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

DEPARTMENT OF COMMERCE

International Trade Administration

[A-557-805]

Extruded Rubber Thread From Malaysia; Final Results of

Antidumping Duty Administrative Review

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

SUMMARY: On November 9, 1998, the Department of Commerce published in

the Federal Register the preliminary results of the administrative

review of the antidumping duty order on extruded rubber thread from

Malaysia. This review covers four manufacturers/exporters of the

subject merchandise to the United States (Filati Lastex Elastofibre

(Malaysia) (Filati), Heveafil Sdn. Bhd./Filmax Sdn. Bhd (collectively

Heveafil), Rubberflex Sdn. Bhd. (Rubberflex), and Rubfil Sdn. Bhd.

(Rubfil)). The period of review (POR) is October 1, 1996, through

September 30, 1997.

We gave interested parties an opportunity to comment on our

preliminary results. We have based our analysis on the comments

received and have changed the results from those presented in the

preliminary results of review.

EFFECTIVE DATE: March 16, 1999.

FOR FURTHER INFORMATION CONTACT: Shawn Thompson or Irina Itkin, AD/CVD

Enforcement Group II, Office 5, Import Administration, International

Trade Administration, U.S. Department of Commerce, 14th Street and

Constitution Avenue, NW, Washington, DC 20230; telephone (202) 482-1776

or (202) 482-0656, respectively.

SUPPLEMENTARY INFORMATION:

Background

On November 9, 1998, the Department of Commerce (the Department)

published in the Federal Register its preliminary results of the 1996-

1997 administrative review of the antidumping duty order on extruded

rubber thread from Malaysia (63 FR 60295). The Department has now

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

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

Scope of the Review

The product covered by this review is extruded rubber thread.

Extruded rubber thread is defined as vulcanized rubber thread obtained

by extrusion of stable or concentrated natural rubber latex of any

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

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

Extruded rubber thread is currently classifiable under subheading

4007.00.00 of the Harmonized Tariff Schedule of the United States

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

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

dispositive.

Applicable Statute and Regulations

Unless otherwise indicated, all citations to the Act are references

to the provisions effective January 1, 1995, the effective date of the

amendments made to the Act by the Uruguay Round Agreements Act (URAA).

In addition, unless otherwise indicated, all citations to the

Department's regulations are to the regulations codified at 19 CFR part

351 (1998).

Facts Available

A. Rubfil

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

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

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

Department's questionnaire, issued in November 1997. Because Rubfil did

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

otherwise available to calculate Rubfil's dumping margin.

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

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

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

Statement of Administrative Action accompanying the URAA, H.R. Rep. No.

316, 103rd Cong., 2d Sess. 870 (SAA). The failure of Rubfil to reply to

the Department's questionnaire demonstrates that it has failed to act

to the best of its ability in this review and, therefore, an adverse

inference is warranted.

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

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

This rate is 54.31 percent.

B. Corroboration of Secondary Information

As facts available in this case, the Department has used

information derived from a prior administrative review, which

constitutes secondary information within the meaning of the SAA. See

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

shall, to the extent practicable, corroborate secondary information

from independent sources reasonably at its disposal. The SAA provides

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

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

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

To corroborate secondary information, the Department will, to the

extent practicable, examine the reliability and relevance of the

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

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

sources for calculated dumping margins. Thus, in an administrative

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

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

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

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

corroboration, however, the Department will consider information

reasonably at its disposal as to whether there are circumstances that

would render a margin not relevant. Where circumstances indicate that

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

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

Cut Flowers from Mexico; Final Results of Antidumping Duty

Administrative Review, 61 FR 6812, 6814 (February 22, 1996) (where the

Department disregarded the highest margin as adverse best information

available because the margin was based on another company's

uncharacteristic business expense resulting in an unusually high

margin).

For Rubfil, we examined the rate applicable to extruded rubber

thread from Malaysia throughout the course of the proceeding. With

regard to its probative value, the rate specified above is reliable and

relevant because it is a calculated rate from the 1994-1995

administrative review. There is no information on the record that

demonstrates that the rate selected is not an appropriate total adverse

facts available rate for Rubfil. Thus, the Department considers this

rate to be appropriate adverse facts available.

Normal Value Comparisons

To determine whether sales of extruded rubber thread from Malaysia

to

[[Page 12968]]

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

the constructed export price (CEP) to the NV for Filati, Heveafil, and

Rubberflex, as specified in the ``Constructed Export Price'' and

``Normal Value'' sections of this notice.

When making comparisons in accordance with section 771(16) of the

Act, we considered all products sold in the home market as described in

the ``Scope of the Review'' section of this notice, above, that were in

the ordinary course of trade for purposes of determining appropriate

product comparisons to U.S. sales. Where there were no sales of

identical merchandise in the home market made in the ordinary course of

trade to compare to U.S. sales, we compared U.S. sales to sales of the

most similar foreign like product made in the ordinary course of trade,

based on the characteristics listed in sections B and C of our

antidumping questionnaire.

Level of Trade and CEP Offset

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

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

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

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

when NV is based on constructed value (CV), that of the sales from

which we derive selling, general and administrative expenses (SG&A) and

profit. For EP, the U.S. level of trade is also the level of the

starting-price sale, which is usually from the exporter to importer.

For CEP, it is the level of the constructed sale from the exporter to

the importer.

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

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

selling functions along the chain of distribution between the producer

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

different level of trade and the difference affects price

comparability, as manifested in a pattern of consistent price

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

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

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

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

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

difference in the levels between NV and CEP affects price

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

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

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

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

Filati, Heveafil, and Rubberflex claimed that they made home market

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

manufacturers). In order to determine whether NV was established at a

level of trade which constituted a more advanced state of distribution

than the level of trade of the CEP, we compared the selling functions

performed for home market sales with those performed with respect to

the CEP transactions which exclude economic activities occurring in the

United States. We found that Filati, Heveafil, and Rubberflex performed

essentially the same selling functions in their sales offices in

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

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

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

which represents an F.O.B. foreign port price after the deduction of

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

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

granted a CEP offset to any of the respondents. For a detailed

explanation of this analysis, see the concurrence memorandum issued for

the preliminary results of this review, dated November 2, 1998. Also

see Comment 2 in the ``Analysis of Comments Received'' section of this

notice.

Constructed Export Price

For all sales by Filati, Heveafil, and Rubberflex, we based the

starting price on CEP, in accordance with section 772(b) of the Act.

For Filati, we have treated sales shipped directly from Malaysia to the

U.S. customer as CEP sales because we find that the extent of the

affiliate's activities performed in the United States in connection

with these sales is significant. For further discussion, see Comment 1

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

In addition, for all three companies, we revised the reported data

based on our findings at verification.

A. Filati

We calculated CEP based on the starting price to the first

unaffiliated purchaser in the United States. In accordance with section

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

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

appropriate, for rebates. In addition, where appropriate, we made

deductions for foreign inland freight, foreign brokerage and handling

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

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

warehousing expenses, in accordance with section 772(c)(2)(A) of the

Act.

We made additional deductions to CEP, where appropriate, for

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

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

Act. We disallowed an offset claimed by Filati relating to imputed

costs associated with financing antidumping and countervailing duty

deposits, in accordance with the Department's practice. See Extruded

Rubber Thread from Malaysia; Final Results of Antidumping Duty

Administrative Review, 63 FR 12752, 12754, 12758 (Mar. 16, 1998)

(Thread Fourth Review); and Antifriction Bearings (Other Than Tapered

Roller Bearings) and Parts Thereof from France, Germany, Italy, Japan,

Romania, Singapore, Sweden and the United Kingdom; Final Results of

Antidumping Duty Administrative Reviews, 62 FR 54043, 54075 (Oct. 17,

1997) (AFBs). Also see Comment 3 in the ``Analysis of Comments

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

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

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

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

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

subject merchandise in the United States and the foreign like product

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

B. Heveafil

In cases where Heveafil shipped merchandise directly from Malaysia

to U.S. customers, we used the bill of lading date as the date of sale

for these shipments, rather than the date of the U.S. invoice as

reported. For these shipments, we find that there is a long lag time

between the date of shipment to the customer and the date of invoice.

Therefore, in accordance with our policy and consistent with the

preliminary results, we used the bill of lading date as the date of

sale. See the concurrence memorandum issued for the preliminary results

of this review, dated November 2, 1998, for further discussion.

We calculated CEP based on the starting price to the first

unaffiliated customer in the United States. In accordance with section

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

duties in Malaysia.

[[Page 12969]]

We made deductions from the starting price, where appropriate, for

rebates. We also made deductions for foreign inland freight, foreign

brokerage and handling expenses, ocean freight, marine insurance, U.S.

customs duty, U.S. brokerage and handling expenses, U.S. inland

freight, and U.S. warehousing expenses, in accordance with section

772(c)(2)(A) of the Act.

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

expenses, repacking expenses, U.S. indirect selling expenses, and U.S.

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

Act. Regarding indirect selling expenses, we disallowed an offset

claimed by Heveafil relating to imputed costs associated with financing

antidumping and countervailing duty deposits, in accordance the

Department's practice. See Thread Fourth Review and AFBs.

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

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

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

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

the subject merchandise in the United States and the foreign like

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

C. Rubberflex

We calculated CEP based on the starting price to the first

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

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

for foreign inland freight, foreign brokerage and handling expenses,

ocean freight, marine insurance, U.S. customs duty, U.S. inland

freight, and U.S. warehousing expenses, in accordance with section

772(c)(2)(A) of the Act.

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

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

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

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

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

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

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

the subject merchandise in the United States and the foreign like

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

Normal Value

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

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

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

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

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

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

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

on this comparison, we determined that each respondent had a viable

home market during the POR. Consequently, we based NV on home market

sales.

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

grounds to believe or suspect that Filati, Heveafil, and Rubberflex had

made home market sales at prices below their COPs in this review

because the Department had disregarded sales below the COP for these

companies in the most recently completed administrative review. See

Thread Fourth Review. As a result, the Department initiated an

investigation to determine whether the respondents made home market

sales during the POR at prices below their respective COPs.

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

materials and fabrication for the foreign like product, plus amounts

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

Act.

Except as follows, we used the respondents' reported COP amounts to

compute weighted-average COPs during the POR:

Regarding the COP data reported by Filati, we found that in certain

instances Filati reported multiple costs for a single control number.

In those cases, we used the higher of the costs for purposes of the

final results. In addition, we disallowed a portion of an offset

claimed by Filati to its reported financing expenses because Filati was

unable to demonstrate at verification that this offset was related to

short-term income. See Comment 8.

Regarding the COP data reported by Heveafil, we reclassified

certain variable overhead expenses as fixed overhead, based on our

findings at verification. We also adjusted the company's financing

expenses to reflect our findings at verification. Finally, as facts

available we increased the material costs reported for one product by

the percentage by which the reported costs differed from the standard

costs observed at verification. See Comment 10.

Regarding the COP data reported by Rubberflex, we increased these

costs to include a portion of the 1997 year-end adjustments made by the

company's auditors. See Comment 12.

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

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

Act, in order to determine whether these sales had been made at prices

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

market prices, less any applicable movement charges and discounts.

In determining whether to disregard home market sales made at

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

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

prices which permitted the recovery of all costs within a reasonable

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

the Act.

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

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

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

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

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

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

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

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

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

prices which would permit recovery of all costs within a reasonable

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

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

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

of that product.

In this review segment, we found that, for certain models of

extruded rubber thread, more than 20 percent of each respondent's home

market sales within an extended period of time were at prices less than

COP. Further, the prices did not provide for the recovery of costs

within a reasonable period of time. We therefore disregarded the below-

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

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

Company-specific calculations are discussed below.

A. Filati

In all instances, NV for Filati was based on home market sales.

Accordingly, we based NV on the starting price to unaffiliated

customers. We made deductions from the starting price for rebates,

where appropriate. We also made deductions, where appropriate, for

foreign inland freight,

[[Page 12970]]

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

773(a)(6)(C)(iii) of the Act, we also made deductions for home market

credit expenses and bank charges. Where applicable, in accordance with

19 CFR 351.410(e), we offset any commission paid on a U.S. sale by

reducing the NV by the amount of home market indirect selling expenses

and inventory carrying costs, up to the amount of the U.S. commission.

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

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

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

physical characteristics of the merchandise, in accordance with section

773(a)(6)(C)(ii) of the Act and 19 CFR 351.411.

B. Heveafil

In all instances, NV for Heveafil was based on home market sales.

Accordingly, we based NV on the starting price to unaffiliated

customers. We made deductions from the starting price for discounts,

where appropriate. We also made deductions for foreign inland freight

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

Act. Pursuant to section 773(a)(6)(C)(iii) if the Act, we also made

deductions for home market credit expenses and bank charges.

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

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

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

physical characteristics of the merchandise, in accordance with section

773(a)(6)(c)(ii) of the Act and 19 CFR 351.411.

C. Rubberflex

In all instances, NV for Rubberflex was based on home market sales.

Accordingly, we based NV on the starting price to unaffiliated

customers. We made deductions from the starting price for foreign

inland freight and foreign inland insurance, pursuant to section

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

Act, we also made deductions for home market credit expenses.

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

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

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

physical characteristics of the merchandise, in accordance with section

773(a)(6)(c)(ii) of the Act and 19 CFR 351.411.

Currency Conversion

We made currency conversions into U.S. dollars based on the

exchange rates in effect on the dates of the U.S. sales as certified by

the Federal Reserve Bank.

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

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

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

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

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

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

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

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

Analysis of Comments Received

We gave interested parties an opportunity to comment on the

preliminary results. We received comments from North American Rubber

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

also received rebuttal comments from the petitioner, Filati, Heveafil,

and Rubberflex.

A. Filati

Comment 1: Treatment of Direct Container Sales

During the POR, Filati shipped certain sales directly from the

factory in Malaysia to its U.S. customers. The Department treated these

``direct container'' shipments as CEP sales for purposes of the

preliminary results. Filati argues that this treatment was incorrect,

based on the Department's criteria for determining whether a sale is an

EP transaction (rather than a CEP sale). Filati relies in large part

upon the Department's determination in Certain Cold-Rolled and

Corrosion-Resistant Carbon Steel Flat Products From Korea: Final

Results of Antidumping Duty Administrative Review, 61 FR 18547 (Apr.

26, 1996) (Carbon Steel from Korea) to support its position. Filati

asserts that Carbon Steel from Korea identifies the factors the

Department will consider when determining the classification of sales.

Id. at 18551. Whenever sales are made prior to the date of importation

through an affiliated sales agent in the United States, the Department

concludes that EP is the most appropriate determinant of the U.S. price

where all of the following factors are present:

The merchandise in question is shipped directly from the

manufacturer to the unaffiliated buyer without being introduced into

the physical inventory of the selling agent;

Direct shipment from the manufacturer to the unaffiliated

buyer is the customary channel for sales of the subject merchandise

between the parties involved; and

The selling agent in the United States acts only as a

processor of sales-related documentation and a communication link with

the unaffiliated U.S. buyer. Id.

Filati contends that each of these criteria is met with respect to

its direct container sales. Specifically, Filati states that, because

the bill of lading date was reported as the date of sale and this date

was prior to entry, the direct container sales were made prior to

importation. In addition, Filati asserts that the first and second

criteria are met, since: (1) the subject merchandise was shipped

directly to the U.S. customer without being introduced into the

physical inventory of Filati USA; and (2) direct shipments have been a

normal commercial channel for the customer involved.

Regarding the third criterion, Filati argues that the Department

erroneously found in the preliminary results that the activities

carried out by Filati USA exceeded those of a document processor and

communication link. Filati contends that the selling activities

performed by Filati USA are within the range of activities previously

determined by the Department to be consistent with EP classification.

Filati acknowledges that Filati USA takes title to the merchandise,

invoices the customer, and in some cases, arranges and pays for

delivery from the port of entry. However, Filati contends that Filati

USA has only limited authority to set prices in the United States. As

support for this assertion, Filati cites to the Filati USA verification

report, where the Department noted that prices are quoted in accordance

with a window that is set based on consultations with the parent

company.

In addition, Filati asserts that the Department has accorded EP

treatment to sales by respondents who performed selling functions that

were more significant than those performed by Filati USA. Filati cites

to Carbon Steel from Korea and AK Steel Corp. v. United States, Slip

Op. 98-159 at 10-12 (Court of International Trade (CIT), Nov. 23, 1998)

(AK Steel) in support of its position. In the former, the Department

found that sales were properly classified as purchase price (the old-

law equivalent of EP) transactions when the U.S. affiliate: (1)

extended credit to certain customers by permitting them to

[[Page 12971]]

delay payment for subject merchandise, (2) identified customers; (3)

negotiated prices; (4) provided some warranty-related services; (5)

engaged in marketing activities that included development of downstream

applications for subject merchandise; and (6) posted cash deposits of

antidumping and countervailing duties on behalf of its U.S. customers.

Filati argues that the activities performed by Filati USA are less

significant than those performed by the respondent in Carbon Steel from

Korea, because Filati USA is not involved in advanced marketing or

product development. Consequently, Filati contends that there is even

more justification for classifying its direct container shipments as EP

transactions than there was in Carbon Steel from Korea.

Filati states that, in AK Steel, the CIT upheld the Department's EP

classification of ``back-to-back'' sales where the U.S. affiliate: (1)

took title to the shipment; (2) acted as importer of record; (3) made

initial contact with the direct shipment customer; (4) negotiated price

based upon predetermined factors; (5) received purchase orders from the

customer and forwarded them to the exporter/producer for confirmation;

(6) invoiced the customer; (7) conducted market research and economic

planning; (8) ``found'' (and possibly solicited) direct container

customers; (9) arranged and paid for post-sale warehousing,

transportation, U.S. Customs duties, brokerage, handling, and other

expenses; and (10) extended credit to and accepted payment from direct

container customers. Regarding the instant case, Filati argues that,

because there is no evidence that Filati USA ``found'' direct container

customers or conducted market research and economic planning, Filati's

activities relating to direct container sales were also less

significant than those performed by the respondent in AK Steel.

Finally, Filati notes that the Department found that Filati's

direct container shipments were PP/EP transactions in the second and

third reviews of this proceeding. Filati contends that, because its

method of making these shipments has not changed since the time of

those reviews, the Department should continue to treat direct container

sales as EP transactions in the instant review.

According to the petitioner, the Department correctly treated

Filati's direct container shipments as CEP transactions. As support for

its position, the petitioner cites to the Filati USA verification

report at page 4, where the Department stated that Filati USA

determines the prices for direct container sales. The petitioner also

cites to the Notice of Final Determinations of Sales at Less Than Fair

Value: Brake Drums and Brake Rotors from the People's Republic of

China, 62 FR 9160, 9171 (Feb. 28, 1997) and Small Diameter Circular

Seamless Carbon and Alloy Steel Standard, Line and Pressure Pipe From

Germany: Preliminary Results of Antidumping Duty Administrative Review,

63 FR 13217 (Mar. 18, 1998). In those cases, the Department determined

that the respondents' sales were CEP transactions because it concluded

that, in the former case, the U.S. affiliate was instrumental in

determining the terms of sale, while in the latter, the selling

functions of the U.S. affiliate extended beyond those of a processor of

documents or a communications link.

DOC Position

We agree with the petitioner. 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'' (emphasis

added).

As the statutory definitions state, sales before importation can be

classified as either EP or CEP sales. The decisive factor for sales

prior to importation 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.

It is the Department's practice to examine several criteria to

determine 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 determined the sales to be EP

sales. Where one or more of these conditions are not met 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) (Viscose Rayon

from Finland); Certain Cold-Rolled and Corrosion-Resistant Carbon Steel

Flat Products from Korea: Final Results of Antidumping Duty

Administrative Reviews, 63 FR 13170 (Mar. 18, 1998).)

The crucial distinction between EP and CEP treatment 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. The classification

of sales as EP or CEP is not confined to tallying up the various

functions of the U.S. selling agent. In Industrial Nitrocellulose From

the United Kingdom: Notice of Final Results of Antidumping Duty

Administrative Review, 64 FR 6609, 6611 (Feb. 10, 1999), we observed

that ``[t]he Department looks at the totality of the evidence to

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

ancillary role.'' As noted above, in cases where the U.S. affiliate or

sales agent has a significant role in making U.S. sales (including

setting the price in the United States and providing after-sale

support), we generally find that CEP treatment is appropriate. See,

e.g., Notice of Final Determination of Sales at Less Than Fair Value:

Stainless Steel Wire Rod From Spain, 63 FR 40391, 40395 (July 29, 1998)

(SSWR from Spain); and Viscose Rayon from Finland.

Our analysis of the facts in this case indicates that during the

POR Filati USA's role in making direct container sales was extensive.

Specifically, Filati

[[Page 12972]]

USA: (1) Made initial contact with the customer; (2) transmitted the

order to Filati in Malaysia; (3) quoted prices without consulting the

parent company on a sale-by-sale basis; (4) took title to the

merchandise; (5) invoiced, and received payment from, the customer; and

(6) arranged and paid for delivery from the U.S. port to the customer.

See the Filati USA verification report at page 4. Thus, the record

shows that Filati USA was significantly involved in every aspect of the

sales to U.S. direct container customers, except for arranging for

shipment of the subject merchandise from Malaysia to the U.S. port of

entry.

Filati USA's role in negotiating the terms of the sales in question

is more significant than that of a conduit of information between the

U.S. customer and the Malaysia parent. Specifically, Filati USA had the

authority to contact U.S. customers directly, and then to negotiate and

accept sales terms on a case-by-case basis without Filati's approval.

Both of these functions contradict Filati's claim that the U.S.

subsidiary's role is ancillary. The record of this case shows Filati

USA's involvement in the U.S. sales process is extensive, as evidenced

by the selling functions described herein. Based on these facts, we

determine that Filati USA's role in making direct container sales

exceeds that of a mere processor of sales-related documentation and

communication link between the parent company and U.S. customer.

Filati argues that its sales should be classified as EP sales

because its selling activities fall within a range of activities

previously determined to be EP sales. However, as discussed above, this

determination must be based on the facts as a whole. The facts here

demonstrate that Filati is substantially involved in the selling of the

subject merchandise. Therefore, CEP treatment is required.

We also find unpersuasive Filati's claim that Filati USA had

limited authority to set prices because it did so only within

parameters set by Filati. In similar circumstances, we have found the

U.S. subsidiary's role in making the sales at issue to be significant

enough to warrant their treatment as CEP sales. For example, in SSWR

from Spain, we found that the U.S. subsidiary's ability to negotiate

prices within the parameters set by the parent company, in conjunction

with other sale related activities, was sufficient to warrant

classification of those sales as CEP sales. In addition, in U.S. Steel

Group v. United States Slip Op. 98-96 at 26 (CIT July 7, 1998), the CIT

upheld the Department's classification of U.S. sales as CEP

transactions, based in part on the U.S. subsidiary's ability to

negotiate prices above the minimum set by the parent company.

We also find that Filati's reliance upon Carbon Steel from Korea is

misplaced. The record on which that determination was based

demonstrated that the U.S. subsidiary performed limited liaison

functions in the processing of sales-related documentation and a

limited role as a communication link. Moreover, in the most recent

administrative review conducted on carbon steel from Korea, the

Department reclassified the respondents' U.S. sales as CEP transactions

based on record evidence establishing that the U.S. subsidiary was, in

fact, substantially involved in selling the subject merchandise. See

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

From Korea: Final Results of Antidumping Duty Administrative Review, 63

FR 13170, 13177 (Mar. 18, 1998) (Carbon Steel from Korea II) (the

respondents' selling agent played a key role in the sales negotiation

process by writing and signing sales contracts and a central role in

all sales activities after the merchandise arrived in the United

States).

We similarly find Filati's cite to AK Steel to be inapposite. In AK

Steel, the CIT affirmed the Department's initial classification of

direct container sales as EP transactions based on the fact that there

was no evidence on the record to indicate that the U.S. subsidiary had

the freedom to negotiate prices. More importantly, the CIT in AK Steel

expressly distinguished its holding in that case from its prior holding

in U.S. Steel Group, citing to this factual distinction as the basis

for reconciling the decisions.

Consequently, consistent with the final results of the fourth

review of this proceeding (see Thread Fourth Review) and the

Department's current practice, we have continued to treat these

transactions as CEP sales for purposes of the final results.

Comment 2: CEP Offset

Filati argues that the Department erroneously denied it a CEP

offset in the preliminary results. First, Filati contends that the

Department's finding that U.S. sales are made at the same level of

trade as home market sales is inconsistent with its finding that the

U.S. subsidiary performs significant selling functions. Specifically,

Filati argues that, because the selling functions performed by the U.S.

subsidiary are not taken into account when determining the selling

functions in the CEP channel, it would be impossible to find that home

market sales, which include all selling functions, are made at the same

level of trade as CEP sales.

In addition, the respondent claims that, with respect to U.S. sales

from inventory, Filati USA undertakes additional selling functions

(i.e., inventory maintenance, addressing of customer complaints, and

handling of returns and refunds related to merchandise quality

problems) which are excluded from the LOT analysis for the CEP channel,

but are performed by Filati for home market sales. Consequently, Filati

contends that a CEP offset is warranted because its home market sales

are made at a more advanced level of trade than its CEP sales.

According to the petitioner, the Department correctly denied a CEP

offset to Filati because Filati failed to develop the record to support

its CEP offset claim. Specifically, the petitioner claims that Filati

has failed to demonstrate that its level of trade in the home market is

different from its level of trade in the United States. The petitioner

argues that Filati's claim that a CEP offset is warranted is based

solely on the fact that the U.S. subsidiary has involvement in making

U.S. sales and on the fact that those sales are determined to be CEP

sales. As support for its position, the petitioner cites to the

legislative history of the URAA, which emphasizes that CEP offsets are

not automatically provided, but rather are granted when respondents

demonstrate that certain stated conditions are true.

DOC Position

We agree with the petitioner. In accordance with section

773(a)(7)(B) of the Act, the Department grants a CEP offset where a

respondent demonstrates that its home market sales are made at a more

advanced state of distribution that its U.S. sales. In this case, we

conducted an analysis in order to determine whether Filati's normal

values were established at a level of trade which constituted a more

advanced state of distribution than the level of trade of the CEP. See

the ``Level of Trade and CEP Offset'' section of this notice, above.

After performing this analysis, the Department found that Filati

performed essentially the same selling functions in its sales offices

in Malaysia for both home market and U.S. sales.

We disagree with Filati that this finding is inconsistent with a

finding that Filati's U.S. subsidiary performs significant selling

functions. We note

[[Page 12973]]

that Filati's U.S. sales initially are at a more advanced level of

distribution than its home market sales. After the deduction of the

selling expenses associated with selling activities occurring in the

United States, however, the levels of trade in both markets become the

same. At this point, the relevant U.S. transaction becomes the

constructed sale between the exporter (i.e., Filati) and the importer

(i.e., Filati USA). Consequently, based on the information on the

record, we have continued to deny a CEP offset to Filati for these

final results.

Comment 3: Offset for Imputed Costs Associated With AD/CVD Duty

Deposits

In its questionnaire response, Filati reported the opportunity

costs associated with financing its cash deposits of antidumping and

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

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

purposes of the preliminary results is consistent with the recent

practice articulated in AFBs. However, Filati contends that the

Department's change in policy conflicts with prior decisions both by

the Department and the CIT. See, e.g., Antifriction Bearings (Other

Than Tapered Roller Bearings) and Parts Thereof From France, Germany,

Italy, Japan, Singapore, and the United Kingdom; Final Results of

Antidumping Duty Administrative Reviews, 62 FR 2081, 2104 (Jan. 15,

1997 (1994-1995 AFBs Reviews); and Federal-Mogul v. United States, 950

F. Supp. 1179 (CIT 1996).

Specifically, Filati asserts that the reasoning in AFBs was flawed

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

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

point is irrelevant because the company has incurred a real expense

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

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

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

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

because respondents making cash deposits are required to divert funds

from more profitable ventures.

In addition, Filati contends that the CIT has taken a consistent

position which approves of the offset. Filati cites to Timken Co. v.

United States, 16 F. Supp. 2d 1102, 1105 (CIT 1998) (Timken), which

lists the cases in which the court has upheld the Department's

decisions to grant the adjustment and the cases in which it has

remanded decisions to deny the offset.

Finally, according to Filati, the Department has correctly held

that the costs associated with antidumping or countervailing duty

deposits are not ``selling expenses.'' Consequently, Filati maintains

that the antidumping law does not allow their deduction from CEP.

Based on the above arguments, Filati contends that the Department

should allow its offset to indirect selling expenses for the imputed

cost of financing its cash deposits of antidumping and countervailing

duties for purposes of the final results.

DOC Position

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

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

Filati claims are related to financing of antidumping and

countervailing duty cash deposits.

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

precise definition of what constitutes a selling expense. Instead,

Congress gave the administering authority discretion in this area. It

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

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

limited extent in other proceedings, removed such expenses from

indirect selling expenses. However, we have reconsidered our position

on this matter and have now concluded that this practice is

inappropriate.

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

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

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

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

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

Tapered Roller Bearings and Parts Thereof, Finished and Unfinished,

From Japan, and Tapered Roller Bearings, Four Inches or Less in Outside

Diameter, and Components Thereof, From Japan; Final Results of

Antidumping Duty Administrative Reviews, 63 FR 63860, 63865 (Nov. 17,

1998); Tapered Roller Bearings and Parts Thereof, Finished and

Unfinished, From Japan, and Tapered Roller Bearings, Four Inches or

Less in Outside Diameter, and Components Thereof, From Japan; Final

Results of Antidumping Duty Administrative Reviews, 63 FR 2558, 2571

(Jan. 15, 1998); Certain Cut-to-Length Carbon Steel Plate from Germany;

Final Results of Antidumping Duty Administrative Review, 62 FR 18390,

18395 (April 15, 1997); and Antifriction Bearings (Other Than Tapered

Roller Bearings) and Parts Thereof From France, et al.; Final Results

of Antidumping Duty Administrative Reviews, 57 FR 28360 (June 24,

1992). We have also declined to deduct legal fees associated with

participation in an antidumping case, reasoning that such expenses are

incurred solely as a result of the existence of the antidumping duty

order. Id. Underlying our logic in both these instances is an attempt

to distinguish between business expenses that arise from economic

activities in the United States and business expenses that are direct,

inevitable consequences of the dumping order.

Financial expenses associated with cash deposits are not a direct,

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

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

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

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

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

that rely on existing capital resources or that require raising new

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

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

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

fact, companies face these choices every day regarding all their

expenses and financial obligations. There is nothing inevitable about a

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

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

were. Indeed, in this case the record evidence demonstrates that Filati

did not borrow funds in the United States, either to finance its cash

deposits or to fund other business expenses.

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

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

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

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

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

1996) (regarding whether the Department should allocate debt to

specific divisions of a corporation).

Thus, while it is appropriate to exclude from CEP deductions cash

deposits themselves and legal fees associated with participation in

dumping cases, we do not see a sound basis for extending this practice

to expenses allegedly associated with financing cash deposits. By the

same

[[Page 12974]]

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

financing the payment of legal fees associated with participation in a

dumping case.

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

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

are arbitrarily associated with cash deposits. Our treatment of these

financing expenses is consistent with out treatment of other expenses,

such as taxes. Although we do not deduct corporate taxes from CEP, we

would not reduce selling expenses to reflect financing costs alleged to

be associated with payment of such taxes.

We also determine that we should not use an imputed amount that

would theoretically be associated with financing of cash deposits.

There is no real opportunity cost associated with cash deposits when

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

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

a financial obligation of doing business. Companies cannot choose not

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

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

credit and inventory carrying costs when companies do not show an

actual expense in their records because companies have it within their

discretion to provide different payment terms to different customers

and to hold different inventory balances for different markets. We

impute costs in these circumstances as a means of comparing different

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

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

costs to actual expenses is inappropriate.

Regarding Filati's cite to Timken, we note that in this decision

the CIT acknowledged that it is the Department's current practice to

deny the offset to indirect selling expenses for financing cash

deposits related to antidumping or countervailing duties. However, the

CIT recognized that it has upheld the Department when it has decided to

grant the offset to indirect selling expenses. Consistent with the

CIT's prior decisions, it sustained the Department's determination to

grant the offset. While we concede that Timken references a number of

cases which were remanded to the Department after denying the offset,

we note that these cases were decided according to the Department's

prior practice regarding the offset.

Moreover, even were we to reverse our stated practice and allow an

offset, we would not do so in this case because Filati did not incur

any financing costs in the United States. Further, as we noted above,

it would be inappropriate to impute an amount which would be associated

with financing cash deposits in theory only, since the record shows

that Filati did not finance its cash deposits.

Finally, we disagree with Filati's argument that: it incurred a

real expense that it would not have incurred but for the existence of

the antidumping duty order. The only expenses relevant to this question

are U.S. financing expenses. Because the record shows no evidence of

financing activity in the United States, we find that Filati incurred

no ``real'' expense, despite its assertions to the contrary.

Therefore, in accordance with our current practice, we have

continued to deny an offset to Filati's indirect selling expenses for

purposes of the final results.

Comment 4: Foreign Movement Expenses on U.S. Sales

During the POR, Filati sold certain products from its U.S.

inventory which were imported prior to the POR. Because Filati did not

incur any foreign movement expenses during the POR for these products,

Filati based the movement expenses for these products on the average of

the expenses incurred for similar products imported during the POR,

rather than on the actual expenses incurred. At verification, Filati

provided the actual (i.e., pre-POR) movement expenses associated with

these sales.

According to Filati, the Department should accept its reported

movement expenses, rather than using the pre-POR data obtained at

verification. Filati argues that using the reported data is the most

reasonable method for Commerce to employ because that methodology uses

the data that is most current.

DOC Position

We disagree. It is the Department's preference to use actual data

over estimates when calculating price adjustments. The fact that the

actual movement expenses in question were incurred prior to the POR

makes them neither inaccurate nor unacceptable. Rather, this data is

more accurate than the reported data because it represents the amounts

that Filati actually incurred to transport the merchandise sold during

the POR. Therefore, we have used the actual movement expenses incurred

on these sales for purposes of the final results.

Comment 5: Conversion of Movement Charges Into Per-Pound Amounts

Filati asserts that the Department failed to convert certain U.S.

movement expenses which were reported on per-kilogram basis to a per-

pound basis before performing its margin calculations. Filati argues

that the Department should correct this error for purposes of the final

results.

DOC Position

We agree. Although Filati stated in its questionnaire response that

these expenses were reported on a per-pound basis, we found at

verification that they were actually reported as amounts per kilogram.

Consequently, we have treated them as such for purposes of the final

results.

Comment 6: Inclusion of Uncollected Duties in COP

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

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

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

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

the Department treated these amounts as uncollected import duties and

added them to the U.S. starting price and to COP.

According to Filati, the Department should not add these

uncollected duties to COP because they are not recorded as raw

materials costs in Filati's accounting system. Filati notes that

section 773(f)(1)(A) of the Act and 19 U.S.C. section 1677b(f)(1)(A)

require respondents to base their reported production costs on the

actual costs recorded in their normal accounting records.

However, Filati contends that, if the Department finds that

Filati's cost of production should be adjusted for these amounts, then:

(1) the percentage should be applied only to raw material costs, since

the duties are based on imported raw materials only; and (2) the

Department should use the weighted-average of the amounts paid during

the POR, rather than transaction-specific amounts, since the

questionnaire instructs respondents to report costs on a weighted-

average basis. Filati notes that the use of POR figures would be

consistent with the Department's treatment of these figures in the

fourth administrative review of this proceeding.

Although this issue was not raised by Heveafil, we note that it

applies to this company as well because Heveafil also paid the same

type of duties.

DOC Position

We disagree with Filati, in part. Section 773(f)(1)(A) of the Act

requires the Department to depart from the records of the producer if:

(1) Those

[[Page 12975]]

records are not in accordance with the general accepted accounting

principles (GAAP) of the exporting country; and (2) such costs do not

reasonably reflect the costs associated with the production and sale of

the merchandise. In this case, we acknowledge that Filati's treatment

of these duties is in accordance with Malaysian GAAP. However, we find

that this treatment is contrary to the requirements of section

773(f)(1)(A) of the Act, as it does not reasonably reflect Filati's

cost of production. Specifically, we find that, because the amounts in

question are charged by the Malaysian government in place of import

duties on raw materials, they appropriately form part of Filati's cost

of production. Accordingly, we have included these duties in the

calculation of COP and CV.

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

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

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

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

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

duty included in COP and CV.

However, we agree with Filati that we should use weight-averaged

figures when applying the uncollected duty to the COP because we

calculate a weight-averaged COP. We have revised our calculations to

use weight-averaged amounts for purposes of the final results.

Because Heveafil also reported uncollected duties in its

questionnaire response, we have also calculated Heveafil's duties in

the same manner.

Comment 7: G&A Expenses of Filati's Parent Company

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

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

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

services to Filati.

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

associated with the services provided by MYCOM. Filati contends that

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

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

the production or sale of extruded rubber thread.

DOC Position

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

calculation the amount its parent charges Filati for the services the

parent provides. We reviewed this calculation at verification and found

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

MYCOM performed. Therefore, we have made no adjustment to Filati's G&A

rate calculation for additional MYCOM expenses.

Comment 8: Offset to Financial Expenses

Filati reported its financing expenses based on the consolidated

financial statements of its holding company. Filati offset these

expenses with the interest income shown on these financial statements.

At verification, Filati was not able to demonstrate that the full

amount of this offset was generated from short-term sources. (See the

Filati cost verification report at page 17.)

Filati argues that the Department should grant the full amount of

interest income as an offset to financing expenses because Filati

demonstrated at verification that interest income is generated from

only two sources, both of which are short-term in nature. In addition,

Filati asserts that, should the Department determine that only a

partial offset is reasonable, it should: (1) base the offset amount on

both short-term deposits and cash-in-bank balances; and (2) use the

average balances for these accounts, rather than the year-end balances,

because interest is earned over time. In addition, Filati argues that,

should the Department exclude short-term deposits from the calculation

of the offset, it should use the average of the cash-in-bank balances

for 1996 and 1997 for the same reason.

DOC Position

We agree, in part. At verification, Filati was able to demonstrate

that one of the two sources mentioned above, cash in bank, generated

short-term interest income. Contrary to its assertions, Filati was not

able to demonstrate that the other source, short-term deposits,

generated any income at all. See the Filati cost verification report at

page 17. For this reason, we granted a partial offset to financing

expenses based on the cash-in-bank balance.

We also agree that it is appropriate to use average balances for

1996 and 1997 in our calculation of the offset. We have calculated the

offset accordingly for purposes of the final results.

B. Heveafil

Comment 9: Errors in Heveafil's Sales Responses

According to the petitioner, the Department discovered at

verification that Heveafil's home market and U.S. sales data contained

significant errors. Specifically, the petitioner claims that Heveafil:

(1) reported incorrect dates of shipment and payment for home market

sales, resulting in overstated home market credit expenses; (2)

reported Malaysian customs duties on home market sales for which there

were no duties; and (3) understated a number of adjustments related to

U.S. sales. The petitioner asserts that the Department should adjust

Heveafil's sales data using facts available in order to ensure that

Heveafil's dumping margin is not understated.

Heveafil concedes that the Department found errors at verification

but maintains that these errors were small and inadvertent. Heveafil

notes that most of the errors in dates of shipment were provided at the

beginning of verification and that the Department found only a single

instance of overstated customs duties. Regarding the U.S. adjustments

referenced by the petitioner, Heveafil asserts that the Department

found the reported data to be incorrect in only five instances and that

some of these errors were not in Heveafil's favor. Therefore, Heveafil

asserts that the Department should accept the corrections provided at

verification, rather than applying facts available.

DOC Position

We agree with Heveafil. The errors in question were neither

significant nor pervasive. Because it is the Department's practice to

accept minor corrections at verification, we have accepted these

corrections for purposes of the final results.

Comment 10: Errors in Heveafil's Cost Responses

According to the petitioner, the Department discovered at

verification that Heveafil misreported its costs. Specifically, the

petitioner claims that Heveafil understated certain material costs,

misstated yield rates, and misclassified certain variable overhead

costs as fixed. The petitioner asserts that the Department should

correct these problems by applying adverse inferences.

Heveafil disagrees, stating that its cost response is accurate and

acceptable. According to Heveafil, the Department found at verification

that Heveafil actually overstated its total costs. Heveafil notes that

its costs would be understated only if the Department were to correct

them for errors found at verification (e.g., the double-counting of

certain variable overhead expenses, etc.).

Regarding its yield rates, Heveafil maintains that these rates were

correct and reconcilable to the standard yield rates used in the normal

course of the

[[Page 12976]]

company's business. Heveafil argues that standard yields, by

definition, differ from actual yields due to factors such as downtime.

Heveafil asserts that, because it accounted for the differences between

its standard and actual yields through the application of a variance,

the Department should accept its yields as reported.

Finally, Heveafil maintains that its classification of its overhead

expenses as variable or fixed in this administrative review is

consistent with its classification of these expenses in previous

administrative reviews. Heveafil asserts that, if the Department

disagrees with Heveafil's classification, it should reclassify these

expenses rather than reject them in their entirety.

DOC Position

We agree with Heveafil, in part. Although we found at verification

that the manufacturing costs in Heveafil's questionnaire response

contained certain errors, we noted that these errors generally resulted

in the overstatement of the company's costs. Moreover, we find that

none of these errors was so significant as to warrant the rejection of

Heveafil's data. Consequently, we have continued to rely on it for

purposes of the final results.

In general, when the Department deems a respondent's data to be

acceptable, our practice has been to correct it for errors found at

verification. However, we have not done so in this case (except as

noted below), because: (1) although Heveafil was able to identify the

total amount of certain errors at verification, it was unable to

provide corrections on a product-specific level; and (2) correcting

only some errors without correcting others would result in a net

understatement of Heveafil's COM.

Regarding the issue of whether Heveafil misclassified certain fixed

overhead costs as variable, we agree with the petitioner. Because we

can reclassify these costs as fixed overhead without changing the total

COM reported, we have done so for purposes of the final results.

Finally, we have corrected two additional errors found at

verification which are unrelated to the items noted above. First, we

found that the standard material costs were understated for one

product. Consequently, we have increased the material costs reported

for this product by the percentage by which the reported costs differed

from the correct standard costs, as facts available. We also revised

Heveafil's reported financing expenses, in order to: (1) Include an

amount for foreign exchange losses related to accounts payable

transactions during the POR; and (2) exclude an amount for bank charges

which had also been reported as selling expenses.

C. Rubberflex

Comment 11: Calculation of U.S. Indirect Selling Expenses

The petitioner argues that Rubberflex understated the indirect

selling expenses of its U.S. subsidiary, Flexfil, because it allocated

a certain portion of these expenses to Canadian sales which were not

invoiced by Flexfil. According to the petitioner, the Department should

reallocate these expenses using only the sales made by the subsidiary

and recorded in the subsidiary's books. In support of its position, the

petitioner cites to the Final Determination of Sales at Less Than Fair

Value; Certain Welded Stainless Steel Pipes from Taiwan, 57 FR 53705,

53718 (Nov. 12, 1992) (WSSP from Taiwan), where the Department found

that the indirect selling expenses of a U.S. subsidiary may not be

allocated over sales which do not appear on its books.

Rubberflex contends that it properly allocated the indirect selling

expenses in question. Rubberflex notes that Flexfil is actively

involved in making Canadian sales, because Flexfil conducts all

activities associated with procuring, maintaining, and servicing

Rubberflex's Canadian accounts. Rubberflex asserts that the only

difference between Flexfil's role in making Canadian and U.S. sales is

in the area of billing; there, Rubberflex invoices the Canadian

customers directly, whereas Flexfil invoices its U.S. customers.

According to Rubberflex, this difference exists so that Rubberflex can

take advantage of certain financing options in Malaysia that would not

be available were Flexfil the purchaser of record.

Rubberflex argues that this case is distinguishable from WSSP from

Taiwan, in that the respondent in that case only maintained

correspondence records related to its off-the-books sales. Rubberflex

contends that Flexfil's involvement meets a much higher standard, as

noted above. For this reason, Rubberflex asserts that Flexfil's

indirect selling expenses were appropriately allocated to Canadian

sales.

DOC Position

We agree with Rubberflex. At verification, we confirmed that

Flexfil was actively involved in making sales to Canada. Therefore,

because the indirect selling expenses incurred by Flexfil related, in

part, to sales to Canada, we find that it is appropriate to allocate a

portion of these expenses to Canadian sales. Accordingly, we have

accepted Flexfil's indirect selling expenses for purposes of the final

results.

Comment 12: Calculation of the Cost of Production

According to the petitioner, the Department found at verification

that Rubberflex understated its production costs. Specifically, the

petitioner maintains that Rubberflex failed to include in its costs:

(1) certain year-end adjustments related to the POR; and (2) bank

charges. The petitioner asserts that the Department should increase the

costs reported by the amounts found at verification.

Rubberflex states that it defers to the Department's judgement on

this issue.

DOC Position

We agree with the petitioner, in part. We have increased the costs

reported by Rubberflex to incorporate the portion of the year-end

adjustments related to the POR, based on our findings at verification.

We have made no additional adjustment to Rubberflex's costs for bank

charges, however, because Rubberflex correctly included the amount of

these charges in the indirect selling expenses reported in its most

recent home market sales listing.

Final Results of Review

As a result of comments received we have revised our analysis and

determine that the following margins exist for the period October 1,

1996, through September 30, 1997:

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

Percent

Manufacturer/exporter margin

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

Filati Lastex Elastofibre (Malaysia).................... 2.07

Heveafil Sdn. Bhd./Filmax Sdn. Bhd...................... 4.78

Rubberflex Sdn. Bhd..................................... 1.22

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

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

The Department shall determine, and the Customs Service shall

assess, antidumping duties on all appropriate entries. We have

calculated importer-specific assessment rates based on the ratio of the

total amount of antidumping duties calculated for the examined sales to

the total entered value of those sales. These rates will be assessed

uniformly on all entries of that particular importer made during the

POR. The Department will issue appraisement instructions directly to

the Customs Service.

Further, the following deposit requirements will be effective for

all shipments of extruded rubber thread from Malaysia entered, or

withdrawn

[[Page 12977]]

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

final results of this administrative review, as provided for by section

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

companies will be the rates for those firms as stated above; (2) for

previously investigated companies not listed above, the cash deposit

rate will continue to be the company-specific rate published for the

most recent period; (3) if the exporter is not a firm covered in this

review, or the LTFV investigation, but the manufacturer is, the cash

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

for the manufacturer of the merchandise; and (4) the cash deposit rate

for all other manufacturers or exporters will continue to be 15.16

percent, the all others rate established in the LTFV investigation.

These deposit requirements, when imposed, shall remain in effect

until publication of the final results of the next administrative

review.

This notice serves as a final reminder to importers of their

responsibility under 19 CFR 351.402(f) to file a certificate regarding

the reimbursement of antidumping duties prior to liquidation of the

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

requirement could result in the Secretary's presumption that

reimbursement of antidumping duties occurred and the subsequent

assessment of double antidumping duties.

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

administrative protective order (APO) of their responsibility

concerning the disposition of proprietary information disclosed under

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

regulations. Timely notification of return/destruction of APO materials

or conversion to judicial protective order is hereby requested. Failure

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

sanctionable violation.

This administrative review and notice are in accordance with

section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)), section 777(i) of

the Act (19 U.S.C. 1677f(i)), and 19 CFR 351.210(c).

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 99-6280 Filed 3-15-99; 8:45 am]

BILLING CODE 3510-DS-P