Notice of Termination of New Shipper Antidumping Duty Administrative Review: Polyvinyl Alcohol From Taiwan

DEPARTMENT OF COMMERCE

International Trade Administration

[A-583-824]

Notice of Termination of New Shipper Antidumping Duty

Administrative Review: Polyvinyl Alcohol From Taiwan

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: October 22, 1997.

FOR FURTHER INFORMATION CONTACT: Everett Kelly or Brian Smith, Import

Administration, International Trade Administration, U.S. Department of

Commerce, 14th Street and Constitution Avenue, N.W., Washington, D.C.

20230; telephone: (202) 482-4194 or (202) 482-1766, respectively.

The Applicable Statute

Unless otherwise indicated, all citations to the Tariff Act of

1930, as amended (the Act), are references to the provisions effective

January 1, 1995, the effective date of the amendments made to the Act

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

otherwise indicated, all references to the Department's regulations are

to those codified at 19 CFR part 353, as they existed on April 1, 1996.

Background

On December 18, 1996, the Department published in the Federal

Register notice the initiation of a new shipper administrative review

of the antidumping duty order on polyvinyl alcohol from Taiwan covering

the exporter Perry Chemical Corporation (``Perry'') and the period May

1, 1996, through October 31, 1996 (61 FR 68237, December 28, 1996).

Under Section 751(a)(2)(B)(i) of the Act, the Department will

conduct an administrative review to establish an individual weighted

average dumping margin if the Department receives a request from an

exporter or producer that establishes (1) it did not export the

merchandise that was the subject of the antidumping duty order to the

United States during the period of investigation and (2) it is not

affiliated within the meaning of section 771(33), any exporter or

producer who exported the merchandise to the United States during that

period of investigation.

In the less than fair value (LTFV) investigation, the Department

investigated the sales of Chang Chun Petrochemicals, Ltd. (Chang Chun),

the only exporter of PVA from Taiwan during the period of

investigation, including sales to Perry, a U.S. importer. The record

indicates that Perry has had a longstanding business relationship as an

importer of PVA produced by Chang Chun and imported the subject

merchandise produced and exported by Chang Chun during the period of

the LTFV investigation. The Department found Chang Chun to be dumping

at a rate of 19.21 percent during the LTFV investigation. In this

review, the business relationship remains essentially unchanged. As

shown by proprietary information on the record in this review, Perry

continues to be the importer and Chang Chun continues to undertake the

entire production of PVA.

For the sales in question in this review, Perry states that in

addition to being the importer, it is now also the ``manufacturer/

exporter'' of the subject merchandise, and that as a new exporter, it

is entitled to a new shipper rate. Perry indicates that to produce the

subject merchandise, Perry purchased the primary input of PVA, vinyl

acetate monomer (VAM) from a Taiwan producer of VAM through an

unaffiliated U.S. trading company. Perry contracted with Chang Chun to

produce PVA utilizing Perry's VAM under a tolling arrangement. Perry

then sold the PVA to unaffiliated customers in the United States and

Canada during the period of review (POR).

In most past cases involving tolling arrangements the Department

considered the manufacturer of the product exported to the United

States to be the processor or toller, and not the party which

controlled the production process, set the prices of the finished

product in all markets, and held title to both the inputs and the

subject merchandise (see, e.g., Final Determination of Sales at Less

Than Fair Value: Certain Small Diameter Welded Carbon Steel Pipes and

Tubes from the Phillippines, 51 FR 33099, September 18, 1986).

Within the last few years, the Department has reconsidered its

position of deeming the toller the manufacturer. A toller has no

control over the price charged to U.S. and domestic buyers of the

finished product, nor does a toller set the price in either market.

Moreover, because the Department only considered the price or cost of

the tolling in making comparisons between U.S. prices and prices of

sales of the foreign like product, the Department did not capture all

of the costs of manufacturing the subject merchandise, e.g., cost of

inputs, as required by the statute section 773. Therefore, this

approach did not allow for analysis of price comparisons between the

finished products.

To resolve this situation, the Department revised its tolling

practice. Rather than treat the toller as the producer, the Department

now will treat the party who keeps title to the inputs and the finished

product, controls the entire production process, and sets the price of

the finished product in each market as the producer and, hence, the

proper respondent (see Discussion Memorandum: A Proposed Alternative to

Current Tolling Methodology in the Current Antidumping (AD) Reviews of

Carbon Steel Flat Products, Memorandum from Joseph A. Spetrini, Deputy

Assistant Secretary for Compliance, to Susan G. Esserman, Assistant

Secretary for Import Administration, dated December 12, 1994).

This approach is also reflected in the Department's preamble to its

new regulations (Antidumping Duties; Countervailing Duties; Final Rule,

62 FR 27295 (May 19,1997). Under section 351.401(h) of the new

regulations, which, although not legally in effect for this new shipper

review, are, at the time of this request for review, an expression of

the Department's practice, the Department will not consider a toller or

subcontractor to be a manufacturer or producer where the toller or

subcontractor does not acquire ownership of the finished product and

does not control the relevant sale of the subject merchandise and the

foreign like product. See also Antidumping Duties; Countervailing

Duties; Final Rule, 62 FR 27296, 27411 (legally effective only for

segments of the proceeding initiated based on requests filed after June

18,

[[Page 54824]]

1997, but nevertheless a restatement of the Department's practice).

Perry claims that under the tolling agreement between Perry and

Chang Chun, Perry maintains control of the entire production process by

(1) controlling the supply of the major input, VAM, used to produce

tolled PVA by Chang Chun, (2) controlling Chang Chun's production of

tolled PVA through the specifications (grades) and amounts to be

produced, (3) retaining title to VAM and the finished product

throughout the tolling process, and (4) establishing the prices, the

quantities and specifications/grade at which the tolled PVA will be

sold in the United States and other markets. Perry pays a fee to Chang

Chun for these services.

Perry has stated the following on the record of this proceeding:

(1) Perry controlled the sales process of the tolled PVA.

As detailed in its questionnaire responses, Perry controlled all

aspects of its tolled PVA sales. It identified customers and negotiated

the terms of sale with them. Perry arranged the warehousing and

palletization of the tolled PVA prior to delivery to its customers.

Perry shipped the merchandise to its customers and carried the accounts

receivables until payment was received.

(2) Perry controlled the production of the tolled merchandise.

As detailed in its questionnaire responses, Perry controlled Chang

Chun's production of PVA according to the terms of the tolling

agreement. Perry determined all specifications for production of the

PVA. Chang Chun could not deviate from Perry's production

specifications without Perry's written approval. (This is reflected in

the warranty terms set out in the contract.) Chang Chun could not

produce PVA from the VAM owned by Perry without Perry's written

instructions.

(3 ) Perry held title to the input materials.

As detailed in Perry's questionnaire responses, Perry purchased VAM

through an unaffiliated trading company. Perry retained title to the

merchandise throughout the PVA production process while the material

was in Chang Chun's possession. Title did not transfer until it passed

to Perry's customers upon delivery to them.

Petitioner, Air Products and Chemicals, Inc., argues that Chang

Chun, not Perry, is the producer of the subject merchandise because the

processing performed by Chang Chun is not a minor finishing operation,

but rather a substantial transformation which converts VAM into the

subject merchandise. Petitioner further contends that the Department

should terminate this review because, based on the facts presented in

this proceeding, there is no material difference between the Chang Chun

sales to Perry in the LTFV investigation, when Perry was merely an

importer, and the alleged tolling relationship now in existence between

Chang Chun and Perry. The only difference is the paperwork. Petitioner

concluded that Perry is not entitled to a new shipper review because

Chang Chun is the true manufacturer of the subject merchandise.

Petitioner also argues that Perry is not entitled to a new shipper

review because Perry and Chang Chun are affiliated under the affiliated

parties provision of section 771(33)(G) of the Act. Petitioner contends

that although Perry is not affiliated with Chang Chun through stock

ownership, it is affiliated with Chang Chun by its close supplier

relationship and its debt financing.

Perry responds that it has fully satisfied the Department's revised

interpretation of a manufacturer/exporter of tolled merchandise and,

therefore, Chang Chun is not the manufacturer of the merchandise. Perry

further states that petitioner's conclusion that Chang Chun is the

manufacturer is inconsistent with the standard for manufacturer/

producer status codified in the Department's new regulations at 19 CFR

section 351.401(h) (1997). Finally, Perry responds that, as the

proprietary information placed on the record shows, its accounts

payable to Chang Chun is not debt financing and does not establish an

affiliation under the Act. Moreover, Chang Chun made a submission

asserting that it does not exercise control over Perry through the

supplier relationship.

We have determined that Perry does not qualify as a new shipper

regardless of whether we regard it as the producer of PVA tolled by

Chang Chun. If we were to continue to regard Chang Chun as the

producer, Chang Chun (not Perry) would be both the producer and the

exporter, because Chang Chun has knowledge at the time it sells to

Perry that the subject merchandise is for export to the United States.

On the other hand, if Perry is the producer based on a tolling

arrangement with Chang Chun, we find that Perry would be affiliated

with Chang Chun, an exporter of subject merchandise during the

investigation.

Perry claims that it controlled all aspects of the subcontractor's

operations in the tolling transaction--i.e., Chang Chun's processing of

VAM. Perry's own questionnaire responses indicated that Perry exercised

direction over Chang Chun in all facets of the processing of VAM. This

direction purportedly also illustrated in the tolling agreement between

Perry and Chang Chun, included as part of the February 26, 1997,

questionnaire response.

Under section 771(33)(G) of the Act, the Department will consider

parties to be ``affiliated'' if one person controls any other person.

The statutory provision defines control as a situation in which one

person is legally or operationally in a position to exercise restraint

or direction over another person. Based on our analysis of the

information on the record, we do not find that Chang Chun exercises

control over Perry through debt financing or the supplier relationship.

However, based on Perry's own statements on the record, Perry was

legally and operationally in a position to exercise direction over

Chang Chun's production of PVA under contract to Perry and exported by

Perry to the United States during the POR. Accordingly, Perry's

assertions indicate that Perry and Chang Chun are affiliated persons

within the meaning of section 771(33)(G) of the Act with regard to

Perry's sales of PVA tolled by Chang Chun.

Based on this determination of affiliation, this proceeding does

not meet the requirements of section 751(a)(2)(B) of the Act for

conducting a new shipper review with regard to Perry's sales of tolled

PVA since Perry is affiliated with Chang Chun, which was a producer who

exported and producer of the subject merchandise during the period of

the LTFV. This determination of affiliation under section 771(33)(G) of

the Act is based on the particular facts of this review, and is made

only in the context of determining Perry's eligibility for a new

shipper review under section 751(a)(2)(B). Alternatively, if Perry is

not the manufacturer based on a tolling arrangement, there likewise is

no basis for conducting a new shipper review. Therefore, the Department

is terminating this review.

Dated: October 14, 1997.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 97-27991 Filed 10-21-97; 8:45 am]

BILLING CODE 3510-DS-P