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

DEPARTMENT OF COMMERCE

International Trade Administration

[A-533-813]

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

Certain Preserved Mushrooms from India

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: December 31, 1998.

FOR FURTHER INFORMATION CONTACT: David J. Goldberger or Everett D.

Kelly, 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) 482-4194,

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

India are being, or are 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 ``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 India,

63 FR 41789, August 5, 1998), the following events have occurred.

On August 7, 1998, the petitioners in this investigation (L.K.

Bowman, Inc., Modern Mushroom Farms, Inc., Monterey Mushrooms, Inc.,

Mount Laurel Canning Corp., Mushroom Canning Company, Southwood Farms,

Sunny Dell Foods, Inc., and United Canning Corp.), requested a public

hearing. This request was withdrawn on October 29, 1998.

We conducted verifications of the data submitted by respondents,

Agro Dutch Foods (India) (``Agro Dutch'') and Ponds India Ltd.

(``Ponds''), during August and September. We issued our verification

reports in October (see Memorandum to the File dated October 20, 1998

(Ponds) and Memorandum to the File dated October 21, 1998 (Agro

Dutch)). The petitioners and the two respondents submitted case briefs

on October 28, 1998, and rebuttal briefs on November 4, 1998.

Facts Available

As discussed in the preliminary determination, we did not receive a

questionnaire response from two Indian companies, Alpine Biotech and

Mandeep. In accordance with Section 776 and 782 of the Act, we

determined that the use of facts available is appropriate for both of

these companies. We have again made that determination for the final

determination, and continue to use the corroborated petition rate of

243.87 percent as the facts available margin for the two nonresponding

companies (see Memorandum to the File dated July 27, 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 ``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 2003.10.0027, 2003.10.0031, 2003.10.0037, 2003.10.0043,

2003.10.0047, 2003.10.0053, 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 Department's

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 Agro Dutch and Ponds covered by the description in

the ``Scope of Investigation'' section, above, and sold by Agro Dutch

to the Netherlands and sold by Ponds to Denmark (see ``Home Market

Viability'' section below) during the POI to be foreign like products

for purposes of determining appropriate product comparisons to U.S.

sales. Where there were no sales of identical merchandise in the third

country to compare to U.S. sales, we compared U.S. sales to the most

similar foreign like product. For those U.S. sales of mushrooms for

which there were no comparable third country sales in the ordinary

course of trade (i.e., above-cost) , we compared U.S. sales to

constructed value (``CV'').

In making the product comparisons, we matched foreign like products

based on the physical characteristics reported by the respondents in

the following order: preservation method, container type, mushroom

style, weight, grade, container solution, and label type. Although Agro

Dutch has suggested that the Department consider whole mushroom size as

a product characteristic, we have not included it as a product matching

characteristic (see Comment 8 in the ``Interested Party Comments''

section below).

Fair Value Comparisons

To determine whether sales of certain preserved mushrooms from

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

compared the export price (EP) to the Normal Value (NV), as described

in the ``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 EPs for comparison to weighted-average NVs.

On January 8, 1998, the Court of Appeals for the Federal Circuit

issued a decision in CEMEX v. United States, 1998 WL 3626 (Fed Cir.).

In that case, based on the pre-URAA version of the Act, the Court

discussed the appropriateness of using constructed

[[Page 72247]]

value (CV) as the basis for foreign market value when the Department

finds home market sales of physically identical merchandise to be

outside the ``ordinary course of trade.'' This issue was not raised by

any party in this proceeding. However, the URAA amended the definition

of sales outside the ``ordinary course of trade'' to include sales

below cost. See Section 771(15) of the Act. Consequently, the

Department has reconsidered its practice in accordance with this court

decision and has determined that it would be inappropriate to resort

directly to CV, in lieu of foreign market sales, as the basis for NV if

the Department finds foreign market sales of merchandise identical or

most similar to that sold in the United States to be outside the

``ordinary course of trade.'' Instead, the Department will use sales of

similar merchandise, if such sales exist. The Department will use CV as

the basis for NV only when there are no above-cost sales that are

otherwise suitable for comparison. Therefore, in this proceeding, when

making comparisons in accordance with section 771(16) of the Act, we

considered all products sold in the home market as described in the

``Scope of Investigation'' section of this notice, above, that were in

the ordinary course of trade for purposes of determining appropriate

product comparisons to U.S. sales. Where there were no sales of

identical merchandise in the home market made in the ordinary course of

trade to compare to U.S. sales, we compared U.S. sales to sales of the

most similar foreign like product made in the ordinary course of trade,

based on the characteristics listed in Sections B and C of our

antidumping questionnaire.

Level of Trade

In the preliminary determination, we determined that all

comparisons are at the same level of trade for both respondents and an

adjustment pursuant to section 773(a)(7)(A) of the Act is not

warranted. We find no basis to change this determination for the final

determination.

Export Price

For Agro Dutch and Ponds, we used EP methodology, in accordance

with section 772(a) of the Act, because the subject merchandise was

sold directly to the first unaffiliated purchaser in the United States

prior to importation and CEP methodology was not otherwise indicated.

Agro Dutch

We calculated EP based on the same methodology used in the

preliminary determination, with revisions to movement expenses as a

result of the Department's verification findings (see Agro Dutch Sales

and Cost Verification Report dated October 21, 1998 for specific

details).

Ponds

We calculated EP based on the same methodology used in the

preliminary determination, with revisions to foreign movement expenses

and packing as a result of the Department's verification findings (see

Ponds' Sales and Cost Verification Report dated October 20, 1998 for

specific details).

Normal Value

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

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

calculated NV as noted in the ``Price-to-Price Comparisons'' and

``Price-to-CV Comparisons'' sections 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 the aggregate volume of POI

home market sales of the foreign like product for both respondents 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 either respondent. We also verified that the Netherlands, Agro

Dutch's largest third country market, and Denmark, Ponds' largest third

country market, were viable for the respective respondents in

accordance with section 773(a)(1)(B)(ii) of the Act. Therefore, in

accordance with section 773(a)(1)(C) of the Act, we determined that the

Netherlands is the appropriate third country market for calculating

Agro Dutch's NV, and Denmark is the appropriate third country market

for calculating Ponds' NV.

2. Cost of Production Analysis

As discussed in the preliminary determination, we conducted an

investigation to determine whether each respondent made sales of the

foreign like product in the respective third country during the POI at

prices below its 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 the respondent'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.

Agro Dutch

(1) We recalculated Agro Dutch's cost worksheets using a weight

based allocation method instead of relying on Agro Dutch's per-unit

costs derived from hypothetical yields (see Comment 9 in the

``Interested Party Comments'' section below for further discussion).

(2) In order to put both the general and administrative (``G&A'')

rate and the financial expense rate on the same basis as the per-unit

cost of manufacturing, we excluded certain expense items from the cost

of goods sold used by Agro Dutch as the denominator in its

calculations. (See December 18, 1998 Calculation Memorandum.)

(3) Finally, we have not included the startup period adjustment

amounts claimed by Agro Dutch in the COP calculations (see Comment 8 in

the ``Interested Party Comments'' below for further discussion).

Ponds

(1) We calculated COP using the average direct materials expense

reported by Ponds instead of Ponds' reported direct material costs,

which were derived using a net realizable value (``NRV'') allocation

(see Comment 1 in the ``Interested Party Comments'' section below).

(2) We increased the cost of manufacturing for certain minis to

include an amount for expenses incurred on the reprocessing of minis

(see Comment 3 ``Interested Party Comments'' section below for further

discussion).

(3) We also revised per-unit variable overhead costs to exclude the

Indian export duty, which we have recalculated as a movement expense.

(4) We recalculated Ponds' financial expense rate to exclude

financial income (see Comment 4 in the ``Interested Party Comments''

section below).

B. Test of Third Country Sales Prices

As in our preliminary determination, we compared the weighted-

average COPs for Agro Dutch and Ponds, adjusted where appropriate, to

third country sales prices of the foreign like product, as required

under section 773(b) of the Act. In determining whether to disregard

third country 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

[[Page 72248]]

which permitted the recovery of all costs within a reasonable period of

time. On a product-specific basis, we compared the COP (exclusive of

selling expenses) to the third country prices (net of selling

expenses), less any applicable movement charges, rebates, discounts,

and direct and indirect selling expenses.

Results of the COP Test

As in our preliminary determination, pursuant to section

773(b)(2)(C) of the Act, where less than 20 percent of a 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, because we compared prices to weighted-average COPs

for the POI, 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.

For those U.S. sales of preserved mushrooms for which there were no

comparable (above-cost) third country sales in the ordinary course of

trade, we compared EP to CV, in accordance with section 773(a)(4) of

the Act.

We found that, for certain mushroom products sold by Agro Dutch,

more than 20 percent of third country sales were sold at below COP

prices within an extended period of time in substantial quantities. We

therefore excluded these sales and used the remaining above-cost sales

as the basis for determining NV, in accordance with section 773(b)(1)

of the Act. For Ponds, we found that all third country sales were at

prices less than the COP. Thus, in the absence of any above-cost third

country sales, we compared EP to CV in accordance with section

773(a)(4) of the Act.

D. Calculation of CV

As in our preliminary determination, we calculated CV for Ponds

based on the sum of its 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 the reported costs for the CV calculation

as discussed above for the COP calculation.

For Agro Dutch, all comparisons were made on a price-to-price

basis. Thus, it was not necessary to calculate CV.

As stated above with regard to Ponds, since there were no above-

cost Danish sales and, hence, no actual company-specific profit data

available for Ponds' sales of the foreign like product to Denmark, we

calculated profit in accordance with section 773(e)(2)(B)(iii) of the

Act and the Statement of Administrative Action accompanying the URAA,

H.R. Doc. No. 316, 103d Cong., 2d Sess. at 841 (1994) (``SAA'').

Section 773(e)(2)(B)(iii) states that profit may be determined under

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

In the preliminary determination, we used Ponds' actual selling

expenses incurred in India on Danish 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 the preliminary determination, we have used a

profit rate calculated from Ponds' 1996 financial statements for

mushrooms as facts available under section 773(e)(2)(B)(iii) of the

Act.

Price-to-Price Comparisons

We calculated NV for Agro Dutch respondent based on the same

methodology applied in the preliminary determination, with the

following exceptions: for Agro Dutch we made revisions to specific

sales transactions for foreign movement expenses based on findings at

verification (see Agro Dutch Sales and Cost Verification report dated

October 21,1998); and for Ponds we made revisions to specific sales

transactions for reported gross unit prices, foreign movement expenses

and packing costs. For price-to-price comparisons we applied the same

methodology used in the preliminary determination. In making

circumstance of sale adjustments we made revisions to credit expenses

based on verification findings for both respondents.

Price-to-CV Comparisons

For price-to-CV comparisons, we applied the same methodology used

in the preliminary determination, with the revisions noted above for

credit expenses.

Currency Conversion

For Agro Dutch, 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. For Ponds, we made currency conversions into U.S. dollars

based on the exchange rates specified in Ponds' forward sales

agreements instead of the actual exchange rate on the date of the U.S.

sale (see Comment 5 below for discussion)

Ponds' Comments

Comment 1: Alternative Cost Allocation Methods: Net Realizable

Value, Treating Certain Sales as By-Products, Averaging U.S. Prices

Ponds argues that the Department should allocate mushroom growing

costs based on a NRV methodology, rather than the weight-based

methodology used in the preliminary determination. Ponds states that

there are physical differences between mushrooms suitable for

preserving as whole and sliced mushrooms, and other mushrooms preserved

as ``minis'' or pieces and stems (PNS). In turn, Ponds argues, whole

and sliced mushrooms command higher NRVs per kilogram. Accordingly,

Ponds states that its production process is designed to maximize its

production of mushrooms suitable for whole and sliced products. To

reflect this business practice, Ponds argues that the Department should

follow its case precedents set forth in the Final Determination of

Sales at Less Than Fair Value: Canned Pineapple Fruit from Thailand, 60

FR 29553, June 5, 1995 (``CPF from Thailand''), and the Final

Determination of Sales at Less Than Fair Value: Polyvinyl Alcohol from

Taiwan, 61 FR 14064, March 29, 1996 (``PVA from Taiwan''), where cost

allocations were made based on sales values, and apply the NRV

methodology to Ponds' costs.

Alternatively, Ponds proposes a second methodology that would

consider minis and PNS as a by-product of whole and sliced mushrooms.

Based on this methodology, all costs of producing mushrooms would be

allocated to whole and sliced mushrooms, and the revenue received from

sales of minis and PNS would be deducted from those costs.

Finally, Ponds suggests that the Department should average the EPs

for all products, and then compare the average prices to average costs,

as it did in past cases such as Final Results of Administrative Review:

Certain Fresh Cut Flowers from Colombia, 63 FR 31724, June 10, 1998

(``Flowers from Colombia''). Ponds states that this approach is

appropriate, should the Department reject its NRV methodology, because

a weight-based allocation

[[Page 72249]]

effectively calculates an average CV for preserved mushrooms and thus

the fair comparison would be to average U.S. prices.

The petitioners contend that the Department should continue to

allocate costs on the basis of weight, as in the preliminary

determination and in the companion investigation of preserved mushrooms

from Chile (Final Determination of Sales at Less Than Fair Value:

Certain Preserved Mushrooms from Chile, 63 FR 56613, October 22, 1998)

(``Mushrooms from Chile''). The petitioners state that Ponds' financial

accounting system tracks costs and sales on the basis of weight, not

NRV, as shown in the questionnaire responses and at verification.

Citing section 773(f)(1)(A) of the Act, the petitioners assert that the

Department relies on data from a respondent's normal books and records

where those records are prepared in accordance with the home country's

general accounting practices (``GAAP'') and reasonably reflect the cost

of producing the subject merchandise. Petitioners argue that the cost

of producing mushrooms are reasonably reflected using a weight-based

allocation because all of the preserved mushroom products utilize the

same input material, fresh mushrooms.

The petitioners continue that the references to CPF from Thailand

and PVA from Taiwan are inappropriate in this case. According to the

petitioners, the Department determined that the NRV methodology was

appropriate in CPF from Thailand because the pineapple fruit and

pineapple juice were completely distinguishable co-products. In

instances where the juice was produced from the remains of the fruit

canning process, such as shells, cores and ends, a weight-based cost

methodology would assign a distortive amount of costs to the various

parts of the pineapple. In PVA from Taiwan, the PVA production process

resulted in two different co-products with different end uses. Thus,

the petitioners assert that a weight-based methodology would have been

distortive in that instance as well. In this proceeding, the

petitioners argue, fresh mushrooms are not a co-product of preserved

mushrooms, and the same material--fresh mushrooms--is used in producing

all varieties of preserved mushrooms. Similarly, the petitioners reject

Ponds' contention that minis and PNS should be considered a by-product

or scrap, as ``scrap'' is considered by the industry to be tiny

mushroom fragments which are too small to even to be processed as PNS

and is typically resold as fertilizer or discarded. The petitioners

assert that PNS and minis, on the other hand, are part of the same like

product and sold in the same channels of trade as other preserved

mushrooms.

DOC Position:

We agree with the petitioners that, in this case, a weight-based

allocation methodology is appropriate. 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

mis-allocation 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 CPF from Thailand at 29559.

Furthermore, as described in section 773(f)(1)(A) of the Act, the

Department must consider whether reported allocations ``have been

historically used by the exporter or producer.'' In the instant case,

Ponds does not have an established cost accounting system that

allocates costs between products and, therefore, for purposes of this

investigation, Ponds and Agro Dutch developed a reporting methodology.

In Ponds' Section D questionnaire response, it chose to allocate costs

between products based on their relative sales values. At the request

of the Department, Ponds submitted a revised response which allocated

costs using a weight-based method. For purposes of the final

determination, we have relied on the costs derived from a weight-based

allocation methodology as explained below, 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 Ponds' sales-value-based

methodology because it relies on the faulty premise that minis and PNS

are joint products of mushrooms.

A comparison of the Department's approach in responding to certain

types of allocation questions in past cases is helpful in illustrating

why minis and PNS are not joint products. In Final Administrative

Review of Canned Pineapple Fruit from Thailand, 63 FR 7392, February

13, 1998, the Department stated that ``a joint production process

produces two distinct products and the essential point of that process

is that the raw material, labor and overhead costs prior to the initial

split-off requires an allocation to the final products. See Management

Accountants' Handbook at 11:1. CPF and juice result from a joint

production process because they both rely on the use of a single raw

material, pineapple fruit'' (emphasis added). In PVA from Taiwan at

14071 the Department stated that, ``like other joint production

processes, PVA production is characterized by certain joint costs which

cannot readily be identified or traced to the individual products

resulting from the joint processing performed in the manufacture of

PVA. In PVA production, chemical inputs are mixed together in a process

that results in two distinct products: PVA and acetic acid.'' (Id. at

7399) (emphasis added). In CPF and PVA production, two or more distinct

products (i.e., products having significantly different physical

characteristics) result from the processing of the raw materials. In

contrast, the mushroom growing process results in only one product,

i.e., mushrooms. While the Department concedes that mushrooms will vary

in size and aesthetics, these minor quality differences do not render

them separate and distinct products. Such minor differences do not rise

to the level where distinct products exist. The opposite situation, for

example, occurs in CPF from Thailand, where a liquid fruit drink and a

solid fruit product are derived from a whole pineapple. On the other

hand, while mushrooms may be sliced or chopped, sold as fresh or

canned, they remain mushrooms.

Ponds' proposal that a sales-based method be used in this case

relies heavily on the fact that certain aesthetic and quality

differences in mushrooms command higher prices in the market. We note

that Ponds' claim that minis are

[[Page 72250]]

a substandard product are seriously undercut by Agro Dutch's argument

that mini mushrooms are a premium product (See Comment 7 below for

further discussion). However, as the cases cited above demonstrate, it

is not the difference in market price that indicates whether the use of

a value-based cost methodology is warranted, but rather the existence

of two distinct products and the inherent difficulties therein of

assigning common production costs between the jointly produced

products. It is only when a common production process gives rise to

separate and distinct products that a value-based method may be a more

appropriate means to allocate costs than a method based on physical

measure. Indeed, the Department has been upheld in its practice of

ignoring market price differences when two grades of the same pipe had

identical costs, but commanded different market prices. In Ipsco v.

United States, 965 F2d 1056 (Fed. Cir. 1992) (``IPSCO''), where there

were no physical differences between the two grades of pipe, only

differences in quality and market value and the same materials, labor,

and overhead went into the manufacturing lot that yielded both grades

of pipe, the court upheld the Department's use of a methodology that

allocated costs equally between two grades of the same pipe. Moreover,

in Final Determination of Sales at Less Than Fair Value: Fresh Cut

Roses from Ecuador 60 FR 7038 February 6, 1995 (``Roses from

Ecuador''), the Department also chose not to distinguish between minor

aesthetic and quality differences within the broad export quality

category, but treated as by-products all roses in the national quality

category. In that case, the Department allocated total net cultivation

costs over the total quantity of non-reject product actually sold.

Perhaps the most comparable case to mushrooms is the Final

Determination of Sales at Less Than Fair Value: Fresh Atlantic Salmon

from Chile, 63 FR 31411, June 9, 1998 (``Salmon from Chile''). Salmon,

like mushrooms, are grown in batches where the natural process results

in products of varying size and quality. Products can both be sold

either directly after harvest or be processed further and sold in

several different forms and containers. Furthermore, the production

processes of both products may be manipulated by the producer, within

the confines of the natural growing process to obtain different yields

on certain sizes and qualities. Moreover, both salmon and mushrooms are

sold by weight and the aesthetic qualities of the individual units

impact their market price. For both products, the Department has found

that the actual cost per kilogram of the product, i.e., mushroom or

salmon, is the same regardless of whether it is sold fresh or processed

further in a variety of forms. In Salmon from Chile, as in the instant

case, the Department found that ``with minor exceptions, each company's

recorded costs of the subject merchandise did not vary by grade or

weight band [(i.e., size)] . . . and that the costs of certain of these

matching groups are the same (Id. at 31416).'' Also in Salmon from

Chile, the Department even rejected ``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 (Id. at 31416). In citing to IPSCO in the Salmon

from Chile case, the Department stated that ``as with premium salmon,

prime-grade pipe was of higher quality and, as such, commanded a higher

price in the marketplace. 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. The respondents objected to this methodology vis-

a-vis comparisons involving U.S. sales of lower grades of merchandise.

The Court of Appeals for the Federal Circuit (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.'' See Salmon from Chile at 31416--31417.

Consistent with Mushrooms from Chile, we have determined that an

allocation methodology based on weight is reasonable for the following

reasons: (1) both Ponds and Agro Dutch track the mushrooms through the

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

sales value; (2) mushrooms are sold by weight; (3) virtually the same

activities and expenses are incurred in growing each kilogram; and, (4)

regardless of whether the mushrooms are sold as preserved or fresh

product, wholes or PNS, they are substantially the same product (i.e.,

they are not joint products). Simply stated, the cost-generating

elements of growing mushrooms for both preserved and fresh, whole or

pieces, large or small mushrooms are identical, as evidenced by the

fact that a considerable quantity of mushrooms initially selected for

the fresh sales market were eventually canned, and canned whole

mushrooms may be re-processed into pieces and stems. Additionally, the

Department has accounted for specific cost differences, such as

differences in picking costs, supported by its observations at

verification of Agro Dutch, that additional compensation for picking

specific sizes of mushrooms was required. (See Comment 9 below for

further discussion) On this basis, we continue to rely upon a weight-

based methodology because it reasonably reflects the costs of producing

the subject merchandise.

We also disagree with Ponds respondents that PNS and minis could

alternatively be considered by-products of whole and sliced mushrooms.

In the mushroom growing process, the closest output material to a by-

product is the sale of compost. By-products, as opposed to primary

products, ``have low relative total sales values,'' resulting from

either ``a small output or low unit selling prices or both.'' See Cost

Accounting, Processing, Evaluating, and Using Cost Data at 157 (Morse &

Roth, Third Edition, 1986). Minis and PNS are identical to the primary

product (i.e., mushrooms) and, as such, should be treated in the same

manner. Furthermore, minis and PNS are not incidental to Ponds'

mushroom selling activities, and represent a significant portion of

Ponds' sales. In addition, a significant percentage of Ponds' POI

mushroom production was sold as either minis or PNS. In Roses from

Ecuador, the Department also chose not to distinguish between minor

aesthetic and quality differences within the broad export quality

category, but treated as by-products all roses in the national quality

category. This practice was consistent with the court's decision in

Association Colombiana de Exportadores v. United States, 704 F. Supp.

1114, 1125-26 (CIT 1989), where the court found that ``culls were often

disposed of as waste, or if saleable, were sold for low prices in the

local markets.'' As petitioners pointed out in their briefs, mushrooms

that ultimately become minis and PNS are processed further, exported to

the United Sates, and represent a significant portion of Ponds' sales.

We also disagree with Ponds' assertion that, if the actual cost of

producing the mushrooms is used as the basis of COP and CV, then when

relying on CV as the basis for normal value, the Department should

average U.S. sale prices for all products. Ponds errs in citing to

Flowers from Colombia to support its proposed method. There were case-

specific reasons in Flowers from Colombia as to why the

[[Page 72251]]

Department compared CV to average U.S. prices, such as the fact that

flowers are a perishable product. The Department rejected a similar

argument in Salmon from Chile, where the respondent asserted that the

``Department should average all U.S. prices by form only and not by

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

form-specific CV (see Salmon from Chile at page 31416).'' In that case,

the respondent reasoned that the Department erred ``by comparing U.S.

prices . . . by form, grade, and weight band to CVs that, due to the

nature of the product, essentially do not vary except by form (Id. at

31416).'' In rejecting respondent's assertion that the U.S. prices

should be averaged for the comparison to CV, the Department noted that

``while making the same complaint as that made by the respondent in

IPSCO, the respondent in the instant proceeding has proposed a

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

respondent suggests that the Department average the reported U.S.

prices without respect to two of the three matching characteristics . .

. for comparisons involving CV (Id. at 31416).'' The Department went on

to explain that ``no change to either side of the antidumping analysis

(EP/CEP and normal value) is necessary because, in accordance with

IPSCO and with the basic tenet of the antidumping law, the Department's

methodology in this case properly compares the price of U.S. sales of a

given product with the actual cost of that product where normal value

is based on CV, without regard as to whether that product's actual

costs are the same as, or different from, other products under

investigation (Id. at 31417).'' In Salmon from Chile, the Department

argued further that the proposed methodological changes 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 CV ( Id. at 31417).''

Based on the foregoing discussion, for purposes of the final

determination we have used a weight-based allocation methodology for

all mushroom growing costs, with the exception of picking labor.

Furthermore, we have used weighted-average US prices, by product type,

in our comparisons to NV (i.e., CV).

Comment 2: Yield Adjustment to Costs for Extraordinary Events

Ponds claims that the Department should consider Ponds' low

mushroom yield in 1997 as a highly unusual event generated by

extraordinary circumstances that occurred during the year. Ponds cites

a major flood, ``wet bubble disease,'' and the death of its experienced

plant manager as the extraordinary events that caused its depressed

yield in 1997, the POI. Pointing to such cases as Flowers from Colombia

and the decision in Floral Trade Council of Davis, Calif. v. United

States, 16 CIT 1014, 1016-17 (1992), Ponds contends that the Department

should take into account these extraordinary events, which are

infrequent in occurrence, unusual in nature, and cause an unforeseen

disruption in production that is beyond management's control, and make

an appropriate adjustment to its costs. To make this adjustment, Ponds

proposes applying a yield factor based on its mushroom yield history

exclusive of 1997.

The petitioners respond that the events cited by Ponds are neither

infrequent nor outside management's control and, therefore, the

Department should continue to reject Ponds' claim. Petitioners contend

that, as various parts of India are subject to seasonal flooding,

mushroom diseases are an expected risk to the mushroom growing process,

and staffing changes are a normal part of business operations. Thus,

according to petitioners, management reasonably should have foreseen

these possibilities and taken necessary steps to avoid production

problems. Petitioners assert that the POI drop in production yield is

the result of inadequate management control, rather than extraordinary

events.

DOC Position:

We disagree with Ponds' claim for adjustments to its cost

calculation based on the ``alleged'' extraordinary events that occurred

during the POI. The SAA at 162 states that ``when unforeseen disruption

in production occurs which is beyond management's control. . .,

Commerce will continue its current practice, such as using the costs

incurred for production prior to such unforeseen event.'' The

Department's long-standing practice with regard to ``unforeseen

events'' is to treat expense items as extraordinary only when they are

both unusual in nature and infrequent in occurrence. See Final

Determination of Sales at Less than Fair Value: Static Access Memory

Semiconductors From Taiwan, 63 FR 8909, February 23, 1998 (``SRAMS from

Taiwan'') (where the Department rejected respondent's claim for an

offset due to losses incurred because of a fire); Final Determination

of Sales at Less than Fair Value: Oil Country Tubular Goods From

Argentina, 60 FR 33539, June 28, 1995 (where the Department rejected

respondent's claim for an offset due to restructuring costs); and Roses

from Ecuador at page 7038 (where the Department allowed an offset for

damage due to hurricane-force winds). Because adjustments of this type

are by definition extraordinary, the Department has made its decisions

regarding these adjustments on a case-by-case basis. Moreover, in our

review of the case-specific facts, it is incumbent upon the respondent,

as the party knowledgeable about the industry and country, to provide

evidence supporting its claim. Ponds did not provide any evidence that

heavy rains were abnormal and thus unexpected. In the Final

Determination of Sales at Less than Fair Value: Fresh and Chilled

Atlantic Salmon from Norway, 56 FR 7661 February 25, 1991 (``Salmon

from Norway''), the Department rejected a respondent's claimed offset

for costs related to a disease affecting its salmon harvest by stating

that ``[i] In the fish farming industry, disease is an expected

occurrence. Respondent submitted no independent data regarding ILA

disease in general or the extent to which other farmers in Norway

suffered from this disease, and no data was submitted regarding

ordinary or abnormal levels of disease.'' Similarly, in this case,

Ponds has provided no evidence to demonstrate that the mushroom crop

disease experienced during the POI was abnormal or unforseen.

With regard to the death of a production manager, the flooding, and

the crop disease experienced by Ponds during the POI, we find none of

these events to be extraordinary or unforeseen. We note that India

experiences heavy rainfall each year and that Ponds' management had

taken steps to prevent the next occurrence by building drainage

ditches. We also note that various climate phenomena, from weather to

diseases, effect agricultural crops and, therefore, only truly unusual

climatic events relative to the geographical area in question would be

considered extraordinary. At verification in India, we observed various

disease prevention measures in place at both respondents' facilities,

which indicates that disease is not an unusual or unforseen occurrence.

Finally, we find that the loss of an employee, whether through a tragic

death or resignation, is neither unusual or infrequent. Accordingly, we

disallowed Ponds' yield adjustment factor for purposes of the final

determination.

Comment 3: Reprocessing Costs for Mini Mushrooms

[[Page 72252]]

The petitioners contend that the Department should adjust Ponds'

reported costs to account for raw material expenses incurred on canned

mushrooms reprocessed into minis which Ponds did not include in its

questionnaire response. The petitioners methodology for adjusting for

reprocessing costs is outlined in their October 29, 1998, case brief.

Ponds contends that the costs of these minis produced in 1996 and

repackaged in 1997 should not be considered part of the cost of minis

produced in 1997. Ponds explains that the repackaging was performed to

mitigate its 1996 losses for failing to sell these products in larger

cans, and that including the repackaging costs for the POI merchandise

would unfairly inflate those costs for an aberrant, extraordinary

situation that is not a normal component of its COP. Should the

Department determine that repackaging costs should be included as part

of the POI costs, Ponds contends that the Department should allocate

the reprocessing costs over the total production of all minis.

DOC Position:

We disagree with Ponds that the costs of the minis produced in 1996

and repackaged in 1997 should not be considered part of the cost of

minis produced in 1997. First, approximately two-thirds of minis canned

in 1997 were from these reprocessed cans. Second, the cost of

reprocessing that took place in 1997 must be accounted for in 1997.

However, we agree with Ponds that the Department erred in allocating

the total reprocessing costs only over 1997 production of 6 oz. jars.

Therefore, for purposes of the final determination, reprocessing costs

have been allocated over the total production of all types of product

(i.e., container size) into which the original containers were

reprocessed during 1997.

Comment 4: SG&A Calculation

The petitioners claim that Ponds' SG&A calculation is incorrect

because it includes net financial income and the Department allows

short-term interest income as an offset only up to the amount of

financial expense. The petitioners argue that the Department should

adjust the reported SG&A expenses using the methodology outlined in its

October 29, 1998, case brief.

Ponds asserts that its SG&A calculation is correct because it would

be unfair to include the costs of managing certain investments in its

SG&A expenses, but then exclude the income generated by the

investments. Thus, Ponds argues that the Department should either

exclude both the costs and the revenues associated with these

investments in the SG&A expense, or include both items.

DOC Position:

We agree with petitioners that only the short-term portion of

financial income should be included in Ponds' financial expense

calculation. Therefore, for purposes of the final determination, we

have revised Ponds' combined G&A and financial expense rate. First, we

calculated separate rates for G&A and financial expense. Second, we

excluded Ponds' financial income because Ponds failed to provide a

breakdown of the long-or short-term portions. Third, we excluded the

claimed income related to dividends and investments. The Department

includes financial expense in its calculation of cost in order to

account for the company's cost of financing its activities. In

calculating the company's cost of financing, we recognize that in order

to maintain its operations and business activities, a company is

required to maintain a working capital reserve to meet its daily cash

requirements (e.g., payroll, suppliers, etc.). The Department

recognizes that the company normally maintains this working capital

reserve in interest bearing accounts. The Department, therefore, allows

a company to offset its financial expense with the short-term interest

income earned on these working capital accounts. The Department does

not allow a company to offset its financial expense with the income

earned from investment activities (e.g., long-term interest income,

capital gains, dividend income). See Gulf States Tube Division Of

Quanex Corp. v. United States, 981 F.Supp 630 (CIT 1997).

Comment 5: Forward Cover Exchange Rates

Ponds contends that the forward cover contracts Ponds made with its

bank should be used to calculate the foreign currency exchange rate

used to convert Ponds' sales revenues, expenses and costs from Indian

rupees to US dollars, in accordance with 19 CFR 351.415(b). In meeting

this regulation, Ponds states that its forward cover contracts were

verified as clearly linked to its sales and thus it meets the necessary

criteria for applying the contract exchange rate in lieu of the actual

exchange rate on the date of sale.

DOC Position:

We agree with Ponds' contention that the exchange rate noted on

Ponds' forward cover contracts is the appropriate exchange rate for

converting Ponds' Indian rupee sales revenues and expenses into US

dollars. At verification, we found that Ponds' foreign cover contracts

were directly related to its sales. Specifically, we traced each

contract to invoices, bills of lading and bank advices (see Ponds'

Verification Report at 29-30 and Verification Exhibit 33). Therefore,

according to the Departments' practice, in the final determination we

have used the exchange rate specified in the forward sales agreement

instead of the actual exchange rate on the date of sale in making all

currency conversions (see Final Determination of Sales at Less than

Fair Value: Large Power Transformers from France, 60 FR 62808-809,

December 7, 1995).

Comment: Facts Available for Packing Costs

The petitioners claim that the Department found various

discrepancies in Ponds' sales reporting that reflect systematic errors

which undermine the reliability of Ponds' data. In particular, the

petitioners cite an allegedly significant, systematic error in the

reporting of Ponds' packing costs, and argue that the Department should

reject the reported costs and instead apply adverse facts available.

Ponds replies that the petitioners have exaggerated minor,

innocuous corrections that Ponds presented to the Department at the

commencement of verification. According to Ponds, verification

demonstrated that its data is reliable and contained very few errors.

Ponds states that the packing cost correction cited by the petitioners

resulted from a single error involving a single number, and not any

``systematic'' unreliability; therefore, Ponds maintains that

petitioners' assertions should be rejected.

DOC Position:

We disagree with petitioners. For purposes of the final

determination, we have used Ponds' sales data in general and packing

costs in particular, as revised based on verification findings and

noted elsewhere in this notice, rather than facts available as argued

by petitioner. At the request of the Department (see Ponds Verification

Outline at page 2 dated August 27, 1998), Ponds presented corrections

to minor errors found during preparation for verification. Department

officials were able to verify all corrections noted including those

related to packing costs (see Ponds' October 21, 1998 Verification

Report at page 2 and at Verification Exhibit 1). Accordingly, the

Department has determined that the application of adverse facts

available for Ponds' identified packing costs or otherwise is not

warranted.

[[Page 72253]]

Agro Dutch Comments

Comment 7: Whole Mushroom Size as a Product Matching Characteristic

Agro Dutch argues that the Department should include whole mushroom

size as a product matching criterion. Agro Dutch states that it

considers mini mushrooms to be a premium product and while Ponds may

consider these mushrooms to be a substandard product, both Indian

respondents agree that the size of the whole mushroom affects pricing

and marketing. In support of its contention, Agro Dutch points to its

sales reporting, which shows that its mini mushrooms sales prices are

higher than its other mushroom prices. Thus, Agro Dutch argues, the

Department should not compare mini mushrooms to larger mushrooms.

The petitioners contend that Agro Dutch's claims are not supported

by the record as there is no record evidence that the actual size of

the fresh mushroom is a significant characteristic of preserved

mushrooms. The petitioners state that the mushroom style, i.e., whole,

sliced, or PNS, already incorporates the important and relevant size

characteristics for the preserved mushroom product.

DOC Position:

We disagree with Agro Dutch and continue to find an insufficient

basis on the record to include whole mushroom size as a product

matching criterion. Of all of the respondents in the three concurrent

preserved mushrooms investigations from India, Chile, and Indonesia, we

note that only Agro Dutch has argued that mushroom size must be

accounted for in the product matching characteristics. Moreover, we

have determined that there are no cost differences associated with the

physical size of the mushroom. Rather, we found that Agro Dutch prices

its mushrooms based on the physical size of the mushroom because of the

labor involved. While Ponds does identify minis as a product type, as

noted above in Comment 1, Ponds considers these mushrooms to be

substandard products, in contrast to Agro Dutch's classification of

minis as premium product. As also noted in Comment 1, we found no basis

on which to treat minis differently with regard to cost accounting, and

that mushroom growing costs (with the exception of packing labor)

should be allocated on a weight-basis, rather than NRV. Thus, there is

no reason to assign different costs to a whole mushroom solely for its

different physical size. While one respondent out of all of the

respondents involved in the market economy preserved mushroom

investigations sells minis at higher prices relative to other

mushrooms, the development of a successful market niche for one company

is not, in itself, a basis for establishing a separate product

characteristic.

Comment 8: Startup Adjustment

Agro Dutch claims that the Department should grant it a startup

cost adjustment in accordance with Section 773(f)(1)(C) of the Act for

its 50 percent expansion of growing rooms in a stand-alone facility

during the POI. Agro Dutch states that these additional growing rooms

began production during the POI and their construction constitutes the

``major undertaking'' contemplated in the SAA at 166 for granting the

startup adjustment.

The petitioners state that Agro Dutch has failed to demonstrate its

eligibility for a startup adjustment because the claim is based on the

expansion of its existing mushroom growing facilities, rather than on a

new production facility or production of a new product, as required

under section 773(f)(1)(C) of the Act. In addition, the petitioners

argue that the decline in production levels experienced at that time

were related to ongoing improvements to existing facilities, rather

than adjustments for the operation of a new facility. Further, the

petitioners contend that Agro Dutch has failed to demonstrate that the

lower mushroom yield rates it may have experienced were the result of

technical factors associated with the allegedly new facility, as

required by the statute.

DOC Position:

We disagree with Agro Dutch 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

Agro Dutch submitted to support its claim, we have determined that Agro

Dutch's production expansion of its operations does not satisfy these

criteria.

Agro Dutch's production operations were only expanded by one third

during the POI. The SAA at 166 states that ``[m]ere improvements to

existing products or ongoing improvements to existing facilities will

not qualify for a startup adjustment'' (emphasis added). Agro Dutch's

original production operations were several years old at the start of

the POI. Agro Dutch added two new sections of growing houses, only one

of which was used for production during the POI. Agro Dutch made no

claim that commercial production levels at the preexisting operations

were limited by any technical factors associated with the new capacity.

In addition, Agro Dutch's start-up claim is addressed only with respect

to the first of the two new sections of growing houses.

Furthermore, Agro Dutch claims that commercial production levels in

the new sections were limited by technical factors. First, we do not

think that the expansion of capacity by one third rises to the level of

expansion contemplated by the language in the SAA. The SAA at 166

states that ``Commerce also will not consider an expansion of the

capacity of an existing production line to be a start-up operation

unless the expansion constitutes such a major undertaking that it

requires the construction of a new facility and results in a depression

of production levels due to technical factors associated with the

initial phase of commercial production of the expansion facilities.''

Second, the technical factors cited by Agro Dutch did not appear to

limit commercial production levels. Agro Dutch argues that after the

new sections were completed, the environmental conditions inside the

growing houses had to be adjusted in order for production levels to

rise to the levels of the preexisting growing houses. While we do not

take issue with this assertion, we note that the SAA states that ``the

attainment of peak production levels will not be the standard for

identifying the end of the start-up period, because the start-up period

may end well before a company achieves optimum capacity utilization.''

Although production levels at the growing houses in question were not

at their peak levels, Agro Dutch was able to produce sizable quantities

of mushrooms.

We note that Agro Dutch 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, Agro Dutch has provided

insufficient evidence to support a claim that production levels were

limited by technical factors. The only information provided by Agro

Dutch to support its claim that POI production levels were limited is a

comparison of its production yields to yields of its preexisting

growing houses. The SAA, however, does not refer to quality of

merchandise produced or the efficiency

[[Page 72254]]

of production operations as a criterion for measuring production

levels. The SAA at 166 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 SRAMS from Taiwan

at 8930. In other words, the Department must look at processed units,

not output yields. Agro Dutch provided no information, for example, on

historical production or capacity usage at its facilities to serve as a

benchmark for measuring commercial production levels during the POI.

The only evidence Agro Dutch submitted was a comparison of its yields

to the yields at its pre-existing growing houses, asserting that such

levels are not indicative of commercial production levels. Moreover, we

note that under a comparative yield approach, a respondent may never

leave the start-up phase because it may never reach comparative yields.

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

the startup test must be met to warrant a startup adjustment. In this

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

accordingly, we have denied Agro Dutch's claim for a start-up

adjustment.

Comment 9: Allocation of Costs Based on Mushroom Size-Based Yields

Agro Dutch contends that its COP should be allocated based on yield

factors reflecting the various mushrooms it grows. Specifically, Agro

Dutch contends that higher harvesting and material costs should be

allocated to mini mushrooms which have a smaller yield than the larger

mushrooms. In support of its argument, Agro Dutch refers to on-site

experiments conducted at verification which it claims demonstrated the

different yield factors based on whole mushroom size.

The petitioners claim that a yield factor reported by Agro Dutch

derived from an experiment solely for the purpose of this investigation

does not demonstrate that yield factors have any impact on raw material

costs. While the petitioners may agree that labor costs may differ

depending on the size of the fresh mushroom picked, they contend that

Agro Dutch provided no evidence that the cost of production for any of

the growing materials varies by the size of the mushroom. Moreover, the

petitioners state that, as indicated in the verification report, Agro

Dutch's financial records do not rely on yield factors to allocate

costs in its normal course of business; rather, Agro Dutch tracks costs

on an overall basis without regard to per-unit costs for any specific

type of preserved mushroom product.

DOC Position:

We agree with Agro Dutch, in part. Agro Dutch argues that it is

more efficient to grow the larger size mushrooms than it is for them to

grow smaller mushrooms. Therefore, Agro Dutch reasons that a greater

amount of costs must be allocated to smaller sized mushrooms. Agro

Dutch accomplishes this shifting of costs through the use of estimated

growing yields. While we agree with Agro Dutch that, as demonstrated at

verification, the time required to pick the smaller mushrooms was

longer than the time needed to pick the larger sizes, we disagree that

there is a significant, if any, growing cost difference between sizes

of mushrooms.

As discussed in Comment 1, above, in accordance with section

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

respondent's 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. However, in those

instances where it is determined that a company's normal accounting

practices result in a mis-allocation 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. Agro Dutch does not have an

established cost accounting system that allocates costs between

products and, therefore, for purposes of this investigation, Agro Dutch

developed a reporting methodology. Agro Dutch chose to allocate costs

to different size ranges of mushrooms produced based on certain

estimated product yield factors. At the request of the Department, Agro

Dutch submitted a revised response which allocated costs using a

weight-based methodology.

As also noted in Comment 1, ``when determining the appropriate

method for allocating costs among products, the Department 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.'' For

purposes of the final determination, we rejected Agro Dutch's yield-

based allocation methodology for materials and other non-picking labor

costs because the method relies purely on estimates of the mushroom

yield factors for each size range, and because the cost per kilogram of

growing a large or small mushroom is identical. We disagree with Agro

Dutch that it is more efficient to grow a larger versus a smaller

mushroom. Mushrooms in India are grown in large bags that contain the

compost, mushroom fungus and other necessary materials. These bags are

stored in large growing houses where the climate is controlled. Since

three to four pickings can be made from any given bag, a company like

Ponds' may choose to have shorter periods of time between the picking

of each ``flush,'' in order to ensure that the harvests are

predominantly small-to-medium sized mushrooms. Alternatively, a company

like Agro Dutch may choose to wait longer between pickings, in order to

ensure that the harvests are predominantly medium-to-large sized

mushrooms. Thus, companies have some control over the relative sizes of

mushrooms produced. While a weight-based allocation may not be perfect

(i.e., because on a per-mushroom basis slightly more costs are applied

to a larger mushroom, given that a larger mushroom will produce more

kilograms of products) we do not find this to be a substantial problem.

Within the normal mushroom size ranges and given the nature of the

production growing process, we consider weight-based allocation

reasonable.

Therefore, it is the Department's position that the per-kilogram

materials, non-picking labor, and overhead costs, within the normal

ranges of mushroom sizes, are virtually identical, irrespective of the

minor variations in the size of the specific mushroom. First, there is

very little growing time difference between a 15-20 millimeter mushroom

and a 35-45 millimeter mushroom. Second, different size mushrooms grow

side-by-side, incurring the identical costs (i.e., materials, non-

picking labor, and overhead). Third, the mushroom companies limit the

outlying sizes (i.e., under 15 mm and over 45 mm) because smaller than

15 mm is considered scrap and greater than 45 mm have open gills and

become too fibrous. Furthermore, it is reasonable to derive cost on the

basis of weight because: (1) both Ponds and Agro Dutch track the

mushrooms through the production process by weight, not by number of

mushrooms, estimated yields, or by relative sales value; (2) mushrooms

are sold by weight; (3) virtually the same activities and expenses are

incurred in growing each kilogram; and (4) regardless of whether the

mushrooms are sold as preserved or fresh product, wholes or PNS, they

are substantially the same product. Simply stated, the cost-generating

elements of growing mushrooms for both preserved and fresh, whole or

pieces, large or small mushrooms are identical as evidenced

[[Page 72255]]

by the fact that a considerable quantity of mushrooms initially

selected for the fresh sales market were eventually canned, and canned

whole mushrooms may be re-processed into PNS.

Finally, the Department has accounted for specific cost

differences, such as differences in picking costs, supported by our

observations that additional time was required to harvest the smaller

mushrooms. On this basis, consistent with Mushrooms from Chile, we

continue to rely upon a weight-based methodology because, while

ignoring differences in aesthetics and quality, it reasonably reflects

the costs of producing the subject merchandise. See IPSCO, Salmon from

Chile, Flowers from Colombia as cited in Comment 1.

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

imports of subject merchandise 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 the

posting of a bond equal to the weighted-average amount by which the NV

exceeds the EP, as indicated in the chart below. The 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

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

Agro Dutch Foods Limited.................................... 6.28

Ponds India, Ltd............................................ 14.19

Alpine Biotech Ltd.......................................... 243.87

Mandeep Mushrooms Ltd....................................... 243.87

All Others.................................................. 10.87

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

Note: The margins based on facts available were not included in the

calculation of the All Others rate in accordance with 735(c)(5)(A) of

the Act.

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: December 18, 1998.

Richard W. Moreland,

Acting Assistant Secretary for Import Administration.

[FR Doc. 98-34703 Filed 12-30-98; 8:45 am]

BILLING CODE 3510-DS-P