65 FR 54993, September 12, 2000

  
                                                                            
                                                     A-475-703                
                                                     AR 8/1/98 - 7/31/99
                                                     Public Document
                                                     GRP II Off. 5: MZ


MEMORANDUM 

DATE:                September 5, 2000


TO:                  Troy H. Cribb
                     Acting Assistant Secretary
                      for Import Administration


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

SUBJECT:             Issues and Decision Memorandum for the Final Results 
                     in the 1998/1999 Antidumping Duty Administrative Review 
                     of Granular Polytetrafluoroethylene Resin from Italy


Summary


We have analyzed the comments in the case and rebuttal briefs submitted by
interested parties in the 1998/1999 antidumping duty administrative review of
granular polytetrafluoroethylene resin (PTFE resin) from Italy.  As a result of
our analysis, we have made changes in the margin calculations.  We recommend
that you approve the positions we have developed in theDiscussion of Issues
section of this memorandum.  Below is the complete list of the issues in this
review for which we received comments from the parties.


Background


On May 10, 2000, the Department of Commerce (the Department) published the
preliminary results of this review.  See Notice of Preliminary Results of
Antidumping Duty Administrative Review: Polytetrafluoroethylene Resin from
Italy, 65 FR 30064 (May 10, 2000) (Preliminary Results).  The merchandise
covered by this review is described in the Scope of the Reviewsection of this
memorandum.  The period of review (POR) is August 1, 1998, through July 31,
1999.  We invited parties to comment on the Preliminary Results.  Both the
petitioner, E.I. DuPont de Nemours & Company (DuPont) and the  respondent,
Ausimont S.p.A. and its subsidiary Ausimont U.S.A. (Ausimont), (1) submitted
case and rebuttal comments, which are summarized below.  There was no request
for a hearing in this review. 


Scope of the Review


The product covered by this review is granular PTFE resin, filled or unfilled.
This review also covers PTFE wet raw polymer exported from Italy to the United
States.  See Granular Polytetrafluoroethylene Resin from Italy ; Final
Affirmative Determination of Circumvention of Antidumping Duty Order, 58 FR
26100 (April 30, 1993).  This review excludes PTFE dispersions in water and
fine powders.  During the period covered by this review, the merchandise was
classified under item number 3904.61.00 of the Harmonized Tariff Schedule of
the United States (HTS).  We are providing this HTS number for convenience and
Customs purposes only. The written description of the scope remains dispositive.


Discussion of Issues


Comment 1:  Application of the Special Rule for Value Added Merchandise


Background:


On October 22, 1999, Ausimont requested that the Department apply the "special
rule" in accordance with section 772(e) of the Tariff Act of 1930, as amended
(the Act), and exclude sales of further-manufactured wet raw polymer from the
analysis in this review on the grounds that the value added in the United
States to the imported wet raw polymer is at least 65 percent of the price
charged to the first unaffiliated U.S. customer.  On December 9, 1999, we
rejected Ausimont's request to exclude the sales of further-manufactured wet
raw polymer because the burden of using the Department's standard methodology
is relatively low and the proportion of further-manufactured sales is
sufficiently high as to raise concerns about the accuracy of the antidumping
duty margin.  See the December 9, 1999 memorandum, Application of the Special
Rule to Ausimont's Further-Manufactured Sales of Imported Wet Raw Polymer in
the 1998-99 Administrative Review of the Antidumping Duty Order on Granular
Polytetrafluoroethylene Resin from Italy (Special Rule Memorandum).  In its
Preliminary Results, the Department denied Ausimont's request to exclude the
sales of further-manufactured wet raw polymer for the reasons stipulated in the
Special Rule Memorandum.

Issue:


Ausimont argues that the Department erred in its preliminary results by
failing to apply the special rule for merchandise with value added after
importation pursuant to Section 772(e) of the Act, and 19 CFR Section
351.402(c).  Ausimont maintains that it met the threshold requirement that the
value added to its imported wet raw polymer exceeds 65 percent of the price
charged to the first unaffiliated purchaser of its granular PTFE resin. 
Therefore, Ausimont requests that the Department apply the special rule by
calculating the dumping margin using Ausimont's sales of imported granular PTFE
resin (non-further manufactured sales) as proxies for its sales of granular
PTFE resin further-manufactured from imported wet raw polymer.  According to
Ausimont, the use of non-further manufactured sales will not compromise the
accuracy of the Department's results.  According to Ausimont, the relative
percentage of the further-manufactured sales has no impact upon whether there
will be inaccurate results because the accuracy will not vary as the percentage
of further-manufactured sales increases or decreases. Ausimont further argues
that although the Department determined that the burden of using its standard
methodology in Ausimont's case is relatively low, that does not mean there is
no burden in doing so, adding that just because the burden may be relatively
low does not mean that the burden is automatically outweighed by the potential
for inaccurate results.  Ausimont maintains that the Department based its
conclusion that accuracy would be compromised solely upon the fact that
Ausimont's further-manufactured sales represent a relatively large portion of
its total U.S. sales.  According to Ausimont, the Department's conclusion is
illogical, is based upon a false premise that violates the statutory language,
and contravenes the Department's professed policy of deciding whether or not to
apply the special rule on case-specific facts.  


To demonstrate that the exclusion of further-manufactured sales, irrespective
of their percentage of total sales, does not generate inaccurate results,
Ausimont provided a calculation showing that its preliminary margin would have
been, according to Ausimont, minimally affected had the Department applied the
special rule and excluded the further-manufactured sales from its margin
calculation.  Ausimont maintains that the result of its calculation
demonstrates that the Department cannot continue to maintain that a high
percentage of further-manufactured to non-further-manufactured sales
necessarily leads to inaccurate results.  According to Ausimont, the Department
has made the relative percentage of further-manufactured sales into a litmus
test for whether use of the proxies is likely to generate inaccurate results.


For the above-referenced reasons, Ausimont requests that the Department
reverse its decision not to apply the special rule with respect to its further-
manufactured sales for purposes of these final results.


DuPont refutes Ausimont's argument, stating that the Department retains the
authority to refrain from applying the special rule where appropriate, and that
it properly acted within its authority when it did not apply the special rule
in this case.  DuPont states that the Department's logic with regard to
accuracy is justified because the percentage of further-manufactured U.S. sales
is large enough to raise serious concerns about the impact of using a proxy on
the weighted-average margin.  According to DuPont, the logic surrounding
accuracy stems from the fact that the application of the special rule involves
estimating the U.S. price for the further-manufactured U.S. sales and, since
estimates by their nature are not precise, the impact of any imprecision on the
weighted-average margin will increase as the percentage of further-manufactured
sales to total U.S. sales increases. Therefore, DuPont requests that the
Department continue calculating the U.S. price of all U.S. sales of further-
manufactured wet raw polymer using Ausimont's section E response.  


DOC Position:


We agree with DuPont.  Our decision to refrain from applying the special rule
in this case is appropriate, and is in accordance with section 772(e) of the
Act and the Department's established practice.  As we stated in the Special
Rule Memorandum, the statute specifies that the use of the options identified
in section 772(e)(1) and (e)(2) is contingent upon the existence of a quantity
of sales sufficient to provide a reasonable basis for comparison, and a
decision that the use of such sales is appropriate (see Tapered Roller Bearings
and Parts Thereof, Finished and Unfinished, From Japan, and Tapered Roller
Bearings, Four Inches or Less in Outside Diameter, and Components Thereof, From
Japan; Final Results of Antidumping Duty Administrative Reviews, 63 FR 2,558,
2,561 (January 15, 1998).  Therefore, it is the Department's practice to make
decisions regarding its application of the special rule on a case-by-case
basis.  (See Antifriction Bearings (Other Than Tapered Roller Bearings) and
Parts Thereof From France, Germany, Italy, Japan, Romania, Singapore, Sweden
and the United Kingdom; Final Results of Antidumping Duty Administrative
Reviews, 62 FR 54044, 54067 (Comment 6) (October 17, 1997). Moreover, because
the purpose of section 772(e) is to reduce the administrative burden on the
Department, the Department retains the authority to refrain from applying the
special rule in those situations where the value added, while large, is simple
to calculate (see Antifriction Bearings (Other Than Tapered Roller Bearings)
and Parts Thereof from France, Germany, Italy, Japan, Romania, Singapore,
Sweden, and the United Kingdom; Final Results of Antidumping Duty
Administrative Reviews, 63 FR 33320, 33338 (June 18, 1998). 


As we stated in the Preliminary Results and in the Special Rule Memorandum,
the facts of this case support the Department's decision to refrain from using
Ausimont's non-further manufactured sales as proxies for its sales of granular
PTFE resin, further-manufactured from imported wet raw polymer.  First, the
information we have on the record of this case clearly shows that Ausimont's
U.S. sales of further-manufactured merchandise represent a large portion of its
total U.S. sales of the subject merchandise during the POR.  We disagree with
Ausimont's conclusion that by excluding the further-manufactured sales from the
margin calculation there would be no significant effect on the accuracy of the
Department's results.  Ausimont's own margin calculation in which further-
manufactured sales were excluded, in fact, supports the Department's position
in that what Ausimont considers an insignificant percentage difference actually
represents a significant difference, when looked at in proportion to the
Department's dumping margin.  Therefore, we continue to believe that using the
non-further manufactured sales as a proxy for Ausimont's further-manufactured
sales would be inappropriate, as they introduce a relatively high potential for
inaccuracy.  


Second, we have established in our Preliminary Results and the Special Rule
Memorandum that the burden of using the Department's standard methodology, by
including further-manufactured sales in its margin calculation, is relatively
low.  We stated that based on our experience, we know that the further-
manufacturing of wet raw polymer into PTFE resin is not a very complex process.
(2) We have consistently included Ausimont's sales of further-manufactured wet
raw polymer in our analysis and have experience with and knowledge of
Ausimont's further-manufactured sales, as well as with the calculation of the
cost of further manufacturing in the United States with respect to these sales.
In fact, we believe that Ausimont's continued concern about the burdens on the
Department of analyzing the further-manufactured sales in these final results
is no longer founded, especially after the Department had already analyzed and
used such sales for purposes of its Preliminary Results.  For the above-
referenced reasons and the reasons stipulated in the Department's Preliminary
Results and the Special Rule Memorandum, we have continued to include the sales
of further-manufactured wet raw polymer for purposes of the final results of
this review.


Comment 2:  CEP Profit Calculation


DuPont argues that the manner in which Ausimont calculated CEP profit is at
odds with established Department policy and should, therefore, be revised for
purposes of the final results of this review.  According to DuPont, contrary to
the Department's guideline, Ausimont's calculation of CEP profit included
income taxes, and reflected tariff charges (antidumping duties) incurred by
Ausimont U.S.A., as an expense, even though such charges are not related to the
production and sale of the subject merchandise during the POR.  DuPont further
argues that Ausimont also miscalculated the amount of profit and expenses
because it failed to use segment data in Ausimont S.p.A.'s financial statements
for profit and expenses related to the product category (i.e., Fluorinated
Materials) which includes the subject merchandise.  Consequently, DuPont
provided a revised CEP profit calculation for purposes of the final results of
this review and requested that the Department apply the resulting CEP profit
rate to the margin calculation for purposes of the final determination.  


Ausimont agrees with DuPont that the CEP profit calculation should be
calculated on a pre-tax basis.  Ausimont, however, contends that DuPont's CEP
profit calculation incorrectly subtracts income taxes from Ausimont U.S.A.'s
total expenses because the total expenses used in the calculation were already
net of income taxes.


With respect to the antidumping duties, Ausimont refutes DuPont's assertion
that antidumping duties should be deducted from Ausimont U.S.A.'s total
expenses because such costs are not related to the production and sales of the
subject merchandise during the POR.  According to Ausimont, the fact that the
antidumping duties relate to sales in a prior review period does not disqualify
them as expenses for the current review period.  Ausimont maintains that it is
the Department's long-standing practice to use certain expenses incurred on
prior (or future) product sales as a surrogate for current review period
expenses when timing precludes the ability of the Department to measure such
expenses for sales occurring during the current period.  In support of its
argument, Ausimont cited to several cases (3) in which the Department
recognized certain expenses, such as warranty and bad debts, incurred during
the POR, as best available information for future expenses associated with
subject merchandise sold during the POR, because such expenses are usually not
identifiable until well after the POR.  According to Ausimont, the antidumping
duties relating to sales made during a prior review are analogous to amounts
for bad debt and warranty expenses because antidumping duties will always be
paid for products imported and sold in prior periods, since annual reviews only
occur after the products have been imported and sold.  Ausimont further argues
that even if the Department were to determine that the antidumping duties
should not be included as expenses for this review, there is no merit to
DuPont's argument that the amount for these charges should be added to
Ausimont's total actual profit because costs are not profits. 


With respect to DuPont's assertion that Ausimont failed to use segment data
for profit and expenses, Ausimont maintains that the segment data are not
detailed sufficiently to constitute a financial report upon which the
Department can rely, and that the statutory preference for utilizing the
"narrowest category of merchandise" pertains to expenses, not income.  Ausimont
further argues that the segment data used by DuPont for the calculation of CEP
profit is contained in Ausimont's Board of Directors' Report, not the financial
statements, as DuPont claims.  According to Ausimont, the Board of Directors'
Report is merely the management's discussion of the company's result and is not
a financial statement subject to the auditing process, as is the case with a
balance sheet, income statement, and statement of change in financial position.
Therefore, Ausimont maintains that the Board of Directors' Report does not fit
into the category of financial reports defined under 19 CFR 351.402.(d)(2).
(4)  


Ausimont further maintains that DuPont's segment data are based only on sales
revenue and gross operating profit relating to Fluorinated Materials with no
information on expenses and cannot, therefore, be detailed enough to be
appropriate for the Department's use.  According to Ausimont, although DuPont
based its CEP profit calculation on sales revenue and gross operating profit
figures related to segment data for Fluorinated Materials, DuPont derived the
missing expense information for Fluorinated Materials from the complex expense
information for the broader category of all of Ausimont's products.  Citing to
the Statement of Administrative Action, H.R. Doc 316, Vol.  1,103d Cong., 2d
Sess., at 825 (SAA), Ausimont also maintains that the profit and expense
amounts used to calculate CEP profit should be calculated on the same basis. 
Therefore, Ausimont argues that the narrowest category for which sufficiently
detailed expense information is available is that for the sale of all of
Ausimont's products worldwide. 
 
Finally, Ausimont argues that the manner in which DuPont calculated CEP profit
based on segment data leads to distorted results because it requires
allocations to complete the calculation. As an example, Ausimont claims that
DuPont's calculation of the cost of sales amount is different from the amount
reflected in Ausimont's audited income statement.  Consequently, Ausimont
contends that using a broader category, in sharp contrast to segment data, will
not affect the accuracy of the CEP profit calculations.  In support of its
argument, Ausimont cites to the SAA at 825, which states that " No distortion
in the profit allocable to U.S. sales is created if total profit is determined
on the basis of a broader product-line than the subject merchandise, because
the total expenses are also determined on the basis of the same expanded
product line." For the above-referenced reasons, Ausimont requests that the
Department continue to calculate CEP profit based on Ausimont's total expenses
and total profit for all products to all markets.


DOC Position


We agree with both DuPont and Ausimont that CEP profit should be calculated on
a pre-tax basis.  It is the Department's long-standing policy to rely on the
respondent's pre-tax profit figure because the Department does not consider
income taxes as an expense in its antidumping analysis.  See the Department's
Policy Bulletin: Calculation of Profit for Constructed Export Price
Transactions, issued on September 4, 1997 (Policy Bulletin on CEP Profit). 
Therefore, we have revised the calculation of CEP profit to reflect income
before taxes.  We also agree with Ausimont that DuPont's CEP profit calculation
did, in fact, reflect an incorrect deduction of income taxes from the total
expenses because the total expenses used in the calculation were already net of
income taxes.  This error was averted in the revised calculation of CEP profit.
Seethe Department's September 5, 2000, Analysis Memorandum for Ausimont SpA.


We disagree with Ausimont that antidumping duties should be included in
Ausimont U.S.A.'s expenses for purposes of the CEP profit calculation.  It is
the Department's policy that antidumping duties and cash deposits of
antidumping duties are not expenses that should be deducted from CEP.  To do so
would involve a circular logic that could result in an unending spiral of
deductions for an amount that is intended to represent the actual offset for
the dumping. See, e.g., Tapered Roller Bearings and Parts Thereof, Finished and
Unfinished, From Japan, and Tapered Roller Bearings, Four Inches or Less in
Outside Diameter, and Components Thereof, From Japan; Final Results of
Antidumping Duty Administrative Reviews, 63 FR 63860, 63865 (Nov.17, 1998);
Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, From Japan,
and Tapered Roller Bearings, Four Inches or Less in Outside Diameter, and
Components Thereof, From Japan; Final Results of Antidumping Duty
Administrative Reviews, 63 FR 2558, 2571 (Jan.  15, 1998); Certain Cut-to-
Length Carbon Steel Plate from Germany; Final Results of Antidumping Duty
Administrative Review, 62 FR 18390, 18395 (April 15, 1997); and Extruded Rubber
Thread From Malaysia; Final Results of Antidumping Duty Administrative Review,
64 FR 12973, 12974 (March 16, 1999).  Therefore, given the Department's stated
policy regarding antidumping duties, we have revised the CEP profit calculation
to exclude antidumping duties from Ausimont U.S.A.'s total expenses.  See the
Department's September 5, 2000, Analysis Memorandum for Ausimont SpA.


We agree with DuPont that the use of segment data is appropriate for purposes
of calculating CEP profit.  Section 772(f)(2)(C) of the Act provides that in
calculating CEP profit, the term "total expenses" refers to all expenses
incurred by, or on behalf of, the foreign producer and exporter and the
affiliated seller in the United States with respect to the production and sale
of the first of the following alternatives: 1) the subject merchandise sold in
the United States and the foreign like product sold in the exporting country
(if the Department requested this information in order to determine the normal
value and constructed export price); 2) the narrowest category of merchandise
sold in the United States and the exporting country which includes the subject
merchandise; or 3) the narrowest category of merchandise sold in all countries
which includes the subject merchandise.  As indicated in the Department's
Policy Bulletin on the Calculation of CEP Profit, the first alternative
reflects the expense data available to the Department when conducting a sales-
below-cost investigation.  The second and third alternatives rely on expenses
and profit information derived from financial reports prepared by the
respondent.  In our policy bulletin, we stated that the difference between the
second and third alternatives is that the second alternative is more narrowly
focused on financial reports for production and sale of merchandise in the
United Sates and exporting country markets whereas, under the third
alternative, the Department could rely on financial reports for merchandise
produced and sold by a respondent in all countries (see the Department's Policy
Bulletin on the Calculation of CEP Profit). 


In this review, there is no sales-below-cost investigation or available cost
of production data related to the sales of foreign like products.  Also, we do
not have specific financial reports on the record for only the production and
sales of merchandise in the United States and exporting country markets.  The
only information we have on the record for Ausimont S.p.A.'s expenses is
reflected in the company's financial statements and the accompanying Board of
Directors' Report.  


We disagree with Ausimont that the segment data provided in the Board of
Directors' Report are insufficient or cannot be used to obtain the expenses
incurred with respect to the narrowest category of merchandise sold in all
countries which includes the subject merchandise.  First, the data provided in
the Board of Directors' Report clearly concur with the company's audited
financial statements.  In fact, the "Board of Statutory Auditors" confirms the
accuracy of the detailed data in the company's Board of Directors' Report. 
Second, we find that the information pertaining to the company's revenue and
gross operating profit in the Board of Directors' Report provides data that
capture the majority of expenses (i.e., cost of sales) related to the company's
Fluorinated Material segment of products, which includes the subject
merchandise.  Third, the remaining expenses are for certain operating and
financing expenses related to world-wide sales of all of Ausimont S.p.A.'s
products and can be properly allocated to the segment of Fluorinated Materials.
We agree with DuPont's method of allocating the remaining expenses to
Fluorinated Materials based on multiplying the ratio of Ausimont S.p.A.'s total
operating and financing expenses, in relationship to the company's overall cost
of sales, by the cost of sales amount attributable to the segment of
Fluorinated Materials.  We disagree with Ausimont that such an allocation would
lead to a distortion of any material significance in the CEP profit ratio
calculation or would render the calculation of profit and expenses inconsistent
because:  a) the majority of the segment expenses (i.e., cost of sales) are
specific to Fluorinated Materials, and b) the remaining expenses are allocated
in proper proportion to the segment data based on the segment's cost of sales
compared to the company's overall cost of sales.  Therefore, we find no basis
for Ausimont's argument that the use of segment data results in a distortion in
the calculated CEP profit ratio, or an inconsistency in calculating the profit
and expenses used for purposes of a specific CEP profit ratio related to the
segment of Fluorinated Materials.  For the above-mentioned reasons, we have
determined that using the segment data for purposes of the CEP profit
calculation is appropriate and is in accordance with section 772(f)(2)(C) of
the Act. Consequently, we have revised the calculation of CEP profit to reflect
the segment data for Fluorinated Materials.  See the Department's September 5,
2000, Analysis Memorandum for Ausimont SpA.


Recommendation


Based on our analysis of the comments received, we recommend adopting the
above positions.
If this recommendation is accepted, we will publish the final determination in
the Federal Register.



AGREE____ DISAGREE____



_________________________
Troy H. Cribb
Acting Assistant Secretary
 for Import Administration



________________________
Date


Footnotes:
_____________________________________________________________________________
1. Note: We will refer to both Ausimont S.p.A. and Ausimont U.S.A. as
"Ausimont," unless indicated in this memorandum.
2. See Final Determination of Circumvention of Antidumping Duty Order, 58 FR
26100 (April 30, 1993).
3. See Notice of Final Determination of Sales at Less Than Fair Value: Large
Newspaper Printing Presses and Components Thereof, Whether Assembled or
Unassembled, From Germany, 61 FR 38166 (July 23, 1996), Certain Circular Welded
Carbon Steel Pipes and Tubes From Thailand; Final Results of Antidumping Duty
Administrative Review, 61 FR 1328, 1333 (January 19, 1996), Independent
Radionic Workers of America v.  United States, 862 F.  Supp.  422 (CIT 1994),
Daewoo Electronics Co.  v.  United States, 712 F.  Supp.  931 (CIT 1989), and
AOC International v.  United States, 721 F.  Supp. 314 (CIT 1989), rev'd on
other grounds, Zenith Electronics Corp.  v.  United States, 77 F. 3d 426 (Fed. 
Cir. 1996). 
4. "For purposes of determining profit under section 772(d)(3) of the Act, the
Secretary may rely on any appropriate financial reports, including public,
audited financial statements, or equivalent financial report, and internal
financial reports prepared in the ordinary course of business."