Notice of Final Determination of Sales at Less Than Fair Value: Live Cattle From Canada
Federal RegisterOct 21, 1999
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-122-833]
Notice of Final Determination of Sales at Less Than Fair Value:
Live Cattle From Canada
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: October 21, 1999.
FOR FURTHER INFORMATION CONTACT: Gabriel Adler or Steven Presing,
Office of AD/CVD Enforcement 5, Import Administration, International
Trade Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, NW., Washington, DC 20230; telephone: (202) 482-
1442 or (202) 482-5288, respectively.
The 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 Round Agreements Act (URAA). In addition, unless otherwise
indicated, all citations to Department of Commerce (the Department)
regulations refer to the regulations last codified at 19 CFR part 351
(April 1998).
Final Determination
We determine that live cattle from Canada are being sold, or are
likely to be sold, in the United States at less than fair value (LTFV),
as provided in section 735 of the Act. The estimated margins are shown
in the Continuation of Suspension of Liquidation section of this
notice.
Case History
The preliminary determination in this investigation was issued on
June 30, 1999. See Notice of Preliminary Determination of Sales at Less
Than Fair Value: Live Cattle from Canada, 64 FR 36847 (July 8, 1999)
(Preliminary Determination). Since the publication of this
determination, the following events have occurred.
On July 12, 1999, respondent Schaus Land and Cattle Company
(Schaus) filed a letter stating that it was ceasing its participation
in this investigation. On July 16, 1999, the Department issued an
amended preliminary determination, including a recalculated preliminary
margin for Schaus that relied on data filed by the respondent on the
eve of the issuance of the preliminary determination. See Amended
Antidumping Determination: Live Cattle from Canada, 64 FR 39970 (July
23, 1999) (Amended Preliminary Determination). See also Schaus Sales
Comment 1 (Facts Available), below.
In July 1999, we conducted on-site verifications of the
questionnaire responses submitted by Cor Van Raay Farms Ltd. and Butte
Grain Merchants Ltd. (Cor Van Raay); Pound-Maker Agventures, Ltd.
(Pound-Maker); Riverside Feeders Ltd. and Grandview Cattle Feeders Ltd.
(Riverside/Grandview); Jameson, Gilroy and B & L Livestock Ltd. (the
JGL Group); and Groenenboom Farms, Ltd. (Groenenboom).
On August 13, 1999, we received case briefs from (1) the Ranchers-
Cattlemen Action Legal Fund (R-CALF or the petitioners), (2) the
Canadian Cattlemen's Association (CCA) and the named respondents in
this investigation, and (3) the Free Market Beef Council (FMBC), an
alliance of U.S. packers that import live cattle from Canada. On August
20, 1999, we received rebuttal briefs from the same parties. On August
30, 1999, the petitioners filed a letter alleging that Canadian
producers of the subject merchandise were engaged in a scheme to
reimburse importers for antidumping duty deposits relating to subject
merchandise. We held a public hearing on September 1, 1999. At the
hearing, the Department requested that parties submit comments
regarding the allegation of reimbursement of duty deposits. The
petitioners and the CCA filed such comments on September 10, 1999. See
Sales Comment 3 (Reimbursement of Dumping Duty Deposits) below.
Scope of Investigation
The scope of this investigation covers live cattle from Canada. For
purposes of this investigation, the product covered is all live cattle
except imports of (1) bison, (2) dairy cows for the production of milk
for human consumption, and (3) purebred cattle and other cattle
specially imported for breeding purposes.
The merchandise subject to this investigation is classifiable as
statistical reporting numbers under 0102.90.40 of the Harmonized Tariff
Schedule of the United States (HTSUS), with the exception of
0102.90.40.10, 0102.90.40.72 and 0102.90.40.74. Although the HTSUS
subheadings are provided for convenience and customs purposes, the
written description of the merchandise under investigation is
dispositive.
Period of Investigation
The period of investigation (POI) is October 1, 1997, through
September 30, 1998. This period corresponds to each respondent's four
most recent fiscal quarters prior to the filing of the petition (i.e.,
November 12, 1998).
Fair Value Comparisons
To determine whether sales of live cattle from Canada to the United
States were made at less than fair value, we compared the export price
(EP) to the normal value. Our calculations followed the methodologies
described in the Preliminary Determination, except as noted below and
in company-specific analysis memoranda dated October 4, 1999, which
have been placed in the file.
Export Price
JGL Group
We did not rely on the U.S. sales data reported by Prairie
Livestock, one of the three collapsed parties comprising the JGL Group.
See JGL Group Comment 2 (Facts Available) below.
Pound-Maker
We used the live quantities as reported for Pound-Maker's home
market sales (whereas in the preliminary determination, we had made an
adjustment for ``negative shrink''). See Pound-Maker Comment 1
(Negative Shrink) below.
Normal Value
JGL Group
1. We excluded from the home market sales database certain paper
transactions involving the ``sale'' and ``repurchase'' of cattle. See
JGL Group Comment 1 below (Misreported Sales).
2. We did not rely on the home market sales data reported by
Prairie Livestock, one of the three collapsed parties comprising the
JGL Group. See JGL Group Comment 2 (Facts Available) below.
3. We did not add various reported income items to the reported
gross unit price, as those income items were already included in the
reported price. See JGL Group Comment 4 (Sales Revenue Items) below.
Cost of Production
JGL Group
We increased JGL's reported acquisition cost to reflect the
producers' cost of production (COP), by applying the ratio of the five
suppliers' aggregate net loss on cattle over their net cattle revenues.
See Cost Issues, JGL Group Comment 1 (Traded Cattle) below.
Pound-Maker
1. We adjusted feed costs to allocate costs to certain by-products
used in
[[Page 56740]]
production. See Cost Issues, Pound-Maker Comment 1 (By-Product Costs)
below.
2. We adjusted feed costs to correct an error in the allocation
ratio. See Memorandum Regarding Cost of Production and Constructed
Value Adjustments for the Final Determination, dated October 4, 1999.
3. We adjusted the denominator used to calculate the general and
administrative expenses rate and financial expenses rate to reflect
costs on the company's financial statements. See Cost Issues, Pound-
Maker Comment 2 (Cost of Sales Denominator) below.
Riverside/Grandview
1. We adjusted feeder cattle costs for cost offsets and other cost
adjustments identified at verification. See Cost Issues, Riverside/
Grandview Comment 4 (Accounting Errors) below.
2. We adjusted feed costs for cost adjustments identified at
verification. See Id.
3. We adjusted other costs to exclude a submitted offset. See Cost
Issues, Riverside Grandview Comment 2 (Claimed Cost Offset) below.
4. We adjusted the respondent's single reported cost to take into
account cost differences associated with gender. See General Cost
Issues Comment 3 (Gender Adjustment) below.
5. We adjusted the financial expense calculation by including bank
penalties incurred during the cost reporting period and by adding arms-
length interest expenses on non-interest bearing loans to shareholders.
See Cost Issues, Riverside Grandview Comment 3 (Bank Penalties) below.
See also General Cost Issues Comment 2 (Shareholder Advances) below.
Groenenboom
1. We adjusted the respondent's single reported cost to take into
account cost differences associated with gender. See General Cost
Issues Comment 3 (Gender Adjustment) below.
2. We adjusted the financial expense calculation by adding arms-
length interest expenses. See General Cost Issues Comment 2
(Shareholder Advances) below.
Cor Van Raay
1. We adjusted the respondent's single reported cost to take into
account cost differences associated with gender. See General Cost
Issues Comment 3 (Gender Adjustment) below.
2. We adjusted the financial expense calculation by adding arms-
length interest expenses. See also General Cost Issues Comment 2
(Shareholder Advances) below.
Currency Conversions
As in the preliminary determination, we made currency conversions
into U.S. dollars based on the exchange rates in effect on the dates of
the U.S. sales, in accordance with section 773A of the Act. We relied
on exchange rates certified by the Federal Reserve Bank.
Interested Party Comments
Industry Support
The Canadian Cattlemen's Association (CCA) argues that the
Department should not have initiated this antidumping duty
investigation. According to the CCA, the petition did not meet industry
support requirements set by statute, and the Department's estimation of
industry support was flawed.
The petitioners argue that the Department should not consider
challenges to industry support determinations at this stage of the
proceeding, and that in any event, the Department's measurement of
industry support to initiate was conservative and sound.
DOC Position: Section 732(c)(4)(E) of the Act provides that, after
the administering authority determines that it is appropriate to
initiate an investigation, the determination regarding industry support
shall not be reconsidered. Therefore, we have not reconsidered our
determination regarding industry support. We refer interested parties
to our notice of initiation and companion memorandum, which set forth
in detail the methodologies followed in establishing industry support.
See Initiation of Antidumping Duty Investigations: Live Cattle from
Canada and Mexico, 63 FR 71885 (December 30, 1998); see also Memorandum
Regarding Determination of Industry Support, dated December 22, 1998.
Sales Issues--General
1. Date of Sale
The petitioners contend that the Department erred in basing the
date of sale for U.S. and home market sales made pursuant to futures
contracts on the date that prices were ``locked in.'' According to the
petitioners, the date of contract is a more appropriate date of sale.
The petitioners contend that in previous cases where prices were
set by contract and subject to change per an agreed formula, the
Department has based the date of sale on the date of contract, because
no more negotiation is necessary in order to determine the essential
terms of sale.
The respondents also object to the Department's use of the ``lock-
in'' date as date of sale for the transactions in question. However,
the respondents contend that the date of invoice or shipment, depending
on the circumstances,1 is more appropriate as the date of
sale for these transactions.
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\1\ For certain sales, the respondents do not generate invoices,
but rather receive settlement reports after the date of shipment.
For such sales, the respondents argue for reliance on the date of
shipment.
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According to the respondents, the Department's regulations
establish a rebuttable presumption for the use of date of invoice as
the date of sale, and there is no reason to depart from the use of the
date of invoice (or, as appropriate, the date of shipment) in this
case. The respondents contend that contracts are entered into for
future delivery months in advance, and the month of delivery is an
essential factor in establishing the price of cattle. According to the
respondents, two contracts entered into on the same date will have
different prices depending on the month of delivery, since monthly
cattle prices vary according to seasonal trends. Further, the
respondents argue that the material terms of sale are subject to change
even after prices are ``locked in.''
In their rebuttal comments, the petitioners argue that the
respondents' concerns about monthly price fluctuations are irrelevant,
since the Department's practice in antidumping investigations is to
compare POI average prices. The petitioners contend that if the
Department rejects the date of contract as the date of sale, it should
continue to rely on the date that prices are ``locked in,'' since the
terms of sale are specified on that date.
In their rebuttal comments, the respondents do not address the
precedent cited by the petitioner in support of the use of the date of
contract as date of sale. Instead, the respondents contend that the
petitioners' proposal to rely on the date of contract is contrary to
the statutory mandate to measure price discrimination, because it
ignores that cattle prices made pursuant to contracts on a given date
will vary in price depending on the date of delivery.
DOC Position: As in the preliminary determination, we have
continued to rely on the lock-in date as the date of sale for the
transactions in question. For the reasons explained below, we continue
to believe that the lock-in date is the date on which the essential
terms of sale are set.
The Department's regulations provide that the date of invoice is
the presumptive date of sale, except where the material terms of sale
are established
[[Page 56741]]
on some other date. See 9 CFR 351.401(i). In this case, the evidence on
the record indicates that on the date of contract the respondents
(i.e., the sellers) agree to deliver a specified number of head of
cattle in a specified month, at a price to be determined by the
respondents by reference to the Chicago Mercantile Exchange Board's
future cattle prices. From the time that the contract is signed until a
specified number of days prior to delivery, the respondents/sellers
retain control over price with their ability to ``lock in'' a specific
future cattle price. Under this fact pattern, it is evident that on the
date of contract the respondents have not yet set the price of the
cattle. The case precedent referenced by the petitioners, involving
reliance on the date of contract as the date of sale, is
distinguishable, because in those cases the sellers did not retain any
discretion to set prices after the date of contract. See Final
Determination of Sales at Less Than Fair Value: Emulsion Stryrene-
Butadiene Rubber from Mexico, 64 FR 14972, 14879 (March 29, 1999) (date
of contract was date of sale where price terms of long-term contracts
were based on set formula of published monthly prices for major inputs
that were outside either contracting party's control); see also Final
Determination of Sales at Less Than Fair Value: Offshore Platform
Jackets and Piles from Japan, 51 FR 11788, 11793 (April 7, 1986) (at
the time contract was issued, contract price was determinable since
there was nothing more on which the parties to the contract needed to
agree).
The evidence on the record of this case further establishes that on
the lock-in date, the respondents (the parties whose alleged price
discrimination is at issue in this investigation) select a price that
is binding on both parties. On this date, all the essential terms of
sale are known, and are altered only rarely. Therefore, we believe that
the lock-in date is the date on which the essential terms of sale are
set, and is a more appropriate date of sale than the date of
invoice.2
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\2\ We note that for certain sales where prices were locked-in
on the date of the contract, the ``lock-in'' date and the contract
date are the same.
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We note that the respondents have raised concerns that on any given
lock-in date the prices for cattle to be shipped in different months
will vary, and that therefore the use of the lock-in date is
distortive. As the respondents themselves concede, these concerns are
not relevant to an antidumping investigation, where prices are averaged
across the entire period of investigation, but may have implications
for an eventual administrative review. Whatever the implications of
this issue for a review, they do not impinge on this segment of the
proceeding.
2. Reimbursement of Antidumping Duty Deposits
The petitioners allege that U.S. packers are forcing Canadian
producers and exporters of subject merchandise to absorb the costs of
antidumping duty deposits, and that such deposits should be deducted in
calculating export value. According to the petitioners, Canadian
producers of subject merchandise have indicated at meetings in Canada
that an antidumping duty order on cattle would have no effect because
the Canadian producers absorb the cost of any duties. The petitioners
contend that the reimbursement of the deposits would be considered a
reduction to price in any future review, and that the cash deposit rate
applied in the investigation should reflect such reimbursements, even
if they did not occur during the POI. The petitioners further argue
that the Department routinely modifies cash deposit rates in
countervailing duty cases where a program-wide change has occurred, and
should take similar account of the alleged post-POI price change in the
instant antidumping proceeding. Finally, the petitioners argue that,
while its arguments and accompanying evidence were submitted after the
normal deadline, the Department has the discretion to extend this
deadline. The petitioners contend that the evidence in question was
only discovered after the filing of case and rebuttal briefs, and that
given its implications, the Department should consider it.
The CCA argues that the Department should not consider the
petitioners' factual information and argument regarding alleged
reimbursement because the Department's regulations require the return
of untimely filed information. The CCA further argues that
reimbursement concerns are not applicable to investigations, since the
Department's regulations regarding reimbursement apply only to duties
assessed after the imposition of an antidumping duty order. According
to the CCA, there is no legal basis to adjust cash deposit rates at
this stage of the proceeding to account for alleged pricing changes
after the POI. The CCA contends that any number of changes to both U.S.
and home market prices may take place after the POI, and that one
cannot assess the effect of any one change in isolation. The CCA
further contends that the CVD post-POI modification regulation does not
have a counterpart in the antidumping duty regulations.
Finally, the CCA argues that the documentation submitted by the
petitioner does not evidence the reimbursement claimed, but rather
indicates that a Canadian producer/exporter is acting as importer of
record, and thus paying antidumping duty cash deposits. According to
the CCA, the Department has held in recent cases that when the exporter
and the importer are the same legal entity, there can be no duty
reimbursement.
DOC Position: We have accepted into the record the petitioners'
submission alleging reimbursement of cash duty deposits, as the
allegation was based on information that became available only after
submission of the case and rebuttal briefs, and could not have been
made prior to the normal deadline. However, the reimbursement
regulation applies only to duty assessments, not cash deposits. See
Stainless Steel Sheet and Strip in Coils from France: Notice of Final
Determination of Sales at Less Than Fair Value, 64 FR 30820, 30833
(June 8, 1999); see also Stainless Steel Round Wire from Taiwan: Notice
of Final Determination of Sales at Less Than Fair Value, 64 FR 17336,
17341 (April 9, 1999). Therefore, adjustment of the cash deposit rate
is not appropriate. In the event that an antidumping order is issued in
this case, the Department will examine allegations of reimbursement of
antidumping duty cash deposits at the appropriate time. This notice
also serves as a reminder to the importing public of the regulatory
provisions regarding reimbursement of antidumping duty assessments, set
forth in 19 CFR 351.402(f). We further note that, if we find the
exporter, by acting as the importer of record, is absorbing dumping
duties on behalf of the U.S. customer, we may consider the duties
absorbed to be a selling expense.
Sales Issues: Company-Specific
Schaus
1. Facts Available
The petitioners argue that the Department should calculate the
dumping margin for respondent Schaus based at least in part on Schaus'
own data, so as to ensure that the ``all others rate'' reflects
Schaus'' margin. The petitioners allege that Schaus deliberately
withdrew from this investigation in anticipation that its data would
reveal high dumping margins, and in expectation that by withdrawing and
receiving a dumping margin based entirely on facts available, it would
[[Page 56742]]
avoid inclusion of its dumping margin in the calculation of the all
others rate.3
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\3\ Section 735(c)(5)(A) of the Act provides that the all others
rate shall exclude any zero and de minimis margins, as well as any
margins determined entirely on the basis of facts available.
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The petitioners argue that the pricing data submitted by Schaus are
not on their face unreliable, and that the Department has the
discretion to rely on those data even absent verification. According to
petitioners, the exercise of that discretion is particularly
appropriate when the complete rejection of submitted data might
actually leave the respondent in a better position, and the statute was
not intended to create a loophole for respondents to manipulate the
final margins.
The petitioners further note that at the outset of the case they
had argued for the selection of a pool of respondents including all
major Canadian producers/exporters of subject merchandise, and that the
CCA, by contrast, had argued to limit the pool of respondents to no
more than six companies. According to the petitioners, the Department's
acceptance of a respondent pool limited to six respondents enabled the
CCA to manipulate the all others rate through selective withdrawal of
high-margin respondents.
The petitioners request that the Department rely on Schaus'
submitted U.S. data, and base normal value on adverse facts available
(either the highest alleged normal value in the petition, or the
highest normal value submitted by Schaus for any product). The
petitioners argue that, at a minimum, the Department should rely on the
margin found in the preliminary determination for purposes of the final
determination.
Schaus argues that its final dumping margin should be excluded from
the calculation of the all others rate. According to Schaus, the
statute requires that the Department reject information that was not
verified, and instead rely on the facts available; further, the statute
requires that margins based entirely on facts available be excluded
from the calculation of the all others rate. Schaus argues that since
none of its data was verified, its dumping margin must be based
entirely on facts available, and cannot be included in the calculation
of the all others rate.
Schaus further argues that the statutory requirement that margins
based entirely on facts available be excluded from the all others rate
calculation is balanced by the requirement that de minimis margins also
be excluded from that calculation. Schaus notes that the petitioners
have not argued for the inclusion of Pound-Maker's preliminary de
minimis margin in the calculation of the all others rate.
Schaus also contends that its final deposit rate should be no
higher than its amended preliminary determination rate, which was based
on Schaus' own data. According to Schaus, the adoption of the amended
preliminary determination rate would constitute a reasonable
application of adverse facts available, since it is more adverse than
the highest margin calculated in the petition.
DOC Position: The facts surrounding Schaus' decision to withdraw
from participating in this proceeding are unusual and have significant
ramifications for the agency's administration of the antidumping law.
At the outset of this case, faced with an overwhelming number of
Canadian producers of the subject merchandise, the Department sought to
limit its investigation to only as many producers and exporters as was
administratively feasible within the statutory time limits. While the
petitioners sought the investigation of dozens of producers, we
accepted the proposal by the CCA that we investigate only the 5 or 6
largest producers or exporters, one of which was Schaus. The results of
our investigation of these six producers must be applied to ``all
other'' producers. Thus, the ``all others'' rate, which would apply to
the majority of exports in this highly fragmented industry, will be a
critical component in the effectiveness of the antidumping remedy
should the investigation lead to an antidumping duty order.
On June 30, 1999, the day on which the Department was scheduled to
issue its preliminary determination, Schaus submitted a supplemental
response and pre-verification corrections that, among other things,
substantially altered its reported costs. These corrections were
accompanied by certifications as to their completeness and accuracy by
Schaus' president, and Schaus' legal counsel certified that he had no
reason to believe the submission contained any material
misrepresentation or omission. Schaus and its counsel knew or should
have known that the preliminary determination which the Department was
scheduled to issue based on the earlier submission--and which would set
the bonding rate in effect during the provisional measures period--
would substantially understate the margin applicable to Schaus (and,
consequently, the ``all others'' rate). Nevertheless, at no point prior
to filing its revised response did Schaus or its counsel notify the
Department that substantial revisions to its costs were
appropriate.4
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\4\ As indicated throughout the antidumping questionnaire and as
a matter of administrative practice, parties are required to notify
the official-in-charge immediately where significant issues or
corrections are identified.
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Given the timing of the submission, the Department had no
opportunity to incorporate these corrections into its preliminary
determination. Nevertheless, the Department stated in its preliminary
determination that its initial examination of the Schaus data indicated
that the antidumping rate calculated using such data may differ
significantly from the preliminary rate of 5.43 percent applied to
Schaus based on the original submission. See Preliminary Determination
at 36848. The Department announced its intention to ``examine this
[revised] data further and, if we find that the errors corrected result
in a rate that differs substantially from the rates as calculated for
this preliminary determination, we may issue an amended preliminary
determination * * *.'' Id.
On July 1, 1999, the Department confirmed that the corrections
filed by Schaus, including cost items that had been omitted from the
original submission, resulted in a substantial increase in its
antidumping rate from 5.43 percent to 15.69 percent. On July 9, 1999,
counsel for Schaus verbally notified Department staff that Schaus had
decided to decline verification and withdraw all questionnaire
responses from the record of the investigation. As explained in a
subsequent letter, counsel stated that
Schaus has determined that, despite its best efforts and its
nonstop preparatory work * * *, the Department's methodology in this
investigation and its verification standards for certain accounting
requirements cannot be satisfied when applied to Schaus, a small,
family-owned business that does not have internal accountants or
computerized sales and cost record-keeping. The way that Schaus
conducts its business and maintains its books and records in the
ordinary course of its business has led Schaus to conclude
reluctantly that it cannot participate in verification.
See Letter from Blank Rome Comisky & McCauley LLP to Secretary of
Commerce, dated July 12, 1999.
On July 20, 1999, the Department issued its determination that
amendment of the preliminary determination was appropriate. See Amended
Preliminary Determination at 39970. The Department stated that Schaus'
withdrawal from the proceeding did not preclude correction of the
preliminary determination to accurately
[[Page 56743]]
reflect the corrected information which Schaus had submitted on the day
of the determination. As the Department explained, ``To do otherwise
would allow manipulation of the administrative process in a manner that
prevents the determination of accurate antidumping rates, and would
thwart the proper administration of the antidumping law.'' Id. As a
result, the Department amended its preliminary determination to revise
the antidumping rate for Schaus to 15.69 percent and to make a
corresponding correction to the ``all others'' rate from 4.73 percent
to 5.57 percent.
If the Department were to base Schaus' final margin on the facts
available rather than the proprietary information in its questionnaire
responses, Schaus' margin would be excluded from the calculation of the
``all others'' rate, in accordance with section 735(c)(5)(A) of the
Act. Thus, regardless of the reasons for Schaus' decision to cease
participating in this proceeding, its desire to withdraw its
questionnaire responses from the record could seriously undermine the
effectiveness of the antidumping remedy in this case should the
investigation result in an antidumping order. Thus, the Department has
examined whether it is appropriate to deny Schaus' request to withdraw
its business proprietary information from the record of the proceeding
given that substantially all exports will fall under the ``all others''
rate and respondent's withdrawal would significantly distort that rate.
For the reasons discussed below, the Department determines that Schaus'
information should remain on the record and form the basis for its
final margin.
The Department is tasked with administering the antidumping law and
possesses the inherent authority to protect the integrity of that
process. In determining whether to permit Schaus to withdraw
information, the agency must weigh competing interests, both of which
are important to administration of the antidumping law. The Department
must balance any potential negative impact that refusing to allow a
respondent to withdraw information may have on its ability to obtain
business proprietary information in future proceedings, against any
negative impact on the integrity of the proceeding if withdrawal is
permitted, and determine where the public interest lies.
The Department does not have subpoena power. The submission of
information is voluntary. To administer the antidumping law, the
Department depends heavily upon the willingness of the parties to
provide extensive business proprietary information. As a result, there
is a public interest in preserving the trust of companies subject to
its proceedings that such information will have limited use and will
remain largely within the control of the companies submitting such
information. However, once a party voluntarily submits business
proprietary information in an antidumping proceeding, the submitting
party relinquishes some control over that information to the
Department. For example, after the Department issues a final
determination, a submitting party may not withdraw its proprietary
information. Once the record of a proceeding is closed, no information
may be added to, or withdrawn from, the administrative case record.
Equally compelling is the public's interest in the agency enforcing
the antidumping law and preserving the integrity of its proceedings.
While there is no statutory provision expressly dealing with the
withdrawal of business proprietary information once it has been
submitted, the courts have recognized ``the inherent power of an
administrative agency to protect the integrity of its own
proceedings.'' Alberta Gas Chemicals, Ltd. v. Celanese Corp., 650 F.2d
9, 12. Thus, the agency has the discretion to deny a respondent's
request to withdraw information where it is necessary to preserve the
fundamental integrity of the process and the remedial purpose of the
law.
In practice, the Department has allowed submitting parties to
withdraw their business proprietary submissions from the administrative
record. See, e.g., Silicomanganese From Brazil, 59 FR 55,432, 55,434;
Certain Hot-Rolled Lead and Bismuth Carbon Steel Products From France,
58 FR 6203, 6204 (Jan. 27, 1993); Certain Hot-Rolled Carbon Steel Flat
Products from Japan, 58 FR 7103, 7104 (Feb. 4, 1993); Certain Small
Business Telephone Systems from Japan, 54 FR 42541, 42542 (Oct. 17,
1989); and Industrial Belts from Israel, 54 FR 15509, 15512 (Apr. 28,
1989). In such cases, the Department bases the company's margin on
facts available, using an adverse inference where warranted. It is the
Department's ability to use adverse facts available that ensures that a
company will not benefit by a refusal to participate in a proceeding.
5 Because the investigated companies normally account for
substantially all exports to the United States, the elimination of the
non-cooperative company from the ``all others'' rate in that situation
is likely to be of marginal significance. Thus, the adverse facts
available rule normally enables the Department to permit withdrawal of
proprietary information while protecting the integrity of the process.
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\5\ ``The Department's potential use of [facts available]
provides the only incentive to foreign exporters and producers to
respond to the Department's questionnaires.'' See SAA at 868.
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In the present case, however, the adverse facts available rule
cannot serve that function. Substantially all future exports of live
cattle, which will be subject to the ``all others'' rate if an
antidumping duty order is issued, would inappropriately benefit from
Schaus' refusal to participate. Section 735(c)(5)(A) provides that the
``estimated all others'' rate shall be:
an amount equal to the weighted average of the estimated weighted
average dumping margins established for exporters and producers
individually investigated, excluding any zero and de minimis
margins, and any margins determined entirely under section 1677e of
this title. 6
\6\ This provision reflects a similar requirement in Article 9.4
of the Agreement on Implementation of Article 6 of GATT 1994 (the
Antidumping Agreement) that the rate applicable to non-examined
exporters or producers shall not include margins determined based
upon the facts available.
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The Department has expressed particular concern that the ``all others''
rate is susceptible to manipulation. Thus, for example, the Department
excludes voluntary respondents from the calculation of the all-others
rate ``to prevent manipulation and maintain the integrity of the all-
others rate.'' 7 The withdrawal of Schaus' data raises
similar concerns. If Schaus' business proprietary information is
withdrawn, the Department must base its margin entirely on facts
available and eliminate Schaus' margin from the ``all others'' rate. As
a result, the withdrawal of Schaus' corrected information would have
the effect of significantly distorting the rate that will apply to
substantially all exports of the subject merchandise to the United
States.
---------------------------------------------------------------------------
\7\ Antidumping Duties; Countervailing Duties; Proposed Rule, 61
Fed. Reg. 7307, 7315 (Feb. 27, 1996); see also Antidumping Duties;
Countervailing Duties; Final Rule, 62 Fed. Reg. 27295, 27310 (May
19, 1997).
---------------------------------------------------------------------------
Given that withdrawal of Schaus' data would significantly distort
the ``all others'' rate and that the ``all others'' rate will apply to
substantially all exports of the subject merchandise, the Department
has determined that retention of that data is necessary to preserve the
integrity of the process and the remedial purpose of the law.
Therefore, the Department has based Schaus' margin on its revised
questionnaire response and included
[[Page 56744]]
that margin in the calculation of the ``all others'' rate.
We disagree with Schaus that its corrected information must be
rejected because it was not verified. While section 782(i) requires
that the Department verify information relied upon in making its final
determination, the statute does not define what constitutes sufficient
verification. Micron Technology, Inc. v. United States, 117 F.3d 1386,
1394. Cf. American Alloys, Inc. v. United States, 30 F.3d 1469, 1475
(Fed. Cir. 1994)(``the statute gives the Department wide latitude in
its verification procedures''). Similarly, the Department's
implementing regulation is general in nature and does not specify any
methods, procedures or standards to be used for verification. See 19
CFR 351.307(1998). The purpose of verification is to test information
provided by a party for accuracy and completeness, and does not require
that the Department audit every figure in a response. See Bomont Indus.
v. United States, 733 F. Supp. 1507, 1508 (CIT 1990). Moreover, while
the agency's practice is to conduct on-site verifications of each
investigated company, there are circumstances in which the agency may
verify only a limited sample of the investigated companies.
8 Thus, in limited circumstances, data not specifically
verified may be used in an investigation to calculate a company's
dumping margin.
---------------------------------------------------------------------------
\8\ See 19 CFR Sec. 351.307(b)(3)(1998).
---------------------------------------------------------------------------
In the present case, the information at issue was voluntarily
submitted by Schaus and the company certified that the information was
complete and accurate. Because Schaus submitted this information
knowing that it would substantially increase its dumping margin, we
find the information is much like a statement against interest and,
therefore, highly credible. Moreover, there is no evidence on the
record to suggest that the data submitted by Schaus, when compared to
the pricing and cost data submitted by other respondents, as well as to
general industry trends during the period, are aberrational or suspect
on their face. As a result, given the circumstances presented in this
investigation, the Department finds that the information submitted by
Schaus is reliable, and we have continued to rely upon it for purposes
of this final determination.
JGL Group
1. Misreported Sales
The petitioners note that the Department found at verification that
certain reported home market transactions involved the ``sale'' and
``repurchase'' of cattle, and that the nature of these transactions was
such that they should not have been included in the submitted sales
database. The petitioners contend that unless the Department is certain
that the transactions in question can be adequately identified and
excluded from the sales listing and the calculation of costs, it should
deem the JGL Group's data to be generally unreliable and rely on
adverse facts available.
The JGL Group agrees that the transactions in question should be
excluded from the sales listing, and contends that all such
transactions have been properly identified. The respondent also
contends that these transactions did not affect the calculation of unit
costs for cattle that it produced, and also did not affect the
calculation of unit costs for traded cattle.
DOC Position: We agree with both parties that the transactions in
question should not have been reported. At verification, we obtained a
listing of these transactions, and performed several tests to confirm
that the listing was complete. Satisfied that the listing provided was
complete, we have excluded these sales from the reported database. We
are also satisfied that the transactions in question did not affect the
reported unit costs for cattle.
2. Facts Available
The petitioners argue that the Department should calculate JGL's
dumping margin in part on the basis of facts available, given the
pervasive and systematic errors found at verification with respect to
data submitted by Prairie Livestock, one of the Canadian producers of
live cattle that has been collapsed with the JGL Group. According to
the petitioners, the Department found errors on every one of the pre-
selected transactions examined at verification, as well as on
additional transactions selected on-site.
The petitioners further contend that the errors systematically
understated home market prices and overstated U.S. prices, thus
favoring the respondents. The petitioners propose that the Department
assign to sales by Prairie (and include in the weighted average JGL
Group margin) the highest margin found in the petition, or
alternatively rely on either (1) the average margin in the petition or
(2) the highest margin found for any other respondent.
The JGL Group concedes that the Prairie data contained errors, but
argues that these were clerical in nature and minor in scope. According
to the JGL Group, the errors contained in the preselected sales were
identified and corrected at the outset of verification, and the
additional errors found during verification were promptly corrected.
The JGL Group contends that total quantity and value of its reported
sales data was verified in the aggregate without exception.
Further, the JGL Group argues that the Department should gauge its
cooperation on the basis of all the companies that comprise the JGL
Group, rather than on Prairie alone. According to the JGL Group, the
clerical errors identified by other JGL companies did not all favor the
respondent, and in the aggregate, the effect of the errors was
negligible.
DOC Position: We agree with the petitioners that the use of
partial, adverse facts available is appropriate with respect to the
sales data submitted by Prairie. As explained below, the errors found
at verification were sufficient in number and magnitude to call into
question the general reliability of the Prairie data, and we have not
relied on those data.
At the outset of verification, we requested that the JGL Group
companies identify any clerical errors in their submitted sales data.
Prairie provided us with a list of such errors, which involved the
reported gross unit price, sales expenses, customer identification, and
product identification for specific sales. We noted that these errors
affected almost all of the sample transactions preselected for
verification several weeks prior to the start of verification. We asked
company officials whether such errors might affect the remainder of the
database, and they replied that they had checked the database, and had
not found the errors to be pervasive.
Given the high incidence of errors affecting the preselected
transactions, we examined a number of additional Prairie sales and
found that there were several systemic errors affecting those sales.
These included a significant error that, contrary to the statements
made by Prairie at the outset of verification, also applied to the
preselected sales, and in fact extended to half of all U.S. sales
reported by Prairie. These errors involved the reporting of the gross
unit price and multiple expense and other income items. The errors are
described in detail in the Department's verification report. See
Memorandum
[[Page 56745]]
Regarding Verification of JGL Sales Data, dated August 10, 1999, at 1
and 9-10.
On the whole, verification revealed a troubling incidence of error
in the compilation of the Prairie sales data. If we could be sure that
the database contained only those errors identified at verification, we
would consider correcting those errors based on record data. However,
the extent of the errors found with respect to the Prairie sales data
at verification was such that we cannot reach such a conclusion with
any degree of confidence. Therefore, for purposes of this final
determination, we have not relied on the Prairie sales data.
We do not conclude, as argued by the petitioners, that the record
evidence establishes an attempt by Prairie to systematically manipulate
dumping margins, inasmuch as certain of the errors made by the
respondent were against interest. At the same time, the statute
requires that respondents act to the best of their ability in providing
information to the Department, and we do not believe that the
respondent did so in reporting the Prairie sales data. At verification,
Prairie acknowledged that it had made inadvertent errors in the
compilation of those data but claimed that they were due to
inexperience with the company's record-keeping. While this may be the
case, the extent of the errors found at verification indicate that the
respondent did not, in reporting the Prairie sales data, act to the
best of its ability.
We have determined that it is appropriate to rely on partial,
rather than total, facts available in calculating a dumping margin for
the JGL Group, given that (1) the other JGL Group companies were able
to provide support for their sales data at verification, and otherwise
cooperated in this investigation, and (2) the total quantity and value
of Prairie's U.S. sales was confirmed, on the aggregate, at
verification. See id. at 7-8. As partial facts available, we have
assigned to the sales of Prairie the highest margin calculated for any
respondent (i.e., the 15.69 percent margin calculated for Schaus). We
relied on the data submitted by the other JGL Group companies to
calculate a weighted-average margin for the JGL Group, exclusive of
Prairie. We then averaged the two rates, weighted by the relative total
value of sales to the United States.
3. Feeder Cows and Bulls
The JGL Group argues that the Department should distinguish cull
cows and bulls that are sold to be fed prior to slaughter (``feeder
cows and bulls'') from other cull cows and bulls that are sold for
immediate slaughter. According to the JGL Group, it demonstrated early
on in the investigation that there are significant physical and
commercial differences between the two types of cattle, and these
differences should have been recognized in the Department's model match
hierarchy.
The JGL Group contends that feeder cows and bulls are cull animals
with the capacity to gain at least 300 or 400 pounds of weight.
According to the JGL Group, feeder cows and bulls sell for higher
prices than other cull cattle, but for lower prices than normal feeder
animals (i.e., heifers and steers). The JGL Group contends that the
Department should therefore treat feeder cows and bulls as separate and
distinct from normal feeder animals.
The petitioners argue that the respondent's argument is predicated
on untimely data provided during verification, in the guise of
verification exhibits, and should therefore be rejected. The
petitioners also argue that, at any rate, feeder cows and bulls are not
sufficiently distinct to be treated as separate products. The
petitioners contend that feeder cows and bulls are sold at prices
approximately equal to the prices of normal cull animals, and that
feeder cows and bulls are not necessarily fed long before being
slaughtered, especially in times of high cull prices.
DOC Position: For this final determination, we have not
differentiated between feeder cows/bulls and regular cull cows and
bulls. At the outset of this case, interested parties submitted
detailed proposals on product characteristics to be used for matching
purposes. The CCA made only very brief mention of a possible
distinction between feeder cows/bulls and regular cull cattle. See
letter from the CCA to the Department of Commerce, dated January 20,
1999, at 7-8. The Department, in establishing the product matching
criteria in this investigation, was unpersuaded by the CCA's argument,
and did not incorporate this distinction. JGL provided certain evidence
at verification that on occasion cull cattle are sold for additional
feeding prior to slaughter. However, there is insufficient evidence on
the record to establish that feeder cows/bulls have distinctly
different physical characteristics, cost differences, or sales prices.
Should this investigation result in an antidumping duty order, the
Department will revisit this issue in the context of an administrative
review.
4. Sales Revenue Items
The JGL Group alleges that the Department overstated normal value
because it added to the unit price certain revenue items that were
already included in that price. According to the JGL Group, the
Department confirmed this at verification.
The petitioner argues that the Department examined the error in
question only with respect to one of the three companies that comprise
the JGL Group (JGL itself), and that any correction made with respect
to this error should be limited to that company.
DOC Position: We agree with the JGL Group that the error in
question should be corrected. The error arose because of conflicting
statements in the JGL section B and C questionnaire responses,
submitted on April 20, 1999. At page B-20, the respondent stated that
the gross unit price included all revenue items. However, at page B-35,
the respondent provided a formula indicating that the revenue items
were not included in the gross unit price. The Department relied on the
latter statement. At verification, the Department determined that the
formula in question was incorrect, and that for sales by JGL and Iron
Springs, the revenue items had indeed been included in the reported
sales price. See Memorandum Regarding Verification of JGL Sales Data,
dated August 10, 1999, at 9. As the error applied to sales by JGL and
Iron Springs, and we have corrected the error for these companies.
5. Traded Cattle Sales
The JGL Group argues that the Department should exclude sales of
traded cattle (i.e., cattle purchased and resold by the JGL Group) in
calculating margins for the final determination. According to the JGL
Group, the antidumping statute contemplates producer-specific rates.
JGL argues that although the Department analyzed separately the JGL
Group's sales of traded and own-produced cattle, it calculated
impermissibly a single weighted-average cash deposit rate that
reflected the dumping margins on these distinct sets of sales.
The JGL Group contends that the Department has determined in past
cases (such as Pasta from Italy) not to include sales of traded
products in its calculations, noting the potential for circumvention,
particularly when the reseller rate is lower than the all other rate.
Further, the JGL Group argues that a producer is deemed the appropriate
respondent when it has knowledge that its merchandise is destined for
the United States, and the Department is unable, based on the record,
to make
[[Page 56746]]
such a determination with respect to the producers of any cattle traded
by the JGL Group.
The JGL Group argues that, in the event that the Department
determines it appropriate to calculate margins for its traded cattle,
it should calculate separate margins for own-produced and traded
cattle. For this purposes, JGL proposes that all sales of traded cattle
be included in the calculation of a single dumping margin, regardless
of the specific producer.
The petitioners argue that the Department should include sales of
traded cattle in its analysis, inasmuch as the dumping margin assigned
to the JGL Group should be representative of all facets of the
respondent's selling activities.
DOC Position: We have continued to include sales of traded cattle
in the calculation of a single dumping margin assigned to all sales by
the JGL Group.
The Department regards a producer of subject merchandise as a
respondent provided, inter alia, that the producer has knowledge that
its merchandise is destined for the United States. If the producer,
without knowledge of the ultimate market of destination, sells its
merchandise to another company in the comparison market, which in turns
sells the merchandise to the United States, the Department looks to the
latter company as a potential respondent. In the instant case, if a
respondent were able to demonstrate that its resales involve cattle
purchased from a supplier that had knowledge of the ultimate
destination of the cattle, the Department would exclude such sales from
its analysis. The JGL Group has not provided evidence that any of its
suppliers were aware that their cattle were destined for the U.S.
market. On the contrary, the JGL Group has argued in other contexts
that because it purchases cattle in the Canadian market at auction, it
is generally unable to identify the supplier. See JGL Group Section A
Questionnaire Response, dated March 23, 1999, at A-3. Thus, based on
the record, and absent evidence of knowledge of destination by the
ultimate supplier, we find that the JGL Group is the appropriate
respondent for the sales in question.9
---------------------------------------------------------------------------
\9\ This case is distinguishable from Pasta from Italy, where
the Department excluded resales where evidence demonstrated that the
producer had knowledge that the pasta was destined for the United
States. In that case, the Department found that ``* * * the producer
of the purchased pasta would have knowledge that the product was
destined for the U.S. because it had vitamins added (vitamin
enriched pasta is usually sold in the U.S.) and because the
packaging would clearly indicate that it was destined for the U.S.
market.'' See Memorandum Regarding Treatment of Purchased Pasta,
dated July 31, 1998, in case A-475-818. In this case, by contrast,
the producers of the cattle sell their merchandise at auction, and
do not know the ultimate destination.
---------------------------------------------------------------------------
Similarly, we do not believe it would be appropriate to calculate a
separate dumping margin for sales of own-produced versus traded cattle.
The record establishes that the JGL Group is the appropriate respondent
for all the transactions in question, since the cattle were sold by JGL
and there is no evidence that the producer knew that the cattle were
destined for the United States. Consistent with the Department's
practice, we have continued to calculate a single weighted-average
margin for the respondent.
6. Affiliation
The JGL Group argues that Kirk Sinclair's cattle operations should
not be collapsed with the respondent because Kirk Sinclair is not
affiliated with the JGL Group as a whole. According to the JGL Group,
the Department does not normally collapse a company with a group of
affiliated/collapsed companies simply because it is affiliated with one
company in that group. The JGL Group contends that Kirk Sinclair is
affiliated with Prairie Livestock, but not with the other companies
that make up the JGL Group, and thus does not meet the requirements for
collapsing.
The petitioners argue that Kirk Sinclair, through Prairie
Livestock, purchases, custom feeds, and sells finished cattle for the
JGL Group as a whole. The petitioners contend that, given this, Kirk
Sinclair is in a position to control the JGL Group, and should
therefore be considered an affiliate of and collapsed with the JGL
Group.
DOC Position: We agree with the petitioners that Kirk Sinclair
meets the test for collapse with the JGL Group. The JGL Group is
comprised of four operating companies, owned and operated by a handful
of individuals. Kirk Sinclair is the majority owner of Prairie, one of
the four operating companies of the JGL Group. Through Prairie, Mr.
Sinclair also purchases, custom feeds, and sells finished cattle for
the JGL Group as a whole. Given this, he is affiliated with Prairie
through section 771(33)(E) of the Act (i.e., affiliated through stock
ownership), and is affiliated with the JGL Group as a whole through
section 771(33)(G) of the Act (i.e., affiliated through control,
defined to exist where one party is ``legally or operationally in a
position to exercise restraint or direction over the other person,'' as
evidenced by his integral role in purchasing, custom feeding, and
selling finished cattle for the JGL Group as a whole).
The Department's regulations provide for the treatment of
affiliated producers as a single entity where: (1) Those producers have
production facilities for similar or identical products that would not
require substantial retooling of either facility in order to
restructure manufacturing priorities, and (2) The Department concludes
that there is a significant potential for the manipulation of price or
production. See 19 CFR 351.401(f)(1). In identifying a significant
potential for the manipulation of price or production, the Department
may consider such factors as: (i) The level of common ownership; (ii)
The extent to which managerial employees or board members of one firm
sit on the board of directors of an affiliated firm; and (iii) Whether
operations are intertwined, such as through the sharing of sales
information, involvement in production and pricing decisions, the
sharing of facilities or employees, or significant transactions between
the affiliated producers. See 19 CFR 351.401(f)(2). These factors are
illustrative, and not exhaustive.
Kirk Sinclair's position within the JGL Group is such that he meets
both prongs of this test. First, his facilities allow for the
production of cattle indistinguishable from other cattle produced by
the JGL Group. Second, Mr. Sinclair, in his capacity as manager and
principal owner of Prairie, is engaged in the purchase, fattening, and
sale of cattle for the JGL Group as a whole, such that he and his
partners in the JGL Group share sales and production information, and
his operations are intertwined with those of the JGL Group. Therefore,
if this investigation should result in the imposition of an antidumping
order, the JGL Group's cash deposit rate would apply to any entries of
cattle produced by Kirk Sinclair.10
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\10\ We note that although Kirk Sinclair meets the test for
collapse with the JGL Group, we have not included his sales in our
analysis. The Department explicitly instructed the JGL Group that in
view of the small volume of sales by Kirk Sinclair to unaffiliated
parties, those sales need not be reported. See supplemental
questionnaire to the JGL Group, issued on May 14, 1999, at 28.
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Pound-Maker
1. Negative Shrink
The petitioners argue that the Department should not rely on Pound-
Maker's reported live quantities for sales involving ``negative
shrink'' (i.e., sales in which the cattle appear to have gained weight
in transit from the feedlot to the packing plant). The petitioners
assert that we should continue to use
[[Page 56747]]
the reported feedlot weight for these sales, as we did at the
preliminary determination, and that we should apply an average shrink
factor to these sales. Alternatively, the petitioners argue that we
should disregard all reported live quantities, and use the full weight
at the packing plant less a standard five percent shrink for all home
market sales.
Pound-Maker contends that negative shrink was verified by the
Department, and that we should accept its live quantities as reported
on these sales for purposes of the final determination.
DOC Position: We agree with Pound-Maker. The live weight for the
cattle sales in question was verified to be accurately reported based
on what the cattle weighed at the packing plant as indicated on the
settlement report.
2. Commission Payments to Affiliates
Pound-Maker argues that the Department has no legal basis for
adjusting the reported commission paid to one of Pound-Maker's sales
agents that was found by the Department to be affiliated with Pound-
Maker. Pound-Maker contends that the company in question is not
affiliated with Pound-Maker within the meaning of the Act. Although
Pound-Maker agrees that it is affiliated with the president and owner
of the company in question because he is on Pound-Maker's board, the
respondent asserts that the affiliation does not extend to the company
that is wholly-owned by that board member and his two sons.
Furthermore, Pound-Maker argues that even if the company in question is
an affiliate of Pound-Maker, we still should not adjust the commission
rate because (1) There is no material ownership relationship between
the affiliate and Pound-Maker, and (2) There is no statutory or
regulatory basis to adjust selling expenses paid to an affiliated
party.
The petitioners contend that the Department properly adjusted the
commission rate on sales made through the company in question. The
petitioners agree with the Department that the company is an affiliate
of Pound-Maker per section 771(33)(B) of the Act (which provides that
any director of an organization and such organization are affiliated),
and assert that the only issue is whether the commissions paid to the
affiliated party were arms-length transactions. The petitioners further
allege that the respondents have submitted information on the record
indicating that the transactions in question were not at arms-length.
DOC Position: We disagree with Pound-Maker that there is no
statutory or regulatory basis to adjust selling expenses paid to an
affiliated party. See Floral Trade Council v. United States, Slip Op.
99-10 (May 26, 1999) at 10 (sustaining the Department's practice of
treating commissions paid to an affiliated trading company as an intra-
company transfer). At the same time, because whether the adjustment is
made or not is immaterial, we have not adjusted the reported commission
paid to this sales agent for the final determination.
Riverside/Grandview
1. Facts Available
The petitioners assert that we should draw an adverse inference
based on a verification finding involving an understatement of live
quantity in a single shipment of cattle that contained both Riverside-
owned cattle and Grandview-owned cattle. The single shipment was
reported to the Department as two sales transactions (one Grandview
sale and one Riverside sale), and the error was reflected in one of the
two transactions. The petitioners claim that we reviewed too few sales
to determine whether this error was systemic and that we should
therefore make an upward adjustment to total quantities for all
shipments involving a mix of both Riverside and Grandview cattle.
The respondents assert that we obtained the relevant information to
correct any such errors, and no adverse inference is warranted.
DOC Position: We agree with respondents. After verification, the
Department is satisfied that the error in question was isolated.
Contrary to the petitioners assertion, we reviewed a significant number
of sales at verification, including 20 preselected sales and numerous
additional sales selected on site, and found no evidence to indicate
that the error in question was systemic. We have therefore corrected
the error discovered at verification, and have drawn no adverse
inferences in this regard.
Cost Issues--General
1. Collapsed Entities
The petitioners argue that permitting the JGL Group, Riverside-
Grandview, and Cor Van Raay's collapsed entities to eliminate inter-
company transactions and to report the collapsed entity's cost of
production net of inter-company revenues and expenses violates the
language and intent of the statute. The petitioners maintain that
section 773(f)(1)(A) of the Act requires the Department to use the
costs from the normal books and records of the ``producer,'' unless the
records are not consistent with generally accepted accounting
principles (GAAP) or do not reasonably reflect costs associated with
the production of subject merchandise. The petitioners note that these
three respondents departed from their normal accounting records and
collapsed their operations by eliminating inter-company transactions.
The petitioners argue that this collapsing of the various entities'
costs violates the language and intent of the statute by permitting
collapsed respondents to obtain a lower cost than would be found
between unaffiliated parties. The petitioners maintain that the
Department may ignore the transfer price between affiliated parties
only when the charges do not fairly reflect the amount usually charged
between unaffiliated parties. The petitioners contend that, in the
instant case, the amounts reflected in the normal books and records of
the exporter or producer are arm's length and above cost, such that the
exceptions do not apply.
The petitioners argue further that, in the case of JGL, the
collapsing memorandum did not indicate that Thompson and JGL or
Thompson and Iron Springs were collapsed, and should be considered to
be merely affiliated parties.
Finally, the petitioners contend that there is no reason to extend
the practice of collapsing affiliated parties beyond normal accounting
practice. The petitioners complain that this collapsing of records was
used by companies that are not wholly-owned subsidiaries, who are not
consolidated for accounting purposes, and are affiliated, in some
cases, in only an indirect manner. The petitioners argue that while the
Department has calculated entity-wide costs of production in
circumstances where the affiliated parties are corporate divisions, the
rules of collapsing should not be allowed to trump the statutory scheme
of valuing affiliated transactions at arm's length prices. The
petitioners conclude that sections 773(f)(1)(A) and 773(f)(2) and (3)
make no distinction between affiliated companies that are or are not
collapsed.
The respondents contend that it is the Department's well-
established practice to treat collapsed companies as a single entity,
and to disregard inter-company transactions in determining the single
entity's weight average cost of production. The respondents note that
the petitioners are urging the Department to treat each company within
the collapsed JGL Group as individual companies for cost reporting
purposes, but to combine them as a group for purposes of the sales
[[Page 56748]]
comparison for calculating and applying one single dumping margin. The
respondents contend that both the Department and the court have
rejected such inconsistent treatment, and cite AK Steel Corp. v. United
States, 34 F. Supp. 2d 756, 765-66 (CIT, 1998); and Notice of Final
Determination of Sales at Less Than Fair Value: Stainless Steel Wire
Rod From Korea, 63 FR 40404, 40421 (July 29, 1998)(Comment 7)
(``[T]reating affiliated producers as a single entity for dumping
purposes obviates the application of the major-input rule and
transactions-disregarded rule because there are no transactions between
affiliated persons'').
The respondents further argue that the petitioners are ignoring the
fact that, for a collapsed group of producers, ``the exporter or
producer'' is the collapsed group of producers, and not each producer
individually. The respondents contend that if the Department were to
regard each individual producer as the ``exporter or producer'' within
the meaning of the statute, it would have no basis for examining sales
of all members of the Group, or in applying a single weighted average
dumping margin to the entire group. According to the respondents, the
courts have held that the ``transactions disregarded'' provision of the
statute is inapplicable in the case of collapsed producers because that
provision applies only between the collapsed ``exporter or producer''
and its affiliated suppliers.
Finally, respondents argue that it has never been the Department's
policy to extend the cost side of the collapsing of affiliated parties
beyond companies that are consolidated for accounting purposes, and
that such an idea is inconsistent with the Department's regulation
governing the issue and is not supported by any sound policy basis. The
respondents argue that, moreover, when the Department collapses
affiliated companies for sales comparison purposes, it also collapses
for costs purposes because it recognizes the underlying commercial
reality that inter-company profits are not a cost to the overall
collapsed group.
DOC Position: We agree with the respondents that it is proper, when
reporting sales and cost data, to eliminate inter-company transactions
between companies that the Department is treating as a single entity
(i.e., is making a single antidumping duty rate determination for).
While sections 773(f)(2) and (3) of the Act, the ``transactions
disregarded'' and ``major input'' rules, allow the Department to review
whether transactions between affiliates are at market prices or above
cost, respectively, it does not follow that these rules should be
applied to collapsed entities. The transactions disregarded and major
input rules apply to transactions between the respondent and an
affiliated raw material supplier or service provider. Also, sections
773(f)(2) and (3) of the Act refer specifically to ``affiliated
persons,'' which is a term defined in the statute. Therefore, use of an
accounting or consolidation standard of affiliation is inappropriate.
In applying the collapsing rule for reporting sales and cost data, not
only must the parties be affiliated under the statute, but they must
both be producers of the subject merchandise. This requirement limits
the application of the collapsing rule, including the reporting of
costs, to a few specific cases. Moreover, the transactions disregarded
and major input rules still apply to all other suppliers or service
providers affiliated to the collapsed entity.
Once the Department decides to collapse two or more producers into
one entity and to apply one margin to their combined sales, the inter-
company sales and costs must be eliminated because the home market sale
prices of the group must be above the actual cost of production of the
group. In short, it would be illogical to include inter-company profits
in the actual cost of production of the group. The Department's
collapsing policy was upheld by the court in AK Steel Corp. et al. v.
United States, 34 F. Supp. 2d 756, 763-66 (CIT, 1998) (the Department's
decision to treat affiliated parties as a single entity necessitates
that transactions among the parties also be valued based on the group
as a whole and as such, among collapsed entities the fair-value and
major input provisions are not controlling). Further, as noted by the
CIT, ``to treat collapsed parties as no longer separate affiliates for
purposes of 19 U.S.C. section 1677B(f)(2)-(3)'' is ``not only
permissible but preferable as a more logical, integrated application of
the statute.''
As for the petitioners' suggestion that the Department never
explicitly recognized Iron Springs and Thompson Livestock to be
collapsed with the JGL Group, we note that from the outset of this
proceeding that the JGL Group has appropriately responded to the
Department's questionnaires on behalf of an entity that included these
companies. Since the record evidence clearly supported the collapsing
of Iron Springs and Thompson Livestock with the JGL Group (given their
affiliation, interchangeable production, and potential for
manipulation),11 and since no interested party objected to
this treatment, the Department did not issue a formal memorandum
approving of the ``self-collapse'' of these parties. The Department has
continued to regard these parties as a single collapsed entity for the
final determination.
---------------------------------------------------------------------------
\11\ Iron Springs is a cattle producing consortium that is
operated entirely by the JGL Group; Thompson Livestock is
principally owned by members of the JGL Group, through a holding
company.
---------------------------------------------------------------------------
Given the above, we have relied on actual costs in determining the
cost of manufacturing (COM) for each of the collapsed entities in the
final determination.
2. Shareholder Advances
Respondents Riverside-Grandview, Pound-Maker, Groenenboom, and Cor
Van Raay argue that the Department should treat non-interest bearing
shareholder advances to the respective companies as equity rather than
debt, and therefore should not calculate interest expenses on these
advances. The respondents assert that the touchstone of the distinction
between debt and equity is whether a repayment obligation exists. See
Porcelain-On-Steel Cooking Ware from Taiwan, 51 FR 36425, 36432
(October 10, 1986), in which the Department found no reason to classify
loans as equity ``since repayment of the principal was part of the
terms for these loans.'' The respondents claim that the Department's
practice is to focus on repayment obligations, citing British Steel PLC
v. United States, 936 F. Supp. 1053, 1069 (CIT, 1996), in which
``Commerce argues its classification * * * as debt is supported by
substantial evidence first because `[t]he hallmark of debt is the
obligation to repay.' '' The respondents also cite Inland Steel
Industries, Inc. v. United States, 967 F. Supp. 1338, 1355 (CIT, 1997),
in which the CIT noted that, ``plaintiffs fail to point to any record
evidence which definitively establishes the existence of a repayment
obligation * * * [A]s defendant notes, the record contains `no evidence
of loan or repayment agreements, payment schedules or actual principal
or interest payments being made, nor was there any other evidence
tending to show that the GOF or Usinor Sacilor contemplated a repayment
obligation.' ''
The respondents argue that the Department has also considered other
factors in determining how to treat advances by shareholders. In Low-
Fuming Brazing Copper Rod and Wire from South Africa; Final
Determination of Sales at Less Than Fair Value, 50 FR 49973, 49975
(December 6, 1985), the
[[Page 56749]]
Department determined that advances from shareholders were not
traditional debt instruments primarily because of the indeterminate
duration of the transactions and their treatment as equity in
respondent financial statements. The respondents note that the
Department has concluded that certain advances, even if subordinated to
other debt, should still be identified as debt if they have a specific
maturity date and require the payment of interest, citing Elemental
Sulphur from Canada; Final Results of Antidumping Duty Administrative
Review, 64 FR 37737, 37741 (July 13, 1999). The respondents argue that
GAAP and the Department's past practice make clear that funds provided
by shareholders to respondents should be treated as equity unless the
record evidence shows an actual genuine obligation to repay the
advance. The respondents assert that they had no obligation to repay,
and thus the advances received from shareholders should be treated as
equity, not debt.
The petitioners note that the Department normally relies on data
from a respondent's normal books and records where those records are
prepared in accordance with the home country's GAAP, and where they
reasonably reflect the cost of producing the merchandise, consistent
with Section 773(f)(1)(A) of the Act. The petitioners claim that the
issue under consideration is whether the shareholder advances created
an obligation of repayment of principal, or whether the advances
established a right or claim to share in any dividends or other
disbursements and the right to share in assets of the company in the
event of liquidation, as set forth in Interpretation and Application of
Generally Accepted Accounting Principles 1998 (Delaney, Epstein, Adler,
and Foran 1998). The petitioners argue that if, in the ordinary company
books, the shareholder advances were not treated as equity or, more
importantly, if the advances did not change the shareholder's rights
and did not increase its share of the company, then the advances should
not be treated as equity.
The petitioners claim that advances by Riverside-Grandview
shareholders should be treated differently from those by Pound-Maker
shareholders. The petitioners note that cash advances by Pound-Maker
shareholders were treated as equity on the company's books and
financial statements and, in return for the funds, the shareholders
presumably obtained some additional claim on corporate assets or
control. In contrast, the petitioners argue that advances to Riverside-
Grandview, although subordinated to other loans, were not treated as
equity on the company's books, but rather as liabilities or loans. The
petitioners note that the balance of shareholder advances decreased
during the POI, suggesting that repayment by Riverside-Grandview had
occurred. The petitioners argue that there is no evidence that
shareholders making the advances obtained a greater stake in Riverside-
Grandview and that the record indicates that these advances are loans.
The petitioners contend that advances to Groenenboom by its
shareholders were not treated as equity in the company books and
records, nor is there any evidence that the parties intended to create
or increase shareholder claims to corporate assets.
DOC Position: We agree with the petitioners. In the instant
investigation, there is no evidence that a repayment schedule exists
for shareholder advances made to any of the four respondents. However,
the absence of such a schedule, in and of itself, does not prove that a
repayment obligation does not exist, or is not anticipated by the
parties. The absence or existence of a repayment obligation may be
determined from the manner in which a respondent has recorded the
amounts received from shareholders in its accounting records.
The advances made to Pound-Maker by its shareholders are classified
as equity in its audited financial statements. For Pound-Maker, there
is no evidence of a repayment schedule or obligation, and there is no
evidence that either principal or interest payments have been made.
Since we do not have any basis for changing Pound-Maker's
classification of these advances, we have determined that they should
be treated as equity rather than debt and we have not included any
interest expenses related to these advances in Pound-Maker's cost of
production.
Conversely, on Riverside's audited financial statements and on
Grandview's reviewed financial statements, the advances to Riverside
and Grandview from their shareholders have been classified as
liabilities, rather than equity. In addition, the shareholder advances
balance outstanding decreased during the cost reporting period,
indicating that a portion had been repaid. Furthermore, we disagree
with the respondents that the lender's subrogation of these loans to
the bank's debt virtually converts the loans into equity. To the
contrary, the fact that a bank required the parties to sign subrogation
agreements indicates that, from the bank's perspective, these advances
reflect an obligation for the companies to the lenders. Presumably, the
bank would not have required the subrogation agreements if this were
not the case. Accordingly, we have no reason to believe that the
respondent's normal classification of these advances as debt is
inappropriate. Therefore, as in the preliminary determination, we have
treated these advances as debt, consistent with Riverside-Grandview's
classification.
As demonstrated in Shop Towels from Bangladesh; Final Results of
Antidumping Duty Administrative Review, 60 FR 48966, 48967 (September
21, 1995), our practice is to impute interest expense on transactions
when the rate charged by a related party lender does not reflect a fair
market rate. In this case, we do not consider the respondents'
interest-free related party loans to be reflective of the fair market
rate in Canada since such loans typically involve some cost to the
borrower. Therefore, we calculated interest expenses on the advance
balances using a market rate.
We have also determined that the shareholder advances related to
Groenenboom and Cor Van Raay should be classified as debt, and
therefore we calculated interest expense on these balances using market
rates of interest. The discussion of the advances to Groenenboom and
Cor Van Raay involves proprietary information. See Memorandum from
William Jones to The File, dated October 4, 1999.
3. Gender Adjustment
Riverside-Grandview notes that the Department adjusted its reported
costs in the preliminary determination to account for cost differences
associated with the gender of the cattle, and that the adjustment was
based upon the average cost differences for finished steers and heifers
reported by other respondents. The respondent argues that since it
provided the cost data available from its own records, and since cost
data by gender is not available for the entire cost calculation period,
the Department should not make any gender adjustment for the final
determination. Further, the respondent argues that it was inappropriate
to rely, as facts available, on gender-specific costs of companies
located in different provinces and operating under different
circumstances. Riverside-Grandview notes that the cost differences
indicated by its own data for representative sample lots of steers and
heifers, which was obtained and reviewed by the Department at
verification, are not significant. Riverside-Grandview further argues
that, if the Department decides to make a gender adjustment to its
costs,
[[Page 56750]]
it should do so based upon its own gender-specific data. Finally,
Riverside-Grandview argues that if the Department applies a gender
adjustment for the final determination, it should be sure that total
costs after adjustment do not exceed the total actual costs of
production.
Cor Van Raay and Groenenboom also argue that if the Department
applies a gender adjustment to their costs for the final determination,
it should be sure that total costs after adjustment do not exceed their
total actual costs of production.
The petitioners argue that the need for a gender adjustment is
compelled by the failure of Riverside-Grandview, Cor Van Raay, and
Groenenboom to submit information in the form and manner requested by
the Department. The petitioners assert that Riverside-Grandview admits
that its own data is not the most reliable basis for calculating gender
cost differences as the records are incomplete and did not calculate
actual costs. The petitioners argue that the average differences shown
by the submissions of other respondents or the CanFax data provide a
more reliable basis for adjusting the submitted costs. The petitioners
also claim that the Department properly resorts to facts otherwise
available in a manner that may increase the cost of production. The
petitioners argue that there is no reason to abandon the gender
adjustment simply because, on an aggregate basis, such an adjustment
would increase total costs.
DOC Position: As in the preliminary determination, we have
continued to make an adjustment for cost differences relating to
gender. When a respondent's submitted costs do not account for cost
differences associated with physical characteristics due to limitations
in its production records, the Department's practice is to adjust the
submitted costs using a non-adverse facts available approach to more
accurately reflect the product-specific cost of production. See Certain
Cold-Rolled and Corrosion-Resistant Carbon Steel Flat Products from
Korea: Final Results of Antidumping Duty Administrative Reviews, 64 FR
12927, 12949 (March 16, 1999) (Comment 19).
In the instant investigation, we adjusted Riverside-Grandview's
costs as the respondent claimed that in the ordinary course of business
it did not account for cost differences associated with the gender
physical characteristic. See Preliminary Determination at 36850. We
confirmed at verification that Riverside-Grandview normally does not
account for such differences in its accounting records. However, we
obtained and reviewed company documentation which indicates the
approximate cost differences due to gender and we have used those
records to adjust Riverside-Grandview's costs for the final
determination.
Since Cor Van Raay and Groenenboom did not provide similar data, we
have made a gender adjustment to their costs based on the average
gender cost differences experienced by the respondents for whom such
differences could be determined. We agree with the respondents that it
would be unreasonable to allocate more costs to cattle than were
actually incurred and have taken this into account in making our
adjustments.
4. Cost Test
The FMBC, an interested party, presented the economic argument that
the live cattle markets in the U.S. and Canada are highly developed,
regulated commodity markets and, consequently, the Canadian cattlemen
are price takers. Therefore, the FMBC argues that when the Department
performs its sales below cost test, it should ignore periodic market
fluctuations and focus instead on multiple year economic cycle specific
to the cattle industry.
The petitioners argue that the FBMC would have the Department
redefine ``fair value'' and ``normal value'' to fit a definition that
FBMC characterizes as a ``fair return.'' The petitioners argue that in
the absence of evidence that cattle are a highly perishable commodity,
there is no basis to redefine terms explicitly defined by Congress. The
petitioners argue that the use of the cost test described under section
773(b)(2)(C)(ii) of the Act (i.e., a comparison of the weighted average
unit price of all sales to the weighted average cost) applies only in
instances where the product under investigation is highly perishable.
See Statement of Administrative Action at 832. The petitioners argue
that beyond the scheduled production date, cattle do not spoil, wilt or
otherwise become unsaleable.
DOC Position: We agree with the petitioners and have applied the
substantial quantities test in accordance with section 773(b)(2)(C)(i)
of the Act. The Department has found that live cattle are not a highly
perishable commodity and, therefore, there is no basis to apply the
substantial quantities test in accordance with section 773(b)(2)(C)(ii)
of the Act. The SAA, at 832, indicates that ``This latter rule closely
corresponds to the current Commerce practice of determining substantial
quantities of sales below cost for highly perishable agricultural
products.'' Finally, section 773(b)(2)(B) of the Act states that the
phrase within an extended period of time ``means a period that is
normally one year, but not less than six months.
Cost Issues--Company-Specific
JGL Group
1. The Cost of Production for Traded Cattle
The petitioners argue that the submitted costs of five JGL Group
suppliers are, at best, incomplete and are particularly inadequate with
respect to labor costs, and that the Department lacks adequate costs to
properly apply the cost test to sales of traded cattle. Therefore, they
assert, the Department cannot rely upon home market sales of traded
cattle and must resort to facts available for normal value. As facts
available, the petitioners argue that the Department should compare
U.S. sales of traded cattle to the estimated normal values provided in
the petition. However, the petitioners argue that, if the Department
believes the JGL Group suppliers were uncooperative, it should apply
facts available by using the higher of the average normal values in the
petition for sales of the same gender and weight, or the suppliers'
costs adjusted to account for the numerous deficiencies found at
verification.
The petitioners disagree with the JGL Group's assertion that its
cattle acquisition value should be used as the COP and constructed
value (CV) of the traded cattle. The petitioners argue that the use of
acquisition costs contradicts the rationale set forth in past cases.
However, the petitioners suggest that the JGL Group's acquisition costs
could be used as facts available, if they are first adjusted to reflect
the difference between the suppliers' costs (including labor) and the
acquisition price of the JGL Group.
The petitioners argue that whether or not the sample of suppliers
was statistically valid or not, the Department must rely on facts
available (i.e., the suppliers' cost) to complete the proceeding within
the statutory deadlines. The petitioners contend that, because of the
substantial number of cattle suppliers to the JGL Group, it was clear
from the outset that any cost data would, at best, be proxy costs.
Further, the petitioners contend that because it was never practicable
for the Department to obtain the necessary information, under
subsection 776(a)(1) of the Act, it was appropriate for the Department
to resort to facts otherwise available by sampling five of the JGL
Group's suppliers. According to the petitioners, section 776(a)(1) of
the Act does not require statistical sampling.
[[Page 56751]]
The petitioners point out that the JGL Group is subject to this
investigation at the insistence of the CCA and that it is ironic for
the CCA to assert that a sample is not statistically valid, given that
its own position at the outset of this investigation was for the
Department to select the largest producers and not to use a
statistically valid sample to choose respondents.
The JGL Group argues that there are insurmountable practical
problems that preclude the Department from calculating accurate dumping
margins on its traded cattle sales using cost data obtained from the
JGL Group's cattle suppliers. The respondent argues that the Department
simply has no usable cost of production data from suppliers, as a
result of: (1) the huge number of suppliers to the JGL Group; (2) the
inevitable time pressures of the investigation; (3) the simple
inability of family farmers to provide meaningful data, due to the
limitations of their businesses and record keeping; and (4) the
Department's failure to follow statutory requirements for sampling.
Therefore, the JGL Group argues that, if the Department decides to use
the traded cattle sales, the only valid, complete product-specific cost
data available are the JGL Group's verified acquisition costs.
The JGL Group argues that supplier data obtained by the Department
is incomplete because it only covers three of the 14 products sold in
both Canada and the United States. The JGL Group notes that it sold 55
different products in Canada. Moreover, the JGL Group claims that six
product-specific costs obtained by the Department are critically flawed
because they are not in fact product-specific, but rather are the
weighted average cost per pound of all types of cattle produced by the
individual supplier. The JGL Group argues that the reported supplier
costs do not reflect a lack of cooperation, but rather the fact that no
small producers can or do track costs on an animal-specific basis. On
the other hand, the JGL Group argues that, as the Department observed,
buyers like the JGL Group purchase many animals at auction and the
exact weight, gender and type of each animal is known and is reflected
in the price paid.
The JGL Group argues that the sample selected by the Department is
not statistically valid and that the resulting data is not
representative of the greater population. The JGL Group asserts that
under Sections 777 f-1(a) and (b) of the Act the Department must use
only ``statistically valid samples.'' In addition, the JGL Group
contends that due process requires samples to be representative, citing
National Knitwear & Sportswear Ass'n v. United States, 779 F. Supp.
1364, 1373 (CIT, 1991), where the court stated, ``The
representativeness of the investigated exporters is the essential
characteristic that justifies an ``all others'' rate based on the
weighted average for such respondents.''
In regard to the statistical validity of the sample, the JGL Group
asserts that the Department failed to use a sound sampling methodology
in its selection process. The JGL Group asserts that: (1) The
Department's sample was too small given the size and heterogeneity of
the relevant producer universe (i.e., five out of thousands of
suppliers) and the corresponding variance in products and costs; (2)
the sample suffered from a lack of strict sampling procedures; and, (3)
even the minimal sampling procedures that were described were not
followed. The JGL Group concludes that the Department's sample
therefore violates the statutory requirement that any samples selected
be statistically valid.
Furthermore, the JGL Group asserts that the Department deprived it
of its procedural rights as delineated in the statute by failing to
consult with exporters and producers regarding the selection method to
be employed. The JGL Group asserts that under Sections 777 f-1(a) and
(b) of the Act the Department is required ``to the greatest extent
possible, to consult with the exporters and producers regarding the
method to be used to select exporters, producers or types of
products.'' The JGL Group states that at no stage of the selection
process was it consulted by the Department on the supplier selection
methodology. Moreover, the JGL Group asserts that to the extent that it
was advised as to how the suppliers would be selected, the Department
failed to adhere to its stated methodology, as it failed to identify or
select from the largest producers.
The JGL Group argues that if the Department nonetheless decides to
include sales of traded cattle in the antidumping analysis, then, as
contemplated in its April 8, 1999, decision memorandum, it should use
the JGL Group's acquisition costs as a non-adverse surrogate for the
producer's cost. The JGL Group argues that the acquisition costs are
product-specific (i.e., providing a cost for each unique combination of
weight band, gender and type), as verified by the Department. Further,
the JGL Group argues that no provision in the statute requires the
Department to use the COP of producers in applying the cost test to
sales made by resellers.
Moreover, the JGL Group argues that economic theory supports the
use of acquisition cost as a conservative estimate of production costs.
The respondent argues that in competitive markets, such as the cattle
market, the market price for any given animal will be reflective of the
industry's average cost, plus a return on equity. Thus, the JGL Group
argues that, rather than reflecting the costs of a single supplier, as
gathered by the Department, market prices reflect the costs of the
industry as a whole, and are a better indicator of production costs.
The JGL Group argues that the Department's findings relating to the
five suppliers support these economic principles, since although some
of the suppliers showed marginal losses, most showed profits, and for
the five overall, revenues exceeded costs. The JGL Group argues that
the Department should use its cattle acquisition costs as a reasonable
proxy for the cost of production as non-adverse facts available.
Further, the JGL Group asserts that the results of the Department's
limited sampling confirms the appropriateness of using acquisition
costs to conservatively estimate production costs. The JGL Group argues
that overall revenues for the five suppliers selected by the Department
were in excess of their costs and their revenues correspond to the JGL
Group's acquisition costs, therefore the Department should use the
acquisition values in the below cost test for the final determination.
Finally, the JGL Group argues that in order to perform a below cost
test on sales of traded cattle, the Department could use the JGL
Group's own production costs as a proxy for the supplier costs. The JGL
Group further argues that the cost of production data for cull cows and
bulls (i.e., culled cattle) is not at issue, as the supplier's cost is
zero since culls are typically used as production assets for other
types of products (e.g., milk from dairy cows or calves for breeder
cattle). The JGL Group argues that the value of such ``cull'' by-
products is the acquisition price paid by the JGL Group (i.e., the
supplier's sale price).
DOC Position: In addition to the sale of its own self-produced
cattle, JGL purchased and resold a large number of cattle produced by
other Canadian cattle operations. Because the suppliers of JGL's traded
cattle did not appear to have had knowledge of the ultimate destination
of the cattle they supplied to JGL, we decided to include JGL's traded
cattle sales in the calculation of JGL's weighted average margin. For a
discussion of the Department's decision
[[Page 56752]]
to include the traded cattle sales in the final determination, see JGL
Group Sales Comment 5 above (Traded Cattle Sales). Once it was
determined that these traded cattle sales were to be included in our
analysis, in order to obtain the actual cost of producing these cattle,
it was necessary to obtain the supplier's actual production costs.
Accordingly, the Department solicited cost of production information
from a sampling of JGL's suppliers.
We agree with both parties that the per-unit costs submitted by the
producers of the traded cattle are unusable for purposes of determining
whether the home market sales of traded cattle were made at prices
above their cost of production. The Department verified three of the
five selected traded cattle producers and found that, while they had
cooperated to the best of their ability, what books and records they
did maintain did not allow them to track and report product-specific
costs. Additionally, we found that the various cattle types were raised
together in the same lots, making it difficult for the producers to
separate costs by cattle type or weight. As a result, the per-unit
costs supplied by the producers/suppliers are critically flawed because
they are not product-specific costs, but rather are simply the weighted
average cost per pound of all types of cattle produced.
While we concede that a larger sample could have achieved a greater
cross representation of the population of the traded cattle suppliers,
two factors prevented us from expanding our sample: (1) The inability
to sample traded cattle suppliers who sold to JGL through auction
houses, and (2) The large size of the population of suppliers. In our
discussions with the JGL Group, the respondents informed the Department
that their traded cattle suppliers number in the thousands, and that
the overwhelming number of these traded cattle are purchased by the JGL
Group at livestock auctions. The JGL Group also stated that because the
auction houses handle the paperwork between buyer and seller and they
do not maintain these records in an accessible format, it would be
nearly impossible to identify the individual producers of cattle
purchased at auction. Thus, it was not possible to select a sample of
the entire population of the producers of JGL Group's traded cattle
sales.
Moreover, faced with a population of thousands, and the limited
time between the submission of the JGL Group's questionnaire responses
and the preliminary determination, the Department determined that it
would select only a manageable number of the JGL Group's direct
suppliers of traded cattle. The reasonableness of this limited sample
is supported by the fact that the CCA had to hire outside accountants
to assist these small farmers/cattlemen in responding to the
Department. A larger sample of producers of traded cattle would simply
have overwhelmed both the Department and the JGL Group. It was thought
at the time that a limited sample of the JGL Group's suppliers would
provide a reasonable picture of the cost structure and profitability of
the farmers/cattlemen. Unfortunately, the Department found that these
suppliers' limited records did not allow them to provide product-
specific costs by weight band, gender, and cattle type.
However, the issues raised about our sample obscure the larger
point that regardless of the sampling technique used in this case, it
appears that the responding cattle suppliers would still not have been
able to provide usable data. That is, we believe that if the Department
had selected a larger, more scientific sample, the selected farmers/
cattlemen would similarly have been unable to provide usable data. As
stated above, we agree with respondents that, at this level in the
industry, the farmer/cattlemen's limited records and ranch size did not
allow them to provide costs by weight band, gender, and cattle type.
Therefore, no matter what sampling technique or sample size the
Department chose, we would still be faced with using facts otherwise
available to determine actual production costs.
We disagree with the respondents' arguments that the Department
violated their procedural rights and that we failed to follow our
intended procedures. First, we are surprised that the respondents have
concluded that they were not consulted by the Department. Contrary to
their assertion, the Department was in frequent contact with
respondents' counsel on this specific issue. Not only did we
specifically request and obtain JGL's accounts payable listing, but we
subsequently requested that JGL provide information on a short list of
50 direct suppliers of traded cattle. We also had several discussions
concerning the problems of obtaining data from auction houses.
Moreover, section 777A(b) states that ``[t]he authority to select
averages and statistically valid samples shall rest exclusively with
the administering authority.'' Thus, the final decisions on how large a
sample should be and how the sample should be selected rest exclusively
with the Department. Second, despite the respondents' erroneous
assumption that we intended to sample JGL's largest suppliers, it is
obvious that such an approach would have been impossible. As JGL
asserted, it was impossible even to identify the suppliers from whom
JGL purchased cattle though auction houses, let alone to identify the
largest of such suppliers.
In any event, the Department is obligated to complete its
investigation within the statutory deadlines, and must determine a cost
of production of cattle for the JGL Group's suppliers. Unlike Final
Determination of Sales at Less Than Fair Value: Fresh Atlantic Salmon
from Norway, 56 FR 7661, 7672 (1991), the producers' actual costs are
not available in this case. Section 776(a)(1) of the Act authorizes the
Department to use facts otherwise available where the ``necessary
information is not available on the record.'' In selecting the facts
otherwise available for this case, the Department finds that, given the
cooperation of the JGL Group and its five selected traded cattle
producers, the application of non-adverse facts available is warranted.
Also, we believe that the suppliers of traded cattle that we selected
are representative of the larger population in terms of farm/ranch size
and sophistication of records, and that much of the aggregate financial
data is representative. Therefore, we have adjusted the JGL Group's
reported acquisition price of traded cattle to reflect the producers'
cost of production. Since the acquisition prices are the revenues of
the suppliers, we have increased the acquisition prices by the average
loss of the five producers to obtain the cost of the average supplier.
The aggregate financial data supplied by the five producers do not
suffer from the problems reflected in the per-unit data. In addition,
the acquisition prices are product-specific and are available for all
of the products reported on the sales databases.
2. Cost Adjustments for Traded Cattle
The petitioners argue that the use of incomplete or estimated
production costs for the suppliers, based upon the data verified, could
have the effect of rewarding respondents with a lower margin by virtue
of the fact that their accounting records do not track all costs.
Moreover, petitioners argue that labor expenses should be included in
the cost of production of the traded cattle. The petitioners cite the
SAA at 835, noting that the Department computes a ``representative
measure of the materials, labor, and other costs, including financing
costs, incurred to produce the subject merchandise'' (emphasis added).
The petitioners also
[[Page 56753]]
cite Notice of Final Determination of Sales at Less Than Fair Value:
Certain Preserved Mushrooms from India, 63 FR 72246, 72249 (December
31, 1998) (Mushrooms from India) (Comment 1), where the Department
stated that when a respondent's normal accounting practices result in a
mis-allocation of production costs, it will adjust the respondent's
costs or use alternative calculation methodologies to more accurately
reflect the actual costs incurred to produce the merchandise. Thus, the
petitioners argue that the ranchers incur a real economic cost through
their own labor and that the Department should recognize the labor
costs for purposes of the antidumping law. The petitioners argue that
the Department imputes a cost to family labor since the owner of a
business expects a minimum return for his labor as well as a return on
his investment, and wages and costs should not be excluded from the
cost of production simply because it was not a grower's practice to pay
wages to family members; in support, the petitioners cite Final
Determination of Sales at Less Than Fair Value: Fall-Harvested Round
White Potatoes From Canada, 48 FR 51669 51674 (November 10, 1983); and
Final Determination of Sales at Less Than Fair Value: Fresh Kiwifruit
from New Zealand, 57 FR 13695, 13705 (April 17, 1992).
The petitioners further question various other cost elements within
the suppliers' cost build-ups, such as the depreciation expense for
breeder cattle. The petitioners note that with respect to the JGL
Group, both the Sorensons and Mr. Anderson included some depreciation
costs for their breeder cows; however, the two differed significantly
on the period of depreciation. The petitioners contend that neither
party included any depreciation expense for bulls and recommend the
inclusion of the expense using the average life. Specific to the
Sorensons, the petitioners contend that no costs were assigned for
slough hay or green feed. The petitioners claim that this issue was not
addressed in the cost verification report. The petitioners indicate
that additional errors were noted in the cost verification report which
they claim could effect the reliability of the submitted data.
Regarding Mr. Anderson, the petitioners noted that because the
grain market prices used in calculating normal value were misquoted
from the Saskatchewan Department of Agriculture's data, the Department
should use the correct data in the COP and CV calculations for the
final determination. Finally, the petitioners argue that the
conclusions made by the Department for the three verified JGL Group
suppliers should be applied to the two unverified suppliers.
The JGL Group contends that if the Department does decide to use
the limited supplier cost data, although several adjustments would be
necessary to the calculation of costs, there is no basis for imputing a
labor cost for any of the chosen suppliers as they are all sole
proprietor farmers. The JGL Group argues that under tax and accounting
rules sole proprietors are discouraged from paying themselves wages.
Furthermore, the JGL Group argues that such treatment is reasonable
since none of the suppliers incur any actual labor cost, but rather as
the owners of their farms take their return on investment as profits.
Moreover, they assert that the Department has no clear statutory
authority to impute such labor expenses for sole proprietor farmers,
since farm and the sole proprietor are the same entity, and thus the
affiliated party transactions rules under section 773(f)(2) of the Act
would not apply.
The JGL Group argues that the suppliers provided separate cost data
for 1997 and 1998, but the Department requested that they focus on
calendar year 1998, as it more closely corresponded to the POI.
Respondents assert, however, that in the case of Edward Steinke it is
more appropriate to use 1997 costs, as all sales to the JGL Group
occurred in 1997. Additionally, in the case of Sorenson, the JGL Group
maintains that 1998 costs should only be used for backgrounded cattle,
and that 1997 reported costs should be used for weaned cattle. In this
regard, the JGL Group suggests that unless the Department uses 1997
cost data as indicated above, there will be a mismatch between the
products sold to the JGL Group and the calculated costs.
In the case of Brian Donison, respondents contend that computing
interest expense on a ``cost of goods sold'' basis is distortive, as it
does not consider borrowing costs for land. The JGL Group argues that
land, a family farmer's primary production asset, is not reflected in
the cost of goods sold. Therefore, under the Department's traditional
approach to interest expense, no interest expense is allocated to the
purchase of land. The JGL Group suggests that it would be reasonable to
allocate interest expense between Donison's grain farming and cattle
feeding operations based on the asset acquisition cost methodology
previously submitted by Donison.
DOC Position: As noted in JGL Cost Comment 1 above, we resorted to
the use of non-adverse facts available for the costing of the JGL
Group's traded cattle sales. However, in order to rely on the aggregate
financial data provide by the five suppliers we have adjusted the data
to account for minor problems found at verification.
We increased the reported cost of manufacturing for each of the
suppliers to account for labor supplied by the owner. We consider labor
supplied by the owners of the farms or ranches to be affiliated
transactions as covered under section 773(f)(2) of the Act. In this
case, the farmer-cattleman is the owner of the farm-ranch and therefore
is affiliated. In accordance with section 773(f)(2) of the Act, we
tested the labor cost charged between the affiliates to determine if
that element of value fairly reflects the amount usually reflected for
sales of that element in the market under consideration. We do not
consider zero labor costs to be reflective of an arm's length price.
Thus, we have adjusted the suppliers' reported production costs to
include a market value for the owner's labor.
With respect to the depreciation expense calculations for Sorenson
and Anderson, we agree with the petitioners that a cost should be
included for the depreciation of bulls. Specific to Sorenson, we note
that pasture costs were addressed in the cost verification report and
certain expenses have been included in the reported costs for hay and
green feed. See Verification Report on the Cost of Production Data
submitted by the Sorenson Brothers from Taija Slaughter to Neal Halper,
dated August 3, 1999, at 8. Additionally, the report notes a minor
adjustment for repairs and maintenance expenses which should be
included in Sorenson's cattle costs of manufacturing. Specific to
Anderson, we agree with the petitioners that the market grain prices
which were misquoted in the COM calculation should be corrected.
Regarding Donison's interest expense calculation methodology, we
disagree with the respondent that the interest expense should be
allocated on an asset-based methodology. We point to Notice of Final
Determination of Sales at Less Than Fair Value: Fresh Atlantic Salmon
From Chile, 63 FR 31411, 31430 (June 9, 1998) (Salmon), where we
``recognized that [our] normal method of calculating financial expenses
on the basis of cost of goods sold, without special allocations to
specific divisions or assets, provides a reasonable measure of the cost
incurred for the merchandise.'' Thus, for this final determination, we
have maintained our practice to calculate financial expenses based on
the cost of goods sold denominator.
[[Page 56754]]
We disagree with the JGL Group's argument that certain of the
suppliers' data should be based on the 1997 cost data instead of the
POI or 1998 data, the closest corresponding year. The Department's
general policy is to use the cost of producing the merchandise during
the POI or POR, rather than the cost of the sales during that period.
In accordance with section 773(b)(3) of the Act, we calculate average
costs incurred ``during a period which would ordinarily permit the
production of that foreign like product in the ordinary course of
business.'' (emphasis added) We note that section 773(b)(3) does not
direct the Department to use the cost of goods sold, but rather, the
cost of production. Consistent with this provision, we normally require
respondents to report their cost of production for the subject
merchandise during the period of investigation or review (i.e., the
cost to produce the merchandise during the period in which they are
making sales, as opposed to the cost to produce each individual product
sold during the reporting period).
While we recognize that we have deviated from this general policy
in a few instances, these departures were due to unique circumstances
surrounding the particular cases. For example, in the Salmon from Chile
case, the Department did not calculate a cost of cultivation for the
POR because a one-year period is insufficient to capture the costs of
production of that foreign like product in the ordinary course of
business as required by section 773(b)(3)(A), since the growing period
for salmon averages from between two and three years. The Department
therefore had to extend the cost calculation period to include the
entire growing period most recently completed (i.e., the period which
would permit the production of the product). In the instant case,
feeders are usually fed for a half to a full year before being sold,
such that the ordinary production period does not extend outside the
POI.
In Large Newspaper Printing Presses and Components Thereof, Whether
Assembled or Unassembled, from Germany, 61 FR 38166 (July 23, 1996)
(LNPP), we computed the COP and CV based on the specific costs incurred
for each sale. However, since these are custom-made products, with no
two newspaper presses being the same, we had no option but to use the
cost incurred for each POI sale, even though some of the costs stray
outside the POI. With cattle being a commodity-type product, the
reasons for deviation from our normal practice in LNPP clearly do not
apply.
In summary, the Department has a consistent and predictable
practice regarding the proper cost calculation period for COP and CV;
that is, to use the actual cost of manufacturing incurred during the
period of investigation or review. Only in unusual circumstances has
the Department deviated from this approach. We found no similar
circumstances in the cattle case. We do not consider the JGL Group's
argument sufficient grounds for deviating from our normal practice.
Pound-Maker
1. By-Product Costs
In the process of producing fuel grade ethanol from wheat, water,
enzymes, and yeast, Pound-Maker also produces wet distillers grain
(WDG) and thin stillage (TS). The company transfers all of the WDG and
TS produced in the ethanol division to its cattle division where it is
used in cattle feed to reduce the amounts of barley, other grains, and
silage that would otherwise be consumed. In its normal accounting
system, Pound-Maker records the transfers of WDG and TS using a formula
tied in part to the average monthly price of barley. These transfers
are eliminated by Pound-Maker in the preparation of its audited
financial statements. The petitioners and Pound-Maker disagree as to
whether a cost for WDG and TS should be included in Pound-Maker's COP.
The petitioners argue that the Department's cost verification
report makes it clear that there is a market value for WDG and TS,
despite assertions to the contrary by Pound-Maker. The petitioners
submit two publicly-available documents in support of their claim that
WDG and TS are sold in the U.S. market as feed. The petitioners argue
that the inter-divisional transfer prices recorded by Pound-Maker do
not appear to be distorted. The petitioners note that in the
preliminary determination the Department accepted Pound-Maker's claim
that WDG and TS are by-products of ethanol production and have zero
costs, citing Final Determination of Sales at Less Than Fair Value:
Furfuryl Alcohol from South Africa, 60 FR 22500, 22556 (May 8, 1995)
(Furfuryl Alcohol). The petitioners argue that this case is not
applicable as the Department accepted the Furfuryl Alcohol respondent's
assignment of zero costs to a product not because it was a by-product,
but rather because the cost was effectively captured elsewhere. The
petitioners claim that, in the instant investigation, Pound-Maker's use
of WDG and TS reduces the feed costs that the respondent would
otherwise incur to feed cattle, and that the use of zero costs for
these products would understate its actual cost of production.
Pound-Maker argues that its accounting treatment of WDG and TS as
by-products with zero costs is fully justified. Pound-Maker claims that
this treatment should be accepted since the Section 773 (f)(1)(A) of
the Act requires the Department to compute costs of production using
the company's own records, unless the Department concludes that Pound-
Maker's accounting departs from GAAP or does not otherwise reasonably
reflect production costs. Pound-Maker claims that the Department
distinguishes between co-products and by-products based on their
relative sales value and that by-products are assigned zero costs of
production while common costs are allocated among co-products. See
Final Determination of Sales at Less Than Fair Value: Oil Country
Tubular Goods from Argentina, 60 FR 33539, 33547 (June 28, 1995) (OCTG
from Argentina). Pound-Maker argues that there is unrebutted record
evidence that TS, in the form produced by the company (i.e., five to
seven percent solids), has no commercial value and is not sold anywhere
in Canada. Pound-Maker states that it provided the Department with a
letter from a Canadian ethanol producer that produces and sells TS, but
notes that the ethanol producer further processes its TS into a
concentrated syrup (20 percent solids) before it is sold. Pound-Maker
argues that significant capital investment in the form of additional
equipment was necessary for this company to produce the concentrated
syrup and that Pound-Maker cannot produce the same TS product. Pound-
Maker argues that the estimated sales value of WDG is insignificant in
relation to ethanol and thus is properly treated as a by-product.
Pound-Maker notes that it provided the Department with a letter from a
Canadian brewery that sold a product similar to WDG known as ``brewer's
spent grains'' and the market value of this product is minor in
relation to the value of ethanol. Pound-Maker claims that one of the
documents submitted by the petitioners supports the respondent's
classification, since it refers to distillers grains as by-products.
Pound-Maker argues that Furfuryl Alcohol also supports its assignment
of zero production costs, since both Furfuryl Alcohol and the instant
case involve a respondent that treated a low-valued product, produced
by one production process and consumed in another, as a by-product.
Pound-Maker
[[Page 56755]]
argues that, if the Department were to determine that WDG or TS is a
co-product rather than a by-product, the Department should allocate the
costs of the wheat input based on the relative sales values of ethanol,
WDG and TS. Pound-Maker claims that there is no legal basis for using
its inter-divisional transfer price to value WDG and TS as it does not
reflect any actual costs, but rather a value that is arbitrarily
assigned based on hypothetical estimated costs for a substitute
product.
DOC Position: This is a situation where as a result of the ethanol
production process, two residual products, WDG and TS, are generated.
Even though there is a market for these general type of products, they
are not sold by the company. Instead, they are consumed by Pound-
Maker's cattle operations. In the normal course of business, Pound-
Maker assigns a value to the inter-divisional transfers of WDG and TS;
however, for financial statement purposes, Pound-Maker does not
allocate any of the costs to produce ethanol to the WDG and TS.
The Department's long-standing practice, now codified at section
773(f)(1)(A) of the Act, is to rely on a company's normal books and
records if such records are in accordance with home country GAAP and
reasonably reflect the costs associated with production of the
merchandise. See Final Determination of Sales at Less than Fair Value;
Certain Hot-Rolled Flat-Rolled Carbon-Quality Steel Products from
Brazil, 64 FR 38756, 38787 (July 19, 1999) (Comment 47). Where we
determine that a respondent's normal accounting practices result in an
unreasonable allocation of production costs, the Department will make
certain adjustments or use alternative methodologies to more accurately
capture the costs incurred. See Certain Cold-Rolled and Corrosion-
Resistant Carbon Steel Flat Products From Korea: Final Results of
Antidumping Duty Administrative Reviews, 64 FR 12927, 12949 (March 16,
1999)(Comment 19).
While we agree with Pound-Maker that the WDG and TS are
appropriately classified as by-products of the ethanol production
process, we disagree with Pound-Maker's claim that no value should be
assigned to the inter-divisional transfers for use in the production of
cattle. The WDG and TS are closely tied to Pound-Maker's cattle feeding
operations in that WDG and TS account for a significant portion of
cattle feed and TS represents the only source of water for three of
Pound-Maker's six feedlot wings. To assign no value to these residual
products consumed by its cattle feeding operations would result in an
unreasonable allocation of costs between its two divisions. Clearly,
the cattle operations are deriving a benefit from the by-products
generated from the ethanol plant. This situation is akin to transfers
of by-products between different operations in a steel mill. For
example, coke gas is generated from a coking plant and is a by-product
of the coke production process. If this coke gas is consumed in a blast
furnace, the coking mill process will receive a credit for the
estimated value of the gas, and the operation consuming the gas, the
blast furnace in this example, will be charged the same estimated
value. See Management Accountants' Handbook at 11-31 (Keller, Bulloch,
Shultis, 4th ed. 1992). Accordingly, we have determined that it would
be distortive to assign no value to the WDG and TS consumed by Pound-
Maker's cattle feeding operations, and have determined that an
adjustment to its reported costs is appropriate.
We disagree with Pound-Maker's assertion that the Department's
decision in Furfuryl Alcohol supports assignment of zero cost to WDG
and TS. In that case, we accepted a respondent's assignment of zero
costs to bagasse, which is used in furfural production, not because it
was a by-product, but rather because its cost was effectively captured
in the respondent's reported coal costs.
Since we have determined that it is appropriate to assign value to
the WDG and TS, the next issue is to decide on the most appropriate
allocation method. The Management Accountants' Handbook at 11-25 offers
suggestions on how to value by-products under different scenarios,
including situations where there is an established market price for the
by-products, situations where the by-product is an alternative to the
main product being produced, and most appropriately for this case,
instances where by-products are usable as substitutes for other
materials. The textbook reads, ``Here the value placed on by-products
is determined by working from the price of the material replaced.''
In the instant case, because the WDG and TS are being used as
substitutes for barley and other grains fed to cattle on Pound-Maker's
feedlots, it would be appropriate to assign costs to the WDG and TS
using the value of the grains replaced in the feed mixture. An example
of such treatment is provided in the Management Accountants' Handbook
at 11-31. The text describes a steel plant that uses by-products of its
coke operations in the production of other products, and values the by-
products based upon the equivalent units of inputs (e.g., fuel oil,
coal) that are replaced. As noted earlier, Pound-Maker assigns values
to transfers of WDG and TS, but these values are eliminated for
purposes of its financial statements. According to Pound-Maker, these
transfers ``reflect values arbitrarily assigned by PMA * * * based on
hypothetical estimated costs for a substitute product * * *.'' See
Pound-Maker rebuttal brief at 37. Although Pound-Maker seems to
indicate that the arbitrary nature of the assigned values is a defect
that would factor against the use of these transfer values, the
Management Accountants' Handbook at 11-9 states that ``an allocation
method must be found that, though arbitrary, allocates the costs on as
reasonable a basis as possible'' (emphasis added).
We have reviewed the formula and methodology used to derive the
transfer values and have determined that the amounts initially recorded
for these transfers represent a reasonable value for the cattle feed
replaced by WDG and TS. Pound-Maker has referred to the amounts
recorded as ``theoretical protein-equivalent transfer prices.'' See
Section D response of April 28, 1999, at D-31. The formula used to
derive these amounts ``calculates an amount (value) based on the dry
matter content of the by-products relative to the value of feed
barley.'' See Section D supplemental response of June 4, 1999, at SD-
10. The transfer prices thus represent Pound-Maker's own estimate of
the value of cattle feed, and represent the most appropriate value to
be assigned to the WDG and TS consumed during the POI.
In addition, we found that there are certain costs to produce WDG
and TS that are incurred after the split-off point, and we, therefore,
assigned those costs to the WDG and TS used in Pound-Maker's cattle
feed.
2. G&A Expenses and Financial Expenses--Cost of Sales Denominator
Pound-Maker argues that the Department erred in its recalculations
of Pound-Maker's general and administrative (G&A) expense rate and
financial expense rate for the preliminary determination. Pound-Maker
claims that in these rate calculations, all categories of cost that are
in the cost of goods sold (COGS) denominator must also be in the per-
unit COM figures to which the ratios are applied, and vice versa.
According to Pound-Maker, the Department improperly included costs in
its COM that were not included in the COGS denominator.
Pound-Maker states that, for sales of its own-produced cattle, the
COGS reflects the full cost of those cattle,
[[Page 56756]]
including the purchase cost of the input feeder cattle and all costs
associated with fattening the cattle. Pound-Maker notes, however, that
its COGS also includes the cost of providing custom-feeding services to
outside investors, who purchase feeder cattle and pay a fee to Pound-
Maker for fattening their cattle. According to Pound-Maker, the COGS
for these custom-feeding services includes only the costs of fattening
the cattle, and does not include the cost of the original input feeder
cattle. Pound-Maker claims that since the calculated G&A and financial
expense rates are to be applied to a COM figure that includes the full
cost of fattened cattle, the company adjusted its COGS denominator to
include the input feeder cattle costs for custom-fed cattle that were
reported in Pound-Maker's sales databases.
Pound-Maker claims that the Department erroneously denied this
adjustment for the preliminary determination, producing a distortive
result that allocated more G&A and financial expenses than Pound-Maker
actually incurred. Pound-Maker argues that either the COM for custom-
fed cattle should exclude feeder cattle costs, or the G&A and financial
expense rates should be calculated using an adjusted COGS figure that
includes feeder cattle costs for custom-fed cattle.
Further, Pound-Maker argues that the Department routinely permits
adjustments so that the COM and COGS are on the same basis. In support,
Pound-Maker cites Mushrooms from India at 72247, in which the
Department stated, ``In order to put both the G&A rate and the
financial expense rate on the same basis as the per-unit cost of
manufacturing, we excluded certain expense items from the cost of goods
sold used by Agro Dutch as the denominator in its calculations.''
The petitioners argue that the Department properly rejected Pound-
Maker's submitted adjustment to allocate G&A and financial expenses to
sales of custom-fed cattle on the basis of its own COGS, plus the value
of feeder cattle that it fed but did not own. The petitioners argue
that the Department's long-standing practice is to ``compute G&A and
interest expenses on a company-wide basis as a percentage of cost of
sales,'' and cite Notice of Final Determination of Sales at Less Than
Fair Value: Stainless Steel Wire Rod from Taiwan, 63 FR 40461, 40472
(July 29, 1998). The petitioners assert that Pound-Maker sought to
artificially inflate its COGS of custom-fed cattle by adding in the
acquisition cost of the feeder cattle, thus reducing the G&A and
financial expenses allocated to its sales of own-produced cattle. The
petitioners argue that Mushrooms from India and other cases cited by
Pound-Maker may support the Department's practice of adjusting COM or
COGS, but the petitioners note that in none of Pound-Maker's cited
cases was the Department asked to adjust COGS by adding costs that the
respondent company did not incur and that are not recorded in its
financial statements. The petitioners also note that nothing in the
statute requires that COM and COGS be on the same basis.
The petitioners argue that the constructed value of custom-fed
cattle should properly include all expenses that were incurred by the
actual owners of the cattle and the absence of such expenses makes
irrelevant Pound-Maker's arguments that the Department allocated more
costs than the respondent incurred. The petitioners claim that the
Department should remove Pound-Maker's overstated sales that were
identified at verification and should also revise the denominator for
allocating per-unit feeder cattle costs as indicated in the cost
verification report.
DOC Position: We agree with Pound-Maker that the denominator in the
G&A and financial expense rate calculations should be on a similar
basis to the COM values to which the rates will be applied. However,
Pound-Maker is incorrect when it states that we improperly applied the
G&A and financial expense rates to a COM value that is not on the same
basis as the COGS denominator used to derive the rates. Pound-Maker
provides custom-feeding services to outside parties, and the COGS for
these services includes only the costs of fattening the cattle (feed
and other miscellaneous expenses). However, contrary to Pound-Maker's
assertions, the cost of the input feeder cattle is also in Pound-
Maker's COGS denominator. In its March 12, 1999 submission, Pound-Maker
stated, ``Virtually all of our custom feeders purchase their feeder
cattle from PMA.'' Therefore, the COGS denominator already includes the
cost of custom-fed feeder cattle and Pound-Maker's proposed adjustment
is unnecessary. As in the preliminary determination, we have adjusted
the denominators in Pound-Maker's G&A and financial expense rate
calculations to reflect the COGS shown on its financial statements.
Riverside-Grandview
1. Head-Days Allocation Methodology
The petitioners argue that Grandview used an unreasonable
methodology to allocate certain costs between its own-produced cattle
and cattle which it custom-feeds for other parties. The petitioners
state that this methodology, which is based upon head-days (i.e., the
number of days a head of cattle was on the company's feedlot), does
not, on its face, appear to be unreasonable. The petitioners cite to
Mushrooms from India at 72248, where the Department allocated costs
between co-products on a weight or volume basis. However, the
petitioners claim that Grandview's head-days allocation methodology,
even if mathematically accurate, produces unreasonable results and thus
should be rejected by the Department. A table containing proprietary
information was submitted by the petitioners in support of their claim.
The petitioners argue that the Department should neutralize the
impact of this methodology by allocating costs to non-Riverside custom
fed-cattle on a sales value basis.
Riverside-Grandview argues that the petitioners' arguments should
be rejected. Riverside-Grandview claims that the proprietary exhibit
submitted by the petitioners is incorrect in a number of respects.
Riverside-Grandview claims that the Department addressed this issue
previously at the preliminary determination, and Riverside-Grandview
notes that it did not take issue with the Department's conclusion at
that time. Riverside-Grandview argues that the petitioners' proposed
methodology would substantially over-allocate costs to Riverside-
Grandview.
DOC Position: We agree with Riverside-Grandview. We have reviewed
the methodology used by the respondent to allocate certain costs and
have determined that it is reasonable. Since Riverside-Grandview
provides the same feed and services to its own cattle and to custom-fed
cattle, we believe the number of head-days is a logical and appropriate
allocation method. As we noted previously, the petitioners' analysis
contains certain mathematical errors. See Issues Summary for the
Preliminary Determination, dated June 30, 1999, at page 7. We believe
that reasonable results are produced when these errors and the
respondent's need to cover its variable costs are taken into account.
Therefore we have continued to accept the head-days allocation
methodology for purposes of calculating Riverside-Grandview's COP.
2. Claimed Cost Offset
Riverside-Grandview argues that the Department should accept its
submitted cost offset for a ``disaster claim.'' Riverside notes that
(1) The claim relates to its November 30, 1998, fiscal
[[Page 56757]]
year, (2) Its auditors determined that Riverside-Grandview qualified
for the payment, and (3) The Department verified Riverside-Grandview's
receipt of the claimed amount. Riverside-Grandview argues that, since
its outside auditors have confirmed that, in accordance with GAAP, the
claim should have been reflected in its financial statements, and since
the claim relates to the cost reporting period, the Department should
not exclude this offset.
The petitioners argue that the statue directs the Department to
first consider the company books prepared in the normal course of
business prior to the antidumping investigation. The petitioners claim
that such records carry the presumption of correctness and the added
safeguard that they were not likely designed to minimize exposure under
antidumping laws. The petitioners argue that Riverside-Grandview seeks
to reduce its production costs by deducting a cost offset that was not
recorded in its normal accounting records during the POI because the
funds were not received until after the POI. The petitioners argue that
Riverside-Grandview's failure to record the claim is not necessarily
erroneous, simply because the auditors now state that recording the
claim would have been consistent with GAAP. The petitioners argue that
GAAP permits companies to elect how to treat various items, and if the
expenses in question were not extraordinary, there is no basis to
offset those expenses by income received in a later period.
DOC Position: We agree with the petitioners. The Department
normally relies on costs recorded in a company's accounting records as
long as they are recorded in accordance with GAAP and reasonably
reflect the costs of production. See section 773(f)(1)(A) of the Act.
The disaster claim that Riverside-Grandview seeks to apply as an offset
to its costs was not recorded in Riverside-Grandview's normal books and
records, or in its audited financial statements, and we have no basis
for applying this offset to reduce its costs of production. Despite the
description used for the claimed offset, Riverside-Grandview did not
incur any abnormal or unusual costs during the cost reporting period
and thus its submitted costs, without the claimed offset, properly
reflect its normal costs of producing the subject merchandise. Further
discussion of this issue involves proprietary information. See
Memorandum from William Jones to The File, dated October 4, 1999.
3. Bank Penalties
Riverside-Grandview claims that, during the cost reporting period,
it incurred penalties charged by a bank because of the respondents'
early repayment of debt. The respondent argues that these penalties
relate primarily to long-term loans with maturity dates beyond the cost
reporting period and that outside auditors determined that a
substantial portion of the bank penalties should have been recorded in
the financial statements as prepaid interest with deferred recognition
of the expense. According to Riverside-Grandview, full inclusion of the
bank penalties would distort their costs by treating a payment that
relates to future interest expenses on long-term debt as if it were a
cost on the particular day when the bank penalties were paid. The
respondent argues that to be consistent with GAAP, and avoid the
distortion of costs, such future expenses should be matched to the time
periods covered by the loans to which they related. Riverside-Grandview
claims that this approach is analogous to the approach taken by the
Department with respect to foreign exchange losses on long-term loans,
were such losses are amortized over the remaining life of the loans;
the respondent cites Fresh Atlantic Salmon from Chile, Notice of Final
Determination of Sales at Less Than Fair Value, 63 FR 31411, 31430
(June 9, 1998).
The petitioners argue that Riverside-Grandview seeks to change its
actual accounting practice in order to obtain more favorable treatment
solely for purposes of this investigation. The petitioners claim that
the Department verified that the early payment penalties were expensed
in the cost reporting period, as they appear in the audited financial
statements in accordance with Canadian GAAP. The petitioners argue that
although GAAP permits such costs to be amortized over a period of time,
it does not require such treatment. The petitioners argue that
respondent's reference to foreign exchange losses is inapposite since
the Department permits foreign exchange losses to be amortized over the
remaining life of loans that continue to be repaid, whereas the bank
penalties in the instant case relate to long-term loans that have
already been paid off. Therefore, the petitioners claim, there is no
reason to depart from the treatment of these expenses in Riverside-
Grandview's financial statements.
DOC Position: We agree with the petitioners. Our normal practice is
to rely on a respondent's normal accounting records if those records
are in accordance with GAAP of the home country and reasonably reflect
the costs of production. See section 773(f)(1)(A) of the Act. These
penalties were assessed by the bank because of the respondents'
decisions to pay off their loans before they were due. The fact that
these loans would have extended into future periods if they were not
paid early is of no significance here. The bank penalties were, in
fact, expensed by the respondents in their audited financial statements
covering this period, in accordance with Canadian GAAP, as they relate
to events which occurred during that fiscal year. Since the loans were
paid off in the current period, we see no reason to adjust these costs
to reflect a hypothetical payout schedule which no longer applies. The
analogy to foreign exchange losses is inappropriate for the reasons
cited by the petitioners.
4. Accounting Errors
Riverside-Grandview argues that the Department should adjust its
reported costs based upon verified cost offsets and other cost
adjustments. Riverside argues that since most of the custom work income
that it claimed as an offset relates to work that it performed for
Grandview, and since the expense was reported by Grandview in the
submitted costs, the Department should allow Riverside's submitted
offset. Riverside-Grandview also argues that the Department should
reduce its submitted costs for: (a) An accrual that was inadvertently
recorded twice; (b) Wages, utilities, and telephone costs that were
reported as indirect selling expenses; (c) Cattle purchases that were
related to a prior period; and, (d) Revenue items that should have been
reflected in the submitted costs. Riverside-Grandview also asserts that
the Department should increase the reported costs for barley purchases
that were not properly accrued and expense items that should have been
reflected in the submitted costs.
The petitioners argue that the Department should not permit the
various cost offsets that Riverside-Grandview failed to claim in their
responses prior to verification, claiming that these offsets were not
submitted on a timely basis.
DOC Position: We agree with Riverside-Grandview. Although most of
the claimed adjustments were not explicitly reported in the
respondent's submissions, we identified certain income and expense
items at verification through our routine testing. After further
inquiry and analysis, we determined that these miscellaneous income and
expense items are
[[Page 56758]]
appropriate for inclusion in the calculation of COP and have therefore
included them in the COM for the final determination.
Cor Van Raay
1. Cost Test for Partnership Sales
The petitioners note that Rick Paskal, one of the three entities
collapsed into respondent Cor Van Raay, entered into partnerships with
producers outside Cor Van Raay to feed and sell live cattle. The
petitioners argue that such sales should be compared to Rick Paskal's
costs of own-produced cattle, rather than to the average cost of Cor
Van Raay as a whole reporting entity. The petitioners argue that in the
alternative, the Department should recalculate the Cor Van Raay average
costs to reflect the additional sales of partnership cattle.
Cor Van Raay argues that the Department should not compare
partnership sales to Rick Paskal's costs of own-produced cattle,
because (1) the Department did not require that the cost of production
incurred by the partners be reported, (2) there is no evidence that the
costs incurred by Rick Paskal are any more representative of the
partners' costs than the costs incurred by other companies collapsed
with Cor Van Raay, and (3) in fact, other companies collapsed in the
Cor Van Raay respondent entity (i.e., Butte Grain Merchants) were also
involved in these sales. Further, the respondent argues that, for these
same reasons, it would be inappropriate to increase the average cost of
the Cor Van Raay consolidated entity to reflect Rick Paskal's
involvement in the partnership sales.
DOC Position: We agree with the respondent. The Department
requested that the partnership sales in question be reported, but did
not require that the partners submit a cost response. While, given the
circumstances of these sales, we believe that it is appropriate to
include them in our dumping margin analysis, there is no justification
for comparing the sales prices to Rick Paskal's costs alone, as there
is no evidence that Rick Paskal's costs are any more representative of
the partner's costs than the weighted-average costs of Cor Van Raay as
a whole. We have therefore continued to compare the sales prices in
question to the latter costs.
Groenenboom
1. Currency Hedging Losses
Groenenboom claims there is no relation between its currency
hedging losses and the purchase of any inputs used in the production of
the subject merchandise. Groenenboom argues that the Department
confirmed this at verification by reviewing monthly statements from the
company that manages its currency hedging account. Groenenboom asserts
that its gains or losses from currency hedging are wholly unrelated to
any G&A activities associated with its production or sales and these
gains and losses should not be treated as such in the final
determination. Groenenboom cites to Notice of Final Determination of
Sales at Less Than Fair Value: Emulsion Styrene-Butadiene Rubber From
the Republic of Korea, 64 FR 14865, 14871 (March 29, 1999)(ESBR from
Korea) where the Department excluded foreign exchange gains and losses
because such gains and losses are typically included only if they ``are
related to the cost of acquiring debt.'' The respondent argues that it
is apparent from the documents reviewed at verification that the
hedging contracts were not associated with any specific sale or group
of sales to the United States. Further, Groenenboom argues that foreign
exchange contracts may be taken into account for purposes of adjusting
sales prices only to the extent that they are directly linked to a
particular sale, and cites Antifriction Bearings (Other Than Tapered
Roller Bearings) and Parts Thereof From France; et al; Final Results of
Antidumping Duty Administrative Reviews, 57 FR 28360, 28413 (June 24,
1992).
The petitioners argue that Groenenboom recorded losses in a
currency trading account during the POI and that these losses should be
added to its G&A expenses. The petitioners claim that trading losses
that are not tied to specific sales in the U.S. market or to the
purchase of inputs should be analyzed for purposes of the antidumping
law using the logic that is applied to any incidental income or loss to
the business. The petitioners argue that Groenenboom is dedicated
solely to the production of cattle, such that the funds that were
traded to produce hedging gains or losses were generated in the cattle
business, and that any gains or losses on such hedging affect
Groenenboom's working capital, if not directly related to sales in
foreign currency. The petitioners claim that if Groenenboom had taken
funds and deposited them in a bank in Canada, short-term interest
earned on such deposits would have been deducted from G&A expenses
under normal Department practice.
Further, the petitioners argue that where a respondent invests
current cash from its operations and loses money, those losses should
be included in G&A expenses. The petitioners argue that Groenenboom's
cite to ESBR from Korea is misplaced as that case involved exchange
gains and losses on sales. The petitioners cite to Final Determination
of Sales at Less Than Fair Value: Oil Country Tubular Goods from Korea,
60 FR 33561, 33567 (June 28, 1995) in arguing that hedging gains or
losses are properly included in G&A expenses. The petitioners also
argue that Groenenboom's normal accounting practice is to treat gains
and losses from currency hedging as part of G&A expenses and that
respondents have shown no basis to depart from this treatment.
DOC Position: The Department's practice has been to not include
investment-related gains, losses and expenses in the calculation of G&A
expenses for purposes of the COP or CV calculations. In calculating COP
and CV, we seek to capture the cost of production of the foreign like
product and subject merchandise, and to exclude the cost of unrelated
production or investment activities. The Department accounts for a
respondent's investment activities that relate to the financing of
working capital as part of its financial expenses, which are calculated
on a consolidated basis. The record indicates that these currency
hedging activities were strictly for investment purposes and,
therefore, we have excluded Groenenboom's currency hedging losses from
its G&A expenses.
Continuation of Suspension of Liquidation
In accordance with section 735(c)(1)(B) of the Act, we are
directing the Customs Service to continue suspending liquidation of all
entries of live cattle from Canada, except for subject merchandise
produced and exported by Pound-Maker (which continues to have de
minimis weighted-average margins), that are entered, or withdrawn from
warehouse, for consumption on or after July 8, 1999 (the date of
publication of the preliminary determination in the Federal Register).
The Customs Service shall continue to require a cash deposit or the
posting of a bond equal to the weighted-average amount by which the
normal value exceeds the United States price, as indicated in the chart
below. These instructions suspending liquidation will remain in effect
until further notice.
The weighted-average dumping margins are as follows:
------------------------------------------------------------------------
Weighted-
average
Exporter/producer margin
percentage
------------------------------------------------------------------------
Cor Van Raay............................................... 4.53
[[Page 56759]]
Groenenboom................................................ 3.86
JGL Group.................................................. 5.10
Pound-Maker................................................ \1\ 0.62
Riverside/Grandview........................................ 5.34
Schaus..................................................... 15.69
All Others................................................. 5.63
------------------------------------------------------------------------
\1\ De minimis
Section 735(c)(5)(A) of the Act directs the Department to exclude
all zero and de minimis weighted-average dumping margins, as well as
dumping margins determined entirely on the basis of facts available
under section 776 of the Act, from the calculation of the ``all
others'' rate. We have excluded the dumping margin for Pound-Maker
(which is de minimis) from the calculation of the ``all others'' rate.
ITC Notification
In accordance with section 735(d) of the Act, we have notified the
International Trade Commission (ITC) of our determination. As our final
determination is affirmative, the ITC will, within 45 days, determine
whether these imports are materially injuring, or threaten material
injury to, the U.S. industry. If the ITC determines that material
injury or threat of material injury does not exist, the proceeding will
be terminated and all securities posted will be refunded or canceled.
If the ITC determines that such injury does exist, the Department will
issue an antidumping duty order directing the Customs Service to assess
antidumping duties on all imports of the subject merchandise entered
for consumption on or after the effective date of the suspension of
liquidation.
This determination is published pursuant to sections 735(d) and
777(i)(1) of the Act.
Dated: October 12, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-27410 Filed 10-20-99; 8:45 am]
BILLING CODE 3510-DS-P
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.