Notice of Preliminary Determination of Sales at Less Than Fair Value: Vector Supercomputers from Japan.

DEPARTMENT OF COMMERCE

International Trade Administration

[A-588-841]

Notice of Preliminary Determination of Sales at Less Than Fair

Value: Vector Supercomputers from Japan.

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: April 7, 1997.

FOR FURTHER INFORMATION CONTACT: Edward Easton or Sunkyu Kim, 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)

482-1777 or (202) 482-2613.

The Applicable Statute

Unless otherwise indicated, all citations to the Tariff Act of

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

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

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

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

to the current regulations, as amended by the interim regulations

published in the Federal Register on May 11, 1995 (60 FR 25130).

Preliminary Determination

We preliminarily determine that there is a reasonable basis to

believe or suspect that vector supercomputers from Japan are being, or

are likely to be, sold in the United States at less than fair value

(``LTFV''), as provided in section 733(b) of the Act. The estimated

margins of sales at LTFV are shown in the ``Suspension of Liquidation''

section of this notice.

Case History

Since the initiation of this investigation on August 19, 1996

(Notice of Initiation of Antidumping Duty Investigation: Vector

Supercomputers from Japan, 61 FR 43527, August 23, 1996), the following

events have occurred.

On September 12, 1996, the United States International Trade

Commission (``ITC'') notified the Department of Commerce (``the

Department'') of its affirmative preliminary determination (see ITC

Investigation No. 731-TA-750). The ITC found that there is a reasonable

indication that an industry in the United States is threatened with

material injury by reason of imports of vector supercomputers from

Japan.

Based on the information available to the Department, the following

two companies were named as mandatory respondents in this

investigation: Fujitsu Limited (``Fujitsu'') and NEC Corporation

(``NEC''). On September 30, 1996, we presented Section A of the

Department's questionnaire 1 to Fujitsu and NEC. In this case,

Section A of the questionnaire was designed specifically to elicit the

technical information necessary for determining whether a constructed

value analysis rather than a comparison to vector supercomputers sold

in the home market or to third countries was appropriate in this

investigation. NEC did not respond to the Department's Section A

questionnaire. Instead, on October 15, 1996, counsel for NEC sent a

letter to the Secretary of Commerce, enclosing a complimentary copy of

its request that the U.S. Court of International Trade (``CIT'') enjoin

the Department's antidumping investigation. Because NEC did not respond

to Section A of our questionnaire, we were unable to prepare the

remaining sections of the questionnaire for NEC. For a further

discussion, see Memorandum to File from Edward Easton dated November

27, 1996, and the Facts Available section of the notice. Fujitsu's

response to Section A was received on October 25, 1996.

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\1\ Section A of the questionnaire requests information

concerning a company's corporate structure and business practices,

the merchandise under investigation that it sells, and the sales of

the merchandise in all of its markets. Sections B and C of the

questionnaire request home market sales listings and U.S. sales

listings, respectively.

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At the Department's request, Cray Research, Inc. (the petitioner),

and Fujitsu filed comments on the appropriate product model matching

criteria to be used in this investigation on October 16 and 17, 1996,

respectively. On November 13, 1996, we issued Sections B and C of the

Department's questionnaire to Fujitsu. On December 17, 1996, Fujitsu

requested that it be allowed to limit its reporting of home market

sales to only those sales most comparable to Fujitsu's single sale to

the United States made during the period of investigation (``POI'').

The Department, in a letter dated December 26, 1996, permitted Fujitsu

to report data only for those home market sales with the same number of

processing elements as its U.S. sale. Fujitsu submitted its Sections B

and C responses on January 8, 1997. Based on the information received

in Fujitsu's Sections A, B and C responses, the Department issued a

supplemental questionnaire on January 16, 1997. Fujitsu's response to

the supplemental questionnaire was received on January 27, 1997.

On December 12, 1996, at the request of the petitioner, we

postponed the preliminary determination to February 25, 1997. (See

Notice of Postponement of Preliminary Determination: Antidumping

Investigation of Vector Supercomputers from Japan, 61 FR 66653,

December 18, 1996.)

In connection with NEC's appeal to the CIT, on February 18, 1997,

the court, with the consent of the parties to the litigation, enjoined

the Department from issuing its preliminary determination in this

investigation until March 28, 1997. On March 21, 1997, the CIT denied

NEC's request for a preliminary injunction to further enjoin issuance

of the preliminary determination.

Cost of Production Allegation

On November 27, 1996, the petitioner alleged that there are

reasonable grounds to believe or suspect that Fujitsu's home market

sales during the POI were made at prices below the cost of production

(``COP''). We rejected this allegation because it was untimely filed

pursuant to 19 CFR 353.31(c)(i)(i.e., filed less than 45 days prior to

the scheduled date of the preliminary determination). On December 17,

1996, subsequent to the above-cited postponement of the preliminary

determination, the petitioner submitted a second sales-below-cost

allegation concerning Fujitsu's home market sales. We determined that

the second allegation was inadequate for purposes of initiating a cost

investigation. In a letter dated January 2, 1997, we informed the

petitioner of our determination and provided the petitioner with an

outline of supplementary information that would be needed for the

Department to further consider its allegation. On January 14, 1997, the

petitioner refiled its sales-below-cost allegation. The petitioner

supplemented that allegation with additional information on January 24,

1997. Fujitsu submitted rebuttal comments to the petitioner's

allegations in January 1997. Fujitsu's comments are addressed in

memorandums to Richard W. Moreland dated February 13 and 14, 1997.

Based on our examination of the petitioner's January 14, 1997,

allegation, we determined that there are reasonable grounds to believe

or suspect that Fujitsu sold vector supercomputers in the home market

at prices which were below their COP. Accordingly, on January 28, 1997,

we initiated a COP investigation with respect to Fujitsu's home market

sales. See Memorandum to

[[Page 16545]]

Barbara R. Stafford, dated January 28, 1997.

Section D of the Department's questionnaire requesting cost of

production and constructed value (``CV'') data was issued to Fujitsu on

February 12, 1997. On March 13, 1997, the Department extended Fujitsu's

time to respond to Section D of the questionnaire to April 14, 1997.

Accordingly, we are not able to include a COP analysis in our

preliminary determination. We will analyze Fujitsu's COP and CV data

for our final determination.

Postponement of Final Determination and Extension of Provisional

Measures

Pursuant to section 735(a)(2)(A) of the Act, on March 13, 1997,

Fujitsu requested that in the event of an affirmative preliminary

determination in this investigation, the Department postpone its final

determination until not later than 135 days after the publication of an

affirmative preliminary determination in the Federal Register. Our

preliminary determination is affirmative. In addition, Fujitsu accounts

for a significant proportion of exports of the subject merchandise, and

as we are not aware of the existence of any compelling reasons for

denying this request, we are granting Fujitsu's request (under 19 CFR

353.20 (b) (1995)) and postponing the final determination. Suspension

of liquidation will be extended accordingly. See Preliminary

Determination of Sales at Less Than Fair Value: Large Newspaper

Printing Presses and Components Thereof, Whether Assembled or

Unassembled from Japan (61 FR 8029, March 1, 1996).

Scope of Investigation

The products covered by this investigation are all vector

supercomputers, whether new or used, and whether in assembled or

unassembled form, as well as vector supercomputer spare parts, repair

parts, upgrades, and system software shipped to fulfill the

requirements of a contract for the sale and, if included, maintenance

of a vector supercomputer. A vector supercomputer is any computer with

a vector hardware unit as an integral part of its central processing

unit boards.

The vector supercomputers imported from Japan, whether assembled or

unassembled, covered by this investigation are classified under heading

8471 of the Harmonized Tariff Schedules of the United States (``HTS'').

Although the HTS heading is provided for convenience and customs

purposes, our written description of the scope of this investigation is

dispositive.

Period of Investigation

The POI is July 1, 1995 through June 30, 1996.

Facts Available

As discussed above, NEC failed to answer the Department's

questionnaire. On October 15, 1996, NEC sent a letter to the Secretary

of Commerce, enclosing a complimentary copy of its request that the

U.S. Court of International Trade (``CIT'') enjoin the Department's

antidumping investigation. In this letter, counsel stated that ``* * *

my clients will respectfully withhold their response to the

Department's questionnaire until such time as a qualified independent

party * * * is appointed as a ``special master'' to conduct the

investigation.'' We have placed this letter on the record of this

proceeding and it is the last communication we have had with NEC on

that record. NEC's decision not to respond to the Department's request

for information has left the Department with no alternative other than

to proceed on the basis of the facts available.

Section 776(a)(2) of the Act provides that if an interested party

(1) Withholds information that has been requested by the Department,

(2) fails to provide such information in a timely manner or in the form

or manner requested, (3) significantly impedes an antidumping

investigation, or (4) provides such information but the information

cannot be verified, the Department is required to use facts otherwise

available (subject to subsections 782(c)(1) and (e)) to make its

determination. Section 776(b) of the Act further provides that adverse

inferences may be used in selecting from the facts otherwise available

if the party failed to cooperate by not acting to the best of its

ability to comply with requests for information. See also ``Statement

of Administrative Action'' accompanying the URAA, H.R. Rep. No. 316,

103rd Cong., 2d Sess. 870 (``SAA''). NEC's decision not to participate

in the Department's investigation demonstrates that it failed to act to

the best of its ability in this investigation. Therefore, the

Department has determined that an adverse inference is appropriate.

Consistent with Departmental practice in cases where respondents decide

not to participate, as facts otherwise available, we are assigning to

NEC the margin stated in the petition, 454 percent.

Section 776(c) provides that if the Department relies upon

secondary information, such as the petition, when resorting to facts

otherwise available, it must, to the extent practicable, corroborate

that information from independent sources that are reasonably at its

disposal. When analyzing the petition, the Department examined the data

that the petitioner relied upon in calculating the estimated dumping

margin. This calculation was based on a comparison of the export price

of an NEC offer to the normal value of the NEC vector supercomputer

system. The export price was based on the ``best and final offer'' to

supply a U.S. customer with four vector supercomputers manufactured by

NEC. Normal value was based on the estimated constructed value of this

NEC system.

The Department examined the accuracy and adequacy of all of the

information from which the margin was calculated during our pre-

initiation analysis of the petition. For the purpose of this

preliminary determination, we re-examined the information provided in

the petition. The petition included a copy of NEC's English-language

brochure describing the company's SX-4 series vector supercomputer,

including the specifications of this model. The contract value of the

procurement relied upon for the U.S. sale is in the public domain. The

procurement negotiations for NEC's ``best and final offer'' to the U.S.

purchaser are described in an acquisition announcement released by the

University Corporation for Atmospheric Research on May 20, 1996. The

estimated cost build up for constructing the value of the NEC system

used as normal value was based upon the recent cost experience of the

petitioner in building similar supercomputer systems. Cray Research,

Inc. is the only U.S. manufacturer of vector supercomputer systems

comparable in performance to the NEC SX-4 system. We examined the

methodology for estimating the dumping margin on the SX-4 after the

filing of the petition and found it to be satisfactory.

Based on our review of the available evidence, we find that the

information in the petition continues to be of probative value. See SAA

at 870. Therefore, we determine that the petition is corroborated

within the meaning of section 776(c) of the Act.

Product Comparison

As noted above in the ``Case History'' section, the Department

granted Fujitsu's request to limit its reporting of home market sales

of vector supercomputers during the POI to those sales with the same

number of processing elements as the sale made in

[[Page 16546]]

the United States. We selected the home market sale most comparable to

the U.S. sale based on the six-model matching criteria proposed by

Fujitsu and the petitioner. For a further discussion, see Memorandum to

Richard W. Moreland, dated March 26, 1997.

Level of Trade and CEP Offset

As set forth in section 773(a)(1)(B)(i) of the Act and in the SAA

at 829-831, to the extent practicable, the Department will calculate

normal value (``NV'') based on sales at the same level of trade as the

U.S. sales. When the Department is unable to find sales in the

comparison market at the same level of trade as the U.S. sale(s), the

Department may compare sales in the U.S. and foreign markets at

different levels of trade.

Section 773(a)(7)(A) provides that if we compare a U.S. sale with a

home market sale made at a different level of trade, we will adjust the

NV to account for this difference if two conditions are met. First,

there must be differences between the actual selling functions

performed by the seller at the level of trade of the U.S. sale and at

the level of trade of the comparison market sale used to determine NV.

Second, the differences must affect price comparability, as evidenced

by a pattern of consistent price differences between sales at the

different levels of trade in the market in which NV is determined.

For constructed export price (``CEP'') sales, section

773(a)(a)(7)(B) establishes the procedure for making a ``CEP Offset''

when two conditions are met. First, the NV is established at a level of

trade which constitutes a more advanced stage of distribution than the

level of trade of the CEP and, second, the data available do not

establish an appropriate basis for calculating a level-of-trade

adjustment.

In its questionnaire response, Fujitsu reported that the following

functions were performed in the home market for sales to end users:

market research, sales activity, contract negotiations, warranty and

other after-sale service, technical services, installation services,

freight and delivery arrangements, and maintenance. Fujitsu reported

the same selling functions by Fujitsu America, Inc., for the U.S. sale,

which was also to an end user. Fujitsu asserts that should the

Department treat its U.S. sale as a CEP sale, the statutory adjustments

to arrive at CEP would place home market sales at a more advanced level

of trade than the level of trade of the CEP sale. This assertion is

based only on Fujitsu's assumption that a CEP sale is, by definition,

at a different level of trade than the NV level of trade. Fujitsu did

not provide sufficient factual information demonstrating a difference

in levels of trade that would affect price comparability or data to

quantify any such affect.

Based on Fujitsu's responses, we cannot establish that different

levels of trade were involved in the different markets. In response to

our original and supplemental questions concerning level of trade,

Fujitsu reported only very limited and general information on types of

selling functions, which is insufficient for a level-of-trade analysis.

Even if it were possible to determine differences in levels of trade

from this limited data, Fujitsu has not provided any information which

would justify a level-of-trade adjustment. The Department's practice is

to not rely on a presumption that there will be a level-of-trade

adjustment or a CEP offset in CEP price comparisons. The evidence must

establish that the comparison sales are at a more advanced level of

trade and that available data does not provide a sufficient basis for

an adjustment. Absent such information, the Department cannot find that

a CEP offset is authorized by section 773(a)(7)(B).

Fair Value Comparisons

To determine whether Fujitsu's single sale of a vector

supercomputer system to the United States during the POI was made at

less than fair value, we compared CEP to the normal value, as described

in the ``Constructed Export Price'' and ``Normal Value'' sections of

this notice.

Constructed Export Price

We calculated CEP for Fujitsu, in accordance with sections 772 (b),

(c) and (d) of the Act. We found that CEP is warranted because all U.S.

sales activities associated with the single U.S. sale took place in the

United States through a wholly-owned subsidiary of Fujitsu. We

calculated CEP based on the installed price to the first unaffiliated

customer in the United States. We made deductions from the starting

price for the following expenses: foreign inland freight, foreign

inland insurance, foreign brokerage and handling, international

freight, marine insurance, U.S. brokerage and handling, U.S. inland

freight, and U.S. Customs duties.

Pursuant to section 772(d) of the Act, we also made deductions for

direct selling expenses, including imputed credit, installation

service, and training expenses. In addition, we deducted indirect

selling expenses that related to economic activity in the United

States. These included inventory carrying costs and indirect selling

expenses incurred in the home market, and the indirect selling expenses

of the U.S. subsidiary. Finally, we made an adjustment for CEP profit

in accordance with section 722(d)(3) of the Act.

Normal Value

In order to determine whether there was a sufficient volume of

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

we compared Fujitsu's volume of home market sales of the foreign like

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

accordance with section 773(a)(1)(C) of the Act. Fujitsu's aggregate

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

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

merchandise. Accordingly, we determined that its home market was

viable. As noted above in the Product Comparison section of the notice,

we based NV on a home market sale of the product which we identified as

the most comparable to the U.S. sale.

We calculated NV based on the installed price to an unaffiliated

customer and made deductions from the starting price for inland freight

and inland insurance. We made adjustments for differences in the

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

the purposes of this preliminary determination, we recalculated the

difference-in-merchandise adjustment based on the costs of hardware

reported by Fujitsu. In recalculating the adjustment, we included the

cost of software as well as hardware. In addition, in accordance with

section 773(a)(6)(C)(iii) of the Act, we made circumstance-of-sale

adjustments for direct expenses including imputed credit, warranty

expenses, installation and technical service expenses. Finally, we

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

accordance with section 773(a)(6)(B) of the Act.

Currency Conversion

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

official exchange rates in effect on the date of the U.S. sale as

certified by the Federal Reserve Bank.

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

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

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

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

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

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

exposure to exchange rate losses, the

[[Page 16547]]

Department will use the rate of exchange in the forward currency sale

agreement.

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

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

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

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

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

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

determine a fluctuation existed, we substitute the benchmark for the

daily rate, in accordance with established practice. Further, section

773A(b) directs the Department to allow a 60-day adjustment period when

a currency has undergone a sustained movement. A sustained movement has

occurred when the weekly average of actual daily rates exceeds the

weekly average of benchmark rates by more than five percent for eight

consecutive weeks. (For an explanation of this method, see, Policy

Bulletin 96-1: Currency Conversions, 61 FR 9434, March 8, 1996.) Such

an adjustment period is required only when a foreign currency is

appreciating against the U.S. dollar. The use of an adjustment period

was not warranted in this case because the Japanese yen did not undergo

a sustained movement, nor were there any currency fluctuations during

the POI.

Verification

As provided in section 782(i) of the Act, we will verify all

information used in making our final determination.

Suspension of Liquidation

In accordance with section 733(d) of the Act, we are directing the

Customs Service to suspend liquidation of all entries of vector

supercomputers from Japan, as defined in the ``Scope of Investigation''

section of this notice, that are entered, or withdrawn from warehouse

for consumption, on or after the date of publication of this notice in

the Federal Register. For these entries, the Customs Service will

require a cash deposit or posting of a bond equal to the estimated

amount by which the normal value exceeds the export price as shown

below.

The entries must be accompanied by documentation provided by both

the foreign manufacturer/exporter and the U.S. importer which discloses

the following information: (1) The vector supercomputer contract

pursuant to which the merchandise is imported, (2) a description of the

merchandise included in the entry, (3) the actual or estimated price

(agreed to as of the time of importation) of the complete vector

supercomputer system, and (4) a schedule of all shipments to be made

pursuant to a particular vector supercomputer contract, if more than

one shipment is involved. We will also request that the Japanese

manufacturer/exporter(s) submit to the Department the contracts

pursuant to which subject merchandise is imported. These suspension of

liquidation instructions will remain in effect until further notice.

The scope of this investigation includes both complete and

unassembled shipments. Given that vector supercomputer systems may be

entered into the United States in different shipments, it is important

to ensure that the subject merchandise, particularly parts, components,

and subassemblies, be readily identifiable to the U.S. Customs Service

and to the Department. To ensure that any antidumping order which may

issue as a result of this investigation is clear, we are requesting

interested parties to submit their comments on this subject to the

Department by May 5, 1997. Reply comments will be due by May 19, 1997.

The weighted-average dumping margins are as follows:

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

Weighted-

average

Exporter/manufacturer margin

percentage

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

Fujitsu.................................................... 27.17

NEC *...................................................... 454.00

All Others................................................. 27.17

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

* Facts Available Rate.

Pursuant to section 735(c)(5)(A) of the Act, the Department has

excluded the margin determined entirely under section 776 of the Act

from the calculation of the All Others rate.

ITC Notification

In accordance with section 733(f) of the Act, we have notified the

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

the ITC will determine before the later of 120 days after the date of

this preliminary determination or 45 days after our final determination

whether these imports are materially injuring, or threaten material

injury to, the U.S. industry.

Public Comment

Case briefs or other written comments in at least ten copies must

be submitted to the Assistant Secretary for Import Administration no

later than July 7, 1997, and rebuttal briefs, no later than July 10,

1997. A list of authorities used and an executive summary of issues

should accompany any briefs submitted to the Department. The summary

should be limited to five pages total, including footnotes. In

accordance with section 774 of the Act, we will hold a public hearing,

if requested, to give interested parties an opportunity to comment on

arguments raised in case or rebuttal briefs. Tentatively, the hearing

will be held on July 14, 1997, time and room to be determined, at the

U.S. Department of Commerce, 14th Street and Constitution Avenue, N.W.,

Washington, D.C. 20230. Parties should confirm by telephone the time,

date, and place of the hearing 48 hours before the scheduled time.

Interested parties who wish to request a hearing, or to participate

if one is requested, must submit a written request to the Assistant

Secretary for Import Administration, U.S. Department of Commerce, Room

1870, within ten days of the publication of this notice. Requests

should contain: (1) The party's name, address, and telephone number;

(2) the number of participants; and (3) a list of the issues to be

discussed. Oral presentations will be limited to issues raised in the

briefs. If this investigation proceeds normally, we will make our final

determination by 135 days after the date of the preliminary

determination.

This determination is published pursuant to section 733(f) of the

Act.

Dated: March 28, 1997.

Robert S. LaRussa,

Acting Assistant Secretary for Import Administration.

[FR Doc. 97-8766 Filed 4-4-97; 8:45 am]

BILLING CODE 3510-DS-P