65 FR 55502, September 14, 2000 A-122-814 Administrative Review POR: 8/1/98-7/31/99 Public Document DAS I/1: JG September 7, 2000 MEMORANDUM TO: Troy H. Cribb Acting Assistant Secretary for Import Administration FROM: Richard W. Moreland Deputy Assistant Secretary AD/CVD Enforcement Group I Import Administration RE: Pure Magnesium from Canada (Period of Review: August 1, 1998 through July 31, 1999) SUBJECT: Issues and Decision Memorandum for the Seventh Antidumping Duty Administrative Review and Determination Not to Revoke Summary We have analyzed the comments and rebuttal comments of interested parties in the 1998-1999 administrative review of the antidumping duty order on pure magnesium (magnesium) from Canada. We have not made any changes to the preliminary results as a result of our analysis. We recommend that you approve the positions we have developed in the Discussion of the Issues section of the memorandum. Below is the complete list of the issues in this administrative review for which we received comments from the parties: Revocation/Commercial Quantities Compliance with the WTO Antidumping Agreement Definition of Commercial Quantities Retroactive Application Procedural Requirements for Revocation The Department's Revocation Practice Benchmarks Used to Determine Commercial Quantities Significant Drop-offs in Sales After Imposition of an Order Changes to a Respondent's Commercial Practice Whether the Evidence Demonstrates Commercial Quantities Background On May 10, 2000, the Department of Commerce ("the Department") published the preliminary results of administrative review of the antidumping duty order on pure magnesium from Canada. See Pure Magnesium from Canada; Preliminary Results of Antidumping Duty Administrative Review and Notice of Intent Not To Revoke Order in Part, 65 FR 30070 (May 10, 2000) ("Preliminary Results"). In the Preliminary Results, we preliminarily determined not to revoke the antidumping duty order with respect to pure magnesium from Canada produced by Norsk Hydro Canada Inc. ("NHCI"). Our findings were consistent with prior determinations in this proceeding. See Pure Magnesium From Canada; Final Results of Antidumping Duty Administrative Review and Determination Not to Revoke Order in Part, 64 FR 12977, 12978 (March 16, 1999) ("Fifth Review Final Results") (covering the period August 1, 1996 through July 31, 1997) and Pure Magnesium From Canada; Final Results of Antidumping Duty Administrative Review and Determination Not to Revoke Order in Part, 64 FR 50489, 50490 (September 17, 1999) ("Sixth Review Final Results") (covering the period August 1, 1997 through July 31, 1998). The product covered by this review is pure magnesium. Pure unwrought magnesium contains at least 99.8 percent magnesium by weight and is sold in various slab and ingot forms and sizes. Granular and secondary magnesium are excluded from the scope of this review. Pure magnesium is currently classified under subheading 8104.11.0000 of the Harmonized Tariff Schedule of the United States ("HTSUS"). The period of review ("POR") is August 1, 1998 through July 31, 1999. The respondent, NHCI, filed a case brief on June 16, 2000. The petitioner, Magnesium Corporation of America (the petitioner), filed a rebuttal brief on June 28, 2000. Discussion of the Issues A.  Revocation/Commercial Quantities Comment 1: Compliance with the WTO Antidumping Agreement. Respondent's Argument NHCI argues that the Department's refusal to consider NHCI's request for revocation in this review is inconsistent with Articles 11.1 and 11.2 of the 1994 World Trade Organization Antidumping Agreement ("WTO Agreement"). First, the Department's continued imposition of antidumping duties, despite NHCI's demonstrated ability to sell in the U.S. market for five consecutive review periods with no margin of dumping and increasing sales volumes, violates Article 11.1 of the WTO Agreement, which states that "an anti-dumping duty shall remain in force only as long as and to the extent necessary to counteract dumping which is causing injury." Second, NHCI alleges that the Department's refusal to consider its revocation request in light of the absence of dumping for five consecutive review periods violates Article 11.2 of the WTO Agreement, which requires administering authorities to "review the need for the continued imposition of the duty . . . upon request by any interested party which submits positive evidence substantiating the need for a review." While the WTO Agreement does not specify the precise criteria which should be applied in determining whether positive evidence has been submitted, NHCI maintains that it has submitted such evidence under any reasonable set of criteria that would be consistent with Article 11.2 of the WTO Agreement. Third, NHCI asserts that the Department's revocation decision violates the new WTO sunset provisions which restrict the Department's ability to maintain antidumping duty orders after five years of no dumping. Petitioner's Argument The petitioner argues that the Department's determination not to revoke the order is consistent with Articles 11.1 and 11.2 of the WTO Agreement. First, the petitioner contends that the continued imposition of dumping duties is necessary because NHCI's lack of sales in commercial quantities demonstrates that its zero margin is not representative of NHCI's normal commercial behavior and does not prove that NHCI is not dumping. Second, the petitioner asserts that the Department, in fact, considered NHCI's request for revocation, but preliminarily found that NHCI's failure to make sales in commercial quantities during the Fifth Review Final Results POR disqualified NHCI from revocation of the order. Third, the petitioner argues that the WTO sunset provisions are irrelevant to the instant review inasmuch as they concern different proceedings. Department's Position The Department's revocation procedures are fully consistent with Articles 11.1 and 11.2 of the WTO Agreement. In order to determine whether continuation of an antidumping duty order is "necessary to counteract dumping which is causing injury," consistent with Article 11.1 of the WTO Agreement, the Department normally requires a respondent first to demonstrate an ability to participate meaningfully in the U.S. market without dumping. In order to demonstrate meaningful participation, we look to whether the respondent has sold subject merchandise for three consecutive years, in commercial quantities, at prices above normal value ("NV"). This is reasonable because unless a company can establish that it has been participating in the U.S. market in a commercially meaningful way without dumping, it is appropriate to assume that the continued imposition of duties is necessary to mitigate dumping that would otherwise occur in the absence of the order. Only after a respondent has made such a demonstration (and provided the required certification) does the rebuttable presumption arise that the order is no longer necessary to offset dumping. With respect to Article 11.2 of the WTO Agreement, we believe that "positive evidence substantiating the need for a review" includes the aforementioned demonstration of several years of sales made at prices above NV and in commercial quantities. This standard, which pertains to the evidence required to establish the presumption that the order is no longer necessary, is compatible with our interpretation of Article 11.1 of the WTO Agreement. In other words, unless a respondent has demonstrated the ability to participate in the U.S. market in a commercially meaningful way without dumping with the discipline of the order, it is not necessary to consider whether the respondent could do so without the discipline of the order (i.e., the order remains necessary to offset dumping). Thus, contrary to NHCI's assertions, we did not refuse to consider its request for a revocation review, but instead determined that NHCI did not demonstrate its ability to sell pure magnesium in the United States without dumping because of its failure to makes sales in the United States in commercial quantities during the past three review periods. Furthermore, we agree with the petitioner that the WTO sunset provisions are irrelevant to the instant review, inasmuch as five-year sunset reviews concern different statutory rules and procedures than the revocation procedure set out in 19 CFR § 351.222. See Procedures for Conducting Five-year ("Sunset") Reviews of Antidumping and Countervailing Duty Orders, 63 FR 13516 (March 20, 1998). It is important also to note that the Department and the International Trade Commission recently completed a five-year sunset review of this antidumping duty order and concluded that revocation of the antidumping duty order on pure magnesium from Canada would likely to lead to continuation or recurrence of dumping and material injury to an industry in the United States. See Continuation of Antidumping Duty Order on Pure Magnesium From Canada and Countervailing Duty Orders on Pure and Alloy Magnesium From Canada, 65 FR 49964 (August 16, 2000). Accordingly, the Department ordered the continuation of the antidumping duty order on pure magnesium from Canada, pursuant to section 751(d)(2) of the Act. Comment 2: Definition of Commercial Quantities. Respondent's Argument NHCI contends that 19 CFR § 351.222(e)(1)(ii) is unlawfully vague because there is considerable uncertainty as to what volume constitutes "commercial quantities." Although the Department has stated that the procedural standard could vary from case to case, NHCI claims that the Department's commercial quantities analysis has been inconsistent in this proceeding. Specifically, NHCI states that the Department has analyzed the number of sales, the aggregate volume of sales, and the aggregate volume of U.S. sales in the review period as compared to the aggregate volume of U.S. sales in a pre-order period, and/or the aggregate volume of U.S. sales in the review period as compared with the aggregate volume of home market sales in the review period and/or other review periods. The Department's failure to provide a clear and understandable standard for measuring "commercial quantities" has resulted in an unlawfully vague threshold revocation requirement that effectively denies NHCI due process. Petitioner's Argument The petitioner contends that NHCI's argument is not a valid reason for the Department to reverse its preliminary decision. NHCI has not offered any evidence that its request for revocation was treated less fairly than any other request made under similar circumstances. The petitioner contends that NHCI's argument is without merit because the Department's application of the commercial quantities requirement was reasonable and consistent with the statute. Department's Position We disagree with NHCI. As we have explained during the course of this proceeding and in several other cases, the "commercial quantities" standard is evaluated on a case-by-case basis, with the goal of basing our revocation determination on a sufficiently broad base of information regarding a company's normal commercial practice. In other words, if a company is found to have sold subject merchandise in the United States for three consecutive years at not less than NV, the Department must be satisfied that the respondent's participation in the U.S. market was meaningful. Sales during the POR which, in the aggregate, represent an abnormally small quantity do not provide a reasonable basis for establishing the rebuttable presumption that the discipline of the order is no longer necessary to offset dumping. Ultimately, a determination as to whether sales volumes were made in commercial quantities is made on a case-by-case basis, looking at the unique facts of each proceeding. See section 751(d) of the Act; 19 CFR § 351.222. Although no precise standard for evaluating commercial quantities is prescribed in the statute or the Department's regulations, we do not believe that our application of the commercial quantities analysis has been inconsistent or vague in this proceeding. In the Preliminary Results, we concluded that, consistent with our findings in the Fifth Review Final Results and Sixth Review Final Results, NHCI does not qualify for revocation of the order on pure magnesium because its sales during the 1996-97 review period, which is one of the three years forming the basis of NHCI's revocation request, were not made in commercial quantities. Specifically, in theFifth Review Final Results, we stated that: for each year, the volume of merchandise sold was less than one-half of one percent of the volume of merchandise sold in the last completed fiscal year prior to the order. These sales and volume figures are so small, both in absolute terms and in comparison with the period of investigation, that we cannot reasonably conclude that the zero margins NHCI received are reflective of the company's normal commercial experience. More specifically, the abnormally low level of sales activity does not provide a reasonable basis for determining that the discipline of the order is no longer necessary to offset dumping. See Fifth Review Final Results, 64 FR at 12978; see also Sixth Review Final Results, 64 FR at 50492. This 1996-97 review period has been cited by NHCI in support of its current request for revocation. Because no party has submitted information indicating that the facts relied upon in the Fifth Review Final Results have changed, we continue to find that NHCI does not qualify for revocation because it does not have three consecutive years of sales in commercial quantities. Our conclusions in this administrative review are consistent with the statute and our past interpretation of "commercial quantities" during the course of this proceeding - specifically theFifth Review Final Results and Sixth Review Final Results - and in other similar cases. See, e.g., Notice of Final Results of Antidumping Duty Administrative Review and Determination Not to Revoke the Antidumping Duty Order: Brass Sheet and Strip from the Netherlands, 65 FR742 (January 6, 2000) ("Brass Sheet and Strip from the Netherlands"); Professional Electric Cutting Tools from Japan: Final Results of the Fifth Antidumping Duty Administrative Review and Revocation of the Antidumping Duty Order, in Part, 64 FR 71411 (December 21, 1999) ("PECTs from Japan"); Certain Corrosion-Resistant Carbon Steel Flat Products and Certain Cut-to-Length Carbon Steel Plate from Canada, 64 FR 2173 (January 13, 1999) ("Certain Plate from Canada"). Comment 3: Retroactive Application Respondent's Argument In the Preliminary Results, the Department preliminarily determined that NHCI failed to make sales to the United States in commercial quantities during the 1996-97 administrative review period (see Fifth Review Final Results). NHCI contends that the Department unlawfully applied its new threshold for revocation, contained in a regulation promulgated by the Department on May 19, 1997, retroactively to the 1996-97 review period. NHCI argues that without explicit authority the Department cannot apply new regulations retroactively when they have the effect of imposing new duties with respect to transactions already completed. SeeLandgraf v. USI Film Products, 114 S. Ct. 1483, 1505 (1994) (setting forth guidelines for determining whether a new regulation should retroactively apply); see also Bowen v. Georgetown U. Hosp., 109 S. Ct. 468, 472 (1988) (declaring that explicit congressional authorization is required in order for legislative rulemaking authorities to promulgate retroactive rules). Thus, NHCI claims, it could not have followed the current regulations when making its sales decisions in the 1996-97 review period, nor could it have anticipated the new requirements. Petitioner's Argument The petitioner asserts that application of the commercial quantities requirement in this case is not a retroactive application of a regulation, because the effective date of the regulations (July 1, 1997) precedes the date of the request for the current review as well as the two prior reviews. See Antidumping Duties; Countervailing Duties; Final Rule, 62 FR 27295, 27417 (May 19, 1997) ("Final Rule"). Furthermore, according to the petitioner, the Department issued its proposed antidumping regulations five months before the fifth POR and indicated the intention to require sales in commercial quantities as a prerequisite for revocation. The petitioner argues that these facts invalidate NHCI's claim that it relied on prior law in determining sales quantities in the POR, and should have known that the Department was going to modify its practice. Department's Position We disagree with NHCI. It is undisputed that the Department's 1997 regulations, promulgated as a final rule on May 19, 1997, govern the Department's administration of the law in the instant review. See Final Rule, 62 FR 27295 (May 19, 1997); 19 CFR § 351.701. Thus, the 1997 regulations govern this review and the Department was required to apply them. The Supreme Court in Landgraf v. USI Film Products recently defined the term "retroactive application" when it stated that a law has a retroactive effect if "it would impair rights a party possessed when he acted, increase a party's liability for past conduct, or impose new duties with respect to transactions already completed." 511 U.S. 244, 280 (1994); 114 S.Ct. 1483; 128 L.Ed.2d 229 (1994). The Supreme Court recognized that a "statute does not operate 'retrospectively' merely because it is applied in a case arising from conduct antedating the statute's enactment." Id. at 269 (citing Republic Nat. Bank of Miami v. United States, 506 U.S. 80, 100 (1992) (Thomas, J., concurring in part and concurring in judgment). The Supreme Court further held that a statute does not operate retrospectively merely because it "upsets expectations based in prior law." Id. The Supreme Court further recognized that "a statute 'is not made retroactive merely because it draws upon antecedent facts for its operations.'" Id. at 270, n. 24 (citing Cox v. Hart, 260 U.S. 427, 435 (1922)). In the instant case, the Department has not impaired NHCI's rights in any way. NHCI has retained the right to request a review for each of the three years, as it did, in the interest of demonstrating that it was not dumping. NHCI has also retained the right to request revocation based upon three reviews, which it did, unsuccessfully in this case, but without prejudice to its right to seek revocation in future reviews. Second, the Department has in no way increased NHCI's liability for past conduct. The Department has imposed no new antidumping duties with respect to transactions already completed, and has not required NHCI to deposit any amount for estimated future antidumping liability for subsequent reviews, i.e., the antidumping duties owed were zero and remain zero. In Bowen, the primary case relied upon by NHCI, the Supreme Court ruled that the Department of Health and Human Services ("HHS") lacked statutory authority to promulgate a cost-limit rule requiring private hospitals to refund Medicare payments for services that were rendered prior to the promulgation of the rule. In Bowen, HHS attempted to substitute a rule in effect during past years with a new cost-limit rule to be effective during those past years, thereby requiring private hospitals to refund payments received in prior years under the old rule. The Supreme Court struck down such a retroactive refund rule. HHS' application of that rule satisfies the definition of "retroactive application" because it "alter{s} the past legal consequences of past actions." Bowen, 109 S. Ct. at 477. By contrast, in the instant case, the Department's determination does not in any way alter the past legal consequences of NHCI's past transactions. The Department has neither impaired NHCI's rights, increased its liability for past conduct, nor imposed any new duties with respect to past transactions. In applying the new regulation in the instant case, the Department merely drew upon the antecedent facts, i.e., that in one of the three years that formed the basis for NHCI's revocation request (1996-97), the company did not sell the subject merchandise to the United States in commercial quantities. The company's liability for antidumping duties, which was determined in the 1996-97 administrative review, remains unaltered. To determine whether the discipline of the order is unnecessary in the future, the Department first looks to a company's past conduct. The predictive value of three-consecutive-years of zero or de minimis margins depends upon whether it reliably reflects the company's normal commercial activity. Thus, the rule lawfully draws upon the past conduct of the company to make a decision which has "future effect," but does not revisit the past legal consequences of that conduct. While NHCI indicates that, in the 1996-97 review period, it made its sales decisions on the basis of the revocation regulations at that time, nothing on the record of this case suggests in any way that NHCI declined or did not pursue sales in reliance upon the Department's requirements. Thus, NHCI's suggestion is pure speculation at best. In sum, the Department's determination in the instant case was not an impermissible retroactive application of the 1997 regulation. To the contrary, the Department lawfully applied the regulations that govern the instant review. Comment 4: Procedural Requirements for Revocation. Respondent's Argument NHCI contends that the Department erred in finding that NHCI had not satisfied the procedural requirements for revocation. NHCI states that nothing in 19 CFR § 351.222(b)(2) governing revocation requests - based upon an absence of dumping for at least three consecutive review periods - authorizes the Department to engage in a "commercial quantities" investigation. Instead, NHCI claims that the Department contemplated conducting a commercial quantities investigation only in the context of revocation requests based on unreviewed intervening years, and that no similar mandate was imposed where the request for revocation is based on the absence of dumping demonstrated in three consecutive years, as in this proceeding. NHCI further claims that there is no legal foundation for the assertion that the certification requirement imposes a general commercial quantities investigation in all revocation cases. Petitioner's Argument The petitioner contends that because NHCI did not meet the commercial quantities requirement, it failed to meet all procedural requirements for revocation, thereby discounting NHCI's claim that the Department erred in finding that NHCI had not met all procedural requirements for revocation. Department's Position We disagree with NHCI. As discussed in the Sixth Review Final Results, we have developed a procedure for revocation that is described in 19 CFR § 351.222. This regulation requires that a company requesting revocation must submit a certification that the company sold the subject merchandise in commercial quantities in each of the three years forming the basis of the request. Therefore, in accordance with our regulations, we must determine as a threshold matter whether the company requesting revocation sold the subject merchandise in commercial quantities in each of the three years forming the basis of the request. See Sixth Review Final Results at 50490. In the Preliminary Results, we found that NHCI does not qualify for revocation of the order on pure magnesium because it did not have three consecutive years of sales in commercial quantities at not less than NV. We based this finding on the fact that sales in one of the three years of sales NHCI is relying upon to support its request for revocation, the period covering the Fifth Review Final Results (1996-97), were not made in commercial quantities. Because NHCI has used this period as support for its current request for revocation and the facts have not otherwise changed, we determine that NHCI has not met the threshold criterion outlined in 19 CFR § 351.222 requiring sales in commercial quantities in each of the three years forming the basis of the revocation request. See Memorandum from Team to Susan Kuhbach, Office Director, "Commercial Quantities," dated April 20, 2000 ("Commercial Quantities Memorandum"). Inasmuch as NHCI did not make sales in commercial quantities during the period covering the fifth administrative review, it is not necessary to examine whether NHCI made sales in commercial quantities during the sixth and seventh administrative review periods. As we noted in the Sixth Review Final Results, while the regulation requiring sales in commercial quantities may have developed from the unreviewed intervening year regulation, its application in revocation cases based on an absence of dumping is reasonable and mandated by the regulations. 64 FR at 50491. The application of this requirement to such cases is reflected not only in the provision for unreviewed intervening years (see 19 CFR § 351.222(d)(1)), but also in the new general requirement that parties seeking revocation certify to sales in commercial quantities in each of the years on which revocation is to be based. See 19 CFR § 351.222(e)(1)(ii). This requirement ensures that the Department's revocation determination is based upon a sufficient breadth of information regarding a company's normal commercial practice. In this case, the number of sales and the total sales volumes for at least one of the three years are so small, both in absolute terms and in comparison with the period of investigation and other review periods, that we do not have sufficient information regarding the company's normal commercial behavior to make a revocation decision. If sales levels are not reflective of a company's normal commercial activities, they can offer no basis upon which to make a revocation determination, regardless of whether we conducted a review of the sales in question or the sales took place in an intervening year. See, e.g., Sixth Review Final Results, 64 FR at 50491; Certain Plate from Canada, 64 FR at 2175. Comment 5: The Department's Revocation Practice. Respondent's Argument NHCI asserts that the Department erred in deviating from its normal longstanding revocation practice of revoking antidumping duty orders where a company has demonstrated three consecutive administrative reviews of no dumping and has certified that it would not dump in the future. According to NHCI, except in a limited number of cases presenting circumstances not present in this review, the Department has consistently found that the two revocation criteria of three years of no dumping and a commitment not to make sales below NV in the future are dispositive of the analysis. Petitioner's Argument According to the petitioner, the Department's practice of revoking antidumping duty orders is company-specific and is never automatic. The petitioner argues that the Department has not made any substantive changes to its revocation practice and that the statutory provision leaves much to the Department's discretion. Department's Position As explained above, in determining whether three years of sales at not less than NV establish the rebuttable presumption that the order is no longer necessary to offset dumping, the Department must be able to determine that the company continued to participate meaningfully in the U.S. market during each of the three years at issue. See, e.g., Brass Sheet and Strip from the Netherlands; Certain Plate from Canada, 64 FR at 2175; Sixth Review Final Results, 64 FR at 12979. This current practice has been codified in section 351.222(d)(1) of the Department's regulations, which states that, "before revoking an order or terminating a suspended investigation, the Secretary must be satisfied that, during each of the three (or five) years, there were exports to the United States in commercial quantities of the subject merchandise to which a revocation or termination will apply." 19 CFR § 351.222(d)(1) (emphasis added); see also 19 CFR § 351.222(e)(1)(ii). Thus, contrary to NHCI's assertions, three years of no dumping and a commitment not to make sales below NV in the future are not dispositive of the revocation analysis. Rather, for purposes of revocation, the Department must be able to determine that past margins are reflective of a company's normal commercial activity. Sales during the POR which, in the aggregate, represent an abnormally small quantity do not provide a reasonable basis for establishing the rebuttable presumption that the discipline of the order is no longer necessary to offset dumping. Comment 6: Benchmarks Used to Determine Commercial Quantities. Respondent's Argument NHCI claims that the Department's use of a pre-order benchmark and home market sales to determine normal commercial quantities was unreasonable. According to NHCI, the Department contradicted itself when it adopted the position that commercial quantities refers to "aggregate" transactions because the Department has clearly stated that commercial quantities refers to the size of "individual" transactions, not aggregate sales activity. See Memorandum from Joseph A. Spetrini to Alan M. Dunn re: Color Television Receivers from Taiwan - Final Results Pursuant to Court Remand (Jan. 31, 1992). Thus, NHCI claims that the Department's aggregate sales volume analysis, as well as its home market sales comparison, in assessing commercial quantities was unreasonable. Petitioner's Argument The petitioner argues that NHCI erred in its criticism of the Department's aggregate sales volume analysis in assessing commercial quantities. The petitioner claims that NHCI's U.S. sales were not made in commercial quantities during the 1996-97 review period whether measured in physical tonnage, number of customers, or number of sales. According to the petitioner, the Department's use of benchmarks was appropriate. The petitioner further alleges that NHCI's sales volumes are so small that it appears that NHCI changed its U.S. selling practices in response to the dumping order. Department's Position When determining whether a company's sales have been made in commercial quantities, we must look at each case on an individual basis. In many instances, when making such an assessment, we will use the original period of investigation as a benchmark for a company's normal commercial behavior. The period of investigation is a logical and reasonable benchmark for this assessment, especially given that it is the only time period for which we have evidence concerning the company's normal commercial behavior with respect to exports to the United States without the discipline of an antidumping duty order. Where a company has experienced a substantial and unusual change in business practice since the imposition of the order that may explain a substantial sales drop-off in U.S. sales, a more recent POR that is reflective of the company's normal commercial experience may provide a more appropriate benchmark. SeeSixth Review Final Results, 64 FR at 50489; Professional Electric Cutting Tools from Japan: Preliminary Results of Antidumping Administrative Review and Intent to Revoke in Part, 64 FR 43346, 43351 (August 10, 1999). For the reasons discussed below in Comment 9, however, NHCI does not fall into this exception. In addition, a home market sales comparison is relevant for this case in order to evaluate NHCI's claim that it no longer produces significant amounts of pure magnesium due to NHCI's long-term supply agreements that have increased demand for alloy magnesium. See Comment 8. Furthermore, in order to determine whether NHCI is selling subject merchandise to the United States in commercial quantities, our analysis in this revocation review properly focuses on aggregate sales to the United States rather than the size of individual shipments. This is because in order to determine whether the absence of margins is meaningful, we must be satisfied that the margins were calculated on a suitable aggregate quantity. A producer or exporter cannot be said to be making sales in commercial quantities where the current overall level of sales are so small just because the handful of shipments made were in the same lot sizes as those during the benchmark period. If this were the standard, the Department could not reasonably conclude that, without the discipline of the order, NHCI can participate in the U.S. market without selling at less than NV. Finally, we have determined that NHCI's sales during the Fifth Review Final ResultsPOR, which were relied upon in part to support its revocation request, were not reflective of its normal commercial behavior. See Commercial Quantities Memorandum. Regardless of the bona fide nature of each transaction, these sales, in the aggregate, are not representative of NHCI's normal commercial activity and, consequently, do not provide the Department with a reasonable basis to make a revocation determination. Comment 7: Significant Drop-offs in Sales After Imposition of an Order. Respondent's Argument NHCI asserts that the regulations provide no basis for denying consideration of a revocation request when there has been a significant drop-off in sales after imposition of an order. According to NHCI, there is no requirement that a company must maintain a certain market share or sales volume in order to qualify for revocation because this has nothing to do with a company's pricing practices. Therefore, there is no justification for effectively disqualifying NHCI from revocation based on its sales drop-off following imposition of the order. Petitioner's Argument According to the petitioner, NHCI is wrong in claiming that the Department improperly relied upon a drop-off in U.S. sales when NHCI was denied revocation. While the petitioner agrees with NHCI's statement that there is no requirement in the Department's regulations that a company must maintain a certain market share or sales volume to qualify for revocation, the petitioner argues that the Department has a great deal of discretion in revoking orders and had declined previous revocation requests based on volume of sales even before the current regulations were promulgated. Department's Position As we discussed in the Sixth Review Final Results, the Department's threshold requirement does not mean, as NHCI suggests, that the Department is effectively disqualifying companies from revocation if there is a sales drop-off following the imposition of an antidumping order. The issue that is analyzed by the Department is the magnitude of the drop-off. In this regard, the Department has expressed its intent to revoke an antidumping duty order even where the sales drop-off has been substantial, so long as the sales used to demonstrate a lack of price discrimination are reflective of the companies' normal commercial experience. See, e.g., Sixth Review Final Results, 64 FR at 50492; PECTs from Japan, 64 FR at 71415. However, in this case, NHCI has not demonstrated that the small volume of sales made during the fifth review period were reflective of its normal commercial experience. Comment 8: Changes to a Respondent's Commercial Practice. Respondent's Argument NHCI argues that the evidence does not support the Department's finding that there has not been a shift in NHCI's commercial practice that is "nearly irreversible or permanent." NHCI contends that it no longer produces significant amounts of pure magnesium and that, while switching production from alloy magnesium to pure magnesium is a technical possibility, it is not a commercial possibility due to NHCI's long-term supply agreements that have increased the amount of alloy magnesium it must produce. NHCI believes that these circumstances are tantamount to a significant change in production which is permanent for the foreseeable future and that there is no commercial incentive to change the production mix. Petitioner's Argument The petitioner argues that NHCI can easily switch production from alloy to pure magnesium, as demonstrated in the instant review where NHCI's sales of pure magnesium declined but production of alloy magnesium was increased to make up for the drop. The petitioner argues that NHCI does not provide evidence that its long-term supply agreements would prevent it from increasing sales of pure magnesium to the United States, nor did NHCI provide information as to when most of its long-term contracts expire, at which point the volume of magnesium could be easily redirected to the U.S. market in the form of pure magnesium. Finally, the petitioner contends that NHCI's repeated delays in its plans to double its production capacity is an indication that it is awaiting revocation before resuming its expansion plans. Department's Position We disagree with NHCI. In order to determine whether three consecutive years of no margins establish the rebuttable presumption that the order is no longer necessary, we must first be satisfied that these past margins are reflective of a company's "normal commercial activity." Although NHCI has demonstrated three consecutive years of sales at not less than NV, we find that the limited volume of exports to the United States of magnesium from Canada do not reflect NHCI's normal commercial behavior. As we noted in the Commercial Quantities Memorandum, NHCI has produced and sold both pure and alloy magnesium since the 1990-91 benchmark period, and NHCI continues to produce significant amounts of pure magnesium, particularly for sale in the home market. While the relative amounts of the two products may have changed over time, NHCI is not constrained as to the types of magnesium that it can produce and can switch easily from production of pure magnesium to production of alloy magnesium. Furthermore, while the vast majority of NHCI's production of pure and alloy magnesium is being sold under long-term contracts, an examination of the terms of contracts on the record of this review shows that NHCI's production will become freed up as the shorter-term contracts expire, thereby allowing flexibility in NHCI's production and marketing. Moreover, based on existing contracts on the record of this review, it appears that NHCI can enter into long-term contracts to supply pure magnesium, just as it has with alloy magnesium. Finally, the record indicates that the current NHCI business plan is not intended to be long- term or permanent in light of NHCI'srepeated delays in production capacity expansion and its level of exports to the United States which, although not in commercial quantities for each of the three years forming the basis of NHCI's revocation request, have nevertheless been increasing in each successive year. Therefore, consistent with our preliminary assessment of NHCI's current production allocation, we continue to find that it is not reasonable to conclude that NHCI's commercial practices have been "irreversibly or permanently" changed or that NHCI's current selling practice is reflective of the company's now normal commercial experience. Accordingly, we cannot reasonably conclude that NHCI's participation in the U.S. market during the three year period under consideration has been meaningful. Comment 9: Whether the Evidence Demonstrates Commercial Quantities Respondent's Argument NHCI alleges that the evidence on the record of this review shows NHCI made sales to the United States in commercial quantities because sales were made in quantities characteristic of its normal commercial practice. According to NHCI, the Department has clearly stated that commercial quantities refers to the size of individual sales and will be established based on examination of the normal sizes of sales by the producer/exporter and other producers of subject merchandise. NHCI further states that its sales to the United States - spot sales and contract sales - were in quantities characteristic of its normal commercial practice with respect to the size of the shipments pursuant to the sales arrangements with its customers. Thus, NHCI claims that had the Department engaged in a reasonable commercial quantities analysis, it would have found that NHCI sold pure magnesium in the United States for at least three consecutive years in quantities characteristic of NHCI and industry commercial practice. The Department's approach notwithstanding, NHCI continues that the Department erred in not considering NHCI's long-term production trends as it did in PECTs from Japan, 64 FR at 71411, inasmuch as its long-term shift in production from pure to alloy magnesium is a significant change in NHCI's commercial practice. Because of this change in production, NHCI contends that the Department erred in using the aggregate 1991 U.S. sales volume as a benchmark of NHCI's current normal commercial behavior. See PECTs from Japan (finding that because of a significant change in business practice, Makita shipped in commercial quantities despite a substantial decrease in U.S. sales). Furthermore, NHCI asserts that the Department erred in not adjusting its benchmark to account for the fact that NHCI has limited its production of pure magnesium and no longer produces the range of products it sold during the POI. Thus, NHCI argues that in determining whether to consider its request for revocation, the Department should recognize that because NHCI has shifted its production from pure to alloy magnesium, it will not in the foreseeable future be able to meet pre- order sales quantities of pure magnesium to the United States. Petitioner's Argument According to the petitioner, NHCI incorrectly claims that its situation is similar to that inPECTs from Japan. The petitioner asserts that NHCI's commercial situation is different from that of Makita's, in that the Department found a significant change in Makita's business practice that explained its post-order decline in shipments. The petitioner argues that Makita's transfer of production to a facility in the United States is very different from NHCI's long-term contracts. In addition, the petitioner contends that NHCI is planning a plant expansion that would enable it to export greater amounts of the subject merchandise. The petitioner argues that the 1991 benchmark sales should not be adjusted based on NHCI's claim that it has discontinued production of certain pure magnesium products, because the scope language was crafted in recognition of the possibility that the shapes of magnesium products can be adjusted to conform to commercial opportunities. Furthermore, according to the petitioner, NHCI has not provided any evidence that the discontinuation of certain products would affect its sales. Department's Position We disagree with NHCI. As we explained above in Comment 2, our commercial quantities analysis for purposes of revocation reviews properly focuses on aggregate sales to the United States rather than the size of individual shipments. Moreover, based on the facts of this case, NHCI does not qualify for revocation because its shipments during the 1996-97 review period, one of the three years forming the basis of its revocation request, were not made in commercial quantities. Furthermore, this case is distinguishable from PECTs from Japan, where respondent Makita made a substantial investment in a U.S. manufacturing facility, and subsequently shifted production of subject merchandise to that facility while maintaining consistent export volumes of its low-sales-volume "specialty" cutting tools. In that case, we found that the significant change in business practice provided a logical commercial explanation for Makita's relative drop in subject merchandise sales. Further, we noted that the U.S. production facility now manufactures comparable volumes of non-specialty merchandise to those previously manufactured by Makita in Japan. Thus, regardless of any decrease in shipments during the course of that proceeding, we determined that Makita was selling in commercial quantities in the United States. Contrary to Makita, for which less dependence was being placed on the home market manufacturing facilities, NHCI is planning to expand substantially its production capacity at its Canadian facilities. Moreover, as noted above, NHCI has continued to produce both pure and alloy magnesium since the 1990-91 benchmark period. Our decision not to consider NHCI's revocation request in this case is also consistent with our findings in Brass Sheet and Strip from the Netherlands, where the Department denied revocation despite a shift in production of subject merchandise to a U.S. affiliate. The respondent had made substantial investment in its home market manufacturing facility and made known its intent to shift production of subject merchandise from the U.S. affiliate to the respondent's manufacturing facilities in the Netherlands once the order was revoked. See 65 FR at 751. Similar to the Dutch respondent, NHCI has stated that it intends to make a substantial investment in its home market manufacturing facility (see Comment 8) and has given no determinative indication that it plans to make a significant change to its business practice. Finally, we disagree with NHCI's argument that the Department erred in not adjusting its benchmark to account for the fact that NHCI has limited its production of pure magnesium and no longer produces the range of products it sold during the POI. When determining whether a company's sales have been made in commercial quantities we must look at each case on an individual basis. In many instances, we will use the original period of investigation (i.e., pre- order shipment levels) as a benchmark for a company's normal commercial behavior. The period of investigation generally provides a valid benchmark for assessing whether sales have been made in commercial quantities. Where a company has experienced a substantial and unusual change in business practice since the imposition of the order that may explain a substantial sales drop-off in U.S. sales, a more recent POR that is reflective of the company's normal commercial experience may provide a more appropriate benchmark. See Sixth Review Final Results, 64 FR at 50489; PECTs from Japan, 64 FR at 43351. Although NHCI has shifted its production from pure to alloy magnesium, as noted above it does not appear that this is an irreversible or permanent change. Moreover, as the petitioner correctly points out, NHCI has not provided any evidence that the discontinuation of certain products would affect its sales. While NHCI may not still sell the full range of pure magnesium products that it sold at the time of the benchmark period, the company can sell pure magnesium products in the United States at commercial levels with the range of products it currently produces, as evidenced by its increasing level of exports to the United States in the sixth and seventh administrative review periods. (1) A company seeking revocation need not prove that it is selling at the same levels at which it sold during the benchmark period; rather, the purpose of the commercial quantities analysis is to ensure on a case-by-case basis that the company's aggregate sales volume in the three years forming the basis of the revocation request are reflective of that company's normal commercial activity. NHCI has failed to satisfy this evidentiary threshold. Recommendation Based on our analysis of the comments received, we recommend adopting all of the above positions. If this recommendation is accepted, we will publish the final results of this review and the final ad valorem antidumping duty margin in the Federal Register. Agree ________ Disagree ________ Let's Discuss ________ _____________________ Troy H. Cribb Acting Assistant Secretary for Import Administration _____________________ Date _____________________________________ Footnotes: 1. As noted above in Comment 4, however, because NHCI did not make sales in commercial quantities during the fifth review period, it is not necessary to examine whether NHCI's sales during the sixth and seventh administrative review periods constitute commercial quantities.