67 FR 11283, March 13, 2002 A-570-831 NSR: 11/1/99-10/31/00 Public Document I/3/LKM Memorandum for: Faryar Shirzad Assistant Secretary for Import Administration From: Richard W. Moreland Deputy Assistant Secretary, Group 1 Subject: Issues and Decision Memorandum: New Shipper Review of Clipper Manufacturing Ltd. Background On January 3, 2001, the Department published the initiation of the new shipper review of Clipper Manufacturing Ltd. (Clipper), for the period June 1, 2000, through November 30, 2000 (POR). (See Fresh Garlic From the People's Republic of China: Initiation of New Shipper Antidumping Duty Review, 66 FR 350.) After we issued the questionnaire and Clipper submitted its response, on April 26, 2001, we issued a supplemental questionnaire instructing Clipper to provide additional information about its U.S. sale. On May 16, 2001, Clipper responded to those questions. On July 16, 2001, and January 4, 2002, we issued additional supplemental questionnaires. Clipper responded to those letters on July 19, 2001, and January 21, 2002, respectively. On June 22, 2001, the petitioners submitted comments in response to Clipper's May 16, 2001, submissions. In their submission, the Fresh Garlic Producers Association (1) claimed that, in addition to Clipper's inadequate questionnaire responses, Clipper is not a legitimate commercial enterprise and that Clipper's reported sale is not a bona fide commercial transaction. (See the petitioners' letter to the Department, dated June 22, 2001.) On August 24, 2001, the Department issued the preliminary results of review. (See Fresh Garlic From the People's Republic of China; Preliminary Results of Antidumping Duty New Shipper Review, Preliminary Results of Antidumping Duty Administrative Review, and Partial Rescission of Administrative Review, 66 FR 44596 (Preliminary Results).) In the Preliminary Results, the Department applied an adverse facts-available rate to Clipper's sale based on Clipper's inadequate responses to the questionnaire and supplemental questionnaire. On October 23, 2001, the petitioners submitted their request that the Department expedite the final results based on evidence they placed on the record which allegedly showed that Clipper is flooding the U.S. market with cheap garlic. In their submission, the petitioners provided Port Import/Export Reporting Service (PIERS) data as evidence in support of their allegation that, since the initiation of the new shipper review, the average unit value of garlic dropped significantly and that Clipper is largely responsible for the drop in price because it has started to export huge amounts of garlic at prices lower than its initial export to the United States. Clipper is able to do this, the petitioners argued, because Clipper's importers are able to post a bond in lieu of a cash deposit as a result of the statutory new-shipper review process. On October 24, 2001, the petitioners provided newly acquired publicly available PIERS information and reiterated their arguments that Clipper is flooding the market with cheap garlic. On November 5, 2001, Clipper submitted its rebuttal to the petitioners' October 24 submission. In its November 5, 2001, letter, Clipper argued that its shipments to the United States since the initiation of the new-shipper review have not been in "huge quantities" as the petitioners claimed and that Clipper's shipments are relatively small when compared to imports from other countries. On November 23, 2001, the petitioners rebutted Clipper's response and provided further support on the record for their arguments that Clipper's sole export to the United States of garlic during the POR was not a bona fide sale. On December 6, 2001, Clipper submitted a letter disputing the petitioners' assertions that its sale was not bona fide, reiterating its earlier arguments. The petitioners in turn submitted their rebuttal comments on December 13, 2001, in which they argued that Clipper's imports since its initial October 2000 sale are significantly high in volume and have had the effect of drastically lowering the market price of garlic. The petitioners also rebutted Clipper's claims that its sale was made in the "off-season" and reiterated their argument that Clipper is not a legitimate commercial enterprise and its U.S. sale was not bona fide. On January 4, 2002, the Department issued a letter to Clipper requesting additional information about its U.S. sale. The letter referred to garlic prices from the World Trade Atlas export statistics for January through November 2000, the Census Bureau average unit price of Chinese fresh garlic for the year 2000, and the International Trade Commission (ITC) fresh-garlic prices for January through September 2000. Based on these publicly available prices, we asked Clipper to justify why its per-pound price for garlic during the POR was three times higher than the average unit price of imports from the PRC for year 2000, more than five times the average unit price of exports of fresh or chilled garlic from the PRC for year 2000, and sixty-seven percent more than the prevailing U.S. price for fresh garlic at that time. On January 21, 2002, Clipper submitted additional comments to substantiate its argument that its sale was bona fide. Included in its comments, Clipper provided website pages illustrating comparable prices for garlic and an affidavit from an independent fresh-produce sales associate who corroborated Clipper's assertions that the sales price for Clipper's garlic was within the range of other prices offered for the same type, size, and time sold for similar product in the United States. On January 23, 2002, the petitioners rebutted Clipper's January 21 arguments with further arguments and affidavits, including an affidavit from another garlic sales person responding to Clipper's affidavit concerning the special qualities of Chinese purple garlic. Respondent's Arguments Clipper argued that its October 2000 sale was a bona fide commercial transaction because the sales price that it reported on the record represented the market price for this specific type of product, and Clipper believed that its export price was reasonable and profitable. Clipper argued that it used three factors to determine the price of its garlic: 1) the special features and quality of the product, 2) the size of the bulb, and 3) the off-harvest-season time of the sale. Clipper stated that the specific features and quality of the goods determine the ultimate sales price of garlic. Clipper argued that the fresh garlic at issue was purple garlic that has qualities that command a higher price than white garlic. In its January 21, 2002, letter, Clipper referred to a copy of the USDA inspection form, dated January 23, 2001, which described the product inspected as "purple garlic" (see Clipper January 21, 2002, letter (Clipper Jan 21) at Attachment A). Clipper also submitted an affidavit of an independent sales associate for a fresh- produce distributor who explained that purple garlic has a special taste that is desired by certain ethnic groups (see Clipper Jan 21, at Attachment B). Last, Clipper argued that garlic sold during the off-season commands a higher price because garlic sold at that time of the year must be refrigerated. The typical fall harvest time for Chinese garlic ends in October, Clipper stated, and it sold the garlic in October. Because of the off-season timing of this sale and because Clipper's garlic was premium quality, Clipper claimed that the market was willing to absorb a higher price for the product. Clipper also argued that the large size of the garlic bulb was also an important factor in determining its sales price. Clipper points out that the subject merchandise was fresh garlic of U.S. #10 grade (2 5/8 inch in diameter, "Colossal") and asserted that prices for garlic increase with the diameter of the bulb. Clipper referred to publicly available Internet Web sites and terminal-market prices to document comparable prices for colossal garlic, in Clipper Jan 21 at Attachments E, F, and G, and to corroborate the higher price Clipper received. Moreover, Clipper responded further to our January 4, 2002, letter in which we stated that the sale in question "appears to be an unusual business practice" based on record statistics. Clipper argued that the Department cannot rely on the ITC's statistics from a five-year sunset review of garlic as its basis for comparison to its U.S. sale. The comparison would be inaccurate, Clipper reasoned, because the Department compared two different types of goods; the garlic Clipper sold during the POR was purple garlic, whereas the ITC statistics were based on white garlic. Clipper noted that the ITC's price statistics for fresh garlic were for U.S. No. 9 garlic whereas Clipper's garlic was U.S. No. 10. Clipper concluded further that the ITC statistics did not necessarily represent the price of U.S. garlic accurately because they were gathered for the purpose of the sunset review. Clipper claimed that not all U.S. producers reported their sales to the ITC. Further, Clipper alleged Web site pages gathered by Clipper and terminal prices from the USDA Market News Report show that the price at which Clipper sold its garlic was not unreasonable. Petitioners' Arguments The petitioners raised several issues and inconsistencies concerning the bona fides of Clipper's sale. The petitioners argued that all evidence on the record of this review points to the scenario that Clipper sold its fresh garlic at an unusually high price in order to manipulate the Department's calculation of Clipper's dumping margin. According to the petitioners, Clipper's sale was not commercially reasonable for the following reasons: 1) it was made at an unreasonably high price, 2) it was imported without the benefit of an established distribution system, and 3) it was never sold to a U.S. customer. The petitioners alleged that Clipper's sale was noncommercial when compared to contemporaneous prices charged by other Chinese garlic producers and to average prices of imported fresh garlic published by the ITC. They claimed that the U.S. customer could have obtained the same- quality product from other suppliers for a substantially lower price. In their June 22, 2001, letter to the Department, the petitioners submitted an affidavit which they claimed provided evidence that Clipper's sale was not a bona fide sale. The petitioners also pointed to discrepancies in Clipper's questionnaire and supplemental questionnaire responses concerning Clipper's financial statements. Taken together, the petitioners argued, there is sufficient evidence to conclude that Clipper is not a legitimate commercial enterprise and the sale during the POR that it reported to the Department was not a bona fide sale. The petitioners dismissed Clipper's claims that either market conditions or the color of garlic somehow explained the price difference between this transaction and all other transactions to the United States involving garlic. In their October 23, 2001, letter to the Department, the petitioners pointed to information obtained in PIERS reports to substantiate their claim that, since Clipper's first sale of garlic in the United States in October 2000, the average unit value of garlic has fallen to a level that is drastically lower than the price Clipper received for its garlic. Furthermore, they argued, Clipper must be responsible for this decline because it has increased its imports substantially since the initiation of the new-shipper review. The petitioners also dismissed Clipper's claims that the purple garlic commands a higher price for its unique qualities. In their January 23, 2002, letter to the Department, the petitioners submitted an affidavit from a vice president of a domestic garlic producer. The petitioners pointed out that, according to this affidavit, while purple garlic does have a stronger taste that is preferred by certain ethnic groups, to his knowledge the purple-garlic variety grown in China does not possess this property. Chinese purple garlic, this affidavit stated, is similar in taste to domestic white garlic and does not command a price premium over white garlic in the U.S. market. He added that he typically sells purple garlic for 20 to 30 percent less than white garlic and he further claimed that, while there is fresh garlic sold in the United States whose skin is purple in color and which has a stronger flavor, that particular garlic is not, to his knowledge, grown in China and is only grown in Mexico. The petitioners pointed out that the claim made in the declaration submitted by Clipper in its January 21, 2002, letter that "purple garlic can, and often does, command a higher price than white garlic among ethnic groups" does not state that the purple garlic referred to is produced in China and is exported to the United States. Furthermore, even if the Department decides that the purple garlic Clipper sold did command a premium price if all factors involving quality, supply, and demand were favorable, the premium price, the petitioners argue, would have been a small percentage over the price received for white garlic and does not support the much higher price that Clipper received. The petitioners disagreed further that the price for colossal garlic justifies the premium price of Clipper's sale. In their January 23, 2002, letter, the petitioners did not contest that colossal garlic Clipper sold commands a higher price than smaller-bulb garlic, such as #7 or #9 size garlic, or "jumbo" garlic. Instead, the petitioners argued that the typical percentage increase in price from jumbo to colossal garlic does not justify the disproportionately higher price that Clipper received. The petitioners also disputed the garlic Web site comparison prices for comparable garlic submitted by Clipper in its January 21, 2002 letter. The petitioners argued that the Web site prices do not represent comparable prices for Clipper's product because the Web site prices are retail-level prices that are at a different level of trade from the FOB distributor level to which Clipper sold its garlic. The Department's Position Since the publication of the preliminary results of this new-shipper review, the Department has revisited the bona fides of this transaction in response to further information provided by the petitioners on the record. It found that it could not reconcile the significantly higher price that Clipper received for its U.S. sale with evidence of significantly lower prices of other Chinese garlic imports. On January 4, 2002, the Department issued a letter to Clipper asking it for more information concerning the details of its sale. Since that time, both Clipper and the petitioners have submitted additional information responding to the Department's letter and have rebutted additional information submitted on the record, all pertaining to the bona fides of the transaction during the POR. The Department believes, therefore, that it has adequate information on the record of this review to make a determination concerning Clipper's sale during the POR. To begin, the Department's regulations state that an exporter or producer which has an "entry" for the first time in the United States may apply for a new-shipper review. See 19 CFR 351.214(b)(2)(iv)(A). However, to sustain a new-shipper review, and certainly to succeed in being designated a "new shipper", the exporter or producer must also show that there was a bona fide first sale in the United States. See 19 CFR 351.214(b)(2)(iv)(C). It has been established that, in certain circumstances, the Department has the discretion to disregard U.S. sales if it determines that the sales are not bona fide. For example, the Court of International Trade (CIT) has recognized that, if evidence demonstrates to the Department that a respondent has "artificially orchestrated an export scheme involving artificially set prices," the agency has the discretion to disregard the U.S. sales as not resulting from bona fide transactions. See Chang Tieh Industry Co., Ltd. v. U.S., 840 F. Supp. 141, 146 (CIT 1993). In yet another case before the CIT, Windmill v. United States et. al., Slip Op. 01-16 (February 21, 2002) (Windmill), the CIT ruled that the Department has wide discretion to employ a methodology in determining whether sales are "unrepresentative or distortive, that is, non-bona fide ones." This discretion is important to the Department's analysis in any review but particularly in the context of a new-shipper review. The integrity of our review process depends on the bona fides of a new shipper's commercial transactions. Otherwise, a shipper may unfairly benefit from the ability of its importers to post a bond in lieu of a cash deposit while we conduct the review to the detriment of both domestic and foreign competitors who are trading pursuant to actual, commercial agreements. Thus, the Department takes its responsibility to review the bona fides of a sale very seriously. Therefore, it looks at a number of factors, all of which may speak to the commercial realities surrounding an alleged sale of subject merchandise. For example, in Notice of Final Determination of Sales at Less than Fair Value: Manganese Metal from the People's Republic of China, 60 FR 56045 (November 6, 1995) (Manganese from China), the Department considered the timing of the sales relative to the timing of the petition, the sales prices compared to the world market of the commodity, and the prices observed in the United States at the time of the sale in its analysis before reaching its determination that the sales in question were not bona fide. In Certain Cut-to-Length Carbon Steel Plate from Romania: Notice of Rescission of Antidumping Duty Administrative Review, 63 FR 47232 (September 4, 1998) (Plate from Romania), the Department reviewed the totality of the circumstances surrounding the transaction in question and applied a methodology to determine the bona fides of the sale. In that case, the Department considered three criteria which differ from the criteria analyzed in Manganese from China. Respondents appealed the decision to the CIT, questioning the Department's analysis. In Windmill, the decision cited above, the Court found the Department's analysis in Plate from Romania to be reasonable. The Court disagreed with the respondent's claims that the Department could only measure the bona fides of a sale in light of evidence of fraud and commented that the Department may review the bona fides of any sale in which it believes the sale may be "clearly atypical" and the use of that sale in its methodology "would undermine the fairness of the comparison of foreign and U.S. sales." Windmill at 20-21 (citing for support Ipsco, Inc. v. United States, 714 F. Supp. 1211, 1217, 13 CIT 402, 408 (1989), rev'd in part on other grounds, 965 F.2d 1056 (Fed. Cir. 1992); see also Chang Tieh, 17 CIT at 1318-19, 840 F. Supp. at 145-46, and PQ Corp., 11 CIT at 58, 652 F. Supp. at 729). In this case, we have taken into consideration all of the record evidence and have determined that the information on the record does not support Clipper's claim that this was a bona fide transaction. We have made this finding based upon several factors. Clipper argues that the price it received for its product was based on available information of comparable prices for the size and type of garlic it wished to sell and the time of year of the sale. However, as discussed in detail below, the circumstances of the sale taken in their totality do not support Clipper's high price or Clipper's claim that the sale was made in good faith. First, the record does not support Clipper's claim that the type of garlic it sold was special purple garlic that possesses qualities not offered by white garlic. The only record evidence that supports such a claim is a USDA inspection report and an affidavit supplied by Clipper. However, the additional record information does not support Clipper's assertion that the product sold was, in fact, purple garlic. In the Department's April 26, 2001, supplemental questionnaire at question number 18, the Department asked Clipper specifically what physical characteristics Clipper took into account in pricing the sale. In question number 20 of the same letter, the Department asked Clipper to describe the merchandise it sold and provide information about the production process. (See Letter from the Department to Clipper, dated April 26, 2001.) In Clipper's May 16, 2001, response, Clipper provided descriptions of the product but did not identify the product as purple garlic or that it possessed other notable characteristics. (See Clipper letter, dated May 16, 2001, pages 5 and 6.) In fact, the first time Clipper's product was described as "purple garlic" is in the USDA inspection report to which the petitioners first referred. (See the petitioners' May 3, 2001, letter at Exhibit 6.) Even if the Department were to accept the presumption that the garlic in question was purple garlic, Clipper did not provide comparable prices of purple garlic. The petitioners produced an affidavit from a domestic garlic producer disputing the argument that purple garlic from China commands a higher price (see the petitioners' letter, dated January 23, 2002, Exhibit 1) (Petitioners' Jan 23), and neither Clipper nor the petitioners have placed on the record examples of prices for purple garlic either during the POR or, for that matter, at any time of the year. Therefore, even if the Department were to conclude that Clipper sold purple garlic, there is no record evidence that Chinese purple garlic commands a higher price than white garlic. Second, the record does not support Clipper's claim that the large size of its garlic commands a higher price. To corroborate the price of its U.S. sale, Clipper submitted price quotes from retail Web sites for jumbo and colossal garlic for August 2000, February and March 2001, and January 2002, and terminal-market price quotes for January (see Clipper Jan 21, Attachment F and G). The petitioners argued, however, that the prices Clipper presented could not be compared to Clipper's sale because they were at a different level of trade than the FOB importer level of trade of Clipper's sale. The Department agrees with the petitioners' analysis. The Web sites to which Clipper refers provide retail-price quotations for 10- pound boxes of similar-size garlic in months before and after the month of Clipper's sale. The retail-level price quotes would typically include commissions, port charges, and other expenses that are not included in Clipper's price to the importer. In order to compare these prices to Clipper's sale accurately, such expenses would have to be added to Clipper's price to the importer, thus raising Clipper's price even higher. With respect to the terminal-market prices, as noted by the petitioners, companies that sell from terminal markets typically sell to regional distributors, grocery stores, or food-service providers. Because these sales are so far removed from an FOB export sale, Clipper's price to its U.S. exporter must be similarly increased before it could be fairly compared to these terminal-market prices. (See id.) Therefore, the Department is not persuaded that the prices Clipper submitted show that Clipper's price followed a market trend or show that Clipper's price was at all reasonable. Last, Clipper did not show that the "off-harvest" timing of its sale has any bearing on the higher price it received. As the petitioners noted, while Clipper's shipment was made in October, Clipper has not provided any evidence to show that the garlic Clipper sold was harvested after August, which is the end of the typical harvest season. Since garlic placed in cold storage typically has a three-month shelf life (see the petitioners' letter dated December 13, 2001), it is quite possible that the garlic Clipper sold was harvested during the normal harvest season and Clipper did not incur cold-storage costs which would increase the price. We have no information, however, on its actual harvest. In addition to Clipper's unsubstantiated arguments above, the record evidence does not support Clipper's claimed sales terms. In Clipper's questionnaire response, Clipper claimed that the sale was concluded in October 2000 when it shipped the garlic to the U.S. importer (Clipper May 16, 2001, response to the Department's section A, C, and D questionnaire). However, the record contains evidence from both the petitioners and Clipper that Clipper maintained control of the garlic after its alleged sale to the importer and after it was shipped to the United States. The petitioners' affidavit on the record stated that the agent who approached one of the petitioners claimed that he was acting on behalf of Clipper (Petitioners' letter dated May 23, 2001). Clipper countered with an affidavit submitted by the agent on behalf of Clipper stating that the agent did not divulge the name of the importer he represented (Clipper's letter dated July 13, 2001; Attachment 1). However, a statement made by Clipper in its January 21, 2002, letter supports the petitioners' claim that Clipper maintained control of the merchandise after importation. In its letter to the Department, Clipper stated that the date Clipper "intended to sell and actually sold the merchandise in question was January 2001." (See Clipper Jan. 21.) The record evidence clearly does not support Clipper's claimed terms of sale and suggests that Clipper cannot clearly articulate the terms of its sale. Record evidence also shows that the ultimate destination of the garlic shipment was undetermined at the time it entered the United States. At the time Clipper shipped the merchandise in October 2000, neither Clipper nor the importer had a distribution system in place in the United States. The imported garlic was first warehoused in one location and then in another warehouse for a total of three months before it was transported to Miami, FL, where, on January 24, 2001, it was inspected by the USDA and was determined to have deteriorated substantially. In fact, the product had deteriorated to the point where it could not be sold commercially and was given away to a local food bank. As a result, the garlic was never commercially sold. The petitioners argued that Clipper is not a "legitimate commercial enterprise" and, therefore, did not make a bona fide sale because Clipper did not have a distribution system for the sale and the garlic shipment was never commercially sold (petitioners' letters dated November 23, 2001, and December 13, 2001). Clipper concedes that it did not have a distribution system in place at the time of the sale, but rebuts the petitioners' presumption that every company at an early stage of developing a market would have an established distribution system. Clipper stated that: "no company was born with a readily available market." See Clipper's letter dated November 6, 2001. While we agree with Clipper that it need not have an established distribution system in effect upon its first sale, the lack of a destination for such an expensively priced product contributes to the non-commercial nature of the sale. After considering all the above characteristics of Clipper's sale, the Department determines that Clipper's sale was not a bona fide sale. Based on the analysis of the record evidence, the Department cannot determine with certainty the type of product Clipper presumably sold and, therefore, cannot conclude that the product warranted a premium price, much less a premium of the magnitude claimed. Furthermore, due to the contradictory evidence put forth by Clipper, the Department cannot conclude that Clipper relinquished control of the product after it was imported into the United States. Finally, the ultimate disposition of the subject merchandise leads us to the conclusion that, at the time Clipper arranged the sale, neither Clipper nor the importer of record had made any arrangements for the ultimate disposition of the shipment upon its importation in the United States. Therefore, the Department determines that Clipper's sale was not a bona fide sale as required by section 351.214(b)(2)(iv)(C) of the Department's new-shipper regulations, although there was indeed an "entry" of the merchandise, as referenced in 19 CFR 315.214(b)(2)(iv)(A) of the regulations. Because Clipper had an entry of the merchandise during the POR but no bona fide sale, rescission of the review is warranted pursuant to section 751(a)(2)(B) of the Act. Recommendation For the foregoing reasons, we recommend that the Department rescind the new-shipper review of fresh garlic covering Clipper Manufacturing Ltd. and the period November 1, 1999, through October 31, 2000, in accordance with section 751(a)(2)(B) of the Tariff Act and 19 CFR 351.214(f)(2)(i). _______ ________ Agree Disagree ______________________ Faryar Shirzad Assistant Secretary for Import Administration (Date) _________________________________________________________________________ footnote: 1. The members of the Fresh Garlic Producers Association are Christopher Ranch L.L.C., Basic Vegetable Products, Colusa Produce Corporation, Crinklaw Farms,,Dalena Farms, Empire Farms, Farm Gate L.L.C., The Garlic Company, Spice World, Thomson International, Inc., and Vessey and Company, Inc. (the petitioners).