65 FR 25706, May 3, 2000 A-570-856 Investigation PUBLIC DOCUMENT I/2/DM MEMORANDUM TO: Troy H. Cribb Acting Assistant Secretary for Import Administration FROM: Richard W. Moreland Deputy Assistant Secretary for Import Administration SUBJECT: Issues and Decision Memorandum for the Investigation of Sales at Less Than Fair Value of Synthetic Indigo from the People's Republic of China ------------------------------------------------------------------ SUMMARY We have analyzed the comments and rebuttals of interested parties in the investigation of sales at less than fair value of synthetic indigo from the People's Republic of China ("PRC"). As a result of our analysis, we have made changes, including corrections of certain inadvertent programming and clerical errors, in the margin calculations. We recommend that you approve the positions we have developed in the Discussion of the Issues section of this memorandum. Below is the complete list of the issues in this investigation for which we received comments and rebuttal comments by interested parties: I. Respondent Selection Comment 1: Tianjin Hongfa vs. Kwong Fat as Exporter Comment 2: Wonderful vs. Intermediate Trading Company as Exporter II. Separate Rates Comment 3: Separate Rate for Tianjin Hongfa Comment 4: Separate Rate for Wonderful/Jiangsu Taifeng Comment 5: Cooperating Non-Mandatory Respondents III. Factor Valuation Comment 6: Valuation of Factory Overhead, SG&A, and Profit Comment 7: Valuation of International Freight Comment 8: Valuation of Certain Minor Inputs Comment 9: Valuation of Water Comment 10: Classification of "Managerial Remuneration" in Surrogate Value Financial Data Comment 11: Date of Sale Comment 12: Labor Hours Factor Reporting Comment 13: Deduction of Trading Company Fees BACKGROUND On December 14, 1999, the Department of Commerce (the "Department") published the Notice of Preliminary Determination of Sales at Less Than Fair Value and Postponement of Final Determination: Synthetic Indigo from the People's Republic of China, 64 FR 69723 ("Preliminary Determination"). The merchandise covered by this investigation is deep blue synthetic vat dye ("synthetic indigo") and its derivatives, such as pre-reduced indigo or indigo white and solubilized indigo, designated commercially as "Vat Blue 1" and sold in any form and in any strength. The period of investigation ("POI") is October 1, 1998, through March 31, 1999. We invited parties to comment on our preliminary determination. No requests were made for a public hearing. CHANGES FROM THE PRELIMINARY DETERMINATION We calculated export price and normal value using the same methodology stated in the preliminary determination, except as follows: Wonderful Chemical Industrial Ltd. ("Wonderful") We corrected the gross unit prices of certain sales based on response revisions and verification findings (see Final Determination Margin Calculation Memorandum). We deducted an additional amount of foreign inland freight, to account for transportation of the subject merchandise from a PRC river port to an ocean port, in accordance with our verification findings (see Final Determination Margin Calculation Memorandum). We valued international freight based on a surrogate value because we determined at verification that Wonderful and its affiliate Jiangsu Taifeng Chemical Industry Co. ("Jiangsu Taifeng") paid for international freight services in the PRC currency (see Comment 7). We deducted an additional amount for U.S. inland freight incurred on Jiangsu Taifeng's sales based on a surrogate value because we determined at verification that Jiangsu Taifeng paid for this transportation service in the PRC currency (see Comment 7). At verification, we found that Jiangsu Taifeng obtained marine insurance from a nonmarket-economy supplier. To value the marine insurance expense Jiangsu Taifeng incurred on certain sales, we applied the insurance premium rate Jiangsu Taifeng's affiliate Wonderful paid to a market-economy insurer (see Final Determination Valuation Memorandum). Tianjin Hongfa Group Co. ("Tianjin Hongfa") Because we were unable to verify Tianjin Hongfa's eligibility for a separate rate, as discussed below at Comment 3, we have not calculated a separate margin for Tianjin Hongfa. Factor Valuation We included a surrogate value for the dispersing agent consumed by Jiangsu Taifeng and Taixing Taifeng Dyestuff Co., Ltd. ("Taixing Taifeng") in our calculation of normal value (see Comment 8). We revised the surrogate values for electricity and furnace oil based on average unit values from financial statements to include the additional financial statement values provided by the petitioners (see Final Determination Valuation Memorandum). We changed the valuation of steam coal to rely on the average unit value from an Indian financial statement provided by the petitioners (see Final Determination Valuation Memorandum). We revised the surrogate values for diesel fuel and furnace oil by correcting the conversion of the surrogate prices from per-liter prices to per-kilogram surrogate values (see Final Determination Valuation Memorandum). DISCUSSION OF THE ISSUES I. Respondent Selection Comment 1: Tianjin Hongfa vs. Kwong Fat as Exporter The respondents disagree with the Department's treatment of export sales by Tianjin Hongfa as the proper basis for establishing export price, and argue that Kwong Fat Hong Dye-Chem ("Kwong Fat") should be treated as the proper exporter and, accordingly, be assigned a separate rate. The respondents note that Kwong Fat negotiated all of the terms of sale with the U.S. customer and instructed Tianjin Hongfa to become involved in these transactions on an agency basis for the sole purpose of utilizing Tianjin Hongfa's export license. The respondents also point out that because Kwong Fat had the ability to change the destination or delay the shipment after taking title to the merchandise, Tianjin Hongfa did not know with certainty that its sales to Kwong Fat were destined for the United States. Therefore, the respondents suggest that, with respect to the "Knowledge Test" discussed in Fresh Garlic from the People's Republic of China; Final Results of Antidumping Duty Administrative Review and Termination of Antidumping Review, 62 FR 23578 (May 1, 1997)("Garlic"), Tianjin Hongfa should not be considered as the first party in the distribution chain with knowledge of the U.S. destination. The respondents also contend that Tianjin Hongfa and Kwong Fat are affiliated, since the general manager of Kwong Fat has a position in management at Tianjin Hongfa and also holds an ownership interest in one of Tianjin Hongfa's subsidiaries. The petitioners agree with the Department's decision in the Preliminary Determination, and further maintain that it was appropriate to focus on Tianjin Hongfa's sale to Kwong Fat, given that the Department must examine the sale from the non-market economy ("NME") exporter to the intermediate-country reseller in accordance with Garlic. The petitioners assert that based on evidence placed on the record, Tianjin Hongfa had knowledge of destination of the merchandise at the time of sale, and Tianjin Hongfa was also the first company in the distribution chain to make a sale denominated in convertible currency. With respect to affiliation between the respondent companies, the petitioners point out that Kwong Fat and Tianjin Hongfa presented conflicting information in their questionnaire responses, and that additional information gathered at verification did not seem to clarify the issue. The petitioners maintain that, given these inconsistencies, there is insufficient evidence of an affiliation between Kwong Fat and Tianjin Hongfa within the meaning of section 771(33) of the Act. Department's Position: As in the Preliminary Determination, we find that Tianjin Hongfa is the relevant exporter, and that the market-based sales transactions between Tianjin Hongfa and Kwong Fat are the proper basis for export price. Section 772(a) of the Act defines export price as the price at which the subject merchandise is first sold before the date of importation by a producer or exporter of the subject merchandise outside of the United States to an unaffiliated purchaser in the United States. This definition permits us to use the price of the subject merchandise at the time it is first sold by a producer or exporter outside the United States to another unaffiliated purchaser that subsequently exports the merchandise to the United States. As in Garlic, we have interpreted the relevant price in such a sales situation to be the price at which the first party in the chain of distribution who has knowledge of the U.S. destination sells the merchandise. Furthermore, as discussed in Garlic, our "Knowledge Test" is "restricted with regard to NME cases, because we do not base export price on internal transactions between two companies located in the NME country." Id., 62 FR at 23759. Applying these principles to the facts of this case, we determined that, although the PRC producer, Tianjin Jiahui Dyestuffs & Chemical Plant ("Tianjin Jiahui") is the first party in the distribution chain and may have had knowledge of the U.S. destination of the subject merchandise, its transaction with Tianjin Hongfa was a transaction between two companies located within a NME country, was not made in a market-economy currency and, therefore, was inappropriate for purposes of determining the export price. The next party after Tianjin Jiahui in the distribution chain is Tianjin Hongfa, and we determined that the transaction between Tianjin Hongfa and Kwong Fat represents the first market-based sale in the chain of distribution for export to the United States. Accordingly, the appropriate starting point for application of our "Knowledge Test" is the transaction between Tianjin Hongfa and Kwong Fat. The Department found sufficient evidence that Tianjin Hongfa had knowledge of destination at the time of sale, as discussed in the Preliminary Determination (see 64 FR at 69727), and, subsequently, in the Tianjin Hongfa verification report (pages 6-7, and Exhibit 9). Furthermore, contrary to the respondents' claims, we find no evidence of affiliation among any of the companies involved in this particular chain of distribution within the meaning of section 771(33) of the Act and 19 CFR 351.102. Specifically, the Department disagrees with the respondents' arguments that an affiliation exists between Tianjin Hongfa and Kwong Fat. Although we found that the general manager of Kwong Fat has been hired temporarily by Tianjin Hongfa to act as vice-manager and consultant to the vice general manager who oversees production, there is no clear evidence on the record that he is involved in the daily production and operation of Tianjin Hongfa, or that his role is anything other than that of an advisor. (See Tianjin Hongfa Verification Report at 2, and Kwong Fat Verification Report at 1-2.) Further, the fact that Kwong Fat has a minority shareholding interest in the joint venture firm Tianjin Hua Mei Hongfa Chemicals Ltd., which is a subsidiary of Tianjin Hongfa engaged in the production and sales on non-subject merchandise, does not demonstrate the existence of operational control between Kwong Fat and Tianjin Hongfa. The Department finds that the evidence provided by the respondents is not sufficient, either separately or collectively, to show that Tianjin Hongfa and Kwong Fat are affiliated parties pursuant to section 771(33) of the Act and 19 CFR 351.102. Therefore, because the sale from Tianjin Hongfa to Kwong Fat is the first market-based sale in the chain of distribution for export to the United States, we have continued to treat the export transaction from Tianjin Hongfa to Kwong Fat, rather than the one from Kwong Fat to the unaffiliated U.S. customer, as the appropriate transaction for determining the export price. Accordingly, since Kwong Fat is not the appropriate respondent in this investigation, the issue of whether or not it should be assigned a separate rate is moot. Comment 2: Wonderful vs. Intermediate Trading Company as Exporter Wonderful, a Hong Kong trading company, sold subject merchandise made by its joint venture affiliates located in the PRC, Jiangsu Taifeng and Taixing Taifeng, to unaffiliated customers in the United States during the POI. The merchandise was exported from the PRC through one of several trading companies located in the PRC (hereafter "intermediate PRC trading companies"). As with the Tianjin Hongfa/Kwong Fat transaction chain, these PRC export transactions involved a U.S. dollar-based sales transaction between an intermediate trading company and Wonderful, prior to Wonderful's sale and shipment to its U.S. customer. The petitioners argue that the Department should determine that the intermediate PRC trading companies are the proper exporters within the meaning of section 772(a) of the Act, and that export price should be based on sales made by the intermediate PRC trading companies to Wonderful. The petitioners argue that the Department should apply the same "Knowledge Test" based on Garlic for the Wonderful transactions as it should for the Tianjin Hongfa/Kwong Fat transactions. According to the petitioners, there is sufficient evidence on the record to demonstrate that the intermediate trading companies, who were responsible for arranging the export licenses, had knowledge of the ultimate destination of the merchandise at the time of sale. The petitioners also note that, in addition to being the first parties in the chain of distribution with knowledge that the subject merchandise was sold to the United States, the intermediate trading companies were the first parties in the chain who completed a sales transaction in convertible currency to unrelated purchasers. Further, the petitioners take issue with the Department's reliance on the Notice of Preliminary Determination of Sales at Less Than Fair Value and Postponement of Final Determination: Certain Preserved Mushrooms from the People's Republic of China, 63 FR 41794 (August 5, 1998)("Mushrooms") for determining that Wonderful is the proper exporter because, as in Mushrooms, the intermediate PRC trading companies act only as intermediaries in order to facilitate the export of the merchandise from the PRC and arrange the shipment of the subject merchandise from the PRC. The petitioners state that such a finding is at odds with the statute and long-standing practice, as it ignores a bona fide sale between the unaffiliated trading companies. To support their position, the petitioners cite as an example the Preliminary Results and Recission in Part of Antidumping Duty Administrative Review: Mechanical Transfer Presses from Japan, 65 FR 11764 (March 6, 2000) ("MTPs"), where the Department based export price on the sale from the Japanese producer to a trading company in Japan, without regard to the trading company's subsequent sale to the producer's affiliate in the United States. The respondents maintain that the Department properly treated Wonderful as the exporter. The respondents refute the petitioners' contention that the intermediate PRC trading companies had knowledge of destination by making the argument that Wonderful had the ability to change the destination or delay shipment after taking title to the merchandise, and therefore, the PRC trading company could not know for certain the final destination at the time of sale. The respondents also assert Wonderful and its PRC producer Jiangsu Taifeng are affiliated, unlike the situation in Garlic. Citing Mushrooms, the respondents argue that, because Wonderful has established on record that it both owns and controls Jiangsu Taifeng, the Department should continue to find affiliation between this Hong Kong trading company and its PRC producer. Department's Position: As in the Preliminary Determination, we find that Wonderful is the relevant exporter, and that the sales transactions between Wonderful and the U.S. customer are the proper bases for export price. Wonderful's situation is distinct from that of Tianjin Hongfa/Kwong Fat principally in that Wonderful and the two supplying producers Jiangsu Taifeng and Taixing Taifeng are affiliated. The petitioners do not dispute this conclusion. Section 772(a) of the Act states that export price is to be based on the sale to an unaffiliated purchaser for exportation to the United States. In this chain of distribution, the producer "sells" the merchandise to a trading company in the PRC, who then "sells" the merchandise to the producers' affiliated Hong Kong trading company, who, in turn, sells the subject merchandise to the ultimate customer in the United States. The first party in this chain who has knowledge of destination is the producer, but, as discussed above in Comment 1, we cannot use the NME transaction between the producer and the intermediate trading company as the basis for export price. Thus, we turn to the next "link" in the distribution chain, the transaction between the PRC trading company and Wonderful, which is apparently the first market-based sale. However, unlike the Tianjin Hongfa/Kwong Fat fact pattern, the next buyer, Wonderful, is an affiliate of the producer. That is, this link does not actually reflect the first sale to an unaffiliated purchaser. In this case, it is clear to see that the only reason that Wonderful would buy essentially its own merchandise from a PRC trading company is to facilitate the export of that merchandise from the PRC. This transaction is not, as the petitioners suggest, a bona fide first market-based sale to an unaffiliated party. Accordingly, we must look at the next link in the transaction chain, Wonderful's sale to the U.S. customer. Since the U.S. customer is not affiliated with Wonderful and the transaction is made in a market-economy currency, this sale meets the requirements of section 772(a) of the Act. Although not articulated in detail, the Department conducted the same analysis in determining the appropriate basis for export price in Mushrooms. In Mushrooms, the Department's determination to base the export price on the Hong Kong trading company's sale relied principally on the affiliation between the producer and the Hong Kong exporter. Given the affiliation between the PRC producers and the Hong Kong trading companies in both proceedings, the alleged "resale" from the PRC trading companies to the Hong Kong firms cannot form the proper basis for export price under section 772(a). The affiliation causes us to view the function of the intermediate PRC trading companies in both proceedings as that of facilitating the export of the merchandise from the PRC and of arranging the shipment of the subject merchandise from the PRC. Were the producers and the Hong Kong trading companies unaffiliated, as in the Tianjin Hongfa/Kwong Fat transaction chain, we would not be able to draw the same conclusion. Finally, we note that the fact pattern in this investigation differs from that in MTPs cited by the petitioners. The record of that proceeding shows that, for some sales, the chain of distribution goes from the producer to an unaffiliated trading company in Japan, to the producer's affiliate in the United States, and finally to an end-user in the United States that is affiliated with the Japanese trading company. Thus, the transactions are essentially between two parties, with the sale from the producer to the Japanese trading company representing the first sale in the distribution chain to an unaffiliated customer with knowledge of U.S. destination. The chain of distribution in the instant investigation is distinguishable because the intermediate trading companies are in a NME, and thus the NME transaction between the producer and the intermediate trading company cannot be used as the basis for export price. Moreover, the first sales transaction to an unaffiliated customer is the sale between Wonderful and the U.S. customer. II. Separate Rates Comment 3: Separate Rate for Tianjin Hongfa The petitioners argue that the Department should make adverse inferences concerning Tianjin Hongfa's eligibility for a separate rate, and assign the company the PRC-wide rate in the final determination. The petitioners claim that this treatment is warranted on either of two grounds: because verification uncovered evidence that Tianjin Hongfa is subject to de facto government control, or alternatively, because the "separate rates" section of Tianjin Hongfa's questionnaire response could not be verified. The petitioners cite to the Tianjin Hongfa verification report, in which the Department noted that the individual who served as Tianjin Hongfa's general manager during the POI, and continues to be designated on its business license as the "enterprise legal person," was nominated to the local township's congress in late 1998. Furthermore, the petitioners point out that when the verification team requested a photocopy of the letter noting appointments to the local district Communist party, the company initially furnished the team with an altered copy of the document from which the name of Tianjin Hongfa's former general manager had been removed. Petitioners allege that in light of such evidence uncovered during the verification, Tianjin Hongfa has failed to meet its burden of demonstrating that it is free of de facto government control. The petitioners also argue that because the Tianjin Hongfa verification report states that the Department was unable to verify the "separate rates" and "completeness of sales reporting" segments of the questionnaire responses, the Department should not grant Tianjin Hongfa a separate rate, and should instead assign it the PRC-wide rate. The respondents contend that inconsistencies and other problems with the Tianjin Hongfa verification do not justify assignment of the PRC- wide rate. The respondents argue that on the whole, Tianjin Hongfa cooperated with the verification to the best of its ability, and in the end came forward with the original version of the document which had been altered. Further, the respondents suggest that nothing in the record of the investigation provides any evidence that the appointment of a former company official to the local government post has in any way affected Tianjin Hongfa's marketing activities. Department's Position: As explained in the Preliminary Determination, under the section entitled "Separate Rates," 64 FR at 69725-26, the Department begins with a rebuttable presumption that all companies within a NME country are subject to government control and, accordingly, assigns separate rates only if the respondents can demonstrate the absence of both de jure and de facto governmental control over export activities. The Preliminary Determination also details the factors used to consider whether respondents are subject to de facto governmental control. In the case of Tianjin Hongfa, the Department finds that the respondent failed to provide satisfactory evidence to rebut the presumption of de facto governmental control. As discussed in detail in the Tianjin Hongfa Verification Report, Tianjin Hongfa was either not forthcoming in responding to a number of questions, or provided inadequate answers, and additionally, attempted to alter a document. (See Tianjin Hongfa Verification Report at 2-4.) Therefore, because Tianjin Hongfa provided information regarding its request for a separate rate that could not be verified, as provided in section 782(i) of the Act, the Department agrees with the petitioners that Tianjin Hongfa has failed to establish its eligibility for a separate rate and, accordingly, the Department has assigned the PRC-wide rate to Tianjin Hongfa. Comment 4: Separate Rate for Wonderful/Jiangsu Taifeng The petitioners argue that Wonderful/Jiangsu Taifeng should not be entitled to a separate rate because Jiangsu Taifeng has not adequately rebutted the inference that its ties to the PRC government amount to de facto governmental control of its export functions. The petitioners note that the largest shareholder of the Jiangsu Taifeng joint venture is a state-owned enterprise, and that this shareholder controls more seats on the board of directors than any other participant in the venture. The petitioners also cite to the Jiangsu Taifeng verification report in which the Department noted a Communist party committee office within the factory complex. Citing Notice of Final Determination of Sales at Less Than Fair Value: Brake Drums and Brake Rotors from the People's Republic of China, 62 FR 9160 (February, 28, 1997)("Brake Rotors"), the petitioners argue that the government stake in Jiangsu Taifeng is substantial enough to warrant a presumption of de facto government control, and therefore Jiangsu Taifeng should not be assigned a separate rate. Moreover, the petitioners assert that, because Wonderful and Jiangsu Taifeng were properly treated as a collapsed entity in the preliminary determination, both companies should receive the PRC-wide rate. Wonderful and Jiangsu Taifeng state that there is no information on the record to infer or presume that they are under PRC government control. The respondents contend that the role of the state-owned company is temporary and limited to facilitating the listing of Jiangsu Taifeng and Taixing Taifeng on the PRC Stock Exchange, and that the state-owned company has agreed to return eventually its shares to the original owners. Moreover, the respondents assert that the information they have submitted for the record demonstrates that they are not under government control. The respondents add that the petitioners' reference to Brake Rotors is inappropriate because in that investigation, the Department found that the companies in question were branches of a government-owned corporation, which is not the case for the respondents in this investigation. The respondents continue that, although a Communist party office exists within the Jiangsu Taifeng/Taixing Taifeng complex, it neither establishes nor infers PRC government control. Department's Position: We continue to find, as we did in the Preliminary Determination, that Jiangsu Taifeng is entitled to a separate rate, and it should be collapsed with its affiliate Wonderful. As discussed above in Comment 2, Jiangsu Taifeng is affiliated with the Hong Kong trading company Wonderful. Hong Kong companies are treated as market economy companies (see Application of U.S. Antidumping and Countervailing Duty Laws to Hong Kong, 62 FR 42965 (August 11, 1997)), and thus no further analysis is required. However, since Jiangsu Taifeng is a PRC company, the Department considered Jiangsu Taifeng's eligibility for a separate rate prior to considering whether to collapse the entities for margin calculation purposes. As discussed in the preliminary determination notice and other determinations involving the PRC, the Department's separate rates test focuses on controls over the investment, pricing, and output decision-making process at the individual firm level. Based on our analysis of the questionnaire response information, we found at the preliminary determination that Jiangsu Taifeng met the de jure and de facto criteria for application of separate rates (see Preliminary Determination, 64 FR at 69725-69726). At verification, "[w]e found no evidence to contradict [Jiangsu Taifeng's] claims. We saw no evidence that any PRC government entity is involved in [Jiangsu Taifeng's] sales or pricing practices during our review of selected sales transactions" (Jiangsu Taifeng Verification Report at page 2). The petitioners, however, claim that the minority ownership stake of a state-owned enterprise in Jiangsu Taifeng and the state-owned enterprise's appointment of five of thirteen members to Jiangsu Taifeng's board of directors are sufficient, in and of themselves, to constitute evidence of de facto government control. We note that the Department's separate rates test described in the preliminary determination does not consider state-owned enterprise ownership as one of the criteria for determining eligibility for separate rates. The only support for their position that the petitioners offer is the Department's separate rates determination in Brake Rotors. As correctly noted by the respondents, in that case, the Department determined that two respondent entities were branches of a national organization NORINCO. NORINCO made no claim of independence from government control in that proceeding. In addition, the record of that proceeding included evidence on the record that NORINCO was controlled by the PRC government. The presence of a NORINCO office at one of the Brake Rotor respondent's facilities supported the finding that the entities were still part of NORINCO; in this proceeding, we found no evidence that the presence of a Communist Party office at the facility indicated that the party or a PRC government entity exercised any form of control over Jiangsu Taifeng's export activities. Accordingly, there is no basis for us to conclude in this investigation that the state-owned company's minority ownership in Jiangsu Taifeng demonstrates de facto government control of Jiangsu Taifeng. As both Wonderful and Jiangsu Taifeng have demonstrated their respective eligibility to receive a separate rate, we continue to treat these affiliates as a single entity and calculate a single rate for them on the basis of their affiliation as defined by section 771(33) of the Act and 19 CFR 351.102. Comment 5: Cooperating Non-Mandatory Respondents The petitioners contend that in the final determination, the Department should apply the PRC-wide rate to all respondents, including the cooperating exporters whose responses were not analyzed in the investigation. Extending their previous argument that none of the mandatory respondents is entitled to a separate rate, the petitioners maintain that there is no basis for applying anything but the PRC-wide rate to the cooperating respondents. Additionally, the petitioners argue that there is evidence on the record suggesting that several of these cooperating respondents would not have been eligible for separate rates had they been fully investigated. The respondents disagree that it would be appropriate to assign cooperative exporters a margin based on adverse facts available. The respondents also contend that it would be inappropriate to assign cooperative exporters the average rate of the two mandatory respondents unless Kwong Fat is treated as the exporter in its transaction chain. Department's Position: We disagree with the petitioners. The Department's positions on whether or not the mandatory respondent exporters are entitled to separate rates are explained in Comments 3 and 4 above. As for the non-mandatory respondents, for the reasons explained in the Preliminary Determination, under the section entitled "Margins for Exporters Whose Responses Were Not Analyzed," 64 FR at 69726, the Department continues to assign these exporters a rate based on the weighted-average of the rates of the analyzed exporters. See Mushrooms, 63 FR at 41798. However, as discussed in Comment 3 above, we found that Tianjin Hongfa was not eligible for a separate rate and thus assigned it the PRC-wide rate, which is based on adverse facts available. Since, as was previously stated in the Preliminary Determination, it would be inappropriate for the Department to assign cooperative exporters a margin based on adverse facts available, in light of the fact that these exporters have not failed to provide information requested of them and otherwise fully cooperated with the Department's investigation, Wonderful/Jiangsu Taifeng's rate is the only calculated rate which can be applied to the cooperating, non- mandatory respondents. Therefore, in this final determination, the cooperating respondents will effectively receive the same rate as Wonderful/Jiangsu Taifeng. III. Factor Valuation Comment 6: Valuation of Factory Overhead, SG&A, and Profit In the Preliminary Determination, the Department calculated surrogate values for factory overhead (FOH), selling, general, and administrative expenses ("SG&A"), and profit by using ratios derived from the 1998-1999 Annual Report of Daurala Organics Ltd. (Daurala), an Indian producer of phenylglycine, a chemical intermediate produced during the manufacture of synthetic indigo. We used this information because neither we nor any of the interested parties were able to find available information from a producer of synthetic indigo in a surrogate country. As an alternative, the petitioners contend that the Department should include data from National Peroxide, an Indian producer of hydrogen peroxide, in calculating these ratios. According to the petitioners, while Daurala's costs are reasonably representative of costs associated with the production of the intermediate chemical, such costs do not fully capture the large capital outlays necessary for the customized plant equipment required for the highly corrosive and abrasive production environment and toxic properties of the raw materials. To better reflect these expenses, the petitioners contend that Daurala's financial data should be averaged with National Peroxide's in order to capture the high fixed costs incurred in the production of synthetic indigo. The respondents contend that the surrogate value percentages derived from Daurala's data are aberrational, resulting in what the respondents believe are abnormally high surrogate values. Surrogate values derived from National Peroxide's data, according to the respondents, would be even more aberrational. As alternatives, the respondents contend that the Department should rely on the experience of two other Indian chemical companies, Atul, Ltd.("Atul"), and Transpek Industry, Ltd. ("Transpek"). The respondents add that Atul produces dyes and specialty chemicals and, thus, has production experience comparable to the PRC producers. In response, the petitioners state there is no information on the record to support the respondents' assertion that the Daurala and National Peroxide data are aberrational. The petitioners point to the financial data of a Brazilian manufacturer of indigo 4BD vat blue dye, which also show high FOH and SG&A rates, as further support for the relatively high costs associated with synthetic indigo production. Department's Position: The Department's practice is, where information is available, to derive the FOH, SG&A and profit values from producers of merchandise that is identical or comparable to the subject merchandise (see, e.g., Notice of Final Determination of Sales at Less Than Fair Value: Creatine Monohydrate From the People's Republic of China, 64 FR 71104, 71108 (December 20, 1999)(Creatine); Notice of Final Determination of Sales at Less Than Fair Value; Polyvinyl Alcohol From the People's Republic of China, 61 FR 14057, 14061 (March 29, 1996) (PVA); see also 19 CFR 351.408(c)(4)). In this proceeding, there is no information on the record regarding the synthetic indigo industry experience in India or any other potential surrogate country. Instead, we have the following Indian industry experience on the record: a. a general chemical producer (Transpek), b. a producer of a specific chemical that is neither the subject merchandise nor a chemical used in the production of the subject merchandise, but whose experience is alleged to be similar to that of a producer of the subject merchandise in one aspect of production (National Peroxide), c. a producer of the same general type of product, dyes, as the subject merchandise (Atul); and d. a producer of a chemical that is a major input in the production of the subject merchandise, but does not produce the same final product (Daurala). The Department's practice is to use financial data that are more narrowly limited to a producer of comparable merchandise than data based on a producer of a wider range of products when the former data are available (see, e.g., Creatine). Accordingly, we have not selected the Transpek data. For the same reasons, as explained in detail below, we have not selected the National Peroxide data. The remaining choices are between Atul and Daurala. Based on the publicly available information submitted for the record and available to the Department in this investigation, we have determined that Daurala's financial data provide the better bases for valuing FOH, SG&A and profit. Daurala's product line is primarily limited to phenylglycine, a major intermediate chemical produced by the respondents as an input into the production of synthetic indigo. Atul, on the other hand, produces not only dyes, but other products such as agrochemicals, bulk drugs, epoxy resins, specialty chemicals, and wood adhesives (see respondents' March 10, 2000, submission at Appendix 2-1). Thus, Atul's financial data reflect a much broader, and thus less specific, industry experience than Daurala's. Further, there is no information on the record, other than the petitioner's unsupported assertions, that the FOH, SG&A, and profit experience of the hydrogen peroxide producer in the surrogate country is more similar to that of a synthetic indigo producer than that of a phenylglycine producer in the surrogate country. The petitioners have offered no substantive evidence that Daurala's phenylglycine production experience is significantly different from the respondents' synthetic indigo production such that adjustments to the FOH, SG&A, and profit ratios derived from Daurala's financial data are required. On the contrary, the petitioners highlighted the similarities between phenylglycine and synthetic indigo production in their November 5, 1999, submission at pages 4, 5, and 17, wherein they stated that both production processes use some of the same raw materials, utilize the same reaction of highly corrosive and dangerous chemicals at high temperatures and pressures, and require significant investment in specialized manufacturing and safety equipment. Contrary to the petitioner's contentions, the facts in the instant case contrast with those in the case they cite to support their position, Final Determination of Sales at Less Than Fair Value: Persulfates from the PRC, 62 FR 27222 (May 19, 1997)("Persulfates"). In Persulfates, the National Peroxide data were selected as the source for the FOH, SG&A and profit surrogate values, the information on that record showed that National Peroxide's production process was closest to that of the subject merchandise as compared to the other information on that record. In this investigation, however, the petitioners have not claimed that the hydrogen peroxide production process is closest to that of synthetic indigo, but rather that the Daurala fixed costs do not fully capture the fixed costs they claim are associated with synthetic indigo production. The petitioners offer no technical or other evidence to show that the fixed costs associated with the hydrogen peroxide production process are similar to those experienced by the respondents in their production of synthetic indigo. Further, the petitioners have provided no precedence for averaging surrogate values based on dissimilar data. The Department's practice in this respect has been to average FOH, SG&A, and profit surrogate values only when two or more sources are equally comparable (see, e.g., PVA, and Notice of Final Determination of Sales at Less Than Fair Value: Bicycles From the PRC, 61 FR 19026, 19038 (April 30, 1996) ("Bicycles")). There is also no evidence on record that the FOH, SG&A, and profit surrogate values derived from the Daurala data are aberrational, as claimed by the respondents. As noted above, because the Transpek data reflect a much broader chemical industry experience than the Daurala data, we do not consider Transpek's experience to be a proper benchmark. Neither do we consider as determinative petitioner Buffalo Color Corporation's ("Buffalo Color") claim that its FOH, SG&A, and profit experience, and that of a Brazilian producer of an allegedly similar product, should be used as benchmarks of synthetic indigo production experience to determine that the Daurala ratios are too low for purposes of calculating surrogate values for these factors. The Department has selected India as the surrogate country for this investigation because of its economic comparability to the PRC and because Indian companies produce merchandise comparable to the subject merchandise. Neither the United States nor Brazil was identified as a possible surrogate country in this proceeding. Given the different levels of economic development between these countries and India, it is reasonable to conclude that the differences in the FOH, SG&A, and profit ratios experienced by Buffalo Color, the Brazilian producer and Daurala are likely due to the different economic structures of these countries, rather than to any alleged dissimilarities in their production processes as compared to that of Daurala. As an additional check to using Daurala's data, we note that the respondents also refer to Atul's production experience. Based on our calculation of the FOH, SG&A, and profit ratios from Atul's data (see Final Determination Valuation Memorandum at Attachment 7), we find the results to be reasonably close to those of Daurala. Although Atul's industry experience is broader than Daurala's, its experience supports the use of the Daurala data, rather than the rejection of Daurala's data as "aberrational," in the calculation of the FOH, SG&A and profit surrogate values. Comment 7: Valuation of International Freight In the Preliminary Determination, the Department valued the ocean freight expense incurred by Wonderful and Jiangsu Taifeng based on their reported expenses because they indicated that their merchandise had been shipped on market-economy carriers and paid for in a market- economy currency. At verification, the Department found that, although market-economy carriers were used by Wonderful, the U.S.- dollar charges were paid in PRC currency. Further, the Department found that Jiangsu Taifeng paid the U.S.-dollar charges in PRC currency and used PRC ocean carriers to transport the subject merchandise to the United States. Jiangsu Taifeng's PRC-currency payment to the freight forwarder also included payment for transportation from the U.S. port to the U.S. customer. The petitioners contend that the Department cannot rely on the reported international shipping expenses for these companies, because the Wonderful expenses were not paid in a market-economy currency, and Jiangsu Taifeng actually used a PRC-carrier. To value these movement expenses, the petitioners contend that the Department should use the March 2000 price quotes it obtained by petitioner Buffalo Color from a U.S. freight forwarder. The respondents state that the Department's established practice is, when inputs are purchased by a NME producer from a market-economy supplier and paid for in a market-economy currency, to use the actual price paid for inputs, where possible. Further, the respondents point to 19 CFR 351.408(c)(1), which states that, when a portion of a factor is purchased from a market economy supplier, the Department will value the factor using the market economy supplier price. Accordingly, the respondents argue, the Department should value, at a minimum, the cost of ground transportation in the United States paid for in U.S. dollars at its actual cost. Department's Position: We agree with the petitioners in part. The Department's normal practice is to use the actual price paid for inputs, rather than a surrogate value, when inputs are purchased from a market-economy supplier and paid for in a market-economy currency (see, e.g., Bicycles, 61 FR at 19029). Because Wonderful and its affiliate, Jiangsu Taifeng, purchased all international freight services in a NME currency, and in addition, Jiangsu Taifeng used a NME ocean freight carrier, we are unable to value these adjustments to export price based on the reported amounts paid. Therefore, we have based ocean freight on a surrogate value. As the most appropriate surrogate value based on information on the record in this proceeding, we have relied on the expense information on a freight invoice issued during the POI for transportation of the subject merchandise by a market- economy vessel from a PRC port to New York, NY, as supplied by the petitioners (November 5, 1999, submission at Exhibit 21). This information reflects an actual market-economy price paid during the POI for transporting the subject merchandise, as opposed to the alternatives provided by the petitioners, which appear to be responses to a petitioner's inquiries for services nearly a year after the POI. Jiangsu Taifeng paid for all of the international freight services, including the U.S. inland transportation portion, in PRC currency. There is no itemized information on the record of the U.S.-dollar price paid for this service, as suggested by the respondents. Thus, to value the cost of U.S. inland freight that Jiangsu Taifeng paid in PRC currency, we derived a cost based on a December 1997 U.S. delivery charge quoted to the petitioner Buffalo Color and included as Exhibit 11 to the petition. Comment 8: Valuation of Certain Minor Inputs In the Preliminary Determination, the Department did not separately calculate values for the following reported input materials: (1) dispersing agent SK2 (used by Jiangsu Taifeng and Taixing Taifeng in the production of 93% synthetic indigo, but not the 94% product); (2) disodium EDTA (ethylene diamine tetra acetic acid)(reported by Tianjin Jiahui only); and (3) heat conductive oil (reported by Tianjin Jiahui only). In the Preliminary Determination Valuation Memorandum dated December 6, 1999, we noted that the respondent producers reported consumption of these materials in small to very small quantities, and that we were unable to identify an appropriate surrogate value for these materials; therefore, we did not include these values in our normal value calculation. We also noted that, although Jiangsu Taifeng and Taixing Taifeng claimed to have obtained the dispersing agent from a market-economy source, we found an insufficient basis upon which to conclude that the product had actually been sourced from a market-economy supplier. In addition, in the Preliminary Determination, the Department did not calculate separate normal values for 93% and 94% synthetic indigo because grade- specific factors were not provided at that time. The petitioners state that for the final determination the Department should use the surrogate values for the dispersing agent, disodium EDTA and heat conductive oil that the petitioners placed on the record in their February 23, 2000, submission. In the case of a fourth input, a wetting agent reported as consumed by Taixing Taifeng for which the petitioners were unable to locate a surrogate value, they state that the Department should use the Hong Kong dollar- denominated price Wonderful reported that it charged Taixing Taifeng. The respondents state that the petitioners' arguments amount to a concession that the inputs were sourced from market economies. Department's Position: We have revised our normal value calculation methodology from the Preliminary Determination to value separately Jiangsu Taifeng's and Taixing Taifeng's consumption of the dispersing agent. We continue not to value separately the other items at issue due to the lack of appropriate values. Moreover, as explained below, it is likely that the costs of these materials are already included in the FOH surrogate value. At verification, we found that Jiangsu Taifeng and Taixing Taifeng make no distinction in their respective production records between the two concentration percentages of synthetic indigo. The calculation of separate consumption factors submitted during January 2000, is based on a theoretical allocation of factors to the two concentrations derived from the actual production records which make no such distinction (see Jiangsu Taifeng Verification Report at page 8, and Taixing Taifeng Verification Report at page 4). Although the dispersing agent is only used in the production of the 93% product, the production records include the consumption information for this input in the same manner as that for several other inputs (see Jiangsu Taifeng Verification Exhibits 18 and 19), i.e., without distinction between the concentrations. Accordingly, we find it appropriate to include the dispersing agent value in the calculation of a single normal value for both concentrations even though it is only used to produce the 93% concentration. We valued the dispersing agent based on the market-economy price Wonderful paid to obtain this market-economy-sourced input. The value information provided by the petitioners for this specific, trademarked chemical (i.e., a U.S. price quote for the same chemical consumed by Jiangsu Taifeng and Taixing Taifeng) supports the respondents' contention that it was obtained from a market-economy source and thus may be valued at the purchase price, in accordance with 19 CFR 351.408(c)(1). We did not calculate a value for the wetting agent identified by the petitioners because Jiangsu Taifeng and Taixing Taifeng state specifically that they did not consume this input in the production of the merchandise sold to the United States (see November 16, 1999, supplemental questionnaire response at page 8). We note that the dispersing agent used by the respondents, as discussed above, is described by the manufacturer as a "concentrated wetting agent" (Final Determination Valuation Memorandum at Attachment 8). Thus, in Jiangsu Taifeng's and Taixing Taifeng's production methods, it appears that the dispersing agent also serves as a wetting agent. We do not consider the price information provided by the petitioners for disodium ETDA and heat conductive oil to be appropriate surrogate values. The petitioner provided U.S. pricing information on these items from December 1999 and January 2000. While the Department has resorted to U.S. values in past proceedings when no values from a surrogate country were available, we do not consider it appropriate to do so here, where the quantities consumed of these materials are very small and may, in fact, be included in the Department's valuation of FOH, since this value includes an amount for the consumption of indirect materials. Moreover, because we are basing the margin for Tianjin Hongfa on the PRC-wide rate, as discussed in Comment 3 above, the valuation issues for Tianjin Jiahui inputs are moot. Comment 9: Valuation of Water The petitioners assert that the Department should continue, as it did in the Preliminary Determination, to value water consumed by the PRC producers based on the Indian surrogate value for water. The respondents argue that the Department should not separately value water in this investigation. Citing such cases as PVA, the respondents note that the Department did not separately value water because it determined that this expense item was included in the surrogate value for FOH. Similarly, in this case, the respondents contend that the Department should also not value the cost of water separately because it is included in the FOH surrogate value. Department's Position: We agree with the petitioners. In the cases cited by the respondents in their brief, the Department was unable to remove the cost of water from the FOH expenses because of the manner in which the financial data were presented for the record. Therefore, we properly considered water consumption as included in the FOH value and did not value water consumption separately. In this case, however, we are able to exclude the cost of water from the FOH expenses in Daurala's financial statement, as discussed in detail in the Department's December 6, 1999, Preliminary Determination Valuation Memorandum. Because we have insured that the FOH surrogate value does not include the cost of water, we have properly valued the respondents' cost of water separately. Comment 10: Classification of "Managerial Remuneration" in Surrogate Value Financial Data In the Preliminary Determination, the Department included Daurala's costs of managerial remuneration (i.e., salaries, employer contributions, and other perquisites) as part of direct manufacturing costs in calculating the surrogate value ratios for FOH and SG&A. The petitioners argue that these costs should be classified as a component of SG&A. In support of their contention, the petitioners cite examples from valuation memoranda in previous NME proceedings where these expenses were included in SG&A. The respondents did not comment on this issue. Department's Position: We disagree with petitioners. The listing of the managerial remuneration items in the notes to the Daurala financial statement, rather than the schedules where SG&A expense items are identified, does not specify whether these personnel expenses are for managers associated with direct production of Daurala's products, or for managers who supervise SG&A activities. Given the lack of information, we find no basis upon which to accept the petitioners' assumptions and reclassify these expenses from direct labor costs to SG&A costs. We note that, in their original presentation of the Daurala data to the Department, the petitioners did not include the managerial remuneration expenses as part of SG&A (see petitioners' November 5, 1999, submission at Exhibit 14). Accordingly, we have not reclassified Daurala's managerial remuneration expenses for the purpose of calculating the surrogate value ratios for FOH and SG&A. Comment 11: Date of Sale As date of sale in the Preliminary Determination, the Department relied on the invoice dates reported by the respondents in accordance with 19 CFR 351.401(i). At verification, the Department confirmed that, in some cases, the invoice date was after the reported shipment date, which represented the date the merchandise was loaded onto water-borne transport (factory shipment date was actually a few days earlier). In Wonderful's case, four transactions involved an invoice date in the POI, but a shipment date prior to the POI; for all other sales by Wonderful/Jiangsu Taifeng, the difference between these dates does not affect POI sales reporting. The petitioners argue that, in accordance with 19 CFR 351.401(i), the Department may use a date other than the date of the invoice if satisfied that a different date better reflects the date on which the material terms of sale (e.g., price and quantity) are set. In this case, the petitioners note that Wonderful stated in its initial Section A questionnaire response dated September 27, 1999, that the "on-board" shipment date (i.e., the date of loading onto river transport bound for the port of export) is usually used as the date of sale for its commercial purposes. Accordingly, the petitioners contend that, because the material terms of sale are set by the on- board shipment date, the Department should use that date as the date of sale and thereby exclude the four sales shipped prior to the POI from the margin calculation. The respondents argue that 19 CFR 351.401(i) establishes the presumption that the date of sale is the invoice date unless satisfactory evidence is presented that the material terms of sale are set on a different date. The respondents contend that the petitioners have shown insufficient evidence to overcome that presumption, relying solely on Wonderful's standard accounting practice. The respondents add that, in the example cited by the petitioners, Final Determination of Sales at Less Than Fair Value: Canned Pineapple Fruit from Thailand, 63 FR 7392 (February 13, 1998), the Court of International Trade (CIT) reversed the date of sale finding because it concluded there was no substantive information to demonstrate that the sales terms were fixed at the date of sale selected as an alternative to invoice date (Thai Pineapple Canning Industry Corp. Ltd. and Mitsubishi Int. Corp. v. the United States, 1999 CIT WL 288772 (May 5, 1999)). Department's Position: We agree in part with both the petitioners and the respondents. While the Department will normally rely on the invoice date as the date of sale, as noted by the respondents, the Department has established the practice that the date of sale cannot occur after the date of shipment (see, e.g., Final Results of Antidumping Administrative Review: Stainless Steel Bar From Japan, 65 FR 13717 (March 14, 2000), Decision Memorandum at Comment 1; and Notice of Final Determination of Sales at Less Than Fair Value; Hot-Rolled Flat- Rolled Carbon-Quality Steel Products From Brazil, 64 FR 38756, 38767- 38768 (July 19, 1999). Accordingly, where the invoice date is later than the reported shipment date, we have relied on the shipment date as the date of sale. As a result, we have excluded from Wonderful's margin calculation the four sales shipped prior to the POI, as requested by the petitioners. Comment 12: Labor Hours Factor Reporting The petitioners claim that Jiangsu Taifeng's and Taixing Taifeng's labor factor reporting methodology is based on theoretical rather than actual labor hours. As part of this methodology, the petitioners state that these producers have assumed that a standard workday shift is based on a 6-hour workday. To reflect more closely the actual cost of labor, the petitioners argue that the Department must adjust the producers' labor factor reporting to recalculate labor hours based on an 8-hour day. The respondents state that the questionnaire and the verification reports demonstrate that the two producers reported actual, not theoretical, labor hours. They note that standardized accounting methods were used in order to calculate actual labor usage. Department's Position: We agree with respondents. As discussed in the Jiangsu Taifeng and Taixing Taifeng verification reports, production employees actually work 8-hour shifts but only for three out of every four days (see Jiangsu Taifeng Verification Report at 10-11, and Taixing Taifeng Verification Report at 7-8). By multiplying the number of days in a month by 6-hours (i.e., 8-hour shifts on 75% of the days in a month), the respondents' methodology results in the respondents' best estimate of the actual hours worked by their employees. Comment 13: Deduction of Trading Company Fees If Wonderful is treated as the exporter, the petitioners claim that the Department must deduct fees paid to the intermediate trading companies. Based on Wonderful's questionnaire response, the petitioners allege that the services provided by the intermediate trading companies amount to movement expenses, and thus must be deducted under section 772(c)(2)(A) of the Act. Because Wonderful reports handling commissions of .5 to 1 percent paid to the trading companies, the petitioners contend that the average of these amounts, .75 percent, should be applied to the price between the trading companies and Wonderful, and deducted from the starting price. The respondents did not comment on this issue. Department's Position: We disagree with the petitioners. The Department considers the fees paid to the intermediate trading companies to be commissions. In NME proceedings, the Department does not make circumstance of sale adjustments, other than constructed export price expense adjustments, because of our inability to make equivalent adjustments to normal value (see, e.g., Bicycles, 61 FR at 19031). Thus, we have not deducted an amount for commissions paid to the intermediate trading company. We note that, to the extent brokerage and handling fees are incurred on sales to the United States, these expenses already have been accounted for by the brokerage and handling fee surrogate value which is deducted from the export price. RECOMMENDATION Based on our analysis of the comments received, we recommend adopting all of the above positions and adjusting all related margin calculations accordingly. If these recommendations are accepted, we will publish the final determination in the Federal Register. AGREE____ DISAGREE____ ________________________ Troy H. Cribb Acting Assistant Secretary for Import Administration ________________________ (Date)