67 FR 37391, May 29, 2002 A-533-808 ARP: 12/1/99-11/30/00 Public Document IA/III/IX: CB MEMORANDUM TO: Faryar Shirzad Assistant Secretary For Import Administration FROM: Joseph A. Spetrini Deputy Assistant Secretary for Import Administration, Group III SUBJECT: Issues and Decision Memorandum for the Administrative Review of Certain Stainless Steel Wire Rod from India for the Period of Review ("POR") Covering December 1, 1999 through November 30, 2000 -------------------------------------------------------------------------- SUMMARY We have analyzed the comment and rebuttal briefs of interested parties in the 1999-2000 administrative review of the antidumping duty order covering certain stainless steel wire rod ("SSWR") from India. As a result of our analysis, we have not made changes to the margin calculations. 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 comment and rebuttal briefs by interested parties. 1. Collapsing the Viraj Group 2. Entry Value 3. Import Duties 4. Grade 304L and 304LER 5. Negative Dumping Margins 6. Comparing Individual U.S. prices to12-month Average Cost BACKGROUND On January 8, 2002, the Department of Commerce ("the Department") published the preliminary results of review of its administrative review of the antidumping duty order on stainless steel wire rod from India. See Stainless Steel Wire Rod From India; Preliminary Results of Antidumping Duty Administrative Review, 67 FR 865 (January 8, 2002) ("Preliminary Results"). The merchandise covered by this order is stainless steel wire rod ("SSWR") as described in the "Scope of the Review" section of the Federal Register notice. The period of review ("POR") is December 1, 1999 through November 30, 2000. The respondent is the Viraj Group, Ltd. ("Viraj Group"). We invited parties to comment on our preliminary results of review. We received written comments on February 7, 2002, from the Viraj Group and on February 8, 2002 from Petitioners. On February 12, 2002, we received rebuttal briefs from the Viraj Group and Petitioners, respectively. DISCUSSION OF THE ISSUES Comment 1: Collapsing the Viraj Group Petitioners argue that the Department improperly determined that the three Indian companies of the Viraj Group, Viraj Forgings, Ltd. ("VFL"), Viraj Alloys, Ltd. ("VAL"), Viraj Impoexpo, Ltd. ("VIL"), should be collapsed and considered one entity. Petitioners assert that the evidence on the record does not support a finding that these companies constitute one entity. Petitioners support the collapsing of only VIL and VFL into one entity, separate from VAL. Petitioners argue that the Department misinterpreted the meaning of section 351.401(f)(1) of its regulations. Petitioners argue that the Department incorrectly determined that VAL, VIL and VFL all produced wire rod during the POR. Petitioners argue that none of these companies produced wire rod without the help of another independent sub-contractor or another affiliated party. Petitioners assert that none of the companies has the production equipment in place that would allow it to produce wire rod without outside contracting services. Petitioners also argue that the focus of section 351.401(f)(1) is on production facilities and not product lines and that VAL is the only company in the Viraj Group that actually melts steel and produces billets. Petitioners further assert that VIL and VFL do not melt steel, produce billets or roll billets into wire rod and that the only function that VIL and VFL perform is annealing or pickling wire rod that was rolled by a sub- contractor. Petitioners argue that VIL and VFL cannot perform the manufacturing functions of VAL and they argue that substantial re-tooling would be necessary to restructure manufacturing priorities. Petitioners contend that if VAL wanted to add annealing or pickling capabilities it would require a substantial capital investment. Petitioners also argue that if VFL or VIL wanted to add steel-making capabilities in order to cast billets it would require a substantial investment of capital. Petitioners maintain that the differences in the production facilities are shown in the balance sheets of each company. Petitioners point out that in the previous administrative review of stainless steel wire rod from India, the Department determined not to collapse VAL and VIL. Petitioners state that since the prior review, none of the companies in the Viraj Group have added new equipment. Petitioners argue that the distinction the Department made between the current administrative review and the prior administrative review with regard to collapsing is irrelevant. Petitioners argue that neither the regulations or the statute state that two affiliated companies are automatically collapsed if both produce the subject merchandise. Petitioners assert that without the use of independent unaffiliated sub-contractors, VAL, VFL and VIL are unable to produce subject merchandise. Petitioners assert that the Department's determination that each of these companies produces the subject merchandise is a "distinction without a difference." Petitioners further argue that the Court of International Trade ("CIT") upheld the Department's decision in the prior review not to collapse VAL and VIL. In that decision the CIT stated that "the production facilities necessary to manufacture the diverse products were sufficiently different and therefore would require substantial re-tooling in order to restructure manufacturing priorities." See Viraj Group, Ltd. v. United States, 162 F.Supp.2d 656, 670 (CIT 2001). Petitioners argue that the production facilities of the companies of the Viraj Group have not changed since this ruling, and that the Department wrongly concluded that VAL, VIL and VFL each manufacture the subject merchandise. Petitioners cite other Department determinations that support not collapsing VAL with VIL and VFL. See e.g., Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Bar From Germany, 67 FR 3159 (January 23, 2002), and Certain Porcelain-on-Steel Cookware from Mexico: Final Results of Antidumping Duty Administrative Review, ("Cookware") 62 FR 42496 (August 7, 1997). Petitioners emphasize that in Cookware the Department noted that even though two affiliated firms produced "similar" merchandise, one did not have the ability to manufacture the quality and style of the cookware produced by the other company. Petitioners argue that the Department has in the past not considered whether there is a significant potential for manipulation if the producers have not met the substantial re-tooling criteria. Petitioners contend that in this case, since VIL and VFL do not have production facilities similar to VAL that the potential for manipulation between the companies does not exist. Petitioners state that VIL should be collapse with VFL because these two producing companies have significant potential, through their sales and production operations, of manipulating prices or affecting production decisions. Petitioners argue that VAL should be considered a separate entity and therefore, the use of home market sales made by VAL would be an inappropriate basis for normal value. Finally, Petitioners argue that the Department should use VIL's and VFL's combined sales to Mexico instead of VAL's home market sales. The Viraj Group argues that the Department's preliminary decision to collapse VAL, VIL and VFL is correct. The Viraj Group further argues that all three of these companies are producers under the statute because they used subcontracted facilities to make wire rod. Respondent further argues that each member of the Viraj Group used the same subcontracted facilities to produce the same type of wire rod during the POR. The Viraj Group asserts that if the Department were to assign each member of the Viraj Group different dumping margins, they could shift production and sell the subject merchandise through the company with the lowest margin. The Viraj Group argues that the Department's decision should reflect reality and should continue to collapse the three companies so that an accurate margin can be calculated. Finally, the Viraj Group argues that Petitioners did not cite any support for their contention that only if all parties make the raw material used to make the subject merchandise can they be collapsed. Department's Position: The Department disagrees with Petitioners that the decision to collapse the three Indian companies, VAL, VIL, and VFL, in the preliminary results of review was incorrect. See Memorandum from Edward C. Yang to Joseph A. Spetrini: 1999-2000 Administrative Review of Stainless Steel Wire Rod from India; Collapsing Memorandum of the Viraj Group, Limited, ("Collapsing Memorandum") dated December 31, 2001. Petitioners argument that the Department misinterpreted the meaning of section 351.401(f)(1) of the Department regulations is incorrect. Petitioners state that the focus of section 351.401(f)(1) is on production facilities and not product lines. This distinction is not relevant in this case, as all three Indian companies use the production facilities of the same unrelated company to manufacture wire rod through a sub-contracting arrangement. It is irrelevant that only VAL has steel making capabilities. VIL and VFL do not need steel making capabilities in order to produce subject merchandise, as all three companies are currently producing wire rod, through the sub-contracting process. Thus, it is unnecessary for any substantial re-tooling to take place for this process to continue. Additionally, each of the three companies can currently produce subject merchandise without the help of the other two companies and without re- tooling production facilities. Simply because VFL and VIL purchase billets from VAL, does not make VAL's steel making ability necessary for VFL and VIL to continue to produce subject merchandise. In theory, VIL and VFL could purchase billets from another supplier. Also, the subject merchandise in the case does not require annealing or pickling. Further, VAL, VIL, and VFL all produce similar or identical merchandise. Therefore, VIL and VFL can both separately produce subject merchandise without using the facilities of the other. Substantial re-tooling is not necessary for each of these three companies to continue to produce subject merchandise because they are all currently using the same production facilities, those of the sub-contractor, to produce the subject merchandise. Each is able to produce subject merchandise without changing production facilities or production lines. Petitioners cite to the previous administrative review and subsequent CIT opinion in support of their argument. In the prior review, the Department did not collapse the companies of the Viraj Group. However, the facts in the prior review are different than in this current review. In the prior review only VIL was producing and shipping subject merchandise to the U.S. In the instant review, both VIL and VFL produced and shipped subject merchandise to the U.S. Section 351.401(f)(1) of the Department's regulations states that the Department will treat "two or more affiliated producers as a single entity where those producers have production facilities for similar or identical products that would not require substantial re-tooling of either facility in order to restructure manufacturing priorities and the Secretary concludes that there is a significant potential for the manipulation of price or production." In the prior review, VAL was not a producer of subject merchandise and the Department stated in its issues and decision memorandum that "VAL and VIL do not meet the requirements of section 351.401(f), nor is there any other basis for collapsing them." See Stainless Steel Wire Rod From India; Final Results of Antidumping Duty Administrative Review, 65 FR 31302, (May 17, 2000) and accompanying Issues and Decision Memorandum at Comment 6. In the previous review, neither VAL nor VFL was a producer of subject merchandise as required by the regulations. See 19 CFR 351.401. In the prior review, VAL was not using the facilities of the sub-contractor to make wire rod. Therefore, in the previous review, the Department concluded that substantial re-tooling would be necessary for VAL and VIL to produce subject merchandise. However, in the current review, the Department can not ignore the fact that the three Indian companies are producing subject merchandise and could continue to do so without any substantial re-tooling to their companies. The Department has determined that VAL, VIL, and VFL each are producers since they use the same sub-contractor who does not acquire ownership and does not control the sale of the subject merchandise. See Preliminary Results. In addition, the Department's regulations state that "the Secretary will not consider a toller or subcontractor to be a manufacturer or producer where the toller or subcontractor does not acquire ownership, and does not control the relevant sale, of the subject merchandise or foreign like product." See 19 CFR 351.401(h). This means that the sub-contractor is not the producer of the wire rod, because the companies of the Viraj Group retain ownership of the material and control the sale of the subject merchandise; therefore, VIL, VFL, and VAL each are producers of subject merchandise. Moreover, each company is using the same toller and same billet supplier and is producing identical or similar merchandise. Therefore, no substantial re- tooling is necessary for all three companies to produce subject merchandise because each is currently using the same production facilities, even if they do not each own the production facilities necessary to produce wire rod. Furthermore, the Department has previously found that although one of the criteria for collapsing under section 351.401(f) requires that the affiliated party's production facilities be susceptible to simple re-tooling, the fact that the tolling did not occur on the affiliates' premises, meaning there could be no re-tooling, does not mean the affiliates could not be collapsed. See Stainless Steel Wire Rod From Sweden, Notice of Final Determination of Sales At Less Than Fair Value, 63 Fed. Reg. 40452-54 (July 29, 1998) ("SSWR from Sweden"). The Department agrees with the Viraj Group that the idea that collapsing can occur only if all parties make the raw material used to make the subject merchandise is not supported by the regulations. Additionally, Petitioners' argument that the Department should only collapse VIL and VFL into one entity is also incorrect because VAL is also producing subject merchandise and is able to continue to produce subject merchandise without substantial re-tooling. Petitioners argued that if VAL wanted to add annealing and pickling capabilities it would require a substantial capital investment. However, Petitioners ignore the fact that the wire rod does not need to be pickled or annealed to be considered subject merchandise. Therefore, it is unnecessary for VAL to require the services or production facilities of VIL or VFL. Once the sub-contractor finishes processing the wire rod, each of the companies is the owner and producer of the unpickled and unannealed wire rod, which is subject merchandise. Thus, shifting of production between the three companies would not require substantial re-tooling given the fact that each company uses the same production facilities (i.e., sub- contractor). Accordingly, based on the evidence on the record, we have concluded that the companies would be able to shift the production of subject merchandise between the companies without substantial re-tooling any of the companies. Petitioners claim that the Department can not "automatically" collapse affiliated producing companies is correct. The Department did not automatically collapse the three companies. It throughly analyzed the required elements from the regulations. See Collapsing Memorandum. At the preliminary state of this proceeding, the Department analyzed the criteria it uses to determine whether collapsing is warranted. See Preliminary Results. Although the Department considers all of the factors in the regulations, no one factor is determinative. Rather the determination whether to collapse is based on the totality of the circumstances. See SSWR from Sweden at 40449 and 40453 and Nihon Cement Co., Ltd. v. United States, 17 CIT 400, 425 (1993). Here, we find that collapsing is appropriate based on a totality of the circumstances as explained in the Collapsing Memorandum from the preliminary results of review. We are, therefore, not making any changes for the final results of review for this issue. Comment 2: Entry Value Petitioners argue that the Department should recalculate entry value in calculating the assessment rate for the Viraj Group. Petitioners assert that the Viraj Group misreported entry value because it failed to deduct the various charges incidental to bringing the merchandise to the United States. Petitioners contend that this results in an understatement in the duties to be collected because the duty rates were watered down as the total collectible duties were divided by an exaggerated denominator. The Viraj Group argues that its questionnaire response has already been verified. Respondent also argues that Petitioners did not raise this issue before verification, much less at the time of Viraj's questionnaire responses. The Viraj Group asserts that when, as in this case, the exporter sells to a trading company that in turn sells to the United States, there can be cases where the exporter's price to the trading company is less than the entered value, yet both figures can be correct. Department's Position: Petitioners are correct that for certain sales the exporter's price to the trading company is less than the entered value into the United States. However, there is no evidence on the record that indicates that any inappropriate charges are included in entered value. As a result, there is no basis upon which to make an adjustment to the entered values at issue. Accordingly, as there is no information on the record to indicate that any inappropriate charges were included in entered value, the Department is not changing its calculations with respect to this issue and will continue to use the reported entered value. Comment 3: Import Duties The Viraj Group argues it used government provided Duty Entitlement Passbook Benefits ("DEPB") to import, without payment of customs duties, raw materials to make the subject merchandise, stainless steel wire rod. The Viraj Group states that its reported raw material costs include an amount for these import duties not paid. Respondent asserts that the DEPB used in place of import duty payment is shown in the Viraj Group's records as "Contra" on the "Income" side in the Profit and Loss Statement. The Viraj Group argues that its books thus reflect that there is no payment by the Viraj Group of import duties. Respondent maintains that at verification it provided all relevant information on import documents to the Department officials. The Viraj Group asserts that the Department verifiers said that they were satisfied with the information. The Viraj Group argues that the Department officials took supporting documents of these facts. See Exhibits 21 and 30 of the verification report. The Viraj Group argues that in its responses they explained that the import duty was never paid because DEPB was deducted from the reported gross direct material cost that included the import duty never paid to report the Viraj's actual direct material cost. The Viraj Group asserts that it reported and the Department verified the actual material cost which should be used in the dumping margin calculation. The Viraj Group contends that it is not requesting a duty drawback adjustment but that the Department not inflate the Viraj Group's costs above what they actually were. Petitioners argue that the Department did not err in treating import duties as a component of cost production. Petitioners assert that the Department did not "inflate" the Viraj Group's costs, but that the Department based its calculations on those costs that were reported by the Viraj Group, verified by the Department, and accepted by the Viraj Group's independent auditors. Petitioners contend that the Viraj Group uses the same arguments they used from the previous administrative review, where the Department found no link between the import duties paid and the DEPB rebates. Thus, Petitioners state that the Department determined that the DEPB did not qualify as a duty drawback adjustment. Further, Petitioners argue that the Viraj Group offered no new evidence that would alter the Department's determination. Petitioners argue that, as in the prior review, the Viraj Group has not established that any import duties that were allegedly offset by the DEPB benefits were included in its books and records as an actual cost of materials. Additionally, Petitioners state that the DEPB benefits are still recorded as revenue, not as an offset to an expenses in the Viraj Group's financial statements. Petitioners contend that the Viraj Group has not established that it included import duties that were never paid in reported costs of materials. Petitioners argue that the Viraj Group's claim is not supported by facts on the record and it is contradicted by the Department's verification and the independent audit of the Viraj Group's financial records. Petitioners assert that at verification the Department verified that the value of raw materials are recorded by VIL and VFL include customs duties. Petitioners contend that if the Viraj Group had included import duties that it never paid in the valuation of its stocks then it would have been noted as a material misrepresentation by the auditors. Petitioners further contend that the Viraj Group has stated on the record in numerous places that its reported costs were based on actual costs. See the Viraj Group's April 18, 2001 response at 23 and 31. Petitioners argue that this means that the Viraj Group costs were not based on some costs that were never incurred, such as the import duty that the Viraj Group argues was never paid. Petitioners assert that the Viraj Group's response also contains numerous references to the payment of import duties. See e.g., the Viraj Group's March 1, 2001 response at 35 and 51. Petitioners assert that the verification of this issue also shows that the total import duty amount was actually paid for each item of raw material. See Verification Report at Exhibit 24 and 30. Petitioners argue that the Department has repeatedly rejected the Viraj Group's claim regarding import duties and DEPB benefits, and therefore argue that the Viraj Group should have known it would not receive an adjustment for duty drawback. Petitioners argue that the CIT's ruling upholding the Department's denial of respondent's claim for a reduction to raw material costs in the previous review applies with equal force to the current review. See Viraj Group, Ltd. v. United States, 162 F.Supp.2d 656, 670 (CIT 2001). Petitioners contend that in the prior review, as in the current review, the Viraj Group has failed to provide any evidence that its costs of materials included import duties that were offset by the DEPB benefit. Petitioners argue that the record indicated that the import duties were actually paid by the Viraj Group and that these duties were included in the cost of materials and that the Department has verified this claim. Department's Position: We agree with Petitioners that the Viraj Group's claim that the import duties included in the reported raw material costs were never paid is not supported by facts on the record. Indeed the results of the Department's verification and the independent audit of the Viraj Group's financial records indicate that the duty was paid. At verification, the Department verified that the value of raw materials, recorded by VIL and VFL, included customs duties. The verification report states that "...Viraj stated that for raw-material imports, the ledgers include the value, customs clearance, and any taxes incurred on the imports." See Sales and Cost Verification of Viraj Alloys, Ltd. ("VAL"), Viraj Forgings, Ltd. ("VFL"), and Viraj Impoexpo Ltd. ("VIL") in the Antidumping Administrative Review of Certain Stainless Steel Wire Rod ("SSWR") from India (December 31, 2001) ("Verification Report") at 20. Also, the verification reports states that "(w)e asked Viraj to explain how customs duty on the importation of raw material is accounted for in the company's books. Viraj explained that the customs duty is included in the total value of the raw material and is recorded as such in the company's raw material ledgers." See Verification Report at 28. Moreover, if the Viraj Group had recorded import duties that it never actually paid in the manner described, then we would have expected it to be noted in the Viraj Group's financial statements. There was no such statement in the financial statements. The worksheets provided by the Viraj Group show the calculation of the duty but not that the duty was never paid. Additionally, the Viraj Group's statements in its response that the duty was not paid is also listed only on a worksheet, and not supported by financial records. See the Viraj Group's June 20, 2001, response at 33. Accordingly, the Department concludes that the record indicates that the duty was paid and there is insufficient evidence on the record to conclude that the import duties were not paid. Therefore, the Department is not changing its calculations with respect to this issue. Comment 4: Grade 304L and Grade 304LER The Viraj Group argues that grade 304LER is a different grade than grade 304L. Respondent states that 304LER has different chemistry and different uses than grade 304LER. The Viraj Group asserts that grade 304LER is a specialized grade used to make electrodes, and has a specific chemistry for that purpose. The Viraj Group argues that grade 304L wire rod is a general-purpose, standard grade and cannot be used to make electrodes. Respondent states that grades 304LER and 304L wire rod are not substitutable from either an end-user or producer standpoint. The Viraj Group argues that 304L grade raw material is standard, commodity material and thus much cheaper than 304LER grade raw material. Respondent argues that the total cost of producing 304LER wire rod is 11% more than 304L wire rod. The Viraj group states that the reported Section B home market selling prices for 304LER grade wire rod are about Rupees 70,000, while the reported prices for 304L grade wire rod are Rupees 61,000 to Rupees 63,000. The Viraj Group states that the 12% higher 304LER wire rod price reflects the higher cost of this wire rod and its unique chemistry. Respondent states that 304L and 304LER wire rod are distinct, different products, warranting a different product code (CONNUM), and should be treated separately as far as product matching (i.e., 304L and 304LER wire rod should not be treated as identical). The Viraj Group states that it produces much more of the commodity, general-purpose 304L wire rod than the specialized 304LER. Respondent argues that basing 304LER cost on an average 304L and 304LER wire rod costs understates 304LER wire rod actual cost (by 10%-12%), erroneously inflating the profit on 304LER wire rod sales by 10%-12%. Also, Respondent argues that actual profit on home market sales of 304LER wire rod is overstated and thus distorts the profit margin used for constructed value. The Viraj Group asserts the Preliminary Results found very few home market sales were above cost such that this 304L/304LER grade distortion drove the profit margin used for constructed value, and thus the dumping margin on all U.S. sales. The Viraj Group further states that when home market 304LER wire rod sales are compared to U.S. 304L wire rod sales, with the two treated as identical, with no adjustments for difference in cost, a dumping margin is created that does not exist. Additionally, Respondent argues that the Department did not make a 10%-12% difference in merchandise adjustment when comparing U.S. 304L wire rod sales to home market 304LER market sales. Respondent argues that the Preliminary Results did not state under what standard the differences between the two grades could be deemed insignificant. The Viraj Group asserts that the physical differences determine the use to which the particular wire rod can be applied, render the two types of wire rod not interchangeable from an end-user or producer standpoint. Thus, respondent contends that there is more than a 10% difference in cost and price between them. Lastly, the Viraj Group argues that the Department should not have used the simple average of the cost for 304L and 304LER, but should have used the weighted-average cost of the two grades, and that the Department should at least use the weighted-average cost for grades 304L and 304LER wire rod if it continues to combine the two grades into one CONNUM. Petitioners argue that grades 304L and 304LER were properly treated as identical grades in the preliminary results and should continue to be treated as identical grades for the final results. Petitioners contend that the Viraj Group did not follow the Department's instructions to submit one costs that represented a weighted-average cost for 304L and 304LER. Additionally, Petitioners argue that using numerous grade distinctions to dictate product comparison might lead to results that would not be a meaningful measurement of price discrimination between markets. Also, Petitioners assert that this would be a violation of Article 2.4 of the World Trade Organization ("WTO") Antidumping Code, which states that a "fair comparison shall be made between the export price and the normal value." Petitioners argue that the Department has the authority to create averaging groups of merchandise that are almost identical because having similar grades satisfies the statutory requirements that averaging be based on sales of all comparable merchandise. Petitioners maintain that the fundamental objective of the averaging provision of the WTO antidumping code amendment was to eliminate arbitrariness in antidumping calculations resulting from the historical use of individual transaction and price comparisons. Furthermore, Petitioners contend that the Department can calculate an average across a range of products as long as the products are comparable, and contend the products (i.e., 304L and 304LER) are comparable. In addition, Petitioners contend that whether to include a particular physical distinction is dependent on the Department's determination of whether or not these differences are commercially significant. Petitioners argue that grades 304L and 304LER have only minor differences which are commercially insignificant. Petitioners state the Department was justified in comparing the costs for 304L and 304LER which minimized the distortion in the price comparison which could have resulted from using overly narrow grade definitions. In defense of their position, Petitioners cite Stainless Steel Bar from Taiwan which shows that the Department rejected the respondent's segregation of grade codes because the company did not demonstrate that the two manufacturing processes performed on the merchandise required certain chemical properties at the raw material input stage. See Notice of Final Determination of Sales at Not Less Than Fair Value: Stainless Steel Bar From Taiwan, 67 FR 3152 (January 23, 2002) and Issues and Decision Memorandum for the Final Determination of the Investigation of Stainless Steel Bar from Taiwan (January 15, 2002). Finally, Petitioners argue that the Viraj Group never demonstrated that the reported 304L and 304LER grades have different chemical properties at the raw material input stage. Department's Position: We agree with Petitioners that grades 304L and 304LER should be considered as one grade. We have determined that these two grades are very similar in chemical content and are not sufficiently different to justify assigning each a separate weight. The Viraj Group stated that "(t)he specifications for the grades sold in the home market and USA are as per American Iron and Steel Institute (AISI) Grades." See the Viraj Group's supplemental Section A-D response dated August 27, 2001. However, the Department was unable to find certain reported grades in the AISI standard grade specifications (e.g., 304LER). We therefore assigned individual weighting factors to reported grades provided they were recognized by the AISI. We also assigned unique factors to other reported grades or foreign grade specifications if the chemical content was sufficient to distinguish them from any AISI grade to which we already had assigned a ranking factor in our matching hierarchy. Where a non-AISI grade specification was similar in chemical composition to an AISI grade, we did not assign a unique weighting factor to that particular grade. Rather, we assigned it the same weight as the comparable AISI grade. We did not assign unique weights to certain "sub" grades (e.g., 304L and 304LER) because the percentage ranges of elements did not differ from the broader AISI grade. Further, the Viraj Group did not provide the information the Department requested in order to calculate a weighted-average cost for grade 304L and 304LER. In a supplemental questionnaire, the Department asked the Viraj Group to provide one cost which represents a weighted-average cost for 304L and 304LER. See question 21 of the Viraj Group's response dated October 23, 2001. The Viraj Group did not provide any worksheets or supporting documentation but merely stated a figure which it claimed was the weighted average of the two grades. See the Viraj Group's November 14, 2001 response at 1. The Department was unable to replicate this figure or understand how the Viraj Group arrived at it. Furthermore, the Viraj Group did not provide any information on the record that would allow the Department to calculate a weighted average of these grades. Therefore, the Department cannot rely on it for this final results of review. The Viraj Group's argument that weighting the two grades as one will distort the dumping margin is unpersuasive, because using overly narrow grade definitions could also have a distorting effect on the margin. Moreover, the Viraj Group provided no evidence that weighting these grade separately will alter the dumping margin. Therefore, we continued to use the simple average of the costs of the two grades, as there is not sufficient information on the record to calculate a weighted-average of grade 304L and 304LER. Comment 5: Negative Dumping Margins The Viraj Group argues that the Department found positive and negative dumping margins for U.S. sales over the 12 month POR. The Viraj Group asserts that the preliminary results dumping margin calculations treated the positive dumping margins as 0% dumping, rather than the negative dumping margins that they are. The Viraj Group contends that this led to a distorted average. Respondent states that the WTO Anti-Dumping Code requires (a) fair comparisons as to dumping margin calculations and (b) that averaging be done on the basis of the positive and negative margins during POR without just considering more heavily, in a biased and one- sided way, the positive dumping margins. The respondent raises the Indian Bed Linen case and states that such "zeroing" as done to the Viraj Group is contrary to the WTO. See European Communities - Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India, WT/DS141/R, para. 6.116 (October 30, 2000) ("Bed Linen Panel Decision"); WT/DS141/AB/R (March 1, 2001) ("Bed Linen Appellate Body Decision") ("collectively, Bed Linen Decision") Petitioners argue that the Department has consistently determined that its margin calculation methodology is consistent with its statutory obligations under the Act. Petitioners cite Stainless Steel Bar from the United Kingdom which affirms the Department's position on this issue. See Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Bar from the United Kingdom, 67 FR 3146 (January 23, 2002). Department's Position: We agree with Petitioners. As we have discussed in prior cases, our methodology is consistent with our statutory obligations under the Act. See, e.g., Notice of Final Results of Antidumping Duty Administrative Review: Stainless Steel Sheet and Strip in Coils from Japan, 67 FR 6495, (February 12, 2002), and accompanying Issues and Decision Memorandum, at Comment 1. Sales that did not fall below normal value are included in the weighted-average margin calculation as sales with no dumping margin. The value of such sales is included in the denominator of the weighted-average margin along with the value of dumped sales. We do not, however, allow sales that did not fall below normal value to cancel out dumping found on other sales. The Act requires that the Department employ this methodology. Section 771(35)(A) of the Act defines "dumping margin" as "the amount by which the normal value exceeds the export price or constructed export price of the subject merchandise." Section 771(35)(B) of the Act defines "weighted- average dumping margin" as "the percentage determined by dividing the aggregate dumping margins determined for a specific exporter or producer by the aggregate export prices and constructed export prices of such exporter or producer." These sections, taken together, direct the Department to aggregate all individual dumping margins, each of which is determined by the amount by which normal value exceeds export price or constructed export price, and to divide this amount by the value of all sales. The directive to determine the "aggregate dumping margins" in section 771(35)(B) of the Act makes clear that the singular "dumping margin" in section 771(35)(A) of the Act applies on a comparison-specific level, and does not itself apply on an aggregate basis. At no stage in this process is the amount by which export price or constructed export price exceeds normal value on sales that did not fall below normal value permitted to cancel out the dumping margins found on other sales. This does not mean, however, that sales that did not fall below normal value are ignored in calculating the weighted-average rate. It is important to note that the weighted-average margin will reflect any "non-dumped" merchandise examined during the administrative review; the value of such sales is included in the denominator of the dumping rate, while no dumping amount for "non-dumped" merchandise is included in the numerator. Thus, a greater amount of "non-dumped" merchandise results in a lower weighted- average margin. This is, furthermore, a reasonable means of establishing duty deposits in investigations, and assessing duties in reviews. In an administrative review, the deposit rate calculated must reflect the fact that the Customs Service is not in a position to know which entries of merchandise entered after the close of the present review period are dumped and which are not. By spreading the estimated liability for dumped sales across all reviewed sales, the weighted-average dumping margin allows the Customs Service to apply this rate to all merchandise entered after the close of the review period. Finally, the Bed Linen decisions concerned a dispute between the European Union and India. See collectively, Bed Linen Decision. We have no WTO obligation to act based on these decisions. See also, Certain Preserved Mushrooms from India: Final Results of Antidumping Duty Administrative Review, 66 FR 42507 (August 13, 2001) and accompanying Decision Memo at Comment 16. Accordingly, we are continuing to apply our margin calculation methodology pursuant to Department practice. Comment 6: Comparing Individual U.S. prices to 12-month Average Costs The Viraj Group argues that the Preliminary Results uses the weighted- average cost for the whole POR as the wire rod cost of each CONNUM product. Also, respondent states that prices for raw material to produce wire rod, the wire rod price and cost itself, decreased significantly over the POR. The Viraj Group contends that comparing individual U.S. prices to POR average cost under these circumstances artificially creates a dumping margin. The Viraj Group argues that the Department should use the monthly cost database which it submitted with its June 20, 2001 response. Petitioners argue that the Viraj Group did not provide any support documentation to its questionnaire responses to support its argument that its prices for raw material to make wire rod decreased significantly over the POR. Petitioners argue that the Viraj Group did not cite any Department precedent that would require the Department to change its longstanding averaging methodology for administrative reviews. Also, Petitioners contend that the Department's 90/60-day methodology is proper to use in this proceeding. Additionally, Petitioners argue that in the current review there is not significant inflation and no evidence of significant and consistent declines in prices that would require the Department to change its standard average methodology for this administrative review. Finally, Petitioners argue that the Department should continue to base normal value for the POR on its standard average methodology. Department's Position: We agree with Petitioners that the Viraj Group did not provide sufficient supporting documentation to its questionnaire responses to support its argument that its prices for raw material to make wire rod decreased significantly over the POR. The Viraj Group stated in its June 20, 2001 submission that there was a large variance in the raw material cost from month to month during the POR and that there was a significant variation in prices during the POR. See the Viraj Group's June 20, 2001 submission at 3. The Department analyzed the data provided by the Viraj Group and was unable to substantiate any such variation. The Department's analysis of this information indicated that the Viraj Group's direct material costs for each CONNUM did not show a significant variance as many of the costs remained the same, increased, or increased and decreased over the POR. Furthermore, the Department sent a letter to the Viraj Group on July 27, 2001, which informed the Viraj Group that due to the major deficiencies in the June 20, 2001 section D response, the Department was considering the submission non-responsive and requested the Viraj Group to resubmit its section D response. See Letter from Rick Johnson to the Viraj Group dated July 27, 2001. When the Viraj Group resubmitted its section D response on August 13, 2001, the Viraj Group did not resubmit a revised monthly cost database in their new section D response to correct the major deficiencies. Therefore, the Department is not changing its analysis with respect to this issue, because the Viraj Group did not provide evidence on the record to support its claim that its prices for raw material to make wire rod changed significantly over the POR, and the Department was not able to substantiate the claim from the database that was provided. Moreover, significant changes in input costs during the POR alone do not necessarily warrant deviating from the Department's practice of using POR average costs. RECOMMENDATION Based on our analysis of the comments received, we recommend adopting all of the above positions and adjusting all related margin calculations accordingly. If these recommendations are accepted, we will publish the final results of review and the final weighted-average dumping margins for all reviewed firms in the Federal Register. AGREE_____ DISAGREE_____ ______________________ Faryar Shirzad Assistant Secretary for Import Administration ______________________ Date