66 FR 39487, July 31, 2001 A-570-862 Investigation Public Document DAS III / 9 / DC MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Joseph A. Spetrini Deputy Assistant Secretary AD/CVD Enforcement Group III SUBJECT: Issues and Decision Memorandum for the Less Than Fair Value Investigation of Foundry Coke from the People's Republic of China: January 1, 2000 through June 30, 2000 ------------------------------------------------------------------------- SUMMARY: We have analyzed the briefs and rebuttals of interested parties in the less than fair value ("LTFV") investigation of Foundry Coke from the People's Republic of China. As a result of our analysis, we have made changes from the Notice of Preliminary Determination of Sales at Not Less Than Fair Value: Foundry Coke from the People's Republic of China, 66 FR 13885 (March 8, 2001) ("Preliminary Determination"). The specific calculation changes can be found in our Analysis Memorandum for CITIC Trading Company, Shanxi Dajin International (Group) Company, Minmetals Townlord Technology Co., Ltd., and Sinochem International Company, Ltd. Final Determination in the Less Than Fair Value Investigation of Foundry Coke from the People's Republic of China (July 23, 2001) ("Final Analysis Memo"). We recommend that you approve the positions we have developed in the "Discussion of the Issues" section of this Issues and Decision Memorandum. Below is the complete list of the issues in this investigation: I. Changes from the Preliminary Determination II. General Issues Comment 1: Valuation and Surrogate Country Selection Comment 2: Washed Versus Unwashed Coal Comment 3: Related Coal Mines Comment 4: Costs Subsequent to Shipment Comment 5: Surrogate for Rail Transportation Costs Comment 6: Surrogate for Grass Paper Comment 7: Use of Adverse Facts Available to Calculate a PRC-Wide Dumping Margin Comment 8: Use of Adverse Facts Available - Taiyuan Comment 9: Use of Adverse Facts Available for Exporters and Suppliers for Failing to Cooperate to the Best of Their Ability Comment 10: Use of Adverse Facts Available to Calculate Normal Value for Suppliers that Failed to Respond in this Investigation or That Failed Verification. Comment 11: Department's Alleged Failure to Calculate a Fair Market Value for Foundry Coke III. Company Specific Issues Comment 12: Adverse Facts Application to Sinochem Sale (Scope coverage) Comment 13: Ministerial Error from the Preliminary Determination- CITIC DISCUSSION OF THE ISSUES: Changes from the Preliminary Determination Based on the results of verification, we have made revisions to the data used for the Final Determination. For further details, please see the Analysis for the Final Determination of Foundry Coke from the People's Republic of China: CITIC Trading Company, Shanxi Dajin International (Group) Company, Minmetals Townlord Technology Co., Ltd., and Sinochem International Company, Ltd, dated July 23, 2001,which is on file in B-099 of the Central Records Room. General Issues Comment 1: Valuation and Surrogate Country Selection Respondents argue that the Department's surrogate for coal, which was based on a value obtained from Indian Import Statistics, is unreliable and not contemporaneous with the period of investigation ("POI"). Respondents argue that the surrogate value used is wildly distortive and bears no relationship to prices for coking coal from other countries. Respondents assert that the surrogate value is distortive even compared to subsequent figures from the same source in India. Respondents further argue that Indian coking coal has different specifications than the coal used in China to produce foundry coke. Respondents contend that the surrogate value information used in the Preliminary Determination was from a period when coal prices were substantially higher than prices during the POI. Respondents assert that the Department not only erred by using these high prices but also aggravated the error by inflating the prices. Respondents urge that the Department use their submitted coal prices from Coal Week International, because that data is contemporaneous with the POI and contains prices for comparable merchandise from numerous other developing countries which they argue would be more appropriate surrogate countries. Respondents assert this surrogate value information is accurate and, most importantly, the only information on the record contemporaneous with the POI. Respondents argue that only by using POI prices (which the Department is required to do) can the Department avoid creating artificial dumping margins. U-Met of PA, Inc., an interested party and importer of Chinese foundry coke, argues that India is an inappropriate surrogate since India has very poor coal reserves and much of the coal India uses for coking is imported. U-Met argues that quality, quantity, and accessibility of foundry grade coal are the prime considerations in the production of foundry coke, and to overlook these considerations in choosing a surrogate country ignores the prime directive of achieving a "fair market value." U-Met also argues that instead of India, Indonesia should be used as a surrogate because Indonesia has better coal reserves and its cost demographics are comparable to China's. U-Met argues that the surrogate value for coal derived from Indian Import Statistics is inappropriate because eighty percent of the surrogate price is based on an import value from Australia. U-Met argues that by using this price, Australia then effectively becomes the surrogate country for China, which is an incorrect outcome since Australia does not have the same cost demographics as China. U-Met contends that another flaw in using Australia as the surrogate is that, the Australian surrogate value reported on the Indian Import Statistics most likely includes higher inland freight costs than China's since in China, coal mines are located close to the port. Further to this point, U-Met argues that the Department has already calculated an additional transportation cost from the coke plant to the port calculated for Chinese foundry coke, so this additional Australian cost would be double counting U-Met argues that there is no way to determine the quality of the coal from the Indian Importation table, and urges that any costs in the table for coals that are superior in quality to the coal used in China should be excluded. U-Met asserts that the Department should not treat coal as a purchased product, as coal is mined as a natural resource. Therefore, U-Met argues, the cost of coal is totally dependent on the mining and the transportation costs of coal. U-Met contends that the Department should use a constructed cost for coal in order to arrive at a true "fair market value" for this input into coke. U-Met argues that the antidumping legislation should not be used to prevent the American marketplace from utilizing (and benefitting from) the economies that have abundant natural resources to make certain products such as coal. U-Met also argues that it is inappropriate to use a non-contemporaneous surrogate value because the inflator that is applied to the non-POI surrogate value creates large distortions. U-Met contends that it is common for a cost of a specific commodity to fluctuate up and down, but by contrast, an inflator index never decreases. U-Met argues that the inflator index may be acceptable for aggregated costs, but not for a single commodity (i.e., coal) that comprises over fifty percent of the constructed cost. Petitioners argue that the Department correctly calculated the surrogate value of coking coal by using Monthly Statistics of the Foreign Trade of India. Petitioners argue that the price of coking coal from India is an appropriate surrogate as India is at a comparable level of economic development to China and a significant producer of comparable merchandise, metallurgical coke. In support of this argument, petitioners assert that there were thirteen Indian producers of metallurgical coke, accounting for 15,534,383 metric tons of production during the period of the Indian investigation. Petition for Imposition of Antidumping Duties: Foundry Coke Products from the PRC at Exhibit 7, citing Ministry of Commerce Notification: Antidumping Investigation Concerning Import of Metallurgical Coke from the People's Republic of China - Final Findings (27th August 1998). Petitioners note that a report conducted by the U.S. International Trade Commission listed India as one of the countries with coke-making capacities in contrast to all of the other potential surrogate countries listed in the Policy memorandum. See Foundry Coke: A Review of the Industries in the United States and China, USITC Pub. 3323, Inv. No. 332- 407 (July 2000) at I-7. Petitioners argue that the Department will normally value all factors in a single surrogate country as per 19 C.F.R. Section 351.408(c)(2). Petitioners contend that the record indicates that India produces foundry coke, as evidenced by the existence of its thirteen coke producers, and that therefore it is not necessary for the Department to look outside of India to find an appropriate surrogate value for the coking coal input. Petitioners further argue that the Department should reject the respondents' proposed surrogate price valuation based on an average price quote from a basket of countries as none of those countries are appropriate surrogates for China. Petitioners also argue that the import prices reported in the Indian Import Statistics are the best publicly available information. Petitioners contend that the Department has recognized that the "process of constructing foreign market value for a producer in a nonmarket economy country is difficult and necessarily imprecise." Manganese Metal from the People's Republic of China Final Results of the Antidumping Review, 66 F 15076 (March 15, 2001)(Issues and Decision Memorandum) (Comment 1) (quoting Sigma Corp. v. United States, 117 F.3d 1401, 1407 (Fed. Cir. 1997)). Petitioners assert that the Department is not required to identify a precise surrogate value, but in the process of identifying a surrogate value, the Department should use information which "promotes accuracy, fairness and predictability." Certain Helical Spring Lock Washers from the People's Republic of China; Final Results of the Antidumping Review, 65 F.R. 31143 (May 16, 2000) (Issues and Decision Memorandum) (Comment 1). Petitioners argue that the Department properly rejected the price quote from Coal Week International submitted by respondents. Petitioners point out the following flaws of data from Coal Week International: First, petitioners contend that as the Department discussed in its Preliminary Determination, the values from Coal Week International were for a significantly lower quality of coking coal than what is actually used by foundry coke producers. Preliminary Determination, 66 FR at 13890. Second, the price quote was from only one producer and therefore does not establish representativeness. Third, use of the price quote would understate the value of the input. Finally, petitioners contend that respondents did not affirmatively establish that the price quote represented the domestic price in India. In their rebuttal brief, petitioners argue that the Department correctly used the weighted-average unit import values derived from the Indian Import Statistics for the period of April 1998 to March 1999. Petitioners rebut respondents' allegation that the prices in the Indian Import Statistics were unreliable and aberrational because they note that the prices in the Indian Import Statistics changed drastically and were therefore responsive to changes in the market. Petitioners argue that the prices used in the Preliminary Determination are more representative than the prices from Indian Import Statistics submitted by respondents because Indian Import Statistics (April 1998 to March 1999) represent a 12-month period whereas surrogate values from Indian Import Statistics (April 1999 to May 1999) submitted by respondents represent only a two-month period. Petitioners argue that the Indian Import Statistics submitted by respondents offers only a "snapshot" of the prices during the period of investigation ("POI"); therefore the average price derived from prices over the twelve-month period from April 1998 to March 1999 would be comparatively more reliable. Petitioners argue that as the POI covers a six-month period from January 1, 2000 to June 30, 2000, the Department should use an average price that encompasses at least an equivalent period of time. In conclusion, petitioners argue that the price of coking coal derived from April 1998 to March 1999 Indian Import Statistics data used in the Preliminary Determination is an appropriate surrogate. In their rebuttal brief, respondents argue that the coal prices used in the Preliminary Determination are proven to be unreliable and outside the POI. First, respondents argue that while India produces coke, it does not produce the main input in question, coking coal of the same qualities as used in China. Second, respondents charge that petitioners were unable to point to any evidence on the record demonstrating that the coal produced in India and China have the same specifications. Third, respondents assert that the same logic that compelled the Department to reject use of the data that was submitted by respondents in the Preliminary Determination (the difference in quality) also applies to the import statistics used. Respondents charge that the Indian Import Statistics do not specify in any manner the specifications of the coal being imported. Respondents argue that the average prices used in the Preliminary Determination have been shown to be aberrational. Respondents argue that the import data used in the Preliminary Determination when compared to the April to May 1999 data, demonstrates that the April-May 1999 prices are radically lower. Therefore, respondents argue that we should use only information on the record for coal for the POI that has been submitted by respondents. Department's Position: We disagree with respondents and U-Met that we should not use Indian Import Statistics to derive a surrogate value for coking coal. It is the Department's preference to use factor values solely from the primary surrogate country to value inputs. See the Antidumping Duty Administrative Review of Siliconmanganese from the People's Republic of China, 65 FR 31514 (May 18, 2000) and accompanying Decision Memorandum at Comment 1. India was selected as the primary surrogate country because, of the countries deemed to be economically comparable, India is the largest producer of comparable merchandise. Moreover, India has much published information on prices of factor inputs. See Preliminary Determination, Surrogate Country Selection Memorandum. We note that the comments submitted by respondents and U-Met's urging the dismissal of India as the proper surrogate country rely almost exclusively on India's production of not foundry coke (the merchandise being investigated), but of coking coal (the key input to the subject merchandise). This reliance, however, runs counter to section 773(c)(4) of the Act which provides, as described in the preamble to the Department's regulations (62 FR 27296, 27365 (May 19, 1997)), "the surrogate should be a country (or countries) at a level of economic development comparable to the non-market economy ("NME") and a significant producer of merchandise comparable to the merchandise being investigated." Therefore, we must reject respondents and U-Met's proposals as not being in accordance with the Act's requirements. However, we may use surrogate values from a second surrogate country if we find that the sources to value inputs from our first choice surrogate are: 1) unavailable, 2) not sufficiently contemporaneous, 3) of poor quality (i.e., not sufficiently specific to the input in question), and 4) otherwise unreliable. See Antidumping Duty Administrative Review of Siliconmanganese from the People's Republic of China, 65 FR 31514 (May 18, 2000) and accompanying Decision Memorandum at Comment 1. In the present case, we were able to locate a surrogate value from our primary surrogate, India, that is publicly available, sufficiently contemporaneous, specific to the input in question, and sufficiently reliable. For the Final Determination, we have calculated a surrogate value for coking coal based on the Indian Import Statistics for April 2000 to September 2000. Use of this surrogate value is proper because first it is derived from the publicly available source, Indian Import Statistics. Second, it is more contemporaneous than that used in the Preliminary Determination, as we have based our surrogate value on more recent Indian Import Statistics data, (April to September 2000), data that was not available at the time of the Preliminary Determination. Third, this data for this surrogate value is for coking coal, which is specific to the input (coking coal) identified by respondents. Fourth, we consider that data for coking coal from Indian Import Statistics is sufficiently reliable and have used information from Indian Import Statistics for coking coal in previous cases. See, e.g., Preliminary Determination of Certain Hot Rolled Carbon Steel Flat Products from the People's Republic of China, 66 FR 22183 (May 3, 2001); Final Results of the Antidumping Duty Administrative Review and New Shipper Review on Brake Drum Rotors from the People's Republic of China, 65 FR 64664 (October 30, 2000) and accompanying Decision Memorandum at Comment 1. The value derived from Indian Import Statistics is also comparable to the price information for coal submitted by respondents. We disagree with U-Met that we should disregard the coal price from Indian Import Statistics since the publication does not indicate the quality of the coal sold in India. Pursuant to section 773(c)(1) of the Act, in valuing factors of production, the Department shall use the best available information. Data from Indian Import Statistics is superior to other data placed on the record, namely, Coal Week International, because it is data from our primary surrogate country. Regarding the argument that using Indian Import Statistics (April 1998- March 1999) is inappropriate because it is largely based on imports into India from Australia, this issue is moot since we are using updated Indian Import Statistics. For the reasons stated above, we find that data from Indian Import Statistics is the best information available from our primary surrogate. Comment 2- Washed versus Unwashed Coal U-Met contends that the coal usage rate is based on the wrong "multiplier" for the amount of coal inputs needed to produce a finished metric ton of coke. U-Met asserts that the Chinese coke producers normally purchase unwashed coal. U-Met argues that unwashed coal contains impurities, thereby causing the multiplier of coal needed to produce coke to be large. U-Met urges that the Department should correct this multiplier, by comparing the coal chemistries and deriving a multiplier based on the differences in volatile matter from unwashed coal. Petitioners had no comment regarding this issue. Department's Position: We disagree with U-Met that we should adjust the reported input quantities of coal on the basis of a washed coal equivalent. It is evident from respondents' questionnaire responses, and we further confirmed at verification, that respondents reported coking coal input quantities at the stage subsequent to coal washing. Therefore, the reported usage rates are for washed coal, and there is no need to adjust the coal factors to account for washing. Comment 3- Related Coal Mines Respondents argue that the Department failed to treat the coal purchased from related coal mines in a manner consistent with its practice and the law. In the Preliminary Determination, the Department did not consider in its normal value calculation the factors of production costs for coking coal supplied by the coke mines related to the producer. Respondents argue that this methodology is contrary to the Department's practice to calculate a surrogate value of the producer's inputs using surrogate prices for the actual inputs for the mining of the coal. Respondents state that the Department has now verified inputs for one mine that it selected, the Miowan mine. Respondents argue that the statutory provision on the valuation of factors of production simply states that the Department is to determine normal value using the factors of production in producing the merchandise, including the hours of labor and amounts of raw materials and energy consumed. Respondents argue that each company acted in accordance with this provision by providing the inputs of coking coal for both related and unrelated mines, including the factors of production for coking coal supplied by related mines. Respondents argue that the decision in Crawfish to value the major input, crawfish, based on its surrogate purchase price rather than on its factors of production of crawfish does not apply to the instant case. See Freshwater Crawfish Tail Meat from the People's Republic of China: Final results of the Antidumping Duty Review, 65 FR 20948 (April 19, 2000) ("Crawfish"). Respondent argues that in Crawfish, the Department properly rejected respondents' reasoning that it should report only the labor cost of transporting the crawfish to the processing plant and not the actual physical inputs of crawfish since its actual accounting records did not show the purchase of crawfish. Respondents assert that the Department found that the Crawfish respondent was required to take into account the quantities of the inputs. See Crawfish, and accompanying Decision Memorandum at Comment 27. Respondent distinguishes Crawfish from the instant case by arguing that Crawfish did not involve a related supplier and therefore did not address the issue of how to determine surrogate values for related and unrelated suppliers. Respondents argue that in the current case, they have provided all coal inputs for both related and unrelated suppliers, and respondents agree that the Department should use this data. Respondents assert that the Department should follow its recent decision in Preserved Mushrooms from China, which follows the same treatment regarding related party situations used in the Notice of the Preliminary Determination of Sales of Less Than Fair Value:Honey from China 60 FR 14725 (March 20, 1995);Certain Preserved Mushrooms from the People's Republic of China, 66 FR 30695 (June 7, 2001). Respondents assert that the approach followed in these cases used different surrogate values for inputs, depending on whether the inputs came from a related or an unrelated supplier. Respondents assert that this approach is consistent with the Department's treatment of "affiliated persons" as defined in 19 U.S.C. Section 1677(33). Respondents argue that in Mushrooms, the Department used a surrogate value for the price of purchased mushrooms in India if the supplier was unrelated and used a build-up of inputs to produce the mushrooms if the supplier was related. Respondents argue that the Department should follow this approach used in Mushrooms. U-Met argues that the Department incorrectly treated coal as a purchased product. U-Met argues that coke had one ingredient - coal, and coal is a mineral that is mined as a natural resource. Therefore, U-Met argues that the cost of coal and therefore coke is totally dependent on the mining and transportation costs of coal. U-Met argues that coal deposits that can be mined by wheelbarrow as in China, may not be as inexpensively accessible anywhere else in the world. For this reason, U-Met asserts, it is imperative to use a constructed cost for coal in order to determine the true "fair market value" of coke. U-Met also argues that the Chinese inputs of labor, transportation, etc., should be calculated using the surrogate country's values. U-Met objects to the Department's reliance on "previous precedents" as justification to use a distorted methodology to arrive at a "fair market value" for a natural resource. U-Met argues that it is very probable that the domestic costs of one country may differ from another country which has abundant natural deposits of a given resource. U- Met argues that there should be no dumping and anti-dumping legislation used to prevent the U.S. marketplace from utilizing and benefitting from the economics provided by such products. Petitioners argue that the Department should continue to value the coal from the related coal mines based on the surrogate value. Petitioners assert that the cost build-up submitted by respondents does not represent the complete factors of production in this case. Petitioners assert that the statute requires the Department to determine the normal value of the subject merchandise on the basis of the value of the factors of production utilized in producing the merchandise in a non-market economy country. 19 U.S.C. Section 1677b(c)(1)(B). Petitioners argue that the affiliation of the suppliers is not the issue in determining whether to value the factors of production of the related coal mines. Rather, petitioners argue, the issue is whether the quantities of raw materials employed are provided. Petitioners assert that coking coal is a natural raw material and it is not manufactured or produced by the coal mine owner. Petitioners argue that respondents could not provide information on raw materials employed to manufacture coking coal. Petitioners contend that even though the coal mine is owned by the respondents, the coking coal is properly valued using surrogate value. Petitioners argue that in the Preliminary Determination on Hot Rolled Carbon Steel Flat Products from China, the Department chose not to value self-produced factors for energy production. 66 FR 22183, 22191 (May 3, 2001). Petitioners rebut respondents' argument that the Department's decision in Crawfish is not on point in this case because the suppliers were not related. Petitioners contend that respondents fail to note that the raw crawfish in that case was a raw material collected by foreign producers. Petitioners argue that the foreign producers did not manufacture, produce or raise the raw crawfish; instead, the crawfish was a natural raw material that the foreign producers collected, an acquisition method that is in common with the mining of coal in the present case. Petitioners point on that in Mushrooms from China, by contrast, the mushrooms supplied by the related party were actually grown by the supplier using spawn, cow manure and straw. See Certain Preserved Mushrooms from the People's Republic of China, 66 FR 30695, 30697 (June 7, 2001). In conclusion, petitioners argue that the Department should continue to value coking coal inputs based on the surrogate value for coal, regardless of whether the source of the factor input is a related or unrelated entity in China. Department's Position: Based on the record facts, we do not consider that coal is a self- produced input for any of the respondents, Shanxi Dajin International (Group) Company, Minmetals Townlord Technology Co., Ltd., and Sinochem International Company, Ltd.. None of the mines are members of any of the respondents' group. Therefore, we did not value coal using the factors of production for coal from the coal mines. Comment 4- Costs Subsequent to Shipment U-Met argues that the Department should adjust the Chinese coke selling price to account for extra screening costs. U-Met argues that foundry coke imported from China requires re-screening upon arrival to remove the undersized material generated by handling breakages occurring during shipment. Because of these extra screening costs and the fact that finer, undersized material no longer qualifies as foundry coke, the Department should consider these extra costs. U-Met urges the Department to add these extra costs to the Chinese coke selling price for comparison to the constructed "fair market value." Respondents and petitioners had no comment regarding this issue. Department's Position: We disagree with U-Met that we should increase the export price ("EP") for screening costs. In EP situations, the Department does not make circumstance of sale adjustments in NME cases. Notice of the Final Results of Antidumping Duty Administrative Review:Titanium Sponge from the Russian Federation, 62 FR 48605 (September 16, 1997). In accordance with Department practice, since we consider U.S. port screening of coke a circumstance of sale adjustment and the instant case is an NME case, we will not adjust EP to reflect U.S. port screening costs. Comment 5 - Surrogate for Rail Transportation Costs Respondent argues that the Department used rail rates based on the wrong distance and for merchandise completely different from subject merchandise. Respondents urge that the Department use the specific rail rate for coke that respondent submitted in their May 1, 2001, submission. Petitioners had no comment regarding this issue. Department's Position: We agree with respondents that we should use the surrogate value for rail freight, which better reflects the actual distances reported for inland freight by respondents. In determining which surrogate value to use for valuing each factor of production, the Department considers contemporaneity and product specificity. See Sebacic Acid from the People's Republic of China: Final Results of Antidumping Duty Review, 62 FR 10530, 10534 (March 7, 1997). In accordance with Department practice, we agree with respondents that rail rates from the Indian Railway Conference Association are more specific to the subject merchandise and more contemporaneous than the surrogate value for rail freight used in the Preliminary Determination. We also agree with respondents, that it would be more accurate to use rail rates that reflect respondents' reported distances for inland freight, which are approximately 550 km. Therefore, we used respondents' submitted freight surrogate values for the Final Determination. Comment 6- Surrogate for Grass Paper Respondent argues that the surrogate value for grass paper used in the Preliminary Determination was for coated multi-ply paper, which is completely different from the paper used in China for the production of foundry coke. Respondent argues that the Department has examined the paper actually used in the production of foundry coke is not of the type used as a surrogate and therefore, the Department should revise its surrogate for paper in the Final Determination. Petitioners had no comment regarding this issue. Department's Position: We agree with respondents that we should revise the surrogate value for paper. In accordance with Department practice, we should consider product specificity when selecting surrogate values. See Sebacic Acid from the People's Republic of China: Final Results of Antidumping Duty Review, 62 FR 10530, 10534 (March 7, 1997). Based on our verification findings, we determined that the newly submitted surrogate for paper submitted by respondents more closely resembles the paper used in the production of foundry coke than the coated paper surrogate used in the Preliminary Determination. Thus, we have used the respondents' suggested surrogate. Comment 7- Use of Adverse Facts Available to Calculate a PRC-Wide Dumping Margin Petitioners argue that in previous investigations where respondents have refused to submit questionnaire responses, the Department has employed facts available from the petitions and used adverse inferences to calculate dumping margins from the highest rated alleged in the petition. See Certain Cut-to-Length Carbon-Quality Steel Plate Products from Japan: Final Determination of Sales at Less than Fair Value, 64 FR. 73,215 (December 29, 1999). Petitioners stated that the Department identified 25 Chinese companies as potential producers or exporters of foundry coke, but received Section A responses from five companies, CITIC, Minmetals, Shanxi Dajin, Sinochem, and Taiyuan Yingxian Coal Carbonization Co. Ltd. ("TY"). Petitioners argue that because import statistics indicated that the total quantity of foundry coke exported for the PRC was greater than the total exports of the four participating respondents, the Department applied a single PRC-wide rate to all non-responding exporters. In addition, having corroborated the relevant information in the petition, the Department assigned the highest margin calculated from the petition as the PRC-wide rate. Petitioners argue that in the Final Determination, the Department should again assign a single PRC-wide rate to all non-responding exporters, and should assign the highest margin on the record or again use the highest margin calculated from the petition. Department's Position: We agree with petitioners, and, for the reasons set forth in the Preliminary Determination, we have continued to use adverse facts available, based on the highest margin calculated in the petition, for the PRC-wide rate. See Preliminary Determination, 66 FR at 13887-88. Comment 8- Use of Adverse Facts Available - Taiyuan Respondents state that petitioners admitted that TY provided a section A response to the Department. Respondents argue that because TY has been fully cooperative with the Department and was prepared to provide any further information needed, it should be given the average rate of all investigated companies, and not the adverse facts available suggested by the Petitioners. Respondents allege that there was nothing further that TY could have done to cooperate in the investigation and there is no basis to punish it for failing to cooperate. Respondents argue that in the Final Determination the Department should apply the average rate to TY and not use adverse inferences against this company. Department's Position: We disagree with respondents. As indicated in the Preliminary Determination, TY had no shipments to the United States during the POI. Therefore, as it is not possible to conduct an antidumping duty analysis with respect to TY, there is no basis to assign TY a rate distinct from the PRC-wide rate. Comment 9- Use of Adverse Facts Available for Exporters and Suppliers for Failing to Cooperate to the Best of Their Ability Petitioners argue that the Department was correct to apply partial adverse facts available in calculating preliminary margins for CITIC, Sinochem, and Shanxi Dajin, and should not change its methodology in calculating final margins in the investigation. Petitioners state that the Department found that CITIC, Sinochem, and Shanxi Dajin did not act to the best of their ability in obtaining section D responses from all of their suppliers. Petitioners claimed they failed to supply sufficient evidence that certain other suppliers had been shut down by the government. Petitioners believe that the Department was correct to apply adverse facts available in calculating normal value for non-responsive suppliers, and that the Department should apply the same methodology in calculating final dumping margins for these exporters that failed to cooperate to best of their ability in obtaining section D responses from all of their suppliers. Respondents argue that the petitioners had no basis for their statement that the suppliers which had been shut down had failed to cooperate to the best of their ability. Respondents argue that the exporters have made extraordinary efforts to convince all suppliers to cooperate with the Department; however, as the Department verified, almost all producers in Qingxu County of Shanxi Province were ordered shut down by the Chinese government in June 2000 as was indicated in the verification report of Shanxi Grand Coalchem which stated that eighty of the foundry coke producers in Shanxi Province had been shut down by the end of 2000. According to respondents, because no reports were issued until March 18, 2001 these companies had no incentive to cooperate in the investigation since they were no longer in the foundry coke business. Respondents argue that there is no basis for taking adverse inferences against exporters for something over which they have absolutely no control. Petitioners argue that the Department should not be unreasonably hindered by the failure of foreign producers to cooperate in the investigation. Petitioners state that the statute authorizes the Department to use available information to take adverse inferences against any party that has failed to cooperate with the Department's investigation to make such inferences in order to ensure that no party benefits by not cooperating with the Department's investigation. Section 776(b) of the Act and SAA, H.R. Rep. No. 103-316, Vol. I, at 870 (1994). According to petitioners, the Department is not required to demonstrate that information it uses to make such inferences is the best alternative information, or to show that its inferences are the same as the conclusions it would reach if complete information were available. Petitioners assert that the Department is only required to demonstrate that, based on available information, the Department draws inferences that are reasonable. SAA at 869-870. Department's Position: As we did in our Preliminary Results, we continue to rely on partial AFA for this Final Determination for CITIC, Sinochem, and Shanxi Dajin. We disagree with respondents that the Department verified that almost all suppliers in Qingxu County of Shanxi Province were ordered shut down by the Chinese government in June 2000. Although we repeatedly asked respondents to submit evidence substantiating that some of its suppliers had been shut down by the government, the Department never received such information within the regulatory deadlines to submit information. Instead, the exporters attempted to provide new information at verification concerning the government closure of suppliers. Section 776 of the Act and section 351.301(c)(2)(ii) of the Department's regulations provide that failure to submit information in the requested form and manner, and failure to provide such information by the date specified for questionnaire responses, may result in the use of facts available. All three companies, as described above, failed to submit the information on the record in a timely manner and in the requested form. While the Department recognizes that the PRC has directed the closure of coking ovens in Shanxi Province, there is no evidence on the record to determine whether the specific suppliers at issue were among those shut down by the government. Respondents argue that the exporters have made extraordinary efforts to convince all suppliers to cooperate with the Department. The Department disagrees with respondents as the Department had given the suppliers numerous opportunities to obtain section D responses. The exporters failed to provide the section D responses, and in the light of such failure, did not supply a full explanation and alternative evidence of the closure of suppliers as spelled out in sections 782 (c)(1) and (e) of the Act. See Petroleum Wax Candles from the People's Republic of China: Final Results of the Antidumping Duty Administrative Review, 66 FR 14545 (March 13, 2001). As a result, the continued application of partial adverse facts available is appropriate. See Preliminary Determination, 66 FR at 13889-90. Comment 10- Use of Adverse Facts Available to Calculate Normal Value for Suppliers that Failed to Respond in this Investigation or That Failed Verification Petitioners argue that the Department should also consider the failure of certain producers to have factor data verified as further reasons warranting the use of adverse facts available to calculate dumping margins for all responding exporters. Petitioners claim Taiyuan Genyang Industrial Company ("TG"), a supplier to one of the respondents, could not separate its production data for foundry coke or metallurgical coke, and could not trace the usage of inputs for different products. In addition, petitioners assert that TG could not document its reported number of hours worked in the production of coke, and proposed to change its response to reflect its employment of three eight-hour shifts per day. Petitioners argue that supplier Beizhang, presented only its general ledger of accounts for the Department's inspection, and could not provide separate records for its coal washing and coke production. Petitioners contend that supplier Yaxin's vouchers for shipments of coke did not specify the type of coke and did not distinguish merchandise by size. Furthermore, petitioners assert that at verification, the verifiers found evidence suggesting the existence of sales of subject merchandise claimed by a supplier to have been for shipments from a plant where the company reported that it no longer produced foundry coke. Petitioners argue that each of these suppliers failed to provide complete verification of production data, to varying degrees. Petitioners argue that the Department should consider these failures as further reasons that warrant the application of adverse facts available in calculating dumping margins for all exporters. Petitioners state that the Department should assign the highest calculated normal value to those suppliers that failed verification; or, as partial facts available, should calculate normal value for those suppliers by using the highest available values for factor usage rates that the Department is unable to verify. Petitioners argue that the Department should then weight-average the resulting normal values with calculated normal values to determine each respondent's dumping margins. Petitioners state that the Department should apply the same methodology in calculating final normal value for any suppliers that failed verification and in calculating final dumping margins for exported subject merchandise from these suppliers that entered the United States through export trading companies. Respondents argue that petitioners have found no basis to criticize the verifications of any of the exporters. For the supplier Beizhang, respondents assert that Beizhang provided more than "only its general ledger" to the Department. Beizhang kept very straight forward and simple accounts, with the general ledger keeping track of all accounts of the company, including all costs. Furthermore, respondents argue that the Department noted that all costs are kept by Beizhang in the cost ledger and that the cost ledger is organized into several sections. Also, the Department stated in its verification report, "we found no discrepancies." Respondents argue that coal washing is an integral part of coke production and there was no reason to keep separate books. In addition, respondents find petitioners' argument that the absence of separate books and records for coal washing and coke production at Beizhang is a fatal flaw as completely unwarranted; petitioners do not explain why Beizhang would have separate books, and how the dumping law requires Beizhang to keep books in this manner. Given the above, respondents state, petitioners' arguments are invalid. Respondents argue that there is no basis to use adverse inferences against TG based on the fact that its normal books and records do not separate costs for metallurgical and foundry coke. Respondents state that a company is under no obligation to have books that conform to the exact definition of the product categories as defined in a dumping allegation. Instead, respondents argue, a company simply must report its costs to the best of its ability based on its existing records. In the case of TG, respondents argue, the only way it could report costs was to combine metallurgical and foundry coke costs, since these are the only books that it has. Respondents state that the labor hour calculation that was presented at the beginning of verification and verified by the Department was based on a very conservative approach to labor hours. Respondents charge that for the total hours worked TG used a methodology reflecting the maximum number of days that were worked in the month; because TG presented the information at the beginning of verification, the approach taken was verified, and the approach is conservative and adverse to TG, thus there is no basis for taking adverse inferences based on the revised labor data. In addition, respondents argue that petitioners, in their call for adverse inferences, provided no reasons, case precedent, or statutory provision to support their position. Respondents argue that TG was straightforward with the Department in explaining that it had to obtain the meter readings from the electricity company because it no longer had such records. Respondents claim that the records shown to the Department proved that TG had overstated its electricity consumption based on its original methodology of inferring the amount of electricity used from the VAT tax receipts. Respondents argue that TG was able to show the exact amount of electricity used, the Department should use that information as verified; if the Department was to take adverse inferences, which respondents see no basis for, it should use the original response at the higher rate as the adverse inference. Respondents argue that Yaxin explained to the Department that all of its foundry coke came from Plant Number Three. Respondents claim that the records normally kept by the company do not specify "foundry coke" or "metallurgical coke" for any of the plants of the company. Respondents state that Yaxin reported its production from the only plant that produced foundry coke in the POI and petitioners have failed to explain why Yaxin's approach is insufficient or incorrect. According to respondents, petitioners have alleged no factual or legal basis justifying the use of adverse facts available. Respondents charge that petitioners have cited selected parts of the verification report, but did not show any connection between those facts and the requirements of the adverse inferences provisions of the statue. Respondents argue that petitioners' brief is inadequate to establish the use of any adverse inferences for Yaxin. Respondents argue that the petitioners agree with respondents as how to apply adverse inferences for producers, assuming arguendo that an adverse inference should be taken. Respondents state that the Department should treat non-verified companies as having passed verification. Respondents argue that since adverse inferences can be drawn only against non- cooperating companies. The Department cannot draw adverse inferences against companies who cooperated fully but who the Department simply decided not to verify. Department's Position: We agree with respondents that there is no basis for adverse inferences on TG's calculation of normal value. Under section 782(i) of the Act, the Department shall verify all information relied upon in making a final determination in an antidumping duty investigation. TG originally reported total coke output in the January 16, 2001 submission as a total combining metallurgical and foundry. We found at verification that its records permit no greater distinction. In accordance with 19 CFR 351.307(a), the Department verified all factual information submitted by the respondent in this antidumping duty investigation. We disagree with petitioners' argument that an adverse inference should be applied to TG because it could not document the number of hours worked and proposed to change its total number of shifts per day. We were able to confirm TG's revised labor amount submitted at the beginning of verification. See Verification of the Responses of Taiyuan Gengyang Industrial Company, Ltd., with Regard to the Production of Foundry Coke ("TG Verification Report") at 7. At verification, the Department verified the number of workers for two months. Id. Secondly, we noted that the minimal percentage change as a result of the revised labor figures. As a result, there is no basis for rejecting this information or applying adverse inferences. We disagree with petitioners' argument that an adverse inference should be applied to Beizhang. We agree with respondents that Beizhang provided adequate records at verification. As noted in the Department's verification report, the cost ledger provided for inspection at verification provided complete information on all the costs of production, including the major input, coal. See Verification of the Responses of Wenshui County Beizhang Xianghe Coking Co., Ltd. with Regard to the Production of Foundry Coke ("TG Verification Report") at 5. We disagree with petitioners' argument that an adverse inference should be applied to Yaxin. We determined that for the plant which respondent claimed did not produce foundry coke, only one of several vouchers that the Department examined was found to overlap with the scope. Further, we note that our examination of the overall volume and value showed no discrepancies. We also found no improper reporting by Yaxin, with the exception of the usage amount for wood, to which we applied the highest usage of wood reported from other suppliers. See Final Analysis Memorandum for Shanxi Dajin and Sinochem. Therefore, as there is no basis to conclude Yaxin failed verification, we will not apply adverse inferences to Yaxin with respect to this issue. Comment 11: Department's Alleged Failure to Calculate a Fair Market Value for Foundry Coke U-Met contends that the Department has calculated rates so high as to be punitive, which should not be the proper result for a "fair value" antidumping duty investigation. U-Met asserts that if the calculated antidumping duty causes an export value that is appreciably higher than the domestic industry's selling value or appreciably higher than the selling price for the same product produced anywhere in the world, then the Department has failed to arrive at a "fair market value" for that commodity. U-Met stated that while it understood that the International Trade Commission evaluates the local industry in terms of injury and the extent of injury, U-Met feels compelled, by the "unreasonable" preliminary antidumping duties imposed by the Department to present the realities of this investigation. U-Met lists a number of factors which it urges the Department to consider during the course of this antidumping investigation. First, U-Met points out that the U.S. foundry coke industry has not suffered as a result of the importation of Chinese foundry coke. Second, U-Met argues that the importation of foundry coke does not harm the U.S. industry because the lower cost imports benefit the iron foundry industry, which has a high labor force. Third, coke is a major energy source for melting and a major cost for cupola furnaces. Fourth, the imposition of antidumping duties on foundry coke would result in higher raw material costs and thus, would make it increasingly difficult for domestic iron foundries to compete against imported iron castings made with lower cost raw materials. Department's Position: In reaching its preliminary and final determinations, the Department applied the antidumping law and regulations. Further, the Department's determinations are substantially informed by the precedent established in both its prior determinations and by subsequent court decisions. While parties may disagree with the resulting antidumping duty margins, they were calculated on the above basis, not as punitive measures. With respect to the points U-Met itself described as better addressed to the ITC, we agree; those points do not affect the antidumping duty calculation and are likely more relevant to the ITC's analysis. Company Specific Issues: Comment 12- Adverse Facts Application to Sinochem Sale (Scope coverage) Sinochem argues that the Department's statement in the Preliminary Determination that "Sinochem failed to report a portion of its sales of foundry coke that are subject to this investigation...in this sale is minimal" and its resultant use of adverse inference for the select portion of the sale is incorrect. Sinochem states that this portion of Sinochem's sale was not subject merchandise, as verified by the Department. Sinochem claims that the verification made clear that a sale of merchandise whose size straddles the scope size definition was outside the scope of the investigation, as the scope of the investigation is "coke larger than 100mm (4 inches) in maximum diameter and at least fifty percent of which is retained on a 100- mm (4 inch) sieve, of a kind used in foundries." Sinochem argues that the independent size test survey for the shipment in question shows that only a small percent of the shipment was over 100mm, and as that percentage is less than the fifty percent mentioned in the scope, this sale is outside the scope of the investigation. Sinochem claims that the Department did not ask Sinochem to report this sale and cannot cite to any specific provision of the questionnaires where it had asked Sinochem to report the sale. Sinochem argues that the Department should under these circumstances not use adverse inferences against Sinochem in its Final Determination. Petitioners argue that the Department properly applied adverse inferences to this sale of subject merchandise as Sinochem failed to report it in response to the Department's supplemental questionnaire. Petitioners state that respondents point to documents submitted at verification to substantiate Sinochem's claim that the sale was outside the scope of the investigation, but neglected to mention that Sinochem failed to substantiate this claim in response to the Department's requests for factual information prior to verification. Petitioners also argue that the Department should not accept new factual information submitted at verification; furthermore, the documentation relied on by Sinochem in fact proves that the sale in question included subject merchandise i.e., foundry coke larger than 100 mm in diameter. Therefore, because Sinochem failed to report this sale of subject merchandise in response to the Department's requests for factual information, the Department should apply adverse inferences and use the PRC-wide rate to calculate a dumping margin for the volume of this sale and then calculate a final margin for Sinochem by weight-averaging this margin with the calculated margin. Department's position: We disagree with respondent and agree with petitioners in part. Respondent Sinochem has misintepreted the scope description. Sinochem maintains that the Department's description of the scope of this investigation contained in the Notice of Initiation (65 FR 61303) supports their argument that this portion of the sale was outside the scope. Our scope description provided that, "for purposes of this investigation, the product covered is coke larger than 100mm (4 inches) in maximum diameter and at least 50 percent of which is retained on a 100-mm (4 inch) sieve, of a kind used in foundries." Sinochem had one U.S. sale divided into three portions according to its customer's request. The first portion is clearly inside the scope, and the second portion is outside the scope. The only issue is to the third portion of coke that is both within and outside the scope of the proceeding. Respondents' chief contention is that its portion of the sale which straddles the scope size is outside the scope of the proceeding because less than fifty percent of the sale is retained on a 100-mm sieve. However, respondents have misread the scope in that its two conditions are inextricably linked. Specifically, the first condition of the scope is that the scope applies to coke "larger than 100mm," the second being "and at least fifty percent of which is retained on a 100-mm sieve." By including the modifier "of which" immediately after the fifty percent threshold, and with both statements following the initial condition of 100mm, the most reasonable understanding is that the test is to determine whether fifty percent or more of the coke sold as being larger then 100mm is retained on the 100mm sieve. The result of this conclusion is that the respondents' application of the fifty percent threshold to the entire volume of the portion of the sale straddling the scope is inapposite; the test should only be applied to coke above 100mm. As secondary support for this understanding of the scope, we note that it is illogical to perform a test, which appears designed to determine whether coke sized above 100mm will be retained on a 100 mm sieve, to material which is known to be less than 100mm as there is no possibility of such material passing the test. Proper application of the test in the context of this antidumping duty proceeding would examine whether an entire lot of merchandise either fails or passes; those lots which fail the test will not be included in any future margin analysis, nor will they be subject to antidumping duties. Based on the above-analysis, the size range of Sinochem's sale includes coke that is both within and outside the scope of the proceeding. Although clearly contracted before the filing of the antidumping duty investigation, the sale nevertheless contains merchandise subject to the proceeding which the Department may not ignore. As such, for dumping purposes the sale is best conceived as being in effect two sales, one for merchandise within the scope and one outside. Therefore, in its analysis of these effectively two sales, the Department disregarded the out of scope sale and conducted a margin analysis on the in-scope sale, using the price of the original sale and the volume of the sale which exceeds 100mm in size. With respect to administering cash deposits and any subsequent antidumping duty order with respect to "effective" sales derived from a size range spanning both in-scope and out-of-scope merchandise, the Department will instruct Customs to collect cash deposits only on that value of such sales for which the coke exceeds 100mm in size. Comment 13: Ministerial Error From The Preliminary Determination -CITIC After the Preliminary Determination, the Department issued a ministerial error memorandum discussing one ministerial error alleged by respondents. See Ministerial Error Memorandum for the Preliminary Determination. Since the ministerial error alleged would not result in a change of at least five absolute percentage points in the weighted-average dumping margin, nor a difference between a weighted-average dumping margin of zero and a weighted-average dumping margin of greater than de minimis, we did not make a correction at that time. Respondents urge that the Department correct the ministerial error for purposes of the Final Determination. See Respondents' Case Brief at 59 (June 12, 2001) ("Respondents' Brief"). Department Position: We agree with respondents that we should correct this item. The issue resulted from a Chinese character listed in a response appearing to be part of a numeric value for the freight distances. We have used the correct value in this Final Determination. RECOMMENDATION: Based on our analysis of the comments received, we recommend adopting all of the above changes and positions, and adjusting the margin calculation programs accordingly. If accepted, we will publish the final results of the investigation and the final weighted-average dumping margins in the Federal Register. AGREE___________ DISAGREE___________ __________________________________________ Faryar Shirzad Assistant Secretary for Import Administration __________________________________________ Date