66 FR 42507, August 13, 2001 A-533-813 AR: 8/5/1998-1/31/2000 Public Document IA: I/2/DM MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Richard W. Moreland Deputy Assistant Secretary for Import Administration, Group I SUBJECT: Issues and Decision Memorandum for Final Results of the Antidumping Duty Administrative Review on Certain Preserved Mushroom from India - August 5, 1998, through January 31, 2000. Summary We have analyzed the comments of the interested parties in the 1998-2000 administrative review of the antidumping duty order covering certain preserved mushrooms from India. As a result of our analysis of these comments, we have made changes in the margin calculations as discussed in the "Margin Calculations" section of this memorandum. We recommend that you approve the positions we have developed in the "Discussion of the Issues" section of this memorandum. Below is the complete list of the issues in this administrative review for which we received comments from parties: General Comment: Comment 1: General and Administrative and Interest Expenses Used in Constructed Value Company-Specific Comments: Agro Dutch Comment 2: Date of Sale for Certain U.S. Sales Comment 3: Facts Available for Movement Expenses on Certain Sales Comment 4: Adjustments to Cost of Manufacturing for Period of Review Comment 5: Equivalent Units Work-In-Process Adjustment Weikfield Comment 6: New Factual Information Comment 7: Capitalization of Pre-Production Expenses Comment 8: Claim for Start-up Adjustment Comment 9: Treatment of Work-In-Process Comment 10: Capitalized Interest Expense Comment 11: Affiliated Party Interest Himalya International Comment 12: Omission of Certain U.S. Sales from Margin Calculation Comment 13: Facts Available for U.S. Brokerage and Handling Expenses Comment 14: Treatment of Certain Movement Expenses Comment 15: Calculation of Indirect Selling Expenses for Constructed Value Comment 16: Offsetting Positive Margins with Negative Margins in Antidumping Duty Margin Calculation Comment 17: General and Administrative Expense Ratio Comment 18: Financial Expense Ratio Background On March 8, 2001, the Department of Commerce published the preliminary results of the first administrative review of the antidumping duty order on certain preserved mushrooms from India. See Certain Preserved Mushrooms from India: Preliminary Results of Antidumping Duty Administrative Review, 66 FR 13896 (Preliminary Results). The products covered by this order are certain preserved mushrooms, whether imported whole, sliced, diced or as stems and pieces. The period of review (POR) is August 5, 1998, through January 31, 2000. We invited parties to comment on our preliminary results of review. Margin Calculations: Changes from the Preliminary Results We calculated export price, normal value (NV), and cost of production (COP) using the same methodology described in the preliminary results, except as explained below: Agro Dutch 1. We corrected an error in the Agro Dutch margin calculation program where we applied a currency conversion factor for variables already in U.S. dollars. 2. We increased the cost of manufacturing (COM) to include certain omitted direct material costs and decreased it by the amount related to the overstatement of depreciation expense. See Comment 4 for further discussion. Further, we compared the revised COM to the amounts reported in Agro Dutch's reported computer file for each CONNUM and adjusted the COM for any differences (see the August 6, 2001, Memorandum to the File: Calculation Adjustments for the Final Results of Agro Dutch. Himalya International Ltd. 1. The following movement expenses were updated to reflect findings described in Himalya's verification report, which was released after the preliminary results: foreign inland freight, foreign brokerage and handling, international freight and insurance, U.S. brokerage and handling, U.S. warehousing, U.S. inland freight, and U.S. Customs duty. These movement expense items are discussed further in the comments section below. See Comments 13 and 14. For a description of the specific changes for each of these items, see the August 6, 2001, Memorandum to the File: Calculation Adjustments for the Final Results of Himalya International, Inc. 2. The calculations for foreign and U.S. inventory carrying cost were revised in the final margin program as follows: total COM multiplied by the applicable interest rate multiplied by the average days in inventory divided by 365. See the August 6, 2001, Memo to the File: Calculation Adjustments for the Final Results of Himalya International, Inc. 3. For the general and administrative (G&A) expenses and interest expenses used in the calculation of constructed value (CV), we have used ratios based on Himalya's actual expenses, rather than the weight-averaged expenses of the other respondents in this case. These ratios were recalculated by the Department based on verification findings, as further described in the August 6, 2001, Memo to the File: Constructed Value Calculation Adjustments for the Final Results. These expense items are discussed further in the comments section below. See Comment 1. Hindustan 1. For the G&A and interest expenses used in the calculation of CV, we have used ratios based on Hindustan's actual expenses, rather than the weight-averaged expenses of the other respondents in this case. See Comment 1. 2. We revised Hindustan's reported G&A expense ratio to include total company-wide G&A expenses. See August 6, 2001, Memorandum To Neal Halper from Taija Slaughter: Cost of Production and Constructed Value Calculation Adjustments for the Final Results (Hindustan Calculation Memo). 3. We also recalculated the financial expense ratio using Hindustan's ultimate parent company's audited consolidated financial statements. See Hindustan Calculation Memo. Discussion of the Issues General Issue Comment 1: General and Administrative and Interest Expenses Used in Constructed Value Respondents Himalya and Hindustan did not have a viable home or third country market during the POR. Therefore, we calculated NV based on CV for these respondents. In the absence of a viable comparison market for these two respondents, in the preliminary results we applied the weighted- average rates from the two respondents in the review with a viable home market, Techtran and Weikfield, for G&A expenses, financial expenses, indirect selling expenses, and profit. Himalya and Hindustan argue that, in computing CV, general expenses should be based on their respective G&A and financial expenses, derived from their own financial experience, and not the weighted-average expense ratios of Techtran and Weikfield. According to Himalya and Hindustan, because they did not sell mushrooms in the home market, the statute requires that the Department base their respective G&A expense ratios and financial expense ratios on one of three alternatives. See section 773(e)(2)(B)(i)-(iii) of the Act. However, they argue that the statute does not stipulate which method should be used. Himalya and Hindustan argue that the first and third alternatives, sections 773(e)(2)(B)(i) and (iii) of the Act, permit the use of their respective G&A and financial expenses. Giorgio Foods Inc. (Giorgio), a U.S. producer and importer, supports Himalya's and Hindustan's arguments. Giorgio notes that the antidumping statute is designed to calculate margins in a transparent and predictable manner, so that each respondent can revise its prices and reduce or eliminate dumping margins. According to Giorgio, the use of surrogate values from Techtran and Weikfield, as opposed to the company-specific data, reduces a respondent's ability to monitor its prices for purposes of eliminating dumping margins. As such, Giorgio argues that company-specific G&A and financial expenses should be used for the final results. Himalya and Hindustan state that the first alternative permits the Department to calculate the G&A expense and financial expense based on "the production and sale, for consumption in the foreign country, of merchandise that is on the same general category of products as the subject merchandise." Himalya argues that the Department verified that it produced and sold fresh mushrooms, quick-frozen vegetables, and canned fruits and vegetables in India. Hindustan states it produced and sold in India fresh mushrooms and other food products during the POR. Both contend that these items constitute the "same general category of products as preserved mushrooms and, therefore, their own G&A and financial interest expense ratios should be used. Himalya and Hindustan state that the third alternative permits the Department to calculate their G&A and financial expenses "based on any other reasonable method". Himalya argues that the Department has verified Himalya's G&A and financial expenses, and that these expenses are the most reasonable method on which to calculate its ratio for this review. Himalya further states that the antidumping law stipulates that "costs shall normally be calculated based on the records of the exporter or producer of the merchandise, if such records are kept in accordance with the generally accepted accounting principles of the exporting country and reasonably reflect the costs associated with the production and sale of the merchandise." See section 773(f)(1)(A) of the Act. Hindustan notes that it has been the Department's preferred methodology to use company-specific G&A and financial expense rates when the information is available because this is the most accurate information for the expenses. See, e.g., Final Results of Administrative Review: Oil Country Tubular Goods from Mexico, 66 FR 15832 (March 21, 2001), Comment 5 of Decision Memorandum (G&A expenses), and Final Results of Administrative Review: Fresh Atlantic Salmon from Chile, 65 FR 78472 (December 15, 2000), Comment 7 of Decision Memorandum (financial expenses). Hindustan and Giorgio further assert that use of the Techtran and Weikfield ratios provides inaccurate results because their experience as relatively new entrants into the industry with claimed start-up costs contrasts with that of Hindustan, which is a large and mature producer of both fresh and preserved mushrooms. In applying Hindustan's own G&A and financial expense data, Hindustan adds that the Department should use only its own experience, rather than the consolidated experience of its corporate parent, the Unilever Group, because of the lack of financial intermingling between the entities apart from Unilever's initial equity investment and Hindustan's payment of dividends to Unilever and its predecessors. Finally, Himalya contends that, if the Department continues to calculate their G&A and financial expense ratios using a weighted-average calculation, it should incorporate Agro Dutch's numbers in that calculation. The petitioners did not comment on this issue. DOC Position: We agree with these interested parties that, in computing CV, the G&A and financial expense rates should be based on Himalya's and Hindustan's G&A and financial expenses and not the weighted-average expense ratios of Techtran and Weikfield. Section 773(a)(4) of the Act provides that, where NV cannot be based on comparison market sales, NV may be based on the CV. Accordingly, because there were no sales in the home market or a third country, we based NV on CV. Sections 773(e)(1) and (e)(2)(A) of the Act provide that the CV shall be based on the sum of the cost of materials and fabrication for the foreign like product, plus amounts for selling expenses, G&A, profit, and U.S. packing costs. Because neither Himalya nor Hindustan has a viable home or third country market, the Department has not determined selling expenses, G&A expenses, and profit under section 773(e)(2)(A) of the Act, which requires sales by the respondent in question in the ordinary course of trade in a comparison market. In situations where we cannot calculate selling expenses, G&A expenses (including financial expenses), and profit under section 773(e)(2)(A), section 773(e)(2)(B) of the Act sets forth three alternatives. The Statement of Administrative Action at 840 (H.R. Doc. 103-316 (1994)) states that "section 773(e)(2)(B) does not establish a hierarchy or preference among these alternative methods." In the preliminary results, we used the second alternative, the weighted- average G&A and financial expense ratios of Techtran and Weikfield. Upon further analysis, we changed our approach for the final results. For these final results, we calculated G&A expenses and net financing expenses based on Himalya's and Hindustan's own cost experience for the fiscal year that most closely corresponded to the POR, and, in the case of Himalya, as adjusted for our findings at verification. The use of the companies' own cost experience as a basis for the calculation of G&A and net financing expenses is consistent with our treatment of these expenses in the investigation and administrative review of this same product from Indonesia. See Notice of Final Determination of Sales at Less than Fair Value: Certain Preserved Mushrooms from Indonesia, 63 FR 72,268, 72,273 (December 31, 1998). See also Notice of Final Results of Administrative Review: Certain Preserved Mushrooms from Indonesia, 66 FR 36754 (July 13, 2001). The Department's practice with regard to G&A and interest is to allocate the costs over the company's operations as a whole rather than on a market-specific basis. Thus, the fact that a company had no sales of the merchandise under consideration in the home market should have little impact on the G&A and interest expenses incurred by the company. Therefore, it is more appropriate to rely on respondent-specific G&A and interest data as opposed to that of a different company when computing CV. In this case, we have no reason to believe that the company's records do not reasonably reflect the cost associated with the production and sale of the subject merchandise. The use of company-specific G&A and the consolidated financial expenses results in transparent and predictable results. With respect to Hindustan's argument that company-specific financial expense data should be used instead of the parent company expenses, we disagree. Due to the fungibility of funds within corporate entities, it is the Department's normal practice to use the financial expenses from the parent company's audited consolidated financial statement. We have continued to rely on section 773(e)(2)(B)(ii) of the Act to calculate Himalya's and Hindustan's indirect selling expenses and profit. Company-Specific Issues Agro Dutch Comment 2: Date of Sale for Certain U.S. Sales In the preliminary results, the Department applied facts available to determine the date of sale for certain U.S. sales because Agro Dutch did not provide adequate sales documentation for the Department to determine the appropriate date of sale. We compared these U.S. sales to a NV based on CV, because we could not determine the appropriate contemporaneous home market sales for comparison. For purposes of currency conversions, we applied the highest exchange rate during the POR for all currency conversions involving these sales. Agro Dutch contends that the Department inappropriately resorted to facts available for these sales because it fully reported the dates of sale for the U.S. sales in question. The petitioners respond that, as the Department detailed in the preliminary results, Agro Dutch failed to provide critical information to establish the proper date of sale for U.S. sales made pursuant to sales contracts or agreements with its customers. According to the petitioners, Agro Dutch appears to assume that the Department must use the information Agro Dutch provided, without analyzing whether the information is correct and appropriate. Thus, the petitioners contend that the Department properly applied facts available in accordance with the applicable law for Agro Dutch's failure to respond to the Department's requests for information. DOC Position: We agree with the petitioners. As we explained in the preliminary results, we specifically requested Agro Dutch to provide copies of any sales contracts or agreements with its U.S. customers in both the March 29, 2000, questionnaire and the July 18, 2000, supplemental questionnaire. At page 1 of the business proprietary version of the August 15, 2000, supplemental questionnaire response, Agro Dutch indicates that a relevant sales document existed with respect to certain U.S. sales, but it failed to provide this sales contract or agreement in any of its responses. While Agro Dutch reported a date of sale for the sales in question, because of Agro Dutch's failure to respond to our specific request for the applicable sales contract or agreement, we were unable to determine whether the reported date of sale was appropriate. As we discussed in our preliminary results, because Agro Dutch failed to cooperate with respect to providing this information, an adverse inference is warranted in applying facts available for the dates of sale for these transactions, in accordance with section 776(b) of the Act. Accordingly, we made no change to the facts available methodology applied to these sales. Comment 3: Facts Available for Movement Expenses on Certain Sales In the preliminary results, we applied facts available for movement expenses associated with Agro Dutch's U.S. FOB sales because Agro Dutch did not report the foreign inland freight, foreign inland insurance, and foreign brokerage and handling expenses incurred on these sales. As facts available, we applied the average expense incurred on the U.S. sales for which these expenses were reported. Agro Dutch claims that it did, in fact, report the foreign inland freight, foreign inland insurance, and foreign brokerage and handling expenses on its FOB sales. Therefore, Agro Dutch states that the Department should correct its calculation and use the reported expenses in the final results. The petitioners state that Agro Dutch's claim is factually incorrect, as the record shows that Agro Dutch did not report the expenses for its FOB sales. Therefore, the petitioners contend that the Department properly applied facts available for these expenses associated with these sales. DOC Position: We agree with the petitioners. As demonstrated in an attachment to the Department's February 28, 2001, memorandum to the file accompanying the Agro Dutch preliminary results margin calculations, our analysis of the U.S. sales database submitted by Agro Dutch showed that the foreign inland movement expenses were not reported for the sales in question. The petitioners' analysis accompanying its May 21, 2001, rebuttal brief also shows that these expenses were not reported. Accordingly, we made no change to the facts available methodology applied for the movement expenses associated with these sales. Comment 4: Adjustments to Cost of Manufacturing for Period of Review The petitioners claim that certain direct materials, labor and overhead costs were omitted from the respondent's reported COM. Specifically, the petitioners compared each cost element from the cost reconciliation worksheets to the amounts reported for each cost element. Based on this comparison, the petitioners allege that certain costs were omitted from the reported costs and that these amounts should be included in COM for the final results. Agro Dutch agrees with the petitioners that it inadvertently omitted an insignificant amount of raw material costs from the reported costs. However, Agro Dutch argues that the petitioners are incorrect in their assertions that costs related to labor and overhead were improperly reported. Specifically, Agro Dutch notes that the total labor cost related to material handling was corrected in a response that superseded the one referenced by the petitioner. Therefore, the corrected labor cost for material handling agrees to the amount recalculated by the petitioner. With respect to the petitioners' alleged omission of direct labor costs related to the salaries and wages category, Agro Dutch contends that the petitioners used the incorrect amounts in recalculating the cost. The petitioners did not exclude the "earned leave enhancement" amount from the fiscal year (FY) 2000 total salaries and wages, recorded in February and March 2000 (i.e., outside the POR), in their calculations. With regard to the petitioners' claim that variable and fixed overhead costs were omitted from the reported costs, Agro Dutch asserts that the petitioners erred in their calculations. The petitioners' calculation of variable overhead, Agro Dutch observes, begins with the incorrect repairs and maintenance cost for FY 2000. The petitioners' calculation includes an amount for salaries and wages unrelated to the repairs and maintenance expenses. Further, Agro Dutch contends that the petitioners' calculation of fixed overhead (i.e., depreciation expense) includes the costs for both fiscal years, and no adjustment was made for the months not included in the POR. Moreover, Agro Dutch claims that its reported fixed overhead amount should be reduced to adjust for an overstatement of cost related to its calculation error. Specifically, Agro Dutch asserts that depreciation expense was reported by calculating a monthly average expense for each FY and then multiplying those resulting amounts by the number of months included in the POR for each respective year. However, Agro Dutch found that the reported depreciation expense was overstated due to a calculation error. Therefore, the Department should correct this error for the final results. DOC Position: We agree with Agro Dutch that the allegedly omitted labor and overhead costs were properly included in the total reported costs. As noted by Agro Dutch, the reported labor cost relied upon by the petitioners was superseded in a revised submission. The labor cost in the revised submission agrees with the cost calculated by the petitioners. Further, we agree with the respondent that the petitioners' re-calculation of variable and fixed overhead costs contained errors that improperly impacted the results of their calculation. Consequently, after revising the petitioners' calculations of the variable and fixed overhead costs, we found that these costs agree with the amounts reported by Agro Dutch. We agree with both Agro Dutch and the petitioners that certain direct material costs were omitted from the reported costs. Further, we agree with Agro Dutch's claim related to the overstated depreciation expense. Therefore, for the final results we have increased Agro Dutch's reported COM to include the omitted direct material costs and decreased it by the amount related to the overstatement of depreciation expense. Comment 5: Equivalent Units Work-In-Process Adjustment According to the petitioners, Agro Dutch calculated a change in work-in- process (WIP) adjustment that reduced COM, using amounts that are aberrant in nature and unverified in this review. For comparison purposes, the petitioners calculated a change in WIP adjustment using Agro Dutch's FY 2000 audited financial statements. Agro Dutch's reported WIP adjustment, the petitioners note, was significantly different from their calculation of the adjustment based on the FY 2000 audited financial statements. The petitioners assert that a difference would be expected between the two calculations due to the differing time periods; however, the magnitude of the difference would not be expected. Thus, the petitioners believe the Department should disallow Agro Dutch's change in WIP adjustment. Further, the petitioners argue that Agro Dutch understated its per-unit production costs by failing to reduce its reported production quantities for quantities (i.e., calculate equivalent units) related to WIP. According to the petitioners, subtracting the costs related to the change in WIP from the COM requires a proportional reduction in the number of units over which the reduced costs are allocated. The petitioners assert that the quantity adjustment should be made in situations where the production volume either increases or decreases substantially over the reporting period, as is the case for Agro Dutch. Accordingly, the petitioners contend that if the Department decides to allow the WIP value adjustment to COM, the production quantities must be adjusted for the estimated quantities related to WIP. Agro Dutch contends that the petitioners' argument that its WIP adjustment should be disallowed or the WIP quantities should be adjusted is unfounded. Agro Dutch states that the petitioners were unable to point to any record evidence or other authoritative cites to support their argument. Consequently, according to Agro Dutch, the petitioners' argument should be rejected in total. DOC Position: We disagree with the petitioners that the change in WIP adjustment should be disallowed or, alternatively, that the reported production quantities should be reduced for the amount related to WIP. The Department's long- standing practice, codified at section 773(f)(1)(A) of the Act, is to rely on data from the respondent's normal books and records where those records are prepared in accordance with home country generally accepted accounting principles (GAAP) and reasonably reflect the costs of producing the merchandise. As a result, before analyzing any alternative accounting method suggested by the petitioners, the Department will determine whether it is appropriate to use the respondent's normal GAAP accounting practices in order to calculate the cost of the merchandise. In this case, although we were not required to verify the data, we did examine extensive reconciliations and supporting worksheets of the reported per-unit cost build-up that demonstrated how Agro Dutch's normal books and records were used for reporting purposes. Our examination of the record evidence did not reveal any basis to conclude that the value used as the WIP adjustment is anomalous. Further, the petitioners' claim that the WIP adjustment is aberrant, which is based on the comparison of FY ending change in WIP to the POI change in WIP, has no merit. Inventory costs are measured as of a specified time period and, as a result, the change in inventory can vary from one time period to the next based on many different factors. Thus, no meaningful conclusion can be drawn from the comparison of the change in inventory values at different time periods. As noted above, we also disagree with the petitioners' argument that the Department has not accounted for both the value and the quantities (i.e., calculate equivalent units) related to the change in WIP. The petitioners suggest that, in order to account for the quantities related to the change in WIP, the Department should use estimated WIP quantities to reduce the reported production quantities, that in effect will increase the reported per-unit cost. However, what the petitioners' argument fails to recognize is that by using the total quantity of goods transferred to finished goods (i.e., worldwide production quantities for the POR), the quantities related to the WIP units have already been taken into account. In other words, the total quantity produced would already account for changes in WIP because it includes any production units not finished at the beginning of the POR and appropriately does not include the quantity related to ending WIP. Accordingly, if we made the petitioners' suggested adjustment we would be double- counting the quantities related to WIP and overstating the per-unit reported cost. Contrary to the petitioners' claims, the record of this investigation does not support a disallowance of WIP or a WIP quantity adjustment. Therefore, for the final results, we have continued to rely on the respondent's reported change in WIP adjustment. Weikfield Comment 6: New Factual Information The petitioners argue that Weikfield's case brief should be rejected because it contains new factual information. At a minimum, petitioners assert, the Department should strike the information in question from the record and require Weikfield to redact and resubmit its brief. Specifically, the petitioners contend that Exhibits 1 and 2 of Weikfield's brief consist of information that was neither submitted for the record prior to its closing date of 140 days after the last day of the anniversary month, in accordance with 19 CFR 351.301(b)(2), nor submitted in response to any request by the Department for additional information under 19 CFR 351.301(c)(2). According to the petitioners, Exhibit 1 of Weikfield's brief concerning its WIP valuation not only contains new factual information, but also constitutes an improper attempt to rely on substantive ex-parte communications that it never placed on the record in this review. The petitioners maintain that Exhibit 2, which contains a copy of the applicable Indian accounting standards on the capitalization of construction period expenses, was not requested by the Department and should thus not be added to the record at this time. DOC Position: We disagree with the petitioners that Weikfield's case brief should be rejected on the grounds that it contains new factual information. The Department requested that Weikfield submit information concerning its WIP valuation at Weikfield's sales verification. In addition, the Department made a request for further information on Weikfield's WIP valuation via e- mail, dated November 29, 2000. These information requests and Weikfield's response are contained in a memorandum to the file. See Memorandum to the File from Robert Greger dated May 18, 2001. The information from Weikfield attached to the memorandum to the file is identical to the information contained in Exhibit 1 of Weikfield's case brief. Because the Department requested this information, and because pursuant to 19 CFR 351.301(c)(2) the Department may request any person to submit factual information at any time during a proceeding, we disagree with the petitioners' claim that Weikfield's brief should be rejected. While we acknowledge that Exhibit 2 was not requested by the Department, we note that the exhibit consists solely of published reference material. Therefore, we have considered both exhibits for purposes of the final results. Comment 7: Capitalization of Pre-Production Expenses Weikfield argues that the Department did not explain its preliminary decision to disallow the capitalization of production costs incurred during the POR and, therefore, was in direct violation of the anti-dumping statute. Weikfield contends that under section 777(i) of the Act, the Department is required to publish the facts and conclusions supporting a preliminary determination in an administrative review and provide a full explanation of the methodology used in calculating the margins, as well as the primary reasons for the determination. Weikfield states that the Department failed to adhere to section 773(f)(1)(A) of the Act whereby the Department is directed to follow the normal records of the producer if such records are kept in accordance with the producer's home country GAAP, and reasonably reflect the costs associated with the production and sale of the merchandise. Weikfield contends that the pre-production costs that it capitalized in its normal records are in accordance with Indian GAAP and that there is no evidence indicating that the capitalization of these expenses is unreasonable. According to Weikfield, the reversal of its capitalized pre-production costs is contrary to the Department's precedent. Weikfield argues that in Certain Fresh Cut Flowers from Colombia; Final Results of Antidumping Duty Administrative Reviews, 61 FR 42833, 42847 (August 19, 1996) (Flowers from Colombia), the Department allowed a respondent to amortize its pre- production expenses. Even when the company itself did not capitalize its pre-production expenses, Weikfield asserts, the Department found the amortization of such expenses to be reasonable and "insisted on capitalizing them." Weikfield further argues that in Notice of Final Determination of Sales at Less Than Fair Value: Steel Wire Rod from Canada, 63 FR 9182, 9187 (February 24, 1998) (Steel Wire Rod from Canada), the Department found that the respondent's capitalization and amortization of pre-production costs was consistent with Canadian GAAP and reasonable. Finally, Weikfield asserts, the Department has no basis to declare Indian GAAP unreasonable with respect to the capitalization of pre-production expenses when it has found in past cases that expensing these costs was unreasonable. The petitioners dispute Weikfield's argument that the Department violated section 777(i) of the Act by not sufficiently explaining its reasons for rejecting Weikfield's capitalization of expenses at the preliminary results. According to the petitioners, it is not the Department's normal practice to publish detailed methodological discussions in notices of preliminary results of reviews. The petitioners assert that the publication of the preliminary results, the corresponding release of detailed calculation memoranda and the opportunity for disclosure meetings provided the parties in this review with full knowledge of what the Department did and how it was done. The petitioners argue that Weikfield's capitalization of pre-production expenses is excessive and that the Department should continue to reject this capitalization in its final results. The petitioners note that under section 773(f)(1)(A) of the Act, the Department retains the discretion to alter a respondent's costs even when such costs are based on that respondent's normal books and accord with home country GAAP. According to the petitioners, Weikfield's costs as recorded in its normal books do not reasonably reflect the costs associated with its production and sale of certain preserved mushrooms. The petitioners contend that Weikfield capitalized its pre-production expenses for an extraordinarily long period of time. The petitioners further argue that Weikfield provides no substantive analysis or argument in support of its claim that its capitalization was reasonable, or that the Department's rejection of that capitalization at the preliminary results was unreasonable. The findings in Steel Wire Rod from Canada and Flowers from Colombia, the petitioners assert, do not support Weikfield's claims because the pre-production expenses capitalized in those cases had economic useful lives beyond the year incurred. The petitioners point out that the expenses that Weikfield capitalized consist of material costs, and direct labor and overhead expenses which do not benefit future periods. DOC Position: We disagree with Weikfield's assertion that the Department violated section 777(i) of the Act in its treatment of this issue at the preliminary results. We acknowledge that section 777(i) requires the Department to publish a full explanation of the methodology used in establishing the margins and the primary reasons for its results. We note, however, that it does not require the Department to provide detailed explanations of the adjustments it makes to a respondent's reported costs. In this case, the Department provided the reasons for its preliminary results consistent with the Act. We agree with the petitioners that the Department should continue to reject Weikfield's capitalization of production expenses in its final results. Under section 773(f)(1)(A) of the Act, the Department is directed to follow the normal records of the exporter or producer if such records are kept in accordance with home country GAAP and reasonably reflect the costs associated with the production and sale of the merchandise under consideration. Therefore, because Weikfield's production expenses are capitalized in the company's normal records, we must follow this treatment if it reasonably reflects the costs associated with the production of preserved mushrooms. In this case, however, we find that Weikfield's capitalization of production expenses was excessive, and resulted in unreasonable per-unit costs. By capitalizing production costs associated with the first production run for each growing room, Weikfield essentially argues that the knowledge obtained from the initial run will benefit future years' production. While this argument may have some merit with regards to the first few production runs within the main growing facility, we disagree that each time a new growing room within the main production facility is brought on line, the learning curve starts over again. In this instance, Weikfield continued to capitalize production costs long after the company had its first trial runs at its growing facility. In addition, we note that while Weikfield capitalized the growing costs in question, it included the mushroom production quantities associated with these growing costs in the total POR production quantity to which the remaining production costs were spread, thereby understating the reported costs. See Weikfield Cost Verification Report, dated February 1, 2001. This understatement of total costs and the overstatement of production quantities resulted in an understatement of the per-unit cost of producing the mushrooms. Therefore, for these final results we continued to disallow the capitalization of production costs. Thus, we increased the reported COM to reflect the additional production costs. Lastly, we note that the cases cited by Weikfield do not apply here. In both Steel Wire Rod from Canada and Flowers from Colombia, the pre- production costs that were capitalized were associated with assets that had economic useful lives that extended past the year incurred. Comment 8: Claim for Start-up Adjustment Weikfield asserts that the Department erred in its preliminary results by denying its start-up adjustment claim and violated the statute procedurally by not explaining its reasons. Weikfield claims that the Department should grant it a start-up adjustment in accordance with section 773(f)(1)(C) of the Act, asserting that it has satisfied both the new facility and the technical factor conditions of section 773(f)(1)(C). Weikfield points out that its facility did not produce mushrooms until December 1997, nine months before the beginning of the POR, and that its number of growing rooms increased during the POR. Because this information was verified by the Department, Weikfield argues, there can be no doubt that Weikfield's additional growing rooms constituted a new facility. Weikfield contends that its production was limited during its claimed start-up period due to technical factors and that its production was far below capacity during that time period. Because it had no prior experience with mushroom production, Weikfield asserts, a comparison of production to rated capacity is the most reliable measure as to whether the company had attained normal production levels. Furthermore, Weikfield argues, it was not until September 1999 that the company was able to achieve consistent yields. The petitioners argue that the Department should disallow Weikfield's claimed start-up adjustment in its final results. The petitioners claim that Weikfield has not satisfied either condition of section 773(f)(1)(C) of the Act in order to qualify for a start-up adjustment. The petitioners state that Weikfield's additional growing rooms do not constitute a new facility and that it has failed to establish that its mushroom production was limited by technical factors. The petitioners contend that Weikfield's addition of growing rooms during the POR was an improvement to an existing facility and thus does not satisfy the new facility requirement of the start-up provision. The petitioners point out that the SAA at 836 indicates that mere improvements to existing products or ongoing improvements to existing facilities do not qualify for a start-up adjustment. Moreover, the petitioners assert, the subject merchandise in this proceeding is certain preserved mushrooms, not fresh mushrooms, and any new production facility must produce the subject merchandise as opposed to just one input. The petitioners claim that Weikfield has admitted that its start-up adjustment is unrelated to technical factors concerning the production of preserved mushrooms. The petitioners assert that Weikfield has not argued that technical factors limited the processing of preserved mushrooms. The petitioners argue that Weikfield failed to establish that fresh mushroom production was limited by technical factors. The petitioners contend that during verification Weikfield could only point to the difficulty of adapting commercial mushroom growing techniques to the Indian subcontinent. The petitioners assert that numerous mushroom farms had been set up in India during the 1990s and that the experiences of those farms were available for Weikfield's consideration. Furthermore, the petitioners argue that the decision to introduce mushroom cultivation into India is a business decision and not a technical factor that limited production. The petitioners contend that the technical problems described by Weikfield in its verification exhibits consist of nothing more than operational problems. The petitioners maintain that Weikfield's claimed start-up period ignores the statutory criteria. The petitioners assert that Weikfield's selection of August 1999 as the end of the start-up period contradicts the language of the SAA at 836 which states that start-up will be considered to end when the level of commercial production characteristic of the merchandise, producer or industry concerned is achieved. According to the petitioners, Weikfield achieved commercial production levels of preserved mushrooms before the POR began. DOC Position: We disagree with Weikfield that a start-up adjustment is warranted in this case. Section 773(f)(1)(C)(ii) of the Act authorizes a start-up adjustment for a new production facility or production of a new product. Based on our analysis of the information submitted by Weikfield we have determined that Weikfield engaged in an expansion of its production operations which does not satisfy the criteria of the start-up provision. The SAA at 836 states that the expansion of capacity of an existing production line does not qualify as a start-up operation unless the expansion constitutes such a major undertaking that it requires the construction of a new facility and results in the depression of production levels due to technical factors. We do not consider Weikfield's facilities to be new because the company began using its growing facilities ten months before the beginning of the POR and its processing facility was completed and fully operational nine months before the beginning of the POR. At the beginning of the POR, Weikfield had a substantial number of growing rooms in operation, and its number of growing rooms placed in service continued to expand until the last room was operational seven months later. The record of this review does not support Weikfield's claim that its production levels were limited due to technical factors associated with the initial phase of production. Specifically, Weikfield's claimed technical factor limitations focus on the company's inability to achieve "proper and consistent mushroom production yields" and the fact that its production was below capacity during its claimed start-up period. The SAA, however, does not refer to the efficiency of production operations or full capacity utilization as the criteria for measuring production levels. See Notice of Final Determination of Sales at Less Than Fair Value: Certain Preserved Mushrooms from India; 63 FR 72246, 72253 (December 31, 1998) and Notice of Final Determination of Sales at Less Than Fair Value: Certain Preserved Mushrooms from Chile; 63 FR 56613, 56618 (October 22, 1998). The SAA at 836 states that the attainment of peak production levels will not be the standard for identifying the end of the start-up period, because the start-up period may end well before a company achieves optimum capacity utilization. Although production levels at the growing facilities were not at their peak levels, Weikfield produced and sold sizable quantities of mushrooms. The SAA at 836 directs the Department to examine the number of units processed as the primary indicator of production levels in determining the end of the start-up period. Although Weikfield failed to provide information on the number of batches started during and after its claimed start-up period, record evidence shows that the company continued to place new growing rooms in operation every month and that some of these rooms were turned over several times before the start of the POR. From this, we must conclude that Weikfield had enough confidence in its production process to place significant numbers of batches in production. Section 773(f)(1)(C)(ii) of the Act establishes that both prongs of the start-up test must be met to warrant a start-up adjustment. In this case, we find that Weikfield has failed both prongs of the test and, accordingly, we have denied Weikfield's claim for a start-up adjustment. Comment 9: Treatment of Work-In-Process Weikfield argues that its reported WIP inventory values are appropriate and should be used by the Department. Weikfield states that its increase in WIP inventory values was due to an increase in the size of its batches and an increase in the per-batch values at each stage of production. Weikfield points out that the Department accepted the portion of the increase due to the size of the batches in its preliminary results, but contends that it erroneously denied the portion of the increase due to the increase in per-batch values. The petitioners argue that the Department should continue to reject Weikfield's deduction of POR increases in WIP inventories in excess of the percentage allowed at the preliminary results. The petitioners assert that Weikfield's argument concerning WIP increases and its valuation methodology relies entirely on new information that was not properly submitted. See Comment 6 above, for further discussion. DOC Position: As noted in Comment 6 above, we disagree with the petitioners' assertion that Weikfield's argument concerning its increase in WIP inventories relied on improperly submitted new information. Accordingly, we have used this information in our analysis of this issue. We agree with the petitioners, however, that the Department should continue to reject Weikfield's deduction of POR increases in WIP inventories in excess of the percentage allowed at the preliminary results. Section 773(f)(1)(A) of the Act directs that the reported costs should be calculated based on a respondent's records if such records are kept in accordance with home country GAAP and reasonably reflect the costs of production. While we have continued to accept the portion of the increase in Weikfield's WIP inventory values attributable to the increase in the size of the batches, we find that Weikfield failed to demonstrate that the increase in the input values is reasonable. Cost verification exhibits 11 and 12 show that during the POR, Weikfield's input values remained relatively stable, and in many instances actually decreased. We have therefore disallowed this portion of the increase for the final results. Comment 10: Capitalized Interest Expense Weikfield argues that the Department erroneously reversed its fiscal year 2000 capitalized interest expenses in the preliminary results. Weikfield contends that, as the majority of its capitalized interest was incurred during the pre-production period, the Department must allow the capitalization of this amount for the same reasons that it must allow the capitalization and amortization of its production costs discussed above. According to Weikfield, the capitalization of these expenses was both reasonable and consistent with Department precedent. In support of its argument Weikfield cites Flowers from Colombia and Steel Wire Rod from Canada and contends that these cases make it clear that capitalization of these expenses is not only appropriate but the preferred approach. Weikfield states that the remaining portion of its fiscal year 2000 capitalized interest expenses, which was due to the reversal and subsequent capitalization of interest expense from a prior period, was proper and should also be allowed. The petitioners argue that the Department's decision to reverse Weikfield's fiscal year 2000 capitalized interest in its preliminary results was correct and supported by substantial record evidence. Thus, for the same reasons discussed with regard to capitalized production costs (see Comment 7 above, for further discussion), the petitioners contend that the Department should continue to reject the entire amount of Weikfield's fiscal year 2000 capitalized interest expenses. DOC Position: We agree with the petitioners and have continued to reverse the entire amount of Weikfield's fiscal year 2000 capitalized interest expense in the final results. Contrary to Weikfield's assertion that a majority of its capitalized interest was incurred during the pre-production period, we found that of the interest capitalized during fiscal year 2000, a majority was allocated to trial run batches. For the reasons discussed in Comment 7 above, the interest cost incurred by the company does not qualify as a capitalizable expense that benefits future periods. It is simply a cost incurred to finance the current operations of the company. Comment 11: Affiliated Party Interest Weikfield contends that the Department erred in its preliminary results by imputing an interest cost on its affiliated party loans. Weikfield argues that there should be no such imputed interest because the loan in question was converted to equity after the money was originally booked as a loan. Further, Weikfield claims, this conversion to equity was fully explained during verification. The petitioners assert that Weikfield's argument concerning a debt-to- equity conversion is new information and should be rejected. The petitioners argue that while Weikfield claims that this issue was explained during verification, there is no discussion in the verification report to establish that fact. The petitioners assert that the amount in question is recognized as a liability in Weikfield's fiscal year 2000 balance sheet, and that it is appropriate to calculate interest on it. DOC Position: We find that Weikfield's argument concerning a debt-to-equity conversion is misplaced because it does not relate to the affiliated party loans in question. In this case, the loans in question were shown as liabilities on the company's fiscal year 2000 balance sheet. We agree with the petitioners' assertion that it is appropriate to calculate an interest expense on Weikfield's affiliated party loans. Under section 773(f)(2) of the Act, transactions between affiliated parties may be disregarded if they do not fairly reflect the amount usually reflected in the market under consideration. We note that Weikfield's affiliated party loans were shown in the company's fiscal year 2000 financial statements and that no interest expense was recorded. Because Weikfield did not include any interest expense for these loans in the reported costs, we find that this zero amount does not reflect the amount usually incurred in the market under consideration. Therefore, for the final results, we have continued to include an amount for interest on these affiliated party loans. Himalya International Ltd. Comment 12: Omission of Certain U.S. Sales from Margin Calculation In the preliminary results, we included U.S. sales made by Himalya through both of its affiliated U.S. importers in our analysis. Himalya argues that the Department should not include sales made by Himalya through its affiliated importer Trans Atlantic during the POR, because such sales were atypical and did not reflect the normal course of business. According to Himalya, the delay in payment for these sales has created a distortion in the Department's calculation of imputed credit expense, and is, therefore, an unfair estimate of Himalya's future behavior. Further, Himalya argues that because only a few sales were made through Trans Atlantic, and Trans Atlantic will never again act as importer of the subject merchandise, the Department should not include the sales made by Trans Atlantic during the POR for the purposes of calculating Himalya's final results margin in this review. However, for purposes of antidumping duty assessment, Himalya maintains that the Department should continue to issue appropriate instructions for the assessment of antidumping duties on entries made by both Trans Atlantic and Global Reliance during the POR. The petitioners argue that Himalya's request to exclude certain sales of subject merchandise made in the United States during the POR is contrary to the Department's established practice of duty assessment and collection under Title VII. The petitioners maintain that the Department should reject Himalya's request to exclude certain U.S. sales made during the POR from the antidumping duty calculation. DOC Position: We agree with the petitioners that the exclusion of certain U.S. sales of subject merchandise made during the POR would be contrary to the Department's long-standing practice of calculating and assessing antidumping duties on all entries of subject merchandise during the POR. The reasons that Himalya states for excluding the U.S. sales at issue are without merit because there is no evidence on the record to suggest that they were not bona fide sales at the time of sale, despite the change in status of Trans Atlantic subsequent to the sales in question. Therefore, we have included all of Himalya's U.S. sales in the margin calculation for this review. Comment 13: Facts Available for U.S. Brokerage and Handling Expenses In the preliminary results of this review, the Department determined that because the respondent had failed to report U.S. brokerage and handling expense in a timely manner, the use of partial facts available was warranted for this expense. See Calculation Memo for the Preliminary Results for Himalya International, Inc. dated February 28, 2001. Himalya maintains that the Department's antidumping questionnaire does not specifically request that respondents provide data for U.S. brokerage and handling. Himalya claims that the untimely reporting of this expense was due to a "rookie error," and that Himalya's explanation of how the error occurred is reasonable. Therefore, Himalya argues that the Department should not rely on partial facts available for U.S. brokerage and handling expense, but should instead rely on data which was reviewed during the verification. The petitioners agree with the Department's treatment of U.S. brokerage and handling. The petitioners affirm that the Department's questionnaire instructed Himalya to report all movement expenses, such as brokerage and handling, and that Himalya reported it did not incur any such expense. The petitioners argue that the Department should not rely on corrections to untimely submitted data introduced as new information during verification, as doing so would be rewarding the recalcitrance of the respondent. DOC Position: We have reconsidered our use of facts available in the preliminary results for Himalya's U.S. brokerage and handling expense. Although Himalya erroneously reported no U.S. brokerage and handling expense in its response, it provided the information at verification. Because the expense data at issue does not account for a significant portion of Himalya's U.S. expenses and because we had time to review the data at verification, we accepted the data. Specifically, we reviewed Himalya's methodology for calculating this expense and traced the amounts used on the calculation worksheets to the general ledger and original invoices. See Memorandum to the File regarding Sales and Cost of Production Verification of Himalya International, Inc., dated March 28, 2001, at page 12. (Verification Report). Accordingly, for purposes of the final results, we used the verified data. Comment 14: Treatment of Certain Movement Expenses For the final results of this review, Himalya asserts that the Department should revise the rupees-per-kilogram or dollars-per-kilogram factors used for the following movement expenses: foreign inland freight, foreign brokerage and handling, international freight, U.S. warehousing expense, U.S. inland freight, and U.S. Customs duty. Himalya maintains that each of these expenses was verified by the Department, and the final results should reflect the results stated in the Department's verification report. Accordingly, Himalya argues that the Department should base its constructed export price (CEP) on the verified movement expense data that it provided. The petitioners contend that Himalya's argument that verification confirmed the accuracy of its cost reporting is undermined by the data it presents, and they cite to several examples of such inconsistencies within Himalya's data submission. The petitioners argue that, for foreign inland freight, foreign brokerage, U.S. warehousing, and U.S. inland freight, the Department should use the verified amount consistently across all sales. For international freight, the petitioners submit that due to the lack of explanation for the use of multiple values in Himalya's data, the Department should use the highest reported charge as facts available. Finally, the petitioners assert that, for U.S. duty expense, differences between the reported amounts and the average amount examined at verification appear to result from rounding and, therefore, more significant digits should be used in order to ascertain the correct figure. DOC Position: For purposes of the preliminary results, we accepted Himalya's data as reported. However, due to minor errors in the data, which were noted and corrected during the verification process, the Department recalculated the rupees-per-kilogram and dollar-per-kilogram factors for each of the movement expense items at issue, as described in the verification report which was released after the preliminary results. (See Verification Report.) For the final results, the Department has revised the margin program for these six movement expense items to reflect the verified figures, and applied the correct per-unit expense amount, consistently across all sales transactions. Comment 15: Calculation of Indirect Selling Expenses for Constructed Value Himalya argues that the Department should recalculate its indirect selling expense for CV based on the total COM (TCOM), rather than the total COP (TCOP). Himalya observes that the calculation used in the margin program for the preliminary results, which used TCOP, was not consistent with the calculation stated in the preliminary results calculation memo. Furthermore, Himalya maintains that as the Department has calculated G&A and financial expense as a function of the TCOM pursuant to section 773(e)(2) of the Act, it should calculate indirect selling expense in the same manner. The petitioners contend that the Department was correct to calculate Himalya's indirect selling expense using the TCOP, rather than the TCOM. The petitioners assert that because the indirect selling expense used in CV is based on the indirect selling expenses derived from Techtran's and Weikfield's actual experiences, and because the TCOP was used as the basis for calculating the indirect selling expense in the preliminary results for these two respondents, then the weighted-average factor should be applied to Himalya's TCOP as a matter of consistency. DOC Position: For the final results, we have continued to calculate Himalya's indirect selling expense for CV based on TCOP. Contrary to Himalya's argument, the Department's regulations do not stipulate the manner in which indirect selling expenses should be calculated for purposes of CV, and indeed, the Department has the discretion to choose the most appropriate means of doing so. The Department does not calculate the indirect selling expense in the same manner that it calculates G&A and interest expense for CV. G&A and interest are normally calculated as a percentage of TCOM. Accordingly, we calculate the product-specific G&A and interest expenses for CV by multiplying TCOM by the appropriate ratio. The Techtran and Weikfield indirect selling expense ratios for CV were derived as the ratio of indirect selling expenses to TCOP, consistent with our normal practice. Consistent with the manner in which this expense ratio was calculated, we applied the ratio to TCOP to derive Himalya's indirect selling expenses for CV. To perform the calculation as Himalya suggests would be incorrect, because we would be applying the expense ratio on a different basis from which it was derived. Comment 16: Offsetting Positive Margins with Negative Margins in Dumping Margin Calculation Himalya contends that the Department's current practice of treating a respondent's U.S. sales transactions made at or above the prices charged in the respondent's home market as having a zero percent dumping margin violates Article 2.4.2 of the Antidumping Agreement, and hence U.S. antidumping law. The respondent compares the Department's current methodology to a similar methodology recently litigated in the European Union (EU), citing to the WTO Panel on European Communities - Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India, WT/DS141/R, ¶6.119 (October 30, 2000) (Bed Linens Panel), and the subsequent report by the WTO Appellate Body, WT/DS141/AB/R, ¶¶46-48 (March 1, 2001) (Appellate Decision). Therefore, Himalya asserts that, based on the finding of the WTO Panel, the Department should modify its current methodology and calculate dumping margins by offsetting positive margins with negative margins. The petitioners disagree with Himalya and question the merits of applying to U.S. antidumping methodology a finding specific to fundamentally different EU antidumping methodology. DOC Position: The Bed Linens Panel and Appellate Decision concerned a dispute between the EU and India. We have no WTO obligations to act. Therefore, we have continued the practice of using zero where the NV does not exceed the export price or CEP in our calculations of overall margins for the final results. See Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, from Japan, and Tapered Roller Bearings, Four Inches or Less in Outside Diameter, and Components Thereof, from Japan; Final Results of Antidumping Duty Administrative Reviews, 66 FR 15078 (March 15, 2001) and accompanying Decision Memorandum at Issue 9, Comment 1. Comment 17: General and Administrative Expense Ratio Assuming the Department agrees that the final results should be based on Himalya's own G&A expense ratio (see Comment 1 above), Himalya argues that the G&A expense ratio should be calculated based on Himalya's calculation as submitted or as adjusted for minor items noted at verification. First, Himalya argues that can costs should be included in the denominator of the G&A expense ratio. Second, Himalya argues that its Infotech division's operating expenses should not be included in calculating G&A because it is a separate division which generated income and incurred expenses necessary to operate. Finally, Himalya argues that the chemical division's manufacturing expenses should not be included in G&A because the chemical division's profit and loss account shows that this expense constitutes a manufacturing expense of that division. Himalya further states that the expense ties directly to the chemical division manufacturing expense reported in Himalya's divisional income statement. The petitioners argue that Himalya's Infotech division's function is to administer the internet sales of all products, the manufacturing costs of which are included in the denominator of the G&A expense ratio. Therefore, the administrative cost of running the division should be included in the numerator. The petitioners argue that the chemical division expenses were only first explained in Himalya's briefs and that the entire amount in question does not pertain to POR costs. According to the petitioners, the denominator for the G&A and interest expense ratios should reflect the contents of the product-specific COMs to which the ratios are applied. Finally, the petitioners note that the can costs appear to be included in total "packing" costs and thus originally removed from cost of goods sold (COGS) and, therefore, it would be appropriate to include those costs in the denominator of the G&A and financial expense ratios. DOC Position: We agree with Himalya that its can costs should be included in the denominator in calculating the G&A and financial expense ratios. At verification, the Department found that these costs were included in total "packing" costs and removed from COGS. The can costs represent part of the COM of canned mushrooms. Thus, it is appropriate to include the can costs in the denominator of the G&A and financial expense ratios for the final results. We agree with the petitioners that the Infotech division's operating expenses should be included in calculating G&A. While we agree with Himalya that its 1999-2000 annual report shows that the Infotech division is a separate division that generated income and incurred its own expenses, we disagree that its G&A expenses should be excluded from the G&A rate calculation. The only information we have on the record is the profit and loss statement for the Infotech division. See page 29 of cost verification exhibit C-4 which lists the expenses as "administrative and other expenses." Furthermore, Himalya's footnote number 16 on page 16 of its case brief describes the Infotech division as a portal that operates as a business-to-business exchange for multiple food products including the subject merchandise. G&A expenses are those expenses which relate to the activities of the company as a whole rather than to a production process. Because the activities of the Infotech division appear to be activities which benefit the company as a whole, we have added the Infotech divisional expenses to the G&A expenses reported in the numerator of the G&A expense ratio calculation, and excluded these same expenses from the denominator of the G&A expense ratio calculation. Finally, we disagree with Himalya that the chemical division's "manufacturing" expenses should not be included in G&A. There is no evidence to support that these expenses are manufacturing expenses related to non-mushroom production. Himalya attempted to explain these costs in its case brief for the first time. See footnote 19 on page 17 of its case brief. However, Himalya's explanation is unsubstantiated by record evidence. The specific expenses in this division appear to relate to the overall activities of the company. Therefore, for the final results, we have included the chemical division's "other manufacturing" costs as G&A expenses in the numerator of the G&A expense calculation, and have deducted these expenses from the denominator of both the G&A and financial expense ratio calculations. Comment 18: Financial Expense Ratio Assuming the Department agrees that the final results should be based on Himalya's own financial expense ratio, Himalya argues that the financial expense ratio should be calculated based on Himalya's calculation as submitted or as adjusted for minor items noted at verification. Himalya argues that the Department should not exclude the chemical division expenses from the denominator (COGS) in the financial expense ratio calculation. Himalya states that it has explained in its G&A argument above why the chemical division's manufacturing expenses should not be included in Himalya's G&A expense. Himalya reasons that because these expenses are not G&A expenses, the financial expenses should be divided by a denominator which includes these manufacturing costs in calculating the financial expense ratio. Himalya argues that the Department should not include the short-term interest expense in the financial expense ratio calculation because this is interest on "working capital" which is mostly associated with the sales of mushrooms in the United States, and to a lesser extent, sales of non- subject merchandise in the home market or to third countries during the POR. According to Himalya, it deducted interest on working capital from CV in the calculation of NV to avoid the inclusion of a U.S.-related expense in the calculation of NV. Alternatively, if the Department rejects the full offset of interest on working capital, Himalya argues that the Department should otherwise offset Himalya's financial expense ratio for imputed inventory carrying costs and imputed credit costs. Himalya argues that the calculation of NV should not include expenses associated with the sale of mushrooms to the United States. The petitioners argue that the denominator of the financial expense ratio should not include either the Infotech division expenses or the chemical division expenses, but instead these expenses should be treated as G&A expenses. The petitioners disagree with Himalya that the use of short-term interest expense in CV double counts this expense with imputed credit costs. According to the petitioners, short-term interest expenses and imputed credit costs are separate and unique costs. The petitioners argue that the short-term interest expense in CV reflects the actual payment of interest on monies borrowed by Himalya, whereas imputed credit represents not Himalya's borrowing, but its "lending" of the value of subject merchandise prior to payment by its customers, or in other words, an opportunity cost of extending credit to buyers. Finally, the petitioners argue that the interest subsidy provided by the Himchal Pradesh state government should not be used to decrease actual interest expenses, but should be considered "other income" from subsidies. The petitioners point to the fact that even Himalya's income statement shows the subsidy as other income and not as an offset when recording net interest expense. DOC Position: We agree with the petitioners that the Infotech and chemical division expenses referred to above constitute G&A expenses. Because we have classified the Infotech and chemical division's expenses referred to above as G&A expenses (see the G&A expense argument above), we have deducted those expenses from the denominator in calculating both the G&A expense ratio and the financial expense ratio. We agree with the petitioners that the interest expenses "Interest- Working Capital" should not be deducted from total financial expenses. In calculating net interest expense for COP, the Department includes interest expense related to both long- and short-term borrowings and offsets the interest expense incurred by any short-term interest income earned. Himalya's assertion that the use of short-term interest in CV double counts this expense with imputed credit costs is incorrect. In calculating CV, the Department does not include imputed expenses. Finally, we disagree with the petitioners that Himalya's interest subsidy should be denied. This subsidy was given to Himalya by the Himchal Pradesh government to promote business in the local market. Accordingly, we have allowed the interest subsidy as an offset to financing expense. Recommendation Based on our analysis of the comments received, we recommend adopting all of the above positions. If these recommendations are accepted, we will publish the final results of review and the final weighted-average dumping margin for the reviewed firms in the Federal Register. Agree ___ Disagree ____ __________________ Faryar Shirzad Assistant Secretary for Import Administration __________________ (Date)