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[Federal Register Volume 62, Number 40 (Friday, February 28, 1997)]
[Notices]
[Pages 9160-9175]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-5029]

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DEPARTMENT OF COMMERCE
International Trade Administration
[A-570-845, A-570-846]

Notice of Final Determinations of Sales at Less Than Fair Value: 
Brake Drums and Brake Rotors From the People's Republic of China

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

EFFECTIVE DATE: February 28, 1997.

FOR FURTHER INFORMATION CONTACT: Brian C. Smith or Michelle A. 
Frederick, Import Administration, International Trade Administration, 
U.S. Department of Commerce, 14th Street and Constitution Avenue, N.W., 
Washington, D.C. 20230; telephone: (202) 482-1766 and (202) 482-0186, 
respectively.

THE APPLICABLE STATUTE: Unless otherwise indicated, all citations to 
the Tariff Act of 1930, as amended (the Act) are references to the 
provisions effective January 1, 1995, the effective date of the 
amendments made to the Act by the Uruguay Rounds Agreements Act (URAA).

FINAL DETERMINATIONS: We determine that brake drums and brake rotors 
from the People's Republic of China (PRC) are being, or are likely to 
be, sold in the United States at less than fair value (LTFV), as 
provided in section 735 of the Act.

Case History

    Since the amended preliminary determination in the brake drum 
investigation (Amended Preliminary Determination of Sales at Less Than 
Fair Value: Brake Drums from the People's Republic of China, 61 FR 
60682 (November 29, 1996)), the following events have occurred:
    The petitioner, the Coalition for the Preservation of American 
Brake Drum and Rotor Aftermarket Manufacturers, and all of the 
respondents 1 requested a hearing.
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    \1\  The respondents in the brake drums case are: (1) China 
North Industries Guangzhou Corporation (CNIGC); (2) Qingdao Metal, 
Minerals & Machinery Import & Export Corporation (Qingdao); (3) 
China National Machinery Import & Export Corporation (CMC); (4) 
Beijing Xinchangyuan Automobile Fittings Corporation, Ltd. 
(Xinchangyuan); and (5) Yantai Import/Export Corporation (Yantai).
    The respondents in the brake rotors case are: China National 
Automotive Industry Import & Export Corporation (CAIEC), Shandong 
Laizhou CAPCO Industry (Laizhou CAPCO) and their U.S. affiliate 
CAPCO International USA (CAPCO USA)(collectively CAIEC/Laizhou 
CAPCO); CNIGC; China North Industries Dalian Corporation (Dalian); 
Shenyang Honbase Machinery Co., Ltd., Lai Zhou Luyuan Automobile 
Fitting Co., Ltd. (collectively Shenyang/Laizhou) and their U.S. 
affiliates MAT Automotive, Inc., and Midwest Air Technologies, Inc. 
(MAT); Southwest Technical Import & Export Corporation, Yangtze 
Machinery Corporation (collectively Southwest), and its U.S. 
affiliate MMB International, Inc. (MMB); China National Machinery 
and Equipment Import & Export (Xinjiang) Corporation, Ltd. 
(Xinjiang); and Yantai.
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    From October 1996 through January 1997, we verified the 
questionnaire responses of the selected respondents. In January 1997, 
we issued our verification reports.
    Interested parties submitted additional information on surrogate 
values on January 9 and 10, 1997, for consideration in the final 
determinations. Also in January 1997, at the Department's request, we 
received revised computer tapes incorporating data corrections 
identified at the verifications from the following respondents: CAIEC, 
Dalian, Qingdao, Shenyang/Laizhou, Southwest, Xinchangyuan and 
Xinjiang.
    The petitioner and all of the respondents submitted case briefs on 
January 21, 1997, and rebuttal briefs on January 27, 1997. The 
Department held a public hearing for these investigations on January 
29, 1997.

Scope of the Investigations

    The products covered by these two investigations are (1) certain 
brake drums and (2) certain brake rotors.

Brake Drums

    Brake drums are made of gray cast iron, whether finished, 
semifinished, or unfinished, ranging in diameter from 8 to 16 inches 
(20.32 to 40.64 centimeters) and in weight from 8 to 45 pounds (3.63 to 
20.41 kilograms). The size parameters (weight and dimension) of the 
brake drums limit their use to the following types of motor vehicles: 
automobiles, all-terrain vehicles, vans and recreational vehicles under 
``one ton and a half,'' and light trucks designated as ``one ton and a 
half.''
    Finished brake drums are those that are ready for sale and 
installation without any further operations. Semi-finished drums are 
those on which the surface is not entirely smooth, and has undergone 
some drilling. Unfinished drums are those which have undergone some 
grinding or turning.
    These brake drums are for motor vehicles, and do not contain in the 
casting a logo of an original equipment manufacturer (OEM) which 
produces vehicles sold in the United States (e.g., General Motors, 
Ford, Chrysler, Honda, Toyota, Volvo). Brake drums covered in this 
investigation are not certified by OEM producers of vehicles sold in 
the United States. The scope also includes composite brake drums that 
are made of gray cast iron, which contain a steel

[[Page 9161]]

plate, but otherwise meet the above criteria.
    Brake drums are classifiable under subheading 8708.39.5010 of the 
Harmonized Tariff Schedule of the United States (HTSUS). Although the 
HTSUS subheading is provided for convenience and Customs purposes, our 
written description of the scope of this investigation is dispositive.

Brake Rotors:

    Brake rotors are made of gray cast iron, whether finished, 
semifinished, or unfinished, ranging in diameter from 8 to 16 inches 
(20.32 to 40.64 centimeters) and in weight from 8 to 45 pounds (3.63 to 
20.41 kilograms). The size parameters (weight and dimension) of the 
brake rotors limit their use to the following types of motor vehicles: 
automobiles, all-terrain vehicles, vans and recreational vehicles under 
``one ton and a half,'' and light trucks designated as ``one ton and a 
half.''
    Finished brake rotors are those that are ready for sale and 
installation without any further operations. Semi-finished rotors are 
those on which the surface is not entirely smooth, and has undergone 
some drilling. Unfinished rotors are those which have undergone some 
grinding or turning.
    These brake rotors are for motor vehicles, and do not contain in 
the casting a logo of an original equipment manufacturer (OEM) which 
produces vehicles sold in the United States (e.g., General Motors, 
Ford, Chrysler, Honda, Toyota, Volvo). Brake rotors covered in this 
investigation are not certified by OEM producers of vehicles sold in 
the United States. The scope also includes composite brake rotors that 
are made of gray cast iron, which contain a steel plate, but otherwise 
meet the above criteria.
    Brake rotors are classifiable under subheading 8708.39.5010 of the 
HTSUS. Although the HTSUS subheading is provided for convenience and 
Customs purposes, our written description of the scope of this 
investigation is dispositive.

Period of Investigations

    The period of these investigations (POI) comprises each exporter's 
two most recent fiscal quarters prior to the filing of the petition. 
For Southwest, the POI is June 1995-December 1995. For all other 
respondents, the POI is July 1995-December 1995.

Separate Rates

    Each of the participating respondents in these investigations claim 
to be eligible for individual dumping margins. Of those, CAIEC/Laizhou 
CAPCO, CMC, CNIGC, Dalian, Qingdao, Southwest, Xinjiang and Yantai 
claim to be owned by ``all the people.''
    The ownership structure of the remaining respondents is as follows:
    (1) Shenyang/Laizhou are affiliated parties. Shenyang is owned 
entirely by GRI Honbase, a Hong Kong company which is U.S. owned. 
Laizhou is a joint venture between GRI Honbase and ``all the people.'' 
The share in Laizhou owned by ``all the people'' is a minority share.
    (2) Xinchangyuan is a joint venture between a U.S. company and a 
PRC company, Beijing Changyuan Automotive Parts Factory. The PRC 
company is the majority shareholder and is owned by ``all the people.''
    As stated in the Final Determination of Sales at Less than Fair 
Value: Silicon Carbide from the People's Republic of China, 59 FR 
22585, 22586 (May 2, 1994) (Silicon Carbide) and in the Final 
Determination of Sales at Less than Fair Value: Furfuryl Alcohol from 
the People's Republic of China, 60 FR 22544 (May 8, 1995) (Furfuryl 
Alcohol), ownership of a company by ``all the people'' does not require 
the application of a single rate. Accordingly, each of these 
respondents is eligible for separate rate consideration.
    To establish whether a firm is sufficiently independent from 
government control to be entitled to a separate rate, the Department 
analyzes each exporting entity under a test arising out of the Final 
Determination of Sales at Less Than Fair Value: Sparklers from the 
People's Republic of China, 56 FR 20588 (May 6, 1991) (Sparklers) and 
amplified in Silicon Carbide. Under the separate rates criteria, the 
Department assigns separate rates in nonmarket economy cases only if 
the respondents can demonstrate the absence of both de jure and de 
facto governmental control over export activities.

1. Absence of De Jure Control

    Each of the respondents has placed on the administrative record a 
number of documents to demonstrate absence of de jure control, 
including laws, regulations and provisions enacted by the State Council 
of the central government of the PRC. Each has also submitted documents 
which establish that brake drums and brake rotors are not included on 
the list of products that may be subject to central government export 
constraints. In addition, the respondents Xinchangyuan and Laizhou each 
submitted the ``Law of the People's Republic of China on Chinese-
Foreign Contractual Joint Ventures'' (April 13, 1988). The articles of 
this law authorize joint venture companies to make their own 
operational and managerial decisions.
    In prior cases, the Department has analyzed the laws which the 
respondents have submitted in this record and found that they establish 
an absence of de jure control. See Notice of Final Determination of 
Sales at Less Than Fair Value: Certain Partial-Extension Steel Drawer 
Slides With Rollers From the People's Republic of China, 60 FR 54472 
(October 24, 1995) (Drawer Slides); see also Furfuryl Alcohol. We have 
no new information in these proceedings which would cause us to 
reconsider this determination.
    However, as in previous cases, there is some evidence that the PRC 
central government enactments have not been implemented uniformly among 
different sectors and/or jurisdictions in the PRC. (See Silicon Carbide 
and Furfuryl Alcohol.) Therefore, the Department has determined that an 
analysis of de facto control is critical in determining whether 
respondents are, in fact, subject to a degree of governmental control 
which would preclude the Department from assigning separate rates.

2. Absence of De Facto Control

    The Department typically considers four factors in evaluating 
whether each respondent is subject to de facto governmental control of 
its export functions: (1) Whether the export prices are set by or 
subject to the approval of a governmental authority; (2) whether the 
respondent has authority to negotiate and sign contracts and other 
agreements; (3) whether the respondent has autonomy from the government 
in making decisions regarding the selection of management; and (4) 
whether the respondent retains the proceeds of its export sales and 
makes independent decisions regarding disposition of profits or 
financing of losses (see Silicon Carbide and Furfuryl Alcohol). These 
factors are not necessarily exhaustive and other relevant indicia of 
government control may be considered.
    CAIEC/Laizhou CAPCO, CMC, Qingdao, Shenyang/Laizhou, Southwest, 
Xinchangyuan, Xinjiang, and Yantai asserted, and we verified, the 
following: (1) They establish their own export prices; (2) they 
negotiate contracts, without guidance from any governmental entities or 
organizations; (3) they make their own personnel decisions; and (4) 
they retain the proceeds of their export sales, use profits according 
to their business needs and have the authority to sell their assets and 
to obtain loans. In addition, the questionnaire responses submitted by 
the above-referenced respondents

[[Page 9162]]

indicate company-specific pricing during the POI which does not suggest 
coordination among exporters. During the verification proceedings, 
Department officials viewed such evidence as sales documents, company 
correspondence, and bank statements. This information supports a 
finding that there is a de facto absence of government control of the 
export functions of these companies. Consequently, we have determined 
that these exporters have met the criteria for the application of 
separate rates.
    CNIGC and Dalian also claimed separate rates and provided 
additional documentation at verification in support of their claims 
that there is a de facto absence of government control of the export 
functions of their companies. However, for the final determinations, we 
have denied these respondents separate rates. Since the preliminary 
determinations, we have collected additional information which 
indicates that CNIGC and Dalian are still branches of the national 
corporation, China North Industries Corporation (NORINCO), which is 
controlled by the PRC government (see Comment 1 for further 
discussion).

China-Wide Rate

    U.S. import statistics indicate that the total quantity and value 
of U.S. imports of brake drums and brake rotors from the PRC is 
substantially greater than the total quantity and value of brake drums 
and brake rotors reported by all PRC companies that submitted responses 
in both the brake drums and brake rotors cases. Given these significant 
discrepancies, we have no choice but to conclude that not all exporters 
of PRC brake drums and brake rotors responded to our questionnaire. 
Accordingly, we are applying in each investigation a single antidumping 
deposit rate--the China-wide rate--to all exporters in the PRC (other 
than those named above and those exporters which cooperated with our 
investigations but which were not selected as respondents and received 
separate rates), based on our presumption that those respondents who 
failed to show that they are entitled to separate rates are under 
common control by the PRC government. See, e.g., Final Determination of 
Sales at Less Than Fair Value: Bicycles from the People's Republic of 
China, 61 FR 19026 (April 30, 1996) (Bicycles).

Facts Available

    The China-wide antidumping rate is based on adverse facts 
available. Section 776(a)(2) of the Act provides that ``if an 
interested party or any other person--(A) withholds information that 
has been requested by the administering authority; (B) fails to provide 
such information by the deadlines for the submission of the information 
or in the form and manner requested, subject to subsections (c)(1) and 
(e) of section 782; (C) significantly impedes a proceeding under this 
title; or (D) provides such information but the information cannot be 
verified as provided in section 782(i), the administering authority * * 
* shall, subject to section 782(d), use the facts otherwise available 
in reaching the applicable determination under this title.'
    In addition, section 776(b) of the Act provides that, if the 
Department finds that an interested party ``has failed to cooperate by 
not acting to the best of its ability to comply with a request for 
information,'' the Department may use information that is adverse to 
the interests of that party as the facts otherwise available. The 
statute also provides that such an adverse inference may be based on 
secondary information, including information drawn from the petition.
    When multiple companies are treated as a single enterprise, the 
enterprise must submit a complete, consolidated response. If it fails 
to do so, the Department may base the margin calculation for the 
enterprise on the facts available. Additionally, as discussed above, 
those PRC exporters that have not qualified for a separate rate have 
been treated as a single enterprise. Because some exporters of the 
single enterprise failed to respond to the Department's requests for 
information, that single enterprise is considered to have failed to 
cooperate to the best of its ability. Accordingly, consistent with 
section 776(b)(1) of the Act, we have applied in each investigation the 
higher of the applicable margin from the petition or the highest rate 
calculated for a respondent in each proceeding as total adverse facts 
available. In both cases, based on our comparison of the calculated 
margins for the other respondents in these proceedings to the estimated 
margins in the petitions, we have concluded that the petition is the 
most appropriate record information on which to form the basis for the 
China-wide rate in the brake drums and brake rotors investigations.
    Section 776(c) of the Act provides that where the Department relies 
on ``secondary information,'' the Department shall, to the extent 
practicable, corroborate that information from independent sources 
reasonably at the Department's disposal. The Statement of 
Administrative Action (SAA), accompanying the URAA clarifies that the 
petition is ``secondary information.'' See SAA at 870. The SAA also 
clarifies that ``corroborate'' means to determine that the information 
used has probative value. Id. However, where corroboration is not 
practicable, the Department may use uncorroborated information.
    In accordance with section 776(c) of the Act, we corroborate the 
margins in the petition to the extent practicable. The petitioner based 
export prices on prices charged by U.S. distributors of brake drums and 
brake rotors and deducted from these prices a distributor mark-up. We 
compared the starting prices used by the petitioner to prices derived 
from U.S. import statistics and found that the similarity to the import 
statistics corroborated the starting prices in the petition. See Notice 
of Final Determination of Sales at Less Than Fair Value: Circular 
Welded Non-Alloy Steel Pipe from South Africa, 61 FR 24271 (May 14, 
1996). We found that the deduction for the distributor mark-up was 
sufficiently documented for purposes of corroboration by examining 
affidavits submitted by industry experts.
    The normal value (NV) was based on factors of production employed 
by the petitioner to produce brake drums and brake rotors, and to the 
extent possible, surrogate factor values which were obtained from 
Indian publicly available information. When analyzing the petition, the 
Department examined and confirmed the accuracy of the NV data as 
provided in the petition by comparing the values used in the petition 
with values obtained from publicly available information collected in 
these and previous non-market economy (NME) investigations. However, in 
examining the factors which served as the basis for NVs calculated in 
the petition, the Department found that petitioner treated certain 
factory overhead items as direct materials. Therefore, we have 
recalculated NV in the petition by treating these items as part of 
factory overhead. In addition, we assigned an Indian surrogate value to 
one material for which a value based on a U.S. price was assigned 
previously in our NV calculations (See Margin Corroboration Memorandum 
from the team to Gary Taverman, dated February 12, 1997). Thus, the 
highest revised petition rate for brake drums is 86.02 percent. The 
highest revised petition rate for brake rotors is 43.32 percent.

Fair Value Comparisons

    To determine if the brake drums and brake rotors from the PRC sold 
to the United States by the PRC exporters receiving separate rates were 
sold at less

[[Page 9163]]

than fair value, we compared the ``United States Price'' (USP) to NV, 
as specified in the ``United States Price'' and ``Normal Value'' 
sections of this notice.

United States Price

    We based USP on export price (EP) in accordance with section 772(a) 
of the Act, when the brake drums or brake rotors were sold directly to 
the first unaffiliated purchaser in the United States prior to 
importation and when constructed export price (CEP) methodology was not 
otherwise appropriate. In accordance with section 777A(d)(1)(A)(i) of 
the Act, we compared POI-wide weighted-average EPs to the factors of 
production.
    Shenyang/Laizhou/MAT and Southwest/MMB both claimed that their 
sales are EP, not CEP, transactions and that the Department should 
treat their sales accordingly. However, the Department has determined 
that the sales of these two companies are CEP transactions (see Comment 
14 for Shenyang/Laizhou/MAT and Comment 16 for Southwest/MMB).
    We corrected the respondents' data for errors and minor omissions 
found at verification. For CMC, Xinjiang and Yantai, we calculated EP 
in accordance with our preliminary determinations. In addition, we made 
company-specific adjustments as follows:
1. CAIEC/Laizhou CAPCO
    We calculated EP and CEP in accordance with our preliminary 
calculations, except that we (a) corrected credit expenses, inland 
freight, repacking, indirect selling expenses, and inventory carrying 
expenses; (b) removed credit returns from CAPCO's U.S. sales database; 
(c) recalculated commissions based on the verified commission rates; 
(d) revised brokerage and handling expenses; and (e) deducted from the 
U.S. price of certain sales an inspection charge based on information 
obtained at verification.
2. Qingdao
    We calculated EP in accordance with our preliminary calculations 
except that we excluded U.S. sales of one product that was found to be 
outside the scope of the investigation.
3. Shenyang/Laizhou/MAT
    We calculated EP and CEP in accordance with our preliminary 
calculations except that we have recalculated credit and indirect 
selling expenses based on information obtained at verification.
4. Southwest/MMB
    We calculated EP and CEP in accordance with our preliminary 
calculations except that we have adjusted the gross unit price for 
certain U.S. sales where the price was incorrectly reported. We then 
recalculated the credit and indirect selling expenses to take into 
account revised prices.
5. Xinchangyuan
    We calculated EP in accordance with our preliminary calculations 
except that we did not deduct foreign brokerage and handling expenses 
based on information derived at verification (see Comment 21 below). In 
addition, we excluded U.S. sales of three products that were found to 
be outside the scope of the investigation.

Normal Value

A. Factors of Production
    In accordance with section 773(c) of the Act, we calculated NV 
based on factors of production reported by the factories in the PRC 
which produced brake drums and/or brake rotors for the exporters. Where 
an input was sourced from a market economy and paid for in market 
economy currency, we used the actual price paid for the input to 
calculate the factors-based NV in accordance with our practice. See 
Lasko Metal Products v. United States, 437 F. 3d 1442, 1443 (Fed. Cir. 
1994). We valued the remaining factors using publicly available 
information from India where possible. Where appropriate Indian values 
were not available, we used publicly available information from 
Indonesia.
B. Factor Valuations
    The selection of the surrogate values was based on the quality and 
contemporaneity of the data. Where possible, we attempted to value 
material inputs on the basis of tax-exclusive domestic prices. Where we 
were not able to rely on domestic prices, we used import prices to 
value factors. As appropriate, we adjusted input prices to make them 
delivered prices. For those values not contemporaneous with the POI, we 
adjusted for inflation using wholesale price indices or, in the case of 
labor rates, consumer price indices, published in the International 
Monetary Fund's International Financial Statistics. For a complete 
analysis of surrogate values, see the Preliminary Determinations 
Factors Memorandum, dated October 3, 1996, and the Final Determinations 
Factors Memorandum, (Final Factors Memorandum) dated February 24, 1997. 
We have noted changes to surrogate valuation since the preliminary 
determinations as follows:
    To value unfinished castings used in producing rotors, we used a 
purchase price for unfinished castings contained in the 1995-96 
financial report of the Indian producer, Jayaswals Neco Limited 
(Jayaswals), because only this producer's financial report contained a 
POI purchase value for unfinished castings used to produce brake rotors 
that are within the scope of our investigation (see Comment 15).
    To value copper, copper powder, ferromanganese, ferrosilicon, other 
ferrosilicon, ferrochromium, manganese, limestone, lubrication oil, 
adhesive tape, corrugated cartons, nails, polyethylene, fiberboard, 
steel angles, steel stamp, steel straps, printed and unprinted labels, 
instruction sheets, wood brackets, wood pallets and wood crates, we 
used import prices for months contemporaneous with the POI for which 
such data were available from Monthly Statistics of the Foreign Trade 
of India (Monthly Statistics). Where submitted data encompassed part of 
the POI but also encompassed months outside the POI, we limited our use 
of such data to the portion contemporaneous with the POI.
    To value pig iron, steel scrap and iron scrap, we used the input-
specific prices contained in the 1995-96 financial report of the Indian 
producer, Shivaji Works Limited (Shivaji) because Shivaji produces 
goods which are in the same general category as the subject merchandise 
(e.g., products similar to what the respondents produce) and because we 
find that the separate line-item values for pig iron, steel scrap and 
iron scrap contained in Shivaji's report are more specific than the 
prices for these same inputs contained in the Indian publication Steel 
Authority of India Limited (SAIL) or in Monthly Statistics (see Comment 
7).
    To value steel sheet, steel strip and steel wire rod, we used POI 
prices from SAIL and not from Monthly Statistics (see Comment 7).
    To value scrap wood, we have used a price from a 1990 U.S. 
government publication, Marketing Opportunities for Social Forestry 
Produce in Uttar Pradesh, because the price is more specific to the 
input than the value previously obtained from Monthly Statistics.
    We could not obtain a product-specific price from India to value 
lug nuts for PRC companies which purchased this input from non-market 
economies (NME). Therefore, we used Indonesian import data covering 
July through November 1995 from

[[Page 9164]]

Indonesian Foreign Trade Statistical Bulletin (see Bicycles).
    To value barge rates, we relied on information from an August 1993 
cable from the U.S. consulate in India. Since the preliminary 
determinations, the respondents submitted new prices for coke, ball 
bearings and LPG gas for consideration in the final determinations. 
However, we have continued to rely on the values assigned to these 
inputs in the preliminary determinations for our final determinations 
(see Comment 7 and Final Factors Memorandum for further discussion).
    To value factory overhead, SG&A, and profit in the brake drums and 
brake rotors cases, we calculated a simple average using the financial 
reports of Jayaswals, Kalyani Brakes Limited (Kalyani), Krishna 
Engineering Works (Krishna), Nagpur Alloy Castings Limited (Nagpur), 
and Rico Auto Industries Limited (Rico) because these companies 
produced both brake drums and brake rotors within the scope of these 
investigations during the POI. We did not use the financial reports of 
Ennore Foundaries Limited (Ennore), Electrosteel Castings Limited 
(Electrosteel), Bhagwati Autocast Limited (Bhagwati), or Shivaji in the 
surrogate factory overhead, SG&A, and profit percentage calculations 
because there was no indication in the reports or any corroborating 
publicly available information showing that these companies produced 
brake drums or brake rotors within the scope of these investigations 
during the POI (see Comment 5).
    Where appropriate, we have removed from the surrogate overhead and 
SG&A calculations the excise duty amount listed in the financial 
reports (see Bicycles, 61 FR 19039). We also made certain adjustments 
to the percentages calculated as a result of reclassifying expenses 
contained in the financial reports.
    For the Indian companies, we treated the line item labeled ``stores 
and spares consumed'' as part of factory overhead where possible and 
not part of materials consumed because stores and spares are not direct 
materials consumed in the production process. Publicly available 
information examined in the preliminary determination indicates that 
Indian accounting practices require Indian companies to record molding 
inputs (i.e., all types of sand, bentonite, lead powder, steel pellets 
(if used for sand cores or molding), coal powder and waste oil) under 
``stores and spares consumed.'' Therefore, we are considering these 
molding inputs as indirect materials (i.e., a part of factory 
overhead), and are not valuing them as materials. In addition to the 
molding materials mentioned above, based on our verification findings, 
we find that additional materials previously valued as direct inputs 
such as dextrin, parting spray, rust inhibitor, antirust, steel shot, 
cutting oil, cleaning agent, and dehydration oil, are in fact indirect 
materials not incorporated into the final product. Therefore, we have 
also considered these additional materials part of factory overhead 
(see Comment 8). We have continued to treat rustproofing oil, limestone 
and firewood as direct materials and valued them accordingly (see 
Comment 8).
    We have considered the line item labeled ``raw materials consumed'' 
to include direct materials such as pig iron, steel scrap, and steel 
inputs, and non-steel direct inputs and not included them in factory 
overhead. The designation of these items is consistent with standard 
accounting procedures and recent determinations (see Final 
Determination of Sales at Less Than Fair Value: Polyvinyl Alcohol from 
the People's Republic of China, 61 FR 14062 (March 29, 1996) (PVA) and 
Bicycles). We based our factory overhead calculation on the cost of 
goods manufactured rather than on the cost of goods sold. We also 
included interest and/or financial expenses in the SG&A calculation. In 
addition, we only reduced interest and financial expenses by amounts 
for interest income if the Indian financial report noted that the 
income was short-term in nature (see Comment 6). Where a company did 
not distinguish interest income as a line item within total ``other 
income'' we used the relative ratio of interest income to total other 
income as reported for the Indian metals industry in the Reserve Bank 
of India Bulletin. (For a further discussion of other adjustments made, 
see Final Factors Memorandum).

Verification

    As provided in section 782(i) of the Act, we verified the 
information submitted by all selected respondents for use in our final 
determinations. We used standard verification procedures, including 
examination of relevant accounting and production records and original 
source documents provided by the respondents.

Critical Circumstances

    Section 735(a)(3) of the Act provides that, in a final 
determination, the Department will determine whether:
    (A)(i) there is a history of dumping and material injury by reason 
of dumped imports in the United States or elsewhere of the subject 
merchandise, or
    (ii) the person by whom, or for whose account, the merchandise was 
imported knew or should have known that the exporter was selling the 
subject merchandise at less than its fair value and that there would be 
material injury by reason of such sales, and
    (B) there have been massive imports of the subject merchandise over 
a relatively short period.
    Because there is no history of dumping and material injury by 
reason of dumped imports for either brake drums or brake rotors, we 
conducted our analysis under section 735(a)(3)(A)(ii) of the Act 
(importer knowledge of dumping and material injury).

1. Importer Knowledge of Material Injury

    Pursuant to the URAA, and in conformance with the WTO Antidumping 
Agreement, the statute now includes a provision requiring the 
Department to determine, when relying upon section 735(a)(3)(A)(ii) to 
determine whether critical circumstances exist, whether the importer 
knew or should have known that there would be material injury by reason 
of the less than fair value sales. In this respect, the preliminary 
finding of the International Trade Commission (ITC) is instructive, 
especially because the general public, including importers, is deemed 
to have notice of that finding as published in the Federal Register. 
Thus, the Department has determined that a preliminary ITC finding of a 
reasonable indication of present material injury to the U.S. industry, 
when coupled with massive imports and a high rate of dumping by a given 
exporter (see Importer Knowledge of Dumping section, below) permits the 
conclusion that importers of the subject merchandise from such 
exporters knew or should have known that such imports would cause 
injury to the domestic industry. When the ITC has preliminarily found 
no reasonable indication that a U.S. industry is experiencing present 
material injury by reason of the dumped subject merchandise, but only a 
threat of such injury, the Department has determined that it is not 
reasonable to conclude that an importer knew or should have known that 
its imports would cause material injury. (See Decision Memorandum 
Regarding Imputed Knowledge of Material Injury.)
    Because the ITC preliminarily determined that there is no 
reasonable indication that the U.S. brake drums industry is 
experiencing present material injury, but only a reasonable indication 
of threat of material injury,

[[Page 9165]]

we find that the ``importer knowledge of material injury'' prong is not 
met with respect to brake drums. Therefore, we find that critical 
circumstances do not exist with respect to brake drums, and it is not 
necessary to examine the other critical circumstances criteria for this 
product. Because the ITC preliminarily determined that there is a 
reasonable indication that the U.S. brake rotors industry is, in 
contrast, experiencing present material injury, we determine that 
critical circumstances exist with respect to those exporters of brake 
rotors which we have determined are responsible for massive imports and 
high dumping margins, as described below.

2. Importer Knowledge of Dumping

    In determining whether an importer knew or should have known that 
the exporter was selling the subject merchandise at less than fair 
value, the Department normally consider margins of 15 percent and 25 
percent or more sufficient to impute knowledge of dumping for CEP sales 
and EP sales respectively.
    Since the company-specific margins in the final determinations for 
brake drums and brake rotors are below 15 percent for CEP sales (with 
the exception of brake rotors sales made by Southwest) and below 25 
percent for EP sales, we have not imputed importer knowledge of dumping 
and injury with respect to any firms except Southwest in the brake 
rotors investigation. Therefore, we have only analyzed the brake rotor 
shipment data of Southwest.

3. Massive Imports

    When examining the volume and value of trade flow data, the 
Department typically compares the export volume for equal periods 
immediately preceding and following the filing of the petition. 
Pursuant to 19 CFR 353.16(f)(2), unless the imports in the comparison 
period have increased by at least 15 percent over the imports during 
the base period, we will not consider the imports to have been 
``massive.'' In order to determine whether there have been massive 
imports of brake rotors for the companies for which we have determined 
that there is knowledge of dumping and material injury, we compared 
sales from August 1995 to February 1996 (the comparison period) to 
sales from March 1996 to September 1996 (the base period).
    In determining whether imports have been ``massive,'' pursuant to 
19 CFR 353.16(f), we will normally consider, in addition to the volume 
and value of imports, any seasonal trends affecting the merchandise and 
the share of domestic consumption accounted for by the imports. There 
is no indication on the record that brake rotors are a seasonal 
product. Also, we were unable to consider the share of U.S. consumption 
represented by the selected respondents, because we have insufficient 
information with regard to the selected respondents'' market share of 
domestic consumption. Based on our analysis of Southwest, we determine 
that the increase in imports was less than 15 percent with respect to 
that firm. Because imports from Southwest have not been massive, we 
determine that critical circumstances do not exist with respect to 
imports of subject merchandise from this company.

4. Unexamined Respondents/China-Wide Entity

    As indicated in Preliminary Critical Circumstances Determinations, 
61 FR 55269 (October 25, 1996), and in the Preliminary Determinations, 
61 FR 53190 (October 10, 1996), the Department does not believe it is 
appropriate to find critical circumstances with respect to respondents 
whose individual data have not been analyzed due to the Department's 
own administrative constraints. Therefore, we do not consider critical 
circumstances to exist with regard to the non-analyzed cooperative 
respondents in the brake rotors case.
    With respect to the China-wide entity, we are imputing knowledge of 
dumping, based on the China-wide dumping rate. As noted above, we have 
determined that importers knew or should have known that there would be 
material injury to the U.S. brake rotors industry based on the ITC's 
preliminary determination of a reasonable indication of present 
material injury for brake rotors. In the absence of shipment data for 
the China-wide entity, we have determined based on the facts available, 
and making the adverse inference permitted under section 776(b) of the 
Act because this entity did not provide an adequate response to our 
questionnaire, that there were massive imports of brake rotors. See 
Preliminary Critical Circumstances Determinations, 61 FR at 55269. 
Furthermore, we note that the record indicates a post filing surge in 
U.S. brake rotor imports from the PRC which is not accounted for by the 
cooperating respondents. Therefore, for the China-wide entity, we 
determine that critical circumstances exist with respect to imports of 
brake rotors.

5. Conclusion

    With regard to brake rotors, we find that critical circumstances 
exist only for companies subject to the China-wide rate.
    With regard to brake drums, we find that critical circumstances do 
not exist.

Interested Party Comments

General Comments

Comment 1: Separate Rates--CNIGC and Dalian
    The petitioner maintains that there is sufficient evidence on the 
record to deny CNIGC and Dalian separate rates in these cases. It 
points out that these respondents failed to demonstrate at verification 
that they were (1) not part of NORINCO, a trading company which is 
monitored, if not controlled, by the PRC government; (2) not part of 
the NORINCO Group, an organization controlled by the People's 
Liberation Army (PLA); and (3) independent from the Ministry of Foreign 
Trade and Economic Cooperation (MOFTEC), because they withheld all 
information concerning their relationship with MOFTEC. The petitioner 
further contends that the PRC government deliberately withheld 
information which might have revealed that CNIGC and Dalian were part 
of the NORINCO Group.
    CNIGC and Dalian maintain that they demonstrated at verification 
the absence of both de jure and de facto government control over their 
export activities and that they have established through documentation 
that they are separate from NORINCO and are entitled to a separate 
rate. In addition, they argue that there is no information on the 
record that supports the claim that they are affiliated with the PRC 
government. Moreover, the two respondents contend that the PRC 
government did not fail to cooperate with the Department because they 
answered the Department's questions to the extent possible. However, if 
the Department decides that the PRC government was uncooperative, then 
they maintain that the Department cannot impute this lack of 
cooperation to CNIGC or Dalian. They cite to Notice of Court Decision; 
Exclusion From the Application of the Antidumping Duty Order, in Part; 
Termination of Administrative Review in Part; and Amended Final 
Determination: Certain Compact Ductile Iron Waterworks Fittings and 
Glands from the People's Republic of China, 60 FR 2078 (January 6, 
1995) and Final Determination of Sales at Less Than Fair Value: Certain 
Helical Spring Lock Washers from the People's Republic or China, 58 FR 
48833 (September 20, 1993) in support of their arguments.

[[Page 9166]]

DOC Position
    The Department's NME separate rates policy is based upon a 
rebuttable presumption that NME entities operate under government 
control and do not merit separate rates. This presumption can only be 
overcome by a respondent's affirmative showing that it operates without 
de jure or de facto government control.
    CNIGC and Dalian have met their affirmative evidentiary burden with 
respect to the Department's criteria of de jure control, insofar as 
they have provided copies of business licenses and applicable 
government statute granting them the right to operate as independent 
trading companies.
    These two respondents have also provided evidence that purportedly 
demonstrates absence of de facto control. However, other evidence 
supports a conclusion that Dalian and CNIGC remain under the control of 
the national corporation, NORINCO. Dalian and CNIGC were, until 1988 
and 1991, respectively, legal and operational subsidiaries of NORINCO. 
Although PRC law and regulations mandated the legal and operational 
separation of these branches from their parent, evidence on the record 
suggests that the two respondents have only partially severed their 
ties to NORINCO, and are still recognized in the PRC and overseas as 
branches of NORINCO.
    At the Department's visit to NORINCO's Beijing office, we obtained 
a NORINCO brochure which identifies CNIGC and Dalian as branches of 
NORINCO. The brochure continued to be distributed to the public as of 
the time of verification in late 1996. See exhibit 3 of the NORINCO 
verification report, dated January 8, 1997. This is consistent with the 
verification finding that NORINCO still maintains an office within the 
headquarters of CNIGC. See CNIGC verification report dated January 8, 
1997, at 6. It is also consistent with 1995 information obtained from 
the U.S. Department of Defense which states that ``Norinco Guangzhou 
[CNIGC] is a leading branch of NORINCO,'' and with a 1996 Company 
Intelligence International article indicating that CNIGC is a branch of 
NORINCO. Thus, it appears that the de facto relationship between 
government-controlled NORINCO and its branches, including Guangzhou and 
Dalian, has not been entirely severed.
    We note that in the instant investigation, NORINCO has not made a 
claim of independence from government control. Furthermore, there is 
evidence on the record that NORINCO is controlled by the PRC 
government. See, e.g., organizational chart submitted to the file on 
October 3, 1996, describing NORINCO as under the control of the PRC's 
State Council, and Foreign Broadcast Information Service reports.
    In view of CNIGC's and Dalian's continuing ties to NORINCO, and in 
the absence of a showing that NORINCO is independent from government 
control, the two respondents fail to overcome the presumption of de 
facto government control. Thus, we have not assigned separate rates to 
these companies.
Comment 2: Treatment of Non-Selected Respondents
    The petitioner maintains that the Department had sufficient 
resources to investigate all of the responding PRC companies in these 
investigations. The petitioner further states that the Department 
should, at a minimum, request shipment data from non-selected 
respondents in order to determine whether critical circumstances exist 
for those companies, especially since U.S. import statistics indicate 
that massive imports of one product type (i.e., brake rotors) has 
occurred. The petitioner cites to Bicycles in support of its argument.
    Eight respondents (i.e., the ten respondents except for Shenyang/
Laizhou and Southwest) (hereafter referred to as ``the eight 
respondents'') state that the Department's sampling methodology is not 
contrary to law. However, the eight respondents claim that the 
Department should not impute knowledge of likelihood of material injury 
to U.S. importers merely because of the existence of dumping, 
maintaining that there is no inherent causal relationship between 
dumping and injury. Therefore, the eight respondents argue that the 
Department should find critical circumstances exist only if it 
determines that importers knew or should have known that there was 
likely to be material injury because of sales of brake drums and brake 
rotors at less than fair value.
DOC Position
    We disagree in part with the petitioner and the respondents. In 
accordance with section 777A(c)(2) of the Act, given our limited 
resources, we had to limit the number of respondents examined in these 
cases in order to lessen the administrative burden on the Department, 
and we did so by choosing the largest exporters to the United States 
(see Honey and Bicycles). As for requesting shipment data from the non-
selected respondents which have cooperated in these investigations, we 
did not do so due to the Department's own administrative constraints, 
which limited our ability to examine questionnaire responses or request 
shipment data for analysis. With respect to importer knowledge of 
material injury by reason of sales at less than fair value, the 
Department's position has changed since the preliminary determination. 
This decision is now based on the ITC's preliminary determination, in 
conjunction with massive imports and a high level of dumping. (See 
``Importer Knowledge of Material Injury'' section of this notice and 
Decision Memorandum from the team to Richard W. Moreland, dated 
February 24, 1997).
Comment 3: Facts Available
    The petitioner argues that the Department should resort to facts 
available and deny all of the respondents separate rates. According to 
the petitioner, throughout these proceedings the respondents have 
submitted to the Department ``boiler plate'' answers in response to the 
antidumping questionnaire, significantly revised their responses during 
the course of the proceedings, and requested numerous extensions of 
time to submit their incorrect data. In addition, the petitioner claims 
that the Department found a large number of errors at verification for 
the respondents and lists both general and respondent-specific 
instances upon which the Department should base an adverse facts 
available determination (see the petitioner's January 21, 1997, case 
brief, at 13-20.)
    The petitioner also contends that the Department should deny 
separate rates to the companies under investigation because they 
withheld information regarding their relationship with MOFTEC, and 
because it could not be determined from a meeting at the Ministry of 
Machinery Industry and letters sent to MOFTEC whether the respondents 
have any relationship with any level of the PRC government. The 
petitioner further urges the Department to assign the China-wide rate 
to all of the respondents, claiming that not doing so may cause a 
massive diversion of shipments of the subject merchandise between PRC 
companies, with exports being shifted to companies assigned lower 
rates.
    The eight respondents first contend that the petitioner erroneously 
equates ``facts available'' with ``adverse assumptions.'' They argue 
that the Act has been amended so that the Department cannot 
automatically make an adverse inference when applying facts available, 
but rather must consider all evidence on the record in

[[Page 9167]]

determining whether adverse inferences are warranted.
    The eight respondents and Southwest argue that there is no instance 
in these proceedings that would justify the Department resorting to 
adverse inferences or resorting to facts available. They state that (1) 
there were no instances in any of the verifications in which the 
Department was unable to verify particular information; (2) the errors 
described by petitioner often were adverse to the respondents; and (3) 
when the Department did find errors, the Department was able to obtain 
and verify the correct information. Moreover, they maintain that there 
is no evidence that they failed to cooperate by not acting to the best 
of their ability to comply with Departmental requests for information 
or that the errors discovered during verification undermined the 
validity of any responses.
    With respect to separate rates, all of the respondents stated that 
they had made adequate showings of independence.
    Respondent Shenyang/Laizhou states that the Department may use 
facts available in making its determination if necessary information is 
not on the record or if a respondent: (1) Withholds requested 
information, (2) fails to provide requested information by the 
deadlines for the submission of the information, or in the form and 
manner requested, (3) significantly impedes an investigation, or (4) 
provides unverifiable information. (See Section 776 of the Act). 
Information that is adverse to a respondent may be used by the 
Department when the respondent ``has failed to cooperate by not acting 
to the best of its ability to comply with a request for information.'' 
(See Section 776(b) of the Act). Shenyang/Laizhou notes that none of 
these conditions are present in its case and that although a few 
discrepancies were noted at verification, they were resolved during 
verification.
    Furthermore, all respondents urge the Department to make those 
corrections to the corresponding databases which were brought to the 
attention of the Department prior to and during verification.
    Lastly, all respondents address the list of verification errors 
noted by the petitioner as reason for facts available, arguing that 
while the Department verified every factor input, for those that were 
in error, the corrections were clerical and minor in nature. They 
further assert that with respect to the areas affected by these errors, 
there are alternative verified data on the record that allow for 
recalculation of the relevant factors.
DOC Position
    We agree with all respondents that neither an across-the-board 
denial of separate rates nor an across-the-board recourse to ``total'' 
facts available is warranted in these investigations. First, regarding 
the petitioner's concern over the massive diversion of shipments of 
brake drums and rotors between exporters if the Department does not 
assign the China-wide rate to all exporters, the Department has 
established that the companies receiving separate rates in these 
investigations operate independently of each other and of government 
entities with respect to their exports of the subject merchandise. 
Thus, these respondents have been assigned rates based on their 
different cost and pricing structures. It would be a normal phenomenon 
that respondents with lower dumping margins would experience an 
increase in sales of the subject merchandise as a result of an increase 
in customers' demand for products with lower duty margins.
    Second, we disagree with the petitioner that the other companies 
(i.e., not including CNIGC and Dalian) in these investigations should 
be denied separate rates based on the facts available. The information 
submitted on the record by each of these companies, as well as the 
Department's verification findings, show that these respondents under 
investigation have met the qualifying criteria for separate rates (see 
``Separate Rates'' section for further discussion). The records in 
these investigations affirmatively indicate the absence of de jure and 
de facto control by government entities over those responding 
companies' operations with respect to the products under investigation. 
In its verification, the Department found no evidence that these 
respondents are controlled by MOFTEC or the Ministry of Machinery 
Industry, or any level of the PRC government.
    Third, we disagree with the petitioners depiction of the 
respondents'' ``numerous'' extension requests and errors. In this 
instance, the number of extensions granted was not extraordinary, nor 
did these extensions prevent the petitioner from commenting on the 
responses or the Department from making its preliminary determinations.
    Lastly, with respect to the errors listed by the petitioner, a 
review of the respondents' response revisions indicates that such 
revisions were not unduly extensive. We do not believe that failure to 
initially submit an error-free response, or the correction of these 
errors, should result in the use of facts available because we found no 
basis to conclude that these errors affect the overall integrity of the 
response. Moreover, in an antidumping investigation, it is not unusual 
to encounter errors throughout the proceeding up to the commencement of 
verification.
    As described in Ferrosilicon from Brazil: Final Results of 
Antidumping Duty Administrative Review, 61 FR 59407 (November 22, 
1996), errors that are not substantial do not affect the integrity of 
the response. In addition, the errors in question do not warrant 
wholesale rejection of the reported data since all such deficiencies 
can be corrected using verified data on the record.
Comment 4: CEP Deductions and Circumstance-of-Sale (COS) Adjustments
    Southwest argues that the Department should not make adjustments to 
CEP transactions for indirect selling expenses, credit and profit 
because making an adjustment to one side of the equation without making 
a comparable adjustment to the other results in an unfair calculation. 
Alternatively, Southwest suggests that if the Department makes these 
adjustments to the U.S. price then the Department should make similar 
adjustments to NV.
    The petitioner states that section 772(c)(2)(D) of the Act requires 
the Department to reduce CEP by the selling expenses associated with 
economic activity in the United States, and that the Act provides no 
exception for cases involving NMEs. As for making COS adjustments, the 
petitioner states that section 773(a)(6)(C) of the Act does not require 
the Department to make COS adjustments to NV unless it has been 
established to the satisfaction of the administering authority that 
such adjustments are warranted.
DOC Position
    We agree with the petitioner. Section 772(d)(1) of the Act requires 
the Department to reduce CEP by the selling expenses associated with 
economic activity in the United States (see SAA at 153, Final 
Determination of Sales at Less Than Fair Value: Certain Pasta from 
Italy, 61 FR 30326 (June 14, 1996), and Bicycles at 19031. Moreover, 
section 772(d)(3) of the Act requires us to make a deduction for profit 
associated with CEP selling expenses (see SAA at 154, and Bicycles, at 
19032). As for COS adjustments to NV, given the imprecise nature of the 
information about direct and indirect selling expenses in the record in 
these cases (e.g., the financial reports of

[[Page 9168]]

Indian producers), we have no basis to conclude that such adjustments 
are warranted in these cases (see Bicycles at 19031).
Comment 5: Indian Producer Financial Statements
    The respondents, except for Southwest, argue that the Department 
should only use data from financial statements of Indian producers of 
brake drums and brake rotors to calculate factory overhead, SG&A and 
profit percentages in respective investigations. In addition, the 
respondents maintain that the Department should only consider using 
data from the financial statements of Ennore, Jayaswals, Kalyani, 
Krishna, Nagpur, and Rico because these Indian companies produce the 
subject merchandise. The respondents claim that the financial reports 
of Electrosteel and Shivaji should not be used to derive the 
percentages because neither company produces the subject merchandise. 
Alternatively, if the Department uses financial data from Shivaji's 
report, then the eight respondents claim that the Department must also 
use Electrosteel's financial data because both companies produce grey 
iron castings which are similar to the subject merchandise. The 
respondents cite to the Notice of Final Determination of Sales at Less 
Than Fair Value: Melamine Institutional Dinnerware Products From the 
People's Republic of China, 62 FR 1708 (January 13, 1997) (Melamine), 
Notice of Final Determination of Sales at Less Than Fair Value: Tapered 
Roller Bearings and Parts Thereof, Finished or Unfinished, from the 
Hungarian People's Republic, 52 FR 17428 (May 8, 1987), and Bicycles in 
support of their arguments.
    The respondent Southwest maintains that all but Ennore's financial 
report should be used to calculate the percentages because there is no 
publicly available information indicating that Ennore produced the 
subject merchandise during the POI. It argues that a letter from Ennore 
(submitted on the record by other respondents) that stated that this 
company produces brake drum castings should be rejected as ``private 
information.''
    The petitioner states that the Department should use the financial 
reports of Ennore, Jayaswals, Kalyani, Krishna, Nagpur, Rico and 
Shivaji to calculate percentages for both investigations and that the 
Department should calculate the percentages based on the petitioner's 
calculations of the data as shown in its case brief.
DOC Position
    The Department disagrees with certain of the respondent's specific 
statements, while agreeing in general, that the companies selected for 
calculation of factory overhead, SG&A, and profit should reflect the 
Department's preference for ``the most product-specific information 
possible from the surrogate market'' as noted in Melamine. Based on 
publicly available information, we find that Jayaswals, Kalyani, 
Krishna, Nagpur and Rico produced both brake drums and brake rotors 
within the scope of these investigations and sold during the POI. 
Therefore, we are using these Indian producers' financial reports to 
calculate surrogate percentages for use in both investigations. We are 
not using the financial data of Electrosteel or Ennore because we have 
no publicly available information which indicates that these companies 
produced subject merchandise during the POI. Although the eight 
respondents submitted a letter from Ennore which stated that it 
produces brake drums, we have relied on publicly available information 
instead of the private correspondence as the basis for our decision 
because we normally prefer to rely on publicly available information 
and consider the contents of the correspondence files of a company, by 
nature, not to be publicly available information. We are not using 
Shivaji's financial report for these calculations because publicly 
available information, along with information from the U.S. consulate 
in India, establishes that Shivaji did not produce subject merchandise 
during the POI.
Comment 6: Adjustments to Indian Financial Reports' Data
    The eight respondents argue that, when calculating SG&A, the 
Department should offset the interest and financial expenses by the 
amount of financial gains (i.e., items such as ``operating income, 
miscellaneous receipts, miscellaneous income, and other interest 
income'') when calculating SG&A. They contend that adding the financial 
expenses to SG&A without reducing those amounts by any corresponding 
operating income results in imprecise and overstated selling expenses. 
They cite to the Notice of Final Results of Antidumping Duty 
Administrative Review: Frozen Concentrated Orange Juice from Brazil 
(Orange Juice), 55 FR 26721 (June 29, 1990) (Comment 8) in which the 
Department offset financial expenses with short-term operating income.
    The petitioner argues that the Department should not offset 
financial expenses against financial gains, citing Bicycles, and claims 
that section 773(a)(7) of the Act states that an offset to NV is only 
required upon sufficient showing that differences exist justifying the 
adjustment.
DOC Position
    We agree with the respondents that we should offset interest 
expense by the amount of short-term interest income when calculating 
G&A, as in Orange Juice and in accordance with Departmental practice. 
However, we disagree that operating income or all of miscellaneous 
receipts should be in the offset. We do not include in our offset long-
term interest income nor short-term income from activities such as 
rental. Thus, we reduced interest expenses by amounts for interest 
income for those items identified in the financial reports as being 
related to short-term interest, and utilized the April 1995 Indian 
Reserve Bank Bulletin to allocate a portion of ``other income'' or 
``miscellaneous receipts'' as short-term interest income for those 
companies which did not specify a breakdown of their non-operating 
income.
    The petitioner's reliance on section 773(a)(7) of the Act and 
Bicycles is misplaced. Section 773(a)(7) deals with level of trade 
adjustments. The comment in Bicycles to which the petitioner refers 
deals with a circumstance-of-sale (COS) adjustment. 61 FR at 19031 
(Comment 1). This adjustment is not a COS adjustment but simply a 
reduction in the total amount of SG&A expenses based on short-term 
income received by the Indian producer.
Comment 7: Surrogate Values for Certain Material Inputs
    The petitioner asserts that the Department should value pig iron, 
steel sheet, steel wire rod and steel scrap using POI import prices 
from the Indian publication Monthly Statistics rather than the POI 
domestic prices from the Indian publication SAIL or from the financial 
reports of certain Indian producers because the prices in Monthly 
Statistics are exclusive of taxes and duties whereas the prices in SAIL 
and in the financial reports are not. If the Department elects not to 
use pig iron prices from Monthly Statistics, then the petitioner urges 
the Department to use Indian Iron & Steel Company Limited (IISCO) 
prices rather than SAIL prices for the same reason noted above. The 
petitioner claims that the Department should not value ball bearing 
cups by using prices from Indian Customs Daily Lists provided by 
International Data Services (IDS) because IDS data is of

[[Page 9169]]

inferior quality and is therefore unreliable. For coke, the petitioner 
maintains that the article containing domestic prices submitted by all 
of the respondents on January 10, 1997, indicates that the prices are 
controlled by the Indian government and therefore should not be 
considered.
    The eight respondents maintain that in past NME cases the 
Department has expressed a clear preference for using tax-exclusive 
domestic prices rather than import prices when valuing factors of 
production. In addition, they state that in previous NME cases, the 
Department has used SAIL data when the specificity of the steel product 
has been most important in valuing the factor. They cite to Drawer 
Slides and to the Notice of Final Results of Administrative Review: 
Certain Helical Spring Lock Washers from the People's Republic of 
China, 61 FR 41994, 41997 (August 13, 1996) in support of their 
argument. For ball bearing cups, the respondents maintain that the IDS 
data is publicly available information and is more specific to imports 
of ball bearing cups than the category of ``other ball/roller bearing 
parts'' listed in Monthly Statistics. For coke, they state that the 
data from Economic Times of Mumbai provide prices for coke which are 
contemporaneous with the POI and specific to Indian foundry industries.
DOC Position
    We disagree in part with both the petitioner and the respondents. 
The fact that domestic prices may include taxes is not determinative 
when deciding which prices are preferable for use in valuing the 
factors of production. For pig iron, steel scrap and iron scrap, we 
find that the separated line item prices for each of these inputs in 
Shivaji's 1995-96 report are more specific than the prices contained in 
SAIL, Monthly Statistics or IISCO. Therefore, the prices in Shivaji's 
report are more reflective of prices paid for inputs used by domestic 
producers of castings (i.e., products of the same general category as 
the subject merchandise). We have also removed, where possible, any 
taxes included in the prices obtained from Shivaji's report.
    The Department normally prefers to use prices that are 
representative of prices in effect during the POI. For ball bearing 
cups, we find that the IDS data is less representative of prices in 
effect during the POI than the prices contained in Monthly Statistics 
because the IDS data, selected by the respondents, consist of a single 
transaction at a single port for a single customer and do not appear to 
be more product-specific than the Monthly Statistics data. Therefore, 
we have valued this input using prices from Monthly Statistics.
    For coke, though the prices from Economic Times of Mumbai are POI 
prices, we find that these prices are clearly government administered. 
Since we have a POI coke value from Monthly Statistics in these 
investigations which is not government administered, we have used these 
prices to value this input.
Comment 8: Treatment of Indirect Materials
    All of the respondents urge that, in calculating NV, the Department 
should continue to consider molding inputs as indirect materials and 
part of factory overhead, rather than as materials consumed. In 
addition, Southwest maintains that the Department should also treat 
dextrin, steel shot, antirust, cutting oil, cleaning agent, dehydrating 
oil, and rustproofing oil as indirect materials and part of factory 
overhead. In order for a material to be considered a direct material, 
Southwest argues that the material must be physically incorporated into 
the finished product, citing the Compendium of Statements and Standards 
published by the Institute of Chartered Accountants of India. Finally, 
Shenyang/Laizhou claims that limestone and firewood should be treated 
as indirect materials because they are not physically incorporated into 
the final product.
    The petitioner did not comment on this issue.
DOC Position
    We have continued to treat molding materials listed in the 
``Factors of Production'' section of this notice as indirect materials 
because although these inputs are used to produce the subject 
merchandise, these inputs are not incorporated into the final product 
and are also categorized as ``stores and spares consumed'' based on 
Indian accounting standards. According to the Compendium of Statements 
and Standards, in order for a material to be considered as part of 
factory overhead, it must ``assist the manufacturing process, but * * * 
not enter physically into the composition of the finished product.'' We 
agree that dextrin, steel shot, antirust, cutting oil, cleaning agent 
and dehydrating oil are indirect materials and should be treated as 
part of factory overhead, because the function of these materials is to 
``assist'' in the manufacturing process and do not enter physically 
into the composition of the finished product. With respect to 
rustproofing oil, we find that this input is a direct material because 
it is used as a packaging material. As for limestone and firewood, we 
find that limestone is a direct material which is consumed during the 
smelting process as flux (i.e., a material resulting from the 
production process which removes undesirable substances, like sand, 
from the metal bath) and that firewood is an energy input used in the 
production process.
Comment 9: Surrogate Value for Rustproofing Oil
    Southwest claims that if the Department treats rustproofing oil as 
a direct material, then the Department should value it using the value 
of lubrication oil because other respondents, such as CAIEC/Laizhou 
CAPCO, use rustproofing oil for the same process. Thus, the Department 
should use the same surrogate value for all respondents (i.e., 
lubrication oil).
    The petitioner did not comment on this issue.
DOC Position
    We disagree with Southwest. We found at the verification of 
Southwest's factory that it used a rustproofing oil, not lubrication 
oil, to coat its finished brake rotors for packaging. In contrast, 
although we found that CAIEC/Laizhou CAPCO used an oil to protect its 
brake rotors before packaging, it is clear that CAIEC/Laizhou CAPCO 
uses lubrication oil and not rustproofing oil. However, given that we 
could not obtain a surrogate value for rustproofing oil, we have used 
the value of lubrication oil to value this input for all respondents.
Comment 10: Foreign Inland Freight
    The eight respondents maintain that the Department should not 
deduct an amount for foreign inland freight from EP or CEP because that 
expense was incurred by the factories and not by the trading companies. 
According to these respondents, the original places of shipment were 
the seaports where the suppliers delivered the merchandise for shipment 
to the United States. Citing Notice of Final Results of Antidumping 
Duty Administrative Review: Titanium Sponge from the Russian 
Federation, 61 FR 58525 (November 15, 1996), (Titanium Sponge from 
Russia), they claim that the Department should consider the seaports 
from which the subject merchandise was shipped to be the original 
places of shipment and to deduct only the movement charges incurred in 
transporting the merchandise from the PRC to the U.S. customers from EP 
and CEP. Alternatively, they maintain that if the Department does 
deduct the foreign inland freight from the factories to the seaports 
from EP and CEP, then the

[[Page 9170]]

Department should, at a minimum, ensure that a similar amount is 
excluded from the overhead and selling expense ratios calculated for 
building normal value. They contend that if the overhead and selling 
expense ratios are derived from Indian producer financial statements 
wherein overhead and/or SG&A contain delivery expenses, the inclusion 
of such expenses in normal value with the simultaneous exclusion of 
such expenses from EP and CEP would constitute double-counting.
    The petitioner did not comment on this issue.
DOC Position
    The Department disagrees with the respondents'' implied conclusion 
that in these investigations, the cost of transporting the subject 
merchandise from the factory to the PRC port of exportation should be 
treated as a component of the factories'' total costs (i.e., as a 
factor in the construction of normal value) instead of as a deduction 
from the price to the U.S. customer. While it is true that, in Titanium 
Sponge from Russia, the Department did not deduct factory-to-port 
movement charges from the U.S. starting price, and instead included 
``in normal value an amount for the inland freight,'' the circumstances 
in that particular case were very different from those of the instant 
investigations. Our normal methodology is to strip all movement 
charges, including all foreign inland freight, from the U.S. price 
being compared to NME normal value based on factors of production. The 
facts in these instant investigations differ from those in Titanium 
from the Russian Federation, wherein (1) the subject merchandise 
produced in an NME country was sold to an exporter located in a market 
economy without knowledge on the part of the producer of the United 
States as the ultimate destination and (2) the exporter took physical 
possession of the subject merchandise. Since neither of these 
conditions apply to these instant investigations, the comparison to 
Titanium from the Russian Federation is misplaced, and the Department 
has followed its normal methodology.
    The respondents in these investigations are either (1) PRC self-
exporting producers, such as Xinchangyuan or (2) PRC trading companies, 
such as CMC, which purchased subject merchandise from PRC producers. We 
are therefore deducting the surrogate value for the cost of 
transporting the subject merchandise from the factories to the port of 
exportation from the U.S. price, whether EP or CEP, in keeping with our 
past practice. See Bicycles. As to the respondents'' claim that the 
overhead and/or SG&A rates applied in calculating normal value may 
already contain the cost of transporting the merchandise to the port as 
a selling expense, and that the deduction of foreign inland freight 
charges from the U.S. price constitutes a double-counting of expenses, 
we have ensured that any expense line-item which refers to ``freight,'' 
``movement,'' ``carriage,'' or ``transportation'' of goods, as well as 
the portion of ``vehicle maintenance'' and ``vehicle depreciation'' 
expenses applicable to product delivery, have been removed from the 
total SG&A costs and total overhead costs contained in the financial 
statements of Indian companies used in calculating NV.
Comment 11: Use of Exchange Rates
    The eight respondents maintain that when calculating the exchange 
rate used in converting Indian surrogate values into U.S. dollars, the 
Department should use the buying exchange rates for U.S. dollars 
contained in Federal Exchange Bulletin, because the issue here is not 
how many dollars it takes to purchase one Indian rupee, but rather how 
many rupees are required to purchase one U.S. dollar.
    The petitioner argues that the Department should not reject its use 
of daily Indian rupee-U.S. dollar exchange rates from the Federal 
Reserve Bank of Chicago and argues that there is no merit in 
respondents' request for the Department to abandon the use of these 
exchange rates in favor of simple average rates in the Federal Exchange 
Bulletin.
DOC Position
    We agree with the petitioner. Based on Policy Bulletin 96-1: Import 
Administration Exchange Rate Methodology, we have used daily noon 
buying rates to establish the Indian rupee exchange rates used in these 
investigations. The daily noon buying rates are based on the rates in 
New York for cable transfers, which are certified by the New York 
Federal Reserve Bank for customs purposes, as required by section 522 
of the Act. This information has been downloaded from an electronic 
bulletin board maintained by the Chicago Federal Reserve Bank. (See 
``Currency Conversion'' section of this notice for further discussion).
Comment 12: Currency Conversion
    The eight respondents urge the Department to round to the nearest 
one-thousandth of a dollar when converting Indian rupee values to U.S. 
dollars, because rounding to the nearest one-hundredth of a dollar 
often can cause significant distortions.
    The petitioner did not comment on this issue.
DOC Position
    We disagree with the respondents. In converting values from Indian 
rupees to U.S. dollars, we have derived U.S. values and rounded those 
values to the nearest one-hundredth, not one-thousandth, of a dollar 
because we do not find their use to have a significant effect on the 
margins.

Company-Specific Issues

Qingdao
Comment 13: Calculation of Total Material Cost
    The petitioner claims that the Department did not include the cost 
of wire rod scrap when it calculated the total material cost for each 
model in the factors of production database for Changzhi Automobile 
Parts Factory (Changzhi), Qingdao's supplier. The petitioner urges the 
Department to include this factor in its calculation of total material 
cost.
    Changzhi states that the Department correctly did not separately 
value wire rod scrap.
DOC Position
    We agree with the petitioner. We verified that Changzhi reported a 
separate factor amount for wire rod scrap in the factors of production 
database. Therefore, for the final determination, we have valued this 
factor accordingly.
Shenyang/Laizhou/MAT
Comment 14: EP vs. CEP Sales Classification
    Shenyang/Laizhou maintains that the Department incorrectly 
classified U.S. sales made prior to importation through its U.S. 
affiliate, MAT, as CEP transactions, and requests that the sales be 
reclassified as EP transactions.
    The petitioner maintains that the Department should continue to 
treat these sales as CEP transactions.
DOC Position
    We agree with the petitioner that these sales are properly treated 
as CEP sales. With respect to EP sales, section 772 (a) of the Act 
states that:

    The term ``export price'' means the price at which the subject 
merchandise is first sold (or agreed to be sold) before the date of 
importation by the producer or exporter of the subject merchandise 
outside of the United States to an unaffiliated purchaser in the 
United States or to an unaffiliated purchaser for exportation to the 
United States . . .

[[Page 9171]]

    Based on Department practice, we examine several criteria for 
determining whether sales made prior to importation through an 
affiliated sales agent to an unaffiliated customer in the United States 
are EP sales, including: (1) Whether the merchandise was shipped 
directly from the manufacturer to the unaffiliated U.S. customer; (2) 
whether the sales follow customary commercial channels between the 
parties involved; and (3) whether the function of the U.S. selling 
agent is limited to that of a ``processor of sales-related 
documentation'' and a ``communications link'' with the unrelated U.S. 
buyer. Where all criteria are met, the Department has regarded the 
routine selling functions of the exporter as ``merely having been 
relocated geographically from the country of exportation to the United 
States,'' and has determined the sales to be EP sales. Where all 
conditions are not met, the Department has classified the sales in 
question as CEP sales. See, e.g., Final Determination of Sales at Less 
Than Fair Value: Large Newspaper Printing Presses and Components 
Thereof, Whether Assembled or Unassembled, from Germany (LNPP from 
Germany), 61 FR 38166, 38174 (July 23, 1996).
    In this case, the sales through MAT meet the first two criteria 
described above. However, with respect to the third criterion, the 
record evidence in this case indicates that MAT is not merely a 
processor of sales-related documentation nor a ministerial 
communication link between the factories and their unaffiliated 
customers. On the contrary, MAT is instrumental in determining the 
terms of sale. In the questionnaire responses and at verification, 
company officials repeatedly stated that the U.S.-based president of 
MAT and owner of the Shenyang and Laizhou factories is solely 
responsible for all production, distribution, and sales decisions. 
Indeed, the case brief submitted by Shenyang/Laizhou concedes that 
instructions regarding pricing are sent from MAT's office in the United 
States. See case brief at 20. We are not persuaded by the argument that 
the U.S.-based president of MAT directs sales activities in his role as 
owner of the factories rather than as president of MAT, nor by the 
argument that his U.S. sales activities are ``simply the consequence of 
(the U.S.-based president of MAT) being a U.S. citizen and resident.'' 
Id. The fact is that the U.S.-based president of MAT operationally 
controls both the factories and MAT from his U.S. office, with the 
result that MAT directs the factories, not the opposite. Therefore, the 
sales through MAT are properly classified as CEP sales.
Comment 15: Surrogate Value for Purchased Unfinished Castings
    Shenyang/Laizhou argues that the Department should use Laizhou's 
casting-related factors of production to calculate a surrogate value 
for castings purchased by Shenyang from unaffiliated PRC suppliers 
because Laizhou's valued factors for castings are more reflective of 
Shenyang's costs for castings if it had produced the castings itself. 
Alternatively, the respondent argues that the Department should derive 
a casting value based on the financial statements of Indian casting 
producers Nagpur and Jayaswals. According to the respondent, these 
financial statements are the only sources on the record that provide 
data for purchases or consumption of unfinished gray cast iron castings 
by producers of brake rotors.
    The petitioner maintains that the Department should not value 
castings using the Laizhou factors of production given that there is 
reliable public information on the record regarding the price of input 
castings in India. The petitioner requests that the Department continue 
to use the inventory value for castings in Shivaji's financial 
statements as it did in the preliminary determination.
DOC Position
    We disagree with the respondent that the unfinished castings 
purchased by Shenyang should be valued using the casting-related 
factors of production reported by Laizhou because, in NME cases, we 
value a respondent's factors based on its actual production experience 
during the POI. In this case, Shenyang purchased its unfinished 
castings during the POI and did not produce them, and thus we have 
valued these factors accordingly (see Notice of Final Determination of 
Sales at Less Than Fair Value: Coumarin from the People's Republic of 
China (PRC), 59 FR 66895, (Comments 4 and 5) (December 28, 1994). The 
Department values inputs purchased in an NME using surrogate values 
derived from publicly available information in a market economy of a 
similar stage of development. The record of this investigation includes 
financial statements of Indian producers of brake rotors which provide 
reliable surrogate values for the purchase price of input castings, and 
there is therefore no need to build up a casting purchase value using 
the factors of production reported by Laizhou.
    In identifying appropriate Indian financial statements for 
valuation of castings, we have excluded the statements of producers 
which did not manufacture rotors during the POI, since castings for 
rotors may have significantly different prices from castings for other 
products. Also, we have sought data on purchases of castings from 
casting suppliers, since it is reasonable to assume that such castings 
are unfinished or at most semi-finished. We believe that purchased 
casting data are more reliable than casting inventoried values, which 
may reflect large quantities of finished castings, and also more 
reliable than casting consumption values, which may include large 
quantities of castings produced internally rather than purchased from 
outside suppliers. Given these criteria, the Jayaswals financial 
statements provide the only appropriate Indian surrogate value for 
unfinished castings on the record, and we have relied on that value. 
For a more extensive discussion of our valuation of unfinished 
castings, please refer to the final factors valuation memorandum.
Southwest/MMB
Comment 16: EP vs. CEP Sales Classification
    The respondent maintains that sales made by its U.S. affiliate 
(MMB) should be considered EP and not CEP transactions because (1) the 
price of the merchandise is set by Southwest, not by MMB, prior to 
importation; (2) the customary commercial channel is to ship the 
merchandise directly to the customer; and (3) MMB maintains no 
inventory in the United States. Southwest cites to The Final 
Determination of Sales at Less Than Fair Value: Certain Stainless Steel 
Rod from France, 58 FR 68865 (December 29, 1993) (Stainless Steel Rod) 
in support of its argument.
    The petitioner asserts that the Department should continue to treat 
these sales as CEP.
DOC Position
    We disagree with Southwest. Our verification findings indicate that 
Southwest's sales through MMB were properly classified as CEP sales. 
When we requested at verification evidence that Southwest sets U.S. 
prices, rather than MMB, Southwest was only able to provide negotiation 
and sales correspondence for one customer purchase order (which covered 
an insufficient number of the total POI invoices of subject 
merchandise). Further, the only documentation Southwest provided at 
verification to

[[Page 9172]]

support its claim was documentation that it had been requested to 
prepare prior to verification. We find this failure to be significant, 
especially given that the respondent originally stated in its response 
that MMB is ``not a mere conduit of sales by Southwest'' and that MMB's 
salesman ``negotiates the final prices with MMB's customers.'' (see 
Southwest's supplementary sales response, dated August 27, 1996, at A-
2). With regard to Southwest's reference to Stainless Steel Rod, we 
note that unlike the U.S. affiliate in that case, MMB's sales of brake 
rotors do not involve a situation in which the U.S. affiliate had no 
flexibility to set the price (i.e., price is set by the parent 
company). Therefore, we find no compelling evidence in Southwest's 
responses or in our verification findings to treat these sales as EP 
sales.
Comment 17: Treatment of Bartered Scrap
    The petitioner argues that no adjustment for bartered steel scrap 
should be made because the respondent did not provide a surrogate value 
to the Department.
    Yangtze, Southwest's supplier, claims that the Department should 
grant it a credit for the scrap (i.e., turnings and shavings) sold or 
bartered by it and that a surrogate value for steel scrap is already on 
the record.
DOC Position
    We agree with Yangtze. It is Department practice to subtract the 
sales revenue of by-products such as steel scrap from the production 
costs of the subject merchandise (see Notice of Final Determination of 
Sales at Less Than Fair Value: Sebacic Acid from the People's Republic 
of China, 59 FR 28053 (May 31, 1994). Moreover, we have a surrogate 
value for steel scrap on the record. Therefore, we have granted Yangtze 
a credit for the turnings and shavings it sold or bartered during the 
POI.
Comment 18: Credit Expense
    Southwest maintains that if credit expenses are deducted from CEP, 
then the Department should use the date of the U.S. affiliate's invoice 
and not the date when Southwest shipped the subject merchandise from 
the PRC.
    The petitioner maintains that the Department should use the PRC 
date of shipment to calculate this expense.
DOC Position
    We disagree with Southwest that the Department should use the date 
of the U.S. affiliate's invoice to calculate credit expenses. When 
merchandise produced by the foreign-based exporter's affiliated factory 
(Yangtze) is shipped from the factory through the foreign-based 
exporter (Southwest) and then directly to an unaffiliated U.S. customer 
without entering the inventory of a U.S. affiliate (MMB), then it is 
the Department's standard practice to calculate credit expenses based 
on the date of shipment from the factory to the U.S. customer. 
Therefore, we have based credit expenses for this respondent on the 
number of days between the date of shipment to the U.S. customer and 
the date of payment. See Final Determination of Sales at Less Than Fair 
Value: Hot-Rolled Carbon Steel Flat Products from Italy, 58 FR 37152 
(July 9, 1993).
Comment 19: Misreported Weights for Unfinished Castings
    The petitioner maintains that Yangtze incorrectly reported the 
weights for all of its unfinished casting models listed in the sales 
and factors of production databases, and the factors for those 
unfinished castings.
    The respondent maintains that it did not misreport the weights of 
its unfinished castings in the factors of production database. The 
respondent argues that the Department should use the reported standard 
weights for unfinished castings rather than the actual weights because 
the reported weights are reflected in its accounting records and those 
weights were used to allocate raw materials used in making all castings 
(i.e., unfinished castings and finished castings). Respondent further 
maintains that using the actual weights rather than the standard 
weights would be distortive because they overstate the constructed 
value for each unfinished casting. Respondent cites To Notice of Final 
Determination of Sales at Less Than Fair Value: Minivans from Japan, 57 
FR 21937 (1992) in support of its argument.
DOC Position
    We disagree with the respondent. At verification, we found that the 
difference in weight of an unfinished casting compared to a finished 
casting for the same model is large in magnitude. We know that using 
the standard weights for allocating inputs for unfinished castings from 
Yangtze's accounting records distorts the actual production costs of 
the subject merchandise. Using the standard weights will also 
undervalue the factors used to produce unfinished castings and distort 
the actual production cost of the brake rotors, because the standard 
weights are lower than the actual weights. Therefore, the reasons for 
using standard weights in the Minivans case do not apply in this case.
    If we do not take into account the actual weight of the unfinished 
brake rotor, then we would not be considering that there is a yield 
loss between a finished and unfinished product. However, in actuality, 
the yield loss is not as high for an unfinished product as a finished 
product, and therefore, the cost allocations are inaccurate as 
reported. Yangtze has not offered any alternative allocation 
methodology to account for these distortions. Furthermore, Yangtze did 
not even realize that its reported weights for unfinished brake rotors 
were based on its standard accounting system until Department officials 
found that the weights for unfinished brake rotors were incorrectly 
reported at verification.
    In sum, in light of the distortive effects which would result from 
using Yangtze's theoretical standard weights, which bear no resemblance 
to the actual weights of unfinished castings, we are using the actual 
weights as the basis for allocation for those castings.
Comment 20: Welfare Fund
    The petitioner alleges that Southwest failed to establish an 
absence of de facto or de jure government control because verification 
demonstrated that Southwest places a portion of its profits in a fund 
called ``the public welfare fund'' and claims that this fund is set up 
for payment of profits to the PRC government. For these reasons, the 
petitioner urges the Department to resort to facts available and deny 
Southwest a separate rate.
    Southwest maintains that the Department found at verification that 
``the public welfare fund'' is an employee welfare fund retained by the 
respondent.
DOC Position
    We disagree with the petitioner. Southwest, like all the other 
respondents, is required to maintain an accounting system based on 
current PRC accounting standards. Included in the standard chart of 
accounts is an account entitled ``public welfare fund.'' We examined 
the activity in this account during the POI and found that no payments 
were made to the PRC government. In addition, Southwest has 
demonstrated both a de jure and de facto absence of government control. 
(See ``Separate Rates'' section, above). Therefore, the Department sees 
no reason to deny Southwest a separate rate.

[[Page 9173]]

Yantai
Comment 21: Misreported Factors
    The petitioner maintains that Laizhou Magnetic Iron Powder (MIP) 
Factory incorrectly reported its usage of five packing material factors 
for all models in the factors of production database. As a result of 
these errors, the petitioner urges the Department to resort to facts 
available for these materials.
    Respondent maintains that the petitioner's request for use of facts 
available for Laizhou MIP's packing costs is misplaced. According to 
the respondent, of the six types of packing materials used by Laizhou 
MIP, the factory consistently and conservatively over-reported usage 
for five of the materials. For the sixth material, plastic bags, 
Laizhou MIP maintains that the magnitude of its under-reporting was 
less than one gram per bag.
DOC Position
    We disagree for the most part with the petitioner's request that 
the Department utilize facts available in determining Laizhou MIP's 
usage of packing materials. For five of the six materials in question--
cartons, nails, steel strap, pallet wood, and tape--the usages reported 
were found to be significantly overstated by the respondent. With 
respect to one packing material, plastic bags, the samples examined at 
verification indicate that Laizhou MIP did underreport usage by a 
relatively minor amount. We have corrected all of these usages using 
the verification findings as non-adverse facts available.

Currency Conversion

    We made currency conversions into U.S. dollars based on the 
official exchange rates in effect on the dates of the U.S. sales as 
certified by the Federal Reserve Bank.
    Section 773A(a) of the Act directs the Department to convert 
foreign currencies based on the dollar exchange rate in effect on the 
date of sale of the subject merchandise, unless it is established that 
a currency transaction on forward markets is directly linked to an 
export sale. When a company demonstrates that a sale on forward markets 
is directly linked to a particular export sale, the Department will use 
the rate of exchange in the forward currency sale agreement.
    Section 773A(a) also directs the Department to use a daily exchange 
rate in order to convert foreign currencies into U.S. dollars unless 
the daily rate involves a fluctuation. It is the Department's practice 
to find that a fluctuation exists when the daily exchange rate differs 
from the benchmark rate by 2.25 percent. The benchmark is defined as 
the moving average of rates for the past 40 business days. When we 
determine a fluctuation to have existed, we substitute the benchmark 
rate for the daily rate, in accordance with established practice. 
Further, section 773A(b) directs the Department to allow a 60-day 
adjustment period when a currency has undergone a sustained movement. A 
sustained movement has occurred when the weekly average of actual daily 
rates exceeds the weekly average of benchmark rates by more than five 
percent for eight consecutive weeks. (For an explanation of this 
method, see Policy Bulletin 96-1: Currency Conversions, 61 FR 9434 
(March 8, 1996).) Such an adjustment period is required only when a 
foreign currency is appreciating against the U.S. dollar. The use of an 
adjustment period was not warranted in this case because the Indian 
rupee did not undergo a sustained movement.

Continuation, and Termination in Part, of Suspension of Liquidation

Brake Drums

    In accordance with section 735(c) of the Act, we are directing the 
Customs Service to continue to suspend liquidation of all entries of 
brake drums from the PRC, except for the exporter/producer combinations 
listed below, that are entered, or withdrawn from warehouse, for 
consumption on or after October 10, 1996, which is the date of 
publication of our notice of preliminary determination in the Federal 
Register:

------------------------------------------------------------------------
                Exporter(s)                          Producer(s)        
------------------------------------------------------------------------
CMC.......................................  Xinchangyuan                
Qingdao...................................  Changzhi                    
Xinchangyuan..............................  Xinchangyuan                
Yantai....................................  Longkou Bohai; Laizhou MIP. 
------------------------------------------------------------------------

    With respect to the above companies, the suspension of liquidation 
ordered on or after October 10, 1996, will be terminated and any cash 
deposit or bonds will be released.
    Under the Department's NME methodology, the zero rate for each 
exporter is based on a comparison of the exporter's U.S. price and NV 
based on the factors of production of a specific producer (which may be 
a different party). Therefore, the exclusion of the above-mentioned 
companies from an antidumping duty order (should one be issued) applies 
only to subject merchandise sold through the exporter/producer 
combinations noted above. Merchandise that is sold by an above-
mentioned exporter but manufactured by producers not noted above for 
that exporter will be subject to the order, if one is issued (see 
Notice of Final Determination of Sales At Less Than Fair Value: Cased 
Pencils from the People's Republic of China, 59 FR 55625 (November 8, 
1994) and Drawer Slides). Entries of such merchandise will be subject 
to the ``China-wide'' rate.
    For imports of brake drums that are sold by CAIEC/Laizhou CAPCO, 
Hebei Metals and Machinery Import & Export Corporation, Jiuyang 
Enterprise Corporation, Longjing Walking Tractor Works Foreign Trade 
Import & Export Corporation and Shanxi Machinery and Equipment Import & 
Export Corporation, we are directing the Customs Service to suspend 
liquidation at a rate indicated below.
    As stated in the preliminary determination, it would be 
inappropriate to assign these fully cooperative respondents a rate 
based on ``facts available'' that would also apply to PRC exporters who 
refused to cooperate. However, for this final determination, all of the 
rates determined for the selected brake drum respondents were either 
zero or entirely based on facts available.
    We note that the Act is silent with respect to a situation in an 
NME investigation in which all of the rates determined for the selected 
respondents are either zero, de minimis or based on facts available. 
However, section 735(c)(5)(B) of the Act, which deals with the 
analogous ``all others'' determination, allows us to ``use any 
reasonable method to establish the estimated all-others rate for 
exporters and producers not individually investigated, including 
averaging the estimated weighted average dumping margins determined for 
the exporters and producers individually investigated.'' The SAA at 873 
explicitly recognizes that if the latter approach ``results in an 
average that would not be reasonably reflective of potential dumping 
margins for non-investigated exporters or producers, Commerce may use 
other reasonable methods.'' CNIGC, the only one of the five examined 
companies which did not receive a de minimis or zero rate, became 
subject to a rate based on facts available because it was found not to 
be entitled to a separate rate, rather than due to a failure to provide 
data on its sales practices. Furthermore, this company's volume of 
sales of brake drums to the U.S. market is one of the largest in the 
investigation. Given the unique circumstances of this case, we do not 
consider that a weighted-average which includes that company's adverse 
facts available rate is reasonably reflective of potential

[[Page 9174]]

dumping margins for cooperative non-investigated exporters or producers 
who submitted full questionnaire responses. Therefore, in order not to 
give undue weight to CNIGC in determining a rate for non-examined 
companies which is reasonably reflective of potential dumping margins, 
we have assigned to these companies a rate which is the simple average 
of the dumping margins determined for the exporters and producers 
individually investigated.
    We are also directing the Customs Service to continue to suspend 
liquidation of entries sold by the PRC brake drum companies subject to 
the China-wide rate, that are entered, or withdrawn from warehouse, for 
consumption on or after October 10, 1996.
    The Customs Service will require a cash deposit or posting of a 
bond equal to the estimated duty margins by which the normal value 
exceeds the USP, as shown below. These suspension of liquidation 
instructions will remain in effect until further notice.
    The weighted-average dumping margins are as follows:

                               Brake Drums                              
------------------------------------------------------------------------
   Manufacturer/Producer/Exporter     Weighted-average margin percentage
------------------------------------------------------------------------
CMC/Xinchangyuan....................  0.00 (Excluded).                  
Qingdao/Changzhi....................  0.00 (Excluded).                  
Xinchangyuan/Xinchangyuan...........  0.00 (Excluded).                  
Yantai/Longkou Botai Machinery        0.00 (Excluded).                  
 Company or Laizhou MIP.                                                
CAIEC/Laizhou CAPCO.................  17.20.*                           
Hebei Metals and Machinery Import &   17.20.*                           
 Export Corporation.                                                    
Jiuyang Enterprise Corporation......  17.20.*                           
Longjing Walking Tractor Works        17.20.*                           
 Foreign Trade.                                                         
Import & Export Corporation Shanxi    17.20.*                           
 Machinery and Equipment Import &                                       
 Export Corporation.                                                    
China-Wide Rate.....................  86.02.                            
------------------------------------------------------------------------
* Rate is based on the simple average of rates determined for the       
  selected respondents.                                                 

Brake Rotors

    In accordance with section 735(c) of the Act, we are directing the 
Customs Service to continue to suspend liquidation of all entries of 
brake rotors from the PRC except for the exporter/producer combinations 
listed below, that are entered, or withdrawn from warehouse, for 
consumption on or after October 10, 1996:

------------------------------------------------------------------------
                Exporter(s)                          Producer(s)        
------------------------------------------------------------------------
CAIEC or Laizhou CAPCO....................  Laizhou CAPCO.              
Shenyang or Laizhou.......................  Shenyang or Laizhou.        
Xinjiang..................................  Zibo Botai Manufacturing    
                                             Co., Ltd.                  
------------------------------------------------------------------------

    With respect to the above companies, the suspension of liquidation 
ordered on or after October 10, 1996, is to be terminated and any cash 
deposit or bonds are to be released. However, if any of the above-
referenced companies sell subject merchandise which is not manufactured 
by the producers noted above for those companies, then those entries 
will be subject to the ``China-wide'' rate (for a full explanation, see 
the ``Brake Drums'' section above).
    For imports of brake rotors that are sold by Hebei Metals and 
Machinery Import & Export Corporation, Jilin Provincial Machinery & 
Equipment Import & Export Corporation, Jiuyang Enterprise Corporation, 
Longjing Walking Tractor Works Foreign Trade Import & Export 
Corporation, Qingdao Metals, Minerals & Machinery Import & Export 
Corporation, Shanxi Machinery and Equipment Import & Export 
Corporation, Xianghe Zichen Casting Corporation and Yenhere 
Corporation, we have assigned these companies a weighted-average 
dumping margin based on the calculated margins of the selected brake 
rotors respondents, excluding margins which were zero, de minimis or 
based on facts available (see Preliminary Determinations).
    Because we have determined that critical circumstances exist with 
respect to the PRC brake rotor companies which have received the China-
wide rate, we are directing the Customs Service to continue to suspend 
liquidation of entries sold by these companies, that are entered, or 
withdrawn from warehouse, for consumption on or after July 12, 1996, 
which is 90 days prior to the date of publication of our notice of 
preliminary determination in the Federal Register.
    The Customs Service will require a cash deposit or posting of a 
bond equal to the estimated duty margins by which the normal value 
exceeds the USP, as shown below. These suspension of liquidation 
instructions will remain in effect until further notice.
    The weighted-average dumping margins are as follows:

                              Brake Rotors                              
------------------------------------------------------------------------
   Manufacturer/producer/exporter     Weighted-average margin percentage
------------------------------------------------------------------------
CAIEC and Laizhou CAPCO/Laizhou       0.00 (Excluded).                  
 CAPCO.                                                                 
Shenyang and Laizhou/Shenyang or      0.00 (Excluded).                  
 Laizhou.                                                               
Xinjiang/Zibo Botai Manufacturing     0.00 (Excluded).                  
 Co. Ltd.                                                               
Yantai Import & Export Corporation..  3.56.                             
Southwest Technical Import & Export   16.35.                            
 Corporation, Yangtze Machinery                                         
 Corporation, and MMB International,                                    
 Inc.                                                                   
                                      ..................................
Hebei Metals and Machinery Import &   8.63.*                            
 Export Corporation.                                                    
Jilin Provincial Machinery &          8.63.*                            
 Equipment Import & Export Corp.                                        
Jiuyang Enterprise Corporation......  8.63.*                            
Longjing Walking Tractor Works        8.63.*                            
 Foreign Trade Import & Export                                          
 Corporation.                                                           
Qingdao Metals, Minerals & Machinery  8.63.*                            
 Import & Export Corp..                                                 
Shanxi Machinery and Equipment        8.63.*                            
 Import & Export Corporation.                                           
Xianghe Zichen Casting Corporation..  8.63.*                            
Yenhere Corporation.................  8.63.*                            
China-Wide Rate.....................  43.32.                            
------------------------------------------------------------------------
* Rate is based on the weighted-average of calculated rates that are not
  zero or based on facts available.                                     

China-Wide Rate

    China-Wide Rates have been assigned to brake drums and brake rotors 
exporters based on the revised highest petition rates. The China-Wide 
rate applies to all entries of subject merchandise except for entries 
from exporters/factories that are identified individually above under 
each product type.

ITC Notification

    In accordance with section 735(d) of the Act, we have notified the 
ITC of our determinations. As our final determinations are affirmative, 
the ITC will determine, within 45 days, whether these imports are 
causing material injury, or threat of material injury, to an

[[Page 9175]]

industry in the United States. If the ITC determines that material 
injury, or threat of material injury, does not exist, for one or both 
proceedings, that proceeding or both proceedings will be terminated and 
all securities posted will be refunded or canceled. If the ITC 
determines that such injury does exist in both proceedings, the 
Department will issue antidumping duty orders directing Customs 
officials to assess antidumping duties on all imports of the subject 
merchandise entered, or withdrawn from warehouse, for consumption on or 
after the effective date of the suspension of liquidation.
    These determinations are published pursuant to section 735(d) of 
the Act.

    Dated: February 24, 1997.
Robert S. LaRussa,
Acting Assistant Secretary for Import Administration.
[FR Doc. 97-5029 Filed 2-27-97; 8:45 am]
BILLING CODE 3510-DS-P
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