Extruded Rubber Thread From Malaysia; Final Results of Antidumping Duty Administrative Review

DEPARTMENT OF COMMERCE

International Trade Administration

[A-557-805]

Extruded Rubber Thread From Malaysia; Final Results of

Antidumping Duty Administrative Review

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

SUMMARY: On November 7, 1997, the Department of Commerce published in

the Federal Register the preliminary results of the administrative

review of the antidumping duty order on extruded rubber thread from

Malaysia. This review covers four manufacturers/exporters of the

subject merchandise to the United States (Filati Lastex Elastofibre

(Malaysia), Heveafil Sdn. Bhd./Filmax Sdn. Bhd, Rubberflex Sdn. Bhd.,

and Rubfil Sdn. Bhd.). The period of review is October 1, 1995, through

September 30, 1996.

We gave interested parties an opportunity to comment on our

preliminary results. We have based our analysis on the comments

received and have changed the results from those presented in the

preliminary results of review.

EFFECTIVE DATE: March 16, 1998.

FOR FURTHER INFORMATION CONTACT: Shawn Thompson or Fabian Rivelis, AD/

CVD Enforcement Group II, Office 5, Import Administration,

International Trade Administration, U.S. Department of Commerce, 14th

Street and Constitution Avenue, NW, Washington, DC 20230; telephone

(202) 482-1776 or (202) 482-3853, respectively.

SUPPLEMENTARY INFORMATION:

Background

On November 7, 1997, the Department of Commerce (the Department)

published in the Federal Register its preliminary results of the 1995-

1996 administrative review of the antidumping duty order on extruded

rubber thread from Malaysia (62 FR 60221). The Department has now

completed this administrative review, in accordance with section 751(a)

of the Tariff Act of 1930, as amended (the Act).

Scope of the Review

The product covered by this review is extruded rubber thread.

Extruded rubber thread is defined as vulcanized rubber thread obtained

by extrusion of stable or concentrated natural rubber latex of any

cross sectional shape, measuring from 0.18 mm, which is 0.007 inch or

140 gauge, to 1.42 mm, which is 0.056 inch or 18 gauge, in diameter.

Extruded rubber thread is currently classifiable under subheading

4007.00.00 of the Harmonized Tariff Schedule of the United States

(HTSUS). The HTSUS subheadings are provided for convenience and customs

purposes. The written description of the scope of this review is

dispositive.

Applicable Statute and Regulations

Unless otherwise indicated, all citations to 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's regulations are to the regulations codified at 19 CFR Part

353 (April 1, 1997).

Facts Available

A. Heveafil Sdn. Bhd./Filmax Sdn. Bhd. (Heveafil)

In accordance with section 776(a)(2) of the Act, we determine that

the use of facts available is appropriate as the basis for Heveafil's

dumping margin because the Department could not verify the information

provided by Heveafil, as required under section 782(i) of the Act,

despite the Department's attempts to do so.

Specifically, we were unable to verify the cost of production (COP)

and constructed value (CV) information provided by Heveafil because we

discovered at verification that the company had destroyed the source

documents upon which a large portion of its response was based. The

destruction of these source documents raises particular concern, as

Heveafil should have been aware of the necessity of retaining these

documents based

[[Page 12753]]

upon its participation in prior segments of this proceeding. Moreover,

there were significant delays in the verification process itself,

caused by company difficulties in locating documents and the inability

of company officials to link information in the questionnaire response

to the accounting system. Our findings at verification are outlined in

detail in the public version of the cost verification report from Shawn

Thompson and Irina Itkin to Louis Apple, dated October 17, 1997

(Heveafil cost verification report).

Section 776(b) of the Act provides that adverse inferences may be

used with respect to a party that has failed to cooperate to the best

of its ability. See Statement of Administrative Action accompanying the

URAA, H.R. Rep. No. 316, 103rd Cong., 2d Sess. 870 (SAA). Because we

were unable to verify the information submitted by Heveafil in this

period of review (POR) and because the company failed to adequately

prepare and provide information during the verification, we determine

that Heveafil did not cooperate to the best of its ability. Thus,

pursuant to section 776(b) of the Act, we are basing Heveafil's margin

on adverse facts available for purposes of the final results.

As adverse facts available for Heveafil, we have used the highest

rate calculated for any respondent in any segment of this proceeding.

This rate is 54.31 percent. For further discussion, see Comment 16 in

the ``Analysis of Comments Received'' section of this notice.

B. Rubfil Sdn. Bhd. (Rubfil)

In accordance with section 776(a)(2)(A) of the Act, we also

determine that the use of facts available is appropriate as the basis

for Rubfil's dumping margin. Specifically, Rubfil failed to respond to

the Department's questionnaire, issued in December 1996. Because Rubfil

did not respond to the Department's questionnaire, we must use facts

otherwise available to calculate Rubfil's dumping margin.

Section 776(b) of the Act provides that adverse inferences may be

used with respect to a party that has failed to cooperate by not acting

to the best of its ability to comply with requests for information. The

failure of Rubfil to reply to the Department's questionnaire

demonstrates that it has failed to act to the best of its ability in

this review and, therefore, an adverse inference is warranted.

As adverse facts available for Rubfil, we have used the highest

rate calculated for any respondent in any segment of this proceeding.

This rate is 54.31 percent.

C. Corroboration of Secondary Information

As facts available in this case, the Department has used

information derived from a prior administrative review, which

constitutes secondary information within the meaning of the SAA. See

SAA at 870. Section 776(c) of the Act provides that the Department

shall, to the extent practicable, corroborate secondary information

from independent sources reasonably at its disposal. The SAA provides

that ``corroborate'' means that the Department will satisfy itself that

the secondary information to be used has probative value. See SAA, H.R.

Doc. 316, Vol. 1, 103rd Cong., 2d sess. 870 (1994).

To corroborate secondary information, the Department will, to the

extent practicable, examine the reliability and relevance of the

information to be used. However, unlike for other types of information,

such as input costs or selling expenses, there are no independent

sources for calculated dumping margins. Thus, in an administrative

review, if the Department chooses as total adverse facts available a

calculated dumping margin from the same or a prior segment of this

proceeding, it is not necessary to question the reliability of the

margin for that time period. With respect to the relevance aspect of

corroboration, however, the Department will consider information

reasonably at its disposal as to whether there are circumstances that

would render a margin not relevant. Where circumstances indicate that

the selected margin may not be appropriate, the Department will attempt

to find a more appropriate basis for facts available. See, e.g., Fresh

Cut Flowers from Mexico; Final Results of Antidumping Duty

Administrative Review, 61 FR 6812, 6814 (February 22, 1996) (Fresh Cut

Flowers) (where the Department disregarded the highest margin as

adverse best information available because the margin was based on

another company's uncharacteristic business expense resulting in an

unusually high margin).

For both Heveafil and Rubfil, we examined the rate applicable to

extruded rubber thread from Malaysia throughout the course of the

proceeding. With regard to its probative value, the rate specified

above is reliable and relevant because it is a calculated rate from the

1994-1995 administrative review. There is no information on the record

that demonstrates that the rate selected is not an appropriate total

adverse facts available rate for Heveafil and Rubfil. Thus, the

Department considers this rate to be appropriate adverse facts

available.

Normal Value Comparisons

To determine whether sales of extruded rubber thread from Malaysia

to the United States were made at less than normal value (NV), we

compared the constructed export price (CEP) to the NV for Filati Lastex

Elastofibre (Malaysia) (Filati) and Rubberflex Sdn. Bhd. (Rubberflex),

as specified in the ``Constructed Export Price'' and ``Normal Value''

sections of this notice.

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

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

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

discussed the appropriateness of using CV as the basis for foreign

market value when the Department finds home market sales to be outside

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

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

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

cost. See section 771(15) of the Act. Consequently, the Department has

reconsidered its practice in accordance with this court decision and

has determined that it would be inappropriate to resort directly to CV

as the basis for NV, in lieu of foreign market sales, if the Department

finds foreign market sales of merchandise identical or most similar to

that sold in the United States to be outside the ``ordinary course of

trade.'' Instead, the Department will use sales of similar merchandise,

if such sales exist. The Department will use CV as the basis for NV

only when there are no above-cost sales that are otherwise suitable for

comparison. Therefore, in this proceeding, when making comparisons in

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

sold in the home market as described in the ``Scope of the Review''

section of this notice, above, that were in the ordinary course of

trade for purposes of determining appropriate product comparisons to

U.S. sales. Where there were no sales of identical merchandise in the

home market made in the ordinary course of trade to compare to U.S.

sales, we compared U.S. sales to sales of the most similar foreign like

product made in the ordinary course of trade, based on the

characteristics listed in sections B and C of our antidumping

questionnaire.

[[Page 12754]]

Level of Trade and CEP Offset

In accordance with section 773(a)(1)(B) of the Act, to the extent

practicable, we determine NV based on sales in the comparison market at

the same level of trade as export price (EP) or CEP. The NV level of

trade is that of the starting-price sales in the comparison market or,

when NV is based on CV, that of the sales from which we derive selling,

general and administrative expenses (SG&A) and profit. For EP, the U.S.

level of trade is also the level of the starting-price sale, which is

usually from the exporter to importer. For CEP, it is the level of the

constructed sale from the exporter to the importer.

To determine whether NV sales are at a different level of trade

than EP or CEP sales, we examine stages in the marketing process and

selling functions along the chain of distribution between the producer

and the unaffiliated customer. If the comparison-market sales are at a

different level of trade and the difference affects price

comparability, as manifested in a pattern of consistent price

differences between the sales on which NV is based and comparison-

market sales at the level of trade of the export transaction, we make a

level-of-trade adjustment under section 773(a)(7)(A) of the Act.

Finally, for CEP sales, if the NV level is more remote from the factory

than the CEP level and there is no basis for determining whether the

difference in the levels between NV and CEP affects price

comparability, we adjust NV under section 773(a)(7)(B) of the Act (the

CEP offset provision). See Notice of Final Determination of Sales at

Less Than Fair Value: Certain Cut-to-Length Carbon Steel Plate from

South Africa, 62 FR 61731 (Nov. 19, 1997).

Both Filati and Rubberflex claimed that they made home market sales

at only one level of trade (i.e., sales to original equipment

manufacturers) and that this level was different, and more remote, than

the level of trade at which they made CEP sales.

Because only one level of trade existed in the home market for both

respondents, we conducted an analysis to determine whether a CEP offset

was warranted for either company. In order to determine whether NV was

established at a level of trade which constituted a more advanced state

of distribution than the level of trade of the CEP, we compared the

selling functions performed for home market sales with those performed

with respect to the CEP transaction which excludes economic activities

occurring in the United States. We found that both respondents

performed essentially the same selling functions in their sales offices

in Malaysia for both home market and U.S. sales. Therefore, the

respondent's sales in Malaysia were not at a more advanced stage of

marketing and distribution than the constructed U.S. level of trade,

which represents an FOB foreign port price after the deduction of

expenses associated with U.S. selling activities. Because we find that

no difference in level of trade exists between markets, we have not

granted a CEP offset to either Filati or Rubberflex. For a detailed

explanation of this analysis, see the concurrence memorandum issued for

the preliminary results of this review, dated October 31, 1997.

Constructed Export Price

For all sales by Filati and Rubberflex, we based the starting price

on CEP, in accordance with section 772(b) of the Act. For further

discussion, see Comment 5 in the ``Analysis of Comments Received''

section of this notice.

Moreover, for both companies, we revised the reported data based on

our findings at verification.

A. Filati

We calculated CEP based on the starting price to the first

unaffiliated purchaser in the United States. In accordance with section

772(c)(1)(B) of the Act, we added an amount for uncollected import

duties in Malaysia. We made deductions from the starting price, where

appropriate, for discounts and rebates. In addition, where appropriate,

we made deductions for foreign inland freight, foreign brokerage and

handling expenses, ocean freight, marine insurance, U.S. customs duty,

U.S. brokerage and handling expenses, and U.S. inland freight, in

accordance with section 772(c)(2)(A) of the Act.

We made additional deductions to CEP, where appropriate, for

commissions, credit expenses, U.S. indirect selling expenses, and U.S.

inventory carrying costs, in accordance with section 772(d)(1) of the

Act. We recalculated U.S. indirect selling expenses to exclude an

offset claimed by Filati relating to imputed costs associated with

financing antidumping and countervailing duty deposits, in accordance

with the Department's practice. See Comment 4 in the ``Analysis of

Comments Received'' section of this notice, for further discussion.

Pursuant to section 772(d)(3) of the Act, we further reduced the

starting price by an amount for profit, to arrive at CEP. In accordance

with section 772(f) of the Act, we calculated the CEP profit rate using

the expenses incurred by Filati and its affiliate on their sales of the

subject merchandise in the United States and the foreign like product

in the home market and the profit associated with those sales.

B. Rubberflex

We calculated CEP based on the starting price to the first

unaffiliated customer in the United States. We made deductions from the

starting price, where appropriate, for discounts and rebates. We also

made deductions for foreign inland freight, foreign brokerage and

handling expenses, ocean freight, marine insurance, U.S. customs duty,

and U.S. inland freight, in accordance with section 772(c)(2)(A) of the

Act.

We made additional deductions to CEP, where appropriate, for credit

expenses, U.S. indirect selling expenses, and U.S. inventory carrying

costs, in accordance with section 772(d)(1) of the Act. We recalculated

U.S. indirect selling expenses to exclude an offset claimed by

Rubberflex relating to imputed costs associated with financing

antidumping and countervailing duty deposits, in accordance the

Department's practice. See Comment 4 in the ``Analysis of Comments

Received'' section of this notice, for further discussion.

Pursuant to section 772(d)(3) of the Act, we further reduced the

starting price by an amount for profit, to arrive at CEP. In accordance

with section 772(f) of the Act, we calculated the CEP profit rate using

the expenses incurred by Rubberflex and its affiliate on their sales of

the subject merchandise in the United States and the foreign like

product in the home market and the profit associated with those sales.

Normal Value

In order to determine whether there is a sufficient volume of sales

in the home market to serve as a viable basis for calculating NV (i.e.,

the aggregate volume of home market sales of the foreign like product

is greater than five percent of the aggregate volume of U.S. sales), we

compared the volume of each respondent's home market sales of the

foreign like product to the volume of U.S. sales of subject

merchandise, in accordance with section 773(a)(1)(C) of the Act. Based

on this comparison, we determined that both Filati and Rubberflex had

viable home markets during the POR. Consequently, we based NV on home

market sales.

Pursuant to section 773(b) of the Act, there were reasonable

grounds to believe or suspect that Rubberflex had made home market

sales at prices below

[[Page 12755]]

its COP in this review because the Department had disregarded sales

below the COP for Rubberflex in a previous administrative review. See

Notice of Final Results of Antidumping Duty Administrative Review:

Extruded Rubber Thread from Malaysia, 61 FR 54767 (Oct. 22, 1996).

Moreover, the petitioner submitted an adequate allegation that there

were reasonable grounds to believe or suspect that Filati had made home

market sales at prices below its COP in this review. As a result, the

Department initiated an investigation to determine whether the

respondents made home market sales during the POR at prices below their

respective COPs.

We calculated the COP based on the sum of each respondent's cost of

materials and fabrication for the foreign like product, plus amounts

for SG&A and packing costs, in accordance with section 773(b)(3) of the

Act.

We used the respondents' reported COP amounts, adjusted as

discussed below, to compute weighted-average COPs during the POR. We

compared the weighted-average COP figures to home market sales of the

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

order to determine whether these sales had been made at prices below

the COP. On a product-specific basis, we compared the COP to home

market prices, less any applicable movement charges and discounts.

In determining whether to disregard home market sales made at

prices below the COP, we examined whether such sales were made: (1) In

substantial quantities within an extended period of time; and (2) at

prices which permitted the recovery of all costs within a reasonable

period of time in the normal course of trade. See Sec. 773(b)(1) of the

Act.

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

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

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

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

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

sales of a given product were at prices below the COP, we found that

sales of that model were made in ``substantial quantities'' within an

extended period of time, in accordance with section 773(b)(2)(B) of the

Act. In such cases, we also determined that such sales were not made at

prices which would permit recovery of all costs within a reasonable

period of time, in accordance with section 773(b)(2)(D) of the Act.

Therefore, we disregarded the below-cost sales. Where all sales of a

specific product were at prices below the COP, we disregarded all sales

of that product.

We found that, for certain models of extruded rubber thread, more

than 20 percent of both Filati's and Rubberflex's home market sales

within an extended period of time were at prices less than COP.

Further, the prices did not provide for the recovery of costs within a

reasonable period of time. We therefore disregarded the below-cost

sales and used the remaining above-cost sales as the basis for

determining NV, in accordance with section 773(b)(1) of the Act. For

those U.S. sales of extruded rubber thread for which there were no

comparable home market sales in the ordinary course of trade, we

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

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

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

SG&A, profit, and U.S. packing costs. In accordance with section

773(e)(2)(A) of the Act, we based SG&A and profit on the amounts

incurred and realized by each respondent in connection with the

production and sale of the foreign like product in the ordinary course

of trade, for consumption in the foreign country.

Company-specific calculations are discussed below.

A. Filati

We made the following adjustments to Filati's reported COP and CV

data based on our findings at verification. For the cost of

manufacturing (COM), in order to properly value second quality

merchandise and apply the appropriate manufacturing variance, we first

valued the second quality merchandise at the standard cost of the first

quality product that was intended to be produced. We then calculated

the variance between the revised total standard cost and the total

actual cost, and applied the variance proportionately to each per-unit

standard cost. We also recalculated Filati's reported general and

administrative (G&A) expense ratio by excluding direct selling,

indirect selling, G&A, and financial expenses from the denominator of

the ratio. The resulting ratio was applied to the per-unit COM.

Finally, we recalculated Filati's reported interest expense using the

consolidated financial statements of its parent company. Specifically,

we divided net interest expense by the cost of operations. For further

discussion of these adjustments, see Comment 13 in the ``Analysis of

Comments Received'' section, below, and the cost calculation memorandum

from Michael Martin and Gina Lee to Christian Marsh, dated March 9,

1998.

Where NV was based on home market sales, we based NV on the

starting price to unaffiliated customers. We made adjustments to

Filati's reported sales data based on our findings at verification.

For all price-to-price comparisons, we made deductions from the

starting price for rebates, where appropriate. We also made deductions,

where appropriate, for foreign inland freight, pursuant to section

773(a)(6)(B) of the Act. Pursuant to section 773(a)(6)(C)(iii) of the

Act, we made circumstance-of-sale adjustments, where appropriate, for

differences in credit expenses, bank charges, and U.S. commissions.

Where applicable, in accordance with 19 CFR 353.56(b)(1), we offset any

commission paid on a U.S. sale by reducing the NV by the amount of home

market indirect selling expenses and inventory carrying costs, up to

the amount of the U.S. commission.

In addition, we deducted home market packing costs and added U.S.

packing costs, in accordance with section 773(a)(6) of the Act. Where

appropriate, we made adjustments to NV to account for differences in

physical characteristics of the merchandise, in accordance with section

773(a)(6)(C)(ii) of the Act and 19 CFR 353.57.

For CV-to-CEP comparisons, we made circumstance-of-sale

adjustments, where appropriate, for differences in credit expenses,

bank charges, and U.S. commissions, in accordance with sections

773(a)(6)(C)(iii) and 773(a)(8) of the Act. Where applicable, in

accordance with 19 CFR 353.56(b)(1), we offset any commission paid on a

U.S. sale by reducing the NV by the amount of home market indirect

selling expenses and inventory carrying costs, up to the amount of the

U.S. commission.

B. Rubberflex

Where NV was based on home market sales, we based NV on the

starting price to unaffiliated customers. We made adjustments to

Rubberflex's reported sales data based on our findings at verification.

We made deductions from the starting price for discounts and

rebates, where appropriate. We also made deductions for foreign inland

freight and foreign inland insurance, pursuant to section 773(a)(6)(B)

of the Act. In addition, we made a circumstance-of-sale adjustment for

differences in credit expenses. We deducted home market packing costs

and added U.S. packing costs, in accordance with section 773(a)(6) of

the Act. Where appropriate, we made adjustments to NV to account for

[[Page 12756]]

differences in physical characteristics of the merchandise, in

accordance with section 773(a)(6)(c)(ii) of the Act and 19 CFR 353.57.

For CV-to-CEP comparisons, we made circumstance-of-sale

adjustments, where appropriate, for differences in credit expenses.

Duty Absorption

On December 16, 1996, the petitioner requested that the Department

determine, with respect to all respondents, whether antidumping duties

had been absorbed during the POR. Section 751(a)(4) of the Act provides

for the Department, if requested, to determine during an administrative

review initiated two or four years after the publication of the order,

whether antidumping duties have been absorbed by a foreign producer or

exporter if the subject merchandise is sold in the United States

through an affiliated importer.

For transition orders as defined in section 751(c)(6)(C) of the Act

(i.e., orders in effect as of January 1, 1995), section 351.213(j)(2)

of the Department's new antidumping regulations provide that the

Department will make a duty-absorption determination, if requested, for

any administrative review initiated in 1996 or 1998. See 62 FR 27394

(May 19, 1997). Because the order on extruded rubber thread from

Malaysia has been in effect since 1991, it is a transition order in

accordance with section 751(c)(6)(C) of the Act. The preamble to the

new antidumping regulations explains that reviews initiated in 1996

will be considered initiated in the second year and reviews initiated

in 1998 will be considered initiated in the fourth year (62 FR 27317,

May 19, 1997). This approach ensures that interested parties will have

the opportunity to request a duty-absorption determination prior to the

time for sunset review of the order under section 751(c) of the Act on

entries for which the second and fourth years following an order have

already passed. Since this review was initiated in 1996, and a request

was made for a determination, we are making a duty-absorption

determination as part of this administrative review.

As indicated above, section 751(a)(4) of the Act provides for a

determination on duty absorption if the subject merchandise is sold in

the United States through an affiliated importer. In this case, the

respondents sold through importers that are affiliated. We have

determined that duty absorption by all respondents has occurred in this

administrative review. This determination is made only with respect to

the percentages of sales shown below which were made through the

respondents' U.S. affiliates and which had positive dumping margins:

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

Percentage of

U.S.

affiliates'

Manufacturer/exporter/reseller sales with

dumping

margins

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

Heveafil................................................ 100.00

Filati.................................................. 100.00

Rubberflex.............................................. 57.35

Rubfil.................................................. 100.00

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

With respect to Heveafil and Rubfil, because the former failed

verification and the latter did not respond to our questionnaire, we

determined the dumping margins for these two companies on the basis of

adverse facts available. Lacking other information, we find duty

absorption on all sales by these two companies. See Antifriction

Bearings (Other Than Tapered Roller Bearings) and Parts Thereof from

France, Germany, Italy, Japan, Romania, Singapore, Sweden and the

United Kingdom; Final Results of Antidumping Duty Administrative

Reviews, 62 FR 54043 (Oct. 17, 1997) (AFBs) and Tapered Roller Bearings

and Parts Thereof, Finished and Unfinished, From Japan, and Tapered

Roller Bearings, Four Inches or Less in Outside Diameter, and

Components Thereof, From Japan; Final Results of Antidumping Duty

Administrative Reviews, 63 FR 2558 (Jan. 15, 1998) (TRBs) (where we

found duty absorption with respect to all sales for which the

respondent provided no data in response to the Department's

questionnaire).

With respect to the other respondents with affiliated importers

(i.e., Filati and Rubberflex) for which we did not apply adverse facts

available, we must presume that the duties will be absorbed for those

sales which were dumped. As the above chart indicates, 100 percent of

Filati's sales, and 57.35 percent of Rubberflex's sales, by volume,

were dumped. Our duty-absorption presumptions can be rebutted with

evidence that the unaffiliated purchasers in the United States will pay

the ultimately assessed duty. After publication of our preliminary

results, we gave interested parties the opportunity to submit evidence

that the unaffiliated purchasers in the United States will pay the

ultimately assessed duties. However, we received no such evidence.

Under these circumstances, we find that antidumping duties have been

absorbed by all respondents on the percentages of U.S. sales indicated.

Specific arguments relating to duty absorption are discussed in Comment

1 of the ``Analysis of Comments Received'' section, below.

Currency Conversion

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.

Section 773A of the Act directs the Department to use a daily

exchange rate in order to convert foreign currencies into U.S. dollars

unless the daily rate involves a fluctuation. It is the Department's

practice to find that a fluctuation exists when the daily exchange rate

differs from the benchmark rate by 2.25 percent. The benchmark is

defined as the moving average of rates for the past 40 business days.

When we determine a fluctuation to have existed, we substitute the

benchmark for the daily rate, in accordance with established practice.

Analysis of Comments Received

We gave interested parties an opportunity to comment on the

preliminary results. We received comments from North American Rubber

Thread (the petitioner), and two respondents, Filati and Heveafil. We

also received rebuttal comments from Filati and Heveafil.

General Issues

Comment 1: Duty Absorption

According to the petitioner, the Department should find that the

respondents are absorbing antidumping duties in cases where their U.S.

subsidiaries are the importers of record.

Filati and Heveafil assert that there is no evidence that they are

absorbing antidumping duties in this review. According to these

companies, the duties for this review period have yet to be assessed.

Consequently, there can be no finding that these companies are

absorbing duties for this POR.

Moreover, these respondents state that both the URAA and SAA

require that the Department perform a meaningful analysis of whether

antidumping duties are absorbed. Therefore, these respondents argue

that it is not lawful for the Department to merely presume that duty

absorption has taken place by virtue of a finding that dumping margins

exist on sales through affiliated importers. According to these

respondents, such a presumption shifts the burden of demonstrating that

duties are not being absorbed to the respondents. These respondents

state that this presumption is both unfair and unreasonable because it

is impossible to rebut, given that it would require their

[[Page 12757]]

customers to assume an unlimited, contingent liability for antidumping

duties several years after the sale.

Filati and Heveafil also contend that acceptance of the

Department's presumption renders meaningless any sunset reviews,

because the existence of dumping margins would be sufficient to make an

affirmative finding.

Finally, Heveafil argues that the Department should not find that

it absorbed antidumping duties based on Rubfil's rate in a previous

review because that rate clearly is not representative of Heveafil's

sales patterns. Instead, Heveafil asserts that the Department should

make a determination based on Heveafil's actual experience, as

submitted to the Department in past reviews.

DOC Position

We disagree with the respondents. An investigation as to whether

there is duty absorption does not simply involve publishing the margin

in the final results of review. The Department's determination that

duty absorption exists is based on the lack of any information on the

record that the first unaffiliated customer will be responsible for

paying the duty that is ultimately assessed. Absent such an irrevocable

agreement between the affiliated U.S. importer(s) and the first

unaffiliated customer, there is no basis for the Department to conclude

that the duty attributable to the margin is not being absorbed. See,

e.g., AFBs at 54043 and 54044.

As in previous cases where the Department has found duty absorption

(see, e.g., AFBs and TRBs), this is an instance where the existence of

margins raises an initial presumption that the affiliated importer(s)

are absorbing the duty. As such, the burden of producing evidence to

the contrary shifts to the respondent. See Creswell Trading Co., Inc.

v. United States, 15 F.3d 1054 (CAFC 1994). Here, the respondents have

failed to place evidence on the record, despite being given ample time

to do so, in support of their position that their affiliated

importer(s) are not absorbing the duties.

Regarding Heveafil's argument that we should make our duty-

absorption determination based on Heveafil's actual experience, as

submitted to the Department in past reviews, we also disagree. The

Department's current practice is to find that duty absorption occurred

for companies having a margin based on adverse facts available, absent

any information to the contrary. See AFBs and TRBs. Because Heveafil

submitted no information showing that its affiliated importer is not

absorbing the duties for this POR, we find that duty absorption

occurred.

Finally, regarding the argument that the presumption of absorption

renders the sunset provisions meaningless, we note that the Department

has no experience in conducting sunset reviews. Thus, we are unable to

determine the impact of any duty absorption finding on a subsequent

sunset review.

Comment 2: Calculation of CV Profit

The petitioner argues that the Department should exclude all below-

cost sales from the calculation of CV profit, in accordance with its

practice. As support for this contention, the petitioner cites

Mechanical Transfer Presses From Japan; Final Results of Antidumping

Administrative Review, 62 FR 11820, 11822 (Mar. 13, 1997) (MTPs from

Japan).

Filati disagrees, citing to the Department's practice under the old

law, in which the Department consistently rejected such arguments.

Filati argues that the URAA does not require a change in the

Department's practice. Specifically, Filati contends that the

Department may exclude below-cost sales only when it determines that

such sales are outside the ordinary course of trade. Filati cites

Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts

Thereof from France, Germany, Italy, Japan, Singapore, and the United

Kingdom; Final Results of Antidumping Duty Administrative Reviews, 62

FR 2081, 2114 (Jan. 15, 1997) (1994-1995 AFBs Reviews), where the

Department stated that sales must be disregarded under the cost test

before they can be excluded from the calculation of CV profit. Filati

asserts that this practice is consistent with the SAA as well as the

WTO antidumping code.

Filati further argues that, in this case, the Department should not

exclude any of its sales of second quality merchandise from the

calculation of CV profit (or, correspondingly from the calculation of

NV)--irrespective of whether they are above or below cost--because they

are not outside the ordinary course of trade. According to Filati,

these sales are the type of unusual, off-spec, infrequent sales

contemplated by the SAA in its discussion of what types of below-cost

sales should be included as part of NV. Specifically, Filati cites the

SAA at 833, which states that ``below-cost sales may be used to

determine normal value if those sales are obsolete or end-of-model-year

merchandise.''

DOC Position

We agree with Filati, in part. It is the Department's practice to

disregard below-cost sales in the calculation of CV profit only when

those sales fail the cost test. See, e.g., MTPs from Japan, 1994-1995

AFBs Reviews, and Notice of Final Determination of Sales at Less Than

Fair Value: Static Random Access Memory Semiconductors from Taiwan 63

FR 8909 (Feb. 23, 1998) (SRAMs from Taiwan). Consequently, in

accordance with our practice, we have excluded below-cost sales from

the calculation of CV profit only when they were made in substantial

quantities within an extended period of time at prices which would not

permit the recovery of all costs within a reasonable period of time.

We disagree with Filati's contention that its below-cost sales of

second quality merchandise were made in the ordinary course of trade.

The Department's practice is not to distinguish between first and

second quality merchandise in conducting the cost test. See, e.g.,

Polyethylene Terephthalate Film, Sheet, and Strip from the Republic of

Korea; Final Results of Antidumping Administrative Reviews and Notice

of Revocation in Part, 61 FR 35177 (July 5, 1996). Consequently, where

these sales failed the cost test, we find that they were made outside

the ordinary course of trade. Accordingly, we have excluded such sales

from our analysis for purposes of the final results.

Comment 3: Date of Payment

The Department noted at verification that both Filati and

Rubberflex had not received payment for certain U.S. sales. According

to the petitioner, the Department should use the date of the final

results as the date of payment for these transactions. The petitioner

asserts that, if payment for these sales had been received by the time

of verification, the respondents should have indicated this to the

Department.

Filati maintains that the Department's consistent policy is to use

the last day of verification as the date of payment for the unpaid

sales. See Brass Sheet and Strip from Sweden: Final Results of

Antidumping Administrative Review, 60 FR 3617, 3620 (Jan. 18, 1995)

(Brass Sheet and Strip from Sweden). Filati states that this date is

the last date on which the Department can be certain that payment had

not been received, given that the Department's regulations do not allow

respondents to provide information after verification. Furthermore,

Filati argues that the use of the date of the final results would be

unduly punitive, because there is an

[[Page 12758]]

extended period between the time that the sales were made and the date

of the final results of the review.

DOC Position

The Department's recent practice regarding this issue has been to

use the last day of verification as the date of payment for unpaid

sales. See SRAMs from Taiwan and Brass Sheet and Strip from Sweden. In

accordance with our practice, we have used the last day of verification

as the date of payment for the transactions in question.

Company-Specific Issues

A. Filati

Comment 4: Offset for Imputed Costs Associated With AD/CVD Duty

Deposits

In its questionnaire response, Filati reported the opportunity

costs associated with financing its cash deposits of antidumping and

countervailing duties as an offset to U.S. indirect selling expenses.

Filati notes that the Department's decision to deny this offset for

purposes of the preliminary results is consistent with its recent

practice. See AFBs. However, Filati contends that the Department's

change in policy conflicts with prior decisions both by the Department

and the Court of International Trade (CIT). See, e.g., 1994-1995 AFBs

Reviews and Federal-Mogul v. United States, 950 F. Supp. 1179 (CIT

1996).

Specifically, Filati asserts that the reasoning in AFBs was flawed,

in two respects. First, Filati asserts that AFBs was based on the

premise that money is fungible. According to Filati, however, this

point is irrelevant because the company has incurred a real expense

which it would not have incurred but for the existence of the

antidumping duty order. Second, Filati asserts that AFBs was based on

the premise that there is no ``real'' opportunity cost associated with

the duty deposits. Filati maintains that this point is also incorrect,

because respondents making cash deposits are required to divert funds

from more profitable ventures.

According to Filati, the CIT has mandated that imputed interest

expenses incurred with respect to antidumping or countervailing duty

deposits are not ``selling expenses,'' and, therefore, the antidumping

law does not allow their deduction from CEP. Consequently, Filati

argues that the Department should allow its offset for purposes of the

final results.

DOC Position

We disagree. For these final results, we have continued to deny an

offset to Filati's U.S. indirect selling expenses for expenses which

Filati claims are related to financing of antidumping and

countervailing duty cash deposits.

As the Department explained in AFBs, the statute does not contain a

precise definition of what constitutes a selling expense. Instead,

Congress gave the administering authority discretion in this area. It

is a matter of policy whether we consider there to be any financing

expenses associated with cash deposits. We recognize that we have, to a

limited extent, removed such expenses from indirect selling expenses

for such financing expenses in other proceedings. However, we have

reconsidered our position on this matter and have now concluded that

this practice is inappropriate.

We have long maintained, and continue to maintain, that antidumping

duties, and cash deposits of antidumping duties, are not expenses that

we should deduct from CEP. To do so would involve a circular logic that

could result in an unending spiral of deductions for an amount that is

intended to represent the actual offset for the dumping. See, e.g.,

Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts

Thereof From France, et al.; Final Results of Antidumping Duty

Administrative Reviews, 57 FR 28360 (June 24, 1992). We have also

declined to deduct legal fees associated with participation in an

antidumping case, reasoning that such expenses are incurred solely as a

result of the existence of the antidumping duty order. Id. Underlying

our logic in both these instances is an attempt to distinguish between

business expenses that arise from economic activities in the United

States and business expenses that are direct, inevitable consequences

of the dumping order.

Financial expenses associated with cash deposits are not a direct,

inevitable consequence of an antidumping order. As noted in AFBs, money

is fungible. If an importer acquires a loan to cover one operating

cost, that may simply mean that it will not be necessary to borrow

money to cover a different operating cost. See AFBs at 54079. Companies

may choose to meet obligations for cash deposits in a variety of ways

that rely on existing capital resources or that require raising new

resources through debt or equity. For example, companies may choose to

pay deposits by using cash on hand, obtaining loans, increasing sales

revenues, or raising capital through the sale of equity shares. In

fact, companies face these choices every day regarding all their

expenses and financial obligations. There is nothing inevitable about a

company having to finance cash deposits and there is no way for the

Department to trace the motivation or use of such funds even if it

were.

In a different context, we have made similar observations. For

example, we stated that ``debt is fungible and corporations can shift

debt and its related expenses toward or away from subsidiaries in order

to manage profit.'' See Ferrosilicon From Brazil; Final Results of

Antidumping Duty Administrative Review, 61 FR 59407, 59412 (Nov. 22,

1996) (regarding whether the Department should allocate debt to

specific divisions of a corporation).

So, while under the statute we may allow a limited exemption from

deductions from CEP for cash deposits themselves and legal fees

associated with participation in dumping cases, we do not see a sound

basis for extending this exemption to financing expenses allegedly

associated with financing cash deposits. By the same token, for the

reasons stated above, we would not allow an offset for financing the

payment of legal fees associated with participation in a dumping case.

We see no merit to the argument that, since we do not deduct cash

deposits from CEP, we should also not deduct financing expenses that

are arbitrarily associated with cash deposits. To draw an analogy as to

why this logic is flawed, we also do not deduct corporate taxes from

CEP; however, we would not consider a reduction in selling expenses to

reflect financing alleged to be associated with payment of such taxes.

Finally, we also determine that we should not use an imputed amount

that would theoretically be associated with financing of cash deposits.

There is no real opportunity cost associated with cash deposits when

the paying of such deposits is a precondition for doing business in the

United States. Like taxes, rent, and salaries, cash deposits are simply

a financial obligation of doing business. Companies cannot choose not

to pay cash deposits if they want to import, nor can they dictate the

terms, conditions, or timing of such payments. By contrast, we impute

credit and inventory carrying costs when companies do not show an

actual expense in their records because companies have it within their

discretion to provide different payment terms to different customers

and to hold different inventory balances for different markets. We

impute costs in these circumstances as a means of comparing different

conditions of sale in different markets. Thus, our policy on imputed

expenses is consistent; under this policy, the imputation of financing

costs to actual expenses is inappropriate.

[[Page 12759]]

Comment 5: Treatment of EP Sales

During the POR, Filati classified all sales shipped directly to

U.S. customers as EP sales. The petitioner argues that the Department

should treat these transactions as CEP sales because, according to the

petitioner, Filati's U.S. subsidiary acts as more than a paper

processor and communications link between the Malaysian parent and its

customers. Specifically, the petitioner maintains that Filati's U.S.

affiliate is involved in the actual negotiation of prices to

unaffiliated U.S. customers.

The petitioner cites to the following cases as precedent for

reclassifying the transactions in question as CEP sales: Small Diameter

Circular Seamless Carbon and Alloy Steel Standard, Line and Pressure

Pipe From Germany: Preliminary Results of Antidumping Duty

Administrative Review, 62 FR 47446, 47448 (Sept. 9, 1997); Notice of

Preliminary Determinations of Sales at Less Than Fair Value and

Postponement of Final Determinations: Brake Drums and Brake Rotors From

the People's Republic of China, 61 FR 53190, 53194 (Oct. 10, 1996);

Certain Cut-To-Length Carbon Steel Plate From Germany: Final Results of

Antidumping Duty Administrative Review, 62 FR 18390, 18392 (Apr. 15,

1997); and Sebacic Acid From the People's Republic of China; Final

Results of Antidumping Duty Administrative Review, 62 FR 10530, 10532

(Mar. 7, 1997). In those cases, the Department classified the

respondents' U.S. sales as CEP transactions, because the U.S. companies

performed significant selling functions in the United States.

Consequently, the petitioner maintains that the Department should

deduct the indirect selling and operating costs of Filati's U.S.

subsidiary from the starting price for purposes of the final results.

Filati contends that the Department properly treated its direct

shipment sales as EP sales. Filati states that the Department has

consistently classified Filati's direct shipment sales as EP sales from

the original investigation through the latest published administrative

review (i.e., Extruded Rubber Thread From Malaysia; Final Results of

Antidumping Duty Administrative Review, 62 FR 52547 (Nov. 24, 1997)).

Furthermore, Filati notes that the facts of this review in no way

differ from the facts of previous reviews with respect to the role in

the sales process of Filati's U.S. affiliate. According to Filati, the

sales in question were made prior to entry in the normal, customary

commercial channel for the customers involved. Moreover, Filati asserts

that the selling activities of its U.S. affiliate were well within the

range of activities that the Department has previously found to be

consistent with EP sales.

Filati notes that the cases cited by the petitioner are

distinguishable from the circumstances present in this case, in that

the U.S. subsidiaries in those cases set the prices of the direct

sales. According to Filati, the Department confirmed at verification

that Filati (USA) has no flexibility or authority to set prices or

other significant terms for direct sales.

DOC Position

We agree with the petitioner. When sales are made prior to the date

of importation through an affiliated or unaffiliated entity in the

United States, the Department uses the following criteria to determine

whether U.S. sales should be classified as EP sales:

The merchandise in question is shipped directly from the

manufacturer to the unaffiliated buyer without being introduced into

the physical inventory of the selling agent;

Direct shipment from the manufacturer to the unaffiliated

buyer is the customary channel for sales of the subject merchandise

between the parties involved; and

The selling agent in the United States acts only as a

processor of sales-related documentation and a communication link with

the unaffiliated U.S. buyer (i.e., a ``paper-pusher'').

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

Products from Korea: Final Results of Antidumping Duty Administrative

Reviews, 62 FR 18404 (Apr. 15, 1997).

Although the sales in question were made prior to importation and

were shipped directly to the unaffiliated customer without entering the

U.S. inventory, we note that the U.S. affiliate did not serve mainly as

a processor of sales-related documentation and a communications link

with the buyer. Specifically, Filati stated in its questionnaire

response that, for all direct sales, its U.S. affiliate makes the

initial contact with the U.S. customer, negotiates terms of sale,

contacts Filati to arrange for production and shipment of the container

to the United States, and issues the final invoice to, and collects

payment from, the customer. See Filati's February 20, 1997,

questionnaire response at A-9 and A-10. As noted in the U.S. sales

verification report at page 5, we found no discrepancies with the

information reported in Filati's response regarding its sales process.

Because the extent of the affiliate's activities in the United

States are significant, we find that the affiliate is not merely a

paper processor. Accordingly, we have treated these transactions as CEP

sales for purposes of the final results.

Comment 6: Sales with Zero Prices

According to the petitioner, the Department should include Filati's

sales with zero prices in its analysis for purposes of the final

results. The petitioner states that these transactions are actual sales

because: (1) The parties negotiated a price; and (2) Filati transferred

title to the product to the customer. The petitioner asserts that

Filati's decision to give a full rebate to the customer after the terms

of sale were set does not negate the fact that a sale occurred.

Filati contends that the Department correctly excluded the

transactions in question from its analysis in the preliminary results.

According to Filati, the concurrence memorandum cited by the petitioner

predates the Department's current policy in this area, which was set in

response to a decision by the Court of Appeals for the Federal Circuit

(CAFC). See NSK v. United States 115 F.3d 965, 975 (CAFC 1997) (NSK).

Specifically, Filati notes that the court held in NSK that the

existence of consideration (i.e., a bargained-for exchange) is the

determinative factor, absent which there can be no sale. According to

Filati, because there was no consideration for the transactions in

question, the Department cannot treat them as sales.

DOC Position

We agree with Filati. At verification, we found that Filati shipped

the merchandise in question, but then issued a refund to its customers

after being informed that the merchandise was damaged and could not be

used. See the Filati U.S. sales verification report from David Genovese

and Irina Itkin, dated August 1, 1997, at page 2. The fact that Filati

initially negotiated a price for these transactions is not relevant,

because the sales were, in effect, canceled due to quality problems

with the merchandise. Consequently, we find that these transactions

were not sales, and we have excluded them from our analysis for

purposes of the final results.

Comment 7: U.S. Commissions to Company Employees

The petitioner argues that the Department should treat Filati's

commission payments to its U.S. sales agent as a direct selling

expense, in accordance with its current practice.

[[Page 12760]]

According to Filati, the commissions in question are not

commissions per se. Rather, Filati maintains that these payments are

part of the compensation provided to its U.S. salesperson and, as such,

were properly reported as indirect selling expenses. Moreover, Filati

asserts that these commissions are paid periodically and are not

related directly to specific sales; thus, Filati argues that, by

definition, they cannot be direct selling expenses. Filati asserts that

the Department should continue to treat these commissions as U.S.

indirect selling expenses for purposes of the final results.

DOC Position

We agree with Filati. At verification, we confirmed that the

expenses in question were not commissions per se, but rather were part

of the salary paid to a company employee and were not directly related

to specific sales. Consequently, we find that these expenses were

properly reported in Filati's U.S. indirect selling expenses and we

have continued to treat them as such for purposes of the final results.

Comment 8: Calculation of Inventory Carrying Costs

The petitioner contends that Filati incorrectly calculated

inventory carrying costs on the basis of gross unit price, rather than

COM. The petitioner asserts that the Department should recalculate

inventory carrying costs using COM, in accordance with its standard

practice.

According to Filati, the Department instructed it to calculate its

inventory carrying costs using gross unit price. Filati asserts that

use of gross unit price is appropriate because the opportunity cost of

carrying inventory is related to the price that a company receives, not

the costs that it incurs.

DOC Position

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

calculate inventory carrying costs based on COM. See, e.g., Final

Determination of Sales at Less than Fair Value: Canned Pineapple Fruit

from Thailand, 60 FR 29553 (June 5, 1995) and Certain Corrosion-

Resistant Carbon Steel Flat Products from Australia; Final Results of

Antidumping Duty Administrative Reviews, 61 FR 14049 (March 29, 1996).

We note that companies generally value the cost of their finished goods

inventory using the costs incurred to manufacture their products,

rather than the value of future sales. Therefore, we recalculated

inventory carrying costs using COM for purposes of the final results.

Comment 9: Double-Counting of Indirect Selling Expenses

The petitioner argues that the Department may have double-counted

the deduction for Filati's home market indirect selling expenses, in

that the Department used home market indirect selling expenses to

offset both U.S. commissions and the indirect selling expenses of

Filati's U.S. subsidiary.

According to Filati, the Department did not double-count indirect

selling expenses because the Department denied Filati a CEP offset for

purposes of the preliminary results. Consequently, Filati asserts that

the Department did not use home market indirect selling expenses to

offset the expenses of Filati's U.S. subsidiary.

DOC Position

We agree with Filati. We used Filati's home market indirect selling

expenses only to offset the company's U.S. commissions. Accordingly, we

have not double-counted these expenses for purposes of the final

results.

Comment 10: Treatment of Uncollected Duties In Price-to-CV Comparisons

During the POR, the government of Malaysia allowed Filati to import

rubber thread inputs duty free; however, when Filati sold extruded

rubber thread in the home market, the government charged it a duty

equal to three percent of the sales price. In the preliminary results,

the Department treated these amounts as uncollected import duties and

added them to the U.S. starting price for purposes of price-to-price

comparisons. Filati argues that the Department should also have added

an amount for uncollected import duties to the starting price for

purposes of price-to-CV comparisons. Filati states that the statute

requires such an adjustment regardless of whether normal value is based

upon price or CV. See 19 U.S.C. 1677a(c)(1)(B).

DOC Position

We agree. Section 772(c)(1)(B) of the Act directs the Department to

increase CEP by the amount of any import duties imposed by the country

of exportation which have been rebated, or which have not been

collected, by reason of exportation of the subject merchandise to the

United States. Because these duties have not been collected by reason

of exportation of the subject merchandise, we have added them to CEP

for all comparisons for purposes of the final results.

Comment 11: Inclusion of Uncollected Duties in COP

According to Filati, the Department should not add the uncollected

duties referenced in Comment 10 above to COP because they are not

recorded as raw materials costs in Filati's accounting system. Filati

notes that both 19 U.S.C. 1677b(b)(3) and the SAA at 834 require

respondents to base their reported production costs on the actual costs

recorded in their normal accounting records.

However, Filati contends that, if the Department finds that the

duties at issue should be included in COP, the Department should apply

the duty percentage to raw material costs only.

DOC Position

We disagree that we should not add the uncollected duties to COP.

Section 773(f)(1)(A) of the Act requires the Department to depart from

the records of the producer if: (1) Those records are not in accordance

with the general accepted accounting principles (GAAP) of the exporting

country; and (2) such costs do not reasonably reflect the costs

associated with the production and sale of the merchandise. In this

case, we acknowledge that Filati's treatment of these duties is in

accordance with Malaysian GAAP. However, we find that this treatment is

contrary to the requirements of section 773(f)(1)(A) of the Act, as it

does not reasonably reflect Filati's cost of production. Specifically,

we find that, because the amounts in question are charged by the

Malaysian government in place of import duties on raw materials, they

appropriately form part of Filati's cost of production. Accordingly, we

have included these duties in the calculation of COP and CV.

We also disagree that we should apply the three percent duty to

Filati's raw materials costs. Because these duties are assessed as a

percentage of home market price, we have continued to calculate them in

this manner. To do otherwise would result in our not capturing the full

amount of the duty, which would consequently understate the amount of

duty included in COP and CV.

Comment 12: Selection of Cost Response

Filati argues that the Department should use the COPs and CVs that

it reported in its original section D response, rather than the costs

reported in the supplemental response. Filati argues that, in its

original response, it calculated the cost of manufacture for COP and CV

based on a methodology that follows its normal standard cost accounting

system and applies actual

[[Page 12761]]

inputs from its normal books and records. Filati argues it demonstrated

at verification that the reported costs using this methodology

reconcile to the actual costs used by Filati; that the reported costs

were in accordance with applicable accounting norms; and that these

costs reasonably reflect the cost of producing the merchandise. Filati

asserts that the Department's normal practice is to accept a cost

methodology when it is from the company's normal records, consistent

with accounting norms, and is not proven to be distortive. Filati also

argues that its original method is reasonable, as demonstrated by the

small variance between its actual and standard costs.

DOC Position

We disagree. Section 773(f)(1)(A) of the Act states that costs

shall normally be calculated based on the records of the exporter or

producer of the merchandise. Contrary to Filati's assertion, the costs

reported in the company's original section D response were not those

reflected in its normal cost accounting system. In its normal records,

Filati records per-unit costs using a standard cost system and derives

actual costs by applying cost variances. In its original response,

Filati derived new per-unit costs by applying to its financial

accounting data a new actual cost methodology. Although the data that

Filati used in the original response were from its financial accounting

system, the per-unit amounts were reallocated to obtain per-unit costs

that differed from the per-unit costs in its normal accounting system.

Filati developed new COPs and CVs specifically to respond to the

Department's questionnaire.

We find unpersuasive Filati's argument that its alternative costing

method is reasonable. The Department normally relies on the records of

the producer if they are in accordance with the GAAP of the exporting

country and reasonably reflect the costs associated with the production

and sale of the merchandise. Filati's standard cost system is

acceptable under Malaysian GAAP and produces per-unit costs that

reasonably reflect the costs associated with the production and sale of

the merchandise.

In a supplemental questionnaire, we directed Filati to resubmit its

per-unit COPs and CVs based on the standard cost system it uses in the

normal course of business. Filati complied with this request.

Therefore, we used the costs and variances from Filati's standard cost

system for purposes of the final results.

Comment 13: Offset to Financial Expenses

Filati argues that the Department should allow the total amount of

consolidated interest income as an offset to consolidated interest

expense in the calculation of its financial expense ratio. According to

Filati, the company demonstrated at verification that all of the

interest income in question was from short-term investments.

DOC Position

We agree. The audited consolidated financial statements show that

the interest income was generated from current assets. Therefore, we

have allowed the full amount of interest income as an offset to

interest expense.

Comment 14: Unreported Costs

The petitioner claims that Filati failed to report cost information

for one second-quality, and several first-quality, products. According

to the petitioner, the Department should assign costs to these products

based on adverse facts available. The petitioner maintains that to do

otherwise would reward Filati for its failure to report costs for the

products in question.

Filati maintains that it reported cost data for all products sold

during the POR, pursuant to the Department's instructions.

Specifically, Filati notes that it reported a single cost for each

unique product, regardless of whether the product was sold as first- or

second-quality merchandise. Filati asserts that it was not necessary to

report a separate cost for first- and second-quality production of a

given product in its COP and CV databases because the Department

assigns the same cost to both. According to Filati, the Department

should continue to use the costs of first- and second-quality products

interchangeably in cases where the cost for one or the other quality

was not explicitly identified in its databases.

DOC Position

We agree with Filati. The costs that the petitioner alleges that

Filati withheld are on the record of this proceeding. Since the per-

unit cost of a product is the same whether it is of first- or second-

quality, using the cost of one as a replacement for the other will not

affect our analysis. Therefore, we have made no adverse inference with

respect to the products in question for purposes of the final results.

Comment 15: G&A Expenses of Filati's Parent Company

According to the petitioner, the Department should include the G&A

expenses of MYCOM, Filati's parent company, in the calculation of

Filati's CV. The petitioner notes that MYCOM provides management

services to Filati.

According to Filati, its reported G&A expenses include all expenses

associated with the services provided by MYCOM. Filati contends that

there is no basis for including any other portion of MYCOM's expenses

in G&A, because these expenses relate to activities not associated with

the production or sale of extruded rubber thread.

DOC Position

We agree with the respondent. Filati included in its G&A expense

calculation the amount its parent charges Filati for the services the

parent provides. We reviewed this calculation at verification and found

it to be reflective of the cost incurred for the types of services that

MYCOM performed and the overall structure of the group companies

involved. Therefore, we have made no adjustment to Filati's G&A rate

calculation for additional MYCOM expenses.

B. Heveafil

Comment 16: Selection of Facts Available Rate for Heveafil

Heveafil argues that the Department should assign it a dumping rate

based on non-adverse facts available. Heveafil asserts that the

Department may only assign a dumping rate using adverse facts available

when it is unable to verify submitted data and the respondent ``failed

to cooperate by not acting to the best of its ability.'' According to

Heveafil, it cooperated to the best of its ability in this review by

submitting complete questionnaire responses and successfully verifying

its U.S. and home market sales data. Regarding the verification of its

cost data, Heveafil states that, although certain records were

inadvertently purged from its computer system, it acted to the best of

its ability to cooperate.

Specifically, Heveafil notes that it used its bills of materials

(BOMs) to calculate the product-specific costs reported to the

Department. Heveafil asserts that the database containing its BOMs was

purged from its computer system after it was transmitted to the

company's computer consultants for purposes of preparing a supplemental

questionnaire response. Heveafil asserts that it assumed that the

Department would consider the consultant's copy as an original source

document. According to Heveafil, while this misunderstanding was

unfortunate, it cannot be viewed as a failure to cooperate or an

attempt to control

[[Page 12762]]

verification. In any event, Heveafil contends that it did not

``destroy'' its BOMs database, as suggested by the Department's cost

verification report, because the database existed in the form of the

consultant's copy. Heveafil suggests that the Department should have

used this database to relate the reported costs to its production

records, even if the copy was considered to be only a worksheet.

Heveafil states that the Department should assess Heveafil's level

of cooperation in relation to its ability. In doing so, Heveafil claims

that the Department should consider that many of its employees during

this review were new to the company and did not have the experience in

antidumping reviews and verifications gained by many former employees.

Moreover, Heveafil argues that it did not stand to benefit from

withholding its BOMs. Heveafil states that it requested to participate

in this review because it expected an assessment rate of less than its

cash deposit rate of 7.88 percent. Therefore, Heveafil maintains that

it was clearly in its interest to provide all data necessary to the

successful completion of the review.

According to Heveafil, in the event that the Department uses

adverse facts available in this case, it should not assign Heveafil the

highest rate ever calculated for any respondent (i.e., 54.31 percent

for Rubfil in the third review). Rather, Heveafil argues that the

Department should assign it the highest rate it has received in a prior

segment of the proceeding, consistent with the Department's treatment

of Rubberflex in the third review. According to Heveafil, the

Department assigned it the same rate as a company that did not

cooperate at all in this review, while Heveafil submitted responses to

all questionnaires, passed its sales verifications, and verified parts

of the cost response. Heveafil argues that this arbitrary practice

would not encourage cooperation from a respondent interested in

participating in an administrative review because inadvertent errors

might negate all efforts to cooperate. Heveafil cites to Gray Portland

Cement and Clinker from Mexico; Final Results of Antidumping Duty

Administrative Review, 62 FR 17581, 17588 (April 10, 1997) and Final

Affirmative Countervailing Duty Determination: Certain Pasta from

Italy, 61 FR 30288, 30306 (June 14, 1996) as cases where the Department

has stated that the primary purpose for using adverse inferences is to

encourage future respondent cooperation.

Heveafil cites to Elemental Sulphur from Canada: Preliminary

Results of Antidumping Duty Administrative Review, 62 FR 969, 970 (Jan.

7, 1997) (Sulphur), Notice of Final Determination of Sales at Less Than

Fair Value: Certain Pasta from Turkey, 61 FR 30309, 30310 (June 14,

1996) (Pasta), and Chrome-Plated Lug Nuts from Taiwan; Final Results of

Antidumping Duty Administrative Review and Termination in Part, 61 FR

58372, 58373 (Nov. 14, 1996) (Lug Nuts) as cases where the Department

has assigned respondents the highest rate ever assigned to any

respondent in the proceeding only where the respondent deliberately

misled the Department or refused a direct request for information.

Heveafil states that, because it did not mislead the Department or

refuse to provide original information, it would be inappropriate to

assign it a rate on the same basis as the respondents in Sulphur,

Pasta, and Lug Nuts.

In addition, Heveafil argues that Rubfil's dumping rate from the

third administrative review is not relevant to its own experience

because: (1) There are significant differences in the companies' sizes

and consequent price and cost structures; and (2) Rubfil's margin is

approximately 45 percentage points above the highest margin ever

received by Heveafil. Heveafil contends that there is no evidence in

either its questionnaire responses or the Department's verification

reports to suggest that its prices and costs have increased so

drastically as to increase its dumping rate five times.

Finally, Heveafil notes that Rubfil has appealed the Department's

final results of the third review to the CIT. Heveafil maintains that,

until the issues raised in that proceeding are resolved, Rubfil's

dumping rate is not reliable.

DOC Position

We disagree with Heveafil's argument that the Department should

apply non-adverse facts available for the final results. Heveafil

attributes its failure of the cost verification simply to a

misunderstanding concerning the availability of its BOMs database.

However, the purging of the BOMs database was just one factor which

contributed to Heveafil's failed verification. In addition to purging

its computer system of the BOMs, Heveafil was unable to provide hard

copies of its BOMs during the POR. Thus, there was no reliable way to

test the veracity of the computer consultant's copy of the computer

database.

At verification, we afforded Heveafil the opportunity to tie its

reported cost data to its accounting system using source documents

other than the BOMs. Specifically, on the first day of verification we

requested the company's 1996 ``Budgeting Report'' which, according to

the section D response, was the basis for the reported cost data.

However, company officials indicated that they were unable to locate

this document in its entirety. Moreover, when we attempted to reconcile

the costs shown in the portion provided at verification, we were unable

to do so in a number of instances. Similarly, we were unable to

reconcile the costs for the products missing from the Budgeting Report

to Heveafil's inventory records. For these reasons, we have determined

that Heveafil did not cooperate to the best of its ability in verifying

its reported cost data. See Heveafil cost verification report for

further discussion.

It is true that the Department considers a respondent's ability to

cooperate in determining whether or not it has cooperated to the best

of its ability. See, e.g., 1994-1995 AFBs Reviews. As stated in the

1994-1995 AFBs Reviews, the Department considers the experience of the

respondent in antidumping duty proceedings, whether the respondent was

in control of the data the Department was unable to verify, and the

extent to which the respondent might have benefitted from its own lack

of cooperation.

This is the fourth review of the antidumping duty order on extruded

rubber thread from Malaysia. Heveafil has participated in each of the

prior reviews, as well as the original less than fair value (LTFV)

investigation. Although some of its accounting staff was inexperienced

at the time of verification, we cannot conclude that the company as a

whole was so inexperienced as to be unaware of the necessity of

retaining key source documents for verification purposes.

Moreover, we note that Heveafil generated the relevant source

documents in the ordinary course of business. Therefore, we find that

it maintained exclusive control of the documents necessary to prepare

its response and conduct verification.

We disagree with Heveafil's assertion that it did not stand to

benefit from withholding source documents. Absent reliable data, we

cannot accurately determine Heveafil's actual dumping liability during

the POR. We find Heveafil's assertion that it expected to receive a

significantly lower rate to be meaningless, because it is based not

only on speculation but also on unverifiable data.

We disagree with Heveafil that we should not assign, as adverse

facts available, the highest rate calculated for

[[Page 12763]]

Rubfil in a prior segment of this proceeding. In arguing against the

application of the highest rate calculated for any respondent in any

review, Heveafil attempts to distinguish its degree of cooperation with

the degree of cooperation exhibited by respondents in Sulphur, Pasta,

and Lug Nuts. However, in each of those cases, the underlying reason

for using the highest rate as adverse facts available was that the

information submitted by the respondents was rendered unusable because

it could not be verified. The Department's practice has been to reject

a respondent's submitted information in toto when flawed and

unverifiable cost data renders all price-to-price comparisons

impossible. See Notice of Final Determination of Sales at Less Than

Fair Value: Grain-Oriented Electrical Steel from Italy, 59 FR 33952,

33953-54 (July 1, 1994).

We also disagree with Heveafil's argument that Rubfil's rate from

the third review is neither relevant nor reliable. Regardless of

Rubfil's size relative to Heveafil, we find that its calculated rate

reflects the business practices occurring in the rubber thread

industry. Unlike in Fresh Cut Flowers, there is no evidence on the

record of this review which indicates that Rubfil's calculated rate was

based on an uncharacteristic business practice. Furthermore, the CIT

has not yet ruled on the matter of Rubfil's appeal. Therefore, absent

evidence to the contrary, we find that its rate is reliable and has

probative value.

We have considered Heveafil's argument that our selection of an

adverse facts available rate in this review is not consistent with our

treatment of Rubberflex in the third review. However, as stated in the

1994-1995 AFBs Reviews, as adverse facts available, we must apply a

rate sufficiently adverse so as to encourage cooperation from

respondents in future reviews. The intent of using an adverse inference

is to encourage successful verifications and to elicit the accurate

reporting of sales and cost data in future segments of the proceeding.

In this case, we find that the use of the highest rate ever calculated

for Heveafil of 10.68 percent would not achieve this purpose.

Comment 17: Duty Reimbursement

The petitioner argues that Heveafil's dumping duties should be

doubled, in accordance with the Department's regulations, because

Heveafil is, in effect, paying the dumping duties itself. Specifically,

the petitioner notes that Heveafil's U.S. affiliate is not a separate

entity, but, instead, is a branch of Heveafil. According to the

petitioner, this branch is the importer of record for the subject

merchandise and, consequently, is obligated to pay Heveafil's

antidumping duties. Thus, the petitioner asserts that reimbursement has

occurred.

According to Heveafil, the Department should not double its dumping

duties because the criteria under 19 CFR 353.26(a)(1) which would allow

it to do so have not been met. Specifically, Heveafil asserts that it

has neither paid antidumping duties on behalf of the importer nor

reimbursed the importer for these duties, because it, through its U.S.

branch, is itself the importer of record for all imports of subject

merchandise.

According to Heveafil, the Department faced a similar situation in

Circular Welded Non-Alloy Steel Pipe and Tube from Mexico: Preliminary

Results of Antidumping Duty Administrative Review and Partial

Termination of Review, 62 FR 64564 (Dec. 8, 1997). In that case, the

Department concluded that both the importer and exporter were one

entity; consequently, there could be no payment to, or on behalf of,

the importer within the meaning of the Department's regulations.

Furthermore, Heveafil asserts that, even it the requirements of 19

CFR 353.26 were to be met in this case, the remedy (i.e., reducing CEP

by the amount of the dumping duties) could not be applied because the

Department assigned Heveafil a dumping rate using facts available.

DOC Position

We agree with Heveafil. The imposition of antidumping duties is

intended to provide relief to U.S. industries injured by unfair trade

practices of foreign competitors. In effect, the imposition of

antidumping duties raises the price of subject merchandise to

importers, thereby providing a level playing field upon which injured

U.S. industries can compete. The remedial effect of the law is

defeated, however, where exporters themselves pay antidumping duties,

or reimburse importers for such duties. To ensure that the remedial

effect of the law is not undermined, the Department has authority to

reduce the U.S. starting price (used to determine dumping) by the

amount of any duty paid, or reimbursed, by the producer or reseller,

thereby increasing the amount of the duty ultimately collected.

Reimbursement takes place between affiliated parties if the

evidence demonstrates that the exporter directly pays antidumping

duties for the affiliated importer or reimburses the importer for such

duties. See 19 CFR 353.26; Color Television Receivers from the Republic

of Korea; Final Results of Antidumping Duty Administrative Reviews, 61

FR 4408 (Feb. 6, 1996); Brass Sheet and Strip from the Netherlands;

Final Results of Antidumping Duty Administrative Reviews, 57 FR 9534,

9537 (Mar. 19, 1992); and Brass Sheet and Strip from Sweden; Final

Results of Antidumping Duty Administrative Review, 57 FR 2706, 2708

(Jan. 23, 1992).

While we note the petitioner's argument regarding the corporate

relationship between Heveafil and its U.S. branch, it is the

Department's practice to treat affiliated parties as separate entities

when examining the question of reimbursement. See Final Results of

Antidumping Duty Administrative Review: Circular Welded Non-Alloy Steel

Pipe from Korea, 62 FR 55574 (Oct. 27, 1997). In this case, there is no

evidence of inappropriate financial intermingling or of an agreement to

reimburse antidumping duties between Heveafil and its U.S. branch.

Therefore, the Department has no reason to require payment of twice the

amount of any dumping duties owed.

Finally, we have considered Heveafil's argument that the Department

is unable to double dumping duties in a facts available situation.

Since there is no evidence which would require such a determination,

this argument is moot.

Final Results of Review

As a result of comments received we have revised our preliminary

results and determine that the following margins exist for the period

October 1, 1995, through September 30, 1996:

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

Percent

Manufacturer/exporter margin

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

Filati Lastex Elastofibre (Malaysia).................... 52.89

Heveafil Sdn. Bhd./Filmax Sdn. Bhd...................... 54.31

Rubberflex Sdn. Bhd..................................... 3.75

Rubfil Sdn. Bhd......................................... 54.31

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

The Department shall determine, and the Customs service shall

assess, antidumping duties on all appropriate entries. Individual

differences between CEP and NV may vary from the percentages stated

above. We have calculated an importer-specific assessment rate based on

the ratio of the total amount of antidumping duties calculated for the

examined sales made during the POR to the total value of subject

merchandise entered during the POR. This rate will be assessed

uniformly on all entries of that

[[Page 12764]]

particular importer made during the POR. The Department will issue

appraisement instructions directly to the U.S. Customs Service.

Further, the following deposit requirements will be effective for

all shipments of extruded rubber thread from Malaysia entered, or

withdrawn from warehouse, for consumption on or after the publication

date of the final results of this administrative review, as provided

for by section 751(a)(1) of the Act: (1) The cash deposit rates for the

reviewed companies will be the rates for those firms as stated above

(except that for Heveafil the cash deposit rate will be reduced by 0.90

percent, the current cash deposit rate attributable to export

subsidies); (2) for previously investigated companies not listed above,

the cash deposit rate will continue to be the company-specific rate

published for the most recent period; (3) if the exporter is not a firm

covered in this review, or the LTFV investigation, but the manufacturer

is, the cash deposit rate will be the rate established for the most

recent period for the manufacturer of the merchandise; and (4) the cash

deposit rate for all other manufacturers or exporters will continue to

be 15.16 percent, the all others rate established in the LTFV

investigation.

These deposit requirements, when imposed, shall remain in effect

until publication of the final results of the next administrative

review.

This notice serves as a final reminder to importers of their

responsibility under 19 CFR 353.26 to file a certificate regarding the

reimbursement of antidumping duties prior to liquidation of the

relevant entries during this review period. Failure to comply with this

requirement could result in the Secretary's presumption that

reimbursement of antidumping duties occurred and the subsequent

assessment of double antidumping duties.

This notice also serves as the only reminder to parties subject to

administrative protective order (APO) of their responsibility

concerning the disposition of proprietary information disclosed under

APO in accordance with section 353.34(d) of the Department's

regulations. Timely notification of return/destruction of APO materials

or conversion to judicial protective order is hereby requested. Failure

to comply with the regulations and the terms of an APO is a

sanctionable violation.

This administrative review and notice are in accordance with

section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)), section 777(i) of

the Act (19 U.S.C. 1677f(i)), and 19 CFR 353.22.

Dated: March 9, 1998.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 98-6715 Filed 3-13-98; 8:45 am]

BILLING CODE 3510-DS-P