Notice of Final Determination of Sales at Less Than Fair Value: Large Newspaper Printing Presses and Components Thereof, Whether Assembled or Unassembled, From Japan
Federal RegisterJul 23, 1996
Ask Donna
What actually matters in this document.
Text
DEPARTMENT OF COMMERCE
[A-588-837]
Notice of Final Determination of Sales at Less Than Fair Value:
Large Newspaper Printing Presses and Components Thereof, Whether
Assembled or Unassembled, From Japan
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: July 23, 1996.
FOR FURTHER INFORMATION CONTACT: Bill Crow or Dennis McClure, Office of
AD/CVD Enforcement, Import Administration, International Trade
Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, NW., Washington, D.C. 20230; Telephone: (202) 482-
0116 or (202) 482-3530, respectively.
The Applicable Statute
Unless otherwise indicated, all citations to the Tariff Act of 1930
(``the Act'') are references to the provisions effective January 1,
1995, the effective date of the amendments made to the Act by the
Uruguay Rounds Agreements Act (``URAA'').
Final Determination
We determine that large newspaper printing presses and components
thereof (``LNPPs'') from Japan are being, or are likely to be, sold in
the United States at less than fair value (``LTFV''), as provided in
section 735 of the Act.
Case History
Since the preliminary determination on February 23, 1996 (60 FR
8029, March 1, 1995), the following events have occurred:
On February 26 and 27, 1996, the respondents, Mitsubishi Heavy
Industries Ltd. (``MHI'') and its U.S. affiliate Mitsubishi
Lithographic Printing (``MLP''); Tokyo Kikai Seisakusho Ltd. (``TKS'')
and its U.S. affiliate TKS USA; and the petitioner, Rockwell Graphics
Systems Inc. and its parent company, Rockwell International
Corporation, requested disclosure of the Department's calculation
methodologies used in the preliminary determination. On March 4, 1996,
the petitioner alleged that the Department made two ministerial errors
in its calculation with respect to constructed value (``CV'') and
further manufacturing costs. The Department determined that neither of
the allegations constituted ministerial errors. (See Memorandum from
the Team to Richard W. Moreland, March 11, 1996.)
On February 27, 1996, the Department issued supplemental sales
questionnaire to MHI and TKS. On March 7, 1996, the respondents
submitted their responses to the supplemental sales questionnaire. On
March 5, 1996, the Department issued a supplemental cost questionnaire
to TKS and on March 8, 1996, TKS submitted its response.
In March and April 1996, we conducted verification of the sales and
cost questionnaire responses of the respondents in Japan and the United
States.
On May 8, 1996, the Department received comments it solicited from
interested parties in its preliminary determination regarding scope
issues. On May 31, 1996, respondents submitted new sales and cost
databases which incorporated factual corrections noted during
verification.
The respondents and the petitioner submitted case briefs on June 3,
1996 and rebuttal briefs on June 10, 1996. The Department held a public
hearing for this investigation on June 17, 1996. On June 19, 1996, MHI
protested that certain elements of the petitioner's rebuttal brief
contained new factual information. On June 20, 1996, the petitioner
objected to MHI's complaint. On June 26, 1996, the Department returned
the rebuttal brief to the petitioner, and notified the petitioner that
the new material to which MHI had objected should be removed from the
record of the investigation. The petitioner submitted a revised
rebuttal brief on June 27, 1996.
Scope of Investigation
Note: The following scope language reflects certain
modifications from the notice of the preliminary determination. As
specified below, we have clarified the scope to include incomplete
LNPP systems, additions and components. We have also clarified the
scope to include ``elements'' (otherwise referred to as ``parts'' or
``subcomponents'') of a LNPP system, addition or component, which
taken altogether constitute at least 50 percent of the cost of
manufacture of the LNPP component of which they are a part. We have
also
[[Page 38140]]
excluded from the definition of the five subject LNPP components any
reference to specific subcomponents (i.e., the reference to a
printing-unit cylinder in the definition of a LNPP printing unit).
In addition, we have excluded the following Harmonized Tariff System
of the United States (``HTSUS'') subheadings from the scope:
8524.51.30, 8524.52.20, 8524.53.20, 8524.91.00, and 8524.99.00. See
``Scope Comments'' section of this notice and the July 15, 1996
Decision Memorandum to Barbara Stafford from The Team Re: Scope
Issues in the Final Determinations.
Scope: The products covered by these investigations are large
newspaper printing presses, including press systems, press additions
and press components, whether assembled or unassembled, whether
complete or incomplete, that are capable of printing or otherwise
manipulating a roll of paper more than two pages across. A page is
defined as a newspaper broadsheet page in which the lines of type are
printed perpendicular to the running of the direction of the paper or a
newspaper tabloid page with lines of type parallel to the running of
the direction of the paper.
In addition to press systems, the scope of these investigations
includes the five press system components. They are:
(1) A printing unit, which is any component that prints in
monocolor, spot color and/or process (full) color;
(2) A reel tension paster (``RTP''), which is any component that
feeds a roll of paper more than two newspaper broadsheet pages in width
into a subject printing unit;
(3) A folder, which is a module or combination of modules capable
of cutting, folding, and/or delivering the paper from a roll or rolls
of newspaper broadsheet paper more than two pages in width into a
newspaper format;
(4) Conveyance and access apparatus capable of manipulating a roll
of paper more than two newspaper broadsheet pages across through the
production process and which provides structural support and access;
and
(5) A computerized control system, which is any computer equipment
and/or software designed specifically to control, monitor, adjust, and
coordinate the functions and operations of large newspaper printing
presses or press components.
A press addition is comprised of a union of one or more of the
press components defined above and the equipment necessary to integrate
such components into an existing press system.
Because of their size, large newspaper printing press systems,
press additions, and press components are typically shipped either
partially assembled or unassembled, complete or incomplete, and are
assembled and/or completed prior to and/or during the installation
process in the United States. Any of the five components, or collection
of components, the use of which is to fulfill a contract for large
newspaper printing press systems, press additions, or press components,
regardless of degree of assembly and/or degree of combination with non-
subject elements before or after importation, is included in the scope
of this investigation. Also included in the scope are elements of a
LNPP system, addition or component, which taken altogether, constitute
at least 50 percent of the cost of manufacture of any of the five major
LNPP components of which they are a part.
For purposes of this investigation, the following definitions apply
irrespective of any different definition that may be found in Customs
rulings, U.S. Customs law or the HTSUS: the term ``unassembled'' means
fully or partially unassembled or disassembled; and (2) the term
``incomplete'' means lacking one or more elements with which the LNPP
is intended to be equipped in order to fulfill a contract for a LNPP
system, addition or component.
This scope does not cover spare or replacement parts. Spare or
replacement parts imported pursuant to a LNPP contract, which are not
integral to the original start-up and operation of the LNPP, and are
separately identified and valued in a LNPP contract, whether or not
shipped in combination with covered merchandise, are excluded from the
scope of this investigation. Used presses are also not subject to this
scope. Used presses are those that have been previously sold in an
arm's length transaction to a purchaser that used them to produce
newspapers in the ordinary course of business.
Further, this investigation covers all current and future printing
technologies capable of printing newspapers, including, but not limited
to, lithographic (offset or direct), flexographic, and letterpress
systems. The products covered by this investigation are imported into
the United States under subheadings 8443.11.10, 8443.11.50, 8443.30.00,
8443.59.50, 8443.60.00, and 8443.90.50 of the HTSUS. Large newspaper
printing presses may also enter under HTSUS subheadings 8443.21.00 and
8443.40.00. Large newspaper printing press computerized control systems
may enter under HTSUS subheadings 8471.49.10, 8471.49.21, 8471.49.26,
8471.50.40, 8471.50.80, and 8537.10.90. Although the HTSUS subheadings
are provided for convenience and Customs purposes, our written
description of the scope of this investigation is dispositive.
Scope Comments
We have included scope issues for this investigation and the
concurrent investigation of LNPP from Germany in the Final
Determination of Sales at Less Than Fair Value: Large Newspaper
Printing Presses and Components Thereof, Whether Assembled or
Unassembled, from Germany (``LNPP from Germany''). The issues are
voluminous and the resolution of these issues affects both
investigations equally, as reflected in the universal comment period in
the public hearing on LNPP scope. We have therefore utilized the German
FR Notice as the vehicle to publish the scope comments from all
interested parties in both investigations.
Period of Investigation
The POI for MHI is July 1, 1991 through June 30, 1995, and July 1,
1992 through June 30, 1995 for TKS. See: Preliminary Determination of
Sales at LTFV: Large Newspaper Printing Presses and Components Thereof,
Whether Assembled or Unassembled, from Japan, 60 FR 8029 (March 1,
1995) (``LNPPs from Japan Preliminary Determination'').
Product Comparisons
Although the home market was viable, in accordance with section 773
of the Act, we based normal value (``NV'') on constructed value
(``CV'') because we determined that the particular market situation,
which requires that the subject merchandise be built to each customer's
specifications, does not permit proper price-to-price comparisons. See:
Preliminary Determination: LNPPs from Japan.
Fair Value Comparisons
To determine whether MHI's and TKS's sales of LNPPs to the United
States were made at less than fair value, we compared Constructed
Export Price (``CEP'') to the NV, as described in the ``Constructed
Export Price'' and ``Normal Value'' sections of this notice. In
accordance with section 777A(d)(1)(A)(ii), we calculated transaction-
specific CEPs (which in this case were synonymous with model-specific
CEPs) for comparison to transaction-specific NVs.
Constructed Export Price (``CEP'') and Further Manufacturing (``FM'')
TKS
TKS reported its sales as CEP and CEP/FM sales. Because we have
[[Page 38141]]
classified installation expenses as further manufacturing, we have
treated all TKS sales as CEP/FM sales. We calculated CEP, in accordance
with subsections 772(b) and (d) of the Act, for (1) Those sales to the
first unaffiliated purchaser that took place after importation by a
seller affiliated with the producer/exporter, and (2) those sales
involving further manufacturing in the United States.
We calculated CEP based on the same methodology used in the
preliminary determination, with the following exceptions:
(1) We deducted those indirect selling expenses that were
associated with economic activity in the United States, whether
incurred in the United States or in Japan, and irrespective of where
recorded. We revised the reported indirect selling expense ratio to
include all Japanese indirect selling expenses in the numerator and
allocated this amount over the total value of TKS sales to be applied
to U.S. sales value, not transfer prices; TKS had previously excluded
branch sales office expenses from the numerator and included some
transfer prices in the denominator. We also calculated these indirect
selling expenses in accordance with the methodology explained in the
DOC Position to Comment 1 of the ``Common Issues'' subsection of the
``Interested Party Comments'' section of the final notice of the
companion investigation of LNPP from Germany.
(2) We recalculated TKS's reported indirect selling expenses
incurred in the United States using the total expenses and total
revenue for TKS USA during the fiscal years 1991 through 1995, in order
to remove distortions in TKS USA's financial statements caused by
auditors' modifications to revenue recognized during the POI. Our
revision included additional selling expenses and excluded common G&A,
as detailed in our July 15, 1996, calculation memorandum.
(3) We recalculated the U.S. insurance premiums expenses for both
marine insurance and for U.S. inland insurance, increasing the amounts
reported to match the acceptable loss/premium ratio established by
Yasuda Fire and Marine Insurance in its official correspondence.
MHI
Although MHI reported its sales as EP sales, we reclassified all
MHI sales as CEP/FM sales because MHI's affiliated U.S. sales agent
acted as more than a processor of sales-related documentation and a
communication link with the unaffiliated U.S. customers. The U.S.
affiliate engaged in a broad range of activities including purchasing
parts, warranty, technical services, and the coordination of
installation, which we have classified as further manufacturing. We
calculated CEP, in accordance with subsections 772 (b) and (d) of the
Act, for these sales because they involved further manufacturing in the
United States.
We calculated CEP based on the same methodology used in the
preliminary determination, with the following exceptions:
(1) We treated post-sale warehousing in Japan as a movement charge
and not as a direct selling expense;
(2) We deducted the unpaid portion of the total contract price from
the gross price of the Guard sale as a discount. The proprietary
details of this adjustment do not allow further elaboration; the July
15, 1996, MHI calculation memo records the methodology.
(3) We deducted those indirect selling expenses that were
associated with economic activity in the United States, whether
incurred in the United States or in Japan, and irrespective of where
recorded. We also calculated these indirect selling expenses in
accordance with the methodology explained in the DOC Position to
Comment 1 of the ``Common Issues'' subsection of the ``Interested Party
Comments'' section of the final notice of the companion investigation
of LNPP from Germany.
(4) We modified the calculation of MLP's reported indirect selling
expenses to no longer include an allocation of common G&A expenses,
since total G&A applicable to LNPP is accounted for in the calculation
of further manufacturing costs.
(5) We have modified the calculation of MHI's indirect selling
expenses incurred in the United States but recorded in Japan to remove
the salary expenses for an MLP employee where those expenses were
already accounted for in the calculation of the MLP indirect selling
expenses.
(6) We excluded from the calculation of the Guard commission those
additional revenues remitted to MLP by Sumitomo Corporation (``SC'')
from the total interest income earned while SC collected and held
payment from Guard.
(7) We increased the amount of the spare parts adjustment to the
Piedmont gross price in order to account for the value of materials
supplied by MHI for the Piedmont sale in excess of the contracted value
of spare parts.
Normal Value/Constructed Value
For the reasons outlined in the ``Product Comparisons'' section of
this notice, we based NV on CV. In accordance with section 773(e) of
the Act, we calculated CV based on the sum of each respondent's
materials and fabrication costs plus amounts for selling, general and
administrative (``SG&A'') expenses, U.S. packing costs. We based CV on
the same methodology used in the preliminary determination, with the
following exceptions:
TKS
(1) We adjusted TKS USA's SG&A and indirect overhead costs in
accordance with the submitted reclassification of rent, workmen's
compensation and employee insurance.
(2) We recalculated CEP profit to include packing, transportation
and installation costs.
(3) We modified our calculation of TKS USA's further manufacturing
G&A rate by excluding the inputs acquired from TKS.
MHI
(1) We recalculated MLP's G&A rate using the cost of goods sold
(``CGS'') incurred in the United States and applied that rate to
further manufacturing costs for each U.S. sale.
(2) We recalculated home market profit to reflect the deduction of
freight costs.
(3) We recalculated CEP profit to reflect the deduction of home
market packing costs.
(4) We reallocated MHI's R&D costs to all LNPP contracts based on
the relative manufacturing costs incurred for each contract.
(5) We adjusted NV to include the loss on sale of obsolete LNPP
inventory.
Price to CV Comparisons
For CEP to CV comparisons, we deducted from CV the weighted-average
home market direct selling expenses, pursuant to section 773(a)(8) of
the Act.
Verification
As provided in section 782(i) of the Act, we conducted verification
of the information submitted by the respondent. We used standard
verification procedures, including examination of relevant accounting
and sales records and original source documents provided by the
respondent.
Currency Conversion
Section 773A(a) of the Act directs the Department to convert
foreign currencies based on the dollar exchange rate in effect on the
date of sale of the subject merchandise, except if it is established
that a currency transaction on forward markets is directly linked to an
export sale. When a company demonstrates that a sale on forward
[[Page 38142]]
markets is directly linked to a particular export sale in order to
minimize its exposure to exchange rate losses, the Department will use
the rate of exchange in the forward currency sale agreement. In this
case, although MHI reported that forward currency exchange contracts
applied to certain U.S. sales, we verified that these contracts were
linked to certain payments, not to the particular dates of sale of the
contracts (and thereby to calculation exchange rates) in question. See
May 14, 1996, MHI Verification Report at 9. Therefore, for the purpose
of the final determination, we made currency conversions into U.S.
dollars based on the official exchange rates in effect on the dates of
the U.S. sales as certified by the Federal Reserve Bank.
Section 773A(a) directs the Department to use a daily exchange rate
in order to convert foreign currencies into U.S. dollars, unless the
daily rate involves a ``fluctuation.'' For this final determination, we
have determined that a fluctuation exists when the daily exchange rate
differs from the benchmark rate by 2.25 percent. The benchmark is
defined as the rolling average of rates for the past 40 business days.
When we determined that a fluctuation existed, we substituted the
benchmark for the daily rate. Further, section 773A(b) directs the
Department to allow a 60-day adjustment period when a currency has
undergone a sustained movement. A sustained movement has occurred when
the weekly average of actual daily rates exceeds the weekly average of
benchmark rates by more than five percent for eight consecutive weeks.
(For an explanation of this method, see Policy Bulletin 96-1: Currency
Conversions, 61 FR 9434, March 8, 1996.) Such an adjustment period is
required only when a foreign currency is appreciating against the U.S.
dollar. The use of an adjustment period was not warranted in this case
because the yen did not undergo a sustained movement of appreciation
against the U.S. dollar affecting any date of sale during the POI.
Interested Party Comments
Common Issues in the German and Japanese LNPP Investigations
We have included all issues which are common to both this
investigation and the concurrent investigation of LNPP from Germany,
and which were commented on by parties in both proceedings, in the
Final Determination of Sales at LTFV: LNPP from Germany, which is being
published concurrently with this notice.
Common Issues for LNPP From Japan
Sales Issue
Comment 1 CEP Offset: As noted in the Common Issues section of the
German notice, MHI argues that its sales should be treated as EP sales
and not as CEP sales. Further, MHI argues that if a CEP analysis is
applied, then the Department must consider a CEP offset to MHI's NV.
MHI claims that the Department will not look to the initial sales price
for CEP sales, but will instead look to the price as calculated after
CEP adjustments are made to make level-of-trade (``LOT'') comparisons.
MHI explains the statute recognizes that, in certain cases, while sales
may have been made at different levels of trade, the data may not exist
to make an LOT adjustment. According to MHI, comparing CEP to an
unadjusted NV would not result in the ``fair comparison'' mandated by
the statute. Thus, MHI states that in order to make a fair comparison,
the statute allows for a deduction of indirect selling expenses from
the NV by an amount not more than the amount of U.S. indirect selling
expenses.
MHI states that, if the Department continues to use CEP analysis
for purposes of the final determination, an LOT adjustment would be
warranted because of the activities that would be removed from the CEP.
According to MHI's interpretations, because a CEP analysis implies that
MLP's economic activities are significant, removing the expenses
incurred for such activities would likely change the level of trade at
which CEP is calculated. Furthermore, MHI maintains that a CEP analysis
would remove from U.S. price all of MHI's U.S. economic activity as
well, further necessitating an LOT adjustment, since the starting price
for MHI's U.S. sales and home market sales is at the same level of
trade, i.e., direct to the end-user. MHI maintains that since there is
no data on the record to make an actual LOT adjustment, the Department
should make a CEP offset adjustment to NV instead.
TKS maintains that the Department should grant to it a CEP offset
pursuant to section 773(a)(7)(B) of the Act because: (1) TKS's home
market sales are all at a single level of trade which is identical to
that of TKS's unadjusted CEP sales; (2) the adjustments made to CEP
place it at a different level of trade than its home market sales; and
(3) no level of trade adjustment can be quantified. TKS claims that
section 773(a)(7)(B) of the Act, which authorizes application of the
CEP offset, applies to all of TKS's CV-to-CEP sales comparisons used in
this investigation. TKS maintains that TKS's home market LNPP sales
involve only one type of customer--newspaper publishing companies, and
only one channel of distribution--direct sales to those publishing
companies. According to TKS, the sales and distribution process for all
these sales is straightforward, as TKS's own specialized sales force
initiates and maintains customer relations.
According to TKS, all of its U.S. sales involve a single type of
customer--newspaper publishers, and a single channel of distribution--
customer-direct sales. TKS states that it is undisputed that TKS's U.S.
sales are CEP sales due to the numerous critical activities performed
by its subsidiary, TKS USA. According to TKS, it is the CEP adjusted
for the various expenses related to such activities which determines
the level of trade of a CEP sale.
TKS states that after the adjustments mandated by section 772(d)
are completed, the level of trade of its CEP sales is nearer to the
factory gate than the level of TKS's customer-direct home market sales,
because the Act requires the deduction of all the direct and indirect
selling expenses included in the CEP sale. Maintaining that the level
of trade for the NV calculation is a CV that includes both direct and
indirect selling expenses, TKS contends that its home market sales, in
comparison with adjusted CEP sales, are at a more remote stage of
distribution. Thus, TKS argues, it is entitled to a CEP offset.
In complete disagreement with the respondents, the petitioner
maintains that no CEP offset is warranted in this investigation. It
argues that MHI and TKS have failed to establish that NV and CEP were
at different levels of trade. The petitioner points out that MHI had
maintained up until verification that no LOT adjustment was required,
and that TKS had only asserted in a footnote to one of its responses
that it was entitled to a CEP offset. Given that neither respondent
substantiated the necessity for an LOT adjustment which underpins a CEP
offset, the petitioner maintains that no CEP offset is warranted. The
petitioner's primary objection to MHI's contention that it is entitled
to a CEP offset simply because the Department made CEP adjustments as
required by the statute, rests on the observation that the Department
appears to have flatly rejected such a position in its proposed
antidumping regulations:
It would not be appropriate to assume that the CEP is at a
different level of trade than the prices used as the basis of normal
value or that any such differences in the level of trade affect
price comparability.
[[Page 38143]]
See Antidumping Duties; Countervailing Duties (Notice of Proposed
Rulemaking and Request for Public Comments), 61 FR 7308, 7348 (February
27, 1996). Although MHI has three different channels of distribution in
the home market, the Department cannot ascertain which selling
functions are performed by MHI and which are provided by trading
companies or other entities for each type of home market sale. The
petitioner argues that the lack of a factual foundation for evaluating
levels of trade means that a LOT adjustment under section 773(a)(7)(A)
cannot be made and, further, that a CEP offset under section
773(a)(7)(B) is not authorized.
The petitioner also takes issues with the respondents' argument
that an LOT adjustment is warranted because of the activities that
would be removed from the CEP starting price. The petitioner's
interpretation is that such a position runs counter to the preamble to
the CEP provision in the proposed regulations. The petitioner further
argues that, should the Department follow the methodology of the
Preliminary Results of Administrative Review: Armid Fiber from the
Netherlands, 61 FR 15766, 15768 (April 9, 1996) (``Armid Fiber''), then
it would still contest the notion that for CEP sales the level of trade
will be evaluated based on the price after adjustments are made under
section 772(d) of the Act. According to the petitioner, stripping away
the actual selling functions reflected in the CEP price before
comparison for level of trade purposes amounts to an artificial
reconfiguration of the CEP level of trade. The petitioner argues that
this has the effect of creating the appearance of different levels of
trade when in the commercial market the levels are the same. Thus, the
argument is set forth that if the Department adjusts the CEP for U.S.
selling expenses and artificially views the CEP sale as not including
the selling functions represented by those expenses, then it will be
positing a difference in level of trade that does not exist. According
to the petitioner, if the Department were to allow a CEP offset, then
the Department must deduct all of the indirect selling expenses from
the U.S. price.
DOC Position: We disagree with the respondents. In this instant
investigation, the respondents failed to provide the Department with
the necessary data for the Department to consider an LOT adjustment.
Without such data, a LOT adjustment under section 773(a)(7)(A) cannot
be made and, further, that a CEP offset under section 773(a)(7)(B) is
not authorized. Absent this information, the Department cannot
determine whether an LOT adjustment is warranted, nor whether the level
of trade in the home market is in fact further removed than the level
of trade in the United States. We agree with the petitioner that a
respondent is required to affirmatively demonstrate all the
requirements which would entitle it to a CEP offset as a surrogate for
an LOT adjustment. The petitioner correctly noted that the Department's
questionnaire requested from respondents all the relevant information
required for an LOT analysis and for the documentation and explanation
of any claim for an LOT adjustment. We agree with the petitioner that
this information was not provided. We note MHI's claim in its section A
response that a ``level of trade adjustment is unnecessary,'' though at
the time of the submission, MHI did not know that the Department's
analysis would classify its U.S. sales as CEP transactions. Without the
possibility of making a proper level of trade analysis, the Department
cannot and should not grant a deduction from NV for home market
indirect selling expenses.
Further, we disagree with the respondents' most basic
representation of their home market sales. Respondents now contend that
there is one home market level of trade to which CEP is being compared,
but this claim is not well substantiated. The information we have on
the record for sales in the home market does not support this
conclusion. For TKS, sales were not made only to end-users, i.e.,
newspaper publishers, but, as discovered during verification, were
sometimes made to middle-men, such as leasing companies, in the home
market. For MHI, we knew in general that the company made some sales
involving trading companies based on one paragraph of explanation in
MHI's section D response. We were informed during the ``sales and
distribution'' portion of the verification that MHI had three distinct
channels of distribution in the home market: (1) direct sales to end-
users; (2) sales through trading companies and (3) sales to trading
companies. See May 14, 1996, verification report at pp. 4-5. For
neither TKS nor MHI can we ascertain which selling functions are
performed by them and which are provided by leasing companies, trading
companies or other entities for each type of home market sale. Thus,
the minimal amount of information provided does not support the
conclusions reached by respondents.
We note, however, that we also disagree, in part, with the
petitioner. In those cases where an LOT comparison is warranted and
possible, then for CEP sales the level of trade will be evaluated based
on the price after adjustments are made under section 772(d) of the
Act. As stated in Armid Fiber ``the level of trade of the U.S. sales is
determined by the adjusted CEP rather than the starting price.''
Cost Issue
Comment 2 Collection of Cost Data in Absence of the Initiation of
a Cost Investigation: MHI argues that the Department's collection of
cost data on all home market sales in the absence of the initiation of
a cost investigation not only violates the 1994 GATT Antidumping
Agreement (``the Agreement''), but is inconsistent with U.S. law and
administrative practice. MHI cites Article 2.2.2 of the Agreement and
section 773(e)(2)(A) of the Act to support its contention that the
Department should not have solicited contract price and cost data in
order to compute SG&A expenses and profit. MHI contends that there is
no provision in either the Agreement or U.S. law which provides that a
foreign producer automatically shall be subject to a sales-below-cost
investigation after CV is determined to be the appropriate basis for
NV. Instead, MHI contends that both the Agreement and U.S. law instruct
the Department to conduct cost calculations on the basis of records
kept by the respondent, provided that such records are in accordance
with the generally accepted accounting principles (``GAAP'') of the
exporting country and reasonably reflect the costs of production and
sale of the product. MHI cites the Final Results of Administrative
Review: Large Power Transformers from Italy, 52 FR 46,806 (1987)
(``LPTs from Italy''), Preliminary Results of Administrative Review:
Large Power Transformers from France, 61 FR 15461, 15462 (April 8,
1996) (``LPTs from France''), and Preliminary Results of Administrative
Review and Partial Termination in Part: Mechanical Transfer Presses
from Japan, 61 FR 15034, 15035 (April 4, 1996) (``MTPs Preliminary
Results (1996)''), in contending that the Department has resorted to CV
as the basis for NV for reasons similar to those enunciated in the
preliminary determination of this investigation, without automatically
subjecting respondents to cost investigations. In those investigations,
MHI maintains, the Department was correct to request product-line
profit and loss information for its calculations of SG&A expense and
profit. MHI states that it complied fully by submitting its internal
profit and loss statements for LNPPs. Accordingly, MHI argues that SG&A
and profit should be calculated
[[Page 38144]]
from MHI's internal profit and loss statements in the Department's
final calculations.
The petitioner maintains that the Department's request for home
market contract price and cost data ``in order to compute SG&A and
profit'' for its CV calculations in accordance with section
773(e)(2)(A) of the Act was a reasonable action within its discretion
in light of the requirements of the 1994 WTO Antidumping Agreement
(``the Agreement'') and U.S. law.
According to the petitioner, the Agreement and the Act which
implements the Agreement require the Department to exclude below-cost
sales from the calculation of SG&A and profit. The petitioner contests
MHI's statement that section 773(f)(1) of the Act forbids the
Department to examine transaction-specific data for profit and SG&A
because it had a product-line financial statement. According to the
petitioner, this position is without merit because nothing in the cited
statutory provision in the URAA restricts the Department from
requesting transaction-specific data. Petitioner also notes that MHI
was capable of providing the information in a timely manner.
The petitioner also objects to MHI's characterization of the
collection of transaction-specific information on SG&A and profit as an
``aberrational'' practice. According to the petitioner, at this early
stage of implementation of the URAA, any such characterization is not
credible, as the Department is entitled to evolve its practice under
the new statute. Petitioner also points out that MHI failed to mention
that in LPTs from France, the preliminary notice makes clear that
substantial questions arose regarding profit and SG&A on the eve of the
preliminary determination, and that, although the Department calculated
profit based upon the LPT respondent's parent company's financial
statements, the Department noted for the final determination that it
would consider calculating the respondent's profit based only on above-
cost data if it had cost data for home market sales.
Based on the record of this investigation, the petitioner maintains
that it was clear from the response to section A that companies could
report transaction-specific data, and that evidence pointed to below-
cost sales. According to the petitioner, given the recent changes in
the law and congressional intent to exclude below-cost sales from CV
profit in most cases, it was reasonable for the Department to seek
transaction-specific data in this investigation in order to analyze
whether below-cost sales should be excluded from CV profit, either on a
mandatory or discretionary basis.
DOC Position: We disagree with MHI that the Department violated the
Agreement and U.S. law in soliciting and collecting cost and sales data
for each home market sale. There is nothing in the Agreement or the
statute which precludes the Department from requesting sales-specific
cost and sales data for home market sales, regardless of whether a
sales-below-cost investigation had been initiated. In addition, we
disagree with MHI that the collection of project-specific home market
sales and cost data was an aberration from the Department's normal
practice. In this case, the petitioner provided a timely allegation of
sales below cost and our review of the respondents' section A
questionnaire responses revealed that transaction-specific cost
information was readily available and could be provided by the
respondents. This being one of the first cases under the new law, we
are still developing our practice for computing profit and SG&A in
accordance with the new law.
Comment 3 If the Department Must Formally Initiate a Cost
Investigation in Order to Disregard Below-Cost Sales: MHI argues that
the Department did not act in accordance with the law when it excluded
sales below cost as being outside the ordinary course of trade under
sections 771(15) and 773(b)(1) of the Act. MHI contends that sales made
below cost can be disregarded but that, as a prerequisite, the
Department must have reasonable grounds to believe or suspect that
below-cost sales have been made. Thus, the Department must formally
initiate a cost investigation in order to disregard the below-cost
sales, which it did not do in this instant investigation. MHI states
that it would be consistent with the SAA and the proposed regulations
to include below-cost sales in the calculation of SG&A and profit. MHI
maintains that the facts in this investigation are consistent with the
recognition by the SAA of those situations where unprofitable sales
will be included in the calculation of the antidumping duty margin
because, in this investigation, the Department determined that it was
unnecessary to initiate and conduct a sales-below-cost inquiry. Also,
MHI cites Federal-Mogul Corporation v. United States, 20 CIT ____,
Slip.Op. 96-37 (February 13, 1996)(``Federal Mogul''), to support its
claim that no home market sales should be excluded, because the burden
of presenting evidence of below-cost sales rests on the petitioner, who
failed to do so in this case. Absent a formal investigation of sales-
below-cost, MHI argues, there is no showing that MHI's home market
sales are not in the ordinary course of trade.
The petitioner asserts that MHI has misread Federal Mogul in its
arguments. First, the petitioner maintains that Federal Mogul is of
little relevance since it was decided under the former statute and
Congress has effectively revised this area of agency practice. The
petitioner states that the SAA clearly provides that, in most
investigations, profit will be calculated using only above-cost sales.
Second, the petitioner maintains that even under the old law, Federal
Mogul does not support MHI's proposition that the petitioner bears the
burden of presenting evidence that below-cost sales are outside of the
ordinary course of trade. According to the petitioner, the court's
ruling actually said that the reviewing court owed substantial
deference to the agency and that, on appeal, the petitioner bore the
burden of showing that the agency abused its administrative discretion.
The petitioner states that the proposition that the Department
unlawfully excluded below-cost home market sales is untenable, because
no requirement for a formal initiation of a below-cost sale
investigation is found in the new statute. Rather, the petitioner
contends, the statute at section 773(b)(1) of the Act provides that the
Department need only have ``reasonable grounds to believe or suspect''
that the home market sales of the respondent have been made at prices
below the cost of production.
DOC Position: We disagree with MHI. While the Department will
typically initiate a sales-below-cost investigation before excluding
home market sales as being outside the ordinary course of trade for
purposes of calculating profit and SG&A for CV, the unique
circumstances in this case required that we perform a below-cost
analysis even though the Department elected not to formally initiate a
sales-below-cost investigation.
Early on in this investigation it was argued by all parties that we
should base NV on CV due to the unique and customized nature of LNPPs.
The Department determined that the particular market situation of these
highly customized and unique products did not permit proper price-to-
price comparisons and, accordingly, we based NV on CV. The petitioner
subsequently filed a timely and proper cost allegation which alleged
that ``Japanese producers have sold the foreign like product at less
than the cost of production in the home market.'' We elected not to
formally address petitioner's below-cost allegation because we knew
that we were going to base NV on CV for all
[[Page 38145]]
respondents, and the respondents'' questionnaire responses confirmed
that transaction-specific cost data was readily available. Moreover, we
did not want to burden respondents with having to respond to the very
detailed section D questionnaire for home market sales that a formal
below-cost investigation would require. Although, arguably, we should
have formally addressed the sales-below-cost allegation, at the time of
its filing, we did not foresee the implications a formal initiation of
a sales-below-cost investigation would have on the CV profit and SG&A
calculations.
In past cases, under the old law, with similar types of products
(i.e., large customized products that are manufactured over an extended
period of time) in which we automatically based foreign market value
(now NV) on CV, the Department relied on the statutory minimum of eight
percent for profit. See, e.g., Preliminary Results of Administrative
Review: LPTs from Japan, 57 FR 23,204 (June 2, 1992); and Final
Determination of Sales at LTFV: MTPs from Japan, 55 FR 335 (January 4,
1990) (``MTPs Final Determination (1990)''). We realized early in this
case that in accordance with the new law, we would have to compute
actual profit and SG&A as opposed to simply relying on the statutory
minimum of eight percent. Accordingly, we requested sales and cost data
for each sale in the home market which fell within the purview of this
investigation.
Section 773(e)(2)(A) of the Act specifies that SG&A and profit for
CV be computed using only those sales of the foreign like product that
were made in the ordinary course of trade. We analyzed the contract-
specific price and cost information we received from respondents. This
information indicated that there were below-cost sales made in the home
market, in substantial quantities, and over an extended period of time.
Although we did not formally initiate a cost investigation under
section 773(b) of the Act (despite the fact that a timely allegation
had been made by the petitioner based on the respondent's data), the
unique cost reporting aspects of this case were such that, in effect,
the Department conducted a cost investigation and our analysis revealed
evidence that there were home market sales of merchandise within the
purview of this investigation which were below cost. Section 771(15)
provides that sales and transactions considered outside of the ordinary
course of trade include ``among others'' below-cost sales disregarded
under section 773(b)(1). The Department interprets this provision to
apply to the exclusion of below-cost sales, even if such sales were not
formally disregarded pursuant to section 773(b)(1) of the Act.
Comment 4 Each Home Market Sale of a LNPP, Addition, or Component
Constitutes a Distinct Model for Purposes of Performing the Cost Test:
MHI argues that even if the Department's exclusion of home market sales
below cost from its SG&A and profit calculations was permissible, it
should not treat the home market sales as distinct models for purposes
of performing the cost test. Respondent refers to section 773(b)(1) of
the Act that says the Department is required to exclude home market
sales below cost if (1) they are made in substantial quantities, (2)
over an extended period of time, and (3) at prices which do not permit
recovery of costs in a reasonable period of time. MHI also cites
section 773(b)(2)(C) of the Act, which states that substantial
quantities must represent 20 percent or more of the volume of sales. In
undertaking its preliminary analysis, MHI claims that the Department
ignored this statutory definition of substantial quantities and
automatically applied its model-specific cost test. Moreover, according
to MHI, the Department's normal model-specific cost test loses
relevancy when NV is based on CV. MHI refers to Policy Bulletin, No.
94.3, ``Disregarding Sales Below Cost-Extended Period of Time'' (March
25, 1994) to explain that the rationale for this test is to ensure that
NV is not calculated for a particular pricing comparison by reference
to sales made exclusively below cost.
According to TKS, the Department's model-specific COP analysis and
its consequential exclusion of below-cost sales from normal value
calculations are not in accordance with subsection 773(b), the SAA, and
the Department's own interpretation of the statute. TKS argues that the
methodology employed by the Department ``practically read the
``substantial quantities'' and cost recovery requirements out of the
law.'' Yet TKS also concedes that the inherent physical diversity among
LNPPs is such that ``it would be equally improper'' if the Department
were to change the definition of model to encompass all home market
sales during the POI. TKS maintains that, with a class of products
consisting of highly-valued, uniquely customized machines, model-
specific analysis is not possible. TKS argues that disregarding sales
made at below-cost prices is discretionary because the wording in
section 773(b)(1) is that the Department ``may'' disregard sales. TKS
concludes that because, in its view, the COP test cannot be conducted
on a model-specific basis in this case, the Department should exercise
its discretion and not disregard home market sales for normal value.
The petitioner maintains that even if the Department decides that
the statute does not require exclusion of below-cost sales, it plainly
permits the Department to do so. Assuming arguendo that the Department
did not investigate below cost sales pursuant to section 773(b)(1) of
the Act, the petitioner maintains that it could nonetheless properly
exercise its discretion to exclude such sales from its profit
calculations under section 771(15).
Concerning the proper definition of a ``model'' in this
investigation, the petitioner agrees with the Department's finding that
``each home market sale of an LNPP, addition, or component, constitutes
a distinct model for purposes of performing the cost test'' because of
the unique nature of the product under investigation. Accordingly, the
petitioner supports the use of individual models to determine which
home market sales should be excluded from profit and SG&A calculations
because they were sold at less than the cost of production. The
petitioner maintains that since the Department's model-specific test
was not altered when the statute was amended, the Department properly
applied its model-specific test in the preliminary determination. The
petitioner disagrees with the respondents'' contention that full cost
recovery on each sale is unreasonable in a large capital goods
industry. The petitioner asserts that, in setting prices, LNPP
producers typically perform cost estimates based on the full cost of
production with an allowance for profit so as to cover their production
costs on every sale. Thus, the petitioner maintains, a model-specific
analysis is appropriate.
DOC Position: We disagree with the respondent that the substantial
quantities test must be performed on a basis other than a model-
specific basis. In past cases, the Department has routinely performed
the cost test on a model-specific basis. See, e.g., Certain Cut-to-
Length Carbon Plate from Sweden, 61 FR 15,772, 15,775 (April 9, 1996)
(Comment 5); Stainless Steel Angle from Japan, 60 FR 16,608, 16,616
(1995) (Comment 12). As indicated in the SAA, at page 832, the
Department will continue to perform the cost test on no wider than a
model-specific basis. In this case, each LNPP sale clearly represents
its own unique, customized, model of merchandise.
Comment 5 The Department Should Calculate Profit on the Foreign
Like
[[Page 38146]]
Product: MHI argues that the Department's preliminary analysis
calculated SG&A and profit on both LNPP additions and systems in
contravention of section 773(e)(2)(A). MHI notes that additions and
systems are not equal in commercial value. Thus, MHI argues that if the
Department continues its present methodology then it should only
calculate SG&A and profit using home market sales of systems which are
MHI's foreign like product.
The petitioner objects to MHI's hypothesis that LNPP systems are a
separate like product from LNPP additions. According to the petitioner,
the Department has determined that a single like product exists which
consists of all LNPP systems, press additions, and press components,
regardless of state of completion. The petitioner argues that the
Department made home market viability and other determinations required
by the statute based on this definition, and that changing the like
product definition without cause at this late stage of an investigation
would involve reassessment of numerous issues which form the foundation
of the Department's proceeding. Thus, the petitioner maintains, MHI's
suggestion must fail as an argument unsupported by either the record or
administrative precedent.
DOC Position: We disagree with MHI that computing a single profit
for both additions and systems is in contravention of section
773(e)(2)(A) of the statute, which merely states that CV shall include,
inter alia, ``actual amounts'' for profits ``in connection with the
production and sale of a foreign like product. * * * '' The SAA makes
no mention that the profit calculation should consist of different
rates for different pools of products within the foreign like product.
From early in the investigation we have determined that a single like
product exists, and accordingly have computed profit based on all sales
of the foreign like product occurring in the ordinary course of trade.
Comment 6 Home Market LNPP Sales Do Not Constitute a Foreign Like
Product: TKS maintains that the Department should base its CV profit
calculation on either TKS's average LNPP profit or on the company's
financial statement. TKS first argues that section 773(e)(2)(A) of the
Act is not applicable to the CV profit calculation because the
Department determined that TKS's home market LNPPs do not constitute a
foreign like product. According to TKS, because the Department
determined that TKS's Japanese sales of LNPP systems, additions and
components could not be used as the basis for NV due to the particular
market situation, the underlying analysis for that determination
compels a conclusion that home market LNPPs are not a foreign like
product within the meaning of section 771(16) of the Act (19 U.S.C.
section 1677(16)). Accordingly, TKS maintains that section 773(e)(2)A)
is not the applicable rule for CV profit calculation. TKS cites the
Department's November 9, 1995, CV decision memorandum to support its
contention that the Department determined that each LNPP sold by TKS in
the United States and in Japan is unique and that the models sold in
the two markets are not approximately equal in commercial value.
Finally, TKS holds that the Department determined that the LNPPs sold
in the United States and in Japan are not ``reasonably comparable'' to
each other.
TKS also argues that the correct rule for CV profit calculation in
this case is found in section 773(e)(2)(B) of the statute, because the
Department found that the particular market situation precluded price-
to-price comparisons. According to TKS, the SAA requires that the
Department utilize section 773(e)(2)(B) in those instances where the
method described in section 773(e)(2)(A) cannot be used, either because
there are no home market sale of the foreign like product or because
all such sales are at below-cost prices.
TKS also argues that if, assuming arguendo, TKS's home market LNPP
sales constitute a foreign like product, section 773(e)(2)(B) is still
the applicable rule for CV profit calculation in this case because
TKS's LNPPs are not sold in the ordinary course of trade. According to
TKS, the fact that technical specifications are vastly different within
the respective groups of components, additions and systems, LNPPs are,
prima facie, merchandise produced according to unusual product
specifications, which should be excluded from analysis according to
section 771(15) of the Act.
TKS offers a second subsidiary argument, that if, further assuming
arguendo, its home market LNPP sales both constitute a foreign like
product and are sold in the ordinary course of trade, section
773(e)(2)(B) still controls CV profit calculations where, as here, the
Department has determined that the ``particular market situation''
affecting home market sales does not render price-to-price comparisons
feasible. TKS maintains that the SAA language does not limit the
applicability of section 773(e)(2)(B) to situations where there are no
home market sales of the foreign like product or situations where all
sales are found to be made at below-cost prices. TKS argues that the
applicability is, generally, for all situations where the NVs resulting
from the application of section 773(e)(2)(A) would be ``irrational''
and ``unrepresentative.'' TKS argues that because profits are a
significant element of price, it would be illogical for the Department
to utilize, for CV purposes, the profits of those sales which it
rejected for price comparison purposes.
The petitioner believes that TKS's position is wrong because the
Department has clearly defined the foreign like product to be LNPP
systems, additions and components. The petitioner states that the fact
that price-to-price comparisons could not be made does not mean that
home market sales are outside the ordinary course of trade. The
petitioner supports the Department's analysis that matching sales would
require cost adjustments tantamount to computing a CV for each sale.
The petitioner maintains that TKS's arguments are inconsistent with the
precedents in MTPs Preliminary Results (1996) and LPTs from France (60
FR 62808, December 7, 1995), wherein the Department rejected price-to-
price comparisons and instead used CV. According to the petitioner, in
those cases the Department continued to use the home market profit data
even though it could not perform price-to-price assessments, thereby
negating the idea that the lack of price-to-price comparisons indicate
that domestic sales are outside of the ordinary course of trade.
DOC Position: We disagree with TKS that there were no sales of the
foreign like product in the home market during the POI. TKS is
incorrect to suppose that because we did not find home market sales
which provided practicable price-to-price matches, no foreign like
product existed. The foreign like product as defined by section 771(16)
of the Act, (i.e., sales of LNPP in Japan) did exist, as revealed by
our examination of LNPP equipment sold in the home market for purposes
of the Department's home market viability test (pursuant to section
773(a)(1)(C) of the Act) as stated in our November 9, 1995, decision
memorandum regarding the determination of the appropriate basis for NV.
However, the degree of unique customization for customers made the
difference-in-merchandise adjustment for product price matching
potentially so complex that the use of CV provided a more reliable and
administrable methodology for establishing NV. As stated in our
November 9, 1995, decision memorandum, the Department
[[Page 38147]]
declined comparison of products within the same class of products which
have such prominent physical dissimilarities as to make comparisons and
calculations of adjustments for such physical differences
impracticable, pursuant to the ``particular market situation''
provision, section 773(a)(1)(C)(iii) of the Act.
Because we have not determined the absence of the foreign like
product in Japan, we disagree with TKS's suggestion that section
773(e)(2)(B) should apply in determining CV profit. The correct
statutory provision for CV profit calculations in this instance is
section 773(e)(2)(A) and, accordingly, the Department's final margin
calculations were formulated under its guidelinesse.
Comment 7 The Department Has Discretion Not to Disregard Below-
Cost Sales: TKS maintains that the legislative history of the 1974
Trade Act, as reemphasized in the URAA with respect to section 773(b),
shows the Congressional intent that certain types of below-cost sales
should not be disregarded for foreign market value (now NV)
determinations. According to TKS, this legislative history reveals the
intent of Congress that the Department exercise discretion under
section 773(b) based upon the ``rationality of exporters pricing
practices.'' TKS lists three reasons why the Department should consider
the characteristics of the LNPP market and the rationality of the
pricing practices of market participants such that it should exercise
its discretion not to disregard sales made below cost. First, TKS
claims that below-cost sales of LNPPs are not systematic, since they
are infrequent transactions for unique, customized products. Second,
TKS claims that below-cost sales of LNPPs occur for reasons beyond the
producer's control. Third, TKS maintains that even though the producer
may sustain losses in isolated sales, the producer usually recovers the
losses over a period of three to four years. TKS claims that this is an
appropriate case for the Department to exercise its discretion by not
disregarding below-cost sales, as this instant case is the first
antidumping investigation in which the Department considers the
application of section 773(e)(2)(A) in the context of job-order cost
accounting.
With respect to the enforcement of the statute, the petitioner's
approach is diametrically opposed to that of TKS. The petitioner
maintains that, even if the Department decides that the statute does
not require exclusion of below-cost sales, it plainly permits the
Department to do so. The petitioner therefore urges the Department to
use that discretion for the express exclusion of those home market
sales below the cost of production.
DOC Position: We disagree with TKS. The circumstances in the
instant investigation do not call for the Department to exercise its
discretionary authority to include sales made below cost, which were
determined to be in substantial quantities, over an extended period of
time, and prices which do not permit recovery of costs in a reasonable
period of time. We agree with the petitioner's earlier comment that,
that even if the statute does not require exclusion of below-cost
sales, it plainly permits the Department to do so. If a company's
market strategy results in below-cost sales of LNPPs, then a
willingness to sell below cost is not negated by the relative
infrequency of transactions for unique, customized products. First, the
Department does not analyze the intent, per se, of the respondent in
dumping its products, whether above, at or below cost. Second, even if
intent were a factor, we believe TKS's arguments regarding job-order
costing are incorrect. The procedure of developing each project during
the sales negotiating and pricing process gives LNPP manufacturers
every opportunity to recognize that they are concluding transactions
that will be below the cost of production. Also, TKS's claim that it
recovers its losses from a particular sale over time shows that it is
necessary to analyze each sale as its own model. If costs cannot be
recovered for each sale, which takes several years to conclude in
delivery and installation, then that sale should be excluded. If TKS is
willing to sell below cost for a particular sale, hoping to recover
costs through other projects, whether subsequent sales of press
additions and/or through servicing contracts, then it has, in effect,
purposely used a transaction as a loss-leader, to the point of selling
below cost.
If we examine past circumstances where the Department has exercised
its discretionary powers, and investigated the issue, not in terms of
intent, but in terms of unique market conditions for particular
products, we must still conclude that TKS has no basis to claim that
below-cost sales of LNPPs occur for reasons beyond the producer's
control. An example of sales where the Department has historically
exercised its discretion not to exclude certain sales below cost occurs
in the case of perishable agricultural products. See, e.g., Final
Results of Administrative Review: Certain Fresh-Cut Flowers from
Mexico, 56 FR 1794 (January 17, 1991). Flowers, fruits and vegetables
are raised and sold en-masse, are subject to various conditions of
weather, have a short shelf-life, and are often sold on a consignment
basis. Thus, the Department has considered such products subject to
forces beyond the producer's control which may cause occasional sales
below cost. By comparison, LNPPs are precisely the appropriate case for
the Department to exercise its discretion to disregard the below-cost
sales in the context of job-order cost accounting, for in the context
of this industry, the foreign like product is as removed as possible
from the forces affecting perishable products.
Comment 8 Circumstance of Sale adjustment for Credit Expenses: The
petitioner argues that the Department should not have deducted credit
expenses from MHI's and TKS's CV because CV did not include credit
expenses in its original composition. According to its analysis of the
preliminary determination calculations, the Department inappropriately
failed to include home market credit expenses when calculating CV.
Citing Final Determination of Sales at LTFV: Certain Granite Products
from Italy, 53 FR 27187, 27191 (July 19, 1988), Final Determination of
Sales at LTFV: PET Film, Sheet and Strip from the Republic of Korea, 56
FR 16305, 16307 (April 22, 1991); Final Results of Administrative
Review: Roller Chain, Other than Bicycle, from Japan, 55 FR 42602,
42606 (October 22, 1990); and Preliminary Results of Administrative
Review: Certain Fresh Cut Flowers from Colombia, 60 FR 30270, 30274
(June 8, 1995), the petitioner argues the Department's standard
practice requires the addition of imputed credit to CV. The petitioner
maintains that in the instant investigation, when the Department made a
circumstance of sale adjustment by subtracting home market credit
expenses from CV, it removed an expense from a price that did not
include that expense in the first place.
MHI argues that the Department properly excluded home market credit
expenses in its CV calculations. MHI further argues that the Department
has recently changed its practice as found in Final Determination of
Sales at LTFV: Certain Pasta from Italy, 61FR 30326, at Comment 14
(June 14, 1996) (``Pasta''). MHI explains that the Department justified
its change in practice by citing sections 773(b)(3)(B) and 773(e)(2)(A)
of the Act, which direct the Department to calculate SG&A, including
interest expense, based upon actual experience of the company. MHI
contends that because the Act defines the calculation of general
expenses for COP and CV in the same way, the Department stated that it
would be inappropriate to
[[Page 38148]]
calculate interest expense differently for COP and CV. Furthermore, MHI
contends that because the Department computes profit as the ratio of
profit earned on home market sales to the cost of production, applying
the ratio to a COP inclusive of imputed credit would be mathematically
incorrect.
TKS maintains that the petitioner's arguments are moot because they
rely solely on the Department's practice prior to the 1994 amendments
to the Act. TKS argues that the petitioner's position would only have
validity if applied to cases investigated under the old law. According
to TKS, the Department'' treatment of imputed credit is correctly based
on the current section 773(e) of the Act, which requires that the
``actual general expenses'' be added to CV. Since the current Act now
provides that general expenses added to CV be limited to actual
expenses, TKS maintains that imputed credit cannot be utilized, as it
is not an actual expense, but a measure of opportunity cost. TKS cites
to the basic rationale for the calculation of CV outlined in Pasta, to
support its contention that only actual expenses will be applied to CV.
DOC Position: We agree with respondents. Section 773(e)(2)(A) of
the Act requires that the Department include in CV the actual amount of
SG&A expenses (including net interest expense) incurred by the exporter
or producer. Imputed credit is, by its nature, not an actual expense.
Therefore, we did not include imputed credit in the CV calculation for
the final determination.
Comment 9: Headcount Methodology vs. CGS Methodology: TKS and MHI
offer similar arguments concerning the proper methodology for
allocation of general and administrative expenses. Below, Part A
summarizes the arguments concerning TKS USA's operations and Part B the
arguments concerning MLP's operations.
A. Allocation of TKS USA's Office Administration Expenses
TKS objects to the allocation of TKS USA's office administration
expenses on the basis of total CGS. TKS states that these expenses
should be allocated on the basis of headcount, which impacts the
calculation of both further manufacturing costs and reported selling
expenses. TKS maintains that this is required because TKS USA's
commercial activities include merchandise other than LNPP, namely (1)
Sale of spare parts; (2) the conduct of press audits; (3) the sale and
production of control systems; (4) the sale and production of digital
ink pumps; and (5) independent maintenance/technical work, which are
each conducted by a separate division with specific personnel assigned
to each division.
TKS maintains that the Department's allocation of SG&A expenses
ignores the diversity of activities at TKS USA and assigns an
inordinate share of the expenses to press sales. Although TKS admits
that a CGS-based allocation is common Department practice, it claims
that such practice is not mandated by either the Act or the
Department's regulations. TKS maintains that for the final
determination, the Department should exercise its discretion and
utilize TKS's proposed headcount methodology to allocate administrative
expenses.
TKS maintains that the Department should give consideration to the
fact that the headcount methodology is utilized internally by TKS USA
in the normal course of business. Thus, TKS argues, to the extent that
TKS USA has any historical practice employed previous to the
investigation, it involves the headcount methodology.
Finally, TKS cites to the Department's Final Results of Antidumping
Duty Administrative Review: DRAMS of One Megabit or Above from the
Republic of Korea (61 FR 20216, 20217, May 6, 1996), to support its
contention that, just as the Department affirms that indirect selling
expense allocations are not inflexibly limited to a value-based
methodology, the Department should also recognize that G&A expenses
should not be limited to a value-based approach.
The petitioner argues that TKS's claim that it allocates G&A
expenses based on headcount in the ordinary course of business to each
of its separate divisions appears to contradict its submissions. The
petitioner cites to TKS's section A response, where it stated that TKS
USA ``does not maintain any internal financial statements of profit and
loss statements for specific product lines, or specific internal
business units.'' The petitioner also notes that TKS seems inconsistent
in concluding that allocating TKS USA's G&A costs based on CGS is
distortive in light of its position in favor of a value-based
allocation of product-specific factory overhead and engineering costs.
Finally, the petitioner juxtaposes TKS's reasoning with that of MRD, a
respondent in the companion German LNPP investigation, who re-allocated
G&A expenses on a value basis while citing to the Department's Final
Determination: Certain Carbon and Alloy Steel Wire Rod from Canada, 59
FR 18791, 18795 (April 20, 1994) (``Carbon and Alloy Steel Wire Rod)'',
MRD recognized the ``subjective allocations'' which management often
makes in allocating G&A using bases other than CGS.
B. MHI's Indirect Selling and G&A Expense Allocation
MHI argues that the common G&A portion of MLP's indirect selling
expenses should be allocated to LNPPs based on the number of employees
involved in LNPP operations. MHI states that allocating common G&A by
LNPP sales value does not accurately reflect the common G&A expenses
incurred for LNPP sales activity. According to MHI, a headcount
methodology of allocation reflects the greater importance and number of
resources required to support its commercial press sales at MLP. MHI
explains that MLP's staff must spend more time attending to issues
related to commercial press sales activities than a sales-based
allocation would reflect (e.g., personnel in MLP's accounting and
purchasing sections spend significantly more time issuing invoices,
monitoring sales accounts receivable, purchasing parts, and recording
expenses related to commercial press operations than they do to LNPP
operations). MLP explains that it provides financing services solely
for commercial press sales. MHI claims that while a headcount
methodology would still allocate too much common expense to LNPPs, such
an allocation would nonetheless be more accurate than allocation by
sales value. MHI states that its existing base of commercial press
customers is vastly larger than the LNPP base and that the Department's
methodology fails to capture the inherent slant of general expenses
toward the servicing and maintenance of MLP's existing commercial press
sales. MHI states that a sales-based allocation is a reasonable measure
of cost when the only activity is selling. MHI also argues that the
Department should consider that headcount methods are employed by MHI
in the normal course of business, as would be expected, since sales-
based allocations of indirect expenses are uncommon in normal
commercial systems.
The petitioner argues that the Department's long-standing policy is
to allocate U.S. indirect selling expenses on the basis of sales value,
citing Final Determination of Sales at LTFV: Certain Internal-
Combustion, Industrial Forklift Trucks From Japan, 53 FR 12552, 12577
(April 15, 1988) and the Department's questionnaire. The petitioner
notes that the Department rejected the headcount allocation method at
the preliminary determination and applied the standard allocation
methodology. The petitioner
[[Page 38149]]
argues that MHI's use of headcount to allocate these expenses was
created for purposes of this investigation and asserts that the
Department has rejected such subjective management allocations of U.S.
affiliate G&A expenses in prior cases, even where such methods were
used in the normal course of business (citing the German companion case
to this investigation). The petitioner takes issue with MHI's
suggestion that indirect selling expenses are incurred only as a
function of the number of employees directly involved in sales and
servicing and states that this assertion ignores the fact that
companies expend more common effort (e.g., senior management time,
travel expenses, and entertainment) to win large-value sales.
DOC Position: The Department disagrees with TKS's contention that
TKS USA's office administration expenses should be allocated to its
LNPP operations based on relative headcounts.
Similarly, the Department disagrees with MHI's contention that
MLP's common G&A expenses should be allocated to its LNPP and
commercial press operations based on relative headcount.
As set forth in Carbon and Alloy Steel Wire Rod, our normal
methodology for allocating G&A expenses to different operations is
based on CGS. Our methodology recognizes the fact that the G&A expense
category consists of a wide range of different types of costs which are
so unrelated or indirectly related to the immediate production process
that any allocation based on a single factor (e.g., headcount) is
purely speculative. The Department's normal method for allocating G&A
costs based on CGS takes into account all production factors (i.e.,
materials, labor, and overhead) rather than a single arbitrarily chosen
factor. Absent evidence that our normal G&A allocation method
unreasonably states G&A costs, we continued to allocate such costs for
the final determination based on CGS.
Further, because we have treated the common G&A expenses in
question as part of total G&A rather than as part of our calculation of
total indirect selling expenses, the allocation methodology issue for
the common G&A expenses impacts the calculation of the G&A rate and has
no effect on the indirect selling expense calculations.
TKS-Specific Comments
Sales Issues
Comment 1 Deduction of U.S. Indirect Selling Expenses from CEP: As
noted in detail in the Common Issues section in the companion German
notice, the petitioner maintains that the Department failed to deduct
many of TKS's U.S. indirect selling expenses because they were recorded
in the accounts of the foreign LNPP manufacturer. According to the
petitioner, the Department should deduct all indirect selling expenses
incurred on behalf of U.S. sales, irrespective of the location at which
the expenses are actually incurred or the location of the company in
whose books the expenses are recorded.
As noted in the General Comments Section, above, TKS maintains that
the Department has adopted a new methodology for calculating indirect
selling expenses pursuant to the enactment of the URAA which make
petitioner's arguments moot. TKS also makes the following arguments
specific to its questionnaire response.
TKS disagrees with the assertion that it was unwilling to
accurately segregate expenses related to Japanese versus U.S. economic
activity. TKS maintains that the record of the investigation
demonstrates that it properly reported expenses and that there is no
indication of unwillingness to comply with Department instruction to
separately report expenses; TKS cites to the verification report to
bolster its conclusion that the reported indirect expenses incurred in
Japan on behalf of sales, including exports, do not contain U.S.
economic activity.
Lastly, TKS argues that if the Department does deduct from CEP
indirect selling expenses incurred in Japan on behalf of U.S. sales,
then the amount reported by TKS is the correct amount. TKS argues that
its methodology, whereby it divided total indirect selling expenses
incurred in Japan by the company headquarters, exclusive of branch
office expenses, by the total transfer price value of all sales, is
methodologically sound. It maintains that the expenses reported are in
support of TKS USA and related to intra-company communications.
Furthermore, TKS argues that since it is the sales price between TKS
Ltd. and TKS USA which is reported in the company's financial
statements, TKS should allocate total selling expenses incurred by the
Tokyo office over the total sales as shown in the financial statements.
TKS maintains that if the DOC does deduct indirect selling expenses
associated with U.S. sales but incurred in Japan, then it should apply
this ratio to the transfer price of each U.S. sale. TKS maintains that
deriving a factor based on total sales revenue and then applying that
ratio to each transaction's gross sales value would distort the results
for two reasons: (1) The U.S. subsidiary is involved in further
manufacturing for some sales, so that there can be a significant
difference between transfer price and sales price; and (2)
theoretically, the Department's proposed calculation method should not
result in significant differences in the final calculated per-unit
amount of U.S. selling expenses.
DOC Position: We disagree with respondent's arguments. Since TKS
calculated a universal indirect selling expense factor, including
therein all expenses incurred in Japan associated with U.S. sales (and
even included trade show expenses which were physically incurred in the
U.S.), such expenses should be deducted from CEP, in keeping with the
Department's definition of U.S. indirect selling expenses in Final
Determination of Sales at LTFV: Certain Pasta from Italy, 61 FR 303256
(June 14, 1996).
With respect to the numerator of TKS's reported indirect selling
expense factor, TKS must report all home market expenses since it is
including all home market sales in its denominator. TKS's argument in
its submissions that the branch offices have nothing to do with export
sales is besides the point--the sales revenues included in the
denominator have nothing to do with export sales either. The fact is
that TKS has calculated a universal indirect selling expense factor for
all sales in all markets, not a factor pertaining exclusively to TKS
USA sales, not even exclusively to export sales.
With respect to the denominator, TKS is mixing apples and oranges
in its calculations. The portion of its denominator for home market and
third-country revenue represents gross sales values; it is only the
U.S. sales value which represents TKS Ltd.'s sales to a subsidiary. As
TKS reported, and the Department verified, TKS Ltd. sold direct to end-
users and, on occasion, direct to unaffiliated middlemen such as
leasing companies in the home market. In fact, it is this absence of a
Japanese sales subsidiary which is part of TKS's arguments for a CEP
offset based on a claimed single level of trade in Japan different from
that in the United States. The indirect selling expenses which are
incurred for all sales should be allocated over the sales value of all
sales, not over a mix of domestic sales value, third-country sales
value and U.S. transfer prices.
It is because TKS's original calculations are such a hybrid that
the correction to total revenue in the denominator slightly decreases
the indirect selling expense ratio, whereas the proper application to
gross sales
[[Page 38150]]
value increase what TKS called the ``per-unit'' amount. TKS,
arithmetically speaking, was slightly overstating the size of the
expense factor, but in applying that factor to non-arm's-length
transfer prices, was significantly understating the per-press sales
expenses. Even if all of the denominator were comprised of transfer
price values, it would not necessarily be allowable as an allocation
basis. TKS points out that the transfer-prices and sales prices differ
greatly, which only underscores why the Department is reluctant to
utilize in margin calculations prices that, by definition, were not set
at arm's length. There may be specific, compelling circumstances
whereby the Department exercises its discretion to rely on transfer
prices to a limited degree. For example, for MAN Roland Druckmaschinen
AG, a respondent in the companion investigation of LNPPs from Germany,
the Department applied the indirect selling expense factor to the
transfer price for certain sales which consisted only of parts and
subcomponents which had no separate contract value. See Comment 1 of
the ``Common Issues'' section of the Federal Register notice for LNPPs
from Germany.
We have recalculated the universal indirect selling expense
accordingly and applied it to the gross sales value of U.S. sales.
Comment 2 Reporting of All Selling Expenses Related to U.S.
Economic Activity: Petitioner maintains that the Department discovered
during its Japan verification that TKS incurred selling expenses
related to U.S. economic activity, but failed to include the expenses
in its reported U.S. indirect selling expenses. The petitioner points
to the verification report stating that TKS splits the annual U.S.
trade show expenses between TKS USA and TKS Ltd. Japan. Because the
trade show is economic activity occurring in the United States, the
petitioners argue that TKS should have reported the entire trade show
expense as a U.S. selling expense rather than including a substantial
portion of the expenses as part of general indirect selling expenses
incurred in Japan. Further, the petitioner states that the practice of
charging back expenses for U.S. economic activity occurred for numerous
other expenses, including testing and training costs. The petitioner
points out that since the indirect selling expenses of TKS Ltd. Japan
were not subtracted from the U.S. price in the preliminary
determination, TKS's charge-back procedures had the effect of
overstating the U.S. price in the margin calculations. The petitioner
argues that, even if the Department rejects the general argument that
all indirect selling expenses supporting U.S. sales, including those
incurred as well as recorded in Japan, be deducted from CEP, the
Department should at a minimum deduct the Japan indirect selling
expenses reported by TKS because of the inclusion of definite elements
of U.S. economic activity.
DOC Position: We agree in general with petitioner's argument. We
have revised our general treatment of indirect selling expenses
incurred on behalf of U.S. sales and recorded by the parent company in
this final determination. As detailed in Common Issues comment 1, the
Department is deducting from CEP indirect selling expenses associated
with U.S. economic activity. We thus capture the expenses which pertain
to economic activity in the United States which had not been deducted
from CEP in the preliminary determination.
Comment 3 Purchase of Insurance from an Affiliate: Petitioner
posits that the information collected at verification supports its
conclusion that the insurance relationship between TKS and Yasuda Fire
and Marine Insurance Ltd. (``Yasuda)'', is not at arm's length.
Petitioner points to the fact that the loss/premium ratio for covering
TKS Ltd., even before the Spokane Spokesman Review accidents, had been
significantly higher than the ratio which Yasuda normally establishes
in creating a policy. These accidents, petitioner states, increased the
loss premium ratio even more. Accordingly, the petitioner advocates
that the Department increase TKS's reported insurance costs by the
factor resulting from the division of the actual loss/premium ratio by
the expected loss/premium ratio. The petitioner also asks the
Department to re-examine whether any costs related to trucking
accidents in the U.S. not covered by insurance should be considered as
part of the constructed value of the Spokane Spokesman Review sale.
TKS rejects the petitioner's argument that the Yasuda premiums are
not at arm's length and offers the following in support of its
position. According to TKS, it requested Yasuda to provide
documentation with which the Department could compare TKS premiums to
those paid by unaffiliated insurance customers but that Yasuda refused.
Since the interest ownership is by Yasuda in TKS, and not vice versa,
TKS explains that it had no means of compelling Yasuda to provide the
information. TKS cites Article 16 of the Japanese law concerning the
Regulation of Insurance offerings which ``* * * generally prohibits
extension of preferential treatment for specific clients,'' to support
the contention that, legally, Yasuda must set premiums at arm's-length
levels.
With respect to the petitioner's request that the Department
increase reported insurance costs based on a comparison of Yasuda's
preferred premium/loss ratio to that arising out of its actual
experience with TKS, the respondent offers several challenges. First,
TKS maintains that Yasuda has only identified a ``preferred'' ratio for
return on its business efforts, and that there is no evidence on the
record that the ratio is anything other than that. According to TKS,
absent any information showing how often this ratio is actually
achieved in actual business practice, the petitioner cannot draw
conclusions about what occurs among unaffiliated customers of Yasuda.
Second, TKS argues that the ratio is only a snapshot in time,
immediately after a major loss and before the next premium renewal
period. Third, TKS argues that petitioner's allegation that the loss
premium ratio excludes the Spokane Spokesman Review loss is not
supported by evidence, as Yasuda's letter clearly states that the
reported loss/premium ratio covers TKS's exported cargos for the period
from April 1990 through January 1996. TKS states that petitioner has
not provided evidence that the loss amounts factored in the loss/
premium ratio are based on claims rather than on insurance-adjuster
estimated loss amounts.
Lastly, TKS maintains that, although it believes that the issue of
the extent to which TKS's insurance actually covered the costs
resulting from transit accidents is moot by virtue of the extraordinary
nature of the costs, it must point out that petitioner is factually
incorrect in arguing that the actual insurance settlement received in
March 1996 did not fully cover the costs incurred in producing and
transporting the replacement equipment.
DOC Position: We agree with the petitioner, in part. We agree that
TKS was unable to provide sufficient evidence that the Yasuda insurance
expenses reported were at arm's length. We disagree with petitioner
regarding the relationship between insurance coverage and the treatment
of any extraordinary expenses incurred due to in-transit accidents for
the Spokane Spokesman Review sale; whether or not such expenses were
covered by Yasuda is not germane.
We disagree with TKS's contention that the existence of article 16
of Japanese law automatically means that Yasuda has complied with it.
The only
[[Page 38151]]
benchmark which TKS and Yasuda provided was Yasuda's statement of its
expected loss/premium ratio, which was significantly less than that
which Yasuda experienced with TKS. This benchmark shows that the
historical experience of Yasuda with TKS in terms of the relationship
between the losses claimed by, and premiums paid by, TKS, has been
significantly different from the loss/premium guidelines Yasuda claims
to adhere to in its normal business practices. We also disagree with
TKS that the policy ratio in Yasuda's letter reflects the claims paid
on the Spokane accidents; our examination of the values involved show
this to be arithmetically unsupportable, as detailed in the TKS July
15, 1996, calculation memorandum. Nevertheless, we have not increased
that ratio to include the petitioner's adjustment which imputes an
additional claim amount for the Spokane accidents, as the potential
effect of those accidents may (and to the degree there is any even
partial objective nature to the Yasuda-TKS relationship should)
increase future premiums. Since the expenses we are using in our
calculations are those for the historical premiums paid during the POI,
the ratio we used is based on loss/premium ratio for the period
covering TKS sales as noted in the documentation reviewed at
verification. We have therefore increased TKS's reported insurance
costs by the factor resulting from the division of the actual loss/
premium ratio by the expected loss/premium ratio as shown in the Yasuda
documentation. With respect to question of how the insurance coverage
of expenses incurred due to accidents which befell the trucking of LNPP
components for the Spokane Spokesman Review sale should or should not
affect the final production expenses, see TKS Comment 8.
Comment 4 TKS's Request for Exclusion of a Dallas Morning News
Sale: TKS argues that the Department should exclude one of the sales
made to the Dallas Morning News (``DMN)'' from its margin calculations.
TKS argues that, while the Department is correct to state that the
statutory reference to the exclusions of sales outside the ordinary
course of trade from the dumping margin calculation does not, per se,
pertain to U.S. sales, the Department may exercise its discretion to do
so if the exclusion of a particular U.S. sale would prevent ``unfair
results.'' TKS then reviews the history of the manufacturing of the
sale in question, which was comprised of parts sourced from model LNPP
units exhibited in 1989, 1990, 1991 and 1993. TKS maintains that it
offered a greatly reduced price for this unit due to its belief that
the machine had significantly lost its value from the repeated
cannibalization of parts and frequent trade show presentations.
TKS argues that the Department should exercise its discretion to
exclude sales from the dumping analysis if the sales are not
representative of the foreign producer's selling practices in the U.S.
market. TKS cites the Final Results of Administrative Review: Fresh Cut
Roses from Columbia, (60 FR 6980, 7004, February 6, 1995) (``Roses from
Colombia'') to support its contention that the Department can and has
excluded U.S. sales when they ``are clearly atypical and not part of
the respondent's ordinary business practices, e.g., sample sales.'' TKS
then cites to IPSCO, Inc. et al. v. United States, 687 F. Supp. 633,642
(CIT 1988) where the court asked the Department to clarify the
circumstances under which it would consider exclusion of U.S. sales.
According to TKS, on remand, the Department stated that it could
exclude certain U.S. sales from the margin analysis where such sales
(1) are not representative of the seller's behavior, and (2) are so
small that they would have an insignificant effect on the margin. TKS
maintains the DMN sale in question is unlike any of the other sales
reported, as no other product was produced from trade show models over
an eight-year period of intermittent production processes and multiple
episodes of intercontinental transportation. TKS buttresses its
argument based on the percentage, by value, of total U.S. sales which
this particular DMN sale represents (which number is proprietary). TKS
states that this value is so small that exclusion of the sale from the
dumping margin analysis would not impede the Department's calculations.
TKS cites to American Permac, Inc. v. United States, 783 F. Supp. 1421
1424 (1992) wherein the CIT stated that ``whether sales are in or out
of the ordinary course of trade is not the determinative factor on the
U.S. sales side of the equation. Fairness, distortion,
representativeness are the issues to be examined.'' Finally, TKS
disagrees with the Department's preliminary conclusion that the pricing
of this DMN sale represented a concessionary price set as an inducement
for other sales to the same customer, since TKS had one sale to the DMN
prior to the transaction in question.
The petitioner maintains that the Department fully reviewed this
issue at the preliminary determination and that TKS has presented no
new factual information or argument since the preliminary determination
which would change the Department's conclusion. The petitioner
maintains that TKS is incorrect in characterizing the DMN sale in
question as being the only sale involving a press which was displayed
at a trade show, as a later DMN sale also involved a press shown at
such an event. The petitioner also maintains that TKS routinely uses
parts from inventory in the construction of presses, so that the fact
that TKS used inventoried parts for this sale is not indicative of its
alleged ``special'' nature. The petitioner characterizes this sale as a
loss leader sale, stating that this DMN sale ``was at a very low price
because TKS knew that the DMN would soon be in the market for more
press additions.''
DOC Position: We disagree with TKS. While the Department has the
discretion to exclude some types of U.S. sales when made in
insignificant quantities, we do not believe that it would be
appropriate to exclude this particular sale. In cases such as Roses
from Colombia we excluded sample sales and in the Final Determination
of Sales at LTFV: Coated Groundwood Paper from Finland, 56 FR 56363
(November 4, 1991), (``Groundwood Paper'') we excluded U.S. trial sales
and sales of damaged merchandise, where such sales were made in small
quantities. In those cases, the transactions involved stood by
themselves; that is, they were of commodity products which were not
directly related to other sales. For example, in the case of Groundwood
Paper, a printer would never be bound to a paper supplier just because
it tried a free roll of normal quality paper, nor would a producer gain
any leverage because it found a buyer with a unique application for
damaged rolls of paper. Sales of LNPP, however, are of expensive,
customized capital equipment which actually change the nature of the
printer's operations. In this specific case, in light of the duration
of relations between TKS and the DMN, one can reasonably interpret this
sale as part of an over-arching marketing strategy vis-a-vis a long-
term business relationship with the DMN, i.e., as a loss leader sale.
In this investigation we are reviewing a very small number of
large-value contracts whose fulfilment as transactions spans several
years. The Department's discretion to exclude sales must take into
account the fact that there is such a small pool of sales which are
available for analysis. Because the Department is not convinced that
the DMN sale in question was so unusual that it should be disregarded,
we are including this sale in our final analysis,
[[Page 38152]]
and are using the actual costs which were reported in the CV exhibits
of TKS's January 18, 1996, supplemental submission, inclusive of any
modifications arising from verification. The parts which were sourced
from units existing in TKS's inventory were not used parts and should
be included in those actual costs.
Comment 5 U.S. Direct Expenses for the Dow Jones Sale: TKS
maintains that the terms of sale for the Dow Jones sale were such that
the customer, and not TKS, was responsible for transporting the
merchandise from the U.S. port to the customer sites, and that the
customer independently arranged for the installation of the press
additions. TKS objects to the Department's preliminary determination
that the number of hours spent on testing and training by TKS personnel
warranted the classification of these expenses as further manufacturing
costs. TKS maintains that the quantity of time spent on testing and
training is not the proper measure to determine such a classification,
and instead proposes that the terms of sale and nature of the work
performed by TKS should govern. TKS states that at the initial stages
of the investigation, both the petitioner and the Department appeared
to consider installation and testing and training as selling or
movement expenses. TKS states that it ``does not necessarily agree''
with the Department's preliminary analysis that the size of the
machinery and complexity of the work compel a classification of
installation as further manufacturing. Nevertheless, even assuming that
this conclusion was valid, TKS argues that the Department's reasoning
does not apply to the specific services performed by TKS for the Dow
Jones sale because all manufacturing covered under the contract was
completed prior to the importation of the merchandise. Accordingly, TKS
describes the services as being the type of work which fits the
definition of post-production technical services expenses. TKS points
to its accounting records, whose nomenclature assigns the title
``warranty jobs'' in order to support its contention that any technical
modifications required during installation do not represent further
manufacturing and assembly. While TKS does not deny that the testing
operations were complicated since LNPP equipment is itself complex, it
does not believe this is sufficient grounds for characterizing the
testing and training expenses reported as further-manufacturing costs.
TKS states that such activity clearly did not involve an extension of
factory work, but only the routine post-delivery technical service
required by high-priced, highly-engineered machinery.
The petitioner maintains that TKS's argument is incorrect because
the issue of when title transfers is not relevant to the expense
classification issue. According to the petitioner, all those expenses
which are correctly treated as further manufacturing--installation
supervision as well as testing and training, occur after title is
transferred. The petitioner also maintains that since TKS classified
the Dow Jones sale as a further-manufactured transaction, all of the
expenses, (including testing and training if treated as direct selling
expenses), and the associated CEP profit would be deducted from the
U.S. price.
DOC Position: We disagree with TKS. TKS's argument is incorrect
because the issue of when title transfers is not relevant to the
expense classification issue. The Department must examine whether or
not a party incurs costs and the nature of those costs. Whether a
manufacturer delivers goods CIF duty paid U.S. port, delivered, FOB
factory gate, or any other delivery designation only designates which
movement charges the manufacturer is responsible for. As noted in the
Department's general comment section, LNPP installation is not being
treated as a movement expense. All those expenses incurred by TKS which
we have treated as further manufacturing, i.e., installation
supervision as well as the combined testing and training expenses,
occur after title transferred. The Department does not have, as TKS
implies, a policy whereby direct selling expenses are defined as being
incurred after title passes. For example in Preliminary Results of
Antidumping Duty Administrative Review: Certain Forged Steel
Crankshafts from the United Kingdom, 60 FR 22045 (May 4, 1995), we
treated pre-sale warehousing expenses as direct selling expenses
because the producer had a general agreement with its U.S. customer to
store subject merchandise; in that case we treated the warehousing as a
direct selling expense even though the expenses was incurred before
title passed to the customer. .We note here that we would not have
treated training as part of total installation activities, but since
TKS could not report testing separately from training expenses, we
treated the combined value of the two as part of total further-
manufacturing.
Comment 6 Exchange Rate for the Spokesman Review Sale: TKS
maintains that the Department incorrectly utilized the daily rate as
published by the Federal Reserve Board in converting values from yen to
dollar amounts for the Spokesman Review sale. According to TKS, the
daily rate fluctuated from the benchmark rate by more than 2.25
percent, so that, in accordance with section 773A(a) of the Act, the
benchmark rate should be used for this transaction.
DOC Position: We agree with TKS. At the preliminary determination,
the Department inadvertently utilized the daily exchange rate for the
Spokesman Review sale, whereas, due to the degree of fluctuation
experienced on that day, the benchmark rate is the correct exchange
rate. We have utilized the benchmark rate for purposes of the final
determination.
Comment 7 TKS's May 31, 1996, Submission of Corrected Sales, CV
and FM data: The petitioner maintains that there are a series of
corrections which TKS failed to include in its May 31, 1996, submission
of revised sales, CV, and FM databases. According to the petitioner,
TKS failed to make numerous corrections based on the Department's
preliminary determination. Further, petitioner disagrees with the
argument filed by TKS on May 31, 1996, that if the Department uses a
five-year average TKS USA indirect selling expenses ratio, then the
Department cannot allocate G&A expenses based on the cost of sales
without overstating indirect selling expenses.
TKS contends that its May 31, 1996, submission was filed in direct
response to the Department's May 22, 1996, letter instructing it to
``incorporate all corrections of factual information which result from
the verification procedure, both those which TKS identified prior to
the commencement of verification and those noted during verification.''
TKS maintains that it was not instructed to make the changes which the
Department made at the preliminary determination, as these involve
methodological issues which TKS has not conceded for purposes of the
final determination. As to the calculation of TKS USA indirect selling
expenses, TKS argues that its submission was timely and that the
arguments rested on data provided in verification exhibit 27 to the
U.S. sales verification report.
DOC Position: We agree with petitioner that not all methodological
corrections necessary for the final margin calculation are reflected in
the data submitted on May 31, 1996, by TKS. We have made, therefore,
all necessary corrections and methodological adjustments to the data
reported on May 31, 1996, to reflect the policies set forth in this
final determination of sales at less than fair value. With respect to
the issue
[[Page 38153]]
concerning TKS USA indirect selling expenses and G&A allocation, we
have modified the calculation of the G&A allocation to further
manufacturing thereby eliminating any possible double-counting with
respect to the calculation of TKS USA indirect selling expenses.
Accordingly, we are applying the corrected ratio established in the TKS
USA verification report.
Cost Issues
Comment 8 Treatment of Costs Due to Delivery Accidents: The
petitioner maintains that the Department was incorrect in not including
in the CV of the Spokane Spokesman Review sale the additional
incidental expenses which were incurred because of accidents damaging
portions of LNPP towers en route to the customer site, if those costs
were not covered by insurance. The petitioner does not agree with the
Department's application of the provision of the SAA which supports the
exclusion of costs incurred due to unforeseen events. In its
preliminary determination, the Department concluded that TKS had
general knowledge of the possibility of accidents, but that any
specific accident was an unforeseen event. The petitioner argues that a
respondent, in its decisions on how to pack and ship LNPPs, its
selection of vendors, routes, timetables and insurers, knowingly
increases or decreases risks for the particular transactions affected.
According to petitioner's reasoning, if certain costs are incurred
which are not covered by insurance, this situation arises from multiple
factors which resulted from the respondent's business practices. Thus,
petitioner argues, the resulting costs are not truly ``unforseen'' and
should be included in CV. Petitioner presents several hypothetical
situations in which costs increase due to events for which a producer
cannot have perfect foreknowledge, but which traditionally have been
included as CV.
TKS maintains that petitioner is wrong to claim that specific
accidents, one of which resulted in a truck driver's death, were
foreseeable and ordinary in nature. According to TKS, the Department's
preliminary determination was correct in that it followed a two-part
test for determining if costs are sufficiently extraordinary to merit
exclusion from the margin calculations. TKS states that under the test
used in the remand following the CIT's decision in Floral Trade Council
of Davis California v. U.S., Slip Op. 92-213, 16 C.I.T. 1014 (December
1, 1992), an extraordinary expense must be: (1) Infrequent in
occurrence and (2) unusual in nature. According to TKS, the Department
applied this test in the Final Determination of Sales at LTFV: Fresh
Cut Roses from Ecuador, 60 FR 7019, (February 6, 1995), where the
Department rejected a petitioner's arguments that certain losses due to
windstorms were foreseeable. After reviewing all incidents of accidents
in TKS's history of trucking presses, wherein less than one in three
hundred U.S. shipments involved an accident, TKS maintains that the
accidents which befell delivery of the Spokane Spokesman Review press
additions were similar to phenomena like windstorms, and other events
which the Department has previously classified as unforeseeable,
infrequent, and hence extraordinary events.
DOC Position: As in the preliminary determination, the Department
maintains that the additional expenses stemming from the accidents
constitute, in the words of the SAA at page 162 ``an unforeseen
disruption in production that occurs which is beyond the management's
control.'' See Memorandum from the Team regarding Exclusion of Two
Sales, February 23, 1996. As such, when an unforeseen disruption in
production occurs which is beyond the management's control, the
Department will continue its current practice of using the original
costs incurred for production prior to the unforeseen event. Therefore,
for purposes of the final determination, we did not include any of the
additional expenses incurred as a result of the accidents, irrespective
of insurance coverage, in the CV for this sale.
Comment 9 COMAR/Front Page Installation's Reported Costs: The
petitioner alleges that TKS understated the costs incurred by its
affiliate COMAR/Front Page Installations (``COMAR)''. The petitioner
maintains that TKS reported costs for the installation of one of the
DMN sales using an indirect overhead rate, inclusive of G&A, which was
significantly lower than that contained in COMAR's financial
statements. The petitioner objects to TKS's failure to reconcile the
reported indirect overhead expenses with those recorded in COMAR's
financial statements, despite instructions from the Department to do
so. Furthermore, the petitioner questions COMAR's offset to actual
production costs for interest revenue, which the petitioner claims is
contrary to the Department's long-standing practice. For purposes of
the final determination, the petitioner maintains that the Department
should revise COMAR's submitted indirect overhead costs based on the
rate reflected in its financial statements, and that the Department
should disregard COMAR's negative interest expenses.
TKS argues that the reported indirect overhead costs are based on
the overhead expenses incurred in the months in which production took
place and that documentation reviewed at verification both supports
TKS's allocation methodology and reconciles to the company's financial
statements. TKS concludes that petitioner's argument is without basis,
and that it is unnecessary and unwarranted to adjust the reported
costs, particularly given the relative insignificance of the costs to
the total price.
TKS also rejects the petitioner's argument to exclude the reported
adjustment for interest income from the reported COMAR costs. TKS
maintains that the petitioner not only failed to cite any basis for its
position, but also ignored the facts in this case warranting the
adjustment. TKS argues that while it is true that COMAR does not incur
any interest expense, it is not true that there are no interest
expenses added to the further-manufacturing costs. According to TKS,
the reported further manufacturing costs include interest expense
computed as the sum of the TKS consolidated interest rate factor and
the total further manufacturing costs, which include those incurred by
COMAR.
DOC Position: We agree with TKS in part. Contrary to petitioner's
assertions, the Department was able to verify that TKS's submitted
indirect overhead costs reconcile to those reported in COMAR's
financial statements. COMAR does not ordinarily assign indirect
overhead costs to each of its jobs. In order to submit a fully absorbed
cost of production to the Department, TKS developed what it
characterized as an indirect overhead allocation rate. TKS allocated
indirect overhead costs to each job on the basis of the ratio of
indirect costs to direct costs during those months production occurred.
The Department considers TKS's method of allocating indirect costs as a
percentage of direct cost reasonable. Accordingly, no adjustment is
deemed necessary.
We disagree, however, that COMAR should be allowed to reduce
production costs by the excess of interest income over interest
expense. The Department allows interest expense to be offset by short
term interest income, but only to the extent the company has interest
expense. Not tying interest income in this manner would allow companies
to arbitrarily subsidize a product by realizing financial activities
not necessarily related to the production of the merchandise in
question. Accordingly, we disallowed COMAR's
[[Page 38154]]
reported reduction in production costs for the excess of short-term
interest income over interest expense.
Comment 10 TKS Indirect Overhead Cost Allocations: The petitioner
argues that the Department should reject TKS's indirect overhead cost
allocations. According to the petitioner, TKS employed an allocation
methodology which was far more general than either the other Japanese
respondent or the respondent in the companion investigation of LNPPs
from Germany. These other respondents generally calculated separate
overhead rates for each major manufacturing process and applied the
rates only to those products which undergo the specific processing.
According to the petitioner, TKS failed to provide any source
documents, or additional detail, for its overhead allocation
methodology, or to otherwise support the factory overhead amounts
provided in its responses. The petitioner objects to TKS's pooling of
LNPP R&D expenses into company-wide overhead costs which were then
allocated over total production, thus understating costs. The
petitioner objects that TKS's cost system charges much more engineering
cost to overhead accounts, as opposed to specific orders. Thus,
petitioner reasons, TKS's treatment of a large portion of engineering
costs as a part of common overhead results in a shifting of costs from
engineering-intensive press additions to press systems, and thus from
U.S. market sales to home market sales. Finally, the petitioner
maintains that the fact that TKS's normal cost accounting system goes
no further to accurately assign costs to particular sales does not
absolve TKS from reporting reliable, actual costs to produce the
subject merchandise. Petitioner cites precedents where the Department
required respondents to report data in a more specific format than that
created in the normal course of business. The petitioner thus requests
that the Department utilize Rockwell's information as facts available
for the final determination.
TKS maintains that its indirect overhead allocation methodology is
used in the normal course of business, is in accordance with Japanese
GAAP and was thoroughly verified by the Department. Respondent notes
that it complied fully with all requests for information made by the
Department. TKS argues that a comparison of its allocation method to
other companies is not the measure applied by the Department in
determining the acceptability of an individual respondent's allocation
methodology. Therefore, TKS maintains that the Department should accept
its methodology as submitted and ignore petitioner's request to apply
as facts available petitioner's own unverified overhead rates.
TKS argues that the information provided to the Department during
verification indicates that its allocation method is not distortive.
TKS notes that during verification it demonstrated to the Department
that both subject and non-subject products are treated identically
within its system. Additionally, TKS notes that there is no indication
in the verification report that the Department believes the methodology
distorts costs.
TKS disagrees with petitioner's contention that its allocation
method fails to identify R&D costs incurred to specific LNPP projects.
TKS maintains that it is unnecessary for the company to keep product-
specific R&D data and gives several reasons why LNPP's are charged with
the correct proportion of R&D expenses.
DOC Position: We believe that, in the instant proceeding, TKS's
method of allocating indirect overhead costs is reasonable and have
relied on it for the final determination. The legislative history of
section 773(b) of the Act states that ``in determining whether
merchandise has been sold at less than cost [the Department] will
employ accounting principles generally accepted in the home market of
the country of exportation if [the Department] is satisfied that such
principles reasonably reflect the variable and fixed costs of producing
the merchandise.'' H.R. Rep. No. 571, 93d Cong., 1st Sess. 71 (1973)
(emphasis added). The CIT has upheld the Department's use of expenses
recorded in a company's financial statements, when those statements are
prepared in accordance with the home country's GAAP and do not
significantly distort the company's actual costs. See, e.g., Laclede
Steel Co. v. United States, Slip Op. 94-160 at 22 (CIT 1994).
Accordingly, our practice is to adhere to an individual firm's
recording of costs, if we are satisfied that such principles reasonably
reflect the costs of producing the subject merchandise, and are in
accordance with the GAAP of its home country. See, e.g., Canned
Pineapple Fruit from Thailand; Final Determination of Sales at Less
Than Fair Value (``Canned Pineapple from Thailand), 60 FR 29553, 29559
(June 5, 1995); Certain Stainless Steel Welded Pipe from the Republic
of Korea; Final Determination of Sales at Less Than Fair Value, 57 FR
53693, 53705 (November 12, 1992). See also Furfuryl Alcohol from South
Africa: Final Determination of Sales at Less Than Fair Value, 60 FR
22550, 22556 (May 8, 1995) (``The Department normally relies on the
respondent's books and records prepared in accordance with the home
country GAAP unless these accounting principles do not reasonably
reflect the COP of the merchandise''). Normal accounting practices
provide an objective standard by which to measure costs, while allowing
respondents a predictable basis on which to compute those costs.
However, in those instances where it is determined that a company's
normal accounting practices result in an unreasonable allocation of
production costs, the Department will make certain adjustments or may
use alternative methodologies that more accurately capture the costs
incurred. See, e.g., New Minivans from Japan; Final Determination of
Sales at Less Than Fair Value, 57 FR 21937, 21952 (May 26, 1992).
In the instant proceeding, therefore, the Department examined
whether the respondent's indirect overhead allocation methodology
results in costs of producing the subject merchandise that reasonably
reflect its cost of production. At verification, the Department
requested and analyzed in detail source documents related to the
allocation of the three indirect cost items making up a significant
portion of the total indirect overhead costs. See TKS verification
exhibits 26, 27 and 28. On a sample basis, we analyzed the significance
of LNPP-specific indirect overhead costs versus non-LNPP specific
indirect overhead costs. See TKS verification exhibit 31. We noted that
the respective product line-specific amounts were comparable,
supporting the conclusion that TKS's method for allocating indirect
overhead costs was reasonable. As a result, we have determined that
TKS's method of accounting for indirect overhead is used in the normal
course of business, in accordance with Japanese GAAP and reasonably
reflects the cost of producing LNPPs.
We also disagree with petitioner that by pooling R&D expenses into
company-wide overhead costs, TKS shifted costs away from U.S. press
sales to home market sales. Petitioner's assumption that TKS incurs
higher R&D costs on press additions compared to that of systems is
purely speculative. It should also be clarified that the R&D costs
pooled and allocated by TKS in its ordinary course of business do not
include engineering costs which relate to specific projects as
petitioner implies. These engineering costs are assigned to the
projects to which they relate.
Lastly, we agree with petitioner that the Department has in past
cases
[[Page 38155]]
required respondents to report cost data in a more specific format than
that created in the normal course of business. We disagree, however,
that in this particular instance TKS needed to allocate its indirect
overhead cost data in a more specific manner. TKS's primary business
activity is the production and sale of LNPPs. Additionally, TKS's non-
LNPP production activities utilize production shops and sections that
are also used by its LNPP operations. Since production of non-subject
merchandise is relatively insignificant and the results of our testing
at verification revealed that costs are reasonably allocated, a more
detailed cost allocation method is not deemed necessary.
Comment 11 The Reclassification of TKS USA's Rent, Employee
Insurance, and Workman's Compensation Expenses: TKS objects to the
Department's preliminary determination to disregard TKS USA's
reclassification of rent, employee insurance, and workman's
compensation expenses from SG&A to indirect overhead. TKS maintains
that its total SG&A expenses, as reported on its audited financial
statements, encompass three categories: (1) Indirect overhead expenses
associated with the different divisions of the company; (2) selling
expenses which are incurred in the selling of presses; and (3) office
administration expenses which benefit the entire company. TKS explains
that in order to be consistent with its current accounting treatment,
it reclassified rent, employment insurance, and workman's compensation
from office administration to indirect overhead for two fiscal years of
the POI.
The petitioner objects to TKS's request and states that the
Department appropriately based its preliminary calculations on the
expenses as reported in TKS's financial statements. The petitioner
states that TKS has not submitted overwhelming evidence which
petitioner believes necessary to change classifications of items in
audited financial statements. The petitioner disagrees with TKS's
contention that the 1995 classification of such expenses requires a
change to the prior years' classifications of expenses. The petitioner
states that, regardless of whether or not the prior years' results were
reclassified, the expenses in question may appropriately be classified
differently depending upon the year incurred. According to the
petitioner, internal re-organizations to accommodate an expanding
product line may change the nature of some expense from being
reasonably applicable to the entire company to being more product-line
specific.
DOC Position: We agree with TKS that its classification of these
costs as indirect overhead is reasonable. We verified that the method
TKS used to allocate the prior year workman's compensation, employee
insurance and rent costs is in accordance with its current accounting
treatment of these costs and we consider it reasonable for these costs
to relate to manufacturing operations. Additionally, we noted that each
overhead cost item is allocated based on the factor that drives the
cost (e.g., square footage for rent). We therefore relied on TKS's
submitted reclassification of these indirect overhead costs for the
final determination.
Comment 12 Inclusion of General and Administrative Expenses in
Imputed Credit: TKS maintains that the Department's preliminary
inclusion of general expenses in the imputed credit calculation is
contrary to the accounting principle governing the capitalization of
interest, is inconsistent with the Department's past practice, and at a
minimum results in a double-counting of the expense items that were
included in the general expense factor.
TKS cites Financial Accounting Standards Board (``FASB)'' rule 34
as the accounting principle which the Department has relied upon in
past cases as the rationale for capitalizing interest in cases
involving merchandise with extended production periods. TKS interprets
this principle as applying only to interest expenses, not to movement,
selling or general expenses, because general expenses are period costs
which are not part of the capital expenditures involved in the
calculation of the capitalized interest. TKS concludes that by
including general expenses in the calculation of imputed credit, and by
calculating the net credit expense as the difference between the sum of
production costs plus general expenses and various progress payments,
the Department contradicts FASB 34, which explicitly provides that the
capitalized interest shall be determined as the net of the actual costs
and the actual progress payments.
At a minimum, TKS contends that the Department must adjust its
calculation methodology to avoid the double-counting of the expenses
that are included in the general expense ratio. Specifically, TKS
claims that the allocation of movement expenses and direct and indirect
selling expenses to U.S. credit without a proportionate reduction of
adjustments to CEP made for the same expenses under section 772 of the
Act results in a double-counting of the expenses. TKS cites MTPs Final
Determination (1990) where capitalized interest was categorized as a
manufacturing cost instead of a credit expense, and where the
Department explicitly allowed the offset of capitalized interest
expense against the company's overall interest expense in the
calculations. TKS maintains that likewise, the allocated movement,
selling, and general expenses included in the credit calculation should
be used to offset the amounts reported as a price adjustment or as a
general expense for CV purposes.
The petitioner contends that the Department correctly calculated
imputed credit expenses using the net balance of costs incurred and
progress payments made during the construction period. The petitioner
alleges that TKS's characterization of the Department's calculation of
imputed credit as a ``capitalized interest'' methodology is incorrect,
and that TKS's references to FASB 34 are not relevant. The petitioner
maintains that credit expenses are calculated using the sales price of
the merchandise sold, which includes not only the manufacturing costs,
but also amounts to cover general expenses. Accordingly, petitioner
supports the Department's inclusion of general expenses in the costs
incurred, stating that this methodology was necessary to keep the
calculations internally consistent, (i.e., so that the credit income
and offsetting expense would be calculated on a reasonably consistent
basis). The petitioner claims that G&A expenses have always been
factored into the Department's normal credit expense calculation.
DOC Position: We agree with petitioner that SG&A expenses should be
charged with imputed credit costs. As petitioner noted, it is the full
cost of production rather than manufacturing costs that should be
assessed with imputed credit. Because SG&A, by definition, are included
in COP, and because the purpose of the imputed credit adjustment is to
reflect the interest cost associated with the production costs incurred
and the progress payments received during the production phase of the
LNPP, it is appropriate to include SG&A expenses in the imputed credit
calculations. Further, as also stated by petitioner, because the
revenue side of our calculation captures the entire LNPP price, the
cost side of the calculation should capture all production costs.
We disagree with TKS that the Department double counted general
expenses through its application of the imputed credit adjustment. We
increased the base to which imputed
[[Page 38156]]
credit expense was computed in order to include all general expenses
related to each press sale. We did not, as TKS contends, increase the
imputed credit expense by the actual general expense amounts incurred.
Comment 13 Transportation and Installation Charges and the
Calculation of CEP Profit: TKS maintains that the home market cost of
production used in the preliminary determination did not include the
reported transportation and installation costs (``PTI)'', thereby
understating the total costs and overstating the CEP profit ratio. TKS
requests that the Department adjust its calculations to properly
account for all costs associated with home market sales by summing the
manufacturing costs and the transportation and installation expenses.
DOC Position: We agree with respondent that the Department
mistakenly excluded PTI costs in computing CEP profit for the
preliminary determination. For the final determination, we recalculated
CEP profit to include the PTI costs.
Comment 14 Direct Selling Expenses and COM for U.S. Sales:
According to TKS, if the Department continues to allocate the general
expenses of TKS USA based on COM inclusive of inputs acquired from TKS
in Japan, then it should exclude home market direct selling expenses
from COM. Following TKS's logic, the inclusion of the home market
direct selling expenses overstates the cost of producing the
merchandise sold to the U.S., and therefore overstates the amount of
the allocated general expenses associated with each U.S. sale.
According to TKS, home market direct selling expenses have no relevance
to sales of U.S. merchandise, and, since all direct selling expenses
incurred on U.S. sales have already been assigned a proportionate share
of the TKS USA general expenses, it is thus unnecessary and improper to
include any home market direct selling expenses when allocating TKS USA
general expenses to further manufacturing operations.
The petitioner maintains that TKS's argument that home market
direct selling expenses should not be included in the COP is based on a
presumption that the Department intended to allocate the expenses to
the cost of presses as imported (rather than the COP of the press sold
in the home market). Assuming arguendo that TKS is correct, it agrees
that the direct selling expenses should not be included in the
calculation of the cost of the press as imported. However, the
petitioner states that TKS neglected to mention that the Department
would have to replace the direct selling expenses with the movement
cost incurred to ship the presses from Japan to the U.S. port. Thus, if
the Department decides to apply the U.S. G&A expense to the cost of
presses as imported, the Department should deduct direct selling
expenses from the COP of the Japanese press, replace the home market
indirect selling expenses with the export indirect selling expenses and
add movement costs from Japan to the U.S. port.
DOC Position: Since we recalculated TKS USA's further manufacturing
G&A expense rate exclusive of the inputs acquired from TKS, this point
is moot.
MHI-Specific Comments
Sales Issues
Comment 1 Removing Certain Sales from the Denominator of MLP's
Indirect Selling Expense Calculation: The petitioner argues that the
U.S. indirect selling expense factor calculated for MLP is incorrect
because of the inclusion in its denominator of certain sales which were
negotiated and concluded prior to MLP's existence. Thus, it concludes,
MLP could not have incurred indirect selling expenses associated with
such sales, and they should be removed from the denominator of the
calculation. The parallel is drawn with MHI's treatment of the Guard
sale in its calculation of MLP's indirect selling expense ratio.
MHI argues that MLP properly included all LNPP sales recognized
during the POI in the denominator of its indirect selling expense
calculation, because of the activities required beyond the direct
expenses incurred for installation and warranty work. Furthermore, MHI
argues that for large, custom-built products, such as LNPPs, the end of
the negotiation process does not signal the end of the sales process.
Therefore, MHI explains that MLP performed sales-related activities
during the POI. Moreover, if only sales negotiated during the POI are
included, then the amount involved in the Washington Post contract
should be included in the denominator for indirect selling expenses.
MHI explains that if the petitioner's logic is followed, then the MLP
indirect selling expense factor would actually decrease. According to
MHI, indirect selling expenses for the Guard were not included in the
MLP indirect selling expense allocation because MLP did not recognize
the revenue; MLP did recognize the revenue associated with the sales it
did make that were negotiated outside of the POI.
DOC Position: We disagree with the petitioner. It is proper to
include all sales recognized during the POI in the denominator whether
the sale was made before or after the start of the POI since the
expenses in the numerator apply to pre-POI sales as well. Even though
the pre-POI sales were negotiated and concluded before MLP was founded,
the Department calculates indirect selling expenses based on expenses
and revenue recorded during the POI. Thus the numerator of the factor
calculated utilizes the expenses recognized by MLP in the normal course
of business for the period in question and the denominator of that
factor utilizes the sales recognized by MLP in the normal course of
business for the same period. The Department uncovered no manipulation
or distortion which would cause us to reject MLP's normal recording of
revenue based on sales recognition. At the preliminary determination
the Department made an adjustment to the numerator of the indirect
selling expense calculation, basing the allocation of general sales
office expenses on sales revenue instead of the head-count methodology
submitted by MHI. We have therefore employed an MLP indirect selling
expense factor for purposes of this final determination which is
exclusive of common G&A expenses. See also Japan ``Common Issues''
Comment 9.
Comment 2 Commission Paid to a Possibly Affiliated Trading Company
for the Piedmont Sale: The petitioner maintains that, in the
preliminary determination, the Department incorrectly treated the
trading company involved in the sale to the Piedmont Publishing Company
as an unaffiliated entity. The petitioner cites many joint ventures by
MHI and this trading company as evidence that these are affiliated
entities. The petitioner further maintains that the relationships
inherent in the membership of MHI and the trading company in the
Mitsubishi company group (``Keiretsu)'', including the use of a common
corporate name and logo, a tradition of company cooperation, cross-
ownership of stock, cross-lending and cross-borrowing, are indicators
of affiliation.
According to the petitioner, the affiliation status of the trading
company raises a critical issue regarding the commission it received
from MHI in connection with the Piedmont sale--namely whether that
transaction was at arm's length. The transaction is characterized as
not at arm's length by the petitioner, based on the relative size of
the commission earned on the Piedmont sale as opposed to that earned by
Sumitomo Corporation (``SC'') for the Guard sale. Because MHI did not
provide the actual costs incurred by the trading company involved in
the
[[Page 38157]]
Piedmont sale, the petitioner proposes that the Department apply the
effective rate of the SC commission (i.e., the reported SC commission
as a percentage of the Guard sales value) to the value of the Piedmont
sale.
MHI maintains that its sale to Piedmont is through a company which
is not affiliated under the objective statutory criteria. MHI argues
that the Department should reject the petitioner's request to adjust
upward the reported commission paid by MHI for the Piedmont sale. MHI
argues that investments between companies are not covered under the
statute, specifically joint ownership of subsidiaries. MHI argues that
the antidumping law concentrates on the actual control of parties, and
that mere joint ownership does not rise to the level of control
required to find affiliation because the trading company involved does
not exert direct control through its stock holdings. MHI argues that
the relationships among ``Mitsubishi companies'' are insufficient to
allow MHI to control the trading company in the Piedmont sale, or to
allow the trading company to control MHI.
MHI argues that petitioner's assertions that MHI and the trading
company are affiliated through: membership in a Keiretsu, common name
and a logo, traditional business relationships, significant cross-
ownership of stock, and cross lending and borrowing, fail to satisfy
the ``control'' test for affiliation. MHI argues that the SAA does not
presume that members of family groupings are affiliated and that this
is only one factor for consideration. MHI also argues that nowhere does
the antidumping law or the SAA suggest that common name, logo, and
traditional business relationships establishes control. MHI also argues
that affiliation through stock ownership is measured by a five-percent-
or-greater threshold and the antidumping law does not deem shareholders
as affiliated based on comparative (i.e., cumulative company group)
share holdings. Furthermore, MHI argues that MHI and the trading
company in the Piedmont sale have no financing arrangements.
MHI further argues that the commission paid for the Piedmont sale
is an arm's length transaction requiring no adjustments. MHI explains
that the commission for the Guard sale was much greater because the
role played by SC was more substantial than played by the other trading
company in the Piedmont sale. Enumerating some of the additional
functions performed by SC, MHI noted that it prospected for U.S.
customers, provided U.S. sales strategy, and negotiated the sale.
DOC Position: The Department disagrees with the petitioner's
argument that the sale through the trading company to Piedmont should
be treated as an affiliated party transaction for purposes of this
final determination. Although MLP is owned jointly by MHI and the
trading company, the Department does not view the joint ownership, in
this particular situation, as a sufficient indication that MHI's
relationship with the trading company is such that either is
``operationally in a position to exercise restraint or direction'' over
each other, as opposed to over MLP. We agree that cross-ownership of
stock, cross-lending and cross-borrowing, a tradition of company
cooperation, and particularly, combinations of significant degrees of
such relationships, are possible indicators of affiliation. However,
the Department stated in its February 23, 1996, Concurrence Memorandum
that the extent of stock ownership in subsidiary organizations greater
than five percent between the companies (i.e., their joint ownership of
numerous enterprises, particularly LNPP enterprises) is, by itself, an
insufficient indication of affiliation. We also maintain that the
degree of cross-ownership and the level of joint-financing between MHI
and the trading company are not significant enough to be indicators of
affiliation.
In its March 8, 1996, submission, MHI provided the proportion of
sales made by MHI through the trading company to the number of total
sales made by the trading company as well as the proportion of sales
made by MHI through the trading company to the total sales made by MHI
(i.e., comparative dependence data), basing the trading company's
figures on publicly available trade data. MHI also provided additional
information on stock ownership in a third party, which was zero. The
Department requested MHI to provide the Department with commissions
received by the trading company from other parties not affiliated with
it, to use in case the Department determined MHI and the trading
company to be affiliated and rejected MHI's claim that the commission
for the trading company was at arm's length. We also recommended that
MHI request the trading company to provide the trading company's
selling expenses and G&A for the services provided to MHI in making
this transaction. However, MHI stated that it asked the trading company
to provide the relevant sales information and that the trading company
refused by explaining that it was not affiliated in any way to MHI, and
therefore under no obligation to cooperate on MHI's behalf.
The MLP joint venture between MHI and the trading company does not
in and of itself constitute control between MHI and the trading
company. Moreover, MHI has cooperated and attempted to provide
information requested by the Department for its sale through the
trading company. Whether the trading's companies lack of full
cooperation vis-a-vis reporting its expenses, as an unaffiliated party,
should impute any lack of cooperation to MHI is moot in this instance
because MHI was able to obtain the comparative dependence data from its
own and public sources which was an important factor in our analysis of
potential affiliation. Because the information currently on the record
allows us to determine that for purposes of this investigation, the
trading company is not affiliated with MHI, the data which the trading
company did not submit is not required as part of our margin
calculations.
For purposes of this final determination, we have decided to treat
the Piedmont sale as a sale through an unaffiliated trading company and
have used the commission as reported in our final calculation. We note,
however, that the Department will continue to develop an analytic
framework to take into account all factors which, by themselves, or in
combination, may indicate affiliation, such as corporate or family
groupings, franchises or joint venture agreements, debt financing, or
close supplier relationships in which the supplier or buyer becomes
reliant upon the other. In future investigations and administrative
reviews, the Department may need to re-analyze the different aspects of
the Mitsubishi group first examined here, based on policy developments.
Comment 3 Proposing a Discount on the Guard Sale: The petitioner
proposes that the Department treat an unpaid payment reported by MHI as
a direct deduction from the gross Guard contract price, in effect
labeling the unpaid payment a discount. The payment was not made
because of a dispute between Guard and MHI, the nature of which is
proprietary, and discussed in greater detail in the July 15, 1996,
calculation memorandum.
MHI argues that the unpaid amount reported by MHI should not be
treated as a discount. MHI explains that from a purely commercial
perspective, it would make no sense to grant a discount because the
unpaid amount is significantly greater than the cost of the item in
dispute.
[[Page 38158]]
DOC Position: We agree with petitioner that the adjustment to the
gross price of the Guard sale should be made by treating the unpaid
amount as a discount. In the Final Results of Antidumping Duty
Administrative Review: Porcelain-on-Steel Cooking Ware From Mexico, 58
FR 43327 (August 16, 1993), the Department applied BIA (now facts
available) to those instances ``where three U.S. customers refused to
pay the full amount of [respondent] ITCO's invoice'' even though ``ITCO
continued to carry the unpaid amounts as outstanding balances on their
accounts and continues to demand payment.'' We drew an adverse
inference and reduced reported prices for these ``unauthorized
discounts'' because there was ``no indication of reasonable expectation
of payment.'' In the instant investigation of the Guard sale, there is
again no indication of reasonable expectation of payment. Further
proprietary details have been discussed on the record in the
Department's July 15, 1996, calculation memorandum.
Comment 4 The Nature of the Guard Sale, Including the Date of
Sale: The petitioner maintains that the transaction which the
Department classified as a sale by MHI through SC to the Guard
Publishing Company should instead by treated as a sale from MHI to the
SC, and that this price should be the basis for U.S. price. The
petitioner disagrees with MHI's characterization of SC's role as that
of a mere commission agent, primarily because MHI was not a signatory
party to the contract which established the sale to Guard. Because the
only sales contract to which MHI was a party is the purchase contract
issued by SC to MHI, the petitioner believes that the Department's
trading company rule requires the Department to treat the sale as made
between MHI and SC. Citing the Final Determination: Certain Forged
Steel Crankshafts from Japan, (52 FR 36984, October 2, 1987) (``Forged
Crankshafts'') and the court ruling Peer Bearing Co. v. United States,
800 F. Supp. 959, 964 (CIT 1992) (``Peer Bearing''), the petitioner
states that the trading company rule provides that a sale to a trading
company in a foreign market is a sale to the United States if the
manufacturer knows that the merchandise is destined for the United
States at the time the sale is made.
First, the petitioner maintains that the evidence examined by the
Department establishes that MHI sold the Guard LNPP system to SC. The
petitioner stresses that the contract for sale from SC to Guard
establishes this as fact. Petitioner criticizes the Department's
acceptance of several subsidiary documents as evidence of MHI's
involvement in the transaction between SC and Guard. According to the
petitioner's analysis of relevant documents, SC could not have acted as
MHI's sales agent because MHI obviously confirmed that SC was not
authorized to bind MHI to the sales agreement between SC and Guard. The
petitioner maintains that there is no documentary evidence that MHI
participated in the SC/Guard negotiations, especially with respect to
the paramount issue of contract price. While recognizing the necessity
that SC consult with MHI on technical matters such as press
configuration and installation planning, the petitioner emphasizes that
there is no evidence on the record indicating MHI's involvement in
establishing the price to Guard and the payment schedule from Guard to
SC.
Second, the petitioner maintains that SC's actions throughout the
course of the Guard transaction establish that it was an independent
trading company and not a commission agent of MHI. According to the
petitioner, SC acted in the capacity of an independent trading company:
it negotiated, established, and subsequently modified, on its own
authority and behalf, the terms of sale of the LNPP system to Guard.
The petitioner provides its interpretation of the basic documentation
underlying the commission paid by MHI to SC, concluding that SC was not
merely a commission agent.
The petitioner states that the Department should consider the date
of sale to be that for the purchase order placed between SC and MHI and
that the Department was incorrect in its preliminary analysis, which
concluded that MHI's role was tantamount to that of a seller in the
original transaction between SC and Guard, based on (1) MHI's offer to
be responsible for SCs obligations to Guard if there were to be a
failure of performance by SC, and (2) MHI's commencement of the design
and construction of the press prior to a written agreement between MHI
and SC. According to petitioner's interpretation, the unilateral offer
by MHI to guarantee SC's obligation to provide a conforming press
system does not alter the fact that SC sold the subject merchandise to
the Guard, but should be interpreted as a warranty by the press
manufacturer that it would ultimately produce the goods sold by the
independent trading company. The objection is raised that the
Department misreads the U.C.C. provision on performance in connection
with MHI's initial design and production activities. While the
petitioner does not dispute that in certain circumstances partial
performance may ratify an unexecuted contract, it maintains that the
Department ignores the fact that the only contract to which MHI was a
party, and which could thus be ratified, was the purchase order fully
consummated later between MHI and SC, and which incorporated in it the
terms of the earlier contract between SC and Guard. Because the
material terms of sale, particularly price and quantity, were
established between MHI and SC at a date later than the contract
between SC and Guard, the petitioner maintains that the later date
should be used in the antidumping analysis as the correct date of sale.
Accordingly, it was only at this point in time that the essential terms
were firm so that the parties could no longer unilaterally alter them.
MHI argues that the Department properly analyzed the sale to Guard
as a sale between MHI and Guard. MHI disagrees with the petitioner's
argument that MHI never had a contractual relationship with Guard.
First, MHI argues it played an integral part in making the sale, such
as developing cost estimates used to set the price, signing the
contract as a witness, and issuing a letter to Guard guaranteeing
performance. Second, MHI argues the law of agency provides that when a
party holds itself as an agent, it has the ability to bind the
principle. Third, MHI asserts that the petitioner's argument that MHI
must have produced this LNPP system as a ``subcontractor'' is presented
without evidence.
MHI further argues that SC was a commissioned sales agent of MHI,
as evidenced by the documentation submitted by it, and agrees with the
petitioner when it says the commission agreement did not create a sales
contract. MHI maintains that it is a document which establishes the
basis for a commission arrangement between a manufacturer and a sales
agent and that the amount of SC's commission never involved post-sale
negotiation.
MHI also argues that the Department's ``trading company'' rule is
not applicable to this sale. More specifically, MHI maintains the
petitioner's contention that the Department should treat the purchase
orders between MHI and SC as constituting the actual sale is wrong.
First, MHI contends that the Department recognized that MHI did not
sell a press to SC. Second, MHI contends that the trading company rule
allows the Department to capture a respondent's sales which are
delivered to the United States, where the respondent knows at the time
of sale that the merchandise is destined to the United States. MHI
[[Page 38159]]
argues that the essential function of the rule is to determine which of
a respondent's sales should be included in the dumping calculation, and
contends that the trading company rule has been used to establish the
proper U.S. price when the trading company acts as an independent
reseller of subject merchandise. Accordingly, a different
interpretation is given to Peer Bearing whereby MHI holds that the
ruling does not require the Department to use the price contained on
the purchase order, but stands for the proposition that the trading
company rule is discretionary, based on the facts of the case. MHI also
maintains that the Forged Crankshafts does not apply because in that
case the trading company was responsible for setting the price and MHI
was responsible for establishing the final price in this investigation.
Thus, application of the trading company rule under these circumstances
would be inappropriate.
With respect to the date of sale debate, MHI argues that the
Department correctly determined the proper date of sale. MHI cites MTPs
Final Determination (1990) which states that, for sales of custom-built
merchandise, the Department should establish a date at the earliest
date when terms are fixed. MHI explains that there was confusion
regarding MHI's sales process in the home market for certain sales
because the essential terms of the sale were not fixed until the
purchase order to the trading company was issued. MHI maintains that
the Guard sale is quite different, because MHI signed the sales
contract.
DOC Position: The Department agrees with MHI that the preliminary
determination properly treated the sale to Guard as a sale between MHI
and Guard. In the Department's February 23, 1996, decision memorandum,
we stated that one of the main issues was whether the sales price
between MHI and SC or the sale price between SC and Guard is the
appropriate price for our dumping analysis. Because MHI originally only
reported the price from MHI to Guard, we requested that MHI submit the
price of its sale to SC, as well as provide all basic documentation
relating to the roles of Guard, SC, and MHI in this transaction. In our
preliminary determination, we explained that the sales documentation
provided by MHI demonstrated its integral involvement in the Guard
transaction. No information placed on the record since that time, nor
any information reviewed during verification, contradicts that
conclusion. Following the commission agreement between MHI and SC, MHI
was kept fully apprised of the negotiations between SC and Guard.
Moreover, MHI's role as signatory witness on the contract between SC
and Guard is evidence of MHI's direct involvement with the sale of the
product in the U.S. market. The nature of this product shows that each
sale involves merchandise which must meet the unique specifications of
the customer, and the record shows that MHI began to design and
construct the merchandise shortly after witnessing the contract for
sale arranged by SC on its behalf. Therefore, we determined that the
appropriate transaction for use in our antidumping analysis is the
price established in the sale of LNPP from MHI through SC to Guard.
The Department disagrees with the petitioner when it states that
the date of sale should be that for the purchase order placed between
SC and MHI. As stated in the preliminary determination, section 773(a)
of the Act mandates the Department to compare the appropriate
transaction to the ``normal value'' of the subject merchandise. Neither
the statute nor the regulations determine the precise ``date of sale.''
Our proposed regulations provide that the Department will ``normally''
rely on the date of a company's invoice date as the date of sale. Our
practice must also allow for specific instances where commercial
realities dictate the use of some other instrument to set the date of
sale. Our proposed regulation recognized that the invoice date ``may
not be appropriate in some circumstances.'' In this instant
investigation, where the long-term sales negotiations, design,
production, shipment and installation of LNPPs require contractual
documentation, the date of sale of the subject merchandise is best
established by the date a contract is signed. Consistent with case
precedents involving complex merchandise, such as LNPP, which is
custom-made, the Department exercised a greater degree of flexibility
in finding the existence of a firm agreement. See MTPs Final
Determination (1990). The Department's determination of the date of
sale was supported by its examination of the sales documentation
submitted by MHI. We also looked to contract law (see, e.g., Gray
Portland Cement and Clinker from Mexico, 55 FR 29,249 (1990)) to
identify the point in time when the essential elements of the sale are
firm, thus demonstrating an intent to be legally bound.
While the date set by the contract signed by SC and Guard clearly
identifies the seller (SC) and buyer (Guard) and sets the quantity and
price for this transaction, MHI witnessed the sales agreement between
SC and Guard and accepted responsibility for providing the merchandise
which fulfilled SC's obligations to Guard. Moreover, after MHI signed
the contract between SC and Guard as a witness, it began to design an
LNPP system to Guard's unique specifications. Thus, it demonstrated its
intent to be legally bound to the agreement through written instruments
and its own performance on the contract. See U.C.C. Sec. 2-201(3)(a).
At verification, the Department examined the written evidence and
confirmed the actual company performance to support its conclusion for
date of sale. Based on this evidence, the Department determined that,
by virtue of MHI's participation in the sales process and its
performance to fulfill the terms of the contract, MHI was a party to
the sales agreement with Guard.
Comment 5 Treatment of Technical Service Expenses: MHI maintains
that the Department erred in its treatment of technical service
expenses for the following reasons. First, MHI posits that, even
assuming arguendo that installation is treated as further manufacturing
activity, the technical services MHI provided had nothing to do with
further manufacturing as they were incurred after installation and
should not be treated as a part of installation. Second, MHI argues
that the Department has usually treated technical service expenses as
circumstance of sale adjustments, and should do so again.
The petitioner argues that in the Department's preliminary
determination it appropriately treated MHI's ``technical service''
expenses as an installation expense, because when the addendum to the
contract covering how such expenses are to be incurred is read in
conjunction with the original terms of the contract, it is clear that
these technical service expenses relate directly to an alternative
method of ensuring the customer that MHI would provide trouble-shooting
and other services associated with installation.
DOC Position: We disagree with the respondent. The Department
correctly included technical service expenses as a part of total
installation expenses. The sale of an LNPP involves the sale of a
functional large newspaper printing press. The processes involved in
installing the LNPP equipment include all those steps necessary to
bring the equipment to a functional stage. This perspective also
underlies our classification of the total installation costs as part of
further manufacturing. All expenses, including component assembly,
integration of newly sourced auxiliary components, site preparation,
installation supervision, technical servicing, equipment testing, which
[[Page 38160]]
make the LNPP physically functional, are part of an installation
process which creates the actual LNPPs which ``are capable of printing
or otherwise manipulating a roll of paper more than two pages across''
in the production of newspapers. The Department is treating training
expenses, where possible, as a separate category of direct selling
expenses, since training involves the development of customers'
personnel's operation skills, not the physical preparation and
necessary modification of the actual merchandise which produces
newspapers.
Comment 6 Inclusion of Indirect Selling Expenses Allocable to
Spare Parts: MHI maintains that it reported MLP indirect selling
expenses for U.S. sales based on the total contract price of each U.S.
sale, inclusive of the value of spare parts. Accordingly, MHI maintains
that its calculation of those indirect selling expenses pertained to
both LNPP systems and spare parts covered by the contract. Because the
sales contracts for MHI's U.S. sales separately identified the value of
spare parts, in its preliminary determination, the Department deducted
the value of spare parts from the starting price. MHI argues that
because it allocated its indirect selling expenses based on the total
contract price of the LNPP and spare parts, the Department should
exclude an allocable amount for indirect selling expenses incurred on
behalf of these spare parts.
The petitioner argues that MHI's argument that the indirect selling
rate should be multiplied by the price of an LNPP less spare parts is
methodologically inconsistent, since in any rate-based allocation, the
transaction-specific value to which the rate is applied should be
calculated in the same manner as the denominator used in the rate
calculation itself. The petitioner asserts that the denominator used in
the calculation of the indirect selling rate includes the value of
spare parts. Therefore, the petitioner states that it would be
inconsistent to apply the rate to the price of LNPP less spare parts.
Furthermore, the petitioner argues that spare parts are not sold but
are included free-of-charge in the LNPP sale and are thus a selling
expense themselves, and should not carry the burden of an additional
selling expense. Accordingly, the Department should continue to
allocate total LNPP indirect selling expenses to the total LNPP sales.
DOC Position: The Department disagrees with the respondent's
argument that the Department should exclude an allocable amount of
indirect selling expenses incurred on behalf of spare parts. We agree
with the petitioner that it would be methodologically inconsistent for
the Department to multiply the price of LNPP less spare parts when the
indirect selling expense ratio includes indirect selling expenses for
spare parts in the numerator and spare parts revenue in the
denominator.
Comment 7 Interest Rate Used for Calculation of Imputed Credit
Expenses: MHI argues that the Department's practice of matching the
denomination of the interest rate used in calculating imputed credit to
the currency in which the sales are denominated is not applicable in
this case. MHI explains that it is inconsistent with the requirement
articulated in LMI-La Metalli Industriale, S.p.A. v. United States 912
F.2d 455, 460 (Fed. Cir. 1990) (``LMI'') and interpreted by the CIT in
United Engineering & Forging v. United States, 779 F. Supp. 1375 (CIT
1991), aff'd, 996 F.2d 1236 (Fed. Cir. 1992) that the interest rate
used for imputed credit accord with ``commercial reality'' and must be
``on the basis of usual and reasonable commercial behavior.'' MHI
argues that the Department's approach used in the preliminary
determination is inconsistent with the principles of determining credit
expenses based on the lowest available interest rate, and on the lowest
rate of the country of manufacture when foreign borrowing is not
available to the respondent.
Moreover, MHI contends that the Department ignores the commercial
reality for MHI, which is that all of its short-term debt was
denominated in yen, so that MHI financed its working capital and
accounts receivable for both domestic and export sales with yen-
denominated financial instruments. MHI maintains that it would have
been irrational, in view of the lower interest rates available in
Japan, for it to borrow in dollars. MHI maintains that the use of
different interest rates for U.S. and Japanese sales is unreasonable
since production costs for LNPPs sold in both markets were incurred in
the same factory. MHI explains the circumstance of sale adjustment for
differences in credit terms between the U.S. market and comparison
market is designed to separate true price discrimination from
differences in prices that arise from differences in commercial credit
terms in each market.
The petitioner argues that the Department correctly applied a U.S.
dollar-denominated interest rate to compute MHI's imputed credit
expenses on U.S. sales. The petitioner contends that the Department
followed its established policy of basing imputed credit expenses on
the interest rate of the currency in which the sales are denominated to
correctly reflect the time value of U.S.
This text is long and has been trimmed here. Open the source document for the complete record.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.