Gray Portland Cement and Clinker From Mexico; Preliminary Results of Antidumping Duty Administrative Review

AGENCY:

Import Administration, International Trade Administration, Department of Commerce.

ACTION:

Notice of preliminary results of antidumping duty administrative review.

SUMMARY:

In response to requests from interested parties, the Department of Commerce is conducting an administrative review of the antidumping duty order on gray portland cement and clinker from Mexico. The review covers exports of subject merchandise to the United States during the period August 1, 1998, through July 31, 1999, and one firm, CEMEX, S.A. de C.V., and its affiliate, Cementos de Chihuahua, S.A. de C.V. We have preliminarily determined that, during the period of review, sales were made below normal value.

We invite interested parties to comment on these preliminary results. Parties who submit arguments in this proceeding are requested to submit with the argument (1) a statement of the issues, and (2) a brief summary of the argument.

EFFECTIVE DATE:

September 7, 2000.

FOR FURTHER INFORMATION CONTACT:

David Dirstine or Robin Gray, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230; telephone (202) 482-4033, (202) 482-4023, respectively.

SUPPLEMENTARY INFORMATION:

Applicable Statute and Regulations

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

Background

On August 11, 1999, the Department published in the Federal Register a Notice of Opportunity to Request Administrative Review concerning the antidumping duty order on gray portland cement and clinker from Mexico (64 FR 43649). In accordance with 19 CFR 351.213, the petitioner, the Southern Tier Cement Committee (STCC), requested a review of CEMEX, S.A. de C.V., (CEMEX), CEMEX's affiliate, Cementos de Chihuahua, S.A. de C.V. (CDC), and Apasco, S.A. de C.V. (Apasco). In addition, CEMEX and CDC requested reviews of their own entries. On October 1, 1999, we published a Notice of Initiation of Antidumping and Countervailing Duty Administrative Reviews (64 FR 53318) initiating this review. The period of review is August 1, 1998, through July 31, 1999. Apasco reported, and we confirmed with the Customs Service, that Apasco did not have any sales or shipments to the United States during the period of review. We are now conducting a review of CEMEX and CDC pursuant to section 751 of the Act.

We also received information sufficient to warrant initiation of a changed-circumstances administrative review of the antidumping duty order on gray portland cement and clinker from Mexico. Based on the information on the record, we preliminarily determined that GCC Cemento, S.A. de C.V. (GCCC), is the successor-in-interest to CDC for purposes of determining antidumping liability. See Gray Portland Cement and Clinker From Mexico: Preliminary Results of Changed-Circumstances Antidumping Duty Administrative Review, 65 FR 50180 (August 17, 2000). However, since this change occurred on December 1, 1999, which is after the close of the review period, we refer to this entity as CDC and not GCCC for purposes of this review.

Scope of Review

The products covered by this review include gray portland cement and clinker. Gray portland cement is a hydraulic cement and the primary component of concrete. Clinker, an intermediate material product produced when manufacturing cement, has no use other than of being ground into finished cement. Gray portland cement is currently classifiable under Harmonized Tariff Schedule (HTS) item number 2523.29 and cement clinker is currently classifiable under HTS item number 2523.10. Gray portland cement has also been entered under HTS item number 2523.90 as “other hydraulic cements.” The HTS subheadings are provided for convenience and customs purposes only. Our written description of the scope of the proceeding is dispositive.

Verification

As provided in section 782(i) of the Act, we verified sales information provided by CEMEX and CDC using standard verification procedures, including an examination of relevant sales and financial records, and selection of original documentation containing relevant information. Our verification results are outlined in public versions of the verification reports.

Collapsing

Section 771(33) of the Act defines when two or more parties will be considered affiliated for purposes of an antidumping analysis. Moreover, 19 CFR 351.401(f) describes when we will treat two or more affiliated producers as a single entity (i.e., “collapse” the firms) for purposes of calculating a dumping margin. In the four previous administrative reviews of this order, we analyzed whether we should collapse CEMEX and CDC in accordance with our regulations. See, e.g., Gray Portland Cement and Clinker from Mexico; Final Results of Antidumping Duty Administrative Review, 65 FR 13943 (March 15, 2000).

The regulations state that we will treat two or more affiliated producers as a single entity where those producers have production facilities for similar or identical products that would not require substantial retooling of either facility in order to restructure manufacturing priorities and we conclude that there is a significant potential for the manipulation of price or production. In identifying a significant potential for the manipulation of price or production, the factors we may consider include the following: (i) the level of common ownership; (ii) the extent to which managerial employees or board members of one firm sit on the board of directors of an affiliated firm; (iii) whether operations are intertwined, such as through the sharing of sales information, involvement in production and pricing decisions, the sharing of facilities or employees, or significant transactions between the affiliated producers.

A North American Free Trade Agreement Binational Panel upheld our decision in the 1994/95 administrative review to collapse CEMEX and CDC. See Opinion of the Panel, Article 1904 Binational Panel Review Pursuant To The North American Free Trade Agreement, Secretariat File No. USA-97-1904-01 (June 18, 1999). We found that, in each of the subsequent administrative reviews, the factual information underlying our original decision to collapse these two entities had not changed and, accordingly, we continued to treat these two entities as a single entity.

Having reviewed the current record, we find, once again, that the factual information underlying our original decision to collapse these two entities has not changed during the 1998/99 review period. CEMEX's indirect ownership of CDC exceeds five percent, such that these two companies are affiliated pursuant to section 771(33)(E) of the Act. In addition to their affiliation, we find that CEMEX and CDC have similar production processes. Finally, interlocking boards of directors and significant transactions between the companies give rise to a significant potential for the manipulation of price or production. Accordingly, we preliminarily conclude that these affiliated producers should be treated as a single entity and that we should calculate a single, weighted-average margin for these companies. Therefore, throughout this notice, references to “respondent” should be read to mean the collapsed entity. See Memorandum from Analyst to Joseph A. Spetrini, 1996/1997 Administrative Review of Gray Portland Cement and Clinker from Mexico (August 31, 1998), and Memorandum from Analyst to File, Collapsing CEMEX, S.A. and Cementos de Chihuahua for the Current Administrative Review (July 28, 2000).

Export Price and Constructed Export Price

We used export price (EP), in accordance with section 772(a) of the Act, where the subject merchandise was sold to the first unaffiliated purchaser in the United States prior to importation. We used constructed export price (CEP) in accordance with section 772(b) of the Act for those sales to the first unaffiliated purchaser that took place after importation into the United States. CEMEX made CEP sales during the period of review, while CDC made both CEP and EP sales during the period of review.

We calculated EP based on delivered prices to unaffiliated customers in the United States. Where appropriate, we made adjustments from the starting price for early-payment discounts, foreign inland freight, U.S. inland freight, U.S. brokerage and handling, and U.S. duties. We also adjusted the starting price for billing adjustments to the invoice price.

We calculated CEP based on delivered prices to unaffiliated customers. Where appropriate, we made adjustments to the starting price for discounts and billing adjustments to the invoice price. In accordance with section 772(d) of the Act, we deducted those selling expenses, including inventory carrying costs, that were related to economic activity in the United States. We also made deductions for foreign brokerage and handling, foreign inland freight, U.S. inland freight and insurance, U.S. brokerage and handling, and U.S. duties. Finally, we made an adjustment for CEP profit in accordance with section 772(d)(3) of the Act.

With respect to subject merchandise to which value was added in the United States prior to sale to unaffiliated U.S. customers (i.e., cement that was imported and further-processed into finished concrete by U.S. affiliates of foreign exporters), we preliminarily determine that the special rule under section 772(e) of the Act for merchandise with value added after importation is applicable.

Section 772(e) of the Act provides that, where the subject merchandise is imported by an affiliated person and the value added in the United States by the affiliated person is likely to exceed substantially the value of the subject merchandise, we shall determine the CEP for such merchandise using the price of identical or other subject merchandise if there is a sufficient quantity of sales to provide a reasonable basis for comparison and we determine that the use of such sales is appropriate. Section 351.402(c)(2) of the regulations provides that normally we will determine that the value added in the United States by the affiliated person is likely to exceed substantially the value of the subject merchandise if we estimate the value added to be at least 65 percent of the price charged to the first unaffiliated purchaser for the merchandise as sold in the United States. Normally we will estimate the value added based on the difference between the price charged to the first unaffiliated purchaser for the merchandise as sold in the United States and the price paid for the subject merchandise by the affiliated person. We will base this determination normally on averages of the prices and the value added to the subject merchandise. If there is not a sufficient quantity of such sales or if we determine that using the price of identical or other subject merchandise is not appropriate, we may use any other reasonable basis to determine the CEP.

During the course of this administrative review, the respondent submitted, and we verified, information which allowed us to determine whether, in accordance with section 772(e) of the Act, the value added in the United States by its U.S. affiliates is likely to exceed substantially the value of the subject merchandise. To determine whether the value added is likely to exceed substantially the value of the subject merchandise, we estimated the value added based on the difference between the averages of the prices charged to the first unaffiliated purchaser for the merchandise as sold in the United States and the averages of the prices paid for subject merchandise by the affiliated person. Based on this analysis, we estimate that the value added was at least 65 percent of the price the respondent charged to the first unaffiliated purchaser for the merchandise as sold in the United States. Therefore, we preliminarily determine that the value added is likely to exceed substantially the value of the subject merchandise. Also, the record indicates that there is a sufficient quantity of subject merchandise to provide a reasonable and appropriate basis for comparison. Accordingly, for purposes of determining dumping margins for the further-manufactured sales, we have assigned the weighted-average margin of 41.28 percent, the rate calculated for sales of identical or other subject merchandise sold to unaffiliated purchasers.

No other adjustments to EP or CEP were claimed or allowed.

Normal Value

A. Comparisons

In order to determine whether there was a sufficient volume of sales in the home market to serve as a viable basis for calculating normal value (NV), we compared the respondent's volume of home-market sales of the foreign like product to the volume of U.S. sales of the subject merchandise in accordance with section 773(a)(1)(C) of the Act. Since the respondent's aggregate volume of home-market sales of the foreign like product was greater than five percent of its aggregate volume of U.S. sales for the subject merchandise, we determined that the home market was viable. Therefore, we have based NV on home-market sales.

During the period of review, the respondent sold the following types of cement in the United States—Type V, Type V LA, Type II, and Type II LA. The statute expresses a preference for matching U.S. sales to identical merchandise in the home market. The respondent sold Type I, Type II LA, Type V, and Type V LA in the home market. In situations where identical product types cannot be matched, the statute expresses a preference for basing NV on sales of similar merchandise (sections 773(a)(1)(B) and 771(16) of the Act). Because we have preliminarily determined that sales of Type V and Type V LA by the respondent in the home market are outside the ordinary course of trade (see the “Ordinary Course of Trade” section in the decision memorandum from Laurie Parkhill, Office Director, to Richard W. Moreland, Deputy Assistant Secretary, Import Administration) and that there were no sales to unaffiliated customers of Type II LA in the home market, we did not find identical matches in the home market to which we could match sales of the subject merchandise. Accordingly, we based NV on sales of similar merchandise.

During the period of review, the respondent sold two other basic types of gray portland cement in Mexico—Type I and pozzolanic. The history of this order demonstrates that, of the various types of cement which may reasonably be compared to imports of cement from Mexico, Type I cement is most similar to the types of cement sold in the United States.

On June 18, 1999, the North American Free Trade Agreement Binational Panel reviewing the final results of the 1994/95 administrative review found that the respondent's Type I bagged cement should not have been compared with sales of Type I cement sold in bulk to the United States in the calculation of normal value and remanded the results of the 1994/95 review to the Department for a recalculation of the margin. This proceeding has not yet been completed. In this review, the record supports our continued practice of finding the respondent's sales of Type I bagged cement in the home market as sales that are comparable, within the meaning of section 771(16)(B) of the Act, to U.S. sales. Specifically, in accordance with section 771(16)(B) of the Act, we find that both bulk and bagged Type I cement are produced in the same country and by the same producer as the types sold in the United States, both bulk and bagged Type I cement are like the types sold in the United States in component materials and in the purposes for which used, and both bulk and bagged Type I cement are approximately equal in commercial value to the types sold in the United States. The questionnaire responses submitted by the respondent indicate that, with the exception of packaging, Type I cement sold in bulk and Type I cement sold in bags are physically identical and both are used in the production of concrete. Also, since there is no difference in the cost of production between cement sold in bulk or in bagged form (again with the exception of packaging), both are approximately equal in commercial value. See CEMEX response to Section A of the Department's Questionnaire, Volume 1, December 6, 1999, at A-34-36, Section B, December 23, 1999, at B-47-48, and CDC response to Section A, at A-44-47, December 6, 1999, and Section B, December 21, 1999, at B-30.

B. Ordinary Course of Trade

Section 773(a)(1)(B) of the Act requires the Department to base NV on “the price at which the foreign like product is first sold (or in the absence of sales, offered for sale) for consumption in the exporting country, in the usual commercial quantities and in the ordinary course of trade.” Ordinary course of trade is defined as “the conditions and practices which, for a reasonable time prior to the exportation of the subject merchandise, have been normal in the trade under consideration with respect to merchandise of the same class or kind.” See section 771(15) of the Act.

In the instant review, we analyzed home-market sales of cement produced as Type V LA and Type V cement. Pursuant to section 773(a)(1)(B) of the Act, we based our examination on the totality of circumstances surrounding the respondent's sales in Mexico that are produced as Type V LA cement and Type V using the following criteria: number of transactions, the quantity of tonnage sold, shipping distances, and profit. Based on our analysis of the above-mentioned information on the record, we found that the respondent's home-market sales of Type V LA cement and Type V cement made during the instant review period are outside the ordinary course of trade. For a detailed discussion, see the “Ordinary Course of Trade” section in the decision memorandum from Laurie Parkhill, Office Director, to Richard W. Moreland, Deputy Assistant Secretary, Import Administration (August 30, 2000).

C. Arm's-Length Sales

To test whether sales to affiliated customers were made at arm's length, where we could test the prices, we compared the prices of sales to affiliated and unaffiliated customers, net of all movement charges, direct selling expenses, discounts, and packing. Where the price to the affiliated party was on average 99.5 percent or more of the price to the unaffiliated parties, we determined that the sales made to the affiliated party were at arm's length. With respect to the respondent's home-market sales of Type II cement to its affiliated customer, we were unable to test whether the prices for those sales in question were at arm's length because the respondent did not provide information on the prices for sales of the same cement type to unaffiliated customers. Consistent with 19 CFR 351.403, we excluded these sales from our analysis.

D. Cost of Production

The petitioner alleged on January 5, 2000, that the respondent sold gray portland cement and clinker in the home market at prices below the cost of production (COP). After examining the allegation, we determined that there were reasonable grounds to believe or suspect that the respondent had sold the subject merchandise in the home market at prices below the COP. Therefore, pursuant to section 773(b)(1) of the Act, we initiated a COP investigation in order to determine whether the respondent made home-market sales during the period of review at below-cost prices. See Memorandum from Robin Gray to Laurie Parkhill, Gray Portland Cement and Clinker from Mexico: Request to Initiate Cost Investigation (March 29, 2000).

E. Adjustments to Normal Value

Where appropriate, we adjusted home-market sales of Type I cement for discounts, rebates, packing, handling, interest revenue, and billing adjustments to the invoice price. In addition, we adjusted the starting price for inland freight, inland insurance, and pre-sale warehousing expenses. For comparisons to EP transactions, we made adjustments to the home-market starting price for differences in direct selling expenses in the two markets. For comparisons to CEP sales, we deducted home-market direct selling expenses from the home-market price. We also deducted home-market indirect selling expenses as a CEP-offset adjustment (see Level of Trade/CEP Offset section below). In addition, in accordance with section 773(a)(6) of the Act, we deducted home-market packing costs and added U.S. packing costs.

Section 773(a)(6)(C)(ii) of the Act directs us to make an adjustment to NV to account for differences in the physical characteristics of merchandise where similar products are compared. Section 351.411(b) of the regulations directs us to consider differences in variable costs associated with the physical differences in the merchandise.

A discussion of our preliminary conclusions on differences in merchandise is contained in a memorandum in the official file for this case. See the “Difference in Merchandise” section of the Decision Memorandum from Laurie Parkhill, Office Director, to Richard W. Moreland, Deputy Assistant Secretary, Gray Portland Cement and Clinker from Mexico (August 30, 2000).

F. Level of Trade/CEP Offset

In accordance with section 773(a)(1)(B) of the Act, to the extent practicable, we determine NV based on sales in the home market at the same level of trade as the EP or CEP. The NV level of trade is that of the starting-price sales in the home market or, when NV is based on constructed value (CV), that of sales from which we derive selling, general and administrative (SG&A) expenses and profit. For EP, the U.S. level of trade is also the level of the starting-price sale, which is usually from the exporter to the importer. For CEP, it is the level of the constructed sale from the exporter to the importer.

To determine whether NV sales are at a different level of trade than EP or CEP, we examine stages in the marketing process and selling functions along the chain of distribution between the producer and the unaffiliated customer. If the comparison-market sales are at a different level of trade 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 level of trade of the export transaction, we make a level-of-trade 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 61971 (November 19, 1997).

Based on our analysis, we conclude that the respondent's home-market sales to various classes of customers which purchase both bulk and bagged cement constitute one level of trade. We based our conclusion on our analysis of the respondent's reported selling functions and sales channels. We found that, with some minor exceptions, CEMEX and CDC performed the same selling functions to varying degrees in similar channels of distribution. We also concluded that the variations in selling functions were not substantial when all selling expenses were considered as a whole. See the memorandum on level of trade from analyst to Laurie Parkhill, Office Director (August 21, 2000).

With respect to U.S. sales, we conclude that the respondent's sales to various classes of customers which purchase both bulk and bagged cement constituted three separate levels of trade. We based our conclusion on our analysis of the respondent's reported selling functions and sales channels after making deductions for selling expenses under section 772(d) of the Act. CEMEX and CDC performed different sales functions for sales to their respective U.S. affiliates and CDC performed different sales functions for EP sales. Furthermore, the respondent's home-market sales occur at a different and more advanced stage of distribution than its sales to the United States. We have also determined that the data available do not permit us to calculate a level-of-trade adjustment and, therefore, we could not make a level-of-trade adjustment to normal value in our analysis of the respondent's EP sales. However, we have granted a CEP-offset adjustment in accordance with section 773(a)(7)(B) of the Act for the respondent's CEP sales. See the analysis memorandum on level of trade referenced above.

Currency Conversion

Pursuant to section 773A(a) of the Act, we made currency conversions into U.S. dollars based on the exchange rates in effect on the dates of U.S. sales as certified by the Federal Reserve Bank.

Preliminary Results of Review

As a result of our review, we preliminarily determine the dumping margin for the collapsed parties, CEMEX and CDC, for the period August 1, 1998, through July 31, 1999, to be 41.28 percent.

We will disclose calculations performed in connection with these preliminary results to parties within five days of the date of publication of this notice. Interested parties may request a hearing within 30 days of publication of this notice. We will notify interested parties of the date of any requested hearing and the briefing schedule.

Upon completion of this review, we will determine, and the Customs Service shall assess, antidumping duties on all appropriate entries. The Department will issue appropriate appraisement instructions directly to the Customs Service upon completion of this review. The final results of this review shall be the basis for the assessment of antidumping duties on entries of merchandise covered by this determination and for future deposits of estimated duties. We have calculated importer-specific assessment rates based on the entered value for subject merchandise sold during the period of review.

Furthermore, the following deposit requirements will be effective for all shipments of the subject merchandise entered, or withdrawn from warehouse, for consumption on or after the publication date of the final results of review, as provided by section 751(a)(1) of the Act: (1) The cash deposit rate for the respondent will be the rate determined in the final results of review; (2) for previously reviewed or investigated companies not mentioned above, the cash-deposit rate will continue to be the company-specific rate published for the most recent period; (3) if the exporter is not a firm covered in this review, a prior review, or in the original less-than-fair-value (LTFV) investigation, but the manufacturer is, the cash-deposit rate will be the rate established for the most recent period for the manufacturer of the merchandise; and (4) the cash-deposit rate for all other manufacturers or exporters will be 61.35 percent, the all-others rate from the LTFV investigation. These deposit requirements, when imposed, shall remain in effect until publication of the final results of the next administrative review.

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

We are issuing and publishing this notice in accordance with sections 751(a)(1) and 777(i)(1) of the Act.