Notice of Final Determination of Sales at Less Than Fair Value: Open-End Spun Rayon Singles Yarn From Austria

DEPARTMENT OF COMMERCE

International Trade Administration

[A-433-807]

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

Open-End Spun Rayon Singles Yarn From Austria

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: August 15, 1997.

FOR FURTHER INFORMATION CONTACT: Russell Morris or Robert Copyak,

Office of CVD/AD Enforcement VI, Import Administration, International

Trade Administration, U.S. Department of Commerce, Room 4012, 14th

Street and Constitution Avenue, N.W., Washington, D.C. 20230; telephone

(202) 482-2786.

The Applicable Statute

Unless otherwise indicated, all citations to the statute are

references to the provisions of the Tariff Act of 1930, as amended by

the Uruguay Round Agreements Act effective January 1, 1995 (the

``Act''). In addition, unless otherwise indicated, all citations to the

[[Page 43702]]

Department's regulations are to 19 CFR Part 353 (1997).

Final Determination

We determine that open-end spun rayon singles yarn from Austria is

being, or is likely to be, sold in the United States at less than fair

value (``LTFV''), as provided in section 735 of the Act.

Case History

Since the preliminary determination in this investigation (Notice

of Preliminary Determination of Sales at Less Than Fair Value and

Postponement of Final Determination: Open-End Spun Rayon Singles Yarn

from Austria, (62 FR 14399 (March 26, 1997)), the following events have

occurred:

In May, we verified the questionnaire responses of respondents,

Linz Textil GmbH (Linz) and G. Borckenstein und Sohn A.G.

(Borckenstein). Petitioner, The Ad-Hoc Committee of Open-End Rayon Yarn

Producers, and respondents submitted case briefs on June 30, 1997, and

rebuttal briefs on July 7, 1997.

Scope of Investigation

The investigation covers all items of open-end spun singles yarn

containing 85% or more rayon staple fiber. The merchandise is

classifiable under subheading 5510.11.0000 of the Harmonized Tariff

Schedule of the United States (HTSUS). Although the HTSUS subheading is

provided for convenience and for Customs purposes, our written

description of the scope of this investigation is dispositive.

Period of Investigation

The period of investigation (POI) is July 1, 1995 through June 30,

1996.

Fair Value Comparisons

To determine whether sales to the United States of the subject

merchandise by respondents were made at less than fair value, we

compared the Export Price (``EP'') to the Normal Value (``NV''), as

described in the ``Export Price'' and ``Normal Value'' sections of this

notice. As set forth in section 773(a)(1)(B)(i) of the Act, we

calculated NV based on sales at the same level of trade as the U.S.

sale. In accordance with section 777A(d)(1)(A)(i), we compared the

weighted average EPs to weighted-average NVs during the POI. In

determining averaging groups for comparison purposes, we considered the

appropriateness of such factors as physical characteristics.

1. Physical Characteristics

In accordance with section 771(16) of the Act, we considered all

products covered by the description in the ``Scope of Investigation''

section, above, produced in Austria by the respondents and sold in the

home market during the POI, to be foreign like product for purposes of

determining appropriate product comparisons to U.S. sales. Where there

were no sales of identical merchandise in the home market to compare to

U.S. sales, we compared U.S. sales to the most similar foreign like

product on the basis of the characteristics listed in the Department's

antidumping questionnaire. In making the product comparisons, we relied

on the following criteria (listed in order of preference): weight,

percentage of rayon fiber, color, denier, finish, and luster. All

comparisons were based on the same grade of yarn.

2. Level of Trade

In the preliminary determination, the Department determined that no

difference in level of trade existed between home market and U.S. sales

for either Borckenstein or Linz (Notice of Preliminary Determination of

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

Open-End Spun Rayon Singles Yarn from Austria, (62 FR 14399 (March 26,

1997)). Our findings at verification confirmed that Borckenstein and

Linz performed essentially the same selling activities for all reported

home market and U.S. sales. Accordingly, we determine that all price

comparisons are at the same level of trade and an adjustment pursuant

to section 773(a)(7)(A) is unwarranted.

Export Price

We calculated EP, in accordance with subsections 772 (a) and (c) of

the Act, for each of the respondents, where the subject merchandise was

sold directly to the first unaffiliated purchaser in the United States

prior to importation and use of constructed export price (CEP) was not

otherwise warranted based on the facts of record.

We made company-specific adjustments as follows:

1. Linz

We calculated EP based on packed, delivered/duty paid and f.o.b.

prices to unaffiliated customers in the United States. Where

appropriate, we made deductions from the starting price (gross unit

price) for the following charges: Austrian inland freight (which

included brokerage), insurance (which included inland and marine

insurance), ocean freight, U.S. duty, clearing charges, bond expenses,

U.S. freight and post-sale warehousing, in accordance with section

772(c)(2).

Linz reported that it did not borrow in U.S. dollars during the

POI. In accordance with the Department's policy (see, e.g., Notice of

Final Results of Antidumping Duty Administrative Review: Certain Cut-

to-Length Carbon Steel Plate from Sweden, (61 FR 15780, April 9,

1996)), we recalculated the U.S. imputed credit expense using the

average short-term lending rates published by the Federal Reserve as

surrogate U.S. interest rates, for purposes of making the circumstance

of sale adjustment for this expense. In addition, in the preliminary

determination, we treated post-sale warehousing as a circumstance of

sale adjustment. For the final determination, we have deducted post-

sale warehousing from the export price because it is a movement expense

(see, e.g., Certain Stainless Steel Wire Rods from France: Final

Results of Antidumping Duty Administrative Review, (62 FR 7206,

February 18, 1997)).

Based on our verification findings, we deducted an additional small

movement expense, called the ``vorlage,'' which Linz had omitted in

reporting movement charges to the United States (see Comment 2).

2. Borckenstein

For Borckenstein, we calculated EP based on packed, CIF, U.S. port

prices to an unaffiliated customer in the United States. Where

appropriate, we made deductions from the starting price (gross unit

price) for international freight (which included freight from the plant

to port of export and ocean freight) and marine insurance, in

accordance with section 772(c)(2)(A).

We have considered petitioner's request to use CEP. Based on our

analysis and verification findings, however, we do not find that

sufficient evidence exists to indicate that the sole U.S. importer and

Borckenstein are affiliated parties. Pursuant to section 771(33) of the

Act, we reviewed Borckenstein's relationship with the U.S. importer

during verification and determined that petitioner's claim is

unwarranted (see Comment 10).

We made the following correction, based on our verification

findings. In our preliminary determination, we treated the U.S.

commissions paid by Borckenstein to its U.S. selling agent as rebates.

Upon a thorough review of documentation during verification, and our

analysis of arguments from interested parties, we have determined that

the fee paid by Borckenstein to its selling agent on U.S. sales is a

commission (see Comment 14).

[[Page 43703]]

Normal Value

Cost of Production Analysis

As discussed in the preliminary determination, the Department found

reasonable grounds to believe or suspect that Linz's and Borckenstein's

sales in the home market were made at prices below the cost of

producing the merchandise. As a result, the Department initiated an

investigation to determine whether Linz and Borckenstein had made home

market sales during the POI at prices below their respective cost of

production (``COP'') within the meaning of section 773(b) of the Act.

Although the Department was unable to include a COP analysis of

Borckenstein's home market sales in the preliminary determination, the

final determination does include a COP analysis of Borckenstein's home

market sales.

Before making any fair value comparisons, we conducted the COP

analysis described below for each company:

1. Linz

A. Calculation of COP

We calculated the COP based on the sum of Linz's cost of materials

and fabrication for the foreign like product, plus amounts for home

market selling, general and administrative expenses (``SG&A'') and

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

In calculating Linz's SG&A, we adjusted the submitted net interest

expense amount to include only short-term interest income as an offset

(see Comment 8).

B. Test of Home Market Prices

We compared the respondent's submitted POI weighted-average COP

figures, as adjusted, to home market sales of the foreign like product

as required under section 773(b) of the Act, in order to determine

whether these sales had been made at below-cost prices within an

extended period of time in substantial quantities, and whether the

below-cost prices would permit recovery of all costs within a

reasonable period of time. On a product-specific basis, we compared the

COP to the home market prices, less any applicable movement charges and

direct selling expenses. As in our preliminary determination, we did

not deduct indirect selling expenses from the home market price because

these expenses were included in the SG&A rate for COP.

C. Results of COP Test

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

percent of a respondent's sales of a given product are at prices less

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

because we determined that the below-cost sales were not made in

``substantial quantities.'' Where 20 percent or more of a respondent's

sales of a given product during the POI are at prices less than the

COP, we determine such sales to have been made in ``substantial

quantities'' within an extended period of time in accordance with

section 773(b)(2)(B) of the Act, and not made at prices which would

permit recovery of all costs within a reasonable period of time, in

accordance with section 773(b)(2)(D) of the Act. In such cases, we

disregard the below-cost sales. Under the Department's practice, when

all sales of a specific product are at prices below the COP, we

disregard all sales of that product, and calculate NV based on

constructed value (``CV'').

Based on our COP test, we found that less than 20 percent (by

quantity) of Linz's sales of a given product were at less than COP.

Thus, we did not disregard any below-cost sales. For matching purposes,

export prices were compared to home market prices for all comparisons,

and CV was not required.

D. Price to Price Comparison

We calculated NV based on packed, delivered prices to unaffiliated

customers and prices to affiliated customers where the sales were made

at arm's length. Where appropriate, we made deductions from the

starting price (gross unit price) for foreign inland freight and inland

insurance, in accordance with section 773(a)(6)(B). In addition, where

appropriate, we adjusted for differences in circumstances of sale for

credit expenses and commissions (including appropriate offsets), in

accordance with section 773(a)(6)(C)(iii). We also deducted home market

packing costs and added U.S. packing costs, in accordance with section

773(a)(6) (A) and (B) of the Act. We made adjustments, where

appropriate, for physical differences in the merchandise in accordance

with section 773(a)(6)(C)(ii) of the Act. In no case did the difference

in merchandise adjustment for the comparison product exceed 20 percent

of the U.S. product's cost of manufacturing.

For purposes of the difference in merchandise adjustment, Linz

reported a different cost of manufacturing for identical yarns due to

the fact that different machines produce the yarn. Since the difference

in merchandise adjustment is intended to account for physical

differences in similar merchandise being compared and not differences

in the production process, we have calculated a single weighted-average

cost of manufacturing for identical yarns.

Linz also reported an amount upon which to base an adjustment for

differences in quantities sold in the United States and Austrian

markets. However, Linz was unable to demonstrate, based on information

on the record, that pricing differences were related to quantity.

Accordingly, we have not made the requested adjustment (see Comment 6).

Linz was instructed to provide sales made to affiliated weaving

mills in Austria (see Comment 5). We tested these sales to ensure that

the affiliated party sales were at arm's-length. To conduct this test,

we compared the starting prices of sales to affiliated and unaffiliated

customers net of all movement charges, direct selling expenses, and

packing. We utilized the 99.5 percent benchmark ratio used in the 1993

carbon steel investigations. See, e.g., Final Determination of Sales at

Less Than Fair Value: Certain Cold-Rolled Carbon Steel Flat Products

from Argentina (58 FR 37062, 37077 (July 9, 1993)). Where no affiliated

customer price ratio could be constructed because identical merchandise

was not sold to unaffiliated customers, we were unable to determine

that these sales were made at arm's-length and, therefore, we excluded

them from our LTFV analysis.

We made the following corrections, based on our verification

findings. For the preliminary determination, Linz did not report home

market indirect selling expenses; therefore, we were unable to offset

commissions paid in the United States with home market indirect selling

expenses. Subsequent to the preliminary determination, Linz submitted

its indirect selling expenses. However, we were unable to verify the

full amount of Linz's claimed home market indirect selling expenses,

and have recalculated the allowable portion of indirect selling

expenses to be used as an offset to the U.S. commission (see Comment

3).

During verification, we discovered the interest rate used to

calculate home market credit expenses was based on long-term lending.

However, we did find that the company maintained two lines of credit

for export sales during the POI. Although these lines of credit are

based on a percentage of the company's annual export turnover, the

company can borrow against these lines of credit to finance more than

just exports. The credit lines are available for financing

[[Page 43704]]

current assets and liabilities and the interest rates charged are set

on a quarterly basis. Therefore, we have recalculated Linz's home

market credit expenses based upon the average interest rate charged on

these lines of credit in order to reflect the company's actual short-

term borrowing experience.

2. Borckenstein

A. Calculation of COP

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

materials and fabrication for the foreign like product, plus amounts

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

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

We adjusted Borckenstein's depreciation expense to include

depreciation expense for all categories of fixed assets used in the

production of the subject merchandise and for assets used to perform

the administrative functions of the company (see Comment 15).

B. Test of Home Market Prices

We compared the respondent's submitted POI weighted-average COP

figures, as adjusted, to home market sales of the foreign like product

as required under section 773(b) of the Act in order to determine

whether these sales had been made at below-cost prices within an

extended period of time in substantial quantities, and were not at

prices which permit recovery of all costs within a reasonable period of

time. On a model-specific basis, we compared the COP to the home market

prices, less any applicable movement charges and direct selling

expenses. We deducted indirect selling expenses from the home market

price because these expenses were not included in the G&A rate for COP.

C. Results of COP Test

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

percent of a respondent's sales of a given product are at prices less

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

because we determined that the below-cost sales were not made in

``substantial quantities.'' Where 20 percent or more of a respondent's

sales of a given product during the POI are at prices less than the

COP, we determine such sales to have been made in ``substantial

quantities'' within an extended period of time in accordance with

section 773(b)(2)(B) of the Act, and that such sales are not made at

prices which would permit recovery of all costs within a reasonable

period of time, in accordance with section 773(b)(2)(D) of the Act. In

such cases, we disregard the below-cost sales. Under the Department's

practice, when all sales of a specific product are at prices below the

COP, we disregard all sales of that product, and calculate NV based on

CV.

Based on our COP test, we found that less than 20 percent (by

quantity) of Borckenstein's sales of a given product were at less than

COP. Thus, we did not disregard any below-cost sales. For matching

purposes, export prices were compared to home market prices for all

comparisons, and CV was not required.

D. Price to Price Comparisons

We calculated NV based on packed, delivered prices to unaffiliated

customers. Where appropriate, we made deductions from the starting

price (gross unit price) for foreign inland freight and inland

insurance, in accordance with section 773(a)(6)(B). In addition, where

appropriate, we adjusted for differences in circumstances of sale for

credit expenses, export credit insurance, and commissions (including

appropriate offsets), in accordance with section 773(a)(6)(C)(iii). We

also deducted home market packing costs and added U.S. packing costs,

in accordance with section 773(a)(6) (A) and (B) of the Act. We made

adjustments, where appropriate, for physical differences in the

merchandise in accordance with section 773(a)(6)(C)(ii) of the Act. In

no case did the difference in merchandise adjustment for the comparison

product exceed 20 percent of the U.S. product's cost of manufacturing.

Borckenstein also reported an amount upon which to base an

adjustment for differences in quantities sold in the U.S. and Austrian

markets, pursuant to 19 CFR 353.55(b). Although Borckenstein claimed

that it incurred differing manufacturing costs based on quantities

produced, it was unable to demonstrate, based on information on the

record, that pricing differences were related to quantity. Our review

of the submitted prices indicated that prices did not vary based upon

the quantity sold. Accordingly, we have not made the requested

adjustment (see Comment 11).

We made the following modification to the calculations for the

final determination. In our preliminary determination, we treated the

U.S. commissions paid by Borckenstein to its U.S. selling agent as

rebates. As a result, there was no offset for indirect selling expenses

in the home market. Upon a thorough review of documentation during

verification, we have determined that the fee paid by Borckenstein to

its selling agent on U.S. sales is a commission. Therefore, we have

offset the U.S. commission with Borckenstein's home market indirect

selling expenses (see Comment 14).

Currency Conversion

We made currency conversions into U.S. dollars based on the

official exchange rates in effect on the dates of the U.S. sales as

certified by the Federal Reserve Bank.

Section 773A(a) of the Act directs the Department to convert

foreign currencies based on the dollar exchange rate in effect on the

date of sale of the subject merchandise, except if it is established

that a currency transaction on forward markets is directly linked to an

export sale. When a company demonstrates that a sale on forward markets

is directly linked to a particular export sale in order to minimize its

exposure to exchange rate losses, the Department will use the rate of

exchange in the forward currency sale agreement.

Section 773A(a) also directs the Department to use a daily exchange

rate in order to convert foreign currencies into U.S. dollars unless

the daily rate involves a fluctuation. It is the Department's practice

to find that a fluctuation exists when the daily exchange rate differs

from the benchmark rate by 2.25 percent. The benchmark is defined as

the moving average of rates for the past 40 business days. When we

determine a fluctuation to have existed, we substitute the benchmark

rate for the daily rate, in accordance with established practice.

Further, section 773A(b) directs the Department to allow a 60-day

adjustment period when a currency has undergone a sustained movement. A

sustained movement has occurred when the weekly average of actual daily

rates exceeds the weekly average of benchmark rates by more than five

percent for eight consecutive weeks, see Change in Policy Regarding

Currency Conversions 61 FR 9434 (March 8, 1996). Such an adjustment

period is required only when a foreign currency is appreciating against

the U.S. dollar. The use of an adjustment period was not warranted in

this case because the Austrian Schilling did not undergo a sustained

movement.

Verification

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

information submitted by the respondents for use in our final

determination. We used standard verification procedures, including

examination of relevant accounting and production records and original

source documents provided by respondents.

[[Page 43705]]

Interested Party Comments

Linz

Comment 1: Comparison of Sales of Second-Quality Merchandise

Petitioner asserts that the comparison of sales of second-quality

merchandise in the home market to first quality export sales to the

U.S. is inconsistent with the Department's standard practice.

Accordingly, petitioner claims that the Department should revise its

preliminary results to ensure that first quality and second quality

merchandise are treated as distinct products in the Department's margin

program for purposes of the final determination. Linz argues that the

Department should include Linz's sales to the home market of second-

quality merchandise in the margin calculation.

DOC Position: The petitioner is correct that it is the Department's

policy to compare U.S. and home market merchandise of comparable

quality. See, e.g., Notice of Final Results of Antidumping

Administrative Review: Porcelain on Steel Cookware from Mexico, 62 FR

25908 (May 12, 1997). Only first quality merchandise was sold in the

U.S. market. Therefore, for purposes of this final determination, first

quality products sold in the United States were compared only to first

quality merchandise sold in the home market.

Comment 2: Movement Expenses

The petitioner contends that Linz failed to fully report all of its

movement expenses to the United States. Petitioner states that the

Department discovered that Linz failed to report the ``vorlage''

freight expenses incurred in transporting merchandise to the United

States during verification. As a result, the Department should account

for this unreported expense by applying, as facts available, an

adjustment for this expense to be deducted from the price of each U.S.

sale. Linz asserts that the Department should not adjust all U.S. sales

for a movement expense that may not have actually been incurred. Linz

states that this expense is not found on the invoices of all freight

forwarders.

DOC Position: During verification, the Department discovered that

Linz had inadvertently failed to report a minor freight expense

incurred in transporting merchandise to the United States. This

expense, called ``vorlage,'' was part of the company's freight bill.

This expense was reported on all of the freight bills reviewed by the

Department for U.S. sales. Therefore, during verification, we collected

several U.S. freight bills and calculated the average ``vorlage''

charged on U.S. sales. We have deducted the average ``vorlage'' expense

from the sales price of all U.S. sales as ``facts available'' in

accordance with section 776(a) of the Act.

Comment 3: Commission Offset

Petitioner argues that Linz's estimated indirect selling expenses

were not verified, and, thus, cannot be used as a commission offset.

Petitioner contends that there are two problems with Linz's estimated

indirect selling expense, and, therefore, only the general indirect

selling expense was properly calculated and should be included in the

Department's margin calculation. First, petitioner states that all of

Linz's estimated indirect selling expenses were fully captured in the

general expense amount and that creation of an additional expense

estimate is not warranted. Second, the Department was unable to verify

the allocation method of the estimated selling expenses to domestic

sales at verification.

Linz argues that it arrived at a general per unit indirect selling

amount applicable to all sales and then adjusted this amount to reflect

the proportion allocated to home market sales for which no separate

selling agents are involved. Linz states that this allocation is

reasonable and properly accepted based upon the stated experience of

the sales manager.

DOC Position: We agree with the petitioner. Commissions are paid on

U.S. sales but none are paid on home market sales. In our preliminary

determination, the Department did not perform a commission offset,

pursuant to 19 CFR section 353.56(b), as Linz had not provided

information on its indirect selling expenses in the home market. After

the preliminary determination, Linz provided an amount for home market

indirect selling expenses. Linz reported two indirect selling expense

amounts: a general indirect selling expense amount and an additional

estimated home market indirect selling expense amount.

At verification, Linz explained how it calculated its estimated

indirect selling expenses incurred on home market sales. Linz stated

that beginning with a total indirect selling amount that captures the

expenses for all production (open-end and ring-spun yarn), Linz arrived

at a general per unit amount applicable to all sales on a global scale.

It then adjusted this amount to reflect the proportion attributable

solely to home market sales. Linz estimated that only 20 percent of

indirect selling must be allocated to home market sales because there

are no selling agents in their domestic market. We requested to review

worksheets to determine how they calculated this percentage. Linz

stated that no worksheets were used in this calculation. Because no

worksheets were used to calculate this portion of indirect selling

expenses that Linz claimed to be attributed to home market sales, and

because they were unable to tie the estimate to any source

documentation, the Department cannot consider this additional estimated

home market selling expense as verified. Therefore, we are not allowing

this portion of the indirect selling expense adjustment. However,

because we were able to verify the general indirect selling expense

claim, we have used that amount as the basis of the commission offset.

Comment 4: Granting of Early Payment Discount

Petitioner contends that Linz's early payment discounts on home

market sales should not be granted to customers that did not meet the

terms of the discount program. Petitioner states that Linz applied an

early payment discount to a number of sales where payment was not made

within the requisite time period, as agreed upon in the terms of

payment. Linz states that the Department should subtract all early

payment discounts from the normal value, regardless of whether payment

was made within the time period specified in the payment terms.

DOC Position: At verification, the Department carefully reviewed

the customer accounts involving early payment discounts, both those

taken within and outside the requisite time period, and found that the

discounts were in fact granted. Because we verified that the discounts

were given on the sales, we have taken them into account in this final

determination.

Comment 5: Deficiencies With Affiliated Sales

Petitioner argues that there are significant errors in Linz's

revised data file for sales to affiliates in the home market.

Petitioner states that in submitting its revised data, Linz did not

report gross price, sales date, pay date, rebates, discounts, rebates

or credit expenses. Petitioner states that the Department was forced to

verify Linz's revised affiliated sales during verification and that

none of the reported sales to affiliates were traced for accuracy

during verification. Thus, petitioner argues that the Department should

employ the use of facts available in analyzing Linz's sales to

affiliated parties in the home market. At a minimum, the Department

should deny

[[Page 43706]]

the unverified adjustments claimed by Linz.

Linz states that nowhere in the Department's verification report

does the Department state that it could not verify any adjustment. Linz

states that the verification team reviewed the affiliated party sales

extensively because of a ``data sort'' problem encountered and

corrected at verification. Linz asserts that the verification team

checked the records of these sales through numerous sales traces.

DOC Position: During verification, we discovered that there was a

problem with the data base for Linz's home market affiliated sales.

This problem was caused during a ``data sort'' for the affiliated data

base used in our preliminary determination. The company only resorted

the first few fields in the data base, while the other data fields

remained in the original order. This caused the observation numbers to

be out of sequential order and, thus, the information on pricing and

expenses were unrelated to the specified sale in the data base. After

discovering this error at verification, Linz correctly sorted the data

fields and provided a corrected affiliated party sales listing.

We collected this revised affiliated party sales listing as a

verification exhibit. The price reported in this sales listing was less

the early payment discount. The sales listing also reported the freight

expenses. The Department then verified this corrected data base and

traced the information reported on these affiliated party sales to

source documents. Thus, we verified the accuracy of the revised home

market affiliated party sales data base and have used it where

appropriate in this final determination. However, because the company

did not report any other adjustment for these sales, the only

deductions made from the starting price were for early payment

discounts and freight expense.

Comment 6: Quantity Adjustment Under Section 353.55(b)

Linz has requested recognition of quantity price adjustments under

Sec. 353.55(b)(1) of the Department's regulations. Linz states that it

has supplied the Department with information to show that its small

quantity price adjustment policy was motivated by a commercial need to

equalize the per-unit administrative expenses of processing large and

small quantity orders. Linz further states that it has demonstrated

that the amount of any price differential is wholly or partially due to

the differences in quantities sold in the two markets, and that it has

demonstrated that the small quantity price adjustment was consistently

applied on a majority of its home market sales in the POI.

Petitioner argues that there is no basis to grant Linz's claim of a

small quantity surcharge. Petitioner states that Linz was unable to

verify the accuracy or relevance of their internal memorandum on low

volume sales, which serves as the basis for Linz's claim. They state

that prices and quantities in the home market were inconsistent with

the guidelines established by Linz for the low quantity price add-ons.

Thus, there has been no demonstration that price increases for small

quantity sales were applied in a consistent manner as required by

Department policy.

DOC Position: Pursuant to 19 CFR 353.55(b), ``The Secretary will

calculate foreign market value based on sales with quantity discounts

if:

(1) During the period examined or during a more representative

period, the producer or reseller granted quantity discounts of at

least the same magnitude on 20 percent or more of sales of such or

similar merchandise for the relevant country [Six-Month Rule]; or

(2) the producer demonstrates to the Secretary's satisfaction

that the discounts reflect savings specifically attributable to the

production of different quantities [Cost Justification Method].''

The Department expounded upon its requirements for including

quantity discounts in its analysis in Final Determination of Sales at

Less Than Fair Value: Brass Sheet and Strip from the Netherlands,

(Brass Sheet and Strip) 53 FR 23431 (June 22, 1988). The Department

asserted that:

to be eligible for a quantity-based adjustment [six-month rule], a

respondent must demonstrate a clear and direct correlation between

price differences and quantities sold or costs incurred. This

requirement applies equally to an allowance for quantity differences

under the six-month rule or the cost justification requirement.

Under the six-month rule, it is not sufficient that, during the POI,

the respondent merely granted discounts of at least the same

magnitude with respect to 20 percent or more of such or similar

merchandise sold in the ordinary course of trade in the market used

to establish foreign market value[;] the exporter must also

demonstrate, using evidence such as a price list or quantity

discount schedule, that it gave discounts on a uniform basis and

that such discounts were available to substantially all home market

customers. With regard to a cost-based adjustment, the exporter must

demonstrate that the discounts are warranted on the basis of savings

which are specifically attributable to the production of the

different quantities involved. (Emphasis added)

Linz has specified that it is seeking to include a small quantity

surcharge under the Department's so-called ``six-month'' rule,

contained in Section 353.55(b)(1) of the Department's regulations. The

Department requires consistency under this rule in two respects: The

first is whether or not price increases were applied when appropriate.

The second is whether or not price increases, when applied, were

applied consistently in accordance with the pricing policy.

Linz stated that, for small quantity purchasers in the home market,

it adds a small quantity price add-on to account for the additional

administrative expenses incurred in servicing small quantity

purchasers. Linz based its claimed small quantity surcharge on a

September 1992 internal memorandum on low volume sales. This memorandum

specifies four small quantity categories with a specified price

increase for each of the quantity brackets.

In the preliminary determination, the Department denied Linz's

claim for a small quantity surcharge. Linz stated in its January 6,

1997 supplemental response that the application of its small quantity

price adjustment is ``flexible, made on a case-by-case basis, and is

meant only as a guideline.'' Therefore, Linz was unable to demonstrate,

based on the information on the record, the required consistency.

Prior to verification, Linz provided additional information on its

small quantity surcharge. The company stated that while its small

quantity adjustment policy was meant to be a guideline and to be

flexible, it was to be followed in all possible cases and was to be

applied to virtually all small quantity sales. Linz stated that, during

the POI, it followed the small quantity price increases in all cases

but eleven. The company stated that there were specific reasons why

there were eleven exceptions to this policy during the POI.

For purposes of this final determination, we again examined Linz's

home market sales to determine whether or not price increases were

applied when appropriate, and to determine whether or not price

increases were applied consistently in accordance with Linz's 1992

internal memorandum on low volume sales. An examination of Linz's home

market prices during the POI demonstrated that Linz did not

consistently adhere to its small quantity add-on pricing policy with

respect to the four quantity brackets listed in its 1992 sales

memorandum, even disregarding the eleven sales which Linz stated were

exceptions to this pricing policy. Therefore, we do not find that there

was a clear and direct correlation between price and quantity. Thus,

the company

[[Page 43707]]

did not meet the requirements of section 353.55(b) of the regulations

and we have not granted their claimed differences due to small quantity

surcharges.

Comment 7: Sales of Comparable Quantities

Linz argues that absent an adjustment to normal value for quantity

discounts under section 353.55(b) of the regulations, the Department

should resort to comparisons of only sales in comparable quantities in

the two markets. Linz states that under 19 C.F.R. 353.55(a), ``in

comparing the United States price with foreign market value, the

Secretary normally will use sales of comparable quantities of

merchandise.'' Linz states that all sales in both the U.S. and home

market over a certain amount are treated equally in terms of quantity

pricing adjustments. Thus, the Department should only use home market

sales over that amount in calculating normal value.

Petitioner states that the Department should reject Linz's

arguments for comparable quantities. Petitioner states that in defining

its notion of comparable quantities, Linz has classified all sales into

one of two quantity ranges, and that these comparable quantity ranges

are flawed for two reasons. First, they contradict the five quantity

ranges that Linz has claimed in the context of the quantity discount.

Thus, Linz is arguing for one set of quantity ranges with respect to

quantity discounts, and a different set of quantity ranges with respect

to comparable quantities. Second, Linz has created an overly-broad

upper range.

DOC Position: The issue of comparison of comparable quantities

arose in Notice of Final Determination of Sales at Less Than Fair

Value: Extruded PVC and Polystyrene Framing Stock from the United

Kingdom (Framing Stock), 61 FR 51412 (October 2, 1996). In Framing

Stock, we stated that information on the record demonstrated that the

prices between different quantity bands were sufficiently distinct to

warrant comparisons at comparable quantity bands. In the instant

investigation, we reviewed the pricing information on home market sales

between sales over a certain quantity and those below that quantity to

determine whether the prices between these two quantity bands were

sufficiently distinct to also warrant comparisons at comparable

quantities. Based upon our pricing analysis, we found that the pricing

between the two quantity bands was not sufficiently distinct to warrant

comparisons at comparable quantity bands. Therefore, we based normal

value on the weighted-average of all comparable sales, regardless of

quantity.

Comment 8: Calculation of Financial Expenses

Petitioner states that the Department should continue to include

only short-term interest income as an offset to interest expense.

Petitioner notes that, in the preliminary determination, the Department

adjusted Linz's reported interest income to approximate the portion of

interest income attributable to short-term assets. However, as a result

of verification, petitioner concludes that the Department now has the

data to accurately determine which items of interest income are short-

term and which are long-term. Linz states that petitioner, in its

brief, did not specifically state which amount of Linz's interest

income is short-term and long-term. As a result, Linz argues that the

Department should disregard petitioner's request for an adjustment to

the calculation of Linz's interest expense.

DOC Position: We agree with petitioner. During verification, the

Department verified the portion of interest income related to short-

term investments of its working capital. For the final determination,

the Department adjusted Linz's reported net interest expense rate to

include only short-term interest income as an offset to interest

expense.

Comment 9: Parent Company G&A

The petitioner claims that Linz understated its general and

administrative expenses by failing to account for expenses incurred by

its non-operating corporate parent. Petitioner argues that because the

section D questionnaire instructed Linz to include in its reported G&A

an amount for administrative services performed by its parent, the

Department should increase Linz's reported G&A expenses to include a

G&A expense amount incurred by its parent company. Linz asserts that

the Department has already included the expenses of Linz's parent

company in its calculation of the G&A expense.

DOC Position: The Department's practice is to include a portion of

parent company G&A expenses where appropriate. In this case, Linz's

reported G&A expense already reflects expenses incurred on its behalf

by its parent. Therefore, to include additional G&A amounts as argued

by petitioner would overstate G&A.

Borckenstein

Comment 10: Affiliation Due To Close Supplier Relationship

Petitioner claims that information on the record indicates a close

supplier relationship between Borckenstein and its sole U.S. customer

of the subject merchandise, Beavertown, and thus Borckenstein and the

U.S. customer would fall within the definition of affiliated parties

set forth in section 771(33) of the Act. Petitioner contends that a

determination of affiliation may be based on a close supplier

relationship for the following reasons. By purchasing a large

percentage of a supplier's subject sales, the buyer could extract price

and other concessions from the supplier by threatening to purchase the

products from another vendor. Because such an action would severely

impact the business of the supplier, the purchasing company is in a

position to control the related supplier by exerting restraint or

direction over the supplier. Therefore, petitioner argues that

Borckenstein and Beavertown are affiliated and that Borckenstein's U.S.

sales should be classified as CEP sales.

Borckenstein states that it is not affiliated with Beavertown and

that there is no close supplier relationship based upon the percentage

of Beavertown's purchases compared to Borckenstein's total sales

revenue. Borckenstein argues that petitioner's assertion that this

percentage should only be based on subject sales and not on subject and

non-subject sales is flatly contrary to current Department practice.

Borckenstein states that the Department's standard practice of

determining close supplier relationship is based on the percentage of

``total annual sales,'' not solely the percentage of subject sales. See

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

Newspaper Printing Presses and Components Thereof, Whether Assembled or

Unassembled from Japan, (hereinafter Printing Presses) 61 FR 38139,

(July 23, 1996).

DOC Position: We disagree with the petitioner's claim that

information on the record indicates that a close supplier relationship

exists between Borckenstein and its sole U.S. customer of subject

merchandise. We examined this issue at verification and did not find

evidence of a close supplier relationship. In addition, the Department

has dealt with a similar issue in other recent cases and likewise did

not find affiliation. See, e.g., Printing Presses.

In Printing Presses, the Department indicated, among other factors,

that close supplier relationships may occur

[[Page 43708]]

when a majority of a supplier's sales are made to one customer.

However, in the instant case, Borckenstein's financial records indicate

that Beavertown's purchases account for only a small portion of

Borckenstein's total sales revenue, which is based on sales of the

subject merchandise and closely related products. Therefore,

Borckenstein is not reliant on Beavertown, and we find no close

supplier relationship in this case. Thus, the two parties are not

affiliated under 771(33) of the Act.

Comment 11: Quantity Discount Under Section 353.55(b)

Borckenstein states that the information on the record supports an

adjustment for differences in quantities sold in the U.S. and Austrian

markets pursuant to section 773(a)(6) of the Act and section 353.55(b)

of the Department's regulations. The claim for the quantity adjustment

is based on raw material rebates received from Borckenstein's raw

material supplier, and the additional cost of machine recalibrations in

the home market. Petitioner states that Borckenstein has failed to

demonstrate a clear and direct correlation between price differences

and quantities sold, or price differences and costs incurred.

Therefore, Borckenstein's claimed quantity adjustment pursuant to

section 353.55(b) must be denied.

DOC Position: We agree with the petitioner. The criteria for

recognizing quantity discounts pursuant to 19 CFR 353.55(b) have been

fully explained in the Department's Position to Comment 6. Borckenstein

has not demonstrated a clear and direct correlation between price

differences and quantities sold or costs incurred. See the discussion

of Brass Sheet and Strip referenced in Comment 6. Furthermore, although

Borckenstein contends that the additional cost of machine

recalibrations are appropriate costs on which to base a difference in

quantities adjustment, however, it is the Department's practice not to

allow a quantity based adjustment under 19 CFR 353.55(b) based upon the

additional setup time that is required for shorter runs. The Department

will grant cost adjustment claims based on direct manufacturing costs;

recalibration of machinery does not constitute a direct cost. In

addition, the claim for the rebate of raw material does not meet the

standard set forth in Brass Sheet and Strip for an adjustment under

353.55(b). It is our practice to use one average cost for a raw

material; different costs cannot be attributed to the same raw

material. Therefore, Borckenstein is unable to demonstrate that price

differences are attributable to the production of different quantities.

Accordingly, the Department has not granted Borckenstein's claim for a

quantity discount.

Comment 12: Raw Material Rebate

Petitioner argues that the Department should not grant an

adjustment for a raw material rebate that Borckenstein receives from

its supplier and that Borckenstein claims it used to produce subject

merchandise destined for the U.S. market. Petitioner states that the

granting of an export-based rebate on raw material purchases is

commonly referred to as ``input dumping,'' and the Department has

condemned input dumping in past cases, and must continue to do so in

the present case. Borckenstein contends that the Department should

adjust for its claimed raw material rebate. Borckenstein argues that

the rebate is not directed at the U.S. market but to the customer who

purchases large quantities of product which allows Borckenstein to

achieve economies of scale in production. Borckenstein also asserts

that petitioner is incorrect when it stated that there is input dumping

in this case.

DOC Position: Section 773(a)(4)(B) of the Act authorizes the

Department to adjust for ``differences in circumstances of sales,''

which include such things as differences in commissions, credit terms,

guarantees, warranties, technical assistance, and servicing. We note

that while the regulations do provide for adjustments to production

cost differences in two instances (where quantity discounts reflect

savings in production of different quantities (19 CFR 353.55(b)(2)),

and where differences in production cost are due to differences in

physical characteristics (19 CFR 353.57(b)), neither of these

provisions is applicable here. Since the type of adjustment at issue

here does not relate to physical differences in merchandise, it is not

an allowable adjustment under the difference-in-merchandise provision.

In addition, in view of the fact that the proposed adjustment cannot be

deemed a sales-related expense, it is not appropriate to adjust for the

rebate as a circumstance of sale.

Comment 13: Raw Material Costs

The petitioner asserts that Borckenstein's costs of production for

home market sales is underreported. Petitioner states that Borckenstein

received a rebate on raw material only for finished yarn exported to

the United States. Since this rebate did not apply to home market

sales, this rebate should not be attributable to raw material costs for

COP applied to home market sales. Thus, the actual fiber costs incurred

by Borckenstein for home market sales are higher than have been

reported. Borckenstein states that the raw material costs reported by

Borckenstein are weighted-average costs between the home market and the

U.S. market, consistent with standard Department methodology. In

addition, Borckenstein states that the Department verified the accuracy

of Borckenstein's reported material cost at verification and found no

discrepancies.

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

normal practice is to compute a single weighted-average COP for each

unique model subject to the investigation. Accordingly, we did not

adjust Borckenstein's reported raw material cost for the final

determination.

Comment 14: Treatment of Commission as a Rebate

The petitioner asserts that Beavertown Mills, Borckenstein's sole

U.S. customer of subject merchandise, is wholly-owned by Titan Textile

Co., and that Borckenstein's commission agent is also wholly-owned by

Titan Textile Co. Thus, petitioner asserts that the reported commission

payments are in effect payments to the customer itself. According to

petitioner, the amount paid to the customer cannot be considered a

commission, but is instead a rebate. Therefore, the Department should

continue to treat the claimed commission as a rebate. Borckenstein

contends that the payment is made to its selling agent, therefore, the

payment should be considered a commission, not a rebate. Borckenstein

contends that the selling agent never takes possession of the

merchandise, nor does it pay the selling agent directly for the

merchandise. In addition, Borckenstein states that these payments of

commissions are accounted for in its books as commissions, and are

invoiced to its selling agent as commissions.

DOC Position: In the preliminary determination, the Department

treated Borckenstein's U.S. commissions as rebates based on its

understanding that the commission agent was wholly-owned by

Beavertown's parent company. Because the commission was treated as a

rebate there was no offset for indirect selling expenses in the

preliminary determination. At verification, we learned that

Borckenstein uses selling agents for all of its U.S. sales. The

Department established that the selling agent used for sales of the

subject merchandise performed the functions of a

[[Page 43709]]

commission agent. We verified that the U.S. customer, not the selling

agent, pays Borckenstein for the merchandise. In addition, Borckenstein

makes payments directly to the selling agent for services rendered in

the sales transaction.

During verification, we also reviewed documentation regarding the

shareholder listings for Borckenstein's selling agent, Beavertown, and

Beavertown's parent company which demonstrated that the selling agent

is not affiliated with Beavertown. The controlling shareholder of the

selling agent owns no shares in either Beavertown or Beavertown's

parent company. Therefore, we do not find Borckenstein's selling agent

to be affiliated with Beavertown under section 771(33) of the Act for

the purposes of the treatment of this commission. Therefore, in this

final determination, we have treated this expense as a commission and

offset it with home market indirect selling expenses.

Comment 15: Depreciation Expense in Reported Cost of Production

The petitioner contends that Borckenstein underreported its

depreciation expense. Among the excluded costs were depreciation

expenses for the plant in which the product is produced, all

depreciation related to the general and administrative functions of the

company, and depreciation related to assets that directly or indirectly

support the manufacturing operation. Borckenstein states that it does

not object to an appropriate and reasonable increase of submitted

depreciation expenses in calculating the cost of production.

DOC Position: We agree with petitioner. For the final

determination, we recalculated depreciation expense to include

depreciation from the other categories of fixed assets used in the

production of the subject merchandise. Additionally, we included a

portion of the depreciation expense related to Borckenstein's assets

used to perform the administrative functions of the company.

Comment 16: Failure to Include Indirect Material Expenses

The petitioner contends that Borckenstein failed to include

indirect material expenses in its reported cost of production. The

indirect materials excluded were: (1) Materials purchased for the

refurbishment of the open-end equipment specifically used to produce

the merchandise under investigation; and (2) repair materials. Further,

the petitioner asserts that these costs were incurred during the fiscal

period on which Borckenstein's cost response was based, and related

directly to the equipment used to produce the merchandise under

investigation. Borckenstein states that it properly reported indirect

material expenses in its reported cost of production, and that, at

verification, the Department determined that the expenses in question

were not incurred for the production of the subject merchandise during

the POI.

DOC Position: The Department agrees, in part, with petitioner. The

Department verified that the majority of the parts purchased by

respondent in the last month of the cost calculation period were used

to refurbish and extend the useful life of the machinery sold

subsequent to the POI. Given the fact that Borckenstein intended to

sell the machinery, the company expensed the cost of these parts rather

than capitalize them. In the normal course of business, Borckenstein

depreciates its machinery over four years. Since the refurbishment was

so extensive, we agree that the costs incurred should have been

capitalized. Accordingly, we consider it appropriate for Borckenstein

to depreciate the refurbishment costs over four years beginning with

the month of purchases (the last month of the POI). Thus, Borckenstein

should recognize one month of depreciation related to the purchased

parts in its submitted POI costs of manufacturing. We verified that the

remaining parts Borckenstein purchased at the end of the year related

to repairs and maintenance for the subsequent year. In the ordinary

course of business, Borckenstein expenses small parts and maintenance

supplies when purchased rather than when consumed. As such, the

Department maintains that the cost of these parts are representative of

Borckenstein's yearly repairs and maintenance expense and should be

included in its COP and CV. However, consistent with 19 C.F.R.

Sec. 353.59(a), which permits the Department to disregard insignificant

adjustments, we have elected not to adjust Borckenstein's COM for

either the depreciation expense or cost of the parts, since the

addition of these costs would not affect our overall margin

calculation.

Continuation of Suspension of Liquidation

In accordance with section 735(c) of the Act, we are directing the

Customs Service to continue to suspend liquidation of all entries of

open-end spun rayon singles yarn that are entered, or withdrawn from

warehouse, for consumption on or after March 26, 1997, the date of

publication of our preliminary determination in the Federal Register.

We will instruct the Customs Service to require a cash deposit or the

posting of a bond equal to the weighted-average amount by which the

normal value exceeds the export price, as indicated in the chart below.

This suspension of liquidation will remain in effect until further

notice.

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

Weighted

average

Exporter/manufacturer margin

percentage

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

Linz........................................................ 12.36

Borckenstein................................................ 2.36

All Others.................................................. 7.42

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

Pursuant to section 733(d)(1)(A) and section 735(c)(5) of the Act,

the Department has not included zero or de minimis weighted-average

dumping margins, or margins determined entirely under section 776 of

the Act, in the calculation of the ``all others'' rate.

ITC Notification

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

ITC of our determination. As our final determination is affirmative,

the ITC will determine, within 45 days, whether these imports are

causing material injury, or threat of material injury, to an industry

in the United States. If the ITC determines that material injury, or

threat of material injury, does not exist, the proceeding will be

terminated and all securities posted will be refunded or canceled. If

the ITC determines that such injury does exist, the Department will

issue an antidumping duty order directing Customs officials to assess

antidumping duties on all imports of the subject merchandise entered,

or withdrawn from warehouse, for consumption on or after the effective

date of the suspension of liquidation.

This determination is published pursuant to section 735(d) of the

Act.

Dated: August 8, 1997.

Richard W. Moreland,

Acting Assistant Secretary for Import Administration.

[FR Doc. 97-21710 Filed 8-14-97; 8:45 am]

BILLING CODE 3510-DS-P