[Federal Register Volume 69, Number 191 (Monday, October 4, 2004)]
[Notices]
[Pages 59197-59204]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2479]
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DEPARTMENT OF COMMERCE
International Trade Administration
[A-821-819]
Notice of Preliminary Determination of Sales at Less Than Fair
Value and Postponement of Final Determination: Magnesium Metal From the
Russian Federation
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
SUMMARY: In response to a petition filed by U.S. Magnesium LLC (U.S.
Magnesium), United Steelworkers of America, Local 8319, Glass, Molders,
Pottery, Plastics and Allied Workers International, Local 374
(collectively, the Petitioners), the U.S. Department of Commerce (the
Department) initiated and is conducting an investigation of sales of
magnesium metal from the Russian Federation for the period January 1,
2003, through December 31, 2003. See Notice of Initiation of
Antidumping Duty Investigations: Magnesium Metal From the People's
Republic of China and the Russian Federation, 69 FR 15293 (March 25,
2004) (Initiation Notice). The Department preliminarily determines that
magnesium metal from the Russian Federation is being or is likely to be
sold in the United States at less than fair value (LTFV), as provided
in Section 733 of the Tariff Act of 1930, as amended (the Act). The
estimated margins of sales at LTFV are listed in the ``Suspension of
Liquidation'' section of this notice. Interested parties are invited to
comment on this preliminary determination.
EFFECTIVE DATE: October 4, 2004.
FOR FURTHER INFORMATION CONTACT: Joshua Reitze or Sebastian Wright at
(202) 482-0666 or (202) 482-5254, respectively; Office of AD/CVD
Operations VI, Import Administration, Room 1870, International Trade
Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, NW., Washington, DC 20230.
SUPPLEMENTARY INFORMATION:
[[Page 59198]]
Preliminary Determination
Case History
This investigation was initiated on March 18, 2004. See Initiation
Notice. Since the initiation of the investigation, the following events
have occurred.
On March 26, 2004, the Department issued a letter providing
interested parties an opportunity to comment on a proposed set of
model-match criteria. We received comments in response to this letter
from the Petitioners and JSC Avisma Magnesium-Titanium Works and VSMPO-
Tirus, U.S. (Avisma) on April 1, 2004. Based on these submissions, we
determined the appropriate model-match characteristics and included
them in the antidumping questionnaire issued to Avisma and Solikamsk
Magnesium Works (SMW), Respondents in this investigation, on April 24,
2004.
On March 31, 2004, the Department set aside a period for all
interested parties to raise issues regarding the scope of this
investigation. On April 16, 2004, the following companies submitted
timely comments: Reade Manufacturing Company, Magnesium Elektron North
America, Inc., and Hart Metals, Inc. (collectively, Reade) and Avisma.
On April 26, 2004, the Department received rebuttal comments from the
Petitioners, and additional comments from Northwest Alloys, Inc.
(Northwest) and Alcoa, Inc. (Alcoa). On June 25, June 28, and July 9,
2004, we received additional comments on the scope of this
investigation from Petitioners, Alcoa, Reade, and Avisma, in response
to questions that we issued to all interested parties on June 9, 2004.
On May 17, 2004, the United States International Trade Commission
(ITC) preliminarily determined that there is a reasonable indication
that imports of the products subject to this investigation are
materially injuring an industry in the United States producing the
domestic like products. See Magnesium From China and Russia, 69 FR
29329 (May 21, 2004) (ITC Preliminary Determination).
On June 28, 2004, the Petitioners requested that the Department
extend the preliminary determination in this investigation from August
5, 2004, to September 24, 2004. See Notice of Postponement of
Preliminary Determinations in Antidumping Duty Investigations of
Magnesium Metal From the People's Republic of China and the Russian
Federation, 69 FR 43561 (July 21, 2004) (Postponement of Preliminary
Determinations). Because there were no compelling reasons to deny the
request, we postponed the preliminary determination to September 24,
2004, under section 733(c)(1) of the Act.
In their petition, the Petitioners alleged that Russian energy
costs were distorted by excessive involvement by the Russian government
in the energy sector, and requested that the Department make
adjustments to energy costs to account for the effects of this
involvement. In the Initiation Notice, the Department stated its intent
to investigate the Russian government's involvement in the energy
sector, and to consider whether an adjustment was appropriate. On July
30, 2004, the Petitioners submitted additional information to support
their claim that Russian government involvement resulted in gas and
electricity prices that do not reflect ``economic reality,'' stating
their argument that the Department has the legal authority to disregard
or adjust the energy costs reported by Respondents to account for this
distortion, and suggesting options for correcting the effects of this
distortion. On September 1 and 3, 2004, Avisma submitted arguments to
rebut the Petitioners' claims. On September 15, 2004, SMW submitted
comments which endorsed the legal analysis of Avisma's September 1 and
3, 2004, comments.
Postponement of Final Determination and Extension of Provisional
Measures
Section 735(a)(2) of the Act provides that a final determination
may be postponed until not later than 135 days after the date of the
publication of the preliminary determination if, in the event of an
affirmative preliminary determination, a request for such postponement
is made by exporters who account for a significant proportion of
exports of the subject merchandise. Section 351.210(e)(2) of the
Department's regulations requires that exporters requesting
postponement of the final determination must also request an extension
of the provisional measures referred to in section 733(d) of the Act
from a four-month period until not more than six months. On September
14 and September 21, 2004, we received requests to postpone the final
determination from SMW and Avisma, respectively. Both requests
consented to the extension of provisional measures from four months to
no longer than six months. Since this preliminary determination is
affirmative, the requests for postponement are made by exporters that
account for a significant proportion of exports of the subject
merchandise, and since there is no compelling reason to deny the
Respondents' requests, we have extended the deadline for issuance of
the final determination until the 135th day after the date of
publication of this preliminary determination in the Federal Register
and have extended provisional measures to no longer than six months.
Selection of Respondents
Section 777A(c)(1) of the Act directs the Department to calculate
individual dumping margins for each known exporter and producer of the
subject merchandise. Where it is not practicable to examine all known
producers/exporters of subject merchandise, section 777A(c)(2) of the
Act permits the Department to investigate either: (1) A sample of
exporters, producers, or types of products that is statistically valid,
based on the information available at the time of selection; or (2)
exporters and producers accounting for the largest volume of the
subject merchandise that can reasonably be examined. In the petition,
the Petitioners identified two potential producers and exporters of
magnesium metal in the Russian Federation: Avisma and SMW. This was
confirmed by the Department's analysis of data collected by U.S.
Customs and Border Protection (CBP), which was placed on the record on
June 17, 2004.
On May 21, 2004, the Department received an e-mail message from
another Russian producer of magnesium. In a subsequent e-mail message,
the producer informed the Department that it had sold a small amount of
subject merchandise to the United States during the period of
investigation (POI). It also informed the Department that it is
unrelated to the other Respondents. The sales amount reported by this
producer is extremely small in comparison to the import statistics on
the ITC Web site. As discussed in the memorandum for selection of
Respondents, the Department found that it was not practical to examine
all known exporters and producers of the subject merchandise. See
Antidumping Duty Investigation of Magnesium Metal From the Russian
Federation; Selection of Mandatory Respondents, June 29, 2004
(Respondent Selection Memo). Furthermore, the Department found that the
two Respondents named in the initiation account for almost all exports
of subject merchandise to the United States. Id. Accordingly, because
Avisma and SMW account for the largest volume of the subject
merchandise that can be reasonably examined, the Department has
calculated individual dumping margins for those two companies. See
section 777A(c)(2)(B) of the Act.
[[Page 59199]]
Period of Investigation
The period of investigation (POI) is January 1, 2003, through
December 31, 2003. This period corresponds to the four most recent
fiscal quarters prior to the month of filing of the petition (i.e.,
March 2004) involving imports from a market economy, and is in
accordance with the Department's regulations. See 19 CFR 351.204(b)(1).
Scope of Investigation
For the purpose of this investigation, the product covered is
magnesium metal (also referred to as magnesium). 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.\1\
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\1\ This second exclusion for magnesium-based reagent mixtures
is based on the exclusion for reagent mixtures in the 2000-2001
investigations of magnesium from China, Israel, and Russia. See
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); Final Determination of Sales at Less Than Fair
Value: Pure Magnesium From Israel, 66 FR 49349 (September 27, 2001);
Final Determination of Sales at Not Less Than Fair Value: Pure
Magnesium From the Russian Federation, 66 FR 49347 (September 27,
2001). These mixtures are not magnesium alloys, because they are not
chemically combined in liquid form and cast into the same ingot.
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The merchandise subject to this investigation is classifiable under
items 8104.11.00, 8104.19.00, 8104.30.00, and 8104.90.00 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.
Scope Issues
On March 31, 2004, the Department set aside a period for all
interested parties to raise issues regarding the scope of this
investigation. As discussed above, we received comments from Reade,
Northwest, Alcoa, and Avisma, as well as rebuttal comments from
Petitioners. These comments are summarized in the Department's
September 24, 2004 memorandum Product Coverage in Magnesium Metal From
the Russian Federation (Product Coverage Memorandum). In their
comments, parties raised two issues: (1) Whether alloy and pure
magnesium should be treated as two separate like products; and (2)
whether ultra high purity (UHP) magnesium should be excluded from the
scope of this investigation. Based on our analysis of the evidence on
the record, we preliminarily determine that UHP magnesium is within the
scope of the investigation. We also preliminarily determine that pure
magnesium and alloy magnesium constitute a single like product. For a
detailed discussion of our decision, see Product Coverage Memorandum.
Fair Value Comparisons
To determine whether sales of magnesium metal were made in the
United States at LTFV, we compared the constructed export price (CEP)
to the normal value (NV), as described in the ``Constructed Export
Price'' and ``Normal Value'' sections below. In accordance with section
777A(d)(1)(A)(i) of the Act, we calculated weighted-average CEPs. We
then compared these to weighted-average home market prices in Russia.
Date of Sale
Avisma reported invoice date as the date of sale for both the home
and U.S. markets. Avisma issues invoices at the time of shipment,
which, in the home market, may come after payment. For contract sales,
the invoice establishes the price and quantity of the sale, as well as
the parameters by which price and quantity may change under the
contract. Invoices also set the price and quantity for spot sales.
Because the material terms of sale are established when the invoice is
issued, and because of our presumption that invoice date is the date of
sale, as stated in section 351.401(i) of our regulations, we are using
invoice date as the date of sale for all Avisma transactions in both
markets.
For both the home and U.S. markets, SMW reported contract date as
the date of sale. The contract date is the date when the material terms
of sale (i.e., price and quantity) are first established with the
customer, but, as with Avisma's contracts, these values are allowed to
change under the terms of the contract. In such cases where the price
or quantity of a contract were amended, SMW reported the date of the
amendment as the date of sale. SMW reported all sales with contracts
that were initiated or amended during or prior to the POI and with
invoices issued during the POI.
Because the material terms of SMW's contracts are susceptible to
amendment, and in fact are amended, we are using invoice date as the
date of sale for this preliminary determination for both the home and
U.S. markets. As noted above, the Department's regulations presume that
invoice date is the date of sale. See 19 CFR 351.401(i) (``In
identifying the date of sale of the subject merchandise or foreign like
product, the Secretary normally will use the date of invoice'').
Therefore, we preliminarily determine that invoice date is the proper
date of sale for both markets.
Constructed Export Price
For U.S. price, we used CEP, as defined in section 772(b) of the
Act. Section 772(b) of the Act defines CEP as the price at which the
subject merchandise is first sold in the United States before or after
the date of importation by or for the account of the producer or
exporter of such merchandise or by a seller affiliated with the
producer or exporter, to a purchaser not affiliated with the
[[Page 59200]]
producer or exporter, as adjusted under subsections 772(c) and (d) of
the Act.
In its questionnaire responses, Avisma identified all of its sales
to the United States as CEP sales. All of Avisma's sales are properly
classified as CEP sales because they were made for the account of
Avisma, by Avisma's U.S. affiliate, VSMPO-Tirus, U.S., Inc. (Tirus US),
to unaffiliated purchasers in the United States. U.S. sales to the
first unaffiliated party were made in the United States, by the U.S.
affiliate, thus satisfying the Department's requirements for treating
sales as CEP sales. Avisma and Tirus US are affiliated through common
ownership. See Section 771(33)(F) of the Act.
In accordance with Section 772(c)(2) of the Act, for Avisma's CEP
sales we made deductions from price for movement expenses and
discounts, and additions for billing adjustments, where appropriate.
More specifically, after reviewing the terms of delivery for Avisma's
CEP sales to the United States, we deducted early payment discounts,
added billing adjustments, and deducted foreign inland freight from
plant to port, international freight and insurance, U.S. customs
duties, U.S. brokerage and handling, and U.S. inland freight. See
Analysis Memorandum for Magnesium Metal from the Russian Federation:
JSC AVISMA Titanium-Magnesium Works and VSMPO-Tirus, U.S., Inc. (Avisma
Analysis Memorandum).
Section 772(d)(1) of the Act provides for additional adjustments to
calculate CEP. Accordingly, we deducted direct selling expenses and
indirect selling expenses related to commercial activity in the United
States. Pursuant to section 772(d)(3) of the Act, we made an adjustment
for CEP profit.
SMW also identified all of its U.S. sales as CEP sales in its
questionnaire responses. During the POI, all sales of SMW's subject
merchandise to the United States were made through its U.S. affiliates,
Solimin and Cometals. We find that Cometals is affiliated with SMW by
virtue of an agency agreement, in which Cometals acts as a North
American distributor of pure and alloy magnesium products. See Section
771(33) of the Act; See also Notice of Final Determination of Sales at
Less Than Fair Value: Engineered Process Gas Turbo-Compressor Systems,
Whether Assembled or Unassembled, and Whether Complete or Incomplete,
from Japan, 62 FR 24394, 24403 (May 5, 1997). For a complete discussion
of the basis for finding SMW and Cometals affiliated, see Analysis
Memorandum for Magnesium Metal from the Russian Federation: Solikamsk
Magnesium Works (SMW Analysis Memorandum). We also find that Solimin is
affiliated with SMW under section 771(33)(G) of the Act because it is
wholly owned by SMW. All of SMW's sales are properly classified as CEP
sales because they were made for the account of SMW, by SMW's U.S.
affiliates, Solimin and Cometals, to unaffiliated purchasers in the
United States. U.S. sales to the first unaffiliated party were made in
the United States, by the U.S. affiliates, thus satisfying the
Department's requirements for characterizing sales as CEP sales.
In accordance with section 772(c)(2) of the Act, for SMW's CEP
sales, we made deductions from price for movement expenses and billing
adjustments, where appropriate. More specifically, after reviewing the
terms of delivery for SMW's CEP sales, we deducted foreign inland
freight from plant to port; foreign brokerage, handling, and port
charges; international freight and insurance; U.S. brokerage, handling,
and port charges; U.S. warehousing; U.S. and foreign customs duties;
and U.S. inland freight. See SMW Analysis Memorandum.
In accordance with section 772(d)(1) of the Act, we deducted direct
selling expenses and indirect selling expenses related to commercial
activity in the United States. Pursuant to section 772(d)(3) of the
Act, we made an adjustment for CEP profit.
Normal Value
A. Selection of Comparison Markets
Section 773(a)(1) of the Act directs the Department to calculate NV
based on the price at which the foreign like product is sold in the
home market, provided that the merchandise is sold in sufficient
quantities (or value, if quantity is inappropriate), and that there is
no particular market situation that prevents a proper comparison with
the EP or CEP. Under the statute, the Department will normally consider
quantity (or value) insufficient if it is less than five percent of the
aggregate quantity (or value) of sales of the subject merchandise to
the United States. See Section 773(a)(1)(C) of the Act. We found that
both Avisma and SMW had a viable home market for magnesium metal. As
such, Avisma and SMW submitted home market sales data for the
calculation of NV. In deriving NV, we made adjustments as detailed in
the section below on ``Calculation of Normal Value Based on Home Market
Prices'' section.
B. Affiliated Party Transactions and Arm's-Length Test
We used sales to affiliated customers in the home market only where
we determined such sales were made at arm's-length prices (i.e., at
prices comparable to the prices at which the Respondent sold identical
merchandise to unaffiliated customers). To test whether the sales to
affiliates were made at arm's-length prices, we compared the unit
prices of sales to affiliated and unaffiliated customers net of all
movement charges, direct selling expenses, discounts and packing. In
accordance with the Department's practice, if the prices charged to an
affiliated party were, on average, between 98 and 102 percent of the
prices charged to unaffiliated parties for merchandise identical or
most similar to that sold to the affiliated party, we consider the
sales to be at arm's-length prices. See 19 CFR 351.403(c). For the sole
affiliated reseller that failed the arm's-length test, we based NV on
its sales to unaffiliated parties (i.e., downstream sales). The
remaining affiliated parties that did not pass the arm's-length test
were consumers, and, therefore, there were no downstream sales on which
to base NV. Sales to these affiliated consumers were excluded from our
NV calculations. See 19 CFR 351.403(d); see also Antidumping
Proceedings: Affiliated Party Sales in the Ordinary Course of Trade, 67
FR 69186 (November 15, 2002).
C. Cost of Production Analysis
On June 29, 2004, Petitioners alleged that Avisma and SMW made
sales in the home market at less than the COP. On July 15, 2004,
Petitioners amended this allegation and revised their methodology.
Based on these allegations, and in accordance with section
773(b)(2)(A)(i) of the Act, we found reasonable grounds to believe or
suspect that magnesium sales were made in Russia at prices below the
cost of production (COP). See Initiation of Sales Below Cost
Investigation: Avisma (July 22, 2004) (Avisma Cost Initiation
Memorandum) and Initiation of Sales Below Cost Investigation: Solikamsk
Magnesium Works (July 30, 2004) (SMW Cost Initiation Memorandum). As a
result, the Department is conducting an investigation to determine
whether Avisma and SMW made home market sales of magnesium at prices
below their respective COPs during the POI within the meaning of
section 773(b) of the Act.
[[Page 59201]]
1. Calculation of Cost of Production
In accordance with section 773(b)(3) of the Act, we calculated a
weighted-average COP based on the sum of the cost of materials and
fabrication for the foreign like product, plus amounts for the home
market selling, general, and administrative (SG&A) expenses, including
interest expenses and packing expenses. We relied on the COP data
submitted by Avisma and SMW in their cost questionnaire responses, with
the following changes.
We adjusted Avisma's financial expense ratio to include the total
net foreign exchange gains and losses from Avisma's 2003 audited
financial statements. See Memorandum to Neal M. Halper, Director,
Office of Accounting, from Robert B. Greger, Senior Accountant, Cost of
Production and Constructed Value Calculation Adjustments for the
Preliminary Determination for Magnesium Metal from the Russian
Federation, (September 24, 2004). For SMW, we revised the reported
general and administrative (G&A) expense ratio to include certain
administrative costs recorded as part of the cost of goods sold in the
company's financial statements. We then excluded these costs from the
cost of goods sold denominator that we used to calculate the G&A
expense ratio. We also revised SMW's reported financial expense ratio
to exclude certain administrative costs from the cost of goods sold
denominator that we used to calculate the end ratio. See Memorandum to
Neal M. Halper, Director, Office of Accounting, from Ernest Z. Gzyrian,
Senior Accountant, Cost of Production and Constructed Value Calculation
Adjustments for the Preliminary Determination for Magnesium Metal from
the Russian Federation--Solikamsk Magnesium Works, (September 24,
2004).
As noted above under ``Case History,'' Petitioners have alleged
that Russian energy costs are distorted by excessive government
involvement, and have requested that the Department make adjustments to
Respondents' reported energy costs to account for the effects of this
involvement. In their various submissions (identified in the ``Case
History'' section above). Petitioners argue such adjustments are
allowed under section 773(f) of the Act, which states:
Costs shall normally be calculated based on the records of the
exporter or producer of the merchandise, if such records are kept in
accordance with the generally accepted accounting principles of the
exporting country (or the producing country, where appropriate) and
reasonably reflect the costs associated with the production and sale
of the merchandise.
Petitioners argue the use of the word ``normally'' in section
773(f) of the Act gives the Department the discretion to disregard
reported costs in certain circumstances. According to Petitioners,
energy is a cost ``associated with'' the production and sale of
magnesium. Petitioners argue that non-market forces pervade the Russian
energy sector, and that Russian energy prices do not reflect the true
cost of energy production. In support of their position, Petitioners
submitted documents from various organizations examining the Russian
energy sector, and based on their analysis of these documents, they
proposed options for the requested adjustment. Petitioners also noted
that the Department's 2002 memorandum granting Russia market economy
status, and the suspension agreement signed in 2002 in the antidumping
investigation of cut-to-length carbon steel plate from Russia, alluded
to the fact that prices in the Russian energy sector would merit
particular scrutiny in future antidumping proceedings. In Petitioners'
view, therefore, there is a sufficient legal and factual basis to
reject Respondents' reported energy costs.
Respondents, on the other hand, argue that the Department has no
authority to disregard their reported energy costs. Respondents note
that, in a case involving a market economy, the Department is required
to use the companies' reported energy costs unless one of the
exceptions specified in the statute exists. Respondents argue that the
statute focuses on the costs to the respondent, not the costs of an
unaffiliated energy supplier, and there is no statutory authority to
disregard a company's costs due to alleged government action. Rather,
Respondents argue, there is a long line of precedent from both the
Department and the courts holding that a company's reported costs may
not be adjusted due to the receipt of government subsidies.
We believe that the legal arguments raised by both Petitioners and
Respondents have merit, but we do not reach this legal issue in this
preliminary determination. For the reasons discussed below, we have
preliminarily concluded that the factual record of this investigation,
to date, does not lead us to conclude that the Department should
disregard Respondents' reported energy costs at this time.
We have carefully reviewed Petitioners' allegations regarding
energy prices in Russia, as well as all relevant facts and information
on the record, particularly since the Department has, in other
contexts, expressed concerns about Russian energy pricing and pricing
policies. Because, in the production of magnesium, gas costs are less
important than electricity costs, our discussion focuses on electricity
costs.\2\ While the evidence that Petitioners have placed on the record
indicates that Russian energy reforms remain incomplete, particularly
on the structural side, the evidence and arguments advanced to date do
not sufficiently support Petitioners' allegation that Russian
electricity prices are highly distorted from a full cost-recovery
standpoint.
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\2\ For a comparison of the relative importance of each input in
overall magnesium production costs, see SMW Analysis Memorandum and
Avisma Analysis Memorandum.
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The analysis submitted by Petitioners to support their allegation
that there is a significant price distortion compares retail-level cost
(of sales off the low-voltage grid) to electricity prices Respondents
paid, which, as reported by Respondents in their questionnaire
responses, reflect sales off the high-voltage grid, i.e., at the
wholesale level. Therefore, this does not appear to be an apples-to-
apples comparison. Petitioners also argue that any measure of cost
recovery must take into account the costs of replacing the electricity
transmission and distribution grid. While the Department continues to
evaluate these arguments, we have several concerns. For example, it is
unclear how the higher distribution costs that are associated with
sales off a low-voltage grid should or could be evaluated in a
wholesale price-cost analysis. Furthermore, the matter of estimating
capital costs is problematic, in part, because of assumptions about
future conditions that can underlie some estimates.
Finally, Petitioners argue that a meaningful measure of cost
recovery for the electricity sector must include a price for gas used
to make electricity that itself reflects full cost recovery. With
respect to this argument, we have identified a number of issues that
require further consideration. For example, one would need to assess
the role of other non-gas based electricity supply sources in
determining whether a significant distortion exists and the extent to
which it is appropriate to employ estimates of future prices in
calculating any adjustment to electricity prices. In addition,
assuming, arguendo, that the Department were to reach the issue of
whether it has the legal authority to disregard reported costs of
production of the subject merchandise, this still leaves open the
question of the
[[Page 59202]]
boundaries of any such authority to examine the cost of inputs into the
inputs used in producing the subject merchandise.
Given these questions and reservations, the Department considers
that it is appropriate to use Respondents' reported energy costs for
purposes of the preliminary determination. We will, however, continue
examining this issue in preparation for our final determination. We
encourage the parties to submit additional information and arguments on
this issue, inviting them in particular to comment on the concerns that
we have outlined above. We also will be verifying Respondents'
questionnaire responses including the information about their energy
purchases that we have relied upon in this preliminary analysis. In
order to allow proper review by the Department and all interested
parties, we request that any additional arguments and factual
information concerning this issue be filed as early as possible during
the remainder of the proceeding. With respect to factual information,
the following deadlines will apply. Any new, revised or updated factual
information concerning Respondents' actual energy costs and all aspects
of their energy usage and their relationships (if any) with energy
suppliers must be submitted no later than the deadlines specified in
any future questionnaires issued by the Department and in accordance
with 19 CFR 351.301(c)(2)(ii), since such information is part of the
questionnaire responses which must be verified. Any new factual
information and arguments pertaining to the broader issue of whether
electricity prices in Russia are or are not significantly distorted and
whether an adjustment to such prices is or is not warranted must be
submitted no later than November 8, 2004, and rebuttals of any such
factual information and rebuttal comments no later than November 18,
2004, in accordance with 19 CFR 351.301(c)(1) and (c)(2)(ii). If the
Department finds that an adjustment may be warranted after further
review, we will issue for comment a memorandum outlining our
preliminary analysis of why such an adjustment is warranted and the
type of adjustment we are proposing, in order to ensure that all
aspects of such an adjustment are carefully considered in time for the
final determination.
2. Test of Home Market Sales Prices
We compared the weighted-average COP for Avisma and SMW to their
home market sales prices of the foreign like product, as required under
section 773(b) of the Act, to determine whether these sales had been
made at prices below the COP within an extended period of time (i.e., a
period of one year) in substantial quantities, and whether such prices
were sufficient to permit the recovery of all costs within a reasonable
period of time. On a model-specific basis, we compared the COP to the
home market prices, less any applicable movement charges, discounts,
rebates, and direct and indirect selling expenses.
3. Results of the COP Test
We disregarded below-cost sales where (1) 20 percent or more of
either Respondent's sales of a given product during the POI were made
at prices below the COP, and thus such sales were made within an
extended period of time in substantial quantities in accordance with
sections 773(b)(2)(B) and (C) of the Act, and (2) based on comparisons
of price to weighted-average COPs for the POI, we determined that the
below-cost sales of the product were at prices which would not permit
recovery of all costs within a reasonable time period, in accordance
with section 773(b)(2)(D) of the Act. We found that both Avisma and SMW
made sales below cost and we disregarded such sales where appropriate.
D. Calculation of Normal Value Based on Home Market Prices
Where appropriate, we determined NV for Avisma and SMW based on
home market prices. However, both Respondents reported a significant
number of ``barter'' sales in the home market. As this is the first
investigation of Russian exporters conducted since the Department
determined Russia to be a market economy,\3\ within the context of the
Act, the Department has not previously been presented with the issue of
examining barter sales in the Russian market.
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\3\ 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, dated June 6, 2002,
effective April 1, 2002.
---------------------------------------------------------------------------
We have examined barter sales in the Argentinian and Japanese
markets in two cases decided prior to the effective date of the
amendments made by the Uruguay Round Agreements Act (URAA). In Notice
of Preliminary Determination of Sales at Less Than Fair Value: Certain
Cold-Rolled Carbon Steel Flat Products From Argentina, 58 FR 7066 (Feb.
4, 1993), we disregarded barter sales as being outside the ordinary
course of trade. In Final Determination of Sales at Less Than Fair
Value: Certain All-Terrain Vehicles From Japan, 54 FR 4864, 4865 (Jan.
31, 1989), we found barter trade to be small and insignificant, and
disregarded it.
In Gray Portland Cement and Clinker From Mexico: Final Results of
Antidumping Duty Administrative Review, 68 FR 54203 (Sept. 16, 2003)
(Cement From Mexico), a case subsequent to the passage of the URAA, the
Department encountered an exchange of cement between a Mexican producer
and an unaffiliated U.S. customer. The Respondent in that case argued
that this ``swap'' of cement should not be considered a U.S. sale.
Relying on information confirmed at verification, the Department
concluded that this ``swap'' of cement with an unaffiliated customer
constituted a U.S. sale. We stated that ``{w{time} e verified the
appropriateness of {the reported price{time} and found no
discrepancies. At verification, CEMEX explained that this amount
reflects a price established between CEMEX and its unaffiliated
customer for actual sales made between the parties in the past.'' See
Cement From Mexico and accompanying Issues and Decision Memorandum, at
comment 9. Thus, we noted the importance of verification, especially
concerning the ``appropriateness'' of the reported price.
Therefore, the Department will need to examine this issue in
greater detail. Questions we will need to examine further concerning
these sales include, but are not limited to: the alignment of barter
prices with non-barter prices charged for similar goods sold; the
linkage of the price charged with the goods received, including any
internal and external procedures for ensuring reasonable compensation
is received in exchange for magnesium; and how these sales are recorded
in Respondents' books and records. Of particular concern in this case,
is the apparent discrepancy between prices charged on average for
products sold on a barter basis compared to prices charged for the
identical or most similar products when sold on a cash basis. While the
Department has issued questionnaires concerning these sales in general,
given the novelty of this issue for the Russian market, noted above, we
do not currently have enough information concerning these sales on the
record, and therefore have concluded that we should disregard the
barter sales in our calculations for this preliminary determination.
For all remaining sales, we deducted home market movement expenses,
pursuant to section 773(a)(6)(A) of the Act. We made circumstances of
sale (COS) adjustments for Avisma's and SMW's transactions by deducting
direct selling expenses incurred for home
[[Page 59203]]
market sales (credit expense). We also made adjustments for any
differences in packing, pursuant to section 773(a)(6)(B)(ii) of the
Act. See Avisma Analysis Memorandum and SMW Analysis Memorandum.
E. Calculation of Normal Value Based on Constructed Value
Section 773(a)(4) of the Act provides that, where NV cannot be
based on comparison-market sales, NV may be based on constructed value
(CV). Accordingly, for sales of magnesium for which we could not
determine the NV based on comparison-market sales, either because there
were no useable sales of a comparable product or all sales of the
comparable products failed the COP test, we based NV on CV.
Section 773(e) of the Act provides that CV shall be based on the
sum of the cost of materials and fabrication for the imported
merchandise, plus amounts for SG&A expenses, profit, and U.S. packing
costs. We calculated the cost of materials and fabrication based on the
methodology described in the ``Cost of Production Analysis'' section,
above. We based SG&A and profit on the actual amounts incurred and
realized in connection with the production and sale of the foreign like
product in the ordinary course of trade for consumption in the
comparison market, in accordance with section 773(e)(2)(A) of the Act.
We made adjustments to CV for differences in COS in accordance with
section 773(a)(8) of the Act and 19 CFR 351.410. For comparisons to
CEP, we made COS adjustments by deducting from CV direct selling
expenses incurred on home-market sales.
F. Level of Trade/Constructed Export Price Offset
In accordance with section 773(a)(1)(B)(i) of the Act, to the
extent practicable, we determine NV based on sales in the comparison
market at the same LOT as U.S. sales. See 19 CFR 351.412. The NV LOT is
the level of the starting-price sale in the comparison market or, when
NV is based on CV, the level of the sales from which we derive SG&A and
profit. For EP, the U.S. LOT is also the level of the starting-price
sale, which is usually from exporter to importer. For CEP, it is the
level of the constructed sale from the exporter to the importer.
To determine whether NV sales are at a different LOT than EP or CEP
sales, we examine stages in the marketing process and selling functions
along the chain of distribution between the producer and the
unaffiliated customer in the home market. 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 NV is based and comparison-
market sales at the LOT of the export transaction, we make an LOT
adjustment under section 773(a)(7)(A) of the Act. Finally, for CEP
sales, if the NV 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 NV and CEP affects price comparability, we adjust NV
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). For CEP sales, we consider only the selling
activities reflected in the price after the deduction of expenses and
CEP profit under section 772(d) of the Act. See Micron Technology Inc.
v. United States, 243 F.3d 1301, 1314-1315 (Fed. Cir. 2001).
In the current investigation, SMW claimed that sales in the home
market and the United States market were made at different LOTs, but
did not claim a LOT adjustment. Based on the selling functions
performed, we preliminarily determine that SMW did not sell at
different LOTs in the home and U.S. markets. After examining the
selling functions for the one LOT reported in the United States, and
the two claimed LOTs reported in the home market, we determine that
these sale are, in fact, all made at one LOT. While SMW claimed that
there were some differences between these various distribution
channels, which it claimed to constitute separate LOTs, we have
preliminarily determined that some of these differences do not
constitute differences in selling functions. Differences between other
functions, e.g., provisions of warranty or types of packing, are
already accounted for through other aspects of the Department's
calculations, such as the deduction of direct selling expenses from CEP
and NV. Moreover, the Department finds that the differences in selling
functions are not significant differences. Since much of our analysis
involves business proprietary information, a full discussion of the
bases for our preliminary determination is set forth in the SMW
Analysis Memorandum.
In conducting this analysis, we examined the U.S. LOT after
excluding the selling functions performed by SMW's U.S. affiliates
(i.e., after excluding those selling functions associated with the
expenses deducted under 772(d)(1)). Because we have determined that the
U.S. LOT is the same LOT as that in the home market, we have
preliminarily determined that the NV LOT is not more remote from the
factory than the CEP LOT, and that, therefore, a CEP offset is not
warranted under section 773(a)(7)(B) of the Act.
Avisma reported one LOT in the home market and one LOT in the
United States. It did not claim a LOT adjustment. After examining the
selling functions performed in the home market and the United States
(excluding those functions performed by the U.S. affiliate) we have
preliminarily determined that the LOT for home market and U.S. sales is
the same. See Avisma Analysis Memorandum. We have concluded that there
are no significant differences between the selling functions performed
in these two markets by Avisma. We note that, as with SMW, some of the
reported differences do not appear to relate to selling functions, but
to other functions. Also as with SMW, because U.S. and home market
sales are at the same LOT, a CEP offset is not appropriate.
Currency Conversions
We made currency conversions into U.S. dollars in accordance with
section 773A of the Act based on exchange rates in effect on the dates
of the U.S. sales, as obtained from the Federal Reserve Bank (the
Department's preferred source for exchange rates).
Verification
In accordance with section 782(i) of the Act, we will verify the
questionnaire responses of Avisma and SMW before making our final
determination.
Suspension of Liquidation
In accordance with section 733(d)(2) of the Act, we are directing
CBP to suspend liquidation of all entries of magnesium from Russia that
are entered, or withdrawn from warehouse, for consumption on or after
the date of publication of this notice in the Federal Register. We are
also instructing CBP to require a cash deposit or the posting of a bond
equal to the weighted-average dumping margins as indicated in the chart
below. These instructions suspending liquidation will remain in effect
until further notice. The weighted-average dumping margins are as
follows:
------------------------------------------------------------------------
Weighted-
average
Producer/exporter margin
(percentage)
------------------------------------------------------------------------
Avisma.................................................... 10.62
SMW....................................................... 21.49
All Others................................................ 12.36
------------------------------------------------------------------------
[[Page 59204]]
Disclosure
In accordance with 19 CFR 351.224(b), the Department will disclose
to interested parties the calculations performed in this preliminary
determination within five days of the date of public announcement.
Public Comment
Interested parties are invited to comment on the preliminary
determination. Interested parties may submit case briefs on the later
of 50 days after the date of publication of this notice or ten days
after the issuance of the verification reports. See 19 CFR
351.309(c)(1)(I). Rebuttal briefs, the content of which is limited to
the issues raised in the case briefs, must be filed within five days
after the deadline for the submission of case briefs. See 19 CFR
351.309(d). A list of authorities used, a table of contents, and an
executive summary of issues should accompany any briefs submitted to
the Department. Executive summaries should be limited to five pages
total, including footnotes.
In accordance with section 774 of the Act, we will hold a public
hearing, if requested, to afford interested parties an opportunity to
comment on arguments raised in case or rebuttal briefs. If a request
for a hearing is made, we will tentatively hold the hearing two days
after the deadline for submission of rebuttal briefs at the U.S.
Department of Commerce, 14th Street and Constitution Avenue, NW.,
Washington, DC 20230, at a time and in a room to be determined. Parties
should confirm by telephone the date, time, and location of the hearing
48 hours before the scheduled date.
Interested parties who wish to request a hearing, or to participate
in a hearing if one is requested, must submit a written request to the
Assistant Secretary for Import Administration, U.S. Department of
Commerce, Room 1870, within 30 days of the date of publication of this
notice. Requests should contain: (1) The party's name, address, and
telephone number; (2) the number of participants; and (3) a list of the
issues to be discussed. At the hearing, oral presentations will be
limited to issues raised in the briefs. See 19 CFR 351.310(c). The
Department will make its final determination no later than 135 days
after the date of the Department's preliminary determination. See 19
CFR 351.210(b)(1).
International Trade Commission Notification
In accordance with section 733(f) of the Act, we have notified the
ITC of the Department's preliminary affirmative determination. If the
final determination in this proceeding is affirmative, the ITC will
determine before the later of 120 days after the date of this
preliminary determination or 45 days after the final determination
whether imports of magnesium metal from the Russian Federation are
materially injuring, or threatening material injury to, the U.S.
industry.
This determination is issued and published pursuant to sections
733(f) and 777(i)(1) of the Act.
Dated: September 24, 2004.
James J. Jochum,
Assistant Secretary for Import Administration.
[FR Doc. E4-2479 Filed 10-1-04; 8:45 am]
BILLING CODE 3510-DS-P