Industrial Nitrocellulose From the United Kingdom; Notice of Final Results of Antidumping Duty Administrative Review

DEPARTMENT OF COMMERCE

International Trade Administration

[A-412-803]

Industrial Nitrocellulose From the United Kingdom; Notice of

Final Results of Antidumping Duty Administrative Review

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of final results of antidumping duty administrative

review.

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SUMMARY: On August 7, 1998, the Department of Commerce (the Department)

published the preliminary results of its administrative review of the

antidumping duty order on industrial nitrocellulose (INC) from the

United Kingdom. This review covers one manufacturer/exporter of the

subject merchandise to the United States during the period July 1,

1996, through June 30, 1997.

We gave interested parties an opportunity to comment on our

preliminary results. Based on our analysis of the comments received, we

have changed the final results from those presented in the preliminary

results. The final results are listed below in the section Final

Results of the Review.

EFFECTIVE DATE: February 10, 1999.

FOR FURTHER INFORMATION CONTACT: Todd Peterson or Thomas Futtner,

Import Administration, International Trade Administration, U.S.

Department of Commerce, 14th Street and Constitution Avenue, NW,

Washington, D.C. 20230; telephone: (202) 482-4195 or 482-3814,

respectively.

Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are

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

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

Uruguay Round Agreements Act (URAA). In addition, unless otherwise

indicated, all citations to the Department's regulations are to 19 CFR

Part 351 (April 1998).

SUPPLEMENTARY INFORMATION:

Background

On August 7, 1998, the Department published in the Federal Register

(63 FR 42366) the preliminary results of the administrative review of

the antidumping order on industrial nitrocellulose (INC) from the

United Kingdom, 55 FR 28270 (July 10, 1990). We gave interested parties

an opportunity to comment on the Preliminary Results. On September 8,

1998, we received a case brief from Imperial Chemical Industries PLC

(ICI) (respondent). On September 9, 1998, we received a case brief from

Hercules Incorporated (petitioner). On September 14, 1998, we received

rebuttal case briefs from both respondent and petitioner. A hearing was

held September 16, 1998. Based on our analysis of the comments

received, we changed the final results from those presented in the

preliminary results as described below in ``Changes from the

Preliminary Results'' and ``Interested Party Comments'' sections of

this notice. The Department has now completed this administrative

review in accordance with section 751(a) of the Act.

Scope of Review

Imports covered by this review are shipments of INC from the United

Kingdom. INC is a dry, white amorphous synthetic chemical with a

nitrogen content between 10.8 and 12.2 percent, and is produced from

the reaction of cellulose with nitric acid. INC is used as a film-

former in coatings, lacquers, furniture finishes, and printing inks.

The scope of this order does not include explosive grade

nitrocellulose, which has a nitrogen content of greater than 12.2

percent.

INC is currently classified under Harmonized Tariff System (HTS)

subheading 3912.20.00. While the HTS item number is provided for

convenience and Customs purposes, the written description remains

dispositive as to the scope of the product coverage.

Changes From the Preliminary Results

The Department corrected an error by removing from the calculation

of NV sales to one affiliated customer that were not at arm's length.

See Comment 5.

[[Page 6610]]

The Department corrected a clerical error that involves units of

measure and affected the assessment rates. Rather than continuing to

convert U.S. net price to kilograms, as was done in the preliminary

determination, we have converted the foreign unit price to pounds. In

addition, because the respondent reported total entered value for each

transaction rather than on a per unit value, we did not multiply total

entered value for each sale by the quantity. See Comment 6.

Interested Party Comments

Comment 1

The respondent argues that the Department should reclassify ICI's

U.S. sales as export price (EP) for the final results. Respondent

argues that it's U.S. sales process for INC satisfies both the

statutory definition of EP sales and the three criteria set forth under

the Department's judicially approved test for EP classification.

Respondent asserts that based on the statutory definitions of both EP

and CEP in 19 U.S.C. sections 1677a(a) and 1677a(b) respectively, only

U.S. sales made ``before the date of importation'' can be classified as

EP. Respondent argues that because its U.S. sales of INC are made

before the date of importation, its U.S. sales meet the definitional

requirement for EP treatment.

Respondent also argues that the key distinction between EP and CEP

sales established by P.Q. Corp. v. United States, 652 F. Supp. 724,731

(Ct. Int'l Trade 1987) (PQ) is the involvement of affiliated entities

in the U.S. sales process. Respondent claims that ICI's U.S. sales

process satisfies the three criteria set forth under the Department's

test of EP classification established in PQ. The three criteria are as

follows: (1) The manufacturer must ship the merchandise directly to the

unrelated buyer, without introducing it into the related selling

agent's inventory; (2) this procedure must be the customary sales

channel between the related parties; (3) the related selling agent

located in the United States must act only as a processor of

documentation and a communication link with the unrelated buyer.

Respondent points to several court cases which it interprets to hold

that CEP and the test for it are applicable only where there is a

related selling agent, which is not the case in this review.

Respondent refers to the Statement of Administrative Action (SAA),

which states that ``constructed export price is * * * calculated to be,

as closely as possible, a price corresponding to an export price

between non-affiliated exporters and importers,'' to argue that because

the stated objective of the CEP calculation is to approximate a non-

affiliated price, it is ``inescapable'' that the affiliation is the

predicate that enables the CEP analysis. Respondent argues that because

the underlying goal of EP/CEP classification is to reconstruct at arm's

length the transaction between the exporter and its related importer,

the Department's decision to apply the third prong of the test to an

unaffiliated party is not supported by the legislative history for the

statute.

Respondent asserts that the Department's practice has been to apply

this test only to activities of affiliated parties. Respondent argues

that the record clearly supports the fact that the U.S. selling agent

is unaffiliated and that the Department itself referred to the U.S.

selling agent in question as ``unaffiliated'' in its verification

report and Memorandum dated July 22, 1998. Respondent argues that as a

result, the Department incorrectly applied the three-part test to sales

made through unaffiliated parties in the preliminary results.

Respondent then argues that even if the Department determines that

the analysis of the selling activities of unrelated parties is

appropriate, CEP treatment is still not appropriate given the

insignificant level of selling activities of ICI's U.S. selling agent.

Respondent asserts that the record does not support ICI's U.S. sales

agent's ``involvement in sales solicitation and price negotiation.''

Respondent claims that its U.S. selling agent has a very limited role

in sales of INC to the United States, and that there is no evidence on

the record to indicate that the U.S. selling agent solicits new

customers and sales. Respondent points to the verification report,

which states that it is the agent/distributors who place orders with

ICI America (ICIA), ICI's U.S. subsidiary on their own behalf. As for

price negotiation, respondent argues that CEP treatment is not

appropriate where the foreign producer rather than the U.S. affiliate

accepts or rejects the final sales terms to a U.S. Customer, as is the

case here, evidenced by the verification report.

Respondent argues that this review is different from Viscose Rayon

Staple Fiber from Finland (63 FR 32820), where the Department decided

to use CEP, because in that case there was no bona fide give and take

between the producer and the U.S. selling agent. In this case, there is

correspondence indicating a give and take between ICI and its U.S.

agent. See Department's June 28, 1998 Report on the United Kingdom

Sales Verification of ICI in the Third Administrative Review, at

exhibit 36.

Petitioner argues that the Department's classification of

respondent's U.S. sales as CEP was correct. Petitioner states that

according to 19 U.S.C. 1677a(a) and 1677a(b), U.S. sales made prior to

the date of importation can be either EP or CEP.

The petitioner also points to the three prong test used by the

Department to determine whether sales are EP or CEP. The criteria,

recently re-stated in Certain Cold-Rolled and Corrosion-Resistant

Carbon Steel Flat Products From Korea: Final Results of Antidumping

Duty Administrative Reviews 63 FR 13170 (March 18, 1998) (Cold Rolled

Steel) and validated by the Court of International Trade in Mitsubishi

Heavy Industries, Ltd. v. United States (``Mitsubishi''), 15 F.Supp. 2d

807 (CIT 1998) include the following: whether (1) the goods were

shipped directly from the manufacturer to the U.S. customer; (2) this

was the customary commercial channel between the parties; and (3) the

U.S. sales agent was functioning merely as a ``processor of sales-

related documentation'' and ``communications link'' with the

unaffiliated U.S. buyer. If any of the three criteria are not met, the

Department considers the U.S. sales agent not to be ancillary to the

sales process and therefore, the Department classifies the sales as

CEP.

Petitioner cites Viscose Rayon Staple Fiber From Finland: Final

Results of Antidumping Duty Administrative Review 63 FR 32820 (June 16,

1998) (Viscose from Finland), where the Department determined that U.S.

sales were CEP by applying the statutory definition of CEP and the

Department's three-prong test to U.S. sales previously classified as

EP. Petitioner argues that this case is similar to Viscose from

Finland, and Cold-Rolled Steel because in those cases, the Department

re-evaluated the respondents' activities related to U.S. sales, which

had been categorized as EP sales in previous determinations, and

determined that the function of the U.S. selling agent was

substantially more than a ``processor of sales-related documentation''

and a ``communications link'' with the unaffiliated U.S. buyer.

Petitioner argues that whether or not ICI's U.S. representative is

affiliated or non-affiliated is irrelevant to the CEP vs. EP

determination. It is the role that the U.S. sales agent acts on behalf

of the exporter which is important. In Stainless Steel Wire From Spain:

Notice of Final Determination of Sales at Less Than Fair Value 63 FR

40391 (July 29, 1998), the Department stated: ``When

[[Page 6611]]

sales are made prior to importation through an affiliated or

unaffiliated U.S. sales agent to an unaffiliated customer in the United

States, our practice is to examine several criteria in order to

determine whether the sales are EP sales.'' (emphasis added).

Petitioner points to several recent notices, including Viscose from

Finland, where the Department either referred to the U.S. selling agent

as ``affiliated or unaffiliated U.S. sales agent'' or simply as ``U.S.

sales agent''.

Petitioner argues that the Department correctly applied its three-

prong test to determine that respondent's U.S. sales were CEP

transactions. Petitioner maintains that in order to qualify as EP

sales, U.S. sales must pass all three prongs of the Departments test.

While there is no dispute that ICI's U.S. sales pass the first two

prongs, petitioner argues that numerous facts on the record show that

ICI's U.S. sales agent is more than ``ancillary'' to the U.S. sales

process. In fact, its activities constitute ``substantial involvement''

in the sales process and support the Departments determination of CEP

sales.

Furthermore, petitioner argues that because ICI's U.S. sales agent

made U.S. sales ``on behalf of the producer or exporter'' the sale is,

by definition, a CEP sale. Petitioner argues that the statute includes

activities of U.S. sales agents exactly like ICI's U.S. sales agent in

the definition of CEP. Petitioner points to various services on the

record performed by ICI's U.S. sales agent to support their claim.

In its rebuttal brief, respondent argues that two cases cited by

petitioner, Cold Rolled Steel and Mitsubishi, support respondent's

position that the Department's third prong has been only applied to the

activities of U.S. affiliates and never to unaffiliated entities.

Respondent refers to the CIT's statement in Mitsubishi that ``the test

reflects that the key distinction between EP and CEP is the

relationship between the exporter and the importer.''

Respondent further argues that both petitioner and the Department

are incorrect to characterize ICI's U.S. sales agent as being

substantially involved in the sales process. Respondent points to

several verification exhibits, See U.K. Verification Report, which it

claims demonstrate that the U.S. sales agent is not substantially

involved in the sales process. Respondent refutes petitioner's claim

that all sales are made through the agent. Rather, respondent claims

that all sales are made through ICIA and not the agent. Respondent

points to the Department's U.K. Verification Report to correct what

respondent alleges are misrepresentations made by petitioner with

regard to the selling agent's activities and role in the U.S. sales

process of INC.

Department's Position

We agree with the petitioners. In our preliminary results of

review, we examined the facts of this case in light of the statutory

definitions of EP and CEP sales. Section 772(b) of the Act, as amended,

defines CEP as ``the price at which the subject merchandise is first

sold (or agreed to be sold) in the United States before or after the

date of importation by or for the account of the producer or exporter

of such merchandise or by a seller affiliated with the producer or

exporter, to a purchaser not affiliated with the producer or exporter,

as adjusted'' (emphasis added). Section 772(a) of the Act defines EP as

``the price at which the subject merchandise is first sold (or agreed

to be sold) before the date of importation by the producer or exporter

of the subject merchandise outside of the United States to an

unaffiliated purchaser in the United States, or to an unaffiliated

purchaser for exportation to the United States, as adjusted.''

As the statutory definitions state, sales before importation can be

classified as either EP or CEP sales. Moreover, the CEP definition

expressly encompasses sales made on behalf of the exporter or an

affiliated party. Thus, affiliation is not the key. To the contrary,

for sales prior to importation, the decisive factor is where the

selling activity takes place, i.e., in or outside the United States.

Distinguishing EP and CEP transactions based on where selling activity

takes place is consistent with the purpose of ensuring that, where

appropriate, expenses related to selling activity in the United States

are deducted to reach a constructed ``export'' price.

Furthermore, based on the Department's practice, we examine several

criteria for determining whether sales made prior to importation

through a sales agent to an unaffiliated customer in the United States

are EP sales, including: (1) Whether the merchandise was shipped

directly from the manufacturer to the unaffiliated U.S. customer; (2)

whether this was the customary commercial channel between the parties

involved; and (3) whether the function of the U.S. selling agent was

limited to that of a ``processor of sales-related documentation'' and a

``communications link'' with the unaffiliated U.S. buyer. Where all

three criteria are met, indicating that the activities of the U.S.

selling agent are ancillary to the sale, the Department has regarded

the routine selling functions of the exporter as merely having been

relocated geographically from the country of exportation to the United

States where the sales agent performs them, and has determined the

sales to be EP sales. Where one or more of these conditions are not

met, indicating that the U.S. sales agent is substantially involved in

the U.S. sales process, the Department has classified the sales in

question as CEP sales. (See, e.g., Viscose Rayon Staple Fiber from

Finland: Final Results of Antidumping Duty Administrative Review, 63 FR

32820, 32821 (June 16 1998); Certain Cold-Rolled and Corrosion-

Resistant Carbon Steel Flat Products from Korea: Final Results of

Antidumping Duty Administrative Reviews, 63 FR 13170 (March 18, 1998).)

The crucial distinction lies in the last factor, i.e., whether the

entity in the United States acted only as a processor of documentation

and a communication link. This factor entails a fact-based analysis to

determine whether the entity in the United States is actually engaged

in significant selling activities, in which case CEP applies, or is

merely performing ancillary functions for a foreign seller, in which

case EP is appropriate.

Our analysis of the facts indicates that, while ICI's U.S. sales

meet the first two conditions, they fail to meet the third one. ICI

engaged a U.S. selling agent who is substantially involved in the

process of selling INC in the U.S. Discussion of the agent's selling

activities in a public notice is not possible due to their proprietary

nature. For a complete discussion of the classification of ICI's U.S.

sales including a discussion of the agent's role in pricing decisions,

See Memorandum to Holly Kuga, January 29, 1999.

The Department looks at the totality of the evidence to determine

whether an agent's role in the sales process is beyond an ancillary

role. Therefore, even if the agent's role is not autonomous with

respect to the final sales terms as respondent claims, this does not

mean that its role in the process is ancillary. (See Final Results of

Antidumping Reviews: Certain Cold-Rolled and Corrosion-Resistant Carbon

Steel Flat Products from Korea, 63 FR 13170 (March 18, 1998).) Because

selling activities of ICI's agent were more than ancillary to the sales

process in the U.S., we determine that ICI's U.S. selling agent is

substantially involved in the sales process for INC, i.e., the function

of the U.S. selling agent is not limited to that of a ``processor of

sales-related documentation'' and a

[[Page 6612]]

``communications link'' with the unaffiliated U.S. buyer.

While a sales agent, even one unaffiliated in an equity sense, can

be an affiliated party within the meaning of section 771(33) (see

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

Engineered Process Gas Turbo-Compressor Systems, Whether Assembled or

Unassembled, and Whether Complete or Incomplete, from Japan, 62 FR

24394, 24403 (May 5, 1997); Final Determination of Sales at Less Than

Fair Value: Furfuryl Alcohol From South Africa, 60 FR 22550 (May 8,

1995)), the question of affiliation is not decisive in determining

whether CEP treatment is appropriate. As the language in Section 772(b)

of the Act states, CEP methodology is required if the subject

merchandise is first sold (or agreed to be sold) in the United States

``by or for the account of the producer or exporter of such merchandise

or by a seller affiliated with the producer or exporter.'' (emphasis

added). As a result, if, as in this case, an entity in the U.S. is

substantially involved in selling in the United States on behalf of or

for the account of the producer, CEP methodology is required.

Accordingly, we have determined that the price for ICI's U.S. sales of

INC are CEP.

Comment 2

Respondent claims that the Department has fundamentally departed

from its longstanding methodology for EP/CEP classification in prior

administrative reviews by shifting the focus from the related importer

to an unaffiliated entity. Respondent argues that this departure from

the Department's methodology for EP/CEP classification denies

respondent ICI due process and violates agency practice. Respondent

argues that for the preliminary results in this review, the Department

applied the same methodology of the three prong test to essentially the

same facts, as in previous reviews, but reached the opposite

conclusion. Further, the only factual difference between this review

and the previous two, where the Department treated ICI's sales as EP,

is that the U.S. sales agent is unquestionably unaffiliated. Respondent

argues that the Department can not arbitrarily abandon a methodology

without a relevant change in the facts presented, or at least provide

an explanation for changing its practice. See Cinsa v. United States,

966 F. Supp. 1230, 1238 (Ct Int'l Trade 1997)(Cinsa). Respondent

asserts that the Department's CEP determination is arbitrary because

the change is unsupported by any factual findings except the fact that

the U.S sales agent is now unaffiliated which gives only more weight to

the sales being classified as EP.

Respondent argues that the Department's change in EP/CEP

methodology is unwarranted because it does not represent an improved

basis for EP/CEP calculations, and violates principles of

administrative equity. See Shikoku Chemicals v. United States, 795 F.

Supp. 417, 418-19 (Ct Int'l Trade 1992). Since ICI was not notified of

a Departmental change in the EP/CEP analysis, ICI was not given the

opportunity to fully develop the administrative record to support its

EP claim, nor relevant adjustments to CEP sales such as CEP profit and

CEP offset. Respondent argues that principles of procedural fairness

dictate that when an agency changes its methodology, interested parties

must have advance notice and an opportunity to present relevant factual

information on the record addressing the new methodology.

Petitioner argues that the Department's actions were procedurally

fair and protected respondent's right to due process. Petitioner points

to Asociacion Colombiana de Exportadores de Flores, et al. v. United

States 6F. Supp. 2nd 865, 1998 Ct.Int. Trade Slip Op. 98-33, March 25,

1998, dated as Amended June 29, 1998, which articulated the CIT's

standard of review for the Department's decisions under the antidumping

law: (1) Whether the Department's determination was in accordance with

law, and (2) whether the Departments conclusions are based on

substantial evidence on the record. In this case, petitioner argues,

the statutory definition of CEP is clear and unambiguous. As to the

second point, petitioner points to substantial evidence on the record

which justifies the Department's CEP determination.

Petitioner argues that the three prong test that the Department

uses to determine whether a respondent's sales are EP or CEP is not new

and has been consistently used and approved by the court. The

Department is free to apply the three prong test in each review and

base the results on the facts in that review, not on the facts in the

preceding reviews. Furthermore, petitioner argues that the respondent

was aware of the Department's reconsideration of its U.S. sales because

the Department requested additional information including activities of

ICI's U.S. sales agent and data on indirect selling expenses for U.S.

sales.

Department's Position

In essence, respondent argues that because we applied EP

methodology in prior reviews, it is unfair to apply in the current

review what they argue is a new, broader CEP test which encompasses

unaffiliated parties. We disagree on several grounds. First, as

discussed above in response to Comment 1, section 772(b) of the current

statute expressly requires CEP methodology where sales are made in the

United States on behalf of the foreign producer, regardless of whether

the entity selling in the United States is an affiliate. Thus, we have

in recent cases more closely scrutinized the selling activities of

parties in the United States, whether or not they are affiliated, to

ensure that we are correctly applying the statute. See Roller Chain,

Other Than Bicycle From Japan; Preliminary Results and Partial

Recission of Antidumping Duty Administrative Review, 63 FR 25450, 25457

(May 8, 1998); Notice of Final Determination of Sales at Less Than Fair

Value: Stainless Steel Wire Rod From Spain, 63 FR 40391, 40395 (July

29, 1998); See also, Viscose from Finland. To the extent that

respondent views this as a change in policy, we note that it is a basic

principle of administrative law that an agency may change its policies

and practices as long as it articulates the reasons for doing so. See

British Steel Plc v. United States, 127 F.3rd 1471, 1475 (Fed. Cir.

1997).

Further, each review is a separate segment of the proceeding with a

separate and distinct factual record. Respondent had ample opportunity

in this review to present information and arguments pertaining to CEP

treatment, as is evident from its questionnaire responses and case

brief. As discussed in Comment 1, above, the issue is not affiliation,

but rather the role of the agent in the U.S. sales process and the

facts on record in this review support our conclusion that the role of

ICI's agent in the United States is substantial. Therefore, CEP

treatment is warranted. In any event, we note that respondent's

assertion that the U.S. agent is unaffiliated is not necessarily

accurate. Affiliation is not limited to equity relationships; it also

encompasses relationships in which one party controls another. However,

because affiliation is not key to an analysis of whether CEP treatment

is warranted, it was not necessary for the Department to determine

whether any basis for a finding of affiliation between ICI and the

selling agent exists to resolve this issue.

Comment 3

Respondent argues that if the Department continues to classify

ICI's U.S. sales as CEP, then the Department should only deduct the

payment to ICI's U.S. selling agent. Respondent asserts

[[Page 6613]]

that if the Department continues its methodology where it shifts its

focus from the activities of the U.S. affiliate to the activities of an

unrelated party, then it must make a similar shift in the universe of

expenses to be deducted from CEP. Since the Department based its CEP

determination on the activities of its unrelated U.S. selling agent,

the only expense which the Department can deduct from CEP is the annual

payment to the unrelated U.S. selling agent.

Respondent points to Certain Cut-to-Length Carbon Steel Plate from

Germany, 62 FR 18390 (April 15, 1997), where the Department focused on

the activities of the U.S. affiliate in determining classification of

CEP sales and based CEP deductions on selling expenses incurred by the

U.S. affiliate that engaged in the selling activities. Respondent

argues that because the Department didn't base its CEP determination on

the activities of ICIA, there is no reason to deduct any of ICIA's

expenses .

Petitioner disagrees with respondent's claim that only the payment

to ICI's U.S. selling agent should be deducted. Petitioner agrees with

the Department's methodology in the preliminary results. Petitioner

maintains that failing to deduct all U.S. selling and indirect expenses

would result in an artificially high U.S. price. It would exclude from

the dumping margin calculation a significant cost to the respondent's

sale in the U.S. market, while including the cost in the other market.

Departments Position

We agree with the petitioner. Under section 772(d)(1), CEP must be

reduced by the amount of direct and indirect selling expenses

associated with economic activity in the United States. See also The

Statement of Administrative Action Accompanying the Uruguay Round

Agreements Act at 823. Thus, all direct and indirect selling expenses

incurred in connection with a sale to the unaffiliated U.S. customer

must be deducted to arrive at the CEP. The indirect selling expenses of

ICIA (e.g., order processing) were incurred in connection with the sale

to the unaffiliated U.S. customer. Therefore, we have deducted those

expenses in calculating the CEP. For a complete description of ICIA's

U.S. expenses related to selling the subject merchandise to the United

States, see ICI's Supplemental Questionnaire Response, April 3, 1998,

Exhibit C-16.

Comment 4

Respondent argues that if the Department persists in treating ICI's

U.S. sales as CEP transactions, ICI is entitled to a CEP offset to

account for differences between the home market level of trade (LOT)

and the LOT of the CEP. ICI is entitled to a CEP offset adjustment

pursuant to Section 1667b(a)(7)(B) because (1) sales in the home market

occur at a different, non-comparable LOT; (2) a LOT adjustment

completely accounts for the differences between the levels of trade in

the U.S. and home market (3) the LOT in the comparison market is more

remote than the CEP LOT; and (4) there is adequate information in the

record to make the CEP offset.

Respondent argues that the Department incorrectly concluded in its

preliminary results that the normal value (NV) LOT was identical to the

CEP LOT. Respondent claims that vastly different sales efforts are

involved in selling to home market customers and so, more expenses are

incurred in selling to the home market than are incurred in making CEP

sales to ICIA. ICI's CEP selling expenses are limited to communication

expenses resulting from order entries because all sales were to its

wholly-owned subsidiary unlike home market sales which were to

unaffiliated end-users. Respondent asserts that ICI's home market sales

are more remote in the chain of distribution than are sales at the CEP

LOT, and that this is demonstrated by the significantly greater number

of selling functions performed in connection with home market sales as

compared to the functions involved in making CEP sales to ICIA.

Respondent asserts that in its home market, ICI incurs selling expenses

which include sales personnel, customer service representatives and

technicians, and marketing activities to expand sales, while its U.S.

expenses consist of significantly fewer functions and thus, less

expenses.

Petitioner disagrees. In the preliminary results, the Department

determined that all of respondent's sales in the U.S. and the home

markets were at the same LOT. Petitioner argues that this determination

was based on respondent's response to the questionnaire. In its

response, respondent said that it sells to end-users and distributors

in both markets, identical services are provided in both markets, and

there are identical channels of trade in both markets. (See

Questionnaire Response, October 31, 1997). Therefore a LOT adjustment

is not necessary.

Department's Position

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

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

the same LOT as the EP or CEP transaction. The NV LOT is that of the

starting-price sales in the comparison market or when NV is based on

constructed value, the LOT is that of the sales from which we derive

selling, general and administrative expenses and profit. For CEP, it is

the level of the constructed sale from the exporter to the importer.

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

Certain Cut-to-Length Carbon Steel Plate from South Africa, 62 FR 61731

(November 19, 1997) (Carbon Steel Plate). The statute and the SAA

support analyzing the LOT of CEP sales at the level of the constructed

sale to the U.S. importer--that is, the level after expenses associated

with economic activities in the United States have been deducted

pursuant to section 772(d) of the Act. The Department has adopted this

interpretation in previous cases. See e.g. Dynamic Random Access Memory

Semiconductors of One Megabit or Above From the Republic of Korea;

Final Results of Antidumping Duty Administrative Review, Partial

Rescission of Administrative Review and Notice of Determination Not to

Revoke Order, 63 FR 50872 (September 23, 1998).

To evaluate the LOT, we examined information regarding the

distribution systems in both the U.S. and U.K. markets, including the

selling functions, classes of customer, and selling expenses for the

respondent. Customer categories such as distributors, retailers, or

end-users are commonly used by petitioners and respondents to describe

different LOTs, but, without substantiation, they are insufficient to

establish that a claimed LOT is valid. An analysis of the chain of

distribution and of the selling function substantiates or invalidates

the claimed LOTs.

Our analysis of the marketing process in both the home market and

the United States begins with goods being sold by the producer and

extends to the sale of the final user. The chain of distribution

between the producer and the final user may have many or few links, and

each respondent's sales occur somewhere along this chain. We review and

compare the distribution systems in the home market and the United

States, including selling functions, class of customer, and the extent

and level of selling expenses for each claimed LOT.

Unless we find that there are different selling functions for sales

to the U.S. and home market sales, we will not determine that there are

separate LOTs. Different LOTs necessarily involve differences in

selling functions, but differences in selling functions, even

[[Page 6614]]

substantial ones, are not sufficient alone to establish a difference in

the LOTs. Differences in LOTs are characterized by purchasers at

different stages in the chain of distribution and sellers performing

qualitatively or quantitatively different functions in selling to them.

If the comparison-market sale is at a different LOT, and the

difference affects price comparability, as manifested in a pattern of

consistent price differences between the sales on which NV is based and

comparison-market sales at the LOT of the export transaction, we make a

LOT adjustment under section 773(a)(7)(A) of the Act. Finally for CEP

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

level and there is no basis for determining whether the difference in

the levels between NV and CEP affects price comparability, we adjust NV

under section 773(a)(7)(B) of the Act (the CEP offset provision).

We compared the channels of distribution and selling functions in

the U.S. and home markets. The channels of distribution are similar for

both markets with ICI selling mainly to end-user customers who use INC

in their manufacturing process. At the level of the constructed export

sale to the United States, i.e., after the deductions required under

section 772(d), we found the following selling activities were

performed by ICI: taking orders, order processing, issuing

confirmations, projecting ship dates, and arranging transportation. ICI

performs these same selling functions, plus invoicing, when selling in

the home market. Because the channels of distribution and selling

functions are essentially identical in both markets, we find that there

is no difference in the CEP and NV levels of trade. Because there is no

difference in level of trade, there is no basis for granting a CEP

offset.

Comment 5

Petitioner argues that the Department should correct a clerical

error, i.e., failure to remove non-arm's-length sales from calculation

of NV. In the preliminary results the Department stated that it

``excluded sales to one affiliated customer in calculating NV because

we determined that sales to this customer were not made at arm's-length

prices (i.e., at prices comparable to prices at which the firm sold

identical merchandise to unaffiliated customers).'' The Preliminary

Results Analysis Memorandum to the File similarly discusses the

exclusion of non-arm's-length sales from the calculation of NV.

However, an error in the program resulted in the inclusion of non-

arm's-length sales from the calculation of NV.

The respondent did not comment.

Department's Position

The Department agrees with the petitioner and has corrected this

error by excluding sales to one affiliated customer in calculating NV

because we determined that sales to this customer were not made at

arm's-length prices.

Comment 6

Petitioner argues that the Department should correct a clerical

error made in calculating the assessment rate. Petitioner asserts that

the Department inadvertently multiplied total entered value for each

sale by the quantity, which was not necessary because respondent

reported total entered value for each transaction, rather than a per

unit value.

Respondent argues that there is an error in the calculation of the

commission offset that should be corrected. The error results in the

incorrect comparison of kilograms to pounds. The respondent argues that

the U.S. commission field should be converted to kilograms to make a

valid comparison. Respondent further argues that two variables, EMARGIN

and VALUE, are incorrect because a variable used to create them was

based on pounds rather than kilograms. Respondent adds that the

quantity listed in section I of the Preliminary Results Analysis

Memorandum to the File should be expressed in pounds, not kilograms.

Department's Position

We agree with both respondent and petitioner that there is a

clerical error that involves the assessment rates and the units of

measure. However, we disagree with respondent on the solution. Rather

than continuing to convert U.S. net price to kilograms, as was done in

the preliminary determination, and make the changes requested by

respondent, we have converted the foreign unit price to pounds. This is

the standard method of weight conversion used in the standard program.

In addition, since respondent reported total entered value for each

transaction, rather than on a per unit value, we did not multiply total

entered value for each sale by the quantity.

Final Results of the Review

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

exists for the period of July 1, 1996 through June 30, 1997:

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

Margin

Manufacturer/exporter (percent)

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

Imperial Chemicals Industries PLC.......................... 18.2

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

The Department shall determine, and the Customs Service shall

assess, antidumping duties on all appropriate entries. The Department

shall issue appraisement instructions directly to the Customs Service.

For assessment purposes, we have calculated an importer-specific duty

assessment rate based on the ratio of the total amount of antidumping

duties calculated for the examined sales to the total entered value of

the same sales. The rate will be assessed uniformly on all entries of

that particular company made during the POR.

The following deposit requirements shall be effective upon

publication of this notice of final results of review for all shipments

of industrial nitrocellulose from the United Kingdom entered, or

withdrawn from warehouse, for consumption on or after the publication

date, as provided for by section 751(a)(1) of the Act: (1) The cash

deposit rate for the reviewed company will be the rate listed above;

(2) for previously reviewed or investigated companies not listed above,

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

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

covered in this review, a prior review, or the original less-than fair-

value (LTFV) investigation, but the manufacturer is, the cash deposit

rate will be the rate established for the most recent period for the

manufacturer of the merchandise; and (4) for all other producers and/or

exporters of this merchandise, the cash deposit rate shall be 11.13

percent, the ``all others'' rate established in the LTFV investigation

(55 FR 21058, May 22, 1990). These deposit requirements shall remain in

effect until publication of the final results of the next

administrative review.

This notice serves as a final reminder to importers of their

responsibility under 19 CFR 351.402(f) of the Department's regulations

to file a certificate regarding the reimbursement of antidumping duties

prior to liquidation of the relevant entries during this review period.

Failure to comply with this requirement could result in the Secretary's

presumption that reimbursement of antidumping duties occurred and the

subsequent assessment of doubled antidumping duties.

[[Page 6615]]

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

administrative protective order (APO) of their responsibility

concerning the disposition of proprietary information disclosed under

APO in accordance with 19 CFR 353.34(d) of the Department's

regulations. Timely notification of return/destruction of APO materials

or conversion to judicial protective order is hereby requested. Failure

to comply with the regulations and the terms of an APO is a

sanctionable violation.

This administrative review and notice are in accordance with

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

Dated: February 3, 1999.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 99-3279 Filed 2-9-99; 8:45 am]

BILLING CODE 3510-DS-P