64 FR 6609, February 10, 1999

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.

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

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