65 FR 54993, September 12, 2000 A-475-703 AR 8/1/98 - 7/31/99 Public Document GRP II Off. 5: MZ MEMORANDUM DATE: September 5, 2000 TO: Troy H. Cribb Acting Assistant Secretary for Import Administration FROM: Holly A. Kuga Acting Deputy Assistant Secretary for Group II, Import Administration SUBJECT: Issues and Decision Memorandum for the Final Results in the 1998/1999 Antidumping Duty Administrative Review of Granular Polytetrafluoroethylene Resin from Italy Summary We have analyzed the comments in the case and rebuttal briefs submitted by interested parties in the 1998/1999 antidumping duty administrative review of granular polytetrafluoroethylene resin (PTFE resin) from Italy. As a result of our analysis, we have made changes in the margin calculations. We recommend that you approve the positions we have developed in theDiscussion of Issues section of this memorandum. Below is the complete list of the issues in this review for which we received comments from the parties. Background On May 10, 2000, the Department of Commerce (the Department) published the preliminary results of this review. See Notice of Preliminary Results of Antidumping Duty Administrative Review: Polytetrafluoroethylene Resin from Italy, 65 FR 30064 (May 10, 2000) (Preliminary Results). The merchandise covered by this review is described in the Scope of the Reviewsection of this memorandum. The period of review (POR) is August 1, 1998, through July 31, 1999. We invited parties to comment on the Preliminary Results. Both the petitioner, E.I. DuPont de Nemours & Company (DuPont) and the respondent, Ausimont S.p.A. and its subsidiary Ausimont U.S.A. (Ausimont), (1) submitted case and rebuttal comments, which are summarized below. There was no request for a hearing in this review. Scope of the Review The product covered by this review is granular PTFE resin, filled or unfilled. This review also covers PTFE wet raw polymer exported from Italy to the United States. See Granular Polytetrafluoroethylene Resin from Italy ; Final Affirmative Determination of Circumvention of Antidumping Duty Order, 58 FR 26100 (April 30, 1993). This review excludes PTFE dispersions in water and fine powders. During the period covered by this review, the merchandise was classified under item number 3904.61.00 of the Harmonized Tariff Schedule of the United States (HTS). We are providing this HTS number for convenience and Customs purposes only. The written description of the scope remains dispositive. Discussion of Issues Comment 1: Application of the Special Rule for Value Added Merchandise Background: On October 22, 1999, Ausimont requested that the Department apply the "special rule" in accordance with section 772(e) of the Tariff Act of 1930, as amended (the Act), and exclude sales of further-manufactured wet raw polymer from the analysis in this review on the grounds that the value added in the United States to the imported wet raw polymer is at least 65 percent of the price charged to the first unaffiliated U.S. customer. On December 9, 1999, we rejected Ausimont's request to exclude the sales of further-manufactured wet raw polymer because the burden of using the Department's standard methodology is relatively low and the proportion of further-manufactured sales is sufficiently high as to raise concerns about the accuracy of the antidumping duty margin. See the December 9, 1999 memorandum, Application of the Special Rule to Ausimont's Further-Manufactured Sales of Imported Wet Raw Polymer in the 1998-99 Administrative Review of the Antidumping Duty Order on Granular Polytetrafluoroethylene Resin from Italy (Special Rule Memorandum). In its Preliminary Results, the Department denied Ausimont's request to exclude the sales of further-manufactured wet raw polymer for the reasons stipulated in the Special Rule Memorandum. Issue: Ausimont argues that the Department erred in its preliminary results by failing to apply the special rule for merchandise with value added after importation pursuant to Section 772(e) of the Act, and 19 CFR Section 351.402(c). Ausimont maintains that it met the threshold requirement that the value added to its imported wet raw polymer exceeds 65 percent of the price charged to the first unaffiliated purchaser of its granular PTFE resin. Therefore, Ausimont requests that the Department apply the special rule by calculating the dumping margin using Ausimont's sales of imported granular PTFE resin (non-further manufactured sales) as proxies for its sales of granular PTFE resin further-manufactured from imported wet raw polymer. According to Ausimont, the use of non-further manufactured sales will not compromise the accuracy of the Department's results. According to Ausimont, the relative percentage of the further-manufactured sales has no impact upon whether there will be inaccurate results because the accuracy will not vary as the percentage of further-manufactured sales increases or decreases. Ausimont further argues that although the Department determined that the burden of using its standard methodology in Ausimont's case is relatively low, that does not mean there is no burden in doing so, adding that just because the burden may be relatively low does not mean that the burden is automatically outweighed by the potential for inaccurate results. Ausimont maintains that the Department based its conclusion that accuracy would be compromised solely upon the fact that Ausimont's further-manufactured sales represent a relatively large portion of its total U.S. sales. According to Ausimont, the Department's conclusion is illogical, is based upon a false premise that violates the statutory language, and contravenes the Department's professed policy of deciding whether or not to apply the special rule on case-specific facts. To demonstrate that the exclusion of further-manufactured sales, irrespective of their percentage of total sales, does not generate inaccurate results, Ausimont provided a calculation showing that its preliminary margin would have been, according to Ausimont, minimally affected had the Department applied the special rule and excluded the further-manufactured sales from its margin calculation. Ausimont maintains that the result of its calculation demonstrates that the Department cannot continue to maintain that a high percentage of further-manufactured to non-further-manufactured sales necessarily leads to inaccurate results. According to Ausimont, the Department has made the relative percentage of further-manufactured sales into a litmus test for whether use of the proxies is likely to generate inaccurate results. For the above-referenced reasons, Ausimont requests that the Department reverse its decision not to apply the special rule with respect to its further- manufactured sales for purposes of these final results. DuPont refutes Ausimont's argument, stating that the Department retains the authority to refrain from applying the special rule where appropriate, and that it properly acted within its authority when it did not apply the special rule in this case. DuPont states that the Department's logic with regard to accuracy is justified because the percentage of further-manufactured U.S. sales is large enough to raise serious concerns about the impact of using a proxy on the weighted-average margin. According to DuPont, the logic surrounding accuracy stems from the fact that the application of the special rule involves estimating the U.S. price for the further-manufactured U.S. sales and, since estimates by their nature are not precise, the impact of any imprecision on the weighted-average margin will increase as the percentage of further-manufactured sales to total U.S. sales increases. Therefore, DuPont requests that the Department continue calculating the U.S. price of all U.S. sales of further- manufactured wet raw polymer using Ausimont's section E response. DOC Position: We agree with DuPont. Our decision to refrain from applying the special rule in this case is appropriate, and is in accordance with section 772(e) of the Act and the Department's established practice. As we stated in the Special Rule Memorandum, the statute specifies that the use of the options identified in section 772(e)(1) and (e)(2) is contingent upon the existence of a quantity of sales sufficient to provide a reasonable basis for comparison, and a decision that the use of such sales is appropriate (see Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, From Japan, and Tapered Roller Bearings, Four Inches or Less in Outside Diameter, and Components Thereof, From Japan; Final Results of Antidumping Duty Administrative Reviews, 63 FR 2,558, 2,561 (January 15, 1998). Therefore, it is the Department's practice to make decisions regarding its application of the special rule on a case-by-case basis. (See Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts Thereof From France, Germany, Italy, Japan, Romania, Singapore, Sweden and the United Kingdom; Final Results of Antidumping Duty Administrative Reviews, 62 FR 54044, 54067 (Comment 6) (October 17, 1997). Moreover, because the purpose of section 772(e) is to reduce the administrative burden on the Department, the Department retains the authority to refrain from applying the special rule in those situations where the value added, while large, is simple to calculate (see Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts Thereof from France, Germany, Italy, Japan, Romania, Singapore, Sweden, and the United Kingdom; Final Results of Antidumping Duty Administrative Reviews, 63 FR 33320, 33338 (June 18, 1998). As we stated in the Preliminary Results and in the Special Rule Memorandum, the facts of this case support the Department's decision to refrain from using Ausimont's non-further manufactured sales as proxies for its sales of granular PTFE resin, further-manufactured from imported wet raw polymer. First, the information we have on the record of this case clearly shows that Ausimont's U.S. sales of further-manufactured merchandise represent a large portion of its total U.S. sales of the subject merchandise during the POR. We disagree with Ausimont's conclusion that by excluding the further-manufactured sales from the margin calculation there would be no significant effect on the accuracy of the Department's results. Ausimont's own margin calculation in which further- manufactured sales were excluded, in fact, supports the Department's position in that what Ausimont considers an insignificant percentage difference actually represents a significant difference, when looked at in proportion to the Department's dumping margin. Therefore, we continue to believe that using the non-further manufactured sales as a proxy for Ausimont's further-manufactured sales would be inappropriate, as they introduce a relatively high potential for inaccuracy. Second, we have established in our Preliminary Results and the Special Rule Memorandum that the burden of using the Department's standard methodology, by including further-manufactured sales in its margin calculation, is relatively low. We stated that based on our experience, we know that the further- manufacturing of wet raw polymer into PTFE resin is not a very complex process. (2) We have consistently included Ausimont's sales of further-manufactured wet raw polymer in our analysis and have experience with and knowledge of Ausimont's further-manufactured sales, as well as with the calculation of the cost of further manufacturing in the United States with respect to these sales. In fact, we believe that Ausimont's continued concern about the burdens on the Department of analyzing the further-manufactured sales in these final results is no longer founded, especially after the Department had already analyzed and used such sales for purposes of its Preliminary Results. For the above- referenced reasons and the reasons stipulated in the Department's Preliminary Results and the Special Rule Memorandum, we have continued to include the sales of further-manufactured wet raw polymer for purposes of the final results of this review. Comment 2: CEP Profit Calculation DuPont argues that the manner in which Ausimont calculated CEP profit is at odds with established Department policy and should, therefore, be revised for purposes of the final results of this review. According to DuPont, contrary to the Department's guideline, Ausimont's calculation of CEP profit included income taxes, and reflected tariff charges (antidumping duties) incurred by Ausimont U.S.A., as an expense, even though such charges are not related to the production and sale of the subject merchandise during the POR. DuPont further argues that Ausimont also miscalculated the amount of profit and expenses because it failed to use segment data in Ausimont S.p.A.'s financial statements for profit and expenses related to the product category (i.e., Fluorinated Materials) which includes the subject merchandise. Consequently, DuPont provided a revised CEP profit calculation for purposes of the final results of this review and requested that the Department apply the resulting CEP profit rate to the margin calculation for purposes of the final determination. Ausimont agrees with DuPont that the CEP profit calculation should be calculated on a pre-tax basis. Ausimont, however, contends that DuPont's CEP profit calculation incorrectly subtracts income taxes from Ausimont U.S.A.'s total expenses because the total expenses used in the calculation were already net of income taxes. With respect to the antidumping duties, Ausimont refutes DuPont's assertion that antidumping duties should be deducted from Ausimont U.S.A.'s total expenses because such costs are not related to the production and sales of the subject merchandise during the POR. According to Ausimont, the fact that the antidumping duties relate to sales in a prior review period does not disqualify them as expenses for the current review period. Ausimont maintains that it is the Department's long-standing practice to use certain expenses incurred on prior (or future) product sales as a surrogate for current review period expenses when timing precludes the ability of the Department to measure such expenses for sales occurring during the current period. In support of its argument, Ausimont cited to several cases (3) in which the Department recognized certain expenses, such as warranty and bad debts, incurred during the POR, as best available information for future expenses associated with subject merchandise sold during the POR, because such expenses are usually not identifiable until well after the POR. According to Ausimont, the antidumping duties relating to sales made during a prior review are analogous to amounts for bad debt and warranty expenses because antidumping duties will always be paid for products imported and sold in prior periods, since annual reviews only occur after the products have been imported and sold. Ausimont further argues that even if the Department were to determine that the antidumping duties should not be included as expenses for this review, there is no merit to DuPont's argument that the amount for these charges should be added to Ausimont's total actual profit because costs are not profits. With respect to DuPont's assertion that Ausimont failed to use segment data for profit and expenses, Ausimont maintains that the segment data are not detailed sufficiently to constitute a financial report upon which the Department can rely, and that the statutory preference for utilizing the "narrowest category of merchandise" pertains to expenses, not income. Ausimont further argues that the segment data used by DuPont for the calculation of CEP profit is contained in Ausimont's Board of Directors' Report, not the financial statements, as DuPont claims. According to Ausimont, the Board of Directors' Report is merely the management's discussion of the company's result and is not a financial statement subject to the auditing process, as is the case with a balance sheet, income statement, and statement of change in financial position. Therefore, Ausimont maintains that the Board of Directors' Report does not fit into the category of financial reports defined under 19 CFR 351.402.(d)(2). (4) Ausimont further maintains that DuPont's segment data are based only on sales revenue and gross operating profit relating to Fluorinated Materials with no information on expenses and cannot, therefore, be detailed enough to be appropriate for the Department's use. According to Ausimont, although DuPont based its CEP profit calculation on sales revenue and gross operating profit figures related to segment data for Fluorinated Materials, DuPont derived the missing expense information for Fluorinated Materials from the complex expense information for the broader category of all of Ausimont's products. Citing to the Statement of Administrative Action, H.R. Doc 316, Vol. 1,103d Cong., 2d Sess., at 825 (SAA), Ausimont also maintains that the profit and expense amounts used to calculate CEP profit should be calculated on the same basis. Therefore, Ausimont argues that the narrowest category for which sufficiently detailed expense information is available is that for the sale of all of Ausimont's products worldwide. Finally, Ausimont argues that the manner in which DuPont calculated CEP profit based on segment data leads to distorted results because it requires allocations to complete the calculation. As an example, Ausimont claims that DuPont's calculation of the cost of sales amount is different from the amount reflected in Ausimont's audited income statement. Consequently, Ausimont contends that using a broader category, in sharp contrast to segment data, will not affect the accuracy of the CEP profit calculations. In support of its argument, Ausimont cites to the SAA at 825, which states that " No distortion in the profit allocable to U.S. sales is created if total profit is determined on the basis of a broader product-line than the subject merchandise, because the total expenses are also determined on the basis of the same expanded product line." For the above-referenced reasons, Ausimont requests that the Department continue to calculate CEP profit based on Ausimont's total expenses and total profit for all products to all markets. DOC Position We agree with both DuPont and Ausimont that CEP profit should be calculated on a pre-tax basis. It is the Department's long-standing policy to rely on the respondent's pre-tax profit figure because the Department does not consider income taxes as an expense in its antidumping analysis. See the Department's Policy Bulletin: Calculation of Profit for Constructed Export Price Transactions, issued on September 4, 1997 (Policy Bulletin on CEP Profit). Therefore, we have revised the calculation of CEP profit to reflect income before taxes. We also agree with Ausimont that DuPont's CEP profit calculation did, in fact, reflect an incorrect deduction of income taxes from the total expenses because the total expenses used in the calculation were already net of income taxes. This error was averted in the revised calculation of CEP profit. Seethe Department's September 5, 2000, Analysis Memorandum for Ausimont SpA. We disagree with Ausimont that antidumping duties should be included in Ausimont U.S.A.'s expenses for purposes of the CEP profit calculation. It is the Department's policy that antidumping duties and cash deposits of antidumping duties are not expenses that should be deducted from CEP. To do so would involve a circular logic that could result in an unending spiral of deductions for an amount that is intended to represent the actual offset for the dumping. See, e.g., Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, From Japan, and Tapered Roller Bearings, Four Inches or Less in Outside Diameter, and Components Thereof, From Japan; Final Results of Antidumping Duty Administrative Reviews, 63 FR 63860, 63865 (Nov.17, 1998); Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, From Japan, and Tapered Roller Bearings, Four Inches or Less in Outside Diameter, and Components Thereof, From Japan; Final Results of Antidumping Duty Administrative Reviews, 63 FR 2558, 2571 (Jan. 15, 1998); Certain Cut-to- Length Carbon Steel Plate from Germany; Final Results of Antidumping Duty Administrative Review, 62 FR 18390, 18395 (April 15, 1997); and Extruded Rubber Thread From Malaysia; Final Results of Antidumping Duty Administrative Review, 64 FR 12973, 12974 (March 16, 1999). Therefore, given the Department's stated policy regarding antidumping duties, we have revised the CEP profit calculation to exclude antidumping duties from Ausimont U.S.A.'s total expenses. See the Department's September 5, 2000, Analysis Memorandum for Ausimont SpA. We agree with DuPont that the use of segment data is appropriate for purposes of calculating CEP profit. Section 772(f)(2)(C) of the Act provides that in calculating CEP profit, the term "total expenses" refers to all expenses incurred by, or on behalf of, the foreign producer and exporter and the affiliated seller in the United States with respect to the production and sale of the first of the following alternatives: 1) the subject merchandise sold in the United States and the foreign like product sold in the exporting country (if the Department requested this information in order to determine the normal value and constructed export price); 2) the narrowest category of merchandise sold in the United States and the exporting country which includes the subject merchandise; or 3) the narrowest category of merchandise sold in all countries which includes the subject merchandise. As indicated in the Department's Policy Bulletin on the Calculation of CEP Profit, the first alternative reflects the expense data available to the Department when conducting a sales- below-cost investigation. The second and third alternatives rely on expenses and profit information derived from financial reports prepared by the respondent. In our policy bulletin, we stated that the difference between the second and third alternatives is that the second alternative is more narrowly focused on financial reports for production and sale of merchandise in the United Sates and exporting country markets whereas, under the third alternative, the Department could rely on financial reports for merchandise produced and sold by a respondent in all countries (see the Department's Policy Bulletin on the Calculation of CEP Profit). In this review, there is no sales-below-cost investigation or available cost of production data related to the sales of foreign like products. Also, we do not have specific financial reports on the record for only the production and sales of merchandise in the United States and exporting country markets. The only information we have on the record for Ausimont S.p.A.'s expenses is reflected in the company's financial statements and the accompanying Board of Directors' Report. We disagree with Ausimont that the segment data provided in the Board of Directors' Report are insufficient or cannot be used to obtain the expenses incurred with respect to the narrowest category of merchandise sold in all countries which includes the subject merchandise. First, the data provided in the Board of Directors' Report clearly concur with the company's audited financial statements. In fact, the "Board of Statutory Auditors" confirms the accuracy of the detailed data in the company's Board of Directors' Report. Second, we find that the information pertaining to the company's revenue and gross operating profit in the Board of Directors' Report provides data that capture the majority of expenses (i.e., cost of sales) related to the company's Fluorinated Material segment of products, which includes the subject merchandise. Third, the remaining expenses are for certain operating and financing expenses related to world-wide sales of all of Ausimont S.p.A.'s products and can be properly allocated to the segment of Fluorinated Materials. We agree with DuPont's method of allocating the remaining expenses to Fluorinated Materials based on multiplying the ratio of Ausimont S.p.A.'s total operating and financing expenses, in relationship to the company's overall cost of sales, by the cost of sales amount attributable to the segment of Fluorinated Materials. We disagree with Ausimont that such an allocation would lead to a distortion of any material significance in the CEP profit ratio calculation or would render the calculation of profit and expenses inconsistent because: a) the majority of the segment expenses (i.e., cost of sales) are specific to Fluorinated Materials, and b) the remaining expenses are allocated in proper proportion to the segment data based on the segment's cost of sales compared to the company's overall cost of sales. Therefore, we find no basis for Ausimont's argument that the use of segment data results in a distortion in the calculated CEP profit ratio, or an inconsistency in calculating the profit and expenses used for purposes of a specific CEP profit ratio related to the segment of Fluorinated Materials. For the above-mentioned reasons, we have determined that using the segment data for purposes of the CEP profit calculation is appropriate and is in accordance with section 772(f)(2)(C) of the Act. Consequently, we have revised the calculation of CEP profit to reflect the segment data for Fluorinated Materials. See the Department's September 5, 2000, Analysis Memorandum for Ausimont SpA. Recommendation Based on our analysis of the comments received, we recommend adopting the above positions. If this recommendation is accepted, we will publish the final determination in the Federal Register. AGREE____ DISAGREE____ _________________________ Troy H. Cribb Acting Assistant Secretary for Import Administration ________________________ Date Footnotes: _____________________________________________________________________________ 1. Note: We will refer to both Ausimont S.p.A. and Ausimont U.S.A. as "Ausimont," unless indicated in this memorandum. 2. See Final Determination of Circumvention of Antidumping Duty Order, 58 FR 26100 (April 30, 1993). 3. See Notice of Final Determination of Sales at Less Than Fair Value: Large Newspaper Printing Presses and Components Thereof, Whether Assembled or Unassembled, From Germany, 61 FR 38166 (July 23, 1996), Certain Circular Welded Carbon Steel Pipes and Tubes From Thailand; Final Results of Antidumping Duty Administrative Review, 61 FR 1328, 1333 (January 19, 1996), Independent Radionic Workers of America v. United States, 862 F. Supp. 422 (CIT 1994), Daewoo Electronics Co. v. United States, 712 F. Supp. 931 (CIT 1989), and AOC International v. United States, 721 F. Supp. 314 (CIT 1989), rev'd on other grounds, Zenith Electronics Corp. v. United States, 77 F. 3d 426 (Fed. Cir. 1996). 4. "For purposes of determining profit under section 772(d)(3) of the Act, the Secretary may rely on any appropriate financial reports, including public, audited financial statements, or equivalent financial report, and internal financial reports prepared in the ordinary course of business."