Notice of Initiation of Antidumping Duty Investigations: Magnesium Metal From the People's Republic of China and the Russian Federation

AGENCY:

Import Administration, International Trade Administration, Department of Commerce.

EFFECTIVE DATE:

March 25, 2004.

FOR FURTHER INFORMATION CONTACT:

Laurel LaCivita at 202-482-4243 (People's Republic of China) or Mark Hoadley at (202) 482-3148 (Russian Federation), Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230.

Initiation of Investigations

The Petition

On February 27, 2004, the Department of Commerce (the Department) received a petition filed in proper form by U.S. Magnesium Corporation LLC (US Magnesium), United Steelworkers of America, Local 8319, and Glass, Molders, Pottery, Plastics & Allied Workers International, Local 374 (collectively, “petitioners”), an ad hoc coalition representative of U.S. producers of magnesium metal. Petitioners filed amendments to the petition on March 8, 10, 12, and 15, 2004.

In accordance with section 732(b)(1) of the Tariff Act of 1930 (the Act), petitioners allege that imports of magnesium metal from the People's Republic of China (PRC) and the Russian Federation (Russia), are, or are likely to be, sold in the United States at less than normal value within the meaning of section 731 of the Act, and that such imports are materially injuring, or threatening material injury to, an industry in the United States.

The Department finds that petitioners filed this petition on behalf of the domestic industry because they are an interested party as defined in section 771(9)(G) of the Act and they have demonstrated sufficient industry support with respect to both of the antidumping investigations that they are requesting the Department initiate. See, infra, “Determination of Industry Support for the Petition.”

Scope of Investigations

People's Republic of China

The products covered by this investigation are primary and secondary alloy magnesium metal, regardless of chemistry, raw material source, form, shape, or size. Magnesium is a metal or alloy containing by weight primarily the element magnesium. Primary magnesium is produced by decomposing raw materials into magnesium metal. Secondary magnesium is produced by recycling magnesium-based scrap into magnesium metal. The magnesium covered by this investigation includes blends of primary and secondary magnesium.

The subject merchandise includes the following alloy magnesium metal products made from primary and/or secondary magnesium including, without limitation, magnesium cast into ingots, slabs, rounds, billets, and other shapes, and magnesium ground, chipped, crushed, or machined into raspings, granules, turnings, chips, powder, briquettes, and other shapes: Products that contain 50 percent or greater, but less than 99.8 percent, magnesium, by weight, and that have been entered into the United States as conforming to an “ASTM Specification for Magnesium Alloy” and thus are outside the scope of the existing antidumping orders on magnesium from China (generally referred to as “alloy” magnesium).

The scope of this investigation excludes: (1) All forms of pure magnesium, including chemical combinations of magnesium and other material(s) in which the pure magnesium content is 50 percent or greater, but less that 99.8 percent, by weight, that do not conform to an “ASTM Specification for Magnesium Alloy” ; (2) magnesium that is in liquid or molten form; and (3) mixtures containing 90 percent or less magnesium in granular or powder form by weight and one or more of certain non-magnesium granular materials to make magnesium-based reagent mixtures, including lime, calcium metal, calcium silicon, calcium carbide, calcium carbonate, carbon, slag coagulants, fluorspar, nephaline syenite, feldspar, alumina (Al203), calcium aluminate, soda ash, hydrocarbons, graphite, coke, silicon, rare earth metals/mischmetal, cryolite, silica/fly ash, magnesium oxide, periclase, ferroalloys, dolomite lime, and colemanite.

The merchandise subject to this investigation is classifiable under items 8104.19.00, and 8104.30.00 of the Harmonized Tariff Schedule of the United States (“HTSUS”). Although the HTSUS items are provided for convenience and customs purposes, the written description of the merchandise under investigation is dispositive.

Russia

The products covered by this investigation are primary and secondary pure and alloy magnesium metal, regardless of chemistry, raw material source, form, shape, or size. Magnesium is a metal or alloy containing by weight primarily the element magnesium. Primary magnesium is produced by decomposing raw materials into magnesium metal. Secondary magnesium is produced by recycling magnesium-based scrap into magnesium metal. The magnesium covered by this investigation includes blends of primary and secondary magnesium.

The subject merchandise includes the following pure and alloy magnesium metal products made from primary and/or secondary magnesium, including, without limitation, magnesium cast into ingots, slabs, rounds, billets, and other shapes, and magnesium ground, chipped, crushed, or machined into raspings, granules, turnings, chips, powder, briquettes, and other shapes: (1) Products that contain at least 99.95 percent magnesium, by weight (generally referred to as “ultra-pure” magnesium); (2) products that contain less than 99.95 percent but not less than 99.8 percent magnesium, by weight (generally referred to as “pure” magnesium); and (3) chemical combinations of magnesium and other material(s) in which the magnesium content is 50 percent or greater, but less that 99.8 percent, by weight, whether or not conforming to an “ASTM Specification for Magnesium Alloy.”

The scope of this investigation excludes: (1) Magnesium that is in liquid or molten form; and (2) mixtures containing 90 percent or less magnesium in granular or powder form by weight and one or more of certain non-magnesium granular materials to make magnesium-based reagent mixtures, including lime, calcium metal, calcium silicon, calcium carbide, calcium carbonate, carbon, slag coagulants, fluorspar, nephaline syenite, feldspar, alumina (Al203), calcium aluminate, soda ash, hydrocarbons, graphite, coke, silicon, rare earth metals/mischmetal, cryolite, silica/fly ash, magnesium oxide, periclase, ferroalloys, dolomite lime, and colemanite.

The merchandise subject to this investigation is classifiable under items 8104.11.00, 8104.19.00, and 8104.30.00 of the Harmonized Tariff Schedule of the United States (“HTSUS”). Although the HTSUS items are provided for convenience and customs purposes, the written description of the merchandise under investigation is dispositive.

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 meets 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: (i) Poll the industry or rely on other information in order to determine if there is support for the petition, as required by subparagraph (A), or (ii) determine industry support using a statistically valid sampling method.

Section 771(4)(A) of the Act defines the “industry” as the producers of a domestic like product. The 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 a 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.

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 domestic like product referred to in the petition is the product defined in the “Scopes of Investigations” section, above, for Russia. While the scope definition for Russia differs from that for the PRC, the domestic like product is the same for both countries and includes all magnesium as defined by the broader Russian scope definition. For the details of the Department's like product analysis, see Attachment VI of Office of AD/CVD Enforcement Initiation Checklist: Magnesium Metal from the People's Republic of China (“PRC”) and the Russian Federation (“Russia”), dated March 18, 2004 (Initiation Checklist).

Moreover, the Department has determined that the petition contains adequate evidence of industry support; therefore, polling was unnecessary. See Attachment III of the Initiation Checklist. Specifically, based on the analysis contained in the Initiation Checklist, the Department finds that producers supporting the petition represent over 50 percent of total production of the domestic like product.

Accordingly, the Department determines that this petition is filed on behalf of the domestic industry within the meaning of section 732(b)(1) of the Act.

Period of Investigation

The anticipated period of investigation (POI) for the PRC is July 1, 2003 through December 31, 2003. The anticipated POI for Russia is January 1, 2003 through December 31, 2003.

Export Price and Normal Value

The following are descriptions of the allegations of sales at less than normal value upon which the Department based its decision to initiate these investigations. The sources of data for U.S. prices, constructed value (CV), and factors of production 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 determinations, we will reexamine the information and revise the margin calculations as necessary.

Regarding an investigation involving a non-market economy (NME) country, the Department presumes, based on the extent of central government control in an NME, that a single dumping margin, should there be one, is appropriate for all NME exporters in the given country. In the course of these investigations, all parties will have the opportunity to provide relevant information related to the issues of a country's NME status and the granting of separate rates to individual exporters. See, e.g., Notice of Final Determination of Sales at Less Than Fair Value: Silicon Carbide from the People's Republic of China, 59 FR 22585, 22586-87 (May 2, 1994).

People's Republic of China

Export Price

Petitioners based U.S. price for Chinese exports on the average free on board (FOB) value as indicated by U.S. Customs and Border Protection (CBP) data collected by the Bureau of Census. They used data for the POI, and only for cast magnesium alloys. Petitioners did not include imports of granular magnesium from China because it is a basket category including both pure and alloy granular magnesium. See the Initiation Checklist.

Normal Value

Petitioners assert that the PRC is an NME country, and notes that in all previous investigations the Department has determined that the PRC is an NME. See Notice of Final Determination of Sales at Less Than Fair Value: Bulk Aspirin From the People's Republic of China, 65 FR 33805 (May 25, 2000). The PRC will be treated as an NME unless and until its NME status is revoked. See section 771(18)(C)(i) of the Act. Because the PRC's status as an NME remains in effect, petitioners estimated the dumping margin using a NME methodology. Petitioners based their normal value (NV) calculations on the factors of production methodology as described in section 773(c)(3) of Act. They compiled their list of inputs and factor consumption rates from four different sources, including public information provided by respondents in past PRC magnesium proceedings, a technical paper presented at an industry conference, and an affidavit submitted by an employee of U.S. Magnesium.

Petitioners selected India as the surrogate country for the PRC. Petitioners argued that, pursuant to section 773(c)(4) of the Act, India is an appropriate surrogate because it is a market-economy country that is at a comparable level of economic development to the PRC and is a significant producer of comparable merchandise. Based on the information provided by petitioners, we believe that the use of India as a surrogate country is appropriate for purposes of initiating this investigation. See the Initiation Checklist.

In accordance with section 773(c)(4) of the Act, petitioners valued factors of production, where possible, on reasonably available, public surrogate country data. To value certain raw materials, petitioners used official Indian government import statistics, excluding those values from countries previously determined by the Department to be NME countries and excluding imports into India from Indonesia, Korea and Thailand, in light of the prevalence of export subsidies in those countries. See Notice of Final Determination of Sales at Less Than Fair Value: Ferrovanadium from the People's Republic of China, 67 FR 71137, 71139 (Nov. 29, 2002).

Petitioners did not provide factor values for magnesium chloride or aluminum-beryllium hardener, since neither price quotes nor Indian import statistics were available. Petitioners valued dolomite using the October 2002 price quote reported in rupees that was contained in a past PRC magnesium proceeding. Petitioners explained that India imported only a small quantity of dolomite during the April 2002 to May 2003 period so that reliable import statistics for this period were not available. Petitioners valued sulphur powder using a September 9, 2003 price quote from the Indian trade magazine, Chemical Weekly. Petitioners relied on Indian import statistics to value the amount of coal used to produce one ton of magnesium metal. Petitioners relied on the Indian electricity rate for industrial users, as reported by the U.S. Department of Energy, to value electricity. For inputs valued in Indian rupees and not contemporaneous with the POI, petitioners used information from wholesale price indices to determine the appropriate adjustments for inflation. In addition, petitioners made currency conversions, where necessary, based on the average rupee/U.S. dollar exchange rate for the POI.

Petitioners valued labor using the regression-based wage rate for the PRC provided by the Department, in accordance with section 351.408(c)(3) of the Department's regulations.

Petitioners valued factory overhead, selling, general, and administrative expenses (SG&A), and profit using the financial statements of two Indian aluminum producers. Petitioners explained that the Department has previously relied on the financial statements of Southern Magnesium, an Indian magnesium producer, to determine these values for Chinese magnesium producers. However, Southern Magnesium is currently classified as a “sick industrial company” under Indian commercial law and has ceased to produce magnesium. Thus, petitioners did not select Southern Magnesium as a surrogate company for calculating factory overhead, SG&A, and profit. Petitioners further explained that they are not aware of any other magnesium producers in any of the potential surrogate countries. Therefore, petitioners selected aluminum as the most comparable merchandise, since India is a known producer of aluminum, and aluminum is a metal produced from ores using an energy-intensive (and especially electricity-intensive) process. Furthermore, petitioners argue that the Department has previously determined that aluminum and magnesium are comparable products within the meaning of the statute, and has relied on data from financial statements of Indian aluminum producers for the purpose of deriving these components of the cost of production. See Notice of Final Determination of Sales at Less Than Fair Value: Pure Magnesium in Granular Form from the People's Republic of China, 66 FR 49345 (September 27, 2001) and accompanying Issues and Decision Memorandum at Comment 3. Likewise, petitioners noted that the Department determined that aluminum was a product comparable to magnesium in the new shipper review of pure magnesium from the PRC. See Pure Magnesium from the People's Republic of China: Final Results of Antidumping Duty New Shipper Administrative Review, 63 FR 3085, 3088 (January 21, 1998). Therefore, in the absence of financial data for a producer of the identical merchandise, petitioners have relied upon the financial statements of two Indian producers of comparable merchandise (aluminum) to calculate the ratios for factory overhead, SG&A, and profit.

Based on comparisons of export price (EP) to NV, calculated in accordance with section 773(c) of the Act, the estimated dumping margin for magnesium from the PRC is 141.49 percent. See the Initiation Checklist for details on supporting documentation and calculations.

Russia

Export Price

Petitioners were unable to obtain transaction prices for U.S. sales produced in Russia, and, therefore, based U.S. price on the average FOB value as indicated by CBP data collected by the Bureau of Census. The petitioners included values based on this data for the POI for pure magnesium and alloy magnesium. There were no imports of granular magnesium from Russia during this time period, according to the customs data. See the Initiation Checklist.

Normal Value

On June 6, 2002, the Department determined to consider Russia as a market economy, effective April 1, 2002. See Memorandum for Faryar Shirzad from Albert Hsu, Inquiry into the Status of the Russian Federation as a Non-Market Economy Country Under the U.S. Antidumping Law. As such, the petition contains information for calculating NV using the market economy methodology.

Petitioners provided evidence supporting the conclusion that the Russian home market is viable. However, they were unable to obtain any public or confidential information on the prices charged by the Russian producers to their Russian customers. As such, petitioners next turned to the World Trade Atlas to locate a suitable third country market for Russian export sales. Based on the volume and value data reported in the World Trade Atlas, the Netherlands is the third country market with the highest volume of sales of magnesium from Russia.

Petitioners then demonstrated that sales to the Netherlands were made at prices below the cost of production (COP), and, that, therefore, NV must be based on CV. See Initiation Checklist. They calculated the cost of manufacturing component of NV using the costs of U.S. Magnesium, one of the petitioners, adjusted for known differences between the Russian and U.S. production processes. Because U.S. Magnesium does not maintain product-specific costs in its normal cost accounting system, petitioners also made adjustments to derive product-specific costs for primary pure and alloy magnesium. Petitioners relied on the financial statements of the Russian producers to calculate SG&A, interest expense, and profit.

Petitioners claim that “the energy sector in Russia continues to operate under strict government regulations, resulting in energy prices that are not reflective of market conditions,” and provided documentation discussing the general involvement of the Russian government in price setting for, providing subsidies to, and otherwise regulating the Russian electricity industry. Therefore, argue petitioners, the Department should make an adjustment for distorted energy costs. Using publicly available information for “benchmark” prices for electricity in Hungary, Poland, and the Czech Republic, and the actual electricity price paid by one Russian magnesium producer, petitioners derive a figure of $0.2515 to add to the product-specific NVs. This amounts to an adjustment of between 19.12 to 20.82 percent of the unadjusted NV. We recognize that the valuation of energy costs is a complex issue that will need to be fully examined during the course of this investigation. We intend to examine thoroughly both the factual bases and methodological approaches to this issue with all interested parties.

Based on comparisons of EP to NV, calculated in accordance with section 773(c) of the Act, the estimated range of dumping margins for magnesium from Russia is 54.40 to 68.94 percent without the adjustment for electricity, and 86.54 to 101.24 percent with the adjustment. See the Initiation Checklist for details on supporting documentation and calculations.

Fair Value Comparisons

Based on the data provided by petitioners, there is reason to believe that imports of magnesium from the PRC and Russia are being, or are likely to be, sold at less than normal value.

Allegations and Evidence of Material Injury and Causation

Petitioners allege that the U.S. industry producing the domestic like product is being materially injured, or is threatened with material injury, by reason of the individual and cumulated imports of the subject merchandise sold at less than NV.

Petitioners contend that the industry's injured condition and threat of being injured is evident in the domestic industry's decline in domestic capacity, capacity utilization, production, and shipments, loss of U.S. market share, declining employment, declining average unit sales values/industry price erosion, declining financial performance, inability to complete capital and R&D projects, specific instances of lost sales and revenue, and excess capacity in the PRC and Russia. Injury is caused by imports of subject merchandise, which are different under the PRC scope than under the Russian scope. We have assessed the allegations and supporting evidence regarding material injury and causation and we have determined that these allegations are properly supported by adequate evidence and meet the statutory requirements for initiation. See the Initiation Checklist.

Initiation of Antidumping Investigations

Based upon our examination of the petition we have found that it meets the requirements of section 732 of the Act. Therefore, we are initiating antidumping duty investigations to determine whether imports of magnesium from the PRC and Russia are being, or are likely to be, sold in the United States at less than normal value. We will make our preliminary determinations no later than 140 days after the date of this initiation, unless this deadline is extended pursuant to section 733(b)(1)(A) of the Act.

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 representatives of the governments of the PRC and Russia. 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 initiations as required by section 732(d) of the Act.

Preliminary Determinations by the ITC

The ITC will preliminarily determine no later than April 12, 2004, whether there is a reasonable indication that imports of magnesium from the PRC and Russia are causing material injury, or threatening to cause material injury, to a U.S. industry. A negative ITC determination for either country will result in the investigation being terminated with respect to that country; otherwise, these investigations will proceed according to statutory and regulatory time limits.

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