Notice of Final Determination of Sales at Less Than Fair Value: Certain Preserved Mushrooms from the People's Republic of China

DEPARTMENT OF COMMERCE

International Trade Administration

[A-570-851]

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

Certain Preserved Mushrooms from the People's Republic of China

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: December 31, 1998.

FOR FURTHER INFORMATION CONTACT: David J. Goldberger or Kate 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

(April 1998).

Final Determination

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

the People's Republic of China are being sold in the United States at

less than fair value (``LTFV''), as provided in section 735 of the Act.

The estimated margins of sales at LTFV are shown in the ``Suspension of

Liquidation'' section of this notice.

Case History

Since the preliminary determination (Preliminary Determination of

Sales at Less Than Fair Value: Certain Preserved Mushrooms from the

People's Republic of China, 63 FR 41794, August 5, 1998), the following

events have occurred:

The respondent exporters in this investigation, China Processed

Food Import & Export Company (``China Processed'') and its affiliate

Xiamen Jiahua Import & Export Trading Company, Ltd. (``Xiamen

Jiahua''), Shenzhen Cofry Cereals, Oils, & Foodstuffs Company, Ltd.

(``Shenzhen Cofry''), and Tak Fat Trading Corporation Co. (``Tak

Fat''), submitted revisions and corrections to their questionnaire

responses in August 1998. An importer of the subject merchandise,

Gerber Food (Yunnan) Co., Ltd. (``Gerber''), submitted shipment data on

August 12, 1998.

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. An importer of the subject merchandise, Hop Chong Trading

Company, Inc. (``Hop Chong''), and the respondents subsequently

requested a public hearing on August 17 and August 25, 1998,

respectively.

We issued supplemental questionnaires to the respondents, the China

Chamber of Commerce of Importers and Exporters of Foodstuffs, Native

Produce and Animal By-Products (``China Chamber''), and the PRC

Ministry of Foreign Trade and Economic Cooperation (``MOFTEC'') on

August 7 and 10, 1998. We received responses to these questionnaires

from the respondents and the China Chamber on August 21, 1998, and from

MOFTEC on September 2, 1998.

In August and September 1998, we conducted verifications of the

respondents' questionnaire responses, including information provided by

the producers who supplied the subject merchandise during the POI--

Dongya Food Company Ltd. (``Dongya''), Longhai Cannery Inc.

(``Longhai''), Mei Wei Foods Industrial Co. Ltd. (``Mei Wei''), Fujian

Province Putian Cannery (``Putian Cannery''), Fujian Zhaoan Canned Food

Factory (``Zhaoan''); and Fujian Zishan Group Co., Ltd. (``Zishan'')--

as well as Zhaoan's affiliated can producer Zhangzhou

[[Page 72256]]

Ruida Can Making Co., Ltd. (``Zhangzhou Ruida''). We issued reports on

our findings of these verifications during September and October 1998.

The respondents submitted additional surrogate value data on

October 1, 1998, and petitioners' responded to this submission on

October 13, 1998.

The petitioners, respondents, Hop Chong, and importer Liberty Gold

Fruit Co. Inc. (``Liberty Gold'') submitted case briefs on October 23,

1998, and rebuttal briefs on October 30, 1998. We held a public hearing

on November 4, 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 this investigation (``POI'') comprises each

exporter's two most recent fiscal quarters prior to the filing of the

petition. For all exporters, this period was July 1 through December

31, 1997.

Nonmarket Economy Country

The Department has treated the PRC as a nonmarket economy (``NME'')

country in all past antidumping investigations (see, e.g., Final

Determination of Sales at Less Than Fair Value: Silicon Carbide from

the People's Republic of China, 59 FR 22585, May 2, 1994) (``Silicon

Carbide'') and Final Determination of Sales at Less Than Fair Value:

Furfuryl Alcohol from the People's Republic of China, 60 FR 22545, May

8, 1995) (``Furfuryl Alcohol'')). As discussed in the preliminary

determination, the respondents claimed that economic changes in the PRC

warrant revocation of PRC's NME status. We determined that the

information proffered by the respondents provided insufficient support

for their claim for market economy status and did not address a number

of important factors for determining market economy status (see

Memorandum from the Team to Lou Apple, dated July 27, 1998). No further

information has been provided for the record since the preliminary

determination. Therefore, in accordance with section 771(18)(C) of the

Act, we have continued to treat the PRC as an NME in this

investigation.

Market Oriented Industry Claim

Shortly before the preliminary determination, the respondents

claimed that their material inputs were acquired at market prices and

that, accordingly, the Department should determine that the PRC

mushroom industry is a market-oriented industry (``MOI'') and should

rely on the actual PRC prices for valuing these inputs. We did not have

sufficient time to analyze this claim for the preliminary

determination. Subsequent to the preliminary determination, we obtained

additional information from the respondents, China Chamber, and MOFTEC,

and conducted verifications that included examination of the

respondents' claims. Based on our analysis, as discussed in detail

below in Comment 1 of the ``Interested Party Comments'' section of this

notice, we have determined that the respondents have failed to

establish that the preserved mushrooms industry is a MOI. Therefore, we

have continued to calculate normal value using the factors of

production methodology, in accordance with section 773(c) of the Act.

Separate Rates

Each respondent exporter has requested a separate company-specific

rate. China Processed is wholly owned by China National Cereals, Oils,

& Foodstuffs Import & Export Corp., which in turn is owned by ``the

whole people.'' Its affiliated exporter Xiamen Jiahua is a domestic

joint venture between China National Cereals, Oils & Foodstuffs Corp.

and Xiamen Special Economic Trade Group Cereals, Oils, & Foodstuffs

Import & Export Company. Both of these companies are also owned by

``the whole people.'' Shenzhen Cofry is a limited liability company

owned by the China Ocean Helicopter Company and the Anhui Cereals,

Oils, & Foodstuffs Import & Export Group, which, in turn, are both

owned by ``the whole people.'' Tak Fat is a Hong Kong trading company

which is wholly-owned by Hong Kong entities; therefore, we determined

that no separate rates analysis is required for this exporter.

As stated in Silicon Carbide and Furfuryl Alcohol, ownership of the

company by ``all the people'' does not require the application of a

single rate. Accordingly, the above-mentioned companies named as

mandatory respondents as well as the companies who submitted a Section

A response are eligible for consideration of a separate rate.

The Department's separate rate test is not concerned, in general,

with macroeconomic/border-type controls, e.g., export licenses and

quotas and minimum export prices, particularly if these controls are

imposed to prevent dumping. The test focuses, rather, on controls over

the investment, pricing, and output decision-making process at the

individual firm level. See Certain Cut-to-Length Carbon Steel Plate

from Ukraine: Final Determination of Sales at Less than Fair Value, 62

FR 61754, 61757, November 19, 1997; Tapered Roller Bearings and Parts

Thereof, Finished and Unfinished, from the People's Republic of China:

Final Results of Antidumping Duty Administrative Review, 62 FR 61276,

61279, November 17, 1997; and Honey from the People's Republic of

China: Preliminary Determination of Sales at Less than Fair Value, 60

FR 14725, 14726, March 20, 1995 (``Honey'').

To establish whether a firm is sufficiently independent from

government control to be entitled to a separate rate, the Department

analyzes each exporting entity under a test arising out of the Final

Determination of Sales at Less Than Fair Value: Sparklers from the

People's Republic of China, 56 FR 20588, May 6, 1991, and amplified

[[Page 72257]]

in Silicon Carbide. Under the separate rates criteria, the Department

assigns separate rates in NME cases only if respondents can demonstrate

the absence of both de jure and de facto governmental control over

export activities.

1. Absence of De Jure Control

The respondents have placed on the record a number of documents to

demonstrate absence of de jure control, including the ``Foreign Trade

Law of the People's Republic of China'' and the ``Law of the People's

Republic of China on Industrial Enterprises Owned By the Whole

People.''

In prior cases, the Department has analyzed these laws and found

that they establish an absence of de jure control. (See, e.g., Notice

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

Partial-Extension Steel Drawer Slides with Rollers from the People's

Republic of China, 60 FR 54472, October 24, 1995); see also Furfuryl

Alcohol.) We have no new information in this proceeding which would

cause us to reconsider this determination.

As discussed in the preliminary determination, exports of mushrooms

are also affected by quota allocations under a December 17, 1997,

Notice Regarding Printing and Distributing ``List of Commodities

Subject Export License Administration and Issuance of Licenses at

Different Levels'' and Relevant Issues issued by MOFTEC (``Notice'').

We noted that, in past cases, the Department has determined that there

is an absence of government control over export pricing and marketing

decisions of firms even though there may be some government involvement

with respect to the export of products subject to investigation. See

Honey at 14727. In this investigation, the involvement of the PRC

government under this law is negligible with regard to a determination

of separate rates. Accordingly, we determined that, within the

preserved mushroom industry, there is an absence of de jure government

control over exporting pricing and marketing decisions of firms.

2. Absence of De Facto Control

As stated in previous cases, there is some evidence that certain

enactments of the PRC central government have not been implemented

uniformly among different sectors and/or jurisdictions in the PRC. See

Silicon Carbide and Furfuryl Alcohol. Therefore, the Department has

determined that an analysis of de facto control is critical in

determining whether respondents are, in fact, subject to a degree of

governmental control which would preclude the Department from assigning

separate rates.

During verification, our examination of correspondence and sales

documentation revealed no evidence that any of the respondent

exporters' export prices are set, or subject to approval, by any

governmental authority, other than the export quota system identified

above. That these exporters have the authority to negotiate and sign

contracts and other agreements independent of any government authority

was evident from our examination of correspondence and written

agreements and contracts. Finally, we have determined that the

responding exporters have autonomy from the central government in

making decisions regarding the appointment of management. We also noted

that the responding exporters retained proceeds from their export sales

and made independent decisions regarding disposition of profits and

financing of losses, based on our examination of financial records and

purchase invoices (see, e.g., China Processed October 16, 1998,

verification report at pages 3-4).

Consequently, we determine that the respondent exporters in this

investigation have met the criteria for the application of separate

rates.

Margins for Exporters Whose Responses Were Not Analyzed

As discussed in the preliminary determination, for the responding

companies that provided all the questionnaire responses requested of

them and otherwise fully cooperated with the Department's

investigation, but nonetheless, were not fully analyzed by the

Department due to limited resources, we are assigning the weighted-

average of the rates of the three fully analyzed exporting companies,

or a non-adverse facts available rate. Companies receiving this rate

are identified by name in the ``Suspension of Liquidation'' section of

this notice.

PRC-Wide Rate

As stated in the preliminary determination, U.S. import statistics

indicate that the total quantity and value of U.S. imports of mushrooms

from the PRC is greater than the total quantity and value of mushrooms

reported by all PRC exporters that submitted responses in this

investigation. Given this discrepancy, it appears that not all

exporters of PRC mushrooms responded to our questionnaire. Accordingly,

we are applying a single antidumping deposit rate--the PRC-wide rate--

to all exporters in the PRC, other than those specifically identified

below under the ``Continuation of Suspension of Liquidation'' section

of this notice, based on our presumption that the export activities of

the companies that failed to respond to the Department's questionnaire

are controlled by the PRC government (see, e.g., Notice of Final

Determination of Sales at Less Than Fair Value: Bicycles from the

People's Republic of China, 61 FR 19026, April 30, 1996)

(``Bicycles'').

As explained in the preliminary determination, this PRC-wide

antidumping rate is based on adverse facts available, in accordance

with Section 776 of the Act. As adverse facts available, we are

assigning the highest margin in the petition, 198.63 percent, because

the margins in the petition (as recalculated by the Department at

initiation) were higher than any of the calculated margins.

Section 776(c) of the Act provides that where the Department

selects from among the facts otherwise available and relies on

``secondary information,'' such as the petition, the Department shall,

to the extent practicable, corroborate that information from

independent sources reasonably at the Department's disposal. The

Statement of Administrative Action accompanying the URAA, H.R. Doc. No.

316, 103d Cong., 2d Sess. (1994) (hereinafter, the ``SAA''), states

that ``corroborate'' means to determine that the information used has

probative value. See SAA at 870. As discussed in the preliminary

determination at 41798, we determined that the calculations set forth

in the petition have probative value.

Fair Value Comparisons

To determine whether sales of the subject merchandise by China

Processed/Xiamen Jiahua, Tak Fat, and Shenzhen Cofry to the United

States were made at LTFV, 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 compared POI-wide weighted-

average EPs to weighted-average NVs.

Export Price

China Processed/Xiamen Jiahua

We used EP methodology in accordance with section 772(a) of the

Act, because the subject merchandise was sold directly to unaffiliated

customers in the United States prior to importation and constructed

export price (``CEP'') methodology was not otherwise indicated. We

calculated EP

[[Page 72258]]

based on the same methodology applied in the preliminary determination,

with the following exceptions:

We made corrections to the reported billing adjustments on

certain China Processed sales, as identified in the September 18, 1998,

pre-verification submission.

We corrected the starting price for certain sales made by

Xiamen Jiahua to reflect the price from its affiliated trading company

to unaffiliated customers, as identified in the September 14, 1998,

submission (see Comment 15).

Tak Fat

We used EP methodology in accordance with section 772(a) of the Act

because the subject merchandise was sold directly to unaffiliated

customers in the United States prior to importation and CEP methodology

was not otherwise indicated. We calculated EP based on the same

methodology applied in the preliminary determination, with the

following exception:

We included certain sales in our calculations that were

excluded in the preliminary determination because they appeared to have

been made by another exporter. We determined at verification that, in

fact, these sales were made by Tak Fat.

Shenzhen Cofry

We used EP methodology in accordance with section 772(a) of the

Act, because the subject merchandise was sold directly to unaffiliated

customers in the United States prior to importation and CEP methodology

was not otherwise indicated. We calculated EP based on the same

methodology applied in the preliminary determination, with the

following exceptions:

We recalculated the international freight expenses paid to

a market-economy supplier based on our verification findings.

We made revisions to the reported billing adjustment

amounts based on our verification findings.

As Shenzhen Cofry's supplier, Zhaoan, used its own trucks

to transport the finished merchandise to port, according to our

verification findings, we made no deduction for foreign inland freight.

Normal Value

A. Surrogate Country

Section 773(c)(4) of the Act requires the Department to value the

NME producer's factors of production, to the extent possible, in one or

more market economy countries that: (1) Are at a level of economic

development comparable to that of the NME, and (2) are significant

producers of comparable merchandise. The Department has determined that

India, Pakistan, Sri Lanka, Egypt, and Indonesia are countries

comparable to the PRC in terms of overall economic development (see

Memorandum on Nonmarket Economy Status and Surrogate Country Selection

from Jeff May, Director, Office of Policy, to Louis Apple, Office

Director, AD/CVD Enforcement Group II, Office 5, dated February 23,

1998). According to the available information on the record and as

stated in our preliminary determination, we have determined that both

India and Indonesia meet both statutory requirements for an appropriate

surrogate country for the PRC. In the final determination, we have

continued to rely on India as the surrogate country, based on the

quality and contemporaneity of the currently available data.

Accordingly, we have calculated NV using Indian surrogate values for

the PRC producers' factors of production, except in those instances

where an input was sourced from a market economy and paid for in a

market economy currency, such as glass jars consumed by Longhai and

labels consumed by Mei Wei. We have obtained and relied upon publicly

available information (``PAI'') wherever possible.

The selection of the surrogate values applied in this determination

was based on the quality, specificity, and contemporaneity of the data.

As appropriate, we adjusted input prices to make them delivered prices.

For those values not contemporaneous with the POI and quoted in a

foreign currency, we adjusted for inflation using wholesale price

indices published in the International Monetary Fund's International

Financial Statistics. For a complete analysis of surrogate values, see

the Final Determination Valuation Memorandum from the Team to the File

(``Valuation Memorandum''), dated December 18, 1998. In addition, the

selection of many of these surrogate values is discussed below in the

``Interested Party Comments'' section.

B. Factors of Production

In accordance with section 773(c) of the Act, we calculated NV

based on factors of production reported by the companies in the PRC

which produced mushrooms for the exporters which sold mushrooms to the

United States during the POI. As in the preliminary determination, we

calculated NV based on the factors of production reported by the

respondents.

To calculate NV, the verified per-unit factor quantities, adjusted

where appropriate, were first multiplied by the surrogate values; the

resulting products were then summed. We then added amounts for

overhead, selling, general, and administrative expenses (including

interest) (``SG&A''), and profit, and packing expenses incidental to

placing the merchandise in packed condition and ready for shipment to

the United States. We calculated NV based on the same methodology used

in the preliminary determination with the following exceptions:

For all respondents: we did not value separately the reported

factors for salt, ascorbic acid, vitamin C, chlorine, and monosodium

glutamate because the surrogate value for factory overhead includes

these factors and we were not able to separate these factors from the

factory overhead percentage (see Comment 5). We have also reclassified

labels from a direct material expense to a packing expense (see Comment

14).

China Processed/Xiamen Jiahua

We used corrected factor data reported by Zishan in its

September 18, 1998, submission and resubmitted on November 20, 1998.

We applied revised packing factors for Longhai and Zishan,

as reported in the September 18, 1998, submission.

We applied revised supplier distances for certain Longhai

inputs, as reported in the September 18, 1998, submission.

For Dongya, Longhai, and Zishan, we corrected consumption

factor data for various inputs, as identified in each company's

verification report. However, we did not use all of the corrected data

in our calculations because some of the consumption factors are not

classified as part of factory overhead (see Comment 5).

Shenzhen Cofry

For Zhaoan, we made revisions to the reported electricity,

packing material, and packing labor consumption factors based on our

verification findings.

Because Zhaoan used its own trucks to transport cartons

and labels from the suppliers to the factory, according to our

verification findings, we did not add an input freight value for these

factors.

Tak Fat

We valued paper labels consumed by Mei Wei based on the

market economy price paid for this market economy-sourced input by the

affiliated exporter Tak Fat.

[[Page 72259]]

We revised several of the packing material weights used in

our valuation calculations based on measurements taken at the Mei Wei

verification.

C. Surrogate Values

We valued fresh mushrooms using the average of (a) the unit value

for fresh mushroom purchases derived from the 1996-1997 annual report

from an Indian preserved mushroom producer, and (b) a published

September 1996 wholesale price quote for fresh mushrooms (see Comment 3

and the Valuation Memorandum). We were unable to identify an

appropriate surrogate value for brined (provisionally preserved)

mushrooms; thus, as in the preliminary determination, we used the fresh

mushroom value to value brined mushroom consumption but adjusted the

reported brined mushroom consumption factor to an amount equivalent to

a fresh mushroom consumption factor using an industry standard ratio

(see Comment 4). For tin cans and lids, we used values derived from the

average unit price paid by an Indian preserved mushrooms producer, Agro

Dutch Foods (India) (``Agro Dutch'') (see Comment 6). For glass jars,

and labels, we used Indian import values from Monthly Statistics of the

Foreign Trade of India (``Monthly Statistics'').

For Longhai, which resold scrap can material, we made a deduction

to the surrogate cost of production using an average unit value for tin

waste and scrap derived from 1997 U.S. import statistics. As in the

preliminary determination, use of this U.S. value was necessary because

we were unable to identify an appropriate surrogate value from a

surrogate country. As in the preliminary determination, we have not

made a deduction for scrap mushrooms not consumed in the canning/

jarring process because no party has proffered an appropriate surrogate

value and this factor does not appear to have a significant impact on

the calculation of NV.

We valued labor based on a regression-based wage rate, in

accordance with 19 CFR 351.408(c)(3).

As in the preliminary determination, we valued electricity using

the 1996 electricity rates reported in an article ``All Charged Up Over

the Cost of Power in India'' published in Business World in August

1996. We based the value of coal on the import values from the Monthly

Statistics. We revised the valuation of diesel fuel to rely on the

average of the prices reported in a December 1997 issue of Economic

Times of India (see Comment 9 and the Valuation Memorandum).

We based our calculation of factory overhead (which includes

several materials valued separately in the preliminary determination),

SG&A expenses, and profit on data contained in the financial reports of

Agro Dutch (see Comment 5).

As in the preliminary determination, we valued truck freight rates

using a 1994 rate from The Times of India. As we were unable to

identify a surrogate value for inland water transportation, we valued

boat and barge transportation using the surrogate value for truck

freight. With regard to rail freight, we based our calculation on

information from the Indian Railway Conference Association.

The CAFC's decision in Sigma Corp. v. United States, 117 F. 3d 1401

(CAFC 1997) requires that we revise our calculation of source-to-

factory surrogate freight for those material inputs that are based on

CIF import values in the surrogate country. Therefore, we have added to

CIF surrogate values from India a surrogate freight cost using the

shorter of the reported distances from either the closest PRC port to

the factory, or from the domestic supplier to the factory on an import-

specific basis.

For the following reported packing materials: glue, tape, labels,

corrugated paper, wooden pallets, and shrink wrap, we used import

values from the Monthly Statistics. While we used the same source for

the surrogate value for glue, we used a different import category than

that used for the preliminary determination (see Comment 8).

In addition, we have corrected the POI average exchange rate used

to convert all surrogate values in Indian rupees to U.S. dollars

because in the preliminary determination we inadvertently used the

International Monetary Fund's Special Drawing Rights rate rather than a

U.S. dollar rate. For the final determination, we have used the POI

average of the Federal Reserve exchange rates for India. The use of the

POI average rate for conversion of the surrogate values, rather than

the rate on the date of sale under section 773A(a) of the Act, is in

accordance with our policy and practice, as discussed in Final Results

of Antidumping Duty Administrative Review and New Shipper Review and

Determination not to Revoke Order in Part: Tapered Roller Bearings and

Parts Thereof, Finished and Unfinished, from the People's Republic of

China, 63 FR 63842, 63854, November 17, 1998.

Critical Circumstances

We have determined that critical circumstances exist for one of the

mandatory respondents, Tak Fat, and the non-responding exporters. With

regard to the other two mandatory respondents, Shenzhen Cofry and

Xiamen Jiahua, we have determined that critical circumstances do not

exist based on our analysis of updated shipment data. Furthermore, we

have reversed our preliminary critical circumstances finding with

regard to the companies who submitted responses but whose responses

were not analyzed due to the Department's own administrative

constraints. In accordance with Final Determination of Sales at Less

Than Fair Value: Brake Drums and Brake Rotors from the People's

Republic of China, 62 FR 9160, February 28, 1997 (``Brake Drums and

Brake Rotors''), and Notice of Preliminary Critical Circumstances

Determination: Honey from the People's Republic of China, 60 FR 29824,

June 6, 1995 (``Honey Critical Circumstances''), we do not find

critical circumstances for these non-mandatory respondents. For

additional discussion, see Comment 2, below.

Verification

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

information submitted by respondents 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 respondents.

Interested Party Comments

A. General Issues

Comment 1: Preserved Mushrooms as a Market-Oriented Industry

The petitioners contend that the Department should reject the

respondents' claim that the preserved mushrooms industry should be

treated as a MOI and thus the normal value should be based on

constructed value using the producers' costs for the inputs, because

the PRC industry has failed to participate sufficiently in the

investigation for the Department to determine whether a MOI exists. The

petitioners assert that much of the PRC industry has not responded to

the Department's questionnaires, given that only 13 exporters responded

out of the total of 62 companies to whom the Department issued a

questionnaire. As Department practice requires a response from all

producers, the petitioners assert that this deficiency is a fatal flaw

in the respondents' claim. According to the petitioners, to base the

MOI determination solely on the basis of the information provided by

the PRC entities that chose to respond, as the petitioners suggest that

the respondents

[[Page 72260]]

are contending, would change the MOI analysis in such a way as to

obviate the usefulness and validity of the test, which rightly requires

analysis of the entire industry in question.

In addition, the petitioners contend that the respondents fail to

meet any of the MOI criteria. As stated in the Amendment to Final

Determination of Sales at Less than Fair Value and Amendment to

Antidumping Duty Order: Chrome-Plated Lug Nuts from the People's

Republic of China, 57 FR 15054, April 24, 1992 (``Lug Nuts''), an

affirmative MOI finding requires (1) no state controls over pricing or

production; (2) an industry characterized by private or collective

ownership; and (3) market-determined prices for virtually all inputs.

The petitioners' arguments against the respondents' MOI claim address

all three criteria as follows:

Pricing

The PRC government is involved in the industry by

maintaining and enforcing, through the China Chamber, a minimum price

floor that requires companies to follow the controlled prices.

The PRC government is also involved through the imposition

and enforcement of an export quota, which affects production quantities

since the industry is primarily export-oriented.

Ownership

The Department must determine that the industry is not

characterized by private or collective ownership because many producers

did not respond to the Department's questionnaire and thus are presumed

to be state-controlled.

The limited ownership data provided by respondents relies

on information collected specifically for this proceeding and support

documentation selected by the respondents. This information constitutes

an inadequate and biased sampling from which to determine that the

entire preserved mushroom industry is characterized by private or

collective ownership.

Market Prices for Inputs

The respondents' support for the claim that market-

determined prices are paid is inadequate because it lacks objective

corroboration or is too narrow in scope to be considered as generally

acceptable throughout the PRC.

Prices for salt, electricity, vitamin C, citric acid, and

paper are not market-determined because they are either subject to

price controls or are controlled by state-owned enterprises.

The respondents have failed to establish that prices for

chemicals, coal, labor, real estate, and capital markets, which were

found not to be market oriented in previous cases, are market oriented.

The respondents provided no information to indicate that

suppliers to the preserved mushroom industry paid market-determined

prices for their inputs (e.g., fertilizer and pesticides for mushroom

growing), in accordance with the Department's request as part of the

fourth administrative review of Chrome-Plated Lug Nuts from the PRC.

The respondents hold that the information they have supplied for

the record of this investigation to support their MOI claim for the

preserved mushrooms industry provides sufficient coverage for virtually

the entire industry. The respondents assert that, because the exporters

who responded to the Department's questionnaire account for 89 percent

of POI exports to the United States and the mandatory respondents cover

57 percent, this information should satisfy the ``virtually entire

industry'' test. Moreover, the respondents note that the Department

only issued the MOI questionnaire to the mandatory respondents, the

producers who supplied the merchandise to them, the China Chamber, and

MOFTEC, and these entities responded; thus, they maintain that they

cannot be faulted for not supplying additional information regarding

industry coverage.

With regard to the MOI test, the respondents claim that they meet

all three criteria of this test and point to their submissions and

verification findings to support their position. The respondents make

the following arguments to demonstrate that the industry is a MOI:

Pricing

The PRC government is not involved in setting the prices,

production quantities, or allocation of preserved mushrooms.

``Floor prices'' of preserved mushrooms, to the extent

they exist, were not established by the PRC government but by the

exporters to prevent market disruption in foreign markets; and

notwithstanding this test, examination of the actual sales prices shows

that the exporters did not follow the floor prices consistently, and

there is no evidence that MOFTEC enforced them.

Quota allocations are marketable and can be exchanged

among the PRC exporters, thus lessening any trade distortions and

further demonstrating the market orientation of the industry.

Ownership

There is no state ownership in the preserved mushroom

production or exporting industries, as none of the 52 canneries is

currently run by the state and the exporters are all either privately

owned or collectively owned.

The Department verified the respondents to confirm the

absence of state control over their operations, and reviewed the

business licenses of non-mandatory respondents and producers, thus

establishing that there is no ``substantial state ownership'' in the

PRC preserved mushrooms industry.

The Department cannot presume that the industry is state-

owned due to the failure of some producers to participate in the

investigation because totaling all of the ownership information

submitted and reviewed at verification provides sufficient coverage of

the entire preserved mushroom industry.

Market Prices for Inputs

The respondents have placed substantial evidence on the

record, verified by the Department, that they pay market-determined

prices.

The disparity in input prices reported by the respondents'

suppliers demonstrates the absence of government control in pricing,

except for salt and electricity.

Even though local governments can control salt and

electricity prices, these input prices also vary to the same extent as

the other inputs and, at any rate, these inputs constitute only an

insignificant amount of the total inputs, by value.

The respondent exporters and producers reported and the

Department verified the freedom with which the producers enter and use

capital markets, and buy and sell machinery and land rights.

The petitioners' argument that the input pricing criterion

of the MOI test requires evidence that the inputs used to create the

inputs to the subject merchandise are market oriented is an expansion

of the existing MOI test. If this condition is included as part of the

test, no industry in a NME country would be able to establish MOI

status because of all the input suppliers the Department would be

forced to investigate.

DOC Position:

We disagree with the respondents and have not found the preserved

mushrooms industry in the PRC to be a MOI.

As a threshold matter, we agree with the petitioners that the

respondents

[[Page 72261]]

have not provided information for the record that covers virtually all

of the producers of the industry. As the petitioners note, only 13

exporters responded to the Department's questionnaire and provided at

least some information about their suppliers. The respondents provided

information that there are at least 52 producers of the subject

merchandise in the PRC, but there is no information on the record which

defines how large the universe of preserved mushrooms producers in the

PRC is with any specificity. While the respondents claim that the

exporters who responded to the questionnaire account for 89 percent of

PRC exports to the United States, there is no information on the record

to identify what percentage of preserved mushrooms producers, including

those who do not export to the United States, is covered by the

respondents' data. In addition, the import data on the record indicate

that there are PRC exporters which did not respond to the

questionnaire, as noted in the preliminary determination at 41798. Even

in those cases where the number of investigated firms is limited by the

Department, a MOI allegation must cover all (or virtually all) of the

producers in the industry in question (see Final Determination of Sales

at Less Than Fair Value: Freshwater Crawfish Tail Meat from the PRC, 62

FR 41347, 41353, August 1, 1997). Thus, the record evidence provides

only a partial picture of the preserved mushrooms industry.

Putting aside the coverage problem, the record does not support a

finding that the preserved mushrooms industry has met all three prongs

of the MOI test. As noted above, three conditions must be met for the

Department to determine that a MOI exists: (1) no state controls over

pricing or production; (2) an industry characterized by private or

collective ownership; and (3) market-determined prices for virtually

all inputs. The limited picture available from the record is a positive

one from the standpoint of the first prong of the MOI test. The PRC

preserved mushroom industry appears to consist of a large number of

firms of varying size that do not appear constrained by government

pricing or output mandates. Ownership of firms in the industry appears

diverse, consisting of state-owned enterprises (``SOEs''), joint-

ventures, collectives, ``privately run'' enterprises, and stock

companies (of unknown type). The six producers we verified appear

unconstrained by government pricing, production mandates, or controls

that directly interfere with their business operations or efforts to

make a profit.

Notwithstanding the issue of PRC industry coverage, even if we were

to assume that such operational independence exists for the industry as

a whole, so that the first prong of the MOI test were met, the extent

of private and collective ownership in the industry, under the second

prong of the MOI test, is unclear. First, while the industry is,

indeed, characterized by diverse ownership interests, the number of

private enterprises and collectives in the industry, and the share of

total industry production capacity they account for, is quite small. By

contrast, the largest mushroom cannery in the PRC is a SOE, i.e., a

company owned ``by all the people,'' accounting for almost 7 percent of

total industry production capacity accounted for by the producers

identified by the respondents, and two of the three largest mushroom

canneries are SOEs, accounting for over 12 percent of this production

capacity. The eight SOEs together account for approximately 20 percent

of total industry production capacity accounted for by the identified

producers (see Exhibit 6-A of the China Chamber's August 21, 1998,

submission).

Second, the vast majority of firms in the industry are classified

as ``shareholding'' enterprises. Shareholding enterprises in the PRC

are the result of corporatization and other past and current efforts by

the government to ``invigorate'' SOEs and increase their productive

efficiency, but in the absence of a system of well-defined, enforceable

private property rights (and the social and legal institutions

necessary to support such a system). In the absence of such rights and

the necessary supporting legal and social institutions, it is not at

all clear to what extent effective ownership of these ``new'' (or what

respondents refer to as ``former'') SOEs has changed and how it has

changed. See Forging Reform in China: The Fate of State-Owned Industry,

Edward S. Steinfeld, 1998 (relevant pages included in the record as

part of a December 18, 1998, memorandum to the file). In any case,

these shareholding enterprises in effect remain SOEs; only their labels

have changed.

The status of these shareholding enterprises under the second prong

of the MOI test is therefore unclear. Where shareholders are

predominantly private individuals, private enterprises, collectives, or

foreign-invested enterprises, the shareholding enterprise arguably

should be classified as equivalent to a private enterprise or

collective for purposes of the second prong of the MOI test. However,

where the shareholders are predominantly SOEs (either ``new'' or

``old''), the shareholding enterprise arguably should remain classified

as an SOE for purposes of the second prong of the MOI test.

In this case, the evidence on the record leaves unclear the

ownership status of the large number of shareholding enterprises in the

industry and the Department therefore cannot determine that the second

prong of the MOI test has been met.

With respect to the third prong of the MOI test, the Department

remains fundamentally concerned about the price of certain key inputs,

land and capital, used to produce the subject merchandise. Fresh

mushrooms are the primary raw material input used to make preserved

mushrooms, making the price of fresh mushrooms an important determinant

of the cost and, therefore, the price of the subject merchandise. Since

the price of land is an important determinant of the cost and,

therefore, price of agricultural products, like mushrooms, whether the

price of land in the PRC is market-determined is important from the

standpoint of the third prong of the MOI test.

As stated in respondents' August 21, 1998, MOI questionnaire

responses, land cannot be privately owned in the PRC. That is, there is

no system of well-defined, enforceable, private property rights to

protect the interest of individuals who would sell (lease) and buy

(rent) it with best use and profit in mind. The respondents cite to the

existence of land-use rights in the PRC, how they are negotiable, how

terms and conditions of their transfer are negotiated between buyer and

seller, and how transfer of these rights are not subject to government

limitation so long as they are registered with the government and the

relevant land tax is paid. It may be argued that a system of well-

defined, enforceable land-use rights that are complete and fully

transferable is sufficient to generate market-based outcomes in the

terms of land use and land values. However, in the PRC, at least,

despite the respondents' suggestions, no such system appears to exist.

We note that local trade in land-use rights may be helping to put

the PRC's scarce land resources to better use, and the preserved

mushroom producers may, in fact, benefit from such trade. We also note

the development of secondary land-use rights markets in the PRC, but

this situation should not obscure the fact that non-market factors

still play a significant role in determining how and by whom land in

the PRC is used. That is, land-use rights in the PRC continue

[[Page 72262]]

to be formulated and allocated in large part on an administrative basis

by village/township/local leaders who have both personal and social

objectives in mind, e.g., personal income, grain quotas and tax

collections. The administrative bases upon which land use-rights are

determined are inconsistent, are not well defined and differ by time

and place, from village to village and township to township. See Scott

Rozelle and Guo Li, ``Village Leaders and Land-Rights Formation in

China,'' American Economic Review, May 1998 (included in the record as

part of a December 18, 1998, memorandum to the file).

Based on the above, we conclude that, even though the allocation of

land may, in some cases and in some sense, be consistent with a market-

based outcome, the price or rent paid for the land (or its use) is not.

For example, local leaders of a township might decide that it is better

for their own personal gain (or better for the township) to use a large

plot of land to build a factory than it is to continue farming the

land. It is possible that the use of the large plot of land in this

manner is consistent with the outcome that would arise in a market

economy context in which a businessperson approached a private

landowner with an offer to buy or lease the same large plot of land.

The difference, however, is that in the PRC, there is no true landowner

(protected by well-defined enforceable private property rights) who, in

looking out for his or her best interest as a landowner, seeks to

receive the best possible price. Instead, there is only the local

leader who controls use rights over the land and who therefore can

unilaterally modify and transfer those rights from the farmer to him-

or herself or to the township at what essentially is an arbitrarily

determined price. Thus, we determine that the price of land, an

important factor in calculating the cost of producing the subject

merchandise, is not sufficiently market-based under the third prong of

the MOI test.

With respect to capital costs, we note that preserved mushroom

producers typically invest in different types of equipment that cut/

slice, cook, sterilize, and can mushrooms, as identified in the

production process descriptions included in the questionnaire responses

of the producers. Two respondents also reported meeting a substantial

share of their working capital needs through bank loans. Capital costs

are, therefore, not insignificant in the production of preserved

mushrooms. The respondents reported similar working capital loan rates,

which one respondent explained are set, with upper and lower limits, by

the central government. These rates apply directly to the loans that

banks extend to the producers and other enterprises in the PRC, and

while the central government sets these rates with inflation in mind,

there is no basis to believe that such administratively-set rates are

market-based. In fact, the World Bank has identified the PRC's interest

rate setting practices as one of several key areas of ongoing, but

still incomplete, reform in the banking and finance sectors. See

``Monetary and Exchange Rate System Reform in China: An Experiment in

Gradualism,'' IMF, Occasional Paper 141, September 1996 (included in

the record as part of a December 18, 1998, memorandum to the file).

Thus, we determine that the cost of capital, an important factor in

calculating the cost of producing the subject merchandise, is not

sufficiently market-based under the third prong of the MOI test.

Because we have determined that the preserved mushrooms industry is

not a MOI for the reasons discussed above, we are not using the costs

reported by the respondents in calculating NV. Therefore, the issue

raised by the petitioners--that the cost information is inadequate--is

moot.

Comment 2: Critical Circumstances

The respondents argue that, because the last antidumping case on

the subject merchandise resulted in a negative determination (1983

canned mushrooms case), there is no history of dumping in the United

States and therefore there is no reasonable basis to believe or suspect

that critical circumstances exist under section 733(e)(1) of the Act.

Further, the respondents contend that the Department should examine the

imports of the subject merchandise with a seasonal-trends analysis.

Finally, respondents and importers Liberty Gold and Hop Chong argue

that the Department should not extend its findings to companies which

responded but are not being examined. For those companies, these

parties contend that the Department should either examine the available

company-specific shipment data on the record or follow the practice set

forth in Brake Drums and Brake Rotors and not find critical

circumstances.

Hop Chong further argues that it has been denied due process in

this proceeding because it has not had the opportunity to provide

shipment data for review by the Department, nor to comment on the

import data that may be used eventually by the Department in its final

analysis.

The petitioners contend that critical circumstances exist based on

an established history of dumping--a Brazilian antidumping duty order--

and a massive surge in imports. Because critical circumstances apply to

all of the examined exporters and the import statistics also show a

massive surge in subject merchandise imports, the petitioners assert

that critical circumstances should continue to apply to all exporters,

including those who provided data to the Department that were not

examined. The petitioners claim that the situation in Brake Drums and

Brake Rotors and Honey Critical Circumstances do not apply in this case

because in those cases, the Department did not find critical

circumstances for most of the examined exporters, whereas here, the

Department has found critical circumstances for all of the examined

exporters and has also observed a massive surge in the import

statistics.

DOC Position:

We continue to find critical circumstances for mandatory respondent

Tak Fat as well as all non-responding PRC exporters covered by the PRC-

wide rate. However, in the final determination, we did not find

critical circumstances with respect to mandatory respondents Shenzhen

Cofry and China Processed/Xiamen Jiahua based on updated shipment data,

as described below. In addition, we agree with the respondents, Hop

Chong and Liberty Gold with respect to excluding the non-mandatory

respondents from any affirmative critical circumstances finding, in

accordance with our past practice, as described below.

Section 733(e)(1) of the Act provides that if there is a reasonable

basis to believe or suspect that critical circumstances exist, the

Department will determine whether: (A)(i) there is a history of dumping

and material injury by reason of dumped imports in the United States or

elsewhere of the subject merchandise, or (ii) the person by whom, or

for whose account, the merchandise was imported knew or should have

known that the exporter was selling the subject merchandise at less

than its fair value and that there was likely to be material injury by

reason of such sales, and (B) there have been massive imports of the

subject merchandise over a relatively short period.

As discussed in the preliminary determination, the first critical

circumstances criterion is satisfied for this investigation based on

the fact that Brazil has levied antidumping duties against preserved

mushrooms from the PRC. Brazil's antidumping duty order will be in

force until January 2003. Therefore, we determine that there is a

[[Page 72263]]

history of dumping of mushrooms elsewhere by PRC producers/exporters

and thus the first statutory criterion is met (see section

733(e)(1)(A)(i) of the Act), contrary to the respondents' assertions.

Because we have found that the first statutory criterion is met, we

must consider the second statutory criterion: whether imports of the

merchandise have been massive over a relatively short period. According

to 19 CFR 351.206(h), we consider the following to determine whether

imports have been massive over a relatively short period of time: (1)

volume and value of the imports; (2) seasonal trends (if applicable);

and (3) the share of domestic consumption accounted for by the imports.

When examining volume and value data, the Department typically

compares the export volume for equal periods immediately preceding and

following the filing of the petition. Under 19 CFR 351.206(h), unless

the imports in the comparison period have increased by at least 15

percent over the imports during the base period, we normally will not

consider the imports to have been ``massive.'' To determine whether or

not imports of subject merchandise have been massive over a relatively

short period for the final determination, we compared each mandatory

respondent's export volume for the seven months subsequent to the

filing of the petition (January-July 1998) to that during the seven

months prior to the filing of the petition (June-December 1997). These

periods were selected based on the Department's practice of using the

longest period for which information is available from the filing of

the petition through the effective date of the preliminary

determination.

Based on our analysis, we find that the increase in imports was

greater than 15 percent with respect to Tak Fat. However, with respect

to Shenzhen Cofry and China Processed/Xiamen Jiahua, we find that the

increase in imports was less than 15 percent. Although the respondents

have claimed that these imports should be examined in the context of a

seasonal trend analysis, we are unable to discern a seasonal pattern

for Tak Fat, based on the information on the record.

As both of the statutory criteria for finding critical

circumstances have been met for respondent Tak Fat, we therefore

determined that critical circumstances exist for this exporter. Because

we determined that imports were not massive for Shenzhen Cofry and

China Processed/Xiamen Jiahua, both of the statutory criteria for

finding critical circumstances have not been met for these exporters

and, accordingly, we did not find critical circumstances. For those

companies subject to the PRC-wide rate (i.e., companies which did not

respond to the Department's questionnaire), we determined, based on the

facts available, and making the adverse inference permitted under

section 776(b) of the Act because these entities did not respond to our

questionnaires, that there were massive imports of preserved mushrooms

with respect to these companies. Therefore, we determined that critical

circumstances exist with regard to these companies, consistent with

Brake Drums and Brake Rotors. With regard to the respondents who were

not analyzed in this investigation, we have reconsidered our

preliminary determination finding of critical circumstances. For the

final determination, we are following the practice set forth in Brake

Drums and Brake Rotors at 9165 and Honey Critical Circumstances.

Therefore, because the Department did not analyze company-specific data

for the non-mandatory respondents due to the Department's own

administrative constraints, we do not believe it is appropriate to find

critical circumstances with regard to these companies.

B. Surrogate Value Issues

Comment 3: Valuation of Fresh Mushrooms

The respondents claim that the fresh mushroom surrogate value used

in the preliminary determination--average unit value derived from three

Indian producers' annual reports--is inappropriate because the growing

method used by the Indian producers is completely different from that

used by the PRC growers. Thus, the respondents argue that the

Indonesian value they placed on the record is more appropriate because

it reflects a growing method closer to that of the PRC producers and no

Indian fresh mushroom price is of the same quality in that regard. If

the Department nevertheless relies on Indian data for valuing fresh

mushrooms, the respondents propose a September 1996 wholesale price for

mushrooms quoted in the Indian publication Business Line. The

respondents contend that this price is a more appropriate surrogate

value because the value used in the preliminary determination, derived

from the financial statements of three Indian producers, was based on

transfer prices of vertically-integrated Indian producers and there is

no information on the record indicating that these values reflect arms-

length market prices.

The petitioners contend that India remains the appropriate

surrogate country and thus, consistent with the Department's

regulations and practice, Indian values should be used except where

Indian values are unreliable or inappropriate. The petitioners argue

that the respondents have failed to demonstrate that the Indian values

are inappropriate and, therefore, the Department should continue to use

the value derived from the Indian producers because it represents the

experience of Indian producers over an annual period that is at least

partly contemporaneous with the POI. The petitioners reject the

respondents' characterization of the Indonesian growers' techniques as

``low tech'' and assert that attributing differences in Indian and

Indonesian surrogate values solely to growing techniques is

oversimplified and faulty. The petitioners state that the Indian value

proposed by the respondents is inferior because it reflects experience

in North India, away from the primary Indian mushroom growing area in

South India, and because it is a single price observed prior to the

POI.

DOC Position:

We disagree with the respondents with respect to the use of

Indonesian fresh mushroom prices over Indian prices for the fresh

mushroom surrogate value. Because we have already determined that India

is the appropriate surrogate country, we would use data from Indonesia

only if the Indonesian surrogate value is superior in terms of

specificity, quality, and contemporaneity. The Indonesian mushroom

price proposed by the respondents is not superior in any respect. The

respondents claim that the Indonesian value is more specific to the PRC

factor than the Indian prices because the Indonesian mushrooms

allegedly are produced in a manner more similar to that of the PRC

mushrooms. However, the factor to be valued here is fresh mushrooms,

and based on the information on the record, there is no physical

difference among the mushrooms grown in India, Indonesia, and the PRC,

regardless of the means used to produce them. In other words, there is

no distinguishing physical characteristic that makes an Indonesian

mushroom more similar to a PRC mushroom than an Indian mushroom.

Even if the Department were to consider the production method of an

input as a factor in determining the appropriate surrogate value, the

available evidence does not support the respondents' argument that

Indonesian production methods are ``low tech''

[[Page 72264]]

compared to Indian production methods and thus more similar to PRC

production methods. The respondents rely on the statements in the

Indonesian respondents' April 3, 1998, questionnaire responses that

their mushrooms are grown in ``sheds'' and on other information

indicating that the ambient climate is a factor for the location of

Indonesian farms to conclude that such operations are equivalent to the

PRC grower's ``huts'' which lack climate control (see Respondents' May

28, 1998, submission at pages 5-7 and Exhibit 2). However, the

information on the public record of the companion investigation of

certain preserved mushrooms from Indonesia indicates that the

Indonesian growers are not like the PRC growers and, in fact, are more

like the ``high tech'' Indian growers, as noted by the petitioners at

pages 11-12 and Exhibit 1 of their June 3, 1998, submission. For

example, while the PRC growers used a fixed bed system (May 28, 1998,

submission at page 5), the Indonesian respondents used a tray system

(see P.T. Dieng Djaya/Surya Jaya Abadi Perkasa's (``Dieng/Surya Jaya'')

and P.T. Zeta Agro Corporation's April 23, 1998, responses at pages 51

and 22, respectively 1). Contrary to the respondents'

assertions, the Indonesian growers employ a climate control system

(see, e.g., Dieng/Surya Jaya's June 22, 1998, response at pages 7-9,

respectively). Accordingly, there is no basis to reject the Indian

surrogate values in favor of the Indonesian surrogate values.

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

\1\ Relevant pages from the public versions of the Indonesian

responses have been included in the Valuation Memorandum.

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

With regard to the Indian mushroom prices, we have analyzed further

the average unit values from the three Indian producers to derive the

surrogate value in the preliminary determination. We found that two of

the unit values are based on the producer's sales of fresh mushrooms to

unspecified domestic customers, while the unit value for the third

company, Premier Mushrooms Farms (``Premier''), is based on its

purchases of fresh mushrooms for its canning operations. As the factor

to be valued is fresh mushrooms consumed as an input for preserved

mushrooms, we find the unit value derived from Premier's fresh

mushrooms purchases during 1996-1997 to be more specific for the factor

being valued than the value derived from the other two producers' fresh

mushroom sales.

Moreover, in comparing the Premier mushrooms purchase price to the

Business Line quote, we found no basis to conclude that either price is

superior to the other in terms of quality, specificity, and

contemporaneity. Both prices are equally specific--a wholesale trade

level price to canners of fresh mushrooms grown in India. Both prices

are essentially from the same time period--the price quote is from

September 1996, while the Premier annual report covers the period of

April 1996 through March 1997. Neither source is from the POI, and the

price quote corresponds to the mid-point of the annual report's time

period. Both prices are based on PAI and there is no basis to determine

that one is more reliable than the other. Thus, we find that these

surrogate values are equally valid. Accordingly, we have based the

surrogate value for fresh mushrooms on the simple average of these two

sources for the final determination.

With regard to petitioners' arguments on the price quote, we find

no basis to determine that a surrogate value is inferior simply on the

grounds that it is from a part of the surrogate country that is not the

purported principal production area of the subject merchandise. The

petitioners have provided no evidence that this price is unacceptable

for that reason.

Comment 4: Valuation of Brined (Provisionally Preserved) Mushrooms

The petitioners contend that the Department should value brined

mushrooms used as a material input for the subject merchandise by

adjusting the brined mushroom consumption factor to a fresh mushroom

equivalent, as applied in the preliminary determination. The

petitioners state that this methodology is reasonable because it

accounts for the higher yield and costs associated with brined mushroom

inputs, and there is no alternative surrogate value for brined

mushrooms on the record.

The respondents assert that the Department has already accounted

for the costs of using brined rather than fresh mushrooms as an input

through the higher consumption factors of labor and water used to

debrine mushrooms before canning. The respondents contend that the

increased consumption of these factors serves as an adjustment factor

for the brined mushroom input. Thus, the respondents argue that, if the

Department continues to adjust the brined mushroom factor to a fresh

mushroom factor, it must reduce the labor and water consumption factors

to avoid double-counting these values.

DOC Position:

In the absence of a better methodology, we agree with petitioners

and continue to adjust the brined mushroom input factor to a fresh

mushroom equivalent in the same manner as that in the preliminary

determination. We made the adjustment by applying an industry standard

ratio to the brined mushroom factor. Furthermore, we find no basis on

which to conclude that the alleged increased labor and water factors

for brined mushrooms served as an adjustment factor. There is no

information on the record to demonstrate that brined mushroom inputs

had different labor and water factors associated with them. Our review

of the factors shows no relatively higher consumption factor

corresponding to subject merchandise produced from brined mushrooms.

Accordingly, we have no basis to assume that these factors are double-

counted through the brined mushroom adjustment methodology employed.

Comment 5: Valuation of Overhead, SG&A and Profit

The respondents contend that the ratios used to calculate factory

overhead, SG&A, and profit in the preliminary determination, as derived

from the annual reports of three Indian producers of preserved

mushrooms, are inappropriate for calculating the surrogate values for

these factors. According to the respondents, these Indian producers are

large, vertically integrated, technologically advanced farms/canneries,

while the PRC producers who supply the respondent exporters are canners

who purchase mushrooms from low technology farms. Thus, the respondents

continue, these Indian ratios are based on production costs reflecting

growing costs. The respondents contend that a more appropriate source

for these ratios is the data provided by respondents from the

Indonesian vegetable and fruit canning industry, since this information

reflects the experience of a surrogate country food canning industry.

In the alternative, the respondents state that if the data from Indian

annual reports are to be used, the Department should rely only on the

Agro Dutch Annual Report because the other two companies' reports

reflect a disproportionate amount of non-subject merchandise.

The petitioners respond that the respondents have provided no

evidence that the Indonesian figures are based on data that are more

representative than the Indian data. The petitioners note that the

Indonesian data include data from the production of non-subject

merchandise and there is no evidence that these data relate solely to

canning operations. According to the petitioners, the Indonesian data

may also include fully integrated producers (i.e. producers who grow

the product as well as can it) since the Indonesian

[[Page 72265]]

producers of preserved mushrooms are also mushroom growers. In

addition, while the petitioners concede that one of the three Indian

companies' financial data may be distortive due to a disproportionate

amount of non-subject merchandise, they assert that the other two, Agro

Dutch and Saptarishi Agro, are predominantly producers of preserved

mushrooms. The petitioners argue that, as the respondents have failed

to identify any significant difference in the quality and

representativeness of the data contained in the financial statements of

these latter two companies, the Department should use this financial

data to value the surrogate value percentages.

DOC Position:

We agree with the petitioners with respect to the selection of

Indian financial statement data. As we discussed above, we have

determined that India is the appropriate surrogate country. Thus, we

rely on Indian data unless alternate data is superior in terms of

specificity, quality, and contemporaneity. In this instance, the

Indonesian data offered by the respondents are not superior in any

respect. While both sets of financial data are equivalent in terms of

time period, the Indian data are more specific to the industry under

investigation. While the Department would take into consideration

whether the Indian data included a high proportion of mushroom growing

production over canning operations, we note that there is no basis on

which to conclude that the Indonesian canned vegetable producer data do

not also include growing production data--a point conceded by the

respondents at the Department's hearing (see Transcript of November 4,

1998, hearing at page 77).

However, we have revised our preliminary determination methodology

to base the surrogate values for factory overhead, SG&A, and profit

solely on the data from the Agro Dutch 1996-1997 financial statement.

Although we used the data from all three Indian producers for the

preliminary determination, we have concluded based on further analysis

of the data that only the Agro Dutch data are appropriate for use in

the final determination. As noted by both the respondents and the

petitioners, the Transchem data are based on a higher proportion of

nonsubject merchandise than those of the other two producers. However,

we also note that Saptarishi Agro has accounted for its raw materials

in a manner inconsistent with this investigation. As discussed in more

detail in the Valuation Memorandum, Saptarishi Agro's materials total

is comprised of raw materials and packing materials. The packing

material amount is almost as large as the raw materials amount. The raw

materials schedule does not include cans or jars in the listing of the

major raw materials. Accordingly, we have made the reasonable

assumption that Saptarishi Agro included the costs of containers in the

packing materials amount, and we are unable to break out this amount

further. In turn, we cannot calculate a materials total consistent with

our methodology that would enable us to properly calculate factory

overhead, SG&A, and profit ratios from Saptarishi Agro's data.

Therefore, we have relied solely on the Agro Dutch data.

We also note that the factory overhead ratio calculated using Agro

Dutch's financial statement appears to include the costs for materials

such as salt, water, chlorine, and ascorbic acid (vitamin C). As

discussed in more detail in the Valuation Memorandum, according to the

public versions of Agro Dutch's questionnaire responses in the

companion certain preserved mushrooms from India investigation, raw

materials costs in the financial statement include mushroom growing

costs and cans, but not the other factors. The unspecified materials

appear to be included under ``consumables,'' since water is

specifically identified as being part of this category (see Agro

Dutch's April 21, 1998, public version response at page 59, also

included in the Valuation Memorandum). Consumables are included in the

factory overhead calculation and we have no further information from

Agro Dutch's public responses to break out this information further.

Accordingly, we have also revised our preliminary determination

methodology to value raw materials other than fresh mushrooms and

containers as part of factory overhead, and have not valued them

separately so as to avoid double-counting.

Because we are including the valuation of all factors other than

mushrooms and containers in factory overhead, the specific valuation

and factor consumption issues raised by the parties concerning

chlorine, salt, vitamin C, and citric acid are moot.

Comment 6: Valuation of Cans

The respondents contend that the Department should value tin cans

based on the domestic prices for Indian tin cans, as placed on the

record by respondents. The respondents argue that these values, derived

from Agro Dutch's Annual Report, are appropriate because (a) they match

the fact that the PRC producers obtain all of their tin cans from

domestic sources, (b) they are consistent with the Department's

preference for domestic surrogate values, as stated in Brake Drums and

Brake Rotors at 9163, and (c) they are more specific than the Import

Statistics value used in the preliminary determination, which was based

on a ``basket'' HTS category for tin containers of 50 liters or less.

The petitioners assert that the Department should continue to value

cans based on the Indian import statistics average unit value because

it more accurately reflects the experience of the Indian industry,

which imports the overwhelming majority of the cans used in the

production of the subject merchandise. Alternatively, if the Department

uses Agro Dutch's purchase data to value cans, petitioners contend that

the Department should calculate the value using both domestic and

imported cans, since the purchases from both sources reflect the

commercial environment of the surrogate country. The petitioners add

that this value should also be adjusted to reflect the different rates

of consumption based on can size, using data supplied by the

petitioners.

DOC Position:

We agree with the respondents with regard to the source of the

surrogate value and, therefore, have revised our preliminary

determination methodology to value tin cans based on the unit values

derived from the 1996-1997 Agro Dutch Annual Report, since this

information is more specific to the input being valued than the import

statistics. However, we agree with the petitioners that there is no

reason to base this value solely on the domestic purchase value. There

is no basis in Department practice or precedent to select only the

domestic surrogate value when the overwhelming majority of that input

consumed by a producer in the surrogate country is imported. In

selecting the appropriate surrogate value, the Department is attempting

to reflect the purchase experience of a producer in the surrogate

country, not necessarily to mimic the purchase pattern of the producer

in the NME.

In addition, we have adjusted the Agro Dutch unit price data for

can size according to the weight-based methodology outlined by the

respondents (see Valuation Memorandum). We note that the petitioners'

adjustment methodology is based on a single price quote offered to an

unidentified party. Because we have no further information to test the

representativeness or reliability of this quote, we determined that

this information is insufficient for our price adjustment purposes.

Therefore, we

[[Page 72266]]

have relied on the weight-based alternative which, as noted by the

respondents, was used by the petitioners in their calculations for the

antidumping duty petition.

Comment 7: Valuation of Water Inputs

The respondents claim that the Department erred in valuing

separately the water placed in the container with the mushrooms. Citing

such cases as Final Determination of Sales at Less Than Fair Value:

Persulfates from the PRC, 62 FR 27222, May 19, 1997, and Final

Determination of Sales at Less Than Fair Value: Saccharin from the PRC,

59 FR 58818, November 15, 1994, the respondents state that it is the

Department's practice to presume that water consumption is included in

the factory overhead ratio calculation and that, in this investigation,

there is no evidence on the record to reject this presumption. Without

such evidence, the respondents allege that the separate water valuation

results in double-counting of the water input.

The petitioners contend that water is a direct input for particular

segments of the preserved mushrooms production process and, thus, water

consumed in that process should be treated as a direct material valued

separately from factory overhead. The petitioners argue that the

respondents have misstated the Department's practice in that the

Department's presumption that water consumption is part of factory

overhead is dependent on whether the input is classified as an indirect

material in the production process. In this instance, petitioners

continue, the water in the can is a required input in the production

process and thus a direct material. As such, the petitioners contend

that the presumption should be that water is not part of factory

overhead, consistent with Final Results of Administrative Review:

Helical Spring Lock Washers from the PRC, 62 FR 61794, November 19,

1997.

DOC Position:

We agree with petitioners in principle that water packed in the can

or jar with the preserved mushrooms is a direct material. However, as

discussed above under Comment 7, we have determined that all water

consumed by the Indian producer Agro Dutch is recorded in its financial

statement as part of ``consumables,'' which are a component of factory

overhead. It is not possible to break out this water consumption from

the rest of the ``consumables'' included in the financial statement.

Accordingly, since all water consumption, for whatever purpose, is

included in factory overhead, we have not valued water separately so as

to avoid double counting.

Comment 8: Valuation of Glue

The respondents argue that the Department's selection of a

surrogate value for glue consumed in the packing process, which was

derived from Indian import statistics, was incorrect because the value

used was based on retail-level size containers. According to the

respondents, the verifications demonstrated that the PRC producers

obtain glue in larger size containers, and thus the respondents contend

that glue should be valued based on a value exclusive of glue sales in

containers of one kilogram or less. For this surrogate value, the

respondents advocate use of the Indonesian import statistics value that

they placed on the record of this investigation.

DOC Position:

Based on further analysis of the surrogate value data on the

record, we have revised our selection of the Indian surrogate value to

rely on a different set of Indian import statistics than that used for

the preliminary determination. The imports statistics we have used in

the final determination correspond to a type of glue more similar to

that employed by the respondents, which is covered by the HTS category

for glue that the respondents proposed in their May 28, 1998,

submission (see Valuation Memorandum). We have made this change to the

surrogate value selected because the revised value appears to be more

specific to the type of glue consumed by the producers, and not because

of the size of the containers associated with the glue.

Comment 9: Valuation of Diesel Fuel

The petitioners contend that diesel fuel should be valued using

prices reported in the Indian publication Economic Times of India

(``Times''). The petitioners claim that the Times value is superior to

the unit value derived from Indian import statistics used in the

preliminary determination because it is based on domestic sources, more

product-specific, and more contemporaneous than the import statistics

value.

DOC Position:

We agree with the petitioners with regard to the source of the

surrogate value at issue. This source is contemporaneous with the POI,

while the import statistics values are based on 1995-1996 values. For

the final determination, we have applied the average of the ``old''

prices listed in the Times value for diesel fuel. We used the ``old''

prices rather than the ``new'' prices published in the Times because,

according to the published report, the latter did not take effect until

the very end of the POI. Thus, it is a reasonable assumption that the

``old'' prices were in effect during the POI.

C. Production Factor Issues

Comment 10: Allocation Methodology for Input Factors

The petitioners argue that the consumption factors for three

producers, Longhai, Putian, and Zishan, should be recalculated to

allocate over the different can sizes based on drained-weight of the

mushrooms, rather than net or packed weight. The petitioners contend

that to allocate factors on a basis other than drained weight is

distortive because per-unit EP is based on drained weight.

The respondents reply that the petitioners are mistaken and, in

fact, the producers reported consumption factors on a drained-weight

basis. The respondents state that the producers in question all record

production on a net-weight basis, but they all converted production

factors to drained weight using net weight as the allocation basis.

DOC Position:

We agree with the respondents. Our verification reports for

Longhai, Putian, and Zishan confirm that the consumption factors have

been reported on a drained-weight basis (see, e.g., Longhai

verification report of October 13, 1998, at pages 4-5) and therefore no

recalculation is necessary.

Comment 11: Treatment of Cans and Jars as Direct Materials or

Packing Materials

The respondents claim that the Department erred in classifying

containers (i.e. tin cans and glass jars) as direct materials and

instead should consider these items to be packing materials. The

respondents contend that section 773(c)(1)(B) of the Act specifies that

the cost of containers shall be added to NV after accounting for the

factors of production utilized in producing the merchandise. According

to the respondents, the containers are simply a means of transporting

preserved mushrooms and are not an integral part of the product. As

such, the respondents continue, valuation of container materials should

not be included in the valuation of the cost of manufacturing. The

respondents distinguish the facts in the instant case from those in

Washington Red Raspberries Commission v. United States, 859 F.2d 898

(Fed. Cir. 1988) (``Red Raspberries''), in which the Department's

treatment of containers as an integral part of the subject merchandise

was affirmed by the Court

[[Page 72267]]

of Appeals for the Federal Circuit. In this respect, the respondents

argue that the containers case do not preserve the mushrooms but serve

merely as a vessel in which to ship them.

The petitioners state that the containers are properly treated as

part of the direct materials factors as they are an integral part of

the production process and subject merchandise. The petitioners also

cite the decision in Red Raspberries to support the position that,

where the materials are not incidental to the cost of the merchandise,

but rather the product cannot exist in its natural form but for the

container, that container cost may be included in direct materials.

DOC Position:

Consistent with our approach in the three other preserved mushrooms

investigations, including Final Determination of Sales at Less Than

Fair Value: Certain Preserved Mushrooms from Chile, 63 FR 56613,

October 22, 1998, we have treated the containers (i.e., cans or jars)

as part of the subject merchandise. We note that preserved mushrooms

include the container as an integral part of the product, as noted

above in the ``Scope of Investigation'' section of this notice, and the

product does not exist as the subject merchandise without the

container. This treatment is also consistent with our rationale in Red

Raspberries and our methodology in similar cases involving preserved

products, such as the Final Determination of Sales at Less Than Fair

Value: Canned Pineapple Fruit from Thailand, 60 FR 29553, June 5, 1995.

Comment 12: Accounting for Water Loss

The petitioners contend that the Department should adjust the

reported water input consumed by the PRC producers (i.e. the water

packed in the cans or jars) to account for water lost during

production. According to the petitioners, most of the producers

reported a theoretical factor for this water input which failed to

account for water lost. As Putian accounted for this input loss through

a theoretical water waste ratio, the petitioners contend that the

Department should apply Putian's water waste ratio to the other

producers as facts available.

The respondents state that the petitioners have misunderstood the

producers' reporting. According to the respondents, the reporting

methodology accounts for all water consumed by the producers and thus

includes any water that was allegedly lost. They add that while

Putian's methodology was different than that employed by the other

producers, it provided the same results.

DOC Position:

We agree with the respondents. The verification reports indicate

that the producers have accounted adequately for water consumption.

However, as noted above in our responses to Comment 5 and Comment 7,

all water consumed is included in factory overhead and we have not

included a separate value for water in the final determination. Thus,

since all water factors consumed have been valued as part of factory

overhead, this issue is moot.

Comment 13: Facts Available for Can Supplier Input Factors

The petitioners contend that the Department should apply facts

available for the factors of production reported by Zhaoan's affiliated

can supplier, Zhangzhou Ruida, because the Department was unable to

verify these factors. Citing Zhangzhou Ruida's verification report, the

petitioners assert that the factors could not be verified because the

manufacturer had used a cost-based allocation methodology rather than a

quantity-based allocation methodology. As facts available for these

inputs, the petitioners claim that the Department should apply the

surrogate value selected for cans.

DOC Position:

We agree with the petitioners. As discussed in the verification

report, Zhangzhou Ruida was unable to support its response and

therefore we cannot rely on its information for the final

determination. Accordingly, we have applied the surrogate value for

cans, as identified in Comment 6 above, to Zhaoan's can consumption

factors.

Comment 14: Treatment of Labels as Packing Materials

As discussed above under Comment 11, the respondents assert that

the containers used for preserved mushrooms should be treated as

packing materials rather than direct materials. Similarly, the

respondents contend that the labels affixed to the containers should

also be considered packing materials.

DOC Position:

We agree with respondents with respect to labels. While cans are an

integral part of the subject merchandise (see Comment 11), cans may or

may not have labels, which serve more as a packaging component to

identify and market the finished product. Therefore, we have valued

labels as part of packing materials in the final determination.

D. Company-Specific Issues

Comment 15: Xiamen Jiahua's Sales Prices

Xiamen Jiahua contends that certain U.S. sales prices should be

revised to reflect the price charged by Xiamen Jiahua's affiliated

trading company to unaffiliated customers, as Xiamen Jiahua reported at

the commencement of verification, rather than the previously reported

prices, which reflect the sale from Xiamen Jiahua to the affiliated

trading company.

DOC Position:

We agree and have revised the sales data pursuant to Xiamen

Jiahua's September 14, 1998, submission, which we verified. This

revision is in accordance with the statutory requirement of section

772(a) of the Act to base EP on the price to the first unaffiliated

customer.

Comment 16: Dongya Firewood Consumption

The petitioners state that the Department should include a

valuation for firewood consumed by Dongya to start the boilers used in

production of the subject merchandise in the Dongya NV calculation. The

petitioners note that consumption of this input was not reported by

Dongya in the questionnaire response.

Dongya responds that the firewood is used as kindling to ignite

coal used to generate steam in the production process. As such, Dongya

contends that this input is properly regarded as part of factory

overhead rather than a separate factor of production.

DOC Position:

We agree with Dongya and treated firewood as part of factory

overhead, rather than valuing it separately.

Comment 17: Zishan Scrap Factors

The petitioners argue that, as Zishan was unable to support the

sale and receipt of payment for scrap materials at verification, the

Department should not adjust Zishan's NV to account for the sale of

these by-products.

Zishan states that it demonstrated to the Department at

verification that it sells its by-product. While it did not provide

support for one particular month requested by the Department, Zishan

claims that nevertheless, it established the fact for another month

examined at verification and thus is entitled to an adjustment in the

calculation of its NV.

DOC Position:

We agree with the petitioners and have rejected Zishan's by-product

adjustment to its NV because Zishan was unable to document sales of its

by-

[[Page 72268]]

products during the POI. The by-product sales shown at verification

occurred several months prior to the POI. December was the only month

of the POI where there was subject merchandise production and since

Zishan could not support by-product sales for that month or any other

month of the POI, we have no basis to conclude that it in fact sold its

by-products during the POI.

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

except for subject merchandise exported by Tak Fat or other companies

not specifically named below. For merchandise exported by Tak Fat or by

other companies not specifically named below, we are directing the

Customs Service to continue to suspend liquidation of all imports of

the subject merchandise that are entered, or withdrawn from warehouse,

for consumption on or after May 7, 1998, the date 90 days prior to the

date of publication of the preliminary determination in the Federal

Register, in accordance with our critical circumstances finding.

Furthermore, we will instruct the Customs Service to refund all bonds

and cash deposits posted on subject merchandise exported by all the

companies specifically named below, except Tak Fat, that was entered or

withdrawn from warehouses for consumption prior to August 5, 1998.

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. These suspension of

liquidation instructions will remain in effect until further notice.

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

Weighted-

average Critical

Exporter/manufacturer margin circumstances

percentage

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

China Processed Food I&E Co./Xiamen 154.71 No

Jiahua I&E Trading Company, Ltd..

Tak Fat Trading Co................... 178.59 Yes

Shenzhen Cofry Cereals, Oils, & 126.16 No

Foodstuffs Co., Ltd..

Gerber (Yunnan) Food Co.............. 158.79 No

Jiangsu Cereals, Oils & Foodstuffs 158.79 No

Group Import & Export Corporation.

Fujian Provincial Cereals, Oils & 158.79 No

Foodstuffs I&E Corp..

Putian Cannery Fujian Province....... 158.79 No

Xiamen Gulong I&E Co., Ltd........... 158.79 No

General Canned Foods Factory of 158.79 No

Zhangzhou.

Zhejiang Cereals, Oils & Foodstuffs 158.79 No

I&E Corp..

Shanghai Foodstuffs I&E Corp......... 158.79 No

Canned Goods Co. of Raoping.......... 158.79 No

PRC-wide Rate........................ 198.63 Yes

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

The PRC-wide rate applies to all entries of subject merchandise

except for entries from exporters/factories that are identified

individually above.

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. 98-34704 Filed 12-30-98; 8:45 am]

BILLING CODE 3510-DS-P