66 FR 42506, August 13, 2001 A-337-803 Changed Circumstances Review Public Document Group II/Office V: SMB MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Bernard Carreau Deputy Assistant Secretary for Import Administration Group II DATE: August 6, 2001 SUBJECT: Issues and Decision Memorandum for the Final Results of the Changed Circumstances Review of the Antidumping Duty Order onFresh Atlantic Salmon from Chile Summary This memorandum addresses the issues raised in the above-referenced proceeding. Section A lists the specific issues briefed by interested parties. Section B sets out the scope of this changed circumstances review. Finally, Section C analyzes the comments of the interested parties, and provides our recommendations. A. Issues 1. Whether Marine Harvest is a new entity subject to the antidumping order. 2. Whether Marine Harvest's procedural rights were violated. B. Scope of the Review The product covered by this review is fresh, farmed Atlantic salmon, whether imported "dressed" or cut. Atlantic salmon is the species Salmo salar, in the genus Salmo of the family salmoninae. "Dressed" Atlantic salmon refers to salmon that has been bled, gutted, and cleaned. Dressed Atlantic salmon may be imported with the head on or off; with the tail on or off; and with the gills in or out. All cuts of fresh Atlantic salmon are included in the scope of the review. Examples of cuts include, but are not limited to: crosswise cuts (steaks), lengthwise cuts (fillets), lengthwise cuts attached by skin (butterfly cuts), combinations of crosswise and lengthwise cuts (combination packages), and Atlantic salmon that is minced, shredded, or ground. Cuts may be subjected to various degrees of trimming, and imported with the skin on or off and with the "pin bones" in or out. Excluded from the scope are (1) fresh Atlantic salmon that is "not farmed" (i.e., wild Atlantic salmon); (2) live Atlantic salmon; and (3) Atlantic salmon that has been subject to further processing, such as frozen, canned, dried, and smoked Atlantic salmon, or processed into forms such as sausages, hot dogs, and burgers. The merchandise subject to this investigation is classifiable as item numbers 0302.12.0003, 0304.10.4093, 0304.90.1009, 0304.90.1089, and 0304.90.9091 of the Harmonized Tariff Schedule of the United States (HTSUS). Although the HTSUS statistical reporting numbers are provided for convenience and customs purposes, the written description of the merchandise is dispositive. C. Analysis of Issues Raised by Interested Parties Issue 1: Whether Marine Harvest Is a New Entity Subject to the Antidumping Order (1) Marine Harvest argues that the Department erred in preliminarily finding that its merchandise is subject to the antidumping order on fresh Atlantic salmon from Chile. According to Marine Harvest, the Department excluded it from the antidumping order pursuant to a finding in the less-than-fair-value (LTFV) investigation that Marine Harvest was selling salmon in the United States at de minimis levels of dumping. Marine Harvest contends that such exclusions may not be revoked under law, and are not reviewable under a changed circumstance review absent an allegation that the company is serving as a conduit for the merchandise of other companies covered by the antidumping order. According to Marine Harvest, the Department has no authority to impose duties absent both an affirmative dumping determination by the Department and an affirmative injury determination by the International Trade Commission (ITC) with respect to Marine Harvest's merchandise, and that the ITC excluded Marine Harvest's sales from its injury determination as a consequence of the Department's finding that Marine Harvest had dumped at de minimis levels. Marine Harvest further contends that by including it in the order the Department has impermissibly changed the scope of the order on fresh Atlantic salmon from Chile. Marine Harvest contends that given its exclusion from the order, the Department's determination to apply the order to Marine Harvest is akin to application of the order to excluded merchandise such as frozen salmon. Further, Marine Harvest contends that the Department lacks the legal authority to suspend liquidation of imports of fresh Atlantic salmon by Marine Harvest through a changed circumstance review, and that it was particularly inappropriate to do so in the preliminary results of the instant changed circumstance review. Marine Harvest also contends that it is inappropriate to apply a successorship test to determine whether Marine Harvest, after its merger with Mares Australes, is the successor in interest to the pre-merger Marine Harvest. Marine Harvest argues that once a company is excluded from a dumping procedure by virtue of a finding that it was dumping at zero or de minimis levels, such an exclusion cannot be revoked. Marine Harvest argues that such is the case here. According to Marine Harvest, the successorship test applies only where a company covered by the order undergoes a corporate reorganization, name change, or otherwise becomes a different legal entity. Marine Harvest argues that it remains the same company that was excluded from the antidumping order on fresh Atlantic salmon from Chile. According to Marine Harvest, the Department also erred in assigning to the post-merger Marine Harvest the cash deposit rate applicable to Mares Australes. Marine Harvest argues that the Department can only change the cash deposit rate for a company through an administrative review, and if the Department determines that Marine Harvest is covered by the antidumping order, it should assign Marine Harvest the de minimis rate calculated in the LTFV investigation, until such time as an administrative review can be performed. Marine Harvest argues that it would be equally inappropriate to apply the "All Others" rate to the company, inasmuch as Marine Harvest was assigned its own (and de minimis) rate in the investigation. Finally, Marine Harvest argues that if the Department determines improperly to apply a successorship test to the post-merger Marine Harvest, it should find that Marine Harvest is the successor to both the pre-merger Marine Harvest and Mares Australes, and apply the weighted- average of the deposit rates most recently calculated for the two companies. In the alternative, Marine Harvest argues, the Department should find the post-merger Marine Harvest to be the successor in interest to either Marine Harvest or Mares Australes. Marine Harvest argues that, in any event, it would be inappropriate to change the cash deposit rate applicable to Marine Harvest without the calculation of a specific rate based on that company's information. The petitioners, in their rebuttal comments, argue that Marine Harvest's arguments are largely irrelevant in that they ignore the Department's factual finding, pursuant to a proper successor-in-interest analysis, that the post-merger Marine Harvest is a new entity. The petitioners contend that the Department properly initiated a changed circumstances review at the petitioners' request. According to the petitioners, the Department appropriately concluded that the pre-merger Marine Harvest no longer exists, and that the post-merger Marine Harvest is a new entity distinct from both the pre-merger Marine Harvest and Mares Australes. The petitioners further contend that the Department erred in applying the Mares Australes cash deposit rate to the post-merger Marine Harvest, and argue that the Department should instead apply the "All Others" rate from the LTFV investigation because the merged company is a new entity exporting subject merchandise to the United States. The Department's Position: As explained below, the Department continues to find that the post-merger company doing business as Marine Harvest is a new entity subject to the antidumping duty order on fresh Atlantic salmon from Chile. We further find, contrary to our finding in the preliminary results, that, as a new entity that had not yet participated in an administrative review, the post-merger Marine Harvest should receive the rate calculated for the pre-merger Marine Harvest's sales that were combined with those of Mares Australes during the second administrative review of Mares Australes. The central facts underlying the Department's determination that Marine Harvest is a new entity are not in dispute. On July 15, 1999, only two weeks after the end of the period of the first review (July 28, 1998, through June 30, 1999), the parent company of Mares Australes (a company covered by the order), purchased Marine Harvest (a company excluded from the order), in a transaction overseen by the managing director of Mares Australes. Throughout the period of the second review (July 1, 1999, through June 30, 2000), at the instructions of the managing director of Mares Australes, the management structures of the two companies were consolidated, and the productive assets of the two companies were combined. The owners and directors of Mares Australes determined to formally fold the productive assets of Mares Australes into Marine Harvest as of the first day of the period of the anticipated third review (July 1, 2000, through June 30, 2001), and began to export merchandise produced by the joint facilities of Marine Harvest and Mares Australes under the name of Marine Harvest also as of that day. See Mares Australes sales verification report at 4-7. After the merger, the operations of the new Marine Harvest exceeded significantly those of Marine Harvest prior to the merger in terms of size and breadth of activities. The management of Marine Harvest is now answerable to the parent company of the former Mares Australes, (2) and consists of a number of former Mares Australes officials, including the operations manager. The production facilities of Marine Harvest have changed substantially, by the addition of the large number of hatcheries, freshwater sites, and ocean sites previously owned by Mares Australes (until the merger, the largest exporter of subject merchandise to the United States). Supplier relationships have changed, in that the post-merger Marine Harvest obtains feed from an affiliate of the pre-merger Mares Australes (in addition to producing its own feed). (3) The customer base of the company has also changed, in that it now includes the distributor clients of Mares Australes, which are fundamentally different from the retail chain clients of the pre-merger Marine Harvest. (4) The post-merger Marine Harvest is also substantially different from the pre-merger Mares Australes. Though Marine Harvest is now answerable to the parent company of the pre-merger Mares Australes, the current president of the merged company worked for the pre-merger Marine Harvest, as did the manager now in charge of the finance and accounting staff. With the addition of Marine Harvest's large number of freshwater and saltwater salmon growing sites, the operations of the merged company are substantially greater than those of Mares Australes prior to the merger. Moreover, Mares Australes lacked a processing plant, and subcontracted processing services; the merged company has a large processing plant, and all processing is now done in-house. Finally, Mares Australes' customers were distributors; the customers of the merged company include the retail chain customers of the pre-merger Marine Harvest. The Department found in the preliminary results that these facts argued for treating the post-merger Marine Harvest as a new entity in the context of the dumping order on salmon from Chile. See Notice of Initiation and Preliminary Results of Changed Circumstances Antidumping Duty Review: Fresh Atlantic Salmon from Chile, 65 FR 52065 (August 22, 2000) (Preliminary Results). Marine Harvest's brief does not address the accuracy of the facts, instead asserting that the Department has no statutory authority to consider them. We disagree. Section 735(c)(5)(A) of the Act gives the Department the authority to extend a final antidumping determination to all producers/exporters not individually examined during the investigation. Section 736 of the Act extends coverage of the antidumping duty order to all entries of subject merchandise, made by entities that come into existence after the imposition of the order. While section 735(a)(4) of the Act effectively excludes from the order those producers/exporters found to be dumping at zero or de minimis levels in the LTFV investigation, the exclusion provision does not address how to treat the merger of a company covered by the order with a company excluded from the order. However, section 751(b)(1) of the Act provides a specific mechanism - the changed circumstances review - for the analysis of changes in the circumstances of a producer/exporter that might require adjustment to the treatment of such a company under the dumping law. Where, as in this case, the directors of a company covered by a dumping order (e.g., Mares Australes) arrange for the purchase of a company excluded from the order, fold all of their productive assets into the corporate umbrella of the excluded company, and begin to export merchandise under the name of the excluded company, it is entirely appropriate to review the applicability of the order to the parties in question, within the purview of a changed circumstances review. Such an analysis requires the Department to consider whether the company presently doing business is the successor to the covered company, the excluded company, or neither (i.e., a new entity). (5) Applying this test in the Preliminary Determination, the Department found that Marine Harvest was a new entity. In responding to the Preliminary Determination, Marine Harvest has contested the accuracy of only a minor factual point underlying that the conclusion that the post-merger Marine Harvest is a new entity (that the post-merger Marine Harvest produced its own feed in addition to purchasing it from an affiliate of the post-merger Marine Harvest). Moreover, despite ample time to provide new evidence germane to this question, Marine Harvest has added only one piece of new evidence (a statement that the total volume of sales by the post-merger Marine Harvest to customers of the pre-merger Mares Australes is a few percentage points less than anticipated). See letter from Marine Harvest dated November 2, 2000, at 2. Given that Marine Harvest has not contested the accuracy of the central, underlying facts, we are not persuaded by Marine Harvest's argument that it must be viewed as the successor in interest to the pre-merger Marine Harvest, Mares Australes, or some combination of the two. We continue to find that the post-merger company is a new entity. (6) Given that the post-merger Marine Harvest is a new entity, Marine Harvest's argument that the ITC excluded its sales from the injury analysis is inapposite, inasmuch as the post-merger Marine Harvest was never explicitly excluded from the ITC's analysis. In this respect, the post-merger Marine Harvest is no different from any company that might be created after the issuance of an antidumping order covering merchandise produced by that company. The contention that coverage of the post-merger Marine Harvest under the order alters the scope of the merchandise is also without merit. The scope of an antidumping order defines the physical characteristics of the merchandise covered, and says nothing as to the identity of companies covered or excluded from the order. See "Scope of the Review" section above. Given the scope of this case, it would be impermissible to attempt to review, for instance, sales of frozen salmon -- but the scope is entirely irrelevant to the question of whether the post-merger Marine Harvest is a new entity subject to the order. As to whether the Department had the authority to suspend liquidation of entries of fresh Atlantic salmon by the post-merger Marine Harvest pursuant to the Preliminary Determination, the statute at section 735(c)(1)(B)(ii) of the Act directs the Department to suspend liquidation of all entries of subject merchandise upon the issuance of an affirmative final antidumping duty determination. This suspension of liquidation extends to all producers/exporters, except for those explicitly excluded from the order. In the Preliminary Determination, the Department found that the post-merger Marine Harvest was a new entity covered by the order on fresh Atlantic salmon. (The fact that it continued to be called Marine Harvest only served to confuse the issue.) This made the post-merger Marine Harvest subject to suspension of liquidation pursuant to the order. See Notice of Amended Final Determination of Sales at Less Than Fair Value and Antidumping Duty Order: Fresh Atlantic Salmon from Chile, 63 FR 40699 (July 30, 1998) (noting application of the order to "all entries of fresh Atlantic salmon from Chile" other than those from excluded companies). The Department's instructions to the Customs Service to suspend liquidation of entries of subject merchandise by Marine Harvest pursuant to the Preliminary Results represented nothing more than a clarification to the original instructions to Customs issued upon the effective date of the antidumping order. See Instructions to Customs Service, No. 0241210 (August 28, 2000). The instructions specifically noted that, IN THE CHANGED CIRCUMSTANCES REVIEW, THE DEPARTMENT HAS DETERMINED PRELIMINARILY THAT THE POST-MERGER MARINE HARVEST IS NOT THE SUCCESSOR-IN-INTEREST TO EITHER OF THE PRE-MERGER COMPANIES, AND IS DIRECTING THAT LIQUIDATION OF ENTRIES OF SUBJECT MERCHANDISE UNDER THE NAME OF MARINE HARVEST BE SUSPENDED, RETROACTIVE TO 07/01/00, THE DATE OF THE MERGER. In recognition that the post-merger Marine Harvest was not the same entity as the pre-merger Marine Harvest, the Department further specified that the post-merger Marine Harvest be assigned a different importer number from the pre-merger Marine Harvest: THIS IS ALSO AN UPDATE TO MESSAGE 0042209, DATED FEBRUARY 11, 2000. THE CUSTOMER ID NUMBER A-337-803-003 FOR MARINE HARVEST CHILE, S.A., SHOULD BE REVOKED. PLEASE USE CUSTOMER ID NUMBER A-337-803-006 FOR MARINE HARVEST CHILE, S.A., EFFECTIVE IMMEDIATELY. In its case brief, Marine Harvest makes much of the fact that the above instruction used the term "revoked," and claims that this constituted revocation of the exclusion of the pre-merger Marine Harvest form the order. That interpretation is incorrect. It is clear from the previous cite that the Department was merely instructing the Customs Service not to confuse the company doing business as Marine Harvest prior to the merger with the company doing business as Marine Harvest after the merger. Finally, as to the issue of what cash deposit rate should apply to the post-merger Marine Harvest, we recognize that, inasmuch as the post-merger Marine Harvest is a new entity, it would be appropriate to assign it the All Others rate from the LTFV investigation. However, given that the Department treated Marine Harvest and Mares Australes as a single entity in the context of the second review, and examined the combined sales of the two companies in the period leading up to the merger, (7) we believe it is more appropriate to rely on the rate calculated in the second review than on the All Others rate calculated in the LTFV investigation. (8) Issue 2: Whether Marine Harvest's Procedural Rights Were Violated Marine Harvest argues that the Department impermissibly conducted a "stealth" proceeding by gathering information relevant to a successorship analysis while conducting verification of Mares Australes data in the context of the first review, without notice to Marine Harvest of its intentions. Marine Harvest contends that it was inappropriate to issue preliminary results of review concurrently with the initiation of the changed circumstances review, and provide an abbreviated period for the submission of factual information. The Department's Position: We take exception with Marine Harvest's characterization of this review as a "stealth" proceeding. As explained below, evidence on the record of the first review made it appropriate to initiate a changed circumstance review, and to simultaneously issue preliminary results. Subsequent to the initiation, Marine Harvest was given an opportunity to submit additional factual information and argument. The Department first became aware of the impending merger of Mares Australes and Marine Harvest shortly before the verification scheduled in the first review, as a result of an unsolicited letter filed by the two companies, which put the Department on notice of their plans. See letter from Mares Australes and Marine Harvest dated June 22, 2000, on the record of this changed circumstances review. Following up on that letter, the Department devoted a portion of the verification of Mares Australes data in the first review to the issue of the impending merger between the two companies. At the time that the verification was conducted, the Department had not determined to initiate a changed circumstances review - the Department was merely seeking a further understanding of the planned merger, within the context of the overall administration of the antidumping order on salmon from Chile. The information collected at that verification was placed on the record of the first review, and described in detail in a verification report dated August 22, 2000, which is on the record of this changed circumstances review. Upon review of this information, and consideration of comments filed by the petitioners, (9) the Department determined that there were reasonable grounds to conclude that the post-merger Marine Harvest was a new entity. The Department therefore initiated a changed circumstances review. Given that an extensive record had been developed with respect to this issue, the Department simultaneously issued a notice of preliminary results. This was entirely within the purview of the Department's regulations; section 351.221(c)(3)(ii) of those regulations provides that the preliminary results of a changed circumstances review may be issued concurrently with the initiation of the review if the Department determines that expedited action is warranted. The Department determined that expedited action was warranted because entries of salmon produced/exported by the post-merger Marine Harvest were being liquidated, placing them outside of the reach of an administrative review, should one be appropriate. Expedited action also was warranted given that, by its own admission, Mares Australes had timed its merger with Marine Harvest so as to take effect as of the first day of the period of the third administrative review. See Mares Australes sales verification report at 7. (10) Marine Harvest claims that the Department should have given advance notice of the proceeding, and then afforded the company the full 140 day period envisioned by the Department's regulations for submission of new factual information. In the Department's estimation, the facts already on the record at the time of initiation provided a sufficient basis for the immediate issuance of preliminary results. Once the results were issued, the Department afforded Marine Harvest a period of several months to provide additional facts. Contrary to Marine Harvest's claims, the Department was not required to provide a full 140 days for the submission of new factual information. Section 351.301(b)(3) of the Department's regulations provides that factual information in a changed circumstances review is "due no later" than 140 days after the date of publication of the notice of initiation. This provides a maximum, rather than minimum, period for submission of such information. Given that the facts on the record with respect to the merger of Mares Australes and Marine Harvest were already extensive, the Department considered the time provided to be sufficient. Indeed, Marine Harvest provided virtually no new evidence with respect to this issue, despite having almost two months to do so. Recommendation Upon analysis of the comments received by interested parties, we recommend continuing to find that the post-merger Marine Harvest is a new entity subject to the antidumping duty order on fresh Atlantic salmon from Chile. We further recommend finding that the post-merger Marine Harvest is subject to the rate of 0.00 percent applicable to the combined sales of the pre-merger Marine Harvest and Mares Australes during the second administrative review of the antidumping duty order. If these recommendations are accepted, we will publish the final results of this changed circumstances review and the applicable cash deposit rate in the Federal Register. Agree_____ Disagree_____ _____________________ Faryar Shirzad Assistant Secretary for Import Administration ___________________ (Date) ________________________________________________________________________ footnotes: 1. Marine Harvest's brief contains six separately enumerated arguments on this issue. Given that the arguments are largely interrelated, they are summarized and addressed collectively in this comment. 2. Marine Harvest was owned by a Scottish company that had very different business interests from those of the Dutch parent of Mares Australes. See Mares Australes verification report at 4-5. 3. After the merger, Marine Harvest acquired a feed mill previously owned by an affiliate, and began to produce feed for consumption in its operations. Nonetheless, the post-merger Marine Harvest also purchases feed from an affiliate of the pre-merger Mares Australes. See letter from Marine Harvest and Mares Australes dated June 22, 2000, at Appendix 1, at 5. 4. Marine Harvest contends that the majority of the sales of the post- merger Marine Harvest are to customers of the pre-merger Marine Harvest, rather than to customers of the pre-merger Mares Australes. See letter from Marine Harvest dated November 2, 2000, at 2. The fact remains that Mares Australes' distributor clients, several of which the post-merger Marine Harvest continues to sell to, are fundamentally different from the retail chain clients of the pre-merger Marine Harvest customer. 5. Marine Harvest argues that successorship tests in the context of changed circumstances reviews have never been applied to facts like those present in this case. We agree that this case presents novel issues. Marine Harvest has not cited to any antidumping case where similar facts presented themselves. 6. Marine Harvest argues in its brief that it would be appropriate to consider the merged company the successor in interest to Mares Australes. However, in the Appendix to its letter of June 22, 2000, Marine Harvest made precisely the opposite argument. While arguing that a successor-in- interest analysis would be inappropriate, Marine Harvest claimed emphatically that the post-merger Marine Harvest would be very different in management, officers, operations, sales, and distribution from Mares Australes. 7. During the period of the second review, Mares Australes and Marine Harvest were increasingly integrated, such that by the end of the period the operations had been fully merged, and a single management structure was overseeing those operations. 8. The rate in question is only a cash deposit rate. Assessment of duties for entries made by the post-merger Marine Harvest will be determined through administrative reviews, provided that such reviews are requested. 9. On July 25, 2000, the petitioners filed a letter with the Department expressing concern over the merger of Marine Harvest and Mares Australes, and requesting the immediate suspension of liquidation of subject merchandise exported under the name of Marine Harvest. 10. We note in this regard that remarks by counsel for Marine Harvest at the hearing suggest that the form of the merger was specifically designed so as to avoid continued application of the dumping order to exports of merchandise by Mares Australes: Marine Harvest could have been merged into Mares Australes, and Mares Australes could have been merged into Marine Harvest. Our view was if you do it one way, you're excluded from the order. If you do it another way, you're covered by the order. Well, it was an easy choice which way to do it. See transcript of March 15, 2001, hearing of changed circumstances review at 56-57. When asked for clarification, counsel to Marine Harvest stated that his earlier remarks had been hypothetical: I did not say that at all and I did not intend to say that. What I said was that the merger decision was done primarily for the business reasons I described, and I was kind of speaking hypothetically. When you have the two companies, one of which could be covered and one's not covered, and you're deciding which to merge, then it's the obvious choice which one to pick. This particular instance, it was the merger was decided, and then the company wanted to know what the dumping implications would be. Id. at 60.