that the

selling activities of the respondent cannot be part of the definition

of LOT and only become relevant after it is determined that separate

LOTs, in fact, exist. Therefore, Maktas argues that the question of

whether the seller performs different selling functions is only

relevant in determining whether a LOT adjustment is warranted.

The petitioners argue that the SAA is clear in stating that selling

functions are intended to be an integral part of establishing whether

different LOTs exist. (``Commerce will grant {LOT} adjustments only

where: (1) There is a difference in the LOT (i.e., there is a

difference between the actual functions performed by the sellers at the

different levels of trade in the two markets)). SAA at 829. The

petitioners contend that the SAA's reference to a ``difference between

the actual functions performed'' clearly implies that a distinction in

LOT should not be made without a finding of functional differences. In

addition, the petitioners claim that the SAA implies that something

more than a mere reference to the class of customer would be needed to

identify separate LOTs { ``[n]ominal reference to a company as a

`wholesaler,' for example, will not be sufficient'' in determining

LOT}. SAA at 829. Therefore, the petitioners argue that a selling

function analysis is relevant in determining whether separate LOTs

exist and that the Department should continue to examine the selling

functions of the respondents in its final determination. The

petitioners cited French Rod as a recent case where the Department

examined the selling activities of the respondent in determining

whether there were separate LOTs (``In order to identify LOTs, the

Department must review information concerning the selling functions of

the exporter,'' French Rod, 61 FR 8916 (March 6, 1996).

DOC Position: We agree with the petitioners. The SAA states that,

``Commerce will require evidence from the foreign producers that the

functions performed by the sellers at the same level of trade in the

U.S. and foreign markets are similar, and that different selling

activities are actually performed at the allegedly different levels of

trade * * *. On the other hand, Commerce need not find that the two

levels involve no common selling activities to

[[Page 30319]]

determine that there are two levels of trade.'' SAA at 159, and Cf.,

Proposed Regulations at 7348. Thus, as noted in Comment 3A above,

information about the selling activities of the producer/exporter is

essential to the identification of LOTs.

Comment 3C Whether the Department Should Reject The Four Selling

Function Coding System Used in the Preliminary Determination: In the

event the Department determines it is appropriate to define LOTs based

on selling function distinctions, the petitioners argue that the LOT

coding methodology used in the preliminary determination should be

rejected because it is inconsistent with law and commercial reality.

First, the petitioners assert that the Department's LOT coding system

resulted in a finding that a difference in any one selling function is

sufficient to define a separate LOT. The petitioners argue that this

methodology is at odds with the Department's Proposed Regulations which

specifically reject the notion that a difference in one selling

function alone would be sufficient to define an entirely separate LOT

in most instances. Cf., e.g., Notice of Proposed Rulemaking and Request

for Public Comments, 61 FR 7308, 7348 (February 27, 1996) (Proposed

Regulations) at 7348.

Second, the petitioners argue that the selling function categories

used in the preliminary determination are unreasonable and overly

narrow. Given the different combinations of the four selling function

categories used in the preliminary determination, there were 16

possible LOT combinations in each market. The petitioners assert that

because LOT is used as a matching criterion, the overly-narrow LOT

segments resulted in large amounts of home market sales not being used

to determine whether dumping was occurring.

Finally, the petitioners argue that the extent or cost of the

function provided should not be used to distinguish selling activities.

The petitioners assert that while expenses for services to some

customers may be more than to others, the expense difference may not

reflect a true difference in selling activities or services, but

instead represent the costs associated with sales shipped in larger or

smaller quantities or to different geographic locations. In addition,

the petitioners note that because the Department did not request data

concerning the degree to which any selling activity is performed, there

is no basis for the Department to perform such an analysis in this

case.

DOC Position: In the preliminary determination, the Department

stated that it would continue to examine its policy for making LOT

comparisons and adjustments. After reviewing the comments we received

on this issue as well as the Department's recent practice for

determining the existence of separate LOTs, we agree with the

petitioners that certain modifications to the LOT methodology utilized

in the preliminary determination are warranted. Specifically, we find

that: (1) The preliminary coding methodology measured LOTs based on the

existence of individual selling functions, rather than basing LOTs on

the collective array of selling activities performed by the seller; and

(2) the coding system led to the result that a difference in just one

selling function on any given sale necessarily justified a difference

in LOT. Although neither the Act nor the SAA provide explicit

guidelines for identifying LOTs, the preamble to the Proposed

Regulations reflects our practice and states that ``small differences

in the functions of the seller will not alter the level of trade.''

Proposed Regulations at 7348. Although the Proposed Regulations provide

that a single function may be so significant as to constitute the

existence of a separate LOT, we have determined that no single selling

function in the pasta industry warrants the finding of a separate LOT.

Therefore, as noted in the ``Level of Trade'' section of this notice,

above, we have revised the LOT methodology used for the final

determination. In order to determine whether separate LOTs existed

within or between the U.S. and home markets, we have reviewed the full

array of selling functions, in the aggregate, provided to each of the

customer groups alleged by Maktas. In addition, because we have

determined that no single selling function in the pasta industry is so

significant as to alter the LOT, we have no longer considered a single

difference in selling function to justify the finding of a separate

LOT.

Comment 3D Which Selling Functions Should be Considered in

Determining Whether Separate LOTs Exist: In lieu of the LOT methodology

adopted in the preliminary determination, the petitioners argue that

the Department should examine the full array of selling functions, in

the aggregate, provided to each potential LOT to determine whether

separate LOTs exist. The petitioners assert that this methodology was

adopted by the Department in the French Rod case where the Department

examined the collective array of selling activities performed for each

channel of distribution and found that minor differences between the

home market sales examined did not justify segmenting the sales into

different LOTs (``{we} found that the two sales channels provided many

of the same or similar selling functions including: strategic planning,

order evaluation, warranty claims, technical services, inventory

maintenance, packing and freight and delivery. We found some

differences between the two channels of trade in advertising, customer

contacts, computer systems (order input/invoice system), and

administrative functions. Overall, we determine that the selling

functions between the two sales channels are sufficiently similar to

consider them as one level of trade in the home market''). 61 FR at

8916.

Specifically, the petitioners assert that the following selling

functions are relevant to the Department's LOT analysis for the U.S.

and Italian pasta markets: (1) Freight and delivery; (2) customer sales

contacts; (3) advertising; (4) technical services; (5) warranties; (6)

inventory maintenance (pre-sale); (7) post-sale warehousing; and (8)

administrative functions. In addition, the petitioners contend that in

performing the selling function analysis, the Department should ensure

that the selling activity is consistently applied to all, or at least

the vast majority, of customers at each potential LOT identified. The

petitioners claim it would be inappropriate to consider a selling

function applicable to a particular LOT where the function was not

provided to all customers, or on some but not all sales.

Finally, the petitioners argue that the Department should not

attempt to define LOTs based on the following factors because they do

not relate to differences in selling activities:

(1) Quantities/Volumes Sold: The petitioners assert that the SAA

states that differences based on quantities sold are not a legitimate

basis for defining LOTs or LOT adjustments. SAA at 830.

(2) Geographical Location of the Customer: The petitioners claim

that the fact that two customers may be located in physically distinct

geographical areas does not, in and of itself, demonstrate that

different LOTs exist.

(3) Which Selling Entity Performs the Functions: The petitioners

assert that whether a selling function is performed by an unaffiliated

sales agent, an affiliated sales agent or the manufacturer, the same

function is provided and the costs to the seller are the same.

Therefore, the petitioners argue that the Department should not

differentiate LOT based on which entity performs the selling function.

(4) Commissions: The petitioners argue that commissions are merely

[[Page 30320]]

payments to an agent to perform the same function that would otherwise

be incurred by the manufacturer directly. Accordingly, the petitioners

argue that commissions are an invalid basis to distinguish LOT.

(5) Discounts and Rebates: The petitioners argue that discounts and

rebates are pricing mechanisms, not selling functions or activities,

and that the presence of a discount or rebate has no bearing on the

point in the chain of distribution at which the transaction occurs. In

addition the petitioners contend that the dumping calculations

recognize that discounts and rebates are a function of price by

deducting them as ``price adjustments'' rather than ``COS

adjustments.'' Proposed Regulations at 7381. For all of these reasons,

the petitioners argue that discounts and rebates should not be included

as a selling function distinction for LOT purposes.

(6) Distinctions Between Customers Based on Price: The petitioners

assert that the statute does not suggest that LOT distinctions can be

based on price differentials. (For a further discussion of this issue,

see Comment 4D below.)

DOC Position: We agree with the petitioners that the Department's

LOT analysis should consider the full array of selling functions in the

aggregate, and ensure that the selling function was consistently

applied to at least the vast majority of customers and sales in each

LOT. As stated in the ``Level of Trade'' section of this notice, above,

no single selling function in this industry warranted a separate LOT

and, wherever possible, we examined whether the selling function was

performed on a substantial portion of sales within the customer groups

reported by Maktas. A company specific description of the selling

functions assigned to the level(s) of trade for Maktas is provided in

Comment 3E, below. In determining whether a selling function was

applicable to a substantial portion of customers in the reported

customer group, we relied on Maktas's narrative responses and sales

transaction data, as well as information obtained during verification.

Section 773(a)(1)(B)(i) of the statute states that normal value

will be based on ``the price at which the foreign like product is first

sold * * * and to the extent practicable, at the same LOT as the export

price or constructed export price.'' The SAA specifies that normal

value will be calculated ``at the same LOT as the constructed export

price or the starting price for export sales.'' SAA at 827. Therefore,

in identifying LOTs for export price and normal value sales, we

considered the selling functions reflected in the starting price,

before any adjustment, for the customer group reported by Maktas.

We agree, in part, with the petitioners regarding the types of

selling functions that should or should not be considered in defining

LOTs. The selling functions to be considered in establishing whether

separate LOTs exist were based on the nature of the pasta industry. The

five selling functions used by the Department to establish the LOTs in

this investigation are reflective of the functions and activities

incurred in the sale of pasta to the U.S. and in the home market. These

functions have been identified in the ``Level of Trade'' section of

this notice, above. However, we disagree with the petitioners that

technical services or post-sale warehousing should be included in the

selling function analysis; these activities did not occur in the pasta

industry. Regarding the other selling functions, we were generally in

agreement with the petitioners' recommendations regarding which selling

functions to include in determining LOTs.

Comment 3E Company-Specific Analysis of Selling Functions: The

petitioners argue that a review of the selling functions undertaken by

Maktas to the U.S. and home market customers, based on the collective

approach to analyzing selling functions utilized in French Rod, shows

that there are few, if any, functional differences between the U.S. and

home market sales of pasta. Therefore, petitioners claim that the

Department should determine that different LOTs do not exist for Maktas

within the U.S. or Turkish markets or between the U.S. and Turkish

markets.

Insofar as the Department has conducted its own selling function

analysis to determine whether separate LOTs exist, many of the

arguments presented by the petitioners are now moot and, therefore,

have not been specifically addressed. Therefore, the Departmental

Position for each respondent reflects the results of the Department's

selling function analysis. The selling function analysis utilized by

the Department is described in the ``Level of Trade'' section of this

notice, above.

The petitioners argue that Maktas's request for differentiating

LOTs on must be rejected for two reasons: (1) Maktas has not

demonstrated which sales are in which channel of distribution

identified, or even that all sales within a channel are shipped as

described, and (2) the selling functions examined by the Department

provide no basis for distinguishing home market LOTs. Further, the

petitioners argue that an examination of the selling functions used by

the Department at the preliminary determination provides no basis to

find different LOTs in the U.S. or home market. Therefore, the

petitioners argue that the Department should continue to compare U.S.

sales to all home market sales for the final determination.

DOC Position: We agree with the petitioners, in part. Based on our

own analysis of the selling functions performed by Maktas, as described

in the ``Level of Trade'' section of this notice, above, we found that

all U.S. and home market sales were made at a single LOT. However, we

determined that the U.S. LOT was different from the home market LOT.

Maktas reported one customer group in the U.S. market. For the home

market, Maktas reported seven customer groups. We found these customer

groups to be similar in that Maktas performed the following selling

functions for certain customer groups: sales process, inventory

maintenance, forward warehousing, freight, advertising and warranties.

We found these customer groups to be different in how Maktas performed

forward warehousing for certain customer groups. Overall, we determined

the selling functions between these seven customer groups to be

sufficiently similar to consider them one LOT.

We then compared the LOT in the U.S. market to the home market LOT

and found the selling functions performed for certain customer groups

in the areas of freight, forward warehousing, and warranties to be

similar. We found the selling functions performed for certain customer

groups in the areas of sales process, inventory maintenance, forward

warehousing, and advertising to be dissimilar. Overall, these factors

warrant finding the U.S. and home market sales to be made at different

LOTs.

Comment 3F LOT Adjustments: To the extent the Department finds LOT

distinctions between U.S. and home market sales, the petitioners argue

that there is no justification for a LOT adjustment for any of the

respondents in this investigation. Specifically, the petitioners assert

that Section 773(a)(7)(A) of the Act states that LOT adjustments are

permissible only to the extent that it has been demonstrated that the

difference between EP and normal value reflects differences in LOTs

involving the performance of different selling functions and ``a

pattern of consistent price differences between sales'' at the

different LOTs in the home market. In addition, the petitioners assert

that the SAA states that ``if a respondent claims an

[[Page 30321]]

adjustment to decrease normal value, as with all adjustments which

benefit a responding firm, the respondent must demonstrate the

appropriateness of such adjustment.'' SAA at 829. Therefore, the

petitioners argue that by law, the respondents bear the burden of

demonstrating entitlement to a LOT adjustment and that Maktas has not

met this burden.

DOC Position: We agree with the petitioners, in part. As described

in the ``Level of Trade'' section of this notice, above, we found no

basis for making a LOT adjustment for Maktas. In light of the fact that

we did not make a LOT adjustment, we regard the petitioners argument

concerning the burden on respondent to demonstrate entitlement to a LOT

adjustment to be moot.

Comment 4A Whether to Take Customer Category into Account in

Creating the Weighted-Average Groups used for Product Comparisons: The

petitioners argue that neither the law nor the facts of this

investigation support making product comparisons based on customer

classes unless it is demonstrated that the difference between customer

classes reflect a difference in the LOT. Citing Section 773(a)(1)(B) of

the Act, the petitioners contend that normal value is defined based on

price comparisons reflecting the same physical characteristics and,

where possible, the same LOT, as the export or constructed export

price. Therefore, the petitioners assert that absent a finding of

different LOTs among the various customer categories, the Department

cannot make product comparisons based on customer categories or

channels of distribution.

Although the petitioners recognize that the SAA refers to ``the

class of customer involved'' as a factor that the Department may

consider in creating averaging groups, the petitioners contend that the

Department's Proposed Regulations emphasize that the use of averaging

groups was intended to apply only to U.S. prices, and was not meant to

affect the calculation of normal value. (``In applying the average-to-

average method, the Secretary will identify those sales* * * to the

United States that are comparable, and will include such sales in an

``averaging group.'' ``An averaging group will consist of subject

merchandise* * * that is sold to the United States at the same LOT. In

identifying sales to be included in an averaging group, the Secretary

also will take into account, where appropriate, the region of the

United States in which the merchandise is sold* * *.''). Proposed

Regulations at 7386 (section 351.414(d)). (Emphasis added).

The petitioners contend that normal value is still defined in the

law based on price comparisons reflecting the same product

characteristics and, where possible, the same LOT. Therefore, the

petitioners argue that the Department does not have the authority under

the new statute to subdivide home market sales into separate groups

based on customer classes unless it is first demonstrated that the

difference between customer classes reflects a difference in LOT. The

petitioners claim that to do otherwise would effectively be using the

product averaging concept to re-define normal value.

Finally, the petitioners argue that the Department's recent

practice of considering either the class of customer or the channel of

distribution as a factor in the averaging group without first finding

distinct LOTs is unlawful and inconsistent. Specifically, the

petitioners assert that in Polyvinyl Alcohol the Department created

product averaging groups based on customer categories stating that it

found ``significantly different prices, depending on the customer

category.'' 61 FR at 14070. The petitioners contend that in French Rod

and Kiwifruit the Department relied on channels of distribution, rather

than customer categories, in determining the averaging groups and

further identified no pricing distinctions between the channels

examined. In all three cases the petitioners assert that the Department

made no statutory citations and provided little or no explanation for

its actions.

DOC Position: We disagree with the petitioners. Section

777A(d)(1)(A)(i) of the Act states that the Department will determine

whether the merchandise is being sold in the United States at less than

fair value ``by comparing the weighted average of the normal values to

the weighted average of the export prices (and/or constructed export

prices) for comparable merchandise.'' In addition, the SAA specifies

that in order to ensure that the weighted-averages are meaningful,

``Commerce will calculate averages for comparable sales of subject

merchandise'' sold in both the U.S. and foreign markets. ``In

determining the comparability of sales for inclusion within a

particular average, Commerce will consider factors it deems

appropriate, such as * * * the class of customer involved.'' SAA at

842. See also, Proposed Regulations at 7349.

Although we agree with the petitioners that the Proposed

Regulations refer to the term ``averaging groups'' only in the context

of U.S. sales, we do not agree with the petitioners' assertion that the

use of averaging groups was intended to apply only to U.S. prices, and

was not meant to affect the calculation of normal value. As noted

above, the statute directs the Department to compare weighted average

normal values to weighted-average export prices/constructed export

prices. In addition, the SAA states that for inclusion within a

particular average, the Department will consider factors it deems

appropriate. Therefore, in order to ensure a fair comparison, customer

category is a factor that may be used in both the calculation of export

price and/or constructed export price and normal value.

As noted in the ``Comparison Methodology'' section of this notice,

above, and Comment 4B, below, it is the responsibility of the

Department, not respondents, to determine which customers may be

grouped together for product comparison purposes. Accordingly,

consistent with the SAA and our practice in Polyvinyl Alcohol, we have

relied on the revised customer categories in calculating the weighted-

average values used for sales comparisons in instances where: (a) We

found that distinct customer categories existed, and (b) we determined

that there was a consistent and uniform pattern of pricing differences

among the customer categories. (For a further discussion on price

averaging and the calculation of the weighted average prices for each

respondent, see the ``Comparison Methodology'' section of this notice,

above.)

Comment 4B Whether to Accept the Customer Classifications or

Channels of Distribution Alleged by the Respondents: The petitioners

argue that in the event the Department determines it is appropriate to

create averaging groups based on customer categories or channels of

distribution, it is up to the Department, not the respondents, to

determine which customers may be grouped together. Timken Co. v. United

States, 630 F. Supp. 1327 (Ct. Int'l Trade 1986) (the Court held that

the Department is obligated to choose the home market models for

comparison and may not delegate this role to respondents). In addition,

the petitioners cite to the SAA in support of their contention that the

Department should not accept a respondent's ``nominal reference to

customer classes'' without requiring evidence of actual class

differences based on the selling functions of the respondent. SAA at

829. To the extent the Department rejects reliance on selling functions

as a means of distinguishing customer categories, the petitioners argue

that the Department should, at a minimum,

[[Page 30322]]

determine whether different customers exist at different points in the

chain of commerce. Citing PETs from Singapore, the petitioners assert

that it is not the Department's practice to accept, without question,

the respondents' characterizations of its customer classes as the basis

for determining its product comparisons groups. (See, e.g., Final

Determination of Sales at less Than Fair Value: Certain Portable

Electric Typewriters from Singapore, 58 FR 43334, 43338-43339 (August

16, 1993)(PETs from Singapore) (stating that all retailers had the same

function and, thus, no distinction between the claimed customer

categories was justified.)

DOC Position: We agree with the petitioners that it is the

responsibility of the Department, not respondents, to identify which

customers may be grouped together for product comparison purposes. This

has been our consistent practice and policy. Cf., N.A.R., S.p.A. v.

United States, 741 F. Supp. 936 (Ct. Int'l Trade 1990). (Insofar as a

foreign manufacturer, given the opportunity of selecting which product

comparisons should be used, would most likely make a choice that is

most advantageous to itself, the identification of product comparisons

are made by the Department.) See also, United Engineering & Forging v.

United States, 779 F. Supp. 1375, 1381 (Ct. Int'l Trade 1991); See

Final Determination of Sales at Less than Fair Value: Certain Hot-

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

Flat Products from the Netherlands, 58 Fed. Reg. 37199, 37202 (July 9,

1993).

Therefore, as noted in the ``Comparison Methodology'' section of

this notice, above, it is the responsibility of the Department, not

respondents, to determine which customers may be grouped together for

product comparison purposes. Based on the chain of distribution for the

pasta industry, we reclassified the customer groups identified by

Maktas into two distinct customer categories representing distinct

points in the chain of distribution. For a further discussion, see the

``Comparison Methodology'' section of this notice, above.

Comment 4C Whether to Use Customer Category or Channel of

Distribution in Defining the Averaging Groups used for Product

Comparisons: The petitioners argue that to the extent a respondent has

claimed distinctions in home market sales based on channels of

distribution, the Department should reject these distinctions and

instead rely on customer categories in creating the product comparison

groups. The petitioners assert that nothing in the new statute, the

SAA, or the Proposed Regulations permits the Department to consider

channels of distribution in making product comparisons. As case

precedent for their position, the petitioners cite PETS from Singapore

where the Department explicitly rejected the respondent's request that

it rely on channels of distribution as a comparison criteria, finding

no support in the law for such an approach. (``Furthermore, channel of

distribution is not a proper merchandise comparison criterion * * *

there is no regulatory basis for comparing identical channels of

distribution.'') Id. at 43338.

DOC Position: We agree with the petitioners that channels of

distribution are not an appropriate basis for creating product

averaging groups. As noted in Comment 4A above, the SAA states that in

determining which sales to include within a particular average,

``Commerce will consider factors it deems appropriate, such as the

physical characteristics of the merchandise, the region of the country

in which the merchandise is sold, the time period, and the class of

customer involved.'' SAA at 842. See also, Proposed Regulations at

7349. The SAA does not contemplate the use of channels of distribution

as a basis for creating an averaging group.

In addition, it has been the Department's past policy and practice,

as outlined in Import Administration Policy Bulletin Number 92/2

(``Matching at Levels of Trade''), to consider the customer category,

not channel of distribution, to determine whether the respondent's

customers exist at distinct points in the chain of distribution (e.g.,

end-user, distributor, retailer). Therefore, we have not relied on

Maktas's reported channels of distribution in creating the weighted-

average prices used for product comparisons in this final

determination.

Comment 4D Whether the Department Can Rely on Price Differences as

a Method for Distinguishing Customer Categories: If the Department

determines it is not necessary to establish that there are different

selling functions as a means of distinguishing customer categories, the

petitioners argue that the Department should not define customer

categories based on price distinctions as it did in Polyvinyl Alcohol.

The petitioners assert that if price distinctions were all that was

needed to define customer category, respondents would have a ``field

day'' manipulating the dumping law by grouping its low-priced home

market sales together and requesting that the Department compare its

U.S. sales to this group of low-priced sales. Although the petitioners

recognize that price distinctions may be relevant to a determination of

whether product comparisons should be segmented by customer category,

the petitioners argue that prices themselves cannot be the sole

criterion. In order to establish that there are separate customer

categories, the petitioners argue that the Department must first

determine that different customers exist at different points in the

chain of commerce.

DOC Position: We agree with the petitioners that price distinctions

can not be a basis for determining the existence of customer

categories. As noted in the ``Comparison Methodology'' section of this

notice and Comment 4A, above, in order to determine whether the

customer groups proposed by Maktas actually represented different

customer categories, we considered whether the alleged customer groups

represented distinct points in the chain of distribution. Therefore,

price distinctions were not considered a relevant factor in defining

the existence of customer categories. The existence of consistent price

differences, however, was considered in determining whether customer

categories should be taken into consideration in creating the product

averaging groups.

Comment 5 Cost Test: Maktas states that the Department should

conduct its 80/20 cost test on a monthly basis rather than over the

POI. Maktas argues that the use of the POI to determine the extent of

below cost sales for each control number sometimes results in normal

values that are based on only a few above-cost sales. According to

Maktas, the comparisons involving these above-cost sales ``drive'' the

dumping margins for certain control numbers in certain months. Maktas

refers to these above-cost sales as outliers and argues that the

Department should delete the outliers from the sales database in

performing its margin calculations. Furthermore, Maktas claims that, in

a hyperinflationary economy, the Department has the discretion to

determine that a single month is an extended period of time and,

therefore, the 80/20 cost test should be conducted on a monthly basis

for this investigation.

The petitioners argue that the methodology used by the Department

to determine whether sales should be disregarded is in accordance with

the law. They state that the statute and the SAA direct the Department

to use a below-cost test that includes the full POI and argue that the

Act does not provide for an exception from this rule for

hyperinflationary economies.

[[Page 30323]]

Accordingly, the petitioners argue that the Department properly used

the POI to determine whether it should disregard respondents' below-

cost sales. The petitioners also claim that the Department's use of the

few remaining above-cost sales as a basis for normal value in certain

months is in accordance with the law. According to the petitioners, the

SAA directs the Department to resort to constructed value only if there

are no above-cost sales in the ordinary course of trade in the foreign

market under consideration.

DOC Position: We disagree with Maktas. The Department's practice is

to apply the 80/20 test on a POI basis since the SAA directs us to

``examine below-cost sales occurring during the entire period of

investigation or review, as opposed to a shorter time period.''

Although Maktas argues that the Department has the discretion to

determine that, in a hyperinflationary economy, we should conduct the

80/20 test on a single month, it has not provided any basis as to why

we should depart from our general practice of applying the cost test

over the entire POI. The only reason offered by Maktas is a belief that

such a deviation might reduce the effect of so-called ``outlier

sales.'' Moreover, section 773(b)(2)(B) of the Act defines the extended

period of time in which we are to conduct the cost test as ``normally

one year, but not less than six months.''

Finally, despite the concerns raised by Maktas with regard to

basing normal value on ``outliers,'' the petitioners are correct in

stating that the law requires us to use any sales found to be above

cost in the ordinary course of business before resorting to CV as the

basis for normal value.

Comment 6 Indexing of Costs: Maktas objects to the Department's use

of an index to restate submitted monthly production costs. While the

use of such an index to adjust costs may smooth out the effects of

inflation, Maktas argues that the law's focus on exporter behavior

precludes the Department from performing such an adjustment.

Additionally, Maktas contends that the Department has not determined

whether prices of below-cost sales allow for the recovery of costs in a

reasonable period of time.

The petitioners did not comment on this issue.

DOC Position: We disagree with Maktas and have calculated the

company's COM following the same methodology as used in our preliminary

determination. (See, memorandum from William H. Jones and Michael P.

Martin to Christian B. Marsh, dated December 13, 1995.) The

Department's normal practice in non-hyperinflationary cases has been to

calculate a single weighted-average COM, mitigating the effects of

monthly cost fluctuations. Such fluctuations may result from the timing

of expenses and production runs. We have determined that, where the

data permits, it is also appropriate to calculate an annual weighted-

average cost in hyperinflationary cases. However, since the value of

the local currency (Turkish lira) changed significantly during the POI,

the nominal value of costs incurred at different times are not

comparable. As a result, it is necessary to restate the average cost

into equivalent terms.

To calculate a meaningful, period-average COM, it was first

necessary to restate each month's cost of manufacturing in equivalent

terms. After each month's cost of manufacturing was restated in

equivalent terms, they were added together and divided by the quantity

produced during the POI to obtain an annual weighted-average COM

expressed in period-end currency. Because this figure is stated in the

currency value at the end of the POI, it is necessary to apply the

index again to restate it in each month's respective currency value.

The resulting monthly COM amounts are used as the basis for monthly COP

and CV figures.

Finally, we disagree with Maktas's assertion that we failed to

perform the recovery of cost test, as required under section

773(b)(2)(D) of the Act. We compared each home market price to the

weighted-average per-unit production costs stated in the value of the

month of sale. This approach properly tests whether the prices of

below-cost sales allow for the recovery of costs in a reasonable period

of time.

Comment 7 Packing Costs: Maktas argues that its reported packing

costs should be adjusted for inflation to avoid understating packing

costs for certain home market sales, inflating normal values and

increasing dumping margins. Maktas suggests that this problem can be

solved by removing certain small-volume products from the sales

database. Alternatively, Maktas argues that the Department should use

production information on the administrative record to identify

products which were not produced in every month and that the Department

should index the reported packing costs from previous months by means

of the wholesale price index.

The petitioners argue that the Department should not attempt to

adjust Maktas's reported packing costs as there is no consistent

pattern for the discrepancies noted in Maktas's reported packing costs

during the cost verification. Additionally, the petitioners argue that

the Department cannot make a proper inflation adjustment to Maktas's

reported packing costs without information regarding purchases of

packing materials during the POI.

DOC Position: The timing of packing materials purchases in a

hyperinflationary economy may result in an over-or under statement of

net home market prices. We have determined, therefore, that it is

appropriate to adjust packing costs as suggested by Maktas and have

indexed its reported packing costs for certain products which were not

produced in each month of the POI. Although a more accurate solution to

the timing problems would be achieved by indexing all packing costs, in

a manner similar to that by which we adjusted COM for our preliminary

determination, the petitioners are correct in their assertion that the

information necessary for such an adjustment is not on the record.

Comment 8 Depreciation Expenses: Maktas argues that its audited

depreciation figures should not be revised by the Department. According

to Maktas, its depreciation expenses were recorded in accordance with

Turkish tax law and that there is no evidence that its treatment of

depreciation distorts ``real'' costs.

The petitioners claim that Maktas failed to include certain POI

depreciation costs associated with its annual fixed asset revaluation,

current year additions, and holiday shut-down periods during the POI.

They note that these amounts were identified by the Department in

Maktas's financial statements, but were not included by Maktas in its

reported costs. Further, since Maktas failed to provide financial

statements for its parent company, the petitioners argue that there may

be unreported depreciation expenses in addition to those identified

during verification. Therefore, the petitioners claim that the

Department cannot rely on Maktas's reported depreciation expenses and

also cannot obtain an appropriate depreciation figure by adjusting for

the unreported amounts which were identified by the Department.

DOC Position: We agree with the petitioners that Maktas understated

its reported costs by improperly excluding certain depreciation

expenses and we have adjusted COP and CV by adding these amounts to

Maktas's reported fixed overhead costs. Maktas has not offered any

explanation as to why these depreciation expenses should not be

included in its COP or CV.

[[Page 30324]]

The depreciation costs associated with the annual fixed asset

revaluation were classified by Maktas as ``other operating expenses''

in the company's financial statements. Depreciation costs related to

current year fixed asset additions were classified as ``extraordinary

expenses,'' along with depreciation costs incurred during normal,

recurring holiday shut-down periods. All of these costs are necessary

to obtain a fair measurement of costs incurred by Maktas during the POI

for its production assets and, thus, these amounts should be included

in its COP and CV.

We are satisfied that the adjustments described above will result

in an appropriate depreciation expense figure for Maktas's production

assets. As to the petitioners' concern regarding possible unreported

expenses incurred by Maktas's parent, Piyale-Besin, we have determined

that facts available should be applied for the calculation of G&A

expenses for Maktas. See, Facts Available discussion above.

Comment 9 Tax Assessments: Maktas argues that the taxes identified

by the Department's cost verification team are not part of the

company's cost of production and were appropriately excluded from its

reported costs.

The petitioners claim that the Department normally includes

extraordinary expenses in its cost of production calculations. The

petitioners argue that, if the Department decides to recalculate

Maktas's reported costs, it should include the tax assessments which

were excluded by the respondent.

DOC Position: We agree with the petitioners that these taxes should

be included in COP and CV. Maktas has classified as extraordinary

expenses certain taxes which were calculated on the value of company

assets. Maktas also excluded other asset-based taxes which it believes

will be recovered from the Turkish government pursuant to ongoing

litigation. The Department's practice has been to allow a respondent to

exclude certain costs if they demonstrate that such costs are both

unusual in nature and infrequent in occurrence. See, e.g., Final

Determination of 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 Plate from Belgium, 58 FR

37083,37088 (July 9, 1993). Maktas has not demonstrated that the taxes

assessed on asset values are unusual in nature nor has it demonstrated

that they are infrequent in occurrence. Certain business and property

taxes are a normal expense of operating a business and, as such, are

appropriately included in COP and CV.

Furthermore, the Department does not normally consider income

taxes, based on the profit/loss of a corporation, to be a cost of

producing the product. (See, e.g., Final Determination; Rescission of

Investigation and Partial Dismissal of Petition: High Information

Content Flat Panel Displays and Display Glass Therefor from Japan, 56

FR 32376, 32392 (July 16, 1991).) However, taxes based on asset values

have been included by the Department in COP. See, e.g., Final

Determination of Sales at Less Than Fair Value: Oil Country Tubular

Goods from Argentina, 60 FR 33539, 33550 (June 28, 1995). Therefore, we

have included the taxes in Maktas's production costs.

Comment 10 Foreign Exchange Gains: Maktas argues that all of its

foreign exchange gains which resulted directly from export sales should

be applied as an offset against interest expense, since it incurs

interest expense to produce and sell merchandise. In support of its

position, Maktas cites Final Determination of Sales at Less Than Fair

Value: Certain Carbon and Alloy Steel Wire Rod from Canada, 59 FR 18791

(April 20, 1994) (Wire Rod from Canada), in which the Department

allowed a respondent to offset interest expense with dividend income

received. Maktas also cites to Final Determination of Sales at Less

Than Fair Value: Fresh Cut Roses from Ecuador, 60 FR 7019 (February 6,

1995) (Roses from Ecuador).

The petitioners argue that interest expenses are a normal part of

the Department's cost of production calculation. The petitioners

contend that foreign exchange gains resulting from export sales of

finished pasta are unrelated to the cost of producing pasta in Turkey.

Therefore, the petitioners claim that the Department should continue to

exclude foreign exchange gains from its cost of production calculation

for the final determination.

DOC Position: We agree with the petitioners. Maktas's foreign

exchange gains relate to export sales transactions and, thus, are

calculated on the accounts receivable balances associated with such

sales. It is the Department's normal practice to exclude exchange gains

and losses on accounts receivable because the exchange rate used to

convert home market sales to U.S. dollars is that in effect on the date

of the U.S. sale. See, e.g., Final Determination of Sales at Less Than

Fair Value: Small Diameter Circular Seamless Carbon and Alloy Steel,

Standard, Line and Pressure Pipe from Italy, 60 FR 31991 (June 19,

1995).

With regard to Maktas's reliance on Wire Rod from Canada, the

respondent provided no explanation as to why it believes foreign

exchange gains are the equivalent of dividend income. Moreover, the

facts in Wire Rod from Canada are quite different from the facts in the

instant investigation. In Wire Rod from Canada, the respondent

demonstrated that its dividend income was directly linked to the

interest expense to which it was applied. Maktas has not demonstrated

any direct link between its foreign exchange gains and its production

costs and, in fact, has argued that they are unrelated. Therefore, we

excluded Maktas's exchange gains from the interest expense rate

calculation. Furthermore, the Department's position in Roses from

Ecuador is contrary to Maktas's argument and represents an example of

our normal practice, i.e., to disallow the application of foreign

exchange gains on sales transactions as offsets to financial expenses.

Comment 11 Short-Term Interest Rate: The petitioners argue that the

Department should use the same short-term interest rate to calculate

imputed credit expenses for Maktas's U.S. and home market sales. The

petitioners argue that since the short-term borrowings that Maktas

actually used to finance the credit period for its sales in Turkey were

also the short-terms borrowings that Maktas used to finance the credit

period for its U.S. sales, the interest rates used to calculate imputed

credit expenses should be the same for U.S. and home market sales.

Maktas objects to the petitioners' request and asserts that the

Department should not use the same interest rates in computing imputed

credit expenses for U.S. and home market sales.

DOC Position: We disagree with the petitioners. The Department's

policy is to calculate imputed credit costs using a weighted average

short-term borrowing rate which reflects the currency in which the sale

was invoiced. See, Final Determination of Sales at Less Than Fair

Value: Canned Pineapple Fruit from Thailand, 60 FR 107 (June 5, 1995);

Final Determination of Sales at Less than Fair Value: Certain Carbon

Steel Butt-Weld Pipe Fittings from Thailand, 60 FR 10552 (February 27,

1995). Consistent with the Department's practice, we have continued to

apply Maktas's actual Turkish lira denominated short-term borrowing

rates for all home market sales. For sales to the United States, all of

which were denominated in U.S. dollars, we applied a U.S. dollar short-

term interest rate obtained from public information because Maktas did

not

[[Page 30325]]

have any U.S. dollar denominated borrowings during the POI.

Comment 12 Exchange Rate Conversion: Maktas asserts that the

currency conversion methodology used at the preliminary determination

should be discarded for the final determination. Specifically, Maktas

disagrees with the Department's policy of using a 40-day period to

establish a benchmark rate for purposes of defining fluctuations and

sustained movement in the exchange rate. Maktas argues that a 30-day

period would be more appropriate than a 40-day period.

More importantly, the respondent submits that given the extreme

depreciation of the Turkish lira against the U.S. dollar in 1994, the

Department should use actual daily rates in making currency

conversions.

The petitioners argue that the Department should continue to use

the currency conversion methodology used in the preliminary

determination for the final margin calculation.

DOC Position: We believe that it is more appropriate in this case

to use actual daily exchange rates for currency conversion purposes. As

noted in Policy Bulletin 96-1: Currency Conversions, 61 FR 9434 (March

8, 1996), the Department is continuing to examine the appropriateness

of the currency conversion policy in situations where the foreign

currency depreciates substantially against the dollar over the POI. In

those situations, it may be appropriate to rely on daily exchange

rates. When the rate of domestic price inflation is significant, as it

is in this case, it is important that we use as a basis for NV home

market prices that are as contemporaneous as possible with the date of

the U.S. sale. This is to minimize the extent to which calculated

dumping margins are overstated or understated due solely to price

inflation that incurred in the intervening time period between the U.S.

and home market sales. For this reason, as noted above in the Fair

Value Comparisons section, we calculated EPs and NVs on a monthly

average basis. This need for a high degree of contemporaneity applies

not only to home market sales, but to the exchange rate as well, since

the dollar value of pasta that Maktas sells in its home market--upon

which the calculated margin ultimately rests--depends on (1) the lira

price of that pasta, and (2) the dollar price of the lira. Since the

dollar value of the lira tends to fall over time--when the rate of

domestic price inflation is significant--it is just as important to use

contemporaneous exchange rates as it is to use contemporaneous (lira-

denominated) home market prices. For this reason, we have used the

daily exchange rates for currency conversion purposes.

Comment 13 Inventory Carrying Cost and Indirect Selling Expenses:

Maktas argues that the Department should make an adjustment to NV for

inventory carrying costs and indirect selling expenses. With respect to

inventory carrying costs, the respondent claims that inventory carrying

costs should be treated in the same manner as imputed credit expenses,

and that no distinction can be drawn between EP and CEP sales for

purposes of application of inventory carrying cost. Specifically,

Maktas submits that adjustments for both imputed credit expenses and

imputed inventory carrying costs are based on ``opportunity cost''

rationale. As with imputed credit expenses, Maktas argues that the

opportunity cost of holding inventory is a real expense that should be

adjusted for regardless of whether the sales transaction is EP or CEP.

Further, Maktas notes that ``the new legal requirement of section

773 of the Act that a `fair comparison shall be made between the export

price or constructed export price and normal value' requires that like

economic elements be treated in a like manner.'' Given the analogy

between imputed credit expenses and inventory carrying costs, Maktas

urges the Department to adjust normal value for inventory carrying

costs in the same manner as imputed credit expenses.

Additionally, Maktas asserts that, in order to make such a ``fair

comparison'', the Department should adjust normal value for the

difference in indirect selling expenses attributable to the U.S. and

home market sales.

The petitioners submit that the statute does not allow the

Department to make the type of adjustments requested by the respondent.

With respect to inventory carrying costs, the petitioners note that the

respondent fails to recognize an important difference between imputed

credit expense and inventory carrying cost which is that while imputed

credit expense is a COS adjustment that typically can be calculated on

a sale-by-sale basis, inventory carrying cost represents indirect

selling expenses that are not tied to any particular sales. Regarding

indirect selling expenses, the petitioners note that because Maktas's

U.S. sales are based on export price, no adjustment to normal value for

indirect selling expenses is permitted.

DOC Position: We agree with the petitioners that the statute does

not allow the Department to make the type of adjustments for inventory

carrying costs and indirect selling expenses requested by Maktas. In

export price sales, it is the Department's practice to make an

adjustment for inventory carrying costs or indirect selling expenses if

the respondent claims a commission adjustment to export price. Because

Maktas's U.S. sales are based on export price and no commissions were

reported for either the home or U.S. market, there is no basis for

making an adjustment for inventory carrying costs or indirect selling

expenses. Moreover, the deduction of inventory carrying costs or

indirect selling expenses is not one of the enumerated requirements

under Section 773 of the Act, which provides for adjustments to normal

value to achieve a fair comparison between the export price and normal

value.

Regarding Maktas's assertion the inventory carrying costs should be

treated in the same manner as imputed credit expenses, we disagree with

Maktas that the two items are analogous. Imputed credit expenses

represent a direct selling expense which can be tied to particular

sales. Inventory carrying costs, on the other hand, represent indirect

selling expenses that would be incurred regardless of whether

particular sales were made.

Comment 14 Goodwill: Maktas submits that the Department should make

an adjustment for the ``goodwill'' which Maktas's products enjoy in the

domestic market. Specifically, Maktas notes that its products, which

are sold under the ``Piyale'' brand name, are well known throughout

Turkey and have higher value than they enjoy elsewhere. In the United

States, Maktas sells to importers who, in turn, sell under their own

brand name. Accordingly, Maktas asserts that an adjustment should be

made in the margin calculation for the brand recognition it commands in

the domestic market.

The petitioners oppose Maktas's request for an adjustment for

``goodwill''.

DOC Position: We disagree with Maktas. When making price

comparisons, the Department makes adjustments to account for any

differences in the prices resulting from verified differences in

circumstances of sales. The ``goodwill'' Maktas described is not an

expense item and, therefore does not qualify as a COS adjustment.

Moreover, such ``goodwill'' is not susceptible to verifiable

quantification. Therefore the Department has no basis to make an

adjustment for it.

Comment 15 Corrections Found at Verification: Maktas requests that

a number of corrections presented at, and found during, the sales

verification should be incorporated into the

[[Page 30326]]

Department's calculations of the final margins.

DOC Position: All corrections as confirmed on-site at the sales

verification were incorporated in the Department's calculation of the

final margin.

Continuation of Suspension of Liquidation

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

Customs Service to continue to suspend liquidation of all entries of

pasta from Turkey, as defined in the ``Scope of Investigation'' section

of this notice, that are entered, or withdrawn from warehouse for

consumption, on or after January 19, 1996, the date of publication of

our preliminary determination in the Federal Register. Article VI.5 of

the General Agreement on Tariffs and Trade (GATT) provides that ``[n]o

product * * * shall be subject to both antidumping and countervailing

duties to compensate for the same situation of dumping or export

subsidization.'' The Department has determined, in its Final

Affirmative Countervailing Duty Determination: Certain Pasta from

Turkey, that the product under investigation benefitted from export

subsidies. Normally, where the product under investigation is also

subject to a concurrent CVD investigation, we would instruct the U.S.

Customs Service to require a cash deposit or posting of a bond equal to

the weighted-average amount by which the normal value exceeds the

export price (as shown below), minus the amount determined to

constitute an export subsidy. (See, Antidumping Order and Amendment of

Final Determination of Sales at Less Than Fair Value: Extruded Rubber

Thread from Malaysia, 57 FR 46150 (October 7, 1992)). However, in this

investigation, Filiz has not cooperated with the Department and has not

acted to the best of its ability in providing the Department with

necessary information. This has prevented the Department from making

its normal determination of whether the subsidies in question may have

affected the calculation of the dumping margin. Thus, as indicated

above, Filiz's margin is based on total adverse facts available, taken

from the petition. Insofar as the dumping margin for Filiz is not a

calculated margin, there is no way to determine the portion of the

antidumping duty which is attributable to the export subsidy. For that

reason, and to prevent Filiz from benefitting from its non-cooperation

in this investigation, we have not subtracted the amount of any export

subsidy from that margin. For Maktas, we are subtracting for deposit

purposes the cash deposit rate attributable to the export subsidies

found in the countervailing duty investigation (12.61 percent) from the

antidumping bonding rate for Maktas. We are also subtracting from the

``All Others'' rate the cash deposit rate attributable to the export

subsidies included in the countervailing duty investigation for All

Others.

This suspension of liquidation will remain in effect until further

notice.

The weighted-average dumping margins are as follows:

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

Weighted-

average Deposit

Exporter/manufacturer margin percentages

percentages

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

Filiz......................................... 63.29 63.29

Maktas........................................ 56.87 44.26

All Others.................................... 56.87 47.49

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

Pursuant to section 735(c)(5)(A) of the Act, the Department has

excluded Filiz's margin from the calculation of the All Others rate

because it was determined entirely under section 776 of the Act.

ITC Notification

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

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 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 canceled. 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.

This determination is published pursuant to section 735(d) of the

Act.

Dated: June 3, 1996.

Paul L. Joffe,

Acting Assistant Secretary for Import Administration.

[FR Doc. 96-14735 Filed 6-13-96; 8:45 am]

BILLING CODE 3510-DS-P