67 FR 298, January 3, 2002 A-489-805 Administrative Review 99/00 Public Document DAS II/6: L. Armstrong MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Bernard Carreau Deputy Assistant Secretary for Import Administration RE: Certain Pasta from Turkey (Period of Review: July 1, 1999 through June 30, 2000) SUBJECT: Issues and Decision Memorandum for the Fourth Antidumping Duty Administrative Review; Final Results Summary: We have analyzed the case and rebuttal briefs submitted by interested parties in the antidumping duty administrative review of certain pasta from Turkey. As a result of our analysis of the comments, we have made changes in the margin calculations. We recommend that you approve the positions we have developed in the Discussion of Interested Party Comments section of this memorandum. Below is the complete list of the issues in this review for which we received comments from the parties: I. List of Issues: Filiz and Pastavilla 2. Calculation of the Countervailing Duty (CVD) Field Pastavilla 2. Calculation of Warranty Expense 3. Application of Negative Interest Cost 4. Indexing Fixed Overhead Costs 5. Revocation of the Antidumping Duty Order with Respect to Pastavilla 6. Clerical Error in the Affiliated Party Program Background On June 28, 2001, the Department of Commerce (the Department) published the preliminary results of this review. See Notice of Preliminary Results and Partial Rescission of Antidumping Duty Administrative Review: Certain Pasta from Turkey, 66 FR 34410 (June 28,2001) (Preliminary Results). The merchandise covered by this review is described in the Scope of Review section of this memorandum. The period of review (POR) is July 1, 1999, through June 30, 2000. We invited parties to comment on our Preliminary Results. We received case briefs from the following respondents: Pastavilla Makarnacilik Sanayi ve Ticaret A.S. (Pastavilla); and Filiz Gida Sanayi ve Ticaret A.S. (Filiz). New World Pasta, a petitioner in this review, submitted a case brief as well. Both New World Pasta and Pastavilla filed rebuttal briefs on August 13, 2001. On September 26, 2001, respondents requested that the Department extend its final results in order to incorporate in our margin calculation programs the results from the most recently completed reviews of the countervailing duty order on pasta from Turkey. On November 1, 2001, the Department published a notice postponing the final results of this review until December 25, 2001 (66 FR 55160). A public hearing was not held with respect to this review because no party requested one. The Department has conducted this administrative review in accordance with section 751(a) of the Act. Scope of Review Imports covered by this review are shipments of certain non-egg dry pasta in packages of five pounds (2.27 kilograms) or less, whether or not enriched or fortified or containing milk or other optional ingredients such as chopped vegetables, vegetable purees, milk, gluten, diastases, vitamins, coloring and flavorings, and up to two percent egg white. The pasta covered by this scope is typically sold in the retail market, in fiberboard or cardboard cartons, or polyethylene or polypropylene bags of varying dimensions. Excluded from the scope of this review are refrigerated, frozen, or canned pastas, as well as all forms of egg pasta, with the exception of non-egg dry pasta containing up to two percent egg white. The merchandise subject to review is currently classifiable under item 1902.19.20 of the Harmonized Tariff Schedule of the United States (HTSUS). Although the HTSUS subheading is provided for convenience and Customs purposes, the written description of the merchandise subject to the order is dispositive. The Department has issued the following scope rulings to date: (1) On October 26, 1998, the Department self-initiated a scope inquiry to determine whether a package weighing over five pounds as a result of allowable industry tolerances is within the scope of the antidumping and countervailing duty orders. On May 24, 1999, we issued a final scope ruling finding that, effective October 26, 1998, pasta in packages weighing or labeled up to (and including) five pounds four ounces is within the scope of the antidumping and countervailing duty orders. See Memorandum from John Brinkmann to Richard Moreland, dated May 24, 1999, in the case file in the Central Records Unit, main Commerce building, room B- 099 (the CRU). IV. Margin Calculations We calculated the export price and normal value using the same methodology stated in the Preliminary Results, except as follows: • For the countervailing duty field (i.e., CVDU) reported by Filiz, in the preliminary results, the Department mistakenly divided Filiz's reported figure by one thousand, on the premise that the figure was reported in $/metric ton and therefore must be converted to $/kilogram. We have corrected this error by not converting this field for purposes of these final results. In addition, we have reevaluated the appropriate amount of countervailing duties applicable to the dumping calculations for Filiz and Pastavilla. See Comment 1. • The Department has deleted its re-indexing of Pastavilla's fixed overhead (FOH) field and, instead, accepted Pastavilla's indexing of its FOH reported in the cost database. See Comment 4. • The Department corrected a typographical error for the amount to be indexed for hyper-inflation for the month of August 1999 in its affiliated party program. See Comment 6. Discussion of Interested Party Comments Comment 1: Calculation of the Countervailing Duty (CVD) Field Filiz argues that it reported the value of the CVD field (CVDU) in kilograms and that the Department erred when it attempted to convert the CVDU field from metric tons to kilograms in its margin program. See, Filiz's Preliminary Calculation Memorandum (June 21, 2001). According to Filiz the field was already reported in kilograms and the conversion was not necessary. Therefore, Filiz request that the Department use the CVDU field as reported for these final results. In addition, in its September 26, 2001, request for extension of these final results, respondents requested that the Department, for the adjustment in the AD database for the CVD rate, use the final results from the CVD POR corresponding to the AD POR. Petitioner did not comment on this issue. Department's Position: We agree with Filiz that the value reported in the CVDU field needs no conversion. Based on supplemental information provided by Filiz after the preliminary results of this review, the Department has determined that this field is reported in kilograms and a conversion is not necessary. See Filiz's Response to the Department's Supplemental A-C Questionnaire (July 31, 2001) at page 2. In addition, the Department has recalculated the amount of CVDU applicable to our margin calculations for Pastavilla and Filiz. See Pastavilla's Final Calculation Memorandum (December 26, 2001). See Filiz's Final Calculation Memorandum (December 26, 2001). According to section 772(c)(1)(C) of the Act, the Department adds to the EP "the amount of any countervailing duty imposed on the subject merchandise to offset an export subsidy." After reviewing the companion CVD cases for Pastavilla and Filiz, we have recalculated the CVDU field to incorporate the appropriate amount of countervailing duties applicable to this administrative review based on the most recent completed CVD review. See Notice of Final Affirmative Countervailing Duty Determination: Certain Pasta from Turkey, 66 FR 64398 (December 13, 2001); see also Pastavilla's Final Calculation Memorandum (December 26, 2001); see also Filiz's Final Calculation Memorandum (December 26, 2001). Comment 2: Calculation of Warranty Expense Pastavilla argues that the warranty methodology it reported to the Department was appropriate and should not be adjusted for these final results. While Pastavilla acknowledges that the Department requested that it report this expense on a monthly basis, Pastavilla states that it is more appropriate to report this expense as a period expense. See Pastavilla's Response to Department's Supplemental A-C Questionnaire (November 30, 2000) at page 9. First, Pastavilla argues that treating warranty expense as a monthly expense is distortive, since warranty expenses fluctuate from month to month, in a manner that is unrelated to the sales of a particular month. For example, Pastavilla argues that a customer can return merchandise it purchased one or two or ten months later. Specifically, Pastavilla states that the monthly figures reported for warranty expense are seasonal and vary significantly from month to month; for example, the returns in December, 1999 and June, 2000 are exceptionally high. See Pastavilla's Response to Department's Supplemental A-C Questionnaire (November 30, 2000) at Exhibit 8. Second, Pastavilla claims that it properly reported this expense as a period expense, indexing the warranty expense for inflation and using the indexed, constant-currency ratio as the POR ratio. According to Pastavilla, this methodology for reporting period expenses is consistent with the methodology used for reporting general and administrative (G&A) and interest expenses. Further, Pastavilla states that this methodology was verified by the Department. See Verification of the Sales Questionnaire of Pastavilla (June 21, 2001) at page 12. For these final results, Pastavilla states that the Department should use the warranty expense it reported. If, however, the Department uses monthly expenses as opposed to a period ratio, Pastavilla recommends the Department use the monthly expenses provided in its supplemental questionnaire. See Pastavilla's Response to Department's Supplemental A-C Questionnaire (November 30, 2000) at Exhibit 8. Petitioner disagrees with Pastavilla and states that the Department should reject Pastavilla's reported warranty expense ratio in its entirety. Citing Mitsuboshi Belting Ltd. v United States, WL 118397 (CIT 1997) at page 3 and Pistachio Group Association of Food Industry v. United States, 671 F. Supp. 31, 40 (CIT 1987), the petitioner argues that Pastavilla can not attempt to control the administrative process by providing partial or non-responsive answers. According to the petitioner, the Department requested that Pastavilla calculate this expense on a monthly basis. See Pastavilla's Response to Department's Supplemental A-C Questionnaire (November 30, 2000) at page 9. Petitioner claims that Pastavilla failed to report warranty expenses as requested by the Department, and failed as well, to link its warranty claims to particular invoices in its database. Second, the petitioner states that Pastavilla incorrectly calculated warranty expense because Pastavilla based the value of this expense on the sales price as opposed to the cost of the returned pasta. See Pastavilla's Response to Department's Supplemental A-C Questionnaire (November 30, 2000) at Exhibit 5. Third, in response to Pastavilla's argument "that the Department use the period expense ratio Pastavilla reported," the petitioner requests that the Department reject Pastavilla's warranty expense because Pastavilla should not be allowed to determine which expenses should be reported as indexed. Finally, the petitioner notes that Pastavilla was requested to provide a schedule of direct and indirect warranty expenses incurred for the foreign like product for the three most recently completed years, but failed to do so. See Department's Questionnaire to Pastavilla (September 13, 2000). Therefore, petitioner argues, for the final margin analysis the Department should reject Pastavilla's claimed warranty expense. However, if the Department accept's Pastavilla's warranty claim at all, the petitioner states that at a minimum, the Department should recalculate Pastavilla's warranty expense on a monthly basis. In rebuttal, Pastavilla argues that the petitioner's claim that the warranty expenses it reported to the Department should be rejected is without merit. First, Pastavilla emphasizes that the warranty expenses it reported to the Department are for the POR. Further, Pastavilla states that it has fully disclosed its calculations and its reasons for reporting warranty expense as a POR average expense as opposed to reporting warranty expense on a monthly basis. See Pastavilla's Case Brief (August 6, 2001) at pages 3-4. According to Pastavilla the issue is purely methodological, whether Pastavilla should report warranty expenses on a period basis or on a monthly basis. In response to the petitioner's allegations that Pastavilla was unable to link invoices to a particular sale, Pastavilla states that companies generally can not link warranty credit notes to particular invoices in its accounting systems, since most accounting systems do not have this capability. Further, the Department has never required it to link warranty credit notes to invoices in the past. See Notice of Final Results of Antidumping Duty Administrative Review: Certain Pasta from Turkey 64 FR 69493 (December 13, 1999) (Pasta from Turkey Final Results: 1997-1998). Finally, in response to petitioner's allegation that Pastavilla should have reported its warranty expense as a ratio of the cost of manufacture to the quantity of returned pasta, Pastavilla states that this is not Departmental practice and that it has never been required to do so in past segments of this proceeding. See Pasta from Turkey Final Results: 1997-1998. Department's Position: We agree with Pastavilla. Since warranties typically extend over a period of time that is longer than the POR and complete information for the reviewed sales is not available at the time the questionnaire response is received, we generally base our calculation of per-unit warranty costs on a weighted-average of the annual amounts for warranty expenses for the POR (or the three years prior to the POR). See Antidumping Manual, Chapter 8, p. 32. There is no reason to deviate from this practice in this case. Furthermore, we agree that Pastavilla's calculation of the weighted- average expense was appropriate. We also agree that Pastavilla should have reported warranty expense based on invoice value as opposed to cost. To base calculations on the invoice value of the merchandise is consistent with Pastavilla's normal accounting practices, which are in accordance with Turkish standards and International Accounting Standards, and it is a reasonable representation of Pastavilla's warranty expenses. See Pastavilla's Response to Department's B-D Questionnaire (November 3, 2000) at 15 and 24. Further, Pastavilla is unable to calculate warranty expenses as the petitioners suggest because its warranty claims are entered into the computerized accounting system at the invoice value and Pastavilla has no computerized system which would relate the warranty claim to the original sales invoice. See Verification of the Sales Questionnaire of Pastavilla (June 21, 2001) at page 12. Therefore, for these final results, we will use the sales warranty values reported by Pastavilla on period basis. Finally, we disagree with petitioner that Pastavilla has attempted to control the review process by providing only partial or non-responsive answers. Throughout the review process Pastavilla has addressed the Department's questions and has provided its reasons for reporting warranty expenses the way it did. See Pastavilla's Response to Department's Supplemental A-C Questionnaire (November 30, 2000) at page 9. Accordingly, we have used Pastavilla's reported warranty expenses for the final results of this review. Comment 3: Application of Negative Interest Cost Pastavilla requests that the Department use the negative interest expense it reported and apply it accordingly to the cost test of the margin program. See Pastavilla's Response to Department's B-D Questionnaire (November 3, 2000) at Exhibit 13. Pastavilla recognizes that it is Departmental practice to set negative interest expense to zero. See CINSA, S.A. DE C.V. v. United States 966 F. Supp. 1230, 1239-1240 (CIT 1997). However, Pastavilla argues that under certain circumstances the court has held that Commerce must recognize certain types of financial income in cases involving hyper-inflationary economies even if such financial income is not recognized in cases involving non-hyper-inflation economies. See Mannesmann-Sumerbank Boru Endustri v. United States, Slip-Op. 00-50 (CIT May 3, 2000) (Mannesmann). In Mannesmann, Pastavilla states that the court directed the Department to include foreign exchange gain, which the Department tends to ignore in its margin calculation. Likewise, Pastavilla argues that the Department should recognize its short-term interest income which exceeded its interest expense during the POR. According to Pastavilla, in Turkey, where interest rates are high, companies constantly maneuver their funds to offset the impact of inflation on manufacturing cost. In return, they use the short-term (often overnight) interest income generated to purchase raw materials. For these final results, Pastavilla requests that the Department recognize Pastavilla's short term-interest income and apply it accordingly. The petitioner disagrees with Pastavilla and states that the Department should not include Pastavilla's interest income in its cost of production. Citing, CINSA S.A. v. U.S., the petitioner argues that it is not Departmental practice to accept short-term interest income where it exceeds interest expense. Therefore, for these final results, the Department should continue to reset Pastavilla's negative interest expense to zero. Department's Position: We disagree with Pastavilla. In Mannesmann, the court remanded a portion of the Department's final results with instructions to include plantiff's foreign exchange gains in the denominator of the subsidy margin because the court felt that the Department failed to provide any evidence which would indicate that it was the Department's longstanding practice to exclude foreign exchange gains. In contrast to that case, we found several instances in which the Department has shown that its longstanding policy is to limit the offset of short-term interest income to the amount of interest expense. See Notice of Final Results of Antidumping Administrative Review: Frozen Concentrated Orange Juice from Brazil 55 FR 26721, 26723 (June 29, 1990); see also Notice of Final Results of Antidumping Administrative Review: Brass Sheet and Strip from Canada 55 FR 34585, 31416 (August 2, 1990); see also CINSA, S.A. DE C.V. v. United States 966 F. Supp. 1230, 1239-1240 (CIT 1997). The Department reduces interest expense by the amount of short-term interest income to the extent finance costs are included in the cost of production. The Department does not reduce production cost by the excess because income derived from short- term investments is unrelated to the production of the subject merchandise. Using total short-term interest income to reduce production cost, as suggested by Pastavilla, would permit companies with large short- term investment activity to sell their products below the cost of production and also avoid the full imposition of duties. Accordingly, for these final results, the amount of the offset was limited to the amount of the expense from the related activity. Comment 4: Indexing Fixed Overhead Costs Pastavilla claims that the Department should not index its FOH costs because this figure has already been indexed for inflation. In its response to the Department's questionnaire, Pastavilla stated that its FOH consisted entirely of depreciation. See Pastavilla's Response to Department's Questionnaire (November 3, 2000) at page 70. According to Pastavilla, in the normal course of business it adjusts its monthly depreciation expense based on revaluation indexes published by the Turkish government for year-end accounting purposes. See Pastavilla's Response to Department's Supplemental Questionnaire (February 8, 2001) at Exhibit 10. Thus, Pastavilla states that the figures reported in the FOH cost field have already been adjusted for inflation, in accordance with Turkish law, to bring them into a constant currency basis across the POR. Pastavilla claims that the record clearly shows that it revalued its assets in 1999 and 2000 in accordance with this practice. See Pastavilla's Response to Department's Questionnaire (October 4, 2000) at Exhibit 10. Further, Pastavilla states that when the Department is indexing Pastavilla's depreciation expense, it is making an adjustment for figures that already have an inflation adjustment built into them. As a result, Pastavilla claims the Department is double-counting the inflationary impact of the depreciation. Thus, Pastavilla recommends that for these final results the Department should not index the FOH field. In rebuttal, the petitioner claims that Pastavilla misinterprets the Department's computer program and its cost calculation program. Petitioner states that it is the Department's normal practice to compute a monthly cost that is based on the weighted average of all monthly costs as indexed for inflation over the POR. See the Department's Antidumping Manual at Chapter 8, page 78. As such, the petitioner argues that the Department inflated Pastavilla's cost to the end of the POR, weight averaged the costs, and then deflated the cost back to obtain a monthly figure. According to the Petitioner, Pastavilla does not do this in the ordinary course of business. For example, the FOH field reported for the control numbers do not indicate that they have been inflated and indexed to an end of the period figure. Therefore, for these final results, the Department should continue to index Pastavilla's cost of production, including its reported FOH. See Pastavilla's Final Calculation Memorandum (December 26, 2001). Department's Position: We agree with Pastavilla. Pastavilla's depreciation expenses were stated in December 1999 and 2000 terms in accordance with Turkish law. In the ordinary course of business, Pastavilla adjusts its monthly depreciation expense according to Koc Group instructions relating to the revaluation indices projected by the Turkish government at year-end. See Pastavilla's Response to Department's Supplemental Questionnaire (February 8, 2001) at Exhibit 10. Note 29 of the financial statements indicates that property, plant, and equipment were revalued on December 31, 1999, using the Ministry of Finance's officially published index of 52.1 percent. See Pastavilla's Response to Department's Questionnaire (October 4, 2000) at Exhibit 10. Specifically, each month's depreciation expense was originally reported in December 1999 and 2000 cost terms, and was then deflated to each month. Therefore, consistent with our established practice, we have not adjusted further Pastavilla's depreciation expense because the reported depreciation expense had already been adjusted for inflation when the assets were revalued based on the Ministry's index. See Notice of Final Results of Antidumping Duty Administrative Review: Certain Welded Carbon Steel Pipe and Tube from Turkey 62 FR 51629, 51633 (October 2, 1997); see also Notice of Final Determination of Sales at Less Than Fair Value: Certain Steel Concrete Reinforcing Bars from Turkey 62 FR 9737, 9748 (March 4, 1997). Comment 5: Revocation of the Antidumping Order with Respect to Pastavilla Petitioner states that the Department should not revoke the antidumping duty order with respect to Pastavilla. The petitioner argues that while Pastavilla submitted the required certifications and agreements necessary to have the order revoked, based on preliminary results in this review and the final results in the two preceding reviews, Pastavilla has not had zero or de minimis dumping margins for three consecutive years. See Preliminary Results. Therefore, the petitioner claims that the Department should not revoke the antidumping duty order with respect to merchandise produced and exported by Pastavilla. Pastavilla disagrees with the petitioner and states that in the event that its margin is zero or de minimis at the final, the Department should revoke the antidumping duty order with respect to Pastavilla. According to Pastavilla it has shown the Department that it has sold subject merchandise in commercial quantities in the U.S. market at nondumped prices for at least three consecutive PORs as required for revocation. See Verification of the Sales Questionnaire of Pastavilla (June 21, 2001) at 13. Therefore, in the event that the Department finds a zero or de minimis margin for these final results, Pastavilla requests that the Department revoke the antidumping duty order with respect to Pastavilla. Department's Position: In determining whether to revoke an antidumping order in part, a respondent subject to an order must submit the following: (1) A certification that the company has sold the subject merchandise at not less than normal value in the current review period and that the company will not sell at less than normal value in the future; (2) a certification that the company sold subject merchandise in each of the three years forming the basis of the request in commercial quantities; and (3) an agreement to immediate reinstatement under the order if the Department concludes that the company, subsequent to the revocation, has sold subject merchandise at less than normal value. See 19 CFR 351.222(e). Regarding whether Pastavilla sold subject merchandise at not less than normal value for three consecutive reviews, in this review, the Department has determined that Pastavilla sold pasta at less than NV. Consequently, we determine that, because Pastavilla does not have three consecutive years of zero or de minimis margins, we have determined not to revoke the antidumping duty order with respect to Pastavilla. Comment 6: Clerical Error in the Affiliated Party Program The petitioner claims that the Department made a typographical error when it entered the amount to be indexed for hyper-inflation for the month of August, 1999 in its affiliated party program. It requests that the Department correct this error for its final results. Respondents did not comment on this issue. Department's Position: We agree with the petitioner that the Department inadvertently made a typographical error when it entered in the hyper-inflation index number for the month of August, 1999 in the affiliated party program. See Preliminary Results; see also Pastavilla's Preliminary Calculation Memorandum (June 21, 2001). The Department has corrected this error for these final results. See Pastavilla's Final Calculation Memorandum (December 26, 2001). 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 and the final weighted-average dumping margins in the Federal Register. Agree________ Disagree ________ _______________________________ Faryar Shirzad Assistant Secretary for Import Administration _______________________________ Date