Extruded Rubber Thread From Malaysia; Final Results of Antidumping Duty Administrative Review

DEPARTMENT OF COMMERCE

International Trade Administration

[A-557-805]

Extruded Rubber Thread From Malaysia; Final Results of

Antidumping Duty Administrative Review

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

SUMMARY: On February 13, 1997, the Department of Commerce (the

Department) published in the Federal Register its preliminary results

of the administrative review of the antidumping duty order on extruded

rubber thread from Malaysia (62 FR 6758). This review covers Heveafil

Sdn. Bhd. (``Heveafil''), Rubberflex Sdn. Bhd. (``Rubberflex''), Filati

Lastex Elastofibre (Malaysia) (``Filati''), Rubfil Sdn. Bhd.

(``Rubfil'') and Rubber Thread International (Rubber Thread)

(collectively ``respondents''), manufacturers/exporters of the subject

merchandise to the United States. The period of review (POR) is October

1, 1993 through September 30, 1994. We gave interested parties an

opportunity to comment on our preliminary results.

[[Page 62548]]

Petitioner and respondents submitted case briefs on March 10, 1997 and

rebuttal briefs on March 17, 1997. No hearing was conducted in this

review. Therefore, we have based our analysis on the comments received,

and have changed the results from those presented in the preliminary

results of review.

EFFECTIVE DATE: November 24, 1997.

FOR FURTHER INFORMATION CONTACT: Laurel LaCivita or James Terpstra, AD/

CVD Enforcement Group II, Office 4, Import Administration,

International Trade Administration, U.S. Department of Commerce, 14th

Street and Constitution Avenue, NW., Washington, DC 20230; telephone

(202) 482-4740 or (202) 482-3965, respectively.

SUPPLEMENTARY INFORMATION:

The Applicable Statute

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

Department's regulations are in reference to the provisions as they

existed on December 31, 1994. We are conducting this administrative

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

amended (the Act).

Background

On October 7, 1992, the Department published in the Federal

Register (57 FR 46150) the antidumping duty order on extruded rubber

thread from Malaysia. In October 1994, the petitioner, North American

Rubber Thread, and the following respondents requested the Department

to conduct an antidumping administrative review covering the period

October 1, 1993 through September 30, 1994: Heveafil Sdn. Bhd.

(``Heveafil''), Rubberflex Sdn. Bhd. (``Rubberflex''), Filati Lastex

Elastofibre (Malaysia) (``Filati''), and Rubfil Sdn. Bhd (``Rubfil'').

In addition, petitioner requested a review of Rubber Thread

International (Rubber Thread). On November 14, 1994, we published a

notice of initiation of an administrative review of this order for the

period October 1, 1993, through September 30, 1994 (59 FR 56459). We

conducted a verification of Rubberflex in Malaysia from September 23,

1996 until October 5, 1996, and of its U.S. affiliate in Hickory, North

Carolina from October 16 to 18, 1996. Our preliminary results of review

were published in the Federal Register on February 13, 1997 (62 FR

6758). Petitioner, Heveafil, Filati, Rubfil and Rubberflex filed case

briefs on March 10, 1997 and rebuttal briefs on March 17, 1997. Rubber

Thread reported that it made no shipments of the subject merchandise

during the POR. The Department has now completed this administrative

review in accordance with section 751(a) of the Act.

Scope of the Review

The product covered by this review is extruded rubber thread.

Extruded rubber thread is defined as vulcanized rubber thread obtained

by extrusion of stable or concentrated natural rubber latex of any

cross sectional shape, measuring from 0.18 mm, which is 0.007 inch or

140 gauge, to 1.42 mm, which is 0.056 inch or 18 gauge, in diameter.

Extruded rubber thread is currently classified under subheading

4007.00.00 of the Harmonized Tariff Schedule of the United States

(HTSUS). The HTSUS subheadings are provided for convenience and U.S.

Customs purposes. Our written description of the scope of this review

is dispositive.

Analysis of Comments Received

We gave interested parties an opportunity to comment on the

preliminary results. We received comments and rebuttal comments from

North American Rubber Thread (petitioner), and Rubberflex, Rubfil,

Heveafil and Filati (respondents).

Best Information Available (BIA) for Rubberflex

We found that responses provided by Rubberflex could not be

verified within the meaning of section 776(b) of the Act. For a

significant portion of the cost and expense items reviewed at

verification, the information provided in the questionnaire responses

was inaccurate or could not be verified. This includes, but is not

limited to, information on indirect selling expenses, overhead,

selling, general and administrative (SG&A) expenses, labor, materials,

rebates, corporate structure, and the completeness of U.S. sales

reporting. For numerous items, Rubberflex attempted to present revised

information at verification. However, Rubberflex failed to disclose the

numerous errors in its responses prior to, or at the start of,

verification, as repeatedly requested by the Department. Rather,

Rubberflex attempted to present its new information in a piecemeal

manner, often late in the verification. This effectively precluded the

Department from having adequate time to evaluate the scope and

magnitude of the changes. Accordingly, we determined that Rubberflex

failed to demonstrate the completeness and accuracy of its

questionnaire responses at verification and thus failed verification.

As discussed in comments 1 through 27 below, we carefully reviewed

Rubberflex's arguments in light of the February 14, 1997 verification

report (verification report) and the supporting verification exhibits.

This analysis reveals that Rubberflex's brief systematically

mischaracterizes, and seeks to minimize the importance of, all of the

myriad problems encountered at verification. As described below, and as

in the preliminary results of review, we find that, pursuant to section

776(b) of the Act, the errors and problems found at verification render

Rubberflex's questionnaire responses unusable for purposes of

calculating a margin.

Section 776(b) of the Act requires the Department to use the best

information available (BIA) if it is unable to verify the accuracy of

the information submitted. In deciding what to use as BIA, the

Department's regulations provide that the Department may take into

account whether a party refuses to provide requested information. See

19 CFR 353.37(b). Thus, the Department may determine the appropriate

BIA on a case-by-case basis.

In cases where we have determined to use total BIA, we apply a two

tier methodology of BIA depending on whether the companies attempted to

or refused to cooperate in these reviews. See Antifriction Bearings

(Other Than Tapered Roller Bearings) and Parts Thereof From France, et

al.; Final Results of Antidumping Duty Administrative Reviews, Partial

Termination of Administrative Reviews, and Revocation in Part of

Antidumping Duty Orders, 60 FR 10900 (February 28, 1995). When a

company refuses to provide the information requested in the form

required, or otherwise significantly impedes the Department's

proceedings, we assign that company first-tier BIA, which is the higher

of: (1) The highest of the rates found for any firm for the same class

or kind of merchandise in the same country of origin in the less-than-

fair-value (LTFV) investigation or a prior administrative review; or

(2) the highest calculated rate found in this review for any firm for

the same class or kind of merchandise in the same country of origin.

When a company substantially cooperates with our requests for

information including, in some cases, verification, but failed to

provide complete or accurate information, we assign that company

second-tier BIA, which is the higher of: (1) The highest rate

(including the ``all others'' rate) ever applicable to the firm for the

same class or kind of merchandise from either the LTFV investigation or

a prior administrative review or, if the firm has never before been

investigated or reviewed, the all others rate from the LTFV

investigation; or (2) the highest

[[Page 62549]]

calculated rate for any firm in this review for the class or kind of

merchandise from the same country of origin. See Allied-Signal

Aerospace Co. v. United States, 996 F.2d 1185 (Fed. Cir. 1993).

We applied second-tier BIA to Rubberflex. While Rubberflex

cooperated throughout the administrative review by submitting

questionnaire responses and submitting to verification, we found that

responses provided by Rubberflex could not be verified. Accordingly, we

resorted to BIA pursuant to section 776(b) of the Act. The deficiencies

are outlined in detail in the preliminary results of review and in the

public version of the memorandum on Rubberflex's Failed Verification

from Holly Kuga to Jeffrey P. Bialos, dated December 12, 1996.

In this case, the BIA rate is the highest calculated rate for any

firm in this review for the class or kind of merchandise from the same

country of origin. Thus, as a result of our review, we determined the

dumping margin for Rubberflex to be 29.83 percent.

Comments Concerning Rubberflex

Rubberflex argues that the Department was not justified in

disregarding its responses and assigning a total BIA rate in the

preliminary results. Rubberflex contends that the Department verified

Rubberflex's questionnaire responses, and that, at most, the Department

should use partial BIA for certain aspects of its dumping calculations.

Rubberflex made numerous detailed arguments refuting and rebutting the

Department's preliminary results, verification report, and verification

failure memo. We have addressed these to the greatest extent

practicable in this notice. However, many of the comments are extremely

detailed and many can only be completely addressed by reference to

proprietary data. Accordingly, we addressed each comment in complete

detail in a proprietary analysis memorandum to the file dated November

12, 1997.

Comment 1: Reconciliation of Sales, Profit and Expenses. Rubberflex

maintains that it provided the Department with a reconciliation of its

calendar year 1993 and 1994 trial balances to the appropriate audited,

consolidated financial statements at verification. Rubberflex states

that, contrary to the verification report, total sales, profit,

financing expenses, and indirect selling expenses were reconciled to

the audited financial statements.

DOC Position: We agree that Rubberflex was able to reconcile the

total value of the expenses reported on the trial balance to its

audited financial statements for the above-mentioned figures. We

disagree that this had any bearing on the verification of the amounts

reported in the questionnaire response. This reconciliation was not

what was requested of the company at verification. Rubberflex

voluntarily provided the reconciliation of sales, cost and profit from

the trial balance to the audited financial statement in response to the

Department's request that it demonstrate that the indirect selling

expenses figures provided in the revised response provided at

verification tied to the audited financial statements. Rubberflex did

not demonstrate that the figures reported in its revised response for

indirect selling expenses and G&A tied to its audited financial

statements.

Comment 2: Reconciliation of Rubberflex's Affiliates' Financial

Statements. Rubberflex disputes the Department's determination that its

home market indirect selling expenses did not reconcile to its current

financial statement due to the fact that indirect selling expenses

incurred in Rubberflex's U.K. and German branch offices (expenses which

account for differences between the home market indirect selling

expenses and the financial statement) could not be verified. Rubberflex

contends that during verification it demonstrated how total sales,

expenses, and profits of the U.K. and German branches accounted for

differences between consolidation totals and totals for Rubberflex in

Malaysia. Further, Rubberflex claims that it should not be held

accountable for providing original copies of the auditors'

consolidation worksheets in the short time permitted at verification.

Rubberflex also contends that it stressed during verification that

information involving its U.K. and German branches could only be

accurately verified on site in those particular countries.

DOC Position: We disagree. It is one of the primary requirements of

verification that a company is required to tie the information in its

questionnaire response to its audited consolidated financial

statements. Rubberflex failed to do so at verification. Rubberflex is

essentially arguing that we should accept their attempt, but ultimate

failure. We disagree. Given the circumstances of this review, where

Rubberflex provided numerous, inadequately explained or documented

revisions to its questionnaire response, Rubberflex's failure in this

regard undermines the entire verification.

Comment 3: Italian Sales List. Rubberflex states that the

Department verified that all Italian sales were reported. Moreover,

Rubberflex contends that the Department noted no discrepancies when

Rubberflex tied Italian sales to its 1993/94 audited financial

statements and other ledger balance accounts. Rubberflex claims that

the sales prices and quantity for all third-country sales reviewed by

the Department tied to source documents presented by Rubberflex, except

for one minor discrepancy in the quantity reported in the sales list.

DOC Position: The Department did not note any discrepancies in its

verification report with respect to the volume and value of sales to

Italy. However, we did not verify the price of Italian back-to-back

sales or inventory sales, since the proof of payment information is

kept in Italy.

Comment 4: Foreign Inland Freight, and Brokerage and Handling.

Rubberflex contends that these expenses were reported on a transaction-

specific basis, and charged on a flat-rate based on the size of the

container or the bill of lading. Although Rubberflex was unable to

present original invoices for these expenses, or proof of payment on

two preselected sales, Rubberflex contends that it was able to

demonstrate that the flat fee allocated according to the actual

quantity shipped tied to amounts reported in its response.

DOC Position: We agree that Rubberflex was unable to present

original invoices for these expenses, or proof of payment on two

preselected sales. In addition, our December 12, 1996 memorandum

Rubberflex Sdn. Bhd.: Reasons for a determination of failed

verification for the 1993-1994 and 1994-1995 reviews of extruded rubber

thread from Malaysia (A-557-805) (December 12, 1996 memorandum) states

that, Rubberflex was missing a number of freight invoices and/or the

batch statements tying the invoices to the financial statements, and as

a result, [we] could not document freight expenses from the factory to

the port. Therefore, we disagree that Rubberflex was able to

demonstrate that the flat fee allocated according to the actual

quantity shipped tied to amounts reported in its response.

Comment 5: Ocean Freight. Rubberflex claims that the Department

verified ocean freight on sales to Italy on a transaction-specific

basis, and found no discrepancies in the information presented with

respect to pre-selected sales.

DOC Position: We agree with Rubberflex's characterization of the

verification of ocean freight.

Comment 6: Credit Expenses in the Home Market. Rubberflex states

that its original response contained the

[[Page 62550]]

information needed to calculate credit expenses for third-country sales

and that this response was neither revised nor found to contain any

significant errors during verification.

DOC Position: Our verification report notes that Rubberflex

reported the appropriate expenses for its net interest expense in the

cost response, but omitted certain expenses related to export credit

refinancing (EAR) expenses from its calculation of the interest rate

used in home market sales. Therefore, we disagree with Rubberflex's

contention that credit expenses for third-country sales were verified

as reported.

Comment 7: Packing Expenses Incurred in the Home Market. Rubberflex

claims that at the beginning of verification, it disclosed to the

Department that it had erroneously allocated the cost of all factory

workers' benefits in the category of fixed overhead costs, rather than

allocating that cost among direct labor costs, fixed overhead costs,

and packing labor costs. Rubberflex stated that a corrected worksheet

reflecting this reallocation was submitted to the Department at the

beginning of the cost verification, and subsequently verified.

Rubberflex contends that a comparison of the original to the corrected

worksheets reveals only minor changes in the calculation of packing

labor costs. Further, Rubberflex also contends that it submitted an

additional worksheet which proved that the reallocation did not affect

the total cost of production (COP) or constructed value (CV).

DOC Position: We agree with Rubberflex that we found only minor

discrepancies in Rubberflex's calculation of packing material and labor

expenses. However, we disagree that Rubberflex presented any

documentation at the beginning of verification to demonstrate what

changes it made to the classification of labor expenses in its sales

and cost response. Rubberflex did make a general oral statement that it

had reallocated some labor costs across packing, indirect overhead and

factory labor, but it did not spell out those changes. The Department

then directly and repeatedly requested Rubberflex to provide this

information in writing, which it said it would do. However, Rubberflex

failed to report any of its changed allocations until each subject

arose in the course of the verification.

Comment 8: Indirect Selling Expenses Incurred in the Home Market.

Rubberflex states that the worksheets provided in its questionnaire

response regarding home market indirect selling expenses and general

and administrative expenses (G&A) were based on its auditor's

presentation of G&A expenses, which in turn were based on Rubberflex's

trial balance and general ledger. Rubberflex contends that the titles

of the concepts listed in the auditor's presentation did not always

relate directly to the titles of the accounts used by Rubberflex in the

ordinary course of business because the auditor collapsed several

accounts into a single concept. Rubberflex further contends that while

preparing for verification, it discovered that the worksheets in its

response required two corrections. However, Rubberflex maintains that:

(1) It disclosed these changes on the first day of verification, (2)

the Department reviewed these revisions, and (3) these revisions were

tied to the financial statements.

DOC Position: As we explained in the Best Information Available for

Rubberflex section of this notice and the Department's position to

Comments 1 and 2, Rubberflex failed to demonstrate that it reported all

of the appropriate indirect selling expenses and G&A expenses to the

Department, despite three separate submissions, and that it failed to

tie the reported expenses to its audited financial statements. It

failed to provide a worksheet, or any other type of document,

reconciling the titles and concepts used in its trial balance to those

on the audited financial statements. (See page 2 of the Department's

December 12, 1996 memorandum concerning the verification failure for

Rubberflex.) Therefore, Rubberflex failed to demonstrate that it

included all appropriate indirect selling expenses and G&A expenses in

its revised exhibit, and that those expenses tied to the total amount

of expenses recorded for Rubberflex Malaysia on Rubberflex's financial

statements.

Comment 9: U.S. Sales Listing. Rubberflex contends that it

demonstrated at the verification in Malaysia that (1) all purchase

price (PP) sales entered into the United States during the review

period were reported; (2) it accurately reported the date of sale for

PP sales as the Malaysian bill of lading date; and (3) it accurately

reported foreign inland freight, packing, indirect selling expenses,

brokerage and handling, international freight and marine insurance

pertaining to U.S. sales that were incurred in Malaysia.

DOC Position: We disagree with Rubberflex's characterization of the

verification of the U.S. sales. Our review of Rubberflex's U.S. sales

reporting during the U.S. portion of the verification revealed a great

deal of confusion concerning the date of sale and the accuracy of the

computer sales listing. Rubberflex was unable to demonstrate that the

price, quantity and date of sale were accurately reported on the

computer sales listing. At verification in Malaysia, and in the

questionnaire response, the date of sale for all PP sales was

identified as the Malaysian bill of lading date. However, in the United

States, company officials stated that for certain consignment sales,

which were made prior to importation, Rubberflex used the date on which

the rubber thread is withdrawn from Rubberflex's customer's inventory

as the date of sale. Thus, the questionnaire response, and the

Malaysian verification findings, were contradicted. Moreover, because

Rubberflex failed to indicate on its computer tape which sales were

consignment sales, it was not possible to know what date of sale was

operative for any of the sales listed on the computer tape.

With respect to the accuracy of the other expenses: (1) The

problems with foreign inland freight and indirect selling expenses are

discussed elsewhere, and (2) we found only minor discrepancies with

ocean freight, marine insurance or brokerage and handling.

Comment 10: The Total Volume and Value of PP and Exporter's Sales

Price (ESP) Sales. Rubberflex argues that the Department was able to

reconcile the quantity and value of Rubberflex's sales to the response

after certain adjustments were made at the U.S. verification.

Rubberflex contends that, at the U.S. verification, Rubberflex provided

worksheets that traced the reported quantities and values of the U.S.

sales to Rubberflex's audited financial statements.

DOC Position: We disagree. The verification report establishes that

Rubberflex was never able to conclusively demonstrate that its U.S.

sales were correctly reported. Rubberflex was not able to demonstrate

the validity of the information provided on the computer tapes by the

end of the verification.

As Rubberflex explains in its case brief, it presented a

reconciliation of the volume and value of sales from its financial

statements to the response. We found a number of clerical errors and

omissions, such as credit memos that were initially omitted from the

reconciliation exercise because they were omitted from the response. We

found that: (1) Certain sales were reported in two review periods; (2)

others were misclassified between PP and ESP sales; (3) the date of

sale for certain PP sales was misreported; and (4) Rubberflex could not

reconcile its

[[Page 62551]]

credit memos to the specific line items on the computer tape. Given

that we found errors in almost every phase of the numerous attempted

reconciliations of U.S. sales, it is not accurate to claim, as does

Rubberflex, that the quantity of U.S. sales was in any way reconciled

completely. Consequently, we found that these errors and omissions

undermined the integrity of the response and made the computer tape

unusable for the purpose of calculating a margin.

Comment 11: Date of Sale Methodology for U.S. Sales. Rubberflex

notes that the Department's December 12, 1996 memorandum stated that

Rubberflex failed to use the appropriate date of sale methodology for

purchase price sales in the 1993-1994 review. Rubberflex contends that

the terms of sale sometimes changed between purchase order and the bill

of lading date; thus the essential terms were not set on the purchase

order date. It notes that the reporting methodology for this review is

consistent with the methodology used in both the original investigation

and the prior reviews. Rubberflex contends that the verifiers confirmed

that no entries had been improperly omitted in the beginning of the

1993-1994 period of review.

DOC Position: We disagree that Rubberflex reported all of its sales

to the United States that were required by the questionnaire. Page 33

of our questionnaire asked Rubberflex to report all purchase price

sales that caused the entry of the subject merchandise during the

period of review, regardless of whether the sale date occurred during

the period of review, or prior to the period of review. Rubberflex

claimed at verification both in Malaysia and in the United States that

the terms of the sale, that is, the price and quantity of the sale,

were fixed on the purchase order date, and that the purchase order was

required either to initiate production or shipment. The verification

points to few, if any, changes in the terms of the sale after the

purchase order date. Therefore, by using the Malaysian bill of lading

date as date of sale for PP sales, and by reporting only those sales

that were shipped from Malaysia during the period of review, rather

than all purchase price sales that caused the entry of the subject

merchandise during the review period, (which it had the ability to

report) Rubberflex failed to report all the sales required by the

Department's questionnaire. In addition, at verification, Rubberflex

claimed that all consignment sales that entered the U.S. during the

review period, but were withdrawn from Rubberflex's customer's

inventory after the review period, should have been reported during the

subsequent (1994-1995) review period using the U.S. invoice date as the

date of sale. This date of sale methodology does not agree either with

what was reported in the response, or what was requested in the

Department's questionnaire.

Comment 12: Review Classification According to Date of Entry.

Rubberflex states that its inadvertent error of classifying 37 sales

under two different review periods can be easily rectified, and should

not form the basis for the assignment of total BIA. Rubberflex disputes

the Department's contention that Rubberflex was not able to state with

any clarity for which review the 37 sales should have been reported.

Rubberflex claims that the Department verified the entry dates for the

sales in question and noted no discrepancies. Therefore, Rubberflex

requests that the Department revisit this issue and reclassify those 37

sales into the appropriate review period according to date of entry.

DOC Position: At verification, Rubberflex was unable to

appropriately classify all of its sales to the United States with

regard to review period and type of sale (PP or ESP). We asked

Rubberflex to properly classify 37 of the approximately 125 PP sales

that we found reported in both reviews. Rubberflex claimed that all

consignment sales should be classified in the 1994-1995 review.

However, this classification did not coincide with the narrative of its

response which indicated that it used the Malaysian bill of lading date

as the date of sale. Some of these consignment sales had U.S. entry

dates which occurred during the 1993-1994 review period. Therefore,

since the U.S. entry date always follows the bill of lading date in

Malaysia (since the ship arrives in the U.S. after it leaves Malaysia),

these sales could not properly be classified in the 1994-1995 review.

When the Department tried to examine the rest of the computer sales

listing for the treatment of the date of sale in consignment sales, it

found that Rubberflex did not indicate which sales were consignment

sales on the computer sales listing submitted to the Department.

Consequently, the Department cannot determine whether the rest of the

sales reported on the computer tape were appropriately classified with

respect to review period, and therefore, we have no basis by which to

accurately reclassify these 37 sales or to verify the accuracy of

respondent's classification of the remaining U.S. sales as reported by

respondent.

We note again that it is Rubberflex's responsibility, not the

Department's, to prepare the questionnaire response. The errors we

found at verification in the preparation of Rubberflex's U.S. sales

data were so wide-spread and pervasive that the Department could not

ensure that any of the reported information was correct unless we were

to undertake the task of reconstructing the questionnaire response

ourselves.

Comment 13: ESP and PP Sales. Rubberflex disputes the Department's

determination that it misreported or duplicated the reporting of

certain sales (i.e., certain sales classified as both ESP and PP).

Rubberflex explains that it clarified during verification the reason

why certain invoices were referenced under different review periods and

classified under different U.S. databases. As an example, Rubberflex

states that sales must be reported under various U.S. classifications

because certain consignment sales and sales made out of inventory

normally result in a number of invoices issued by the U.S. affiliate,

whereas the container corresponding to those sales is recorded in

Rubberflex's books as a single invoice. Moreover, Rubberflex claims

that during verification, the Department examined a few invoices having

similar circumstances and indicated its satisfaction with Rubberflex's

explanations, and did not request to view additional invoices.

Rubberflex contends that it properly reported all U.S. sales.

Petitioner contends that Rubberflex confused the standard for when

sales are PP versus ESP. If a subsidiary is fully responsible for

setting the terms of the sale (as Rubberflex's U.S. subsidiary is for

all U.S. sales), that alone makes the sales ESP sales according to

Final Determination of Sales at Less Than Fair Value: Brake Drums and

Brake Rotors From the People's Republic of China, 62 FR 9171, 9171-72

(February 28, 1997)(Comments 14 and 16).

DOC Position: We disagree with Rubberflex. Pages 27 and 28 of the

verification report note that company officials were confused about the

classification of Rubberflex's U.S. sales with respect to ESP and PP

and with respect to review period. At the conclusion of the

verification, company officials were still unable to determine which

sales should or should not be reported, or whether they were PP or ESP

sales.

Comment 14: Credit Memos in the U.S. Market. Rubberflex contends

that the Department overstates the impact of the omitted credit memos

during the POR. Rubberflex claims that its U.S. affiliate identified

the omitted credit

[[Page 62552]]

memos, most of which had no effect on unit price, and thus no effect on

dumping margins of any U.S. sales. Rubberflex disputes the Department's

determination that the omitted credit memos made it impossible to tie

the U.S. sales listing to the U.S. affiliate's financial statements.

DOC Position: We disagree. Rubberflex reported the U.S. price and

quantity net of credit notes, despite instructions in the questionnaire

to record price and quantity adjustments separately. Therefore, it is

not possible to determine which sales have price and quantity

adjustments attributed to them by examining the computer tape.

At verification, Rubberflex was unable to reconcile the credit

memos to the computer sales listing. First, Rubberflex failed to have

its reconciliation (via the mechanism of credit memos) of the PP sales

value from the financial statements to the response prepared at the

beginning of the verification. Second, Rubberflex initially failed to

report all of its credit memos with respect to ESP sales on the

reconciliation from the financial statements to the computer sales

listing. Further examination revealed that Rubberflex had also failed

to revise the computer sales listing to account for these missing

credit memos. Finally, Rubberflex company officials in the United

States stated that they did not know how to tie the credit memos listed

in the verification exhibit 52 to the questionnaire response since

Rubberflex company officials in Malaysia prepared that portion of the

response.

Comment 15: U.S. Inland Freight. Rubberflex claims that it tied its

U.S. average freight expense to its financial statements for a sample

month, except for a small amount due to accruals.

DOC Position: We agree with Rubberflex's characterization of the

U.S. inland freight verification.

Comment 16: Inventory Carrying Costs. Rubberflex contends that it

established the accuracy of all of the figures used to calculate

inventory carrying costs in the United States: the cost of goods sold

in the U.S. and time on the water.

DOC Position: We were unable to examine Rubberflex's inventory

turnover rates and U.S. interest rates during verification and,

therefore, disagree with Rubberflex's contention that we established

the accuracy of all the figures necessary to calculate inventory

carrying costs in the United States. We agree that we found no

discrepancies in the verification of the cost of goods sold in the

United States and time on the water, which are the two other figures

required to verify the inventory carrying costs.

Comment 17: Corrected Worksheets Should Be Part Of The Record.

Rubberflex contends that given the time constraints, it was unable to

present corrected worksheets on the first day of verification, and

therefore, those worksheets, which Rubberflex contends were

subsequently submitted and verified, should not be disregarded.

Rubberflex disputes the Department's finding that it had no worksheets

to demonstrate how the original responses were prepared or why they

were changed or what the relationship was between the original and

revised submissions. Rubberflex contends that corrected worksheets were

submitted during verification, are referred to in the Department's

verification report and are found in the verification exhibits.

Rubberflex states that a side-by-side comparison of the original to the

revised worksheets clearly reveals the relationship between the

documents.

Rubberflex also contends that on the first day of verification, it

suggested to the Department that any corrected worksheets be included

as part of the verification exhibits normally submitted after

verification and that the Department did not object to its proposal.

Rubberflex also states that it repeatedly requested to submit revised

computer tapes to reflect corrections it claims to have presented

during the beginning of verification. However, Rubberflex claims that

the Department never responded to its request.

Petitioner emphasized that Rubberflex did not submit to the

Department a listing of reporting errors at the commencement of

verification, nor was petitioner served such a list, as required by the

Department's regulations. Petitioner contends that Rubberflex's claim

that the Department was advised at the commencement of verification of

certain errors in its submissions should be of no consequence.

DOC Position: As stated in our preliminary results, we found that

the responses provided by Rubberflex could not be verified. The

inaccuracies which render the response unusable for purposes of margin

calculations include the fact that Rubberflex attempted to provide

revised questionnaire responses at verification for home market

indirect selling expenses, direct labor and packing labor expense,

variable overhead, financing expenses and the cost of goods sold; for

these same expenses Rubberflex could not demonstrate how the original

response was supported by documentation, nor could it document the

difference between the original and revised submission for these items.

Rubberflex failed to provide written disclosure of changes made to

its questionnaire response on the first day of verification, although

it was asked to do so. Rather, it provided verification exhibits which

constitute revised questionnaire responses throughout the course of the

verification. Rubberflex also failed to explain and/or quantify the

effects of these revisions, rendering the Department unable to assess

the significance or impact of these changes. As we stated in Elemental

Sulphur From Canada: Preliminary Results of Antidumping Duty

Administrative Review, 62 FR 969, 970 (January 7, 1997), the Department

can accept new information at verification only when (1) the need for

that information was not evident previously, (2) the information makes

minor corrections to information already on the record, or (3) the

information corroborates, supports, or clarifies information already on

the record.

Rubberflex states in its brief that it submitted such revisions at

the beginning of the verification. This is directly contradicted by the

facts on the record. There were 38 verification exhibits covering the

verification in Malaysia. The document concerning packing costs is

exhibit number 18, that regarding direct labor is exhibit number 22 and

that regarding fixed overhead is exhibit number 33. As such, the record

clearly demonstrates that the information was provided piecemeal, and

late in the verification exercise.

We also disagree with Rubberflex's contention that the Department

engaged in any discussion during verification concerning a suggestion

that Rubberflex file any corrected worksheets with the exhibits

normally filed after verification. We further disagree that Rubberflex

engaged in any discussion concerning the provision of a revised

computer tape. Moreover, given the pervasive errors and changes made to

the questionnaire response and the difficulties verifying those

changes, the Department has no reason to believe that a new computer

tape, submitted after verification, would accurately represent the

changes to the response that were presented during the verification.

Under the circumstances of this case, the Department would undermine

its purpose in verifying the questionnaire response by accepting such

new information after verification.

Comment 18: Corporate Structure. Rubberflex disputes the

Department's finding that Rubberflex failed to identify the owners of

its company and the existence of an affiliated European

[[Page 62553]]

company. Rubberflex claims that it demonstrated the identity of its

parent company through its annual return to the Government of Malaysia,

which reports information regarding its shareholders and directors.

Further, Rubberflex contends that it tied the shareholdings from the

annual return to a corporate structure worksheet provided in its

response.

In addition, regarding any European affiliates, Rubberflex contends

that it could not provide documentation regarding the sale of these

companies, which it explained to the Department at verification.

Rubberflex further states that, regardless, the sale of affiliated

European resellers have no relevance to Rubberflex's sales verification

in the home and U.S. markets.

DOC Position: We disagree with Rubberflex that corporate structure

was adequately verified. Rubberflex provided new information at

verification by introducing the existence of a previously unreported

corporate owner. We asked Rubberflex to provide information regarding

whether this company had any affiliation with Rubberflex's customers or

suppliers. However, Rubberflex declined to produce such information.

Rubberflex merely stated, as it does in its case briefs, that the

affiliated European resellers have no relevance to Rubberflex's sales

in the home market and the United States. Consequently, the Department

was unable to satisfy itself regarding whether any related-party sales,

loans, equipment purchases or raw material purchases occurred during

the POR. As the U.S. Court of International Trade stated in Krupp Stahl

A.G. v. United States, 17 CIT 450; 822 F. Supp. 789, 792 (1993), it is

inappropriate for respondents to limit or control which information

they present to the Department in a way that impedes the Department's

ability to confirm the accuracy of the questionnaire response or forces

the Department to use information most beneficial to them.

Comment 19: Direct Material Costs. Rubberflex claims that the

Department verified the direct material costs used in its COP and CV

submissions. Rubberflex contends that the Department examined the

following steps Rubberflex used to calculate the direct material costs:

(1) The compound recipes of direct materials latex and chemicals used

as the basis for determining product-specific cost of productions for

all types of rubber thread; (2) the budgeted costs used to derive the

standard per-unit costs; (3) the actual cost of materials used; and (4)

the variance between standard and actual material costs. Rubberflex

argues that the Department verified the steps by examining batch

records (computer listings which aggregate a number of invoices that

appear as a single line item in the general ledger), testing inventory

formulas, and determining that Rubberflex accurately captured and

reflected all direct material costs incurred during the review period.

Rubberflex notes that the Department questioned the budgeted costs

because they were derived in 1991 and differed from the weighted-

average costs of materials in inventory. Rubberflex stated that these

budgeted costs had not been revised since 1991 because they were still

a reasonable estimation of the costs of the various materials used to

produce rubber thread and none of the costs had changed significantly.

Rubberflex argues that the budgeted costs are a reasonably accurate

tool for predicting costs over time.

DOC Position: We disagree with Rubberflex that per-unit direct

materials cost was verified. We did verify the total material cost

during the POR as well as the actual quantity of materials used.

However, neither of these figures alone is sufficient to calculate the

per-unit cost reported in the questionnaire response. Rubberflex

reported its per-unit material cost by multiplying actual material used

per product by standard material prices to arrive at a standard cost.

To calculate a variance, Rubberflex calculated the total material cost

at standard; it then made a factory-wide adjustment for the difference

between total actual material cost and the total material cost at

standard. This methodology is not, in itself, a problem.

There are two problems which arise from Rubberflex's use of the

1991 standard prices. The first is that Rubberflex was unable to

substantiate how those prices were calculated in 1991 and what those

figures represent. Therefore, it is not possible to evaluate the

accuracy of the per-unit cost calculations. Rubberflex made no attempt

to demonstrate that these prices were reasonable, or that the use of

1991 prices to calculate costs for 1995 products was non-distortive.

The second problem is that the actual material prices paid by

Rubberflex during the POR have changed relative to the 1991 standard

prices that were used as the basis for the company's standard costs and

variance allocation. As the verification report on page 17 states, we

compared the 1991 standard prices with the actual POR prices and found

that the prices of individual materials increased or decreased at

different rates. In several instances the changes were substantial.

Because each product uses a different mix of materials, the cost of

producing each different product would change relative to the cost of

other products produced in the factory. Thus, by neglecting to update

its standard material prices to reflect changes in the actual cost of

materials, Rubberflex failed to accurately capture the per-unit

materials cost for the subject merchandise, both in terms of its

standard cost and for its variance allocation.

Comment 20: Direct Labor Costs. Rubberflex contends that the

Department verified its labor costs in full. Rubberflex argues that it

used the following steps to calculate the direct labor costs reported

in its COP/CV submissions: (1) Calculate actual direct labor cost per

minute of production by dividing total direct labor costs during the

review period by the total production time during the review period;

(2) allocate the cost per minute to specific products based on the

standard number of minutes required to produce particular types of

rubber thread; and (3) adjust the product-specific costs calculated

using the standard yield for the variance between actual and predicted

factory operation.

Rubberflex notes that at the beginning of verification, it

disclosed certain minor revisions, and provided a corrected worksheet,

to the Department. Rubberflex claims that a side-by-side comparison of

the original and corrected worksheets reveals only minor corrections.

In order to verify the corrected worksheet, Rubberflex states that it

traced all of the reported expenses to its trial balance, and traced

from the trial balance to the general ledger and relevant source

documentation.

DOC Position: We agree that Rubberflex followed the method it

outlined to determine direct labor expenses. However, we disagree with

Rubberflex's characterization that these expenses were fully verified.

See DOC Position to comment 17. Rubberflex failed to clearly

demonstrate the impact of these changes on the calculations in the

questionnaire response. For example, Rubberflex contends that the

revised data reflected merely a reclassification of certain labor

costs. Despite the fact that much of Rubberflex's explanation is post

hoc, their own exhibits belie their assertions. An examination of the

exhibits placed side-by-side in exhibit 3 of Rubberflex's brief reveals

numerous and significant differences in the exhibits, differences that

Rubberflex failed to account for.

A second problem arose during the verification of labor expenses.

As we explain on page 15 of our verification report, Rubberflex failed

to provide

[[Page 62554]]

supporting documentation for managerial labor expenses, despite the

Department's request, thus placing control * * * in the hands of

uncooperative respondents who could force Commerce to use possibly

unrepresentative information most beneficial to them. Krupp Stahl, 822

F. Supp. at 792.

Comment 21: Variable Overhead Costs. Rubberflex contends that at

the beginning of verification, it disclosed to the Department two minor

errors concerning its variable overhead costs: (1) Rubberflex reported

the salary of the factory supervisor and manager as variable overhead

costs, rather than fixed overhead costs; and (2) certain components of

variable overhead needed to be corrected to reflect year-end

adjustments. Rubberflex stated that a corrected worksheet reflecting

this reallocation was submitted to the Department during the cost

verification. Rubberflex claims that a side-by-side comparison of the

original and corrected worksheets reveals only minor changes.

Rubberflex states that the costs were verified by the Department and

that final expense figures used were appropriately recorded in monthly

accounts, according to the Department's verification report. In

addition, Rubberflex states that these minor changes were necessitated

by adjustments made by the auditors after performing a physical

inventory of materials.

DOC Position: We disagree. See DOC Position to Comment 17.

Comment 22: Fixed Overhead Costs. Rubberflex contends that at the

beginning of verification, it disclosed to the Department several minor

errors concerning its fixed overhead costs: (1) Rubberflex reported the

salary of the factory supervisor and manager as variable overhead

costs, rather than fixed overhead costs; (2) the cost of all benefits

for workers in the factory was included in fixed overhead cost, rather

than being allocated among direct labor costs, fixed overhead costs,

and packing labor costs; and (3) Rubberflex's auditor made a provision

for writing-off finished goods inventory, which did not exist at the

time of the original questionnaire response. Rubberflex stated that it

provided a corrected worksheet reflecting this reallocation during the

cost verification. Rubberflex contends that the magnitude of any

corrections made with regard to the original worksheet were minor.

Rubberflex contends that the Department verified the corrected

worksheet by tracing expense amounts to source documents, the trial

balance and the general ledger.

DOC Position: We disagree. See DOC Position to Comment 17.

Comment 23: Depreciation. Rubberflex claims that the Department

verified the reported depreciation figures by tracing the figures to

the trial balance, general ledger, asset schedules, and selected

purchase invoices for assets. Rubberflex disputes the Department's

finding in the verification report that it could not rely on the

accuracy of reported depreciation expense due to the fact that the

original cost basis for certain assets acquired prior to 1990 could not

be traced to the appropriate asset schedule in the year of purchase.

Rubberflex justifies its inability to produce original cost basis

information on certain assets by claiming that: (1) It is unreasonable

for accounting or tax purposes to maintain accounting documents for

more than five years, particularly where Malaysian tax authorities do

not require the retention of these documents for that period of time;

(2) Rubberflex was not notified that such documents may be needed for

verification purposes; and (3) the Department traced the annual

depreciation for assets purchased before 1990 to trial balances and

asset schedules for fiscal years 1993, 1994, and 1995, and could

plainly see that the assets were being depreciated in a systematic

manner, which was reviewed and approved by its auditors. Therefore,

Rubberflex claims that its inability to provide original asset

schedules for years prior to 1990 does not provide grounds for the

Department to question the accuracy of the reported costs.

DOC Position: We disagree with Rubberflex that its inability to

provide original asset ledgers for certain items requested is not a

verification problem. The verification report specifies that we became

aware that Rubberflex purchased certain major pieces of capital

equipment from an affiliated party. Examples of these purchases are

recorded on verification exhibit 36. Pages 18 and 19 of the

verification report note that we attempted to determine whether the

transfer price of such equipment, and the associated depreciation

expenses, represented arm's-length transactions. Rubberflex failed to

provide information responsive to our request. Thus, we were unable to

satisfy ourselves in this regard.

We agree that Rubberflex reported the depreciation expenses on its

books and records, which were audited and in accordance with Malaysian

GAAP. Normally we use the costs and expenses recorded on the company's

books and records, provided that we are satisfied that such costs are

non-distortive. In this case, we had reason to question whether the

depreciation expenses recorded on Rubberflex's books where under-or

overstated (i.e. distortive) by reason of an affiliated party

transaction.

Finally, it is reasonable to request Rubberflex to document the

figures that it used to record its depreciation expense on its books

and records. Rubberflex depreciates certain machines and buildings for

more than 5 years and reflects those figures on its books and records.

It is standard verification practice to ask companies to demonstrate

the figures, and to keep documentation supporting information submitted

in an antidumping proceeding, for the purpose of verification. The U.S.

Court of International Trade held in Krupp Stahl, 822 F. Supp. at 792,

that, despite the fact that the German authorities did not require the

company to maintain business records for more than five years, it did

not absolve a respondent in an antidumping proceeding of the

responsibility of providing source documents to support its

questionnaire response.

Comment 24: General and Administrative (G&A) Expenses. Rubberflex

states that at the beginning of verification, it submitted a revised

worksheet which properly captured certain G&A expenses. Some of these

expenses were misclassified as G&A expenses in the original

questionnaire response and, therefore, were not properly included in

the worksheet for indirect selling expenses. Rubberflex further

explains that it provided worksheets and source documentation which

substantiated its allocation methodology with regard to indirect

selling expenses and G&A expenses. Rubberflex contends that the

Department traced the amounts shown in the revised worksheet to

relevant trial balances, source documentation, and the general ledger.

DOC Position: We disagree. See DOC Position to Comment 17. The G&A

expenses in the original questionnaire response were presented in a

different format from the G&A expenses in the revisions presented at

verification, so direct comparisons are not possible. Rubberflex never

presented a systematic explanation of how individual elements of G&A

were affected by the revisions, nor how or why the totals changed.

Rather, as with variable overhead, the Department was left with

insufficient time and information to evaluate the magnitude of the

change. Again, this was a situation where a company's failure to

reconcile its submitted costs to its normal books and records prevents

us from quantifying the magnitude of the distortions which exist in its

[[Page 62555]]

submitted data. Certain Cut-to-Length Carbon Steel Plate From Sweden:

Preliminary Results of Antidumping Duty Administrative Review, 61 FR

51898, 51899 (October 4, 1996) (the Department's position adopted in

the final results of review, 62 FR 18396 (April 15, 1997)).

Finally, contrary to Rubberflex's assertion, it was unable to tie

the specific line items from its revised worksheets to the audited

financial statements. The fact that total profit, sales, and cost of

goods sold (COGS) figures were traced is irrelevant. It is precisely

the items which could not be traced--the components of G&A--which were

under evaluation at verification.

Comment 25: Financing Expense. Rubberflex states that while

preparing for verification it discovered slight errors related to the

amounts reported for bank charges and interest on bills refinanced.

Rubberflex further states that these corrections were presented to the

Department at verification and that it demonstrated the accuracy of the

revised worksheet by tying the total financing expenses and interest

received to the total expenses stated in the trial balance for

financing expenses and interest received, respectively.

DOC Position: We disagree. See DOC Position to Comment 17 and pages

20 and 21 of the verification report.

Comment 26: Conduct of the review. Rubberflex contends that it

fully cooperated under difficult circumstances during this proceeding

and that the Department must bear a significant portion of the

responsibility for any problems that arose at verification. In addition

to the short preparation time given to Rubberflex prior to the

verification, Rubberflex enumerates a list of Departmental procedural

errors, which Rubberflex contends unfairly prejudiced its interests and

resulted in the use of BIA in the preliminary results. According to

Rubberflex, these procedural errors were due to the Department's

untimely handling of the case. Rubberflex stated that it did the best

it could under these circumstances to cooperate fully and that it

submitted its responses and verification exhibits in a timely manner,

and prepared for the verification to the extent possible given the time

available.

DOC Position: We agree with Rubberflex that there was a great deal

of case activity within a relatively short period in 1996. However, we

disagree that we unfairly prejudiced Rubberflex by our conduct of the

case. The supplemental questionnaires for this and the 1994-1995 review

were relatively short and not overly demanding and Rubberflex was given

adequate time to respond. The record reflects that Rubberflex was given

several extensions of time to submit its data; in fact, Rubberflex was

granted every extension request it made. Finally, Rubberflex was given

sufficient notice of the timing of verification, and the Department

followed the same standard procedures, and issued a standard

verification outline which was substantially similar for the

verification of information in both the 1993-1994 and 1994-1995

reviews. These procedures were similar to those followed in the

original investigation, when Rubberflex underwent verification. Thus,

there is little evidence that the Department's conduct of the case

placed an unreasonable burden on Rubberflex. Rather, in this case, as

in virtually every case the Department conducts, the burden on

respondents is to provide accurate and timely data which can be

verified. To the greatest extent possible, the Department strives to be

flexible with deadlines for respondents; ultimately, however, it is

respondents' responsibility to meet this burden. Nevertheless, we took

into account Rubberflex's level of cooperation in this case in our

selection of the appropriate BIA rate for Rubberflex's antidumping

margin. (See Best Information Available for Rubberflex section above.)

Comment 27: Partial BIA. Because of the arguments presented,

Rubberflex claims that the application of a total BIA is not warranted.

Rubberflex contends that during verification, it tied all information

submitted in its original response to its trial balance, and

ultimately, to its audited financial statements. Further, Rubberflex

emphasizes that because the Department verified virtually all of the

submitted sales and cost data, the fact that a few minor errors were

disclosed at the commencement of verification should not provide the

legal basis for the Department to disregard its entire response and

resort to BIA. Rubberflex cites to prior Departmental determinations in

which the Department states that it will resort to BIA only for those

specific items of the response that it was not able to verify. See

Notice of Preliminary Results of Antidumping Duty Review; Roller Chain,

Other Than Bicycle, From Japan, 61 FR 28171, (June 4, 1996); Final

Results of Antidumping Duty Review and Revocation in Part of

Antidumping Duty Order on Tapered Roller Bearings and Parts Thereof,

Finished and Unfinished from the People's Republic of China, 62 FR

6189, (February 11, 1997). Rubberflex concedes that it did not submit

an error-free response. However, Rubberflex states that minor errors

and corrections were presented to the Department during verification.

Rubberflex argues that the fact that some corrections were not

presented on the first day of verification does not provide the

Department reasonable grounds for disregarding them because Rubberflex

was provided only two days for verification preparation. Therefore, in

light of the above-mentioned circumstances, Rubberflex's cooperation in

this review, and Rubberflex's claims that the Department was able to

verify its responses, Rubberflex argues that the Department does not

have legal grounds to use total BIA.

Petitioner contends that because the Department determined during

verification that Rubberflex's questionnaire responses were wholly

deficient and unverifiable, Rubberflex should therefore be assigned a

total BIA rate. Petitioner cites to the Department's Analysis

Memorandum of December 12, 1996 and the verification report, which

document Rubberflex's uncooperativeness due to misreportings,

inaccuracies and omissions of certain information. Petitioner therefore

argues that the Department should assess a margin which corresponds to

criteria outlined in the Department's Antidumping Manual; * * * when a

substantial amount of a response does not verify, the Department will

normally assign the highest margin for the relevant class or kind of

merchandise among (1) the margins in the petition, (2) the highest

calculated margin of any respondent within that country * * * See U.S.

Department of Commerce, Antidumping Manual, July 1993, Ch. 6, at 3.

Further, Petitioner disputes that Rubberflex's claimed errors are

minor. Petitioner contends that Rubberflex's purported justification

for such errors, which Rubberflex claims were the result of year-end

accounting adjustments, are unsubstantiated, and unpersuasive.

Petitioner contends that any year-end adjustments should have been

reported long before verification. Petitioner emphasizes that even

minor errors would nevertheless generate an inaccurate margin

calculation, which would place the U.S. industry at a disadvantage,

given that extruded rubber thread is a commodity, price-sensitive

product.

Petitioner emphasizes that Rubberflex did not submit to the

Department a listing of errors at the commencement of verification, nor

was petitioner served such a list, as required by the Department's

regulations. Petitioner contends that Rubberflex's claim that the

Department was advised at the

[[Page 62556]]

commencement of verification regarding certain errors in its

submissions is therefore of no consequence.

DOC Position: We disagree with Rubberflex that the Department was

able to verify Rubberflex's questionnaire response and tie all of the

information provided in the original response to the trial balance, and

ultimately to the audited financial statements. We have addressed this

issue in the Best Information Available for Rubberflex section of this

notice.

Comments Concerning Other Respondents

Comment 28: ESP versus PP Sales. The petitioner alleges that

Heveafil's back-to-back sales are ESP, and not PP sales, as reported in

the questionnaire response. The petitioner argues that the name back-

to-back sales indicates that the U.S. subsidiary makes the sale and

determines the price of the merchandise in the United States.

Petitioner also notes that both Heveafil's and Filati's April 24, 1995

questionnaire responses indicate that the company's per-unit price is

not fixed until the U.S. subsidiary issues the invoice to the U.S.

customer.

Petitioner further contends that the Department has found that

sales made under circumstances like those made by Heveafil and Filati

are ESP sales. Petitioner notes that in Brake Drums and Brake Rotors

from the PRC: Preliminary Determination of Sales at Less Than Fair

Value and Postponement of Final Determination, 61 FR 53190, 53194

(October 3, 1996), the Department stated that the responsibilities of

the U.S. affiliates go well beyond those of a processor of sales

related documentation or a communication link and therefore designated

the sales in question as ESP sales. Petitioners note that in Certain

Cold-Rolled and Corrosion-Resistant Carbon Steel Flat Products from

Korea; Preliminary Results of Antidumping Duty Administrative Review,

61 FR 51882, 51885 (October 4,1996), the Department found it more

appropriate to determine that sales were CEP sales where: (1) The U.S.

subsidiary was the importer of record and took title to the

merchandise; (2) the U.S. subsidiary financed the relevant sales

transactions; (3) and the U.S. subsidiary assumed the seller's risk.

Petitioner argues that Heveafil's and Filati's sales meet these

criteria.

Heveafil and Filati contend that the Department has repeatedly

treated back-to-back sales as PP sales in the original investigation

and in all prior administrative reviews. They note that Commerce

verified that the characterization of the sales is correct in both the

original investigation and the first administrative review.

Specifically, respondents argue that back-to-back sales must

continue to be treated as purchase price sales, in accordance with the

Department's practice for determining indirect PP/EP sales as set forth

in Certain Corrosion-Resistant Carbon Steel Flat Products from Korea;

Final Results of Antidumping Duty Administrative Review, 61 FR 18547

(April 26, 1996). Heveafil and Filati argue that because petitioner has

not submitted any new factual information that would warrant altering

the treatment of these sales, the Department must not depart from its

position in previous determinations. Accordingly, Heveafil and Filati

argue that back-to-back sales conform to the Department's practice in

the following ways: (1) Sales were made prior to importation; (2) the

subject merchandise was shipped directly to the unrelated customer

without entering the inventory of the related selling agent; (3) direct

shipment to the unrelated buyer was the customary commercial channel

for sales of this merchandise between the parties involved; and, (4)

the related selling agent in the United States acted only as a

processor of sales-related documentation and a communication link with

the unrelated U.S. buyers. For the sales made prior to importation,

Filati and Heveafil further note that date of sale was reported as the

bill of lading date, which occurred before importation, a methodology

argued to be consistent with the Department's past determinations.

DOC Position: We agree that Heveafil's and Filati's back-to-back

sales are properly treated as PP sales. Each company explained in its

questionnaire response that the back-to-back sales were made prior to

importation, and shipped directly to the unrelated buyer without ever

entering a branch office warehouse. They noted that the branch office

served only as a processor of sales related documents. Section 772(b)

of the Act states that: The term `purchase price' means the price at

which merchandise is purchased, or agreed to be purchased, prior to the

date of importation, from a reseller or the manufacturer or producer of

the merchandise, for exportation to the United States. Heveafil's and

Filati's back-to-back sales fall within the criteria for purchase price

sales set forth in section 772(b) of the Act. Since there has been no

record evidence submitted in this segment of the proceeding that would

cause us to alter our treatment of these sales as PP sales, we are not

making any changes to our calculations.

Comment 29: Adjustments for Countervailing Duties (CVDs) Paid.

Heveafil, Filati and Rubfil contend that the Department must increase

the U.S. price for certain countervailing duties paid on imports of the

subject merchandise pursuant to the CVD order. In accordance with

section 772(d)(1)(D) of the Act, the Department should increase U.S.

price by the amount of any countervailing duty imposed on the subject

merchandise to offset an export subsidy. The Department, however, has

not made adjustments nor increased U.S. price for export subsidies if

foreign market value (FMV) has been based on CV. Respondents note that

the Department has declined to make adjustments when FMV is based on

CV, on the grounds that any benefit conferred through the export

subsidy is reflected in the production costs as well as in U.S. price.

(See Notice of Final Results of Antidumping Duty Administrative Review:

Extruded Rubber Thread from Malaysia, 61 FR 54767 (October 22, 1996).

Respondents assert that export subsidies, specifically income tax

holidays and income tax abatements, are not reflected in a company's

production costs and must be included in an adjustment to U.S. price.

They note that income taxes are not an element of the cost of

production. Respondents note that the following Malaysian export

subsidy programs found in the second and third countervailing duty

reviews, qualify as income tax holidays or income tax abatements and

thus, should be used in an adjustment to U.S. price: (1) Pioneer

Status; (2) Abatement of Income Tax based on Ratio of Export Sales to

Total Sales; (3) Abatement of Five Percent of the Value of Indigenous

Malaysian Materials Used in Exports; (4) Industrial Building Allowance;

and, (5) Double Deduction for Export Promotion Expenses.

DOC Position: We agree with respondents that the programs: (1)

Pioneer Status, (2) Abatement of Income Tax Based on the Ratio of

Export Sales to Total Sales, (3) Abatement of Five Percent of the Value

of Indigenous Malaysian Materials Used in Exports, (4) Industrial

Building Allowance, and (5) Double Deduction for Export Promotion

Expenses have been found countervailable and classified as export

subsidies in the most recently completed countervailing duty review,

Extruded Rubber Thread from Malaysia; Final Results of Countervailing

Duty Administrative Review, 60 FR 55272 (October 25, 1996).

Therefore, in accordance with section 772(d)(1)(D) of the Act, we

increase U.S. price by the amount of any

[[Page 62557]]

countervailing duty imposed on the merchandise * * * to offset an

export subsidy. The two most recently completed CVD reviews, Extruded

Rubber Thread from Malaysia; Final Results of Countervailing Duty

Administrative Review, 61 FR 55272 (October 25, 1996) for calendar year

1993 and Extruded Rubber Thread from Malaysia; Final Results of

Countervailing Duty Administrative Review, 60 FR 51982 (October 4,1995)

covering calendar year 1994, apply to this review. The calendar year

1993 CVD review found country-wide ad valorem net subsidies of 1% for

all companies, of which 0.28% consisted of export subsidies. Since this

total net subsidy rate is not de minimis within the meaning of 19 CFR

355.7 (section 355.7 of the Department's regulations), countervailing

duties will be imposed and we must increase U.S. price by the amount of

any countervailing duty imposed on the merchandise * * * to offset an

export subsidy. In the CVD review covering calendar year 1994, we found

company-specific ad valorem net subsidies of 0.23% for Heveafil, 0.19%

for Rubberflex, 0.38% for Rubfil and 1.39% for Filati (of which 0.15%

constituted export subsidies). These net subsidy rates, with the

exception of Filati's, are de minimis within the meaning of section

355.7 of the Department's regulations, and thus, duties will not be

imposed within the meaning of section 772(d)(1)(D) of the Act. Since

Filati's rate during both of these two CVD review periods was not de

minimis within the meaning of section 355.7 of the Department's

regulations, we therefore increased U.S. price in the antidumping duty

calculation for Filati by the amount of the countervailing duty imposed

on the subject merchandise to offset the export subsidies. The amount

of duty imposed to offset export subsidies is 0.28% for the period

October 1, 1993 through December 31, 1993, and 0.15% for the period

January 1, 1994 though September 30, 1994. We made no adjustments for

Rubberflex since we used BIA to determine the margin.

However, we do not increase U.S. price under section 772(d)(1)(D)

of the Act when, like the U.S. price, the foreign market value already

reflects the benefit of the export subsidies, such as in the case of

Heveafil and Rubfil. See, e.g., Notice of Final Determination of Sales

at Less Than Fair Value: Certain Carbon Steel Butt-Weld Pipe Fittings

from India, 60 FR 10545, 10550 (February 27, 1996). FMV for both Rubfil

and Heveafil was based on third-country sales and CV in this review.

With respect to exports to third-country markets, respondents receive

the same benefits from export subsidies as with exports to the United

States. Therefore, the benefits from the export subsidies were

reflected in both the U.S. price and the FMV and no adjustment was made

to U.S. price. For those sales where CV was used as the basis for FMV,

we used third-country SG&A expenses, as well as third-country profit in

determining CV for both companies. Since third-country SG&A and profit

reflect the benefits from the export subsidies, we have similarly made

no adjustment to U.S. price for the benefits from export subsidies.

Comment 30: Import Duties. Filati claims that the Department erred

in not making an adjustment for TAXH, which represents the impact of a

duty imposed on imported inputs used to produce rubber thread which

will later be exported, and is collected only on home market sales.

Filati notes that TAXH is not collected on export sales. It claims that

TAXH is included in the price of its home market sales and is passed on

to its Malaysian customers, and, therefore, constitutes an indirect tax

imposed directly upon the foreign like product which has not been

collected on the subject merchandise. Therefore, Filati argues that

TAXH must be added to U.S. price in accordance with section

772(d)(1)(C) of the Act. Alternatively, Filati proposes that the

Department treat TAXH as a difference in circumstances of sale, and

make a downward adjustment to FMV, in accordance with section

773(a)(4)(B) of the Act.

Petitioner disputes Filati's arguments. It claims that Filati did

not claim that the home market prices it reported to the Department

include these indirect taxes. Petitioner notes that, as a general

matter, respondents usually report home market prices to the Department

already exclusive of indirect taxes. As a result, petitioner argues

that TAXH should not be netted from reported home market sales.

DOC Position: We disagree that these expenses represent a tax

within the meaning of section 772(d)(1)(C). Filati's April 24, 1995

questionnaire response identifies the expense reported in the TAXH

column as a duty on imported merchandise. It is imposed when the goods

are sold in the home market, and remains uncollected when the subject

merchandise is exported. Consequently, contrary to the Filati's

characterization of the expense, the expenses recorded in the TAXH

columns represent a duty, and not a tax. Filati explains that it

includes the amount of this duty in its home market price and passes it

on to its customers. The duty is neither added to nor included in the

price of the export goods. Because this duty is only collected on home

market sales, and not on export sales, we have determined it to be an

uncollected duty within the meaning of section 772(d)(1)(B) of the Act,

rather than an uncollected tax within the meaning of section

772(d)(1)(C) of the Act. Consequently, pursuant to section 772(d)(1)(B)

of the Act, we have revised our calculations by adding the amount of

the uncollected duty to the U.S. price.

Comment 31: Assessment for Filati with Respect to Re-exports of

Covered Merchandise. Filati notes that the Department determined a rate

of 0.00% for the preliminary results of review. It claims that, should

the Department determine a margin for the final results of review, it

should take Filati's re-exports of covered merchandise into account

when determining the assessment rate. Filati contends that it is the

Department's long-standing policy, which has been upheld by the U.S.

Court of Appeals for the Federal Circuit (The Torrington Company v.

United States, 82 F.3d 1039 (Fed. Cir. 1996)), not to calculate or

collect antidumping duties on subject merchandise that is re-exported

without any sale to unaffiliated parties in the United States. Filati

contends that the Department cannot calculate or collect antidumping

duties regarding such imports, because in the absence of sales in the

United States, there is no basis for calculating United States price.

Thus, Filati explains, where a respondent provides evidence that

merchandise has been re-exported, the Department has modified its

assessment methodology formula to account for the re-exports. Filati

argues that it provided evidence of such entries in its September 23,

1996 supplemental response and that there were no computer programming

instructions in the preliminary results of review to accommodate such

re-exports. Filati further argues that the Department should structure

its assessment instructions along the lines outlined in the

Department's proposed regulations (by dividing the total duties

calculated for the period of review (PUDD) by the entered value of the

sales during the POR, and directing Customs to apply the resulting ad

valorem rate to entries in the POR) as modified by the ``per-unit''

methodology used in the Department's August 31, 1992 memorandum to

Richard W. Moreland, First Administrative Review of 3.5 Inch Microdisks

and Coated Media Thereof from Japan (Microdisks), Decisions Made with

Respect to Issuing Assessment Instructions for all Five

[[Page 62558]]

Japanese Companies which had an either PP and ESP Sales Transactions of

3.5-Inch Microdisks and Coated Media. Filati argues that this new ad

valorem assessment rate should be calculated by dividing PUDD by the

entered value of sales and then multiplying the result by the value of

entries minus the value of re-exports divided by the value of entries

(PUDD/entered value of sales* (value of entries-value of re-exports)/

value of entries).

DOC Position: We have recalculated the margin for Filati and found

that none of the sales were made at prices that incurred a margin.

Therefore, the cash deposit rate and the assessment rate is zero and

this issue is moot.

Comment 32: The Calculation of the Average Actual Profit for

Constructed Value. Petitioner contends the Department erroneously used

Heveafil's, Filati's and Rubfil's average actual profit on both

profitable and unprofitable sales for the profit figure in the CV

calculation. Petitioner argues that only profit on profitable sales

should be used in the calculation.

Respondents dispute petitioner's contention, arguing that the

Department calculates profit for CV without excluding below-cost sales.

In support of its argument, respondents rely on Federal-Mogul Corp. v.

United States, 918 F. Supp. 386, 403 (CIT 1996) and Torrington Co. v.

United States, 881 F. Supp. 622, 633 (CIT 1995), as well as a number of

results of reviews of Antifriction Bearings (Other Than Tapered Roller

Bearings) and Parts thereof.

DOC Position: We agree with respondents. Section 773(e)(1)(B)(ii)

of the Act states that the amount of profit in the constructed value of

the imported merchandise shall not be less than 8 percent of the sum of

such general expenses and cost. The Act does not require the Department

to use only above cost sales in its calculation of profit for CV. This

position has been upheld in the court cases mentioned above. Therefore,

we have made no change to our calculations.

Comment 33: The Use of Color as a Model Match Criterion. Petitioner

argues that color should be excluded as a matching criterion.

Petitioner cites Melamine Institutional Dinnerware from Taiwan: Final

Determination of Sales at Less Than Fair Value (Melamine), 62 FR 1726,

at 1773 (January 13, 1997), in which the Department stated that [c]olor

is not a matching criterion in this investigation; thus, it is

inappropriate to treat these products, if otherwise identical, as

identical for purposes of model matching.

According to respondents, color should not be excluded as a

matching criterion. Since color was used in the original investigation

and subsequent reviews, the Department must apply the same matching

criteria in this period of review.

DOC Position: We agree with respondents that color is an

appropriate model matching criterion in this case. The Department has

consistently used color as a product matching criteria in the

investigation and reviews of the AD order. As we stated in our response

to Comment 3 in the Final Determination of Sales at Less Than Fair

Value: Extruded Rubber Thread from Malaysia, 57 FR 38465, 38468 (August

25, 1992) because color can materially affect cost and be important to

the customer and the use of the product, the Department determined at

an early stage of this investigation that color should be included

among the several product matching criteria. See, Final Determination

of Sales at Less Than Fair Value: Extruded Rubber Thread from Malaysia,

57 FR 38465, (August 25, 1992). At this time, petitioner supported this

decision and has since not offered any substantive reasons for changing

the matching criteria. Moreover, color is a characteristic fully in

accordance with the matching criteria as outlined in the January 26,

1994 memorandum to the file, entitled Changing the Department's

Questionnaire Order of the Product Concordance. Petitioner did not

comment on this memo which ranked color as third in the level of

importance for the product matching criteria. With respect to Melamine,

this determination covers a product with different physical

characteristics, different uses and different expectations by the

ultimate purchasers and, therefore, is irrelevant to this case.

Comment 34: Heveafil's Reported Cost Figures. Petitioner notes that

Heveafil reported more than one cost figure for a number of products

without providing any explanation for the provision of more than one

weighted-average cost. In addition, petitioner notes that in its

preliminary results of review, the Department erred in using the

average of these cost figures to calculate the cost of production for

Heveafil. Petitioner argues that by using this average cost, rather

than the highest available cost, Heveafil benefits from the unexplained

ambiguity in the response.

DOC Position: We disagree. Heveafil reported more than one per-unit

cost of production for certain products in the 1994-1995 review, but

did not have this data problem in the 1993-1994 review. Therefore, we

have made no change to our calculation.

Comment 35: Rebates in the Calculation of a Home Market Price for

comparison to COP. Petitioner asserts that the Department failed to

deduct Heveafil's rebates from home market prices prior to conducting

the sales below cost test.

DOC Position: As indicated on lines 76 and 97 of the third-country

sales program issued in the preliminary results of review, we have

taken rebates and discounts into account in our determination of the

appropriate third-country price to be compared with the cost of

production in our cost test. Therefore, we have made no change to our

calculation.

Comment 36: Marine Insurance. Petitioner asserts that Rubfil did

not explain how it calculated its reported cost of marine insurance.

Accordingly, it cannot be determined if marine insurance was correctly

calculated. Petitioner therefore contends that the Department should

use, as BIA, the highest unit U.S. marine insurance cost of U.S. sales

by Rubfil.

Rubfil responds that in its April 27, 1995 response, it explained

that marine insurance was paid according to the terms of a global

insurance policy that covers all risks associated with the shipment of

merchandise from Rubfil's factory to its customers throughout the

world. Rubfil provided a copy of the insurance agreement in exhibit C-

1, which did not explicitly spell out the per-shipment terms of the

policy.

DOC Position: In its December 19, 1996 Analysis Memorandum for the

Preliminary Results of Review for Rubfil, the Department noted that

Rubfil did not fully explain its calculations for marine insurance.

However, we used the information provided in the questionnaire response

to calculate our margins. We did not request Rubfil to submit further

information, and there is no basis for making adverse inferences as

suggested by petitioner. Therefore, we have not changed our

calculations in this regard.

Final Results of Review

As a result of comments received we have revised our preliminary

results and determine that the following margins exist for the period

October 1, 1993 through September 30, 1994:

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

Percent

Manufacturer/exporter margin

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

Heveafil Sdn. Bhd............................................ 0.36

Rubberflex Sdn. Bhd.......................................... 29.83

Rubfil Sdn. Bhd.............................................. 29.83

Filati Lastex Elastofibre (Malaysia)......................... 0.00

[[Page 62559]]

Rubber Thread International.................................. (**)

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

** There were no shipments or sales of covered merchandise that were

subject to this review. The company was not investigated/reviewed for

earlier periods.

The Department shall determine, and the Customs service shall

assess, antidumping duties on all appropriate entries. Individual

differences between United States price and foreign market value may

vary from the percentages stated above. The Department will issue

appraisement instructions directly to the U.S. Customs Service. Since

the final results for the more current review period, October 1, 1994

through September 30, 1995 were published on June 20, 1997, the cash

deposit instructions contained in that notice will apply to all

shipments to the United States of subject merchandise entered, or

withdrawn from warehouse, for consumption on or after June 20, 1997.

The dumping margins established for the October 1, 1993 through

September 30, 1994 period will have no effect on the cash deposit rate

for any firm.

This notice 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 subsequent

assessment of double antidumping duties.

This notice also serves as 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 section 353.34(d) of the Department's

regulations. Timely notification of return/destruction of APO materials

or conversion to judicial protective order is hereby requested. Failure

to comply with the regulations and the terms of an APO is a

sanctionable violation.

This administrative review and notice are in accordance with

section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)), section 771(i) of

the Act (19 U.S.C. 1677f(i)) and 19 CFR 353.22.

Dated: November 12, 1997.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 97-30834 Filed 11-21-97; 8:45 am]

BILLING CODE 3510-DS-P