65 FR 77852, December 13, 2000 A-475-818 Administrative Review Public Document Grp. II/VI: GC/RM MEMORANDUM TO: Troy H. Cribb Assistant Secretary for Import Administration FROM: Holly A. Kuga Acting Deputy Assistant Secretary for Import Administration RE: Certain Pasta from Italy (Period of Review: July 1, 1998 through June 30, 1999) SUBJECT: Issues and Decision Memorandum for the Third Antidumping Duty Administrative Review; Final Results of Review Summary: We have analyzed the case briefs submitted by interested parties in the antidumping duty review of certain pasta from Italy. As a result of our analysis of the comments, we have made changes in the margin calculations. We recommend that you approve the positions we have developed in the Discussion of Interested Party Comments section of this memorandum. Below is the complete list of the issues in this review for which we received comments from the parties: List of Issues: PAM 1. Excluding certain sales from the database 2. Model matching for unenriched pasta 3. Selection of normal values 4. Exchange rate conversion 5. Level of trade methodology 5A. General level of trade methodology 5B. Inventory carrying cost 5C. Freight and delivery 6. Shape-based methodology 7. Short-term borrowing rate 8. Verification 9. Sampling methodology 10. Department of Commerce's release of data 11. Constructed export price language in the margin program 12. Administrative process 13. Accuracy of final results 14. Cost of production and constructed value data 15. Weight-averaging methodology 16. Disregarding sales below cost 17. Misstated cost data 18. Raw material cost 19. Home market sales used in below-cost test 20. Below-cost sales 21. General and administrative expenses 22. Financial expense rate De Cecco 23. Constructed export price offset and commission offset 24. U.S. selling expenses 25. Countervailing duty variable La Molisana 26. Treatment of negative net-U.S. prices 27. Total overall cost of production data for calculation of cost of production and constructed value 28. Ministerial Error Background On August 8, 2000, the Department of Commerce (the "Department") published the preliminary results of this review. See Notice of Preliminary Results and Partial Recission of Antidumping Duty Administrative Review and Intent To Revoke Antidumping Duty Order in Part: Certain Pasta From Italy, 65 FR 48467 (August 8, 2000) ("Preliminary Results"). The merchandise covered by this review is described in the Scope of Review section of this memorandum. The period of review ("POR") is July 1, 1998, through June 30, 1999. We invited parties to comment on our Preliminary Results. We received case briefs from the following respondents: F.lli De Cecco di Filippo Fara S. Martino S.p.A. (``De Cecco''); La Molisana Industrie Alimentari S.p.A. (``La Molisana''); and P.A.M. S.r.l. (``PAM''). (1) Petitioners did not submit a case brief. A public hearing was not held with respect to this review. (2) Scope of Review Imports covered by this review are shipments of certain non-egg dry pasta in packages of five pounds (2.27 kilograms) or less, whether or not enriched or fortified or containing milk or other optional ingredients such as chopped vegetables, vegetable purees, milk, gluten, diastasis, vitamins, coloring and flavorings, and up to two percent egg white. The pasta covered by this scope is typically sold in the retail market, in fiberboard or cardboard cartons, or polyethylene or polypropylene bags of varying dimensions. Excluded from the scope of this review are refrigerated, frozen, or canned pastas, as well as all forms of egg pasta, with the exception of non-egg dry pasta containing up to two percent egg white. Also excluded are imports of organic pasta from Italy that are accompanied by the appropriate certificate issued by the Instituto Mediterraneo Di Certificazione, by Bioagricoop Scrl, by QC&I International Services, by Ecocert Italia or by Consorzio per il Controllo dei Prodotti Biologici. The merchandise subject to review is currently classifiable under item 1902.19.20 of the Harmonized Tariff Schedule of the United States ("HTSUS"). Although the HTSUS subheading is provided for convenience and Customs purposes, the written description of the merchandise subject to the order is dispositive. The Department has issued the following scope rulings to date: (1) On August 25, 1997, the Department issued a scope ruling that multicolored pasta, imported in kitchen display bottles of decorative glass that are sealed with cork or paraffin and bound with raffia, is excluded from the scope of the antidumping and countervailing duty orders. See Memorandum from Edward Easton to Richard Moreland, dated August 25, 1997, in the case file in the Central Records Unit, main Commerce building, room B-099 ("the CRU"). (2) On July 30, 1998, the Department issued a scope ruling, finding that multipacks consisting of six one-pound packages of pasta that are shrink- wrapped into a single package are within the scope of the antidumping and countervailing duty orders. See Letter from Susan H. Kuhbach, Acting Deputy Assistant Secretary for Import Administration, to Barbara P. Cedar, Vice President, Joseph A. Cedar Company, Inc., dated July 30, 1998, which is available in the CRU. (3) On October 23, 1997, the petitioners filed an application requesting that the Department initiate an anti-circumvention investigation of Barilla, an Italian producer and exporter of pasta. The Department initiated the investigation on December 8, 1997 (62 FR 65673). On October 5, 1998, the Department issued its final determination that Barilla's importation of pasta in bulk and subsequent repackaging in the United States into packages of five pounds or less constitutes circumvention, with respect to the antidumping duty order on pasta from Italy pursuant to section 781(a) of the Act and 19 CFR 351.225(b). See Anti-circumvention Inquiry of the Antidumping Duty Order on Certain Pasta from Italy: Affirmative Final Determination of Circumvention of the Antidumping Duty Order, 63 FR 54672 (October 13, 1998). (4) On October 26, 1998, the Department self-initiated a scope inquiry to determine whether a package weighing over five pounds as a result of allowable industry tolerances is within the scope of the antidumping and countervailing duty orders. On May 24, 1999 we issued a final scope ruling finding that, effective October 26, 1998, pasta in packages weighing or labeled up to (and including) five pounds four ounces is within the scope of the antidumping and countervailing duty orders. See Memorandum from John Brinkmann to Richard Moreland, dated May 24, 1999, which is available in the CRU. The following scope ruling is pending: (5) On April 27, 2000, the Department self-initiated an anti-circumvention inquiry to determine whether Pagani's importation of pasta in bulk and subsequent repackaging in the United States into packages of five pounds or less constitutes circumvention, with respect to the antidumping and countervailing duty orders on pasta from Italy pursuant to section 781(a) of the Act and 19 CFR 351.225(b). See Certain Pasta from Italy: Notice of Initiation of Anti-circumvention Inquiry of the Antidumping and Countervailing Duty Orders, 65 FR 26179 (May 5, 2000). Discussion of Interested Party Comments Comment 1: Excluding certain sales from the database PAM argues that it did not produce pasta that fell within certain shape categories. See PAM's case brief at 7-8. Although PAM reported sales of pasta in the United States and home market of such shapes, PAM contends that it purchased this pasta from other manufacturers. Thus, according to PAM, the Department should exclude from the U.S. and home market databases sales of this purchased pasta in order to be consistent with the methodology used in the instant review and prior reviews. See Preliminary Results; and Notice of Preliminary Results and Partial Recission of Antidumping Duty Administrative Review: Certain Pasta from Italy, 63 FR 42368, 42370 (August 7, 1998). Department's Position: We agree with PAM. "Where an unaffiliated producer of the subject pasta knew at the time of the sale that the merchandise was destined for the United States, the relevant basis for the export price would be the price between that producer and the respondent." Notice of Preliminary Results and Partial Rescission of Antidumping Duty Administrative Review: Certain Pasta from Italy, 64 FR 43152, 43154 (August 9, 1999). In the instant review, the producer of the pasta that PAM purchased and resold had knowledge of the destination of the merchandise. In our Preliminary Results, we inadvertently included all sales of purchased pasta. Therefore, we have revised the margin program to exclude all sales of purchased pasta. Comment 2: Model matching for unenriched pasta PAM contends that the Department erred when it stated that it is not possible to match U.S. sales to identical products in the home market because pasta products destined for the U.S. are vitamin-enriched due to FDA standards whereas pasta in the home market is non-vitamin enriched. See PAM's case brief at 9-10; see also Memorandum from Jarrod Goldfeder to John Brinkmann, dated July 31, 2000 ("PAM Analysis Memo"). First, according to PAM, there are no nationwide prohibitions on selling unenriched pasta in the United States. PAM argues that the FDA has promulgated standards for both enriched and unenriched pasta. Second, inasmuch as PAM's U.S. sales are of unenriched pasta, PAM requests that the Department match U.S. sales to comparable sales of unenriched pasta in the home market without any adjustments for a physical difference in merchandise ("DIFMER"). Department's Position. We disagree with PAM that we did not match U.S. sales of unenriched pasta to unenriched pasta in the home market. The margin program clearly shows that we compared all U.S. sales of unenriched pasta to unenriched pasta in the home market. We agree with PAM that it was factually incorrect to state in the PAM Analysis Memo that FDA standards require all pasta sold in the U.S. market to be vitamin- enriched; however, we note that as a matter of industry practice, dry pasta consumed in the United States is generally vitamin-enriched. See Certain Pasta from Italy and Turkey, Inv. Nos. 701-TA-365-366 (Final) and 731-TA-734-735 (Final) USITC pub. 2977 at I-14 (July 1996). We also disagree with PAM that we should not have applied an adjustment to NV for DIFMER under any circumstances. When comparing U.S. sales with comparison market sales, we are required to make reasonable adjustments to NV for differences in physical characteristics between the merchandise sold in the United States and the merchandise sold in the foreign market. See 19 CFR 351.411. In the instant review, we compared U.S. sales of unenriched pasta with home market sales of unenriched pasta. However, we still applied an adjustment for DIFMER to NV where we matched U.S. sales of unenriched pasta to home market unenriched pasta that differed in terms of other physical characteristics (e.g. shape, wheat type, or additives). Comment 3: Selection of normal values PAM states that the Department used incorrect normal values ("NVs") in the calculation of the margin because certain U.S. sales were improperly matched to home market sales at a different level of trade ("LOT") when the Department should have used contemporaneous home market sales at the same LOT. See PAM's case brief at 13-15. PAM argues that because the Department improperly matched U.S. sales to home market products at a different LOT, the Department incorrectly applied a LOT adjustment to NV. Department's Position: We agree with PAM that we made a clerical error in the Preliminary Results. Pursuant to section 773(a)(1)(B)(i) of the Act, we calculate NV, to the extent practicable, on the basis of home market sales that are made at the same LOT as the constructed export price ("CEP") or the starting price for the export price ("EP"). We have corrected the margin program so that U.S. transactions are compared to home market sales at the same LOT to the extent practicable. Furthermore, we have applied a LOT adjustment to NV only in instances where we are not able to calculate NV at the same LOT as the EP under section 773(a)(7)(A) of the Act. See Preliminary Results 65 FR at 48467, 48471. Comment 4: Exchange rate conversion PAM submits that all comparisons and calculations should have been performed in Italian lira because all transactions and adjustments were reported in lira. See PAM's case brief at 21-22. PAM states that the Department should have then converted the result to U.S. dollars only as the final step. Otherwise, the conversion of certain items to dollars and then back to lira allows the possibility of calculation errors. Department's Position: We disagree with PAM that there were errors in the exchange rate that we used in our calculation or that we should alter the method by which we convert currencies in the margin program. For the Preliminary Results, PAM reported all U.S. sales and expenses in lira which we converted into dollars. However, after reviewing the database, we noted that although PAM recorded all U.S. transactions in lira for accounting purposes and reported all U.S. sales to the Department in lira, some U.S. sales were actually transacted in U.S. dollars, but PAM reported them in lira. Since PAM has identified such sales and provided the exchange rate that it used, we have converted the currency of these sales back to U.S. dollars using the same exchange rate provided by PAM. Following our standard practice, and in accordance with 19 CFR 351.415, with the exceptions noted above, we converted all Italian lira fields into U.S. dollars using the exchange rate in effect on the date of the U.S. sale. Comment 5: Level of trade methodology Comment 5A: General level of trade methodology Notwithstanding PAM's earlier argument (see Comment 3 above) that the Department should match U.S. sales to identical LOTs to the extent practicable, PAM asserts that the LOT in the U.S. market is not identical to a LOT in the home market. PAM states that the Department's LOT methodology was flawed and thus yielded the inaccurate conclusion that the LOT in the U.S. market is identical to a home market LOT. See PAM's case brief at 24-29. PAM states that the LOT in the United States is separate and distinct from any LOT in the home market. Furthermore, PAM believes that the U.S. LOT is at a level of less support; thus, the Department should make an adjustment lowering the NV by the amount of any commissions and direct and indirect expenses not already deducted by the application of an offset. PAM claims that the Department's LOT methodology was incorrect in assigning a ranking factor (i.e. high, medium, or low) to a selling function (i.e. freight and delivery, or warehousing) solely based upon the number of observations for which a direct expense associated with the selling function actually occurred. PAM submits that the Department should have also considered the weight or impact of the direct expense as well as PAM's narrative submissions on LOT. Moreover, PAM states that the Department ignored analyzing the amount of support relative to the size of the order that a given customer category receives which PAM considers the most important factor in a LOT analysis. Department's Position: We disagree with PAM that the LOT for EP sales is separate and distinct from any level in the home market. Pursuant to 19 CFR 351.412, to determine whether home market sales were at a different LOT than U.S. sales, we examined whether home market sales were at different stages in the marketing process than the U.S. sales. We made this determination on the basis of a review of the distribution system in each market (i.e. the "chain of distribution") including the level of selling expenses. If the LOTs are different, then the selling functions performed in selling to those levels should also be different. While different LOTs necessarily involve differences in selling functions, differences in selling functions, even substantial ones, are not alone sufficient to establish a difference in the LOT. The different LOTs are ultimately characterized by purchasers at different places in the channel of distribution and sellers performing qualitatively or quantitatively different functions in selling to them. The selling functions to home market LOT2 were sufficiently similar to those of the U.S. LOT and occurred at the same point in the chain of distribution. See PAM's Analysis Memo at Appendix 2. Thus, we matched U.S. sales to sales at the same LOT in the home market and, where such comparisons were not possible, we determined a LOT adjustment pursuant to section 773(a)(7)(A) of the Act and 19 CFR 351.412. We based the adjustment on the percentage differences in the weighted-average prices between the different LOTs in the home market and applied this percentage to the NV where it was at a different LOT from the EP. We disagree with PAM that our LOT methodology is flawed. Inasmuch as our LOT methodology is consistent with the Act and with our practice in prior reviews and the investigation, we continue to apply the same methodology to make LOT comparisons. Further, we disagree with PAM's assertion that our analysis is limited to quantitatively evaluating the presence of certain selling-function variables without considering the weight or impact of the variables. With respect to selling functions, we measured both the qualitative and quantitative level as either high, medium, or low. When it was quantitatively possible, we measured the frequency with which the function actually occurred in the given customer category by examining the number of observations for which a direct expense associated with this category actually occurred. This analysis was performed for each quantifiable activity within the selling activity group and measured for the complete group by taking a simple average of the positive percentages in that group. We emphasize that this quantitative analysis was intended only as a guide for use in the final analysis. We also evaluated the qualitative level of the selling function based on information in the narrative response. In doing so, we considered the extent and nature of the services required to support the selling group. Based on our analysis of each activity, a final selling function factor of high, medium, or low was assigned to that selling activity group for that customer. Comment 5B: Inventory carrying cost PAM argues that in considering warehousing in the home market, the only factor we examined was whether a value was reported for inventory carrying cost ("INVCARH"). According to PAM, the Department gave a ranking of "high" to all customer categories with respect to the amount of warehousing support that PAM provided solely based upon the fact that PAM reported values within the INVCARH variable for every observation. PAM contends that the Department should have based its analysis on information submitted earlier by PAM which described the differences in inventory requirements between customer categories. Department's Position: PAM is incorrect in stating that we assigned a ranking of "high" to all customer categories for warehousing. Although we gave a "high" quantitative ranking for each customer category based upon the frequency analysis of the variable INVCARH, it is clearly shown in the LOT Memo that we ultimately gave an overall ranking for warehousing that considered both quantitative and qualitative factors. As part of our qualitative analysis, we considered information contained in PAM's questionnaire responses and the sales verification report. After considering both these quantitative and qualitative factors, we actually assigned rankings of high, medium, or low depending on the customer category. Comment 5C: Freight and delivery PAM states that the Department erred in assigning a ranking of "high" with respect to the amount of freight and delivery support that PAM provides in the U.S. market for two customer categories where PAM's sole input was paying an amount for brokerage and handling. PAM contends that it was illogical for the Department to then assign a ranking of "medium" to a customer category where PAM provided the same support plus paying for international freight for one shipment. Department's Position: Again, we disagree with PAM because it fails to understand that we assign an overall ranking based upon both quantitative and qualitative information. After considering both the quantitative and qualitative information on the record, we gave a ranking of "medium" to all three customer categories. Comment 6: Shape-based methodology PAM submits that the Department's division of the shape characteristic into seven categories is flawed because it segregates certain shapes into different categories despite being produced on the same machine. See PAM's case brief at 30-31. PAM argues that the best method would be no subdivision of any kind with all pasta considered a single shape category. However, if the Department continues to subdivide shape into different categories then it should only subdivide pasta into shape categories based on the type of production machine used. Department's Position: We disagree with PAM that there should be no subdivision of any kind with respect to shape. We also disagree with PAM's alternative methodology of basing the shape categories solely on the type of production machine used. Typically, pasta producers dedicate specific production lines to either long or short pasta cuts. In the original investigation and the previous administrative reviews, we segregated standard from specialty shapes within long and short pasta cuts according to line speed. See Notice of Final Results and Partial Rescission of Antidumping Duty Administrative Review: Certain Pasta From Italy, 64 FR 6615 (February 10, 1999). Although we recognize that both a long cut and a specialty long cut, for example, may be produced on the same machine, ultimately we segregate the shape categories according to differences in line speed because higher production costs are associated with slower line speeds. After analyzing the line speeds, we have found that there are seven unique product categories. This methodology has been communicated to respondents in the instructions to the questionnaire, as well as in letters addressing respondent requests for assigning shape classifications to shapes not included in our questionnaire shape list (see, e.g., letters to William Silverman of Rogers and Wells from the investigation and first administrative review, dated October 27, 1995 and October 2, 1997, respectively). Comment 7: Short-term borrowing rate PAM contends that in calculating the imputed U.S. credit expense, the Department should have used PAM's home market interest expense rate for EP sales, not the commercially published U.S. rate because all PAM transactions occurred in Italy. See PAM's case brief at 31-32. Further, PAM notes that any loans made would have been from Italian banks in lira or European currency units ("ECUs"). PAM contends that because there were only EP sales and all U.S. sales activities occurred in the home market, the Department should recalculate the interest expense using PAM's home market interest rate. Department's Position: For the imputed U.S. credit expense, we have used either an Italian interest rate or a U.S. interest rate depending on the currency of the transaction. The Department's policy is to use a "short-term interest rate tied to the currency in which the sales are denominated." See, e.g., Notice of Final Results of Antidumping Duty Administrative Review: Certain Pasta From Italy 65 FR 7349 (February 14, 2000); see also Policy Bulletin 98.2, Imputed Credit Expenses and Interest Rates (Feb. 23, 1998). In the Preliminary Results, we only used the Italian interest rate realized by PAM on short-term borrowing since all U.S. transactions were reported in Italian lira. However, upon reviewing the database for the final results, we noted that some U.S. transactions were actually denominated in U.S. dollars. We converted those sales back to U.S. dollar amounts. See Comment 4 above. Normally, we base the interest rate on the respondent's weighted-average borrowing experience in the country of the transaction. Thus, for sales denominated in lira, we used the Italian interest rate realized by PAM on short- term borrowing. PAM did not have any short-term borrowing in U.S. dollars. "In cases where a respondent has no short-term borrowing in the currency of the transaction, we will use publicly available information to establish a short- term interest rate applicable to the currency of the transaction." See Policy Bulletin 98.2. Therefore, we used the U.S. interest rate that PAM provided which was derived from Federal Reserve data. Comment 8: Verification PAM contends that the Department should not have conducted verification because it did not have a legally sufficient verification request, nor did it have a good case to conduct the verification. See PAM's case brief at 32-33. PAM objected to several "deficiencies" in the original verification request, including: (a) failure to enumerate the names of the companies for whom verification was sought; (b) seeking "impermissible" ex parte contact between the Department and counsel for petitioner; and (c) failure to cite a proper legal basis for verification. PAM further contends that the Department needs to "make a definitive determination as to what constitutes a legally sufficient request for verification." Department's Position: We disagree with PAM. There was a proper legal basis to verify PAM and we have already stated the methodology used in the instant review to select respondents for sales verifications. See Memorandum from Jarrod Goldfeder to John Brinkmann dated January 18, 2000. 19 CFR 351.307(b) provides, among other things, that the Department will verify information upon which it relies in (1) a revocation under section 751(d) of the Act; (2) the final results of an administrative review if the Department determines that "good cause" for verification exists; and (3) the final results of an administrative review, if (A) a domestic interested party, not later than 100 days after the date of publication of the notice of initiation of review, submits a written request for verification, and (B) the Department conducted no verification under this paragraph during either of the two immediately preceding administrative reviews. There is no question that petitioners' request was timely filed. Rather, PAM objects to petitioners' verification request on the grounds that it did not enumerate the names of the companies for whom verification was sought. There is, however, no requirement in the regulations that a request for verification specifically include the names of companies for whom verification is requested. Further, petitioners clearly requested that the Department conduct a verification of the questionnaire responses of any exporter that has not been subject to verification in the two immediately preceding reviews, or for whom "good cause" exists to conduct a verification. Further, as noted by PAM, petitioners cited to 19 CFR 351.309, as opposed to 19 CFR 351.307. However, it is clear from the content of the letter filed by the petitioners that they were requesting verification of factual information. Specifically, the petitioners limited their request to companies that have not been subject to verification in the two immediately preceding reviews, or for whom good cause exists to conduct verification. The request contains the same language used in 19 CFR 351.307(b)(v)(B) to identify companies who may be eligible for verification under this section. Therefore, we consider their citation to 19 CFR 351.309 to be merely a clerical error. We conducted verification of PAM's questionnaire response because we believe that "good cause" existed for verification. "Good cause" is not defined in the regulations. However, in the preamble to the proposed regulations, the Department responded to one commentator's suggestion to define good cause by including in the regulations a non-exhaustive list of particular circumstances under which the Department normally would find that good cause for verification exists (e.g., changes in a respondent's accounting methodology, organization structure, or ownership, or significant changes in product-mix offered), by stating that while these circumstances may, in some cases, provide good cause for verification, it is more appropriate to determine good cause on a case-by- case basis, weighing the specific facts before the Department in any given review. Antidumping Duties; Countervailing Duties; Proposed Rules, 61 FR 7308, 7326 (Feb. 27, 1996). PAM recently underwent a significant change in its organizational structure that warranted a close examination. Additionally, PAM's response has been subject to numerous supplemental questionnaires and revisions. Therefore, the Department determined that good cause existed to warrant verification. Finally, we note that we have not had any ex parte meetings with petitioners during this review. Comment 9: Sampling methodology PAM contends that the Department should have used a sampling methodology to determine weighted-average dumping margins, as PAM requested in its July 1999 request for review. See PAM's case brief at 33-34. PAM contends that the Department has not addressed this issue and further that the Department abused its discretion when it did not use a sampling methodology. Department's Position: The antidumping provisions of the Act require the Department to use all reported sales to calculate antidumping margins in administrative reviews. See section 751(a)(2)(A) of the Act which states that the Department shall determine "the normal value and export price (or constructed export price) of each entry of the subject merchandise, and the dumping margin for each entry." Section 777A of the Act states that the Department may use sampling methods "if there is a significant volume of sales of the subject merchandise..." The use of the word "may" demonstrates that it is within the Department's discretion to determine when sampling is necessary. In the instant review, sampling was not necessary because we were able to perform all the necessary calculations using the complete U.S. and home market databases. Comment 10: Department's release of data PAM contends that the Department's late release of data regarding the calculated dumping margins and below cost home market sales compromised its ability to fully and completely analyze the data. See PAM's case brief at 34. PAM contends that because of the delay the Department must consider any additional comments PAM submits in connection with rebuttal briefs. Department's Position: We disagree with PAM that we were tardy in our release of data. In accordance with 19 CFR 351.224(b), we disclosed calculations performed within five days of the date of announcement of the Preliminary Results to PAM's counsel. On August 9, 2000, PAM requested a full printout of all transactions where margins were found and a printout of 1000 home market transactions found to be sold below the cost of production ("COP") which had the smallest difference between COP and price. Presumably, PAM could have performed this task since we had already provided it with the diskette containing the margin program. Nonetheless, as a courtesy, we provided PAM with the requested printouts. See Letter from James Terpstra to David J. Craven dated August 18, 2000, on file in the CRU. Since PAM already had the diskette with all of the information related to the margin program within five days of the public announcement of the Preliminary Results, there was no late release of data. Comment 11: Inclusion of constructed export price language in the margin program PAM contends that the Department should have used a calculation program for EP sales only and should not have included "extraneous" CEP language and operations because all sales were EP transactions. See PAM's case brief at 34- 35. PAM contends the CEP analysis was unnecessary, increased the probability of error, and led to difficulty with analysis of the program. Department's Position: We disagree with PAM that we should not have included the CEP language in the margin program. The margin program that we used contained the standard language which may be used in cases involving CEP sales or, as in the instant review, exclusively EP sales. The CEP language was not activated when we performed the calculation and thus, had no effect on the results of the margin program. Comment 12: Administrative process PAM argues that unnamed "de facto decision makers" in the Department should not participate in verification in order to preserve both the appearance and fact of impartiality. See PAM's case brief at 35. PAM cites the Court of International Trade decision in De Cecco v. United States, 980 F. Supp. 485 (CIT 1997) as proof that individuals who conduct verifications also can be de facto decision makers. PAM indicates that these same individuals could be making decisions later on issues that arise from verification, which could result in "uncertainty." Department's Position: We disagree with PAM that "de facto decision makers" should not have attended verification. The two Department officials that attended verification were the case analyst and the program manager. It appears that PAM is arguing that only an analyst can attend verifications. In fact, under our law and procedures, the Assistant Secretary for Import Administration is both the fact finder and decision maker in antidumping cases and could attend verification if he or she so desired. In practice, however, part or all of these functions are often delegated to various lower level officials within the Department for the sake of efficiency. Thus, it is not unusual or inappropriate for the case analyst assigned to the company to attend verification along with the respective program manager. The case cited by PAM is inapposite because it does not deal with the appropriate officials to conduct verification. Comment 13: Accuracy of final results PAM contends that the Department should not make changes in final results unless they are based on comments filed in conjunction with the proceeding. PAM submits that any changes made in the final results which were not in the Preliminary Results or reflected in the briefs of any parties would be actions ultra vires. See PAM's case brief at 36. Department's Position: The only changes that we have made to the margin program are related to issues found in PAM's case brief. However, the Department has the authority to make other changes or correct errors to ensure accurate results even in cases where the issue is not raised by a party. Comment 14: Cost of production and constructed value data PAM argues that it submitted COP and CV information for all control numbers ("CONNUMs") sold in the home market and the United States. See PAM's case brief at 5-7. PAM contends that in an Analysis Memo, the Department incorrectly stated that PAM failed to submit COP and CV information for certain CONNUMs and therefore, used the highest total cost of manufacture ("TOTCOM") and fixed overhead ("FOH") for these CONNUMs. See PAM Analysis Memo. PAM contends that it could not provide the actual COP and CV information for certain CONNUMs because it purchased such pasta from other manufacturers. See Comment 1. Assuming, arguendo, that PAM purchased pasta, PAM submitted the cost of acquisition for CONNUMs of purchased pasta as surrogate data for calculating COP and CV. Thus, according to PAM, the use of adverse facts was incorrect and the Department should use the submitted COP and CV data. Department's Position: After correctly identifying and excluding all non-PAM manufactured products, there is no missing cost information for any CONNUMs. Therefore, there is no need to use facts available in the final results and the issue is moot. Comment 15: Weight-averaging methodology PAM urges the Department to accept its overall shape-based cost allocation methodology. See PAM's case brief at 15-19. Department's Position: Due to the unique facts of this case, we agree with the respondent. During the POR, PAM produced pasta at three different factories, each of which is set up as a separate company. According to PAM, these affiliated companies "operate as a single entity" (see PAM's February 24, 2000 supplemental section D response at page 15). As a result, the costs of producing pasta at the three facilities are commingled and are not strictly maintained by each company in their normal books and records. For the final results, we have calculated the CONNUM-specific cost based on the methodology suggested by PAM. Comment 16: Disregarding sales below cost PAM notes that the Department erred when it stated in the Preliminary Results that the Department had previously disregarded PAM's sales that failed the cost test during the most recently completed segment of the proceeding in which PAM participated. See PAM's case brief at 7-8; see also Preliminary Results 65 FR at 48467. Department's Position: We agree with PAM that we incorrectly stated that we disregarded sales made by PAM in a previous proceeding. The third administrative review is the first proceeding in which PAM has participated. In fact, we initiated a below-cost investigation after the petitioners made an allegation that PAM made sales at prices below COP and we concluded that the petitioners' allegation provided the Department with a reasonable basis to initiate a COP investigation. Comment 17: Misstated cost data PAM claims that the Department made mathematical errors in the calculation of COP and CV which resulted in overstatements of the FOH, variable overhead ("VOH") and direct labor costs for certain CONNUMs in the Preliminary Results. See PAM's case brief at 10-12. Department's Position: We disagree with PAM that the Department made mathematical errors. PAM omitted the cost of certain CONNUMs in its most recent cost submission. Because these CONNUMs were included in earlier submissions, data regarding these products are on the record. For the final results, we used the earlier data for these particular CONNUMs. Comment 18: Raw material cost PAM claims that the Department failed to adjust the reported direct material costs for the fluctuation in semolina prices during the POR. See PAM's case brief at 19-20. PAM asserts that the cost of the primary direct material in the production of pasta (semolina) experienced significant fluctuations during the POR. PAM argues that the cost of semolina is directly affected by the change in the commodity wheat price and failure to adjust the COP and CV files for these changes in the market could result in artificial sales below cost in times of decreasing costs. PAM states that the POR monthly variances in semolina prices were provided during the review and urges the Department to make one of two adjustments to account for these fluctuations. PAM proposes that the Department should either adjust direct material costs in the COP and CV files or adjust the net price that we compare to COP ("NPRICOP") by the average monthly semolina price and compare the result to a COP exclusive of direct material costs. Department's Position: We disagree with PAM's contention that the annual weight-averaged direct material costs should be adjusted for the fluctuation in monthly semolina prices during the POR. See PAM's case brief at 20-21. The Department's normal practice for respondents not in high inflationary economies is to calculate a single weighted-average cost for the entire POR unless this methodology results in inappropriate comparisons. Previously, the Department has used monthly or quarterly costs in instances of non-inflation only when there is a single primary-input product and that input experiences a significant and consistent decline or rise in its cost throughout the reporting period. See e.g. Final Results of Antidumping Duty Administrative Review and Determination Not to Revoke the Antidumping Order: Brass Sheet and Strip From the Netherlands, 65 FR 742, 746 (January 5, 2000) Conversely, when there are inconsistent fluctuations in both directions we use a single weighted-average cost for the entire POR. See e.g. Fujitsu General Ltd. v. United States, 88 F.3d 1034, 1038-39 (Fed. Cir. 1996) (where the court noted no significant cost rise from the beginning to the end of the POR and approved costs constructed on an annual basis). In this case, semolina comprises a substantial portion of the TOTCOM and therefore is a single-primary input product. Thus, the ultimate cost of the product would be sensitive to significant and consistent variations in the cost of the semolina input. However, we found that there was not a significant and consistent decline in the price of semolina during the POR. In terms of a significant variation in the cost of semolina, we computed the change in prices from the beginning to the end of the POR and noted that the market prices of the standard and special grades of semolina decreased by only 12 and 10 percent, respectively, during the POR. PAM contended that the market prices of the standard and special grades of semolina used by PAM decreased by 22 and 11 percent, respectively, during the POR. However, PAM's computation was designed to result in the highest possible percentage difference. We disagree with PAM's calculations and believe that they do not reflect the price variations of wheat. In addition, we noted that there was only a six month period of consistent declining costs for semolina. Based on our analysis, we conclude that the variations in semolina cost during the POR are not significant and do not warrant the use of monthly weight-averaged costs. Further, the consistency of the variation in costs is questionable since the price decline only existed for six months and then reversed direction. Consequently, we have not adjusted the cost in the final results for the fluctuation in semolina prices. Comment 19: Home market sales used in below-cost test PAM argues that the Department erred in determining whether sales in the home market were made below COP by examining home market sales outside of the POR. See PAM's case brief at 20-21. Department's Position: We disagree with PAM that we should limit the below- cost test to home market sales made only within the 12 month POR, and not examine sales made during the contemporaneity window period of 90 days before the POR and 60 days after the POR ("the extended POR"). We disregard sales of the foreign like product made at prices that are less than the COP of that product if they are made within an extended period of time, in substantial quantities, and are not at prices which permit recovery of costs within a reasonable period of time. See section 773(b) of the Act; and 19 CFR 351.406. The "extended period of time" normally will coincide with the period in which the sales under consideration for the determination of NV were made. See 19 CFR 351.406(b). The period in which the sales under consideration for the determination of NV were made is the extended POR. Therefore, we compared the per unit price of home market sales within the extended POR to the weighted-average COP. Comment 20: Below-cost sales PAM submits that any home market sale that is below cost by 0.0049 U.S. dollars or less should not be considered below cost because such a difference may be due to rounding or other adjustment errors. PAM claims that rounding errors arose because some fields were calculated using numbers that were truncated at two digits, were re-expanded to additional digits by the application of additional factors and then used in the margin calculation. As evidence that such small differences would be ignored in other circumstances, PAM cites to the Internal Revenue Service practice of ignoring values under one- half cent as well as 19 CFR 351.413 which states that the Department should disregard any adjustment of less than 0.33 percent. Department's Position: We disagree with PAM. We disregard sales of the foreign like product made at prices that are less than the COP of that product if they are made within an extended period of time, in substantial quantities, and are not at prices which permit recovery of costs within a reasonable period of time. See section 773(b) of the Act. There is no threshold as to how much a home market sale may be below COP and yet still be considered above cost. The fact that regulations for administering the U.S. tax statute allow for ignoring amounts under one-half cent does not in any way relate to the administration of the antidumping statute. 19 CFR 351.413 is not germane because it deals with disregarding certain adjustments (e.g., differences in circumstances of sale under 19 CFR 351.410, adjustments for differences in the physical characteristics of the merchandise under 19 CFR 351.411, and adjustments for differences in the LOTs under 19 CFR 351.412), not the below- cost test. Regarding truncating, our adjustment factors were rounded to the fourth significant digit and applied to the cost data files as submitted. Therefore, none of the costs were truncated in the calculations. Comment 21: General and administrative expenses PAM contends that the Department miscalculated the general and administrative ("G&A") expense rate by excluding G&A expenses from cost of goods sold, the denominator in the calculation. See PAM's case brief at 29. PAM insists that G&A expenses are a component of cost of goods sold and as such should be included in the denominator of the rate calculation. Department's Position: We disagree with PAM that the G&A ratio was improperly computed. When calculating ratios, the denominator in the ratio and the amount to which the ratio is applied must be on the same basis. To do otherwise misstates the results. Thus, we excluded G&A expenses from the denominator because the rate was applied to the cost of goods manufactured, which does not include G&A expenses. Comment 22: Financial expense rate PAM protests the exclusion of income earned on bonds and common funds from the financial expense rate calculation. See PAM's case brief at 30. PAM states that its responses report these income categories as short-term in nature and asserts that there is no evidence on the record to prove that they were in fact long-term items. PAM further argues that if the Department should continue to exclude these offsets, then the related bond expenses should likewise be excluded. Department's Position: We disagree with PAM regarding the short-term nature of the bond and common fund income. PAM's December 31, 1998 financial statements show the underlying assets as long-term investments. Therefore, in accordance with the Department's normal practice, the income earned from these long-term assets is not related to the company's manufacturing operations. See, e.g. Notice of Final Determination of Sales at Less Than Fair Value: Small Diameter Circular Seamless Carbon and Alloy Steel, Standard, Line and Pressure Pipe from Italy, 60 FR 31981, 31991 (June 19, 1995). In the final results, we excluded both bond and common fund income from the financial expense rate calculation. De Cecco Comment 23: Constructed export price and commission offset De Cecco contends that for U.S. CEP sales with no commission expense, the Department incorrectly added to NV the amount of indirect selling expenses incurred in Italy for the U.S. market, up to the amount of the home market commission expense. De Cecco contends that this adjustment is not correct because it is the Department's policy not to deduct the indirect selling expenses incurred in the home market from either the EP or CEP sales under any circumstances. Department's Position: We disagree with De Cecco that we did not accurately calculate the CEP and commission offset. In accordance with section 19 CFR 351.410(e), where, as in this case, commissions are granted in the home market, but not in the U.S. market, we make an adjustment to offset the commission deduction. The offset is equal to U.S. indirect selling expenses incurred in the home market up to the amount of home market commissions. (3) Comment 24: U.S. selling expenses De Cecco contends the Department made a clerical error in the calculation of the total U.S. selling expenses used in the calculation of the CEP profit rate by failing to multiply the U.S. direct selling expenses and commission expenses by the U.S. quantity. Department's Position: We agree with De Cecco and have revised the margin program accordingly. Comment 25: Countervailing duty variable De Cecco contends that the Department did not use the variable that it created, "ENTVALU," to convert the entered value from dollars per pound to dollars per kilogram in its calculation of the CVD offset. Department's Position: We agree with De Cecco and have revised the margin program accordingly. La Molisana Comment 26: Treatment of negative net-U.S. prices La Molisana argues that the Department should set to zero certain U.S. sales transactions where the Department, after making the appropriate deductions pursuant to the Act, calculated a negative net price. La Molisana claims that it would not sell merchandise at negative prices, and that the negative net prices are simply an arithmetic result of deducting allocated and imputed expenses from the prices of individual transactions, and in no way reflect the real net returns of costs to the company. Department's Position: We disagree with La Molisana. Seasonal and commodity manufacturers often sell their merchandise at a loss. In the instant review, a negative net price means that the U.S. customer is not paying La Molisana enough to cover the costs/expenses incurred by La Molisana in producing, marketing, and transporting certain pasta from La Molisana's factory in Italy to the United States. Pursuant to section 772(c)(2) of the Act, the Department deducts from the U.S. selling price certain expenses (e.g., movement charges), which in the instant case, resulted in a negative net U.S. sales price. Secondly, La Molisana, as well as other producers of Italian pasta, lose money on individual sales transactions through the use of rebates, discounts, etc. to entice U.S. customers to purchase pasta. For the final results, the Department will not set to zero those transactions where a negative net price resulted. Comment 27: Total overall cost of production data for calculation of COP and CV La Molisana argues that the Department should use the company's cost of producing all merchandise under consideration for its calculation of COP and CV for the final results, and not the market COP of merchandise sold only in one market as was done in the Preliminary Results. Department's Position: We agree with La Molisana. In submitting the revised COP and CV database, the respondent misinterpreted the Department's instructions and excluded from the calculation of the weighted-average costs the cost of merchandise under consideration which was sold in third countries. The Department normally uses the total production quantity, regardless of market sold, as the weighting factor to calculate weighted-average cost for each product. See section D Questionnaire, page D-2. Accordingly, we used the total COP of merchandise under consideration regardless of the market in which the merchandise was sold for calculating the COP and CV for these final results. Comment 28: Ministerial error La Molisana alleges that the Department made a ministerial error with respect to the indirect advertising expenses incurred by Molisana U.S. that were reimbursed by La Molisana in Italy ("DINDIRSU") for a particular brand of pasta. The respondent notes that the error occurred when the Department applied an exchange rate to convert this expense into U.S. dollars, values that were already in U.S. currency. Department's Position: We agree with La Molisana. For the final results, we properly applied the U.S. exchange rate where appropriate. Recommendation Based on our analysis of the comments received, we recommend adopting all of the above positions. If these recommendations are accepted, we will publish the final results and the final weighted-average dumping margins in the Federal Register. Agree Disagree Troy H. Cribb Assistant Secretary for Import Administration Date ______________________________________________________________________________ footnotes: 1. On September 28, 2000, we rejected one page of the case brief submitted by PAM, pursuant to sections 351.301(b)(2) and 351.302(d) of the Department's regulations, because we found that the page contained untimely new factual information. PAM resubmitted the page of the case brief without the new information on October 2, 2000. 2. Although on September 7, 2000 PAM requested a hearing, that request was subsequently withdrawn on September 18, 2000. 3. The amount of De Cecco's indirect selling expenses attributable to U.S. sales and associated with economic activities incurred in the United States are deducted from the CEP under section 772(d) of the Act. Consequently, in order to avoid double-counting, we must exclude from the commission offset calculation those indirect expenses associated with economic activities in the United States, which are already deducted in the calculation of the CEP.