65 FR 31144, May 16, 2000 A-570-506 ADR: 12/1/97 - 11/30/98 Public Document Grp. II/VI: RM MEMORANDUM TO: Troy H. Cribb Acting Assistant Secretary for Import Administration FROM: Holly A. Kuga Acting Deputy Assistant Secretary for Group II SUBJECT: Issues and Decision Memorandum for the Administrative Review of Porcelain-on-Steel ("POS") Cooking Ware from the People's Republic of China ("PRC") covering the period December 1, 1997 through November 30, 1998; Final Results SUMMARY: We have analyzed the comments submitted by Clover Enamelware Ltd. ("Clover") and Lucky Enamelware Factory Ltd. ("Lucky") (collectively Clover/Lucky) in the 1997/98 administrative review of the antidumping duty order covering POS cooking ware from the PRC. As a result of our analysis, we have made changes, including corrections of certain inadvertent programming and clerical errors, in the margin calculations for these final results of review. However, these changes do not affect the margin calculation from the preliminary determination, which was zero. We recommend that you approve the positions we have developed in the Discussion of the Issues section of this memorandum. Below is the complete list of the issues in this administrative review for which we received comments (the Petitioner did not submit a case brief or rebuttal comments): I. Factor Valuation a. Steel b. Labor II. Circumstances-of-Sale Adjustments a. Indirect Selling Expenses III. Export Credit Insurance BACKGROUND: On January 7, 2000, the Department of Commerce ("the Department") published the preliminary results of administrative review of the antidumping duty order on POS cooking ware from the PRC. See Porcelain-on-Steel Cooking Ware From the People's Republic of China; Preliminary Results of Antidumping Duty Administrative Review, 65 FR 1136 (January 7, 2000). Scope The merchandise covered by this order is shipments of POS cookware, including tea kettles, which do not have self-contained electric heating elements. All of the foregoing are constructed of steel and are enameled or glazed with vitreous glasses. The period of review ("POR") is December 1, 1997 through November 30, 1998. We invited parties to comment on our preliminary results of review. No requests were made for a public hearing. Discussion of the Issues I. Factor Valuation Comment 1: Factor Valuation of Steel Respondent argues that in valuing steel consumption, the Department erred by: (1) using the transfer price from Lucky to Clover; (2) not applying a contemporaneous price for a particular grade of steel; (3) failing to convert storage, handling and insurance charges denominated in Hong Kong dollars ("HK$") to U.S. dollars ("US$"); and (4) disallowing an offset for steel scrap sales. With regard to the cold-rolled steel sheet transfer price used in calculating normal value ("NV"), Respondent states that the Department incorrectly used the price that Lucky invoiced to Clover for cold-rolled steel sheet instead of the market price at which Lucky purchased the cold-rolled steel sheet from unaffiliated producers. Respondent asserts that the Department should apply the unaffiliated purchase price of cold-rolled sheet, as opposed to the transfer price between the two affiliated parties, Clover and Lucky. Next, Respondent notes that the Department valued 0.70 mm steel using a 1995 value for 0.70 mm steel, which is not reflective of 1998 prices. It suggests that the Department should use either a weighted- average of all other steel gauges purchased in 1998, or the 1998 price for 0.50 mm steel. In addition, Respondent contends that the Department failed to properly convert the storage, handling and insurance costs into the correct currency. Respondent asserts that the Department should subtract the value of its steel scrap sales from the calculated NV for POS cookware. Respondent notes that it is the Department's practice in proceedings involving PRC companies "to subtract the sales revenue of by-products such as steel scrap from the production costs of the subject merchandise." See Notice of Final Determinations of Sales at Less Than Fair Value: Brake Drums and Rotors from the People's Republic of China, 62 FR 9160 (February 28, 1997). Department's Position: We agree with the Respondent; because Lucky and Clover are affiliated, the internal transfer price from Lucky to Clover is not an arm's-length transaction and should not be the basis for valuing Clover's steel consumption in the manufacture of POS cookware. See 19 CFR 351.403(c). The Department has an established policy of evaluating inputs in NME cases on market prices paid by the manufacturer for inputs purchased from a market-economy source. See Tapered Roller Bearings and Parts thereof, Finished and Unfinished, from China, Final Results and Partial Termination of Antidumping Duty Administrative Review, 62 FR at 6198 (February 11, 1997). For this final determination, the Department used the actual price that Lucky paid to the unaffiliated market supplier. With respect to the contemporaneity of the per unit value of certain grades of steel, the Department agrees with the Respondent that the per unit price applied at the POS Preliminary Determination is not contemporaneous to the POR. Therefore, the Department adjusted the value to reflect the effect of inflation. Further, we have reexamined our calculations, and agree with the Respondent's observations that the storage, handling and insurance charges were not appropriately converted from HK$ to U.S.$. To correct this ministerial error, the Department made the necessary currency conversion for this final determination. With respect to the scrap offset, we agree with the Respondent. The proper adjustment is a reduction in the cost of manufacture for purposes of deriving a surrogate selling, general and administrative expense ratio, which is consistent with the Department's practice in other nonmarket economy ("NME") proceedings. See Persulfates from the People's Republic of China: Final Results of Antidumping Duty Administrative Review, 64 FR 69494, 69510 (December 13, 1999). We have accordingly subtracted the value of Clover/Lucky's steel scrap from the calculated NV for POS cookware, by using publicly available information on recent steel scrap prices in India. See Brake Rotors From the People's Republic of China: Preliminary Results of Third New Shipper Review and Preliminary Results and Partial Rescission of Second Antidumping Duty Administrative Review, 64 FR 73007 (December 29, 1999). Comment 2: Overstated Labor Factors for Milling and Enameling Clover/Lucky contends that the Department applied an incorrect factor when calculating the amount of labor consumed in the milling and enameling departments. Clover/Lucky notes that the Department inadvertently applied a factor based on the consumption of steel rather than enamel slip when calculating the labor factor for these two departments. Department's Position: We agree with the Respondent, and have adjusted the labor factors for these two departments to reflect the correct consumption factor. II. Circumstance-of-Sale Adjustments Comment 3: Inclusion of Indirect Labor in Factory Overhead Respondent argues that the Department double-counted indirect labor (i.e., labor, maintenance, and packing) when it valued indirect labor separately because the costs associated with indirect labor are included in factory overhead. Respondent notes that the surrogate factory overhead value applied at the POS Preliminary Determination is based on a value that is already inclusive of indirect labor and, therefore, the additional expense of indirect labor calculated by the Department at the POS Preliminary Determination is not necessary. Respondent contends that the Department should remove the indirect labor expenses from its normal value calculation and that these adjustments will eliminate double-counting of the indirect labor components that are already included in the surrogate factory overhead percentage. Department's Position: We agree with the Respondent. At the POS Preliminary Determination, we derived the ratio of factory overhead using an index of such expenses used in previous antidumping duty cases involving products from the PRC. The ratio used in this administrative review was derived from a similar industry, melamine institutional dinnerware, and from the same surrogate country, Indonesia. The surrogate value that was applied to calculate factory overhead was inclusive of indirect labor, in this case, supervisor compensation, machinery maintenance and building maintenance. Therefore, if we were to assign a separate value to indirect labor, we would be double-counting the costs. Therefore, we deleted indirect labor and deducted it from our calculation of NV, while retaining the factory overhead percentage that is inclusive of indirect labor. III. Movement Comment 4: Export Credit Insurance Respondent argues that the Department incorrectly classified Lucky's expenditures on export credit insurance as a movement expense which was deducted from the U.S. sales price. Respondent states that the export credit expenses are simply insurance against non-payment by Lucky's customers and have nothing to do with the movement of merchandise from the factory to the ultimate customer. Respondent contends that only insurance expenses associated with transporting the products can be considered a movement expense. Therefore, the Respondent argues that the Department should not deduct the export credit amount in determining Lucky's net export price. Department's Position: We agree with the Respondent. The export credit insurance provides protection for local manufacturers and exporters against risks of non- payment for goods and services sold abroad on credit terms. Movement expenses which are adjusted for under section 772(c)(2)(A) of the Act are transportation and other expenses, including warehousing expense, incurred by the seller after the merchandise has left the point of shipment in the foreign market. Other examples of movement expenses include such costs as inland insurance, loading, forwarding, unloading, brokerage, customs duty, and handling. Export credit insurance is not a movement expense under section 772(c)(2)(A) of the Act; rather it is a direct selling expense that we would treat as a circumstance-of-sale ("COS") adjustment. However, in NME cases, the Department does not make COS adjustments, other than constructed export price expense adjustments, because of our inability to make equivalent adjustments to NV. Moreover, Clover/Lucky's U.S. sales are export price transactions and thus no adjustments for this item are warranted in this case. See Notice of Final Determination of Sales at Less Than Fair Value: Bicycles From the People's Republic of China, 61 FR 19026, 19031 (April 30, 1996). Therefore the Department did not deduct the export credit insurance in calculating Lucky's net export price in the final determination. RECOMMENDATION: Based on our analysis of the comments received, we recommend adopting all of the above positions. If these recommendations are accepted, we will publish the final results of review and the final weighted-average dumping margins for the reviewed firm in the Federal Register. Agree ______ Disagree _______ Troy H. Cribb Acting Assistant Secretary for Import Administration _________________________ Date