Preliminary Results of Antidumping Duty Administrative Review Gray Portland Cement and Clinker From Mexico

DEPARTMENT OF COMMERCE

International Trade Administration

[A-201-802]

Preliminary Results of Antidumping Duty Administrative Review

Gray Portland Cement and Clinker From Mexico

AGENCY: International Trade Administration/Import Administration/

Department of Commerce.

ACTION: Notice of preliminary results of antidumping duty

administrative review.

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

SUMMARY: In response to requests from interested parties, the

Department of Commerce is conducting an administrative review of the

antidumping duty order on gray portland cement and clinker from Mexico.

The review covers exports of subject merchandise to the United States

during the period August 1, 1995, through July 31, 1996, and one firm,

CEMEX, S.A., and its affiliated party Cementos de Chihuahua, S.A. de

C.V. The results of this review indicate the existence of dumping

margins for the period.

We invite interested parties to comment on these preliminary

results. Parties who submit arguments in this proceeding are requested

to submit with the argument (1) a statement of the issue, and (2) a

brief summary of the argument.

EFFECTIVE DATE: September 10, 1997.

FOR FURTHER INFORMATION CONTACT: Steven Presing, Kristen Smith or

Kristen Stevens, Office VII, Import Administration, International Trade

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

Constitution Avenue, N.W., Washington, DC 20230; telephone (202) 482-

3793.

SUPPLEMENTARY INFORMATION:

Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are

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

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

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

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

regulations at 19 CFR part 353 (April 1997).

Background

On August 12, 1996, the Department of Commerce (the Department)

published in the Federal Register a Notice of Opportunity to Request

Administrative Review of the antidumping duty order on gray portland

cement and clinker from Mexico for the above-referenced period (61 FR

156, August 12, 1996). In accordance with 19 CFR 353.22, CEMEX, S.A.

(CEMEX) and the Petitioner, the Southern Tier Cement Committee,

requested a review of CEMEX. On October 17, 1996, the Department

published a Notice of Initiation of Antidumping Review (61 FR 181,

September 17, 1996). The Department is now conducting a review of this

Respondent pursuant to section 751 of the Act.

Scope of Review

The products covered by this review include gray portland cement

and clinker. Gray portland cement is a hydraulic cement and the primary

component of concrete. Clinker, an intermediate material product

produced when manufacturing cement, has no use other than of being

ground into finished cement. Gray portland cement is currently

classifiable under the Harmonized Tariff Schedule (HTS) item number

2523.29 and cement clinker is currently classifiable under number

2523.10. Gray portland cement has also been entered under number

2523.90 as ``other hydraulic cements.'' The HTS subheadings are

provided for convenience and U.S. Customs Service (the Customs Service)

purposes only. The Department's written description remains dispositive

as to the scope of the product coverage.

Verification

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

provided by the Respondent using standard verification procedures,

including on-site inspection of the manufacturer's facilities and the

examination of relevant sales and financial records. Our verification

results are outlined in verification reports in the official file for

this case (public versions of these reports are on file in room B-099

of the Department's main building).

Collapsing

On May 19, 1997, the Department published new regulations (62 FR

27296, May 19, 1997). Although this proceeding is not governed by those

regulations, they are instructive where they describe current

Department practice and policy. Section 351.401(f) of the new

regulations, 62 FR at 27410, describes the Department's current policy

regarding when it will treat two or more producers as a single entity

(i.e., ``collapse'' the firms) for purposes of calculating a dumping

margin. See also

[[Page 47627]]

Gray Portland Cement and Clinker from Mexico; Final Results of

Antidumping Duty Administrative Review (62 FR 17148, 17154, April 9,

1997). The regulations provide that the Department will treat two or

more producers as a single entity where (1) the producers are

affiliated; (2) the producers have production facilities that are

sufficiently similar so that a shift in production would not require

substantial retooling; and (3) there is a significant potential for the

manipulation of price. For this last criterion, the Department may

consider (a) the level of common ownership; (b) whether managerial

employees or board members of one of the affiliated producers sit on

the board of the other affiliated producer; and (c) whether operations

are intertwined, such as through the sharing of sales information,

involvement in production and pricing decisions, the sharing of

facilities or employees, or significant transactions between affiliated

producers. In the current review, CEMEX had equity ownership of over 5

percent in Cementos de Chihuahua, S.A. de C.V. (CDC); therefore, we

have preliminarily found that the two parties are affiliated. In

addition, CDC and CEMEX have similar production processes and

facilities. Therefore, a shift in production would not require

substantial retooling. Finally, in regards to the last criterion, the

Department reviewed levels of common ownership, shared board members,

and intertwined business relations, and found a significant potential

for the manipulation of price. As a result, the Department has

preliminarily concluded that these affiliated producers should be

treated as a single entity and that a single, weighted-average margin

should be calculated for these companies. (A complete analysis of this

issue is contained in a memorandum from Roland L. MacDonald to Joseph

A. Spetrini, dated September 2, 1997, located in the official file of

this case.)

Duty Absorption

On September 30, 1996, Petitioner requested that the Department

determine whether Respondent had absorbed antidumping duties during the

POR. Section 751(a)(4) of the Act provides for the Department, if

requested, to determine during an administrative review initiated two

or four years after the publication of the order, whether antidumping

duties have been absorbed by a foreign producer or exporter. The

Department's interim regulations do not address this provision of the

Act.

For transition orders as defined in section 751(c)(6)(C) of the

Act, i.e., orders in effect as of January 1, 1995, section

351.213(j)(2) of the Department's new antidumping regulations provides

that the Department will make a duty-absorption determination, if

requested, for any administrative review initiated in 1996 or 1998. See

62 FR 27394 (May 19, 1997). Because the antidumping duty order on

Mexican cement has been in effect since 1990, this order is a

transition order in accordance with section 751(c)(6)(C) of the Act.

(See Antifriction Bearings (Other Than Tapered Roller Bearings) and

Parts Thereof from France, et. al,: Preliminary Results of Antidumping

Administrative Review (62 FR 31568, June 10, 1997). The preamble to the

new antidumping regulations explains that reviews initiated in 1996

will be considered initiated in the second year, and reviews initiated

in 1998 will be considered initiated in the fourth year (62 FR 27317,

May 19, 1997). This approach ensures that interested parties will have

the opportunity to request a duty-absorption determination prior to the

time for a sunset review of the order under section 751(c) of the Act

on entries for which the second and fourth years following an order

have already passed. Since this review was initiated in 1996, and a

request was made for a determination, we are making a duty-absorption

determination as part of this administrative review.

The statute provides for a determination on duty absorption if the

subject merchandise is sold in the United States through an affiliated

importer. In this case, Respondent sold through importers that are

affiliated within the meaning of section 751(a)(4) of the Act.

Furthermore, we have preliminarily determined that CEMEX has margins on

92.59 percent of its U.S. sales.

We presume that duties will be absorbed for sales which were

dumped. See Antifriction Bearings (Other Than Tapered Roller Bearings)

and Parts Thereof from France, et.al,: Preliminary Results of

Antidumping Administrative Review (62 FR 31568, June 10, 1997). Our

duty-absorption presumption can be rebutted with evidence that the

unaffiliated purchasers in the United States will pay the ultimately

assessed duty. However, there is no such evidence on the record. Under

these circumstances, we preliminarily find that antidumping duties have

been absorbed by CEMEX on the percentage of U.S. sales indicated.

Transactions Reviewed

In accordance with section 751 of the Act, the Department is

required to determine the normal value (NV) and export price (EP) or

constructed export price (CEP) of each entry of subject merchandise.

Because there can be a significant lag between entry date and sale date

for CEP sales, it has been the Department's practice to examine U.S.

CEP sales during the period of review. See Gray Portland Cement and

Clinker from Japan; Final Results of Antidumping Duty Administrative

Review (58 FR 48826, 1993) (Department did not consider ESP (now CEP)

entries which were sold after the POR). The Court of International

Trade has upheld the Department's practice in this regard. See The Ad

Hoc Committee of Southern California Producers of Gray Portland Cement

v. United States, Slip Op. 95-195 (CIT 1995.)

Fair Value Comparisons

To determine whether sales of gray portland cement by Respondent to

the United States were made at less than fair value, we compared the EP

or CEP to the NV as described in the ``Export Price and Constructed

Export Price'' and ``Normal Value'' sections of this notice. In

accordance with section 777A(d)(2), we calculated monthly weighted-

average prices for NV and compared these to individual U.S.

transactions, during the same month and at the same level of trade.

Export Price and Constructed Export Price

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

Act, where the subject merchandise was sold directly or indirectly to

the first unaffiliated purchaser in the United States prior to

importation and CEP was not otherwise warranted based on the facts of

the record. In addition, we used CEP in accordance with subsections 772

(b), (c), and (d) of the Act, for those sales to the first unaffiliated

purchaser that took place after importation into the United States.

We calculated EP based on delivered prices to unaffiliated

customers in the United States. Where appropriate, we made adjustments

from the starting price for early payment discounts, foreign inland

freight, foreign brokerage and handling, international freight, U.S.

inland freight, U.S. brokerage and handling, and U.S. customs duties.

We also adjusted the starting price for billing adjustments to the

invoice price.

We calculated CEP based on delivered prices to unaffiliated

customers. Where appropriate, we made adjustments for

[[Page 47628]]

early payment discounts and corrections for billing errors. We deducted

direct and indirect selling expenses, including imputed credit expenses

and inventory carrying costs, that related to commercial activity in

the United States in accordance with section 772(d) of the Act. We also

made deductions for foreign brokerage and handling, foreign inland

freight, international freight, U.S. inland freight, U.S. brokerage and

handling, and U.S. duty in accordance with section 772(c)(2) of the

Act. Finally, we made an adjustment for CEP profit in accordance with

section 772 (d)(3) of the Act.

Further Manufacturing

With respect to subject merchandise to which value was added in the

United States prior to sale to unaffiliated U.S. customers (e.g.,

cement that was imported and further processed into finished concrete

by U.S. affiliates of foreign exporters), we determined that the

special rule for merchandise with value added after importation under

section 772(e) of the Act was applicable.

Section 772(e) of the Act provides that, where the subject

merchandise is imported by an affiliated person and the value added in

the United States by the affiliated person is likely to exceed

substantially the value of the subject merchandise, we shall determine

the CEP for such merchandise using the price of identical or other

subject merchandise if there is a sufficient quantity of sales to

provide a reasonable basis for comparison and we determine that the use

of such sales is appropriate. If there is not a sufficient quantity of

such sales or if we determine that using the price of identical or

other subject merchandise is not appropriate, we may use any other

reasonable basis to determine the CEP.

To determine whether the value added is likely to exceed

substantially the value of the subject merchandise, we estimated the

value added based on the difference between the averages of the prices

charged to the first unaffiliated purchaser for the merchandise as sold

in the United States and the averages of the prices paid for subject

merchandise by the affiliated person. Based on this analysis, we

estimated that the value added was at least 65 percent of the price

charged to the first unaffiliated purchaser for the merchandise as sold

in the United States. Therefore, we preliminarily determine the value

added is likely to exceed substantially the value of the subject

merchandise. In addition, sales of identical and other subject

merchandise were made in sufficient quantities to serve as a basis for

comparison. Accordingly, for purposes of determining dumping margins

for these sales, we have used the weighted-average CEP calculated on

sales of identical or other subject merchandise sold to unaffiliated

persons.

No other adjustments to EP or CEP were claimed or allowed.

Normal Value

In order to determine whether there was a sufficient volume of

sales in the home market to serve as a viable basis for calculating NV,

we compared Respondent's volume of home market sales of the foreign

like product to the volume of U.S. sales of the subject merchandise in

accordance with section 773(a)(1)(C) of the Act. Since Respondent's

aggregate volume of home market sales of the foreign like product was

greater than five percent of its aggregate volume of U.S. sales for the

subject merchandise, we determined the home market was viable.

Therefore, we have based NV on home market sales.

In particular, we based NV on home market sales of Type I cement by

CEMEX and CDC. The statute expresses a preference for matching U.S.

sales to identical merchandise in the home market. However, in

situations where identical product types cannot be matched, the statute

expresses a preference for basing NV on sales of similar merchandise.

See section 773(a)(1)(B) and 771(16) of the Act. The history of this

order demonstrates (and no party disputes) that, of the various types

of cement subject to the order on Mexican cement, Type I cement is most

similar to Type II and Type V cement, and pozzolanic cement is the

least similar.

During the POR, CDC only sold one type of cement in Mexico subject

to the antidumping order-Type I cement. CEMEX, on the other hand, sold

four basic types of cement in Mexico during the POR--Type I, Type II,

Type V and pozzolanic. However, at verification the Department

discovered that all of the merchandise produced at the Yaqui and

Campana plants was either Type V or pozzolanic. In other words, cement

sold as Type I and Type II from these plants was actually Type V. Since

we received this information at such a late date, the Department was

not able to determine whether these sales of Type I cement provide an

appropriate basis for calculating NV. For example, the Department does

not know whether these sales were made above cost or within the

ordinary course of trade. In short, our sales and cost data base for

these sales of Type I cement (produced at either Yaqui or Campana) is

extremely flawed. Therefore, as facts available, the Department finds

these sales to be an inappropriate basis for NV and is excluding them

from its calculations.

As for CEMEX's home market sales of Type II and Type V cement

during the POR, the Department has preliminarily determined that they

are outside the ordinary course of trade. As more fully described in

the ``Ordinary Course of Trade'' section of this notice, these sales

are not representative of CEMEX's home market sales.

Where appropriate, we adjusted home market sales of Type I cement

for discounts, credit expenses, inland freight, and inland insurance.

We also adjusted the starting price for billing adjustments to the

invoice price. In addition, in accordance with section 773(a)(6), we

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

We made adjustments, where appropriate, for physical differences in

merchandise (DIFMER) in accordance with section 773 (a)(6)(C)(ii) of

the Act. For CDC's sales, we calculated a DIFMER adjustment using plant

specific cost data reported by CDC. For sales made by CEMEX, we

preliminarily determine, in accordance with section 776 of the Act,

that the use of partial facts available for a DIFMER adjustment is

appropriate, and that such partial facts available should be based on

an adverse inference. Accordingly, we have applied a twenty percent

upward adjustment (the maximum usually permitted by the Department) as

adverse facts available.

Section 776(a) of the Act requires that the Department use facts

otherwise available when necessary information is not on the record, or

an interested party withholds requested information, fails to provide

such information in a timely manner, significantly impedes a

proceeding, or provides information that cannot be verified. Section

776(b) of the Act authorizes the Department to use an adverse inference

in determining the facts otherwise available whenever an interested

party has failed to cooperate with the Department by not acting to the

best of its ability to comply with requests for information. Section

776(b) authorizes the Department to base adverse facts available on

information derived from the petition, the final determination in the

investigation, a previous administrative review, or other information

placed on the record.

At verification, the Department found that the DIFMER reported by

CEMEX was based not on physical differences, but an allocation of costs

between Type I and Type II cement sales for what was in fact the same

physical product--Type

[[Page 47629]]

V cement (see below). This information could not be used for purposes

of the DIFMER calculation, and other information on the record is not

appropriate for this purpose. Thus, pursuant to section 776(b) and

782(e) of the Act, the Department had to rely on facts available for

the DIFMER adjustment. In addition, we determined that CEMEX

significantly impeded the review by not informing the Department until

verification that there were no physical differences in any cement

(other than pozzolanic) produced at Yaqui. As explained below, this

failure prevented the Department from collecting and analyzing other

information that could have been used to calculate the DIFMER

adjustment.

The Department first requested DIFMER information from CEMEX on

September 23, 1996. CEMEX was asked to base its DIFMER calculations on

differences in physical characteristics between Type I cement sold in

Mexico and the type of cement being exported to the United States.

CEMEX did not supply DIFMER information in response to this request. On

December 24, 1996, in a supplemental questionnaire, the Department

requested for the second time that CEMEX submit DIFMER information. On

February 14, 1997, CEMEX reported variable cost information for Type I

cement at 11 plants, including the Yaqui facility, and information for

Type II cement for the Campana and Yaqui facilities. On March 10, 1997

the Department sent another supplemental questionnaire requesting that

CEMEX quantify the DIFMER. In response, CEMEX stated that ``differences

in VCOM (variable cost of manufacturing) reflect differences in

physical characteristics for Type I and Type II cement.'' In other

words, CEMEX asserted that the Campana and Yaqui facilities produced

different types of cement (Type I and Type II at Yaqui and Type II and

Type V at Campana), each having different physical characteristics. At

verification, the Department found that the VCOM reported by CEMEX for

the Yaqui and Campana facilities was based on sales allocations, not

physical differences. In fact, only one type of cement (other than

pozzolanic) is produced at these plants--Type V. Although CEMEX

produces only Type V at Yaqui, it sells this Type V cement sometimes as

Type I and sometimes as Type II. In other words, CEMEX sold Type V

cement to customers only requiring Type I or Type II cement. These

facts rendered the reported DIFMER data unusable.

Furthermore, it is not appropriate to use other information on the

record as a basis for a DIFMER adjustment. We determined in the last

administrative review that it is not appropriate to use the weighted-

average VCOM of all plants producing Type I and the VCOM of the U.S.

merchandise due to efficiency differences between plants. Thus, we

relied in that review on the purported VCOM differences for merchandise

produced at Yaqui. Because we did not learn until verification in the

instant review that in fact only one type of cement was produced at

Yaqui and thus there were no cost differences, we were precluded from

properly considering other appropriate alternatives for a DIFMER

adjustment. For example, we did not have an opportunity to solicit

comments and obtain information about differences in production

processes, plant efficiencies, and material inputs that may have

provided an appropriate basis for a DIFMER adjustment.

Therefore, we have applied to CDC's home market sales a calculated

DIFMER based upon plant-specific reported data, and as adverse facts

available, applied a twenty percent upward adjustment for CEMEX's sales

in the home market. See CEMEX S.A. v. United States, Slip Op. 96-132 at

9 (CIT 1996), appeal pending, Appeal No. 97-1151 (Fed. Cir.) (upholding

the use of 20% adverse DIFMER under similar circumstances).

A. Arm's-Length Sales

Sales to affiliated customers in the home market not made at arm's

length were excluded from our analysis. To test whether these sales

were made at arm's length, we compared the starting prices of sales to

affiliated and unaffiliated customers, net of all movement charges,

direct and indirect selling expenses, discounts and packing. Where the

price to the affiliated party was on average 99.5 percent or more of

the price to the unaffiliated parties, we determined that the sales

made to the affiliated party were at arm's length.

B. Cost of Production Analysis

Petitioner alleged, on December 12, 1996, that CEMEX and its

affiliate, CDC, sold gray portland cement and clinker in the home

market at prices below their cost of production (COP.) Based on these

allegations, the Department determined, on January 3, 1997, that it had

reasonable grounds to believe or suspect that CEMEX had sold the

subject merchandise in the home market at prices below the COP.

Therefore, pursuant to section 773(b)(1) of the Act, we initiated a COP

investigation in order to determine whether CEMEX and CDC made home

market sales during the POR at prices below their COP.

In accordance with section 773(b)(3) of the Act, we calculated an

average monthly COP based on the sum of the costs of materials and

fabrication employed in producing the foreign like product plus

selling, general and administrative (SG&A) expenses and all costs and

expenses incidental to placing the foreign like product in condition

ready for shipment. In our COP analysis, we used the home market sales

and COP information provided by the Respondent in its questionnaire

responses.

After calculating an average monthly COP, we tested whether home

market sales of cement were made at prices below COP within an extended

period of time in substantial quantities and whether such prices permit

recovery of all costs within a reasonable period of time. We compared

model-specific average monthly COPs to the reported home market prices

less any applicable movement charges, discounts and rebates. In

determining whether to disregard home market sales made at prices below

the average COP, we examined (1) whether, within an extended period of

time, such sales were made in substantial quantities, and (2) whether

such sales were made at prices which permitted the recovery of all

costs within a reasonable period of time in the normal course of trade.

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

percent of the Respondent's sales of the foreign like product under

consideration for the determination of NV were at prices less than COP,

we did not disregard any below-cost sales of the product.

C. Inflation

Mexico experienced significant inflation during the POR, as

measured by the consumer price index published in International

Financial Statistics and the consumer price index from the Bank of

Mexico. This data indicated that the annual inflation rate in Mexico

during the POR exceeded 40 percent. In accordance with our practice, to

avoid the distortions caused by the effects of this level of inflation

in prices, we limited our comparisons to sales in the same month. See

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

Steel Concrete Reinforcing Bars from Turkey ( 62 FR 9738, March 4,

1997). When the rate of home market inflation is significant, as it is

in this case, it is important that we use as a basis for NV home market

prices that are as contemporaneous as possible with the date of the

U.S. sale. This is to minimize the extent to which calculated dumping

margins are overstated or understated solely due to

[[Page 47630]]

price inflation that occurred in the intervening time period between

the U.S. and home market sales. We have also used monthly cost of

production data for this reason.

D. Currency Conversion

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

Federal Reserve Bank. For purposes of the preliminary results, we made

currency conversions based on the official exchange rates in effect on

the dates of the U.S. sales as certified by the Federal Reserve Bank of

New York pursuant to section 773(a) of the Act.

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

in order to convert foreign currencies into U.S. dollars, ignoring any

``fluctuations.'' We determine that a fluctuation exists when the daily

exchange rate differs from a bench mark rate by 2.25 percent or more.

The benchmark rate is defined as the rolling average of the rates for

the past 40 business days as reported by the Federal Reserve Bank of

New York. When we determine that a fluctuation existed, we substitute

the benchmark rate for the daily rate. For a complete discussion of the

Department's exchange rate methodology, see ``Change in Policy

Regarding Currency Conversions'' (61 FR 9434, March 8, 1996).

E. Ordinary Course of Trade

Section 773(a)(1)(B) of the Act requires the Department to base NV

on ``the price at which the foreign like product is first sold (or in

the absence of sales, offered for sale) for consumption in the

exporting country, in the usual commercial quantities and in the

ordinary course of trade.'' Ordinary course of trade is defined as

``the conditions and practices which, for a reasonable time prior to

the exportation of the subject merchandise, have been normal in the

trade under consideration with respect to merchandise of the same class

or kind.''

The purpose of the ordinary course of trade provision ``is to

prevent dumping margins from being based on sales which are not

representative'' of the home market. Monsanto Co. v. United States, 698

F. Supp. 275, 278 (CIT 1988). By basing the determination of NV upon

representative sales, the provision helps to ensure that the comparison

between NV and U.S. sales is done on an ``apples to apples'' basis.

Apart from identifying certain sales that are below cost (Section

773(b)(1)) or between affiliated persons (section 773(f)(2)), Congress

has not specified any criteria that the Department should use in

determining the appropriate ``conditions and practices'' which are

``normal in the trade under consideration.'' Therefore, ``Commerce, in

its discretion, chooses how best to analyze the many factors involved

in a determination of whether sales are made within the ordinary course

of trade.'' Thai Pineapple Public Co. v. United States, 946 F. Supp.

11, 14-17 (CIT 1996).

The Department's ordinary course-of trade inquiry is far-reaching.

It evaluates not just `` `one factor taken in isolation but rather . .

. all the circumstances particular to the sales in question.' '' Murata

Mfg. Co. v. United States, 820 F. Supp. 603, 607 (CIT 1993). In short,

we examine the totality of the facts in each case to determine if sales

are being made for ``unusual reasons'' or under ``unusual

circumstances.'' Electrolytic Manganese Dioxide from Japan; Final

Results of Antidumping Duty Administrative Review (58 FR 28551, 28552,

1993).

In the second administrative review of this order, the Department

determined that CEMEX's sales of Type II and Type V cement were outside

the ordinary course of trade and, therefore, could not be used in the

calculation of NV (then referred to as ``foreign market value''). See

Gray Portland Cement and Clinker from Mexico: Final Results of

Antidumping Duty Administrative Review (58 FR 47253, 27254, Sept. 8,

1993). In making this determination, the Department considered, inter

alia, shipping distances and costs, sales volume, profit levels, sales

history, home market demand and the promotional aspect of sales. See

Decision Memorandum to Joseph A. Spetrini, August 31, 1994; see also

Memorandum from Holly A. Kuga to Joseph A Spetrini, August 31, 1993

(public versions of these memoranda are on file in Room B-099 of the

Department's main building). Based upon similar facts and using a

similar analysis, the Department reached the same conclusion in the

final results of the fifth administrative review for certain sales of

Type II cement by CEMEX in Mexico. Gray Portland Cement and Clinker

from Mexico: Final Results of Antidumping Duty Administrative Review

(62 FR 17148, 17151, April 9 1997).

In the instant review, Petitioner alleged, as it did in the second

review, that CEMEX's sales of Type II cement in Mexico were outside the

ordinary course of trade. Based on this allegation and the relevant

findings in the prior review, the Department determined that it had

reasonable grounds to believe or suspect that CEMEX's home market sales

of Type II cement were outside the ordinary course of trade. Therefore,

pursuant to section 773(a)(1)(B) of the Act, the Department has

examined the totality of the circumstances surrounding CEMEX's sales of

cement in Mexico that are marketed as Type II cement (which are

identical in physical characteristics to the cement that CEMEX sells in

the United States).

A full discussion of our preliminary conclusions, requiring

reference to proprietary information, is contained in a Departmental

memorandum in the official file for this case (a public version of this

memorandum is on file in room B-099 of the Department's main building).

Generally, however, we have found: (i) The volume of Type II home

market sales is extremely small compared to sales of other cement

types, (ii) the number and type of customers purchasing Type II cement

is substantially different from other cement types, (iii) shipping

distances and freight costs for Type II home market sales is

significantly greater than for sales of other cement types, and (iv)

CEMEX's profit on Type II sales is small in comparison to its profits

on all cement types.

There are two other factors, historical sales trends and the

``promotional quality'' of Type II cement sales, which were considered

in the second review ordinary-course-of-trade analysis. On March 10,

1997, the Department issued a questionnaire requesting CEMEX to support

its position that home market sales of Type II cement were in the

ordinary course of trade by addressing, among other things,

``historical sales trends'' and ``marketing reasons for sales other

than profit.'' CEMEX's response (copies of its submission from the

fifth administrative review), failed to address these two items. Thus,

as facts available, the Department finds that the facts regarding these

items have not changed since the second review and that: (i) CEMEX did

not sell Type II cement until it began production for export in the

mid-eighties, despite the fact that a small domestic demand for such

existed prior to that time; and, (ii) sales of Type II cement continue

to exhibit a promotional quality that is not evidenced in CEMEX's

ordinary sales of cement (see memorandum from Holy A. Kuga to Joseph A.

Spetrini, dated August 31, 1993). (A public version of this memorandum

is on file in room B-099 of the Department's main building.)

For the reasons stated above, the Department has preliminarily

determined that CEMEX's home market sales of Type II cement during the

review period were outside the ordinary course of trade. We note that

the facts established in the record of this review

[[Page 47631]]

are very similar to the facts which led the Department to determine in

the second and fifth reviews that home market sales of Type II cement

were outside the ordinary course of trade. The determination involving

the second review, as noted above, was affirmed by the CIT in the CEMEX

case. Slip Op. 95-72 at 14.

We have also preliminarily determined that home market sales of

Type V cement by CEMEX during the POR are also outside the ordinary

course of trade. As more fully described in the above-mentioned agency

memorandum, these sales share many attributes with CEMEX's sales of

Type II cement. First, the volume of these sales, either individually

or in combination with sales of Type II cement, is extremely small

compared to sales of Type I cement. Second, shipping distances and

freight costs for sales of Type V cement are significantly greater than

for sales of Type I. Third, the number and type of customers purchasing

Type V cement is substantially different from those purchasing Type I.

As part of this analysis, we have also determined, based upon the

facts otherwise available, that: (i) CEMEX did not sell Type V cement

in Mexico until it began production for export in the mid-eighties,

despite the fact that a small domestic demand for such existed prior to

that time; and, (ii) sales of Type V cement continue to exhibit (as

they did in the second review) a promotional quality that is not

evidenced in CEMEX's ordinary sales of cement. We believe that this use

of facts available is warranted and appropriate. First, the Department

did not learn until verification that these sales of Type V involved

cement physically identical to the cement that CEMEX sold in Mexico

(and the United States) as Type II. Had Respondent disclosed this fact

earlier in the review, we could have expanded our ordinary-course-of-

trade inquiry for Type II sales, including the scope of verification

and our questionnaires, to include home market sales of the physically

identical Type V cement. Second, as noted above, the Type V and Type II

sales involve physically identical merchandise marketed under similar

conditions and circumstances (e.g., low sales volume shipped unusually

long distances). Therefore, it is reasonable, as facts available, to

extend the results of our inquiry concerning the history of Type II

sales and their promotional nature to the Type V sales as well. We also

note that those results are consistent with our findings in the second

review concerning sales of Type V cement.

In conclusion, the decision to exclude sales of Type II and Type V

cement from the calculation of NV centers around the unusual nature and

characteristics of these sales compared to the vast majority of CEMEX's

other home market sales. Based upon these differences, the Department

has preliminarily determined that they are not representative of

CEMEX's home market sales. Stated differently, these sales were not

within CEMEX's ordinary course of trade.

F. Fictitious Market

Petitioner has also claimed that CEMEX established a fictitious

market in Mexico for its sales of ``Type II'' cement. Since the sales

in question have preliminarily been found to be outside the ordinary

course of trade and, accordingly, will not be used in the calculation

of NV, it is not necessary for us to address this issue for these

preliminary results.

G. Level of Trade

To the extent practicable, we determine NV for sales at the same

level of trade as the U.S. sales (either EP or CEP). When there are no

sales at the same level of trade, we compare U.S. sales to home market

(or, if appropriate, third-country) sales at a different level of

trade. The NV level of trade is that of the starting price sales in the

home market. When NV is based on constructed value (CV), the level of

trade is that of the sales from which we derive selling, general, and

administrative expenses (SG&A) and profit.

For both EP and CEP, the relevant transaction for the level of

trade analysis is the sale (or constructed sale) from the exporter to

the importer. While the starting price for CEP is that of a subsequent

resale to an unaffiliated buyer, the construction of the CEP results in

a price that would have been charged if the importer had not been

affiliated. We calculate the CEP by removing from the first resale to

an independent U.S. customer the expenses under section 772(d) of the

Act and the profit associated with these expenses. These expenses

represent activities undertaken by the affiliated importer. Because the

expenses deducted under section 772(d) represent selling activities in

the United States, the deduction of these expenses normally yields a

different level of trade for CEP than for the later resale (which we

use for the starting price). Movement charges, duties and taxes

deducted under section 772(c) do not represent activities of the

affiliated importer, and we do not remove them to obtain the CEP level

of trade.

To determine whether home market sales are at a different level of

trade than U.S. sales, we examine whether the home market sales are at

different stages in the marketing process than the U.S. sales. The

marketing process in both markets begins with goods being sold by the

producer and extends to the sale to the final user, regardless of

whether the final user is an individual consumer or an industrial user.

The chain of distribution between the producer and the final user may

have many or few links, and each respondent's sales occur somewhere

along this chain. In the United States, the respondent's sales are

generally to an importer, whether independent or affiliated. We review

and compare the distribution systems in the home market and U.S. export

markets, including selling functions, class of customer, and the extent

and level of selling expenses for each claimed level of trade. Customer

categories such as distributor, original equipment manufacturer (OEM)

or wholesaler are commonly used by respondents to describe levels of

trade, but, without substantiation, they are insufficient to establish

that a claimed level of trade is valid. An analysis of the chain of

distribution and of the selling functions substantiates or invalidates

the claimed levels of trade. Different levels of trade necessarily

involve differences in selling functions, but differences in selling

functions, even substantial ones, are not alone sufficient to establish

a difference in the levels of trade. Different levels of trade are

characterized by purchasers at different stages in the chain of

distribution and sellers performing qualitatively or quantitatively

different functions in selling to them.

When we compare U.S. sales to home market sales at a different

level of trade, we make a level-of-trade adjustment if the difference

in levels of trade affects price comparability. We determine any effect

on price comparability by examining sales at different levels of trade

in a single market, the home market. Any price effect must be

manifested in a pattern of consistent price differences between home

market sales used for comparison and sales at the equivalent level of

trade of the export transaction. To quantify the price differences, we

calculate the difference in the average of the net prices of the same

models sold at different levels of trade. We use the average difference

in net prices to adjust NV when NV is based on a level of trade

different from that of the export sale. If there is a pattern of no

price differences, the

[[Page 47632]]

difference in levels of trade does not have a price effect and,

therefore, no adjustment is necessary.

The statute also provides for an adjustment to NV when NV is based

on a level of trade different from that of the CEP if the NV is more

remote from the factory than the CEP and if we are unable to determine

whether the difference in levels of trade between CEP level and NV

level affects the comparability of their prices. This latter situation

can occur where there is no home market level of trade equivalent to

the U.S. sales level or where there is an equivalent home market level

but the data are insufficient to support a conclusion on price effect.

This adjustment, the ``CEP offset,'' is identified in section

773(a)(7)(B) of the Act and is the lower of the following:

The indirect selling expenses on the home market sale, or

The indirect selling expenses deducted from the starting

price used to calculate CEP.

The CEP offset is not automatic each time we use CEP. The CEP

offset is made only when the level of trade of the home market sale is

more advanced than the level of trade of the U.S. (CEP) sale and there

is not an appropriate basis for determining whether there is an effect

on price comparability.

To determine whether an level-of-trade adjustment was appropriate,

in accordance with the principles discussed above, we examined

information regarding the distribution systems in both the United

States and the Mexican markets, including the selling functions,

classes of customer, and selling expenses for CEMEX and CDC. Upon

consideration of these factors, the Department determined that there is

one level-of-trade in the home market--sales of cement shipped to end-

users and ready-mixers in bulk and bagged form--and a different level-

of-trade in the U.S. market--sales to affiliated importers. Because

there was only one level of trade in the home market, we were unable to

perform the analysis for a level of trade adjustment. We further

determined that Respondent's sales to end users and ready-mixers in the

home market are at a more advanced level of trade than sales to

affiliated importers in the United States because CEMEX and CDC perform

more selling functions for sales to end-users and ready-mixers in the

home market than for sales to affiliated importers in the United

States. As a result, the Department has preliminarily determined to

grant Respondent an adjustment to normal value in the form of a CEP

offset.

Preliminary Results of Review

As a result of our review, we preliminarily determine the dumping

margin for CEMEX for the period August 1, 1995, through July 31, 1996,

to be 35.88 percent.

Interested parties may request disclosure within five days of the

date of publication of this notice. Any interested party may request a

hearing within 10 days of publication. Any hearing, if requested, will

be held 44 days after the date of publication or the first business day

thereafter. Case briefs and/or other written comments from interested

parties may be submitted not later than 30 days after the date of

publication. Rebuttal briefs and rebuttals to written comments, limited

to issues raised in those comments, may be filed not later than 37 days

after the date of publication of this notice. The Department will

publish its final results of this administrative review, including its

analysis of issues raised in any written comments or at a hearing, not

later than 180 days after the date of publication of this notice.

Upon completion of this review, the Department shall determine, and

the Customs Service shall assess, antidumping duties on all appropriate

entries.

The Department will issue appropriate appraisement instructions

directly to the Customs Service upon completion of this review.

Furthermore, the following deposit requirements will be effective

for all shipments of the subject merchandise entered, or withdrawn from

warehouse, for consumption on or after the publication date of the

final results of review, as provided by section 751(a)(1) of the Act:

(1) The cash deposit rate for the reviewed company will be the rate

determined in the final results of review; (2) for previously reviewed

or investigated companies not mentioned 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 in the original LTFV investigation, but the

manufacturer is, the cash deposit rate will be the rate established for

the most recent period for the manufacture of the merchandise; and (4)

the cash deposit rate for all other manufacturers or exporters will be

61.85 percent, the all others rate from the LTFV investigation.

These deposit requirements, when imposed, shall remain in effect

until publication of the final results of the next administrative

review.

This notice also serves as a preliminary reminder to importers of

their responsibility under 19 CFR 353.26 to file a certificate

regarding the reimbursement of antidumping duties prior to liquidation

of the relevant entries during this review period. Failure to comply

with this requirement could result in the Secretary's presumption that

reimbursement of antidumping duties occurred and the subsequent

assessment of double dumping duties.

This administrative review and notice are in accordance with the

Act (19 U.S.C. 1675 (a)(1)) and 19 CFR 353.22.

Dated: September 2, 1997.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 97-24000 Filed 9-9-97; 8:45 am]

BILLING CODE 3510-25-P