Therefore, in accordance with the Court's direction, we determine that the evidence on the record of this proceeding does not support Commerce's conclusion in the Final Determination regarding the extent of integration of the Indian surrogate producers. Instead, we determine that the record does not show whether the Indian producers are less integrated than Jilin and Shandong, because the production of salicylic acid derivatives by Alta and Gujarat may involve processing that approximates the processing performed by Jilin and Shandong in producing aspirin, and because Andhra must be viewed as an integrated producer of aspirin (among other products), we cannot rule out the possibility that the methodology employed in the Final Determination overstates the overhead component of normal value. Accordingly, we have revised our calculations. ⁽²⁾

Because we have not included a second amount for overhead, we do not address the Court's concerns about the lack of explanation in support of this methodology.

Weighted Average v. Simple Average

As noted above, the Department used information regarding Alta, Andhra, and Gujarat to calculate weighted-average ratios for overhead, SG&A, and profit.

Based upon our review of Department precedent, we agree with the Court that our usual practice is to use a simple average when combining data for these types of calculations. See, e.g., Certain Preserved Mushrooms from the People's Republic of China, 65 FR 66703, 66707 (November 7, 2000); Certain Cut-to-Length Carbon Steel Late from the People's Republic of China, 62 FR 61964, 61970 (November 20, 1997); Notice of Final Determination of Sales at Less Than Fair Value: Bicycles from the People's Republic of China, (61 FR 19026, 19039 (April 30, 1996). Moreover, we find no facts in this proceeding that warrant deviation from that practice.

Therefore, we have recalculated the overhead, SG&A, and profit ratios using a simple average of the data for Alta, Andhra, and Gujarat. In a change from the Draft Results, we have not set the negative profits (losses) of Alta and Gujarat to zero, and included them in the simple average. Instead, because Alta and Gujarat showed losses, we did not use their information to calculate profit. Consequently, the profit ratio was calculated using the data from Andhra's financial statement.

Traded Goods

As noted above, the Department sought, and the Court granted, a voluntary remand in order that the Department might correct its calculation of the overhead ratio by removing traded goods from the denominator. We have done so for this redetermination on remand.

COMMENTS

Shandong submitted one comment regarding the Department's practice of setting negative antidumping margins to zero in calculating the overall weighted average margin. The petitioner responded to this argument in its rebuttal comments.

The Court remanded the case to the Department for the purpose of reconsidering the overhead calculation methodology applied; the use of a weighted average ratio rather than a simple average ratio to calculate overhead, SG&A, and profit; and to remove traded goods from the denominator for the calculation of the overhead ratio. The issue raised by Shandong is outside the scope of this remand and therefore, we have not addressed it here.

Comment 1: Use of Inferences When Information is Lacking

The petitioner argues that the Draft Results are based on an inference that is adverse to the interests of the domestic industry. In contrast to the Final Determination, where Commerce reviewed the information on the record and found that it supported the conclusion that the Indian producers represented a single stage of production, the Draft Results adopt the extreme opposite conclusion. Moreover, according to the petitioner, while Commerce states that it cannot infer any level of integration, it implicitly does so because it equates the levels of integration of the Chinese and Indian producers.

The petitioner points out that the statute requires the use of "best available information," with the goal of promoting accuracy. In this case, where there are gaps in the information through no fault of any of the parties, the petitioner claims that Commerce should not resolve the open questions solely in favor of the responding parties or solely in favor of the domestic industry. However, Commerce should recall that the financial statements for Alta and Gujarat were submitted by Jilin and, to the extent that those financial statements are unclear, Jilin should not benefit from a lower overhead rate according to the petitioner.

Jilin claims that instead of addressing the record evidence, the petitioner has introduced the new argument that the Department is obliged to make neutral inferences from the evidence on the record. Jilin disputes the petitioner's claim that the Department made an inference adverse to the domestic industry. Instead, in Jilin's view, the Draft Results were based on the best available information from the administrative record. Despite the petitioner's claim to the contrary, Jilin states, Commerce did not determine that the Indian and PRC producers were integrated to the same extent. Instead, according to Jilin, the Department determined that record evidence did not support the conclusion that the Indian producers were necessarily less integrated than the PRC producers.

In Jilin's view, the petitioner fails to recognize that in NME cases the Department's consistent practice, except in this investigation, has been to reject adjustments to overhead to account for differences in production processes, processing stages or integration levels. The Department in its other determinations and the Court in Rhodia demonstrate that Commerce must cite substantial record evidence of differences between the NME and surrogate producers to provide a justification for making such adjustments.

Finally, Jilin counters the petitioner's argument that the Department should reject the financial information from Alta and Gujarat simply because it was submitted by Jilin. According to Jilin, the Department's regulations require the use of publicly available information without regard to whether it is submitted by the respondents or the petitioner.

Department's Position:

We disagree with the petitioner that we have made an inference that is adverse to the domestic industry. While we cannot deny that our decision results in a lower normal value and antidumping duty margin than in the Final Determination, our decision is based upon a thorough review of the record evidence in this proceeding and the comments we have received from the parties. As a result of that review, we have determined that our conclusion in the Final Determination that Indian producers were more representative of input producers than of fully integrated aspirin producers is not supported by substantial evidence. And, unless we can say that the Indian producers represent one stage of production and the PRC producers employ two stages of production, we have no reason to apply the Indian overhead ratio twice.

As described above, the evidence shows that Andhra produces both an aspirin input and aspirin. Gujarat and Alta produce salicylic acid derivatives in addition to salicylic acid and, based on the definition of "derivatives" it seems that an additional stage of processing occurs to produce the derivatives. With multistage production processes apparently occurring at Andhra, Alta and Gujarat, we believe that the record supports a single application of the Indian producers' overhead. We concede that this conclusion yields the same result as assuming that the levels of integration of the Indian and PRC producers are the same, as the petitioner contends, but we see no basis to distinguish between the Indian and PRC producers and to fine tune our calculations simply because the producers potentially may not be identical.

We also disagree with the petitioner's claim that we should reject Alta's and Gujarat's "unclear" financial information because it was submitted by the respondent, Jilin. We invited all parties to submit information regarding surrogate values. Although Andhra's report contains more information about the different products it produces, it is no clearer than Alta's or Gujarat's information in terms of describing stages of production. Because Alta and Gujarat produce merchandise comparable to bulk aspirin, there is no basis to reject their information.

Comment 2: Alternative Methodology Relying on Neutral Inferences

Given the evidence on the record, the petitioner contends that Commerce can infer that: (i) none of the three Indian producers is integrated to the same degree as Jilin or Shandong; (ii) neither Alta nor Gujarat produced aspirin or acetic anhydride; and (iii) Andhra did not produce salicylic acid (but did produce acetic anhydride and aspirin). Based on this, the petitioner urges the Department to apply Andhra's overhead rate to the materials, labor and energy (MLE) used to produce acetic anhydride and aspirin, and to apply an average of Andhra's and Gujarat's overhead rates to the MLE for producing salicylic acid. The latter calculation should be made separately and the overhead amount for salicylic acid added to the overhead for acetic anhydride and aspirin (calculated as described above).

Alternatively, the petitioner argues that it is evident from the record that Alta is the least integrated of the three Indian producers. Andhra and Gujarat, while not identical to Jilin and Shandong, operated three or more separate production processes, according to Rhodia, Inc. To support its claim that Alta is the least integrated, the petitioner points to the fact that Alta's overhead ratio is substantially below the overhead ratios of the other two Indian producers, while Alta's ratio of materials costs to total production cost is greater. This is partially explained by the fact that Alta's cost of materials includes taxes, thus leading to an understatement of the overhead ratio, according to the petitioner. Nevertheless, the petitioner claims, Alta's lower overhead ratio supports the inference that Alta does not engage in downstream production operations. Thus, in the petitioner's view, the Department cannot rule out the possibility that Alta operates a single-stage production process and, consequently, the Department should exclude Alta from its calculations altogether.

Jilin argues that the petitioner has failed to identify any evidence concerning the integration levels of the three Indian producers. Although the petitioner insists that the Indian producers are less integrated than the PRC aspirin producers, Jilin claims that the record could support the inference that the Indian producers are more integrated. The Indian companies' financial statements say nothing about the number of production stages they employ in producing aspirin, salicylic acid derivatives, and other bulk chemicals, in Jilin's view. Regarding Alta, Jilin continues, the petitioner's analysis purporting to show that Alta is the least integrated is "contorted." See Jilin's February 14, 2002 submission.

Jilin maintains that the petitioner points to differences in the products produced by Alta, Gujarat, and Andhra, and the products produced by Jilin and Shandong. However, Jilian asserts, differences in products produced is not the same as differences in integration levels or production stages. It does not matter that the Indian surrogate producers did not produce aspirin (or that aspirin accounted for only a small percentage of their productions), Jilin claims, so long as they produced a product that is similar or comparable to aspirin. If the product is comparable, Jilin argues that Commerce's practice is to use the overhead for producing that product unless substantial record evidence supports an adjustment to account for quantifiable differences in integration levels.

Department's Position:

We agree with the petitioner that none of the Indian companies appears to produce both aspirin inputs, salicylic acid and acetic anhydride, and aspirin. However, we do not agree that we should adjust the methodology for calculating overhead to address this. Without information for an integrated Indian producer that produces only bulk aspirin, we cannot have an exact measure of overhead to build into the normal value. Therefore, we have relied upon information about Indian producers of aspirin and aspirin inputs, companies which appear to have multiple production stages, as the best available information for valuing overhead.

The first alternative method suggested by the petitioner seeks to reflect the information that is known about the Indian producers because it applies Andhra's overhead rate to the two products it produces, acetic anhydride and aspirin, while applying the average overhead rates of Alta and Gujarat to the input they produce, acetic anhydride. As a calculation matter, this method appears to include two overhead amounts for salicylic acid, once as a separate input and once as a part of the MLE for aspirin. As explained above, the Department's rationale for applying two separate overhead amounts in the Final Determination was based on our incorrect position that the Indian producers represented a single stage of production and that the PRC producers produced the inputs and the final product. Because it appears that the Indian producers' have multiple production stages, there is no basis to apply a second overhead amount for any input.

Regarding the petitioner's concerns about Alta, we disagree that we should reject the Alta data. Although Alta's overhead rate is lower than that of the other Indian producers, the record indicates that Alta produces salicylic acid derivatives implying multiple production stages. Also, Alta, like Gujarat, produces a comparable product to bulk aspirin. Therefore, we have no basis to exclude Alta in calculating the overhead ratio.

Comment 3: Inclusion of Zero Profits in the Surrogate Profit Ratio

The petitioner argues that in calculating a simple average of the Indian producers' profits rates, the Department should not treat negative profits (losses) as zero and include those zeroes in the average. The petitioner points to several decisions where, the petitioner claims, the Department disregarded zero (or negative) profits and based the profit ratio for the NME producer solely on positive surrogate profit rates: Notice of Preliminary Determination of Sales at Less than Fair Value: Certain Small Diameter Carbon and Alloy Seamless Standard, Line and Pressure Pipe from Romania, 65 FR 5594, 5598 (February 4, 2000) (Pipe from Romania); Notice of Final Determination of Sales at Less Than Fair Value: Steel Concrete Reinforcing Bars from the PRC, 66 FR 33522 (June 22, 2001) and accompanying Issues and Decision Memorandum at Comment 8 (Reinforcing Bars from the PRC); Notice of Final Determination of Sales at Less than Fair Value: Steel Concrete Reinforcing Bars from Moldova, 66 FR 33525 (June 22, 2001) and accompanying Issues and Decision Memorandum at Comment 3 (Reinforcing Bars from Moldova); Notice of Preliminary Determination of Sales at Less Than Fair Value: Certain Automotive Replacement Glass Windshields from the People's Republic of China, 66 FR 48233, 48241 (September 19, 2001) (Windshields from the PRC); Notice of Final Determination of Sales at Less than Fair Value: Pure Magnesium in Granular Form from the People's Republic of China, 66 FR 49345 (September 27, 2001) and accompanying Issues and Decision Memorandum at Comment 3 (Granular Magnesium from the PRC); Final Determination of Sales at Less than Fair Value: Certain Hot-rolled Carbon Steel Flat Products from the PRC, 66 FR 49632 (September 28, 2001) and accompanying Issues and Decision Memorandum at Comment 6 (Hot-rolled Steel from the PRC). The petitioner acknowledges differing treatment of this issue in Tapered Roller Bearings and Parts Thereof, Finished or Unfinished, from the People's Republic of China: Final Results of 1998 - 1999 Administrative Review, Partial Rescission of Review, and Determination Not to Revoke Order in Part, 66 FR 1953 (January 10, 2001) and accompanying Issues and Decision Memorandum at Comment 8 (TRBs from the PRC: 1998 - 1999 Review).

The petitioner claims that the practice reflected in the cited cases is consistent with the statute and Congressional intent regarding the treatment of zero profits in cases involving market economy countries. In the petitioner's view, that same treatment should apply to NME producers so that the law is not administered in a manner that is biased in favor of NMEs.

Jilin objects to excluding zero profits in calculating the profit ratio to be applied to the PRC producers. Jilin points to differing Department practice in this respect, citing the following cases where, it claims, the Department included zero profits: Freshwater Crawfish Tail Meat from the People's Republic of China: Notice of Final Results of New Shipper Review and Final Rescission of Review, 66 FR 64948 (December 17, 2001); Freshwater Crawfish Tail Meat from the People's Republic of China: Notice of Preliminary Results of Antidumping Duty Administrative Review and Preliminary Partial Rescission of Antidumping Duty Administrative Review, 66 FR 52100 (October 21, 2001); TRBs from the PRC: 1998 - 1999 Review, 66 FR 1953 (January 10, 2001); and Tapered Roller Bearings and Parts Thereof, Finished or Unfinished, from the People's Republic of China: Final Results of 1999 - 2000 Administrative Review, and Determination Not to Revoke Order in Part, 66 FR 57420 (November 15, 2001). Jilin states that although the Department's practice has varied, this does not mandate reversal of the profit ratio calculation in this redetermination on remand.

Jilin argues further that many of the cases cited by the petitioner can be distinguished from this case because the facts differ. In Hot-rolled Steel from the PRC, the Department provided many reasons for not using the surrogate company, SAIL's data for calculating surrogate overhead, SG&A and profit, and many of the reasons were unrelated to SAIL's lack of profit, according to Jilin. In Granular Magnesium from the PRC, the Department selected the surrogate company, Southern Magnesium, because it was the only surrogate producer of identical merchandise. However, Jilin states, because the Department required "an amount" for profit, it had to turn to alternative sources. Similarly, in Windshields from the PRC, the one surrogate producer that produced identical merchandise and whose data were used for calculating overhead and SG&A could not be used for the profit ratio because it had no profit, according to Jilin. Therefore, the Department used the alternative - positive profit from a producer of comparable merchandise. Finally, in Pipe from Romania, Jilin claims that while the Department relied on the profit of a single profitable surrogate producer, the Department specifically did not address the issue of including the zero profits of other producers because the Department rejected those producers' data on other grounds.

Jilin takes issue with the petitioner's argument that market economy practice dictates exclusion of zero profits from the profit ratio because, in Jilin's view, there are fundamental differences in market and non-market economy cases. Citing Air Products and Chemicals, Inc. v. United States, 14 F. Supp. 2d 737, 741 (1998), Jilin claims that in an NME case the Department is constructing "the product's price as it would have been if the NME country were a market economy, using the best information available regarding surrogate values." Jilin argues that the average profit ratio of Alta, Andhra, and Gujarat reflects the best estimate of the profit ratio a PRC producer would realize in a market economy. In Jilin's view, it would be arbitrary and unfair for the Department to assume that the PRC producers would achieve the experience of one Indian producer that was profitable and ignore the profit experience of the other two surrogate producers.

Jilin also points to the Department's decision to use a simple rather than a weighted average. According to Jilin, by excluding zero profits, the Department's profit calculation is weighted entirely to the one profitable surrogate producer. In contrast, the simple average including zeroes, is consistent with the Department's position in Notice of Final Determination of Sales at Less than Fair Value: Bicycles from the PRC, 61 FR 19026, 19039 (April 30, 1996), that all surrogate producers are typical of the NME experience unless there is evidence to demonstrate that one surrogate producer is more relevant than another in Jilin's view. The simple average including zeroes also meets the statutory mandate to include "an amount" for profit, Jilin argues, and that amount is representative of the Indian industry, not just the experience of the most profitable Indian producer.

Finally, Jilin argues that neither the statute nor the Department's regulations permit the Department to create an irrebuttable presumption against using all unprofitable surrogate producers. According to Jilin, the Statement of Administrative Action ("SAA") for the Uruguay Round Agreements Act ("URAA") acknowledged that under pre-URAA law the Department used an average profit rate including below cost sales for which the profit was set at zero, and the URAA eliminated the 8% minimum profit rate. Moreover, Jilin cites to the Department's regulations implementing the URAA which state, "[t]he Department believes that, in computing profit for CV, the automatic exclusion of below-cost sales would be contrary to the statute." Antidumping Duties; Countervailing Duties; Final Rule, 62 FR 27296, 27359 (May 19, 1997). The Department further stated that "the fact that sales of the foreign like product are below cost does not automatically trigger their exclusion," and "under the new law and as described in the SAA, profitable sales would constitute the majority of the transactions used to compute profit for CV under the preferred and second alternative methods." Id. In Jilin's view, the Department has not stated that profitable sales would constitute the only transactions used to compute CV profit, and a blanket exclusion of unprofitable producers would be contrary to the legislative history and the Department's regulations.

Department's Position:

Although this issue was not raised by the parties in their briefs to the Court, the question of whether to set negative profits to zero and whether to include the zeros in the calculation would be an issue whether the Department used a simple or weighted average. Also, the Department's practice regarding losses has developed since the Final Determination, therefore, we are addressing these comments in this redetermination. A review of the cited decisions reveals that the Department's practice with respect to including zero profits in calculating average profit rates has varied over time and is not consistent. However, while exceptions to the practice exist since the Final Determination, we have followed the policy described in Reinforcing Bars from the PRC and Reinforcing Bars from Moldova, and cited to in Windshields from the PRC and Hot-rolled Steel from the PRC, because the issue was clearly raised and addressed in these cases. Therefore, in a change from the Draft Results, we have not included the profit rates of Alta and Gujarat in the profit rate used to calculate normal value because these companies did not have a profit.

As the cases on reinforcing bar show, the Department has determined that we should not distinguish between market and non-market economy producers in this respect:

Although in some past cases we have averaged in a loss as zero profit, we believe a better approach is found in Certain Fresh Cut Flowers from Ecuador: Preliminary Results and Partial Recision of Antidumping Administrative Review, 64 FR 18878 (April 16, 1999) (Flowers from Ecuador), which disregards financial statements showing a loss for purposes of calculating the profit component of constructed value under Section 773(e)(2) of the Act in market economy cases. The same principles applied in Flowers from Ecuador are reasonably applied in a non-market economy case. Here, disregarding SAIL's financial statements enable us to derive an 'element of profit' as intended by the Statement of Administrative Action (SAA) accompanying the Uruguay Round Agreements Act. See SAA at 839. As the SAA explains, 'in most cases Commerce would use profitable sales as the basis for calculating profit for the purposes of constructed value.' Id. at 840. The Department, therefore, 'may ignore sales that it disregards as a basis for normal value, such as those disregarded because they were made at below cost prices.' Id. at 839.

Reinforcing Bars from the PRC, 66 FR 33525 (June 22, 2001) and accompanying Issues and Decision Memorandum at Comment 8; see also Reinforcing Bars from Moldova, 66 FR 33525 (June 22, 2001) and accompanying Issues and Decision Memorandum at Comment 3 (also applying market economy principles for determining profit in a non-market economy case).

RESULTS OF REDETERMINATION

Based on the analysis described above, the Department determines, on remand, that: (1) in light of the evidence on the record of this proceeding regarding the extent of integration of the Indian surrogate producers, the Department should not apply a second amount for overhead; (2) the ratios for overhead and SG&A should be calculated as simple rather than weighted averages, and the profit ratio should be based solely on Andhra; and (3) traded goods should not be included in calculating the overhead ratio. Accordingly, we have revised the dumping margins for Jilin and Shandong. Jilin's margin is now 1.27 percent, which is de minimis, and if the Court approves the results of redetermination on remand, Jilin will be excluded from the antidumping duty order on bulk aspirin from the PRC. Shandong's margin is now 6.42 percent.

The PRC-wide rate is unaffected by the redetermination on remand because it was not based on the antidumping margins for either of these companies.

Faryar Shirzad
Assistant Secretary
    for Import Administration

1. We note that the relative unimportance of Andhra's aspirin when compared to its total sales might lead us to reject Andhra's values for calculating overhead, SG&A and profit for aspirin. However, Andhra has significant sales of other bulk chemicals that might be considered comparable to aspirin.

2. Because each of the issues involved in this remand relates to the calculation of overhead, we have not made separate calculations to reflect individual changes. Instead, only the cumulated results of the changes brought about by the redetermination are reported.