66 FR 48244, September 19, 2001 A-533-809 ARP 2/1/99-1/31/00 Group III/Office 8:THK Public Document MEMORANDUM TO: Faryar Shirzad, Assistant Secretary for Import Administration FROM: Joseph A. Spetrini Deputy Assistant Secretary AD/CVD Enforcement Group III SUBJECT: Issues and Decision Memorandum for the Final Results in the Antidumping Duty Administrative Review of Certain Forged Stainless Steel Flanges from India (Flanges) from India Summary Having analyzed the comments and rebuttals of interested parties in the above review, we have made two changes from the preliminary results calculations, and recommend that you approve the positions presented in the Issues section below. The issues addressed are: Isibars: 1. Petitioners object to Isibars' sales data revisions; 2. Isibars objects to the use of constructed value instead of third country sales; 3. Isibars objects to the surrogate company selected for SG&A and profit; 4. Isibars objects to the financial results period used for surrogate expense data; 5. Isibars claims it did not get service of Echjay's published annual reports; Panchmahal: 6. Petitioners claim Panchmahal's misreporting merit adverse facts available; 7. Petitioners urge a more adverse approach to Constructed Value (moot); 8. Petitioners urge a more adverse approach to Brokerage and Handling (moot); 9. Panchmahal objects to the expense ratios from a surrogate company (moot); Viraj: 10. Petitioners claim Viraj improperly reported duty drawback; 11. Petitioners claim fixed overhead was understated; 12. Petitioners claim net interest expense was understated; 13. Viraj asks that prices and costs be calculated per-piece, not per-kilogram; 14. Viraj argues that the DIFMER Test and Per-Kilogram Costs distort results; 15. Viraj objects to comparisons of rough to finished flanges; 16. Viraj objects to the comparison of ASTM to DIN standard merchandise; 17. Viraj objects to the use of its reported weights instead of its standard weights. Background We published in the Federal Register the preliminary results of review on March 9, 2001(66 FR 14127). We received briefs from Panchmahal Steel Ltd. (Panchmahal) on April 9, 2001 and from Isibars Ltd. (Isibars) and Viraj Forgings Pvt. Ltd. (Viraj) on April 11, 2001. Petitioners submitted briefs on Panchmahal on April 9, 2001 and on Viraj on April 11, 2001. Petitioners and Viraj submitted rebuttal briefs on April 23, 2001. We received no comments from either Echjay Forgings and Auto Parts Ltd. (Echjay) or Patheja Forgings Pvt. Ltd. (Patheja) (who is presumed defunct). Margin Calculations Based upon our analysis of the comments received from interested parties, we recommend: 1. No changes from the preliminary results for Echjay, Isibars, Patheja and Viraj; 2. Total adverse facts available for Panchmahal because that company failed to cooperate by withholding information critical to our determination of the appropriate comparison market, and of normal value, thus impeding our conduct of the review. Issues: Isibars 1. Data Revisions Petitioners object to Isibars' continued re-submission of U.S. quantity and value information and argue that "it is completely unfair to allow submission of such egregiously untimely and erroneous information to go unpunished." Petitioners further argue that at the very minimum, the Department should apply facts available to the latest new factual information, i.e., the additional U.S. sales data reported by Isibars. Isibars makes no rebuttal. Department's Position: We disagree with petitioners. There is no evidence that Isibars withheld information or failed to cooperate to the best of its ability. Isibars fully accounted for the re-submitted U.S. data in its February 12, 2001 supplemental response, explaining how one U.S. transaction had been overlooked in one part of its earlier submission. We are satisfied that Isibars reported the transaction it had overlooked earlier, as soon as the deficiency became apparent. Finally, we note that the changed total involves only one miscalculated invoice. Accordingly, for the final results we have continued to rely on Isibars' revised U.S. sales listing. 2. Comparison Market Selection Isibars argues that contrary to the Department's findings in the preliminary results, it did have a viable comparison market based upon the number of flange pieces and the value of those pieces. Isibars further argues that, even if the comparison market was below 5% "based on other measures" (weight) there is no reason why its proposed comparison market could not have been used. See Letter from law firm of Ablondi Foster, Sobin & Davidow, P.C. to Secretary of Commerce, April 11, 2001, pp.1-3 in toto. In rebuttal, petitioners argue that the Department correctly determined from Isibars' data that Isibars did not have a viable comparison market. Petitioners note that Isibars stated, in its latest supplemental response, that "[t]here were no sales to any country during the period of review which were at least 5% of our U.S. sales by weight." See Isibars Jan. 16, 2001 Supplemental Questionnaire Response at 3, and Petitioners' April 23, 2001 Rebuttal Brief at 2. Petitioners note that the Department has determined that the most accurate means of analyzing costs and pricing of the subject merchandise is on a weight basis, and that on this basis, Isibars' Austrian sales are not viable. Petitioners argue further that Isibars' assertion that the Department could use the comparison market it proposed, even though the volume is not viable (based on weight), is a "red herring," since the Department's regulations stipulate that sales in a comparison market will "normally" represent a sufficient quantity if they constitute five percent or more of U.S. sales. See petitioners April 23, 2001 rebuttal brief at 3. Petitioners further argue that Isibars did not demonstrate grounds for the Department to deviate from this standard. Petitioners contend that the implication of the term "normally" in the regulations is that some comparison markets with over 5% of U.S. market volume may be excluded from the dumping analysis for such reasons as a particular market situation, rather than that markets with less than 5% of U.S. volume may be used. Petitioners note that Isibars has not presented a "viable case" for deviating from normal practice, and urge the Department to continue to base normal value on constructed value. Department's Position: We disagree with Isibars. Isibars has offered no compelling reason for deviating from our standard practices in comparison market selection, both as to basing the volume test on weight, and as to requiring that a comparison market make up at least 5% of U.S. sales volume. Per section 351.404(b) of the Department's regulations, we require that a comparison market have 5% of the volume of the U.S. market. We may, under section 351.404(b)(2), have recourse to value instead of volume if quantity is not appropriate, for example, in cases involving merchandise difficult to quantify on an ordinary unit basis. Isibars has provided no justification as to why market viability should be determined by pieces rather than weight. Moreover, we note that in past proceedings we have based market viability on weight. Accordingly, since no viable home or third country market exists, for the final results we have continued to base Isibars' normal value on constructed value. 3. Surrogate Company Selected for SG&A and Profit Isibars argues that the Department should use the company's own financial statements to calculate its selling, general and administrative (SG&A) expenses, rather than a surrogate company's expenses. See Isibars' brief at 3, par. 2. Isibars argues that the Department should also use Isibars' own financial statement ratios to determine Isibars' "distribution cost, financial cost and net profit." Isibars cites eight Department determinations in which, Isibars argues, the Department used the company's own financial data in similar or analogous circumstances. (See: Final Determination of Sales at Less Than Fair Value: Collated Roofing Nails from Taiwan, 62 FR 51427, Oct. 1, 1997; Oil Country Tubular Goods from Mexico: Preliminary Results of Antidumping Duty Administrative Review, 63 FR 48699, 48702, Sep. 11, 1998, affirmed, 64 FR 13962, Mar. 23, 1999; Shop Towels from Bangladesh; Preliminary Results of Antidumping Duty Administrative Review, 61 FR 65025, Dec. 10, 1996, affirmed, 62 FR 12600, Mar. 17, 1997; Notice of Final Determination of Sales at Less Than Fair Value: Certain Polyester Staple Fiber from The Republic of Korea, 65 FR 16880, 16882, Mar. 30, 2000; Stainless Steel Bar From India, Preliminary Results of New Shipper Review, 64 FR 46350, 46353, Aug. 25, 1999, "modified on other grounds," 65 FR 3662, Jan. 24, 2000, Notice of Final Determination of Sales at Less than Fair Value: Certain Preserved Mushrooms from India, 63 FR 72246, Dec. 31, 1998, Large Power Transformers from Italy, Preliminary Results of Antidumping Duty Administrative Review and Intent to Revoke in Part, 61 FR 40815, 40816, Aug. 6, 1996. Isibars argues that the Echjay ratios used by the Department are abnormally high and that it is wrong and contrary to precedent to use them. Isibars further argues that Echjay is just a forging company. Conversely, Isibars argues that it gets billets forged by Pradeep Metals, that Isibars pays a comprehensive rate to Pradeep for this service, and that this service includes the manufacturing, administrative and financial costs associated with the conversion of billets to flanges. Isibars contends that Echjay's costs would not include the administrative and financial costs which have been charged to Isibars by Pradeep. Isibars further argues that it reported credit expenses and direct selling expenses in its section B and C responses, whereas Echjay appears not to have reported these items in its listings, leaving them instead, presumably, within administrative, selling, distribution and financial costs, and thus overstating these last categories of expenses in comparison to Isibars. Isibars contrasts its 3.04% ratio of administrative, selling & distribution expenses to manufacturing costs to Echjay's ratio, 19.72%, and its financial cost of 7.4% versus Echjay's, 28.28% (all ratios here are public information). In light of the large gap between the ratios of the two companies, Isibars argues, it would be a "great injustice" to use Echjay's ratios. Isibars also argues that Echjay is distinct from it because Echjay had no home market sales in the POR or the prior year. Petitioners, in rebuttal, argue that the Tariff Act clearly states, at section 773(e)(2)(A) that general expense and profit ratios must be calculated in connection with the production and sale, for consumption in the foreign country, of merchandise that is in the same general category of products as the subject merchandise. Petitioners argue that sections 773(e)(2)(B)(i-iii) of the Tariff Act explicitly state that SG&A and profit must be based on sales of merchandise identical or similar to the subject merchandise to a country other than the United States. Petitioners argue that for the Department to use Isibars' own data to calculate SG&A and profit, it would need to be certain that the data were representative of sales to countries other than the United States. Petitioners also note that only a small percentage of Isibars' total sales were of flanges, and of those sales, most were to the United States. Therefore, petitioners argue, expense and profit ratios derived from Isibars' own financial statements would not be a reasonable surrogate for the ratios associated with the foreign like product, because they would be derived from sales of different merchandise. Thus, petitioners conclude, adding profit on sales to the cost of manufacturing the merchandise (mostly) exported to the United States would by definition be setting normal value equal to the U.S. price. Petitioners note further that the determination of the method to be used to calculate SG&A and profit is intended to "be made on a case-by-case basis, and will depend, to an extent, on available data." See Statement of Administrative Action (SAA) (H.R. Doc. No. 103-316 at 840 (1994). In the present review, petitioners argue, using Isibars' financial statements would be inconsistent with section 773(e)(2)(B) of the Tariff Act because those financial statements reflect primarily sales of non-subject merchandise, and U.S. sales of subject merchandise. Concerning the comparability of Isibars and Echjay, petitioners argue that both companies are in the same industry and produce and sell the same product, flanges. Petitioners note that per section 773(e)(1)(B) of the Tariff Act, general expense and profit ratios, in the absence of actual respondent company data, be calculated on either (i) respondent's actual comparison-market data for the "same general category" of products; (ii) the average experience of other respondents in their comparison markets; or (iii) any other reasonable method. Petitioners argue that because Isibars and Panchmahal had no comparison market and Echjay did not report costs, neither alternative (i) nor (ii) is possible. Petitioners further argue that Echjay's information is more appropriate than alternatives because it produced flanges and its sales to the United States were relatively small, and that according to Department guidelines, Echjay's data appears to be the most appropriate alternative for general expense and profit ratios. The differences in method of production which Isibars cite are irrelevant, petitioners argue, as the analysis is on sales of the completed product, in this case flanges, and not on the costs associated with production of subject merchandise. Concerning Isibars' contention that Echjay's administrative, selling, distribution and financial costs are overstated vis-a-vis Isibars, petitioners argue that this assertion is irrelevant and unfounded, because the inclusion of credit expenses in Isibars' sales listing has absolutely no impact on the reported financial ratios, since credit expenses are imputed and not represented in the financial statements. Regarding the suitability of Echjay's comparison market as a basis for expense and profit ratios, petitioners assert that it is irrelevant which comparison market was used to calculate dumping margins for Echjay. Petitioners contend that the rules regarding the calculation of general expense and profit ratios state only that they be based on production and sales of subject merchandise for consumption "in the foreign country," which is not necessarily the home market, but may be the third country market, as longstanding Department practice shows. Therefore, petitioners argue, the fact that Echjay's comparison market is the United Kingdom in no way precludes the Department from applying Echjay's expense and profit experience to Isibars' CV. Department's Position: We disagree with Isibars in part. As discussed above in comment #2, under section 351.404(b)(2) of the Department's regulations, we could not calculate a normal value for Isibars' comparison market sales because it did not have a viable comparison market. When normal value cannot be determined using comparison market prices, constructed value may be used to determine normal value. See Section 773(a)(4) of the Tariff Act and section 351.404(a) of the Department's regulations. In determining constructed value, we must start with production cost and add selling, general and administrative expenses, and profit, per section 773(e)(2)(A) of the Tariff Act. If amounts for these expense and profit ratios for the exporting company are not available or usable, we may use expenses and profit for the same general category of merchandise, weighted averages from other respondents, or ratios "based on any other reasonable method," per section 773(e)(2)(B) of the Tariff Act. In the preliminary results, we determined that it was not appropriate to use Isibars' own ratios, nor a weighted average of other respondents, and that Echjay's ratios were a reasonable method, in keeping with section 773(e)(2)(B)(iii) of the Tariff Act. We determined that section 773(e)(2)(A) ( "the actual amounts incurred and realized by the specific exporter or producer being examined") was not applicable in regard to these categories of financial ratios because Isibars did not have a viable comparison market. We have not based SG&A and profit on section 773(e)(2)(B)(i) (pertaining to "merchandise that is in the same general category of products as the subject merchandise") as we do not have data regarding Isibars' home market sales of the same general category of products. We also agree with petitioners that the second alternative category of sources for these ratios, per section 773(e)(2)(B)(ii), the average experience of other respondents cannot be used here. Under section 351.405(b)(2) of the Department's regulations, this provision requires the use of information concerning home market sales. As none of the respondents in this review have viable home markets, we have not relied on section 773(e)(2)(B)(ii) as the basis for Isibars' SG&A and profit. Thus, we used the third alternative source for these ratios, amounts "based on any other reasonable method," per section 773(e)(2)(B)(iii) of the Tariff Act. Concerning whether Echjay was a reasonable surrogate for the expense and profit ratios, we agree with petitioners that Echjay's involvement in similar merchandise manufacturing and sales establishes that it is a reasonable choice. We therefore maintain that Echjay's 1998-1999 financial statements are a reasonable and appropriate source for the ratios at issue. Accordingly, for the final results, we have continued to apply Echjay's expense and profit ratios in the calculation of Isibars' CVs. However, the Department prefers to rely upon the company's own ratios for general and administrative expenses and interest expense. See memorandum to Faryar Shirzad from Richard W. Moreland, Issues and Decision Memorandum for Final Results of the Antidumping Duty Administrative Review on Certain Preserved Mushrooms from Indonesia, August 8, 1998, through January 31, 2000, 66 FR 36754, July 13, 2001, comment 4. See also Memorandum to: Faryar Shirzad from Richard W. Moreland, Issues and Decision Memorandum for Final Results of the Antidumping Duty Administrative Review on Certain Preserved Mushrooms from India - August 5, 1998, through January 31, 2000,66 FR 42507, August 13, 2001, comment 1. As these two cases show, in calculating CV in circumstances like those in the present case, Accordingly, for these final results, we have substituted Isibars' interest expense for the ratio based on Echjay which we used in the preliminary results. We were unable to do the same for general and administrative expenses, because there is insufficient information on the record to recalculate these expenses separate from selling expenses. Although the questionnaire requested them, Isibars chose at its own peril not to provide any narrative or worksheets in its responses such as would permit us to determine the expenses in question. Accordingly, for these final results, we have not changed the expense and profit ratios, except for interest expenses, which we were able to recalculate using information on the record of this review. 4. Financial Results Period Used Isibars argues that the financial results from Echjay's fiscal year of April 1998 to March 1999 are not representative of the February 1999 through January 2000 period of review. In rebuttal, petitioners argue that the data for Echjay's 1998-1999 fiscal year are reasonable, since they overlap the period of review, and that Isibars' alternative is inappropriate for the reasons petitioners present in their other rebuttal arguments on the use of Echjay's data. Department's Position: We agree with petitioners that the data for Echjay's 1998-1999 fiscal year overlap the period of review and provide a reasonable source of comparison ratios. Echjay's later fiscal year might have presented a greater overlap of months but was not available on the record in time for the purpose needed. We note that Isibars presents no facts or arguments to support its assertion that the 1998-1999 fiscal year is not representative of Isibars's POR experience. Accordingly, for these final results we have continued to use Echjay's 1998-1999 fiscal year data in our CV calculations. 5. Service of Copies of Published Annual Reports Isibars states that Echjay failed to serve Isibars with copies of the public versions of its responses and that these copies are not available in the public record at the Department either. In rebuttal, petitioners note that this complaint is untimely and ought to have been made when the documents were due, or at the very latest, when the preliminary results notice was served, in order for Isibars to be able to comment on the contents of the documents in question. Department's Position: We disagree with Isibars. Since the arguments which Isibars offers on the preliminary results include discussions on the contents of Echjay's financial statements for the years ended March 1999, we conclude that Isibars was in fact able to study and comment on these documents. Issues: Panchmahal 6. Misreported Home Market Sales Petitioners argue that at verification, the Department learned that Panchmahal's home market was not viable because its sales to Snowdrop Trading Pvt. ("Snowdrop") were in fact clearly export sales from their inception, that the Department concluded, as stated in the February 15, 2001 Sales Verification Report (Panchmahal verification report), that "the customer for all of Panchmahal's home market sales was not in fact a home market customer," and that, "as Panchmahal made no other home market sales, it had no home market customer." Petitioners also argue that the verification revealed that Panchmahal officials knew with absolute certainty that the merchandise was destined for export, since the purchase order clearly stated "FOR EXPORT" and stipulated "EXPORT WORTHY PACKING." Petitioners further note that the Panchmahal verification report confirmed that Panchmahal officials were aware that these sales were for export because the transaction was exempt from excise taxes. Petitioners argue that Panchmahal officials thus knew that the sales information in its May 16, 2000 section A questionnaire response was incorrect, and that the misstatement precluded the comparison of U.S. sales to sales in a viable comparison market, thereby rendering an accurate dumping calculation impossible. Petitioners urge the Department to apply total adverse facts available, for the following reasons. First, petitioners argue, the completeness of a respondent's sales listing is vital to the integrity of the review, and Panchmahal's failure to report sales to a viable comparison market, especially in light of the knowledge that its purported home market sales were in fact exports, is a gross example of uncooperative behavior that must be met with total adverse facts available. Further, petitioners argue, the revelation that Panchmahal's reported home market customer is one and the same as the commissionaire for its U.S. sales, as well as a respondent in a concurrent new shipper review, is disturbing, as is Panchmahal's concealment and lack of disclosure in regards to its reported comparison market sales. Petitioners note that Panchmahal is experienced in antidumping reviews and has counsel. Petitioners note that under 19 CFR 351.308(a), the Department may resort to facts available when necessary information is not on the record, the respondent withholds or fails to provide information requested in a timely manner and in the form required, significantly impedes a proceeding, or the Department is unable to verify submitted information. Petitioners argue that all three conditions are met in the instant case, since information on Panchmahal's largest third country market is not on the record, Panchmahal withheld and deliberately concealed factual information about appropriate comparison markets, and Panchmahal failed verification with respect to its reported comparison market suitability. Department's position: Panchmahal's comparison market sales were in one or more third countries, but Panchmahal did not report these transactions, though we asked them to do so, at page B-1 of our original questionnaire. Instead, Panchmahal submitted as its home market sales a pair of sales made through Snowdrop Trading Ltd., which we discovered at verification were clearly marked as export sales on the purchase order. See Panchmahal verification report at 10. As a result, we do not have on the record the critical price information we need to establish normal value in the appropriate comparison market. When information is missing from the record we are authorized to resort to the facts available per section 351.308(a) of the regulations and under section 776(a)(2) of the Tariff Act. In selecting from among the facts otherwise available, section 776(b) of the Act authorizes the Department to use an adverse inference if the Department finds that an interested party failed to cooperate by not acting to the best of its ability to comply with the request for information. See, e.g., Certain Welded Carbon Steel Pipes and Tubes From Thailand: Final Results of Antidumping Duty Administrative Review, 62 FR 53808, 53819-20 (October 16, 1997). Section 776(b) of the Act states that an adverse inference may include reliance on information derived from the petition. See Statement of Administrative Action (SAA) accompanying the URAA, H.R. Rep. No. 103-316 at 870 (1994). See also 19 CFR section 351.308(a). The weight of evidence on the record shows that Panchmahal, in its several questionnaire responses, misrepresented the "FOR EXPORT" sales to Snowdrop Trading as home market sales. Panchmahal chose not to report its third-country sales, offering instead its Snowdrop sales as the entire and sole comparison market, even though its officials knew those sales were for export. From summary information in Panchmahal's section A response, we know that Panchmahal had at least one viable third country market. Thus, its misrepresentation of the Snowdrop sales as home market transactions allowed it to avoid reporting appropriate third country sales in an attempt to manipulate the Department's normal value calculations. We only discovered the misreporting at verification, when it was too late to solicit the unreported third country sales information we would likely otherwise have used for normal value. At the very least we must conclude, as petitioners urge, that Panchmahal did not act to the best of its ability, because its officials knowingly misreported the requested data and opted not to place critical requested information on the record. Panchmahal's actions thus impeded our review. See Panchmahal verification report at 10. Because Panchmahal failed to cooperate to the best of its ability, it is appropriate, pursuant to section 776(b) of the Tariff Act, to make an adverse inference in applying facts available. Since Panchmahal presumably foresaw that the deliberate omission of its third country sales would result in the use of either the Snowdrop sales or CV rather than its U.K. sales, we agree with petitioners that it would be inappropriate, and inconsistent with section 351.308 (a) of the Department's regulation, to effectively reward such a failure to cooperate with the use of either of these values in the final results. We have therefore determined to use, as adverse facts available, an average rate made up of the ten highest calculated, non-aberrational rates of another respondent in the current review, as calculated based on sales to a third-country comparison market. The average of the ten highest such rates in this review, based on Viraj's sales to Germany, is 61.31%. See Memorandum from T. Killiam, Case Analyst, to the file, Calculation of Adverse Facts Available Rate Applied to Panchmahal Steel Ltd. (Panchmahal) for the Final Results of the 1999-2000 Administrative Review of the Antidumping Duty Order on Flanges from India, August 30, 2001. Because this rate is a calculated number based on data placed on the record of this review, corroboration is not required. See 19 CFR 351.308(c)(2). 7. Calculation of Constructed Value Petitioners urge the Department to reconsider the use of Echjay's financial ratios, suggesting that instead, at a minimum, the Department should use the highest ratios from among any of the three respondents. Petitioners argue that the need to have recourse to CV was occasioned by Panchmahal's gross failure to report the sales of its largest third country market, and note that according to the Tariff Act no respondent shall receive a more favorable margin because of deficiencies in its own submissions. Petitioners therefore urge the Department to apply an adverse inference in its calculation of CV. Department's Position: This issue is moot because we have applied total adverse facts available to Panchmahal. 8. Calculation of Brokerage and Handling Arguing that a discrepancy in a sales trace at verification suggests that Panchmahal understated brokerage and handling charges substantially, petitioners urge the Department to apply Panchmahal's highest such charges to all of its U.S. sales, as partial facts available. Department's Position: This issue is moot because we have applied total adverse facts available to Panchmahal. 9. Surrogate Company Selection Panchmahal argues that the Department should not use Echjay's SG&A and interest expense to calculate Panchmahal's constructed value because Echjay's SG&A is extremely atypical and abnormally high. Panchmahal further argues that the period ending March 31, 1999 is not contemporaneous with the period of review, and that the Department should use Panchmahal's own SG&A and interest costs for the period of review. In rebuttal, petitioners argue that Panchmahal's argument that Echjay's SG&A ratio is abnormally high is unsubstantiated, since Panchmahal gives no examples or compelling arguments in support. Petitioners note that the use of CV is only necessary because of deficiencies in Panchmahal's response, and argue that the Department must, at the very least, apply an adverse inference in its calculation of CV. Department's Position: This issue is moot because we have applied total adverse facts available to Panchmahal. Issues: Viraj 10. Duty Drawback in Cost Petitioners argue that although Viraj reported duty drawback in its Section D databases, it failed to do so in its comparison market sales listings, and claimed that it offset the corresponding amount by reducing it from direct material costs. Petitioners argue that it is incorrect to offset costs for alleged duty drawback, because Viraj did not meet its burden for demonstrating that any drawback payments were linked to exports. Petitioners contend that Duty Entitlement Passbook payments are not duty drawback under Department policy, as shown for example in Stainless Steel Round Wire From India; Final Determination of Sales at Less Than Fair Value, 64 FR 17319, 17320 (April 9, 1999) (Round Wire). Petitioners argue that no reference to duty costs can be seen in Viraj's accounting system, and urge the Department to not deduct the duty drawback from the direct material costs reported in Viraj's COP and CV database. Petitioners argue that the Department should rely on adverse facts available, should apply the maximum duty drawback to all sales in the third country sales listing, and should set all drawback for U.S. sales equal to zero. In rebuttal, Viraj argues that it reported import duties in its Section D response in a separate field and that the Department properly did not include the duty amounts in its preliminary calculations. Viraj also notes that the company did not reduce its direct material costs by the duty amounts at issue, and that the Department verified the raw material purchase costs, which are included in the verification exhibits. Viraj also notes that it answered these same concerns in its November 21, 2000 submission. Department's Position: We agree with Viraj that it reported import duties in a separate field in its Section D response and that at verification we found no discrepancies in the raw material costs it reported. See Viraj verification report at 16. We note that in contrast to the present case, in Round Wire the duty drawback contention was over the respondent's claim for an addition to U.S. price for duty drawback, which the Department denied. Also, the Department had found in that review that the respondent's purchases and excise tax reimbursements had sharply declined. We did not find analogous facts in this review, and there is no record evidence to support the supposition, implied by petitioners' arguments, that Viraj for some reason did not seek or receive effective reimbursement of duties on imported raw materials through the Indian "passbook"program. Accordingly, we have continued to adjust for duty drawback in the final results. 11. Fixed Overhead Understated Petitioners argue that Viraj's calculation of fixed overhead appears to have been understated, and provide calculations of an adjusted overhead amount, which they urge the Department to use in the final results. Viraj in rebuttal confirms that its submissions reflect actual depreciation on all three facilities. Department's Position: We agree with Viraj. We verified and reviewed Viraj's depreciation calculations and found no discrepancies. See Viraj verification report, pages 17-18, and Exhibit 33. Accordingly, we have made no changes in depreciation charges for these final results. 12. Net Interest Expense Ratio Petitioners argue that Viraj improperly excluded certain interest expenses from its net interest expense calculation by deducting certain "direct interest expenses" which may not be deducted. Petitioners provide a recalculated net interest expense rate which excludes the disputed deduction, but which also includes packing costs, "because there is no way to calculate the adjusted rate without including the latter." Viraj in rebuttal argues that it properly reported the net interest expenses, that the interest expenses in question related to "usance period," or the lag between shipment date and payment by the customer (i.e, credit expenses), and that these expenses were deducted from the total interest expenses because Viraj had reported the amounts as credit expenses per the requirements of the questionnaire. Viraj also argues that the other interest expenses about which petitioners comment pertain to third country credit expenses, as do the bank charges which petitioners would have Viraj add to its interest expense. Viraj notes that these same methods of calculating and allocating interest and credit expenses have been used by the Department in its wire rod reviews. Department's Position: We agree with Viraj. We reviewed the interest and credit expenses at issue and have determined that they were properly allocated to subject merchandise sales in the United States, the comparison market, and the third country markets, and were properly deducted from total interest expense. See, e.g., Viraj verification report at 12-13 and 16-17, and Exhibits 5,12, and 16. Accordingly, we have continued to use these reported amounts in our final analysis. 13. Prices and Costs on Per-Kilogram vs. Per-Piece Basis Viraj argues that the dumping analysis should be done per piece rather than per unit of weight, that its sales are made per-piece world-wide, that it has never sold flanges by the kilogram, that its customers order and buy by the piece, and that the petition which resulted in the present antidumping duty order on flanges calculated dumping margins on a per- piece basis. Viraj asserts that the Department has always performed its calculations on a per piece basis, both for price and cost, and argues that "[A]n agency is obligated to follow its precedent, and if it chooses to change, it must explain why."citing MM& P Advancement Training, Education Safety Program v. DOC, 729 F.2d 748, 75 (Fed. Cir. 1984). Viraj also cites the Court in Allied Tube & Conduit Corp. v. United States, 2000 CIT, LEXIS 161, Slip Op. 2000-160 at 36-37 (CIT Dec. 12, 2000) to invoke the principles that the antidumping laws are not punitive and that margins need to be calculated on a fair and equitable basis, with consistency. Viraj argues that the Department's change to a per kilogram basis is inconsistent with all prior DOC decisions as to flanges and increased the dumping margin from 8.95% to 21.1%. Petitioners argue that margin calculations should be based on the price per unit of weight, as was done in the preliminary results, rather than on piece-to-piece price comparisons, arguing that the respondents' argument for a piece-to-piece approach is apparently an effort to dissuade the Department from comparing U.S. sales produced to ANSI standards to comparison market sales produced to DIN standards. Petitioners argue that in instances where the weights of similar flanges differ because one is produced to DIN standards and the other ANSI standards, a comparison of prices per kilogram will still be accurate. Petitioners contend that the argument that only per-piece prices should be compared because flanges are sold on a per-piece basis world-wide is specious, and that the largest component of the costs and prices of forged flanges is material content, i.e., the grade and quantity of metal used in their manufacture. Petitioners also argue that the cases where the Department used per-piece comparisons each involved only matches of identical merchandise, and that the effect achieved was therefore a de facto per-kilogram price comparison. Petitioners note that the metal content of a forged stainless steel flange is by far the most important element of cost, and that this fact is borne out by Viraj's own cost questionnaire response. Petitioners argue that, given the impact of the material content on costs, it is reasonable and desirable to measure price discrimination based on weight rather than pieces. Petitioners state that both the data tracking methods of the U.S. Customs Service and the classifications of the Harmonized Tariff Schedule are adapted to reporting quantities of this category of merchandise based on weight. Petitioners further argue that the Department has repeatedly recognized the relevance of per-kilogram prices for articles of steel, and cite the Department's position on this question as outlined in a recent review of cut-to-length steel plate from Canada. In particular, petitioners cite the January 16, 2001 Issues and Decision Memo for the final results of review in Certain Corrosion- Resistant Carbon Steel Flat Products and Cut-to- Length Carbon Steel Plate from Canada, for the period August 1 1998 through July 31, 1999, which reads in part; The usage of weight provides the Department with results which are both consistent and predictable in formulating the margin analysis. The Department has traditionally used weight as a standard unit measure in determining gross unit price because a large number of steel products are most commonly priced using weight as the standard measurement. Because weight is so commonly used in this manner, many companies track costs based on a weight unit measure for determining selling expenses, inputs and other information. Thus, the Department is able to make comparisons between steel products on a consistent unit basis by using a weight-based standard, which assists the agency in achieving the most accurate result possible, which is specifically the case here. Therefore, for purposes of consistency and predictability, the Department has chosen to use unit weight in calculating the dumping margins rather than price per unit piece..." Petitioners assert that given the primacy of metal content in determining costs, grade ranks above weight as a matching criterion, and that weight- based calculations provide a more accurate and consistent means of comparison than alternative approaches. Petitioners argue that the use of per-piece comparisons in earlier reviews, where only identical comparisons were made, does not tie the Department to such a methodology, and that the Department has the discretion, even the obligation, to revise its matching methodology in light of altered circumstances and even merely as a result of progress on a learning curve. Finally, petitioners argue that if the Department does give any consideration to weight, it should be only as a matching criterion. Department's Position: We disagree with Viraj. The Department must be able to compare U.S. prices to comparison market merchandise which is not identical, and has varying weights. It is unclear how Viraj would have us conduct systematic price comparisons of merchandise sets containing non- identical models, without placing prices in each market on a common basis, expressed per unit of weight, as has been our approach consistently since February, 1996 in this order. See or example the preliminary results analysis memoranda for Panchmahal (Feb. 11, 1998), Bhansali (September 5, 2000), and Snowdrop (January 19, 2001). Viraj has misconstrued the model-match methodology precedents. Where comparisons of merchandise were seemingly done on a per-piece basis, the comparisons were of identical merchandise. Therefore, as petitioners argue, these early analyses amounted to de facto per-kilogram comparisons: derivation of per-kilo prices was simply not necessary since the models compared were identical in weight. Nor does the investigation provide a useful precedent in this regard, as Viraj suggests, since owing to a failure to cooperate on the part of the respondents involved, the Department resorted to facts available, and did not develop a definitive price-to-price analysis. See Concurrence Memorandum, Preliminary Determination, Certain Forged Stainless Steel Flanges from India, July 29, 1993, p. 1. Viraj has not cited, nor can we find, any examples of cases in the past six years to substantiate the assertion that per-piece analysis was continued beyond the early and distinct instances described above, or in any instance involving the comparison of non-identical merchandise. Contrary to Viraj's arguments the relevant precedents, both under this order and in steel cases generally, are consistent with calculating price per unit of weight, not per piece. Since we need to make comparisons between merchandise which is similar but not identical, where models compared are of different weights (though otherwise similar merchandise), we find using weight as a common denominator for price and cost to be a reasonable and accurate method of basing price comparisons, and one which is in keeping with general Department practice in this order. Viraj's concerns on comparing dissimilar merchandise are addressed by the inclusion of size among the comparison criteria and by the standard 20% DIFMER test. For the foregoing reasons, we have continued to make our calculations using price per unit of weight for the final results. 14. DIFMER Test and Per-Kilogram Costs Viraj notes that in the preliminary results, the Department conducted its standard test to avoid comparisons between merchandise which would require adjustments for differences in variable cost of manufacturing (DIFMERs) exceeding 20% of the cost of manufacture of the U.S merchandise, while using flange costs per kilogram rather than per piece. As a result, Viraj argues, "the DIFMER test creates a totally distorted picture..." Viraj further argues that using per-kilogram costs, rather than per-piece costs, in the DIFMER test, results in erroneous changes to the product matching, eliminating matches between some comparable products, and enabling inappropriate comparisons between other products. Viraj offers examples of two product comparisons which the cost comparison on a per-kilogram basis eliminated because of a cost variance greater than 20%, whereas, Viraj argues, on a per-piece basis these products' costs were within the 20% limit. Viraj also offers an example of a comparison which the per-kilogram DIFMER test allowed, although on a per-piece basis, the pieces varied by more than 20% in cost. Viraj further provides examples of comparisons which were made in the preliminary results between flanges of disparate size, which were of similar cost on a per-kilogram basis, and argues that "flanges of similar weight should be compared," (and, Viraj presumably means to suggest, flanges of dissimilar weight per piece should not be compared). Petitioners, in rebuttal, dispute Viraj's claims regarding the effect of using per-kilogram costs on the DIFMER test, and argue that no comparison "failures" occur as a result of the comparison method, as Viraj alleges. Department's Position: Viraj's examples of comparisons which would hypothetically be ruled out under its suggested per-piece price comparison method fail to demonstrate its assertion that per-kilogram costs distort the DIFMER test results. Viraj's examples merely show that in these two instances, Viraj's suggested per-piece comparison would involve the elimination of comparisons which the Department's established per-kilogram approach allows. We note also that our comparison uses the 20% DIFMER test to eliminate comparisons of merchandise with substantially different cost of manufacture. Therefore, we disagree with Viraj and have continued to calculate per-kilogram costs for DIFMER in these final results. 15. Comparisons of Rough to Finished Flanges Viraj argues that the Department inappropriately compared rough forgings sold in the United States to finished and proofed flanges sold in Germany. Viraj cites the criteria of comparability at section 771(16)(B)(iii) of the Tariff Act (19 U.S.C. § 1677(16)(B)(iii)), which directs the administering authority to seek merchandise "approximately equal in commercial value...". On this point, Viraj cites also Import Administration Policy Bulletin No. 92.2 (July 29, 1992), Timken Co. v. United States, 11 CIT 786, 792, 673 F. Supp. 495, 503 (1987), and four recent final Department determinations in other orders. Viraj argues that rough and finished flanges are sold to different customers, the former to machine shops, the latter to distributors. Viraj cites the "enormous differences in value" between the two stages of production. Viraj cites the finding of the Customs Court, in Midwood Industries v. United States, (Midwood) 13 F. Supp. 951 (Customs Court 1970), at 957, that (rough) "forgings are a material of further manufacture, having, as such, a special value and appeal only for manufacturers of flanges and fittings," as against finished flanges, which "...are end-use products, having, as such, a special value and appeal for industrial users and for distributors..." Viraj likewise cites the Court of International Trade decision in Boltex Manufacturing Co. v. United States, Slip Op. 2000-1118 (CIT Sept 8, 2000) (Boltex), which distinguished between forgings as a material for further manufacture, on the one hand, and flanges and fittings on the other, as "consumer goods" for industrial users and for distributors of industrial products. Petitioners argue that the respondents' contention that only flanges with identical finishes (i.e., rough-forged or unfinished, semi-finished, or fully finished) should be compared is flawed, as it would measure comparability based on price, and "elevate a relatively minor final finishing step to the level of 'such or similar' merchandise categories." Finally, petitioners argue that, should the Department use the finish characteristic for matching, it should follow the normal procedure for any product characteristic, and simply match as closely as possible based on the finish. Petitioners suggest that "proof-machined" flanges be considered equally similar to both rough and finished flanges because the degree of finish of such flanges varies greatly between these two levels. Respondents do not rebut petitioners' arguments. Petitioners construe Viraj's assertion that a rough flange "cannot be considered a flange" to amount to a plea for exclusion from the order for this category of flange, and argue that the scope of the order covers unfinished flanges. Petitioners further argue that finished and unfinished flanges, both within the scope of the order, can be compared, and that where differences are as significant as Viraj asserts, the Department's 20% DIFMER cap will automatically avoid inappropriate comparisons. Department's Position: We agree with Viraj that finish is a criterion to consider in model-matching, but then, our analysis does consider finish, and seeks first to match U.S. merchandise to comparison sales of product with the same finish. See the preliminary results analysis program log for Viraj at lines 59-61, 180, 187, 220, 221, 226, 229, 243, 244, 250, 253, 456, 619-623, 996, 1120-1124, 1378, 1384, 1386, 1399, 1415. We also note that the analysis program excludes comparisons to merchandise with cost differences representing more than 20% of the cost of production of the U.S. merchandise, as noted above. See the preliminary results analysis program log for Viraj at lines 1493-1526. We do not find the cases cited by respondents, Midwood and Boltex, to be directly applicable to the question of merchandise comparability for antidumping purposes, since they involved customs classification issues. Criteria used for customs classifications are not necessarily the same as those used in antidumping calculations. Concerning Viraj's assertion that finished and unfinished flanges are not comparable because they are purchased by different types of customers, we note that Viraj chose not to claim a level of trade adjustment in its response, as would be the appropriate way to request and permit the Department to make an adjustment for this type of difference in customer. See Viraj's June 6, 2000 section B and C questionnaire response at B-19 and C-17. Nor did we find that a level of trade adjustment is appropriate. Further, we note that in order to give still greater importance to the finish characteristic in our matching hierarchy, as Viraj's suggestion implies, we would need to remove some other matching criterion from its position, for example, grade of steel, flange size, or flange type. Viraj, however, fails to suggest what other criterion it would make less important, and there is no reason on the record to alter the criteria. For the above reasons, we agree with petitioners that finished and rough flanges, both of which are within the scope of the order, can be compared. Accordingly, for these final results, we have continued to use the model- match criteria employed in past reviews of this order. 16. Comparison to DIN Standards vs ASTM Standards Viraj argues that in selecting the largest market rather than the one with most similar industrial standards, the Department used the wrong comparison market. Viraj notes that in a prior review of Akai Impex Ltd., the Department did not use the largest third country market, Japan, because, Viraj argues, sales to that market were to a different standard than U.S. sales. Instead, Viraj notes, the Department used Akai's next largest market, Canada, because its sales there were of ASTM flanges and thus were comparable to U.S. sales. Viraj cites Certain Forged Stainless Steel Flanges from India, 61 FR 14073, March 29, 1996. Viraj further argues that flanges of the DIN standard sold in Germany "are totally different then (sic) the ASTM flanges" sold in the United States, and that units sold for the same application under the different standards vary as to size, thickness, outside diameter and weight. Viraj states that the Department, in its verification report, noted the differences asserted by Viraj in these respects. Petitioners, in rebuttal, assert that a slip-on flange (as an example), whether produced to DIN standards or to ASTM standards, will still look the same, serve the same function and be of comparable size and weight. Petitioners argue that as the largest market, Germany provides the best indication of fair value for Viraj's U.S. prices. Petitioners note that Viraj fails to substantiate its assertions on precedents for using markets other than the largest market. Petitioners urge the Department to reject Viraj's arguments to rule out comparisons between flanges produced to DIN and ANSI standards. While conceding that flanges produced to DIN standards could be slightly different from the merchandise sold in the United States, the actual differences, petitioners argue, are very likely minor or non-existent. Department's Position: We agree with petitioners that Viraj fails to provide justification for deviating from our general practice, which is to use the largest comparison market. We note that in volume, Viraj's German market surpasses its Canadian market significantly. We further agree with petitioners that the Akai Impex 1995-1996 precedent, while it points to the Department's discretion in selecting comparison markets, does not necessarily guide the present case, since that case involved a different set of markets, of different relative size. We selected Germany on the simple, consistent, and predictable basis of it being the largest available comparison market. Viraj has provided insufficient grounds for us to depart from our normal practice. Accordingly, for these final results we have continued to use Germany as the third country market. 17. Use of Reported vs. Standard Weights Viraj argues that the Department used the wrong weights in converting Viraj's prices and costs to a per-kilogram basis, by using the weights which Viraj reported in its questionnaire responses, which, Viraj states, are the input weights, not the finished weights. Viraj asserts that the Department has the standard weight chart for Viraj's flanges amongst the verification exhibits, and should use these standard weights instead of the weights in the response data files. Petitioners, in rebuttal, argue that the Department correctly used the reported weights, that Viraj's claim that it did not know the actual weights is puzzling, and that Viraj never before indicated that it had reported the input weights instead of the finished weights. Petitioners also assert that Viraj's late "discovery" is untimely' new information and calls into question the integrity of Viraj's entire response. Department's Position: We agree with petitioners that we correctly used the reported weights. We also note that in our September 20, 2000 supplemental questionnaire we specifically requested Viraj to pay particular attention to the correctness of its reported weights, asking Viraj the following: Please check the accuracy of your reported weights, because we base our calculations on price per unit of weight, not per piece. Viraj's untimely suggestion to use the standard weight chart in the verification exhibits to alter the response data now, presumably by re- keying all the submitted weight variables one-by-one, would indeed amount to a use of new and untimely information, because it asks the Department, after the verification and the preliminary results, to completely recalculate all of Viraj's prices, costs, expenses and profits on the basis of an unsolicited chart proffered by Viraj in passing at verification. More important, the burden is on the respondent, not the Department, to prepare, type, submit and check their own data, the more so when we have drawn attention to a precise data field as a key pricing variable early in the review. Accordingly, we have retained the weight values as originally and repeatedly submitted by Viraj prior to the preliminary results and the verification. Recommendation Based upon 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)