(65 FR 16880, March 30, 2000) A-580-839 Investigation Public Document MEMORANDUM DATE: March 22, 2000 TO: Richard W. Moreland Acting Assistant Secretary for Import Administration FROM: Susan H. Kuhbach Acting Deputy Assistant Secretary, Group I Import Administration SUBJECT: Issues and Decision Memorandum for the Final Determination in the Antidumping Duty Investigation of Certain Polyester Staple Fiber from the Republic of Korea _____________________________________________________________________________ SUMMARY We have analyzed the comments in the case and rebuttal briefs submitted by interested parties in the antidumping duty investigation of certain polyester staple fiber (PSF) from the Republic of Korea (Korea). As a result of our analysis, we have made changes, including corrections of certain inadvertent programming and clerical errors, in the margin calculations. We recommend that you approve the positions we have developed in the Discussion of the Issues section of this memorandum. Below is the complete list of the issues in this investigation for which we received comments from the parties: I. GENERAL ISSUES Comment 1: Critical circumstances Comment 2: Date of sale methodology Comment 3: Quarterly averaging periods Comment 4: Regenerated PSF Comment 5: Black automotive substrate II. ISSUES SPECIFIC TO SAMYANG CORPORATION Comment 6: Major input value Comment 7: Home market price changes Comment 8: G&A and interest expense ratios Comment 9: "P" channel sales Comment 10: Coding of home market products Comment 11: Duty drawback III. ISSUES SPECIFIC TO SAM YOUNG SYNTHETICS CO., LTD. Comment 12: Duty drawback Comment 13: Cost of manufacture Comment 14: Adjustment to production quantities IV. ISSUES SPECIFIC TO GEUM POONG CORPORATION Comment 15: Constructed value profit ratio Comment 16: Duty drawback Comment 17: G&A calculation BACKGROUND On November 8, 1999, the Department of Commerce (the "Department") published the preliminary determination in this investigation.(1) The merchandise covered by this investigation is certain polyester staple fiber, defined as synthetic staple fibers, not carded, combed or otherwise processed for spinning, of polyesters measuring 3.3 decitex (3 denier, inclusive) or more in diameter. This merchandise is cut to lengths varying from one inch (25 mm) to five inches (127 mm). The merchandise subject to this investigation may be coated, usually with a silicon or other finish, or not coated. PSF is generally used as stuffing in sleeping bags, mattresses, ski jackets, comforters, cushions, pillows, and furniture. The period of investigation (POI) is April 1, 1998 through March 31, 1999. We invited parties to comment on our preliminary determination. At the request of certain interested parties, we held a public hearing on March 2, 2000. DISCUSSION OF ISSUES GENERAL ISSUES Comment 1: Critical Circumstances The respondents argue that the Department should base its critical circumstances determination on the longest comparison and base periods for which it has data (i.e., the five months preceding and subsequent to the filing of the petition, respectively). While the Department used three-month base and comparison periods at the Preliminary Determination because that was the extent of the data available at the time, respondents contend that the Department subsequently has requested and verified data allowing for five-month periods. According to the respondents, the longer periods permit a more representative and reliable comparison, and the use of periods greater than three months is consistent with both the Department's regulations (19 CFR §351.206(h)) and past practice (see e.g., Final Determination of Sales at Less Than Fair Value; Stainless Steel Sheet and Strip in Coils from Germany, 64 FR 30710, 30729 (June 8, 1999)). Geum Poong and Sam Young further contend that the preliminary determination of critical circumstances was improper for several reasons. The respondents allege that the Department improperly initiated based on the petitioners' allegation of critical circumstances because the petitioners' allegation was based on only two months of U.S. Census import data, rather than the three months normally considered by the Department. In addition, the respondents argue that the Department's preliminary determination of a history of dumping based on an European Union (EU) antidumping duty order on similar merchandise was unfounded given the termination of that order. Third, the respondents find fault with the Department's failure to consider a pending increase in ocean freight rates when making its preliminary determination. The respondents contend that section 351.206(h) of the Department's regulations gives the Department the discretion to consider situations out of the ordinary, such as the pending freight increases. Concerning the respondents' argument that the Department should use a five- month period in making its critical circumstances determination, the petitioners contend that the longer the comparison period, the closer the cut- off point comes to the preliminary determination and the more likely that any efforts to surge imports prior to the preliminary determination will have tapered off. The petitioners urge the Department to "follow its normal policy for a final determination." With respect to the initial allegation of critical circumstances, the petitioners assert that at the time the allegation was filed, only two months of post-petition data was available. Finally, the petitioners contend that the Department was correct in rejecting the respondents' claim that the increase in exports was due to a pending freight rate increase for two reasons: the increase would only affect one month of the three months considered; and even if the freight increases were one reason for the increase, it is not clear that they were the only reason. Department's Position: In making critical circumstances determinations, it is the Department's practice to base its analysis on periods longer than three months, where such data is available (see e.g., Id.). In this instance, we have verified data for the five months preceding and following the filing of the petition. Accordingly, we have based our final analysis on data for the five months preceding and following the filing of the petition. Using a five-month analysis, we find that imports were not massive and, therefore, critical circumstances do not exist for the three respondents or for "all other" exporters. We disagree with Geum Poong and Sam Young that the Department did not have the legal authority to initiate a critical circumstances investigation. Section 732(b)(1) of the Tariff Act of 1930, as amended (the Act) and section 351.202(b) of the Department's regulations specify that the elements of a petition, including a critical circumstances allegation, must be based on information reasonably available to the petitioners. As argued by the petitioners, and not disputed by respondents, at the time the critical circumstances allegation was filed, only two months of post-petition data was available to the petitioners. Additionally, we note that the termination of the EU dumping order on July 29, 1999, does not negate fact that there was an EU order in place at the time of the filing of the petition and for a period prior to the filing of the petition. Furthermore, as the petitioners point out, the ITC preliminary determination cited the existence of a Mexican order. See, Certain Polyester Staple Fiber From Korea and Taiwan, Inv Nos. 731-TA-825-826, USITC Pub. 3197 at VII-4 (May 1999). Since we have found that imports were not massive over a relatively short period, we do not need to address Sam Young and Geum Poong's arguments that the increase in imports was caused by anticipated freight rate increases. Comment 2: Date of Sale Methodology In determining the appropriate date of sale, the petitioners argue that the Department should not rely on the examples that Sam Young and Geum Poong chose to present at verification indicating changes in terms of sale between the purchase order and invoice date. The petitioners contend that a sample of sales chosen by a respondent at verification should not serve to support a disputed point. Instead, the petitioners suggest that the Department should look to any pre-invoice changes to the quantity and/or price noted for the preselected and surprise sales reviewed at verification. Upon such review, the petitioners suggest, the Department would find no significant changes in the material terms of sale. Geum Poong and Sam Young argue that the Department, consistent with its established practice regarding date of sale, should use the invoice date as the date of sale. Both respondents contend that at verification, the Department reviewed information indicating that there were substantial changes to the material terms of sale between purchase order date and invoice date for both Sam Young and Geum Poong. The petitioners argue that the Department's standard is "whether changes are sufficiently common to allow us to conclude that the initial agreements should not be considered to finally establish the material terms of sale." See, Certain Welded Carbon Steel Pipes and Tubes from Thailand: Final Results of Antidumping Administrative Review, 64 FR 56759, 56768 (October 21, 1999). The petitioners contend that the respondents' example sales show changes in sale terms on only a very small percentage of sales and consist mostly of changes made within a few days of the initial purchase order. The petitioners also claim that Sam Young's description of its sales process indicates that all aspects of its sales are negotiated before the invoice date. Department's Position: To determine the appropriate date of sale the Department considers whether "a date other than the date of invoice ... better reflects the date on which the exporter or producer establishes the material terms of sale." 19 CFR §351.401(i). Our initial analysis of Sam Young and Geum Poong's sales processes led us to conclude at the preliminary determination that purchase order date was the more appropriate date of sale. However, both companies continued to claim that invoice date should be considered the date of sale because of changes that occurred in orders after the purchase order was issued. At verification, both Sam Young and Geum Poong provided documentation that the material terms of sale can and do change after the purchase order. Notably, not only do both respondents' examples show that significant changes actually occurred on the specific sales in question, but the post-purchase order communication associated with these sales also shows that both respondents' largest customers (who account for a significant portion of reported sales) have the power to stipulate changes to the sales terms after the purchase order is issued. In the preamble to its regulations (at 62 FR 27295, 27348-49 (May 19, 1997)), the Department envisioned similar scenarios: {A}s a matter of commercial reality, the date on which the terms of a sale are first agreed is not necessarily the date on which those terms are finally established. In the Department's experience, price and quantity are often subject to continued negotiation between the buyer and the seller until a sale is invoiced. The existence of an enforceable sales agreement between the buyer and the seller does not alter the fact that, as a practical matter, customers frequently change their minds and sellers are responsive to those changes. The Department also has found that in many industries, even though a buyer and seller may initially agree on the terms of a sale, those terms remain negotiable and are not finally established until the sale is invoiced. Thus, the date on which the buyer and seller appear to agree on the terms of a sale is not necessarily the date on which the terms of sale actually are established. There is no indication on the record that the structure of the PSF market or production methods necessarily require that the terms of sale be set prior to the date of invoice. In fact, we noted at verification that the PSF produced by both respondents is a commodity product, which easily can be resold to another customer in the event of a canceled or altered sale. Record evidence indicates that, for Sam Young and Geum Poong, the material terms of sale can and do change after the purchase order is issued. Accordingly, we have revised our calculation methodology and used invoice date as the date of sale for Sam Young and Geum Poong for the final determination. We disagree with the petitioners that the Department should be limited to examining only the preselected and surprise sales selected for verification in order to determine whether a date other than invoice date is a more appropriate date of sale. Both Sam Young and Geum Poong claimed that the terms of sale changed after purchase order date and, at verification, they presented evidence showing that changes were "sufficiently common." The fact that changes were not observed in the particular sales selected for verification does not invalidate their claim. As the Department noted in the preamble to its regulations, "a preliminary agreement on terms, even if reduced to writing, in an industry where renegotiation is common does not provide any reliable indication that the terms are truly 'established' in the minds of the buyer and seller. This holds even if, for a particular sale, the terms were not renegotiated." Id. at 27349. Comment 3: Quarterly Averaging Periods The petitioners request that the Department reassess its preliminary determination not to use quarterly averaging periods in making its antidumping determination. In particular, the petitioners argue that in determining whether price changes and changes in exchange rates are significant, the Department should draw upon the analytical framework it uses to address inflation, i.e., where the annual inflation rate exceeds 25 percent, the Department uses shorter averaging periods. In the petitioners' view, whether it is the consumer price index or the combined effect of exchange rates and price movements, monthly changes of less than two percent, equivalent to an annual rate of 25 percent, are potentially distortive in dumping calculations. Thus, whenever such deviations occur, the petitioners argue that shorter averaging periods are needed to ensure that fair comparisons are made. The petitioners also point to specific "flaws" in the Department's analysis of whether to apply quarterly averaging to Samyang. First, the petitioners claim that in examining export prices, the Department computed an average price covering all products sold in the United States. The petitioners object to this analysis because it mixes prices of dissimilar products without adjusting for product differences. Since this would not be acceptable for purposes of analyzing dumping, according to the petitioners, it is not appropriate for analyzing export price trends. In addition, the petitioners disagree with the Department's examination of prices for specific products and its conclusion that price changes were not significant and consistent. The petitioners cite several proprietary examples of what they claim are significant price swings. Finally, regarding exchange rates, the petitioners argue that the Department should have used weighted-average exchange rates, as would be done in the margin analysis itself, rather than using simple averages. Had the Department used the exchange rates that were used to convert normal value, the petitioners argue that the changes would be significant. Respondents argue that the Department correctly analyzed the prevailing economic environment during the POI and company specific issues to determine that exchange rates did not appreciate out of the ordinary or that there was not a significant or consistent decline in prices over the POI. As such, respondents request that the Department continue to use annual averaging, as was done in the preliminary determination. Department's Position: We have continued to rely upon the analysis performed for the preliminary determination and, therefore, have not applied quarterly averaging in our final determination. First, we disagree with the petitioners that the Department's inflation methodology is relevant to this situation. While the petitioners are correct that our inflation methodology is designed to address changing normal values over the period of an investigation, we do not believe that changes in exchange rates must be assumed to have the same effect. We note that inflation is generally an increasing phenomenon with not much volatility, and that an increase of 25 percent per annum would tend to indicate a significant change in the underlying economy. On the other hand, exchange rates can be very volatile. This volatility creates a problem in analyzing movements over time because the percentage increase/decrease at any given time depends on the comparison time period. For example, due to volatility, a 25 percent increase in the exchange rate between October and September may become only a 10 percent increase if measured from November to October. Although not impossible, we would not generally expect that this would happen with inflation. Moreover, because of the volatility of exchange rates, a 25 percent change could occur in a single day. If the original value of the currency was regained over a short adjustment period, there may be little or no affect on the underlying economy. We note that even if exchange rates were not volatile during the period and were instead steadily increasing, such a sustained currency movement may be addressed under section 773A of the Act. For Korea, the Department has found that there was a sustained movement in the currency early in the POI. However, because half of this movement was outside the POI, it did not affect this investigation. We also note that the Department has used shorter averaging periods where there was a severe and precipitous drop in the value of a currency over a short period of time. See e.g., Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Sheet and Strip in Coils From the Republic of Korea, 64 FR 30664, 30674 (June 8, 1999). In this investigation, there was no such drop in the value of the Korean won. Second, we disagree with the petitioners that our analysis of Samyang was flawed. Regarding our calculation of an average export price for all products, we were seeking to examine whether there was an overall general trend in prices of all subject merchandise sold by the respondents. Moreover, our analysis did not stop with an average export price. We also examined prices for specific models in both the home and U.S. markets. In re-examining all the data used for the preliminary determination, we continue to believe that price changes during the POI were neither significant nor consistent. While prices may have increased or decreased when measured from the first period of the POI to the last, they fluctuated in the intervening months. Consequently, the product- specific analyses do not provide a basis for quarterly averaging periods. Finally, we do not agree with the petitioners that, in examining exchange rates, we should use weighted-average monthly exchange rates (reflecting the dates and amounts of Samyang's sales) rather than the simple monthly averages of daily rates. In situations where changes in exchange rates might lead us to consider shorter averaging periods, we believe that our decision should be based on exchange rate trends, and not on whether a company sold a particular quantity on a particular day. Instead, we are asking whether the general economic factors prevalent during the POI warrant deviating from our normal practice of averaging over the period of investigation. To do as petitioners suggest would lead to the possibility of using shorter averaging periods in one case and normal averaging periods in another case regarding the same country, despite the two cases having the very same POI and the very same general economic conditions. Of even more concern is the possibility that different averaging periods may be warranted for different respondents in the same case. We, therefore, find that our analysis of movements in the exchange rates using a simple average of daily rates was appropriate. Comment 4: Regenerated PSF Sam Young and Geum Poong contend that the scope in this investigation should exclude regenerated PSF. Sam Young and Geum Poong argue that regenerated PSF was never the intended target of the petitioners, as evidenced by the fact that the petition identified only virgin PSF producers in the list of Korean producers and exporters of PSF. Both the respondents claim that the reason regenerated PSF was not identified at the commencement of the investigation is because the U.S. domestic industry does not produce regenerated PSF in commercial quantities. Further, Sam Young and Geum Poong argue that regenerated PSF is a low-quality product that is not comparable to U.S. produced high- quality virgin or recycled PSF. Sam Young and Geum Poong claim that there are significant differences in quality between virgin PSF and regenerated PSF, and there are different expectations by the end user and in the product's ultimate use. In addition, Sam Young and Geum Poong claim that because regenerated PSF and virgin PSF do not compete with each other, they have dissimilar channels of trade. Citing to 19 CFR §351.202(b)(7)(A), the petitioners note that the Department's regulations do not require submission of an exhaustive list of exporters, but rather that the petitioners must include information that is "reasonably available." The petitioners further note that the resultant antidumping duty orders cover merchandise, not companies. The petitioners continue that the language of the scope is dispositive and includes all PSF made from any raw materials, with the exception of two exclusions pertaining to length and denier specifications. Therefore, the petitioners conclude that because PSF made from regenerated materials satisfies neither exclusion, it is fully covered by the scope of this investigation. In addition, the petitioners contend that arguments regarding competition and domestic production are germane to the ITC and totally irrelevant to scope coverage. Further, the petitioners argue that the scope of a petition is crafted by the petitioners, not the respondents. Department's Position: We disagree with Geum Poong and Sam Young that we should reverse our preliminary determination and exclude regenerated PSF from the scope. We addressed this issue in the Preliminary Determination at 60777, and found that the scope "reflects the product coverage requested by the petitioners, and ... that regenerated ... PSF fall{s} within the scope." See also, Initiation of Antidumping Duty Investigations: Certain Polyester Staple Fiber from the Republic of Korea and Taiwan, 64 FR 23053 (April 29, 1999). Furthermore, since the preliminary determination, the petitioners again have objected to the exclusion of regenerated PSF from the scope of the investigation. While the petitioners admit to only having named virgin producers in the petition, they state that this was solely because these were the names that were "reasonably available" at the time, and the list was not intended to be exhaustive. Therefore, because regenerated PSF falls within the scope, the Department has not amended the scope of the investigation to exclude regenerated PSF. Comment 5: Black Automotive Substrate (BAS) An interested party, Gates Formed Fibre (Gates), has requested that the Department determine BAS to be a separate class or kind of merchandise. Gates suggests that BAS is a distinct and different product from the PSF covered in the petition and produced by the domestic industry. Citing previous determinations, Gates argues that the Department has the authority to exclude products at the request of importers. See, Steel Wire Rod from Trinidad and Tobago, 63 FR 9177, 9178 (February 24, 1998); and Certain Pasta from Italy, 61 FR 30326, 30330 (June 14, 1996). Pointing to language in an administrative review, Gates further argues that the issue of whether to assign separate margins to certain products within a single class or kind of merchandise is a separate issue from determining whether two articles constitute a separate class or kind. See, Certain Porcelain-on-Steel Cookware from Mexico, 62 FR 42296, 42499 (August 7, 1997). In this case, Gates states that it is not requesting separate margins because BAS is a subclass of PSF, but rather exclusion from the scope because BAS is a separate class or kind from PSF. Gates provides the following information to support its request to treat BAS as a separate class or kind of merchandise. General characteristics of the merchandise: Gates states that BAS has very different physical and chemical characteristics from PSF. In outlining the differences, Gates claims that unlike PSF, BAS is black or darkly colored, contains sticks, fusings, slubs and married fibers, has a highly variable level of crimp, is of widely varying mixed deniers, and cannot be used for fiberfill applications. Gates further contends that the fibers in its applications cannot be hollowed or siliconized. In addition, Gates states that BAS and PSF are produced differently and that BAS is manufactured by small family-owned companies using colored textile waste. Furthermore, Gates makes a distinction between the "black and colored" PSF that the petitioners discuss and BAS by saying that "black and colored" PSF is a premium product while the fibers in BAS are a waste product. Gates does not argue, as the petitioners claim, that "black and colored" PSF be excluded from the scope; rather Gates only requests that fiber used to make BAS be excluded from the scope. Expectations of the ultimate purchaser: Gates argues that the petitioners crafted the petition to target imported products to be used as filling, and specifically excluded carpeting fiber because it would "foul" the machinery. Gates claims that BAS cannot be used for fill applications and, because of its color, it would contaminate the machinery. In addition, Gates claims that a user of BAS would have to treat PSF to remove silicone so it would not interfere with the bonding process. Gates argues that these physical differences result in different customer expectations. Channels of trade in which the products are sold: Gates argues that PSF is sold to importers who then distribute it to manufacturers, whereas BAS is sold directly to the manufacturer. In addition, Gates claims that the product goes through substantial value-added processes before it is sold in the wholesale or retail market. Ultimate use of the merchandise: Gates argues that BAS simply cannot be used for fill applications. The manner in which the products are advertised and displayed: Gates argues that, while PSF is directly advertised and displayed in the consumer market, BAS is not directly used in products which are advertised or displayed to consumers. Moreover, Gates argues that BAS does not compete against the consumer products manufactured using fiber fill. BAS is never advertised to the PSF market, according to Gates, because PSF users could not realistically use BAS as a substitute. Finally, Gates argues that exclusion of BAS would not lead to circumvention. It claims that due to its characteristics, BAS cannot be changed to substitute for fill applications without great cost. The petitioners argue that the scope is very clear and that there should be no question that "black and colored" PSF is covered by the scope. The petitioners point out that in the preamble to its regulations, the Department states that the purpose of soliciting scope comments is to ensure that products in which the affected industry has no interest are properly removed. The petitioners, as the affected industry, claim that BAS competes directly with PSF and, therefore, should not be excluded. They claim that an exclusion of "black and colored" PSF would invite importers to engage in practices such as coloring PSF or mixing small amounts of different denier in order to import "black and colored" PSF as PSF. The petitioners also point out that even if the Department were to find that BAS was a separate class or kind of merchandise, the result would be a separate margin for BAS, and not exclusion from the scope. In analyzing "black and colored" PSF under the Diversified Products(2) criteria, the petitioners argue that the product is not a separate product from PSF. The petitioners state that "black and colored" PSF is not different from products used in land-fill liners, filtration systems, and medical applications, and therefore, the expectation of the ultimate consumers, the ultimate use, and the channels of trade are not different. The petitioners also point out that, since PSF is an intermediate product, it is not valid to compare the manner in which the products are eventually displayed when incorporated into the final product. Finally, the petitioners claim that the differences in general characteristics that Gates refers to are merely differences within the same class or kind of merchandise and, since the Department has not sought to match using these characteristics, these differences are irrelevant. Department's Position: To determine whether a product constitutes a separate class or kind of merchandise, we use the criteria outlined in 19 CFR §351.225(k) (also known as the Diversified Products criteria). In this case, regarding expectations of the ultimate purchaser, channels of trade, ultimate use, and the manner in which the product is advertised or displayed, we find there to be substantial overlap between PSF and the fibers used for the production of BAS. While there may be some differences, from an examination of these criteria, we find no clear evidence that the two products should be in different groups. Concerning general product characteristics, we note that the Department, when examining the physical characteristics of the product in the context of class or kind analysis, looks for a clear dividing line between product groups and not merely the presence or absence of physical characteristics. See e.g., Final Determination of Sales at Less Than Fair Value: Sulphur Dyes, Including Sulfur Vat Dyes from the United Kingdom, 58 FR 7537 (February 8, 1993). We find Gates' reliance on the general composition, the variable crimp levels, the varying deniers, the fact that Gates cannot use fiberfill PSF, and the intrinsic viscosity, to be an analysis of physical differences and not an indication that the fiber used in BAS is a separate product group. In fact, Gates itself has admitted that the fiber used in BAS is "one kind of regenerated fiber." See Gates' May 12, 1999, submission at 10. Therefore, we find that BAS is not clearly distinct from the other products included within the scope of this proceeding. Consequently, we conclude that BAS does not constitute a separate class or kind of merchandise. Having concluded that the fiber used to produce BAS is within the scope of this investigation, we need not address the issue of circumvention. II. ISSUES SPECIFIC TO SAMYANG CORPORATION Comment 6: Major Input Value Samyang purchased purified terephthalic acid (PTA) from its affiliate, Samnam Petrochemical Co., Ltd. (Samnam), and from two unaffiliated suppliers, while it purchased qualified terephthalic acid (QTA) solely from its affiliate, Samnam. Samyang argues that the decision by the Department in the preliminary determination to use the highest PTA price on the record for both PTA and QTA was not reasonable and distorted Samyang's cost of production (COP). Samyang states that it reported to the Department on several occasions that, despite its best efforts, it could not compel Samnam to provide its cost of production information to the Department. According to Samyang, the majority owners of Samnam refused to release the information because they felt it would give Samyang a competitive advantage in future price negotiations. While acknowledging that it did not provide Samnam's COP for QTA or PTA, Samyang argues that the Department verified the QTA sales prices between Samnam and Samnam's unaffiliated customers, thereby establishing that Samnam did not charge Samyang less than arm's-length prices for QTA. For PTA, the prices Samnam charged Samyang were lower than the prices that Samnam charged its unaffiliated customers. Therefore, Samyang requests that, for QTA, the Department use the verified weighted-average prices that Samnam charged unaffiliated purchasers. At the very least, Samyang argues that for QTA, the Department should use the highest QTA price charged by the affiliate to an unaffiliated purchaser rather than the highest PTA price Samyang paid. For PTA, Samyang urges the Department to use the verified weighted-average prices Samyang paid to its two unaffiliated suppliers. The petitioners counter that because Samyang did not provide the affiliate's COP data for QTA, the Department correctly applied the highest PTA purchase price to all QTA and PTA purchases. Since the affiliate's COP was not provided, the petitioners urge the Department to infer that the data was not favorable to Samyang (i.e., the COP was higher than the highest transfer price). By failing to provide the COP data, the petitioners argue that Samyang prevented the Department from choosing the highest of the COP, market value, or transfer price. Further, the petitioners note that Samyang's reasons for not providing the COP data were because its affiliate did not want Samyang to have a competitive advantage in negotiating prices. However, the petitioners question why Samnam would release its prices charged to unaffiliated parties and not expect this information to give Samyang a competitive advantage. Therefore, the petitioners request that the Department continue to use the highest transfer price as facts available. In response to Samyang's request to use separate QTA and PTA costs, the petitioners point to Samyang's statements in a supplemental response that products using PTA and QTA have no cost differences for purposes of calculating COM. If there are no cost differences, the petitioners argue, there is no need to calculate separate costs for PSF products produced from PTA or QTA. Department's Position: Section 773(f)(2) of the Act states that, when dealing with transactions between affiliates, the Department may disregard such transactions if they do not accurately reflect market prices. The major input rule is stated in section 773(f)(3) of the Act, and states the following: If, in the case of a transaction between affiliated persons involving the production by one of such persons of a major input to the merchandise, the administering authority has reasonable grounds to believe or suspect that an amount represented as the value of such input is less than the cost of production of such input, then the administering authority may determine the value of the major input on the basis of the information available regarding such cost of production, if such cost is greater than the amount that would be determined for such input under paragraph (2). The regulations provide that the Department will normally determine the value of a major input from an affiliated person based on the higher of the transfer price, the market price, or the affiliate's cost of production. 19 CFR §351.407(b). The Department has consistently determined that the initiation of a sales- below-cost investigation gives us reasonable grounds to believe or suspect that the major input was sold below the COP. See e.g., Notice of Final Determination of Sales at Less Than Fair Value: Certain Cold-Rolled Flat-Rolled Carbon- Quality Steel Products From Brazil, 65 Fed. Reg. 5554, 5580 (February 4, 2000) (Cold-Rolled from Brazil); Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Plate in Coils From South Africa, 64 FR 15459, 15475 (March 31, 1999) (Plate in Coils from South Africa); Certain Cut-To- Length Carbon Steel Plate From Brazil: Final Results of Antidumping Duty Administrative Review, 63 Fed. Reg. 12774,12751 (March 16, 1998) (Plate from Brazil); Final Results of Antidumping Administrative Review: Silicomanganese from Brazil, 62 FR 37871, 37873 (July 15, 1997) (Silicomanganese from Brazil). In this case, the petitioners filed a timely sales-below-cost allegation on which the Department subsequently initiated a COP investigation. In making this allegation, petitioners relied entirely on information in Samyang's section D response. We requested that Samyang supply Samnam's COP information for the major inputs PTA and QTA. Samyang informed the Department that Samnam was refusing to provide its COP information. At verification, Samnam agreed to provide the Department with information regarding its prices to unaffiliated purchasers. While it is undisputed that Samyang has not provided the COP information of its affiliate, we do not agree with the petitioners that an adverse inference is warranted in this case. Section 776(b) of the Act states that, if the Department finds that an interested party has failed to cooperate by not acting to the best of its ability to comply with a request for information, the administering authority may use an inference that is adverse to the interests of the party. To determine whether a respondent has acted to the best of its ability in trying to obtain the major input COP data from its affiliate, the Department has tended to look at the nature of the affiliation and/or other circumstances surrounding control, in addition to other facts. See e.g., Plate from Brazil (a supplier's mere 15 percent ownership interest in the respondent, combined with the fact that ongoing privatization of the supplier may have prevented the supplier from releasing such cost information, was sufficient to show that the respondent could not compel the supplier to release its COP); Silicomanganese from Brazil at 37873 (when the supplier wholly owns the respondent and when the business of the parent is clearly affected by any antidumping duties against the respondent, that supplier is an "interested party" and therefore the obligation to supply the requested COP information); Plate in Coils from South Africa at 15474 (when a supplier owns 33 percent of the respondent, but the respondent did not even make an attempt to or support its claim that it could not obtain the COP data, we made an adverse inference ...). In this case, Samyang has stated on the record that, despite its repeated requests, Samnam has consistently refused to provide its COP information. Samyang has stated that the other owners of Samnam opposed the release of the COP data. Because Samyang is not a majority owner of Samnam, we cannot conclude that Samyang alone has the authority to compel its affiliate to cooperate. Furthermore, there is no evidence on the record that Samyang could force Samnam to comply with its requests for information. Given Samyang's attempts to get the COP information from Samnam and, absent a controlling interest or influence over Samnam, we have no basis to conclude that Samyang has failed to act to the best of its ability in trying to obtain the COP data from its affiliate. In recent cases before the Department, when a respondent has been unable to obtain COP data for a major input from an affiliate and the Department has determined that the respondent has acted to the best of its ability to get that data, we have used non-adverse facts available. When available, we turn to the COP data supplied in the petition. In these situations, we do not deem this an adverse inference, but rather as "gap filling" facts available because it is the only information available on the record. Cold-Rolled from Brazil at 5581 (Department found that respondent tried to the best of its ability, unsuccessfully, to obtain COP data. In its place, the Department used COP data from the petition as a non adverse gap-filling facts available, and explicitly stated that this was not adverse, but simply a choice among what information was on the record). In cases where we did not have COP data on the record, either from the respondents or from the petitioners, we have used the higher of the transfer price or the market price because there was no indication on the record that the COP would be higher than the transfer or market price. Plate from Brazil at 12750. Thus, the Department's policy is clear that when COP is not provided, and the Department has determined that the respondent has acted to the best of its ability to obtain the information, the Department will look to the record to determine what information will replace the missing COP information. We will consider any information on the record indicating whether the affiliate's major input COP was higher than the market or transfer price. Absent such information, we will choose between the higher of the market or transfer price. This is the situation we face in this investigation. We find that, because necessary information about the COP of Samnam's major inputs PTA and QTA is not available on the record, the application of facts available is warranted. However, since we have determined that Samyang did, to the best of its ability, attempt to obtain the affiliate's COP data, we further find that we will use only non adverse gap-filling facts to replace the missing major-input COP data. Finally, since there is no COP data on the record other than Samyang's, we valued PTA and QTA based on the higher of the transfer price or the market price for each input. Finally, we agree with Samyang that we should value QTA and PTA separately to calculate control number-specific COMs. Samyang initially calculated its COMs using an average of its QTA and PTA costs. However, in a supplemental questionnaire response, Samyang provided the amount of QTA and PTA used on a model-specific basis. Since Samyang's control number-specific production information is on the record and we have determined distinct values for QTA and PTA, we must now calculate a more precise COM for each control number. Comment 7: Home Market Price Changes For those sales where Samyang reported the original sale and a sale with a price adjustment and/or change in sales terms during the POI, Samyang requests that the Department use the revised sale in its calculation of normal value. Samyang argues that the Department's use in the preliminary determination of both the original sales and the revised sale to determine normal value was an error. Instead, according to Samyang, the Department should use only the revised sales, since these reflect the final agreed upon price and sales terms between the parties. In addition, Samyang argues that, since the revisions evidence a change in the material terms of the contract, the date of sale for these transactions should be the date on which the revisions occurred rather than the purchase order date. According to Samyang, the revised date better reflects the date on which the parties agreed to the material terms of sale. The petitioners argue that the Department should disregard the renegotiated sales price as post-shipment price reductions that are neither discounts nor rebates, and instead use the original price for the sale. The petitioners state that the questionnaire's glossary of terms defines allowable price adjustments as discounts and rebates. See, June 4, 1999 Antidumping Questionnaire to Samyang at Appendix 1-"Glossary of Terms." According to the petitioners, discounts occur at the time of payment of the invoice and rebates are agreed upon at or before the time of sale-neither of which occurred in Samyang's situation. The petitioners claim that, in renegotiating prices, Samyang is selectively reducing prices in its home market database. If this is allowed, the petitioners argue that any company with knowledge of an impending antidumping investigation could issue post-shipment credits on its high-priced home market sales. Concerning using the renegotiation date as the date of sale, the petitioners state that it is Department policy not to use a date of sale subsequent to the date of shipment. Department's Position: We agree with Samyang that the final revised sales should be the only sales included in our calculations. While we agree with the petitioners that the renegotiated prices are not discounts or rebates, we do not agree that these are the only adjustments that reduce price. Price adjustments are defined as any change in the price charged for subject merchandise or the foreign like product, such as discounts, rebates, and post-sale price adjustments, that are reflected in the purchaser's net outlay. 19 CFR §351.101(b). To calculate normal value, the Department will use a price that is net of any price adjustment, as defined in 19 CFR §351.102(b), that is reasonably attributable to the foreign like product. 19 CFR §351.401(c). We acknowledge the petitioners' concern about post-sale price adjustments that might be made in response to an antidumping complaint. However, in this case, all price changes were made well in advance of the filing of the petition. See, Samyang submission dated September 3, 1999, at Exhibit 10. Furthermore, we verified that the renegotiated amount was the amount actually paid by the purchaser. See, Cost and Sales Verification Report for Samyang dated January 24, 2000 at I-3 (Samyang Verification Report). As for the post-sale price adjustments due to contract changes, we again verified the information and determined that these sales were adjusted prior to the filing of the petition and were reflected in the purchaser's net outlay. Finally, we agree with the petitioners that the date of the revised sale should not be the date of sale since the date of sale cannot be subsequent to the date of shipment. As a result, and as we did in the preliminary determination, we used the purchase order date as the date of sale. Comment 8: G&A and Interest Expense Ratios Samyang requests that the Department use its 1999 consolidated financial statements to calculate general and administrative (G&A) and interest expense ratios. Samyang states that the 1999 statements cover nine months of the POI, whereas the 1998 statements used in the preliminary determination covered only three months of the POI. The petitioners suggest that if the Department decides to use Samyang's 1999 financial statements, the G&A and interest expense ratios should include packing costs. According to the petitioners, Samyang's G&A ratio for subject merchandise was calculated by dividing the G&A and interest expense for the entire company by the total cost of sales for the entire company, which included packing costs. This ratio, as the petitioners state, was then multiplied by the cost of manufacture, which excluded packing costs. The petitioners point to a recent investigation to show that when company-wide packing costs cannot be removed from cost of sales, the Department will calculate G&A and interest expense by applying the G&A and interest expense ratios to the per-unit cost of manufacture (COM) inclusive of packing costs. See, Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Sheet and Strip in coils from Japan, 64 FR 30574, 30591 (June 8, 1999) (Japan Sheet and Strip). The petitioners also find fault with Samyang's claim that certain severance payments were extraordinary expenses and, therefore, should not be included in the G&A expenses or in reported of manufacturing costs. The petitioners argue that the Department's practice is to include severance payments in G&A expenses, even when these expenses are recorded as extraordinary expenses. Id. The petitioners request that the Department follow its practice and include these severance payments in calculating G&A expenses. Department's Position: For our final determination, we have used Samyang's 1999 financial statement since it most closely corresponds with the POI. Regarding packing expenses, we agree with the petitioners that there should be an adjustment to account for the fact that packing expenses were included in the calculation of the G&A and interest expense ratios, but not included in the COM. When company-wide packing costs are available, our preference is to exclude this amount from the total cost of sales. See e.g., Notice of Final Results and Partial Recission of Antidumping Duty Administrative Review: Certain Pasta From Turkey, 63 FR 68429, 68434 (December 11, 1998). However, when company-wide packing expenses are not available, we include packing costs in COM. Japan Sheet and Strip at 30591. In this case, we do not have company-wide packing expenses, but we do have verified per-unit packing expenses for the subject merchandise. Therefore, for the final determination, we have applied the G&A and interest expense ratios to the per-unit cost of manufacturing, inclusive of packing expenses. Regarding severance payments, we agree with the petitioners that severance payments should be included in G&A expenses. Samyang had excluded these severance payments stating that they were extraordinary expenses resulting from a reorganization of the company. The Department only allows for the exclusion of extraordinary expenses when those expenses are both unusual and infrequent in nature. See e.g., Id. (the respondents excluded severance payments as extraordinary due to reorganization, but the Department found the payments are not infrequent since the reorganization extended over several years); Silicomanganese from Brazil at 1322 (we included bankruptcy and reorganization costs stating that these costs were neither unusual or infrequent and are typically incurred by entities). In this instance, while Samyang's severance payments made to employees during a reorganization may be infrequent, they are not unusual costs. For the final determination, we have included the severance payments in G&A expenses. Comment 9: "P" Channel Sales The petitioners request that the Department apply total adverse facts available to Samyang because it did not report "P" channel home market sales. The petitioners state that the Department's questionnaire requires the respondent to report sales of all foreign like product. In response to the questionnaire, according to the petitioners, Samyang reported that "P"-class sales were "overseas" sales, but failed to disclose that these sales were re- exported through Korean trading companies or to claim that these sales were not further manufactured. The petitioners point to the questionnaire, which requires the respondent to "report all sales of the foreign like product." See, June 4, 1999, Antidumping Questionnaire to Samyang at B-1 (Samyang Antidumping Questionnaire). The petitioners further cite to Persico Pizzamiglio, S.A. v. United States, 18 CIT 299, 1994 WL 132109 at 3 (1994) for the proposition that the requirement to report all home market sales is absolute even if it is later found that the sales in question are not necessary for pricing comparisons. The petitioners claim that, only at verification, did the Department discover that "P" sales were made by the domestic sales team to Korean customers and intended for re-export without further manufacturing. By not reporting this information until verification, the petitioners contend that Samyang deprived the Department of the opportunity to properly analyze the information and the petitioners of their due process rights to meaningfully participate. The petitioners argue that Samyang improperly made a unilateral decision as to which sales to report. Citing Certain Circular Welded Non-Alloy Steel Pipe from Mexico: Final Results of Administrative Review, 65 FR 6136, 6138 (Feb. 8, 2000) (Pipe from Mexico), the petitioners argue that, because Samyang failed to report a significant portion of home market sales, the Department should apply total adverse facts available. According to the petitioners, in Pipe from Mexico, the Department found that a company's "failure to report 10% of its home market sales until verification is especially disturbing and, by itself, is reasonable grounds to apply BIA...". Id. The petitioners state that the Department requires full disclosure prior to verification, and that Samyang failed in this regard. The petitioners also cite Stainless Steel Plate in Coils from Taiwan: Final Determination of Sales at Less Than Fair Value, 64 FR 15493, 15495 (March 31, 1999) (SSPC from Taiwan) for the proposition that all foreign sales must be reported and that knowledge of export based on internal product codes which reflect customers' statements is an insufficient basis to not report these sales as domestic sales. The petitioners claim that, in this case, the record shows no evidence that Samyang had knowledge of either re-exportation or further manufacturing. The petitioners also argue that while Samyang claims it had knowledge of re-exportation, it also claims that it did not know the final destination of the "P" sales; therefore, it is possible that some or all of these "P" sales were sales to the United States. Because Samyang did not report a significant portion of its sales, the petitioners request that the Department apply total adverse facts available to Samyang. The petitioners argue that, even if the Department does not find that Samyang withheld information, we must apply facts available in this situation because, by not providing "P" sale information until verification, we were not able to properly verify the information pursuant to section 776(a)(2)(D) of the Act. In the alternative, if the Department decides not to apply total adverse facts available, the petitioners request that we apply partial facts available by treating the "P" sales as U.S. sales and applying the highest margin to this volume. Samyang counters that the petitioners have incorrectly characterized "P" sales as home market sales. Also, Samyang points out that the petitioners do not allege that Samyang failed to report that it made "P" sales, but merely that it did not report them as home market sales. Samyang explains that "P" sales are sales of PSF in the home market to trading companies, which are ultimately exported without further processing, and for which Samyang does not know the ultimate destination. Samyang contends that the value of these "P" sales was provided in a supplemental response and that the Department collected sample documentation for a "P" sale at verification. Samyang claims that the evidence on the record demonstrates that "P" sales are export sales and not for home market consumption. First, Samyang states that the documentation for a "P" sale is different than for an "N" sale (a home market sale). Samyang points to the fact that an offer sheet used for a "P" sale states that the material being sold is for export purposes, and to the fact that a local letter of credit is used. According to Samyang, such documents are not used for N sales. Second, Samyang states that in Korea, goods destined for export are not subject to value added tax (VAT). Samyang points to the invoices for "N" and "P" sales and states that, while N sales are subject to VAT, "P" sales are not. Third, Samyang argues that the record shows no evidence that "P" sales were consumed in the home market and, therefore, should have been reported as home market sales. Samyang further explains that duty drawback cannot be claimed for sales destined for home market consumption. In this case, since duty drawback was claimed on "P" sales, they clearly were for exportation. Samyang points to section 773(a)(1)(B) of the Act, which states that normal value is based on the price at which the subject merchandise is first sold for consumption in the exporting country. According to Samyang, the appropriate analysis to determine whether to exclude sales from the home market, is to determine whether Samyang knew or should have known that the merchandise was not for home market consumption based upon the facts and circumstances surrounding the sale. Citing case law for the proposition that export sales for which the respondent did not know the ultimate destination could properly be excluded, Samyang concludes that these "P" sales were properly not reported. INA Walzlager Sacheffer Kg v. United States, 957 F. Supp. 251, 263-64 (CIT 1997) (INA Walzlager). Finally, Samyang states that the petitioners have failed to rebut Samyang's record evidence and demonstrate that "P" sales are for home market consumption. Department's Position: We do not find that Samyang was required to report its "P" sales as home market sales. Based on our review of the documentation for these sales at verification, we have concluded that they are not domestic sales. Specifically we saw that "P" sale documentation is distinguishable from other types of sales documentation and, in particular, identifies "P" sales as sales of finished products to exporters. In addition, "P" sales are not subject to VAT. We disagree with the petitioners that SSPC from Taiwan is applicable in this case. In SSPC from Taiwan, the respondent generated internal coding based upon customers' statements and collected VAT from the customer. SSPC from Taiwan at 15495. In addition, the Department did not discover the existence of the disputed sales until verification, and some of the sales coded as being for export were, in fact, consumed in the home market. Id. Referring to INA Walzlager, we stated in SSPC from Tawian that "...only if {respondent} knew or had reason to know that merchandise subject to investigation was not sold for consumption in the home market under section 773(a)(1)(B) might it have been appropriate for {the respondent} to omit these {sales}...". Id. at 15496. In this investigation, Samyang did not rely on customers' statements that "P" sales were for export without further manufacturing, but instead relied on sales documentation. VAT was not collected on these sales. Furthermore, unlike in SSPC from Taiwan where the existence of the unreported sales was not disclosed until verification, Samyang identified the "P" sales prior to verification in its September 3, 1999, supplemental questionnaire response. Comment 10: Coding of Home Market Products The petitioners contend that Samyang disregarded the product matching instructions issued by the Department in its questionnaire for certain products. In particular, according to the petitioners, Samyang assigned matching codes so as to segregate home market merchandise that Samyang believed: (1) had different end uses; (2) had higher prices, or (3) was not covered by the scope of the investigation. However, the petitioners say, Commerce makes its product matches solely on the basis of physical characteristics and does not consider end use or price. Citing Rautaruukki Oy. v. United States (22 CIT , Slip Op. 98-112 August 8, 1998), the petitioners argue that Samyang failed to meet its burden of persuading the Department that changes to the Department's matching criteria were proper or that Commerce's methodology distorted the dumping analysis. Thus, the petitioners argue, the Department should apply facts available in its final determination. Moreover, in the petitioners' view, it would not be appropriate simply for the Department to re-code these sales because doing so would reward Samyang for its recalcitrance. Samyang disagrees that it has misreported its home market sales of these products. According to Samyang, a review of the record will show that only three products were identified as having "other" composition: sea/island fiber; polyethylene/polyester fiber; and multi-length cut fiber. Of these, sea/island and polyethylene/polyester should not be classified as having "low melt" composition, as the petitioners demand, because both have different fibers such as polyethylene and nylon that are not polyester. If anything, according to Samyang, these products should probably be re-coded as having a "blended" composition. However, whether they are coded as "other" composition or "blended" composition, they would not be used as comparisons for any product sold in the United States. Regarding multi-length cut fibers, Samyang argues that such merchandise is not within the scope of the investigation because it is processed to be used solely for spinning purposes. According to the scope, the product subject to investigation encompasses "certain polyester staple fiber ... not carded, combed, or otherwise processed for spinning, of polyesters measuring 3.3 decitex (3 denier, inclusive) or more in diameter" (emphasis added). Moreover, citing language in the petition, Samyang claims that it was clearly not the petitioners' intention to include PSF for spinning purposes in the scope. However, if the Department determines that this merchandise is within the scope, it should recognize that the physical characteristics and uses are different from the PSF covered by this investigation and permit this merchandise to be coded as "other" composition to avoid inappropriate product matches. Finally, Samyang also asserts that trilobal fiber is not covered by this investigation. Samyang points to language in the petition which excludes PSF used in the manufacture of carpeting and, as the Department learned at verification, trilobal fibers are used only for carpet. However, because the scope language in the investigation is unclear about whether this product is covered, Samyang reported its home market sales of trilobal fiber. If the Department concludes that this product is within the scope of the investigation, it has full information about the product and can re-code the product if needed. Department's Position: We have reviewed carefully Samyang's classification of the fiber types in question. With respect to sea/island fiber and polyethylene/polyester fiber, we have concluded that these two products should not be coded as having "low melt" composition, as the petitioners claim, because they contain other fibers such as nylon and polyethylene. In support of their position that sea/island fiber and polyethylene/polyester fiber should be classified as low melt products, the petitioners point to Samyang's description of these products as, "...specialty products with fibers of different compositions, low-melt." However, simply because Samyang used the term "low melt" to describe these products, does not mean that they should be classified as having "low melt" composition. Under the Department's product matching directions, low melt is defined as "a bi- component sheath and core fiber where the outer sheath melts at a significantly lower temperature," while the "blended" composition is defined as "a mix of different fiber compositions," and respondents are asked to "specify the components (i.e., single component/low-melt) and the percentage." (emphasis added) (See, Samyang Antidumping Questionnaire at B-7 and C-7). Thus, products with low melt components would not necessarily be classified as having "low melt" composition. Furthermore, in comments they submitted on product matching criteria, the petitioners stated: "Bicomponent, or low melt fiber, is used to bond polyester into batting material. Bicomponent fiber consists of fiber made with a core of regular polyester and a sheath of coploymer polyester." (See May 18, 1999 submission from the petitioners.) This description of low melt, which refers only to polyester fibers, supports our conclusion that sea/island fiber and polyethylene/polyester are not properly classified as having "low melt" composition. Having concluded this, we do not need to reach the issue of whether these products should be coded as "other" composition or "blended."(3) This is because these products were not sold to the United States during the period of investigation and, hence, we would not be using home market sales of these products to calculate normal value in any case. If this proceeding results in an antidumping order and Samyang begins shipping these products to the United States, the Department may consider whether they are covered by the order in a scope proceeding, if appropriate. With respect to multi-length cut fibers, our review indicates that Samyang may well be correct that these fibers are not within the scope of this proceeding. In particular, we refer to the scope language: "Certain polyester fiber is defined as synthetic staple fibers, not cared, combed, or otherwise processed for spinning ..." According to our discussions with the Customs Service, if the fibers are deliberately cut to varying lengths, then they should be considered "otherwise processed for spinning" and, hence, outside the scope of this case. Thus, the information we have points to the conclusion that these fibers are not within the scope of this case. However, since we do not have information regarding the cutting process for these fibers, the record does not permit us to reach a decision on this point for our final determination. Given the uncertainty of whether multi-length cut fiber is within the scope, we have not used it for matching purposes for this final determination. Moreover, if this investigation results in an antidumping duty order, we will consider this issue further. The petitioners have argued that Samyang seeks to exclude multi-length cut fibers on the basis of end use. The petitioners argue further that the above- cited scope language, "does not exclude PSF for spinning end uses because it refers to steps used to process PSF, not end uses for PSF." See, The Petitioners' Brief dated Feburary 22, 2000 at 29 (footnote 27) (emphasis in original). We disagree with the petitioners that this exclusion would be based on end uses. Instead, deliberately cutting fibers to various lengths is a process which makes the fibers ready for spinning. Hence, in these circumstances, the plain language of the scope would seem to exclude multi- length cut fiber. The petitioners also refer to Samyang's request early in the case to exclude low melt and conjugated PSF from the scope of this investigation, saying that Samyang did not at that time raise the issue of whether fibers processed for spinning were excluded. We agree that Samyang's request did not discuss multi-length cut fibers. Hence, our decision to include low melt and conjugated products in the scope, in accordance with the petitioners' wishes, does not implicate the issue of whether multi-length cut fibers are included. Instead, as noted above, the plain language of the scope may very well exclude this merchandise. Since we have concluded that Samyang was not in error in its classification of sea/island fiber or polyethylene/polyester fiber, and that we should not use multi-length cut fiber for matching purposes in this final determination, the situation addressed in Rautaruukki Oy. v. United States does not arise for these products. However, as explained more fully below, we have concluded that trilobal fiber is within the scope of the investigation and, therefore, Samyang bears the burden of persuading the Department that the matching criteria should be changed. We determine that Samyang has not done so. Samyang first argues that it is unclear whether trilobal fiber is within the scope of this investigation because trilobal fiber is used solely to produce carpeting. While the scope language does refer to fibers which are excluded by virtue of being used for carpets, our reading indicates that the scope language regarding denier and length is controlling. Specifically, the scope language states: "Also specifically excluded from this investigation are polyester staple fibers of 10 to18 denier that are cut to lengths of 6 to 8 inches (fibers used in the manufacture of carpeting)." Thus, simply because a product is used to produce carpet, it would not be excluded. Instead, the products which are excluded by this sentence are those which fall outside the specified denier and length ranges. Having concluded that trilobal fibers that fall within the specified denier/length ranges are covered by this investigation, the next issue is whether the Department should have selected shape as a matching criterion, or whether trilobal fibers should be classified as having "solid" or "other" cross section under the existing product matching criteria. While Samyang has stated that trilobal should be distinguished because of its three-sided, as opposed to circular, shape, the Department is not persuaded that shape should be considered as a product matching characteristic. Clearly, shape is a physical characteristic of the product, but the Department is not required to account for every physical characteristic when selecting its matching criteria. We have further concluded that trilobal fibers should not be classified as having "other" cross section. Instead, these are solid fibers and should have been classified as such. Therefore, for home market sales of trilobal fiber, the Department has amended Samyang's product coding and treated these products as having "solid" cross section. We disagree with the petitioners that our recoding of these sales rewards Samyang for its recalcitrance. As the discussion above demonstrates, the product matching in this investigation is complex and difficult. Moreover, while it may be desirable to establish matching criteria firmly as early in the proceeding as possible, the Department clearly has the authority to consider changing the matching criteria during the course of the proceeding as it learns more about the product being investigated. Therefore, while we did not change the criteria in this instance, we believe that Samyang raised legitimate questions and that it is appropriate for the Department to change Samyang's coding of trilobal fibers to reflect our decision. Comment 11: Duty Drawback The petitioners argue that the Department should add duty drawback to the price for Samyang's home market sales of subject merchandise sold to an exporter as raw materials for further processing ("L" type sales). According to the petitioners, Samyang admitted that "L" sales are subject to duty drawback. As evidence that Samyang received duty drawback on its "L" sales, the petitioners point to Samyang's submission which included "L" sales in calculating the total drawback sales quantity. See Samyang supplemental response dated September 3, 1999 at 13. By including these "L" sales in the home market database without adjusting for duty drawback on these sales, the petitioners contend that we would be comparing duty inclusive U.S. prices to duty exclusive home market prices. Samyang responds that duty drawback was not claimed for "L" sales. Instead, Samyang argues, "L" sales were sales made to domestic customers for export and only the customer who ultimately exports the goods is eligible for drawback. Samyang states that it reported the actual duty amounts received for each sale of subject merchandise to the United States during the POI. Because the duty drawback on "L" sales was transferred to the exporter, Samyang claims that these sales are already duty inclusive. Department's Position: We agree with Samyang that the prices of "L" sales should not be adjusted for duty drawback. While we acknowledge the petitioners' argument that Samyang initially included "L" sales in calculating the total duty drawback sales quantity in its September 3, 1999 supplemental response, we note that Samyang provided, in a subsequent submission, transaction-specific duty drawback information. See, Samyang supplemental response dated November 2, 1999 at 2. At verification we examined not only the "L" sales, but also the duty drawback process. We saw no evidence contradicting Samyang's claim that any duty drawback for "L" sales was transferred to the ultimate exporter. Samyang verification report I-3 and I-14. Accordingly, we have made no adjustment for duty drawback on "L" sales for the final determination. III. ISSUES SPECIFIC TO SAM YOUNG SYNTHETICS CO., LTD. Comment 12: Duty Drawback The petitioners argue that the Department should revise Sam Young's methodology for calculating the duty drawback adjustment. The petitioners contend that because the claims for duty drawback are handled long after the time of sale, Sam Young does not know at the time of sale which sales will be eligible for duty drawback. Therefore, the petitioners contend that Sam Young arbitrarily assigned duty drawback to certain export sales in its U.S. and Canadian sales listings. For these reasons, the petitioners assert that the Department should reallocate the reported duty drawback to more closely correlate claimed drawback with actual drawback by allocating the total drawback duties reported for the POI over the total volume of exports to the United States, Canada and other third country export markets. Citing Circular Welded Non-Alloy Steel Pipe From the Republic of Korea: Final Results of Antidumping Duty Administrative Review, 63 FR 32833, 32837 (June 16, 1998) (Korean Pipe), the petitioners argue further that the Department should reduce the reported drawback amount to exclude any amount greater than the amount of actual import duties paid during the POI, and allocate this revised amount over total export sales during the POI. Sam Young counters that its allocation of duty drawback was not arbitrary, and that the Department should continue allowing Sam Young an adjustment for its duty drawback as reported and verified by the Department. The respondents argue that it would have been impossible for Sam Young to misrepresent its drawback adjustments, particularly given the strict Korean Government regulation of the duty drawback process. Citing Oil Country Tubular Goods from Korea, 64 FR 13169 (March 17, 1999) (Tubular Goods from Korea), the respondents note that the Department acknowledged that it is practically impossible to link specific sales with specific consumption of raw materials and that Sam Young followed the permitted practice of matching export sales with import permits on a FIFO basis. Department's Position: Pursuant to section 772(c)(1)(B) of the Act, the Department is required to adjust the export price and CEP by the amount of duty drawback received on the imported inputs. We agree with Sam Young's claim that the total duty drawback received was verified. However, upon careful examination of the information concerning Sam Young's reported duty drawback, we find that there appears to be significantly less duty drawback assigned to its reported third country sales. While we do not disagree that FIFO (first in, first out) methodology could work, what has resulted in this particular case is that most drawback amounts have been assigned to U.S. sales and not to third country sales that also appear to have been eligible for drawback. As the petitioners point out, Sam Young did not explain the reasons for the unevenness in the amount of duty drawback assigned across export markets. While we found no discrepancies at verification with regard to Sam Young's reported numbers, this does not validate the methodology used by Sam Young. In addition, the Act is silent about the method by which duty drawback is to be allocated. Accordingly, for the final determination, we have reallocated the total reported drawback duties reported by Sam Young for the POI over the total volume of exports to the United States and Canada. With respect to the petitioners' argument concerning limiting the amount of the duty drawback adjustment, we disagree. The petitioners' citation to Korean Pipe does not apply in this case. In that case, the duty drawback rebates received by certain respondents were based on a theoretical weight basis while the payments of the original duties were on an actual weight basis. As a result, total rebates received exceeded total duties paid. In this case, we verified Sam Young's reported amounts of duties paid. Comment 13: Cost of Manufacture The petitioners argue that the methodology chosen by Sam Young to report its raw material costs was unreasonable and resulted in a significant understatement of the cost of manufacture. As a result, the petitioners contend that the Department should apply, as facts available, Sam Young's fiscal year 1998 cost of manufacture in the calculation of the COP/CV figures. The petitioners assert that Sam Young failed to provide the total cost of the raw materials consumed from the raw materials inventory in the first quarter of 1999. As evidence, the petitioners note that the volume of raw material purchases in the first quarter of 1998 was significantly higher than that purchased in the first quarter of 1999. Based on an input-to-output ratio analysis, the petitioners conclude that the volume of purchases in the first quarter of 1999 is not sufficient to produce the level of finished PSF for the same period. With respect to the differences in the amounts of raw material purchases in the first quarters of 1998 and 1999, Sam Young responds that the fact that first quarter 1998 purchases exceeded first quarter 1999 purchases has no relevance. Sam Young claims that its methodology of calculating costs based on purchases is reasonable, as the company does not maintain monthly raw materials inventory values. Sam Young argues that, given the turnover ratio of its raw materials inventory, it could not have relied upon raw materials purchased in the first quarter 1998 for production during the POI. Further, Sam Young counters that the petitioners' calculation using fiscal year 1998 data fails to take into account product differences such as the separation of silicon coatings. Finally, Sam Young argues that the Department has verified its production costs and should rely on Sam Young's reported information for the final determination. Department's Position: We agree with the petitioners that Sam Young's reported costs were understated. While we reviewed Sam Young's methodology for reporting its costs of production at verification, we noted at that time that Sam Young does not track raw materials inventory other than at the beginning and end of each fiscal year. Because of this, Sam Young subtracted its first quarter 1998 raw materials purchases from its fiscal year 1998 raw materials consumption and added its first quarter 1999 purchases to arrive at total reported costs. See, February 15, 2000 Verification Report of Sam Young at II-2 and I-3. If purchases were equal to consumption during the first quarters of 1998 and 1999, Sam Young's methodology would produce accurate costs of production for the POI. However, we do not believe that the reported costs reasonably reflect and accurately capture all of the actual costs incurred in producing the subject merchandise, especially with regard to the first quarter of 1999. For this period, the amounts produced could not have been achieved with the inputs that were purchased in that period. Lacking another means of adjusting for this, we have relied upon Sam Young's fiscal year 1998 figures to provide a more accurate representation of actual production costs incurred by Sam Young in producing the subject merchandise. In accordance with section 776(a)(1) of the Act, in making our final determination, we have used Sam Young's 1998 fiscal year costs of manufacture data as non adverse facts available for calculating Sam Young's costs of production because Sam Young's records do not allow for an accurate calculation of its POI costs. Comment 14: Adjustment to Production Quantities At the preliminary determination, the Department revised Sam Young's reported per-unit materials costs due to an apparent discrepancy in the total production quantity used by Sam Young to calculate its per-unit costs. Preliminary Determination at 60781. Sam Young asserts that the Department has verified its reported production quantities and should reverse the adverse inference made at the preliminary determination. Department's Position: We agree with Sam Young that the adjustment made to Sam Young's reported production quantity information at the preliminary should not be made for the final determination. We verified the production quantity information reported by Sam Young as accurate. However, because we are not using Sam Young's reported POI costs for the final determination (see, Comment 13 supra), this issue is moot. IV. ISSUES SPECIFIC TO GEUM POONG CORPORATION Comment 15: Constructed Value Profit Ratio Geum Poong argues that the Department's inclusion of a virgin PSF producer in its weighted-average profit ratio calculation is not in accordance with section 773(e)(2) of the Act because this methodology fails to use Geum Poong's own profit experience and includes profit data from a producer of a higher quality product. Geum Poong states that it attempted to provide the Department with an alternative company-specific profit methodology based on the combination of data from several of its third country markets, but that the Department rejected the submission. Instead, the Department invited the petitioners and Geum Poong to submit publicly available, credible, and self-verifying alternative data. In response, Geum Poong submitted a profit ratio for the man- made fibers industry based on data from the Bank of Korea (BOK). Geum Poong contends that the BOK data provides the Department with a reasonable profit methodology using data for the same general category of products as PSF, and is the best information on the record. Alternatively, Geum Poong suggests that the Department use Geum Poong's company wide profit rate as this is the most accurate reflection of its actual profit experience. Geum Poong states that the Department conducted a thorough verification of its accounting records, and that the company-specific data is acceptable, as it is the profit realized by the specific producer for the actual product under investigation. Furthermore, Geum Poong contends that the Department should under no circumstances impute the profit virgin PSF producers earn to Geum Poong's exclusively regenerated PSF, as it did in the preliminary determination. Geum Poong argues that imputing the profit of a virgin PSF producer such as Samyang is contrary to section 773(e)(2) of the Act, particularly when the Department could have based Geum Poong's profit ratio on the company's own profit experience. Citing the Final Results of Antidumping Duty Administrative Review: Silicon Metal from Brazil, 65 FR 7497 (February 15, 2000) (Silicon Metal), the petitioners argue that it is the Department's preferred alternative to use profit and selling expense ratios of other respondents. The petitioners argue that this preference is in accordance with section 773(e)(2)(B)(ii), and that Geum Poong has not provided justification for deviation from this preference. Furthermore, the petitioners infer that the scope in Silicon Metal included different product types analogous to the distinction between virgin and regenerated PSF. The petitioners claim that the BOK profit ratio is flawed given that the data is not contemporaneous with the POI, includes products other than PSF, and almost certainly includes data based on sales to the United States and sales outside the ordinary course of trade. The petitioners argue that the statutory requirement of section 773(e)(2)(A) of the Act that profit be calculated on sales "in the ordinary course of trade, for consumption in the foreign country," is repeated in the profit alternatives of subsection (e)(2)(B). The petitioners also object to Geum Poong's suggested alternative that the Department use the company's overall profit ratio. The petitioners state that this would be inappropriate because approximately 86 percent of Geum Poong's sales are to the United States. Therefore, basing Geum Poong's normal value on profit from its financial statements is tantamount to basing normal value on export price. Department's Position: As stated in the Department's preliminary determination, we calculated Geum Poong's constructed value profit under section 773(e)(2)(B)(iii) of the Act. Because Geum Poong does not have a viable comparison market, the Department cannot determine profit under section 773(e)(2)(A) of the Act, which requires sales by the respondent in question in the ordinary course of trade in a comparison market. Likewise, because Geum Poong does not have sales of any product other than PSF, we are unable to apply alternative (i) of section 773(e)(2)(B) of the Act. The Department cannot calculate profit based on alternative (ii) of this section without violating our responsibility to protect respondents' APO information because Samyang is the only respondent with viable home market sales (19 CFR §351.405(b) requires a profit ratio under the alternative be based on home market sales). If we were to use Samyang's profit ratio exclusively under this alternative, Geum Poong would be able to determine Samyang's proprietary profit rate. We disagree with the petitioners that it is the Department's "preferred alternative" to use other respondents' constructed value profit data, i.e., alternative (ii). Instead, the Statement of Administrative Action at 170 (H.R. Doc. 103-316 (2d Sess. 1994)) states that "it should be emphasized that ... section 773(e)(2)(B) does not establish a hierarchy or preference among these alternative methods." As detailed above, the only statutory option available to the Department to calculate constructed value profit for Geum Poong is under section 773(e)(2)(B)(iii) (alternative (iii)). Alternative (iii) allows the Department to use "any other reasonable method" to calculate constructed value selling expenses and profit. Contrary to the petitioners' argument, alternative (iii) does not require that constructed value selling expenses and profit be calculated based solely on home market sales or sales in the ordinary course of trade. The Department has used data that included non-home market sales and, presumptively, sales outside the ordinary course of trade in a number of cases. See e.g., Notice of Final Determination of Sales at Less Than Fair Value: Certain Preserved Mushrooms from Chile, 63 FR 56613, 56615 (October 22, 1998) (we used the financial statements of Ianasafrut, "a leading Chilean fruit and vegetable producer," for respondent NFP's constructed value profit); Frozen Concentrated Orange Juice From Brazil; Final Results and Partial Rescission of Antidumping Duty Administrative Review, 64 FR 43650, 43658 (August 11, 1999) (we used the financial statements of another respondent in a previous review); Notice of Final Determination of Sales at Less Than Fair Value: Certain Preserved Mushrooms from India, 63 FR 72246, 72248 (December 31, 1998) and Notice of Final Determination of Sales at Not Less Than Fair Value: Collated Roofing Nails From Korea, 62 FR 51427, 51429 (October 1, 1997) (we used the respondent's own financial statements); and Certain Fresh Cut Flowers From Colombia: Final Results of Antidumping Duty Administrative Review, 63 FR 31724 (June 10, 1998) (we used the profit from the financial statements of Compania Nacional de Chocolates S.A., a producer of processed agricultural products ). In fact, the only limitation expressed in alternative (iii) is that the profit amount "may not exceed the amount normally realized by exporters or producers ... in connection with the sale, for consumption in the foreign country, of merchandise that is in the same general category of products as the subject merchandise." We continue to find that using the weighted-average selling expenses from Samyang and Sam Young is both reasonable and appropriate and not otherwise prohibited by the statute. With regard to profit, as detailed above we have no choice but to derive Geum Poong's profit based on alternative (iii), "any other reasonable method." However, alternative (iii) limits the profit amount by a "profit cap" by stating that profit derived under alternative (iii) "may not exceed the amount normally realized by exporters or producers ... in connection with the sale, for consumption in the foreign country, of merchandise that is in the same general category of products as the subject merchandise." We have based the profit amount for Geum Poong on facts available under section 776(a)(1) of the Act. Lacking any other information to determine an appropriate profit rate for Geum Poong, we find that a simple average of the BOK profit rate, and the profit rates of Samyang and Sam Young is a reasonable methodology for estimating the profit experience of producers in the same general category of merchandise. This methodology not only takes account of the profit rates of Samyang and Sam Young, which compromise a substantial portion of the industry, but also includes, within the BOK rate, rates for other PSF producers such as Saehan Industries and SK Chemicals on the same general category of products. Consequently, we have applied a rate calculated in this manner to Geum Poong. Comment 16: Duty Drawback Geum Poong argues that the Department should reverse its preliminary decision to increase Geum Poong's COM by its total duty drawback receipts in the POI while continuing to increase its U.S. price on those sales where it reported duty drawback. Geum Poong states that the amount of the import duties it paid should not be included in the raw materials costs because it would distort Geum Poong's constructed value. The company argues that the apparent discrepancy the Department noted in its preliminary determination calculation memorandum was clarified during the verification of the duty drawback program. Geum Poong notes that the Department found in this case and in at least one other recent case (Tubular Goods from Korea at 13172 (March 17, 1999)) that the Korean drawback program operates in a manner consistent with the Department's standard for allowing duty drawback claims, as set forth in section 772(c)(1)(b) of the Act. Therefore, Geum Poong argues that the Department should accept Geum Poong's treatment of its duty drawback claims both as a reduction to COM and as an upward adjustment to U.S. price. The petitioners retort that Geum Poong's methodology is blatant double- counting; duty drawback cannot be both deducted from material costs and added to U.S. price. The petitioners argue that any drawback that Geum Poong received can either be used to decrease constructed value or increase U.S. price, but not both. Department's Position: We agree with the petitioners that it would be double counting to allow Geum Poong to both reduce its constructed value and increase its U.S. price by the same duty drawback claims. Section 772(c)(1)(b) of the Act allows for an addition of the amount of duty drawback in order to permit a comparison of a duty-inclusive U.S. price to a duty-inclusive constructed value. Geum Poong's proposed methodology would in effect be comparing a constructed value exclusive of duties to a duty-inclusive U.S. price. Comment 17: G&A Calculation The petitioners argue that the G&A ratio for Geum Poong should be calculated from the company's 1998 financial statements rather than from Geum Poong's POI financial records. In support of this contention, the petitioners cite Final Determination of Sales at Less Than Fair Value: Canned Pineapple Fruit From Thailand, 60 FR 29553, 29565 (June 5, 1995) (Thai Pineapples) which states, "the Department normally computes the G&A expense factor based on the respondent's audited financial statements for the full-year period that most closely corresponds to the POI," because independent parties have reviewed and found such statements to be sound. Furthermore, the petitioners assert that such a policy is sound in the instant case given Geum Poong's admission that it does not produce monthly or quarterly financial statements in the normal course of business. The petitioners suggest that the Department recalculate Geum Poong's G&A ratio based on the methodology put forth in petitioners September 14, 1999, submission. Geum Poong proffers several reasons why the Department should reject the petitioners' proposed methodology. First, Geum Poong contends that the Department did not request that Geum Poong calculate its G&A ratio based on fiscal year data, but instead asked for additional documentation supporting the company's POI-based ratio, at the petitioners' request. Second, Geum Poong asserts that the Department fully verified its financial data and noted no discrepancies in its POI-based methodology. Finally, Geum Poong contends that because its financial statements are not independently audited, the Department practice described in Thai Pineapples it not applicable to the situation at hand. Instead, suggests Geum Poong, the Department's verification of the company's POI-based records serves as a sufficiently thorough audit of its records, including its G&A calculation. Department's Position: The Department's standard practice is to calculate a respondent's G&A ratio based on the company's audited financial statements for the year that most closely corresponds to the POI. See e.g., Thai Pineapples. The antidumping questionnaire instructs respondents to calculate G&A expenses based on the company's financial statements for the year that most closely corresponds to the POI. We disagree with Geum Poong that the Department's preference for basing G&A on annual financial statements is not applicable to Geum Poong solely because it does not have audited financial statements. While we do not dispute that Geum Poong's financial statements are not in and of themselves audited, they are prepared for and included with Geum Poong's income tax returns which are subject to audit by Korean tax authorities. To confirm the accuracy of the data reported by Geum Poong by tracing it to source documents subject to independent auditing, as is the Department's standard verification practice, the Department directly tied Geum Poong's 1998 financial statements to its tax returns for 1998. See, February 15, 2000 Verification Report of Geum Poong at I-8 and I-9. Accordingly, we find the 1998 financial statements to be a more reliable indicator of Geum Poong's G&A expenses. However, we disagree with the petitioners that their proposed alternative calculation methodology is the most appropriate, and instead have followed the methodology examined and found sound at verification. Geum Poong reconciled its POI-based G&A calculation to its financial statements, and the various expenses that constitute total G&A expenses in the financial statements were examined and found sound during verification. We have therefore followed Geum Poong's calculation methodology, but we have replaced the POI amounts used by Geum Poong with the 1998 financial statement line item amounts. RECOMMENDATION Based on our analysis of the comments received, we recommend adopting all of the above positions and adjusting all related margin calculations accordingly. If these recommendations are accepted, we will publish the final determination in the Federal Register. AGREE ____ DISAGREE ____ ______________________ Richard W. Moreland Acting Assistant Secretary for Import Administration ______________________ (Date) --------------------------------------------------------------------------- footnotes 1. Notice of Preliminary Determination of Sales at Less Than Fair Value and Postponement of the Final Determination: Certain Polyester Staple Fiber from the Republic of Korea, 64 FR 60776 (November 8, 1999) (Preliminary Determination). 2. Diversified Products v. United States, 572 F. Supp 883, (CIT 1983) (Diversified Products). 3. It is not clear to us that such products even fall within the scope of this investigation. This is because the scope language states (in relevant part): "Certain polyester staple fiber is defined as synthetic staple fibers ... of polyesters ..." However, as noted above, sea/island fiber and polyethylene/polyester fiber contain significant amounts of nylon and polyethylene, which are not polyesters.