|
Summary The Department of Commerce ("the Department") has prepared these final results of redetermination pursuant to the remand order of the United States Court of International Trade ("the CIT"). Thai Pineapple Canning Industry Corp., Ltd. and Mitsubishi International Corp. v. United States, Court No. 98-03-00487 (CIT February 5, 2002). The CIT's order directed the Department to prepare remand results in compliance with the Judgment of United States Court of Appeals for the Federal Circuit ("the CAFC") in Thai Pineapple Canning Industry Corp., Ltd. and Mitsubishi International Corp. v. United States, Court No. 00-1445, *1 (CAFC December 6, 2001) ("CAFC - Thai Pineapple"). This remand pertains to a single issue involving Thai Pineapple Canning Industry Corp., Ltd. ("TPC"), a respondent in the Department's first administrative review of the antidumping order on canned pineapple fruit ("CPF") from Thailand, for the period January 11, 1995, through June 30, 1996. Background The Department published its Final Results in the first administrative review of canned pineapple fruit from Thailand on February 13, 1998. Canned Pineapple Fruit From Thailand; Final Results of Antidumping Review, 63 Fed. Reg. 7392 (Feb. 13, 1998). On May 5, 1999, the CIT issued Thai Pineapple Canning Industry Corp., Ltd. v. United States, slip-op. 99-42 (CIT May 5, 1999), remanding several issues to the Department, including one issue pertaining to the Department's cost of production ("COP") and constructed value ("CV") methodology in this case. On September 2, 1999, Commerce filed its remand redetermination with the trial court revising its methodology, Results of Redetermination Pursuant to Court Remand: Thai Pineapple Canning Industry Corp. v. United States (Sept. 2, 1999) ("Remand I"), and on February 10, 2000, the CIT issued Thai Pineapple Canning Industry Corp., Ltd. v. United States, slip-op. 2000-17, which affirmed the Department's revised methodology. That decision also remanded the Department's findings on an issue unrelated to the COP and CV methodology, and after the Department issued a second remand redetermination, the CIT affirmed that second remand redetermination in Thai Pineapple Canning Industry Corp., Ltd. v. United States, slip-op 00-47 (CIT Apr. 27, 2000). On December 6, 2001, the CAFC reversed the CIT's findings with respect to the issue pertaining to the Department's COP and CV methodology in this case. The CIT subsequently ordered this remand. Specifically, the Department has been directed on remand to match TPC's sales of CPF to costs based on the period in which the CPF was manufactured (i.e., taking into account the company's inventory holding period). On May 10, 2002, we released our draft results of redetermination to TPC and to the petitioners in this proceeding, Maui Pineapple Company, Ltd. and the International Longshoremen's and Warehousemen's Union. On May 16, 2002, we received comments on our draft redetermination from TPC. We have addressed these comments in the Analysis of Comments Received section, below. Matching Sales of CPF to Costs Based on the Period in which the CPF was Manufactured The CAFC determined that
Commerce is required to modify its methodology for matching costs to sales in its determination of dumping margins when the cost of the main raw ingredient, fresh pineapple, increased by a substantial amount before and during the period of review, and when the merchandise was held in inventory for a period of time before sale. CAFC - Thai Pineapple at *9. The CAFC specifically noted that the change in the value of fresh pineapple was "dramatic" and that the delay between production and sale of the product was "significant." Id. at 12. Furthermore, the CAFC stressed that these two articulated elements are "not present in most antidumping determinations." Id. Based on these unique circumstances, the CAFC directed the Department to recalculate the dumping margin by matching the sales of CPF to the costs based on the period in which the CPF was manufactured. We have done so in this final results of redetermination. However, in attempting to match TPC's sales to the costs based on the period in which the CPF was manufactured, the Department had to address certain accounting and programming issues, which are described in greater detail below. Sales transactions generally involve an amount of commercial risk such that, at the time one party contracts to sell merchandise to another party, the party has no way of knowing whether the costs of its inputs will rise or fall in the future; the cost of an input may be high one week, and for any variety of reasons, low the next, or vice versa. When a party decides to produce particular merchandise, it consciously decides that the benefits of the commercial transactions arising from that production process will be worth whatever risks may be associated with the production process. The Tariff Act of 1930, as amended ("the Act") and the Department's regulations and practice recognize this conscious decision to assume commercial risks on the part of producers who choose to sell merchandise to the United States. Furthermore, as a general matter, in most commercial transactions, buyers and sellers negotiate contracts on the basis of current costs. In a competitive market, no willing buyer would agree to pay a higher price just because the producer was trying to clear out last year's inventory when input costs might have been higher, as long as current market conditions dictate a lower price. In the same vein, no eager producer would agree to sell at a lower price just because its prior year's costs were lower as long as current market conditions allow for a higher price. In certain industries, such as agriculture or industries that require commodity inputs with volatile prices, buyers and sellers take into account these unpredictable factors in setting contract prices. While these factors may increase or decrease costs from year to year, businesses know that current market conditions dictate sales prices. We note that the Department is directed by the Act and by its regulations to apply reasonable and consistent accounting methodologies in every proceeding. We do not believe the CAFC has called this practice into question. Therefore, in every antidumping calculation the Department determines a set, neutral period of time in which it measures a respondent's costs of production and sales, regardless of the potential losses or gains the producer might incur over time. However, where appropriate, the Department sometimes accounts for these unique cost vagaries by making special adjustments to a firm's costs. For example, a firm's warranty costs in a particular year may differ significantly from the firm's historical average, and the Department has made adjustments to firms' costs incurred during the relevant set period of time when historical expenses are considered more appropriate. See, e.g., Notice of Final Determination of Sales at Less Than Fair Value: Bicycles From the People's Republic of China, 61 Fed. Reg. 19026, 19041 (April 30, 1996) in which the Department said: "With respect to warranty expenses, . . . {o}ur practice is normally to use historical expenses unless our analysis of the actual expenses suggests that historical expenses are inappropriate." Moreover, in addition to its normal methodologies, the Department has special methodologies for cases involving perishable agricultural products or economies experiencing significant inflation. In this case the Court concluded that an unusual combination of factors necessitated the application of an accounting methodology designed to take into account the risks assumed by TPC. The unique factors in this case are more akin to the circumstances identified above where the Department has developed cost methodologies to deal with special circumstances, such as high inflation, perishable agricultural products or start-up costs. This is by no means a standard calculation, and we have attempted to adjust our methodology to address the Court's concerns. The Department, as directed by the CAFC, has in this remand redetermination, matched the average adjusted costs for each year to each POR sale taking into account the average inventory holding period experienced by TPC and its affiliated resellers Mitsubishi Foods, Inc. ("MFI"), Mitsubishi International Inc. ("MIC") and Princes Foods B.V. in the sale of CPF. To do this, we determined the appropriate period COP and CV for each sale based on the sale date adjusted back for the average CPF inventory holding period. For example, if a sale was made in January 1995 and the average inventory holding period was 30 days, we would compare the January 1995 sale to fiscal year 1994 costs. The average inventory holding period is proprietary. Therefore, this example is simply for illustrative purposes only. The Department discovered, in running its calculation for the remand, that this methodology had a secondary impact on the required adjustment for differences in physical characteristics when comparing sales of similar merchandise. In adhering to the Court's remand to match the sales with the specified costs, it was therefore necessary for the Department to address the impact of costs on all aspects of the dumping calculation, i.e., making the difference in merchandise ("DIFMER") adjustment, conducting the sales below cost test, and calculating constructed value. In a normal DIFMER calculation (i.e., where there is only one variable cost of manufacture ("VCOM") and one total cost of manufacture ("TCOM") for each product), we subtract VCOM for the comparison market from the VCOM of the U.S. sale and divide the result by the TCOM of the U.S. product. If the DIFMER is greater than 20 percent, we disregard that match and go to the next similar match, or to CV, for comparison purposes. However, if the DIFMER is under 20 percent, we then adjust the comparison market price for the DIFMER amount. Because the cost methodology prescribed by the court in this case dictates multiple cost periods, we were finding that, in certain instances, the VCOM for the comparison market similar product was from a different cost period than that of the U.S. product. Using the VCOMs for different periods resulted in DIFMERs that reflected both differences in physical characteristics and differences in costs between periods. To simply illustrate this distortion, assume there are identical products but they are produced in two different cost periods. The VCOMs will be different and would result in a DIFMER adjustment, that was unrelated to physical characteristics, for identical products. Such an adjustment would be inappropriate. Therefore, in order to ensure that the DIFMER adjustment reflects only those costs associated with the physical characteristic differences between the similar products being compared, we used the VCOMs for the similar products and the TCOMs for the U.S. product from the same cost period. That is, we used the VCOMs and the TCOM that correlate to the adjusted sale date of the foreign market sale (i.e., the sale date adjusted to account for the average time in inventory). Sections 773(b)(1)(A) and (B) of the Act direct that the Department may only disregard sales in the determination of normal value if below-cost sales of subject merchandise were "made within an extended period of time in substantial quantities, and were not at prices which permit recovery of all costs within a reasonable period of time." After such an analysis, if no sales made in the ordinary course of trade remain, the Department is instructed to base normal value on the CV of the merchandise. Pursuant to section 773(b)(2)(C) of the Act, for purposes of this remand, we determined that some sales were made in substantial quantities based on the "sales under consideration for the determination." In other words, we performed the "substantial quantities test" based on the sales used in calculating the remand margin. Furthermore, for the "cost recovery test," as directed by section 773(b)(2)(D) of the Act, we relied on the "weighted average per unit cost of production for the period of . . . review." As part of our analysis, it was necessary to rely upon CV as the basis of normal value for some of the sales, pursuant to section 773(e) of the Act. In our calculations of CV, we determined the cost period based upon the date of the U.S. sale, less the average CPF inventory holding period. Consistent with section 773(e)(2)(A), we calculated profit based on the actual amounts realized by TPC in the review period on sales made in the ordinary course of trade. For this remand redetermination, we have included TPC's 1994 costs which are outside the period of review, as directed by the CAFC. Furthermore, we made the same adjustments to the 1994 costs that were made to the 1995 and 1996 costs in the initial remand redetermination. See Remand I. In other words, we revised TPC's 1994 cost of pineapple fruit to reflect a net realizable value cost allocation. In addition, we applied TPC's G&A and interest rates to the revised 1994 cost of manufacturing. Lastly we used TPC's submitted 1994 packing expenses in our calculations. Analysis of Comments Received As noted, TPC filed comments in response to our draft redetermination regarding the above issue. We address each in turn, below. Comment 1: Inventory Holding Period for CEP sales TPC claims that the Department ignored specific verified information about the inventory holding periods for constructed export price ("CEP") sales. TPC states that it included the inventory period to calculate the inventory carrying costs in its sales data files. Department Position We did not use the CPF-specific inventory holding periods in our calculation of the average inventory holding period in our draft results. Instead, we used amounts from each entity's financial statements, which resulted in the Department including the inventory holding period for merchandise not under consideration in the calculation of the CPF inventory holding period. We remedied this error in the final remand results by weighting the information on the record for each warehouse's CPF-specific inventory periods in the calculation of the average inventory holding period. Comment 2: Inventory Holding Period for Mitsubishi International Inc. TPC argues that the Department failed to calculate an inventory holding period for MIC, the company through which it sold CPF during half the period of review. Department Position We agree and have included MIC's CPF inventory holding periods for each of its warehouses in the average inventory holding period. Comment 3: Inventory Holding Period for Princes TPC points out that the Department's calculation of inventory holding period for Princes ignores that its sales were back-to-back sales which resulted in no additional inventory holding period for those sales. Princes sells CPF throughout Europe for the Mitsubishi Corporation. Department Position We agree that our methodology did not consider that Princes' sales were back-to-back sales. Our revised inventory holding period reflects Princes' CPF inventory holding period. Comment 4: Market-Specific Inventory Holding Period TPC contends that the Department erred in calculating an average inventory holding period on sales in both the third country and the U.S., and ignored that there is a significant difference between the two. TPC believes that the Department should use the market-specific inventory holding periods that it provided in its sales databases when the Department revises its dumping analysis pursuant to this remand. TPC states that this is the most accurate methodology to use in calculating the dumping margin. Department Position We disagree with TPC that the Department's calculation of a single company-wide average inventory holding period is erroneous. In complying with the Court's remand order, we have used the actual CPF-specific inventory holding period information on the record to calculate the actual weighted-average inventory holding period for all entities collapsed as TPC. We consider the group weighted-average inventory holding period to be the appropriate period for all markets. The market-specific methodology presented by TPC is vulnerable to manipulation and results in a distorted margin calculation. In the CPF industry, merchandise is typically sold out of inventory. A company's primary concern is that it has enough product on hand at any one time to meet world market demands. For production planning purposes, the company must maximize production output (i.e., reducing its per unit fixed costs), while avoiding a significant accumulation of inventory resulting from production levels exceeding sales. Key to this decision is the level of finished goods inventory the company is comfortable with maintaining. Because TPC's factory in Thailand produces CPF, which is physically identical regardless of the market to which it is sold, we consider it reasonable to conclude that the company's targeted production levels, and resulting inventory holding period, impact all production equally, regardless of the market of ultimate sale. It is of little significance overall where the inventory is stored, whether it is at the factory in Thailand, in the United States, or any other location. More important is the fact that the TPC group company as a whole had on hand more CPF than it was able to sell world-wide. TPC's group management determines where CPF will be held in inventory, the length of time the CPF is held in inventory, if inventory from one location will be shifted to inventory in another location, and the ultimate destination of the CPF when the need arises. It does not matter, for purposes of calculating an inventory holding period, whether the warehouse is in the United States, Germany, Thailand, or some other location. TPC treats the CPF in all locations as inventory, subject to being shipped to other destinations should the need arise. Finished CPF stored in Thailand may end up being sold in Germany, or the United States, or any other of TPC's markets. Thus, an overall CPF inventory holding period, which is calculated using a weighted-average rate from the entire company, reflects the appropriate figure for our calculations. Even if we were to consider it appropriate to adopt a market-specific approach, which we do not, the methodology suggested by TPC fails to accomplish an accurate result. While the company may store CPF in inventory at one location longer than at another, the age of the CPF at each facility is unknown. While on average CPF may sit in certain warehouses for a longer period of time as compared to other warehouses, it does not necessarily mean that the CPF in one warehouse is older than the CPF in other warehouses. The company could be shipping its most recent production from Thailand to its U.S. warehouses, while shipping its oldest production from Thailand to other markets' warehouses. Thus, there may actually be no holding period in Thailand for U.S. sales, while the entire Thailand holding period may relate solely to home market and third country sales. Thus, adopting a market-specific inventory holding period for purposes of calculating COP and CV would be unreasonable, and virtually impossible to administer or verify. The following example illustrates the point that during a period of rising costs, using a market-specific inventory holding period could significantly distort the dumping margin analysis. Assume that the average inventory holding period is three months for the U.S. market and one month for the comparison market. For a February 19x1 U.S. sale that is being compared to a February 19x1 comparison market sale, the COP used to test whether the comparison market sales price was below cost would be based on 19x1 average costs, while the CV would be based on 19x0 average costs, because under the market-specific assumption, the CPF was produced in December 19x0. Because, under this example, we are in a period of rising costs, 19x1 costs would be higher than 19x0 costs. If all of the comparison market sales of the matched product fall below the 19x1 average cost, we would rely on CV, calculated using 19x0 average costs. Such a calculation would lead to a distorted result, in that the Department would be forced to potentially rely on a constructed price (i.e., CV) that is less than the February 19x1 comparison market price which was disregarded in the first place for being too low! In conclusion, for these final results of redetermination we calculated one average CPF inventory holding period regardless of market. The Department's use of the average CPF inventory holding period more accurately reflects the practices and results of the companies, it minimizes the potential for manipulation by respondents, and it accurately reflects the inventory holding period for the entire responding entity. Comment 5: Inventory Holding Periods of the Various Warehouses TPC maintains that the Department did not aggregate the inventory holding periods of the various warehouses when the CPF was stored in multiple locations from the time of production until the ultimate sale to an unaffiliated company. Department Position We agree in part with TPC. We did not cumulate the inventory holding periods for each warehouse because we were calculating an average holding period regardless of the warehouse from which the product was removed. In this final remand redetermination, we added the weighted additional time in inventory at each subsequent location to calculate the weighted-average inventory holding period for the entire entity. Results We have recalculated the antidumping duty rate applicable to TPC in accordance with this final redetermination on remand. As a result of the changes made to the analysis for this company, TPC's rate changes from 14.17 percent to 13.12 percent. This redetermination is in accordance with the order of the Court in Thai Pineapple Canning Industry Corp., Ltd. and Mitsubishi International Corp. v. United States, Court No. 98-03-00487 (CIT February 5, 2002).
Faryar Shirzad
May 31, 2002 |