67 FR 300, January 3, 2002 A-475-818 Administrative Review Public Document Grp. II/VI: GC/FT MEMORANDUM TO: Richard W. Moreland Acting Assistant Secretary for Import Administration FROM: Bernard T. Carreau Deputy Assistant Secretary for Import Administration RE: Certain Pasta from Italy (Period of Review: July 1, 1999 through June 30, 2000) SUBJECT: Issues and Decision Memorandum for the Fourth 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: Ferrara 1. Billing adjustments 2. CONNUM construction Pallante 3. Entered value calculation 4. Export subsidy rate 5. Mismatched CONNUM and shape product characteristic 6. Level of trade PAM 7. Cost of production and constructed value data 8. Classification of certain sales as U.S. sales 9. Home market sales used in below-cost test 10. Entry-by-entry basis 11. "Zeroing" negative margins 12. Startup adjustment 13. Exchange rate conversions 14. De minimis amounts 15. Currency of transaction 16. Level of trade methodology 17. Level of trade adjustment 18. General shape methodology 19. Department's shape classification of certain cuts 20. Release of data 21. Inclusion of constructed export price language in the margin program 22. Miscellaneous 23. Accuracy of final results Riscossa 24. Clerical error Background On June 28, 2001, the Department of Commerce (the "Department") published the preliminary results of this review. See Notice of Preliminary Results and Partial Rescission of Antidumping Duty Administrative Review and Intent To Revoke Antidumping Duty Order in Part: Certain Pasta From Italy, 66 FR 34414 (June 28, 2001) ("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, 1999, through June 30, 2000. We invited parties to comment on our Preliminary Results. We received case briefs from the following respondents: Pastificio Guido Ferrara S.r.l. ("Ferrara"); Pastificio Antonio Pallante S.r.l. ("Pallante"), and P.A.M. S.r.l. ("PAM"). Pastificio Riscossa F.lli Mastomauro Sr.l. ("Riscossa") submitted a letter containing a clerical error allegation. A public hearing was not held with respect to this review. (1) 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 Istituto Mediterraneo Di Certificazione, by Bioagricoop Scrl, by QC&I International Services, by Ecocert Italia, by Consorzio per il Controllo dei Prodotti Biologici, by Associazione Italiana per l'Agricoltura Biologica, or by Codex S.R.L. 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 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. 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 Ferrara Comment 1: Billing adjustments Ferrara maintains that our preliminary results methodology for calculating U.S. billing adjustments is seriously flawed. Ferrara states that we applied an incorrect factor to calculate U.S. billing adjustments, and that we incorrectly applied this factor to all U.S. sales. Ferrara states that we should have utilized the total credit notes issued on U.S. sales during the POR as the numerator in this equation rather than the total credit notes issued during the POR. Ferrara argues that the figure for total billing adjustments granted on U.S. sales of all merchandise, subject and nonsubject, is known and verified. According to Ferrara, we should take the ratio between the total U.S. billing adjustments relating to POR sales and divide that figure by total U.S. sales of subject plus nonsubject merchandise. As an alternative to the above suggestion, Ferrara argues that we could select those invoices which received billing adjustments and directly tie the billing adjustment to each invoice that directly generated the billing adjustment in the first place. Department's Position: We agree with Ferrara in part. We incorrectly included in the Preliminary Results, as part of our billing adjustment factor, billing adjustments that related to sales made outside the United States, and tolled sales. We will adjust this factor for the final results by utilizing, as the numerator in this equation, the verified U.S. subject and non-subject merchandise POR billing adjustments. As the denominator, we will utilize the total U.S. subject and non-subject merchandise POR invoice values that relate to the credit notes, because, as Ferrara concedes, it cannot isolate its credit notes to only subject merchandise. Thus, we are applying credit notes values to sales values in a consistent manner. Comment 2: CONNUM construction Ferrara maintains that our decision to use a four digit control number ("CONNUM") for all Ferrara pasta ignores record evidence and direct precedent, and we should revert to Ferrara's five digit CONNUMs, as originally reported. According to Ferrara, physical and cost differences between bronze and Teflon die pasta warrant separate CONNUMs for these products. Specifically, Ferrara maintains that for many of its cost elements (i.e., direct labor cost, energy cost, cartons, packing labor and overhead, total packing, and total cost of manufacturing ("TOTCOM")), the comparison between Teflon and bronze-die pasta yields a differential substantially in excess of the 20 percent difmer cap. Ferrara acknowledges that the variable cost of manufacturing ("VCOM") difference does not exceed 20 percent, but emphasizes that the difmer cap test is flexible. Ferrara maintains that, in particular, the packing cost differential is important because of its treatment in the margin calculation. According to Ferrara, this differential is so huge that normal values ("NV's") will be distorted and thus the U.S. pasta, which is produced on Teflon dies, will be compared with bronze-die pasta in the domestic market. Ferrara also states that we verified the physical differences between these products, manifested particularly in the areas of surface texture, die type, packing line speed, carton, film and production throughput rate. Ferrara next states that we took the position that, because the VCOM differential was under 20 percent, the articles should be in the same CONNUM. Ferrara argues that our decision made no reference to the substantial differences in labor and overhead costs, throughput rates, packing materials, TOTCOM, and total packing cost. Thus, Ferrara maintains, our rationale failed to consider whether there was a distortion by reason of some variable other than VCOM, such as the gross distortion of packing costs that arises from averaging the packing cost. Ferrara maintains that our decision is contrary to precedent, particularly precedent in the Pasta cases. Ferrara states that in the 1998/1999 Pasta from Turkey review, 65 FR 77857, respondent Filiz added a fifth digit to the CONNUM to differentiate its Filiz-brand pasta from its Barilla-brand pasta. There, Ferrara states, the respective pastas were similar in cost, but the cost of the packing was very different. Ferrara states that we agreed that Filiz should properly add a digit to the CONNUM, and thus this case stands for the proposition that a respondent should segregate its CONNUMs when packing costs are widely divergent, even if VCOM differences are within the 20 percent tolerance. Ferrara further argues that in the 1996/1997 review of Pasta from Italy, 64 FR 6615, Indalco differentiated between "artiginal" pasta and "industrial" pasta. The two pastas differed in that artiginal pasta was produced using bronze dies, requiring slower line speeds, lower drying temperatures and a different granularity of semolina. Ferrara refers to the final results in that case in which we stated, "Indalco notes that artiginal pasta's different characteristics are obtained by using coarser semolina, bronze dies, smaller machines and lower temperatures and slower speeds during the extrusion and drying processes." Ferrara states that these characteristics are what it reported in the present review. According to Ferrara, in that review, we accepted the respondent's arguments that the qualitative and quantitative differences were sufficient to require the use of extended CONNUMs or die type. Department's Position: The Department agrees with Ferrara that the physical and cost differences, as well as the difference in throughput rates and packing line speed, between bronze- and Teflon-die pasta were verified by Department officials and warrant separate treatment. The Department also concurs with Ferrara that the Department's difmer cap test may vary to some degree given the facts of a particular case. We agree with Ferrara that in past reviews the Department used physical and cost differences, as well as the difference in throughput rates as determining factors when assigning separate product-control numbers to different types of pasta. See Notice of Final Results and Partial Rescission of Antidumping Duty Administrative Review: Certain Pasta from Italy, 64 FR 6615 (February 10, 1999); and Certain Pasta from Turkey: Final Results of Antidumping Administrative Review, 65 FR 77857 (December 13, 2000). Accordingly, for the final determination we have used Ferrara's five-digit CONNUMs which account for the differences between bronze-die pasta and Teflon-die pasta for purposes of model matching in this review. Furthermore, in the Preliminary Results we did not differentiate between Ferrara's VCOMs for its subject merchandise sales by bronze- or Teflon- die. Therefore, for the final determination, we are accepting Ferrara's reported VCOMs and differentiating Ferrara's VCOMs, which do differentiate between bronze- and Teflon-die. Pallante Comment 3: Entered value calculation Pallante claims that our calculation of its entered value, utilized in the countervailing duty ("CVD") adjustment calculation, should incorporate only gross unit price, not gross unit price minus inland freight. According to Pallante, our SAS-calculated entered value should be the Customs entered value. Pallante states that its export sales are ex- factory, which means the prices did not include inland freight in Italy. Therefore, Pallante claims, there is no reason to subtract inland freight from gross unit price to arrive at entered value. Department's Position: We agree with Pallante. For purposes of the final results we will calculate entered value on an ex-factory basis. Comment 4: Export subsidy rate Pallante argues that the Department should not utilize the all others rate from the 1995 Pasta investigation, in calculating the CVD adjustment, as was done in the Preliminary Results of this review. See Pallante's Preliminary Calculation Memorandum (June 21, 2001). Pallante states that the Department should use the company-specific export subsidy rate calculated for Pallante from the preliminary results of the 1999 CVD administrative review. See Notice of Preliminary Results and Partial Recission of the Countervailing Duty Administrative Review, 66 FR 40987 (August 6, 2001) ("Preliminary Results of the Countervailing Duty Administrative Review"). In the Preliminary Results of the Countervailing Duty Administrative Review, the Department calculated an export restitution payment of 2.52 percent. According to Pallante, this rate is more recent than the .83 percent all others rate used by the Department in the Preliminary Results and, thus, more reflective of Pallante's activity during the current POR. Citing the Notice of Final Results of Antidumping Duty Administrative Review: Certain Circular Welded Carbon Steel Pipes and Tubes From Thailand, 57 FR 38668 (August 26, 1992) ("Final Results of Pipe From Thailand") and Notice of Final Results of Antidumping Duty Administrative Review: Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts Thereof From Singapore, 56 FR 31759 (July 11, 1991) ("Final Results of Bearings From Singapore") Pallante states that it is departmental practice to adjust the CVD in an antidumping administrative review to reflect the results of a contemporaneous CVD review. Therefore, Pallante argues that the Department should use the CVD adjustment calculated for Pallante in the Preliminary Results of the Countervailing Duty Administrative Review for these final results. Department's Position: We agree with Pallante in part. The Department agrees with Pallante that the CVD adjustment in an antidumping administrative review should be adjusted to reflect the results of a contemporaneous CVD review. See Final Results of Pipe From Thailand, 57 FR at 38672; see also Final Results of Bearings From Singapore, 56 FR at 31760. At the time of the issuance of the Preliminary Results we did not have final results for a contemporaneous CVD review. Accordingly, in the Preliminary Results, the CVD adjustments reflected the final results of the prior countervailing duty administrative reviews. However, we disagree with Pallante that a CVD adjustment should be based on preliminary results in a review. In Final Results of Pipe From Thailand and Final Results of Bearings From Singapore, the CVD adjustments reflected the final results of the countervailing duty administrative reviews. The adjustment did not reflect the preliminary results of the subsequent review as Pallante recommends. It is Departmental practice to make a CVD adjustment to offset countervailing duties imposed, i.e., assessed at the time of liquidation (and not to offset a cash deposit for estimated countervailing duties). See Final Results of Pipe From Thailand, 57 FR at 38672. For these final results we have recalculated Pallante's CVD adjustment to reflect the most recently completed CVD review. See Certain Pasta From Italy: Final Results of the Fourth Countervailing Duty Administrative Review, 66 FR 64214 (December 12, 2001). In addition, we will be making appropriate comparable changes for all respondent's in this review. See Corex's Final Calculation Memorandum (December 26, 2001); see also Ferrara's Final Calculation Memorandum (December 26, 2001); Pallante's Final Calculation Memorandum (December 26, 2001); PAM's Final Calculation Memorandum (December 26, 2001); Riscossa's Final Calculation Memorandum (December 26, 2001); Pagani's Final Calculation Memorandum (December 26, 2001); Puglisi's Final Calculation Memorandum (December 26, 2001); and, Rummo's Final Calculation Memorandum (December 26, 2001). Comment 5: Mismatched CONNUM and shape product characteristic Pallante asserts that we erred in disregarding sales in which the first digit of its reported CONNUM in the sales database did not match the reported shape code in the sales database. Pallante cites our preliminary results analysis memo, in which we explained that the sales were disregarded "because we were unable to determine whether the CONNUM or the reported characteristic is correct." Pallante maintains that we could have determined the correct field by referencing its product code exhibit, submitted in its questionnaire responses. Pallante admits that its CONNUMs had a clerical error, but maintains that we have the correct information to utilize these sales. Department's Position: We agree, in part, with Pallante. We disagree with Pallante's assertion that we erred in disregarding the above-mentioned sales in the Preliminary Results. However, because the product code key submitted by Pallante indicates the correct CONNUM match, we have corrected this reporting error and have utilized the corrected CONNUMs in determining the final results of the instant review. Comment 6: Level of trade According to Pallante, sales made by its affiliate, Industrie Alimentari Molisane S.r.l. ("IAM"), to small retailers are at a different level of trade from all other sales in Pallante's database, such that U.S. sales should be compared to domestic customers other than IAM's small retailers. Pallante argues that there are five unique characteristics of sales to small retailers which make it distortive to compare these sales to U.S. sales; specifically, 1) average transaction size differentials; 2) depalletization/repalletization as a selling activity; 3) net unit value of sales; 4) depot fees and other handling costs, and 5) IAM as the seller. Pallante claims that we verified that these differences exist. Pallante argues that we should apply a downward LOT adjustment to its home market sales prices equal to its calculated difference in net value between these categories of sales, as an adjustment is necessary to ensure price comparability to avoid distortive or inaccurate NV comparisons. Alternately, Pallante argues, we should compare U.S. sales to domestic sales exclusive of IAM's sales to small retailers, so that the NV is not skewed by the inclusion of sales to these small retailers. Department's Position: We disagree with Pallante. We rejected Pallante's level of trade claims in the Preliminary Results for a variety of reasons (see Memorandum from James Terpstra to Melissa Skinner, "99/00 Administrative Reviews of Pasta from Italy and Turkey: Preliminary Determination Level of Trade Findings," dated June 21, 2001 ("LOT Memo"), on file in the CRU), and have not changed our position in regard to those claims. We further note that Pallante has altered its level of trade claims since the Preliminary Results. To determine level of trade, we examine the selling functions and the level of selling expenses provided to different customer categories to evaluate the level(s) of trade in a particular market. Specifically, we examined (1) sales process and marketing support, (2) freight and delivery, (3) warehousing, (4) advertising, and (5) quality assurance/warranty service. We do not take transaction size or unit value of sales into account in determining level of trade because these are not selling activities. Further, Pallante did not specify differences in selling functions or the level of selling expenses incurred between itself and IAM; therefore, we find no reason not to include sales made by IAM to small retailers in the home market, in our comparison to U.S. export sales made by Pallante. Moreover, we have found that the only differences in selling activities between IAM sales to small retailers and all other Pallante home market sales are depalletization/repalletization and depot fees. These differences are minor and do not warrant a level of trade adjustment. Thus, for these final results, we have continued to treat all home market sales as being made at one level of trade, which we find comparable to the U.S. level of trade, and are matching the U.S. export price ("EP") sales to all sales in the home market. PAM Comment 7: Cost of production and constructed value data PAM argues that it provided all the data necessary to calculate the cost of production ("COP") and constructed value ("CV") for all CONNUMs. See PAM case brief at pages 4-6. PAM contends that in an Analysis Memo, the Department incorrectly stated that PAM failed to submit COP and CV information for certain CONNUMs. Therefore, the Department used the highest TOTCOM and fixed overhead ("FOH") for these CONNUMs. See Memorandum from Geoffrey Craig to the File, "Analysis Memorandum for PAM S.r.l.," dated June 21, 2001 ("PAM Analysis Memo"), on file in the CRU. PAM contends that for those CONNUMs in question, the Department has the values of each element of the CONNUM (e.g., direct material cost of wheat type, additives, and enrichment ) and thus, can sum the individual elements to construct a COP and CV. Further, PAM asserts that it did not even produce or toll the disputed CONNUMs and thus, did not provide the COP and CV for these models. Department's Position: We agree with PAM. After reviewing the facts on the record, we concluded that PAM purchased the pasta related to the CONNUMs in question and the manufacturer had knowledge of the ultimate destination. With respect to the Department's treatment of purchased pasta, we stated in the Preliminary Results, "{W}hen respondents purchased pasta from other producers and we were able to identify resales of this merchandise to the United States, we excluded these sales of the purchased pasta from the margin calculation for that respondent...Sales of pasta purchased by the respondents from unaffiliated producers and resold in the comparison market were treated in the same manner described above in the 'Export Price and Constructed Export Price' section of this notice." Preliminary Results, 66 FR at 34418, 34419. In our Preliminary Results, we inadvertently included certain sales of purchased pasta. Therefore, we have revised the margin program to exclude all sales of purchased pasta. 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 8: Classification of certain sales as U.S. sales PAM submits that the Department erroneously classified certain sales made in the Italian market as U.S. sales. See PAM case brief at pages 6-7. PAM contends that these sales could not have been made to the United States because the product characteristics (e.g., non-vitamin-enriched, metric packaging, brand sold in Italian market) of the merchandise are inconsistent with all other PAM products sold to the U.S. market. PAM further states that it has no basis to know whether the Italian customer to whom it sold the pasta ultimately exported the pasta to the United States. PAM asks that the Department exclude these sales from the U.S. sales database. Department's Position: We disagree with PAM. PAM erroneously states that the Department reclassified the sales as U.S. sales. PAM submitted the sales in question in its U.S. sales database. Although PAM now argues that the product characteristics of these sales would preclude them from the U.S. market, this argument is contrary to the facts on the record. First, PAM argues that the sales in question are not vitamin-enriched; whereas, pasta sold in the U.S. market is vitamin-enriched. PAM cites to the Department's analysis memo which states that "pasta products destined for sale in the United States are vitamin-enriched." However, this quote is only a partial citation. The full sentence states, "We have preliminarily determined that it is generally not possible to match U.S. sales to identical products in the home market because pasta products destined for sale in the United States are vitamin-enriched" (emphasis added). See PAM Analysis Memo at 7. In fact, PAM argued in the previous administrative review (the third) and the Department agreed that there are no nationwide prohibitions on selling unenriched pasta in the United States, thus making it possible to sell unenriched pasta in the U.S. market. See Notice of Final Results of Antidumping Duty Administrative Review and Determination to Revoke the Antidumping Duty Order in Part: Certain Pasta from Italy, 65 FR 77852 (December 13, 2000)("Third Review Pasta Final") and accompanying Decision Memorandum at Comment 2. We disagree with PAM's assertion in the instant review that unenriched pasta cannot be sold in the U.S. market and thus, any sale coded as such should be disregarded. Second, PAM argues it is evident, as derived from the product code variable, that PAM packaged the sales in question in bags labeled in metric units (e.g., 500 grams, 1 kilogram), rather than pounds. PAM contends, in its case brief, that product sold to the U.S. market is placed in pound, not metric, packaging. To the contrary, PAM earlier stated that "{p}asta considered to be sold to the U.S. market was sold in a number of sizes, including 1 pound and 500 grams." See PAM's section C questionnaire response, dated November 9, 2000 at C-6 (emphasis added). Thus, we disagree with PAM that as a result of the packaging type, the sales in question could not have been ultimately sold to the U.S. market. Third, PAM argues that the market for the brand of the sales in question is Italy. Thus, such sales could not have been destined for the U.S. market. However, the accuracy of the brand variable is suspect after an analysis of the home market database revealed several sales in which the value of the brand variable corresponded to the code of a non-Italian market brand pasta. See Memorandum from Geoffrey Craig to the File, "Analysis of Brand Variable," dated December 26, 2001, on file in the CRU. In sum, we disagree with PAM that the sales in question should be removed from the U.S. database. PAM reported these sales in the U.S. database, and has provided no evidence that these are not U.S. sales. Comment 9: 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 over an extended period of time by examining home market sales outside of the POR (specifically, 90 days before and 60 days after the POR). PAM states that Department should only consider sales that fall within one full growing and production cycle (i.e., the 12-month POR) See PAM's case brief at 8-15. PAM states that the statute defines the "extended period of time" as "a period that is normally 1 year, but not less than 6 months." See 19 U.S.C. §1677b (b)(2)(B). PAM also cites the Court of International Trade's ("CIT's") decision in NTN Bearing Corp. of America v. United States, 18 CIT 555 (1995) in which the CIT held that it was permissible for the Department to use a period of less than 6 months if it reflected the business cycle. PAM contends that if the Department compares sales within the "window period" to the COP and CV, for consistency's sake, the COP and CV should be derived from cost data that also includes the "window period," rather than just the 12-month POR. 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") or in the alternative, we should include cost data from the "window periods" in the calculation of COP and CV . 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. Thus, before Commerce may disregard home market sales for NV purposes, it must consider sales that have been made "within an extended period of time." 19 USC 1677 b(1)(A). 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. We disagree with PAM's argument that, in the alternative, we should include cost data from the "window periods" in the calculation of COP and CV. The COP and CV are derived from cost data covering the 12 month POR (July 1, 1999 to June 30, 2000), consistent with prior practice. See, e.g., Circular Welded Non-Alloy Steel Pipe and Tube from Mexico; Final Results of Antidumping Duty Administrative Review, 62 FR 37014, 37024 (July 10, 1997). As the statute states at section 773(f)(1)(A), "Costs shall normally be calculated based on the records of the exporter or producer of the merchandise, if such records are kept in accordance with the generally accepted accounting principles of the exporting country (or the producing country, where appropriate) and reasonably reflect the costs associated with the production and sale of the merchandise." See American Silicon Technologies v. U.S., Slip-Op. 2001-09 (August 27, 2001) at 8. The CIT has held that the Department is to "determine as accurately as possible the true cost to the respondent of manufacturing the subject merchandise." Id. The Statement of Administrative Action (the "SAA") states at 834-35, "Costs shall be allocated using a method that reasonably reflects and accurately captures all of the actual costs incurred in producing and selling the product under investigation or review." Inasmuch as we have determined that PAM's cost data for the 12 month POR reasonably reflects and accurately captures the true cost of producing the subject merchandise, we decline to use cost data from the window period. Finally, PAM offers no substantive evidence in its case brief that the production of pasta is cyclical and follows a growing season. Thus, there is no support for the argument that the period of sales compared to COP for the purpose of the cost test should be limited to a growing season. Comment 10: Entry-by-entry basis PAM argues that the Department should not have calculated the dumping margin on a sale-by-sale basis. Rather, PAM states that, pursuant to section 751(a)(2)(A) of the Act, the Department should calculate the dumping margin on an entry-by-entry basis. PAM contends that since an entry consists of one or multiple invoices, the best approximation of the entry is the invoice. See PAM case brief at pages 15-21. Department's Position: We disagree with PAM. The Department's regulations state that "{i}n a review, the Secretary normally will use the average-to- transaction method." See 19 CFR 351.414(c)(2). The regulations describe the "average-to-transaction" method, as "a comparison of the weighted average of the normal values to the export prices (or constructed export prices) of individual transactions for comparable merchandise." See 19 CFR 351.414(b)(3). An individual transaction consists of a specific line item on an invoice, rather than an entire invoice. Inasmuch as the "average-to- transaction" method in an administrative review is supported by the Department's regulations, and is consistent with prior reviews, we have not changed our methodology. Comment 11: "Zeroing" negative margins PAM argues that the Department should adhere to the finding of the WTO Panel Report European Communities - Antidumping Duties On Imports of Cotton-Type Bed Linen From India, WT/DS141/AB/R adopted March 12, 2001, and offset any positive margins with negative margins in the same entry. See PAM's case brief at pages 15-21. The Department's Position: We disagree with PAM and have not changed our calculation of the weighted-average dumping margin for the final results. Non-dumped sales are included in the weighted-average margin calculation as just that - sales with no dumping margin. The value of such sales is included in the denominator of the weighted-average margin along with the value of dumped sales. We do not, however, allow non-dumped sales to cancel out dumping determined to be present on other sales. This methodology is required by U.S. law. Section 771(35)(A) of the Act defines "dumping margin" as the amount by which the normal value exceeds EP or CEP of the subject merchandise. Section 771(35)(B) defines "weighted- average dumping margin" as "the percentage determined by dividing the aggregate dumping margins determined for a specific exporter or producer by the aggregate export prices and constructed export prices of such exporter or producer" (emphasis added). These sections, taken together, direct the Department to aggregate all individual dumping margins, each of which is determined by the amount by which NV exceeds EP or CEP, and to divide this amount by the value of all sales. The directive to determine the "aggregate dumping margins" in section 771(35)(B) makes clear that the single "dumping margin" referred to in section 771(35)(A) applies to calculating individual transaction margins, and does not itself apply on an aggregate basis. There is no statutory provision directing that the amount by which EP or CEP exceeds NV on non-dumped sales cancel out the dumping margins found on other sales. Comment 12: Startup adjustment PAM claims the Department should not have denied it a startup adjustment in the Preliminary Results. PAM asserts that the increased capacity and value of its new production line as a percentage of the existing facility substantiates its claim that the new production line is more than a "mere improvement" and therefore, satisfies the first prong of the startup adjustment criteria enumerated in section 773(f)(1)(C)(ii) of the Act. See PAM case brief at pages 21-23. Department's Position: We disagree with PAM. Consistent with our finding in the Preliminary Results, we have determined that the criteria for granting a startup adjustment have not been satisfied in this case. See section 773(f)(1)(c). The material facts have not changed since the Preliminary Results and PAM did not make any new argument. Therefore, please see our discussion of this issue in Preliminary Results, 66 FR at 34419. Comment 13: Exchange rate conversions 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 23-24. 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: PAM has provided no evidence to support its claim of alleged calculation errors, and in fact has not alleged any specific errors in our Preliminary Results. Moreover, we note that we disagree with PAM that we should alter the method by which we convert currencies in the margin program. For the Preliminary Results, PAM reported all U.S. and home market sales and expenses in lira, which we converted into dollars. As provided by section 773A of the Act, in an antidumping proceeding the administering authority shall convert foreign currencies into United States dollars using the exchange rate in effect on the date of sale of the subject merchandise. See also 19 CFR 351.415. For the final results, as in the Preliminary Results, we once again converted PAM's reported sales and expenses from lira to dollars consistent with the statute and the Department's regulations. Comment 14: De Minimis Amounts 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. See PAM case brief at pages 24-27. 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 de minimis amount by which a home market sale may be below COP. PAM concedes that these home market sales are below the COP. In accordance with the statute, the Department treated them as such. Moreover, the regulations for administering the U.S. tax statute which allow for disregarding amounts under one-half cent do not relate to the administration of the antidumping statute. Additionally, 19 CFR 351.413 is not relevant because it deals with disregarding certain adjustments (e.g., differences in circumstances of sale pursuant to 19 CFR 351.410, adjustments for differences in the physical characteristics of the merchandise pursuant to 19 CFR 351.411, and adjustments for differences in the LOTs pursuant to 19 CFR 351.412), not the below-cost test. Comment 15: Currency of transaction PAM further argues that the currency of transaction (i.e., the Italian lira) determines the level of rounding. See PAM's case brief at pages 27- 28. Consequently, PAM states that certain sales may fall below cost by de minimis amounts and that such underselling should be disregarded. Department's Position: It is unclear based on PAM's argument exactly how the currency of transaction would affect whether a sale falls below cost. However, we disagree with PAM that we should disregard sales which fall below cost because such underselling was a result of the currency of transaction. Consistent with the statute, the Department determined that these were below-cost sales and treated them accordingly. Comment 16: Level of trade methodology PAM states that the Department was incorrect to find that the LOT in the U.S. market is identical to a home market LOT. See PAM's case brief at 28- 31. PAM argues that the LOT in the United States is separate and distinct from any LOT in the home market. PAM contends that the Department incorporated by reference (2) the LOT findings from the prior review (the third administrative review) and that the quantitative analysis that the Department performed as part of its LOT analysis was badly flawed. Specifically, PAM argues that the quantitative analysis from the prior review failed to consider the value of the services supplied. PAM states that the Department's methodology was incorrect in assigning a quantitative 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 rather than taking into account the value of the service supplied. In the current review, PAM argues that the Department was incorrect not to consider the information it provided regarding the size of the total order and the size of each transaction within the order. Department's Position: We disagree with PAM that the LOT for EP sales is separate and distinct from any level in the home market. As detailed in the Department's LOT Memo, we found two U.S. LOTs and three home market LOTs. Each U.S. LOT had an identical LOT in the home market. To determine level of trade, we examine the selling functions and the level of selling expenses provided to different customer categories to evaluate the level(s) of trade in a particular market. Specifically, we examined (1) sales process and marketing support, (2) freight and delivery, (3) warehousing, (4) advertising, and (5) quality assurance/ warranty service. We do not take into account the size of the total order, and the size of each transaction within the order in determining level of trade because these are not selling activities. PAM's argument that our quantitative analysis was incorrect is inapposite because we performed said analysis in the third administrative review. The segment of the proceeding that we are currently examining is the fourth administrative review. As described in our LOT Memo, we performed a qualitative analysis of the selling functions and did not consider quantitative factors in this review. In the LOT Memo, we stated that we arrived at the same conclusion (i.e., there are identical LOTs in the U.S. and home market for matching purposes); however, we did so through a qualitative analysis of the selling functions that PAM explained in its narrative response. Therefore, we are not addressing PAM's argument concerning the quantitative analysis we performed in the prior administrative review. Comment 17: Level of trade adjustment PAM believes that the Department was incorrect in calculating a LOT adjustment based on price differentials between the different home market LOTs. Rather, PAM believes the LOT adjustment should be equal to the amount of any commissions and direct and indirect expenses that would have been used if PAM had constructed export price ("CEP") sales to calculate a CEP offset. Further, PAM contends that the LOT adjustment must be a deduction (rather than addition) to NV. Department's Position: We disagree with PAM. We matched U.S. sales to sales at the same LOT in the home market and, when such comparisons were not possible, we made an 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. See SAA at 829. Comment 18: General shape methodology PAM contends that the Department's shape methodology which is based on production speed is flawed. See PAM's case brief at pages 34-35. PAM argues that the Department does not consider the circumstances of different producers because it assumes that the relative production speeds for every cut are the same for all producers. Department's Position: We disagree with PAM. First, line speed production is used to segregate cut into a regular shape category or a specialty shape category (e.g., long cut, specialty long cut, short cut, and specialty short cut). In the investigation and prior administrative reviews, we found that there were three other unique shape categories (i.e., nested, lasagna, soupettes) that are different from the shapes noted above. However, these shape categories were different not necessarily due to line speed production. The issue at hand in the current review is whether the Department properly categorized a regular cut versus a specialty cut and the underlying methodology used by the Department. 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 standard from specialty shape categories according to differences in line speed because higher production costs are associated with slower line speeds. We have developed a list of pasta cuts and their corresponding shapes in which standard and specialty cuts are segregated based on line speed. However, we understand that there may be discrepancies between the shape category list we provide respondents in the questionnaire and their own production which would result in a different classification of certain cuts or the manufacturer may produce certain cuts not listed by the Department. Therefore, the instructions to the questionnaire specifically state that if the respondent sold any pasta cuts which the Department does not list, the respondent should provide a description and picture of the pasta type, the production line on which it is produced, the standard production capacity of that line (e.g., pounds per hour), and the line speed (e.g., pounds per hour) for the pasta type in question. In its questionnaire response, we noted that there were certain cuts which PAM added to its production which were either not listed by the Department or PAM considered the cut to be a shape different than the one listed by the Department (i.e., PAM classified a cut to be a standard cut whereas the Department categorized it as a specialty cut). Therefore, we specifically requested from PAM the company-specific line speed data necessary to classify those cuts in question. PAM submitted the line speed data and contended that certain shapes should be classified as a specialty rather than standard (or vice versa). We accepted the shape classifications that PAM claimed based upon the PAM line speed data that it provided. In its case brief, PAM argues for the first time that the "production speeds for gemelli, elicoidali, canneroni, mezzi canneroni, tortiglioni, fusilli casarecci, and others" is evidence that the Department's methodology of distinguishing a specialty cut from a standard cut based upon line speed is incorrect. However, we provided PAM with the opportunity to present this information previously. As noted above, in response to PAM's submission of information, we accepted certain shape classifications that PAM claimed. The burden lies on PAM to claim that certain cuts should be reclassified based upon its own production speed (as PAM did with various other cuts). PAM has not provided sufficient information that would at this time warrant an examination of these classifications. Therefore, we have not made any adjustments to the most recent databases with respect to the shape variable. Comment 19: Department's shape classification of certain cuts PAM argues that the Department instructed it to reclassify the shape characteristics of certain pasta cuts according to a new methodology that differed from the one utilized by the Department in the prior review in which PAM participated. See PAM's case brief at pages 32-34. Further, PAM states that the Department did not explain the basis for this change in methodology. PAM cites the CIT's ruling in CINSA, S.A. DE C.V. v. United States, 21 CIT 341, 966 F. Supp. 1230 (1997) in which the CIT ruled that "an agency cannot arbitrarily change its methodology without explanation." Department's Position: We disagree with PAM. We have distinguished specialty versus standard cuts according to line speed since the original investigation and in the previous administrative reviews. See Certain Pasta From Italy: Final Results of Antidumping Duty Administrative Review, 65 FR 77852 (December 13, 2000). In the instant review, we noted that PAM did not classify the shape category of several pasta cuts according to the Department's instructions in the appendix to the questionnaire. Further, PAM did not provide evidence supporting it's classification of those cuts in which PAM disagreed with the Department's shape classification. In a supplemental questionnaire dated December 14, 2000, we asked PAM to provide the following for the pasta cuts in question: (1) a physical description; (2) the production line on which the pasta type (e.g., capellini, bucatini, canneroni) was produced (e.g., long cut, short cut); (3) the name plate capacity of that line (e.g., pounds/hour); (4) the line speed (e.g., pounds/hour) for the pasta type in question; and (5) the calculated ratio of line speed to name plate capacity for each pasta type. If the resulting percentage was greater than 75 percent, we instructed PAM to classify the pasta as a regular cut. If the resulting percentage was lower than 75 percent, we instructed PAM to classify the pasta as a specialty cut. This methodology of segregating a regular versus specialty cut, based on line speed, has been communicated (since the initial investigation) 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) which we appended to the supplemental questionnaire. In addition, the instructions to the questionnaire specifically state if the respondent sold any pasta cuts which the Department does not list, the respondent should provide a description and picture of the pasta type, the production line on which it is produced, the standard production capacity of that line (e.g., pounds per hour), and the line speed (e.g., pounds per hour) for the pasta type in question. Given the time and resources needed to analyze the databases in depth, we recognize the fact that, on occasion, we may not have recognized that respondents (e.g., PAM) may not have reported the shape category of certain pasta cuts according to the Department's list and, therefore, we did not instruct said respondents to alter their coding of these sales. However, whenever possible, we have asked respondents to provide the necessary information to consider whether a cut should be classified as a regular or specialty cut and how to categorize those cuts not listed by the Department. For those cuts which PAM believed were specialty cuts yet the Department considered a regular cut (or vice versa), it provided the line speed data. We reviewed this information and accepted the revised shape classification as provided by PAM. Comment 20: Release of data PAM states that the Department was tardy in its release of the printout of calculated margins and selected below-cost home market sales requested by PAM. PAM also argues that the Department never released the actual computer program run to calculate the PAM margin. PAM contends that because of the delay the Department must consider any additional comments PAM submits in connection with rebuttal briefs. See PAM's case brief at pages 35-36. 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 a diskette with the SAS computer program and output, a hard copy of the Analysis Memo, SAS log, and output, and all memoranda within five days of the date of announcement of the Preliminary Results to PAM's counsel. See Memorandum entitled, "Disclosure of Calculation Methodology dated June 28, 2001, on file in the CRU." PAM is mistaken when it states that the Department has not provided PAM with the actual computer program used to calculate the margin. PAM asserts that the Department failed to provide it with the June 21, 2001 program and instead provided a program run on June 25, 2001. Although the date labeled on the printout of the computer program log and output provided to PAM was June 25, 2001, and the date of the Analysis Memo was June 21, 2001, the printout provided by the Department was, in fact, the same program used to calculate the PAM margin. June 25, 2001 was merely the date on which the Department ran the June 21, 2001, program to generate a full printout for release. On July 2, 2000, PAM requested a printout of every home market transaction found to be sold below the cost of production by 12 Italian lira or less, and a full printout of every transaction for which a margin was found. 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 July 17, 2001, on file in the CRU. Because 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 21: 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. Moreover, PAM has not specifically provided any evidence of any error occurring as a result of the use of our standard language. Comment 22: Miscellaneous PAM argues that the Department has adopted a "one-size-fits-all" approach to its analysis of PAM's data which has resulted in "inappropriate margins." See PAM's case brief at pages 37-38. PAM cites the Department's use of CEP language in its computer program, and making multiple currency conversions and utilizing U.S. interest rates despite the fact that PAM records all business transactions in Italian lira in its books and records. Department's Position: We disagree with PAM. The Department considers the unique facts presented by each respondent, to the best of its ability, and performs the calculations in accordance with the Act. Moreover, as set forth in Comments 13 and 21 above, the Department properly converted lira into dollars and used a program containing CEP language. For the imputed credit expense on U.S. sales, 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). We noted that some U.S. transactions were actually denominated in U.S. dollars on the sales invoice despite being reported by PAM in lira. We converted those sales back to U.S. dollar amounts. Normally, we base the interest rate on the respondent's weighted-average borrowing experience in the currency 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 23: 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 do not reflect comments raised in the Preliminary Results or reflected in the briefs of any parties would be actions ultra vires. See PAM's case brief at pages 38-39. 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 situations in which the issue is not raised by a party to the proceeding. Riscossa Comment 24: Clerical error Riscossa claims in the home market the Department incorrectly set all positive values of a variable for discounts (OTHDIS4H) equal to zero. Riscossa argues that only the negative values for this variable should be set to zero. Department's Position: We agree with Riscossa and have revised the margin program accordingly. 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 ________ ___________________________ Richard W. Moreland Acting Assistant Secretary for Import Administration ___________________________ Date _________________________________________________________________________ footnotes 1. On July 22, 2001, PAM requested a hearing. However, instead the Department and PAM held an ex parte meeting. See Memorandum from Melissa G. Skinner to the File, "Ex Parte Meeting with Counsel for PAM S.r.l. in the Antidumping Duty Administrative Review of Certain Pasta from Italy," dated August 22, 2001, on file in the Central Records Unit, Room B-099, of the Department's main building (the "CRU"). 2. With respect to PAM, the Department stated in its LOT Memo, "We note that this finding is consistent with the prior administrative review and that the material facts of the case have not changed."