66 FR 37638, July 19, 2001
                                                            A-570-827
                                                Administrative Review 
                                                 POR 12/1/98-11/30/99
                                                      Public Document 
                                                         IA: P. Stolz

MEMORANDUM TO: Faryar Shirzad
Assistant Secretary 
  for Import Administration

FROM: Bernard T. Carreau
Deputy Assistant Secretary, Group II
Import Administration 

SUBJECT: Issues and Decision Memorandum for the Antidumping Duty
Administrative Review on Certain Cased Pencils
- December 01, 1998 through November 30, 1999

Summary 

We have analyzed the comments of the interested parties in the 1998-1999
administrative review of the antidumping duty order covering certain cased
pencils from the People's Republic of China (PRC). As a result of our analysis
of the comments received from interested parties, we recommend making no
changes to our position in the preliminary results of this review.
Specifically, we recommend that you approve the positions we have developed in
the "Discussion of the Issues" section of this memorandum. Below is the
complete list of the issues in this administrative review for which we received
comments from parties:

Whether the Department Should Continue to Base the Dumping Margin on Total
Adverse Facts Available.

Whether China First Pencil Co., Ltd. (CFP) and Three Star Stationery Industry
Co., Ltd. (Three Star) Should be Treated as a Single Entity for Antidumping
Purposes. 

Whether to Calculate a Dumping Margin for Sales to the U.S. Importer, Rose Art
Industries, Inc. (Rose Art), regardless of whether adverse facts available are
applied to all other sales. 

Whether to Use American Basswood Prices or Indonesian Slat Prices to Value
Chinese Lindenwood. 

Whether to Use Sales Commissions and Bank Charges in Calculating a Dumping
Margin. 

Whether to Use Indonesian Surrogate Values to Calculate the Dumping Margin. 

Background

On January 9, 2001, the Department of Commerce (the Department) published in
the Federal Register the preliminary results of the administrative review of
the antidumping duty order on certain cased pencils from the PRC. In the
preliminary results, we based CFP's dumping margin on total adverse facts
available. See Notice of Preliminary Results of Antidumping Duty Administrative
Review: Certain Cased Pencils from the People's Republic of China, 66 FR 1638
(January 9, 2001) (Preliminary Results). The period of review (POR) is December
1, 1998 through November 30, 1999.

We invited parties to comment on our preliminary results of review. In
response to this invitation, CFP and Three Star (respondents), and petitioners
(the Pencil Section of the Writing Instrument Manufacturers Association,
Sanford Corporation, Dixon-Ticonderoga Corporation, Tennessee Pencil Company,
Musgrave Pencil Company, Moon Products, Inc., General Pencil Company, and
Aakron Rule, Inc.,) filed case briefs on March 2, 2001 and rebuttal briefs on
March 14, and 15, 2001, respectively. Rose Art Industries, Inc., a U.S.
importer of the subject merchandise during the POR, filed a case brief on March
1, 2001. 

Margin Calculations

Based upon our analysis of the comments received from interested parties, we
recommend making no revisions to our preliminary results. 

Discussion of the Issues

Comment 1: Whether the Department Should Continue to Base the Antidumping
Margin on Total Adverse Facts Available 

Petitioners note that pursuant to section 776(a) of the Tariff Act of 1930, as
amended (the Act), the Department may resort to facts available, in general, if
a party withholds requested information, fails to provide requested information
by the imposed deadlines, significantly impedes the proceeding, or provides
requested information that cannot be verified. Additionally, petitioners note
that section 776(b) of the Act permits the Department to use an inference
adverse to a party in selecting from among the facts otherwise available if the
party has failed to cooperate by not acting to the best of its ability. In
interpreting these statutory provisions, petitioners state that before applying
total adverse facts available, the courts have required the Department to find
that: 1) the party did not submit necessary information in response to the
Department's request, 2) the party failed to cooperate by not acting to the
best of its ability to comply with the request, 3) the application of a total
facts available rate is appropriate under the circumstances of the case, and 4)
the Department determines the adverse rate chosen is relevant and reliable. See
American Silicon Technologies, Inc. v. United States, 110 F. Supp. 2d 992, 1001-
1104 (Court of International Trade (CIT 2000). Petitioners believe that the
facts in the instant review satisfy the statutory guidelines for applying total
adverse facts available for the reasons discussed below. 

First, petitioners note that at verification, the Department found a
significant quantity of third-country sales ultimately destined for the United
States that CFP failed to report despite a specific request that it do so.
Specifically, petitioners point out that the antidumping questionnaire
requested that the respondent contact the Department's official in charge if it
was aware of sales to third-countries that were ultimately destined for the
United States. In response to this request, CFP replied "not applicable."
However, petitioners state that, based on documentation for the unreported
sales obtained at verification, CFP knew or should have known, at least as of
the invoice date (i.e., date of sale), that these sales were destined for the
United States. Petitioners note that many of the documents obtained by the
Department at verification included clear references to U.S. destinations,
references to the U.S. customer of the third-country reseller, and declarations
that indicate a U.S. destination. Thus, petitioners conclude that CFP
inexcusably withheld relevant information requested by the Department.

Second, petitioners contend that CFP deliberately obstructed the Department's
efforts to conduct this administrative review. In light of CFP's knowledge of
the U.S. destination of its unreported third-country sales, petitioners assert
that the failure to report these sales can only be considered deliberate.
Moreover, petitioners note that at verification, CFP continued to deny that
these transactions existed and took steps to impede the Department's attempts
to uncover the unreported sales. Petitioners note that the verification report
painstakingly documents CFP's obstructive behavior regarding the unreported
sales. See petitioners' March 2, 2001 case brief (case brief) at page 14.
Further, petitioners maintain that it was only after the Department discovered
requested third-country sales documentation on a photocopy machine that CFP's
"cover-up unraveled." See petitioners' case brief at page 14. Based on CFP's
failure to report third-country sales destined for the United States and its
refusal to provide requested documentation regarding such sales at
verification, petitioners claim CFP failed to act to the best of its ability to
comply with the Department's requests for information. 

Third, petitioners contend that the importance of the missing information and
CFP's egregious behavior indicate that the use of total facts available is
appropriate. Petitioners note that on several occasions CFP deliberately or, at
best, negligently, failed to report a large percentage of its total U.S. sales -
information that is central to the calculation of a dumping margin. Based on
the significance and volume of the unreported information, petitioners assert
that application of total adverse facts available is warranted. See Kawasaki
Steel Corp. v. United States 110 F. Supp. 1029, 1041 (CIT 2000) ("if the
missing information is important, and a large volume of that information is
missing, it is logical to draw a more adverse inference because that would
further the goal of creating an incentive for respondents to provide the
information."). Further, petitioners claim that total adverse facts available
is warranted because the record shows that CFP stood to benefit from
withholding the requested information. See Gourmet Equip. Corp. v. United
States, 2000 Ct. Intl. Trade LEXIS 82; Slip Op. 2000-78 at 14 (CIT 2000)
("Commerce is to consider the extent to which a party may benefit from its own
lack of cooperation."). In addition, petitioners state that the application of
total adverse facts available is appropriate as it would serve the statutory
purpose of inducing future cooperation and tend to curb attempts by CFP to
obtain a more favorable result than it would have if it had cooperated fully.
See Ta Chen Stainless Steel Pipe, Inc. v. United States, 2000 Ct. Intl. Trade
LEXIS 107; Slip. Op. 00-107 at 21 (CIT 2000).

Moreover, petitioners note that the Department has found it critical for
parties to submit timely, accurate information to allow sufficient time for its
review. See Certain Circular Welded Non-Alloy Steel Pipe From Mexico; Final
Results of Administrative Review, 65 FR 6136 (February 8, 2000) at Comment 1.
Yet, petitioners point out that, in the instant review, significant information
was not presented to the Department until verification was underway. Further,
petitioners note that in the instant review, CFP's denial regarding the
existence of such sales precluded the Department from issuing a supplemental
questionnaire. 

Fourth, petitioners argue that the adverse facts available rate chosen in the
preliminary results, 53.65 percent, is relevant and reliable because the rate
has been re-calculated by the Department pursuant to a voluntary remand. In
addition, the Department had corroborated the validity of this rate in two
previous administrative reviews and a sunset review. The corroborated rate has
a reasonable relationship to past practices of the industry and this qualifies
as relevant for facts available. See Kompass Food Trading Int'l v. United
States, Ct. Int'l Trade LEXIS 92, Slip Op. 00-90 at 11-12 (CIT 2000).
Furthermore, petitioners state there is no information on the record indicating
that this rate is inappropriate. Thus, petitioners conclude, the adverse facts
available rate is corroborated, reliable, relevant and can be used by the
Department. 

Additionally, petitioners state that the statutory provision under which the
Department shall not decline to consider information submitted by a party does
not apply to the information regarding unreported sales submitted by CFP at
verification. Petitioners note that the statute (section 782 (e)) indicates the
Department shall not decline to consider information where 1) the information
is submitted by the established deadlines, 2) the information can be verified,
3) the information is not so incomplete that it cannot serve as a reliable
basis for reaching a determination, 4) the interested party has demonstrated
that it acted to the best of its ability in providing the information and
meeting the requirements established by the Department with respect to the
information, and 5) the information can be used without undue difficulty.
Petitioners contend that none of these requirements have been met with respect
to the unreported third-country sales destined for the United States because 1)
the information was not submitted by the established deadline, 2) the
information could not be verified because it was submitted too late, 3) the
information does not indicate whether certain costs are included in the sales
price and thus, it is incomplete, 4) the record indicates that CFP attempted to
hide this sales data from the Department, and thus CFP did not act to the best
of its ability in providing this information, and 5) the information cannot be
used without undue difficulty because it is incomplete.

Based on the foregoing, petitioners believe that the Department properly
applied total adverse facts available in the preliminary results and should
continue to do so for the final results of this review. 

CFP claims the Department should not apply total adverse facts available in
the final results because 1) its failure to report certain U.S. sales was
narrow in scope and inadvertent, and does not destroy the overall integrity of
the reported data, and 2) it went to great lengths to cooperate with the
Department in this review. CFP notes that the Department's preliminary facts
available analysis and verification report focused on certain unreported U.S.
sales through two third-country unaffiliated resellers.(1) CFP's views
regarding the unreported sales are outlined below. 

With respect to pencil sales to third-country reseller A, CFP concedes that
some of these sales should have been reported as U.S. sales; CFP believes it is
an overstatement to conclude, as the Department did in its preliminary results,
that the evidence clearly indicates that all pencil sales to reseller A are
third-country sales ultimately destined for the United States. According to
CFP, the evidence indicating possible knowledge of a U.S. destination for
pencils sold to reseller A varies in quality. Specifically, CFP notes that of
the total unreported pencil sales to reseller A, the Department found that
documentation for a portion of these sales indicated only Hong Kong as the
destination (reseller A is located in Hong Kong); documentation for another
portion of these sales contained only the initials of reseller A's U.S.
customer; documentation for a third group of these sales was identified by a
shipping mark that referenced a U.S. city and state (the state was
abbreviated); and, documentation for the last group of sales contained explicit
references indicating that the ultimate destination for the merchandise was the
United States. CFP acknowledges that it should have reported sales with
invoices specifically indicating the United States as the ultimate destination.
However, CFP notes that reseller A is a Hong Kong trading company, and such
companies do not limit their commercial activities solely to transactions
involving the United States. Thus, CFP contends that there is an insufficient
basis for presuming that all sales to reseller A were destined for the United
States, particularly where documents for other sales to this reseller either do
not indicate the ultimate destination or bear only references to a location in
the United States. Moreover, according to CFP, the fact that some documents
included explicit instructions to ship directly to the United States, while
others did not, evidences a distinction between those sales and sales without
such explicit instructions. Finally, CFP notes that declarations on sales
invoices which led the Department to believe that sales to third-country
reseller B may be destined for the United States (a discussion of these sales
is below), were not similarly found on invoices for sales to reseller A. See
the Memorandum To the File From Paul Stolz, Proprietary Information Relating to
Unreported U.S. Sales and the CFP-Three Star Relationship, dated concurrently
with this "Issue and Decision Memorandum" (Proprietary Information Memorandum)
at Item 1. This fact, according to CFP, further casts doubt on its supposed
knowledge of the final destination of sales to reseller A. Thus, CFP argues
that for the majority of pencil sales to reseller A, there is either no
indication or only a vague indication that it knew or possibly could have known
that the merchandise was destined for the United States.

CFP makes the following specific observations regarding sales to reseller A
where the documentation references the United States or a U.S. city and state.
First, CFP explains that its failure to report sales with documentation
indicating the United States as the ultimate destination was inadvertent. CFP
notes that the documents indicating delivery to the United States were in the
sales files of an employee who was not involved in preparing the response to
the Department's questionnaire. Additionally, CFP claims that the unreported
sales with documentation indicating delivery to the United States account for
an exceedingly small percentage of the total value and volume of the reported
U.S. sales. Therefore, CFP maintains its failure to report these sales does not
merit the imposition of total adverse facts available. With respect to sales
with a shipping mark referencing a U.S. city and state, CFP claims its
officials were unaware that the referenced city was in the United States.
According to CFP, the fact that an American citizen may recognize the
referenced city as a U.S. destination should not lead to the presumption that
CFP knew or should have known the same. Furthermore, CFP maintains that even if
its staff had recognized that the city and state in question were in the United
States, there is no reason to presume that the pencils it delivered to reseller
A were ultimately destined for the United States since reseller A's U.S.
customer is a trading company that may resell the pencils to customers outside
of the United States. 

Finally, CFP claims that it had no reason to hide sales to reseller A from the
Department. In fact, CFP notes that it had an incentive to report the sales in
question because they were relatively high value sales and their inclusion in
the sales file would decrease the overall dumping margin.

With respect to pencil sales to third-country reseller B, CFP acknowledges
that it arranged shipment of this merchandise directly to U.S. ports and thus,
should have reported these sales. However CFP maintains that, for the reasons
set out below, this omission does not warrant the use of total adverse facts
available. First, CFP claims the omission of these sales was inadvertent.
Moreover, CFP notes that the value of unreported sales to reseller B is not a
significant portion of the total value of reported U.S. sales. Second, although
the Department noted in its preliminary results that CFP was not forthcoming in
providing documents regarding these sales and it offered no explanation for its
actions, CFP contends that it did explain its actions. CFP states that its
apparent unwillingness to immediately disclose all relevant sales documents was
due to the fact that 1) the salesperson responsible for the sales in question
no longer worked for CFP and thus, it took time to locate the requested
documentation, and 2) CFP was extremely sensitive to certain commercial
implications of disclosing the relevant sales documents which might be revealed
to its U.S. customers and others. See the Proprietary Information Memorandum at
Item 2. CFP notes that its sensitivity to this issue, coupled with its
inexperience with antidumping proceedings explain its reticence. Third, CFP
claims the Department's preliminary conclusion that it failed to provide
information regarding sales to reseller B is incorrect. CFP acknowledges that
it did not provide the requested documentation, in toto, in response to the
verifier's first request, and its response to the Department's requests at
verification was slower than it would have liked; however, CFP claims that the
verification report and exhibits indicate that the Department ultimately
obtained and verified the data in question. Thus, CFP maintains that the record
does not support the assertion that it failed to cooperate by not providing
complete information with respect to the sales in question and that any
omission was inadvertent. See Nippon Steel Corp. v. United States, 118 F. Supp.
2d 1366, 1378 (CIT 2000) (the Court noted that the relevant question with
respect to non-cooperation is whether the failure to provide the requested data
is more than an inadvertent error).

Furthermore, CFP states that its failure to report certain U.S. sales
information is not significant enough to call into question the accuracy and
completeness of all of its submitted information. CFP notes that the Department
verified its factors of production information without noting any problems.
Further, CFP claims that the Department cannot seriously challenge the
completeness of the revised list of U.S. sales which includes the unreported
sales noted above and is on the record of this review. In fact, CFP notes that,
at verification, the Department literally reviewed each and every export
transaction that it made during the POR and verified its total sales by
reconciling them to its financial statement. In addition, CFP states that the
Department took as verification exhibits source documents that establish all
actual and potential U.S. sales not originally reported and, moreover, it
verified these sales. Therefore, regardless of whether the Department uses the
data for the originally unreported sales, CFP states that the Department cannot
objectively decline to use the original sales database in order to calculate a
margin. 

Also, CFP argues that the application of total adverse facts available is
punitive because it went to great lengths to cooperate with the Department in
this review. CFP notes that while the Department maintains wide discretion with
respect to the application of facts available, the statute and the CIT have
placed certain conditions upon its use. Most notably, before making any adverse
inferences in selecting from among the facts otherwise available (adverse facts
available), CFP points out that the Department must find that the party has
failed to cooperate by not acting to the best of its ability. Additionally, CFP
notes that in Borden, Inc v. United States, 4 F. Supp. 2d 1221 (CIT 1998)
(Borden) the court held that to satisfy the statutory requirement for using
adverse facts available, the Department must articulate its reason for finding
that a party failed to cooperate to the best of its ability. Specifically, CFP
notes that the court found in Borden that the Department could not use adverse
facts available because it had "articulated no reason for finding
{respondents'} failure {to provide information} was an unwillingness, rather
than an inability to cooperate." See Borden at 1247. Yet, CFP points out that
in the instant review it provided 1) complete factors of production data with
virtually no errors, 2) the Department's verifiers with all the documents they
requested and all the documents it had to produce, and 3) a U.S. sales database
that, although imperfect, was corrected during the course of the review. Thus,
CFP claims the record shows it cooperated with the Department in the review. 

Furthermore, CFP contends the Department's use of total adverse facts
available in this proceeding is contrary to other recent court cases. CFP notes
that in Mannesmannrohren-Werke AF v. United States , 120 F. Supp. 2d 1075 (CIT
2000) (Mannesmannrohren-Werke), the respondents refused, on four occasions, to
provide the Department with data regarding major inputs purchased from
affiliated suppliers and made a "materially false" statement intended to
deflect the Department's inquiry. However, in that case, the Department limited
the application of adverse facts available to the value of the major input
(data the Department declined to accept at verification). CFP asserts that its
conduct in the instant review is far less egregious than that of the
respondents in Mannesmannrohren-Werke. CFP maintains that its situation is
somewhat analogous to that found in Krupp Thyssen Nirosta GmbH v. United
States, 2000 Ct. Intl. Trade LEXIS 91; Slip Op. 2000-89 at 21 - 22 (CIT 2000)
(Krupp Thyssen). In Krupp Thyssen the Department asserted that multiple
deficiencies in the respondents' further manufacturing data undermined the
credibility of the entire response. However, CFP notes that in that case, the
court remanded to the Department to consider whether the application of total
adverse facts available was warranted based on evidence of unreliability of the
other supplied data. 

Moreover, CFP notes that the Department has a statutory obligation to
determine dumping margins as accurately as possible. See e.g. Rhone Poulenc,
Inc. v. United States, 899 F.2d 1185, 1191 (Fed. Cir. 1990). Thus, CFP contends
it is not only illogical to reject the information that the Department spent
inordinate amounts of time collecting and verifying but would contravene the
Department's statutory obligation. Also, CFP claims that in applying total
adverse facts available the Department would be ignoring entirely CFP's
verified customary selling practices and applying unduly punitive, aberrant
facts that are not rationally related to CFP's verified sales. See Krupp
Thyssen at 8 indicating adverse facts available must be non-aberrant,
rationally related to sales, not unduly punitive and indicative of a
respondents customary selling practices. Because, according to CFP, the
Department has all the information on the record necessary to calculate a
margin, it urges the Department not to use adverse facts available. 

Petitioners refute CFP's attempts to portray its behavior as something less
than non-cooperation and argue that the facts support the use of total adverse
facts available. First, petitioners claim that CFP did not support its
assertion that its reporting failure was inadvertent with respect to sales to
third-country reseller A where documentation referenced a U.S. destination.
Second, with respect to sales to reseller A where documentation did not
explicitly reference the United States as the ultimate destination (i.e.,
documents with the initials of reseller A's U.S. customer and a shipping mark
indicating a U.S. city and state), petitioners point out that the documents
that contained explicit references to the United States as the ultimate
destination also included the initials of reseller A's U.S. customer and the
U.S. city and state that appeared as a shipping mark. Therefore, the documents
that referenced the U.S. customer's initials alone or together with a U.S. city
and state, could easily be associated with the United States and they provide
sufficient information from which to determine that the merchandise was
destined for the United States. Consequently, petitioners maintain there is
nothing to CFP's claim that it is being penalized for not being familiar with
the geography of the United States. Third, petitioners dismiss CFP's argument
that it did not necessarily know of the U.S. destination with respect to sales
to reseller A because reseller A's U.S. customer could have resold the
merchandise anywhere in the world. Petitioners observe that this reasoning
would have meant CFP would not have had to report any of its direct U.S. sales
because of the possibility that they could be resold outside of the United
States. In any event, petitioners note that the documents prepared by CFP for
the sales in question clearly indicate a U.S. destination and the Department
quite properly focused on the destination provided in the commercial
documents.(2) Fourth, petitioners claim that the fact that invoices for sales
to reseller B contained certain declarations applicable to merchandise destined
for the U.S., while invoices for sales to reseller A did not, does not indicate
that sales to reseller A were not destined for the United States. See the
Proprietary Information Memorandum at Item 1. Petitioners note that record
evidence shows that the absence of such declarations is perfectly consistent
with goods destined for the United States. Thus, petitioners conclude that CFP
either deliberately withheld information from the Department or conducted a
search of its records that was so deficient that it failed to act to the best
of its ability. 

Additionally, petitioners contend that CFP's explanations regarding the
unreported U.S. sales through third-country reseller B are unconvincing. First,
petitioners claim that CFP never provided evidence that its failure to report
these sales was inadvertent. Petitioners find this failure to provide a
plausible reason for not originally reporting these sales troubling since CFP
admits it made arrangements to ship the merchandise directly to the United
States. According to petitioners, CFP's explanation as to why it did not
initially provide the verifiers with requested documentation related to these
sales (i.e., the possible commercial implications of disclosing the relevant
sales documents (the nature of which is proprietary)) is the real reason for
not reporting the sales in the first place. See the Proprietary Information
Memorandum at Item 2. Moreover, regardless of the rationale behind the delayed
presentation of these documents at verification, petitioners believe that CFP's
excuse for the delay merely confirms that the company knew these were U.S.
sales and deliberately failed to cooperate by withholding documents from the
Department. In addition, petitioners claim that proprietary information
regarding CFP's accounting records and sales practices further indicates that
the company knew of the U.S. destination of these sales. See the Proprietary
Information Memorandum at Item 3. Finally, petitioners state that even if CFP
was inexperienced with verification, that does not entitle it to lenient
treatment because its failure to report U.S. sales through reseller B in its
questionnaire response had nothing to do with verification.

Furthermore, petitioners argue that although CFP attempts to excuse its non-
reporting of third-country sales by highlighting the overall volume of
information it did present, the overall volume of submissions on all issues is
irrelevant to whether CFP cooperated with Commerce on the specific issues at
hand. According to petitioners, CFP's failure to report a large volume of
important information warrants the application of an adverse inference since
CFP stood to gain from withholding the information. See the Proprietary
Information Memorandum at Item 4.

Lastly, petitioners claim CFP's reliance on Mannesmannrohren-Werke and Krupp
Thyssen are inapposite. Petitioners claim that in Mannesmannrohren-Werke the
court did not consider the circumstances in which application of total facts
available is appropriate, rather the discussion in that case concerned the
Department's use of partial facts available. Moreover, according to
petitioners, in Krupp Thyssen although the court found fault with the
Department's reason for using total fact available in that case, that finding
does not preclude application of total facts available in this case.

CFP contends that petitioners mis-characterize the situation involving the
unreported U.S. sales. First, with respect to sales to third-country reseller
A, CFP contends that, rather than deny the existence of potential U.S. sales
after the Department found the first of such sales, it provided extensive
documentation regarding these sales, including documentation indicating that it
had been notified about the U.S. destination for some of the sales. Thus, CFP
states that it did not attempt to hide these sales from the Department.
Additionally, CFP claims that it had no reason to know that the bulk of these
sales were destined for the United States. CFP maintains that not all of the
documentation relating to these sales definitely indicated a U.S. destination.
Specifically, CFP maintains that there is nothing in the sales documents
containing the initials of reseller A's U.S. customer and a reference to a U.S.
city and state to suggest that it could or should have known these marks
indicated a customer name and a geographic location. According to CFP, the
initials of the U.S. customer and the references to the U.S. city and state
were nothing more than unintelligible shipping marks to its staff. Further, CFP
asserts that its knowledge that some of these sales were destined for the
United States does not indicate that all of the sales were destined for the
United States. CFP points out that even some of its known U.S. customers
request delivery to markets other than the United States. Second, with respect
to sales to third-country reseller B, CFP claims that contrary to petitioners'
assertion that the omission of these sales was intentional, CFP demonstrated
that the omission was inadvertent, it explained the delay in providing
documents for these sales at verification, and, ultimately, it turned over all
of the related sales documents requested by the Department. According to CFP,
although its response was less than perfect, it deserves a calculated margin. 

Department Position:

We disagree with CFP. We find that the facts on the record of the instant
review require application of total adverse facts available under the statutory
framework, as discussed below. 

Section 776(a)(2) of Act provides that, if an interested party (A) withholds
information that has been requested by the Department; (B) fails to provide
such information in a timely manner or in the form or manner requested subject
to section 782(c)(1) and (e) of the Act; (C) significantly impedes a proceeding
under the antidumping statute; or (D) provides such information but the
information cannot be verified, the Department shall, subject to subsection
782(d) of the Act, use facts otherwise available in reaching the applicable
determination. 

In addition, section 782(c)(1) of the Act provides that if an interested party
"promptly after receiving a request from {the Department} for information,
notifies {the Department} that such party is unable to submit the information
requested in the requested form and manner," the Department may modify the
requirements to avoid imposing an unreasonable burden on that party. 

Section 782(d) of the Act provides that, if the Department determines that a
response to a request for information does not comply with the request, the
Department will inform the person submitting the response of the nature of the
deficiency and shall, to the extent practicable, provide that person the
opportunity to remedy or explain the deficiency. If that person submits further
information that continues to be unsatisfactory, or this information is not
submitted within the applicable time limits, the Department may, subject to
section 782(e), disregard all or part of the original and subsequent responses,
as appropriate. 

Section 782(e) of the Act states that the Department shall not decline to
consider information deemed "deficient" under section 782(d) if: (1) the
information is submitted by the established deadline; (2) the information can
be verified; (3) the information is not so incomplete that it cannot serve as a
reliable basis for reaching the applicable determination; (4) the interested
party has demonstrated that it acted to the best of its ability; and (5) the
information can be used without undue difficulties. 

Furthermore, section 776(b) of the Act provides that the Department may use an
inference adverse to the interests of a party that has failed to cooperate by
not acting to the best of its ability to comply with the Department's requests
for information. See also Statement of Administrative Action ("SAA")
accompanying the URAA, H.R. Rep. No. 103-316 at 870 (1994). 

The record of this review shows that CFP withheld information requested by the
Department within the meaning of section 776(a)(2)(A) of the Act, failed to
provide information regarding sales destined for the United States in a timely
manner within the meaning of section 776(a)(2)(B) of the Act and significantly
impeded this proceeding within the meaning of section 776(a)(2)(C) of the Act.
In its antidumping questionnaire response, CFP failed to identify any of its
sales to parties in third countries of pencils destined for the United States,
despite a direct request to notify the Department of such sales. CFP responded
"not applicable" when the Department explicitly asked whether it "was aware
that any of the merchandise {it} sold to third countries was shipped to the
United States." See Section A of the Department's questionnaire dated February
23, 2000 A-7. As a result, the Department had no reason to ask further about
such sales pursuant to section 782(d) of the Act. Additionally, we note that at
no point during this administrative review, did CFP indicate that responding to
the questionnaire presented difficulties, nor did it seek guidance on
alternative reporting requirements, as contemplated in section 782(c)(1) of the
Act. However, at verification, the Department found extensive documentary
evidence that CFP sold subject merchandise to two unaffiliated parties
(resellers A and B) in third countries and knew, or should have known, that the
ultimate destination of the subject merchandise was the United States,
especially since multiple shipments were made directly from CFP to the
resellers' customers in the United States. See Verification Report at 15 - 22. 

As a result of CFP's failure to report its sales to parties in third countries
of pencils destined for the United States, the Department was unable to issue
supplemental questionnaires regarding such sales. Also, the Department was
unable to properly plan verification procedures with respect to these sales. In
addition, during the verification, even after these sales had been discovered
by the Department, on more than one occasion, CFP officials impeded Department
officials' ability to examine relevant sales documentation by claiming that the
requested documentation did not exist, when in fact the verifiers had already
uncovered clear evidence that such documentation did exist (see Part VI,
section C of the Completeness section of the Verification of the Sales and
Factors of Production Responses of China First Pencil Company, Ltd.
(Verification Report), dated January 2, 2001, on file in the Central Records
Unit, Room B-099 of the Main Department of Commerce building for details).
CFP's actions during the verification required the verification team to divert
a significant amount of time from its examination of factors of production in
order to address the issue of unreported third-country sales. 

Consequently, pursuant to section 782(e) of the Act, we find it inappropriate
to use the U.S. sales data on the record to calculate a dumping margin for CFP,
as outlined below.

First, with respect to subsection 782(e)(1) of the Act, CFP did not submit
information regarding U.S. sales through third-country resellers within the
established deadlines. In fact, CFP only provided information regarding such
sales at verification, after the Department's verifiers discovered evidence of
U.S. sales through third-country resellers. CFP had full access to this
information, which was under its control, that it did not report.

Second, with respect to section 782(e)(2) of the Act, we were unable to verify
certain information critical to our analysis. Specifically, we disagree with
CFP's contention that at verification the Department established the full
universe of U.S. sales. Although we reviewed sales and shipping documents for a
large percentage of CFP's export sales, there remain questions regarding a
group of third-country export sales for which CFP never provided the type of
detailed documentation ultimately obtained for the U.S. sales through reseller
A and reseller B. While the Department did examine photocopies of invoices and
shipping documents for this latter group of sales and, on their face, these
documents did not indicate the sales were U.S. sales, the Department's
verifiers requested additional documentation for these sales of the type that
they had examined for other third-country sales, such as purchase orders, sales
confirmations, certificates of origin, export customs declarations, faxes,
insurance documents and miscellaneous correspondence. After claiming several
times that no such documentation existed for these sales or for sales through
third-country reseller B, eventually, in the face of persistent questioning by
the verifiers, CFP supplied such documents for the reseller B sales, all of
which demonstrated that sales to reseller B were destined for the United
States. However, CFP never provided similar documentation for the other group
of third-country export sales. Thus, we can not conclude that we have verified
the ultimate destination of these sales. See the Proprietary Information
Memorandum at Item 6. Furthermore, the fact that the Department was able to
reconcile CFP's financial statement with the total value of reported as well as
unreported sales identified at verification does not indicate, by itself, that
the Department accounted for all unreported U.S. sales. In fact, the unreported
U.S. sales identified at verification were discovered by examining detailed
sales and shipping documents for certain sales reported as third-country sales
for purposes of the overall quantity and value reconciliation. Finally, we note
that none of the sales adjustment data has been verified with respect to these
unreported U.S. sales.

In addition, we are concerned that some U.S. sales may have been misclassified
and reported by CFP as home market sales. At verification we examined documents
for purported domestic sales made by CFP to a company which "received" the
merchandise in China. However, documentation viewed at verification indicates
that at least one sale of merchandise to this particular company was shipped
directly to the United States by CFP. Furthermore, documents examined at
verification did not demonstrate that the merchandise was actually sold to a
company domiciled in China. See the Proprietary Information Memorandum at Item
5.

Third, with respect to section 782(e)(3) of the Act, the unreported U.S. sales
identified at verification constitute a significant percentage of the total
quantity and value of the reported sales. Although CFP minimizes the extent of
the reporting failure by limiting unreported sales to those with documents
explicitly referencing the United States as the ultimate destination, the
record indicates that CFP's knowledge of a U.S. destination should not be
limited to such instances since documentation for the remaining such sales all
contained some reference to either the U.S. Customer name, U.S. state, or the
U.S. city of delivery. Thus, the preponderance of the information indicates CFP
should have been aware of the U.S. destination of a majority of the sales to
third-country reseller A. Furthermore, although CFP claims that its unreported
sales to reseller B are not a significant portion of the total value of its
reported sales, we note that the unreported sales through third-country
resellers A and B, in toto, are a significant percentage of the total quantity
and value of the reported sales. See the Proprietary Information Memorandum at
Item 7. In addition, there are concerns regarding the prices of the unreported
sales. See the Proprietary Information Memorandum at Item 4.

Finally, with respect to this statutory element, we note that there remain
sales for which we were unable to verify the ultimate destination and so we can
not be certain that there are not additional unreported U.S. sales (see
discussion above regarding section 782(e)(2) of the Act). Therefore, based on
these facts we have determined that CFP's database is so incomplete that it can
not be considered a reliable basis upon which to calculate a dumping margin
pursuant to section 782(e)(3) of the Act.

Fourth, with respect to section 782(e)(4) of the Act, by having information
regarding sales to third-country resellers destined for the United States
within its possession and failing to report this information to the Department,
CFP failed to demonstrate that it acted to the best of its ability in providing
the requested information. CFP made arrangements to ship some of the unreported
third-country reseller sales directly to the United States. Yet, in response to
a direct request in the antidumping questionnaire to notify the Department of
such sales, CFP failed to do so and, more specifically, responded that this
question was not applicable. However, the record clearly demonstrates that CFP
knew of these sales at the time it prepared its questionnaire response. For
example, with respect to pencil sales to third-country reseller A,
documentation containing explicit references to the United States as the
ultimate destination also include, in close proximity to such references, the
same U.S. city, U.S. state, or U.S. customer reference that appears on
documents which do not explicitly reference the United States. Thus, documents
with references only to a U.S. city, and/or U.S. state/state abbreviation,
and/or U.S. customer name could be readily associated with the United States.
See Verification Report at page 15. In addition, a number of shipping documents
list as "port of discharge" or "port of destination" the U.S. city in question.
See Verification Report at Exhibit 23. Also See the Proprietary Information
Memorandum at Item 8. Moreover, the record includes clear evidence that CFP
made arrangements on multiple occasions to ship merchandise sold to third-
country reseller A directly to the United States, including the merchandise
with only the state references on the documents. With respect to CFP's claim
that reseller A's U.S. customer might have sold the merchandise to a customer
outside the United States, and thus, the merchandise may not have been
ultimately destined for the United States, we note that this supposition is not
supported by any specific evidence on the record. Although the Department's
verifiers were unable to obtain any documentation indicating the shipping
destination for a very small percentage of sales to reseller A, the weight of
evidence indicates that CFP should have been aware that the vast majority of
its sales to reseller A were destined for the United States. (See Part VI,
section C of the Completeness section of the Verification Report for details.)

Further, CFP explained that its failure to report these sales and its lack of
responsiveness at verification was due, in part, to the commercial sensitivity
of certain sales information. See the Proprietary Information Memorandum at
Item 2. Thus, CFP has acknowledged that during the course of this review it
intentionally withheld requested sales information from the Department.
Additionally, with respect to CFP's relationship with the respondent Three Star
(this issue is discussed in Comment 3 below), CFP unequivocally answered the
Department's question, "Has China First {CFP} ever had any type of relationship
with Three Star?" by describing certain interactions with Three Star (the
nature of which is proprietary) as the only relationship between itself and
Three Star. See CFP's August 21, 2000 supplemental response, question 5, at 3.
However, as a result of information placed on the record by petitioners, CFP
eventually acknowledged that there were additional aspects to its relationship
with Three Star, aspects that it did not disclose previously. See the
Proprietary Information Memorandum at Item 9. This raises additional concerns
regarding CFP's level of cooperation and the veracity of its reported sales.
CFP's failure to disclose the U.S. sales in question along with its failure to
disclose certain facets of its relationship with Three Star are clear
indications that CFP failed to act to the best of its ability in responding to
the Department's questionnaire. 

As a consequence of the above analysis regarding sections 776(a) and 782(e) of
the Act, we have determined that the use of total facts available is
appropriate for CFP in this administrative review.

Pursuant to section 776(b) of the Act, in applying facts available, the
Department may use an inference adverse to the interests of a party that has
failed to cooperate by not acting to the best of its ability to comply with the
Department's requests for information. Although CFP argues that it went to
great lengths to cooperate with the Department in this review, the record does
not show that it acted to the best of its ability to comply with requests for
information. In reviewing the evidence on the record, we find that CFP provided
incomplete information in its questionnaire response, failed to provide
information it had readily available, and, at verification, misled the
Department about the availability of sales/shipping documents which
substantiated the existence of unreported U.S. sales. The following summary of
events that transpired at verification illustrates CFP's failure to cooperate
by not acting to the best of its ability to comply with the Department's
request for information. As we stated in the verification report:

In response to the verification team's request to provide all documents
related to certain sales invoices to third-country reseller B, CFP officials
stated that they had no additional documents for this customer. However, later
on the same day that the request was made, the verification team found the
requested documentation on the company's copy machine. Consequently, the team
asked company officials whether they had any additional documentation relating
to any third-country sales including sales to reseller B. CFP officials stated
that they had already given the Department all of the company's sales
information. The team showed company officials examples of the types of
documents it sought based on documentation CFP had provided for other sales,
and asked if CFP had additional documents of this type. CFP stated that there
were no additional documents. The team pointed out that, in fact, it had
reviewed similar documents for other sales and, thus, the team knew this type
of documentation existed. At this point, counsel for CFP objected to the
repeated questioning of his client regarding this matter. However, after
counsel consulted with CFP officials, they began bringing the verification team
some of the documents it had requested. These additional documents clearly
demonstrated that the pencils sold to reseller B were destined for the United
States. The team again requested that CFP provide all relevant sales documents
for these sales. The next day CFP provided the Department with a list of sales
to reseller B; however, again the company did not provide the remaining
requested sales documents. The team again reiterated its request for all
associated sales documents. CFP later provided some additional documents for
the sales to reseller B. See the Verification Report at 18-22. 

CFP's actions, described above, clearly show that it did not act to the best
of its ability to cooperate with the Department's requests for information. CFP
attempts to bolster its claim of full cooperation by noting the amount of
information it did provide; however, we note that providing some information
does not relieve a respondent of the requirement to act to the best of its
ability in providing a complete response to the Department's questionnaire. 

Further, we disagree with CFP's assertion that its conduct in this review was
far less egregious than that of the respondent in Mannesmannrohren-Werke (a
case where the Department applied partial adverse facts available). Although
CFP stated that the respondent in Mannesmannrohren-Werke, Mannesmann, refused
to supply the Department with data regarding billets purchased from affiliates,
Mannesmann did supply such information. However, Mannesmann did not report
certain market price information requested by the Department because it claimed
that it did not purchase billets from unaffiliated suppliers that are identical
to those purchased from its affiliated supplier. At verification, the
Department discovered one such purchase. After this discovery, the verifiers
questioned Mannesmann officials who "informed the verifiers that there were in
fact certain circumstances under which Mannesmann purchased billets from
unaffiliated suppliers ..." Like Mannesmann, CFP made a materially false
statement in response to the Department's questionnaire i.e., replying "not
applicable" when the Department explicitly asked whether it "was aware that any
of the merchandise {it} sold to third countries was shipped to the United
States." See Section A of the Department's questionnaire dated February 23,
2000 A-7. However, unlike Mannesmann, CFP continued to make false statements at
verification. On more than one occasion during the verification CFP claimed
that requested documentation did not exist when, in fact, it did exist.
Furthermore, in contrast to Mannesmann's forthright response at verification,
once CFP's questionnaire response regarding third-country sales was found to be
untrue, it was only through the diligent efforts of the verifiers and the
fortuitous discovery of relevant documentation on CFP's copy machine that all
of the unreported U.S. sales thus far identified were uncovered. In fact, if
the verifiers had not decided to examine additional sales documentation, after
having already proceeded from the sales to the factors of production stage of
the verification, the unreported sales to reseller B might not have been
uncovered.

Additionally, the situation in the instant review is not akin to that in Krupp
Thyssen. In that case, the Department's main reason for rejecting the entire
database of the U.S. affiliated reseller and applying total adverse facts
available was that it found the errors in the further manufacturing response to
be so pervasive as to undermine the reliability of the entire response.
However, the court rejected the Department's assertion, suggesting that there
was insufficient evidence demonstrating that the errors discovered at
verification called into question the rest of the reported cost data let alone
the sales data. In contrast, the record evidence in this review clearly
demonstrates that CFP's reporting failure involves the omission of a
significant percentage of U.S. sales, an essential component of the response.
Without this information it is impossible to calculate an accurate dumping
margin. Moreover, contrary to CFP's assertion, the Department has not verified
the data for the unreported sales discovered at verification. 

Moreover, CFP's pattern of behavior throughout this review heightens the
Department's concerns with respect to possible unreported U.S. sales.
Specifically, we note that CFP has made a series of materially false statements
during the course of this review. First, CFP stated "not applicable" in
response to our questionnaire in which we asked if CFP had made sales through
third countries which were ultimately destined for the United States. Second,
CFP stated that it did not have sales/shipping documents relating to certain
third-country sales when in fact it had documents in its possession
demonstrating that the merchandise sold to third-country resellers was destined
for the United States. Third, CFP stated that its relationship with Three Star
was limited to that of competitor when in fact the relationship between CFP and
Three Star was more substantive. Fourth, CFP stated that none of its managers
had been employed by Three Star in the four-year period prior to the POR, when
in fact management level employees moved between CFP and Three Star in December
1997 (i.e., Mr. Huang Wei-Hu moved from Three Star to Great Wall, CFP's
subsidiary, while Mr. Huang Zhen-Min, who was considered a mid-level manager
within CFP (see CFP's August 21, 2000 supplemental response at 5), left Great
Wall for Three Star). In addition, the piecemeal manner in which CFP has
provided information regarding its relationship with Three Star and the extent
to which its explanations of this relationship rely upon assertions of
"bureaucratic mistakes" to explain documents that evidence an apparent
relationship between CFP and Three Star, is further evidence of a pattern of
behavior which raises concerns. 

In this review, we are using, as adverse FA, the highest margin from this or
any prior segment of the proceeding. Specifically, we are using 53.65 percent,
the currently applicable PRC-wide rate. This rate was the "recalculated"
petition rate, which was "recalculated" for the final determination in the
investigation. See Certain Cased Pencils From the People's Republic of China;
Notice of Amended Final Determination of Sales at Less Than Fair Value and
Amended Antidumping Order in Accordance With Final Court Decision, 64 FR 25275
(May 11, 1999).

The rate we are using for adverse FA 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. The SAA at 870,
however, states further that "the fact that corroboration may not be
practicable in a given circumstance will not prevent the agencies from applying
an adverse inference." In addition, the SAA, at 869, emphasizes that the
Department need not prove that the FA are the best alternative information. 

To corroborate secondary information, to the extent practicable the Department
will examine the reliability and relevance of the information to be used. The
"recalculated" petition rate was corroborated by the Department in a prior
segment of this proceeding and nothing on the record of the instant review
calls into question the reliability of the "recalculated" rate. See Certain
Cased Pencils From the People's Republic of China; Final Results of Antidumping
Administrative Review, 63 FR 779 (January 7, 1998). With respect to the
relevance aspect of corroboration, the Department will consider information
reasonably at its disposal to determine whether a margin continues to have
relevance. 

Nothing in the record of this review calls into question the relevancy of the
selected margin. Furthermore, the rate has not been judicially invalidated.
Thus we determine that it has probative value, and therefore, it is appropriate
to use the "recalculated" petition rate as adverse FA. 

Comment 2: Whether CFP and Three Star Should be Treated as a Single Entity for
Antidumping Purposes 

Petitioners contend that Three Star should be considered part of CFP for
purposes of enforcing the antidumping duty order because the two companies are
affiliated and have intertwined operations. Pursuant to sections 771(33)(E),
(F) and (G) of the Act, petitioners alleged that CFP and Three Star are
affiliated by virtue of common ownership and common control of the two
companies. Petitioners note that the record shows Shanghai Light Industry Co.,
Ltd. (SLI) owns 100 percent of Three Star and 33.10 percent of the voting stock
of CFP. Further, petitioners note that CFP's 1999 annual report states that
"the company's major shareholder is SLI." In addition to this evidence
regarding common ownership, petitioners point to record evidence that they
provided indicating that CFP has now acquired the entire ownership stake (of
SLI) in Three Star making it a subsidiary of CFP. 

Specifically, petitioners note that Three Star's 1999 annual 'yearbook'
report, jointly filed by Three Star and CFP in the Pudong Branch of the
Shanghai Administration Bureau of Industry and Commerce, specifies that CFP is
the owner of Three Star, with an investment of 20 million yuan. Petitioners
contend that the document is prima facie evidence of affiliation. Petitioners
claim that there is no evidence on the record supporting CFP's explanation that
a clerk at the Pudong branch filled in missing information regarding ownership
by erroneously listing CFP as the sole owner of Three Star (Three Star's 1999
yearbook lists CFP as the 'Managing Department'). Petitioners argue that it is
not credible that Three Star and CFP would have forgotten to include the
ownership information in the yearbook, or that a clerk would have filled in
this information without checking the veracity of this information. Petitioners
also state that the clarification that respondents obtained from the Pudong
Branch indicating that the 20 million yuan investment in Three Star is
'attributable' to SLI does not indicate why CFP was listed as the owner, or who
currently owns the equity shares in Three Star. Petitioners further state that
there is no evidence that the Pudong Branch made an independent evaluation of
the ownership issue.

Moreover, petitioners contend that CFP's internal newspaper lists Three Star
as a CFP subsidiary or department. Petitioners note that while CFP claims it
operates the newspaper on behalf of a pencil association, the name of the
newspaper is "China First Pencil." Petitioners also note that the contact
information in the newspaper lists CFP, and the articles in the newspaper cover
CFP.

Additionally, petitioners argue that CFP and Three Star are affiliated
pursuant to sections 771(33)(F) and (G) of the Act because SLI is 'legally or
operationally in a position to exercise restraint or direction over China First
and Three Star. Petitioners contend that, under CFP's articles of association,
SLI's shareholding in CFP gives it certain rights over CFP (the nature of these
rights is proprietary). See petitioners' case brief at page 36. Further,
petitioners point to record evidence that SLI has in fact exercised its right
to direct Three Star. Specifically, petitioners note that, in January 1997, SLI
appointed Mr. Hu Shu-Gang, to serve as legal representative of Three Star, a
position he held concurrently with his position as CFP's legal representative
until SLI removed him from the Three Star position in December 1997. Further,
petitioners note that SLI, as a "self-proclaimed profit-making company," has a
direct interest in Three Star's business success.

Moreover, petitioners contend that the movement of managers between CFP and
Three Star, the managers' concurrent leadership of both companies in 1997, and
certain business relationships between the two companies (the nature of which
is proprietary) indicate a close operational relationship that warrants
treating the two companies as a single entity for antidumping purposes.
Petitioners note that in December of 1997, CFP appointed Mr. Huang Zhen-Min
(formerly president of one of CFP's subsidiaries) to succeed Mr. Hu as Three
Star's legal representative. Petitioners point out that Mr. Huang himself was
succeeded as president of the CFP subsidiary by a former vice president of
Three Star. With respect to the concurrent leadership of CFP and Three Star by
Mr. Hu in 1997, petitioners argue that, contrary to respondents' assertions,
record evidence, including Three Star's "Notice of Business Corporation
License," with Mr. Hu's signature as legal representative, Three Stars public
filings, and SLI's retraction of Mr. Hu's appointment at Three Star,
demonstrates that Mr. Hu was the de facto and de jure legal representative of
Three Star in 1997. Lastly, in support of treating CFP and Three Star as one
entity petitioners point to a certain proprietary relationship between CFP and
Three Star and proprietary details regarding why CFP was identified as the
"Managing Department" in Three Star's 1999 yearbook. For details regarding this
proprietary information, see CFP's April 11, 2001 supplemental questionnaire
response at 2 and 7. Also See the Proprietary Information Memorandum at Items 9
and 10.

After arguing that CFP and Three Star are affiliated, petitioners next
maintain that CFP and Three Star should be collapsed into a single entity
because the nature of their affiliation presents a significant potential for
manipulation of production, pricing or cost of the subject merchandise.
Petitioners claim that SLI has the "means" and the "motive" to affect CFP and
Three Star's production, pricing, and cost of pencils, noting that the
profitability of CFP and Three Star will have a direct bearing on SLI's own
profitability. Moreover, petitioners claim that if the Department adopts the
preliminary results in the final (i.e., the 53.65 antidumping rate for CFP) the
only way for SLI to maintain CFP's "competitive edge" in making sales to the
United States will be by routing CFP's pencils through Three Star or shifting
CFP's production to Three Star. Additionally, petitioners state that the
relationship between CFP and Three Star meets the requirements for collapsing
under section 351.401(f) of the Department's regulations. 

First, petitioners state that CFP and Three Star produce identical products,
cased pencils, and "little if no retooling" would be needed if CFP were to make
pencils for sale by Three Star. Second, petitioners contend that the facts
point to a significant potential for manipulation of price or production among
SLI, CFP and Three Star. Petitioners note that SLI has common ownership in both
CFP and Three Star and that CFP's and Three Star's operations are intertwined
through the movement of executives between the two companies and, in the case
of Mr. Hu, concurrent leadership of both companies during 1997.(3) Petitioners
also claim that certain proprietary dealings involving CFP and Three Star
indicate a connection between the companies that supports collapsing them into
a single entity. For details regarding this proprietary information, see
petitioners case brief at 44, and petitioners May 8, 2001 affiliation comments
at 21. See the Proprietary Information Memorandum at Item 9. Petitioners
further state that, in general, there is a potential for SLI and/or CFP to
"funnel" CFP's pencils through Three Star or to "manipulate" Three Star's
operations to provide CFP with a cost benefit. Petitioners note that moving
pencils through Three Star is particularly "enticing" because pencils produced
by Three Star and sold through Guangdong Stationery and Sporting Goods Import &
Export Co. (GSSG) are exempted from this antidumping duty order. Petitioners,
citing to Nihon Cement Co., Ltd. v. United States,17 CIT 400, 425 (1993), FAG
(UK) Ltd. v. United States, 24 F.Supp. 2d 297 (CIT 1998), and Electrolytic
Manganese Dioxide from Japan; Final Results of Antidumping Duty Administrative
Review, 65 FR 55939 (September 15, 2000) at Comment 2, contend that the
Department, in its collapsing analysis, focuses on the possibility or potential
of manipulation of production, pricing, or cost, and need not find that such
manipulation has already taken place.

Petitioners argue that if Three Star and CFP were collapsed, then subject
merchandise produced by Three Star and exported by GSSG would be subject to the
antidumping duty order. Currently, petitioners note, pencils manufactured by
Three Star and exported by GSSG are excluded from the antidumping duty order.
Petitioners argue that if Three Star were collapsed with CFP, it would no
longer qualify as a separate producer, but would be treated as part of CFP's
production facilities. Thus, according to petitioners, all of Three Star's
pencils, including those exported by GSSG, would by subject to the antidumping
duty order because they would then be produced by CFP. 

Finally, petitioners state that to the extent any factual information is
missing from the record with respect to the affiliation and collapsing issue,
the Department should, as adverse facts available, collapse CFP and Three Star
because CFP has failed to act to the best of its ability to provide such
information. Petitioners claim that with respect to the affiliation and
collapsing issue, CFP has provided false responses, been dilatory in its
responses, and deliberately failed to provide information which only came to
light in response to information petitioners placed on the record.
Consequently, petitioners claim the requirements for drawing adverse inferences
under section 776(b) of the Act have been met.

Respondents argue that CFP and Three Star are not affiliated. First,
respondents dispute petitioners' assertions that CFP and Three Star are
affiliated by virtue of their common ownership by SLI. Respondents note that
SLI has administrative responsibility as a trustee for Three Star, a company
owned by 'all the people,' but does not become involved with Three Star's
operations or commercial activities. Respondents state that Three Star is a
state-owned corporation, whose assets belong to 'All the People,' under the
trusteeship of SLI to protect those assets in China's evolving, transitional
economy.

Respondents also contend that SLI has a similar relationship with CFP, except
that, as the state's trustee, SLI holds shares in CFP because the company was
privatized in large part in 1993. Respondents argue that SLI's shareholdings in
CFP should not be viewed and analyzed using a market-economy analysis.
Respondents explain that SLI, the largest shareholder of CFP, is a state-owned
organization that does not operate independently from the government, and is a
de facto, if not de jure, arm of the Shanghai Municipal government. Respondents
state that SLI is no different from the administrative bureaus which have
administrative oversight over various state-owned or "all the people" companies
like those involved in every Chinese antidumping case before the Department.
Respondents further explain that SLI is responsible for the "administrative
oversight" of various state assets in the Shanghai area, including the state-
owned shares of CFP (held by SLI as trustee), and is not involved in operating
any of the companies over which it has "administrative oversight." Respondents
point out that the Department, in granting partially or entirely-state-owned
companies a separate rate, determines that these companies (like CFP) are
sufficiently independent of the government and other exporters of the subject
merchandise so as to be deemed separate from the PRC entity for purposes of the
dumping analysis. Respondents state that this constitutes an acknowledgment by
the Department that, as China's economy evolves, certain state 'ownership'
interests will be accepted as necessary to the transformation of China's
economy. Respondents contend that SLI's equity 'ownership" in CFP is not held
in the traditional sense, but as a trustee of state assets that are, over time,
being privatized, and should be treated as such. Respondents also stress that
it is implausible to consider that a shareholding company (i.e., CFP) with
virtually no commercial connection to a company owned by "all the people"
(i.e., SLI) could be considered "so connected and intertwined" as to require
that the two be treated as a single company.

Respondents also claim that record documents demonstrate that the National
Finance Center (a PRC government financing bureau), and not CFP, is the source
of Three Star's original 20 million yuan capitalization. Respondents state that
Three Star's appointed accounting firm, and not the Shanghai Administration
Bureau of Industry and Commerce (the business licensing and administrative
authority in Shanghai), mistakenly identified CFP as the source of this
capitalization, and claim that this mistake is not surprising, given the
confusion concerning the concept of ownership in China. Respondents stress that
neither CFP nor SLI is the owner of Three Star, and if CFP had acquired the
ownership of the initial capitalization in Three Star, that fact would be
reflected in CFP's audited financial statements. Respondent argues that there
is no information in CFP's audited financial statements that indicates that CFP
has an ownership interest in Three Star.

Additionally, respondents argue that Mr. Hu, CFP's chairman of the board, was
never employed by Three Star, and point out that the Department verified that
Mr. Hu was never employed at Three Star. Respondents state that documents
placed on the record by petitioners do not support petitioners' claim that CFP
and Three Star shared management. According to respondents, these documents
were either not what they were represented to be (i.e., a business license was
not actually a business license but a notice of a business license that was
never issued) or are related to SLI's attempted appointment of Mr. Hu to a
management position at Three Star, which was rejected by CFP's shareholders and
board of directors. Moreover, respondents state that, even if the allegations
regarding contemporaneous employment by Mr. Hu at both CFP and Three Star were
true, they are irrelevant because the allegations relate to 1997, a year before
the POR. Respondents further point out that Mr. Hu was not a manager or legal
representative of CFP during the POR, but was the chairman of CFP's board of
directors.

Respondents also contend that it is not unusual that managers in one industry
move from one company to another company within that industry, and it is
"natural" that Three Star and SLI would look to another pencil producer for a
"managerial candidate." In addition, respondents state that the Department
verified that Mr. Huang never simultaneously held positions at both Three Star
and CFP's subsidiary, Shanghai Great Wall Pencil Co., Ltd. (Great Wall) (an
allegation made by petitioners in their February 15, 2001 submission at 3).

Respondents also contend that the correct translation of the name of the
newspaper at issue is "China Pencil," and not "China First Pencil," as
petitioners contend. Respondents also argue that CFP does not manage or control
Three Star's commercial operations, and that CFP can have no impact on the
pricing, production, marketing or any other "meaningful" commercial function of
Three Star. Respondents note that, even in the United States, companies are
"opening their factory doors" to other companies to learn their systems, like
Toyota's "Toyota Production System." Furthermore, respondents contend that the
proprietary arrangement between CFP and Three Star was at arms length, reflects
commercially reasonable business decisions and consequences, and is not
indicative of CFP being in a position of control. See the Proprietary
Information Memorandum at Items 9 and 10.

Respondents argue that, even if there was an affiliation between CFP and Three
Star, such an affiliation would have no effect, as the only subject merchandise
involved in this review was that merchandise sold to the United States by CFP,
and only the facilities that produced the CFP merchandise that was sold to the
United States are necessary to determine CFP's factors of production.
Respondents additionally contend that the potential for price manipulation
among affiliated parties does not exist in nonmarket-economy cases where normal
value is not based on actual company costs.

Respondents argue that, even if CFP and Three Star were affiliated, there is
no basis upon which to collapse them. Respondents state that, in this case, as
in Iron Construction Castings from Canada, 55 FR 460 (January 5, 1990), the
companies 'operate as distinct entities' "obviating" the 'ability of {one}
company to manipulate its affiliate's prices and to affect production
decisions.' Respondents claim that there is no possibility of price
manipulation between CFP and Three Star. Respondents note that Three Star only
operated as a producer for a separate company, GSSG, that exported pencils to
the United States, and that CFP could not impact GSSG's prices to its U.S.
customers. Respondents further state that both CFP and Three Star only have the
incentives (as competitors) to eliminate one another from the market through
price manipulation, but neither has the potential or capability to impose such
control over the other.

Moreover, respondents argue that, contrary to petitioners' assertion, and as
verified by the Department, there were minimal transactions between CFP and
Three Star during the POR. Respondents additionally point out that CFP's
audited financial statements do not include a single reference to Three Star.
Respondents claim that this indicates that SLI does not have a controlling
interest in Three Star, and that SLI does not participate in the operations or
management of CFP or Three Star.

Respondents also note that section 351.401(f) of the Department's regulations
is intended for market economy antidumping cases. Respondents state that
collapsing a producer that does not export to the U.S. (Three Star) with an
exporter to the U.S. (including one, like CFP, that is also a producer) serves
no purpose in the antidumping analysis in a non-market economy case.
Respondents additionally state that the only reason to collapse companies is to
ensure that the production of all subject merchandise under the control of the
respondent is included in the calculation of the cost of production.
Respondents conclude that, since Three Star did not supply CFP with subject
merchandise during the POR, Three Star is not subject to the CFP antidumping
duty analysis. 

Finally, respondents argue that it is not appropriate to resort to facts
available based upon petitioners' allegation that CFP engaged in obstructive
behavior with respect to its relationship with Three Star. Respondents contend
that information placed on the record to date does not reveal any level of
interaction between CFP and Three Star that would have indicated that CFP
should have reported Three Star as an affiliate. In addition, respondents
claims that the Department has not formulated a clear framework with respect to
affiliation in nonmarket economies and that the Department's questionnaire
offers respondents no indication of what is expected with respect to reporting
affiliates in the context of a nonmarket economy. 

Department Position:

The record evidence regarding Three Star's relationship with CFP does not
sufficiently support petitioners' argument that Three Star no longer qualifies
as the producer identified in the excluded Three Star/GSSG transaction chain.
We note that petitioners have constructed their argument for treating CFP and
Three Star as a single entity based upon the regulatory framework for
collapsing affiliated producers. While this regulatory framework is
instructive, we have analyzed this issue by examining whether CFP and Three
Star are connected in such a way that it would frustrate the purpose of the
antidumping statute to continue to treat them as separate entities.
Specifically, we have examined the information that petitioners placed on the
record regarding the ownership structure of CFP and Three Star, the sharing and
movement of legal representatives/managers between the two companies, and the
business relationships between them and found it does not sufficiently
demonstrate that these entities are intertwined in such a way as to call into
question the Three Star/GSSG chain rate excluded from the order. 

In the less than fair value (LTFV) investigation, Three Star was identified as
an "all the people" owned entity. See Section A questionnaire response of
Shanghai Three Star Stationery Industry Corporation dated March 28, 1994, at 20
( Notice of Final Determination of Sales at Less Than Fair Value: Certain Cased
Pencils From the People's Republic of China, 59 FR 55625 (November 8, 1994))
attached to the Proprietary Information Memorandum. Although petitioners in the
instant review contend that Three Star is now solely owned by CFP, the weight
of the record evidence does not support this contention. While Three Star's
1999 annual "yearbook" indicates that CFP is the sole investor in Three Star,
Three Star is not among the subsidiaries listed in CFP's 1999 audited financial
statement nor would it be included in CFP's "Interests in Associates" account
because CFP defines associated companies as those in which it owns not less
than 20 percent.(4) Moreover, Three Star's 2000 business license indicates that
it is an "all the people" legal entity. Additionally, we note that CFP
submitted documentation dated March 6, 2000 and bearing the seal of the Pudong
Branch of the Shanghai Industry and Commerce Management Bureau which indicates
that SLI is the sole investor and managing authority of Three Star. The
Department found at verification that although Three Star is "owned by all the
people," SLI is the state-owned enterprise which oversees Three Star and serves
as a trustee with ownership rights. Finally, proprietary financial information
on the record of this review indicates that Three Star is a subsidiary of SLI,
not CFP. For a discussion of this proprietary information, see the the
Proprietary Information Memorandum at Item 11. Thus, the weight of the evidence
indicates that CFP does not own Three Star.

With respect to SLI's ownership of CFP and Three Star, we note that SLI is a
state-owned enterprise which manages state-owned property as it is privatized.
Thus, we do not find SLI's relationship with these two companies significantly
different from the relationship between the government and respondents that is
presumed in all non-market economy cases. Therefore, SLI's common ownership of
CFP and Three Star is not a basis for treating the two companies as a single
entity. 

Moreover, we do not find the evidence on the record concerning the sharing and
movement of legal representatives/managers between CFP and Three Star to be
persuasive. While the record indicates that managers of CFP and Three Star did
move between the two companies prior to the POR, this does not indicate that
the two companies are intertwined. Further, the evidence petitioners provided
regarding managers concurrently employed at CFP and Three Star is not
convincing. The record evidence regarding Mr. Huang Zhen-Min's employment at
Three Star and CFP's subsidiary, Great Wall, indicates that he did not head
both companies, from December 1997 through July 1999 as alleged by petitioners.
Specifically, petitioners' own information indicates that Mr. Huang Wei-Hu
joined Great Wall as president in December 1997, a position held by Mr. Huang
Zhen-Min since 1995. See petitioners' August 7, 2000 submission (items 13-15 of
the attachment) and petitioners' August 29, 2000 submission at 2. This
information supports respondents' claim that Mr. Huang Zhen-Min left his
position at Great Wall in December 1997 to join Three Star. In addition, at
verification, the Department's verifiers examined Three Star's compensation
records which indicated that Mr. Huang Zhen-Min was not employed at Three Star
prior to his resignation from CFP. 

With respect to the allegation that Mr. Hu acted concurrently as CFP's and
Three Star's legal representative, we find that there is insufficient evidence
on the record demonstrating that Mr. Hu ever fulfilled the duties of Three
Star's legal representative. The only evidence that Mr. Hu acted as Three
Star's legal representative consists of documents regarding the change in legal
representative, dated February 27, 1997, which contain his signature as the
legal representative for Three Star. This stands in stark contrast to the facts
in the 1997-1998 reviews of freshwater crawfish tail meat from the PRC wherein
the Department found that two PRC exporters did not operate independently, in
part, due to shared management, and thus, they should receive the same
antidumping duty rate. See the Memorandum for Joseph A. Spetrini from Edward C.
Yang, dated April 12, 2000, regarding the relationship of Ningbo Nanalian
Frozen Foods Company. Ltd. and Huaiyin Foreign Trade Corporation (5) in
Freshwater Crawfish Tail Meat From The People's Republic of China: Final
Results of Administrative Antidumping Duty and New Shipper Reviews, and Final
Recission of New Shipper Review, 65 FR 20948 (April 19, 2000) (Crawfish from
the PRC). In Crawfish from the PRC, the Department found that the same
individual, Mr. Wei, served, whether or not "officially", as vice general
manager for two PRC exporters and played a significant role in both companies'
sales and exports of crawfish. Unlike the record in the instant review, the
record in Crawfish from the PRC contained evidence of specific activities that
Mr. Wei engaged in on behalf of both companies. Further, we note that
petitioners provided documentation indicating that Mr. Hu was appointed as
Three Star's legal representative in January 1997. However, they also provided
documents regarding a modification to Three Star's business registration dated
March 1997 and signed by Mr. Deng Rui-Jun as legal representative of Three
Star. Thus, it is not clear when, or if, Mr. Hu ever fulfilled the duties of
Three Star's legal representative. Nevertheless, we note that the allegations
regarding Mr. Hu's concurrent positions at CFP and Three Star relate only to
1997, not to the POR. Thus, even if this allegation was sufficiently supported,
it does not necessarily indicate that CFP's and Three Star's operations were
closely linked during the period under examination (i.e., December 1, 1998
through November 30, 1999).

Finally, the information regarding interactions between CFP and Three Star
(the nature of which is proprietary) does not sufficiently demonstrate that
these entities are intertwined in such a way as to call into question the Three
Star/GSSG chain rate excluded from the order. For a discussion of this
proprietary information, see the Proprietary Information Memorandum. It is
informative to note that Three Star is not treated as a subsidiary in CFP's
1999 audited financial statement. In note 2 of that statement, entitled ,
"Principal Accounting Policies", it states: "A subsidiary is a company over
which the Company {CFP} has the power to govern its financial and operating
policies so as to obtain benefits from its activities, notwithstanding its
equity interest in that company" (emphasis added). Hence, if CFP does not have
an equity interest in a company, but has the power to control the financial and
operating policies of the company through other means, that company would be
listed as one of CFP's subsidiaries. As noted above, Three Star is not listed
as one of CFP's subsidiaries. This further supports the conclusion that CFP's
interactions with Three Star do not weigh in favor of treating the two
companies as one. Finally, we note that evidence regarding CFP's appointment of
the former representative of Great Wall as Three Star's legal representative
does not clearly indicate that CFP was acting of its own initiative. Rather,
the evidence indicates that CFP requested that SLI allow Great Wall's
representative to take the assignment at Three Star after resigning from Great
Wall. Thus, we do not find that CFP's interactions with Three Star indicate
that the two companies should be treated as a single entity for antidumping
purposes. 

Therefore, based on the evidence in this review, we have not treated Three
Star and CFP as a single entity. We will revisit this issue if additional
evidence regarding CFP's and Three Star's relationship is presented in a future
review. 

Comment 3 : Whether to Calculate a Dumping Margin for Sales to the U.S.
Importer, Rose Art Industries, Inc. (Rose Art), Regardless of Whether Adverse
Facts Available Are Applied to All Other Sales. 

Rose Art, a U.S. importer of CFP's pencils, argues that the Department's
decision to apply total adverse facts available in this case is inherently
inequitable, deprives it of due process, and constitutes an arbitrary and
capricious application of antidumping provisions that is contrary to law.
First, Rose Art contends that although it acted properly in its dealings with
CFP, it is now being punished twice, once because third-country sales destined
for its competitors in the United States may have avoided dumping duties, and
once for the alleged wrong doing of CFP. Second, Rose Art states that applying
a punitive margin to its entries when there are accurate CFP sales data that
will result in a significantly lower, or possibly no margin, deprives it of
substantial monies without affording it appropriate due process protection.
Third, Rose Art states that the Department should recognize and give effect to
those portions of CFP's questionnaire responses that are complete and provide a
satisfactory basis for arriving at an accurate dumping margin for sales made by
CFP to Rose Art. Rose Art notes that there is no indication in the Department's
preliminary results that CFP's questionnaire responses relating to sales made
to Rose Art were deficient, inaccurate, or otherwise compromised. Also, Rose
Art argues that where the Department determines that requests for information
are deficient, 19 U.S.C. 1677m(d) (section 782(d) of the Act) gives the
Department the discretion to disregard all or part of the original and
subsequent responses. Because the verification report does not raise questions
concerning the accuracy of CFP's responses with respect to its sales to Rose
Art, Rose Art claims those responses should not be disregarded. To do so,
according to Rose Art, is to effectively damn the innocent as well as the
guilty. Therefore, Rose Art maintains that the Department should avail itself
of the discretionary authority allowed under section 782(d) of the Act, accept
CFP's responses with respect to Rose Art, and compute and publish a separate
dumping margin for CFP's sales to Rose Art.

Department Position:

For the reason's stated above with respect to Comment 1, we have applied total
adverse facts available to CFP for the final results of this review. Due to the
specific fact pattern described above we determined that application of partial
facts available is not appropriate and have disregarded the reported sales and
factors of production information submitted in CFP's questionnaire response for
purposes of establishing a dumping margin. Since we are disregarding CFP's
entire response, there is no basis for concluding anything even on an importer-
specific basis. This determination is based on the activities of the respondent
(CFP), and therefore the adverse facts available margin has been applied to all
of CFP's exports of subject merchandise to the United States. 

Under U.S. antidumping laws, importers of merchandise from third-country
resellers are required to identify the country of origin of the merchandise and
to post appropriate antidumping duties. We note that the focus of the
Department's analysis is on the producers and exporters, i.e. the parties who
set the U.S. price. 

Furthermore, we disagree that Rose Art was denied due process. On January 26,
2000, in accordance with 19 CFR 351.221(c)(1)(i), we published in the Federal
Register our Notice of Initiation of Antidumping and Countervailing Duty
Administrative Reviews, 65 FR 4228 (January 26, 2000). On January 18, 2001,
Rose Art submitted an entry of appearance to the Department as an interested
party. On March 1, 2001, Rose Art submitted a case brief. Thus Rose Art was
given appropriate notice of the proceeding and participated as an interested
party. 

Comment 4: Whether to Use American Basswood Prices or Indonesian Slat Prices
to Value Chinese Lindenwood.

Petitioners argue that if the Department determines to calculate normal value
using CFP's reported factors of production, the Department should calculate a
surrogate value for Chinese lindenwood based on American basswood and that all
necessary information to do so is on the record of this review. 

Moreover, petitioners argue that the Department should not rely on contracts
for albasia wood slats submitted by CFP as a basis for establishing a surrogate
value for lindenwood pencil slats because CFP did not submit information
concerning albasia wood, because albasia wood is not similar to lindenwood and
because albasia wood has no known use in pencil production anywhere in the
world. In addition, petitioner argues that the contract prices submitted by
respondent for albasia wood slats are deficient because there is nothing on the
record to indicate that the contracts are bona fide or that they reflect market
prices. Furthermore, petitioners argue that the Department has a preference to
use publicly available, published information that reflects numerous
transactions between many buyers and sellers to calculate surrogate values
rather than isolated price quotes or single-input, producer-specific
information. 

CFP notes that the only value placed on the record for pencil slats, the most
significant material input for pencil production, is an Indonesian value for
albasia wood slats. In addition, CFP argues that this value is an actual value
taken from an actual transaction between two Indonesian parties and that
albasia wood slats have the same critical production-oriented characteristics
as Chinese Lindenwood. CFP argues that the Department has frequently used price
quotes as surrogate values to value inputs in the calculation of normal value
in nonmarket economy cases and should do so in this review. CFP contends that
price quotes are often used because they represent the best available value for
the input. 

CFP argues that the Department should not rely on petitioners' proposed
theoretical and speculative methodology to value pencil slats. CFP argues that
petitioners' proposal to calculate a surrogate value for lindenwood pencil
slats based on U.S. prices for basswood lumber and logs and the process to
manufacture them into pencil slats is imprecise and is based on conjecture
which incorporates assumptions not related to CFP's particular circumstances. 

Department Position:

The Department has not considered this comment since we are relying on total
adverse facts available for the final results of this review.

Comment 5: Whether to Use Sales Commissions and Bank Charges in Calculating a

Dumping Margin.

CFP argues that the commissions and bank charges it presented at verification
should not be included in the calculation of a dumping margin for CFP. CFP
notes that the Department does not make an adjustment for differences in
circumstances of sale in nonmarket economy cases involving export price (EP)
sales. See e.g. Pure Magnesium from the People's Republic of China, 63 FR 3085
(January 21, 1998) and Tapered Roller Bearings and Parts Thereof, Finished and
Unfinished, from the People's Republic of China, 61 FR 65527 (December 13,
1996).

Department Position:

The Department has not considered this comment because we are relying on total
adverse facts available for the final results of this review.

Comment 6: Whether to Use Indonesian Surrogate Values to Calculate the Dumping
Margin.

CFP argues that the Department should use the Indonesian surrogate values it
proposed to calculate a dumping margin. CFP notes that publicly available,
reliable, useable, Indonesian data are available for every raw material used in
its production of pencils, while these values are not available from Indian
import statistics.

Department Position:

The Department has not considered this comment because we are relying on total
adverse facts available for the final results of this review.

Recommendation

Based upon our analysis of the comments received, we recommend adopting all of
the above positions. If these recommendations are accepted, we will publish the
final results of review and the final weighted-average dumping margin for the
reviewed firm in the Federal Register.



Agree____ Disagree___ 


Faryar Shirzad
Assistant Secretary 
for Import Administration

(Date) 


______________________________________________________________________________
footnotes:

1. CFP notes that the Department discussed sales to two other customers in its
verification report but did not focus on these sales in its decision to resort
to total facts available. According to CFP, evidence on the record shows that
these sales transactions took place entirely within the PRC between companies
located therein and therefore, they are not reportable sales. See Creatine
Monohydrate from the People's Republic of China, 64 FR 71104, 71109 (December
20, 1999) (the Department stated that "we will not base export price on
internal transactions between two companies located in the NME country."). 

2. Petitioners claim that based on the evidence of a U.S. destination for
almost all of the sales to reseller A, CFP should have known that the few sales
to reseller A with no destination marks were also destined for the United
States. 

3. Petitioners note that to the best of their knowledge, Three Star does not
have a board of directors, and there is no evidence as to the makeup of CFP's
board. Thus, petitioners state that they cannot address the common board
members criterion for finding a significant potential for the manipulation of
price or production. See section 351.401 (f) of the Department's regulations. 

4. CFP's 1999 financial statement was prepared in accordance with
International Accounting Standards. The statement was audited by BDO Certified
Public Accountants in accordance with Statements of Auditing Standards issued
by the Hong Kong Society of Accountants.