Notice of Final Results of Antidumping Duty Administrative Review: Furfuryl Alcohol From the Republic of South Africa

DEPARTMENT OF COMMERCE

International Trade Administration

[A-791-802]

Notice of Final Results of Antidumping Duty Administrative

Review: Furfuryl Alcohol From the Republic of South Africa

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

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

SUMMARY: On July 8, 1997, the Department of Commerce published the

preliminary results of its administrative review of the antidumping

duty order on furfuryl alcohol from the Republic of South Africa. The

review covers shipments of this merchandise to the United States during

the period December 16, 1994, through May 31, 1996, the period of

review.

Based on our analysis of the comments received, and the correction

of certain ministerial errors, we have changed the preliminary results.

The final results are listed below in the section ``Final Results of

Review.''

EFFECTIVE DATE: November 14, 1997.

FOR FURTHER INFORMATION CONTACT: Michelle Frederick or Kris Campbell,

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

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

Constitution Avenue, N.W., Washington, D.C. 20230; telephone: (202)

482-0186 and (202) 482-3813, respectively.

SUPPLEMENTARY INFORMATION:

Applicable Statute and Regulations

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 Agreement Act (``URAA''). In addition,

unless otherwise indicated, all citations to the Department of

Commerce's (``the Department's'') regulations are to the provisions

codified at 19 CFR part 353, as of April 1, 1996. Where we cite to the

Department's new regulations (19 CFR part 351, 62 FR 27926 (May 19,

1997) (``New Regulations'') as an indication of current Department

practice, we have so stated.

Background

This review covers one manufacturer/exporter to the United States

of the subject merchandise, Illovo Sugar Limited (``ISL''). On July 8,

1997, the Department published in the Federal Register the Preliminary

Results of Administrative Review of the Antidumping Duty Order on

Furfuryl Alcohol from the Republic of South Africa, 62 FR 36488 (``the

preliminary results''). We received case and rebuttal briefs from QO

Chemicals, Inc (``the petitioner'') and ISL on August 7, 1997, and

August 26, 1997, respectively. A public hearing was held on August 28,

1997.

The Department has now completed this administrative review in

accordance with section 751 of the Act.

Scope of the Review

The merchandise covered by this order is furfuryl alcohol

(C4H3OCH2OH). Furfuryl alcohol is a

primary alcohol, and is colorless or pale yellow in appearance. It is

used in the manufacture of resins and as a wetting agent and solvent

for coating resins, nitrocellulose, cellulose acetate, and other

soluble dyes. The product subject to this order is classifiable under

subheading 2932.13.00 of the Harmonized Tariff Schedule of the United

States (HTSUS). Although the HTSUS subheading is provided for

convenience and customs purposes, our written description of the scope

of this proceeding is dispositive.

Constructed Export Price (``CEP'')

For sales to the United States, we calculated CEP based on the same

methodology used in the preliminary results, with the following

exceptions:

1. We excluded certain sales made of furfuryl alcohol which entered

the United States prior to the suspension of liquidation. See Comment

6.

2. We based the calculation of the CEP profit rate on information

contained in ISL's audited financial statements regarding profits made

on ``by-products'' rather than on the total profit figure in the

company's financial statements. See Comment 8.

3. We have treated the quality testing expense that ISL incurs upon

furfuryl alcohol's arrival in the United States as a movement expense

and not as an indirect selling expense. See Comment 9.

4. We limited the deduction of indirect expenses incurred in the

home market on behalf of U.S. sales to the expenses of ISL personnel

incurred for travel to the United States. See Comment 10.

5. Tank car rental credits gained for transporting furfuryl alcohol

in the United States are no longer added to CEP because the reported

tank car rental expense is net of such credits. See Comment 11.

6. Certain U.S. inventory carrying costs have been converted from

Rand to U.S. dollars. See Comment 12.

Normal Value (``NV'')

We used the same methodology to calculate NV as that described in

the preliminary results.

Analysis of Comments Received

In accordance with 19 CFR 353.38, we gave interested parties an

opportunity to comment on the preliminary results. We received a case

brief from the petitioner and a rebuttal brief from ISL (e.g.,

``Petitioner Case Brief'', ``ISL Rebuttal Brief'').

Comment 1: Fictitious Home Market: The petitioner argues that the

Department erred in the preliminary results by not determining that a

fictitious market exists in South Africa rendering HM sales of furfuryl

alcohol inappropriate as a basis for NV. The petitioner contends that

the Department unlawfully restricted the applicability of the

fictitious market provision (section 773(a)(2) of the Act) to

situations where there is evidence of different movements in prices at

which different forms of the foreign like product are sold or offered

for sale.

Specifically, the petitioner argues that the Department's

restriction of this provision to situations involving price movements

of different forms of the foreign like product is incorrect for the

following reasons. First, the legislative history of the 1988 amendment

to the fictitious market provision (which provides that the Department

may consider ``different movements in prices at which different forms

of the foreign like product are sold or offered for sale'' as evidence

of a fictitious market) clearly indicates that this evidence is simply

an illustrative example of a fictitious market and does not prevent the

Department from finding a fictitious market based on other evidence. In

this regard, the petitioner cites the Senate Report accompanying this

amendment: ``The purpose of this provision is to highlight one

particular example of a fictitious market.'' S.Rep. No. 71, 100th

Congress., 1st Sess. at 126 (1987) (Senate Report) (emphasis

petitioner's). Second, the petitioner contends that the Department's

interpretation conflicts with PQ Corp v. United States, 652 F. Supp.

724, 729 (CIT 1987) (``PQ Corp.''), which, although it predated the

1988 amendment, continues to offer the proper reading of the general

purpose of the fictitious market provision as concerned with preventing

``parties from manipulating dumping margins by * * * offering

merchandise at a price that does not reflect its actual market

[[Page 61085]]

price.'' Third, the petitioner claims that the Department's reasoning

renders the provision a nullity in all cases where there is only one

form of the foreign like product, as in this review. The petitioner

concludes that the Department's overly restrictive reading of the

fictitious market provision has allowed ISL to manipulate the results

of this review by establishing a fictitious market through severe home

market price reductions even though the world price for furfuryl

alcohol increased during the period of review (``POR'').

ISL responds that the petitioner's reading of the fictitious market

provision is overly broad and contends that the Department should

sustain its position in the preliminary results that a fictitious

market does not exist in the home market. Citing Tubeless Steel Disc

Wheels from Brazil, 56 FR 14083 (April 5, 1991) (Disc Wheels),

Porcelain-on-Steel Cooking Ware from Mexico, 58 FR 32095 (June 8, 1993)

(Porcelain Cookware), and the Department's June 30, 1997, Memorandum,

ISL contends that: (a) The Department has always required evidence of

price movements of different forms of the foreign like product before

pursuing a fictitious market allegation; (b) furfuryl alcohol is a

single, unitary product and there is no possibility that the prices of

different forms of the foreign like product could be manipulated to

distort the dumping margin; and (c) contrary to the petitioner's

interpretation of PQ Corp., this case stands for the proposition that

there is no reason to invoke the fictitious market provision absent

evidence that a sale is anything less than a bona fide transaction; in

this case, the viability and reality of the transactions is not in

dispute. ISL adds that the petitioner's concern with reduced home

market prices is more appropriate to a below-cost allegation, which the

petitioner chose not to file, and concludes that a respondent is within

its discretion to eliminate price discrimination by either raising U.S.

price, lowering home market price, or doing a combination of the two,

citing Final Results of Redetermination to Court Remand, The Timken

Company v. United States, CIT Case No. 94-01-00008 (December 17, 1996))

(Timken Remand).

DOC Position: We agree with ISL that the record evidence regarding

its South African sales does not warrant a finding that ISL has

established a fictitious home market. Our general practice in

determining whether a fictitious market exists is to require evidence

that the decrease in the price of home market sales of the foreign like

product was accompanied by an increase in the price of sales of

``different forms of the foreign like product.'' See Disc Wheels, 56 FR

at 14085 (``[B]efore pursuing a [fictitious market] allegation, the

Department must have sufficient evidence to believe that there have

been different movements in the prices at which different forms of the

subject merchandise have been sold in the home market'') and Porcelain

Cookware, 58 FR at 32096 (``In order for price differences to serve as

a basis for initiating a fictitious sales inquiry . . . the Department

must have sufficient evidence to believe or suspect that there have

been different movements in the prices at which different forms of the

subject merchandise have been sold in the home market and that such

movements appear to reduce the amount by which foreign market value

(FMV) exceeds the U.S. price of the merchandise''). As we explained in

the June 30, 1997, Memorandum, the facts that the petitioner presents

in support of its claim, centering around a single supplier selling at

low prices in the home market, do not justify an expansion of our

practice.

Although our position regarding the petitioner's claim was stated

clearly in that memorandum, we make the following additional points

regarding the petitioner's comments as contained in its case brief.

First, given the language in the Senate Report to the 1988 amendment to

the fictitious market provision that price movements within a foreign

like product are ``one example of a fictitious market,'' it is possible

that we may determine in the future that a fact pattern other than

price movements within a foreign like product constitutes a fictitious

market. However, the fact pattern before us, involving a single

respondent that lowered its home market prices during the POR, is

insufficient to make such a determination and, in fact, would conflict

with a basic tenet of the dumping law were we to do so. As noted in the

Timken Remand, a respondent may reduce or eliminate dumping either by

raising its U.S. prices or by lowering its home market prices of

merchandise subject to the order. A finding that ISL has created a

fictitious market based solely on ISL's lowering of its home market

furfuryl alcohol prices would contradict this basic proposition.

Second, regarding the petitioner's argument that CIT's decision in

PQ Corp. requires a different result, we agree with the petitioner that

the court indicated that a fictitious market could exist when the price

of merchandise ``does not reflect its actual price.'' However, we

disagree that the information on the record indicates that ISL's home

market sales fail to meet this standard. Rather, ISL's home market

sales were bona fide transactions involving a significant number of

customers made during the course of the POR. These customers ordered,

received, and paid for the merchandise in the normal course of business

based on prices contained in ISL's price lists. Further, the total

quantity of ISL's home market sales was far in excess of the viability

threshold and in our view those South African sales must be considered

one of the company's primary markets.

Finally, based on the above facts concerning ISL's home market

sales, we disagree with the petitioner's assertion that the Department

is rendering the fictitious market provision a nullity where, as here,

there was no other form of the foreign like product to which a price

comparison can be made. Rather, given the facts surrounding ISL's home

market sales, we have determined that the harm that this provision

seeks to prevent (artificial pricing leading to the elimination of a

finding of dumping) is not present in this case. As a result, there is

no reason in this proceeding to go beyond our normal practice of

determining the existence of a fictitious market based on a comparison

of prices of different forms of the foreign like product.

Comment 2: Home Market Customer Affiliation: The petitioner argues

that ISL is affiliated with its home market customers due to its self-

described status as the only established producer and seller of

furfuryl alcohol in South Africa. Citing the SAA's discussion (at 838)

of possible affiliation in the absence of an equity relationship (in

elaborating on section 771(33)(G) of the Act), the petitioner states

that affiliation can result from the ability of one company ``to

exercise restraint or direction'' over another company through a

``close supplier relationships in which the supplier or buyer becomes

reliant upon the other.''

In addition, the petitioner commented on the following specific

aspects of the Department's June 30, 1997, Memorandum, which provided

an analysis of this issue for the preliminary results. In this

memorandum, the Department noted that: (a) ISL's home market customers

appear to be free to purchase furfuryl alcohol from any source willing

to offer it; (b) a 10 percent tariff rate appeared to be the only

barrier to trade facing furfuryl alcohol; and (c) that it appears that

furfuryl alcohol based resins compete with phenolic resins.

The petitioner counters these points by arguing that: (a) as stated

in the Final Results of Antidumping Duty

[[Page 61086]]

Administrative Review: Certain Welded Stainless Steel Pipe from Taiwan,

62 FR 37543, 37550 (July 14, 1997), the Department focuses on actual

supplier relationships, not putative statements regarding freedom to

purchase from other suppliers; (b) the 10 percent tariff is significant

given the absence of furfuryl alcohol imports to South Africa during

the POR; (c) there is evidence of barriers to trade such as

insignificant purchasing power, immense transportation distances from

foreign suppliers, insufficient storage for foreign bulk shipments, and

the possibility of ISL's customers' damaging their relationship with

ISL, the sole domestic supplier; and (d) there are in fact no

substitutes for furfuryl alcohol in its primary uses.

These facts, the petitioner concludes, demonstrate affiliation

between ISL and its home market customers, warranting the rejection of

ISL's home market sales unless they are determined to have been made at

arm's length.

ISL responds that the Department was correct in determining, in its

June 30, 1997, Memorandum at 8, that the petitioner's allegation that

ISL is affiliated with its home market customers is ``an overly broad

interpretation of the affiliation via control provision in section

771(33)(G).'' According to ISL, the fact that it is the sole domestic

producer of furfuryl alcohol in South Africa is not sufficient to

support a finding of affiliation with its home market customers.

Specifically, ISL argues that: (a) None of the home market customers is

related to ISL by ownership; (b) sales are freely negotiated with home

market customers using the company's price lists; (c) there are no

long-term sales or agency agreements with home market customers; (d)

all home market customers are free to purchase from abroad; (e) there

are no import barriers on furfuryl alcohol--the tariff rate on this

product entering South Africa before December 1996 was 10 percent and

zero thereafter; and (f) the International Trade Commission's (ITC)

report notes that while there are no precise substitutes for furfuryl

alcohol itself, phenolic resins compete in the foundry industry with

furfuryl alcohol's primary downstream products, furan resins.

Accordingly, ISL contends, there are no indicia of control.

Finally, ISL notes that the Department has recently considered this

issue in a number of cases and did not find affiliation between

domestic producers of the foreign like product and home market

customers because the requisite control did not exist, citing inter

alia, Final Determination of Sales at Less than Fair Value: Open-End

Spun Rayon Singles Yarn from Austria, 62 FR 43701 (August 15, 1997).

ISL states that in each case involving this issue, the petitioner

argued that affiliation existed because of a close supplier

relationship between the producer and its customer or supplier, and the

Department declined to find the parties affiliated because the

requisite control relationship did not exist.

DOC Position: We disagree with the petitioner's contention that ISL

is affiliated with all of its home market customers. The basis for

petitioner's claim, the fact that ISL is the only manufacturer of

furfuryl alcohol in South Africa, is insufficient for a finding of

affiliation. Further, the petitioner failed to provide any evidence

that ISL controls its home market customers. As we stated in the June

30, 1997, Memorandum at 8, ``ISL's dominant position in the home market

is not sufficient, in and of itself, to find affiliation between ISL

and its customers.'' We also noted in that memorandum that the other

primary evidence that the petitioner provided to support its

affiliation claim, ISL's POR pricing in the home market, ``does not

suggest that the company is in a position to exercise restraint or

control over its customers, since customers will generally seek the

lowest price possible from their suppliers.'' Id.

We also do not accept the petitioner's allegation that ISL controls

its home market customers due to significant barriers to trade, an

absence of imports during the POR of the subject merchandise, and no

substitutes for furfuryl alcohol in its primary uses. First, the

factors proposed by the petitioner would be more relevant to an

assertion that ISL is controlling its customers through high pricing,

not low pricing. Second, while we agree with the petitioner that there

was an absence of imports during the POR, the petitioner's other

arguments are speculative (e.g., whether a 10 percent tariff is a

``significant'' barrier to trade). Further, if we were to consider the

absence of imports as determinative of affiliation, we would in effect

find affiliation in any sole supplier situation. In sum, these factors,

whether true or not, do not indicate that ISL controls its customers.

Comment 3: Particular Market Situation in the Home Market: The

petitioner disagrees with the Department preliminary determination (as

detailed in its June 30, 1997, Memorandum) that a ``particular market

situation'' did not exist in South Africa. Citing this Memorandum, the

petitioner first notes that this finding was based in part on the

inapplicability of any of the three illustrative examples of particular

market situations in the SAA and the absence of any model matching

complications. Moreover, the petitioner states that the Department

based its finding on the position that the facts of the case be

analyzed more appropriately under the below-cost and fictitious market

provisions of the Act.

The petitioner disagrees with this finding based on its contention

that a particular market situation does exist in South Africa due to

the absence of competitive pricing. It maintains that the SAA makes

clear that competitive pricing is an important consideration in

assessing the existence of a particular market situation, citing the

``government control over pricing'' example of a possible particular

market situation listed in the SAA (at 822) (i.e., ``where there is

government control over pricing to such an extent that home market

prices cannot be considered to be competitively set''). Acknowledging

that the instant proceeding does not involve government control, the

petitioner argues that the key element of this example of a particular

market situation is whether prices are competitively set, not whether

there is government control of prices. In support of its argument, the

petitioner cites Certain Cold-Rolled and Corrosion-Resistant Carbon

Steel Flat Products from Korea, 62 FR 18404 (April 15, 1997), where the

Department considered whether pricing practices in an oligopolistic

market constituted a particular market situation but ultimately found

competitive pricing, and no particular market situation, in that case.

Contrary to the Korean oligopoly in question, the petitioner asserts

that ISL is a monopolist and as such, allowed for no price competition

of any type in this case.

Regarding the Department's position that the facts of the case are

more appropriately analyzed under the fictitious market provision, the

petitioner argues that both the fictitious market and particular market

situation provisions are applicable because both are intended to

preserve the integrity of the Department's analysis by eliminating

inappropriate sales from consideration. The petitioner affirms its

claim that, given a correct understanding of the facts of this case and

of the particular market situation provision, the Department should

disregard ISL's home market sales and require ISL to submit third

country sales data.

ISL responds that the Department should sustain its position in the

preliminary results that a particular market situation does not exist

in the

[[Page 61087]]

home market. In its rebuttal brief (at 8) ISL interprets Certain Cold-

Rolled and Corrosion-Resistant Steel Flat Product from Korea to mean

that ``[t]he fact that there are very few, or even one, producer in a

market is not evidence, per se, that prices are not competitively

set.'' ISL reiterates its claim, first made in Comment 3, above, that

there are no import barriers to furfuryl alcohol entering South Africa

and, therefore, foreign producers are free to compete, just as non-

furfuryl alcohol products compete in the foundry industry with furfuryl

alcohol's primary downstream products.

ISL further argues that none of the circumstances of particular

market situations outlined in the SAA are present in this case. Thus,

ISL concludes, the petitioner is actually arguing for the creation of a

new form of particular market situation based on the sole criterion

that a foreign producer has lowered it home market prices. Accordingly,

ISL, urges the Department to reject the petitioner's expansive reading

of the Act.

DOC Position: Although we agree with the petitioner that the list

of examples in the SAA regarding what may constitute a particular

market situation is not exhaustive, we disagree that such a finding is

warranted under the facts of this case. First, we do not agree with the

petitioner that the facts of this case are analogous to the

``government control over pricing'' example in the SAA. In this regard,

we agree with ISL's interpretation of Cold-Rolled Steel. In that case,

although we considered whether oligopolistic pricing practices might

constitute a particular market situation, we ultimately determined that

prices were competitively set. In fact, we explicitly found that even

though different pricing patterns may occur in an oligopolistic market,

such patterns are not evidence, per se, sufficient to establish that

prices are not competitively set. We conceded that there was

substantial Korean government involvement in the industry, but did not

find ``convincing evidence'' of control (Cold-Rolled Steel, 62 FR at

18412). The Department found that there was price competition based on

discounts, credit adjustments, and freight equalization. Similarly, the

fact pattern in the instant proceeding, involving a large volume of

low-priced sales of furfuryl alcohol sold to a significant number of

home market customers from price lists, does not indicate an absence of

competitive pricing.

As we stated in the June 30, 1997, Memorandum, the facts as

presented by the petitioner, focusing on a single supplier that has

lowered its home market prices, are more appropriately analyzed in the

context of the below-cost and fictitious market provisions of the

statute. In this regard, the petitioner did not make a below-cost

allegation in this segment of the proceeding and, as discussed above,

our analysis of the petitioner's claim in the context of a fictitious

market allegation indicates that the facts presented by petitioner do

not warrant such a finding.

Comment 4: Whether the Antidumping Duty Reimbursement Regulation

Applies to ISL: ISL argues that the Department's doubling of the

assessment rate in the preliminary results, which was based on the

Department's finding that ISL reimbursed its affiliated U.S. importer

Harborchem, is impermissible because: (1) The reimbursement regulation

should not apply to affiliated importers; (2) the reimbursement

provision's focus on raising U.S. prices is improper, since the Act

itself is not concerned with the absolute level of the price at which

subject merchandise is sold in the United States; and (3) even if the

reimbursement provision is valid and can legally be applied to

affiliated parties, there was no reimbursement of actual duties

assessed in this case.

The petitioner disagrees with ISL, stating that: (1) The Department

can apply the reimbursement regulation to affiliated parties; and (2)

there is clear evidence in this case that ISL reimbursed its U.S.

affiliate for AD duties during the POR, citing the Department's

proprietary preliminary analysis memorandum (Analysis Memorandum to the

File, June 30, 1997, at 2).

DOC Position: Since the assessment rate for this review is zero,

there are no duties to be assessed. Hence, this issue is moot.

Comment 5: Affiliation of ISL and Harborchem: The petitioner argues

that ISL and its U.S. importer, Harborchem, are not affiliated parties

and, accordingly, the Department should base U.S. price on export price

rather than CEP in the final results. The petitioner maintains that the

Department's finding in the original investigation that these parties

are affiliated, on which the Department subsequently relied in stating

that the facts had not changed in this review, was incorrect. The

petitioner contends that the record demonstrates that Harborchem is not

ISL's agent under the law of agency or the four-part test originally

relied on by the Department.

The petitioner states that since the Act does not define the term

``agent,'' the term must give its common law meaning, i.e., ``that an

agent is to act on behalf of and for the benefit of the principal.''

Petitioner Brief at 16. Citing, inter alia, Waterhout v. Associated Dry

Goods, Inc., 835 F.2d 718 (8th Cir. 1987), the petitioner adds that a

second tenet of the law of agency is that a determination as to the

existence of an agency relationship is to be based on the factual

circumstances at hand and not on a party's characterization of itself

as an agent.

The petitioner submits that, in this case, there is no record

evidence indicating an agency relationship between ISL and Harborchem,

since ISL merely characterizes Harborchem as its an agent; instead, the

evidence shows two distinct commercial transactions: one in which

Harborchem purchases furfuryl alcohol from ISL and another in which

Harborchem resells the merchandise to a third party. Specifically, the

petitioner states that:

(a) ISL negotiates price and quantity with Harborchem;

(b) ISL sells to Harborchem;

(c) ISL invoices and receives payment Harborchem; and

(d) Harborchem then separately stores, markets, ships, and receives

payment for the merchandise.

Thus, the petitioner asserts, Harborchem acts on its own behalf,

and ISL and Harborchem each seek to maximize profits. Moreover, the

petitioner asserts that mere coordination of certain activities for

their mutual benefit is not critical in determining an agency

relationship.

ISL responds that it is in fact affiliated with Harborchem. First,

ISL argues that the question of relationship was examined thoroughly in

the investigation and at on-site verifications of both ISL and

Harborchem. Second, ISL agrees with the Department's preliminary

finding that the facts considered by the Department in its original

determination are the same as those in the current review, namely:

(a) ISL participated directly with Harborchem in the marketing of

furfuryl alcohol to ultimate U.S. customers;

(b) ISL participated directly in pricing and sales negotiations

with ultimate U.S. customers;

(c) ISL interacted directly, as well as through Harborchem, with

ultimate U.S. customers on product testing and quality control;

(d) ISL and Harborchem communicated on a daily basis on matters

related to marketing and sales to the ultimate customers;

(e) ISL exerted a substantial degree of control over Harborchem

marketing and pricing of furfuryl alcohol to the ultimate U.S.

customers; and

[[Page 61088]]

(f) the two parties viewed their relationship as one of principal

and agent.

As support for its contention that these facts apply to the POR as

well as the period of investigation (POI), ISL cites to evidence on the

record of this review regarding the correspondence between Harborchem

and ISL on the setting of U.S. prices, the approval by ISL of any

significant sales and marketing efforts, and the granting of permission

by ISL on other business decisions.

Regarding the petitioner's arguments concerning the nature of an

``agency'' relationship, ISL submits that although the URAA replaced

the definition of ``related party'' with the definition of

``affiliation'' based on a ``control'' concept, Congress did not intend

to narrow the criteria it uses for determining affiliation, and the

Department has in fact continued to use the same criteria for assessing

``control'' as was used under the pre-URAA law related party ``agency''

provision. In this respect, ISL cites the post-URAA cases Melamine from

Indonesia and Rayon Singles Yarn from Austria, where the Department

examined:

(a) Whether one party controlled pricing of the subject

merchandise;

(b) Whether a long-term sales agreement existed;

(c) Whether there were any restrictions on purchasing from or

selling to other sources; and

(d) Whether there were other indicia of affiliation, such as a

joint venture arrangement.

ISL asserts that the facts surrounding its relationship with

Harborchem meet this standard.

Finally, ISL cites the preamble to the New Regulations as proving

that, because section 771(33) of the statute refers to a person being

in a position to exercise restraint or direction, the Department is

required to examine the ability to control, not the actual exercise of

control (62 FR 27298). ISL concludes that, based on the facts as stated

above, the record shows that ISL is in a position to exercises

restraint over Harborchem.

DOC Position: We disagree with the petitioner. As both parties

note, in the less-than-fair-value (LTFV) investigation, we examined

this issue in depth at verification (see Final Determination of Sales

at Less Than Fair Value: Furfuryl Alcohol From South Africa, 60 FR

22550 (May 8, 1995) (Final Determination of Sales at LTFV)). Our

examination was based on the criteria for determining an agency

relationship as established in Final Determination of Sales at Not Less

Than Fair Value: Certain Forged Steel Crankshafts from Japan, 52 FR

36984, 36985 (October 2, 1987). Contrary to the petitioner's

assertions, the information on the record in this review again

indicates that a finding of affiliation between ISL and Harborchem is

appropriate.

As noted in our preliminary results, the facts that led to our

finding in the LTFV investigation have not changed. The petitioner

provides no evidence that the facts have changed. ISL, on the other

hand, submitted evidence (at Exhibit A-4 of its September 19, 1996

response) in response to our questionnaire that indicates that the

agency relationship between ISL and Harborchem still exists. For

example, this evidence indicates that ISL and Harborchem routinely

coordinate marketing and sales activity, including pricing, for sales

to U.S. customers.

Rather than provide evidence that the facts have changed during

this review period, the petitioners are suggesting that these facts are

not sufficient for a finding of affiliation. We agree with the

petitioner that although the Act does not define agency, the existence

of an agency relationship is based on the factual circumstances. The

four-pronged test relied upon in the LTFV investigation explores the

factual circumstances of the relationship between ISL and Harborchem.

At verification, based on correspondence files, we determined that ISL:

(1) participates directly with Harborchem in marketing furfuryl alcohol

to U.S. customers; (2) participates directly in pricing and sales

negotiations with U.S. customers; (3) interacts directly, as well as

through Harborchem, with U.S. customers on product testing and quality

control matters; and (4) interacts with U.S. customers directly (Final

Determination of Sales at LTFV, 60 FR at 22552-53). In the current

review, ISL provided additional documentary evidence of this

relationship consistent with our finding in the LTFV investigation.

Proprietary correspondence documents were submitted by ISL in its

September 1996 response (Exhibit A-4a and b) that demonstrated that:

ISL and Harborchem have an exclusive distributor agreement; frequently

discuss pricing to U.S. customers; and participate in joint marketing

efforts. Documents submitted also show that ISL maintains direct

contact with U.S. end-user customers and exerts control over U.S.

marketing efforts. In addition, documentation concerning the

arrangement and sharing of profits between the two parties were

included in Exhibit A-22 of the April 10, 1997, response and

documentation showing Harborchem seeking and obtaining ISL's approval

of a purchase of furfuryl alcohol from alternative source, were

submitted in Exhibit A-23 of the same response. Therefore, we continue

to find that, based on our four-prong test, ISL and Harborchem maintain

an agency relationship and are affiliated within the meaning of section

771(33) of the Act. Consequently, we have used CEP for sales to the

United States.

Comment 6: Exclusion of Certain U.S. Sales: ISL requests that the

Department exclude from its analysis U.S. sales of subject merchandise

that entered prior to suspension of liquidation, which ISL identified

using a first-in, first-out (``FIFO'') inventory accounting

methodology. ISL further asserts that certain of these sales merit

exclusion regardless of the validity of its FIFO analysis, based on the

fact that they were shipped prior to the first post-suspension entry of

merchandise.

In the preliminary results, the Department rejected ISL's request,

citing Final Results of Antidumping Duty Administrative Review:

Industrial Belts and Components and Parts Thereof, Whether Cured or

Uncured from Italy, 57 FR 8295 (March 9, 1992) (``Industrial Belts''),

wherein the Department had similarly rejected an exclusion request

based on a FIFO inventory analysis. ISL states that the preliminary

results did not sufficiently explain the Department's reasons for

denying the request. ISL contemplates two possible reasons for this

rejection: (a) that the Department finds a FIFO matching methodology to

be inherently unacceptable; or (b) that the Department requires a

further explanation regarding ISL's FIFO analysis.

In arguing against the first reason, ISL states that Harborchem's

normal inventory accounting records use the FIFO methodology employed

in its exclusion request. ISL also notes that Harborchem uses FIFO to

match specific entries and sales as part of its internal cost control

and reporting systems to ensure proper accounting treatment. ISL

contends that since furfuryl alcohol is a fungible liquid, this is the

only methodology available for matching pre-suspension entries to

specific POR sales. ISL notes that the Department verified Harborchem's

inventory accounting records during the less than fair value

investigation. Citing Industrial Quimica del Nalon v. United States, 15

CIT 240, 243-44 (1991), ISL contends that the Department's rejection of

the only methodology available to link entries to sales would

constitute an abuse of the Department's discretion and, in the

[[Page 61089]]

words of the ruling, ``fly in the face of established business

practice.''

Regarding the second possible reason, ISL provides in its brief a

further explanation of the methodology employed in the company's

responses to ensure that the analysis is clear to the Department. In so

doing, ISL points to worksheets, inventory records, and entry and sales

data that provide sufficient information to allow the Department to tie

the sales in question to pre-suspension entries.

Finally, ISL asserts that even if the Department chooses to reject

again ISL's FIFO methodology, the company is still entitled to the

exclusion of certain sales from the antidumping analysis. ISL notes

that the record shows that the first shipment of furfuryl alcohol to

enter the United States during the POR, i.e., after suspension, entered

the United States after sales by Harborchem to U.S. customers had

already been made and delivered during the POR. ISL states that it is

therefore physically impossible for those sales to have been made using

furfuryl alcohol entered during the POR.

The petitioner responds that the Department should continue to

reject ISL's exclusion request. It argues that ISL did not sufficiently

link POR sales to specific pre-suspension entries because the company's

receipt and inventory records are inconsistent and unreliable, as

demonstrated by certain discrepancies on the record. Specifically, the

petitioner notes that ISL, in its April 10, 1997, supplemental

response, conceded that it made two mistakes in reporting its inventory

in its initial response. The petitioner asserts that this

unreliability, together with ``the Department's justifiable reluctance

to use hypothetical constructions to link U.S. sales to specific pre-

suspension entries,'' necessitates the Department's continued rejection

of the request.

DOC Position: We agree with ISL, in part. As discussed below, all

but one of the POR sales that ISL requested be excluded are not

appropriately part of our analysis because they involve merchandise

that entered the United States prior to the suspension of liquidation.

See Certain Stainless Steel Wire Rod from France, 61 FR 47874, 47875

(September 11, 1996). Accordingly, we have not included these sales in

our calculation of ISL's antidumping duty rate for this POR. However,

we have included one such sale in our analysis because it cannot be

tied to pre-suspension merchandise.

We note that the petitioner is correct in pointing out the

Department's reluctance to use hypothetical constructions to link U.S.

sales to specific pre-suspension entries. This was demonstrated in

Industrial Belts, wherein the Department rejected an exclusion request

based on a FIFO inventory analysis. However, we excluded a majority of

the sales at issue based not on a FIFO analysis but on the fact that

these sales were shipped before the first post-suspension entry of

subject merchandise. See Memorandum from Michelle Frederick and Scott

Oudkirk to Richard W. Moreland (November 5, 1997) (``November 5, 1997,

Memorandum''). We have excluded these sales from our analysis because

it would not be possible for those sales to have been shipped using

merchandise that entered during the POR.

We excluded a second group of sales based on a FIFO analysis that

involves a single POR entry made prior to these sales. For these sales,

the data contained in ISL's response indicates that the company's

storage of inventory involved the co-mingling of only one POR entry of

furfuryl alcohol with a pre-existing inventory of pre-suspension

furfuryl alcohol. As detailed in the November 5, 1997, Memorandum,

ISL's inventory, sales, and entry data contained in its responses

establishes that it had sufficient pre-suspension inventory, prior to

the one POR entry of subject merchandise at issue, to cover all but one

of the second group of sales for which ISL requested the exclusion. To

the extent that we attribute the merchandise involved in such sales to

this pre-suspension inventory, rather than to the single POR entry that

occurred prior to these sales, this analysis is based on a FIFO

methodology. However, given that the fact pattern involves only a

single POR entry occurring prior to these sales, along with the fact

that this is a unitary liquid product, it is appropriate under these

circumstances to determine that these sales involved pre-suspension

merchandise. We note that, in the unique circumstances of this case,

the respondent was able to provide supporting documentation regarding

entry and sales data not only for the claimed exclusions, but also for

the remainder of the South African-sourced POR sales.

Finally, we have not excluded one sale (the final chronological

sale in the second group) because the inventory of pre-suspension

furfuryl alcohol was insufficient to cover this sale.

Regarding the petitioner's contention that ISL's inventory records

are inconsistent and unreliable, we found that an examination of the

evidence on the record demonstrates that any inconsistencies are

relatively minor and that the mistakes reported by ISL were corrected

in supplemental responses (see the memorandum referenced above).

Therefore, the record as a whole allowed us to sufficiently link

entries to sales and to exclude sales when appropriate.

Finally, we note that the petitioner claimed at the public hearing,

with respect to ISL's counsel's discussion of this issue, that certain

information presented by ISL was not included in its hearing briefs. We

have determined that ISL's counsel did not reveal new information

during the hearing and that it was responding to a question raised by

the Department regarding this issue. The information that ISL's counsel

referenced was already on the record in the form of entry dates, sale

dates, inventory records and location of inventory.

Comment 7: Level of Trade and CEP Offset: ISL asserts that the

Department's preliminary determination that the level of trade (LOT) at

which ISL sold furfuryl alcohol in the home market level is not more

advanced than the LOT of the CEP sales is incorrect because it ignores

significant selling functions performed in the home market. In

particular, ISL states that there is a ``significant difference in the

level of selling function provided at each LOT.''

ISL argues that the Department ignored the level or degree of

selling activities that ISL performed with respect to home market

versus U.S. sales, as well as the corresponding greater amounts of time

and energy spent performing these activities in conducting home market

sales. Further, ISL stated that, whereas ISL itself undertook all of

these activities in conducting home market sales, it merely supported

Harborchem, which was principally responsible for marketing and selling

activities in the United States. For this reason, ISL claims that the

degree of the selling functions it provides to home market customers is

greater than that of those provided for Harborchem such that the home

market LOT is more advanced than the LOT of the CEP. In support of this

claim, ISL compared the number of customers, the number of shipments,

and the individual shipment sizes in the home market to shipments to

Harborchem, noting that ``[t]he average size of a shipment to

Harborchem was over 30 times as large as a shipment in the home

market.'' Therefore, ISL claims it is entitled to a CEP offset.

The petitioner responds that the Department did not ignore specific

selling functions in the home market but, rather, determined that the

selling functions performed by ISL for sales in the home market did not

differ substantially from those performed by

[[Page 61090]]

ISL for sales to Harborchem. The petitioner adds that ISL exaggerates

the differences between the number of customers and shipments in the

home market compared with those to Harborchem. Finally, the petitioner

notes that ISL's contention in its case brief that the company plays a

supporting, non-principal role for U.S. sales is at variance with

earlier statements made in support of ISL's claim of affiliation with

Harborchem, i.e., that ISL plays a joint role with Harborchem in the

U.S. market.

DOC Position: We disagree with ISL. We have continued to find that

a CEP offset is inappropriate because the record evidence indicates

that ISL's home market sales are not made at a more advanced LOT than

that of the CEP.

Section 773(a)(7) of the Act provides that one requirement for

granting a CEP offset is that the home market sale must be made at a

more advanced stage of distribution than the LOT of the CEP. In order

to determine whether home market sales were at the same, or a

different, LOT than U.S. sales, we examined whether home market sales

had been made at a different stage in the marketing process. Section

351.412(c)(2) of the new regulations defines an LOT as a marketing

stage ``or the equivalent'' and provides that different LOTs depend on

one level (or stage) being more remote, characterized by an additional

layer of selling activities, amounting in the aggregate to a

substantially different selling function. Substantial differences in

the amount of selling expenses associated with two groups of sales also

may indicate that the two groups are at different LOTs.

Accordingly, as a threshold matter in examining whether home market

sales were made at a more advanced LOT than the LOT of the CEP, we

considered the selling activities performed for the home market LOT and

compared them to the selling activities performed for the LOT of the

CEP. Specifically, we examined the selling activities performed by ISL

for setting up, shipping, and delivering furfuryl alcohol destined for

the U.S. market up to the point of tank storage at the U.S. port of

entry (selling activities reflected in the price after the deduction of

expenses and profit under section 772(d) of the Act). Next, we compared

the selling activities performed by ISL for home market sales.

In the preliminary results, we determined that there was one LOT in

the home market and, furthermore, that the LOT for home market sales

was comparable to the LOT of the CEP. In other words, we determined

that the home market LOT did not constitute a more advanced stage of

distribution than the LOT of the CEP and, therefore, no adjustment to

price (i.e., LOT adjustment or CEP offset) was necessary. We explained,

in detail, in the preliminary results our rationale for making this

determination. 62 FR 36488, 36490 (July 8, 1997). ISL's arguments in

its case brief do not establish that our analysis in the preliminary

results was incorrect.

We disagree with ISL's argument that we ignored the level or degree

of selling functions performed in the home market. While it is our

preference to examine selling functions on both a qualitative and a

quantitative basis, our examination is not contingent on the number of

customers nor on the number of sales for which the activity is

performed.

Thus, having determined that the LOT for home market sales is

comparable to the LOT of the CEP, we are precluded in this case from

granting a CEP offset.

Comment 8: Basis for the Calculation of CEP Profit: The petitioner

argues that the Department's calculation of CEP profit understates the

amount of profit that should be deducted from CEP. In the preliminary

results, the Department relied upon revenue and cost of sales data from

ISL's 1995 and first-half 1996 financial statements to calculate a

profit ratio. The figures in those financial statements are

representative of all ISL products. The petitioner cites the SAA (at

824-825, regarding section 772(f)(2)(C) of the Act) for the proposition

that, where the Department has not requested cost data, CEP profit

information shall be based on ``the narrowest category of merchandise

sold in the United States and the exporting country which includes the

subject merchandise or * * * the narrowest category of merchandise sold

in all countries which includes the subject merchandise.'' The

petitioner contends that there is information on the record, in the

form of an internal report, that would allow the Department to base the

calculation of a CEP profit ratio on a more narrow category of

merchandise, e.g. excluding sugar, than that contained in ISL's

financial statements.

ISL argues that the financial statements on which the Department

relied in its calculation of profit are audited and, given the

Department's normal reliance on audited or published data, are the

proper basis for the calculation of a CEP profit ratio. ISL notes that

the information that the petitioner advocates is found in an unverified

internal report used to report gross sales and profit figures. As such,

it does not take account of reversals, reconciliations, and adjustments

made only at year-end. Therefore, the Department should continue to use

the information contained in the audited financial statements in its

calculation of a CEP profit ratio for the final results.

DOC Position: We agree with the petitioner in part. Section

772(f)(2)(C)(iii) of the Act provides that, absent more specific data

related to expenses incurred in selling subject merchandise in the

United States or home market, the expenses used in the profit

calculation should be based on ``the narrowest category of merchandise

sold in all countries which includes the subject merchandise.'' In this

review, there is information on the record that would allow the

Department to base the calculation of a CEP profit ratio on a more

narrow category of merchandise than that covered by ISL's overall

profit amount for all products sold by the company. However, contrary

to petitioner's assertions, the audited financial statements contain

profit data on a product basis (i.e. by-products) that is sufficiently

narrow to fulfill the statutory requirements regarding CEP profit.

Instead of relying on the internal report, we were able to derive a

more appropriate CEP profit ratio from the audited financial

statements, thus meeting our obligation to rely on information for the

``narrowest category of merchandise.'' We were able to discern from the

audited financial statements the relative amount of profit due to the

sale of sugar, ISL's primary merchandise, and the profit due to the

sales of by-products, which includes the subject merchandise sold.

Thus, we revised the CEP profit ratio for the final results based on

information from audited financial statements. (See Analysis Memorandum

to File, November 5, 1997.)

We note that, given the statutory preference for profit based on a

narrow category of merchandise, the use of internal financial reports

may be appropriate where we do not otherwise have sufficiently tailored

profit data. The preamble of the proposed regulations at 61 FR 7308,

7332 (February 27, 1996), reflects this, stating ``[p]aragraph (d)(2)

[of section 351.402] specifies that the Department will not be limited

to audited financial statements, but may use any appropriate financial

report, including internal reports, the accuracy of which can be

verified, if verification is conducted. This provision reflects the

suggestion of commentators that the Department make clear its

discretion to use financial reports prepared in the normal course of

business that are as specific as possible

[[Page 61091]]

to the merchandise under investigation or review.''

Comment 9: Inclusion of Quality Testing Expenses in the Calculation

of CEP Profit: The petitioner notes that the Department determined that

the expense ISL incurs for the quality testing of furfuryl alcohol upon

its arrival in the United States is an indirect selling expense. The

Department therefore made a circumstance of sale adjustment to CEP for

the preliminary results, but the petitioner contends that this quality

testing expense should also be included as part of total selling

expenses for the calculation of CEP profit.

ISL argues that this expense is a movement expense undertaken

solely for U.S. sales insurance purposes because of the possibility of

contamination during shipment and because the U.S. Customs periodically

requires purity reports. Therefore, ISL argues that this expense is not

an indirect selling expense and, as a movement expense, should not be

included as part of selling expenses when calculating CEP profit.

DOC Position: We agree with ISL that the quality testing expense

that the company incurs upon furfuryl alcohol's arrival in the United

States is a movement expense undertaken solely for U.S. sales as a

result of shipment from South Africa. We note ISL's description at page

84 of its September 19, 1996, response, that, ``Furfuryl alcohol is

tested on arrival to detect any impurities that may have entered the

product while in transit * * * [t]he testing is performed * * * at the

time the product is unloaded from the maritime vessel.'' We also note

that there is no similar testing done for shipments in the home market;

all semi-bulk sales of furfuryl alcohol in the home market are made

f.o.b., so there is no chance of contamination that will result in a

loss to the company and though drum sales are sometimes made on a

c.i.f. basis, it is not subject to contamination because it is packed.

Because contamination only results from transporting furfuryl alcohol

via a shipping vessel, which carries many other different products, not

just furfuryl alcohol, we have determined that the quality testing

expense is associated with the type of transportation, and, thus, is a

movement expense. Accordingly, we have changed the margin calculation

to treat this expense as a movement expense, which is not included in

total U.S. expenses in the calculation of CEP profit.

Comment 10: Treatment of ISL U.S. Travel Expenses in the Margin

Calculation: The petitioner claims that the expenses ISL personnel

incurred for travel to the United States to market furfuryl alcohol are

indirect selling expenses incurred in the United States. As such, they

should be deducted from U.S. price when calculating CEP and should be

included in the total U.S. selling expenses used to derive profit

attributable to those expenses.

ISL contends that the expenses in question are already included in

the South African component of U.S. indirect selling expenses, given

that most of the expenses associated with U.S. travel of ISL personnel,

such as airfare and salaries, were incurred and paid for in the home

market. Therefore, it would be incorrect for the Department to deduct

these expenses once again.

DOC Position: We agree with ISL that the expenses ISL personnel

incurred for travel to the United States to market furfuryl alcohol are

included in the South African component of U.S. indirect selling

expenses (DINDIRSU). As such, for the preliminary results, they had

already been deducted from U.S. price when calculating CEP.

We do not deduct indirect selling expenses incurred in the home

market on behalf of U.S. sales, except when such expenses are

associated with economic activity in the United States. The expenses of

ISL personnel incurred for travel to the United States are associated

with economic activity in the United States. Therefore, for these final

results, we segregated the expenses of ISL personnel incurred for

travel to the United States from all other indirect expenses incurred

in the home market on behalf of U.S. sales, and deducted only those

travel expenses from CEP. See Final Results and Partial Rescission of

Antidumping Duty Administrative Review; Certain Fresh Cut Flowers from

Colombia, 62 FR 53287, 53293 (October 14, 1997) (``selling expenses

incurred in the home market that are not associated with U.S. economic

activity should neither be deducted from CEP nor included in the basis

for calculating CEP profit'').

Comment 11: Addition of Tank Car Rental Credits to CEP: The

petitioner claims that the U.S. tank car rental expense is reported net

of credits. Therefore, tank car rental credits should not be added to

CEP.

ISL concedes the petitioner's claim.

DOC Position: We agree that the U.S. tank car rental expense

reported is net of credits for tank car utilization. Therefore, we have

deducted these expenses from CEP.

Comment 12: Conversion of Certain Inventory Carrying Cost Expenses:

ISL contends that the Department failed to convert the U.S. inventory

carrying cost expense, which is expressed in rand, to U.S. dollars.

The petitioner did not comment on this issue.

DOC Position: We agree with ISL. This expense was expressed in rand

because the inventory value used in the calculation of this inventory

carrying cost was the total cost of manufacture in rand. Accordingly,

we have converted this to U.S. dollars.

Final Results of Review

As a result of our review, we determine that the following margin

exists for the period of December 16, 1994, through May 31, 1996:

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

Margin

Manufacturer/exporter (percent)

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

Illovo Sugar Ltd........................................... 0.00

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

The results of this review shall be the basis for the assessment of

antidumping duties on entries of merchandise covered by the review and

for future deposits of estimated duties for the manufacturer/exporter

subject to this review. The Department will issue appraisement

instructions directly to the U.S. Customs Service.

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 these

final results of this administrative review, as provided by section

751(a)(2)(C) of the Act: (1) The cash deposit rate for ISL is zero; (2)

if the exporter is not a firm covered in this review or the original

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

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

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

is a firm covered in this or any previous review or the original

investigation, the cash deposit rate will be the ``all others'' rate of

11.55 percent established in the less than fair value investigation (60

FR 28840, June 21, 1995). These deposit requirements will remain in

effect until publication of the final results of the next

administrative review.

This notice also serves as a final reminder to importers of their

responsibility under 19 CFR 353.26 to file a certificate regarding the

reimbursement of antidumping duties prior to liquidation of the

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

requirement could result in the Secretary's presumption that

reimbursement of antidumping duties occurred and the

[[Page 61092]]

subsequent assessment of double antidumping duties.

This notice is the only reminder to parties subject to

administrative protective order (``APO'') of their responsibility

concerning the disposition of proprietary information disclosed under

APO in accordance with 19 CFR 353.34(d)(1). Timely written notification

of the return or destruction of APO materials, or conversion to

judicial protective order is hereby requested. Failure to comply is a

violation of the APO.

This administrative review and notice are in accordance with

section 751(a) of the Act and 19 CFR 353.22, and this notice is

published in accordance with section 777(i) of the Act.

Dated: November 5, 1997.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 97-29958 Filed 11-13-97; 8:45 am]

BILLING CODE 3510-25-P