67 FR 1962, January 15, 2002 A-570-815 AR 8/01/99 - 7/31/00 Public Document Office VII: SMC MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Joseph A. Spetrini Deputy Assistant Secretary AD/CVD Enforcement Group III SUBJECT: Issues and Decision Memorandum for the Administrative Review of Sulfanilic Acid from the People's Republic of China (PRC) from August 1, 1999 through July 31, 2000; Final Results Summary We have analyzed the comments of interested parties submitted in the 1999/2000 administrative review of the antidumping duty order covering sulfanilic acid from the PRC. As a result of our analysis, we have made changes in the margin calculations for these final results of review which are addressed below in the Discussion of Issues section of this memorandum. We recommend that you approve the positions we have developed and discussed in this section. Below is the complete list of the issues in this administrative review for which we received comments in respondents' case brief and petitioner's rebuttal brief: 1. Surrogate Value for Aniline 2. Calculation of Indirect Selling Expenses 3. Calculation of Packing Expenses 4. Calculation of Overhead used for the Constructed Export Price 5. Deduction of Duties from U.S. Sales Price This memorandum is on file in the Central Records Unit (CRU), room B-099 of the Main Commerce Building. Background On September 10, 2001, the Department published the preliminary results of the administrative review of the antidumping duty order on sulfanilic acid. See Sulfanilic Acid from the People's Republic of China; Preliminary Results of Antidumping Duty Administrative Review, 66 FR 47003 (September 10, 2001)(Preliminary Results). Petitioner filed a supplemental submission on September 28, 2001, of additional publicly available information (PAI) to value factors of production. On October 1, 2001, respondents also submitted, on a timely basis, PAI for the Department's consideration in the instant administrative review. Petitioner filed additional factual information in rebuttal to respondents PAI on October 10, 2001. On November 2, 2001, the Department issued the verification report discussing our on-site inspection of relevant sales and financial records. Petitioner did not submit a case brief. Respondents filed a case brief with the Department on November 16, 2001, and petitioner submitted a rebuttal brief to the Department on November 21, 2001. Finally, at respondents' request, a hearing was held at the Department on November 29, 2001. The hearing was attended by both respondents and petitioner. Discussion of the Issues Comment 1: Surrogate Value for Aniline Respondents argue that the Department should use the Indian import statistics as published in the "Monthly Statistics of Foreign Trade of India" to value aniline for the final results. According to respondents, the Department should not use the Indian domestic price of aniline, as it did in the Preliminary Results, because it is distorted by the Indian Duty Entitlement Passbook (DEPB) scheme. According to respondents, the DEPB acts as a "substitution drawback," encouraging the use of domestic aniline in exports by allowing Indian producers which export sulfanilic acid to receive a 19 percent refund on the export price of the finished product. See section 351.519(a)(2) of the Department's regulations describing substitution drawbacks and their conferral of countervailable benefits. Respondents contend that the DEPB scheme is a government incentive that promotes the use of domestic aniline by reducing the domestic Indian price for aniline. Therefore, the Department should not use the Indian domestic price as the surrogate value for aniline since it is subsidized by the DEPB scheme. According to respondents, Indian producers of sulfanilic acid will not use domestic aniline to produce sulfanilic acid for export since, even with the DEPB scheme, the domestic price of aniline exceeds the imported price. Respondents also contend that the Indian domestic price for aniline is 38.5 percent higher than the imported price as a result of customs duty treatment. Citing to a letter from an Indian law firm, respondents claim that Indian producers of aniline benchmark their domestic prices to the imported prices and then increase the domestic price to account for customs duty treatment of imported aniline. Respondents further argue that the Department should not use the Indian domestic price as the surrogate value for aniline because the domestic price of aniline is too high and too close to the Indian export price of sulfanilic acid to allow producers to cover the costs of other material inputs, production and sales expenses, and overhead items and profits. Based on a letter and price quote received from an Indian sulfanilic acid exporter, respondents also contend that large-scale Indian producers who use comparatively large amounts of aniline would use imported aniline because it is shipped in bulk quantities. Respondents argue that since Zhenxing is a similarly large-scale facility that would require bulk amounts of aniline, the Indian import price is the most representative of the way Zhenxing uses aniline and therefore better represents the cost of aniline for Zhenxing in China if market forces set that price. Petitioner cites to the recent decision of the Court of International Trade (CIT) which upheld the Department's determination to use the Indian domestic price of aniline in the 1997-1998 administrative review of this order. See Baoding Yude Chemical Industry Co.; Baoding Zhenxing Chemical Co., Ltd.; PHT International, Inc. v. United States, Slip Op. 2001-117 (Ct. Int'l Trade, Sept. 26, 2001) (Baoding Yude). Petitioner notes that the CIT sustained the Department's use of the Indian domestic price to value aniline. Petitioner contends that the domestic price for Indian aniline has continued to decline as a result of the reduction in the Indian tariff rate. In addition, petitioner claims that India is a net exporter of aniline, and that domestic aniline is being used to produce sulfanilic acid and other products in India. Petitioner points to the data submitted to the Department on September 28, 2001 to support its assertion that domestic aniline now accounts for almost 73 percent of aniline derivative products exported from India, which is greater than the 59 percent level of aniline derivatives noted in Baoding Yude. Id. In addition, petitioner notes that this data indicates a steep drop in aniline imports and a consequent rise in the use of domestic aniline, thereby providing further evidence that the domestic price of aniline is increasingly more comparable to the imported price. Petitioner rebuts respondents' argument that the domestic price for aniline, used by the Department in the Preliminary Results, is too close to the export price of Indian sulfanilic acid to allow an Indian producer of sulfanilic acid to cover the additional material costs, expenses and profit margin. According to petitioner, respondents' argument is flawed because it incorrectly assumes that one kilogram of aniline is needed to produce one kilogram of sulfanilic acid. Petitioner points to the amount of aniline used by NFC and the actual aniline input factor used by the Department in the preliminary results to demonstrate that a fractional unit of aniline is required to make a single unit of the subject merchandise. Therefore, a comparison of the price of aniline to the price of sulfanilic acid should not be made on a one-for-one basis. Petitioner also cites to Baoding Yude, in which the CIT agreed with the Department's finding that Indian exporters of sulfanilic acid could use domestic aniline and still make a profit. Id. Finally, petitioner notes that the Government of India (GOI) made final affirmative findings of dumping of imported aniline covering the POR. According to petitioner, this generally available information on the finding of definitive dumping duties by the GOI is sufficient for the Department "to believe or suspect" that aniline imports are being dumped into India during the POR. See H.R. Rep. No. 100-576, at 590 (1988), reprinted in 1988 U.S.C.C.A.N. 1547,1623; see also Tehnoimportexport v. United States, 783 F.Supp. 1401, 1406 (CIT 1992). Therefore, petitioner asserts that the Department should reject the use of Indian import prices as a viable alternative for the surrogate value for aniline. Department's Position: The Department continues to find the Indian domestic price to be the best available information for determining the surrogate value for aniline. The Department finds that the market factors influencing the domestic price of aniline in India are substantially unchanged from those noted in Baoding Yude which upheld the Department's use of the Indian domestic price for aniline. The record of this proceeding and Baoding Yude both indicate that the Indian domestic price has declined as a result of the reduced tariff rate; India remains a net exporter of aniline; and domestic aniline accounts for an even larger share of aniline derivative products exported from India than the 59 percent cited by the CIT. See Baoding Yude; see also petitioner's September 28, 2001 submission at Attachement 1. In addition, contrary to respondents' assertion, there is information on this record as well as in Baoding Yude that indicates that most imported aniline is sold in bulk quantities in excess of the quantities purchased by Indian sulfanilic acid producers. Id. In a letter and price quote from an Indian sulfanilic acid exporter provided in respondents' October 1, 2001 submission in Exhibit A, the exporter states that "{n}ormally aniline is imported in bulk quantity hence it is inconvenient to import the same against small orders of sulphanilic {sic} acid. Hence manufacturers of sulphanilic {sic} acid prefer to take aniline from local market." We find this to be convincing evidence that domestic aniline is being used by Indian producers in the manufacture and export of the subject merchandise. Furthermore, there is no indication on the record of this proceeding that Chinese producers of sulfanilic acid operate on a larger scale than those in India. Therefore, given the totality of this evidence surrounding these factors and their similarity to those enumerated in Baoding Yude, we continue to find the Indian domestic price to be the most representative cost of aniline in China if market forces were to set those prices. Furthermore, petitioner has provided sufficient information about the final affirmative antidumping findings of the GOI for the Department "to believe or suspect" that imported aniline was being dumped in India during the POR. As a result of these findings, the Department cannot consider the imported price of dumped aniline as an appropriate surrogate value for aniline as noted above in Tehnoimportexport v. United States. Comment 2: Calculation of Indirect Selling Expenses Respondents argue that the Department has incorrectly calculated PHT's indirect selling expenses. According to respondents, the Department should not have used the ratio of PHT's total operating expenses to its total sales as reported in PHT's year-end income statement. Because the subject merchandise accounts for only a small portion of PHT's total sales, respondents contend that the Department's calculation should only allocate those operating expenses that can be attributed to the sales of subject merchandise. Respondents further note that the Department never requested information on indirect selling expenses in any of its questionnaires and therefore, respondents were unaware of the calculation methodology until after the Preliminary Results. Finally, respondents assert that the calculation of these expenses was made on the basis of facts available without providing respondents adequate notice and the opportunity to remedy deficient submissions under the statute. See section 782(d) of the Act; see also Ta Chen Stainless Steel Pipe, Inc. v. United States, 1999 Ct. Int'l Trade Lexis 110, Slip Op. 1999-117 (Ct. Int'l Trade, October 28, 1999). Petitioner argues that the Department used the most reasonable method for calculating an indirect selling expense ratio that is applicable to all sales, including those sales involving subject merchandise. According to petitioner, attempting to allocate PHT's operating expenses between subject and non-subject merchandise is a suspect approach for determining this ratio. Department's Position: The Department correctly calculated PHT's indirect selling expenses using the same methodology that was used by respondents and the Department in previous administrative reviews of sulfanilic acid from the PRC in which a dumping margin was calculated. See the public version of the Analysis Memorandum for the Preliminary Results of the 1997/1998 administrative review of sulfanilic acid from the PRC (1997/1998 Analysis Memorandum), dated August 31, 1999, Attachment I at 2. The information necessary to correctly calculate these indirect selling expenses was included in PHT's year-end income statement which was already a part of the record of the instant administrative review. Therefore, the Department did not find it necessary to request additional information. Furthermore, it is reasonable to conclude that respondents were aware of the Department's methodology for calculating the indirect selling expenses since it was utilized in prior administrative reviews. The Department notes that respondents' argument, that the Department unfairly attributed PHT's total indirect selling expenses to only its sales of subject merchandise, is misleading. Our methodology correctly attributes these total indirect selling expenses to PHT's total sales, resulting in an indirect selling expense ratio that is not overstated. Finally, respondents did not offer any precedent in other antidumping duty administrative proceedings to justify that their proposed methodology is within the Department's normal practice for calculating indirect selling expenses. Comment 3: Calculation of Packing Expenses Respondents contend that the Department's methodology for calculating packing expenses does not properly account for the unique type of packing material that was used for each reported sale. Since Zhenxing did not use every type of packing material when shipping the subject merchandise, the Department should adjust its calculation in order to provide a unique normal value that is representative of each type of packing material that is used in Zhenxing's reported sales. Petitioner rebuts respondents' argument that the Department's methodology distorts the normal value for each reported sale. To the contrary, petitioner argues that the Department did account for the various types of bags by weight-averaging their usage among all reported sales. Department's Position: The Department finds that weight-averaging the cost of each type of packing material by its percentage of use among the total number of sales is the most reasonable method as well as the Department's normal practice for calculating packing expenses in non-market economy antidumping duty administrative reviews. Furthermore, we note that we are using the same methodology for calculating packing expenses that was used in the most recent administrative review of sulfanilic acid from the PRC in which a dumping margin was calculated. See 1997/1998 Analysis Memorandum, Attachment I at 4. While respondents have not clearly demonstrated a deficiency in our current practice to warrant a change, we will consider in any subsequent administrative reviews alternatives that provide greater detail and allow for a more in-depth analysis for calculating packing expenses based on more than one normal value. Comment 4: Calculation of Overhead used for the Constructed Export Price According to respondents, the Department's calculation of the overhead ratio is not consistent with the methodology used in other administrative reviews of products from China, including Glycine, Freshwater Crawfish Tail Meat, and Bulk Aspirin. Specifically, respondents assert that the factory overhead percentage should not be used in the denominator of the overhead ratio formula that was calculated by the Department for the preliminary results. Petitioner notes that respondents do not challenge the Department's overhead calculation methodology, but rather attempt to distinguish it from another methodology used by the Department. As such, petitioner contends that the Department should continue to use the same methodology absent respondents' specific objection to the methodology employed by the Department in its preliminary results. Department's Position: The Department agrees with respondents and has adjusted its calculation of Zhenxing's overhead costs to be consistent with the methodology used in other NME antidumping duty administrative reviews. During our review of this overhead calculation, we also discovered that we had incorrectly calculated the overhead ratio used within this calculation for overhead costs. The overhead ratio is based on the surrogate vales obtained from the Reserve Bank of India Bulletin for the costs of overhead, materials, labor, and energy inputs. See Surrogate Values Memorandum for the Preliminary Results at Attachment 11, dated August 31, 2001. To correctly calculate this ratio, the surrogate value for overhead (less energy costs) should be divided by the surrogate costs for materials, labor, and energy inputs. In the preliminary results, we incorrectly placed overhead costs in the denominator of this equation. For purposes of these final results, we have removed the overhead costs from the denominator in order to make the correct comparison of overhead to materials, labor, and energy. Comment 5: Deduction of Duties from U.S. Sales Price For a particular sale, respondents contend that the Department incorrectly deducted the antidumping duty cash deposit from PHT's U.S. sales price by designating it as part of the customs duties. Respondents note that cash deposits should not be treated as customs duties and should not be deducted from the U.S. sales price. They argue that our preliminary determination was incorrect for this sale because we deducted from the U.S. sales price cash deposits that were included in the customs duties. According to respondents, it is contrary to the Department's practice and the applicable case law to deduct cash deposits from the U.S. sales price. See Hoogovens Staal BV v. United States, 4 F.Supp. 2d 1213, 1217, 1220 (1998); see also section 772(d) of the Act. Petitioner argues that the Department verified the amount reported as customs duties for this specific sales observation. In addition, petitioner states that respondents provide no supporting evidence to support their claim that antidumping duty cash deposits were included as part of the customs duties. Department's Position: Based on the record evidence of this proceeding, the Department agrees with respondents and has deducted the antidumping duty cash deposits from the customs duties amount used in the margin calculations in the preliminary results for this specific sale. The Department has reviewed respondents' July 17 submission containing the customs entry summary for this particular sale, and noted the line item designated as "antidumping duty." Using this information on the record, we were able to establish that this antidumping duty amount had been included in the reported total for duties and brokerage fees for this sale. Therefore, we deducted the amount for the antidumping duties from the duty and brokerage fees to arrive at the correct customs duties amount. 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 antidumping duty margin for these reviewed producers/exporters of the subject merchandise in the Federal Register. AGREE ______ DISAGREE ______ _____________________________________ Faryar Shirzad Assistant Secretary for Import Administration _____________________________________ Date ____________________________________________________________________ ATTACHMENT 1 A-570-815 ARP: 08/01/97-07/31/98 Proprietary Document Office VII: LSC PUBLIC VERSION MEMORANDUM TO: The File THROUGH: Chris Cassel Acting Program Manager FROM: Nithya Nagarajan Senior Team Leader Sean Carey Linda Smiroldo Checchia Import Compliance Specialists SUBJECT: Analysis for the Preliminary Results of the 1997/1998 Administrative Review of Sulfanilic Acid from the People's Republic of China - Zhenxing Chemical Industry Company and Yude Chemical Industry Company I. PRELIMINARY RESULTS Quantity Reviewed: [ * * * ] pounds Total Value: [ * * * ] Total PUDD: [ * * * ] Weighted-Average Margin: 1.62% II. U.S. SALES Zhenxing Chemical Industry Company (Zhenxing) and Yude Chemical Industry Company (Yude) made constructed export price (CEP) sales through PHT International (PHT), their U.S. affiliate, during the period of review (POR). Zhenxing produced two products that fall within the scope of this review during the POR: sulfanilic acid (product code [ * * * ] ) and sodium sulfanilate (product code [ * * * ] ). Yude produced only sulfanilic acid (product code [ * * * ] ) during the POR. Foreign Inland Freight: The distance from the factory in Baoding to the port is [ * * * ] kilometers. We used this distance and applied a surrogate value to determine the deduction for foreign inland freight expenses. See the August 31, 1999, factor value memorandum for all surrogate values used in these preliminary results, summarized in Attachment 1 to this memorandum. For consistency, we converted rupees per kilogram to U.S. dollars per pound. Ocean Freight: Ocean freight services were provided by market-economy carriers for all but [ * * * ] sales from Zhenxing. Of the [ * * * ] sales made by Yude, ocean freight services were provided by market-economy carriers in [ * * * ] . Therefore, we used a surrogate value for ocean freight for a 20 foot container to determine the deduction for ocean freight expenses. See the August 31, 1999, factor value memorandum for all surrogate values used in these preliminary results, summarized in Attachment 1 to this memorandum. Marine Insurance: Marine insurance was supplied by a market-economy provider in [ * * * ] made by Yude, whereas marine insurance was supplied by a market-economy provider in [ * * * ] made by Zhenxing. For the Yude sales which did not use market-economy carriers, we applied a surrogate value to determine the deduction for marine insurance. See the August 31, 1999, factor value memorandum for all surrogate values used in these preliminary results, summarized in Attachment 1 to this memorandum. Foreign Brokerage and Handling: We used a surrogate value to determine the deduction for foreign brokerage and handling. See the August 31, 1999, factor value memorandum for all surrogate values used in these preliminary results, summarized in Attachment 1 to this memorandum. Additional Deductions: U.S. inland freight from the port to the warehouse, U.S. inland freight from the warehouse to customer, U.S. duties, repacking in the United States, additional repacking, and warehousing were also deducted based on the actual amounts charged and reported by Yude and Zhenxing. Credit Expense: Credit expense was calculated based on the number of days between the date of invoice to the customer and the date of payment by the customer to PHT. We utilized PHT's actual short term interest rate during the POR which was [ * * * ] percent and reported to us after our August 11, 1999, telephone conversation with the counsel to the respondents. See Memorandum to the File dated August 11, 1999. This was also filed in the respondents' submission of August 31, 1999. Inventory Carrying Costs: Inventory carrying costs were calculated based on the number of days between the date of shipment from Yude or Zhenxing and the date of the shipment's receipt by PHT. The respondents reported this to be [ * * * ] days. Indirect Selling Expenses: Yude and Zhenxing reported indirect selling expenses in their supplemental questionnaire response dated January 25, 1999. Constructed Export Price (CEP) Profit: The deduction for CEP profit was calculated by carbon. We divided the total amount of activated carbon used during the period of review, [ * * * ] metric tons of activated carbon, by the total yield of sodium sulfanilate, [ * * * ] metric tons. This calculation arrives at a value for activated carbon production of [ * * * ] metric tons, which we used in our normal value calculation for sodium sulfanilate at Zhenxing. Labor: Zhenxing and Yude reported separate fields for packing labor hours and indirect labor hours to increase accuracy in defining their respective skilled and unskilled labor hours in the refined sulfanilic acid stage of production. These additional factors of production were reported by Zhenxing and Yude in their respective supplemental submissions of January 25, 1999, May 18, 1999, and May 25, 1999. We added these fields to our spreadsheets for calculating NV. Similarly, Zhenxing reported separate fields for packing labor hours and indirect labor hours to increase accuracy in defining its respective skilled and unskilled labor hours in the sodium sulfanilate stage of production. These additional factors of production were reported by Zhenxing in its supplemental submissions of January 25, 1999, May 18, 1999, and May 25, 1999. We added these fields to our spreadsheets for calculating NV for sodium sulfanilate. Total Cost of Bags: Zhenxing and Yude both use two different sizes of outer bags for packing refined sulfanilic acid. In addition, Zhenxing uses two different sizes of both inner and outer bags for packing sodium sulfanilate. Thus, in calculating the total costs of bags, we multiplied the number of bags needed to pack one (1) metric ton of subject merchandise by the kilogram per unit value of each bag type. We then weight-averaged this sum by the percent usage of each bag type among the total number of sales. A separate weight-average was applied for each product at each company. Total Packing Labor (for Inner and Outer Bags): We weight-averaged total packing labor hours according by the type of inner and/or outer bag actually packed at Zhenxing and Yude, respectively. Total Materials Cost: 1. Zhenxing During the POR, [ * * * ] metric tons of crude sulfanilic acid were used to produce 1 metric ton of refined sulfanilic acid, and [ * * * ] metric tons of crude sulfanilic acid were used to produce 1 metric ton of sodium sulfanilate at Zhenxing. The cost of materials and labor for the production of crude sulfanilic acid was used as the value of the crude sulfanilic acid input in the production of the refined sulfanilic acid and sodium sulfanilate. Electricity and coal were not included in the total materials cost since these items are part of factory overhead. We included freight costs between the factory and the suppliers of direct materials in the . . . .