65 FR 33805, May 25, 2000 A-570-853 Investigation Public Document MEMORANDUM May 17, 2000 TO: Troy H. Cribb Acting Assistant Secretary for Import Administration FROM: Richard W. Moreland Deputy Assistant Secretary, Group I Import Administration SUBJECT: Issues and Decision Memorandum for the Final Determination in the Antidumping Duty Investigation of Bulk Aspirin from the People's Republic of China ___________________________________________________________________ SUMMARY We have analyzed the comments in the case and rebuttal briefs submitted by interested parties in the antidumping duty investigation of Bulk Aspirin from the People's Republic of China ("PRC"). As a result of our analysis, we have made changes, including corrections of 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 from the parties: Comment 1: Valuation of Phenol Comment 2: Valuation of Caustic Soda Comment 3: Valuation of Carbon Dioxide Comment 4: Valuation of Overhead, Selling, General, Administrative Expenses and Profit Comment 5: Adjustments to Surrogate Ratios Comment 6: Valuation of Electricity Comment 7: Valuation of Water Comment 8: Valuation of Ocean Freight Comment 9: Returned Merchandise Comment 10: Separate Rates Comment 11: Shandong's Use of Technical-Grade Salicylic Acid Comment 12: Jilin's Raw Material Consumption Comment 13: Jilin's By-Product Offset Comment 14: Jilin's Inland Freight Costs for Materials Comment 15: Jilin's Multiple Shipments BACKGROUND On January 3, 2000, the Department of Commerce ("the Department") published the preliminary determination in this investigation. (1) We published a postponement of the final determination on January 20, 2000. (2) The merchandise covered by this investigation is bulk acetylsalicylic acid, commonly referred to as "bulk aspirin." Bulk aspirin may be imported in two forms: as pure ortho-acetylsalicylic acid, either in crystal form or granulated into a fine powder (pharmaceutical form); or as mixed ortho-acetylsalicylic acid, combined with other inactive substances such as starch, lactose, cellulose, or coloring materials and/or other active substances. The period of investigation ("POI") is October 1, 1998, through March 31, 1999. We invited parties to comment on our preliminary determination. At the request of certain interested parties, we held a public hearing on April 25, 2000. THE APPLICABLE STATUTE AND REGULATIONS Unless otherwise indicated, all citations to the statute are references to the provisions effective January 1, 1995, the effective date of the amendments made to the Tariff Act of 1930 ("the Act") by the Uruguay Round Agreements Act ("URAA"). In addition, unless otherwise indicated, all citations to the Department of Commerce's ("the Department's") regulations refer to the regulations codified at 19 CFR Part 351 (1998). DISCUSSION OF ISSUES Comment 1: Valuation of Phenol The petitioner argues that the Department undervalued phenol in the calculation of normal value by averaging data from two different sources: the Monthly Statistics of the Foreign Trade of India: Volume II -- Imports ("Indian Import Statistics") and Indian Chemical Weekly ("ICW"), an Indian publication. Citing Sebacic Acid From the People's Republic of China; Preliminary Results of Antidumping Duty Administrative Review, 63 FR 17367, 17369 (April 9, 1998) ("Sebacic Acid"), the petitioner contends that the Department's decision to average Indian import statistics and ICW data is unprecedented. According to the petitioner, phenol was a primary factor of production in Sebacic Acid and the Department's valuation of phenol was based solely on ICW data at the preliminary and final stages of that proceeding. (3) Therefore, the petitioner contends, Indian import statistics should not be used to value phenol and the Department should base its valuation of phenol solely on ICW data. The petitioner states that the Department's practice in determining the appropriate surrogate value data is directed by a hierarchy of requirements applied to the selection of publicly available information. According to the petitioner, the Department seeks to base surrogate values on data that provide an average, non-export value; are representative of a range of prices within the POI, or most contemporaneous with the POI; product specific; and tax- exclusive. The petitioner also argues that the Department has indicated a preference for domestic prices over import prices in Notice of Final Results of Antidumping Duty Administrative Review: Ferrovanadium and Nitride Vanadium from the Russian Federation, 62 FR 65656 (December 15, 1997). The petitioner contends that ICW data alone meet all of the Department's requirements and most accurately reflect the price of phenol in India during the POI. Conversely, the petitioner argues, Indian import statistics do not provide an accurate representation of phenol prices in India during the POI because they do not meet the Department's contemporaneity requirement. As noted by the petitioner, the Indian import statistics used in the Department's valuation of phenol cover a 12-month period ending in March 1998 whereas ICW domestic data include prices for each month of the POI. The petitioner contends that the volatility of phenol prices in India makes it more important to use contemporaneous data. The petitioner further argues that the Indian government's imposition of "safeguard duties" on imported phenol, and the resulting price increases in India, illustrate the volatility of phenol prices in India. Accordingly, the petitioner argues, the inclusion of Indian import statistics in the valuation of phenol distorts the actual market price during the POI. Furthermore, the petitioner asserts that the average price derived from the Indian Import Statistics (24 Rs/kg) is aberrational when compared to the 36-54 Rs/kg range of other phenol prices on the record (based on ICW domestic prices, ICW import data, and price quotes). Lastly, the petitioner argues that it would be inappropriate for the Department to include Indian Import Statistics in the valuation of phenol because information submitted by the petitioner and Jilin indicates that Indian producers of aspirin, salicylic acid and derivatives of salicylic acid use primarily domestic raw material inputs (citing Shakeproof Assembly Components Div. of Illinois Tool Works, Inc. v. United States, 59 F. Supp. 2d 1354 (CIT 1999)). Shandong supports the Department's surrogate value for phenol used in the preliminary determination. Concerning Sebacic Acid, Shandong notes that phenol is not a primary factor of production in sebacic acid whereas phenol is a major input used in the production of bulk aspirin. Therefore, Shandong argues that the surrogate value for phenol should be based on data that accurately reflects the price of phenol in India. With regard to the petitioner's interpretation of the Indian government's imposition of safeguard duties, Shandong argues that the duties indicate that imports of phenol were setting the market price during the POI and therefore, import statistics should be included in the surrogate value. Moreover, Shandong asserts that the safeguard duties were imposed because domestically produced phenol could not compete with imported phenol, not because phenol was being imported into India at unfair, or dumped, prices. Citing Nation Ford Chemical Co. v. United States, 166 F.3d 1373, 1377-78 (Fed. Cir. 1999), Shandong notes that, in that case, the Court of Appeals for the Federal Circuit ("CAFC") upheld the Department's decision to exclude domestic prices listed in ICW from surrogate value data because domestic prices were distorted by high tariffs. Similarly, Shandong argues, domestic prices of phenol in ICW do not accurately reflect the true market price as a result of the safeguard duties. Jilin argues that section 773(c)(1) of the Act does not require the Department to select surrogate value data based on a predetermined hierarchy of requirements but, rather, directs the Department to base surrogate values on the best available information. Accordingly, Jilin contends that the petitioner's assertion that the Department must follow a hierarchy of requirements is not supported by the Act. Moreover, Jilin contends that the Department appropriately exercised its discretion, as proscribed by section 773(c)(1) of the Act, and assigned surrogate values based on the best information available (e.g., an average of import and domestic prices of phenol). Jilin also argues that the CAFC in Nation Ford, ruled that the Department has broad discretion in selecting surrogate value data and, therefore, the Department is not required to use domestic prices based on the fact that the Chinese producers use domestically- produced inputs. Nation Ford, 166 F.3d at 1376 (citing Lasko Metal Prods, Inc. v. United States, 43 F.3d 1442, 1446 (Fed. Cir. 1994)). Jilin contends that the Department's use of domestic data from ICW in previous antidumping proceedings does not preclude the Department from basing surrogate values on an average of ICW data and data from other sources. Jilin notes that the Department has averaged domestic and import values in past investigations (see Brake Rotors From the People's Republic of China: Preliminary Results of New Shipper Review and Preliminary Results and Partial Rescission of First Antidumping Duty Administrative Review, 64 FR 24322 (May 6, 1999)) and that the Department has consistently selected surrogate value data on a case- by-case basis (see Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, From the People's Republic of China; Final Results of Antidumping Administrative Review, 62 FR 61276 (Nov. 17, 1997)). Jilin asserts that the volatility of phenol prices throughout India undermines the petitioner's argument in favor of only using domestic prices as a basis for the surrogate value. Citing Nation Ford, 143 F.3d at 1377, Jilin argues that the Department should find domestic ICW data unreliable based on its volatility and, therefore, the Department should exclude domestic ICW prices altogether in valuing phenol. Jilin notes that the Department's surrogate value for phenol used in the preliminary determination was 34.33 Rs/kg and not 24 Rs/kg, as the petitioner indicates. Accordingly, Jilin disputes the petitioner's claim that import prices reported in ICW were substantially higher than the Department's surrogate value and argues that the weighted average of ICW import data (32.67 Rs/kg) is lower than the Department's surrogate value of 34.33 Rs/kg. Jilin argues that the Department has consistently used Indian Import Statistics as a reliable source of surrogate value data and has regularly used inflators to adjust import values outside of the POI. See, e.g., Freshwater Crawfish Tail Meat from the People's Republic of China: Preliminary Results of New Shipper Review, 65 FR 13939 (March 15, 2000). Therefore, the petitioner argues, the Department does not have any basis on which to exclude Indian Import Statistics from the valuation of phenol. Regarding the imposition of the safeguard duties, Jilin contends that the petitioner does not establish how the safeguard duties compromise the reliability of the Indian Import Statistics. Moreover, Jilin notes that the Department's practice is to exclude duties and taxes from surrogate value data, thereby eliminating any distortions to the surrogate value as a result of safeguard duties (see Notice of Preliminary Determination of Sales at Less Than Fair Value: Disposable Pocket Lighters from the People's Republic of China, 59 FR 64191 (December 13, 1994)). Department's Position: We agree with the petitioner that the Indian Import Statistics used in the preliminary determination are a less preferable source of phenol prices because the data is less contemporaneous with the POI than the ICW data. Therefore, we have not used Indian Import Statistics for our valuation of phenol for the final determination, leaving two types of ICW values on the record - import price and domestic price - for our consideration. We disagree that the Department has an unconditional preference for domestic prices over import values in the surrogate country. As directed by the section 773(c)(1) of the Act, selection of surrogate values is a case-by-case decision that is based on our consideration of what represents the best available information. In Sulfanilic Acid from the People's Republic of China; Final Results of Antidumping Duty Administrative Review, 63 FR 63834 (Nov. 17, 1998) ("Sulfanilic Acid"), the Department was faced with selecting between domestic and import prices for aniline. In that case, the information on the record indicated that the Indian government imposed an 85 percent tariff on imports of aniline, which was subsequently waived when imported aniline was used to produce sulfanilic acid for export. Therefore, the Department determined that the import price represented a better surrogate value "because the Indian price for domestically-produced aniline is artificially inflated due to a protective tariff that bears no relationship to the situation governing the aniline respondents source domestically in the PRC." Id. at 63838; see also Nation Ford, 166 F.3d at 1378 (upholding the Department's decision on this issue in an earlier review of the same case). In considering the two ICW phenol prices (domestic and import) on the record, we have determined that a similar situation exists with respect to phenol prices in India, i.e., that a protective tariff also exists for phenol. According to the publication Easy Reference Customs Tariff 1998-1999, Academy of Business Studies, a tariff of 59.57 percent is imposed on imports of phenol in India, which would be waived through the duty drawback system. (4) Given this, we determine that the Indian domestic price for phenol reported in ICW is distorted by the tariff system. (5) Our finding is supported by the fact that, when we adjust the weight-averaged import phenol price (from ICW) of 29.81 Rs/kg by the tariff percentage, the resulting value, 46.51 Rs/kg, is virtually equal to the weight-averaged domestic phenol price from ICW - 46.50 Rs/kg. This comparison demonstrates that the magnitude of the distortion is almost exactly equal to the tariff percentage. Hence, the import price is not aberrational and, furthermore, is contemporaneous with the POI. Accordingly, for the final determination, we have used the Indian import value from ICW as the surrogate value for phenol. Finally, with respect to the imposition of the safeguard duty, we first note that the safeguard duties were imposed after the POI. As Shandong asserts, the safeguard action indicates that the domestic market for phenol in India was disrupted by imports which were fairly traded. Therefore, the safeguards action does not pose a reason to disregard import prices for phenol. Comment 2: Valuation of Caustic Soda The petitioner argues that Indian Import Statistics for aqueous caustic soda are not contemporaneous with the POI and, therefore, ICW data should be used to value caustic soda for the final determination. Noting that the Department may have overlooked the fact that ICW lists domestic prices for caustic soda under a different name - soda lye, the petitioner contends that the Department should use ICW data to value caustic soda because it is product-specific, contemporaneous with the POI and is the Department's preferred source. The petitioner asserts that the Department has consistently preferred ICW to value caustic soda solution. See, e.g., Sebacic Acid From the People's Republic of China; Preliminary Results of Antidumping Duty Administrative Review, 61 FR 46440 (Sept. 3, 1996). (6) Shandong and Jilin argue that the Department should continue to value caustic soda based on Indian Import Statistics. Shandong argues that in the preliminary determination, the Department determined that Indian Import Statistics are more product-specific than ICW data and therefore, are the preferred source. Jilin contends that the ICW data should not be used because it is not reliable. Jilin points out that ICW only listed five caustic soda prices during the POI, and in just one Indian city. Therefore, Jilin argues, the prices are too regional and too sporadic to represent the Indian market price of caustic soda during the POI. Citing 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 (December 14, 1999) ("Indigo") and Sulfanilic Acid, Jilin asserts that the Department has preferred Indian Import Statistics over ICW because of similar distortions characteristic of regional domestic prices. Furthermore, Jilin claims that the information concerning the equivalence between caustic soda and soda lye provided by the petitioner was factual information submitted after the deadline as provided in section 351.301(c)(3) of the Department's regulations. Therefore, Jilin argues, the Department should not consider this argument based on its untimely submission. Department's Position: We agree with the petitioner that ICW data represents a better source for valuing aqueous caustic soda than the Indian Import Statistics because the ICW data is contemporaneous with the POI. As the petitioner correctly notes, the Department, at the time of the preliminary determination, was not aware that soda lye was identical to aqueous caustic soda. Although the range of data provided in ICW is limited to five prices during the POI, Jilin provided no factual information to demonstrate that the ICW data are distortive, aberrational or otherwise not representative of the cost of caustic soda in India during the POI. Therefore, for the final determination, we have used the prices for soda lye provided in the ICW. With respect to Jilin's claim concerning the timeliness of the petitioner's argument, we find that the definition of soda lye provided by the petitioner does not constitute new "factual information" within the meaning of section 351.301(c)(3) of the Department's regulations. The information provided by the petitioner - definition of soda lye - only served to clarify the substantive information, i.e., prices of soda lye and caustic soda, that was already on the record. Comment 3: Valuation of Carbon Dioxide: The petitioner contends that the Department should not use U.S. export statistics to value liquid carbon dioxide because U.S. export statistics are not a preferred basis of factor valuation when domestic Indian prices or U.S. import data are available. According to the petitioner, U.S. export statistics are aberrational when compared to the benchmark of U.S. import statistics. The petitioner argues that U.S. export statistics do not reflect accurate unit values for carbon dioxide because the data includes both carbon dioxide and "dry ice," whereas U.S. import statistics provide quantities and values of each product separately. The petitioner contends that the Indian price quote of $0.35 per kilogram, which is identical to the U.S. import data benchmark, is the best information on which to base the surrogate value for the liquid carbon dioxide. Jilin and Shandong argue that the Department should continue to value carbon dioxide based on U.S. export statistics. Jilin contends that the Department properly exercised its discretion in determining that the U.S. export data represented the best available information on the record. Jilin asserts that the petitioner's price quote is the antithesis of publicly available information preferred by the Department and is the type consistently rejected by the Department in past cases such as Notice of Final Determinations 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). Jilin further argues that the petitioner's price quote should be rejected because it is self-serving and lacks relevant information (i.e., whether tax is included). Jilin asserts that the Department's preference for publicly available information is articulated in Final Determination of Sales at Less Than Fair Value: Certain Carbon Steel Butt-Weld Pipe Fittings From the People's Republic of China, 57 FR 21058, 21062 (May 18, 1992). Department's Position: We agree with the petitioner that the U.S. export value is not to be preferred when a suitable value from the selected surrogate country is available. See, e.g., Manganese Metal From the People's Republic of China; Final Results and Partial Rescission of Antidumping Duty Administrative Review, 63 FR 12440, 12444 (March 13, 1998) ("Manganese Metal (1998)"). In the preliminary determination, having determined that the Indian import statistics were aberrational, the only value available to the Department was the U.S. export value. The record now contains two Indian price quotes for carbon dioxide, one submitted by the petitioner and another submitted by Jilin. We find that there is no convincing evidence indicating that either one is unreliable or aberrational. First, because the price quotes were submitted by each party, the prices must be seen equal in terms of the potential for being self-serving. Second, both prices are within a reasonable range compared to the U.S. benchmark range of $0.05- $.0.39. (7) Therefore, for the final determination, we have used the average of the two prices as the surrogate value for liquid carbon dioxide. Comment 4: Valuation of Overhead, Selling, General, Administrative Expense and Profit The petitioner contends that the Department should base overhead, selling, general and administrative expense ("SG&A"), and profit upon the experience of an aspirin-producer comparable to the responding PRC producers. According to the petitioner, the use of industry- average data to value overhead, SG&A and profit for the preliminary determination was inconsistent with the Department's longstanding preference for producer-specific data, expressed in past cases including Pure Magnesium from the PRC: Final Results of Antidumping Duty New Shipper Administrative Review, 63 FR 3085, 3088 (January 21, 1998) and Notice of Final Determination of Sales at Less Than Fair Value: Creatine Monohydrate from the PRC, 64 FR 71104, 71108 (December 20, 1999). The petitioner argues that the industry-wide rates are aberrational when compared to the overhead, SG&A and profit rates of the world's major aspirin producers such as the petitioner and Bayer Corp. Similarly, when compared to the same standard, the petitioner claims that the rates based on financial data of three Indian companies on the record - Andhra Sugars Ltd. ("Andhra"), Alta Laboratories Ltd. ("Alta"), and Gujarat Organics Ltd. ("Gujarat") - are also aberrational. The petitioner argues that factory overhead rates based on industry- wide data or Indian company-specific data do not reflect the degree to which the respondents are integrated. The petitioner contends that fully-integrated aspirin producers, such as the respondents, that begin the production process upstream with phenol and acetic acid, necessarily incur additional factory overhead for the additional facilities involved in the upstream process. In contrast, according to the petitioner, a non-integrated producer incurs higher raw material costs but has less overhead. Therefore, the petitioner argues that the application of a single overhead rate does not account for the fully integrated processes of Jilin and Shandong. The petitioner submits that because Alta and Gujarat are producers of salicylic acid and derivatives - but not aspirin - the ratios based on Alta and Gujarat's data only can be used to represent the overhead costs incurred by Jilin and Shandong for salicylic acid production. Moreover, the petitioner contends that in Sigma Corp. v. United States, 117 F.3d 1401, 1410 (Fed. Cir. 1997), the CAFC held that the surrogate overhead rates must be based on surrogate companies that are "comparable" in scale or output to the producers under investigation. The petitioner further notes that, in remand proceedings pursuant to Sigma, the Department found overhead rates and the size of the castings foundry to be positively correlated. The petitioner claims that evidence suggests that the large-scale producers of aspirin have substantially greater factory overhead than smaller producers. Because the Indian companies on the record are much smaller in scale and capacity than the responding producers, the petitioner argues that using the Indian companies' data for surrogate rates will understate normal value. To fully capture the processing costs of an integrated aspirin producer, the petitioner argues that an overhead ratio must first be added at each upstream stage of production. In addition, the petitioner submits, overhead, SG&A, and profit ratios based on data from all four identified producers of aspirin or comparable merchandise - Andhra, Alta, Gujarat and Shrishma Fine Chemicals & Pharmaceuticals Ltd. ("Shrishma") - must be applied to the resulting cost of manufacturing for aspirin (including the overhead costs applied at the upstream stages). The petitioner contends that Shrishma, despite its lack of recent aspirin production, should be included because, like Alta and Gujarat, it at least produces salicylic acid. Also, the petitioner states that the designation of Shrishma as a "sick" company should not preclude its consideration because its books appear to be in accordance with Indian generally accepted accounting principles ("GAAP"), and the company was actually profitable before accounting for its interest expenses. The petitioner states that in Tapered Roller Bearings and Parts Thereof, Finished and Unfinished from the PRC; Final Results of 1996-1997 Antidumping Duty Administrative Review and New Shipper Review and Determination Not to Revoke in Part, 63 FR 63842 (November 17, 1998) ("TRBs 1996-1997"), the Department's rejection of a "sick" Indian company was primarily based on the fact that the company's statements were not in accordance with the Indian GAAP. Jilin and Shandong argue that the Department should continue to use industry-wide data or use data based on Alta, Andhra or Gujarat. Jilin contends that a comparison of Rhodia or Bayer's data with the Indian ratios is inappropriate because Rhodia and Bayer are not located in India, selected surrogate country. Jilin asserts that the petitioner's proposed adjustment would effectively double-count the overhead expenses incurred at the upstream stages. According to Jilin, the fact that Jilin's workshops are not located under a common roof is not relevant because there is no evidence on the record which demonstrates any difference between the operations of the Indian companies as compared to Jilin's operations. Jilin states that in Notice of Final Determination of Sales at Less Than Fair Value: Collated Roofing Nails from the PRC, 62 FR 51410 (October 1, 1997); and Notice of Final Determination of Sales at Less Than Fair Value: Polyvinyl Alcohol from China, 61 FR 14057, 14060 (March 29, 1996) ("PVA") (Comment 3), the Department rejected similar arguments regarding applying overhead expenses to multiple processing stages. Jilin asserts that the operations of Alta, Andhra and Gujarat are comparable in scale to Jilin. Moreover, Jilin states that the CAFC in Sigma merely noted (rather than establishing a requirement), that the record evidence did not support the Department's assertion that the surrogate company was comparable in scale. Jilin contends that, in this case, there is insufficient information on the record to reach a conclusion regarding the appropriate factory overhead rates for a large Indian aspirin producer. Jilin and Shandong argue that the Department should not use ratios based on Shrishma's data because Shrishma's financial statement indicates that it has been designated a "sick" company under the applicable Indian law, and that it has not produced aspirin in recent years. Shandong contends that, consistent with Department practice in cases such as PVA and Sulfanilic Acid, the Department should not apply overhead expenses to each upstream stage of production. First, Shandong states that its salicylic acid and acetic anhydride production are located in a single complex of buildings and not in separate facilities as claimed by the petitioner. Second, Shandong argues that because overhead is based on a percentage of all production costs, rather than a fixed number, the size of the Indian producers is irrelevant. Shandong also asserts that the petitioner has not established that Shandong is more vertically integrated than the Indian producers. Accordingly, Shandong states that there is no basis to assume that applying overhead once at the final stage of production understates overhead costs incurred by Shandong. Department's Position: Pursuant to section 351.408(c)(4) of the Department's regulations, the Department prefers, where information is available, to derive the overhead, SG&A and profit values from producers of merchandise that is identical or comparable to the subject merchandise. Contrary to the petitioner's assertion, our preference is based on the comparability of the merchandise, rather than the number of producers included in the surrogate data source. See Creatine, 64 FR at 71108 ("[W]e prefer producer- or industry-specific data for overhead, SG&A and profit." (emphasis supplied)). Because we seek information that pertains as narrowly as possible to the subject merchandise, the Department, in most cases, has used the producer-specific data since the industry-specific data available to the Department tends to be more broad in terms of merchandise included. This, however, does not mean that we would always prefer the producer-specific data, if we were presented with industry and producer data that were equally specific in terms of the merchandise produced. Regarding the petitioner's arguments about capacity, we do not believe that size or capacity of the surrogate producer always poses a necessary consideration. In this case, unlike Sigma, we have no evidence demonstrating that overhead rates vary directly with the scale or capacity of Indian aspirin (or other chemical) producers. The petitioner links its argument with the petitioner's own and Bayer's data. However, such a comparison is inappropriate because, as Jilin argues, neither Rhodia nor Bayer is from a country that is economically comparable to the PRC. As Jilin points out, the Department's finding that size and overhead were related in Sigma was based on factual information gathered from a number of Pakistani foundries of various size and, therefore, was particular to the specific industry at issue. On the other hand, we agree with the petitioner that degree of integration is a relevant factor that can affect overhead rates. A fully integrated producer will have an overhead to raw material input ratio that is higher than the same ratio for a non-integrated producer, other things being equal. We also agree that there is no evidence that the industry-average ratios used at the preliminary determination reflect the overhead expense incurred by fully integrated producers like the respondents. After considering all available information on the record, we determine that none of the Indian producers reflect the degree of integration represented by the respondents in this investigation. First, Alta and Gujarat are producers of salicylic acid and derivatives, an input into aspirin. Second, while Andhra produces aspirin, we note that aspirin only accounted for a small percentage of that company's total sales - 3.57 percent. See petition, exhibit 15, pages 41-42. Other bulk chemicals, such as acetic acid, acetic anhydride and caustic soda (many of which are inputs for aspirin production), constitute over half of Andhra's sales. Therefore, we conclude that overhead ratios of Alta, Gujarat and Andhra are more representative of the overhead expense incurred by the upstream input producers. Consequently, a single application of the overhead ratio based on these producers' data results in understating the overhead expense because the ratio does not reflect the expense incurred to produce two major inputs into aspirin and the final aspirin product itself. Therefore, for the final determination, to capture the additional overhead expense incurred by integrated producers of aspirin, we have applied an overhead ratio, based on the average of the three input producers (Alta, Gujarat, and Andhra), to each upstream stage of the production (salicylic acid and acetic anhydride) and again to the aspirin processing stage of the production. To minimize any double- counting of overhead expenses, we have excluded the overhead expense attributable to the upstream stages of the production in calculating the final stage overhead expense. We have not used the financial data for Shrishma in this calculation because Shrishma is a "sick" company as defined by India's Sick Industrial Companies Act. See, e.g., Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, From the People's Republic of China; Final Results of 1997-1998 Antidumping Duty Administrative Review and Final Results of New Shipper Review, 64 FR 61837, 61842 (Nov. 15, 1999) ("TRBs 1997- 1998") (excluding a "sick" company in the surrogate calculation). Comment 5: Adjustments to Surrogate Ratios In calculating the surrogate ratios for overhead, SG&A and profit, the petitioner argues that to the extent that expense items such as packing costs and excise taxes are eliminated in calculating surrogate costs, those items should not be included in the calculation of the profit rate. Additionally, referring to the financial statements of Alta and Gujarat, the petitioner argues that the Department should not make any adjustments for items such as "octroi" duty, "miscellaneous" expenses, "hire" charges and "financial adjustment offset," because there is no evidence showing that these items should be excluded pursuant to the Department's methodology. Jilin counters that the petitioner's arguments are unsupported. Jilin first states that under the Department's methodology, it is correct to exclude items such as packing costs and excise taxes when calculating the surrogate overhead and SG&A rates, and also the surrogate profit rate. Citing TRBs 1996-1997, 63 FR at 63851, Jilin also argues that the Department should exclude "octroi" duty, which is defined as a tax on materials according to various dictionaries, when calculating the surrogate overhead ratio. Regarding Gujarat's "miscellaneous expenses," Jilin contends that the Department should exclude this item from SG&A ratio because it appears to include packing expenses (citing Notice of Preliminary Determinations of Sales at Less Than Fair Value and Postponement of Final Determinations: Brake Drums and Brake Rotors From the People's Republic of China, 61 FR 53190 (Oct. 10, 1996)). Finally, Jilin argues that the Department has found it appropriate to offset financial expenses by short-term interest income even where the financial statement did not specify a breakdown of non-operating income (citing Notice of Final Determinations of Sales at Less Than Fair Value: Brake Drums and Brake Rotors From the People's Republic of China, 62 FR 9160, 9168 (Feb. 28, 1997)). Department's Position: Consistent with the Department's normal methodology, we have calculated the surrogate ratios for overhead, SG&A and profit as follows. First, where they were clearly identified, we did not include certain costs, such as freight and packing, because they were separately valued elsewhere in the calculation of normal value. See, e.g., TRBs 1996-1997, 63 FR at 63852. On the other hand, we have not removed packing where packing was included as part of a larger category, i.e., Andhra's "spares and stores" expense, because it is not possible to identify a proper basis for an adjustment. See Id. For the same reasons, we have included Gujarat's "miscellaneous expenses" and "hire" charges in the calculation because there is no evidence that such catch-all categories include costs that have been valued elsewhere. See Id. Second, we have excluded excise taxes, where identifiable, because we have found in previous cases that excise taxes were refundable to the producer by the Indian government upon export from India. See, e.g., Final Determination of Sales at Less Than Fair Value: Certain Cut-to-Length Carbon Steel Plate From the People's Republic of China, 62 FR 61964, 61972 (Nov. 20, 1997) ("Plate"). Similarly, we have also excluded "octroi" duty, which is defined as an indirect tax imposed on transport of materials or merchandise upon their entry into a locality. See Certain Iron Metal Castings from the India, Preliminary Results of Countervailing Duty Administrative Review, 55 FR 46699, 46709 (Nov. 6, 1990) (finding that indirect taxes are refunded upon export). However, we have not excluded "rates and taxes," because there is no indication such expenses are refunded upon exportation and because they represent the type of expenses that Indian producers incur in the normal course of business. See Plate at 61972. Third, we have not made any offsets to interest expenses because it is not clear from the financial statements that the interest income or other income was short-term in nature. See, e.g., Plate at 61970 ("The Department will offset interest expense by short-term interest income only where it is clear from the financial statements that the interest income was indeed short-term in nature."). Comment 6: Valuation of Electricity The petitioner contends that surrogate values for energy costs should be based on the experience of individual producers rather than published prices or averages. According to the petitioner, if the surrogate values for overhead, SG&A, and profit are based on company- specific data, then company's (or companies') energy costs should also serve as the basis for surrogate energy costs, where available. The petitioner argues that the use of company-specific data to value energy costs provides the most reasonable and consistent factor valuations. Citing Indigo at 69728, the petitioner also contends that basing energy costs on company-specific data is consistent with Department precedent. The petitioner asserts that the annual reports of three Indian companies, Andhra, Alta and Gujarat, all of which have been proposed as sources of surrogate value data for overhead, SG&A and profit ratios, contain electricity rates paid by those companies which can be used to value electricity. Furthermore, the petitioner contends that an average of the electricity rates reported in Alta and Gujarat's fiscal year 1999 financial statements should be used to value electricity because they are within the POI and are more contemporaneous than the 1995 rate used for the preliminary determination. The petitioner also contends that the electricity rates from Andhra should be excluded because they are from a 1998 annual report and would have to be inflated to 1999. Jilin asserts that the petitioner's request to value electricity on information provided in the annual reports of Alta and Gujarat is contrary to the Department's established practice. Citing a number of recent cases such as Persulfates From the People's Republic of China: Preliminary Results of Antidumping Duty Administrative Review, and Partial Rescission of Administrative Review, 65 FR 18693 (April 10, 2000) and Freshwater Crawfish Tail Meat From the People's Republic of China: Preliminary Results of New Shipper Review, 65 FR 13939 (March 15, 2000), Jilin notes that the Department has consistently valued electricity based on country-wide rates. Moreover, Jilin notes that the Department has also rejected regional electricity rates in favor of national rates because regional rates are subject to local market conditions, industry-specific conditions and various other region-specific influences (see TRBs 1996-1997 (comment 25)). Jilin asserts that the Department prefers national rates unless specific evidence on the record indicates that regional rates are more suitable. Therefore, Jilin urges the Department to continue to value electricity based on the 1998 International Energy Agency's "Energy Prices and Taxes, Quarterly Statistics." Department's Position: We disagree with the petitioner that surrogate values for electricity costs should be based on company-specific data of the Indian producers on the record. In valuing inputs such as raw materials, the Department prefers publicly available statistical averages rather than company-specific data. In the past, the Department has considered the petitioner's argument and has declined to adopt it. The preamble to the Department's regulations discusses the Department's reasoning: [W]e question the accuracy of [a producer-specific valuation] approach as it applies to individual input prices. When compared to a publicly available price that reflects numerous transactions between many buyers and sellers, a single input price reported by a surrogate producer may be less representative of the cost of that input in the surrogate country. For these reasons, we have continued the general schema . . . of relying on publicly available data (which will not normally be producer-specific) for material inputs, while relying on producer- or industry-specific data for manufacturing overhead, general expense, and profit. 62 FR 27296, 27366 (May 19, 1997). In the preliminary determination, we used the International Energy Agency ("IEA") average industrial rate from 1995 and applied an inflator, because those were the most contemporaneous Indian rates available at that time. For the final determination, we are using the IEA average industrial rate from the fourth quarter of 1997, which is more contemporaneous with the POI. Moreover, we inflated the IEA rates to the POI using the electricity sector-specific price index published by the Reserve Bank of India ("RBI"). "Because this index is narrower than the WPI, it is a more accurate measure of the price adjustments experienced by Indian producers using electricity." Manganese Metal From the People's Republic of China; Final Results of Antidumping Duty Administrative Review, 65 FR 30067 (May 10, 2000) and accompanying Decision Memorandum at Comment 5. In Indigo, the Indian financial statement data used to derive the average rupees/kilowatt hour represented the only contemporaneous electricity values on the record. In this case, by using the updated IEA rates which lag the POI by less than one year, and by applying the sector-specific index, we have largely eliminated the concerns regarding accuracy associated with using outdated data. Furthermore, in past cases, the Department has rejected the arguments for using regional-specific rates unless it has been shown that a company can be located only in a specific region. See, e.g., TRBs 1996-1997, 63 FR at 63856-67; Manganese Metal (1998), 63 FR at 12446; PVA, 61 FR at 14062. In these cases, we observed that electricity rates in India were subject to a number of location- specific influences such as production level, methods of generation and transmission, overall demand, local market conditions, state intervention, and privatization. Id. As such, in the absence of information on the record to weigh the above factors in relation to the PRC producers of the subject merchandise, the Department based the surrogate value on the national-average rates. Id. In this case, there is no evidence indicating that the Indian producers' experiences regarding electricity costs as reported on the record are representative of the aspirin industry in India. In fact, the petitioner has pointed out above that the production capacities of the Indian producers are not comparable to the respondents, further supporting our conclusion that the producer-specific electricity rates are inappropriate as surrogate values. Comment 7: Valuation of Water Shandong argues that the Department should not separately value water. Shandong states that the Department's practice in numerous past cases such as PVA, Sebacic Acid, and Notice of Final Determination of Sales at Less Than Fair Value: Saccharin from the People's Republic of China, 59 FR 58818, 58823 (November 15, 1994) ("Saccharin"), has been to exclude water from direct costs because, in India, water is considered as an overhead expense. Department's Position: We disagree with Shandong and have continued to value water as a separate input in the calculation of normal value. According to the Department's practice, water is valued separately from overhead expense if water is required for a particular segment such that it is more typical of items that are accounted for as direct material inputs, rather than as overhead items. See, e.g., Certain Helical Spring Lock Washers From the People's Republic of China; Final Results of Antidumping Duty Administrative Review, 62 FR 61794 (Nov. 19, 1997) (citing Saccharin). Additionally, the Department values water separately in situations where the record shows that the cost of water was not included in the expenses used to compute surrogate factory overhead. See, e.g., Notice of Final Determination of Sales at Less Than Fair Value: Persulfates from the People's Republic of China, 62 FR 27222, 27234 (May 19, 1997). In this case, we find that the respondents' use of water is required for various segments of the aspirin production process. Because water is a required input, we have continued to value water as a separate factor. Furthermore, to avoid double-counting, we have excluded water charges, where identifiable, from the calculation of the surrogate overhead ratio. Comment 8: Valuation of Ocean Freight Jilin argues that because Jilin shipped its merchandise by market economy carriers and paid for it in market economy currencies, the Department should base Jilin's international freight cost on the freight actually paid and reported by Jilin, despite the fact that the shipments involved a Chinese freight forwarder. According to Jilin, this would be consistent with the Department's longstanding practice in cases such as Brake Rotors. Jilin contends that a change in this practice would deny Jilin the opportunity to provide the Department with relevant surrogate data. In the alternative, Jilin suggests that the Department should use Shandong's market economy ocean freight cost as a reasonable surrogate for Jilin's costs. Jilin claims that the Department has used such valuation methodology in Notice of Final Determination of Sales at Less Than Fair Value: Bicycles From the People's Republic of China, 61 FR 19026, 19029 (April 30, 1996) ("Bicycles"). The petitioner asserts that, pursuant to the Department's recent decision in Notice of Final Determination of Sales at Less Than Fair Value: Certain Non-Frozen Apple Juice Concentrate from the People's Republic of China, 65 FR 19873 (April 13, 2000) ("Apple Juice"), the Department should use a surrogate value for ocean freight because the purchase of freight services took place between the Chinese freight forwarder and the market-economy carrier, instead of Jilin and carrier. For the appropriate surrogate value, the petitioner argues, the Department should use the surrogate value selected for the preliminary determination, which was derived from two rates quoted by Maersk Inc. Use of this rate, according to the petitioner, is consistent with past Department practice. Department's Position: We disagree with Jilin that the ocean freight expenses it was charged by a PRC freight forwarder constitute market economy transactions. In Apple Juice, the Department declined to accept the respondent's actual freight costs where there was no evidence demonstrating market economy transactions occurred between the respondents and the market economy shipping line used by the freight forwarders. See Apple Juice and accompanying Decision Memorandum at Comment 3. Similarly, in this case, because the freight forwarder invoices provided by the respondents only evidence the amount charged by the market economy carrier to the freight forwarder, we lack the information to calculate the actual market economy freight incurred by Jilin. As the surrogate value, we have used the Maersk rate that was selected for the preliminary determination (although not applied) which is the only surrogate value for ocean freight on the record. We note that, in Bicycles, the Department used the average actual market- economy price reported by other respondents only where a value from the selected surrogate countries was not available. See Bicycles, 61 FR at 19030. Comment 9: Returned Merchandise The petitioner argues that the total production volume should be reduced for both respondents to account for the volume of returns. The petitioner alleges that, because certain record evidence indicates that some returned merchandise was entered into the production process for re-crystallization, the Department should infer that all returned aspirin is re-crystallized. Accordingly, the petitioner argues that the Department should reduce the total production volume by the volume of returned aspirin for purposes of calculating factor usage rates. The petitioner contends that this is consistent with the Department's practice in the Final Determination of Sales of Less Than Fair Value: Certain Fresh Cut Flowers from Colombia, 52 FR 6842, 6844 (March 5, 1987), in which "culls" (non- export grade flowers) were treated as by-products and not included in the total production volume for purposes of calculating average unit costs. Alternately, if total production is not reduced, the petitioner states that, at least with respect to Jilin, the cost of returns - including the sales value, freight and selling expenses - should be added as Jilin's indirect selling expense. Jilin first states that the amount of aspirin returned during the POI, as evidenced by the verification report, was only a small fraction of the volume claimed by the petitioner. Jilin argues that because the shipment was returned to Jilin USA (Jilin's affiliated U.S. importer), rather than Jilin, and was resold from Jilin USA's inventory, Jilin's total production volume need not be adjusted for the returned merchandise. Moreover, Jilin states that any expenses incurred due to the return and the resale of the shipment have already been captured as part of Jilin USA's indirect selling expenses. Shandong contends that because re-crystallization takes place at the end of the production process, after the salicylic acid and acetic anhydride have already been added, reducing the total production volume by the volume of returns would significantly distort the factors of production by raising the input factors used to produce every unit of aspirin. Department's Position: We disagree with the petitioner that the total production volume should be reduced by the volume of returned merchandise. First, with respect to Jilin, evidence does not indicate that any returned merchandise was ever returned to the production process. Rather, as Jilin claims, the particular shipment was returned to Jilin USA's inventory (located in an U.S. warehouse) for resale. Moreover, because we based Jilin USA's indirect selling expense on total selling expenses incurred by Jilin USA as shown on its tax return, we agree with Jilin that any expense incurred in the return and resale of the merchandise already has been captured in Jilin USA's indirect selling expenses. With respect to Shandong, information collected during verification shows that the rejected merchandise was not returned to Shandong until after the POI. See Shandong Verification Exhibits S-13 and S-14. Therefore, even if the merchandise was returned to the production process for re-crystallization, the effect on the total production volume would not be realized until after the POI. Comment 10: Separate Rates The petitioner resubmits its argument (submitted previously on December 1, 1999) that neither Jilin nor Shandong is sufficiently independent from government control to justify the calculation of a separate rate. Jilin and Shandong counter that they are entitled to separate rates because they have demonstrated, and the Department has verified, the absence of government control over their export activities. Department's Position: We have continued to calculate individual company-specific rates for both Jilin and Shandong. For the preliminary determination, we considered these very arguments presented by the petitioner and determined that they do not direct us to reject the respondents' separate rates claims. (8) At verification, we found no discrepancies with respect to information regarding separate rates and the petitioner has presented no new evidence to warrant a reconsideration of our determination. Comment 11: Shandong's Use of Purchased Salicylic Acid The petitioner contends that the Department must include self- produced and purchased salicylic acid in the calculation of Shandong's normal value. According to the petitioner, the fact that Shandong can trace self-produced salicylic acid consumption solely to the production of subject merchandise intended for export does not permit the exclusion of purchased salicylic acid from the normal value calculation. The petitioner asserts that the purchased salicylic acid was purchased by Shandong to meet its total salicylic acid requirements during the POI. Furthermore, the petitioner asserts that the Department specifically requests NME respondents to report weighted-average raw material costs so as to prevent respondents from assigning their lowest-cost production plant to serve as the sole basis for normal value (see Certain Cold-Rolled Flat-Rolled Carbon Quality Steel from the PRC: Preliminary Determination of Antidumping Duty Investigation, 65 FR 1123 (January 7, 2000) ("Cold-Rolled Steel")). Similarly, the petitioner contends, the Department cannot assign Shandong's lowest-cost production method (i.e., producing bulk aspirin with self-produced salicylic acid versus purchased salicylic acid) exclusively to export production. Therefore, the petitioner concludes, both self-produced and purchased salicylic acid must be included in the normal value calculation. The petitioner argues that if the grade and quality of bulk aspirin produced for export and the domestic market are equal, then there is no compelling reason to distinguish self-produced salicylic acid from purchased salicylic acid. Furthermore, the petitioner contends that if the quality and grade of the two types of salicylic acid are distinct, then domestic-quality bulk aspirin should not receive an equal share of the total factors of production. The petitioner also contends that the Department should base the surrogate value for purchased salicylic acid on domestic price quotes rather than the export price quote used in the preliminary determination. Shandong contends that the Department should not include purchased salicylic acid in the calculation of normal value because purchased salicylic acid is not used to produce export-quality bulk aspirin (a fact verified by the Department). Furthermore, Shandong argues that export-quality bulk aspirin (which is made with self-produced salicylic acid) is subject merchandise, whereas bulk aspirin produced for the Chinese domestic market (which is made with purchased salicylic acid) is not of comparable quality and cannot be considered subject merchandise. Shandong argues that bulk aspirin produced for the domestic market is of a much lower quality than export-quality bulk aspirin, specifically because of the lower quality inputs (purchased salicylic acid) used in the production process. Referring to section 771(25) of the Act, Shandong notes that subject merchandise is defined as "the class or kind of merchandise that is within the scope of an investigation." Accordingly, Shandong asserts that bulk aspirin produced for the Chinese domestic market is not subject merchandise. Shandong asserts that section 773(c)(1) of the Act requires the Department to determine the normal value of subject merchandise based on the values of the factors of production used only in the production of subject merchandise (i.e., export-quality bulk aspirin). Furthermore, Shandong argues that the Conference Report regarding the Omnibus Trade and Competitiveness Act of 1988 clearly illustrates the intent of Congress to specifically identify the basis upon which to value normal value as "the factors of production utilized in producing the merchandise subject to investigation." (9) Shandong argues that section 773(e) of the Act further supports the emphasis placed on calculating normal value using the factors of production of export-quality bulk aspirin (i.e., "the imported merchandise"). Shandong cites Ad Hoc Committee of Florida Producers of Cement v. United States, 20 I.T.R.D. 2004 (CIT 1998), where the Department's decision to base constructed value solely on the cost-of- manufacturing of export merchandise was upheld under pre-URAA regulations. Moreover, Shandong contends that the amendments to section 773(e)(1) of the Act dictated by the URAA eliminate the ambiguity surrounding the basis of constructed value and further support the argument that constructed value (or in this proceeding, normal value) should be based on the cost (the factors of production) of merchandise exported to the United States. Shandong argues that the Department has adopted this interpretation of section 773(e) of the Act and has established precedents (see, e.g,, Stainless Steel Butt-Weld Pipe Fittings from Taiwan: Preliminary Results of Antidumping Duty Administrative Review, 643 FR 30710, 30713 (June 5, 1998) (no change at final)). Shandong also argues that all of the Indian surrogate values for purchased salicylic acid on the record are aberrational. Citing Nation Ford, 166 F.3d at 1377, Shandong argues that the Indian surrogate values on the record are not the best available information and do not accurately reflect the price of low-quality, technical- grade salicylic acid (i.e., purchased salicylic acid) in India. Accordingly, Shandong asserts that, if the Department includes purchased salicylic acid in the calculation of normal value, the appropriate surrogate value should be the normal value of Shandong's self-produced salicylic acid. Department's Position: We agree with Shandong that purchased salicylic acid should be excluded from the calculation of the normal value of bulk aspirin. During verification, we confirmed that purchased salicylic acid is not consumed in the production of bulk aspirin that is sold in the United States. Moreover, as outlined below, we find that bulk aspirin produced for the Chinese domestic market (i.e., domestic-quality aspirin) is distinct, in quality and composition, from subject merchandise. Therefore, we find that the factors of production consumed exclusively for the production of domestic-quality aspirin are inapplicable to the production of subject merchandise. Shandong's domestic-quality aspirin is not within the scope of this investigation because it does not meet the quality standards, as established by the United States Pharmacopoeia ("USP"), characteristic of the subject merchandise that was defined at the preliminary stage of this investigation. See Preliminary Determination at 117. Conversely, export-quality aspirin does meet USP standards which qualify the product as subject merchandise. We also agree with Shandong's assertion that section 773(c)(1)(B) of the Act requires the Department to base normal value solely on the factors of production of the subject merchandise, as defined in section 771(25) of the Act. Therefore, we find that the exclusion of purchased salicylic acid from normal value is supported by the Act. We disagree with the petitioner that we have allowed Shandong to report information only on its lowest-cost production plant. The petitioner bases this argument on Cold-Rolled Steel, wherein the Department stated that "the Department normally considers all production facilities of the respondent company that are involved in the production of subject merchandise." Id. at 1123. In the present case, the Department has received and verified all production information requested of Shandong. Furthermore, the Department examined all of Shandong's production facilities and found that Shandong uses one production process and one production facility to produce two distinct products, domestic- and export-quality aspirin. We also found that the distinction between the two types of aspirin is a result of quality differences in one material input used in the production process, salicylic acid. Because there is only one production process, we find the petitioner's suggestion that the Department has permitted Shandong to assign the low-cost production process to serve as the basis for normal value to be incorrect. In addition, we find that the most accurate calculation of normal value is based on the value of each material input actually consumed in the production of the subject merchandise. To include a value for purchased salicylic acid would not accurately reflect the normal value of subject merchandise produced by Shandong. With regard to the petitioner's argument that domestic quality aspirin should not receive an equal share of the total factors of production, we also disagree. During verification, the Department examined production information to ensure that the consumption rate of each material input used in the production of export quality aspirin was reported correctly. (10) Because purchased salicylic acid is not included in the final calculation of normal value, we find that the petitioner and Shandong's arguments concerning the surrogate value for purchased salicylic acid are irrelevant. Comment 12: Jilin's Raw Material Consumption The petitioner alleges that business proprietary information from verification shows a discrepancy between reported raw material factors and the actual consumption rates for salicylic acid and acetic anhydride. The petitioner claims that prior to verification, Jilin refused to provide the information necessary to calculate an accurate consumption rate, and as such, the Department should apply an adverse inference in calculating the factor usage amounts for the final determination. Jilin disputes that there is a discrepancy in the consumption amounts associated with salicylic acid and acetic anhydride. Jilin asserts that evidence clearly shows that any difference in the consumption amounts in the intermediate stages of aspirin production represents work-in-process or inventory. Department's Position: We disagree with the petitioner that there is a difference between the reported factors and the actual consumption amounts. At verification, we confirmed that the actual consumption amounts for salicylic acid and acetic anhydride were accurately reported. We also do not find that Jilin's questionnaire responses regarding the consumption rates were inaccurate. Accordingly, we determine that there is no basis to apply an adverse inference to Jilin's factor usage amounts. For a detailed discussion of this comment and analysis of business proprietary information cited to support the arguments, see Jilin Calculation Memorandum (proprietary version) dated May 17, 2000. Comment 13: Jilin's By-Product Offset The petitioner argues that Jilin should only be allowed a by-product offset for the amount of recovered acetic acid that is actually sold. Jilin contends that the Department should grant an offset for the total amount of acetic acid that is recovered (not sold) during the POI. Jilin asserts that the Department's longstanding practice is to allow an offset for the full amount of by-product produced. See Notice of Preliminary Results of Antidumping Duty Administrative Review and New Shipper Reviews: Freshwater Crawfish Tail Meat From the People's Republic of China, 64 FR 55236 (October 12, 1999) ("Crawfish"). Jilin also notes that the questionnaire requests that respondents report the amount of by-product produced, rather than sold. Department's Position: We agree with the petitioner that Jilin should be allowed an offset only for the amount of the recovered acetic acid actually sold. The Department's normal practice with respect to by-product sales is to offset the sales revenue of the by-product, rather than the entire production amount. See, e.g., Notice of Final Determination of Sales at Less Than Fair Value: Sebacic Acid From the People's Republic of China, 59 FR 28053, 28056 (May 31, 1994); see also Sebacic Acid From the People's Republic of China: Preliminary Results of Antidumping Duty Administrative Review, 65 FR 18968, 18973 (April 10, 2000). The fact that the Department's questionnaire only requests that the volume of by-product produced is irrelevant because the Department's practice has been consistent in its treatment of by-products and Jilin has not been penalized for not reporting the sold amount. We also note that, contrary to Jilin's contentions, the Department in Crawfish, allowed the offset for the sales revenue of the by-product. See Freshwater Crawfish Tail Meat From the People's Republic of China: Final Results of Administrative Antidumping Duty and New Shipper Reviews, and Final Rescission of New Shipper Review, 65 FR 20948 (April 19, 2000) and accompanying Decision Memorandum at Comment 22 ("[W]e continue to conclude that the by-product is a result of the production process, and that through the sale of [the by-product] an economic benefit has accrued to respondents."). Comment 14: Jilin's Inland Freight Costs for Materials The petitioner argues that in calculating Jilin's inland freight costs for materials inputs, the Department should include the costs incurred for transporting the finished acetic anhydride back to Jilin, in addition to the costs incurred for delivering acetic acid to Jilin's acetic anhydride workshop. Jilin contends that because both acetic acid and acetic anhydride were transported by Jilin's own vehicles, the delivery costs are already accounted for in the company's overhead and SG&A. As such, Jilin argues that no inland freight costs should be calculated for acetic acid and acetic anhydride. Department's Position: We agree with the petitioner that Jilin's inland freight costs should include costs incurred in transporting both acetic acid and acetic anhydride. While Jilin is correct that expenses incurred in operating company vehicles may be treated as an overhead (or SG&A) item, there is no evidence that the overhead expense of the surrogate Indian companies includes costs incurred transporting materials to facilities located a significant distance away from another facility. Comment 15: Jilin's Multiple Shipments For one of Jilin's sales that was made in two shipments - an initial delivery of samples (during the POI) followed by the delivery of the balance (after the POI), Jilin argues that if the Department decides to include the first part of the sale in the U.S. sales listing, the selling expense related to the first shipment should be allocated over the total quantity of both shipments. The petitioner counters that whether the first shipment was a sample or related to the second shipment is irrelevant. The petitioner states that because the amount of selling expenses is directly related to the volume shipped, the full amount of the selling expense incurred in connection with the first shipment is properly allocated to that shipment. The petitioner contends that sample sales are excluded from the U.S. sales listing only where there was no payment for the shipment. Department's Position: We disagree with Jilin. While the Department will normally rely on the invoice date as the date of sale, the Department has determined in previous cases that the date of sale cannot occur after the date of shipment. See, e.g., Synthetic Indigo From the People's Republic of China; Notice of Final Determination of Sales at Less Than Fair Value, 65 FR 25706 (May 3, 2000) and accompanying Decision Memorandum at Comment 11; Final Results of Antidumping Administrative Review: Stainless Steel Bar From Japan, 65 FR 13717 (March 14, 2000) and accompanying Decision Memorandum at Comment 1. In those situations, where the invoice date is subsequent to the shipment date, we have relied on the shipment date as the date of sale. Accordingly, for the final determination, we have included the first shipment of the transaction at issue in Jilin's U.S. sales listing because the shipment was made during the POI. We did not consider the sale as a "sample" sale because Jilin received full payment for the sale. With respect to the selling expense, the Department's practice is to calculate expenses on as specific a basis as possible. Section 351.401(g)(1) of the Department's regulations provides that the Department may consider allocated expenses "when transaction-specific reporting is not feasible." Here, the selling expense at issue was incurred in connection with the specific shipment, and can be reported on a transaction-specific basis. Therefore, we have deducted the full amount of the selling expense related to the first shipment from the sales price of that shipment. 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) _________________________________________________________________ footnotes: 1. Notice of Preliminary Determination of Sales at Less Than Fair Value: Bulk Aspirin from the People's Republic of China, 65 FR 116 (January 3, 2000) ("Preliminary Determination"). 2. Notice of Postponement of Final Antidumping Determination and Extension of Provisional Measures: Bulk Aspirin From the People's Republic of China, 65 FR 3204 (January 20, 2000). 3. Sebacic Acid From the People's Republic of China; Final Results of Antidumping Duty Administrative Review, 63 FR 43373 (Aug. 13, 1998) (no change from the preliminary results). 4. The duty drawback scheme is established in India through its "Advance License Program." See Certain Iron-Metal Castings from India: Final Results of Countervailing Duty Administrative Review, 62 FR 32297, 32306 (June 13, 1997). 5. The situation in this case can be distinguished from that in the most recent review of Sulfanilic Acid from the PRC, 65 FR 13366 (March 13, 2000), where the Department determined that the import tariff on aniline, which had fallen to 30 percent, no longer distorted the domestic price for that input in India. 6. Sebacic Acid from the People's Republic of China; Final Results of Antidumping Duty Administrative Review, 62 FR 10530 (March 7, 1997) (no change from the preliminary results). 7. See Factor Valuation Memorandum for the Preliminary Determination. 8. Preliminary Determination, 65 FR at 118. 9. Conference Report, Omnibus Trade and Competitiveness Act of 1988 10. See Shandong Verification Report.