Notice of Final Determination of Sales at Less Than Fair Value: Certain Preserved Mushrooms from Chile

DEPARTMENT OF COMMERCE

International Trade Administration

[A-337-804]

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

Certain Preserved Mushrooms from Chile

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: October 22, 1998.

FOR FURTHER INFORMATION CONTACT: David J. Goldberger or Katherine

Johnson, Import Administration, International Trade Administration,

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

Washington, D.C. 20230; telephone: (202) 482-4136 or (202) 482-4929,

respectively.

The Applicable Statute:

Unless otherwise indicated, all citations to the Tariff Act of

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

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

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

unless otherwise indicated, all citations to the Department of Commerce

(``Department'') regulations are to the regulations at 19 CFR Part 351,

62 FR 27296, May 19, 1997.

Final Determination:

We determine that certain preserved mushrooms (``mushrooms'') from

Chile are being 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 ``Suspension of Liquidation'' section of this

notice.

Case History

Since the preliminary determination (Preliminary Determination of

Sales at Less Than Fair Value: Certain Preserved Mushrooms from Chile,

63 FR 41786, August 5, 1998), the following events have occurred:

The respondent, Nature's Farm Products (NFP) submitted revisions

and corrections to its questionnaire responses during July and August

1998.

During August 1998, we conducted verification of NFP's responses to

the antidumping questionnaire. Following verification, we requested NFP

to submit revised sales and cost of production data bases, which NFP

submitted on September 2, 1998. On September 1, 1998, we issued our

verification report (see Memorandum for the File dated September 1,

1998 (``Verification Report'')).

The petitioners and NFP submitted case briefs on September 9, 1998.

On September 10, 1998, the petitioners withdrew their request for a

public hearing. Both parties submitted rebuttal briefs on September 15,

1998.

Scope of Investigation

For purposes of this investigation, the products covered are

certain preserved mushrooms whether imported whole, sliced, diced, or

as stems and pieces. The preserved mushrooms covered under this

investigation are the species Agaricus bisporus and Agaricus bitorquis.

``Preserved mushrooms'' refer to mushrooms that have been prepared or

preserved by cleaning, blanching, and sometimes slicing or cutting.

These mushrooms are then packed and heated in containers including but

not limited to cans or glass jars in a suitable liquid medium,

including but not limited to water, brine, butter or butter sauce.

Preserved mushrooms may be imported whole, sliced, diced, or as stems

and pieces. Included within the scope of the investigation are

``brined'' mushrooms, which are presalted and packed in a heavy salt

solution to provisionally preserve them for further processing.

Excluded from the scope of this investigation are the following:

(1) All other species of mushroom, including straw mushrooms; (2) all

fresh and chilled mushrooms, including

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``refrigerated'' or ``quick blanched mushrooms''; (3) dried mushrooms;

(4) frozen mushrooms; and (5) ``marinated,'' ``acidified'' or

``pickled'' mushrooms, which are prepared or preserved by means of

vinegar or acetic acid, but may contain oil or other additives.

The merchandise subject to this investigation is classifiable under

subheadings 2003.10.27, 2003.10.31, 2003.10.37, 2003.10.43, 2003.10.47,

2003.10.53, and 0711.90.4000 of the Harmonized Tariff Schedule of the

United States (``HTS''). Although the HTS subheadings are provided for

convenience and Customs purposes, the written description of the

merchandise under investigation is dispositive.

Period of Investigation

The period of investigation (``POI'') is January 1, 1997, through

December 31, 1997.

Product Comparisons

In accordance with section 771(16) of the Act, we considered all

products produced by NFP covered by the description in the ``Scope of

Investigation'' section, above, and sold to Brazil during the POI to be

foreign like products for purposes of determining appropriate product

comparisons to U.S. sales. As discussed below, we determined that there

were no comparable third country sales in the ordinary course of trade

during the POI. Therefore, we compared U.S. sales to constructed value

( ``CV''), as described below.

Fair Value Comparisons

To determine whether sales of mushrooms from Chile to the United

States were made at less than fair value, we compared constructed

export price (``CEP'') to the Normal Value (``NV''), as described in

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

notice, below. In accordance with section 777A(d)(1)(A)(i) of the Act,

we calculated weighted-average CEPs for comparison to weighted-average

NVs.

Level of Trade

In the preliminary determination, we compared all U.S. sales to CV.

Because we were unable to determine whether there is a difference in

level of trade between any U.S. sales and CV, we did not apply a LOT

adjustment or CEP offset to NV. No party to this investigation

commented on this determination, and we have continued to compare all

U.S. sales to CV for this final determination. Therefore, we have not

made a LOT adjustment or CEP offset in this final determination.

Constructed Export Price

We calculated CEP, in accordance with subsection 772(b) of the Act,

because sales to the first unaffiliated purchaser took place after

importation into the United States.

We calculated CEP based on the same methodology used in the

preliminary determination, with the following exceptions:

Based on information discovered at verification, we made additions

to CEP for repacking charges billed to customers on certain sales, and

deductions to CEP for unreported repacking expenses, bank fees, and

additional discounts (see Comment 8).

We revised the calculation of indirect selling expenses incurred by

NFP/USA in the United States to reclassify a portion of these expenses,

incurred in support of NFP's production activities in Chile, to COP and

CV general and administrative expenses (see Cost Calculation Memorandum

to Neal Halper from Michael Martin dated October 13, 1998 (``Cost

Calculation Memo'')).

We made corrections to specific transactions examined at

verification to revise warehouse-to-customer freight expense to reflect

an actual expense of zero on one sale, and to reallocate the expense on

a mixed shipment of subject and nonsubject merchandise in the shipment

on another sale. We also eliminated the double-counting of U.S.

warehousing expenses on one U.S. sale.

Normal Value

After testing (1) home market and third country viability as

discussed below, and (2) whether third country sales were at below-cost

prices, we calculated NV as noted in the ``Price-to-CV Comparisons''

section of this notice.

1. Home and Third Country Market Viability

As discussed in the preliminary determination, we examined whether

there is a sufficient volume of sales in the home market to serve as a

viable basis for calculating NV, in accordance with section

773(a)(1)(C) of the Act. We verified that NFP's aggregate volume of POI

home market sales of the foreign like product was less than five

percent of its aggregate volume for POI U.S. sales for the subject

merchandise; and therefore, the home market was not viable for NFP. We

also verified that Brazil, NFP's largest third country market, was

viable in accordance with section 773(a)(1)(B)(ii) of the Act (see

Comment 12). Therefore, in accordance with section 773(a)(1)(C) of the

Act, we determined that Brazil is the appropriate third country market

for calculating NV.

2. Cost of Production Analysis

As discussed in the preliminary determination, we conducted an

investigation to determine whether NFP made sales of the foreign like

product in the third country during the POI at prices below their cost

of production (``COP''). In accordance with section 773(b)(3) of the

Act, we calculated the weighted average COP, by model, based on the sum

of NFP's cost of materials, fabrication, and general expenses. We

relied on the submitted COPs except in the following specific instances

where the submitted costs were not appropriately quantified or valued.

For a more complete discussion, see Cost Calculation Memo. The

following is a summary of the adjustments made to NFP's reported costs:

Financial Statement Disclosures

To account for each discrepancy between an account balance and the

underlying asset or liability, we applied non-adverse facts available.

In identifying the appropriate facts available on the record from which

to make our adjustments, we used data reported in NFP's 1996 and 1997

financial statements (see Comment 2, Comment 6, and Comment 10).

Monetary Correction

We included a portion of the monetary correction amounts reflected

in NFP's 1997 financial statements. Specifically, we (1) included

depreciation expense calculated on revalued asset values; (2) included

exchange gains and losses on current assets and liabilities; (3)

included a portion of the exchange gains and losses on long-term debt;

and (4) excluded gains and losses on non-monetary assets and

liabilities. Chilean Generally Accepted Accounting Principles

(``GAAP'') appears to treat each of these items as part of the overall

monetary correction adjustment (see Comment 9).

Allocation of Costs

Consistent with the preliminary determination, we continued to

allocate mushroom growing costs between fresh and preserved mushrooms

based on the weight, in kilograms, of fresh mushrooms initially picked

for either fresh or preserved mushrooms. Additionally, we continued to

allocate mushroom costs entering the cannery (growing costs and harvest

costs for preserved mushrooms, except for mushroom picking labor)

between individual products based on the

[[Page 56615]]

weight, in kilograms, of output (see Comment 5).

General and Administrative Expense (``G&A'')

We calculated a company-wide G&A rate by dividing the total G&A

expense (inclusive of expenses paid for by NFP/USA, as noted above) by

the total manufacturing cost.

Interest Expense

We calculated a net financial expense amount and divided it by the

total manufacturing costs. In calculating the net financial expense, we

excluded from the interest expense several financial income and expense

items that related to prior periods (see Cost Calculation Memo).

3. Test of Third Country Sales Prices

As in our preliminary determination, we compared the weighted-

average COP for NFP, adjusted where appropriate, to third country sales

of the foreign like product as required under section 773(b) of the

Act. In determining whether to disregard third country market sales

made at prices less than the COP, we examined whether (1) within an

extended period of time, such sales were made in substantial

quantities, and (2) such sales were made at prices which permitted the

recovery of all costs within a reasonable period of time. On a product-

specific basis, we compared the COP to the third country market prices,

less any applicable movement charges, and direct and indirect selling

expenses.

4. Results of the COP Test

Pursuant to section 773(b)(2)(C) of the Act, where less than 20

percent of respondent's sales of a given product were at prices less

than the COP, we did not disregard any below-cost sales of that product

because we determined that the below-cost sales were not made in

``substantial quantities.'' Where 20 percent or more of a respondent's

sales of a given product during the POI were at prices less than the

COP, we determined such sales to have been made in ``substantial

quantities'' within an extended period of time in accordance with

section 773(b)(2)(B) of the Act. In such cases, we also determined that

such sales were not made at prices which would permit recovery of all

costs within a reasonable period of time, in accordance with section

773(b)(2)(D) of the Act. Therefore, we disregarded the below-cost

sales. Where all sales of a specific product were at prices below the

COP, we disregarded all sales of that product.

We found that all of NFP's Brazilian sales were at prices below the

COP. Thus, in the absence of any above-cost Brazilian sales, we

compared CEP to CV in accordance with section 773(a)(4) of the Act.

Calculation of CV

As in our preliminary determination, we calculated CV based on the

sum of NFP's cost of materials, fabrication, selling, general, and

administrative (``SG&A'') expenses, interest, U.S. packing costs, and

profit, in accordance with section 773(e) of the Act. We made the same

adjustments to NFP's reported costs for the CV calculation as discussed

above for the COP calculation.

Because there were no above-cost Brazilian sales and hence no

actual company-specific SG&A expenses and profit data available for

NFP's sales of the foreign like product to Brazil, we calculated these

amounts in accordance with section 773(e)(2)(B)(iii) of the Act and the

Statement of Administrative Action Accompanying the URAA, H.R. Doc.

316, 103d Cong., 2d Sess. (1994) (``SAA''). Section 773(e)(2)(B)(iii)

of the Act authorizes the Department to determine these amounts using

any other reasonable method with the appropriate ``profit cap.'' In the

preliminary determination, we used NFP's actual selling expenses

incurred in Chile on Brazilian sales. No party to this investigation

has commented on this determination. Therefore, we have continued to

use these selling expense amounts in this final determination.

As in our preliminary determination, we were unable to determine a

``profit cap'' under alternative (iii) of section 773(e)(2)(B) of the

Act, because we do not have actual amounts incurred by NFP on sales of

merchandise in the same general category as the subject merchandise and

because NFP is the only producer subject to this investigation.

Accordingly, we again applied the1996 profit margin for Ianasafrut

S.A., a leading Chilean fruit and vegetable producer as facts available

under section 773(e)(2)(B)(iii) of the Act, for NFP's CV profit (see

Comment 11).

Price-to-CV Comparisons

For price-to-CV comparisons, we made adjustments to CV in

accordance with section 773(a)(8) of the Act. We deducted from CV the

amount of indirect selling expenses capped by the amount of the U.S.

commissions.

Currency Conversion

As in the preliminary determination, we made currency conversions

into U.S. dollars based on the exchange rates in effect on the dates of

the U.S. sales as certified by the Federal Reserve Bank, in accordance

with section 773A of the Act.

Verification

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

information submitted by the respondent for use in our final

determination. We used standard verification procedures, including

examination of relevant accounting and production records and original

source documents provided by the respondent.

Interested Party Comments

Comment 1: Inclusion of Fresh Mushrooms in Scope

NFP argues that the scope of investigation should include fresh

mushrooms, frozen mushrooms, dried, marinated, acidified and pickled

mushrooms, as well as preserved mushrooms. NFP claims that, based on

the criteria set forth in Diversified Products v. United States, 572 F.

Supp. 883, 889 (CIT 1993) (``Diversified Products''), i.e., 1) the

general characteristics of the merchandise; 2) the expectations of the

ultimate purchaser; 3) the channel of trade in which the products are

sold; and 4) the ultimate use of the merchandise, there is a

significant overlap among the types of mushrooms such that they all

should be considered a single class or kind. Based on this proposed

scope of the investigation, NFP claims that the petitioners should be

found to lack standing under section 773a(b)(4) of the Act because they

do not represent the U.S. industry.

In support of its scope claim, NFP argues that fresh and preserved

agaricus bisporus and agaricus bitorquis mushrooms are essentially the

same but for preservation. NFP contends that fresh and preserved

mushrooms are interchangeable and compete directly with each other. NFP

adds that most producers of preserved mushrooms are also producers of

fresh mushrooms. Moreover, NFP states, fresh and preserved mushrooms

share the same channels of distribution since its pizza chain, food

processor, and institutional customers purchase both fresh and

preserved mushrooms. NFP cites Initiation of Antidumping Duty

Investigation: Fresh Garlic from the People's Republic of China, 59 FR

9470, February 28, 1994 (``Garlic''), and Initiation of Antidumping

Investigation: Freshwater Crawfish Tail Meat from the People's Republic

of China, 61 FR 54154, October 17, 1996, (``Crawfish'') as analogous

cases where the scope of

[[Page 56616]]

the investigation included both preserved and fresh products.

The petitioners respond that it is established Department practice

that the petition defines the scope of an investigation. Citing Final

Determination of Sales at Less Than Fair Value: Stainless Steel Wire

Rod from Japan, 63 FR 40434, July 29, 1998 (``SSWR from Japan''), the

petitioners state that the Department's authority and role in

determining whether a product is covered is based on an analysis of the

express language and intent of the petition. The petitioners continue

that, in this instance, the petition makes clear that the petitioners

intended only to include ``preserved'' mushrooms and not fresh

mushrooms in this investigation. The petitioners also contend that

NFP's argument based on the Diversified Products criteria is misplaced,

citing the decision in Minebea Co. Ltd. v. United States, F. Supp. 117

(CIT 1992) that the Diversified Products analysis is only necessary if

the petition is ambiguous, which it is not in this case.

DOC Position

We disagree with NFP that the scope of this investigation should be

expanded to include fresh and other varieties of mushrooms. As we

stated in SSWR from Japan, the scope of an investigation is determined,

in general, by the petition. The petition in this investigation

expressly excluded:

(1) all other species of mushrooms [other than preserved

mushrooms of the Agaricus bisporus and Agaricus bitorquis species]

including straw mushrooms; (2) all fresh and chilled mushrooms,

including ``refrigerated'' or ``quick blanched mushrooms''; (3)

dried mushrooms; (4) frozen mushrooms; and (5) ``marinated,''

``acidified,'' or ``pickled'' mushrooms, which are prepared or

preserved by means of vinegar or acetic acid, but may contain oil or

other additives. (See January 6, 1998, petition at page 13.)

Because the scope language in the petition unambiguously excluded

fresh, frozen, dried, marinated, acidified, and pickled mushrooms, a

Diversified Products analysis is not warranted. See Minebea Co., Ltd.

v. United States, 782 F. Supp. 117, 120 (CIT 1992), aff'd on other

grounds 984 F.2d 1178 (Fed. Cir. 1993); and Final Determination of

Sales at Less Than Fair Value: Fresh Cut Roses from Colombia, 60 FR

6980, February 6, 1995 (``Roses from Colombia''). Therefore, in this

case, we have followed our general practice and defined the scope of

the investigation consistent with the intent of the petition. See

Mitsubishi Heavy Indus., Ltd. v. United States, 986 F. Supp. 1428,

1432-33 (CIT 1997) (upholding the Department's authority to define or

clarify the scope of the investigation to reflect the intent of the

petition). Our scope definitions in the Garlic and Crawfish

investigations are distinguishable from this investigation because the

petitions in those cases expressly defined the scope to include both

fresh and other varieties of the same agricultural product.

Moreover, because we have properly defined the scope of this

investigation consistent with the intent of the petition, we need not

revisit the issue of industry support. The Department has already made

its determination regarding industry support for the merchandise under

investigation, i.e., certain preserved mushrooms, as specified by the

petitioners, in its initiation determination (Initiation of Antidumping

Investigations: Certain Preserved Mushrooms From Chile, India,

Indonesia, and the People's Republic of China, 63 FR 5360, February 2,

1998). As clearly expressed in section 732(c)(4)(E) of the Act, after

the administering authority determines that it is appropriate to

initiate an investigation, the determination regarding industry support

shall not be reconsidered. See also Notice of Final Determination of

Sales at Less Than Fair Value: Fresh Atlantic Salmon From Chile, 63 FR

31411, June 9, 1998 (``Salmon from Chile'').

Comment 2: Use of Facts Available in Lieu of the Questionnaire Response

The petitioners argue that NFP's questionnaire responses are

seriously deficient and unreliable, and, therefore, the Department must

base the final determination on the facts otherwise available, in

accordance with section 776(a) of the Act, using the corroborated

margin in the petition. Specifically, the petitioners cite instances at

verification where NFP did not provide requested information, or where

the Department discovered relevant information that was not included in

NFP's questionnaire responses. The petitioners also point to the

results of the independent audit of NFP's financial statements for 1996

and 1997, where the auditors were unable to reconcile NFP's books and

records with the financial statements and otherwise unable to account

for significant assets and liabilities. The petitioners assert that the

verification and audit problems compromise the integrity of the sales

and COP data bases reported to the Department, warranting the use of

facts available. Further, the petitioners contend, the use of adverse

facts available is appropriate because NFP did not act to the best of

its ability in providing information to the Department, and the

information on the record cannot be used without undue difficulties.

NFP responds that the application of total adverse facts available

is not warranted because NFP has complied fully with the Department's

requests, its information was verified, its responses are sufficiently

complete and can be used without undue difficulty, and that NFP has

acted to the best of its ability to provide the requested information.

While NFP concedes that it made some errors and inadvertent omissions

of information, which may require the use of facts available for

certain specific expense items, NFP states that, in the context of the

vast amount of data submitted, the errors made were minor and

immaterial and do not prevent their use for the final determination.

NFP notes that the verification report indicates that the vast majority

of information submitted by NFP was accurate and verifiable. With

regard to the audit of financial statements, NFP states that, as a

private company, NFP is not obligated to have audited financial

statements, and that the absence of an audited financial statement does

not prevent an adequate verification.

DOC Position

Section 776(a) of the Act authorizes the resort to facts available

only where necessary information is not available on the record or an

interested party withholds information, fails to comply with the

Department's reporting requirements, significantly impedes the

proceeding, or submits unverifiable information. We have examined NFP's

submitted information in light of these factors and determined that

resorting to total facts available is not warranted in this

investigation. Although we agree with petitioners that NFP's responses

contain certain deficiencies, as discussed below in various comments,

we have applied partial facts available, using adverse inferences where

appropriate, for certain unreported items in its sales data base. This

application of facts available is consistent with the SAA at 869, which

authorizes the use of facts available to fill gaps in the record due to

deficient responses.

With respect to NFP's submitted cost information, NFP's auditors

identified three discrepancies in the 1997 draft audit report that

raise questions as to the proper valuation of certain accounts.

However, because these discrepancies were specific and quantifiable

through information in NFP's 1996 and 1997 financial statements, we

were able to

[[Page 56617]]

make adjustments to the reported costs for the discrepancies. Given the

proprietary nature of this information, these adjustments are detailed

in the Cost Calculation Memo. We were also able to reconcile NFP's

reported costs to its 1997 financial statements (see Verification

Report at pages 8 through 10). Because we were able to make these

necessary adjustments to NFP's submitted costs and reconcile NFP's

reported costs to its financial statements, we do not consider this

information to be unreliable for use in the final determination.

Section 782(e) of the Act establishes five conditions that must be

met before the Department rejects deficient information submitted by a

respondent. NFP submitted requested information within the established

deadlines, and substantially cooperated with the Department's

information requests. We successfully verified most of the information

in NFP's questionnaire responses, as NFP noted in its rebuttal brief.

For example, we verified the completeness of NFP's reported U.S. and

Brazilian sales transactions, as well as the reliability of the cost of

manufacture, sales price data (except for the items discussed below at

Comment 8), and SG&A expenses (see Verification Report). For those

areas where verification of the data was incomplete, or where relevant

information was discovered at verification, we were able to rely upon

information obtained in the course of verification, or facts available,

to make appropriate adjustments to the submitted data. We were able to

make appropriate adjustments for the identified deficiencies and we

were able to use the submitted information without undue difficulties.

For these reasons, we find that NFP's submissions are complete to the

extent that the data can serve as a reliable basis for reaching our

final determination. Finally, we are satisfied that, except for certain

items, NFP has demonstrated that it acted to the best of its ability in

this investigation and has not otherwise significantly impeded this

investigation. Therefore, rejection of its responses in their entirety

is inappropriate based on the facts of this proceeding.

Comment 3: Start-Up Cost Adjustment Claim

NFP claims that an adjustment should be made to its CV and COP for

the final determination to account for its use of new production

facilities and the technical problems associated with the initial phase

of commercial production, in accordance with section 773(f)(1)(C) of

the Act. NFP argues that it meets the first condition for the startup

adjustment, i.e., use of new production facilities or a new product

that requires substantial additional investment, because its production

facility, built in 1994, is new, and that the product is new to Chile.

NFP also claims that it meets the second criterion for the startup

adjustment, i.e., production levels are limited by technical problems

associated with the initial phase of commercial production, because it

encountered technical problems related to three key raw materials which

has prevented it from reaching commercial production levels as of the

end of the POI. As part of this claim, NFP asserts that the Department

should differentiate its startup adjustment analysis between industrial

and agricultural products. NFP contends that the analysis utilized in

past cases dealt exclusively with industrial products, while a

different set of standards must be applied to agricultural products,

where the time period needed to resolve technical problems is

significantly longer due to the length of production (i.e., growing)

cycles.

The petitioners contend that the Department properly rejected NFP's

startup adjustment claim in the preliminary determination, based on

NFP's inability to meet the statutory requirements for this adjustment.

The petitioners dispute NFP's argument that the adjustment should

account for the technical problems associated with its operations. The

petitioners cite the SAA in noting that a company must demonstrate that

the costs incurred are associated with the initial phase of commercial

production and not with chronic production problems. According to the

petitioners, NFP's technical problems and associated costs are not a

result of the initial costs of purchasing and operating new capital

equipment and thus there is no basis to allow a startup adjustment.

DOC Position

We disagree with NFP that a startup adjustment is warranted in this

case. Section 773(f)(1)(C)(ii) of the Act authorizes adjustments for

start-up operations ``only where (I) a producer is using new production

facilities or producing a new product that requires substantial

additional investment, and (II) production levels are limited by

technical factors associated with the initial phase of production''

during the POI. Based on our analysis of the information NFP submitted

to support its claim, we determine that NFP's production operations do

not satisfy these criteria.

In making this determination, we have not constructed a different

analytical framework for agricultural products, as NFP advocates,

because the startup analysis necessarily entails examining industry-

specific factors in determining whether the two criteria are satisfied.

The SAA at 837 states that the analysis will vary from industry to

industry and product to product, requiring a fact-intensive inquiry.

Furthermore, the Preamble to the Proposed Regulations states that the

start-up ``conditions are somewhat generalized because they must allow

for any number of startup operation scenarios'' (61 FR 7339, February

27, 1996). Moreover, the production process for preserved mushrooms is

more a manufacturing process than an agricultural one. Most of the

mushroom growing phase entails the production of compost, while the

canning phase is purely a manufacturing operation. Therefore, given the

inherent fact-intensive nature of the startup analysis and the

production process for preserved mushrooms, a different analytical

framework is unnecessary in this case.

First, we do not consider NFP's facilities to be ``new'' during the

POI within the meaning of section 773(f)(1)(C)(ii)(I) of the Act.

Although the statute does not define ``new production facilities,'' the

SAA indicates that the startup period must occur during the period of

investigation or review. The SAA at 836 states that ``[m]ere

improvements to existing products or ongoing improvements to existing

facilities will not qualify for a startup adjustment'' (emphasis

added). NFP's production facilities were three years old at the start

of the POI. That is, the POI began in NFP's fourteenth growing

``season.'' On this basis, we disagree with NFP's assertions that its

production facilities were new during the POI.

The SAA and the Department's regulations define new production

facilities as including ``the substantially complete retooling of an

existing plant'' during the period of investigation or review (SAA at

836; 19 CFR 351.407(d)(1)(i)). This substantial retooling must involve

the replacement of nearly all production equipment and a complete

revamping of existing machinery (SAA at 836). NFP has not identified

any additional costs associated with ``substantially retooling'' its

production facilities.

Moreover, the record does not support NFP's claim that it was

producing a new product during the POI. NFP produced and exported

preserved mushrooms to the United States for several years prior to the

POI. Although NFP switched its methods for producing preserved

[[Page 56618]]

mushrooms in 1991, this second process commenced in 1994 and was well

established by the start of the POI. Additionally, this second process

did not result in a different type of preserved mushroom. As NFP

acknowledged, this change merely improved the quality of mushrooms sold

under its name. Such improvements, implemented two years prior to the

POI, do not qualify as ``new products'' for purposes of a startup

adjustment. See SAA at 836 and Final Results of Administrative Review:

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

from Korea, 63 FR 13170, 13200, March 18, 1998. Nor do we consider

NFP's expansion into the Chilean or Brazilian markets to constitute the

production of a new product, but rather a development of new markets.

Given the limited purpose of a startup adjustment, there is no basis in

the statute or regulations to broaden its application to expansion of a

mature product into new markets.

This finding that NFP did not use new production facilities or

produce a new product during the POI is sufficient to deny NFP's claim.

See Final Determination of Sales at Not Less Than Fair Value: Collated

Roofing Nails from Korea, 62 FR 51420, 51426, October 1, 1997. However,

we note that NFP also has failed to establish that its production

levels during the POI were limited by technical factors associated with

the initial phase of production in accordance with section

773(f)(1)(C)(ii)(II) of the Act. Specifically, NFP has provided

insufficient evidence to support a claim that production levels were

limited for any reason, whether related to technical factors or not.

The only information provided by NFP to support its claim that POI

production levels were limited is a comparison of its production yields

to yields of U.S. producers, which NFP identifies as efficient

operations producing high quality mushrooms.

The SAA, however, does not refer to quality of merchandise produced

or the efficiency of production operations as a criterion for measuring

production levels. The SAA at 836 directs the Department to examine the

number of units processed as a primary indicator of production levels

in determining the end of the start-up period. See also Final

Determination of Sales at Less Than Fair Value: Static Random Access

Memory Semiconductors from Taiwan, 63 FR 8909, 8930, February 23, 1998.

In other words, the Department must look at processed units, not output

yields. NFP provided no information, for example, on historical

production or capacity usage related to its operations from 1994, the

year its production facility was put into operation, through 1997, the

end of the POI, to serve as a benchmark for measuring commercial

production levels during the POI. The only evidence NFP submitted was a

comparison of its production to that of U.S. producers, asserting that

such levels are indicative of industry standards. However, we do not

consider U.S. producers' production levels as an appropriate standard

for the Chilean industry. We note that U.S. producers are subject to

different climate conditions and availability of raw materials, thus

making comparisons unreliable. Moreover, under a comparative yield

approach, a respondent may never leave start-up because it may never

reach comparable yields of U.S. producers.

As further evidence that NFP was not in a startup period

experiencing technical factors that limited production, we note that,

in 1996, the year before the POI, NFP posted a provision for non-

performing fixed assets because the expected revenue stream did not

justify the capitalized values. In other words, in 1996, NFP determined

that its production problems were not temporary but chronic. The SAA at

838 states that a company ``must demonstrate that, for the period under

investigation or review, production levels were limited by technical

factors associated with the initial phase of commercial production and

not by factors unrelated to startup, such as. * * * chronic production

problems.''

Section 773(f)(1)(C)(ii) of the Act establishes that both prongs of

the test must be met before a startup adjustment is warranted. In this

case, we find that NFP has failed both prongs of the test and,

accordingly, we deny NFP's claim for a start-up adjustment.

Comment 4: Treatment of Raw Materials for Mushroom Growing as Fixed

Costs

NFP contends that the raw materials used in the growing process

should be classified as fixed overhead expenses because these costs are

fixed per crop, regardless of the crop's yield of the particular

product. NFP also states that these raw material expenses are not a

part of the final product since the growing medium (i.e., compost) is

sold as scrap at the end of the growing cycle.

The petitioners state that these costs are properly classified as

direct raw materials because they meet the textbook definition of

materials that are physically observable as being identified with the

finished good and that may be traced to the finished good in an

economically feasible manner. The petitioners compare the materials

identified by NFP--compost, straw, manure, spawn, etc.--to salmon feed

in salmon production, which, in Salmon from Chile, the Department

properly classified as a direct material cost item. The petitioners add

that it is incorrect to classify these materials as fixed overhead

costs such as rent, insurance, and depreciation, which do not vary with

production volume.

DOC Position

We agree with petitioners that raw materials are more appropriately

accounted for as variable costs because the consumption of these

materials (and therefore the expense) varies as production volumes rise

and fall. Although crop yields may vary slightly between growing

cycles, in general, fewer mushrooms grow in a smaller quantity of

growing medium than in a larger quantity. As such, the production of

the finished product, e.g., mushrooms, varies with the amount of raw

materials used in the production process. However, in this case,

treating raw material costs as fixed or variable has no impact on our

dumping calculations because we have allocated all manufacturing costs

(with the exception of mushroom picking labor) in the same manner, and

no difference-in-merchandise adjustment is necessary.

Comment 5: Allocation of Fixed Costs

NFP argues that fixed overhead costs should be allocated on a basis

other than the input weight of the merchandise into the production

(i.e. canning) process. NFP proposes an allocation based on the

estimated number of mushrooms consumed for each type of mushroom

product. Alternatively, NFP suggests allocations based on gross sales

value or total contribution margin for each type of product. NFP

contends that these methodologies are more appropriate than the weight

input methodology because the latter allocates a higher proportion of

costs to pieces and stems, cut from the larger mushrooms, than the

smaller whole preserved mushrooms based on size.

The petitioners respond that allocating costs based on the

estimated number of mushrooms is unreasonable given that preserved

mushrooms are sold by weight, not by the number of mushrooms per can.

Noting that, in the production process, mushrooms are weighed, rather

than counted, the petitioners contend that a weight-based allocation

reflects the production and sales process of the product. Furthermore,

the petitioners claim that the number-based allocation

[[Page 56619]]

methodology is based on unverified, untimely submitted information, and

leads to a distortive shift of costs.

DOC Position:

We agree with the petitioners that a weight-based allocation

methodology is appropriate in this case. In accordance with section

773(f)(1)(A) of the Act, the Department normally relies on data from a

respondent's normal books and records where those records are prepared

in accordance with the home country's GAAP, and where they reasonably

reflect the costs of producing the merchandise. Normal GAAP accounting

practices provide both respondents and the Department with 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,

(adjusting 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); and Final Determination of Sales at Less

Than Fair Value: Canned Pineapple Fruit from Thailand, 60 FR 29553,

29559, June 5, 1995.

NFP did not have an established cost accounting system and,

therefore, for purposes of this investigation, NFP developed a

reporting methodology. In NFP's original section D questionnaire

response, it chose to allocate costs (e.g., manufacturing costs, G&A

expenses, and financial expenses) between products based on their

relative sales values. At the request of the Department, NFP submitted

a revised response with costs based on a weight-based allocation

methodology. For purposes of the final determination, we are relying on

NFP's costs derived from a weight-based allocation methodology, with

the specific adjustments noted elsewhere in this notice.

Section 351.407(c) of the Department's regulations states that

``[i]n determining the appropriate method for allocating costs among

products, the Secretary may take into account production quantities,

relative sales values, and other quantitative and qualitative factors

associated with the manufacture and sale of the subject merchandise and

the foreign like product.'' We rejected NFP's sales value based

methodology because it would, if used, require historical costs and

sales data for fresh and preserved mushrooms over a period encompassing

several years prior to the antidumping proceeding. See Final Results of

Antidumping Duty Administrative Review: Canned Pineapple Fruit From

Thailand, 63 FR 7399, February 13, 1998. NFP did not provide the data

necessary to utilize a sales value-based methodology. Moreover, we have

determined that an allocation methodology based on weight is reasonable

for the following reasons: (1) NFP tracks the mushrooms through the

production process by weight, not by number of mushrooms or by relative

sales value; (2) mushrooms are sold by weight, not by the number of

mushrooms per can; and, (3) regardless of whether the mushrooms are

going to preserved or fresh product, they are substantially the same

input products. On this basis, we continue to rely upon a weight-based

methodology because this calculation reasonably reflects the costs of

producing the subject merchandise.

We disagree with NFP that the Department recognized in the

verification report that an allocation basis other than weight should

be used for allocating costs. In our report, we stated that the cost-

generating elements of growing mushrooms for both preserved and fresh

mushrooms are identical, that a considerable quantity of mushrooms

initially selected for the fresh sales market were eventually canned,

and that canned whole mushrooms may be re-processed into pieces and

stems. Additionally, the Department has accounted for specific cost

differences supported by factual documentation, such as differences in

picking costs supported by labor union agreements specifying the

additional compensation for picking specific sizes of mushrooms.

Finally, we also disagree with NFP that costs could be allocated

based on the number of mushrooms used in producing specific products.

NFP's suggestion is not feasible, since neither the actual number of

mushrooms consumed for each specific product, nor the applicable yield

rates are on the record. It would be inappropriate to extrapolate the

specific numbers required for such a calculation from a sample of less

than ten mushrooms, as suggested by NFP.

Comment 6: Revisions to COP and CV Data based on Auditor's Proposals

The petitioners contend that the Department should reject revisions

to the COP and CV data base that NFP presented at the commencement of

verification, based on adjustments proposed by NFP's auditors. The

petitioners argue that these adjustments are 1) based on an incomplete

audit that could not reconcile key parts of NFP's accounting records,

2) not included in NFP's tax return, and 3) associated with pre-POI

expenses and thus are not relevant.

NFP states that there is no legal basis for rejecting these

revisions because they were requested by the Department. According to

NFP, excluding these adjustments would result in less accurate

information. NFP adds that it is not relevant whether the tax return

and financial statements are in complete agreement as there are

differences between GAAP for financial reporting purposes and tax law

for tax reporting purposes.

DOC Position

We agree with NFP. There is no basis to reject the audit

adjustments proposed by NFP's auditors. All of the auditor's proposed

adjustments appear to be in conformance with Chilean GAAP. While some

of the adjustments relate to transactions that occurred in prior

periods, auditors are required to post these adjustments to NFP's

records. Moreover, we are satisfied that our adjustments to account for

the items discussed in Comment 2 above isolate those problems and

reasonably quantify any potential understatement to the reported costs.

Additionally, the fact that the financial statements do not agree to

NFP's tax return is not relevant, since the tax return was prepared

soon after the end of the tax year, while the audit report did not

become available until August 1998. Furthermore, the petitioners'

arguments are unpersuasive because there are differences between the

reporting standards applicable to a tax return and those applicable to

an audited financial statement. Therefore, the exclusion of these items

in NFP's tax return, filed prior to completion of the audit, does not

render the adjustments unreliable.

Comment 7: Treatment of Unreconciled Value Item in NFP Financial

Statement

The petitioners argue that the Department must adjust NFP's

reported cost or sales data for an unreconciled value recorded in NFP's

POI financial

[[Page 56620]]

statements.1 To account for this unreconciled item cited by

NFP's independent auditor, the petitioners state that the Department

should apply facts available and either make an upward adjustment to

the cost of manufacture, or assume that the unreconciled value reflects

unreported sales to the United States and apply the highest calculated

margin to the value in question and include this amount in the overall

margin calculation.

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

\1\ NFP has requested business proprietary treatment for the

identification of this specific item.

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

NFP agrees that the value item was not completely reconciled during

the Department's verification, but refers to the stated reason in the

verification report, which shows that NFP's approach was fully

consistent with Chilean and U.S. GAAP. NFP agrees with the petitioners

that costs should be adjusted, but that the appropriate adjustment

should result in a decrease in NFP's costs.

DOC Position

We agree with the petitioners in part. In the audit report, NFP's

auditors identify discrepancies between certain account balances and

the underlying assets and liabilities (see Comment 2 above). While we

agree with the petitioners that we must adjust for these items, we

disagree with the petitioners' proposal to include these differences as

unreported sales, because the footnotes to the 1996 financial

statements indicate that the unreconciled differences are not due to

sales related activity. Therefore, we have adjusted NFP's costs for the

unreconciled item by applying the difference identified in the

footnotes to the 1996 financial statements. Since we are able to adjust

NFP's reported costs for the specific items noted by its auditors using

information contained in NFP's submitted financial statements, we have

done so for the final determination. See Cost Calculation Memo.

Comment 8: Treatment of Unreported Adjustments to U.S. Sales Prices

Citing a number of omissions and errors to U.S. price adjustments

discovered at verification, the petitioners argue that the Department

should make adverse inferences in applying facts available to account

for these items. Specifically, the petitioners contend that the

following adjustments should be made:

(a) To account for unreported discounts, the Department should

apply the amount of the discount to every U.S. sale.

(b) To account for unreported letter of credit and bank fees, the

Department should apply the highest fee found for any sale and apply

that amount to every U.S. sale.

(c) To account for unreported freight and palletizing charges on

certain U.S. sales, the Department should apply the highest charges for

these items found at verification to these sales.

(d) To account for unreported repacking expenses (i.e., palletizing

and shrink wrap expenses), the Department should apply the highest

amount for these expenses found at verification to all U.S. sales.

NFP asserts that the errors in reporting these adjustments were

inadvertent and that it provided the Department with the information

necessary to make appropriate adjustments. Specifically, NFP responds:

(a) To account for unreported discounts, the Department's

adjustment should not exceed the amount of total discounts granted by

NFP/USA.

(b) No adjustment should be made for letter of credit fees because

the letters of credit were between NFP and NFP/USA, i.e., two

affiliates. Should the Department consider bank fees as sales expenses,

the expenses should be allocated based on sales value.

(c) No adjustment is necessary for freight and palletization

charges to customers as NFP supplied this information in a revised

sales listing at the Department's request.

(d) To account for unreported repacking expenses, the expenses

should be allocated fairly across sales.

DOC Position

Section 776(a) of the Act requires the Department to use the facts

otherwise available when necessary information is not on the record or

an interested party withholds requested information. As petitioners

point out and NFP acknowledges, NFP failed to report these price

adjustments in its questionnaire responses. Moreover, NFP did not

identify these adjustments at the start of verification, but rather

they were discovered by the Department during verification, as

described in the verification report. Under these circumstances, we

must account for these adjustments using the facts available. Because

NFP failed to provide these requested items, we find that it failed to

cooperate to the best of its ability in providing this information,

and, therefore, adverse inferences are warranted, where possible.

Therefore, we applied the highest discount percentage observed to all

U.S. sales, as adverse facts available for the unreported discounts. We

have also applied an adverse inference to the unreported freight

charges by disregarding this addition to CEP.

NFP paid bank fees to unaffiliated banks for NFP's intracompany

sales of the subject merchandise to NFP/USA. We did not have sale-

specific information on these bank fees because the bank fees were

assessed on the container shipments from Chile, not the sale

transactions to the unaffiliated parties. Therefore, we have applied

the percentage derived from the total expense attributable to these

fees, divided by NFP/USA's total POI sales, as obtained at

verification, as the only information available for this adjustment.

Similarly, we did not have sale-specific information for repacking

expenses, so we have applied the percentage derived from the total

expense attributable to these expenses, divided by NFP/USA's total POI

sales, as obtained at verification, as the only information available

for this adjustment. Thus, for these two adjustments, no adverse

inference is possible, based on the record evidence.

However, we do not find the use of adverse inferences appropriate

with regard to the palletization charges billed to NFP's customers.

Palletization charges were included in the gross prices NFP reported to

the Department prior to verification. As discussed in the Verification

Report at pages 17 and 18, and Exhibit 52, NFP provided a full breakout

of these additions to price, and we verified the data. This information

was included in a supplemental response specifically requested by the

Department subsequent to verification and submitted on September 2,

1998. Therefore, we used this information in our final determination.

Finally, although neither party raised this issue in its briefs, we

also applied adverse facts available for unreported bank fees on

Brazilian sales. As discussed in the verification report, NFP incurred

these expenses on all but one Brazilian sale, but failed to report

these items in its questionnaire responses. For the applicable sales,

we made an adverse inference by applying the lowest percentage rate of

expense observed for a sale at verification to the other Brazilian

sales.

Comment 9: Monetary Correction

NFP contends that the Department should include the full amount of

its monetary adjustments in its COP and CV calculations since these

inflation adjustments are required by Chilean GAAP, and the Department

accepted monetary correction adjustments in Final Results and Partial

Recission of

[[Page 56621]]

Antidumping Duty Administrative Review: Certain Fresh Cut Flowers from

Colombia (62 FR 53287, October 14, 1997) (``Flowers from Colombia'').

Moreover, NFP asserts that the petitioners have not identified any

legal basis for denying monetary adjustments.

The petitioners object to any monetary correction offset to NFP's

financial expense because the problems noted by NFP's independent

auditor bring into doubt the accuracy and reasonableness of claimed

corrections. Further, the petitioners argue that it is unreasonable to

measurably adjust NFP's financial results, which are based on non-

monetary factors, because of changes in inflation or exchange rates.

The petitioners contend that, at most, the Department should allow a

monetary correction only for the current portion of NFP's bank loans,

as in the preliminary determination.

DOC Position

The Department's practice with respect to inflation (including the

monetary correction of financial data) is to adjust for those items

that have a significant impact on the antidumping analysis and to

exclude those aspects of the adjustment that would distort the

analysis. See, e.g., Flowers From Columbia, 62 FR at 53299-300; Roses

from Colombia, 60 FR at 6993; and, Salmon From Chile, 63 FR at 31432.

Consistent with this practice, we have: (1) included the depreciation

expense calculated on revalued asset values; (2) included the exchange

gains and losses on current assets and liabilities; (3) included a

portion of the exchange gains and losses on long-term debt; and (4)

excluded the gains and losses on non-monetary assets and liabilities.

We did not include the full amount of NFP's monetary correction

adjustment because, as explained below, certain monetary adjustments do

not constitute, in any meaningful sense, true income or expense to the

company. In cases such as this one, where Chile experienced moderate

levels of inflation during the POI but not at a level requiring the

Department's high-inflation methodology, the Department's practice does

not attempt to address all of the inflationary effects resulting within

the twelve months of the investigation or review period, because any

attempt to quantify the effects of inflation on each measure of cost

and price would impose an unreasonable level of complexity to the

Department's antidumping analysis. Consequently, in non-high-inflation

cases, we do not calculate cost using a constant currency or

replacement cost methodology. Instead, the Department adjusts for

certain significant expenses, such as depreciation and amortization,

because these expenses are derived from asset values recorded at

historical cost and whose useful lives extend beyond the period of

investigation or review. Since the compounded effects of inflation

distort historical costs and the associated depreciation expense, use

of unadjusted historical depreciation expenses would understate costs.

See, e.g., Flowers from Columbia, 62 FR at 53299.

Furthermore, there is neither a statutory requirement that the

Department adjust for all effects of inflation in its analysis, nor a

requirement to use all aspects of a country's GAAP. Rather, the statute

merely requires that the Department include in its calculation of CV

the cost of manufacturing ``during a period which would ordinarily

permit the production of the merchandise in the ordinary course of

business.'' See section 773(e)(1) of the Act. Given the inability to

measure the effects of inflation on each cost and price item, the

Department's practice reasonably achieves the statutory mandate to

calculate cost in a manner that reasonably reflects the costs

associated with the production and sale of the merchandise. Indeed, the

CIT has held that full accounting for inflation is neither necessary

nor possible. See Budd Co. v. United States, 773 F. Supp. 1549, 1554

(CIT 1991) (``The glowing deficiency in Plaintiff's argument is the

underlying premise that a full accounting for inflation is necessary or

even possible.''). On this basis, we disagree with NFP's assertion that

inclusion of its entire monetary correction is required in this case.

Additionally, we disagree with NFP's claim that the Department

should include the annual revaluation of non-monetary assets and

liabilities in our calculation. The annual revaluation of non-monetary

assets (e.g., fixed assets) does not represent income during the fiscal

year. Likewise, the revaluation of non-monetary liabilities (e.g.,

equity and capital) does not represent a loss during the fiscal year.

Rather, they represent the restatement of non-monetary assets and

liabilities into current price levels. In other words, the restatement

of the book value of a truck into a greater number of (lower value)

pesos does not result in an economic gain, since one still only owns a

truck. Therefore, we do not include these revaluations in our

antidumping analysis. Instead, we include only the amortization of the

revalued assets and liabilities, since they represent the expenses

stated at current price levels and directly relate to the period under

investigation.

Likewise, we disagree with petitioners' assertion that the

Department should exclude all of the inflation adjustments (i.e.,

monetary correction) for purposes of calculating COP or CV. As

explained above, certain elements of monetary correction must be taken

into account to avoid certain distortions to the antidumping analysis.

The exclusion of all inflation adjustments would result in costs that

are not reflective of current price levels, producing an improper

matching of revenues and expenses. See Roses from Colombia, 62 FR at

6993. Finally, we also disagree with petitioner's assertion that the

monetary corrections should be ignored because of the problems noted by

NFP's independent auditors. As noted elsewhere in this notice, the

declarations made by the auditors were for specific problems which the

Department addressed through appropriate adjustments.

Comment 10: Depreciation Adjustment

The petitioners challenge NFP's claim of a depreciation adjustment

to the COP and CV calculations because the adjustment relates to an

unreconciled item in NFP's financial statements. In addition, citing

Final Determination of Sales at Less Than Fair Value: Static Random

Access Memory Semiconductors from the Republic of Korea (63 FR 8934,

February 23, 1998) (SRAMS from Korea), the petitioners contend that the

Department's practice is to grant special depreciation adjustments only

when used by a respondent in its regular course of business over time,

while NFP's claim is of an extraordinary nature.

NFP responds that the adjustment is in full accordance with the

appropriate Statement of Financial Accounting Standards (``SFAS''),

which is also part of Chilean GAAP. According to NFP, its application

of GAAP to its financial statements is systematic, rational, not

extraordinary, and, additionally, there is no legal basis to reject

this adjustment.

DOC Position

We disagree with the petitioners. As discussed above in the

response to Comment 5, the Department relies 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. In 1996, NFP wrote down the value of

certain non-performing fixed assets to amounts in line with the asset's

ability to generate revenue. At that time, NFP recognized the loss

associated with the write-down on the income statement. The write-down

of the value of non-

[[Page 56622]]

performing fixed assets was in accordance with both U.S. and Chilean

GAAP, and was reflected in NFP's historical books and records. The

write-down of asset values in the period prior to an investigation does

not, in this case, distort the costs reported for the POI, because, as

of the filing of the petition, the asset values were properly valued

and were in accordance with both U.S. and Chilean GAAP. Although the

audit report for financial statements which first disclosed the write-

down was dated April 30, 1998, raising the concern that the adjustment

was made only for purposes of this investigation, evidence on the

record demonstrates that the write-down was recorded to NFP's books and

records prior to the filing of the petition.

Additionally, we disagree with the petitioners that the write-down

affects our ability to adjust NFP's costs. The calculation of the

write-down was not dependent on the unreconciled difference in fixed

assets, cited in the auditors report, but rather was based on the net

present value of the assets. Moreover, the Department has adjusted for

this unreconciled difference.

Finally, the petitioners' cite to SRAMS from Korea is inapposite,

because that case related to the selection or change in depreciation

methodology, not to the proper valuation of assets and the accounting

principle of conservatism. That is, NFP wrote down the value of its

fixed assets when it became reasonably certain that the expected

revenue stream did not justify the capitalized values. Therefore, for

the reasons discussed above, we have accepted NFP's reported

depreciation expense calculation. However, we have reallocated the

expense based on production quantity rather than sales value,

consistent with the methodology discussed in our response to Comment 5.

Comment 11: Source for Calculation of CV Profit

The petitioners claim that, in calculating CV under section

773(e)(2)(B)(iii) of the Act, the Department should rely on

contemporaneous, POI data (i.e., 1997 data), rather than the 1996 data

from Ianasafrut, a Chilean fruit and vegetable producer, used in the

preliminary determination.

Although NFP agrees with the petitioners that, ideally, the

surrogate for CV profit should be based on POI data, NFP contends that,

in the absence of any better information on the record, the Department

should continue to use the 1996 Ianasafrut data as a surrogate for

NFP's CV profit.

DOC Position

Section 773(e)(2)(B)(iii) of the Act authorizes the Department to

use any reasonable method to determine profit with an appropriate

``cap'' for purposes of CV. Because we were unable to determine an

appropriate profit ``cap,'' we calculated CV with an amount for profit

on the basis of facts available, as provided in the SAA at 841. Based

on the record evidence, we used the 1996 profit margin for Ianasafrut

S.A., a leading Chilean fruit and vegetable producer as a reasonable

surrogate for NFP's profit. As we explained in the preliminary

determination, we consider this data, which was submitted in the

petition, as a reasonable surrogate for CV profit because it is based

upon a Chilean producer's sales experience on the same general category

of merchandise subject to investigation.

Section 773(e)(2)(B)(iii) does not prohibit the use of non-POI data

in determining CV profit, but rather provides the Department with broad

authority to determine a reasonable surrogate. Although not

contemporaneous with the POI, we find no other basis to reject

Ianasafrut's 1996 profit margin as a reasonable surrogate for CV

profit. Therefore, in the absence of any other reasonable data on the

record of this proceeding, we continued to use this data in this final

determination.

Comment 12: Brazilian Sales as Basis for Normal Value

The petitioners claim that NFP failed to establish that Brazil is

the appropriate foreign market for U.S. sales. According to the

petitioners, Chilean export statistics indicate that Hong Kong may be a

larger foreign market for NFP than Brazil. In addition, the petitioners

suggest that NFP's refusal to provide the financial statement for NFP's

Hong Kong affiliate may be an attempt to conceal sales through the Hong

Kong affiliate.

NFP contends that there is no factual basis to the petitioners'

suggestion that Hong Kong is a viable third country market. NFP states

that the determination on the viability of the Brazilian market should

rest on NFP's submitted and verified data. In addition, NFP disputes

the petitioners' allegations that it intentionally withheld data from

the Department and states that it was prepared to provide any sales

data on Hong Kong sales had the Department requested such information.

DOC Position

We agree with NFP. We found no discrepancies in NFP's sales

reporting (see Verification Report). Further, we found no evidence at

verification that any other foreign market was larger than Brazil

during the POI. Our ability to make this determination was not affected

by our inability to examine the Hong Kong affiliate's financial

statement because we were able to examine all of NFP's sales records in

Chile. Therefore, we are satisfied that Brazil is the appropriate third

country market in this proceeding.

Comment 13: Export Incentive

NFP argues that the export incentive credits it received for its

export sales should be treated as either revenue or as a reduction of

costs, rather than disregarded, as in the preliminary determination. In

support of its claim, NFP states that the export incentive credit is

considered additional revenue under Chilean law, and that no

countervailing duty case has been filed against it.

The petitioners agree with the Department's preliminary

determination that there is no statutory basis for a USP or NV

adjustment for the export incentive. Further, the petitioners contend

that NFP failed to demonstrate that it actually received any of these

credits during the POI in a manner akin to a duty drawback claim, under

which NFP initially reported this item.

DOC Position

We agree with the petitioners. Section 772(c)(1) of the Act limits

additions to the EP or CEP starting price to packing, rebated import

duties (i.e., ``duty drawback''), or the amount of any countervailing

duty imposed on the product to offset an export subsidy. The Chilean

export incentive does not meet any of these conditions. The program is

not contingent upon importation of inputs used to produce the exported

subject merchandise--the duty drawback system contemplated under

section 772(c)(1)(B) of the Act. See e.g., Certain Welded Carbon Steel

Pipes and Tubes from India; Final Results of Antidumping Duty

Administrative Review, (63 FR 32825, 32828-29, June 16, 1998). Instead,

the incentives are provided to any Chilean exporter (see NFP May 19,

1998, supplemental response at Appendix S-12). Similarly, section

773(a)(6) of the Act does not provide for this type of adjustment to

NV. Therefore, there is no statutory basis for adjusting NFP's price

data for this export incentive. We also disagree with NFP's contention

that we should account for this incentive by reducing its costs because

section 773(b)(3) of the Act provides no basis for such a reduction

when the respondent

[[Page 56623]]

participates in an export incentive program such as that presented

here. Accordingly, we have continued to disregard this claimed

adjustment in our calculation.

Comment 14: Imputed Interest Rate for Brazilian Sales

NFP contends that the Department should use NFP/USA's short-term

interest rate for calculating imputed credit on sales to Brazil, as

applied in NFP's questionnaire response, rather than the short-term

U.S. dollar interest rates the Department observed at verification. NFP

states that the NFP/USA rate is more appropriate because NFP/USA is the

primary funding source of NFP's operations.

DOC Position

As stated in Import Administration Policy Bulletin 98-2, where the

respondent (the seller) has short-term borrowings in the same currency

as that of the transaction the Department's practice is to use the

respondent's own weighted-average short-term borrowing rate realized in

that currency to quantify the credit expenses incurred. For example,

for U.S. dollar transactions, we impute credit expenses using the

respondent's interest rate realized on U.S. dollar borrowings. See,

e.g., Final Determination of Sales at Less Than Fair Value: Oil Country

Tubular Goods from Austria, 60 FR 33551, 33555, June 28, 1995. We

observed at verification that NFP, in fact, has short-term borrowings

in U.S. dollars, the currency of its sales to Brazil. Thus, NFP's

actual experience is the proper basis for determining the imputed

credit interest rate. The only information on the record that we have

for the imputed rate is the examples seen at verification. In our

verification report, we noted the lowest and highest interest rates

observed. Therefore, as facts available, we recalculated NFP's imputed

interest rate using the midpoint of the U.S. dollar short-term

borrowings observed at verification. We made no adjustments to NFP's

reported inventory carrying expense claim because we had insufficient

information to recalculate this expense using NFP's sale-specific

methodology.

Continuation of Suspension of Liquidation

In accordance with section 735(c)(1)(B) of the Act, we are

directing the Customs Service to continue to suspend liquidation of all

entries of subject merchandise from Chile, that are entered, or

withdrawn from warehouse, for consumption on or after August 5, 1998

(the date of publication of the preliminary determination in the

Federal Register). The Customs Service shall continue to require a cash

deposit or posting of a bond equal to the estimated amount by which the

normal value exceeds the U.S. price as shown below. These suspension of

liquidation instructions will remain in effect until further notice.

The weighted-average dumping margins are as follows:

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

Weighted-

average

Exporter/manufacturer margin

percentage

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

Nature's Farm Products (Chile) S.A......................... 148.51

All Others................................................. 148.51

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

ITC Notification

In accordance with section 735(d) of the Act, we have notified the

International Trade Commission (ITC) of our determination. As our final

determination is affirmative, the ITC will, within 45 days, determine

whether these imports are materially injuring, or threaten material

injury to, the U.S. industry. If the ITC determines that material

injury, or threat of material injury does not exist, the proceeding

will be terminated and all securities posted will be refunded or

canceled. If the ITC determines that such injury does exist, the

Department will issue an antidumping duty order directing Customs

officials to assess antidumping duties on all imports of the subject

merchandise entered for consumption on or after the effective date of

the suspension of liquidation.

This determination is issued and published in accordance with

sections 735(d) and 777(i)(1) of the Act.

Dated: October 13, 1998.

Robert A. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 98-28393 Filed 10-21-98; 8:45 am]

BILLING CODE 3510-DS-P