67 FR 1960, January 15, 2002 A-475-703 Administrative Review 8/1/1999 - 7/31/2000 Public Document IA/II/V: VS x1756 MEMORANDUM DATE: January 8, 2002 TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Bernard T. Carreau Deputy Assistant Secretary for Group II, Import Administration SUBJECT: Issues and Decision Memorandum for the Final Results in the 1999/2000 Antidumping Duty Administrative Review of Granular Polytetrafluoroethylene Resin from Italy Summary We have analyzed the case briefs and rebuttals of interested parties for these final results of the antidumping duty review covering polytetrafluoroethylene (PTFE) resin from Italy. A case brief was received from the petitioner and a rebuttal brief from the respondents. We recommend that you approve the positions we have developed in the Department Position sections of this memorandum. Background On September 10, 2001, 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, 66 FR 46996 (September 10, 2001) (Preliminary Results). The period of review (POR) is August 1, 1999, through July 31, 2000. We invited parties to comment on the Preliminary Results. The petitioner, E.I. DuPont de Nemours & Company (DuPont), submitted a case brief, and the respondent, Ausimont S.p.A. and its subsidiary Ausimont U.S.A. (Ausimont), (1) rebuttal comments, which are summarized below. There was no request for a hearing in this review. Issues 1. Financial Expense Calculation 2. Application of the Special Rule 3. Calculation of Constructed Export Price Profit Ratio 4. Scope of the Review Discussion of Interested Party Comments Comment 1: Financial Expense Calculation Late in the cost verification, Ausimont presented a revised financial expense ratio that included gains on the sale of securities as an offset to interest expense. The petitioner argues that the Department should not accept the revised financial expense calculation for two reasons: (1) the information was presented late in the verification, and (2) gains on the sale of securities do not represent short-term interest income that the Department normally allows as a legitimate offset to financial expense. Ausimont argues that the Department verified the revised financial expense calculation and noted in the verification report that the information contained in the revised calculation was already on the record. (2) Because the information in the revised expense calculation has long been on the record, Ausimont argues that the Department should continue to use the revised financial expenses for purposes of the final determination. The Department's Position: We agree with the petitioner that gains on the sale of securities included in Ausimont's revised financial expenses are not an allowable offset to financial expense. The Department generally only allows interest income derived from short-term investments of working capital as an offset to financial expense because short-term interest income is generally related to the cost of production. In other cases, the Department has noted that securities are held by a company for investment purposes and are not related to the cost of production (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 and Revocation in Part of an Antidumping Finding, 61 FR 57629, (November 7, 1996); Titanium Sponge from Japan: Final Determination of Sales at Less than Fair Value, 49 FR 38687 (October 1, 1984)). In accordance with Department practice, we find that gains on the sale of securities are not interest income, nor are they related to financing the company's general operations. As a result, we have recalculated the respondent's interest expense ratio (3) so that the reported gains on the sale of securities are not treated as an offset to Ausimont's financial expenses. Comment 2: Application of the Special Rule The petitioner points out that the Department correctly denied the respondent's request to invoke the "special rule" regarding further manufactured merchandise. According to the petitioner, Ausimont began importing and further processing wet reactor bead, (the merchandise currently being further processed into PTFE products in the United States), after the anti-dumping order in order to circumvent the order. As a result, the petitioner filed an anti-circumvention case. Despite the fact that the Department found that imports of wet reactor bead were circumventing the order, the petitioner points out that Ausimont repeatedly requests the Department ignore its imports of wet reactor bead and to invoke the special rule. The petitioner claims that if the Department does not calculate a margin for sales of the further- manufactured wet reactor bead, it would, in effect, be allowing Ausimont to circumvent the order. Ausimont states that use of the special rule does not allow respondents to circumvent antidumping orders. Use of the special rule allows the Department to calculate a margin based on imports of finished products, but the margin applies to all imports of subject merchandise, including further-manufactured products. In this case, Ausimont argues that the use of the special rule would be appropriate because imports of products which were not subject to further manufacturing are of a sufficient quantity to provide a reasonable basis for calculating margins for the sales of further-manufactured merchandise. The Department's Position: We agree with the petitioner. 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 our November 28, 2000 letter to Ausimont, (4) 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 2558, 2561 (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 November 28, 2000 letter to Ausimont, 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. Therefore, we continue to believe that using the non-further manufactured sales as a proxy for Ausimont's further-manufactured sales would introduce a relatively high potential for inaccuracy. Second, we have established in our November 28, 2001 letter 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. (5) 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. For the above-referenced reasons and the reasons stipulated in the Department's November 28, 2001 letter, we have continued to include the sales of further-manufactured wet raw polymer in our margin calculations for purposes of the final results of this review. Comment 3: Calculation of the Constructed Export Price Profit Ratio The petitioner argues that, although Ausimont was not required to submit a constructed value database, the Department has on record (in the home market cost of production database, sales databases, and the verification exhibits) the information necessary to calculate the CEP profit ratio. As a result, according to the petitioners, the Department should calculate the CEP profit ratio based on this information rather than on the profit ratio derived from Ausimont's financial statements. Ausimont notes that, under its regulations, the Department has two options for calculating a CEP profit - complete cost of production data or financial statements. According to the respondent, the Department should continue to use Ausimont's audited financial statements to calculate CEP profit consistent with prior reviews (6). The Department's Position: We agree with Ausimont. Section 351.402(d)(2) of the Department's regulation states that the Department may rely "on any appropriate financial reports, including public, audited financial statements, or equivalent financial reports, and internal financial reports prepared in the ordinary course of business." In this case, there is not adequate information on the record to calculate Ausimont's CEP profit ratio using the reported databases because we do not have a general and administrative (G&A) expense value for the U.S. products. Specifically, in its normal books and records, Ausimont reports G&A expenses on a product-specific basis. Therefore, although G&A expenses were reported for the home market sales with the cost database, they were not reported for U.S. sales. Information in the verification exhibits is insufficient to establish the G&A expenses for the U.S. products. Therefore, we have continued to use the audited financial statements in order to calculate the CEP profit ratio. Comment 4: Scope of the Review The petitioner requests the Department to clarify whether modified- polymer PTFE is subject to the review. The petitioner argues that on several occasions it has requested the Department to confirm that all sales of modified-polymer PTFE resin were reported and can be separated from other data, but it is not clear that the Department has done so. The respondent did not brief this issue. The Department's Position: In its May 2, 2001 second supplemental questionnaire, the Department requested Ausimont to clarify why it believed modified-polymer PTFE resin is outside the scope of the review. Furthermore, the Department requested Ausimont to clarify why it reported home market sales of modified-polymer PTFE resin and to confirm that there were no U.S. sales of modified-polymer PTFE resin during the POR. (7) Ausimont provided a brief description of the differences between granular and modified-polymer PTFE resins. Further, at verification, we confirmed that there were no U.S. sales of the modified-polymer product. Given that there were no U.S. sales of modified-polymer PTFE resin during the POR, and that nothing is matching to the modified polymer sales in the home market, the inclusion of home market sales of this merchandise does not affect the Department's analysis. At present, it is not necessary to determine whether modified-polymer PTFE resin is within the scope of the review, but we will revisit the issue in depth should there be U.S. sales of the merchandise or if a formal scope inquiry is requested. 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____ _________________________ Faryar Shirzad 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 otherwise in this memorandum. 2. See Verification of cost of production, sales, and constructed export price data submitted by Ausimont SpA (Bollate, Italy) and Ausimont USA (Thorofare, NJ), dated August 31, 2001 (Verification Report), at IX. 3. See Attachment 3 of Memorandum from Amber Musser and Vicki Schepker to Constance Handley: Final Results Calculation Memorandum - Ausimont SpA (January 8, 2001). 4. See Letter from the Department of Commerce to Ausimont, dated November 28, 2000, including Memorandum from Magd Zalok to Holly Kuga, Acting Deputy Assistant Secretary for Import Administration, dated December 9, 1999. 5. See Final Determination of Circumvention of Antidumping Duty Order, 58 FR 26100 (April 30, 1993). 6. See e.g., Notice of Final Results of Antidumping Administrative Review: Granular Polytetrafluoroethylene Resin from Italy 65 FR 54993, 54994 (September 12, 2000). 7. See Second Supplemental Questionnaire letter and attachment, May 2, 2001.