66 FR 49632, September 28, 2001 A-570-865 Investigation Public Document IA:III:IX:CB MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Joseph A. Spetrini Deputy Assistant Secretary AD/CVD Enforcement Group III SUBJECT: Issues and Decision Memorandum for the Less Than Fair Value Investigation of Certain Hot Rolled Carbon Steel Flat Products from the People's Republic of China: April 1, 2000 through September 30, 2000 SUMMARY: We have analyzed the briefs and rebuttals of interested parties in the less than fair value ("LTFV") investigation of Certain Hot Rolled Carbon Steel Flat Products from the People's Republic of China. As a result of our analysis, we have made changes from the Notice of Preliminary Determination of Sales at Not Less Than Fair Value: Certain Hot Rolled Carbon Steel Flat Products from the People's Republic of China, 66 FR 22183 (May 3, 2001) ("Preliminary Determination"). The specific calculation changes for Angang Group International Trade Co. Ltd., New Iron & Steel Co., Ltd., and Angang Group Hong Kong Co., Ltd. ("Angang") can be found in Analysis for the Final Determination of Hot-Rolled Carbon Steel Flat Products from the People's Republic of China: Angang Group International Trade Co. Ltd., New Iron & Steel Co., Ltd., Angang Group Hong Kong Co., Ltd. ("Angang Final Analysis Memorandum"). The specific calculation changes for Shanghai Baosteel Group Corporation ("Baosteel Group") can be found in Analysis for the Final Determination of Certain Hot-Rolled Carbon Steel Flat Products from the People's Republic of China: Shanghai Baosteel Group Corporation ("Baosteel Group Final Analysis Memorandum"). The specific calculation changes for Benxi Iron & Steel (Group) International & Economic Trading Co., Ltd, and Bengang Steel Plates Co., Ltd. and Benxi Iron & Steel Group Co., Ltd. ("Benxi") can be found in Analysis for the Final Determination of Hot-Rolled Carbon Steel Flat Products from the People's Republic of China: Benxi Iron & Steel (Group) International & Economic Trading Co., Ltd, and Bengang Steel Plates Co., Ltd. and Benxi Iron & Steel Group Co., Ltd. ("Benxi Final Analysis Memorandum"). We recommend that you approve the positions we have developed in the "Discussion of the Issues" section of this Issues and Decision Memorandum. Below is the complete list of the issues in this investigation: Changes from the Preliminary Determination General Issues Comment 1: Separate Rates Comment 2: Self- Produced Energy and Gas Factors Comment 3: Recovery/By-Products Comment 4: Valuation of Financial Ratios Comment 5: Calculation of Cost of Materials, Labor, and Utilities Comment 6: Calculation of Profit Comment 7: Application of Financial Ratios Comment 8: Brokerage and Handling Valuation Comment 9: Domestic Inland Insurance Valuation Comment 10: Marine Insurance Valuation Comment 11: Lime Valuation Comment 12: Coal Valuation Comment 13: Steel Scrap Valuation Comment 14: Silicon Barium Strontium Aluminum Calcium Valuation Comment 15: Iron Ore Valuation Comment 16: Issues Arising at Verification Company Specific Issues A. Baosteel Group Comment 17: Market Economy Price for Iron Ore Comment 18: Purchased Slab Comment 19: Hot-Rolled Coil Consumption Amounts Comment 20: Valuation of Hydrogen Comment 21: Clerical Errors B. Angang and Benxi Comment 22: Recycled and Circle Water Comment 23: Sigma Freight C. Angang Comment 24: International Freight Comment 25: Iron Ore Pellets Comment 26: Steel Scrap at Steel-Making D. Shanghai Yi Chang Steel Strip Co., Ltd. ("Yi Chang") Comment 27: Suspension of Liquidation DISCUSSION OF THE ISSUES: Changes from the Preliminary Determination Based on the results of verification, we have made revisions to the data used for the final determination. For further details, please see the Angang Final Analysis Memorandum; Baosteel Group Final Analysis Memorandum; and Benxi Final Analysis Memorandum, dated September19, 2001, which are on file in B-099 of the Central Records Room. General Issues Comment 1: Separate Rates Baosteel Group argues that it is entitled to a separate rate for the final determination and that the Department of Commerce correctly determined that Baosteel Group was entitled to a separate rate in the preliminary determination. Baosteel Group states that the evidence on the record demonstrates that Baosteel Group is entitled to a separate rate because Baosteel Group has proven the absence of government control over its export activities on both a de jure and de facto basis. Benxi and Angang also argue that the Department should grant them a separate rate. Benxi and Angang cite to the preliminary determination where the Department stated "in proceedings involving NME countries, the Department begins with a rebuttable presumption that all companies within the country are subject to government control and thus should be assessed a single antidumping duty deposit rate. It is the Department's policy to assign all exporters of merchandise subject to investigation in an NME country this single rate, unless an exporter can demonstrate that it is sufficiently independent so as to be entitled to a separate rate." 66 FR at 22187. Baosteel Group maintains that no additional information has come forth that would cause the Department to reconsider this decision for the final determination. Baosteel Group asserts that it has demonstrated the absence of de facto government control over its export function as well. Baosteel Group states that the Department typically considers four factors when determining whether each respondent is subject to de facto government control. Baosteel Group argues that through verification of its submissions it has demonstrated these four factors because it has shown that it (1) establishes its own export prices; (2) negotiates contracts without guidance from any governmental entity or organization; (3) makes its own personnel decisions; and (4) retains the proceeds of its export sales, using its profits according to its business needs. Baosteel Group also mentions that it demonstrated at verification that it does not coordinate its selling and pricing activities with other exporters or the government. Baosteel Group claims that it placed on the record numerous documents demonstrating the absence of de jure control, including "Foreign Trade Law of the People's Republic of China," the "Company Law of the People's Republic of China," the "Law of the People's Republic of China on Industrial Enterprises Owned by the Whole People," and the "Administrative Regulations of the People's Republic of China Governing the Registration of Legal Corporations." Baosteel Group maintains that in prior cases the Department has analyzed these laws and found that they establish an absence of de jure control. Along with Baosteel Group, Benxi and Angang argue that they have satisfied all the de jure and de facto criteria and should be granted separate rates. With respect to Benxi and Angang's business licenses, Benxi and Angang contend that there are no restrictive stipulations concerning the companies except to limit their activities to those authorized under the licensed scope of business. Benxi and Angang claim that they provided the Department with various laws that entitle it to "arrange themselves the production of goods required by society," to "accept or reject any production assignment issued by any department or unit, except those within mandatory plans," to sell their own products, to choose their suppliers and to purchase goods and materials required for production purposes, the right to set their own prices and to negotiate and sign contracts with foreign parties and to withdraw and use their foreign exchange earnings, and to allocate and use their retained funds according to law. See Law of the People's Republic of China on Industrial Enterprises Owned by the Whole People, Article 22, 23, 24, 25, 26, 27, and 28. Benxi and Angang contend that while the Department has indicated that there are some cases where there has been some evidence that certain enactments of the PRC central government have not been implemented uniformly among different sectors and/or jurisdictions in the PRC, there is no indication in this case that these laws are not being implemented; Benxi and Angang claim that all the evidence is that these laws are effective and operational as to Benxi and Angang. Benxi and Angang assert that the Department has stated that ownership of a company by a state- owned enterprise does not require the application of a single rate. Preliminary Determination at 22587. Thus, Angang and Benxi conclude that there are a multitude of laws and regulations that provide Benxi and Angang with numerous market-oriented export rights that are legally free of government control or interference. Benxi and Angang maintain that nothing in the record of this case detracts from the force and effect of these laws and their application to Benxi and Angang, and the Department's preliminary determination in this regard should be adopted in the final determination. Benxi and Angang assert that they provided the Department a multitude of contracts that it entered into without government intervention or involvement. See Benxi Section A response of February 8, 2001, Exhibit A- 6; Angang Section A response of February 8, 2001, Exhibit A-3. Benxi and Angang argue that every sales contract was negotiated by their export department based upon its costs, expenses and motive to gain a profit. Benxi and Angang claim that no approval for either the price established in negotiations with the customers or in signing the contracts was required, sought or obtained, a fact which Benxi and Angang claim was verified by the Department in its review of Benxi and Angang's U.S. sales transactions and various other transactions both to the U.S. but outside the POI and to third countries. Benxi and Angang argue that the selling prices were demonstrated to be the subject of negotiation between Benxi or Angang and its U.S. customers, and are demonstrably different from one respondent in this case to another, obviating any semblance of coordinated pricing activities among the Chinese exporters. Baosteel Group advocates that a separate-rate analysis should focus on the individual company's independence from government control and not on the government's macroeconomic control over an entire industry or a wide range of activities. Baosteel Group further argues that the focus on the separate rates test should be on the export activities of a company. Baosteel Group asserts that the focus of a market-orientated industry analysis is whether government control over a domestic industry exists. Baosteel Group advocates that since this investigation does not concern market-orientated industry treatment, the Department should focus only on whether governmental control over the export activity of an individual company exists. Baosteel Group states that despite the intended focus on export activities, the Department stated in the preliminary determination that the separate rate test also addresses controls over the investment, pricing, and output decision-making process at the individual firm level. Baosteel Group asserts that it alone determines its production output. Baosteel Group argues that the record reflects that Baosteel Group does not make sales from inventory and all of its export sales to the U.S. and all of its domestic sales were produced to order. Baosteel Group contends the government measures designed to support, encourage, and improve production output, environmental protection, and product quality have little to do with the separate rate analysis. Furthermore, Baosteel Group argues that including an analysis of controls over the investment, pricing, and output decision-making process at the individual firm level is a significant change in the Department's practice and that the Department must justify why these additional criteria would be needed and why the existing de jure and de facto criteria are no longer sufficient to determine whether a company is eligible for a separate rate. Petitioners representing Bethlehem Steel Corporation, LTV Steel Company, Inc., National Steel Corporation, and United States Steel LLC ("Petitioners I"), argue that the Department's conclusion in the preliminary determination that respondents demonstrated entitlement to separate antidumping duty deposit rate should be changed in the final determination. They maintain that the Department should assign a single rate to all Chinese producers of the subject merchandise because they constitute a single enterprise under common control by the Chinese government. Petitioners I claim that at the recent meeting OECD Steel Forum in Shanghai in May, representatives of the Chinese steel industry described the extensive involvement of the Chinese government in the Chinese steel industry. Petitioners I cite to several statements made at the meeting where the China Iron and Steel Association ("CISA") and the Industry Planning Department of the State Economic and Trade Commission ("SETC") made references to the government's intentions of "macro-control," "total product control," and "strategic confederation" of the Chinese steel industry. Petitioners I also cite to the President of Baosteel Group's statements on how "the relative independent pricing system in the domestic market for steel product will no longer exist" and "the state/government forcefully carried out the policy of 'control total output, adjust structure,' and effectively corrected the competition order of the steel enterprises." They claim that these statements by a senior planner in the Chinese government, a senior official of the CISA, and the CEO of China's largest steel producer confirm the pervasive direction and control of the Chinese steel industry by the Chinese government. They charge that the various hot- rolled steel producers in China are best viewed as operating units of "China, Inc." Petitioners I assert that the statements made at verification made by the Director of the Baosteel Group's Litigation Division concerning the involvement of the Chinese government in the Chinese steel industry lack credibility. Specifically, Petitioners I state that according to the verification report: "Mr. Bian ... stated that the SETC representative did not represent a government agency's requirements and the targets stated were not government guidelines, but rather one individual's essay at a meeting;" "With respect to the five year plan, Mr. Bian stated that this plan does not represent government policy guidelines, rather the five year plan represents the policy opinions of individuals." They claim to find the characterization of the statements of a senior government planner as well as the characterization of the government's Five Year Plan as "the policy opinions of individuals" to be incredible. In a footnote, Petitioners I note that officials from Angang and Benxi characterized the comments made at the OECD meeting as "personal views" and "personal reflections." With respect to Baosteel Group, Petitioners I allege that the verification report suggested the Department's skepticism with respect to these statements. Petitioners I state that the Department noted in the verification regarding the presentation by the SETC official, "the figures cited are so specific to the daily operations of steel production and the increments of change so clearly spelled out as to strongly suggest highly detailed requirements directed by central government authority." Petitioners I claim that this conclusion is confirmed by the information from "China's Steel Industry Today: A Critical Study" ("China Study"), which was a study undertaken by petitioners' counsel. Petitioners I assert that this study describes in detail the pervasive involvement of the Chinese government in the Chinese steel industry, which includes, inter alia: import restrictions and export subsidies; price and production controls; direct government investment in the steel industry; subsidization of industry sectors that provide raw material inputs for steel; and state-orchestrated mergers an government- encouraged cartel activity. Petitioners I assert that the role of the Chinese government in shutting down small and inefficient producers, which is detailed in the China Study, was confirmed at the Baosteel Group verification. Baosteel Group Verification Report at 8. Petitioners I also allege that small inefficient producers are only one target of Chinese government control with respect to China's steel industry. They note that in a press report describing the measures by the State Administration of the Metallurgical Industry to slash steel output, the Baosteel Group CEO stated Baosteel Group was "determined to control output to no more than 16.3 million tons this year in line with the administration's requirements." "Steel Output Slash Pushes Prices Up," ChinaDaily.com.cn (May 14, 2001). Petitioners I maintain that the China Study confirmed that government remains firmly in control of market-oriented steel enterprises, including Baosteel Group. China Study at 24. Petitioners I conclude that in calculating the single rate applicable to all Chinese producers and exporters of the subject merchandise, the Department should apply the China-wide rate from the preliminary determination as total adverse facts available. Petitioners I explain that in this investigation, the Department determined that some PRC exporters of subject merchandise failed to respond to the Department's questionnaire. Citing Notice of Final Determinations of Sales at Less Than Fair Value: Brake Drums and Brake Rotors From the People's Republic of China, 62 FR 9160, 9162 (February 28, 1997), Petitioners I hold that "when multiple companies are treated as single enterprise, the enterprise must submit a complete, consolidated response. If it fails to do so, the Department may base the margin calculation for the enterprise on facts available." Petitioners I argue that because some exporters of the single enterprise failed to respond to the Department's request for information, the single enterprise must be considered to have failed to cooperate to the best of its ability. Preliminary Determination at 22189. Baosteel Group argues that government production targets are not evidence of control over production decision-making. Baosteel Group contends that the remarks made at the OECD meeting, which were cited by the Department at its verification, made reference to several targets for the steel industry. Baosteel Group explains that these targets are not guidelines to Baosteel Group, the targets do not represent a government requirement, the targets were only part of an individual's essay, and the targets were not directed at individual enterprises. Baosteel Group, citing the affidavit of Mr. Wang Xiaoqi, who presented the remarks about the targets, contends that the targets reflected the personal research results and opinions of Mr. Wang. Baosteel Group claims that the data presented by Mr. Wang, whose source was the China Iron and Steel Association, reflect the type of data that governments typically collect and disseminate. Baosteel Group also argues that the National and Metallurgical tenth Five Year Plan contain no evidence of government control over Baosteel Group's production and export decisions. Baosteel Group maintains that the plan does not represent government guidelines and does not circumscribe Baosteel Group's activities in any way, nor does it demonstrate central government control over Baosteel Group's output decision-making process. Baosteel Group claims that the restructuring within the Chinese steel industry and the closure of certain plants is not relevant to the question of government involvement in Baosteel Group's production and export decisions. Baosteel Group alleges that due to translation errors, the documents presented at the OECD meeting seemed to evidence more government control than actually exists. Baosteel Group maintains that the plant closures have nothing to do with the government's involvement in the export activities of Baosteel Group, rather the other plant closings are related to the environmental pollution and product quality reasons. Baosteel Group urges the Department not to view the macroeconomic policy of restructuring the Chinese industries to reduce unneeded capacity as an indicator that the government controls the individual company's investment, pricing, and output decisions-making process. Baosteel Group further maintains that the type of information contained in the OECD report has been available for years and has not caused the Department to alter its methodology. Baosteel Group argues that there is no evidence on the record that indicated that the Chinese government controls Baosteel Group's investment decisions. Baosteel Group asserts that the Department has stated that its separate rates test also considers the investment making process at the individual firm level. Baosteel Group declares that it alone makes all its investment decisions and that no prior approval is required for expanding production as long as the new products to be produced are within the scope of Baosteel Group's business license. Baosteel Group advocates that even if the Department determines that the Chinese government intervenes in certain macroeconomic activities, that involvement is not sufficient to deny Baosteel Group from obtaining a separate rate. Baosteel Group states that there is no evidence in this investigation that the Chinese government is involved in Baosteel Group's export activities. Furthermore, Baosteel Group argues that the Department has previously and consistently granted separate rates to other respondents in investigations involving the Chinese steel industry. Baosteel Group advocates that the Department should not defer from this long standing practice. Baosteel Group maintains that the purpose of the test is to prevent a government from exerting control over a specific respondent's export activities such that the manipulation of such activity by a government seeking to channel exports through a company with a relatively low dumping margin does not occur. Baosteel Group contends that there is no evidence that the Chinese government is doing this, further it maintains that the Chinese government does not exert control over the export activities of the Chinese steel companies. Benxi and Angang agree with Baosteel Group regarding the OECD materials and state that nothing contained in those materials suggests in anyway any kind of government interference with export activities of Chinese steel companies. Benxi and Angang argue that consequently, the OECD documents neither detract from nor negate Benxi and Angang's entitlement to a separate rate under the Department's long-standing and well-established separate rates policy. Benxi and Angang assert that the Department spent a fair amount of time addressing various statements made by the Chinese industry people and officials of a Chinese agency and a Chinese trade association during the course of the verification at Baosteel Group, but did not do so at Benxi and Angang. Benxi and Angang contend that despite the fact that the undersigned counsel was provided with a copy of the Baosteel Group verification report, Benxi and Angang are at something of disadvantage as to precisely what the Department's concerns with regard to the OECD meeting texts are. Benxi and Angang assert that the Department traced the proceeds of their U.S. sales transactions from the sales documents to their U.S. dollar and other foreign currency accounts. Benxi and Angang assert that the Department not only traced Benxi's bank receipts furnished by their banks upon the receipt of their export proceeds, but also reconciled the amounts of those receipts to their foreign currency bank accounts. Benxi and Angang contend, that in past cases, the Department has viewed this trace and reconciliation as sufficient for purposes of testing the disposition of the company's proceeds. Brake Rotors From the People's Republic of China: Preliminary Results and Partial Rescission of Fifth New Shipper Review, 66 FR 29080, 29082 (May 29, 2001). Benxi and Angang assert that they demonstrated that management is selected through a quasi-democratic process that permits the workers and staff of the company to select management without government instruction, interference, direction or control. Benxi and Angang claim that the process reflects the sense that the company personnel should be responsible for the election of company management that will make the business judgments that affect their daily livelihoods and the people's common assets, and that companies should operate independently of the government, as all the respondents in this case do. Baosteel Group submitted a chart which it claims compares the steel policies of Ukraine, India and the European Union. Baosteel Group advocates that the chart shows that the steel policies of Ukraine, India and the European Union are more problematic than China, in particular those of Ukraine and India because of their export orientation. Baosteel Group alleges that the Chinese government does not meddle in the export activities of Chinese steel companies unlike the Ukrainian and Indian government's involvement in the steel companies of those countries. Baosteel Group further emphasizes that there is government intervention in market economies that is actually greater than the alleged activity of the Chinese government. Baosteel Group argues that the Department has granted separate rates to Ukrainian respondents even when the evidence on the record showed government control over investment and export activities. Baosteel Group states that vast government programs exist in Ukraine such as, controls on export quality, production and input subsidies, and production quotas. Baosteel Group maintains that the Department was fully aware of the Ukrainian government's control on the export activities of its steel companies, yet it granted those respondents a separate rate. Baosteel Group argues that since it is the Department's practice to grant respondents a separate when evidence supports the existence of government control over export activities, it should grant Baosteel Group a separate rate when no such control exists. Baosteel Group points out that the Department has consistently granted separate rates to cooperative Chinese respondents in steel industry cases and it should again do so in this case. Baosteel Group maintains that since there is no evidence that China has pursued export-directed intervention in the steel industry, the Department must continue its long- standing practice of granting separate rates in steel cases. In its rebuttal to petitioners' argument that respondents should be denied a separate rate, Baosteel Group adds that Petitioners I ignore previous cases in which the Department outlines its separate tests. Baosteel Group asserts that these cases establish that the purpose of the separate test is to provide Chinese respondents with an opportunity to present factual information to rebut the presumption that respondent's export activities are controlled by the government. Baosteel Group goes on to say that Petitioners I also ignore the fact that the Department's separate rates analysis already presume that the NME government exerts some measure of control over the exporters, however the focus is whether the government retains control over the export activities of the producer. Baosteel Group also claims that Petitioners I rely on misleading, inaccurate citations and made overreaching arguments that are unsupported by record evidence. Baosteel Group argues that a substantial change to the Department's separates rates test would violate the U.S.-China WTO Accession Bilateral Agreement. Baosteel Group asserts that if the Department makes a change it would undermine the validity of this agreement. Baosteel Group asserts that the United States and China specifically negotiated each of the provisions related to the use of a non-market economy methodology for Chinese cases. Baosteel Group maintains that the negotiations relied on the mutual understanding of the nature of the Department's existing NME methodology. Baosteel Group asserts that if the Chinese government had known that the Department would drastically change its separate rates analysis, it may not have conducted negotiations in the same way. Baosteel Group concludes that the Department should not alter the methodology for granting separate rates, and it should continue to grant Baosteel Group a separate rate in this case. In rebuttal to Petitioners' I arguments, Benxi and Angang assert that the Department and Petitioners misconstrued the broad statements at the OECD conference. Benxi and Angang argue that in light of the recent events in the United States concerning President Bush formally requesting the U.S. International Trade Commission to initiate a section 201 safeguard investigation it is not surprising that a Chinese steel trade association representative would address the same issues at the OECD conference. In agreement with Baosteel Group's position, Benxi and Angang maintain that Petitioners I have long been aware of the issues discussed at the OECD World Steel Forum and never before made any serious issues of the contents of those meetings. Benxi and Angang reiterate from their brief that the Department's separate rate test is concerned with whether exporters are independent from government control, not with macroeonomic/border-type controls, particularly if these controls are imposed to prevent dumping. Benxi and Angang argue that the separate rates test is designed to ensure that exporters that participate in antidumping investigations receive a rate that only they may use in the future to the exclusion of other Chinese exporters if they are, in fact, setting their own export prices and retaining their export earnings. Benxi and Angang maintain that under the separates rates criteria, the Department assigns separate rates in NME cases when respondents can demonstrate the absence of both de jure and de facto governmental control over export activities. Benxi and Angang state that the evidence on the record shows that Angang and Benxi make their own production-output decisions. Angang and Benxi contend that at verification each company provided the Department with production orders and contracts which establish that the companies do not make sales from inventory but rather all of their export sales to the U.S. are produced to order based on the sales contracts with U.S. customers. Benxi and Angang also argue that the evidence on the record shows that Benxi and Angang make their own investment decisions. Benxi and Angang state that at verification the Department confirmed that all investment decisions are make internally at the companies and that no prior approval is required for expanding the production as long as new products are within the scope of their respective business licenses. Angang and Benxi assert that since the Department did not explore the separate rates issues in the depth and detail that it spent at the Baosteel Group verification it must mean that the Department is satisfied with the documents submitted by Benxi and Angang and considered it unnecessary to pursue the matter further. Benxi and Angang further argue that government policies do not have any bearing on the separate rates issues and that the separate rates analysis should focus narrowly on the government's control over an individual company's export activities at the microeconomic level. Angang and Benxi both maintain that at verification each company confirmed that their management was not involved in establishing any government plans. Benxi and Angang argue that at verification each company stated that it does not necessarily follow recommendations of the government since they are in business to make money as the market permits. Angang and Benxi state that in the 1997 Cut-To-Length Carbon Steel Plate from China antidumping investigation the Department determined that Angang qualified for a separate rate. The Department there rejected the notion that the government exerted control of the steel industry. Angang and Benxi state that the result should be the same for the current investigation. In rebuttal, Petitioners I argue that respondents' arguments are contradicted by statements at the OECD Steel Forum, which were detailed in their case brief. First, Petitioners I reiterate that the post hoc protestations by the participants that their statements represented "personal opinion," "predictions," and "personal research results and opinions" are belated and self-serving and belied by the contemporaneous record of the meeting. Second, Petitioners I assert that Baosteel Group mis-characterize the outcome of the Department's inquiry at verification regarding the OECD Steel Forum statements. Citing to the same statements from the Baosteel Group Verification Report mentioned in their case brief, Petitioners I argue that far from confirming the purported independence of the Chinese steel industry from the central government, the Baosteel Group verification report questions it. Third, Petitioners I claim that Baosteel Group's reliance on the Department's "Global Steel Trade Report" is misplaced. In so arguing, Petitioners I refer to the statements from the Global Steel Trade Report indicating the "lack of sufficient separation between the government at all levels and state-owned enterprise management" and the "government's unwillingness at this time to fully privatize the steel industry." Petitioners I assert that the "Global Steel Trade Report" also notes that the purported "progressive decentralization" of the Chinese steel industry by the central government has resulted in halting decentralization and scant progress. Petitioners I therefore urge the Department to conclude that the hot- rolled steel producers in China are operating units of a single enterprise under common control by the Chinese government and apply a single antidumping duty deposit rate. Department's Position: We agree with respondents and have continued to grant each respondent a separate rate in the final determination. Background In our preliminary determination, we found that the respondents had met the criteria for the application of separate antidumping duty rates. However, since that time, the Department and the parties have placed additional documents on the record. On July 10, 2001, the Department placed on the record of this case information from the World Steel Forum, 2001, OECD/China Workshop on Steel Market, Trade and Structural Adjustment, held in Shanghai, China on May 10-11, 2001 ("OECD Forum"), and gave parties until July 20, 2001, to submit factual information to rebut, support, clarify, or correct the new factual information placed on the record by the Department. We extended this deadline until July 24, 2001, at the request of respondent Baosteel Group. On July 24, 2001, we received responses from Angang, Baosteel Group, Benxi, and petitioners and the new information was placed on the record. On July 26 and August 3, 2001, Baosteel Group submitted additional information to "rebut, clarify, or correct" the information submitted by petitioners. The July 24, 2001, joint respondent response contained 368 pages of information, including affidavits from people who made presentations at the OECD Forum and containing, among others, the following documents: "Decree of the State Economic and Trade Commission of the People's Republic of China" ("SETC Decree") and China's National 10th Five-Year Plan for the Metallurgical Industry ("10th Five-Year Plan"). Baosteel Group submitted a separate response on July 24, 2001, which contained production notification documents for each sale of subject merchandise by Baosteel Group to the United States during the POI. The information submitted by Petitioners I included a translation and the Chinese version of China's 10th Five-Year Plan for the Metallurgy Industry and study of the Chinese steel industry undertaken by petitioners' counsel, "China's Steel Industry Today: A Critical Study" (July 2001). Baosteel Group's July 26, 2001 submission consisted of a copy of Chapter Six of Global Steel Trade: Structural Problems and Future Solutions, U.S. Department of Commerce Report to the President, July 2000. Finally, Baosteel Group's August 3, 2001 response contained sections of those documents that Baosteel Group maintains were allegedly erroneously cited in petitioners' report. These documents include the "Document of the State Economic and Trade Commission Circular on Printing and Transmission of the Goal for the Control of Total Supply and Total Demand of Iron and Steel in 2001 and Key Points for Implementation" ("SETC Circular"). Analysis The Department has thoroughly analyzed all this new factual information in making its final determination and continues to find that respondents are entitled to a separate rate. Under the separate rates criteria, the Department assigns separate rates in non-market economy cases only if respondents can demonstrate the absence of both de jure and de facto governmental control over export activities. The Department considers the following de jure criteria in determining whether an individual company may be granted a separate rate: (1) an absence of restrictive stipulations associated with an individual exporter's business and export licenses; (2) any legislative enactments decentralizing control of companies; and (3) any other formal measures by the government decentralizing control of companies. The respondents have placed on the record a number of documents to demonstrate absence of de jure control, including the "Foreign Trade Law of the People's Republic of China" and the "Company Law of the People's Republic of China." In prior cases, the Department has analyzed these laws and found that they establish an absence of de jure control. See, e.g., Notice of Final Determination of Sales at Less Than Fair Value: Certain Partial- Extension Steel Drawer Slides with Rollers from the People's Republic of China, 60 FR 54472, 54474 (October 24, 1995). The Department considers four factors in evaluating whether each respondent is subject to de facto governmental control of its export functions: (1) Whether the export prices are set by or are subject to the approval of a governmental agency; (2) whether the respondent has authority to negotiate and sign contracts and other agreements; (3) whether the respondent has autonomy from the government in making decisions regarding the selection of management; and (4) whether the respondent retains the proceeds of its export sales and makes independent decisions regarding disposition of profits or financing of losses. With respect to this new factual information, we note that while this information arguably provides evidence of Chinese government control over the Chinese steel industry, it does not necessarily presuppose company- specific government control over export activities. Specifically, the government measures identified in these documents range from production targets for individual steel producers to very specific industry targets for utilization rates of steel inputs such as water per ton, energy used per ton, and man hours per ton. Although these measures suggest extensive government management of the Chinese steel industry, we find that this form of government control (1) does not implicate the four prongs of the Department's de facto separate rates test. Specifically, the petitioners have not challenged the Department's preliminary finding that export prices set by respondents are made independent of the government and without the approval of a government authority; nor did the Department find any evidence to suggest that each respondent does not set its own export prices independent of the government and without the approval of a government authority. See Angang Verification Report at 5 (July 11, 2001); Baosteel Group Verification Report at 9 (July 16, 2001); and Benxi Verification Report at 5 (July 18, 2001). Additionally, at the verifications of Angang, Baosteel Group, and Benxi, the Department confirmed that each company has the authority to negotiate and sign contracts and other agreements although the SETC Circular provides certain restrictions on the type of contracts that may be signed. (2) See Angang Verification Report at 5 (July 11, 2001); Baosteel Group Verification Report at 9 (July 16, 2001); and Benxi Verification Report at 5 (July 18, 2001). Also, the Department confirmed at verification that Angang, Baosteel Group, and Benxi have autonomy from the government in making decisions regarding the selection of management. See Angang Verification Report at 5 (July 11, 2001); Baosteel Group Verification Report at 5-8 (July 16, 2001); and Benxi Verification Report at 5 (July 18, 2001). Finally, we found at verification that respondents retain the proceeds of their export sales and make independent decisions regarding disposition of profits or financing of losses, although the SETC Decree provides certain restrictions on the type of investments that can be made. (3) See Angang Verification Report at 5 (July 11, 2001); Baosteel Group Verification Report at 9 (July 16, 2001); and Benxi Verification Report at 5 (July 18, 2001). Thus, we continue to find that there is a de facto absence of government control with respect to exports. We also note that petitioners have not challenged any specific aspect of the Department's finding in the preliminary determination of de jure independence with respect to respondents' export activities. Accordingly, for the final determination, the Department has continued to grant a separate rate to Angang, Baosteel Group, Benxi, Panzhihua Iron & Steel (Group) Company, Wuhan Iron & Steel Group Corporation. Comment 2: Self Produced Energy and Gas Factors Angang and Benxi argue that the Department should use the reported factors of production for the self-produced electricity, oxygen, nitrogen, and argon and not value these energy factors as finished-product inputs, as was done in the preliminary determination. Angang and Benxi maintain that the Department's approach was in direct conflict with the Department's long standing and well-established practice. The respondents also claim that the Department's methodology unfairly overstates the constructed values and results in an inflated dumping margin. Angang and Benxi note that the Department's questionnaire requested specific factors of production and the respondents reported the specific factors of production of the internal production of electricity, oxygen, nitrogen, and argon. Angang and Benxi state that each company reported the specific factors of production of the internal production of electricity, oxygen, nitrogen, and argon and that the data relating to these internally produced factors were carefully prepared and reported to the Department. Angang and Benxi further argue that the Department verified in detail these specific factors and found no discrepancies from the reported data. Angang and Benxi maintain that the Department's primary goal and responsibility in selecting surrogate values in NME investigations is to fairly and accurately determine the costs that would have been incurred in producing the subject merchandise if those costs had been determined by market forces. Angang and Benxi state that the Department should not have used a surrogate value for electricity from the International Energy Agency, and should not have valued gas by using an industrial gas manufacturer in India, as the inputs to which these values were applied were largely internally produced by both Angang and Benxi. Angang and Benxi cite the case Certain Cut-to-Length Carbon Steel Plate from the People's Republic of China 62 FR 61964 (Nov. 20, 1997) (CTL Plate) as evidence that it is the Department's practice to refuse to disregard the reported and verified intermediate input factors of production. Angang and Benxi conclude therefore that the Department should use the intermediate reported factors and not use surrogate values for the amount of electricity that is self-produced and for oxygen, nitrogen, and argon. Baosteel Group argues that the Department should use all of Baosteel Group's factor inputs to calculate Baosteel Group's margin. Baosteel Group alleges that in the preliminary determination, the Department chose to ignore Baosteel Group's reported data by replacing Baosteel Group's reported coal consumption with an artificially constructed consumption amount for electricity, nitrogen, argon, and oxygen, based on production quantity worksheets submitted by Baosteel Group. Baosteel Group maintains that the constructed consumption values for the intermediary inputs do not accurately reflect Baosteel Group's actual production experience. On the contrary, Baosteel Group argues that the consumption rates of the coal used by Baosteel Group to produce the intermediary inputs (i.e., electricity, nitrogen, argon, and oxygen), which the Department verified, reflect Baosteel Group's true production experience. Moreover, Baosteel Group maintains that the Department's preliminary determination calculation methodology is inconsistent with the statute and regulations and is contrary to the Department's established practice in NME proceedings. Baosteel Group notes that the Department did not provide any rationale for rejecting Baoteel Group's reported factors of production. Citing 19 USC 1677b(c)(1), Baosteel Group claims that the statute requires the Department to construct the value of the subject merchandise manufactured by NME producer using the factors of production actually utilized by that producer. Baosteel Group asserts that the Department's antidumping questionnaire further expands on this statutory requirement. Finally, citing Certain Preserved Mushrooms from the People's Republic of China, 66 FR 35595 (July 6, 2001) and Notice of Final Determinations of Sales at Less Than Fair Value: Brake Drums and Brake Rotors From the People's Republic of China, 62 FR 9160 (February 28, 1997), Baosteel Group argues that in past cases the Department has consistently calculated normal values for NME producers based on each producer's specific factors of production. Baosteel Group also notes that in the Preliminary Determination of Sales at Less Than Fair Value and Postponement of Final Determination: Certain Cold-Rolled Flat-Rolled Carbon Quality Steel Products From The People's Republic of China ("Cold- Rolled Steel from the PRC"), 65 FR 1117, 1127 (January 7, 2000), the Department calculated Baosteel Group's normal value using the factors of production reported by Baosteel Group. Therefore, Baosteel Group argues that consistent with the existing laws and its practice, for the final determination the Department should use Baosteel Group's reported coal consumption to calculate Baosteel Group's dumping margin. Petitioners contend that the Department correctly valued respondents' energy inputs through the use of surrogate valuation rather than surrogate valuation of the "upstream" factors going into the production of those inputs. Petitioner's contend that the Department's valuation methodology is supported by statute and is consistent with the Department's recent practice in Crawfish and Final Determination of Sales at Less Than Fair Value: Foundry Coke from the People's Republic of China ("Foundry Coke"), 66 FR 39487 (July 31, 2001). In these cases, Petitioners contend that the Department built up the factors of production based on the quantity of the input consumed and not the costs associated with the input. The Petitioners also state that the Department used a surrogate Indian price for electricity in the Foundry Coke. Petitioners contend that the Department should build up its factors of production based on the quantities of the inputs used not the cost associated with those inputs. Petitioners argue that the statute 19 U.S.C. § 1677b(c)(1)(B) states that the Department shall determine the normal value of the subject merchandise in NME investigations "on the basis of the value of the factors of production utilized in producing the merchandise..." Petitioners contend that this means that the Department must focus on the quantities of raw materials used when calculating normal value and whether the company produces the input should not be considered. Petitioners also maintain that if the respondents' methodology is used, the results yielded will be mathematically incorrect because it would base the factors of production on energy production and not energy consumption. Petitioners state that respondents' claim that their factors of production data should be limited to material and labor used to manufacture steel plus the material and labor used to manufacture energy. Petitioners argue that this would lead to mathematically inaccurate results because the Indian financial statements used by the Department do not separately identify the material and labor costs used to produce energy. Petitioners contend that the financial statements identify purchased energy and therefore any application of the ratios would lead to inaccurate results. Petitioners further note that using the respondent's suggested methodology will shift the focus of the investigation from hot-rolled steel to parallel investigations of the inputs for energy. Petitioners maintain that the Department should continue to apply the methodology it used in the preliminary determination. Department's Position: We have continued to value respondents' energy inputs (i.e., oxygen, argon, nitrogen, and electricity) through the use of surrogate valuation, rather than based on surrogate valuation of the factors going into the production of those inputs. For purposes of this investigation, we have determined that it is appropriate to value respondents' energy inputs through the use of surrogate values for the reasons identified below. First, in this proceeding, the use of respondents' factor of production data based on generating the energy would result in a mathematically incorrect result. For the final determination, we are only using the financial statements of one surrogate producer. TATA's financial statements indicate that it purchased energy (identified as "purchase of power"). See TATA's financial statements, at Attachment 1, Petitioners' June 19, 2001 submission. This purchased power, which is included in the amount for materials, labor, and energy, is a fully loaded cost. Because respondents are self-producing some or all of their energy, by applying a financial ratio which includes in its denominator fully loaded energy costs to factors which contain a small portion, if any, of respondents' energy costs, the Department would be understating normal value. Second, we recognize that CTL Plate, which involved many of the same parties as this investigation, as well as other cases such as those cited by the respondents, concluded that valuing self-produced inputs may produce a more accurate result. In this particular instance, we note that the self generation of the energy inputs in question (i.e., electricity, argon, oxygen, and nitrogen) is a heavily capital intensive process. Moreover, respondents' own information indicates that their facilities dedicated to the production of these energy inputs are not insubstantial. For example, information on the web site of Baoshan Co. Ltd. indicates that the company's power plant has a set of 150 MW gas turbine generator and three sets of 350 MW thermal generators, resulting in a total generating capacity of 1200 MW. The web site also indicates that "besides meeting the requirement of the company production, the surplus power is sold to the Baosteel Group Corporation and Shanghai Power Co." See http://www.bstl.sh.cn/plc/english/indexe.htm. In this instance, respondents' preferred methodology would result in an understatement of costs as TATA, the sole source of surrogate financial information, purchases a large portion of the inputs in question, and does not appear to produce these inputs. See TATA's financial statements at Schedule 4: "Manufacturing and Other Expenses," Petitioners' June 19, 2001 submission. As such, it does not incur the capital costs associated with the substantial plant and machinery needed to produce them. Therefore, the capital costs cannot and do not appear on TATA's financial statements and would not be included in the normal value under respondents' preferred methodology. (4) To ignore such costs, especially where they are likely to be significant as in the present case, would result in a less accurate calculation, not greater accuracy as implied by the respondents. Apart from the inaccuracy which would be generated in this case through the use of respondents' preferred methodology, valuing factors of production used in the manufacture of the subject merchandise by conducting, in essence, a factors of production calculation the inputs into the factors is flawed. In order to avoid the inaccuracies noted above, the Department would have to conduct in essence two investigations, one into the production of the subject merchandise and another into the production of the inputs into certain factors. Finally, we disagree with Baosteel Group's claim that the Department "artificially" constructed consumption rates for the intermediary inputs. The Department's calculation in this respect was very simple - the Department did not value the inputs used to manufacture the intermediary inputs in question; instead, it valued Baosteel Group's reported and verified amounts of these intermediary inputs used in the production process of the subject merchandise. See Baosteel Group's Preliminary Analysis Memorandum. These amounts are found in Baosteel Group's April 2, 2001 response at Exhibit 10, and are no more or less "artificial" or "constructed" than any other verified portion of Baosteel Group's response. Comment 3: Recovery/By-Products Benxi and Angang argue that the Department should give respondents full credit for the production of recovery/by-productss. Benxi and Angang assert that in the preliminary determination, the Department granted Benxi and Angang offsets in the calculation of normal value, but only to the extent the recovery/by-product was either sold to outside customers or re- introduced into the production processes relevant to the subject merchandise. According to Benxi and Angang, this understates the value of the production cost offset to which Benxi is entitled. Benxi and Angang assert that at verification, they provided the Department with substantial evidence demonstrating that with respect to blast furnace gas, coke oven gas and converter gas, a separate cost center (the Gas distribution Plant) "purchases" these gases from the facilities that generate them and redistributes the gases either back to the facilities involved in the such production, or to other customers. Benxi and Angang assert that the Department verified respondents' recovery/by-products production of coke oven gas and traced one entire month's production from production records through meter reading records showing the quantities measured in the gas distribution system and traced these quantities to internal transfer documents demonstrating "sales" to the gas distribution plant, and ultimately traced these transfers into the financial records of the company. Benxi and Angang contend that the Department also verified the other recovery/by-products produced from the coking plant. Benxi and Angang contend that the Department denied certain aspects of the offset for these recovery/by-products, limiting the offset to the amount of recovery/by-products sold or re-entered into the production process, but indicated it would "examine this issue more closely at verification." 66 FR at 22193. As a result of verification, Benxi and Angang claim, it is clear that Benxi and Angang "sold" all of its recovered recovery/by-products to the gas distribution plants at their mills for industrial use. According to Benxi and Angang, it was further demonstrated that the gas distribution plant distributed virtually all of the gases and other recovery/by-products to other plants for use in production of subject and non-subject merchandise. Benxi and Angang argue that consequently, the Department should revise its preliminary determination and grant Angang the entire credit for its recovery/by- product production. Baosteel Group argues that the Department should credit in its calculation of normal value all recovered materials reported by Baosteel Group. Citing the preliminary determination, Baosteel Group claims that the Department recognized that credit should be given for Baosteel Group's recovered materials/recovery/by-products, if Baosteel Group could demonstrate either that the materials were reused its production process or that the materials were sold. Baosteel Group maintains that at verification, the Department confirmed that Baosteel Group accurately reported the amounts of recovered materials. Citing Final Determination of Sales at Less Than Fair Value: Bulk Aspirin from the People's Republic of China, 65 FR 33805 (May 25, 2000) and accompanying Decision Memorandum at Comment 13 ("Bulk Aspirin"); Freshwater Crawfish Tail Meat from the People's Republic of China: Final Results of Administrative Antidumping Duty and New Shipper Reviews, and Final Recission of New Shipper Review ("Crawfish"); 65 FR 20948 (April 19, 2000); Sebacic Acid from the People's Republic of China: Preliminary Results of Antidumping Duty Administrative Review, 65 FR 18968, 18973 (April 10, 2000); and Certain Cut-to-Length Plate from Romania, 64 FR 48581, 48583 (September 17, 1999), Baosteel Group submits that the Department's normal practice is to offset production costs in the calculation of normal value with sales revenue of recovery/by-products generated and materials recovered during the production. Baosteel Group argues that for the final determination, the Department should follow its practice and give a credit for all of its reported recovered materials. Petitioners, Gallatin Steel Company, IPSCO Steel Inc., Nucor Corporation, Steel Dynamics, Inc., Weirton Steel Corporation and the Independent Steelworks Union, ("Petitioners II") argue that it is the Department's normal practice to grant an offset based on the sales revenue of the recovery/by-product. Bulk Aspirin. Petitioners II argue that no matter the amount of the recovery/by-product recovered, respondents have the burden to show that reported recovery/by-products are actually sold before an offset is allowed. Petitioners II argue that at verification, the Department verified the amount of certain by-products produced and the amount recovered. Angang Verification Report at 9 and Baosteel Group Verification Report at 19. However, Petitioners II assert that respondents did not establish that these recovery/by-products were sold and therefore no economic benefits were generated. Therefore, Petitioners II argue that the Department should not give an offset to these recoveries/by-products when calculating normal value. Petitioners I argue that the Department should deny Angang and Benxi's request that they should be granted "the entire credit for {their} recovery/by-product production." Petitioners I argue that the Department has consistently rejected such a methodology. Petitioners I cite to Bulk Aspirin, which states that the "Department's normal practice with respect to recovery/by-product sales is to offset the sales revenue of the recovery/by-product, rather than the entire production amount." Id. at 33805. Petitioners I contend that the Department does not allow an offset for the mere production of recovery/by-products because they may not have any appreciable value. Petitioners I argue, that in contrast, the sale of such recovery/by-products to unaffiliated parties establishes that they have some value. Petitioners I claim that even when recoveries/by-products are sold, respondents are only entitled to an offset for recoveries/by- products sold during the POI which are related to production of the subject merchandise. Petitioners I assert that in the instant investigation, it is unclear from respondents' descriptions in their case briefs of the reintroduction of recovery/by-products into the production process whether respondents' claimed offset for sales of recovery/by- products to unaffiliated parties is related solely to production of subject merchandise. Petitioners I claim that all of the respondents manufacture products other than the subject merchandise from the input materials used to produce the recovery/by-products. Petitioners I assert that Angang and Benxi further argue that they are entitled to an offset for recovery/by-products were transferred to other manufacturing divisions within the company for use in producing subject and non-subject merchandise. Petitioners I claim that Angang and Benxi's recoveries/by-products were generated through the production of both subject and non-subject merchandise. Petitioners I argue that the per-ton offset for sales of Angang and Benxi's recoveries/by-products should apply only to recoveries/by-products derived from the production of subject merchandise. However, Angang and Benxi did not allocate recoveries/by- products between subject and non-subject merchandise, which inflates the value of the offset. Petitioners I urge that for the final determination, the Department should deny an offset for recoveries/by-products derived from the production of non-subject merchandise and adjust Angang and Benxi's claims for recovery/by-product offset accordingly. With respect to Baosteel Group, Petitioners I argue that the sales of recoveries/by-products related to production of subject merchandise which are made to unaffiliated parties may properly offset the costs of manufacture; however, Petitioners I claim, it is unclear whether Baosteel Group's offsets are attributably solely to sales of recoveries/by-products related to production of subject merchandise. Petitioners I claim that Baosteel Group did not demonstrate in its case brief that the recoveries were reintroduced into production. Petitioners I argue that the recycling of recoveries/by-products into production of the subject merchandise does not qualify as an offset to the cost of manufacturing of the subject merchandise. Petitioners I claim that the recycling of recoveries/by-products does not in anyway reduce costs, generate revenue or reduce consumption of the initial input, or have any effect on the cost of manufacture. Petitioners I assert that the recycled recoveries/by-products are simply a reuse in another form of the same raw materials already accounted for in respondent's section D response. Therefore, Petitioners I argue that an offset is inappropriate. Department's Position: We agree in part with respondents and petitioners. We agree with petitioners that the Department does not grant an offset for the mere production of recoveries/by-products. For recoveries/by-products that are sold to unaffiliated parties, it is the Department's practice, as explained in Bulk Aspirin, to offset production costs with the sales revenue of the recovery/by-product. Also, contrary to petitioners' claims, it is also the Department's practice to grant offsets for recoveries/by- products which are re-entered into the production process. In the Final Determination of Sales at less than Fair Value in the Antidumping Duty Investigation of Steel Concrete Reinforcing Bars from the People's Republic of China, the Department granted credit for scrap generated in the production process of rebar because the scrap, while not sold to outside customers, had commercial value. See Notice of Final Determination of Sales at Less Than Fair Value: Antidumping Duty Investigation of Steel Concrete Reinforcing Bars From The People's Republic of China ("Rebar from the PRC"), 66 FR 33522 (June 22, 2001) and Accompanying Decision Memorandum at Comment 5. All respondents in this investigation have reported total usage inputs into the production of hot-rolled steel, including those inputs which have been recycled (e.g., scrap). Therefore, to the extent that respondents have demonstrated that the recovery/by-product was reused in the production process, in accordance with Rebar from the PRC, the Department has provided credit up to the amount reused in the production process. In the case of Baosteel Group, Baosteel Group provided information showing where and how the reported recovery/by-product was reintroduced into Baosteel Group's production process. See Baosteel Group's May 7, 2001 questionnaire response at Exhibits 4, 7, and 8. During verification, the Department confirmed Baosteel Group's material and energy consumption rates as well as Baosteel Group's reported recovery/by-product recovery rates and noted no discrepancies. See Baosteel Group Verification Report at 13-19. Therefore, for purposes of the final determination, the Department has granted Baosteel Group a credit for the value of recoveries/by-products which it demonstrated were sold during the POI and for the amount of recovery/by-product which it demonstrated was reused in the production process. See Baosteel Group Final Analysis Memorandum. In the case of Angang and Benxi, we allowed recovery/by-product credits where the company provided information demonstrating that the recoveries/by-products were sold and/or reused in the production process. We also allowed credits for recoveries/by-products that were transferred to other companies within the company group as this transfer demonstrates that the recovery/by-product had economic value. See Angang and Benxi's Final Analysis Memorandum. With regard to further processed recoveries/by- products, we denied any recovery/by-product credit because Angang and Benxi did not provide the requested information regarding where the costs associated with the further processing were captured. Comment 4: Valuation of Financial Ratios Petitioners argue that for the final determination the Department should use exclusively the 2000-2001 financial statements of TATA to calculate financial ratios. Petitioners state that for the preliminary determination, the Department used the 1999-2000 financial statements of TATA and Steel Authority of India Limited ("SAIL") to calculate surrogate values for factory overhead and selling, general and administrative ("SG&A") expenses and used only TATA's financial statements to determine profit. Petitioners note that at the time of the preliminary determination, the 1999-2000 financial statements, which cover the period April 1, 1999 through March 31, 2000, were the most recent available. They explain that the 2000-2001 financial statements for TATA, which petitioners placed on the record of this proceeding on June 19, 2001, cover the entire POI while SAIL's 1999-2000 financial statements cover none of the POI. Citing Notice of Final Determination of Sales at Less Than Fair Value: Bicycles From the People's Republic of China, 61 FR 19026, 19038-9 (April 30, 1996); Pure Magnesium From the People's Republic of China: Final Results of Antidumping Duty New Shipper Administrative Review, 63 FR 3085, 3088 (January 21, 1998); Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts Thereof From France, Germany, Italy, Japan, Romania, Singapore, Sweden, and the United Kingdom; Final Results of Antidumping Duty Administrative Reviews, 63 FR 33320, 33349 (June 18, 1998); and Notice of Final Determination of Sales at Less Than Fair Value: Certain Cut-to-Length Carbon Steel Plate from the Russian Federation ("Russia CTL Plate"), 62 FR 61787, 61790 (November 19, 1997), petitioners' claim that in previous investigations the Department has consistently expressed a preference for using information that is contemporaneous with the POI. Petitioners note that in Russia CTL Plate the Department determined that it should use financial data contemporaneous with the POI. Thus, petitioners argue that in accordance with its practice, for the final determination the Department should calculate the surrogate values for factory overhead, SG&A expenses, and profit based on the use of TATA's 2000-2001 financial statements exclusively. Petitioners provided revised financial ratios based on the Department's calculation methodology employed in the preliminary determination. Respondent Baosteel Group argues that the Department should reject petitioners' request to base surrogate overhead, SG&A, and profit ratios on the financial results of a single Indian producer of comparable merchandise. While agreeing with petitioners' claim that the Department has a preference for surrogate data that are contemporaneous with the POI, Baosteel Group charges that petitioners have ignored the Department's policy to calculate overhead, SG&A, and profit ratios that are representative of the entire surrogate industry. Citing Brake Rotors From the People's Republic of China: Preliminary Results of Third New Shipper Review and Preliminary Results and Partial Rescission of Second Antidumping Duty Administrative Review, 64 FR 73007 (December 29, 1999) ("Brake Rotors from the PRC"), Baosteel Group maintains that it is the Department's preference to base surrogate overhead, SG&A, and profit on the financial experience of multiple companies. Baosteel Group argues that the Department only uses a single company's financial statements when there is a lack of useable alternatives citing Notice of Final Determination of Sales at Less Than Fair Value: Solid Agricultural Grade Ammonium Nitrate from Ukraine, 66 FR 38632 (July 25, 2001). Baosteel Group claims that petitioners have not challenged that SAIL is a representative Indian integrated steel producer. Baosteel Group proposes that consistent with its policy articulated in Brake Rotors from the PRC, the Department should calculate average overhead, SG&A, and profit ratios using TATA's 2000-2001 financial statements and SAIL's 1999-2000 financial statements. Department's Position: In this instance, we have determined that it is more appropriate to value overhead, SG&A, and profit based exclusively on the 2000-2001 financial statements of TATA rather than an average of TATA's 2000-2001 financial statements and SAIL's 1999-2000 financial statements. There are several factors concerning SAIL's 1999-2000 financial statements which, when considered together, lead to a determination that they are not an appropriate basis on which to value surrogate overhead, SG&A, and profit. SAIL's 1999-2000 financial statements are not contemporaneous with the POI, SAIL did not make a profit in fiscal year 1999-2000, and SAIL embarked on a substantial government sanctioned financial and business restructuring plan during fiscal year 1999-2000, which envisaged the waiver of loans, write-down of assets, and government subsidies. See SAIL's 1999-2000 Annual Report at 2, Petitioners' March 26, 2001 submission. As noted by petitioners and Baosteel Group, the Department has a preference for using surrogate data that is contemporaneous with the POI. See, e.g., Russia CTL Plate, 62 FR at 61787. For purposes of the preliminary determination, the only financial data on the record for both TATA and SAIL were for the fiscal year ending March 31, 2000. However, since the preliminary determination, petitioners have placed contemporaneous financial data from TATA on the record of this investigation. See Petitioners' June 19, 2001 submission at Attachment 1. This is the best information on the record for valuing overhead, SG&A, and profit. The other information available is not contemporaneous with the POI. Moreover, based on a review of SAIL's 1999-2000 financial statements, we find that it is not appropriate to include SAIL's financial experience during fiscal year 1999-2000 because it may be less representative of the financial experience of the Indian integrated steel industry. The Director's Report to SAIL's 1999-2000 financial statements indicates that SAIL announced a financial and business restructuring plan, which was approved by the Government in February 2000. See SAIL's 1999-2000 Annual Report at 2, Petitioner's March 26, 2001 submission. According to the report, the financial restructuring included the waiver of a Government of India loan with interest accrued thereon amounting to Rs.380.17 crore (USD 81 million), which was made to SAIL's wholly-owned subsidiary Indian Iron & Steel Company Limited. Id. The report also discussed a proposal for a "government guarantee with 50 percent interest subsidy for loans and interest thereon of Rs. 1500 crore to be raised by SAIL from the market to finance reduction in manpower through voluntary retirement scheme." Id. The necessity of this restructuring plan together with the lack of profitability suggests that SAIL was not a financially healthy company during fiscal year 1999-2000. Consequently, based on the issue of the representativeness of SAIL's financial experience and the fact that SAIL's 1999-2000 financial statements cover a period outside the POI, the Department determines that it is not appropriate to use the financial experience of SAIL in fiscal year 1999-2000 to value surrogate overhead, SG&A, and profit. Therefore, for the final determination, we have used exclusively TATA's 2000-2001 financial statements to value surrogate overhead, SG&A, and profit. Comment 5: Calculation of Cost of Materials, Labor, and Utilities Petitioners argue that the Department should exclude TATA's "freight and handling" cost associated with finished goods from the denominator of the financial ratios. Petitioners explain that in the preliminary determination, the denominator used in the calculation of the factory overhead, SG&A, interest, and profit ratios included an amount for "Materials, Labor and Utilities," which was obtained by adding several accounts listed on the financial statements of TATA and SAIL. Petitioners claim that the Department incorrectly overstated freight and handling in the denominator in deriving the ratios for TATA. Citing a financial accounting textbook (5), petitioners state that freight and handling related to the acquisition of raw materials may properly be treated as material costs; however, petitioners claim that "freight and handling" listed on a company's financial statements also typically includes costs associated with delivering finished goods to the unaffiliated customer. Petitioners argue that these later costs are not manufacturing costs but are selling expenses. Petitioners maintain that in the preliminary determination, the Department recognized this distinction and excluded handling expenses for finished goods from the calculation of factory overhead. Petitioners propose that for purposes of calculating the financial ratios in the final determination, the Department should allocate TATA's freight and handling between materials and finished gods in the same proportion which it employed in establishing the "Materials, Labor and Utilities" values for SAIL in the preliminary determination. They explain that the Department allocated the handling expenses listed on SAIL's financial statements between finished goods and inventory and raw materials and scrap based on notes to SAIL's financial statements which separately identified the amount of handling related to finished goods and materials. Respondent Baosteel Group argues that petitioners' proposal for adjusting the denominator for freight and handling costs is unsupported by the record evidence. Baosteel Group maintains that in the preliminary determination the Department determined that TATA's freight and handling expenses related to material acquisition costs, and that petitioners have submitted no evidence that would support the Department reversing its position. Baosteel Group claims that petitioners have not provided a legitimate basis for the Department to change the denominator used in its calculation. Baosteel Group states that in making its surrogate value decisions, it is especially important that the Department make informed decisions based on the available materials because the statute requires the choice of best available information. Baosteel Group explains that if the Department determines that not all of TATA's freight and handling expenses are part of material costs, then the Department should also make numerous other "reasonable adjustments" and not limit the adjustments to those that are adverse to respondents. Specifically, Baosteel Group argues that the Department should have made adjustments to the Indian surrogates' reported expenses to exclude packing expenses and export sales expenses, which Baosteel Group maintains that the Indian surrogates' undoubtably incur. Department's Position: We agree with petitioners in part. In the preliminary determination, with respect to the calculation of TATA's financial ratios, the Department improperly included the cost of "freight and handling" in the calculation of materials, labor, and utilities while excluding this cost from the numerator of the calculation of factory overhead for TATA. Because TATA's financial statements do not contain specific information showing whether any of the freight and handling cost was incurred on incoming materials, we are unable to allocate any portion of the freight and handling charges as a material charge. Additionally, it would not be appropriate to allocate these expenses between selling expenses and material costs based on the experience of another company as petitioners' suggest. Therefore, for the final determination, we have excluded freight and handling charges from the numerator of our overhead calculation as well as from the cost of "Materials, Labor and Utilities." See Angang Final Analysis Memorandum at 4; Baosteel Group Final Analysis Memorandum at Attachment 7; and Benxi Final Analysis Memorandum at 4. This approach is consistent with our recent final determination in steel concrete reinforcing bars from the People's Republic of China, where the Department excluded freight and handling expenses when determining TATA's overhead expenses and excluded these same expenses from the calculation of TATA's cost of manufacture. See Rebar from the PRC, 66 FR 33522. With respect to Baosteel Group's claims that the Department should make adjustments to the Indian surrogates' reported expenses to exclude packing expenses and export sales expenses, Baosteel Group has neither demonstrated that double counting has occurred nor suggested a methodology to eliminate the alleged double counting. Therefore, for the final determination we have continued to not make any adjustments for packing expenses or export sales expenses. Comment 6: Calculation of Profit Respondent Baosteel Group argues that in calculating the surrogate profit ratio, the Department should use data from the entire Indian steel industry. Baosteel Group states that in the preliminary determination, the Department calculated the surrogate profit ratio using the financial statement of only TATA although it calculated the overhead and SG&A ratios using the financial statements of both TATA and SAIL. Baosteel Group also notes that the Department excluded the financial data from another Indian steel producer because that company was not an integrated steel producer. Baosteel Group claims that the Department's determination to exclude SAIL financial information from the calculation of profit is inconsistent with the Department's practice and the statutory intent for calculation of normal value in NME cases. Baosteel Group maintains that the SAA directs the Department only to determine what is the representative profit ratio of the industry in the surrogate country. Moreover, citing Tapered Roller Bearings and Parts Thereof, Finished and Unfinished Final Results of 1998- 1999 Administrative Review, Partial Rescission of Review, and Determination Not To Revoke Order in Part, 66 FR 1953 (January 10, 2001) (Comment 8), Baosteel Group maintains that the Department has used the financial statements of producers of identical or comparable merchandise in the surrogate market economy country even when the companies had negative profits. Baosteel Group contends that is contradictory for the Department to use SAIL's financial data to calculate overhead and SG&A, but to exclude SAIL's financial data for the purposes of calculating profit. Baosteel Group alleges that the Department's decision not to use SAIL's financial data in the final determination was results-oriented and has no rational basis in the law. Baosteel Group reiterates that lack of profitability on the part of SAIL does not mean that SAIL is not representative of the experience of the Indian Steel Industry. Baosteel Group argues that in order to calculate a more accurate profit rate that is representative of the entire Indian integrated steel industry, the Department at a minimum set SAIL's profit rate to zero and average that ratio with TATA's profit ratio. Petitioners I argue that the Department should use TATA's 2000-2001 financial statements exclusively to recalculate the surrogate profit ratio. Petitioners II argue that the Department should not adopt the suggestion of using SAIL's financial statement to calculate the profit ratio because SAIL did not have any profit. Petitioners II note that in Rebar from the PRC (Decision Memorandum Comment 8) the Department disregarded the financial statements of SAIL in calculating the profit ratio because SAIL did not have any profit. Department's Position: As explained in Comment 4, the Department has determined to use exclusively TATA's 2000-2001 financial statements in its calculation of overhead, SG&A, and profit. Regardless of its decision with respect to SAIL's financial information as a whole, in accordance with the policy articulated in Rebar from the PRC, we disregarded SAIL in the instant case's profit calculation. Comment 7: Application of Financial Ratios Petitioners argue that the Department should revise the application of the financial ratios to be consistent with its calculation methodology. Petitioners I state that in the preliminary determination the Department based the SG&A and interest ratios as derived from the Indian producers' financial statements upon a cost of manufacturing that included material, labor, energy, factory overhead, and depreciation. However, Petitioners I claim that the Department did not correctly apply these ratios in its calculation program, and argue that for the final determination the Department should apply the calculated SG&A and interest ratios to an amount that includes depreciation as a part of the cost of manufacture. Respondents did not comment on this issue. Department's Position: We agree with petitioners that this is an error and, for purposes of the final determination, have applied the SG&A and interest ratios to an amount that includes depreciation as a part of the cost of manufacture. See Angang Final Analysis Memorandum at 4; Baosteel Group Final Analysis Memorandum at Attachment 9; and Benxi Final Analysis Memorandum at 4. Comment 8: Brokerage and Handling Benxi argues that the Department used a value for brokerage and handling in its preliminary determination that is extraordinarily high value for a product like hot-rolled carbon steel sheet. Benxi asserts that this value was taken from an investigation involving Certain Stainless Steel Wire Rod from India; Final Results of Antidumping Duty Administrative and New Shipper Reviews, 64 FR 856 (January 6, 1999). Benxi claims that the high brokerage and handling charge in that investigation were obviously related to the fact that stainless steel wire rod has a high value per ton. Benxi argues that the Department should use a value for brokerage and handling from the Indian hot-rolled coil investigation being conducted concurrently with this investigation- Notice of Preliminary Determination of Sales at Less Than Fair Value and Postponement of Final Determination: Certain Hot- Rolled Carbon Steel Flat Products From India, 66 FR 22157 (May 3, 2001) ("HR from India"). Benxi argues this value is more probative because it represents a brokerage and handling expense for precisely the same product sold and for the same period or investigation for this proceeding. Petitioners I argue that Benxi's claims regarding brokerage and handling are baseless. Petitioners I argue that there is no basis on the record to conclude that there is a correlation between the surrogate value that the Department employed for brokerage and handling in the preliminary determination and the value of the merchandise that was the subject of the investigation from which the Department obtained the surrogate value. Petitioners I assert that there is no basis on the record to conclude that the surrogate value that the Department employed in the preliminary determination is "extraordinarily high" or otherwise unreasonable. Petitioners I argue that accordingly, the Department should continue to use that surrogate value in the final determination. Petitioners argue that Benxi's proposed value of $2.90 per ton is less than one-tenth of the brokerage and handling value which the Department used in a previous investigation involving stainless steel wire rod from India, as well as in the preliminary determination in this investigation. Petitioners I urge that the Department should continue to use the value of $33.82 per metric ton that it used in the preliminary determination. Petitioners I argue, that if the Department proposes to use a different value for brokerage and handling in the final determination, at the very least, the Department should use an average of the two values. Department's Position: We agree with Benxi. In selecting surrogate values, the Department considers product specificity. See Sebacic Acid from the People's Republic of China: Final Results of Antidumping Duty Review, 62 FR 10530, 10534 (March 7, 1997). The brokerage and handling value submitted by respondent from HR from India is more specific to the expense at issue than the surrogate value used in the Preliminary Determination, 66 FR at 22183. As noted by Benxi, the brokerage and handling surrogate value used in the Preliminary Determination is an expense for stainless steel wire rod, whereas the expense submitted by respondent is for hot rolled carbon steel flat products, which is the subject merchandise of this investigation. Therefore, we will use the brokerage and handling expense from HR from India because it is more specific to the brokerage handling expense for subject merchandise of this investigation. Comment 9: Domestic Inland Insurance Angang and Benxi argue that the Department relied on distorted values to value domestic inland insurance in the Preliminary Determination. Angang and Benxi argued that insurance is typically charged on the basis of the value of the insured article. Angang and Benxi state that the Department did not base the domestic inland insurance rate on the value of the article but instead derived it from the investigation involving Certain Stainless Steel Wire Rod from India; Final Results of Antidumping Duty Administrative and New Shipper Reviews, 64 FR 856 (January 6, 1999). Angang and Benxi contend that this leads to a distorted high figure because stainless steel wire rod is a more expensive product and would therefore have a more expensive domestic inland insurance figure applied to it. Angang and Benxi maintain that the Department should follow Certain Welded Carbon Pipes and Tubes from India (1997-1998 review) where respondents reported a combined inland insurance and marine insurance cost of 32 rupees per ton. Angang and Benxi hold that this figure after adjustment for inflation would result in a combined insurance cost of $0.91 per ton. Angang and Benxi also cited from the Steel Wire Rope from India investigation of 2000, where respondents used a value, after conversion, of $0.01 per ton. Angang and Benxi contend that the Department should use an average of these two values which is $0.465 for domestic inland insurance. Angang and Benxi further argue that since these figures include marine insurance, the Department should apply an allocation factor to attribute 61 percent of the average combined costs to inland insurance for a figure of $0.284. Petitioners did not comment on this issue. Department's Position: The Department agrees with respondents. In selecting surrogate values, the Department considers the following: whether the surrogate value is publicly available, sufficiently contemporaneous, specific to the input in question, and sufficiently reliable. See Cut-to-Length Carbon Steel Plate from the People's Republic of China, Final Determination of Sales at Less than Fair Value, 62 FR 61972 (November 20, 1997). Further, the Department selects surrogate values from the best information available. Id. The domestic inland insurance value submitted by respondent from Certain Welded Carbon Pipes and Tubes from India (1997-1998 review) is more specific to the expense at issue than the surrogate value used in the preliminary determination. The domestic inland insurance surrogate value used in the preliminary determination is an expense for stainless steel wire rod, which is more expensive than the subject merchandise of this investigation. Therefore, we will use the domestic inland insurance expense from Certain Welded Carbon Pipes and Tubes from India (1997-1998 review) because it is more specific to the domestic inland insurance expense for subject merchandise of this investigation. Comment 10: Marine Insurance Angang argues that the Department relied on distorted values for marine insurance and the Department should use a figure for marine insurance based on the value of the insured article. Angang asserts that the marine insurance value the Department used from Stainless Steel Wire Rod from India; Final Results of Antidumping Duty Administrative and New Shipper Reviews 64 FR 856 (January 6, 1999) was too high. Angang maintains that this leads to a distorted high figure because stainless steel wire rod is a more expensive product and would therefore have a more expensive domestic inland insurance figure applied to it. Angang states that the Department should follow Certain Welded Carbon Pipes and Tubes from India (1997-1998 review) where respondents reported a combined inland insurance and marine insurance cost of 32 rupees per ton. Angang contends that this figure, after adjustment for inflation, would result in a combined insurance cost of $0.91 per ton. Angang also cited from the Steel Wire Rope from India investigation of 2000, where respondents used a value, after conversion, of $0.01 per ton. Angang maintains that the Department should use an average of these two values which is $0.465 for marine insurance. Angang further argues that since these figures include domestic inland insurance, the Department should apply an allocation factor to attribute 39 percent of the average combined costs to marine insurance which would result in a figure of $0.181. Petitioners did not comment on this issue. Department's Position: The Department agrees with the respondent. In selecting surrogate values, the Department considers the following: whether the surrogate value is publicly available, sufficiently contemporaneous, specific to the input in question, and sufficiently reliable. Further, the Department selects surrogate values from the best information available. The marine insurance value submitted by respondent from Certain Welded Carbon Pipes and Tubes from India (1997-1998 review) and Steel Wire Rope from India are more specific to the expense at issue than the surrogate value used in the preliminary determination because the product is more similar to the subject merchandise in the instant investigation than a stainless steel product. As noted by Angang, the marine insurance surrogate value used in the preliminary determination is an expense for stainless steel wire rod, which is more expensive than the subject merchandise of this investigation. Therefore, we will use an average of the marine insurance expense from Certain Welded Carbon Pipes and Tubes from India (1997-1998 review) and Steel Wire Rope from India since they are more specific to the marine insurance expense for subject merchandise of this investigation. Comment 11: Lime Angang argues that the Department used an improper value for lime. Angang argues that the Department used a value for lime that is approximately ten times the value used by the Department for limestone. Angang maintains that because lime is derived from limestone the value of lime should not be ten times greater. Instead, Angang contends that the Department should use the value for limestone flux. Angang argues that as the HTS number 2521.00.01 for limestone flux does not distinguish between stone and powder forms, this means that the two materials are very similar and therefore the Department should use that HTS number to value lime. Alternatively, Angang argues that the Department should use the value applied to respondent Baosteel Group which was under HTS item number 2522.10.00. Petitioners I contend that Angang's comparison of the import values of lime and limestone does not support Angang's claim that the value of lime is not useable. Petitioners I contend that even if lime is derived from limestone, there is no evidence on the record to indicate that lime should be of a lesser value than limestone. Petitioners I argue that the Department should not change the value of lime used in the preliminary determination as there is no information on the record to base making that change. Department's Position: The Department agrees with petitioners. Other than Angang's assertion that a relationship exists between lime and limestone, the Department does not have any information on the record which compares the price of lime to limestone, or explains the process of obtaining lime from limestone. The Department also notes that Angang submitted proposed surrogate value information in its March 30, 2001 submission, the first exhibit of which is for lime and limestone. See Exhibit 1 of Angang's March 30, 2001 submission. Here, Angang lists what it deems is the appropriate surrogate value for lime. Id. The unit value for lime from Angang's submission is what the Department used to calculate the surrogate value of lime. The same volume and value numbers proposed by Angang, that were taken from the Indian statistics, were used by the Department in calculating a price for lime. See Angang Final Analysis Memorandum at 5. Therefore, the Department will use the same value for lime as was used in the preliminary determination. Comment 12: Coal Benxi and Angang argue that the Department should not have used the value for coking coal to value the coal used by the companies at the coke making stage. Angang and Benxi argue that coking coal is only part of the coal used, and the Department should value the different types of coal used. Angang and Benxi contend that using the value for "other coal" would be more appropriate since different types of coal are used. Angang notes that the supplier's list it submitted in its April 9, 2001 response demonstrates that different types of coal are used and shows the ratios of the types of coal used. Angang argues that the Department did verify the different quantities of each of the five types of coal listed on the supplier's list. Angang maintains that only a percentage of the coal used in the coke making stage is coking coal. Angang argues that the Department should apply the coking coal value to only that percent of the coal used and value the remaining percent as "other coal" under HTS number 27022909 with a value of $35.19. Petitioners I contend that Angang and Benxi did not present any evidence prior to verification about the quality of coal use in the sintering stage. Petitioners argue that there is no evidence on the record which indicates that the value the Department used for coal in the preliminary determination is unreasonable. Department's Position: The Department does not agree with Benxi and Angang. The Monthly Statistics of the Foreign Trade of India ("MSFT"), the source of the surrogate value data, are clearly labeled in such a manner as to separate values for coal according to use rather than type as asserted by Angang. There are three broad classifications: steam coal (i.e., coal used to generate steam for heating and power generation purposes), coking coal (i.e., coal used to create coke), and other coal (i.e., coal used for some other purpose). See Monthly Statistics of the Foreign Trade of India. Therefore, the Department has determined that coal used in the coking stage will be valued at the coking coal surrogate value. See Angang Final Analysis Memorandum at 3, Benxi Final Analysis Memorandum at 3. This method of valuation is consistent with Final Determination of Sales at Less Than Fair Value: Foundry Coke Products From The People's Republic of China, 66 FR 39487 (July 31, 2001). The Department will also value as coking coal Benxi's coal at the coking stage. In other stages, where Benxi and Angang labeled an input as "coal," it will be given the surrogate value for "other coal." For Benxi and Angang, the input coal powder will also be given the value for "other coal" as it is not used in the coke making stage and, therefore, should not have the coking coal value. Comment 13: Steel Scrap Benxi and Angang argue that the surrogate value for steel scrap used in the preliminary determination is aberrationally high and thus, the Department should use an alternative value for steel scrap. Benxi and Angang contend that the steel scrap used in the preliminary determination of $146.54 per metric ton is considerably higher than the steel scrap values reported in American Metal Market, which ranged from $90 to $100 per metric ton. Benxi and Angang claim that the cost of steel scrap was below $100 per metric ton for two-thirds fo the period of investigation. Further, according to Benxi and Angang, the cost at the end of June, midway through the POI was approximately $97 per metric ton. Benxi and Angang provided a chart showing the values reported for Heavy Melt Scrap 1 and 2 steel scrap in Metal Bulletin, which indicated even lower values for scrap shipments from Europe, ranging from a high of $86.50 at the beginning of the POI to a low of $70.50 approximately midway through the POI in July. Benxi and Angang argue that the steel scrap surrogate value is aberrational compared to other world market steel scrap prices. Therefore, Benxi and Angang propose that the Department use a combination of the two cited references, American Metal Market and Metal Bulletin to establish a reasonable and realistic surrogate value, which Benxi and Angang calculated to be $89.75. Petitioners II argue that the price of steel scrap in India is an appropriate surrogate. Petitioners II argue that the Department looks to general macroeconomic, as opposed to sectoral, comparability. In addition, Petitioners II assert that the Department places primary emphasis on per capita GDP as the measure of economic comparability. See 19 C.F.R. Section 351.408(b). Petitioners II argue that India is the best surrogate because it is at a comparable stage of economic development with China and it is also a significant producer of comparable merchandise. Petitioners II contend that respondents have not met their burden on the issue of rejecting the India scrap values. Petitioners II argue that the Department uses surrogate values from a second surrogate country only if it finds that the sources to value inputs from the first choice surrogate are: 1) unavailable, 2) not sufficiently contemporaneous, 3) of poor quality (i.e., not sufficiently specific to the input in question), or 4) otherwise unreliable, i.e. aberrational. Siliconmanganese from the People's Republic of China, 65 FR 38632, 38634 (July 25, 2001). Petitioners II argue that the surrogate value of steel scrap used in the preliminary determination is derived from the publicly available source, contemporaneous with the POI, and specific to the input. Petitioners II assert that the price is not aberrational. Petitioners II argue that the Indian surrogate value derived is $146.54, which is not that dissimilar to the U.S. price of $90 to $110 in the American steel market submitted by respondents. Petitioners II note that the United States is not the proper surrogate for China. Petitioners II argue that the Department should not reject the surrogate value because it is higher than the price in a non- surrogate country. Petitioners II note that the Department has recognized that "the process of constructing foreign market value for a producer in a nonmarket economy country is difficult and necessarily imprecise." Manganese Metal from the People's Republic of China, 66 FR 15076 (March 15, 2001). Therefore, Petitioners II urge the Department should continue to use import prices from the MSFT as the surrogate value for steel scrap. Petitioners I argue generally that the alternative surrogate values that Angang and Benxi have proposed in their case briefs are unreasonable or unrealistic. Petitioners I maintain that the Department in its preliminary determination properly assigned values to the inputs addressed by Angang and Benxi. Petitioners I argue that the Department has broad discretion in its selection of surrogate values. The Coalition for the Preservation of American Brake Drum and Rotor Aftermarket Manufacturers v. the United States, 44 F. Supp. 2d 229, 258 (1999). Petitioners I argue that in the instant investigation, the Department correctly derived values for the inputs that Angang and Benxi question based on MSFT data regarding imports into the surrogate country India. Petitioners I further argue that the Department should dismiss Angang and Benxi's proposal to value steel scrap derived by averaging prices for steep scrap quoted in American Metal Market and Metal Bulletin for the following reasons. First, the MSFT data used by the Department to derive the value for steel scrap are reasonable and credible. Petitioners I argue that the steel scrap value is derived from data pertaining to imports into the primary surrogate country, India. Petitioners I contend that values from the country the Department considers the appropriate surrogate must be used under the antidumping statute unless adequate information is not available in such country. See section 773(c)(1)(B) of the Act (19. U.S.C. § 1677b(c)(1)(B)). Second, the Department has regularly relied upon such data in numerous determinations. Third, the values included in American Metal Market and Metal Bulletin are estimates of prices in the United States and Canada, and Europe respectively. Petitioners I point out that these countries are not at a level of economic development similar to China. Petitioners I argue that the level of economic development is a significant factor in selecting the surrogate country. See section 773(c)(4) of the Act (19 U.S.C. § 1677b(c)). Petitioners I argue that we should reject respondents' proposed data because of this disparity between the economies of the United States, Canada and Europe and China. Department's Position: We agree with both petitioners that we should not use the value based on the average prices for steel scrap found in the publications American Metal Market and Metal Bulletin. First, it is the Department's preference to use factor values solely from the primary surrogate country to value inputs. See Antidumping Duty Administrative Review of Silicomanganese from the People's Republic of China, 65 FR 31514 (May 18, 2000) and accompanying Decision Memorandum at Comment 1. The steel scrap values found in American Metal Market are based on prices reported from heavy melting steel facilities from the United States and the steel scrap prices from Metal Bulletin are for prices from the Netherlands. See, Angang and Benxi's June 19, 2001 submission at Exhibit 5. Second, with respect to the issue of the Indian steel scrap price being aberrational we note that other than a simple comparison with prices from noncomparable countries, Angang and Benxi have provided no evidence that the Indian price is aberrational. The surrogate value for steel scrap used in the preliminary determination is from our primary surrogate, contemporaneous with the POI, and specific to the input at issue. Moreover, it is not so substantially different from the values in noncomparable counstries as to make it clearly aberrational. Therefore, we will continue to use the value derived from MSFT for steel scrap. See Factor Valuation Memorandum at 3 (April 23, 2001). Comment 14: Silicon Barium Strontium Aluminum Calcium Benxi and Angang argue that the Department should use a revised surrogate value for silicon barium strontium aluminum calcium for the Final Determination. Benxi and Angang argue that in the preliminary determination, the Department valued this input by reference to the average import unit value into India of strontium ($9,384.36/MT). However, Benxi and Angang argue that strontium represents less than ten percent of this input and constitutes the least prevalent constituent element of those enumerated in the material name. Moreover, Benxi and Angang assert that the other elements in this input have lower surrogate values. Benxi and Angang therefore argue that the surrogate value used in the preliminary determination is inappropriate. Benxi and Angang claim that they were unable to determine a single HTS category under which this product would be classified. Benxi and Angang propose that the Department calculate a surrogate value using a formula representing the proportions of each constituent element and the average import values for each constituent element to construct a surrogate value. Petitioners I argue that the alternative surrogate values that Angang and Benxi have proposed in their case briefs are unreasonable or unrealistic. Petitioners I maintain that the Department in its preliminary determination properly assigned values to the inputs addressed by Angang and Benxi. Petitioners I argue that the Department has broad discretion in its selection of surrogate values. The Coalition for the Preservation of American Brake Drum and Rotor Aftermarket Manufacturers v. the United States, 44 F. Supp. 2d 229, 258, (February 19, 1999). Petitioners argue that in the instant investigation, the Department correctly derived values for the inputs that Angang and Benxi question based on MSFT data regarding imports into the surrogate country India. Department's Position: We agree with respondents that we should not use only strontium to value an input only partially containing strontium. We also agree with respondents that we should select a surrogate value as specific to the input as possible. Therefore, since Angang reported the exact chemical content of the input in its February 26, 2001, response at exhibit 6, we will apply respondents' suggested method in valuing silicon barium strontium aluminum calcium by constructing a surrogate value based on a formula representing the proportions of each constituent element and the average import values for each constituent element. See Angang Final Analysis Memorandum at Attachment II. For Benxi, we do not have information regarding the chemical content of the input at issue. We disagree with Benxi that we should apply Angang's reported formula to value Benxi's input containing strontium because it is unclear whether Benxi and Angang used the same input. Benxi identified the input as silicon barium strontium aluminum, whereas Angang identified the input as silicon barium strontium aluminum calcium. See Section D Antidumping Duty Questionnaire Response (Benxi) (February 26, 2001), Exhibit D.3. Thus, the difference in the names of the inputs implies that Benxi and Angang used different inputs. In addition, there is insufficient information regarding the use of this input to ascertain whether Benxi and Angang used the same input. Therefore, for Benxi, we will value silicon barium strontium aluminum using a simple average of the average unit value for the four elements constituting the input. See Benxi Final Analysis Memorandum at Attachment I. Comment 15: Iron Ore Benxi and Angang argue that the Department should use Angang's and Benxi's market-based Australian mine prices instead of the surrogate value used in the preliminary determination for all of their iron ore usage in the calculation of normal value. Benxi and Angang argue that the surrogate value used by the Department in the preliminary determination is inaccurate and distortive. Benxi and Angang assert that for iron ore purchased in Australia, the Department used the C&F purchase price, plus a surrogate value for marine insurance for Angang. Angang and Benxi state that for iron ore concentrate purchased in China, however, the Department used a surrogate value derived from MSFT, and for Benxi, the Department entirely rejected the use of its imported iron ore, because it was insignificant when compared to the quantity of the same input sourced from PRC suppliers. Benxi and Angang assert that there is record evidence demonstrating that both Angang and Benxi used domestically-sourced iron ore that was "not functionally equivalent" and was a "lesser grade" or "lower grade" than the imported iron ore. Angang and Benxi claim that they both submitted invoices covering their imported iron ore, showing that the iron content of the purchased and imported iron ore had an iron content of from 62 to 64 percent. Angang and Benxi claim that the Chinese government's study of the metallurgical industry shows that virtually all of China's iron ore reserves are of low-grade ore with an average iron content of 32.7 percent. Angang and Benxi assert that thus, the grade of iron ore acquired in Australia is superior to that of the iron ore acquired domestically, and the decision to buy the domestic material for lower-grade ore is based on price. Angang and Benxi argue, notwithstanding this, it is clear that the Australian iron ore could be substituted for the domestic ore in all applications. Benxi and Angang assert that the quality of the data used in the preliminary determination also argues in favor of substituting these actual, market prices for the very input used in respondents' production. Benxi and Angang argue that the surrogate value used by the Department is inaccurate and distortive. Benxi and Angang argue that the surrogate value used by the Department is based on imports into India of HTS item number 26011201, a category called "iron ore pellets." Benxi and Angang argue that iron ore pellets are self produced by Angang and Benxi in their sintering processes, with iron ore concentrate as an input. Therefore, Angang and Benxi argues that import data used by the Department relate to a further advanced product than the product that is an input into sintering, thus such data is inappropriate for surrogate valuation purposes. Angang and Benxi further argue that the valuation of product imported in this category varies widely from period to period. Angang and Benxi point out that in 1999, the average value of imports in this category was $40.49 per ton, whereas in 2000, the average is $261 per ton, which respondents argue, is clearly an aberrant value. Benxi and Angang argue that use of a value that reflects the actual input into the production process, even if it is a superior substitute, is preferable to a value representing a further advanced or unknown product. Benxi and Angang assert that the Department's regulations specifically acknowledge this fact, citing to section 351.408 of the Department's regulations, which state "where a factor is purchased from a market economy supplier and paid for in a market economy currency, the Secretary will use the price paid to the market economy supplier. In those instances where a portion of the factor is purchased from a market economy supplier and the remainder from a nonmarket economy supplier, the Secretary normally will value the factor using the price paid to the market economy supplier." See section 351.408 of the Department's Regulations. Benxi and Angang argue that the values submitted by them corroborate each other as reliable market indicators of the value required to fairly and accurately construct Benxi's normal values. Benxi argues that it hardly matters that one company's purchases were deemed to be too insignificant. Benxi asserts that the reason the Department exercises its discretion in some cases to disregard actual market economy purchases is that when "meaningful amounts of a particular input are imported from a market economy country and paid for in a market economy currency, those import transactions provide a reliable market indicator of the very value we need." Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, from the People's Republic of China; Final Results of Administrative Review, 66 FR 1953 and accompanying Decision Memorandum (January 10, 2001) ("TRBs from the PRC"), at Comment 2. Benxi argues that the Benxi values are corroborated by the allegedly "meaningful" quantities represented by Angang's purchases. Benxi argues that the Department should accept Benxi's iron ore import price and should use Benxi's reported and verified import price for purposes of valuing all of Benxi's iron ore usage. Further, Benxi argues that the Department should use Benxi's Australian iron ore prices instead of the demonstrably incorrect surrogate value used in the preliminary determination. Petitioners I refute Benxi and Angang's argument that the Department improperly rejected its purchases of iron from market suppliers because such imports were "insignificant when compared to the quantity of the same import sourced from PRC suppliers." Petitioners I assert that it is the Department's standard practice to ignore small-quantity purchases because the size of the purchases could result in aberrational values. See TRBs from the PRC at Comment 2. Petitioners I assert that Benxi and Angang have not provided any compelling reason for a departure from standard practice. Moreover, Petitioners I contend that the MSFT data used by the Department to derive the value of iron ore used by Benxi are reasonable. Petitioners I refute Angang and Benxi's argument that the Department improperly declined to examine documents proffered by Benxi and Angang for the first time at verification supporting the claim that their "domestically-sourced iron ore was not 'functionally equivalent' and was of a 'lesser grade' or 'lower grade' than the imported iron ore. Petitioners I contend that Angang and Benxi's claims misapprehend the purpose of verification, which is "like an audit, the purpose of which is to test information provided by a party for accuracy and completeness. Normally, an audit entails selective examination rather than testing of an entire universe." See Bomont Industries v. United States, 14 CIT 208, 733 F. Supp. 1507, 1508 (1990). Petitioners I argue that the Department properly treated the documents regarding the quality of domestically- sourced iron, which were offered for the first time at verification, as "new information," and properly declined to accept them. Petitioners I argue generally that the alternative surrogate values that Angang and Benxi have proposed in their case briefs are unreasonable or unrealistic. Petitioners I maintain that the Department in its preliminary determination properly assigned values to the inputs addressed by Angang and Benxi. Petitioners I argue that the Department has broad discretion in its selection of surrogate values. The Coalition for the Preservation of American Brake Drum and Rotor Aftermarket Manufacturers v. the United States, 44 F. Supp. 2d 229, 258 (1999). Petitioners I assert that in the instant investigation, the Department correctly derived values for the inputs that Angang and Benxi question based on MSFT data regarding imports into the surrogate country India. Department's Position: We disagree with Angang and Benxi that we should use their purchase prices for Australian iron ore instead of the surrogate value for all of their iron ore usage. In selecting surrogate values, one of the major considerations in representativeness. The Department is required to value factors of production based on the best information available from a market economy country(s) considered to be appropriate. See section 773(c)(1) of the Act. The surrogate value for iron ore from MFST is preferable to a single Australian price because the MFST value is based on an average of world prices for iron ore imports into India from the POI. See Preliminary Determination: Factor Valuation Memorandum at Attachment 5. By contrast, the Australian price is based on a single spot price from one country. See Section D Antidumping Duty Questionnaire Response (Angang) (February 8, 2001) at Exhibit D-5; Section D Supplemental Questionnaire Response (April 2, 2001) at Exhibit D-5; Section D Antidumping Duty Questionnaire Response Submission (Benxi) (February 8, 2001) at D-8. Therefore, we have continued to use the iron ore value from MFST for the final determination. With respect to Benxi's claimed market economy purchased input, we agree with Petitioners I that it is the Department's standard practice with respect to market economy purchased inputs to ignore small-quantity purchases because the size of the purchases could result in aberrational values. See TRBs from the PRC, 66 FR 1953, at Comment 2. Therefore, for Benxi, we will continue to value iron ore based on its surrogate value and not on the price purchased from the market economy supplier(s) since the amount purchased is insignificant relative to Benxi's overall usage of iron ore. Comment 16: Issues Arising at Verification Petitioners I argue that the Department should calculate the dumping margins with only the corrections that were accepted and verified. Petitioners I claim that the Department allows pre-verification corrections where respondents discover errors in the preparation for verification and where the corrections are minor in nature. Petitioners I maintain that for the final determination, the Department should continue to decline considering all those rejected pre-verification corrections as the corrections were not minor in nature. Benxi and Angang argue that the Department should modify its calculations in the final determination to account for those verification corrections it deemed accepted at verification as detailed in the verification reports, as well as the verification correction documents presented by Angang and Benxi at the start of verification. Petitioners I argue that for Benxi, we should correct the errors regarding the consumption figures for blast air and steam found at verification. Baosteel Group also maintains that the Department should calculate its dumping margin in the final determination incorporating corrections that Baosteel Group submitted at the beginning of verification. Additionally, citing Certain Corrosion-Resistant Carbon Steel Flat Products and Certain Cut-to-Length Carbon Steel Plate From Canada: Final Results of Antidumping Duty Administrative Reviews and Determination To Revoke in Part, 62 FR 2173, 2177 (January 13, 1999) (comment 1), Baosteel Group claims that it is the Department's established practice to correct errors found during verification "when the errors are isolated in nature and do not affect the integrity of the data." Citing Notice of Final Determinations of Sales at Less Than Fair Value: Brake Drums and Brake Rotors From the People's Republic of China, 62 FR 9160 (February 28, 1997) (comment 3), Baosteel Group argues that the Department has recognized that if errors do not affect the overall integrity of the response, the errors should not result in the use of facts available. Baosteel Group contends that any errors discovered by the Department at verification should be corrected using the evidence on the record. Baosteel Group states that it has been fully cooperative during this investigation and that the application of any adverse facts available is not warranted. Department's Position: We agree with the parties that we should modify the margin calculations for corrections accepted at verification. With respect to Benxi, we agree with petitioners and will make such corrections to blast air and steam consumption. See Benxi Final Analysis Memorandum at 3. With respect to Baosteel Group, we have modified the margin program for those errors discovered during the course of verification using the evidence collected at verification. See Baosteel Group Final Analysis Memorandum at 1-6. Company Specific Issues A. Baosteel Group Comment 17: Market Economy Price for Iron Ore Citing the Department's verification report, Petitioners I argue that the Department should revise Baosteel Group's market economy price for iron ore to include commission fees and the additional fuel surcharges. Petitioners I suggest that the Department use the highest fuel surcharge incurred on a shipment for all shipments. Baosteel Group argues that these corrections should be properly incorporated into the final margin program. Department's Position: We agree in part with petitioners. For the final determination, the Department has recalculated the market economy prices for each type of iron ore input by adding an amount back for the commission fees, which the Department found should not have been deducted as the price was already net of commission fees, and an amount for fuel surcharges, based on the average of the highest and lowest fuel surcharge incurred on a shipment (see Baosteel Group Verification Exhibit 19). We have also adjusted the market price for Baosteel Group's iron ore inputs to account for certain shipments that were not reported. See Verification of Sales and Factors of Production for Shanghai Baosteel Group Corporation in the Antidumping Investigation of Certain Hot-Rolled Carbon Steel Flat Products from the People's Republic of China ("Baosteel Group Verification Report"), dated July 16, 2001, at 14. For each type of iron ore input, we applied the average shipment quantity and average shipment price to the missing shipments. See Baosteel Group Final Analysis Memorandum at 5. Comment 18: Purchased Slab Petitioners I argue that the Department should revise Baosteel Group's factors of production to include corrected slab amounts. Petitioners I note that at verification the Department found that the average price of market economy slabs was different than the price reported by Baosteel Group. Petitioners I request that the Department use this revised slab amount, including any additional charges, for valuing market economy slab purchases and adjust the factors of production data to reflect the amount of purchased slab consumed during the POI. Baosteel Group argues that the volume of slabs purchased from market economy sources is insignificant, and thus is not a reasonable basis to value Baosteel Group's purchased slabs in the final margin calculation. Baosteel Group also claims that because Baosteel Group's factors of production already account for the input of all purchased slabs; it is not necessary to adjust further adjust the factors of production for purchased slabs. Department's Position: We agree with Baosteel Group. Although a significant amount of Baosteel Group's purchases of slab during the POI were from a market economy, Baosteel Group's total purchases of slab whether from a market or non- market economy were insignificant in comparison to Baosteel Group's total production of slab during the POI. See Baosteel Group Final Analysis Memorandum at 2. Therefore, for purposes of the final determination, the Department has continued to value all slab as being self-produced. Comment 19: Hot-Rolled Coil Consumption Amounts Petitioners I argue that the Department should revise Baosteel Group's reported hot-rolled consumption amounts to include the actual consumption amount. Citing the Department's verification report, Petitioners I contend that a delay in Baosteel Group's record keeping should not lead to understatements of actual consumption during the POI. Petitioners I suggest that to the extent that Baosteel Group's submitted factors of production were understated due to the delay in record keeping, the Department should make an adverse adjustment to Baosteel Group's reported consumption ratios. Baosteel Group did not comment on this issue. Department's Position: We disagree with petitioners that any adjustment to the data is warranted. At the outset, we agree with petitioners that a reading of this data indicates an aberrational result because the POI consumption amount 2050 hot-rolled coil is different than one would expect given the POI production amount of 2050 hot-rolled strip. At verification, the Department confirmed that Baosteel Group reported to the Department the actual usage rates of hot-rolled steel coil in the production of hot- rolled steel strip as recorded in its monthly cost of production general ledger. See Baosteel Group Verification Report at 14 and Baosteel Group Verification Exhibit 12. Although we found that for two months during calendar year 2000 the monthly consumption ratio was less than the consumption ratio one would expect at this production stage, the consumption ratios for the other ten months were non-aberrational. Id. For the 12-month period, the aberrational months were averaged out by the non- aberrational months resulting in a 12-month average consumption ratio for 2050 hot-rolled coil consistent with standard expectations for this production stage. Id. Moreover, we found no inherent flaws or explanations that would lead us to conclude that this is anything other than an aberrational result arising from normal record keeping system maintained by Baosteel Group, which was fully verified by the Department. Consequently, we do not find that it is appropriate to make any adjustment to Baosteel Group's reported factors of production. Comment 20: Valuation of Hydrogen Petitioners I argue that based on its findings at verification, the Department should revise Baosteel Group's reported recoveries to exclude hydrogen amounts generated in the cold-rolling operation. Petitioners I maintain that this cost offset is not appropriate because it relates to a production operation in the manufacture of non-subject merchandise. Baosteel Group did not comment on this issue. Department's Position: We disagree with petitioners. At the outset, we note that the factor "recovered hydrogen" is used as an input into the production of argon. See Baosteel Group's April 2, 2001 submission at Exhibit 10. Consequently, because we have determined to value argon through the use of surrogate valuation (see Comment 2 above), it is not appropriate to value "recovered hydrogen" since to do so would result in double-counting. For the final determination, we have continued not to charge Baosteel Group for the use of this recovered material. Comment 21: Clerical Errors Petitioners I argue that the Department should revise its margin calculation program for the final determination to correct certain inadvertent errors. First, Petitioners I allege that the Department reported the incorrect oxygen, argon, nitrogen, and electricity consumption rates for product 1580 PR HRC. Second, Petitioners I maintain that the Department should revise the labor factors of production amounts for all products. Finally, Petitioners I contend that the Department should revise its calculated normal values for coke and water costs. Baosteel Group claims that some of the clerical errors alleged by Petitioners I should not be corrected because they are not errors. Specifically, with respect to electricity, nitrogen, argon, and oxygen, Baosteel Group reiterates its argument that the Department inappropriately "constructed" a revised per unit consumption ratio for each of these inputs. Baosteel Group asserts that Petitioners I fail to recognize that the consumption ratios reported by the Department for these inputs are not the consumption ratios of the inputs that should be deemed Baosteel Group's actual factors of production. Similarly, with respect to coke and water, Baosteel Group argues that the Department should not include coke and water as factors of production and instead use the amount of coal reported by Baosteel Group needed to produce the amount of coke and water used to produce one unit of subject merchandise. Department's Position: We agree in part with petitioners and in part with Baosteel Group. We agree that, in the preliminary determination, the Department inadvertently applied the oxygen, argon, nitrogen, and electricity consumption rates for HR pickled coil to product 1580 PR HRC. We also agree that the Department understated labor factors for all products. Therefore, for the final determination, we have calculated labor amounts using the reported conversion labor amounts for all processes except where the Department has determined to value the inputs through surrogate valuation (i.e., oxygen, argon, nitrogen, and electricity) though the use of surrogate valuation. For recalculation, see Baosteel Group Final Analysis Memorandum at Attachment 2. In its response, Baosteel Group reported water as a self-produced input because it was not purchased, but obtained from electrical pumps which pump water to the facilities from a local river. See Baosteel Group's February 26, 2001 questionnaire response at D-13. Consequently, Baosteel Group reported the factors of production used to obtain the water. The Department finds that based on Baosteel Group's claims, it is not appropriate include water as a factor of production because Baosteel Group has already reported, in its factors of production datafile, the inputs (i.e., electricity and labor) associated with using the electrical pumps to pump the water from the river. Therefore, for the final determination, we have not included water in our calculation of normal value. We have determined, however, to include coke in our calculation of normal value because Baosteel Group reported in its response that it had purchases of coke during the POI. See Baosteel Group's April 2, 2001 questionnaire response at 28. We note that the consumption factor of purchased coke was incorrectly labeled in the factors of production file as "coal." See Baosteel Group's May 7, 2001 questionnaire response at 4. For purposes of the final determination, we have revised the margin calculation program to correct this error. See Baosteel Group Final Analysis Memorandum at 1-2. B. Angang and Benxi Comment 22: Recycle and Circle Water Benxi and Angang argue that in their responses, Benxi and Angang identified various kinds of water, including industrial water, living water, soft water, recycle water and circle water. Benxi and Angang argue that in accordance with its standard practice, the Department should modify its preliminary determination and not value water as an input since it is an element of overhead. Benxi and Angang argue that, if the Department continues to treat water as an input rather than an item of overhead, it should not value "recycle" or "circle" water, both of which Benxi and Angang claim constitute water that is recovered from various production processes and recycled (or "circled") back into production. Benxi and Angang argue that these types of water have already been measured and accounted for in the other categories of water. Thus, Benxi and Angang argue, to value this re-used water is to double-count the costs associated with water. Benxi and Angang assert that at verification, the Department observed various documents demonstrating that the water used in production was metered and categorized as the different types identified above. Benxi and Angang assert that it thus reported all water-types of inputs put into production in order to conform to their responses to the company source documents and to ensure that the Department recognized that all such inputs were identified and quantified. Benxi and Angang argue, that notwithstanding this, Benxi and Angang relied on the title of the water to convey the notion that the water was "old" water being reused. Benxi and Angang argue, that consequently, the Department should value the recycled water at iron-making and the "circle" water in steel-making at zero. Petitioners I argue that Angang and Benxi's contention that the Department should "not value water as an input since it is an element of overhead" is without merit. Petitioners I assert that it is indisputable that water is an input that is used in production and should be valued. Petitioners I state that they agree with Angang and Benxi that the same water inputs should not be double-counted. Petitioners I, argue, however, at a minimum, a value for the "fresh water" introduced into production must be captured in the constructed values. Department's Position: We agree with respondents. We should not value recycled water if it results in double-counting. The fact that it is "recycled" water implies that it is water that has been reused and already accounted for. Therefore, for the final determination we have continued to value fresh water, but have not valued recycled water. Comment 23: Sigma Freight Benxi and Angang assert that the Department indicates that it added to Indian import surrogate values a surrogate freight cost using the shorter of the reported distance from the domestic supplier to the factory or the distance from the nearest seaport to the factory in accordance with Court of Appeals for the Federal Circuit's decision in Sigma Corp. v. United States, 117 F.3d 1401 (Fed. Cir. 1997). Under Sigma, respondents contend, the Department should have used the lesser distance cost of the freight from either the source in China or from the factory to the nearest port. Benxi and Angang also argue the Department also used the highest freight cost as its "facts available" freight cost for inputs for which the respondents' supplier information was considered inadequate. Benxi and Angang claim that the facts available freight cost should also be limited under Sigma to the freight rate calculated in the final determination that represents the cost to transport merchandise from each respondent's mill to the nearest seaport. Benxi and Angang argue that in accordance with Sigma, the Department should limit the freight calculation to the cost of freight from Benxi and Angang to Bayuquan respectively since that port is closer to Benxi's factory and Angang's factory than Dalian, the port used in the Department's preliminary determination. Benxi and Angang argue that the record evidence on Benxi and Angang's purchases of import iron ore establishes that import materials arrive through the port of Bayuquan not Dalian. Benxi and Angang point out that Dalian is the port from which Benxi and Angang's exports exited China. Benxi and Angang also argue that the recent decision in Honey from the People's Republic of China held that the Department calculates a surrogate freight cost using the shorter of the reported distance from the domestic supplier to the factory or the distance from the nearest seaport to the factory. Honey from the People's Republic of China, 66 FR 24101, 24106 (May 11, 2001). Petitioners I and II did not comment on this issue. Department's Position: We agree with respondents that, under Sigma, the Department should calculate a surrogate freight cost using the shorter of the reported distance from the input supplier to the factory or the distance from the closest PRC port to the factory. 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, 61977 (November 20, 1997). Therefore, for the final determination, for Benxi and Angang, we have applied the distance from the nearest port to the factory, that is, the distance from respondents' plants to Bayuquan, in deriving the Sigma freight. Sigma Corp. v. United States, 117 F.3d 1401 (Fed. Cir. 1997). We also agree with respondents that we should use the Sigma distance, that is the distance from the port to the factory, in calculating the freight expense for unreported freight factors. C. Angang Comment 24: International Freight Angang argues that the Department should use Angang's reported international freight because at verification the Department accepted a verification correction which stated that the Department examined a shipping invoice for international freight and found that it was a market- economy vessel. Angang contends that while the Department did not use Angang's reported international freight for the preliminary determination, the Department should use it for the final determination because it verified that a market economy vessel was used. Department's Position: At verification, the Department examined a shipping invoice for international freight and determined that a market economy vessel was used. See Angang Verification Report at 3. The Department, therefore, will use the actual international freight figure reported by Angang instead of a surrogate value in the final determination. Comment 25: Iron Ore Pellets Angang argues that the Department incorrectly double-counted the input iron ore pellets. Angang also argues that the Department incorrectly added a freight charge to the input. Angang maintains that iron ore pellets are produced by Angang and the cost of producing iron ore pellets is included in the cost of sintering. Angang contends that iron ore pellets should not be valued again in the iron stage as iron ore pellets used at the iron stage are an intermediate material. Angang asserts that since it produces iron ore pellets, no freight charge should be added to the cost of iron ore pellets. Department's Position: This issue was previously addressed in the Department's Analysis of Allegation of Ministerial Errors Memorandum for Angang (May 16, 2001). The Department agrees that iron ore pellets should not be valued in the iron stage as they are an intermediate material. The Department agrees that since iron ore pellets are produced on site there should not be a freight charge added. See Angang Verification Report at 9. Therefore, for the final determination, the Department will not value iron ore pellets in the iron stage and will not include a freight charge to iron ore pellets. Comment 26: Steel Scrap at Steel-Making Angang argues that the reference to iron scrap at the steel-making stage is a mistake and it should be labeled steel scrap. Angang argues that this steel scrap is internally generated. Angang argues that any required transportation to the steel-making plant is only within the Angang facility. Department's Position: This issue was previously addressed in Angang's pre-verification correction number 16. See Angang Verification Report. The Department agrees that Angang mislabeled steel scrap as iron scrap in the steel making stage. The Department agrees that it is internally generated and should not have a freight charge added. Therefore, for the final determination, the Department will consider the input in question to be iron scrap and will not add a freight value to this input. D. Yi Chang Comment 27: Suspension of Liquidation Baosteel Group argues that hot-rolled steel imported into China and re- exported to the United States without being substantially transformed should not be subject to any antidumping order arising from this investigation. Baosteel Group notes that in the preliminary determination, the Department determined that Yi Chang was not eligible for a dumping margin calculation in this investigation because none of the hot-rolled carbon steel flat products sold by Yi Chang in the United States during the POI was of Chinese origin. Specifically, Baosteel Group explains that Department determined that the coil Yi Chang marketed in the United States during the POI was not produced in a nation subject to any of these investigations and was not substantially transformed at Yi Chang's Chinese facilities. Baosteel Group states that it agrees with petitioners that Yi Chang is not eligible for a dumping margin calculation. However, Baosteel Group submits that for the final determination, the Department should instruct Customs not to suspend liquidation of imports of hot-rolled carbon steel flat products exported by Yi Chang, which were first imported into China and processed prior to reexportation to the United States because the Department has determined that such merchandise is not subject merchandise. Citing Notice of Final Determination of Sales at Less Than Fair Value: Certain Cold-Rolled Flat-Rolled Carbon-Quality Steel Products from Argentina, 58 FR 37062, 37065 (July 9, 1993), Baosteel Group claims that the Department's own explanation of the substantial transformation doctrine require that Yi Chang merchandise be excluded from any potential antidumping duty order in this case. Citing Notice of Final Determination of Sales at Less Than Fair Value: Certain Cold-Rolled Flat-Rolled Carbon- Quality Steel Products from Taiwan, 65 FR 34658 (May 31, 2000), Baosteel Group explains that in a factually similar case, the Department stated that it would instruct the Customs Service to regard the cold-rolled steel at issue to be Japanese-origin and to terminate the suspension of liquidation of such products. Petitioners I argue that for purposes of the final determination, the Department should affirm its findings that Yi Chang is not eligible for a dumping duty margin calculation in this investigation. Petitioners I assert that they do not disagree with Baosteel Group's argument that the Department should instruct Customs not to suspend liquidation of imports of hot-rolled carbon steel flat products exported by Yi Chang, which were first imported into China and processed prior to reexportation to the United States, provided that the parameters of the Department's instructions to Customs are narrowly circumscribed. Petitioners II argue that the Department should not conclusively instruct the Customs Service regarding the country of origin of subject merchandise exported by Yi Chang. Petitioners II maintain that because Yi Chang did purchase some hot-rolled coils from Chinese suppliers, it would be inappropriate for the Department to instruct the Customs Service in the manner recommended by Baosteel Group. Petitioners II submit that when Yi Chang imports hot-rolled coils from non-subject countries and adds value, but does not perform "substantial transformation," Yi Chang or the importers of such products can seek an appropriate ruling from Commerce as to whether the processing is such that the merchandise should be excluded from the order. Department's Position: We disagree with Petitioners I and Baosteel Group. In the preliminary determination the Department found that because Yi Chang's further processing does not result in a substantial transformation, Yi Chang was not eligible for a dumping margin calculation because none of the hot- rolled carbon steel flat products sold by Yi Chang in the United States during the POI were of Chinese origin. See Preliminary Determination, 66 FR at 22186. Because no parties have contested this finding, and as no new facts which would cause the Department to change its preliminary finding, the Department continues to find that Yi Chang is not eligible for a dumping margin calculation in this investigation. Given that this merchandise is not of Chinese origin, it is not necessary for the Department to specifically address the treatment of this merchandise in its instructions to Customs - this final determination affects only certain hot-rolled carbon steel flat products from the PRC. RECOMMENDATION: Based on our analysis of the comments received, we recommend adopting all of the above changes and positions, and adjusting the margin calculation programs accordingly. If accepted, we will publish the final results of the investigation and the final weighted-average dumping margins in the Federal Register. AGREE___________ DISAGREE___________ _________________________ Faryar Shirzad Assistant Secretary for Import Administration _________________________ Date _________________________________________________________________________ footnotes: 1. The type of control suggested by these government measures is more relevant to a market-oriented industry ("MOI") analysis, which is not applicable here since no MOI request has been made in this proceeding. 2. For example the SETC Circular prohibits increases in accounts receivable. See SETC Circular at Section 4.2. 3. The SETC Decree prohibits banks and financial facilities from providing loans to companies that engage in projects that are listed under the heading "Projects Prohibited" of the SETC Decree. 4. Although we are not using 1999 SAIL's financial results for this final determination, they also do not appear to produce significant quantities of the inputs in question. See SAIL's 1999-2000 Annual Report at 51, Petitioners' March 26, 2001 submission. See also Comment 4. 5. Walter T. Harrison, Jr. and Charles T. Horngren, Financial Accounting 312 (3rd ed., Prentice Hall, 1998).