Anti-Circumvention Inquiry of the Antidumping Duty Order on Certain Pasta From Italy: Affirmative Final Determination of Circumvention of the Antidumping Duty Order

[Federal Register Volume 63, Number 197 (Tuesday, October 13, 1998)]
[Notices]
[Pages 54672-54676]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-27403]


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DEPARTMENT OF COMMERCE

International Trade Administration
[A-475-818]


Anti-Circumvention Inquiry of the Antidumping Duty Order on 
Certain Pasta From Italy: Affirmative Final Determination of 
Circumvention of the Antidumping Duty Order

AGENCY: Import Administration, International Trade Administration, 
Department of Commerce.

ACTION: Notice of Affirmative Final Determination of Circumvention of 
Antidumping Duty Order.

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EFFECTIVE DATE: October 13, 1998.

FOR FURTHER INFORMATION CONTACT: John Brinkmann, Import Administration, 
International Trade Administration, U.S. Department of Commerce, 14th 
Street and Constitution Avenue NW, Washington, D.C. 20230; telephone: 
(202) 482-5288.

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 regulations of the Department 
of Commerce (``the Department'') are to the regulations as codified at 
19 CFR part 351, 62 FR 27295 (May 19, 1997).

Affirmative Final Determination of Circumvention

    Pursuant to section 781(a) of the Act, we determine that 
circumvention of the antidumping duty order on certain pasta from Italy 
is occurring by reason of exports of bulk pasta from Italy produced by 
Barilla S.r.L. (``Barilla'') which subsequently are repackaged in the 
United States into packages of five pounds or less for sale in the 
United States. However, as discussed in the ``Continuation of 
Suspension of Liquidation'' section, below, for this final 
determination we are implementing a certification scheme to distinguish 
between Barilla's bulk imports for repackaging and any bulk imports 
which may have been exempt from the scope of the antidumping duty 
order, i.e., bulk imports that are sold in the United States in bulk 
packaging.

Case History

    Since the preliminary determination in this anti-circumvention 
inquiry on April 7, 1998 (63 FR 18364, April 15, 1998) (``Notice of 
Preliminary Determination''), the following events have occurred:
    On April 14, 1998, the Department formally notified the 
International Trade Commission (``ITC'') of the preliminary 
determination in this inquiry. Section 781(c)(2) of the Act permits the 
ITC to request consultations with the Department, when the Department 
proposes to include merchandise in an antidumping order. On May 12, 
1998, the ITC informed the Department that consultations were not 
necessary in this case (see Memorandum to the File, dated May 15, 
1998).
    Barilla submitted a case brief on May 5, 1998. Borden, Inc., 
Hershey Foods Corp., and Gooch Foods, Inc. (collectively, 
``petitioners'') submitted a rebuttal brief on May 12, 1998. The 
Department also received comments from the European Union's Delegation 
of the European Commission (``EU'') on May 29, 1998.
    On May 7, 1998, Barilla submitted a revised proposal for certifying 
that certain pasta which is imported into the United States in packages 
of greater than five pounds will not be repackaged into packages of 
five pounds or less after entry into the United States.

Scope of Antidumping Duty Order

    The merchandise currently subject to the antidumping order is 
certain non-egg dry pasta in packages of five pounds (2.27 kilograms) 
or less, whether or not enriched or fortified or containing milk or 
other optional ingredients such as chopped vegetables, vegetable 
purees, milk, gluten, diastases, vitamins, coloring and flavorings, and 
up to two percent egg white. The pasta covered by this scope is 
typically sold in the retail market, in fiberboard or cardboard cartons 
or polyethylene or polypropylene bags, of varying dimensions.
    Excluded from the scope of the order are refrigerated, frozen, or 
canned pastas, as well as all forms of egg pasta, with the exception of 
non-egg dry pasta containing up to two percent egg white. Also excluded 
are imports of organic pasta from Italy that are accompanied by the 
appropriate certificate issued by the Instituto Mediterraneo Di 
Certificazione (IMC), by Bioagricoop Scrl, or by QC&I International 
Services.
    The merchandise under order is currently classifiable under item 
1902.19.20 of the Harmonized Tariff Schedule of the United States 
(HTSUS). Although the HTSUS subheading is provided for convenience and 
customs purposes, the written description of the merchandise under 
order is dispositive.

Scope Rulings

    On August 25, 1997, the Department issued a scope ruling that 
multicolored pasta, imported in kitchen display bottles of decorative 
glass that are sealed with cork or paraffin and bound with raffia, is 
excluded from the scope of this proceeding. In addition, the Department 
issued a scope ruling on July 30, 1998, that multipacks consisting of 
six one-pound packages of pasta that are shrink wrapped into a single 
package are within the scope of the antidumping and countervailing duty 
orders. (See July 30, 1998 letter from Susan H. Kuhbach, Acting Deputy 
Assistant Secretary for Import Administration to Barbara P. Sidari, 
Vice President, Joseph A. Sidari Company, Inc.)

Scope of the Anti-Circumvention Inquiry

    The product subject to this anti-circumvention inquiry is certain 
pasta produced in Italy, by Barilla, and exported to the United States 
in packages of greater than five pounds

[[Page 54673]]

(2.27 kilograms) that meets all the requirements for the merchandise 
subject to the antidumping duty order, with the exception of packaging 
size, and which is repackaged into packages of five pounds (2.27 
kilograms) or less after entry into the United States.

Facts Available

    Section 776(a)(2) of the Act provides that if an interested party 
(1) withholds information that has been requested by the Department, 
(2) fails to provide such information in a timely manner or in the form 
or manner requested, (3) significantly impedes an antidumping 
investigation, or (4) provides such information but the information 
cannot be verified, the Department is required to use facts otherwise 
available (subject to subsections 782(c)(1) and (e) of the Act) to make 
its determination. Section 776(b) of the Act provides that adverse 
inferences may be used if an interested party fails to cooperate by not 
acting to the best of its ability to comply with requests for 
information. See also, ``Statement of Administrative Action'' 
accompanying the URAA, H.R. Rep. No. 316, 103d Cong., 2d Sess. 870 
(SAA).
    As discussed in the Notice of Preliminary Determination, the 
Department found that Barilla ``failed to cooperate by not acting to 
the best of its ability to comply with the Department's request'' for 
information in its refusal to respond to the Department's 
questionnaire. Accordingly, the Department based the preliminary 
determination on adverse facts otherwise available (``facts 
available''). For this final determination, and in accordance with 
section 776(b) of the Act, we will continue to rely on the adverse 
inference that Barilla has been exporting pasta in bulk packages to the 
United States, where it has been repackaged into what would have been 
subject merchandise had it been imported directly.

Interested Party Comments

Comment 1 (Scope Language is Dispositive)

    Barilla claims that the scope language is dispositive and the 
Department has ignored prior determinations during the antidumping 
investigation that excluded pasta in packages greater than five pounds. 
Barilla argues that the Department's use of facts available is 
unwarranted because the Department has ignored its prior rulings and it 
was not economically feasible for Barilla to respond to the 
Department's questionnaire.
    The petitioners argue that the purpose of the anti-circumvention 
provisions of the Act is to authorize the Department to include within 
the scope of an antidumping order articles not expressly included 
within the scope language but that are imported in a manner to 
circumvent and evade the coverage of antidumping orders. The 
petitioners also contend that Barilla's explanations as to why it did 
not respond to the Department's anti-circumvention questionnaire do not 
negate the fact that Barilla failed to provide any of the information 
that the Department requested. Finally, the petitioners cite Barilla's 
February 9, 1998 letter to the Department, wherein Barilla stated that 
it had ``little to gain from responding [to the Department's 
questionnaire]'' as a demonstration of Barilla's failure ``to cooperate 
to the best of its ability,'' within the meaning of section 776(b) of 
the Act, which authorizes the Department to make adverse inferences in 
applying facts available.

Department's Position

    During the investigation, the petitioners proposed to define the 
scope as all pasta sold in retail channels. However, in order to cover 
only retail sales, an ``end use'' certification or similar 
documentation would have been required at importation to determine 
whether imports of pasta, regardless of packaging, were intended for 
sale in the retail segment of the market. This type of documentation is 
often burdensome for the U.S. Customs Service to administer. The ``five 
pounds or less'' packaging limitation in the scope language was a 
pragmatic way of limiting the order to pasta imported for retail sale, 
while attempting to avoid the burden of administering an ``end use'' 
certification program. Accordingly, the scope language also provided 
that ``[t]he pasta covered by this scope is typically sold in the 
retail market * * *.''
    The Department also rejected a request from the Association of Food 
Industries Pasta Group (which was supported by the petitioners) to 
amend the scope language by removing the package size limitation of 
five pounds or less during the investigation. We rejected the request, 
in substantial part, because the petitioners had informed the 
Department that importing pasta in bulk and subsequently repackaging it 
for retail sale in the United States would be impractical and 
inefficient. Thus, the Department's acceptance of the five-pound limit 
was premised on the information that it would ensure that the order 
covered all retail sales of pasta.
    We therefore disagree with Barilla's claim that the product 
description in the order is dispositive of the scope issue. Where the 
requirements of section 781(a) of the Act for ``minor assembly'' in the 
United States are met, the statute regards the components subject to 
the finding of circumvention as, in effect, imports of the subject 
merchandise, rather than components, per se. As the legislative history 
to this section states:

    [T]he application of the U.S. finishing or assembly provision 
will not require new injury findings as to each part or component. 
The anti-circumvention provision is intended to cover efforts to 
circumvent an order by importing disassembled or unfinished 
merchandise for assembly in the United States. Hence, the ITC would 
generally advise as to whether the parts or components ``taken as a 
whole'' fall within the injury determination. If more than one part 
or component is proposed for inclusion, the ITC would * * * 
determine whether the imported parts or components can be 
constructively assembled so as to constitute a like product for 
purposes of the original order * * *.
    The ITC would advise as to whether the inclusion of the parts or 
components, taken as a whole, would be inconsistent with its 
findings in the prior injury determination.

H.R. Conf. Rep. No. 576, 100th Cong., 2d Sess. 603 (1988). The 
repackaging in the United States of Italian pasta imported in bulk is 
so insignificant that it easily satisfies the statutory standard.
    We also disagree with Barilla that the use of facts available is 
unwarranted. By refusing to answer our anti-circumvention 
questionnaire, Barilla deprived the Department of any information it 
may have possessed necessary for determinations under sections 
781(a)(2) and (3) of the Act or which could have rebutted the 
information in the anti-circumvention application. Although Barilla 
claimed that it was not ``economically feasible'' to respond, it 
provided no information, and made no suggestions concerning alternative 
reporting. A more detailed discussion of our reasons for resorting to 
adverse inferences with respect to Barilla's refusal to answer the 
Department's questionnaire is set out in our affirmative preliminary 
determination in this proceeding (63 FR 18364, 18365-18366, April 15, 
1998). Nothing has changed since the preliminary determination to alter 
the reasons or bases for our use of facts available for the final 
determination. Therefore, we have continued to rely on adverse facts 
available because of Barilla's refusal to answer the Department's 
questionnaire, as discussed in the preliminary determination.

[[Page 54674]]

Comment 2 (Scope Expansion is Impermissible)

    Barilla argues that the inclusion of bulk pasta constitutes an 
impermissible expansion of the scope of the order because bulk pasta 
was specifically excluded from the scope of the investigation. Barilla 
cites several Court cases in support of this position, including 
Wheatland Tube v. US, 973 F. Supp. 149 (July 18, 1997) (Wheatland 
Tube).
    The EU notes that the Department's notices did not explain why the 
original antidumping petition was deliberately limited to pasta 
imported in packages of five pounds or less, and more particularly, why 
the Department refused to extend the scope during the course of the 
antidumping investigation.

Department's Position

    We do not agree that the inclusion of Barilla's bulk pasta in this 
proceeding is an expansion of the scope of the underlying order, and we 
have not ignored our prior scope determinations. The circumstances 
surrounding the Department's treatment of bulk pasta at the time of the 
investigation are discussed in Comment 1. Subsequent to the 
investigation, and in response to a petition filed by U.S. producers, 
the Department initiated this anti-circumvention investigation under 
section 781(a) of the Act. That provision permits the application of 
antidumping duties to components of subject merchandise that are 
imported for assembly or completion into subject merchandise before 
being sold in the U.S. market. Under section 781(a) of the Act, such 
components are treated as constructively the subject merchandise upon 
importation. Covering sales of pasta in packages weighing more than 
five pounds that are specifically imported for repacking into packages 
of less than five pounds for retail sales does not constitute an 
expansion of the scope of the order. Only the circumventing shipments--
essentially the same merchandise being shipped from the same producers 
to the same customers for ultimate retail sale--are covered. All other 
pasta imports in packages exceeding five pounds remain free from 
antidumping duties, as before.
    Although the Department does not agree with the CIT's holding in 
Wheatland Tube, Barilla's reliance upon Wheatland Tube to argue that 
the Department cannot cover bulk pasta is misplaced for several 
reasons. First, the Court emphasized that Wheatland involved a product 
(line pipe) that was not covered by the ITC's injury determination, 
regardless of how it was used. Wheatland at p. 158. The Court stated 
that even the small proportion of line pipe imports sold as standard 
pipe could not be subject to antidumping duties because they were not 
covered by an injury determination on line pipe. By contrast, the 
injury determination for this order covers the producers as a whole of 
the domestic like product, which the ITC defined as consisting of all 
dry pasta. See Certain Pasta From Italy and Turkey, USITC Pub. No. 
2977, at 7 (July 17, 1996) (final det.).
    Because the domestic like product on which the ITC's injury 
determination is based includes bulk pasta, the U.S. producers of the 
product comparable to the bulk pasta were included in the Commission's 
determination of material injury by reason of subject imports. The ITC 
has confirmed that its injury finding applies to the imports of pasta 
at issue in this proceeding. See letter to Gary Taverman, Acting Deputy 
Assistant Secretary, from Marcia E. Miller, Chairman, ITC, dated May 
12, 1998.
    Second, Wheatland involved a product (line pipe) that the 
Department found had been specifically excluded at the petitioners' 
request from the scope of the order regardless of its actual use. 
Wheatland, at 156. As explained above, there was no such specific 
exclusion in the case of bulk pasta. Quite to the contrary, the 
petitioners in this case consistently made clear that they wished to 
have pasta sold in the United States for retail covered, and the 
Department intended the nominal size restriction to be an appropriate 
way of limiting the coverage of the order to pasta imported for retail 
sales.
    Third, whereas Wheatland involved section 781(c) of the Act, 
covering merchandise that has been subject to ``minor alterations,'' 
this case involves section 781(a) of the Act, which covers merchandise 
that has been subject to minor or insignificant assembly or completion 
in the United States after importation. Thus, the Court's finding in 
Wheatland that the substitution of line pipe for standard pipe in 
filling standard pipe contracts did not involve an ``alteration'' of 
the merchandise exported to the United States is of no relevance here.
    Section 781(a) of the Act was drafted to cover exactly the 
situation in this case--merchandise sold in the United States that is 
the same class or kind as the merchandise covered by the product 
description in the order, which did not fit that product description 
exactly when it passed through customs, but was subject to minor or 
insignificant assembly or completion after importation that transformed 
it into the subject merchandise.
    Finally, the Court in Wheatland found (at p. 159) that, although 
the Department had received an anti-circumvention petition, it had 
elected, with the petitioners' acquiescence, to treat that petition as 
a request for a scope ruling (Wheatland, at n. 5). Accordingly, the 
Court held that, when the Department held that line pipe was outside 
the scope of the order, it correctly disposed of the petition and 
Wheatland's only permissible challenge was to the scope ruling. No such 
procedural complexities are present in this case. The petitioners have 
filed an anti-circumvention petition and the Department has duly ruled 
on the issue of circumvention.
    Barilla also relies on Smith-Corona v. US, 797 F. Supp. 1532, 1534-
35 (July 10, 1992) (Smith-Corona), and FTC v. US, 716 F. Supp. 1580, 
1582, n.2 (July 31, 1989) (FTC), to support its contention that bulk 
pasta was specifically excluded from the scope of the investigation. 
Neither of these cases advances Barilla's position because they 
involved only issues of scope contested in the original investigation, 
not allegations of circumvention of an outstanding antidumping order by 
means of domestic completion or assembly.
    With regard to the EU's comment that the Department's published 
notices did not explain why the Department had refused to extend the 
scope of the original antidumping investigation beyond the packaging 
limitation, memoranda prepared by the Department's staff and placed in 
the file of the investigation addressed this issue and have been 
available to the public at all times since. See, e.g., Memorandum to 
Susan G. Esserman, Assistant Secretary, from the Pasta Team, dated 
October 10, 1995.

Comment 3 (Bulk Pasta Cannot Constitute Parts or Components)

    Barilla argues that inclusion of bulk pasta in the scope of the 
order is without statutory authority because bulk pasta, as a finished 
product, cannot be considered ``parts or components,'' as defined by 
section 781(a) of the Act.
    The petitioners argue that the legislative history of section 781 
of the Act indicates that the Congress intended that the Department use 
section 781 of the Act to close ``loopholes'' whereby antidumping 
orders are evaded by making small changes in importation activities 
which will bring otherwise subject merchandise outside of the literal 
scope of an order. Specifically, the petitioners cite to legislative 
history referring to the ability of importers ``to evade the order by 
making slight changes in their method of production

[[Page 54675]]

or shipment of the merchandise destined for consumption in the United 
States.'' [Emphasis in the reply brief.] S. Rep. No. 71, 100th Cong., 
1st Sess., at 101 (1987).

Department's Position

    We disagree with Barilla's interpretation of section 781(a) of the 
Act. Although the terms ``parts'' or ``components'' are not defined 
specifically, nothing in the statute or the legislative history 
suggests Barilla's interpretation. Rather, the legislative history 
identifies the types of circumvention that are addressed by section 
781(a) of the Act:

    (1) the importation of parts or components to be assembled in 
the United States into the class or kind of merchandise covered by 
the order, such as when picture tubes and printed circuit boards are 
shipped by the manufacturer to a related subsidiary in the United 
States to be assembled and sold as television receivers; and
    (2) the importation of an incomplete or unfinished article to be 
completed in the United States, by means other then assembly, into 
the class or kind of merchandise covered by the order, such as when 
steel pipe is imported by a related party that threads it and sells 
it as threaded pipe.

H. Rep. No. 40, 100th Cong., 1st Sess. 100 at 134 (1987).

    There are two parts or components to bulk pasta and the subject 
merchandise as imported in this case--the pasta and the packaging. The 
only and defining difference between the circumventing imports of 
Barilla's bulk pasta and the subject merchandise as defined in the 
scope is the packaging. As discussed fully above, the package 
limitation was specifically designed to capture retail sales of 
imported pasta. Therefore, bulk pasta which is assembled into smaller 
packages of five pounds or less after importation must constitute 
subject merchandise pursuant to section 781(a) of the Act.
    Barilla's assertion that the finished pasta it imports is not 
subject to assembly or completion in the United States is contradicted 
by Barilla's conduct of repackaging bulk imports into packages of five 
pounds or less in its Syracuse, New York, facility. Barilla's 
repackaging operations are exactly the type of operations section 
781(a) of the Act is intended to address.

Comment 4 (Inclusion of Bulk Pasta Violates Antidumping Agreement)

    Barilla argues that the Department's preliminary determination in 
this proceeding is a violation of the Antidumping Agreement of the 
World Trade Organization (``WTO'') because there has been no finding of 
dumping or of material injury for imports of bulk pasta, as required by 
the agreement. In addition, Barilla contends that the Department's 
circumvention finding constitutes discriminatory enforcement of the 
antidumping law. In support of this argument, Barilla refers to the 
preliminary affirmative determination of the ITC in the antidumping 
investigation of Certain Pasta from Italy. The ITC found that, as of 
the time the petitioners filed their petition for antidumping relief, 
Borden, Inc., a member of the petitioners' group, imported bulk pasta 
from an Italian affiliate and repackaged it in the United States. 
Barilla argues that by excluding bulk pasta from the scope of the 
original antidumping investigation and then enforcing the circumvention 
provision against Barilla for the same apparent repackaging activities 
that Borden was engaged in, the Department is discriminating against 
Barilla.
    The petitioners argue that their original draft petition would have 
covered Borden's imports of bulk pasta but that the Department insisted 
on language that limited the scope of the investigation to pasta 
imported in packages of five pounds or less.
    The EU notes that the Department had not explained how Barilla can 
be circumventing an antidumping order by merely following a repackaging 
process which, at times, is not only being followed by the petitioners 
themselves but which had been identified by both the petitioners and 
the Department and which led to imports in bulk being deliberately 
excluded from the original antidumping investigation.

Department's Position

    The Department disagrees that the provisions of the WTO Antidumping 
Agreement require additional determinations of dumping and of material 
injury with respect to Barilla's imports of bulk pasta from Italy. The 
scope of the antidumping duty order on pasta from Italy covers certain 
of Barilla's imports of bulk pasta from Italy. This is so specifically 
because Barilla's U.S. activities--minor or insignificant assembly or 
completion after importation of components of the same class or kind of 
merchandise--render such imports subject merchandise pursuant to 
section 781 of the Act. Accordingly, these imports are already covered 
by the antidumping duty order on pasta from Italy, including both the 
material injury determination and the determination of dumping. See the 
Department's position on Comment 1.
    Contrary to Barilla's allegations, the Department's affirmative 
preliminary determination of circumvention in this proceeding does not 
violate the Antidumping Agreement but furthers its ultimate purpose, 
which is to ensure the efficacy of the antidumping laws. The 
Ministerial Decision on Anti-Circumvention formed an integral part of 
the Final Act Embodying the Results of the Uruguay Round Multilateral 
Trade Negotiations, and that Decision acknowledged the problem of 
circumvention. It recognized the need to apply ``uniform rules in this 
area as soon as possible'' to prevent the evasion of antidumping 
measures resulting from circumvention. The Department believes it is 
imperative that its laws proscribing circumvention be enforced in order 
to preserve the credibility of the WTO Agreement, which establishes the 
right of WTO Members to impose antidumping duties to remedy the 
injurious effects of dumped imports.

Continuation of Suspension of Liquidation

    In accordance with section 735(b) of the Act, we are directing the 
Customs Service to continue to suspend liquidation of all entries of 
bulk pasta from Italy produced by Barilla that were entered, or 
withdrawn from warehouse, for consumption on or after December 8, 1997, 
the date of initiation of this anti-circumvention inquiry, and are not 
accompanied by the certificate described below.
    The merchandise subject to suspension of liquidation is pasta in 
packages of greater than five pounds as defined in the ``Scope of the 
Anti-circumvention Inquiry'' section of this notice. The Customs 
Service shall continue to require a cash deposit in the amount of 11.26 
percent for all unliquidated entries that are not accompanied by the 
certificate described below. This suspension of liquidation shall 
remain in effect until further notice.
    Excluded from these suspension of liquidation instructions are 
entries of bulk pasta produced in Italy, by Barilla, where the entry 
summaries covering the bulk pasta are accompanied by a certification 
provided by Barilla America, Inc., the sole U.S. importer of Barilla 
pasta, which describes the merchandise entered by entry number, port of 
entry, date of entry, the product, the size of the packaging for the 
entered product, the Harmonized Tariff Number, the vessel, and which 
includes the importer's certification that the merchandise will not be 
repackaged into containers of five pounds or less after entry into the 
United States. This certification may be made for entries from the 
original date of the suspension

[[Page 54676]]

of liquidation, December 8, 1997. This certification proposal has been 
reviewed by the Customs Service, which has agreed that it is 
administrable (see Memorandum to the File, dated June 10, 1998).
    After examining this certification for consistency with the entry 
summary, the Customs Service will forward the certification to the 
Department of Commerce, Import Administration.
    This affirmative final circumvention determination is in accordance 
with section 781(a) of the Act and 19 CFR 351.225.

    Dated: October 5, 1998.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 98-27403 Filed 10-9-98; 8:45 am]
BILLING CODE 3510-DS-P