Notice of Initiation of Antidumping Duty Investigation: Outboard Engines from Japan

AGENCY:

Import Administration, International Trade Administration, Department of Commerce.

ACTION:

Initiation of Antidumping Duty Investigation.

EFFECTIVE DATE:

February 4, 2004.

FOR FURTHER INFORMATION CONTACT:

James Kemp at (202) 482-5346 or Salim Bhabhrawala at (202) 482-1784, AD/CVD Enforcement Office 5, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW, Washington, DC 20230.

INITIATION OF INVESTIGATION:

The Petition

On January 8, 2004, the U.S. Department of Commerce (the Department) received a petition filed in proper form by Mercury Marine, a division of Brunswick Corporation (the petitioner). The Department received supplemental information from the petitioner on

January 20, and January 22, 2004.

In accordance with section 732(b)(1) of the Tariff Act of 1930, as amended (the Act), the petitioner alleges that imports of outboard engines from Japan are, or are likely to be, sold in the United States at less than fair value within the meaning of section 731 of the Act, and that imports from Japan are materially injuring, or are threatening to materially injure, an industry in the United States.

The Department finds that the petitioner filed the petition on behalf of the domestic industry because the petitioner is an interested party as defined in section 771(9)(C) of the Act and the petitioner demonstrated sufficient industry support with respect to the antidumping investigation that the petitioner is requesting the Department to initiate. See infra, “Determination of Industry Support for the Petition.”

Period of Investigation

The period of investigation (POI) is January 1, 2003, through December 31, 2003.

Scope of Investigation

For the purpose of this investigation, the products covered are outboard engines (also referred to as outboard motors), whether assembled or unassembled; and powerheads, whether assembled or unassembled. The subject engines are gasoline-powered spark-ignition, internal combustion engines designed and used principally for marine propulsion for all types of light recreational and commercial boats, including, but not limited to, canoes, rafts, inflatable, sail and pontoon boats. Specifically included in this scope are two-stroke, direct injection two-stroke, and four-stroke outboard engines.

Outboard engines are comprised of (1) a powerhead assembly, or an internal combustion engine, (2) a midsection assembly, by which the outboard engine is attached to the vehicle it propels, and (3) a gearcase assembly, which typically includes a transmission and propeller shaft, and may or may not include a propeller. To the extent that these components are imported together, but unassembled, they collectively are covered within the scope of this investigation. An “unassembled” outboard engine consists of a powerhead as defined below, and any other parts imported with the powerhead that may be used in the assembly of an outboard engine.

Powerheads are comprised of, at a minimum, (1) a cylinder block, (2) pistons, (3) connecting rods, and (4) a crankshaft. Importation of these four components together, whether assembled or unassembled, and whether or not accompanied by additional components, constitute a powerhead for purposes of this investigation. An “unassembled” powerhead consists of, at a minimum, the four powerhead components listed above, and any other parts imported with it that may be used in the assembly of a powerhead.

The scope does not include parts or components (other than powerheads) imported separately.

The outboard engines and powerheads subject to this investigation are typically classified in the Harmonized Tariff Schedule of the United States (HTSUS) at subheadings 8407.21.0040 and 8407.21.0080. Although the HTSUS subheadings are provided for convenience and customs purposes, the written description of the merchandise under investigation is dispositive.

Product Coverage

During our review of the petition, we discussed the scope with the petitioner to ensure that it is an accurate reflection of the products for which the domestic industry is seeking relief. As discussed in the preamble to the Department's regulations (Antidumping Duties; Countervailing Duties; Final Rule, 62 FR 27296, 27323 (May 19, 1997)), we are setting aside a period for parties to raise issues regarding product coverage. The Department encourages all parties to submit such comments within 20 calendar days of publication of this notice. Comments should be addressed to Import Administration's Central Records Unit, Room 1870, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW, Washington, DC 20230, following the filing requirements outlined in section 351.303 of the Department's regulations. The period of scope consultations is intended to provide the Department with ample opportunity to consider all comments and consult with parties prior to the issuance of a preliminary determination.

Determination of Industry Support for the Petition

Section 732(b)(1) of the Act requires that a petition be filed on behalf of the domestic industry. Section 732(c)(4)(A) of the Act provides that the Department's industry support determination, which is to be made before the initiation of the investigation, be based on whether a minimum percentage of the relevant industry supports the petition. A petition satisfies this requirement if the domestic producers or workers who support the petition account for: (1) at least 25 percent of the total production of the domestic like product; and (2) more than 50 percent of the production of the domestic like product produced by that portion of the industry expressing support for, or opposition to, the petition. Moreover, section 732(c)(4)(D) of the Act provides that, if the petition does not establish support of domestic producers or workers accounting for more than 50 percent of the total production of the domestic like product, the Department shall either poll the industry or rely on other information in order to determine if there is support for the petition.

Section 771(4)(A) of the Act defines the “industry” as the producers of a domestic like product. Thus, to determine whether a petition has the requisite industry support, the statute directs the Department to look to producers and workers who produce the domestic like product. The U.S. International Trade Commission (ITC), which is responsible for determining whether the domestic industry has been injured, must also determine what constitutes a domestic like product in order to define the industry. While both the Department and the ITC must apply the same statutory definition regarding the domestic like product (section 771(10) of the Act), they do so for different purposes and pursuant to separate and distinct authority. In addition, the Department's determination is subject to limitations of time and information. Although this may result in different definitions of the like product, such differences do not render the decision of either agency contrary to the law.¹

Section 771(10) of the Act defines the domestic like product as “a product which is like, or in the absence of like, most similar in characteristics and uses with, the article subject to an investigation under this title.” Thus, the reference point from which the domestic like product analysis begins is “the article subject to an investigation,” i.e., the class or kind of merchandise to be investigated, which normally will be the scope as defined in the petition.

In this case, the petition covers a single class or kind of merchandise, outboard engines, as defined in the “Scope of Investigation” section, above. The petitioner does not offer a definition of the domestic like product distinct from the scope of the investigation. Further, based on our analysis of the information presented to the Department by the petitioner, we have determined that there is a single domestic like product which is consistent with the definition of the “Scope of the Investigation” section above and have analyzed industry support in terms of this domestic like product.

The Department has determined that the petitioner has established industry support representing over 50 percent of total production of the domestic like product, requiring no further action by the Department pursuant to section 732(c)(4)(D) of the Act. In addition, the Department received no opposition to the petition from domestic producers of the like product. Therefore, the domestic producers or workers who support the petition account for at least 25 percent of the total production of the domestic like product, and the requirements of section 732(c)(4)(A)(i) of the Act are met. Furthermore, the domestic producers or workers who support the petition account for more than 50 percent of the production of the domestic like product produced by that portion of the industry expressing support for or opposition to the petition. Thus, the requirements of section 732(c)(4)(A)(ii) of the Act also are met.

Accordingly, we determine that the petition is filed on behalf of the domestic industry within the meaning of section 732(b)(1) of the Act. See Office 5 AD/CVD Enforcement, Initiation Checklist: Outboard Engines from Japan (January 28, 2004) (Initiation Checklist) at Attachment I, on file in the Central Records Unit, Room B-099 of the Department of Commerce.

Constructed Export Price and Normal Value

The following are descriptions of the allegations of sales at less than fair value upon which the Department based its decision to initiate this investigation. The sources of data for the deductions and adjustments relating to U.S. and home market prices are discussed in greater detail in the Initiation Checklist. Should the need arise to use any of this information as facts available under section 776 of the Act in our preliminary or final determination, we may re-examine the information and revise the margin calculations, if appropriate.

Constructed Export Price

The petitioner based constructed export price (CEP) on U.S. dealer list prices issued by Japanese companies during the POI. The petitioner determined that CEP was appropriate because sales were made in the United States through affiliated resellers. Starting with base prices from the dealer lists, the petitioner made adjustments for various discounts and rebates, foreign inland freight, ocean freight (including insurance), and indirect selling expenses incurred in the United States. The petitioner made no adjustment to CEP for U.S. inland freight charges because this information was not readily available.

Normal Value

With respect to normal value (NV), the petitioner also started with Japanese dealer list prices issued during the POI by Japanese producers of outboard engines. The petitioner stated the prices in yen, their original currency, and converted them to U.S. dollars, using a single average exchange rate for the POI derived from monthly average exchange rates published by the Board of Governors of the Federal Reserve Board, after making adjustments for discounts and inland freight.

Although the petitioner provided margins based on a price-to-price comparisons, the petitioner also provided information demonstrating reasonable grounds to believe or suspect that sales of outboard engines in the home market were made at prices below the fully absorbed cost of production (COP), within the meaning of section 773(b) of the Act, and requested that the Department conduct a country-wide sales-below-cost investigation. See “Initiation of Cost Investigation” section infra for further discussion.

The estimated dumping margins for subject merchandise from Japan, based on a comparison of CEP and NV, ranged from 11.80 percent to 41.50 percent.

Fair Value Comparisons

Based on the data provided by the petitioner, there is reason to believe that imports of outboard engines from Japan are being, or are likely to be, sold at less than fair value in the United States.

Initiation of Cost Investigation

As noted above, pursuant to section 773(b) of the Act, the petitioner provided information demonstrating reasonable grounds to believe or suspect that sales in the home market were made at prices below the fully absorbed COP and, accordingly, requested that the Department conduct a country-wide sales-below-COP investigation in connection with the requested antidumping investigation. Pursuant to section 773(b)(3) of the Act, COP consists of cost of manufacture (COM), selling, general, and administrative (SG&A) expenses, and packing expenses. The petitioner based its cost buildup on an outboard engine model produced by Yamaha Motor Co., Ltd. (Yamaha). However, the petitioner was unable to obtain Yamaha's manufacturing costs and, instead, calculated COM based on the experience of a U.S. producer of outboard engines, adjusted for known differences between costs incurred to manufacture outboard engines in the United States and Japan. See Petition at Exhibit I-10-A and Initiation Checklist at 9. To calculate the depreciation, SG&A, and financial expenses, which were also included in the cost buildup, the petitioner used information from Yamaha's 2003 financial statements.

The Statement of Administrative Action (SAA), submitted to the U.S. Congress in connection with the interpretation and application of the Uruguay Round Agreement Action, states that an allegation of sales below COP need not be specific to individual exporters or producers. SAA, H.R. Doc. No. 103-316 at 833 (1994). The SAA states that “Commerce will consider allegations of below-cost sales in the aggregate for a foreign country, just as Commerce currently considers allegations of sales at less than fair value on a country-wide basis for purposes of initiating an antidumping investigation.” Id.

Further, the SAA provides that “new section 773(b)(2)(A) retains the current requirement that Commerce have 'reasonable grounds to believe or suspect' that below cost sales have occurred before initiating such an investigation. 'Reasonable grounds' ... exist when an interested party provides specific factual information on costs and prices, observed or constructed, indicating that sales in the foreign market in question are at below-cost prices.” Id.

Based upon a comparison of the price of the foreign like product in the home market to the calculated COP of the product, we find reasonable grounds to believe or suspect that sales of the foreign like product were made below the COP, within the meaning of section 773(b)(2)(A)(i) of the Act. Accordingly, the Department is initiating a country-wide cost investigation.

Allegations and Evidence of Material Injury and Causation

The petitioner alleges that the U.S. industry producing the domestic like product is being materially injured, or is threatened with material injury, by reason of the imports of the subject merchandise from Japan and sold at less than NV.

The petitioner contends that the industry's injured condition is evident in the declining trends in operating profits, net sales volumes, domestic prices, revenue, production employment, capacity utilization, and domestic market share. The allegation of injury and causation is supported by relevant evidence including U.S. import data, lost sales, and pricing information.

The Department has assessed the allegation and supporting evidence regarding material injury and causation and determined that this allegation is properly supported by adequate evidence and meets the statutory requirements for initiation. See the Initiation Checklist at Attachment II.

Initiation of Antidumping Investigation

Based upon our examination of the petition, we have found that it meets the requirements of section 732 of the Act. See the Initiation Checklist. Therefore, we are initiating an antidumping duty investigation to determine whether imports of outboard engines from Japan are being, or are likely to be, sold in the United States at less than fair value. Unless this deadline is extended, we will make our preliminary determination no later than 140 days after the date of this initiation.

Distribution of Copies of the Petition

In accordance with section 732(b)(3)(A) of the Act, a copy of the public version of the petition has been provided to the representative of the government of Japan. We will attempt to provide a copy of the public version of the petition to each exporter named in the petition, as provided for under 19 CFR 351.203(c)(2).

ITC Notification

We have notified the ITC of our initiation as required by section 732(d) of the Act.

Preliminary Determination by the ITC

The ITC will determine no later than February 23, 2004, whether there is a reasonable indication that imports of outboard engines from Japan are causing material injury, or threatening to cause material injury, to a U.S. industry. A negative ITC determination will result in the investigation being terminated; otherwise, this investigation will proceed according to statutory and regulatory time limits.

This notice is issued and published pursuant to section 777(i) of the Act.