Elemental Sulphur From Canada; Final Results of Antidumping Duty Administrative Review

DEPARTMENT OF COMMERCE

International Trade Administration

[A-122-047]

Elemental Sulphur From Canada; Final Results of Antidumping Duty

Administrative Review

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of Final Results of Antidumping Duty Administrative

Review of Elemental Sulphur from Canada.

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SUMMARY: On January 6, 1999, the Department of Commerce (``the

Department'') published the preliminary results of its administrative

review of the antidumping duty order on elemental sulphur from Canada

(64 FR 848) (``Preliminary Results''). This period of review (``POR'')

is December 1, 1996, through November 30, 1997. We gave interested

parties an opportunity to comment on our preliminary results. Based

upon our analysis of the comments received, we have changed the results

from those presented in the preliminary results of the review, as

discussed below. However, the margin remains de minimis.

We determine that respondent has not made sales below normal value

during the period of review. Thus, we will instruct the U.S. Customs

Service to liquidate entries during the POR without regard to

antidumping duties.

EFFECTIVE DATE: July 13, 1999.

FOR FURTHER INFORMATION CONTACT: Brandon Farlander or Rick Johnson,

Import Administration, International Trade Administration, U.S.

Department of Commerce, 14th and Constitution Avenue, N.W., Washington,

D.C. 20230; telephone: (202) 482-0182 or (202) 482-3818, respectively.

Applicable Statute and Regulations

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 Rounds Agreements Act (``URAA''). In addition, unless

otherwise indicated, all citations to the Department's regulations are

to the regulations codified at 19 CFR Part 351 (1998).

SUPPLEMENTARY INFORMATION:

Background

On January 6, 1999, the Department published in the Federal

Register (64 FR 848) the preliminary results of its administrative

review of the antidumping duty order on elemental sulphur from Canada.

We gave interested parties an opportunity to comment on our preliminary

results. We received written comments on February 5, 1999 from Husky

Oil, Ltd. (``Husky''), the only respondent in this review, and on

February 24, 1999 from petitioner, Freeport McMoRan Sulphur, Inc.

(``Freeport'').

Under section 751(a)(3)(A) of the Act, the Department may extend

the deadline for completion of administrative reviews if it determines

that it is not practicable to complete the review within the statutory

time limit. On March 8, 1999, the Department extended the time limit

for the final results in this case. See Elemental Sulphur from Canada:

Extension of Time Limit for Final Results of the Antidumping Duty

Administrative Review, 64 FR 10983. We have now completed the

administrative review in accordance with section 751 of the Act.

Scope of the Review

Imports covered by these reviews are shipments of elemental sulphur

from Canada. This merchandise is classifiable under Harmonized Tariff

Schedule (``HTS'') subheadings 2503.10.00, 2503.90.00, and 2802.00.00.

Although the HTS subheadings are provided for convenience and for U.S.

Customs purposes, the written description of the scope of this finding

remains dispositive.

Fair Value Comparisons

To determine whether sales of subject merchandise from Canada to

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

Export Price (``EP'') to the Normal Value (``NV''), as described in the

``Export Price'' and ``Normal Value'' sections of the Preliminary

Results.

Interested Party Comments

Comment 1--Revocation. Husky argues that the Department should

reconsider its preliminary decision not to revoke the antidumping duty

order in whole or with respect to Husky, based on the unique facts of

this case and the U.S. International Trade Commission's (``ITC'')

determination ``to revoke the elemental sulphur antidumping duty order

on January 1, 2000.''

Husky argues that the Department has the authority to revoke an

antidumping duty order if any of the following situations exist: (1)

Dumping is no longer occurring and/or dumping is no longer causing

injury (citing the Agreement on Implementation of Article VI of the

General Agreement on Tariffs and Trade 1994, Article 11); (2)

``(p)roducers accounting for substantially all of the production of the

domestic like product to which the order (or the part of the order to

be revoked) * * * pertains have expressed a lack of interest in the

order, in whole or in part'' (citing 19 CFR 351.222(g)(i)); (3)

``(o)ther changed circumstances sufficient to warrant revocation or

termination exist'' (citing 19 CFR 351.222(g)(ii)). Husky also contends

that the Department has demonstrated its ability to interpret its

regulations in a flexible manner by granting revocation based on an

exporter's ability to sell at fair value for several years, despite

that exporter's failure to file a timely request for revocation (citing

Color Television Receivers From the Republic of Korea: Final Results of

Changed Circumstances Antidumping Duty Review, 63 FR 46759 (September

2, 1998) (``Color Television Receivers from Korea'')).

Husky alleges that the Department and petitioner knew that Husky's

argument for revocation was partly based on Husky's reliance upon the

new intervening year rule at 19 CFR 351.222(d), even though the

intervening year Husky relied upon--the 1995/96 review period--would

have been reviewed under prior regulatory authority. Husky notes that,

in the Preliminary Results, the Department determined that the 1995/96

review period cannot be viewed as the second of three consecutive

review periods because the new regulations cannot be applied

retroactively to cover periods subject to the Department's previously

applicable regulations. Husky disputes this conclusion on the grounds

that the new regulations, while published on May 19, 1997, were in fact

first introduced to the public for comments in February of 1996. Husky

argues that, while the new regulations cover reviews requested on or

after July 1, 1997, they do not state that the intervening year rule

may not apply to reviews conducted under earlier versions of the

Department's regulations.

Husky argues that one possible reason why Freeport did not object

to Husky's right to request revocation in this review was because the

Department had not stated that respondents could not apply the

intervening year rule as soon as the final regulations entered into

effect. Husky argues that the Department's interpretation of its

regulations in the Preliminary Results amounts to a finding that the

``intervening year rule did not, in fact, become effective in July 1997

as mandated by the regulations.'' Instead, Husky alleges, the

Department's preliminary results decision means that the intervening

year rule did not

[[Page 37738]]

become effective until July of 1998. Husky argues that the Department

``should enforce the effective date of its regulations and allow

Husky's revocation to proceed on the basis that no dumping was found

during the 1995/96 intervening year.'' Husky argues that Freeport would

not be prejudiced by application of the intervening year rule in this

case because Freeport had the opportunity to request a review of the

1995/96 period.

In addition, Husky contends that the Department should grant

Husky's request for revocation based on its claims that it did not sell

subject merchandise at less than fair value for three consecutive

years, that it will not dump in the future, and that the Department

verified that Husky is not likely to dump in the future. Further,

argues Husky, because of the ITC's sunset determination, there can be

at most two more reviews of this order, covering the 1997/98 and 1998/

99 review periods. Accordingly, Husky states, the Department need only

determine that Husky will not sell at less than fair value in 1999.

Husky points to the fact that it has executed a certification stating

that it will not dump in the future.

In summary, Husky argues that the Department should immediately

terminate the antidumping duty order on sulphur from Canada because:

(1) Husky has not sold at less than fair value since 1994; (2) Husky

has certified that it will not sell at less than fair value in the

future; (3) the ITC has determined that sulphur from Canada is not

causing injury to the U.S. sulphur industry; (4) Freeport has been

deemed unrepresentative of the U.S. sulphur industry by the ITC; (5)

most of the other Canadian sulphur producers have already been revoked

from the order; (6) the intervening year rule was designed to eliminate

unnecessary reviews, such as the 1997/98 and 1998/99 reviews; and (7)

an antidumping order should not exist if dumping is no longer causing

injury (citing the Agreement on Implementation of Article VI of the

General Agreement on Tariffs and Trade 1994, Article 11).

Petitioner argues that Husky requested revocation based on three

consecutive years of no dumping pursuant to 19 CFR 351.222(b).

Petitioner notes that ``Husky did not request revocation based on any

U.S. producers' lack of interest in the order, other changed

circumstances, or any other basis on which the Department could revoke

the order.'' Freeport argues that the Department should therefore

reject Husky's recent claims for revocation and only consider Husky's

revocation request based on section 351.222(b). Also, Freeport argues

that to consider Husky's recent revocation claims on some other

regulatory basis would ``violate fundamental principles of due process

and be prejudicial to petitioner.''

Petitioner notes that section 351.222(b) requires that the foreign

producer must have sold subject merchandise at not less than normal

value for at least three consecutive years as a first step to be

considered for revocation. Petitioner cites the Department's

preliminary results in this case and supports the Department's

preliminary decision not to apply section 351.222(d) retroactively to

review periods governed by prior regulations.

Petitioner contends that Husky's reliance on the proposed new

regulations is misplaced, because proposed regulations can and often do

change before being finalized. Petitioner argues that just because

Husky requested revocation after the new regulations entered into

effect ``does not constitute a basis for applying section 351.222(d) of

the Department's new regulations to a review period to which the

Department's prior regulations apply.'' Petitioner argues that Husky's

claim that it was on notice of the rule before the deadline for

requesting a review of the 1995/96 review period is in error.

Petitioner notes that the final rule was published on May 19, 1997--

after the deadline for requesting a review of the 1995/96 review

period. In addition, petitioner notes that 19 CFR 351.701 states that

the Department's regulations ``apply to all administrative reviews

initiated on the basis of requests made on or after the first day of

July, 1997.'' Thus, petitioner argues that the 1996/97 administrative

review is the first review governed by the new regulations.

Petitioner also argues that the Department did not in fact

``verify'' that Husky is not likely to dump in the future, because the

Department only verifies previously submitted facts at verification.

Petitioner further argues that the Department does not issue findings

at verification, such as a finding of no likelihood of future dumping.

Also, petitioner notes that the Department must determine that Husky

did not sell sulphur for export to the United States at less than

normal value for three consecutive years and that there is no

likelihood of future dumping. Petitioner notes that the Department did

not preliminarily hold that Husky did not sell at less than normal

value for three consecutive years; hence, Husky does not qualify for

revocation regardless of Husky's likelihood of future dumping.

Finally, petitioner contends that if the Department were to revoke

the order with respect to Husky, Husky would sell the subject

merchandise at less than normal value. Petitioner notes that Husky has

reduced its U.S. export volume since the 1991/92 review and has taken

further steps with regard to limiting those exports subject to

antidumping duties. For a further discussion of the petitioner's

arguments, which entail proprietary information, see petitioner's July

15, 1998 letter to the Department (proprietary version).

Department's Position: We agree with petitioner. As the Department

stated in its Preliminary Results (at 850):

[T]he Department's policy is not to apply [section 351.222(d)]

retroactively to include periods subject to review under earlier

versions of the regulations. As we explained in a recent

administrative review of the countervailing duty order on

agricultural tillage tools from Brazil, ``[a]lthough section

351.222(d) of the Department's regulations provides that the

Secretary may revoke the order in part when there are unreviewed

years in the period upon which revocation is based, the regulations

do not provide for the application of this provision retroactively

to review periods that would have been controlled by the

Department's pre-Uruguay Round regulations.'' Because the Department

does not apply section 351.222(d) of the new regulations

retroactively, any unreviewed periods that apply to the three-

consecutive-year revocation requirement must be periods reviewed

under Part 351. Husky's 1995-96 POR thus cannot be considered the

second of three consecutive PORs in this revocation analysis.

Therefore, because Husky has not satisfied the threshold requirement

that revocation be based upon sales ``at not less than normal value

for a period of at least three consecutive years,'' we do not reach

the additional criteria for revocation enumerated at 19 CFR 351.222

(b)(2) (ii) and (iii).

We do not agree with Husky's argument regarding the timing of the

issuance of the Department's proposed regulations. While the proposed

regulations were introduced before the deadline for requesting a review

of the 1995/96 review period, those regulations were not final. That

the proposed regulations do not constitute enforceable regulations

cannot be disputed. Furthermore, the proposed regulations did not

contain a proposed provision regarding the applicability dates for the

new final regulations.

As noted by petitioner, and as stated in Subpart G of the current

regulations, the new regulations apply to all administrative reviews

initiated on the basis of requests made on or after July 1, 1997. Under

this rule, the 1996/97 administrative review is the first review

governed by the new regulations. While

[[Page 37739]]

we agree with respondent that the new regulations did not explicitly

state when the intervening year rule could be applied, we find that the

regulations' silence on this issue affords the Department sufficient

discretion to interpret Subpart G as prohibiting retroactive

application of the intervening year rule set forth in section

351.222(d). Also, retroactive application of the intervening year rule

is potentially prejudicial to petitioner, as the regulations governing

the 1995/96 POR contained no such rule. It would thus be unfair to

petitioner to alter the legal status of the 1995/96 POR subsequent to

any opportunity to request a review of that period. Finally, we note

that a decision not to apply the intervening year rule retroactively

accords with the general preference in administrative law against the

retroactive application of new regulations.

We also note that it is not the case, as asserted by Husky, that

the ITC in its sunset review ``revoked'' the antidumping duty order on

elemental sulphur from Canada. Rather, the ITC found that revocation of

this order would not likely lead to continuation or recurrence of

material injury to an industry in the United States within a reasonably

foreseeable time. See Elemental Sulphur From Canada, 64 FR 2232

(January 13, 1999) (Investigation No. AA1921-127). Pursuant to this

determination, the order on elemental sulphur from Canada is scheduled

to be revoked effective January 1, 2000. However, all entries made

before that date will remain subject to the administrative review

procedures set forth at section 751 of the Act.

Regarding Husky's other revocation arguments, we find that Husky's

reliance on the Department's changed circumstances review in Color

Television Receivers from Korea is misplaced. In that case, the

respondent, Samsung, had satisfied the threshold revocation requirement

of three consecutive years of de minimis margins. In fact, at the time

of that changed circumstances review, Samsung had sold subject

merchandise at not less than foreign market value for six consecutive

years. See Color Television Receivers from Korea; Preliminary Results

of Changed Circumstances Antidumping Administrative Review, 62 FR 68256

(December 31, 1997). Further, the Department determined that it was not

likely that Samsung would sell subject merchandise at less than foreign

market value in the future. Id. By contrast, in this case, as

explained, the Department does not reach the likelihood analysis

because Husky cannot demonstrate three consecutive years of no sales at

less than normal value. In this regard, we note that the Department in

fact has already considered these arguments in the context of Husky's

request that the Department initiate a changed circumstances review,

and our position has been placed on the record of this review.

Specifically, the Department considered, and rejected, these arguments

in full in its Decision Memorandum from Edward Yang to Joseph A.

Spetrini, dated March 22, 1999.

We agree with petitioner that we did not ``verify'' that Husky is

not likely to dump in the future, as argued by Husky. The purpose of

verification is to establish that information submitted on the record

of a review or investigation is accurate. It is not the objective of a

verification to consider legal arguments and make on-the-spot legal

conclusions regarding such information. Thus, the Department's

verification team merely reviewed evidence which Husky claims supports

its assertion that it is not likely to dump in the future. In any

event, as petitioner notes, the issue is moot, since section 351.222(d)

does not apply.

Likewise, Husky's assertion that it has demonstrated that it has

not sold subject merchandise at less than fair value since 1994 is

unpersuasive, because, as noted above, Husky is not eligible for

revocation based on three consecutive years of no dumping. For these

reasons, we are not altering our determination that Husky has not met

the regulatory criteria to be considered for revocation.

Comment 2--General and Administrative (``G&A'') and Financial

Expenses. Husky alleges that the Department erred when it adjusted

Husky's cost of sales (``COS'') figures used to calculate Husky's

consolidated financial expense ratio and company-wide general and

administrative (``G&A'') expense ratio for the preliminary results.

According to Husky, the Department's preliminary adjustments overstate

cost of production (``COP''). Moreover, Husky maintains that the

Department had accepted Husky's general and interest expense rate

calculation methodology in prior reviews. Husky further elaborates that

the COS figure reported on the financial statements cannot be used

because these figures do not account for all the costs associated with

manufacturing the products for sale. According to Husky, other costs of

manufacture, such as depreciation, depletion, and exploration, as well

as the cost of manufacture for downstream products, are listed

separately in its financial statements (i.e., not included in the COS

figure reported on the financial statements).

According to Husky, the COS figure on the financial statements only

reflects the cost of its operations and not the value added in the

downstream operations. Husky states that the downstream portion of the

cost is captured in the sales revenue account, where the margin (the

difference between the sales revenue and the cost of sales) is

recorded. Therefore, the total sales revenue and the COS are

understated, as Husky does not record the revenue from the downstream

operations in its revenue figure and does not record the cost of

downstream operations in its COS. Therefore, Husky contends that these

figures should not be used in calculating G&A and financial expense

ratios.

In addition, Husky argues that the Department has, in other cases,

adjusted COS to include costs that may not be recorded as part of COS

in a company's financial statements, but that the Department

nevertheless deems to be part of COS (citing Notice of Final

Determination of Sales at Less Than Fair Value: Static Random Access

Memory from Taiwan, 63 FR 8909, 8921-22 (February 23, 1998) (``SRAM

from Taiwan'')).

Petitioner argues that Husky has understated its reported G&A and

financial expenses by overstating COS figures used to calculate these

amounts. According to petitioner, Husky has inflated its COS figure in

the following ways: First, Husky increased COS in its financial

statement ``purportedly to account for the cost of its `downstream'

operations that Husky claimed was not reflected in its financial-

statement cost of sales.'' However, petitioner claims, Husky has

already included this cost in the COS figures. To support its position,

petitioner references Husky Oil Operation Ltd's (``HOOL'') G&A

worksheet submitted as Exhibit 16 of its April 2, 1998 questionnaire

response, that indicates that the total cost of downstream merchandise

was recorded in HOOL's COS figure.

Second, petitioner notes that Husky's revised COS figures include

marketing activities. According to petitioner, this type of expense

should not be included in the calculations.

Third, petitioner states that if Husky's assertion is correct, then

Husky should have only added to its COS figure the cost of further

processing the ``upstream'' products into the ``downstream'' products.

Fourth, petitioner argues that Husky did not provide information to

allow the Department to ``determine whether Husky's `downstream' lines

of business

[[Page 37740]]

incur G&A expenses proportionate to those incurred by Husky's

`upstream' production operations.'' Petitioner argues that the G&A

incurred in respondent's downstream operations may be less than the G&A

incurred in its upstream operations. If this is the case, including the

COS figures for the downstream operations in the financial-statement

COS figures would ``inflate'' the COS figure.

Finally, petitioner contends that it is the Department's practice

for the respondent to bear the burden of ``establishing entitlement to

an adjustment,'' citing the following decisions by the Court of

International Trade (``CIT''): Koyo Seiko v. United States, 905 F.

Supp. 1112, 1116 (Ct. Int'l Trade 1995); NSK, Ltd. v. United States,

825 F. Supp. 315, 320 (Ct. Int'l Trade 1993); and Timken Co. v. United

States, 673 F. Supp. 495, 513 (Ct. Int'l Trade 1987). Petitioner argues

that, for the above reasons, the Department should not rely on Husky's

reported G&A and financial expense ratios for the final results.

Department's Position: We disagree with Husky that it properly

calculated its reported COS used to calculate both G&A and interest

expenses. Normally, we rely on the COS reported on the audited

financial statements of the respondent to allocate general and interest

expenses. This methodology avoids any distortions that may result if

greater amounts of company-wide general expenses or financial expense

are allocated disproportionally between products. See Final

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

from Chile, 63 FR 31412, 31433 (Comment 29) (June 9, 1998). In this

instance, Husky deviated from the Department's normal methodology and

calculated surrogate COS figures. To calculate these surrogate figures,

Husky increased the COS figures reported on its income statements to

include depletion, exploration, and its downstream production costs. As

a result, these COS figures are not on the same basis as the reported

cost of manufacturing (``COM'') and, in fact, are overstated.

Specifically, we disagree with Husky that it is appropriate to include

depletion, exploration, and certain additional downstream costs as a

component of the COS figures because the reported COM excludes these

items. The Department has consistently stated in prior cases that the

two figures should be on the same basis (see, e.g., Notice of Final

Determination of Sales at Less Than Fair Value: Stainless Steel Round

Wire from Canada, 64 FR 17324, 17334 (April 9, 1999); Notice of Final

Results and Partial Rescission of Antidumping Duty Administrative

Review: Certain Pasta From Turkey, 63 FR 68429, 68434 (December 11,

1998); and Notice of Final Results of Antidumping Duty Administrative

Review: Circular Welded Non-Alloy Steel Pipe from the Republic of

Korea, 63 FR 32833, 32837 (June 16, 1998)).

We also specifically disagree with Husky's inclusion of additional

downstream manufacturing costs in the COS figure because the COS figure

reported on Husky's financial statements intentionally omits this cost

in accordance with Canadian Generally Accepted Accounting Principles

(``GAAP''). For example, Husky has classified its operations as either

upstream (e.g., production of crude oil, natural gas, sulphur, etc.),

downstream (production of refined oil, asphalt, etc.), upgrader, or

corporate. In the normal course of business, the upstream operations

transfer their finished products to the downstream operations for

further processing through intra-company transactions. These operations

are not separate entities that require consolidation, but merely

separate business units that make up a single corporation. Thus,

Husky's COS figures reported on the income statements reflect the

upstream operations costs and the appropriate portion of downstream

costs in accordance with Canadian GAAP (see Verification of Cost of

Production (``COP'') and Constructed Value (``CV'') Data for Husky Oil,

Ltd., dated December 1, 1998, (``Cost Verification Report''), Exhibit

22). As a result, intra-company transactions are appropriately

eliminated to avoid double counting both sales revenue and costs.

Therefore, it would be inappropriate to allocate G&A and financial

expense to intra-company transactions since these amounts are normally

eliminated when preparing the companies' financial statements. See

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

Stainless Steel Round Wire from Canada, 64 FR 17324, 17334 (April 9,

1999) and Certain Cut-to-Length Carbon Steel Plate from Brazil, 63 FR

12744, 12749 (Comment 8) (March 16, 1998).

Petitioner's arguments about whether Husky's marketing activities

are reflected in Husky's financial statement COS and whether Husky's

downstream operations incur G&A expenses proportionate to Husky's

upstream operations are moot because we are not using Husky's submitted

COS figures.

We also disagree with Husky's reliance on SRAM from Taiwan, where

the Department addressed the inclusion of certain costs in the

calculation of COP, not COS, as in the instant case. Thus, SRAM from

Taiwan is unrelated to the calculation of COS, and is inapplicable.

We note that, with respect to Husky's observation that the

Department has accepted Husky's G&A calculation in prior reviews, the

Department may change its position on a specific issue taken in prior

proceedings as long as it provides an explanation for the change (see

Rust v. Sullivan, 500 U.S. 173, 1860187 (1991)). In this case, Husky's

increase to COS, which results in the use of a figure expressed on a

different basis than COM, does not follow the Department's normal

practice for calculating G&A expenses. Furthermore, there is no basis

in this record to justify deviating from the Department's normal

practice. Consequently, we are following our normal practice in this

review, which is to ensure that COS and COM are calculated on the same

basis.

For the reasons stated above, we have calculated Husky's G&A and

financial expense ratio in accordance with our normal methodology using

a COS figure that was on the same basis as the reported COM. For the

final results, we calculated a general expense rate that is made up of

company-specific G&A and corporate-wide G&A expense. Specifically, we

calculated the company-specific (i.e., HOOL) G&A expense rate by

dividing HOOL's unconsolidated G&A expense by its unconsolidated COS

figure, which we increased to include depreciation expense. We then

calculated a company-wide G&A expense rate for general expenses that

benefitted all the entities of the consolidated HOOL Group. The

denominator in this instance was HOOL's consolidated COS figure, which

we increased to include depreciation expense. For the calculation of

interest expense, we are continuing to use Husky's consolidated

financial statements as we did in the Preliminary Results. See Analysis

Memorandum of Husky for the Final Results of the Administrative Review

of Elemental Sulphur from Canada for the period December 1, 1996

through November 30, 1997 (``Analysis Memo: Final''), dated July 6,

1999, for a complete discussion.

Comment 3--Adjustment to reported interest expenses. Husky alleges

that in the preliminary results, the Department incorrectly included

interest expenses paid on subordinated debt and dividends of Class C

shares in the calculation of Husky's total interest expenses. Husky

provides the following reasons as to why this inclusion is incorrect.

[[Page 37741]]

First, Husky argues that the interest on subordinated shareholders'

loans and dividends on Class C shares are amounts held by external

shareholders in proportion to their shareholdings. Therefore, Husky

argues that these expenses are not interest expenses but rather

dividend and loan payments based on equity positions. Second, Husky

argues that under Canadian GAAP, these loans are not treated like

normal debt, and that the Department should follow prior reviews of

this order, and reverse its preliminary decision. According to Husky,

the interest on subordinated shareholders' loans and dividends on Class

C shares are ``treated as loans for the `ceiling' test under the full

cost method of accounting applicable to the oil and gas industry.''

Respondent provides a brief summary of the ceiling test as a

``calculation to determine if it is necessary to expense any portion of

capitalized costs taking into account future revenues and all costs,

including financing, but excluding the subordinated interest and Class

C shares.'' Respondent argues that its auditors, in Note 6 of Husky's

Consolidated Financial Statements and Auditors' Report, dated December

31, 1997 (``financial statements'') ``determined that the loans were so

subordinated that they could not be treated as debt'' and that these

``loans are subordinated to all senior debt and other financial debt of

the Company.''

Petitioner argues that the Department properly included interest on

subordinated shareholders' loans and dividends on Class C shares as

interest expenses, since Husky's exclusion of these payments improperly

understated its financial expense ratio.

First, petitioner argues that Husky did not address the fact that

the Cost Verification Report notes that company officials stated that

``these account balances (i.e., the interest on subordinated

shareholders' loans and dividends on Class C shares) reflect the

interest expense due to shareholders for lending the organization

funds.'' Petitioner argues that the Department relied on this statement

from company officials in determining that these amounts should be

included in the calculation of interest expense. Additionally,

petitioner notes that the Cost Verification Report states that Husky

officials identified the following three characteristics of these

shareholders' loans: (1) each shareholder charges the same fixed

interest rate; (2) Husky accrues the interest expense even if the

entity has an operating loss; and (3) the accrued expense is not a

dividend.

Second, petitioner argues that Department practice is to ``include

interest on loans from owners or shareholders in the calculation of a

respondent's financial expense ratio used to calculate COP/CV'' (citing

Final Determination of Sales at Less Than Fair Value: Fresh Kiwifruit

from New Zealand, 57 FR 13695, 13704-05 (April 17, 1992) (``Kiwifruit

from New Zealand''); and Final Determinations of Sales at Less Than

Fair Value: Antifriction Bearings (Other Than Tapered Roller Bearings)

and Parts Thereof from the Federal Republic of Germany, 54 FR 18992,

19077 (May 3, 1989) (``Antifriction Bearings from Germany'')). Also,

petitioner argues that when a respondent's financial statements

``classify the holdings as debt rather than equity, the Department

includes the amounts paid on the holdings in the calculation of the

financial expense ratio,'' citing Final Determination of Sales at Less

Than Fair Value: Fresh Cut Roses from Ecuador, 60 FR 7019, 7039

(February 6, 1995) (``Roses from Ecuador''), and Notice of Final

Determination of Sales at Less Than Fair Value: Melamine Institutional

Dinnerware Products from Taiwan, 62 FR 1726, 1731 (January 13, 1997)

(``Melamine Institutional Dinnerware Products from Taiwan'').

Third, petitioner argues that Note Six of respondent's financial

statement does not state that the subordinated shareholders' loans and

dividends on Class C are not debt. Also, petitioner addresses how

respondent's subordinated shareholders' loans and dividends on Class C

shares are represented in Husky's financial statement. Because this

discussion involves proprietary information, please see Analysis Memo:

Final for a full discussion of this issue.

Fourth, petitioner argues that respondent's statement that ``the

holdings [subordinated shareholders' loans and dividends on Class C

shares] are not treated like normal debt under Canadian GAAP,'' in fact

acknowledges that the holdings are debt. Also, petitioner notes that

under both the statute and the Statement of Administrative Action

(``SAA''), COP/CV cannot be calculated using foreign accounting

practices that ``do not reasonably reflect the costs of producing the

subject merchandise.'' In addition, petitioner argues that the CIT has

``made [it] clear that even if a respondent's accounting records are

consistent with the respondent's home country GAAP, it is unlawful for

the Department to rely on those records when they are unreliable and

distortive of `actual costs' '' (citing Thai Pineapple Pub. Co. v.

United States, 946 F. Supp. 11, 20 (Ct. Int'l Trade 1996)). Petitioner

argues that the Department has determined that COP/CV must reasonably

reflect actual production costs, citing, e.g., Certain Cut-to-Length

Carbon Steel Plate from Brazil; Final Results of Antidumping Duty

Administrative Review, 62 FR 18486, 18492 (April 15, 1997), and Final

Determination of Sales at Less Than Fair Value; Canned Pineapple Fruit

from Thailand, 60 FR 29553, 29559 (June 5, 1995). Petitioner notes that

the ``SAA identifies U.S. GAAP as the standard for determining whether

a company's records reflect actual costs.'' Also, petitioner notes how

respondent's subordinated shareholders' loans and dividends on Class C

shares may be classified in Husky's financial statement. Because this

argument entails the discussion of proprietary information, see

Analysis Memo: Final (proprietary version).

Department's Position: We disagree with respondent's

characterization of the interest on subordinated shareholders' loans

and dividends on Class C shares. As petitioner notes above, and as

mentioned in the Cost Verification Report, Husky officials identified

the following three characteristics of these shareholders' loans: (1)

each shareholder charges the same fixed interest rate; (2) Husky

accrues the interest expense even if the entity has an operating loss;

and (3) the accrued expense is not a dividend. These three

characteristic descriptions, as well as the statement that the account

balances of shareholder loans reflect the interest expense due to

shareholders for loaning the organization funds, suggest that these are

interest expenses for Husky.

Furthermore, we note that Husky's auditors appear to have

implicitly characterized the subordinated shareholders' loan amounts as

debt, by stating that these ``loans are subordinated to all senior debt

and other financial debt of the Company.'' See Cost Verification

Report, Exhibit 2 (Husky's Consolidated Financial Statements and

Auditors' Report, dated December 31, 1997, Note Six). The loans, while

subordinated to other debt, are still identified as debt because they

have a specific maturity date and require the payment of interest (Note

12 of the same financial report). Additionally, we agree with

petitioner's argument regarding how the subordinated shareholders'

loans and dividends on Class C shares are represented in Husky's

financial statements. Because this discussion involves proprietary

information, see Analysis Memo: Final (proprietary

[[Page 37742]]

version) for a full discussion of this issue.

We agree with petitioner that the Department's practice is to

include interest on loans from owners or shareholders when calculating

a respondent's financial expense ratio. See, e.g., Kiwifruit from New

Zealand (Department agreed with petitioners that any interest expenses

that were necessary to produce kiwifruit should properly be included in

the cost of production, since there was no evidence that the interest

rate on the related-party loan did not reflect market interest rates.);

and Antifriction Bearings from Germany (Department stated that the loan

to respondent from a shareholder does not differ from other debt.

Therefore, the interest paid on that loan was treated as an interest

expense.).

In addition, if a respondent's financial statements classify the

owners' or shareholders' holdings as a debt or loan, rather than as

equity, Department practice is to include the payments on these

holdings in the calculation of respondent's financial expense ratio.

See Roses from Ecuador (Department noted that since the loan in

question was not recorded originally as an equity investment and was

reflected in the company's books and records as borrowings, we had no

basis to reclassify it as equity.) and Melamine Institutional

Dinnerware Products from Taiwan (Department stated that although

respondent may have considered the transactions in question to serve as

equity capital infusions, its audited financial statement classified

them as long-term loans. Other than respondent's assertions, there was

no basis on the record to reclassify these amounts.).

Finally, as stated in section 773(f)(1)(A) of the Act, the

Department normally relies on foreign company's books and records for

calculating COP/CV if these practices are: (1) consistent with their

home country GAAP, and (2) reasonably reflect the costs associated with

the production and sale of the merchandise. Due to the economic

realities of these loans, Canadian GAAP has required the company to

treat these loans as a note payable. Thus, the interest expense

incurred on this debt should be reflected in the cost of production as

any other interest expense.

Based on our analysis above, we continue to find that these

payments by Husky are properly classified as interest expenses in the

calculation of its financial expense ratio.

Final Results of Review

As a result of our review of the comments received, we determine

that the following margin exists:

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

Margin

Manufacturer/Exporter Time Period (percent)

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

Husky Oil, Ltd................................ 12/01/96- 0.37

11/30/97

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

Because the final calculated margin is de minimis, the Department

will instruct the U.S. Customs Service to liquidate entries of subject

merchandise during the POR without regard to antidumping duties.

The following cash deposit requirements will be effective upon

publication of these final results for all shipments of the subject

merchandise entered, or withdrawn from warehouse, for consumption on or

after the publication date provided by section 751(a)(1) of the Act:

(1) The cash deposit rate for the reviewed company will be the rate

listed above (except that if the rate is de minimis, i.e., less than

0.5 percent, no cash deposit rate will be required for that company);

(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, a prior review, or the original less than fair value

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 the ``all others'' rate

made effective by the final results of the 1993/94 administrative

review of these orders (see Elemental Sulphur from Canada: Final

Results of Antidumping Duty Administrative Review, 62 FR 37970 (July

15, 1997) (1992/93 and 1993/94 Final Results)). These deposit

requirements, when imposed, shall remain in effect until publication of

the final results of the next administrative review.

Notification of Interested Parties

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

responsibility under 19 CFR 351.402(f)(2) 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 the antidumping duties occurred and the subsequent

assessment of double antidumping duties.

This notice also serves as a reminder to parties subject to

administrative protective orders (APOs) of their responsibility

concerning the disposition of proprietary information disclosed under

APO in accordance with 19 CFR 353.34(d)(1), that continues to govern

business proprietary information in this segment of the proceeding.

Timely written notification of the 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 determination is issued and published in accordance with

sections 751(a)(1) and 777(i)(1) of the Act.

Dated: July 6, 1999.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 99-17801 Filed 7-12-99; 8:45 am]

BILLING CODE 3510-DS-P