Elemental Sulphur From Canada; Final Results of Antidumping Finding Administrative Review

DEPARTMENT OF COMMERCE

[A-122-047]

Elemental Sulphur From Canada; Final Results of Antidumping

Finding Administrative Review

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of Final Results of Antidumping Finding Administrative

Review.

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SUMMARY: On July 24, 1995, the Department of Commerce (the Department)

published the preliminary results of its 1991-92 administrative review

of the antidumping finding on elemental sulphur from Canada (60 FR

7872). The review covers 15 manufacturers/exporters of the subject

merchandise to the United States and the period December 1, 1991

through November 30, 1992 (the POR). We gave interested parties an

opportunity to comment on our preliminary results. Based on our

analysis of the comments received, we have made changes, including

corrections of certain clerical errors, in the margin calculation for

Husky Oil Ltd. (Husky). These changes have resulted in a change in the

best information available (BIA) rates assigned to Mobil Oil Canada,

Ltd. and Petrosul International (Petrosul) for this review. Therefore,

the final results differ from the preliminary results. The final

weighted-average dumping margins for each of the reviewed firms are

listed below in the section entitled ``Final Results of Review.''

EFFECTIVE DATE: March 4, 1996.

FOR FURTHER INFORMATION CONTACT: Thomas O. Barlow or Michael Rill,

Office of Antidumping Compliance, Import Administration, International

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

Constitution Avenue, Washington, D.C. 20230; telephone: (202) 482-0410

or -4733, respectively.

SUPPLEMENTARY INFORMATION:

Background

On July 24, 1995, the Department published in the Federal Register

the preliminary results of review (60 FR 6872) of the period December

1, 1991 through November 30, 1992. Pennzoil, a domestic producer, and

two exporters, Husky and Mobil, requested a public hearing which was

held on September 27, 1995. The Department has now conducted this

review in accordance with section 751 of the Tariff Act of 1930, as

amended (the Tariff Act).

Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute and to the

Department's regulations are references to the provisions as they

existed on December 31, 1994.

Scope of the Review

The period of review (POR) is December 1, 1991 through November 30,

1992. Imports covered by this review are shipments of elemental sulphur

from Canada. This merchandise is classifiable under Harmonized Tariff

Schedule (HTS) subheadings 2503.10.00, 2503.90.00, and 2802.00.00.

The HTS subheading is provided for convenience and for U.S. Customs

purposes. The written description of the scope of this order remains

dispositive as to product coverage.

Verification

As provided in section 776(b) of the Tariff Act, we conducted sales

and cost verifications of Husky and Mobil and verified information

provided by these respondents by using standard verification

procedures, including on-site inspection of the producer's facilities,

the examination of relevant

[[Page 8240]]

sales and financial records, and selection of original documentation

containing relevant information. Our verification results are outlined

in the public versions of the verification reports.

Analysis of Comments Received

We gave interested parties an opportunity to comment on the

preliminary results. We received case briefs and rebuttal briefs from

Pennzoil, Husky, Mobil, and Petrosul.

Comment 1

Pennzoil agrees with the Department's decision to base Husky's

foreign market value (FMV) on constructed value (CV). Pennzoil

maintains, however, that the Department understated Husky's CV by

failing to include in the calculations the direct operating and general

facilities expenses relating to the sulphur block storage area.

Additionally, Pennzoil argues that the Department failed to include in

the sulphur cost of manufacture (COM) a portion of the property, plant

and equipment (PP&E) writedown attributable to the sections of its

processing plants after the split-off point for sulphur production.

Husky argues that it was proper to exclude the direct operating and

general facilities expenses it incurred for the sulphur block storage

lease. Husky maintains that these expenses relate to natural gas

processing and, therefore are not a sulphur handling cost.

Department's Position

We agree with Pennzoil that inclusion of the direct operating and

general facility costs related to sulphur block storage in CV is

appropriate. As explained in the decision memorandum, Memorandum To

Susan G. Esserman From Joseph A. Spetrini: Team Recommendation Related

to the Cost Accounting Treatment of Elemental Sulphur from Canada, June

29, 1995, all costs incurred after the liquid sulphur exits the sulphur

recovery unit relate to the production of sulphur. At this point in the

production process, Husky has the choice of either selling the liquid

sulphur, forming it for overseas sale, or pouring it to block for long-

term storage. All of these choices relate to selling sulphur, either

currently or in the future. Accordingly, we consider it appropriate to

include, as part of the cost of producing sulphur, all costs incurred

in the sulphur block storage lease.

We disagree with Pennzoil, however, that a portion of Husky's

writedown of PP&E should be included in the COM for sulphur. These

writedowns relate to certain properties in which the carrying value on

Husky's books exceeds the estimated future cash value of mineral

reserves. Since such costs are associated entirely with exploration and

development of mineral reserves, we consider this type of writedown to

be a cost incurred prior to the sulphur production split-off point. As

such, we consider these costs to be part of Husky's natural gas

operations. We have, therefore, excluded Husky's PP&E writedown from

our calculated sulphur costs (see related byproduct/coproduct issue at

Comments 2 and 3).

Comment 2

Pennzoil claims that the Department erred in finding that sulphur

produced by Husky is not a coproduct. Pennzoil contends that, in

accordance with Generally Accepted Cost Accounting Principles (GACAP),

a joint product is deemed to be a coproduct if the value of its

production during a certain period of time is significant in relation

to the other products generated from the same production process during

the same time period (relative value analysis). Pennzoil maintains

that, in accordance with GACAP and the Treasury Department's position

in Elemental Sulphur from Canada: Antidumping; Tentative Determination

to Modify or Revoke Dumping Finding, 44 FR 8057, 8058 (February 8,

1979), the standard for significant value is whether the value of

production for the joint product exceeds ten percent of the total joint

product revenues. Pennzoil argues that the value of Husky's sulphur

production during the POR exceeds the threshold for classifying it as a

coproduct.

Pennzoil also argues that the Department erred in its preliminary

results by determining relative value on a company-wide basis rather

than on a plant-specific basis. According to Pennzoil, the value of

sulphur production at each of Husky's sour gas processing plants is

clearly significant in relation to the value of all other products

generated from the same process during the POR. Pennzoil claims that it

is Departmental practice to follow GACAP, and that GACAP requires that

the relative value analysis be applied only to products that are in

fact jointly produced in the same manufacturing process. Pennzoil avers

that it is illogical to combine revenues from both sour and sweet gas

processing facilities in determining relative value since sweet gas

operations have different production processes, a different cost

structure, and do not produce sulphur. Furthermore, Pennzoil notes that

investments in sour gas facilities are made with the expectation of

sulphur revenues, whereas such is not the case with sweet facilities.

Accordingly, Pennzoil concludes, sweet gas revenues should not play a

role in determining the cost of production (COP) for sulphur. However,

even if the Department determines that relative value must be

determined on a company-wide basis, Pennzoil maintains that the value

of sulphur production during the POR still exceeds the threshold for

classifying Husky's sulphur as a coproduct.

In addition to relative sales value considerations, Pennzoil notes

several qualitative factors which it claims further support its

position that sulphur is a coproduct of natural gas production. First,

Pennzoil notes that Husky's normal accounting system does not

separately identify the costs of producing individual products. Second,

Pennzoil notes that very significant additional processing of hydrogen

sulfide (H2S) occurs after the split-off point. Third, Pennzoil

contends that Husky intentionally produces sulphur, as illustrated by

its investment in a highly sour gas field and its purchase of liquid

sulphur for the manufacture of formed sulphur. According to Pennzoil,

all of these factors lead to the conclusion that sulphur must be

treated as a coproduct of natural gas production, and that a portion of

Husky's joint production costs must therefore be allocated to sulphur

based on the volume of H2S in the raw gas stream.

Husky argues that the record is replete with evidence to support

the Department's preliminary results to treat sulphur as a byproduct of

natural gas production. Husky maintains that it normally accounts for

sulphur as a byproduct and, thus, assigns no inventory value to sulphur

production in the ordinary course of its business. Husky notes that

this practice is in accordance with its home country Generally Accepted

Accounting Principles (GAAP). Husky also argues that GACAP is not a

recognized set of authoritative accounting principles. Husky states

that the production of sulphur is an unavoidable consequence of natural

gas production from sour gas wells and, thus, will occur regardless of

any action the company takes. Husky maintains that the only reason it

produces sulphur is to fulfill its obligation under Canadian

environmental laws to remove H2S from the unrefined natural gas

stream and convert it into elemental sulphur.

Moreover, Husky claims that Pennzoil's assertion that Husky

invested in certain sour gas fields with the intention of producing

sulphur is misplaced. Husky claims that while it

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may have hoped to earn supplemental sulphur income from its investment

in sour gas fields, sulphur amounts to little more than a liability to

Husky.

Husky argues that its revenue from sulphur production during the

POR is insignificant compared to that of the other products produced

during the same time period. Husky maintains that, in analyzing

relative value, the Department has never held to a bright-line test. In

fact, Husky notes that there have been numerous recent antidumping

decisions involving byproduct/coproduct issues, and in none of these

instances did the Department impose a ten-percent bright-line standard

as part of its relative value analysis. Husky claims that Pennzoil's

reference to the 1979 tentative Treasury Department decision in support

of a ten-percent threshold has never been accepted by the Department

and is, therefore, unpersuasive. Husky also notes that Pennzoil's

proposed adjustments to relative value analysis performed in the

preliminary results are without merit.

Additionally, Husky contends that the relative value analysis must

be performed on a company-wide basis for two reasons. First, Husky

asserts, not all sulphur processed at a certain facility is associated

with sour gas from that same facility. However, Husky argues, when

sulphur is sold from the processing facility, the revenues are recorded

on the books of the processing facility rather than on the books of the

refining facility. Second, Husky claims that it makes all decisions

regarding its treatment of sulphur on a company-wide basis. Husky notes

that, although each facility maintains lease statistics regarding

production and sales quantities for all products and for all producers,

corporate sales personnel rather than the individual facility operators

make sulphur sales decisions.

Department's Position

In calculating the costs of producing subject merchandise, the

Department's practice is to adhere to an individual firm's recording of

costs in accordance with GAAP of its home country if the Department is

satisfied that such principles reasonably reflect the costs of

producing the subject merchandise. See, e.g., Final Determination of

Sales at Less Than Fair Value: Canned Pineapple From Thailand, 60 FR

29553, 29559-62 (June 5, 1995); Final Determination of Sales at Less

Than Fair Value: Furfuryl Alcohol from South Africa, 60 FR 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''). The Department's practice has been sustained by the

CIT. See, e.g., Laclede Steel Co. v. United States, Slip Op. 94-160 at

21-25 (CIT October 12, 1994) (CIT upheld the Department's decision to

reject the respondent's reported depreciation expenses in favor of

verified information obtained directly from the company's financial

statements that was consistent with Korean GAAP).

Normal accounting practices provide an objective standard by which

to measure costs, while allowing a respondent 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., Final Determination

of Sales at Less Than Fair Value: New Minivans from Japan, 57 FR 21937,

21952 (May 26, 1992) (Department adjusted a company's U.S. further

manufacturing costs because the company's normal accounting methodology

did not result in an accurate measure of production costs); Pineapple,

60 FR at 29560 (Department adjusted a company's allocation of fruit

costs because the company's normal accounting methodology resulted in

an unreasonable allocation of such costs between canned pineapple fruit

and juice products).

In the instant proceeding, therefore, the Department examined

whether Husky's accounting treatment of sulphur was reasonable. In

examining Husky's books and records at verification we found that Husky

had treated sulphur as a byproduct for at least a number of years.

Furthermore, we found no evidence that Husky had not relied

historically upon its byproduct treatment of sulphur to compute its

production costs. In addition, evidence on the record, i.e., audited

financial statements, indicates that Husky's byproduct methodology was

accepted by its independent auditors. Given the auditors' acceptance of

the respondent's financial statements and any lack of evidence to the

contrary, we conclude that Husky's normal accounting treatment of

sulphur is consistent with Canadian GAAP.

Notwithstanding the Department's conclusion that Husky's treatment

of sulphur as a byproduct is in accordance with Canadian GAAP, the

Department's byproduct/coproduct analysis includes a number of

additional factors. (As discussed in comment 3 below, the Department

accepted Husky's assignment of no sulphur processing plant costs to

sulphur production. However, the Department did not accept Husky's

normal accounting treatment of sulphur handling facility costs because

such treatment did not reasonably reflect the costs associated with

production of sulphur.)

The Department's practice, in accordance with GAAP, is to recognize

a particular joint product as either a coproduct or byproduct based, in

part, on the significance of that product relative to the other joint

product[s] and to the producing company as a whole. See e.g.,

Preliminary Determination of Sales at Less Than Fair Value: Sebacic

Acid From the People's Republic of China, 59 FR 565, 568-69 (January 5,

1994); Cost Accounting: A Managerial Emphasis, Charles Horngren, George

Foster, Seventh Edition, Prentice Hall, Englewood Cliffs, N.J., 1991 at

539-44 (Horngren). In this case, we have determined that sulphur is a

relatively insignificant byproduct of Husky's natural gas operations.

As a result of our relative value analysis and our analysis of other

relevant factors, discussed below, we have accepted Husky's treatment

of sulphur as a byproduct and have assigned to the subject merchandise

only those costs that Husky incurred on the product after it left the

sulphur recovery unit. (See our response to related Comment 3 below

regarding sulphur production costs.)

In past cases involving coproducts and byproducts, the Department

has looked to several factors in order to measure the significance of

particular joint products (see, e.g., Final Determination of Sales at

Less Than Fair Value: Furfuryl Alcohol from South Africa, 60 FR 22550

(May 8, 1995) (Furfuryl Alcohol) and Concurrence Memorandum: Final

Determination: Antidumping Duty Investigation of Furfuryl Alcohol from

South Africa, May 1, 1995 (Furfuryl Memo) (See Memo To File From Case

Analyst, December 13, 1995 (making Furfuryl Memo part of record of this

proceeding); Final Determination of Sales at Less Than Fair Value:

Sebacic Acid From the People's Republic of China, 59 FR 28056 (May 31,

1994) (Sebacic Acid)). Among these factors were the following: 1) the

relative sales value of the product compared to that of all other joint

products produced during the same time period, 2) whether the product

is an unavoidable consequence of producing another product, 3) whether

management intentionally controls production of the product, 4) whether

[[Page 8242]]

the product requires significant further processing after the split-off

point, and 5) how the company has historically accounted for the

product. No single factor is dispositive in our determination. Rather,

we must consider each factor in light of all of the facts and

circumstances surrounding the case. In this case, we considered each of

the preceding factors in reaching our decision to treat sulphur as a

byproduct of the natural gas production process.

For the first factor, relative sales value, we compared the sales

value of sulphur produced during the POR to that of all other joint

products respondent produced during the same time period. From this

analysis, we determined that the value of sulphur Husky produced

represented a relatively insignificant portion of the total revenues

generated by Husky's joint production process for refining natural gas.

In making this determination, we analyzed joint product revenues on

a company-wide basis for the natural gas production process rather than

on a plant-by-plant basis as Pennzoil requested. Pennzoil argued that,

since natural gas from sour gas fields must undergo additional

processing to remove the sulphur content, the cost structure of sour

gas production facilities differs from that of the sweet gas facilities

and, thus, should be subjected to a separate relative sales value

analysis. While it may be possible, and even reasonable in certain

circumstances, to perform a joint product analysis on a plant-by-plant

basis, it certainly is not mandated by law, by general accounting

practices, or by any other authority. In a case involving joint

products, the Department considers the significance of individual joint

products resulting from a common production process. (See Sebacic

Acid). In this case, Husky's common production process is the

production of natural gas, a process which yields sulphur. This reality

is not changed by the fact that certain of Husky's gas fields (i.e.,

sweet fields) did not yield levels of H2S necessitating the

conversion of H2S to sulphur; overall, due to the nature of

Husky's natural gas operations, sulphur is an inevitable consequence of

that natural gas production process. Husky's primary business objective

is the exploration, refinement, and sale of natural gas (and oil).

Relative to Husky's natural gas production and revenue, sulphur

production and revenue resulting from that natural gas production was

not significant during the period under review. Given these

considerations, we believe that Husky's sulphur production should be

evaluated within the context of its overall natural gas operations.

Furthermore, Husky makes decisions regarding the treatment of

sulphur, particularly the accounting treatment of sulphur, on a

company-wide basis. In addition, sulphur sales decisions are made by

corporate sales personnel and not by the individual facility operators.

Given the relationship of sulphur to natural gas production by Husky,

Husky's corporate-wide decision-making practices, and the fact that

such practices are consistent with Canadian and U.S. GAAP, we believe

that it is appropriate to perform our relative sales value analysis on

a company-wide basis for the natural gas process.

Lastly with regard to relative sales value, we disagree with

Pennzoil's contention that the Department has established a ten-percent

threshold in determining the significance of revenues generated by

joint products. Pennzoil's reference to the Treasury Department's 1979

tentative determination as the standard in this case does not reflect

recent Department decisions involving coproduct/byproduct

determinations. As explained above, the Department considers the

relative revenues generated by joint products in conjunction with other

important factors in order to determine the significance of the joint

product in question. See, e.g., Furfuryl Alcohol and Furfuryl Memo,

where the Department based its determination of the coproduct/byproduct

issue on the same five factors noted above. Because the relative value

analysis must be viewed within the context of other factors, as well as

within the specific circumstances of the case, it would be

inappropriate for the Department to establish Pennzoil's suggested

``bright-line'' threshold under which the entire coproduct/byproduct

analysis would rest solely on whether revenues from the joint product

exceeded ten percent of total revenues for all joint products.

Pennzoil's minor proposed adjustments to our relative value

calculations, therefore, would not effect our analysis of the relative

sales value factor, nor our overall analysis.

Concerning the second factor, whether sulphur is an unavoidable

consequence of producing natural gas, we believe that Husky's natural

gas production determines the amount of sulphur that the company

produces. In order to produce natural gas, Husky must remove poisonous

H2S from the unrefined gas stream and convert it to elemental

sulphur in accordance with strict environmental laws. Because Husky has

no control over the amount of H2S in the gas stream and,

therefore, the production of sulphur, Husky further processed and sold

only part of the sulphur resulting from the treatment of H2S

during the POR. Without limiting the production of refined natural gas,

Husky did not have the option of limiting sulphur production, and,

therefore, poured the remaining portion of sulphur production to block

as a means of long-term storage. It is clear that when producing

natural gas, Husky has no choice but to produce elemental sulphur from

H2S, if for no other reason than it must do so to meet

environmental standards. Sulphur, therefore, is an unavoidable

consequence of natural gas production.

In the case of the third factor, whether management intentionally

controls production of the product, while we cannot overlook the fact

that Husky derives a portion of its revenues from sulphur, we do not

find this to be evidence that the company's management intends to

produce sulphur. Rather, as noted above, sulphur production is a

requirement, resulting from Husky's decision to produce natural gas.

The fact remains that, at significantly high levels, sulphur becomes an

impediment to cost-effective natural gas production. In these

instances, the high sulphur content in natural gas may force producers

to abandon their plans to produce either product.

We disagree with Pennzoil's comment that Husky's investment in

highly sour gas fields and its purchase of liquid sulphur during the

POR indicate an intent on the part of the company's management to

produce sulphur. Pennzoil's point concerning Husky's gas field

investment is purely speculative. As to Husky's purchase of liquid

sulphur from another supplier, the reason Husky purchases liquid

sulphur is explained at page 9 of its proprietary January 9, 1994 cost

submission to the Department, and this explanation does not support

Pennzoil's position.

For the fourth factor, whether the product requires significant

further processing after the split-off point, we found that the

H2S resulting from natural gas refining did undergo significant

additional processing after the split-off point in order to transform

it into marketable sulphur. As further explained in our response to

Comment 3 below, however, we consider much of the additional processing

to be associated with natural gas production in that it relates to the

removal and treatment of the poisonous H2S gas which, due to

environmental laws, Husky must break down into its primary elements of

sulphur and water. As a result, any further processing generally

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is necessitated by factors not within the company's control.

Finally, with regard to the last factor, how the company has

historically accounted for the product, the Department verified that

Husky did not assign any of its production costs to sulphur during the

POR. Instead, as discussed above, under its normal accounting system,

Husky charged all sulphur processing and handling costs to its natural

gas operations. Husky's accounting treatment of assigning no costs to

sulphur was in accordance with Canadian GAAP and sanctioned by its

auditors as demonstrated by the fact that the company's 1991 and 1992

financial statements did not report inventory balances for the sulphur

that Husky produced in those years. Notably, for accounting purposes,

U.S. producers of natural gas also consider sulphur to be a byproduct.

Contrary to Pennzoil's assertions, we are unaware of the existence

of GACAP as a unified body of cost accounting principles that mandates

our treating sulphur as a coproduct in this case. We believe that the

method Husky used to account for its sulphur production was consistent

both with the company's home market GAAP and with its view of sulphur

as a byproduct of its natural gas operations. Based on our analysis of

the above factors as they relate to the facts in this case, we have

determined that the sulphur Husky produced during the POR was a

byproduct of its natural gas production operations.

Comment 3

Pennzoil argues that, even if the Department decides to treat

sulphur as a natural gas byproduct, it violated the antidumping statute

in its preliminary results of review by accounting only for the

processing costs Husky incurred subsequent to the sulphur recovery

unit. Pennzoil states that section 773(e) of the Tariff Act expressly

requires that the cost of fabrication or other processing of any kind

be included in CV. Pennzoil maintains that sulphur recovery costs are,

in fact, processing costs related to sulphur production that must be

included in the Department's CV calculation in accordance with the

statute. Pennzoil further argues that, by excluding sulphur recovery

costs from its CV calculation, the Department also violated

congressional intent as manifested in the sales-below-cost provision of

the statute. Pennzoil claims that one of the reasons that Congress

enacted the sales-below-cost provision was to afford protection to the

U.S. sulphur industry.

According to Pennzoil, the Department's accounting treatment of

sulphur production costs is in opposition to what it calls ``GACAP''.

Pennzoil maintains that GACAP represents a common and accepted body of

cost accounting principles that, among other things, provides guidance

concerning the appropriate method for assigning costs to byproducts.

According to Pennzoil, in accounting for joint products under GACAP,

costs incurred after the production split-off point are separately

identifiable and must therefore be charged directly to the specific

products produced. In keeping with this principle, Pennzoil contends

that, having correctly determined the split-off point in the natural

gas production process as occurring prior to the sulphur recovery unit,

the Department was compelled under GACAP to account for all of Husky's

sulphur recovery costs as part of the cost of processing sulphur.

Pennzoil argues that, if the Department continues to treat sulphur as a

byproduct, it cannot assign to natural gas production all of the costs

associated with Husky's sulphur recovery unit.

Pennzoil notes that, in calculating production costs, the

Department relies on respondent's normal cost accounting methodologies

so long as those methodologies are in accordance with the company's

home market GAAP and reasonably reflect the costs associated with

producing the subject merchandise. Pennzoil claims, however, that it

cannot find from the record where Husky assigns production costs to

either natural gas or sulphur under its normal accounting system. Thus,

according to Pennzoil, the Department's assignment of all processing

costs (including sulphur recovery unit costs) to natural gas production

while charging none to sulphur contravenes Husky's normal accounting

practices. Moreover, Pennzoil notes that, even if Husky's accounting

method assigns zero production costs to sulphur production, this

treatment is distortive because it fails to assign to sulphur the

actual costs of producing the sulphur. Thus, Pennzoil contends, the

Department should not follow Husky's cost accounting method because it

would not reasonably reflect the costs of producing the subject

merchandise.

Pennzoil also maintains that Department precedent requires that

byproducts absorb all separately identifiable costs incurred after the

split-off point in production. In support of this argument, Pennzoil

cites Silicomanganese from Venezuela: Notice of Final Determination of

Sales at Less Than Fair Value, 59 FR 55436 (November 7, 1994), where

the Department assigned to merchandise it deemed a byproduct all of the

separable further processing costs incurred by the respondent. Pennzoil

maintains that the facts in this case are similar to those in the

Silicomanganese from Venezuela and, thus, there is no reason for the

Department to exclude sulphur recovery costs from its sulphur cost

calculations if it chooses to treat the subject merchandise as a

byproduct.

Pennzoil states that the U.S. Department of Interior (DOI) has

prescribed rules for assigning costs to sulphur which mandate that

sulphur production be assigned all costs incurred after separation from

natural gas. Pennzoil notes that the DOI rules relate to the

calculation of royalty payments affecting the joint production of

natural gas and sulphur on federal land, and argues that it would be

erroneous and contrary to law for the Department to depart from these

rules by treating sulphur recovery costs as part of natural gas

production costs.

Husky maintains that, contrary to Pennzoil's assertion, Section

773(c) of the Tariff Act does not mandate specific cost allocation

methodologies and that the Department's preliminary CV calculations

were fully in accordance with its statutory mandate. Husky contends

that the Department properly defined the split-off point for purposes

of the preliminary results of review, but that H2S is not a

separately identifiable product until after it has been converted into

elemental sulphur. According to Husky, the process of converting

H2S into sulphur, a function of the sulphur recovery unit, is a

gas cost and is identifiable solely with the process of preparing gas

for market. Therefore, Husky contends that the Department should

continue to treat all costs up to and including the sulphur recovery

unit as related to gas production operations.

Department's Position

We disagree with Pennzoil that the costs Husky incurred in its

sulphur recovery unit should be allocated to sulphur production.

Rather, we have determined that these costs are associated with Husky's

gas production operations. Whether or not Congress enacted the sales-

below-cost provision to afford protection to the U.S. sulphur industry,

as Pennzoil claims, the statute nowhere specifies how specific

processing costs should be allocated among products.

Normally, we consider the split-off point in a joint production

process to be where the products become physically separable. We

normally assign these post-split-off costs to each separately

identifiable product because this is the point where a company has a

choice of

[[Page 8244]]

whether to further process each separable product or to dispose of it.

This case is unique, however, in that even though the physical split-

off point is prior to the sulphur recovery unit, Husky does not have

the option of disposing of all H2S. As explained below, in order

to refine natural gas, Husky must incur costs in the sulphur recovery

unit.

As part of the natural gas production process, H2S is

separated from the unrefined gas stream in the gas processing plant.

H2S output from the gas processing plant enters the sulphur

recovery unit where it breaks down into its primary components of

sulphur and water. H2S is a poisonous, corrosive compound for

which there is no market and, by Canadian law, it cannot be released

into the atmosphere. In order to refine natural gas, Husky has no

choice under Canadian environmental regulations but to incur H2S

processing costs in its sulphur recovery unit. To operate or use a

natural gas plant and process natural gas, Canadian law requires

companies to have certain licenses. These licenses dictate, among other

things, certain minimum standards for the reclamation of sulphur

contained in the gas delivered to a plant, and the types and quantities

of effluent permissible from a plant. Furthermore, agreements with

natural gas pipe-line operators specify that no more than a maximum

amount of contaminants, including H2S, be contained in gas

introduced into a pipe-line. In addition, there is no dispute as to the

extremely poisonous nature of H2S, a compelling reason to

stabilize this element into sulphur and water. Finally, it is

undisputed that there is a positive direct correlation between the

processing of sour natural gas and the production of H2S. As

saleable natural gas is produced from a sour gas stream and moved into

the pipeline, so too must the movement of H2S proceed within

permissible means; otherwise the gas plant must cease operations.

Therefore, it is of limited concern to Husky to analyze whether sales

revenue it receives for sulphur sales is able to offset costs it incurs

in the sulphur recovery unit and handling facility because it must by

law dispose of the H2S in a harmless manner. Rather, only where

the costs of the sulphur recovery unit and handling facility impair the

profits of refined natural gas might an analysis of sulphur sales

revenue vis-a-vis the costs incurred in the sulphur recovery unit and

handling facility be of greater consideration. In that case, it is

likely that overall production for a particular gas field would cease

if the costs associated with the removal and sale of sulphur caused the

natural gas line of business to operate at a loss.

Contrary to Pennzoil's claim that Husky assigns no production costs

to natural gas under its normal accounting system, we noted during

verification that Husky assigns all gas and sulphur processing costs to

production of natural gas (see the Department's position to Comment 2).

We disagree with Pennzoil's categorization of GACAP as the

accounting rules which dictate our accounting treatment for COP and CV

cases. Neither the accounting profession nor the Department recognizes

GACAP as an authoritative source. This is a creation of Pennzoil, which

selectively chose different cost accounting concepts from over 15

different texts dating back to 1920. While we recognize certain cost

accounting concepts, we do not advocate one acceptable concept over

another for all cases. Rather, we consider the facts surrounding each

case. Cost accounting texts are fairly general in nature, with their

purpose being to illustrate the various acceptable methods for

allocating costs in certain situations. One of the key points cost

accounting texts try to emphasize is that in most instances there is no

single, right answer see e.g. Horngren. The way a company ultimately

allocates costs to the various product lines depends on numerous

factors unique to that company, including the products it manufactures,

its corporate structure, and the way in which its management uses its

accounting data. Id.

We disagree with Pennzoil that the facts of this case require that

we allocate costs of the sulphur recovery unit. In Silicomanganese from

Venezuela, the slag which resulted from the production of Grade B

silicomanganese did not require further processing and it could have

been disposed of in its current state, unlike the H2S which

results from the production of natural gas. The respondent company,

however, chose to process it into Grade C product rather than to

dispose of it. In this case, Husky does not have this option, but must

process the dangerous H2S in order to break it down into a stable

and safe form (i.e., sulphur and water) in accordance with Canadian

law.

Finally, there is no connection between the DOI's proposed rules

and our statute and regulations. Accordingly, we consider it irrelevant

how DOI proposes to calculate royalty payments for sulphur produced on

federal land.

In conclusion, we have allocated only costs incurred subsequent to

the sulphur recovery unit to sulphur production. We believe these costs

reasonably reflect the costs associated with the production of sulphur.

Comment 4

Husky maintains that, in accordance with past precedents, the

Department should allow the company to offset its sulphur processing

costs with revenues it earned from processing other companies' sulphur.

Husky claims that, as a matter of law, costs for antidumping purposes

can be offset by income so long as that income is directly related to

the production of the product under review.

In support of its position, Husky cites two cases in which the

Department offset costs for miscellaneous income, and several cases in

which the Department allowed an offset to production costs for the sale

of byproducts and scrap which resulted from the production of the

subject merchandise. Husky cites Porcelain-on-Steel Cooking Ware from

Mexico; Final Results of Antidumping Administrative Review, 55 FR

21061, 21063 (May 22, 1990) (Cooking Ware), and Frozen Concentrated

Orange Juice from Brazil: Final Determination of Sales at Less Than

Fair Value, 52 FR 8324, 8329 (March 17, 1987) (Orange Juice) to support

its position.

Pennzoil contends that the Department was correct in not allowing

Husky to deduct processing fees from its sulphur COM. According to

Pennzoil, the processing fees do not result from Husky's normal

operations but, rather, relate to the company's acting as a

subcontractor on behalf of other sulphur producers. Pennzoil claims

that it is unaware of any situation in which the Department has allowed

respondents to offset their production costs for fee income generated

from another line of business.

Department's Position

We disagree with Husky's contention that the sulphur processing

revenues it received represent a reduction in the company's sulphur

production costs. During the POR, in addition to processing its own

sulphur, Husky processed large quantities of sulphur belonging to other

companies. These companies paid Husky processing fees based on the

quantity of sulphur that Husky processed for them. In computing its

sulphur costs, Husky offset the total cost of all sulphur it produced

during the POR by an amount representing the gross earnings from the

sulphur which it processed for the other companies. Husky then

calculated a per-unit sulphur cost by dividing the remaining balance of

production costs, net of gross

[[Page 8245]]

processing revenues, by the quantity of sulphur that the company had

produced for its own account. The effect of this methodology was to

reduce Husky's own sulphur production costs by the amount of profits

that the company earned from processing sulphur that belonged to the

other companies.

Contrary to Husky's assertions, we find that the revenues it

received from processing sulphur for other companies do not relate

directly to the production costs it incurred in producing the subject

merchandise on its own account. Instead, these fees represent income

Husky earned from a separate line of business as a subcontractor

offering sulphur processing services. Husky provided these services to

its customers for a fee which represented the processing costs Husky

incurred, plus a mark-up for profit. However, the net profits that

Husky earned from processing sulphur as part of its separate

subcontractor operations did not reduce the costs that it incurred to

process and sell its own sulphur.

We disagree with Husky that, by disallowing its processing revenue

offset, we are deviating from our position in past cases. In neither of

the cases cited by Husky, Cooking Ware and Orange Juice, did we allow

respondents to reduce the production costs of subject merchandise by

profit earned from another line of business. Rather, consistent with

our normal practice, we allowed offsets to the cost of producing the

subject merchandise for revenues earned on the sale of byproducts and

scrap which resulted from the production of the subject merchandise.

This practice is distinguishable from Husky's situation in that the

revenues Husky earned on its subcontracting operations do not directly

relate to Husky's production of the subject merchandise. Rather, they

relate to its subcontracting operations which is a separate line of

business. Therefore, we have not offset Husky's sulphur COP and CV by

revenues it earned on its subcontracting operations.

Comment 5

Husky argues that the Department should allocate depreciation

expense to the sulphur handling facility on a net realizable value

(NRV) basis. Husky maintains that an NRV allocation basis is reasonable

since, in its normal accounting system, it allocates no expenses to

sulphur. Husky further maintains that it is within the Department's

discretion to use a value-based allocation methodology. In support of

its position, Husky cites Pineapple as a recent determination in which

the Department relied on a value-based cost allocation methodology.

Husky argues that, using a cost-based allocation methodology, as the

Department did for purposes of the preliminary results of this review,

overstates the depreciation expense allocated to sulphur production.

Husky also claims that it is inconsistent for the Department to

determine, as it did in the preliminary results of review, that sulphur

is a byproduct based on its relative sales value while, at the same

time, rejecting an allocation of depreciation expense that similarly

relies on relative sales values.

Husky further contends that, regardless of how the Department

decides to allocate depreciation expense to sulphur, it must adjust for

the fact that an unrelated company pays Husky a capital charge which,

in effect, reimburses Husky for a portion of its depreciation expense

incurred for the use of its facility. Husky maintains that, in the

preliminary results of review, the Department erroneously computed per-

unit depreciation expense for sulphur by including this capital charge

in total depreciation costs, but failed to include this company's

related quantity of sulphur production. According to Husky, the

Department should correct this error either by reducing Husky's

depreciation expense for the year by the capital charge payment, or by

allocating total depreciation expense over the total quantity of

sulphur Husky produced, regardless of ownership.

Pennzoil argues that the Department correctly allocated

depreciation expense based on the direct operating costs Husky incurred

in each functional leasehold area. According to Pennzoil, the

Department prefers to allocate indirect costs using a cost-based

allocation methodology rather than one based on net sales revenue.

Additionally, Pennzoil notes that Husky recognized this fact when it

allocated the cost of its general facilities and other expenses to each

lease based on the direct costs incurred for each lease. Pennzoil

maintains that depreciation expense incurred in connection with each

lease is more closely related to the lease's operating expenses than to

the NRV of the products produced at the facility. Additionally,

Pennzoil contends that Husky's cite to Pineapple as support for a

sales-based allocation is misplaced. Pennzoil notes that, in that case,

the Department determined that it was appropriate to rely on the value-

based allocation method because the respondent had used this method for

a number of years in its normal accounting system. Pennzoil notes that,

in the instant case, Husky created its NRV allocation methodology

solely for the purpose of this review.

Pennzoil also contends that, consistent with its finding in the

preliminary results, just as the Department should not reduce Husky's

per-unit sulphur COP by the profit earned on processing a certain other

company's sulphur, neither should the Department adjust Husky's

depreciation expense to account for the capital charge received from

the other company.

Department's Position

We disagree with Husky that it is appropriate to allocate

depreciation expense among its products based on a relative sales

values methodology. Although Husky claims that it does not maintain a

fixed asset ledger that records depreciation expense for each of its

leases, this does not mean that the company's depreciation expense

represents an actual joint production cost that, under certain

circumstances, may be appropriately allocated on the basis of relative

sales value. On the contrary, in this instance, the depreciation

expense for fixed assets that Husky used to produce sulphur, natural

gas, and other products bears no direct relationship to the sales value

generated from those products. Therefore, allocation on the basis of

sales value could lead to cost distortions and would not be

appropriate.

The Department typically has found that respondents maintain

sufficiently detailed fixed asset records that allow them to account

for depreciation expense on a product-specific basis. In this case,

however, because Husky's records do not permit the company to trace

depreciation expense in such a manner, we believe that it is

appropriate to treat these costs like other indirect costs, such as

manufacturing overhead or general and administrative expenses. The

Department generally favors a cost-based allocation methodology for

indirect costs. For example, the Department has consistently required

that respondents allocate general and administrative expenses on the

basis of cost of sales rather than on relative sales revenue or other

inappropriate bases. See, e.g., Tapered Roller Bearings, Finished and

Unfinished, and Parts Thereof from Japan, Final Results of Antidumping

Administrative Review, 56 FR 41508, 41516, August 21, 1991). As

Pennzoil has pointed out, Husky itself adopted such a cost-based

methodology in allocating its indirect general facilities costs on the

basis of the direct costs it incurred at each lease. Thus, the cost-

based methodology the Department used to re-allocate Husky's

depreciation

[[Page 8246]]

expense for the preliminary results was both consistent with past

Department practice and with Husky's own method of allocating the other

indirect costs the company incurred during the POR.

Husky is incorrect in referring to the Department's determination

in Pineapple as support for its value-based allocation of depreciation

expense. As noted above, in the instant case, the need to treat

depreciation expense as an indirect cost (and thereby allocate the

amount incurred among the various products produced by Husky) arises

from limitations in the company's own accounting system. Since Husky's

accounting system does not distinguish fixed assets used to produce

sulphur after the split off point in production, some method must be

used to allocate the otherwise fully separable costs associated with

fixed assets to produce sulphur. In Pineapple, however, the Department

dealt with the issue of allocating genuine joint production costs that

were otherwise inseparable up to the production split-off point where

the process yielded distinct products.

Pineapple also differs from the instant case in the fact that the

pineapple growers had, for many years prior to the antidumping

investigation, accounted for joint processing costs on the basis of

relative sales value. As noted previously, however, Husky's value-based

methodology is not part of its normal accounting system and was devised

by the company specifically for the purpose of allocating depreciation

costs in this review.

We disagree with Husky's claim that use of the relative sales value

in our sulphur byproduct analysis is inconsistent with our rejection of

it as the basis for allocating depreciation expense among the company's

products. As discussed in our response to Comment 2, relative sales

value is but one of several factors that we considered in measuring the

significance of sulphur as part of our coproduct/byproduct analysis. It

is not a dispositive factor, especially in situations in which the

relative sales values of subject and non-subject merchandise are

measured only during periods covered by an antidumping investigation or

administrative review. Contrary to Husky's assertions, the fact that

the Department considers sales value as one of several factors in its

coproduct/byproduct analysis for the subject merchandise does not, as a

consequence, make the price charged for that merchandise a reliable

basis upon which to allocate depreciation expenses or other such

normally separable costs. Accordingly, the Department has allocated

depreciation expense using a cost-based methodology, consistent with

its treatment in the preliminary results.

Lastly, we agree with Husky that it is appropriate to include a

certain company's sulphur production quantity in the calculation of

per-unit depreciation expense. Therefore, we have accounted for all

quantities processed at the facility, regardless of whether the product

was owned by Husky, in establishing the per-unit depreciation costs.

Comment 6

Pennzoil asserts that, with regard to selling, general and

administrative (SG&A) expenses included in CV, the Department properly

included Husky's third-country royalty expenses, but neglected to

include PRISM Sulphur Corporation's (PRISM's) SG&A expenses incurred on

Husky's behalf. Pennzoil cites the Department's Dumping Manual at p. 53

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

Forged Steel Crankshafts From the Federal Republic of Germany, 52 FR

28170 (July 28, 1987), to support its position.

Husky asserts that the Department properly excluded PRISM's general

expenses from CV and that the Department correctly limited general

expenses to those Husky incurred, since only Husky's general expenses

are included in the third-country sales prices it reported. Husky

asserts that the third-country prices the Department used in its

analysis were not the prices PRISM charged to its unrelated customers

but rather were the ``netback'' revenue Husky received from PRISM,

which represents Husky's net return, exclusive of the expenses

(including general expenses) PRISM incurred in selling the sulphur to

third countries. Husky asserts that exceeding the 20-percent

difference-in-merchandise threshold (DIFMER) is the only reason the

Department did not use the reported prices (netback revenues) and,

since these prices were the verified arm's-length prices from Husky to

PRISM, the Department appropriately limited the general expenses

included in the CV calculation to the general expenses in that price.

Therefore, Husky contends that the Department should dismiss Pennzoil's

argument and base the final results on the reported and verified

expenses Husky incurred.

Department's Position

We agree with Pennzoil and have attributed a portion of PRISM's

selling expenses to Husky for CV purposes. Section 773(e) of the Tariff

Act specifies that general expenses be equal to that usually reflected

in sales of merchandise of the same general class or kind but not less

than 10 percent of COM. Because PRISM, essentially a sales

organization, incurred expenses of the kind usually reflected in sales

of merchandise of the same general class or kind on Husky's behalf, we

have allocated PRISM's operating expenses to Husky, and, therefore, to

the calculation of CV in our determination of Husky's dumping margin.

Comment 7

Pennzoil asserts that the Department's margin calculation for Husky

contains an error in that the Department calculated Husky's weighted-

average margin by dividing total duties due by the gross sales value of

U.S. sales instead of dividing the total duties due by the net U.S.

sales value.

Department's Position

We agree and have recalculated Husky's weighted-average dumping

margin by dividing total duties due by the net U.S. sales value,

consistent with our normal practice.

Comment 8

Husky asserts that the Department made two ministerial errors in

its calculation of Husky's margin and requests the Department to

correct these errors. Husky indicates that the Department double-

counted U.S. packing costs for bagged and powdered sulphur and that the

royalty expense the Department included as a direct selling expense

component of general expenses was not equivalent to the royalty expense

the Department subtracted as a circumstance-of-sale adjustment as

required by statute and Department practice.

Department's Position

We agree and have corrected the errors in these final results.

Comment 9

Pennzoil asserts that the Department erred in determining that the

rate it calculated for Husky should be applied to Mobil as BIA, because

Petrosul's margin would be more adverse and must be applied to Mobil as

BIA.

Mobil asserts that, if the Department calculates a margin for

Petrosul based on Pennzoil's cost allegation or on Husky's CV as

Pennzoil proposes, under no circumstances should the Department apply

this rate to Mobil. Mobil asserts that the Department's preference is

to use verified information as the basis of BIA for a cooperative

respondent and cites In the Matter of Replacement Parts for Self-

Propelled Bituminous Paving Equipment from

[[Page 8247]]

Canada, USA-90-1904-01 at 81 (May 15, 1992), concerning the

Department's selection of BIA, Smith Corona v. United States, 796 F.

Supp. 1532, 1536-37 (CIT 1992), and other cases for the proposition

that the court favors a verified BIA rate over an unverified BIA rate,

and favors BIA based on ``reasonably accurate'' information of record

if verified data is not available (Associacion Colombiana de

Exportadores de Flores, 717 F. Supp. 834 (CIT 1989); Alberta Pork

Producers' Marketing Board v. United States, 669 F. Supp. 445 (CIT

1987)). Mobil asserts that, because it cooperated in this review, the

Department based its BIA margin on Husky's verified information and

that it would be unreasonable to penalize Mobil by using unverified

information that results in an artificially high dumping margin.

Mobil asserts that there is no support for Pennzoil's approach

because 1) the Department did not verify the price information Petrosul

submitted, 2) the CV information in Pennzoil's cost allegation was not

only not verified, but was based on a coproduct methodology, and 3) the

Department thoroughly and successfully verified Mobil's cost responses

and determined Mobil produces sulphur as a byproduct.

Department's Position

In our preliminary results, we determined that, because Mobil

substantially cooperated in this segment of the proceeding by

responding to our requests for information and participating in

verification, application of second-tier BIA for Mobil was appropriate.

The second-tier approach results in the application of the higher of

(1) the highest rate ever applicable to the firm for the same class or

kind of merchandise from either the LTFV investigation or a prior

administrative review or, if the firm has never before been

investigated or reviewed, the ``all others'' rate from the LTFV

investigation; or (2) the highest calculated rate in this review for

the class or kind of merchandise for any firm from the same country of

origin (see, e.g., Allied-Signal Aerospace Co. v. United States, 966

F.2d 1185, 1191 (Fed. Cir. 1993); Antifriction Bearings (Other Than

Tapered Roller Bearings) and Parts Thereof From France, et al.: Final

Results of Antidumping Duty Administrative Reviews, Partial Termination

of Antidumping Reviews, and Revocation in Part of Antidumping Duty

Orders, 60 FR 10900, 10908 (February 28, 1995)). The highest rate

previously applicable to Mobil is 5.56 percent. Therefore, the rate

calculated for Husky, the highest calculated rate in this review, shall

apply to Mobil as this rate is higher than the rate previously

applicable to Mobil. Pennzoil has not presented an argument which

persuades the Department to deviate from application of its established

BIA policy with regard to Mobil. With regard to the Department's

treatment of Petrosul, see Comment 13.

Comment 10

Pennzoil asserts that the Department erred in concluding that 5.66

[sic] percent was the highest rate previously assigned to Mobil, as the

Department's first administrative review found a margin for Mobil of

12.9 percent, and, although unpublished, Mobil's entries were

liquidated at that rate. Pennzoil cites Elemental Sulphur from Canada:

Preliminary Results of Administrative Review of Antidumping Finding and

Tentative Determination to Revoke in Part, 49 FR 45789, 45790

(September 15, 1981), and provides copies of telexes to Customs and an

attachment to a letter to a respondent with proposed assessment rates

to support its position. Accordingly, Pennzoil asserts, if the revised

BIA rate the Department calculates for Petrosul is the highest

calculated rate in this review, the Department should apply that rate

to Mobil, but under no circumstances should Mobil receive a rate lower

than 12.9 percent.

Mobil asserts that its highest previous rate is 5.56 percent, and

disputes Pennzoil's assertion that its highest previous rate is 12.9

percent. Mobil claims that although the Department's September 15, 1981

preliminary results indicate a 12.9-percent rate for the period July 1,

1978 through December 31, 1978 and a 75.19-percent rate for the period

January 1, 1979 through November 30, 1980, there was a correction to

the November 28, 1986 instructions on which Pennzoil relies in its

arguments. Mobil explains that the Department issued instructions

stating that entries for the January 1979 through November 1981 should

not be liquidated. Mobil points to the Department's 1987 final results

for the period January 1, 1979 through November 30, 1981, which

established a rate of zero for Mobil (52 FR 41601). Mobil concludes

that there are no published final results or Customs instructions that

would support Pennzoil's claimed rate of 12.9 percent for the period

July 1, 1978 through December 31, 1978. Concerning the October 6, 1986

telex identified by Pennzoil relating to Mobil's entries for 1982-83 at

12.9 percent, Mobil asserts that it was obviously based on the same

error underlying the November 28, 1986 instruction.

Department's Position

We agree with Mobil. The Department's practice is to rely on the

published final results of a review or investigation to determine the

highest rate ever applicable to a firm. We never published final

results of review with a rate of 12.9 percent, for any period, for

Mobil's sales. The highest published final review rate the Department

has been able to ascertain for Mobil is 5.56 percent.

However, because the rate calculated in this review for Husky is

higher than 5.56 percent, that rate shall apply to Mobil's transactions

as second-tier BIA in this review.

Comment 11

Mobil believes a 1978 U.S. Customs ruling issued to Mobil Chemical

(Mochem) (predecessor of Mobil Mining and Minerals (MMM), a U.S.

affiliate of Mobil), holding that sulphur purchased by Mochem for

internal use was exempt from antidumping duties, is still applicable.

Mobil asserts that the reason for the exemption was that, although the

sulphur is used in the manufacture of diammonium phosphate fertilizer

(DAP), the end-product, DAP, contains no sulphur as it ends up in the

form of gypsum, a waste product. Thus, Mobil contends that there is no

sale to an unrelated customer of sulphur or of the product containing

sulphur from which U.S. price could be derived. Mobil asserts that

Mobil, Mochem, and MMM have relied on this ruling and Customs has never

assessed antidumping duties on sulphur imported by MoChem and MMM for

use in the manufacture of DAP.

Mobil further asserts that it has an arrangement with MMM and a

certain unrelated U.S. entity whereby Mobil sells sulphur to its U.S.

affiliate, MMM, which then ``swaps'' this sulphur with the unrelated

U.S. entity, such that Mobil sulphur is delivered to this unrelated

U.S. entity in return for the delivery of sulphur from this unrelated

U.S. entity to MMM.

Mobil asserts that MMM does not resell the sulphur, but discards it

as a waste product in the form of gypsum. As there is no arm's-length

price, Mobil contends that the Customs Service ruling applies. Mobil

requests that the Department issue liquidation instructions which

direct Customs not to assess duties on any imports of Mobil sulphur by

a certain unrelated U.S. entity which that entity purchased pursuant to

the swap arrangement.

[[Page 8248]]

Pennzoil asserts that the Department may not exempt imports of

Mobil sulphur by this unrelated U.S. entity from the assessment of

antidumping duties. Pennzoil argues that the 1978 Customs ruling does

not apply to the sulphur the unrelated entity acquired in its swap

transactions.

Pennzoil asserts that the limited exemption in the 1978 Customs

ruling was based on a repealed statute and Treasury Department

regulation and that the ruling applies only to sulphur MMM used to

produce DAP at a plant which closed in 1987. Pennzoil further asserts

that, because Mobil has not disclosed the purpose for which the entity

used the sulphur, the Department cannot determine that the ruling

applies to Mobil's sulphur, given that Customs granted the exemption

under the provision that the sulphur was consumed in the production of

DAP. Pennzoil contends that the unrelated U.S. entity may have imported

the Mobil sulphur for resale to U.S. customers and there is no evidence

on the record of this review that the entity ever produced DAP, let

alone consumed the Mobil sulphur in the course of producing that

product. Pennzoil notes that, contrary to the statement in the Customs

ruling, gypsum is a salable product.

Pennzoil asserts that, given the Department's application of total

BIA to Mobil, the Department should not rely on Mobil's factual

assertions and reward it by excluding U.S. sales from coverage by the

finding.

Finally, Pennzoil asserts that Mobil's request constitutes an

improper request for a scope determination and that such an exclusion

would create significant administrative burdens for Customs and the

Department. Pennzoil contends that any liquidation instructions would

need to contain certain restrictions in view of the fact that the 1978

ruling expressly does not cover a percentage of sulphur imported by

Mobil's related entity that do not go to the Depue Plant, or that go to

Depue but are used in the production of sulfuric acid.

Department's Position

The 1978 Treasury ruling does not apply to these transactions since

the ruling is narrowly drafted to apply only to shipments of Mobil

sulphur to a Mobil affiliate used for a specific purpose. Moreover, the

specific language of the Treasury ruling does not address ``swap''

transactions.

After discussing the basis for the exclusion, the ruling concludes:

``Sulphur imported by Mobil Chemical from its Canadian affiliate, Mobil

Oil Canada, and used in the production of diammonium phosphate

fertilizer (DAP) will be appraised by U.S. Customs without regard to

the Antidumping Act, 1921, as amended. That portion of the Canadian

elemental sulphur imported by Mobil Chemical from Mobil Oil Canada and

not shipped to the Depue plant or that used in the production of

sulfuric acid will be appraised for antidumping duties.'' Letter to

Patrick F.J. Macrory, Esq. from Salvatore E. Caramagno, Director,

Classification and Value Division, Department of the Treasury, U.S.

Customs Service, January 10, 1978.

The ruling does not apply to Mobil's Canadian sulphur actually

consumed by an unrelated U.S. entity, regardless of the use to which

MMM ultimately put the exchanged or ``swapped'' sulphur (ostensibly,

this is U.S.-produced sulphur, obtained from the unrelated U.S.

entity). It is the U.S.-produced product that is ``discarded as a waste

product in the form of gypsum'' (Mobil Brief, August 28, 1995 at 5),

and not Mobil's Canadian sulphur.

In any event, even if the ruling applied to these transactions, the

Department agrees with Pennzoil that any exemption of this sulphur

would be improper in the context of the application of total BIA to

Mobil, given the serious doubts concerning the reliability and

completeness of its submissions. While Mobil segregated the volumes of

sulphur that were subject to these swap transactions in its sales

listings, as exhibited by Verification of Sales Questionnaire Response

of Mobil Oil Canada Ltd., November 22, 1994 (Verification Report), and

explained in Memorandum to Joseph A. Spetrini from Holly A. Kuga, re:

Use of Best Information Available for Mobil Oil Canada, Ltd., in 1991-

92 Administrative Review of Antidumping Finding on Elemental Sulphur

from Canada (May 10, 1995)) (Memo), the Department concluded that

problems it encountered at Mobil's sales verification rendered

``Mobil's entire sales response seriously defective and an

inappropriate basis on which to conduct a dumping analysis.'' Memo at

4. The Department further concluded, among other things, that, ``given

the magnitude and scope of the other problems encountered at

verification of Mobil, the Department has serious doubts concerning the

overall reliability and completeness of Mobil's submission. Therefore,

we do not believe that Mobil's responses constitute a proper basis on

which to base a calculated margin.'' Memo at 4-5.

For purposes of these final results, we believe that a problem

exists in addition to our inability to conduct a proper dumping

analysis. This problem concerns the proper segregation of the swap

transactions by Mobil in its sales response, since not all transactions

with this unrelated U.S. entity during the POR were the subject of

these swaps. Given the overall unreliability of Mobil's sales

submissions to the Department, and for the additional reason above, the

Department will not exempt from the assessment of antidumping duties

any of the Canadian sulphur delivered to this unrelated U.S. entity

during the POR.

Comment 12

Mobil states that it recognizes that the Department applied total

BIA to its transactions because of difficulties during its sales

verification, but offers comments concerning its reported costs that

were successfully verified in the event the Department decides to use

its costs.

Pennzoil asserts that the Department cannot use the cost data

provided by Mobil and urges the Department to reject Mobil's suggestion

for a number of reasons. First, Pennzoil comments that Mobil failed the

sales verification and the Department's use of total BIA is consistent

with the statute, Department precedent and decisions of the CIT. Citing

Empresa Nacional Siderurgica, S.A. and the Government of Spain v.

United States, Ct. No. 93-09-00630-AD, Slip Op. 95-33 at 9 (CIT March

6, 1995), and Rhone-Poulenc, Inc. v. United States, 710 F. Supp. 341,

346 (CIT, 1990), Pennzoil asserts that where a company fails

verification so that the Department cannot rely on its U.S. selling

prices, it has no choice but to resort to total BIA because U.S. prices

are an absolutely essential element of the calculation of a dumping

margin. Second, Pennzoil argues that the Department cannot rely on

Mobil's cost information as the basis for FMV because Mobil failed to

report production costs for its sulphur-producing facilities in the

manner and detail which the Department's questionnaire requires.

Pennzoil asserts that Mobil failed to separately identify the costs

associated with sulphur handling and without this information the

Department cannot compute the CV of sulphur under either a coproduct or

byproduct cost accounting methodology. Third, Pennzoil contends that

Mobil's cost data are useless as a basis for determining CV because the

Department could not verify the barrel-of-oil equivalent method Mobil

used. In addition, Pennzoil asserts that this method is totally

inappropriate for identifying sulphur production costs, since the

market value of sulphur

[[Page 8249]]

derives from its value in fertilizer, not its thermal heat. Further,

Pennzoil argues, the relative BOE figures bear no relationship to those

products' volume or value and Mobil failed to provide any basis for its

BOE-per-MT conversion factor. Pennzoil notes the Department's cost

verification report wherein the Department stated the BOE methodology

``might not be an appropriate basis for the allocation of joint

costs.'' Finally, citing the Department's BIA memorandum for Mobil

wherein the Department states it has ``serious doubts concerning the

overall reliability and completeness of Mobil's submissions,'' Pennzoil

asserts that the Department determined that it could not rely on any of

Mobil's responses to calculate a dumping margin.

Department's Position

We affirm our decision in the preliminary results to assign Mobil

total BIA for this review based on problems we encountered at

verification of its sales responses. Given those problems, we do not

believe that Mobil's responses constitute a proper basis on which to

base a calculated margin. See Memo at 4-5. Mobil's costs would be of

use only if there were reliable, verified sales information, which

there is not. The issue of the appropriateness or validity of Mobil's

reported costs is, therefore, moot.

Comment 13

Pennzoil asserts that the Department properly resorted to BIA for

Petrosul but did not select the correct BIA rate to apply to Petrosul's

sales. Pennzoil asserts that, in applying Husky's calculated margin to

Petrosul, the Department rewarded Petrosul and its suppliers for their

failure to supply requested COP information. Pennzoil argues that the

use of Husky's margin assumes that Petrosul's sulphur is produced as a

byproduct, and that, in any event, the record demonstrates that

Petrosul's U.S. prices varied from Husky's. Instead, Pennzoil contends

that the Department should calculate a margin for Petrosul by comparing

its reported U.S. prices to a CV calculated from information in

Pennzoil's cost allegation, or compare Petrosul's United States prices

(USPs) to a public CV calculated for Husky.

Citing the Department's Final Results of Antidumping Duty

Administrative Reviews; Oil Country Tubular Goods from Canada, 56 FR

38408, 38410 (August 13, 1991) (OCTG), Pennzoil asserts that it is the

Department's practice to use cost information provided by the

petitioners as BIA when the suppliers of an otherwise cooperative

exporter fail to provide COP information: this information is then

compared to the USPs of the exporter to determine margins. Pennzoil

states that in relying on a ``company-specific'' finding for Husky and

Mobil that sulphur is a byproduct, the Department concluded that

because ``only sulphur handling facility costs should be allocated to

sulphur production, the necessary [ cost ] information is not available

from Pennzoil's cost allegation'' to use as BIA for Petrosul's

suppliers' cost information. Pennzoil asserts that the Department's

assumption that a byproduct cost methodology is appropriate for

Petrosul is unsupported by evidence on the record and is contrary to

the Department's BIA practice of making adverse assumptions when a

party fails to provide requested information. Pennzoil asserts that the

Department must assume that Petrosul's sulphur was a coproduct and

should, as in OCTG, compare Petrosul's USPs to a CV based on the

coproduct information in Pennzoil's cost allegation.

Citing Shop Towels of Cotton from the People's Republic of China;

Final Results of Antidumping Duty Administrative Review, 55 FR 7756

(March 5, 1990), Pennzoil further asserts that the Department acted

contrary to its practice when it failed to use ``other information'' on

the record that indicated a higher margin existed for Petrosul and

insists that the Department should have compared Petrosul's USPs to the

CV calculated for Husky plus Petrosul's SG&A expense and profit.

Pennzoil claims that the Department failed to compare Petrosul's

USP to Husky's CV on the grounds that Department policy prohibits

cross-respondent use of proprietary data, but Pennzoil asserts that

Pineapple and Silicon Metal from Brazil, 59 FR 42806 (August 19, 1994),

demonstrate that no such policy exists and that, even if such a policy

exists, the Department should not apply it in a manner that thwarts its

established BIA practice. Pennzoil concludes that, at a minimum, the

Department should calculate a margin for Petrosul by comparing its

reported USPs to a CV calculated, in part, using Husky's public data

and adding Petrosul's SG&A and profit.

Citing Allied-Signal Aerospace Co. v. United States, 966 F.2d 1185,

1191 (Fed. Cir. 1993), Krupp Stahl A.G. v. United States, 822 F. Supp.

789, 792 (CIT 1993), and Chemical Products Corp. v. United States, 645

F. Supp. 289, 295 (CIT 1986), Petrosul asserts that the Department is

accorded substantial discretion and deference in determining BIA and

claims that, while it may rely on information submitted by petitioner,

it is not required to do so. Petrosul asserts that the Department

followed its practice of assigning to Petrosul, a cooperative

respondent, the highest calculated rate in this review based on the

second-tier of its two-tiered methodology. Citing Citrosuco Paulista,

S.A. v. United States, 704 F. Supp. 1075, 1088 (CIT 1988), Petrosul

asserts that the Department must either conform itself to prior

decisions or explain the reasons for a departure, and that Pennzoil has

provided no new arguments or facts that would justify such a departure.

Petrosul asserts that Pennzoil's reliance on OCTG is misplaced

because in OCTG the Department noted that it could have simply used

total BIA, but that it was more reasonable to use BIA to calculate only

the COP. In addition, Petrosul asserts that because the review covered

only one exporter, the Department was prevented from using other

respondents' COP information as surrogate information. Petrosul asserts

the only alternative open to the Department would have been to use the

highest margin previously assigned to the exporter, but because the

exporter was cooperative, the Department declined to do so.

In addition, Petrosul disputes Pennzoil's contentions that, first,

application of Husky's rate, calculated using a byproduct methodology,

results in a less adverse rate for Petrosul and, second, that the

Department should have assigned a higher BIA rate to Petrosul based on

Petrosul's U.S. pricing data. Citing Disposable Pocket Lighters from

the People's Republic of China; Final Determination of Sales at Less

Than Fair Value, 60 FR 22359, 22360 (May 5, 1995), Petrosul asserts

that the Department normally assigns less adverse margins to

respondents that cooperate, and citing Emerson Power Transmission

Corporation v. United States, No. 92-07-00480, Slip Op. at 19 (CIT

Sept. 1, 1995), Petrosul asserts that once the Department establishes

that BIA is appropriate, it has broad discretion in determining what

information to use. Citing the preliminary results in this review,

Petrosul asserts that the Department may apply either total BIA or

select individual pieces of data to substitute for missing or

unreliable data. Citing Shop Towels of Cotton from the People's

Republic of China; Final Results of Antidumping Duty Administrative

Review, 55 FR 7756 (March 5, 1990), Petrosul asserts that, while it may

be appropriate to rely on other information as BIA, the Department is

not required

[[Page 8250]]

to rely on more adverse information, particularly where a respondent

has been cooperative, and, thus, the Department is not required to

assign Petrosul a higher BIA based on information which differs from

the information on which it calculated Husky's dumping margin.

Department's Position

We disagree with Pennzoil that we should calculate a margin for

Petrosul by comparing its reported USPs to a CV calculated from

information in Pennzoil's cost allegation, or compare Petrosul's USPs

to a public CV calculated for Husky. We are satisfied that selection of

Husky's calculated rate is the appropriate BIA for Petrosul for this

review, is consistent with our practice, and effectuates the purpose of

the BIA rule.

The Department has broad discretion in determining what constitutes

BIA in a given situation (Krupp Stahl A.G. v. United States, 822 F.

Supp. 789, 792 (CIT 1993); see also Allied-Signal Aerospace Co. v.

United States, 966 F.2d 1185, 1191 (Fed. Cir. 1993) ``[B]ecause

Congress has `explicitly left a gap for the agency to fill' in

determining what constitutes the best information available, the ITA's

construction of the statute must be accorded considerable

deference.''). The court has upheld the Department's two-tiered BIA

methodology as ``a reasonable and permissible exercise of the ITA's

statutory authority to use the best information available when a

respondent refuses or is unable to provide requested information.''

Allied Signal at 1192.

We agree with Pennzoil that we are not prohibited from resorting to

a petitioner's cost information for BIA when the suppliers of an

otherwise cooperative exporter fail to provide COP information.

However, we are not compelled to do so. Furthermore, in this case,

Pennzoil's cost allegation does not contain the necessary information,

as the allegation does not individually identify the costs we have

determined to be related to sulphur production and we are not able to

ascertain them.

For the preliminary results, the Department concluded that

``[b]ecause the Department has determined that only sulphur handling

facility costs should be allocated to sulphur production, the necessary

information is not available from Pennzoil's cost allegation. As a

result, we do not have the option of utilizing Pennzoil's cost data.''

See Memorandum to Joseph A. Spetrini, from Holly A. Kuga, re: 1991-92

Antidumping Administrative Review of the Antidumping Finding on

Elemental Sulphur from Canada: Use of Best Information Available for

Petrosul International Due to Lack of Any Useable Cost of Production

Information (July 11, 1995) at 6 (Petrosul Memo). While the

determination that ``only sulphur handling facility costs should be

allocated to sulphur production'' is based on company-specific

determinations of the status of sulphur as either a coproduct or

byproduct, the Department notes that it made these determinations with

regard to two of the three respondents that actively participated in

this review. In OCTG, noting the wide discretion afforded it in

determining what constitutes BIA, the Department determined that it

would be more reasonable to use BIA to calculate cost of production for

the respondent instead of applying total BIA because the cost

information was not in the control of the respondent (OCTG at 38411).

The Department acknowledges that it could assume that Petrosul's

sulphur is a coproduct, but where we have found byproduct status for

two of three respondents' sulphur, and where Petrosul has been deemed

to be a cooperative respondent (see Petrosul Memo at 7), it is

reasonable to disregard Pennzoil's cost data reported under a coproduct

methodology.

Furthermore, the Department's decisions in Pineapple and Silicon

Metal from Brazil do not stand for the proposition that cross-

respondent use of proprietary data is permissible absent consent or

adequate safeguards to protect the confidentiality of the data. In

Pineapple and Silicon Metal from Brazil, adequate safeguards to protect

the confidentiality of the data were present, i.e., in Pineapple, we

used proprietary data from several respondents such that no one

respondent's proprietary data was vulnerable to disclosure. That is not

the case in this review. The Department does not believe that use of

Husky's public or ranged proprietary data would protect the

confidentiality of the data.

In addition, in TECHNOIMPORTEXPORT and Peer Bearing Company v.

United States, 766 F. Supp. 1169, 1177 (CIT 1991), the court stated

that ``the use of confidential data without the communicated consent of

the company from which the data is compiled is contrary to law and

established ITA policy.''

Finally, the fact that Petrosul's U.S. sales data indicate USPs

that differ from Husky's does not alter our decision. The Department

must assess all of the facts on the record in making its determination,

including the degree of cooperation or noncooperation of a respondent.

For these final results, we determine that it is appropriate to apply

total cooperative BIA to Petrosul since it is consistent both with our

practice and the purpose of the BIA rule.

Comment 14

Petrosul asserts that the Department's COP investigation should

focus on Petrosul's cost of acquisition (COA) rather than production

costs of its suppliers and that as a matter of law the Department is

not entitled to disregard Petrosul's COA in a COP investigation.

Petrosul asserts that there is no statutory basis for disregarding

Petrosul's COA as Petrosul is not related to its suppliers and, citing

section 773(e)(4) of the Tariff Act, asserts that the scope of the

Department's authority to disregard transaction values is limited

expressly to transactions between related parties. Therefore, in

determining FMV through CV, Petrosul contends that the Department may

not look beyond the cost of acquiring materials to the supplier's COP

where the transactions are between parties that are not related as

defined by the Tariff Act.

Citing Consolidated International Automotive, Inc. v. United

States, 809 F. Supp. 125 (CIT 1992), and Washington Red Raspberry Comm.

v. United States, 657 F. Supp. 537 (CIT 1987), Petrosul asserts that

the court rejected the argument that a CV analysis should look beyond

transfer prices of inputs to the COP of such inputs incurred by

unrelated suppliers, and explicitly reversed the Department's refusal

to accept transaction prices in COP investigations of resellers where

the transactions were unrelated. Petrosul asserts that it is unrelated

to its suppliers, and, unlike the exporters in Red Raspberry, it is a

truly independent reseller. Petrosul contends that the total absence of

any relationship precludes the Department from pursuing an

investigation based on the COP of Petrosul's suppliers.

Pennzoil asserts that, while section 773(b) of the Tariff Act does

not define the ``cost of production'', by its terms it requires actual

production costs, not a purchaser's cost of acquiring the finished

product, to be compared to home market prices, and that Department

regulations expressly state that COP will be based on ``the cost of

materials, fabrication, and general expenses, but excluding profit.''

Pennzoil asserts that Petrosul's argument for basing COP on acquisition

cost does not address the language of section 773(b) of the Tariff Act,

Department precedent, the Department's explanation for its use of BIA

in the preliminary results, or the Department memorandum on these

matters. Instead,

[[Page 8251]]

Pennzoil argues, Petrosul's cites to statutory language and cases

dealing with the valuation of inputs used in producing subject

merchandise in determining CV which, according to Pennzoil, is

irrelevant since Petrosul, a reseller, did not manufacture sulphur from

any inputs.

Pennzoil rebuts Petrosul's reference to section 773(e)(4) of the

Tariff Act, and argues that it defines ``related parties'' for the

purposes of sections 773(e) (2) and (3), and that these sections

address valuation of inputs in determining CV. Pennzoil asserts that

section 773(e)(1) requires that CV include all inputs in the production

of subject merchandise and that, since Petrosul did not purchase liquid

sulphur as a material input in the production of that same subject

merchandise, Pennzoil contends that these provisions are irrelevant.

Pennzoil further asserts that Consolidated Automotive and Red

Raspberry involve valuation of inputs in calculating CV, the first

which upheld the Department's use of the transaction price of lug nut

blanks (an input) in determining the CV of chrome-plated lug nuts

(subject merchandise), and the latter which found unlawful the

Department's failure to use the transaction price of red raspberries

(an input) in determining the CV of fresh and frozen red raspberries

packed in bulk containers and suitable for further processing (the

subject merchandise). Pennzoil asserts that, contrary to Petrosul's

assertion, the exporters in Red Raspberry were not resellers, but

rather manufacturers.

Pennzoil concludes that the CIT has not reviewed the Department's

practice of rejecting acquisition cost as a basis for the COP of

merchandise sold by a reseller, but that, given the substantial

discretion afforded the Department, its interpretation of section

773(b) is proper because using acquisition cost would be contrary to

the plain language of the sales-below-cost provision and would defeat

its purpose.

Department's Position

The record indicates that Petrosul purchases elemental sulphur

after its conversion from H2S and without further processing.

Petrosul admits it is not a producer of elemental sulphur, but rather

merely a reseller. Because Petrosul is not involved in the production

of elemental sulphur, the issue of the proper valuation of inputs is

not relevant. Therefore, the statutory provisions and cases cited by

Petrosul are not relevant.

Petrosul does not itself produce the elemental sulphur it sells.

Department practice in such situations is to compare the production

costs of the producer (Petrosul's supplier/producers), plus the

producer's SG&A and the SG&A of the seller (Petrosul), to the seller's

home market sales to determine whether home market sales were made

below the COP. Upon receiving a satisfactory allegation of sales below

cost, the Department is required to investigate those allegations. This

investigation is mandated by section 773(b) of the Tariff Act, which

provides that:

Whenever the administering authority has reasonable grounds to

believe or suspect that sales in the home market of the country of

exportation, or, as appropriate, to countries other than the United

States, have been made at prices which represent less than the cost

of producing the merchandise in question, it shall determine

whether, in fact, such sales were made at less than the cost of

producing the merchandise. . . .

Section 773(b) of the Act (1994) (emphasis added).

As stated above, consistent with the Department's policy on this

matter with regard to resellers, the Department has interpreted ``cost

of producing the merchandise'' to mean the production costs of the

producer, plus the producer's SG&A, plus the SG&A of the reseller. See

Memorandum from David Mueller to Reviewers, December 18, 1990, attached

to Petrosul Memo; see, also, Fresh and Chilled Atlantic Salmon from

Norway, 56 FR 7661 (February 25, 1991); Oil Country Tubular Goods

(OCTG) from Canada, 56 FR 38406 (August 13, 1991); and Fresh Kiwifruit

from New Zealand, 57 FR 13695 (April 17, 1992). See also Petrosul Memo.

While this interpretation may create a burden upon a respondent such as

Petrosul, to hold otherwise would allow a huge loophole and open

domestic producers to competition with below cost exports without

remedy because the producer could continue to sell his production below

cost, and, as long as he does not know the destination, the

intermediate prices would be taken as COP for resellers, regardless of

the actual costs incurred. Because the Department was unable to obtain

the costs of producing the elemental sulphur supplied to Petrosul, the

Department was unable to proceed to the next step in a sales-below-

cost-investigation: comparison of the sulphur COP to Petrosul's home-

market prices. Therefore, the Department relied on BIA.

Comment 15

Petrosul asserts that the use of its COA is particularly

appropriate in the case of a waste product like elemental sulphur and

claims that the substance actually recovered from natural gas or oil is

hydrogen sulphide gas, which is not ``merchandise'' within the COP

language of section 773(b) of the Tariff Act (19 U.S.C. Sec. 1677b(b)).

Therefore, Petrosul contends that the cost of extracting hydrogen

sulphide and converting it into elemental sulphur is not a ``cost of

producing the merchandise'' but is a cost mandated by both commerce and

law of disposal of hydrogen-sulphide, a byproduct or waste product.

Petrosul asserts that production of recovered elemental sulphur is

involuntary, that it is purchased immediately after its conversion from

hydrogen sulphide without further processing, and, therefore, the

``cost of producing the merchandise'' is properly limited to

acquisition, handling, administrative and sales costs incurred by

Petrosul. Petrosul asserts that its COA is the most accurate measure of

the product's COP since that is the first time value is attributed to

the product.

Department's Position

Petrosul obtains elemental sulphur for resale and not H2S.

Therefore, we need the COP of sulphur for our analysis. In addition,

the Department has determined that it must ascribe some costs to the

production of sulphur, even if it considers sulphur a byproduct (see,

e.g., Comment 3; see also Memorandum to Susan G. Esserman from Joseph

A. Spetrini; Team Recommendation Related to The Cost Accounting

Treatment of Elemental Sulphur From Canada, June 29, 1995). It is clear

that Petrosul's suppliers bear some of these costs in handling

elemental sulphur after converting it from H2S as the Department

determined that costs incurred in the sulphur handling facility,

including loading, transferring of the product and a portion of general

facilities costs relate directly to the sale of sulphur (Id. at 6).

Because the Department does not have these costs, it was unable to

proceed with its cost investigation of Petrosul.

Comment 16

Petrosul asserts that the Department acknowledged that Petrosul

cooperated fully in this review, and that it provided all information

requested except for its suppliers' COPs, which it does not have and

cannot force its suppliers to provide. Under such circumstances,

Petrosul contends that reliance on BIA is arbitrary, capricious, an

abuse of discretion and contrary to law as there is nothing that

Petrosul could do.

Petrosul asserts that even in antidumping proceedings, parties are

entitled to due process protection, citing Sugiyama Chain Co., Ltd. v.

United

[[Page 8252]]

States, 852 F. Supp. 1103, 1115 (CIT 1994) (Sugiyama), yet the

Department's approach here condemns all independent resellers to BIA

margins in COP investigations where the unrelated supplier chooses not

to cooperate. Petrosul contends that it is a violation of due process

of law for the Department to assign BIA margins to respondents that

cannot produce information which is not, and will never be, in their

possession.

Petrosul asserts that it never had an opportunity to respond to the

Department's request for its suppliers' costs, information which is

beyond Petrosul's reach, and that Petrosul is being denied the

opportunity to respond. Petrosul cites Sigma Corp. v. United States,

841 F. Supp. 1255 (CIT 1993), where the court reversed the Department's

reliance on BIA for a respondent that never was given an opportunity to

respond, to support its position.

Pennzoil asserts that basing Petrosul's margin of dumping on BIA is

not fundamentally unfair, an abuse of discretion or a denial of due

process. Pennzoil argues that there is no alternative to reliance on

BIA for Petrosul in the absence of actual COP data, as use of

acquisition cost would subvert the sales-below-cost provision of the

Tariff Act.

Department's Position

The Department believes Petrosul has been fully afforded procedural

due process. The Department requested cost information from Petrosul's

suppliers, all of whom refused to provide such information. Section

776(c) of the Act requires the Department to use BIA ``whenever a party

or any other person refuses or is unable to produce information

requested in a timely manner or in the form required, or otherwise

significantly impedes an investigation.'' Further, Department

regulations provide that ``[t]he Secretary will use the best

information available whenever the Secretary (1) [d]oes not receive a

complete, accurate, and timely response to the Secretary's request for

factual information; or (2) [i]s unable to verify, within the time

specified, the accuracy and completeness of the factual information

submitted.'' 19 CFR 353.37(a). Because the Department could not

identify any other source of data that would provide a reasonable

surrogate for the missing supplier-producers' cost of producing

elemental sulphur, the only alternative open to the Department is to

apply total BIA to Petrosul.

With regard to Petrosul's assertion that it never had an

opportunity to respond to the Department's request for its suppliers's

costs, given the Department's practice, Petrosul was fully aware of the

import of its suppliers' refusal to reply to the Department's

questionnaire.

Final Results of Review

We determine the following percentage weighted-average margins

exist for the period December 1, 1991 through November 30, 1992:

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

Percent

Manufacturer/exporter margin

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

Husky Oil Ltd............................................... 7.17

Mobil Oil Canada, Ltd....................................... \1\ 7.17

Petrosul.................................................... \1\ 7.17

Alberta..................................................... (\2\)

Allied...................................................... (\2\)

Norcen...................................................... (\2\)

Brimstone................................................... \3\ 28.9

Burza....................................................... \3\ 28.9

Canamex..................................................... \3\ 28.9

Delta....................................................... \3\ 28.9

Drummond.................................................... \3\ 28.9

Fanchem..................................................... \3\ 28.9

Real........................................................ \3\ 28.9

Saratoga.................................................... \3\ 28.9

Sulbow...................................................... \3\ 28.9

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

\1\ Cooperative BIA rate.

\2\ No shipments or sales subject to this review. The firm has no

individual rate from any segment of this proceeding. As a result, the

firm will be subject to the ``all others'' rate.

\3\ Non-cooperative BIA rate.

The Department shall determine, and the Customs Service shall

assess, antidumping duties on all appropriate entries. Individual

differences between USP and FMV may vary from the percentages stated

above. The Department will issue appraisement instructions on each

exporter directly to the Customs Service.

Furthermore, the following deposit requirements will be effective

for all shipments of elemental sulphur, entered or withdrawn from

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

final results, as provided by section 751)a)(1) of the Tariff Act: (1)

the cash deposit rate for the reviewed companies will be the rates

listed above; (2) 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; (3) if the exporter

is not a firm covered in this review, a prior review, or the original

LTFV investigation, but the manufacturer is, the cash deposit rate will

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

of the merchandise; and (4) if neither the exporter nor the

manufacturer is a firm covered in this or any previous review, or the

less-than-fair-value (LTFV) investigation, the cash deposit rate will

be the ``new shipper'' rate established in the first review conducted

by the Department in which a ``new shipper'' rate was established, as

discussed below.

On May 25, 1993, the Court of International Trade (CIT), in Floral

Trade Council v. United States, 822 F. Supp. 766 (CIT 1993), and

Federal-Mogul Corporation and The Torrington Company v. United States,

822 F. Supp. 782 (CIT 1993), decided that once an ``All Others'' rate

is established for a company it can only be changed through an

administrative review. The Department has determined that in order to

implement these decisions, it is appropriate to reinstate the ``All

Others'' rate from the LTFV investigation (or that rate as amended for

correction or clerical errors as a result of litigation) in proceedings

governed by antidumping duty orders. In proceedings governed by

antidumping findings, unless we are able to ascertain the ``All

Others'' rate from the Treasury LTFV investigation, we have determined

that it is appropriate to adopt the ``new shipper'' rate established in

the first final results of administrative review we published (or that

rate as amended for correction or clerical errors as a result of

litigation) as the ``All Others'' rate for the purposes of establishing

cash deposits in all current and future administrative reviews.

Because this proceeding is governed by an antidumping finding, and

we are unable to ascertain the ``All Others'' rate from the Treasury

LTFV investigation, the ``All Others'' rate for the purposes of this

review would normally be the ``new shipper'' rate established in the

first notice of final results of administrative review we published.

However, a ``new shipper'' rate was not established or ascertainable in

that notice. Therefore, for the purposes of this review, we have drawn

the ``All Others'' rate of 5.56 percent from the final results of

administrative review of this finding we conducted generally for the

period December 1, 1980 through November 30, 1982. See Elemental

Sulphur from Canada; Final Results of Administrative Review of

Antidumping Finding, 48 FR 53592 (November 28, 1983).

These deposit requirements shall remain in effect until publication

of the final results of the next administrative review.

This notice also 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

[[Page 8253]]

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 orders (APOs) of their responsibility

concerning the disposition of proprietary information disclosed under

APO in accordance with 19 CFR 353.34(d)(1). Timely written notification

of the 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 Tariff Act (19 U.S.C. 1675(a)(1)) and 19 CFR

353.22.

Dated: February 22, 1996.

Susan G. Esserman,

Assistant Secretary for Import Administration.

[FR Doc. 96-4979 Filed 3-1-96; 8:45 am]

BILLING CODE 3510-DS-P