67 FR 35481, May 20, 2002 A-475-831 Investigation Public Document IA/Group I/Office 2: MAS MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Richard W. Moreland Deputy Assistant Secretary, Group I Office of AD/CVD Enforcement DATE: May 13, 2002 SUBJECT: Issues and Decision Memorandum for the Antidumping Duty Investigation of Structural Steel Beams from Italy Summary We have analyzed the case and rebuttal briefs of interested parties in the investigation of sales at less than fair value of structural steel beams from Italy. As a result of our analysis, we have made changes in the margin calculations for the final determination. We recommend that you approve the positions we have developed in the "Discussion of the Issues" section of this memorandum. Below is the complete list of the issues in this investigation for which we received comments from interested parties: Comment 1: Classification of the Shape of Products Sold in the Home Market Comment 2: Home Market Rebates Comment 3: Home Market Discounts Comment 4: Commission Expenses Comment 5: Home Market Credit Expenses Comment 6: Reclassification of U.S. Quality Codes Comment 7: International Freight Costs Comment 8: U.S. Credit Expenses Comment 9: U.S. Dates of Payment for Unpaid Sales Comment 10: Expenses Related to the Sale of Certain Assets in the United States Comment 11: U.S. Indirect Selling Expenses Background On December 28, 2001, the Department of Commerce (the Department) published the Notice of Preliminary Determination of Sales at Not Less Than Fair Value and Postponement of Final Determination: Structural Steel Beams From Italy, 66 FR 67185 (Preliminary Determination). We invited parties to comment on our preliminary determination. The petitioners requested a public hearing, which was held at the Department on April 24, 2002. The period of investigation (POI) is April 1, 2000, through March 31, 2001. Margin Calculations We calculated constructed export price (CEP) and normal value using the same methodology stated in the preliminary determination, except as follows: 1. We revised our margin calculations for the sole respondent, Duferdofin S.p.A. (Duferdofin), to take into account our findings at verification. For further discussion, see the May 13, 2002, memorandum from Michael Strollo to the file entitled "Calculation Adjustments for the Final Determination" (Final Calculation Memo) and the memorandum from Ji Young Oh to Neal Halper entitled "Cost of Production and Constructed Value Calculation Adjustments for the Final Determination" (Final Cost Calculation Memo). 2. We revised the product characteristics code for shape for all products sold in the home market. We also revised the control numbers associated with these products using the revised codes. Finally, we recalculated the cost of production (COP) and constructed value (CV) for these products. See Comment 1. 3. We disallowed rebates paid on home market sales in the preliminary determination, based on our finding that Duferdofin failed to address questions in the Department's supplemental questionnaire pertaining to the validity of its rebate programs. We made an adjustment for rebates for purposes of the final determination because Duferdofin demonstrated at verification that these rebates were reported accurately. See Comment 2. 4. We made no adjustment for early payment discounts in the home market because Duferdofin was unable to substantiate the amount of these discounts at verification. See Comment 3. 5. We reclassified all U.S. sales reported as non-prime merchandise as first quality products based on our findings at verification. See Comment 5. 6. We revised the U.S. interest rate used to calculate credit expenses to take into account principal additions, as well as repayments, during the POI. In addition, where we found that certain U.S. sales were still unpaid as of the last day of verification, we assigned a date of payment of the last day of verification in accordance with our practice. See Comments 8 and 9. Discussion of the Issues Comment 1: Classification of the Shape of Products Sold in the Home Market According to the Department's questionnaire, shape is one of the criteria used to determine product similarity between beams sold in both the home and U.S. markets. The questionnaire instructed respondents to report the shape of their subject beams for individual product types using specific codes. For example, wide flange beams were assigned a code beginning with "1," M beams were assigned a code beginning with "2," standard (or "I") beams were assigned a code beginning with "3," etc. Where specific codes were not identified, the questionnaire instructed respondents to report shapes with a code beginning with the digit "5." In its questionnaire response, Duferdofin reported that it sold various types of beams in the home market, including HEA, HEB, IPE, and IPN beams. Duferdofin stated that, because all of these beams were "equally comparable" to the wide flange beams sold in the United States, it assigned them a shape code of "5." The petitioners argue that this classification is improper because Duferdofin's company literature shows that there are significant differences among the shapes of these beams. (1) Indeed, the petitioners contend that Duferdofin's classification was clearly designed to manipulate the outcome of the dumping analysis, because: 1) Duferdofin never explained why it could not classify HE, IPE, and IPN as specific shapes, only why it should not do so; and 2) Duferdofin had ample opportunity to point out any deficiencies in the model matching criteria when the Department solicited comments on this topic, but it chose to remain silent. The petitioners contend that whether an HE or IPE beam is the most similar shape to a given wide flange beam is not relevant to the issue of how the HE or IPE beam should be classified under the Department's model match criteria. According to the petitioners, the consequence of Duferdofin's decision to assign all home market products a shape of "other" was to ensure that U.S. sales would be compared to the entire universe of home market sales, thereby short-circuiting the entire model match methodology. The petitioners note that none of the other producers in the seven companion investigations of structural steel beams has raised the claim that products sold in the home market are not readily classifiable under the Department's model match scheme, even though some of these companies also produce HE, IPE, and IPN beams. The petitioners conclude that, if the Department allows Duferdofin to succeed in its attempt to circumvent the Department's model match scheme, it will apply very different model match criteria in investigations involving identical products. The petitioners argue that, under these circumstances, the Department has no choice but to apply adverse facts available, in accordance with its practice. See Notice of Final Determinations of Sales at Less Than Fair Value: Steel Concrete Reinforcing Bars from Indonesia, Poland and Ukraine, 66 FR 18752 (Apr. 11, 2001) and accompanying decision memorandum at Analysis of Issue in Petitioner's Case Brief (Ukraine) (where the Department applied facts available based on a finding that a meaningful dumping margin could not be calculated based on the respondent's information); and Notice of Final Determination of Sales at Less Than Fair Value: Certain Cold-Rolled Flat-Rolled Carbon-Quality Steel Products From Brazil, 65 FR 5554, 5567-68 (Feb. 4, 2000) (where the Department applied adverse facts available based on a finding that the respondent did not cooperate to the best of its ability). As adverse facts available, the petitioners assert that the Department should use the highest margin alleged in the petition. In the alternative, the petitioners argue that the Department should reclassify the shape of products in the home market so that such classifications are consistent with the model match criteria. Specifically, the petitioners argue that if the Department accepts Duferdofin's assertion that it is unclear where the dividing lines between H, I, and wide flange beams fall, there is no doubt that IPN products should be classified as I beams. The petitioners note that the International Trade Commission (ITC) found in its preliminary determination that I beams (like the IPN beams at issue) are characterized by flanges with sloping inner surfaces but straight outer surfaces. See Certain Structural Steel Beams from China, Germany, Italy, Luxembourg, Russia, South Africa, Spain, and Taiwan, ITC Pub. No. 3438 at I-3 (Jul. 2001) (ITC Prelim). The petitioners maintain that all other product characteristic codes should remain unchanged. Duferdofin contends that the Department should continue to accept its shape classifications for purposes of the final determination. Duferdofin argues that, contrary to the petitioners' assertions, its failure to comment on product matching early in the investigation is irrelevant. Duferdofin maintains the comments on product matching in this case were due two months before the questionnaire response, well before the company had completed its initial review of data collection issues. Moreover, Duferdofin contends that it should not be criticized for stating for the first time in its section B questionnaire response that IPE and HE beams in the home market are equally comparable to wide flange beams sold in the United States. Duferdofin asserts that this response was the first real opportunity afforded Duferdofin to address this issue, as there are no questions regarding product matching in section A. More importantly, Duferdofin states that none of the beam shapes that it produces are explicitly identified in the Department's shape codes. According to Duferdofin, the company's HE, IPE, and IPN beams cannot be classified as wide flange products because they are produced to different dimensional standards. Similarly, Duferdofin asserts that its product brochure demonstrates that HE beams are profoundly different from H- profiles, and IPE and IPN beams have demonstrably different physical characteristics from standard I beams. (2) Duferdofin maintains that the Department's questionnaire provides a solution to this shape- classification problem, in that it contains a category for "other doubly- symmetric shapes." Duferdofin states that it fully disclosed that it reported the shape of all home market products using this category. Duferdofin explains that it selected this methodology based on the physical characteristics of the beams in question. According to Duferdofin, IPE and IPN beams have essentially the same dimensions and end- uses, with the only difference being that the flanges of IPN beams are tapered whereas the flanges of IPE beams are not. Duferdofin asserts that the dimensions of wide flange beams fall between the dimensions of these types of beams. Specifically, Duferdofin maintains that, where the width or weight of the wide flange beam is greater relative to the web height, HE beams are generally more similar; conversely, where the width or weight are smaller relative to web height, IPE/IPN beams are more similar. Duferdofin argues that, because both HE and IPE/IPN beams can be the most similar match to wide flange, it took the reasonable position that they were equally comparable. Duferdofin notes that, otherwise, the inevitable result would be to compare less physically similar merchandise. According to Duferdofin, it would be inappropriate to use facts available in this case because the Department never asked Duferdofin to change its reporting method. (3) As support for this assertion, Duferdofin cites Ta Chen Stainless Steel Pipe, Inc. v. United States, Ct. No. 97-08-01344, Slip Op. 99-117 (CIT 1999) at page 38, where the Court of International Trade (CIT) held that the Department cannot penalize a respondent for submitting a deficient response without notice. Duferdofin notes that this issue was raised for the first time in the petitioners' case brief. Finally, Duferdofin disagrees that its methodology should be deemed unreasonable because it differs from the methodology used by the respondents in the companion European cases on structural steel beams. Duferdofin contends that the CIT has held that the Department is not compelled to use the same methodology in one segment of a proceeding simply because it uses a particular methodology in another segment. See, e.g., Bethlehem Steel Corp. v. United States, 566 F. Supp. 236 (CIT 1983). In any event, Duferdofin notes that, in making their argument, the petitioners relied on unspecified methods used in the other cases, which are not yet final, by respondents whose product mixes likely differ from Duferdofin's. Duferdofin also argues that petitioners' alternative approach would serve to distort the dumping comparisons because Duferdofin has demonstrated that wide flange beams are equally similar to all of its home market shapes. In contrast, acceptance of the petitioners' suggested methodology would result in the comparison of all wide flange beams sold in the United States to only the smallest IPN beams sold in the home market. (4) Duferdofin asserts that this constitutes a flaw in the Department's programming that can be avoided by accepting its shape codes as reported. Department's Position: In evaluating this issue across these related proceedings, we reviewed the technical specifications of the beams in question set forth in each of the European respondents' product brochures. (5) Based on this review, we found that the technical specifications for HE, IPE, and IPN beams were exactly the same in the product brochures for each of the European respondents. As such, for purposes of consistency across these related proceedings, we have concluded that each product, regardless of the country of origin, should be classified according to its most comparable shape code. These shape codes were listed by the Department in its model match criteria in the original questionnaire sent to all parties to this proceeding. Regarding the substance of this issue, we find that there is sufficient information on the record of this case to treat HE and IPE beams as wide flange shapes and IPN beams as standard I products. Consequently, we find that a meaningful dumping margin can be calculated based on the information on the record, and that the application of adverse facts available is unwarranted. In making this finding, we have relied upon various submissions by the parties, our discussions with company officials at verification, and information contained in certain product brochures. With respect to HE and IPE beams, we note that in the petitioners' letter dated September 26, 2001, the petitioners stated that HE and IPE beams are "simply the European equivalent of U.S. norms for wide flange beams..." This assertion is borne out by the description of HE and IPE beams in the Spanish respondent's product brochure, which contains a chart showing that HE and IPE beams are the European equivalent of American wide flange products. See the May 13, 2002, memorandum to the file from Shawn Thompson entitled "Telephone Conversation with Counsel for the Respondent Regarding Shape in the Less Than Fair Value Investigation on Structural Steel Beams from Spain" and the shape memo for further discussion. Finally, in examining this issue at verification, we found that HE and IPE beams match to wide flange beams, depending on the dimensions (measured as a ratio of width to section depth). See the home market sales verification report at page 3. With respect to IPN beams, we note that the ITC found that I beams are characterized by flanges with sloping inner surfaces but straight outer surfaces. See ITC Prelim at I-3. Moreover, information submitted by Duferdofin in its section A response indicates that IPN beams, unlike IPE and HE beams, have this sloping inner surface characteristic of a standard or "I" beam. See the public version of Duferdofin's August 22, 2001, section A response at exhibit A-17, for the technical specifications of the beams in question. Finally, the product brochure of the Spanish respondent shows that the American equivalent of IPN beams is a standard I beam. Consequently, we have reclassified Duferdofin's HE and IPE beams as wide flange beams, and its IPN beams as I beams for purposes of this final determination. We have revised the company's control numbers accordingly. We note that the Department's practice is to calculate a unique COP and CV for each control number. In this case, because Duferdofin did not differentiate the costs of its home market products by shape, we are unable to recalculate its costs accurately for all products. Nonetheless, we have adjusted these costs using information obtained during the cost verification at Duferdofin (see cost verification exhibit C-6) as neutral facts available. (6) Specifically, we used the documents examined at verification for one control number composed of various IPN and non-IPN products to compute the cost adjustment for all control numbers comprised of a mixture of these shapes. We determined the amount of this adjustment by: 1) removing the costs for IPN products from the average cost for the control number reviewed at verification; 2) calculating an average IPN- only and non-IPN cost from the resulting data; and then 3) computing the percentage difference between these revised figures. Because we did not have the detailed control number cost build-ups for other control numbers that included IPN beams, we derived these costs by applying the percentage difference noted above. See the Final Cost Calculation Memo for further discussion of this methodology. Comment 2: Home Market Rebates In the preliminary determination, we denied an adjustment for home market rebates because Duferdofin failed to address questions in the Department's supplemental questionnaire pertaining to the validity of its rebate programs. The petitioners argue that the Department should continue to disallow home market rebates because the Department found at verification that Duferdofin granted rebates on a period-specific basis but that it did not report them in this manner. Rather, the petitioners note that Duferdofin calculated a single average rebate amount for each customer over the entire POI. The petitioners contend that the Department's standard rule regarding price adjustments such as discounts, rebates, and billing adjustments is that they be reported in the most specific manner possible. The petitioners note that this rule is reflected in the general instructions of the Department's questionnaire, as well as in the Department's antidumping manual. The petitioners contend that it is the Department's long-standing policy to deny home market adjustments in cases where they are not reported in the most specific manner possible. See Final Results of Antidumping Duty Administrative Review and Partial Termination of Administrative Review: Circular Welded Non-Alloy Steel Pipe from the Republic of Korea, 62 FR 55574, 55583 (Oct. 27, 1997) (Circular Welded Pipe from Korea). The petitioners assert that the use of overly broad averages has a tendency to mask dumping margins, as it dampens the volatility in downward price adjustments. The petitioners contend that this is particularly true in the case of straight price adjustments such as discounts or rebates because the resulting net prices are the true market prices offered to the customer. The petitioners argue that because the record demonstrates that Duferdofin could have allocated rebates on a more specific basis but chose not to do so, the Department must disallow the claimed rebates in their entirety as it did in the preliminary determination. Duferdofin contends that it went to great lengths to report rebates on the most specific basis possible. Duferdofin states that, in its original response, it reported rebates based on the rebate agreements, given that rebates on POI sales were normally granted at the full agreed upon amount. Duferdofin explains that the Department's second supplemental questionnaire asked it to specify whether any of the rebates were granted on or after the date on which the petition was filed. Duferdofin explained that, based on its original methodology, it was unable to identify which rebates had been granted after the petition; therefore, it recalculated the rebates by dividing the total rebates granted during the POI to each home market customer by the quantity Duferdofin sold during the POI to that customer. In addition, Duferdofin notes that it undertook a laborious manual search of the credit notes for rebates granted that applied to periods that were wholly or partly during the POI. Duferdofin also notes that, on a customer-specific basis, Duferdofin divided the rebates on these credit notes by the quantities to which the rebates applied rather than by the quantity it sold during the POI to that customer. Duferdofin argues that the latest calculation clearly satisfies the Department's standards because the reported amounts are in fact period-specific. Consequently, Duferdofin contends that the Department should grant Duferdofin's claimed rebates for the final determination. Department Position: It is the Department's practice to accept verified expenses that are calculated using a reasonable methodology. See, e.g., Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Bar From Italy, 67 FR 3155 (Jan. 23, 2002) and accompanying decision memorandum at Comment 13. In this case, Duferdofin responded in a timely manner to numerous requests from the Department concerning its rebates in the home market. In addition, this information was verified by the Department. As noted in our home market sales verification report, Duferdofin was not able to tie specific rebates to the original invoices or products because credit notes did not reference an original invoice or product; however, we found that the credit notes examined at verification did specify a time period to which the rebates applied. We confirmed at verification that Duferdofin reported its rebates based on the credit notes that pertained to the POI for each customer, and that it had not included any rebate amounts granted on sales made prior to the POI in its calculations. See the home market sales verification report at page 11. We confirmed that this was the most specific basis for which Duferdofin could calculate its home market rebates. We disagree with the petitioners that the situation here is analogous to that in Circular Welded Pipe from Korea. At verification, Duferdofin demonstrated satisfactorily that it could not calculate rebates on a transaction-specific basis since the company was unable to tie credit notes to the original invoices. However, because 1) Duferdofin made a clear attempt to report the adjustment on the most specific basis possible, 2) the methodology it employed was reasonable, and 3) the information it provided was timely, we are accepting Duferdofin's verified rebate amounts for the final determination. Comment 3: Home Market Discounts The petitioners argue that, at verification, the Department could not verify the accuracy of the early payment discounts reported in the home market sales listing. Specifically, the petitioners claim that the Department found that the reported per-unit amounts did not bear any correlation to the actual amount of the discounts granted. The petitioners note that Duferdofin attempted to salvage its claim by arguing that the early payment discount rate could be discerned through the payment term field but that the Department could not verify this either. According to the petitioners, the statute requires the Department to verify all information relied upon in making a final determination in an investigation. As the early payment discount information could not be verified for any transaction, the petitioners argue that the Department has no choice but to disallow this claim in its entirety. Dufedofin concedes that it inadvertently reported the early payment discount payment code rather than the per-unit amount of the discount in its home market sales database. Nonetheless, Duferdofin disagrees with the petitioners that the Department cannot calculate the correct amount of early payment discounts using the company's reported payment terms. Duferdofin maintains that, although the Department found at verification that Duferdofin incorrectly reported the payment terms for one of the invoices reviewed, the information reviewed for two additional transactions shows that the payment terms were reported correctly. Duferdofin argues that the Department verified that this program was in effect, that discounts were paid during the POI, and that it verified the basic factors for applying the discount in the database. Therefore, Duferdofin argues that, given its high level of cooperation in this investigation and given the fact that the payment terms were correct for two of the three invoices examined at verification, the Department should compute an amount for early payment discounts using the discounts reflected in the reported payment terms. Department Position: At verification, we examined a worksheet showing the early payment discounts reported on home market sales. In accordance with our standard verification procedures, we selected several transactions shown on this worksheet and attempted to tie payment term codes and discount amounts to corresponding invoices and the general ledger. However, we found that none of the information examined was entirely accurate. Specifically, the verification report states the following: We noted that for one of these invoices, the payment term code was reported incorrectly in the home market sales listing. For the remaining invoices, we noted that, while the reported payment term was reflected on the invoice, we were unable to tie the percentage of the discount to the invoice. Because of the time allotted for verification, we were unable to gather further information related to the correct early payment discounts. See the home market sales verification report at page 12. Based on Duferdofin's inability to link any of its reported data to actual accounting documents, we find that discounts could not be verified. Regarding Duferdofin's argument that we can calculate these discounts using the reported payment terms as an alternative, we find that this would not be appropriate. We found at verification that the payment terms were not reported correctly in all instances, and, even when the payment term was reflected on the invoice, we were unable to tie the discount percentage in the payment terms to the discounts on the invoice. Therefore, we have disallowed an adjustment for early payment discounts for purposes of the final determination. Comment 4: Commission Expenses The petitioners contend that the Department found at verification that Duferdofin misreported commission expenses for one sampled home market transaction. Specifically, the petitioners note that Duferdofin inadvertently applied a flat commission amount as a percentage rather than merely reporting the flat amount. According to petitioners, the discovery of this error requires the Department to assume that all transactions with the same selling agent suffer from the same defect. Thus, the petitioners argue that the Department should set the reported commission for all sales with the same selling agent to the verified flat commission amount. Duferdofin agrees. Department Position: We agree. Accordingly, we have applied the commission amount in question to all sales made through this sales agent in our final margin calculations. Comment 5: Home Market Credit Expenses The petitioners claim that the Department found at verification that, in cases where payment was made in more than one installment, Duferdofin systematically reported the last installment date as the date of payment. The petitioners contend that in cases where payments are made in multiple installments, the Department normally calculates imputed credit using a weighting methodology which reflects the various payment dates and amounts. See Certain Welded Carbon Steel Pipes and Tubes From Thailand: Final Results of Antidumping Duty Administrative Review, 65 FR 60910 (Oct. 13, 2000) and accompanying decision memorandum at Comment 8 (Welded Carbon Steel Pipes and Tubes from Thailand). The petitioners maintain that the weighting should reflect the actual time that each portion of the receivable is outstanding and the relative value of the receivable. The petitioners also note that Duferdofin proffered a "mid-point" payment methodology at verification. (7) According to the petitioners, this methodology is not acceptable for three reasons: 1) the mid-point table is based on payment terms rather than actual payment dates; 2) it fails to account for the relative amounts for each payment; and 3) Duferdofin failed to provide a complete revision of its payment dates for all split payment transactions. The petitioners also contend that the Department found other problems with the reported home market imputed credit. Specifically, the petitioners note that of the eight sales examined at verification, the reported payment date turned out to be incorrect in four instances. The petitioners assert that whenever the Department uses a sample to check the claimed adjustment and a large portion of that sample cannot be verified, the use of total facts available for that adjustment is warranted. See Television Receivers, Monochrome and Color, From Japan; Final Results of Antidumping Duty Administrative Review, 53 FR 4050 (Feb. 11, 1988) (Television Receivers from Japan). As such, the petitioners argue that the reported home market credit expenses should be disallowed in their entirety for the final determination. Duferdofin agrees with the petitioners that it inadvertently reported incorrect payment dates for the split-payment sales; nonetheless, Duferdofin notes that it explained at verification that sales with split payment terms can easily be identified from its database. Thus, Duferdofin argues that the information on the record permits the Department to calculate a mid-point payment date for the home market credit expense for these sales. Duferdofin notes that the Department's verifiers requested that Duferdofin provide the mid-point for such sales and Duferdofin did so. Duferdofin disagrees with the petitioners that the mid-point payment method is distortive and Duferdofin should have reported the credit period for split-payment sales on a weighted-average basis. Duferdofin notes that, at verification, it demonstrated that payments are actually made in equal installments. As such, Duferdofin contends that in these circumstances, the mid-point payment method yields the same results as a weighted-average method. Finally, Duferdofin maintains that petitioner is incorrect in its request for adverse facts available with regard to Duferdofin's credit expenses because four of Duferdofin's reported payment dates were found to be incorrect at verification. Duferdofin notes that in most of the cases, the reported period was off by only a few days; moreover, in all four cases, the actual payment date was later than the payment date reported by Duferdofin. Thus, Duferdofin asserts that the incorrectly reported payment dates resulted in a shorter credit period and a lower credit expense. Therefore, Duferdofin contends that the Department should use Duferdofin's reported payment dates, corrected for the findings at verification for the purposes of the final determination. Department's Position: We agree with the petitioners' contention that Duferdofin incorrectly calculated credit expenses in situations where it received multiple payments; however, because the payment terms were received in equal installments, we find that the mid-point method used by Duferdofin to recalculate home market credit expense is just as accurate as the weighted- average method. Moreover, because Duferdofin identified the complete universe of sales with split-payment terms at verification, we have accurate credit expense information on the record for all of these transactions. Therefore, we have accepted Duferdofin's revised credit expense calculation for sales with split-payment dates for the final determination. We also disagree with the petitioners' argument that the use of total facts available is warranted here due to the high percentage of errors discovered in Duferdofin's home market payment dates. At verification, we confirmed that Duferdofin received payment for all of the home market sales examined on or after the reported dates. Therefore, we find Duferdofin's methodology to be both conservative and reasonable, and, as a consequence, we have relied upon the reported home market credit expenses, as revised at verification, for the final determination. Comment 6: Reclassification of U.S. Quality Codes Duferdofin sells structural steel beams in the United States through an affiliated party named Duferco Steel, Inc. (Duferco). The petitioners argue that at verification Duferco was unable to substantiate the quality codes reported in the U.S. sales listing. Specifically, the petitioners note that both of the non-prime sales examined at verification were in fact sales of first quality merchandise. Because the Department discovered that Duferco incorrectly reported the quality code for all of the non-prime sales examined at verification, the petitioners argue that the Department should assume, as facts available, that all U.S. sales that Duferco has coded as non-prime sales are in fact prime and adjust the sales database accordingly. Duferdofin did not comment on this issue. Department Position: We agree. Because Duferco was unable to demonstrate at verification that the alleged non-prime sales reported in its sales database were in fact non-prime merchandise, we have reclassified non-prime sales as prime for purposes of the final determination. Comment 7: International Freight Costs During the POI, Duferdofin purchased U.S. ocean freight from an affiliated freight service provider. In its original questionnaire response, Duferdofin reported the freight amounts paid by Duferdofin's affiliated freight services company to an unaffiliated shipping company, rather than the transfer price paid by Duferdofin to the affiliate. Because Duferdofin purchased ocean freight from an affiliated freight services company, in our supplemental questionnaire, we asked Duferdofin to provide the amounts charged by the affiliated freight company and to demonstrate that these amounts were at arm's-length. Duferdofin responded by supplementing its freight data with the amounts paid by Duferdofin to the affiliated freight provider; however, it continued to report the freight amounts paid by the affiliated freight services company to the unaffiliated shipping company in its U.S. sales listing. Regarding the question of whether the transfer prices are at arm's-length, Duferdofin stated it is evident that they are because the affiliate charges Duferdofin the full amount of the unaffiliated shipping company's bill, plus a mark-up for the affiliated freight company's services. The petitioners argue that the amount charged by the affiliated freight services company to Duferdofin can only be used if it reflects an arm's- length value. The petitioners further claim that there has been no demonstration that the mark-up charged by the affiliated freight services company either is in line with mark-ups charged by the affiliated freight services company to unaffiliated customers or covers its cost of providing these services. Indeed, the petitioners contend that the transfer price cannot be at arm's-length because the affiliate's financial statements show that the cost of sales exceeds its revenue. Therefore, the petitioners assert that, because there has been no demonstration that the payments made to the affiliated freight services company were at arm's- length, the Department should use the highest reported freight cost for all sales. In the alternative, the petitioners argue that, even if the Department accepts the affiliated freight services company's rates for the shipment- specific international freight charges, it nevertheless should use the highest reported freight costs for those transactions for which Duferdofin reported an average international freight cost. The petitioners contend that, given the limited information requested by the Department for calculating transaction-specific international freight expenses, the Department should consider the information deliberately withheld and assume that the actual freight costs for these other vessels exceeded the highest reported rate. Thus, for these transactions, the petitioners argue that the Department should apply an adverse facts available freight rate. As the adverse rate, the petitioners argue that the Department should select a rate that exceeds the highest reported actual rate, as recalculated at verification. (8) Duferdofin disagrees that the reported freight amounts were not arm's- length transactions. Duferdofin argues that, at verification, it fully documented the international freight amounts it had provided - both those paid by the affiliated freight provider to the unaffiliated shipping company and those paid by Duferdofin to the affiliated service provider. Duferdofin notes that the Department verified these international freight expenses and found no discrepancies. See the home market sales verification report at page 20. Duferdofin further contends that it demonstrated at verification that the affiliated service provider charged Duferdofin the acquisition price that it paid, plus a mark-up, which was normal for this type of service. Duferdofin points out that, in making a determination on the arm's-length nature of the specific transaction in question, it is not relevant that the affiliated service provider's total cost of goods sold exceeded its total revenues; rather, what is relevant is that the costs are demonstrably lower than the price for the particular transactions at issue. Duferdofin points out that: 1) the mark-up also more than covers the affiliated freight provider's selling, general, and administrative (SG&A) expenses, which includes the company's cost of logistical management and organizational services; and 2) the affiliated freight provider had a net profit. Finally, Duferdofin argues the Department should continue to use the average of the vessel-specific expenses reported for particular transactions. Duferdofin disagrees with the petitioners' contention that it deliberately withheld any information from the Department. Specifically, Duferdofin notes that these sales consisted of merchandise that was shipped before the POI; that Duferdofin's affiliates searched diligently for the vessel-specific information; and that, as a result of changes in record-keeping practices and a corporate reorganization, the shipping data simply no longer exists. Therefore, Duferdofin maintains that the international freight expenses charged to Duferdofin by its affiliated freight service provider constitute the best information that Duferdofin could provide, and consequently, the Department should use this information for the final determination, in accordance with the Department's practice. See, e.g., Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts Thereof From France, Germany, Italy, Japan, Romania, Singapore, Sweden and the United Kingdom; Final Results of Antidumping Duty Administrative Reviews, 62 FR 54043 (Oct. 17, 1997) (AFBs from France); see also Notice of Final Determination of Sales at Less Than Fair Value: Certain Polyester Staple Fiber From the Republic of Korea, 65 FR 16880 (Mar. 30, 2000) and accompanying decision memorandum at Comment 6. Department's Position: In the preliminary determination in this case, we based ocean freight expenses on the amounts paid by Duferdofin's affiliated party to the unaffiliated shipping company. We have reconsidered this position for the final determination, however, and are now using the transfer prices between Duferdofin and its affiliate. In determining whether to use transactions between affiliated parties, our practice is to compare the transfer price either to prices charged to other unaffiliated parties who contract for the same service or prices for the same service paid by the respondent to unaffiliated parties. In this case, Duferdofin could not demonstrate that the transaction with the affiliated freight service company was at arm's-length using the Department's normal test because Duferdofin only used one freight company to ship subject merchandise and the affiliate only provided freight services to affiliated parties. (9) However, based on the record of this proceeding, we have accepted these transactions as made at arm's-length. Specifically, we have on the record of this proceeding both the amounts paid to the unaffiliated freight service provider and the amount paid by Duferdofin to the affiliated company. We confirmed at verification that the amount Duferdofin paid to the affiliated freight services company exceeded the cost that the affiliated freight services company paid the unaffiliated freight provider. See the home market sales verification report at verification exhibit 19. Because Duferdofin had no other means to demonstrate that its transactions for international ocean freight were made at arm's-length, we have accepted the reported amounts for purposes of the final determination. We disagree with the petitioners' contention that, because the total cost of goods sold exceeded the total revenues for the affiliated company, ocean freight services were not provided at arm's- length. Instead, we agree with Duferdofin that this general analysis is not relevant to a determination on this question. Rather, we find that the relevant fact is that the price charged by the affiliated company for the services in question exceeded the cost of these services to the affiliated company. We have also accepted Duferdofin's average international freight expenses, based on our verification findings that the data necessary to report transaction-specific amounts could not be located. In examining this issue at verification, we found no evidence that Duferdofin was withholding information. Moreover, given the limitations of its record- keeping, we find that Duferdofin's method of calculating these expenses was reasonable. In AFBs from France, the Department concluded that because the respondents acted to the best of their ability, it would be improper to make adverse inferences about their reported data simply because their record-keeping systems do not record data on a transaction-specific basis. Given the limitations of Duferdofin's record-keeping systems, we believe that Duferdofin made a legitimate effort to comply with the Department's requests for information. As a result, we have accepted Duferdofin's average freight expenses for purposes of the final determination, calculated using the transaction-specific transfer prices reported by Duferdofin during the POI. Comment 8: U.S. Credit Expenses During the POI, Duferco engaged in two basic types of short-term borrowing in U.S. dollars. The first is a standard line of credit. The second is a program termed by Duferco as an "asset-backed securitization (ABS) program." Under the ABS program, Duferco sells a certain portion of its accounts receivables to a bank via an affiliated party. The bank does not remit payment for these receivables to Duferco immediately, but rather it "securitizes" the receivables (i.e., turns them into commercial paper and then pays interest to the company) for a short period. On the 28th day of each month, the bank pays Duferco for the sale of the receivables. As a second component of this program, Duferco also remits to the bank all monies collected from the portion of its accounts receivables that is not sold. Twice a month, the bank reimburses Duferco for the cash collected for the "non-sold" invoices and, at the end of the month, it pays Duferco interest on these funds. On the strength of the revenue received from the ABS program, Duferco also borrows from the bank to generate cash flow. Duferco pays off these short-term loans with the cash received from the sale of its accounts receivables on the 28th of the month, and it reduces the loan balances in its accounting system accordingly. See page 37 of Duferdofin's November 13, 2001, response, as well the March 22, 2002, memorandum from Irina Itkin and Alice Gibbons entitled "Verification of the Sales Questionnaire Responses of Duferco Steel, Inc. in the Antidumping Duty Investigation of Structural Steel Beams from Italy and the Russian Federation" (the U.S. sales verification report) for a further description of this program. In its questionnaire response, Duferdofin provided three alternative methods of incorporating Duferco's loans under the ABS system into the calculation of its short-term interest rate. These methods are: 1) divide the POI interest expenses (offset by interest income) by the average POI month-end loan balance adjusted for the amounts paid off on the 28th of each month; 2) divide the POI interest expenses by the average POI month- end loan balance adjusted for the amounts paid off on the 28th of each month; and 3) divide the POI interest expense by the average POI month-end loan balance. Duferdofin selected alternative 1, and it calculated the U.S. interest rate by weight averaging the ABS data for this alternative with its short-term borrowings paid on Duferco's line of credit. We did not accept this methodology for the preliminary determination, but rather, we based our calculations on the interest rate in alternative 3. According to the petitioners, the Department should reject alternative 1 for the final determination because interest income offsets are not appropriate for imputed credit interest rate calculations. The petitioners maintain that, in calculating imputed credit expense, the Department is simply estimating the opportunity cost of holding accounts receivable. The petitioners argue that, even if a company has no actual borrowing costs, the Department applies a pure commercial interest rate to the imputed credit calculation. Thus, petitioners assert that the offsetting of actual interest costs with the interest income is entirely inappropriate in the context of an imputed credit calculation. Regarding alternatives 2 and 3, the petitioners argue that the only difference between these alternatives is in the adjustment for transferred receivables. The petitioners contend that the denominator in the calculation should be consistent with the numerator; consequently, if total interest costs are for bank borrowing only, the denominator should also only be for bank borrowing. The petitioners argue that Duferco's proposed adjustment for the transfer of receivables on the 28th of each month would only be appropriate if the receivables were treated as loans for accounting purposes (and the petitioners imply they are not). Thus, the petitioners argue that the adjustment for the end-of-month transfer does not appear to be appropriate, leaving alternative 3 as the only choice for the calculation of imputed credit. Duferdofin agrees with the petitioners that the interest rate should reflect the actual commercial terms offered to the company; however, Duferdofin argues that the petitioners draw the wrong conclusion as to which interest rate constitutes the appropriate choice. As a threshold matter, Duferdofin disagrees that the transfers of receivables are not treated as loans in the accounting system. Duferdofin explains that, under the ABS system, the company holds outstanding loans that are paid off on the 28th of each month. This reduces the month-end loan balance which is used as the denominator for the calculation. Consequently, Duferdofin maintains that, when interest expenses earned on the full loan amounts carried during each month are allocated only over the reduced end-of-month loan balances (as in alternative 3), a distortion is created and the interest rate is inflated. Therefore, Duferdofin argues that petitioners' preferred option should be rejected. Duferdofin contends that alternatives 2 and 3 also fail because neither alternative allows for the offset of interest received under the ABS system. According to Duferdofin, interest revenue is an integral component of this system; thus, the failure to make this offset results in a distortion of the real financial cost to the company. Thus, Duferdofin argues that the Department should calculate imputed credit using alternative 1. Duferdofin claims that, at verification, the company presented complete information on its loans during a number of months in the POI. Duferdofin maintains that only one of the interest rate alternatives falls within this range of interest rates observed at verification - alternative 1. Therefore, Duferdofin contends that this verification finding lends credence to the fact that the interest rate set forth in this alternative is reasonable and reflects commercial reality. According to Duferdofin, the Department has recognized that credit costs should conform to commercial reality in recent cases. See Silicon Metal from Brazil; Final Results of Antidumping Duty Administrative Review, 67 FR 6488 (Feb. 12, 2002) and accompanying decision memorandum at Comment 1. See also LMI-La Metalli Industriale, S.p.A. v. United States, 912 F.2d 455, 460-1 (Fed. Cir. 1990). Department's Position: To calculate the credit expense on U.S. sales, the Department generally uses the weighted-average borrowing rate realized by a respondent on its U.S. dollar-denominated short-term borrowings. See the February 23, 1998, Import Administration Policy Bulletin, 98.2, entitled "Imputed Credit Expenses and Interest Rates." Under the Department's normal practice, we do not offset the average borrowing rate with short-term interest income because, in general, the deposits that generated the income were not a requirement for receiving the loan. In this case, however, we find that certain short-term interest income received by Duferco is directly related to the interest expense incurred on loans under the ABS system. Indeed, the sale of the company's receivables and the associated interest income are integral components of the ABS system, and thus they are inseparably linked to the company's loans obtained under this system. When a company is required to maintain deposits in order to borrow funds, the Department's practice is use the net cost of maintaining the deposits in the calculation of credit costs. Therefore, we have used this interest income to offset Duferco's short- term interest expense for purposes of the final determination, in accordance with our practice. See, e.g., Final Determination of Sales at Less Than Fair Value: Tapered Roller Bearings and Parts Thereof, Finished or Unfinished, from Japan, 52 FR 30700 (Aug. 17,1987); and Dynamic Random Access Memory Semiconductors of One Megabit or Above From the Republic of Korea: Final Results of Antidumping Duty Administrative Review and Determination Not To Revoke the Order in Part, 64 FR 69694, 69707 (Dec. 14, 1999). Regarding the arguments related to the denominator of Duferco's short- term interest rate, we disagree with the petitioners that it is appropriate to make no adjustment to the company's principal balance at the end of the month to account for money received on the sale of Duferco's receivables on the 28th day. We note that failure to account for these transfers would result in a mismatch of Duferco's total interest expenses and its corresponding principal balances. Because the principal repayment occurred on day 28 of each month, the end-of-month principal balance likely understates the average monthly principal balance on which interest is paid for that month. Therefore, we find that it would be distortive to use the end-of-the month principal balances in this case. Nonetheless, we also disagree with Duferco that it is appropriate to add the full amount of the transfers to the end-of-month principal balances. We have reviewed Duferco's worksheets showing these calculations (see Duferdofin's November 13, 2001, supplemental response at page 37 and exhibit SC-7) and find that the company borrowed during each month, as well as repaid its loan principal. Because Duferco did not report the timing of each addition to its loan balance, and it only reported a single repayment (i.e., the 28th day transfers), we are unable to compute its actual average monthly balance accurately. Consequently, we have averaged the balances constructed by Duferco with its actual end-of-month balances, and we have used the resulting figure to recalculate Duferco's short-term interest rate during the POI. See the Final Calculation Memo for further discussion. Comment 9: U.S. Dates of Payment for Unpaid Sales The petitioners note that the Department found at verification that Duferco had not yet received payment for certain sales. The petitioners argue that the Department should use May 13, 2002 (i.e., the date of the final determination), as the date of payment for these invoices and recalculate Duferco's U.S. imputed credit expenses accordingly. Duferdofin did not comment on this issue. Department Position: We disagree. The Department's general practice regarding this issue has been to use the last day of verification as the date of payment for unpaid sales. See, e.g., Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Plate in Coils ("SSPC") from the Republic of Korea, 64 FR 15443, 15455 (Mar. 31, 1999) (SSPC from Korea), Oil Country Tubular Goods from Korea: Final Results of Antidumping Duty Administrative Review, 64 FR 13169 (Mar. 17, 1999), Notice of Final Determination of Sales at Less Than Fair Value: Static Random Access Memory Semiconductors from Taiwan, 63 FR 8909 (Feb. 23, 1998), Extruded Rubber Thread From Malaysia; Final Results of Antidumping Duty Administrative Review, 63 FR 12752 (Mar. 16, 1998) and Brass Sheet and Strip from Sweden: Final Results of Antidumping Administrative Review, 60 FR 3617, 3620 (Jan. 18, 1995). In accordance with our practice, we have used the last day of verification as the date of payment for the transactions in question. Comment 10: Expenses Related to the Sale of Accounts Receivable in the United States The petitioners argue that Duferco inappropriately classified certain direct expenses related to the sale of accounts receivable under its ABS program as indirect selling expenses. (10) Specifically, the petitioners point out that: 1) the notes to Duferco's financial statements indicate that it incurred interest and SG&A expenses on the sales of these accounts receivables; and 2) Duferco's response indicates that it incurred certain bank and legal expenses to establish the ABS program. The petitioners argue that because these expenses are directly related to the sale of Duferco's accounts receivables, the Department should treat them as direct selling expenses. However, to avoid double-counting, the petitioners argue that the Department should also remove these amounts from the SG&A and interest expense line items and recalculate U.S. indirect selling expenses accordingly. Duferdofin contends that Duferco already fully reported the interest expenses related to its ABS program in its section C response. Moreover, Duferdofin contends that the additional SG&A expenses referenced by the petitioners were captured as part of Duferco's bank charges which were reported as direct selling expenses in its U.S. sales listing. Duferdofin also notes that these expenses were fully verified by the Department. Duferdofin claims that because these expenses are fully captured as either direct or indirect selling expenses deducted from U.S. price and were fully verified, the petitioners' claim should be rejected. Department Position: We agree with Duferdofin. We note that bank charges have already been reported as direct selling expenses in Duferdofin's section C response, and the remaining expenses have been reported as part of the company's indirect selling expenses. Therefore, they are already deducted from U.S. price under the Department's standard methodology. We disagree with the petitioners that any of these expenses should be reclassified as direct selling expenses. We note that it is the Department's normal practice to include interest expenses as part of indirect selling expenses (see, e.g., Stainless Steel Plate in Coils From the Republic of Korea; Final Results of Antidumping Duty Administrative Review, 66 FR 64107 (Dec. 11, 2001) and accompanying decision memorandum at Comment 14). Moreover, the legal fees incurred to establish Duferco's ABS program are not tied to any particular sale, nor are they incurred each time a new sale is made. Therefore, we find that, while they are appropriately considered to be selling expenses, we do not find that these expenses are directly related to specific transactions. As a consequence, we have continued to classify them as indirect selling expenses for purposes of the final determination. Comment 11: U.S. Indirect Selling Expenses During the POI, Duferdofin sold subject beams in the United States through its affiliate Duferco. Duferco is also affiliated with, and sells subject merchandise produced by, the sole respondent in the companion case on structural steel beams from the Russian Federation (Russia). In its questionnaire responses in both proceedings, Duferco calculated its U.S. indirect selling expenses using internal income statements that it prepares for each mill in the ordinary course of business. The petitioners argue that Duferco's calculation in this proceeding is improper. (11) Specifically, the petitioners contend that: 1) the mill- specific financial statements appear to be created for this investigation; 2) these financial statements are based on staff interviews and management estimates of the time spent on a particular mill's sales (12); and 3) the Department found at verification that Duferco had excluded sizeable SG&A expenses from its calculations. Moreover, the petitioners contend that Duferco's methodology is intrinsically flawed because it artificially allocates SG&A expenses away from subject merchandise to both subject merchandise produced by another mill and non-subject products. The petitioners note that the Department has disallowed allocations based on estimates in other cases, and it should do so here. See Notice of Final Determination of Sales at Less Than Fair Value: Certain Cut-to-Length Carbon-Quality Steel Plate Products from France, 64 FR 73143, 73149 (Dec. 29, 1999) (CTL Plate from France). According to the petitioners, the Department did not verify the estimates in question, but rather only reviewed the resulting worksheets, because this information is not verifiable. The petitioners cite the Department's antidumping manual which states that worksheets are useful but are not, in and of themselves, source documents. The petitioners maintain that the Department's normal approach to U.S. indirect selling expenses is to treat them as general expenses that cannot be easily assigned or allocated to a particular market, product, or customer. The petitioners assert that, as a result, the Department generally relies on a ratio of overall overhead expenses to total sales as a reliable and easily verifiable reporting methodology. See, e.g., SSPC from Korea, 64 FR at 15455. Although the petitioners concede that the CIT has ruled that alternative allocation methodologies are permissible in certain instances (see Micron Technology Inc. v. United States, Ct. No. 96- 06-01529, Slip Op. 99-12 (CIT 1999), the petitioners contend that Duferco's methodology does not meet this standard. According to the petitioners, the respondent bears the burden of proof that its allocation methodology is not distortive under 19 CFR 351.401(g). The petitioners argue that because: 1) Duferco has not met this burden of proof here; 2) Duferco's calculation of indirect selling expenses contains significant flaws which were not disclosed prior to verification; and 3) Duferco made statements that were actively misleading regarding its methodology, the Department should reject the reported figures and instead apply adverse facts available. As adverse facts available, the petitioners argue that the Department should assign all of the SG&A expenses that Duferco failed to report to U.S. sales of Italian beams (rather than allocating these expenses over the company's total sales). Alternatively, the petitioners contend that the Department should base U.S. indirect selling expenses on Duferco's consolidated financial statements because the consolidated entity was involved in sales of subject merchandise. Duferdofin argues that the Department should accept Duferco's indirect selling expenses as reported because the methodology used to derive these expenses was reasonable. Duferdofin notes that these indirect selling expenses were based on mill-specific financial statements which included only sales of subject merchandise and which, contrary to the petitioners' assertions, were prepared by Duferco in the ordinary course of business. (13) Duferdofin notes that it clearly disclosed this methodology in its original questionnaire response and in various supplemental submissions. Duferdofin disagrees with the petitioners' contention that the Department found at verification that it had omitted relevant expenses from the calculation of indirect selling expenses. Duferdofin notes that it informed the Department prior to verification that it had excluded certain non-business-related overhead costs from its calculations because Duferco does not allocate these costs to the mills the normal course of business. Duferdofin asserts that it fully discussed these costs with the Department at verification and demonstrated that they were not included in the mill- specific SG&A expenses pursuant to normal procedures. According to Duferdofin, the remainder of the "omitted" costs referenced in the petitioners' case brief relate to bank charges and commission expenses which had been accounted for separately in the company's response. Thus, Duferdofin notes that adding these costs to the reported SG&A, as requested by the petitioners, would result in double-counting. Duferdofin also disagrees with the petitioners that using the mill- specific income statements to calculate indirect selling expense is distortive. Duferdofin contends that the appropriate question is not whether Duferdofin's SG&A ratio happens to be lower than the ratios calculated for the other mills or other products, but rather whether it is based on a rational and reasonable methodology. (14) Duferdofin asserts that its methodology is reasonable here because Duferco follows an established, objective, and rational methodology for allocating SG&A to the mill-specific income statements. Duferdofin further notes that Duferco provided detailed support for its allocation methodology at verification, and it tied the income statements themselves to the audited financial statements. Regarding the petitioners' arguments that these income statements should be deemed unreliable because they are based, in part, on estimates, Duferdofin notes that a significant portion of the SG&A expenses were allocated using the sales volume. (15) Moreover, Duferdofin notes that Duferco quantified the expenses for those departments that were allocated based on forecasts or surveys, and it demonstrated at verification that these methodologies were rationally related to the type of expense incurred. For example, Duferdofin notes that expenses for the Claims Department were allocated based on the number of claims (and, thus, Duferdofin contends that it is not unreasonable or unexpected that expenses for mills subject to a higher number of claims would be, and should be, higher). Finally, Duferdofin contends that the petitioners mischaracterized the documents examined at verification as worksheets, when in fact they were actual source documents based on rational pre- established methodologies. Duferdofin notes that the Department tied these documents to the job cost reports used as the basis for the audited financial statements. According to Duferdofin, the petitioners' reliance on CTL Plate from France is misplaced, because in that case the Department disallowed certain allocations made solely for purposes of the dumping case and which were not supported by any source documentation. Rather, Duferdofin states that the relevant precedent is set forth in Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Wire Rod From Spain, 63 FR 40391, 40400 (July 29, 1998), where the Department found that estimates for allocating indirect selling expenses may be relied upon, particularly when the evidence shows that the estimates were made in good faith. Indeed, Duferdofin asserts that the fact that its indirect selling expenses were allocated in the normal course of business in association with an income statement adds credibility to the reported figures. To support this assertion, Duferdofin cites Notice of Final Determination of Sales at Less Than Fair Value: Live Cattle from Canada, 64 FR 56739, 56757 (Oct. 21, 1999), where the Department relied on certain costs recorded in a respondent's books and records in the normal course of business. Finally, Duferdofin contends that it has cooperated to the best of its ability in this investigation, and thus there is no justification for the application of adverse facts available here. Indeed, Duferdofin argues that petitioners' alternative calculations themselves are manifestly distortive and as such should be summarily rejected. Duferdofin notes that the Department set forth a revised indirect selling expense factor in the U.S. sales verification report, which the petitioners have ignored in preference to a ratio which not only double-counts certain expenses, but also is based on the very income statements that the petitioners have attempted to invalidate. Duferdofin asserts that the petitioners' other alternative, use of the consolidated financial statements, is equally distortive because these financial statements include the results of a company that incurs substantial SG&A expenses related to the production of non-subject merchandise. Department's Position: We agree with Duferdofin, in part. In calculating indirect selling expenses, the Department's practice is to base these expenses, as closely as possible, on the experience of the companies which actually made the sales of subject merchandise. For this reason, the Department generally bases indirect selling expenses in CEP situations on the experience of the U.S. affiliate which makes the sale, rather than on the expenses at a higher level of consolidation. In this case, Duferdofin based its calculation of U.S. indirect selling expenses on internal financial statements prepared in the ordinary course of business by its affiliate Duferco. Duferdofin disclosed this methodology in various submissions made prior to the preliminary determination, and we verified that Duferco actually uses this methodology in its own books and records to allocate selling expenses to each of its associated mills. See the U.S. sales verification report at page 21. We disagree with the petitioners that Duferdofin's methodology yields distorted results. Rather, we find that this methodology rationally links the type of expense to be allocated (e.g., claims) to the relevant factors on which the expense is based (e.g., number of occurrences). Similarly, we disagree with the petitioners that this methodology should be rejected because it is based in part on estimates, or that the facts in this case parallel those in CTL Plate from France. Specifically, in that case, we stated: For indirect selling expenses, which by their very nature are general expenses that must be allocated over relevant sales, it is sometimes difficult to allocate expenses in a precise manner. Nevertheless, some reasonable and consistent method has to be developed which can be tested and evaluated at verification. In the instant case, respondent did not provide a reasonable or consistent basis for the reported expense, but merely estimated the relevant amount. We are unable to accept respondent's estimates without some basis for critically evaluating whether they are reasonable at verification. See CTL Plate from France, 64 FR at 73149. In contrast, Duferco provided detailed information at verification which demonstrated that its estimates were reasonable, and it tied these estimates to its normal books and records and to its audited financial statements. Although the verification report does not discuss the procedures specifically performed to confirm these estimates, we are satisfied that Duferco's allocation methodology does not cause inaccuracies or distortions based on our review of this methodology at verification. Therefore, we find that Duferdofin has in fact met its burden of proof, as required under 19 CFR 351.401(g). For this reason, we have continued to accept Duferdofin's methodology for calculating U.S. indirect selling expenses for purposes of the final determination. Nonetheless, we disagree with the respondent that it properly excluded "non-business" executive expenses from its calculation of the mill- specific SG&A expenses. Despite the fact that Duferco excludes these expenses from its mill-specific calculations of indirect selling expenses in the normal course of business, we find that these items should be considered as part of U.S. indirect selling expenses because they were relate to Duferco's business operations as a whole. Such treatment is analogous to the classification of non-operating expenses as part of general and administrative expenses in a cost of production analysis. (16) Moreover, we find that in this case these expenses merely represent part of the compensation provided to a company official. Therefore, for purposes of the final determination, we have used the revised indirect selling expense ratio set forth in the U.S. verification report, which includes the costs at issue. Finally, we disagree with the petitioners that it is appropriate to increase indirect selling expense by the amount of the remaining expenses allegedly excluded from the calculation. We noted at verification that these expenses had been separately accounted for in Duferdofin's response. See the U.S. sales verification report at page 22. 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) __________________________________________________________________________ footnotes: 1. For example, the petitioners maintain that an HE beam is significantly different than an IPN or IPE beam. 2. Duferdofin asserts that a European customer who orders an IPN beam would not accept an I beam as a substitute because I beams do not have the same dimensional tolerances as IPN beams. 3. Indeed, Duferdofin asserts that the Department confirmed Duferdofin's approach at verification. Because Duferdofin claimed proprietary treatment for this portion of the verification report, we are unable to discuss it further here. See the March 28, 2002, memorandum from Michael Strollo and Irina Itkin to Louis Apple entitled "Verification of the Sales Questionnaire Responses of Duferdofin S.p.A. in the Antidumping Duty Investigation of Structural Steel Beams from Italy" (the home market sales verification report) at page 5. 4. Specifically, Duferdofin notes that the Department's model match program proceeds by numerical comparisons in sequential order. Therefore, wide flange beams, which have a shape code in the 100 series (e.g., 121), would always be compared to IPN beams with the smallest code (e.g., 311). Duferdofin notes that this would result in wide flange beams in web heights of up to 18 inches being compared to IPN beams with web heights of four inches or less. 5. We have placed the relevant portions of these documents on the record of this proceeding. See the May 13, 2002, memorandum from Michael Strollo to the file entitled "Product information for determining SHAPE" (the shape memo). 6. We agree with Duferdofin that it would be inappropriate to use adverse facts available here, given that: 1) Duferdofin fully disclosed its methodology for assigning control numbers and reporting the associated costs; and 2) we did not request that the company revise this methodology at any point in this proceeding. 7. Duferdofin reported multiple payment terms with split payment dates (e.g., 60/90 days). At verification, Duferdofin demonstrated that for its payment terms with split payment dates, it received half of the payment on the earlier of the split-payment dates and received the other half of the payment on the latter of the split-payment dates. Consequently, Duferdofin simply calculated payment based on the middle of the two payment due dates (e.g., 75 days). 8. The petitioners do not suggest what this rate should be, however. 9. We note that we examined this issue at verification. Although this fact is not stated in the home market sales verification report, Duferdofin explained at verification that its affiliated company only provides services to Duferco Group companies. During our discussions with company officials on this topic and our review of the documentation presented at verification, we found no evidence to conclude that the affiliated company provided services to unaffiliated companies. 10. This program is described in Comment 8 above. 11. The petitioners have not raised this issue in the companion case from Russia. 12. The petitioners contend that the U.S. sales verification report incorrectly describes certain parts of Duferco's allocation methodology, in that it indicates that Duferco allocated a substantial portion of its indirect selling expenses by sales volume. According to the petitioners, the documents examined at verification on this topic indicate that Duferco actually used sales values combined with a different methodology. 13. As evidence of this assertion, Duferdofin notes that U.S. sales verification exhibit 3 contains a mill-specific income statement which was prepared prior to the POI. 14. Indeed, Duferdofin notes that the Department has dismissed similar arguments in other cases. For example, Duferdofin cites Stainless Steel Plate in Coils From the Republic of Korea; Final Results of Antidumping Duty Administrative Review, 66 FR 64107 (Dec. 11, 2001) and accompanying decision memorandum at Comment 4, where the Department dismissed the argument that it should reject expenses computed on a narrower basis than the consolidated financial statements simply because these expenses were lower than they would have been had the respondent used the consolidated financial statements. 15. Duferdofin maintains that the verification report correctly describes Duferco's allocation methodology. According to Duferdofin, the petitioners misunderstood the report and thus their argument is baseless. 16. For example, the Department's standard cost verification agenda instructs respondents to provide "a schedule showing all non-operating and extraordinary income and expense items ... and identify how each of these items is accounted for in the submitted costs."