Fresh Cut Flowers From Mexico; Final Results of Antidumping Duty Administrative Review and Revocation in Part of Antidumping Duty Order

DEPARTMENT OF COMMERCE

International Trade Administration

[A-201-601]

Fresh Cut Flowers From Mexico; Final Results of Antidumping Duty

Administrative Review and Revocation in Part of Antidumping Duty Order

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of final results of antidumping duty administrative

review and revocation in part of antidumping duty order.

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SUMMARY: On June 4, 1996, the Department of Commerce (the Department)

published the preliminary results of its administrative review of the

antidumping duty order on certain fresh cut flowers from Mexico. The

period of review is April 1, 1994 through March 31, 1995.

We gave interested parties an opportunity to comment on our

preliminary results. We have not changed our preliminary results of

review. We have determined that sales have not been made below normal

value (NV). We have also determined to revoke the order in part, with

respect to the respondent, Rancho El Aguaje (Aguaje).

EFFECTIVE DATE: December 2, 1996.

FOR FURTHER INFORMATION CONTACT: Rebecca Trainor or Maureen Flannery,

Import Administration, International Trade Administration, U.S.

Department of Commerce, 14th Street and Constitution Avenue, NW,

Washington, DC 20230; telephone: (202) 482-4733.

SUPPLEMENTARY INFORMATION:

Background

On June 4, 1996, we published in the Federal Register (61 FR 28166)

the preliminary results of administrative review of the antidumping

duty order on certain fresh cut flowers from Mexico (52 FR 13491 (April

23, 1987)), wherein we gave notice of our intent to revoke the order

with respect to Aguaje's sales of the subject merchandise. We received

a case brief from petitioners, The Floral Trade Council, on July 5,

1996, and a rebuttal brief from respondent on July 12, 1996.

Applicable Statutes and Regulations

Unless otherwise stated, all citations to the statute are

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

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

Uruguay Round Agreements Act (URAA). In addition, unless otherwise

indicated, all citations to the Department's regulations are to the

current regulations, as amended by the interim regulations published in

the Federal Register on May 11, 1995 (60 FR 25130).

Scope of the Review

The products covered by this review are certain fresh cut flowers,

defined as standard carnations, standard chrysanthemums, and pompon

chrysanthemums. During the period of review (POR), such merchandise was

classifiable under Harmonized Tariff Schedule of the United States

(HTSUS) items 0603.10.7010 (pompon chrysanthemums), 0603.10.7020

(standard chrysanthemums), and 0603.10.7030 (standard carnations). The

HTSUS item numbers are provided for convenience and Customs purposes

[[Page 63823]]

only. The written description remains dispositive as to the scope of

the order.

This review covers the period April 1, 1994 through March 31, 1995.

Revocation of the Order in Part

On April 28, 1995, Aguaje submitted a request, in accordance with

19 C.F.R. 353.25(b), to revoke the order with respect to its sales of

the subject merchandise. In accordance with 19 C.F.R. 353.25(b)(1),

this request was accompanied by a certification from the firm that it

had not sold the relevant class or kind of merchandise at less than NV

for a three-year period, including this review period, and would not do

so in the future. In our preliminary results we incorrectly stated that

Aguaje had also submitted a written agreement to reinstatement in the

order if we found that Aguaje had sold the subject merchandise at less

than NV subsequent to revocation. Section 353.25(b)(2) requires that a

firm that previously has been found to have sold the subject

merchandise at less than NV also submit a written agreement to

reinstatement in the order if we conclude that it sold the subject

merchandise at less than NV subsequent to revocation. At the time of

Aguaje's April 28, 1995 request for administrative review and

revocation, this provision was not applicable to Aguaje, as we had not

yet completed an administrative review in which we found dumping

margins for Aguaje. The reinstatement agreement became applicable when

we published the final results for the 1991-1992 administrative review

on September 26, 1995 (60 FR 49569), in which we found dumping margins

for Aguaje's sales in that period. Aguaje submitted a reinstatement

agreement for the record of this review on November 15, 1996.

Analysis of the Comments Received

Comment 1: Petitioner argues that Aguaje has not established its

entitlement to revocation of the antidumping duty order pursuant to 19

CFR 353.25(a)(2) because: (1) Aguaje failed to submit a reinstatement

agreement when filing its request for revocation in accordance with 19

CFR 353.25(a)(2) & (b); and (2) Aguaje failed to maintain a three-year

period of sales at not less than NV. Petitioner notes that Aguaje

received a calculated dumping margin of 1.54% in the preliminary

results of the 1993-94 administrative review, and was assigned a final

39.95 percent dumping margin for the 1991-92 administrative review on

September 26, 1995.

Aguaje contends that, as of the date of its request for revocation,

April 28, 1995, the Department had never issued a final affirmative

antidumping determination for Aguaje. Thus, the reinstatement agreement

was not required at the time the request for revocation was filed.

Aguaje argues that the preliminary finding of a 1.54 percent

dumping margin for the 1993-94 review was based on a misallocation of

indirect selling expenses which was at odds with standard Departmental

methodology; after correction for this methodological error, Aguaje

argues, its dumping margin becomes zero. Aguaje points out that the

Department found zero dumping margins for the 1992-93 review, and

preliminarily found zero dumping margins for this 1994-95 review. Thus,

when the most recent two reviews are completed, Aguaje will have three

consecutive reviews in which its dumping margin was zero, and will

therefore have met the conditions for revocation under 353.25(a)(2)(i).

Department's Position: We disagree with petitioner. Since we

published the preliminary results in this administrative review, we

have completed the 1993-94 review, in which we found a final margin of

zero for Aguaje. We also found a final margin of zero for Aguaje for

the 1992-93 period. Although we found a margin of 39.95 percent in the

1991-92 review, Aguaje has subsequently demonstrated that it has sold

the subject merchandise at not less than NV for three consecutive

years. As we state in the above section, ``Revocation of the Order in

Part,'' Aguaje has provided all the certifications required by 19 CFR

353.25(b). Therefore, we are revoking the order with respect to Aguaje.

Comment 2: Petitioner argues that the Department should not revoke

the antidumping order with respect to Aguaje because Aguaje's

questionnaire response data could not be reconciled with an audited

financial statement and/or tax return. Petitioner cites the Preliminary

Results of Antidumping Duty Administrative Review; Certain Fresh Cut

Flowers from Mexico, 60 FR 19209 (April 17, 1995), in which the

Department stated that an unaudited ``in-house'' system does not

provide assurance that costs have been stated in accordance with

generally accepted accounting principles, or that all sales and costs

have been appropriately captured, and the Final Results of Antidumping

Duty Administrative Review; Certain Fresh Cut Flowers from Mexico, 60

FR 49569 (September 26, 1995), in which the Department stated that,

``without such independent substantiation, the entire questionnaire

responses are unusable.''

Petitioner also cites the Department's rejection of the

questionnaire responses in Chrome-Plated Lug Nuts from Taiwan, 60 FR

44837 (August 29, 1995) (Lug Nuts), because the responses could not be

reconciled to the respondents' audited financial statements. Petitioner

asserts that Aguaje has provided the Department with questionable data

for three consecutive years, and suggests that the Department postpone

revocation until Aguaje's tax returns are available to confirm the

reported data.

Aguaje argues that the fact that it does not maintain records with

the same level of sophistication as larger, multi-million dollar

companies should not preclude it from revocation. Aguaje asserts that

it went far beyond the accounting requirements or practices of other

small Mexican agricultural businesses in order to demonstrate to the

Department that it is not dumping. Aguaje maintains that its financial

statements and subsidiary ledgers provide detailed cost and revenue

information for all of its flower operations, and that it has fully

satisfied the verification provisions of 353.25(c)(2)(ii).

Department's Position: We disagree with petitioner. Although we

routinely request that respondents provide audited financial statements

and/or income tax returns as independent sources with which to

substantiate questionnaire responses, we have concluded in this review

that Aguaje cannot provide these documents because they do not exist.

Petitioner cites language from the 1991-92 preliminary and final

results of review of this order, in which we presented our rationale

for requiring such sources of independent substantiation, as we also

did in Lug Nuts. However, this review is distinct from those reviews.

In the 1991-92 review of this order, the Department was unable to

conclude from the record that the requested documents did not exist. In

Lug Nuts, we found that the respondents' submissions were

``unreconcilable to their audited financial statements and thus

unverifiable. * * *'' Lug Nuts at 44838. In this case, respondent has

provided evidence that it is not required by law to keep audited

financial statements, and that it has not yet filed its income tax

returns for the review period. Therefore, we cannot deny revocation

with respect to Aguaje because it failed to provide these documents.

Cf. Olympic Adhesives, Inc. v. United States, 899 F.2d 1565 (Fed. Cir.

1990).

Comment 3: The petitioner claims that the zero margin found by the

Department in its preliminary results

[[Page 63824]]

was based in large part on facts otherwise available (FA) instead of

verifiable costs or actual profit figures, and is therefore an

imprecise analysis of Aguaje's pricing practices in the U.S. market.

Thus, petitioner argues, the Department should reconsider revoking the

order with respect to Aguaje at this time.

Aguaje contends that petitioner's argument misinterprets the facts

on the record. Aguaje asserts that total general and administrative

(G&A) expenses were verified to original invoices, the expense ledger

and the general ledger, and that the Department found Aguaje to be

``generally cooperative'' at verification. Aguaje cites the

Department's Verification Report and the Preliminary Results at 28167.

Aguaje states that the only aspect of G&A which could not be verified

was the allocation methodology devised by Aguaje's former counsel,

which relied on a recalculation of the cost of goods sold for roses. In

this instance, Aguaje believes that the Department's application of FA

was a just and reasonable exercise of the FA provision.

Aguaje argues that the verified data show that Aguaje's U.S. prices

are almost 4 to 7 times its constructed value (CV) even though the

Department applied a 52 percent profit rate to U.S. cost of production.

Further, any G&A allocation method, however adverse to Aguaje, would

still result in a finding of zero dumping margins, as G&A costs would

have to increase by multiples of hundreds before any positive dumping

margin would result.

Department's Position: Because Aguaje could not support its

reported allocation of G&A to the subject merchandise at verification,

we preliminarily used the higher of the amount Aguaje reported for this

review, or the amount it reported for the 1992-93 review, which we

verified. We have reconsidered our application of FA for G&A for the

final results, and have recalculated Aguaje's G&A using the entire

unallocated G&A figure, which we were able to verify.

We do not consider our use of FA in this case to be grounds for

denying revocation. With respect to G&A, we used a verified figure that

is adverse to Aguaje. With respect to profit, we calculated a

substantial profit rate based on recent data that is representative of

the Mexican flower industry. Even with these changes to Aguaje's

reported data, Aguaje's margin remains zero.

Comment 4: Petitioner argues that Aguaje understated its G&A

expenses to the extent that it did not include the cost of income taxes

owed. Petitioner claims that income taxes should be included in G&A

expenses as a cost of doing business in Mexico, and the Department

should therefore impute the cost of Aguaje's income tax liability for

the 1994-95 period.

Aguaje contends that the Department's long-held policy to exclude

income taxes from the cost of production calculations does not lead to

understated G&A rates, because the Department considers income tax to

be a reduction in corporate profit rather than an increase in

production cost. Aguaje cites the Final Determination of Less Than Fair

Value; High Information Content Flat Panel Display Glass from Japan, 56

FR 32376 (July 16, 1991) (Flat Panel Displays) and Final Results of

Antidumping Administrative Review; Color Picture Tubes from Japan, 55

FR 37915 (September 14, 1990).

Department's Position: We disagree that G&A should be recalculated

to include imputed income tax. The amount of this tax is determined

based on the level of corporate income. We do not consider taxes based

on the aggregate profit/loss of the company to be a cost of producing

the product. See Flat Panel Displays at 72792. We have therefore not

made the requested adjustment.

Comment 5: Petitioner argues that, contrary to the statute, the

general expense percentage the Department used for CV in the

preliminary results does not reflect selling expenses. Petitioner

asserts that, since Aguaje does not have a viable home or third country

market, the Department should base CV selling expenses on Aguaje's U.S.

selling expenses, reported for the 1994-95 period.

Petitioner states that the Department should also confirm that

selling expenses have been allocated based on resale prices to

unrelated parties, rather than transfer prices between Aguaje and its

U.S. subsidiary, Lizbeth's Wholesale Flowers, Inc. (Lizbeth).

Aguaje argues that, if the Department were to include U.S. selling

expenses in the calculation of total CV as advocated by the petitioner,

it would have to deduct them as a circumstance-of-sale adjustment.

Thus, the net effect of the inclusion of U.S. indirect selling expenses

would be to slightly increase the amount of profit included in CV,

which would not come close to the 400 percent increase in CV necessary

to create positive dumping margins.

Aguaje states that the use of acquisition costs to allocate

Lizbeth's selling expenses is tantamount to using resale prices to

unrelated parties, because Lizbeth's acquisition costs are equal to

resale prices, less its commission. As Lizbeth's commission rate to

Aguaje was substantially less than that charged to unaffiliated

customers, Aguaje claims, the use of acquisition costs would overstate

the selling expenses allocable to Aguaje.

Department's Position: We have revisited this issue and have added

to CV the amount of U.S. selling expenses incurred by Aguaje, pursuant

to section 773(e)(2)(B)(iii) of the Act. Section 773(e)(2)(A) provides

that CV include the actual amount of selling expenses incurred and

realized by the specific exporter or producer being examined ``in

connection with the production and sale of a foreign like product, in

the ordinary course of trade, for consumption in the foreign country. .

. .'' We determine that this provision does not apply here because

Aguaje only sells culls in the home market. Because of (1) the

significant physical differences between culls and export quality sales

and (2) the major difference in commercial value for these two

products, culls are not part of the foreign like product as defined by

section 771(16)(A)-(C) of the Act. Therefore, we are unable to base the

amount for selling expenses on home market sales of the like product.

For purposes of determining an amount of selling expenses, we have

relied on the U.S. selling expenses reported by Aguaje as a reasonable

method for determining selling expenses. See Section 773(e)(2)(B)(iii)

(allowing the Department to base selling expenses on ``any other

reasonable method''). As we have stated elsewhere, ``[b]ecause we

rejected the prices of home market and third countries for purposes of

FMV, we find it necessary to reject the general expenses and profits

associated with these sales.'' Certain Fresh Cut Flowers From Colombia;

Final Results of Antidumping Duty Administrative Reviews, 61 FR 42833,

42842 (Aug. 19, 1996). Here, we have determined that Aguaje's home

market sales are not viable and, thus, not an appropriate basis for NV.

Similarly, we determine that the selling expenses associated with those

home market sales will not provide an accurate measurement of dumping

in this case. We therefore resort to U.S. selling expenses incurred by

Aguaje as the facts otherwise available. We note that these amounts are

the only remaining alternative on the record for determining selling

expenses.

Contrary to Aguaje's assertion, there is no need for an adjustment

for differences in circumstances of sale, as the direct selling

expenses included in CV are the same as those included in the U.S.

selling price. Furthermore, there is no provision in the statute for

deducting

[[Page 63825]]

indirect selling expenses from CV in this situation.

We agree that Aguaje's selling expenses should be allocated based

on resale prices to unrelated parties, and not Lizbeth's acquisition

cost (resale price plus Lizbeth's commission). We have made this

recalculation for the final results.

Comment 6: The petitioner argues that the Department should

recalculate constructed export price (CEP) profit to attribute all of

Aguaje's expenses to export quality U.S. sales as offset by home market

cull revenue.

Aguaje states that the Department's calculation of CEP profit was

based entirely on U.S. sales, as Aguaje has neither home market sales

nor costs associated with such sales.

Department's Position: We disagree that a recalculation of CEP

profit is necessary. As demonstrated in Attachment 1 to our preliminary

results calculation memo, the calculation of CEP profit was based

solely on U.S. sales revenue and U.S. costs, offset by home market cull

revenue. As Aguaje had neither a viable home market nor any third

country markets during the POR, Aguaje's expenses have been allocated

to U.S. sales in their entirety. See Memorandum to the File dated May

23, 1996, on file in room B-099 of the Commerce Department.

Comment 7: Petitioner states that the Department should reconsider

whether revocation is appropriate if it cannot confirm that Aguaje is

not likely to sell merchandise at less than NV in the future, as

required by section 353.25(a)(2) of the Department's regulations.

Petitioner notes that several factors weigh heavily against the finding

that Aguaje is not likely to dump subject merchandise in the future.

These factors include Aguaje's recent history of ``evasive and

misleading'' responses in the 1991-92 review, the Department's

inability to rely on independent sources for verification, the massive

pricing pressure from Colombian exporters of the subject merchandise on

the U.S. market, and the devaluation of the Mexican peso.

Aguaje contends that the history and facts found in the previous

three annual reviews undercut petitioner's claim that Aguaje has failed

to present any evidence that it will not dump in the future. Aguaje

states that it is in the business for the sole purpose of exporting

fresh cut flowers to the United States, and that carnation production

in Mexico requires virtually no fixed costs. Aguaje adds that its sales

to the United States relative to the total size of the market are so

small that it cannot engage in predatory pricing. Finally, Aguaje

asserts that the 1994 peso devaluation has greatly increased

profitability of sales to the United States relative to sales in

Mexico, rather than placing further pressure on firms to engage in less

than fair value pricing as petitioner contends.

Department's Position: We disagree that we should not revoke the

order with respect to Aguaje at this time. As stated in our responses

to the comments received from petitioner and respondent, Aguaje has

proven that it is entitled to revocation in accordance with section

353.25(a)(2) of the regulations. Our decision to revoke is based on the

period April 1, 1992 through March 31, 1995. Our characterization of

Aguaje's questionnaire response for the 1991-92 period is not relevant.

Petitioner has presented no evidence that Colombian pricing will

cause Aguaje to begin dumping the subject merchandise in the future.

Furthermore, as the 1994 devaluation of the peso did not cause Aguaje

to dump flowers, we have no basis to conclude that the most recent

devaluation will cause Aguaje to change its pricing practices to the

degree needed to create dumping margins, given the negative margins

found in this review, despite the use of FA for certain elements of CV.

Final Results of Review

We determine that no dumping margin exists for Aguaje for the

period April 1, 1994 through March 31, 1995. We further determine that

Aguaje has sold fresh cut flowers at not less than NV for three

consecutive review periods, including this review period. For the

reasons stated in our response to petitioner's comments, and because

Aguaje has submitted the required certifications, we are revoking the

order on certain fresh cut flowers from Mexico with respect to Aguaje

in accordance with section 751(d) of the Act and 19 CFR 353.25(a)(2).

This revocation applies to all entries of the subject merchandise

entered, or withdrawn from warehouse, for consumption on or after April

1, 1995. The Department will order the suspension of liquidation ended

for all such entries and will instruct the Customs Service to release

any cash deposit or bonds. The Department will further instruct Customs

to refund with interest any cash deposits on entries made on or after

April 1, 1995.

The Department shall determine, and the Customs Service shall

assess, antidumping duties on all appropriate entries. Furthermore, the

following deposit rates will be effective upon publication of these

final results of administrative review for all shipments of certain

fresh cut flowers from Mexico entered, or withdrawn from warehouse, for

consumption on or after the publication date, as provided for by

section 751(a)(2)(C) of the Act: (1) for previously reviewed or

investigated companies not listed above, the cash deposit rate will

continue to be the company-specific rate published for the most recent

period; (2) if the exporter is not a firm covered in this review, a

prior review, or the original less-than-fair-value (LTFV)

investigation, but the manufacturer is, the cash deposit rate shall be

the rate established for the most recent period for the manufacturer of

the merchandise; and (3) if neither the exporter nor the manufacturer

is a firm covered in this or any previous review, the cash deposit rate

will be 18.20 percent, the all others rate established in the LTFV

investigation. These deposit requirements shall remain in effect until

publication of the final results of the next administrative review.

This notice serves as a final reminder to importers of their

responsibility under 19 CFR 353.26 to file a certificate regarding the

reimbursement of antidumping duties prior to liquidation of the

relevant entries during this review period. Failure to comply with this

requirement could result in the Secretary's presumption that

reimbursement of antidumping duties occurred and the subsequent

assessment of double antidumping duties.

This notice also serves as a reminder to parties subject to

administrative protective order (APO) of their responsibility

concerning the disposition of proprietary information disclosed under

APO in accordance with 19 C.F.R. 353.34(d)(1). Timely written

notification of return/destruction of APO materials or conversion to

judicial protective order is hereby requested. Failure to comply with

the regulations and the terms of an APO is a sanctionable violation.

This administrative review and notice are in accordance with

section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)) and section 353.22

of the Department's regulations.

Dated: November 25, 1996.

Robert S. LaRussa,

Acting Assistant Secretary for Import Administration.

[FR Doc. 96-30627 Filed 11-29-96; 8:45 am]

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