66 FR 51008, October 5, 2001 A-351-605 POR: 5/1/1999 - 4/30/2000 Public Document IA I/2: ST MEMORANDUM TO: Joseph A. Spetrini Acting Assistant Secretary for Import Administration FROM: Richard W. Moreland Deputy Assistant Secretary, Group I Office of AD/CVD Enforcement SUBJECT: Issues and Decision Memorandum for the Antidumping Duty Administrative Review on Frozen Concentrated Orange Juice from Brazil for the Period May 1, 1999, through April 30, 2000; Final Results Summary We have analyzed the case and rebuttal briefs of interested parties in the 1999-2000 administrative review of the antidumping duty order covering frozen concentrated orange juice from Brazil. As a result of our analysis, we have made no changes in the margin calculations for these final results of review. 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 interested parties: Comment 1: Exchange Rates Comment 2: Financing Expenses Comment 3: Profit used for Constructed Value Background On June 4, 2001, the Department published the preliminary results of administrative review of the antidumping duty order on frozen concentrated orange juice (FCOJ) from Brazil. See Frozen Concentrated Orange Juice from Brazil; Preliminary Results and Partial Rescission of Antidumping Duty Administrative Review, 66 FR 29930 (June 4, 2001) (Preliminary Results). The product covered by this order is frozen concentrated orange juice. The period of review is May 1, 1999, through April 30, 2000. We invited parties to comment on the preliminary results of review. After an analysis of these comments, we have not changed the results from those presented in the preliminary results. Margin Calculations There is only one respondent in this administrative review, Citrovita Agro Industrial Ltda. (Citrovita). We calculated export price and normal value using the same methodology stated in the preliminary results. Discussion of the Issues Comment 1: Exchange Rates During the period of review (POR), Citrovita made only one sale to the United States of subject merchandise. Citrovita contends that this sale was subject to a transaction-specific exchange rate "hedge." According to Citrovita, under both the Department's policy and the U.S. dumping statute, the Department is required to use this hedged rate to convert foreign currencies into U.S. dollar amounts. As support for this assertion, Citrovita cites Notice of Final Determination of Sales at Less Than Fair Value: Certain Preserved Mushrooms from India, 63 FR 72246, 72252 (Dec. 31, 1998) (Mushrooms from India) and section 773A of the Act. Consequently, Citrovita maintains that the Department should use its "hedged" rate for purposes of the final results. The petitioners maintain that Citrovita has not sufficiently linked the forward exchange rate with the U.S. sale in question. Therefore, the petitioners assert that the situation here is not analogous to that in Mushrooms from India. Specifically, the petitioners note that in Mushrooms from India the Department verified that the foreign exchange contracts were directly linked to the respondent's sales; in contrast, here Citrovita merely provided unsigned, untranslated documents that may or may not link an exchange rate to a sale. According to the petitioners, the Department was justified in using its standard exchange rate methodology for purposes of the preliminary results, and it should continue to do so for the final results. Department's Position: Under 19 CFR 351.415(a), the Department is required to convert all foreign currencies into U.S. dollars using the exchange rate in effect on the date of sale of the subject merchandise. The regulations make an exception to this rule in situations where respondents purchase U.S. dollars on forward markets. Specifically, 19 CFR 351.415(b) states: If the Secretary establishes that a currency transaction on forward markets is directly linked to an export sale under consideration, the Secretary will use the exchange rate specified with respect to such foreign currency in the forward sale agreement to convert the foreign currency. In this case, the documents provided by Citrovita to support its claim consist of two untranslated pages from what appear to be bank records. While we are able to link Citrovita's sole U.S. sale during the POR to these records, we disagree that they provide conclusive evidence that Citrovita hedged its forward currency position for that sale. Rather, these documents reveal that the bank in question seemed to convert Citrovita's sales values into local currency at different exchange rates, only one of which was shown in the "contract." Specifically, one of these documents shows that Citrovita received at least four distinct exchange rates for transactions converted using the same contract number. Moreover, we note that Citrovita's claim that it hedged its exchange rate position during the POR conflicts with certain other of its statements regarding the method by which it received Brazilian reais for its U.S. dollar-denominated revenues. For example, on page C-2 of Citrovita's August 28, 2001, questionnaire response, Citrovita noted that the exchange contract in question was an "Advance Exchange Rate Contract" (also known as an ACC). In the previous segment of this proceeding, Citrovita explained the ACC system as follows: Citrovita decides to open a line of credit with a bank, at which time the bank requires the company to promise to export. The line of credit is denominated in U.S. dollars, but the bank advances the funds to Citrovita in reais. The total value of the reais provided at the time of the advance is recorded in Citrovita's accounting system under an "ACC" account (i.e., advances guaranteed by general exports). When Citrovita makes specific exports, it provides certain documentation on these sales to the bank. At this point, Citrovita converts the advance from an "ACC" to an "ACE," which is an advance associated with specific export sales. When the invoices are due, the bank collects the amount of the invoices in U.S. dollars directly from the customers in question and informs Citrovita that payment has been made. Citrovita then reduces the amount owed in its ACE account and credits accounts receivable. The amount recorded in the ACE account is the equivalent amount of reais on the date that the bank received payment. The difference between the beginning and ending values is recorded in the exchange variations account. See the April 11, 2000, memorandum for Louis Apple from Shawn Thompson and Peter Scholl entitled "Verification of the Cost of Production and Constructed Value Data Submitted by Citrovita Agro Industrial, Limitada in the 1998-1999 Antidumping Duty Administrative Review of Frozen Concentrated Orange Juice from Brazil" at pages 31 and 32. This explanation was confirmed by Citrovita's description of this program in footnote 5 of its case brief. For further discussion of these types of transactions, see Comment 2, below. Citrovita has failed to establish that the exchange rate in question was set through a forward sale agreement. Therefore, we have continued to follow our normal practice and use the exchange rate in effect on the date of the U.S. sale, pursuant to 19 CFR 351.415(a). Comment 2: Financing Expenses According to Citrovita, the Department erred in calculating the financing expenses used to calculate the company's cost of production (COP). Specifically, Citrovita alleges that the Department: 1) used Citrovita's fiscal year data, rather than data for the POR (a change from the methodology that Citrovita claims was used in the most recent administrative review); 2) mischaracterized certain exchange losses as interest expenses, rather than as losses associated with accounts receivables; and 3) failed to use the consolidated financial expenses for the group of which Citrovita is a member (i.e., the "Votorantim group"), as requested by the Department's questionnaire, in preference to the company's own financial statements. Citrovita implies that for purposes of the final results the Department should use either Citrovita's own POR financing expenses or the POR financing expenses of the Votorantim group. According to Citrovita, if the Department uses Citrovita's POR data, it will find no dumping margin during this review period. The petitioners maintain that the Department's use of Citrovita's fiscal year data was correct and in accordance with law. The petitioners note that, in calculating constructed value, the Department relied on section 773(e)(2)(B) of the Act and based financing expenses on data from the most recently completed segment of the proceeding. The petitioners contend that there is precedent for using information from previous reviews as alternative data, including precedent involving Citrovita. See Frozen Concentrated Orange Juice from Brazil; Final Results and Partial Rescission of Antidumping Duty Administrative Review, 64 FR 43650, 43653 (Aug. 11, 1999). Regarding the issue of whether the Department should use the consolidated financial statements of the Votorantim group, the petitioners note that the Department declined to use consolidated statements in the previous review based on a conclusion that no such statements, in fact, existed. In any event, the petitioners assert that the Department did not decide in this review to use unconsolidated data, but rather simply applied data from the previous review when calculating constructed value. Department's Position: The Department's longstanding practice with regard to financing expenses is to base net financing expenses on the full-year net interest expense and cost of sales from the audited fiscal year financial statements at the highest level of consolidation which correspond most closely to the POR. See Notice of Final Determination of Sales at Less Than Fair Value: Certain Cut-to-Length Carbon-Quality Steel Plate Products from France 64 FR 73143, 73152 (Dec. 29, 1999). This practice has been upheld by the Court of International Trade. See Gulf States Tube Div. Of Quanex Corp. v. United States, Slip Op. 97-124, Consol. Court No. 95-09-01125 (CIT August 29, 1997). In its February 5, 2001, submission, Citrovita provided the "consolidated" financial statements of the ultimate holding company of the Votorantim group, Hejoassu Administracao Ltda. (Hejoassu). According to Citrovita, its financial results were included in the group financial statements under the equivalence equity method. (See page 1 of the March 29, 2001, supplemental response.) Under this method (also known as a "one line consolidation"), Hejoassu's investment in Citrovita is reported on one line on the group's balance sheet and investment income is reported in a single amount on one line of the income statement. (1) This method is not a true consolidation of the operations of Hejoassu, as the results of certain of its subsidiaries are not reflected in the financial performance of the parent other than in summary fashion. Consequently, inter-company transactions are not eliminated, nor are the financial results of Citrovita represented in the income statement of Hejoassu. For example, we note that the net financing expenses of Citrovita are not reflected on a consolidated basis with those of Hejoassu. For this reason, we find that it is not appropriate to base financing expenses on the financial statements of the Votorantim group. As a consequence, we have continued to base Citrovita's financing expenses on its own audited financial statements for the fiscal year which most closely corresponds to the POR (i.e., 1999). We note that this decision is consistent with the methodology used in the most recent segment of this proceeding, contrary to Citrovita's claim. (2) See Frozen Concentrated Orange Juice From Brazil; Final Results of Antidumping Duty Administrative Review, 65 FR 60406 (Oct. 11, 1999) (FCOJ Final Results) and accompanying decision memorandum at Comment 2. Regarding Citrovita's characterization of its exchange losses as related to accounts receivables, we note that we fully considered this argument as well in the most recent segment of the proceeding. Because Citrovita has provided neither any new arguments associated with these losses nor any new evidence that they do not constitute interest expenses, we have not reconsidered our position here. For further discussion, see FCOJ Final Results at Comment 3. Comment 3: Profit Used for Constructed Value As noted above, for purposes of the preliminary results we found that all of Citrovita's home market sales during the POR were made at prices below the cost of production. As a consequence, we based the profit component of constructed value on the profit rate calculated for Citrovita in the most recent prior segment of this proceeding (i.e., the 1998-1999 administrative review). See Preliminary Results, 66 FR at 29932. According to Citrovita, the Department erred in using a profit margin from the 1998-1999 administrative review. Citrovita argues that this action is directly in violation of a ruling by the Court of International Trade in Floral Trade Council v. United States, 41 F. Supp. 2d 319, 332 (CIT 1999) (Colombian Flowers), where the court required the Department to assign a zero profit rate to the respondent because other data showed no profit. Therefore, Citrovita argues that the Department should follow the ruling in Colombian Flowers and assign it a profit rate of zero for purposes of the final results. The petitioners contend that the Department correctly calculated profit for purposes of the preliminary results, in accordance with section 773(e)(2)(B) of the Act. The petitioners note that this section of the Act requires the Department to limit the amount for profit to the amount normally realized by exporters and producers on sales of the merchandise in the same general category as the subject merchandise. The petitioners maintain that there is no evidence on the record of this proceeding that the amount of profit normally realized on home market sales of FCOJ is zero, given that Citrovita is the sole respondent in this review. Furthermore, the petitioners asserts that the facts in this case are not analogous to those in Colombian Flowers, because in that case there were other respondents who made sales at below cost prices and consequently "normally" made no profit. Department's Position: As noted above, Citrovita did not have any above-cost home market sales of FCOJ during the POR. Therefore, we have not determined constructed value profit under section 773(e)(2)(A) of the Act, which requires sales by the respondent to be made in the ordinary course of trade (i.e., sales that have not been disregarded pursuant to the cost test). In situations where we cannot calculate constructed value profit under section 773(e)(2)(A), section 773(e)(2)(B) of the Act sets forth three alternatives. The Statement of Administrative Action at 840 (H.R. Doc. 103- 316 (1994)) states that "section 773(e)(2)(B) does not establish a hierarchy or preference among these alternative methods." Section 773(e)(2)(B)(i) of the Act specifies that profit may be calculated based on "actual amounts incurred by the specific exporter or producer on merchandise in the same general category" as subject merchandise. Citrovita also produces fresh orange juice, which could be considered as the same general category of merchandise as FCOJ. However, there is insufficient information on the record for us to determine the profit rate for Citrovita's sales of fresh juice because sales of fresh juice were not required to be reported. Alternative (ii) of this section provides that profit may be calculated based on "the weighted average of the actual amounts incurred and realized by {other} exporters or producers that are subject to the investigation." However, because there are no other respondents in this case, the Department cannot calculate profit based on alternative (ii). Thus, we must calculate constructed value profit for Citrovita under section 773(e)(2)(B)(iii) of the Act. Pursuant to this alternative, the Department has the option of using any other reasonable method, as long as the result is not greater than the amount realized by exporters or producers "in connection with the sale, for consumption in the foreign country, of merchandise that is in the same general category of products as the subject merchandise," the so-called "profit cap." The profit cap cannot be calculated in the instant case because, as we noted above, we do not have information allowing us to calculate the amount normally realized by exporters or producers (other than Citrovita) in connection with the sale, for consumption in the foreign country, of the merchandise in the same general category. Thus, we are applying option (iii) based on facts available (i.e., without quantifying a profit cap) in accordance with our practice. (3) (See, e.g., Notice of Final Determination of Sales at Less Than Fair Value: Pure Magnesium from Israel, 66 FR 24231 (Sept. 27, 2001) and accompanying decision memorandum at Comment 8). As option (iii), we have continued to use the profit rate calculated for Citrovita in the most recent prior segment of this proceeding. We disagree with Citrovita that the court's ruling in Colombian Flowers applies here. In that case, there were numerous other respondent companies who produced merchandise in the same general category of products as the subject merchandise. Thus, data existed on the record of that proceeding which allowed the Department to determine the profit cap. In contrast, in this case Citrovita is the only respondent, and we have no profit data from any other company producing FCOJ during the POR. Thus, because there is no information on the record which would permit us to determine the profit cap, we have continued to apply option (iii) without doing so as facts available. RECOMMENDATION Based on our analysis of the comments received, we recommend adopting all of the above positions. If these recommendations are accepted, we will publish the final results of review and the final weighted-average dumping margin for the reviewed firm in the Federal Register. Agree ______ Disagree ______ ______________________ Joseph A. Spetrini Acting Assistant Secretary for Import Administration ______________________ (Date) ________________________________________________________________________ footnotes: 1. For further discussion, see Advanced Accounting, Fifth Edition (1992), Floyd A. Beams, Prentice-Hall, Inc., at page 46. 2. In the most recent administrative review, we based Citrovita's financing expenses on the company's 1998 financial statements. 3. The statement of administrative action, H.R. Doc. No. 103-316, vol. 1, at 841, reprinted in 1994 U.S.C.C.A.N. 3773, 4177, contains the following statement about the profit cap: The Administration also recognizes that where, due to the absence of data, Commerce cannot determine amounts for profit under alternatives (1) and (2) or a "profit cap" under alternative (3), it might have to apply alternative (3) on the basis of "the facts available." This ensures that Commerce can use alternative (3) when it cannot calculate the profit normally realized by other companies on sales of the same general category of products. In such a situation, the Administration intends that Commerce will not make an adverse inference in applying the facts available, unless the company in question withheld information requested by Commerce.