Foreign Firms Dumped Presses p. 18

By: JIM ROSENBERG THE FINAL WORD from the U.S. Department of Commerce: Foreign manufacturers dumped double-wide newspaper presses on the U.S. market ? or, in the acronymic argot sprinkled throughout the nearly 100-page ruling, they sold LNPPs at LTFV.
Last month, the Commerce Department's International Trade Administration issued final determinations in response to a June 1995 petition by Rockwell Graphic Systems (E&P, July 29, 1995, p. 26). Consistent with its preliminary findings in February, Commerce determined that large newspaper printing presses and components from Germany and Japan "are being, or are likely to be, sold in the United States at less than fair value."
Interestingly, though Rockwell succeeded and won government support on most of the issues, Rockwell's overall assessment of the dispute resembled views expressed by its foreign competitors ? although the petitioner and respondents differed in the particulars.
"This is not a simple issue, and it's not an issue that the Department of Commerce is accustomed to dealing with," said Rockwell attorney Paul Eck. Among the determination's various "methodology and accounting assumptions," he said, "there were some items we disagreed with."
The department typically deals with "a hundred thousand widgets coming in every boatload, not one press every four years," said Eck. "So they really had to screw their thinking hat on differently, and not all of them succeeded in that intellectual leap."
German press makers MAN Roland Druckmaschinen AG and Koenig & Bauer-Albert AG were assigned dumping margins of 30.8% and 46.4%, respectively. Commerce said it levied the higher amount on KBA for failing to respond to a questionnaire. The lack of information allowed the agency to use "otherwise available" information and draw adverse inferences "against a party that has failed to cooperate." Commerce figured KBA's margin using information about the bid price for a sale of a MAN Roland press and modification to Rockwell's calculation of the constructed value of the press.
The German press manufacturers were investigated for the period July 1, 1993, to June 30, 1995, the date Rockwell petitioned the government.
Commerce assigned the Japanese press makers margins of 62.96% for Mitsubishi Heavy Industries Ltd. and 56.28% for Tokyo Kikai Seisakusho Ltd. The firms were investigated for periods commencing on July 1 of 1991 and 1992, respectively.
Mitsubishi's huge press order from the Washington Post in May 1995 sparked Rockwell's action. In the months before the sale, the Post had eliminated all but the Rockwell and Mitsubishi bids. With its presses yet to be manufactured, the Post's purchase was excluded from the investigation.
A year later, Rockwell announced plans to sell its printing press business to a partnership led by the division's chief executive. The independent business will adopt the name Goss Graphic Systems. Rockwell said the sale is on track to close in the middle of September.
Unlike the February finding, in making a final determination, the Commerce Department "clarified" the scope of its investigation to include incomplete press systems, additions and components, as well as parts thereof that, when taken together, "constitute at least 50 percent of the cost of manufacture of the [large newspaper press] component of which they are a part."
Yoshihiro Saito, attorney for TKS, said he thought the clarification "set back the interests" of the German press makers more than their Japanese counterparts. The reason, he said, was the heavy German investments in U.S. manufacturing plants, which still require some parts and subassemblies from Germany that are included in the dumping investigation unless they fail to reach the 50% threshold.
"That will probably be a disincentive for Germans to build presses in this country ? unless, of course, they find parts suppliers in the United States," Saito said.
A source close to the proceedings, speaking on condition of anonymity, found the clarification troubling for another reason. Provisions of the law arising from the latest trade agreement, he said, allow companies under investigation to challenge an accuser's standing as representative of the U.S. industry. Depending on an investigation's scope, a challenge may require Commerce to ask other domestic producers if they support the petition.
Mitsubishi challenged Rockwell early in the investigation. Government sources described the thinking behind it as "if you don't produce the widgets . . . you can't be a part of that industry." The challenge, said the source outside government, "was defined to include a broad array of material or products other than large newspaper presses." His impression was that in the face of the challenge, Rockwell "made certain representations" that led the department to think the scope of the probe was narrow enough not to require an industry poll.
Rockwell attorney Eck said he was unaware of the challenge or any basis for it.
What was troubling, according to the source, was that the clarification was made after the period when polling would have been conducted but before the final determination.
An appeal of this issue can be made before the the U.S. Court of International Trade, which sits in New York. Failing there, the case may be bumped back to Washington, D.C., where it would be appealed to the U.S. Circuit Court.
Though such matters are also heard by the World Trade Organization, only governments can bring cases there.
For now, the matter returns to the U.S. International Trade Commission, which is expected to rule within days on whether the dumping materially injures, or threatens to injure, a U.S. industry. Last August, a six-member panel of the ITC, an independent federal agency, found "reasonable indication" of injury (E&P, Sept. 9, 1995, p. 13).
MAN Roland said it was convinced that "an objective and nonpolitical" determination by the ITC would find that its sales have not injured the U.S. industry, but the decision will "not affect MAN Roland's commitment to the U.S. market."
Ronald R. Ehrhardt, Mitsubishi Lithographic Presses U.S.A. Inc. sales manager, refused to comment until the ITC makes a final determination "because the ITC decision is the important one."
Rockwell attorney Eck said ITC determinations of harm may differ from one company and country to another. Still, he added this perspective on injury: "It's really a question of how resilient and responsive we've been to their predatory pricing, and of responding competitively to minimize their damage to us. In a way, we are penalized for competent management by reacting and adjusting to their below-cost pricing in our market ? if in fact we are competent enough to minimize the injury."
Actual impact of the duties probably will remain unclear until final administrative review in a year or so. The review will compare the deposit required from an importer (customer, manufacturer's subsidiary or sales agent) with the government's valuation of the import. Increased payment or a refund from the deposited amount would be possible.
Though important, price is not necessarily the determining factor in press sales. At least some newspapers may be willing to pay for the technology they prefer, even if it means paying more to a foreign press maker.
"Naturally, the foreign press suppliers would have to raise prices," TKS attorney Saito said, adding that although significant, a one-time purchase price is "not an overriding concern" to buyers looking for a particular technology.
Furthermore, Saito maintained that Rockwell's "finite ability" to meet "pent-up demand" from users of its older presses would fill production capacity and thin support capability, causing other newspapers to look overseas. Where money for a new press already is budgeted, a half-million dollars more or less will be of little consequence if customers get what they need, he said, arguing that newspapers will pay for equipment they want, if it is reliable, amply supported and delivered quickly.
During last summer's proceedings, the Newspaper Association of America weighed in against duties, warning they would discourage competition, which provides choices for customers and drives the technological advances that a healthy U.S. newspaper industry requires.
Shortly after the Commerce Department's final decision, the NAA filed with the ITC to again argue against dumping duties. It cited the need for innovation to meet the increased demands of readers and advertisers, to address environmental and safety concerns and to deal with higher newsprint costs.
Rockell Graphic Systems and the U.S. affiliates of the four foreign manufacturers affected by the ruling are all associate members of the NAA.

German Response
In a May letter to the trade press, KBA-Motter Corp., York, Pa., said its parent company has cooperated with the ITC but withdrew from the Commerce Department investigation for two reasons: In the preceding five years it made but one U.S. sale of a German-made press ? a keyless offset machine that it said was not offered by competitors at the time; and "the cost to participate in the DOC investigation is astronomical."
In the letter, KBA-Motter chief executive Scott R. Smith charged that "the paralyzing effect in time and money that these investigations demand is often reason enough to initiate such a suit."
Calling the assigned margin "bizarre," he said any tariff imposed by Commerce would be "unacceptable," and pledged KBA will, as earlier reported, extend its U.S. operations to the manufacture of offset newspaper presses. The investment in manufacturing operations will be paid for with money that would have gone into the dumping investigation, he said.
Though Rockwell's petition does not specify dumping by KBA, the determination says Commerce is "required to conduct its own research as to the universe of producers/exporters of subject merchandise and the appropriate recipients of its questionnaire."
KBA did ask the department to exclude from its margin calculations U.S.-made components that are shipped to Germany and "reimported" within larger assemblies, because U.S. Customs law provides a partial exemption of duty on those U.S.-originated components. The department held the provision inapplicable to antidumping duties, and said limiting them "would be inconsistent with the department's statutory mandate to assess antidumping duties on the extent to which the normal value exceeds the export price" (the difference between what were previously referred to as foreign market value and United States price).
For "normal value," the department calculated the "constructed value" of merchandise rather than relying on foreign market value, for although home markets were viable, it said, large newspaper presses are built to customer specifications, thereby not permitting "proper price-to-price comparisons."
Still analyzing documents from the ruling, MAN Roland was "astonished" by the dumping margins," and said it "appears certain" the DOC used its own estimates of MAN Roland's production costs instead of actual costs supplied by the press maker.
"We are convinced," the company said in a statement, "that when the actual costs are reviewed it will be found that there has been no dumping by MAN Roland in the U.S. market."
For MAN's two U.S. Geoman sales, the department rejected cost projections supplied in lieu
of actual costs because the sales had not been
completed and information was unavailable
when requested. The department, which ordinarily accepts only actual costs, said that MAN urged the acceptance of projected costs but failed to provide data supporting the accuracy and reliability of those projections. Commerce said that it could
not reconcile MAN's projected costs with its audited financial statements, and that costs submitted for the projects were calculated after the investigation began and "solely for the purpose of providing constructed value information in this case."
Commerce relied on MAN's cost estimates, which it adjusted by the difference between estimated and actual costs for similar sales during the period.
The department excluded from its final determination MAN's sale to the Charlotte Observer because it involved the importation of parts and subcomponents that together cost less to make than half the cost of making the component of which they are a part.
In arguing against using figures from the Charlotte sale, MAN said "significant" design and manufacturing problems caused by "mismanagement" resulted in cost overruns and profit loss that would distort results calculated by the department.
At the same time, MAN failed to persuade investigators to exclude two other sales, which it said were small, atypical and consisted of merchandise unrelated to the probe. One sale included used equipment (which portion of the contract price was deducted from calculations); the other was a new press no longer in production.
In other cost-calculation matters, Commerce:
u supported Rockwell's request that post-petition price changes should not be used;
u rejected MAN's recommendation that letters of intent rather than contracts be used to establish sale dates;
u split its decisions on treatment of different aspects of indirect selling expenses and, to an extent, on computing warranty expenses;
u denied MAN's objection to the government method of computing current full-year overhead costs;
u upheld MAN's position that imputed credit ? cost of financing receivables between shipment and payment dates ? is not an actual expense;
u would not average costs for MAN Roland Druckmaschinen and MAN Plamag, its affiliated RTP supplier.

Japanese feedback
TKS attorney Saito said two decisions were faulty and especially damaging. Noting that the Commerce Department is still establishing practices under provisions of the international trade agreement that took effect Jan. 1, he said the "most egregious" decision ? affecting German and Japanese manufacturers alike ? relates to the calculation of constructed value profit.
Constructed value is the sum of manufacturing costs (materials, labor, overhead), selling, general and administrative expenses (SG&A) allocated to each press project, and profit. Ordinarily, foreign-market value comparisons are employed because dumping is understood as selling in the U.S. at prices below what foreign companies charge at home.
Saito described constructed value as a surrogate for foreign-market value because large newspaper presses are so highly customized, and their sales so sporadic, that they cannot be compared across markets, or even within markets.
Formerly, said the lawyer, the department used an average profit rate for a foreign producer's home market, including its below-cost sales. Where the average was 8% or less, the department added 8% to the sum of manufacturing and SG&A. But under trade provisions adopted this year, the 8% floor was removed, and Commerce must now exclude below-cost sales in its calculation of foreign market profit ? thereby pushing up the profit component of constructed value.
But according to Saito, this change was directed at standardized, continuous-production or commodity merchandise. For "entirely different" industries, including large newspaper presses, he said, the new law provides that where product-to-product comparison is not feasible, investigators should calculate average profit rates for products being examined.
"But Commerce didn't follow that," he continued. "Instead, Commerce used the first provision . . . as if the presses were like fabled widgets . . . or pipe fittings . . . or flour."
Commerce stated that it has discretionary authority to include below-cost sales, but that in this case such sales were found in "substantial quantities . . . over an extended period of time, and [at] prices which do not permit recovery of costs in a reasonable period of time."
Also particularly unfair, Saito said, was Commerce's definition of what he called an "inevitable part of the total sales package" ? installation. In a dumping dispute a few years ago, Saito represented a Japanese manufacturer of mechanical transfer presses, a case cited in the press dispute. Like newspaper presses, transfer presses are large, complex, customized and expensive ? and not sold in the manner or volume of commodities or standardized merchandise.
In that case, said Saito, because the Commerce Department included installation expenses with transportation costs, the expense "was just a straight deduction from the U.S. selling price."
But in the "very similar" case of large newspaper presses, he said, the department regarded installation expense as a kind of further-manufacturing cost. Like other very large machines, they ordinarily arrive in some state of disassembly.
Recognizing installation as further manufacturing, Saito continued, meant that Commerce could add to other, ordinary production costs a pro-rated general and administrative expense and an allocable amount of interest expense of the U.S. subsidiaries that provide installation services, then deduct the sum of those expenses from the U.S. selling price.
Not only did this often exaggerate "the real cost" of installation, he said, but it also "could create a very unreasonable situation." For example, Saito said, even in circumstances where a supplier sends a couple of engineers to supervise press erection performed by another firm, Commerce calculates the costs as manufacturing. He contended that it is "not really a rarity" to see allocated administrative expenses amounting to three, four, even 10 times the cost of installation supervision.
"Because the sum is deducted from the U.S. price," said Saito, "you can really see a tremendous dampening effect on the net U.S. price, which therefore inflates the dumping margin."
While all respondents probably feel "shortchanged" by the decision, Saito said, it probably hurt Mitsubishi most. But TKS, he said, was hard hit by the decision's effect on its press expansion work to bring four-color printing to the Wall Street Journal. Dow Jones arranged separately for installation services at its plants (about half of which run Goss presses). The "very collateral activities" of TKS engineers who worked with erectors "were treated as manufacturing," said Saito.
The Commerce Department also recalculated TKS costs of indirect selling and insurance. For Mitsubishi, it reclassified the company's export prices as constructed export prices with further manufacturing, saying that the U.S. affiliate did more than process sales-related documents and act as a communication link to customers.
Changes to those cost calculations included warehousing in Japan with moving, not selling, expenses; treated the unpaid portion of a disputed contract with the Eugene, Ore., Register-Guard as a discount (seeing "no indication of reasonable expectation of payment"); deducted certain indirect selling expenses and modified calculation of others; excluded certain interest-on-payments income remitted to Mitsubishi by its sales agent; increased values for certain spare parts that were included with one sale.
Commerce rejected Mitsubishi's arguments that the department may not seek home-market cost and sales data for specific sales, that it cannot use home-market below-cost analysis without formally undertaking a below-cost investigation and that it may not use the results in the manner it did.
Also denied were requests for head-count allocation of administrative expenses in order to minimize the influence spare parts, press audits, digital ink pumps and independent maintenance or technical work by TKS and "the greater importance and number of resources required to support . . .commercial press sales" by Mitsubishi.
Adjustments were made to TKS data to reflect "methodological corrections" required to calculate a margin, to its reported selling expenses with respect to trade show costs, to its insurance expenses with respect to the nature of its relationship with its insurer, and to a portion of costs related to its Comar affiliate.
Commerce agreed with TKS when it corrected profit calculations that had not considered home-market transportation and installation costs, corrected its improper calculation of the currency exchange rate for the TKS sale to the Spokane, Wash., Spokesman-Review, denied Rockwell's request to apply extra costs of serious accidents in delivering Spokane's presses, and reclassified certain costs as indirect overhead.
TKS failed to persuade the department to exclude a sale to the Dallas Morning News on the grounds that the machine and its U.S. price were atypical owing to the use of parts cannibalized from demonstration models used at trade shows since 1989. Unlike low-cost sales of damaged commodities excluded in past investigations, the determination stated that the sale could be reasonably interpreted "as part of an over-arching marketing strategy vis-?-vis a long-term business relationship" with the Dallas daily and that the parts were not used parts.
For Mitsubishi, Commerce rebuffed Rockwell objections by: allowing calculation of some indirect selling expenses on some sales concluded before but recognized during the period of investigation; recognizing the Mitsubishi trading company involved in the Winston-Salem (N.C.) Journal sale as unaffiliated with Mitsubishi Heavy Industries (together the companies own Mitsubishi Lithographic Presses U.S.A., but the department said neither could control the other, and that their levels of cross-ownership and joint-financing were insufficient to show affiliation); treating Mitsubishi rather than its Sumitomo Corp. agent as the seller to Eugene.
Among decisions that went against Mitsubishi: the department reallocated research and development costs according to each contract's manufacturing costs rather than its sales value; it held to matching the denomination of the interest rate used to calculate imputed credit to the currency in which sales are denominated; recalculated general and administrative expenses to more properly allocate them to individual U.S. sales; denied it inappropriately obtained cost information about essential and costly components from what it considered suppliers affiliated with the press maker; denied it improperly determined such affiliation.
Mitsubishi prevailed, however, in seeking correction of general and administrative figures, particularly those used in calculations of the Eugene sale.

Foreign markets
Beyond the original dumping question lies a "broader policy issue," according to Rockwell's attorney. "We don't have a protected market with guaranteed profits . . . the way they do," said Eck.
Unlike others' "captive markets" supplying "captive profits," as he put it, Eck said the U.S. "is an incremental market" to German and Japanese manufacturers. "They are pricing incrementally, and they are coming in and taking an occasional shot at a big contract for their long-term strategic purposes." Rockwell Graphic Systems is unable to do the same in its competitors' home markets, he said.
Eck said Rockwell has not considered putting the matter before international authorities because there has been no de jure exclusion from those markets. "We can't go to the World Trade Organization and complain about the predilection of buying habits," he said. "You have to look at it in terms of legal structures."
He said it is hard to crack, for example, the "cohesive buying and selling habits" that characterize Japan's diverse but "pervasively" interrelated corporate enterprises. "I don't know how you attack that in an international tribunal," said Eck.


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