66 FR 38632, July 25, 2001 A-823-810 Investigation Public Document DAS I/1: JG MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Richard W. Moreland Deputy Assistant Secretary, Group I Import Administration SUBJECT: Issues and Decision Memorandum for the Final Determination in the Antidumping Duty Investigation of Solid Agricultural Grade Ammonium Nitrate from Ukraine ----------------------------------------------------------------------- SUMMARY We have analyzed the comments in the case and rebuttal briefs submitted by interested parties in the antidumping duty investigation of solid agricultural grade ammonium nitrate from Ukraine. As a result of our analysis, we have made changes, including corrections of certain inadvertent programming and clerical errors, in the margin calculations. We recommend that you approve the positions we have developed in the Discussion of Issues section of this memorandum. Below is the complete list of the issues in this investigation for which we received comments from the parties in their case and rebuttal briefs: Comment 1: Application of Adverse Facts Available Comment 2: Application of Partial Facts Available Comment 3: Valuation of Natural Gas Comment 4: Source of Financial Data for Surrogate Financial Ratios Comment 5: Valuation of Overhead and SG&A Comment 6: Valuation of Catalysts, Belting, Tosol, and Denatured Alcohol Comment 7: Revision of Catalyst Usage Comment 8: Revision of Denatured Alcohol Usage Comment 9: Electricity Factor Comment 10: Revision of Natural Gas Consumed as an Energy Input Comment 11: Separate Rates BACKGROUND On March 5, 2001, the Department of Commerce ("the Department") published the preliminary determination in this investigation. See Notice of Preliminary Determination of Sales at Less Than Fair Value and Postponement of Final Determination: Solid Agricultural Grade Ammonium Nitrate from Ukraine, 66 FR 13286 (March 5, 2001) ("Preliminary Determination"). The merchandise covered by this investigation is solid, fertilizer grade ammonium nitrate ("ammonium nitrate" or "subject merchandise") products, whether prilled, granular or in other solid form, with or without additives or coating, and with a bulk density equal to or greater than 53 pounds per cubic foot. Specifically excluded from this scope is solid ammonium nitrate with a bulk density less than 53 pounds per cubic foot (commonly referred to as industrial or explosive grade ammonium nitrate). The period of investigation ("POI") is April 1, 2000 through September 30, 2000. We invited parties to comment on our Preliminary Determination. On April 26 and May 1, 2001, we received case and rebuttal briefs, respectively, from Stirol, the sole participating Ukrainian respondent in this investigation, and the Committee for Fair Ammonium Nitrate Trade ("the petitioner"), respectively. DISCUSSION OF ISSUES Comment #1: Application of Adverse Facts Available In its questionnaire responses, Stirol stated that it has a bifurcated payment system in which the U.S. customer remits a portion of the contract price directly to Stirol and the remaining portion to Stirol's natural gas supplier, Itera. According to the petitioner, the Department should base Stirol's final antidumping duty margin entirely on adverse facts available, pursuant to section 776 of the Act, because the Department was able to verify only that portion of the U.S. customers' payments that was directly remitted to Stirol, but was unable to verify payments to Itera. In the petitioner's view, it was incumbent upon Stirol to provide the Department with actual records evidencing full payment of the contract price at verification, including that portion paid to Itera because verification of payments for U.S. sales is the only way the Department can guarantee the reliability of the reported prices. Inasmuch as Stirol failed to provide any verifiable documentation demonstrating full payment for its U.S. sales during the POI or an explanation as to why such documentation could not be provided, the petitioner argues that Stirol's entire sales response is unusable for purposes of calculating an accurate antidumping duty margin and total facts available is warranted. See, e.g., Brass Sheet and Strip from Sweden; Final Results of Antidumping Administrative Review, 60 FR 3617, 3620 (January 18, 1995); Porcelain-on- Steel Cooking Ware from the People's Republic of China, Final Results of Antidumping Duty Administrative Review, 55 FR 46850 (November 7, 1990) ("Cooking Ware from the PRC"). Furthermore, the petitioner contends that an adverse inference pursuant to section 776(b) of the Act is appropriate in this case because the record evidence supports a finding that Stirol failed to cooperate to the best of its ability by not notifying the Department of its difficulty in providing complete records of payment for its U.S. sales. As total adverse facts available, the petitioner suggests that the Department rely upon the highest margin stated in the petition, 257 percent. Stirol counters that it has been fully cooperative in this investigation, and the application of adverse facts available is not warranted. Stirol notes that, except for certain indirect labor, there were no instances at verification in which the Department was unable to verify particular information, and that errors found during the course of verification both penalized and benefitted Stirol. Furthermore, Stirol contends that the petitioner's allegation that Stirol prevented the Department from verifying full payment of its reported export prices is misplaced. First, the Department verified that "Stirol keeps track of when the amount is paid through contact with the customer and the gas company to ensure that the amount is actually paid to the gas company." The Department noted in its verification report that no discrepancies were found between Stirol's explanation of the payment process and the payment documentation reviewed. See Memorandum to John Brinkmann, "J.S.C. Concern Stirol Verification Report," dated April 12, 2001, at 13 ("Verification Report"). Second, the Department has the discretion to choose what it verifies, and the Department did in fact verify how Stirol is paid for its export sales and how Stirol keeps track of when the amount owed to the gas company is paid. Finally, Stirol cites section 782(d) of the Act, which provides that if the Department finds that a response to a request fails to comply with such request, the Department must promptly inform the submitter of the deficiency and allow the submitter an opportunity to remedy or explain the deficiency. Inasmuch as the Department did not deem additional payment information necessary from Stirol, it cannot be said that Stirol withheld information, failed to provide requested information, or otherwise impeded the Department's investigation. Accordingly, Stirol concludes that adverse facts available is not warranted. Department's Position: We disagree with the petitioner that the application of total adverse facts available is warranted in this situation. Section 776(a) of the Act provides that the Department shall apply "facts otherwise available" if a respondent: (1) withholds information that has been requested; (2) fails to provide information within the deadlines established, or in the form or manner requested by the Department, subject to subsections (c)(1) and (e) of section 782 of the Act; (3) significantly impedes a proceeding; or (4) provides information that cannot be verified pursuant to section 782(i) of the Act. During the course of this investigation, Stirol has not withheld any requested information or significantly impeded this proceeding, and it has met all of the established deadlines and formal requirements. With regard to the unverified portion of its U.S. customer payments, Stirol, citing PMC Specialties Group, Inc. v. United States, 20 C.I.T. 1130 (1996), correctly notes that the Department has discretion as to what it verifies: Verification 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. Hence, evasion is a common possibility, but only when audits uncover facts indicating the actuality thereof are auditors compelled to search further. * * * Commerce has the discretion in choosing which items it will verify, and so long as Commerce has not uncovered facts in the process of verification that point to an improper accounting * * * Commerce is not compelled to search further. Id. at 1134-35, quoted in Notice of Final Results of Antidumping Duty Administrative Reviews and Determination Not To Revoke in Part: Certain Corrosion- Resistant Carbon Steel Flat Products and Cut-to-Length Carbon Steel Plate From Canada, 66 FR 3543, 3545 (January 16, 2001). At Stirol's sales verification, we discussed the payment process with Stirol personnel, examined available documentation, and conducted several tests of Stirol's data to ensure the accuracy and completeness of Stirol's submitted information. We thoroughly reviewed Stirol's contracts with its customers and how the payment process is conducted in Stirol's normal course of business. We noted that: Company officials explained that, while the client pays Stirol directly for the production costs and other material inputs, the customer pays the natural gas supplier, Itera, directly for the natural gas used in the purchased merchandise. * * * The agreement states that a certain amount of the total value should be paid to Stirol and the remaining amount should be paid directly to the natural gas producer based on the cost of the natural gas needed to manufacture the amount of ammonium nitrate ordered. * * * Thus, when a customer pays for the product, it actually make two payments, one to Stirol and one to the natural gas provider. We asked Stirol officials how they keep track of whether customers make payments to the natural gas providers. Stirol officials explained that they instruct the client to tell the gas company the contract number and information when they pay. Stirol keeps track of when the amount is paid through contact with the customer and the gas company to ensure that the amount is actually paid to the gas company. * * * We asked Stirol to explain why they carry out these transactions in this manner. Stirol officials explained that this is done pursuant to the Ukrainian Law on Foreign Economic Transactions Involving Give-and-Take Raw Materials. See Verification Exhibit 9. During the course of sales traces, we reviewed the customer payments and noted no discrepancies between the company's explanation of the payment process and the actual documentation. See Verification Report at 12-13. Based on the foregoing, we disagree with the petitioner that the record is devoid of any evidence demonstrating that Stirol's reported export prices were the actual prices paid by Stirol's U.S. customers. The Department verifiers examined the payment process issue to the extent practicable. The documentation reviewed supported Stirol's explanation of the payment process in Stirol's normal course of business. The Department did not verify Itera, nor did we specifically request that Stirol obtain from Itera, an unaffiliated supplier, proof of payment for the selected U.S. sales transactions. Thus, Stirol did not prevent full verification of its U.S. sales, nor did it significantly impede this investigation. Rather, Stirol complied with all our requests for information, and the sales verification report reflects that the selected items verified did not "point to an improper accounting" of the U.S. prices. In fact, when the Department uncovered errors during verification, in all instances but one (i.e., for indirect labor, as discussed in Comment 2), we were able to verify the correct information. In this regard, the facts of this case are distinguished from those cited by the petitioner (i.e., Brass Sheet and Strip from Sweden and Cooking Ware from the PRC) where the Department attempted verification of the customer payments, but found that certain payments could not be verified. Thus, there is no evidence that Stirol failed to cooperate by not acting to the best of its ability to comply with the Department's requests for information. Accordingly, we find that the use of total facts available, pursuant to section 776(a) of the Act, is not appropriate in this case. Because the use of facts available is not warranted, neither is any adverse inference pursuant to section 776(b) of the Act. Comment #2: Application of Partial Facts Available The petitioner argues that, if the Department decides not to apply total adverse facts available in its calculation of a final dumping margin, partial facts available is appropriate for unverified or missing data in Stirol's submitted sales and factors of production responses. 1. U.S. Price The petitioner argues that, because the Department was unable to verify the customer payment to Itera, the Department should rely upon only the verified portion of the payments to Stirol as the export price for Stirol's U.S. sales transactions. Department's Position: We disagree with the petitioner for the reasons discussed in Comment 1, above. 2. Water and Steam The petitioner notes that, at verification, the Department found that Stirol treated a portion of its water and steam costs as direct costs. Accordingly, the petitioner argues that the Department should value water and steam as direct material inputs because, consistent with past practice, water and steam can be valued separately from overhead. See, e.g., Porcelain-on-Steel Cooking Ware from the People's Republic of China, 65 FR 1136, 1138 (January 7, 2000). To value these material inputs, the petitioner suggests that the Department use available information on the record. Stirol argues that the Department should not value steam, air, and water as separate components of the energy portion of Stirol's normal value calculation. Stirol asserts that it has reported the natural gas it uses to produce its steam and the electricity it uses to draw in air. Regarding water, it must be cleaned before it can be used, and the cost of such cleaning is reflected in the depreciation of the equipment used to clean the water. However, if the Department decides to value steam, air, and water, Stirol contends that the Department must exclude the energy factors used to produce those inputs from Stirol's energy cost calculation in order to avoid double-counting. Department's Position: As discussed in response to Comment 5, we have calculated the factory overhead ratio by dividing "depreciation," as reported in the cash flow statement of PT Pupuk Kalimantan Timur ("PKT"), the surrogate company from whom the financial ratios were derived, by its cost of goods sold less depreciation. No information in PKT's financial statements permits us to determine whether depreciation includes any other costs that would typically be included in overhead. Stirol's own experience, treating water and steam as direct energy inputs, suggests that these types of energy costs would neither be included in overhead nor in depreciation. See Verification Report at 23 for a description of Stirol's treatment of these costs. Therefore, for this final determination, we have assigned values to Stirol's energy inputs. However, we agree with Stirol that we would be double-counting if we assigned values to steam and air, and to the natural gas and electricity Stirol uses to produce steam and air. Therefore, rather than valuing steam and air, we have valued the natural gas and electricity used to produce these inputs. With regard to water, however, Stirol suggests that the depreciation factors should be adjusted to avoid double-counting because the Department imputes the cost of the water-cleaning equipment in the depreciation portion of overhead expenses. While that may be true, PKT's depreciation category is not sufficiently detailed as to indicate what portion is attributable to water-cleaning equipment, nor do we find any reasonable basis by which to adjust the depreciation category. Thus, we have not made any adjustments to the depreciation used as a basis for the factory overhead ratio. 3. Catalysts The petitioner notes that, in the Preliminary Determination, the Department used publicly available Indonesian import data for "platinum" and "general catalysts" to value all reported catalysts. However, at verification, the Department sampled five of the catalysts for review and found that all five of these catalysts were purchased from market-economy suppliers and were paid for in market-economy currency. Given that Stirol had not previously identified catalysts as being sourced from market- economy countries, the petitioner contends that the Department should assume that all catalysts were sourced from market-economy suppliers and thus value all catalysts using the information obtained at verification. The petitioner suggests that, as partial facts available, the Department should: (1) for those catalysts reviewed at verification, use the information for such catalysts; and (2) for the catalysts not verified, apply the highest price paid for any verified catalyst. Furthermore, given that the Department confirmed that one of the catalysts was transported by truck on terms of delivery CIP Kiev, the Department should assume that all catalysts were transported from Kiev to Stirol's factory CIP Kiev and, accordingly, make an additional allowance for transportation of the catalysts. Department's Position: We agree with the petitioner in part. For this final determination, we have valued the five catalysts reviewed at the verification using the market-economy pricing information obtained at verification (see 19 CFR 351.408(c)(1)) and have made an adjustment for freight expenses, where appropriate. For the remaining catalysts, we did not verify whether these catalysts were actually purchased from market-economy suppliers. Accordingly, for these remaining catalysts, we find no basis for departing from the surrogate value used in the Preliminary Determination, and have not adjusted our methodology. 4. Indirect Labor The petitioner notes that, at verification, the Department confirmed that Stirol employs auxiliary workers who perform production-related activities, and that these workers were not reported in Stirol's response, thus understating the indirect labor factor information. Given the inaccuracy and unreliability of the indirect labor factor information on the record, the petitioner contends that the Department should apply partial facts available by using the indirect labor factor information contained in the petition. The petitioner notes that this is the better alternative because, while the Department, alternatively, could include indirect labor of the surrogate country producer in the overhead, SG&A, and profit calculations, indirect labor is not broken out separately in the financial statements of PKT. Department's Position: We agree with the petitioner. Because Stirol provided information that could not be verified, we find that the application of section 776(a) of the Act is appropriate with respect to indirect labor. As we noted in the verification report: Company officials explained that, because these facilities serve all of the manufacturing facilities within the compound, they could not break them out separately to specifically allocate them to the production of ammonium nitrate, nitric acid, or ammonia. Therefore, although Stirol employs auxiliary workers who perform functions at the ammonia, nitric acid, and ammonium nitrate plants, Stirol did not include these workers in the reporting of labor. Stirol could not provide any further information on this topic that could be verified. Verification Report, at 24. As the verification report shows, the indirect labor figure reported by Stirol is unreliable for purposes of calculating an accurate normal value and, therefore, facts available is warranted. Section 776(b) of the Act provides that an adverse inference may be made where a party has failed to cooperate by not acting to the best of its ability, and that such adverse inference may include reliance on information derived from, inter alia, the petition. However, we find that Stirol has cooperated to the best of its ability in this investigation and that, with respect to indirect labor, Stirol was unable, not unwilling, to provide any verifiable information. Our preference in this situation would be to use information derived from Stirol or, alternatively, from PKT. Stirol's submitted indirect labor information and the data obtained at verification are unreliable and insufficient for partial facts available. Furthermore, as the petitioner notes, PKT's financial statements are not sufficiently detailed to derive a surrogate factor for indirect labor. Accordingly, for this final determination, we are relying upon the indirect labor figure from the petition, which was derived from Solid Fertilizer Grade Ammonium Nitrate from the Russian Federation and was corroborated at the Preliminary Determination in accordance with section 776(c) of the Act. 5. Electricity The petitioner contends that because the Department was unable to verify Stirol's reported electricity usage factor, the Department should use the electricity factor contained in the petition as partial facts available. If the Department continues to rely upon Stirol's reported electricity information, however, the petitioner argues that the Department should correct the clerical error identified by the petitioner in its March 5, 2001 Ministerial Error Allegation. Stirol did not comment on this issue. Department's Position: We agree with the petitioner in part. For the reasons discussed above in Comment 1 regarding the Department's discretion as to what it verifies, we disagree that facts available is warranted for the valuation of electricity. We did not verify electricity usage and we have no reason to believe that the submitted electricity factor information is incomplete or inaccurate. However, as the Department noted in its Memorandum from Team to Richard W. Moreland, "Ministerial Error Allegations for Preliminary Determination," dated March 16, 2001, we agree that a clerical error was made in the Preliminary Determination with respect to the application of the electricity factor. We have corrected the error for this final determination. Comment #3: Valuation of Natural Gas In the Preliminary Determination, the Department valued natural gas using publicly available data pertaining to Indonesia for 1998, derived from Energy Prices & Taxes, published by the International Energy Agency of the OECD, for Second Quarter 2000 ("Energy Prices & Taxes"). We converted the price, which was reported in dollars per 107 kilocalories, to a price in dollars per thousand cubic meters, the unit of measure of Stirol's natural gas factor. This price was adjusted for differences in the level of the energy content of natural gas consumed in Indonesia and that consumed by Stirol in Ukraine, and then inflated to the POI by using a regional index specific to the natural gas sector, as reported in Energy Prices & Taxes. There are four comments with respect to the calculation of the natural gas value. 1. Source of the Natural Gas Data The petitioner contends that the Department should value natural gas using information submitted by petitioner for Gulf Indonesia Resources Ltd. ("Gulf Indonesia"), an Indonesian producer of natural gas. The petitioner argues that the Gulf Indonesia price is preferable to the Energy Prices & Taxes price because: (a) the Gulf Indonesia price, which is an average of prices from the second and third quarters of 2000, is contemporaneous with the POI, whereas the Energy Prices & Taxes price is from 1998 and, therefore, is not contemporaneous; (b) the Gulf Indonesia price is exclusive of taxes, whereas the Energy Prices & Taxes price is inclusive of taxes; (c) Energy Prices & Taxes indicates in its Third Quarter 2000 volume that 1998 gas prices for Indonesia are unreliable due to distortions caused by exchange rate fluctuations; and (d) the Energy Prices & Taxes price was based on the price of a government-controlled company that accounted for less than 12 percent of Indonesia's natural gas production in 1998 and, therefore, does not represent a broad market average. Stirol argues that the Department should not use gas prices from Gulf Indonesia to value natural gas because such prices are contrary to the Department's preferred nonmarket economy ("NME") practice. Specifically, Stirol asserts that the Department's policy is to use publicly available factors that represent a broad market average, contemporaneous with the POI, specific to the input in question, and exclusive of taxes. Stirol notes that, although the Gulf Indonesia price is contemporaneous, Gulf Indonesia is one company and does not represent a broad market average, which the Department prefers. See Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, From the People's Republic of China; Final Results of 1996-1997 Antidumping Duty Administrative Review and New Shipper Review and Determination Not To Revoke Order in Part, 63 FR 63842, 63856-57 (November 17, 1998) ("TRBs from China"). Furthermore, based on a review of Gulf Indonesia's website, which shows that much of Gulf Indonesia's sales are export sales to Singapore, it is clear that Gulf Indonesia's prices are export-related and do not represent Indonesian prices. Also, with respect to the taxes included in the Energy Prices & Taxes pricing data, Stirol notes that the Department has, on the record, information on Indonesian tariffs on natural gas that can be deducted from the starting price to derive a net price exclusive of taxes. Accordingly, Stirol concludes that the Department should continue to rely upon the price derived from Energy Prices & Taxes, which reflects natural gas prices in Indonesia as a whole, as adjusted for taxes included in the surrogate value. Department's Position: We agree with Stirol that Energy Prices & Taxes is a more reliable source for the natural gas pricing data. Section 773(c)(1)(B) of the Act mandates that the Department value factors of production "based on the best available information regarding the values of such factors in a market economy country or countries considered to be appropriate by the [Department]." Our preference is to use, to the extent possible, publicly available factor prices that are: (1) broad market averages; (2) contemporaneous with the POI; (3) specific to the input in question; and (4) exclusive of taxes. See Notice of Preliminary Determination of Sales at Less Than Fair Value: Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From the Russian Federation, 64 FR 9312 (February 25, 1999), Memorandum dated February 22, 1999, at 5 (upheld in Notice of Final Determination of Sales at Less Than Fair Value: Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From the Russian Federation, 64 FR 38626 (July 19, 1999)). Additionally, we prefer not to use export prices from Indonesia because of the possibility of export subsidies. See Memorandum from Jeff May, Director, Office of Policy, to Susan Kuhbach, Office Director, AD/CVD Enforcement, Office 1, dated November 14, 2000. While we agree with the petitioner that the Gulf Indonesia natural gas prices has the benefit of being contemporaneous with the POI, we continue to find that it reflects the price of a single seller. Consistent with the preamble to section 351.408(c) regulations, we prefer prices that reflect numerous transactions between buyers and sellers. In addition, we are able to inflate the price reported in Energy Prices & Taxes to the POI (see our discussion below concerning the appropriate inflator), and to adjust it so that it is exclusive of taxes. Regarding the petitioner's argument that the 1998 gas price from Energy Prices & Taxes is unreliable due to distortions caused by exchange rate fluctuations, we note that we have used the rupiah-denominated price, thereby avoiding these possible distortions. Regarding the petitioner's claim that the price in Energy Prices & Taxes is based on the price charged by a single government-controlled seller and does not reflect a broad average, we have reviewed the information submitted by the petitioner on this point. While we agree that the price was reported to the International Energy Agency (the compiler of Energy Prices & Taxes) by Lemigas, a Government of Indonesia-controlled natural gas producer, there is no indication as to whether it was Lemigas' price or whether Lemigas was reporting a national average price for natural gas on behalf of the government. Lacking more definitive information, we are reluctant to reject the value from Energy Prices & Taxes. 2. Whether to Make an Adjustment for Differences in Energy Content Regardless of the source used to value natural gas, the petitioner asserts that the Department should not adjust the price based on Stirol's energy content because Stirol has not demonstrated that there is a directly proportional relationship between energy content and price movements in natural gas in Indonesia, i.e., that Stirol would pay less for its gas if it were in Indonesia because the gas has a lower calorific value. The petitioner further contends that the Gulf Indonesia prices, which are reported without regard to energy content, demonstrate that energy content is not an important factor in Indonesian natural gas prices, nor has Stirol demonstrated that prices in Indonesia are reduced to differences in calorific value. Stirol argues that the Department should continue to calculate the cost of natural gas by adjusting the surrogate value for differences in the level of energy content of natural gas consumed in Indonesia and that consumed by Stirol in Ukraine. Department's Position: We disagree with the petitioner. It is appropriate to adjust for known differences in the physical properties of natural gas consumed in Indonesia compared to that consumed in Ukraine by Stirol in order to derive a natural gas value that is as accurate as possible. As we noted at verification: We discussed with Stirol's laboratory technician concerning the derivation of the company-specific average gross calorific value of natural gas consumed during the POI * * *. He first explained that for ammonium nitrate, 8200 kilocalories per cubic meter of natural gas is required. * * * However, the energy content of the natural gas received by Stirol does not meet their required needs, which requires Stirol to consume a greater amount of natural gas to produce one metric ton of ammonium nitrate. Verification Report, at 9. Thus, it would follow that, if the natural gas received by Stirol had a higher energy content, such as Indonesian gas, then a lesser amount would be required to produce one metric ton of ammonium nitrate. In that regard, a reasonable approach to account for differences in energy content between Indonesian gas and the lower-content gas received by Stirol would be to adjust Stirol's natural gas usage rate, particularly in light of the fact that neither party has demonstrated whether and to what extent price varies with the level of energy content. However, given that we are unable to adjust Stirol's consumption figure to adjust for known differences in energy content levels, as a proxy we are adjusting the Indonesian price of natural gas derived from Gulf Indonesia. Making such adjustments is also consistent with the Department's past practice. For example, in Manganese Metal From the People's Republic of China; Preliminary Results and Rescission in Part of Antidumping Administrative Review, 65 FR 66697, 66700 (November 7, 2000), the Department adjusted the surrogate value of manganese ore to account for the reported manganese content of the ore used in the Chinese manufacture of the subject merchandise. Also, in Persulfates From the People's Republic of China: Preliminary Results of Antidumping Duty Administrative Review, and Partial Rescission of Administrative Review, 65 FR 18963, 18966 (April 10, 2000) (upheld in Persulfates From the People's Republic of China: Final Results of Antidumping Duty Administrative Review and Partial Rescission of Administrative Review, 65 FR 46691 (July 31, 2000)), the Department made chemical purity adjustments according to the particular concentration levels of caustic soda and sulphuric acid used by respondents because the price quotes relied upon were for chemicals with a 100 percent concentration level. Because the verified information on the record supports Stirol's claim that there is a difference in the energy content of natural gas in Indonesia as compared to Stirol's own experience in Ukraine, we have continued to make this energy content adjustment for the final determination. 3. Methodology for Calculating the Energy Content Adjustment The petitioner contends that, if the Department continues to make an adjustment based on the energy content of Stirol's natural gas, then the Department should make certain adjustments to its methodology for calculating the adjustment. First, the petitioner contends that the Department must ensure that relative energy contents are expressed in comparable terms, because Stirol reported its energy content on a different basis than the way energy content is expressed in Energy Prices & Taxes, i.e., whereas the energy content in Energy Prices & Taxes was reported on a gross calorific basis, Stirol's verified energy content was calculated on a net calorific basis. Thus, the petitioner asserts that the Department must ensure that all heat contents in the calculation are expressed on either a net or gross calorific basis in order to make an accurate comparison. Second, if the 1998 Indonesian price from Energy Prices & Taxes is used, the petitioner suggests that the Department take a more direct approach to account for Stirol's energy content by simply multiplying the natural gas price (expressed in U.S. dollars per kilocalorie) by Stirol's energy content (calculated on a gross calorific basis and expressed in kilocalories per cubic meter) to derive the surrogate natural gas price (expressed in U.S. dollars per cubic meter). Finally, the petitioner argues that, if the Department relies on the 1998 Energy Prices & Taxes value for the final determination, then the Department should adjust its methodology for calculating the energy content adjustment. Specifically, the petitioner notes that the Department employed a two-step methodology in the Preliminary Determination for applying the ratio: (1) the natural gas price from Energy Prices & Taxes was converted from a dollars per 107 kilocalories basis to a dollars per thousand cubic meters basis; and (2) a ratio, calculated by dividing Stirol's reported natural gas energy content by the Indonesian natural gas energy content, was applied to the price from Energy Prices & Taxes. The petitioner argues that, in the Preliminary Determination, the Department applied an energy content ratio to a price that was unrelated to the energy content of Indonesian gas and, therefore, the Department should revise its methodology such that the calculation uses the same baseline value for energy content per cubic meter for Indonesia in both parts of the calculation. The petitioner suggests that the Department adjust the natural gas surrogate value to reflect the Department's use of the Indonesian energy content in the ratio by either (a) correcting the denominator of the ratio to reflect the Department's choice of an Indonesian natural gas energy content, or (b) amending the energy content in that calculation by using the energy content for Indonesia. Stirol asserts that there is no record evidence supporting the petitioner's claim that Stirol's energy content was on a net calorific basis. Department's Position: We agree with the petitioner. For the final determination, we have revised our calculation of the adjustment, based on verified information on the record of this investigation, to ensure that the energy content adjustment was made on a comparable basis, i.e., on a gross calorific basis. 4. Natural Gas Inflator The petitioner argues that, if the Department bases the natural gas surrogate value on the 1998 Energy Prices & Taxes price, it must employ a legally viable inflation methodology. Specifically, the petitioner asserts that the use of the OECD Pacific Region Index is distortive and inconsistent with Department practice. The petitioner further contends that the Pacific Region Index does not reflect price trends in Indonesia, but rather the Pacific region as a whole. However, the petitioner suggests that, if the Department believes a regional index is appropriate, it should instead use an index based on nominal prices that is derived from dollar-denominated natural gas prices. Stirol alleges that the use of the Pacific Region Index is not contrary to law or otherwise inappropriate, but, consistent with section 773(c)(1) of the Act, reflects the Department's use of the best information available for the valuation of the natural gas price. Department's Position: We agree with the petitioner that the regional inflator used in the Preliminary Determination suffered serious defects. Most importantly, it was based on changes in real rather than nominal prices. Thus, for the Final Determination we have adopted a different method for indexing the 1998 price in Energy Prices & Taxes. Specifically, we have indexed the rupiah-denominated price of natural gas in Indonesia for 1998 to the POI using the change in the Indonesian Wholesale Price Index over that same period. Then, we converted the rupiah amount for the POI to dollars, using the average rupiah/dollar exchange rate for the POI. In this manner, we have narrowed the scope of the inflator to reflect the Indonesian experience. The petitioner had suggested, among other methods, using an inflator reflecting the change in the price of Indonesian exports of oil and natural gas. We did not adopt this inflator because of our preference not to rely upon export prices where possible. See Memorandum from Jeff May, Director, Office of Policy, to Susan Kuhbach, Office Director, AD/CVD Enforcement, Office 1, dated November 14, 2000. Comment #4 Source of Financial Data for Surrogate Financial Ratios In the Preliminary Determination, the Department relied upon the unconsolidated financial data of PKT even though it had available financial data for five Indonesian urea producers (including PKT), all contained within the consolidated financial statements of PT Pupuk Sriwidjaja ("Persero"). Stirol asserts that the Department should not consider the financial data of a single Indonesian producer, i.e., PKT, as representative of the financial experience of the entire Indonesian nitrogenous fertilizer industry during the POI. Rather, Stirol argues that the Department should use Persero's financial information when calculating the surrogate overhead, SG&A, and profit ratios, because: (1) Persero, like Stirol, is a producer of merchandise comparable to that under investigation (ammonia and urea) and is therefore appropriate for the surrogate ratios; (2) Persero's data reflect the financial experience of all members of the Association of Indonesia Fertilizer Producers and, thus, represent the POI financial experience of the entire Indonesian nitrogenous fertilizer industry, which is preferable to the experience of a single producer; and (3) Persero's financial data are more appropriate because Persero has a corporate structure and production range similar to Stirol, and thus can accurately represent Stirol's financial experience. Alternatively, if the Department decides not to use Persero's consolidated financial statements, Stirol contends that the Department should use a simple average of the financial data reported by PKT and PT Pupuk Kujang, another Indonesian urea producer for which Stirol was able to obtain partial financial information, to calculate surrogate SG&A and profit ratios. See, e.g., Notice of Preliminary Determination of Sales at Less Than Fair Value: Certain Hot-Rolled Carbon Steel Flat Products From the People's Republic of China, 66 FR 22183 (May 3, 2001) ("Hot Rolled Steel from the PRC"). The petitioner counters that the Department should continue to rely solely upon the data contained in PKT's financial statements to calculate surrogate financial ratios. Specifically, the petitioner alleges that the Department properly rejected Persero's financial data because this information would distort the calculation of surrogate financial ratios. First, Persero's financial data contain the consolidated financial results of several Indonesian entities, some of whom are engaged in manufacturing and service operations unrelated to the production of ammonium nitrate or urea. Second, evidence on the record of this investigation indicates that the companies included in Persero's financial results manufacture a broad range of fertilizer products that are not comparable to ammonium nitrate, e.g., phosphate fertilizers, as well as non-fertilizer products. This complicates the use of its data by including in the surrogate ratios financial information for a broad range of manufacturing and service activities both related and unrelated to merchandise comparable to that under investigation. Third, the petitioner asserts that Stirol provides no support for its contention that Persero's data should be used because it has a corporate structure and production range similar to Stirol. Fourth, the petitioner contends that, despite Stirol's cite to Hot Rolled Steel from the PRC, the Department's preference is to use information that best reflects the respondent's production costs of the subject merchandise, which, in this instance, is not that of Persero. Finally, the petitioner asserts that the financial data of PT Pupuk Kujang are also inappropriate to use in this investigation because this company is not a significant producer of urea and the company's financial data are not sufficiently detailed to permit the calculation of the overhead ratio or net interest. Department's Position: We disagree with Stirol. Section 351.408(c)(4) of the Department's regulations provides that "{f}or manufacturing overhead, general expenses, and profit, the {Department} normally will use non-proprietary information gathered from producers of identical or comparable merchandise in the surrogate country." While Persero's financial statements do reflect, in part, financial activity resulting from manufacturing operations of products comparable to the merchandise under investigation, a review of the companies consolidated into Persero's financial statements demonstrates that these producers are also engaged in the manufacture of non-comparable merchandise. As Persero's financial statements state, "{t}o support its main business, {Persero} also has an Engineering & Construction Company . . . and a Trading Company." Another company included within Persero's consolidated financial statements, PT Petrokimia Gresik, has a wide range of activities in the fertilizer, chemicals, and service sectors. As we stated in Notice of Final Determination of Sales at Less Than Fair Value: Melamine Institutional Dinnerware Products From the People's Republic of China, 62 FR 1708, 1712 (January 13, 1997), "{t}he Department's preference is to use the most product-specific information possible from the surrogate market to calculate surrogate profit." A review of Persero's financial statements demonstrates that the Department would not derive "the most product-specific information possible" if we used Persero's consolidated financial statements given the other operations in which Persero and its subsidiaries are involved. Our goal is to construct a normal value that best reflects Stirol's production of the merchandise under investigation and, therefore, we decline to evaluate Stirol's argument concerning any possible similarities in corporate structure and production range between Stirol and the surrogate company. Thus, consistent with our regulations, in deriving the ratios for overhead, SG&A, and profit, we are concerned with obtaining data from the surrogate country for ammonium nitrate production. In the instant case, we were able to obtain information from PKT, an Indonesian producer of urea, a product comparable to ammonium nitrate, and of ammonia, a component product of ammonium nitrate. Use of Persero's financial statements would distort our calculation of the overhead, SG&A, and profit ratios because, although it includes urea and ammonia production, it also contains financial data for non-comparable merchandise. Therefore, for this final determination, we have continued to rely solely on PKT's financial statements as a surrogate for the overhead, SG&A, and profit ratios. Furthermore, we have not relied on the financial statements of PT Pupuk Kujang because we find that the financial statements are incomplete and, therefore, insufficient for purposes of accurately calculating all three financial ratios. Comment #5: Valuation of Overhead and SG&A In the Preliminary Determination, the Department calculated the overhead ratio by dividing the stated depreciation in the financial statements of PKT, an Indonesian urea producer, by PKT's cost of goods sold inclusive of depreciation. The Department calculated the SG&A ratio by dividing PKT's total SG&A costs by the cost of sales less factory overhead (i.e., exclusive of depreciation). The petitioner asserts that the Department should correct its calculation of overhead and SG&A in the final determination in three ways. First, the petitioner argues that the Department should correct its overhead ratio calculation by first deducting depreciation from cost of goods sold because PKT's reported cost of goods sold less depreciation is most similar to Stirol's constructed costs, which did not include an amount for depreciation or factory overhead. Second, the petitioner asserts that the Department, consistent with its normal practice, should calculate the SG&A ratio by comparing the PKT's SG&A to the sum of its cost of sales and factory overhead and apply the resulting percentage to Stirol's cost build-up inclusive of factory overhead. This is because there was no basis to conclude that PKT's reported SG&A figure includes any depreciation and thus there was no reason to deduct it from SG&A. Third, the petitioner notes that PKT did not break out labor costs separately in its financial statements. Because the denominator used in the Department's ratio calculations must have included PKT's labor costs, the petitioner contends that, in applying the overhead and SG&A ratios, Stirol's labor costs should be included to ensure that the ratios are applied on the same basis as they were calculated. Stirol did not comment on this issue. Department's Position: We agree with the petitioner that all their corrections are appropriate and we have incorporated them in our final determination. Comment #6: Valuation of Catalysts, Belting, Tosol, and Denatured Alcohol In its factors of production database, Stirol included four materials that it believes should not be considered as direct materials because none of them physically enter into the composition of Stirol's finished product: (1) catalysts, which are used to create chemical reactions during production; (2) cotton belting, which is used as a filter in the production process; (3) tosol, which is used as a pump lubricant; and (4) denatured alcohol, which is used to clean platinum mesh screens. Stirol argues that it is the Department's practice to treat materials as overhead items rather than as direct materials where the materials assist in the production process, are not essential for producing the finished product, and are not physically incorporated into the final product. See, e.g., 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, 9169 (February 27, 1997) ("Brake Drums and Brake Rotors"); Notice of Final Determination of Sales at Less Than Fair Value: Bicycles From the People's Republic of China, 61 FR 19026, 19040 (April 30, 1996) ("Bicycles from the PRC"). Inasmuch as neither catalysts, belting, tosol, nor denatured alcohol physically enter into the composition of the finished product, but rather assist in the production process, Stirol contends that the Department should, consistent with its practice, exclude indirect materials from the material cost of normal value. The petitioner, however, argues that the Department should continue to value catalysts, belting, tosol, and denatured alcohol as separate material inputs in the final determination. The petitioner first notes that, in Notice of Final Determination of Sales at Less Than Fair Value; Solid Fertilizer Grade Ammonium Nitrate From the Russian Federation, 65 FR 42669 (July 11, 2000) ("Solid Fertilizer Grade Ammonium Nitrate from the Russian Federation"), the Department valued catalysts as direct materials given the role of catalysts in the ammonium nitrate production process. Furthermore, the petitioner contends that catalysts are essential for producing the finished product and are significant inputs into the manufacturing process because they are used at almost every stage of the ammonia and nitric acid production processes. The petitioner contends that Stirol has misconstrued the Department's past practice in determining whether an item should be valued separately. The petitioner asserts that the Department's practice is to consider whether certain inputs are identified in the factory overhead of the surrogate producer's financial statements, i.e., the Department will value an item separately where record evidence indicates that such item is likely excluded from the overhead of the surrogate producer's financial statements. See, e.g., Notice of Final Determination of Sales at Less Than Fair Value: Certain Preserved Mushrooms from the People's Republic of China, 63 FR 72255, 72266 (December 31, 1998) ("Mushrooms from the PRC"); Manganese Metal From the People's Republic of China; Final Results and Partial Rescission of Antidumping Duty Administrative Review, 63 FR 12440, 12447 (March 13, 1998); Bicycles from the PRC. The petitioner concedes that, based on the Department's verification findings, tosol, belting, and denatured alcohol would normally be considered part of overhead. However, the only element of PKT's financial statements used to calculate overhead is depreciation and there is no indication that these inputs were included in the depreciation of any other Indonesian producer's financial statements available on the record. Department's Position: We agree with the petitioner that a decision of whether to value these inputs separately or to treat them as overhead depends on the surrogate data. In Brake Drums and Brake Rotors, the Department treated molding materials as indirect materials because although these inputs were used to produce the subject merchandise, these inputs were not incorporated into the final product and were also categorized as "stores and spares consumed" based on Indian accounting standards. Importantly, the category "stores and spares consumed" was considered as part of factory overhead. Also, in Mushrooms from the PRC, we found that the factory overhead ratio calculated using the surrogate's financial statement appeared to include the costs for several raw materials included in the category "consumables." Because these materials were already included as part of factory overhead, in that case the Department did not value these materials separately, thereby avoiding double-counting. In the instant case, factory overhead has been calculated using only the "depreciation" category from PKT's financial statements. PKT's financial statements are not detailed enough to ascertain whether depreciation is inclusive of materials such as catalysts, belting, tosol, and denatured alcohol. A review of the method by which Stirol treated these materials suggests that belting, tosol, and denatured alcohol are treated as auxilliary materials rather than depreciable items. As for catalysts, the Department examined this issue in Solid Fertilizer Grade Ammonium Nitrate from the Russian Federation and determined that catalysts are direct materials. See Notice of Preliminary Determination of Sales at Less Than Fair Value: Solid Fertilizer Grade Ammonium Nitrate From the Russian Federation, 65 FR 1139 (January 7, 2000), Memorandum to Edward R. Yang, "Factor Valuation Memorandum," dated December 30, 1999, at 4. There is no evidence on the record of this investigation that persuades us to depart from that prior finding. Therefore, we have continued to treat these materials in the same manner as in the Preliminary Determination. Comment #7: Revision of Catalyst Usage At verification, the Department found that, for Catalyst 1, Stirol had incorrectly reported the usage rate per metric ton of ammonia production in its January 12, 2001 submission. Stirol requests that, if the Department continues to value catalysts as a direct material, the Department should revise Stirol's usage for Catalyst 1 consumption accordingly. Department's Position: We agree with Stirol and, because we are continuing to value catalysts as direct materials, this change has been made for the final determination. Comment #8: Revision of Denatured Alcohol Usage At verification, the Department found that Stirol had incorrectly reported its consumption of denatured alcohol in its March 12, 2001 submission. Stirol asserts that, if the Department continues to value denatured alcohol as a direct material, the Department should revise Stirol's usage of denatured alcohol accordingly. Department's Position: We agree with Stirol and, because we are continuing to value denatured alcohol as a direct material, this change has been made for the final determination. Comment #9: Electricity Factor In the Preliminary Determination, the Department used the 1997 Indonesian price of electricity for industries derived from Energy Prices & Taxes, which is published by the International Energy Agency of the OECD, for Second Quarter 2000 ("Energy Prices & Taxes"). Stirol argues that the Department should value electricity using the most recent data available for Indonesia, which is the 1999 Indonesian price of electricity for industries. This data became available in the most recent edition of Energy Prices & Taxes (Third Quarter 2000). The petitioner argues that the Department should reject Indonesian electricity prices for periods after 1997 as unreliable in light of the effects of the Asian economic crisis, consistent with its findings in Silicomanganese From the People's Republic of China: Notice of Final Results of Antidumping Duty Administrative Review, 65 FR 31514 (May 18, 2000), Issues and Decisions Memorandum, at comment F (" Silicomanganese from the People's Republic of China"). Given the precipitous drop in Indonesian electricity prices related to the significant decline of the Indonesian rupiah as a result of the economic crisis, the petitioner asserts that the Department must continue to value electricity using the 1997 Indonesian price, which is more reflective of a market rate than the 1999 pricing data. Department's Position: We agree with Stirol that the use of a more contemporaneous electricity value is appropriate. We note that Silicomanganese from the People's Republic of China, which the petitioner cites, covered the period December 1, 1997 through November 30, 1998, when Asia was in the midst of the economic crisis. However, the period covering the instant investigation is April 1, 2000 through September 30, 2000, over a year after the end of the Asian economic crisis. Thus, this case is distinguished from Silicomanganese from the People's Republic of China, which evaluated the effects of a devaluation that occurred during the period of that review, whereas the instant case permits us to review the effects of a devaluation that occurred in the past. We find nothing unreliable about the 1999 electricity price in U.S. dollars, which reflects a change in the underlying value of the Indonesian rupiah, not a momentary fluctuation or aberrational movement in the exchange rate. Accordingly, for this final determination, we are now relying upon the 1999 electricity rate published in Energy Prices & Taxes. Comment #10: Revision of Natural Gas Consumed as an Energy Input At verification, the Department found that Stirol had incorrectly reported its consumption of natural gas as an energy input per metric ton of ammonium nitrate production. Stirol asserts that the Department should revise Stirol's reported natural gas consumption as an energy input accordingly. Department's Position: We agree with Stirol and have made this change for the final determination. Comment #11: Separate Rates Stirol asserts that, in light of the European Commission's recent decision to grant Ukraine market economy status and the Department's findings at Stirol's verification that there was no evidence of ownership by any level of the Ukrainian government, the Department should address whether Ukraine qualifies as a market economy country. Alternatively, if the Department continues to determine that Ukraine is a NME, Stirol requests that the Department grant Stirol a separate rate. The petitioner concedes that Stirol is eligible for a separate rate. However, the petitioner argues that the Department should not address Stirol's claim for revocation of Ukraine's NME status because the request is untimely and the record does not contain sufficient evidence - pursuant to section 771(18)(B) of the Act - to support adequately the revocation of Ukraine's NME status. Department's Position: We agree with the petitioner. In accordance with section 771(18)(C) of the Act, any determination that a foreign country has at one time been considered a NME shall remain in effect until revoked. See, e.g., Notice of Preliminary Determination of Sales at Less Than Fair Value and Postponement of Final Determination: Steel Concrete Reinforcing Bars From Latvia, 66 FR 8323 (January 30, 2001) (upheld in Notice of Final Determination of Sales at Less Than Fair Value: Steel Concrete Reinforcing Bars From Latvia, 66 FR 33530 (June 22, 2001) ("Steel Concrete Reinforcing Bars From Latvia"); Notice of Preliminary Determination of Sales at Less Than Fair Value and Postponement of Final Determination: Certain Small Diameter Carbon and Alloy Seamless Standard, Line, and Pressure Pipe From the Czech Republic, 65 FR 5599, 5602 (February 4, 2000) (upheld in Notice of Final Determination of Sales at Less Than Fair Value: Certain Small Diameter Carbon and Alloy Seamless Standard, Line, and Pressure Pipe from the Czech Republic, 65 FR 39363 (June 26, 2000). This status covers the geographic area of the former U.S.S.R., each part of which retains the NME status of the former U.S.S.R. Therefore, Ukraine will be treated as a NME country unless and until its NME status is revoked. See, e.g., Notice of Preliminary Determination of Sales at Less Than Fair Value and Postponement of Final Determination: Steel Concrete Reinforcing Bars From Belarus, 66 FR 8329 (January 30, 2001). Section 771(18)(B) of the Act provides certain factors for determining whether a foreign country is a NME, i.e., whether the country "does not operate on market principles of cost or pricing structures, so that sales or merchandise in such country do not reflect the fair value of the merchandise" (see section 771(18)(A) of the Act). These factors include: (i) the extent to which the currency of the foreign country is convertible into the currency of other countries; (ii) the extent to which wage rates in the foreign country are determined by free bargaining between labor and management; (iii) the extent to which joint ventures or other investments by firms of other foreign countries are permitted in the foreign country; (iv) the extent of government ownership or control of the means of production; (v) the extent of government control over the allocation of resources and over the price and output decisions of enterprises; and (vi) such other factors as the Department considers appropriate. At no point during this investigation has the Department received from either the Government of Ukraine or any interested party a formal request for market economy status, as is customary when a country seeks revocation of its NME staus. See, e.g., Steel Concrete Reinforcing Bars from Latvia, 66 FR at 8324. Furthermore, neither the Government of Ukraine nor any interested party to this investigation endeavored to submit any evidence during the course of this investigation that would permit us to analyze fully whether Ukraine has undertaken a serious program of economic reform, in accordance with the criteria enumerated at section 771(18)(B) of the Act. Accordingly, the Department is unable to make any determination under section 771(18) of the Act as to whether Ukraine's NME status should be revoked. Therefore, we find that Ukraine does not qualify for revocation of NME status. However, consistent with our analysis in the Preliminary Determination, we continue to find that Stirol qualifies for a separate rate as it has demonstrated the absence of both de jure and de facto governmental control over its export activities. RECOMMENDATION Based on our analysis of the comments received, we recommend adopting all of the above positions and adjusting all related margin calculations accordingly. If these recommendations are accepted, we will publish the final determination in the Federal Register. AGREE ____________ DISAGREE _________ ______________________ Faryar Shirzad Assistant Secretary for Import Administration ______________________ (Date)