IN THE MATTER OF:
Fresh Cut Flowers from Mexico, Final Results of
DECISION OF THE PANEL
December 16, 1996
Mark R. Sandstrom, Esq. (Chairman)
Maximo Carvajal Contreras, Esq.
Lucia Reyna Antuna, Esq.
Jorge A. Witker Velasquez, Ph.D.
Kenneth B. Reisenfeld, Ph.D.
On behalf of the Investigating Authority:
Berniece A. Brown, Esq.
Patrick V. Gallagher, Jr., Esq.,
Office of the Chief Counsel for Import Administration
U.S. Department of Commerce
On behalf of the Floral Trade Counsel:
James R. Cannon, Jr., Esq.
Amy S. Dwyer, Esq.
Terence P. Stewart, Esq.
Stewart & Stewart
On behalf of the Respondents; Rancho El Aguaje; Rancho El Toro; and Rancho Guacatay:
Francis J. Sailer, Esq.
Alice Aragones Vergara, Esq.
Carlos Ramos Miranda, Esq.
Dickstein, Shapiro & Morin, L.L.P.
This Binational Panel ("Panel") was organized in accordance with Article 1904(2) of the North American Free Trade Agreement1 ("NAFTA") and Title IV of the North American Free Trade Implementation Act2 in response to a November 27, 1995 request by Rancho El Aguaje, Rancho Guacatay and Rancho El Toro (collectively, the "Complainants" or the "Ranches") for a panel review of the Final Results of Antidumping Duty Administrative Review: Fresh Cut Flowers from Mexico3 ("Final Determination") issued by the International Trade Administration of the U.S. Department of Commerce (the "Department").
In the Final Determination, the Department concluded that (i) certain carnations, chrysanthemums, pompon chrysanthemums, and miniature carnations ("fresh cut flowers") imported from Mexico were being sold in the United States at less than fair value and that the domestic industry producing like products was suffering material injury as a result, and (ii) each of the Complainants had been uncooperative in responding to the Department's questionnaires and had impeded the Department's investigation.4
For the period of review April 1, 1991, through March 31, 1992 ("POR"), the Department assigned a dumping margin of 39.955 percent based upon adverse inferences as the best information otherwise available ("BIA") pursuant to section 776(c) of the Tariff Act of 1930, as amended (the "Act").6
On November 27, 1995, Rancho El Aguaje, Rancho Guacatay and Rancho El Toro, three of the respondents in the underlying investigation,7 filed a Complaint contesting the Final Determination and the assessment of a dumping margin of 39.35 percent.8 For purposes of Rule 7 of the Panel Rules, the allegations of errors of fact and law set forth in the Complaint are sufficient to permit a review by this Panel.
II. STATEMENT OF FACTS
A. General Background
On April 23, 1987, the Antidumping Duty Order; Certain Fresh Cut Flowers from Mexico was published in the Federal Register.9 The Department formally initiated its fifth administrative review10 on the Antidumping Duty Order; Certain Fresh Cut Flowers From Mexico on or about May 22, 199311 at the request of the Floral Trade Council ("Petitioner").12
B. Fifth Administrative Review
On or about July 2, 1992, the Department began the fifth administrative review by sending its standard antidumping questionnaire13 to each of the Complainants with a cover letter.14 The Department requested that each provide, inter alia, audited and internal financial statements, including profit and loss statements from related subsidiaries.15 The Complainants were given 45 days (or until August 16, 1992), to respond to the initial questionnaires and to submit the requested information. In the cover letter sent with the initial questionnaires, the Department warned the Complainants that "upon receipt of a response that is incomplete or deficient to the extent that the Department determines it to be non-responsive the Department will not issue a deficiency letter and will use the best information otherwise available."16
Each Complainant responded to the initial questionnaires by stating that it maintained only unaudited internal financial statements.17 None of the Complainants included these unaudited internal financial statements with its response to the Department's initial questionnaire.
On March 23, 1993, the Department requested in its first supplemental questionnaires that the Complainants submit the referenced internal financial statements.18 On April 2, 1993, Guacatay and Toro submitted their unaudited internal financial statements for 1991 and 1992.19 Three days later, on April 5, 1993, Aguaje submitted an annual account summary of its monthly general ledger accounts for 1991. Aguaje supplemented its account information for 1991 on June 3, 1993.20
On December 7, 1993, the Department sent second supplemental questionnaires to the Complainants requesting that each Complainant reconcile its internal financial statements with independent sources, including any tax returns.21 The second supplemental questionnaires provided, in relevant part:
On page 3 of your response, you indicate that the farm does not maintain an audited financial statement. In light of this fact, please describe the internal controls which are present in your accounting system. In your discussion please describe what independent sources (i.e., bank statements, tax returns, labor reports) are available to ascertain the accuracy of the data submitted.
In the event that this farm is not required to file a tax return, please submit the relevant supporting law which exempts the farm from filing.22
In response to the Department's second supplemental questionnaires, each of the Complainants stated that it was not obligated by Mexican law to prepare audited financial statements or to file tax returns during the
POR.23 However, none of the Complainants submitted evidence supporting its exempt status. On January 12, 1994, the Complainants supplemented their responses to the Department's second supplemental questionnaires with English translations of the pertinent portions of the Diario Oficial, which the Complainants claimed exempted them from paying income taxes and filing tax returns.24
On May 16, 1994, the Department served each Complainant with a third supplemental questionnaire.25 The Department requested clarification from each Complainant as to which of the six tax exempt categories listed in the Diario Oficial was applicable to it and supporting documentation evidencing registration with the Mexican authorities as a party entitled to tax exempt status.26 Contrary to the responses and information the Complainants provided the Department in January, on June 9, 1994, the Complainants informed the Department that their tax exempt statuses were not premised upon any of the six tax exemptions listed in the Diario Oficial. Instead, each Complainant reported that its exempt status was based upon its classification as a "special tax base" under an old law.27 The Complainants informed the Department that they were unable to furnish it with the relevant law granting them this "special tax base" exemption because of the age of the law.28 Notwithstanding their claimed exemption under the "special tax base" law, the Complainants also informed the Department that the "old" law had changed as of February 4, 1991, and that in accordance with the revised law they were indeed required to pay taxes on income earned as of January 1, 1991. However, the Complainants said that their income tax payments for 1991 did not appear on their 1991 books or records because those taxes were not payable until July 1992.
On June 28, 1994, the Department served the Complainants with its fourth supplemental questionnaires, requesting that each Complainants: (i) provide tax returns for 1991 and 1992 (as required under the "new" law); (ii) reconcile all income and expenses reported in the tax returns to the amounts provided in the Complainants' earlier questionnaire responses; (iii) if no tax returns had yet been filed for the applicable years, explain why they had not been filed; and (iv) provide copies of supporting documentation allowing for extensions of time to file the returns.29
In response to the Department's fourth supplemental questionnaire, Aguaje stated that it could not substantiate or reconcile its financial statements because it had not filed tax returns for the applicable years.30 According to Aguaje, it was engaged in a dispute with the Mexican tax authority concerning issues affecting its 1991 and 1992 tax returns and, until this dispute was resolved, Aguaje did not intend to file its returns.31 In support of its claimed dispute, Aguaje submitted a letter dated October 23, 1992, addressed to the Mexican government in which Aguaje sought guidance on the proper tax treatment for a loan.32 Aguaje also provided the Department with a copy of the Mexican government's October 27, 1992 response to its letter which informed Aguaje that it should treat the loan as income and installed Aguaje to file its return.33 Aguaje provided no additional documentation concerning its dispute with the Mexican tax authority.
On July 6, 1994, having maintained in all of their previous responses to the Department that no tax returns were required or existed for the POR, Guacatay and Toro provided the Department with tax returns for 1991 and 1992.34 Neither Guacatay nor Toro reconciled these tax returns with their financial statements or questionnaire responses as requested by the Department.
C. The Department's Preliminary Determination
On April 17, 1995, the Department published its Preliminary Determination in the Federal Register.35 The Department assessed the Complainants a BIA dumping margin of 39.95 percent in accordance with section 776(c) of the Act.36 In support of its BIA rate assessment the Department stated:
As a result [of the Complainants' failure to cooperate], in accordance with section 776(c) of the Act, we have determined that the use of BIA is appropriate. Whenever, as here, a company refuses to cooperate with the Department, or otherwise significantly impedes an antidumping proceeding, we use the higher of (1) the highest of the rates found for any firm for the same class or kind of merchandise in the same country of origin in the less-than-fair-value ("LTFV") investigation or in prior administrative reviews; or (2) the highest rate found in this review for a firm for the same class or kind of merchandise.37
The BIA rate of 39.95 percent that was assessed was the second highest rate found for Mexican producers in prior administrative reviews.38
The Department concluded that assessment of the 39.95 percent BIA dumping margin was appropriate as to Aguaje because Aguaje was evasive in its responses to the Department's questionnaires, and because Aguaje failed to substantiate its claim that it was not required to file tax returns. The Department concluded that the assessment of the first-tier BIA rate of 39.95 percent was similarly appropriate with respect to Guacatay and Toro because they also were evasive in their responses to the Department's questionnaires, and failed to provide the Department further the requested financial reconciliations.39 The Department also found that the Complainants significantly impeded the Department's investigation by failing to cooperate with the Department's questionnaires, and by making inconsistent statements to the Department regarding whether or not they were required to file tax returns.
In the Preliminary Determination, the Department explained that it had accepted unaudited internal financial statements from the Complainants in prior administrative reviews because the Complainants were not required under Mexican law to maintain audited financial statements or file tax returns during those PORs.40 However, because Mexican law governing income tax reporting changed in 1991, the Complainants were required by law to file tax returns for the years covered by the POR. Therefore, for the Administrative Review covering the period of April 1, 1991, through March 31, 1992, the Department requested that the Complainants provide the income tax returns they were required by Mexican law to submit to the Mexican tax authority. In explaining the importance of the tax returns the Department noted:
The Department relies on the accounting system used in the preparation of the audited financial statements to ensure a company's submitted sales and cost data are credible. An "in-house" system which has not been audited, and is not used for tax purposes or for any purpose other than internal deliberations of the company, does not assure the Department that costs have been appropriately captured by the "in-house" system.41
In the absence of audited financial statements from the Complainants, the Department required the tax returns as a means of independent verification.
1. Petitioner's Comments to the Preliminary Determination
On May 17, 1995, Petitioner submitted its comments regarding the Department's Preliminary Determination. The Petitioner argued that the Department should use the highest dumping margin presented in any prior administrative review, i.e., 264.43 percent, as the BIA for the Complainants because they were uncooperative and impeded the Department's investigation.
2. Complainants' Comments to the Preliminary Determination
On May 17, 1995, the Complainants also submitted comments regarding the Department's Preliminary Determination. In its comments on the Preliminary Determination, Aguaje advanced several arguments. First, Aguaje asserted that confusion over the legal requirement to file tax returns and the availability of tax information covering the POR lead to the misunderstandings contained in Aguaje's responses. Aguaje noted that once it fully understood the Department's requests, it provided the Department with evidence that it had not filed any tax returns covering the POR. Second, Aguaje argued that the Department's application of BIA was not legal because Aguaje had demonstrated significant cooperation in its frequent, timely responses to the Department's multiple requests for information.
Guacatay and Toro advanced several arguments in their comments on the Preliminary Determination. First, they argued that although they may have made some minor mistakes in responding to the Department's questionnaires, these mistakes did not reach a sufficient level for the Department to find them "uncooperative." Second, Guacatay and Toro argued that the Department's request for a reconciliation of financial statements and tax returns was not part of the standard questionnaire that the Department uses for investigatory purposes, and that therefore the request was unreasonable. Third, Guacatay and Toro contended that their failure to be more forthcoming concerning their tax returns and the requested reconciliation between their financial statements and their tax returns was a matter of "misunderstandings" rather than the result of any evasiveness. Finally, Guacatay and Toro asserted that because they cooperated fully, there was no legal authority for the Department to use BIA to determine a dumping margin. Moreover, they asserted that the selected BIA rate was inaccurate.
1 North American Free Trade Agreement ("NAFTA"), signed Dec. 17, 1992, at Washington, D.C., Mexico City, and Ottawa; supplemental agreements were signed Sep. 14, 1993; reprinted in H. Doc. 103-159, Vol. I and in 32 I.L.M. 605 (1993) (entered into force Jan. 1, 1994).
2 Pub. Law No. 103-182, approved December 8, 1993, 107 Stat. 2057; codified at various sections of United States Code, Title 19 and several other titles.
3 60 Fed. Reg. 49569 (Sep. 26, 1995).
6 19 U.S.C. §1677e(c) (1988).
7 A fourth respondent, Visaflor S. de P.R., had no shipments to the United States during the POR.
8 The Complaint and other Public Documents referred to herein are on file at the Secretariat, U.S. Section, in accordance with Rule 34 of the Rules of Procedure for Article 1904 Binational Panel Reviews, 59 Fed. Reg. 8686, 8695 (1994) ("Panel Rules").
9 52 Fed. Reg. 13491 (1987).
10 Subsequent to the initiation of the administrative review, the U.S. Congress amended the U.S. antidumping laws. See Uruguay Round Agreements Act ("URAA"), Pub. L. No. 103-465, tit. II, 108 Stat. 4809, 4842 (1994). The amendments do not apply to administrative reviews, such as the instant one, initiated before Jan. 1, 1995. See Torrington Co. v. United States, 68 F.3d 1347, 1352 (Fed. Cir. 1995). Consequently, the law discussed in this Panel Decision is the law in effect during the POR.
11 Initiation of Antidumping Duty Administrative Review, 57 Fed. Reg. 21769 (May 22, 1993). The Department does not conduct administrative reviews unless requested to do so by an interested party. 19 U.S.C. '1675(a) (1999); see also 19 C.F.R. '353.22(a)(1) (1993).
12 The Floral Trade Council is a domestic trade association which represents primarily small, family-owned greenhouse growers.
13 Response Brief of the Investigating Authority at p. 2.
14 Public Documents 10 (Aguaje), 9 (Guacatay), and 11 (Toro). (Citations to the "public documents" contained in the administrative record are hereinafter referred to as "Pub. Doc.").
16 Id. The Department's BIA regulation appears at 19 CFR '353.37 (1992), which is based on section 776(b) of the Act. 19 U.S.C. '1677e(c) (1992).
17 Pub. Doc. 17 at 2-3 (Aguaje); Pub. Doc. 18 at 3 (Guacatay); Pub. Doc. 20 at 3 (Toro).
18 Pub. Doc. 29.
19 Pub. Doc. 31 (Guacatay); Pub. Doc. 32 (Toro).
20 Pub. Doc. 33; Pub. Doc. 36.
21 Pub. Doc. 46 at 1 (Aguaje); Pub. Doc. 45 at 1 (Guacatay); Pub. Doc. 44 at 1 (Toro).
23 Pub. Doc. 49 at 1 (Aguaje); Pub. Doc. 50 at 1-2 (Guacatay); Pub. Doc. 48 at 1 (Toro).
24 Pub. Doc. 52 (Aguaje); Pub. Doc. 51 (Guacatay and Toro).
25 Pub. Doc. 54 (Aguaje); Pub. Doc. 56 (Guacatay); Pub. Doc. 55 (Toro).
26 Pub. Doc. 54 at 1 (Aguaje); Pub. Doc. 56 at 1 (Guacatay); Pub. Doc. 55 at 1 (Toro).
27 Pub. Doc. 60 at 1-2 (Aguaje); Pub. Doc. 62 at 1-2 (Guacatay); Pub. Doc. 61 at 1-2 (Toro).
28 The Complainants informed the Department that the law granting this "special tax base" was "an old law dating back as far as 1973." Pub. Doc. 60 at 1-2 (Aguaje); Pub. Doc. 62 at 1-2 (Guacatay); Pub. Doc. 61 at 1-2 (Toro).
29 Pub. Doc. 64 at 1.
30 Confidential Document 24. (Citations to Aconfidential documents" in the administrative record will be designated as "Con. Doc.") All Confidential Documents are on file at the Secretariat, U.S. Section.
33 Con. Doc. 24 at Exhibit 4; Pub. Doc. 69.
34 Pub. Doc. 68 at 1 (Guacatay); Pub. Doc. 67 at 1 (Toro).
35 Fresh Cut Flowers from Mexico; Preliminary Results of Antidumping Duty Administrative Review ("Preliminary Determination"). 60 Fed. Reg. 19209 (Apr. 17, 1995). Pub. Doc. 77.
36 The Act provides, in relevant part:
In making [its] determinations under this subtitle [the Department] shall, whenever a party or any other person refuses or is unable to produce information requested in a timely manner and in the form required, or otherwise significantly impedes and investigation, use the best information otherwise available.
19 U.S.C. '1677e(c) (1988); see also 19 C.F.R. '353.37 (995).
37 60 Fed. Reg. at 19210. The Department's analysis and assessment of a BIA rate using these standards is commonly referred to and is referred to herein as "first-tier." The Department's BIA policy also recognizes a "second tier" BIA rate for those instances in which a respondent is cooperative but fails to provide information. In such cases, the Department can use the higher of (1) the firm's rate from the original investigation (LTFV) or the all other rate if the firm is not investigated; or (2) the highest calculated rate in the same review, same merchandise, and same country. See Allied-Signal Aerospace Co. v. United States, 996 F.2d 1185, 1188 notes 1 and 2 (Fed. Cir. 1993) (citing 56 Fed. Reg. 31750); see also Antifriction Bearings from France, et al.: Final Results of Administrative Review, 58 Fed. Reg. 39729, 39739 (July 26, 1993).
38 60 Fed. Reg. at 19210. The highest rate found was 264.43 percent.
The Department determined that this margin was calculated for a company
with extraordinarily high business expenses during the review period, and as
such this rate was aberrational and not appropriate for use in this action.
41 60 Fed. Reg. 19209 (1995).