66 FR 45006, August 27, 2001 A-570-851 AR 2/01/00-7/31/00 Public Document IA/1/2/KJ MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Richard W. Moreland Deputy Assistant Secretary, Group I Import Administration DATE: August 8, 2001 SUBJECT: Issues and Decision Memorandum for the New Shipper Review on Certain Preserved Mushrooms from the People's Republic of China - February 1, 2000, through July 31, 2000 Summary We have analyzed the comments of the interested parties in the new shipper review covering certain preserved mushrooms from the People's Republic of China (PRC). As a result of our analysis of the comments received from interested parties, we have made changes in the margin calculation, as discussed in the "Margin Calculation" section of this memorandum. We also 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 new shipper review for which we received comments from parties: • Factory Overhead, Selling, General and Administrative and Profit Ratios • Valuation of Steam Coal Background On June 7, 2001, the Department of Commerce (the Department) published the preliminary results of the new shipper review on certain preserved mushrooms from the PRC. See Preliminary Results of New Shipper Review: Certain Preserved Mushrooms from the People's Republic of China, 66 FR 30695 (Preliminary Results). The product covered by this order is preserved mushrooms. The period of review (POR) is February 1, 2000, through July 31, 2000. The new shipper review covers the exports of Green Fresh Foods (Zhangzhou) Co., Ltd. (Green Fresh). We invited parties to comment on the preliminary results of review. Based on our analysis of the comments received, we have changed the results from those presented in the preliminary results. Margin Calculation We calculated export price and normal value using the same methodology described in the preliminary results, except as follows: • We revised the factory overhead, selling, general and administrative (SG&A), and profit surrogate values to substitute data from a more recent financial statement from one of the three Indian producers of the subject merchandise upon whose data we relied for calculating these surrogate value ratios. See also Comment 1 and the August 8, 2001, Final Results Valuation Memorandum. • We corrected the calculation of the brokerage and handling expense incurred on the U.S. sale under review to allocate the per-container surrogate value on a drained weight, rather than packed weight, per -unit basis. See August 8, 2001, "Final Results Margin Revisions for Green Fresh Foods" memorandum to the file for an explanation of the recalculation. Discussion of the Issues Comment 1: Factory Overhead, SG&A, and Profit Ratios In the preliminary results, the Department based the surrogate values for factory overhead, SG&A expenses, and profit on the simple average of the ratios calculated from the 1999-2000 financial statements of three Indian preserved mushrooms producers: Agro Dutch Foods, Ltd (Agro Dutch), Flex Foods, Ltd., and Himalya, Ltd. (Himalya). This methodology was the same as that applied in the Final Results of First New Shipper Review and First Antidumping Duty Administrative Review: Certain Preserved Mushrooms from the People's Republic of China, 66 FR 31204 (June 11, 2001) (First Reviews), which was issued at the same time as the preliminary results of this review. Green Fresh contends that the financial information from these companies is distortive because of "extraordinarily high" capital costs for the "highly-sophisticated" climate control equipment upon which the Indian companies rely. In contrast, Green Fresh continues, it is situated in a more temperate climate than the Indian producers and such equipment is not needed. Moreover, Green Fresh states that the Indian companies are largely growers of mushrooms, while Green Fresh is principally a canner. In addition, Green Fresh claims that the experience of the Indian producers is distorted because the effect of the high antidumping duty rates for preserved mushrooms exported from the PRC has allowed Indian producers with low margins, such as Agro Dutch, to reap windfall profits. Further, citing the Notice of Final Determination of Sales at Less Than Fair Value: Certain Non-Frozen Apple Juice Concentrate from the People's Republic of China, 65 FR 19873 (April 13, 2000) (Apple Juice), Green Fresh contends that the Department should use factory overhead, SG&A, and profit data from the Reserve Bank of India (RBI) statistics for the industry group "Processing and Manufacture - Foodstuffs, Textiles, Tobacco, Leather and Products therof" because this information is more representative of the food processing industry than the largely agricultural basis of the selected Indian financial statements. Green Fresh states that the Indian companies' data is based primarily on growing, rather than preserving, mushrooms or producing non-subject merchandise. This data allegedly includes high capital and interest expenses for climate control equipment not related to production of canned mushrooms and, thus, should not be used in this instance. As a result, Green Fresh adds, the Department is double-counting costs because the surrogate value for purchased mushrooms already includes the factory overhead and SG&A costs for mushroom growing that are part of the factory overhead and SG&A calculated for the Indian companies. If the Department nevertheless continues to rely on the Indian producers' data, Green Fresh argues that the Department should average these Indian companies' profit data for two or three years, (1) in order to reduce the effect of the antidumping duty order on certain preserved mushrooms from the PRC that Green Fresh believes spurred Indian sales. Green Fresh also contends that the Department should include the data from the public version of Hindustan Lever, Ltd.'s (Hindustani Lever's) mushroom division profit and loss statement in the overall average of the Indian producers' data. The petitioners respond that the Department should reject Green Fresh's arguments, as it did with virtually identical arguments in the First Reviews. The petitioners note that the data derived from the Indian producers' financial data is representative of preserved mushrooms production in India and, as such, is more product specific than the RBI data. Further, the petitioners assert that there is no basis to exclude the Agro Dutch and Himalya financial statement data as distortive or aberrational due to Green Fresh's claims that the data from these companies relies more on climatic or agricultural factors. According to the petitioners, there is no evidence on the record of this review to support Green Fresh's claims that the relatively high factory overhead, SG&A, and profit ratios derived from these statements are attributable to either capital investment needed for climate control or a concentration in agricultural operations. The petitioners contend that both Agro Dutch and Himalya have significant operations to produce the subject merchandise and are significant canners as well as growers, thus their experience is appropriate in this review. With respect to the alleged double-counting of these ratios upon application of a fresh mushrooms surrogate value, the petitioners state that because Green Fresh is mostly a canner, rather than a grower, it is appropriate for the fresh mushroom value to include a grower's costs for factory overhead, SG&A and profit. Department's Position: Consistent with the methodology applied in First Reviews, we have continued to use the data from the three Indian producers, Agro Dutch, Flex Foods, and Himalya, to calculate the surrogate values for factory overhead, SG&A, and profit. However, as Green Fresh has provided a more recent financial statement for Agro Dutch that corresponds to a greater portion of the POR, we have substituted the information from this 2000- 2001 financial statement to calculate the average ratios for the three companies. Green Fresh has failed to provide any compelling reason or record evidence why the three companies' financial statement data are not representative of the experience of producers of preserved mushrooms in the surrogate country. As discussed at Comment 3 to the First Reviews Decision Memorandum, Attachment 3 of the May 31, 2001, Preliminary Results Valuation, and Attachment 1 of the April 24, 2001, Memorandum to the File, we analyzed the financial statements from ten of the twelve known producers of preserved mushrooms in India. From these ten, we relied only on those producers whose activities were largely related to the production of preserved mushrooms, and who made a profit during the latest fiscal year for which we had information. We then averaged the respective factory overhead, SG&A, and profit ratios from the three companies' financial statements to derive the surrogate values. The resulting ratios are the best surrogate value information on the record of this review as they meet key elements of the Department's criteria for surrogate value selection in terms of specificity, industry representativeness, and contemporaneity. They represent the experience of multiple producers of the same product under review, are from the country selected as the primary surrogate country, and cover a time period that includes part of the POR. The Department's practice is, where information is available, to derive the factory overhead, SG&A and profit values from producers of merchandise that is identical or comparable to the subject merchandise (see, e.g., Notice of Final Determination of Sales at Less than Fair Value: Synthetic Indigo from the People's Republic of China, 65 FR 25706 (May 3, 2000), Decision Memorandum Comment 6, and Notice of Final Determination of Sales at Less Than Fair Value: Creatine Monohydrate From the People's Republic of China, 64 FR 71104, 71108 (December 20, 1999) (Creatine)). As the petitioners note, Green Fresh would have the Department discard the financial data from producers of the product under review in favor of composite data from a "basket" category that includes, but is not limited to, food processing in general. That is, Green Fresh argues for the use of data that is less product- or industry-specific than other data on the record, contrary to our practice. Green Fresh provides no basis for us to conclude that the data from business operations for products other than subject merchandise is more comparable, and, thus, more appropriate for use than the data of Indian preserved mushrooms producers, other than the fact that using such data will result in a lower margin. As explained in the First Reviews, at Comment 3, and also mentioned by the petitioners, in the Apple Juice case cited by Green Fresh, the only available financial statement of a surrogate Indian apple juice concentrate producer was one for which apple juice was only a small part of its business activities. The vast majority of its activities were in service-oriented operations, a different product sector than apple juice. In the instant proceeding, each of the three Indian preserved mushrooms producers is substantially involved in producing preserved mushrooms, of which a substantial portion of those activities is canning. Their other business operations are mostly in other food processing activities. Even if we were to view them as "food processors" rather than "preserved mushrooms producers," they would be a more specific and superior choice for surrogate value data than the broad-based industry group from the RBI, which could well include data from less comparable and, thus, inappropriate producers such as shoemakers, cigarette manufacturers, and clothing factories. Because a substantial portion of each of the three surrogate Indian producers' operations is devoted to food processing and canning, we find no merit to Green Fresh's double-counting argument. As we have found both here and in the First Reviews, the production activity and experience of the surrogate Indian producers at issue is comparable to the PRC respondent so as to provide a reasonable basis for deriving the surrogate values for factory overhead, SG&A expenses, and profit. Green Fresh has not provided any basis to adjust either set of values based on its claim. We acknowledge here, as we did in the First Reviews, that no source of surrogate value data is perfect. The financial experience of one or more Indian preserved mushrooms producers may be based on circumstances or activities that Green Fresh did not face, and vice versa. In this proceeding, we are able to rely on the experience of three, rather than one, surrogate country producers. By averaging the factory overhead, SG&A, and profit ratios derived from each, we arrive at broader-based surrogate values that minimize the particular circumstances of any one producer. This average is thus a more comparable and reliable indication of the factory overhead, SG&A, and profit experience of the respondent. We find no basis to broaden our average to include multiple years of data from the same producer, as Green Fresh suggests. Green Fresh has failed to provide any persuasive record evidence or reasoning that the data from the most recently available financial statements of any of the three companies is distortive and unusable. Its claim that the Indian producers' financial data is distorted by the antidumping duty order on the subject merchandise is speculative and unsubstantiated by the record evidence. Thus we find no basis, nor are we aware of any precedent, to reduce any alleged but unsupported distortion by including data from an earlier year. Moreover, Green Fresh appears to accept the use of the Indian producer data through its own proffering of additional, updated financial statement data, including that of Agro Dutch, Flex Foods, and Himalya, in its June 27, 2001, submission. As shown in the Final Results Valuation Memorandum, the factory overhead, SG&A and profit ratios derived from the 2000-2001 Agro Dutch financial statement are nearly the same as the same ratios derived from the 1999-2000 financial statement, suggesting that, rather than being aberrational, the Indian financial statement data used for the surrogate values are indicative of the industry costs in the surrogate country during the POR. Finally, as in the First Reviews, we cannot accept Green Fresh's other suggestion to use the ranged data from the Indian producer Hindustani Lever's mushroom division for the same reason we rejected this proposition in the First Reviews. In order to properly analyze and calculate the surrogate value ratios, we need to review the full financial statement including proprietary information. However, the complete Hindustani Lever mushroom division statement (which contains substantial business proprietary information) was submitted only in the 1998-2000 administrative review of certain preserved mushrooms from India and never placed on the record of the instant review. The public version of the mushroom division profit and loss account submitted for the record of the instant review consists only of ranged data for a few line items, as prepared for the public record by Hindustani Lever in the 1998-2000 Indian preserved mushrooms review. This sparse level of detail, coupled with the ranged rather than actual data, does not provide a reliable basis for the calculation of surrogate values. Comment 2: Valuation of Steam Coal In the preliminary results, the Department valued steam coal based on the simple average of two prices: a) the 1998 weighted-average unit value for Indian imports of "Bituminous coal, not agglomerated" from the Commodity Trade Statistics published by the United Nations Statistics Division, and b) the unit value for steam coal derived from the 1998-1999 annual report for the Indian company Polychem, Ltd (Polychem). This methodology was the same as that applied in First Reviews. Green Fresh contends that, for the final results, the Department should rely solely on the United Nations import statistics value because it asserts that the import value for steam coal is broad in coverage while the Polychem value is of uncertain breadth. Green Fresh also contends that there are huge and unexplained price differences between the coal value from the United Nations import statistics and the value from Polychem, Ltd. In such circumstances, Green Fresh maintains that the Department's practice is to rely on the broad-based data and to reject data from a single company, especially where such data appear to be distorted. The petitioners argue that the Department should value steam coal based on the Polychem value alone, rather than the weighed-average of the two values. The petitioners state that use of the Polychem value is consistent with the Department's stated preference for domestic, tax-exclusive prices, as articulated in such proceedings as Final Determination at Sales at Less Than Fair Value: Certain Cut-to-Length Carbon Steel Plate from the People's Republic of China, 62 FR, 61964, 61987 (CTL Plate), where the Department stated, " we normally prefer a fully reliable domestic, tax- exclusive price to an equally reliable import price." In the alternative, the petitioners assert that the Department should apply the weighted- average of the two sources as in the preliminary results. Department's Position: Following the reasoning set forth in the First Results, at Comments 5 and 6 (the latter dealing specifically with this same surrogate value), we have continued the methodology used in the preliminary results and applied a value composed of both the import statistics and the Polychem value. Contrary to Green Fresh's assertions, the import statistics value is not necessarily more broad-based than the Polychem value because, in this case, the former value is based only on imports from a single country. Further, we have no basis on the record to conclude that the Polychem value is distortive, especially measured solely against the imports into India from a single country. By calculating and applying a weighted- average of the two values, we are relying on the most specific, most broad- based value for the POR based on the information on the record of this review. The petitioners' argument concerning the Department's use of only Indian domestic prices for surrogate values was addressed in the First Results. As we concluded in Comment 5 of the Decision Memorandum accompanying those results: Our selection of the appropriate surrogate value for a given factor is a case-specific decision based on an analysis of the available information. As we explained further in the CTL Plate determination: It is important to emphasize, however, that our overarching mandate is to select the "best" available data (see 19 U.S.C. 1677b(c)(1)), which involves weighing all of the relevant characteristics of the data, rather than relying solely on one or two absolute "rules." Thus, for example, the most specific data may not be the most contemporaneous, the most reliable, or from the selected surrogate country. There is no set hierarchy for applying the above-stated principles, nor will parties always agree as to the reliability of certain data or the relevance of certain facts or assertions. Thus, the Department must weigh available information with respect to each input value and make a product-specific and case-specific decision as to what the "best" surrogate value is for each input. In this instance, we have the choice between two values that are approximately contemporaneous with the POR: a) a unit value derived from import statistics, and b) an Indian (i.e., domestic) unit value derived from the financial statement of an Indian company. Both values are reasonably specific to the factor to be valued. By using a weighted-average of both steam coal values, we reduce the impact of any distortions that may exist in either value. Further, we arrive at a broader-based price - one that is based on prices a producer may pay for an imported input, and on prices a producer may pay for a domestic input - that is more likely to be representative of the input to be valued. Accordingly, we have continued to value steam coal based on the weighted-average of the United Nations import statistics and the Polychem data. 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 this review and the final weighted-average dumping margin for the reviewed firm in the Federal Register. Agree_____ Disagree_____ ______________________ Faryar Shirzad Assistant Secretary for Import Administration ______________________ (Date) _________________________________________________________________________ footnote: 1. Green Fresh also states that averaging from the previous fiscal year (1998-1999) is appropriate because the period overlaps with part of the August 1998 to January 2000 POR. However, Green Fresh appears to have confused the POR for this review segment with that of the 1998-2000 first administrative review and first new shipper review. As the POR for this segment is February through July 2000, only the 1999-2000 fiscal year (April 1999 through March 2000) overlaps with the instant POR.