67 FR 15531, April 2, 2002 A-533-823 Investigation Public Document G3O7: BLR/MEH/SCG 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 in the Final Affirmative Antidumping Duty Determination on Silicomanganese from India Summary We have analyzed the comments and rebuttal comments of interested parties in the antidumping duty investigation on silicomanganese from India. As a result of our analysis, we have made changes in 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 investigation for which we received comments by parties. Regarding Universal Ferro & Allied Chemicals Ltd. (Universal): 1. Critical Circumstances 2. Clerical Errors in the Verification Report 3. Use of Revised Home Market Sales 4. Use of Revised Indirect Selling Expenses Found at Verification 5. Cost of Slag 6. Cost of Recycled Silicomanganese Fines 7. Inclusion of Losses on Inventory in Raw Materials Costs 8. Slag Handling Expenses 9. Disputed Electricity Charges 10. Refundable Tax Payments 11. Excise Duties on Closing Stock 12. Depreciation on Closed Furnaces and Furnaces Not Used to Produce Subject Merchandise 13. Use of Revalued Depreciation Costs 14. Calculation of General and Administrative Expenses 15. Offsetting Interest Expense by Interest Revenue 16. Severance Payments to Former Employees Regarding Nava Bharat Ferro Alloys Ltd. (Nava Bharat): 17. Duty Drawback 18. Imputed Credit Expense (Home Market) 19. Imputed Credit Expense (U.S. Sales) 20. Tolling Raw Materials 21. Cost of Recycled Silicomanganese Fines 22. Cost of Power 23. Fixed Plant Overhead 24. Calculation of General & Administrative Expenses 25. Calculation of Net Interest Expense 26. Interest Revenue Applicable Statute and Regulations Unless otherwise indicated, all citations to the Tariff Act of 1930, as amended (the Act), are references to the provisions effective January 1, 1995, the effective date of the amendments made to the Act by the Uruguay Round Agreements Act. In addition, unless otherwise indicated, all citations to the Department's regulations are to the provisions codified at 19 CFR part 351 (2001). Background This investigation covers two producers/exporters: Nava Bharat and Universal. We published in the Federal Register the Preliminary Determination of Critical Circumstances in this investigation on October 19, 2001. See Notice of Preliminary Determination of Critical Circumstances: Silicomanganese from India, 66 FR 53207 (October 19, 2001) (Preliminary Determination of Critical Circumstances). We subsequently published in the Federal Register the preliminary determination in this investigation on November 9, 2001. See Notice of Preliminary Determination of Sales at Less Than Fair Value: Silicomanganese from India, 66 FR 56644 (November 9, 2001) (Preliminary Determination). On November 20, 2001, Universal requested that the Department postpone its Final Determination until not later than 135 days after the date of the publication of the Preliminary Determination in the Federal Register and requested an extension of the provisional measures. On December 7, 2001, we extended the final determination until no later than 135 days after the publication of the Preliminary Determination in the Federal Register. See Notice of Postponement of Final Antidumping Duty Determination: Silicomanganese from Kazakhstan and India, 66 FR 63522 (December 7, 2001). The Department verified sections A-D of Universal's questionnaire response, from January 7, 2002 through January 16, 2002, at Universal's headquarters in Mumbai, India and at its production facility in Tumsar, India. See Sales and Cost Verification Report for Universal Ferro & Allied Chemicals Ltd., in the Antidumping Duty Investigation of Silicomanganese from India, from Abdelali Elouaradia and Brett Royce, Case Analysts, through Sally C. Gannon, Program Manager, to The File (February 14, 2002) (Universal Verification Report). The Department also verified sections A-D of the questionnaire responses of Nava Bharat in Hyderabad, India and at its production facility in Paloncha, India from January 11, 2002 through January 18, 2002. See Verification of Sales in the Antidumping Investigation of Silicomanganese from India: Nava Bharat Ferro Alloys, Ltd. (Nava Bharat), from Elfi Blum and Javier Barrientos, Case Analysts, through Sally Gannon, Program Manager, for The File (February 20, 2002) (Nava Bharat Sales Report) and Verification of Cost in the Antidumping Investigation of Silicomanganese from India: Nava Bharat Ferro Alloys, Ltd. (Nava Bharat), from Elfi Blum and Javier Barrientos, Case Analysts, through Sally Gannon, Program Manager, for The File (February 22, 2002) (Nava Bharat Cost Report). Public versions of these, and all other Department memoranda referred to herein, are on file in the Central Records Unit, Room B-099, of the main Commerce Building. On December 11, 2001, petitioners, Eramet Marietta Inc. (Eramet), and the Paper, Allied-Industrial, Chemical and Energy Workers International Union, Local 5-0639, requested a public hearing. On February 25, 2002, we received Nava Bharat's case brief. On February 26, 2002, pursuant to an extension requested by petitioners and granted by the Department, we received case briefs from petitioners and Universal. We received rebuttal briefs from petitioners and Universal on March 4, 2002 and, pursuant to an extension requested by Nava Bharat and granted by the Department, from Nava Bharat on March 6, 2002. We held a public hearing in this investigation on March 7, 2002. Changes Since the Preliminary Determination Regarding Universal: 1. We used revised sales databases provided by Universal reflecting minor changes in sales dates, invoice dates, credit expenses, gross unit prices, and movement expenses based on verification. 2. We added bank charges discovered at verification to U.S. credit expenses. 3. We changed indirect selling expenses in both the U.S. and home markets to reflect information discovered at verification. 4. We added an amount to total raw materials cost for the value of slag used in production. 5. We removed the quantity of recycled fines from the production quantity used in the per unit cost calculation. 6. We reduced electricity costs by an amount found to have been forgiven by the electricity authority. 7. We removed refunded taxes from the cost of raw materials. 8. We offset interest expense by revenue earned on bank accounts (short-term interest revenue). Regarding Nava Bharat: 1. We changed shipment date to reflect factory shipment instead of port shipment. 2. We recalculated U.S. imputed credit and inventory carrying costs using gross unit price. 3. We recalculated credit expense for one home market sale. 4. We removed the quantity of generated fines from the production quantity used in the per unit cost calculation. 5. We also changed the cost of electricity by using: a) using a weighted-average of the market prices of other electricity suppliers as representative of the market price of the power supplied by Nava Bharat's affiliated electricity supplier and b) the cost of production of Nava Bharat's self-produced power. 6. We subtracted short-term interest income from interest expense to arrive at the interest expense ratio. 7. We added Nava Bharat's reported interest revenue to home market gross unit price for the final determination. Changes Made Pursuant to Verification The Department made a number of discoveries at the verifications of Universal and Nava Bharat that have led us to alter our preliminary calculations, discussed in our verification reports. See Universal Verification Report, Nava Bharat Sales Report, Nava Bharat Cost Report. Those discoveries that were commented on by parties in their case briefs are discussed below. Other changes that we have made pursuant to these discoveries, and the application of adverse facts available where necessary, are discussed in the Department's analysis memoranda. See Final Determination in the Antidumping Duty Investigation on Silicomanganese from India: Analysis of Universal Ferro & Allied Chemicals Ltd., from Mark Hoadley and Brett Royce, through Sally Gannon, for The File (March 25, 2002) (Universal Analysis Memorandum) and Final Determination in the Antidumping Duty Investigation on Silicomanganese from India: Analysis of Nava Bharat Ferro Alloys Ltd., from Javier Barrientos, through Sally Gannon, for The File (March 25, 2002) (Nava Bharat Analysis Memorandum). Public versions of these, and all other Department memoranda referred to herein, are on file in the Central Records Unit, Room B-099, of the main Commerce Building. Critical Circumstances As noted above, the Department published a preliminary determination of critical circumstances on October 19, 2001 (66 FR 53207), finding that critical circumstances exist with regard to Universal and "All Other" companies, but not with regard to Nava Bharat. For this final determination, we have found that critical circumstances do not exist for imports of silicomanganese from India produced by Universal, Nava Bharat or any other producer because one of the required criteria for finding critical circumstances has not been met. For a discussion of interested party comments, and the Department's position on this issue, refer to Comment 1 below. Discussion of Comments Universal Comment 1: Critical Circumstances Universal argues that the Department erred in only using data from a five- month period for its preliminary critical circumstances determination, rather than using the evidence on the record for a seven-month period. Universal claims that it is the "undisputed" practice for the Department to look at least at a seven-month period in determining whether critical circumstances exist, citing Notice of Final Determination of Sales at Less than Fair Value: Certain Preserved Mushrooms from the People's Republic of China, 63 FR 72255, 72262 (December 31, 1998) (PRC Mushrooms), and to use the longest period for which information is available. Universal states that the Department verified relevant sales data at verification and urges the Department to find that critical circumstances do not exist in the final determination. Petitioners respond that the purpose of the critical circumstances provision of the statute is to provide relief against a post-petition surge of imports, and that imports will of course eventually decrease or even cease as they become potentially subject to antidumping duties. Thus, state petitioners, it would be contrary to the purpose of the critical circumstances provisions of the Act "to allow such a normal and predictable decline in imports to, in effect, 'erase' a surge that in fact occurred." Finally, petitioners note, the period Universal requests the Department to examine is different than that examined for Nava Bharat and "All Others." Department's Position: Whether or not there has been a surge in imports over a relatively short period of time is only one of the criteria that must be met in order to find that critical circumstances exist. See section 733(e) of the Act and section 351.206(h) of the regulations. Another criterion is that the importer knew or should have known that the exporter was selling the subject merchandise at less than fair value, and that there was likely to be material injury by reason of such sales. See 733(e)(1)(A)(ii) of the Act. We consider that for EP sales, an estimated dumping margin of 25 percent is sufficient to "impute knowledge" to the importer. See, e.g., Preliminary Determination of Critical Circumstances: Certain Small Diameter Carbon and Alloy Steel Seamless Standard, Line and Pressure Pipe from the Czech Republic, 65 FR 33803 (May 25, 2000). We have determined that both Nava Bharat and Universal only had EP sales. See Preliminary Determination, at 56645-46. We have not received any comments on this determination. In our preliminary determination of critical circumstances, because this determination was made before the preliminary determination of sales at less than fair value, we relied on a margin calculated in the petition that was in excess of 25 percent in rendering a decision with respect to the "imputed knowledge" criterion. However, we have now calculated final margins for these two companies, and find that neither company's margin meets the 25 percent threshold that is necessary to "impute knowledge." Moreover, the "all others" margin is not sufficient to impute knowledge to importers for "all other" producers and exporters. Since one of the required criteria for finding critical circumstances has not been met, we need not address the parties' arguments concerning whether there have been massive imports of subject merchandise over a relatively short period of time. Accordingly, because there is no basis for imputing knowledge to importers of subject merchandise, we find that critical circumstances do not exist for imports of silicomanganese from India. Comment 2: Clerical Errors in the Verification Report Universal claims that the total electricity charges include an erroneous amount for interest charges. Respondent contends that the total electricity charges also include the minimum demand related to the closed domestic unit. Further, respondent claims that it had corrected at verification the amount for "Head Office Repairs and Maintenance" used in the preliminary determination. Finally, respondent states that a "lakh" is Indian terminology for one hundred thousand rupees, not one thousand rupees, as was stated in the verification report. Petitioners did not respond to these arguments. Department's Position: We agree, in part, with respondent. The sum of the electricity charges should include the corrected interest amount provided by respondent, and not the amount stated in the verification report. Further, we agree that the total electricity charges indicated in the verification report include the disputed amount discussed below in Comment 9. However, the Department has determined not to include the alleged updated amount for "Home Office Repairs and Maintenance." While we did verify the repairs and maintenance figure used in our preliminary determination (refer to page 15 of the Universal Verification Report), we are unable to validate the revised figure claimed by Universal in its case brief and do not consider that figure to be verified. We do agree with respondent concerning the value of "lakhs" and have used the correct value for purposes of this final determination. Comment 3: Use of Revised Home Market Sales Petitioners argue that, in our preliminary calculations, we deducted packing expenses from some sales that had been reported net of packing expenses. They argue that, for the final calculations, we should use revised home market sales prices, inclusive of packing, reported at verification by Universal. Universal did not respond to this argument. Department's Position: We agree with petitioners and have used the revised home market prices for these sales in our calculations for the final determination. Comment 4: Use of Revised Indirect Selling Expenses Found at Verification Petitioners argue that the Department should use revised amounts for U.S. and home market indirect selling expenses reported by Universal at verification. Universal did not respond to this argument. Department's Position: We agree with petitioners and have used the revised indirect selling expenses in our final determination. Comment 5: Cost of Slag Petitioners argue that the Department should include in its COM for Universal the cost of an amount of slag that the Department discovered at verification was used by Universal in the production of silicomanganese. Petitioners cite Silicomanganese from the People's Republic of China: Notice of Final Results of Antidumping Duty Administrative Review, 65 FR 31,514 (May18, 2000) and accompanying Decision Memorandum at Comment 4, where the Department accounted for slag in calculating normal value. Petitioners further argue that this input must be valued even though it is a by- product of Universal's ferromanganese production, i.e., even though it is not purchased at market, but transferred internally from one production process, not involving subject merchandise, to silicomanganese production. Petitioners finally argue that the Department must resort to partial facts available, using the proprietary data of Nava Bharat, in order to value the slag since Universal did not report a value for the slag and does not maintain a cost for it in its normal books and records. Universal responds that it had only used slag in the production of silicomanganese produced under a tolling agreement during the POI. At a hearing held at the Department on March 7, 2002, Universal corrected this argument and stated that slag had been used in production of silicomanganese for its own sake as well as under the tolling agreement. See Antidumping Duty Investigation Silicomanganese from India Hearing Transcript (March 7, 2002) (Hearing Transcript), at 57, lines 4 through 8. Department's Position: We agree with petitioners that we should add an amount to Universal's COM to account for the slag usage discovered at verification. We also agree that the use of partial facts available is appropriate, because pursuant to section 776(a) of the Act, there remain some gaps on the record, which need to be filled in order to determine the value of slag for Universal. However, we do not agree with petitioners' proposed method of determining the partial facts available cost. Instead, we are relying on slag sales data found in Universal's verification exhibits to value this slag for the final calculations. Comment 6: Cost of Recycled Silicomanganese Fines Petitioners argue that because Universal included recycled fines in the quantity of merchandise over which it allocated cost, the cost of manufacturing these fines must be added to the total cost amount allocated across production. Alternatively, suggest petitioners, the Department could recalculate the per-unit cost of manufacturing silicomanganese by allocating the current amount over only the quantity of silicomanganese produced. If the former method is selected by the Department, petitioners continue, the cost of manufacturing fines added by the Department must be equal to the per-unit cost of manufacturing silicomanganese, since the costs allocated over production quantity were allocated uniformly over fines and silicomanganese alike. Universal responds by claiming that it only allocated costs over the quantity of silicomanganese produced, not including fines. It cites page 11 of the Universal Verification Report, presumably where the Department states that "Universal calculated a per-unit cost for each of the input materials by dividing the POI total cost for the specific raw material by the total quantity produced of silicomanganese and ferromanganese . . . [or in] instances where the input material was only used in the production of silicomanganese, Universal calculated the per unit cost by using the total quantity produced of silicomanganese only during the POI." Finally, Universal argues that the Department should actually be offsetting the cost of producing silicomanganese by the proceeds from the sale of fines. Department's Position: The record is not completely clear as to whether silicomanganese fines were included in the production quantity used to calculate the per-unit COM; however, when examined as a whole, the evidence on the record supports a finding that this quantity included the fines. First of all, Universal reported three types of subject merchandise: lumps, chips, and fines. All of these products are silicomanganese. Therefore, the fact that our verification report refers to the total production quantity of silicomanganese cannot be construed to mean that fines are not included in this figure, even though in its rebuttal brief Universal appears to imply that fines and silicomanganese are two different products, e.g., "Universal calculated the per unit cost of [subject] materials by using the {sic} dividing the cost of the input by the total quantity of silicomanganese only." Furthermore, the context of the language, presumably referenced by Universal, in the verification report ("... by using the total quantity of silicomanganese only ...") implies a distinction between silicomanganese and ferromanganese production quantities, not silicomanganese and silicomanganese fines production quantities. Second, the variable unit COMs reported by Universal for silicomanganese fines, lumps, and chips, are identical, suggesting that the same total COM was allocated across the total production volume of all three products. Moreover, only one set of cost calculations was reported to the Department; thus, presumably, all three reported costs must have been derived from this single calculation. Therefore, we conclude that total COM was allocated over all three types of subject merchandise and, for the final calculations, we have adjusted the per-unit COM taking into consideration the quantity of fines recycled. We did so by reducing the production quantity used to calculate the per-unit COM by the quantity of fines used, which is noted in the Universal Verification Report on page 12. However, because the portion of the total fines consumed in the production process that is recycled fines, as opposed to purchased fines, is not on the record, we assumed, pursuant to section 776(a) of the Act, as partial facts available, that the entire amount of fines consumed was recycled fines. In other words, we assumed that the entire amount of consumed fines noted in the verification report was produced by Universal and should be deducted from the production quantity used to calculate cost. There is nothing on the record indicating that Universal purchased fines. Indeed, Universal denied being able to track the use of fines until verification. Thus, we conclude that application of section 776(a) of the Act is appropriate. Regarding Universal's argument that the Department should actually grant it an offset for fine sales, we note that Universal does sell fines, but the fines Universal sells are treated as co-products in our calculations; in other words, the total costs of both the sold fines and other silicomanganese products are allocated over the production quantities of both the sold fines and other silicomanganese fines. The quantity of fines which we have removed from the production quantity for cost calculation purposes, and which are therefore treated as by-products, are the recycled fines. By definition, recycled fines are not sold, and, thus, there is no possible revenue offset for these by-products. Comment 7: Inclusion of Losses on Inventory in Raw Materials Costs In the preliminary determination, the Department factored into its calculation of raw materials costs, losses on sales of coke fines and losses on the value of degenerated manganese ore and coke. Universal claims that, by doing so, the Department double-counted the costs of these items, which, according to Universal, were already included in raw materials costs. Universal claims that these "losses" were only charges to the value of inventory, which will result in a decline in future profits, but are not a cost of production (COP). In fact, Universal argues that the Department should actually lower raw materials costs to account for the proceeds on the sales of fines because Universal claims these fines are "products" which it chooses to sell and which are not related to the COP of the subject merchandise. Petitioners respond that Universal admitted in its questionnaire responses that these losses were excluded from the cost of manufacturing (COM) reported to the Department and that Universal's argument that to include such losses in COM is "double-counting" is erroneous. Regarding the loss on the sales of coke fines, petitioners argue that the generation of deteriorated fines is not a matter of choice, but rather a by-product of silicomanganese production, and, is therefore related to the COM of subject merchandise. Moreover, according to petitioners, Universal bought the coke, which generated the fines, to produce silicomanganese and included the losses from the creation of the by-products in its financial statements' raw materials costs (i.e., the original cost of the coke that became fines, less the sales revenue from the fines), thus strengthening the conclusion that a loss on these fines is related to the COM of silicomanganese. Finally, petitioners note that the cost of the coke that became fines is a cost of producing silicomanganese, but is properly offset by the sales revenue obtained from the fines, which it claims occurred here. Regarding the write-down for degenerated manganese ore and coke, petitioners point to the fact that Universal also recognized this write- down as a cost to its raw materials inventory. Thus, as with the loss on the sale of fines, if including this write-down in its own COM in its financial statements does not amount to double-counting, then including it in the Department's COM cannot involve double-counting either. Department's Position: Universal's losses on sales of coke fines, manganese ore write-downs, and coke write-downs are components of its raw materials costs recognized in the current period. See Universal Sections B- D Questionnaire Response, Annexure D-4 (September 4, 2001) and Universal Verification Report at 11. The Department has several times drawn a distinction between losses incurred as a result of a revaluation of raw materials inventory, and a revaluation of finished goods inventory. We have consistently included in the COM of subject merchandise losses of the former type, but not the latter. See, e.g., Notice of Final Determination of Sales at Less Than Fair Value: Dynamic Random Access Memory Semiconductors of One Megabit and Above (DRAMs) From Taiwan, 64 FR 56308, 56325 (October 19, 1999) ("We did not include the write-down of finished goods, which is, conversely, more closely associated with the sale of the merchandise rather than the production of the merchandise. For the computation of this specific item, we included only the provision associated with raw materials and WIP inventories."); Notice of Final Determination of Sales at Less Than Fair Value; Stainless Steel Plate in Coils From South Africa, 64 FR 15459, 15472 (March 31, 1999) (drawing a distinction between finished goods and raw materials inventories); Notice of Final Determination of Sales at Less Than Fair Value: Certain Cut-To- Length Carbon-Quality Steel Plate Products from Korea, 64 FR 73196, 73204 (December 29, 1999) ("Therefore, we adjusted DSM's costs to include the loss in raw materials inventory value that occurred during the period of investigation."); Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Wire Rod From Italy, 63 FR 40422, 40430 (July 29, 1998) ("We disagree with [respondent]'s assertion, however, that write- downs associated with raw materials and WIP inventories should also be excluded from COP and CV. Both raw materials and WIP inventories are inputs into the cost of manufacturing the merchandise"). Therefore, because the sales of coke fines, manganese ore write-downs, and coke write- downs are recognized in the current period and relate to the production of subject merchandise, we agree with petitioners and have continued to include the costs associated with these losses in Universal's COM for the final determination. Moreover, we agree with petitioners that there is no double-counting involved in including amounts in our COM that Universal includes in its own financial statements as parts of COM. There are three separate cost items in Universal's financial statements: raw material, write-down of raw material, and the loss on the sale of fines. The write-down and loss on the sale of fines represent a decline in the value of raw material in inventory, thus, meaning that the cost picked up as raw material cost should have been higher. We are simply picking up these three separate costs. Finally, it would be incorrect to add an additional amount for the proceeds from the sale of these fines, as Universal argues, because these proceeds are reflected in the loss taken by Universal. In other words, the "loss" recorded by Universal on its books is the difference between the original value of these fines, booked into its raw materials inventory, and the price it actually obtained after their sale. Comment 8: Slag Handling Expenses Universal argues that the Department should delete from its COP calculation an amount included by the Department in its preliminary calculations for labor charges paid to contractors responsible for handling both ferromanganese and silicomanganese slag that Universal subsequently sells. These charges, according to Universal, were incurred in connection with the handling of a product other than silicomanganese, i.e., the slag, and, thus, are not related to the costs of producing subject the merchandise. Petitioners respond that both ferromanganese slag and silicomanganese slag are by-products of silicomanganese production, and therefore relevant to calculating the production costs of silicomanganese. Petitioners then go on to explain how the Department in the past has allocated costs among primary products and by-products, citing Notice of Final Determination of Sales at Less Than Fair Value: Pure Magnesium From Israel, 66 FR 49,349 (September 27, 2001) (Pure Magnesium) (Issues and Decision Memorandum, Comment 4). Department's Position: We agree with petitioners that both types of slag are by-products of the production of silicomanganese. See, e.g., Final Determination of Sales at Less Than Fair Value: Fresh Cut Roses From Colombia, 60 FR 6980, 6994 (February 6, 1995) (describing the Department's practice of allocating by-product costs net of by-product revenue); In Asociacion Colombiana de Exportadores v. United States, 704 F Supp. 1114, 1125-26 (CIT 1989) (recognizing the Department's practice of including by- product costs and revenues in calculating the COM of the primary product). Therefore, any income or expenses of slag production and sales should be included in the COP of the subject merchandise. It is not necessary, however, to allocate costs between the joint products because slag is a by- product, not a co-product. We only allocate joint product costs to co- products. See Pure Magnesium. Comment 9: Disputed Electricity Charges Universal argues that the Department incorrectly included electricity expenses in the preliminary calculation of its cost of manufacturing that were in dispute between respondent and the electricity company. Respondent further argues that the disputed expenses ("minimum demand charges") correspond to electricity provided in 1994 prior to the POI. Further, respondent notes that it kept the disputed amount on its books only as a potential liability. During the POI, the dispute resulted in litigation, in which a settlement was reached, resulting in the disputed minimum demand charges and associated interest accumulated on the charges being dropped. Respondent holds in its case brief that the disputed amount in electricity charges (including the interest charges) should be excluded from final calculations. However, Universal's counsel subsequently conceded at the public hearing in this investigation that the interest charges under dispute had not been totally settled. See Hearing Transcript, at 27. Petitioners argue that the Department's verification report states that the disputed charges were minimum demand payments paid by respondent with respect to a closed furnace ("closed unit 65"). Petitioners assert that the charges were reflected as a cost on respondent's financial statements covering the POI , were paid during the POI, and, thus, the charges in question were not carried "as a potential liability." Petitioners state that the Department's normal practice is to use costs found in a respondent's normal books and records in calculating COP/CV, and, therefore, the disputed charges were properly included in the preliminary determination. Petitioners also argue that respondent is incorrect in claiming that the electricity dispute was settled during the POI. In support of their assertion, petitioners cite Verification Exhibit 6, minutes of a meeting between Universal and the electricity board, which Universal claims is the agreement between itself and the electricity board settling the dispute, which is dated after the end of the POI. Moreover, petitioners state that, although the minutes indicate that the disputed demand charge was withdrawn by the electricity board, the agreement is not clear as to the net effect of the settlement on Universal's company-wide electricity charges during the POI. For example, it is not clear, according to petitioners, that the interest accrued on the disputed charges was also supposed to be forgiven in the agreement. Petitioners claim that the net effect of the settlement is nowhere on the record, and that, in fact, there is no indication on the record that the settlement went forward at all. Department's Position: We agree with Universal, in part. As stated in the verification report, "Universal and the [electricity board] agreed to treat the [closed furnace] as a permanent closure starting in 1996, and reversed all the minimum charges on that unit, including the interest accumulated on these charges . . . . Universal officials explained that the minutes of the meeting [which were prepared by the electricity board] is itself the agreement . . . . We also reviewed the bills for the minimum charges, which showed that they were for unit 65." See Universal Verification Report, at 14. We believe that this provides a sufficient basis in the record to conclude that the dispute with regard to the minimum demand charges was settled. The amounts claimed by Universal in its case brief match the amounts on the bills, which we tied to unit 65. We cannot see how the other charges petitioners are concerned with, which may remain in dispute, are part of the bills on the record. We also cannot agree with petitioners that the amounts were paid during the POI, as the agreement states the demand was withdrawn, not refunded. Finally, regardless of the timing of the actual agreement, which might have taken place after the POI, the important fact is that the disputed charges during the POI were reversed. However, our examination of the meeting minutes does not lead to a definitive conclusion that the interest charges, separate from the minimum demand charges, in dispute were indeed settled; in addition, respondent's counsel indicated the same at the public hearing. Therefore, for the final determination, the only adjustment we have made is to reduce Universal's COM by the amount of the disputed minimum demand charges. Comment 10: Refundable Tax Payments Universal asserts that refundable taxes on raw materials should be excluded from raw material costs in the final determination. Respondent states that the Department verified that the taxes would be refunded, as such tax payments have been refunded in the past. Respondent goes on to claim that the Department traditionally has not included in the COP taxes which are later refunded. In support of its argument, respondent cites U.S. Steel Group v. United States, 998 F. Supp. 1151 (CIT 1998) and Stockheimer & Harder American Foreign Industries, Inc. v. United States, 58 Cust. Ct. 801 (1967). Petitioners contend that the Department should not make any adjustments to COM for taxes. According to petitioners, respondent failed to prove in its questionnaire responses and at verification that the taxes were included in COP. Furthermore, petitioners argue that the Department instructed Universal to provide raw material prices net of any taxes refunded by the government, and that this presumption should hold. Petitioners claim that there is nothing in the verification report nor in the verification exhibits showing that reported material costs were tax- inclusive or, if so, the amount of the taxes. Petitioners claim that respondent should bear the burden of demonstrating its entitlement to its requested adjustment. Department's Position: We agree with respondent in that we traditionally do not include in the COP taxes which are later refunded. At the outset of the cost verification, we accepted Universal's correction stating that raw materials had been reported inclusive of taxes because it had not submitted its refund application at the time it submitted its cost response. We also accepted the amount of future tax refund and examined the refund application. See Universal Verification Report, at 10. Petitioners' contention that these amounts are unproven is not supported by the record. Therefore, we have reduced Universal's COM by the amount of these taxes for the final determination. Comment 11: Excise Duties on Closing Stock Universal claims that, under Indian tax law, it is charged an excise tax on its finished stock at the end of the year, which it recovers from its customers the following year, when the finished goods are sold. Respondent argues that, because this excise tax is fully reimbursed to respondent by its customers, it should not be included in COP. Petitioners, however, claim an examination of the Department's preliminary determination calculation reveals that the amount of "Other Works Costs," the account under which Universal enters the excise tax, included in the Department's COP calculation is already net of the excise duty. Therefore, according to petitioners, no adjustment to COP is necessary for excise duties. Department's Position: We examined our preliminary calculations and compared them to the financial statements submitted by Universal and examined at verification. We conclude that the "Other Works Costs" used by the Department to calculate COP does not include the excise duty and have, therefore, made no adjustment. Comment 12: Depreciation on Closed Furnaces and Furnaces Not Used for the Production of Subject Merchandise Universal argues that the Department incorrectly included depreciation on closed furnaces, some of which were never used in the production of subject merchandise, in its calculation of COP. It argues that amounts for depreciation on these furnaces should be excluded from depreciation costs for the final determination. Petitioners respond that the cost of holding idle assets, much like the cost of holding common assets (like head offices), is a period cost that relates to the company as a whole, and not to the manufacture of specific products. It continues by arguing that such costs, both depreciation on idle and common assets, should be included in general and administrative (G&A) expenses. It cites the following administrative cases in support of its positions: Notice of Final Determination of Sales at Less than Fair Value: Stainless Steel Wire Rod from Taiwan, 63 FR 40,461, 40,468 (July 29, 1998) (SSWR from Taiwan); Silicomanganese from Brazil; Final Results of Antidumping Duty Administrative Review, 62 FR 37,869, 37,870 (July 15, 1997); and Silicon Metal from Brazil: Notice of Final Results of Antidumping Duty Administrative Review, 64 FR 6,305, 6,313 (February 9, 1999). Department's Position: We agree with petitioners. In our preliminary calculations, we calculated amounts for depreciation attributable to running units, closed units, and the head office. We included the closed unit and head office amounts in G&A expenses, and the running unit amount in COM. This inclusion of depreciation on idle assets in G&A expenses is in conformity with the standard practice of the Department. See, e.g., SSWR from Taiwan, 63 FR at 40,468. Even though an asset may be idle, the expenses associated with that asset are part of the general expense burden of the company which is attributable to all sales of the company. There is no basis on which to assign the expenses of idle assets to merchandise they were employed in producing before being idled. Therefore, for the final determination, we are continuing to include these depreciation amounts in G&A expenses. Comment 13: Use of Revalued Depreciation Costs In the preliminary determination, the Department calculated depreciation for Universal based on revalued assets. Universal argues that we should have used the depreciation costs it submitted based on historical asset values. While Universal reports depreciation at the revalued costs in its financial statements, it states that it also includes an entry in its financial statements, "Revaluation Reserve," which is an adjustment reconciling depreciation based on revalued costs with depreciation based on historical costs. Thus, according to Universal, its financial statements effectively report both depreciation amounts. It also states that it uses the historical method for tax purposes. Petitioners respond that the Department in the past has rejected tax accounting as a basis for cost reporting, citing Notice of Final Determinations of Sales at Less than Fair Value: Stainless Steel Bar from Italy, 67 FR 3155 (January 23, 2002) and accompanying Issues and Decision Memorandum from Richard Moreland to Faryar Shirzad at Comment 48 and Final Determination of Sales at Less than Fair Value: Circular Welded Non-Alloy Steel Pipe from the Republic of Korea, 57 FR 42942, 42952 (September 17, 1992). Instead, petitioners argue, we should use cost data contained in respondent's normal books and records consistent with the export country's generally accepted accounting principles (GAAP), in accordance with section 773(f)(1)(A) of the Act. Department's Position: We agree with petitioners. The Department's concern is with the cost information contained in respondent's normal books and records consistent with the GAAP of its country. As we stated in Notice of Final Determination of Sales at Less Than Fair Value: Fresh Atlantic Salmon From Chile, 63 FR 31411, 31432 (June 9, 1998): We agree with the petitioners that certain of the salmon producers failed to provide costs which reflected their normal accounting practices of adjusting non-monetary assets for increases in price -levels. The exclusion of these adjustments results in costs which are not reflective of current price levels and, thus, produces an improper match of revenues and expenses. The Department's long-standing practice, codified at section 773(f)(1)(A) of the Act, is to rely on data from a respondent's normal books and records where those records are prepared in accordance with home country GAAP and reasonably reflect the costs of producing the merchandise. Normal GAAP accounting practices provide both respondents and the Department a reasonably objective and predictable basis by which to compute costs for the merchandise under investigation. Universal did not attempt to demonstrate to the Department its claim that the use of "depreciation expenses based on revalued assets would distort the COP of the silicomanganese," beyond its statement that this amount of depreciation is not what it reports to Indian tax authorities. The fact that both historical cost-based and revalued cost-based depreciation amounts can be discerned from Universal's financial statements does not speak to the potential distortion of Universal's COP of silicomanganese. The depreciation expenses based on the revalued amounts are more accurate and are necessary because a depreciation expense based on the revalued figures is in the same currency level (i.e., adjusted for inflation) as the other expenses reported to the Department, whereas the historical depreciation is not. Comment 14: Calculation of General and Administrative Expenses Petitioners argue that the Department erred by offsetting G&A expenses by insurance payments resulting from a 1996 claim for fire damages and a claim for flood damage sustained by Universal's Oil Field Instrumentation division. Petitioners argue that the Department only offsets expenses with recurring income, citing Polyethylene Terephthalate Film, Sheet and Strip from Korea: Final Results of Antidumping Duty Administrative Review, 66 FR 57,417 (November 15, 2001) and accompanying Issues and Decision Memorandum from Joseph A. Spetrini to Faryar Shirzad, at Comment 1 (November 7, 2001) (Korean PET Film). They point to the fact that Universal labeled the payments as an "extraordinary item" in its 2000-2001 audited financial statements as proof that this income is not recurring. Universal did not respond to this argument. Department's Position: We disagree with petitioners. The situation in Korean PET Film was different than the one here. In that case, the income resulted from the sale of an entire division of respondent, not from insurance payments. In Korean PET Film, we also disallowed the offset because we concluded that the income was "unrelated to the general operation of the company, i.e., manufacturing and selling merchandise." The fact that this income is not recurring or that it is labeled by a respondent as "extraordinary" in its financial statements is in no way conclusive. We have continued to offset Universal's G&A expenses by the value of the insurance payments because such amounts relate to the general operations of the company and we would normally include the corresponding fire and flood losses if they were not deemed extraordinary. Comment 15: Offsetting Interest Expense by Interest Revenue Universal argues that the Department should include in its final calculations interest revenue earned from bank deposits presented to the Department at verification. Petitioners did not respond to this argument. Department's Position: We agree with Universal. It is Department practice to offset interest expense with short-term interest income, such as short- term interest on bank deposits, and have reduced Universal's interest expense accordingly. See Gulf States Tube Div. of Quarex Corp. v. United States, 981 F. Supp. 630, 648 (CIT 1997) (affirming the reasonableness of the offset of short-term interest revenues by the Department). Comment 16: Severance Payments to Former Employees Universal alleges that, during the POI, certain interest charges were incurred on a loan taken out to compensate certain employees laid off as a result of the closing of two No. 9 Megavolt Ampere (MVA) furnaces and one 2.5 MVA furnace in 1996. It asserts that these charges do not relate to the production of silicomanganese during the POI and, thus, that they should be excluded from the COP. Further, respondent states that, at a minimum, a portion of these charges should be excluded in that they relate to employees who worked on the 2.5 MVA furnace, which produced only ferromanganese. Petitioners assert that respondent misinterprets the Department's longstanding practice with respect to the calculations of financing costs. According to petitioners, the Department considers the invested capital of a company, including both its debt and its equity, to be fungible. In support of their interpretation of the Department's practice, they cite Notice of Final Determination of Sales at Less Than Fair Value: Emulsion Styrene-Butadiene Rubber From the Republic of Korea, 64 FR 14865, 14870-71 (March 29, 1999) (ES-B Rubber). Thus, for this reason, petitioners explain that the Department does not recognize allocations of interest expenses to individual products or divisions, and considers all interest expenses to be applicable to the entirety of a firm's operations, regardless of the specific purpose for which a respondent may have taken out an individual loan. Petitioners further point out that the Department's practice is also to include in COP all expenses incurred during the POI, regardless of whether the event that gave rise to the expense occurred during the POI or prior to the POI. See Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat Products from Korea: Final Results of Antidumping Duty Administrative Review, 62 FR 18,404, 18,443 (April 15, 1997) (Cold-Rolled and CORE). Thus, by petitioners' reasoning, it is irrelevant that the layoffs underlying these severance payments took place in 1996. Department's Position: We agree with petitioners' argument that all interest expenses should be included in respondent's COP. We agree with petitioners that ES-B Rubber appropriately represents the Department's practice. As the Department has repeatedly stated, and the Court of International Trade has upheld, we recognize the fungible nature of a corporation's invested capital resources, including debt and equity. See Aramid Fiber Formed of Poly Para-Phenylene Terephthalamide From the Netherlands; Final Results of Antidumping Administrative Review, 62 FR 38058 (July 16, 1997); E.I. Du Pont de Nemours & Co. v. U.S., 22 CIT 19, *44 (Jan. 29, 1998). Therefore, we calculate financing costs based on the consolidated financial statements of the ultimate parent company. Moreover, severance payments are the result of obligations made by the company and relate to the general operations of the company as a whole. We agree with petitioners that Cold-Rolled and CORE reflects the Department's practice. As we stated in that case, "we have determined that including the prior-period severance benefit as an element of COP is appropriate because the [respondent's] omission of this severance benefit understates and does not reasonably reflect the costs associated with the production and sale of the subject merchandise." Therefore, we have continued to include these expenses in our final calculation of COP for Universal. Nava Bharat Comment 17: Duty Drawback Nava Bharat argues that the Duty Entitlement Passbook ("DEPB") scheme, which is used in India as a form of duty drawback, does not oblige it to trace the imported material to the final exported product. The company claims that the DEPB scheme has been considered by the Department as a "countervailing scheme" and, as such, Nava Bharat contends that it has been the finding of the Department to grant a credit upon the export of goods, regardless of whether the exported product contains the imported raw material or not. In response to Nava Bharat's argument, petitioners maintain that the antidumping statute provides for an upward adjustment to U.S. price for duty drawback, for duties imposed by the country of exportation on imported inputs, but rebated or not collected by reason of exportation of the subject merchandise to the United States. Further, petitioners hold that the Department applies a two-pronged test to determine whether a respondent has fulfilled the statutory requirements for a duty drawback adjustment. Under this test, petitioners argue, the Department grants a duty drawback adjustment only if the respondent claiming the adjustment can demonstrate that: (1) an exemption from import duties is linked to exportation of the subject merchandise, and, (2) the respondent imported a sufficient amount of raw materials to account for the level of duty drawback received for the exported product. With respect to the first prong of the test, petitioners state that exemption from import duties was not limited to imported inputs used to produce exported product, and that Nava Bharat recovered the import duties on the full volume of imported raw material, not just the duties paid on the volume of this raw material used to produce exported merchandise. Accordingly, petitioners argue, the exemption from import duties with respect to the raw material is not linked to exportation of the subject merchandise. With respect to the second prong of the test, petitioners hold that Nava Bharat did not import a sufficient amount of the raw material to account for the level of duty drawback claimed. In addition, petitioners argue that the duty drawback Nava Bharat received bears no relationship to the amount of import duties paid, but rather is based on the FOB value of the exported product. Finally, petitioners state that the Department has previously rejected other Indian respondent's claims for a duty drawback adjustment based on the DEPB because the amounts received were based on the FOB value of the exports and the respondent could not link these amounts to import duties paid on imports of raw materials used to produce the subject merchandise. See Stainless Steel Wire Rod From India; Final Results of Antidumping Duty Administrative Review, 65 FR 31,302 (May 17, 2000) and accompanying Issues and Decision Memorandum from Joseph A. Spetrini, Deputy Assistant Secretary, to Troy H. Cribb, Acting Assistant Secretary at Comment 3 (May 10, 2000); Stainless Steel Round Wire From India; Final Determination of Sales at Less Than Fair Value, 64 FR 17,319, 17,320 (April 9, 1999). Department's Position: Consistent with section 772(c)(2)(B) of the Act, when evaluating whether to grant an adjustment to EP or CEP for a duty drawback program, the Department considers: (1) whether the import duty and rebate are directly linked to, and dependent upon, one another; and (2) whether the company claiming the adjustment can show that there were sufficient imports of the imported raw materials to account for the drawback received on the exported product. See Certain Welded Carbon Standard Steel Pipes and Tubes from India; Final Results of New Shippers Antidumping Review, 62 FR 47632, 47634 (September 10, 1997) (Pipes and Tubes from India). The Court of International Trade (CIT) has upheld the reasonableness of this test. See, e.g., Federal-Mogul Corp. v. United States, 862 F. Supp. 384, 409 (CIT 1994). In the instant investigation, we find that Nava Bharat has not demonstrated that the DEPB credits received necessarily are linked to the duties that were imposed on the imported input materials they used to produce ferroalloys (i.e., silicomanganese and ferrochrome) for export. According to the Government of India's procedures for the DEPB scheme, companies were entitled under the DEPB program to duty rebates of 12 percent of the FOB export value of ferroalloys regardless of whether any of the inputs were imported. See Nava Bharat Sales Report, at 15. Because these credits were not calculated based on the amount of input material imported or the import duties thereon, the amount of the import duties and the export rebates received are not directly linked. Additionally, we found that Nava Bharat's DEPB licenses were transferable during the POI, further demonstrating that the rebates on a company's exports are not tied directly to the duties on imported input materials under the DEPB program. Id. Therefore, we continue to find that Nava Bharat has not met the first part of the Department's test for adjusting EP or CEP for duty drawback. While in Pipes and Tubes from India we found that the link between the import duties paid and the export rebates received was sufficient, as noted above, such a link does not exist in the instant case. Because we have not found a direct link in the instant case, we have not considered whether Nava Bharat met the second part of our standard. As a result, for purposes of this final determination, we have continued to deny a duty drawback adjustment under the DEPB program for Nava Bharat's U.S. sales. Comment 18: Imputed Credit Expense (Home Market) Petitioners argue that, for the final determination, the Department should recalculate the credit expense for one of Nava Bharat's home market sales using the correct payment date as determined at verification. They note that Nava Bharat properly calculated its home market imputed credit expenses based on the period between the date of shipment from the factory and the date of receipt of payment. However, they contend that, at verification, the Department determined that Nava Bharat had reported the wrong payment date for one home market sale, resulting in the credit period and derived expense being overstated. Nava Bharat did not rebut petitioners' contention in this regard. Department's Position: We agree with petitioners and have recalculated the credit expense for the specific home market sale noted in the verification report. See Nava Bharat Sales Report, at 14. Comment 19: Imputed Credit Expense (U.S. Sales) Petitioners argue that the Department should revise Nava Bharat's reported dates of shipment and imputed credit expenses for U.S. sales. Petitioners note that, in accordance with its longstanding practice of calculating imputed credit expenses based on a credit period which begins when the merchandise is shipped from the respondent's factory, the Department instructed Nava Bharat to do the same in both the original, and a supplemental, questionnaire. They contend that, at verification, the Department confirmed that Nava Bharat reported the bill of lading date, approximating the date of shipment from the port, as the date of shipment for U.S. sales. They further note that Nava Bharat did not state that it had a distribution warehouse at the port and that it in fact asserted that it only used warehouses (depots) outside of the plant for home market sales. Therefore, the petitioners argue that the Department should revise Nava Bharat's reported dates of shipment to reflect the shipment dates from the plant, resorting to facts available given Nava Bharat's two failures to report those dates. Petitioners propose that the Department utilize information contained in Nava Bharat's supplemental response and obtained at verification regarding the number of days between shipment from the plant and bill of lading date to determine revised shipment dates for U.S. sales. According to petitioners, the Department should then recalculate Nava Bharat's reported U.S. credit expenses using these revised dates of shipment. In response to petitioner's argument, Nava Bharat argues that the title of the goods passes from itself to the customer upon receipt of the bill of lading and that the company is free to sell the material at its discretion before the bill of lading date. Nava Bharat contends that imputing credit expenses on U.S. sales before the receipt of the bill of lading is akin to treating the title of this material as having been passed on to the customer. Nava Bharat states that, even though it does not have any warehouses at the port, the warehouse provided by the Customs Port Authority, in effect, serves as a warehouse. Further, the company notes that it did take into account the period from the date of shipment from the factory to the date of bill of lading as an inventory holding period, and in imputed inventory carrying costs for U.S. sales; as such, no further adjustment is necessary or warranted, according to Nava Bharat. Department's Position: We agree, in part, with petitioners. It is the Department's practice to use the date of shipment from the factory for imputed credit purposes on U.S. sales. See Stainless Steel Bar From Japan: Final Results of Antidumping Administrative Review, 65 FR 13717 (Comment 1) (March 14, 2000); Final Results of Antidumping Duty Administrative Review: Silicon Metal From Brazil, 63 FR 6899, 6908 (February 11, 1998); Silicon Metal From Brazil, Amended Final Results of Antidumping Duty Administrative Review, 62 FR 54094, 54095 (October 17, 1997). Our policy regarding EP sales is to impute expenses starting from the time that the merchandise leaves the production line until it is paid for by the customer. We break these imputed expenses up into imputed inventory carrying costs (ICC) (indirect) and imputed credit (direct), depending on whether the goods are in the producer's inventory or not. Once the merchandise is shipped to the customer, it is no longer in the company's inventory and therefore the inventory carrying period is over--and the credit period begins. In addition, at this point, the company has identified a specific customer and, therefore, the goods are no longer available for general sale. Because the company has shipped the goods to a specific customer, the expenses after shipment from the factory are directly associated with a given sale (and thus are part of credit expense which is direct, rather than ICC which is indirect). With regard to Nava Bharat's argument that it is able to transfer title of the goods up to the bill of lading date, the relevant date is the date on which the merchandise leaves inventory, not date of sale, for purposes of imputing credit expenses. Furthermore, Nava Bharat has not shown, from evidence on the record, that it is able to transfer title without violating its contractual obligation. Finally, we note that the company has not shown that it has ever exercised this option of transferring title. Therefore, for this final determination, we have, pursuant to section 776(a) of the Act, resorted to partial facts available in determining dates of shipment from the factory. Because the evidence on the record indicates that one order is shipped from the factory to the port in multiple dispatches, over several days, we have used the average of a range of factory shipment dates, estimated using data on the record for U.S. sales, as facts available. After adjusting the reported shipment dates, from factory to port, we then used the revised shipment dates to recalculate imputed credit expense. Comment 20: Tolling Raw Materials Nava Bharat argues that, if the Department continues to apportion what Nava Bharat considers as product-specific expenses on a company-wide cost of good sold (COGS) basis, COGS must include the value of the raw material supplied by its customer under a tolling arrangement for the production of Ferro Chrome. The company maintains that, because the purchaser of goods provided the raw material, the COGS is understated by the value of the raw materials supplied by this customer and must be included. In response to Nava Bharat's claim, petitioners argue that one of the fundamental principles of accounting is the matching of revenues and expenses, and, by definition, the COGS fulfills this principle by capturing the manufacturing expenditures incurred to produce the merchandise sold during a given accounting period. Petitioners assert that, in the context of Nava Bharat's conversion contract, Nava Bharat is selling processing services rather than a finished product, and, in order to match revenues with expenses, the COGS for these services should reflect only the process materials, labor, and factory overhead expenses incurred to process the customer's raw material into a finished product and not the raw materials supplied. In this context, petitioners hold, Nava Bharat's normal books and records, which exclude the cost of the raw materials provided by its customer under the conversion contract, accurately reflect the costs associated with sales under the contract. Thus, petitioners maintain, including an additional amount for the raw materials provided by the customer would artificially inflate Nava Bharat's COGS. Department's Position: We disagree with respondent. In the instant case, including the customer's raw materials in COGS is not appropriate because there was no recognized expense and there is no matching revenue item for those physical raw materials. Therefore, for the final determination, we have continued to exclude the customer's raw materials from COGS and have included only Nava Bharat's processing costs for those goods. Comment 21: Cost of Recycled Silicomanganese Fines Petitioners argue that Nava Bharat improperly excluded the cost of recycled silicomanganese fines from its COM. They note that it was not until a January 4, 2002 letter that Nava Bharat admitted it does in fact use silicomanganese fines as an input in the production of silicomanganese and that the Department confirmed this at verification. Petitioners contend, however, that Nava Bharat did not include the cost of the recycled fines in the raw material costs reported to the Department as a part of COM. Petitioners further contend that, like Universal, Nava Bharat attributed the same per-unit cost to fines as to normal-sized silicomanganese. They note that, whereas Nava Bharat has asserted that the production quantity reported to the Department was exclusive of fines, in fact the Department found at verification that the production quantity reported was based on weight measurements taken prior to the sizing process in which fines are generated. Petitioners maintain that the Department found at verification that the third and final time that Nava Bharat weighs its silicomanganese is upon its arrival in the stacking yard. They note that the Department's verification report plainly states that the merchandise is weighed three times and the last time is before the crushing and sizing process. See Nava Bharat Sales Report, at 17, and Nava Bharat Cost Report, at 2. Thus, petitioners argue, the quantity entered into the finished goods inventory, and reported to the Department, is the quantity inclusive of silicomanganese that ultimately becomes fines in the crushing and sizing process. As a result, according to petitioners, Nava Bharat allocated the same per-unit costs to fines as to specification-sized silicomanganese. Petitioners argue that, by including the volume of fines (included in the volume of silicomanganese prior to the crushing and sizing process) in the production quantity used to determine its reported per-unit COM, Nava Bharat attributed production costs to fines, just like Universal did. Accordingly, petitioners maintain, the Department must adjust Nava Bharat's reported per-unit COM to include an amount for recycled fines. Petitioners note that, unlike for Universal, the record does not contain information regarding the quantity of silicomanganese fines Nava Bharat recycled and that Nava Bharat originally stated it did not recycle any material in the production of silicomanganese. Petitioners, therefore, urge the Department to resort to partial facts available to fill the gap that exists in the record. They suggest that the Department apply a percentage of fines to total production, calculated using data found for Universal at verification, to Nava Bharat's reported production volume, to result in a facts available estimate of the quantity of fines produced by Nava Bharat, and recycled into the production process, during the POI. Petitioners propose that the Department multiply this estimated quantity of fines consumed by Nava Bharat by its reported per-unit COM for silicomanganese and then divide the resulting total cost of fines consumed by the total production quantity to calculate the per-unit cost of fines; the latter should then be added to Nava Bharat's COM for the final determination. In response to petitioners' argument, Nava Bharat argues that the production quantity reported by the company is net of recycled fines and that the production reported is only the saleable production. Nava Bharat notes that, as stated in it responses to the Department's questionnaires, the company does not recognize the fines generated as saleable production. The company states that these fines (off-specification silicomanganese) are all reintroduced into the production process, and therefore, do not make it as part of net saleable (on specification) finished goods. Nava Bharat states that, upon arrival at the stacking yard, the merchandise (in cake or brick form) is weighed and then the sizing process is carried out. After receipt of the final chemical composition, the sized merchandise (which is the saleable merchandise) is entered into the finished goods account. According to Nava Bharat, the sized merchandise shipped to the finished goods account is again weighed, and it is at this stage at which production weight/volume is reported. In support of its argument, Nava Bharat refers to the cost verification report wherein, the company maintains, finished goods are taken into account after final inspection for chemical composition. See Nava Bharat Cost Report, at page 2. The company asserts that the weight so recorded in the finished goods account is always lower than the weight of the merchandise in the cake form before sizing takes place. Department's Position: We agree with petitioners. While the record is not completely clear as to whether silicomanganese fines were included in the production quantity Nava Bharat used to calculate the per-unit COM, when examined as a whole, the evidence on the record supports a finding that this quantity includes fines. First, Nava Bharat claims that the reported quantity of silicomanganese reflects its saleable production after sizing, as the merchandise enters the finished goods account. However, the Department found the following at verification: Upon arrival in the stacking yard, the merchandise is weighed again, and then the silicomanganese is sized. Thereafter, it receives its final inspection for chemical composition before it is entered into the finished goods account, which is the information provided to the Department, including chemical composition and weight. Thus, the verification report, and supporting documentation received at verification, indicate that the weighing of the silicomanganese occurs before it is sized, when the weight still includes the quantity of fines. See Nava Bharat Cost Report, at 2 and Exhibits 10 and C-5. The production slips ("weighment tickets") we examined, which tie into the daily production reports, show a "MT" figure attributable to a particular furnace. Id. These daily production reports, in turn, tie to the monthly production reports and eventually to the production quantity worksheet as reported to the Department. Id. In addition, there is no evidence showing that these production slips were generated after sizing, as fines are neither gathered, accounted for, nor allocated by furnace, but rather accumulated all together (after sizing) and reintroduced into the production process. Id. Thus, the documentation on the record supports the conclusion that the production quantity used by Nava Bharat to calculate a per-unit COM included fines. Second, because Nava Bharat only recycled its silicomanganese fines, and had no sales of fines reported in its database during the POI, only one set of cost calculations was reported to the Department. Because we have determined that the reported production quantity of silicomanganese includes fines, we conclude that the total COM has been allocated to both products. Therefore, for the final calculations, we have adjusted the per- unit COM taking into consideration the quantity of the fines generated and subsequently reintroduced. We did so by reducing the production quantity used to allocate the total COM by the quantity of fines generated. Unlike for Universal, however, no information regarding the quantity of silicomanganese fines recycled by Nava Bharat exists on the record. Therefore, pursuant to section 776(a) of the Act, we have resorted to partial facts available for the final determination. Because Nava Bharat made no sales of fines during the POI, and its stated practice was to recycle fines, we relied upon the presumption, as partial facts available, that the entire quantity of fines generated was recycled into the production process. In response to petitioners' suggestion to use Universal's data as partial facts available, this possibility was unacceptable. If we were to use the methodology suggested by petitioners, Universal's business proprietary information would have been discernible to Nava Bharat through the proposed calculation. Instead, we have used, as partial facts available, publicly available information pertaining to the percentage of fines generated in the production process of silicomanganese. This information was obtained from the concurrent antidumping investigation of silicomanganese from Venezuela. See Verification of the Sales Information Submitted by Hornos Eléctricos de Venezuela (HEVENSA) in the Investigation of Silicomanganese from Venezuela, Memorandum from Deborah Scott and Patricia Tran through Robert James to the File (Public Verison), at 13 (January 31, 2002) on file in Room B-099 of the Central Records Unit in the main Department of Commerce building. Using this information, we have reduced the total production quantity used in the calculation of the per-unit COM, as described above. Comment 22: Cost of Electricity Regarding its self-produced power, Nava Bharat argues that the COP of the power from its captive power source should be used. Nava Bharat further argues that the COP of power captively-produced by the company should be recalculated in the event the Department proceeds on the same basis as it did in the preliminary determination with regard to interest and G&A expenses (i.e., recalculating the same on a company-wide basis), which it asserts is contrary to the methodology followed by the company. Nava Bharat notes that it has recalculated, and attached to its brief, the COP of captively-produced power using information and data already on the record of this proceeding. Nava Bharat further contends that the revised COP of captive power should be used, rather than its earlier calculation of captive power valued at the price at which the power was sold by the company to an outside party. The company notes that it recalculated the cost of power for the production of subject goods and attached it to its brief. Nava Bharat submits that the COP of captive power revised to take into account the Department's recalculation of interest and G&A expenses on a company-wide basis should be considered when calculating the average cost of power for the subject goods. Regarding the cost of power purchased by Nava Bharat from APGPCL, which Nava Bharat has identified as an affiliate, Nava Bharat argues that it should be considered on the basis of the actual price paid by the company to APGPCL. Petitioners did not respond to these comments. Department's Position: We agree with respondent with regard to its self- produced power. Because Nava Bharat's power plant represents a division of Nava Bharat, rather than a separately incorporated affiliate, it is appropriate to the use its COP to value the power consumed by Nava Bharat from this source. We also agree that, in recalculating Nava Bharat's interest and G&A expenses on a company-wide basis, an adjustment is necessary in the calculation of the COM for the self-produced power to avoid double-counting such expenses. Therefore, in our calculations for the final determination, we have adjusted G&A expenses for the self- produced power accordingly. We disagree with respondent that the power Nava Bharat purchases from its affiliated supplier, APGPCL, should be valued at the actual price paid by Nava Bharat. Nava Bharat has claimed, in its submissions to the Department, that APGPCL is affiliated with Nava Bharat. To the extent that Nava Bharat is purchasing electricity from an affiliate and electricity is a major input in the production of silicomanganese, the major input rule at section 773(f)(3) of the Act and section 351.407(b) of the Department's regulations would be applicable. Section 351.407(b) of the Department's regulations states that, for the purposes of section 773(f)(3) of the Act, the Department will determine the value of a major input purchased from an affiliated person based on the higher of: 1) the price paid by the exporter or producer to the affiliated person for the major input; 2) the amount usually reflected in sales of the major input in the market under consideration; or 3) the cost to the affiliated person of producing the major input. In this instance, we have the COP and the transfer price of the power supplied by APGPCL, but we do not have a market price which APGPCL charges an unaffiliated customer. However, we do have market prices for Nava Bharat's unaffiliated electricity suppliers. Therefore, as partial facts available, pursuant to section 776(a) of the Act, we used a weighted-average of these market prices, as representative of the market price of the power supplied by APGPCL. We then compared the COP, transfer price and market price, in accordance with the major input rule. Because the calculated market price is the highest of the three, for the final determination, we have used this price to value Nava Bharat's purchases of power from APGPCL. Comment 23: Fixed Plant Overhead Nava Bharat argues that Fixed Plant Overhead cannot be described as company-wide G&A expenses as these are plant-specific expenses, and are expenses related to the production and despatch of goods at each of the production facilities. Nava Bharat states that it incurred certain expenses at its various divisions/production facilities and that these expenses are plant/product-specific expenses. Further, the company maintains that these expenses form part of the fixed overhead expenses of the relevant plant for arriving at the COP and are shown as manufacturing expenses in the financial statements. Petitioners did not respond to these comments. Department's Position: G&A expenses relate to the company as a whole. The expenses in question relate to a specific facility and the products produced therein. Therefore, we have continued to treat these expenses as fixed factory overhead. Section D of the Department's questionnaire instructs the following for fixed overhead costs: Report the yielded CONNUM specific per-unit fixed overhead costs incurred to produce the merchandise under consideration. Fixed overhead costs include those production costs that generally do not vary in total with changes in the volume of merchandise produced at a given level of operations. Fixed overhead costs may include the costs incurred for building or equipment rental, depreciation, supervisory labor, plant property taxes, and factory administrative costs. In addition, include in fixed overhead costs research and development ("R&D") costs which relate specifically to the merchandise under consideration. However, we disagree that the Department treated Nava Bharat's reported fixed overhead expenses improperly in the preliminary determination. Nava Bharat's comment in this regard is not specific and, therefore, the exact changes for which respondent is arguing are unclear. In our preliminary analysis, the Department added back into Nava Bharat's reported fixed overhead expenses an offset to depreciation for income not related to the production of subject merchandise. See Preliminary Determination of Antidumping Investigation of Silicomanganese from India - Analysis of Nava Bharat Ferro Alloys, Ltd., Memorandum from Elfi Blum-Page through Sally Gannon to the File (November 9, 2001) (Nava Bharat Preliminary Analysis Memorandum), at 5. Because the depreciation included in Nava Bharat's fixed overhead expenses was specific to the factory, Nava Bharat improperly reduced this depreciation by income not related to subject merchandise. Therefore, for the final determination, we have made no change to our preliminary calculation for fixed overhead expenses. Comment 24: Calculation of General and Administrative Expenses Nava Bharat argues that its G&A expenses should not be charged on a company-wide basis, as this will result in apportionment of those expenses to some divisions of the company which have not received any benefit against such expenses. Nava Bharat argues that G&A expenses incurred by the company at the plant are in the nature of Plant Fixed Overhead. The company further asserts that the benefit derived by the company against such expenses was restricted to the specific products being produced by the company and that no benefit was drawn by other divisions from the expenses incurred by the company at one division. The company holds that, even though these expenses of the same nature have been cumulated under the Annual Accounts of the Company and shown together, it does not follow that the expenses incurred at the different plants were incurred against services available to all the divisions/products of the company. In addition, Nava Bharat states that these expenses have been shown by the company under the heading "Manufacturing Expenses" in the published Annual Accounts of the Company. However, Nava Bharat contends, in recalculating the G&A expenses, the Department transferred the expenses incurred by the company at its plant (and shown in its COP as Plant Fixed Overhead) to G&A expenses. Thus, in the Department's methodology, manufacturing expenses incurred by Nava Bharat on one product were charged to other products. In response to Nava Bharat's claim, petitioners argue that G&A expenses are those expenses that relate to the general activities of the company as a whole rather than to a production process. Petitioners hold that when determining what expenses to include in G&A expenses, the issue is the nature of the expense, i.e., manufacturing versus G&A. Thus, petitioners state, company-wide G&A expenses are being properly allocated over the COGS for the entire company, regardless of whether the G&A expenses were attributed by Nava Bharat to a particular division of the company. Petitioners, also argue that the Department did not include manufacturing costs in G&A expenses in the Preliminary Determination. Petitioners note that the Department included the following items in G&A expenses: (1) payments and benefits to employees; (2) other expenses; and (3) depreciation on idle assets. See Nava Bharat Preliminary Analysis Memo. With respect to payments and benefits to employees, petitioners hold that the Department allocated the financial-statement amount of these costs between manufacturing and G&A and included only the portion allocated to G&A in the numerator in the calculation of the G&A expense ratio. "Other Expenses," petitioners maintain, is a separate line item in Nava Bharat's financial statements that includes such items as rent, advertising, stationary, bad debt, auditors' fees, and loss on assets. Petitioners assert that these expenses are general in nature, and do not relate to production of silicomanganese or any other product. In addition, petitioners state that the Department excluded from G&A expenses those "Other Expenses" not properly included, i.e., freight, sales commissions, and repairs and maintenance attributed to manufacturing. See Nava Bharat Preliminary Analysis Memo. Department's Position: We agree with petitioners. It is the Department's established practice to calculate G&A expenses based on the producing company as a whole and not on a divisional or product-specific basis. See Notice of Final Determination of Sales at less Than Fair Value: Stainless Steel Round Wire from Canada 64 FR 17324, 17333 (April 9, 1999) at Comment 14. This approach recognizes the general nature of these expenses and the fact that they relate to the company as a whole. The Department's methodology also avoids any distortions that may result if greater amounts of company-wide general expenses are allocated disproportionally between products. Therefore, for the final determination, we have continued to recalculate Nava Bharat's G&A expenses on a company-wide basis. Contrary to Nava Bharat's argument, the Department has only allocated to G&A expenses that portion of the following expenses that relates to the General and Administrative Expenses of the company as a whole (i.e. separating out any manufacturing expenses): 1) payments and benefits to employees; 2) other expenses; and 3) depreciation on idle assets. Comment 25: Calculation of Net Interest Expense Nava Bharat argues that its net interest expenses should not be charged on a company-wide basis and apportioned to various products on a COGS basis, as this will result in apportionment of those expenses on some divisions of the company which have not received any benefit against such expenses. In particular, Nava Bharat notes that this would result in apportionment of interest expenditure incurred, for example, in acquiring the power plant onto the subject product, even though the funds borrowed and deployed have not been used for the Ferro Alloy Plant producing subject merchandise. Nava Bharat submits that the cost accounting principles provide that expenditures should be directly allocated to the specific product to the extent they can be identified and that only those expenditures which cannot be directly identified with a product are required to be apportioned on various products. The company maintains that manufacturing expenses and interest on term loans incurred by Nava Bharat at its various plants are plant-specific and, hence, product/division-specific expenses. The company maintains that under the WTO Agreement on Antidumping, the Department is required to calculate costs on the basis of records kept by the company. Nava Bharat states that it has kept separate records of interest on term loans taken by the company for various products and manufacturing expenses incurred by the company at various plants and that these records are maintained by the company in accordance with the generally accepted accounting principles in India. Thus, the company argues, allocations of costs done by Nava Bharat are being consistently followed by the company, and these records reasonably reflect the costs associated with production and sales of the product under consideration. In response, petitioners argue that it is the Department's long standing practice to consider a corporation's invested capital resources, including debt and equity, to be fungible in nature. See Notice of Final Determination of Sales at Less Than Fair Value: Emulsion Styrene-Butadiene Rubber From the Republic of Korea, 64 FR 14,865, 14,870-71 (March 29, 1999) (ES-B Rubber). For this reason, petitioners hold, the Department should not allocate interest expenses to particular products or divisions of a company. Petitioners state that the Department's calculation of Nava Bharat's interest expenses in the Preliminary Determination was consistent with this practice and, accordingly, the Department should reject Nava Bharat's arguments with respect to interest expenses and continue to calculate them as it did in the Preliminary Determination. Department's Position: It is the Department's established practice to consider a company's invested capital resources, including debt and/or equity, to be fungible in nature and to attribute the interest and finance expenses incurred to the producing company as a whole, and not to individual divisions or products. See ES-B Rubber (Comment 6). The interest expense related to the debt portion of the capitalization of the corporation is allocated to the total operations of the consolidated corporation. It is also our established practice to require the use of consolidated financial statements in determining interest expense. See ES- B Rubber. Through the use of consolidated financial statements, we recognize: (1) the fungible nature of invested capital resources, such as debt and equity, of the controlling entity within a consolidated group of companies; and (2) that the controlling entity within a consolidated group has the power to determine the capital structure of each member company within its group. Therefore, for the final determination, we have continued to recalculate Nava Bharat's net interest expenses on a company- wide basis. However, in our final calculations, also pursuant to our established practice, we have offset interest expense by short-term interest income which was verified. See Nava Bharat's Cost Report, at 8. See also, Gulf States Tube Div. of Quarex Corp. v. United States, 981 F. Supp. 630, 648 (CIT 1997) (affirming, the reasonableness of the offset of short-term interest revenues by the Department). Comment 26: Interest Revenue Petitioners argue that the Department should add interest revenue, reported by Nava Bharat for certain home market sales, to Nava Bharat's reported home market prices. They note that it is the Department's practice to add interest revenue reported by a respondent for home market sales to the reported gross unit price and that the Department did so for Universal. They contend that the Department should correct its failure to add interest revenue to Nava Bharat's reported gross unit price for the final determination. Nava Bharat did not respond to this argument. Department's Position: We agree with petitioners that it is the Department's practice to add interest revenue to home market prices. Thus, pursuant to that practice, we have added Nava Bharat's reported interest revenue to the gross unit price for the final determination. Recommendation Based on our analysis of the comments received, we recommend adopting all of the above positions. If these recommendations are accepted, we will publish the final weighted-average dumping margin and the final determination of this investigation in the Federal Register. _______________ __________________ Agree Disagree ______________________________ Faryar Shirzad Assistant Secretary for Import Administration ______________________________ Date