Natural Bristle Paintbrushes and Brush Heads From The People's Republic of China; Final Results of Antidumping Duty Administrative Review

DEPARTMENT OF COMMERCE

International Trade Administration

[A-570-501]

Natural Bristle Paintbrushes and Brush Heads From The People's

Republic of China; Final Results of Antidumping Duty Administrative

Review

AGENCY: Import Administration, International Trade Administration, U.S.

Department of Commerce.

ACTION: Notice of final results of the antidumping duty administrative

review

[[Page 27507]]

of natural bristle paintbrushes and brush heads from the People's

Republic of China.

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SUMMARY: On January 13, 1999, the Department of Commerce (the

Department) published the preliminary results of its administrative

review of the antidumping order on natural bristle paintbrushes and

brush heads (paintbrushes) from the People's Republic of China (PRC).

This review covers one exporter of the subject merchandise, Hebei

Animal By-Products Import and Export Corporation (HACO), during the

period February 1, 1997 through January 31, 1998.

We gave interested parties an opportunity to comment on our

preliminary results. After considering comments presented by both

parties, we have not changed the final results from those presented in

the preliminary results of review, and have determined that sales have

been made below normal value (NV).

EFFECTIVE DATE: May 20, 1999.

FOR FURTHER INFORMATION CONTACT: Andrew Nulman, Laurel LaCivita, or

Maureen Flannery, Antidumping/Countervailing Duty Enforcement, Import

Administration, International Trade Administration, U.S. Department of

Commerce, 14th Street and Constitution Avenue, N.W., Washington D.C.

20230; telephone (202) 482-4052, 482-4236, or 482-3020, respectively.

Applicable Statute

Unless otherwise indicated, all citations to the statute are

references to the provisions effective January 1, 1995, the effective

date of the amendments made to the Tariff Act of 1930 (the Act) by the

Uruguay Round Agreements Act. In addition, unless otherwise indicated,

all citations to the Department's regulations refer to the regulations

codified at 19 CFR part 351 (April 1998).

Background

The Department published the preliminary results of this

antidumping duty administrative review on January 13, 1999 (64 FR

2192). We received comments from HACO and from the Paint Applicator

Division of the American Brush Manufacturers Association (the

petitioner). We also received rebuttal comments from both parties. HACO

requested a public hearing, which was held on February 19, 1999. The

Department has now completed this administrative review in accordance

with section 751(a) of the Act.

Scope of Review

Imports covered by this review are shipments of natural bristle

paintbrushes and brush heads from the PRC. Excluded from the order are

paintbrushes and brush heads with a blend of 40% natural bristles and

60% synthetic filaments. The merchandise under review is currently

classifiable under item 9603.40.40.40 of the Harmonized Tariff Schedule

of the United States (HTSUS). Although the HTSUS subheading is provided

for convenience and customs purposes, the Department's written

description of the merchandise is dispositive.

This review covers the period February 1, 1997, through January 31,

1998.

Analysis of the Comments Received

Comment #1: Application of Adverse Facts Available to HACO

HACO argues that the facts of the case do not support the

Department's preliminary determination that the margin for HACO should

be based on total adverse facts available (AFA). HACO primarily

contends that neither HACO nor its supplier failed verification and,

therefore, application of total facts available is not appropriate (see

discussion below). In addition, HACO maintains that both HACO and its

supplier did act to the best of their ability to comply with the

Department's request for information under the circumstances, and

therefore the application of adverse facts available is also

inappropriate (see discussion below).

HACO contends that the Department will use AFA only when an

interested party is wholly uncooperative, fails to submit sufficient or

unverifiable responses to the Department's requests, or significantly

impedes the proceeding, citing Certain Cut-to-Length Carbon Steel Plate

From Mexico: Final Results of Administrative Review, 64 FR 76, 82

(January 4, 1999). HACO also cites as support Notice of Final

Determination of Sales at Less Than Fair Value: Certain Preserved

Mushrooms from Chile, 63 FR 56613, 56616 (October 22, 1998) (Chilean

Mushrooms), where HACO claims that the Department did not apply AFA

because the respondent met the Department's five-part test to

demonstrate that it acted to the best of its ability in that

investigation. HACO describes the five-part test as follows: (1)

submissions of information were made timely, (2) respondent

substantially cooperated with the Department's information requests,

(3) some successful verification of the response was made, (4) for

unverifiable information, there was alternative information available

to allow appropriate adjustments to the submitted data, and (5) the

Department was able to make adjustments for the identified deficiencies

and was able to use the submitted information without undue

difficulties.

HACO argues that, even in cases where a party may not have acted

``to the best of its ability'' in providing information requested by

the Department, the Department will not use AFA if the party has been

otherwise ``cooperative,'' citing Roller Chain, Other Than Bicycle,

from Japan: Preliminary Results and Partial Rescission of Antidumping

Administrative Review, 63 FR 25450, 25455 (May 8, 1998).

HACO maintains that both HACO and its supplier fully cooperated

with the Department at every stage of the review. HACO claims that all

of its submissions in this review and information provided at

verification more than substantially complied with the Department's

requests, and that HACO and its supplier fully met the five part-test

to avoid application of AFA, and therefore that the finding of AFA in

this review is in error. HACO claims that at verification of HACO all

terms of sale for this review were verified, and that HACO's supplier

reported all factor inputs and promptly provided all information

requested by the verifiers, causing the Department to have no basis to

resort to AFA in the final results. HACO finally contends that, in this

review, there is substantial evidence on the record that HACO acted

``to the best of its ability'' at verification.

As an alternative argument, HACO claims that where the Department

could not verify a factor input, it should consider using partial facts

available. HACO points out that in the case of electricity, where

HACO's supplier did not report the correct figure, the Department

should consider using a partial facts available figure such as the

electricity charge for a prior review or the petition. HACO claims that

in all other situations the factor values submitted by HACO were

reasonable.

The petitioner agrees with the Department's preliminary

determination that the margin for HACO should be based on AFA, due to

HACO's failure of verification in this review. The petitioner states

that, according to 19 U.S.C. Sec. 1677(a)(2)(D) (section 776(a)(2)(D)

of the Act), when a respondent has failed verification, the Department

must base the margin on the facts otherwise available, and that the

Department is authorized to make an adverse inference if it determines

that

[[Page 27508]]

the respondent did not act to the best of its ability in responding to

the Department's requests for information. Id. 19 U.S.C. Sec. 1677e(c).

The petitioner states that in this review the Department had

determined that HACO's data could not be verified and that HACO had not

acted to the best of its ability, and therefore that the Department was

correct in selecting the facts otherwise available rate of 351.92%,

HACO's own rate from a prior review as well as its current cash deposit

rate.

The petitioner further argues that the Department's determination

that HACO was uncooperative, and therefore did not act to the best of

its ability, is consistent with the Department's standard practice, as

in Certain Welded Carbon Steel Pipes and Tubes From India: Final

Results of Antidumping Duty Administrative Review, 63 FR 32825, 32826

(June 16, 1998) (Steel Pipes from India), where a respondent did not

act to the best of its ability because it failed to provide information

at verification essential to the establishment of the accuracy of

submitted data. The petitioner further argues that even if respondent

provides timely comments to all prior requests for information, a

respondent that fails verification has been determined uncooperative,

and therefore the Department should apply AFA, as in Certain Welded

Carbon Steel Pipes from Thailand: Final Results of Antidumping Duty

Administrative Review, 62 FR 53808, 53820 (October 16, 1997).

DOC Position: We agree with the petitioner. As we explained in the

preliminary results of review, we were unable to verify substantial

sections of the questionnaire response at the verification of HACO's

supplier. Consequently, we found in our preliminary results that the

discrepancies were so significant as to constitute a failure of

verification. We also determined that HACO failed to provide the

Department with adequate supporting documentation at verification so

that a significant portion of its questionnaire response could be

confirmed. (See Natural Bristle Paintbrushes and Brush Heads from the

People's Republic of China; Preliminary Results and Partial Recission

of Antidumping Duty Administrative Review, 64 FR 2192, 2193 (January

13, 1999) (Preliminary Results).)

Where a party provides information requested by the Department but

the information cannot be verified as required by section 782(i) of the

Act, section 776(a)(2)(D) of the Act requires the Department to use

facts otherwise available (FA) in reaching the applicable

determination. Therefore, in accordance with section 776(a) of the Act,

the use of FA is appropriate for HACO. See Extruded Rubber Thread from

Malaysia, Final Results of Antidumping Duty Administrative Review, 62

FR 33588 (June 9, 1997).

Section 776(b) of the Act authorizes the Department to use AFA

whenever it finds that an interested party has failed to cooperate by

not acting to the best of its ability to comply with the Department's

request for information. Because HACO failed to substantiate large

portions of its questionnaire response, including the statutorily

required factors of production information, such as number of labor

hours worked and per unit quantities consumed of primary material

inputs, we maintain our determination that HACO did not cooperate to

the best of its ability with our requests for information. See

Preliminary Results and the Determination of Adverse Facts Available

Based on Verification Failure in the Administrative Review of Natural

Bristle Paintbrushes and Brush Heads from the People's Republic of

China (Facts Available Memorandum), dated December 30, 1998.

We disagree with HACO's characterization of the Department's

reasons for not applying AFA in the Chilean Mushrooms case cited above.

In Chilean Mushrooms, the Department applied the criteria established

in section 782(e) of the Act, under which the Department ``shall not

decline to consider information that is submitted by an interested

party,'' and found that the rejection of the responses in their

entirety was inappropriate based on the facts of that proceeding. (See

Chilean Mushrooms, 63 FR at 56617.) Section 782(e) of the Act instructs

the Department to consider information if (1) the information is

submitted within the established deadlines, (2) the information can be

verified, (3) the information is not so incomplete that it cannot serve

as a reliable basis for reaching a determination, (4) the interested

party acted to the best of its ability in providing the required

information, and (5) the information can be used without undue

difficulties.

Based on the facts of this proceeding, we disagree that HACO met

all of the criteria established by section 782(e). Comment 5 through

Comment 14 of this notice discuss why the information submitted by HACO

could not be verified, and cannot be used as a reliable basis for

calculating an antidumping duty margin. Because the information

presented in the questionnaire responses differs so greatly from the

information presented at verification, and because we were unable to

establish that the data presented at verification were for the relevant

sizes of brushes, neither the questionnaire responses nor the data

presented at verification form a reliable basis for calculating a

dumping margin. Furthermore, since HACO's supplier's responses did not

reflect the information contained in the books and records of the

company, it cannot be construed that HACO's supplier acted to the best

of its ability to provide the requested information to the Department.

(See Steel Pipes from India, 62 FR 32826.)

We have carefully considered HACO's submitted information in the

current review, but could not use it to calculate a dumping margin

since we could not tie the submitted information to the records

provided at verification. Therefore, pursuant to section 776(b) of the

Act, we are using AFA to determine HACO's margin for these final

results.

With regard to HACO's argument to use partial facts available, we

disagree because HACO's supplier failed to substantiate any of its

factors of production. These discrepancies, detailed in the

Department's Memorandum from Mike Strollo and Laurel LaCivita to Edward

Yang: Verification of Factors of Production for HACO's Supplier in the

Antidumping Administrative Review of Natural Bristle Paintbrushes and

Brush Heads from the People's Republic of China (PRC) (Supplier's

Verification Report), were so significant as to constitute a failure of

verification. Therefore, for the reasons stated above, we are

continuing to apply AFA in these final results of review.

Comment #2: Selection of Adverse Facts Available Margin

The petitioner contends that the margin of 351.92% was the only

reasonable selection available to the Department under the

circumstances, because it was based on actual data HACO submitted in

the 1994-1995 administrative review of this order; see Natural Bristle

Paintbrushes from the People's Republic of China: Final Results of

Antidumping Administrative Review, 61 FR 52917 (October 9, 1996). The

petitioner also argues that, because this is HACO's current cash

deposit rate, it cannot even be characterized as adverse to HACO. The

petitioner cites 19 U.S.C. Sec. 1677e(c) (section 776(c) of the Act),

and claims that, because this rate is HACO's own margin it is probative

and can be corroborated, and any margin lower than 351.92% would

effectively reward HACO for failure of verification.

[[Page 27509]]

DOC Position: We agree with the petitioner. Under section 776(b) of

the Act, AFA may include reliance on information derived from: (1) the

petition, (2) a final determination in the investigation, (3) any

previous review under Section 751 of the Act, or (4) any other

information placed on the record. To corroborate secondary information

(items (1)-(3)), the Department will, to the extent practicable,

examine the reliability and relevance of the information to be used.

For a discussion on how the Department corroborated the secondary

information applied as AFA in this review, see Preliminary Results, 64

FR 2193.

However, unlike other types of information, such as surrogate

values, there are no independent sources for calculated antidumping

margins. The only source for calculated margins is an administrative

determination. In the preliminary results, we used the highest rate

from any prior segment of the proceeding, 351.92%, which was the rate

calculated for HACO in the review covering the period February 1, 1994

through January 31, 1995. (See Preliminary Results, 64 FR 2193.)

Because this margin is based on the rate calculated for a relatively

recent review using HACO's own price data, and because there is no

information that this rate is not appropriate, we continue to determine

that a margin of 351.92% is appropriate to use as AFA.

Comment #3: Sufficiency of Time Allowed for HACO to Prepare for

Verification

HACO claims that the Department did not allow HACO enough time to

prepare for verification since it released the verification outline on

Tuesday evening, September 22, 1998, while HACO's counsel was already

in transit to China. As a result, HACO claims, its counsel did not see

the verification outline for the first time until arriving at HACO on

Saturday, September 26, 1998, and only then prepared for the

Department's verification beginning on Monday, September 28, 1998.

The petitioner notes that, although the Department issued its

verification outline six days before verification, according to HACO's

own account of the facts, HACO failed to obtain the outline until two

days prior to verification. The petitioner further claims that the

Department notified HACO seventeen days in advance of the date it

intended to conduct verification and thus HACO could have begun

preparation prior to receipt of the outline.

DOC Position: We agree with the petitioner. Our standard

verification outline was issued sufficiently in advance of verification

to allow adequate preparation time. As the petitioner notes, HACO need

not have waited for a standard verification outline to begin preparing

for verification. For further details, see the Memorandum from Laurel

LaCivita to Edward Yang: Proprietary Issues in the Final Results of

Review,` dated May 6, 1999 (Proprietary Issues Memorandum).

Furthermore, whenever HACO or its supplier was unprepared for a

verification element, the verifier allowed company officials time to

gather documentation while the verification took place. See, for

example, the Supplier's Verification Report at pages 4 and 5.

Therefore, HACO and its supplier were not denied the appropriate amount

of time to prepare for verification, and cannot attribute verification

failure to the date of issuance of the standard verification outline.

Comment #4: Sufficiency of Time Allowed for HACO to Comment on

Verification Reports

HACO claims that on December 31, 1998, the Department announced its

preliminary results of review and provided copies of its verification

reports in this review. HACO contends the Department did not allow HACO

enough time to comment on the verification reports separately and to

identify any errors and misstatements in them before the preliminary

results of review were issued. As a result, HACO contends, the

preliminary results of review were prejudiced by errors found in the

verification report.

DOC Position: On December 30, 1998 the Department released the

Supplier's Verification Report, the Memorandum from Mike Strollo and

Laurel LaCivita to Edward Yang: Verification of Sales for Hebei Animal

By-Products Import and Export Corporation (HACO) in the Antidumping

Administrative Review of Natural Bristle Paintbrushes and Brush Heads

from the People's Republic of China (PRC); (HACO's Verification

Report)) and its Facts Available Memorandum, dated December 30, 1998.

On January 13, 1999, the Department published in the Federal Register

its preliminary results of review. Upon publication of the preliminary

results of review, interested parties were invited to comment on any

aspect of the preliminary decision, including material contained in our

verification reports or any other matter on the record of this review.

We also held a public hearing on February 19, 1999, during which any

interested party could voice comments regarding this review. The

release of the verification reports and subsequent publication of the

preliminary results of review and invitation for comments is a process

intended to give interested parties the opportunity to identify errors

made in this review. By submitting comments and participating in the

hearing held at its request, HACO availed itself of the opportunity to

identify any errors or misstatements in the verification reports or

preliminary results prior to publication of these final results of

review. HACO's specific comments with respect to the verification are

addressed below. Therefore, this review has not been prejudiced by

virtue of the date on which the reports were released.

Comment #5: Whether Failure of Verification Occurred at HACO

HACO contends that, although the Department treats its verification

as a single visit, it in fact conducted two separate verifications, one

at HACO and one at HACO's supplier.

HACO contends that evidence on the record in this review does not

support the Department's conclusion that failure of verification

occurred, with either HACO or HACO's supplier. HACO further argues that

neither HACO nor its supplier at any time refused to undergo

verification or failed to comply with the instructions or requests of

the Department.

HACO claims that the verification of HACO was successful. HACO

states that although it provided complete information throughout the

verification to support its prior submissions, the Department's

verification at HACO went far beyond the requirements of verifying the

factual information supporting HACO's antidumping submissions. HACO

claims that the primary focus of the verifiers was to examine the

separate rates issue, to determine the number of shipments occurring

during the POR, and to determine whether there were Customs marking

violations. HACO claims that despite this focus, the verification

conducted at HACO did not produce any evidence that would favor the

petitioner's claims. HACO also states that the verification provided

evidence that HACO did not engage in any Customs fraud.

HACO further notes that during verification at HACO there was

confusion over how sales of subject merchandise were transported

between HACO and the United States, and points to documentation already

on the record of this review in support of its position on these

issues.

DOC Position: We agree that we conducted two separate

verifications, one at HACO and one at HACO's

[[Page 27510]]

supplier. However, the cover letter to our standard questionnaire

instructed HACO to send the factors of production questionnaire,

Section D, to the companies responsible for the manufacture of the

subject merchandise. Therefore, HACO was made aware of its

responsibility to coordinate the responses of its suppliers.

We agree that the verification at HACO itself was successful,

despite the minor discrepancies noted in HACO's Verification Report

between the information provided in HACO's questionnaire response and

provided at verification. However, we disagree that HACO's verification

went far beyond the requirements of substantiating the factual

information provided in its antidumping submissions. The Department

conducted verification using standard techniques and procedures which

were set forth in the verification outline.

We disagree with HACO's characterization of the Department's

priorities during the verification. The primary focus of the verifiers

during HACO's verification was to complete the tasks enumerated in the

verification outline. These tasks include an examination of evidence of

whether there is a de jure and de facto absence of PRC government

control over HACO's export activities.

With respect to the Customs marking issue, HACO placed information

in Exhibit 6 of its August 27, 1998 submission which justifiably led to

a number of questions on the part of the petitioners concerning the

circumstances surrounding the sales under review. Consequently, these

documents, and others, which are normally included in the

correspondence file and examined as a standard part of the verification

of completeness and volume and value, were examined at verification.

Finally, as the HACO's Verification Report shows, HACO corrected

the terms of sale reported in its questionnaire response prior to

verification, so that its questionnaire response was in conformity to

the evidence concerning the transportation of the subject merchandise

from HACO to the United States. Consequently, we disagree with HACO's

contention that any confusion whatsoever existed with respect to the

matter. Furthermore, this issue was not among the problematic

``findings'' of the verification. (See HACO's Verification Report at

page 2.)

Comment #6: Verification Failure at HACO's Supplier

HACO states that following the successful verification of HACO, the

Department erroneously concluded that HACO's supplier failed to

cooperate to the best of its ability because of the supplier's failed

verification.

HACO disagrees that discrepancies between the questionnaire

response and information obtained at the verification of HACO's

supplier were significant enough as to constitute a failure of

verification. The sections of the questionnaire response which the

Department reported it was unable to verify at HACO's supplier, HACO

says, refer to factor inputs which were not at issue prior to

verification. HACO claims that the factor values reported in

questionnaire responses were consistent with the supplier company's

records, but that the Department refused to accept these records,

instead requiring that production factors be tied to a financial

statement which HACO's supplier does not maintain in the regular course

of business, and therefore could not provide. Thus, HACO claims, the

Department acted inconsistently with the law at 19 CFR 353.307(d) which

requires the person being verified to provide the information it used

to prepare the data submitted in order to verify the accuracy and

completeness of the submitted factual information.

HACO cites five such discrepancies regarding factor inputs, as

enumerated in the Facts Available Memorandum, including (1) the

quantity and value of the supplier's sales and production, (2) product

codes and sizes, (3) the reported weights of the inputs vs. the

verified weights, (4) the labor hours, and (5) energy consumption. HACO

points out that a financial statement would not serve the purpose of

verifying factor inputs because, while it may help determine the number

of nails or bristles purchased, it would not reveal their weights or

how much were used in each manufactured brush. HACO points out that, as

a small factory, HACO's supplier did not maintain a detailed financial

statement, and the Department should consider verification in that

context. Thus, HACO states, the Department's requirement that HACO

provide a financial statement which could trace factor inputs was both

incorrect and inconsistent with the law.

DOC Position: We disagree with HACO that its supplier was able to

substantiate its questionnaire response. We note that at no time during

the verification or in the preliminary results of review, did the

Department attribute the verification failure of HACO's supplier to the

quality of its financial statements. For the reasons set forth in the

Supplier's Verification Report, Adverse Facts Available Memorandum, and

Preliminary Results, and reiterated below, HACO's supplier did not

successfully substantiate its questionnaire response. At verification,

the Department was not able to confirm the quantity of paintbrushes

produced by the factory. We could not confirm which merchandise was

actually shipped to the United States, nor confirm that the

paintbrushes presented for the confirmation of factor values were the

same as the merchandise shipped to the United States. We found that the

weights of the paintbrush components examined at verification differed

significantly from the reported weights. We noted that HACO's supplier

could not confirm the reported number of labor hours required to

produce the subject merchandise. We noted that the energy consumption

rate could not be confirmed despite the fact that HACO accurately

reported its total energy consumption, because the Department could not

confirm the total quantity of brushes produced. (See Supplier's

Verification Report at pages 1, 2 and 8.) In sum, HACO's supplier was

not able to substantiate a single per-unit factor quantity that it

provided to the Department in its questionnaire response. Therefore, we

considered the verification of HACO's supplier to be a failed

verification.

Comment #7: Verification Procedures

HACO claims that the verifiers were not familiar with the subject

merchandise and had unreasonable expectations regarding records kept in

the ordinary course of business at HACO. HACO further argues that the

Department's conclusion of AFA is unreasonable in that it imposes a

requirement that HACO maintain records, in this case financial

statements, to satisfy the verification methodology.

The petitioner claims that this review was conducted in accordance

with the Department's standard practice, and that when the verifiers

encountered problems verifying factor data they gave HACO numerous

opportunities to verify data by alternative means.

DOC Position: The Department conducted HACO's verification using

standard verification procedures and following the agenda provided in

advance in the verification outline. See Supplier's Verification

Report. HACO has failed to identify any verification procedure the

Department used that was flawed, out of the ordinary, or inconsistent

with the verification outline. HACO has failed to identify in what way

the Department failed to understand the subject merchandise, which is a

common household item, and what impact this alleged

[[Page 27511]]

misunderstanding had on the verification.

HACO has failed to identify in what way the Department had

unreasonable expectations concerning the records its supplier may have

kept. The Department has never questioned the reasonableness of the

records kept by HACO's supplier, but, rather, it has noted that those

records either do not or cannot substantiate the information provided

in the questionnaire response. (See Supplier's Verification Report,

Facts Available Memorandum.)

As the Department has previously stated in this notice, there is no

evidence on the record that suggests that the Department required

HACO's supplier to maintain a detailed financial statement or to use

that financial statement to trace factor inputs. Therefore, the

Department maintains that HACO's supplier did not fail verification as

a result of flawed verification procedures.

Comment #8: Verification of Total Production Quantities

HACO claims that the Department examined production records at

verification and confirmed that the number of brushes produced was

similar to the figure reported in the questionnaire response. HACO

further argues that although it provided its entire 1997 production

records at verification and even though the reported total quantity of

production at HACO's supplier was verified in terms of total quantity

of orders produced, the Department rejected this data because the

factory was unable to provide a reflection of this production data in a

financial statement. HACO contends that the Department's conclusion

that HACO's supplier was unable to demonstrate the total quantity of

sales in a financial statement is unreasonable because it required

HACO's supplier to provide documentation not produced in the ordinary

course of business.

HACO disagrees that its supplier's inventory records were ``not

kept with sufficient accuracy to determine quantity sold since finished

goods usually were not entered into inventory,'' because, it contends,

the record shows that HACO's supplier produces to order. HACO points

out that at HACO's supplier, the verifiers found no discrepancies

between production orders and the quantities written on work orders,

and claims that the production orders verified at HACO's supplier were

consistent with the questionnaire responses.

HACO also claims that the Department could not identify production

orders for the sales covered by this review and that it reviewed

evidence at verification as to why this was not possible. HACO further

contends that the production records that it presented to the

Department for its demonstration of the per-unit calculation for labor

represent the production records for the merchandise that was produced,

since it is the only time in 1997 when both two- and four-inch brushes

were produced.

Finally, HACO claims that the verifiers concluded that, since

HACO's supplier did not have production records for the actual brushes

that were shipped, the information provided at verification did not

confirm the information reported in the questionnaire response. HACO

claims that its supplier reported, and the Department verified, the

total quantity of paintbrush production during the POR, including the

records for October 1997, the only month when both two-and four-inch

brushes, were produced.

The petitioner notes an apparent inconsistency in HACO's comments,

calling into question HACO's claim that the factory produces only to

order and does not sell from stock.

DOC Position: We disagree with HACO that the best measure of the

total quantity of production at HACO's supplier is the total number of

paintbrushes reflected in the completed production orders during the

POR. Page 5 of the Supplier's Verification Report notes that HACO's

supplier did not have production orders for all of its purchase orders,

and that the production orders for the merchandise which was shipped to

the United States were specifically missing. The Supplier's

Verification Report delineates the Department's attempt to tie the

total number of paintbrushes reflected in the completed production

orders to some other independent record kept in the company, such as

the total quantity of paintbrushes entered into finished goods

inventory, shipped, or sold during the POR. As documented in the

Supplier's Verification Report, HACO's supplier did not have adequate

inventory records to show the quantity of brushes entered into finished

goods inventory, or the quantity of brushes shipped during the POR. In

addition, HACO's supplier did not have picking tickets, shipping

vouchers, packing lists or truck manifests that could confirm the

number of brushes shipped during the POR. See Supplier's Verification

Report at pages 4 and 5. The report further details the Department's

efforts to use the daily production reports to confirm the number of

brushes completed during the POR, and to trace from the purchase order

to the production order, and from the production order back to the

purchase order. None of these records were kept in sufficient detail,

accuracy or completeness to allow us to confirm the total number of

paintbrushes produced. As a result, the Department concluded that it

could not verify the total number of paintbrushes produced by HACO's

supplier during the POR.

The Department did not require HACO's supplier to produce or to

maintain any financial documents that it does not keep in the ordinary

course of business. HACO's supplier placed a copy of its financial

statements for both calendar year 1996 and calendar year 1997 in

exhibit 4 of its July 20, 1998 supplemental questionnaire response.

HACO's supplier presented original copies of these (unaudited)

financial statements upon request at verification. Consequently, HACO's

protests that the financial statements had been prepared only one time

in its history contradict record evidence in this review.

Comment #9: Verification of Product Codes and Sizes

HACO disagrees that the verifiers were unable to verify product

codes and sizes, and claims that although the brushes sold to the

United States were distinguishable on the sales documentation between

HACO and its supplier by both product code number and size, the

verifiers erroneously confused the product codes that HACO used with

its customer with the product codes used by its supplier. HACO further

claims that because the brushes are sold not by code number, but by

dimensions (i.e., size), the confusion resulting from the verifiers'

lack of familiarity with the product codes cannot be the basis for

HACO's supplier failing verification.

DOC Position: We disagree that the product codes were a source of

confusion resulting in the Department's inability to confirm which

merchandise was actually shipped to the United States. All of the sales

documentation presented at HACO confirmed the information reported in

the questionnaire response concerning the product codes and the

composition of the sales covered by this review. See Supplier's

Verification Report at page 5. However, HACO's supplier, the

manufacturer of the merchandise, claimed at verification that the

merchandise shipped to the United States differed slightly from the

merchandise that was reported in HACO's May 13, 1998 submission. HACO's

supplier provided the codes of the brushes that were shipped and those

that were originally ordered. Although

[[Page 27512]]

these were different, HACO's supplier claimed that the brushes were of

similar product models and were somewhat interchangeable. (See

Supplier's Verification Report at page 5.) We noted in our report that

we could not substantiate the company's statement because no samples of

the brushes shipped to the United States were on hand to compare to the

samples given to the Department for the purpose of weighing. We noted

that HACO's supplier had no existing product code list to which we

could compare descriptions of the product codes noted on the invoices

of the reported shipments with the product codes that HACO's supplier

claimed it had sold to HACO. Finally, we note that HACO's explanation

that the difference in product codes was due to the fact that HACO used

different product codes with its customer and its supplier is not

substantiated by record evidence. Therefore, for these final results of

review, we maintain that the Department cannot ascertain the product

codes and sizes of the merchandise that HACO shipped to the United

States. (See Proprietary Issues Memorandum for additional discussion.)

Comment #10: Verification of Factor Input Values

HACO disagrees that the reported weights of brushes or individual

component factors were unable to be confirmed at verification, claiming

that, with the exception of some variance, the actual weights recorded

at verification generally confirmed the submission data. HACO also

disagrees with the verifiers' claim that problems in confirming these

weights at verification were due to the absence of ongoing production,

since the record shows production of brushes at the factory. HACO

further argues that the record indicates verifiers did not ask to check

this production. Had the verifiers checked the standard costs of

brushes in assembly during verification, HACO claims, this would have

corroborated the standard cost methodology.

DOC Position: There is no evidence on the record that HACO's

supplier uses a standard cost system for paintbrushes produced in the

factory. Rather, at HACO's supplier, ``a computer accounting program

produces worksheets to show costs for each order,'' which indicates

that HACO's supplier uses a job order cost accounting system rather

than a standard cost system for its own purposes. See Supplier's

Verification Report at 3.

HACO's supplier provided a cost sheet at verification (verification

exhibit 23), but this was worked out specifically for the shipments

covered by this review in preparation for the verification. This

worksheet does not constitute a standard cost for this product, nor

does it indicate that HACO's supplier has any other standard cost

system in place.

The Supplier's Verification Report demonstrates that there is a

substantial difference between the reported weight of each input and

the weight found at verification. The verifiers could not confirm

whether the single two-inch and four-inch brushes presented at

verification were identical to the ones that were shipped. See

Supplier's Verification Report at 5. As noted in the Supplier's

Verification Report at page 7, because HACO's supplier provided only

one sample each of a two-inch and four-inch brush, and two samples of

each of the component parts found in a two-inch and four-inch brush,

the Department was precluded from using a sound methodological approach

in determining the actual weight of the factor inputs. Nevertheless,

the Department weighed the brushes and components presented at

verification and determined that they were not the brushes or component

parts that were used to prepare the questionnaire response.

HACO's argument that the standard costs of brushes could be checked

during the assembly and would have corroborated the standard cost

methodology of HACO's supplier contradicts the record. As we noted

above, there is no evidence on the record to suggest that HACO's

supplier used a standard cost system to determine its cost of

production. Furthermore, the evidence on the record indicates that the

subject merchandise was not in production during the verification.

Consequently, an examination of any records of the brushes in assembly

during the verification would not substantiate the information

presented in the questionnaire response.

Comment #11: Verification of Material Factor Input Values

HACO states that although the physical dimensions of the subject

merchandise were shown on the invoices and purchase orders at issue,

the verifiers did not measure the physical dimensions of any sample

inputs that they weighed. Thus, HACO argues, the record does not

indicate how great the differences were between reported and sample

inputs. HACO further states that the weights of the sample inputs

varied, and that the record does not indicate that the verifiers tested

the accuracy of the scale.

HACO notes the following problems and discrepancies in the

verification of each of the factor inputs below: (a) Brushes: HACO

notes that the verifiers weighed two sample brushes, and the difference

between reported and sample brush weights was negligible; HACO states

that the reported weights were greater than the sample weights,

indicating HACO did not underreport the weight of the brushes; (b)

Bristles: HACO states that the verifiers weighed the bristles but did

not measure the bristles for length, and states that the bristle

weights varied each time they were weighed, calling into question the

accuracy of the scale; (c) Ferrule: HACO states that the ferrule is the

most important sample weight because HACO's supplier produced it,

making it the only material factor over which it had control. HACO

further states that the weights taken of the ferrule were consistent,

and that the sample weights were less than the reported weights. HACO

claims that ferrule weights suffered from the same errors as those for

bristles, indicating that the scale was not precise; (d) Handles: HACO

claims that the verifiers never measured the physical dimensions of the

handles, and that the handle weights recorded at verification suffer

from the same problems as the other inputs; (e) Nails: HACO submits

that nails should be disregarded because the verifiers failed to

measure them and failed to note that different brush sizes use

different size nails. HACO further submits that the substantial

differences between reported and sample weights render the weighed

nails incomparable to those used on the subject merchandise; (f) Epoxy:

HACO states that the verifiers did not attempt to weigh the per-unit

amount of epoxy consumed, and that the amount of epoxy used on a brush

would be difficult to determine by weighing. HACO notes that the

purchase and consumption records of epoxy were available to the

verifiers; (g) Weighing: HACO claims that discrepancies in the weights

indicate a flawed verification methodology. HACO disagrees with the

statement in the Supplier's Verification Report that the scale was

accurate to a gram, stating that the scale was calibrated in grams, but

not accurate or tested to determine accuracy. HACO claims that factory

officials offered to provide a more accurate scale but the verifiers

did not accept the offer. HACO also submits that variations between

sample and reported weights were small and that weights varied

depending on

[[Page 27513]]

an item's location on the scale. HACO further states that the

Department's worksheet from the actual weighing was omitted from the

record without explanation.

The petitioner comments that any deficiencies in either the

paintbrush samples or the scale provided by HACO to weigh inputs at

verification were within HACO's power to control. The petitioner states

that the Department was precluded from using a sound methodological

approach because it was unable to verify HACO's factors of production

data, citing 19 U.S.C. Sec. 1677m(i) (section 782(i) of the Act) where

the statute precludes the Department from using data that cannot be

verified, and Extruded Rubber Thread From Malaysia, Final Results of

Antidumping Administrative Review 63 FR 33588, 33589 (June 20, 1997)

(Rubber Thread) where the Department stated that `` using [erroneous

and unverified] information would require the Department to use

information that it knows is incorrect, unverified, or both.'' Thus,

the petitioner concludes, the record demonstrates that the Department

conducted verification in accordance with standard procedures and

treated HACO fairly.

DOC Position: HACO's claim that the Department did not measure the

actual physical dimensions of the brushes presented at verification is

true but irrelevant to the success of the verification, since the

factor values for all components of the paintbrushes were reported in

kilograms. If, for example, the brushes had identical dimensions, but

different weights, based on the use of harder or softer wood in the

handle, HACO's supplier would still fail the verification. HACO was

free to ask the Department to measure the physical dimension of the

brushes at verification, if it thought such a measurement might be

relevant, but it did not do so.

The Department used HACO's supplier's scale at the verification. It

was a balance type of scale, used for objects which weigh less than one

kilogram and accurate to the nearest tenth of a gram. The Department

had no reason to question the accuracy of the scale and no ability to

calibrate it if its measurements were inaccurate. Furthermore, there is

no evidence on the record to support HACO's claim that its supplier

offered to provide a more accurate scale during the verification.

With respect to the problems and discrepancies outlined above, we

note the following: (a) Brushes: HACO failed to demonstrate that the

brushes presented at verification were the same product model as the

brushes that were shipped to the United States. In addition, since the

weight of these brushes differed significantly from the weight reported

in the questionnaire response, HACO failed to demonstrate that the

brushes presented at verification were the same ones that were used to

prepare the questionnaire response. If there were only one sample brush

of the merchandise shipped to the United States, it should weigh just

as much at verification as it did when the response was prepared.

Contrary to HACO's claims, the percentage difference in the weights

reported in the questionnaire response and found at verification are

significant and call into question the integrity of the entire

questionnaire response, regardless of whether the weights measured at

verification were higher or lower than the ones reported in the

questionnaire response; (b) Bristles: The Department did not measure

the length of the bristles presented to the verifiers during

verification since bristle length was not reported to the Department

prior to verification, or relevant to verify the bristle weight

reported. All factors of production, including the material factors for

brush bristles, were reported in kilograms in the questionnaire

response. Therefore, the Department did not have any reason to measure

bristle length at verification. The Department weighed the sample

bristles provided by HACO's supplier at verification. If these were the

incorrect type of bristles, they were nevertheless presented to the

Department as the same bristles that were used to make the merchandise

shipped to the United States and for preparation of the questionnaire

response. There is no evidence on the record to suggest that the

bristles were weighed more than one time. Finally, the difference

between the figures found at verification and those reported in the

questionnaire response was significant and further called into question

the integrity of the questionnaire response; (c) Ferrule: Since

ferrules are made by cutting long strips of metal into ten or more

shorter widths by manually pushing the strips through a guillotine-like

press, they are subject to large variations in size and weight from one

piece to another. Consequently, it was up to HACO's supplier to have

sufficient ferrules on hand to determine an average weight, or to

otherwise demonstrate that the figures reported in the questionnaire

response were accurate. At verification, we found a significant

difference between the figures reported in the response and the weights

of the ferrules measured at verification. This difference calls into

question the integrity of the preparation of the questionnaire

response, so that it is immaterial whether the weight reported in the

questionnaire response is higher or lower than the weight found at

verification; (d) Handles: Whether the Department measured the physical

dimensions of the handles is irrelevant to this case. At verification,

the Department examined HACO's inventory room and found a wide

variation in the type of wood that is used in producing paintbrushes.

Two brushes with the same dimensions could have significantly different

weights, depending on whether one used a heavy-weight or light-weight

wood. HACO failed to present the Department with the production orders

for the merchandise under review, or to otherwise provide the technical

specifications of the merchandise that was shipped to the United

States. Consequently, we cannot know whether the handles presented to

us at verification were the same as the ones that were shipped to the

United States or which were used to prepare the questionnaire response;

(e) Nails: We disagree that we failed to measure the nails and failed

to note that different brushes use different size nails. We made

separate measurement of the nails used to produce two-inch and four-

inch brushes. The results are recorded in the Supplier's Verification

Report. The difference between the reported figures and the figures

found at verification is so great as to call into question whether the

correct nails were measured. However, since we have no production

orders telling the factory exactly which materials to use in the

production of the merchandise that was shipped to the United States, we

cannot further ascertain which nails should have been measured.

Consequently, we weighed the nails that were presented to us at

verification as representing those that were used in the production of

the subject merchandise. That these weights could be so significantly

different from what was reported further casts doubt on the methods

that were used to prepare the questionnaire response; (f) Epoxy: Epoxy

cannot be segregated from the brush to which it adheres for weighing

purposes. Thus, the only way to verify per-unit epoxy consumption is to

verify total epoxy consumed per brush type, and divide that figure by

the total quantity of brushes of that type produced. HACO's supplier

did not have the appropriate data available with which to support the

per-unit figure reported in the questionnaire response. The Department

was unable to verify the total number of brushes produced by the

factory, and HACO's supplier did

[[Page 27514]]

not have a further breakdown of its brush production by size or product

model. Therefore, even if we had reasonable figures for HACO's

supplier's total factory-wide epoxy glue consumption, we would have no

denominator with which to calculate a per-brush consumption rate.

However, HACO's supplier did not report its total factory-wide epoxy

glue consumption prior to verification and there is no evidence to

suggest that such figures were presented at verification; (g) Weighing:

HACO's supplier provided the scale that was used to weigh the

paintbrushes and components at verification, and neither HACO officials

nor officials from its supplier raised any concerns about the scale.

HACO's claim, in its case brief, that the verifiers were offered ``a

more accurate'' scale is not supported on the record.

For the foregoing reasons, we agree with the petitioner that the

information presented at verification could not be verified and that it

is the Department's practice not to use information that it knows is

incorrect, unverified, or both (See Rubber Thread). Consequently, we

have not used HACO's information in calculating a dumping margin in

this review.

Comment #12: The Use of ``Caps'' as the Basis of Labor Factor Reporting

HACO states that labor figures provided in its August 27, 1998

submission are based on what it refers to as ``caps'' because they

apparently represent a sufficiently accurate standard cost for HACO's

supplier's accounting and production purposes. HACO notes that its

supplier's workers are paid on a piece-work basis, not an hourly basis.

HACO disagrees that its supplier could not show how it had obtained the

reported figures, because, HACO claims, its supplier reported total

labor used for total number of brushes in calendar year 1997, and

provided that information at verification. HACO disagrees that the

figures presented at verification were far less than reported figures,

and claims that data presented at verification was just over the cap

estimate. HACO further argues that brushes are produced in cumulative

stages and that the verifiers failed to add the provided labor inputs

data for each stage of the production process.

DOC Position: We disagree that what HACO refers to as ``caps''

constitute a sufficiently accurate basis to confirm the labor factor

values reported in this review. HACO explained in its submission of

August 27, 1998, that caps were ``estimates.'' No further explanation

of how caps were determined was provided during the course of this

review. At verification, HACO's supplier was not able to confirm any of

the reported values for labor inputs.

HACO's counsel attempted to duplicate the reported figures using

HACO's supplier's daily production log for each step in the production

process. However, since no production records were available for the

month in which production actually occurred, HACO's supplier selected

October 1997, the only month for which HACO's supplier had labor

records for two- and four-inch brush production, and demonstrated how

such per-unit labor input figures could, in theory, be derived. As page

7 of the Supplier's Verification Report noted, the resulting figures

differed significantly from those reported in the questionnaire

response. In addition, the figures were not taken from the month in

which production of the subject merchandise occurred, as evidenced by

verification exhibit 25 and discussed in the Proprietary Issues

Memorandum. As the report also noted, the Department tested the

reasonableness of the labor rate provided at verification and found

that it was not consistent with the labor rate required to produce the

total number of paintbrushes that HACO's supplier claimed that it

produced in its June 2, 1998 response.

The Department disagrees that what HACO's supplier refers to as

``caps'' constitute standard costs. Neither HACO's questionnaire

responses information presented at verification made any reference to a

standard cost system. HACO explained, in its verification response and

at verification, that its supplier pays its workers on a piece-work

basis, and all records presented to the Department were based on the

actual number of pieces produced during a given shift. Hence, by

definition, actual and not standard costs were used to prepare the

questionnaire response. Furthermore, contrary to HACO's claims, the

Department evaluated at great length and in great detail all of the

labor data presented for each step in the production process. Since the

figures presented at verification did not match the information

provided in HACO's questionnaire responses, the labor factor value was

not verified.

Finally, HACO's proposal that the Department test the labor time

required to produce brushes in production at the time of verification

would not satisfy the Department's need to verify the questionnaire

response since none of the sizes of the merchandise sold to the United

States during the POR were under production at the time of the

verification.

Comment #13: The Department's Acceptance of Caps

HACO claims that the verifiers' unfamiliarity with the use of

``caps'' as a standard cost for labor should not serve as a basis for

failure of verification, and that the Department has accepted caps in

the past, citing Heavy Forged Hand Tools, Finished or Unfinished, With

or Without Handles, From the People's Republic of China; Final Results

of Antidumping Duty Administrative Reviews 63 FR 16758 16761 (April 6,

1998), where, HACO argues, the Department recognized that discrepancies

between reported and actual figures are acceptable as long as the

verified weights are reasonable.

DOC Position: We disagree that ``caps'' have been regularly

accepted in the past. HACO provided only one case as a reference. In

this one case, the Department found discrepancies between the reported

and actual figures. The Department, in that one case, found the actual

figures to be acceptable and reasonable. In the current case, the

Department found discrepancies between the reported figures and the

figures presented at verification. The Department examined the

information, considered its reasonableness, and concluded that it

varied so greatly from the information presented in the questionnaire

response that it could not infer or deduce how the information

presented in the questionnaire response was derived. Consequently, the

Department did not consider the information presented in the

questionnaire response as verified. (See Supplier's Verification Report

at pages 7 and 8.)

Comment #14: Verification of Energy Values

HACO disagrees that the Department could not verify the energy

figure provided by HACO's supplier, claiming that the electricity rate

was reasonable and verified because the Department verified the total

amount of brushes produced in calendar year 1997 and verified the

amount of electricity used during that time, allowing a per unit

calculation. HACO notes that the verifiers understood the brush

operation to be the only process involving use of electricity other

than factory overhead.

DOC Position: We disagree that HACO's energy rate was verified. We

examined all of HACO's supplier's electricity bills for the POR and

were able to confirm the total consumption for the POR. See Supplier's

Verification Report at 8. However, the determination of the per-unit

rate of electricity consumption requires an accurate

[[Page 27515]]

determination of the number of brushes produced during the POR. The

Department was unable to confirm the number of brushes produced during

the POR; consequently, it could not confirm the accuracy of the

reported per-unit electricity consumption figures. Therefore, this item

was not verified. For further explanation, see Supplier's Verification

Report at page 8 and Facts Available Memorandum.

Comment #15: Disregarding HACO's U.S. Sales as Non-Bona Fide

The petitioner raised an alternative argument in the event that the

Department were to reconsider its use of AFA and use HACO's data to

calculate HACO's margin for this review, that the Department should

disregard any U.S. sales that are not the result of bona fide arm's-

length transactions, as it did in Certain Cut-To-Length Carbon Steel

Plate from Romania: Notice of Rescission of Antidumping Duty

Administrative Review, 63 FR 47232 (September 4, 1998) (Romanian

Plate). The petitioner asserts that evidence on the record of this

review is substantially similar to that in Romanian Plate, which

demonstrated that the sales were not commercially reasonable, and

therefore not bona fide. As a result, the petitioner argues, the sales

of the subject merchandise cannot be used to calculate a new cash

deposit rate for HACO, and should therefore lead the Department to

rescind this administrative review.

HACO claims that the basis for determining that the transaction was

not bona fide in Romanian Plate was that the subject merchandise was

resold at a substantial loss, making the sale commercially

unreasonable, and that the exporter and importer were affiliated

parties. In the instant review, HACO contends, there is no evidence to

show that sales were atypical or not commercially reasonable. On the

contrary, HACO claims, the sales were made at arm's-length, and that

the record in this review clearly demonstrates the transaction at issue

was bona fide.

DOC Position: We continue to find that the use of AFA is

appropriate for these final results of review. Therefore, the

Department did not find it necessary to consider petitioner's

alternative argument to disregard HACO's U.S. sales for the purpose of

this review.

Final Results of Review

As a result of our review, we determine that the following dumping

margin exists:

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

Margin

Manufacturer/exporter Time period (percent)

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

Hebei Animal By-Products I/E Corp.... 02/01/97-01/31/98 351.92

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

The Department shall determine, and the U.S. Customs Service shall

assess, antidumping duties on all appropriate entries. The Department

will issue appraisement instructions on each exporter directly to the

Customs Service.

Furthermore, the following deposit rates will be effective upon

publication of this notice of final results of administrative review

for all shipments of paintbrushes from the PRC entered, or withdrawn

from warehouse, for consumption on or after the publication date, as

provided for by section 751(a)(2)(C) of the Act: (1) For HACO, which

has a separate rate, the cash deposit rate will be 351.92 percent; (2)

for previously-reviewed PRC and non-PRC exporters with separate rates,

the cash deposit rate will be the company-specific rate established for

the most recent period; (3) for all other PRC exporters, the rate will

be the PRC country-wide rate, which is 351.92 percent; and (4) for all

other non-PRC exporters of subject merchandise from the PRC, the cash

deposit rate will be the rate applicable to the PRC supplier of that

exporter.

These deposit rates, when imposed, shall remain in effect until

publication of the final results of the next administrative review.

This notice also serves as a final reminder to importers of their

responsibility under 19 CFR 351.401(f) of the Department's regulations

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.

Notification to Interested Parties

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 19 CFR 353.34(d). Timely written 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 published in accordance

with Sections 751(a)(1) and 777(i)(1) of the Act and Sections 351.213

and 351.221 of the Department's Regulations.

Dated: May 11, 1999.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 99-12785 Filed 5-19-99; 8:45 am]

BILLING CODE 3510-DS-P