66 FR 48026, September 17, 2001 A-570-803 POR: 2/01/99-1/31/00 Public Document AD/CVD GIIO4: JDP September 4, 2001 MEMORANDUM TO: Richard W. Moreland Acting Assistant Secretary for Import Administration FROM: Bernard T. Carreau Deputy Assistant Secretary for Import Administration, Group II SUBJECT: Issues and Decision Memorandum for the Administrative Reviews of Heavy Forged Hand Tools from the People's Republic of China -- February 1, 1999 through January 31, 2000 Summary We have analyzed the comments and rebuttal comments of interested parties in the 1999-2000 administrative reviews of the antidumping duty orders covering heavy forged hand tools (HFHTs) from the People's Republic of China (PRC). As a result of our analysis, we have made changes in the margin calculations, including corrections resulting from verification. We recommend that you approve the positions we have developed in the Discussion of Issues section of this memorandum. Below is a complete list of the issues in these administrative reviews for which we received case and rebuttal briefs by parties: 1. Verification Failures 2. Misreported LMC Sales 3. Inability to Use Accounting System 4. Differences Between Reported and Verified Consumption Rates 5. Alleged Failure to Identify Steel Input 6. Failure to Report Commissions 7. LMC's Failure to Report Certain Sales 8. Whether the Department Should Use a Steel Bar or Steel Billet Surrogate Value 9. Surrogate Value for Steel Bar 10. Surrogate Value for Steel Billet 11. Whether the Department Should Update and Correct Surrogate Values 12. Whether the Department Should Use HTS Category 7204.49.01 to Value Railroad Rails and Wheels Input 13. Surrogate Value for Scrap 14. Surrogate Value for Pallets 15. Surrogate Value(s) for Wooden and Fiberglass Handles 16. Surrogate Value for Truck Freight 17. Surrogate Value for Electricity 18. Financial Ratios 19. The Sigma Rule 20. Shakeproof Methodology 21. LIMAC Rate 22. PRC-wide Rate 23. Clerical Error 24. Error in the Preliminary Results for TMC 25. Reported Factors for Plastic Strip for Axes and Cartons for Bars/Wedges Background On November 7, 2000, the Department of Commerce (the Department) published the preliminary results of the administrative reviews of the antidumping duty orders on HFHTs from the PRC. See Heavy Forged Hand Tools, Finished or Unfinished, With or Without Handles, From the People's Republic of China; Preliminary Results and Preliminary Partial Recision of Antidumping Duty Administrative Reviews and Notice of Intent Not To Revoke in Part, 65 FR 66691 (November 7, 2000) (HFHTs Preliminary Results). Imports covered by the antidumping orders on HFHTs include four classes or kinds of subject merchandise: axes/adzes, bars/wedges, hammers/sledges, and picks/mattocks. See Antidumping Orders: Heavy Forged Hand Tools, Finished or Unfinished, With or Without Handles from the People's Republic of China, 56 FR 6622 (February 19, 1991) (Orders). The reviews cover five manufacturer/exporters, Fujian Machinery & Equipment Import & Export Corporation (FMEC), Liaoning Machinery Import & Export Corporation (LMC), Shandong Machinery Import & Export Corporation (SMC), Shandong Huarong General Group Corporation (Huarong) and Tianjin Machinery Import & Export Corporation (TMC). The period of review (POR) is February 1, 1999 through January 31, 2000. We invited parties to comment on our preliminary results of the reviews. Comments were submitted by Ames True Temper and its Woodings-Verona operations (the petitioner) on August 17, 2001. The original case brief submitted on July 18, 2001 by the petitioner was found to contain new factual information and was returned to the petitioner. See August 15, 2001 letter to Nicholas Kessler of Wiley Rein & Fielding. Petitioner subsequently filed a corrected case brief on August 17, 2001. The petitioner filed its rebuttal brief on July 24, 2001. LMC, Huarong, SMC, and TMC (collectively, the respondents) filed their case brief on July 18, 2001, and their rebuttal brief on August 3, 2001. No party requested a hearing. Following the period for briefing, the Department placed on the record, and solicited comments on, proposed surrogate values for electricity and wooden pallets. The petitioner provided comments on August 22, 2001, which the Department took into consideration in selecting the surrogate values for these factors of production. See comments 9, 11 and 12 below. The Department has conducted this administrative review in accordance with section 751 of the Tariff Act of 1930, as amended (the Act). Facts Available 1. Application of Facts Available Section 776(a)(2) of the Act provides that (A) if an interested party withholds information that has been requested by the Department; (B) fails to provide such information in a timely manner or in the form requested; (C) significantly impedes a proceeding under the antidumping statute; or (D) provides such information but the information cannot be verified as provided in section 782(i), the administering authority shall, subject to section 782(d), use the facts otherwise available in reaching the applicable determination under this title. Section 782(d) of the Act provides certain conditions that must be satisfied before the Department may, subject to subsection (e), disregard all or part of the information submitted by a respondent. First, this section states that, if the Department determines that a response to a request for information does not comply with the request, it shall promptly inform the person submitting the response of the nature of the deficiency and shall, to the extent practicable, provide that person with an opportunity to remedy or explain the deficiency in light of the time limits established for the completion of the review. Section 782(d) continues by providing that, if the party submits further information in response to the deficiency notice and the Department finds the response is still deficient or submitted after the applicable time limits, the Department may disregard all or part of the original and subsequent responses. Section 782(e) of the Act states that the Department shall not decline to consider information deemed "deficient" under section 782(d) if: (1) the information is submitted by the established deadline; (2) the information can be verified; (3) the information is not so incomplete that it cannot serve as a reliable basis for reaching the applicable determination; (4) the interested party has demonstrated that it acted to the best of its ability; and (5) the information can be used without undue difficulties. FMEC The Department sent FMEC an antidumping questionnaire, but the company did not respond. See Letter from the Department to FMEC (July 10, 2000). As described in the preliminary results, the Department found that FMEC was part of the "PRC-wide" entity and utilized facts available (FA) to determine the preliminary rates for the PRC-wide entity because information necessary to determine that margin on a calculated basis was not available. In addition, the Department used an adverse inference in selecting the margin for the PRC-wide entity because it found that entity had failed to act to the best of its ability in responding to the Department's request for information. No parties have commented on this issue, nor has any additional information been placed on the record; therefore, we have continued to treat FMEC as part of the PRC-wide entity for these final results and to assign FMEC the PRC-wide rates for this review. See HFHTs Preliminary Results (for further discussion of our application of facts available). Huarong Pursuant to sections 776(a)(2)(A) and (C) of the Act, the Department has determined that it is appropriate to apply adverse facts available for purposes of determining the dumping margin for Huarong. Specifically, pursuant to section 776(a)(2)(A) of the Act, the Department has determined that Huarong failed to report the great majority of its U.S. sales. Thus, Huarong has withheld information that was requested by the Department. By not including these sales in its U.S. sales database and misidentifying these transactions as sales to another Chinese company, for resale to the United States, Huarong failed to disclose the fact that it: 1) negotiated the sales prices and terms with the U.S. customer; 2) received the purchase order directly from the U.S. customer; 3) issued the order confirmation directly to the U.S. customer; 4) incurred brokerage and handling and marine insurance expenses for the transactions in question; and 5) never transferred ownership of these unreported sales to the named PRC reseller. Due to the proprietary nature of this issue, for a further discussion, please see Memorandum from Holly Kuga to Bernard Carreau re: Application of Adverse Facts Available to Liaoning Machinery Import & Export Corporation and Shandong Huarong General Group Corporation, dated concurrently with this memorandum (AFA Memorandum). The Department's Section A questionnaire specifically asks respondents to provide"[t]he total quantity and value of the merchandise under review that you sold during the period of review in the United States," emphasis added. See The Department's May 2, 2000 Questionnaire - Section A and Section C at A-1. Although Huarong did report that it had made sales of subject merchandise to the United States, it did not report the majority of its U.S. sales, under the guise that these transactions were actually sales to another exporter for resale to the United States. In its questionnaire responses, Huarong noted that it is a producer and exporter of the merchandise under review. Huarong further noted that it also sells its products to a PRC trading company, who resells the merchandise to a United States customer. In four separate places in its questionnaire response Huarong clearly characterizes this trading company as a reseller of merchandise produced by Huarong rather than as Huarong's processing agent for certain of its own U. S. sales. See Huarong Response to the Department's May 2, 2000 Questionnaire - Section A and Section C (Huarong A&C). We note that the Department asks, in cases of sales to resellers, if a company shares customer lists or makes joint sales calls to the United States customer. In response to these questions, Huarong stated that it does not share United States customer names with its purported reseller and does not make joint calls to United States customers. It did not acknowledge that, in fact, it is the only party to make sales calls to the supposed reseller's United States customer, or that it supplies its purported reseller with the identity of the United States customer in question. We further note that Huarong stated that it did not maintain price lists for United States sales and yet, at verification, Huarong supplied price lists for all bar products sold to the United States. Due to the proprietary nature of this issue, for a further discussion, please see AFA Memorandum. Pursuant to section 782(d) of the Act, the Department issued several supplemental questionnaires to Huarong in an effort to provide Huarong the opportunity to remedy or explain deficiencies the Department had identified in Huarong's questionnaire responses. However, these supplemental questions were based on Huarong's initial responses to the Department's questionnaire, which provided no indication that it, and not the trading company, was the seller of the merchandise in question. Therefore, the Department was not in a position to identify this as an issue that required additional information. However, the Department specifically asked if Huarong had reported all of its sales of subject merchandise to the United States. In direct response to this question, Huarong stated that it had reported all its U.S. sales of subject merchandise and again failed to disclose the fact that it was the seller of the merchandise for which it had contracted with a trading company to act as agent. See September 18, 2000 Supplemental Questionnaire Response. Further, the Department asked if Huarong ever provided discounts, rebates or accepted returns of merchandise during the POR. Despite providing discounts of sales in response of defective merchandise, Huarong withheld this information. See September 29, 2000 Supplemental Questionnaire Response. Nowhere in Huarong's responses to the Department's supplemental requests for information did it correct its failure to report these U.S. sales. Due to the proprietary nature of this issue, for a further discussion, please see AFA Memorandum. Pursuant to section 782(i) of the Act, the Department conducted an on- site verification of Huarong's data at Huarong's headquarters in China. Upon arrival at verification, the Department found that Huarong had prepared almost no documents requested of it in the Department's verification outline which was provided to Huarong two weeks prior to commencement of verification. During the verification of Huarong's submitted sales information, the Department discovered that Huarong had mischaracterized the majority of its U.S. sales of subject merchandise as sales of a PRC trading company. Thus, Huarong had not reported these sales to the Department in its United States sales database. Specifically, the information reviewed at verification clearly demonstrates that Huarong records these sales in its books and records as sales to the U.S. customer in question. In fact, Huarong records the full amount its U.S. customer pays for its goods in its sales ledger. Moreover the documentation reviewed at verification with respect to these transactions clearly indicates that: 1) Huarong maintained all the relevant sales documentation; 2) Huarong did not sell the merchandise to the trading company but rather hired it as an agent to process invoices and export documentation; 3) Huarong negotiated the sales prices and terms directly with the U.S. customer with no involvement by the trading company; 4) Huarong received the purchase orders directly from the U.S. customer and issued the order confirmations directly to the U.S. customer with no involvement by the trading company; 5) Huarong incurred the brokerage and handling and marine insurance expenses for these sales; 6) Huarong paid the trading company an agent's fee for processing the sales invoices and export documentation, receiving the payment from the customer, and converting the payment into Chinese currency for forwarding to Huarong; and 7) Huarong recorded this agent fee as such in its internal books and records. Due to the proprietary nature of this issue, for a further discussion, please see AFA Memorandum. Further, during the factors of production portion of the Huarong verification, the Department found that Huarong's verified amounts for factor inputs of electricity, coal and paint all differed significantly from the amounts reported to the Department. Notable is the fact that these were the only reported factor inputs that the Department had the time to attempt to tie to the company cost accounting and production records and the only factor inputs for which Huarong prepared production records that tied to cost records. As a result of having to devote an inordinate amount of time to issues pertaining to the nature of the mischaracterized and unreported U.S. sales, there was insufficient time to address all issues relevant to Huarong's reported factors of production inputs. As a consequence of our findings at verification, we determined that Huarong did not act to the best of its ability in responding to the Department's requests for information pursuant to section 782(e)(4) of the Act. As evidenced by the manner in which Huarong records these sales in its own books, Huarong itself considers these transactions in question to be direct sales between itself and the U.S. customer (see discussion above). Nevertheless, despite numerous supplemental questions issued by the Department, Huarong neglected to correct its failure to report these U.S. sales. Finally, pursuant to section 776(a)(2)(C) of the Act, we have determined that Huarong has significantly impeded this review. As a direct consequence of Huarong's mischaracterization of, and failure to report, the majority of its sales to the United States, the Department 1) did not solicit further information from Huarong regarding these transactions in its supplemental questionnaires; 2) did not anticipate the need to address these sales at Huarong's verification and thus scheduled Huarong's verification without regard to these transactions; and 3) did not include these sales in the preliminary dumping margin analysis for Huarong. Thus, Huarong's mischaracterization of these sales significantly impeded the Department's ability to accurately determine a margin of dumping for Huarong in the instant administrative review. With respect to the verification, we note that Huarong's failure to report these sales in its database and its mischaracterization of them as sales to a PRC reseller resulted in the Department having to spend an inordinate amount of the scheduled verification at Huarong on sales issues, thus reducing the amount of time left and impeding the progress of the factors of production portion of the verification (see verification discussion above). This, compounded by the failure of Huarong to adequately prepare for verification, led to the Department's inability to reconcile factors of production to the company's cost records. See Verification of Huarong at 16. For the reasons stated above, the application of section 782(e) of the Act does not overcome section 776(a)'s direction to use facts otherwise available for purposes of determining a dumping margin for Huarong. Thus, the use of facts available is warranted for Huarong in this case. Moreover, we determined that, due to the nature of Huarong's verification failures, and the inadequacy of its cooperation, the integrity of this company's reported data on the whole is compromised. Therefore, we have determined that Huarong has not adequately demonstrated its entitlement to rates separate from the PRC-wide entity. As a consequence Huarong will receive the PRC-wide entity rates. LMC Pursuant to sections 776(a)(2)(A) and (C) of the Act, the Department has determined that it is appropriate to apply adverse facts available for purposes of determining the dumping margin for LMC in the instant review. Pursuant to section 776(a)(2)(A) of the Act, we have determined that LMC has withheld significant portions of the information that was requested by the Department such that the Department is unable to calculate a dumping margin with respect to this company. The Department discovered at verification that LMC had reported U.S. sales of bars in its sales database which were in fact sales by another PRC company to the United States. In doing this, LMC failed to disclose its role as an agent, rather than the seller of this merchandise. Because these misreported sales constituted the bulk of LMC's reported U.S. sales, we have determined that LMC's database is inadequate for purposes of calculating a dumping margin for this respondent. Specifically, LMC did not report that in its limited role as sales agent LMC simply 1) attached its name to the invoices for the sales in question; 2) prepared the export documentation for the sales in question; and 3) accepted payment for these sales and exchanged the payment for Chinese currency, which it forwarded to its supplier after withholding its minimal agent fee. In addition, LMC failed to disclose that it did not perform the majority of the selling activities. Despite being asked specific questions, LMC failed to disclose that its supplier negotiated all prices and sales terms for these sales of bar reported by LMC. Moreover, LMC failed to disclose that its supplier: 1) made the sales calls and conducted the price negotiations with the U.S. customer for these transactions; 2) maintained price lists for issue to the U.S. customer, 3) received purchase orders directly from the U.S. customer; 4) issued purchase order confirmations directly to the U.S. customer, 5) was responsible for after sale servicing; and 6) arranged and incurred expenses for all shipments from the factory to the U.S. customer. The Department's questionnaire specifically asks respondents to "[s]tate the total quantity and value of the merchandise under review that you sold during the period of review in the United States," emphasis added. See Department's May 2, 2000 Questionnaire - Section A and Section C at A-1. The questionnaire further requests respondents to describe how they set the prices of the merchandise they export to the United States and whether respondents negotiate prices directly with their customers. LMC responded that it negotiated prices and terms directly with its own customers. See LMC Section A and Section C Questionnaire response (June 12, 2000) (LMC A&C) at A-5, A-6. In fact, another company did this, not LMC. Responding to the Department's questions of whether it coordinated with other exporters in setting prices, and whether LMC has the authority to contractually bind the company to sell merchandise, LMC stated that it did not coordinate with other exporters and that no organization outside of LMC reviews or approves any aspect of a sales transaction. See LMC A&C at A-6. LMC omitted the fact that it had nothing to do with setting the price. In responding to the Department's request to describe sales agreements in the United States, LMC stated that it used purchase orders and acknowledgments for sales to the United States. See LMC A&C at A-10, A- 11. LMC provided copies of the purchase orders for the sales at issue on which the facsimile phone numbers and identities of the sender and receiver at the top of the purchase orders are almost entirely omitted. See September 18, 2000 LMC Supplemental Response at exhibit 2. However, during the course of verification in the PRC, the Department obtained copies of these same purchase orders where the facsimile phone numbers and identities of the sender and receiver at the top of the purchase orders clearly demonstrate that in fact LMC's supplier was the U.S. customer's intended recipient. See Verification Report Exhibits (June 26, 2001), exhibit 26. In response to whether it incurred international freight costs, brokerage and handling costs, and marine insurance, LMC stated that it incurred such expenses for its sales. See LMC A&C at C-14, C-15 and September 18, 2000 LMC Supplemental Response at 2. LMC. When asked the extent of the supplier's involvement in the sales process, LMC stated that the supplier did not have the right to review LMC's sales records, did not participate in U.S. sales calls or activities, and did not provide sales incentives to LMC's customers. Pursuant to section 782(d) of the Act, the Department issued several supplemental questionnaires to LMC seeking clarification or supplemental information with respect to LMC's reported sales in order to allow LMC an opportunity to remedy or explain any deficiencies in its responses. However, these supplemental questions were based on LMC's initial responses to the Department's questionnaire, which provided no indication that LMC was not the seller of the merchandise in question and, therefore, the Department was not in a position to identify this as an issue. However, we asked LMC to ensure that it had reported all U.S. sales of subject merchandise purchased from PRC suppliers for resale. In responding to this question, LMC stated that it had reported all such sales. Here, again, LMC failed to note that it had not purchased the merchandise in question for resale, but instead had merely acted as an agent on behalf of another company. In responding to other supplemental questions, LMC stated that it paid international freight, brokerage and handling and marine insurance expenses for its bar sales to the United States. In response to the Department's request for sales agreements with U.S. customers, LMC provided purchase orders and acknowledgments for sales to the United States that were actually correspondence between LMC's supplier and the U.S. Customer. While the Department was in no position to identify LMC's misreporting of these sales, the supplemental questions clearly provided LMC with an opportunity to clarify its position as a mere agent and not seller. As is evidenced by its supplemental responses, LMC made no attempt to make any such clarification. Pursuant to section 782(i) of the Act, the Department conducted on-site verifications of the information submitted by both LMC and two other respondents at each company's respective sales headquarters in the PRC. In analyzing LMC's record information pursuant to section 782(e) of the Act, we have determined that significant portions of LMC's reported data could not be verified in accordance with subsection 782(e)(2). Upon arrival at verification, the Department discovered that LMC had prepared none of the documentation requested in the April 9, 2001 sales verification outline. LMC provided no explanation to the Department's verifiers for its failure to prepare any of the requested information with respect to bars or wedges. At verification, it became evident that LMC was almost entirely uninvolved in the sales process with respect to the great majority of the sales it had reported to the Department and could not provide the information necessary to verify its own submissions. In attempting to verify the data related to LMC's reported bar sales, LMC provided only limited documentation, none of which supported that the transactions in question were sales by LMC. In fact, as an explanation for the lack of documentation supporting their own sales, LMC finally admitted at verification that it did not use its own records to prepare the sales listings provided to the Department. Instead, LMC stated that it relied largely on the United States importer of subject merchandise to prepare its sales listings provided to the Department in its questionnaire response. See Verification Report of LMC at 7. The documents provided by LMC were purchase orders from the U.S. customer and order confirmations issued to the U.S. customer. Despite the fact that LMC's name was attached to the documents, the facsimile information printed across the top of these documents as provided by LMC were either unclear or partially missing. However, the Department obtained additional copies of these same documents at verification which contain all of the facsimile information that shows these documents were either issued by the U.S. customer directly to LMC's supplier or generated by the supplier for issuance to the U.S. customer. Additionally, 1) LMC lacked records regarding brokerage and handling and marine insurance expenses for these bar sales; 2) LMC kept no sales ledger, accounts receivable or inventory records of these bar sales; and 3) LMC lacked most of the purchase orders for these sales. In fact, nearly all documents relevant to the bar sales were generated and maintained by the supplier, not LMC. Other than having its name on some of the documents, LMC had no involvement in generating or receiving these documents during the sales negotiation process. Thus, the Department determined that LMC lacked the documents needed to verify the reported information regarding these sales. At verification, for the first time in the proceeding, LMC admitted that the bar sales it reported as its own were in fact sales by another company, for which LMC simply attached its name to the invoice and export documents. In addition, contrary to statements in its questionnaire responses to the Department, LMC now stated to the verifiers that it had no contact with the U.S. customer during the sales negotiation process for these sales, LMC did not negotiate the sales price or terms, did not confirm the purchase orders, and was not involved in the payment of freight or movement expenses. Moreover, LMC acknowledged that it had not purchased bars for resale to the United States; rather it acted more along the lines of a processing agent for the relevant sales to the U.S. customer. In response to questions by the verifiers, LMC stated that it did not record these transactions in its sales, inventory or accounts receivable ledgers. Company officials noted that LMC records only the agent's fee (not the sales price) in its agent sales ledger. Thus, it is evident that LMC does not treat these transactions as sales in its own books and records, but actually treats the income generated as an agent's fee. Finally, at the end of the LMC verification, when the Department asked LMC why the sales in question had been structured in this manner, so that LMC acted as a sales agent, LMC offered a response that was clearly contradicted by other facts on the record. Due to the proprietary nature of this issue, for a further discussion, please see AFA Memorandum. In conducting the quantity and sales value portion of verification, the Department discovered that LMC not only does not record the quantity and value of these sales, but it also does not record all of the invoice record numbers in its sales agent ledger. Moreover, it was not until verification that LMC disclosed that some of these transactions are in fact recorded, not in LMC's sales agent ledger, but Limac's sales agent ledger. Limac is a new corporate entity, spun off from LMC. Thus, while the Department was able to match nearly all of the sales itemized on the invoices provided at verification with sales reported to the Department, the Department was unable to clearly trace all sales to LMC's or Limac's sales agent ledgers because many of the entries in these ledgers reflected a grouping of commissions from numerous invoices summed together, where LMC often omitted the invoice numbers of the corresponding sales. In contrast to the verification issues surrounding the reported bar sales, the Department found that LMC recorded its reported wedge sales transactions (which constitute an extremely small percentage of LMC's reported sales) in its sales ledger and accounts receivable ledger. In verifying quantity and value, the Department was able to reconcile the wedge sales reported to the Department precisely with LMC's company records. Further, LMC was able to demonstrate that it performed all sales functions, including 1) receiving solicitation of bids and purchase orders from the United States customer; and 2) providing the purchase order to its Chinese supplier upon receipt of a purchase order from its U.S. customer. As a consequence of our findings at verification, pursuant to section 782(e)(4) of the Act, we determined that LMC did not act to the best of its ability in responding to the Department's requests for information. Despite its clear knowledge that it was not the seller for the transactions in question, LMC reported these transactions as its own U.S. sales. Moreover, in its initial and supplemental questionnaire responses, LMC repeatedly made false statements that it had performed the selling activities for these bar transactions. However, LMC's sole responsibilities with respect to these transactions were to provide customs and shipping documents, assist in the formalities of export, and collect payment on behalf of its supplier. These responsibilities are explicitly set out in its contract with the supplier. Although the customer remits payment to LMC, LMC retains only the agent's fee and forwards the remainder of the payment to the supplier. In fact, as discussed above, LMC only records the agent fee in its books and records; it never records the sales price of the merchandise. Thus, LMC had not purchased the bars nor was it involved in the sales negotiation process for these bar sales as it had stated in its questionnaire responses. It was not until verification that LMC acknowledged that it had not made the sales in question to the United States. For further discussion of this issue please see AFA Memorandum. Finally, pursuant to section 776(a)(2)(C) of the Act, we have determined that LMC has significantly impeded this review. LMC demonstrated at verification that it was fully aware of its lack of any meaningful involvement in these sales from the beginning of this review. Yet, as detailed above, LMC misreported the sales as its own in its initial questionnaire response and in the ensuing supplemental responses. As a consequence of LMC's failure to accurately describe the true nature of these sales in its questionnaire and supplemental responses, the Department was unable to determine that the sales were misreported until verification. As a direct result of LMC misreporting its sales, the Department: 1) issued a verification outline to LMC for purposes of reviewing the data relevant to these transactions; 2) did not anticipate the need to verify these transactions at another company's facilities in the PRC; and 3) incorrectly included these sales in the preliminary dumping margin analysis for LMC. Thus, LMC's mischaracterization of these sales significantly impeded the Department's ability to accurately determine a margin of dumping for LMC in the instant administrative review. Due to the proprietary nature of this issue, for additional discussion of this issue, please see AFA Memorandum. This misallocation of time, compounded by LMC's consistent pattern of not revealing accurate details regarding the nature of these transactions throughout the verification until after it became apparent that each item could not be successfully verified, significantly delayed and impeded the Department's verification efforts. As the Department noted in its verification report, LMC 1) failed to prepare any of the documents it was instructed to present prior to the start of verification; and 2) failed to be forthcoming regarding the fact that it lacked most of the documents relevant to the sales in question (verification of these bar sales should have been held at another company's facility). Due to the proprietary nature of this issue, for additional discussion of the issue, please see AFA Memorandum. Thus, it was not until the Department attempted to verify the veracity of the reported transaction data that it was able to determine the breadth and significance of LMC's misreporting. For the reasons discussed above, the application of section 782(e) of the Act does not overcome section 776(a)'s direction to use facts otherwise available to determine a margin of dumping for LMC in this administrative review. Thus the use of facts available is warranted for LMC in this case. Moreover, we determine that, due to the nature of LMC's verification failures, and the inadequacy of its cooperation, the integrity of LMC's reported data on the whole is compromised. Therefore, we determine that LMC has not adequately demonstrated its entitlement to a rate separate from the PRC-wide entity. As a consequence LMC will receive the PRC-wide entity rate. SMC In the instant review, SMC responded fully to the Department's questionnaire with respect to the antidumping duty order on hammers/sledges from the PRC. However, with respect to the questionnaire regarding the remaining three HFHT orders, SMC only responded with respect to the separate rates portion of the questionnaire. SMC failed to provide any sales or factors of production data with respect to sales of axes/adzes, bars/wedges and picks/mattocks. Therefore, as in the preliminary results, we are basing SMC's margins for the final results of review with respect to these three classes or kinds of merchandise on adverse facts available. See the Preliminary Results for a full discussion of this issue. However, because SMC's data with respect to the separate rate issue is complete and was successfully verified, we determine that SMC has adequately established its continued entitlement to a separate for these three classes or kinds of merchandise. As adverse facts available for SMC for axes/adzes we have applied a margin of 18.72 percent, a calculated margin from the 1995-1996 POR; for bars/wedges we have applied a margin of 47.88 percent, a calculated margin from the 1992-1993 HFHTs administrative reviews; and for picks/mattocks we have applied a margin of 98.77 percent, the rate currently applicable to SMC and the PRC-wide entity, which is a calculated margin from the 1995-1996 HFHTs administrative reviews. 2. Selection of Adverse Facts Available In selecting from among the facts otherwise available, section 776(b) of the Act authorizes the Department to use an adverse inference if the Department finds that a party has failed to cooperate by not acting to the best of its ability to comply with requests for information. See the Statement of Administrative Action (SAA) at 870. Section 776(b) of the Act states that if the administering authority or the Commission (as the case may be) finds that an interested party has failed to cooperate by not acting to the best of its ability to comply with a request for information from the administering authority or the Commission, the administering authority or the Commission (as the case may be), in reaching the applicable determination under this title, may use an inference that is adverse to the interests of that party in selecting from among the facts otherwise available. Adverse inferences are appropriate "to ensure that the party does not obtain a more favorable result by failing to cooperate than if it had cooperated fully." See Statement of Administrative Action (SAA) accompanying the URAA, H.R. Doc. No. 316, 103d Cong., 2d Session at 870 (1994) and See Borden, Inc. v. United States, 4 F. Supp. 2d 1221 (CIT 1998); Mannesmannrohren-Werke AG v. United States, 77 F. Supp. 2d 1302 (CIT 1999). Such adverse inference may include reliance on information derived from (1) the petition; (2) a final determination in the investigation under this title; (3) any previous review under section 751 or determination under section 753, or (4) any other information on the record. To examine whether the respondent "cooperated" by "acting to the best of its ability"' under section 776(b), the Department considers, inter alia, the accuracy and completeness of submitted information and whether the respondent has hindered the calculation of accurate dumping margins. See e.g., Certain Welded Carbon Steel Pipes and Tubes From Thailand: Final Results of Antidumping Duty Administrative Review, 62 FR 53808, 53819- 53820 (October 16, 1997). (A) Separate Rates Facts Available In the instant review, SMC responded fully to the Department's questionnaire with respect to the antidumping duty order on hammers/sledges from the PRC. However, with respect to the questionnaire regarding the remaining three HFHT orders, SMC only responded with respect to the separate rate portion of the questionnaire. SMC failed to provide any sales or factors of production data with respect to axes/adzes, bars/wedges and picks/mattocks. Therefore, as in the preliminary results, we are basing SMC's margins for the final results of review with respect to these three classes or kinds of merchandise on adverse facts available. See the Preliminary Results for a full discussion of this issue. However, because SMC's data with respect to the separate rate issue is complete and was successfully verified, we determine that SMC has adequately established its continued entitlement to a separate for these three classes or kinds of merchandise. In the preliminary results of this review, we used margins calculated in the 1998-1999 HFHTs administrative reviews. However, the Department subsequently requested a remand from the Court of International Trade to determine a different surrogate value for pallets for the 1998-1999 review with respect to all four classes or kinds of subject merchandise. The Court remanded the case to the Department for determination of the appropriate surrogate value for pallets. However, a final decision with respect to this remand determination will not be available until after the instant final results have been issued. Therefore, rates calculated in that review are no longer appropriate for use as facts available. In addition, we note that, with respect to our preliminary facts available rate for axes/adzes, we used the preliminary margin calculated for TMC in the instant review. That rate has been recalculated for these final results. As adverse facts available we have applied for axes/adzes we have applied a margin of 18.72 percent, a calculated margin from a respondent in the 1995-1996 HFHTs administrative reviews; for bars/wedges we have applied a margin of 47.88 percent, a calculated margin from a respondent in the 1992-1993 HFHTs administrative reviews; and for picks/mattocks we have applied a margin of 98.77 percent, the rate currently applicable to SMC and the PRC-wide entity, a calculated margin from a respondent in the 1995-1996 HFHTs administrative reviews. (B) Country-Wide Rates Facts Available The Department has determined that the use of facts available is appropriate for purposes of establishing the country-wide rates for these final results of reviews, pursuant to section 776(a)(2)(A) and (C) of the Act. The Act provides that the administering authority shall use facts otherwise available when an interested party "fails to provide such information by the deadlines for the submission of the information or in the form and manner requested." Section 776(b) of the Act authorizes the Department to use adverse facts available whenever it finds that an interested party has failed to cooperate by not acting to the best of its ability to comply with the Department's requests for information. On June 1, 2000, the Department sent a questionnaire to the Ministry of Foreign Trade and Economic Cooperation ("MOFTEC") in order to collect information relevant to the calculation of the PRC-wide rates. MOFTEC did not respond to our questionnaire. FMEC likewise did not respond, and neither Huarong nor LMC provided a consolidated response representing all non-independent exporters of HFHTs. Moreover, as discussed in detail above and the AFA Memorandum, the accuracy of Huarong's and LMC's responses could not be substantiated at verification and the Department determined that it is appropriate to use the facts available for these two respondents. Neither Huarong or LMC cooperated by acting to the best of their respective abilities to comply with the Department's requests for information. Huarong failed to report a substantial portion of its U.S. sales, despite its knowledge that these were U.S. sales subject to this review. In addition, at verification, Huarong was unable to substantiate numerous reported factor of production values. LMC misreported, as the predominant portion of its U.S. sales database, transactions for which it was not the seller, but merely a sales agent, and at verification could not substantiate the reported data with respect to these sales. Therefore, for these final results, because MOFTEC did not respond to our questionnaire or direct us to send the questionnaire to any other party, because FMEC failed to respond to the Department's questionnaire, and because Huarong and LMC failed verification and did not cooperate to the best of their ability, we determine that the PRC-wide entity did not cooperate to the best of its ability with our requests for information. Therefore, pursuant to section 776(b) of the Act, we are relying on adverse facts available to determine the margins for the PRC-wide entity for all four classes or kinds of covered merchandise. We have determined the adverse facts available PRC-wide rates as follows: for axes/adzes we have applied a margin of 18.72 percent, the margin from the 1995-1996 HFHTs administrative reviews; for bars/wedges we have applied a margin of 47.88 percent, the margin from the 1992-1993 HFHTs administrative reviews; for hammers/sledges we have applied a margin of 27.71 percent, the margin from the 1992-1993 HFHTs administrative reviews; and for picks/mattocks we have applied a margin of 98.77 percent, the rate currently applicable to SMC and the PRC-wide entity, the margin from the 1995-1996 HFHTs administrative reviews. 3. Corroboration Section 776(c) of the Act provides that when the Department relies on the facts otherwise available and relies on "secondary information," the Department shall, to the extent practicable, corroborate that information from independent sources reasonably at the Department's disposal. The SAA, H.R. Doc. 103-316 (2nd Sess. 1994) states that "corroborate" means to determine that the information used has probative value. See SAA at 870. To corroborate secondary information, the Department will, to the extent practicable, examine the reliability and relevance of the information to be used. However, unlike other types of information, such as input costs or selling expenses, there are no independent sources for calculated dumping margins. The only source for calculated margins is administrative determinations. Thus, in an administrative review, if the Department chooses as total adverse facts available a calculated dumping margin from the current or a prior segment of the proceeding, it is not necessary to question the reliability of the margin for that time period. See Grain-Oriented Electrical Steel From Italy; Preliminary Results of Antidumping Duty Administrative Review, 61 FR 36551, 36552 (July 11, 1996). With respect to the relevance aspect of corroboration, however, the Department will consider information reasonably at its disposal to determine whether a margin continues to have relevance. Where circumstances indicate that the selected margin is not appropriate as adverse facts available, the Department will disregard the margin and determine an appropriate margin. For example, in Fresh Cut Flowers from Mexico: Final Results of Antidumping Administrative Review, 61 FR 6812 (February 22, 1996), the Department disregarded the highest margin in that case as adverse best information available (the predecessor to facts available) because the margin was based on another company's uncharacteristic business expense resulting in an unusually high margin. Similarly, the Department does not apply a margin that has been discredited. See D & L Supply Co. v. United States, 113 F.3d 1220, 1221 (Fed. Cir. 1997) (the Department will not use a margin that has been judicially invalidated). None of these unusual circumstances are present here. Accordingly, for each class or kind of HFHTs for which we have resorted to adverse facts available, we have used the highest margin from this or any prior segment of the proceeding as the margin for these final results because there is no evidence on the record indicating that such margins are not appropriate as adverse facts available. Separate Rates Determination As discussed above, FMEC, Huarong, and LMC have not demonstrated their entitlement to a rate separate from the PRC-wide entity. Therefore, they are considered part of the PRC-wide entity. Discussion of Issues Comment 1: Verification Failures The petitioner contends that the Department found serious material deficiencies at verification, which should serve as the basis for applying total adverse FA to SMC, Huarong and LMC. The petitioner argues that the application of adverse FA for SMC, Huarong and LMC is appropriate, based on the United States Court of International Trade's (the Court) opinions in the Borden and Mannesmannrohren cases, where a respondent does not act to the best of its ability. See Borden, Inc. v. United States, 4 F. Supp. 2d 1221 (CIT 1998); Mannesmannrohren-Werke AG v. United States, 77 F. Supp. 2d 1302 (CIT 1999). Furthermore, the petitioner states that the Statement of Administrative Action accompanying the Uruguay Round Agreement Act (SAA) recognizes that the Department's use of FA is an essential investigative tool and that it is the only incentive to foreign exporters and producers to respond to the Department's questionnaires. See SAA, reprinted in H.R. Doc. 103-316, Vol. I, at 868 (1994). The petitioner further notes that the SAA grants the Department the ability to use adverse inferences "to ensure that the party does not obtain a more favorable result by failing to cooperate than if it had cooperated fully." SAA at 870. Also, the petitioner notes that the Court of Appeals for the Federal Circuit (CAFC) has stated that "the rule can be viewed as an investigative tool, which {the ITA} may wield as an informal club over recalcitrant parties or persons whose failure to cooperate may work against their best interest." See Rhone Poulenc, Inc. v. United States, 899 F. 2d 1185, 1191 (Fed. Cir. 1990), citing Atlantic Sugar, Ltd. v. United States, 744 F. 2d 1556, 1560 (Fed. Cir. 1984). The petitioner contends that SMC, Huarong and LMC failed to prepare for verification, and thus did not have essential materials available when verification commenced. Given the short time frame available for verification, the petitioner argues, this hindered the Department's ability to gather information, and led to inaccuracies and procedural shortcomings in the data provided by SMC, Huarong and LMC. The petitioner states that Huarong and SMC prepared "almost none" of the material identified ahead of the scheduled verification, while LMC prepared "none." See Memorandum to the File from Jeff Pedersen re: Verification of Huarong (June 26, 2001) (Huarong Verification Memo), at 1; Memorandum to the File from Jeff Pedersen re: Verification of LMC (June 26, 2001) (LMC Verification Memo), at 1; and Memorandum to the File from Jeff Pedersen re: Verification of SMC (June 26, 2001) (SMC Verification Memo), at 1. The petitioner contends that SMC, Huarong and LMC's failures are no less serious than if they had failed to complete their questionnaire responses. Furthermore, the petitioner argues that failure to prepare any of the requested documents in advance must be treated as a failure of the entire verification, unless the Department intends to reward future respondents for noncompliance. Finally, the petitioner characterizes SMC, Huarong and LMC's actions as a "casual approach" and "wholesale indifference" to the verification process. Regarding the petitioner's argument that SMC, Huarong and LMC failed to prepare for verification, these respondents assert that the petitioner's characterizations are incorrect and without merit. SMC, Huarong and LMC contend that they fully cooperated with the Department to the best of their abilities, complied with all of the Department's requests, and never tried to circumvent dumping duties. The three respondents assert that they provided complete and timely responses to the Department. Furthermore, they state that there were no "serious material deficiencies" at verification, but that the verifications were thorough and complete. SMC, Huarong and LMC assert that there were no "inaccuracies or procedural shortcomings" in the data provided, but that the Department verifiers received everything they requested, without exception. LMC and SMC contend that the Department verified their submissions for the instant review period as complete and accurate. LMC and SMC note that the Department concluded that their sales data could be traced back to their financial statements. LMC and SMC maintain that, at the start of the verification, they had all of their sales, financial, tax, and related documents covering the POR segregated, as well as copies of all submissions. Any delay, LMC and SMC argue, occurred because LMC and SMC postponed preparing documents for the completeness test until the Department verifiers had reviewed their respective accounting systems and determined exactly how the documents should be prepared. Finally, LMC and SMC argue that they provided all the documents requested by the Department during the course of the verification. Huarong asserts that it is a small company acting to the best of its abilities with limited resources and no computerized system. Huarong relies upon the Department's comment in Porcelain-on-Steel Cooking Ware From the People's Republic of China; Final Results of Antidumping Duty Administrative Review, 62 FR 32757, 32763 (June 17, 1997): [T]he Statement of Administrative Action (SAA) provides guidance concerning the use of facts available to the Department in evaluating whether submitted information should be considered or rejected under the new Act. It states: 'Commerce . . . may take into account the circumstances of the party, including (but not limited to) the party's size, its accounting systems, and computer capabilities, as well as the prior success of the same firm, or other similar firms, in providing requested information in antidumping and countervailing duty proceedings.' Id., citing SAA, H.R. Doc. 103-316, 865 (1994). Department's Position: With respect to Huarong and LMC, the Department agrees with the petitioner that these two respondents failed verification. See the Application of Facts Available section above for a detailed discussion of these respondents' verification failures. See also the AFA Memorandum. We do not agree, however, that SMC failed verification. Although, SMC was not completely prepared at the start of the verification, the Department was able to gather all of the documents necessary to verify SMC's previously submitted data. The Department notes that this would not have been possible without SMC's full cooperation. Further, any differences between SMC's reported data and the information reviewed at verification were not so significant as to cast doubt on the total veracity of SMC's reported data. Thus, there is no basis for resorting to total facts available for SMC in this administrative review. Comment 2: Misreported LMC Sales The petitioner asserts that all of LMC's reported bar sales were actually made by another company and that LMC served merely as a shell for the transactions in an apparent effort to deceive the Department and the United States Customs Service (Customs). The petitioner points out that the U.S. buyer of the HFHTs requested that LMC, rather than the other company, process the sales due to its lower antidumping margin. The petitioner argues that unless the Department gives both LMC and the other company the same margin and applies total adverse FA in the determination of this margin, the Department will only encourage such manipulation. The petitioner adds that the Department should apply adverse FA to both companies and use the highest antidumping margin for any bar producer in any previous review, and that the Department should refer this matter to Customs for a full investigation. LMC refutes the petitioner's argument that LMC acted as a shell for sales that were, in fact, those of another company and contends that the sales in question were properly classified as its own. LMC argues that it is the exporter of record, and that LMC received the payments for the sales. Furthermore, LMC asserts that there was no effort made to avoid the payment of any dumping duties. LMC contends that the sales of the subject merchandise were reported by LMC and the company performing the sales activities. LMC argues that the duties would be the same whether all the sales were reported by LMC or the other company. LMC adds that it and the other company reported all sales and that it did not falsify records or misrepresent the facts. LMC contends that, absent a failure to report sales, the Department lacks any basis to resort to facts available, as advocated by the petitioner. Department's Position: We agree with the petitioner that the sales in question were misreported by LMC and, in fact, were sales made by another company in this proceeding. Although LMC did act as the exporter of record for these transactions, at verification we found that the majority of sales functions for these transactions were performed by the other company. Further, title to the subject merchandise was never transferred from the other company to LMC. Rather, LMC acted as a sales agent with respect to these transactions. For a more detailed discussion of our analysis with respect to this issue and our determination to apply facts available to LMC see the Application of Facts Available section above and the AFA Memorandum. Comment 3: Inability to Use Accounting System The petitioner states that the Department was unable to examine LMC's accounting records fully. Also, the petitioner argues that as LMC and the Department could find no way to utilize LMC's computer accounting system in verifying LMC, this hindered the ability of the Department to perform any close investigation of LMC's financial accounts. The petitioner points out that LMC has long been aware of the existing dumping order and thus had ample time to prepare its computerized accounting system so that it could be utilized during verification. The petitioner concludes that LMC should not enjoy a lower level of scrutiny, regardless of the format in which it maintains its financial records. LMC points out that there is no law requiring foreign companies to maintain computerized accounting systems in order to sell merchandise to the United States. LMC further states that the fact that its accounting system is not computerized does not mean its financial records are inaccessible. Department's Position: We note that the Department has determined that LMC failed verification because the Department was unable to verify the accuracy of LMC's reported data using any of its financial or accounting documents, computerized or otherwise. For a more detailed discussion of our analysis with respect to this issue and our determination to apply facts available to LMC, see the Application of Facts Available section above and the AFA Memorandum. Comment 4: Differences Between Reported and Verified Consumption Rates The petitioner states that the Department discovered major discrepancies at its verification of Huarong between the reported consumption rates for paint, coal and electricity and the amounts it was able to verify. The petitioner points out that the "caps" on which the reported consumption rates were based were not supported by any documentation. The petitioner asserts that Huarong failed to prepare materials that would provide accurate data regarding its actual consumption rates during verification and that this material failure warrants the use of adverse FA. Huarong urges the Department to affirm the reasonableness of the "caps" on which Huarong bases its reported consumption rates and make no adjustments to Huarong's factor inputs. Huarong acknowledges that differences do exist between the reported factors and the verifiers' calculations. However, Huarong contends that these differences are small, that the reported factors are both greater and smaller than the verified amounts, and if taken together, the differences do not affect the margins. Huarong states that the question of packing factor allocation comes up at every verification. Huarong contends that past verifications also resulted in small differences between the reported caps and the Department's tests, but that the Department confirmed Huarong's general methodology as reasonable every time. Huarong further argues that the verifiers' sampling of one size does not necessarily reflect a pattern of under reporting. Huarong notes that for this verification, the verifiers reached their conclusions based on weighing one carton, on one day, for one type of hammer. Furthermore, Huarong contends that the differences between the caps and the tested figures for the carton weight, the anti-rust paper weight, and the metal straps weight per hammer were small. Huarong argues that the Department declined in the past to make adjustments that were small and that essentially had no effect on the outcome. See Heavy Forged Hand Tools, Finished or Unfinished, With or Without Handles, From the People's Republic of China; Final Results of Antidumping Duty Administrative Reviews, 63 FR 16758, 16761 (April 6, 1998) (1997-1998 HFHTs Final). Huarong adds that, if the petitioner believed more calculations would have helped, it could have requested that the Department ask Huarong to provide calculations that support the reported caps. Huarong argues that the petitioner was satisfied with the review until after all factual submissions were in and asserts that the case brief is not the place to raise this issue. Huarong adds that during the verification it explained the reasons for some differences and provided extensive data in connection with the verifications, all of which were served on the petitioner. Department's Position: The Department disagrees with Huarong's contention that the inaccuracies were insignificant and were both less than and greater than the consumption rates originally reported to the Department. The verified amounts for paint, electricity and coal all differed significantly from the originally reported amounts, with verified consumption rates often exceeding 50 percent of originally reported amounts. The Department agrees with Huarong that the differences for the caps and the tested weight figures for cartons, anti-rust paper and metal straps weight per hammer were less significant than the differences discussed above. However, as a result of Huarong's overall verification failure, we have determined to apply adverse facts available to determine a final result margin for Huarong in this administrative review. Comment 5: Alleged Failure to Identify Steel Input The petitioner argues that Huarong failed to accurately identify its primary steel input at verification and that there is no record evidence establishing the primary input as steel bar or steel billet. The petitioner emphasizes the importance of identifying the exact steel input in this case as this case is a non-market economy case where the identity of the steel input has an enormous impact on the calculation of normal value. The petitioner argues that the Department should presume that carbon steel bars have been used as inputs, which is consistent with the Department's findings in the previous administrative reviews of this case, and should value the carbon steel bars at the highest value on the record of these reviews. Huarong argues that it made an extensive disclosure regarding the semi- finished billet it purchased and then rolled to the desired dimensions for use in producing the subject merchandise. Huarong contends that the Department verifiers saw the billet, saw the rolling process, saw the forging process and had access to all of Huarong's books and records. Moreover, Huarong asserts that there is no need or economic reason for it to use a more expensive, finished steel product when it rolls the steel before forging. Huarong notes that the Department reached this same conclusion during the 1997-1998 review of Huarong's HFHTs. Department's Position: As a result of Huarong's verification failure with respect to its sales reporting and the discrepancies found with respect to several significant report factor of production caps, the Department has determined to base Huarong's margin on adverse facts available, see discussion above. Therefore, the issue of whether Huarong used bar or billet in its production process is moot and we have not addressed it for these final results of review. Comment 6: Failure to Report Commissions The petitioner argues that SMC failed to report commissions paid and that this apparent lack of candor at verification warrants the application of total adverse FA. At a minimum, the petitioner argues that the Department should assume that commissions were paid on all of SMC's transactions, and the Department should reduce all of SMC's U.S. prices by the amount of the commission. SMC argues that the petitioner's contention regarding SMC's commissions has no merit. First, SMC states that there were no serious inaccuracies detailed in its verification report. Secondly, SMC argues that the commissions do not have any bearing on its sales. SMC contends that the Department already includes selling expenses in its selling, general and administrative expenses (SG&A) ratio. Moreover, SMC asserts that its commissions were not paid to a U.S. customer and therefore cannot be considered a rebate. SMC argues that the commissions are not relevant to the subject merchandise. Department's Position: Although the Department agrees with the petitioner that SMC did not report commissions paid, the Department does not make circumstance-of-sale- adjustments in non-market economy (NME) cases for differences in commissions. See Titanium Sponge from the Russian Federation, Notice of Final Results of Antidumping Duty Administrative Review, 62 FR 48601, 48605 (September 16, 1997). Therefore, the Department does not view this issue as warranting the application of total adverse facts available or as warranting a circumstance-of-sale adjustment to SMC's U.S. sales. Comment 7: LMC's Failure to Report Certain Sales LMC argues that it should not be penalized for failing to report four invoices for which the entry date was inside the POR, but the date of shipment was outside the POR. First, LMC contends that in the past the Department did not review the date of entry, and that the Department's questionnaires do not require the dates of entry be to be separately shown. Furthermore, LMC asserts that it did not maintain information about the dates of entry because this information is maintained by the importer, not the exporter. Thus, LMC states that its officials collected the shipping data based on shipments during the POR, rather than dates of entry. Moreover, LMC points out that it checks sales manually since it does not have a computerized sales record. Thus, LMC contends that it could only use a sales date method for identifying the sales. Finally, LMC argues that there was no intent on LMC's part to cover up any sale, and that the prices of the subject merchandise on the four invoices not reported to the Department were identical to those reported to the Department in this POR. Department's Position: As a result of LMC's overall verification failure with respect to its sales reporting, the Department has determined to base LMC's margin on adverse facts available, see discussion above. Therefore, this issue is moot and we have not addressed it for these final results of review. Comment 8: Whether the Department Should Use a Steel Bar or Steel Billet Surrogate Value The petitioner contends that the Department should use a steel bar surrogate value rather than a steel billet surrogate value for TMC, Huarong and LMC's primary steel input for HFHTs. The petitioner urges the Department to reject TMC, Huarong and LMC's claim that their primary steel input is now steel billet, given that they previously used bars as an input. The petitioner asserts that the Department has recognized the use of steel bars as a material input in previous HFHTs reviews. The petitioner asserts that there is strong evidence of steel bar use in the production of HFHTs. However, the petitioner accuses TMC, Huarong and LMC of downplaying their past use of bar inputs and now only admitting to using bar inputs for "[s]ome hammers/sledges exported by TMC and all of the hammers/sledges exported by SMC" See respondents' submission of surrogate values, July 3, 2001 (Respondents' Surrogate Value Submission). The petitioner notes that the records of purchases of steel bar in this review are slim. This reduction in the documentation of purchases of steel bar, the petitioner believes, is due to the fact that products for which TMC, Huarong and LMC previously reported using steel bar as an input, are now reported as being produced from steel billet. The petitioner contends that the Department should continue its historical practice of using a value for steel bar as the surrogate value for the steel input in HFHT production, as the industry practice is to use steel bar, not billet, as the primary raw material input. The petitioner contends that TMC, Huarong and LMC had previously suggested that steel billets were simply a variant of steel bar and therefore that the use of steel billet surrogate values would not contradict the Department's established precedent. The petitioner contends that TMC, Huarong and LMC have now changed their approach and are arguing that the they do use steel billet as opposed to steel bar. The petitioner argues that TMC, Huarong and LMC have not provided documentary evidence, such as invoices, to substantiate their claims that they have switched from using steel bars to steel billets, and have ignored the voluminous record of steel bar use. The petitioner argues that Huarong failed to provide a straight answer during verification to the Department's inquiries regarding its steel input. The petitioner claims that TMC, Huarong and LMC have constantly evaded the Department's attempts to verify their steel purchases by insisting that the Chinese language makes no conclusive distinction between bar and billet. The petitioner notes that both SMC and TMC initially reported using steel bar as the primary steel input for a wide range of products. See TMC Section D Response, July 10, 2000, at D-5, and exhibits 9, 10, 11 and 12, TMC's Supplemental Response, August 25, 2000, at exhibit 14 and SMC's Supplemental Response (August 23, 2000) at 2. The petitioner notes that TMC has changed its explanation regarding the use of steel bar and, in an attempt to disavow the above-cited submissions, now asserts that it uses billet in producing most of its subject merchandise. See TMC's Supplemental Response (September 18, 2000) at 9-10. The petitioner also argues that TMC, Huarong and LMC have withheld information by failing to place complete POR data regarding steel bars on the record. TMC, Huarong and LMC collectively argue that the petitioner wants the Department to deny the evidence on the record, call the "billet" a steel bar, and use a high "bar" surrogate value. The respondents argue that the verified fact is that they have changed their steel inputs and that there is no reason why they have to continually use the same input. TMC, Huarong and LMC argue that the HFHTs production process is labor intensive and does not require a steel input of a specific size and shape. TMC, Huarong and LMC argue that the petitioner must either demonstrate that subject merchandise is necessarily forged from steel bars or admit that the steel input could change. TMC, Huarong and LMC point out that the role of the Department is to examine the inputs during each review. Department's Position: The Department disagrees with the petitioner. As an initial matter, while the petitioner's contention that TMC, Huarong and LMC have a history of using bar has a basis in fact, the Department also notes that in past HFHTs reviews TMC, Huarong and LMC have frequently reported steel billet as an input and these inputs have been verified by the Department. Regarding the petitioner's claim that the Department has "selected" surrogates based on steel bar in the past and should not select steel billet surrogates in the current review, the Department's view is that it "selects" appropriate surrogate values based on the information on the current record. Thus, the issue is whether the information on the record supports the respondents claims that they used billet. As a result of Huarong's and LMC's overall verification failures, the Department has determined to base Huarong's and LMC's margins on adverse facts available, see discussion above. Therefore, the issue of whether Huarong or LMC used bar or billet in their production process is moot and we have not addressed it for these final results of review. With respect to TMC, the Department sent numerous questionnaires regarding this issue. In the most recent response to its questions regarding steel input, TMC reported steel billet inputs and provided detailed documentation of their use of billet as their primary steel input. See TMC's Supplemental Response, May 30, 2001. This response specifically states that TMC used billet as its steel input. In addition, each of the responses to the Department's questions regarding whether the size tolerances met the standards of billet or bar affirmed that the inputs were, in fact, billet. There is nothing on the record of this review that contradicts SMC or TMC's claims that they used billet in the production of subject merchandise. Regarding the petitioner's concern that TMC originally reported its inputs as bar earlier in this current review, the Department notes that TMC characterized its initial reports of bar usage as erroneous and, as described above, provided documentation showing that the inputs met the size tolerances of steel billet. Comment 9: Surrogate Value for Steel Bar The petitioner argues that the Department should value steel bar in the final results by inflating the steel bar value used in the 1998-1999 review, as it did in the preliminary results, rather than use the billet value placed on the record by the respondents since the preliminary results. Petitioner further argues that the bar values placed on the record by the respondents are aberrational and should not be used by the Department to value steel used in HFHT production. The petitioner argues that, in the past, the Department has rejected surrogate data on the basis that they varied significantly from other surrogate values on the record. TMC, Huarong and LMC contend that they withheld no information from the record regarding steel bar. Rather, TMC, Huarong and LMC assert that they submitted surrogate value data for all factor inputs that were used to either make or pack subject merchandise. TMC, Huarong and LMC point out that none of their subject merchandise requires a steel bar input, aside from those products that use steel bar purchased from market economies. For this reason, TMC, Huarong and LMC state that there is no reason for the Department to use surrogate bar data. TMC, Huarong and LMC assert that the steel bar information included in Petitioner's Surrogate Value Submission was for Indonesian imports of forged bars. TMC, Huarong and LMC claim that, during the POR, no factory used NME steel bar, forged or otherwise. TMC, Huarong and LMC point out that the only company subject to this review that used steel bars as an input purchased them from a market economy. TMC, Huarong and LMC add that, even if a factory had used NME forged steel bars as an input, the petitioner's data should be disregarded since India is the primary surrogate country and the petitioner presented no reason for suggesting the use of a surrogate value from another country. Department's Position: As a result of Huarong's and LMC's overall verification failures, the Department has determined to base Huarong's and LMC's margins on adverse facts available, see discussion above. Therefore, the issue of whether Huarong or LMC used bar or billet in their production process is moot and we have not addressed it for these final results of review. We note that SMC and TMC, the only respondents in this review to use steel bar in the production of HFHTs, purchased the bar from market economies and paid for it in market currencies. Moreover, all appropriate prices for these bars were reported in the context of this review. As noted above, the Department has found nothing on the record to challenge the reported data. Therefore, no surrogate value was needed for steel bar in this review. Comment 10: Surrogate Value for Steel Billet The petitioner contends that the steel billet surrogate value submitted by TMC, Huarong and LMC is too low and therefore meaningless. The petitioner states that the billet value submitted is less than a steel scrap value also submitted by TMC, Huarong and LMC. Moreover, the petitioner argues that the production of HFHTs requires a primary steel input of higher quality than steel scrap. Further, the petitioner notes that the steel value on the record is lower than the pallet value, and agrees with the respondents that "this is a strange circumstance." However, the petitioner argues, the correction the Department should make should be to the steel value, not the pallet value. The petitioner contends that TMC, Huarong and LMC have greatly understated the cost of their steel input, and that this is the reason the steel value is lower than the pallet value. Instead, the petitioner urges the Department to use the billet value from the India Informer, a value placed on the record by the petitioner, because it better reflects the actual cost of TMC, Huarong and LMC's primary steel. TMC, Huarong and LMC, however, contend that the Monthly Statistics of the Foreign Trade of India (MSFTI) values for billet are the best available information. TMC, Huarong and LMC state that the petitioner's sole justification for the "billet" value being aberrational is that it is lower than the scrap value submitted by the respondents. TMC, Huarong and LMC, moreover, assert that the petitioner fails to support its claim that the primary steel input must be of higher quality than steel scrap. Furthermore, TMC, Huarong and LMC assert that the Department has used Indian import statistics taken from the MSFTI in past reviews, and that the Department should continue to do so, consistent with its past practice. TMC, Huarong and LMC add that the billet import data included in the Petitioner's Surrogate Value Submission included only one shipment during the POR that could even be considered comparable to data they submitted. TMC, Huarong and LMC note that this same shipment was reported in Respondents' Surrogate Value Submission. TMC, Huarong and LMC state that the other Indian import data included in the Petitioner's Surrogate Value Submission was described as pure iron billets, which differ significantly from the steel carbon billet used by TMC, Huarong and LMC. TMC, Huarong and LMC argue that what the above shows is that in a basket category there are different types of steel and many, if not all, are not comparable to the factor being valued. TMC, Huarong and LMC state that, based on this example, the Department should delete all of the high value imports in the HTS category 7207.20.09 to yield a reasonable surrogate value for billet. TMC, Huarong and LMC presume that the data for this pure iron billet import included in the Petitioner's Surrogate Value Submission was also included in their own Respondents' Surrogate Value Submission. TMC, Huarong and LMC argue that this pure iron value should be removed from their submission. TMC, Huarong and LMC state that, while it is true that they only placed on the record partial MSFTI information in their November 27, 2000 submission, they have since updated this information to include information for February through January of the POR. TMC, Huarong and LMC state that this MSFTI information concurrent with this POR was unavailable when they compiled their November 27, 2000 submission. Department's Position: As a result of Huarong's and LMC's overall verification failures, the Department has determined to base Huarong's and LMC's margins on adverse facts available, see discussion above. Therefore, the issue of the proper surrogate billet value for Huarong or LMC is moot and we have not addressed it for these final results of review. The Department has long used MSFTI values for other reviews and investigations and has long used these values for HFHTs reviews and is not persuaded by any party's arguments that it should disregard this source in this review. The MSFTI values are the prices companies in a market economy, such as India, pay for imports. The MSFTI information on the record covers a much larger pool of imports from a much larger pool of exporting countries than the data put forth by the petitioner. When possible the Department prefers to value factors using prices that are broad market averages. See Final Determination of Sales at Less Than Fair Value: Certain Cut-to-Length Carbon-Steel Plate From the People's Republic of China, 62 FR 61964, 61981 (November 20, 1997). There is no information on the record indicating that these prices are anything but competitive prices for the Indian market. In addition, there is no record evidence substantiating the petitioner's claim that the information it provided from the India Informer is a more accurate representation of competitive prices in the Indian market. The information supplied by the petitioner apparently covers only two shipments, both outside the POR. The petitioner ignores its own information that covers a shipment during the POR that would have resulted in a much lower surrogate value. See Petitioner's Surrogate Value Submission. The Department also notes that the petitioner provides no substantiation for its claim that the billet used need be of any higher quality than the steel that constitutes the steel scrap surrogate value. Rather, the Department notes that the steel scrap surrogate value is also used in this review to value steel scrap inputs (railroad wheels and rails). The Department believes that TMC was mistaken in its belief that the petitioner claimed they had included billet surrogate value data from the MSFTI from only the period from March through September, 2000. The petitioner's case brief stated that "{r}espondents' steel bar value, in contrast, was based on Indian import data from the MSFTI dating from March 1999 - September 1999 - only seven months of the POI." The Department notes that the petitioner was discussing the year 1999, not 2000 and was discussing bars, not billets. The Department notes that the Respondents' Surrogate Value Submission does include surrogate information through January of 2000. As for TMC's request that the Department disregard any surrogate value information for billets priced above a certain level, the Department disagrees. TMC has neither supported why 11.5 rupees per kilogram is too high a value, nor presented any credible support for its contention that such information is aberrational. Finally, the Department notes that TMC provided no support for its contention that the pure iron billet value was included in its own submitted surrogate value information. Without any such support, the Department finds no basis on which to alter TMC's submitted surrogate values for billet. Thus, the Department will base its surrogate value for billet in the final results on MSFTI data for March, 1999 through January, 2000. Comment 11: Whether the Department Should Update and Correct Surrogate Values All respondents state that the purpose of the Act is to determine dumping margins as accurately as possible. To achieve this goal, they argue, the Department should use the updated surrogate values provided in the respondents' July 3, 2001 submission to value the FOPs. However, the respondents argue that the Department, when calculating surrogate values based on MSFTI data and other data, should disregard imports from NMEs and import values that are aberrational or are based on small quantities. The respondents state that the Department has properly excluded aberrational data in previous reviews because such data and data based on sales of unusually small quantities do not reflect reasonable values for the commercial quantities of non-unique factors used in the production and packing of HFHTs. The respondents state that the Department has also excluded data based on sales in small quantities when such per-unit values conflicted with other information on the record. See Tapered Roller Bearings From Romania; Final Results of Administrative Review, 62 FR 37194, 37195 (July 11, 1997) (1997 Roller Bearings Final). The respondents state that their July 3, 2001 surrogate value submission identifies and excludes imports that were made in quantities of less than 100 kilograms because such small quantities do not represent "commercial quantities." The respondents acknowledge, however, that excluding these values from the calculations makes minimal differences. The respondents characterize sales of less than 100 kilograms as "legally de minimis." Department's Position: The Department agrees with the respondents that accuracy is an important goal in the calculation of antidumping margins and we partially agree with the respondents' request. The Department has excluded data based on small quantities and aberrational import statistics and other data used when calculating surrogate values when such data are distortive. The Department's policy is to exclude small quantities of import data in calculating surrogate values when the per-unit value for such imports conflicts with other information on the record. This is precisely the approach the Department undertook in the case cited by the respondents. See 1997 Roller Bearings Final. However, regarding the respondents' argument that quantities of less than 100 kilograms are legally de minimis when calculating surrogate values, the Department notes that respondents have offered no legal basis to support this assertion. The Department agrees with the respondents that it should disregard all import data and other data from NMEs when calculating surrogate values. This has long been Department policy, and has been followed in this case. See, e.g., Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, from the People's Republic of China; Final Results of Antidumping Duty Administrative Reviews, 61 FR 65527, 65532 (December 13, 1996). The Department also agrees that, in accordance with its longstanding policy, it should update all of the surrogate value data to the POR where such data exists and is found not to be aberrational. See Final Determination of Sales at Less Than Fair Value: Certain Cut-to-Length Carbon Steel Plate From the People's Republic of China, 62 FR 61964, 61981 (October 24, 1997). We have done so for this administrative review. However, as noted above, the Department has determined to base Huarong's and LMC's margins on adverse facts available, see discussion above. Therefore, this issue is only applicable to the calculation of SMC's and TMC's margins for these final results of review. Comment 12: Whether the Department Should Use HTS Category 7204.49.01 to Value Railroad Rails and Wheels Input TMC and LMC note that, in the preliminary results, the Department used HTS categories 7204.49.01 and 7204.49.09 together to value the scrap railroad rails and wheels which are used as the steel input in making certain HFHTs. TMC and LMC assert that this approach was incorrect. TMC and LMC note that HTS category 7204.49.01 covers "Defective Sheet of Iron and Steel" and argues that since railroad rails and wheels are not sheet, the Department should use only HTS category 7204.49.09, which covers "Other" waste and scrap. TMC and LMC state that they have found no other case where the Department used HTS category 7204.49.01 and that it should be used only where defective sheet is involved. Department's Position: The Department agrees with TMC. The Department has used HTS category 7204.49 in valuing scrap railroad rails and wheels used as a steel input in making HFHTs in previous reviews and in the preliminary results of this review. The MSFTI identifies the broad HTS category 7204 as "Ferrous waste and scrap; Remelting scrap ingots of iron or steel," and then describes the more narrow HTS category 7204.49 as "other waste and scrap". However, the Department notes that TMC and LMC are correct that this category is further broken down into two categories: 7204.49.01 "Defective Sheet of Iron and Steel" and 7204.49.09 "Other." The Department notes that defective sheet of iron and steel is a different product than scrap railroad rails and wheels. Thus, for these final results of review, the Department has determined to use only the HTS category 7204.49.09 to value the scrap used in HFHT production since scrap railroad rails and wheels are likely to be included within this category than in the category for defective sheet of iron and steel. As noted above, the Department has determined to base LMC's margin on adverse facts available, see discussion above. Therefore, this issue is only applicable to the calculation of TMC's margins for these final results of review. Comment 13: Surrogate Value for Scrap All respondents note that the Department used HTS categories 7204.49.01 and 7204.49.09 to value the steel scrap by-product of the HFHTs production process that the respondents then sold. The respondents state that this surrogate value was inaccurate for two reasons. First, the respondents note that HTS category 7204.49.01 covers "Defective Sheet of Iron and Steel" and asserts that the scrap factories sold in this case was not sheet, but turnings, shavings and chips. Second, the respondents state that HTS category 7204.49.09, which covers "Other" waste and scrap, more appropriately includes scrap inputs such as scrap railroad rails and wheels. According to the respondents, HTS category 7204.41.00 is the most appropriate category to value their scrap because it specifically includes turnings, shavings and chips, which the respondents assert are the actual types of scrap produced from the hand tools shearing and grinding operations. The respondents argue that the Department used category 7204.41.00 to value the scrap in two recent preliminary results of review for other products. See Valuation of Factors of Production for the Preliminary Results of the Seventh Administrative Review of Certain Helical Spring Lock Washers from the People's Republic of China (July 3, 2001) (Lock Washers Memo) and Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, From the People's Republic of China: Preliminary Results of 1999-2000 Administrative Review, Partial Rescission of Review, and Notice of Intent Not To Revoke Order in Part, 66 FR 35937 (July 10, 2001) (TRB Prelim). The petitioner argues that the Department should not modify its scrap value, but should continue to use HTS category 7204.49.00 to value steel scrap. The petitioner contends that the respondents argue for the lowest possible surrogate values for its factor inputs, while requesting higher surrogate values for their sales of steel scrap. Department's Position: The Department disagrees with both the petitioner and respondents. The Department has consistently used the same value for the scrap input used to make HFHTs and the scrap resulting from the HFHT production process. The Department does this in an effort to remain consistent in its valuation of surrogate values. As the input for many of the products made in this review is scrap railroad rails and wheels, the Department further believes that the scrap output should be valued using the same HTS category. Therefore the Department has continued to value the scrap resulting from the HFHTs production process based on the same tariff classification as the scrap input. The Department finds no compelling evidence on the current record to support changing its practice of using the same surrogate value both for the scrap resulting from the HFHTs production process and for the scrap steel input. The Department notes that the respondents have put nothing on the record to support their assertion that HTS category 7204.41.00 is the most appropriate value for this purpose because it specifically includes turnings, shavings and chips which the respondents claim are the actual types of scrap produced from the hand tools shearing and grinding operations. Regarding the respondents' assertion that HTS category 7204.49.01 covers "Defective Sheet of Iron and Steel" and that the scrap which the factories sold in this case was not sheet, the Department agrees. As stated above, the Department does not find defective sheet of iron and steel an accurate surrogate for the scrap railroad rails and wheels commonly used by the respondents in making HFHTs. Similarly, the Department does not find defective sheet of iron and steel an accurate surrogate for the scrap resulting from the HFHTs manufacturing process. Thus, the Department has used the HTS category of 7204.49.09 in valuing the scrap resulting from the HFHTs for all respondents' factories, since it was unable to obtain a further break out of the products under this HTS category that might have yielded a more appropriate value for HFHT scrap output. As noted above, the Department has determined to base Huarong's and LMC's margins on adverse facts available, see discussion above. Therefore, this issue is only applicable to the calculation of TMC's margins for these final results of review. Comment 14: Surrogate Value for Pallets All respondents state that, for the preliminary results, the Department used import data from April through August from the MSFTI for HTS category 4415.20.00 when calculating a surrogate value for wooden pallets. The respondents characterize this as "curious," given that the Department rejected the same surrogate value data for this purpose in the 1996-1997 and 1997-1998 HFHTs reviews. See 1997-1998 HFHTs Final, comment 11. The respondents note that the Department specifically requested a remand to reconsider its decision concerning the selection of the surrogate value for pallets in the 1998-1999 review in which it used the data from HTS category 4415.20.00, and the Court agreed that this value was inappropriate. See Shandong Huarong General Group Corp.; Liaoning Machinery Import & Export Corporation v. United States.; and Tianjin Machinery Import & Export Corp., v United States, Slip Op. 01-88 (CIT July 23, 2001) at 26-27 (Pallet Decision). Yet, in the preliminary results of the current review, the Department used the very April-August 1996 MSFTI data that it sought a remand to reconsider. The respondents add that, as a result of this choice, the pallet value exceeded the steel value for certain products in the preliminary results. Notwithstanding the above, the respondents assert that the Department should use a value derived from the HTS category 4415.20.00. Moreover, the respondents state that the Department should adjust this value, because the value reported is given on a per-pallet rather than per-kilogram basis. The respondents point out that the record shows the pallets weigh 7.5 kilograms each. See LMC's June 30, 2000 Section D Questionnaire Response. The respondents argue that adjustments can be made by dividing the surrogate value per pallet by the weight of the respondents' pallets (i.e., 7.5 kilogram per pallet). The respondents state that the Department used such a methodology in calculating normal value in previous cases. See e.g., Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, From the People's Republic of China; Final Results of 1998-1999 Administrative Review, Partial Recision of Review, and Determination Not to Revoke Order in Part, 66 FR 1953 (January 10, 2001), comment 10 (TRB Final). The respondents note that in the TRB Final, while adopting the methodology described above for calculating a per-kilogram value, the Department rejected the resulting pallet valuation of $6.79 per kilogram as aberrational, based on a comparison with the respective $0.27 and $0.28 per kilogram amounts derived from Indonesian and U.S. import statistics. Having rejected the Indian surrogate value as aberrational, the Department went on to select the $0.27 per kilogram value from Indonesia. The petitioner argues that the respondents' argument does not stem from any deficiency in the data, but is simply an attempt to choose the lowest surrogate values possible. The petitioner notes that the respondent does not deny that HTS category 4415.20.00 is representative of pallets. Instead, the petitioner argues, the respondent's rejection of the data used in the preliminary results is based on the fact that the same data was not used in two prior administrative reviews of HFHTs. The petitioner argues that the Department was compelled to use the old, April through August, 1996 period data because of the respondent's own insistence on reporting pallet use on a per-kilogram basis. They base this assertion on the fact that recent MSFTI data includes no information of weight, but instead only includes the number of pallets and the value of the pallets. The petitioner also opposes the surrogate value taken from Indonesian import data that the Department proposed and sent to both the respondents and petitioner for comment. See August 17, 2001 letter to Eileen Bradner, Wiley Rein & Fielding (August 17 letter). The petitioner points out that India was selected as the primary surrogate country for these reviews and that it is unclear why the Department would use Indonesian data when Indian data for pallets is available. The petitioner adds that the Indonesian data is from January through December of 1998, which is outside of the POR. The petitioner states that the Department has always exclusively used information from the MSFTI in past HFHTs reviews to calculate surrogate pallet values. The petitioner further argues that the Indonesian pallet value of $.27 per kilogram (or approximately 12 rupees per kilogram) is unrepresentative of actual pallet costs. The petitioner points out that this is much less than the value used in the preliminary results (193.01 rupees per kilogram) and only a fourth as large as the pallet value placed on the record of this administrative review by the respondents themselves (44.447 rupees per kilogram). See Respondents' Surrogate Value Submission (November 27, 2000) at 8. The petitioner concludes that it is inappropriate for the Department, on its own, to propose to use a factor value that is far below any value proposed by any party. Department's Position: The Department notes that the contemporaneous data put on the record by the respondents contain only per-piece surrogate values for pallets and do not provide any information regarding the weight of the pallets on which the values were based. The Department notes that it has disregarded recent Indian MSFTI data proposed by respondents because the values contained therein do not indicate the size or weight of the wooden pallet in a manner which allows the Department to value the factor reported by the respondent. See 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 16, 2001) and accompanying decision memorandum at Comment 3 (Brake Rotors Memo). However, the unreliability of the respondents' data does not compel the Department to use the older MSFTI data, as suggested by the petitioner. Rather, the Department prefers to use contemporaneous data, where available. Therefore, the Department has decided to use a 1998 pallet wood value from the Indonesian publication Indonesia Foreign Trade Statistics, which the Department has used to value pallet wood in three recent Chinese antidumping duty proceedings. See Brake Rotors Memo, TRB Final and accompanying decision memorandum at Comment 10, and Persulfates from the People's Republic of China: Preliminary Results of Antidumping Duty Administrative Review, 66 FR 18439, 18443 (April 9, 2001). We used these Indonesian data in this HFHTs review because they provide both weight and value (as opposed to the recent MSFTI data that provide only quantity in terms of number of pallets and value - see above). These data thus allow the Department to calculate a per-kilogram surrogate value, on which it can base its valuation of the respondents' per-kilogram pallet-use factors. The Department is utilizing this Indonesian data because it believes pallets purchased in Indonesia are as representative as pallets in India of the pallets used by the respondents. Indonesia was identified by the Department as a country "equally comparable in terms of economic development." See Memorandum from Jeff May to Thomas Futtner re: Antidumping Duty Review of Heavy Forged Hand Tools from the People's Republic of China: Nonmarket Economy Status and Surrogate Country Selection (August 31, 2000). Although India is the primary surrogate in this review, as stated above, it is our practice to use data from another country when data from the primary surrogate is found to be unreliable. As stated above, this practice of using Indonesian import data is particularly common when the Department must identify a surrogate value for pallets used by Chinese companies. Even though we found no evidence of Indonesian production of HFHTs, this does not adversely affect its reliability as a producer of pallets. The Department also finds irrelevant the petitioner's assertion that the Department's proposed surrogate value for pallets is much less than those previously on the record. What the Department does find relevant is the fact that the surrogate value for pallets used in the preliminary results was both incorrectly calculated and was based on much older data than the Indonesian data proposed by the Department. Regarding the value the respondents placed on the record on November 27, 2000, this value is dated from February, 1995, approximately five years prior to the end of this POR. In contrast, the Department's proposed surrogate value from Indonesia is taken from a period only three months prior to the POR. Further, the Department notes that the petitioner was provided with opportunities to provide surrogate value information for pallets, and never did so. As noted above, the Department has determined to base Huarong's and LMC's margins on adverse facts available, see discussion above. Therefore, this issue is only applicable to the calculation of TMC and SMC's margins for these final results of review. Comment 15: Surrogate Value(s) for Wooden and Fiberglass Handles The petitioner argues that the Department should use different surrogates to value wooden and fiberglass handles. The petitioner contends that wood and fiberglass are very different materials, and that fiberglass is more expensive to manufacture and more costly to purchase. The petitioner asserts that fiberglass handles retail at $5 to $10 per tool. Furthermore, the petitioner contends that information on the value of fiberglass handles should be readily available because fiberglass handles are becoming more prominent in the HFHTs market. The petitioner asserts that the respondents' failure to find a separate value for fiberglass handles is a result of the respondents' attempt to underestimate the actual production costs of Chinese hand tools. SMC argues that the Department should use the same surrogate value (Indian HTS Category 4417.00.00) for both the wooden and the fiberglass handles. SMC contends that the Indian MSFTI data have no separate category for fiberglass handles. Also, SMC asserts that the "basket" HTS category that presumably would include fiberglass handles is so broad as to provide no meaningful surrogate value for fiberglass handles. Department's Position: While the Department agrees with the petitioner that the fiberglass handles clearly differ from the wooden handles and knobs included in HTS category 4417.00.00, the Department finds that this value is currently the best information available for approximating the value of the fiberglass handles used as an input by the respondent. Upon reviewing the HTS categories and conferring with Customs (see Memo to the File, from Jeff Pedersen re: Discussion with Joan Mazzola regarding HTS Categories of Fiberglass Handles for Hand Tools (July 9, 2001)), we concluded that HTS category 3926.90.25 (Handles and Knobs not elsewhere specified or included of plastics) would best approximate a fiberglass handle used for hand tools. However, the Department notes that it could find no data for India or any other appropriate surrogate country corresponding to this HTS category. We then reviewed HTS category 3926.90 to determine whether it would be an acceptable approximation, and determined that this category would be so broad as to render it meaningless in approximating the value of fiberglass handles. The petitioner also has offered no alternative surrogate value specific to fiberglass handles. Thus, the Department finds that HTS category 4417.00.00 is currently the best surrogate value available for the fiberglass handles used in this review. Comment 16: Surrogate Value for Truck Freight All respondents propose that, rather than following its current practice of using one surrogate value for truck freight for company-owned trucks and a different truck rate for non-company-owned trucks, the Department should use just one rate for both factory-owned and non-factory- owned trucks. The respondents state that in two other proceedings the Department used one surrogate value for all truck freight. See Lock Washers Memo and TRB Prelim, using data from Bulk Aspirin. The respondents argue that the one surrogate value the Department should use for truck freight is that used in the above-mentioned two reviews, where the Department selected and averaged seventeen price quotes from six different Indian trucking companies in November 1999 to value truck rates in India. See Factors of Production Valuation Memorandum accompanying Final Determination of the Antidumping Duty Investigation of Bulk Aspirin from the People's Republic of China, 65 FR 33805 (May 17, 2001) (Bulk Aspirin FOP Valuation) and the Factors of Production Valuation Memorandum accompanying Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, From the People's Republic of China: Preliminary Results of 1999-2000 Administrative Review, Partial Rescission of Review, and Notice of Intent Not To Revoke Order in Part, 66 FR 35937 (July 2, 2001). The respondents argue that, even if the Department continues its current approach of using two different truck freight rates, it should use the truck surrogate value used in the Bulk Aspirin from China investigation. See Bulk Aspirin FOP Valuation. The respondents argue that if the Department continues to use the surrogate value from August 1993, it will penalize the respondents in this case as compared with other exporters from the PRC. The respondents add that the Department has more current truck freight surrogate value data and should use those data for the final results. The petitioner contends that the respondents' request to "simplify" the valuation of truck freight is disingenuous. The petitioner argues that it is reasonable for the Department to use two different truck rates because it reflects the reality that trucking costs differ when a company uses its own trucks and when a company utilizes trucking services by outside parties. The petitioner also contends that it is unclear why the Department is considering replacing the surrogate value for truck freight used in the preliminary results with a value the Department put on the record of this review. See August 17 letter. (1) The petitioner asserts that the Department traditionally calculates distance-specific truck freight rates and contrasts this practice with the rate in the August 17, 2001 letter that proffers only one rate for all distances. The petitioner states that the values used in the preliminary results are more accurate and representative of the respondents' actual costs. Department's Position: The Department notes that in prior reviews of HFHTs, the Department has consistently treated the cost of operating the company's own vehicles as a separate, distinguishable expense from the costs related to use of non- company-operated trucks. See Heavy Forged Hand Tools from the People's Republic of China, Final Results of Antidumping Duty Administrative Review, 64 FR 43659 (August 11, 1999). We used the Times of India rate to value the cost of a company-operated truck because this was the most appropriate surrogate value. For non-company operated trucks, i.e., the purchase of freight delivery services in the PRC, we used information contained in an August 1993 U.S. embassy cable, describing the cost of truck transportation for an Indian company located in Bombay, which was used in the Final Determination of Sales at Less Than Fair Value: Certain Helical Spring Lock Washers from the People's Republic of China, 58 FR 48833 (September 20, 1993). However, we have determined to change our approach to valuation of surrogate truck freight and will use one surrogate value to calculate all truck freight costs. One reason for this change is that the practice in prior HFHTs reviews of valuing surrogate truck freight rates differently depending on the provider of the service has forced the Department to continually use a surrogate value from 1993. The Department has tried to find more recent surrogate value information for truck freight using a company's own trucks, but has found no such information. We also agree with the respondents that, in the Lock Washers Memo and the TRB Prelim, the Department used the same truck rates for valuing all truck transportation, regardless of the provider of the truck service. In fact, the Department could find no other instance where we valued truck freight differently, depending on the provider of the truck service. Our determination to use the most contemporaneous surrogate value available leads us to agree with respondents that the Department should use the truck freight rate used in the investigation of bulk aspirin from China. These data are significantly more recent than the 1993 rate supplied from the Times of India and, as the respondents note, they have been used in other recent investigations and reviews by the Department. See Bulk Aspirin FOP Valuation. The petitioner appears to be arguing that the Department has used in past HFHTs reviews different rates per kilometer for different distances. This is correct. However, it is also correct that the values used in the preliminary results had generally the same rate per kilometer, regardless of the distance. Finally, the Department notes that the petitioner put no surrogate values for truck freight on the record of these reviews. As noted above, the Department has determined to base Huarong's and LMC's margins on adverse facts available, see discussion above. Therefore, this issue is only applicable to the calculation of TMC and SMC's margins for these final results of review. Comment 17: Surrogate Value for Electricity All respondents argue that the Department should use more recent data in deriving a surrogate value for electricity. Specifically, the respondents propose using the same surrogate value used in two recent preliminary results where the Department used data from the Energy Data Directory & Yearbook 1999/2000 (TEDDY) published by Tata Energy Research Institute. See Lock Washers Memo and TRB Prelim. The respondents argue that these data are both more contemporaneous and more accurate than those used in the preliminary results. The petitioner argues that the respondents' arguments regarding the selection of an updated electricity surrogate value rate ignore the serious inaccuracies in respondents' own submissions regarding electricity usage. The petitioner states that it is the inaccuracies associated with Huarong's caps for electricity that make the resulting surrogate values inaccurate, rather than the Indian surrogate values for electricity. The petitioner also contends that it is unclear why the Department is considering replacing the surrogate value for electricity used in the preliminary results with a value the Department put on the record of this review. See August 17 letter. The petitioner states that the values used in the preliminary results are more accurate and representative of the respondents' actual costs than the data contained in TEDDY. Department's Position: We agree with the respondents. The Department has recently used the data cited by the respondents from TEDDY. This information is contemporaneous with this review and has been determined to be representative of electricity costs incurred by a company in India. Moreover, the petitioner's argument does not address the issue of whether the surrogate value chosen by the Department is the best information available for valuing the respondents' electricity costs. The petitioner fails to provide any basis for the assertion that the surrogate value for electricity used in the preliminary results was more accurate and representative of the respondents' actual costs than the values contained in the August 17 letter. Finally, the Department notes that the petitioner put no surrogate value for electricity on the record of this review. As discussed above, the Department has determined to base Huarong's and LMC's margins on adverse facts available. Therefore, this issue is only applicable to the calculation of TMC and SMC's margins for these final results of review. Comment 18: Financial Ratios The petitioner contends that the Department should update its surrogate financial ratios. The petitioner notes that the Department valued factory overhead, SG&A and profit based on data derived from the Reserve Bank of India Bulletin (RBI) for purposes of the preliminary results. However, the petitioner argues that superior data from SAIL and TATA, two Indian steel producers, have become available and that these values are more comparable to the actual operations of the respondents. See Petitioner's Surrogate Value Submission. The petitioner asserts that TATA and SAIL, which produce both unfinished and finished steel, have operations which are more comparable to the operations of the hand tools industry than those companies on which the RBI data are based. The petitioner points out that companies contributing data to the RBI come from the chemical industry and from other market sectors entirely unrelated to steel. Moreover, the petitioner argues that the RBI data should not be used because it is almost a decade old, and has therefore become dated and unreliable. The petitioner notes that, in one investigation, the Department specifically rejected overhead, SG&A and profit ratios from the RBI in favor of "a simple average of relevant data from the annual reports of TATA and SAIL." See Final Determination of Sales at Less Than Fair Value: Certain Cut-to-Length Carbon Steel Plate From the People's Republic of China, 62 FR 61964, 61970 (November 20, 1997). The petitioner also notes that the Department has in the past clearly expressed its preference for "producer-or industry-specific data for overhead, SG&A and profit" and has stated that financial ratios obtained from actual companies, even if the company does not produce the subject merchandise, are preferable to data from the RBI, which "are stale and unreliable because they relate to 1992-1993 and include data drawn from an aggregation of over 600 companies from dissimilar industries." See Notice of Final Determination of Sales at Less Than Fair Value: Creatine Monohydrate From the People's Republic of China, 64 FR 71104, 71107 (December 20, 1999) (Creatine Final). Furthermore, the petitioner argues that the Department should select the highest financial ratios on the record as surrogates because of the respondents' uncooperative behavior, as the respondents' material omissions and uncooperative behavior warrant the use of adverse FA. Alternatively, petitioner contends that the Department should use TATA's reported profit ratio (because SAIL reported no profit) and an average of the overhead and SG&A ratios reported by Tata and SAIL. All respondents state that the petitioner's argument that the TATA and SAIL figures are more representative is without merit. The respondents note that the TATA and SAIL data are for the basic steel industry of India, which is composed of major steel companies that produce steel from iron ore. However, the respondents argue that small hand tool companies are different from large steel companies. Moreover, the respondents contend that the cost structures are different. The respondents further note that HFHTs producers buy steel for forging, rather than make steel. The respondents argue that the data used in the preliminary results, while not specific to the hand tool industry, are far better than data specific to the steel industry. Department's Position: We disagree with the petitioner. It is the Department's preference, where information is available, to derive the overhead, SG&A and profit values from producers of merchandise that is identical or comparable to the subject merchandise. See section 351.408(c)(4) of the Department's regulations. However, steel is neither identical nor comparable to HFHTs. The Department notes that the RBI data specifically include data from companies that process metals. Significantly, also, the PRC producers subject to this review are small producers, whereas TATA and SAIL are both producers on a very large scale. Thus, the surrogate data from the RBI are more appropriate for valuing SG&A, factory overhead, and profit, because they are more reflective of the business experience of small industries, and therefore, the HFHTs' sector. This was the Department's finding in a previous HFHTs review. See Heavy Forged Hand Tools, Finished or Unfinished, With or Without Handles, From the People's Republic of China; Final Results and Partial Recision of Antidumping Duty Administrative Reviews, 64 FR 43659 (August 11, 1999). The Department also notes that TATA and SAIL are Indian steel mills, whereas the HFHTs companies are forgers that use steel inputs. The Department shares the petitioner's concern that the RBI figures are dated. The Department had to weigh this concern against the fact that the data from TATA and SAIL come from companies that are significantly different with respect to both size and product than the producers of HFHTs. Conversely, the RBI figures are from a pool of companies often similar in both scope and scale to HFHT producers. The RBI SG&A, overhead and profit figures are ratios, not prices. As ratios render concerns of inflation and exchange rate changes significantly less important, the Department found the RBI data more appropriate for use in this review than prices from 1992-1993 would have been. Finally, we note that the comment in the Creatine Final that the RBI data were stale and unreliable was not the view of the Department. Instead, this was the opinion of one of the parties in that proceeding. As noted above, the Department has determined to base Huarong's and LMC's margins on adverse facts available, see discussion above. Therefore, this issue is only applicable to the calculation of TMC and SMC's margins for these final results of review. Comment 19: The "Sigma Rule" SMC argues that, in some instances, the Department failed to apply the "Sigma rule" to value freight costs for domestically-sourced inputs in its calculation for the preliminary results. See Sigma Corporation v. United States, 117 F.3d 1401 (Fed. Cir. 1997) (Sigma). SMC notes that the "Sigma rule" states that where the Department uses a CIF surrogate value for factor inputs, it must calculate inland freight for those inputs using the distance from the nearest seaport to the factory or the distance from the actual NME supplier of the input to the factory, whichever is shorter. However, SMC asserts that, in calculating normal value, the Department used the distance from the factory to Qingdao, rather than the shorter distance from the port city of Rizhao (1 kilometer). Moreover, SMC states that the steel the factory used was actually imported into China through Rizhao. Accordingly, SMC contends that the Department must cap the freight distance at 1 kilometer when using Indian import statistics to value SMC's domestically-sourced inputs. Department's Position: The Department agrees with SMC. The CAFC's decision in Sigma requires that we revise our calculation of source-to-factory surrogate freight for those domestically-sourced material inputs that are valued in the surrogate country based on CIF import values. Therefore, we add to CIF surrogate values from India a surrogate inland freight cost based on the shorter of the reported distances from (1) the closest PRC seaport to the factory or (2) the domestic supplier to the factory, on an input-specific basis. As SMC correctly stated, the distance from the closest PRC seaport (Rizhao) to the factory is 1 kilometer. Thus, the Department will cap the freight distance at 1 kilometer when determining freight costs for SMC's domestic source-to-factory shipments. Comment 20: Shakeproof Methodology SMC and TMC urge the Department to use the so-called "Shakeproof methodology" for determining ocean freight. This approach uses the average rate paid for shipments made on market economy carriers to value freight incurred on both market and non-market economy carriers. See section 351.408 of the Department's regulations and Shakeproof Assembly Components Division of Illinois Tools Works, Inc. v. United States, 102 F. Supp. 2d 486, 492-93 (CIT 2000) (Shakeproof). SMC and TMC argue that the Department should use the average rate they paid for ocean freight using market economy carriers. SMC and TMC assert that they paid for over half of their ocean freight in a market economy currency and the price paid was the actual market price. SMC and TMC argue that the average market economy rate should be used for determining the ocean freight rate for their shipments using both market economy carriers and NME carriers. The petitioner argues that respondents incorrectly claim that the Department should apply a market economy rate to shipments on NME carriers. The petitioner contends that the Department should use a market economy ocean freight rate to value only shipments on market economy carriers, and that this is consistent with the Department's practice in recent investigations. Finally, the petitioner argues that the application of a market economy freight rate to large quantities of nonmarket-economy shipments would be distortive and unrepresentative of SMC and TMC's actual freight costs. Department's Position: We agree with the respondents, that in this case where the majority of their ocean freight was contracted to market economy carriers and paid for in a market-economy currency, the Department should use an average of these market economy rates to value all ocean freight costs incurred by the respondents. After examining our preliminary calculations, we have determined that we correctly followed this methodology in our preliminary results. Therefore, we have made no changes to our calculations with respect to this issue for the final results of review. Comment 21: LIMAC Rate LMC contends that the Department should assign LIMAC (2) the same rate as LMC because they are affiliated companies. LMC asserts that the two companies are affiliated within the meaning of section 771 of the Act. LMC analogizes the relationship between LMC and LIMAC to another case in which the Department assigned the same rate to the predecessor and successor companies. See Helical Spring Lock Washers from China; Preliminary Results of Antidumping Duty Administrative Review, 66 FR 36251 (July 11, 2001). LMC argues that it was the predecessor and that LIMAC is the successor firm. LMC states that it was initially the exporter of the subject merchandise, and that subsequently, the sale of the merchandise was transferred from LMC to LIMAC, which then became the sole exporter during the middle of the POR. Department's Position: LMC failed to advise the Department of any relationship with LIMAC in response to the Section A questionnaire at the beginning of the proceeding, and the Department only became aware of the existence of LIMAC at verification. As a result, we have been unable to adequately explore this relationship during this review. Thus, this matter may be addressed in a changed circumstances review as detailed under section 751(b) of the Act, or a future administrative review of this proceeding. The Department further notes that it has determined that LIMAC made no sales of subject merchandise in this review. See Comment 1 and LMC Verification Memo. Comment 22: PRC-wide Rate Huarong argues that the Department should change the PRC-wide rate for axes/adzes from 70.15 percent to the 41.12 percent rate applied in the 1998-1999 HFHTs results, or use the rate determined for TMC in this segment of the proceeding, which is higher. Huarong believes that the Department chose this rate because it was the amended final rate determined for TMC in the 1998-1999 HFHTs review. Huarong states that this rate provided the basis for the Department's selection of the PRC-wide rate for axes/adzes for the 1998-1999 amended final results, as well. Huarong contends that the Department conceded that the surrogate pallet value used in the 1998-1999 results was incorrect and the Court agreed. See Pallet Decision, Slip Op. 01-88 at 26-27. Huarong contends that the Department, in its brief for that proceeding, specifically requested a remand to determine a different surrogate value for pallets. Huarong concludes that because the Department has conceded that it used an incorrect pallet value when calculating the 1998-1999 PRC-wide rate, the Department should recalculate the PRC-wide rate for axes/adzes assigned to this review. The petitioner contends that Huarong's request for a reduction in the PRC- wide rate is unjustified and unsupported by evidence on the record. The petitioner argues that the PRC-wide rate is not uncertain because it remains in full force until modified by the Department. Moreover, the 1998- 1999 rate, the petitioner states, will be changed only through modification of the pallet surrogate value, a value which could increase or decrease on remand. Finally, the petitioner argues that a change to the pallet rate will not necessarily result in any substantial change to the margin. Department's Position: The Department agrees with the respondent that the PRC-wide rate applied for axes/adzes in the preliminary results should not be used for these final results. For a discussion of the PRC-wide rates applied in these final results of review, please see the Selection of Adverse Facts Available section of this memorandum. Comment 23: Clerical Error Huarong asserts that the Department incorrectly calculated a higher normal value for one product than for another product with greater weight and factor inputs, and that the Department should correct this clerical error. Department's Position: After examining the alleged error, the Department finds that it was correct in its calculation in the preliminary results. However, as noted above, the Department has determined to base Huarong's margins on adverse facts available. See discussion above. Therefore, this issue is moot Comment 24: Errors in the Preliminary Results for TMC TMC contends that, in the preliminary results, the Department mistakenly used Indian HTS category 7214.10 to value the steel inputs used by one factory to produce mauls and by another factory to produce hammers. TMC states that the Department should have used HTS category 7207.20.09 to value the steel input for mauls, and should have used the import price the hammer factory paid to a market economy supplier to value the steel input for hammers. Department's Position: The Department agrees with the respondent and will recalculate the results using HTS category 7207.20.09 for the steel inputs for mauls made at the first factory, and the price the factory paid to the market economy supplier for steel used in hammers made at the second factory. Comment 25 Reported Factors for Plastic Strip for Axes and Cartons for Bars/Wedges TMC contends that certain factor consumption rates for plastic strips used to pack axes were grossly high because they failed to divide the per carton weight of the plastic strip by the number of pieces per carton. TMC states that its reported consumption rates for the plastic strip packing factors per tool are 2400 percent to 6000 percent higher than the accurately reported figures for the axes produced by another company, and 160 percent to 444 percent higher than the plastic strip figure for any other item sold by TMC. TMC urges the Department to correct the plastic strip packing factor by dividing the reported plastic strip input factor by the number of pieces in a carton. TMC contends that the error can be easily corrected and that making the adjustment will avoid a gross injustice. TMC also asserts that a similar error occurred with respect to the weight of cartons used to pack bars/wedges. TMC states that, in previous reviews, the carton weights were reported in terms of the number of pounds of carton needed to pack each tool. For this review, however, TMC asserts it reported the weight of packing material per tool as being in kilograms, but the values reported were actually pound values. Thus, TMC argues that the Department should convert its reported values to the kilogram equivalent. Department's Position: Regarding TMC's errors in reporting the volume of plastic strip it used, the Department agrees that the error is obvious and, if not corrected, would prevent the Department from correctly calculating antidumping duties. Thus, the Department has corrected these errors in the manner suggested by TMC. However, the Department can find no way to verify the validity of TMC's claim of an error in reporting carton weights. In looking at the record of the previous review, (3) the Department can find no reference to any carton weights in pounds, but does find reference to carton weights in kilograms. Further, while the reporting error with respect to plastic strips is obvious, the alleged error regarding carton weights is not. Thus, due to the fact that the information regarding the reported carton weights cannot be verified, the explanation is unclear and the error is not obvious, the Department has made no changes to TMC's reported carton weights. Recommendation Based upon 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 reviews and the final weighted-average dumping margins for the reviewed firms in the Federal Register. Agree ________ Disagree___________ Let's Discuss___________ Richard W. Moreland Acting Assistant Secretary for Import Administration (Date) ________________________________________________________________________ footnotes: 1. The surrogate value the Department put on the record is the value cited in Bulk Aspirin FOP Valuation. 2. The Department notes that LIMAC is not an acronym, despite all letters being capitalized. 3. On the record for this review is TMC's verification report for the 1998-1999 POR. See TMC's Section D Questionnaire Response (July 10, 2000).