30326 Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices

Department’s calculations of the final

margins.

DOC Position: All corrections as

confirmed on-site at the sales

verification were incorporated in the

Department’s calculation of the final

margin.

Continuation of Suspension of

Liquidation

In accordance with section 733(d) of

the Act, we are directing the Customs

Service to continue to suspend

liquidation of all entries of pasta from

Turkey, as defined in the ‘‘Scope of

Investigation’’ section of this notice, that

are entered, or withdrawn from

warehouse for consumption, on or after

January 19, 1996, the date of publication

of our preliminary determination in the

Federal Register. Article VI.5 of the

General Agreement on Tariffs and Trade

(GATT) provides that ‘‘[n]o product

* * * shall be subject to both

antidumping and countervailing duties

to compensate for the same situation of

dumping or export subsidization.’’ The

Department has determined, in its Final

Affirmative Countervailing Duty

Determination: Certain Pasta from

Turkey, that the product under

investigation benefitted from export

subsidies. Normally, where the product

under investigation is also subject to a

concurrent CVD investigation, we

would instruct the U.S. Customs Service

to require a cash deposit or posting of

a bond equal to the weighted-average

amount by which the normal value

exceeds the export price (as shown

below), minus the amount determined

to constitute an export subsidy. (See,

Antidumping Order and Amendment of

Final Determination of Sales at Less

Than Fair Value: Extruded Rubber

Thread from Malaysia, 57 FR 46150

(October 7, 1992)). However, in this

investigation, Filiz has not cooperated

with the Department and has not acted

to the best of its ability in providing the

Department with necessary information.

This has prevented the Department from

making its normal determination of

whether the subsidies in question may

have affected the calculation of the

dumping margin. Thus, as indicated

above, Filiz’s margin is based on total

adverse facts available, taken from the

petition. Insofar as the dumping margin

for Filiz is not a calculated margin, there

is no way to determine the portion of

the antidumping duty which is

attributable to the export subsidy. For

that reason, and to prevent Filiz from

benefitting from its non-cooperation in

this investigation, we have not

subtracted the amount of any export

subsidy from that margin. For Maktas,

we are subtracting for deposit purposes

the cash deposit rate attributable to the

export subsidies found in the

countervailing duty investigation (12.61

percent) from the antidumping bonding

rate for Maktas. We are also subtracting

from the ‘‘All Others’’ rate the cash

deposit rate attributable to the export

subsidies included in the countervailing

duty investigation for All Others.

This suspension of liquidation will

remain in effect until further notice.

The weighted-average dumping

margins are as follows:

Exporter/manufacturer

Weightedaverage

margin percentages

Deposit percentages

Filiz .................... 63.29 63.29

Maktas ............... 56.87 44.26

All Others .......... 56.87 47.49

Pursuant to section 735(c)(5)(A) of the

Act, the Department has excluded

Filiz’s margin from the calculation of

the All Others rate because it was

determined entirely under section 776

of the Act.

ITC Notification

In accordance with section 735(d) of

the Act, we have notified the ITC of our

determination. As our final

determination is affirmative, the ITC

will determine whether these imports

are causing material injury, or threat of

material injury, to the industry within

45 days. If the ITC determines that

material injury, or threat of material

injury, does not exist, the proceeding

will be terminated and all securities

posted will be refunded or canceled. If

the ITC determines that such injury

does exist, the Department will issue an

antidumping duty order 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.

This determination is published

pursuant to section 735(d) of the Act.

Dated: June 3, 1996.

Paul L. Joffe,

Acting Assistant Secretary for Import

Administration.

[FR Doc. 96–14735 Filed 6–13–96; 8:45 am]

BILLING CODE 3510–DS–P

International Trade Administration

[A–475–818]

Notice of Final Determination of Sales

at Less Than Fair Value: Certain Pasta

From Italy

AGENCY: Import Administration,

International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: June 14, 1996.

FOR FURTHER INFORMATION CONTACT: John

Brinkmann or Michelle Frederick,

Office of Antidumping Investigations,

Import Administration, International

Trade Administration, U.S. Department

of Commerce, 14th Street and

Constitution Avenue, N.W.,

Washington, D.C. 20230; telephone:

(202) 482–5288 or (202) 482–0186,

respectively.

THE APPLICABLE STATUTE: Unless

otherwise indicated, all citations to the

statute are references to the provisions

effective January 1, 1995, the effective

date of the amendments made to the

Tariff Act of 1930 (the Act) by the

Uruguay Round Agreements Act

(URAA).

Final Determination

We determine that certain pasta

(‘‘pasta’’) from Italy is being sold in the

United States at less than fair value

(LTFV), as provided in section 735 of

the Act. The estimated margins are

shown in the ‘‘Suspension of

Liquidation’’ section of this notice.

Case History

Since the publication of the

preliminary determination of sales at

less than fair value in this investigation

on December 14, 1995, (60 FR 1344,

January 19, 1996) (Preliminary

Determination) the following events

have occurred:

In January 1996, the Department

received letters from the AFI Pasta

Group, Pastaficio Guido Ferrara

(interested parties), and Hershey Foods

Corp., Borden Inc., and Gooch Foods,

Inc. (collectively ‘‘the petitioners’’)

regarding the provisional antidumping

measures in this investigation and

whether the suspension of liquidation

affected entries of the subject

merchandise 120 days after the

Department’s preliminary

determination. The Department

determined that the requests for an

extension of the final determination

contained an implied request to extend

the provisional measures period, during

which liquidation is suspended, to six

months (see Extension of Provisional

Measures memorandum dated February

7, 1996).
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices 30327

On January 22, 1996, the Department

requested that Arrighi S.p.A. Industrie

Alimentari (Arrighi); F.lli De Cecco di

Filippo Fara San Martino S.p.A. (De

Cecco); Delverde S.r.l. (Delverde); De

Matteis Agroalimentare S.p.A. (De

Matteis); La Molisana Industrie

Alimentari S.p.A. (La Molisana); Liguori

Pastificio Dal 1820 S.p.A. (Liguori);

Pastificio Fratelli Pagani S.p.A. (Pagani);

and Saral Industrie Alimentari Della

Sardegna S.r.l. (Saral) (collectively

respondents) provide additional

information and comments relating to

level of trade.

After publication of the preliminary

determination, the petitioners,

Pastaficio Guido Ferrara, and two of the

respondents, De Matteis and La

Molisana, alleged that the Department

made ministerial errors in calculating

the preliminary margins. We

determined that ministerial errors were

made with regard to Arrighi and Pagani.

(See, Notice of Amended Preliminary

Determination of Sales at Less Than

Fair Value: Certain Pasta from Italy, (61

FR 7472, February 26, 1996).)

The Department received responses to

supplemental section D questionnaires

from Pagani, Delverde, De Matteis,

Arrighi, La Molisana, Liguori, and De

Cecco in February 1996. Minor

corrections to their cost responses were

filed by Pagani, De Matteis, Arrighi,

Liguori, and La Molisana prior to the

respective cost verifications.

Prior to verification, the Department

requested each company to provide a

reconciliation between the quantity and

value reported in its questionnaire

response and the company’s published

financial reports. The Department

verified the respondents’ sales and cost

questionnaire responses during the

months of February, March, and April

in Italy and the United States.

Verification of De Cecco’s sales and cost

responses were canceled for reasons

described in the ‘‘Facts Available’’

section, below.

On February 13, 1996, the petitioners

argued that the Department should

employ transaction-specific export and

constructed export price comparisons

for Delverde in the Department’s final

determination (see ‘‘Targeted Dumping’’

below).

On April 2 and April 30, 1996, Spruce

Foods, a U.S. importer of organic pasta

from Italy, submitted materials from the

Italian Ministry of Agriculture and

Forestry and from Associazione

Marchigiana Agricultura Biologica

concerning the certification of organic

pasta in Italy to support its request that

the Department exclude organic pasta

from the scope of both this investigation

and the companion countervailing duty

investigation. (See ‘‘Scope’’ section,

below.)

Case and rebuttal briefs were

submitted on April 29, 1996, and May

1, 1996, respectively, by the petitioners

and the respondents. At the request of

the petitioners and several respondents,

a public hearing was held on May 6,

1996.

Facts Available

At the preliminary determination, the

Department found that De Cecco had

not provided a complete reporting of all

of its ‘‘affiliated parties,’’ as requested in

the antidumping questionnaire. The

Department stated that, ‘‘[i]nasmuch as

the company’s responses to date

indicate that both the U.S. and home

market sales databases are incomplete

and that certain sales data and

production costs have not been

reported, we cannot conduct an accurate

cost of production analysis or less-thanfair-value analysis using the reported

prices.’’ See Preliminary Determination.

Because of these deficiencies, the

Department was unable to use De

Cecco’s responses to calculate a margin

for the preliminary determination of

sales at less than fair value. The

Department stated that it would proceed

with the investigation and attempt to

verify De Cecco’s information if De

Cecco cooperated and provided

‘‘accurate and complete’’ information in

response to supplemental

questionnaires.

On January 11, 1996, the Department

issued a supplemental questionnaire to

De Cecco, requesting that it revise its

section D response so as to incorporate

cost information for its affiliated party,

Molino e Pastificio De Cecco S.p.A.

(Pescara). On February 2, 1996, De

Cecco submitted a response to the

January 11, 1996, supplemental

questionnaire. On February 5, 1996, the

Department issued a supplemental

questionnaire regarding the Pescara

portion of the February 2, 1996,

response and the Department reiterated

several questions that remained

unanswered from the January 11, 1996,

supplemental questionnaire. On

February 6, 7, and 9, De Cecco

submitted revisions to its February 2nd

response. On February 8, 1996, the

Department received a request from the

petitioners to cancel verification of De

Cecco’s new data and to use facts

available to determine the final

dumping margin. On February 15, 1996,

the Department issued a decision

memorandum announcing that it would

not verify De Cecco’s responses because

it was determined that the February 2

and 6 submissions constituted

completely new cost of production

(COP) responses (the latter of which was

untimely), and 2) the acceptance of new

responses would have imposed undue

difficulties on the Department in

completing the case within the statutory

deadlines. These points were further

developed in a Memorandum to the File

from the Office of Accounting,

‘‘Analysis of cost of production and

constructed value data submitted by

F.lli De Cecco di Filippo Fara San

Martino S.p.A.,’’ dated February 16,

1996. That memorandum stated:

(1) Rather than addressing the

Department’s initial concerns

documented in the January 11, 1996,

supplemental questionnaire regarding

the November 27 cost questionnaire

response, De Cecco’s February 2

submission reported revised COP and

constructed value (CV) figures based on

a new cost calculation methodology,

developed by the company after the

Department’s preliminary

determination.

(2) Every COP and CV figure reported

by De Cecco changed between the

February 2, 1996, response and the

February 6, 1996, submission.

(3) De Cecco failed to explain the

significant decreases between the costs

reported in the November 27, 1995, and

February 2, 1996, responses, and

between the February 2, 1996, response

and the February 6, 1996, submission.

(4) The inclusion of Pescara’s costs

did not explain the significant

differences we observed in De Cecco’s

own total cost figures reported

originally in the November 27 response

and later in the February 6, 1996,

submission.

(5) For every product reported by

Pescara, specific production quantities

for internal product code numbers

changed between the February 2 and

February 6 responses.

(6) In its February 2 and February 6

responses, De Cecco added new product

control numbers but failed to explain

the source of these new products.

(7) De Cecco’s February 2 response

included completely new information,

and was subsequently superseded by

additional submissions.

(8) It was not until February 13 that

De Cecco submitted its reconciliation of

reported costs to its financial

statements, 37 days after the

Department’s request and ten days after

the deadline.

(See also Memorandum to Barbara R.

Stafford from Pasta Team,

‘‘Antidumping Duty Investigation of

Certain Pasta from Italy: Use of Facts

Available for F.lli De Cecco di Filippo

Fara San Martino S.p.A.,’’ dated

February 15, 1996.)
30328 Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices

Because it was not possible for the

Department to analyze the new

responses, issue necessary supplemental

questionnaire(s), receive responses to

the supplemental questionnaire(s), and

conduct verification within the statutory

time limits, the Department did not

verify the cost responses submitted by

De Cecco.

Section 776(a) requires the

Department to resort to facts available

when, inter alia, an interested party or

any other person ‘‘fails to provide

{requested} information by the

deadlines for submission of the

information or in the form and manner

requested, subject to subsections (c)(1)

and (e) of section 782,’’ and when the

use of facts available is consistent with

section 782(d) of the statute. Section

782(c)(1) provides for the Department to

modify its information request if a party,

‘‘promptly after receiving a request from

{the Department} for information,

notifies {the Department} that such

party is unable to submit the

information requested in the requested

form and manner. * * * ’’ As De Cecco

provided no such notification to the

Department, subsection (c)(1) was

inapplicable.

The determination under section

776(a) as to whether a respondent

‘‘fail{ed} to provide {requested}

information by the deadlines for

submission of the information or in the

form and manner requested,’’ must be

considered in light of section 782(d),

‘‘Deficient Submissions.’’ Section 782(d)

provides that, if the Department

‘‘determines that a response to a request

for information * * * does not comply

with the request, {the Department} shall

promptly inform the person submitting

the response of the nature of the

deficiency and shall, to the extent

practicable, provide that person with an

opportunity to remedy or explain the

deficiency in light of the time limits

established for the completion of

investigations or reviews under this

title.’’ [Emphasis added.] On January 11,

the Department informed De Cecco by

means of the Department’s

supplemental questionnaire that its

November 27, 1995, COP response did

not comply with the Department’s

original COP questionnaire and

explained why the response was

deficient. Further, the Department

provided De Cecco with ‘‘the

opportunity to remedy or explain the

deficiency in light of the time limits

established.’’ In order to ensure

completion of the investigation within

the statutory time period, the

Department provided De Cecco with the

opportunity to remedy its submission by

February 2, which would allow the

Department sufficient time to analyze

the supplemental information, prepare

for verification of the response, as

supplemented, and conduct verification.

However, on February 2 and February

6, De Cecco submitted two separate

responses to the supplemental

questionnaire. The Department

determined that neither of these

responses constituted a ‘‘remedy’’ or

‘‘explanation’’ of the deficiencies of its

original COP response, but rather were

entirely new COP responses. Section

782(d) states that: ‘‘If that person

submits further information in response

to such deficiency and either—(1) {the

Department} finds that such response is

not satisfactory, or (2) such response is

not submitted within the applicable

time limits, then {the Department} may,

subject to subsection (e), disregard all or

part of the original and subsequent

responses.’’ The SAA at 195 states that

782(d) ‘‘is not intended to allow parties

to submit continual clarifications or

corrections of information or to submit

information that cannot be evaluated

within the applicable deadlines. If

subsequent submissions remain

deficient or are not submitted on a

timely basis, Commerce and the

Commission may decline to consider all

or part of the original and subsequent

submissions * * * ’’ As detailed, the

Department found that De Cecco’s

responses of February 2 and February 6

were ‘‘not satisfactory’’ because they

constituted entirely new responses to

the Department’s original COP

questionnaire. Moreover, the February 6

submission was ‘‘not submitted within

the applicable time limits.’’ Thus,

because De Cecco’s original response

constituted a deficient submission

within the meaning of section 782(d),

and because its responses to the

opportunity to remedy or explain the

deficiency did not satisfy the

requirements of section 782(d), De

Cecco ‘‘failed to provide {requested}

information by the deadlines for

submission of the information or in the

form or manner required.’’ Section

776(a) directs the Department in this

situation to use the facts available,

subject to section 782(e).

Section 782(e) provides that the

Department ‘‘shall not decline to

consider information that is submitted

by an interested party and is necessary

to the determination but does not meet

all the applicable requirements

established by {the Department}, if:

(1) The information is submitted by

the deadline established for its

submission;

(2) The information can be verified;

(3) The information is not so

incomplete that it cannot serve as a

reliable basis for reaching the applicable

determination;

(4) The interested party has

demonstrated that it acted to the best of

its ability in providing the information

and meeting the requirements

established by {the Department} with

respect to the information; and,

(5) The information can be used

without undue difficulties.’’

Thus, if any one of these criteria is not

met, the Department may decline to

consider the information at issue in

making its determination. In conducting

our analysis, the Department assumed,

arguendo, that De Cecco’s information

(except for the clearly untimely

February 6 submission) satisfied the

first two criteria. With regard to the

third criterion, whether the information

may serve as a ‘‘reliable basis’’ for the

Department’s determination, the

respondent had indicated on the record

that the original response was

fundamentally unreliable (i.e., although

De Cecco stated its response was based

upon standard costs, counsel noted that

De Cecco ‘‘does not have a standard cost

accounting system’’). When this

statement was considered in

combination with the fact that De

Cecco’s February submissions replaced

the initial response, it was clear that the

deficient original response could not

serve as a reliable basis for the

Department’s determination. Moreover,

as the February 6 submission explicitly

stated that the February 2 submission

was unreliable, the February 2

submission could not serve as a reliable

basis for the Department’s

determination.

As to criterion four, De Cecco had not

demonstrated that it acted to the best of

its ability in providing the requested

information because De Cecco had

failed to respond in a satisfactory

manner to the Department’s

supplemental request for information

and had provided completely new COP

responses in February 1996, long after

the Department’s November 27, 1995,

deadline for such a response. Finally, as

to the last criterion, if the Department

would have accepted the new

submissions, it would have experienced

undue difficulties in performing an

analysis, obtaining any clarifications

prior to verification, and permitting

petitioners to participate fully in the

process.

Because section 782(e) did not

prevent the Department from declining

to consider De Cecco’s COP information,

and 782(d) allowed the Department to

disregard De Cecco’s original deficient

COP response and its unsatisfactory

responses to the Department’s

subsequent request, the Department
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices 30329

determined that De Cecco failed to

provide its COP information by the

deadlines established or in the form and

manner requested. Section 776(a) thus

required the Department to use the facts

available in making its determination as

to De Cecco.

The resort to facts available for De

Cecco’s cost data rendered its home

market sale prices unusable, as the

home market sales could not be tested

to determine whether they were made at

prices above production cost. A second

problem with using the home market

sales data was the absence of reliable

difference in merchandise figures

(DIFMERS). Under section 773(a)(6)(C)

of the statute, when comparing normal

value to export price the Department is

required to account for the effect of

physical differences between the

merchandise sold in each market. In this

case, DIFMERS were required for

substantially all United States and home

market matches; the pasta product sold

in the United States is vitamin-enriched

while nearly all the pasta sold in the

home market is not. Because DIFMER

data is based on cost information from

the section D response (which was

rejected by the Department), the effect of

physical differences could not be taken

into account. Because the home market

sales data could not be verified, it could

not be used by the Department in

making its final determination.

In the absence of home market sales

data (i.e., when the home market is

viable but there are insufficient sales

above COP to compare with U.S. sales),

the Department would normally resort

to the use of constructed value as

normal value. However, the constructed

value information reported by De Cecco

was part of the rejected cost data.

Therefore, the use of facts available for

cost of production data precluded the

use of the submitted constructed value

information.

We considered the use of ranged

public data submitted by other

respondents or the petitioners’ own cost

data as possible alternatives to De

Cecco’s reported constructed value

information. The petitioners’ cost data

was not on the record because their

allegation of sales below cost of

production was based on De Cecco’s

discredited DIFMER data. Moreover, it

would not have been appropriate to use

ranged public data submitted by other

respondents as facts available for

normal value in this investigation. Each

control number covers sales of

numerous unique product codes. The

use of ranged public data would likely

have resulted in the comparison of De

Cecco’s U.S. sales to the constructed

value of a completely different product

mix reported by the remaining

respondents. Such comparisons would

have been meaningless. Thus, neither

the use of petitioners’ cost, nor the use

of ranged public data, was an acceptable

alternative for normal value.

In conclusion, there was no

reasonable basis for determining a

normal value for De Cecco. It was

impossible, therefore, to perform any

comparison to U.S. prices. As a result,

we did not use De Cecco’s U.S. sales

data in determining an antidumping

margin. The Department, therefore, had

no choice but to resort to a total facts

available methodology.

Section 776(b) provides that adverse

inferences may be used against a party

that has failed to cooperate by not acting

to the best of its ability to comply with

requests for information. See also SAA

at 870. De Cecco’s failure to provide

complete and accurate information in a

timely manner and its failure to clarify

inconsistencies in its submissions to the

record demonstrate that De Cecco has

failed to cooperate to the best of its

ability in this investigation. Thus, the

Department has determined that, in

selecting among the facts otherwise

available for De Cecco, an adverse

inference is warranted.

On the basis of our having compared

the sizes of the calculated margins for

the other respondents to the estimated

margins in the petition, we have

concluded that the petition is the only

appropriate information on the record

which could form the basis for a

dumping calculation for De Cecco. In

accordance with section 776(c) of the

Act, we attempted to corroborate the

data contained in the petition. When

analyzing the petition, the Department

reviewed all of the data the petitioners

had submitted and the assumptions that

petitioners made in calculating

estimated dumping margins. As a result

of that analysis, the Department revised

the home market prices that petitioners

relied upon in calculating the estimated

dumping margins. On the basis of those

adjustments, the Department

recalculated the estimated dumping

margins for certain pasta from Italy and

found them to range from 21.85 percent

to 71.49 percent. See Initiation of

Antidumping Duty Investigation:

Certain Pasta from Italy and Turkey, 60

FR 30268, 30269 (June 8, 1995). Because

De Cecco made some effort to cooperate,

even though it did not cooperate to the

best of its ability, we did not choose the

most adverse rate based on the petition.

As facts otherwise available, we are

assigning to De Cecco the simple

average of the range of the margins

stated in the notice of initiation, 46.67

percent.

Targeted Dumping

On February 13, 1996, the petitioners

requested that the Department compare

Delverde’s transaction-specific export

prices in the United States to weightedaverage normal values, in accordance

with the ‘‘targeted dumping’’ provisions

of section 777A(d)(1)(B) of the Act. The

petitioners alleged that there was a

statistical pattern of different export

prices among different groups of both

Delverde’s EP and CEP purchasers and

that the use of a weighted-average price

would have the effect of masking lower

prices. The Department has denied this

request on the ground that the

petitioners’ analysis failed to meet the

basic requirements of subsections

777A(d)(1)(B) (i) and (ii) of the Act.

The petitioners’ allegation was the

result of their having selected groups of

customers on the basis of relatively

higher and lower prices. After the

groups had been selected, petitioners

ran statistical procedures to establish

that the prices of certain groups were

lower than those of other groups. These

results, however, were predetermined

by the initial composition of the

different groups. Moreover, by not

supplying any relevant source of

comparison benchmark prices,

petitioners failed to demonstrate that

the price differences were ‘‘significant,’’

as required by section 777A(d)(1)(B)(i)

of the Act.

Even assuming, arguendo, that

petitioners had shown targeting, in

order for the targeted dumping

provision to be applied, section

777A(d)(1)(B)(ii) requires that the price

differences cannot be taken into account

by comparing the weight-averaged

normal values to the weight-averaged

U.S. prices. The petitioners’ allegation

fails to make this demonstration.

Accordingly, this targeted dumping

allegation does not provide the

Department with a sufficient basis for

comparing Delverde’s transactionspecific export prices in the United

States to its weighted-average normal

value.

Scope of Investigation

The merchandise under investigation

consists of certain non-egg dry pasta in

packages of five pounds (or 2.27

kilograms) or less, whether or not

enriched or fortified or containing milk

or other optional ingredients such as

chopped vegetables, vegetable purees,

milk, gluten, diastases, vitamins,

coloring and flavorings, and up to two

percent egg white. The pasta covered by

this scope is typically sold in the retail

market, in fiberboard or cardboard

cartons or polyethylene or
30330 Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices

polypropylene bags, of varying

dimensions.

Excluded from the scope of these

investigations are refrigerated, frozen, or

canned pastas, as well as all forms of

egg pasta, with the exception of non-egg

dry pasta containing up to two percent

egg white. Also excluded are imports of

organic pasta from Italy that are

accompanied by the appropriate

certificate issued by the Associazione

Marchigiana Agricultura Biologica

(AMAB).

The merchandise under investigation

is currently classifiable under items

1902.19.20 of the Harmonized Tariff

Schedule of the United States (HTSUS).

Although the HTSUS subheadings are

provided for convenience and customs

purposes, our written description of the

scope of this investigation is dispositive.

Exclusion for Certain Organic Pasta

On October 2, 1995, a U.S. importer

of Italian pasta requested that the

Department exclude from the scope of

this investigation, and the companion

countervailing duty investigation, pasta

certified to be ‘‘organic pasta’’ in

compliance with European Economic

Community Regulation No. 2092/91.

This regulation sets forth a regime of

standards for the cultivation,

processing, storage, and transportation

of organic foodstuffs with inspections of

farms and processing plants by EECapproved national certification

authorities. In addition to the

description of the EEC regime, the

exclusion request included a copy of a

sample certificate issued by the AMAB

and a description, in English, of the

AMAB organization.

On November 9, 1995, the petitioners

stated that they were willing to modify

the scope of the petition and the

investigation to exclude certified

organic pasta of Italian origin if U.S.

imports of such pasta were

accompanied by certificates issued

pursuant to EEC Regulation No. 2092/

91.

On November 21, we requested

additional data on the EEC regulation

from the Section of Agriculture of the

Delegation of the European Commission

of the European Union. On December 8,

1995, the European Commission

submitted responses to our inquiries.

The information included a list of seven

Italian inspection and certification

authorities (of which AMAB was one)

and the statement that EEC Regulation

No. 2092/91 ‘‘* * * does not provide

for certification of products intended for

export to third countries.’’ Although the

Department was not able to fashion an

exclusion of organic pasta from the

scope of these investigations in our

preliminary determination, we stated

that if certification procedures similar to

those under the EEC regulation were

established for exports to the United

States, we would reconsider an

exclusion for organic pasta.

On April 2, 1996, the importer, that

had originally requested the exclusion,

submitted a letter attaching a copy of a

decree, with a translation into English,

from the Italian Ministry of Agriculture

and Forestry authorizing AMAB to

certify foodstuffs as organic for the

implementation of EEC Regulation

2092/91. On April 30, 1996, this

importer forwarded letters (with

accompanying translations into English)

from the Director General of the Italian

Ministry of Agriculture and Forestry

and from the Director of AMAB. The

letter from the Ministry states that it has

authorized AMAB to insure compliance

with organic farming methods and to

issue organic certificates since

December of 1992. The letter from the

Director of AMAB states that this

organization will take responsibility for

its organic pasta certificates and will

supply any necessary documentation to

U.S. authorities. On this basis, we are

able to exclude—and do exclude—

imports of organic pasta from Italy that

are accompanied by the appropriate

certificate issued by AMAB from the

scope of these investigations.

Period of Investigation

The period of investigation (POI) is

May 1, 1994, through April 30, 1995.

Product Comparisons

In accordance with section 771(16) of

the Act, we considered all products

produced by the respondent, covered by

the description in the Scope of

Investigation section and sold in the

home market during the POI, to be

foreign like products for the purposes of

determining appropriate product

comparisons to U.S. sales. Where there

were no sales of identical merchandise

in the home market to compare to U.S.

sales, we compared U.S. sales to the

next most similar foreign like product

on the basis of the characteristics listed

in Appendix III of the Department’s

antidumping questionnaire.

Level of Trade

As set forth in section 773(a)(1)(B)(i)

of the Act and in the Statement of

Administrative Action (SAA)

accompanying the Uruguay Round

Agreements Act, at 829–831, to the

extent practicable, the Department will

calculate normal values based on sales

at the same level of trade as the U.S.

sales. When the Department is unable to

find sales in the comparison market at

the same level of trade as the U.S.

sale(s), the Department may compare

sales in the U.S. and foreign markets at

different levels of trade.

In accordance with section

773(a)(7)(A) of the Act, if sales at

different levels of trade are compared,

the Department will adjust the normal

value to account for the difference in

level of trade if two conditions are met.

First, there must be differences between

the actual selling functions performed

by the seller at the level of trade of the

U.S. sale and the level of trade of the

normal value sale. Second, the

differences must affect price

comparability as evidenced by a pattern

of consistent price differences between

sales at the different levels of trade in

the market in which normal value is

determined.

Section 773(a)(7)(B) of the Act

establishes the procedures for making a

CEP offset when: (1) normal value is at

a different level of trade; and (2) the

data available do not provide an

appropriate basis for a level of trade

adjustment. In addition, in accordance

with section 773(a)(7)(B), in order to

qualify for a CEP offset, the level of

trade in the home market must

constitute a more advanced stage of

distribution than the level of trade of the

CEP.

In implementing these principles in

this case, the Department’s first task was

to obtain information about the selling

activities of the producers/exporters.

Information relevant to level of trade

comparisons and adjustments was

requested in our July 10, 1995

questionnaire, and in supplemental

questionnaires sent on October 23, 1995,

and January 22, 1996. We asked each

respondent to establish any claimed

levels of trade based on the selling

functions provided to each proposed

customer group, and to document and

explain any claims for a level of trade

adjustment.

Our review of these submissions

shows that the respondents have

identified levels of trade in various

manners. In some instances,

respondents used traditional customer

categories (e.g., wholesaler, retailer), or

customer groups (e.g., supermarkets,

wholesalers, buying consortium) to

identify levels of trade, while in other

instances they used factors such as

channels of distribution. In order to

determine whether separate levels of

trade actually existed within or between

the U.S. and home markets, we

reviewed the selling functions

attributable to the customer groups

claimed by the respondents. Pursuant to

section 773(a)(1)(B)(i) of the Act, and

the SAA at 827, in identifying levels of
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices 30331

trade for directly observed (i.e., not

constructed) export price and normal

value sales, we considered the selling

functions reflected in the starting price,

before any adjustments. For constructed

export price (CEP) sales, we considered

the selling functions reflected in the

price after the deduction of expenses

and profit under Section 772(d) of the

Act. Whenever sales within a customer

group were made by or through an

affiliated company or agent, we

‘‘collapsed’’ the affiliated parties before

considering the selling functions

performed. The selling functions and

activities examined for each reported

customer group were: (1) the process

used to establish the terms and

conditions of sale (‘‘sales process’’); (2)

whether the sale was produced to order

or filled from normal inventory

(‘‘inventory maintenance’’); (3) whether

the customer was serviced from a

forward warehouse (‘‘forward

warehousing’’); (4) freight and delivery

provided or arranged by the

manufacturer/exporter (‘‘freight’’); (5)

manufacturer provided or shared direct

advertising or in-store promotion

expenses (‘‘advertising’’); and (6)

warranty service program or after-sales

service provided by producer

(‘‘warranties’’).

In reviewing the selling functions

reported by the respondents for each

customer group, we considered all types

of selling functions, both claimed and

unclaimed, that had been performed.

Where possible, we further examined

whether the selling function was

performed on a substantial portion of

sales within the relevant customer

group. In analyzing whether separate

levels of trade exist in this investigation,

we found that no single selling function

in the pasta industry was sufficient to

warrant a separate level of trade (see,

Notice of Proposed Rulemaking and

Request for Public Comments, 61 FR

7307, 7348 (February 27, 1996))

(Proposed Regulations).

In determining whether separate

levels of trade existed in or between the

U.S. and home markets, the Department

considered the level of trade claims of

each respondent, but the ultimate

decision was based on the Department’s

analysis of the selling functions

associated with the customer groups

reported by the respondents. (In this

analysis, customer group refers to the

customers or groups of customers

identified by respondents.) Although

Liguori, De Matteis, Arrighi, and

Delverde did not argue that comparisons

should be made on the basis of level of

trade, the statute requires that, where

possible, the Department make

comparisons at the same level of trade.

Therefore, we looked at the issue of

level of trade for each respondent for

which we calculated a margin.

To the extent practicable, we

compared normal value at the same

level of trade as the U.S. sale. For

respondents Arrighi, Delverde, and La

Molisana we compared the sole level of

trade in the U.S. market to the home

market level of trade which we found to

be identical in aggregate selling

functions to the level of trade in the

United States. In the case of De Matteis

and Pagani, we found two home market

levels of trade, one of which was

determined to be identical in aggregate

selling functions to that found in the

United States. For respondent Liguori,

we compared the level of trade in the

U.S. market to the sole home market

level of trade and found them to be

dissimilar in aggregate selling functions.

Therefore, we established normal value

at a level of trade different than the U.S.

sales.

We then examined whether a level of

trade adjustment was appropriate for

Liguori when comparing its U.S. level of

trade to its home market level of trade.

However, because there was only a

single home market level of trade, there

was no basis for making a level of trade

adjustment based on a demonstration of

a consistent pattern of price differences

between the home market levels of

trade. The SAA states that ‘‘if

information on the same product and

company is not available, the

adjustment may also be based on sales

of other products by the same company.

In the absence of any sales, including

those in recent time periods, to different

levels of trade by the exporter or

producer under investigation,

Commerce may further consider the

selling experience of other producers in

the foreign market for the same product

or other products.’’ SAA at 830. The

alternative methods for calculating a

level of trade adjustment for Liguori

were examined. However, we do not

have information which would allow us

to examine pricing patterns based on

Liguori’s sales of other products at the

same level of trade as the home market

sales and there are no other respondents

with the same levels of trade as those

found for the home market sales of

Liguori. Therefore, we were unable to

calculate a level of trade adjustment for

Liguori based on these alternative

methods. Accordingly, Liguori’s U.S.

sales were compared to home market

sales based solely on the product

characteristics of the merchandise.

Although Pagani did have identical

U.S. and home market levels of trade,

for certain U.S. product categories there

were no sales of comparable

merchandise at the same level of trade.

We then examined the prices of

comparable product categories, net of all

adjustments, between Pagani’s two

home market levels of trade, and found

a consistent pattern of price differences.

Therefore, for the U.S. product

categories without a match to an

identical home market level of trade, we

made the comparison at a different level

of trade, and made a level of trade

adjustment based on the weightedaverage difference between the prices at

the two home market levels of trade. In

this case, the adjustment resulted in an

increase to normal value.

As noted below in the ‘‘Comparison

Methodology’’ section of this notice,

where there were distinct price

differences between a respondent’s

customer categories within similar

levels of trade, or within different levels

of trade in the case of Liguori and

Pagani, we considered the customer

category in creating the averaging

groups for our comparisons.

A complete description of the level of

trade analysis for each respondent is

presented in the DOC Position to

Comment 1E below.

Fair Value Comparisons

To determine whether sales of pasta

by the Italian respondents to the United

States were made at less than fair value,

we compared the Export Price (EP) and/

or Constructed Export Price (CEP) to the

Normal Value (NV), as described in the

‘‘Export Price and Constructed Export

Price’’ and ‘‘Normal Value’’ sections of

this notice. In accordance with section

777A(d)(1)(A)(i) of the Act, we

calculated weighted-average EPs and

CEPs for comparisons to weightedaverage NVs. For a further discussion,

see the Comparison Methodology

section, below.

Export Price and Constructed Export

Price

We calculated EP, in accordance with

subsections 772 (a) and (c) of the Act,

for each of the respondents, where the

subject merchandise was sold directly to

the first unaffiliated purchaser in the

United States prior to importation and

CEP was not otherwise warranted based

on the facts of record. In addition, for

Delverde, we calculated CEP, in

accordance with subsections 772 (b)

through (d) of the Act, for those sales to

the first unaffiliated purchaser that took

place after importation into the United

States.

Furthermore, as in the preliminary

determination, we did not include the

resale of subject merchandise purchased

in Italy from unaffiliated producers. For

Arrighi, however, we were unable to
30332 Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices

determine which particular U.S. sales

were of merchandise produced by firms

other than Arrighi. Therefore, we weight

the dumping margin for Arrighi for each

product category it identified by (1)

calculating a ratio of the volume of

Arrighi-produced product to the

combined total volumes of Arrighiproduced and purchased product in the

same period, and (2) applying the ratio

to the quantity for the corresponding

product sold to the United States during

the POI. This allowed us to calculate a

margin based on an estimated quantity

of Arrighi-produced product (see

Arrighi’s Comment 6).

We calculated EP and CEP based on

the same methodology used in the

preliminary determination. For certain

respondents, we recalculated reported

credit expenses in instances where they

had not reported a shipment and/or

payment date because the merchandise

had not yet been shipped or paid for at

the time of filing the response. For those

sales missing a shipment and/or a

payment date, we used the average

credit days of all transactions with a

reported shipment and payment date.

Additional company-specific

adjustments were made as follows:

Arrighi

We made minor corrections to the

U.S. sales database based on errors

noted at verification and we

recalculated the warranty claim expense

for U.S. sales to reflect verified claim

expenses. We also recalculated

inventory carrying expense to correct

the price basis used in the calculation,

and to apply a weighted average shortterm interest rate based on Arrighi’s and

Italpasta’s company-specific short-term

interest rates (see Arrighi’s Comment 2).

Delverde

In those instances where negative

values were reported for U.S. credit

expenses (i.e., where Delverde received

payment prior to shipment), we set the

credit expense to zero. As discussed in

Comment 5 for Delverde below, we did

not rely on certain CEP sales by

Delverde USA because we determined

that the date of these sales fell outside

the POI. Consistent with our treatment

of slotting fees paid in the home market,

we reclassified the slotting expenses

reported by Delverde USA (i.e., field

‘‘ADVERT2U’’) as indirect selling

expenses. We made deductions for

warranties and additional direct selling

expenses reported by Tamma Industrie

Alimentari di Capitanata, SrL (Tamma),

a Delverde affiliate. We also increased

Tamma’s packing costs, indirect selling

expense and warehousing cost to reflect

the findings of the cost verification.

De Matteis

We deleted one invoice from the U.S.

database because it was discovered at

verification that the sale was made

outside of the POI.

La Molisana

We adjusted La Molisana’s reported

direct advertising expense by

reclassifying a portion as an indirect

expense. See, Comments 2C and 3B for

La Molisana, below. We recalculated the

reported indirect selling expenses to

reflect verified expenses. In addition,

we increased the indirect expenses by

including certain unreported expenses

discovered at verification. We also

corrected the control number associated

with certain products to reflect the

shape classifications confirmed at

verification.

Liguori

For certain of Liguori’s U.S. sales, that

are associated with a particular invoice

number, we corrected the shipment date

and the imputed credit expenses, based

on errors noted at verification.

Pagani

We revised the interest rate used for

calculating Pagani’s credit expense and

its inventory carrying costs based on

information found at verification. We

deleted the following sales from the U.S.

sales listing: sales made outside of the

POI, duplicate entries, and a sale made

to a Canadian company.

Normal Value

In accordance with section

773(a)(1)(B) of the Act, we have based

NV on sales in Italy or, where

appropriate, on constructed value (CV).

For each of the respondents, we made

adjustments, where appropriate, for

physical differences in the merchandise,

in accordance with 19 CFR 353.57. In

addition, we deducted home market

packing costs and added U.S. packing

costs for all respondents.

We adjusted for differences in

commissions in accordance with 19 CFR

353.56(a)(2) as follows: Where

commissions were paid on some home

market sales to calculate normal value

and U.S. commissions were greater than

the sum of both home market

commissions and indirect selling

expenses, we deducted from normal

value either (1) home market indirect

selling expenses attributable to those

sales on which commissions were not

paid, or (2) the difference between the

U.S. and home market commissions.

Where commissions were paid on home

market sales but not on sales to the U.S.,

we deducted the lesser of either (1) the

home market commissions, or (2) the

sum of the weighted average indirect

selling expenses paid on U.S. sales.

Where no commissions were paid on

home market sales used to calculate

normal value, we deducted the lesser of

either (1) the amount of the

commissions paid on the U.S. sales, or

(2) the sum of the weighted average

indirect selling expenses paid on home

market sales, capped by the amount of

the commission paid on U.S. sales.

Finally, regardless of the applicable

scenario, the amount of the commission

paid on the U.S. sales was added to

normal value.

For certain respondents, we

recalculated reported credit expenses in

instances where they had not reported

a shipment and/or payment date

because the merchandise had not yet

been shipped or paid for at the time of

filing the response. For those sales

missing a shipment and/or a payment

date, we used the average credit days of

all transactions with a reported

shipment and payment date.

Liguori and La Molisana reported that

the sales to their respective affiliated

customer(s) were made at arm’s length

prices. We used the affiliated party test

applied at the preliminary

determination to determine whether

sales to affiliated customers were made

on an arm’s-length basis, although we

modified it to consider price differences

that result from comparisons of sales to

different customer categories. (For a

further discussion of this issue see,

Comment 1 under the ‘‘Company

Specific Comments—La Molisana’’

section of this notice, below. Sales not

made at arm’s-length prices were

excluded from our LTFV analysis.

We compared all home market sales

to the cost of production (COP), as

described below. Where home market

prices were above COP, we calculated

NV based on the same methodology

used in the preliminary determination,

with the following exceptions:

Arrighi

We made minor corrections to the

home market sales database based on

errors noted at verification (see Arrighi’s

Comment 1). For home market credit

expense calculation, we used a

weighted average short-term interest

rate based on Arrighi’s and Italpasta’s

company-specific short-term interest

rates (see Arrighi’s Comment 2). We also

recalculated inventory carrying expense

to correct the price basis used in the

calculation, and to apply the weighted

average short-term interest rate. We

reclassified as indirect selling expenses

advertising expense 1 and direct selling

expenses based on verification findings

(see Arrighi’s Comments 4 and 5). For
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices 30333

Italpasta sales that incurred inland

freight, we used the lowest reported unit

inland freight expense as ‘‘facts

available’’ because this expense could

not be completely verified (see Arrighi’s

Comment 3).

Additionally, because section

773(a)(1)(B)(i) of the Act incorporates,

by reference, the definition of foreign

like product in section 771(16) of the

Act, it prohibits our using sales of

merchandise produced by persons other

than the respondents in our calculation

of normal value. Accordingly, we have

excluded from our analysis all of the

sales from each of the companies of

subject merchandise in the Italian

market that were not produced by the

respondent companies (see Arrighi’s

Comment 7).

Delverde

We recalculated home market credit

based on the weighted average of the

company-specific short term borrowing

rates reported by Delverde and Tamma.

We also increase Tamma’s packing cost,

indirect selling expenses and

warehousing cost to reflect the findings

of cost verification.

De Matteis

All reported commission expenses

that were found to be salaries were

reclassified as indirect selling expenses.

La Molisana

We disallowed La Molisana’s claim

for a certain rebate (REBATE2H)

because the company failed to provide

support documentation for the claimed

amount at verification. See La Molisana

Comment 4, below. We recalculated the

indirect selling expense factor to reflect

the amounts confirmed at verification.

In addition, we reclassified trade

promotion expenses as direct

advertising expenses. See Comment 2B,

below. Finally, we reallocated the POI

expenses over the appropriate

denominator confirmed at verification.

Additionally, we increased the

reported advertising expense to include

the ‘‘television sponsorship’’ expense

discovered at verification. See La

Molisana Comment 2A, below.

Liguori

For certain home market sales,

associated with a particular invoice, we

corrected the payment date and the

imputed credit expenses based on errors

noted at verification.

Pagani

We deleted home market sales of

enriched pasta, other than enriched

whole wheat pasta, because these sales

were deemed to have been made outside

of the ordinary course of business. In

addition, we deleted duplicate entries,

sales recorded as gifts, sales made

outside of the POI, and sales to

employees from the home market

database. We also updated the interest

rate used for calculating Pagani’s credit

expense and its inventory carrying

costs.

Cost of Production Analysis

As discussed in the preliminary

determination notice, the Department

conducted an investigation to determine

whether each respondent made home

market sales during the POI at prices

below COP within the meaning of

section 773(b) of the Act. Before making

any fair value comparisons, we

conducted the COP analysis described

below.

A. Calculation of COP

We calculated the COP based on the

cost of materials, fabrication, general

expenses, and home market packing in

accordance with section 773(b)(3) of the

Act. We relied on the submitted COP

data, except in the following instances

where the costs were not appropriately

quantified or valued.

Arrighi

1. We corrected Arrighi’s understated

depreciation expense to reflect its

normal, full-year depreciation expense

for fixed assets that were temporarily

idle.

2. We corrected general and

administrative expenses (G&A) for costs

that were improperly excluded by

Arrighi and its affiliate, Italpasta S.p.A.

(Italpasta).

3. We revised the cost of goods sold

figure used as the denominator in the

G&A and financial expense ratios and

recalculated Arrighi and Italpasta’s G&A

and financial expense ratios.

4. We recalculated the semolina costs

reported by Arrighi’s affiliated mill to

correct for errors in the cost of raw

materials

5. We increased Arrighi’s material

costs to agree with the actual material

costs reported under the company’s

financial accounting system.

6. We increased Arrighi’s G&A

expenses to include the G&A expenses

incurred by its parent company.

7. We revised Arrighi and Italpasta’s

financial expenses to include bank

charges and to exclude exchange gains

and losses related to sales transactions.

De Matteis

1. We revised the cost of goods sold

figure used as the denominator in De

Matteis’ submitted G&A and financial

expense rates, and recalculated its perunit G&A and financial expenses using

the revised rates.

Delverde and Tamma

1. We corrected the depreciation

expense reported by Tamma, a Delverde

affiliate.

2. We increased Tamma’s financial

expenses to include foreign exchange

losses incurred on the extinguishment

of debt.

3. We revised the combined cost of

sales figure used by Delverde to

calculate its G&A and financial expense

rates, reducing it for byproduct revenues

and intercompany transfers between

Delverde and Tamma.

4. We did not calculate a separate

financial expense rate for use in the CV

calculations because the statute states

that COP and CV are based on the actual

costs and not imputed costs.

Pagani

1. We increased Pagani’s cost of

semolina for unreported freight costs.

2. We increased Pagani’s fixed

overhead for clerical errors reported to

the Department on the first day of

verification. We also increased fixed

overhead to include an additional two

months of depreciation expense on a

new production line.

3. We revised Pagani’s cost of sales

figure used to calculate the G&A

expense ratio to exclude packing costs

and to include all fixed overhead costs.

4. We revised Pagani’s consolidated

financial expense rate calculation to

account for the following: we reduced

the costs of sales figure for byproduct

revenue that was used to offset the cost

of production; we included fixed

overhead costs that had been omitted

from the costs of sales figure; we

excluded packing costs from the cost of

sales figure; and we adjusted the

consolidated cost of sales figure to

account for intercompany transfers.

Liguori

1. We reallocated fuel costs based on

the number of pasta production lines in

operation.

La Molisana

1. We increased reported costs to

account for an unreconciled difference

between La Molisana’s cost and

financial accounting systems.

2. We increased the reported cost of

semolina production, disallowing La

Molisana’s offset for revenues received

from sales of finished semolina.

3. We increased the reported costs for

the understatement of wheat, labor and

electricity costs due to the use of the

calendar year 1994 costs rather than POI

costs.
30334 Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices

4. We increased reported costs to

account for an unreconciled difference

between La Molisana’s total production

costs and its reported production costs

for 1994.

5. We reduced reported depreciation

expense for an overstatement discovered

during verification.

6. We increased G&A expenses to

disallow an offset for foreign exchange

gains related to sales transactions.

7. We increased reported financial

expenses to disallow long-term interest

income used to offset financial expenses

and to include financial expenses that

were allocated to the flour mill.

8. We revised the cost of sales figure

used as the denominator in La

Molisana’s G&A and financial expense

ratios, and recalculated its per-unit G&A

and financial expenses using the revised

rates.

B. Test of Home Market Prices

We compared the adjusted weightedaverage COP figures to home market

sales of the foreign like product on a

product-specific basis, in order to

determine whether these sales had been

made at below-cost prices within an

extended period of time in substantial

quantities, and at prices that did not

permit recovery of all costs within a

reasonable period of time. The home

market prices compared were net of any

applicable movement charges,

discounts, rebates, packing, and direct

and indirect selling expenses.

C. Results of COP Test

Pursant to section 773(b)(2)(C), where

less than 20 percent of sales during the

POI of a given product are at prices less

than the COP, we do not disregard any

below-cost sales of that product because

the below-cost sales are not made in

substantial quantities within an

extended period of time. Where 20

percent or more of sales of a given

product are at prices less than the COP,

we disregard only the below-cost sales

because such sales are found to be made

within an extended period of time, in

accordance with section 773(b)(2)(B) of

the Act, and at prices which would not

permit recovery of all costs within a

reasonable period of time, in accordance

with section 773(b)(2)(D) of the Act.

Where all sales of a specific product are

at prices below the COP, we disregard

all sales of that product, and calculate

NV based on CV, in accordance with

section 773(a)(4) of the Act.

We found that, for certain types of

pasta, more than 20 percent of the

following respondents’ home market

sales were sold at below COP prices

within an extended period of time in

substantial quantities: Arrighi, Delverde,

De Matteis, La Molisana, Pagani and

Liguori. Further we did not find that

these sales provided for the recovery of

costs within a reasonable period of time.

We therefore excluded these sales and

used the remaining above-cost sales as

the basis for determining NV if such

sales existed, in accordance with section

773(b)(1). For those types of pasta for

which there were no above-cost sales in

the ordinary course of trade, we

compared export prices to CV.

D. Calculation of CV

In accordance with section 773(e)(1)

of the Act, we calculated CV based on

the sum of cost of materials, fabrication,

general expenses and U.S. packing costs

as reported in the U.S. sales database.

We recalculated the respondents’ CV

based on the methodology described in

the calculation of COP above.

For each of the respondents, we made

adjustments, where appropriate, for

physical differences in the merchandise

in accordance with section

773(a)(6)(C)(ii) of the Act. Where the

difference in merchandise adjustment

for any product comparison exceeded

20 percent, we based normal value on

CV. In addition, in accordance with

section 773(a)(6)(B), we deducted home

market packing costs and added U.S.

packing costs for all respondents.

Comparison Methodology

In accordance with section

777A(d)(1)(A)(i) of the Act, we

calculated weighted-average EPs or

CEPs for comparison to weighted

average normal values, or to constructed

values, where appropriate. The

weighted averages were calculated and

compared by product characteristics

and, where appropriate, level of trade

and/or price averaging groups. The SAA

states that in determining the

comparability of sales for inclusion

within a particular average, ‘‘Commerce

will consider factors it deems

appropriate, such as * * * the class of

customer involved,’’ SAA at 842. The

Department, not the respondents,

determines which customers may be

grouped together for product

comparison purposes. Cf., N.A.R., S.p.A.

v. U.S., 741 F. Supp. 936 (CIT, 1990).

Based on the chain of distribution for

the pasta industry, we have identified

the following five distinct customer

categories that represent different points

in the chain of distribution: (1) other

pasta manufacturers (Pastificios) who

purchase and resell pasta; (2)

distributors; (3) wholesalers; (4)

retailers; and (5) consumers. Each of

these customer categories was defined

by functions commonly associated with

each category of customer in the areas

of: (1) category of the supplier; (2)

contractual relationship with the

supplier; (3) exclusivity of sales

territory; (4) exclusivity of product

range; (5) sales practices; and (6)

downstream customer category.

For those respondents (De Matteis and

Pagani) with the same level of trade in

the U.S. and home markets and a single,

identical customer category in each

market, the weighted-average prices

were calculated and compared by

product characteristics and level of

trade. For those respondents having the

same level of trade in the U.S. and home

markets, and multiple customer

categories, the weighted-average prices

were calculated and compared by

product characteristics, level of trade,

and the identical or, in the case of La

Molisana, the most comparable

customer category in terms of

remoteness from factory, if we found

that there were consistent price

differences among the various customer

categories. Price differentials were

analyzed by first calculating the average

price net of all reported expenses for

each product control number and

unique customer category in each

market. The average net unit prices for

each control number in the customer

category least remote in the chain of

distribution were compared to the

identical product control number in the

customer category at the next most

remote level in the chain of distribution.

Price differentials were considered to be

consistent if there were uniform price

differences between the customer

categories. For those respondents

(Arrighi and Delverde) with the same

level of trade in the U.S. and home

markets and multiple customer

categories, but no consistent price

differentials, the weighted-average

prices were calculated and compared by

product characteristic and level of trade.

We determined for Arrighi that a price

differential analysis was not measurable

because Arrighi had grouped different

customer categories in its reported

customer groups, and we were unable to

separate these customers by customer

category. For those respondents

(Liguori) with different levels of trade in

the U.S. and home market, the

weighted-average prices were calculated

and compared by product

characteristics and by customer

category, if we found that there were

consistent price differentials among the

customer categories.

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
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices 30335

Reserve Bank. Section 773A(a) of the

Act directs the Department to use a

daily exchange rate in order to convert

foreign currencies into U.S. dollars.

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.

The benchmark is defined as the moving

average of rates for the past 40 business

days. (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 Italian lira did not undergo a

sustained movement, nor were there

currency fluctuations during the POI.

Verification

As provided in section 782(i) of the

Act, we verified information provided

by the respondents, with the exception

of De Cecco, using standard verification

procedures, including the examination

of relevant sales and financial records,

and selection of original source

documentation containing relevant

information. In addition, we conducted

verification of Saral to confirm its claim

that it no longer exports pasta to the

United States.

Interested Party Comments

I. General Issues

Comment 1 Level of Trade: Comment

1A Whether the Department Should

Consider the Class of Customer and/or

Channel of Distribution in Determining

Whether Separate LOTs Exist: The

petitioners and La Molisana argue that

the level of trade (LOT) methodology

adopted by the Department in its

preliminary determination is flawed and

should be substantially revised in the

final determination. Specifically, the

petitioners and La Molisana assert that

the Department improperly focused

solely on selling functions and ignored

the customer groups and/or channels of

distribution identified by each

respondent as potentially different

points in the chain of distribution.

The petitioners assert that it has been

long recognized by the Department and

the Court of International Trade (CIT)

that levels of trade reflect ‘‘an attempt

to reconstruct prices at a specific,

’common’ point in the chain of

commerce * * *’’), Smith Corona v.

United States, 713 F.2d 1568, 1571–72

(Fed. Cir. 1983). Claiming that the new

statute, the SAA, and the Department’s

Proposed Regulations do not define LOT

or establish criteria for determining

separate LOTs, the petitioners and La

Molisana argue that the fundamental

concept of LOT has not changed under

the new statute. Therefore, they each

contend that the definition of LOT still

reflects the Court of Appeals’ and the

Department’s longstanding

interpretation of that term (i.e., that LOT

refers to different points in the chain of

distribution). (See, e.g., Import

Administration Policy Number 92/1 at 2

(July 29, 1992), (‘‘In asking for LOT

information, the Department is trying to

determine where in the distribution

chain the respondents’ customer falls

(end user, distributor, retailer).’’)

Certain Carbon and Alloy Steel Wire

Rod from Canada, 59 FR 18,791, 18,794

(April 20, 1994), (‘‘Comparisons are

made at distinct, discernable levels of

trade based on the function each level

of trade performs, such as end-user,

distributor, and retailer.’’)).

Although the petitioners and La

Molisana recognize that the new statute

contains certain refinements to the LOT

concept, both parties argue that the

amendments to the law made by the

URAA did not alter the fundamental

definition of LOT as noted above.

Consequently, they argue that the

starting point for determining whether

different LOTs exist is whether the sales

take place at different points in the

chain of distribution. The petitioners

and La Molisana cite Certain Stainless

Steel Wire Rods from France:

Preliminary Results of Antidumping

Duty Administrative Review, 61 FR

8915, 8916 (March 6, 1996) (French

Rod) as a recent case where, in

analyzing potential LOTs, the

Department relied upon the distinctions

the respondents identified between

channels of distribution. (‘‘Respondents

reported two channels of distribution in

the home market. * * * We examined

and verified the selling functions

performed in each channel. * * *

Overall we determine that the selling

functions between the two sales

channels are sufficiently similar to

consider them one level of trade in the

home market.’’)), French Rod, 61 FR

8916. Therefore, both La Molisana and

the petitioners assert that the

Department should consider the

potential LOTs identified by the

respondents, in terms of channels of

distribution or customer groups, in

determining whether separate LOTs

exist.

Arrighi argues that the LOT

methodology adopted by the

Department in its preliminary

determination was factually correct and

in accordance with the law and the

URAA. Arrighi disagrees with the

petitioners’ and La Molisana’s claim

that the amendments to the law made by

the URAA did not alter the fundamental

definition of LOT. According to Arrighi,

because the SAA specifically states that

‘‘in order to establish the existence of

different LOTs, a respondent company

must show that different selling

activities are performed by the

respondent company at each LOT,’’ and

there is no mention of another criterion

or test in either the statute or the SAA,

the position in the chain of distribution

of the respondent’s customers should

not be a precondition to finding separate

LOTs.

Arrighi contends that the Department

confirmed that the selling functions of

a respondent are the proper

determinative factor in establishing

different LOTs in its comments that

were issued with the Proposed

Regulations for the URAA. Arrighi

claims that while certain commentators

argued that a respondent company must

sell to customers at different points in

the chain of distribution before asserting

that different LOTs exist, the

Department rejected this position,

stating that the ‘‘only test identified in

the statute for the legitimacy of the

claimed LOTs is the activity of the

seller.’’

DOC Position: We agree with Arrighi

that it is appropriate to look at the

selling functions of a respondent to

determine whether separate levels of

trade exist. While neither the Act nor

the SAA provides an explicit definition

of level of trade or establishes criteria

for determining whether separate levels

of trade exist, the SAA does specify that

the Department requires evidence that

‘‘different selling activities are actually

performed at the allegedly different

levels of trade’’ before recognizing

distinct levels of trade. SAA at 829. This

is confirmed again by the SAA in the

discussion of the required pattern of

price differences for the LOT

adjustment, where it states that ‘‘where

it is established that there are different

levels of trade based on the performance

of different selling activities * * *,’’

Commerce will make a LOT adjustment.

SAA at 830. Thus, the Act and the SAA

have identified selling activities as a key

factor in determining levels of trade;

however, the statute does not require

that this analysis begin and end with the

selling activities of the producer/

exporter.

In the preliminary determination, the

Department stated that it would

continue to examine its policy for
30336 Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices

making level of trade comparisons and

adjustments. After reviewing the

comments we received on this issue as

well as the Department’s recent practice

for determining the existence of levels

of trade, we have determined that

certain modifications to the LOT

methodology used in the preliminary

determination are warranted. As

described in the ‘‘Level of Trade’’

section of this notice, above, in order to

determine whether distinct levels of

trade exist, we have examined the full

array of selling functions provided to

each of the customer groups alleged by

the respondents. As noted in Comment

1C below, we believe that this approach

will allow us to consider all types of

selling functions, both claimed and

unclaimed, that had been actually

performed in determining the level of

trade and avoid instances where a single

selling function difference on individual

sales transactions warrants the finding

of a distinct level of trade. Finally, by

reviewing the selling functions within

each of the alleged customer groups, we

expect that the analysis will capture any

possible differences in the mix of selling

activities provided for each customer

group.

Comment 1B Whether the Selling

Functions of a Respondent Should be

Considered in Determining Whether

Separate LOTs Exist: La Molisana

argues that the functions or services

performed by the respondents are not

determinative of whether different LOTs

exist and should not be taken into

consideration in the Department’s LOT

analysis. La Molisana asserts that

Section 773(a)(7)(A) of the new statute

provides for a LOT adjustment ‘‘if the

difference in LOT * * *involves the

performance of different selling

activities.’’ Accordingly, La Molisana

asserts that the selling activities of the

respondent cannot be part of the

definition of LOT and only become

relevant after it is determined that

separate LOTs, in fact, exist. Therefore,

La Molisana argues that the question of

whether the seller performs different

selling functions is only relevant in

determining whether a LOT adjustment

is warranted.

The petitioners argue that the SAA is

clear in stating that selling functions are

intended to be an integral part of

establishing whether different LOTs

exist. (‘‘Commerce will grant [LOT]

adjustments only where: 1) there is a

difference in the LOT (i.e., there is a

difference between the actual functions

performed by the sellers at the different

levels of trade in the two markets)). SAA

at 829. The petitioners contend that the

SAA’s reference to a ‘‘difference

between the actual functions

performed’’ clearly implies that a

distinction in LOT should not be made

without a finding of functional

differences. In addition, the petitioners

claim that the SAA implies that

something more than a mere reference

to the class of customer would be

needed to identify separate LOTs

(‘‘[n]ominal reference to a company as a

‘wholesaler,’ for example, will not be

sufficient’’ [in determining LOT]). SAA

at 829. Therefore, the petitioners argue

that a selling function analysis is

relevant in determining whether

separate LOTs exist and that the

Department should continue to examine

the selling functions of the respondents

in its final determination. The

petitioners cited French Rod as a recent

case where the Department examined

the selling activities of the respondent

in determining whether there were

separate LOTs (‘‘In order to identify

LOTs, the Department must review

information concerning the selling

functions of the exporter,’’ French Rod,

61 FR 8916 (March 6, 1996).

Finally, the petitioners claim that

because all of La Molisana’s U.S. sales

are EP sales, no indirect selling

expenses are deducted from either the

U.S. or home market prices. Therefore,

the petitioners argue that La Molisana is

incorrect in stating that an examination

of selling functions is double counting

and that the margin calculations already

account for all expenses incurred by La

Molisana.

Arrighi and De Matteis both argue that

the existence of different selling

functions is the proper basis for

establishing whether different LOTs

exist. For a further discussion of

Arrighi’s arguments concerning this

issue, see Comment 1A, above.

DOC Position: We agree with the

petitioners. The SAA states that,

‘‘Commerce will require evidence from

the foreign producers that the functions

performed by the sellers at the same

level of trade in the U.S. and foreign

markets are similar, and that different

selling activities are actually performed

at the allegedly different levels of trade

* * *. On the other hand, Commerce

need not find that the two levels involve

no common selling activities to

determine that there are two levels of

trade.’’ SAA at 159, and Cf., Proposed

Regulations at 7348. Thus, as noted in

Comment 1A above, information about

the selling activities of the producer/

exporter is essential to the identification

of levels of trade.

Comment 1C Whether the Department

Should Reject The Four Selling

Function Coding System Used in the

Preliminary Determination: In the event

the Department determines it is

appropriate to define LOTs based on

selling function distinctions, the

petitioners, La Molisana, Delverde and

De Matteis argue that the LOT coding

methodology used in the preliminary

determination should be rejected

because it is inconsistent with law and

commercial reality. Neither Liguori,

Pagani or Arrighi commented on the

specifics of the LOT coding

methodology used in the preliminary

determination. However, Arrighi and

Liguori state that they agree with the

outcome of the Department’s

preliminary LOT analysis.

First, the petitioners and La Molisana

assert that the Department’s LOT coding

system resulted in a finding that a

difference in any one selling function is

sufficient to define a separate LOT. The

petitioners and La Molisana argue that

this methodology is at odds with the

Department’s Proposed Regulations

which specifically reject the notion that

a difference in one selling function

alone would be sufficient to define an

entirely separate LOT in most instances.

Cf., e.g., Notice of Proposed Rulemaking

and Request for Public Comments, 61

FR 7308, 7348 (February 27, 1996)

(Proposed Regulations) at 7348.

Second, the petitioners argue that the

selling function categories used in the

preliminary determination are

unreasonable and overly narrow. Given

the different combinations of the four

selling function categories used in the

preliminary determination, there were

16 possible LOT combinations in each

market. Both the petitioners and La

Molisana assert that because LOT is

used as a matching criterion, the overlynarrow LOT segments resulted in large

amounts of home market sales not being

used to determine whether dumping

was occurring. For example, with

respect to Arrighi, the petitioners claim

that as a result of the Department’s

preliminary LOT methodology, less than

one percent of Arrighi’s home market

sales were used as comparison sales to

determine whether dumping was

occurring.

Third, La Molisana and De Matteis

both argue that the Department’s use of

sales with the same number of selling

expense categories to determine the

‘‘next most comparable LOT’’ in the

preliminary determination has no

factual or logical basis. Specifically, La

Molisana and De Matteis assert that the

Department’s methodology essentially

treats each selling function category as

having an equal effect on the sales price.

La Molisana and De Matteis contend

this not true and that in reality, each

selling function influences pricing in a

different manner.
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices 30337

Fourth, La Molisana and De Matteis

argue that the Department’s preliminary

methodology erred by measuring the

existence or absence of a selling activity

in absolute terms, rather than in

degrees. La Molisana and De Matteis

assert that in determining LOT

comparisons, the relative degree or

extent to which an activity or function

is performed (e.g., ‘‘great degree,’’

‘‘moderate degree’’ or ‘‘small degree’’)

should be taken into account by the

Department in the final determination.

The petitioners argue that the extent

or cost of the function provided should

not be used to distinguish selling

activities. The petitioners assert that

while expenses for services to some

customers may be more than to others,

the expense difference may not reflect a

true difference in selling activities or

services, but instead represent the costs

associated with sales shipped in larger

or smaller quantities or to different

geographic locations. In addition, the

petitioners note that because the

Department did not request data

concerning the degree to which any

selling activity is performed, there is no

basis for the Department to perform

such an analysis in this case.

Fifth, Delverde argues that the LOT

coding methodology is fundamentally

flawed in concept because it

‘‘constructed’’ a LOT based on selling

functions that were not part of CEP.

Specifically, Delverde argues that the

statutory definition of CEP clearly

describes a price at an ex-factory LOT.

Delverde claims that although the

Department concluded that Delverde

provided movement and advertising

services in connection with its CEP

sales, both types of expenses were

deducted from the U.S. starting price

when CEP was calculated. Therefore,

Delverde contends that the

Department’s preliminary methodology

created a ‘‘constructed’’ CEP LOT that

was more advanced than the LOT of the

actual CEP.

DOC Position: In the preliminary

determination, the Department stated

that it would continue to examine its

policy for making level of trade

comparisons and adjustments. After

reviewing the comments we received on

this issue as well as the Department’s

recent practice for determining the

existence of separate levels of trade, we

agree with the respondents that certain

modifications to the LOT methodology

utilized in the preliminary

determination are warranted.

Specifically, we find that: (1) the

preliminary coding methodology

measured levels of trade based on the

existence of individual selling

functions, rather than basing levels of

trade on the collective array of selling

activities performed by the seller; and

(2) the coding system led to the result

that a difference in just one selling

function on any given sale necessarily

justified a difference in level of trade.

Although neither the Act nor the SAA

provide explicit guidelines for

identifying levels of trade, the preamble

to the Proposed Regulations reflects our

practice and states that ‘‘small

differences in the functions of the seller

will not alter the level of trade.’’

Proposed Regulations at 7348. Although

the Proposed Regulations provide that a

single function may be so significant as

to constitute the existence of a separate

level of trade, we have determined that

no single selling function in the pasta

industry warrants the finding of a

separate level of trade. Therefore, as

noted in the ‘‘Level of Trade’’ section of

this notice, above, we have revised the

level of trade methodology used for the

final determination. In order to

determine whether separate levels of

trade existed within or between the U.S.

and home markets, we have reviewed

the full array of selling functions, in the

aggregate, provided to each of the

customer groups alleged by the

respondents. In addition, because we

have determined that no single selling

function in the pasta industry is so

significant as to alter the LOT, we have

no longer considered a single difference

in selling function to justify the finding

of a separate level of trade.

We agree, in part, with La Molisana

and De Matteis’ assertion that the

relative extent to which an activity or

function is performed should be

considered in the Department’s LOT

analysis. As noted in the ‘‘Level of

Trade’’ section of this notice, above,

before determining that a particular

selling function was performed for a

particular customer group, we examined

whether the selling function was

performed on a substantial number of

sales within the customer group. We

disagree with La Molisana and De

Matteis, however, that the degree to

which a selling function is performed

(i.e., ‘‘great degree’’, ‘‘moderate degree’’

or ‘‘small degree’’) should be considered

in our LOT analysis for this

investigation. While it is conceivable

that the Department may determine in a

particular case that it is necessary to

consider the degree to which a

particular selling function is performed

in its analysis, the selling functions in

this case were such that they can be

viewed as either having been performed

or not having been performed.

Accordingly, we have not taken the

degree to which a selling function is

performed into consideration in

conducting our LOT analysis.

Delverde’s arguments concerning

whether the LOT coding methodology

improperly ‘‘constructed’’ a LOT based

on selling functions that were not part

of CEP are addressed separately under

the ‘‘Company Specific Comments’’

section of this notice, below.

Comment 1D Which Selling Functions

Should be Considered in Determining

Whether Separate LOTs Exist: In lieu of

the LOT methodology adopted in the

preliminary determination, the

petitioners and De Matteis argue that the

Department should examine the full

array of selling functions, in the

aggregate, provided to each potential

LOT to determine whether separate

LOTs exist. The petitioners assert that

this methodology was adopted by the

Department in the French Rod case

where the Department examined the

collective array of selling activities

performed for each channel of

distribution and found that minor

differences between the home market

sales examined did not justify

segmenting the sales into different LOTs

(‘‘[we] found that the two sales channels

provided many of the same or similar

selling functions including: strategic

planning, order evaluation, warranty

claims, technical services, inventory

maintenance, packing and freight and

delivery. We found some differences

between the two channels of trade in

advertising, customer contacts,

computer systems (order input/invoice

system), and administrative functions.

Overall, we determine that the selling

functions between the two sales

channels are sufficiently similar to

consider them as one level of trade in

the home market’’). 61 FR at 8916.

Specifically, the petitioners assert that

the following selling functions are

relevant to the Department’s LOT

analysis for the U.S. and Italian pasta

markets: (1) freight & delivery; (2)

customer sales contacts; (3) advertising;

(4) technical services; (5) warranties; (6)

inventory maintenance (pre-sale); (7)

post-sale warehousing; and (8)

administrative functions. In addition,

the petitioners contend that in

performing the selling function analysis,

the Department should ensure that the

selling activity is consistently applied to

all, or at least the vast majority, of

customers at each potential LOT

identified. The petitioners claim it

would be inappropriate to consider a

selling function applicable to a

particular LOT where the function was

not provided to all customers, or on

some but not all sales.

In the event the Department

determines it is appropriate to consider
30338 Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices

the selling functions of the respondent

in determining whether separate LOTs

exist, La Molisana argues that by

examining the selling activities of

respondents, the Department is ‘‘in a

sense double-counting’’ because the

selling functions have already been

accounted for in the margin

calculations. For example, La Molisana

claims that in its margin calculations,

the Department deducts freight

expenses from both the export price and

home market price in order to make an

‘‘apples to apples’’ comparison of the

prices. Accordingly, La Molisana asserts

that it is unnecessary to account for

potential price differences in freight

expenses by treating sales sold on an exfactory basis to be a different LOT than

sales made on a delivered basis.

Therefore, La Molisana asserts that only

those selling activities that are not

otherwise accounted for in the margin

calculation should be considered in

determining the LOT.

Regarding whether the Department

should examine all selling activities

undertaken or should focus only on

those activities that are not already

accounted for in the dumping

calculation, the petitioners note that the

SAA cautions the Department against

making adjustments for the same

activities twice, once as a circumstance

of sale adjustment and once as a LOT

adjustment. SAA at 830. Therefore, the

petitioners assert that it might be

appropriate to consider selling functions

only to the extent that such functions

were not already accounted for as a COS

adjustment. Because all of La Molisana’s

U.S. sales are EP sales, the petitioners

claim that indirect selling expenses are

not deducted from either the U.S. or

home market prices. Therefore, only

indirect selling expenses (and their

related selling activities) might serve as

the basis for distinguishing LOTs.

Whichever approach the Department

adopts (either examining all selling

functions or only those not otherwise

accounted for in the margin

calculations), the petitioners argue that

the Department must begin with the

same starting point for the sales prices

compared. For example, the petitioners

assert that if the Department adjusts CEP

sales to exclude U.S. selling functions,

the Department should similarly adjust

EP and normal value sales for all

statutory adjustments before examining

LOT.

Finally, the petitioners argue that the

Department should not attempt to

define LOTs based on the following

factors because they do not relate to

differences in selling activities:

(1) Quantities/Volumes Sold: The

petitioners assert that the SAA states

that differences based on quantities sold

are not a legitimate basis for defining

LOTs or LOT adjustments. SAA at 830.

(2) Geographical Location of the

Customer: The petitioners claim that the

fact that two customers may be located

in physically distinct geographical areas

does not, in and of itself, demonstrate

that different LOTs exist.

(3) Which Selling Entity Performs the

Functions: The petitioners assert that

whether a selling function is performed

by an unaffiliated sales agent, an

affiliated sales agent or the

manufacturer, the same function is

provided and the costs to the seller are

the same. Therefore, the petitioners

argue that the Department should not

differentiate LOT based on which entity

performs the selling function. La

Molisana asserts the LOT can only be

defined with respect to the first arm’s

length transaction. Therefore, La

Molisana argues that selling activities

performed by an unaffiliated agent

should not be considered in the

Department’s analysis.

(4) Commissions: The petitioners

argue that commissions are merely

payments to an agent to perform the

same function that would otherwise be

incurred by the manufacturer directly.

Accordingly, the petitioners argue that

commissions are an invalid basis to

distinguish LOT.

(5) Whether the Services Were

‘‘Intentionally’’ Provided: Arrighi argues

that the Department should differentiate

between selling functions that were

provided based on whether Arrighi

intentionally marketed the service to the

customer or not (see Comment 1E,

below). The petitioners assert that

nothing in the statute authorizes the

Department to distinguish between

selling functions based on the intent of

the seller. Therefore, the petitioners

argue that Arrighi’s attempt to include

the factor of ‘‘intent’’ into the LOT

analysis should be rejected.

(6) Discounts and Rebates: The

petitioners and La Molisana argue that

discounts and rebates are pricing

mechanisms, not selling functions or

activities, and that the presence of a

discount or rebate has no bearing on the

point in the chain of distribution at

which the transaction occurs. In

addition the petitioners and La

Molisana contend that the dumping

calculations recognize that discounts

and rebates are a function of price by

deducting them as ‘‘price adjustments’’

rather than ‘‘circumstance of sale (COS)

adjustments.’’ Proposed Regulations at

7381. For all of these reasons, the

petitioners and La Molisana argue that

discounts and rebates should not be

included as a selling function

distinction for LOT purposes.

(7) Distinctions Between Customers

Based on Price: The petitioners assert

that the statute does not suggest that

LOT distinctions can be based on price

differentials. (For a further discussion

and arguments on a related issue -

whether to consider price distinctions

in defining customer categories, see

Comment 2D, below.)

DOC Position: We agree with the

petitioners and De Matteis that the

Department’s level of trade analysis

should consider the full array of selling

functions in the aggregate, and ensure

that the selling function was

consistently applied to at least the vast

majority of customers and sales in each

level of trade. As stated in the ‘‘Level of

Trade’’ section of this notice, above, no

single selling function in this industry

warranted a separate level of trade and,

wherever possible, we examined

whether the selling function was

performed on a substantial portion of

sales within the customer groups

reported by the respondents. A

company specific description of the

selling functions assigned to the level(s)

of trade for each respondent is provided

in Comment 1E, below. Three of the

respondents, Pagani, Delverde and De

Matteis, were found to have more than

one (but no more than two) levels of

trade in either their U.S. or home

market; in each of these instances there

were at least two selling function

differences between the levels of trade.

In determining whether a selling

function was applicable to a substantial

portion of customers in the reported

customer group, we relied on the

respondent’s narrative responses and

sales transaction data, as well as

information obtained during

verification.

We disagree with La Molisana and, in

part, with the petitioners regarding the

starting point for considering selling

functions in determining the level of

trade. The process of establishing

whether separate levels of trade exist is

distinct from both the margin

calculation and the level of trade

adjustment. We reject any attempt to

alter the statutory criteria for levels of

trade, even if such alteration might

arguably eliminate a redundant step.

Section 773(a)(1)(B)(i) of the statute

states that normal value will be based

on ‘‘the price at which the foreign like

product is first sold * * * and to the

extent practicable, at the same level of

trade as the export price or constructed

export price.’’ The SAA specifies that

normal value will be calculated ‘‘at the

same level of trade as the constructed

export price or the starting price for
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices 30339

export sales.’’ SAA at 827. Therefore, in

identifying levels of trade for export

price and normal value sales, we

considered the selling functions

reflected in the starting price, before any

adjustment, for the customer group

reported by the respondent. Section

772(d) of the Act provides that

constructed export price will be based

on the price after the deduction of

expenses and profit. Thus, for CEP sales,

we considered the selling functions

reflected in the price after the deduction

of expenses and profit under Section

772(d) of the Act.

We agree, in part, with the petitioners

regarding the types of selling functions

that should or should not be considered

in defining levels of trade. The selling

functions to be considered in

establishing whether separate levels of

trade exist were based on the nature of

the pasta industry. The five selling

functions used by the Department to

establish the levels of trade in this

investigation are reflective of the

functions and activities incurred in the

sale of pasta to the U.S. and in the home

market. These functions have been

identified in the ‘‘Level of Trade’’

section of this notice, above. However,

we disagree with the petitioners that

technical services or post-sale

warehousing should be included in the

selling function analysis; these activities

did not occur in the pasta industry.

Regarding the other selling functions,

we were generally in agreement with the

petitioners’ recommendations regarding

which selling functions to include in

determining levels of trade. Regarding

La Molisana’s claim that we should start

our level of trade analysis with the first

arm’s length transaction, as noted in the

‘‘Level of Trade’’ section of this notice,

above, we collapsed affiliated parties

before considering the level of trade.

Comment 1E Company-Specific

Analysis of Selling Functions: The

petitioners argue that a review of the

selling functions undertaken by each of

the respondents to the U.S. and home

market customers, based on the

collective approach to analyzing selling

functions utilized in French Rod, shows

that there are few, if any, functional

differences between the U.S. and home

market sales of pasta. Therefore,

petitioners claim that the Department

should determine that different LOTs do

not exist for any of the respondents

within the U.S. or Italian markets or

between the U.S. and Italian markets.

Certain respondents challenge the

petitioners’ assumptions regarding the

selling functions performed. The

petitioners’ analysis and the

respondents’ rebuttal comments are

summarized below. Insofar as the

Department has conducted its own

selling function analysis to determine

whether separate LOTs exist, many of

the arguments presented by the

petitioners and the respondents are now

moot and, therefore, have not been

specifically addressed. Therefore, the

Departmental Position for each

respondent reflects the results of the

Department’s selling function analysis.

The selling function analysis utilized by

the Department is described in the

‘‘Level of Trade’’ section of this notice,

above.

(1) Liguori

The petitioners claim that there are no

differences in selling functions accorded

to its home market customers by

Liguori. Therefore, the petitioners assert

that a single LOT exists in the home

market. In the U.S. market, the

petitioners claim that Liguori’s record

establishes no functional distinctions

between the services offered on

Liguori’s U.S. sales. Thus, the

petitioners claim that a single LOT

exists for all U.S. sales. Regarding the

U.S. to home market comparison, the

petitioners contend that the only

functional differences between the U.S.

and home market sales are the presence

of freight and delivery and warranty

services on home market sales that are

not present on U.S. sales. The

petitioners assert that these differences

are not sufficient to distinguish LOTs

and that the Department should

consider all U.S. and home market sales

to be at the same LOT. If the Department

determines that the home market sales

are at a more advanced LOT, the

petitioners argue that no LOT

adjustment should be applied because

Liguori has not claimed or demonstrated

entitlement to such an adjustment. (For

a further discussion of LOT

adjustments, see Comment 1F, below.)

Liguori agrees with the petitioners.

Specifically, Liguori states that the

company has neither claimed a level of

trade adjustment to normal value nor

has it requested that its U.S. prices and

normal value be compared within levels

of trade. Thus, Liguori asserts that the

level of trade methodology employed in

the preliminary determination achieved

a result consistent with Liguori’s own

position (i.e., no level of trade

adjustment was granted).

DOC Position: We agree with the

petitioners and Liguori, in part. Based

on our own analysis of the selling

functions performed by Liguori, as

described in the ‘‘Level of Trade’’

section of this notice, above, we found

that all U.S. and home market sales

were made at a single LOT. However,

we determined that the U.S. LOT was

different from the home market LOT.

Liguori reported two customer groups

in the U.S. market. We found that

Liguori performed similar selling

functions for these customer groups in

the areas of inventory maintenance,

forward warehousing, freight,

advertising, and warranties. However,

we found different sales processes for

these customer groups. Overall, we

determined that the selling functions

between these two customer groups are

sufficiently similar to consider them as

one level of trade. For the home market,

Liguori reported six customer groups.

We found these customer groups to be

similar in that Liguori performed the

following selling functions for certain

customer groups: sales process,

inventory maintenance, forward

warehousing, freight, advertising and

warranties. We found these customer

groups to be different in how Liguori

performed the following selling

functions for certain customer groups in

the areas of sales processing, forward

warehousing, and advertising. Overall,

we determined the selling functions

between these six customer groups to be

sufficiently similar to consider them one

level of trade.

We then compared the level of trade

in the U.S. market to the home market

level of trade and found the selling

functions performed for certain

customer groups in the areas of sales

processing, forward warehousing, and

advertising to be similar. We found the

selling functions performed for certain

customer groups in the areas of sales

process, inventory maintenance,

forward warehousing, freight,

advertising, and warranties to be

dissimilar. Overall, these factors warrant

finding the U.S. and home market sales

to be made at different levels of trade.

(2) La Molisana

The petitioners argue that its review

of the array of selling functions offered

to La Molisana’s home market

customers reveals no significant

distinctions in the selling functions

which would justify a finding of

different LOTs in the home market. The

petitioners contend that the selling

functions La Molisana relied upon to

differentiate its home market LOTs are

invalid. Specifically, the petitioners

contend the following: (1) any price

distinctions between distributors and

non-distributors are a result of

differences in the quantities purchased

and geographic location of the customer,

both invalid bases for differentiating

LOTs; (2) no matter whether La

Molisana incurs administrative services

directly or pays others to incur these
30340 Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices

expenses, the question of which entity

performs the function is not a valid

basis to distinguish LOTs; and (3) the

degree or extent to which inventory

maintenance and advertising functions

were performed is irrelevant.

Since all of La Molisana’s U.S. sales

are made to a distributor, the petitioners

assert that a single LOT exists in the

U.S. market. Regarding the U.S. to home

market comparison, the petitioners

argue that with the exception of

inventory maintenance, the selling

functions offered to its U.S. and home

market customers are the same and that

all U.S. and home market sales should

be considered to be at the same LOT in

the final determination.

La Molisana argues that in the event

the Department determines it is

appropriate to examine the selling

functions in determining whether

separate LOTs exist, the petitioners have

failed to support their assertion that the

home market distributor LOT is not

distinguished from the rest of its home

market sales. La Molisana recognizes

that price differences are not a basis for

determining distinctions in LOTs.

However, La Molisana argues that the

mere existence of separate price lists is

important evidence of the significance

of the different customer categories in

commercial practice in the home

market. In addition, La Molisana

contends that the distributor price list

applies to all sales to distributors,

regardless of the volume sold. Further,

La Molisana argues that while there is

inevitably some ‘‘inventory’’ on all

sales, since it takes time to pack and

load the merchandise, this type of

inventory is very different from

maintaining stocks of inventory for just

in time (JIT) delivery, a function not

performed on its distributor sales. In

addition, La Molisana asserts that it

does not incur advertising expenses for

advertisements directed at its

customer’s customer for sales made to

wholesalers and distributors. Instead, La

Molisana asserts that this advertising is

directed at its customer’s customer’s

customer. Therefore, La Molisana argues

that its home market distributor sales

should be found to be a different LOT

than its other home market sales and

that all of its U.S. distributor sales

should be compared to the home market

distributor sales in the final

determination.

DOC Position: We agree with the

petitioners and La Molisana, in part.

Based on our own analysis of the selling

functions performed by La Molisana, as

described in the ‘‘Level of Trade’’

section of this notice, above, we found

that a single LOT exists in each market

and that all U.S. and home market sales

were made at the same LOT.

La Molisana reported one customer

group in the U.S. We found one level of

trade for the U.S. market because La

Molisana performed the same selling

functions to all customers in that single

category. For the home market, La

Molisana reported six customer groups.

We found that La Molisana performed

similar selling functions to certain

customer groups with regard to: sales

process, inventory maintenance,

forward warehousing, freight,

advertising and warranties. We found

that La Molisana performed different

selling functions for certain customer

groups with regard to forward

warehousing. Overall, we determined

the selling functions performed by La

Molisana for each of the six home

market customer groups to be

sufficiently similar to consider them as

one level of trade.

We then compared the level of trade

in the U.S. market to the home market

level of trade and found the selling

functions performed by La Molisana for

certain customer groups for inventory

maintenance and forward warehousing

to be dissimilar between the markets.

However, we found the selling functions

performed by La Molisana for certain

customer groups in the area of sales

process, forward warehousing, freight,

advertising, and warranties to be

similar. Overall, these factors warrant

finding U.S. and home market sales as

the same level of trade.

(3) Arrighi

In its original questionnaire

responses, Arrighi requested that LOT

distinctions in the home market be

made based on customer groups, and

submitted data that would allow the

Department to segregate home market

data by either channel of distribution or

customer group to determine whether

different LOTs exist. The petitioners

contend that a review of the actual

selling functions associated with home

market and U.S. sales demonstrates that

selling functions do not vary based on

either customer group or channel of

distribution. In addition, with respect to

customer category, the petitioners

contend that Arrighi has not

differentiated its customer groups based

on commercial points in the chain of

distribution and selling functions, but

rather has made LOT distinctions based

on factors such as the volume of the

sales involved. With respect to channel

of distribution, petitioners cite Arrighi’s

own statement that ‘‘the functions

performed and services offered by

Arrighi in each distribution channel do

not vary’’ (see, Arrighi’s August 16,

1995, questionnaire response, at A–8) in

support of their claim that all of

Arrighi’s sales to both markets occur at

the same level of trade.

Regarding the U.S. to home market

comparison, the petitioners contend that

since all of Arrighi’s U.S. sales are to a

single class of customer and all home

market sales are made at a single level

of trade based on the absence of distinct

selling functions, all U.S. sales should

be compared to all home market sales,

without regard to LOT distinctions.

Arrighi contends that since the

petitioners’ arguments are based on a

flawed LOT analysis, their comments

concerning Arrighi’s and Italpasta’s

levels of trade are likewise meritless and

factually incorrect. Contrary to the

petitioners’ arguments, Arrighi claims

that its LOTs are based upon differing

selling functions and services, not sales

quantities or geographic location.

Specifically, Arrighi claims that the

customers at one of its LOTs require a

disproportionate amount of sales and

administrative support relative to

customers at the other LOTs.

Concerning the petitioners’ claim that

Arrighi’s LOTs are based on geography,

Arrighi argues that while geographic

location is the reason some of the selling

functions for certain customers are

provided, it is the difference in selling

functions, and not geographic location,

which distinguishes these customers as

being at a distinct LOT. With respect to

the specific selling functions, Arrighi

claims that its provision of freight and

inventory maintenance to a certain class

of customers constitute selling

functions.

DOC Position: We agree with the

petitioners and Arrighi, in part. Based

on our own analysis of the selling

functions performed by Arrighi, as

described in the ‘‘Level of Trade’’

section of this notice, above, we found

that a single LOT exists in each market

and that all U.S. and home market sales

were made at the same LOT.

Arrighi reported one customer class in

the U.S., that was comprised of three

customer groups. However, as noted in

the ‘‘Comparison Methodology’’ section

of this notice, above, Arrighi provided

insufficient information in the sales

database for the Department to perform

an analysis of the selling functions

performed for each of the three

customer groups. Therefore, we found

one level of trade for the U.S. market.

For the home market, Arrighi reported

three customer groups. As noted in the

‘‘Normal Value’’ section of this notice,

above, we have excluded sales to one

customer group because we determined

that the quantity of these sales was

insignificant and there were no sales
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices 30341

made by Arrighi to a comparable

customer in the U.S. (for further

discussion, see, the Department’s June

3, 1996, final determination calculation

memorandum for Arrighi). We found

the remaining two customer groups

similar in that Arrighi performed the

same selling functions for each group.

Overall, we determined the selling

functions performed for these two home

market customer groups are sufficiently

similar to consider the sales made to

them to be at one LOT.

We then compared the LOT in the

U.S. market to the home market LOT

and found them to be only dissimilar in

Arrighi’s performance of the freight

selling function. We found the selling

functions performed, including sales

process, inventory maintenance,

forward warehousing, advertising and

warranties, to be similar. Overall, these

factors warrant finding the U.S. sales

and home market sales to be at the same

level of trade.

(4) De Matteis

The petitioners contend that although

De Matteis identifies a number of

customer categories, it does not

correlate these customer classes to its

reported LOTs. Therefore the petitioners

have based their LOT analysis on De

Matteis’ reported channels of

distribution. The petitioners argue that

their review of the selling functions

offered to De Matteis’ home market

channels of distribution reveals that the

only functional difference between the

selling functions offered on De Matteis’

home market sales is the presence of

freight and delivery services on sales of

De Matteis’ own brand name pasta

which are not present on sales made to

resellers. Citing the Proposed

Regulations, the petitioners assert that

this difference is not sufficient to

distinguish LOTs and that the

Department should consider all of De

Matteis’ home market sales to be at one

LOT (small differences in the functions

of the seller will not alter the level of

trade). Proposed Regulations at 7348.

Regarding De Matteis’ assertion that

there are significant differences in LOT

based on whether the company markets

its own brand name pasta or sells it to

a reseller, the petitioners argue that

because the pasta sold to resellers is

produced to order, De Matteis takes an

active role. Therefore, the petitioners

assert that customer contacts are present

on both types of sales and cannot be a

basis for differentiating LOTs.

Since De Matteis reports that all of its

U.S. sales are at a single LOT, the

petitioners assert that U.S. and home

market sales should be compared

without regard to LOT distinctions. If

the Department determines that

differences exist between the U.S. and

home market LOTs, the petitioners

argue that no LOT adjustment should be

applied because De Matteis has not

claimed or demonstrated entitlement to

such an adjustment. (For a further

discussion of LOT adjustments, see

Comment 1F, below.)

De Matteis argues that the petitioners

erroneously state that the company has

not correlated its home market or U.S.

customer categories to its reported

LOTs. De Matteis asserts that it has

consistently stated in its submissions

that it sells to the following channels of

distribution/customer groups in the U.S.

and home markets: (1) sales to

companies that resell the pasta under

their own name (i.e., pastificios and the

U.S. trading company); and (2) sales of

its own brands of pasta to distributors

and retailers. De Matteis asserts that

these two channels of distribution/

customer groups should be considered

to be separate LOTs because its sales to

retailers and distributors are one step

further in terms of remoteness from the

factory than its sales to pastificios and

the U.S. trading company.

In addition, De Matteis asserts that a

collective examination of the selling

functions performed for each channel of

distribution show distinct LOTs in the

home market. Contrary to the

petitioners’ arguments, De Matteis

argues that although it must take an

active role in its sales to pastificios, the

degree to which it engages in overall

selling functions differs significantly

between the two channels of

distribution/customer groups. For

example, De Matteis asserts that it

performs no significant functions or

services for pastificio customers while it

is responsible for warehousing and

inventory control, advertising and

promotional activities, brand name

development, distribution, and the

development of packaging materials for

its sales to retailers and distributors. In

addition, De Matteis asserts that its sales

to pastificios are large orders which

generally require less sales and

administrative resources. Further, De

Matteis contends that the extent to

which the company engages in customer

contacts and the development of

packaging varies significantly between

the two channels/customer groups.

Finally, regarding inventory

maintenance services, De Matteis argues

that the Department should distinguish

between merchandise placed in the

warehouse for production scheduling

which is not intentionally marketed as

a service to the customer and

merchandise held in inventory for JIT

delivery. De Matteis asserts that it

intentionally markets an ‘‘inventory’’

service on merchandise sold from stock

for JIT delivery and that its

administrative expenses and risk

exposure are greater on these sales than

on sales produced to order. De Matteis

asserts that these costs are reflected in

the higher prices charged to the

customer.

DOC Position: We agree with the

petitioners and De Matteis, in part.

Based on our own analysis of the selling

functions performed by De Matteis, as

described in the ‘‘Level of Trade’’

section of this notice, above, we found

that a single LOT exists in the U.S.

market and that the home market sales

were made at two different LOTs.

De Matteis reported one customer

group in the U.S. that was comprised of

a single class of customer. Therefore, we

found one level of trade for the U.S.

market. For the home market, De

Matteis reported three customer groups

described as distributors, retailers and

pasta manufacturers. We found the

distributor and retailer customer groups

similar with regard to the selling

functions performed by De Matteis for

sales process, inventory maintenance,

forward warehousing, advertising and

warranties. We found these two groups

to differ in De Matteis’ performance of

the selling function for freight. Overall,

we determined the selling functions

between these two customer groups are

sufficiently similar to consider them as

one level of trade (LOT 2). We found

customer group ‘‘pasta manufacturer’’

similar to the other two groups (LOT 2)

with regard to the selling functions

performed for certain customer groups

in the areas of warranty service and

freight, and different in selling function

regarding sales process, inventory

maintenance, forward warehouse,

freight, and advertising. Overall, we

determined the selling functions

between this customer group and the

other two customer groups sufficiently

dissimilar to consider these customer

groups a separate level of trade (LOT 1).

We then compared the level of trade

in the U.S. market to the two home

market levels of trade and found that all

selling functions performed for LOT 1

customers in the home and U.S. markets

were the same. We found the level of

trade in the U.S. market dissimilar to

LOT2 with regard to the selling

functions for certain customer groups in

the areas of sales process, inventory

maintenance, forward warehousing,

freight, and advertising. Therefore, we

are treating U.S. sales and home market

sales in LOT 1 as being sold at the same

level of trade.
30342 Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices

(5) Pagani

The petitioners argue that their review

of the array of selling functions offered

to Pagani’s home market customers

reveals no significant distinctions in the

selling functions which would justify a

finding of different LOTs in the home

market. The petitioners contend that the

selling functions Pagani relied upon to

differentiate its home market LOTs are

invalid in that: (1) quantity differences

or differences in the sales resources

allocated to various customer classes do

not meet the statutory standard for

differentiating LOTs; (2) no matter

whether Pagani takes the order and

handles payment directly or an affiliate

undertakes these functions, the question

of which entity performs the function is

not a valid basis to distinguish LOTs;

and (3) the fact that different prices are

offered to various customer categories

does not show that different selling

functions exist.

Since Pagani reports that all of its U.S.

sales are at a single LOT, the petitioners

assert that all U.S. and home market

sales should be compared without

regard to LOT distinctions.

Pagani did not comment on the

petitioners’ LOT analysis.

DOC Position: We agree with the

petitioners, in part. Based on our own

analysis of the selling functions

performed by Pagani, as described in the

‘‘Level of Trade’’ section of this notice,

above, we found that a single LOT exists

in the U.S. market and that home market

sales were made at two different LOTs.

Pagani reported one customer group

in the U.S. that was comprised of a

single customer. Therefore, we found

one level of trade for the U.S. market.

For the home market, Pagani reported

seven customer groups. We found that

six of the seven customer groups had

similar selling functions performed by

Pagani with regard to: sales process,

inventory maintenance, forward

warehousing (for certain customer

groups), freight, advertising and

warranties. We found certain customer

groups to differ in selling functions

performed for forward warehousing.

Overall, we determined the selling

functions between these six customer

groups are sufficiently similar to

consider them as one level of trade (LOT

2). We found the remaining customer

group ‘‘pasta manufacturer’’ similar to

other customer groups in selling

functions performed by Pagani with

regard to sales process, forward

warehousing, advertising, and

warranties, and different from other

customer groups in the areas of

inventory maintenance, forward

warehousing, freight and advertising.

Overall, we determined the selling

functions performed for this customer

group compared to the other six

customer groups sufficiently dissimilar

to constitute a separate level of trade

(LOT 1).

We then compared the level of trade

in the U.S. market to the home market

levels of trade and found the selling

functions performed by Pagani in the

U.S. to be identical to all selling

functions performed on LOT 1 sales in

the home market. We found the level of

trade in the U.S. market dissimilar to

LOT 2 with regard to certain customer

groups in the areas of inventory

maintenance, forward warehousing,

freight, and advertising. Therefore, we

considered U.S. sales and home market

sales in LOT 1 to be made at the same

level of trade.

(6) Delverde

The petitioners assert that Delverde

failed to submit information necessary

to determine whether different selling

functions correspond to different levels

of trade. Specifically the petitioners

contend that Delverde failed to release

under APO the customer names relating

to certain customer codes. As a result,

the petitioners claim they are unable to

distinguish between the selling

functions performed on EP and CEP

sales, respectively. Therefore, the

petitioners argue that the Department

should find that all U.S. and home

market sales are at the same LOT. In the

event the Department determines it is

appropriate to analyze Delverde’s sales

to determine whether separate LOTs

exist, the petitioners argue that the

Department should begin its analysis

with an unadjusted CEP. (For a further

discussion of this issue, see the

‘‘Company Specific Comments—

Delverde’’ section of this notice, below).

Delverde argues that the petitioners

mischaracterize the record as to the

information submitted by the company.

Delverde asserts that the CEP and EP

sales are not intermixed in the database

and were clearly identified as either

‘‘CEP’’ or ‘‘EP’’ sales in the sales listing

as were the customer codes and

categories. Finally, Delverde contends

that it is under no obligation to provide

customer names to the petitioners.

DOC Position: We agree with the

petitioners and Delverde, in part. Based

on our own analysis of the selling

functions performed by Delverde, as

described in the ‘‘Level of Trade’’

section of this notice, above, we found

that single LOTs exist in each market

and that all U.S. and home market sales

were made at the same LOT.

Delverde reported four customer

groups in the U.S. market. We found

that certain customer groups were

similar based on the following selling

functions performed by Delverde in the

areas of sales process, inventory

maintenance, forward warehousing,

freight, advertising, and warranties. We

found certain customer groups to differ

in sales process and advertising.

Overall, we determined the selling

functions performed by Delverde for

these four customer groups are

sufficiently similar to consider them as

one level of trade. For the home market,

Delverde also reported four customer

groups. We found certain customer

groups similar in the following selling

functions: sales process, inventory

maintenance, forward warehousing,

freight, advertising, and warranties. We

found that certain customer groups

differed in the selling function for

forward warehousing. Overall, we

determined the selling functions

performed by Delverde for these four

customer groups as sufficiently similar

to consider them as one level of trade.

We then compared the level of trade

in the U.S. market to the home market

level of trade and found the selling

functions performed by Delverde in

each market to differ for certain

customer groups with regard to sales

process and advertising. We found the

following selling functions performed

by Delverde for certain customer groups

to be similar: sales process, inventory

maintenance, forward warehousing,

freight, advertising, and warranties.

Overall, these similarities warrant

finding the U.S. sales and home market

sales to be made at the same level of

trade.

Comment 1F LOT Adjustments: To

the extent the Department finds LOT

distinctions between U.S. and home

market sales, the petitioners argue that

there is no justification for a LOT

adjustment for any of the respondents in

this investigation. Specifically, the

petitioners assert that Section

773(a)(7)(A) of the Act states that LOT

adjustments are permissible only to the

extent that it has been demonstrated

that the difference between EP or CEP

and normal value reflects differences in

LOTs involving the performance of

different selling functions and ‘‘a

pattern of consistent price differences

between sales’’ at the different LOTs in

the home market. In addition, the

petitioners assert that the SAA states

that ‘‘if a respondent claims an

adjustment to decrease normal value, as

with all adjustments which benefit a

responding firm, the respondent must

demonstrate the appropriateness of such

adjustment.’’ SAA at 829. Therefore, the

petitioners argue that by law, the

respondents bear the burden of
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices 30343

demonstrating entitlement to a LOT

adjustment and that none of the

respondents in this investigation have

met this burden.

The petitioners assert that Arrighi, De

Cecco, Liguori, Delverde, and De

Matteis have not claimed a LOT

adjustment. Absent even a claim for the

LOT adjustment, let alone any evidence

demonstrating entitlement, the

petitioners argue that no LOT

adjustment should be granted.

Although La Molisana and Pagani

have each made claims for a LOT

adjustment, the petitioners argue that

neither respondent has demonstrated

entitlement to the adjustment. The

petitioners argue that La Molisana has

admitted that a number of the selling

function differences between the LOTs

identified reflect factors already

accounted for in the margin

calculations. Therefore, the petitioners

assert that if it is ‘‘double counting’’ to

consider these functions in defining

LOTs as La Molisana asserts (see

Comment 1B, above), it is also ‘‘double

counting’’ to calculate LOT adjustments

reflecting these differences. In addition,

the petitioners argue that because La

Molisana has based its LOT adjustment

on differences between the net prices for

each control number by customer

category, La Molisana has not

demonstrated price distinctions based

on LOTs that exist under the new law

(i.e., the petitioners assert that LOTs are

based both on the point in the chain of

distribution and the selling functions of

the respondent).

The petitioners argue that Pagani has

not tied its proposed LOTs to different

selling functions because the company

improperly relies on quantity

differences and rebates in support of its

claim for a LOT adjustment. In addition,

the petitioners argue that Pagani’s

claimed price adjustment fails to

establish a pattern of price differences.

Concerning the petitioner’s argument

that it is double counting to calculate

LOT adjustments based on selling

function differences which were

accounted for in the margin

calculations, La Molisana argues that

certain functions (e.g., indirect selling

expenses and inventory maintenance)

have not been fully accounted for in the

Department’s calculations. In addition

La Molisana asserts that the statute

states that the Department must base

LOT adjustments on price differences.

Finally, if the Department compares

U.S. distributor sales to home market

sales at other LOTs, La Molisana asserts

that it has provided all the necessary

information to calculate a LOT

adjustment in accordance with the

criteria set forth in the statute.

Liguori contends that the

Department’s preliminary determination

incorrectly stated that Liguori claimed a

LOT adjustment for comparisons

between different LOTs (Preliminary

Determination, 61 FR 1344, 1347

(January 19, 1996)). Liguori asserts that

it has not claimed any LOT adjustment.

DOC Position: We agree with the

petitioners, in part. As described in the

‘‘Level of Trade’’ section of this notice,

above, Pagani was the only company for

whom the Department made a level of

trade adjustment. As noted, we found

no basis for making a level of trade

adjustment for any of the other

respondents in this investigation. The

level of trade adjustment for Pagani was

not based on the adjustment claimed by

Pagani but rather on the Department’s

independent analysis of the home

market levels of trade and patterns of

price differences. In light of the fact that

we did not base this LOT adjustment on

Pagani’s claimed LOT adjustment, we

regard the petitioners argument

concerning the burden on respondent to

demonstrate entitlement to a LOT

adjustment to be moot.

In addition, we agree with Liguori

that the preliminary determination

incorrectly stated that Liguori claimed a

LOT adjustment. Liguori has not

claimed a LOT adjustment.

Comment 2 Price Averaging:

Comment 2A Whether to Take Customer

Category into Account in Creating the

Weighted-Average Groups used for

Product Comparisons: La Molisana,

Arrighi and De Matteis argue that, in

performing its product comparisons, the

Department should compare products

based on averaging groups that reflect

customer categories. La Molisana,

Arrighi and De Matteis claim that both

the SAA and the Department’s Proposed

Regulations recognize that customer

class is a factor the Department may

consider in composing its averaging

groups. (‘‘In determining the

comparability of sales for inclusion in a

particular average, Commerce will

consider factors it deems appropriate,

such as * * * the class of customer

involved..’’). SAA at 842. See also,

Proposed Regulations at 7348

(Nevertheless, the Department does

recognize that prices within a single

LOT, defined by seller function, can be

affected by the class of customer, and

the Department will make every effort to

compare sales at the same LOT to the

same class of customer).

In addition, La Molisana, Arrighi and

De Matteis assert that record evidence

demonstrates that each company

consistently offers significantly different

prices to its various customer categories.

Therefore, La Molisana asserts that in

accordance with the Department’s

Proposed Regulations, there is a clear

and consistent dividing line between La

Molisana’s sales to different customer

categories, ([in identifying averaging

groups based on customer category] ‘‘the

Department’s general approach ‘‘[will be

to look for clear dividing lines among

sales] * * *’’). Proposed Regulations at

7349. Finally, La Molisana, Arrighi and

De Matteis assert that comparing

products based on averaging groups that

reflect customer categories would be

consistent with a recent final

determination where the Department

found no separate LOTs, but compared

averaging groups by customer category.

Notice of Final Determination of Sales

at Less Than Fair Value: Polyvinyl

Alcohol from Taiwan, 61 FR 14,064,

14069 (March 29, 1996) (Polyvinyl

Alcohol) (* * * in composing an

averaging group, customer classification

is a factor the Department may take into

account * * *. Therefore, we have

made comparisons of average prices

within the same customer class

wherever possible). In addition, Arrighi

and De Matteis cite Fresh Kiwifruit from

New Zealand: Preliminary Results of

Antidumping Duty Administrative

Review, 61 FR 15922, 15924 (April 10,

1996) (Kiwifruit) (finding that all sales

were made at one LOT, but comparing

averaging groups by channel of

distribution) and French Rod (finding

two levels of trade, but comparing

averaging groups by channel of

distribution within each LOT). La

Molisana argues that, for the above

reasons, the Department should

compare its U.S. distributor sales to its

home market distributor sales.

The petitioners argue that neither the

law nor the facts of this investigation

support making product comparisons

based on customer classes unless it is

demonstrated that the difference

between customer classes reflect a

difference in the LOT. Citing Section

773(a)(1)(B) of the Act, the petitioners

contend that normal value is defined

based on price comparisons reflecting

the same physical characteristics and,

where possible, the same LOT, as the

export or constructed export price.

Therefore, the petitioners assert that

absent a finding of different LOTs

among the various customer categories,

the Department cannot make product

comparisons based on customer

categories or channels of distribution.

Although the petitioners recognize

that the SAA refers to ‘‘the class of

customer involved’’ as a factor that the

Department may consider in creating

averaging groups, the petitioners

contend that the Department’s Proposed

Regulations emphasize that the use of
30344 Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices

averaging groups was intended to apply

only to U.S. prices, and was not meant

to affect the calculation of normal value.

(‘‘In applying the average-to-average

method, the Secretary will identify

those sales * * * to the United States

that are comparable, and will include

such sales in an ‘‘averaging group.’’ ‘‘An

averaging group will consist of subject

merchandise * * * that is sold to the

United States at the same level of trade.

In identifying sales to be included in an

averaging group, the Secretary also will

take into account, where appropriate,

the region of the United States in which

the merchandise is sold * * *’’).

Proposed Regulations at 7386 (section

351.414(d)). (Emphasis added).

The petitioners contend that normal

value is still defined in the law based on

price comparisons reflecting the same

product characteristics and, where

possible, the same LOT. Therefore, the

petitioners argue that the Department

does not have the authority under the

new statute to subdivide home market

sales into separate groups based on

customer classes unless it is first

demonstrated that the difference

between customer classes reflects a

difference in LOT. The petitioners claim

that to do otherwise would effectively

be using the product averaging concept

to re-define normal value.

Finally, the petitioners argue that the

Department’s recent practice of

considering either the class of customer

or the channel of distribution as a factor

in the averaging group without first

finding distinct LOTs is unlawful and

inconsistent. Specifically, the

petitioners assert that in Polyvinyl

Alcohol the Department created product

averaging groups based on customer

categories stating that it found

‘‘significantly different prices,

depending on the customer category.’’

61 FR at 14070. The petitioners contend

that in French Rod and Kiwifruit the

Department relied on channels of

distribution, rather than customer

categories, in determining the averaging

groups and further identified no pricing

distinctions between the channels

examined. In all three cases the

petitioners assert that the Department

made no statutory citations and

provided little or no explanation for its

actions.

DOC Position: We agree with La

Molisana, Arrighi and De Matteis that

customer category is a factor the

Department may consider in composing

its averaging groups. Section

777A(d)(1)(A)(i) of the Act states that

the Department will determine whether

the merchandise is being sold in the

United States at less than fair value ‘‘by

comparing the weighted average of the

normal values to the weighted average

of the export prices (and/or constructed

export prices) for comparable

merchandise.’’ In addition, the SAA

specifies that in order to ensure that the

weighted-averages are meaningful,

‘‘Commerce will calculate averages for

comparable sales of subject

merchandise’’ sold in both the U.S. and

foreign markets. ‘‘In determining the

comparability of sales for inclusion

within a particular average, Commerce

will consider factors it deems

appropriate, such as * * * the class of

customer involved.’’ SAA at 842. See

also, Proposed Regulations at 7349.

Although we agree with the

petitioners that the Proposed

Regulations refer to the term ‘‘averaging

groups’’ only in the context of U.S.

sales, we do not agree with the

petitioners’ assertion that the use of

averaging groups was intended to apply

only to U.S. prices, and was not meant

to affect the calculation of normal value.

As noted above, the statute directs the

Department to compare weighted

average normal values to weightedaverage export prices/constructed

export prices. In addition, the SAA

states that for inclusion within a

particular average, the Department will

consider factors it deems appropriate.

Therefore, in order to ensure a fair

comparison, customer category is a

factor that may be used in both the

calculation of export price and/or

constructed export price and normal

value.

As noted in the ‘‘Comparison

Methodology’’ section of this notice,

above, and Comment 2B, below, it is the

responsibility of the Department, not

respondents, to determine which

customers may be grouped together for

product comparison purposes.

Accordingly, consistent with the SAA

and our practice in Polyvinyl Alcohol,

we have relied on the revised customer

categories in calculating the weightedaverage values used for sales

comparisons in instances where: (a) we

found that distinct customer categories

existed, and (b) we determined that

there was a consistent and uniform

pattern of pricing differences among the

customer categories. (For a further

discussion on price averaging and the

calculation of the weighted average

prices for each respondent, see the

‘‘Comparison Methodology’’ section of

this notice, above.)

Comment 2B Whether to Accept the

Customer Classifications or Channels of

Distribution Alleged by the

Respondents: The petitioners argue that

in the event the Department determines

it is appropriate to create averaging

groups based on customer categories or

channels of distribution, it is up to the

Department, not the respondents, to

determine which customers may be

grouped together. Timken Co. v. United

States, 630 F. Supp. 1327 (Ct. Int’l Trade

1986) (the Court held that the

Department is obligated to choose the

home market models for comparison

and may not delegate this role to

respondents). In addition, the

petitioners cite to the SAA in support of

their contention that the Department

should not accept a respondent’s

‘‘nominal reference to customer classes’’

without requiring evidence of actual

class differences based on the selling

functions of the respondent. SAA at 829.

To the extent the Department rejects

reliance on selling functions as a means

of distinguishing customer categories,

the petitioners argue that the

Department should, at a minimum,

determine whether different customers

exist at different points in the chain of

commerce. Citing PETs from Singapore,

the petitioners assert that it is not the

Department’s practice to accept, without

question, the respondents’

characterizations of its customer classes

as the basis for determining its product

comparisons groups. (See, e.g., Final

Determination of Sales at less Than Fair

Value: Certain Portable Electric

Typewriters from Singapore, 58 FR

43334, 43338–43339 (August 16, 1993)

(PETs from Singapore) (stating that all

retailers had the same function and,

thus, no distinction between the

claimed customer categories was

justified.)

If the Department determines it is

appropriate to weight-average by

customer class, the petitioners argue

that La Molisana’s data do not support

a distinction between the seven

customer categories the company

identifies in the home market. The

petitioners assert that not only has La

Molisana failed to demonstrate that the

seven customer classes operate at

different points in the chain of

distribution, but La Molisana has also

failed to demonstrate: (1) that there are

different selling functions

corresponding to each customer class;

(2) that there are price distinctions

among the customer categories (i.e., as

noted in Comment 1E, above, the

petitioners assert that the price

differences claimed by La Molisana

resulted from the geographic location of

the customer and quantities purchased,

not differences due to the class of

customer; and (3) that there is no other

evidence on the record supporting La

Molisana’s contention that there are

distinct customer categories in the home

market.
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices 30345

In the absence of any verified data

indicating distinctions between the

various customer categories, the

petitioners assert that the Department

cannot distinguish between La

Molisana’s customer categories for

purposes of defining LOT or product

comparison purposes. Therefore, the

petitioners argue that the Department

should not find that there are distinct

customer categories in the home market

and should make its product

comparisons based solely on the

physical characteristics of the

merchandise without regard to customer

category or channel of distribution.

DOC Position: We agree with the

petitioners that it is the responsibility of

the Department, not respondents, to

identify which customers may be

grouped together for product

comparison purposes. This has been our

consistent practice and policy. Cf.,

N.A.R., S.p.A. v. United States, 741 F.

Supp. 936 (Ct. Int’l Trade 1990). (Insofar

as a foreign manufacturer, given the

opportunity of selecting which product

comparisons should be used, would

most likely make a choice that is most

advantageous to itself, the identification

of product comparisons are made by the

Department.) See also, United

Engineering & Forging v. United States,

779 F. Supp. 1375, 1381 (Ct. Int’l Trade

1991); See Final Determination of Sales

at Less than Fair Value: Certain HotRolled Carbon Steel Flat Products and

Certain Cold-Rolled Carbon Steel Flat

Products from the Netherlands, 58 Fed.

Reg. 37199, 37202 (July 9, 1993).

Therefore, as noted in the ‘‘Comparison

Methodology’’ section of this notice,

above, it is the responsibility of the

Department, not respondents, to

determine which customers may be

grouped together for product

comparison purposes. Based on the

chain of distribution for the pasta

industry, we reclassified the customer

groups identified by the respondents

into five distinct customer categories

representing distinct points in the chain

of distribution. For a further discussion,

see the ‘‘Comparison Methodology’’

section of this notice, above.

Regarding the petitioners’ assertion

that La Molisana failed to demonstrate

that there are distinct customer

categories in the home market, we agree

that La Molisana’s data do not support

a distinction between the six customer

groups identified. Based on our analysis

of La Molisana’s proposed customer

groups, we have determined that there

are three distinct customer categories

representing different points in the

chain of distribution in the home market

(i.e., wholesalers, retailers and

consumers). However, we disagree with

the petitioners’ contention that La

Molisana has not demonstrated that

there are price distinctions among the

home market customer categories. Based

on our analysis of the average net prices

for each product control number and the

three customer categories identified by

the Department in the home market, we

conclude that La Molisana consistently

offered different prices, depending on

the customer category. (For a further

discussion of this issue, See Comment

1—Arm’s Length Test of the ‘‘Company

Specific Comments—La Molisana’’

section of this notice, below.)

Comment 2C Whether to Use

Customer Category or Channel of

Distribution in Defining the Averaging

Groups used for Product Comparisons:

The petitioners argue that to the extent

a respondent has claimed distinctions in

home market sales based on channels of

distribution, the Department should

reject these distinctions and instead rely

on customer categories in creating the

product comparison groups. The

petitioners assert that nothing in the

new statute, the SAA, or the Proposed

Regulations permits the Department to

consider channels of distribution in

making product comparisons. As case

precedent for their position, the

petitioners cite PETS from Singapore

where the Department explicitly

rejected the respondent’s request that it

rely on channels of distribution as a

comparison criteria, finding no support

in the law for such an approach.

(‘‘Furthermore, channel of distribution

is not a proper merchandise comparison

criterion * * * ‘‘there is no regulatory

basis for comparing identical channels

of distribution.’’) Id. at 43338.

DOC Position: We agree with the

petitioners that channels of distribution

are not an appropriate basis for creating

product averaging groups. As noted in

Comment 2A above, the SAA states that

in determining which sales to include

within a particular average, ‘‘Commerce

will consider factors it deems

appropriate, such as the physical

characteristics of the merchandise, the

region of the country in which the

merchandise is sold, the time period,

and the class of customer involved.’’

SAA at 842. See also, Proposed

Regulations at 7349. The SAA does not

contemplate the use of channels of

distribution as a basis for creating an

averaging group.

In addition, it has been the

Department’s past policy and practice,

as outlined in Import Administration

Policy Bulletin Number 92/2

(‘‘Matching at Levels of Trade’’), to

consider the customer category, not

channel of distribution, to determine

whether the respondent’s customers

exist at distinct points in the chain of

distribution (e.g., end-user, distributor,

retailer). Therefore, we have not relied

on a respondent’s reported channels of

distribution in creating the weightedaverage prices used for product

comparisons in this final determination.

Comment 2D Whether the Department

Can Rely on Price Differences as a

Method for Distinguishing Customer

Categories: If the Department

determines it is not necessary to

establish that there are different selling

functions as a means of distinguishing

customer categories, the petitioners

argue that the Department should not

define customer categories based on

price distinctions as it did in Polyvinyl

Alcohol. The petitioners assert that if

price distinctions were all that were

needed to define customer category,

respondents would have a ‘‘field day’’

manipulating the dumping law by

grouping its low-priced home market

sales together and requesting that the

Department compare its U.S. sales to

this group of low-priced sales. Although

the petitioners recognize that price

distinctions may be relevant to a

determination of whether product

comparisons should be segmented by

customer category, the petitioners argue

that prices themselves cannot be the

sole criterion. In order to establish that

there are separate customer categories,

the petitioners argue that the

Department must first determine that

different customers exist at different

points in the chain of commerce.

DOC Position: We agree with the

petitioners that price distinctions can

not be a basis for determining the

existence of customer categories. As

noted in the ‘‘Comparison

Methodology’’ section of this notice and

Comment 2A, above, in order to

determine whether the customer groups

proposed by the respondents actually

represented different customer

categories, we considered whether the

alleged customer groups represented

distinct points in the chain of

distribution. Therefore, price

distinctions were not considered a

relevant factor in defining the existence

of customer categories. The existence of

consistent price differences, however,

was considered in determining whether

customer categories should be taken

into consideration in creating the

product averaging groups.

Comment 3 Should Wheat Quality Be

Considered as a Product Matching

Criterion: The petitioners assert that

Liguori, Delverde, and Tamma have

altered the Department’s product

matching criteria by adding wheat

quality as a physical characteristic.

They urge the Department to delete
30346 Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices

wheat quality as a product matching

criterion for three reasons. First,

petitioners allege that by changing the

product matching criteria set out in the

Department’s questionnaire, these

respondents have established a second

‘‘foreign like product’’ within the

meaning of the Act. Petitioners argue

that the Act does not allow for the

introduction of additional foreign like

products into an investigation. Second,

petitioners argue that the product

matching criteria ought to be confined

to those specified in the Appendix to

the Department’s questionnaire.

Permitting respondents to select

matching criteria, would enable

respondents to analyze their pricing

data and, then, to select the matching

criteria which would lower their

exposure to dumping margins.

Petitioners reference Timken v. United

States, 630 F. Supp. 1327, 1338 (1986)

(‘‘Timken’’), for the proposition that the

Department is prohibited from

delegating the selection of the physical

characteristics for product matching.

Third, as a factual matter, petitioners

assert that both the physical differences

and the cost differences associated with

wheat quality are insignificant.

Respondents contend that the

existence of different semolina qualities

was confirmed by a wheat expert in the

U.S. Department of Agriculture as well

as by the Department at verification.

Moreover, the Department had

instructed respondents to establish

product matching criteria which

reflected all differences in physical

product characteristics, not merely

those listed in the Appendix to the

Department’s questionnaire.

Accordingly, reporting wheat quality as

a matching characteristic was an

appropriate response to the

Department’s questionnaire. With

respect to petitioners’ assertions that the

physical and cost differences associated

with wheat qualities were

inconsequential, respondents assert that

these differences are material and that

their materiality was verified by the

Department.

DOC Position: We disagree with

petitioners’ reading of Section 771 (16)

of the Act. This section sets out the

basis for the Department’s comparison

of U.S. sales to sales in the home

market. It defines ‘‘foreign like product’’

as follows:

The term foreign like product means

merchandise in the first of the following

categories in respect of which a

determination for the purposes of

subtitle B of this title can be

satisfactorily made:

(A) The subject merchandise and

other merchandise which is identical in

physical characteristics with, and was

produced in the same country by the

same by the same person as, that

merchandise.

(B) Merchandise—

(i) Produced in the same country and

by the same person as the merchandise

which is the subject of investigation,

(ii) Like that merchandise in

component material or materials and in

the purposes for which used, and

(iii) Approximately equal in

commercial value to that merchandise.

(C) Merchandise—

(i) Produced in the same country and

by the same person and of the same

general class or kind as the merchandise

which is the subject of the investigation,

(ii) Like that merchandise in the

purposes for which used, and

(iii) Which the administering

authority determines may reasonably be

compared with that merchandise.

Foreign like products, therefore, are

specific to each responding company.

When certain respondents reported

wheat quality as a physical

characteristic which would result in

more appropriate product matches, the

Department required that they justify

the claimed differences in wheat

quality. At the respective verifications,

each of these respondents established

that different wheat (i.e., semolina)

qualities existed and that these were

measured by ash and gluten content. It

was primarily these characteristics

which were used to select semolina for

pasta production. We verified that

physical differences exist and that the

cost of the highest grade of semolina is

materially more than that of the lowest

grade. We found these quality

differences reflected in semolina costs

and pasta prices. We found that they are

commercially significant and an

appropriate criterion for product

matching. Moreover, in our judgment,

petitioners’ reliance on Timken is

misplaced. The differences in wheat

quality reported by these respondents,

and verified by the Department, resulted

in more appropriate product matches, as

contemplated by section 771(16).

II. Company-Specific Comments

Arrighi

Comment 1 Findings at Verification:

The petitioners contend that the

Department should make the following

corrections to Arrighi’s response: adjust

Arrighi’s claimed home market rebate

percentage for one of its customers;

revise Arrighi’s U.S. sales listing to

include allocated warranty expense

claims; eliminate early payment

discounts for an Italpasta invoice; adjust

the credit period for another Italpasta

invoice; and revise the rebate

calculation for sales to a particular

Italpasta customer to correct errors

discovered at the Arrighi and Italpasta

sales verifications.

DOC Position: We agree with the

petitioners. We have used the corrected

figures to calculate Arrighi’s margin.

Comment 2 Interest Rates Used in

Calculating Home Market Credit

Expense: Arrighi states that, contrary to

past Department practice, the

Department mistakenly used Arrighi’s

home market short-term interest rate in

calculating credit expenses for

Italpasta’s home market sales. Arrighi

contends that the Department should

calculate the credit expenses for

Arrighi’s and Italpasta’s home market

sales using verified company-specific

short-term interest rates.

Petitioners counter that, because the

Department determined that Arrighi and

Italpasta are affiliated, the Department’s

use of Arrighi’s short-term interest rate

for both Arrighi’s and Italpasta’s sales

was appropriate.

DOC Position: We agree with

petitioners in part. The Department

weight-averaged Arrighi’s and

Italpasta’s short-term interest rates for

home market credit expense

calculations.

Comment 3 Inland Freight: Petitioners

contend that because the Department

could not verify Italpasta’s claimed

inland freight charges, it should deny

Italpasta’s claimed home market inland

freight charges in their entirety or

should, at a minimum, use the smallest

freight cost reported by Italpasta for all

of Italpasta’s home market sales.

Arrighi maintains that the

Department’s verification report

inaccurately implies that Italpasta

refused to provide information about

transport costs when using its own

trucks. According to Arrighi, the tasks of

identifying the sales where Italpasta

used its own truck, calculating a

transaction-specific transport expense,

and substantiating its claim that

common-carrier rates were a reasonable

surrogate, would have been extremely

burdensome because of the lack of

comprehensive shipping records.

Arrighi contends that the Department’s

requests at verification were

unreasonable and untimely; therefore,

Italpasta’s inability to provide the

requested information at verification

should not be deemed by the

Department as a refusal to cooperate.

Accordingly, Arrighi argues that the

Department should use the reported perunit freight expenses for sales shipped

using Italpasta’s own trucks.

DOC Position: We agree with

petitioners. As stated in the
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices 30347

Department’s verification report, despite

repeated efforts to verify various aspects

of Italpasta’s inland freight expense

when its own trucks were used, this

movement expense could not be

verified. It is important to note that

there is no way in which to determine,

on a transaction-specific basis, whether

the merchandise was transported by

common carrier or using Italpasta’s own

truck. To account for this unverified

movement expense in the margin

calculation, as facts available, we have

used Italpasta’s lowest reported inland

freight expense for all home market

sales. We chose this adverse rate

because, in our view, Italpasta did not

act to the best of its ability to

substantiate the expenses of using its

own trucks.

Comment 4 Advertising expenses:

Petitioners allege that the Department

should treat both of Italpasta’s claimed

advertising expenses (i.e., ‘‘advertising

expense 1’’ and ‘‘advertising expense

2’’) as indirect selling expenses, rather

than as direct selling expenses. Citing

the verification report, petitioners

contend that Italpasta was unable to

support its claim that these expenses

were directly related to sales or were

directed at Italpasta’s customers’

customers.

With respect to advertising expense 1,

Arrighi maintains that even though

Italpasta’s records do not note transfers

of promotional items from Italpasta to

its customer and then to the customer’s

customers, this should not detract from

the fact that these items, by their nature,

are promotional items of the type

normally given out to the general public

(i.e., Italpasta’s customer’s customers).

According to Arrighi, the large quantity

of these items purchased by Italpasta

make it highly unlikely that these items

were not given to the general public.

Concerning advertising expense 2,

Arrighi argues that samples shown at

verification demonstrated that only the

Italpasta brand name was displayed and

that the advertising was directed at the

general public. According to Arrighi,

broadcast advertising and sponsorship

of sport teams, by their nature, are

directed at the general public and,

therefore, these expenses were properly

reported.

DOC Position: We agree with Arrighi

concerning advertising expense 2. The

information on the record reflects that

advertising expense 2 was properly

reported as a direct advertising expense

for Italpasta brand sales. The

Department requires that advertising

expenses that are claimed as direct

expenses must be shown to be directed

to the ultimate consumer of the

merchandise. See, e.g., Final Results of

Administrative Review: Antifriction

bearings (Other Than Tapered Roller

Bearings) and Parts Thereof From

Various Countries, 58 FR 39729, 39741

(July 26, 1993). The advertising 2

expenses listed in Italpasta’s subaccount

noted banners shown at sports events

and television publicity, which are

typically considered by the Department

to be advertising directed at the

customer’s customer. As Arrighi

correctly noted, the samples provided at

verification demonstrated that only the

Italpasta brand was promoted through

such advertising.

With respect to advertising expense 1,

however, the information on the record

does not demonstrate that these

promotional items (such as sports

trophies, calendars, pens, and so forth)

are in any way directed at the

customer’s customers or directly tied to

sales of the subject merchandise.

Therefore, advertising expense 1 has

been reclassified as an indirect selling

expense for purposes of the final

determination.

Comment 5 Direct Selling Expenses:

Petitioners contend that the Department

should treat Italpasta’s claimed direct

selling expenses for introduction

incentive fees as indirect selling

expenses. Citing the verification report,

petitioners state that Italpasta failed to

substantiate its claim that these

payments were contingent upon the

customer purchasing the pasta.

Arrighi counters that it is not unusual

that such promotional agreements do

not include language which specifies

the merchandise purchasing

requirement. According to Arrighi, if the

customer did not already agree to

purchase the pasta, then the agreements

would never have been made.

Therefore, Arrighi maintains that these

promotional payments are directly

related to the subsequently purchased

pasta and should be treated as a direct

selling expense.

DOC Position: We agree with

petitioners that introduction incentive

fees should be treated as indirect selling

expenses. The Court of Appeals for the

Federal Circuit has explained that direct

selling expenses ‘‘are ‘expenses which

vary with the quantity sold,’ ’’ Zenith

Elecs. Corp v. United States, 77 F.3d

426, 431 (Fed. Cir. 1996), or that are

‘‘related to a particular sale,’’ Torrington

Co. v. United States, 68 F.3d at 1347,

1353 (Fed. Cir. 1995). While Arrighi has

claimed that these promotional

payments were contingent upon the

customer purchasing the pasta, Arrighi

has not proven that the payment varies

with the quantity of pasta sold, or that

the payment can be tied directly to a

particular transaction. Therefore, we are

treating these expenses as indirect

selling expenses for purposes of the

final determination.

Comment 6 U.S. Resales of Purchased

Pasta: Arrighi argues that the

methodology used to account for U.S.

resales in the preliminary determination

is inconsistent with past agency practice

because it was applied on a control

number-specific basis. Arrighi contends

that the data on the record allows the

Department to limit the impact of its

adjustment to only those products that

contained purchased merchandise by

applying its methodology on a productspecific basis. Further, Arrighi argues

that the Department did not implement

its stated methodology from the

preliminary determination. According

to Arrighi, instead of calculating the

adjustment ratio by dividing the volume

of pasta produced for a particular

control number by the combined

volumes of produced and purchased

pasta for that control number, the

Department actually calculated the ratio

by dividing the control number’s

production volume by its sales volume,

resulting in an inconsistent ratio

calculation.

For these reasons, Arrighi requests

that the Department make the following

changes to its resale methodology: (1)

the adjustment should be performed on

a product-specific basis; and (2) the

adjustment ratio should be based on

volume produced over volume

produced plus volume purchased.

Petitioners counter that the

Department’s methodology for

excluding U.S. sales of purchased pasta

was reasonable and should be used in

the final analysis. According to

petitioners, Arrighi’s request to change

the methodology is an attempt to

redefine product matching hierarchy

and product characteristics and should

be rejected by the Department.

DOC Position: We agree with Arrighi.

The denominator of the resale

adjustment ratio in the preliminary

margin calculation was inconsistent

with the numerator. For purposes of the

final determination, the Department has

used revised production and purchase

volume data from Arrighi’s February 12,

1996, submission to recalculate the

adjustment ratio for purchased pasta,

basing it on the ratio of purchased pasta

to the sum of total production and

purchases, by product code. We have

applied this revised adjustment factor to

the quantities of U.S. sales for each

product code known to include sales of

purchased pasta.

Comment 7 Home Market Resales of

Purchased Pasta: Arrighi argues that the

Department’s methodology for

excluding home market sales of
30348 Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices

purchased pasta was unreasonable

because it excluded a large number of

sales of pasta that were actually

produced by Arrighi and that should

have been included in the calculation of

Arrighi’s margin. By excluding

numerous sales of pasta produced by

Arrighi, Arrighi contends that the

Department eliminated a significant

quantity of valid sales and price

information decreasing the accuracy of

the calculation of Arrighi’s normal

value.

Additionally, Arrighi asserts that the

Department’s treatment of home market

resales is inconsistent with its

adjustment methodology for Arrighi’s

U.S. resales of pasta. Arrighi requests

that the Department modify its

treatment of Arrighi’s home market sales

of purchased pasta and calculate

product-specific quantity adjustment

factors (i.e., total volume of product

produced divided by sum of total

quantity of product produced and

purchased) and apply this factor to the

quantity of each sale of that product.

Finally, Arrighi requests that the

Department correct certain clerical

errors concerning the control number

references in Arrighi’s margin

calculation program.

The petitioners maintain that the

Department’s methodology is consistent

with Department practice and conclude

that there is no reason for the

Department to depart from the

methodology used in the preliminary

determination to exclude home market

sales of purchased pasta from the

calculation of normal value.

DOC Position: We agree with

petitioners. Section 771(16) prohibits

the Department from using sales of

merchandise produced by persons other

than the respondents in the calculation

of normal value. The information on the

record only provides volume figures of

purchased pasta, by product code,

during the POI. Based on the

information on the record, it is

impossible to isolate the amount of

purchased pasta actually sold by Arrighi

during the POI. Therefore, we excluded

all sales of pasta with product codes

known to include purchased pasta

during the POI to ensure that the pool

of home market sales is not tainted with

sales of purchased pasta.

Furthermore, Arrighi’s alternative

adjustment methodology is contrary to

section 771(16) because it would allow

sales of purchased pasta to be included

in the calculation of normal value.

Therefore, we have used the preliminary

determination methodology for the final

determination.

With respect to the alleged clerical

errors in the control number

identification of certain product codes

for both U.S. and home market sales of

purchased pasta, we agree with Arrighi

and have corrected these errors

pursuant to Arrighi’s revised control

number groupings.

Comment 8 Depreciation Expense:

Arrighi believes its reported

depreciation expense is correct because

it is based on the costs recorded in its

audited annual financial statements. It

contends that a respondent’s costs will

normally be calculated based on that

company’s records if the records are

kept in accordance with generally

accepted accounting principles and

reasonably reflect the company’s costs.

See section 773(f)(1)(A) of the Act.

Arrighi holds that its auditors

specifically reviewed its depreciation

expense and they did not take issue

with the lower depreciation rate. It

claims that the reduced depreciation

reflects its costs because the assets

received less usage during the year.

Arrighi suggests that if the Department

adjusts the depreciation expense it

should allow, at a minimum, the

reduced depreciation expense on the

assets placed in service during the year.

The petitioners state that the

Department should increase the

depreciation expense to reflect Arrighi’s

normal depreciation rates. The

petitioners note that, unlike the reduced

rates used in the submission, Arrighi’s

normal depreciation rates are based on

fixed annual rates and do not reflect the

number of units produced or reductions

in capacity utilization. Thus, according

to the petitioners, the reported

depreciation expense should be based

on the normal annual rate.

DOC Position: We agree with the

petitioners. Recording of depreciation

expenses provides a systematic, rational

method of recognizing the costs of fixed

assets. This allocates the one-time

expense of purchasing (or constructing)

fixed assets over the longer time period

which these assets will benefit. In this

case, the company simply elected to

record less than a full year’s

depreciation expense without any

change in the underlying economic

assumptions and estimates on which its

depreciation expense was based.

Without documentary evidence of such

a change in the underlying assumptions,

it is inappropriate for the respondent to

recognize less than a full year’s

depreciation expense.

We note that although the Department

calculates costs in accordance with the

generally accepted accounting

principles (‘‘GAAP’’) of the home

market country, the Department will not

do so if the use of a country’s GAAP

does not reasonably reflect a company’s

costs. In such cases, the Department

may make adjustments or may use

alternative methodologies that more

accurately reflect the costs incurred.

See, e.g., Final Determination of Sales at

Less than Fair Value: New Minivans

from Japan (‘‘Minivans from Japan’’) 57

FR 21937, 21952 (May 26, 1992).

Comment 9 Excluded Costs: The

petitioners note that Arrighi excluded

from its reported costs the cost of

purchased pasta, charitable

contributions, and repairs. They also

note that Italpasta excluded from its

reported costs, the cost of purchased

wheat flour, company vehicles, gifts to

customers, and publication material.

They argue that there is no basis for

these costs to be excluded from the COP

and CV since the Department’s

questionnaire requires respondents to

report actual costs incurred during the

POI. The petitioners state that the

Department should revise Arrighi and

Italpasta’s cost data to include all costs

incurred during the POI.

Arrighi argues that most of the

amounts it excluded from the reported

costs were related to purchased pasta

and the purchase and sale of nonsubject

merchandise. It contends that it

properly excluded these costs.

DOC Position: We agree, in part, with

both the petitioners and Arrighi. The

Department excluded sales of purchased

pasta from the sales reporting

requirements. Therefore, Arrighi

properly excluded the costs of the

purchased pasta from its COP and CV.

Additionally, the Department only

requires a respondent to report the COP

and CV for subject merchandise.

Accordingly, Arrighi properly excluded

the costs of nonsubject merchandise.

However, as the petitioners point out,

Arrighi and Italpasta also excluded from

reported costs certain types of general

expenses. These expenses relate to

company operations as a whole and not

to a specific product. Moreover, Arrighi

has not provided any information or

reasonable grounds to conclude that

these items are related solely to

purchased pasta or non-subject

merchandise. Therefore, we revised

Arrighi and Italpasta’s G&A expenses to

include these costs.

Amounts incurred for gifts to

customers and publication materials are

related to the marketing of products and

Italpasta should have included these

costs in its reported indirect selling

expenses. Therefore, we have revised

the company’s indirect selling expenses

to reflect these items.

Comment 10 Cost of Sales: The

petitioners state that Arrighi calculated

its reported G&A and financial expense

ratios using total sales as the
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices 30349

denominator. They contend that Arrighi

applied these ratios to the cost of

manufacture which understated the

reported G&A and financial expenses.

Italpasta, the petitioners argue, also

calculated its G&A and financial

expense ratios using an overstated

denominator. They claim that Italpasta

included selling expenses, packing

expenses, and transportation expenses

in the denominator of the ratio

calculations but applied the ratio to a

product cost of manufacture which did

not include these costs. The petitioners

contend that the Department should

correct these errors in Arrighi’s and

Italpasta’s G&A and financial expense

ratios.

Arrighi acknowledges that it

incorrectly reported the cost of goods

sold figure used in its calculation of

G&A and financial expense ratios.

Arrighi states that it used the incorrect

amount due to a translation error on its

part. It concedes that the cost of goods

sold calculated by the Department and

used in the preliminary determination is

more accurate.

DOC Position: We agree with the

petitioners and Arrighi. Arrighi and

Italpasta did not apply the G&A and

financial expense ratios to the same

basis in their calculation, resulting in an

understatement of each company’s perunit G&A and financial expenses. We

calculated a revised cost of goods sold

figure by subtracting scrap revenue,

packing, selling, and G&A expenses

from total production costs reported in

each company’s financial statement.

This resulted in revised G&A and

financial expense rates that are

computed on a basis consistent with the

COM figures to which they were

applied.

Comment 11 COP of Affiliated Party:

The petitioners argue that Arrighi’s

affiliated mill understated its unit cost

of semolina by including the weight of

water in its reported production

quantities. They contend that the weight

of the output from the mill was greater

than the weight of the input into the

mill due to water added during the

milling process. The petitioners believe

that the Department should adjust the

mill’s unit costs to a dry measure basis

by dividing the total costs by the weight

of the durum wheat that was used in the

milling process.

Arrighi states that it calculated the

unit semolina costs by dividing the mill

costs by the mill output which resulted

in a yielded semolina cost. The

semolina which was used as the input

into the next step of pasta production

reflects the relatively wet semolina

input. Arrighi then yielded the pasta

production costs to a dry weight by

calculating the unit cost of pasta based

on packed pasta quantities. It argues

that the semolina COP for its affiliated

mill appropriately accounted for water

added in the production process.

DOC Position: We agree with Arrighi.

Assuming all finished goods are

identical, dividing the total cost

incurred to produce the finished

products by the quantity of finished

goods produced results in the unit cost

of each product. Deriving the unit cost

in this manner accounts for yield

changes. This is the methodology

Arrighi’s affiliated mill used to calculate

the cost of durum wheat in finished

semolina. Therefore, the gain

attributable to water added during

production was captured by the mill’s

raw material cost methodology, and, it

was not necessary for us to make an

adjustment to the affiliate’s semolina

production costs for the weight gain

attributable to water.

Comment 12 Allocation of Cost at

Affiliated Mill: The petitioners argue

that Arrighi’s affiliated mill allocated its

costs between soft wheat and durum

wheat production using a basis which it

was not able to substantiate. They note

that the affiliated mill allocated variable

costs, variable overhead, fixed overhead,

G&A, and financial costs based on the

relative cost of soft wheat and durum

wheat. The cost verification report,

according to the petitioners, stated that

soft wheat and durum wheat were

processed in the same manner using the

same machinery and production

process. They argue that quantity of

production reflects the resources used

and the relative costs incurred by the

mill since the processes and the

machinery for soft wheat and durum

wheat are the same. The petitioners

believe that the Department should

reallocate the manufacturing costs based

on production quantity at the mill.

DOC Position: Arrighi’s affiliated mill

used an allocation methodology that did

not accurately reflect the costs incurred

to mill durum wheat. The mill allocated

its conversion costs (labor and

overheads) between soft wheat and

durum wheat based on the relative cost

of the raw material purchased.

Personnel from the mill stated that the

only difference between processing soft

wheat and durum wheat was that the

soft wheat was bagged while durum

wheat was shipped in bulk. This

represents a very minor difference in

packing costs only. They also stated that

the same machinery was used to mill

both soft wheat and durum wheat. The

cost of converting a raw material to a

finished product is dependent on the

processes performed and the machinery

used and not the cost of the raw

material input. Therefore, if the

production process and machinery are

the same regardless of the type of wheat

milled, the conversion costs also would

be the same. Since the processes and

machinery were the same, we

reallocated the mill conversion costs

based on total production of the mill,

regardless of the type of wheat

processed. After we recalculated the

cost of semolina from the affiliated mill,

we compared this amount to the

weighted-average transfer price to

Arrighi and Italpasta. We found that the

transfer price did not reflect the

semolina’s full cost of production.

Therefore, we relied on the actual cost

to value the semolina from the related

mill.

Comment 13 Allocation of G&A and

Financial Expense at Affiliated Mill:

The petitioners argue that Arrighi’s

affiliated mill calculated a per-unit

amount for G&A and financial expenses

while the Department’s questionnaire

instructed the respondents to allocate

these costs based on cost of sales. They

believe that the Department should

recalculate the mill’s G&A and financial

expenses based on the cost of sales.

DOC Position: We agree with the

petitioners. The mill allocated total G&A

and financial expenses between soft

wheat and durum wheat based on the

relative cost of wheat purchased. His

methodology is contrary to the

Department’s normal practice, which is

to compute a ratio based on the

relationship of these expenses to the

cost of sales of the company. See, e.g.,

Preliminary Results of Antidumping

Administrative Review: Roller Chain

(Other than Bicycle) from Japan, 60 FR

43771 (August 23, 1995), Final

Determination of Sales at Less Than

Fair Value: Small Business Telephone

Systems from Korea, 54 FR 53141

(December 27, 1989) and Final Results

of Antidumping Administrative Review

of Antifriction Bearings (Other Than

Tapered Roller Bearings) and Parts

Thereof from France, Germany, Italy,

Japan, Romania, Singapore, Sweden,

Thailand, and the United Kingdom, 56

FR 31692, Comment 25, (July 11, 1991).

Therefore, we recalculated G&A and

financial expense ratios as a percentage

of cost of goods sold and multiplied

these rates by the product specific cost

of manufacture.

Comment 14 Understated Material

Costs: The petitioners argue that the

Department should increase Arrighi’s

raw material costs because Arrighi’s

submitted material costs were based on

amounts from its management reports.

They state that at verification the

Department found that the costs of

materials in the management reports
30350 Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices

were understated and did not reconcile

to the financial accounting system.

Arrighi did not comment on this

issue.

DOC Position: We agree with the

petitioners. As indicated in the

questionnaire, the Department

instructed Arrighi that the per-unit COP

and CV must reconcile to the actual

costs reported in the accounting system

used by the company to prepare its

financial statements. Arrighi’s financial

accounting system did not allow for the

segregation of material costs. Hence,

Arrighi used information from its

management reports to segregate the

material costs reported to the

Department. At verification, we found

an unreconciled difference between the

management reports and the financial

accounting system. Company officials

stated that Arrighi’s financial

accounting system reflected its actual

costs. We therefore increased the

reported material costs to agree with the

actual material costs reported in the

company’s financial accounting system.

Comment 15 Parent Company G&A:

The petitioners propose that the

Department increase Arrighi’s reported

G&A expenses to include G&A expense

amounts incurred by its parent

company. They argue that the

questionnaire instructed Arrighi to

include in its reported G&A, an amount

for administrative services performed by

its parent. Based on the record evidence,

the petitioners conclude that Arrighi

was the only subsidiary of its parent and

argue, therefore, that all of the parent’s

expenses should be included in

Arrighi’s G&A expenses.

Arrighi did not comment on this

issue.

DOC Position: We agree with the

petitioners. As indicated in Final

Determination of Sales at Less Than

Fair Value: Certain Hot-Rolled Carbon

Steel Flat Products, Certain Cold-Rolled

Carbon Steel Flat Products, Certain

Corrosion-Resistant Carbon Steel Flat

Products, and Certain Cut-to-Length

Carbon Steel Plate from Canada, 58 FR

37082 (July 9, 1993), all expenses

incurred by a parent company without

operations, relate to the subsidiaries

with operations. Additionally, our

standard questionnaire instructs

respondent companies to include an

amount for administrative services

performed by its parent company or

other affiliates. Arrighi did not include

in its reported G&A any amount for

administrative services performed by its

parent. Additionally, the evidence on

the record shows that Arrighi is the only

subsidiary of its parent company and

that the parent did not engage in

activities other than those relating to

Arrighi’s pasta operations. Since the

only activity of the parent was to act as

a holding company for Arrighi, it is

reasonable to assume that any expenses

it incurred were for the benefit of

Arrighi. Therefore, we increased

Arrighi’s G&A expense to include the

net expenses incurred by its parent

company.

Comment 17 Financial Expenses:

The petitioners argue that Arrighi

improperly excluded bank fees from its

reported financial expenses. They

contend that financial expenses should

include all interest expenses and fees

incurred to finance the operations of the

company.

The petitioners also argue that

Italpasta incorrectly included exchange

gains and losses generated from sales

transactions in its calculation of the

financial expense rate. They assert that

the Department generally does not

consider exchange rate gains and losses

from sales transactions in its COP and

CV. Therefore, they believe that the

Department should revise the financial

expenses of Italpasta to exclude the

exchange rate gains and losses generated

from sales transactions.

Arrighi did not comment on these

issues.

DOC Position: We agree with the

petitioners. Fees paid to a bank to obtain

or maintain a loan are integral parts of

financial expenses. Therefore, we

increased Arrighi’s financial expense to

include the bank fees it incurred.

Regarding foreign exchange gains and

losses, it is the Department’s normal

practice to distinguish such gains and

losses realized or incurred in

connection with sales transactions from

those associated with purchases of

production inputs. See, e.g., Notice of

Final Determination of Sales at Less

Than Fair Value: Small Diameter

Circular Seamless Carbon and Alloy

Steel, Standard, Line and Pressure Pipe

From Italy, 60 FR 31981 (June 19, 1995)

and Notice of Final Determination of

Sales at Less Than Fair Value:

Silicomanganese from Venezuela

(‘‘Silicomanganese from Venezuela’’), 59

FR 55436 (November 7, 1994). The

Department does not include in COP

and CV exchange gains and losses on

accounts receivable because the

exchange rate used to convert home

market or third-country sales to U.S.

dollars is that in effect on the date of the

U.S. sale. The Department does include

foreign exchange gains and losses on

financial assets and liabilities in its COP

and CV calculation where they are

related to the company’s production.

Financial assets and liabilities are

directly related to a company’s need to

borrow money, and we include the cost

of borrowing in our COP and CV

calculations. We therefore adjusted

Arrighi’s and Italpasta’s financial

expense rate calculation to exclude

exchange gains and losses related to the

company’s sales transactions.

De Cecco

Comment 1 Use of Facts Available:

De Cecco argues that the Department

should not have canceled verification of

its sales and cost responses. De Cecco

argues that its February 2 and February

6 responses were satisfactory responses

to the requests for supplemental

information to remedy the deficient

November 27 response, and should have

been accepted by the Department.

The petitioners argue that the

Department should continue to use facts

available to calculate the final margins.

Both De Cecco’s and the petitioners’

specific arguments are described in the

Facts Available section, above.

DOC Position: We agree with the

petitioners that facts available should be

used to calculate the final dumping

margin for De Cecco. Our reasons are set

out in the Facts Available section,

above.

Comment 2 Use of Adverse Facts

Available: De Cecco argues that the

Department should not have used

adverse facts available in determining

De Cecco’s margin for the preliminary

determination because De Cecco

provided complete answers to all

requested information in a timely

manner and otherwise cooperated to the

best of its ability. Both De Cecco’s

specific arguments and the petitioners’

comments are discussed in the Facts

Available section, above.

DOC Position: We agree with the

petitioners that De Cecco’s February 6,

1996, cost submission consisted of new

information. The receipt of subsequent,

unsolicited submissions left no time for

the Department, or the petitioners, to

review, reconcile, or comment on the

new submissions in time to conduct any

meaningful verification of the cost data.

We disagree with De Cecco’s

characterization of its participation as

having ‘‘provided complete answers to

all requested information in a timely

manner and otherwise cooperated to the

best of its ability.’’ De Cecco submitted

a new cost methodology in February,

did not attempt to explain the

differences between the data submitted

in its various February responses, and

did not attempt to explain the

differences between the data submitted

in February and the original data

submitted in November 1995. We do not

consider these facts as evidence that De

Cecco acted to the best of its ability to

respond to the questionnaire. Finally,
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices 30351

De Cecco’s argument that it failed to

understand our questionnaire

instructions concerning affiliated

persons because it was reading them

within the context of Italian law is

unpersuasive. Appendix I of the

questionnaire contained a glossary that

defined, inter alia, the term ‘‘Affiliated

Persons.’’ Moreover, the Department

works with all respondents, and their

representatives, to clarify any questions

they might have about questionnaire

requirements.

Comment 3 Corroboration of

Secondary Information: De Cecco argues

that if the Department uses facts

available, it should corroborate such

information by using other information

readily available and should not rely

exclusively on the petition in

determining De Cecco’s margin rate. It

asserts that the Department is obligated

to determine the dumping margin as

accurately as possible. De Cecco argues

that the Department acts unreasonably if

it rejects low margin information in

favor of high margin information that is

demonstrably less probative. Rhone

Poulenc, Inc. v. United States, 899 F.2d

1185,1991 (Fed. Cir. 1990); Floral Trade

Council v. United States, 822 Fed. Supp.

766, 711 (CIT 1993). De Cecco contends

that the Department failed to

corroborate the information it relied

upon in calculating the facts available

margin applied to De Cecco in the

preliminary determination. It insists

that the Department could have utilized

information from other respondents

(e.g., Delverde, whose costs, it assumes,

are most similar) or averages from the

calculated margins of other companies,

and should do so for the final

determination.

The petitioners disagree with De

Cecco’s argument that its costs are

similar to Delverde’s simply because

they are located in the same town in

Italy. Moreover, the petitioners believe

that the Department properly followed

the statutory requirements for

calculating De Cecco’s dumping margin

based on facts available.

DOC Position: We disagree with De

Cecco that corroboration of information

used for facts available means

determining accurate dumping margins

for a specific company. Accurate

dumping margins can only be calculated

on the basis of reliable information

provided by the respondent. De Cecco

did not provide such information. We

also disagree that we have any basis for

accepting De Cecco’s assumptions that

Delverde’s costs of producing pasta

should have some bearing on the

dumping margin assigned to De Cecco.

In this case, the petition is the only

information on the record which could

appropriately form the basis for a

dumping calculation. Section 776(c) of

the Act provides that where the

Department relies upon ‘‘secondary

information,’’ the Department shall, to

the extent practicable, corroborate that

information from independent sources

reasonably available to the Department.

The SAA, at page 870, clarifies that the

petition is ‘‘secondary information,’’

and that ‘‘corroborate’’ means to

determine that the information has

probative value. Id. During our analysis

of the petition, we reviewed all of the

data submitted and the assumptions that

petitioners had made when calculating

estimated dumping margins. In

addition, we contacted the source of the

market research data and confirmed to

our satisfaction the reliability of the

market research information presented

in the petition. As a result of our

analysis, we revised the home market

prices that petitioners had relied upon

in calculating the estimated dumping

margins. On the basis of these revisions,

we recalculated the estimated dumping

margins and found them to range from

21.85 percent to 71.49 percent.

Delverde

Comment 1 Collapsing Delverde and

Tamma for Purposes of Calculating the

Dumping Margin: In the preliminary

determination, the Department

concluded that Delverde and Tamma are

affiliated companies within the meaning

of section 771(33) of the Act based on

response information that the common

ownership of these companies exceeded

five percent. Consistent with

Departmental practice, we also

concluded that the information on the

record required us to collapse Delverde

and Tamma into a single entity for

purposes of calculating a dumping

margin. (See, Final Results of

Antidumping Duty Administrative

Review: Iron Construction Castings from

Canada, 59 FR 25603 (May 17, 1994);

Final Determination of Sales at Less

Than Fair Value: Certain Granite from

Italy (‘‘Italian Granite’’), 53 FR 24335

(July 19, 1988).) This decision was

based on our finding ties of common

ownership, interlocking boards of

directors, similar production processes

and shared transactions. (See letter from

Gary Taverman to Delverde of August

22, 1995.)

For the final determination, Delverde

argues that the two companies should

be treated as separate companies

because ‘‘neither company exercises

control over the other within the

meaning of section 771(33) of the Act’’.

Specifically, Delverde asserts that

neither company is legally or

operationally in a position to exercise

restraint or direction over the other

company based on the following claims:

(a) Tamma holds only a minority

ownership interest in Delverde; (b) the

companies operate as wholly separate

commercial entities and do not

consolidate financial statements or

share cost/financial information; (c) the

common board member is not involved

in the day-to-day business operations of

Delverde; (d) pricing and marketing

strategies are conducted independently;

(e) the companies have separate

letterheads and locations; (f) there are

no common employees or managers; (g)

production information is not shared;

and (i) Tamma sells semolina to

Delverde at arm’s length prices.

The petitioners state that the

ownership relationship between

Delverde and Tamma clearly meets the

definition of affiliated persons. Whether

affiliated companies operate

independently or in conjunction is not

at issue, and does not alter the fact that

Delverde and Tamma are affiliated

companies. Accordingly, the petitioners

urge the Department to uphold its

preliminary determination and collapse

the data of Delverde and Tamma into a

single entity in the final margin

calculations.

DOC Position: In determining whether

to collapse related or affiliated

companies, the Department must decide

whether the affiliated companies are

sufficiently intertwined as to permit the

possibility of price manipulation. In

making this decision, the Department

considers factors such as: (1) The level

of common ownership; (2) interlocking

boards of directors; (3) the existence of

production facilities for similar or

identical products that would not

require retooling either plant’s facilities

to implement a decision to restructure

either company’s manufacturing

priorities; and (4) whether the

operations of the companies are

intertwined as evidenced by

coordination in pricing decisions,

shared employees or transactions

between the companies. See, e.g.,

Certain Granite Products from Spain, 53

FR 24335 (1988); Italian Granite;

Cellular Mobile Telephones and

Subassemblies from Japan (43 FR

48011, 1989); Steel Wheels from Brazil,

45 FR 8780 (1989); Certain Hot-Rolled

Carbon Steel Flat Products, Certain

Cold-Rolled Carbon Steel Flat Products,

Certain Corrosion-Resistant Steel Plate

from Canada, 58 FR 37099 (1993). The

Department’s use of these factors was

implicitly accorded deference by the

Court of International Trade (CIT) in

Nihon Cement Co., Ltd., et al. v. United

States, Slip Op. 93–80 (CIT 1993)(which

overturned our determination for a
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failure to articulate the evidence which

supported the different elements of this

test).

While consistent with our practice on

this issue, section 351.401(f) of the

Department’s proposed regulations give

a new articulation to the collapsing test.

Under this articulation, the Department

will treat affiliated producers as a single

entity where those producers have

production facilities for similar or

identical products that would not

require substantial retooling of either

facility in order to restructure

manufacturing priorities, and where

there is a significant potential for the

manipulation of price or production, as

evidenced by common ownership,

interlocking boards of directors or

shared management, and intertwined

operations.

The administrative record establishes

a close, intertwined relationship

between Delverde and Tamma. At

verification of Delverde and Tamma, we

confirmed reported information

concerning ownership, boards of

directors, transactions, and production

processes. This information

demonstrates that these affiliated

producers have similar production

processes and exhibit a significant

potential for price manipulation as

evidenced by interlocking boards of

directors and shared transactions. Based

on the information on the record, we

believe that Delverde and Tamma

cannot be considered separate

manufacturers under the antidumping

law, and that it is appropriate to

calculate a single, weighted-average

margin for these companies.

Comment 2 Calculation of

Constructed Export Price for Delverde:

In the preliminary determination, we

calculated CEP by deducting from the

starting price (i.e., the price to the

unaffiliated purchaser) discounts and

rebates, international movement

expenses, U.S. movement expenses,

direct U.S. selling expenses,

commissions and CEP profit, as well as

indirect selling expenses and inventory

carrying costs associated with economic

activities occurring in the United States.

We did not deduct the indirect selling

expenses and inventory carrying costs

incurred by the foreign producer in Italy

because we did not deem these

expenses to be specifically related to

commercial activity in the United

States.

For the final determination, both

petitioners and Delverde argue that the

Department is required by the statute to

deduct all expenses, including indirect

expenses incurred by the foreign

producer, in calculating CEP. The

parties state that nothing in section

772(d)(1) suggests that the expenses

listed in subparagraphs (1)–(D) must be

related to activities that take place

within the United States, or that such

expenses must be incurred within the

territory of the United States. They

argue that the inclusion of a clause in

the statutory definition of CEP (i.e.,

772(d)(1)(D)) mandating the deduction

of any selling expenses from the U.S.

starting price) ensures that all indirect

selling costs are stripped from the

selling price. The parties further argue

that the legislative history establishes

that Congress intended the new CEP

provision to be merely a clarification of

prior law which provided for the

deduction of all direct and indirect

selling expenses, regardless of whether

the expenses were attributable to

activities in the United States. While the

parties acknowledge that the language of

the SAA may be unclear or ambiguous,

they argue that, as a matter of law, such

language cannot be used by the

Department to override the clear and

unambiguous language of the statute.

Accordingly, both the petitioners and

Delverde contend that in calculating

CEP the Department must deduct all

selling expenses, as required by section

772(d), regardless of where the expenses

are incurred.

These arguments concerning statutory

interpretation notwithstanding,

Delverde also contends that the

Department made a factual error by not

classifying the inventory carrying costs

incurred by the foreign producer on U.S.

sales as specifically related to

commercial activity in the United

States. Delverde notes that pasta on

which the inventory carrying expense is

incurred is enriched pasta that cannot

be sold in Italy. Delverde states that this

pasta is dedicated to the U.S. market

from the point in production that

vitamins are added, and is segregated

from other pasta while in inventory.

Accordingly, Delverde argues that all

reported inventory maintenance

expenses for enriched pasta are

necessarily related to U.S. commercial

activity.

DOC Position: Consistent with the

SAA and our proposed regulations, the

Department reads section 772(d)(1) of

the Act to require us to make deductions

to CEP only for the expenses associated

with economic activity in the United

States (see SAA at 823 and the

Department’s proposed Regulations at

7331 and 7381). Our preliminary

determination reflected this requirement

insofar as our deductions to CEP

excluded those expenses we deemed not

specifically related to commercial

activity in the United States (i.e.,

Delverde’s indirect selling and

inventory carrying expenses incurred in

Italy).

For the final determination, we

reevaluated our treatment of indirect

expenses incurred in Italy based on our

findings at verification. In the case of

indirect selling expenses, the indirect

selling accounts reviewed at verification

indicated that Delverde accurately

identified each of the expenses that

specifically related to U.S. commercial

activity. With regard to inventory

carrying costs, our observations

confirmed Delverde’s explanation that

enriched pasta, other than whole wheat

pasta, is virtually all sold to the United

States and that any inventory carrying

costs incurred on enriched pasta is

necessarily attributable to U.S.

economic activity. Therefore, we

included inventory carrying costs and

indirect selling expenses incurred in

Italy (i.e., database fields DINVCARU

and DINDIRSU) in our deductions from

CEP.

Comment 3 Payment Dates of

Delverde Sales: At verification, we

noted that Delverde had not updated the

payment dates reported for U.S. and

home market sales that were paid after

submission of its September, 1995, sales

response. This caused the credit

expense for these sales to be incorrectly

calculated in the preliminary

determination. Following verification,

Delverde provided a revised sales tape

with updated payment information for

its U.S. sales. It did not revise the

payment data for its home market sales,

although this revision would have

decreased the normal value of the

affected sales.

According to the petitioners, Delverde

should be penalized for not disclosing

its error prior to verification. The

petitioners contend that all U.S. sales

transactions by Delverde, showing a

payment date of September 13, 1995,

should be reset to a payment date of

March 15, 1996 (the date of the sales

verification) for purposes of calculating

the credit expense on these sales.

DOC Position: For the final

determination, we calculated U.S. credit

based on the revised and verified

payment information provided by

Delverde. We believe this approach is

appropriate because it is consistent with

our practice of promoting accuracy and

completeness in the calculation of

margins, a practice which forms the

basis for our approach to both pre- and

post-verification submissions. See,

Murata Mfg. Co. v. United States, 829 F.

Supp. 603, 607 (CIT 1993) with NSK

Ltd. v. United States, 798 F. Supp. 721

(CIT 1992), aff’d, 996 F.2d 1236 (Fed.

Cir. 1993) (Cf. the preamble of the

Department’s proposed regulations at
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices 30353

7323). We also believe that this

approach is conservative because the

revised payment information adversely

affects the credit calculation of U.S.

sales, and does not include revised

home market information that would

have been beneficial to the respondent.

Comment 4 Revised Sales Tapes: The

petitioners assert that the Department

should carefully review the revised

sales tapes submitted by Delverde and

Tamma to ensure that the proper

revisions have been made to the proper

fields. For any field that has not been

properly modified, the petitioners

contend that the Department should

apply facts available. In the case of CEP

sales by FSM and Cavalier, U.S.

importers related to Delverde, the

petitioners argue that the widespread

and fundamental changes submitted by

Delverde very late in the investigation

call into question the reliability of

Delverde’s responses. In light of the

changes submitted by Delverde, the

petitioners argue that if the Department

identifies any anomalies in the data

contained on the final sales tape, it

should apply facts available to

Delverde’s sales in their entirety.

Delverde insists that all its affiliated

entities have cooperated with the

Department at every stage of this

investigation. According to Delverde,

the submission of computer tapes to

update their sales databases for

revisions occurring after November 27,

1995, and to ensure that the database

incorporates verified information clearly

serves a useful function, and is intended

to reduce the burden on the Department

and other parties. Delverde emphasizes

that every effort has been made to

ensure that the sales tapes reflect

exactly those changes previously

identified by Delverde and Tamma, or

requested by the Department. Delverde

contends that there is no basis for the

petitioners’ unsupported speculation or

requests for the use of ‘‘facts available’’

with respect to unspecified

‘‘anomalies.’’

DOC Position: We agree that Delverde

and its affiliated entities have been

cooperative throughout this

investigation. At our request, Delverde

submitted revised computer tapes that

updated their sales databases for

revisions made subsequent to November

27, 1995, and incorporated changes

identified at verification. We have

examined these tapes and there is no

basis for the petitioners’ assertion that

the use of facts available is warranted

for selected portions of Delverde’s

databases or for Delverde’s sales in their

entirety.

Comment 5 Slotting fees on CEP

sales by Delverde USA: The petitioners

argue that the Department’s verifiers

noted certain irregularities with respect

to the slotting fees paid to a certain

Delverde USA customer. According to

the petitioners, the Department

reviewed four invoices to the customer

at verification that Delverde USA

explained were up-front slotting fees on

post-POI sales. The petitioners argue

that because Delverde did not provide

full disclosure of the details of any ‘‘upfront’’ slotting fees paid before the POI,

the Department must associate the

expenses with the POI since that is

when they were incurred. The

petitioners request that the Department

increase the slotting expense reported in

field ADVERT2U for this customer, or

apply facts available in the absence of

available sales information for this

customer.

Delverde states that the petitioners’

arguments reflect a fundamental

misunderstanding of Delverde USA’s

sales to this customer and of the

methodology used to report this

customer’s slotting expense. Delverde

asserts that the petitioners’ arguments

fail to take into account the fact that

sales to this customer by Delverde USA

are made pursuant to an agreement

which became effective at the end of the

POI. Delverde argues that it has never

claimed that the referenced invoices are

related to post-POI sales. Rather, as

reflected in the Department’s

verification report, Delverde notes that

the referenced invoices relate to postPOI shipments which were

appropriately included in calculating

the slotting expenses reported in

ADVERT2U for this customer. Delverde

also dismisses the petitioners’

suggestion that Delverde did not

disclose the details of up-front slotting

fees that might have been paid to this

customer before the POI. Given that

Delverde USA’s business with this

customer began with the agreement at

the end of the POI, Delverde asserts that

it is factually incorrect to assume that

up-front slotting fees were paid to this

customer prior to the POI. Delverde

submits that the petitioners’ request for

an adjustment to field ADVERT2U

should be rejected.

DOC Position: At verification, we

reviewed Delverde USA’s agreement

with the customer, dated near the end

of the POI. We also reviewed four

invoices which represent the totality of

sales made pursuant to the agreement,

each of which was invoiced and

shipped after the POI. The results of this

review indicate that, more than a year

after the agreement, only a small

fraction of the total quantity of pasta

specified in the agreement had been

sold and delivered to the customer. We

also found that another fundamental

element of the agreement had only been

partially implemented. Consequently,

although Delverde USA continues to

consider its relationship with this

customer to be unchanged, in our

judgment the agreement is not in effect.

We therefore reclassified the date of sale

for these invoices to the invoice date,

pursuant to Delverde’s date of sale

methodology for its other sales and to

our findings at verification. Given that

this reclassification indicates that the

four invoices were dated outside the

period of investigation, we did not

include these sales in the final margin

calculations for Delverde. Therefore, the

arguments concerning the ADVERT2U

field are moot.

Comment 6 Delverde USA’s Indirect

Selling Expenses: In its revised

calculation of U.S. indirect selling

expenses, Delverde USA added a

separate line item to POI operating

expenses for a slotting fee provided to

one U.S. customer. The petitioners

contend that this is an improper means

of accounting for a slotting fee expense,

which is customer-specific in nature.

According to the petitioners, proper

accounting for this customer-specific

expense would be to allocate this

additional expense over the POI sales to

this customer. The petitioners

recommend that if the Department is

unable to readily arrive at a total sales

figure for this customer, it should use

facts available and add the highest

slotting fee expense reported in the U.S.

sales database (field ADVERT2U) to any

existing expenses in this field for this

customer.

Delverde maintains that it is

appropriate to treat the cost incurred in

selling to this customer as an indirect

selling expense. As explained by

Delverde at verification, Delverde USA

actively solicited the business of this

customer because of that customer’s

retail outlets. In order to secure the

opportunity to sell to that potential

customer, the customer demanded an

up-front payment which Delverde USA

provided in the form of an initial

delivery of pasta free of charge. In

providing the up-front payment,

Delverde sought to induce that customer

to begin placing large volume, follow-up

orders on an on-going basis. Delverde

notes that its investment was not

successful as the customer subsequently

purchased and paid for only a very

small amount of merchandise. Delverde

notes that no other orders were placed

by the customer, despite the customer’s

demand for, and receipt of, the up-front

payment.

Based on this explanation, Delverde

argues that Delverde USA’s investment
30354 Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices

is properly recognized as a general cost

of doing business. Given that the

customer did not subsequently place

orders with Delverde USA, Delverde

argues that it would not be appropriate

to treat the expenses as a slotting cost

related solely to this customer. Rather,

Delverde argues that it is the lack of

follow-up business that distinguishes

this situation from other instances

where slotting fees were reported in

field ADVERT2U.

DOC Position: We agree with Delverde

that it is appropriate to treat the up-front

slotting fee provided to one Delverde

USA customer, as an indirect selling

expense for all sales to all customers.

Such treatment is warranted in this

instance given that no orders were

subsequently placed with Delverde USA

by this customer. Accordingly, we

believe that the lack of follow-up

business distinguishes this situation

from other instances where slotting fees

were reported on a customer-specific

basis in field ADVERT2U.

Comment 7 Delverde’s Request for a

CEP Offset: Delverde did not claim a

level of trade adjustment for its EP sales.

With respect to its CEP sales, the

company argues that the statute directs

the Department to deduct all selling

expenses from the CEP and that the

resulting adjusted CEP is an ex-factory

price. Delverde then concludes that the

adjusted CEP, or ex-factory price, is at

the ex-factory level of trade. In the

absence of ex-factory sales in its home

market, Delverde further argues that it is

impossible to quantify the price effect of

selling functions involved in sales at

levels of trade more advanced than exfactory, and, as a consequence, it must

be entitled to the CEP offset.

The petitioners argue that Delverde

would have had to submit data

concerning its selling functions in

response to the Department’s requests

related to the Department’s level of

trade analysis in order to qualify for a

CEP offset. As a consequence of failing

to provide the Department with this

requested information, the petitioners

assert that the SAA prohibits a CEP

offset.

DOC Position: The Department

requested level of trade information

from Delverde on October 23, 1995, and

on January 22, 1996. Delverde

responded with the argument that it had

not claimed a level of trade adjustment

for its EP sales and that it was pointless

for the Department to compare CEP

activities for level-of-trade purposes. As

a result of Delverde’s refusal to provide

the requested information, the

Department has had to infer different

selling functions from the narrative of

Delverde’s responses concerning other

topics. On the basis of our analysis of

its selling functions, described in the

‘‘Level of Trade’’ section of this notice,

above, we concluded that Delverde’s

U.S. sales and home market sales are

made at the same level of trade. As

stated in the SAA, at page 160, ‘‘Only

where different functions at different

levels of trade are established under

Section 773(a)(7)(A)(i) [and a level of

trade adjustment is not appropriate] will

Commerce make a constructed export

price offset adjustment under Section

773(a)(7)(B).’’ Accordingly, we did not

grant Delverde’s request for a CEP offset

in our final determination.

Comment 8 Water Gain: Tamma

argues that its semolina yield

calculation correctly and accurately

accounts for water absorbed by the

wheat in producing semolina. It states

that its submitted quantity of semolina

and byproducts produced from a given

quantity of durum wheat reflects the

water gain. Tamma explains that the

higher moisture content of milled

semolina and byproducts is an inherent

physical characteristic of those

products. Tamma argues, therefore, that

it would be improper to back out the

weight gain attributable to such an

inherent physical characteristic and

such an adjustment would distort

Tamma’s semolina yield rates by not

fully capturing the actual quantity of

milled semolina produced.

The petitioners argue that Tamma’s

semolina costs should be increased to

properly account for the water gain.

They state that it is not acceptable to

allow Tamma to compare the ‘‘wet’’

semolina output to the ‘‘dry’’ durum

wheat input to calculate yield loss. A

‘‘dry’’ input, the petitioners contend,

should be compared to a ‘‘dry’’ output

in deriving yield loss.

DOC Position: We agree with Tamma

that its semolina yield calculation

properly accounted for the water gain

during the milling process. We noted in

our verification report a concern that the

water weight gain might understate

semolina costs by overstating

production quantities. However, after

further review of information on the

record, we note that Tamma allocated

its milling cost (i.e., wheat and

conversion costs), net of byproduct

revenue, based on the actual quantity of

semolina produced. Therefore, the

weight gain attributable to water has

been properly absorbed by allocating

milling costs to finished semolina

output.

Comment 9 Depreciation Expense:

Tamma contends that its reported

depreciation expense is accurate and

does not distort costs. It argues that the

submitted depreciation expense is

identical to the amount reported in its

audited financial statements and fixed

asset ledger. Tamma further argues that

its method of calculating the

depreciation expense conforms with

Italian GAAP and that the actual useful

lives of its fixed assets reflect the

expanded depreciation period allowed

under Italian law. Tamma states that it

is the Department’s practice to accept

home market GAAP when it does not

distort production costs and cites Final

Determination of Sales at Less Than

Fair Value: Fresh Cut Roses from

Colombia, 60 FR 6980, 6997 (February

6, 1995); Final Determination of Sales at

Less Than Fair Value: Small Diameter

Circular Seamless Carbon and Alloy

Steel, Standard, Line and Pressure Pipe

from Italy, 60 FR 31981 (June 19, 1995);

Final Results of Sales at Less Than Fair

Value: Certain Cut-To-Length Carbon

Steel Plate from Germany, 61 FR 13834

(March 28, 1996); and Final Results of

Sales at Less than Fair Value: Canned

Pineapple Fruit from Thailand, 60 FR

29553 (June 5, 1995).

The petitioners contend that the

Department should increase Tamma’s

depreciation expense. They argue that

Tamma reduced its straight-line

depreciation rates from the Italian civil

code to rates it employs for income tax

purposes which are inappropriate for a

dumping analysis.

DOC Position: We disagree with

Tamma. To calculate depreciation

expense, Tamma relied on industry

specific depreciable asset lives

authorized by the Italian Civil Code.

However, Tamma later modified these

depreciable asset lives in calculating

depreciation expense for all of its assets,

including the manufacturing equipment

used to produce pasta. Contrary to

Tamma’s argument, the change to its

assets depreciable lives was not the

result of new events, changing

conditions, experience, or additional

information. Instead, Tamma’s change

in depreciable life was made only for its

effect on the company’s profitability.

Generally, the Department relies on a

company’s home country GAAP; the

Department will not do so, however, if

the use of a country’s GAAP does not

accurately recognize a company’s actual

costs. (See, e.g., Minivans from Japan;

Final Determination of Sales at Less

than Fair Value: Dynamic Random

Access Memory Semiconductors of One

Megabit and Above from the Republic of

Korea, 58 FR 15467, 15479 (March 23,

1993).) Recording of depreciation

expenses provides a systematic, rational

method of recognizing the costs of fixed

assets. This allocates the one-time

expense of purchasing (or constructing)

fixed assets over the longer time period
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices 30355

which these assets will benefit. In this

case, the Department found that the

basis used for the financial statement,

even if stated in accordance with Italian

GAAP, is contrary to sound accounting

principles and the Department’s

practice. Tamma simply elected to

change its depreciation rate (which, in

effect, changed the useful lives of the

company’s production assets) without

any change in the underlying economic

assumptions and estimates on which its

depreciation method was based.

Without documentary evidence of such

a change in the underlying assumptions,

it is inappropriate for the respondent to

recognize less than a full year’s

depreciation expense.

Comment 10 Foreign Exchange

Losses Related to Debt: Tamma

contends that its capitalization of

foreign exchange losses realized in

connection with loans used to purchase

capital assets conforms to Italian law

and Italian GAAP. It further argues that

because the loss relates directly to the

acquisition of capital assets, and is

amortized over a period that is less than

the useful lives of those assets, its

capitalization of the exchange rate

losses is reasonable and does not distort

costs. See, Final Determination of Sales

at Less Than Fair Value: Fresh Cut

Roses from Ecuador, 60 FR 7019, 7039

(February 6, 1995) (‘‘Roses from

Ecuador’’).

The petitioners contend that it is

appropriate to recognize the entire

exchange loss because the loss was

incurred during the POI and the source

of the loss is fungible in nature. They

argue that a foreign exchange loss on

debt owed is logically recognized at the

end of the fiscal period. The petitioners

also argue that the exchange loss cannot

be related to the acquisition of the asset

because it did not occur at the time of

acquisition.

DOC Position: We disagree with

Tamma. In determining COP for the

POI, the Department includes all costs

incurred during the POI. If current

losses are deferred to some future time,

the costs would not appropriately match

to the sales of the company during the

POI. The Department has recognized

this principle in the past in dealing with

capitalized foreign exchange gains and

losses relating to loans. See, Final

Determination of Sales at Less Than

Fair Value: Dynamic Random Access

Memory Semiconductors of One

Megabit and Above from the Republic of

Korea, 58 FR 15467, 15479 (March 22,

1993).

In this case, the extinguishment of

debt caused a foreign exchange loss

which represents a cost that provides no

future benefit to Tamma. Tamma has

argued that the exchange loss relates to

the acquisition of assets and should be

capitalized and amortized because this

method was allowed in Roses from

Ecuador. However, we note that in

Roses from Ecuador the capitalized loss

reflected an actual increase in the loan

amount and the loss was amortized over

the remaining life of the loan. The

exchange loss in this case is also a cost

of Tamma’s borrowed funds but it is not

an increase in the loan amount because

it was incurred to extinguish the debt.

Nor is the loss a cost of Tamma’s

equipment because this loss does not

add to the utility of the equipment.

We also note that contrary to Tamma’s

claims, the company’s method of

capitalizing this cost is not a

recommended method under Italian

GAAP. We note that the Italian National

Council of Accountants (‘‘NCA’’) which

issues recommended ‘‘Principles of

Accounting’’ in Italy states that ‘‘a

resulting exchange loss should be

recognized immediately’’ (See, Larry L.

Orsini, John P. Mcallister and Rajeev N.

Parikh, ‘‘Italy,’’ World Accounting’’,

Volume 2, (Matthew Bender & Co., Inc.,

New York, New York, 1995) p.

ITA.37[1].) Also, Tamma’s capitalization

and amortization of this loss is not

acceptable under U.S. GAAP which

states that such losses must be

recognized in the period in which they

are incurred.

Comment 11 Subsidy Used to Offset

G&A: Tamma claims that it properly

reduced its G&A expenses by the

amount of a grant from the Italian

government which it received in 1994.

Tamma argues that the grant effectively

reduced its cost of producing subject

merchandise and notes that the

Department has previously allowed

government grants as offsets against

production costs. See, e.g., Final

Determination of Sales at Less Than

Fair Value: Aramid Fiber Formed of

Poly-Phenylene Terephthalamide from

the Netherlands, 59 FR 22684, 22556

(May 8, 1994); and, Final Determination

of Sales at Less Than Fair Value: Oil

Country Tubular Goods from Argentina,

60 FR 33539, 33546 (June 28, 1995).

The petitioners contend that Tamma

should not be allowed to offset G&A

expenses by a grant received from the

Italian government because it is not

clear if the grant was received during

the POI. Therefore the Department

should view the grant simply as

additional income and not an as offset

to G&A costs.

DOC Position: We disagree with the

petitioners. Tamma’s management

demonstrated that the purpose of the

grant was to assist the company in

improving the general operation of its

pasta production facilities. Thus, we

found that the grant related to the

company’s pasta operations and have

allowed the amount received by Tamma

during the POI as an offset to Tamma’s

G&A expenses.

Comment 12 G&A and Interest

Expense Revisions: The petitioners state

that the Department should correct

Tamma and Delverde’s combined G&A

expense factor and financing expense

factor for certain clerical errors found or

reported during verification.

Tamma and Delverde agree with the

petitioners.

DOC Position: We agree with both the

petitioners and the respondents and

have corrected the combined cost of

sales figure used by Tamma and

Delverde to compute their G&A and

financial expense ratios. In computing

COP and CV, the Department normally

requires respondents to allocate G&A

and financing expenses to subject

merchandise based on the ratio derived

by dividing total G&A and financing

expenses by the respondent’s cost of

sales. Delverde and Tamma derived a

combined cost of sales figure based on

total production costs (i.e., direct

material and conversion costs) that was

adjusted for the change in beginning

and ending inventory values. However,

this combined cost of sales did not

include the scrap and byproduct

revenue offset that the two companies

used to reduce their cost of

manufacturing. Nor did it exclude the

intercompany transfers between the two

companies. These omissions overstated

the combined cost of sales figure which

in turn understated the interest and

financing expense allocated to subject

merchandise.

De Matteis

Comment 1 Commission Expenses:

The petitioners argue that the

Department should adjust De Matteis’

claimed home market commission

expenses to correct for errors discovered

at verification. Specifically, the

petitioners argue that the Department

should deny the commissions claimed

by De Matteis for all sales through

selling agents 3 and 4, and for 1994

sales made by selling agent 2.

De Matteis did not comment on this

issue.

DOC Position: We agree with the

petitioners. These payments were

reviewed during verification and found

to be salary expenses, not commissions.

Comment 2 Exchange Rates: De

Matteis contends that the Department

incorrectly used a mixture of weightedaverage and daily exchange rates.

Specifically, it argues that the

Department used daily exchange rates to
30356 Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices

convert Lire into dollars in calculating

certain values for the foreign unit price

in dollars (FUPDOL), normal value,

packing, differences in merchandise

(DIFMER), and U.S. direct selling

expenses, while the Department

converted U.S. price using a weightedaverage rate.

The petitioners did not comment on

this issue.

DOC Position: We agree with De

Matteis that we inadvertently used the

daily exchange rate in two lines of the

computer program used to calculate the

margins for the preliminary

determination. These two lines of the

computer program specifically dealt

with matches to CV. Because no U.S.

sales were matched to CV for De Matteis

for the preliminary determination, there

was no effect on the margin for the

preliminary determination. We have

corrected the computer programming

language for the final determination.

Comment 3 G&A and Financial

Expense Ratios: The petitioners argue

that in calculating its G&A and

financing expense ratios, De Matteis

failed to reduce the cost of sales

denominator by the amount of revenues

received from the sale of byproducts. As

a result of the miscalculation,

petitioners contend that De Matteis

understated its reported per-unit G&A

and financing expenses.

De Matteis agrees with the petitioners.

DOC Position: We agree with both

parties. De Matteis applied its G&A and

financing expense ratios to per-unit cost

of manufacturing amounts for pasta that

were net of revenues received by the

company from sales of certain

byproducts. In computing these ratios,

however, De Matteis did not reduce its

cost of sales denominator for the

byproduct revenue it received. This

resulted in an understatement of G&A

and financing expense which we have

corrected for the final determination by

subtracting byproduct revenues from De

Matteis’ cost of sales.

La Molisana

Comment 1 Arm’s Length Test: La

Molisana argues that the arm’s length

test utilized in the preliminary

determination is methodologically

unsound because it fails to take into

account price differences that result

from comparisons of sales to different

customer categories. Specifically, La

Molisana claims that the test leads to a

distortion of price comparability

because it compares affiliated

distributor sales to unaffiliated sales to

all customer categories without taking

into account the fact that the prices

charged to distributors (both affiliated

and unaffiliated) are considerably lower

than the prices charged to unaffiliated

non-distributors. In addition, La

Molisana asserts that the Department

verified that the company maintains

separate price lists for distributors and

non-distributors and that the price lists

reflect significantly different prices. In

support of this argument La Molisana

provided a table in its case brief

depicting the weighted-average net

prices for each control number, level of

trade (based on the LOTCODE assigned

by the Department in the preliminary

determination), affiliated distributor,

unaffiliated distributor and unaffiliated

non-distributor. La Molisana asserts that

this table clearly demonstrates that the

prices charged to affiliated and

unaffiliated distributors are

considerably lower than the prices

charged to non-distributors.

Finally, La Molisana contends that in

previous investigations the Department

has recognized that there may be other

factors that should be taken into account

in conducting the arm’s length test. See,

e.g., Final Determinations of Sales at

Less than Fair Value: Certain Hot-Rolled

Carbon Steel Flat Products, Certain

Cold-Rolled Carbon Steel Flat Products,

Certain Corrosion-Resistant Carbon

Steel Flat Products, and Certain Cut-toLength Steel Plate from France, 58 FR

37062, 37077 (July 9, 1993). (The

Department agreed that modifying the

arm’s length test to take differences in

quantity into account would ‘‘fine-tune’’

the arm’s length test.) For all of these

reasons La Molisana argues that the

Department should revise the arm’s

length test by basing the test on

customer category as well as control

number and level of trade.

The petitioners argue that the

Department should continue to base the

arm’s length test solely on control

number and level of trade, without

regard to customer category. The

petitioners contend that La Molisana

has failed to show clear and

documented evidence of price

distinctions between distributors and

non-distributors and that the

Department should not consider the

class of customer in determining

whether sales are made at arm’s length

prices.

DOC Position: We agree with La

Molisana that the test used in the

preliminary determination may have

been distorted because it failed to take

into account price differences that result

from comparisons of sales to different

customer categories. Section 353.403 of

the Department’s Proposed Regulations

states that the Secretary may calculate

normal value based on an affiliated

party sale only if satisfied that the price

is ‘‘comparable’’ to the price at which

the producer sold the merchandise to an

unaffiliated party. As noted in the

‘‘Comparison Methodology’’ section of

this notice, above, it is the responsibility

of the Department, not respondents, to

determine which customers may be

grouped together for product

comparison purposes. In this instance,

the record establishes that there are

three distinct customer classes in the

home market (i.e., wholesalers, retailers

and consumers) and that La Molisana

offered significantly different prices,

depending on the customer category. In

addition, La Molisana made sales to

both affiliated and unaffiliated

customers within the same customer

category during the POI. Consequently,

in order to make a fair determination

regarding the price comparability of the

affiliated party sales, we have

determined that it is appropriate to use

customer categories in our arm’s length

test. We believe that the inclusion of

customer category in the arm’s length

test conforms with the principle, found

in both section 353.45(a) of the

Department’s existing regulations and

section 351.403 of the proposed

regulations, that affiliated prices must

be comparable to unaffiliated party

prices in order for the affiliated party

prices to be used by the Department.

Therefore, for the above reasons, we

have modified the test used in this final

determination to account for the

customer category.

Comment 2 Home Market Advertising

Expenses: A. ‘‘TV Sponsors’’: La

Molisana argues that certain previously

unreported home market advertising

expenses discovered at verification

should be considered direct advertising

expenses in the final determination.

Specifically, La Molisana asserts that

the Department verified that the

expenses discovered at verification

related to La Molisana’s sponsorship of

a television program where, during one

segment of the show, La Molisana’s

pasta and logo were prominently

displayed. Therefore, La Molisana

contends that the advertising expenses

associated with sponsoring this show

were directed at its customer’s customer

and should be considered part of its

direct advertising expenses in the final

determination.

The petitioners argue that the

Department should not include the

expenses associated with sponsoring the

television show in the final

determination because the expenses

were not provided until verification.

DOC Position: We agree with La

Molisana that the expenses included in

the ‘‘TV Sponsors’’ account should be

considered part of La Molisana’s direct

advertising expenses in the final margin
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices 30357

calculations. At verification we

confirmed that the advertisements were

directed at downstream customers (i.e.,

the ultimate consumers). Therefore, we

have treated these expenses as direct

advertising expenses in the final

determination.

B. Trade Promotion Expenses: La

Molisana argues that certain trade

promotion expenses (which were

treated as indirect expenses in the

preliminary determination) are direct

advertising expenses and should be

treated as such in the final

determination. It contends that these

expenses are incurred in order to make

its pasta more visible to the retail

shopper and to encourage retail

shoppers to purchase La Molisana’s

pasta. Therefore, La Molisana argues

that trade promotion expenses are

directed at its customer’s customer.

The petitioners argue that the

Department should continue to treat

trade promotion expenses as indirect

selling expenses in the final

determination because these expenses

are paid directly to La Molisana’s

customers and therefore do not

represent reimbursements for expenses

its customers incurred in advertising La

Molisana’s products to downstream

customers.

DOC Position: We agree with La

Molisana. For expenses incurred in

advertising to be considered direct

expenses there must be an assumption

by the seller of the purchaser’s

advertising costs. In instances where the

respondent assumes the total cost of

promoting the product to downstream

customers, we recognize that it is

inherently difficult to tie any form of

advertising to a specific sale. Therefore,

the Department generally does not make

that a requirement before accepting a

claimed advertising expense as a direct

expense. Nevertheless, the advertising

must be proven to be directed towards

the customer’s customer (i.e., the

ultimate consumer) and incurred on

products under investigation. At

verification we confirmed that trade

promotion expenses are aimed at the

ultimate consumers of La Molisana’s

pasta (i.e., the retail shoppers).

Therefore, we have treated these

expenses as direct advertising expenses

in the final margin calculations.

C. Introduction Incentive Fees: La

Molisana argues that certain

introduction incentive fees (which were

initially reported as advertising

expenses and were treated as indirect

expenses in the preliminary

determination) are direct selling

expenses and should be treated as such

in the final determination. Specifically,

La Molisana claims that the Department

verified that introduction incentives are

paid in order to obtain shelving space in

supermarkets. La Molisana claims that it

must pay these fees in order to make the

sale and that this fee is not paid unless

it makes a sale. Therefore, the

introduction incentive fees bear a direct

relationship to the sales in question and

should be treated as direct selling

expenses in the final determination.

The petitioners argue that the

Department should continue to treat

introduction incentive fees as indirect

selling expenses in the final

determination. The petitioners assert

that La Molisana should not be

permitted to submit new or revised

claims for direct expenses after

verification. In addition, the petitioners

contend that introduction incentive fees

are not directly related to the

merchandise under investigation

because they are flat fees that are

incurred whether or not any actual sale

occurs.

DOC Position: We agree with the

petitioners that introduction incentive

fees should be treated as indirect selling

expenses. As we stated in the DOC

Position on Comment 5 concerning

Arrighi, the Court of International Trade

has explained that direct selling

expenses ‘‘are expenses which vary with

the quantity sold,’’ or that are ‘‘related

to a particular sale.’’ In this instance, La

Molisana did not demonstrate that these

fees vary with the quantity of pasta sold

or that they can be tied directly to

particular transactions. Therefore, we

have continued to treat this expense as

an indirect selling expense in the final

margin calculations.

Comment 3 A. U.S. Advertising

Expenses: La Molisana argues that its

U.S. advertising expenses should be

treated as indirect selling expenses in

the final determination because the

advertisements are not directed at its

customer’s customer. Specifically La

Molisana asserts that it reimburses its

U.S. distributor for a portion of the

advertising expenses the U.S. distributor

incurs promoting La Molisana’s

products to its customer’s customer in

the United States. Therefore, La

Molisana argues that the advertisements

are aimed at La Molisana’s customer’s

customer’s customer, not its customer’s

customer. As such, La Molisana argues

that these expenses are not direct selling

expenses because it is the Department’s

practice to treat advertising expenses as

direct selling expenses only if those

expenses are directed at the customer’s

customer.

The petitioners argue that the

Department should continue to treat La

Molisana’s U.S. advertising expenses as

direct advertising expenses in the final

determination because these expenses

represent reimbursements La Molisana

paid to its U.S. customer for expenses

that the U.S. customer incurred to

advertise La Molisana’s products to

downstream customers in the United

States.

DOC Position: We agree with the

petitioners. For advertising to be treated

as a direct expense it must be assumed

on behalf of the respondent’s customer

and be incurred on the products under

investigation. It is the Department’s

policy to classify advertising expenses

directed at the ultimate consumer as

direct and to classify advertising

directed towards intermediary

customers as indirect. See, e.g.,

Dynamic Random Access Memory

Semiconductor’s of One Megabyte or

Above From the Republic of Korea,

Final Results of Administrative Review,

61 FR 20216 (May 6, 1996). Antifriction

(other than Tapered Roller Bearings)

Bearings from France, 60 FR 10909

(February 28, 1995). At verification it

was confirmed that La Molisana

reimburses its unaffiliated U.S.

customer for a portion of the advertising

expenses this customer incurs

promoting La Molisana’s products to the

ultimate consumers in the United

States. Consequently we have treated

these expenses as direct advertising

expenses in the final determination.

B. Alleged Error in the Treatment of

Certain Advertising Expenses in the

Preliminary Determination: La Molisana

asserts that in its preliminary

determination the Department treated

trade promotion and introduction

incentive fees as indirect expenses in

the home market while the same

expenses were treated as direct

expenses in the U.S. market. La

Molisana argues that regardless of

whether the Department classifies trade

promotion expenses and introduction

incentive fees as indirect or direct

expenses in the final determination, it

should afford the expenses similar

treatment in both the U.S. and home

markets.

The petitioners did not comment on

this issue.

DOC Position: We have reviewed La

Molisana’s assertion and agree that the

preliminary determination failed to treat

trade promotion expenses and

introduction incentive fees similarly in

the U.S. and home markets. This was an

inadvertent error on the part of the

Department. We have corrected this

error by treating introduction incentive

fees as indirect expenses and trade

promotion expenses as indirect

expenses in both the U.S. and home

markets in the final margin calculations.

(For a discussion of the classification of
30358 Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices

these expenses see, Comments 2B and

2C, above.)

Comment 4 Home Market Rebate:

The petitioners argue that the

Department should deny La Molisana’s

claim for the second type of home

market rebate reported in its

questionnaire response (i.e., the rebate

based on a percentage of pre-determined

sales targets) because La Molisana failed

to provide support documentation for

the reported amounts at verification.

La Molisana did not comment on this

issue.

DOC Position: We agree with the

petitioners. Section 782(i) of the Act

states that: ‘‘The administering authority

shall verify all information relied upon

in making a final determination in an

investigation.’’ At verification, company

officials were unprepared to provide

support documentation for this rebate

and, as a result, the reported rebate

amount was not verified. Accordingly,

we have not made an adjustment for the

second rebate in the calculation of

normal value.

Comment 5 Cost Reporting Period:

La Molisana reported its costs on a

calendar year basis. The petitioners

argue that the Department should use

costs during the POI to calculate La

Molisana’s cost of production. They

note that the Department’s antidumping

questionnaire provides that COP and CV

data should be calculated based on the

actual costs incurred during the POI.

Moreover, the petitioners claim it is the

Department’s routine practice to require

respondents to report their costs

incurred during the POI. See, Final

Determination of Sales at Less Than

Fair Value: Stainless Steel Bar from

Spain, 59 FR 66931, 66938 (December

28, 1994); Final Determination of Sales

at Not Less Than Fair Value: Stainless

Steel Bar from Italy, 59 FR 66921, 66929

(December 28, 1994).

La Molisana counters that calculating

cost on a calendar year basis was

appropriate because the company only

makes accruals when its accounting

records are closed at year-end. It

contends that the Department has a

clear preference for respondents to use

the accrual method of accounting when

calculating costs. In this case, where La

Molisana did not perform monthly

closings, using the calendar year costs

was appropriate because such costs

included accruals and year-end

adjustments.

DOC Position: We agree with

petitioners that the Department

generally examines the materials, labor,

and overhead incurred during the POI.

The questionnaire requests COP and CV

data calculated based on the actual costs

during the POI. See, Final

Determination of Sales at Less Than

Fair Value: Stainless Steel Bar from

Spain, 59 FR 66931, 66938 (December

28, 1994); Final Determination of Sales

at Not Less Than Fair Value: Stainless

Steel Bar from Italy, 59 FR 66921, 66929

(December 28, 1994). In the instant case,

the Department compared significant

elements of the cost of manufacturing

computed on a calendar year basis and

on a POI basis. We adjusted La

Molisana’s reported wheat, labor, and

electricity costs to reflect POI basis

costs. Although the Department prefers

costs reported on the accrual basis, we

have determined, in this case, that cash

basis costs for the first four months of

1995 were acceptable since the

verification testing indicated these

expenses reasonably reflected the costs

associated with the production and sale

of the merchandise. The eight months of

1994 costs were calculated on the

accrual basis.

Comment 6 Total Cost Reconciliation:

The petitioners urge the Department to

increase La Molisana’s reported costs to

account for discrepancies between the

unit costs in La Molisana’s general

ledger and the unit costs reported in La

Molisana’s questionnaire response.

They state the Department found that La

Molisana’s finished goods inventory

account showed an average unit cost

higher than the average unit cost

reported by La Molisana in its

questionnaire response. They argue that

the inventory value is probative

evidence that the reported costs should

be higher because the balance of the

inventory account agreed to the audited

financial statements. The petitioners

also refer to the Department’s analysis

in the verification report that showed

that average costs reflected in La

Molisana’s accounting ledgers for

traditional pasta exported to third

country markets was higher than the

average costs reported by La Molisana in

its questionnaire response, even though

the average costs in the questionnaire

response included traditional pasta and

the more expensive nested pasta. These

factors, combined with the fact that La

Molisana declined to reconcile the total

costs reported in the questionnaire

response to the total costs in its

accounting ledgers, should compel the

Department to increase the unit costs

reported by La Molisana so that they are

consistent with the costs recorded in La

Molisana’s accounting ledgers which

reconcile to its financial statements.

La Molisana argues that the

Department’s calculation of a higher

cost for subject merchandise sold to

third country markets has no

significance for reported costs and no

adjustment to reported costs is

warranted. La Molisana does not

dispute the fact that a reconciling

difference exists but disagrees with the

Department’s attribution of this

difference to third country merchandise.

It declares that if the Department

allocates the reconciling difference over

all production or alternatively over

Italian and U.S. production, the result is

an insignificant adjustment to the

reported costs. It states that the

difference could have resulted from

incorrect product mix assumptions

made by the Department, arithmetic

errors by the Department, or

assumptions made about production

quantities of various products. La

Molisana contends that the difference

could be explained by a higher

proportion of spinach pasta and tomato

pasta in the third country mix, as these

products have a higher cost than plain

pasta. Moreover, La Molisana claims

that providing the reconciliation in the

limited time available was not possible

with a small staff. Finally, La Molisana

contends that the reconciliation was not

necessary for verification since the

Department tied individual cost

elements to the cost accounts which

subsequently agreed to the income

statement for 1994.

DOC Position: We agree with the

petitioners that La Molisana’s reported

costs should be increased to account for

the unreconciled difference between La

Molisana’s total production costs for

1994 and La Molisana’s reported perunit costs. Since La Molisana declined

to prepare the reconciliation requested

by the Department, the Department

prepared a reconciliation of total

production costs using information

available from the record in this case.

The reconciliation is necessary to

establish that La Molisana captured and

appropriately allocated all costs

incurred for the period. Our analysis

showed that an unreconciled difference

remains.

Although La Molisana takes issue

with the format of the reconciliation and

the assumptions made, the Department

provided La Molisana ample

opportunity to provide this

reconciliation. Such a reconciliation

was specifically requested in the

Department’s supplemental Section D

questionnaire and at verification. We

believe that it is unacceptable in this

situation to expect the Department to

bear the responsibility of attempting to

identify and perform the numerous and

substantial recalculations necessary for

the development of a completely

accurate reconciliation. The

Department’s reconciliation provides a

reasonable basis to identify costs that La

Molisana may have failed to report, and
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices 30359

we have relied on this reconciliation in

order to adjust the company’s reported

costs.

Comment 7 Difference in System

Costs: The petitioners argue that the

Department should adjust for

differences in costs between La

Molisana’s cost accounting records and

the company’s financial accounting

records. They suggest that the

Department adjust La Molisana’s

reported costs so that these costs

reconcile to the amounts shown in La

Molisana’s financial accounting system,

since these costs are the most reliable

and relate directly to La Molisana’s

financial statements.

La Molisana notes that general

expenses reported elsewhere in its

response account for much of the

absolute difference between the costs

recorded under its two accounting

systems. La Molisana states that the

remaining difference is immaterial and,

thus, no adjustment is warranted.

DOC Position: The Department agrees,

in part, with both petitioners and with

La Molisana. La Molisana is correct in

stating that its reported general

expenses account for much of the

absolute difference between the

company’s cost and financial

accounting systems. Petitioners

correctly point out, however, that COP

and CV should reflect the actual costs

reported under La Molisana’s financial

accounting system. We have, therefore,

adjusted La Molisana’s costs to reflect

the company’s financial accounting

records. In this instance the company

could not explain the difference

between its financial and cost

accounting systems.

Comment 8 Financial Expenses: The

petitioners urge the Department to

revise La Molisana’s financial expenses

to include the interest expense allocated

to the flour mill and to exclude interest

income earned on bonds with maturities

of longer than one year. They cite the

antidumping questionnaire which states

that in calculating net interest expenses

for COP, the respondent should include

interest expense incurred for both longand short-term borrowing, and that

these interest expenses can be offset

only by interest income earned on shortterm investments of working capital.

The petitioners state that short-term

investments are investments of less than

one year and, therefore, La Molisana

should not have included income from

bonds with maturities longer than one

year in its net interest expense

calculations.

In principal, La Molisana does not

object to reclassifying the interest

expense allocated to the flour mill,

provided that the Department allows the

corresponding decrease to the semolina

costs. It disagrees that the Department

should treat long-term interest income

in any way different from long-term

interest expense. La Molisana claims

that, since investment activities receive

cash from operations and lending

activities use cash to fund operations,

all funds generated from investment

activities should be netted with interest

expense to obtain the net financing

expense of the company. La Molisana

maintains that it demonstrated at

verification its positive cash flow during

prior years. This cash was used to invest

in bonds. La Molisana cites to the

Department’s principle of fungible

funds as articulated in the Final Results

of an Antidumping Duty Administrative

Review: Titanium Sponge from Japan,

55 FR 42227 (October 18, 1990).

DOC Position: We agree with

petitioners. The Department considers

interest expense to be the actual interest

incurred by the company on both shortand long-term debt, reduced by the

interest income earned on short-term

assets. The Department has determined

that the purchase and holding of longterm assets, such as bonds, that produce

interest income represent investment

activities that are wholly unrelated to

the manufacturing business of the

company. See, Final Determination at

Sales at Less Than Fair Value: Calcium

Aluminate Cement, Cement Clinker and

Flux from France, 59 FR 14136, 14147

(March 25, 1994). Although the source

of the funds to purchase these bonds

may have been company operations, the

purpose of holding long-term

investments is not to fund current

manufacturing operations. Investing in

long-term securities is a separate and

distinct activity from manufacturing.

(See, e.g., Final Results of an

Antidumping Duty Administrative

Review: Certain Cold-Rolled Carbon

Steel Flat Products from Germany, 60

FR 65264, 65270 (December 19, 1995)

and Final Determination at Sales at Less

Than Fair Value: Sweaters Wholly or in

Chief Weight of Man-Made Fiber from

the Republic of Korea; 55 FR 32659,

32667 (August 10, 1990).)

This approach was affirmed in NTN

Bearing Corp. v. United States, Slip Op.

95–165 (CIT 1995) (‘‘NTN Bearing’’).

Relying on its earlier decision in

Timken Co. v. United States, 852 F.

Supp. 1040, 1048 (CIT 1994)

(‘‘Timken’’), the court clarified that to

qualify for an offset, interest income

must be related to the ‘‘ordinary

operations of a company.’’ NTN Bearing

at 32. While this standard does not

require that interest income be tied

directly to the production of the subject

merchandise, a respondent must show

‘‘a nexus between the reported interest

income’’ and its ‘‘manufacturing

operation.’’ Id. at 33; see also Timken at

1048. Unlike interest income earned

from the short-term investment of

working capital, only rarely will interest

income earned from a company’s

investment activities in bonds meet this

standard.

Because La Molisana failed to show

the necessary nexus between its bond

interest income and manufacturing

operations, the Department has denied

the claimed offset. The Department did

allow an offset for short-term interest

income where La Molisana

demonstrated that short-term assets

from funds generated by the pasta

manufacturing and selling operations of

the company produced the income.

Finally, we reclassified interest

expenses allocated to the flour mill to

the interest expenses reported for the

company as a whole because it is the

Department’s normal practice to

calculate net interest expense based on

the actual experience of the company,

not each separate division or section.

We agree with La Molisana that it is

appropriate to reduce semolina costs for

the amount of interest expense which

was reclassified.

Comment 9 Foreign Exchange Gains

and Losses: The petitioners argue that

La Molisana incorrectly included

foreign exchange gains and losses from

sales transactions in its calculation of

G&A expenses. They declare that the

Department should exclude these

foreign exchange gains and losses from

the cost of production because La

Molisana did not incur these amounts

on purchases of raw materials or other

inputs needed to produce the subject

merchandise.

La Molisana argues that if the foreign

exchange gains and losses from sales

transactions are not included La

Molisana’s G&A then the Department

should include them in home market

indirect selling expenses.

DOC Position: We agree with

petitioners. It is the Department’s

normal practice to distinguish between

exchange gains and losses realized or

incurred in connection with sales

transactions and those associated with

purchases of production inputs. See,

e.g., Final Determination of Sales at Less

Than Fair Value: Small Diameter

Circular Seamless Carbon and Alloy

Steel, Standard, Line and Pressure Pipe

From Italy, 60 FR 31981 (June 19, 1995)

and Silicomanganese from Venezuela.

Accordingly, the Department does not

include in COP and CV exchange gains

and losses on accounts receivable

because the exchange rate used to

convert home market or third-country
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sales to U.S. dollars is that in effect on

the date of the U.S. sale. The

Department typically includes foreign

exchange gains and losses in the cost of

manufacture when a respondent

realized these gains and losses to

produce the subject merchandise (e.g.,

acquisition of raw materials or other

inputs needed to produce the subject

merchandise). See, Final Determination

of Sales at Less Than Fair Value:

Saccharin from Korea, 59 FR 58826,

58828 (November 15, 1994). La

Molisana does not dispute the fact that

these foreign exchange gains and losses

result from sales of finished products.

With respect to La Molisana’s claim

that these amounts should be treated as

indirect selling expenses, the

Department has determined that the

gains and losses do not constitute an

indirect selling expense. Under section

773A of the Act, the Department

converts foreign currencies on the date

of sale. Only where a company can

demonstrate that a sale of foreign

currency on forward markets is directly

linked to a particular export sale will

the Department use the rate of exchange

in the forward currency sale agreement.

La Molisana did not demonstrate that

they could link any sale of foreign

currency on a forward market to any

particular export sale.

Comment 10 Calculation of G&A and

Financial Expense Ratios: The

petitioners argue that La Molisana

should have followed the methodology

in the antidumping questionnaire and

allocated G&A and interest expenses

based on cost of sales instead of sales

revenue. The petitioners further argue

that the company incorrectly applied its

calculated ratio to a cost of

manufacturing figure instead of a sales

price.

La Molisana disagrees with

petitioners and states that its total sales

revenue was used in calculating the

denominator only as the starting point

for its calculation of production costs.

DOC Position: The Department has

determined that the allocation basis La

Molisana used in its calculation of the

G&A and interest expense factors was

incorrect. The company’s calculation,

which relied on sales revenue minus

certain adjustments as the denominator,

results in a ratio that understates the

company’s G&A and financial expense.

We have recalculated these ratios on the

basis of La Molisana’s 1994 cost of sales.

Comment 11 Sales of Semolina: The

petitioners allege that La Molisana

understated reported semolina costs by

reducing the amounts incurred by the

revenue received from semolina sold to

outside parties. They argue that revenue

from sales of semolina should not be

used to offset the cost of production for

semolina. Instead, the petitioners

advocate computing the per-unit cost of

semolina by dividing total semolina

costs incurred during the POI by the

total semolina produced during the POI.

They argue that semolina and water are

the primary materials used to produce

pasta and, therefore, semolina is a

primary ingredient rather than a

byproduct of pasta production.

La Molisana argues that semolina is a

byproduct because semolina is an

intermediate product in the production

of pasta and has relatively minor value

compared with pasta. Therefore, it was

appropriate to offset semolina

production costs with sales revenue

from semolina. Moreover, La Molisana

asserts that its treatment of semolina

sales is consistent with its internal

accounting.

DOC Position: We agree with

petitioners. Contrary to La Molisana’s

claim, semolina production is not

incidental to the production of pasta. In

fact, the milling of durum wheat results

in semolina, which is the raw material

input into pasta production. In this case,

La Molisana seeks to reduce its cost of

semolina consumed in pasta production

by profit earned on sales of finished

semolina. The Department’s normal

practice does not allow respondents to

claim revenues earned from other

finished products as offsets in

calculating the cost of producing subject

merchandise, see, e.g. Final Results of

Antidumping Administrative Review:

Titanium Sponge from Japan, 555 FR

42227, (October 18, 1990).

With regard to La Molisana’s claim

that semolina is a byproduct, as stated

above, semolina is an input to pasta

production that can also be sold as a

finished product. The Department has

specific, objective criteria for identifying

byproducts (see Final Results of

Antidumping Administrative Review:

Elemental Sulphur from Canada, 61 FR

8239, 8241 (March 4, 1996)). La

Molisana has failed to explain how

semolina meets this criteria. Therefore,

we have recalculated per-unit semolina

costs for the final determination by

dividing total costs to produce semolina

by the quantity of semolina produced.

Comment 12 Semolina Water Weight

Gain: The petitioners argue that

production yields for semolina should

be calculated using the same basis for

output and input and should not be

inflated merely because water is added

during the milling process. They

advocate increasing semolina costs to

account for the water weight gain.

La Molisana notes that with regard to

water weight gain in the milling

process, the reported semolina yields do

not account for the water weight gain.

However, La Molisana does consider the

water weight gain in pasta production.

Although the process starts with the

relatively wet semolina, the cost of these

materials correctly account for the yield

to arrive at the cost of the finished pasta.

DOC Position: The Department agrees

that it is appropriate to consider the

change in weight resulting from the

addition of water in the milling process.

We noted a concern in our verification

report that the water weight gain might

understate semolina costs by overstating

production quantities. However, after

further review of this issue, we found

that La Molisana’s costs correctly

accounted for this change by allocating

the total input costs over the output tons

of finished, dried pasta.

Comment 13 Initiation of the Cost

Investigation: La Molisana argues that

only those sales identified by petitioners

as being below cost in their initial cost

allegation are subject to elimination

from normal value. Inasmuch as

petitioners had failed to identify any

control number as having had 20

percent or more of its sales below cost,

La Molisana argues that the Department

has no basis to eliminate any of the

company’s sales from normal value.

The petitioners respond that they

need only to provide the Department

with a reasonable basis to believe or

suspect the existence of below-cost

sales. They argue that they are not

required to demonstrate that such

below-cost sales account for more than

20 percent of the respondent’s total

sales volume. The petitioners state that

it is the Department’s responsibility

after the initiation of a cost investigation

to collect cost of production information

and to analyze that information to

determine whether or not below cost

sales were made in substantial

quantities.

DOC Position: The Department agrees

with the petitioners that they are not

required to demonstrate in their cost

allegation that more than 20 percent of

the home market or third country sales

were made at prices below the cost of

production. The Tariff Act specifies

only that the Department must have

‘‘reasonable grounds to believe or

suspect’’ that respondents have made

sales below cost in their home or third

country markets. (See section 773(b).)

The CIT has affirmed the Department’s

position in Huffy Corp. v. United States,

632 F. Supp. 50 (1986) that the Act

requires the petitioners to demonstrate

only that sales, not substantial sales,

have been made at below cost prices.

Comment 14 Constructed Value

Offset: La Molisana notes that the

Department did not apply the accounts
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices 30361

receivable offset to interest expense for

purposes of constructed value. It argues

it has been Departmental practice to

apply such an offset.

The petitioners did not comment on

this issue.

DOC Position: The Department has

not applied the accounts receivable

offset to interest expense in the

calculation of constructed value for

three reasons. First, the new statute

directs Commerce to calculate selling,

general and administrative costs,

including interest expense, based upon

the actual experience of the company.

See section 773(b)(3)(B) and section

773(e)(2)(A) of the Tariff Act of 1930, as

amended. Under our past practice, the

accounts receivable offset was allowed

as a reduction in interest expense to

account for imputed credit expense

which the Department included in

constructed value. Because we base

interest expense for constructed value

on the actual amounts incurred by

respondent, and do not include imputed

credit expenses, it is no longer

necessary to reduce the expense by the

accounts receivable offset. Second, the

Act defines the calculation of general

expenses for cost of production and

constructed value in the same way.

Therefore, it would be inappropriate to

calculate interest expense differently for

cost of production and constructed

value. Third, the Department computes

profit under the statute as the ratio of

profit earned on home market sales (i.e.,

net sales price less the cost of

production) to the cost of production.

Applying this ratio to a constructed

value inclusive of imputed offset would

be mathematically incorrect when the

ratio was based on a cost of production

exclusive of imputed expenses.

Liguori

Comment 1 Whether Liguori’s Home

Market Advertising Expense is

Overstated: The petitioners argue that

Liguori’s post-verification submission

overstated its home market advertising

expenses. They note that page 2 of the

Department’s sales verification report

found that certain of these expenses had

been incurred by an affiliate of Liguori’

and urge that the Department disallow

this amount of the home market

advertising expenses.

The petitioners further assert that

another portion of Liguori’s reported

advertising expenses had not been

verified successfully by the Department

and urged that this amount be excluded

from Liguori’s revised home market

advertising expenses.

Liguori contends that its home market

direct advertising expenses, as

corrected, conform with the

Department’s verification findings. The

first of these two amounts was incurred

by Liguori’s affiliate on behalf of

Liguori; it was posted in its affiliate’s

general ledger account as a direct

advertising expense. Liguori cites to

page 26 of the sales verification report.

With respect to the second aspect of the

advertising expense, which petitioners

classified as unverified, Liguori argues

that the only reason the amount was not

verified was because the Department

did not devote the time to verify it.

DOC Position: We disagree with the

petitioners that Liguori’s home market

advertising expense is overstated. We

verified that the amount mentioned on

page 26 of the sales verification report

covers the actual expenses that were

incurred by Liguori’s affiliate on behalf

of Liguori to pay for expenses that

qualified as direct advertising expenses.

The appearance of a conflict between

the amounts described on page 2 and on

page 26 of the sales verification report

is attributable to differences in the time

periods under consideration. The

amount on page 2 of the verification

report covers only the POI months

during 1994, while the amount on page

26 covers the entire POI. Both figures

refer to the same accounts in the general

ledger of Liguori’s affiliate and we are

satisfied that both are direct advertising

expenses. These figures are also

consistent with the findings in Liguori’s

cost verification. See, Exhibit 1, at page

19, of the cost verification report. The

Department considers this entire

amount to qualify as direct advertising

expenses.

With regard to the amount that was

unverified, the Department does not

verify every item reported or presented

at verification. The Department

exercised its discretion not to examine

this amount on the grounds that it is

small and that we had verified other

aspects of these advertising expenses.

Consequently, the Department considers

this amount as being verified as a direct

advertising expense.

Comment 2 Customer Categories: The

petitioners note that the Department

was not able to verify the reasons for

Liguori’s different classifications for its

U.S. customers. They urge the

Department not to rely on Liguori’s

reported customer categories or

channels of distribution for any reason,

including the use of averaging groups

and/or level of trade comparisons.

Liguori asserts that its reported

customer coding is the same coding that

it uses in its internal accounting system,

and that this was verified by the

Department.

DOC Position: We agree with Liguori,

in part. We verified that Liguori’s

reported customer coding was based on

the customer classifications used in its

internal accounting system in the

ordinary course of business.

Nevertheless, as discussed in the Level

of Trade Section, above, the Department

has reclassified Liguori’s reported

customer categories for use in our level

of trade, arm’s length pricing, and

averaging group analyses.

Comment 3 Minor Changes Found at

Verification: The petitioners state that

the Department found, at verification,

that Liguori had misidentified certain

product codes and urge the Department

to reclassify these pasta shapes for the

final determination. Liguori contends

that these pasta shapes were reclassified

in its March 5, 1996, submission.

Liguori also states that certain minor

changes to its sales responses are

warranted in the final determination as

a result of minor errors identified prior

to, or in the course of, verification.

Liguori notes that these changes were

identified in the new sales tape

submitted on March 5, 1996.

DOC Position: We agree with Liguori

that these pasta shapes have been

reclassified correctly in its March 5,

1996, submission. We confirm that most

of these minor changes were

incorporated in Liguori’s March 5, 1996,

submission.

Certain minor errors noted at

verification were not incorporated in

Liguori’s March 5, 1996, submission.

We have made the necessary revisions

to one home market invoice and to one

U.S. invoice concerning payment/

shipment dates and credit expenses in

Liguori’s database for the margin

calculation.

Comment 4 Resellers vs. End-users:

Liguori notes that, in the preliminary

determination, the Department stated

incorrectly that: ‘‘Liguori reported that

{its} sales to {its} * * * affiliated

resellers were made at arm’s length.’’

Liguori argues that the record clearly

reflects that Liguori made no sales to, or

through, affiliated resellers. It asserts

that all of its home market sales to

affiliates were to end-users that

consumed the pasta in the course of

their own commercial activities. These

affiliated customers did not resell

subject merchandise to unaffiliated

parties.

DOC Position: We agree with Liguori

that all its home market sales to

affiliates were to end-users. At

verification, we noted that these sales

were to affiliated end-users which

consumed the pasta in the course of

their own commercial activities and that

these affiliated customers did not resell

subject merchandise to unaffiliated

parties.
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Comment 5 Allocation of Fuel Costs:

The petitioners argue that pasta drying

times and the resulting fuel costs are

affected by the shape of the pasta. In

particular, the wall thickness of pasta

has the greatest effect on drying time.

For example, thin spaghetti would incur

less drying time and fuel costs than

jumbo shells. As a consequence,

according to the petitioner, Liguori’s

unsubstantiated method of allocating

fuel costs on a short and long product

basis is improper. The petitioners urge

the Department to allocate fuel costs to

production lines equally since Liguori

does not maintain records that would

enable the Department to base the

allocation on line speed.

Liguori does not object to an equal

allocation of fuel costs among

production lines.

DOC Position: We agree with

petitioners that Liguori was not able to

provide support for its fuel allocation

methodology. We reviewed the

company’s records to determine if

Liguori maintained data that would

enable the Department to base the

allocation on a more accurate method.

We found that Liguori did not maintain

the type of detailed information that

would allow for a specific allocation of

these costs. We therefore allocated the

fuel costs equally among pasta

production lines.

Pagani

Comment 1 Facts Available: The

petitioners contend that both Pagani’s

sales database and its cost of production

database are unreliable and that the

Department should assign Pagani a FA

rate for the final determination.

Pagani contends that it has diligently

reported its sales and cost data in

compliance with each of the

Department’s requests during the

investigation. With regard to its sales

database, Pagani states that the

Department thoroughly tested the

accuracy and completeness of its sales

data. The company asserts that the

Department not only tested and

reconciled the sales information used in

the calculation of the preliminary

margin, but also reconciled the total

sales figure in the database into its

financial statements. With regard to its

cost information, Pagani argues that it

properly allocated costs between subject

and non-subject merchandise. In

addition, Pagani contends that it

appropriately valued raw materials and

finished goods inventory pursuant to

Italian GAAP.

DOC Position: We agree with Pagani.

While Pagani has submitted different

volume and value figures during the

investigation, most of these changes

were requested by the Department and

verified. Although computer problems

delayed the verification process, they

did not prevent the Department from

fully verifying Pagani’s sales database.

The differences between the figures

submitted in the original home market

and U.S. databases and those in the

most recently submitted databases are

not significant. On the basis of our sales

and cost verifications, it is reasonable

and appropriate to calculate a margin

for the final determination based on

information on the record.

Comment 2 Movement Expenses: The

petitioners contend that the Department

should treat the entire amount of

Pagani’s inland freight expenses as

indirect selling expenses because some

of the expenses were pre-sale expenses

while others were post-sale expenses.

The specific issue involves proprietary

information and, therefore, cannot be

discussed in any detail. See, petitioners’

brief, at pages 126–127.

Pagani contends that the

overwhelming majority of its inland

freight expenses are direct selling

expenses attributable to the post-sale

delivery of its product from its factory

or warehouse to its customers. At the

very least, Pagani states that the

Department should deduct from normal

value the amount verified as being

direct in nature.

DOC Position: Section 773(a)(6)(B)(i)

of the Act directs the Department to

reduce normal value by ‘‘the cost of all

containers and coverings and all other

costs, charges, and expenses incident to

placing the foreign like product in

condition packed ready for shipment to

the place of delivery to the purchaser

* * *.’’ Accordingly, the Department

treats all movement expenses as direct

expenses regardless of whether they are

pre- or post-sale in nature. Therefore,

we have treated Pagani’s pre-sale and

post-sale inland freight charges as direct

expenses.

Comment 3 Sales to Employees: The

petitioners state that the heavily

discounted price for pasta that Pagani

offers to its employees should not be

included in normal value. They state

that these sales were made at preagreed, discounted prices that were

considerably lower than Pagani’s prices

to its regular customers. The petitioners

further state that the discounted prices

offered to Pagani’s employees are a type

of fringe benefit, and are made outside

of the ordinary course of trade.

Pagani states that its sales of pasta to

its employees constitute a regular

practice, pursuant to an agreement with

the Italian government and provincial

trade unions. Pagani further states that

these sales are made in ordinary

wholesale quantities and in the ordinary

course of trade. Pagani states that the

‘‘customer’’ can be relied upon to take

delivery of a regular quantity on a

regular basis, pursuant to an agreement

that operates as a requirements contract,

subject to a maximum purchase level.

DOC Position: We agree with

petitioners. Because these sales are

made pursuant to an agreement with the

Italian government and provincial trade

unions, we do not consider them to

have been made in the ordinary course

of trade. Rather, these sales are in the

nature of an employee benefit.

Comment 4 Disallowing Certain Home

Market Expenses: The petitioners

contend that the Department should

continue to disregard certain home

market expenses when calculating

weighted-average normal values. Any

further discussion of this issue is not

possible because of the proprietary

nature of the expense. Pagani did not

comment on this issue.

DOC Position: We agree with the

petitioners. We will not deduct this

expense from normal value.

Comment 5 U.S. Interest Rate: The

petitioners state that the loan reviewed

by the Department at verification is not

representative of Pagani’s normal

financing experience. The petitioners

argue several additional points as to

why the interest rate from this loan

should not be used. Further discussion

of this issue is not possible because of

the proprietary nature of the loan.

Pagani states that it has revised its

U.S. interest rate to reflect the actual

dollar borrowing rate incurred on its

foreign currency loan.

DOC Position: We disagree with the

petitioners. It is standard Department

practice to rely upon the respondent’s

actual experience when this information

has been verified. See, e.g., Final

Determination of Sales at Less than Fair

Value: Polyvinyl Alcohol From the

People’s Republic of China, 61 FR

14057, 14061–14062 (March 29, 1996).

We used the U.S. dollar borrowing rate

for the calculation of Pagani’s U.S.

credit expense.

Comment 6 Exclusion of Invoice 112:

Pagani argues that this particular sale

should be excluded from the

Department’s calculations because it

was made at a ‘‘salvage price’’ owing to

the product’s limited remaining shelflife. Pagani further contends that this

transaction is unique in Pagani’s

experience with selling its product in

the U.S. market. Finally, citing Circular

Welded Non-Alloy Steel Pipe from the

Republic of Korea, (57 FR 42942,

September 17, 1992) and Ipsco, Inc. v.

United States, 714 F. Supp. 1211,1217

(CIT 1989) (‘‘Ipsco’’), Pagani stresses the
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Department’s practice of excluding

‘* * * sales which are not

representative of the seller’s behavior

* * *’ Id.

The petitioners state that the sale in

question was made through the usual

distribution channels and that there was

no indication that the goods sold were

defective, or otherwise were of inferior

quality. Based on these statements and

citing to both the Ipsco case and to the

Final Determination of Sales at Less

Than Fair Value: Fresh Kiwifruit from

New Zealand, 57 FR 13695 (April 17,

1992), the petitioners contend that the

Department should use this sale in its

margin calculation for the final

determination.

DOC Position: We agree with

petitioners. The exclusion from the

ordinary course of trade only applies to

the calculation of normal value.

Although the Department has excluded

aberrant U.S. sales from price

comparisons on occasion, these

exclusions have been confined to

situations where there were very few

U.S. sales in the category excluded. See,

e.g., Preliminary Determination of Sales

at Less Than Fair Value: Canned

Pineapple Fruit from Thailand, 60 FR

2734, 2737 (January 11, 1995). That is

not the case here, where Pagani is

requesting the exclusion of a material

percentage of the U.S. database.

Comment 7 Exclusion of Certain U.S.

Sales: Petitioners argue that the

Department should not have excluded

certain sales from Pagani’s margin

calculations for the preliminary

determination. Further discussion of

this issue is not possible because of the

proprietary nature of these sales. See

petitioners’ brief, at 134–135. Pagani did

not address the issue.

DOC Position: The Department used

its standard computer programming

language at the preliminary

determination. Those programming

instructions isolated the sales at issue in

the calculation of the dumping margin

in the preliminary determination. The

program did not, however, exclude the

sales described by the petitioners. The

Department used this standard

programming language for the final

determination.

Comment 8 Freight-in Costs of

Semolina: Petitioners argue that the

Department should increase Pagani’s

reported cost of semolina to include

freight-in costs of semolina purchased

from unaffiliated suppliers. Petitioners

believe that freight-in costs are an

integral part of the acquisition cost of

semolina.

Pagani did not comment on this issue.

DOC Position: We agree with

petitioners. We increased Pagani’s

reported costs to include the freight-in

cost of semolina purchased from certain

unaffiliated suppliers. Freight-in costs

are part of the acquisition cost of the

material.

Comment 9 Depreciation Expense on

New Production Line: The petitioners

argue that Pagani’s submitted

depreciation expense was understated

because Pagani used 1994 depreciation

expense as a surrogate for the POI

depreciation expense. They also argue

that Pagani’s submitted depreciation

expense did not include two months of

depreciation expense for a new

production line which was placed in

service during March 1995, and that the

Department should increase Pagani’s

depreciation expense for the two

months that this new line was in use.

They suggest that the Department

should also increase Pagani’s 1994

depreciation expense to account for

inflation between 1994 and 1995.

Pagani does not disagree with

petitioners suggestion to increase

depreciation expense for the new line.

However, it argues that it is unnecessary

to account for the effects of inflation

since the petitioners supplied no

evidence that inflating the costs would

provide a more accurate cost of

production.

DOC Position: We agree with both the

petitioners and Pagani, in part. We

increased Pagani’s fixed overhead cost

to include two months of depreciation

expense for the new production line

which began operating in March 1995.

However, we did not increase Pagani’s

depreciation expense to reflect the

effects of inflation as the petitioners

suggested because it is not the

Department’s general practice to adjust

for inflation at low levels such as those

present in Italy during 1994 and 1995.

Comment 10 Subsidy Offset to G&A:

The petitioners argue that the

Department should disallow Pagani’s

offset to G&A expenses for European

Union Export Restitution payments

received for pasta sales made outside

the European Union (‘‘EU’’). They argue

that G&A expenses are part of the cost

of production for products sold in Italy

and that a reimbursement for sales

outside the EU has no relationship to

the cost of production in Italy. Further,

they contend that it is improper to

include these reimbursements as an

offset to Pagani’s 1994 G&A expense

because the reimbursements may be for

sales that occurred prior to 1994.

Pagani contends that it should be

allowed to offset G&A expenses with the

EU Export Restitution payments. It

argues that it is the Department’s normal

practice to consider G&A expenses

relating to the activities of the company

as a whole and not merely those relating

to a specific market. Pagani states that

it based its G&A expenses on the fullyear amount reported in its 1994

audited financial statements, the fiscal

year that most closely corresponded to

the POI.

DOC Position: We disagree with the

petitioners. The EU Export Restitution

payments are paid to pasta exporters

who purchase and use EU wheat to

produce pasta to compensate for the

high price of EU wheat. In the Final

Determination of Sales at Less Than

Fair Value: Stainless Steel Bar From

India, 60 FR 66915 (December 28, 1994),

the Final Determination of Sales at Less

Than Fair Value: Aramid Fiber Formed

of Poly-Phenylene Terephthalamide

from the Netherlands, 59 FR 22684,

22556 (May 8, 1995), and the Final

Determination of Sales at Less Than

Fair Value: Oil Country Tubular Goods

from Argentina, 60 FR 33539, 33546

(June 28, 1995), the Department found

that the receipt of similar governmental

reimbursements could be used to offset

production costs because they were

found to be directly related to the

production of subject merchandise.

Therefore, in this case, the restitution

payments Pagani received from the EU

relate directly to the production of

subject merchandise and represent an

appropriate offset to the company’s

production costs.

As for the petitioners’ concern that

the restitution payments may relate to

events that occurred prior to 1994, we

note that Pagani obtained the amount of

the restitution from its 1994 audited

financial statements where it was

reported as a part of miscellaneous

income. It is the Department’s normal

practice to require respondents to report

annual G&A expenses and any

corresponding miscellaneous income

offsets that are general in nature for the

fiscal year that mostly corresponds to

the POI.

Comment 11 Exchange Gains: The

petitioners believe that the Department

should exclude exchange gains from the

calculation of G&A expenses because

the amount of the exchange gains is

related to accounts receivable. Pagani

contends that it appropriately included

the exchange gains as an offset to G&A

expenses.

DOC Position: We agree with the

petitioners that the exchange gains

should not be used to offset G&A and,

accordingly, have excluded this amount

from the calculation of G&A expenses.

It is the Department’s normal practice to

distinguish between exchange gains

from sales transactions (i.e., accounts

receivable) and exchange gains from

purchase transactions. The Department
30364 Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices

does not normally include exchange

gains from sales transactions in G&A

expenses. See Silicomanganese from

Venezuela.

Comment 12 Egg Pasta Cost of

Manufacturing: The petitioners argue

that Pagani’s submission methodology

overstates the cost of manufacture for

non-subject merchandise, i.e., egg pasta.

They argue that the only significant

difference between egg pasta and nonegg pasta is the egg additive and that the

cost of Pagani’s egg additive is not as

significant as the difference between the

unit cost of egg and non-egg pasta.

Additionally, the petitioners state that

Pagani’s conversion cost of both subject

and non-subject merchandise should be

the same because the production steps

are similar and are performed on the

same equipment. Therefore, subject and

non-subject merchandise should have a

similar cost of manufacturing.

Pagani argues that the different costs

of manufacturing of subject and nonsubject merchandise is reasonable. Egg

pasta is more costly to produce because

the egg additive is expensive and this

type of pasta requires higher conversion

costs to produce. Pagani explains that

the egg pasta it produces is either a

nested or soupette product that is

manufactured on the production line

with the highest operating costs. On the

other hand, subject merchandise is

mostly short and long cut pasta

manufactured on production lines with

lower operating cost.

DOC Position: We disagree with

petitioners. We did not find Pagani’s

cost of egg pasta to be overstated. As

noted in our verification report, Pagani’s

egg pasta had higher production costs

than subject merchandise. (See

Memorandum to Christian B. Marsh

from Stan T. Bowen, April 17, 1996, at

15.) Our verification report also notes

that we reviewed the cost of

manufacturing of non-subject

merchandise. We found that the egg

additive, which is not used in subject

merchandise, comprised a significant

portion of the raw material weight of egg

pasta. The egg additive had a higher per

kilogram cost than the semolina used by

Pagani. Additionally, we found that

Pagani’s egg pasta production consisted

primarily of nested and soupette

products, which incur the highest

conversion costs of all of Pagani’s

product lines. We also note that Pagani’s

finished egg pasta was valued at a

higher cost than non-egg merchandise in

the company’s finished goods inventory

ledgers for the past several years.

Therefore, Pagani’s reported cost of

manufacturing of egg pasta did not

appear to deviate from the valuation

method used by the company in its

normal accounting records.

Comment 13 Inventory Valuation: The

petitioners contend that Pagani’s

inventory valuation method (i.e., higher

of cost of acquisition or market price)

overstates the value of Pagani’s

beginning and ending inventory. This in

turn, distorts Pagani’s current cost of

production. The petitioners also

contend that Pagani did not account for

all of the semolina consumed in

production. They argue that the impact

on the cost of manufacturing of Pagani’s

flawed inventory valuation is

significant.

Pagani states that its method of

valuing inventory is authorized under

Italian law and that it is the

Department’s well-documented practice

to employ home market GAAP in

calculating COP and CV. Additionally,

Pagani argues that the petitioners give

no reason why Pagani’s inventory

valuation method is inappropriate.

Pagani argues that the difference in

semolina consumption quantities is

immaterial.

DOC Position: We agree with Pagani.

We found that the company’s method of

valuing inventory has no significant

affect on the production costs of subject

merchandise. Pagani valued ending

inventories of finished pasta based on

the weighted-average cost of production

for the period. The ending inventory of

raw materials, other materials, and

packing materials were valued based on

the higher of acquisition cost or market

price. (See Memorandum to Christian B.

Marsh from Stan T. Bowen, April 17,

1996, at 9.) Although Pagani’s ending

inventory quantities and value changed

between year-end 1993 and 1994, we

noted that the per-unit inventory values

of raw materials and finished

merchandise did not fluctuate

significantly between periods.

Furthermore, we compared the value of

finished goods reported in Pagani’s

inventory ledgers to the company’s

actual cost of manufacturing for the POI

and noted no significant difference

between the values. We also compared

the value of the raw materials reported

in Pagani’s year-end inventory ledgers

to Pagani’s acquisition costs during the

month of December 1994 and noted no

significant difference between the

values.

As for the petitioners’ concern that

Pagani understated its POI semolina

consumption quantities, we note that

the petitioners relied on a reconciliation

schedule of semolina quantities which

had several typographical errors. The

dates reported on this schedule

suggested that the reconciliation was for

the POI but, in fact, the reconciliation

covered the 1994 calendar year. Thus,

the POI consumption quantities

provided on the schedule of monthly

semolina purchases and consumption

quantities in the verification exhibit will

not agree to the total quantities

consumed during 1994 calendar years.

In our judgement, the petitioners

concern that Pagani understated its POI

semolina consumption quantity is not

supported by the record.

Industria Alimentare Colavita S.p.A.

(Indalco)

Comment 1 Requirements for

Voluntary Respondents are

Unreasonable and Contrary to Law:

Indalco asserts that the Department’s

policy toward accepting voluntary

respondents is both unreasonable and

fails to comply with the requirements of

the Antidumping Agreement

(Agreement on Implementation of

Article VI of GATT 1994). Indalco had

requested voluntary status and

responded to section A of our

questionnaire. When the Department

informed Indalco that it would only

accept voluntary respondents in this

investigation if a mandatory respondent

failed to participate and if the voluntary

respondent complied with the same

deadlines that the Department

established for the mandatory

respondents, Indalco requested both a

commitment from the Department to be

accepted as a respondent and a fourweek extension for its responses to

sections B and C of our questionnaire.

When the Department denied these

requests, Indalco withdrew its request to

be a voluntary respondent. Now,

Indalco insists that the Department

either exclude it from the final

antidumping determination and from

the coverage of any antidumping duty

order, should one be issued in this

investigation. In the alternative, Indalco

requests a sufficient period of time to

submit responses to sections B and C of

the questionnaire and that the

Department calculate an individual

margin for the company.

The petitioners argue that the

Department properly denied the request

of Indalco to participate as a voluntary

respondent in this investigation because

the number of respondents already

involved was burdensome to the

Department.

DOC Position: The Department

communicated its policy toward

voluntary respondents participating in

this investigation and provided specific

written guidance on the Department’s

criteria for including a voluntary

respondent in the investigation. (See

July 12, 1995, letter from Gary

Taverman to Indalco.) Additionally, the
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices 30365

Department responded to Indalco’s

request that the Department make a

formal decision to include Indalco in

the investigation by explaining that it

would make the decision after Saral had

submitted certain documentation

necessary to the Department for

determining whether to exclude Saral

from the investigation. The submission

from Saral was due August 31, 1995,

before Indalco’s responses to sections B

and C of the Department’s questionnaire

were due. The Department also stated in

that letter that it ‘‘{i}f Saral is not

required to participate as a mandatory

respondent * * * the Department will

include Indalco as a respondent if it has

met all filing deadlines.’’ [Emphasis

added.] As for its request for a fourweek extension from the time the

decision is made (not from the

September 6, 1995, due date) to submit

responses to sections B and C of the

questionnaire on August 28, 1995, the

Department granted a one-week

extension of the B and C deadline to

correspond with the latest response due

date for any mandatory respondent. On

August 29, 1995, Indalco withdrew its

request to be included as a voluntary

respondent in the investigation and did

not state any reason for its withdrawal.

Neither the statute nor the

Antidumping Agreement conflict with

the Department’s selection of mandatory

or voluntary respondents in this

investigation. Section 782(a) of the Act

implements the obligations of the

United States under Article 6.10.2 of the

Antidumping Agreement. This section

authorizes the Department to limit

voluntary respondents where the

number of respondents is so large that

the calculation of individual dumping

margins would be unduly burdensome

and would prevent the timely

completion of the investigation. Our

determination as to which voluntary

respondents to select is not limited to

our consideration of the number of

voluntary responses. The SAA, at page

873, explicitly permits the Department,

under certain circumstances, to decline

to accept any voluntary respondents.

Under Article 6.10.2 of the

Antidumping Agreement, the

antidumping authorities may take into

account the total number of exporters

and producers in determining whether

to restrict the consideration of the

number of voluntary responses; we are

not limited in our consideration to the

number of voluntary responses. (‘‘Where

the number of exporters and producers

is so large that individual examinations

would be unduly burdensome to the

authorities and prevent the timely

completion of the investigation.’’)

Had the Department acquiesced in

granting Indalco a one-month extension

to complete its questionnaire response

as a precondition for its further

participation in the investigation,

Indalco’s participation would have

prevented the timely completion of the

investigation. Moreover, the Department

has no authority now to delay its final

determination so that Indalco can

complete the questionnaire and no

reason to excuse Indalco’s failure to

present the Department with its reasons

for withdrawing its participation earlier

in the investigation. Finally, Indalco has

not provided the Department with any

rationale for excluding the company

from the coverage of the final

determination or from an antidumping

duty order, should one be issued as a

result of this investigation. Should an

antidumping order be issued in this

investigation, Indalco can request that

its sales be examined in an

administrative review under section 751

of the Act.

Continuation of Suspension of

Liquidation

In accordance with section 733(d) of

the Act, we are directing the Customs

Service to continue to suspend

liquidation of all entries of pasta from

Italy, as defined in the ‘‘Scope of

Investigation’’ section of this notice, that

are entered, or withdrawn from

warehouse for consumption, on or after

January 19, 1996, the date of publication

of our preliminary determination in the

Federal Register. Article VI.5 of the

General Agreement on Tariffs and Trade

(GATT) provides that ‘‘[n]o product

* * * shall be subject to both

antidumping and countervailing duties

to compensate for the same situation of

dumping or export subsidization.’’ The

Department has determined in its Final

Affirmative Countervailing Duty

Determination: Certain Pasta from Italy,

that the product under investigation

benefitted from export subsidies.

Normally, where the product under

investigation is also subject to a

concurrent countervailing duty (CVD)

investigation, we would instruct the

U.S. Customs Service to require a cash

deposit or posting of a bond equal to the

weighted-average amount by which the

normal value exceeds the export price,

as shown below, minus the amount

determined to constitute an export

subsidy. (See, Antidumping Order and

Amendment of Final Determination of

Sales at Less Than Fair Value: Extruded

Rubber Thread from Malaysia, 57 FR

46150 (October 7, 1992).) For Arrighi,

Delverde, and La Molisana, we are

subtracting for deposit purposes the

cash deposit rate attributable to the

export subsidies found in the

countervailing duty investigation. The

‘‘all others’’ deposit rate is based on

subtracting the rate attributable to the

export subsidies found in the CVD

investigation for those companies that

are respondents in the antidumping

duty investigation and are found to have

dumping margins.

In this investigation, De Cecco has not

cooperated with the Department and has

not acted to the best of its ability in

providing the Department with

necessary information. This has

prevented the Department from making

its normal determination of whether the

subsidies in question may have affected

the calculation of the dumping margin.

Thus, as indicated above, De Cecco’s

margin is based on facts available, taken

from the petition. Insofar as the

dumping margin for De Cecco is not a

calculated margin, there is no way to

determine the portion of the

antidumping duty which is attributable

to the export subsidy. For that reason,

and to prevent De Cecco from

benefitting from its non-cooperation in

this investigation, we have not

subtracted the amount of any export

subsidy from that margin.

This suspension of liquidation will

remain in effect until further notice.

The weighted-average dumping

margins are as follows:

Exporter/manufacturer

Weighted-average margin

percentage

Bonding

percentage

Arrighi ...................... 20.24 ........... 17.99

De Cecco* ............... 46.67 ........... 46.67

Delverde .................. 2.80 ............. 1.68

De Matteis ............... 0.67 .............

(de minimis)

0.00

La Molisana ............. 14.78 ........... 14.73

Liguori ...................... 12.41 ........... 12.41

Pagani ..................... 12.90 ........... 12.90

All Others ................. 11.21 ........... 10.38

* Facts Available Rate.

The all others rate applies to all

entries of subject merchandise except

for entries of merchandise produced by

the respondents listed above.

ITC Notification

In accordance with section 735(d) of

the Act, we have notified the ITC of our

determination. As our final

determination is affirmative, the ITC

will determine whether these imports

are causing material injury, or threat of

material injury, to the industry within

45 days. If the ITC determines that

material injury, or threat of material

injury, does not exist, the proceeding

will be terminated and all securities

posted will be refunded or canceled. If
30366 Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Notices

the ITC determines that such injury

does exist, the Department will issue an

antidumping duty order 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.

This determination is published

pursuant to section 735(d) of the Act.

Dated: June 3, 1996.

Paul L. Joffe,

Acting Assistant Secretary for Import

Administration.

[FR Doc. 96–14736 Filed 6–13–96; 8:45 am]

BILLING CODE 3510–DS–P

[C–489–806]

Final Affirmative Countervailing Duty

Determination: Certain Pasta (‘‘Pasta’’)

from Turkey

AGENCY: Import Administration,

International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: June 14, 1996.

FOR FURTHER INFORMATION CONTACT:

Elizabeth Graham or Kristin Mowry,

Office of Countervailing Investigations,

Import Administration, U.S. Department

of Commerce, Room 3099, 14th Street

and Constitution Avenue, N.W.,

Washington, D.C. 20230; telephone

(202) 482–4105 and 482–3798,

respectively.

Final Determination

The Department determines that

countervailable subsidies are being

provided to manufacturers, producers,

or exporters of pasta in Turkey. For

information on the countervailing duty

rates, please see the Suspension of

Liquidation section of this notice.

Case History

Since the publication of the

preliminary affirmative determination

in the Federal Register (60 FR 53747,

October 17, 1995), the following events

have occurred.

On October 21, 1995, we aligned the

date of our final determination with the

date of the final determination in the

companion antidumping duty

investigation of certain pasta from

Turkey (60 FR 54847, October 26, 1995).

Subsequently, the final determinations

in the antidumping and countervailing

duty determinations were postponed

until June 3, 1996 (61 FR 1351, January

13, 1996).

Verification of the responses of the

Government of Turkey (GOT), Filiz Gida

Sanayi ve Ticaret (Filiz), Maktas

Makarnacilik ve Ticaret (Maktas), Andas

Gida Dagitim ve Ticaret A.S. (Andas),

Dogus Holding A.S. (Dogus), and Aytac

Dis Ticaret Yatirim Sanayi A.S. (Aytac)

was conducted between October 30,

1995, and November 10, 1995. We

verified that Aytac did act as the

exporter of record for certain of Maktas’’

sales of pasta to the United States

during 1994 and that Aytac had

transferred its rights to benefits with

respect to those exports to Maktas.

Furthermore, we verified that Aytac

received no benefits during the POI.

Based on this information, we have not

calculated an individual countervailing

duty rate for Aytac. If this company

exports to the United States, it will be

subject to the all others rate.

On February 14, 1996, we terminated

the suspension of liquidation of all

entries of the subject merchandise

entered, or withdrawn from warehouse,

for consumption on or after that date (61

FR 3672, February 1, 1996) (see

Suspension of Liquidation section,

below).

Petitioners and respondents filed case

and rebuttal briefs on April 17, 1996

and April 22, 1996. The hearing in this

case was held on April 25, 1996.

Scope of Investigation

The product covered by this

investigation is certain non-egg dry

pasta in packages of five pounds (or 2.27

kilograms) or less, whether or not

enriched or fortified or containing milk

or other optional ingredients such as

chopped vegetables, vegetable purees,

milk, gluten, diastases, vitamins,

coloring and flavorings, and up to two

percent egg white. The pasta covered by

this investigation is typically sold in the

retail market in fiberboard or cardboard

cartons or polyethylene or

polypropylene bags, of varying

dimensions.

Excluded from the scope of this

investigation are refrigerated, frozen, or

canned pastas, as well as all forms of

egg pasta, with the exception of non-egg

dry pasta containing up to two percent

egg white. In the companion

countervailing and antidumping duty

investigations involving pasta from

Italy, we have excluded imports of

organic pasta that are accompanied by

the appropriate certificate issued by the

Associazione Marchigiana Agricultura

Biologica (AMAB). The Department has

determined that AMAB is legally

authorized to certify foodstuffs as

organic for the Government of Italy

(GOI). If certification procedures similar

to those implemented by the GOI are

established by the GOT for exports of

organic pasta to the United States, we

would consider an exclusion for organic

pasta at that time.

The merchandise under investigation

is currently classifiable under

subheading 1902.19.20 of the

Harmonized Tariff Schedule of the

United States (HTS). Although the HTS

subheading is provided for convenience

and customs purposes, our written

description of the scope of this

proceeding is dispositive.

The Applicable Statute and Regulations

Unless otherwise indicated, all

citations to the statute are references to

the provisions of the Tariff Act of 1930,

as amended by the Uruguay Round

Agreements Act effective January 1,

1995 (the Act). References to the

Countervailing Duties: Notice of

Proposed Rulemaking and Request for

Public Comments, 54 FR 23366 (May 31,

1989) (Proposed Regulations), which

have been withdrawn, are provided

solely for further explanation of the

Department’s CVD practice.

Petitioners

The petition in this investigation was

filed by Borden, Inc., Hershey Foods

Corp., and Gooch Foods, Inc.

Period of Investigation

The period for which we are

measuring subsidies (the ‘‘POI’’) is

calendar year 1994.

Facts Available

Section 776(a)(2)(A) of the Act

requires the Department to use the facts

available ‘‘if an interested party or any

other person withholds information that

has been requested by the administering

authority or the Commission under this

title.’’ One of the companies included in

this investigation, Oba, did not respond

to our questionnaire. Section 776(b) of

the Act provides that the administering

authority may use an inference that is

adverse to the interests of such a party

in selecting from among the facts

otherwise available. Such adverse

inference may include reliance on

information derived from: (1) The

petition, (2) a final determination in the

investigation under this title, (3) any

previous review under section 751 or

determination under section 753, or (4)

any other information placed on the

record. Because the petition did not

provide subsidy rates, we were unable

to use the petition as a source for facts

available.

In the absence of verified data

concerning benefits received by Oba

during the POI, we have determined

that rates based on record data obtained

from similarly situated firms constitute

the most appropriate data available.

Therefore, we have used as the facts

available for Oba the sum of the highest