67 FR 31769, May 10, 2002 A-337-804 AR: 12/1/1999-11/30/2000 Public Document IA I/2: DJG MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Richard W. Moreland Deputy Assistant Secretary for Import Administration, Group I SUBJECT: Issues and Decision Memorandum for Final Results of the Antidumping Duty Administrative Review on Certain Preserved Mushrooms from Chile for the review period of December 1, 1999, through November 30, 2000. Summary We have analyzed the comments of the interested parties in the 1999-2000 administrative review of the antidumping duty order covering certain preserved mushrooms from Chile. We recommend that you approve the positions we have developed in the "Discussion of the Issues" section of this memorandum. Below is the complete list of the issues in this administrative review for which we received comments from parties: Comment 1: Application of Antidumping Duty Margin to Full Value of CEA's Sales Comment 2: NFC's Knowledge of Export Destination Background On January 4, 2002, the Department of Commerce published the preliminary results of the second administrative review of the antidumping duty order on certain preserved mushrooms from Chile. See Certain Preserved Mushrooms from Chile: Preliminary Results of Antidumping Duty Administrative Review, 67 FR 562 (Preliminary Results). The products covered by this order are certain preserved mushrooms, whether imported whole, sliced, diced or as stems and pieces. The period of review (POR) is December 1, 1999, through November 30, 2000. We invited parties to comment on our preliminary results of review. Discussion of the Issues Comment 1: Application of Antidumping Duty Margin to Full Value of CEA's Sales As discussed in the Preliminary Results, the respondent Compaņia Envasadora del Atlantico (CEA), a food processor located in Colombia, purchased provisionally preserved (i.e., brined) mushrooms in bulk containers from the Chilean producer and named respondent Nature's Farm Products (Chile) S.A. (NFC). CEA reported that it subsequently retorted and repacked the subject merchandise into commercial-size cans and sold and shipped them to its U.S. customer, Horley, which we determined to be affiliated with Nature Farm Products, Inc. (NFP/USA), as discussed in the Preliminary Results. CEA and NFP/USA claimed that NFP/USA is no longer affiliated with NFC. However, we determined that, at the time of NFC's sale of brined mushrooms to CEA, NFC knew or should have known, through its affiliation with NFP/USA, that the ultimate destination of its sale of brined mushrooms to CEA was the United States. Therefore, we considered the sale reported by CEA to be NFC's sale and applied NFC's rate to that transaction. Because NFC did not respond to the antidumping duty questionnaire, we determined NFC's rate on the basis of facts available on the record. CEA claims that the merchandise shipped by CEA to the United States was "canned mushrooms," a separate class or kind of product than the brined mushrooms NFC sold to CEA. CEA holds that the further processing performed by CEA in Colombia transformed the brined mushrooms sold to CEA by NFC into a separate article of commerce. Moreover, CEA asserts that, rather than basing U.S. price on export price (EP), the Department should use constructed export price (CEP) for CEA's transaction. CEA contends that NFC's sale of brined mushrooms to CEA did not meet the statutory definition of EP under section 772(a) of the Act because the transaction involved neither a sale to an unaffiliated purchaser in the United States, nor a sale of subject merchandise sold to an unaffiliated purchaser for export to the United States. In arriving at this conclusion, CEA states that it is not "an unaffiliated purchaser in the United States," and that NFC's brined mushrooms are not the subject merchandise sold to an unaffiliated purchaser for export to the United States. According to CEA's construct, the Department must use a CEP analysis for U.S. price. Under a CEP analysis, CEA continues, the Department must first subtract the cost of further manufacturing performed by CEA in Colombia, in accordance with section 772(d)(2) of the Act. Thus, according to CEA, the Department would calculate and apply a margin only to the value of brined mushrooms from Chile incorporated in CEA's sale of canned mushrooms to the United States. In turn, any antidumping duty assessed would apply only to the Chilean-origin portion of the entered value. CEA adds that it has provided information to the Department to determine the value of the Chilean-only portion of the U.S. price. The petitioner responds that the scope and history of this proceeding establish a single class or kind of the subject merchandise, which encompasses both provisionally preserved mushrooms, such as brined mushrooms, and retorted preserved mushrooms, such as canned mushrooms. Citing the Department's letter of July 13, 1999 (submitted for this review record on July 16, 2001), the petitioner notes the Department's consistent position that "{d}ebrining and repacking provisionally preserved mushrooms covered under the order into cans or jars (i.e., retorting) in a third country prior to exportation into the United States does not alter the fact that the merchandise in question is subject to the antidumping duty order." Accordingly, the petitioner states there is no basis to conclude that NFC's sale of brined mushrooms to CEA does not involve subject merchandise. Since the merchandise at issue is subject merchandise from the point at which it is exported from Chile, the petitioner asserts that there is no basis in law, practice, or scope to assign a margin to anything less than the entered value of the merchandise. Further, with respect to CEA's argument that CEP methodology is warranted, the petitioner maintains that the Department has not treated CEA as affiliated with NFC, NFP/USA, or Horley, and, therefore, CEP methodology is not an issue. Further, the petitioners note that assessment of antidumping duties must be based on the entered value of the subject merchandise, in accordance with the Department's regulations (19 CFR 351.212(b) and judicial affirmation (see, e.g., NTN Bearing Corp. of America, et al. v. United States, Slip Op. 02-07 at pages 136-137). DOC Position: Throughout the history of this proceeding, the scope of the investigation and the order have included provisionally preserved mushrooms, including brined mushrooms, as well as other retorted mushrooms, such as canned mushrooms. The brined mushrooms exported from Chile and sold to CEA for ultimate export to the United States are included in the scope of the order. The retorting and canning performed in Colombia does not transform them into a different article of commerce for purposes of the antidumping duty order. The product that is shipped from Colombia is as much a part of the antidumping duty order as the product originally shipped from Chile. Accordingly, we find no basis to assess an antidumping duty on only a portion of the entered value of the merchandise, nor do we find any basis to apply CEP methodology and to classify the processing performed in Colombia as "further manufacturing" under section 772(d)(2) of the Act. Furthermore, section 772(a) of the Act guides the Department to look to the price at which the subject merchandise was first sold by the producer, once it has determined that the transaction was an EP sale. In this case, that would normally be the price paid by CEA to NFC. However, as we discussed in the Preliminary Results, NFC has refused to respond to our questionnaires, forcing us to apply adverse facts available. Accordingly, under our adverse facts available analysis, we explained in the Preliminary Results that the rate calculated for NFC in the Notice of Final Determination of Sales at Less Than Fair Value: Certain Preserved Mushrooms from Chile, 63 FR 56613 (Oct. 22, 1998), of 148.51 percent, was both the highest, and the only, calculated margin in the history of this proceeding. Therefore, we applied this rate in the Preliminary Determination to all of NFC's exports to the United States, including those exported by CEA. We have continued to apply this rate in the Final Results. Despite CEA's arguments to the contrary, CEA has provided us with no reasonable justification for treating NFC's exports differently if they were shipped through CEA, another company, or directly to the United States. Indeed, the record suggests that NFC knew or had reason to know that the merchandise it was selling to CEA was headed to the United States for ultimate consumption. If we were to treat NFC's merchandise differently in light of its knowledge of ultimate destination, depending on the commercial means of export to the United States, we would in effect be permitting NFC to dump its merchandise through the use of an unaffiliated purchaser. The antidumping law does not provide for different dumping margins for the same subject merchandise, originating with the same producer, once that producer has knowledge that the merchandise is destined for the United States. Thus, we will continue to consider CEA's exports to the United States as NFC's sales under an EP analysis, as defined in section 772(a) of the Act. Comment 2: NFC's Knowledge of Export Destination CEA argues that the Department erred in determining that NFC had knowledge of the ultimate destination of its sale of brined mushrooms. According to CEA, the applicable standard is whether a supplier actually knew, rather than suspected, that the merchandise was destined to the United States. CEA cites the Court of International Trade's (CIT) decision in Timken Company v. United States, 166 F. Supp. 2d 608, 631 (Timken), among other cases, in support of its position. CEA contends that there is no evidence on the record that NFC actually had knowledge that the ultimate destination of its brined mushrooms sold to CEA would be the United States. Further, CEA asserts that, based on the information provided by NFP/USA and CEA for the record, NFP/USA had severed all ties with NFC at the time of NFC's sale to CEA, and thus there was no affiliation between them to infer knowledge of destination. The petitioner responds that, contrary to CEA's assertion, the correct legal standard for knowledge of destination under section 772(a) of the Act is whether a producer "knew or should have known" that its merchandise was destined for the United States at the time of sale. The petitioner cites a number of judicial decisions in support of this position, including the recent CIT decision in Tung Mung Development Co., Ltd. v. United States, Slip Op. 01-83 at 46 (CIT July 3, 2001), in which the court held that the Department "looks to whether the producer knew or should have known, at the time of a sale, whether or not the subject merchandise will be exported." Moreover, the petitioner contends that Timken actually supports this interpretation, as it includes the "knew or should have known" phrasing in several portions of the opinion identified by the petitioner in its case brief. In addition, the petitioner contends that the record establishes an affiliation between NFP/USA and NFC for the reasons detailed in the preliminary results. In particular, the petitioner notes that CEA acknowledges the affiliation between NFP/USA and NFC through common stock ownership during the POR until several weeks after NFC had sold its merchandise to CEA. DOC Position: As stated in the preliminary results, NFP/USA and NFC maintained an affiliation throughout most of the history of this proceeding. Although CEA claims that NFP/USA and NFC did not cooperate during the POR, it is undisputed that they maintained an affiliation until NFP/USA's transfer of stock in February 2000 - several weeks after NFC's sale to CEA. Given the weight of the evidence regarding affiliation, we are unpersuaded by CEA's arguments. In addition, we agree that "knew or should have known" is the proper test for knowledge under section 772(a) of the Act, rather than evidence of actual knowledge as advocated by CEA. The Court of International Trade stated in LG Semicon Co., LTD., et. al. v. United States, et. al., 23 C.I.T. 1074, *15 (Dec. 30, 1999) that the Department's "knew or should have known standard is in conformity with legislative history, is consistent with the agency's practice, and has been previously sustained by this Court." See also Dynamic Random Access Memory Semiconductors of One Megabytes Above From the Republic of Korea; Final Results of Antidumping Review, Partial Rescission of Administrative Review and Notice of Determination Not to Revoke Order, 63 FR 50867, 50876 (September 23, 1998); Elemental Sulphur From Canada; Final Results of Antidumping Duty Administrative Review, 65 FR 11980 (March 7, 2000) and accompanying Decision Memorandum at Comment 3. NFC has failed to provide the Department with any information pertaining to its knowledge of the destination of its merchandise when it sold that merchandise to CEA, and the record of this review strongly suggests that NFC knew or should have known CEA was ultimately selling the merchandise to the United States. Therefore, in light of NFC's silence, pursuant to the facts available analysis discussed in the Preliminary Results, we have determined that NFC knew or should have known that its merchandise was ultimately destined for export to NFP/USA's affiliate, Horley, in the United States. We have therefore continued to treat CEA's exports to the United States, which were produced by NFC and sold to CEA, as NFC's EP sales. Recommendation Based on our analysis of the comments received, we recommend adopting all of the above positions. If these recommendations are accepted, we will publish the final results of review and the final weighted-average dumping margin for the reviewed firms in the Federal Register. Agree ___ Disagree ____ ______________________ Faryar Shirzad Assistant Secretary for Import Administration ______________________ (Date)