66 FR 31206, June 11, 2001 A-823-805 ARP: 11/1/98-10/31/99 Public Document IA/III/IX: SMB MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Joseph A. Spetrini Deputy Assistant Secretary for AD/CVD Enforcement Group III SUBJECT: Issues and Decision Memorandum for the Administrative Review of the Suspension Agreement on Silicomanganese from Ukraine - 11/1/98 through 10/31/99 Summary We have analyzed the comments of Eramet Marietta Inc., petitioner in the 1998-1999 administrative review of the Suspension Agreement of Silicomanganese from Ukraine ("the Agreement"). As a result of our analysis, we have determined that the Government of Ukraine ("GOU") is not in compliance with the terms of the Agreement. Furthermore, we are announcing in the Federal Register that we are requesting emergency consultations with the GOU, as stipulated by Article XII of the Agreement, to determine whether the Agreement has been violated and, therefore, should be terminated in accordance with section 734(i) of the Tariff Act of 1930, as amended ("the Act"). 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 from Eramet Marietta Inc. 1. Whether the GOU has failed to comply with the information reporting requirements of the Agreement. 2. Whether the GOU has failed to establish and maintain the required regimes necessary to implement the price and volume restrictions of the Agreement. 3. Whether the GOU's failures to comply with the Agreement constitute violations of the Agreement. 4. Whether the GOU has effectively given notice of termination of the Agreement, requiring the Department to issue an order and take the other steps required when an Agreement has been violated. Background On December 5, 2000, the Department of Commerce ("the Department") published the Preliminary Results of Administrative Review of the Suspension Agreement on Silicomanganese from Ukraine, (65 FR 75921) ("Preliminary Results"). We invited parties to comment on our preliminary results of review. We received written comments on February 22, 2001 from petitioner, Eramet Marietta Inc. The Department received no rebuttal briefs. On November 2, 1999, the Department initiated (Notice of Inititation of Five-Year "Sunset" Reviews, 64 FR 59160) and the International Trade Commission ("ITC") instituted (Silicon Metal From Argentina, Brazil, and China and Silicomanganese From Brazil, China, and Ukraine, 64 FR 59204, 59209) a sunset review of the suspended antidumping duty investigation on silicomanganese from Ukraine, pursuant to section 751(c) of the Act. As a result of its review, on September 27, 2000, the Department determined (Final Results of Full Sunset Review: Silicomanganese from Ukraine, 65 FR 58045) that termination of the agreement on silicomanganese from Ukraine would be likely to lead to continuation or recurrence of dumping and notified the ITC of the magnitude of the margin likely to prevail were the agreement terminated. On February 5, 2001, the ITC determined (Silicomanganese from Brazil, China, and Ukraine Investigations Nos. 731-TA-671-673 (Review), 66 FR 8981; ITC Publication # 3386) that termination of the suspended investigation on silicomanganese from Ukraine would be likely to lead to continuation or recurrence of material injury to an industry in the United States within a reasonably foreseeable time. Therefore, on February 16, 2001, the Department published (Continuation of Antidumping Duty Orders on Silicon Metal From Brazil and China and on Silicomanganese From Brazil and China, and Continuation of Suspended Antidumping Duty Investigation on Silicomanganese From Ukraine, 66 FR 10669) notice of continuation of the suspended investigation on silicomanganese from Ukraine, pursuant to section 751(c) and 752 of the Act. The merchandise covered by this agreement is silicomanganese. The period of review ("POR") is November 1, 1998, through October 31, 1999. Discussion of the Issues Comment 1: Whether the Government of Ukraine has Failed to Comply with the Information Reporting Requirements of the Agreement Petitioner argues that the GOU has failed to submit sales reports for home market and third-country sales of silicomanganese as the Agreement requires in Article IX, section A and Appendix B. Petitioner argues that these sales reports are required by the Department in order to effectively monitor the price and volume restrictions of the Agreement and to prevent circumvention of the Agreement. Specifically, petitioner argues that the GOU failed to submit sales reports due December 1, 1999, March 1, 2000, June 1, 2000, September, 1, 2000 and December 1, 2000. (1) Petitioner argues that as a result of the GOU's failure to provide these reports, the Department does not have the sales information it requires to determine whether the GOU is complying with the price and volume restrictions of the Agreement. Petitioner argues that the GOU is in non-compliance with the terms of the Agreement. Petitioner further argues that the third-country sales reports that were provided to the Department on March 1, 1999 (covering November 1, 1998 - January 31, 1999), May 31, 1999 (covering February 1 - April 30, 1999) and September 9, 1999 (covering May 1 - July 31, 1999) were deficient because the reports did not provide the name and address of the location of consumption, certificate of origin number and date of entry for a large volume of third-country sales. Petitioner also argues that the GOU has taken the position that the Agreement was terminated as of October 31, 1999 and, therefore, will not provide sales reports to the Department regarding domestic sales, United States sales and third country sales. (2) Petitioner argues that the GOU's refusal to provide sales reports implies that the GOU will not honor other obligations of the Agreement. Petitioner argues that the GOU has denied the Department's request to place sales reports (sales reports of December 1, 1998, March 1, 1999, May 31, 1999 and September 10, 1999) previously placed on the record of the Agreement, onto the record of this administrative review. Petitioner argues that such information is necessary and appropriate to monitor the implementation of and compliance with the Agreement. Petitioner cites to section 782(a) of the Act, arguing that "if an interested party withholds information that has been requested" by the Department or "significantly impedes a proceeding," the Department "shall, subject to 782(d) of the Act, use facts otherwise available in reaching the applicable determination." Petitioner also points out that under section 776(b) of the Act, if the Department "finds that an interested party has failed to cooperate by not acting to the best of its ability to comply with a request for information," the Department "in reaching the applicable determination ... may use an inference that is adverse to the interests of that party in selecting from among the facts otherwise available." Petitioner argues that, pursuant to the statute, the Department consistently has determined that a respondent has failed to cooperate to the best of its ability when the respondent failed to provide requested information. Petitioner argues that this situation is similar to Chrome-Plated Lug Nuts from Taiwan: Final Results of Antidumping Duty Administrative Review, 64 FR 17314 (April 9, 1999). In that case, the Department ruled that respondent company Gourmet did not act to the best of its ability in providing information because, while the information was submitted for the most part in the appropriate form, the content was unreliable and unverifiable. Petitioner maintains that in the instant case the GOU declined to provide requested information for the record and has impeded this review, by not consenting to the transfer of the reports in question onto the record of this administrative review. Petitioner argues that the Department should therefore make an adverse inference in this review that the reports are deficient and do not contain the information required by the Agreement. Department's Position: For this administrative review, we find that the GOU failed to provide the Department with sales reports required by the Agreement. The GOU failed to submit a sales report due December 1, 1999. The GOU also denied the Department's request that sales reports, placed on the administrative record of the Agreement on December 1, 1998, March 1, 1999, May 31, 1999 and September 10, 1999, also be placed onto the administrative record of this review. As discussed in the Preliminary Results, in order to effectively restrict the volume of exports of silicomanganese from Ukraine to the United States, the Agreement provides for the implementation by the GOU of certain provisions (Article VII). Moreover, Article IX of the Agreement (Monitoring) requires the GOU to "provide to the Department such information as is necessary and appropriate to monitor the implementation of and compliance with the terms of {the} Agreement." One of the tools the Department uses to monitor the Agreement is sales reports filed by the GOU. Specifically, the GOU is required to collect and provide to the Department sales data on silicomanganese from Ukraine to the United States, in the home market, and to countries other than the United States in the format specified in Appendix B. Although the Agreement specifies that these sales reports are to be submitted to the Department on a semi- annual basis, subsequent to the signing of the Agreement the GOU agreed to submit the sales reports on a quarterly basis. See Paris Minutes, Memorandum of Consultations Regarding Administration of the Silicomanganese Suspension Agreement, (May 28, 1998), attached as exhibit 1 to petitioner's October 6, 2000 letter. The GOU expressed concern to the Department that the sales reports, previously submitted onto the administrative record of the Agreement, if submitted in this review, would be released to the general public. In a public letter dated February 14, 2001, the GOU pointed out that disclosure of "economic activity" and "commercial secrets" would cause damage to Ukrainian silicomanganese producers Nikopol Ferroalloys ("Nikopol") and Zaporizhzhya Ferroalloys ("Zaporizhzhya"). The Department replied to this letter on February 16, 2001, pointing out that the information contained in the reports would be subject to administrative protective order (APO) and would not be available to the general public as part of this administrative review. To date, the GOU has not responded to the Department's February 16 letter. As discussed above, these sales reports are important in order to determine, for purposes of this administrative review, whether or not the GOU has effectively restricted the volume of exports of silicomanganese from Ukraine to the United States. Despite the Department's letter of February 16, 2001, the GOU has not responded to the Department's request to allow these reports to be placed on the administrative record of this proceeding. Moreover, the GOU has never submitted the sales report required on December 1, 1999. As a result, the Department does not believe the GOU has acted to the best of its ability to cooperate in this administrative review. Section 776(b) of the Act provides that, in selecting from the facts available, adverse inferences may be used when an interested party fails to cooperate by not acting to the best of its ability to comply with requests for information. Because the GOU, as discussed above, has not acted to the best of its ability in this administrative review, the Department finds, as adverse facts available, that the GOU is not in compliance with the Agreement. Moreover, we note that the GOU has continued its pattern of non-compliance beyond this POR, by failing to file any required quarterly sales reports since, and including, the report required on December 1, 1999. Accordingly, we have requested emergency consultations with the GOU, under Article XII of the Agreement, in order to determine whether the Agreement has been violated and, therefore, should be terminated in accordance with section 734(i) of the Act. Comment 2: Whether the GOU has Failed to Establish and Maintain the Required Regimes Necessary to Implement the Price and Volume Restrictions of the Agreement Petitioner argues that the GOU has failed to establish and operate an export licensing program and certificate of origin program that restrict both direct and indirect exports to the United States, as required by the Agreement. Petitioner points out that the GOU established an export licensing program and certificate of origin regime, contained in GOU Decree No. 335, that only requires licenses and certificates of origin for exports from Ukraine to a named recipient in the United States or countries of the European Union ("EU"). Petitioner argues that the licensing program does not require licenses or certificates for exports to any other country through which indirect exports to the United States could occur. Petitioner, therefore, maintains that the GOU has failed to establish, and during the POR did not maintain, export licensing and certificate of origin regimes that restrict the volume and price of direct and indirect export sales, as required under the terms of the Agreement. In particular, petitioner argues that the GOU failed to comply with the requirement that the GOU establish a sales information collection and maintenance program. Petitioner points out that with respect to Nikopol, the GOU cannot provide the name and address of the location of consumption due to the fact that the standard contract only requires the name of the country of destination. Petitioner also points out that with respect to Zaporozhye, the GOU has admitted that standard contract terms and Ukrainian legislation do not require information concerning the date of entry of merchandise. Petitioner argues that failure to provide both of these reporting requirements (i.e., location of consumption and date of entry of merchandise), results in non-compliance with the requirement that the GOU establish a sales information collection and maintenance program. Petitioner further contends that the GOU failed to include the required anticircumvention provisions in contracts for the sale of Ukrainian silicomanganese. Petitioner points out that the GOU is supposed to require that purchasers of Ukrainian silicomanganese agree not to circumvent the Agreement, to report to Ukraine subsequent arrangements entered into for the sale, exchange, or loan to the United States of silicomanganese purchased from Ukraine and include these same provisions in any subsequent contracts involving silicomanganese purchased from Ukraine (see Agreement section VII, part D). Petitioner also points out that the GOU Decree No. 177 and Order No. 372 (issued March 31, 1998 and January 23, 1998, respectively), require manufacturers /exporters of silicomanganese to require that the first buyer and any "next buyer" will "collaborate" with government officials to "avoid" violation of the agreement and provide complete information concerning direct and indirect exports to the United States. Petitioner argues that the GOU's requirement as put forth in Decree No. 177 and Order No. 372 does not account for all subsequent purchasers of silicomanganese from Ukraine. Petitioner also argues that the decree and order do not require inclusion of any anticircumvention clauses in any subsequent contracts for the resale of the merchandise. Department's Position: We agree with petitioner that Decree No. 335 only requires licenses and certificates of origin for exports from Ukraine to a named recipient in the United States or countries of the EU. As petitioner points out, the GOU established an export licensing program and certificate of origin regime, contained in GOU Decree No. 335, that only requires licenses and certificates of origin for exports from Ukraine to a named recipient in the United States or countries of the EU. Non-EU countries are not subject to the requirements of Decree No. 335 and, therefore, shipments to these countries could result in indirect exports to the United States, if other controls were not in place. Also, the GOU admitted that standard Ukrainian contracts only require a statement of the country of destination, and not the location of consumption and date of entry as the Agreement requires. We also agree with petitioner that the GOU failed to establish a sales information collection and maintenance program. Appendix B of the Agreement lists the sales reporting requirements for third country sales of silicomanganese from the Ukraine. Date of entry and final destination information are required for all sales to third countries. These reporting criteria are important for the Department to properly determine whether the GOU is complying with the terms of the Agreement. As petitioner argues, and the GOU has admitted, sales contracts of Ukrainian silicomanganese producer Nikopol do not contain the names and addresses of location of consumption, and sales contracts of Ukrainian silicomanganese producer Zaporozhye do not contain information relating to the date of entry of merchandise. We disagree with petitioner that Decree No. 177 fails to account for subsequent purchasers of silicomanganese from Ukraine. The language in Decree No. 177, section 2.2.2.d reflects a requirement instituted by the GOU for the manufacturer/exporter, the first buyer and any next buyer of silicomanganese to collaborate with the GOU to avoid violations of the Agreement. The Department believes that any next buyer means any purchaser of the silicomanganese from the original purchaser to the end user. Decree No. 177 also requires that the manufacturer/exporter and the first buyer obtain from the next buyer of silicomanganese, complete information concerning direct or indirect export of silicomanganese to the United States. The Department believes the provisions in Decree No. 177 are adequate to meet the requirements of the Agreement regarding first and subsequent purchasers of silicomanganese. We also disagree with petitioner that the GOU failed to include the required anticircumvention provisions in contracts for the sale of Ukrainian silicomanganese and that Decree No. 177 does not require the inclusion of anticircumvention clauses in any subsequent contracts for the resale of merchandise. The Department believes the language in Decree No. 177 is reasonable and adequate to carry out the provisions of Article VII, Section D, which require that the GOU ensure that purchasers agree not to circumvent the Agreement. By purchasers agreeing not to violate the Agreement in any respect, they are also agreeing not to circumvent the Agreement in its entirety. However, as explained in response to Comment One, because the GOU is not in compliance with the Agreement, the Department has requested emergency consultations with the GOU, as stipulated by Article XII of the Agreement, in order to determine whether a violation has occurred and the Department should terminate the Agreement. Comment 3: The GOU's Failure to Comply with the Agreement Constitute Violations of the Agreement Petitioner points out that a violation of the Agreement means non- compliance with the terms of the Agreement caused by an act or omission by the Government of Ukraine except, at the discretion of the Secretary, an act or omission which is inadvertent or inconsequential (see Agreement Article XII). Petitioner argues that the GOU's omission in not submitting the December 1, 1999 sales report is not inconsequential to the effective monitoring of this Agreement. Petitioner points out that in a January 4, 2001 submission, petitioner provided import statistics showing that significant volumes of imports of silicomanganese have been entering the United States from countries located near Ukraine. Petitioner argues that the GOU's failure to provide the December 1, 1999 sales report and the deficient nature of the sales reports it did submit inhibit the Department's ability to determine the extent to which imports from the countries located near Ukraine include indirect exports of silicomanganese from Ukraine and whether the Ukraine has in fact complied with the price and volume restrictions of the Agreement. Petitioner points out that increased imports of silicomanganese from countries in the same geographic region as Ukraine is a possible indicator that these sales could have originated in Ukraine and the omission, therefore, is not inconsequential. Petitioner contends that the GOU's failure to provide the reports in question prevents the United States from effectively monitoring the Agreement, which in turn leads to non-compliance under the terms of the Agreement and termination of the Agreement under Section 734(i)(1)(C) of the Act. Petitioner argues further that because the GOU is aware that failing to provide the reports in question leads to termination of the Agreement, the GOU's failure to provide these reports is not inconsequential. Petitioner argues that the GOU's failure to provide reports was not inadvertent. Petitioner points out that a letter filed by petitioner on October, 6, 2000, in which petitioner requested the Department to find that the GOU violated the Agreement by failing to submit the reports in question, was not answered by the GOU and shows that the GOU chose not to submit reports. Petitioner also argues that the GOU's failure to provide the name and address of the location of consumption, the certificate of origin numbers and dates of entry for a large volume of third-country sales in its three submitted reports covering the POR was not inadvertent and shows that the GOU has systematically failed to implement the required steps to collect and maintain these data. Petitioner points out that the GOU has failed to provide sales reports for four consecutive periods and this, combined with the fact that the GOU has a long history of failing to provide the name and address of the location of consumption, export licenses, certificates of origin and other critical required data for third-country sales in its prior sales reports, shows the repeated non-compliance by the GOU over the life of the Agreement. Accordingly, petitioner concludes that the Department should, following Department regulations, determine the GOU is in violation of the Agreement, order suspension of liquidation (without right of comment), issue an antidumping order, impose a cash deposit requirement in the amount of the dumping margin found in the final determination, notify parties to the proceeding and publish notice of issuance of the antidumping duty order and cancellation of the Agreement. Department's Position: We agree with petitioner in part. The GOU is required to report sales to third countries and to prevent circumvention of the Agreement by the occurrence of sales to the United States through third countries. The Department views sales reports as very important to the proper implementation of suspension agreements. The failure of the GOU to provide the December 1, 1999 report resulted in the failure to report sales for the months of August, September and October 1999, the last three months of the POR. In the preliminary results of this administrative review, we stated, "If the Department makes a final determination of non-compliance, it will then be necessary to determine whether this non-compliance rises to the level of a violation as defined in Article XII of the Agreement." The Department does find non-compliance on the part of the GOU for its failure to submit the December 1, 1999 sales report and its failure to allow the Department to place sales reports, placed on the administrative record of the Agreement, onto the administrative record of this review. Moreover, Article XII of the Agreement requires that prior to making a determination of an alleged violation, the Department will engage in emergency consultations with the GOU. Therefore, before determining whether the non- compliance rises to the level of a violation, the Department has requested emergency consultations with the GOU, as stipulated by Article XII of the Agreement. If, after these consultations, the Department finds that the GOU's non-compliance constitutes a violation, pursuant to section 351.209 of the Department's regulations, the Department will terminate the Agreement and issue an antidumping duty order. Comment 4: The GOU has Effectively Given Notice of Termination of the Agreement, Requiring the Department to Issue an Order and Take the Other Steps Required When an Agreement has been Violated Petitioner argues that the GOU letter of December 27, 2000 constitutes termination of the Agreement. Petitioner argues that in the letter of December 27, 2000, the GOU conveyed to the Department their belief that the GOU has no further obligations to provide the required sales reports. Petitioner contends that, therefore, the GOU gave the Department notice that the GOU was terminating the Agreement. Department's Position: We disagree with petitioner. The language of Article XIII of the Agreement states, "The GOU may terminate this Agreement at any time upon notice to the Department." The GOU's letter of December 27, 2000 states that the GOU believes the Agreement was self-terminating under Article XIII of the Agreement. The letter does not in any way indicate that the GOU is notifying the Department of its intent to terminate the Agreement. Accordingly, we do not interpret the GOU's December 27, 2000 letter to constitute a GOU action to terminate the Agreement through effective notice or otherwise. 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 in the Federal Register. AGREE_____ DISAGREE_____ ______________________ Faryar Shirzad Assistant Secretary for Import Administration _________________________________________________________________________ footnotes: 1. The GOU agreed to provide quarterly sales reports during consultations with the Department as reported in a May 28, 1998 memorandum from Joseph Spetrini to Robert LaRussa. 2. While the Export Limit provision of the Agreement expired October 31, 1999, the underlying Agreement remains in effect.