65 FR 67347 November 9, 2000 
                                                  A-421-805
                                                  ARP: 6/1/98 - 5/31/99
                                                  Public Document
                                                  GIIOVI: DRM

MEMORANDUM TO: Richard W. Moreland
               Acting Assistant Secretary
                 for Import Administration

FROM:          Holly A. Kuga 
               Acting Deputy Assistant Secretary
                 for Import Administration


SUBJECT: Issues and Decision Memorandum: Final Results of Administrative
Review of Aramid Fiber Formed of Poly Para-Phenylene Terephthalamide from
the Netherlands - 6/1/1998 through 5/31/1999; Final Results


Summary

We have analyzed the comments and rebuttal comments of interested parties
in the 1998/1999 administrative review of the antidumping duty order
covering aramid fiber formed of poly para-phenylene terephthalamide ("PPD-
T aramid") from the Netherlands. As a result of our analysis, we have made
no changes from our preliminary results. Below is the complete list of the
issues in this administrative review for which we received comments and
rebuttal comments by parties:


1.  Constructed Export Price 

    A. Consolidated Financial Statements Used to Calculate Financial
Expenses
       (U.S. Indirect Selling Expenses) 

    B. Credit Period for Imputed Credit Expenses Related to Consignment
Sales 

    C. Duties Related to Duty Drawback (Movement Expenses -- Canadian
Duties) 

2.  Cost of Production 

    A. Consolidated Financial Statements Used to Calculate Net Interest
Expense 

    B. Treatment of Goodwill Expenses 


We recommend that you approve the positions we have developed in the
Discussion of Issues section of this memorandum.


Background

On July 6, 2000, the Department of Commerce ("the Department") published
the Preliminary Results of Administrative Review of the Antidumping Duty
Order on Aramid Fiber Formed of Poly Para-Phenylene Terephthalamide from
the Netherlands, 65 FR 41626 ("Preliminary Results"). The period of review
("POR") is June 1, 1998, through May 31, 1999. This review covers one
manufacturer/exporter, Twaron Products V.o.F. (formerly Aramid Products
V.o.F.) and its U.S. affiliate, Twaron Products Inc. (formerly Akzo Nobel
Aramid Products, Inc.) (collectively "Twaron Products"). We invited
parties to comment on our Preliminary Results. We received comments on
August 7, 2000, from E.I. Dupont de Nemours & Company ("petitioner"). On
August 14, 2000, we received a rebuttal brief from Twaron Products. 


Discussion of the Issues

Constructed Export Price 

Comment 1A: Consolidated Financial Statements Used to Calculate Financial
Expenses (U.S. Indirect Selling Expenses)

Petitioner contends that the Department should revise Twaron Products'
reported U.S. indirect selling expenses, arguing that the calculation of
the net interest expense, a component of indirect selling expenses, was
improperly based on the consolidated financial statements of its parent
company, Akzo Nobel Inc., and should have instead been based on the
financial statements of Twaron Products Inc. (the exclusive sales agent of
Twaron Products V.o.F.).

Petitioner also asserts that the Department should reject Twaron
Products' use of consolidated financial data in calculating the net
interest expenses included in Twaron Products V.o.F.'s cost of production,
because the consolidated financial data does not reflect Twaron Products
V.o.F.'s actual financing expenses.

Petitioner acknowledges that the Department generally uses consolidated
financial expense data to calculate a subsidiary's financing expenses.
However, petitioner asserts that this is not an automatic requirement.
Further, petitioner contends that the Department must not use consolidated
data where using the consolidated data would distort actual financing
expenses. Petitioner asserts that such would be the case in the instant
circumstance because Twaron Products' reported financial interest expense
factor is unrelated to the financing requirements of Twaron Products' PPD-
T aramid fiber business in the United States. Moreover, petitioner argues
that Twaron Products justifies its use of consolidated figures on the
grounds that the U.S. parent borrows on behalf of its related companies,
and then charges the units a share of this cost, without explaining how it
allocates the financing expenses.

Petitioner argues that Twaron Products calculated the reported financing
expenses based on outstanding loans between the U.S. parent and Twaron
Products, and speculates as to the reasons why Twaron Products borrowed
money from its parent company to finance its U.S. operations. Petitioner
further argues that the Department and the Court of International Trade
("CIT") misapplied binding precedent when affirming the Department's use
of Twaron Products' consolidated data in E.I. DuPont de Nemours & Co. v.
United States, No. 96-11-02509, Slip Op. 98-7, 1998 WL 42598 (CIT January
29, 1998) ("DuPont I"). Moreover, petitioner contends that the Department
and the CIT, in DuPont I, failed to follow the express mandate of the 1994
amendments to the antidumping statute, which directs the Department to
capture "all of the actual costs incurred in producing and selling" the
subject merchandise and to ensure that reported costs constitute a
representative measure of the respondent's true costs.

Twaron Products argues that the CIT's decisions in DuPont I, and more
recently in E.I. DuPont de Nemours & Co. v. United States, No. 97-08-1335,
Slip Op. 99-47 (CIT June 2, 1999) ("DuPont II"), properly affirmed the
Department's use of Twaron Products' consolidated financial expense in the
first, second, third, and fourth administrative reviews, respectively.
Twaron Products urges the Department to follow the same methodology in the
final results of this administrative review. Further, Twaron Products
emphasizes that the petitioner did not point to any evidence or provide
any new information to justify a deviation from the Department's standard
practice of using the parent's consolidated interest expense in cases
where there is a consolidated group of companies.

Additionally, Twaron Products argues that petitioners' claim that the
amendments to the antidumping statute set a new standard for calculating
interest expense, is in error. Contrary to petitioner's argument, Twaron
Products contends that neither the Statement of Administrative Action
("SAA") nor the amended section 773(f) of the antidumping statute directs
the Department to change its existing practice. Twaron Products refers to
the CIT's analysis of the statutory amendment and the SAA, and the CIT's
subsequent finding that neither the amended statute nor the SAA mandated a
change in Commerce's past practice with regard to the issue here. See
DuPont I at 7-9. Moreover, Twaron Products points out that the
petitioner's argument on the issue was rejected by the CIT in both DuPont
I and DuPont II.

Twaron Products claims that the only loans and corresponding interest
expense on the books of Twaron Products Inc. and Twaron Products V.o.F.
are intercompany loans from the parent companies, Akzo Nobel Inc. and Akzo
Nobel N.V., respectively. In addition, Twaron Products argues that the
Department has repeatedly verified that the financial statements of the
subsidiary companies reconcile to the financial statements of the parent
companies. Twaron Products explains that the only actual interest expense
is recorded on the books of the parent companies because it is only these
entities that actually borrow money and incur the related interest
expense. Twaron Products asserts that it is only the parent that
determines the sources of money, borrows the money, and incurs the actual
interest expense and, therefore, petitioner's speculations on how and why
companies borrow money and how a parent determines the amount of loans and
interest are irrelevant because these are internal decisions that take
into account a variety of factors.

Department's Position: We agree with Twaron Products. In the first,
second, third, and fourth administrative reviews, petitioner similarly
urged the Department to rely on Twaron Products V.o.F.'s own financial
records to determine its net interest expense, instead of following the
Department's normal practice of using the parent company's financing
expenses incurred on behalf of the consolidated group of companies. In the
second, third, and fourth reviews, petitioner's emphasis has been on the
interest expense included in U.S. indirect selling expenses rather than on
the interest expense included in the cost of production ("COP") and
constructed value ("CV") (as was the case in the first review).
Nevertheless, the issues are the same for U.S. indirect selling expenses
and COP/CV. The Department has consistently disagreed with petitioner's
position, explaining in detail that any departure from our normal practice
in this case is not warranted in light of Akzo Nobel N.V.'s majority
ownership interest in Twaron Products V.o.F., which constituted prima
facie evidence of the parent's corporate control. For a detailed
explanation of this issue, see Aramid Fiber Formed of Poly-Phenylene
Terephthalamide from the Netherlands: Final Results of Antidumping
Administrative Review, 61 FR 51406, 51407 (October 2, 1996) ("Final Aramid
Fiber I"); Aramid Fiber Formed of Poly-Phenylene Terephthalamide from the
Netherlands: Final Results of Antidumping Administrative Review, 62 FR
38058, 38059-60 (July 16, 1997) ("Final Aramid Fiber II"); Aramid Fiber
Formed of Poly-Phenylene Terephthalamide from the Netherlands: Final
Results of Antidumping Administrative Review, 63 FR 37516 (July 13, 1998)
("Final Aramid Fiber III"); Aramid Fiber Formed of Poly-Phenylene
Terephthalamide from the Netherlands: Final Results of Antidumping
Administrative Review, 64 FR 61822, 61823 (November 15, 1999) ("Final
Aramid Fiber IV").

On January 29, 1998, the CIT affirmed the Department's determination on
this issue in the first administrative review, ruling that neither the SAA
nor the amended statute mandates a change of practice with respect to
using a parent company's consolidated statements when calculating the
respondent's interest expense ratio, and that this practice is consistent
with the principle of allocating costs in a manner that reasonably
reflects the actual costs. See DuPont I at 8-9. Citing Gulf States Tube
Div. of Quanex Corp. v. United States, Slip Op. 97-124, Consol. Court No.
95-09-01125, at 38-39 (CIT August 29, 1997), the Court noted in DuPont I
that the focus of the analysis is on whether the consolidated group's
controlling entity has the power to determine the capital structure of
each member of the group. The Court concluded that the administrative
record in prior reviews was supported by the Department's finding that
Akzo Nobel N.V. was a controlling entity. In DuPont II, the CIT adopted
its reasoning from DuPont I and again sustained the Department's
determination on this issue in the second administrative review.

In the instant administrative review, petitioner reiterates its position
argued in the previous four reviews but does not point to any new evidence
on the administrative record which would demonstrate that the parent, Akzo
Nobel N.V., does not exercise corporate control over the respondent
company. Thus, consistent with the Department's prior determinations and
the CIT's decisions in DuPont I and DuPont II, we are using Akzo Nobel
N.V.'s consolidated financial interest expense in computing the
respondent's net interest ratio.

Similarly, petitioner's contention that we should revise Twaron Products'
reported U.S. indirect selling expense lacks merit. As the Department
stated in the prior administrative reviews, the Department bases its
calculations on the consolidated financial statements of the parent, not
the subsidiary, when calculating the financial interest expense. This
method is grounded in a well-established practice. See Final Aramid Fiber
I at 51407 and Final Aramid Fiber II at 38060. As stated above, the focal
point of the analysis is on the parent company's control over the
subsidiary. See Final Results of Antidumping Duty Administrative Review:
Porcelain-on-Steel Cooking Ware from Mexico, 58 FR 32095 at comment 9
(June 8, 1993) (indicating the parent has the power to decide the
composition of the subsidiary's capital structure (i.e., to what extent
the subsidiary will be financed by debt and equity)). In this instance,
the petitioner has failed to produce any evidence to rebut the prima facie
evidence of Akzo Nobel Inc.'s control over Twaron Products. For the
reasons stated above, we are adhering to the Department's current practice
in this final determination.

Comment 1B: Credit Period for Imputed Credit Expenses Related to
Consignment 
Sales Petitioner argues that Twaron Products misreported the date of
shipment
for consignment sales, thereby understating imputed credit for consignment
sales in the United States. Petitioner contends that there is a
substantial lag between the date of shipment (shipment from Twaron
Products) and date of invoice for such sales. Petitioner suggests that the
Department increase the number of days between Twaron Product's reported
shipment date and payment date by the average number of days in inventory
at the consignee's location.

Twaron Products asserts that any additional cost would result in double-
counting the opportunity cost incurred by Twaron Products. Twaron Products
explains that petitioner assumes that merchandise leaves Twaron Products'
inventory when the merchandise is shipped to the consignment customers.
However, consignment inventory remains in Twaron Products' inventory until
the customer notifies Twaron Products of its usage. Therefore, any imputed
credit expense associated with these sales prior to invoicing is already
captured in the inventory carrying expense. To demonstrate that
consignment inventory is included in the inventory carrying cost
calculation, Twaron Products points to the Department's verification
report and Twaron Products' September 20, 1999, and March 20, 1999,
responses.

Department's Position: We agree with Twaron Products. Section
351.401(b)(2) of the Department's regulations specifically state, "The
Secretary will not double-count adjustments." In this particular case,
Twaron Products includes consignment shipments in its own inventory until
it is notified by the customer of the sale. Moreover, the documentation
included in Exhibit 30 of the Department's June 9, 2000, Verification
Report at Exhibit 30 demonstrates that consignment inventory is already
included in the overall inventory calculation reported in the inventory
carrying expense field for the United States. Therefore, any addition to
imputed credit expense associated with consignment sales would double-
count the opportunity cost, prior to invoicing, which is already captured
in inventory carrying expense. 


Comment 1C: Duties Related to Duty Drawback (Movement Expenses --
Canadian Duties)

Petitioner contends that Twaron Products should have reported Canadian
Customs duties because Twaron Products did not document the refund of
Canadian duties on U.S. shipments. As support, petitioner states that
Twaron Products never actually stated that it received refunds of such
duties. Therefore, petitioner asserts that the Department should compute a
Canadian Customs duty on all sales originating from Canada.

Twaron Products asserts that the petitioner misrepresented the
Department's requests in its supplemental questionnaire, as well as Twaron
Products' responses. Twaron Products explains that the Department only
asked for documentation for the duty refunded on these sales and that the
Department never asked for documentation proving receipt of the duty
drawback. In addition, Twaron Products states that the drawback issue was
subject to verification, and the Department reviewed the expenses incurred
due to merchandise being sold in the United States from Canadian
inventory. Therefore, Twaron Products' certified statement that it
receives refunds of the duties paid to Canadian Customs for products that
are subsequently imported into the United States is not arguable.

Department's Position: As explained in Twaron Products' original
questionnaire response, Twaron Products is allowed to request a return on
import duties when merchandise entering Canada is subsequently exported to
the Untied States. Further, Twaron Products explained that the duty
refunded is equal to the duty originally paid. Twaron Products submitted
the relevant Canadian Customs regulations to support its claim in exhibit
C-12 of its October 12, 1999, response. Therefore, we determined that the
record evidence shows that Twaron Products properly did not include
Canadian import duties as movement expenses incurred in shipping the
merchandise from the Netherlands to the United States.


Cost of Production

Comment 2A: Consolidated Financial Statements Used to Calculate Net
Interest Expenses

The use of consolidated financial statements to calculate net interest
expenses included in the COP is discussed in detail in Comment 1A.

Comment 2B: Treatment of Goodwill Expenses

Petitioner contends that Twaron Products' reported COP fails to include
an amount for amortized goodwill expenses that should be added to Twaron
Products' general expenses. Moreover, petitioner argues that the
Department's treatment of Twaron Products' goodwill expenses in the first,
second and third administrative reviews is not supported by substantial
evidence on the record and is contrary to law, which requires the
calculation of actual costs attributable to the production of the subject
merchandise. Petitioner argues that the Department should amortize these
costs over a period that covers the POR to avoid improperly understating
the actual cost of producing PPD-T aramid fiber during the POR.

Twaron Products argues that petitioner's position is unsubstantiated and
contrary to law. Twaron Products notes that the proper treatment of the
goodwill expenses was the focus of the first administrative review and was
addressed by the CIT in DuPont I and DuPont II. Twaron Products further
notes that the Department spent a significant amount of time gathering and
analyzing all aspects of Akzo Nobel N.V.'s purchase of Twaron Products.
See Final Aramid Fiber I at 51406. Twaron Products cites the CIT's rulings
in DuPont I and DuPont II to affirm the Department's treatment of goodwill
in the instant review. Respondent cites specifically to the CIT's approval
of the Department's analysis, affirming that it was appropriate to isolate
those components of goodwill that pertained to assets used in the
production of subject merchandise. Twaron Products states that it complied
with the Department's methodology in the second, third, and fourth
administrative reviews, thereby accounting for the entire depreciation
associated with those assets. Furthermore, Twaron Products notes that no
additional amounts remained for the instant review. Finally, respondent
contends that no circumstances exist warranting any deviation from the
Department's prior approach, as affirmed twice by the CIT.

Department's Position: The Department agrees with Twaron Products. As
explained at length in the final results of the first, second, third, and
fourth administrative reviews, and affirmed by the CIT in DuPont I and
DuPont II, the Department accepted Twaron Products' accounting method for
the amortization of goodwill expenses as reasonable. See Final Aramid
Fiber I at 51406; Final Aramid Fiber II at 38063; Final Aramid Fiber III
at 37516, and Final Aramid Fiber IV at 61822.

The Department gathered and analyzed all aspects of the facts surrounding
the goodwill issue during the first administrative review. Upon completion
of its analysis, the Department determined that, for cost calculation
purposes, it was appropriate to isolate those components of goodwill that
pertained to assets used in the production of subject merchandise. See
Final Aramid Fiber I at 51406. The Department verified that Twaron
Products complied with the Department's decision in the first
administrative review, and calculated its reported costs accordingly. The
methodology used in the instant review is consistent with the final
results of the first, second, third, and fourth administrative reviews. As
a result, there are no additional amounts of goodwill that should be
reported in the reported costs.

Moreover, in DuPont I and DuPont II, the CIT rejected petitioner's
arguments with respect to goodwill, affirming the Department's treatment
of inventory write-downs and residual goodwill expenses. See DuPont I at
15-24 and DuPont II at 13. Therefore, for purposes of the instant review,
the Department is using Twaron Products' reported COP and CV data in
calculating the dumping margin.


Recommendation

Based on 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 Twaron Products in the Federal Register.



AGREE____ DISAGREE____





Richard W. Moreland
Acting Assistant Secretary
   for Import Administration


Date