Notice of Final Determination of Sales at Less Than Fair Value: Fresh Atlantic Salmon From Chile

DEPARTMENT OF COMMERCE

International Trade Administration

[A-337-803]

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

Fresh Atlantic Salmon From Chile

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: June 9, 1998.

[[Page 31412]]

FOR FURTHER INFORMATION CONTACT: Gabriel Adler or Kris Campbell, Office

of AD/CVD Enforcement 2, Import Administration, International Trade

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

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

482-1442 or (202) 482-3813, respectively.

The Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are

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

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

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

indicated, all citations to Department of Commerce (the Department)

regulations refer to the regulations last codified at 19 CFR part 353

(April 1, 1997).

Final Determination

We determine that fresh Atlantic salmon from Chile is being sold,

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

(LTFV), as provided in section 735 of the Act. The estimated margins

are shown in the Continuation of Suspension of Liquidation section of

this notice.

Case History

The preliminary determination in this investigation was issued on

January 8, 1998. See Notice of Preliminary Determination of Sales at

Less Than Fair Value and Postponement of Final Determination: Fresh

Atlantic Salmon from Chile, 63 FR 2664 (January 16, 1998) (Preliminary

Determination). Since the preliminary determination, the following

events have occurred.

In February and March 1998, we conducted on-site verifications of

the questionnaire responses submitted by Aguas Claras S.A. (Aguas

Claras), Cia. Pesquera Camanchaca S.A. (Camanchaca), Pesquera Eicosal

Ltda. (Eicosal), Pesquera Mares Australes Ltda. (Mares Australes), and

Marine Harvest Chile (Marine Harvest)(collectively, ``the

respondents'').

On April 17, 1998, we received case briefs from the Coalition for

Fair Atlantic Salmon Trade (the petitioners) and, on behalf of the

respondents, the Association of Chilean Salmon and Trout Producers (the

Association). On April 23, 1998, we received rebuttal briefs from the

same parties. We held a public hearing on April 28, 1998.

Scope of Investigation

The scope of this investigation covers fresh, farmed Atlantic

salmon, whether imported ``dressed'' or cut. Atlantic salmon is the

species Salmo salar, in the genus Salmo of the family salmoninae.

``Dressed'' Atlantic salmon refers to salmon that has been bled,

gutted, and cleaned. Dressed Atlantic salmon may be imported with the

head on or off; with the tail on or off; and with the gills in or out.

All cuts of fresh Atlantic salmon are included in the scope of the

investigation. Examples of cuts include, but are not limited to:

crosswise cuts (steaks), lengthwise cuts (fillets), lengthwise cuts

attached by skin (butterfly cuts), combinations of crosswise and

lengthwise cuts (combination packages), and Atlantic salmon that is

minced, shredded, or ground. Cuts may be subjected to various degrees

of trimming, and imported with the skin on or off and with the ``pin

bones'' in or out.

Excluded from the scope are (1) fresh Atlantic salmon that is ``not

farmed'' (i.e., wild Atlantic salmon); (2) live Atlantic salmon; and

(3) Atlantic salmon that has been subject to further processing, such

as frozen, canned, dried, and smoked Atlantic salmon, or processed into

forms such as sausages, hot dogs, and burgers.

The merchandise subject to this investigation is classifiable as

item numbers 0302.12.0003 and 0304.10.4093 of the Harmonized Tariff

Schedule of the United States (HTSUS). Although the HTSUS statistical

reporting numbers are provided for convenience and customs purposes,

the written description of the merchandise is dispositive.

Period of Investigation

For all companies, the period of investigation (POI) corresponds to

each respondent's four most recent fiscal quarters prior to the month

of the filing of the petition (June 1996). For four of the five

respondents, the POI is April 1, 1996, through March 31, 1997. The

remaining respondent, Marine Harvest, has a different fiscal period.

The POI for this company is March 24, 1996, through March 22, 1997.

Fair Value Comparisons

To determine whether sales of fresh Atlantic salmon from Chile to

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

export price (EP) or constructed export price (CEP), as appropriate, to

the normal value. Our calculations followed the methodologies described

in the preliminary determination, except as noted below and in company-

specific analysis memoranda dated June 1, 1998, which have been placed

in the file.

Export Price and Constructed Export Price

For the price to the United States, we used EP or CEP as defined in

section 772 of the Act. We calculated EP and CEP based on the same

methodology used in the preliminary determination, with the following

exceptions:

Mares Australes

We excluded sales to Canada from the U.S. sales database. See

Comment 17.

Marine Harvest

We made an adjustment for accrued rebate expenses to the CEP

calculated for one customer. See Comment 19.

Normal Value

We used the same methodology to calculate normal value as that

described in the preliminary determination, with the following

exceptions. For Eicosal, Mares Australes, and Marine Harvest, we

determined that the differences between premium and super-premium

salmon are so minor as to not warrant separate classification in an

antidumping analysis, and considered all such sales to be of premium

salmon. See Comment 1. With respect to specific respondents' data, we

made the following changes:

Aguas Claras

We did not rely on Canadian sales of salmon fillets to calculate

normal value for comparison to U.S. sales of fillets. Instead, we

compared U.S. sales of fillets to constructed value (CV). See Comment

7.

Mares Australes

We made an adjustment to normal value for duty drawback.

Cost of Production

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

weighted-average cost of production (COP), by model, based on the sum

of each respondent's cost of materials, fabrication, general expenses,

and packing costs. We relied on the submitted COPs except in the

following specific instances where the submitted costs were not

appropriately quantified or valued.

Marine Harvest

1. We increased the reported cost of eggs and feed purchased from

affiliated parties to reflect market prices. See Comment 22.

2. We increased the reported cost of processing performed by an

affiliated party to reflect the transfer price. See Comment 22.

[[Page 31413]]

3. We revised the consolidated financial expense ratio to include

exchange losses associated with loans denominated in foreign

currencies. See Comment 24.

4. We recalculated the general and administrative expense (G&A)

ratio to correct certain errors discovered during verification.

Mares Australes

1. We increased the cost of manufacturing (COM) to include the

price-level adjustments for harvested salmon which were required by

Chilean GAAP. See Comment 27.

2. We increased the COM to include bonus expenses. See Comment 31.

3. We revised the consolidated financial expense ratio to remove

the claimed offset to financial expense for accounts receivable and

inventory. See Comment 24.

4. We recalculated the G&A expense ratio based on total G&A

expenses incurred by the producing entities. See Comment 30.

Aguas Claras

1. We increased the COM to include the price-level adjustments for

harvested salmon which were required by Chilean GAAP and were recorded

in the company's normal books and records. See Comment 27.

2. We revised the claimed ``feed cost adjustment'' by amortizing

the total amount specified in the contract over the life of the

contract. We then allocated the amortized adjustment to individual fish

groups based on each group's relative biomass. See Comment 36.

3. We excluded from G&A expenses the gains from the sales of common

stock investments. Additionally, we included the cost incurred by

Sociedad Agricola Rio Rollizo Ltda. (``Rio Rollizo'') which held the

marine concession for the Rio Rollizo hatchery. See Comment 38.

4. We revised the financial expense ratio to include exchange

losses associated with loans denominated in foreign currencies.

Additionally, we removed the claimed offset to financial expenses for

accounts receivable and inventory. See Comment 24.

5. We revised the manner in which we calculated indirect selling

expenses for CV so as to add an amount proportionate to the cost of

each product, rather than a fixed amount. See Comment 40.

Camanchaca

1. We increased the COM to include the price-level adjustments for

harvested salmon that were required by Chilean GAAP and were recorded

in the company's normal books and records. See Comment 27.

2. We revised the consolidated financial expense ratio to include

exchange losses. Additionally, we removed the claimed offset to

financial expenses for accounts receivable and inventory. See Comment

24.

3. We revised the G&A expenses to include the non-operating gains

and losses that related to the general operations of the company. Also,

we calculated the G&A expense ratio based on total G&A expenses

incurred by the company. See Comment 33.

Eicosal

1. We increased the COM to include the price-level adjustments for

harvested salmon which were required by Chilean GAAP and were recorded

in the company's normal books and records. See Comment 27.

2. We revised the consolidated financial expense ratio to include

exchange losses. Additionally, we removed the claimed offset to

financial expenses for holding accounts receivable and inventory. See

Comment 24.

3. We revised the G&A expenses to include the non-operating gains

and losses that related to the general operations of the company. Also,

we calculated the G&A expense ratio based on total G&A expenses

incurred by the salmon producing company. See Comment 29.

Currency Conversions

As in the preliminary determination, we made currency conversions

in accordance with section 773A of the Act. The Department's preferred

source for daily exchange rates is the Federal Reserve Bank. The

Federal Reserve Bank publishes daily exchange rates for Japanese yen,

but not for Chilean pesos. In cases involving comparisons to third-

country market sales in Japan, which were necessary for three

respondents, we made conversions of values denominated in Japanese yen

based on the official exchange rates published by the Federal Reserve.

For conversions of values involving Chilean pesos, we relied instead on

daily exchange rates published by Dow Jones News/Retrieval on-line

system. The parties did not comment on these exchange rate

methodologies.

Verification

As provided in section 782(i)(1) of the Act, we verified the

information submitted by the respondents for use in our final

determination. We used standard verification procedures, including

examination of relevant accounting and production records, as well as

original source documents provided by the respondents. We also met with

officials of the Association to discuss its grading standards.

Interested Party Comments

Sales Issues--General

Comment 1: Distinction between ``Premium'' and ``Super-Premium''

Grades.

The petitioners argue that the Department erred in the preliminary

determination by accepting as a bona fide grade distinction the

``super-premium'' designation adopted by the Association with respect

to whole salmon sold to Japan. The petitioners contend that most of the

Chilean salmon exported to both the United States and Japan was graded

as premium until shortly before the POI. According to the petitioners,

the Association's adoption of the super-premium grade in 1996 coincided

with active preparations for an impending antidumping petition against

salmon from Chile, and was designed to avoid comparisons of low-priced

sales of premium-grade salmon to the United States to high-priced sales

of the same merchandise to Japan.

The petitioners add that verification revealed that the

respondents' classification of premium versus super-premium salmon is

based only on very minor differences in the external aspects of the

salmon. According to the petitioners, these differences are

insignificant, and do not meet the Association's stated criteria for

differentiation among premium and super-premium salmon. Further, the

petitioners argue that the finding at verification that the super-

premium/ premium distinction rests primarily on such minor differences

in grading is at odds with the respondents' earlier representations

that the color of the salmon meat is the principal distinguishing

factor between premium and super-premium salmon. The petitioners

contend that verification established that: (1) the respondents'

premium and super-premium salmon are of uniformly high color, and (2)

the respondents do not evaluate the color of salmon during the grading

process.

As further evidence that the respondents' grading practices are at

odds with the Association's standards, the petitioners note that the

records maintained by Marine Harvest (one of the three respondents that

export the foreign like product to Japan) do not distinguish even

nominally between premium and super-premium salmon. According to the

petitioners, Marine

[[Page 31414]]

Harvest's invoices, ledgers, and other documentation refer to top-grade

Chilean salmon invariably as ``superior,'' regardless of whether the

salmon is exported to the United States or to Japan. Moreover, the

petitioners argue, the same designations are used by Marine Harvest's

Scottish affiliate for sales of Scottish salmon to the United States

and Japan, noting that the Scottish standard for superior grade is

equivalent to the U.S. standard for premium grade.

The Association responds that the Department confirmed at

verification that super-premium and premium salmon are distinct

products with different physical characteristics and market values.

According to the Association, its super-premium grading criteria were

established before the beginning of the POI in order to formalize a

long-standing requirement by Japanese customers for salmon with no

imperfections. The Association contends that, at verification, the

Department observed that the grading criteria were strictly applied and

enforced by independent, internationally-recognized quality assurance

agencies, and it maintains that the Department confirmed the

application of these criteria during the POI.

The Association further asserts that the discernible differences

between premium and super-premium salmon are evidenced by the

differences in prices obtained for the two grades in the Japanese

market. In this respect, the Association notes that Mares Australes,

the only respondent to sell both super-premium and premium grade salmon

to Japan, reported higher prices for sales of super-premium grade

salmon.

With respect to Marine Harvest's recording of the grade of

merchandise sold to Japan, the Association claims that, although the

Marine Harvest processing plant follows its own separate grading

standards for the U.S. and Japanese markets, these standards are

consistent with the Association's standards. Thus, even though Marine

Harvest's salmon are nominally referred to as being of ``superior''

grade on invoices to both markets, there are discernible physical

differences between the merchandise shipped to those markets. Further,

the Association argues, the Marine Harvest plant also relies on

independent quality certification agencies to rate its compliance with

Association grading standards, and the plant received perfect scores in

those evaluations in reports corresponding to the POI that were

examined at verification.

DOC Position: In the preliminary determination, we tentatively

accepted the Association's distinction between premium and super-

premium salmon, pending verification and further analysis of this

issue. After conducting verification and carefully considering the

evidence on the record, we have concluded that any differences between

premium and super-premium salmon are so minor as to not warrant

separate classification in an antidumping analysis.

At the outset, we note that we are not persuaded by the

petitioners' assertion that the Association's adoption of the super-

premium grade in 1996 was designed primarily to avoid comparisons, in

the event of an antidumping case, of low-priced sales of premium-grade

salmon to the United States to high-priced sales of the same

merchandise to Japan. We acknowledge that the Association's grading

standards and those of some of the individual respondents did include

distinct ``premium'' and ``super-premium'' classifications. During

verification, we found that quality control inspections at the

respondents' plants were supervised by independent certification

agencies, which certified the respondents' compliance with the

Association's grading standards, and that these standards specified

distinct ``premium'' and ``super-premium'' grades. The reports issued

by the independent certification agencies during the POI indicated high

scores in the category of adherence to these grading standards. See

Memorandum from Case Analysts to Gary Taverman, Regarding Inspection of

Eicomar Processing Plant (April 7, 1998) (Eicomar Verification Report)

at 3-4 and Exhibit P-2; see also Memorandum from Case Analysts to Gary

Taverman, Regarding Verification of Sales by Marine Harvest (April 7,

1998) (Marine Harvest Sales Verification Report), at 8-9 and Exhibit M-

25.

However, the record also contains evidence that the distinctions

between the two grades were, in practice, nominal. At the outset of

this proceeding, the Association explained that the single most

important factor considered by Japanese customers in purchasing fresh

Atlantic salmon is the color of the meat. See letter from the

Association to the Department of Commerce (November 3, 1997) (alleging

particular market situation in Japan) at 14. Both the Association

standards and the respondents' individual standards require higher meat

color for super-premium salmon than for premium salmon. See letter from

the Association to the Department of Commerce (October 10, 1998) at

Attachment 1 (transmitting Association standards); see also letter from

Mares Australes to the Department of Commerce (November 3, 1997) (Mares

Australes Section A and B Questionnaire Response) at 19-20; and letter

from Eicosal to the Department of Commerce (November 3, 1997) (Eicosal

Section A and B Questionnaire Response), at 4. Despite these claims

regarding the significance of color in distinguishing the two grades,

we found at verification that, in practice, the respondents adjust the

feed delivered to the salmon pens so as to ensure a uniformly high red

color to the salmon meat for all salmon produced. See, e.g., Eicomar

Verification Report at 2. Further, verification established that the

respondents do not measure the color of the whole salmon during

processing, but rather take an occasional sample to ensure that the

fish are of sufficiently high color. Id. at 3.\1\ Thus, respondents

routinely export to the United States salmon that has the same meat

color as the salmon exported to Japan and do not consider the criterion

(color) that was initially claimed to be of paramount significance in

distinguishing super-premium from premium salmon.

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\1\ Although the Association claims that a shiny blue exterior

on a whole salmon is indicative of very red meat color, at

verification we found that in practice this was not used as a

yardstick to differentiate premium from super-premium salmon:

``According to plant officials, salmon exhibiting a shiny blue

exterior will have meat surpassing the Association's standards for

color required for premium and super-premium grades.'' Id. at 2.

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The Association argues that, in addition to color, its standards

also distinguish among minor external imperfections in the salmon.

During the plant tour conducted at verification, Department verifiers

observed that there were in fact minor differences between salmon

classified as premium and salmon classified as super-premium, such as

small scale loss or light lacerations. These minor differences,

however, do not establish a different grade of salmon for purposes of

our analysis. While the Chilean respondents that sell to both the

United States and Japan may sort their harvest based on the premise

that Japanese customers are more likely to take notice of a light

defect than U.S. customers, such differences are not recognized by the

salmon producers of any other nation that exports to Japan. The

Norwegian, Scottish, Canadian, and U.S. farmed salmon industries do not

recognize any grade higher than ``superior.'' The ``superior'' grade is

consistent with the premium grade and permits minor defects.\2\ Because

the grading standards

[[Page 31415]]

of ``superior'' salmon recognized by the world's largest salmon farming

countries provide for a range of quality (e.g., from zero defects to up

to three minor defects) we note that, by definition, there will be some

merchandise within this grade with no imperfections, as well as some

merchandise that will be closer to the lower end of this range.

Nonetheless, all salmon in this range are graded equally (i.e., as

``superior''/``premium''), and are comparable products in the market

place.\3\

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\2\ We note that one of the respondents in this investigation,

Marine Harvest, has an affiliate in Scotland that produces and

exports fresh Atlantic salmon to Japan. At verification, we reviewed

the grading standards followed by Scottish producers, and found that

the highest-quality salmon produced by those producers is graded as

``superior.'' The ``superior'' standard allows for light defects,

and is comparable to the Chilean ``premium'' standard. See Marine

Harvest Sales Verification Report at 13 and Exhibit M-24. Further,

we found that invoices for Marine Harvest's sales of Chilean salmon

and invoices for the Scottish affiliate's sales of Scottish salmon

refer to salmon sold in Japan as ``superior'' salmon, and do not

distinguish the two in any manner.

\3\ While the Association's ``super-premium'' specification for

fresh Atlantic salmon does not tolerate any defects in the fish, the

Association has no such standard for other types of salmon, such as

coho salmon. Thus, by the Association's own standards, a range of

small defects is generally permissible for a variety of different

types of fish sold in Japan. The respondents have not demonstrated

that fresh Atlantic salmon is so unique to Japanese customers in

comparison with other salmon that a heightened quality standard is

required for this particular type of salmon.

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Finally, regarding the Association's claim that there are price

differences in Japan for salmon sold as ``super-premium'' versus that

sold as ``premium,'' we note first that, as shown above and in

accordance with our practice, our matching criteria are based on the

actual physical characteristics of the merchandise. Moreover, even if

we were to consider the Association's analysis, it rests entirely on

sales made by the one company that made POI sales of both designations

to Japan. The pricing of this company's sales of merchandise labeled

``premium,'' which covered only a few months of the POI and involved

relatively small quantities, is an insufficient basis on which to find

systematic price differences between the two labels, much less to

employ a matching methodology based on such differences.

The nominal distinctions noted above do not preclude an apples-to-

apples comparison of the salmon sold in the two markets. For this final

determination, we have considered that salmon reported as super-premium

are in fact of premium grade and have matched such sales to premium-

grade salmon sold in the United States, where otherwise appropriate.

Comment 2: Distinction between Vacuum-Packed Fillets and Regular

Fillets.

The petitioners argue that the Department erred in preliminarily

accepting the respondents' treatment of vacuum-packed fillets and

regular fillets as separate forms of merchandise, thereby precluding

comparisons of identical merchandise. The petitioners argue that

vacuum-packed salmon fillets sold in Japan are identical to regular

fillets sold in the United States in every respect except packing, and

claim that their prices can be compared after the appropriate

adjustment for differences in packing costs.

The petitioners further contend that, in responding to the

Department's cost of production questionnaire, Marine Harvest and

Eicosal erroneously included vacuum-packing costs in the reported cost

of manufacturing of fillets that were vacuum-packed. According to the

petitioners, vacuum-packing costs should be regarded as costs of

packing for shipment (i.e., the cost of containers incidental to

placing the foreign like product in a ready condition for shipment),

consistent with section 773(b)(3)(C) of the Act.

In addition, the petitioners argue that the Department incorrectly

relied on Washington Red Raspberry Commission v. United States, 859

F.2d 898, 905 (Fed. Cir. 1988)(Red Raspberry Commission) in

distinguishing vacuum-packed fillets in the preliminary determination.

According to the petitioners, the CAFC ruled in that case that packing

can only be considered an integral part of a product if the product

could not survive in its natural form without such packing. According

to the petitioners, vacuum packing is not necessary to bring salmon

fillets to market, as they are regularly wrapped in sheets of plastic,

without vacuum packaging. Petitioners argue that, at most, vacuum

packing lengthens the shelf-life of a fillet, an advantage that is

obviated if the product is quickly consumed.

Finally, petitioners argue that Department practice supports the

treatment of vacuum packing as packing costs, rather than as physical

differences, citing, inter alia, Tapered Roller Bearings and Parts

Thereof, Finished and Unfinished, From Japan and Tapered Roller

Bearings, Four Inches or less in Diameter, and Components Thereof, From

Japan; Final Results of Antidumping Duty Administrative Reviews and

Revocation in Part of an Antidumping Finding, 61 FR 57629, 57630

(November 7, 1996)(TRBs from Japan). Petitioners claim that TRBs from

Japan stands for the proposition that not comparing identical products

that differ only by their packaging would constitute ``an additional

matching factor which is unwarranted by the statute.'' Id.

The Association responds that the Department correctly determined

that vacuum-packed fillets sold in Japan are physically different from

fillets sold in the United States and thus cannot be used for

comparison. The Association contends that vacuum packing represents a

significant additional processing step, akin to smoking or canning,

that enhances the shelf life of the product, rather than merely placing

the product in a condition ready for shipment. According to the

Association, the proper reading of the CAFC's decision in Red Raspberry

Commission is that packaging is an integral part of the product when it

is in effect a part of that product. The Association argues that the

Department has consistently followed this rule in other cases, and

maintains that the cases cited by petitioners are inapposite.

DOC Position: We agree with the Association. Vacuum packing is not

incidental to shipment, but is instead an extra processing step that

doubles the shelf life of fresh Atlantic salmon. Such packing is an

integral part of the product, and its cost is appropriately included

among costs of manufacturing, rather than among costs of packing for

shipment.

At the outset of this investigation, after considering the parties'

comments with respect to vacuum packing, we recognized the distinction

between regular fillets and vacuum-packed fillets, and instructed the

respondents to treat these as separate forms. See Antidumping

Questionnaire at B-6 and C-6 (August 26, 1997). The respondents

appropriately included the cost of vacuum packing in the costs of

manufacturing, and included the cost of Styrofoam boxes and cooling

materials as packing materials.

The cases cited by the petitioners do not require a different

result. In those cases, the issue was whether products sold

individually could be compared to groupings of products, or to bulk

sales. See, e.g., Final Determination of Sales at Less Than Fair Value:

Fresh Cut Roses from Ecuador, 60 FR 7019, 7022 (February 6, 1995)(Roses

from Ecuador)(noting that roses are not transformed by virtue of being

bunched or placed in a bouquet); see also TRBs from Japan, 61 FR 57629,

57630 (November 7, 1996)(noting that bearing cups or cones sold

individually could be compared to package sets); and Gray Portland

Cement and Clinker from Mexico: Final Results of Antidumping Duty

Administrative Review, 63 FR

[[Page 31416]]

12764, 12777 (March 16, 1998)(Cement from Mexico)(noting that bagged

cement and bulk cement are identical except in packaging, and could be

compared). In the instant case, the issue is not whether fillets sold

individually should be compared to fillets sold by the box, or to

fillets sold in bulk quantities. Rather, it is whether the product is

transformed by vacuum packing, such that the packing becomes an

integral part of the product.

In Red Raspberry Commission, the CAFC found that packing of

raspberries is an integral part of the product, stating that the

cardboard containers are necessary for the very survival of the

merchandise. The CAFC held that, because the packing was an integral

part of the product, it was properly included in the cost of

manufacturing rather than treated as packing for shipment. However, the

ruling does not suggest that packing that otherwise transforms the

physical properties of a product cannot also be considered an integral

part of the product. In significantly extending the shelf life of a

fillet, the vacuum packing transforms the product. We also note that

the vacuum-packing process extends the shelf life not only by the

packaging itself but also by other aspects of the vacuum-packing

process, such as the use of ethyl alcohol, which significantly lowers

the bacteria count of the salmon relative to salmon that is not vacuum

packed. For these reasons, we have continued to regard regular fillets

and vacuum-packed fillets as separate forms of fresh Atlantic salmon.

Comment 3: Averaging of Prices for Comparison to CV.

The Association contends that the Department erred in the

preliminary determination by comparing U.S. prices that were averaged

by form, grade, and weight band to CVs that, due to the nature of the

product, essentially do not vary except by form. The Association claims

that salmon of different grades and weight bands have distinct physical

differences resulting from natural variation in salmon populations,

rather than from differences in production inputs or techniques.

According to the Association, while the cost of production of a

particular form of salmon (e.g., salmon fillets) may be the same

regardless of differences in grades and weight bands, such differences

affect the market value and selling price of salmon. The Association

argues that, to make an apples-to-apples comparison, the Department

should average all U.S. sales prices by form only and not by grade or

weight band, such that a form-specific price is compared to a form-

specific CV.

According to the Association, the Department's practice in cases

involving flowers and roses supports such an approach. The Association

states that, in the Flowers cases (e.g.,Certain Fresh Cut Flowers from

Colombia: Final Results of Antidumping Administrative Review, 55 FR

20491, 20496 (May 17, 1990) (Certain Fresh Cut Flowers from

Colombia)(Comment 19)), the respondents were able to provide only an

average cost for each type of flower, rather than a unique cost for

each unique variety within the particular flower type. Under these

facts, the Association contends, the Department found it appropriate to

compare an average price for each flower type to the average CV of that

flower type. Similarly, in the Roses cases (e.g., Fresh Cut Roses from

Colombia, 60 FR 6980, 6990 (February 6, 1995) (Comment 5)), where the

Department had the same cost for different rose types, the Department

averaged the prices of roses across types prior to comparison to CV.

The Association argues that there is no material difference in the fact

pattern of the flowers cases compared to the fact pattern of this

investigation. According to the Association, failure to conduct price-

to-CV comparisons on a form-average basis in this case would violate

not only the statutory requirement for a fair comparison, but also

violate the fair-comparison requirements imposed by the GATT/WTO. The

Association also argues that such a methodology would run counter to

the findings of a GATT panel with respect to the LTFV investigation of

salmon from Norway.

The petitioners respond that the antidumping statute directs price-

to-CV comparisons to be based on the prices and costs of each unique

product, as defined by the physical characteristics of those products.

According to the petitioners, the respondents could have reported costs

of production specific to different weight bands and grades, but opted

not to do so. Specifically, the petitioners argue that the respondents

could have attempted to differentiate costs for weight bands based on

differences in feed conversion ratios, and for grades based on

differences in post-harvest costs. The petitioners argue that it would

be inappropriate to correct this deficiency in the respondents'

reporting by averaging U.S. prices, since there are price differences

corresponding to differences in weight bands and grade.

DOC Position: We disagree with the Association. For the final

determination, we have continued to average U.S. prices by form, grade,

and weight band.

We accept the Association's contention that, with minor exceptions,

each company's recorded costs of the subject merchandise do not vary by

grade or weight band. Our examination of the voluminous record evidence

concerning this issue, including our verification findings, confirms

that the costs as reported reasonably reflect the actual costs of

producing each matching group (i.e., each combination of form, grade,

and weight band), and that the costs of certain of these matching

groups are the same. In this respect, we disagree with the petitioners'

arguments that the respondents should have been required to report

costs based on methodologies that deviate from their normal accounting

practices, e.g., through the use of feed conversion ratios, in order to

estimate differences in costs.

With this in mind, when comparing U.S. prices to CV, the Department

is charged with determining whether sales are made to the United States

at prices below the actual cost of production. The CAFC has ruled

definitively on this issue:

By its terms, the statute expressly covers actual production

costs * * *. The broad language of section 1677b(e) [the CV portion

of the statute] does not at any point expressly authorize adjustment

of these production costs to account for products of a lower grade

or less value.

See IPSCO Inc. v. United States, 965 F. 2d, 1056, 1059-1060 (Fed. Cir.

1992)(IPSCO).

As in the instant proceeding, IPSCO involved merchandise (steel

pipe used for oil and gas wells) that varied in grade (prime and

limited service) but not in the cost of producing each grade. As with

salmon, the same materials, processes, labor, and overhead went into

the production of both grades, and buyers purchased both grades ``for

the same purpose--``down hole'' use in oil and gas wells.'' Id. at

1058. Thus, both grades had the same actual costs:

Because IPSCO expended the same materials, capital, labor, and

overhead for both grades of OCTG, the constructed value of one ton

of limited-service pipe necessarily matched the constructed value of

one ton of prime pipe.

Id. at 1060.

As with premium salmon, prime-grade pipe was of a higher quality

and, as such, commanded a higher price in the marketplace. Id. at 1058.

In the proceeding underlying the IPSCO decision, the Department

compared U.S. sales of prime-and limited-service grade pipe to CVs

based on the actual costs of each grade, which were identical. There,

as here, the respondents objected to this methodology vis-a-vis

comparisons involving U.S. sales of the lower grade

[[Page 31417]]

of merchandise. The CAFC rejected this claim, ruling that the

Department had ``calculated constructed value precisely as the statute

directs'' in basing CV on the actual cost of production for each grade.

Id. at 1060.

While making the same complaint as that made by the respondent in

IPSCO, the respondents in the instant proceeding have proposed a

different solution. Rather than arguing for an adjustment to CV, the

respondents suggest that the Department average the reported U.S.

prices without respect to two of the three matching characteristics

(grade and weight band) for comparisons involving CV.

We reject the respondents' proposal for the following reasons.

First, no change to either side of the antidumping analysis (EP/CEP and

normal value) is necessary because, in accordance with IPSCO and with a

basic tenet of the dumping law, the Department's methodology in this

case properly compares the price of U.S. sales of a given product with

the actual costs of that product where normal value is based on CV,

without regard to whether that product's actual costs are the same as,

or different from, other products under investigation.

Further, the methodological changes proposed by the respondents are

inappropriate under the facts of this case to the extent that they

conflict with other requirements imposed by the statute and Department

practice. Specifically, the proposal to eliminate two of the three

matching criteria from our analysis with respect to CV comparisons

would reduce the accuracy of that analysis and, depending on the manner

employed, would either eliminate price-based matches entirely, or would

result in inconsistent matching groups depending on whether a U.S. sale

is matched to comparison market sales or to CV.

Pursuant to sections 771(16) and 773(a)(1) of the Act, it is our

practice first to match U.S. sales with comparison market sales of the

most physically comparable merchandise. We require the matching

categories to be as precise as possible in order to effect a meaningful

comparison:

In determining the comparability of sales for purposes of

inclusion in a particular average, Commerce will consider factors it

deems appropriate, such as the physical characteristics of the

merchandise, the region of the country in which the merchandise is

sold, the time period, and the class of customer involved.

Statement of Administrative Action accompanying the URAA (SAA) at 842

(emphasis added). Thus, the statute and SAA recognize the importance of

developing, under the facts of each case, matching categories that

allow for meaningful comparisons, while preventing, to the extent

possible, the masking of dumping through overly broad averages. The

discretion afforded to the Department by the SAA (to consider such

factors as it deems appropriate) reflects the fact that this is

arguably the most case-specific aspect of the dumping analysis,

depending as it does on the particular characteristics of the product

under investigation.

In light of the importance of determining our matching categories,

it is our longstanding practice to consider comments submitted by

interested parties regarding the relevant matching characteristics of

the product under investigation. Early in this proceeding, both parties

agreed that form, weight band, and grade were critical physical

characteristics of fresh Atlantic salmon. See letter from the

Association to the Department of Commerce, (August 7, 1997); see also

letter from the petitioners to the Department of Commerce (August 7,

1997). Having established these matching categories, we averaged U.S.

and comparison market sales of these product groups and made price-to-

price matches, where possible. Only where we could not make such

matches did we resort to CV. We have based CV on the actual costs of

each matching category; where the respondents reported differences in

actual costs (e.g., Marine Harvest's reporting of different costs by

weight band), we have taken this into account.

Significantly, in arguing that we should eliminate two of the three

matching characteristics with respect to CV comparisons, the

respondents do not address the fact that, unlike the Flowers line of

cases, this investigation involves price-to-price matches that were

made using matching characteristics (form, grade, and weight band) that

the respondents themselves agreed were the defining features of the

subject merchandise in terms of our matching groups. Their argument

does not address the inconsistency of maintaining one set of averaging

and matching characteristics (form, grade, and weight band) for one set

of U.S. sales (those for which we are able to find a price-based

match), while averaging and matching other U.S. sales (the remainder)

according to form alone. The contingency of whether a given U.S. sale

has a priced-based match or a CV-based match would not be an

appropriate means of determining the averaging methodology for that

sale.

When the respondents first raised this issue, it appeared that they

would have resolved this inconsistency by eliminating price-based

matches altogether for any company that would have any CV matches (all

of them). See Mares Australes Section A and B Questionnaire Response

(November 3, 1997) at 4 (``We suggest that because there are U.S.

grades that do not match, the Department reject Japanese sales entirely

as the basis for normal value and rely instead upon constructed

value.'' (citing Roses from Colombia, Roses from Equador, and Fresh Cut

Flowers from Colombia)). 4Since the respondents have not

addressed in the case briefs how to treat U.S. sales that would

otherwise have suitable price-based matches, it is not clear whether

the respondents continue to advocate this approach. We note for the

record that we also disagree with this proposal, as it would undermine

the statutory preference for price-to-price matches, as reinforced by

the CAFC's decision in Cemex v. United States, WL 3626 (Fed. Cir.).

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

\4\ We note that this argument by respondents for rejecting

Japanese sales is separate from their argument that we should

disregard such sales due to a particular market situation, as

addressed in Comment 4, infra.

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

Here again, the analogy to the Flowers cases fails, and serves only

to illustrate why the SAA explicitly instructs the Department to use

its discretion in determining the appropriate matching methodology

under the facts of each case. To state the obvious, flowers and salmon

are different products that are sold in different markets under

different conditions. While we have determined to date in the Flowers

line of cases that the merchandise and markets involved do not permit

reasonable price-based comparisons (due to, for example, the holiday-

driven demand patterns in the U.S. market), that is not the case with

the merchandise and markets involved in this investigation. It is not

appropriate to force such a case-specific finding involving the

physical characteristics of flowers, and the selling practices that

relate specifically to flowers, onto the matching methodology for fresh

Atlantic salmon, thereby effectively eliminating the valid methodology

developed early in this case. We would likewise disagree with the

concept of averaging U.S. sales that have price-based matches only with

respect to form, as this would undermine the precision of our analysis

with respect to such sales.

Finally, with respect to the relevance of the 1992 GATT panel

report in United States: Imposition of Antidumping Duties on Imports of

Fresh and Chilled Atlantic Salmon from Norway, we note that the panel's

findings were limited, by the panel's

[[Page 31418]]

own terms of reference, to the facts of that pre-Uruguay Round

proceeding. Moreover, the GATT panel faulted the Department for its

lack of an explanation regarding its matching methodology in the

Norwegian salmon case:

While the United States had explained that because of the

absence of differences in costs of production between salmon of

different weights no separate constructed values for individual

weight categories had been calculated, the United States had not put

forward any arguments to explain why export prices of individual

weight categories had been used in the comparison with the single

constructed values. The public notice of the affirmative final

determination was also silent on this point.

Id. at. 470.

Unlike the Norway case, we have provided a detailed explanation for

our methodology in this respect.

Comment 4: Particular Market Situation in Home Market.

The Association argues that the Department erred in finding that a

particular market situation exists in the home market, and disputes the

Department's underlying conclusion that the home market is an

incidental market consisting of sales of non-export quality salmon. The

Association contends that the home market unquestionably passes the

statutorily mandated viability test, and that the merchandise sold in

that market is within the scope of the investigation. According to the

Association, the Department's finding of a particular market situation

is based on an unprecedented and extra-statutory consideration of the

amounts and percentages of each grade of merchandise sold in the home

market, compared to the merchandise sold in the United States. The

Association asserts that any such differences can be adjusted for under

the Department's normal calculation methodologies, and do not warrant

rejection of the home market.

The Association argues that, in the alternative, the Department

should also find that a particular market situation exists in the

Japanese market. According to the Association, the differences between

the salmon sold by the respondents in Japan and that sold in the United

States are greater than those between the salmon sold in the home

market and that sold in the United States.

The petitioners respond that the Department properly rejected the

home market as a comparison market. According to the petitioners, the

Department had ample statutory and regulatory authority to make a

finding of a particular market situation with respect to the home

market, and properly concluded that the Chilean market is incidental to

the export-based Chilean salmon industry.

The petitioners further argue that the Japanese market does not

present a particular market situation, since any differences between

the salmon sold in Japan and that sold in the United States are minor

distinctions within export-quality merchandise. The petitioners urge

the Department to continue its reliance on the Japanese market as the

basis for normal value for the respondents in question.

DOC Position: We agree with the petitioners. The Department's

reasons for rejecting the use of the home market were set forth in

detail in a memorandum addressing this issue. See Memorandum from Case

Analysts to Richard Moreland, Regarding Appropriateness of Chilean

Market as a Comparison Market (October 17, 1997) (Particular Market

Determination Memorandum). As explained in that memorandum, the home

market is incidental to the Chilean salmon industry, which is export-

oriented. The home market is comprised almost exclusively of salmon

graded by the respondents as ``industrial'' or ``reject,'' which the

respondents sell locally for drastically reduced prices compared to

export merchandise. The perfunctory marketing and distribution of

salmon in the home market is consistent with the incidental nature of

those sales.

The Association has not raised substantial new arguments in its

case brief, and instead has reiterated arguments advanced prior to the

preliminary determination. We therefore refer interested parties to our

Particular Market Determination Memorandum and to the Memorandum from

Gary Taverman to Richard Moreland, Issues Concerning the Preliminary

Determination of Sales at Less Than Fair Value (January 8, 1998)

(Preliminary Issues Memorandum) for more detailed discussions of the

issue.

With respect to the Association's claims regarding the home market,

we add only that our verification findings refuted one of the

Association's arguments regarding this issue. The Association

characterizes the difference between the home market and the United

States as one of differences in ``product mix,'' suggesting that the

same grades of merchandise are sold in both markets, only in different

proportions. This contention has been premised to a large extent on a

claim that one of the respondents had exported ``industrial'' grade

salmon to the United States, albeit in small quantities, and that this

merchandise was identical to that sold in the home market. However, as

we found at verification, the U.S. sales in question in fact were not

of industrial-grade salmon, but rather of premium-grade salmon that was

subject to a post-sale quality claim. The Association now recognizes

that these sales were reported improperly. See Association rebuttal

brief at 54. Thus, the record clearly establishes that the grade of

merchandise sold by the respondents in the home market is not exported

to the United States or Japan.

We also continue to find that the Japanese market does not present

a particular market situation. As explained in our Preliminary Issues

Memorandum, the respondents' Japanese market is far from incidental.

Moreover, as explained above in response to Comment 1, the premium-

grade salmon sold in the United States and the super-premium salmon

sold in Japan are essentially the same merchandise. By contrast, as

ascertained at verification, the salmon sold in the home market have

severe defects. See Eicomar Verification Report at 3 (noting ``severe

scale loss, greenish outer color, and numerous red spots due to early

sexual maturation''); see also Marine Harvest Sales Verification Report

at 7-8 (noting ``deformed mandibles, greenish-brownish external color,

and marked lacerations'').

Comment 5: All-Others Rate.

The Association argues that the Department's exclusion of de

minimis rates from the calculation of the ``all-others'' rate violates

the constitutional due process and equal protection rights of Chilean

producers/exporters of subject merchandise and their U.S. importers.

According to the Association, exclusion of de minimis rates results in

an unrepresentative and skewed all-others rate, because the Department

limited its investigation to a minority of producers/exporters, did not

accept voluntary participation by other firms, and found that the

majority of the investigated firms were not dumping. The Association

contends that the Court of International Trade (CIT) expressly stated

in Serampore Indus. Pvt. Ltd. v. United States Dep't of Commerce, 696

F. Supp. 665, 668 (Ct. Int'l Trade 1988) (Serampore) that where the

Department limits the number of firms to be investigated, there is no

basis for excluding de minimis margins in the calculation of the all-

others rate.

The petitioners respond that the Department is bound by the plain

language of the antidumping statute to exclude de minimis rates from

the calculation of the all-others rate. According to the petitioners,

Serampore

[[Page 31419]]

is specific to situations where the Department selects a sample of

firms for investigation from among a much larger group of potential

respondents. The petitioners note that in this case the Department did

not select a sample of firms, but chose instead those exporters

accounting for the largest volume of exports to the United States

during the POI. The petitioners also point out that the Association

specifically requested at the outset of this proceeding that the

Department limit its investigation to those producers/exporters

accounting for 50 percent of the exports during the POI, and note that

those companies investigated account for approximately that figure.

DOC Position: We agree with the petitioners. Section 735(c)(5)(A)

of the Act unambiguously directs the Department to exclude ``any zero

and de minimis margins'' from the calculation of the estimated all-

others rate (emphasis added). There is no indication in the legislative

history of this provision that Congress intended for exceptions to this

rule. We therefore have no basis to ignore the Act's clear directive to

exclude de minimis margins from the calculation of the estimated all-

others rate.

Further, as the petitioners note, the Association itself requested

that the Department limit its selection of firms to be investigated to

those exporters accounting for 50 percent of exports to the United

States, in addition to ``a relatively small number of volunteer

respondents.'' See letter from the Association to the Department of

Commerce (August 4, 1997), at 4-6. The Department selected a pool of

exporters accounting for very close to that volume of exports, and the

Association did not voice its concerns about the implications of

limiting the number of respondents with respect to the all-others rate

until after the preliminary determination was issued.5

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

\5\ In accordance with section 777A(c)(2) of the Act, the

Department limited its investigation to the five largest producers/

exporters. However, in limiting its investigation, the Department

stated that if a selected respondent failed to cooperate, and

companies wishing to be treated separately as voluntary respondents

had submitted a response to our antidumping questionnaire, the

Department would consider replacing the uncooperative respondent

with a voluntary respondent, to be selected based on the order of

each company's submission of a written request for investigation as

a voluntary respondent. See Memorandum from the Team to Richard

Moreland, Regarding Selection of Respondents (August 26, 1997), at

6.

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

Comment 6: Industry Support for the Petition.

The Association argues that the Department should not have

initiated this antidumping investigation because the petitioners did

not demonstrate sufficient industry support for the petition. The

Association claims that the petition identified only U.S. producers of

whole salmon, and failed to identify U.S. producers of cuts of fresh

Atlantic salmon (``fillet producers''), which were also under the scope

of the petition. The Association contends that fillet producers

comprise an industry separate from the whole salmon industry.

The Association argues further that, even if these two segments can

be considered one industry, such that production from these two

segments could be combined in the industry support ratio, the

Department should have polled the fillet producer portion of the

industry rather than derive an estimate of such production. The

Association asserts the following errors in the Department's estimate

of fillet production: (1) the calculation inappropriately estimates the

size of the fillet producer industry on the basis of the value added in

the processing of whole salmon into salmon cuts, rather than on the

basis of the total value of the salmon cuts; (2) it focuses only on the

basic processing of whole salmon into fillets, ignoring ``higher value-

added products,'' such as portions; and (3) it relies on the cost data

derived from a single source, rather than from a variety of sources.

The petitioners respond that the Department appropriately

determined that there was industry support for the petition on the

basis of data in the petition as well as data gathered from external

sources. According to the petitioners, the Act does not require polling

to determine the domestic industry under such circumstances.

DOC Position: Section 732(c)(4)(E) of the Act provides that, after

the administering authority determines that it is appropriate to

initiate an investigation, the determination regarding industry support

shall not be reconsidered. Therefore, we have not reconsidered our

determination regarding industry support. We refer interested parties

to our notice of initiation and companion memorandum, which set forth

in detail the methodologies followed in establishing industry support.

See Initiation of Antidumping Duty Investigation: Fresh Atlantic Salmon

From Chile, 62 FR 37027, 27028-29 (July 10, 1997).

Sales Issues--Aguas Claras

Comment 7: Use of the Canadian Market as Comparison Market.

The petitioners contend that the Department should reject Aguas

Claras' sales to the Canadian market as the basis for normal value for

three reasons: (1) the Canadian market is an unimportant market for

Chilean salmon exporters as a whole, such that prices to this market

are not ``representative'' within the meaning of section

773(a)(1)(B)(ii)(I) of the Act; (2) the particular market situation in

Canada renders that market an improper comparison market; and (3)

verification findings indicate that the reporting of Canadian fillet

sales is unreliable.

The petitioners first argue that prices to Canada are not

representative because total Chilean exports of fresh Atlantic salmon

to Canada constitute a minuscule percentage of Chile's worldwide

exports of that merchandise, i.e. Canada is an unimportant market.

Citing the preliminary results of the tenth administrative review of

Flowers from Colombia, 63 FR 5354, 5357 (February 2, 1998), the

petitioners claim that the Department recently rejected the use of

Canada and Japan as comparison markets where: (1) the Department did

not examine all potential respondents, such that the rate for non-

selected companies would be based on an average of the rates found for

the respondents; and (2) exports to the Canadian market were a small

percentage of total exports. The petitioners claim the same facts apply

to the instant proceeding.

The petitioners' second argument, that a particular market

situation in Canada renders that market an improper comparison market,

rests on the following claims: (1) the narrow margin of the five-

percent viability determination, which was affected by the timing of

Aguas Claras' acquisition of its U.S. affiliate, Bowrain Corp., during

the POI; (2) the existence of a high degree of integration in the

channels of trade for subject merchandise in the United States and

Canada, which, petitioners assert, renders Canada an inappropriate

comparison market because it is essentially the same market as the U.S.

market; and (3) the recent Canada/Chile free trade agreement, which

ended each country's right under the GATT to initiate antidumping

proceedings against each other and, according to the petitioners, has

rendered Canada a secondary dumping ground.

Finally, the petitioners argue that the Department's verification

findings suggest that Aguas Claras' reporting of Canadian market sales

of fillets is unreliable and that the Department must resort to CV for

such sales.

Aguas Claras responds that there is no reason for rejection of the

Canadian market as the basis for normal value. First, with respect to

the allegation that

[[Page 31420]]

the Canadian market is unimportant to the Chilean exporters as a whole

such that prices to this market are unrepresentative, Aguas Claras

contends that the Department's decision in the tenth review of Flowers

from Colombia is factually distinguishable because, in the Flowers

proceedings, the Department has consistently rejected price-based

normal values for all respondents. Thus, the respondents argue, the

Department's rejection of Japan and Canada as comparison markets in the

tenth Flowers review was consistent with its general practice in the

Flowers proceedings. Aguas Claras further argues that the export

statistics cited by the petitioners are based on direct exports, and

thus mis-classify sales to Canada made through the United States as

U.S. sales. According to Aguas Claras, all of its own sales to Canada

were made through this route. Therefore, Aguas Claras concludes, there

is no basis for a finding that the Canadian market is unimportant.

Second, with respect to the allegation that there is a particular

market situation in Canada, Aguas Claras argues that the Canadian

market passes the ``bright line'' (five-percent) test for viability,

and maintains that no heightened standards should be applied to that

market. Aguas Claras adds that the high degree of integration between

the U.S. and Canadian salmon markets actually supports the use of

Canada as the basis for normal value, because similarities between the

two markets support a finding that there is no particular market

situation in Canada that would render prices in that market not

comparable to U.S. prices.

Finally, with respect to the verification findings cited by the

petitioners, Aguas Claras argues that there is no evidence of any price

distortions in the Canadian market with respect to fillet sales.

DOC Position: We disagree with the petitioners that the Canadian

market is characterized by ``unrepresentative'' prices or by a

particular market situation, within the meaning of sections

773(a)(1)(B)(ii)(I) and (II) of the Act. However, we agree with the

petitioners that, based on our verification findings, we are unable to

match Aguas Claras' POI Canadian sales of fillets, as reported, to its

U.S. sales. We have based normal value for such sales on CV.

To address the petitioners' arguments in turn, we first disagree

that the Canadian market is characterized by unrepresentative prices.

Contrary to the petitioners' assertions, the recent finding in the

preliminary results of the tenth review of Flowers from Colombia does

not compel the rejection of an otherwise viable Canadian market in the

instant proceeding. As we state in our response to Comment 3, above,

the Flowers cases have relied on CV as the sole basis for normal value

for each of the past 10 reviews, for a variety of product- and market-

specific factors that do not pertain to this investigation (e.g.,

holiday demand patterns). The unique history of the market-selection

determinations made in the Flowers and Roses cases does not lend itself

to broad application of those findings to a salmon respondent that, as

verification demonstrated, sells to a viable Canadian market in the

same manner, and through the same channels of distribution, as it sells

to the U.S. market.

We also disagree with the basis of the petitioners' numerical

analysis regarding exports to Canada versus exports to the United

States vis-a-vis their ``unrepresentative prices'' argument. As Aguas

Claras correctly notes, all of its own sales to Canada were made

through its U.S. affiliate in Miami, after entry of the merchandise

into the United States. The effect of this distribution pattern is to

inflate significantly the apparent volume of exports to the United

States, and to deflate the apparent volume of exports to Canada. The

size of this distortion of ``direct'' export numbers with respect to

the one company whose Canadian sales we are examining is a reasonable

indication that the overall export figures provided by the petitioners

understate the volume of Chilean fresh Atlantic salmon that is destined

for the Canadian market. The Department has not found any statistics

establishing the ultimate destination of merchandise exported by the

Chilean industry. Therefore, in view of the demonstrated viability of

the Canadian market for Aguas Claras, and in the absence of persuasive

evidence to the contrary, we have not rejected Canadian sales prices as

unrepresentative.

Regarding the petitioners' particular market situation claim, we

agree with Aguas Claras that similarities between the U.S. and Canadian

markets are not evidence of a particular market situation. As for the

contention that Canada has become a secondary dumping ground due to the

terms of the Canada/Chile Free Trade Agreement, we note that such trade

agreements are not designed to promote dumping, and their mere

existence is not evidence of such. In addition, the below-cost test

that we have applied to sales made by Aguas Claras in the Canadian

market prevents the inclusion of such sales, when made in substantial

quantities, in our analysis.

However, we agree with the petitioners' argument that our

verification findings call into question the reporting of certain data

essential to price-to-price comparisons, specifically with respect to

fillets.6 Although we do not agree that this is sufficient

to disregard the Canadian market in its entirety, we have rejected the

use of price-based comparisons for fillets, and have instead compared

U.S. fillet sales to CV. For sales of whole fish, which are unaffected

by the problem involving fillets, we have made price-to-price

comparisons where otherwise appropriate. For a detailed explanation of

this methodology, see Aguas Claras Analysis Memorandum.

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

\6\ We cannot address the specifics of the verification finding

in this public forum, as a meaningful discussion is only possible by

means of reference to business proprietary information. We have

addressed the petitioners' argument in a separate memorandum to the

file, which will be placed on the official record and served upon

parties with access to such information under administrative

protective order. See Memorandum from the Case Analyst to Gary

Taverman, Regarding Analysis of Aguas Claras Data for Final

Determination (June 1, 1998)(Aguas Claras Analysis Memorandum).

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

Comment 8: Sales by Affiliated Producer/Exporter.

The petitioners argue that Aguas Claras failed to report U.S. sales

made by an affiliate, Pesquera Invertec, that produced and exported

subject merchandise during the POI. The petitioners state that the

existence of these sales was found only at verification, a situation

that warrants the application of the facts available to derive the

dumping margins on such sales. Noting that the Department obtained the

total volume of Pesquera Invertec's U.S. sales at verification, the

petitioners argue further that the inclusion of this figure in Aguas

Claras' total U.S. sales causes the Canadian market to drop below the

Department's viability threshold. The petitioners state that this

constitutes another reason for the Department to reject the use of the

Canadian market as a comparison market (in addition to the arguments

made in Comment 7, above) and compare U.S. prices to CV.

Aguas Claras responds that it has never been affiliated with

Pesquera Invertec, and was never required to report that exporter's

sales. According to Aguas Claras, Pesquera Invertec was affiliated for

part of the POI with Aguas Claras' parent company, Antarfish S.A.

(Antarfish), by virtue of their joint control of a salmon processing

company. However, Aguas Claras argues, there is no transitive principle

of affiliation in the statute, such that Antarfish's affiliation with

Pesquera

[[Page 31421]]

Invertec would extend to Aguas Claras. Aguas Claras contends that it

reported all of its own sales, and those of its affiliates, but was

never requested to report the sales of its affiliates' affiliates.

Aguas Claras further argues that even if it were deemed to be

affiliated with Pesquera Invertec, there would be no basis for

collapsing the two companies and requiring the reporting of the

latter's U.S. sales. In this respect, Aguas Claras maintains that the

Department collapses affiliated companies only where there is such a

high degree of integration between the companies' operations that there

is a significant potential for price manipulation. Aguas Claras claims

that verification established that, at most, Antarfish was only

distantly affiliated with Pesquera Invertec during part of the POI

through joint ownership of a processing facility, but that the two

companies were not otherwise related. Aguas Claras also states that,

prior to the end of the POI, Antarfish fully divested itself of its

interests in the processing facility, such that there is no potential

for future price manipulation.

Finally, Aguas Claras argues that it could not have provided

Pesquera Invertec sales data even if requested to do so, because

Antarfish and Pesquera Invertec are involved in a business dispute, and

Pesquera Invertec would not have supplied those data. According to

Aguas Claras, the application of adverse facts available is only

appropriate where a party has demonstrably failed to act to the best of

its ability; therefore, it would be inappropriate to penalize Aguas

Claras with respect to information that was not within its control.

DOC Position: We disagree with the petitioners that Pesquera

Invertec's sales should have been included in Aguas Claras' sales

database. Even if we were to assume, arguendo, that Aguas Claras was

affiliated with Pesquera Invertec for part of the POI, the record does

not warrant collapsing these two parties. The Department's practice is

to collapse affiliated producers when the companies: (1) have

production facilities that are sufficiently similar so that a shift in

production would not require substantial retooling; and (2) present a

significant potential for the manipulation of price or production. See

19 CFR 351.401(f) of the Department's regulations. See also, Cement

From Mexico at 12774. As detailed below, it would be inappropriate to

collapse Aguas Claras and Pesquera Invertec because there is not a

significant potential for the manipulation of price or production.

As provided at section 351.401(f)(2) of our regulations, we

consider three factors in identifying a significant potential for the

manipulation of price or production: (1) the level of common ownership;

(2) the extent to which managerial employees or board members of one

firm sit on the board of directors of an affiliated firm; and (3)

whether operations are intertwined, such as through the sharing of

sales information, involvement in pricing and production decisions,

etc. In examining these factors as they pertain to a significant

potential for manipulation, we consider both actual manipulation in the

past and the possibility of future manipulation. See Preamble to Final

Regulations, 62 FR 27296, 27346 (May 19, 1997). The preamble

underscores the importance of considering the possibility of future

manipulation: ``a standard based on the potential for manipulation

focuses on what may transpire in the future.'' Id. We have, therefore,

examined all three factors in light not only of actual manipulation

during the POI but also with respect to the possibility of future

manipulation.

Applying these criteria to this case, Aguas Claras and Pesquera

Invertec do not, and did not during the POI, have common stock

ownership or common directors on their respective boards, as confirmed

at verification. See Memorandum from Case Analysts to Gary Taverman,

Regarding Verification of Sales by Aguas Claras (April 7, 1998) (Aguas

Claras Sales Verification Report) at 3 and Exhibits A-15 and A-16.

Thus, the first two factors suggest no potential manipulation during

the POI or in the future. Regarding the third factor, Aguas Claras'

parent company, Antarfish, fully divested itself of its participation

in the processing facility it jointly owned with Pesquera Invertec, and

ceased any processing of salmon at that plant. Moreover, at

verification we reviewed extensive documentation involving arbitration

proceedings over a significant business dispute between Pesquera

Invertec and Antarfish.

See Aguas Claras Sales Verification Report at 3-4 and exhibit A-15.

As for the possibility that Aguas Claras/Antarfish and Pesquera

Invertec engaged in price or production manipulation during the POI, we

note that only a very small percentage of Aguas Claras/Antarfish's

sales of subject merchandise were processed at the facility owned

jointly with Pesquera Invertec, and the vast majority of Aguas Claras/

Antarfish salmon was processed at Aguas Claras' own plant. Further, as

part of our cost verification testing, we reviewed transactions between

affiliates and specifically examined whether the company had

transactions with Pesquera Invertec. We did not find any such

transactions. See Aguas Claras Cost Verification Report at 6 and

exhibit B-2. Thus, we did not find evidence that the two companies'

operations were significantly intertwined during the POI, or that they

shared sensitive business data.

Accordingly, because Aguas Claras and Antarfish share no common

stock ownership or board members with Pesquera Invertec, and Antarfish

terminated its relationship with Pesquera Invertec during the POI, we

find no evidence to suggest a significant possibility for the

manipulation of price or production, and we have determined that it

would not be appropriate to collapse Aguas Claras and Pesquera

Invertec.

Comment 9: CEP Offset.

The petitioners argue that the Department erred in making a CEP

offset adjustment to normal value. According to the petitioners, Aguas

Claras' U.S. and Canadian sales are made through the same sales

affiliate, which performs exactly the same functions for both kinds of

sales. The petitioners contend that, in determining the level of trade

of U.S. sales, the Department ignored selling functions associated with

the U.S. affiliate's CEP selling expenses, and erroneously concluded

that the level of trade of Canadian sales was more advanced. The

petitioners argue that such a comparison, and the resulting CEP offset

adjustment, ignores commercial reality, and that the CIT has rejected

such ``automatic'' CEP offset adjustments, citing Borden et al. v.

United States, Slip Op. 98-36 (March 26, 1998).

Aguas Claras responds that the Act explicitly directs the

Department to determine the level of trade of CEP sales based on the

price as adjusted, i.e., after deducting CEP selling expenses, and to

ignore the selling functions associated with those expenses.

DOC Position: We agree with Aguas Claras. As discussed in detail in

the preliminary determination, the Act requires us to determine the

level of trade of CEP sales without consideration of the selling

functions associated with economic activities in the United States. See

Preliminary Determination at 2670. See also section 351.412(c)(ii) of

the Department's new regulations (62 FR 27495 and preamble at 27370-

27371). Based on this analysis, we continue to find that the level of

trade of Canadian sales is more advanced than the level of trade of

U.S. sales. Therefore, we have made a CEP offset to normal value. With

respect to the petitioners' claim that the CIT recently overturned the

[[Page 31422]]

Department's practice of comparing the level of trade of comparison

market sales to a constructed level of trade for CEP sales in Borden et

al. v. United States, we note that the Department is in the process of

considering the Court's remand order.

Comment 10: Adjustment to Cash Deposit Rate for Re-Exports to

Canada.

Aguas Claras argues that its cash deposit rate should be adjusted

to account for the fact that it routinely re-exports a portion of its

U.S. inventory of salmon to Canada. With respect to such inventory,

Aguas Claras states that entries that result in re-exportation are not

liable to assessment of antidumping duties, yet U.S. importers must

post antidumping cash deposits for all entries into the United States,

since there is no way to identify at the time of entry those products

that will ultimately be sold to Canada. In view of this, Aguas Claras

argues that the Department should lower the cash deposit rate so that

the total deposits collected do not exceed the total duties ultimately

assessed on sales of subject merchandise. Aguas Claras contends that

the Department made such an adjustment in cases involving flowers

imported from Colombia, where consignment importers resell a portion of

their U.S. inventory to Canada.

Petitioners argue that, given the small size of the Canadian

market, there is no guarantee that Aguas Claras will continue to make

sales to Canada, and that it would be improper to lower Aguas Claras'

calculated deposit rate to account for some hypothetical volume of U.S.

entries that might be re-exported to Canada in the future.

DOC Position: We agree with the petitioners that it would be

inappropriate to adjust Aguas Claras' cash deposit rate. The cash

deposit rate applies to all entries entered into the United States for

purposes of consumption. The fact that Aguas Claras made sales to

Canada during the POI is not an indicator of the likely volume of

future sales, nor a guarantee of any future sales, to that market,

particularly in light of the small portion of U.S. imports that were

re-exported to Canada. Therefore, it would be inappropriate to reduce

the cash deposit rate applicable to all entries of subject merchandise

into the United States to account for past re-exportation of subject

merchandise to Canada.

The adjustment to cash deposit rates in the Flowers cases was made

under a materially different fact pattern. In those cases, the

Department found that a portion of entries of flowers into the United

States are never sold due to perishability problems, and are instead

destroyed. Because those products are inherently perishable, and it is

reasonable to expect a percentage of entries of those products to go

unsold in any given period, the Department found it appropriate to make

a reduction to the cash deposit rate. Although the flowers respondents

also re-exported a portion of their flowers to Canada, that was not the

rationale for the adjustment to the cash deposit rate. See Certain

Fresh Cut Flowers from Colombia at 20494.

Comment 11: Allegation of Affiliation with Kenbourne International.

Aguas Claras disputes the petitioners' allegation that Aguas Claras

and its wholly-owned U.S. sales affiliate, Bowrain Corp., are

affiliated with Kenbourne International, the Miami-based company that

administers importer sales activities on behalf of Bowrain Corp.\7\

With respect to the nature of the relationship between these companies,

Aguas Claras states there are no stock relationships or common officers

between Aguas Claras/Bowrain Corp. and Kenbourne International.

According to Aguas Claras, Bowrain Corp., which is incorporated in

Florida but whose officials work for Aguas Claras in Chile, retained

Kenbourne International to function as a U.S. consignment agent. Aguas

Claras states that Bowrain Corp. has always required Kenbourne

International to maintain a separate set of books and records for Aguas

Claras sales, and shipments of Aguas Claras' merchandise are never

recorded in Kenbourne International's own inventory, so that Bowrain

Corp. retains significant control over its sales. Therefore, the

respondent contends, Kenbourne International cannot be found to control

Bowrain Corp., nor Aguas Claras itself.

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

\7\ Aguas Claras' brief responds to allegations with respect to

Kenbourne International made by the petitioners prior to the

Department's preliminary determination. The petitioners did not

reiterate these allegations in their case brief, but, as summarized

below, did respond to Aguas Claras' comment in their rebuttal brief.

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

In rebuttal, the petitioners argue that, consistent with case

precedent involving exporter/agent relationships (see Final Results of

Antidumping Duty Administrative Review: Furfuryl Alcohol from the

Republic of South Africa, 62 FR 61081, 61088 (Nov 14, 1997) (Furfuryl

Alcohol from South Africa), Kenbourne International should be deemed

affiliated with Aguas Claras through an agency relationship. According

to petitioners, Kenbourne International is in operational control of

all aspects of U.S. imports of Aguas Claras merchandise, and thus is in

a position to exercise direction over Aguas Claras.

DOC Position: We agree with Aguas Claras, and have continued to

regard Kenbourne International as unaffiliated with Aguas Claras and

Bowrain Corp.

Kenbourne International's role in the importation and sale of Aguas

Claras' merchandise is that of an unaffiliated consignee. In all

significant respects, this role is identical to that played by the

consignees of other respondents in this proceeding (e.g., Aquastar, the

consignee of Mares Australes). As discussed in detail in the

preliminary determination, a consignment relationship alone is not

sufficient basis for a finding of affiliation. See Preliminary Issues

Memorandum at 4.

The record of this investigation does not support the conclusion

that the exporter (Aguas Claras) controls the consignee (Kenbourne

International), or vice-versa. In Furfuryl Alcohol from South Africa,

the Department found that the U.S. importer was an agent of the

exporter and, therefore, was controlled by the principal/exporter. That

is not the case here, as Kenbourne International is a consignee, not an

agent (e.g., the two parties do not jointly market subject merchandise

to U.S. customers, jointly negotiate prices/sales with U.S. customers,

or interact with U.S. customers on product testing and quality

control). Therefore, there is no basis on which to conclude that Aguas

Claras controls Kenbourne International.

There is also no basis for finding that Kenbourne International

controls Aguas Claras. As noted above, Kenbourne International provides

essentially the same services to Aguas Claras that unaffiliated

consignees perform for the other respondents, and such services do not

establish control of the exporter by the consignee. Other than these

basic functions, the fact that Kenbourne International maintains a set

of books and records on behalf of Bowrain Corp., and deposits revenues

from sales of Aguas Claras merchandise into Bowrain Corp.'s bank

accounts (after which Kenbourne International cannot access the

revenues) is insufficient for a finding of affiliation based on

control.

Sales Issues--Eicosal

Comment 12: Affiliation between Eicosal and its Consignee.

The petitioners argue that Eicosal and its consignee, Stolt Sea

Farm Inc. (Stolt Inc.), should be considered affiliated parties because

Stolt Inc. is in a position to exercise control over Eicosal through

the terms of a ``close supplier'' business arrangement.

Eicosal argues that the Department should continue to find, as it

did in the preliminary determination, that Eicosal and Stolt Inc. are

not affiliated parties.

[[Page 31423]]

According to Eicosal, the two parties have no direct or indirect stock

ownership in each other, nor do they have a close supplier

relationship. Eicosal contends that, even if all of its salmon sales to

the United States are made through Stolt Inc., its voluminous sales of

salmon to other markets (such as Japan and Brazil) do not involve Stolt

Inc. at all.

DOC Position: We agree with the petitioners that Eicosal and Stolt

Inc. are affiliated parties, although we base our finding on a

different statutory basis from that alleged by the petitioners. Whereas

the petitioners allege that the two parties are affiliated by virtue of

a close supplier relationship (affiliation via ``control'' as per

section 771(33)(G) of the Act), we find that the parties are affiliated

by virtue of equity ownership exceeding five percent in accordance with

section 771(33)(E) of the Act, and therefore do not reach the issue of

affiliation via control.

Stolt Inc. is a wholly-owned subsidiary of Stolt-Nielsen Holdings

B.V. (Stolt-Nielsen). This parent company has another wholly owned

subsidiary, Stolt Sea Farm Ltda. (Stolt Ltda.), which owns well over

five percent of Eicosal's stock. In the preliminary determination, the

Department found that this equity relationship was not sufficient to

establish affiliation under section 771(33)(E) of the Act. The

underlying presumption for this finding was that Stolt Inc. and Stolt

Ltda. were separate (albeit affiliated) corporate entities. See

Preliminary Issues Memorandum at 5 and n.3.

At verification, however, the Department gained a greater

understanding of the interrelationship of the Stolt companies, which

suggests that Stolt-Nielsen, Stolt Inc., and Stolt Ltda. are

effectively a single corporate entity. First, the Department learned

that Stolt Ltda. was created for the purpose of allowing Stolt-Nielsen

to hold an equity interest in Eicosal. See Memorandum from Case

Analysts to Gary Taverman re: Verification of Sales made by Pesquera

Eicosal Ltda (April 9, 1998) (Eicosal Sales Verification Report) at 4.

Second, the Department found that Stolt-Nielsen's operational control

over Stolt Inc. (its wholly-owned subsidiary) extended to Stolt-

Nielsen's negotiation of the distribution arrangement with Eicosal. See

Memorandum from analysts to Gary Taverman re: Verification of Sales

Made by Pesquera Eicosal Ltda through Stolt Sea Farm Inc. (April 9,

1998) (Eicosal CEP Sales Verification Report) at 3. Moreover, the

distribution arrangement with Eicosal was signed on the same day that

Stolt Ltda. purchased its shares in Eicosal, which further indicates

the extent of coordination between these companies with respect to

their relations with Eicosal. See Eicosal Sales Verification Report at

4.

In view of the above, we have determined that the Stolt companies

(i.e., Stolt-Nielsen, Stolt Inc. and Stolt Ltda.) effectively

constitute a single corporate entity (i.e., a person). For purposes of

a dumping analysis, we believe that it is appropriate to view the

equity interests of this single corporate entity in other companies in

toto. Since this entity (of which Stolt Inc. is a part) owns in excess

of five percent of Eicosal's stock, we find that Stolt Inc. is

affiliated with Eicosal within the meaning of section 771(33)(E) of the

Act.\8\

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

\8\ The petitioners claim that Stolt Inc. effectively controls

Eicosal through their contractual arrangement. We do not find that

the contract between the parties per se establishes clear evidence

of affiliation through control. In any event, the issue is moot as

the Department has found the two parties to be affiliated by means

of stock ownership.

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

For purposes of this final determination, the finding of

affiliation between Eicosal and Stolt Inc. does not preclude the use of

the submitted U.S. sales data, since the Department had already

requested that Eicosal report U.S. sales based on the prices charged by

Stolt Inc. to the first unaffiliated U.S. customer. We note that in

calculating CEP for sales made through affiliated parties (as opposed

to unaffiliated consignees), the Department normally reduces the CEP by

the amount of the actual selling expenses incurred by the affiliate,

plus an amount for profit associated with those selling activities. In

this case, we do not have such information for Stolt Inc., because the

Department regarded Stolt Inc. as an unaffiliated party through the

information-gathering stage. We do not believe that it would be

appropriate to draw an adverse inference from this, as Eicosal

submitted substantial and voluminous information about its relationship

with the Stolt companies in its questionnaire responses. (That the

Department developed a greater understanding of this relationship at

verification does not imply that Eicosal withheld material evidence at

the information-gathering of the proceeding.) Therefore, we have relied

on the commission charged by Stolt Inc. to Eicosal in lieu of those

selling expenses and the profit attributable to those expenses.

However, in the event that an antidumping order is issued in this case

and that Eicosal's sales become subject to administrative review, the

Department will require that Eicosal submit sales data under the

presumption that Eicosal and Stolt Inc. are affiliated parties, and

will require the reporting of Stolt Inc.'s actual selling expenses.

Comment 13: Ordinary Course of Trade.

Eicosal argues that the Department erred in finding that its sales

of vacuum-packed fillets to Japan were made in the ordinary course of

trade, and in including these sales in the calculation of CV profit.

According to Eicosal, the sales in question involved a small volume of

a unique, specialized product, sold over a limited period of time to a

single customer. Eicosal disputes the Department's finding in the

preliminary determination that these sales were made continuously

throughout the POI, contending that there were no shipments of vacuum-

packed fillets in March 1997, and adding that all shipments of vacuum-

packed fillets ended shortly after the end of the POI.

The petitioners argue that the Department correctly found in its

preliminary determination that Eicosal's sales of vacuum-packed fillets

were made in the ordinary course of trade, as these sales were made

continuously through the POI, involved significant quantities, and were

not done on a test basis.

DOC Position: We agree with the petitioners, and continue to find

Eicosal's sales of vacuum-packed fillets to have been made in the

ordinary course of trade.

Section 773(a)(1)(B) of the Act provides that the Department may

use third-country prices as the basis for normal value only where such

prices are made in the ordinary course of trade. Prior to the

preliminary determination, both Mares Australes and Eicosal argued that

their respective sales of vacuum-packed fillets had been made outside

the ordinary course of trade. In our preliminary determination, we

found that Mares Australes' single sale of that merchandise had been

made outside the ordinary course of trade, as the sale had involved a

minute quantity of product sold on a test basis. In contrast, we found

that Eicosal's sales of vacuum-packed fillets had been made within the

ordinary course of trade, as they had been made regularly throughout

the POI, and not on a test basis. See Preliminary Issues Memorandum at

12.

The objections now raised by Eicosal do not warrant a reversal of

our preliminary finding. While sales of vacuum-packed fillets may

represent a small percentage of total sales, the absolute amount of

these sales (several thousand kilograms) is not insignificant.

[[Page 31424]]

Also, Eicosal's claim that sales of vacuum-packed fillets were

intermittent throughout the POI is not persuasive, since these sales

were suspended only for the last month of the period, and resumed a

month thereafter. In view of the volume of merchandise involved, the

fact that the merchandise was sold regularly throughout the POI, and

the lack of evidence that the sales were made on a sample basis, we

continue to find that the sales in question were made in the ordinary

course of trade.

Comment 14: Advertising Expense.

Eicosal argues that, in the preliminary determination, the

Department incorrectly found an advertising expense incurred by Eicosal

for its participation in the Japan/Chile centennial celebration to be a

general promotional expense, and treated it as an indirect selling

expense. Eicosal argues that this advertising expense (specifically, a

fee that allowed it to display the celebration logo on its boxes of

salmon), should instead be treated as a direct selling expense. Eicosal

states that the expense meets the Department's two-prong test for

classification of advertising expenses as direct expenses, as set forth

in Antifriction Bearings (other than Tapered Roller Bearings) and Parts

Thereof from France, Germany, Italy, Japan, Singapore, and the United

Kingdom; Final Results of Antidumping Duty Administrative Reviews, 62

FR 2081, 2102 (January 15, 1997) (AFBs 94/95), namely that: (1) the

expense be incurred directly in conjunction with sales of the foreign

like product; and (2) the advertising be directed towards the

customers' customer. Eicosal acknowledges that the promotional logo was

displayed on boxes of seafood products other than fresh Atlantic

salmon, but argues that a portion of the expenses nonetheless was

incurred in direct connection with sales of subject merchandise.

Further, Eicosal contends that these expenses do not meet the CIT's

definition of ``general image'' advertising set forth in Brother

Industries v. United States, 540 F. Supp 1341, 1366 (Ct. Int'l Trade

1982), aff'd, 713 F.2d 1568 (Fed. Cir. 1983), cert. denied, 465 U.S.

1022 (1984) (Brother Industries), i.e., such advertising is ``more in

the nature of making consumers aware of the company's concern for

consumers and the quality of its workmanship and product in general''

than in the nature of touting a specific product. Eicosal contends that

because the promotional logos in question are applied to particular

products, they constitute specific product advertising.

The petitioners respond that the display of the centennial

celebration logo on boxes of fresh Atlantic salmon does not

specifically promote the sale of that product, but rather promotes

goodwill between Chile and Japan, and therefore the associated expense

cannot be treated as direct.

DOC Position: We agree with the petitioners. The expenses in

question do not meet the criteria for direct expenses, as described in

AFBs 94/95. The nature of the centennial celebration was to promote

goodwill, thereby promoting Eicosal's corporate image.

The promotional logo applied to the boxes of fresh Atlantic salmon

did not refer to salmon, nor even to Eicosal's general product lines.

Therefore, we have continued to classify the expenses in question as

indirect expenses.

Comment 15: Adjustment to Cash Deposit Rate for Re-Exports to

Canada.

Eicosal argues that its cash deposit rate should be adjusted to

account for the fact that it routinely re-exports a portion of its U.S.

inventory of salmon to Canada. According to Eicosal, entries that

result in re-exportation are not liable to assessment of antidumping

duties, yet U.S. importers must post antidumping cash deposits for all

entries into the United States, since there is no way to identify at

the time of entry those products that are ultimately sold to Canada. In

view of this, Eicosal argues, the Department should lower the cash

deposit rate so that the total deposits collected do not exceed the

total duties ultimately assessed on sales of subject merchandise.

Petitioners argue that it would be improper to lower Eicosal's

calculated deposit rate to account for a hypothetical volume of U.S.

entries that might be re-exported to Canada in the future.

DOC Position: We agree with the petitioners. For the reasons

explained with respect to Comment 10 above (regarding similar arguments

made by Aguas Claras), it is not appropriate to adjust the cash deposit

rate for Eicosal to account for possible future entries of subject

merchandise that might be re-exported to Canada in the future.

Sales Issues--Mares Australes

Comment 16: Unreconciled Revenues.

The petitioners note that there is a discrepancy between the total

value of sales in the database submitted by Mares Australes and the

total value of sales in the database submitted by Mares Australes'

consignees. To account for this discrepancy, the petitioners request

that the Department reduce CEP prices by the ratio of the unreconciled

sales amount to the total value of Mares Australes' sales.

Mares Australes responds that the discrepancy noted by the

petitioners was identified during verification in Chile, and was

accounted for almost entirely at the outset of the subsequent CEP

verification. Further, Mares Australes argues that the total value of

sales of the consignee's database (which was the database relied on by

the Department for its preliminary determination) was fully verified,

and maintains that any remaining discrepancy with Mares Australes'

initial database is insignificant.

DOC Position: We agree with Mares Australes. The small discrepancy

between the two databases found at verification in Santiago was almost

entirely accounted for at the outset of the CEP verification. The

remaining discrepancy is an insignificant amount, particularly given

that it involves a comparison of databases maintained by separate

companies at different points in the distribution chain.

Comment 17: Canadian Sales Included in U.S. Sales Database.

The petitioners argue that sales to Canada by one of Mares

Australes' consignees should be removed from the U.S. sales database.

Mares Australes argues that in the normal course of business it is

not informed of the ultimate destination of merchandise shipped to the

United States for consignment resale. According to Mares Australes, the

Department's practice is to determine the market of destination

according to the producer/exporter's knowledge of destination at the

time of sale, and therefore the sales in question are properly included

in the U.S. sales database.

DOC Position: We disagree with Mares Australes. Even if Mares

Australes was not aware at the time of sale that the transactions

involved Canadian customers, the fact remains that Mares Australes'

consignee clearly identified the transactions as Canadian sales in its

submitted database.

The Department's ``exporter knowledge'' rule is typically applied

where the respondent ships merchandise to a reseller and is aware at

the time of sale that the merchandise is ultimately destined for the

United States. In this case, Mares Australes' sales to both the United

States and Canada are made through consignees, who set the terms of

sale on behalf of Mares Australes, and have ultimate knowledge of the

location of the customer. In preparing its sales database, Mares

Australes obtained a sales listing from its consignees that listed the

location of the customer. Since the sales database identifies

[[Page 31425]]

certain transactions as sales to Canada, and since this information

reflects the knowledge of the consignee (acting on behalf of the

exporter), at the time of sale, the transactions in question are

unarguably Canadian sales. Therefore, we have excluded these

transactions from the U.S. sales database.

Comment 18: Unreconciled Claim Adjustments.

The petitioners contend that, at verification, the Department found

that it could not link certain quality claim expenses incurred by the

consignee to sales of subject merchandise. According to the

petitioners, the Department should not assume that the consignee

absorbed the expense of the quality claims, as this would be tantamount

to application of ``beneficial facts available.'' The petitioners argue

that, instead, the Department should assume that Mares Australes bore

the full amount of the quality claim expense, and reduce U.S. price by

that amount.

Mares Australes responds that, while the resellers' books may not

permit linkage of specific quality claims to specific sales, all

quality claim expenses charged by the consignee to Mares Australes have

been captured in the submitted sales database. According to Mares

Australes, claim expenses absorbed by the consignee should not be

deducted from U.S. price, as they do not affect the net return to the

respondent.

DOC Position: We agree with Mares Australes. At verification, we

observed that a number of quality claims were charged by the consignee

to Mares Australes. While some of these claims could not be linked to

specific transactions due to the nature of the consignees' books, they

resulted in an allocated reduction to U.S. price for groupings of

sales. Other quality claims were absorbed by the consignee. Such claims

are not expenses of the respondent and do not reduce the revenue

received by the respondent; rather, they are normal expenses of the

consignee, and are covered by the commission charged by the consignee

on the sale.

Sales Issues--Marine Harvest

Comment 19: Accruals for Rebates.

The petitioners claim that Marine Harvest did not report certain

rebates for co-op advertising accrued on its U.S. expense ledgers

during the POI, and failed to provide evidence to support its claim

that the co-op advertising program in question was canceled before any

rebates were granted. The petitioners request that, as adverse facts

available, the Department reduce Marine Harvest's U.S. prices by the

highest amount accrued on Marine Harvest's expense ledgers.

Marine Harvest responds that the co-op advertising program in

question never proceeded beyond the ``good idea'' stage, and that no

rebates were ever paid. Citing Certain Corrosion-Resistant Carbon Steel

Flat Products and Certain Cut-to-Length Carbon Steel Plate From Canada,

63 FR 12725 (March 16, 1998), Marine Harvest argues that the

Department's practice is to not adjust prices for such accruals.

DOC Position: We agree with the petitioners. At verification, we

found that Marine Harvest had made accruals for anticipated rebates to

be paid to one of its customers during the POI. While we found no

evidence that Marine Harvest had paid these rebates to the customer, we

observed that Marine Harvest had not reversed these accruals as of the

time of verification. Therefore, Marine Harvest's books indicated that

the respondent anticipated that such payments would be made.

The case cited by Marine Harvest involves claims of accrued (but

unpaid) rebates for comparison market sales, and not for U.S. sales. In

this and other cases involving such claims for adjustments to normal

value, the Department has required that the respondent demonstrate that

there is evidence of a contractual obligation for the payment of such

rebates, or that there is a historical record of such rebates having

been paid regularly in the past. Id. at 12740-41; see also Final

Determination of Sales at Less Than Fair Value; Gray Portland Cement

and Clinker From Japan, 56 FR 12156, 12168 (March 22, 1991); Final

Determination of Sales at Less Than Fair Value; Color Television

Receivers From Taiwan, 49 FR 7628, 7637 (March 1, 1984). If the

Department did not require such evidence, respondents could record

accruals on their books for fictitious expenses, artificially reduce

normal value, and then reverse the accruals after the antidumping

proceeding was ended.

We do not know of, and the parties have not cited to, any case

where the Department has found accrued but unpaid expenses

corresponding to U.S. sales, as opposed to comparison market sales.

Given the fact that the expense in question involves U.S. sales, we

believe that it is incumbent on the respondent to demonstrate that the

expense accrued on its books will not result in a rebate payment. At

verification, the respondent did not provide any such evidence. The

only evidence on the record is the respondent's accrual of these

expenses on its books. In view of this, we have reduced U.S. price for

the customer in question by the amount of the unreported accrued

rebates. Because Marine Harvest has been a cooperative respondent, and

with the single exception of this unreported accrued rebate, has been

generally very thorough in its reporting of sales and expenses, we have

not applied adverse facts available. Instead, we have reduced U.S.

price by the rebate amounts actually accrued.

Comment 20: Level of Trade/CEP Offset for Marine Harvest.

The petitioners argue that the Department should not make a CEP

offset for Marine Harvest's sales in the Japanese market. According to

the petitioners, the level of trade in Japan is less advanced than the

level of trade of U.S. sales, because Marine Harvest's U.S. sales

affiliate engages in a wider variety of sales activities than does

Marine Harvest's Japanese sales affiliate. As a secondary point, the

petitioners contend that since sales to Japan are made exclusively to

trading companies, the Department should find that there are separate

levels of trade for U.S. sales involving retailers versus supermarkets/

distributors and make a level-of-trade adjustment for any comparisons

of U.S. sales to retailers to Japanese sales.

Marine Harvest argues that a CEP offset for Japanese sales is

appropriate. According to Marine Harvest, the level of trade of sales

to Japan is more advanced than the level of trade to the United States,

since the sales activities performed by the U.S. reseller correspond to

selling expenses already adjusted for as reductions to the CEP, and

therefore cannot be considered in the comparison of selling functions

performed by the sales affiliates in the two markets. Marine Harvest

contends that its Japanese sales affiliate performs significant selling

functions.

Marine Harvest does not address the petitioners' request that the

Department find the existence of different levels of trade in the U.S.

market and make an LOT adjustment for comparisons of U.S. sales to

retailers to Japanese sales.

DOC Position: We agree with Marine Harvest that a CEP offset is

appropriate. In the preliminary determination, we found a single level

of trade in the Japanese market and a single level of trade in the U.S.

market. We also found that the level of trade of sales to Japan is more

advanced than the level of trade to the U.S. See Preliminary

Determination at 2670. Verification has borne out that finding. At

verification, we found that Marine Harvest's Japanese affiliate is

engaged in a variety of selling functions including negotiation of

terms of sale, visits to customers, handling of quality claims, and

promotion of Marine Harvest's

[[Page 31426]]

products. See Marine Harvest Sales Verification Report at 12. To the

extent that Marine Harvest's U.S. affiliate performs such functions,

the associated expenses have already been adjusted for as reductions to

the CEP.9 Therefore, we continue to find that the level of

trade of the Japanese market is more advanced than that of the U.S.

market.

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\9\ As noted in Comment 9, supra, petitioners claim that the CIT

recently overturned the Department's practice of comparing the level

of trade of comparison market sales to a constructed level of trade

for CEP sales. See Borden et al. v. United States, cited in

petitioners' case brief at 83. The Department is still considering

the Court's remand order.

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

With respect to the petitioners' request that the Department find

separate levels of trade in the United States, we note first that

petitioners have not offered any reasons for the Department to deviate

from its analysis in the preliminary determination. Since (1) the LOT

of the Japanese sales is more advanced than the LOT of U.S. sales, (2)

there is only one LOT in the Japanese market, (3) Marine Harvest does

not sell salmon nor any other product at a different level of trade in

Japan, and (4) the data submitted by the other respondents do not

permit quantification of differences in level of trade, we find that an

LOT adjustment cannot be made. Therefore, we have continued to make a

CEP offset.

Comment 21: Commingling of Different Grades of Salmon.

According to the petitioners, Marine Harvest has admitted that it

commingled premium and super-premium salmon on shipments to the United

States. The petitioners argue that, therefore, even if the Department

accepts that there is a legitimate distinction between the two grades

in the Japanese market, it should nonetheless average Japanese sales

prices of premium and super-premium salmon.

Marine Harvest contends that it is rare that U.S. shipments of

premium salmon will contain some super-premium salmon in the mix, and

that such sales are in any case properly identified as being of premium

grade, since they include only about five percent super-premium salmon.

DOC Position: As explained above in Comment 1, we have not

distinguished between super-premium and premium salmon. Accordingly,

this issue is moot.

Cost Issues--General

Comment 22: Major Inputs.

The Association argues that, in its final determination, the

Department should not use transfer prices to value transactions between

companies and their affiliated processors and feed producers. Instead,

the Association suggests that, for Eicosal and Marine Harvest, the

Department rely on the affiliated suppliers' costs to value processing

services and feed for purposes of computing cost of production and

constructed value.

The Association contends that the so-called ``transactions

disregarded'' and ``major input'' rules under sections 773(f) (2) and

(3) of the Act do not apply in this instance because the two companies'

affiliated suppliers are separate legal entities in form only and that,

in substance, these suppliers operate as divisions of a single entity.

According to the Association, the record demonstrates that Eicosal and

Eicomar, and Marine Harvest and Marifarms/Marine Feeds are more than

mere ``affiliated persons'' as defined by section 771(33) of the Act.

As evidence of this, the Association points out that Eicosal and Marine

Harvest are each part of wholly-owned, commonly controlled, vertically

integrated salmon production operations with the same accounting

systems and under the same management.

The Association asserts that the Department has not allowed the

legal form of an entity to distort the calculation of dumping margins

in other areas of the law. The Association notes that, for instance, in

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

from Korea: Final Results of Antidumping Duty Administrative Reviews,

62 FR 18404, 18430 (April 15, 1997) (Steel Flat Products from Korea)

(Comment 19), the Department chose not to impose the major input rule

where it treated respondent companies as a single entity for purposes

of reporting sales of the subject merchandise. The Association further

points to the Department's practice of calculating financial expenses

on a consolidated basis in support of its argument that Eicosal and

Marine Harvest and their respective affiliated suppliers should be

treated as single entities for purposes of valuing inter-company

transactions.

In addition, the Association argues that generally accepted

accounting principles suggest that the Department should treat the

companies and their affiliated suppliers as single entities.

Specifically, the Association notes that U.S. and international

financial accounting principles require all companies that hold

controlling interests in other companies to consolidate the results of

their operations with those of their subsidiaries. This practice, the

Association observes, has the effect of treating consolidated companies

as a single entity, since all profits and losses on transactions

between the companies are eliminated. The Association contends that the

respective parent companies of Eicosal and Marine Harvest each follow

these accounting principles in the ordinary course of business and

prepare consolidated financial statements covering all of their

controlled subsidiaries. Thus, the Association argues, the Department

should value affiliated-party transactions at cost in the same way they

are recorded in the ordinary course of business in the companies'

audited, consolidated financial statements.

With respect to a third salmon producer, Mares Australes, the

Association argues that the Department should use a market price

instead of the higher transfer price in valuing feed purchases from its

affiliated feed producer Trouw Chile, S.A. (Trouw Chile). According to

the Association, the relevant provision of the antidumping statute

provides for the use of market price to value inputs from affiliated

parties ``if, in the case of any element of value required to be

considered, the amount representing that element does not fairly

reflect the amount usually reflected in sales of merchandise under

consideration in the market under consideration.'' See section

773(f)(2) of the Act. Therefore, the Association believes that the

statutory provision at issue provides for the use of market price

whenever the transfer price does not fairly reflect the amount usually

reflected in sales of the subject merchandise. The objective of the

affiliated party rule is to ensure that COP is appropriately calculated

and not distorted by decisions between affiliated parties as to where

to book the profits on the production of the input, suggests the

Association.

The petitioners assert that, in dealing with transactions between

affiliated companies under sections 773(f) (2) and (3) of the Act, it

is the Department's practice to value major inputs, like processing and

feed, at the higher of the transfer price, market price, or actual

production cost. Indeed, according to the petitioners, Eicosal and

Marine Harvest's argument that the Department may make an exception to

its normal practice in the case of ``close affiliates'' is inconsistent

with the statutory scheme as drafted by Congress. The petitioners

maintain that the Department must reject Eicosal and Marine Harvest's

argument to base affiliated-party purchases on cost rather than on the

higher transfer price amounts.

[[Page 31427]]

The petitioners disagree with the two respondents' reliance on

Steel Flat Products from Korea, noting that, unlike Eicosal, Marine

Harvest, and their respective affiliates, all of the Korean companies

involved in that case produced the subject merchandise and, thus, had

been ``collapsed'' by the Department for purposes of reporting sales

and computing a single antidumping duty margin. Similarly, the

petitioners reject respondents' argument with respect to the

Department's practice of computing financial expenses based on

consolidated financial statement data. The petitioners observe that, in

contrast to debt which is dispersed throughout the consolidated

companies, inter-company profit is generated at different points in the

production process and by the sales process specific to each product,

customer and market. The petitioners also contend that because the

Department conducts a two-market price analysis in antidumping cases,

some profit must be built into comparison market sales so that

respondents do not allocate away all comparison market profit for

dumping purposes.

With respect to respondents' arguments that U.S. and international

accounting principles call for treating Eicosal, Marine Harvest and

their affiliates as single entities, the petitioners contend that these

accounting principles do not in any way outweigh the provisions of the

antidumping statute. The petitioners argue that the Department must

therefore apply the statutory provisions for ``fair value'' and ``major

inputs'' for Eicosal and Marine Harvest in the final determination.

With regard to the Association's claim that the Department should

rely on market prices for Mares Australes, the petitioners assert that

this claim is inconsistent with the Department's normal establishment

of arm's-length transactions.

DOC Position: We disagree with the Association with respect to our

application of the major input rule for Eicosal, Marine Harvest and

Mares Australes. In order to value processing services and feed

purchased by these companies from their affiliated suppliers, we have

continued to rely on the higher of transfer prices, market value, or

the affiliate's cost of production in accordance with sections

773(f)(2) and (3) of the Act.

As noted in the comments from both respondents and the petitioners,

section 773(f)(2) and (3) of the Act prescribes how the Department is

to treat affiliated-party transactions in its calculation of cost of

production and constructed value. With respect to major inputs

purchased from affiliated suppliers (in this instance, salmon

processing and feed), the Department's practice is that such inputs

will normally be valued at the higher of the affiliated party's

transfer price, the market price of the inputs, or the actual costs

incurred by the affiliated supplier in producing the inputs.

Since implementation of the URAA, the Department has consistently

applied this interpretation (see, e.g., Small Diameter Circular

Seamless Carbon and Alloy Steel Standard, Line and Pressure Pipe From

Germany: Final Results of Antidumping Duty Administrative Review, 63 FR

13217, 13218 (March 18, 1998)(Comment 1), and Silicomanganese from

Brazil; Final Results of Antidumping Duty Administrative Review, 62 FR

37869, 37871 (July 15, 1997) (Silicomanganese from Brazil)(Comment 3)),

making exception in only those cases wherein it treats respondents as a

single entity for purposes of sales reporting and calculating an

antidumping margin (see, e.g., Steel Flat Products from Korea (Comment

19)). Relying solely on cost in the latter case flows logically from

the overall calculation methodology being employed.

All of the parties in question are separate legal entities in

Chile, responsible for maintaining their own books and records. In

contrast to Steel Flat Products from Korea, the Department is applying

its normal company-specific calculation methodology. Therefore, there

is no basis for establishing an exception to the ``major input rule.''

Accordingly, sections 773(f)(2) and (3) of the Act apply to the

transactions between these companies.

Further, we disagree with respondents' argument that the principles

that guide the Department to treat groups of affiliated companies as a

single entity for purposes of calculating financial expenses should

apply to other elements of cost of production. The Department's

practice regarding the calculation of financial expenses based on the

consolidated financial statements of the parent company is well

established and has been upheld by the courts. See, e.g., E.I. DuPont

de Nemours & Company v. United States, Slip Op. 98-7, Court No. 96-11-

02509 (January 29, 1998)(upholding the Department's application of its

long-standing policy of calculating interest expense from the borrowing

cost incurred by the consolidated group of companies rather than the

individual producer). The Department's practice with respect to

calculating financial expenses is for a completely different purpose,

i.e., to ensure that consolidated companies do not direct actual

interest costs away from producers of subject merchandise and to

producers of non-subject merchandise. On the other hand, under the

major input rule, the statute requires that we review affiliated-party

purchases in order to determine that they reasonably reflect a fair

value.

Although generally accepted accounting principles usually require

that a company's financial statements be consolidated with all

companies in which it owns a controlling interest, these consolidated

financial statements do not alter the manufacturing costs associated

with producing the subject merchandise as recorded by the entity

producing the subject merchandise.

Consistent with our general practice, outlined above, we disagree

with Mares Australes that a market price rather than the transfer price

it pays its affiliate should be used to value feed purchases from Trouw

Chile. The Department will use the transfer price which normally

reflects Mares Australes' purchases of the input, unless the transfer

price does not reflect a fair value in the market under consideration.

Therefore, we continue to rely on transfer prices in order to value

feed purchased from Mares Australes' affiliated supplier, Trouw Chile.

Comment 23: Perishability.

The Association argues that the Department erroneously determined

in the preliminary determination that salmon was not a highly

perishable agricultural product for purposes of determining

``substantial quantities'' of sales below cost in the cost test. The

Association contends that the test for ``high perishability'' is

whether a product has a short shelf life, noting that the Department

has found products with significantly longer shelf lives than salmon,

10 to be highly perishable. According to the Association,

the petitioners themselves have attested to the high perishability of

salmon before the International Trade Commission (ITC).

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

\10\ Although it did not make this specific point in its case

briefs, at the public hearing the Association referenced a

determination involving a 1983 Department finding that potatoes from

Canada are highly perishable. The Association noted that salmon have

much shorter shelf lives than potatoes. See Transcript of Case

Hearing at 59-61 (April 28, 1998).

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

Further, although the Association acknowledges that the Department

did not find salmon to be highly perishable in the LTFV investigation

of Fresh and Chilled Atlantic Salmon from Norway (Salmon from Norway),

it contends that

[[Page 31428]]

that precedent is not controlling. According to the Association,

Norwegian producers and exporters of salmon were different entities,

and the Department's focus in that case was whether live farmed salmon

was highly perishable for producers (who sold that salmon to

exporters). The Association argues that the respondents in this case

are integrated producers/exporters, such that the Department is not

examining any sales of live salmon as sold by producers; rather, the

merchandise in question consists entirely of dressed fish sold by the

producer/exporter. Therefore, the Association contends, any alleged

control over harvest timing is irrelevant, since once salmon are

dressed and/or filleted, they become inherently perishable.

Finally, the Association claims that the sales data submitted in

this investigation indicate that salmon prices fall significantly due

to inevitable perishability problems after harvesting. As evidence, the

Association submits a graphical illustration of U.S. and Canadian price

trends over the shelf life of salmon, based on data submitted by Aguas

Claras in its sales databases.

The petitioners argue that salmon should not be considered a highly

perishable agricultural product for purposes of the cost test.

According to the petitioners, the Department's precedent established in

Salmon from Norway (i.e., that salmon is not a highly perishable

product) is controlling in the instant investigation. The petitioners

disagree with the Association's claim that, due to the integration of

producers and exporters in the Chilean salmon industry, Salmon from

Norway is inapplicable. According to the petitioners, that high degree

of integration in the Chilean salmon industry enhances the respondents'

control over harvesting and distribution schedules.

More generally, the petitioners contend that a product can only be

deemed to be highly perishable if the producer has very little

flexibility in controlling the timing of harvesting, and if this lack

of control normally and inevitably results in sales below cost for the

industry. According to the petitioners, salmon harvests can be delayed

by as many as 15 months, such that the respondents can fine-tune

harvest timing so as to avoid the need to make sales below cost.

The petitioners further argue that verification revealed that sales

below cost are not an inevitable aspect of salmon production, and that

Chilean salmon producers have not demonstrated that they suffer from

perishability problems in bringing their product to market.

DOC Position: We do not disagree with the Association's statement

that, once harvested, salmon is a perishable product that does not have

a long shelf life. However, the issue with respect to the ``substantial

quantities'' portion of the cost test is whether salmon is a product

that the respondents can expect to sell routinely in the comparison

market at prices below the cost of production due to the highly

perishable nature of the product. We disagree with the Association's

contentions in this regard and find that fresh Atlantic salmon is not a

highly perishable agricultural product for purposes of the

``substantial quantities'' test.

In Salmon from Norway, the Department found that the respondents

had sufficient control over harvest timing and distribution such that

perishability was not a concern, as the salmon were brought to market

before freshness was compromised. Although the Association contends

that the Department's focus in that case was on live salmon as sold by

producers to exporters, the Department in fact found that salmon was

not highly perishable either with respect to producers or exporters,

whether live or harvested. The Department concluded:

Norwegian salmon farmers have the ability to control the time of

sale of their output by ``holding over'' inventory and, since

January 1990, by freezing fresh salmon. Regarding respondents'

assertion that salmon is perishable in the hands of the exporters,

the Department found at verification that the opposite is true.

Exporters coordinate their salmon requirements in weekly telephone

conferences with their customers, with farmers, and with other

exporters. By doing so, exporters can communicate their salmon

requirements two weeks into the future so that farmers can begin to

``starve'' (prepare for harvest) the salmon two weeks prior to

harvest. Accordingly, there appears to be no perishability problem

at the exporter level.

See Salmon from Norway at 7673.

The record of the instant investigation, including our findings at

verification, suggests that perishability is even less of a problem for

the Chilean respondents than for the Norwegian respondents. The Chilean

respondents are integrated producers/exporters, so that their

production and harvesting schedules are more easily coordinated.

Moreover, the respondents sell to a small number of importers in their

respective comparison markets, with whom they closely coordinate both

production and distribution. Shipments to third-country markets are

made directly to the customer, without the involvement of consignees or

affiliated resellers.11 As the salmon are shipped, the terms

of the sale are set, and the sale is consummated. Therefore,

perishability does not become a factor in the respondents' pricing.

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

\11\ The single exception is Aguas Claras, which made sales to

Canada out of its U.S. affiliate's inventory. However, at

verification Aguas Claras asserted that it sells merchandise

affected by perishability problems in the United States and not in

Canada due to the longer transportation times required for Canadian

sales. See Aguas Claras Sales Verification Report at 6. Thus, to the

extent that Aguas Claras makes significant sales below cost in the

Canadian market, it is for reasons other than perishability.

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

Our verifications bear out these findings. For instance, Marine

Harvest sells to a total of three customers in Japan, and the majority

of sales are made to a single customer. According to company officials,

because Marine Harvest Chile's sales to Japan are arranged in close

consultation with Japanese customers, it is exceptionally rare for

Marine Harvest Chile to make sales below cost to the Japanese market

due to perishability concerns. See Marine Harvest Sales Verification

Report at 4-5. The other respondents similarly are able to coordinate

closely their shipments with their customers. In the case of Eicosal,

its Japanese customers reportedly will purchase all the high-quality

salmon that Eicosal can produce. See letter from Eicosal to the

Department of Commerce, transmitting Supplemental Section A

Questionnaire Response (November 18, 1997), at 3. Moreover, in

describing its production and sales process at verification, Eicosal

stated that it conducts negotiations for Japanese sales before the

salmon are harvested. See Eicosal Sales Verification Report at 7.

Similarly, Mares Australes has stated that its two Japanese importers

inform them of their requirements a month in advance, and that one of

its importers even provides ``exact requirements by shipment.'' See

letter from Mares Australes to the Department of Commerce, transmitting

Supplemental Section A & B Questionnaire Responses (November 3, 1997),

at 12.

As for the Association's argument that the Department has found

products with longer shelf lives than salmon (such as potatoes) to be

highly perishable, we note that shelf life is not the sole criterion in

determining whether an agricultural product is highly perishable for

purposes of the cost test. Rather, as explained above, the issue is

whether salmon is a highly perishable product that the respondents can

expect to routinely sell in the comparison market at prices below the

cost of production.12

[[Page 31429]]

Given the facts of this case, we have found that fresh Atlantic salmon

does not meet that standard.

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

\12\ With respect to the Association's reference to the

Department's finding that potatoes (which have longer shelf lives

than salmon) are a perishable product, we note that the underlying

case dates back sixteen years, and the notice of final determination

in that case does not set forth any details of the Department's

analysis of perishability with respect to potatoes. See Final

Determination of Sales at Less Than Fair Value; Fall-Harvested Round

White Potatoes From Canada, 48 FR 51669, 51669 (November 10, 1983).

In any event, there is no bright line ``shelf-life'' test to define

high perishability, and the determination of whether a product is

highly perishable for purposes of the cost test is necessarily

specific to the facts of each case.

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

In view of the record evidence that salmon is not a highly

perishable product for purposes of the cost test, we do not find any

basis to warrant the application of a higher threshold for the

``substantial quantities'' aspect of the cost test.

Comment 24: Exchange Rate Losses.

The Association argues that, in calculating financial expenses for

COP and CV, the Department must include only those exchange rate losses

that are attributable to loans used to finance salmon production during

the POI. While it acknowledges the Department's normal practice of

calculating general expenses, including financial expenses, based on

each respondent's fiscal year data, the Association maintains that, in

this case, such a practice would overstate the actual financial

expenses incurred by the salmon producers due to the effects of

exchange rate losses incurred during 1996. Specifically, the

Association points to the fact that a shift in the Chilean peso/U.S.

dollar exchange rate during the first part of 1996 was responsible for

the major portion of the exchange losses incurred by the producers in

connection with their dollar-denominated debt. These losses, adds the

Association, were reported by the salmon producers in their 1996

financial statements, the same financial statements used by the

Department to compute financial expenses for COP and CV. The

Association notes, however, that during the actual months of the POI,

the change in the peso/dollar exchange rate was significantly less than

that of the full calendar year 1996. Thus, according to the

Association, where the Department determines to include exchange rate

losses in financial expenses, it should compute such losses based on

the actual POI and not the company's 1996 fiscal year, in effect,

limiting its analysis of exchange rate gains and losses to the POI so

as to match these costs to sales during the POI.

As support for its position, the Association argues that exchange

rate gains and losses differ from other types of G&A expenses and

interest expense in that the former may fluctuate significantly from

month to month, causing considerable changes in the amount of gain or

loss recognized as a cost. Moreover, according to the Association, the

Department has acknowledged the distortion caused by exchange losses

and its practice of calculating financial expenses based on full-year

financial statement information. As evidence of this, the Association

points to the Final Determination of Sales at Less Than Fair Value Oil

Country Tubular Goods from Mexico, 60 FR 33567, 33572 (June 28, 1995)

(OCTG from Mexico) in which the Department chose not to use financial

statement data to compute financial expenses because devaluation of the

Mexican peso made the information unrepresentative of costs during the

POI.

In addition to considering only the exchange losses incurred during

the POI, the Association also urges the Department to exclude from COP

and CV a portion of the losses on loans allocable to financing sales

and accounts receivable. The Association argues that because the

companies finance all of their operations, including both production

and sales activities, part of the exchange loss arising from dollar-

denominated debt must be attributed to the companies' non-production

activities. If the Department chooses not to allocate a portion of the

exchange loss to sales activities and accounts receivable, the

Association contends that it should reexamine its treatment of exchange

gains arising from foreign currency receivables by treating all such

gains as an offset to foreign exchange losses.

The petitioners argue that the Department must continue to

calculate financial expenses based on the salmon producers' 1996

financial statement data, and not use the POI data as suggested by the

Association. According to the petitioners, consistent with the

Department's practice, the fiscal year information provides the most

accurate and reasonable basis for estimating the actual expenses

incurred, including exchange gains and losses. The petitioners point

also to Gray Portland Cement and Clinker from Mexico: Final Results of

Antidumping Duty Administrative Review, 62 FR 17148, 17160 (April 9,

1997), in which the Department determined that exchange gains and

losses arising from the respondent's foreign currency debt were,

indeed, related to production and therefore properly included in the

calculation of financing expenses. Lastly, the petitioners call

attention to the fact that the Department's practice of including

foreign exchange gains and losses in financial expenses has been upheld

by the CIT in Micron Technology, Inc v. United States, 893 F. Supp. 21

(CIT 1995).

DOC Position: Our practice is to calculate general expenses,

including financial expenses, based on the full fiscal year's

information that most closely corresponds to the period of

investigation or review. See, e.g., Final Results of Antidumping Duty

Administrative Review: Silicon Metal From Brazil, 63 FR 6899, 6906

(February 11, 1998) (Comment 16). Contrary to the Association's claim,

general expenses often vary greatly from month to month. By considering

general expense information for the fiscal year, however, the

Department is able to ensure that it has reasonably captured all of the

expenses associated with the respondent's complete business and

accounting cycle. In particular, we note that the year-end financial

statement data are generally the most accurate reflection of a

company's results because these data include complete year-end accruals

and other adjusting entries that are often posted only at year-end. In

addition, the year-end statements are often audited, or at a minimum,

reviewed by outside accountants, which provides additional assurance as

to the accuracy of the data presented and the accounting principles

used to compile those data.

Here, the Association suggests that the Department isolate one

specific expense, foreign exchange losses, which it contends would be

lower if the Department departs from its normal methodology and shifts

the calculation period for foreign exchange losses on loans by three

months. While that may be the case, it is difficult to accept the

Association's rationale in light of the fact that they have offered no

information as to the effect that the three-month shift would have on

all other costs incurred by the companies, certain of which may indeed

be higher than those of the 1996 fiscal year. Thus, we do not consider

it appropriate for the Department to abandon its normal practice for a

single expense (foreign exchange losses) when the rationale for doing

so is little more than the fact that such expense would be lower if

calculated over a different period.

With respect to the Association's reliance on OCTG from Mexico as a

departure from the Department's general practice of using fiscal year

data, we note that, in that case, the respondent's financial expense

ratio was based on best information available (the predecessor to facts

available).

[[Page 31430]]

Specifically, the investigation in that case encompassed a six-month

period from January through June 1994. The respondent's 1994 financial

statements were provided by the petitioners, after the respondent

claimed that these statements were not available. The financial

statements showed the effects of the massive devaluation of the Mexican

peso sustained in late December of 1994, several months subsequent to

the POI. As discussed more fully in OCTG from Mexico, the Department

used an adverse inference in its calculation of interest expense, while

declining to include the full amount of the peso collapse. While the

Association has characterized the change in the Chilean peso rate

during the fiscal year as ``four and one-half times'' that of the POI,

this reflects a change of from 1 to 4.4 percent. This change does not

begin to equate to the massive currency devaluation noted in OCTG from

Mexico. Finally, we note that the choice of adverse facts available (or

its predecessor best information available) provides no guidance with

respect to the Department's preferred methods for calculating actual

expenses.

As to the Association's assertion that exchange losses should be

attributed to the accounts receivable balance, this is inconsistent

with our practice. The Department has an established practice of

including currency translation gains and losses on foreign-currency

denominated loans in COP and CV because they reflect an actual increase

in the amount of local currency that will have to be paid to retire the

foreign-currency denominated loan balances. See, e.g., SRAMs from Korea

(Comment 4). We allocate the financial expenses based on the cost of

goods sold and, thus, these expenses are reflected as a cost of

production, and not a selling expense. We do not consider exchange

gains and losses from sales transactions to be related to the

manufacturing activities of the company. See, e.g., Notice of Final

Determination of Sales at Less Than Fair Value: Steel Wire Rod From

Trinidad and Tobago, 63 FR 9177, 9181 (February 24, 1998) (Comment 4).

For this final determination, we have included in the cost of

production the amortized portion of foreign exchange losses resulting

from foreign-currency denominated loans as part of the financial

expenses. The foreign exchange losses on loans reported in the

consolidated financial statements were amortized over the average

remaining life of the loans on a straight-line basis.

Comment 25: CV Imputed Credit.

The Association argues that the Department's methodology for

comparing U.S. prices to CV does not properly account for imputed

credit expenses in the comparison market. The Association believes that

the Department should either deduct an amount for imputed credit from

CV, as it has done in recent cases, or should exclude from COP

financial expenses the amount allocable to financing accounts

receivable, as it did under the old law.

Further, for Camanchaca, the only producer that did not have a

comparison market, the Association argues that, if the Department

continues to use the weighted-average selling and profit rates of the

other four respondents in this investigation, the Department should

apply the weighted-average comparison market imputed credit of the

other four producers.

The petitioners do not rebut the Association's comments on this

issue.

DOC Position: We agree with the Association that a ``circumstance

of sale'' adjustment for imputed credit should be made to CV. The

Department ``uses imputed credit expenses to measure the effect of

specific respondent selling practices in the United States and the

comparison market.'' See Stainless Steel Wire Rods from France (Comment

5). Thus, in order to make a fair comparison, we have deducted imputed

credit from CV as a COS adjustment in this final determination.

Comment 26: Allocation of Financial Expenses Based on Assets.

The Association asks the Department to consider the special

circumstances of three salmon producers--Eicosal, Camanchaca, and Aguas

Claras--in calculating financial expenses for COP and CV. According to

the Association, certain characteristics unique to these companies'

operations require that the Department modify its normal method of

computing consolidated financial expenses based on the ratio of net

financial expenses to cost of goods sold during the period.

In the case of Eicosal, the Association contends that the

Department must recognize the very different capital requirements of--

and disproportionate generation of financial expenses by--Eicosal and

its affiliated processor, Eicomar. That is, in the Association's view,

the Department must allocate consolidated financial expenses between

Eicosal and Eicomar based on the relative value of fixed assets held by

each company. The Association maintains that this allocation is

necessary in order to avoid significant distortions in the calculation

of financial expenses due to the fact that Eicomar, as a seafood

processor, requires substantially greater amounts of capital for

equipment than does Eicosal, which conducts the salmon farming

operations. In support of this view, the Association cites the Final

Determination of Sales at Less Than Fair Value of Dynamic Random Access

Memory Semiconductors of One Megabit and Above from the Republic of

Korea, 58 FR 15467, 15471 (March 23, 1993)(DRAMS from Korea) where,

before calculating a respondent's net financial expense ratio for COP

and CV, the Department first allocated financial expenses to various

divisions within the corporation based on the relative value of fixed

assets within each division.

The Association also requests that the Department make a fixed

asset-based allocation of financial expenses for Camanchaca as well. In

this instance, the Association points out that Camanchaca is involved

in many fish and seafood-related operations other than the production

of fresh Atlantic salmon. According to the Association, Camanchaca's

operations are divided into six distinct production areas, each locally

administered and having its own capital requirements. The Association

maintains that unless financial expenses are first allocated to

Camanchaca's production area on the basis of fixed asset value, the

Department's normal method of computing such expenses will

significantly distort the actual capital costs incurred by the

company's salmon production operations.

Finally, in the case of Aguas Claras, the Association argues that

the Department's financial expense calculation fails to take account of

the company's frozen and smoked salmon operations. Specifically, the

Association observes that, in addition to fresh salmon, Aguas Claras

produces and holds in inventory a large amount of frozen and smoked

salmon products. According to the Association, before it can accurately

capture the financial expenses of fresh Atlantic salmon, the Department

must first allocate a portion of total financial expense to frozen and

smoked salmon in recognition of the costs incurred to finance these

products in inventory. The Association contends that such an allocation

would be consistent with the Department's imputation of inventory

carrying costs in antidumping cases.

The petitioners argue that the Department should follow its normal

methodology and calculate financial expenses as a ratio of each

company's cost of goods sold. According to the petitioners there is no

reason in this case for the Department to allocate interest on the

basis of inventory or fixed assets as suggested by the Association. The

petitioners further

[[Page 31431]]

point out that Camanchaca and Aguas Claras improperly reduced their

submitted financial expenses associated with the imputed cost of

carrying their accounts receivable and ending inventory.

DOC Position: We disagree with the Association that the facts of

the case require us to depart from our general practice of calculating

financial expenses based on a ratio of the foreign producer's net

expenses to its cost of goods sold. In this case, each of the three

respondents proposes alternative methods for calculating financial

expenses which they believe best represent the unique circumstances of

their operations. In effect, these calculations allocate interest

charges to certain assets which the companies contend are not

associated with subject merchandise, and thus, have the effect of

lowering the interest expense for subject merchandise. The fact that

the results of these calculations differ from the normal cost-of-sales-

based calculation does not in any way suggest that the Department's

longstanding practice of calculating financial expenses is inaccurate

or unreasonable. In fact, the Courts have upheld as reasonable the

Department's practice of calculating financial expenses based on the

consolidated group as a whole, notwithstanding the fact that any non-

respondent member of the Group may have been involved in a different

line of business or held assets having values substantially different

from those of the respondent company. See, e.g., E.I. DuPont de Nemours

& Co. v. United States, Slip op. 98-7, Court No. 96-11-02509 (January

29, 1998)(where the Court noted that the Department's calculation of

financial expenses reasonably reflects the actual costs incurred by the

respondent) and Gulf States Tube Division v. United States, Slip op.

97-124, Court No. 95-09-01125 (August 29, 1997) at 31 (where in light

of the fact that the statute provides no specific guidance for the

calculation of financial expenses, the Court recognized as reasonable

the Department's allocation of such expenses based on the respondent's

consolidated group).

With respect to the Association's citation to DRAMS from Korea, we

note that while the Department relied on an asset-based allocation

methodology in the investigation phase of that case, we have since

reconsidered this approach. Specifically, although the CIT upheld the

Department's interest calculation in that proceeding (Micron

Technologies, Inc. v. United States), in a recent investigation

involving the same respondent companies from the DRAMS from Korea

proceeding, Final Determination of Sales at Less Than Fair Value:

Static Random Access Memory Semiconductors From the Republic of Korea,

63 FR 8934, 8938 (February 23, 1998)(SRAMS from Korea), the Department

described why it was unnecessary to follow the fixed asset based

allocation methodology for financial expenses that had been used in the

DRAMS from Korea proceeding. See SRAMS from Korea at 8938 (General

Comment 2). (``We have reconsidered this issue for the final

determination and concluded that because the COGS includes a

proportional amount of the depreciation of the assets used in the

production of the merchandise, allocation of financing expenses on the

basis of COGS distributed proportionately more interest expense to

those products having higher capital investment.'') Thus, as in this

case, the Department recognized that its normal method of calculating

financial expenses on the basis of cost of goods sold, without special

allocations to specific divisions or assets, provides a reasonable

measure of the costs incurred for the merchandise.

Further, we have not allowed the respondents to offset financial

expenses for the claimed cost of holding accounts receivable and

inventory. The statute directs the Department to calculate selling,

general and administrative costs, including financial expense, based

upon the actual experience of the company. See section 773(b)(3)(B) and

section 773(e)(2)(A) of the Act. Under the pre-URAA law, we allowed

offsets to financial expense for accounts receivable and finished goods

inventory to account for the fact that we calculated CV inclusive of

amounts imputed for credit and inventory carrying costs. Consistent

with the provisions of the new law, however, we now base financial

expense for COP and CV on the amounts incurred by the respondents, and

do not account for imputed expenses as actual costs for the calculation

of CV. Therefore, it is no longer appropriate to reduce the financial

expenses by the accounts receivable and inventory offsets as suggested

by the Association. See, e.g., Steel Flat Products From Korea at 18422

(Comment 6); Final Determination of Sales at Less Than Fair Value:

Certain Pasta From Italy, 61 FR 30326, 30361 (June 14, 1996).

Comment 27: Inflation.

The Association contends that the Department should not adjust the

respondents' reported cost of production and constructed value figures

to account for the effects of Chilean inflation on salmon stock costs.

Although it recognizes that such an adjustment would be consistent with

Chilean accounting principles, the Association points out that

inflation in the country ranged only between six and eight percent

during the period over which the respondents calculated their reported

salmon costs. This low inflation rate, argues the Association, does not

meet the Department's normal threshold for adjusting costs in cases

involving significant inflation.

In support of its position, the Association cites Certain Fresh Cut

Flowers from Colombia: Final Results of Antidumping Duty Administrative

Reviews, 61 FR 42833, 42845 (August 19, 1996)(Flowers from Colombia)

and Final Determination of Sales at Less Than Fair Value: Fresh Cut

Roses from Colombia, 60 FR 6980, 6993 (February 6, 1995)(Roses from

Colombia), where it contends that the Department's policy is to adjust

costs to a constant currency basis only in cases involving high-

inflation and, even then, only to adjust expenses related to long-lived

fixed assets (i.e., depreciation expense). The Association notes that,

consistent with Chilean GAAP, each respondent restated the historical

cost of its fixed assets such that the depreciation expense reported

for cost of production and constructed value reflected current Chilean

peso values during the period of investigation. However, the

Association contends that salmon stock is not a fixed asset and, thus,

it is inconsistent with past Department practice to also adjust these

costs for the low inflation experienced in Chile during the cost

calculation period.

The petitioners, citing Final Determination of Sales at Less Than

Fair Value: Canned Pineapple Fruit from Thailand, 60 FR 29553, 29559

(June 5, 1995) (Pineapple from Thailand), claim that the Department

should rely on the respondents' normal books and records, kept in

accordance with Chilean GAAP, for the calculation of the live fish

inventory cost. The petitioners argue that whether inflation in Chile

was high or low is irrelevant to the cost calculation because the

Department must first look at the respondents' home country GAAP to

determine whether such principles reasonably reflect the costs of

producing the subject merchandise. In Pineapple from Thailand, the

Department stated that normal accounting practices provide an objective

standard by which to measure costs, while providing the respondents a

predictable basis on which to compute costs. The petitioners further

contend that, in this case, the respondents want the Department to

reject outright the Chilean GAAP requirements regarding price-level

[[Page 31432]]

adjustments to non-monetary assets. Yet, the petitioners note, the

respondents have failed to meet their burden of demonstrating that such

an adjustment would distort the reported costs. The petitioners assert

that the respondents have failed to indicate how their normal books and

records, kept in accordance with Chilean GAAP, distort costs. The

petitioners argue that the respondents' claim that the cost of live

fish inventory are mainly contained within the POI is incorrect because

the production cycle of salmon is between two and three years.

DOC Position: We agree with the petitioners that certain of the

salmon producers failed to provide costs which reflected their normal

accounting practices of adjusting non-monetary assets for increases in

price-levels. The exclusion of these adjustments results in costs which

are not reflective of current price levels and, thus, produces an

improper match of revenues and expenses.

The Department's long-standing practice, codified at section

773(f)(1)(A) of the Act, is to rely on data from a respondent's normal

books and records where those records are prepared in accordance with

home country GAAP and reasonably reflect the costs of producing the

merchandise. Normal GAAP accounting practices provide both respondents

and the Department a reasonably objective and predictable basis by

which to compute costs for the merchandise under investigation.

However, in those instances where it is determined that a company's

normal accounting practices result in a misallocation of production

costs, the Department will adjust the respondent's costs or use

alternative calculation methodologies that more accurately capture the

actual costs incurred to produce the merchandise. See, e.g., Final

Determination of Sales at Less Than Fair Value: New Minivans from

Japan, 57 FR 21937, 21952 (May 26, 1992) (Minivans from Japan) (the

Department adjusted a respondent's U.S. further manufacturing costs

because the company's normal accounting methodology did not result in

an accurate measure of production costs); see also, Pineapple from

Thailand, 60 FR at 29559.

In the instant proceeding, the Association asks the Department to

reject each salmon producer's normal price-level accounting

methodologies used for live fish inventories in favor of costs

calculated for purposes of this investigation. As noted, however, the

Department's practice is to rely on a respondent's books and records

prepared in accordance with its home country GAAP unless these

accounting principles do not reasonably reflect costs associated with

production of the subject merchandise. As a result, before analyzing

any alternative accounting method reported by a respondent during the

proceeding, the Department will determine whether it is appropriate to

use the respondent's normal GAAP accounting practices in order to

calculate the cost of the merchandise.

In this case, the Department examined whether it was reasonable

under Chilean GAAP for the salmon producers to adjust their fish

inventory costs to reflect current Chilean peso values corrected for

the effects of inflation. Fish stock costs are recorded on the basis of

the historical amounts incurred to raise the salmon from eggs to

maturity. Similar to fixed assets, however, because fish stock costs

are carried on the company books as an asset for two to three years

prior to harvest, Chilean GAAP requires that the costs be restated to

reflect inflation-adjusted amounts. In examining the companies' books

and records at verification, we found that Camanchaca, Aguas Claras and

Eicosal had used the recorded price-level adjustment methodology for

live fish inventories for at least a number of years. In addition,

evidence on the record, i.e., audited financial statements, indicated

that each of the three companies' normal price-level adjustment

methodologies was accepted by its independent auditors and was

consistent with GAAP practiced in Chile.

Given the fact that the companies' price-level adjustment

methodology is consistent with Chilean GAAP and the Association has not

shown this practice to distort salmon production costs during the

period, we have recalculated each company's fish stock costs to include

the price-level adjustment reported in accordance with its normal

accounting practices.

We also found that two of the companies, Mares Australes and Marine

Harvest, did not record the price-level adjustment to fish stock costs

as they do not prepare financial statements in accordance with Chilean

GAAP. Specifically, these companies are subsidiaries of foreign

companies that prepare only consolidated financial statements in other

countries following accounting principles dictated by the home country

GAAP of their respective parent companies. Thus, Mares Australes and

Marine Harvest are not required to prepare financial statements in

accordance with Chilean GAAP.

We note that in this case, however, the information provided by

Marine Harvest does, in effect, consider the change in the value of the

Chilean peso. Marine Harvest's financial data is restated into U.S.

dollars monthly as part of its reporting for consolidation purposes. We

note that during the cost calculation period the Chilean peso/U.S.

dollar exchange rate reflected much of the inflation rate experienced

in Chile. Thus, Marine Harvest's reported costs were effectively

adjusted for the price-level changes each month, as part of the

company's normal accounting.

With respect to Mares Australes, the case record does not contain

information regarding the company's accounting consolidation process

with its parent. As part of the consolidation process, however, Mares

Australes would have to convert its peso accounting records to the

currency in which its parent maintains its normal books and records.

Thus, as with Marine Harvest, it is reasonable to conclude that Mares

Australes, in effect, accounts for the price-level changes through the

currency conversion process of its normal accounting consolidation.

Yet, because Mares Australes reported its salmon production costs in

pesos for purposes of this inv

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