65 FR 41437, July 5, 2000 A-580-841 Investigation Public Document IA/III/IX: LRL/BF MEMORANDUM TO: Troy H. Cribb Acting Assistant Secretary For Import Administration FROM: Joseph A. Spetrini Deputy Assistant Secretary AD/CVD Enforcement Group III SUBJECT: Issues and Decision Memorandum for the Final Determination in the Antidumping Duty Investigation of Structural Steel Beams ("SSBs") from South Korea Summary We have analyzed the comment and rebuttal briefs of interested parties in the antidumping duty investigation of structural steel beams from South Korea. As a result of our analysis, we have made changes from our Preliminary Determination of Sales at Less Than Fair Value and Postponement of Final Determination: Structural Steel Beams From South Korea ("Preliminary Determination"), 65 FR 6984 (February 11, 2000). We recommend that you approve the positions we have developed in the "Issues and Decision" section of this memorandum. Below is the complete list of the issues in this investigation for which we received comment and rebuttal briefs by interested parties. I. Issues Specific to Inchon Iron & Steel Co., Ltd. A. Cost of Production/Constructed Value Issues Comment 1: Application of Major Input Rule Comment 2: Application of Major Input Rule to Other Affiliated-Party Transactions Comment 3: Depreciation Comment 4: Overhead Comment 5: SG&A Expenses Comment 6: R&D Expenses Comment 7: Interest Expense (Securities) Comment 8: Interest Expense (Sales-Related Activities) Comment 9: Loan Guarantees Comment 10: Affiliated-Party Services for an Input B. Sales and General Issues Comment 11: Sales Price and Adjustments for U.S. Channel 3 Comment 12: Billing Adjustments for U.S. Channel 2 sales Comment 13: U.S. Movement Expenses Comment 14: Recalculation of Home Market and U.S. Indirect Selling Expenses Comment 15: Home Market Sales to an Affiliated Customer Comment 16: Fees to a Home Market Customer Comment 17: Home Market Inland Freight Comment 18: Application of Total Adverse Facts Available Comment 19: Packing Expenses for U.S. Sales Comment 20: Clarification of Home Market and U.S. Verification Reports II. Issues Specific to Kangwon Industries Ltd. A. Sales and General Issues Comment 21: Commissions Comment 22: Duty Drawback Comment 23: Home Market Freight Comment 24: Corrections to Kangwon's Response Comment 25: Over- and Under-Reporting of Home Market Sales B. Cost of Production/Constructed Value Issues Comment 26: Gain on Exemption of Debt Comment 27: G&A Expenses III. Issues Applicable to Both Respondents Comment 28: EP vs. CEP Sales Comment 29: Cash Deposit Rate/Successorship Comment 30: Home Market Sales of ASTM-Grade Merchandise Comment 31: Bank Negotiation Fees Facts Available Section 776(a) of the Act provides that, if an interested party fails to provide information that has been requested by the Department, fails to provide such information in a timely manner or in the form and manner requested, significantly impedes a proceeding under the antidumping statute, or provides information which cannot be verified, the Department shall use, subject to sections 782(d) and (e) of the Act, facts otherwise available in reaching the applicable determination. Pursuant to section 782(e), the Department shall not decline to consider submitted information if all of the following requirements are met: (1) the information was submitted by the established deadline; (2) the information can be verified; (3) the information is not so incomplete that it cannot serve as a reliable basis for reaching the applicable determination; (4) the interested party has demonstrated that it acted to the best of its ability; and (5) the information can be used without undue difficulties. We have applied partial facts available with regard to several sales and cost of production elements reported by Inchon because the information could not be verified. First, with regard to its reported depreciation expense, we note that affiliated parties contributed to a certain portion of the assets which are being depreciated. Therefore, as facts available, for those assets, we have applied an adjustment to depreciation based on the profitability of the affiliated suppliers. Second, as repairs and maintenance services were supplied by an affiliate, we are using, as facts available, information contained in the petition (see Exhibit IV-19) regarding the ratio of these costs to total costs of manufacturing. With regard to certain sales-related issues, we found that Inchon's methodology for reporting billing adjustments for one customer led to a distortion in its reported gross unit price; therefore, sales from this customer were excluded from the Department's margin calculation. With regard to marine insurance, because record evidence indicates that Inchon's expenses reported from affiliates were slightly lower, in terms of the dollar amount per metric ton, than from non-affiliates, we have applied an upward adjustment based on the percentage difference between these two to reported marine insurance for all U.S. sales. Finally, since we found additional expenses relating to domestic inland freight to the port for certain U.S. sales at verification, we are adjusting Inchon's reported domestic inland freight to include these additional expenses for all U.S. sales as facts available. For a more detailed discussion of these issues, please refer to the appropriate comments, below. Issues and Decision INCHON ISSUES Comment 1: Application of Major Input Rule Petitioners argue that affiliated-party transactions with regard to the purchase by Inchon of an input (1) into the production of subject merchandise should have been tested under the major input rule. Petitioners note that, in its response, Inchon stated that none of the inputs supplied by affiliated parties are considered major inputs to production because their portion of the cost of manufacturing is minor. However, petitioners note that, at verification, the Department discovered that Inchon failed to identify several affiliated parties in its response, including an affiliated party from whom Inchon purchased an input to the production of subject merchandise, citing the Memorandum to the File from Michael F. Panfeld and Brandon Farlander Re: Inchon Iron & Steel Co., Ltd. Home Market Sales, United States Sales, and Cost of Production Verification Report; Antidumping Investigation on Structural Steel Beams from Korea, May 8, 2000 ("Inchon verification report"). Petitioners argue that this input is a major input. Petitioners argue that the U.S. International Trade Commission has, in this investigation, preliminarily determined that raw materials comprise over one-half of the cost of structural steel beams, citing Structural Steel Beams From Germany, Japan, Korea, and Spain, ITC Pub. 3225 at V-1 (September 1999)(ITC preliminary determination). Petitioners note that the input in question is used as a raw material in the production of subject merchandise. Petitioners argue that the Department has determined that products comprising as little as two percent of the cost of production of other products are major inputs, citing Notice of Final Determination of Sales at Less Than Fair Value: Large Newspaper Printing Presses and Components Thereof, Whether Assembled or Unassembled, From Japan, 61 FR 38139, 38162 (July 23, 1996). Respondent maintains that the Department should reject petitioners' proposal to increase the cost of all direct materials based merely on the fact that there were two previously undisclosed affiliated suppliers for one material input. Respondent argues that it would be inappropriate to apply an adjustment to all direct materials, including purchases from unaffiliated suppliers, as the record demonstrates that purchases from affiliated suppliers constitute only a minor portion of all purchases of the one material input, which the Department verified. Inchon proposes an alternate adjustment to ensure that purchases of this direct material reflect market value. As this information is proprietary, see Final Analysis Memo: Inchon. DOC Position: We disagree with petitioners that the Department should apply the major input rule to the affiliated-party transactions pertaining to the input in question. It is true that, at verification, the Department discovered the existence of additional affiliated-party transactions with respect to the purchase of this input. Based on this new information, the percentage of this input supplied by affiliated parties is higher than originally reported (for an exact figure, see the proprietary version of the Final Analysis Memo: Inchon). Notwithstanding this new evidence, we do not consider the application of the major input rule appropriate in this circumstance. Specifically, while we do not dispute the assertion that the input in question is in itself a major input in the production of subject merchandise, petitioners seemingly have failed to recognize that the portion of this input supplied by affiliated parties is small. As a result, the total portion of the cost of production of subject merchandise related to these affiliated-party input suppliers cannot be considered major. Petitioners' citation of Notice of Final Determination of Sales at Less Than Fair Value: Large Newspaper Printing Presses and Components Thereof, Whether Assembled or Unassembled, From Japan, 61 FR 38139, 38162 (July 23, 1996) is misleading, since the decision in that case was to consider an input to be major if the value of the input was at least two percent of the value of one of the five press components or five percent or more of the value of the total press system {emphasis added}. Additionally, the Court of International Trade found it reasonable for the Department to use a lower threshold for defining a major input than it had in past determinations given the Department's finding that the respondent obtained numerous inputs from affiliated suppliers representing over two percent of the total cost of a component, the sum of which represented a significant portion of the total LNPP cost of production. See Mitsubishi Heavy Indus. v. United States, 15 F. Supp. 2d 807, 831 (CIT 1998). In the case of structural steel beams, there are not multiple components, nor does the sum of numerous inputs from affiliated suppliers represent a significant portion of the total SSBs cost of production. Therefore, we do not believe that the same circumstances exist in this case which would make the application of the major input rule reasonable. While we disagree with petitioners with regard to the need to apply the major input rule, it is nonetheless true that Inchon's purchase price for this input from affiliates was lower than the purchase price from non- affiliates. Therefore, in accordance with section 773(f)(2) of the Act, which states that the Department may use the higher of the market price or transfer price, we have adjusted Inchon's production input's cost upward. Accordingly, we increased the input cost by the percentage difference between the input's average market price and the average affiliated-party purchase price multiplied by the percentage of affiliated-party transactions for this input. Comment 2: Application of Major Input Rule to Other Affiliated-Party Transactions Petitioners argue that all inputs from affiliated parties should be considered major inputs, basing this assertion on the Department's application of the major input rule to production activities performed by affiliates in Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts Thereof From France, Germany, Italy, Japan, Romania, Sweden, and the United Kingdom; Final Results of Antidumping Duty Administrative Reviews, 64 FR 35590 (July 1, 1999). Respondent argues that a major input is one which represents a significant percentage of the subject merchandise's cost of manufacturing, such that reliance on the transfer price of the input leads to a material misstatement of the total cost of manufacturing the subject merchandise. In this case, respondent asserts that the Department "agreed" that none of the inputs that Inchon acquired from affiliated parties required adjustment under the major input rule. Respondent asserts that it is equally true that none of the additional input transactions identified at verification were major inputs. Respondent continues that the impact of its failure to identify affiliates supplying inputs used in the production of subject merchandise is minimal, in that none of the inputs were major inputs as defined by the Department, since even on a cumulated basis, the total value of all inputs sourced from affiliated parties constitutes only a small part of the total cost of manufacturing. In addition, Inchon notes that the Department has the record information necessary to evaluate transactions with the parties in question, and to adjust the value of the inputs provided by these parties under the fair value rule, if necessary. Petitioners rebut Inchon's assertion that the Department "agreed" that none of the inputs provided by affiliated parties required adjustments under the major input rule: petitioners argue that there was no such agreement. In addition, petitioners argue that Inchon's "presumption" of an agreement, simply because the Department did not request cost data from Inchon with which to perform its test for the major-input rule, cannot be the basis for a definitive conclusion by the Department. DOC Position: We disagree with petitioners that the major input rule should be applied to the affiliated-party transactions at issue. Section 351.407(b) of the Department's regulations states that: "for purposes of section 773(f)(3) of the Act, the Secretary normally will determine the value of a major input purchased from an affiliated person based on the higher of: (1) the price paid by the exporter or producer to the affiliated person for the major input; (2) the amount usually reflected in sales of the major input in the market under consideration; or (3) the cost to the affiliated person of producing the major input." (Emphasis added) While the Department has indeed ruled that production processes may also be considered under this rule, the simple fact that other elements in the build-up of Inchon's cost were provided by affiliated parties does not, ipso facto, lead to the conclusion that the major input rule applies. That is, the Department must consider whether the portion of all inputs obtained from affiliates are "major" as a prerequisite for applying the major input rule. The reason the Department examines affiliated-party transactions for only "major" inputs is clear. As the SAA notes, section 773(f)(3) of the Act was added "to address diversionary input dumping by authorizing Commerce to inquire whether the transfer between 'related' persons (i.e., 'affiliated' persons under section 773(f)(3)) of such an input is at a price below the input's production cost. H. Rep. 576, 100th Cong., 2d Sess. 595 (1988)." H. Doc. 316, 103d Cong., 2d Sess. 838 (1994)("SAA"). The ability for respondents to engage in "diversionary input dumping" is negated if the portion of the total production costs accounted for by affiliated-party transactions is minimal. In this case, petitioners have not specifically argued that any of the affiliated-party transactions in question are sizeable enough to be considered major, other than for the direct material input addressed in comment 1 above. In fact, record evidence unquestionably compels the Department to conclude that, for all affiliated-party transactions pertaining to cost to which petitioners have referred throughout their case and rebuttal briefs, the actual percentage of total cost accounted for by affiliates is insignificant. See Inchon's May 17, 2000, case brief, Attachment 2, Affiliated Inputs - Corrected. Therefore, we have not applied the major input rule methodology to any of the costs reported by Inchon. Comment 3: Depreciation Petitioners argue that the Department should apply facts available with respect to Inchon's depreciation expenses, based on the Department's discovery at verification that Inchon did not report that it purchased "substantial portions of machinery and services" from affiliates for construction of one of Inchon's mills and furnaces used to produce subject merchandise, thus rendering its depreciation expenses unusable. As facts available, petitioners argue that the Department should use the depreciation rate contained in the petition. Inchon argues that the Department should reject petitioners' proposal to use the depreciation rate alleged in the petition. Respondent notes that the Department's practice is not to use uncorroborated information from a petition, and argues that petitioners' proposal is unreasonable given the inadvertent omission. Inchon notes that the Department verified that the amount of depreciation resulting from certain services provided by affiliates was significantly smaller than petitioners' proposal, and argues that petitioners' implication that the services have a much higher market value is without merit, given the nature of the services depreciated. Should the Department choose to adjust the depreciation costs Inchon reported, respondent notes that record evidence includes all information necessary to make such an adjustment. Specifically, Inchon argues that given the highly customized nature of the services provided, it would be reasonable to expect that there is no market value for these transactions. Respondent argues that it is the Department's practice, in such situations, to utilize the supplier's cost of production if there was no market value available for the service in question. Inchon argues that the profitability of the supplier may be derived from its financial statements, which the company provided in answer to the Department's questionnaire, and that this figure represents a more reasonable adjustment should the Department choose to make one. DOC Position: We agree with petitioners that Inchon failed to identify affiliated-party machinery and equipment costs related to the construction of a mill and furnace used to produce subject merchandise. The Department's questionnaire asked Inchon to "{l}ist all inputs used to produce the merchandise under investigation, including...machinery and equipment...etc. Identify those inputs that your company receives from affiliated parties (i.e., affiliated persons). For each input received from an affiliated party, provide the name of the affiliated party..." See Section D, question 5 of the Department's questionnaire. In its response, Inchon indicated that, with one exception, "all other machinery and equipment were purchased from unaffiliated suppliers." See Section D response, page D-4. Subsequently, at verification, the Department discovered that certain machinery and equipment were provided by parties which had not been identified as affiliates. See Inchon Verification Report, pp. 7-8. Based on the above, we agree with petitioners that Inchon failed to identify machinery and equipment expenses relating to the construction of a mill and furnace used to produce subject merchandise as affiliated-party transactions. Because these expenses were not identified in Inchon's questionnaire response, the Department was unable to consider whether such transactions were made at arm's length. As a result, it is inappropriate to use these expenses in the calculation of Inchon's costs. However, we note that, due to the portion of total depreciation costs that were incurred through affiliated parties, it would be inappropriate to disregard Inchon's reported depreciation expenses in toto, as petitioners argue. As facts available, pursuant to section 776(a) of the Act, we have therefore adjusted Inchon's manufacturing costs based on Inchon's proposed recalculation contained in its rebuttal brief. See Inchon's May 22, 2000, rebuttal brief, Attachment 4. Comment 4: Overhead Petitioners argue that the Department should apply facts available with respect to Inchon's overhead expenses, based on the Department's discovery at verification that another affiliate provided repair/maintenance work for Inchon during the period of investigation ("POI"), the valuation for which was not subjected to an arm's-length test. As facts available, petitioners propose that the percentage difference between the market price and the weighted-average transfer price for the direct material input discussed in comment 1 be applied to the reported fixed overhead cost. Inchon argues that the Department should reject petitioners' proposal for adjusting overhead, since the repair and maintenance expenses at issue have no reasonable relation to the costs of a direct material input. In addition, respondent argues that these expenses constitute a minor portion of total manufacturing costs. Also, Inchon argues that petitioners erroneously refer to these repair and maintenance services as a component of fixed overhead expenses, rather than as variable overhead expenses. In conclusion, Inchon suggests that any adjustment to the reported costs of this service must reflect its relative contribution to cost of production. DOC Position: We agree with petitioners that Inchon failed to identify certain repair and maintenance work expenses as affiliated-party transactions. The Department's questionnaire asked Inchon to "{l}ist all inputs used to produce the merchandise under investigation, including...subcontractor services...etc. Identify those inputs that your company receives from affiliated parties (i.e., affiliated persons). For each input received from an affiliated party, provide the name of the affiliated party..." See Section D, question 5 of the Department's questionnaire. In its response, Inchon did not indicate that any services related to the production of subject merchandise were supplied by affiliated parties. See Section D response, page D-4. Subsequently, at verification, the Department discovered that certain services were provided by a party which had not been identified as an affiliate. See Inchon Verification Report, pp. 7-8. Because these services were not identified in Inchon's questionnaire response, the Department was unable to consider whether such transactions were made at arm's length. As a result, it is inappropriate to use these expenses in the calculation of Inchon's costs. As facts available, pursuant to section 776(a) of the Act, we have therefore used a maintenance cost ratio based on information contained in the petition (at Exhibit IV-19) to recalculate Inchon's variable overhead portions of its cost of manufacture. Comment 5: SG&A Expenses Petitioners argue that Inchon's reported SG&A expense are not reliable and should not be used. Specifically, petitioners argue that the Inchon verification report states that Inchon did not report the "vast majority" of its SG&A expenses. Petitioners note that, at verification, Inchon stated that it did not include two accounts related to export charges in its G&A expense calculation per se. Also, petitioners note that the verification report states that Inchon stated that it did not review these accounts to find U.S.-related export expenses, and that the Department found additional unrelated charges directly related to U.S. sales in these accounts. Petitioners note that the Department discovered a certain export charge for subject merchandise which did not identify the market destination. Petitioners argue that the record evidence is insufficient to enable the Department to determine the number of sales that incurred the same type of export expense as the one discovered by the Department. Petitioners argue that the Department should therefore apply adverse facts available for all U.S. sales to "ensure that the party does not obtain a more favorable result by failing to cooperate than if it had cooperated fully," citing SAA at 870. As adverse facts available, petitioners propose that the Department apply a G&A expense ratio of 6.259 percent, which is the ratio of Inchon's SG&A expenses derived from Inchon's 1998 financial statements. Inchon argues that petitioners' claim that the Department failed to verify Inchon's reported G&A is without merit and should be rejected. In fact, Inchon argues that it has appropriately accounted for all elements of SG&A in its reporting of movement, direct selling, indirect selling and G&A expenses and that the Department should make no adjustment. Respondent argues that petitioners' assertion is based on a discussion of a completely separate topic, that of indirect selling expenses. Inchon notes that the Department's verification report stated that there were no discrepancies with Inchon's reported G&A expenses. Inchon continues that petitioners' proposed adjustment to G&A expenses fails to reflect the POI, as the proposed ratio is based on total SG&A expenses reported in Inchon's 1998 financial statements. Respondent further argues that petitioners' suggested calculation on its face would lead to double counting of all of these expenses because petitioners failed to deduct movement, direct or indirect selling expenses reported elsewhere. Inchon argues that petitioners overstate the extent of Inchon's unreported U.S. movement expenses. Respondent states that petitioners incorrectly assert that Inchon never established the identity of two accounts, assuming that they contained U.S. movement expenses. However, Inchon notes that at verification, and as indicated by verification exhibits, these accounts were identified, and do not relate to movement expenses. Inchon further notes that the additional movement expenses incurred for certain U.S. sales that had been inadvertently unreported were minor, representing a relatively insignificant amount when compared to the U.S. sales price. Inchon also notes that these expenses were not discovered prior to verification because Inchon's records do not identify the affected U.S. sales. DOC Position: We agree with respondent that G&A expenses were reported correctly in Inchon's cost response. We agree with Inchon that petitioners have mischaracterized the Department's verification findings in several respects. First, petitioners argue that the Department found at verification that Inchon failed to report the "vast majority" of its SG&A expenses. In fact, the verification report, in the section discussing indirect selling expenses, states that "{w}e noted that the vast majority of SG&A expenses in its financial statements was not assigned to either market. Inchon stated that these unassigned costs are included in the G&A field of its cost database and, therefore, were accounted for in its response." See Inchon Verification Report at page 43. We noted that these accounts contained export-related charges and selected a few entries and traced these to vouchers. Supporting documents indicated that these were charges related to exporting H-beams. Second, with regard to the two accounts related to export charges, we noted in our verification report that "two of these vouchers had supporting documentation indicating that the charge was related to third country sales....{T}he third voucher's supporting documentation...did not have any indication of market." See Inchon Verification Report at page 29. A careful reading of the verification report then reveals that the only "additional unreported charges directly related to U.S. sales in these accounts" found by the Department related to a "negotiation fee and a bank charge associated with the customer's payment for this transaction." See Inchon verification report at page 40. Therefore, there is no evidence that there are additional unreported export-related charges for U.S. sales, except for bank negotiation fees (for a discussion of these bank negotiation fees, see Comment 31, Bank negotiation fees). Comment 6: R&D Expenses Petitioners argue that the Department should apply facts available to Inchon's reported research and development expenses, citing the Department's verification report, which stated that Inchon "failed to report product-specific R&D expenses... directly related to the production of subject merchandise." As facts available, petitioners argue that the Department should apply an R&D factor of .229 percent, which petitioners derive from Inchon's Business Report. Petitioners also argue that, if the Department accepts Inchon's R&D expenses, it should adjust them in accordance with 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 ("DRAMs from Korea"), 64 FR 69694, 69699- 69700 (December 14, 1999). Petitioners note that the Inchon verification report states that beginning in 1997, Inchon changed its R&D methodology from expensing R&D to amortizing R&D. Therefore, petitioners argue that the Department should "expense Inchon's R&D expenses actually incurred in the year in which they were incurred to comport with Inchon's historical treatment of these expenses." Petitioners argue that the Department should add a depreciation charge to account for the difference between the R&D amount capitalized by Inchon and the amount amortized. Inchon argues that although the Department's report on the home market verification stated that respondent had not reported product-specific research and development ("R&D") expenses directly related to the production of subject merchandise, its methodology for reporting such expenses is accurate and in accordance with the Departmental precedent. Inchon argues that its reported R&D expenses were fully reconciled to the company's 1998 financial statements, and that the Department found no discrepancies. Inchon notes that the expenses for test runs of subject merchandise were incurred in 1999, i.e., subsequent to its cost reporting period. Respondent argues that it would be unreasonable to require Inchon to report 18 months of R&D expenses for a 12-month POI. Respondent maintains that it is the company's normal practice to amortize R&D expenses as an intangible asset. Claiming that the test production runs noted in the Department's home market verification report are part of the company's R&D expenditures, Inchon argues that these expenses are included in its General & Administrative expenses. Respondent argues that the Department's verification report asserts that Inchon should have ignored its normal accounting methodologies and reported the "allegedly" product-specific R&D expense. Inchon argues that the type of test manufacturing run at issue cannot be demonstrated to benefit a single product, such as the subject merchandise. In support of its argument, Inchon notes that the Department has found that "the research results or developments in the processes and technologies used in one {product} family can be (and are) used in the production and development of other {product} families" (citing Dynamic Random Access Memory Semiconductors of One Megabit or Above from the Republic of Korea, 64 FR 69694, 69702 (Dec. 14, 1999)). Further, respondent notes that the Department has rejected efforts to calculate R&D expenses on a product-specific basis, even when a company's normal accounting records record such expenses in such a manner, relying instead on total amortized R&D expenses, as was the case in Polyethylene Terephthalate Film, Sheet, and Strip from the Republic of Korea (56 FR 16305, 16312 (Apr. 22, 1991)). Inchon continues that, should the Department nevertheless determine that the R&D expenses at issue should be attributed to subject merchandise on a product-specific basis, all information necessary to perform any adjustments has been placed on the record of the investigation. However, respondent argues that the adjustment would be so small as to be meaningless: in fact, Inchon argues that only 10 percent of the R&D expenses identified by the Department at verification would be recognized as attributable to the first half of 1999. Inchon urges the Department to reject petitioners' suggestion that Inchon's reported R&D expenses be ignored altogether in lieu of a percentage derived from Inchon's Business Report. Inchon argues that petitioners' suggestion to use figures based on Inchon's Business Report is flawed in that the Report, which is prepared for the Korean government, is based on definitions of R&D expenses that vary from those used to calculated R&D for Inchon's financial statements. According to Inchon, the majority of the costs included in the Report are categorized as manufacturing costs by Korean GAAP, which have already been included in the product costs reported to the Department, and application of this rate would result in double counting these expenses. Inchon also objects to petitioners' alternate suggestion, to reject Inchon's accounting practices in amortizing R&D expenses and use instead the amount of R&D capitalized by Inchon in 1998. Inchon asserts that this suggestion counters the Department's practice to use figures based on a company's normal accounting records, provided they are not distortive and are in accordance with the GAAP of the home country. Inchon asserts that its accounting records are in accordance with Korean GAAP. Respondent also notes that there is no record evidence demonstrating that amortization of R&D is per se distortive. Inchon argues that after careful consideration and examination at verification, the Department accepted the R&D expenses without noting any distortions caused by Inchon's accounting practice. Inchon argues that petitioners' reliance on Korean DRAMs is misplaced. In that case, respondent argues that the Department's analysis did not concern the issue of amortizing versus expensing R&D; rather, in Korean DRAMs, the Department objected to the respondent's switching back and forth between the two methods, and the company's practice permitting it to defer R&D indefinitely. Inchon argues that none of these facts are present in the instant case; the company did switch from expensing R&D to amortization, but well before the initiation of the investigation. In addition, Inchon notes that there is no record evidence that suggests that the company would or could defer R&D expenses. Respondent concludes that neither of the petitioners' proposals attempts to address the issue identified in the Inchon verification report, namely, that Inchon had purportedly failed to report product-specific R&D expenses. Furthermore, Inchon notes that petitioners' proposals do not rely on the verified 1999 R&D expenses identified in the verification report, which reflects the POI. However, if the Department should determine that it is appropriate to adjust Inchon's reported R&D costs, respondent argues that there is sufficient information on the record to do so. Inchon suggests that the Department adjust the reporting period for these expenses to coincide with the POI. In addition, in order to avoid double counting, respondent suggests that the Department then deduct R&D expenses already included in the G&A calculation, thereby reducing G&A. Inchon further asserts that the Department should only include that portion of product-specific expenses actually ultimately recognized in the POI. DOC Position: We agree with petitioners and Inchon, in part. With regard to the treatment of certain R&D expenses incurred in 1999, we agree with Inchon that it would not be appropriate to add these expenses to the calculation of G&A expenses. Significantly, we note that Inchon relied on its 1998 costs in preparing its response; therefore, assuming that the Department found it appropriate for Inchon to utilize its 1998 costs, Inchon in fact should not have included costs relating to 1999 in its cost response. Nevertheless, the Department sought, at verification, to determine whether there were any significant costs incurred during the POI which would not have been captured through the use of Inchon's 1998 cost data. That is, the Department chose to examine, at verification, whether Inchon's use of its 1998 data, as opposed to data which corresponded more closely with the period of investigation, may have led to the exclusion of significant costs incurred which related to the production of subject merchandise. It is in this context that the Department examined certain research and development expenses incurred in 1999 which appear, based on Inchon Cost Verification Exhibit 21, to be directly tied to subject merchandise. However, we note that the issue of whether or not these expenses are more properly considered product-specific or general is moot. Specifically, because the actual amount of the expenses at issue is so small as to confirm that, even assuming the expenses are product-specific, the use of 1998 costs (which did not include product-specific R&D expenses) cannot reasonably be argued to have led to a distortion in Inchon's actual production costs for the POI. With regard to Inchon's 1997 conversion to amortization of R&D expenses (as opposed to expensing them), we note that section 773(f)(1)(A) of the Act directs to the Department to rely "on the records of the exporter or producer of the merchandise, if such records are kept in accordance with the GAAP of the exporting country (or the producing country where appropriate) and reasonably reflect the costs associated with production and sale of the merchandise.'' Section 773(f)(1)(A) of the Act also states that the Department will consider whether "such allocations have been historically used by the exporter or the producer." Further, as explained in the SAA, ``[t]he exporter or producer will be expected to demonstrate that it has historically utilized such allocations, particularly with regard to the establishment of appropriate amortization and depreciation periods and allowances for capital expenditures and other development costs.'' See SAA at 834. We agree with Inchon that its method of amortizing and deferring R&D costs is permissible under Korean GAAP, and that its previous method of expensing all current period R&D expenses in the year incurred is also in accordance with Korean GAAP. However, we note that, from 1994-1996, Inchon expensed its R&D. As noted above, beginning in 1997, Inchon changed its methodology and began amortizing/capitalizing these expenses. Based on this change in methodology, we determine that this change may distort the Department's cost calculation in our antidumping analysis. We therefore believe that it is appropriate to recognize, for antidumping purposes, all of Inchon's 1998 R&D expenses in order to reasonably and accurately reflect its actual R&D costs for a given year. Because Inchon capitalized more R&D than it amortized in 1998, we are adding the amount of this difference (between Inchon's capitalized R&D amount and its amortized R&D amount) to Inchon's cost of manufacturing. This methodology is consistent with both Korean and U.S. GAAP, and is the same methodology that Inchon used prior to its change in 1997. See DRAMs from Korea, 64 FR at 69700. Comment 7: Interest Expense (Securities) Petitioners argue that the Department should disallow Inchon's interest income used to offset its interest expense, based on the Department's finding at verification that "a portion of Inchon's interest income used to offset its interest expense was associated with securities derived from Hyundai Group members, " and because the Department "has no way of knowing whether this offset was at arm's length." Inchon rebuts petitioners' argument that the Department disallow the entire interest income offset. Respondent argues that petitioners acknowledge that the record evidence indicates that only a portion of the interest income is generated from securities, and only a portion of the securities income is derived from Hyundai Group members. Moreover, Inchon asserts that none of the Hyundai Group members are affiliated. Inchon urges that, should the Department nevertheless determine that some adjustment is appropriate, the adjustment should reflect the relative portion of this income, as calculated by respondent. DOC Position: We disagree with petitioners that we should disallow Inchon's reported interest income offset due to the fact that a portion of the offset pertains to securities from Hyundai Group members. A review of Cost Exhibit 22 of the Inchon Verification Report reveals that only one of the Hyundai Group members is affiliated with Inchon, and this company accounted for only a very small portion of Inchon's reported interest income offset. See the proprietary version of the Final Analysis Memo: Inchon for the identification of this company and the calculation of the portion of interest income for which it accounts. Because the effect on the reported production costs is therefore negligible, we have not made any adjustment related to this issue to Inchon's reported interest expenses for the final determination. Comment 8: Interest Expense (Sales-Related Activities) Respondent argues that its reporting methodology with regard to interest income was in accordance with Departmental methodology and therefore no adjustment should be made in the final determination. Inchon notes that while the Department's verification report objected to the company's inclusion of interest income derived from sales-related activities, it is in fact the Department's practice to allow a respondent to reduce its total interest expense by interest income earned from short-term investments of working capital, as income derived from working capital is by definition related to a company's manufacturing and sales operations (citing Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts Thereof from France, et al. ("Antifriction Bearings from France"), 60 FR 10900, 10926 (February 28, 1995)). Respondent argues that the Department has explicitly permitted the short-term interest income offset to include short-term interest income derived from late payments from customers. Citing to Antifriction Bearings from France at 10926, Inchon notes that the Department accepted the respondent's reporting methodology and accepted the reported interest offset, noting that this type of interest was derived from manufacturing and sales operations. Respondent states that in the instant case, the interest income at issue is interest derived from commercial paper received from certain customers for certain sales, and is directly analogous to the short-term interest income that the Department allowed to offset interest expense in Antifriction Bearings from France. Petitioners rebut Inchon's argument that the Department should offset Inchon's reported interest expenses with interest income from sales- related activities, citing Notice of Final Determination of Sales at Less Than Fair Value: Certain Cut-to-Length Carbon-Quality Steel Plate Products from Indonesia, 64 FR 73164, 73173 (December 29, 1999), where the Department determined that interest income earned on accounts receivable is treated as an adjustment to the selling price, and not as an offset. Also, petitioners argue that the Department has determined that late payment charges paid by customers do not constitute interest income and are more appropriately considered sales revenue, citing Silicon Metal from Brazil, 65 FR 7497 (February 15, 2000). Thus, petitioners argue that the Department should not allow this offset for the final determination. DOC Position: We agree with the petitioners that the interest income related to late payment of invoices should not be used as an offset in the interest expense calculation. In fact, as the Department stated in Notice of Final Determination of Sales at Less Than Fair Value: Certain Cut-to- Length Carbon-Quality Steel Plate Products from Indonesia, interest income earned on accounts receivable is treated as an adjustment to the selling price. Furthermore, we note that the Department's standard questionnaire directs a respondent to report such interest income in a separate field on the sales database in order to allow for the adjustment to the selling price (2). See Sections B and C of the Questionnaire ("Interest Revenue," which instructs the respondent to report the per unit interest charges collected on each sale for late payment of the invoice). Accordingly, we have disallowed this interest income directly related to sales as an offset to interest expense. Comment 9: Loan Guarantees Petitioners argue that the Department should apply adverse facts available to Inchon's reported interest expenses with regard to loan guarantees provided by affiliated parties which the Department discovered at verification. Petitioners propose that, as adverse facts available, the Department should increase Inchon's interest expense by the percentage difference between the market price and the weighted-average difference for the direct material input discussed in comment 1. Inchon argues that petitioners' suggestion that the Department increase Inchon's interest expense by the same percentage difference between the market price and the weighted-average difference for the direct material input is flawed, as the adjustment is based on a wholly unrelated input. Respondent notes that petitioners base the need to adjust this expense on its assertion that Inchon did not disclose that loan guarantees were provided by an affiliate. However, Inchon argues that payments for loan guarantees are in fact nominal, and that if indeed any payments for loan guarantees were made, it would only amount to a "tiny" portion of total interest expense, and therefore, applying petitioners' much larger percentage adjustment would not be justified. DOC Position: We agree with respondents that it is inappropriate to make an adjustment to Inchon's reported interest expenses because we discovered at verification that loan guarantees had been provided by an affiliated party. First, there is no record evidence to show that any loan guarantee payments in fact were made by Inchon to the affiliated party. The value of the loan guarantee provided by the affiliated party only represents a portion of total interest expenses and any loan guarantee charge on this portion, even if payment had been made, would be insignificant (see Final Analysis Memo: Inchon for this calculation). Therefore, there is clearly no distortion present in the calculation of Inchon's interest expenses through any alleged omission of loan guarantee payments, and we have not made any adjustment with respect to this issue for the final determination. Comment 10: Affiliated-Party Services for an Input Petitioners argue that the Department should apply adverse facts available for certain material input costs for which certain services were provided by an affiliated party, based on the Department's discovery at verification that Inchon did not identify other affiliated parties which provided these services for the input in question. Inchon rebuts petitioners arguments by stating that these services are fairly valued and constitute only a small portion of the material costs. Also, Inchon argues that, based on certain sales terms, for which Inchon argues a significant portion of its purchases are based on, the costs for these services are paid by the input supplier and not Inchon. Finally, Inchon argues that the raw materials amount was only a certain percentage of total raw materials; thus, its potential impact on costs is minimal. DOC Position: We agree with Inchon that no adjustment is necessary to account for the valuation of the material input at question due to the discovery at verification that certain services related to the material input were provided by affiliated parties. There exists record evidence, as reflected in the sales terms for the service at issue, which in fact demonstrates that the cost of these services are borne by the unaffiliated supplier, not Inchon. See Inchon Cost Verification Exhibit 23. Thus, the transaction between the supplier of the input and the service provider is irrelevant: that is, because the supplier of the input is unaffiliated with Inchon, there is no reason to suspect that the price of the input (which includes the price of the service) does not reflect a market value. Therefore, we have made no adjustment to Inchon's material input costs with respect to this issue for the final determination. Comment 11: Sales Price and Adjustments for U.S. Channel 3 Respondent argues that the Department should continue to accept the prices and adjustments as reported by the company with regard to its U.S. channel three sales. Respondent notes that the Department's verification report states that the gross unit prices for sales made to the U.S. through channel 3 were not derived from Inchon's underlying commercial invoices, and furthermore, that the report "alleges" that Inchon could have calculated its billing adjustments for these sales on a "presumably more accurate product-specific basis." However, Inchon argues that the company explained its methodology to the Department at verification, and demonstrated that its reported prices and billing adjustments as accurately as possible. Specifically, Inchon argues that the Department's assertion that the company could have reported its billing adjustments for these sales on a product-specific basis is incorrect, as are the per-unit billing adjustments calculated in the verification report. Inchon argues that, as explained to the Department at verification, Inchon's billing adjustments for channel 3 sales are not assigned in Inchon's sales computer database to the particular underlying sales or products that cause the adjustments. Respondent further explains that the adjustments are assigned in the computer database to any sales or products made to that particular customer that was shipped in the same vessel as the sale or product that caused the adjustment; therefore, even though the company's computerized records might indicate that a particular adjustment is linked to a particular product or sale, Inchon asserts that it is not necessarily the product or sale that was originally the subject of the adjustment. Therefore, Inchon argues that allocating a billing adjustment to only the particular sale and product identified by Inchon's computerized records is unreasonable because the billing adjustment is not being accurately matched to the actual underlying sale. Due to the computerized records' limitations, Inchon notes that it allocated each billing adjustment over all sales to the particular customer shipped in the same vessel containing the products that were linked to the adjustment in the company's sales database. Respondent further argues that the Department verified that Inchon had reported all billing adjustments for channel 3 U.S. sales because the Department found no discrepancies in the reconciliation of the quantity and value of these sales to the company's financial statements. Respondent also argues that the Department's practice is to accept price adjustments that do not reflect the actual amounts incurred if it was not feasible to report the actual adjustments on a transaction-specific basis and the reporting methodology is reasonable (citing Timkin v. United States, 16 F.Supp.2d 1102, 1107 (CIT 1998); Circular Welded Non-Alloy Steel Pipe from the Republic of Korea, 63 FR 32833, 32844 (June 16, 1998)); and Gray Portland Cement and Clinker from Mexico (64 FR 13148, 13167 (March 17, 1999)). In summary, Inchon argues that no adjustment to Channel 3 sales is necessary, as the Department verified that Inchon had reported the unit price actually paid by the customer for the merchandise before billing adjustments, which were reported in the most accurate manner permitted by the company's computer and accounting systems. Respondent further notes that the Department verified the overall accuracy of the U.S. sales at verification. Nevertheless, should the Department determine that an adjustment is appropriate, Inchon asserts that the Department must ensure that such an adjustment bears some relationship to the issue at hand. Since the issue in question relates to a single customer, Inchon suggests that the Department might use the highest absolute unit billing adjustment granted on sales to this customer for all sales to this same customer. Petitioners rebut Inchon's argument that it reported its U.S. channel three sales prices and billing adjustments on the most accurate basis possible and that the Department confirmed the gross unit price report by Inchon for the reviewed U.S. channel three sale with support from the proof of payment presented by Inchon. Specifically, petitioners cite the Inchon verification report, which petitioners argue "belies" Inchon's statement that "regardless of the particular source document for Inchon's reported gross unit prices for channel 3 sales, the evidence reviewed by the Department demonstrated that gross unit prices for these sales were accurately reported." Instead, petitioners argue that the Inchon verification report indicates the opposite. Petitioners claim that Inchon's statement that these billing adjustments were only made for sales to one customer demonstrates "circular reasoning." In fact, petitioners argue that the database itself is reported inaccurately and could not be verified. Petitioners argue that Inchon did not check, when compiling its U.S. database, whether there were billing adjustments to sales other than to this particular customer. Also, petitioners argue that the gross unit price report apparently did not identify billing adjustments and there is no indication of which and how many U.S. channel three customers received such price adjustments. Petitioners conclude that, because the Department was unable to verify the prices and billing adjustments for channel 3 sales, the Department should, at a minimum, disregard these sales for the final determination. DOC Position: We agree with petitioners in part. In its response to the Department, Inchon provided information showing a calculation for a billing adjustment for the customer in question. This information shows that Inchon's billing adjustment methodology was to calculate its reported billing adjustments with respect to this customer on a shipment-specific basis. See Exhibit C-4 of Inchon's Section C response, and Exhibit 16 of Inchon's supplemental Section C response. Inchon also provided, in its response, company documentation which ties billing adjustment amounts to sales on a product-specific basis. See Exhibit 16 of Inchon's supplemental Section C response. Inchon did not inform the Department, in any of its responses, that the amounts associated with specific products in Inchon's internal records did not reflect actual billing adjustments associated with the transactions for that invoice. At verification, the Department reviewed these internal company documents which associate billing adjustment amounts with specific products. The verification report does not indicate that Inchon company officials explained that the amounts associated with particular products do not in fact represent the actual billing adjustments for that product. However, we did find evidence at verification that, indeed, the billing adjustments reported to the Department for individual transactions did not specifically tie to that particular transaction. See Verification Report at page 40 ("Inchon presented what it called a "billing adjustment" to the U.S. price. Inchon was not able to explain what this represented given a prior proof of payment package that showed proof of payment at the GRSUPRU reported in the response...Inchon stated that to demonstrate the entire proof of payment for the transactions, including the billing adjustment, there were an additional 10 commercial invoices and an additional five payments (and their requisite proof of payment traces) necessary to reconcile the total billed amount and received amount by that customer...The total invoiced amount and payment received tied to a worksheet listing the individual invoices and 'billing adjustments.'"). In any event, it is clear that the methodology applied by Inchon in reporting billing adjustments for this customer, whether or not Inchon reported these adjustments to the greatest degree of specificity its records allowed, leads to a distortion of the actual prices paid by this customer for each transaction. For example, as discussed in the verification report, using the billing adjustment amount from Inchon's internal records associated with one observation in the database, we noted that the reported amount was positive, while the actual amount recorded in Inchon's internal records revealed a negative amount. See Verification Report at pp. 40-41. In this regard, respondent is correct in asserting that the Department will normally accept allocations where the methodology was reasonable. In fact, record evidence demonstrates that in this case, Inchon's methodology leads to significant distortions of the actual prices paid for the reported transactions, and therefore the Department cannot accept Inchon's allocation methodology with regard to its calculation of billing adjustments for its channel three sales to this customer. Since Inchon's reported billing adjustments for the customer in question could not be verified, as facts available, pursuant to section 776(a) of the Act, the Department has excluded the affected sales from its margin calculations. With regard to petitioners' assertion that all U.S. channel three sales are affected, we disagree. Record evidence confirms that only this customer received billing adjustments during the POI. Specifically, the Department successfully reconciled Inchon's overall reported sales value. See Verification Report at pp. 20-21. Therefore, we find no reason to disregard Inchon's channel 3 sales to other customers. Comment 12: Billing Adjustments for U.S. Channel 2 sales Petitioners argue that Inchon's billing adjustments for U.S. channel two sales "did not verify", and that this fact, in tandem with the other elements noted below in comment 19, compel the Department to apply total adverse facts available to Inchon's entire response. Inchon argues that petitioners' allegations regarding the accuracy of Inchon's channel two sales data are without merit. Specifically, Inchon argues that it demonstrated that no billing adjustments were made for these sales through the U.S. sales quantity and value reconciliation, wherein the Department found no discrepancies. DOC Position: We agree with Inchon that it demonstrated that there were no billing adjustments for U.S. sales through channel two. In the Inchon verification report, we tied the U.S. sales quantity and value reconciliation for all three sales channels and we found no discrepancies. See Verification report at pp. 20-21. Thus, as evidenced by this reconciliation at verification, we determine that Inchon demonstrated that there were no billing adjustments to its U.S. channel two sales. Comment 13: U.S. Movement Expenses Inchon argues that it reported U.S. movement expenses to the best of its ability, and had so explained to the Department at verification. Respondent asserts that it explained to the Department that the company's computerized records do not record Inchon's actual movement expenses on a sales-specific basis. Inchon argues that the Department has accepted price adjustments that do not reflect the actual amounts incurred if it was not feasible to report the actual adjustments on a transaction-specific basis and the reporting methodology is reasonable (citing Timken Co. v. United States, 16 F.Supp.2d at 1107 and Circular Welded Non-Alloy Steel Pipe from the Republic of Korea, 63 FR 32833, 32844 (June 16, 1998)). Inchon further argued that in Oil Country Tubular Goods from Mexico, 64 FR 13962, 13969 (March 23, 1999), the Department determined that it would accept movement expenses based on fee schedules when the respondent is unable to report the actual expenses. Respondent argues that given the limitations of its computerized system, there was no systematic way for the company to determine its actual U.S. movement expenses for each U.S. sale other than by manually calculating and recording them. Inchon further notes that the differences between the reported and actual movement expenses were overall quite nominal, since at verification the Department found that Inchon both under and over reported the actual expenses. Therefore, Inchon argues that its methodology of estimating these expenses based on a fee schedule is reasonable, and that the Department should accept the expenses as reported. Inchon also notes that during preparation for verification, it had discovered and disclosed to the Department a few minor additional movement expenses that were incurred for certain U.S. sales. Respondent argues that in light of the erratic nature and relatively small size of these additional expenses, there is no evidence to indicate that Inchon did not report U.S. movement expenses to the best of its ability. Petitioners dispute Inchon's statement that the fees for a certain service (3) were based on a common published fee schedule charged to Inchon for all companies providing this service, and rebut Inchon's argument that information on the record demonstrates that the prices charged to Inchon for this service were at arm's-length. Inchon argues that petitioners overstate the extent of Inchon's unreported U.S. movement expenses. Respondent states that petitioners incorrectly assert that Inchon never established the identity of two accounts, and have improperly assumed that they contained U.S. movement expenses. Inchon argues that at verification, these accounts were identified, and do not in fact relate to movement expenses. Inchon further notes that the additional movement expenses incurred for certain U.S. sales that had been inadvertently unreported were minor, representing a relatively insignificant amount when compared to the U.S. sales price. Inchon also notes that these expenses were not discovered prior to verification because Inchon's records do not identify the affected U.S. sales. Petitioners assert that although Inchon stated that it was not feasible for Inchon to report the actual U.S. movements expenses on a transaction- specific basis, Inchon could have calculated actual or customer-specific U.S. movement expenses based upon its fee schedules. Petitioners argue that the Department, in previous administrative reviews, has required respondents to calculate, from their fee schedules, customer- specific movement expenses and thereby derive transaction-specific amounts. Petitioners argue that Inchon's fee schedule estimates are not a substitute for product-specific data and should not be accepted by the Department. DOC Position: We agree with Inchon that, in general, the difference between the reported and actual movement expenses were not significant. However, where we found significant differences, we made the appropriate adjustment to the reported information. We disagree with the petitioner that Inchon's estimates are not a viable substitute for product-specific data. Where actual movement expenses are not available, the use of fee schedules is a reasonable method of estimating actual movement expenses as long as during verification these estimates reflect the actual expenses without any pattern of bias. See Oil Country Tubular Goods From Mexico: Final Results of Antidumping Duty Administrative Review, 64 FR 13962, 13969 (March 23, 1999) and Circular Welded Non-Alloy Steel Pipe From the Republic of Korea; Final Results of Antidumping Duty Administrative Review, 63 FR 32833, 32844 (June 16, 1998). Inchon stated that it reported its domestic inland freight to the port expenses based on actual expenses. See Inchon's October 25, 1999, Section C response, at C-20. At the beginning of the verification, Inchon declared, as one of their pre-verification clarifications, that, for certain U.S. sales, an additional yard usage charge should have been included in the domestic inland freight to the port expense, but was inadvertently not reported to the Department. (See Inchon Sales Verification Exhibit 1, Pre-verification corrections.) Later, during the verification of the U.S. sales traces, we discovered two additional expenses that were improperly excluded from the domestic inland freight: a long beam charge and a security charge. For the four U.S. sales traces we conducted, we found that the security charge was not reported for all four U.S. sales traces and the long beam charge was not reported for one of the four U.S. sales traces. We note that the additional yard charge appeared on two of the four U.S. sales traces. As for the remaining U.S. sales which were not selected for sale traces, Inchon could not identify which sales had not incurred these expenses. As facts available, we have added these three expenses to the reported domestic inland freight to port expense for all U.S. sales. Inchon stated that it reported its U.S. duty and U.S. wharfage (reported as U.S. Other) based on fee schedules. See Inchon's October 25, 1999, Section C response, at C-25 and C-24, respectively. In Inchon's sales pre- verification corrections list, Inchon presented adjustments to its reported U.S. duty and U.S. wharfage for the 10 sales selected for sales trace. Of these 10 sales traces, three sales showed some over-reporting, when compared to actual expense, for U.S. duty and two sales U.S. wharfage. However, Inchon stated that it could not ascertain whether there were adjustments to Inchon's remaining unselected sales. Based on this information, we made no change to the reported U.S. duty and U.S. wharfage because the data from the 10 sales traces for these two adjustments failed to demonstrate any pattern of under- or over-reporting for these expenses. Inchon stated that it reported its U.S. loading (reported as U.S. Direct Selling Expenses) based on actual expenses incurred. See Inchon's October 25, 1999, Section C response, at C-31. In Inchon's sales pre-verification correction list, Inchon presented adjustments to U.S. loading expenses. We note that of the 10 U.S. sales traces, some of the U.S. loading expense adjustments were over-reported and some under-reported, when compared to the actual expense. Thus, we have not made any changes to the reported U.S. loading expenses because we cannot establish whether the final impact is positive or negative. Inchon stated that it reported its U.S. marine insurance based on actual expenses. See Inchon's October 25, 1999, Section C response, at C-22. In Inchon's sales pre-verification correction list, Inchon presented adjustments to U.S. marine insurance. Of the 10 U.S. sales traces, these adjustments, in general, showed a slight under-reporting when compared to the actual expense. Also, at the Hyundai U.S.A. verification, we discovered that the provider for some of Inchon's marine insurance was an affiliate. For several of the U.S. sales traces, both affiliates and non- affiliates provided marine insurance. We compared the expense from affiliates and non-affiliates. We noted that the expenses reported from affiliates were slightly lower, in terms of the dollar amount per metric ton, than from non-affiliates. Therefore, as facts available, we have applied the percentage difference between these two to reported U.S. marine insurance for all U.S. sales. See Final Analysis Memo: Inchon for the actual difference in these expenses. Inchon stated that it reported an additional service for a U.S. sales expense based on a fee schedule. See Inchon's October 25, 1999, Section C response, at C-21. In Inchon's sales pre-verification correction list, Inchon presented adjustments to this expense. During the verification of this expense for four sales traces, we discovered information which called into question whether these expenses had been reported in accordance with the Department's instructions. Because the entirety of this information relates to proprietary information, please refer to the business proprietary version of the Final Analysis Memo: Inchon. Based on the Department's analysis of this proprietary information, for the final determination, we have not made any adjustments to this reported expense. Comment 14: Recalculation of Inchon's and Hyundai Corporation's Indirect Selling Expenses Petitioners maintain that the Department was unable to tie Hyundai Corporation's indirect selling expenses ("ISEs") to its financial statements, and that Inchon was not in a position to demonstrate the nature of the expense accounts it had excluded from its calculation of ISEs (including those of Hyundai Corporation), despite the Department's offer to travel to Hyundai Corporation's Seoul office the next morning if it was inconvenient for Inchon to bring the documents to the verification site. Thus, petitioners argue that because Inchon's ISEs relating to Hyundai Corporation were not verified, the Department should apply adverse facts available to these ISEs. As adverse facts available, petitioners argue that the Department should quadruple the amount of the reported expenses to account for the unreported ISE accounts. Petitioners also note that the Department, at verification, discovered that Inchon had underestimated the amount of both U.S. and home market selling expenses, but had underestimated the amount of U.S. ISE "much more so" than home market ISEs. Inchon argues that the Department's suggestion in its verification report that the home market and U.S. indirect selling expenses should be recalculated is contrary to the Department's past practice. Respondent states that the allegation made in the verification report that Inchon's methodology results in distortions in the amount of indirect selling expenses allocated between U.S. and home market sales is wrong. Inchon argues that its methodology in calculating these expenses was reasonable, and should not be adjusted. Inchon states that petitioners' argument that the Department did not verify Inchon's reported indirect selling expense ratios for the home and U.S. markets is without merit. Inchon argues that its methodology for reporting indirect selling expenses in the U.S. and home markets is reasonable, is in accordance with Departmental practice and should be used in the Department's final determination. Inchon states that it correctly identified and reported indirect selling expenses as those expenses incurred in connection with the "production and sale of the foreign like product," citing to the Department's questionnaire. Respondent argues that the mere fact that an expense may support a respondent's selling activities does not result in that expense being treated as a selling expense, rather than as a part of G&A expenses. Inchon further states that the Department has rejected parties' attempts to classify certain administrative expenses as selling expenses. As an example, Inchon cites Dry-cleaning Machinery from West Germany, 50 FR 1256, 1259 (January 10, 1985), where the Department rejected the respondent's argument that the amount claimed as selling expense was too low and failed to include any provision for accounting, computer support, and other support activities. Inchon states that it relied on expenses accumulated in its home market and export sales divisions to segregate indirect selling expenses by market. Inchon argues that this methodology is reasonable, reflects expenses actually incurred with various markets, and is consistent with the Department's past practice. Respondent notes further that although the Department has in some cases relied on relative sales value for the allocation of indirect selling expenses, the Department has long recognized the validity of alternate methodologies, citing to DRAMS from Korea (61 FR 20216, 20217 (May 6, 1996)), wherein the Department noted that "it is not our policy to require allocation of indirect selling expenses based upon relative sales value in every instance..." Inchon also cites to a recent Department decision to accept a respondent's calculation of indirect selling expenses based on expenses associated with domestic versus export sales offices (citing Issues and Decision Memorandum for the Investigation of Certain Polyester Staple Fiber from Taiwan, 54 FR 16877 (March 30, 2000)). Inchon states that the recalculation of the indirect selling expenses included in the verification report represents a departure from the Department's past practices and results in double counting of direct selling expenses and G&A expenses not incurred on sales activities. Respondent notes that the verification report indicates that any expense incurred in supporting Inchon's sales activities must be included in indirect selling expenses. Inchon further argues that the verification report's conclusion that any expense incurred in "supporting" Inchon's sales activities must be included in indirect selling expenses is directly contrary to the Department's statement in the questionnaire that G&A expenses include expenses incurred in the sale of the foreign like product. Furthermore, Inchon asserts it is inconsistent with the Department's determination in Dry-cleaning Machinery from West Germany that accounting, computer support, and other support activities are not to be included in indirect selling expenses. Respondent argues that the premise that any expense incurred in "supporting" sales activities must be included in indirect selling expenses is also unsound because virtually all functions of a company can be said to support its sales; Inchon argues that the logical conclusion from this premise would be that all activities, other than direct selling expenses, should be classified as indirect selling expenses. Inchon argues that this is contrary to the Department's past practice. Inchon notes that the verification report asserts that the company failed to prove that there were no adjustments made on certain sales through Hyundai Corporation, and that it could not provide support for the U.S. indirect selling expenses incurred by Hyundai Corporation. Inchon argues that these requests involved a separate company (Hyundai Corporation), and that while the company was reasonably prepared to provide information from Hyundai Corporation to the Department, it would be unreasonable to expect that all Hyundai Corporation documents would be immediately available at Inchon. Inchon notes that although it may have been unable to immediately meet the Department's information requests, Inchon never refused to provide any information concerning Hyundai Corporation or any other subject during the verification. Inchon argues that the Department's recalculation of indirect selling expenses is equally flawed, stating that the expenses "not assigned" to a selling unit have been accounted for elsewhere. Respondent states that the proposed recalculation would result in double counting a significant portion of Inchon's SG&A expenses, which would be counted as both direct and indirect selling expenses. Inchon further argues that even if some of the expenses included in the reported G&A expenses should be attributed to indirect selling expenses, it would be erroneous to assume that all expenses of a particular activitiy were incurred to support Inchon's selling activities, stating that some of these expenses were incurred in the support of Inchon's production activities. Respondent argues that the Department's recalculation fails to allocate the portion of these expenses between Inchon's sales activities and production activities. Inchon notes that petitioners' demand to quadruple the amount of reported U.S. indirect selling expenses includes no support as to how this adjustment was derived. Therefore, Inchon urges the Department to reject petitioners' suggestion. Respondent asserts that the Department has the information necessary to calculate an appropriate indirect selling expense factor, which could be calculated by dividing total SG&A for Hyundai Corporation by the total sales value for the POI. Petitioners rebut Inchon's objection to the Department's treatment of its indirect selling expenses in the Inchon verification report. Petitioners argue that it is the Department's practice and preferred methodology to allocate indirect selling expenses on the basis of value or cost, citing Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Plate in Coils From Taiwan, 64 FR 15493, 15506 (March 31, 1999); Stainless Steel Plate in Coils From Belgium, 64 FR 15476, 15488 (March 31, 1999); and Stainless Steel Round Wire From Canada, 64 FR 17324, 17330 (April 9, 1999). Thus, petitioners argue that, if the Department does not rely on total facts available, it should use the value-based ratios calculated by the Department and listed in the Inchon verification report. DOC Position: We disagree with petitioners. Inchon presented worksheets for its calculation of its and Hyundai Corporation's ISEs in Inchon's October 25, 1999, Section C questionnaire response, at Exhibits C-18 and C- 19, respectively. We note that Inchon stated, at page C-32 of Inchon's October 25, 1999, Section C questionnaire response, that for U.S. sales channels one and two transactions, its reported indirect selling expense is based on the total of the indirect selling expense ratios for Inchon and Hyundai Corporation. Also, in this same response, Inchon states that, for U.S. channel three transactions, the reported indirect selling expenses is based on only Inchon's indirect selling expense ratio. (We note that this is data field DINDIRSU.) At verification, Inchon failed to demonstrate why Inchon had excluded a particular line item ("Exportation") in its calculation of the ISE amount attributable to Hyundai Corporation. Furthermore, Inchon did not reconcile Hyundai Corporation's SG&A figure (from which ISE's were calculated) as reported in its financial statements, to its ISE calculation worksheet. In this regard, we note that the verification outline, dated February 25, 2000, specifically requested Inchon to provide "complete supporting documentation for each ... verification procedure. Complete supporting documentation would consist of a complete trail of calculations, supporting schedules, ... copies of pages from sub-ledgers ..." Despite the fact that Inchon did not have these documents available when the Department attempted to verify reported ISEs, the Department stated that it was "willing to view the documents at Hyundai Corporation's offices in Seoul the following morning if it was inconvenient for them to bring the documents to the verification site." In response, "Inchon stated that they were not in a position to demonstrate either the nature of the excluded expenses or Hyundai Corporation's overall ISEs." See Verification Report at page 44. Therefore, contrary to Inchon's assertions, Inchon in fact refused to provide information concerning Hyundai Corporation. Therefore, as facts available, for our final determination we have used Hyundai Corporation's total SG&A figure from its financial statements in order to recalculate the ISE's attributable to Hyundai Corporation. We note that the Inchon verification report states that certain expenses, such as accounting department, computer support personnel and other support staff, are included in Inchon's G&A expenses, as opposed to Inchon's reported indirect selling expenses. We also noted, in the Inchon verification report, that these staff support the sales staff. However, because these support staff support Inchon's sales activities, and because Inchon sells non-subject merchandise, we agree with Inchon that it appropriately categorized these expenses and G&A, and therefore, we also agree with Inchon that it did not misreport Inchon's ISE's by not including these general expenses in its calculations. Comment 15: HM Sales to Affiliated Customer Petitioners argue that Inchon failed to identify a small portion of sales of subject merchandise as sales to an affiliated party. Petitioners argue that this fact, in combination with other errors, omissions, and failures to disclose affiliations, should lead the Department to apply total adverse facts available with respect to Inchon (see Comment 18 for a full discussion of total AFA). Inchon argues that despite petitioners' allegations, the sales made to an affiliated customer which were not identified in the database as affiliated-party transactions are so small, given the Department's methodology for calculating a weighted-average price for each product, that either inclusion or exclusion of these sales would have no meaningful impact on the margin calculations. Respondent notes that should the Department choose to include these sales, the correction could be easily done. DOC Position: We agree with respondent and note that these sales comprise a small amount of the total home market sales. Furthermore, the sales- specific information exists on the record, and can be used without any undue difficulty. We have corrected this database error by changing the customer relationship from code one for unaffiliated to code 2 for affiliated for this particular customer code. Thus, for our final determination, we applied the arm's-length test to these sales. Comment 16: Fees to HM Customer Petitioners note that the Department discovered, at verification, a certain fee to insure sales for a particular Inchon customer. Petitioners argue that the Department should apply adverse facts available to this customer. Inchon rebuts petitioners' assertion that it should have reported certain home market fees to at least one customer as selling expenses, arguing that there is no evidence from the record or verification that these fees were associated with sales of subject merchandise. Moreover, respondent argues that petitioners incorrectly allege that these fees were incurred on sales to U.S. customers, when in fact they were associated with sales to home market customers. Therefore, Inchon argues that there is no basis for the Department to conclude that these expenses should have been reported. DOC Position: We agree with respondent that there is no evidence on the record indicating that the fees in question were incurred with respect to sales of subject merchandise. In fact, the only evidence on the record which does contain product information shows that these fees were paid for sales of non-subject merchandise. Therefore, there is no basis for the Department to determine that Inchon incurred these additional selling expenses on sales of subject merchandise during the POI, and we consequently have made no adjustment with respect to this issue for the final determination. Comment 17: Home Market Inland Freight Petitioners assert that the Department should disallow Inchon's reported domestic inland freight charges for home market sales because, as the Inchon verification reports states, Inchon did not provide proof of payment for its domestic inland freight in its HM sales trace packages. Thus, petitioners argue that this information was not verified and demonstrates that Inchon has failed to cooperate to the best of its ability in responding to the Department's request for information. Therefore, according to petitioners, the Department should apply an adverse inference for the final determination. Inchon argues that it demonstrated the accuracy of its reported domestic inland freight expenses. Inchon notes that it provided the relevant entries in its freight sub-ledger for each of the home market sales reviewed during verification for which Inchon incurred freight expenses, and that based on these accounting records, Inchon demonstrated that it accurately reported inland freight for each home market sale. Respondent further notes that it explained to the Department during verification that it pays for inland freight on a monthly basis, rather than on a transaction-specific basis, so that tying payment for freight expenses to an individual sales transaction is complex. Inchon states that it nonetheless prepared a separate reconciliation package for verification proving payment for freight expenses and was fully prepared to present this package to the Department. Inchon argues that the fact that Department declined to review the package does not detract from Inchon's preparedness to present this information. DOC Position: We disagree with petitioners' argument to not accept Inchon's domestic inland freight charge for all home market sales because we did not review Inchon's proof of payment package for certain home market sales traces. We note that during our home market sales traces, for those sales with inland freight expenses, we examined the revelant entries in Inchon's freight sub-ledger. While we state in the Inchon verification report that, due to time constraints, we were unable to examine a payment package for this expense, this does not equate to a finding that domestic inland freight expenses should be disallowed. In any event, we are satisfied that we have sufficient information on the record to demonstrate that Inchon incurred and paid for these expenses. We note that, while the Inchon verification report states that Inchon did not provide proof of payment in its home market sales trace packages, we determine that there is sufficient evidence on the record which demonstrates that Inchon paid for the same expense for a U.S. sales trace. See Sales Verification Exhibit 21. For example, in this U.S. sales trace, we examined a voucher for inland freight and the corresponding entry in Inchon's SG&A ledger for this inland freight expense. We tied this same inland freight expense amount to a freight invoice and to a corresponding breakdown of each inland freight charge in the Detail of inland freight list. We also tied the won amount from the Detail of inland freight list to a voucher detail list, which, when combined with another invoice, ties to the voucher of payment of promissory note. Finally, this corresponding won amount ties to proof of a payment from Inchon's bank statement. Id. Thus, based on information on the record, we find there is no basis to disallow Inchon's reported home market inland freight expenses. Comment 18: Total Adverse Facts Available Petitioners argue that Inchon failed to act to the best of its ability by providing sales and cost data with undisclosed affiliations, errors, omissions, and other unverifiable information, all of which are summarized in comments 1-17 above. Specifically, petitioners argue that Inchon failed to disclose significant affiliated-party transactions, despite the Department's explicit instructions that Inchon identify all affiliated parties involved in the production, sale, or distribution of subject merchandise during the POI. Petitioners continue that the number of additional errors contained in the cost and sales responses are further evidence that respondent Inchon has not acted to the best of its ability. Thus, petitioners argue that the Department should apply, as total adverse facts available, the highest rate alleged in the petition, 86.67 percent. Petitioners argue that the statutory requirements for application of facts available have been met with respect to Inchon, based on petitioners' assertion that Inchon withheld information requested by the Department and provided information which could not be verified. Furthermore, petitioners argue that an adverse inference is warranted because the multiple errors and omissions referenced above demonstrate that Inchon did not act to the best of its ability to comply with the Department's requests for information. Petitioners argue that it is the Department's practice to apply adverse facts available when certain requested information is withheld by an interested party in its questionnaire response but discovered at verification, citing Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Plate in Coils From Belgium ("Stainless Steel Plate in Coils From Belgium"), 64 FR 15476, 15485 (March 31, 1999); see also, Notice of Final Determination of Sales at Less Than Fair Value: Certain Preserved Mushrooms from Chile ("Certain Preserved Mushrooms From Chile"), 63 FR 56613, 56620 (October 22, 1998); Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Wire Rod From Spain ("Stainless Steel Wire Rod From Spain"), 63 FR 40391, 40396 (July 29, 1998). Petitioners further argue that the Department has made adverse inferences when it found that a "respondent reported incorrect information but knew, or should have known, the correct information," citing Dynamic Random Access Memory Semiconductors of One Megabit or Above From the Republic of Korea: Final Results of Antidumping Duty Administrative Review, Partial Rescission of Administrative Review and Notice of Determination Not to Revoke Order, 63 FR 50867, 50867 (September 23, 1998). Petitioners argue that Inchon is an experienced respondent in antidumping proceedings and should know the proper reporting methodologies concerning affiliates, cost, and sales. Petitioners state that section 773(f)(3) of the statute directs the Department to examine the costs incurred for transactions between affiliated persons. Petitioners argue that the Department has stated that this section and the related regulations exist in order to account for the possibility of shifting costs to an affiliated party, citing Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Round Wire From Canada ("Stainless Steel Round Wire From Canada"), 64 FR 17324, 17335 (April 9, 1999). Petitioners argue that, through Inchon's unreported affiliations and related-party transactions, Inchon had ample opportunities to shift costs. Petitioners note that, in another case, a respondent failed to disclose an affiliation with one of its U.S. customers, citing Notice of Final Determination of Sales at Less Than Fair Value: Dynamic Random Access Memory Semiconductors of One Megabit and Above (``DRAMs'') From Taiwan ("DRAMs from Taiwan"), 64 FR 56308, 56314 (October 19, 1999). Petitioners note that, in DRAMs from Taiwan at 56315-56317, the Department determined that the respondent failed to act to the best of its ability and applied total adverse facts available. Petitioners argue that if the Department decides to not apply total adverse facts available, the Department should nonetheless apply adverse facts available with respect to Inchon's cost response. Petitioners argue that the Department has used cost of production data alleged in the petition "when respondents' own cost data is deemed inaccurate," citing Notice of Final Determination of Sales at Less Than Fair Value; Certain Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From Brazil ("Carbon Steel from Brazil"), 64 FR 38756, 38789. Petitioners argue that the "serious omissions" described above with respect to affiliated parties require the application of adverse facts available to these affiliated-party transactions. Petitioners note that because Inchon provided only one exhibit (see Exhibit S-49 of Inchon's December 10, 1999 supplemental questionnaire response) regarding arm's- length prices and affiliated-party purchases in its response, the Department should increase Inchon's costs, for each affiliated-party transaction, by the difference between the average transfer price Inchon reported to the Department in the exhibit noted above, and the reported market price from this same exhibit. Respondent argues that petitioners' argument is based on relatively insignificant discrepancies and omissions that invariably occur in any investigation, and which do not significantly affect the Department's analysis. Therefore, Inchon argues that the Department should affirm the overall veracity of Inchon's data and should not apply adverse facts available. Respondent argues that in order to apply adverse facts available, the Department must find that a party failed to act to the best of its ability and that the omitted information would significantly affect the Department's proceeding. Citing NTN Bearing Corp. v. United States (74 F.3rd 1204, 1208 (Fed. Cir. 1995)), Inchon notes that {w}hile the parties must exercise reasonable care in their submissions, it is unreasonable {for the Department} to require perfection." In addition, respondent notes that the Court of International Trade ("CIT") has held that a respondent's failure to provide complete information by itself does not justify the use of adverse facts available (citing Ferro Union, Inc.v. United States (44 F. Supp.2d 1310, 1329 (CIT 1999)). Inchon notes that the CIT has further clarified the statutory requirements for applying adverse facts available in two significant respects. First, respondent notes that the CIT has held that in determining that a respondent did not act to the best of its ability, the Department is required to explicitly determine that the respondent could have provided the information (citing Borden, Inc. v. United States, 4 F. Supp.2d 1221, 1247 (CIT 1998)) and "deliberately chose not to disclose" the information (citing Ferro Union, Inc., 44 F. Supp.2d. at 1331). Respondent argues that the Department may not solely rely on the respondent's failure to provide the information at issue in concluding that the respondent did not act to the best of its ability, citing Mannesmannrohren-Werke AG, 77 F. Supp.2d at 1316. Second, Inchon notes that the CIT held that the Department may not apply adverse facts available if the omitted information will have an insignificant impact on the Department's analysis, citing Mannesmannrohren-Werke AG, 77 F. Supp.2d at 1324. Inchon also argues that the very reason for applying adverse facts available (to prevent a respondent from benefiting from its non- response) is absent if the errors are small and give no advantage to the respondent. Respondent notes that the CIT also held, in Mannesmannrohren- Werke AG, that insignificant errors fail to meet the statutory requirement that the Department may only apply facts available when a respondent "significantly impedes a proceeding." Respondent argues that the Department fully verified that Inchon's reported costs reconcile in every respect to its audited financial statements. In addition, Inchon states that the Department fully verified each manufacturing cost element it chose to examine in detail, reconciled several individual selling expenses (including G&A and interest expenses) to the audited financial statements, and found no discrepancies. Contrary to petitioner's assertion, Inchon argues that the items provided by affiliated parties at issue are minor, and should the Department choose to do so, it has the information necessary to perform the adjustments. Inchon notes that the total quantity sourced from affiliates is very small, even including those suppliers previously undisclosed, and that there is no justification in rejecting either Inchon's costs or portions thereof. For example, Inchon notes that petitioners' claim that guarantees provided by affiliates and short-term interest income partially derived from afflilates' securities render the company's reported total interest expense invalid is without merit. Respondent argues that the Department verified that only a small portion of the short-term interest income could be attributed to Hyundai Group members' securities. Inchon further argues that by definition companies pay the same percentage interest on their securities to all holders, regardless of affiliation. Therefore, respondent concludes that there is no indication that the income from these securities is at anything other than arm's length, and that rejection of Inchon's entire reported interest expense and income offset is unwarranted. Respondent continues that it reported its sales and sales expense data and provided information during verification to the best of its ability and to the most accurate extent possible, and that, therefore, the Department should continue to accept this information. Inchon notes that the Department's verification reports indicated that the company's reporting methodologies for certain sales prices and expenses did not exactly match the actual per-unit prices and expenses incurred by Inchon. In addition, respondent also noted that the verification reports indicated that Inchon was not able to provide all information in the manner requested by the Department during verification. However, Inchon argues that, as explained to the Department during verification, the company had to use the methodologies employed due to constraints in Inchon's computerized records, the complexity of Inchon's data and the volume of information requested by the Department. Respondent argues that petitioners have failed to demonstrate that the criteria for applying adverse facts available are met for any items discussed above. However, should the Department determine that it should apply adverse facts available as a result of some or all of Inchon's discrepancies and ommissions, Inchon argues that it would not be a sufficient basis for the Department to disregard Inchon's entire response. Inchon notes that the CIT has held that the issue determining whether to reject a respondent's information as a whole: is not the value of the errors as a percentage of . . . sales, or the number of instances of errors. Rather the issue is the nature of the errors and their effect on the validity of the submission (citing Tatung Co. v. United States, 18 C.I.T. 1137, 1141 (1994)). Therefore, Inchon asserts that the Department's practice is not to reject a response if it is, overall, complete and accurate, the errors are limited in scope, and there is no indication of a pattern of misreporting, citing to Memorandum to Robert S. LaRussa from Richard W. Moreland, Issues and Decision Memorandum for the New Shipper Review on Static Random Access Memory Semiconductors from Taiwan, at 3 (March 8, 2000); and Hot-Rolled Flat-Rolled Carbon-Quality Steel Products from Brazil (64 FR 38756, 38776 (July 19, 1999)). Inchon notes that the only two cases cited by petitioners in which the Department rejected a respondent's entire information involved respondents who either refused to reply to a questionnaire or refused to participate in verification (citing Dynamic Random Access Memory Seminconductors of One Megabit and Above from Taiwan, 64 FR 56308, 56318 (Oct. 19, 1999)). Respondent argues that none of the facts of the instant case are analogous to those in which the Department applied adverse facts available. Inchon argues that even in the context of applying partial adverse facts available, the Department must find that the adjustment reasonably relates to the issue at hand. Inchon asserts that the petitioners' proposals for adverse facts available with respect to the issues addressed in Comments 1- 17 fail to meet this standard and must be rejected. Inchon further argues that petitioners do not attempt to account for the relative impact of the error or omission at issue, resulting in adjustments that are so inflated as to be unreasonable on their face. In addition, Inchon asserts that petitioners' proposed adjustments are derived from sources that bear no relationship to the issue at hand. DOC Position: We disagree with petitioners in that we do not find that an application of total adverse facts available to Inchon is appropriate. Considering all the materials provided by the respondent and their overall veracity and respondent's cooperation during the verification, it would be inappropriate for the Department to reject the entire sales and cost responses. Furthermore, of the various omissions and errors alleged by the petitioners, the Department considers some to be insignificant. For some, we do agree with the petitioners that the application of facts available is appropriate for selected cost and sales elements. Comments 1 - 18 address each of the specific issues for which the petitioners have argued in favor of the use of facts available. This position addresses only the comments regarding the use of total facts available. Petitioners use of DRAMs from Taiwan in arguing for total adverse facts available for Inchon is misplaced because there are different fact patterns when compared to the instant case. In DRAMs from Taiwan, at 56315, Etron, one of the respondents refused the verification of the information it submitted to the Department regarding the sales of its affiliate in the United States. The Department stated the following concerning respondent Etron: "{t}he record evidence in this case amply demonstrates that Etron withheld crucial information necessary to substantiate Etron's representations regarding its affiliations with its U.S. customers. This, coupled with other inconsistencies and irregularities in Etron's database, as well as Etron's refusal to undergo a mandatory verification of the information requested by the Department, indicate that Etron failed to cooperate to the best of its ability under section 776(b) of the Act." In the instant case, at a minimum, Inchon did not refuse to undergo verification of any of the information requested by the Department. Petitioners use of DRAMs from Korea in arguing for total adverse facts available for Inchon is also inappropriate. The Department assigned total adverse facts available for two respondents. Respondent Techgrow failed to provide information on sales by its affiliated party and then withdrew from the proceeding. Also, respondent Vitel did not respond to the Department's questionnaire. In the instant case, at a minimum, Inchon did not fail to provide information on sales from its U.S. affiliate. Inchon responded to all of the Department's requests for information. Comment 19: Packing Expenses for U.S. Sales Inchon states that while preparing for verification, it discovered and disclosed to the Department slight differences in packing expenses between its domestic and U.S. sales of subject merchandise; namely, Inchon notes that merchandise intended for export was packed with additional wiring. Although Inchon calculated the additional packing expense for export sales, respondent argues that the Department should disregard the minor additional expense in its final analysis. Inchon argues that section 777A(a)(2) of the Act states that "{f}or purposes of determining the export price (or constructed export price) . . . or the normal value . . . the administering authority may . . . decline to take into account adjustments which are insignificant in relation to the price or value of the merchandise," citing 19 U.S.C. section 1677f- 1(a)(2) (1999). Inchon also notes that section 351.413 of the Department's regulations implements this statutory provision by defining an "insignificant adjustment" as "any individual adjustment having an ad valorem effect of less than 0.33 percent, or any group of adjustments having an ad valorem effect of less than 1.0 percent, of the export price, constructed export price, or normal value as the case may be," citing 19 C.F.R. section 351.413 (1999). Respondent notes that the Department has disregarded insignificant adjustments on numerous occasions, including in Cut-to-Length Carbon Quality Steel Plate from Korea (64 FR 73196, 73209 (Dec. 29, 1999)), and Certain Steel Concrete Reinforcing Bars from Turkey (64 FR 49150, 49157 (Sept. 10, 1999)); Inchon argues that in both cases, the Department noted that the adjustments would have no material impact. Inchon argues that the total of Inchon's additional packing expenses for U.S. sales is an insignificant adjustment, constituting less than 0.33 percent of normal value for all CONNUMs of prime merchandise sold in the home market, and should therefore be disregarded for the purposes of the final determination. Petitioners did not comment on this issue. DOC Position: We note that, in Inchon's questionnaire response, Inchon had reported that both home market and U.S. packing expenses were exactly the same and that Inchon had reported packing costs in its cost of production. See Inchon's October 25, 1999, Sections B and C responses, at B-29-30 and C-34-35. At verification, we discovered that Inchon used additional wiring for U.S. sales, when compared to home market sales. We asked Inchon to quantify the additional packing costs and Inchon provided a breakdown of the additional packing costs (both material and labor costs) associated with U.S. sales compared to home market sales. See Inchon Sales Verification Exhibit 25. Because we have information on the record to make this adjustment, we are deducting this additional packing expense for all U.S. sales. Comment 20: Clarifications in the Verification Reports Inchon argues that there are a number of points made in the Department's verification report that should be clarified. First, Inchon noted that in the U.S. sales verification report, the Department should clarify earlier in the verification report that the H-beams sold to a certain customer were not subject merchandise. Respondent also notes that the same report states that Inchon's U.S. affiliate did not report an allowance for the loss on a particular sale; Inchon argues that since the reported gross unit price represents the amount received from the customer, it reflects any loss on this sale, and that the report should be revised accordingly. Inchon notes that in the home market verification report, the Department incorrectly reported a "correct" gross unit price for a certain transaction, based on information included in a verification exhibit. Inchon argues that the report should be revised to reflect the correct gross unit price. Petitioners did not comment on these issues. DOC Position: It was during the completeness check that we discovered that the H-beams sold to a certain customer were not subject merchandise. As such, this information was reported under the heading of Completeness. As to the unreported allowance for the loss on a particular sale, the issue is moot since the gross unit price, the invoice amount and the payment amount for this sale were the same, as reported by Inchon. For the final calculation, we did not change the values reported by Inchon. We agree with Inchon that the "corrected" gross unit price, in the Inchon verification report, for a particular home market sale is not accurate and that Inchon had accurately reported the gross unit price in its response. KANGWON ISSUES Comment 21: Commissions Petitioners contend that the Department should treat commissions paid by Kangwon to Sampyo America as a circumstance of sale adjustment. Petitioners note that Kangwon explained that the commissions were paid regardless of the level of Sampyo America's actual involvement in the transaction. Petitioners further noted that the Department treated these commissions as indirect selling expenses in its Preliminary Determination. Petitioners note that on page 34 of the Department's verification report, the Department found that Kangwon paid a commission on a per-ton basis for a preselected sale. Petitioners contend that since this commission had not been previously disclosed, the Department should apply, as an adverse inference, a commission to each sale in the United States equal to the amount of the commission found on the referenced pre-selected sale. Kangwon replies that petitioners' allegation is based on an erroneous statement in the sales verification reported based on an examination of pre-selected sale #4. Kangwon explains that this alleged commission is actually a mark-up between the price Kangwon charged Sampyo Corporation and the price Sampyo Corporation charged Kangwon's unaffiliated customer, which was the price reported to the Department. Kangwon claims that the supporting documentation reviewed by the Department at verification represents the accounts receivable voucher reflecting Sampyo Corporation's receipt of the merchandise from Kangwon. Consequently, it reflects the lower, transfer price from Kangwon to Sampyo Corporation. Kangwon notes that the commercial invoice from Sampyo Corporation to the U.S. customer reflects a higher price which is also reflected in the computer sales listing reported to the Department. Accordingly, Kangwon argues, petitioners' allegation that Kangwon failed to report this amount should be rejected and that no adjustment is necessary to Kangwon's reported U.S. sales prices. DOC Position: We disagree with petitioners that the commissions between Kangwon and Sampyo America represent a circumstance of sale adjustment. As we stated on page 9 of the Kangwon Sales Verification Report, "Kangwon explained that the role of Sampyo America is to obtain pricing information in the U.S. market and to acquire other information, but not to make sales...[a]t the present time, Kangwon explained, Sampyo America functions solely as a gatherer of information and limited document handler." The verification report then states: With respect to the agency agreement presented in verification exhibit 8, Kangwon explained that Sampyo America provides services for Kangwon, and does not earn money through any independent means. Nevertheless, the agency agreement provides a commission for each sale that is made in the United States, whether or not Sampyo America assists with the sale. Therefore, based on the information provided on the record, the commissions paid as part of the agency agreement between Kangwon and Sampyo America represent intra-corporate transfers which the Department does not use in making circumstance of sale adjustments. Consequently, we have made no adjustments to our calculation for the final determination. We note that Kangwon's reply refers to commissions paid between Kangwon and Sampyo Corporation in Korea, and does not address petitioners' comments with respect to this issue. We address the commissions between Kangwon and Sampyo Corporation in Korea in Comment 24, below, under the title "Price Mark-Up". Comment 22: Duty Drawback Petitioners argue that the Department should deny Kangwon's claim to a duty drawback adjustment for all U.S. sales because Kangwon's reporting of this adjustment is unreliable, based on petitioners' assertion that the Department discovered that Kangwon over-reported its duty drawback at verification. Petitioners further claim that if the Department does not disallow Kangwon's duty drawback claim, it should reduce the amount of the reported duty drawback adjustments for all of Kangwon's U.S. sales by the same percentage as the amount of the over-reported duty drawback. Kangwon replies that petitioners' proposed adjustment to Kangwon's duty drawback expenses completely disregards the Department's statements in Kangwon's sales verification report and should be disregarded. Kangwon notes that the Department found that Kangwon inadvertently included duty drawback earned on sales to two "third" countries in its duty drawback calculation for U.S. sales in May 1999. Kangwon notes that the Department then reviewed the rest of the supporting documents and worksheets for Kangwon's reported duty drawback amounts and found "no further discrepancies." Thus, Kangwon claims that rather than over-reporting duty drawback amounts for all third country sales as petitioners allege, Kangwon inadvertently over-reported duty drawback amounts only for U.S. sales. Therefore, Kangwon argues that the Department should use the verified duty drawback amount for May 1999, according to the methodology provided on page 72 and Attachment 6 of Inchon's Case Brief. DOC Position: We agree with Kangwon. As stated on page 2 of the Kangwon Sales Verification Report, Kangwon inadvertently included duty drawback earned on sales to two third countries in its duty drawback calculation for May 1999. As Kangwon noted in its rebuttal brief, we tested all parts of Kangwon's calculation, and did not detect any further systemic errors in its reporting of the duty drawback calculation. We noted that Kangwon also reported the amount of duty drawback applied for and received after the deadline for submitting its questionnaire response. Therefore, for the final determination, we used the verified amount of duty drawback for May 1999, and the additional drawback earned after the submission of the questionnaire response, and made no additional changes to our calculations. Comment 23: Home Market Freight Petitioners claim that the Department should disallow an adjustment for certain home market freight charges incurred for shipping SSBs that were longer than 15 meters in length, because the Department found at verification that Kangwon failed to included them in its responses, and because these charges were not verified by the Department. Kangwon did not comment on this issue. DOC Position: We disagree with petitioners. At verification, Kangwon presented this issue as a minor correction to the response prior to the start of verification. We verified the amount of the additional freight expense that applies to SSBs that were longer than 15 meters in length. See Verification Exhibits 1 and 1E. We found no other errors in Kangwon's freight calculation. Therefore, for the final determination, we deducted these expenses from the home market gross unit price in determining normal value. Comment 24: Corrections to Kangwon's Response Kangwon contends that the following issues reflect a misunderstanding on the part of the Department with respect to its findings at verification: •Change in U.S. Pay Dates: Kangwon notes that changes to date of payment for one customer were reported in Sales Verification Exhibit 20B. •Interest Rate: Kangwon contends that the interest rates mentioned on page 29 and Appendices III and IV of the Kangwon Sales Verification Report are Korean won denominated rates, not U.S. dollar denominated rates. •Price Mark-Up: Kangwon claims that the sales verification report mischaracterized an amount noticed by the Department during the trace of U.S. pre-selected sale #4. Kangwon explains that this amount represents the mark-up between the price Kangwon charged Sampyo Corporation and the price Sampyo Corporation charged Kangwon's unaffiliated customer, which was the price reported to the Department. Thus, Kangwon claims, this amount was already included in the Department's database. •Sales of Production Overruns of ASTM merchandise in the Home Market: Kangwon claims that page 11 of the Department's sales verification report mischaracterizes Kangwon's Sales Verification Exhibit 19A by stating that "Kangwon provided, in a chart, all the instances in which it sold, in the home market, overrun ASTM-grade merchandise originally intended for the U.S. market." Kangwon claims rather that the chart provided in Sales Verification Exhibit 19A reports the heat numbers for all of Kangwon's home market sales of ASTM-grade merchandise, as well as the difference in the number of days between production date and sale date for these sales. Kangwon claims that this chart is not a listing of sales of overrun ASTM- grade merchandise originally intended for the U.S. market, and at no time during the verification did Kangwon state or suggest that it was so. •Corrections to the Department's Bank Negotiation Fee Calculation: Kangwon claims that the Kangwon Sales Verification Report contains several clerical errors in its analysis of the unreported bank negotiation fees. Kangwon claims that, in Appendices III and IV of the report, the columns are expressed in different currencies. Specifically, Kangwon claims that in both appendices the column "negotiation amount" is a U.S. dollar amount, whereas interest expense and "ex comm and posting" on the other hand are expressed in Korean won. Kangwon claims that bank fees are denominated in U.S. dollars in Appendix III and in Korean won in Appendix IV. In addition, Kangwon claims that, for Appendix III, interest expense and allocated interest expense are incorrectly added together, more than doubling this charge. Finally, Kangwon claims that, for Appendix III, the fees for one entry are incorrectly transcribed. Petitioners argue that the Department should disregard respondents' recalculated charges contained in Appendices III and IV of respondents' case brief. Petitioners note that Appendix IV calculates the bank charges for only the sales reviewed at verification and does not provide a reasonable indication of what respondents' overall bank charges actually were. Moreover, according to petitioners, respondents should have proved its bank charge totals for the POI, not just for the examined transactions, and should have submitted this information well before verification. Should the Department accept these recalculations, at a minimum, the Department should apply the corrected percentage to all U.S. sales to ensure that bank charges are not under-reported for the final determination. Petitioners claim that the Department should adjust Kangwon's response to correct for these additional errors noted in the verification report. DOC Position: We agree and we have made all the changes and corrections noted above regarding Kangwon Sales Verification Report. With respect to the issues raised by Kangwon: •Change in U.S. Pay dates: We agree that Kangwon presented these changes as part of its minor corrections to the response prior to verification. We have corrected these pay dates for the final determination. •Interest Rate: We agree that interest rates mentioned on page 29 and Appendices III and IV of the Kangwon Sales Verification Report are Korean won denominated rates, not U.S. dollar denominated rates. •Price Mark-Up: We agree that the amount of commission observed during the trace of U.S. pre-selected sale #4 represents the mark-up between the price Kangwon charged Sampyo Corporation and the price Sampyo Corporation charged Kangwon's unaffiliated customer, which was the price reported to the Department. Therefore, we agree that this amount was already included in the information submitted to the Department. Consequently, we made no changes to the calculation of U.S. price for this amount. •Sales of Production Overruns of ASTM merchandise in the Home Market: We agree with Kangwon that at no time during verification did it characterize the information presented in Sales Verification Exhibit 19A as a listing of sales of overrun ASTM-grade merchandise originally intended for the U.S. market. We note that the portion of the verification report quoted by Kangwon comes from the "Procedures" section of the report, where the Department typically rephrases the tasks outlined in the verification outline. Kangwon was not quoting the Department's statements in the "Results" section of our report. That section does not make a finding that Kangwon sold production overruns of ASTM-grade merchandise intended for U.S. export in the home market. •Corrections to the Department's Bank Negotiation Fee Calculation: We agree that errors were made in the Department's calculation of Kangwon's bank negotiation fees from the Kangwon Sales Verification Report. The Department has made the necessary corrections. Comment 25: Over- and Under-Reporting of Home Market Sales Kangwon argues that the Department should continue to accept Kangwon's reported home market sales because they were reported as accurately as possible to the best of Kangwon's ability. Kangwon noted that at verification, it disclosed to the Department that it inadvertently reported sales to certain customers that were made either prior to or after the POI. Kangwon claims that its over- and under-reporting of home market sales to these customers does not indicate any systemic inaccuracies in its methodologies for identifying and reporting home market sales during the POI. Kangwon notes that it provided all the information necessary to identify and remove those sales that were inappropriately reported. Kangwon notes that the impact of the under- reporting is extremely limited since the quantity of under-reported sales is extremely small and because the margin calculations will be based on a POI-wide weighted-average normal values. Petitioner did not comment on this issue. DOC Position: We agree that Kangwon failed to report an extremely limited number of sales in its home market. Our verification thoroughly tested a number of other customers for completeness, and found no systematic bias in the preparation of Kangwon's questionnaire response. Therefore, for the final determination, we made no changes to our calculations with respect to this issue. Comment 26: Gain on Exemption of Debt Kangwon argues that the Department erred in the preliminary determination by disallowing its gain on exemption of debt as an offset to interest expense. Kangwon states that its recognition of gain on exemption of debt is fully in accordance with Korean generally accepted accounting principles ("GAAP"). Kangwon further states that the law provides that the Department should rely on reported costs which are based on the company's records if such records are kept in accordance with home country GAAP. The respondent cites to the Certain Welded Carbon Steel Pipes and Tubes From Thailand: Final Results of Antidumping Duty Administrative Review, 64 FR 56759, 56765 (October 21, 1999) ("Pipes from Thailand") to support its contention that the Department has accepted costs reported by companies based on their records. Kangwon maintains that the gain on exemption of debt is not distortive for the Department's analysis. Kangwon explains that the restructuring agreement that it reached with creditors in 1998 in effect defers the interest due to creditors to a later period. Kangwon explains that under Korean GAAP, companies should recognize the difference between the present value of their debt obligations under the original terms and the present value of the debt under the revised terms as a gain on exemption of debt. Kangwon continues that Korean GAAP requires companies that record such a gain, to amortize the debt exemption over the life of the loan. According to Kangwon, under Korean GAAP, the gain reduces current interest expense, but increases future interest expense. Finally, Kangwon notes that during the POI it began amortization of the debt exemption, and included the amortization in its reported interest expense. Kangwon contends that, if the Department determines that this accounting treatment of debt restructuring is distortive, the Department must also eliminate the amortization of the exemption recognized during the POI. The petitioners state that, according to the law, the Department should rely on the records of the exporter or producer of the subject merchandise only if such cost reporting is not distortive. The petitioners contend it is the Department's practice to disallow offsets for exemptions of pre- period expenses, since such offsets are related to prior periods and would distort cost reporting in the current period. Therefore, the petitioners conclude, the Department should continue to exclude the gain on exemption of debt offset for purposes of the final determination. DOC Position: Section 773(f)(1)(A) of the Act requires the Department to rely upon a company's normal books and records when they are prepared in accordance with the home country's GAAP and reasonably reflect the cost of producing the subject merchandise. Contrary to the respondent's claim, Kangwon's accounting treatment of the gain on exemption of debt distorts its reported costs, as it fails to match the current period gain with the associated expense. The gain on exemption of debt was a result of a debt restructuring agreement which involved a reduction in interest rates and extension of the repayment terms. The loan balances were not changed. The benefit of such debt restructure covers multiple accounting periods through the maturity of the loans. Kangwon's methodology is distortive in that it recorded the entire gain in the year of restructure, while capitalizing and amortizing over several years the associated expense. In other words, the gain that Kangwon recognized in this year will be offset over the remaining life of the loans through the recognition of higher interest expense amounts. The effect is evident in Kangwon's argument that if the Department determines that this accounting treatment of debt restructuring is distortive, the Department must also eliminate the amortization of the exemption recognized during the POI. Thus, for the final determination, we reversed the full gain and reduced Kangwon's interest expense for the current portion of the gain on debt restructure. As for the respondent's citation to Pipes from Thailand, in that case the Department included all exchange rate losses in its calculations because these losses were incurred on current debt. The instant case is different in that the gain is a result of debt restructuring that covers multiple accounting periods. Comment 27: General and Administrative Expenses Gain from Contributed Assets Kangwon argues that the gains from contributed assets should be included in the general and administrative ("G&A") expense rate calculation. In late 1998, Kangwon reached a point of insolvency, and, in order to continue operating, worked out a restructuring agreement with its creditors. As part of this agreement, its CEO and vice CEO appear to have contributed land, which is the basis of the line item "gains from assets contributed." Kangwon further argues that, without the restructuring agreement of which the contribution of land was an integral part, Kangwon would have been unable to continue with its manufacturing activities. Kangwon notes that because of insufficient capital, Kangwon would have been unable to obtain credit from any of its suppliers in the form of non- cash payment terms, and further would have been unable to obtain funds from its banks to pay for material inputs. Consequently, Kangwon claims, it would have been forced to cease operations altogether. As a result, Kangwon contends that, to the extent that the contribution of land allowed Kangwon to continue operations at all, it can only follow that the contribution relates to Kangwon's general operations. The petitioners argue that, in the preliminary determination, the Department properly disallowed the use of the gain on assets contributed to offset the G&A expenses. The petitioners cite to the Certain Welded Stainless Steel Pipe From the Republic of Korea, 57 FR 53693, 53704 (November 12, 1992) and Certain Cut-To-Length Carbon-Quality Steel Plate Products from Korea, 64 FR 73196, 73209-73210 (December 29, 1999) where the Department ruled that a substantial gain related to non-depreciable assets, which were unrelated to the general operations of the company, could not offset G&A expenses. DOC Position: We agree with petitioners, in part, in that we have continued to disallow, as in our Preliminary Determination, the use of the gain on assets contributed to offset the G&A expenses. We note that the contribution of land by shareholders constitutes contribution of capital. Both of the individuals who were required to contribute the land are shareholders of Kangwon with much to lose if the company went bankrupt. Furthermore, it is reasonable to assume that these individuals have been or will be compensated for their contribution. Hence, while the company may have recorded this transaction as a gain in their normal books and records, we consider it more appropriately treated as contributed shareholder capital. The assertion that without the contribution Kangwon would have been unable to continue its operations is somewhat speculative. In any event, it does not change the nature of the contribution. As a general matter, contributions of capital are made to enable a company to continue its operations and prevent it from going out of business, and contribution of land in the instant case is no different than any other contribution of capital to support a company's operations. See Certain Corrosion-Resistant Carbon Steel Flat Products and Certain Cut-to-Length Carbon Steel Plate From Canada: Final Results of Antidumping Duty Administrative Reviews, and Determination Not To Revoke in Part, 65 FR 9243, 9252 (February 24, 2000). Therefore, we disallowed the gain from assets contributed as an offset to the G&A expenses for purposes of the final determination. Miscellaneous Gains The respondent argues that the Department should allow the following items to offset G&A expenses because they all relate to general operations of the company. First, Kangwon argues that the Department should allow "Imports without credit," which represents materials and supplies provided to the company free of charge, as an offset. Kangwon notes that, for the purposes of accounting for the cost of manufacturing, these materials are valued at the price that would have been paid had the items been purchased through a normal commercial transaction. Kangwon states that it separately recognized the same value as a miscellaneous income on the financial statements. Secondly, respondent argues that the Department should allow "exempted insurance premium," which represents insurance that was provided to the company at no cost, as an offset. Kangwon argues that its accounting treatment for this item is similar to its treatment for "imports without credit." According to Kangwon, if the Department does not include these items in the G&A calculation, the Department must reduce the reported material costs to avoid double counting. In addition, the respondent argues that various other miscellaneous gains should be included in the G&A rate calculation. Petitioners maintain that the Department properly disallowed respondent's reported miscellaneous gains in the preliminary determination. With regards to "imports without credit" and "exempted insurance premium," petitioners argue that the Department treats free consumption inputs as a reduction to direct material costs, not as an offset to the general costs of the company. Citing Final Results of Antidumping Duty Administrative Review: Silicon Metal From Brazil, 65 FR 7497, 7502 (February 15, 2000) ("Silicon Metal from Brazil"), the petitioners point out that the Department denied treating supplier discounts as an offset to interest expense, because such discounts are properly classified as a reduction to direct material costs. Petitioners further argue that the respondent's case brief, for the first time, claims that the Department should reduce the reported material costs for these items, if it decides not to include them in the G&A calculation. The petitioners cite to Silicon Metal from Brazil, where the Department denied a reduction to cost of manufacturing since the respondent did not claim the reduction until its case brief. According to the petitioners, in the same manner all the other miscellaneous gain items should have been reported as offsets to the costs to which they may be directly attributed and, since Kangwon did not make these claims until its case brief, all of the offsets should be disallowed for the final determination. DOC Position: We agree with the respondent, in part. When Kangwon received the free materials and supplies and the exempted insurance premiums, it recorded the transaction as an expense for the materials, supplies and insurance, and as income to account for the fact that the company did not have to pay for these items. Thus, since the reported costs include amounts related to the free materials and supplies consumed and the free insurance premiums received, we consider it reasonable to also recognize the gain associated with these transactions. Regarding the other miscellaneous gains, for the final determination, we excluded the gain on disposition of land and voided shareholder dividends, since the first item relates to a separate line of business, and the latter relates to distributions to shareholders. As for the petitioners' argument that in Silicon Metal from Brazil we disallowed an offset to interest expense because it was properly classified as a reduction to COM, we disagree. In that case the financial expense was under consideration, and the deduction for obtained discounts was disallowed primarily because such an expense does not represent income from short-term investments. 3. Decrease in Bad Debt Allowance The respondent argues that its inclusion of bad debt allowance in the G&A rate calculation is consistent with the Department's treatment of bad debt, and cites Notice of Final Determination of Sales at Less Than Fair Value: Static Random Access Memory Semiconductors From the Republic of Korea, 63 FR 8934, 8946 (February 23, 1998) ("SRAMS from Korea") where the Department agreed with the respondent's calculation of G&A expense ratio, which included the reversal of bad debt. Citing Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Wire Rod From Korea, 63 FR 40404, 40413 (July 29, 1998) ("Stainless Steel Wire Rod from Korea"), the respondent further argues that, if the Department determines that it is inappropriate to include the bad debt allowance in the G&A calculation, the Department should include these items in the calculation of the indirect selling expense ratio. The petitioners, citing Stainless Steel Wire Rod from Korea, contend that Kangwon's assertions contradict the Department's normal practice to exclude bad debt allowance from G&A calculation. Therefore, the petitioners state, the Department should disallow these adjustments for the final determination. DOC Position: We agree with the petitioners. Although we found that under the particular circumstances in SRAMS from Korea that it was appropriate to include a reversal in G&A expenses, it is not generally the Department's practice to include reversals of bad debt in G&A. We do not consider it appropriate to reduce current period costs by the correction of prior year estimates, as the reversals of allowances for estimated expenses in previous years do not alter the expenses of the current year (see, e.g., Notice of Final Determination of Sales at Less Than Fair Value: Small Diameter Circular Seamless Carbon and Alloy Steel, Standard, Line and Pressure Pipe from Italy, 60 FR 31981, 31990 (June 19, 1995) and Stainless Steel Wire Rod from Korea, 63 FR 40404, 40413 (July 29, 1998)). Because including such reversals would distort the G&A expense incurred for the current year, we excluded the reversal of bad debt from Kangwon's G&A rate calculation. COMMON ISSUES Comment 28: Export Price ("EP") vs. Constructed Export Price ("CEP") Sales Petitioners argue that the Department must designate respondents' U.S. sales through affiliated parties located in the United States as CEP sales. Petitioners note that in the Preliminary Determination, the Department employed its three-part test developed pursuant to PQ Corp. v. United States ("PQ Test") to determine whether both Inchon's and Kangwon's U.S. sales through affiliated parties located in the United States were EP or CEP. Based on this test, the Department found that these sales qualified as EP sales. However, subsequent to the Preliminary Determination, petitioners note that the Court of Appeals for the Federal Circuit ("CAFC") issued an opinion which directs the Department to revise its determination with respect to respondents' U.S. sales made by affiliated parties located in the United States. See, AK Steel Corp. v. United States, 203 F.3d 1330 (Fed. Cir. 2000) ("AK Steel"). Petitioners argue that in AK Steel the CAFC held that the PQ Test did not reflect the amended definitions of CEP and EP sales made pursuant to the Uruguay Round Agreements. Petitioners claim that AK Steel holds that the "critical difference" between EP and CEP sales is "whether the sale or transaction takes place inside or outside the United States." As a result, petitioners claim that AK Steel thus directs the Department to characterize all of respondents' U.S. sales through affiliated parties executed inside the United States as CEP sales. Accordingly, petitioners argue that the Department should designate Inchon's channel one sales, and Kangwon's channel one and channel two sales made through its U.S. affiliate Sampyo America, as CEP sales, and make the appropriate deductions to these sales in accordance with 19 U.S.C. § 1677a(d)(1)(section 772(d)(1) of the Act). Petitioners also argue that, because the Department determined that all of Inchon's and Kangwon's respective U.S. and home-market sales were made at the same level of trade, no CEP offset is necessary for the final determination. Petitioners further argue that whether or not the Department applies the CAFC's decision in AK Steel, all of Inchon's U.S. sales through affiliated parties should be classified as CEP sales. Petitioners argue that the facts of this case demonstrate that these sales were CEP sales, not EP sales. Petitioners note that Inchon's employees operating from Hyundai U.S.A. perform substantial sales functions. (4) Petitioners note that Inchon employees conduct their sales operations from Hyundai U.S.A.'s U. S. facilities and, citing the Hyundai U.S.A. verification report, petitioners argue that Hyundai U.S.A. and Inchon employees work together to facilitate sales. For these reasons, petitioners argue that the Department should find that Hyundai U.S.A. is involved in and facilitates the substantial sales functions performed by the employees designated as Inchon employees. Petitioners argue that the Department should follow AK Steel because the government did not file the motion for re-hearing en banc pending before the CAFC. Accordingly, petitioners argue that the Department has the discretion to apply to its practice the decision as it currently stands. Respondents argue that the Department should not follow AK Steel because the government did not file a motion for re-hearing en banc pending before the CAFC. Accordingly, respondents argue that the case is not final and conclusive and creates no requirement that the Department apply it to its practice. Following the PQ Test and relevant case precedent, respondents argue that the Department routinely treats sales through an exporter's U.S. affiliate as EP transactions if: (1) the subject merchandise is shipped directly from the exporter to its unaffiliated customer; (2) such direct shipments to the unaffiliated customer are a customary channel of trade; and (3) the U.S. affiliate only acts as a processor of sales-related documents and a communication link between the exporter and its unaffiliated U.S. customer. Inchon argues that, under the third prong of this test, if the activities of the U.S. affiliate are ancillary to the sale, then the sales through the affiliate are EP transactions. Accordingly, Inchon asserts that the U.S. affiliate must have more than an incidental involvement in making sales (such as negotiating contracts or prices, or providing customer support) for the Department to treat those sales as CEP transactions. According to Inchon, the Department verified that Hyundai U.S.A., Inchon's U.S. affiliate, had an ancillary role in Inchon's sales to U.S. customers. Inchon states that, at verification, the Department found that the U.S. affiliate's involvement in Inchon's U.S. sales process is either performed under the direct control and approval of Inchon, or is strictly administrative. Inchon further argues that since the Department verified that Inchon has no independent price negotiating authority, and performs no substantive sales activities, it acts as a mere communication link between Inchon and its U.S. customers. Therefore, respondent argues that the Department should reaffirm its determination that Inchon's U.S. sales through its U.S. affiliate were EP transactions. Respondent also claims that Kangwon meets all three prongs of the Department's test for identifying sales through a U.S. affiliate as EP transactions. Respondent states that Kangwon ships all merchandise from Korea to its U.S. customers, with Sampyo America never taking possession, title or control of the merchandise. In addition, respondent points out that no record evidence contradicts the Department's finding in the Preliminary Determination that Kangwon's reported U.S. sales were made through a customary commercial channel of trade. Respondent claims that Sampyo America's involvement in Kangwon's U.S. sales is ancillary. The sole functions of Sampyo America, according to respondent, are to: (1) occasionally relay Kangwon's U.S. customers' purchase inquires to Kangwon; (2) provide pricing information supplied by Kangwon to Kangwon's U.S. customers; (3) visit Kangwon's smallest U.S. customers at the direction of Kangwon; and (4) provide Kangwon with information on market news and trends. In contrast, respondent argues that all U.S. sales are negotiated and approved by Kangwon's Export Department and Kangwon arranges for all transportation. Respondent notes that the Department noted no discrepancies in Kangwon's description of the above selling functions. Therefore, respondent argues, Sampyo America has no substantive role in Kangwon's U.S. sales, lacks any price negotiating authority, and merely passes information between Kangwon and its U.S. customers. As a result, respondent argues that all three factors of the Department's test for identifying sales through a U.S. affiliate as EP transactions are met and the Department should reaffirm its determination that Kangwon's sales involving Sampyo America were EP transactions. Nonetheless, respondent claims that the Department should continue to treat Kangwon's sales involving Sampyo America as EP transactions even if the Department adopts the position held in AK Steel Corp. Respondent notes that the Court of Appeals held in AK Steel Corp. that "one of the parties to the sale or the execution of the contract must also be 'outside of the United States' for an EP classification to be proper." Respondent notes that only Kangwon or Sampyo Corporation issue the commercial invoice to Kangwon's U.S. customers and only Kangwon or Sampyo Corporation take title to the merchandise. Respondent notes that both companies are located outside of the United States, in Korea. Therefore, because one of the parties for all of Kangwon's U.S. sales is outside of the United States, respondent argues that all of Kangwon's U.S. sales meet the definition of EP transactions established in AK Steel. DOC Position: We have examined the record in this investigation with respect to the U.S. sales process for channel one and channel two sales made by Kangwon through its U.S. subsidiary Sampyo America and for channel one U.S. sales made by Inchon through Hyundai USA. Our review indicates the following fact pattern: Kangwon Kangwon has a subsidiary named Sampyo America. Sampyo America's offices are located in the United States, where it employs a cerain number of people. See Kangwon Sales Verification Report at page 9. The proprietary relationship between Kangwon and Sampyo America is spelled out on page 6 of the Department's Kangwon Sales Verification Report. We confirmed at verfication that Sampyo America does not invoice the U.S. customer; rather U.S. customers are invoiced either by Kangwon directly, or by Sampyo Corporation in Korea (see Verification exhibits 39 and 40). Kangwon made sales to the United States during the POI through three channels of trade: (1) direct export sales by Kangwon itself; (2) export sales through Kangwon's Korean-based affiliate, Sampyo Corporation; and (3) direct export sales by Kangwon itself to unaffiliated trading companies in Korea where the merchandise is destined for the United States. (5) For channel two sales, Kangwon stated that Sampyo Corporation solely functioned as a processor of sales-related documentation (e.g., invoicing the customer, collecting payment). Page A-15 of the August 30, 1999 Section A response reports that for channel one and channel two sales, Sampyo America serves to pass customer inquiries on to Kangwon or to pass pricing information from Kangwon to its customers. Otherwise, Sampyo America has no involvement in the U.S. sales process. Kangwon reports that it ships all merchandise directly to its U.S. customers. (6) All sales are negotiated and approved by Kangwon's Export Department located in Korea; however, for channel two sales, title passes from Kangwon to Sampyo Corporation through back-to-back transactions. Sampyo Corporation then transfers title to Kangwon's U.S. customer. Neither Sampyo Corporation in Korea nor Sampyo America in the United States have any other involvement in the sales or shipment of merchandise to the United States. (7) Our verification confirmed all of the details of the sales process listed in Kangwon's comment above. (See page 8 to 10 of the Kangwon Sales Verification Report.) In addition, none of the information presented at verification contradicted any of the statements in the Preliminary Determination concerning the sales process. Based on the facts of record in this case, we are continuing to treat all U.S. sales made by Kangwon as EP sales. Inchon We have examined the record in this proceeding with respect to the sales process for U.S. sales made through Hyundai U.S.A. (i.e., Inchon sales through Hyundai Corporation, Inchon's affiliated trading company in South Korea, to Hyundai U.S.A., a wholly-owned subsidiary of Hyundai Corporation located in the United States and an affiliate of Inchon, and finally, to an unaffiliated customer), which is U.S. sales channel one. See Inchon's August 30, 1999 Section A response, at A-10 and A-14. In our Preliminary Determination, we determined that sales through Hyundai U.S.A. were EP sales. At the Inchon verification, we confirmed that the final material terms of sales are approved by Inchon in Korea (see Inchon verification report, at 37); however, we note that there are several Inchon employees in the United States, at both Hyundai U.S.A.'s New Jersey headquarters (Hun-Koo Choi) and its Chicago branch office (H. B. Chung), who approve the price and quantity. Hyundai U.S.A. stated that Mr. Choi approves the terms of sales in the United States, who confirms the "final offer with Inchon in Korea." See Hyundai U.S.A. verification report, at 5. Inchon has stated that although a purchase order inquiry may be given to a Hyundai U.S.A. employee, the Hyundai U.S.A. employee would give the purchase order inquiry to one of Inchon's salespersons in the United States, who presents the order to Inchon for final approval. See Inchon's October 25, 1999, supplemental Section A questionnaire response, at SA-6. If the material terms of sale are not acceptable to Inchon, Inchon informs its sales personnel in the United States of this, who in turn inform the U.S. customer. However, if Inchon accepts the material terms of sale, then a "purchase order confirmation" is sent to the U.S. customer. See Inchon's August 30, 1999, Section A questionnaire response, at A-19. At this point, Hyundai U.S.A. formally places the order for this U.S. customer with Hyundai Corporation, which in turn places its order with Inchon. See Inchon's October 25, 1999, supplemental Section A questionnaire response, at SA-6. Inchon stated that title of the merchandise transfers from Inchon to Hyundai Corporation to Hyundai U.S.A. to the unaffiliated U.S. customer in what Inchon calls "back-to-back transactions," where each entity retains a small portion of the sale price paid by the U.S. customer to pay for its sales expenses and, if possible, a small profit. See Inchon's October 25, 1999, supplemental Section A questionnaire response, at SA-8- 9. Inchon has stated, and we confirmed at the Hyundai U.S.A. verification, that Hyundai U.S.A. issues the final commerical invoice to the unaffiliated U.S. customer and received payment from the customer. See Inchon's August 30, 1999, Section A questionnaire response, at A-20. As a result of verification, we discovered the following new factual information: 1) Hyundai U.S.A. personnel solicited sales, including identifying one or two new customers during the POI (see Hyundai U.S.A. Verification Report at 5); and 2) Hyundai U.S.A. bears the credit risk for U.S. sales, rather than Inchon. This credit risk is evidenced by the fact that at Hyundai U.S.A.'s verification, company representatives disclosed as part of the pre-verification corrections that where Hyundai U.S.A. was not paid the entire outstanding balance for a sale, it wrote off this remaining balance as bad debt. Inchon reported this write-off in the field "OTHDISU" or "other discounts," to be taken as a reduction to the gross unit price. See Hyundai U.S.A. Exhibit 1, Pre-verification Correction List for an example. We note that Inchon's statements on the record concerning credit risk contradict our Hyundai U.S.A. verification findings that Hyundai U.S.A. bears the credit risk, and not Inchon. For example, Inchon stated that Hyundai U.S.A. is reimbursed by Inchon if one of Inchon's U.S. customers fails to submit payments to Hyundai U.S.A. See Inchon's August 30, 1999, Section A questionnaire response at A-20-21. Also, Inchon stated that there were no instances of Inchon's U.S. customers defaulting on their payments during the POI. See Inchon's October 25, 1999, Section A supplemental questionnaire response at SA-15. However, as noted in the Hyundai U.S.A. verification report, Hyundai U.S.A. did, in fact, have U.S. customers, for sales of Inchon-produced subject merchandise, which defaulted on at least a portion of their debt to Hyundai U.S.A., and Hyundai U.S.A., not Inchon, bore this loss. Based on the facts of our verification findings, we have determined to treat U.S. sales involving Hyundai U.S.A. as CEP sales. Comment 29: Cash Deposit Rate/Successorship Petitioners note that subsequent to the end of the POI, Kangwon and Inchon merged the operations of their two steel companies. Petitioners contend that the record of this investigation demonstrates that the newly- created company is the successor-in-interest to both of these companies, and that the most appropriate deposit rate is the weighted average of the margins for both companies, rather than a separate rate for each. Inchon argues that the record evidence, as verified by the Department, demonstrates that Inchon's acquisition of Kangwon did not substantively change Inchon, and that Inchon is the successor-in-interest to Inchon alone. Inchon notes that the Department has historically found that changes and/or differences in (1) management and corporate structure; (2) production facilities; (3) supplier; and (4) customer base as a result of a major corporate transaction result in the assignment of the pre- transaction company's margin and deposit rate to the entity that is the successor-in-interest (citing Sugar and Syrups from Canada,, 61 FR 48885, 48886 (Sept. 17, 1996)). Respondent further notes that the successor company need not be identical, as long as its resulting operations are "similar" to those of the pre-transaction company (citing Industrial Phosphoric Acid from Israel, 58 FR 59010, 59011 (Nov. 5, 1993) and Sugar and Syrups from Canada). Inchon argues that the Department verified that Inchon's management, corporate structure, production facilities, suppliers and customers have essentially remained the same, and therefore, Inchon is the sole successor-in-interest, and should retain its deposit rate for all post-acquisition entries of Inchon's merchandise. Petitioners rebut Inchon's argument that the merger did not substantively change Inchon, based on record evidence. Petitioners contend that Inchon's "lower-level" management (as defined by respondent) are still managers under the Department's definition and that the company's board of directors is not controlled by former Inchon board members. Petitioners further argue that the acquisition of Kangwon's production facilities enables Inchon to produce certain subject merchandise which Inchon could not produce prior to the acquisition, notwithstanding the percentage which these products comprise of Inchon's current subject merchandise production. Lastly, petitioners argue that Inchon has acquired sufficient numbers of suppliers and customers to conclude that Inchon's supplier and customer base has undergone a substantive change due to the merging of the two companies. Inchon contends that petitioners misapply the Department's successorship test and ignore Departmental precedent. Respondent argues that the Department has determined that a company was the successor-in-interest as long as the senior and executive management of the successor company was similar to that of the previous company (citing Antifriction Bearings from Japan, 64 FR at 43341 (August 10, 1999) and Polyethelyne Terephthalate Film, Sheet and Strip from Korea, 65 FR 11982, 11983 (March 7, 2000)), and that petitioners' focus on "lower-level" management is misplaced. Inchon also argues that the Department does not require for the successor's board of directors to be identical to the pre-transaction board of directors. Respondent further argues that petitioners' argument that Inchon's acquisition of Kangwon's production facilities and subsequent increase in capacity does not lead to the conclusion that Inchon is now an amalgamation of Inchon and Kangwon, and cites to the Department's decisions in Welded Stainless Steel Pipe from Korea (8) and Antifriction Bearings from Japan, 64 FR 43341. Lastly, Inchon argues that petitioners' contention that the newly-formed company is an amalgamation of Inchon and Kangwon because Inchon's current suppliers and customers include former Kangwon suppliers and customers is incorrect, noting that the Department's precedent is to recognize that the addition of customers who were former customers of an acquired company is a "normal consequence" of the company's departure from the market. (9) DOC Position: Since the merger between Inchon and Kangwon took place after the POI, and after the preliminary determination in this investigation, the Department has not addressed the issue of successorship at this time. Therefore, Inchon and Kangwon will retain individual cash deposit rates for the final determination of this investigation. However, in light of the information obtained in this investigation regarding the issue of successorship, we would consider a request for a changed circumstances review in the event that an antidumping order is issued in this case. Comment 30: Home Market Sales of ASTM-Grade Merchandise Respondents contend that the Department's determination that Inchon's and Kangwon's home market sales of ASTM-grade merchandise were within the ordinary course of trade is supported by the record as verified by the Department. Respondents note that in its Preliminary Determination, the Department found that both Inchon's and Kangwon's home market sales of ASTM-grade merchandise were within the ordinary course of trade. Respondents argue that the Department should continue to find, for the final determination, that Inchon's and Kangwon's home market sales of ASTM- grade merchandise are within the ordinary course of trade. Respondents refer to section 771(15) of the Act, which defines "ordinary course of trade" as "the conditions and practices which, for a reasonable time prior to the exportation of the subject merchandise, have been normal in the trade under consideration with respect to merchandise of the same class or kind." Respondents continue that section 315.102 of the Department's regulations provide further clarification by stating that in order to find that sales or transactions are outside the ordinary course of trade, the Department must determine, "based on an evaluation of all the circumstances particular to the sales in question, that such sales or transactions have characteristics that are extraordinary for the market in question." Respondents note that, in the Preliminary Determination, the Department relied on Pipes from Thailand in support of its finding that there was a ready market for ASTM merchandise in the home market. Respondents continue that, in its Preliminary Determination, the Department concluded that: ASTM and JIS structural beams generally possess the same mechanical and physical characteristics and are used for the same applications; the record indicates that ASTM structural beams are consumed in the home market, indicating that there is a ready market for ASTM structural beams in the home market; the relatively small number of sales of ASTM-grade structural beams in the home market (as a percentage, in comparison to Inchon's and Kangwon's total volume of structural beams sales in the home market) alone does not suggest that the circumstances surrounding these home market sales of ASTM-grade merchandise are outside the ordinary course of trade; there were minimal price differences between ASTM and JIS structural beams sold in the home market; and ASTM structural beams sold in the home market were not production overruns originally intended for export. Respondents contend that the Department's determination is supported by the record evidence and by the Department's verification. Respondents explain that during verification, the Department examined both Inchon's and Kangwon's home market sales of ASTM-grade subject merchandise. Respondents claim that, at Inchon's verification, the Department discovered that some ASTM-grade merchandise was maintained in inventory during the second half of the POI. Respondents claim that this discovery has no impact on the Department's analysis as to whether Inchon's home market sales of ASTM-grade merchandise were made in the ordinary course of trade since the maintenance of inventory has not been identified by the statute, the Department's regulations, or the Department's prior cases as a factor in the Department's ordinary course of trade analysis. In addition, respondents claim that the notion that the maintenance of inventory necessarily means that home market sales of ASTM-grade merchandise were production overruns originally intended for export is not supported by the facts. Respondents further maintain that in the present case, there is no evidence that any of Inchon's home market sales of ASTM- grade merchandise were from production overruns. Respondents also claim that evidence examined by the Department during the verifications of Inchon and Kangwon demonstrates that: 1) none of Inchon's home market sales of ASTM-grade merchandise were production overruns; and 2) for Kangwon, there is a demand for ASTM-grade merchandise in Korea, and indeed, that certain of its home market sales could not have resulted from production overruns originally intended for the U.S. market. Petitioners argue that respondents' home-market sales of ASTM-grade merchandise were outside the ordinary course of trade. Specifically, petitioners claim that Inchon and Kangwon sold insignificant quantities of ASTM-grade merchandise in the home market during the POI. Petitioners maintain that the Department's verification provides further evidence that Inchon and Kangwon's ASTM sales are not in the ordinary course of trade, since, as noted in the Preliminary Determination, the quantities of sales are very low. Petitioners further claim that the price differences between ASTM and non-ASTM merchandise sold in the home market are also substantial. Finally, petitioners claim that the Department's verification revealed that Inchon maintained some ASTM-grade merchandise in inventory during the second half of the POI, some of it for more than a year. Petitioners further claim that, at verification, the Department found that Kangwon's sales of ASTM-grade beams were almost all of a single grade and included overruns, purchased well after they were produced, and after they sat in inventory for "a long period of time." Considering the totality of these verification findings, the Petitioners maintain that the Department should conclude that there is in fact no ready home market for ASTM merchandise - particularly Kangwon's ASTM-grade merchandise - in Korea. DOC Position: For the reasons set forth in our Preliminary Determination, we disagree with petitioners that Inchon's and Kangwon's sales of ASTM- grade subject merchandise in the home market are outside the ordinary course of trade. Section 771(15) of the Act defines the term "ordinary course of trade" as "the conditions and practices which, for a reasonable time prior to the exportation of the subject merchandise, have been normal in the trade under consideration with respect to merchandise of the same class or kind. The administering authority shall consider the following sales and transactions, among others, to be outside the ordinary course of trade: (A) sales disregarded under section 773(b)(1) and (B) transactions disregarded under section 773(f)(2)." None of Kangwon's or Inchon's sales meet the exceptive criteria of the statute. Petitioners have not provided any evidence on the record that indicates any of the sales of ASTM-grade merchandise meets any of the criteria for being out of the ordinary course of trade as defined by statute. Also, record evidence supports our finding that these sales are in the ordinary course of trade. For example, these sales are almost exclusively sales of prime merchandise. See Kangwon's and Inchon's December 10, 1999, supplemental questionnaire responses, at 12 and 8, respectively. Also, these ASTM-grade subject merchandise sales are for an established customer base. See Kangwon's and Inchon's December 10, 1999, supplemental questionnaire response, at 12 and 8, respectively. Therefore, we are making no changes to our final determination. A company-specific analysis follows below: Kangwon With respect to Kangwon, our verification findings confirm the details presented by Kangwon in its case brief. We found that Kangwon had a significant volume of sales of A36 in the home market. See Kangwon Sales Verification Report at page11. We disagree with petitioners that the fact that Kangwon had ASTM-grade merchandise in inventory indicates that the sales of such merchandise in the home market were out of the ordinary course of trade. The Department verified that, with certain exceptions, Kangwon's home market sales (including both ASTM and JIS grade merchandise) are made from inventory. See Kangwon Sales Verification Report at page 8. Therefore, based on Kangwon's normal practice of selling merchandise in the home market out of inventory, sales of ASTM grade merchandise from inventory in the home market do not provide evidence that these sales were outside the ordinary course of trade. We did not, as petitioners claim, find that Kangwon had any sales of production overruns of ASTM-grade material intended for U.S. export in the home market. See Kangwon Sales Verification Report at page 11. Furthermore, we did not find that the prices for the ASTM-grade material sold in the home market were unusually low. See Final Analysis Memorandum: Kangwon. For a computer analysis of the information submitted on the record, see Final Analysis Memorandum: Kangwon. Inchon We agree with Inchon that the Department's discovery, at verification, of ASTM-grade subject merchandise in inventory in the home market does not demonstrate that Inchon's home market sales of ASTM-grade subject merchandise were made outside the ordinary course of trade. We agree with Inchon that, "{t}he maintenance of inventory has not been identified by the statute, the Department's regulations, or the Department's prior cases as a factor in the Department's ordinary course of trade analysis." In addition, Inchon stated that it sells a large majority of its home market sales from inventory. See Inchon's October 25, 1999, Section A supplemetal questionnaire response, at SA-19. Also, at verification, we found no evidence that Inchon's home market sales of ASTM-grade subject merchandise were from production overruns. Thus, consistent with our preliminary determination, we believe that Inchon's sales of home market ASTM-grade subject merchandise are in the ordinary course of trade. Comment 31: Bank Negotiation Fees Petitioners argue that Kangwon failed to report all of its bank negotiation fees for all export transactions made in U.S. dollars. Petitioners contend that it is not possible to know the actual amount of the omitted fees. Consequently, petitioners argue that, as facts available, the Department should deduct from the gross unit price of all U.S. sales a percentage equal to the percentage calculated by the Department pursuant to its examination of the bank negotiation fees for one customer at verification (see Appendix III of the Kangwon Sales Verification Report). In regards to the Department's calculation of the percentage difference between the omitted charges and gross unit price for all of the selected sales transactions examined at verification (see Appendix IV of the report), petitioners argue that this amount is insufficiently adverse because it may reward Kangwon for its failure to provide the requested information. Should the Department decide to deduct the percentage calculated in Appendix III from the gross unit price for the sales of only the one customer examined at verification, petitioners argue that the Department should then deduct the percentage calculated in Appendix IV from the gross unit price for all of Kangwon's remaining U.S. sales. Petitioners argue that it is the Department's practice to deduct bank charges and letter-of-credit fees which are directly associated with U.S. sales as direct selling expenses. Petitioners note that, in Certain Cold- Rolled and Corrosion-Resistant Carbon Steel Flat Products From Korea: Final Results of Antidumping Duty Administrative Reviews, 63 FR 13170, 13175, (March 18, 1998), the Department agreed that it should deduct bank fees for letters of credit in addition to the calculated imputed credit figure. Petitioners disagree with respondents' argument that an imputed credit figure covering the entire credit period inherently includes all credit/financing expenses. Petitioners claim that bank fees are directly associated with U.S. sales transactions and should be deducted from U.S. price as direct selling expenses in accordance with the Department's past practice, citing, e.g., Final Results of Antidumping Duty Administrative Review: Porcelain-on- Steel Cookware From Mexico, 61 FR 54616, 54618, (October 21, 1996) ("POS Cookware from Mexico"). Moreover, petitioners claim that Inchon and Kangwon do not have access to the working capital generated by the sales while they extend credit to customers. Petitioners claim that this lack of access to capital is the opportunity cost that the imputed credit expenses are designed to capture. Petitioners maintain that respondents fail to distinguish between two separate costs of funds: 1) actual out-of-pocket bank charges; and 2) the "time value of money" associated with not having funds in hand and available for business use while extending credit to customers for sales transactions. Petitioners further argue that there is no double counting of credit expenses in this case since there are no overlapping credit periods between those of respondents and their banks. Petitioners note that in its questionnaire responses, Inchon stated that it "reported the actual date of receipt of payment from its U.S. customer," and the bank charge is presumably for a period after this date when the Korean bank was awaiting payment from the U.S. bank. Therefore, petitioners maintain that there appears to be no double counting whatsoever. Kangwon contends that it properly did not report the banking negotiation charges and interest. Kangwon claims that it followed the instructions in the Department's questionnaire and reported credit expense for U.S. sales as an imputed expense, rather than as an actual expense. Kangwon claims that the banking charges raised by petitioners are letter of credit charges incurred on sales made to the United States, which include small fees for opening the letter of credit itself and "an interest fee for the length of time between the time the shipping documentation was presented to the Korean bank and the time that the customer pays the corresponding bank in the United States," citing page 29 of the Department's Sales Verification Report. Thus, Kangwon claims, these charges represent Kangwon's actual credit expenses incurred for a portion of the same period (between date of shipment and date of payment) and purpose (cost of financing working capital) used to calculate the imputed credit expenses discussed above. Deducting these bank fees from U.S. price, as argued by petitioners, would result in double counting Kangwon's credit expenses and would be contrary to the Department's past practice. Inchon argues that it correctly did not report actual banking expenses for U.S. sales, contrary to petitioners' claim. Respondent states that the bank charges identified by petitioners are letter of credit charges incurred on sales made to the United States. Specifically, these charges include small fees for opening the letter of credit itself and an interest fee for the length of time between when the shipping documentation was presented to the Korean bank and the time that the customer pays the corresponding bank in the United States. Therefore, Inchon argues that these charges are actual credit charges, incurred for a portion of the same period and purpose used to calculate imputed credit expenses, and inclusion of these charges would result in double counting credit expenses. Respondent cites to several cases, including Silicon Metal from Brazil (63 FR 6899, 6908 (Feb. 11, 1998)), Certain Cut Fresh Flowers from Colombia (56 FR 9937, 9938 (March 8, 1991)), and Bicycles from the People's Republic of China (61 FR 19026, 19044 (Apr. 30, 1996)), noting that the Department has ignored or reduced the actual credit expense, recognizing that the expense was already captured in the imputed expense. Therefore, Inchon argues that the methodology in reporting credit expense on an imputed basis without adjusting for actual banking expenses is in accordance with the Department's questionnaire and its past practice. DOC Position: We agree with petitioners that the bank fees at issue, for both Inchon and Kangwon, are direct selling expenses and we have adjusted accordingly for these expenses, consistent with Certain Cold-Rolled and Corrosion-Resistant Carbon Steel Flat Products From Korea: Final Results of Antidumping Duty Administrative Reviews, 63 FR 13170, 13175, (March 18, 1998). However, we have continued to impute credit expenses for these sales for several reasons. First, we note that imputed credit expenses were reported by both respondents in accordance with the Department's questionnaire (see, e.g., Inchon's October 25, 1999, Section C questionnaire response, at C-28). Second, the imputed credit expenses reported, in accordance with the questionnaire, accurately account for the credit costs for the entire period between the shipment date and the payment date. Finally, we note that the inclusion of the actual interest charges, as identified at verification, for part of this period, would result in double counting of credit expense (see Stainless Steel Wire Rod From India; Final Results of Antidumping Duty Administrative Review, Issues and Decision Memorandum from Joseph A. Spetrini, Deputy Assistant Secretary, Import Administration, to Troy H. Cribb, Acting Assistant Secretary for Import Administration, dated May, 10, 2000, page 11). 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 and the final overall margins in the Federal Register. AGREE_____ DISAGREE_____ ______________________ Troy H. Cribb Acting Assistant Secretary for Import Administration (Date) _________________________________________________________________________ footnotes: 1. The input and its percentage of the total cost of manufacturing is proprietary. See Analysis for the Final Determination in the Investigation of Structural Steel Beams from South Korea--Inchon Iron & Steel Company, Ltd. ("Final Analysis Memo: Inchon"), dated June 26, 2000. 2. We note that the Department's questionnaire did not contain such direction in the review cited by respondent. 3. Because the specifics of this argument is proprietary, see Final Analysis Memo: Inchon for this information. 4. See Memorandum to the File From Maria K. Dybczak and Marlene Hewitt: Report on the Verification of U.S. Sales by Hyundai U.S.A. (an affiliate of Inchon Iron & Steel Co., Ltd.) in the Antidumping Investigation of Structural Steel Beams from the Republic of Korea at 5 (May 4, 2000) ("Hyundai U.S.A. Verification Report"). 5. Page A-10 of the August 30, 1999 Section A response. 6. Page A-15 of the August 30, 1999 Section A response. 7. Page A-15 of the August 30, 1999 Section A response. 8. citing Letter from Edward Yang to Joseph A. Spetrini, Welded Stainless Steel Pipe from Korea, Case. No. A-580-810 at 2, dated January 28, 1998 and Welded Stainless Steel Pipe from Korea, 63 FR at 16979 (April 7, 1998) 9. citing Letter from Lesely Stagliano to the File, Welded Stainless Steel Pipe from Korea, Case. No. A-580-810 at 5.