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

DEPARTMENT OF COMMERCE

International Trade Administration

[A-560-802]

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

Certain Preserved Mushrooms from Indonesia

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: December 31, 1998.

FOR FURTHER INFORMATION CONTACT: Mary J. Jenkins or David J.

Goldberger, Import Administration, International Trade Administration,

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

Washington, D.C. 20230; telephone: (202) 482-1756 or (202) 482-4136,

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

Indonesia are being sold in the United States at less than fair value

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

margins are shown in the ``Suspension of Liquidation'' section of this

notice.

Case History

Since the amended preliminary determination (Notice of Amended

Preliminary Determination of Sales at Less Than Fair Value: Certain

Preserved Mushrooms from Indonesia, 63 FR 46776, September 2, 1998, the

following events have occurred:

In September 1998, respondents submitted to the Department the 1997

annual reports for PT Indofood Sukses Makmur Tbk (``Indofood'') and PT

IndoEvergreen Agro Business Corp. (``IndoEvergreen''). PT Zeta Agro

Corporation (Zeta) provided the Department with supplemental

information regarding its start-up adjustment claim.

PT Dieng Djaya (Dieng) and PT Surya Jaya Abadi Perkasa (Surya Jaya)

(Dieng/Surya Jaya) and Zeta submitted to the Department on September

24, 1998, and

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October 5, 1998, respectively, corrections to their previously

submitted responses for errors that were found during their

preparations for verification. During September and October 1998, we

verified Dieng/Surya Jaya's and Zeta's questionnaire response.

Following verification, we requested Surya Jaya to submit a revised

sales tape to include previously unreported, transaction-specific bank

charges incurred on U.S. sales. We also requested that Zeta submit a

revised sales tape to include the above-mentioned charges, as well as

revisions to brokerage and inland freight charges that were previously

submitted on October 5, 1998. The requested revised data were submitted

to the Department on November 5, 1998. On November 2 and 3, 1998, we

issued our verification reports for Dieng/Surya Jaya and Zeta,

respectively (see Memoranda to the File Regarding Verification of Sales

and Cost Responses dated November 2, 1998 for Dieng and Surya Jaya, and

November 3, 1998 for Zeta (``Dieng, Surya Jaya and Zeta Verification

Reports,'' respectively).

The petitioners, respondents and Pillsbury Company, an importer of

subject merchandise (``Pillsbury''), submitted case briefs on November

9, 1998. On November 10, 1998, petitioners withdrew their request for

the public hearing which they submitted on August 7, 1998. Petitioners,

respondents and Pillsbury submitted rebuttal briefs on November 13,

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 written

description of the merchandise under investigation is dispositive.

Period of Investigation

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

December 31, 1997.

Fair Value Comparisons

To determine whether sales of mushrooms from Indonesia to the

United States were made at LTFV, we compared export price (``EP'') to

the normal value (``NV''), as described in the ``Export Price'' and

``Normal Value'' sections of this notice, below. In accordance with

section 777A(d)(1)(A)(i) of the Act, we calculated weighted-average EPs

for comparison to weighted-average NVs.

Furthermore, for Dieng/Surya Jaya, we calculated weighted-average

EPs based on the combined set of Dieng's and Surya Jaya's U.S. sales,

and then compared the consolidated set of weighted-average EPs with a

single set of weighted-average NVs to properly derive the final

weighted-average margin for the collapsed entity. (See Comment 5 in the

``Interested Party Comments'' section of this notice for further

discussion.)

In this proceeding, we verified that none of the respondents had a

viable home market or third country market. Therefore, consistent with

our preliminary determination, we used CV as the basis for NV when

making comparisons, in accordance with section 773(a)(4) of the Act.

Export Price

As in the preliminary determination, for both Dieng/Surya Jaya and

Zeta we used EP methodology, in accordance with section 772(a) of the

Act, because the merchandise was sold directly to the first

unaffiliated purchaser in the United States prior to importation and

CEP methodology was not otherwise indicated.

Dieng/Surya Jaya

We calculated EP using the same methodology as in the preliminary

determination, with the following exceptions: We made a deduction to

the starting price for discounts associated with certain sales reported

by Surya Jaya (see Surya Jaya Verification Report at 14). We did not

deduct foreign inland insurance charges incurred by Dieng because we

verified that these costs were associated with imports of raw materials

rather than sales of subject merchandise (see Dieng Verification Report

at 22). We also did not make an adjustment for Dieng's claimed duty

drawback, as Dieng could not provide evidence of linkage between import

duties paid and taxes rebated during the POI. (See Comment 9 in the

``Interested Party Comment'' section for further discussion.)

Based on our verification findings, we made the following revisions

to Dieng's U.S. sales database: (1) revised the product, style, grade,

customer codes, and payment dates for certain transactions, where

appropriate (see Dieng Verification Report at 19-20); (2) revised the

POI per-unit bank charge, incorrectly reported as brokerage and

handling expense in the response, to reflect a value-based allocation

(see Dieng Verification Report at 22-23); (3) revised the reported POI

per-unit freight charge (see Dieng Verification Report at 21-22); and

(4) recalculated credit expense based on the revised payment dates for

certain transactions and the short-term interest rate verified for

Surya Jaya (see Dieng Verification Report at 25 and Surya Jaya

Verification Report at 16).

Based on our verification findings, we made the following revisions

to Surya Jaya's U.S. sales database: (1) changed the product code,

style, customer code, grade, weight, control number, number of cans per

carton, sales date, payment date, brokerage charge, and quantity for

certain transactions, where appropriate (see Surya Jaya Verification

Report at 14-15, and Exhibit 15 of the Dieng/Surya Jaya September 24,

1998 submission); (2) accounted for discounts granted on certain

transactions, where appropriate (see Surya Jaya Verification Report at

14); and (3) recalculated credit expense based on the short-term

interest rate and payment dates verified for Surya Jaya (see Surya Jaya

Verification Report at 16).

Zeta

We calculated EP using the same methodology as in the preliminary

determination. Based on our verification findings, we made revisions to

Zeta's

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U.S. sales database, where appropriate, to correct errors in: (1) the

reported sales dates for certain transactions (see Zeta Verification

Report at 11-12); (2) the reported shipment date, type of container,

weight, product code, control number, number of cans per-carton, and

quantity for certain transactions (see Zeta Verification Report at 20,

and Zeta October 5, 1998 submission at 2; and (3) the per-unit expense

amounts reported for insurance, inland freight, and brokerage/handling

for certain transactions (see Zeta Verification Report at 20-22, and

Zeta's October 5, 1998 submission at Exhibit 2).

Normal Value

After testing home market viability as noted above, we calculated

NV as noted in the ``Price-to-CV Comparisons'' section of this notice.

Calculation of CV

In accordance with section 773(e) of the Act, we calculated CV

based on the sum of each respondent's cost of materials, fabrication

costs, selling, general, and administrative expenses (SG&A), profit,

and U.S. packing costs. In accordance with section 773(e)(2) of the

Act, we based selling expenses and profit on amounts incurred and

realized in the foreign country. Because none of the respondents had a

viable home market, we based selling expenses and profit on one of the

alternatives under section 773(e)(2)(B) of the Act. Specifically,

section 773(e)(2)(B)(iii) of the Act permits the Department to use any

reasonable method. Therefore, we based selling expenses and profit on

amounts derived from the 1997 financial statements of an Indonesian

foods producer. See Comment 2 in the ``Interested Party Comments''

section of this notice.

Dieng/Surya Jaya

We made the following adjustments to the cost data submitted by

Dieng/Surya Jaya:

Dieng

1. We calculated CV based on the cost of manufacturing (``COM'')

during the POI, instead of the cost of goods sold (``COGS'') during the

POI. See Comment 3 in the ``Interested Party Comments'' section of this

notice.

2. We recalculated Dieng's per-unit CVs using a weight-based

allocation methodology instead of relying on Dieng's standards to

allocate costs. See Comments 6 and 7 in the ``Interested Party

Comments'' section of this notice.

3. We calculated the cost of fancy and non-fancy mushrooms based on

the weighted-average cost of Dieng's purchases of mushrooms and Dieng's

own cost to produce mushrooms. See Comment 7 in the ``Interested Party

Comments'' section of this notice.

4. We recalculated Dieng's general and administrative (G&A) expense

ratio excluding selling expenses.

5. We recalculated the reported financing expense ratio excluding

the double counting of short-term interest income.

Surya Jaya

1. We calculated CV based on the COM during the POI, instead of the

COGS during the POI. See Comment 3 in the ``Interested Party Comments''

section of this notice.

2. We recalculated Surya Jaya's per-unit CV's using a weight-based

allocation methodology instead of relying on its affiliated company's

(Dieng's) standards to allocate costs. See Comments 6 and 7 in the

``Interested Party Comments'' section of this notice.

3. We recalculated the reported financing expense ratio, excluding

bank charges associated with letters of credit directly related to U.S.

sales of subject merchandise and including short-term interest income.

See Comment 4 in the ``Interested Party Comments'' section of this

notice.

4. We excluded from the reported cost of preserved mushrooms the

offset for fresh mushroom sales revenues, and we allocated the

resulting total costs equally to all mushrooms produced. See Comment 10

in the ``Interested Party Comments'' section of this notice.

Zeta

We made the following adjustments to the cost data submitted by

Zeta:

1. We calculated CV based on the COM during the POI, instead of the

COGS during the POI. See Comment 3 in the ``Interested Party Comments''

section of this notice.

2. We allocated growing costs to sales of fresh mushrooms based on

weight rather than sales value as discussed in the preliminary

determination at 41785.

3. We recalculated the cost of fancy and non-fancy mushrooms based

on the weighted-average cost of Zeta's purchases of mushrooms and

Zeta's own production cost of mushrooms. See Comment 13 in the

``Interested Party Comments'' section of this notice.

4. We reclassified certain claimed offsets to COM as G&A and

combined these amounts with the G&A expenses verified and reported by

Zeta as G&A in its audited financial statements to derive the G&A

expense ratio applied to COM. See Comments 12 and 15 in the

``Interested Party Comments'' section of this notice.

5. We excluded the revenue and cost associated with casing soil and

spawn compost sales from the reported cost of preserved mushrooms. See

Comment 12 in the ``Interested Party Comments'' section of this notice.

6. We recalculated the reported financial expense ratio to include

certain foreign exchange gains on accounts payable.

7. We recalculated CV using the net production quantity of

preserved canned mushrooms instead of the reported gross production

quantity. See Comment 16 in the ``Interested Party Comments'' section

of this notice.

8. We denied Zeta's claimed start-up adjustment because it did not

satisfy the criteria under section 773(f)(1)(C) of the Act. See Comment

11 in the ``Interested Party Comments'' section of this notice.

Price-to-CV Comparisons

For price-to-CV comparisons, we applied the same general

methodology used in the preliminary determination. However, we also

made a circumstance-of-sale adjustment, pursuant to section

773(a)(6)(C)(iii) of the Act and 19 CFR 351.410(c), for U.S. bank

charges which we verified to be direct selling expenses. (See Comment 4

in the ``Interested Party Comments'' section of this notice for further

discussion.) In addition, we made a circumstance-of-sale adjustment for

revised U.S. credit expenses, where appropriate.

Petitioners argue that the Department should use two averaging

periods in its margin calculations to account for the effect of the

devaluation of the Indonesian rupiah. Petitioners contend that CV

differs significantly and dramatically over the course of the POI when

exchange rates are taken into account.

We have continued to use POI averages for this final determination.

For further details, please see the discussion in Comment 1 of the

``Interested Party Comments'' section of this notice, below.

Currency Conversion

As in the preliminary determination, we made currency conversions

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

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

fluctuations, in accordance with section 773A of the Act.

Verification

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

information submitted by the respondents for use in our final

determination. We used standard verification procedures, including

examination of relevant

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accounting and production records and original source documents

provided by respondents.

Interested Party Comments

General Comments

Comment 1: Averaging Periods to Account for the Effect of Time on

Price Comparability

Petitioners request that the Department reconsider its preliminary

decision not to use two six-month averaging periods to calculate the

dumping margins in this investigation. Petitioners urge the Department

to depart from its standard use of a single weighted-average price to

ensure that the currency conversion methodology does not distort the

Department's calculations of the dumping margins. Petitioners point out

that the first half of the POI (January-June 1997) was characterized by

low inflation (approximately 1.5 percent) and virtually no depreciation

of the currency (less than 3 percent), and that the second half of the

POI (July-December 1997) was characterized by unexpected, sudden and

dramatic inflation (approximately 8.1 percent) and extraordinary

currency devaluation (over 60 percent). Petitioners state that the

respondents' pricing practices remained the same, in that respondents

did not take any affirmative actions to minimize or eliminate their

dumping margins in the second half of 1997 in comparison to the first

half of 1997. They argue, however, that with respect to the calculation

of NV, when the rupiah is converted to dollars during the second half

of the POI, the constant annual weighted-average will be as much as 65

percent lower than the identical CV that is converted during the first

half of the POI. In this instance, petitioners state that an otherwise

stable and constant CV changes dramatically over the course of the

investigation period when converted to U.S. dollars simply because of

the currency conversion method that is used. In face of these facts,

petitioners argue that the merit of using a single weighted-average

normal value for the entire POI must be carefully evaluated.

Petitioners cite a number of cases to demonstrate that the

Department has the authority, under section 777A(d)(1)(A) of the Act,

to use a variety of methods to compare prices in determining whether

sales at LTFV exist. Moreover, petitioners note that the SAA at 843

recognizes that in determining sales comparability for purposes of

inclusion in a particular average, time is a factor which may affect

the comparability of sales and that the Department may resort to short

time periods when NVs included in the averaging group differ

significantly over the POI. The cases cited by petitioners to support

their statement, include: the Final Determination of Sales at Less Than

Fair Value: Nitrocellulose from Brazil, 55 FR 23120, June 6, 1990

(``Nitrocellulose from Brazil''), where the Department recognized and

attempted to minimize the effect of severe currency devaluation;

Certain Fresh Cut Flowers from Colombia: Final Results and Partial

Recission of Antidumping Duty Administrative Review (62 FR 53287,

October 14, 1997) (``Colombian Flowers''), where the Department revised

its methodology in light of the ``devaluation of the Colombian

currency;'' the Final Determination of Sales at Less Than Fair Value:

Fresh Kiwi Fruit from New Zealand, 57 FR 13695, April 17, 1992 (``Kiwi

Fruit from New Zealand''), where the Department expanded the POI to

ensure ``an accurate measure of less than fair value sales;'' and the

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

from Taiwan, 61 FR 14106, March 29, 1996 (``PVA from Taiwan''), where

the Department established two averaging periods because of a

``distinct dividing line'' between price trends in the home market.

In addition to the cases previously cited, the petitioners further

point out that the SAA at 841 notes that the ``goal'' of the

Department's practice ``is to ensure that the process of currency

conversion does not distort dumping margins.'' Citing Melamine

Chemicals v. United States, 732 F. 2d 924, 929; 932 (Fed. Cir. 1984),

and Koyo Seiko, 20 F. 3d 1156,1158 (Fed. Cir. 1994), petitioners assert

that dumping margins should not be ``artificially'' eliminated because

of unanticipated changes in the exchange rate given that the goal of

the antidumping law is to protect the domestic industry from unfair

trade practices.

In response to the respondents' contention prior to the preliminary

determination that the decline in the rupiah did not cause any

distortions or ``masking'' of dumping because the decline affected both

respondents'' sales revenues and costs, petitioners maintain that: (1)

the devaluation did not affect the respondents costs because the

purchases of cans, which comprise a major portion of their costs, made

after the rupiah devalued were excluded from their reporting; and (2)

petitioners' foreign market research and respondents' past financial

statements showed substantial losses until the rupiah devaluation at

which point the respondents showed a profit.

Moreover, petitioners assert that the Department has on other

occasions made special adjustments to a respondent's costs to account

for ``extraordinary events'' that occurred during the POI or period of

review to achieve a fair result, particularly when a company's own

financial statements highlight the unusual and extreme nature of the

event. (See e.g., Notice of Final Determination of Sales at Less than

Fair Value: Large Newspaper Printing Presses and Components Thereof,

Whether Assembled or Unassembled from Japan, 51 FR 38139, 38153 July

23, 1996.)

Petitioners conclude that if a respondent is dumping during a time

of stable inflation and currency valuation, dumping should not be

eliminated by of an extraordinary devaluation of the currency that

otherwise has no impact on the respondent's pricing practices.

According to respondents, none of the cases cited by petitioners

support their argument. Respondents assert that the statute and the

regulations already provide a methodology for making currency

conversions in the face of movements in exchange rates such as the

devaluation at issue. Absent a rational explanation from petitioners as

to why the currency conversion provisions are inadequate to handle

exchange rate movements, respondents maintain that the Department

should not use currency changes as a reason to depart from the

averaging requirements. Respondents contend that the facts in all of

the cases cited by petitioners can be distinguished from those in this

investigation on the basis that respondents' U.S. prices did not ``move

significantly'' during the POI.

Furthermore, respondents assert that no data are available to

calculate CVs for two six-month averaging periods because the

Department required the respondents to report CV on an annual basis.

Unlike other cases such as Static Random Access Memory Semiconductors

From Taiwan, 62 FR 8909, February 23, 1998, where the Department

solicited and used quarterly price and cost data in its analysis in

recognition of significant price movement during the POI, respondents

claim that the Department did not solicit CV data on a semi-annual

basis in this case allegedly because respondents' U.S. prices did not

move significantly.

Finally, respondents state that the calculated NV in rupiah terms

was stable during 1997, but that does not mean that respondents were

not affected by the rupiah's decline. Respondents

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point out that, first, the rupiah's decline meant that the interest and

principal payments for U.S. dollar-denominated loans increased. Second,

the rupiah's decline meant that production inputs based on imported

material, such as cans, became more expensive. Respondents claim that

contrary to petitioners' allegations, these higher can purchase costs

were incorporated into Dieng's actual costs, which were used as the

basis for Dieng's reported costs. Therefore, respondents maintain that

comparing CV based on a full year, which includes the effects of the

rupiah's decline, to two averages based on half-yearly prices, will

create dumping margins where none existed. Based on the foregoing

arguments, respondents conclude that the Department's regulations are

sufficient to address currency exchange fluctuations and, therefore,

the Department should adhere to its preliminary decision and continue

to average prices over the entire POI.

Similarly, Pillsbury, an importer of subject merchandise, argues

that the Department should continue to reject petitioners' request for

two averaging periods after finding no evidence that there has been a

significant change in the respondents' pricing or marketing behavior

during the POI. Pillsbury points out that the Department has subdivided

the POI in the limited circumstances where exporters behaved

differently at different times in the investigation period. Pillsbury

attests, based on its own knowledge, that the Department's finding of

no change in the exporters' pricing or marketing behavior during the

POI is correct. Pillsbury argues that the cases cited by petitioners to

support their arguments are neither a precedent for the result they

seek, nor broadly analogous to the circumstances of this investigation

and, in fact, support rejection of petitioners' position.

DOC Position

Whether the Department should use shorter averaging periods where

there is a significant decline in the value of the foreign currency

over the POI is a complex issue. In such cases, we are concerned that

using a single average NV for the POI could mask significant dumping

during the period prior to the devaluation. Consequently, it may be

necessary to use two or more averaging periods to avoid a distortion in

the dumping analysis. However, we note that using two averaging periods

in this case, as proposed by the petitioners, would have virtually no

effect and therefore this issue is without consequence. Thus, we have

declined to alter our methodology in this case. We will continue to

examine in future cases whether it is appropriate to use two or more

averaging periods, or some other method, to avoid distortion in the

dumping analysis. We note that we have given further consideration to

the reasons stated in the preliminary determination for using one

averaging period. Although we continue to find that there are

distinctions between PVA from Taiwan and this case, we believe that

consideration of those distinctions is not sufficient. In addition to

changes in selling practices, we believe that we should also consider

other factors, such as prolonged large changes in exchange rates, in

determining whether it is appropriate to use more than one averaging

period.

Comment 2: Calculation of Profit and Selling Expenses for CV

Respondents argue that the Department improperly calculated profit

and selling expenses in Dieng/Surya Jaya's and Zeta's CV calculation in

the preliminary determination by basing its calculations on the selling

expenses and profit contained in the 1996 financial statement of

Indofood, an Indonesian food producer that does not produce preserved

mushrooms. Respondents contend that the Department should have used the

1997 financial statements of IndoEvergreen, a producer of subject

merchandise and a non-mandatory respondent in this investigation, as it

is the only available information on the record which satisfies the

statutory requirements under Section 773(C)(2)(B) of the Act for

calculating CV profit and selling expenses based on alternative

methods.

Pillsbury states that, regardless of whether the Department decides

to use information from IndoEvergreen or Indofood in determining profit

for the mandatory respondents, it should use the available 1997 profit

data. According to Pillsbury, in determining an exporter's actual

profit under 19 U.S.C. Section 1677b(e)(2)(A), the Department considers

profit realized during the POI, not an earlier period. Pillsbury

continues that, because 19 U.S.C. Section 1677b(e)(2)(B)(ii) and (iii)

are designed as substitute methods to determine the exporter's profit,

they too should reflect the POI.

Petitioners disagree, stating that the Department cannot use any

financial statements from 1997 because: (1) neither IndoEvergreen nor

Indofood recorded any net income (or profit) in 1997; and (2) the

substantial depreciation of the Indonesian rupiah in 1997 significantly

impacted the financial results of both companies, thus making their

expenses and financial results aberrational and, thus, unusable for our

purposes.

Specifically, petitioners contend that the Department cannot assign

``zero'' profit to CV in an investigation because profit, which

reflects net income, is positive, and that the SAA directs the

Department to include profit in the calculation of CV. While

petitioners agree with Pillsbury that it is ``axiomatic'' that 1997

data would normally provide the appropriate basis for determining

profit in this investigation, they state that there is no profit

information from 1997 on the record of this investigation. Citing Final

Determination of Sales at Less Than Fair Value: Collated Roofing Nails

from Taiwan, 62 FR 51427, October 1, 1997 (``Collated Roofing Nails

from Taiwan'') and Silicomanganese from Brazil: Final Results of

Antidumping Duty Administrative Review, 62 FR 37869, July 15, 1997

(``Silicomanganese from Brazil''), among other cases, the petitioners

emphasize that zero profit is not a valid option. Therefore, the

petitioners maintain that the Department must use profit data on the

record from 1996. Moreover, petitioners assert that, as noted in the

SAA, if the Department were to assign a ``zero'' profit rate to

respondents based on the 1997 results of IndoEvergreen, then

respondents would benefit ``perversely'' from their own unfair pricing

because IndoEvergreen is not a mandatory respondent in this

investigation, and is therefore subject to the ``all others'' rate

which is determined by the weighted-average dumping margin of Dieng/

Surya Jaya and Zeta.

Furthermore, petitioners argue that not only is there no profit on

the record for the two 1997 financial statements submitted by

respondents, but the results contained therein are aberrational and

unusable for purposes of determining selling expenses and profit

because they reflect extraordinary losses as a result of the

depreciation of the Indonesian rupiah which affected both Indofood's

and IndoEvergreen's performance in 1997.

In addition, the petitioners point out that just as IndoEvergreen's

1997 financial statement is unusable for the reasons previously stated,

IndoEvergreen's 1996 financial statement is also unusable and was

properly rejected by the Department in its preliminary determination

because it was unaudited. Citing the Final Determination of Sales at

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

June 5, 1995 (``CPF from Thailand''), petitioners point out that it is

the Department's practice to use audited financial

[[Page 72273]]

statements in the calculation of expenses and profit for CV because

these statements provide the most accurate and reasonable basis for

estimating actual expenses. Therefore, petitioners argue that the

Department has only one option in the final determination, and that is

to derive CV profit and selling expenses using the 1996 financial

statements of Indofood.

DOC Position:

We agree with respondents, Pillsbury, and petitioners in part.

While our general methodology for calculating CV profit did not change

since the preliminary determination, we are using a different source of

financial data to recalculate selling expense and profit amounts. As in

the preliminary determination, we applied alternative three under

section 773(e)(2)(B) of the Act to obtain an amount for selling expense

and profit. As facts available, we used the 1997 financial statements

of Indofood, adjusted as described below, in our calculation of CV

selling expenses and profit. For G&A expenses, we have continued to use

the actual expenses contained in the respondents' financial statements,

as revised based on verification findings.

As noted correctly by petitioners, the use of a zero or negative

profit in our CV calculation would be inconsistent with the SAA and the

Department's past practice. (See, e.g., Silicomanganese from Brazil at

37877, where the Department determined that a positive amount for

profit must be included in the CV calculation.)

While in this case the 1997 financial statements of both

IndoEvergreen and Indofood record losses in 1997, we have determined

that the use of Indofood's 1997 financial statement to calculate CV

selling expenses and profit is reasonable after making certain

appropriate adjustments. Indofood's financial statement represents

financial results predominately on home market sales and thus, the

resulting income reasonably represents a home market profit. In

addition, while Indofood's 1997 income statement shows a net loss for

the year, it was profitable in 1997 before taking into account an

extraordinary expense that appears to relate to foreign currency losses

associated with debt. The Department's practice with respect to foreign

currency losses associated with debt is to recognize only the loss

related to the current portion of the debt. (See Fresh Atlantic Salmon

from Chile, 63 FR 31430, June 9, 1998 (``Salmon from Chile'').)

Therefore, by including only the current portion of the foreign

currency loss, the company's operations show a profit. We did not use

the 1997 financial statement of IndoEvergreen, a producer of subject

merchandise and a non-mandatory respondent in this investigation,

because it represents financial results predominately on sales to the

U.S. and third country markets. Thus, it was not possible to compute a

home market profit figure from IndoEvergreen's financial statements.

Based on the foregoing, we conclude that Indofood's 1997 financial

statement, adjusted as previously described, is the most reasonable

alternative on the record of this proceeding on which to base the

calculation of CV selling expenses and profit under section

773(e)(2)(B)(iii) of the Act because Indofood is a large processor of

food products, its 1997 financial statement overwhelming reflects home

market sales, and the information is contemporaneous with the POI.

Comment 3: Use of COM Versus COGS.

Petitioners argue that the Department must revise respondents'

reported costs to properly reflect respondents' COM during the POI, not

their costs of producing the goods sold during the POI which include

historical costs of inventory from the prior period and exclude the

cost of ending inventory. Petitioners contend that since COGS includes

beginning inventory and net purchases during the period, but excludes

ending inventory, respondents have effectively ignored the increased

costs of imported materials associated with the devaluation of the

rupiah during the last few months of the POI. Petitioners further argue

that, pursuant to respondents' reporting methodology, the costs of a

product that was produced during the POI, but not sold during the POI,

are not included in CV. Petitioners assert that respondents should not

be allowed to manipulate reported costs by including costs incurred

prior to the start of the POI and excluding costs incurred towards the

end of the POI. Finally, petitioners contend that the use of COM in the

calculation of NV based on CV is a long-standing practice that has been

required by the Department in virtually all cases.

DOC Position:

We agree with petitioners that the reported costs should be derived

using the COM rather than the COGS. The Department's long-standing

practice is to calculate the cost of production (``COP'') and CV based

on the COM of the subject merchandise during the POI, where available,

rather than on the COGS during the POI. The COM represents the cost to

manufacture the product during the period. The Department does not use

the COGS because it typically includes the value of merchandise held in

inventory at the beginning of the period and excludes the value of

merchandise produced but not sold during the period. The value of the

merchandise sold from beginning inventory relates to a previous period.

Additionally, COGS may include inventory values that have been adjusted

(e.g., inventory written down) to the lower of cost or market and,

therefore, do not represent the actual production costs. As stated in

section 773(e)(1) of the Act, the COM for CV shall include the COM

``during a period which would ordinarily permit the production of the

merchandise in the ordinary course of business.'' Using the COM during

the POI normally covers the period needed to produce the subject

merchandise just prior to export and excludes the changes in inventory.

Furthermore, only under case-specific circumstances does the Department

extend the period used to calculate the COM outside of the POI (e.g.,

if the production cycle of the subject merchandise extends beyond the

POI). Although the CV section of the Act does not specifically address

a cost reporting period, section 773(b)(2)(D) of the Act states that

the recovery of costs is provided for ``[i]f prices which are below the

per unit cost of production at the time of sale are above the weighted

average per unit cost of production for the period of investigation or

review'' (emphasis added).

Moreover, in this case, the respondents incorrectly derived the

per-unit costs that were used in the preliminary determination by

dividing the COGS by the units produced during the POI, not the units

sold. To properly derive the per-unit costs, we divided the COM

incurred during the period by the units produced during the period.

Therefore, in the final determination, we have adjusted the

reported costs for each respondent based on the COM during the POI in

accordance with our normal practice and our findings at verification.

(See Calculation Memorandum for Dieng/Surya Jaya and Zeta,

respectively, dated December 18, 1998.)

Comment 4: Zeta and Surya Jaya's Bank Charges

Petitioners argue that the bank charges found at verification that

were incurred by Zeta and Surya Jaya should be deducted from U.S. price

because the bank charges were directly related to the two companies'

U.S. sales of subject merchandise.

Respondents note that if the Department deducts bank charges from

[[Page 72274]]

Surya Jaya and Zeta's U.S. sales prices, the Department should not

include these bank charges in the financial expenses calculated for CV

purposes.

DOC Position:

We agree with both petitioners and respondents in part. We verified

that bank charges directly associated with U.S. sales of subject

merchandise were incorrectly included in the calculation of the

financial expense for Surya Jaya and the SG&A expense for Zeta. (See

Surya Jaya Verification Report at 16, and Zeta Verification Report at

23, respectively.) Accordingly, we have made a circumstance-of-sale

adjustment to NV for the bank charges at issue in accordance with

section 351.410(c) of the Department's regulations, and have excluded

them from the calculation of the financial expense and G&A expense for

CV purposes, where applicable, for each company.

Dieng/Surya Jaya Comments

Comment 5: Failure to Calculate Weight-averaged EP for Dieng/Surya

Jaya

Respondents maintain that the Department failed to treat affiliated

producers, Dieng and Surya Jaya, as a single collapsed entity in the

preliminary determination based on the calculation methodology

employed. Specifically, respondents assert that, although the

Department calculated one set of weighted-average NVs for both Dieng

and Surya Jaya, it incorrectly calculated a separate set of weighted-

average EPs for Dieng's U.S. sales and Surya Jaya's U.S. sales. The

Department then proceeded to calculate separate margins for Dieng and

Surya Jaya, and averaged these two margins to derive the preliminary

margin for both companies. In order to comply with section

777A(d)(1)(A)(i) of the Act which was the Department's stated intent in

the preliminary determination, respondents argue that the Department

should calculate a single set of weighted-average EPs based on the

combined set of U.S. sales of both Dieng and Surya Jaya, and then

compare these consolidated U.S. sales with a single set of weighted-

average NVs (in this case CVs) to properly derive the final weighted-

average margin for the collapsed entity.

DOC Position:

We agree with respondents and have adjusted our calculations as

appropriate as explained in the ``Fair Value Comparisons'' section of

this notice.

Comment 6: Use of Dieng's Standard Cost System and Reported Cost

Allocation

Petitioners argue that the Department should reject Dieng's cost

allocation methodology because it is based on standard costs that yield

illogical and inaccurate results. To support their argument,

petitioners present an analysis of the difference in the reported

adjusted or ``actual'' cost and the standard cost for the direct

material costs of a four-ounce product. Petitioners argue that the

analysis shows that the difference between the ``standard'' cost and

the ``actual'' cost cannot be considered reasonable or accurate and,

therefore, should be rejected. Petitioners point out that, at

verification, when the Department compared the per-unit standard cost

for several products from the ending inventory to the reported adjusted

per-unit costs, it noted inconsistencies for all products, and that the

variance percentage was negative for some products and positive for

others. According to petitioners, such inconsistencies should not exist

between products in which the only difference is the total net drained

weight of the container size. According to petitioners, the first major

problem is not the direction or sign of the variance, but the magnitude

of the variance. The second major problem is that Dieng's standard

costs have not been used historically by Dieng in the normal course of

business, which is in violation of the statute and the SAA. With

respect to the first problem, petitioners state that Dieng offers no

explanation as to the gross disparities between standard costs and its

reported ``actual'' costs, other than the fact that total costs overall

do not vary as dramatically as per-unit costs. Petitioners argue that

the issue is whether Dieng's standard costs and its allocation of these

overall costs to each individual product are accurate. With respect to

the second problem, petitioners point out that according to the

verification report, the ``simple'' standard cost system was not

designed or implemented until the end of 1995, just one year prior to

the beginning of the POI.

Petitioners assert that the Department's practice is to calculate

costs on the basis of records kept by the respondent if the Department

is satisfied, among other things, that the respondent's records

reasonably reflect the costs of producing the subject merchandise. If

the Department determines that a company's normal accounting practices

result in a unreasonable allocation of production costs, petitioners

assert that the Department will make certain adjustments or may use

alternative methodologies that more accurately capture the costs

incurred. Petitioners maintain that Dieng's standard cost allocations

have not been used historically in the normal course of business and do

not reasonably reflect the costs associated with the subject

merchandise, as the above analysis indicates. Therefore, petitioners

contend that the Department should adjust Dieng's reported costs using

the weight-based methodology proposed in petitioners' case brief and

used in the Chilean preserved mushrooms investigation.

Respondents argue that the Department should continue to use the

reported costs of Dieng/Surya Jaya for purposes of calculating the

final dumping margin because the Department has verified that Dieng's

standard cost system is reliable and reasonably reflects the actual

costs incurred by Dieng during the POI. Respondents further state that

the Department's statements in the Dieng verification report

questioning the reliability of Dieng's cost standards based on the

observation that ``individual standard costs are adjusted by different

percentages and different directions'' are flawed because they are

based on incorrect data or misapplied accounting principles.

Respondents maintain that petitioners ignore the substantial record

evidence demonstrating the reliability of Dieng's standard cost system,

which has been fully verified and audited by an independent auditor.

Respondents contend that petitioners' comments should be rejected

for the following specific reasons: First, respondents maintain that a

comparison of total per-unit standard costs to total per-unit actual

costs is inappropriate because it overlooks the effects of the

individual variances calculated for each cost element. According to

respondents, the approach suggested in the verification report and by

petitioners would require the calculation of a uniform variance based

on the total actual cost and the total standard cost, but the

application of this uniform variance would inappropriately cut across

all cost elements and distort the individual variances specifically

calculated for each cost element. This approach would be inconsistent

with Department practice, as exemplified in New Minivans from Japan:

Final Determination of Sales at Less Than Fair Value, 57 FR 21937, May

26, 1992 (``Minivans from Japan''), where the Department used

individual variance factors for materials and for labor and overhead

and adjusted the reported production costs for each minivan

[[Page 72275]]

model to reflect the use of the revised variance factors for each cost

element; and Antifriction Bearings (Other Than Tapered Roller Bearings)

and Parts Thereof From France, Germany, Italy, Japan, Romania,

Singapore, Sweden, and the United Kingdom, 60 FR 10900, February 28,

1995, where the Department rejected application of plant-wide variances

to all products (instead of product-specific variances) because it

overstated costs for non-subject merchandise. Respondents continue that

Dieng never reported total standards and Dieng's cost accounting system

does not use the total standards that the verification report used for

comparison.

Second, respondents assert that the questions raised in the

Department's verification report rely on the erroneous proposition that

variances from a standard occur in one direction, which is inconsistent

with cost accounting principles. Respondents explain that, by

definition, variances from a standard are not adjusted in the same

direction. Respondents state that Dieng complied with the requirements

of the Department's questionnaire and reported all of the variances

calculated for each cost element (material, labor, variable and fixed

overhead) in its normal standard cost system. Dieng then calculated a

percentage variance that was applied uniformly to the standard cost

established for that element for all of Dieng's products. According to

the respondents, the analysis in the verification report ignored the

variances calculated at each cost element and instead compared only

total per-unit variances. Although the variance for each cost element

is uniformly applied to all products, respondents explain that the

overall variances calculated by the method used in the verification

report (i.e., the sum of all cost elements) will be favorable for some

products, but unfavorable for other products. Respondents point out

that this result is not inconsistent with the variances calculated for

elements which are uniform. In respondents' opinion, the conclusions

suggested in the verification report provide no legitimate basis on

which to question the reliability of Dieng's standard cost accounting

system.

Third, respondents maintain that, regardless of the magnitude of

the variances, the Department verified that Dieng's standard costs

distributed all of Dieng's actual costs as tied to the audited

financial statement. Accordingly, respondents argue that Dieng's

reported production costs accurately reflect Dieng's actual costs

because they were based on Dieng's reliable standard cost allocation

system. Moreover, respondents point out that the magnitude of the

variance for each cost element does not determine the reliability of a

company's standard cost system. To support their statements,

respondents cite to Final Results of Antidumping Duty Administrative

Review: Porcelain-on-Steel Cookware from Mexico, 62 FR 42496, August 7,

1997 (``Porcelain-on-Steel Cookware from Mexico''), where the

Department refused to use facts available because of the magnitude of

the respondent's reported variances and determined that the

respondent's variances were allocated to a sufficient level of product-

specific detail to satisfy the Department's questionnaire requirements.

Respondents maintain further that petitioners' suggestion that the

Department ignore the variances calculated for each cost element and

apply an overall variance is contrary to Department practice and

fundamental accounting principles. According to the respondents, record

evidence shows that the total of all standard costs is very close to

the total of actual costs reported. In this regard, respondents point

out that after adjusting the reported cost data for the difference

between COM and COGS, as noted in the Department's verification report,

Dieng's actual material costs (and thus total actual costs) increase,

resulting in a small overall variance between standard and actual

costs. Respondents interpret this result to mean that the total

standard material costs virtually match the actual costs incurred by

Dieng, and that the material cost system accurately measures Dieng's

production costs.

Fourth, respondents argue that petitioners ignore the Department's

statutory preference for using the existing cost system of a respondent

if it is consistent with local Generally Accepted Accounting Principles

(``GAAP'') and is not distortive pursuant to section 773(f)(1)(A) of

the Act. Respondents point out that Dieng's independent auditor and the

Department both confirmed that Dieng's accounts are consistent with the

GAAP of Indonesia. Respondents conclude that in light of these facts,

the Department's practice requires the acceptance and use of Dieng's

standard costs to calculate the CV of Dieng/Surya Jaya.

Pillsbury argues that the Department should continue to base its CV

calculation on the standard costs reported by Dieng in the final

determination because the Department verified that these costs are used

in the normal course of business, are consistent with GAAP in

Indonesia, and reasonably reflect the cost of producing the subject

merchandise in Indonesia.

DOC Position:

We agree with petitioners that the per-unit costs generated by

Dieng's standard cost system are distorted and cannot be relied upon to

form the basis of CV for the final determination. In accordance with

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

from a respondent's normal books and records where those records are

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

reasonably reflect the costs of producing the merchandise. Normal GAAP

accounting practices provide both respondents and the Department with a

reasonably objective and predictable basis by which to compute costs

for the merchandise under investigation. However, in those instances

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

result in a mis-allocation of production costs, the Department adjusts

the respondent's costs or uses alternative calculation methodologies

that more accurately capture the actual costs incurred to produce the

merchandise. See, e.g., Minivans from Japan at FR 21952 (adjusting a

respondent's U.S. further manufacturing costs because the company's

normal accounting methodology did not result in an accurate measure of

production costs); and CPF from Thailand at FR 29559 (where the

Department rejected the use of Dole's normal cost allocation

methodology because it did not ``reasonably reflect'' the cost of

producing the merchandise).

In the instant case, we find that Dieng's standard costs do not, as

noted below, reasonably allocate costs to individual products. While we

agree with respondents that the variances for individual cost elements

may be favorable or unfavorable and that the net effect of variances

could make individual unit standard costs move in different directions,

the magnitude of Dieng's individual variances seriously calls into

question the reasonableness of the individual product standard costs.

In the Porcelain-on-Steel Cookware from Mexico proceeding cited by

Dieng, the Department accepted the large variances because inflation in

Mexico was greater than 50 percent during the period and therefore

large price variances in one direction were expected. However, the

magnitude of the variances in Dieng's system cannot be explained by

inflation. Extraordinarily large variances, by definition, mean that

the standard costs that went into deriving those variances do not

reasonably reflect the actual costs

[[Page 72276]]

incurred to produce the individual products. These large variances

occurred even though the standards were new, which raises questions as

to whether the standards were accurately developed by Dieng.

Furthermore, our observations at verification imply that they were not

accurately developed. We note that the individual cost elements of

Dieng's per-unit standards, such as direct labor, indirect labor,

energy, and depreciation, are identical to each other and do not vary

according to the specific requirements of each cost element necessary

to produce the individual products. Additionally, Dieng used the price

of the two mushroom qualities (i.e., fancy and non-fancy) it purchased

as the standard cost of all mushrooms in its derivation of per-unit

standards, without factoring in its own production cost. This

methodology artificially allocates more mushroom costs to products that

use fancy mushrooms (i.e. mushrooms sold whole or in slices). The

reliability of Dieng's standard costs is further undermined by Dieng's

apparent unfamiliarity with calculating variances. As Dieng admits, it

improperly calculated the variance between standard and actual

materials by using the COGS rather than the COM, and now argues that,

after this problem is corrected, the remaining variance is reasonable

for the reasons previously explained. We disagree that after this

adjustment the materials variance is reasonable for the reasons

previously explained. Furthermore, Dieng does not address the other

large variances (i.e. direct labor, indirect labor, energy, and

depreciation).

We also disagree with Dieng's argument that it is not a problem

that the individual variances are large because the overall variance is

not great. The fact that the inaccurate standards for each major cost

element add up to a total that is closer to the actual total costs does

not support the claim that individual standard costs are reliable. The

issue here is the allocation of costs between products or, in other

words, the reliability of the standards, not the inclusion of total

costs. We are not persuaded by the fact that there was no objection to

the use of its standard costs noted by the auditors in Dieng's

financial statements. Consistent with CPF from Thailand and Salmon from

Chile, the absence of the auditor's direct comment does not indicate

reasonableness of those standards for CV calculation purposes; rather

it indicates that either the standards used to value ending inventory

were lower than market prices or any mis-statement was not significant

to the financial statement's presentation.

For the final determination, we rejected the use of Dieng's

standard costs and derived CV using a weight-based allocation

methodology, as explained further in Comment 7 below. For the same

reasons, we have not used Dieng's standard costs to derive Surya Jaya's

per-unit costs, as reported, but have derived CV using a weight-based

allocation methodology.

Comment 7: Revision of Dieng's Submitted Costs Using Production

Quantity and Total Costs

Petitioners argue that the Department should reject Dieng's cost

allocation methodology since it yields unreasonable results, and revise

Dieng's submitted costs to reasonably reflect the costs of producing

the subject merchandise using a weight-based allocation. For example,

petitioners point out that a careful review of Dieng's production

process shows that Dieng's claim that whole mushrooms ``require longer

actual time to process'' than pieces and stems is due to the fact that

the ``workers set aside the whole mushrooms until there are sufficient

mushrooms to manufacture whole mushrooms (or sliced mushrooms) in a

production batch.'' Therefore, the petitioners assert that the only

extra ``time'' involved is the time mushrooms must be ``set aside,''

which, despite Dieng's claim to the contrary, does not imply that the

production time is any longer. Petitioners suggest that the Department

revise the submitted costs by allocating Dieng's reported production

costs using a drained-weight methodology. Petitioners state that such

an allocation methodology based on net drained weight produced is

consistent with the Department's chosen methodology in the companion

investigation of preserved mushrooms from Chile, where respondent's

reported allocation methods were rejected by the Department.

Petitioners also note that Dieng's affiliate Surya Jaya improperly used

Dieng's standard costs even though it did not use a standard cost

system to record its own costs. Since Dieng's standard cost system is

unreliable and Surya Jaya does not use a standard cost system,

petitioners argue that Surya Jaya's costs must also be restated

according to the methodology previously described.

Respondents argue that petitioners failed to provide an alternative

allocation methodology that would be more reasonable than Dieng's

standard cost system. According to respondents, petitioners' proposal

to use a weight-based allocation of costs is not more accurate because

a weight-based allocation does not properly account for the cost and

processing time differences in producing the different types of canned

mushrooms. Specifically, respondents point out that: (1) petitioners

have used the purchase price of cans during the POI which is

inappropriate and inconsistent with the Department's practice of using

consumption costs; (2) petitioners' methodology would ignore the

additional time and costs associated with the processing of fancy

mushrooms in manufacturing sliced and whole mushrooms; (3) Dieng's

standard cost system differs from that of the respondent in the Chilean

preserved mushrooms case, because unlike Dieng, the Chilean respondent

had no established cost accounting system and had to develop a

methodology; and (4) Dieng's standard costs are an acceptable and

accurate means to report costs that are specific to each grade of

subject merchandise sold to the United States, whereas allocating costs

purely on the basis of weight would render the product characteristics

useless in this investigation

Respondents further contend that use of a weight-based allocation

would result in the creation of dumping margins simply by comparing a

uniform per-kilogram cost to products, the actual costs and prices of

which reflect more than weight. Respondents point out that the

Department has recognized that a weight-based allocation is not

appropriate in the context of a processed agricultural product.

Respondents state, for example, that in CPF from Thailand, at FR

29560), the Department rejected a proposal to depart from the

respondents' normal cost allocation in favor of a weight-based

allocation. In that case, respondents state that the Department

explained that a weight-based allocation of pineapple fruit costs would

not be appropriate, and that ``using weight alone as the allocation

criteria sets up the illogical supposition that a load of shells,

cores, and ends [used to produce juice products] cost just as much as

an equal weight of trimmed and cored pineapple cylinders used to

produce canned pineapple fruit.'' Respondents state that, for

mushrooms, a weight-based allocation would make the analogous illogical

presumption that a load of fancy mushrooms used to produce whole or

sliced preserved mushrooms costs just as much as an equal weight of

non-fancy mushrooms when the record evidence shows that fancy and non-

fancy mushrooms have different acquisition costs.

[[Page 72277]]

DOC Position:

We agree with petitioners that Dieng's reported costs are

unreliable and have recalculated Dieng's per-unit costs using a weight-

based methodology. Because Surya Jaya's submitted costs were based on

Dieng's standard cost system which we have rejected for purposes of the

final determination, we have also recalculated Surya Jaya's costs using

a weight-based methodology.

As discussed in Comment 6 above, we have determined that Dieng's

standard cost system is not reliable because the allocation methods

used in Dieng's system distort costs. While Dieng argues we must use

its standard costs to account for processing differences, we note that

one reason the standards were rejected was that they do not

differentiate costs based on product differences. Moreover, we agree

with petitioners that the set-aside time in canning whole mushrooms

does not imply that the production time for whole mushrooms is longer.

In fact, sliced mushrooms and pieces and stems require an additional

processing step.

We also disagree with Dieng's assertion that there are cost

differences in specific grades of mushrooms. As stated by company

officials during verification, the cost of producing different

qualities (i.e., grades) of mushrooms is the same. (See Dieng

Verification Report at 7.) The actual cost of growing mushrooms is the

same regardless of the value of the different grades of mushrooms. See

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

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

(``Mushrooms from Chile''). Mushrooms are grown in batches where the

natural process results in product of varying size and quality.

Mushrooms can be either sold directly after harvest or be processed

further and sold in several different forms and containers. The

production processes may be manipulated by the producer, within the

confines of the natural growing process, to obtain different yields on

certain sizes and qualities. Furthermore, mushrooms are sold by weight.

Because the identical process, climate conditions, and production

factors are applied to fancy and non-fancy mushrooms, the actual cost

to grow each kilogram of mushroom is the same regardless of whether it

is sold fresh or preserved, whole or in a variety of other forms. In

Salmon from Chile at FR 31416, as in the instant case, the Department

found that, ``with minor exceptions, each company's recorded costs of

the subject merchandise did not vary by grade or weight band [(i.e.,

size)] * * * and that the costs of certain of these matching groups are

the same.'' In citing to Ipsco v. United States, 965 F2d 1056 (Fed.

Cir. 1992) (``IPSCO'') in the Salmon from Chile case, the Department

stated that ``as with premium salmon, prime-grade pipe was of higher

quality and, as such, commanded a higher price in the marketplace (Id.

at 1058). In the proceeding underlying the IPSCO decision, the

Department compared U.S. sales of prime and limited service grade pipe

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

Therein the respondents objected to this methodology vis-a-vis

comparisons involving U.S. sales of lower grade of merchandise. The

Court of Appeals for the Federal Circuit (``CAFC'') rejected this

claim, ruling that the Department had `calculated constructed value

precisely as the statute directs' in basing CV on the actual cost of

production for each grade (Id. at 1060).'' See Salmon from Chile at FR

31416-31417.

Furthermore, Dieng incorrectly cites to CPF from Thailand to

support its position that a weight-based allocation is not appropriate.

In that case, the cost of producing the pineapple was allocated between

products, not between different grades of the same product. Different

grades of mushrooms are not separate and distinct products, they are

different grades of the same product.

Consistent with Mushrooms from Chile, we have determined that an

allocation methodology based on weight is reasonable for the following

reasons: (1) both Dieng/Surya Jaya and Zeta track the mushrooms through

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

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

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

regardless of whether the mushrooms are sold as preserved or fresh

product, they are substantially the same product (i.e., they are not

joint products). Simply stated, the cost-generating elements of growing

mushrooms for both preserved and fresh, ``fancy'' or ``non-fancy,''

whole or pieces, large or small mushrooms are identical; and canned

whole mushrooms may be, and often are, re-processed into pieces and

stems. On this basis, we are relying upon a weight-based methodology

because it reasonably reflects the costs of producing the subject

merchandise. The respondents' argument that a weight-based methodology

would render the product characteristics useless is incongruous because

the actual costs for each grade of mushrooms are the same and would not

be distorted by a weight-based allocation.

As to Dieng's argument concerning the value of purchased mushrooms,

although Dieng does purchase different grades of mushrooms at different

costs, the differences in purchase prices should not be used to create

artificial differences in the cost of Dieng's own mushroom production.

First, we note that a product's market price does not always follow its

cost of production. Second, in this case, it is Dieng's supplier that

is benefitting from the higher price commanded by higher quality

mushrooms and Dieng is incurring the cost of having to buy these

mushrooms at higher market prices. Dieng's cost of its purchased

mushrooms is its purchase price, but its cost of its self grown

mushrooms is its growing costs. Therefore, we have weight averaged

Dieng's cost of producing mushrooms with its acquisition price for

purchases of different grades of mushrooms in the final determination.

(See December 18, 1998, Calculation Memorandum.)

Comment 8: Revision of Dieng's Can Cost

Petitioners contend that the Department should revise Dieng's

reported can costs to include the higher prices paid by Dieng during

the latter part of the POI after the depreciation of the rupiah in

accordance with the Department's past practice. Citing such cases as

CPF from Thailand, petitioners state that the Department has determined

in past cases that it is inappropriate to exclude the cost of material

purchases toward the end of the POI in its submitted costs. According

to petitioners, Dieng shows in its response the actual prices it paid

for cans during the POI, but does not use these prices in reporting its

can costs. Petitioners further contend that Dieng records its raw

materials and indirect materials inventory at a moving average cost.

Therefore, petitioners argue that Dieng's can cost should be reported

on a moving average cost basis, which would include the higher prices

of cans purchased toward the end of the POI and exclude the historical

cost of beginning inventory, in accordance with the Department's cost

reporting objective to determine the COP during the POI.

Respondents state that petitioners' proposal is contrary to

Department practice and unnecessary. According to respondents, record

evidence demonstrates that Dieng's can purchases in late 1997 were

incorporated into Dieng's reported can cost. Moreover, respondents

state that using Dieng's 1997 can purchase cost would

[[Page 72278]]

unreasonably ignore the fact that Dieng consumed cans from inventory

that included pre-POI purchases. Citing Certain Welded Stainless Steel

Pipe From the Republic of Korea 57 FR 53693, November 12, 1991,

respondents maintain that the Department has consistently held that

purchase prices do not accurately value material input costs because

they fail to account for the cost of material already in inventory and

actually used during the POI. Finally, respondents assert that no

adjustment to can costs is necessary because Dieng allocated the actual

costs of cans--which is a moving average cost that incorporates both

the change in raw materials inventory and all purchases during the

fiscal year (POI)--in its CV calculations.

DOC Position:

We agree with the respondents. As stated in Comment 3 above, it is

the Department's practice to use the cost of manufacturing the subject

merchandise during the POI. Dieng's reported cost of cans appropriately

included the cost of cans consumed in producing the subject merchandise

during the POI, rather than the cost of cans purchased during the POI.

The Department uses the replacement cost of an input only in high

inflation situations. Because we did not find high inflation in

Indonesia during the POI, we have continued to use the cost of cans

consumed in producing the subject merchandise during the POI in

calculating the COP.

Comment 9: Duty Drawback Adjustment Claim

Given that Dieng could not provide any evidence of linkage between

duties paid and taxes rebated for excise taxes paid on imported glass

jars during the POI, petitioners argue that the Department should

reject Dieng's duty drawback adjustment claim.

DOC Position:

We agree with petitioners. It is the Department's practice to allow

an upward adjustment to U.S. price for duty drawback if the respondent

meets the Department's long-standing two-part test: (1) that there be a

direct link between the import duty and the rebate granted; and (2)

that the respondent has sufficient imports of raw materials used in the

production of the final exported product to account for the drawback

received on the exported product. At verification, Dieng could not

provide any evidence of a nexus between import duties paid and taxes

rebated during the POI (see Dieng Verification Report at 2 and 25).

Because Dieng did not satisfy part one of the two-part test, we have

rejected its claim for a duty drawback adjustment in the final

determination.

Comment 10: Offset to COM and G&A for Non-subject Merchandise

Petitioners argue that the Department incorrectly indicates in its

verification report that certain items identified by Surya Jaya to

offset production costs, such as fresh mushrooms and used compost

sales, bank interest, or reevaluation of ending inventory, should

probably be reclassified to G&A expenses. Petitioners state that, for

some of these items, there is no information on the record to indicate

that they are related to the subject merchandise. As such, the

petitioners claim that it would be inappropriate to offset G&A expenses

with such items. The petitioners also state that should the Department

decide to offset Surya Jaya's G&A expenses with the items that were

used to offset production costs, it must make sure that the same items

will not be used as offsets to COM.

DOC Position:

We agree with petitioners in part. Consistent with our normal

methodology, we have continued to allow used compost sales as an offset

to COM, as they constitute revenue from the sales of scrap resulting

from the production of subject merchandise. (See e.g., Collated Roofing

Nails From Taiwan, 62 FR 51427, October 1, 1997.) Additionally, we have

continued to include Surya Jaya's adjustments of raw material costs

(e.g., revaluation of ending inventory) in the COM. However, we have

excluded the revenue from fresh mushroom sales from Surya Jaya's offset

calculation (and reallocated growing costs) because they constitute

sales of a primary product, not a scrap resulting from production of

the subject merchandise. Furthermore, we included the short-term bank

interest income cited by petitioners in the financing expense

calculation as an offset to interest expense in accordance with our

normal practice.

Zeta Comments

Comment 11: Zeta's Start-up Adjustment Claim

Zeta contends that it has demonstrated that it is a producer using

new production facilities and that production levels were limited by

technical factors associated with the initial phase of production.

Consequently, it should be granted a start-up adjustment under section

773(f)(1)(C) of the Act in the final determination. Zeta argues that

the Department's preliminary determination, which rejected Zeta's claim

for a start-up adjustment because Zeta failed to identify suitable

technical factors limiting production levels in the initial phase of

production, is inconsistent with the statute and fails to consider the

nature of Zeta's operations.

First, Zeta asserts that its claimed start-up cost relates to new

production facilities, explaining that its mushroom growing facilities

and cannery were not mere improvements to existing facilities but were

built new and were not substantially completed until after the POI.

Second, in accordance with 19 CFR section 351.407(d)(2) and (3), Zeta

states that it has properly quantified the start-up period and has

provided evidence that establishes the end of the start-up period which

marks the end of the initial phase of commercial production. In

addition to production units, Zeta states that it provided data

demonstrating that the capacity utilization rates for January through

June 1997 were substantially lower than those of July through December

1997.

Third, Zeta maintains that its technical factors relate to the

integrated nature of Zeta's operations for producing preserved

mushrooms. Unlike many of the U.S. preserved mushroom producers, Zeta

explains that it is an integrated producer, growing fresh mushrooms

that are processed into preserved mushrooms. According to Zeta, fresh

mushrooms are not merely raw material for the canning operations, but

are actually an intermediate state of production in the process of

producing canned mushrooms. Zeta states that it reported its production

costs based on the following direct cost centers: spawn making, compost

manufacture, casing soil manufacture, growing and harvesting, and

cannery. Accordingly, Zeta argues that the Department must not consider

Zeta's canning operations to be the only production stage relevant to

start-up operations but, rather, only the final part of Zeta's

production process which begins with fresh mushroom growing operations

(spawn, compost, casing soil, growing, harvest).

Moreover, Zeta asserts that the integrated nature of its operations

was part of Zeta's original business development plan. According to

Zeta, the feasibility study of its corporate plan reflects several

important facts relevant to the Department's analysis of Zeta's start-

up adjustment. As outlined in the feasibility study, Zeta sought funds

to complete Stage I (which planned for the construction of Zeta's

cannery and growing facilities) and Stage II (which planned for the

construction of additional growing facilities for the independent

farmers) of the construction of production facilities. According to

respondent, completion of

[[Page 72279]]

both Stage I and Stage II was necessary to provide Zeta with a

sufficient supply of mushrooms to achieve full production levels for

both growing and canning. Zeta asserts that Stage II construction was

not substantially completed until February 1998, because Zeta

encountered substantial engineering difficulties in the construction of

the foundations for the growing facilities due to heavy rainfall and

unexpected drainage and runoff problems. Zeta explains further that the

delay in Stage II construction due to engineering adjustments prevented

Zeta from reaching full capacity for its fresh mushroom growing

operations. As a result, Zeta claims that it was unable to reach full

commercial production levels of preserved mushrooms until the fresh

mushroom growing facilities were substantially completed. Zeta claims

further that its start-up period did not end until July 1997 when it

had completed enough growing facilities to achieve significant

production levels.

Zeta concludes, based on the foregoing points, that it has fully

satisfied the statutory criteria for a start-up adjustment. Zeta

proposes that the Department grant a start-up adjustment by

substituting the unit production costs incurred with respect to the

merchandise at the end of the start-up period for the unit production

costs incurred during the start-up period, and that the Department

amortize the start-up costs over the shelf-life of preserved mushrooms

(i.e., 24 months).

Pillsbury argues that Zeta qualifies for a start-up adjustment to

account for its new facilities' mushroom growing shortfall in the first

half of 1997 which resulted from technical factors that limited the

volume of fresh mushrooms that were grown and, therefore, the amount of

preserved mushrooms that could be produced. Pillsbury argues that the

Department's characterization of Zeta's start-up problem in the

preliminary determination as a ``shortage of raw materials'' implies

that the production of canning-quality mushrooms is a different

operation than the production of certain preserved mushrooms. Pillsbury

states further that Zeta's questionnaire response shows that the

production of mushrooms is an integral part of the canning process, and

thus growing the requisite number and quality of mushrooms is part of

the production process, not a precursor to it.

Petitioners disagree, stating that the integrated nature of Zeta's

operations is not in dispute, nor is it germane to the question of

start-up. Petitioners argue that the difficulties encountered at some

other point in the production process are simply part of poor business

planning, and are not related to the start-up costs incurred to build

the new canning facility. Rather, petitioners state that the

engineering difficulties experienced by Zeta during the construction of

the growing facilities were attributable to weather-related conditions

that affected the growing facility construction, not the new canning

facility. According to petitioners, technical factors that limit

production at the cannery facility might include things such as

difficulty getting new machinery to operate properly, or engineering

problems encountered with canning the goods. Petitioners point out that

the SAA makes clear that the limited production must not be related to

factors unrelated to start-up, such as ``chronic production problems.''

Petitioners argue that based on Zeta's own admission, the limit in

production had more to do with weather-related problems rather than the

actual operation of the canning facility. Accordingly, petitioners

maintain that the Department should reject Zeta's claimed start-up

adjustment in the final determination.

DOC Position:

We disagree with Zeta that a start-up adjustment is warranted in

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

for start-up operations ``only where a producer is using new production

facilities or producing a new product that requires substantial

additional investment, and production levels are limited by technical

factors associated with the initial phase of production'' during the

POI. Based on our analysis of the information Zeta submitted to support

its claim, we have determined that Zeta's production levels were not

limited by technical factors associated with the initial phase of

production.

Prior to the POI, Zeta built its own mushroom growing facility and

its own canning facility. Both of these facilities were in operation

prior to the POI. Zeta stated that, to fulfill the government's

requirement of local participation in new agricultural industries, a

certain amount of Zeta's mushrooms had to be sourced from local

farmers. As a result, an unaffiliated cooperative of mushroom farmers

built a mushroom growing facility, to which Zeta provided its technical

expertise. The mushroom growing facility owned by this unaffiliated

cooperative is the facility that experienced the delays in construction

(i.e., due to the building of retaining walls as a result of heavy

rainfall which caused excessive erosion of the foundations for the

growing facility) that Zeta claims constituted the technical factor

(i.e., shortage of fresh mushrooms) that limited Zeta's canned mushroom

production. Therefore, Zeta is not claiming a start-up adjustment based

on technical factors experienced at its own facility, but rather the

technical factors associated with the unaffiliated farmer cooperative's

growing facility.

We disagree with Zeta that our preliminary determination failed to

consider the nature of Zeta's operations. In making this determination,

we followed the guidelines set forth in the SAA at page 837, which

provide that the analysis will vary from industry to industry and

product to product, requiring a fact-intensive inquiry. Similarly, the

preamble to the Department's proposed regulations states that the

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

for any number of start-up operation scenarios'' (61 FR 7339, February

27, 1996).

We acknowledge that Zeta's growing and canning facilities are new

production facilities. However, Zeta's growing and canning facilities

were completed before the beginning of the POI and its commercial

production levels were not limited by technical factors associated with

the initial phase of its commercial production, as evidenced by

significant production levels during the POI. (See the Verification

Report at page 16.) We also note that the ``technical factors'' alleged

by Zeta relate solely to the operations of Zeta's unaffiliated mushroom

supplier. Zeta's own preserved mushroom operations include only its

mushrooms growing operations and canning facility, not those of an

unaffiliated supplier. We do not believe that technical difficulties

experienced at an unaffiliated supplier's facility qualify as

sufficient ``technical factors'' under section 773(f)(1)(C) of the Act.

The result of the technical difficulties experienced by the

cooperative--the lack of supply of the raw material input to Zeta's

canning factory and the resulting underutilization of capacity--does

not satisfy the criteria for a start-up adjustment.

Moreover, Zeta reached commercial production levels before the POI

and increased production during the POI. While Zeta may not have been

able to utilize its canning facility at a higher production rate, we

note that the SAA at page 836 states that ``the attainment of peak

production levels will not be the standard for identifying the end of

the start-up period, because the start-up period may end well before a

company achieves optimum capacity utilization.''

[[Page 72280]]

See also Final Determination of Sales at Less Than Fair Value: Static

Random Access Memory Semiconductors From Taiwan, 63 FR 8909, 8930,

(February 23, 1998.

In sum, section 773(f)(1)(C)(ii) of the Act establishes that both

prongs of the test must be met to warrant a start-up adjustment. In

this case, we found that Zeta failed to meet the second prong of the

test and, accordingly, have denied Zeta's claim for a start-up

adjustment in the final determination.

Comment 12: Items Used to Offset Zeta's Material Production Costs

Zeta contends that items related to the production of subject

merchandise (i.e., spawn compost and casing soil sales revenue, and

scrap mushrooms sales revenue) should be offset against Zeta's material

production costs; and items unrelated to the production of subject

merchandise (i.e., ``gain from claim'' and ``loss on others'') should

not be offset against production costs, but rather should be offset

against Zeta's G&A expenses.

With respect to revenues from the sale of spawn compost and casing

soil, Zeta explains that it sold these items to independent farmers who

used them to grow fresh mushrooms. Zeta further explains that it

purchased fresh mushrooms from the independent farmers, offsetting its

accounts payable to the farmers for fresh mushroom purchases by the

value of its sales of spawn compost and casing soil to the farmers.

Zeta states that the Department has recognized that the revenue from

sales of intermediate products used in the production of subject

merchandise such as spawn compost and casing soil must be taken as an

offset to the COM regardless of whether these sales are classified as

``scrap'' or ``rejected'' merchandise. Although the Department's

verification report notes that revenue from Zeta's sales of spawn

compost and casing soil was not generated from scrap or rejected

merchandise, Zeta argues that the Department must also acknowledge that

Zeta received revenues that were used directly to offset Zeta's

material input costs in Zeta's accounting system. Zeta points out that

the Department has made similar adjustments to production costs for

revenue associated with production inputs in past cases (e.g., CPF from

Thailand at 29566, and Certain Fresh Cut Flowers from Colombia, 59 FR

15159, (March 31, 1994). Accordingly, Zeta contends that the Department

should offset Zeta's material costs with the revenue from the sales of

spawn compost and casing soil. Finally, with respect to the revenue

received from the sale of scrap mushrooms, Zeta argues that the

Department should use this revenue as an offset to Zeta's production

costs, consistent with the Department's past practice (e.g, Chrome

Plated Lug Nuts from Taiwan, 56 FR 36130, 36134, July 31, 1991).

Petitioners argue that Zeta's sales of spawn compost and casing

soil should not be used to offset its production (material) costs, and

that the revenue from the spoiled or sample mushrooms should only be

allowed as an offset to Zeta's material costs if it was reported in

Zeta's books and accounted for in its reported production costs. With

regard to Zeta's claim for sales of spawn compost and casing soil as an

offset to production costs, the petitioners assert that these ``sales''

did not generate actual revenues for Zeta because Zeta and the

independent farmers were involved in a barter arrangement where Zeta

traded its spawn compost and casing soil for fresh mushrooms.

Therefore, since Zeta's accounts receivable for sales of spawn compost

and casing soil were offset by its accounts payable for purchases of

fresh mushrooms, petitioners contend that there were no actual revenues

or payments involved. Furthermore, petitioners state that Zeta's

reference to CPF from Thailand and Certain Fresh Cut Flowers from

Colombia in support of its argument that the sales revenue in question

related to material costs should be used to offset production costs is

not relevant because Zeta's claimed offset is not based on revenue

actually received, as its accounts receivable was offset by its

accounts payable under the barter arrangement. Petitioners claim that

pursuant to the Department's practice, claims of credits, rebates or

offsets should always be tied to the actual amounts received, not the

amount claimed. Petitioners point out that in CPF from Thailand

respondent's offset for sugar refunds was rejected by the Department

because it was based on amounts earned, not received. Accordingly,

petitioners maintain that the Department should not account for Zeta's

``artificial'' sale of spawn compost and casing soil as an offset to

Zeta's material input costs. Petitioners further state that even if the

Department were to grant such an offset, however, the offset should not

be allocated only across canned mushrooms, but must be allocated across

all mushroom products, including both fresh and canned mushrooms.

Finally, petitioners argue that certain items such as ``gain from

claim'' and ``loss on others'' included in Zeta's production cost

offset calculation should not be reclassified as G&A expenses, as

suggested in the Department's verification report. Because there is no

information on the record to indicate that the ``gain from claim'' is

related to the subject merchandise, petitioners contend that it would

be inappropriate to offset G&A expenses with this amount if it is not

related to the subject merchandise. However, petitioners assert that

should the Department decide to offset Zeta's G&A expense with certain

items that were used to offset production costs, it should be careful

to not use the same items as offsets to production costs.

DOC Position:

We agree with petitioners and respondents in part. With respect to

the revenue from scrap mushrooms (i.e. mushrooms falling to the floor

or samples taken during the pre-canning selection process, and

mushrooms selected for quality control purposes in the post-canning

process), we have allowed it as an offset to COM, as it constitutes

revenue from the sale of scrap resulting from the production of subject

merchandise, consistent with our normal practice. (See Collated Roofing

Nails from Taiwan.) With respect to the revenue from spawn compost and

casing soil sales, however, we have not allowed it as an offset to

production costs because it relates to sales of a primary product

(i.e., not scrap or a by-product). We note that these sales constitute

a separate line of business and Zeta plans to continue to sell these

items on a regular basis to the unaffiliated farmers. If we were to

include these revenues as an offset to production costs, as Zeta

suggests, we would be reducing the cost of preserved mushrooms by any

profit earned on the sales of spawn compost and casing soil. Although

these products are raw materials in the production of preserved

mushrooms, Zeta's sales of spawn compost and casing soil are made to

unaffiliated parties and, therefore, not used in the production of

Zeta's preserved mushrooms. While the sales of spawn compost and casing

soil should not offset the cost of producing preserved mushrooms, the

cost of producing these products for sale should also not be included

in Zeta's preserved mushrooms production costs. Therefore, we have

excluded an amount for the cost of sales of spawn compost and casing

soil from Zeta's reported mushroom cost. Furthermore, we disagree with

petitioners that because the sales of spawn compost and casing soil to

the independent farmers and the purchases of mushrooms from the

independent farmers are cleared through the same account, they are not

[[Page 72281]]

actual sales and purchases. Zeta practices accrual accounting and as

such recognizes the sales or purchases when booked. We found at

verification that these transactions were independent and therefore

have treated them accordingly.

With respect to the ``gain from claim'' included in respondent's

COM offset calculation, we verified that this item related to revenue

obtained from an insurance claim on a shipment of subject merchandise,

which is more appropriately classified as an offset to G&A expenses,

rather than production costs. (See Zeta Verification Report at 26.)

Therefore, we have excluded it from Zeta's production cost offset

calculation and included it in the calculation of the G&A expense

ratio. We have treated the ``loss on others'' which relates to safety

deposit box rental charges incurred during the POI as G&A expenses, and

removed it from the COM offset calculation because it relates to the

general expenses of the company rather than production costs. We also

verified that the ``loss on claim'' included in the COM offset

calculation as a reduction to the offset amount related to payment made

to a U.S. customer for excess glass jar wastage. Because the cost of

containers are included in the COM for purposes of our dumping analysis

in this case, we have continued to include the ``loss on claim'' in the

calculation of COM. (See Zeta Verification Report at 26.)

Comment 13: Cost of Producing Fancy Mushrooms and Non-fancy

Mushrooms

Zeta argues that the Department should value its mushroom inputs

consistent with Zeta's treatment of these costs in its accounting

system. Zeta argues that the Department confirmed at verification that

Zeta's costs for fancy mushrooms differ from the costs for non-fancy

mushrooms. Contrary to the Department's statements in its verification

report, Zeta asserts that it actually over-reported costs of fresh

mushrooms in its submitted costs and provided a cost analysis to

support this claim in its November 9, 1998 case brief at pages 23 and

24. Therefore, Zeta argues that adjusting the costs for an under-

allocation of costs alleged in the Department's verification report is

therefore unwarranted.

Petitioners disagree, arguing that the Department should correct

Zeta's understatement of fresh mushroom costs based on its verification

findings. According to petitioners, Zeta restated its average per-unit

cost of internally grown mushrooms to reflect the difference in value

(i.e., purchase price) between fancy and non-fancy mushrooms purchased

from third parties. Further, petitioners maintain that Zeta's

contention that its methodology overstates costs rather than

understates costs is illogical because it uses the per-unit mushroom

costs that have already been ``restated.'' Therefore, petitioners

contend that Zeta's suggestion that its costs were over-reported is

unsupported by the evidence on the record and should be rejected by the

Department.

DOC Position:

We disagree with Zeta. While the Department verified that Zeta

purchases fancy and non-fancy mushrooms at different prices, it incurs

and records one average cost for growing its own mushrooms. Zeta's

proposed method would create an artificial difference in cost for its

own production. As discussed in Comment 7 above, the cost of producing

different grades of mushrooms are the same. We note that Zeta purchases

only a small quantity of mushrooms and produces the rest of its

mushrooms.

We disagree with the analysis of costs set forth in Zeta's case

brief. In its case brief, Zeta incorrectly added the quantity of fancy

and non-fancy mushroom production. In fact, Zeta transposed the total

fancy and non-fancy quantities and therefore used the incorrect amounts

in attempting to show the total mushroom cost reported. As stated in

the verification report at 2 and 15, Zeta under-allocated mushroom cost

in the reported costs. For the final determination, we have allocated

Zeta's total mushroom cost based on the weighted-average cost of its

mushroom purchases and its own mushroom production costs. (See Comment

7, above, for further discussion.)

Comment 14: Cost Allocation Based on Adjustment Factors Derived

from Difference in Processing Time

Zeta contends that the Department should accept Zeta's reported

cost allocation that is based on its normal accounting records which

incorporate time study standards that reflect differences in processing

time between mushroom styles (i.e., whole, sliced, and pieces and

stems). Zeta argues that it complied with the Department's request to

report costs on a product-specific basis. Accordingly, given that its

accounting and production records incorporated the processing time

studies on a product-specific basis, Zeta maintains that the Department

should use Zeta's reported cost allocation because it satisfies the

Department's requirement. Furthermore, according to Zeta's cost

allocation methodology is consistent with the Department's requirement

that respondent allocate costs to subject merchandise at the greatest

level of specificity permitted by the respondent's regularly-kept

production records, whether or not such allocation is actually used in

the company's accounting system. Among other cases, respondents cite

Certain Cold-Rolled and Corrosion Resistant Carbon Steel Flat Rolled

Products: Final Results of Antidumping Administrative Review (62 13195,

March 18, 1998) and Final Determination of Sales at Less Than Fair

Value: Stainless Steel Wire Rod From Korea (63 FR 40404, July 29, 1998)

to support the proposition that respondents can allocate costs on a

more detailed, product-specific level than that in their normal cost

accounting methodology in order to report costs on a control number-

specific basis, as required by the Department. Zeta argues that its

cost allocation methodology is also consistent with its production

process. For example, Zeta states that it has higher costs for fancy

mushrooms than non-fancy mushrooms, and that petitioners' methodology

would ignore the additional time and cost associated with the

processing of fancy mushrooms in manufacturing sliced and whole

mushrooms. Zeta argues that the Department's failure to use Zeta's

adjustment factor in Zeta's cost allocation would render the product

characteristics useless in this investigation because allocation of

costs strictly on the basis of weight, as proposed by the petitioners,

would mean that all products would have the same per-unit weight cost

which is incorrect. Zeta contends that since its normal production

records report the processing time studies on a product-specific basis,

and since Zeta's submitted cost allocations comply with the

Department's requirement that costs be reported on a product-specific

basis, Zeta concludes that the Department should accept Zeta's reported

cost allocations.

Petitioners maintain that the Department should reject Zeta's cost

allocations which have not been historically used in its accounting

system in the normal course of business. Petitioners assert that Zeta

admits that its reported costs are an ``adaptation'' of its actual cost

accounting system. Petitioners state that Zeta's time study standards

were never verified by the Department and, more importantly, these

studies represent a deviation from Zeta's normal cost accounting

system. Petitioners contend that the Department confirmed at

verification that these allocations are not, and have not been, used by

Zeta in its normal course of

[[Page 72282]]

business, and that they were created solely for this investigation.

According to petitioners, this violates well-established Department

policy, the SAA and the U.S. antidumping law. Petitioners cite Salmon

from Chile at 31432, stating that the Department's long-standing

practice, as codified in section 773(f)(1)(A) of the Act, is to rely on

data from a respondent's normal books and records which are prepared in

accordance with home country GAAP and reasonably reflect the costs of

producing and selling the subject merchandise.

Petitioners assert that Zeta admits that its normal system

distinguishes costs by container and drained weight, and not by grade

or style, and that there are no meaningful distinctions in the

production process between products. Petitioners point out that Zeta

states in its response that the cost system does not distinguish

between different types of products, and other than the slicing of the

mushrooms into sliced mushrooms or pieces and stems, the canning

process is identical for all mushrooms. In particular, petitioners

contend that Zeta's application of the price differential between

``fancy and non-fancy'' fresh mushrooms sourced from unaffiliated

farmers to its own internal costs of production for raw mushrooms is

unreasonable because Zeta purchased such a small percentage from

unaffiliated farmers and there was no distinction between fancy or non-

fancy styles. Petitioners maintain that since Zeta has declared on the

record of this investigation that ``the canning process is identical

for all mushrooms,'' there is no need for a novel allocation of labor

and overhead costs based on the unsupported and unverified claim that

whole mushrooms require more time to process than sliced mushrooms.

Because Zeta has failed to demonstrate that its normal books and

records do not reasonably reflect the costs associated with the

production of the subject merchandise, the petitioners state that the

Department should reject Zeta's submitted cost allocations and

calculate CV based on Zeta's normal books and records, using the

methodology proposed by petitioners in its case brief and consistent

with the method used in Mushrooms from Chile.

DOC Position:

We agree with petitioners. The time studies used by Zeta to adjust

reported costs for differences in processing are not used by Zeta in

the normal course of business and therefore cannot be used in the final

determination. In accordance with section 773(f)(1)(A) of the Act, the

Department will normally use a company's allocation methodology ``if

such allocations have been historically used'' by the producer. In this

case, we verified that Zeta does not allocate costs based on

differences in processing times in its normal books and records.

Moreover, Zeta did not substantiate processing differences at

verification, and the Department did not verify the validity of the

time studies or the claim that they are used at all in Zeta's normal

production records. Therefore, we have continued to calculate Zeta's

costs using a weight-based methodology and have disregarded Zeta's

costs adjusted for processing differences.

Comment 15: Use of Revised G&A Rate Calculated in the Verification

Report

Zeta argues that the Department, in its verification report,

erroneously classified selling expenses incurred at its Jakarta sales

office as G&A expenses, claiming that this classification is

inconsistent with the findings of the Department recorded elsewhere in

Zeta's verification report. Zeta argues that classification of these

expenses as selling expenses is consistent with Department practice

which has always classified general expenses related to a selling

operation as selling expenses. To support its claim, respondent cites a

number of cases, (e.g., Certain Cold-Rolled Carbon Steel Flat Products

From Germany: Final Results of Antidumping Duty Administrative Review,

60 FR 65264, December 19, 1995) where the Department stated that it

classified expenses associated with running a sales office or related

to sales activities as indirect selling expenses, rather than non-

sales-related G&A expenses. Accordingly, Zeta contends that the

Department should continue to calculate Zeta's G&A expense factor as it

did in the preliminary determination, separating the selling expenses

described above from the G&A expenses.

Petitioners reply that Zeta's allegation is in contradiction with

Zeta's own audited financial statement which classified the exact

amount as G&A expenses. Petitioners state that it is the Department's

long-standing policy to use audited financial statements in the

calculation of SG&A because they are more reliable than a company's own

estimated or reported figures (see CPF from Thailand at FR 29565).

Petitioners point out that the Department reviewed and verified Zeta's

classification of selling and G&A expenses at verification and tied the

SG&A expenses from Zeta's trial balances to its audited financial

statements. Petitioners argue that, in light of the above facts, the

Department should reject Zeta's claim and use the verified figure in

the calculation of Zeta's G&A expenses.

DOC Position:

We disagree with Zeta. Section 773(e)(2)(A) of the Act states that

CV should include an amount incurred for G&A expenses in connection

with the production and sale of the subject merchandise. Based on

representations made by Zeta officials and our observations at

verification, the expenses Zeta recorded in its audited financial

statements as G&A expenses are expenses related to the company

operations, not solely to support the company's selling functions.

Therefore, we have calculated Zeta's G&A expenses using the amount

verified and recorded by Zeta as G&A in its audited financial

statements.

Comment 16: Adjusting Zeta's Costs to Account for the Difference

Between Gross and Net Production Quantity

Petitioners argue that the Department should adjust Zeta's reported

costs upward to account for the difference between net and gross

production because the Department discovered at verification that Zeta

understated its reported costs by allocating total costs over the gross

production of the subject merchandise, rather the net production.

Petitioners contend that by using this method, Zeta has improperly

allocated total costs over waste, rejects, and samples.

DOC Position:

We agree with petitioners. In order to include yield losses in the

canning process, we have derived the per-unit cost using the net

production of canned mushrooms. Using this methodology allows us to

allocate the cost of waste, rejects, and samples to those products

available for sale. We have adjusted respondent's cost in accordance

with our findings at verification (see Zeta Verification Report at 2).

Continuation of Suspension of Liquidation

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

directing the Customs Service to begin suspension of liquidation for PT

Dieng Djaya/PT Surya Jaya Abadi Perkasa of all entries of subject

merchandise that are entered, or withdrawn from warehouse, for

consumption on or after the date of publication of the final

determination in the Federal Register. We are also directing the

Customs Service to continue to suspend liquidation for PT Zeta Agro

Corporation of all entries of subject merchandise from Indonesia, that

are

[[Page 72283]]

entered, or withdrawn from warehouse, for consumption on or after

August 5, 1998 (the date of publication of the preliminary

determination in the Federal Register). The Customs Service shall

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

estimated amount by which the normal value exceeds the U.S. price as

shown below. These suspension of liquidation instructions will remain

in effect until further notice. The weighted-average dumping margins

are as follows:

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

Weighted-

average

Exporter/manufacturer margin

percentage

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

PT Dieng Djaya/PT Surya Jaya Abadi Perkasa.................. 7.94

PT Zeta Agro Corporation.................................... 22.84

All Others.................................................. 11.26

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

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.

Richard W. Moreland,

Acting Assistant Secretary for Import Administration.

[FR Doc. 98-34705 Filed 12-30-98; 8:45 am]

BILLING CODE 3510-DS-P