64 FR 37737, July 13, 1999

DEPARTMENT OF COMMERCE

International Trade Administration
[A-122-047]

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

AGENCY: Import Administration, International Trade Administration,
Department of Commerce.

ACTION: Notice of Final Results of Antidumping Duty Administrative
Review of Elemental Sulphur from Canada.

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SUMMARY: On January 6, 1999, the Department of Commerce (``the
Department'') published the preliminary results of its administrative
review of the antidumping duty order on elemental sulphur from Canada
(64 FR 848) (``Preliminary Results''). This period of review (``POR'')
is December 1, 1996, through November 30, 1997. We gave interested
parties an opportunity to comment on our preliminary results. Based
upon our analysis of the comments received, we have changed the results
from those presented in the preliminary results of the review, as
discussed below. However, the margin remains de minimis.
    We determine that respondent has not made sales below normal value
during the period of review. Thus, we will instruct the U.S. Customs
Service to liquidate entries during the POR without regard to
antidumping duties.

EFFECTIVE DATE: July 13, 1999.

FOR FURTHER INFORMATION CONTACT: Brandon Farlander or Rick Johnson,
Import Administration, International Trade Administration, U.S.
Department of Commerce, 14th and Constitution Avenue, N.W., Washington,
D.C. 20230; telephone: (202) 482-0182 or (202) 482-3818, respectively.

Applicable Statute and Regulations

    Unless otherwise indicated, all citations to the statute are
references to the provisions effective January 1, 1995, the effective
date of the amendments made to the Tariff Act of 1930 (``the Act'') by
the Uruguay Rounds Agreements Act (``URAA''). In addition, unless
otherwise indicated, all citations to the Department's regulations are
to the regulations codified at 19 CFR Part 351 (1998).

SUPPLEMENTARY INFORMATION:

Background

    On January 6, 1999, the Department published in the Federal
Register (64 FR 848) the preliminary results of its administrative
review of the antidumping duty order on elemental sulphur from Canada.
We gave interested parties an opportunity to comment on our preliminary
results. We received written comments on February 5, 1999 from Husky
Oil, Ltd. (``Husky''), the only respondent in this review, and on
February 24, 1999 from petitioner, Freeport McMoRan Sulphur, Inc.
(``Freeport'').
    Under section 751(a)(3)(A) of the Act, the Department may extend
the deadline for completion of administrative reviews if it determines
that it is not practicable to complete the review within the statutory
time limit. On March 8, 1999, the Department extended the time limit
for the final results in this case. See Elemental Sulphur from Canada:
Extension of Time Limit for Final Results of the Antidumping Duty
Administrative Review, 64 FR 10983. We have now completed the
administrative review in accordance with section 751 of the Act.

Scope of the Review

    Imports covered by these reviews are shipments of elemental sulphur
from Canada. This merchandise is classifiable under Harmonized Tariff
Schedule (``HTS'') subheadings 2503.10.00, 2503.90.00, and 2802.00.00.
Although the HTS subheadings are provided for convenience and for U.S.
Customs purposes, the written description of the scope of this finding
remains dispositive.

Fair Value Comparisons

    To determine whether sales of subject merchandise from Canada to
the United States were made at less than fair value, we compared the
Export Price (``EP'') to the Normal Value (``NV''), as described in the
``Export Price'' and ``Normal Value'' sections of the Preliminary
Results.

Interested Party Comments

    Comment 1--Revocation. Husky argues that the Department should
reconsider its preliminary decision not to revoke the antidumping duty
order in whole or with respect to Husky, based on the unique facts of
this case and the U.S. International Trade Commission's (``ITC'')
determination ``to revoke the elemental sulphur antidumping duty order
on January 1, 2000.''
    Husky argues that the Department has the authority to revoke an
antidumping duty order if any of the following situations exist: (1)
Dumping is no longer occurring and/or dumping is no longer causing
injury (citing the Agreement on Implementation of Article VI of the
General Agreement on Tariffs and Trade 1994, Article 11); (2)
``(p)roducers accounting for substantially all of the production of the
domestic like product to which the order (or the part of the order to
be revoked) * * * pertains have expressed a lack of interest in the
order, in whole or in part'' (citing 19 CFR 351.222(g)(i)); (3)
``(o)ther changed circumstances sufficient to warrant revocation or
termination exist'' (citing 19 CFR 351.222(g)(ii)). Husky also contends
that the Department has demonstrated its ability to interpret its
regulations in a flexible manner by granting revocation based on an
exporter's ability to sell at fair value for several years, despite
that exporter's failure to file a timely request for revocation (citing
Color Television Receivers From the Republic of Korea: Final Results of
Changed Circumstances Antidumping Duty Review, 63 FR 46759 (September
2, 1998) (``Color Television Receivers from Korea'')).
    Husky alleges that the Department and petitioner knew that Husky's
argument for revocation was partly based on Husky's reliance upon the
new intervening year rule at 19 CFR 351.222(d), even though the
intervening year Husky relied upon--the 1995/96 review period--would
have been reviewed under prior regulatory authority. Husky notes that,
in the Preliminary Results, the Department determined that the 1995/96
review period cannot be viewed as the second of three consecutive
review periods because the new regulations cannot be applied
retroactively to cover periods subject to the Department's previously
applicable regulations. Husky disputes this conclusion on the grounds
that the new regulations, while published on May 19, 1997, were in fact
first introduced to the public for comments in February of 1996. Husky
argues that, while the new regulations cover reviews requested on or
after July 1, 1997, they do not state that the intervening year rule
may not apply to reviews conducted under earlier versions of the
Department's regulations.
    Husky argues that one possible reason why Freeport did not object
to Husky's right to request revocation in this review was because the
Department had not stated that respondents could not apply the
intervening year rule as soon as the final regulations entered into
effect. Husky argues that the Department's interpretation of its
regulations in the Preliminary Results amounts to a finding that the
``intervening year rule did not, in fact, become effective in July 1997
as mandated by the regulations.'' Instead, Husky alleges, the
Department's preliminary results decision means that the intervening
year rule did not

[[Page 37738]]

become effective until July of 1998. Husky argues that the Department
``should enforce the effective date of its regulations and allow
Husky's revocation to proceed on the basis that no dumping was found
during the 1995/96 intervening year.'' Husky argues that Freeport would
not be prejudiced by application of the intervening year rule in this
case because Freeport had the opportunity to request a review of the
1995/96 period.
    In addition, Husky contends that the Department should grant
Husky's request for revocation based on its claims that it did not sell
subject merchandise at less than fair value for three consecutive
years, that it will not dump in the future, and that the Department
verified that Husky is not likely to dump in the future. Further,
argues Husky, because of the ITC's sunset determination, there can be
at most two more reviews of this order, covering the 1997/98 and 1998/
99 review periods. Accordingly, Husky states, the Department need only
determine that Husky will not sell at less than fair value in 1999.
Husky points to the fact that it has executed a certification stating
that it will not dump in the future.
    In summary, Husky argues that the Department should immediately
terminate the antidumping duty order on sulphur from Canada because:
(1) Husky has not sold at less than fair value since 1994; (2) Husky
has certified that it will not sell at less than fair value in the
future; (3) the ITC has determined that sulphur from Canada is not
causing injury to the U.S. sulphur industry; (4) Freeport has been
deemed unrepresentative of the U.S. sulphur industry by the ITC; (5)
most of the other Canadian sulphur producers have already been revoked
from the order; (6) the intervening year rule was designed to eliminate
unnecessary reviews, such as the 1997/98 and 1998/99 reviews; and (7)
an antidumping order should not exist if dumping is no longer causing
injury (citing the Agreement on Implementation of Article VI of the
General Agreement on Tariffs and Trade 1994, Article 11).
    Petitioner argues that Husky requested revocation based on three
consecutive years of no dumping pursuant to 19 CFR 351.222(b).
Petitioner notes that ``Husky did not request revocation based on any
U.S. producers' lack of interest in the order, other changed
circumstances, or any other basis on which the Department could revoke
the order.'' Freeport argues that the Department should therefore
reject Husky's recent claims for revocation and only consider Husky's
revocation request based on section 351.222(b). Also, Freeport argues
that to consider Husky's recent revocation claims on some other
regulatory basis would ``violate fundamental principles of due process
and be prejudicial to petitioner.''
    Petitioner notes that section 351.222(b) requires that the foreign
producer must have sold subject merchandise at not less than normal
value for at least three consecutive years as a first step to be
considered for revocation. Petitioner cites the Department's
preliminary results in this case and supports the Department's
preliminary decision not to apply section 351.222(d) retroactively to
review periods governed by prior regulations.
    Petitioner contends that Husky's reliance on the proposed new
regulations is misplaced, because proposed regulations can and often do
change before being finalized. Petitioner argues that just because
Husky requested revocation after the new regulations entered into
effect ``does not constitute a basis for applying section 351.222(d) of
the Department's new regulations to a review period to which the
Department's prior regulations apply.'' Petitioner argues that Husky's
claim that it was on notice of the rule before the deadline for
requesting a review of the 1995/96 review period is in error.
Petitioner notes that the final rule was published on May 19, 1997--
after the deadline for requesting a review of the 1995/96 review
period. In addition, petitioner notes that 19 CFR 351.701 states that
the Department's regulations ``apply to all administrative reviews
initiated on the basis of requests made on or after the first day of
July, 1997.'' Thus, petitioner argues that the 1996/97 administrative
review is the first review governed by the new regulations.
    Petitioner also argues that the Department did not in fact
``verify'' that Husky is not likely to dump in the future, because the
Department only verifies previously submitted facts at verification.
Petitioner further argues that the Department does not issue findings
at verification, such as a finding of no likelihood of future dumping.
Also, petitioner notes that the Department must determine that Husky
did not sell sulphur for export to the United States at less than
normal value for three consecutive years and that there is no
likelihood of future dumping. Petitioner notes that the Department did
not preliminarily hold that Husky did not sell at less than normal
value for three consecutive years; hence, Husky does not qualify for
revocation regardless of Husky's likelihood of future dumping.
    Finally, petitioner contends that if the Department were to revoke
the order with respect to Husky, Husky would sell the subject
merchandise at less than normal value. Petitioner notes that Husky has
reduced its U.S. export volume since the 1991/92 review and has taken
further steps with regard to limiting those exports subject to
antidumping duties. For a further discussion of the petitioner's
arguments, which entail proprietary information, see petitioner's July
15, 1998 letter to the Department (proprietary version).
    Department's Position: We agree with petitioner. As the Department
stated in its Preliminary Results (at 850):

    [T]he Department's policy is not to apply [section 351.222(d)]
retroactively to include periods subject to review under earlier
versions of the regulations. As we explained in a recent
administrative review of the countervailing duty order on
agricultural tillage tools from Brazil, ``[a]lthough section
351.222(d) of the Department's regulations provides that the
Secretary may revoke the order in part when there are unreviewed
years in the period upon which revocation is based, the regulations
do not provide for the application of this provision retroactively
to review periods that would have been controlled by the
Department's pre-Uruguay Round regulations.'' Because the Department
does not apply section 351.222(d) of the new regulations
retroactively, any unreviewed periods that apply to the three-
consecutive-year revocation requirement must be periods reviewed
under Part 351. Husky's 1995-96 POR thus cannot be considered the
second of three consecutive PORs in this revocation analysis.
Therefore, because Husky has not satisfied the threshold requirement
that revocation be based upon sales ``at not less than normal value
for a period of at least three consecutive years,'' we do not reach
the additional criteria for revocation enumerated at 19 CFR 351.222
(b)(2) (ii) and (iii).

    We do not agree with Husky's argument regarding the timing of the
issuance of the Department's proposed regulations. While the proposed
regulations were introduced before the deadline for requesting a review
of the 1995/96 review period, those regulations were not final. That
the proposed regulations do not constitute enforceable regulations
cannot be disputed. Furthermore, the proposed regulations did not
contain a proposed provision regarding the applicability dates for the
new final regulations.
    As noted by petitioner, and as stated in Subpart G of the current
regulations, the new regulations apply to all administrative reviews
initiated on the basis of requests made on or after July 1, 1997. Under
this rule, the 1996/97 administrative review is the first review
governed by the new regulations. While

[[Page 37739]]

we agree with respondent that the new regulations did not explicitly
state when the intervening year rule could be applied, we find that the
regulations' silence on this issue affords the Department sufficient
discretion to interpret Subpart G as prohibiting retroactive
application of the intervening year rule set forth in section
351.222(d). Also, retroactive application of the intervening year rule
is potentially prejudicial to petitioner, as the regulations governing
the 1995/96 POR contained no such rule. It would thus be unfair to
petitioner to alter the legal status of the 1995/96 POR subsequent to
any opportunity to request a review of that period. Finally, we note
that a decision not to apply the intervening year rule retroactively
accords with the general preference in administrative law against the
retroactive application of new regulations.
    We also note that it is not the case, as asserted by Husky, that
the ITC in its sunset review ``revoked'' the antidumping duty order on
elemental sulphur from Canada. Rather, the ITC found that revocation of
this order would not likely lead to continuation or recurrence of
material injury to an industry in the United States within a reasonably
foreseeable time. See Elemental Sulphur From Canada, 64 FR 2232
(January 13, 1999) (Investigation No. AA1921-127). Pursuant to this
determination, the order on elemental sulphur from Canada is scheduled
to be revoked effective January 1, 2000. However, all entries made
before that date will remain subject to the administrative review
procedures set forth at section 751 of the Act.
    Regarding Husky's other revocation arguments, we find that Husky's
reliance on the Department's changed circumstances review in Color
Television Receivers from Korea is misplaced. In that case, the
respondent, Samsung, had satisfied the threshold revocation requirement
of three consecutive years of de minimis margins. In fact, at the time
of that changed circumstances review, Samsung had sold subject
merchandise at not less than foreign market value for six consecutive
years. See Color Television Receivers from Korea; Preliminary Results
of Changed Circumstances Antidumping Administrative Review, 62 FR 68256
(December 31, 1997). Further, the Department determined that it was not
likely that Samsung would sell subject merchandise at less than foreign
market value in the future. Id. By contrast, in this case, as
explained, the Department does not reach the likelihood analysis
because Husky cannot demonstrate three consecutive years of no sales at
less than normal value. In this regard, we note that the Department in
fact has already considered these arguments in the context of Husky's
request that the Department initiate a changed circumstances review,
and our position has been placed on the record of this review.
Specifically, the Department considered, and rejected, these arguments
in full in its Decision Memorandum from Edward Yang to Joseph A.
Spetrini, dated March 22, 1999.
    We agree with petitioner that we did not ``verify'' that Husky is
not likely to dump in the future, as argued by Husky. The purpose of
verification is to establish that information submitted on the record
of a review or investigation is accurate. It is not the objective of a
verification to consider legal arguments and make on-the-spot legal
conclusions regarding such information. Thus, the Department's
verification team merely reviewed evidence which Husky claims supports
its assertion that it is not likely to dump in the future. In any
event, as petitioner notes, the issue is moot, since section 351.222(d)
does not apply.
    Likewise, Husky's assertion that it has demonstrated that it has
not sold subject merchandise at less than fair value since 1994 is
unpersuasive, because, as noted above, Husky is not eligible for
revocation based on three consecutive years of no dumping. For these
reasons, we are not altering our determination that Husky has not met
the regulatory criteria to be considered for revocation.
    Comment 2--General and Administrative (``G&A'') and Financial
Expenses. Husky alleges that the Department erred when it adjusted
Husky's cost of sales (``COS'') figures used to calculate Husky's
consolidated financial expense ratio and company-wide general and
administrative (``G&A'') expense ratio for the preliminary results.
According to Husky, the Department's preliminary adjustments overstate
cost of production (``COP''). Moreover, Husky maintains that the
Department had accepted Husky's general and interest expense rate
calculation methodology in prior reviews. Husky further elaborates that
the COS figure reported on the financial statements cannot be used
because these figures do not account for all the costs associated with
manufacturing the products for sale. According to Husky, other costs of
manufacture, such as depreciation, depletion, and exploration, as well
as the cost of manufacture for downstream products, are listed
separately in its financial statements (i.e., not included in the COS
figure reported on the financial statements).
    According to Husky, the COS figure on the financial statements only
reflects the cost of its operations and not the value added in the
downstream operations. Husky states that the downstream portion of the
cost is captured in the sales revenue account, where the margin (the
difference between the sales revenue and the cost of sales) is
recorded. Therefore, the total sales revenue and the COS are
understated, as Husky does not record the revenue from the downstream
operations in its revenue figure and does not record the cost of
downstream operations in its COS. Therefore, Husky contends that these
figures should not be used in calculating G&A and financial expense
ratios.
    In addition, Husky argues that the Department has, in other cases,
adjusted COS to include costs that may not be recorded as part of COS
in a company's financial statements, but that the Department
nevertheless deems to be part of COS (citing Notice of Final
Determination of Sales at Less Than Fair Value: Static Random Access
Memory from Taiwan, 63 FR 8909, 8921-22 (February 23, 1998) (``SRAM
from Taiwan'')).
    Petitioner argues that Husky has understated its reported G&A and
financial expenses by overstating COS figures used to calculate these
amounts. According to petitioner, Husky has inflated its COS figure in
the following ways: First, Husky increased COS in its financial
statement ``purportedly to account for the cost of its `downstream'
operations that Husky claimed was not reflected in its financial-
statement cost of sales.'' However, petitioner claims, Husky has
already included this cost in the COS figures. To support its position,
petitioner references Husky Oil Operation Ltd's (``HOOL'') G&A
worksheet submitted as Exhibit 16 of its April 2, 1998 questionnaire
response, that indicates that the total cost of downstream merchandise
was recorded in HOOL's COS figure.
    Second, petitioner notes that Husky's revised COS figures include
marketing activities. According to petitioner, this type of expense
should not be included in the calculations.
    Third, petitioner states that if Husky's assertion is correct, then
Husky should have only added to its COS figure the cost of further
processing the ``upstream'' products into the ``downstream'' products.
    Fourth, petitioner argues that Husky did not provide information to
allow the Department to ``determine whether Husky's `downstream' lines
of business

[[Page 37740]]

incur G&A expenses proportionate to those incurred by Husky's
`upstream' production operations.'' Petitioner argues that the G&A
incurred in respondent's downstream operations may be less than the G&A
incurred in its upstream operations. If this is the case, including the
COS figures for the downstream operations in the financial-statement
COS figures would ``inflate'' the COS figure.
    Finally, petitioner contends that it is the Department's practice
for the respondent to bear the burden of ``establishing entitlement to
an adjustment,'' citing the following decisions by the Court of
International Trade (``CIT''): Koyo Seiko v. United States, 905 F.
Supp. 1112, 1116 (Ct. Int'l Trade 1995); NSK, Ltd. v. United States,
825 F. Supp. 315, 320 (Ct. Int'l Trade 1993); and Timken Co. v. United
States, 673 F. Supp. 495, 513 (Ct. Int'l Trade 1987). Petitioner argues
that, for the above reasons, the Department should not rely on Husky's
reported G&A and financial expense ratios for the final results.
    Department's Position: We disagree with Husky that it properly
calculated its reported COS used to calculate both G&A and interest
expenses. Normally, we rely on the COS reported on the audited
financial statements of the respondent to allocate general and interest
expenses. This methodology avoids any distortions that may result if
greater amounts of company-wide general expenses or financial expense
are allocated disproportionally between products. See Final
Determination of Sales at Less Than Fair Value: Fresh Atlantic Salmon
from Chile, 63 FR 31412, 31433 (Comment 29) (June 9, 1998). In this
instance, Husky deviated from the Department's normal methodology and
calculated surrogate COS figures. To calculate these surrogate figures,
Husky increased the COS figures reported on its income statements to
include depletion, exploration, and its downstream production costs. As
a result, these COS figures are not on the same basis as the reported
cost of manufacturing (``COM'') and, in fact, are overstated.
Specifically, we disagree with Husky that it is appropriate to include
depletion, exploration, and certain additional downstream costs as a
component of the COS figures because the reported COM excludes these
items. The Department has consistently stated in prior cases that the
two figures should be on the same basis (see, e.g., Notice of Final
Determination of Sales at Less Than Fair Value: Stainless Steel Round
Wire from Canada, 64 FR 17324, 17334 (April 9, 1999); Notice of Final
Results and Partial Rescission of Antidumping Duty Administrative
Review: Certain Pasta From Turkey, 63 FR 68429, 68434 (December 11,
1998); and Notice of Final Results of Antidumping Duty Administrative
Review: Circular Welded Non-Alloy Steel Pipe from the Republic of
Korea, 63 FR 32833, 32837 (June 16, 1998)).
    We also specifically disagree with Husky's inclusion of additional
downstream manufacturing costs in the COS figure because the COS figure
reported on Husky's financial statements intentionally omits this cost
in accordance with Canadian Generally Accepted Accounting Principles
(``GAAP''). For example, Husky has classified its operations as either
upstream (e.g., production of crude oil, natural gas, sulphur, etc.),
downstream (production of refined oil, asphalt, etc.), upgrader, or
corporate. In the normal course of business, the upstream operations
transfer their finished products to the downstream operations for
further processing through intra-company transactions. These operations
are not separate entities that require consolidation, but merely
separate business units that make up a single corporation. Thus,
Husky's COS figures reported on the income statements reflect the
upstream operations costs and the appropriate portion of downstream
costs in accordance with Canadian GAAP (see Verification of Cost of
Production (``COP'') and Constructed Value (``CV'') Data for Husky Oil,
Ltd., dated December 1, 1998, (``Cost Verification Report''), Exhibit
22). As a result, intra-company transactions are appropriately
eliminated to avoid double counting both sales revenue and costs.
Therefore, it would be inappropriate to allocate G&A and financial
expense to intra-company transactions since these amounts are normally
eliminated when preparing the companies' financial statements. See
Notice of Final Determination of Sales at Less Than Fair Value;
Stainless Steel Round Wire from Canada, 64 FR 17324, 17334 (April 9,
1999) and Certain Cut-to-Length Carbon Steel Plate from Brazil, 63 FR
12744, 12749 (Comment 8) (March 16, 1998).
    Petitioner's arguments about whether Husky's marketing activities
are reflected in Husky's financial statement COS and whether Husky's
downstream operations incur G&A expenses proportionate to Husky's
upstream operations are moot because we are not using Husky's submitted
COS figures.
    We also disagree with Husky's reliance on SRAM from Taiwan, where
the Department addressed the inclusion of certain costs in the
calculation of COP, not COS, as in the instant case. Thus, SRAM from
Taiwan is unrelated to the calculation of COS, and is inapplicable.
    We note that, with respect to Husky's observation that the
Department has accepted Husky's G&A calculation in prior reviews, the
Department may change its position on a specific issue taken in prior
proceedings as long as it provides an explanation for the change (see
Rust v. Sullivan, 500 U.S. 173, 1860187 (1991)). In this case, Husky's
increase to COS, which results in the use of a figure expressed on a
different basis than COM, does not follow the Department's normal
practice for calculating G&A expenses. Furthermore, there is no basis
in this record to justify deviating from the Department's normal
practice. Consequently, we are following our normal practice in this
review, which is to ensure that COS and COM are calculated on the same
basis.
    For the reasons stated above, we have calculated Husky's G&A and
financial expense ratio in accordance with our normal methodology using
a COS figure that was on the same basis as the reported COM. For the
final results, we calculated a general expense rate that is made up of
company-specific G&A and corporate-wide G&A expense. Specifically, we
calculated the company-specific (i.e., HOOL) G&A expense rate by
dividing HOOL's unconsolidated G&A expense by its unconsolidated COS
figure, which we increased to include depreciation expense. We then
calculated a company-wide G&A expense rate for general expenses that
benefitted all the entities of the consolidated HOOL Group. The
denominator in this instance was HOOL's consolidated COS figure, which
we increased to include depreciation expense. For the calculation of
interest expense, we are continuing to use Husky's consolidated
financial statements as we did in the Preliminary Results. See Analysis
Memorandum of Husky for the Final Results of the Administrative Review
of Elemental Sulphur from Canada for the period December 1, 1996
through November 30, 1997 (``Analysis Memo: Final''), dated July 6,
1999, for a complete discussion.
    Comment 3--Adjustment to reported interest expenses. Husky alleges
that in the preliminary results, the Department incorrectly included
interest expenses paid on subordinated debt and dividends of Class C
shares in the calculation of Husky's total interest expenses. Husky
provides the following reasons as to why this inclusion is incorrect.

[[Page 37741]]

    First, Husky argues that the interest on subordinated shareholders'
loans and dividends on Class C shares are amounts held by external
shareholders in proportion to their shareholdings. Therefore, Husky
argues that these expenses are not interest expenses but rather
dividend and loan payments based on equity positions. Second, Husky
argues that under Canadian GAAP, these loans are not treated like
normal debt, and that the Department should follow prior reviews of
this order, and reverse its preliminary decision. According to Husky,
the interest on subordinated shareholders' loans and dividends on Class
C shares are ``treated as loans for the `ceiling' test under the full
cost method of accounting applicable to the oil and gas industry.''
Respondent provides a brief summary of the ceiling test as a
``calculation to determine if it is necessary to expense any portion of
capitalized costs taking into account future revenues and all costs,
including financing, but excluding the subordinated interest and Class
C shares.'' Respondent argues that its auditors, in Note 6 of Husky's
Consolidated Financial Statements and Auditors' Report, dated December
31, 1997 (``financial statements'') ``determined that the loans were so
subordinated that they could not be treated as debt'' and that these
``loans are subordinated to all senior debt and other financial debt of
the Company.''
    Petitioner argues that the Department properly included interest on
subordinated shareholders' loans and dividends on Class C shares as
interest expenses, since Husky's exclusion of these payments improperly
understated its financial expense ratio.
    First, petitioner argues that Husky did not address the fact that
the Cost Verification Report notes that company officials stated that
``these account balances (i.e., the interest on subordinated
shareholders' loans and dividends on Class C shares) reflect the
interest expense due to shareholders for lending the organization
funds.'' Petitioner argues that the Department relied on this statement
from company officials in determining that these amounts should be
included in the calculation of interest expense. Additionally,
petitioner notes that the Cost Verification Report states that Husky
officials identified the following three characteristics of these
shareholders' loans: (1) each shareholder charges the same fixed
interest rate; (2) Husky accrues the interest expense even if the
entity has an operating loss; and (3) the accrued expense is not a
dividend.
    Second, petitioner argues that Department practice is to ``include
interest on loans from owners or shareholders in the calculation of a
respondent's financial expense ratio used to calculate COP/CV'' (citing
Final Determination of Sales at Less Than Fair Value: Fresh Kiwifruit
from New Zealand, 57 FR 13695, 13704-05 (April 17, 1992) (``Kiwifruit
from New Zealand''); and Final Determinations of Sales at Less Than
Fair Value: Antifriction Bearings (Other Than Tapered Roller Bearings)
and Parts Thereof from the Federal Republic of Germany, 54 FR 18992,
19077 (May 3, 1989) (``Antifriction Bearings from Germany'')). Also,
petitioner argues that when a respondent's financial statements
``classify the holdings as debt rather than equity, the Department
includes the amounts paid on the holdings in the calculation of the
financial expense ratio,'' citing Final Determination of Sales at Less
Than Fair Value: Fresh Cut Roses from Ecuador, 60 FR 7019, 7039
(February 6, 1995) (``Roses from Ecuador''), and Notice of Final
Determination of Sales at Less Than Fair Value: Melamine Institutional
Dinnerware Products from Taiwan, 62 FR 1726, 1731 (January 13, 1997)
(``Melamine Institutional Dinnerware Products from Taiwan'').
    Third, petitioner argues that Note Six of respondent's financial
statement does not state that the subordinated shareholders' loans and
dividends on Class C are not debt. Also, petitioner addresses how
respondent's subordinated shareholders' loans and dividends on Class C
shares are represented in Husky's financial statement. Because this
discussion involves proprietary information, please see Analysis Memo:
Final for a full discussion of this issue.
    Fourth, petitioner argues that respondent's statement that ``the
holdings [subordinated shareholders' loans and dividends on Class C
shares] are not treated like normal debt under Canadian GAAP,'' in fact
acknowledges that the holdings are debt. Also, petitioner notes that
under both the statute and the Statement of Administrative Action
(``SAA''), COP/CV cannot be calculated using foreign accounting
practices that ``do not reasonably reflect the costs of producing the
subject merchandise.'' In addition, petitioner argues that the CIT has
``made [it] clear that even if a respondent's accounting records are
consistent with the respondent's home country GAAP, it is unlawful for
the Department to rely on those records when they are unreliable and
distortive of `actual costs' '' (citing Thai Pineapple Pub. Co. v.
United States, 946 F. Supp. 11, 20 (Ct. Int'l Trade 1996)). Petitioner
argues that the Department has determined that COP/CV must reasonably
reflect actual production costs, citing, e.g., Certain Cut-to-Length
Carbon Steel Plate from Brazil; Final Results of Antidumping Duty
Administrative Review, 62 FR 18486, 18492 (April 15, 1997), and Final
Determination of Sales at Less Than Fair Value; Canned Pineapple Fruit
from Thailand, 60 FR 29553, 29559 (June 5, 1995). Petitioner notes that
the ``SAA identifies U.S. GAAP as the standard for determining whether
a company's records reflect actual costs.'' Also, petitioner notes how
respondent's subordinated shareholders' loans and dividends on Class C
shares may be classified in Husky's financial statement. Because this
argument entails the discussion of proprietary information, see
Analysis Memo: Final (proprietary version).
    Department's Position: We disagree with respondent's
characterization of the interest on subordinated shareholders' loans
and dividends on Class C shares. As petitioner notes above, and as
mentioned in the Cost Verification Report, Husky officials identified
the following three characteristics of these shareholders' loans: (1)
each shareholder charges the same fixed interest rate; (2) Husky
accrues the interest expense even if the entity has an operating loss;
and (3) the accrued expense is not a dividend. These three
characteristic descriptions, as well as the statement that the account
balances of shareholder loans reflect the interest expense due to
shareholders for loaning the organization funds, suggest that these are
interest expenses for Husky.
    Furthermore, we note that Husky's auditors appear to have
implicitly characterized the subordinated shareholders' loan amounts as
debt, by stating that these ``loans are subordinated to all senior debt
and other financial debt of the Company.'' See Cost Verification
Report, Exhibit 2 (Husky's Consolidated Financial Statements and
Auditors' Report, dated December 31, 1997, Note Six). The loans, while
subordinated to other debt, are still identified as debt because they
have a specific maturity date and require the payment of interest (Note
12 of the same financial report). Additionally, we agree with
petitioner's argument regarding how the subordinated shareholders'
loans and dividends on Class C shares are represented in Husky's
financial statements. Because this discussion involves proprietary
information, see Analysis Memo: Final (proprietary

[[Page 37742]]

version) for a full discussion of this issue.
    We agree with petitioner that the Department's practice is to
include interest on loans from owners or shareholders when calculating
a respondent's financial expense ratio. See, e.g., Kiwifruit from New
Zealand (Department agreed with petitioners that any interest expenses
that were necessary to produce kiwifruit should properly be included in
the cost of production, since there was no evidence that the interest
rate on the related-party loan did not reflect market interest rates.);
and Antifriction Bearings from Germany (Department stated that the loan
to respondent from a shareholder does not differ from other debt.
Therefore, the interest paid on that loan was treated as an interest
expense.).
    In addition, if a respondent's financial statements classify the
owners' or shareholders' holdings as a debt or loan, rather than as
equity, Department practice is to include the payments on these
holdings in the calculation of respondent's financial expense ratio.
See Roses from Ecuador (Department noted that since the loan in
question was not recorded originally as an equity investment and was
reflected in the company's books and records as borrowings, we had no
basis to reclassify it as equity.) and Melamine Institutional
Dinnerware Products from Taiwan (Department stated that although
respondent may have considered the transactions in question to serve as
equity capital infusions, its audited financial statement classified
them as long-term loans. Other than respondent's assertions, there was
no basis on the record to reclassify these amounts.).
    Finally, as stated in section 773(f)(1)(A) of the Act, the
Department normally relies on foreign company's books and records for
calculating COP/CV if these practices are: (1) consistent with their
home country GAAP, and (2) reasonably reflect the costs associated with
the production and sale of the merchandise. Due to the economic
realities of these loans, Canadian GAAP has required the company to
treat these loans as a note payable. Thus, the interest expense
incurred on this debt should be reflected in the cost of production as
any other interest expense.
    Based on our analysis above, we continue to find that these
payments by Husky are properly classified as interest expenses in the
calculation of its financial expense ratio.

Final Results of Review

    As a result of our review of the comments received, we determine
that the following margin exists:

------------------------------------------------------------------------
                                                                Margin
             Manufacturer/Exporter              Time Period   (percent)
------------------------------------------------------------------------
Husky Oil, Ltd................................    12/01/96-         0.37
                                                   11/30/97
------------------------------------------------------------------------

    Because the final calculated margin is de minimis, the Department
will instruct the U.S. Customs Service to liquidate entries of subject
merchandise during the POR without regard to antidumping duties.
    The following cash deposit requirements will be effective upon
publication of these final results for all shipments of the subject
merchandise entered, or withdrawn from warehouse, for consumption on or
after the publication date provided by section 751(a)(1) of the Act:
(1) The cash deposit rate for the reviewed company will be the rate
listed above (except that if the rate is de minimis, i.e., less than
0.5 percent, no cash deposit rate will be required for that company);
(2) for previously investigated companies not listed above, the cash
deposit rate will continue to be the company-specific rate published
for the most recent period; (3) if the exporter is not a firm covered
in this review, a prior review, or the original less than fair value
investigation, but the manufacturer is, the cash deposit rate will be
the rate established for the most recent period for the manufacturer of
the merchandise; and (4) the cash deposit rate for all other
manufacturers or exporters will continue to be the ``all others'' rate
made effective by the final results of the 1993/94 administrative
review of these orders (see Elemental Sulphur from Canada: Final
Results of Antidumping Duty Administrative Review, 62 FR 37970 (July
15, 1997) (1992/93 and 1993/94 Final Results)). These deposit
requirements, when imposed, shall remain in effect until publication of
the final results of the next administrative review.

Notification of Interested Parties

    This notice also serves as a final reminder to importers of their
responsibility under 19 CFR 351.402(f)(2) to file a certificate
regarding the reimbursement of antidumping duties prior to liquidation
of the relevant entries during this review period. Failure to comply
with this requirement could result in the Secretary's presumption that
reimbursement of the antidumping duties occurred and the subsequent
assessment of double antidumping duties.
    This notice also serves as a reminder to parties subject to
administrative protective orders (APOs) of their responsibility
concerning the disposition of proprietary information disclosed under
APO in accordance with 19 CFR 353.34(d)(1), that continues to govern
business proprietary information in this segment of the proceeding.
Timely written notification of the return/destruction of APO materials
or conversion to judicial protective order is hereby requested. Failure
to comply with the regulations and the terms of an APO is a
sanctionable violation.
    This determination is issued and published in accordance with
sections 751(a)(1) and 777(i)(1) of the Act.

    Dated: July 6, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-17801 Filed 7-12-99; 8:45 am]
BILLING CODE 3510-DS-P