Polyvinyl Alcohol from Japan: Preliminary Results of Antidumping Duty Administrative Review

AGENCY:

Import Administration, International Trade Administration, Department of Commerce.

ACTION:

Notice of preliminary results of antidumping duty administrative review.

SUMMARY:

In response to a request by Kuraray Co., Ltd., a producer and exporter of polyvinyl alcohol from Japan, the Department of Commerce is conducting an administrative review of the antidumping duty order on polyvinyl alcohol from Japan. The period of review is May 1, 1998, through April 30, 1999.

We preliminarily find that sales of subject merchandise have been made below normal value. If these preliminary results are adopted in our final results of administrative review, we will instruct the Customs Service to assess antidumping duties on all appropriate entries. Interested parties are invited to comment on these preliminary results.

EFFECTIVE DATE:

June 7, 2000.

FOR FURTHER INFORMATION CONTACT:

Barbara Wojcik-Betancourt, at (202) 482-0629, or Brian Smith, at (202) 482-1766, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, Washington, D.C. 20230.

SUPPLEMENTARY INFORMATION:

The Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are references to the provisions effective January 1, 1995, the effective date of the amendments made to the Tariff Act of 1930, as amended (“the Act”), by the Uruguay Round Agreements Act (“URAA”). In addition, unless otherwise indicated, all references are made to the Department of Commerce's (“the Department”) final regulations at 19 C.F.R. Part 351 (April 1999).

Case History

On May 14, 1996, the Department of Commerce (“the Department”) published in the Federal Register an antidumping duty order on polyvinyl alcohol (“PVA”) from Japan (61 FR 24286). On May 19, 1999, the Department published a notice providing an opportunity to request an administrative review of this order for the period May 1, 1998, through April 30, 1999 (64 FR 27235). On May 28, 1999, we received a request for an administrative review from Kuraray Co., Ltd. (“Kuraray”). On June 30, 1999, we published a notice of initiation of this review for Kuraray (64 FR 35124).

On July 9, 1999, we issued an antidumping questionnaire to Kuraray. The Department received a response from the company in September 1999.

On October 4, 1999, the petitioner submitted a timely allegation, pursuant to section 773(b) of the Act, that Kuraray had made sales in the home market at less than the cost of production (“COP”). Our analysis of the allegation indicated that there were reasonable grounds to believe or suspect that Kuraray had sold PVA in the home market at prices at less than the COP. Accordingly, we initiated a COP investigation with respect to Kuraray, pursuant to section 773(b) of the Act (see Memorandum from Team to Louis Apple, Office Director, dated November 10, 1999).

We issued supplemental questionnaires to Kuraray in November 1999 and January 2000. Responses to these questionnaires were received in December 1999 and February 2000, respectively.

On January 21, 2000, the Department published a notice postponing the preliminary results of this review until May 30, 2000 (65 FR 3418). The Department conducted verification of the company's response from February 21 through March 17, 2000, pursuant to section 782(i)(2) of the Act. In April 2000, the Department issued its verification report.

Scope of Review

The product covered by this review is PVA. PVA is a dry, white to cream-colored, water-soluble synthetic polymer. This product consists of polyvinyl alcohols hydrolyzed in excess of 85 percent, whether or not mixed or diluted with defoamer or boric acid. Excluded from this review are PVAs covalently bonded with acetoacetylate, carboxylic acid, or sulfonic acid uniformly present on all polymer chains in a concentration equal to or greater than two mole percent, and PVAs covalently bonded with silane uniformly present on all polymer chains in a concentration equal to or greater than one-tenth of one mole percent. PVA in fiber form is not included in the scope of this review.

The merchandise under review is currently classifiable under subheading 3905.30.00 of the Harmonized Tariff Schedule of the United States (“HTSUS”). Although the HTSUS subheading is provided for convenience and customs purposes, our written description of the scope is dispositive.

Period of Review

The period of review (“POR”) is May 1, 1998, through April 30, 1999.

Verification

As provided in section 782(i)(2) of the Act, we verified information provided by Kuraray. We used standard verification procedures, including on-site inspection of the manufacturer's facilities and examination of relevant sales and financial records. Our verification results are outlined in the verification reports placed in the case file.

Fair Value Comparisons

To determine whether the respondent's sales of the subject merchandise to the United States were made at below normal value, we compared, where appropriate, the export price and constructed export price (“CEP”) to the normal value, as described below. In accordance with section 777A(d)(2) of the Act, we compared, where appropriate, the export prices and CEPs of individual transactions to the monthly weighted-average price of sales of the foreign like product made in the ordinary course of trade (see section 773(a)(1)(B)(i) of the Act).

Product Comparisons

In accordance with section 771(16) of the Act, we considered all products produced by Kuraray covered by the description in the “Scope of the Review” section, above, to be foreign like products for purposes of determining appropriate product comparisons to U.S. sales. We compared U.S. sales to sales made in the home market within the contemporaneous window period, which extends from three months prior to the U.S. sale until two months after the sale. Where there were no sales of identical merchandise made in the home market in the ordinary course of trade, we compared U.S. sales to sales of the most similar foreign like product made in the ordinary course of trade. In making the product comparisons, we matched foreign like products based on the physical characteristics reported by the respondent in the following order: viscosity, hydrolysis, particle size, tackifier, defoamer, ash, color, volatiles, and visual impurities.

Export Price and Constructed Export Price

During the POR, Kuraray sold subject merchandise to the U.S. market (1) directly through its wholly-owned U.S. affiliate (Kuraray America Inc.) (hereafter referred to as Kuraray America); (2) through Kuraray America via its wholly-owned home market affiliate (Kuraray Trading Co., Ltd.) (hereafter referred to as Kuraray Trading); or (3) directly through unaffiliated Japanese trading companies.

With respect to one Japanese trading company through which Kuraray sells the subject merchandise, the petitioner requested that the Department examine whether Kuraray and that company are affiliates. Based on the verified data on the record, we preliminarily find that Kuraray and that Japanese trading company are not affiliates under the criteria outlined in section 771(33) of the Act and 19 C.F.R. 351.102(b) (see Memorandum Regarding Affiliation from Team to Louis Apple, Office Director, dated May 30, 2000). We are also treating the sales made by Kuraray to the Japanese trading company during the POR as export price transactions, in accordance with section 772(a) of the Act.

However, we carefully examined the totality of circumstances surrounding the U.S. sales process for those U.S. sales which Kuraray made through its U.S. affiliate. Based on the evidence on the record, we found that Kuraray either sells the subject merchandise directly to its U.S. affiliate, or through Kuraray Trading, which in turn sells the subject merchandise to the U.S. affiliate. For U.S. sales made only through its U.S. affiliate, the U.S. customer contacts Kuraray's U.S. affiliate, who then places the order with Kuraray. Kuraray arranges for delivery of the goods from Japan to the unaffiliated U.S. customer and issues its invoice to its U.S. affiliate for payment of the goods. Even though Kuraray's U.S. affiliate does not have a warehouse, it takes title to the goods once it pays Kuraray for the goods. The U.S. affiliate then issues its sales invoice to the unaffiliated U.S. customer and collects payment for the goods (see verification exhibits K-49 and K-50, and exhibits KA-15 through KA-17 of the April 19, 2000, Verification Report).

For U.S. sales made through Kuraray Trading and the U.S. affiliate, the U.S. affiliate still transmits the U.S. customer's order to Kuraray. However, Kuraray sells the goods to Kuraray Trading in Japan. Kuraray Trading then issues the U.S. affiliate its sales invoice. Kuraray Trading arranges for delivery of the goods from Japan to the unaffiliated U.S. customer, and the U.S. affiliate takes title to the goods once it pays Kuraray Trading for the goods. The U.S. affiliate also issues its sales invoice to the unaffiliated U.S. customer and collects payment for the goods (see verification exhibits KT-8 through KT-10, and KA-10 through KA-12 of the April 19, 2000, Verification Report).

Given the facts on the record, the Department preliminarily determines that, because the U.S. affiliate purchased the merchandise from Kuraray and/or Kuraray Trading and sold the merchandise to the unaffiliated purchaser, these sales were made in the United States and, thus, should be treated as CEP transactions (see Cold-Rolled and Corrosion-Resistant Carbon Steel Flat Products from Korea, Final Results of Administrative Review, 65 FR 13359 (March 13, 2000) and accompanying Decision Memorandum at Comment 12; and Porcelain-on-Steel Cookware from Mexico, Final Results of Administrative Review, 65 FR 30068 (May 10, 2000) and accompanying Decision Memorandum at Comment 2) (Porcelain-on-Steel Cookware from Mexico).

For Kuraray's U.S. sales not made through its U.S. affiliate (i.e., made through an unaffiliated trading company in Japan), we calculated export price based on the reported packed FOB price between Kuraray and the unaffiliated trading company in Japan because Kuraray had knowledge that the sale was destined for the U.S. market (see verification exhibit K-58 of the April 19, 2000, Verification Report). We made deductions, as appropriate, from the starting price for foreign inland freight from the plant to the port of exportation, foreign warehousing expenses, foreign inland insurance, and foreign brokerage and handling expenses, in accordance with section 772(c)(2)(A) of the Act.

For Kuraray's U.S. sales made through its U.S. affiliate, we based CEP on packed CIF or delivered prices to unaffiliated purchasers in the United States. We made deductions, where appropriate, for foreign inland freight from the plant to the port of exportation, foreign inland insurance, foreign brokerage and handling expenses, international freight, palletization charges, foreign warehousing expenses, U.S. brokerage and handling expenses, U.S. Customs duties (which include harbor maintenance and merchandise processing fees), and U.S. inland freight expenses (freight from port to the customer), in accordance with section 772(c)(2)(A) of the Act.

We made the following adjustments to Kuraray's U.S. expense data based on our verification findings: (1) we corrected the reported amounts for foreign warehousing expenses, credit expenses, U.S. indirect selling expenses, U.S. indirect selling expenses incurred in the home market, and packing expenses; and (2) we corrected invoice-specific information with respect to gross unit price, entered value, foreign brokerage and handling expenses, international freight, and U.S. Customs duties (see pages 14-21 and 29-33 of the April 19, 2000, Verification Report for further discussion).

In accordance with section 772(d)(1) of the Act, we deducted from CEP direct and indirect selling expenses that were associated with Kuraray's economic activities occurring in the United States and associated with the sale to the U.S. customer. We also deducted from CEP an amount for profit, in accordance with section 772(d)(3) of the Act.

Normal Value

In order to determine whether there was a sufficient volume of sales in the home market to serve as a viable basis for calculating normal value (i.e., the aggregate volume of home market sales of the foreign like product is five percent or more of the aggregate volume of U.S. sales), we compared the respondent's volume of home market sales of the foreign like product to the volume of U.S. sales of the subject merchandise, in accordance with 19 C.F.R. 351.404(b). We determined that the quantity of foreign like product sold in the exporting country was sufficient to permit a proper comparison with the sales of the subject merchandise to the United States because Kuraray made sales in its home market which were greater than five percent of its sales in the U.S. market. Therefore, in accordance with section 773(a)(1)(B)(i) of the Act, we based normal value on home market sales in Japan.

Based on our verification findings, we made the following adjustments to Kuraray's home market expense data: (1) we denied an adjustment for the rebate claimed by Kuraray Trading because the company was unable to demonstrate that the claimed amounts were actually paid to, or deducted from, the amounts owed by certain customers; (2) we corrected the reported amounts for one type of rebate offered by Kuraray, inland freight expenses from the plant to the warehouse, warehousing expenses, indirect selling expenses incurred by Kuraray Trading, and packing expenses; and (3) we corrected invoice-specific information with respect to payment dates (see pages 22-33 of the April 19, 2000, Verification Report for further discussion).

Level of Trade/CEP Offset

In accordance with section 773(a)(1)(B)(i) of the Act, to the extent practicable, we determined normal value based on sales in the comparison market at the same level of trade (“LOT”) as the export price or CEP transaction. The normal value LOT is that of the starting-price sales in the comparison market from which we derive selling, general and administrative (“SG&A”) expenses and profit. For export price, the LOT is also the level of the starting-price sale, which is usually from the exporter to the importer. For CEP, it is the level of the constructed export sale from the exporter to the affiliated importer.

To determine whether normal value sales are at a different LOT than export price or CEP, we examine stages in the marketing process and selling functions along the chain of distribution between the producer and the customer. If the comparison-market sales are at a different LOT, and the difference affects price comparability, as manifested in a pattern of consistent price differences between the sales on which normal value is based and comparison-market sales at the LOT of the export transaction, we make a LOT adjustment under section 773(a)(7)(A) of the Act. Finally, for CEP sales, if the normal value level is more remote from the factory than the CEP level and there is no basis for determining whether the difference in the levels between normal value and CEP affects price comparability, we adjust normal value under section 773(a)(7)(B) of the Act (the CEP offset provision). See Notice of Final Determination of Sales at Less Than Fair Value: Certain Cut-to-Length Carbon Steel Plate from South Africa, 62 FR 61731 (November 19, 1997).

We note that the U.S. Court of International Trade (“CIT”) has held that the Department's practice of determining LOT for CEP transactions after CEP deductions is an impermissible interpretation of section 772(d) of the Act. See Borden, Inc. v. United States, 4 F. Supp. 2d 1221, 1241-42 (CIT 1998) (Borden). The Department believes, however, that its practice is in full compliance with the statute. On June 4, 1999, the CIT entered final judgement in Borden on the LOT issue. See Borden, Inc. v. United States, Court No. 96-08-01970, Slip Op. 99-50 (CIT June 4, 1999). The government has filed an appeal of Borden which is pending before the U.S. Court of Appeals for the Federal Circuit. Consequently, the Department has continued to follow its normal practice of adjusting CEP under section 772(d) prior to starting a LOT analysis, as articulated by the Department's regulations at section 351.412.

In this case, Kuraray reported two customer categories (i.e., distributors and end users) and three channels of distribution (sales through unaffiliated distributors to end users, direct sales to end users, and sales through its affiliate to end users) for its home market sales. In its response, Kuraray claims that its sales to unaffiliated home market customers (i.e., end users and distributors) are at the same LOT as its sales made through affiliated customers because Kuraray provides the same selling services to its unaffiliated and affiliated customers. Specifically, Kuraray identified the following selling services to both types of customer: (1) salespeople visits; (2) inventory maintenance; (3) after-sale service and technical advice; (4) advertising; (5) freight and delivery; and (6) handling of rejected merchandise. Based on our review of the record evidence, we agree with the respondent's claim that all home market sales are at the same LOT (see exhibit A.3.k. of the December 1, 1999, submission).

Kuraray had both export price and CEP sales in the U.S. market. Kuraray reported that its export price sales were made through one channel of distribution (i.e., sales through unaffiliated Japanese trading companies to U.S. end users). Kuraray also reported that its CEP sales were also made through two channels of distribution (i.e., sales through its U.S. affiliate via its home market affiliate and sales through its U.S. affiliate only), which we have treated as one LOT because there is no apparent difference in the selling functions performed by Kuraray. In analyzing Kuraray's selling activities for its export price sales, we found that the export price sales involved basically the same selling functions associated with the home market LOT described above (i.e., inventory maintenance, freight and delivery, and handling of rejected merchandise). Therefore, based upon this information, we preliminarily determine that the LOT for all export price sales is the same as that in the home market.

For sales which we re-categorized as CEP sales, after making the appropriate deductions under section 772(d) of the Act, we found that there are no remaining expenses associated with selling activities performed by Kuraray that are reflected in the CEP price. In contrast, the normal value prices include selling expenses attributable to selling activities performed by Kuraray for the home market, such as sales support and freight and delivery functions (see exhibit A.3.k. of the December 1, 1999, submission). Accordingly, we have concluded that CEP is at a different LOT from the normal value LOT.

We then examined whether a LOT adjustment or CEP offset may be appropriate. In this case, Kuraray only sold at one LOT in the home market; therefore, there is no information available to determine a pattern of consistent price differences between the sales on which normal value is based and the comparison market sales at the LOT of the export transaction, in accordance with the Department's normal methodology as described above (see Porcelain-on-Steel Cookware from Mexico and accompanying Decision Memorandum at Comment 6). Further, we do not have information which would allow us to examine pricing patterns based on respondent's sales of other products, and there are no other respondents or other record information on which such an analysis could be based. Accordingly, because the data available do not provide an appropriate basis for making a LOT adjustment, but the LOT in the home market is at a more advanced stage of distribution than the LOT of the CEP, we made a CEP offset adjustment in accordance with section 773(a)(7)(B) of the Act.

Cost of Production Analysis (“COP”)

Pursuant to section 773(b)(1) of the Act, we initiated a COP investigation of sales made by Kuraray in the home market.

A. Calculation of COP

In accordance with section 773(b)(3) of the Act, we calculated the weighted-average COP, by grade, based on the sum of the cost of materials and fabrication, G&A expenses, and packing costs. We relied on the submitted COPs except that we have adjusted Kuraray's reported per-unit costs to account for the overstatement of acetic acid amounts. We also revised Kuraray's G&A and interest expenses based on our verification findings (see Preliminary Results Calculation Memorandum from team to the File, dated May 30, 2000).

B. Test of Home Market Prices

We compared the adjusted weighted-average COP to the comparison-market sales of the foreign like product, as required under section 773(b) of the Act, in order to determine whether these sales had been made at prices below the COP within an extended period of time in substantial quantities, and whether such prices were sufficient to permit the recovery of all costs within a reasonable period of time. On a grade-specific basis, we compared the revised COP to the comparison market prices, less any applicable movement charges, discounts, rebates and direct and indirect selling expenses.

C. Results of the COP Test

Pursuant to section 773(b)(2)(C), where less than 20 percent of the respondent's sales of a given product were made at prices below the COP, we did not disregard any below-cost sales of that product because we determined that the below-cost sales were not made in “substantial quantities.” Where 20 percent or more of the respondent's sales of a given product were made at prices below the COP, we disregarded the below-cost sales because such sales were found to be made within an extended period of time in “substantial quantities,” in accordance with sections 773(b)(2)(B) and (C) of the Act, and because the below-cost sales of the product were at prices which would not permit recovery of all costs within a reasonable period of time, in accordance with section 773(b)(2)(D) of the Act.

Based on this test, we excluded from our analysis certain comparison-market sales of PVA products that were made at below-COP prices within the POR and the contemporaneous months of the POR (see Preliminary Results Calculation Memorandum from team to the File, dated May 30, 2000).

Price-to-Price Comparisons

We calculated normal value based on both packed, FOB or delivered prices Kuraray charged to its unaffiliated purchasers in Japan and packed, FOB or delivered prices Kuraray Trading charged to its unaffiliated purchasers in Japan. We made adjustments to the starting price for discounts and rebates, where appropriate. We also made deductions, where appropriate, for inland freight (i.e., plant to warehouse and warehouse to customer), inland insurance and warehousing expenses, pursuant to section 773(a)(6)(B) of the Act.

For all comparisons, we made a circumstance-of-sale adjustment, where appropriate, for differences in credit expenses, pursuant to section 773 (a)(6)(C)(iii) of the Act and 19 C.F.R. 351.410(c).

For comparisons to CEP sales, we also deducted from normal value the lesser of comparison-market indirect selling expenses and indirect selling expenses deducted from CEP (the CEP offset), pursuant to section 773(a)(7)(B) of the Act and 19 C.F.R. 351.412(f).

For comparisons to both export price and CEP sales, we made adjustments to normal value for differences in packing expenses, in accordance with section 773(a)(6) of the Act. We also made adjustments to normal value, where appropriate, for differences in costs attributable to differences in the physical characteristics of the merchandise, pursuant to section 773(a)(6)(C)(ii) of the Act and 19 C.F.R. 351.411.

Preliminary Results of Review

As a result of this review, we preliminarily determine that the following margin exists for the period May 1, 1998, through April 30, 1999:

Pursuant to 19 C.F.R. 351.224(b), the Department will conduct disclosure within five days after the date of publication of this notice. Any interested party may request a hearing within 30 days of publication. Any hearing, if requested, will be held 44 days after the date of publication or the first business day thereafter.

Issues raised in hearings will be limited to those raised in the respective case briefs and rebuttal briefs. Case briefs from interested parties and rebuttal briefs, limited to the issues raised in the respective case briefs, may be submitted not later than 30 days and 37 days, respectively, from the date of publication of these preliminary results. Parties who submit case briefs or rebuttal briefs in this proceeding are requested to submit with each argument (1) a statement of the issue and (2) a brief summary of the argument. Parties are also encouraged to provide a summary of the arguments not to exceed five pages and a table of statutes, regulations and cases cited.

The Department will issue the final results of this administrative review, including the results of its analysis of issues raised in any such written briefs or at the hearing, if held, not later than 120 days after the date of publication of this notice.

Interested parties who wish to request a hearing or to participate if one is requested, must submit a written request to the Assistant Secretary for Import Administration, Room B-099, within 30 days of the date of publication of this notice. The request should contain: (1) the party's name, address and telephone number; (2) the number of participants; and (3) a list of issues to be discussed.

Cash Deposit and Assessment Requirements

The final results of this review shall be the basis for the assessment of antidumping duties on entries of merchandise covered by this review and for future deposits of estimated duties.

The Department shall determine and the Customs Service shall assess antidumping duties on all appropriate entries. The Department will issue appropriate appraisement instructions directly to the Customs Service upon completion of this review. For Kuraray, for duty assessment purposes, we intend to calculate importer-specific assessment rates by aggregating the dumping margins calculated for all U.S. sales to each importer and dividing this amount by the total entered value of subject merchandise of the same sales for each importer. In accordance with 19 CFR 351.106(c)(2), we will instruct the Customs Service to assess antidumping duties on all appropriate entries covered by this review if any importer-specific assessment rate calculated in the final results of this review is above de minimis (i.e., at or above 0.50 percent).

Furthermore, the following deposit requirements will be effective upon publication of the final results of this antidumping duty review for all shipments of PVA from Japan, entered, or withdrawn from warehouse, for consumption on or after the publication date, as provided by section 751(a) of the Act: (1) the cash deposit rate for Kuraray will be rate established in the final results; (2) if the exporter is not a firm covered in this review, a prior review, or the original less-than-fair-value (“LTFV”) investigation, but the manufacturer is, the cash deposit rate will be the rate established for the most recent period for the manufacturer of the merchandise; and (3) the cash deposit rate for all other manufacturers or exporters will continue to be 77.49 percent, the “All Others” rate made effective by the LTFV investigation. These requirements, when imposed, shall remain in effect until publication of the final results of the next administrative review.

This notice serves as a preliminary reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of antidumping duties prior to liquidation of the relevant entries during this review period. Failure to comply with this requirement could result in the Secretary's presumption that reimbursement of antidumping duties occurred and the subsequent assessment of double antidumping duties.

This administrative review and notice are in accordance with sections 751(a)(1) and 777(i) of the Act and 19 CFR 351.213.