66 FR 65886, December 21, 2001 A-412-820 A-428-828 A-421-808 Investigations Public Document IA:FT MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Bernard T. Carreau Deputy Assistant Secretary for Import Administration Group II DATE: December 13, 2001 SUBJECT: Issues and Decision Memorandum for the Antidumping Duty ("AD") Investigation of Low Enriched Uranium ("LEU") from Germany, Netherlands and the United Kingdom Summary This memorandum addresses issues briefed in these proceedings. Section A lists the issues briefed by the parties. Section B sets out the scope, or product coverage, of these investigations. Section C analyzes the comments of the interested parties and other participants and provides our recommendations for each of the issues. A. Issues Scope Issue 1. Scope clarification Common Sales Issues 2. Whether Urenco failed to disclose its affiliation with U.S. customers who participate in a joint venture 3. Whether Urenco failed to disclose sales activity related to an affiliated U.K. reseller - Uranium Asset Management Ltd. ("UAM") 4. Whether Urenco never fully disclosed the role of its affiliated U.S. fuel fabricator - Westinghouse 5. Whether Urenco receives transportation services from its affiliated transporters at market rates and whether facts available should be applied 6. Whether the Department should use adverse facts available to calculate Urenco's less than fair value ("LTFV") margins 7. Whether Urenco's U.S. sales should be treated as export price ("EP") or constructed export price ("CEP") Sales 8. Whether the indirect selling expense ("ISE") ratio requires a revision 9. Whether feed material transportation costs, cylinder rental expenses, and credit expenses should be deducted from Urenco's U.S. sales price 10. Whether feed material transportation cost is double counted 11. Treatment of "blended price" contracts 12. Whether to apply "discounts" provided on separative work unites ("SWU") sold prior to the period of investigation ("POI") 13. Whether to utilize only completed deliveries or all sales made during the POI Common Cost Issues 14. Affiliated Inputs 14a. Assets purchased from affiliated companies 15. Cost of Certain Product 16. Tails disposal costs 17. Futures Hedging Contracts 18. Gain to offset cost 19. General and administrative ("G&A") expenses Urenco Deutschland Cost Issues ("UD") 20. Affiliated electricity purchases 21. Home country Generally Accepted Accounting Principles ("GAAP") Urenco Nederland Cost Issue ("UNL") 22. UNL unreconciled costs Urenco Capenhurst Ltd. Cost Issue ("UCL") 23. Centrifuge failure Scope of the investigation For purposes of these investigations, the product covered is all low enriched uranium (LEU). LEU is enriched uranium hexafluoride (UF6) with a U235 product assay of less than 20 percent that has not been converted into another chemical form, such as UO2, or fabricated into nuclear fuel assemblies, regardless of the means by which the LEU is produced (including LEU produced through the down-blending of highly enriched uranium). Certain merchandise is outside the scope of these investigations. Specifically, these investigations does not cover enriched uranium hexafluoride with a U235 assay of 20 percent or greater, also known as highly enriched uranium. In addition, fabricated LEU is not covered by the scope of these investigations. For purposes of these investigations, fabricated uranium is defined as enriched uranium dioxide (UO2), whether or not contained in nuclear fuel rods or assemblies. Natural uranium concentrates (U3O8) with a U235 concentration of no greater than 0.711 percent and natural uranium concentrates converted into uranium hexafluoride with a U235 concentration of no greater than 0.711 percent are not covered by the scope of these investigations. Also excluded from these investigations is LEU owned by a foreign utility end-user and imported into the United States by or for such end-user solely for purposes of conversion by a U.S. fabricator into uranium dioxide (UO2) and/or fabrication into fuel assemblies so long as the uranium dioxide and/or fuel assemblies deemed to incorporate such imported LEU (i) remain in the possession and control of the U.S. fabricator, the foreign end-user, or their designed transporter(s) while in U.S. customs territory, and (ii) are re-exported within eighteen (18) months of entry of the LEU for consumption by the end-user in a nuclear reactor outside the United States. Such entries must be accompanied by the certifications of the importer and end user. The merchandise subject to these investigations is classified in the Harmonized Tariff Schedule of the United States (HTSUS) at subheading 2844.20.0020. Subject merchandise may also enter under 2844.20.0030, 2844.20.0050, and 2844.40.00. Although the HTSUS subheadings are provided for convenience and customs purposes, the written description of the merchandise is dispositive. Discussion of comments raised by interested parties and other participants Scope Issue Comment 1: Scope Clarification On August 17, 2001, petitioners (1) filed a request that the Department clarify the scope of these investigations to exclude low enriched uranium imported solely for further processing and consumption outside the United States. Petitioners argue that USEC never intended to subject sales of LEU outside of the United States to U.S. trade law disciplines simply because foreign purchasers elect to have their LEU converted or fabricated in the United States prior to use in a foreign reactor. Additionally, they state that discussions with Customs have led parties to believe that in order to address Customs' concerns over the use of temporary import bonds (TIBs) for such imports, parties would be required to make adjustments to normal business practices that will increase the cost of U.S. conversion/fabrication for foreign utilities - an unintended result. In order to resolve this issue, petitioners requested that the following paragraph be added to the scope of these investigations to: Also excluded from these investigations is LEU owned by a foreign utility end-user and imported into the United States by or for such end-user solely for purposes of conversion by a U.S. fabricator into uranium dioxide (UO2) and/or fabrication into fuel assemblies so long as the uranium dioxide and/or fuel assemblies deemed to incorporate such imported LEU (i) remain in the possession and control of the U.S. fabricator, the foreign end-user, or their designed transporter(s) while in U.S. customs territory, and (ii) are re-exported within eighteen (18) months of entry of the LEU for consumption by the end-user in a nuclear reactor outside the United States. In addition, petitioners assert that the proposed scope clarification can be easily administered by the Department and Customs through the use of certifications submitted with each entry of LEU for conversion/fabrication and re-export. Petitioners submitted proposed certification forms that they indicate would be appropriate for importers, and end users, to use to comply with this exclusion which include, among other terms, that the fabricated material be exported within 18 months. Respondents agree that implementing an exclusion for imports that are entering the U.S. market only for fabrication prior to being shipped to third countries is proper and appropriate. Respondents note that subjecting such imports to AD and countervailing duties ("CVD") would only serve to shift fabrication offshore, thus causing harm to both fabricators and customers of both respondents and petitioners. However, respondents do not agree with the petitioners' proposed certifications. According to respondents, the proposed certificates are both unnecessary and burdensome. Respondents argued that the Court of International Trade has emphatically rejected the notion that TIB procedures cannot be used in this industry (citing to USEC, Inc. and the United States Enrichment Corp. v. United States, LEXIS 62 at * 18, Slip Op., 2001-58 (Ct. Int'l Trade May 17, 2001). Respondents assert that because TIB procedures are applicable to imports of uranium, petitioners, by requesting this scope clarification and certification requirements, are inventing a problem that does not exist in a bid to have the Department adopt extreme and burdensome certification requirements. Respondents assert that the certifications proposed by petitioners impose restrictions that would not only apply to the subject LEU even long after the LEU is not within the United States (i.e., that they require use in nuclear reactors outside the United States) but would also reduce the flexibility of foreign entities to use book transfers and swaps that are commonly employed within the industry to minimize transportation costs. In the alternative, respondents propose certifications that do not place what they consider to be unnecessary and burdensome requirements on the importer and end user. Two importers affected by this exclusion request, General Electric Company and Framatome ANP, Inc., submitted letters supporting the proposed exclusion. In addition, petitioners cited to the Department's experience with administering the suspension agreement in the antidumping investigation of uranium from the Russian Federation in support of their assertion that the language of the certificates needs to be as proposed. DOC Position: We agree with both petitioners and respondents that LEU imported solely for further processing and consumption outside the United States is not within the scope of these investigations. The difficult question involves the appropriate method to implement such exclusion in light of the fact that all LEU entering the United States has the physical characteristics of the subject merchandise. We agree with respondents that the fungible nature of the product does not preclude the application of TIB procedures; nor does it alter the fact that the Department does not have the authority to apply duties to TIB entries or include such entries within the scope of an AD or CVD investigation. However, having heard from the industry that such procedures will have the unintended effect of requiring adjustments to normal business practices that will increase the cost of U.S. conversion/fabrication for foreign utilities, we determine that it is appropriate to develop an alternative procedure of effectuating the exclusion. We have carefully considered the comments of petitioners and respondents with respect to the need for and the extent of importer and end user certifications. We agree with petitioners that because of the fungibility of the subject merchandise, such certifications need to be explicit in their language. We find that because the scope exclusion is only intended to apply to LEU imports for further processing and consumption outside the United States, it is appropriate for the importers and end users to make such certifications at the time of importation. Therefore, we are excluding from the investigations and orders low enriched uranium imported solely for further processing and consumption outside the United States and we have adopted the language of the certifications as proposed by petitioners. In order to ensure the effectiveness of such certification system, we intend to work closely with Customs to implement these procedures. Common Sales Issues Comment 2: Whether Urenco failed to disclose its affiliation with U.S. customers who participate in a joint venture Petitioners allege that Urenco is affiliated with some of its U.S. customers through its participation in a joint venture, Louisiana Energy Services, L.P ("LES") (2). Petitioners assert that Urenco's failure to disclose this important information is ample justification for the Department to resort to facts available. Petitioners refute Urenco's claim that LES was essentially dormant since it withdrew its license application in 1998, and that the affiliation among LES partnership members could have no impact on pricing decisions among the parties. Petitioners note that in July 1999, only 3 months before the beginning of the POI, Urenco sought approval of a LES member "B" (3), before Urenco entered a contractual relationship with another LES member "A". Petitioners assert that while LES's financial activity may have been insignificant, an enforceable legal relationship continued to exist among these joint venture entities. Urenco counters that its 1999 sales contract with a LES member "A" was made after the LES joint venture had been abandoned, and the requirement that it seek approval from another LES member "B" was at most pro forma. Urenco questions what actions petitioners contend could have been taken by LES member "B" to prevent Urenco and member "A" from pursuing normal business relations at arm's length. Urenco further maintains that the contract between LES and member "A" at issue, and all relevant correspondence during the POI between Urenco and members "A" and "B", including partnership agreement regarding LES, have been submitted and verified by the Department. Therefore, Urenco claims that Department should not apply facts available. DOC Position: We disagree with petitioners that Urenco failed to disclose information regarding LES and that there is a basis for resorting to facts available in this case. As discussed below, for purposes of our analysis of Urenco's selling practices during the POI, LES is simply irrelevant. Whatever limited information about LES is required for these cases is clearly on the record and adequately analyzed and verified. Urenco first noted its affiliation with LES in its original April 2, 2001 section A response, and further disclosed the contract that was assigned to it from LES. We then requested further information about the current status of LES and about the assigned contract, and Urenco provided such information and subsequent contract information in its May 30, 2001, sections A-C supplemental questionnaire response. During our sales verifications at Urenco Ltd., and at UI, we examined a great variety of documentation, including contracts, sales correspondence, financial statements, accounting records, etc., and found that LES was, and had been for a long time, an essentially dormant entity. The contract approval process cited by petitioners was at most a pro forma exercise. (See Sales Verification Report.) Thus, there is no basis for rejecting Urenco's reported and verified information and resorting to adverse facts available as advocated by petitioners. Comment 3: Whether Urenco failed to disclose sales activity related to an affiliated U.K. reseller - UAM Petitioners allege that Urenco failed to disclose its sales activities with UAM, a wholly owned subsidiary of British Nuclear Fuels Ltd. ("BNFL"), one of Urenco's owners. Urenco's submission noted that UAM acts inter alia as a procurement organization for certain nuclear reactors in Scotland. Petitioners maintain that during the POI, Urenco delivered LEU to UAM pursuant to a sale made prior to the POI. Petitioners argue that Urenco's sales to UAM are irrelevant to Urenco's LTFV margin calculation because of the affiliation between Urenco and UAM. According to petitioners, the only relevant information is the selling price charged by UAM to its unaffiliated customers. Because such information is not on the record of these proceedings, petitioners claim that it is uncertain if an accurate normal value can be calculated by the Department. Furthermore, petitioners question whether there were other unreported sales made by affiliated resellers during the POI as a result of Urenco's failure to identify UAM as an affiliated reseller. Urenco rebuts petitioners' claim of possible unreported sales by affiliated resellers, stating that this claim is based on the false premise that Urenco deliberately withheld material information. The Department first learned of the resale of enriched uranium product ("EUP") to a foreign customer by UAM at verification, Urenco counters, because the sale was not made during the POI, and was made outside Urenco's ordinary course of trade. Urenco further cites to the sales verification report and argues that it would work in Urenco's favor had it been relevant to the margin calculation. Furthermore, Urenco argues that the entire UAM issue is irrelevant because the Department relied on constructed value ("CV"), not the comparison market sales in its margin calculation. Therefore, Urenco maintains, it has provided all relevant information and there is no call for the use of facts available. DOC Position: We disagree with petitioners that we need the information on the price at which UAM sold LEU to its unaffiliated customers for the final determination because the LEU at issue was sold prior to the POI, based on our determination that the contract date is the appropriate date of the sale in this case. Therefore, the price of LEU in this sale is irrelevant to these investigations. We also disagree with petitioners that because Urenco failed to report UAM's sales to utilities in the foreign market, we must question whether there were other sales made by affiliated resellers during the POI that went similarly unreported. The EUP resold by UAM is not merchandise under investigation. Moreover, we thoroughly examined all transactions between Urenco and UAM before and during the POI and found no evidence of sales information that should have been reported. Because the U.K. market was not viable and we found that price-to-price comparisons were otherwise not possible we relied on constructed value ("CV") as the basis for normal value. Thus, Urenco transactions with UAM, or UAM resales, are irrelevant to these investigations. Comment 4: Whether Urenco never fully disclosed the role of its affiliated U.S. fuel fabricator - Westinghouse Petitioners assert that Urenco's transactions with its affiliated fabricator Westinghouse have an effect on Urenco's LEU business. Specifically, petitioners note the following relevant activities: 1) Certain commercial transactions between Westinghouse and Urenco took place, but Urenco did not identify the type and the amount of revenue received from these commercial transactions; petitioners also question whether these transactions were priced at market rates; 2) Westinghouse maintains LEU inventory for Urenco to meet customer demands and acts as a facilitator of Urenco for purposes of facilitating physical deliveries and book transfers of LEU. According to petitioners, when Westinghouse facilitates book transfers for Urenco's LEU sales, it may also fabricate this LEU for Urenco's U.S. utility companies. If this is occurring, petitioners claim, Westinghouse may offer discounts on its fabrication activities to Urenco customers, which would then be relevant to the Department's LTFV calculation. Urenco contends that Westinghouse plays no role in Urenco's sales of LEU or enrichment services; rather, it acts as a fabricator for Urenco customers. According to Urenco, its contract agreement with Westinghouse is similar to those other enrichment suppliers have with Westinghouse. Moreover, Urenco has similar agreements with other fuel fabricators in the United States. The purpose of these agreements is to facilitate the logistics of the delivery of product material on behalf of Urenco's customers. Urenco cites to the sales verification report which notes that fabricator accounts "were handled in essentially the same manner for affiliated and unaffiliated parties." With respect to petitioners' claim that the Department could not confirm whether the transactions between Urenco and Westinghouse were priced at market rates, Urenco counters it as "pointless" because the sales verification report simply notes that "there were some minor fees paid between Urenco and the fabricators." Urenco argues that because the terms of each contract were different, it is impossible to establish a direct comparison between them; therefore, resorting to facts available is not justified. Regarding petitioners' concern that Westinghouse might have offered discounts to Urenco customers, Urenco contends that this suggestion is unfounded and contradicted by the sales verification report. DOC Position: We disagree with petitioners that Urenco never fully disclosed the role of its affiliated U.S. fuel fabricator, Westinghouse. Although Urenco did not disclose its affiliation in the original questionnaire response, it did disclose this relationship in its supplemental responses. We agree with Urenco that the agreements between Urenco and Westinghouse are to facilitate the logistics of the delivery of product material on behalf of Urenco's customers. At verification we thoroughly examined Urenco's transactions with all fuel fabricators with which it does business. We also reviewed the terms of all the relevant contracts. We found that Urenco's fabricator accounts "were handled in essentially the same manner for affiliated and unaffiliated parties." Moreover, there is no evidence that any aspect of these transactions affects Urenco's sales activities. Comment 5: Whether Urenco receives transportation services from its affiliated transporters at market rates and whether facts available should be applied Petitioners contend that Urenco did not provide market price and/or cost of production data for the inputs Urenco purchased from affiliated parties. It claims that proprietary information on the record shows that Urenco's affiliated transportation company did not charge Urenco market rates for its delivery services. Specifically, petitioners claim that based on the transportation contracts selected for review at verification, the Department found that Urenco paid its affiliated transporter a lower price than it paid its unaffiliated transporter, despite having similar shipping arrangements with both parties. Petitioners argue further that while Urenco explained the means by which it selected between vendors on a competitive basis, it has not provided information upon which the Department may determine that the reported transportation fees were indeed market rates. Urenco counters that petitioners ignored the fact that Urenco's unaffiliated transporters' fees are, at times, lower than its affiliated transporters' fees. Therefore, Urenco concludes that its affiliated transporters' fees are at arms length. In addition, Urenco notes that the Department does not necessarily resort to facts available when an affiliate, which is not under the respondent's control, is unwilling to provide information about its pricing to a respondent. DOC Position: We disagree with petitioners' argument that our verification findings imply that Urenco's affiliated transporters charged Urenco a lower price than unaffiliated transporters. At verification we reviewed numerous transactions between Urenco and affiliated and unaffiliated transportation service providers. We found that for every situation where Urenco requested bids on transportation service contracts it always chose the lowest bidder, regardless of affiliation. Furthermore, each of the contracts were awarded using an open competitive bidding process. Based on this, we found that Urenco deals with all providers on comparable terms and that there was not evidence that the prices paid to affiliated providers were not at arm's-length. (See Verification Report at 24.) Comment 6: Whether the Department should use facts available or adverse facts available to calculate Urenco's LTFV margins Petitioners contend that pursuant to 776(a)(2) and (b) of the Tariff Act of 1930, along with 782(c) and (d) of the Act, we should find that Urenco has not acted to the best of its ability in this investigation and that we should apply adverse facts available. They add that we have provided Urenco with ample opportunity to comply with our requests through several questionnaires and verification, but Urenco repeatedly has withheld requested information, citing to their arguments as presented in Comments 2, 3, 4, and 5 above. According to petitioners, Urenco has not acted to the best of its ability to provide information in response to questions on affiliated parties. Petitioners maintain that there is little or no evidence that Urenco made any efforts to obtain affiliate information, because most of the affiliate information could have been obtained from sources other than the affiliated parties themselves. Citing the Issues and Decision Memorandum (July 16,2001) in Certain Hot-Rolled Carbon Steel Flat Products from South Africa 66 FR 37002 (July 16, 2001), petitioners claim that we are fully justified in making adverse inferences where an interested party did not provide affiliated party information. Moreover, petitioners argue that despite our acknowledgment that Urenco had generally been cooperative over the course of the investigation, respondent's refusal to provide the requested affiliate information "significantly" impeded our ability to calculate dumping margins. Urenco, in its rebuttal brief, maintains that it has cooperated with the Department's requests, it has responded in a timely fashion to all of the Department's questionnaires, and it has not withheld information. Urenco urges the Department to dismiss USEC's claim and not to resort to "facts available" in this investigation. Citing the case Olympic Adhesives Inc. v. United States, 899 F.2d 1565, 1572 (Fed. Cir. 1990), Urenco argues that the Court of Appeals for the Federal Circuit noted that it is inappropriate to use "best information available" the predecessor to facts available in the pre-URAA Statute where a submitter cannot produce data because such data never existed. Furthermore, citing Roller Chain, Other than Bicycle, from Japan, 62 FR 60472, 60476 (November 10, 1997) ("Roller Chain") and Certain Cut-to- Length Carbon Steel Plate from Brazil, 63 FR 12,744, 12,751 (March 16, 1998), Urenco claims that the Department frequently does not apply facts available, even when a respondent's submitted information is incomplete, when the respondent could only obtain that information from the actual affiliated parties. Urenco noted that in Roller Chain, the Department did not apply adverse facts available because the respondent was not in a position to compel the affiliated customer to produce the requested information. Urenco asserts that in the current investigation, none of the "affiliates" listed by USEC is under Urenco's direct control, rather, they are all subsidiaries of Urenco's shareholders, and Urenco therefore, cannot force them to provide the Department with the required data. DOC Position: We disagree with petitioners that use of adverse facts available is warranted. As noted above, we find that Urenco has been cooperative over the course of these investigations. It has provided timely responses to our questionnaires, although those responses were not complete in some instances. Except for certain issues related to Urenco's cost of production, we were able to verify Urenco's submitted information and it was possible to tie submitted information to Urenco's records at both sales and cost verifications. Although certain affiliated party transactions were not fully disclosed prior to verification, we found that these transactions were irrelevant to our analysis as they occurred outside the POI. Moreover, we thoroughly examined all affiliated party transactions within the POI and found no evidence of non-arm's length transactions that would need to be accounted for in our analysis. Thus, there is no basis to rely on adverse facts available for our final determinations. Rather, we performed our analysis and calculated margins using Urenco's verified information. Comment 7: Whether Urenco's U.S. sales should be treated as EP or CEP Sales Petitioners request that the Department revise its preliminary decision and treat Urenco's U.S. sales as CEP sales in the final determinations of these investigations. Petitioners' argument for CEP treatment is based on Urenco's contractual language and the activities conducted by Urenco's U.S. subsidiary, Urenco Inc. ("UI"). Specifically, petitioners allege the following: Contractual documents demonstrate that Urenco's sales were made in the United States: Petitioners claim that Urenco and its contracting parties treat the sales as CEP sales as evidenced by the language used in all of Urenco's U.S. contracts: the contract "shall be construed" as a contract made in the United States. UI spent considerable energy and expense in developing Urenco's U.S. market strategies: Petitioners refer to two Urenco statements to support its argument -- that UI's "primary responsibility is to maintain contact with customers and potential customers in the U.S.," and that the activities of UI "include primarily the promotion of the services of the Urenco Group and the identification of business opportunities." In addition, petitioners argue that Urenco's internal memoranda submitted on the record show that Urenco's U.S. sales all came about as a result of UI's marketing efforts. Furthermore, petitioners claim that UI was not simply implementing U.S. marketing strategy developed by Urenco Ltd., but was developing its own strategy for later implementation. Petitioners allege that Urenco Ltd. simply rubber-stamped what was suggested by UI. UI was involved in negotiating and facilitating Urenco's U.S. sales: Petitioners allege that UI's activities are more than the "day-to-day marketing and customer relations" as claimed by Urenco. Citing to Urenco's internal correspondence, petitioners contend that UI implements the market strategies it developed and plays a central role in the negotiation and sale of LEU in the United States. Petitioners also claim that UI has the discretion in negotiating the contracts, and flexibility and autonomy in making sales, which makes Urenco's U.S. sales CEP transactions. UI has an active role in administering Urenco's U.S. sales: Petitioners argue that Urenco's submitted record shows that UI acted as Urenco's primary liaison with the customer for contract administration, and acted as importer of record. Petitioners further claim that in order to deliver product by book transfer to meet its U.S. customers' demands, Urenco maintained an inventory of the subject merchandise in the United States. According to petitioners, the imputed inventory carrying cost can only be accounted for in the Department's LTFV calculation if Urenco's U.S. sales were treated as CEP sales. Therefore, petitioners urge the Department to treat Urenco's U.S. sales as CEP sales. To further justify its CEP argument, petitioners cite the case AK Steel Corporation v. United States, 226 F.3d 1361 (Fed. Cir. 2000) ("AK Steel"). Petitioners state that in AK Steel, the Court of Appeals for the Federal Circuit rejected the three-prong test from PQ Corporation v. United States, 11 C.I.T. 53, 652 F.Supp. 724, 733 -35 (Ct. Int'l Trade 1987) (4) ("PQ Test"), reasoning that if a sale is made in the United States, the Act demands that the sale be deemed a CEP sale, even if the U.S. sales affiliate's activities are minor. Petitioners maintain that to be consistent with AK Steel, the Department should focus on the U.S. affiliate's activities, rather than where a contract was physically signed, to decide which methodology is most appropriate. According to petitioners, focusing on the U.S. affiliate's activities is consistent with the Court's explanation in AK Steel that the CEP analysis was designed to adjust for "marketing and selling" activities undertaken by the U.S. sales affiliate. Petitioners claim that because UI was heavily involved in marketing Urenco's LEU in the United States and was central to the development and negotiation of Urenco's sales agreements, the Department is justified to treat Urenco's U.S. sales as CEP sales. Urenco argues that we were correct to treat Urenco's U.S. sales as EP sales in our preliminary determination. Urenco contends that the case cited by USEC, AK Steel, actually supports EP treatment in this investigation. It asserts that in AK Steel, the court directed the Department to determine the seller by identifying "the party who transfers property in the contract of sale." Furthermore, Urenco states that in AK Steel, the court specifies that one of the essential criteria for EP treatment is that one of the parties to the sale be located outside the United States. According to Urenco, this is clearly the case because all three Urenco operating units are outside the United States. In addition, Urenco contends that, unlike the facts of AK Steel, there are no sales in this investigation between the U.S. purchaser and Urenco's U.S. affiliate, UI. In addition, Urenco maintains: 1) UI is not a party to any of the sales contracts; 2) it has no role in contract approval or execution, and 3) it never acquires or transfers title. These facts, Urenco argues, are opposite from the AK Steel case where a Korean exporter's U.S. affiliate executed the contract for U.S. sales, title of ownership was passed from the U.S. affiliate, and there were no contracts between the Korean producer and the unaffiliated U.S. purchasers. Urenco contends that the purpose of including a contract clause, which states that the contract "shall be construed" as a contract made in the United States, is to ensure that the choice of U.S. law in the contract would be upheld. It asserts that the phrase "shall be construed as" does not mean it "actually was made" in the United States. Urenco further maintains that CEP treatment for its U.S. sales is not justified even if the Department applies its pre-AK Steel test criteria. According to Urenco, petitioners' arguments focus only on one of the factors which the Department used in its pre-AK Steel analysis of a U.S. affiliate's activities, i.e., "developing U.S. market strategies, negotiating and facilitating U.S. sales, and administering Urenco's U.S. sales." Urenco alleges that petitioners ignore all other factors listed below which weigh against CEP treatment: 1) UI does not take title to merchandise; 2) UI does not issue invoices; 3) UI does not maintain inventory; 4) UI does not conduct customer credit checks; 5) UI does not finance sales or assume credit risk; 6) UI does not provide technical service; 7) UI does not receive compensation based on price or quantity, and 8) UI does not receive payments from customers. With respect to the petitioners' argument that UI acted as importer of record and as the customer's contact for contract administration, and that UI prepared certifications to the U.S. customers, Urenco contends that petitioners again ignore the contract administration activities performed by Urenco Ltd., including issuing order confirmations, organizing enrichment, arranging for shipment, and arranging for holding of product material at fabricators prior to book transfer to the customer. Regarding the pre-delivery inventory held at the fabricators facility in the United States for purposes of book transfer, Urenco states that this inventory of material is owned by Urenco Ltd., and its three operating units in Europe, not by UI. Thus, it is irrelevant to the Department's CEP analysis. As such, Urenco argues that Urenco Ltd. is not simply a "rubber-stamp" parent; rather, it retained the authority over UI, and all elements of the relationship with its customers. DOC Position: We disagree with petitioners that Urenco's U.S. sales should be treated as CEP sales. For purposes of these final determinations, we determine that Urenco's U.S. sales are EP sales in accordance with section 772(a) of the Act, which defines EP as the price at which the subject merchandise is first sold before the date of importation by the producer or exporter of the subject merchandise outside of the United States to an unaffiliated purchaser in the United States. Our determination is consistent with the Court of Appeals' decision in AK Steel. In AK Steel, the Court notes that "{t}he text of the 1994 definition of CEP states that CEP is the "price at which the subject merchandise is first sold in the United States....In contrast, EP is defined as the price at which the merchandise is first sold outside the United States." The Court continues to say that "the critical differences between EP and CEP sales are whether the sale or transaction takes place inside or outside the United States and whether it is made by an affiliate." Furthermore, the Court states that classification as an EP sale requires that one of the parties to the sale be located "outside the United States." According to the Court, "seller" refers to simply one who contracts to sell, and "sold" refers to the transfer of ownership or title. In this case, Urenco's LEU sales to the United States were made by Urenco's headquarters, Urenco Ltd., located in Marlow, the United Kingdom. Urenco Ltd. is the seller because it is the one that contracts to sell LEU. It is apparent from the record that Urenco's sales of LEU took place outside the United States long before it was delivered and imported into the United States. When the "sold" subject merchandise was delivered, it was shipped directly to the U.S. fabricator designated by the customers. In contrast, UI did not contract to sell LEU to Urenco's U.S. customers. It never receives title or ownership of the subject merchandise; and it never maintains LEU inventory. Therefore, in accordance with AK Steel, Urenco Ltd. is the seller; UI is not the seller. Thus, Urenco's U.S. sales are EP sales. We agree with petitioners that during the POI, UI was involved in marketing and facilitating Urenco's U.S. sales, acted as primary liaison with the customer for contract administration, and acted as importer of record. However, the records submitted by Urenco and reviewed during our verifications in the Netherlands, Germany, the United Kingdom and the United States show that Urenco Ltd. is the entity that negotiates sales terms and signs the contracts, conducts customer credit checks, issues order confirmations, arranges for enrichment service, issues invoices, arranges for shipment, maintains inventory at fabricators prior to book transfer to the customer, provides technical service, and receives payments from customers. We disagree with petitioners' argument that the contractual language stating that the contract "shall be construed" as a contract made in the United States demonstrates that Urenco's sales were made in the United States. As Urenco points out, the clause that the contract "shall be construed" as a contract made in the United States does not mean it "actually was made" in the United States. Based on the foregoing, we have treated Urenco's U.S. sales in these final determinations as EP sales, consistent with section 772(a) of the Act and the Court's decision in AK Steel. Comment 8: Whether the indirect selling expense ("ISE") ratio requires a revision Petitioners argue that the Department should revise Urenco's reported ISE ratio to one based only on the actual quantities sold during the POI and not on total contract quantities signed during the POI (which includes LEU sold pursuant to pre-POI contracts). In addition, petitioners argue that Urenco excluded from its reported ISE several categories of "group expenses" such as group audit charges, directors meetings, etc. Petitioners maintain if these expenses are not included in ISE, they should be included in the G&A expenses. Urenco alleges that petitioners argument regarding allocating ISE only to POI contracted sales is irrelevant because its "new sale" analysis is invalid. As to the second point, Urenco argues that all Urenco's selling expenses were included in G&A expense. DOC Position: This issue is moot. Because we performed our calculations using EP methodology we did not adjust for indirect selling expenses. Moreover, at verification we determined that all selling expenses were included in the reported general and administrative (G&A) costs that were used in the calculation of constructed value. Comment 9: Whether feed and product material transportation costs, cylinder rental expenses, and credit expenses should be deducted from Urenco's U.S. sales price Petitioners maintain that under EP methodology, the Department must deduct from U.S. starting price direct selling expenses incurred by Urenco on its U.S. sales, including feed material transportation, cylinder rental expenses, and credit expenses. For product cylinders rental expense (PRODRENT), petitioners claim that we should correct our computer program used in the preliminary determinations because we did not convert PRODRENT from a SWU basis to the LEU basis on which the LTFV margin was calculated. In addition, petitioners maintain that we should use facts available to adjust Urenco's imputed credit expenses based on our verification findings, which reflect that Urenco's reported credit expenses are sometimes incorrect because Urenco applied the wrong credit days in its calculation. Petitioners urge the Department to increase all Urenco's U.S. credit expenses to the highest reported expense, and decrease all comparison market credit expenses to the lowest reported expense. Urenco maintains that because it reported both U.S. price and CV on an all-inclusive, delivered basis, no adjustment to either is needed. Urenco argues that feed transportation and cylinder rental expenses have been deducted from U.S. price, and that the cylinder rental has been reported on a per kilogram basis. Furthermore, Urenco alleges that we double counted Urenco's cost of transporting feed and product material on all POI sales. Urenco claims that these costs were included in Urenco's reported costs of production, and to deduct them from the U.S. price would result in double-counting. (See Comment 5 below for further discussion). With respect to credit expense, Urenco claims that it is the Department's policy not to deduct credit expenses from U.S. price. Urenco maintains that if the Department deducts these expenses from U.S. price, it should also deduct these expenses from CV. Regarding USEC's claim that we should use an adverse facts available determination for credit expense, Urenco contends that the error caused by using an inaccurate credit period is very insignificant and we can easily correct this minor error. Thus, adverse facts available is unwarranted. DOC Position: We disagree with both petitioners and Urenco in part. In the preliminary determination we mistakenly treated cylinder rental expenses (PRODRENT) and feed material transportation expenses (FEEDTRAN) as transportation charges and deducted them from U.S. Price. Cylinder rental expenses are clearly packing expenses and should not be deducted; as these costs are already included in constructed value, no further adjustment is warranted. Regarding feed transportation expenses, these are a cost associated with the raw material used by Urenco and are neither a transportation charge nor a packing cost associated with LEU shipped to the United States and thus should not de deducted. Moreover, they are already included in the reported constructed value and no further adjustment is warranted. Regarding the actual product transportation charges, we continued to deduct these from U.S. price; however, we agree with Urenco that they were included in the reported costs. In order to avoid double-counting, we also deducted these from CV. (See Final Calculation Memo.) Regarding credit expenses, our normal practice when comparing EP to CV is make adjustments for differences in circumstances of sale between the U.S. and comparison foreign market; such adjustments include direct selling expenses like credit. However, no such adjustment is appropriate in this case. As discussed in the preliminary determination, we have concluded that we can not meaningfully use the sales in the comparison markets as a basis for normal value due to the unique circumstances surrounding the sale of LEU. For the same reasons, the selling expenses associated with those sales are not a meaningful basis for making COS adjustments in this case. Accordingly, we made no adjustments. Comment 10: Whether feed and product material transportation costs are double counted Urenco alleges that we double counted Urenco's feed and product material transportation costs on all POI sales. Urenco claims that these costs were included in Urenco's reported costs of production, and to deduct them from the U.S. price would result in double-counting. Petitioners, admitting that Urenco may have double-reported transportation costs, claim that these costs should not have been reported by Urenco as part of cost of production as they clearly are direct selling and movement charges. Petitioners argue that the burden falls on Urenco to prove that these expenses were in fact included in the reported costs. However, according to petitioners, Urenco cannot provide such proof because it did not provide clear evidence of what type of transport charges were included in the reported costs. Because Urenco cannot confirm that it included these expenses in its cost of production, petitioners conclude, the Department should continue to treat these expenses as direct selling and movement charges, and should not adjust Urenco's reported cost of production. DOC Position: See DOC position to comment 9 above and Final Calculation Memo. Comment 11: Treatment of "blended price" contracts Petitioners argue that we must calculate an LTFV margin based on the "effective price" of "new sales" during the POI, rather than based on the total quantity of LEU covered by all contracts signed during the POI. According to petitioners, some of the LEU covered by these contracts had originally been sold before the POI and should be excluded from our analysis. Petitioners argue that we must ensure to adjust for the enrichment industry's practice of "blending" old and new sales into a single contract. Petitioners assert that it is common for enrichers to blend the sales of new commitments with existing commitments from old sales into a single, new contract. The resulting contract then embodies the total quantity and value of sales made both before and during the POI. Petitioners argue that we must focus our analysis on the effective price of new sales during the POI in order to make a "fair comparison." Petitioners assert that Urenco’s commercial correspondence and internal documentation related to contracts amended during the POI establish that the enricher and utility customer are focused on the effective price of new sales during the POI. Petitioners maintain that comparing the prices for contracts signed during the POI without compensating for the distortive effect of pre-existing contract commitments will result in skewed, inaccurate comparisons and margin calculations. According to petitioners, the Act and the 1994 General Agreement of Tariff and Trade Antidumping Agreement ("Antidumping Agreement") require us to make a "fair comparison" between U.S. price and normal value, and we must adopt its proposed "effective pricing" methodology in order to accomplish this. Petitioners argue that in Certain Corrosion Resistant Carbon Steel Flat Products from Japan, 65 FR 8935, 8937 (Feb. 23, 2000), we stated: "We particularly emphasize...that the 'fair comparison' language of the antidumping law is not a 'stand alone provision.' Rather...the 'fair' in 'fair comparison' is a term of art that refers in shorthand to the technical calculations that produce the essential terms of such a comparison." Petitioners next argue that consistent judicial precedent confirms that the Department is given wide latitude in developing methodologies to make a fair comparison. Petitioners cite to Micron Tech., Inc v. United States, 243 F.3d 1301, 1303 (Fed. Cir. 2001), where the court stated that "the Act is not meant to contain an exhaustive catalog of the adjustments the Department can make to achieve the requirement of a "fair comparison."" Petitioners further cite Smith-Corona Group v. United States, 713 F.2d 1568, 1575 (Fed. Cir. 1983) ("Smith- Corona") and Budd Co. v. United States, 15 CIT 446, 450, 773 F. Supp. 1549, 1553 (1991) in arguing that it is clear that the Department is given deference to develop case-specific methodologies in order to carry out the requirement of making a "fair comparison." Petitioners next cite to the Antidumping Agreement, stating that Article 2.4 requires that a “fair comparison shall be made between the export price and normal value”, and that in making such a comparison, the Agreement directs parties to make “due allowance...for differences which affect price comparability...” Petitioners cite to Anti-dumping Duties on Imports of Cotton Type Bed Linens from India WT/DS141/AB/R (01-0973), 2001 WTP DS LEXIS 13, at 18 (Mar. 1, 2001), where the Appellate Body held that Article 2.4.2 echoed the overall mandate in the Antidumping Agreement that dumping calculations be based on fair comparisons, and be made between comparable transactions. Petitioners argue that the Appellate Body stated similarly in Anti-dumping Measures on Certain Hot Rolled Steel Products from Japan WT/DS184/AB/R (01-3642), at 60 (July 24, 2001), and in Anti- dumping Measures on Stainless Steel Plate in Coils and Stainless Steel Sheet from Korea WT/DS179/R (00-5484), 2000 WTO DS LEXIS 28, at 153 (Dec. 22, 2000), that the unique circumstances of the case required a flexible approach to evaluating currency conversions and other adjustments. Further, petitioners take issue with our preliminary determination decision that if a pre-existing contract was amended during the POI, our date of sale precedent demands that the entire quantity covered by that amended contract must be included in the LTFV calculation. Petitioners argue that we should consider only those quantities actually “sold” during the POI to have a “date of sale” occurring during the POI. The fact that Urenco folded quantities sold prior to the POI into a contract signed during the POI does not transform those pre-POI sales into POI sales. According to petitioners, quantities of LEU committed for sale pursuant to contracts signed before the POI does not make them sold again. Petitioners cite several examples of commercial contract negotiation documents in the record to support their argument that both utilities and enrichers are focused on the effective price of new sales during. (See petitioner's October 13, 2001, proprietary case brief at 43.) Petitioners next argue that dumping may be obscured in cases where respondent elects to blend its new and old U.S. sales into a single contract. If our LTFV analysis were to focus on the blended prices, the respondent would effectively be including a U.S. sale made prior to the POI, at a different time from the home market sale made during the POI, under different market conditions. For this reason, petitioners assert, a straight comparison of contract prices would not result in a fair comparison. Further, petitioners state that the Antidumping Agreement requires that a comparison between EP or CEP and normal value “be made...in respect of sales made at as nearly as possible the same time.” Petitioners argue that allowing pre-POI commercial activities to affect one side of the dumping equation but not the other violates the principle that the Department must make a comparison between sales made at the same time and under the same market conditions. Thus, petitioners assert that to ensure a fair comparison, we must focus exclusively on new sales of the product under investigation made during the POI. Last, petitioners state that if we were not to focus on the new POI sales activity, we would be handing respondents a tool to manipulate their LTFV margins by blending sales in one market and not in the other. Petitioners argue that Urenco could adopt a policy whereby it only made sales to existing U.S. customers using blended pricing while eschewing such contracts in any comparison market. Thus, petitioners argue that we should apply their proposed effective price methodology in order to avoid deliberate price manipulation and circumvention of the antidumping orders. Petitioners cite to the terms of the Certain Cut-to-Length Carbon Steel Plate from South Africa, 62 FR 61751, 61753 (Nov. 19, 1997) suspension agreement, which states that the producers/exporters must certify that reported sales were not part of or related to, inter alia, any bundling arrangement designed to circumvent the basis of the Agreement. If the Department concludes that any such circumvention arrangement exists, we have the authority to adjust normal value for “the amount of the effective price discount resulting from such arrangement...” Petitioners argue that because preventing circumvention is a legitimate factor to be considered in developing calculation methodologies in an investigation, the potential for contract manipulation gives us another reason to base the LTFV calculation on the effective price of new sales during the POI. Urenco argues that petitioners' proposed “effective price” methodology ignores critical legal and commercial aspects of the contractual arrangements between Urenco and its customers which make application of the Department’s long standing date of sale methodology fully appropriate in this case. Urenco states that the problem with petitioners' argument is that it is premised on the mistaken proposition that a contract once entered into is forever set in stone, incapable of renegotiation at the request of either party. According to Urenco, the Department has long held that when parties renegotiate material terms of a sale, including either the price or the quantity of the contract, a new date of sale is established for all future deliveries which are governed by the amended terms. Urenco cites the preamble to our 1997 regulations in support of its claims that petitioners' position does not comport with commercial reality. Specifically, Urenco highlights the language, “The existence of an enforceable sales agreement does not alter the fact that, as a practical matter, customers frequently change their minds and sellers are responsive to those changes....Thus, the date on which the buyer and seller appear to agree on the terms of a sale is not necessarily the date on which the terms of sale actually are established." Further, Urenco argues that because petitioners’ proposed methodology ignores commercial reality, the hypothetical examples underlying its fair comparison argument are misrepresentative. According to Urenco, as a matter of law and fact, the separate contracts give rise to independent sets of rights and obligations. Further, Urenco states that petitioners’ arguments falsely assume that a separate contract at the “effective prices” suggested by petitioners was a viable commercial alternative that Urenco would have pursued; in fact, there is no evidence that Urenco ever offered to enter into such a contract or that it would ever have entered into such a contract. Urenco also states that petitioners’ proposed methodology is designed to be “petitioner-friendly.” Specifically, Urenco quotes a petitioners' submission that stated “blended” contracts tend to reduce or eliminate dumping margins when there is a “generally declining trend of LEU prices.” Urenco takes this to mean that the “effective price” methodology should not be used in a market in which prices are rising. Further, Urenco argues that petitioners’ claim of “potential manipulation” without use of the “effective price” methodology is a red herring. Urenco claims that petitioners themselves acknowledge that the practice of entering into “blended” contracts is routine in the industry, and thus there is no basis to suggest that Urenco has or will enter into blended contracts in order to circumvent antidumping laws. Urenco refutes petitioner's contention that the commercial contract negotiation documents in the record supports petitioner's argument that both utilities and enrichers are focused on the effective price of new sales during. (See Urenco's October 19, 2001, proprietary reply brief at 24.) Urenco argues that petitioners’ proposed methodology is contrary to Department practice and precedent. Urenco states that petitioners are pretending that an item delivered under the terms of a renegotiated contract was actually “sold” under the terms of the superseded contract. Petitioners flawed reasoning suggests that a contract modification can never produce a new date of sale within the POI if the merchandise that is the subject of the modification also was the subject of a pre-POI contract. Urenco argues that the Department has long held that when parties renegotiate material terms of a sale, including either the price or the quantity of the contract, a new date of sale is established for all future deliveries which are governed by the amended terms. Urenco cites as support Large Newspaper Printing Presses and Components Thereof, Whether Assembled or Unassembled, from Japan, 64 FR 55243, 55245 (Oct. 12, 1999) ("LNPPs") where it asserts that we applied the "revised contract date" as the date of sale because the revised contract changed both the price and payment schedule as well as other terms, and Certain Corrosion Resistant Carbon Steel Flat Products and Certain Cut-to-length Carbon Steel Plate from Canada, 64 FR 2173, 2177 (Jan. 13, 1999) ("Canada Plate") where we found that because the material terms of the long-term contract were amended after the POR, the sales fell outside the POR. Petitioners rebut Urenco's cite to Canada Plate, where the question was whether the date of sale for certain shipments was at the time of contract or delivery. Petitioners state that the facts of that case do not relate at all to the facts of this investigation. Petitioners further disagree with Urenco's cite to LNPPs. Petitioners state that in LNPPs, we did not conclude that the second contract altered the terms of the first contract sufficiently to establish a new date of sale. Rather, we concluded that the parties had not reached agreement on the essential terms of sale until the second contract was signed, during the POR. According to petitioners, in our case it is clear that Urenco reached agreement with its U.S. customers before the POI, and added new quantities of merchandise to its sales during the POI. DOC Position: We agree with petitioners that the amended contracts they cited include certain new quantities, and new, generally lower, prices. To that extent they reflect prevailing prices during the POI. However, we disagree that these new prices and the new quantities can always be viewed as sale separate from the existing contract. Rather, we find that the new prices and quantities are integrally related to the existing contract, which covers not just quantities and prices over extended periods, but a host of other commercially relevant factors, all of which are taken into consideration in whatever contract both parties sign. The fact that a new or amended contract may include new quantity commitments in addition to pre-existing quantity commitments does not mean that the new quantity can be viewed as a distinct sale. In considering what additional factors enter into the commercial negotiations we considered the preliminary determination by the International Trade Commission ("ITC"). There the ITC found that utilities consider a host of factors in making fuel supply decisions. Specifically, the ITC found that, "in making purchasing decisions, utilities may evaluate a number of factors in addition to price (such as discounts on pre-existing supply commitments, extended payment terms, the timing of the provision by the utilities of the converted uranium feedstock, and packaging and handling terms) to arrive at an "evaluated price" for a particular bid." See Low Enriched Uranium from France, Germany, the Netherlands, and the United Kingdom, Inv. 701-TA-409-412 (Preliminary) and 731-TA-909-912 (Preliminary), USITC Pub. 3388 (January 2001). We also examined this carefully at verification where we extensively reviewed documents relating to Urenco's commercial contract negotiations. This revealed a host of other commercially relevant factors, including, among others: 1) utilities' concerns for security of supply; 2) utilities' concerns for a diversity of supply sources, 3) Urenco's desire to maintain long-term relationships with customers, 4) changes in utilities' fuel procurement practices, and 5) the existence of price review clauses in contracts. (See Sales Verification Report at 5.) Our analysis reveals that, in considering all of the above factors, each contract and each contract negotiation is somewhat unique. In some instances, existing contracts are amended, sometimes with and sometimes without additional quantities and/or changes in price. In other instances, new contracts are created to reflect one or more change in the major commercial elements. In still other instances, new elements are included in the negotiation (i.e. changes in feed uranium supply arrangements). Finally, in still other cases where negotiations are unsuccessful, there is no change to the existing contracts. In all of these instances, the full effect of the commercial negotiations is reflected in the new or amended contract. Petitioners would have us separate out solely the price and quantity of additional commitments and treat it as the only sale in the POI. This approach is simply inappropriate given the above factors. Moreover, in this case we are following our long-standing date of sale practice of capturing long-term contracts entered into during the POI, both when the contracts are new and when contract terms are replaced by those in an amended contract entered into during the POI. No compelling reason has been presented to the Department as to why a change of or a deviation from this practice is justified. Petitioners proposed methodology would require the Department to involve itself in the reconstruction of contracts and agreements in a manner that is inappropriate. Comment 12: Whether to apply "discounts" provided on SWU sold prior to the POI Petitioners argue that we should adjust for any discount the respondent has provided on SWU sold prior to the POI. They argue that such discounts are granted as a quid pro quo in order to make new POI sales; thus, this discount should be taken into account when calculating the starting price for the new POI sale. Once this discount is calculated, petitioners argue, it should be deducted from the nominal contract price for the new sales quantity, which will result in the effective price that we must use as the starting price. Petitioners argue that this is consistent with our regulations; specifically, our regulations state that “in calculating export price, constructed export price, and normal value (where normal value is based on price), the Secretary will use a price that is net of any price adjustment...that is reasonably attributable to the subject merchandise or the foreign like product (whichever is applicable).” This adjustment is “reasonably attributable” to the sale during the POI, because but for the POI sale, Urenco would not have revised the terms of its old sale. Petitioners assert that in SKF USA Inc. v. INA Walzlager Schaeffler KG, 180 F.3d 1370 (Fed. Cir. 1999) ("SKF USA") the court's concern was to prevent the respondent from attributing a discount made on sales of non- subject merchandise to sales of the foreign like product, thereby unfairly reducing normal value. Petitioners contend that no such concern exists here. Further, petitioners argue that the Federal Circuit cautioned in SKF USA against the effects of averaging prices; in this case, by reporting prices that represent averages of old pre-POI sales and new POI sales, Urenco is encouraging exactly the sort of "price averaging" that the Federal Circuit has instructed the Department to avoid. According to petitioners, adjusting the price for new POI sales to reflect discounts on pre-existing sales is identical to the adjustment we make to prices for cases in which the respondent purchases “trade-in” merchandise. Petitioners state that precedent states that when we conclude that a respondent has purchased trade-in merchandise and subsequently incurs a loss on the sale of the trade-in, we reduce the sales price for the subject merchandise by the amount of that loss. Petitioners cite Internal-Combustion Industrial Forklift Trucks from Japan, 53 FR 12552 (Apr. 15, 1988) to support this contention. Urenco disagrees with petitioners’ contention that there is a discount on the old sales quantities that is reasonably attributable to the new sales quantities. Urenco asserts that in the context of the renegotiated contracts, both the so-called “old” and “new” quantities are sold at the same price, namely, the actual price stated in the POI contract. Urenco states that the “price adjustment” regulation, 19 CFR 351.401, is intended to ensure that the Department uses the price actually charged for the subject merchandise. In this case, that is the price stated in the POI contract, the price in the invoices, and the price reported by Urenco. Urenco counters petitioners' reference to SKF-USA in stating that the reference to "averaging prices" refers to an averaging of the rebates on in-scope and out-of-scope merchandise, without regard to the actual rebates provided on the respective merchandise. Therefore, Urenco argues, it has no bearing here, where the "discount" was given solely to the "old" quantities. Urenco cites to Smith-Corona in support of its argument against petitioners’ proposed but-for test (i.e., no rebate would have been provided “but for this new POI sale”). According to Urenco, the situation here is contrary to Smith-Corona since the “but-for” test does not attribute the rebate across the total sales upon which it is based. Smith- Corona and precedent require that the rebate be applied across the entire base of qualifying sales. Further, petitioners’ methodology would make sales of “previously committed” enrichment services fall outside the scope of the investigation, but the “discounts” on such quantities would be applied to reduce the price of the new quantities within the scope. Urenco states that the Court does not allow this. Urenco also claims that Mechanical Transfer Presses from Japan 55 FR 335 (Jan. 4, 1990) ("Transfer Presses") supports its position because petitioners are aiming to allocate the contract price with its effective price methodology. In Transfer Presses, Urenco asserts, such a "line-item allocation" was rejected. Petitioners counter that this citation is irrelevant to this investigation since calculating and applying a "discount on existing commitments" does not involve the "allocation of a unitary contract price among various line items.". Urenco states that petitioners’ trade-in argument is irrelevant because the present investigation does not involve a trade-in. Instead, an “old” sale is cancelled and a “new” sale is made, with revised quantity, price, and other terms that govern all future shipments. A trade-in, Urenco argues, involves the sale of a new unit in exchange for the combined consideration of a money payment and the trade-in of an old, previously delivered item. Petitioners counter Smith-Corona by stating that Urenco reduced the price of old pre-POI sales, or in other words, provided a rebate on those sales, as a quid pro quo for obtaining the new POI sale. Thus, Petitioners argues, the precedent is consistent with this case, since but for this new POI sale, no rebate would have been provided. DOC position: We agree with Urenco. We have described our methodology in treating these contracts in Comment 11 above, and this applies directly to the "discount" issue here as well. Petitioner's proposal involves identifying the price changes in a given renegotiated contract and treating it all as a "discount" on the price of only the "new quantity". However, as discussed above, we have found that it is not appropriate to treat the "new quantity" and the "new price" as a separate sale. As such, petitioners proposal is without merit. We agree with Urenco that in the context of the renegotiated contracts, both the so-called “old” and “new” quantities are sold at the same price, namely, the actual price stated in the POI contract. Thus, there is no need to "adjust" for "discounts" the respondent has supposedly provided on SWU sold prior to the POI. Comment 13: Whether to utilize only completed deliveries or all sales made during the POI Petitioners and Urenco contend that we must include the full quantity of all sales made during the POI in the LTFV calculation, not just "completed deliveries." According to these parties, the Act requires us to calculate and LTFV margin on the basis of all sales made during the POI, regardless of whether they have as yet been delivered. Specifically, according to petitioners and Urenco the Act instructs us to calculate an LTFV margin on the basis of the goods sold, without further limitation or qualification. It further states that antidumping duties may be imposed "if...a class or kind of foreign merchandise is being, or is likely to be, sold in the United States..." Parties maintain that this provision directs us to include future "likely" sales in our calculations. They also cite to section 777A(d)(1)(A)(i) of the Act in stating that we are required to calculate a dumping margin "by comparing the weighted average of the normal values to the weighted average of the export prices (and constructed export prices) for comparable merchandise...," in maintaining that the weighting factor must be quantity sold. The parties claim that our preliminary determination decision to utilize only completed deliveries is inconsistent with prior investigations involving future deliveries. Specifically, they cite to Certain Forged Crankshafts from the United Kingdom, 52 FR 32951 (Sept. 1, 1987) ("UK Crankshafts") where we stated that "Shipments," however, are not limited to the POI. As long as the "shipments" are pursuant to a "sale" made within the POI, they should be included in the calculation for purposes of the investigation." Petitioners further argue that Urenco could manipulate its sales and deliveries to exploit our "completed deliveries" methodology in future administrative reviews. According to petitioners, Urenco could make both dumped and non-dumped sales during a review period, but deliver only the non-dumped sales during that period. Alternatively, petitioners assert that Urenco could split a single sale into two contracts, with the higher- priced LEU being delivered during the period of review and the lower- priced LEU delivered after the period of review. Petitioners and Urenco lastly take issue with the Department's reasons for excluding undelivered quantities from our calculations (i.e., "the speculative nature of estimating product assays and prices associated with future deliveries," and the "fact that we are unable to determine the country of origin until delivery actually occurs"). They assert that our concern with respect to the "speculative nature" of estimating the product assays of future deliveries is overstated, and that future delivery quantities can be accurately predicted. They also state that in regard to country of origin, we have not solicited any information from Urenco to confirm this point, meaning that Urenco's inability to predict from which country it will source these shipments is sheer speculation on our part. DOC Position: We disagree with petitioners and respondents, and have continued to utilize only completed deliveries in our analysis. Parties' cite to UK Crankshafts, where we stated that "as long as the shipments are pursuant to a sale made within the POI, they should be included in the calculation for purposes of the investigation." We note that, consistent with our decision in Forged Steel Crankshafts, in this investigation we have examined shipments that occurred after the POI, but which were pursuant to POI sales. The issue here, however, concerns sales with no deliveries, not sales with shipments made after the POI. Also consistent with Forged Steel Crankshafts, we have elected not to examine future deliveries for the reasons discussed below. In this case, as described in our Preliminary Determination, we cannot accurately project future deliveries of subject merchandise into our dumping margin calculations, and thus have relied exclusively on completed deliveries of POI sales. Using future deliveries in our calculations would require estimating the product and tails assays of future deliveries, something that necessarily involves guess work and assumptions. While the contract may specify the tails assay and a range of product assays, for any given shipment, the product assay may vary considerably based on what the utilities specified for that shipment and the requirements of the fuel fabricator. In addition, the actual tails assay employed by the enricher may be different from that specified by the contract. All these variables need to be known and accounted for in the calculations. In addition, calculating margins for this product requires the use of prices, production costs, selling and delivery costs, interest rates, and company profitability. In our preliminary determination, we used actual data for all of these variables. We agree with petitioners that the Department normally relies on the exchange rate prevailing on the date of sale. Using undelivered sales would require us to try to predict all the other expenses, three or four years into the future. Given the tremendous amount of uncertainty surrounding such estimation and guesswork, such calculations are in our view not reliable. Given the fact that we have a substantial quantity of delivered product for which we can accurately calculate a margin using actual data, we find that the use of future deliveries is unwarranted in this case. Lastly, we disagree with petitioners that excluding future deliveries from our analysis presents a serious risk of circumvention. If Urenco delivered non-dumped sales during a review period, and dumped sales after the review period, the dumped entries would be examined in a future review of the case. Moreover, if an order is issued in these cases and we were to conduct an administrative review, we would consider all of the factors raised by petitioners in determining which sales to include in our analysis. Common Cost Issues Comment 14: Affiliated Inputs 14a: Assets purchased from affiliated companies Petitioners argue that the Department must increase the reported depreciation amounts to reflect the correct value for each Urenco Group company's purchase of fixed assets from affiliated parties. Petitioners maintain that because Urenco does not specifically allocate a portion of the amount paid each year for group overhead and financial expense to its manufactured assets which are sold to affiliates, the values of those assets are understated and consequently the depreciation calculated by the acquiring company is understated. Petitioners further argue that because Urenco in some cases has not separately reported the values of fixed assets obtained from affiliated parties, and because Urenco provided no explanation for its refusal to report data in a manner consistent with the Department's methodology, the Department should, as adverse facts available, adjust total depreciation expense by the G&A and interest expense rates calculated in the final determination. Urenco claims that in the preliminary determination the Department erroneously increased the depreciation expense of each Urenco company because it assumed that the intercompany prices for assets sold to group members did not include the full cost of production ("COP"). Urenco argues that each enrichment company pays the full COP for the assets acquired from affiliates. According to Urenco, the transfer prices for the assets do not include group overhead or finance expenses because these expenses are paid directly to Urenco Limited by each company based on its respective share of the group overhead expenses. Respondent contends that the G&A and interest expense ratios reported by Urenco include all of the overhead expenses at the three enrichment subsidiaries, the headquarters at Urenco Limited, and the Urenco office in the U.S. Thus, Urenco argues, to increase each company's depreciation expense because transfer prices for assets acquired from affiliates do not reflect group overhead would double count group overhead. Additionally, Urenco argues that even if some increase in depreciation were necessary, it would be inappropriate to apply the G&A and interest rates to total depreciation expense since a substantial amount of depreciation is from assets acquired from third parties outside the Urenco Group. Urenco, citing to the Notice of Final Results of Antidumping Duty Administrative Review: Certain Forged Steel Crankshafts From the United Kingdom, 61 FR 54613, 54614 (October 21, 1996), continues that no adjustment should be made to any company's costs with respect to inputs it produces itself, as the company did not acquire these assets from an affiliate. Finally, respondent argues that if the Department makes any addition to Urenco's cost based on an "imputed" expense that the company did not actually incur, the Department must adjust that company's profit calculation accordingly. Petitioners refute Urenco's self-produced assets argument by noting that because each company purchases assets from the other Urenco Group companies, the depreciation expense of all Urenco companies must also be adjusted. Petitioners did not comment on Urenco's adjusted profit argument. DOC Position: Section 773(f)(2) of the Act allows the Department to disregard transactions between affiliated persons if those transactions do not fairly reflect the value in the market under consideration. The Department's practice in conducting this analysis has been to compare the transfer prices for the inputs charged by affiliated persons to the market price for that same input. Where a market price is not available, the Department has used the COP of the input as a surrogate for the market price. Because Urenco claimed it was not possible to provide market prices for inputs received by each company from the other Urenco Group companies, we used the COP to determine the market value of affiliated inputs. Our analysis of these affiliated transactions indicated that the COP of assets acquired by Group companies from each other exceeded the transfer price. Specifically, we noted that the transfer price was equivalent to the producing company's cost of manufacturing, plus some G&A costs. The transfer price, however, did not include all G&A costs or net financing expenses, both of which are a components of the cost of production. Therefore, for the final determination, we increased depreciation expenses associated with those fixed assets. We disagree with Urenco that we have double counted G&A and interest. Section 773(b)(3) of the Act defines COP to include an amount for selling, general and administrative expenses ("SG&A"). Our adjustment to depreciation expense relates primarily to G&A and interest expenses incurred by Urenco companies in prior years, when the majority of fixed assets were produced. We also note that since the cost of goods sold used as the denominator in the calculation of the G&A and interest expense rates includes the cost of manufacturing for the fixed assets sold to affiliates, the application of the G&A and interest rates to the COM of those assets does not result in double-counting of the expenses. We disagree with petitioners' argument that the depreciation for self- produced assets should also be adjusted to reflect the full cost of production. Section 773(f)(2) of the Act only applies to transactions between affiliated parties, and not to transactions between different divisions of the same company. While the amount capitalized associated with the self-produced fixed assets may not include total COP as defined by the Department, we do not find Urenco's normal treatment of capitalizing the associated COM plus some G&A expenses unreasonable. We therefore made no adjustment to the depreciation expense recorded in each of the Urenco companies' normal books and records associated with self- produced assets. We disagree with petitioners that, because Urenco did not separately report assets obtained from affiliated companies, the Department should, as adverse facts available, apply G&A and interest rates to each company's entire asset base and then recalculate depreciation. At verification we found that in their normal accounting some Urenco companies do not separately account for the fixed assets purchased from the Urenco Group companies. Accordingly, in instances where the assets purchased from Urenco Group companies were not specifically identified due to the company's record keeping practices, we made reasonable estimates. Finally, we agree with respondent's argument with regard to adjusting profit, and for the final determination we reduced each company's profits by the amount of the additional calculated depreciation expense which were not recorded by the company. Comment 15: Cost of Certain Product Petitioners argue that the cost of a certain product should be included in the reported per unit cost. Respondent claims that the cost of that product should not be included in the reported cost. DOC Position: We agree with respondent. We cannot address the specifics of petitioners and respondent's arguments regarding this issue without reference to business proprietary information. We have addressed the parties' arguments and our position in a separate memorandum which will be placed on the official record. (See Memorandum from Ernest Gziryan to Neal Halper regarding Cost of Production and Constructed Value Calculation Adjustments for the Final Determination - Urenco Capenhurst (December 13, 2001.)) Comment 16: Tails disposal costs Petitioners argue that the Department should increase the amount of the tails disposal accrual for UNL and UD. Petitioners claim that the technical study used by Urenco as the basis for the accrued amounts is a manipulation of Urenco's financial reporting, rendering Urenco's estimates for tails disposal costs unreliable. In the case of UNL, according to petitioners, Urenco relied on information from its affiliated company to estimate the tails storage and final disposal costs, and failed to demonstrate that the costs charged by the affiliate for these services reflect a market price. Petitioners note that at verification the Department prepared an analysis which compared the per-unit tails provisions recorded by UNL and UD with the actual cost of reducing these companies' tails liability through alternative means. Petitioners contend that the Department's analysis demonstrates that UNL and UD understated their tails disposal accruals, which, petitioners maintain, should be increased accordingly. Urenco claims that UNL and UD's reported tails disposal provisions were prepared according to local law, audited by independent accountants, and accepted by Urenco's shareholders, including the UK and Dutch governments, and should be accepted by the Department. With regard to the final disposal services provided by UNL's affiliate, Urenco, citing to the Notice of Final Determination of Sales at Less Than Fair Value: Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From Brazil, 64 FR 38756, 38786 (July 19, 1999) ("Hot-Rolled Steel Products From Brazil"), maintains that UNL's affiliate has a government-mandated monopoly to provide these services and, as such, the "transactions disregarded" rule is inapplicable here. Urenco contends that the Department's analysis of UNL and UD's tails disposal provisions was made in order to determine if the provisions were reasonable, and not to calculate an alternative figure for the provisions. According to Urenco, the analysis does justify the reasonableness of the provision, because it compares entirely different facts and assumptions, and yet shows approximately the same results. DOC Position: We agree with both petitioners and Urenco, in part. At verification we discussed Urenco's accrual for tails disposal costs with company officials, and reviewed the assumptions made in computing the accruals. We found no reason to believe that these assumptions represent a manipulation of Urenco's financial reporting. To assess the reasonableness of the provisions, we performed the analysis comparing the recorded per-unit tails provision with the actual cost of reducing its tails liability by an available alternative means. Our analysis showed that UNL and UD's reported tails disposal costs were below, and UCL's reported amount was above the actual calculated costs using the alternative disposal method. The above analysis, performed at verification, demonstrates that the reported per-unit provisions are reasonable estimates when compared with the actual cost of reducing the companies' tails liability using their alternative means, and, thus, are reasonable. However, in the case of UNL, additional analysis is necessary due to the fact that UNL's tails provision is premised on certain services provided by an affiliated party. As such, we reviewed the arm's length nature of the tails disposal services provided by its affiliate in accordance with section 773(f)(2) of the Act. At verification we were able to compare the net cost incurred by UNL for tails disposal by an available alternative means to the estimate which relies on an affiliated party transaction. We noted that the estimate which relies on an affiliated party transaction for the tails disposal services was less than the cost of tail disposal through an available alternative means not involving an affiliated party. (See Memorandum from Ernest Gziryan to Neal Halper regarding Cost of Production and Constructed Value Calculation Adjustments for the Final Determination - Urenco Netherlands (December 13, 2001) for our analysis which includes business proprietary information.) Accordingly, for the final determination, we adjusted UNL's reported tails provision cost to reflect the cost UNL would have incurred to reduce its tails liability by an alternative means through a non-affiliated company. We made no adjustments to UD's tails provisions for the final determination. As to Urenco's argument that the affiliated company has a government- mandated monopoly to provide the services, and thus the Department should not apply the "transaction disregarded" rule based on Hot-Rolled Steel Products From Brazil, we disagree. In Hot-Rolled Steel Products From Brazil we found that the major input rule of section 773(f)(3) does not apply due to the fact that the rates for electricity provided by its affiliated supplier were set by the Brazilian government, and the company has no control over the prices. However, the transaction disregarded rule of section 773(f)(2) was applicable in that case. We found that respondent in Hot-Rolled Steel Products From Brazil paid the same electricity rate to its affiliated and unaffiliated suppliers, and therefore, no adjustment was made in that case. As such, Urenco's reliance on Hot-Rolled Steel Products From Brazil is misplaced. Comment 17: Futures Hedging Contracts Petitioners note that, according to the Department's verification reports, UCL, UD, and UNL excluded from the reported costs the foreign exchange losses incurred on foreign currency contracts for cash. Petitioners cite to the Unpublished Issues and Decision Memorandum at 16 in Static Random Access Memory Semiconductors From Taiwan: Final Results and Partial Rescission of Antidumping Duty Review, 65 FR 55005 (September 12, 2000), and the Notice of Final Determination of Sales at Less Than Fair Value: Hot-Rolled Flat-Rolled Carbon-Quality Steel Products from Japan, 64 FR 24329, 24350 (May 6, 1999) ("Hot-Rolled Steel from Japan") to support its contention that the Department normally accounts for foreign exchange gains and losses as part of the cost of production, if such gains and losses are unrelated to the sales activities of the company. Petitioners suggest that, since the Department's verification report states that these losses were not related to specific sales transactions, they could have been associated with purchases and, as such, should be included in the reported cost of manufacturing. Urenco argues that it properly omitted exchange losses incurred on foreign currency hedging contracts from the reported costs because these losses relate to Urenco's treatment of sales revenues. Citing the Notice of Final Determination of Sales at Less Than Fair Value: Certain Cut-to Length Carbon-Quality Steel Plate Products from Indonesia, 64 FR 73164, 73174 (December 29, 1999), Urenco points out that in accordance with the Department's practice, exchange gains and losses arising from sales transactions are excluded from cost of production. With respect to currency hedging losses in particular, Urenco, citing Notice of Final Determination of Sales at Less Than Fair Value: Live Cattle from Canada, 64 FR 56739 (October 21, 1999) ("Cattle from Canada"), Notice of Final Determination of Sales at Less Than Fair Value: Emulsion Styrene-Butadiene Rubber from the Republic of Korea, 64 FR 14865, 14871 (March 29, 1999), ("Styrene-Butadiene Rubber from the Republic of Korea"), and the Notice of Final Results of Antidumping Duty Administrative Review: Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts Thereof From France; et al,. 57 FR 28360, 28413 (June 24, 1992), claims that the Department has found that when exchange gains and losses arise only from investment activities unrelated to purchases of inputs used in production, they should be excluded from the cost of production. Urenco further argues that these losses were not incurred until the long term contracts matured in the fourth quarter of 2000, after the end of the POI. This, according to Urenco, is yet another reason why the foreign exchange losses for the year 2000 should not be included in the COP for the POI. Petitioners contend that in this case Urenco failed to provide information regarding the purpose for its currency hedging contracts. Moreover, petitioners agree with Urenco that in Cattle from Canada the Department excluded the respondent's investment-related currency losses because the record indicated that these currency hedging activities were strictly for investment purposes. Petitioners argue that this citation does not support Urenco's claim that its losses are related to investment activities. Further, petitioners point out that Styrene-Butadiene Rubber from the Republic of Korea is simply further confirmation of the Department's practice of excluding exchange gains and losses related to sales activities from its margin analysis, and again does not support Urenco's argument that its exchange losses were related to sales or investment activities. Finally, petitioners argue that the foreign exchange losses should be included in Urenco's cost of production for the POI, even though they were recorded on the books in the fourth quarter of 2000, i.e., after the POI. Petitioners contend that, under principles of proper accrual accounting, Urenco cannot wait until contracts mature to record any exchange gain or loss. Petitioners maintain that because Urenco failed to provide for foreign exchange gains and losses during the POI, the Department must use Urenco's year 2000 foreign exchange gain and loss experience as the best estimate. DOC Position: As an initial matter, we note that the parties' references to our past practice of treating exchange gains and losses in support of their arguments on this issue are misplaced. The issue under consideration is the loss on futures contracts, which in this case were incidentally tied to future currency exchange rates. We note that, in general, a company's involvement in speculative futures contracts would be considered investment activity, similar to trading of stock. However, companies are often willing to transfer risk to the speculators in order to protect their future position through the process called hedging. Companies may be involved in different types of hedging transactions, such as hedging profits by taking a futures position in the product they produce and sell, hedging the local currency value of the company's sales denominated in foreign currency, hedging the rate of interest they earn or pay on borrowed money by entering into interest rate futures, etc. In each of the above-mentioned examples, it is clear that the hedging contracts would be related to the company's specific activity, such as sales or borrowing, and should be analyzed as an intrinsic component of that activity. We disagree with respondent's argument that this loss is related to Urenco's investment activity. The record of this investigation does not support the conclusion that Urenco was involved in futures trading for pure speculation (investment) purposes, unrelated to any other activity. Urenco characterizes its foreign currency futures contracts as hedging contracts, meaning the contracts were intended to hedge the local currency value of the company's cash flow, which comes primarily from Urenco's foreign-currency denominated sales. The Urenco Group stated in its year 2000 annual report that "in an industry largely denominated in US dollars, the Group has a continuing foreign exchange exposure in that currency; the policy of covering forward as necessary has been maintained in the year." It is, therefore, reasonable to conclude that Urenco's hedging contracts, as well as the corresponding loss, are related to the activity being hedged, i.e., Urenco's sales. In the Final Results of Antidumping Administrative Review Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts Thereof From the Federal Republic of Germany; 56 FR 31726 (July 11, 1991) we stated that to demonstrate that hedging has affected the actual exchange rate the company has received for its sales, a respondent must show the actual exchange rate contracts that it entered into and demonstrate that these contracts are tied directly to the sales made during the period of review. However, when the Department determined in Final Determination of Sales at Less Than Fair Value: Certain Hot- Rolled Carbon Steel Flat Products, Certain Cold-Rolled Carbon Steel Flat Products, Certain Corrosion-Resistant Carbon Steel Flat Products and Certain Cut-to-Length Steel Plate from Germany, 58 FR 37136 (July 9,1993) that hedging profits received on exchange contracts tied directly to a respondent's sales during the POI warranted an adjustment to USP, the C.I.T. overturned Commerce's determination. Thyssen Stahl AG v. U.S., 19 C.I.T. 605, 615; 886 F. Supp. 23, 32 (1995), affirmed on appeal, Thyssen Stahl AG v. U.S., 1998 U.S. App. LEXIS 17064 (1998). Although the URAA changed section 772 of the Act subsequent to the determination, the C.I.T. noted that there was no change in the text of section 772 pertaining to currency hedging, although a new section 773A dealing with currency conversion was added to the Act. Therefore, "where a company demonstrates that a sale of foreign currency on forward markets is directly linked to a particular export sale, Commerce will use the rate of exchange in the forward currency sale agreement," H.R. Rep. 826, 103rd Cong., 2d Sess. 95- 96 (1994). Based on our analysis which involves proprietary information, it is reasonable to conclude that the cash Urenco committed to fulfill its foreign currency hedging contract obligation was derived from contracts other than those entered into during the POI. (See Memorandum from Ernest Gziryan to Neal Halper regarding Cost of Production and Constructed Value Calculation Adjustments for the Final Determination - Urenco Capenhurst (December 10, 2001.)) Accordingly, we find that the loss on the futures contract was not related to Urenco's POI sales, and as such, was not incorporated in the margin calculation for the final determination. Comment 18: Gain to offset cost Petitioners argue that the Department should adjust UD's cost of production for a certain gain incorrectly used by UD to offset the reported cost. Respondent agrees with petitioners that the gain should be excluded from the cost of production. DOC Position: For the final determination, we increased UD's reported cost of production by the amount of the offset. Due to the proprietary nature of the underlying data see Memorandum from Ernest Gziryan to Neal Halper regarding Cost of Production and Constructed Value Calculation Adjustments for the Final Determination - Urenco Deutschland (December 10, 2001) for our discussion of this issue. Comment 19: G&A expenses Petitioners maintain that the Department should include in Urenco's G&A expense UCL's New Products and information technology ("SAP") divisions costs. Petitioners note that the two major projects that gave rise to the New Products division expenses were research and development ("R&D") projects, and because these expenses were not capitalized in anticipation of future sales, the Department should continue to include New Products division expenses in the G&A rate calculation for the final determination. Petitioners assert that the SAP division provides information technology services and, as part of UCL's central services division, should be included in the G&A expense. Petitioners also argue that the cost of the New Products division should be deducted from the cost of sales denominator used in the G&A rate calculation. Petitioners refute Urenco's argument with regard to "Other" expenses, arguing that to the extent that these expenses have not been properly included in the reported costs, they should be included in the G&A rate calculation. Urenco argues that UCL's New Products division performs no activity that benefits Urenco's uranium enrichment operations, nor does it conduct R&D for Urenco as a whole. Urenco, citing Micron Technology, Inc. v. United States, 893 F. Supp. 21, 28 (Ct. Int'l Trade 1995) ("Micron Case"), and the Notice of Final Determination of Sales at Less Than Fair Value: Dynamic Random Access Memory Semiconductors of One Megabit and Above From the Republic of Korea, 58 FR 15467, 15472 (March 23, 1993) ("Semiconductors From Korea"), states that the Department should include the R&D expense in the calculation of the G&A rate only if the research provides an "intrinsic benefit" to the subject merchandise. Because, Urenco claims, there are no benefits from the New Products division to UCL's enrichment services, the Department should treat the expenses of the New Products division in the same way it treated expenditures for centrifuge manufacture, stable isotopes and aerospace for UNL, and manufacturing for UD, i.e., it should exclude them from the G&A expense. As for the SAP division, Urenco maintains that the installation of this new computer system is a non-recurring cost that is properly excluded from G&A expense. Urenco also claims that the G&A expense calculation should not double-count UCL's R&D expenses which had already been included in the cost of manufacturing. Finally, Urenco contends that the G&A expense calculation should not include non-operational expenses labeled as "Other" in UD's cost reconciliation as they do not relate to Urenco's overhead. DOC Position: We agree with Urenco that UCL's New Products division expenses should be excluded from the G&A expense. We normally include those R&D expenses which are either directly related to the product under consideration, or relate to the company in general, i.e., when R&D activity is not specific to any type of production activity. See Semiconductors From Korea and the Notice of Final Determination of Sales at Less Than Fair Value: Fresh Cut Roses From Colombia, 60 FR 6980, 7016 (February 6, 1995). At verification we learned that UCL's New Products division is dedicated to the development and production of two major products unrelated to the enrichment process. We found that research and development conducted at the New Products division provide no intrinsic benefits to Urenco's enrichment activities. We also note that the New Products division generated a certain amount of revenues, which indicates that the New Products division develops distinct marketable products. Therefore, for the final determination we excluded UCL's New Products division cost from the calculation of G&A expense. We agree with petitioners that expenses of the SAP division should be included in the G&A rate calculation. The SAP division provides information technology services for the company as a whole, and as such, this activity is related to the general operations of the company. Accordingly, we included the cost of the SAP division in the G&A expense for the final determination. Finally, for the final determination we corrected for the double-counting of UCL's R&D expenses and UD's "Other" non-operational expenses. As it is clear from our verification exhibits (see UD's Cost Verification Exhibit 11), the "Other" non-operational expenses include foreign exchange gains and losses and Site Services costs, which were charged out and included in the cost of manufacturing of other divisions, including the enrichment division. UD Cost Issues 20. Affiliated electricity purchases Petitioners claim that the Department must adjust UD reported electricity charges based on its purchases from affiliated parties under section 773(f)(2) of the Act. During the POI, UD purchased electricity from its affiliate RWE and from another utility company ("Utility"). Petitioners argue that Utility was affiliated with UD during the POI. Petitioners point out that UD provided no information on market rates for electricity in Germany, and the only information on the market rates for electricity is the "Electricity Tariffs for Reference Consumers" chart submitted by petitioners in their pre-preliminary determination comments. Petitioners maintain that the Department should increase UD's reported cost to compensate for the below-market price for electricity received from RWE and Utility. Petitioners further argue that the Department should calculate this adjustment using the methodology submitted by petitioners in their pre-preliminary determination comments. Urenco argues that no adjustment to UD's reported electricity costs should be made. Urenco maintains that Utility was not affiliated with Urenco during the POI. According to respondent, the record contains sufficient evidence that electricity purchases by UD were made at market prices. Specifically, Urenco argues, the electricity rate UNL pays to an unaffiliated supplier is lower than the price paid by UD, and the electricity rate chart submitted by petitioners shows that the rate paid by UD is similar to the rates shown on the chart for industrial users of electricity in Germany. DOC Position: We disagree with petitioners that Utility was affiliated with UD during the POI and have concluded that the "transactions disregarded" rules of section 773(f)(2) of the Act do not apply in this case. We cannot address the specifics of petitioners and respondent's arguments regarding the issue of Utility's affiliation with UD, as a meaningful discussion is only possible by means of reference to business proprietary information. We have addressed the parties' arguments and our position in a separate memorandum which will be placed on the official record. (See Memorandum from Ernest Gziryan to Neal Halper regarding Cost of Production and Constructed Value Calculation Adjustments for the Final Determination (December 13, 2001.)) We agree with petitioners that UD failed to provide market price information for electricity purchases from its affiliate RWE. We note, however, that our comparison of the average prices paid by UD during the POI with market prices submitted by petitioners as facts available for industrial electricity users in Germany shows that UD's purchases of electricity from both RWE and Utility were made at market rates. Accordingly, we used the reported cost of electricity as facts available in our final determination. Comment 21: Home country GAAP Petitioners maintain that, according to section 773(f)(1)(A) of the Act, respondent should calculate its costs based on the records kept in accordance with the GAAP of the producing country. Petitioners state that Urenco failed to report its depreciation in accordance with its German GAAP financial statements. Petitioners claim that the company's auditors found no reason to reject the declining balance depreciation method used in the preparation of UD's financial statements, which is reflected in the auditors' opinion. Accordingly, petitioners conclude, the Department should compute UD's depreciation expense following the same declining balance method used in its German GAAP financial statements. Urenco claims that in calculating UD's depreciation costs, the Department should rely on the straight-line depreciation methodology used in UD's consolidated financial statements rather than the declining balance used in the financial statements prepared according to German GAAP. Urenco, citing to the Notice of Final Determination of Sales at Less Than Fair Value: Canned Pineapple Fruit From Thailand, 60 FR 29553 (June 5, 1995) ("Pineapple from Thailand"), points out that the Department's practice is to adhere to the costs recorded by the company in accordance with home country GAAP, but only if the methodology reasonably reflects the costs. Urenco argues that the use of straight-line depreciation method is most appropriate when the asset's use is expected to be relatively even over its estimated useful life, which, according to Urenco, is the case with respect to UD's centrifuges and other equipment. Respondent states that both depreciation methods are allowed under German GAAP, and UD used the declining balance solely to gain tax advantages allowed by German law. Urenco maintains that the objective of matching costs with the revenues to which they relate is best achieved by determining UD's depreciation expense on a straight-line basis. Urenco, citing the Pineapple from Thailand case, argues that the Department should accept straight-line depreciation as the industry standard for depreciating uranium enrichment equipment, which is used by other major enrichment service providers. DOC Position: We agree with petitioners. According to the Act, in calculating production costs we must rely on the GAAP principles followed in the respondent's home country, unless such principles distort the reported costs. See section 773(f)(1)(A). We note that German GAAP does not prescribe a specific method of computing depreciation expense, but allows a company to choose any reasonable method. The declining balance depreciation method used by UD is not unique or unusual. It is a common depreciation method, which was reviewed and approved by UD's auditors as part of the annual audit. Urenco's arguments that the straight-line method is more appropriate, and that it should be accepted as the industry standard, do not outweigh the provision of the statute requiring the Department to accept reasonable costs calculated based on the home country GAAP. We find Urenco's citation to Pineapple from Thailand unsupportive of its contention that the Department should use the straight-line depreciation method in this case. In Pineapple from Thailand we found the respondent's allocation methodology to be unreasonable. In this case, we find UD's use of a widely accepted depreciation method, approved by its auditors, to be a reasonable choice. Accordingly, for the final determination we used the depreciation expense recorded in UD's financial statements prepared in accordance with German GAAP. UNL Cost Issue Comment 22: UNL unreconciled costs Urenco claims that the Department erroneously adjusted UNL's reported costs by adding back some unreconciled costs. Urenco maintains that the appropriate reconciliation is clearly identified on the record as "associated revenues" and "own work capitalized," both of which are proper reductions to UNL's gross enrichment expenses. Petitioners did not comment on this issue. DOC Position: We agree with Urenco. At verification we learned that associated revenues and capitalized work do not relate to enrichment activities. Therefore, for the final determination we excluded these items from the calculation of UNL's enrichment cost. UCL Cost Issue Comment 23: Centrifuge failure Petitioners claim that the Department should include the centrifuge losses incurred by UCL. Petitioners state that the Act instructs the Department to follow the respondent's normal accounting methodology if it is consistent with GAAP in the respondent's home country and reasonably reflects the costs associated with the production and sale of the merchandise. Petitioners conclude that since the Department determined at verification that the entire amount of the loss was expensed in UCL's financial statements the same accounting treatment should apply for the reported costs in the dumping analysis. Urenco claims that the centrifuge failure was an extraordinary event that should be excluded from the reported costs. UCL maintains that in February 2000, it experienced an unprecedented failure of a large number of its centrifuges due to an external event. UCL states that no comparable event has occurred within its entire thirty-year history. Respondent explains that this failure was unusual in nature because it was not related to UCL's operations but rather induced by external factors that were not within UCL's control. Respondent cites the Statement of Administrative Action 162, H.R. Doc. No. 103-316, 103rd Cong. 2d Session (1994) , Uruguay Round Agreements Act, 656, 832, ("SAA") where the Administration stated that "although not a matter of cost recovery, when an unforeseen disruption in production occurs which is beyond management's control (e.g., destruction of production facility by fire), Commerce will continue its current practice such as using the costs incurred for production prior to such unforeseen event" to support its argument that Commerce's practice is to exclude extraordinary events from reported costs. Respondent further cites Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Wire Rod from Taiwan, 63 FR, 40461, 40467 (July 29, 1998) to support its position that the Department excludes extraordinary losses that are unforeseen and beyond management's control. Urenco argues that its method of accounting for the loss is not controlling since the Department will reject or adjust a party's normal accounting practices, if they result in an unreasonable allocation of production costs. See Final Determination of Sales at Less Than Fair Value: Fresh Cut Roses from Ecuador, 60 FR at 7019, 7038 (February 6, 1995). Respondent continues that if the Department incorrectly determines that the centrifuge loss is not an extraordinary expense then it should amortize the loss over the useful life of the centrifuges. Petitioners refute Urenco's claim that the centrifuge loss was extraordinary, stating that the loss of centrifuges represents an industrial accident which is neither unusual in nature nor infrequent in occurrence. Petitioners argue that to be considered "unusual in nature," the event must be unrelated to the ordinary and typical activities of the entity. See Floral Trade Council of Davis, California v. United States 16 CIT 1014, 1016 (Dec. 1, 1992). Petitioners argue that centrifuge failure is not unusual in the enrichment business and is related to LEU production. Petitioners also question what is to be considered an ordinary versus extraordinary failure rate. Petitioners conclude that because the centrifuge failure is a predictable event and one directly related to Urenco's operations, the Department should not allow Urenco to exclude these costs. Petitioners additionally argue that the Department should not amortize the loss over the useful life of the centrifuges because to do so would deviate from how UCL accounted for the loss in its own books and records and would result in revenues not being properly matched with relevant costs. DOC Position: We agree with petitioners. As outlined in Floral Trade Council of Davis, Calif. v. United States, in order for an event to be considered extraordinary it must be "unusual in nature and infrequent in occurrence." An event is "unusual in nature" if it is highly abnormal, and unrelated or incidentally related to the ordinary and typical activities of the entity, in light of the entity's environment. An event is "infrequent in occurrence" if it is not reasonably expected to recur in the foreseeable future. The record demonstrates that centrifuge failure is not highly abnormal and is clearly related to the production of LEU in that the centrifuges are critical to the enrichment of uranium. Moreover, we note that Urenco management had in place special systems to deal with centrifuge failures, which undermined its claim that such an event was unanticipated. Further, the record indicates centrifuge failures are not infrequent in occurrence. (See Urenco Section A Response, exhibit D-14 at 3, and exhibit D-16 at 5.) Moreover, we view this centrifuge failure as an industrial accident related to production. Finally, at verification the Department found that Urenco Capenhurst expensed the entire loss related to the centrifuge failure in the year 2000. (See September 25, 2001 memorandum to Neal M. Halper from Peter Scholl at page 2.) We also note that UCL did not characterize the loss as extraordinary on the financial statements, but included it in the raw materials line item on the income statement. Further, we have found that this loss is not associated with an unusual and infrequent event, and thus we disagree with respondent that this qualifies as an extraordinary event. Because the Act instructs the Department to follow the respondent's normal accounting methodology, if it is consistent with GAAP in the foreign market and "reasonably reflects the costs associated with the production and sale of the merchandise," we have included the loss from centrifuges in our cost calculation. (See section 773(f)(1)(A) of the Act.) We do, however, consider it appropriate to treat the centrifuge loss as a period cost and spread it proportionately throughout the year incurred. Accordingly, we have included a proportionate amount of the loss from the centrifuge failure in the COP and CV calculation. Recommendation Based on our analysis of the comments received, we recommend adopting all of the above positions. If these recommendations are accepted, we will publish the final results and the final weighted-average dumping margins in the Federal Register. _______ ________ Agree Disagree ___________________________ Faryar Shirzad Assistant Secretary for Import Administration ___________________________ Date ________________________________________________________________________ footnotes: 1. The petitioners in this investigation are USEC, Inc. and its wholly- owned subsidiary, United States Enrichment Corporation (collectively "USEC"), and the Paper, Allied-Industrial, Chemical and Energy Workers International Union, AFL-CIO, CLC, Local 5-550 and Local 5-689 (collectively "PACE") ("the petitioners"). 2. LES was established in 1989 by Urenco and other U.S. utility companies for purposes of introducing centrifuge uranium enrichment technology in the United States. In 1991, LES applied for a publicly available license. However, this joint venture has never received a license from the Nuclear Regulatory Commission. The application for licence was withdrawn in 1998. Shortly after this partnership was formed, a LEU sales contract between LES and one of the utility companies in the joint venture was signed, which authorizes that the contract be automatically assigned to Urenco if LES cannot supply LEU. In 1994, when it was clear that LES could not supply LEU, the contract was assigned to Urenco. 3. The identity of these companies is proprietary. 4. The three-prong test from PQ Corporation v. United States, sets the following criteria for EP sales: (i) the goods were shipped directly from the foreign producer to the U.S. customer without having been introduced into the U.S. affiliate's inventory, (ii) this direct shipment was the customary manner of shipment, and (iii) the U.S. selling agent was only a "processor of sales-related documentation and a communication link with the unrelated U.S. buyer."