66 FR 42628, August 14, 2001 A-570-847 POR: 7/1/1999 - 6/30/2000 Public Document IA I/2: ST MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Richard W. Moreland Deputy Assistant Secretary, Group I Office of AD/CVD Enforcement SUBJECT: Issues and Decision Memorandum for the Antidumping Duty Administrative Review of Persulfates from the People's Republic of China for the Period July 1, 1999, through June 30, 2000; Final Results Summary We have analyzed the case and rebuttal briefs of interested parties in the 1999-2000 administrative review of the antidumping duty order covering persulfates from the People's Republic of China. As a result of our analysis, we have made changes in the margin calculations for these final results of review. 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 administrative review for which we received comments from interested parties: Comment 1: Ocean Freight Valuation Comment 2: Electricity Valuation Comment 3: Wood Pallet Valuation Comment 4: Indirect Labor Calculation Comment 5: Surrogate Data Used for Selling, General, and Administrative Expenses Background On April 9, 2001, the Department published the preliminary results of administrative review of the antidumping duty order on persulfates from the People's Republic of China (PRC). See Persulfates from the People's Republic of China: Preliminary Results of Antidumping Duty Administrative Review, and Partial Rescission of Administrative Review, 66 FR 18439 (April 9, 2001) (Preliminary Results). The products covered by this order are persulfates, including ammonium, potassium, and sodium persulfates. The period of review is July 1, 1999, through June 30, 2000. We invited parties to comment on the preliminary results of review. Based on our analysis of the comments received, we have changed the results from those presented in the preliminary results. Margin Calculations There is only one respondent in this administrative review, Shanghai Ai Jian Import & Export Corporation (Ai Jian). We calculated export price and normal value using the same methodology stated in the preliminary results, except as follows: We recalculated ocean freight expenses for one transaction to use the actual quantity shipped as the denominator of the calculation. See Comment 1. We recalculated the surrogate value for electricity using audited data for 1998-1999 from the TERI Energy Data Directory & Yearbook (TERI data). See Comment 2. Discussion of the Issues Comment 1: Ocean Freight Valuation For purposes of the preliminary results, the Department valued Ai Jian's international freight expenses during the period of review (POR) using the actual expenses reported by the respondent, which Ai Jian claimed were incurred using market-economy suppliers and paid in a market-economy currency. This decision was based, in part, on the fact that Ai Jian submitted documentation supporting its claim that its ocean freight expenses were market-based. However, in its case brief the petitioner noted that payment documents provided by Ai Jian for two transactions showed that the payment was made approximately one year before the freight invoices were issued. According to the petitioner, this inconsistency raises questions as to when, how, and why the invoices were actually created. Based on the petitioner's comments, we requested that Ai Jian provide an additional explanation as to why the payment dates for the two transactions in question preceded the dates of the freight invoices, along with supporting documentation. Ai Jian provided this information on July 10, 2001. According to Ai Jian, the discrepancies in the dates "appeared to be the result of clerical errors." In its case brief, the petitioner asserts that the Department should reject all of the ocean freight expenses reported as market-economy transactions, because Ai Jian was unable to establish a link between the prices charged by the market economy carriers and the prices actually paid by the respondent. According to the petitioner, Ai Jian provided documentation which was not only incomplete, but which was also internally inconsistent. Specifically, the petitioner maintains that Ai Jian failed to link any foreign currency receipts to the submitted shipper invoices, nor did Ai Jian provide any accounting records or bank statements relating to these invoices. Moreover, the petitioner argues that Ai Jian's failure to provide shipping contracts provides the Department no basis to conclude either that the contracts were negotiated at arm's length or that the submitted rates completely covered all components of the shipping charges (including potential shipping commissions, etc.). Finally, the petitioner asserts that Ai Jian claims to have paid a shipping company in one market economy, but actually submitted documents from companies in a different country; according to the petitioner, these documents cannot be tied to Ai Jian's shipments of subject merchandise to the United States. The petitioner maintains that the rates reported by Ai Jian are inherently suspect for other reasons as well. Specifically, the petitioner notes that the shipper's invoices were submitted in pristine condition, without the usual accounting markings indicating receipt or payment. Furthermore, the petitioner points out that the rates shown on these invoices are, on average, significantly lower than the market rates publicly available on the record of this proceeding and somewhat lower than the rate advocated by Ai Jian in its submission commenting on factor valuation. See the December 1, 2000, letter from White & Case to the Department at page 9 and Exhibit 12. In response to Ai Jian's July 10 submission, the petitioner argues that Ai Jian's explanation is at best inadequate and at worst unreliable. (1) According to the petitioner, accepting this explanation would require the Department to conclude that two different shipping companies independently and incorrectly entered invoice dates that follow by 11 months the reported payment dates, and, in doing so, replaced all four digits of the correct calendar year with four, entirely new different digits (i.e., 1999 and 2000). The petitioner contends that this scenario strains credulity and should not be accepted. Moreover, the petitioner maintains that there is no evidence on the record supporting such an explanation, other than the speculation of counsel for the respondent. Citing Asociacion Colombiana Exportadores de Flores v. United States, 40 F. Supp. 2d 466 (CIT 1999), the petitioner contends that speculation cannot constitute substantial evidence. Thus, the petitioner maintains that, at a minimum, the respondent should have contacted the shipping companies to confirm that the invoices contained clerical errors. (2) According to the petitioner, the flaws in the invoices, coupled with the weakest possible attempt to explain the discrepancies in the invoicing and payment dates, raise such serious credibility issues that the Department should reject all data submitted by Ai Jian in this review. The petitioner asserts that this case is similar to those where the respondent fails verification due to the discovery of fabricated documents. For example, the petitioners cite Final Determination of Sales at Less Than Fair Value: Sulfanilic Acid from the Republic of Hungary, 58 FR 8256 (Feb. 12, 1993), where the Department based the final dumping rate on total facts available after discovering at verification that certain information had been deliberately fabricated. Consequently, the petitioner urges the Department to base the final dumping margin on total adverse facts available. As total facts available, the petitioner asserts that the Department should use the PRC-wide rate of 119.02 percent. In the alternative, the petitioner argues that the credibility issues raised by the dates on the invoices require, at a minimum, that the Department reject all of the reported ocean freight expenses and use adverse facts available to determine the ocean freight adjustment in this review, in accordance with 19 CFR 351.308(a). The petitioner maintains that Ai Jian did not act to the best of its ability to comply with the request to explain the discrepancies noted above, but rather merely engaged in speculation and conjecture. As adverse facts available, the petitioner asserts that the Department should use the highest available cost for ocean freight. According to the petitioner, this cost should not be, under any circumstances, less than the surrogate value used for ocean freight in the immediately preceding segment of this proceeding, or $290.95 per metric ton. (3) Ai Jian argues that the Department should continue to value its POR ocean freight expenses using the prices which it was charged by market-economy carriers during the POR. Ai Jian maintains that it provided a full response to the Department's requests for supporting documentation, and these documents show that Ai Jian incurred the charges in question, and paid for them in U.S. dollars. According to Ai Jian, the only documents that it did not provide were related to shipments of non-subject merchandise shown on a worksheet submitted for the purpose of reconciling the company's freight expenses to the relevant source documentation. Ai Jian asserts that the Department never requested supporting documentation for these shipments, but it would have been able to provide such documents had it been required to do so. Regarding the petitioner's claim that the charges in question were not at arm's length, Ai Jian notes that it is not affiliated with any ocean freight company. Thus, Ai Jian asserts that the petitioner has no basis for this claim. Furthermore, Ai Jian asserts that a comparison of its own freight expenses to the Department's index values shows that the two sets of data are within two percentage points of each other. In contrast, Ai Jian asserts that the average Maersk rate proposed by the petitioner is 130 percent higher than the Department's index rates. Regarding the petitioner's implication that Ai Jian manufactured its invoices for purposes of this proceeding, Ai Jian notes that the documents provided in its response were stamped by the companies which originated them (e.g., the shipping company, the bank, etc.). Ai Jian asserts that its own internal stamps appear only on documents that it generates, and thus it is not unusual that the documents at issue were not stamped by its accounting department. Finally, Ai Jian agrees that there is a calculation error in one of the freight amounts reported. Consequently, Ai Jian asserts that the Department should recalculate the freight expense in question to allocate it over the tonnage reflected on the invoice. Department's Position: In accordance with 19 CFR 351.408(c)(1), in non-market economy cases the Department values inputs which a respondent purchased from a market economy supplier in a market economy currency with the actual price paid by the respondent. In this case, we have reviewed the documents submitted by Ai Jian and find that these documents establish that Ai Jian purchased freight from market economy carriers and paid for them in a market-economy currency. Therefore, we have continued to base ocean freight expenses on the amounts incurred and paid by Ai Jian, in accordance with our practice. Specifically, we agree with Ai Jian that the invoices provided in its response can be tied to specific shipments reported in the U.S. sales listing and that these invoices are from a market-economy carrier and priced in a market-economy currency. In its July 10 submission, Ai Jian provided copies of pages from its expenses sub-ledger demonstrating that it recorded the freight expenses in question in its accounting system within a few days of making the payment to the freight supplier. In addition, Ai Jian provided documents showing that payment for these ocean freight transactions could be traced from the relevant foreign currency exchange vouchers issued by a commercial bank, to Ai Jian's internal accounting vouchers and operating expense sub-ledger and bank deposit sub- ledger using the sales invoice numbers. In addition, payment for ocean freight for these invoices can also be traced from Ai Jian's bank deposit sub-ledger to Ai Jian's bank statement, prepared by the Bank of China. Regarding the petitioner's implication that Ai Jian fabricated these freight invoices, we find that there is insufficient evidence on the record to reach such a conclusion. We note that we afforded Ai Jian only two days to submit its explanation of the apparent discrepancies in the freight invoice and payment dates. Given this time constraint, we find it unsurprising that Ai Jian did not provide information obtained from the freight companies in question. Moreover, while we agree that it is unlikely that the freight companies made clerical errors involving all four digits of the year shown on the freight invoices, we find it equally unlikely that were Ai Jian to fabricate these invoices, it would make the same error. Indeed, with the exception of the dates shown on documents generated by outside parties, all of the documents provided by Ai Jian have been internally consistent and are traceable to actual accounting records. Whatever the causes of the incorrect dates on the two invoices in question, the other information submitted by Ai Jian sufficiently demonstrates that the firm actually incurred and paid for the expenses. Finally, we agree with both parties that the per-unit freight expense for one transaction was calculated incorrectly. Consequently, we have revised our calculations to account for this error. Comment 2: Electricity Valuation For purposes of the preliminary results, we valued electricity using the average 1998-1999 electricity rate in India derived from the TERI Energy Data Directory & Yearbook. Specifically, we used the simple average of the electricity rates for all industries and regions of India which were contained in this source. According to the petitioner, the Department should use instead the 1999- 2000 company-specific rate experienced by Calibre Chemicals Pvt. Limited (Calibre), an Indian producer of persulfates, because this rate is more representative of that paid by producers in the electricity-intensive persulfates industry. The petitioner bases its argument on the fact that the financial statements of both Calibre and an additional chemical producer, National Peroxide Limited (National Peroxide), show that the average electricity rate during a period contemporaneous with the POR was significantly higher than that for producers of different products in several different industries. The petitioner asserts that Calibre's rate would serve as a better surrogate value because it is not only more specific to the persulfates industry but also more contemporaneous with the POR. The petitioner contends that, in the event that the Department continues to use the TERI data, it should at a minimum use the updated rates from this source placed on the record in April of this year. Specifically, the petitioner notes that the 2000 Annual Report of the Power and Energy Division of the Planning Commission of India, the source for the TERI report, was issued subsequent to the preliminary results. (4) Thus, the petitioner asserts that the Department should use the 1998-1999 audited data shown in this annual report, rather than the unaudited data used for the preliminary results. The petitioner further contends that the Department should calculate a weighted-average rate, rather than a simple average, because it provides a more accurate depiction of the "normal" electricity consumption rate in India. Ai Jian contends that the Department has a long-standing practice of using industry-wide average electricity rates, rather than company- specific data. To support this conclusion, Ai Jian cites Notice of Final Determination of Sales at Less Than Fair Value: Bulk Aspirin From the People's Republic of China, 65 FR 33805 (May 25, 2000) and accompanying decision memorandum at Comment 6 (Aspirin from the PRC), where the Department declined to value electricity using producer-specific data and instead used published industry averages. Therefore, Ai Jian maintains that the Department should continue to use the TERI data to value electricity. However, Ai Jian agrees that the Department should use the audited 1998-1999 data because it is more reliable than the unaudited figures. Regarding the question of whether the Department should use a simple or a weighted average in its calculations, Ai Jian asserts that the petitioner has misinterpreted the TERI data, in that there is no evidence on the record that identifies the TERI average as a weighted-average value. Ai Jian maintains that, because the TERI data does not provide consumption by region, 1) there is no basis to conclude that the average listed in the TERI data is a weighted average, and 2) the Department cannot calculate its own weighted-average rate. Thus, Ai Jian contends that the Department should continue to calculate a simple average rate for purposes of the final results. Department's Position: We disagree with the petitioner that surrogate values for electricity costs should be based on company-specific data. As noted in Aspirin from the PRC: In valuing inputs such as raw materials, the Department prefers publicly available statistical averages rather than company- specific data. . . . 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). See Aspirin from the PRC at Comment 6. In the preliminary results, we used unaudited 1998/1999 electricity price data published by the Tata Energy Research Institute (i.e., TERI). For the final results, we are using the audited 1998/1999 TERI data, because we find this data to be more reliable than the unaudited information used for the preliminary results. As in the preliminary results, we inflated the TERI rates to the POR using the electricity sector-specific price index published by the Reserve Bank of India. We note that this data shows that electricity rates in India vary significantly from region to region. For this reason, we find that the use of the average electricity rate across all regions forms a more valid surrogate value than the rate paid by an individual consumer in a particular region (e.g., Calibre). We disagree with the petitioner's argument that we should calculate a weighted-average electricity rate, rather than using the simple average of the rates shown in the TERI report. Even assuming that it were appropriate to do so, we note that there is no information on consumption by region which would allow us to perform this calculation. Moreover, while the TERI report contains an "average" electricity price, this source provides no information on how this average price was calculated or what it represents. Consequently, we cannot conclude that it represents a better surrogate value than the value used for the preliminary results. Finally, we note that the same TERI data has been used to value electricity in other proceedings before the Department. See Notice of Final Results of Antidumping Duty Administrative Review of Manganese Metal from the People's Republic of China, 66 FR 15076 (Mar. 15, 2001) and accompanying decision memorandum at Comment 10. We further note that, in those cases, the Department also based the surrogate value on the simple average of the TERI rates. Comment 3: Wood Pallet Valuation For purposes of the preliminary results, we valued wood pallets using import data from Indonesia, based on a finding that the Indian import data on the record of this case was aberrational. The petitioner does not disagree with the use of Indonesian data, but argues that certain of the import values reported by Indonesia are similarly aberrational. Specifically, the petitioner maintains that the Department should exclude Indonesian imports of wood pallets from Germany because the average unit value for these products is over 3000 percent less than that of any other country from which Indonesia imports. For example, the petitioner notes that the German unit value was $0.19 per kilogram, while imports from the other countries ranged from $7 to $14.86 per kilogram. According to the petitioner, the Department frequently excludes country- specific import data from its surrogate value calculations if that import data is aberrational. To support this assertion, the petitioner cites Notice of Final Determinations of Sales at Less Than Fair Value: Steel Wire Rope From India and the People's Republic of China; Notice of Final Determination of Sales at Not Less Than Fair Value: Steel Wire Rope From Malaysia, 66 FR 12759 (Feb. 28, 2001) and accompanying decision memorandum at Comment 1 (Steel Wire Rope from India, et al); Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, From the People's Republic of China; Final Results of 1998-1999 Administrative Review, Partial Rescission of Review, and Determination Not To Revoke Order in Part, 66 FR 1953 (Jan. 10, 2001) and accompanying decision memorandum at Comment 10 (TRBs from the PRC); and Chrome-Plated Lug Nuts From The People's Republic of China; Final Results of Antidumping Duty Administrative Review, 63 FR 53872 (Oct. 7, 1998) (Chrome-Plated Lug Nuts from the PRC). Consistent with this practice, the petitioner asserts that the Department should exclude German import data when valuing wood pallets in this case. Ai Jian disagrees that the German import data is aberrational. Specifically, Ai Jian notes that Germany accounted for 99 percent of all of Indonesia's imports of wood pallets (or 15,132 out of a total of 15,256 kilograms). Thus, Ai Jian asserts that, were the Department to grant the petitioner's request, the surrogate value for wood pallets would be based on a minuscule amount of imports. Ai Jian concludes that these volume of these imports would be insufficient to provide a valid statistical basis for the surrogate value calculation. Indeed, Ai Jian asserts that the Department used the same Indonesian import statistics at issue in at least two prior cases. See TRBs from the PRC at Comment 10 and Brake Rotors From the People's Republic of China: Final Results and Partial Rescission of Fourth New Shipper Review and Rescission of Third Antidumping Duty Administrative Review, 66 FR 27063 (May 19, 2001) and accompanying decision memorandum at Comment 3 (Brake Rotors from the PRC). Moreover, Ai Jian notes that the Department explicitly addressed the same argument in Brake Rotors from the PRC, stating that it found no evidence clearly demonstrating that the Indonesian import data for wood pallets from Germany is aberrational. Thus, Ai Jian argues that the Department should continue to use the Indonesian data without adjustment for purposes of the final results. Department's Position: After careful consideration of the petitioner's comments on the Indonesian wood pallets surrogate value, we find that it is appropriate in this case to use all of the available import data from Indonesian Foreign Trade Statistics to calculate the Indonesian import value for this factor. Specifically, we do not find any evidence on this record that clearly demonstrates that the Indonesian import data for wood pallets from Germany is aberrational or that it should not be used in this calculation. Unlike the situation which existed in Chrome-Plated Lug Nuts from the PRC, we do not have Indonesian import data for different time periods on record, which would allow us to examine whether the import data for wood pallets from Germany during the period in question is aberrational. Moreover, unlike the situation in Steel Wire Rope from India, et al., we do not have numerous other Indonesian import data for wood pallets which would enable us to determine whether the Indonesian import data from Germany is aberrational. In the instant review, the record only contains Indonesian import data for wood pallets from four countries which relate to the same time period. Therefore, consistent with the Department's assignment of a wood pallet value in TRBs from the PRC and Brake Rotors from the PRC, we are continuing to use a 1998 import price based on imports from all countries listed in the Indonesian Foreign Trade Statistics to value wood pallets for the final results of this administrative review. Comment 4: Indirect Labor Calculation For purposes of the preliminary results, the Department adjusted the amount of the reported indirect labor hours for the factory producing the subject merchandise exported by Ai Jian, Shanghai Ai Jian Reagent Works (AJ Works), in order to account for the labor hours of additional employees that were previously not included. Specifically, we reclassified the hours in each division of AJ Works as either general and administrative labor, direct labor, indirect labor, packing labor, direct selling labor, or labor related to the production of non-subject merchandise. We then calculated the total indirect labor hours by taking the sum of the reported labor hours deemed to be indirect. Finally, we divided the total labor hours by the total quantity of merchandise produced by AJ Works in order to derive the per-unit indirect labor hours used for purposes of the preliminary results. The petitioner alleges that the Department erred in its recalculation of AJ Works' indirect labor hours by using the actual hours worked in each department, as reported by the respondent. Rather, the petitioner argues that the Department should first calculate the average indirect labor hours per worker by dividing the total indirect labor hours originally reported by AJ Works by the total number of employees originally classified by AJ Works as "indirect workers." Then, the petitioner states that the Department should multiply the average indirect labor hours by the actual number of indirect workers, found in the spreadsheet included in Attachment 3 to the Department's April 2, 2001, memorandum from the team to the file entitled "U.S. Price and Factors of Production Adjustments for the Preliminary Results." The petitioner argues that we should revise our calculations for the final results accordingly. Ai Jian agrees that the Department did not apply the correct number of per-worker indirect labor hours in its calculation. Accordingly, Ai Jian asserts that the Department should recalculate total indirect labor costs using the average number of hours using the methodology stated above. Department's Position: We disagree with both the petitioner and Ai Jian that we erred in our recalculation of AJ Works' indirect labor hours. Specifically, we note that we did not base our calculation of indirect labor costs on the average indirect labor hours per worker derived from the company's initial response, as both parties claim. Rather, we used the total labor hours worked in each department classified as employing indirect labor. We find that our methodology is more accurate because it is based on the actual labor hours per department, rather than an average derived from outdated data. (5) Accordingly, we have not revised our calculation of indirect labor for purposes of the final results. Comment 5: Surrogate Data Used for Selling, General, and Administrative Expenses For purposes of the preliminary results, we based the selling, general, and administrative (SG&A) expense ratio on the March 31, 2000, annual report of Calibre. We calculated the SG&A expenses shown on this report as a percentage of total cost of manufacturing, in accordance with the Department's standard methodology. (6) The petitioner argues that Calibre's SG&A data is unreliable and should not be used for purposes of the final results. The petitioner claims that Calibre's dissimilar cost structure between subject and non-subject merchandise distorts the company's SG&A ratio, when calculated on the basis of Calibre's cost of sales. Specifically, the petitioner claims that such an allocation would overstate the amount of the SG&A expenses attributed to non-subject merchandise, in light of the fact that the majority of Calibre's cost of manufacturing is made up of raw materials costs for non-subject merchandise. The petitioner maintains that there is no reasonable basis upon which to allocate the total SG&A expenses between persulfates and non-subject merchandise because, by their nature, SG&A expenses are unrelated to the immediate manufacturing process and, as a consequence, any allocation methodology is wholly arbitrary. Consequently, the petitioner submits that the Department should reject Calibre's SG&A data and rely instead on the SG&A data of National Peroxide, an Indian producer of hydrogen peroxide, as the most accurate surrogate data available in this review. According to the petitioner, the hydrogen peroxide and persulfates industries are similar because they both: 1) use capital-intensive, continuous processes that require relatively sophisticated controls to ensure the safety of the product; and 2) require similar levels of technical support. Moreover, because National Peroxide's financial statements are for the period April 1, 1999, through March 31, 2000, the petitioner notes that they are contemporaneous with the POR. The petitioner contends that the Department has broad discretion in the selection of surrogate values. For example, the petitioner cites Certain Helical Spring Lock Washers From The People's Republic of China; Final Results of Antidumping Administrative Review, 61 FR 41994, 41999 (Aug. 13, 1996) (Lock Washers from the PRC), where the Department used Reserve Bank of India data instead of company-specific financial statements, and Notice of Final Determination of Sales at Less Than Fair Value: Certain Preserved Mushrooms from the People's Republic of China, 63 FR 72255 (Dec. 31, 1998) (Mushrooms from the PRC), where the Department rejected the financial statements of two mushroom producers in preference to a third. Furthermore, the petitioner contends that the Department has similar discretion to obtain surrogate values from more than one source. For example, the petitioner cites Notice of Final Determination of Sales at Less Than Fair Value: Beryllium Metal and High Beryllium Alloys From the Republic of Kazakstan, 62 FR 2648, 2651 (Jan. 17, 1997) (Beryllium from Kazakstan), in which the Department based profit and SG&A on the financial statements of a company in Peru, but overhead on the financial statements of a company in Brazil. Nonetheless, the petitioner argues that, regardless of the source data for calculating the SG&A expense ratio, the Department should add to SG&A an amount for SG&A salaries and wages. According to the petitioner, because the SG&A factor the Department used for purposes of the preliminary results did not include any portion of the "Employment Costs" category, it failed to include any costs for selling and administrative personnel in the calculation. For purposes of the final results, the petitioner argues that the Department should add to the SG&A expenses an allocated amount for SG&A personnel expenses. According to Ai Jian, the Department should continue to follow the practice used in previous segments of this proceeding and base SG&A expenses on the annual report of Calibre. Ai Jian notes that Calibre is a producer of persulfates, whereas National Peroxide is not. Ai Jian asserts that the Department has a clear preference for surrogate data from producers of identical merchandise, provided that this data is not distorted or otherwise unreliable. Ai Jian contends that the petitioner has not demonstrated that Calibre's data is incomplete or distorted for purposes of calculating the surrogate SG&A expense ratio in this specific proceeding, nor has it shown how the data is unrepresentative. Indeed, Ai Jian notes that the petitioner has advocated the use of this data in other parts of the calculation of normal value (e.g., the valuation of electricity). Moreover, Ai Jian maintains that, to the extent that the Department would consider Calibre's data to be tainted given that it relates in part to the production of non-subject merchandise, it must find that the use of National Peroxide's data is even less appropriate because National Peroxide produces only non-subject merchandise (including a mix of products which are not comparable to persulfates). According to Ai Jian, the determinations cited by the petitioner are not applicable here. Specifically, Ai Jian notes that, in Mushrooms from the PRC, the Department selected a surrogate producer among three producers of subject merchandise, whereas in this review the choice is between a producer of subject merchandise and one of non-subject merchandise. Furthermore, in Lock Washers from the PRC, Ai Jian points out that the Department chose industry-wide data over the financial statements of a particular company because that company produced only a minuscule amount of subject merchandise, while in the current review Calibre manufactures subject merchandise in commercial quantities. With respect to SG&A labor, Ai Jian contends that the Department should also continue to follow the methodology used in the preliminary results. Ai Jian asserts that the petitioner's arguments fail for two reasons: 1) it did not specify a methodology for allocating personnel expenses; and 2) it did not provide any factual information in support of such an allocation. Department's Position: We disagree with the petitioner that Calibre's financial data is inappropriate for purposes of calculating a surrogate SG&A ratio. We find that there is no basis to conclude that Calibre's SG&A data is distorted or that it overstates the amount of the SG&A expenses attributed to non- subject merchandise. We note that our long-standing practice in market-economy cases with respect to allocating general expenses to individual products is to calculate a rate by dividing the company's general expenses by its total cost of sales, as reported in the respondent's audited financial statements. See the Department's standard Section D Cost of Production and Constructed Value questionnaire at page D-16. This method recognizes that general expenses are costs that relate to the company's overall operations, rather than to the operations of a division within the company or to a single product line. See, e.g., Large Newspaper Printing Presses and Components Thereof, Whether Assembled or Unassembled, From Japan: Final Results Antidumping Duty Administrative Review, 66 FR 11555 (Feb. 26, 2001) and accompanying decision memorandum at Comment 5 (LNPP from Japan); Final Determinations of Sales at Less Than Fair Value: Certain Hot- Rolled Carbon Steel Flat Products, Certain Cold-Rolled Carbon Steel Flat Products, and Certain Corrosion-Resistant Carbon Steel Flat Products From Japan, 58 FR 37154, 37166 (July 9, 1993); and Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Wire Rod From Sweden, 63 FR 40449, 40459 (July 29, 1998). Specifically, in LNPP from Japan, we stated the following: Neither the SAA nor the Act prescribes a specific method for allocating G&A expenses to specific products. We further note that U.S. GAAP does not address the allocation of period costs such as G&A to individual products. When a statute is silent or ambiguous on the manner in which the Department must perform its calculations, the determination of a reasonable and appropriate method is left to the discretion of the Department. Thus, the Department has, over time, developed a consistent and predictable practice for calculating and allocating G&A expenses. This consistent and predictable method is to calculate the rate based on the company -wide G&A costs incurred by the producing company allocated over the producing company's company-wide cost of sales and not on a divisional or product line basis. This practice is identified in sections D & E of the Department's standard antidumping questionnaire, which instructs that the G&A expense rate should be calculated as the ratio of total company-wide G&A expenses divided by cost of goods sold. Although this proceeding involves a non-market economy (NME) country, the issue at hand involves deriving an SG&A ratio using the financial data of a market-economy company. Unlike factory overhead costs, SG&A expenses are not considered to be directly related to the production of merchandise. In fact, in most cases, general expenses are so indirectly related to a particular production process that the most reasonable allocation basis is the company's total cost of manufacturing. Thus, while it may be appropriate to allocate the factory overhead costs between subject and non- subject merchandise on a basis other than cost, we find no basis to allocate SG&A expenses to specific product lines using any other method. See Persulfates First Review Final, 64 FR at 69499-500. In this case, we have on the record two different sources for valuing factory overhead, SG&A and profit ratios: the financial statements of Calibre and the financial statements of National Peroxide, both covering the period April 1, 1999, through March 31, 2000. In the less-than-fair- value (LTFV) proceeding, the Department used the financial data of National Peroxide. We determined that, in the absence of data from a surrogate producer that produced merchandise that was identical to persulfates, it was necessary to use data of a surrogate producer that produced comparable merchandise. In the instant review, as well as in the two most recent segments of this proceeding, we have had on the record the financial statements of an Indian persulfates producer (i.e., Calibre). Because the Department's NME practice establishes a preference for selecting surrogate value sources that are producers of identical merchandise, provided that the surrogate data is not distorted or otherwise unreliable, we used these financial statements in each of the two previous segments. Moreover, because the petitioner has presented no new evidence showing that Calibre's data is unreliable, (7) we have continued to use it here. (8) We note that we have valued factory overhead and profit based on Calibre's financial statements. Under these circumstances, we find that valuing SG&A expenses based on National Peroxide's financial statements would be inappropriate. A company's profit amount is a function of its total expenses. The use of Calibre's financial data for factory overhead and profit while using National Peroxide's data for SG&A would result in our applying a profit ratio that would bear no relationship to the SG&A ratio. (9) In addition, we find that this approach would increase the potential for double-counting or under-counting of expenses because different companies may classify expenses differently. With respect to the cases cited by the petitioner, we note that with the exception of Beryllium from Kazakstan, none of the cases involved relying on multiple sources for factory overhead, SG&A and profit ratios. In Beryllium from Kazakstan, we calculated SG&A and profit ratios based on data from the primary surrogate country, Peru. With respect to overhead, we relied on data from a producer in Brazil because there was a lack of detailed overhead cost data from Peru. In contrast, Calibre's financial statements provide sufficiently detailed data for us to calculate an SG&A ratio in accordance with our normal methodology. Accordingly, we conclude that, in the instant review, Calibre's financial data provides the best available information with respect to surrogate values for factory overhead, SG&A and profit ratios. Therefore, for purposes of these final results, we have continued to rely upon Calibre's financial statements for these values. See Persulfates First Review Final, 64 FR at 69499-500; and Persulfates Second Review Preliminary Results, 65 FR at 18967, followed in Persulfates Second Review Final. With respect to SG&A labor, we find that Calibre's financial statements do not contain sufficient detail which would allow us to determine under which category SG&A labor is included. As a consequence, any allocation of the expenses reflected in the "Employees' Costs" category could potentially result in the double-counting of labor costs for Ai Jian. For this reason, we did not calculate SG&A labor as a separate component in our factors of production calculation, as requested by the petitioner. Rather, we are continuing to make a reasonable assumption that SG&A labor is included in the surrogate SG&A ratio, consistent with our decision on this issue in the two most recent segments of this proceeding. See, e.g., Persulfates First Review Final, 64 FR at 69500. RECOMMENDATION Based on our analysis of the comments received, we recommend adopting all of the above positions. If these recommendations are accepted, we will publish the final results of review and the final weighted-average dumping margin for the reviewed firm in the Federal Register. Agree ______ Disagree ______ ______________________ Faryar Shirzad Assistant Secretary for Import Administration ______________________ (Date) ______________________________________________________________________ footnotes: 1. The petitioner argues that the documentation associated with payment for the transactions in question (as well as for the other transactions for which Ai Jian had previously provided support) was not adequate. Specifically, the petitioner notes that Ai Jian did not provide any evidence of the actual transfer of funds to the shippers (e.g., cancelled checks, bank statements, etc.), and, thus, failed to establish a link between the invoices and payment in a market economy currency. 2. The petitioner speculates that Ai Jian must not have contacted the shipping companies, given that it did not inform the Department that it had done so. 3. In its case brief, the petitioner noted that this surrogate value was for a 1997/1998 shipment of oxalic acid charged by the international shipping company Maersk Inc. The petitioner asserts that the Department relied on this rate because it had been used in various other proceedings. See, e.g., Sebacic Acid From the People's Republic of China: Final Results of Antidumping Duty Administrative Review, 64 FR 69503, 69507 (Dec. 13, 1999). In addition, the petitioner argued in this brief that, if the Department accepts the freight expenses reported, it should at a minimum recalculate them for one transaction in order to allocate them over only the tonnage reflected on the freight invoice. 4. The petitioner notes that the 2000 Annual Report also provides unaudited data for the 1999-2000 period. According to the petitioner, this data is similarly less reliable than the audited data, and thus it should not be used. 5. In its response, Ai Jian classified only certain workers as indirect labor and reported the total number of hours worked by these workers in its factors of production database. For purposes of the preliminary results, we did not use this information in our calculations, because it did not appear to capture completely the indirect labor costs incurred by the company. Instead, we determined which departments within the company employed indirect labor, and then we totaled the number of indirect labor hours worked in each of these departments. As a consequence, the average number of labor hours per worker calculated using this methodology differed from the average number derived from the information in Ai Jian's original response. Nonetheless, we find that our methodology is more accurate because Ai Jian's original figure was not based on complete information and thus was not correct. 6. Calibre is an Indian producer of potassium persulfates and other chemicals. In addition to using its data in the preliminary results of this administrative review, we used its financial statements to calculate the SG&A expense ratio for purposes of the two previous segments to this proceeding. See Persulfates From the People's Republic of China: Final Results of Antidumping Review, 64 FR 69494, 69499-500 (Dec. 13, 1999) (Persulfates First Review Final). See also Persulfates from the People's Republic of China: Preliminary Results of Antidumping Duty Administrative Review, and Partial Rescission of Administrative Review, 65 FR 18963, 18966 (Apr. 10, 2000) (Persulfates Second Review Preliminary Results), followed in Persulfates From the People's Republic of China: Final Results of Antidumping Administrative Review and Partial Rescission of Administrative Review, 65 FR 46691 (July 31, 2000) (Persulfates Second Review Final). 7. The petitioner's argument relies solely on the fact that Calibre produces more non-subject than subject merchandise. We find that this fact does not lead to the automatic conclusion that it is distortive to allocate SG&A expenses on the basis of cost of sales. See, e.g., LNPP from Japan. On the contrary, we find that the two other products produced by Calibre are comparable to persulfates. Specifically, Calibre produces potassium bromate, which is an additive to beer and flour, and potassium iodate, which is ingested to counter the effects of radiation. Persulfates are used as a strengthening agent for flour. See the August 7, 2001, memorandum from Shawn Thompson to the file entitled "Source Data Used to Identify the Uses of Potassium Persulfates, Potassium Iodate, and Potassium Bromate in the 1999-2000 Antidumping Duty Administrative Review of Persulfates from the People's Republic of China." 8. In contrast, we find that using National Peroxide's financial statements may introduce distortions into the calculation of the SG&A ratio due to the fact that the company incurred certain expenses related to property development. See, e.g., note 1 on page 6 of National Peroxide's financial statements. Because these financial statements did not reflect a cost of sales related to property development, any expenses associated with this line of business would be borne by hydrogen peroxide and the company's other products, and, consequently, the SG&A ratio for hydrogen peroxide would be overstated by this amount. 9. We note that the Department's preference is to value factory overhead, SG&A, and profit using a single source where possible. Nonetheless, we recognize that, in cases where the preferred financial statements do not reflect a profit for a given period, we may use an alternative source for profit in accordance with our practice. See Silicomanganese from Brazil, Final Results of Antidumping Administrative Review, 62 FR 37877-37878 (July 15, 1997).